Note 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. Precision Dialogue contributed $22.4 million in sales and a loss before income taxes of $2.8 million during the period ended December 31, 2016 and is included within the operating results of the Variable Print and Strategic Services segments.

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 final purchase price allocation for the Precision Dialogue acquisition was as follows:

Accounts receivable	$	11.5
Inventories		0.4
Prepaid expenses and other current assets		0.8
Property, plant and equipment		6.9
Other intangible assets		14.1
Other noncurrent assets		1.2
Goodwill		42.5
Accounts payable and accrued liabilities		(11.4	)
Deferred taxes-net		(6.8	)
Total purchase price-net of cash acquired		59.2
Less: debt assumed		11.1
Net cash paid	$	48.1

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	$	11.0	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 or without method	Discount rate		16.0%

The fair values of property, plant and equipment associated with the acquisition of Precision Dialogue 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 year ended December 31, 2016, the Company recorded $2.7 million of acquisition-related expenses, respectively, associated with completed or contemplated acquisitions within selling, general and administrative expenses in the 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 in 2016. Additionally, during 2016 the Company sold three immaterial entities for proceeds of $0.3 million. The dispositions of these entities resulted in a net gain of $11.9 million during the period ended December 31, 2016, which was recorded in other operating income in the Consolidated Statements of Operations. The operations of these entities were included within the International segment.

2015 Acquisitions

The Company completed four insignificant acquisitions in 2015, one of which included the settlement of accounts receivable in exchange for the acquisition of the business. These acquisitions were 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 these acquisitions is primarily attributable to the synergies expected to arise as a result of the acquisitions.

The tax deductible goodwill related to these acquisitions was $9.8 million.

Based on the valuations, the final purchase price allocations for the 2015 acquisitions were as follows:

Accounts receivable	$	3.4
Inventories		0.2
Prepaid expenses and other current assets		0.6
Property, plant and equipment		5.7
Other intangible assets		5.2
Other noncurrent assets		0.2
Goodwill		15.2
Accounts payable and accrued liabilities		(5.6	)
Other noncurrent liabilities		(4.7	)
Total purchase price-net of cash acquired		20.2
Less: debt assumed		3.7
Less: settlement of accounts receivable for acquisition of a business		8.6
Less: value of common stock issued		1.0
Net cash paid	$	6.9

The fair values of other intangible assets and goodwill associated with these acquisitions 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	$	4.9	Excess earnings	Discount rate Attrition rate	15.0% - 17.0% 5.0% - 10.0%

Non-compete agreements		0.3	Excess earnings	Discount rate		17.0%

The fair values of property, plant and equipment associated with these 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 cost approach.

For the year ended December 31, 2015, the Company recorded $0.5 million of acquisition-related expenses associated with acquisitions completed or contemplated, within selling, general and administrative expenses in the Consolidated Statements of Operations.

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 year ended December 31, 2015. For the year ended December 31, 2014, the Company’s Venezuelan operations had net sales of $101.5 million and earnings before income taxes of $4.3 million. The operations of the Venezuela business were included in the International segment.

2014 Acquisitions

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 5.3 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, with the exception of operations in the Czech Republic and Japan which are included in the International segment.

For the year ended December 31, 2014, the Company recorded $7.0 million of acquisition-related expenses associated with acquisitions completed or contemplated, within selling, general and administrative expenses in the Consolidated Statements of Operations.

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

The tax deductible goodwill related to the Consolidated Graphics acquisition was $63.4 million.

Based on the valuations, the final purchase price allocation for this acquisition as well as the purchase price allocation for an insignificant acquisition were as follows:

Accounts receivable	$	171.3
Inventories		65.9
Prepaid expenses and other current assets		15.4
Property, plant and equipment		297.0
Other intangible assets		179.3
Other noncurrent assets		10.4
Goodwill		296.6
Accounts payable and accrued liabilities		(159.5	)
Other noncurrent liabilities		(41.5	)
Deferred taxes-net		(116.6	)
Total purchase price-net of cash acquired		718.3
Less: debt assumed		118.4
Less: value of common stock issued		300.7
Net cash paid	$	299.2

The fair values of other intangible assets and goodwill associated with the acquisition of Consolidated Graphics were determined to be Level 3 under the fair value hierarchy. The following table presents the fair values, valuation techniques and related unobservable inputs for these Level 3 measurements:

	Fair Value	Valuation Technique	Unobservable Input	Range
Customer relationships	$ 161.6	Excess earnings	Discount rate Attrition rate	17.0% - 19.0% 5.0% - 15.0%

Trade names	17.7	Relief-from-royalty method	Discount rate Royalty rate (pre-tax)	19.0% 0.5%

The fair values of property, plant and equipment associated with these 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.

2014 Dispositions

On August 15, 2014, the Company sold the assets and liabilities of Journalism Online, LLC (“Journalism Online”), a provider of online subscription management services, for net proceeds of $10.5 million resulting in a gain of $11.2 million during the year ended December 31, 2014. As a result of a final sale price adjustment in accordance with the agreement, a $0.2 million loss was recognized during the year ended December 31, 2015, resulting in a total net gain of $11.0 million. The gain and loss were included in net investment and other expense in the Consolidated Statement of Operations. The operations of the Journalism Online business were included in the Strategic Services segment.

On August 11, 2014, the Company’s subsidiary, RR Donnelley Argentina S.A. (“RRDA”), filed for bankruptcy liquidation in bankruptcy court in Argentina. The bankruptcy petition was approved by the court shortly thereafter and a bankruptcy trustee was appointed. As a result of the bankruptcy liquidation, the Company recorded a loss of $16.4 million in net investment and other expense for the year ended December 31, 2014. Effective as of the court’s approval, the operating results of RRDA are no longer included in the Company’s consolidated results of operations. RRDA had net sales of $22.1 million and a loss before income taxes of $3.4 million for the year ended December 31, 2014. The operations of RRDA were included in the International 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 $1.8 million and a loss of $0.8 million, which was recognized in net investment and other expense in the Consolidated Statements of Operations. The operations of the GRES business were included in the International segment.