2. Acquisitions and Dispositions

2016 Acquisitions

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 $58.6 million. The acquisition expanded the Company’s ability to help its customers measure communications effectiveness and audience engagement. Precision Dialogue contributed $8.2 million in sales and a loss before income taxes of $1.1 million during the three and nine months ended September 30, 2016 and is included within the operating results of the Variable Print segment.

The Precision Dialogue acquisition was recorded by allocating the cost of the acquisition to the assets acquired, including other intangible assets, based on their estimated fair values at the acquisition date. The excess of the cost over the net amounts assigned to the fair value of the assets acquired was recorded as goodwill. The goodwill associated with this acquisition is primarily attributable to the synergies expected to arise as a result of the acquisition. The total tax deductible goodwill related to the Precision Dialogue acquisition was $8.8 million.

Based on the valuation, the preliminary purchase price allocation for the Precision Dialogue acquisition was as follows:


Accounts receivable	$	11.8
Inventories		0.4
Prepaid expenses and other current assets		1.0
Property, plant and equipment		6.9
Other intangible assets		14.7
Other noncurrent assets		1.2
Goodwill		41.0
Accounts payable and accrued liabilities		(11.1	)
Deferred taxes--net		(7.3	)
Total purchase price-net of cash acquired		58.6
Less: debt assumed		11.1
Net cash paid	$	47.5

The purchase price allocation is preliminary as the Company is still in the process of obtaining data to finalize the estimated fair values of certain intangible assets.

The fair values of other intangible assets, technology and goodwill associated with the Precision Dialogue acquisition 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	$	11.6	Excess earnings	Discount rate Attrition rate	16.0% 7.0% - 8.0%
Trade names		1.4	Relief-from-royalty method	Discount rate Royalty rate (pre-tax)	16.0% 0.75% - 1.25%
Technology		0.6	Relief-from-royalty method	Discount rate Royalty rate (pre-tax) Obsolescence factor	16.0% 15.0% 0.0% - 40.0%
Non-compete agreements		1.7	With and without method	Discount rate		16.0%

The fair values of property, plant and equipment associated with the 2016 acquisitions were determined to be Level 3 under the fair value hierarchy and were estimated using either the market approach, if a secondhand market existed, or the cost approach.

For the three and nine months ended September 30, 2016, the Company recorded $0.7 million and $2.7 million of acquisition-related expenses, respectively, associated with completed or contemplated acquisitions within selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

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, all of which was received as of September 30, 2016. Additionally, during the three months ended September 30, 2016 the Company sold three immaterial entities for proceeds of $0.3 million. The dispositions of these entities resulted in a loss of $0.3 million and a net gain of $12.0 million during the three and nine month periods ended September 30, 2016, respectively, which were recorded in other operating income in the Condensed Consolidated Statements of Operations. The operations of these entities were included in the International segment.

2015 Acquisitions

On June 8, 2015, the Company acquired Courier Corporation (“Courier”), a leader in digital printing and publishing primarily in the United States, specializing in educational, religious and trade books. The acquisition expanded the Company’s digital printing and content management capabilities. The purchase price for Courier was $137.3 million in cash and 2.7 million shares of RR Donnelley common stock, or a total transaction value of $291.5 million based on the Company’s closing share price on June 5, 2015, plus the assumption of Courier’s debt of $78.2 million. Courier had $20.9 million of cash as of the date of acquisition. Immediately following the acquisition, the Company repaid substantially all of the debt assumed. Courier’s book manufacturing operations are included in the Publishing and Retail Services segment, publishing operations are included in the Strategic Services segment and Brazilian operations are included in the International segment.

For the three and nine months ended September 30, 2015, the Company recorded $0.3 million and $14.1 million of acquisition-related expenses, respectively, associated with acquisitions completed or contemplated, within selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

The Courier acquisition was recorded by allocating the cost of the acquisition to the assets acquired, including other intangible assets, based on their estimated fair values at the acquisition date. The excess of the cost over the net amounts assigned to the fair value of the assets acquired was recorded as goodwill. The goodwill associated with this acquisition is primarily attributable to the synergies expected to arise as a result of the acquisition.

In addition to the acquisition of Courier, the Company completed three insignificant acquisitions in 2015, one of which included the settlement of accounts receivable in exchange for the acquisition of the business.

The tax deductible goodwill related to 2015 acquisitions was $15.0 million.

Based on the valuations, the final purchase price allocation for the 2015 acquisitions was as follows:

Accounts receivable	$	36.2
Inventories		59.0
Prepaid expenses and other current assets		38.8
Property, plant and equipment		163.8
Other intangible assets		108.8
Other noncurrent assets		7.9
Goodwill		66.3
Accounts payable and accrued liabilities		(24.6	)
Other noncurrent liabilities		(10.5	)
Deferred taxes--net		(83.7	)
Total purchase price-net of cash acquired		362.0
Less: debt assumed		80.2
Less: settlement of accounts receivable for acquisition of a business		8.6
Less: value of common stock issued		155.2
Net cash paid	$	118.0

The fair values of other intangible assets, technology and goodwill associated with the acquisition of Courier 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	$	98.4	Excess earnings	Discount rate Attrition rate	14.0% - 17.0% 0.0% - 7.5%
Trade names		10.1	Relief-from-royalty method	Discount rate Royalty rate (pre-tax)	12.0% 0.3% - 1.0%
Technology		1.6	Relief-from-royalty method	Discount rate Royalty rate (pre-tax)	11.0% 15.0%
Non-compete agreement	0.3		Excess earnings	Discount rate		17.0%

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

2015 Disposition

On April 29, 2015, the Company sold its 50.1% interest in its Venezuelan operating entity. The proceeds were de minimis, and the sale resulted in a net loss of $14.7 million, which was recognized in net investment and other expense in the Consolidated Statement of Operations for the year ended December 31, 2015. The Company’s Venezuelan operations had net sales of $16.3 million and a loss before income taxes of $38.4 million, including the net loss as a result of the sale, for the nine months ended September 30, 2015.

Pro forma results

The following unaudited pro forma financial information for the three and nine months ended September 30, 2015 presents the combined results of operations of the Company and the 2015 acquisitions described above, as if the acquisitions had occurred as of January 1 of the year prior to acquisition.

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 period 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 September 30,		Nine Months Ended September 30,
	2015		2015
Net sales	$	2,828.0	$	8,445.5
Net earnings attributable to RR Donnelley common stockholders		22.5		118.0
Net earnings per share attributable to RR Donnelley common stockholders:
Basic	$	0.32	$	1.69
Diluted	$	0.32	$	1.68

The following table outlines unaudited pro forma financial information for the three and nine months ended September 30, 2015:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2015		2015
Amortization of purchased intangibles	$	20.4	$	63.0
Restructuring, impairment and other charges		48.4		76.7

Additionally, the pro forma adjustments affecting net earnings attributable to RR Donnelley common stockholders for the three and nine months ended September 30, 2015 were as follows:

	Three Months Ended September 30,			Nine Months Ended September 30,
	2015			2015
Depreciation and amortization of purchased assets, pre-tax	$	2.0		$	2.4
Acquisition-related expenses, pre-tax		0.2			18.8
Restructuring, impairment and other charges, pre-tax		4.5			28.6
Inventory fair value adjustment, pre-tax		6.7			9.9
Other pro forma adjustments, pre-tax		—			1.2
Income taxes		(4.8	)		(15.0	)