Note 2. Acquisitions and Dispositions

On March 25, 2014, the Company acquired substantially all of the North American operations of Esselte Corporation (“Esselte”), a developer and manufacturer of nationally branded and private label office and stationery products. The acquisition, combined with the Company’s existing products, created a more competitive and efficient office products supplier capable of supplying enhanced offerings across the combined customer base. The purchase price for Esselte was $78.2 million in cash and 1.0 million shares of RR Donnelley common stock, or a total transaction value of $96.5 million based on the Company’s closing share price on March 24, 2014. Esselte’s operations are included in the Variable Print segment.

On March 10, 2014, the Company acquired the assets of MultiCorpora R&D Inc. and MultiCorpora International Inc. (together “MultiCorpora”) for approximately $6.1 million. MultiCorpora is an international provider of translation technology solutions. The acquisition of MultiCorpora expanded the capabilities of the Company’s translation services offering which supports clients’ multi-lingual communications. MultiCorpora’s operations are included in the Strategic Services segment.

On January 31, 2014, the Company acquired Consolidated Graphics, Inc. (“Consolidated Graphics”), a provider of digital and commercial printing, fulfillment services, print management and proprietary Internet-based technology solutions, with operations in North America, Europe and Asia. The acquisition enhanced the Company’s ability to provide integrated communications solutions for its customers. The purchase price for Consolidated Graphics was $359.9 million in cash and 16.0 million shares of RR Donnelley common stock, or a total transaction value of $660.6 million based on the Company’s closing share price on January 30, 2014, plus the assumption of Consolidated Graphics’ debt of $118.4 million. Immediately following the acquisition, the Company repaid substantially all of the debt assumed. Consolidated Graphics’ operations are included in the Variable Print segment.

On February 7, 2014, the Company sold the assets and liabilities of Office Tiger Global Real Estate Service Inc. (“GRES”), its commercial and residential real estate advisory services, for net proceeds of $1.7 million and a loss of $0.8 million. The operations of the GRES business were included in the International segment.

For the three months ended March 31, 2014, the Company’s Condensed Consolidated Financial Statements included net sales of $157.9 million and an operating loss of $21.7 million related to the Consolidated Graphics acquisition, including restructuring, impairment and other charges of $17.1 million and a charge of $12.1 million resulting from an inventory purchase accounting adjustment. Operating results for Esselte were not included in the Company’s Condensed Consolidated Financial Statements for the three months ended March 31, 2014, as they were not material to the Condensed Consolidated Financial Statements.

For the three months ended March 31, 2014, the Company recorded $7.7 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 Esselte, MultiCorpora and Consolidated Graphics acquisitions were recorded by allocating the cost of the acquisitions to the assets acquired, including other intangible assets, based on their estimated fair values at the acquisition date. The excess of the cost of the acquisitions over the net amounts assigned to the fair value of the assets acquired was recorded as goodwill. The goodwill is primarily attributable to the synergies expected to arise as a result of the acquisitions.

For Esselte, the preliminary fair value of the identifiable net assets acquired of approximately $113.1 million exceeded the purchase price of $96.5 million, resulting in a bargain purchase gain of $16.6 million, which was recorded in net investment and other expense for the three months ended March 31, 2014. The gain on the bargain purchase was primarily attributable to the Company’s ability to utilize certain tax operating losses.

The purchase price allocations for Esselte and Consolidated Graphics are preliminary because the evaluations necessary to assess the fair values of the net assets acquired are still in process. The primary areas that are not yet finalized relate to the completion of the independent valuations of the property, plant and equipment acquired and other intangible assets, the acquired tax assets as the tax returns have yet to be completed and filed and certain accrued liabilities. For Esselte, any changes to the fair value assessments will affect the gain on the bargain purchase. The final purchase price allocations may differ from what is currently reflected in the condensed consolidated financial statements.

MultiCorpora’s purchase price allocation is also preliminary, as the Company is still in the process of obtaining data to finalize the estimated fair values of certain account balances.

The preliminary tax deductible goodwill related to the Consolidated Graphics, Esselte and MultiCorpora acquisitions was $73.5 million.

Based on the current valuations, the preliminary purchase price allocations for these acquisitions were as follows:

Accounts receivable	$	241.1
Inventories		89.8
Prepaid expenses and other current assets		14.0
Property, plant and equipment		341.4
Other intangible assets		205.3
Other noncurrent assets		7.4
Goodwill		298.8
Accounts payable and accrued liabilities		(211.2	)
Other noncurrent liabilities		(56.6	)
Deferred taxes-net		(94.4	)
Total purchase price-net of cash acquired		835.6
Less: debt assumed		118.4
Less: value of common stock issued		319.0
Less: gain on the bargain purchase		16.6
Net cash paid	$	381.6

The fair values of other intangible assets and goodwill associated with the acquisitions of Esselte, MultiCorpora and Consolidated Graphics 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	$	178.1	Excess earnings	Discount rate Attrition rate	19.0% - 21.0% 5.0%

Trade names		26.5	Relief-from-royalty method	Discount rate Royalty rate (after-tax)	19.0% 0.5% - 1.5%

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

2013 Disposition

During the fourth quarter of 2013, the Company sold the assets and liabilities of R.R. Donnelley SAS (“MRM France”), its direct mail business located in Cosne sur Loire, France, for a loss of $17.9 million, which was recognized in net investment and other expense (income) in the Consolidated Statements of Operations. The loss included cash incentive payments due to the purchaser of $18.8 million, of which $12.0 million was paid as of March 31, 2014. The operations of the MRM France business were included in the International segment.

For the three months ended March 31, 2013, the Company recorded $1.0 million of acquisition-related expenses associated with acquisitions contemplated within selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

Pro forma results

The following unaudited pro forma financial information for the three months ended March 31, 2014 and 2013 presents the combined results of operations of the Company and the 2014 acquisitions described above, as if the acquisitions had occurred at January 1, 2013.

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 periods 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,
	2014			2013
Net sales	$	2,826.6		$	2,858.6
Net earnings (loss) attributable to RR Donnelley common shareholders		(17.7	)		8.7
Net earnings (loss) per share attributable to RR Donnelley common shareholders:
Basic	$	(0.09	)	$	0.04
Diluted	$	(0.09	)	$	0.04

The unaudited pro forma financial information for the three months ended March 31, 2014 and 2013 includes $20.5 million and $21.5 million, respectively, for the amortization of purchased intangibles. The unaudited pro forma financial information includes restructuring, impairment and other charges from operations of $30.1 million and $39.0 million for the three months ended March 31, 2014 and 2013, respectively. Additionally, the pro forma adjustments affecting net earnings (loss) attributable to RR Donnelley common shareholders for the three months ended March 31, 2014 and 2013 were as follows:


	Three Months Ended March 31,
	2014			2013
Depreciation and amortization of purchased assets, pre-tax	$	(0.2	)	$	(1.9	)
Acquisition-related expenses, pre-tax		18.6			(16.6	)
Restructuring, impairment and other charges, pre-tax		17.1			(16.2	)
Inventory fair value adjustments, pre-tax		12.1			(14.3	)
Other pro forma adjustments, pre-tax		(10.6	)		9.9
Income taxes		(10.2	)		18.4