RRD Reports $849M Loss; to Offer Senior Notes

CHICAGO—RR Donnelley reported a 2012 fourth-quarter net loss attributable to common shareholders of $849 million, or $4.70 per diluted share, on net sales of $2.7 billion compared to a net loss of $326.7 million, or $1.78 per diluted share, on net sales of $2.7 billion in the fourth quarter of 2011. The fourth-quarter net loss attributable to common shareholders included pre-tax net charges, primarily related to non-cash impairment, totaling $1.0 billion in 2012 and $483.9 million in 2011. The non-cash impairment charges followed its annual impairment test of indefinite-lived assets.

The company believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP (Generally Accepted Accounting Principles) measures, are useful because that information is an appropriate measure for evaluating the company's operating performance. Internally, the company uses this non-GAAP information as an indicator of business performance, and evaluates management's effectiveness with specific reference to these indicators. These measures should be considered in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

Non-GAAP net earnings attributable to common shareholders totaled $78.1 million, or $0.43 per diluted share, in the fourth quarter of 2012 compared to $85.2 million, or $0.46 per diluted share, in the fourth quarter of 2011. Fourth-quarter non-GAAP net earnings attributable to common shareholders exclude impairment and restructuring charges, gains on pension curtailment, losses on debt extinguishment, acquisition-related expenses and certain income tax adjustments in both years, as well as contingent compensation on a prior acquisition in the fourth quarter of 2011. For non-GAAP comparison purposes, the effective tax rate increased to 33.0 percent in the fourth quarter of 2012 from 18.8 percent in the fourth quarter of 2011, primarily due to certain state tax matters in the fourth quarter of 2011. A reconciliation of GAAP net earnings attributable to common shareholders to non-GAAP net earnings attributable to common shareholders is presented in the attached schedules.

"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 Quinlan, 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."

The company also announced that it plans to offer $350 million of senior notes due 2021 in an underwritten public offering.

RR Donnelley intends to use the net proceeds from this offering, along with borrowings under its revolving credit facility, (1) to fund tender offers for up to $400 million aggregate principal amount of the company's 6.125 percent Notes due 2017, 8.600 percent Notes due 2016 and 7.25 percent Notes due 2018 based on prices to be determined and (2) to pay premiums in connection with those tender offers. If there are any remaining proceeds from the notes, RR Donnelley intends to use those proceeds to repay borrowings under its revolving credit facility and for general corporate purposes.

Amounts repaid under its revolving credit facility may be reborrowed for general corporate purposes, including the repayment or redemption of other indebtedness. RR Donnelley expects to announce that it is commencing these tender offers in a separate press release issued upon commencing the tender offers. The completion of each tender offer will be subject to customary closing conditions.