<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994
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 (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
77 WEST WACKER DRIVE, CHICAGO, ILLINOIS
(ADDRESS OF PRINCIPAL EXECUTIVE 60601
OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER (312) 326-8000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 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 the
filing requirements for the past 90 days.
X
Yes-------- No --------
NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING
AS OF APRIL 30, 1994 154,512,788
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<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
INDEX NUMBER(S)
----- ---------
<S> <C>
Condensed Consolidated Statement of Income (Unaudited) for the
three months ended March 31, 1994 and 1993.................... 3
Condensed Consolidated Balance Sheet (Unaudited) as of March
31, 1994 and December 31, 1993................................ 4-5
Condensed Consolidated Statement of Cash Flows (Unaudited) for
the three months ended March 31, 1994 and 1993................ 6
Notes to Condensed Consolidated Financial Statements (Unau-
dited)........................................................ 7
</TABLE>
2
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
----------------
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Net sales............................................. $ 1,070,877 $ 960,341
Cost of sales......................................... 877,024 785,506
----------- -----------
Gross profit........................................ 193,853 174,835
Selling and administrative expenses................... 115,150 103,854
Restructuring charge.................................. -- 90,000
----------- -----------
Earnings (loss) from operations..................... 78,703 (19,019)
----------- -----------
Other expense--net....................................
Interest expense.................................... 11,728 11,210
Miscellaneous expense............................... 4,040 2,524
----------- -----------
Total............................................... 15,768 13,734
----------- -----------
Earnings (loss) before income taxes and cumulative
effect of accounting changes......................... 62,935 (32,753)
Provision for (benefit of) income taxes............... 20,139 (10,645)
----------- -----------
Net income (loss) from operations before cumulative
effect of accounting changes......................... 42,796 (22,108)
Cumulative effect of change in accounting for
postretirement benefits other than pensions (net of
$80.1 million in tax benefits)....................... -- (127,700)
Cumulative effect of change in accounting for income
taxes................................................ -- 58,200
----------- -----------
Net income (loss)..................................... $ 42,796 $ (91,608)
=========== ===========
Income (charge) per share.............................
Operations before cumulative effect of accounting
changes............................................ $ 0.28 $ (0.14)
Cumulative effect of change in accounting for
postretirement benefits other than pensions (net of
tax benefits)...................................... -- (0.82)
Cumulative effect of change in accounting for income
taxes.............................................. -- 0.37
----------- -----------
Net income (loss) based on average number of shares
outstanding for the quarter........................ $ 0.28 $ (0.59)
=========== ===========
Cash dividends...................................... $ 0.14 $ 0.13
=========== ===========
Average number of shares outstanding for the quarter.. 154,275,000 154,884,000
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
----------------
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF MARCH 31, 1994 AND DECEMBER 31, 1993
(THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Current Assets
Cash and equivalents............................... $ 21,570 $ 10,716
Receivables, less allowance for doubtful accounts
of $13,978 and $14,795 at March 31, 1994 and
December 31, 1993, respectively................... 794,450 825,207
Inventories, principally at LIFO cost.............. 276,843 243,714
Prepaid expenses................................... 46,899 30,277
----------- -----------
Total Current Assets............................. 1,139,762 1,109,914
----------- -----------
Property, plant and equipment, at cost............... 3,470,231 3,361,255
Accumulated depreciation............................. (1,746,100) (1,686,779)
----------- -----------
Total Property, Plant and Equipment--net......... 1,724,131 1,674,476
----------- -----------
Other Assets
Goodwill--net...................................... 490,732 493,672
Other.............................................. 408,124 375,964
----------- -----------
Total Other Assets............................... 898,856 869,636
----------- -----------
Total Assets..................................... $ 3,762,749 $ 3,654,026
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
------------
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF MARCH 31, 1994 AND DECEMBER 31, 1993
(THOUSANDS OF DOLLARS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Current Liabilities
Accounts payable..................................... $ 312,680 $ 333,862
Accrued compensation................................. 57,571 78,284
Short-term debt...................................... 37,400 37,428
Current and deferred income taxes.................... 50,477 40,698
Other accrued liabilities............................ 200,114 195,169
---------- ----------
Total Current Liabilities.......................... 658,242 685,441
---------- ----------
Long-term debt......................................... 770,555 673,422
---------- ----------
Deferred income taxes.................................. 268,587 272,959
---------- ----------
Other noncurrent liabilities........................... 187,805 178,213
---------- ----------
Shareholders' Equity
Common stock, at stated value........................ 330,612 330,612
Retained earnings, including cumulative translation
adjustments
of ($10,353) and ($13,140) at March 31, 1994 and
December 31, 1993, respectively..................... 1,657,052 1,629,673
Reacquired common stock, at cost..................... (110,104) (116,294)
---------- ----------
Total Shareholders' Equity......................... 1,877,560 1,843,991
---------- ----------
Total Liabilities and Shareholders' Equity......... $3,762,749 $3,654,026
========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Cash Flows Provided by (Used in) Operating Activities:
Net income (loss) from operations before cumulative
effect of accounting changes............................ $ 42,796 $(22,108)
Depreciation and amortization............................ 76,124 66,571
Net change in assets and liabilities..................... (70,370) (41,574)
Other.................................................... 1,951 156
-------- --------
Net cash provided by operating activities.................. 50,501 3,045
-------- --------
Cash Flows Used for Investing Activities:
Capital expenditures..................................... (113,922) (59,386)
Acquisitions and other capital investments............... (13,112) (10,912)
-------- --------
Net cash used for investing activities..................... (127,034) (70,298)
-------- --------
Cash Flows From (Used for) Financing Activities:
Net increase in borrowings............................... 96,976 105,030
Disposition of reacquired common stock................... 16,270 11,674
Acquisition of common stock.............................. (6,696) (21,902)
Cash dividends on common stock........................... (21,588) (20,138)
-------- --------
Net cash from financing activities......................... 84,962 74,664
-------- --------
Net effect of foreign currency transactions................ 2,425 (2,995)
-------- --------
Net increase in cash and equivalents....................... 10,854 4,416
-------- --------
Cash and equivalents at beginning of period................ 10,716 12,348
-------- --------
Cash and equivalents at end of period...................... $ 21,570 $ 16,764
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. The condensed consolidated financial statements included herein are
unaudited (although the balance sheet at December 31, 1993 is condensed from
the audited balance sheet at that date) and have been prepared by the company
to conform with the requirements applicable to this quarterly report on Form
10-Q. Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been omitted as permitted by such requirements. However, the
company believes that the disclosures made are adequate to make the information
presented not misleading. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
the related notes included in the company's 1993 annual report on Form 10-K.
The condensed consolidated financial statements included herein reflect, in
the opinion of the company, all adjustments (which include only normal,
recurring adjustments) necessary to present fairly the financial information
for such periods.
Note 2. Because the inventory determination under the LIFO method can only be
made at year-end based on the current inventory levels and costs, interim LIFO
determinations, including that at March 31, 1994, must necessarily be based on
management's estimates of expected year-end inventory levels and costs. Since
future estimates of inventory levels and costs are subject to many forces
beyond the control of management, interim financial results are subject to
final year-end LIFO inventory amounts. Components of total net inventories at
March 31, 1994 and December 31, 1993 were as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF
DOLLARS)
----------------------
MARCH DECEMBER 31,
31, 1994 1993
-------- ------------
<S> <C> <C>
Raw materials........................................... $132,828 $142,739
Work in process......................................... 186,630 154,477
Other, including goods held for customers and operating
supplies............................................... 33,418 32,192
LIFO reserve............................................ (46,646) (45,395)
Progress billings....................................... (29,387) (40,299)
-------- --------
Total Net Inventories............................... $276,843 $243,714
======== ========
Note 3. The following provides supplemental cash flow information:
<CAPTION>
(THOUSANDS OF
DOLLARS)
----------------------
THREE MONTHS ENDED
MARCH 31
----------------------
1994 1993
-------- ------------
<S> <C> <C>
Interest paid, net of capitalized interest.............. $ 5,731 $ 1,528
Income taxes paid....................................... $ 10,424 $ 10,183
</TABLE>
Note 4. At March 31, 1994, the company continues to have two existing, unused
revolving credit facilities totaling $550 million with a number of banks. These
credit facilities provide support for the issuance of commercial paper and
other credit needs. As of March 31, 1994, the company continues to have
effective shelf registration statements permitting it to issue from time to
time up to $500 million of debt securities.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CHANGES IN FINANCIAL POSITION
With the growth in cash flow and the credit facilities and shelf registration
discussed below, management believes the company has the financial flexibility
to fund current operations and growth. Excluding the restructuring charge taken
in the first quarter of 1993, net income from operations before cumulative
effect of accounting changes plus depreciation and amortization was $119
million, compared to $105 million in 1993. Cash flow from operations was used
primarily to fund capital investments and pay dividends.
Working capital increased by $57 million from December 31, 1993, due to
increased inventories that resulted from recent acquisitions, as well as
increased quantities to support 1994 revenue growth, and reduced payables and
accrued compensation reflecting the payment of year-end balances.
During the first quarter of 1994, capital investments totaled $127 million.
Full-year capital investment is estimated to be $450 million, reflecting
continued investment to expand and upgrade operations, including new equipment
to meet the growing needs of present and new customers; expansion of
manufacturing facilities; and joint venture investments.
At March 31, 1994, the company continues to have two unused revolving credit
facilities totaling $550 million with a number of banks. These credit
facilities provide support for the issuance of commercial paper and other
credit needs. As of March 31, 1994, the company continues to have effective
shelf registration statements permitting it to issue from time to time up to
$500 million in debt securities.
CHANGES IN RESULTS OF OPERATIONS--COMPARISON OF FIRST QUARTER 1994 TO FIRST
QUARTER 1993
Net sales increased 11.5% above the prior year reflecting increased volume of
services provided to customers through the company's global expansion into new
markets and recent acquisitions. Strong demand for global software services,
book publishing services and financial printing services continued in 1994
combined with volume increases in new products (free-standing inserts,
specialty products and special interest magazines). Catalog and newspaper
insert production levels improved in spite of lower Sears volume resulting from
the decision by Sears to discontinue its catalog operations early in 1993.
The gross profit increase of 10.9% was slightly lower than the net sales
increase principally reflecting increased depreciation and amortization
expense, a higher LIFO provision and increased start-up expenses resulting from
recent investments to enter new markets and expand globally. Selling and
administrative expenses were higher than the prior year as a result of new
operations and global expansion but grew at 10.9%, less than the 11.5% growth
in sales. The 1993 first quarter loss from operations included a $90 million
restructuring charge related primarily to the closing of the company's Chicago
manufacturing facility following the decision by Sears to discontinue its
catalog operations. Excluding this charge, earnings from operations increased
10.9% as a result of higher sales and a more favorable sales mix. Other
expense-net was up $2 million from the prior year resulting from higher
interest expense (due to larger commercial paper balances and higher interest
rates) and lower investment income. The effective tax rate of 32% in 1994 was
lower than the first quarter 1993 rate of 32.5% reflecting benefits associated
with life insurance programs and credits associated with affordable housing
investments, partially offset by the impact of the higher federal statutory
income tax rate. During the first quarter of 1993, in addition to the
restructuring charge, the company recognized one-time amounts related to the
adoption of two required accounting standards for postretirement benefits (a
net-of-tax charge of $127.7 million) and income taxes (a credit of $58.2
million). Excluding the one-time items reflected in the first quarter of 1993,
net income increased by 10.6%, reflecting the volume increases and the
favorable tax rate.
8
<PAGE>
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The company held its Annual Meeting of Stockholders on March 24, 1994.
(b) The following matters were voted upon at the Annual Meeting of
Stockholders:
1. The election of the nominees for Directors of the Third Class who
will serve for a term to expire at the Annual Meeting of
Stockholders to be held in 1997 was voted on by the stockholders.
The nominees, all of whom were elected, were: Robert A. Hanson,
Thomas S. Johnson, Jerre L. Stead and John R. Walter. The Inspectors
of Election certified the following vote tabulations:
<TABLE>
<CAPTION>
FOR WITHHELD NON-VOTES
----------- --------- ---------
<S> <C> <C> <C>
Robert A. Hanson......................... 128,770,606 1,606,263 0
Thomas S. Johnson........................ 128,759,624 1,617,245 0
Jerre L. Stead........................... 128,813,236 1,563,633 0
John R. Walter........................... 128,368,800 1,540,069 0
</TABLE>
2. A stockholder proposal requesting that the company endorse the
Coalition for Environmentally Responsible Economies (CERES)
Principles was rejected by the stockholders. The Inspectors of
Election certified the following vote tabulations:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTES
--- ------- ------- ---------
<S> <C> <C> <C>
8,414,550 103,484,662 8,367,423 10,110,234
</TABLE>
3. A stockholder proposal requesting that the Board of Directors of the
company prepare a report regarding certain equal employment
opportunity and affirmative action matters was rejected by the
stockholders. The Inspectors of Election certified the following
vote tabulations:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTES
--- ------- ------- ---------
<S> <C> <C> <C>
23,786,876 90,087,492 6,392,267 10,110,234
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
12 Statement of Computation of Ratio of Earnings to Fixed Charges
(b) A current Report on Form 8-K was filed during the first quarter of 1994.
The Report was dated January 5, 1994 and included item 5, "Other Events."
9
<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
R. R. Donnelley & Sons Company
William L. White
By __________________________________
William L. White
Controller
(Authorized Officer and
Chief Accounting Officer)
May 16, 1994
Date __________________________
10
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EXHIBIT 12
R.R. DONNELLEY & SONS COMPANY
----------------
STATEMENT OF COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1994
------------------
<S> <C>
Earnings
Earnings before income taxes.............................. $62,935
Interest expense.......................................... 11,728
One-third of the Company's operating leases (see note
below)................................................... 5,067
Amortization of capitalized interest...................... 1,560
-------
Earnings available for fixed charges...................... $81,290
=======
Fixed Charges
Interest expense.......................................... $11,728
Capitalized interest...................................... 2,000
-------
Interest incurred......................................... 13,728
One-third of the Company's operating leases (see note
below)................................................... 5,067
-------
Total fixed charges....................................... $18,795
=======
Ratio of Earnings to Fixed Charges........................ 4.33
=======
</TABLE>
- - --------
Note: Management estimates one-third of current year operating lease payments
to be the interest factor of such rentals.
