RR DONNELLEY
Document and Entity Information
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2017
Oct. 27, 2017
Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Sep. 30, 2017 
 
Document Fiscal Year Focus
2017 
 
Document Fiscal Period Focus
Q3 
 
Trading Symbol
RRD 
 
Entity Registrant Name
RR Donnelley & Sons Co 
 
Entity Central Index Key
0000029669 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
70.1 
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Millions, unless otherwise specified
Sep. 30, 2017
Dec. 31, 2016
ASSETS
 
 
Cash and cash equivalents
$ 225.8 
$ 317.5 
Receivables, less allowances for doubtful accounts of $33.0 in 2017 (2016 - $35.9)
1,382.9 
1,331.3 
Inventories (Note 4)
457.1 
386.8 
Prepaid expenses and other current assets
152.8 
136.7 
Investment in LSC and Donnelley Financial (Note 2)
 
328.7 
Total current assets
2,218.6 
2,501.0 
Property, plant and equipment-net (Note 5)
624.6 
650.3 
Goodwill (Note 6)
587.6 
602.0 
Other intangible assets-net (Note 6)
150.5 
171.9 
Deferred income taxes
123.2 
108.9 
Other noncurrent assets
252.2 
234.7 
Total assets
3,956.7 
4,268.8 
LIABILITIES
 
 
Accounts payable
996.5 
985.3 
Accrued liabilities
463.9 
541.7 
Short-term and current portion of long-term debt (Note 15)
17.9 
8.2 
Total current liabilities
1,478.3 
1,535.2 
Long-term debt (Note 15)
2,232.2 
2,379.2 
Pension liabilities
103.2 
119.4 
Other postretirement benefits plan liabilities
130.2 
134.1 
Other noncurrent liabilities
175.8 
193.1 
Total liabilities
4,119.7 
4,361.0 
Commitments and Contingencies (Note 14)
   
   
RRD stockholders' equity
 
 
Preferred stock, $1.00 par value Authorized: 2.0 shares; Issued: None
   
   
Common stock, $0.01 par value Authorized: 165.0 shares; Issued: 89.0 shares in 2017 and 2016
0.9 
0.9 
Additional paid-in-capital
3,450.7 
3,468.5 
Accumulated deficit
(2,160.6)
(2,155.4)
Accumulated other comprehensive loss
(126.5)
(55.7)
Treasury stock, at cost, 19.0 shares in 2017 (2016 - 19.1 shares)
(1,341.4)
(1,364.0)
Total RRD stockholders' equity
(176.9)
(105.7)
Noncontrolling interests
13.9 
13.5 
Total equity
(163.0)
(92.2)
Total liabilities and equity
$ 3,956.7 
$ 4,268.8 
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Sep. 30, 2017
Dec. 31, 2016
Statement Of Financial Position [Abstract]
 
 
Receivables, allowance for doubtful accounts
$ 33.0 
$ 35.9 
Preferred stock, par value
$ 1.00 
$ 1.00 
Preferred stock, authorized
2,000,000 
2,000,000 
Preferred stock, Issued
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, Authorized
165,000,000 
165,000,000 
Common stock, Issued
89,000,000 
89,000,000 
Treasury stock, shares
19,000,000 
19,100,000 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Income Statement [Abstract]
 
 
 
 
Products net sales
$ 1,322.0 
$ 1,327.8 
$ 3,830.9 
$ 3,772.5 
Services net sales
412.9 
397.8 
1,182.9 
1,201.6 
Total net sales
1,734.9 
1,725.6 
5,013.8 
4,974.1 
Products cost of sales (exclusive of depreciation and amortization)
1,064.1 
1,030.7 
3,065.7 
2,958.1 
Services cost of sales (exclusive of depreciation and amortization)
346.4 
330.7 
992.8 
1,002.9 
Total cost of sales
1,410.5 
1,361.4 
4,058.5 
3,961.0 
Products gross profit
257.9 
297.1 
765.2 
814.4 
Services gross profit
66.5 
67.1 
190.1 
198.7 
Total gross profit
324.4 
364.2 
955.3 
1,013.1 
Selling, general and administrative expenses (exclusive of depreciation and amortization)
207.7 
218.1 
643.6 
681.0 
Restructuring, impairment and other charges-net (Note 7)
33.8 
10.8 
46.7 
24.3 
Depreciation and amortization
47.0 
51.0 
143.1 
153.5 
Other operating expense (income)
 
0.3 
 
(12.0)
Income from operations
35.9 
84.0 
121.9 
166.3 
Interest expense-net
43.5 
48.8 
137.3 
150.6 
Investment and other income -net
(2.8)
(1.0)
(47.2)
(0.4)
Loss on debt extinguishments
6.5 
 
20.1 
85.3 
(Loss) earnings before income taxes
(11.3)
36.2 
11.7 
16.1 
Income tax (benefit) expense
(3.5)
13.9 
(7.4)
12.9 
Net (loss) earnings from continuing operations
(7.8)
22.3 
19.1 
3.2 
(Loss) income from discontinued operations, net of tax (Note 2)
 
(29.1)
 
15.8 
Net (loss) earnings
(7.8)
(6.8)
19.1 
19.0 
Less: Income attributable to noncontrolling interests
0.2 
0.3 
0.7 
0.8 
Net (loss) earnings attributable to RRD common stockholders
$ (8.0)
$ (7.1)
$ 18.4 
$ 18.2 
Basic net (loss) earnings per share attributable to RRD common stockholders (Note 11):
 
 
 
 
Continuing operations
$ (0.11)
$ 0.31 
$ 0.26 
$ 0.03 
Discontinued operations
 
$ (0.41)
 
$ 0.23 
Net (loss) earnings attributable to RRD stockholders
$ (0.11)
$ (0.10)
$ 0.26 
$ 0.26 
Diluted net (loss) earnings per share attributable to RRD common stockholders (Note 11):
 
 
 
 
Continuing operations
$ (0.11)
$ 0.31 
$ 0.26 
$ 0.03 
Discontinued operations
 
$ (0.41)
 
$ 0.23 
Net (loss) earnings attributable to RRD
$ (0.11)
$ (0.10)
$ 0.26 
$ 0.26 
Dividends declared per common share
$ 0.14 
$ 0.78 
$ 0.42 
$ 2.34 
Weighted average number of common shares outstanding:
 
 
 
 
Basic
70.2 
70.0 
70.1 
70.0 
Diluted
70.2 
70.5 
70.3 
70.5 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
 
Net (loss) earnings
$ (7.8)
$ (6.8)
$ 19.1 
$ 19.0 
Other comprehensive income (loss), net of tax (Note 12):
 
 
 
 
Translation adjustments
17.7 
(4.4)
46.8 
(9.0)
Adjustment for available-for-sale securities
(1.8)
 
(119.3)
 
Adjustment for net periodic pension and postretirement benefits plan cost
0.7 
(19.4)
2.1 
(13.3)
Other comprehensive income (loss)
16.6 
(23.8)
(70.4)
(22.3)
Comprehensive income (loss)
8.8 
(30.6)
(51.3)
(3.3)
Less: comprehensive income attributable to noncontrolling interests
0.3 
0.3 
1.1 
1.0 
Comprehensive income (loss) attributable to RRD common stockholders
$ 8.5 
$ (30.9)
$ (52.4)
$ (4.3)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
OPERATING ACTIVITIES
 
 
Net earnings
$ 19.1 
$ 19.0 
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
 
 
Impairment charges - net
21.8 
0.8 
Depreciation and amortization
143.1 
312.5 
Provision for doubtful accounts receivable
1.7 
20.4 
Share-based compensation
6.4 
13.4 
Deferred income taxes
(10.1)
(33.5)
Changes in uncertain tax positions
0.7 
(0.4)
Gain on investments and other assets - net
(2.8)
(13.0)
Realized gain on disposition of available-for-sale securities - net
(42.4)
 
Loss on debt extinguishments
20.1 
85.3 
Net pension and other postretirement benefits plan income
(11.0)
(55.1)
Net loss on pension and other postretirement benefits plan settlements and curtailments (Note 8)
 
78.8 
Other
14.7 
9.6 
Changes in operating assets and liabilities - net of dispositions and acquisitions:
 
 
Accounts receivable - net
(26.3)
(122.4)
Inventories
(62.5)
(60.0)
Prepaid expenses and other current assets
(6.3)
(9.2)
Accounts payable
(18.9)
(160.8)
Income taxes payable and receivable
(11.4)
(35.6)
Accrued liabilities and other
(36.1)
(23.4)
Pension and other postretirement benefits plan contributions
(12.4)
(18.6)
Net cash (used in) provided by operating activities
(12.6)
7.8 
INVESTING ACTIVITIES
 
 
Capital expenditures
(77.2)
(147.9)
Acquisitions of businesses, net of cash acquired
 
(47.5)
Disposition of businesses
 
13.7 
Proceeds from sales of investments and other assets
127.6 
3.7 
Transfers (to) from restricted cash
(2.4)
13.7 
Other investing activities
 
(3.6)
Net cash provided by (used in) investing activities
48.0 
(167.9)
FINANCING ACTIVITIES
 
 
Net change in short-term debt
10.2 
5.7 
Payments of current maturities and long-term debt
(200.9)
(786.6)
Proceeds from issuances of long-term debt
 
1,164.0 
Payments on Credit Agreement borrowings
(1,000.0)
 
Proceeds from Credit Agreement borrowings
1,165.0 
 
Proceeds from termination of interest rate swaps
 
2.5 
Debt issuance costs
4.4 
37.5 
Dividends paid
(29.4)
(163.2)
Net transfer of cash and cash equivalents to LSC and Donnelley Financial
(78.0)
 
Other financing activities
(1.6)
2.5 
Net cash (used in) provided by financing activities
(139.1)
187.4 
Effect of exchange rate on cash and cash equivalents
12.0 
(5.1)
Net (decrease) increase in cash and cash equivalents
(91.7)
22.2 
Cash and cash equivalents at beginning of year
317.5 
389.6 
Cash and cash equivalents at end of period
225.8 
411.8 
SUPPLEMENTAL NON-CASH DISCLOSURE:
 
 
Assumption of warehousing equipment related to customer contract
 
8.8 
Debt-for-equity exchange
132.9 
 
Debt-for-debt exchanges, including debt issuance costs of $5.5 million in 2016
 
$ 300.0 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2016
Statement Of Cash Flows [Abstract]
 
Debt-for-debt exchanges, debt issuance costs
$ 5.5 
Basis of Presentation
Basis of Presentation

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 “RRD”) 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, 2016 filed with the SEC on February 28, 2017. Operating results for the nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017. 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.

Spinoff Transactions

On October 1, 2016, the Company completed the separation of its financial communications and data services business (“Donnelley Financial Solutions, Inc.” or “Donnelley Financial”) and the publishing and retail-centric print services and office products business (“LSC Communications, Inc.” or “LSC”) into two separate publicly-traded companies (the "Separation"). The Company completed the tax-free distribution of 80.75% of the outstanding common stock of each Donnelley Financial and LSC to the Company’s stockholders of record on September 23, 2016 who received one share of each Donnelley Financial and LSC for every eight shares of RRD common stock owned as of the record date (the “Distribution”). The Company retained 19.25% of the outstanding common stock of each Donnelley Financial and LSC. The historical financial results of Donnelley Financial and LSC prior to the Separation, are presented as discontinued operations on the Condensed Consolidated Statements of Operations and, as such, have been excluded from both continuing operations and segment results for all periods presented. Sales from RRD to Donnelley Financial and LSC previously eliminated in consolidation have been recast and are now shown as external sales within the financial results of continuing operations. These net sales were $72.5 million and $150.4 million for the three and nine months ended September 30, 2016, respectively. Unless indicated otherwise, the information in the Notes to Condensed Consolidated Financial Statements relates to the Company's continuing operations. Prior periods have been recast to reflect the Company's current segment reporting structure. See Note 2, Discontinued Operations, for more information on the Separation.

Reverse Stock Split

Immediately following the Distribution on October 1, 2016, the Company affected a one-for-three reverse stock split for RRD common stock (the “Reverse Stock Split”). The Reverse Stock Split was approved by the Company’s Board of Directors on September 14, 2016 and previously approved by the Company’s stockholders at the annual meeting on May 19, 2016. As a result of the Reverse Stock Split, the number of issued and outstanding and treasury shares of the Company’s common stock was reduced proportionally based on the Reverse Stock Split ratio of one share for every three shares of common stock held before the Reverse Stock Split.  

Revision of Net Sales and Cost of Sales

During the third quarter of 2017, the Company identified an error in the accounting for certain contracts with an inventory buy-back option within the Asia reporting unit, which is in the International segment. As a result, the error, which was determined by management to be immaterial to the previously issued financial statements, has been corrected herein from the amounts previously reported. There was no impact to net earnings (loss) or net earnings (loss) per share, or the Consolidated Statements of Comprehensive Income or Stockholders’ Equity. The following table presents the impact of the revision on net sales and cost of sales:  

 

As Reported

 

Adjustments

 

As Revised

 

Three months ended March 31, 2016

 

Products net sales

$

1,242.7

 

$

13.1

 

$

1,229.6

 

Total net sales

 

1,645.6

 

 

13.1

 

 

1,632.5

 

Products cost of sales

 

971.9

 

 

13.1

 

 

958.8

 

Total cost of sales

 

1,313.1

 

 

13.1

 

 

1,300.0

 

Three months ended June 30, 2016

 

Products net sales

$

1,231.7

 

$

16.6

 

$

1,215.1

 

Total net sales

 

1,632.6

 

 

16.6

 

 

1,616.0

 

Products cost of sales

 

985.2

 

 

16.6

 

 

968.6

 

Total cost of sales

 

1,316.2

 

 

16.6

 

 

1,299.6

 

Three months ended September 30, 2016

 

Products net sales

$

1,343.4

 

$

15.6

 

$

1,327.8

 

Total net sales

 

1,741.2

 

 

15.6

 

 

1,725.6

 

Products cost of sales

 

1,046.3

 

 

15.6

 

 

1,030.7

 

Total cost of sales

 

1,377.0

 

 

15.6

 

 

1,361.4

 

Three months ended December 31, 2016

 

Products net sales

$

1,470.3

 

$

17.4

 

$

1,452.9

 

Total net sales

 

1,876.3

 

 

17.4

 

 

1,858.9

 

Products cost of sales

 

1,161.0

 

 

17.4

 

 

1,143.6

 

Total cost of sales

 

1,512.6

 

 

17.4

 

 

1,495.2

 

Three months ended March 31, 2017

 

Products net sales

$

1,288.9

 

$

17.4

 

$

1,271.5

 

Total net sales

 

1,676.3

 

 

17.4

 

 

1,658.9

 

Products cost of sales

 

1,024.3

 

 

17.4

 

 

1,006.9

 

Total cost of sales

 

1,348.5

 

 

17.4

 

 

1,331.1

 

Three months ended June 30, 2017

 

Products net sales

$

1,263.4

 

$

26.0

 

$

1,237.4

 

Total net sales

 

1,646.0

 

 

26.0

 

 

1,620.0

 

Products cost of sales

 

1,020.7

 

 

26.0

 

 

994.7

 

Total cost of sales

 

1,342.9

 

 

26.0

 

 

1,316.9

 

The following table presents the impact of the related balance sheet revision on the December 31, 2016 Condensed Consolidated Balance Sheet:

 

As Reported

 

Adjustments

 

As Revised

 

Receivables, less allowance for doubtful accounts

$

1,354.4

 

$

(23.1

)

$

1,331.3

 

Inventories

 

379.6

 

 

7.2

 

 

386.8

 

Accounts payable

 

1,001.2

 

 

(15.9

)

 

985.3

 

The September 30, 2016 Consolidated Statement of Cash Flows has also been revised to reflect the impact of the above balance sheet revision.

Discontinued Operations
Discontinued Operations

2. Discontinued Operations

Immediately following the Distribution, the Company held approximately 6.2 million shares of Donnelley Financial common stock and approximately 6.2 million shares of LSC common stock. The Company accounted for these investments as available-for-sale equity securities. In March 2017, the Company sold the 6.2 million shares of LSC common stock it retained upon spinoff for net proceeds of $121.4 million, resulting in a realized loss of $51.6 million, which was recorded within investment and other income-net in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2017. In June 2017, the Company completed a non-cash debt-for-equity exchange in which RRD exchanged 6,143,208 of its retained shares of Donnelley Financial common stock for the extinguishment of $111.6 million in aggregate principal amount of RRD indebtedness. In August 2017, the Company disposed of its remaining 99,594 shares of Donnelley Financial common stock in exchange for the extinguishment of $1.9 million in aggregate principal amount of RRD indebtedness.  See Note 15, Debt, for additional details of these debt-for-equity transactions. As of September 30, 2017, the Company no longer held any shares of LSC or Donnelley Financial.  

 

The following details the financial results of discontinued operations:

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 2016

 

September 30, 2016

 

 

Net sales

$

1,122.6

 

$

3,303.4

 

 

Cost of sales

 

879.1

 

 

2,534.7

 

 

Operating expenses (a)

 

170.0

 

 

592.0

 

 

Interest and other expense net (b)

 

104.0

 

 

139.5

 

 

(Loss) earnings before income taxes

 

(30.5

)

 

37.2

 

 

Income tax (benefit) expense

 

(1.4

)

 

21.4

 

 

Net (loss) earnings from discontinued operations

$

(29.1

)

$

15.8

 

 

 

(a)

Includes spinoff transaction costs incurred of $27.0 million and $57.3 million during the three and nine month periods ended September 30, 2016, respectively.  

 

(b)

Includes the related interest expense of the corporate level debt which was retired in connection with the Separation totaling $17.8 million and $53.6 million for the three and nine months ended September 30, 2016, respectively. Also includes the losses on the extinguishment of corporate level debt executed in conjunction with the spinoff transactions totaling $85.3 million, for the three and nine months ended September 30, 2016.  

  

The significant non-cash items and capital expenditures of discontinued operations were as follows:

 

Nine Months Ended

 

 

September 30, 2016

 

Depreciation and amortization

$

159.0

 

Pension settlement charges

 

77.7

 

Impairment charges

 

1.5

 

Loss on debt extinguishments

 

85.3

 

Assumption of warehousing equipment related to customer contract

 

8.8

 

Purchase of property, plant and equipment

 

49.0

 

 

In connection with the Separation, the Company entered into transition services agreements with Donnelley Financial and LSC under which the companies will provide one another with certain services to help ensure an orderly transition following the Separation (the “Transition Services Agreements”). The charges for these services are intended to allow the companies, as applicable, to recover the direct and indirect costs incurred in providing such services. The Transition Services Agreements generally provide for a term of services starting at the Separation date and continuing for a period of up to twenty-four months following the Separation. During the three and nine months ended September 30, 2017, the Company recognized $1.4 million and $6.4 million, respectively, as a reduction of costs within selling, general and administrative expenses within the Condensed Consolidated Statements of Operations from the Transition Services Agreement.

 

The Company also entered into various commercial agreements which govern sales transactions between the companies. Under these commercial agreements, the Company recognized the following transactions with LSC and Donnelley Financial during the three and nine months ended September 30, 2017:

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 2017

 

September 30, 2017

 

Net sales to LSC and Donnelley Financial

$

67.2

 

$

236.3

 

Purchases from LSC and Donnelley Financial

 

36.2

 

 

105.2

 

The Company also recognized $83.0 million of net cash inflow from Donnelley Financial and LSC within operating activities in the Condensed Consolidated Statements of Cash Flows during the nine months ended September 30, 2017.

Acquisitions and Dispositions
Acquisitions and Dispositions

3. Acquisitions and Dispositions

2016 Acquisition

On August 4, 2016, the Company acquired Precision Dialogue Holdings, LLC (“Precision Dialogue”), a provider of email marketing, direct mail marketing and other services with operations in the United States for a purchase price, net of cash acquired, of approximately $59.2 million. The acquisition expanded the Company’s ability to help its customers measure communications effectiveness and audience engagement. During the three and nine months ended September 30, 2017, Precision Dialogue contributed $17.0 million and $44.5 million, respectively, in net sales and earnings before income taxes of $2.9 million and $4.4 million, respectively. During both the three and nine months ended September 30, 2016, Precision Dialogue contributed $8.4 million in net sales and earnings before income taxes of $0.6 million. Precision Dialogue is included within the operating results of the Variable Print and Strategic Services segments.

 2016 Dispositions

On January 11, 2016, the Company sold two entities within the business process outsourcing reporting unit for net proceeds of $13.4 million. This resulted in a net gain of $12.3 million during the nine months ended September 30, 2016, which was recorded in other operating income in the Condensed Consolidated Statements of Operations. Additionally, in the third quarter of 2016, the Company sold three immaterial entities in the International segment, which resulted in a net loss of $0.3 million during the three and nine months ended September 30, 2016.

Inventories
Inventories

4. Inventories

The components of the Company’s inventories, net of excess and obsolescence reserves for raw materials and finished goods, at September 30, 2017 and December 31, 2016 were as follows:

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Raw materials and manufacturing supplies

 

$

168.6

 

 

$

141.0

 

Work in process

 

 

114.7

 

 

 

84.4

 

Finished goods

 

 

190.1

 

 

 

179.4

 

LIFO reserve

 

 

(16.3

)

 

 

(18.0

)

Total

 

$

457.1

 

 

$

386.8

 

 

  

Property, Plant and Equipment
Property, Plant and Equipment

5. Property, Plant and Equipment

The components of the Company’s property, plant and equipment at September 30, 2017 and December 31, 2016 were as follows:

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Land

 

$

56.1

 

 

$

56.0

 

Buildings

 

 

415.0

 

 

 

403.0

 

Machinery and equipment

 

 

1,869.2

 

 

 

1,805.4

 

 

 

 

2,340.3

 

 

 

2,264.4

 

Less: Accumulated depreciation

 

 

(1,715.7

)

 

 

(1,614.1

)

Total

 

$

624.6

 

 

$

650.3

 

 

During the three and nine months ended September 30, 2017, depreciation expense was $34.6 million and $105.2 million, respectively.  During the three and nine months ended September 30, 2016, depreciation expense was $37.6 million and $116.2 million, respectively.  

Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets

6. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill for the nine months ended September 30, 2017 were as follows:  

 

 

Variable

 

 

Strategic

 

 

 

 

 

 

 

 

 

 

 

Print

 

 

Services

 

 

International

 

 

Total

 

Net book value as of December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

1,823.0

 

 

$

365.2

 

 

$

1,017.9

 

 

$

3,206.1

 

Accumulated impairment losses

 

 

(1,550.5

)

 

 

(148.7

)

 

 

(904.9

)

 

 

(2,604.1

)

Total

 

 

272.5

 

 

 

216.5

 

 

 

113.0

 

 

 

602.0

 

Foreign exchange and other adjustments

 

 

 

 

 

 

 

 

6.9

 

 

 

6.9

 

Impairment charges

 

 

 

 

 

(21.3

)

 

 

 

 

 

(21.3

)

Net book value as of September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

1,824.1

 

 

 

365.2

 

 

 

1,090.3

 

 

 

3,279.6

 

Accumulated impairment losses

 

 

(1,551.6

)

 

 

(170.0

)

 

 

(970.4

)

 

 

(2,692.0

)

Total

 

$

272.5

 

 

$

195.2

 

 

$

119.9

 

 

$

587.6

 

During the third quarter of 2017, the Company recorded non-cash charges of $21.3 million to reflect the impairment of goodwill in the Strategic Services segment. See Note 7, Restructuring, Impairment and Other Charges, for further information.

The components of other intangible assets at September 30, 2017 and December 31, 2016 were as follows:

 

 

September 30, 2017

 

 

December 31, 2016

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

 

Carrying

 

 

Accumulated

 

 

Net Book

 

 

Carrying

 

 

Accumulated

 

 

Net Book

 

 

 

Amount

 

 

Amortization

 

 

Value

 

 

Amount

 

 

Amortization

 

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

532.9

 

 

$

(404.8

)

 

$

128.1

 

 

$

517.9

 

 

$

(370.7

)

 

$

147.2

 

Patents

 

 

2.0

 

 

 

(2.0

)

 

 

 

 

 

2.0

 

 

 

(2.0

)

 

 

 

Trademarks, licenses and agreements

 

 

26.2

 

 

 

(24.9

)

 

 

1.3

 

 

 

26.2

 

 

 

(24.4

)

 

 

1.8

 

Trade names

 

 

36.8

 

 

 

(15.7

)

 

 

21.1

 

 

 

36.8

 

 

 

(13.9

)

 

 

22.9

 

Total other intangible assets

 

$

597.9

 

 

$

(447.4

)

 

$

150.5

 

 

$

582.9

 

 

$

(411.0

)

 

$

171.9

 

Amortization expense for other intangible assets was $7.1 million and $21.6 million for the three and nine months ended September 30, 2017, respectively. Amortization expense for other intangible assets was $8.0 million and $25.7 million for the three and nine months ended September 30, 2016, respectively.

Restructuring, Impairment and Other Charges
Restructuring, Impairment and Other Charges

7. Restructuring, Impairment and Other Charges

Restructuring, Impairment and Other Charges Recognized in Results of Operations

For the three months ended September 30, 2017 and 2016, the Company recorded the following net restructuring, impairment and other charges:  

Three Months Ended

 

Employee

 

 

Other

Restructuring

 

 

Total

Restructuring

 

 

 

 

 

 

Other

 

 

 

 

 

September 30, 2017

 

Terminations

 

 

Charges

 

 

Charges

 

 

Impairment

 

 

Charges

 

 

Total

 

Variable Print

 

$

3.0

 

 

$

0.6

 

 

$

3.6

 

 

$

0.2

 

 

$

0.4

 

 

$

4.2

 

Strategic Services

 

 

0.7

 

 

 

 

 

 

0.7

 

 

 

21.3

 

 

 

0.1

 

 

 

22.1

 

International

 

 

1.9

 

 

 

0.3

 

 

 

2.2

 

 

 

 

 

 

 

 

 

2.2

 

Corporate

 

 

5.1

 

 

 

0.2

 

 

 

5.3

 

 

 

 

 

 

 

 

 

5.3

 

Total

 

$

10.7

 

 

$

1.1

 

 

$

11.8

 

 

$

21.5

 

 

$

0.5

 

 

$

33.8

 

 

Three Months Ended

 

Employee

 

 

Other

Restructuring

 

 

Total

Restructuring

 

 

 

 

 

 

Other

 

 

 

 

 

September 30, 2016

 

Terminations

 

 

Charges

 

 

Charges

 

 

Impairment

 

 

Charges

 

 

Total

 

Variable Print

 

$

1.1

 

 

$

0.3

 

 

$

1.4

 

 

$

 

 

$

0.5

 

 

$

1.9

 

Strategic Services

 

 

1.2

 

 

 

 

 

 

1.2

 

 

 

 

 

 

0.1

 

 

 

1.3

 

International

 

 

0.9

 

 

 

0.2

 

 

 

1.1

 

 

 

 

 

 

 

 

 

1.1

 

Corporate

 

 

6.5

 

 

 

0.1

 

 

 

6.6

 

 

 

(0.1

)

 

 

 

 

 

6.5

 

Total

 

$

9.7

 

 

$

0.6

 

 

$

10.3

 

 

$

(0.1

)

 

$

0.6

 

 

$

10.8

 

For the nine months ended September 30, 2017 and 2016, the Company recorded the following net restructuring, impairment and other charges:

Nine Months Ended

 

Employee

 

 

Other

Restructuring

 

 

Total

Restructuring

 

 

 

 

 

 

Other

 

 

 

 

 

September 30, 2017

 

Terminations

 

 

Charges

 

 

Charges

 

 

Impairment

 

 

Charges

 

 

Total

 

Variable Print

 

$

4.0

 

 

$

0.9

 

 

$

4.9

 

 

$

(0.1

)

 

$

1.4

 

 

$

6.2

 

Strategic Services

 

 

1.8

 

 

 

0.3

 

 

 

2.1

 

 

 

21.8

 

 

 

0.3

 

 

 

24.2

 

International

 

 

6.4

 

 

 

2.2

 

 

 

8.6

 

 

 

 

 

 

 

 

 

8.6

 

Corporate

 

 

7.3

 

 

 

0.4

 

 

 

7.7

 

 

 

 

 

 

 

 

 

7.7

 

Total

 

$

19.5

 

 

$

3.8

 

 

$

23.3

 

 

$

21.7

 

 

$

1.7

 

 

$

46.7

 

 

Nine Months Ended

 

Employee

 

 

Other

Restructuring

 

 

Total

Restructuring

 

 

 

 

 

 

Other

 

 

 

 

 

September 30, 2016

 

Terminations

 

 

Charges

 

 

Charges

 

 

Impairment

 

 

Charges

 

 

Total

 

Variable Print

 

$

1.5

 

 

$

1.5

 

 

$

3.0

 

 

$

0.3

 

 

$

1.4

 

 

$

4.7

 

Strategic Services

 

 

1.7

 

 

 

 

 

 

1.7

 

 

 

 

 

 

0.3

 

 

 

2.0

 

International

 

 

7.4

 

 

 

1.3

 

 

 

8.7

 

 

 

(2.5

)

 

 

 

 

 

6.2

 

Corporate

 

 

10.1

 

 

 

0.1

 

 

 

10.2

 

 

 

1.2

 

 

 

 

 

 

11.4

 

Total

 

$

20.7

 

 

$

2.9

 

 

$

23.6

 

 

$

(1.0

)

 

$

1.7

 

 

$

24.3

 

Restructuring and Impairment Charges

For the three and nine months ended September 30, 2017, the Company recorded net restructuring charges of $10.7 million and $19.5 million, respectively, for employee termination costs. These charges primarily relate to the reorganization of selling, general and administrative functions primarily within the Corporate, International and Variable Print segments, the termination of the Company’s relationship in a joint venture within the International segment and a facility closure in the Strategic Services segment. For the three and nine months ended September 30, 2017, the Company recorded net impairment charges of $21.5 million and $21.7 million, respectively, primarily related to the $21.3 million impairment of the goodwill for the digital and creative solutions (“DCS”) reporting unit, which is included within the Strategic Services segment. The goodwill impairment charge in the DCS reporting unit was due to the notification from a major customer that they will be transitioning their business away from DCS beginning in the fourth quarter of 2017 as well as declines in sales with other existing customers which resulted in lower expectations of future revenues, profitability and cash flows compared to expectations as of the October 31, 2016 annual goodwill impairment test. As of September 30, 2017, the DCS reporting unit had no remaining goodwill. The goodwill impairment charges were determined using Level 3 inputs, including comparable marketplace fair value data and a discounted cash flow analysis. The remaining impairment charges recorded for the three and nine months ended September 30, 2017, were primarily due to the impairment of equipment associated with the facility closure in the Strategic Services segment. Additionally, the Company incurred lease termination and other restructuring charges of $1.1 million and $3.8 million, respectively, for the three and nine months ended September 30, 2017.

For the three and nine months ended September 30, 2016, the Company recorded net restructuring charges of $9.7 million and $20.7 million, respectively, for employee termination costs. These charges primarily related to two facility closures in the International segment and the reorganization of certain administrative functions and operations. Additionally, the Company incurred lease termination and other restructuring charges of $0.6 million and $2.9 million for the three and nine months ended September 30, 2016, respectively. For the three and nine months ended September 30, 2016, the Company recognized $0.1 million and $1.0 million, respectively, of net gains on the sale of previously impaired assets, partially offset by impairment charges related to buildings and machinery and equipment associated with facility closures.

Other Charges

For the three and nine months ended September 30, 2017 and 2016, the Company recorded other charges of $0.5 million and $1.7 million and $0.6 million and $1.7 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 multi-employer pension plans included in accrued liabilities and other noncurrent liabilities are $5.1 million and $32.4 million, respectively, as of September 30, 2017

The Company’s multi-employer pension plan 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.

 Restructuring Reserve

The restructuring reserve as of December 31, 2016 and September 30, 2017, and changes during the nine months ended September 30, 2017, were as follows:

 

 

 

 

 

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

Restructuring

 

 

Exchange and

 

 

Cash

 

 

September 30,

 

 

 

2016

 

 

Charges

 

 

Other

 

 

Paid

 

 

2017

 

Employee terminations

 

$

7.6

 

 

$

19.5

 

 

$

 

 

$

(13.5

)

 

$

13.6

 

Multi-employer pension withdrawal obligations

 

 

11.8

 

 

 

0.6

 

 

 

(0.1

)

 

 

(1.1

)

 

 

11.2

 

Lease terminations and other

 

 

1.6

 

 

 

3.2

 

 

 

1.2

 

 

 

(2.8

)

 

 

3.2

 

Total

 

$

21.0

 

 

$

23.3

 

 

$

1.1

 

 

$

(17.4

)

 

$

28.0

 

 

The current portion of restructuring reserves of $14.4 million at September 30, 2017 was included in accrued liabilities, while the long-term portion of $13.6 million, primarily related to multi-employer pension plan withdrawal obligations related to facility closures, was included in other noncurrent liabilities at September 30, 2017.

The Company anticipates that payments associated with the employee terminations reflected in the above table will be substantially completed by September 2018.

Payments on all of the Company’s multi-employer pension plan withdrawal obligations are scheduled to be completed by 2036. Changes based on uncertainties in these estimated withdrawal obligations could affect the ultimate charges related to multi-employer pension plan withdrawals.

The restructuring liabilities classified as “lease terminations and other” consisted of lease terminations, other facility closing costs and contract termination costs. Payments on certain of the lease obligations are scheduled to continue until 2020. Market conditions and the Company’s ability to sublease these properties could affect the ultimate charges related to the lease obligations. Any potential recoveries or additional charges could affect amounts reported in the Company’s financial statements.

 

Employee Benefits
Employee Benefits

8. Employee Benefits

The components of the estimated net pension and other postretirement benefits plan income for the three and nine months ended September 30, 2017 and 2016 were as follows:

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Pension (income) expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

$

0.1

 

 

$

0.3

 

 

$

0.5

 

 

$

0.8

 

Interest cost

 

8.0

 

 

 

37.9

 

 

 

23.7

 

 

 

105.3

 

Expected return on plan assets

 

(12.7

)

 

 

(58.2

)

 

 

(37.6

)

 

 

(171.2

)

Amortization, net

 

1.9

 

 

 

7.6

 

 

 

5.4

 

 

 

23.4

 

Settlements and curtailments

 

 

 

 

1.6

 

 

 

 

 

 

98.0

 

Less: income (expense) attributable to discontinued operations

 

 

 

 

10.2

 

 

 

 

 

 

(43.3

)

Net pension (income) expense - continuing operations

$

(2.7

)

 

$

(0.6

)

 

$

(8.0

)

 

$

13.0

 

Other postretirement benefits plan income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

$

0.4

 

 

$

1.0

 

 

$

1.0

 

 

$

3.0

 

Interest cost

 

2.7

 

 

 

3.1

 

 

 

8.3

 

 

 

9.2

 

Expected return on plan assets

 

(3.4

)

 

 

(3.4

)

 

 

(10.1

)

 

 

(10.2

)

Amortization, net

 

(0.7

)

 

 

(4.0

)

 

 

(2.2

)

 

 

(12.0

)

Curtailments

 

 

 

 

(19.7

)

 

 

 

 

 

(19.7

)

Net other postretirement benefit income - continuing operations

$

(1.0

)

 

$

(23.0

)

 

$

(3.0

)

 

$

(29.7

)

 

The Company expects to make cash contributions of approximately $17.0 million to its pension and other postretirement benefit plans in 2017. During the nine months ended September 30, 2017, the Company contributed $12.4 million to its benefit plans.

In the fourth quarter of 2015, the Company communicated to certain former employees the option to receive a lump-sum pension payment or annuity with payments computed in accordance with statutory requirements, beginning in the second quarter of 2016.  Payments to eligible participants who elected to receive a lump-sum pension payment or annuity were funded from existing pension plan assets and liabilities were remeasured as of the payout date. The discount rates and actuarial assumptions used to calculate the payouts were determined in accordance with federal regulations. The company recorded total non-cash settlement charges of $1.6 million and $98.0 million, of which $0.3 million and $20.7 million is included within selling, general and administrative expenses and $1.3 million and $77.3 million is included within income from discontinued operations, net of tax in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2016, respectively. These charges resulted from the recognition in earnings of a portion of the actuarial losses recorded in accumulated other comprehensive loss based on the proportion of the obligation settled.  

During the third quarter of 2016, the Company announced the discontinuation of retiree medical, prescription drug and life insurance benefits for individuals retiring on or after October 1, 2016.  This change was accounted for as a significant plan amendment and the other postemployment benefit plan obligation