RR Donnelley Reports Q4 Net Loss and Full-Year Results

“Following the challenging conditions we have faced for the last several quarters, we are pleased with the improvement in revenue and margin trends we achieved in the fourth quarter,” said Thomas J. Quinlan III, RR Donnelley’s president and CEO. “Full-year results for revenue, non-GAAP operating margin and free cash flow were at or above the high end of our guidance. Further, we reduced our total debt by more than $220 million during 2012, ending the year with gross leverage of 2.8x.”

Quinlan continued, “We are also encouraged by the results we’ve seen in 2013 thus far, and expect another year of strong free cash flow, in the range of $400 million to $500 million. We expect to continue to reduce our leverage, and are revising our targeted gross leverage on a long-term sustainable basis to be in the range of 2.25x to 2.75x, down from the previous range of 2.5x to 3.0x.”

Business Review
The company reports its results in two reportable segments: 1) U.S. Print and Related Services and 2) International. The company reports as Corporate its unallocated expenses associated with general and administrative activities.

Net sales in the quarter were $2.7 billion, down $61.2 million, or 2.2 percent, from the fourth quarter of 2011 due to volume declines, price erosion and a 50 basis point unfavorable impact of lower pass-through paper sales. Gross margin of 22.0 percent in the fourth quarter of 2012 declined from 22.9 percent in the fourth quarter of 2011 as a smaller gain on pension curtailment in 2012 ($28.9 million less than in 2011), pricing pressure and unfavorable pricing on by-products more than offset a favorable product mix and productivity improvements. SG&A expense as a percent of net sales in the fourth quarter of 2012 improved to 10.9 percent from 11.1 percent in the fourth quarter of 2011, primarily due to contingent compensation on a prior acquisition incurred in the fourth quarter of 2011. The operating loss in the fourth quarter of 2012 of $841.8 million, which was impacted by impairment and restructuring charges, the pension curtailment gain and acquisition-related expenses totaling $1.0 billion, compared to an operating loss in the fourth quarter of 2011 of $317.1 million, which included impairment and restructuring charges, a pension curtailment gain, the contingent compensation and acquisition-related expenses totaling $483.9 million.

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