Highlights: First-Quarter 2008 GAAP net earnings from continuing
operations of $182.0 million or $0.85 per diluted share vs. net
earnings from continuing operations of $138.9 million or $0.63 per
diluted share in 2007 First-Quarter 2008 Non-GAAP net earnings from
continuing operations of $148.5 million or $0.69 per diluted share
vs. net earnings from continuing operations of $145.9 million or
$0.66 per diluted share Increases the low end of the range of 2008
Non-GAAP net earnings per diluted share from continuing operations
guidance by $0.03 to a revised range of $3.08 to $3.15 Repurchased
2.7 million shares of common stock year-to-date through today;
remaining share authorization of 7.3 million shares R.R. Donnelley
& Sons Company (NYSE:RRD) today reported first-quarter net
earnings from continuing operations of $182.0 million or $0.85 per
diluted share on net sales of $3.0 billion compared to net earnings
from continuing operations of $138.9 million or $0.63 per diluted
share on net sales of $2.8 billion in the first quarter of 2007.
The first-quarter net earnings from continuing operations included
pre-tax charges, substantially all associated with the
reorganization of certain operations and the exiting of certain
business activities, for restructuring and impairment totaling $6.9
million in 2008 and totaling $11.4 million in 2007. The company�s
effective tax rate decreased to 16.3% in the first quarter of 2008
from 32.8% in the first quarter of 2007, primarily reflecting a
$38.0 million benefit from the favorable settlement of certain
federal income tax audits for the years 2000 through 2002. The
company believes that certain non-GAAP measures, when presented in
conjunction with comparable GAAP (Generally Accepted Accounting
Principles) measures, are useful because that information is an
appropriate measure for evaluating the company�s operating
performance. Internally, the company uses this non-GAAP information
as an indicator of business performance, and evaluates management�s
effectiveness with specific reference to these indicators. These
measures should be considered in addition to, not a substitute for,
or superior to, measures of financial performance prepared in
accordance with GAAP. Non-GAAP earnings from continuing operations
totaled $148.5 million or $0.69 per diluted share in the first
quarter of 2008 compared to $145.9 or $0.66 per diluted share in
the first quarter of 2007. First-quarter non-GAAP net earnings from
continuing operations exclude restructuring and impairment charges
and, in 2008, the benefit of the reversal of tax reserves. For
non-GAAP comparison purposes, the effective tax rate increased to
33.8% from 33.1% in the first quarter of 2007. A reconciliation of
GAAP net earnings to non-GAAP net earnings for these adjustments is
presented in the attached tables. "We are pleased with our
first-quarter performance," said Thomas J. Quinlan III, RR
Donnelley's President and Chief Executive Officer. "In the context
of a challenging economic environment, we benefited from both the
ability to manage our customers� print spend across our broad
product and service offering and from the operational flexibility
we have created through our historical platform investments. Our
prudent capital management, our ability to leverage capacity at
newly acquired companies and our focus on cost control allow us to
reaffirm our stated operating target for full-year non-GAAP
operating margin of slightly greater than 10.0%." Quinlan added,
"Our discipline in capital deployment has positioned us well,
allowing us to maintain investment grade credit metrics and
substantial liquidity. Since our last earnings call in February, we
completed the Pro Line Printing acquisition, repurchased 2.7
million shares and paid our dividend.� Business Review (Continuing
Operations) The company reports its results in two reportable
segments: 1) U.S. Print and Related Services and 2) International.
The company reports, as Corporate, its unallocated expenses
associated with general and administrative activities. Summary
During 2007, the company acquired Banta Corporation, Perry Judd�s,
Von Hoffmann and Cardinal Brands and in the first quarter of 2008,
the company acquired Pro Line Printing. In aggregate, the acquired
companies carried a lower operating margin historically than the
company has been able to achieve. The company�s proven financial
discipline and approach to achieving productivity increases have
had a positive impact on these operations, and the company sees
opportunities for continued improvement. Net sales in the quarter
were $3.0 billion, up 7.3% from the first quarter of 2007. The
increase was due to acquisitions and favorable foreign exchange
rates, offset in part by continued price pressure. The gross margin
rate decreased to 26.0% in the first quarter of 2008 from 26.4% in
the first quarter of 2007 due to the inclusion of the acquired
companies that in aggregate carried a lower margin historically, an
unfavorable product mix and continued price pressure that more than
offset the benefits from productivity efforts. SG&A expense as
a percentage of net sales decreased slightly to 11.5% in the first
quarter of 2008 from 11.6% in the first quarter of 2007 due to the
benefits of our productivity initiatives and higher sales volume.
Operating margin decreased to 9.0% in the first quarter of 2008
from 9.3% in the first quarter of 2007. The non-GAAP operating
margin in the first quarter of 2008 decreased to 9.2% from 9.7% in
the first quarter of 2007, as benefits from our productivity
efforts were more than offset by the inclusion of the acquired
companies that in aggregate carried a lower margin historically,
changes in foreign exchange rates, an unfavorable product mix and
continued price pressure. Reconciliations of GAAP operating income
and margin to non-GAAP operating income and margin are presented in
the attached tables. Segments Net sales for the U.S. Print and
Related Services segment increased 6.6% to $2.2 billion from the
first quarter of 2007 due to the acquisitions of Von Hoffmann,
Cardinal Brands, Perry Judd�s, Banta and Pro Line, as well as sales
increases of logistics services, labels and catalogs, offset in
part by decreased sales of commercial print, directories and forms.
The segment�s operating margin decreased to 11.9% in the first
quarter of 2008 from 12.3% in the first quarter of 2007. The
segment�s non-GAAP operating margin decreased to 12.1% in the first
quarter of 2008 from 12.6% in the first quarter of 2007, as the
benefit of productivity efforts was offset by the inclusion of the
acquired companies that in aggregate carried a lower operating
margin historically. Net sales for the International segment
increased 9.5% to $756.4 million from the first quarter of 2007
primarily due to the impact of changes in foreign exchange rates,
acquisitions and increased sales of our offerings in Asia, Latin
America and Global Turnkey Solutions, offset by continued price
pressure. The segment�s operating margin decreased to 6.5% in the
first quarter of 2008 from 7.7% in the first quarter of 2007. The
segment�s non-GAAP operating margin decreased to 6.8% in the first
quarter of 2008 from 8.1% in the first quarter of 2007 due to
changes in foreign exchange rates, an unfavorable business mix and
continued price pressure. Unallocated Corporate operating expense
decreased to $46.0 million in the first quarter of 2008 from $54.3
million in the first quarter of 2007. Excluding restructuring
reversals of $1.2 million in the first quarter of 2008 and
restructuring charges of $4.1 million in the first quarter of 2007,
Corporate operating expense decreased $3.0 million to $47.2 million
in the first quarter of 2008, in part due to lower employee
benefits expense and our productivity efforts. Outlook � 2008
Full-Year Non-GAAP EPS from Continuing Operations For the full year
of 2008, RR Donnelley is projecting non-GAAP net earnings per
diluted share from continuing operations to be in the range of
$3.08 to $3.15, representing a $0.03 increase in the low end of the
range. This guidance includes the expected impact of the previously
announced acquisitions and assumes no additional shares repurchased
under the authorization available to the company. The non-GAAP
effective tax rate for 2008 is expected to be approximately 33.0%
to 34.0%. GAAP net earnings per diluted share from continuing
operations in 2008 may include restructuring and impairment
charges, the resolution of certain tax items and other items that
are not currently determinable, but may be significant. For that
reason, the company is unable to provide full-year GAAP net
earnings estimates at this time. Conference Call RR Donnelley will
host a conference and simultaneous webcast to discuss its first
quarter results today, Tuesday, May 6, at 10:00 a.m. Eastern Time
(9:00 a.m. Central Time). The live webcast will be accessible on RR
Donnelley�s web site: http://www.rrdonnelley.com. Individuals
wishing to participate can join the conference call by dialing
706.634.1139. A webcast replay will be archived on the Company�s
web site for 30 days after the call. In addition, a telephonic
replay of the call will be available for seven days at
706.645.9291, passcode 42407662. About RR Donnelley RR Donnelley
(NYSE:RRD) is the world�s premier full-service provider of print
and related services, including business process outsourcing.
Founded more than 140 years ago, the company provides products and
solutions in commercial printing, direct mail, financial printing,
print fulfillment, labels, forms, logistics, call centers,
transactional print-and-mail, print management, online services,
digital photography, color services, and content and database
management to customers in the publishing, healthcare, advertising,
retail, technology, financial services and many other industries.
The largest companies in the world and others rely on RR
Donnelley�s scale, scope and insight through a comprehensive range
of online tools, variable printing services and market-specific
solutions. For more information, visit the company�s web site at
www.rrdonnelley.com. Use of Forward-Looking Statements This news
release contains �forward-looking statements� as defined in the
U.S. Private Securities Litigation Reform Act of 1995. Readers are
cautioned not to place undue reliance on these forward-looking
statements and any such forward-looking statements are qualified in
their entirety by reference to the following cautionary statements.
All forward-looking statements speak only as of the date of this
news release and are based on current expectations and involve a
number of assumptions, risks and uncertainties that could cause the
actual results to differ materially from such forward-looking
statements. The company does not undertake to and specifically
declines any obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to
reflect future events or circumstances after the date of such
statement or to reflect the occurrence of anticipated or
unanticipated events. The factors that could cause material
differences in the expected results of RR Donnelley include,
without limitation, the following: the successful execution and
integration of acquisitions and the performance of the company�s
businesses following acquisitions; the ability to implement
comprehensive plans for the integration of the sales force, cost
containment, asset rationalization and other key strategies;
competitive pressures in all markets in which the company operates;
factors that affect customer demand, including changes in postal
rates and postal regulations, changes in the capital markets,
changes in advertising markets, the rate of migration from
paper-based forms to digital format, customers� budgetary
constraints and customers� changes in short-range and long-range
plans; shortages or changes in availability, or increases in costs
of, key materials (such as ink, paper and fuel); and other risks
and uncertainties described in RR Donnelley�s periodic filings with
the Securities and Exchange Commission (SEC). Readers are strongly
encouraged to read the full cautionary statements contained in RR
Donnelley�s filings with the SEC. R. R. Donnelley & Sons
Company Condensed Consolidated Balance Sheets As of March 31, 2008
and December 31, 2007 (UNAUDITED) (In millions, except per share
data) � March 31, 2008 � December 31, 2007 Assets � � Current
Assets Cash and cash equivalents 397.7 379.0 Restricted cash
equivalents 7.3 63.9 Receivables, less allowance for doubtful
accounts 2,255.3 2,181.2 Inventories 733.9 709.5 Prepaid expenses
and other current assets 83.8 85.5 Deferred income taxes 111.4 � �
102.2 � Total current assets 3,589.4 � � 3,521.3 � � Property,
plant and equipment, net 2,788.3 2,726.0 Goodwill 3,294.0 3,264.9
Other intangibles - net 1,315.9 1,323.2 Prepaid pension cost 839.7
833.2 Other noncurrent assets 419.9 418.1 � � � � � � � � � � Total
Assets � � � � 12,247.2 � � 12,086.7 � � � Liabilities � Accounts
payable Accounts payable 950.6 954.9 Accrued liabilities 979.0
1,085.3 Short-term and current portion of long-term debt 893.1 � �
725.0 � Total Current Liabilities 2,822.7 � � 2,765.2 � � Long-term
debt 3,597.8 3,601.9 Postretirement benefit obligations 252.6 247.9
Deferred income taxes 898.4 872.3 Other noncurrent liabilities
624.7 689.1 Liabilities from discontinued operations 1.7 3.0 � � �
� � � � � � � Total Liabilities � � � � 8,197.9 � � 8,179.4 � � �
Shareholders' Equity � Common stock, $1.25 par value 303.7 303.7
Authorized shares: 500.0 Issued shares: 243.0 in 2008 and 2007 �
Additional paid-in capital 2,864.7 2,858.4 � Retained earnings
1,439.3 1,312.9 � Accumulated other comprehensive income 413.1
341.3 � Treasury stock, at cost, 29.1 shares (971.5 ) (909.0 ) in
2008 (2007 - 27.1 shares) � � � � � � � � � � � Total Shareholders'
Equity � � � 4,049.3 � � 3,907.3 � � � � � � � � � � � Total
Liabilities and Shareholders' Equity � � � 12,247.2 � � 12,086.7 �
R. R. Donnelley & Sons Company Condensed Consolidated
Statements of Operations Three Months Ended March 31, 2008 and 2007
(In millions, except per share data) (UNAUDITED) � � � � � � Three
months ended March 31, 2 0 0 8 GAAP � ADJUSTMENTS TO NON-GAAP � 2 0
0 8 NON-GAAP � 2 0 0 7 GAAP � ADJUSTMENTS TO NON-GAAP � 2 0 0 7
NON-GAAP � � � � � � � � � � � � � Net sales � $ 2,997 .1 � � $ - �
� � $ 2,997 .1 � � $ 2,792 .6 � � $ - � � � $ 2,792 .6 � Cost of
sales (exclusive of depreciation and amortization shown below)
2,218 .2 - 2,218 .2 2,056 .0 - 2,056 .0 Selling, general and
administrative expenses (exclusive of depreciation and amortization
shown below) 344 .7 - 344 .7 324 .5 - 324 .5 Restructuring and
impairment charges 6 .9 (6 .9 ) - 11 .4 (11 .4 ) - Depreciation and
amortization � 157 .6 � � � - � � � � 157 .6 � � � 142 .2 � � � - �
� � � 142 .2 Total operating expenses � � 2,727 .4 � � � (6 .9 ) �
� 2,720 .5 � � � 2,534 .1 � � � (11 .4 ) � � 2,522 .7 Income from
continuing operations � � 269 .7 � � � 6 .9 � � � 276 .6 � � � 258
.5 � � � 11 .4 � � � 269 .9 � Interest expense - net 57 .0 - 57 .0
53 .4 - 53 .4 Investment and other income - net 4 .6 - 4 .6 2 .2 -
2 .2 � � � � � � � � � � � � � Earnings from continuing operations
before income taxes and minority interest � � 217 .3 � � � 6 .9 � �
� 224 .2 � � � 207 .3 � � � 11 .4 � � � 218 .7 � Income tax expense
35 .4 40 .4 75 .8 67 .9 4 .4 72 .3 Minority interest (0 .1 ) - (0
.1 ) 0 .5 - 0 .5 � � � � � � � � � � � � � Net earnings from
continuing operations � � 182 .0 � � � (33 .5 ) � � 148 .5 � � �
138 .9 � � � 7 .0 � � � 145 .9 � Income (loss) from discontinued
operations - net of tax 0 .5 (0 .5 ) - (0 .1 ) 0 .1 - � � � � � � �
� � � � � � � Net earnings � $ 182 .5 � � $ (34 .0 ) � $ 148 .5 � �
$ 138 .8 � � $ 7 .1 � � $ 145 .9 Earnings per share: Basic: Net
earnings from continuing operations $ 0 .85 $ 0 .69 $ 0 .64 $ 0 .67
Income (loss) from discontinued operations, net of tax $ - � � $ -
� � � $ - � � $ - � Net earnings $ 0 .85 � $ 0 .69 � � $ 0 .64 � $
0 .67 Diluted: Net earnings from continuing operations $ 0 .85 $ 0
.69 $ 0 .63 $ 0 .66 Income (loss) from discontinued operations, net
of tax $ - � � $ - � � � $ - � � $ - � Net earnings $ 0 .85 � $ 0
.69 � � $ 0 .63 � $ 0 .66 � � � � � � Weighted average common
shares outstanding: Basic 214 .5 214 .5 218 .5 218 .5 Diluted � 215
.0 � � � � � 215 .0 � � � 220 .5 � � � � � 220 .5 � The Company
believes that certain non-GAAP measures, when presented in
conjunction with comparable GAAP measures, are useful because that
information is an appropriate measure for evaluating the Company�s
operating performance.��Internally, the Company uses this non-GAAP
information as an indicator of business performance, and evaluates
management�s effectiveness with specific reference to this
indicator. These measures should be considered in addition to, not
a substitute for, or superior to, measures of financial performance
prepared in accordance with GAAP. R.R. Donnelley & Sons Company
Reconciliation of GAAP to Non-GAAP Measures IN MILLIONS, EXCEPT PER
SHARE AND MARGIN DATA (UNAUDITED) � � � � � � � � � Three months
ended March 31, 2008 Three months ended March 31, 2007 Income from
continuing operations Operating margin Net earnings Net earnings
per diluted share Income from continuing operations Operating
margin Net earnings Net earnings per diluted share GAAP basis
measures $ 269.7 9.0 % $ 182.5 $ 0.85 $ 258.5 9.3 % $ 138.8 $ 0.63
� Non-GAAP adjustments: Restructuring and impairment charges (1)
6.9 0.2 % 4.5 0.02 11.4 0.4 % 7.0 0.03 Income tax adjustments (2) -
- (38.0 ) (0.18 ) - - - - Net income (loss) from discontinued
operations - � - � � (0.5 ) � - � - � - � � 0.1 � - Total Non-GAAP
adjustments 6.9 � 0.2 % � (34.0 ) � (0.16 ) 11.4 � 0.4 % � 7.1 �
0.03 Non-GAAP measures $ 276.6 � 9.2 % � $ 148.5 � � $ 0.69 � $
269.9 � 9.7 % � $ 145.9 � $ 0.66 � � (1) Restructuring and
impairment (pre-tax): Operating results for the three months ended
March 31, 2008 and 2007 were affected by the following
restructuring and impairment charges: - 2008 included $4.6 million
for employee termination costs resulting from the reorganization of
certain operations and the exiting of certain business activities;
and $0.6 million of other restructuring costs, including lease
termination and other facility closure costs; $1.7 million of
impairment charges related to the impairment of other long-lived
assets � � - 2007 included $9.3 million for employee termination
costs resulting from the reorganization of certain operations and
the exiting of certain business activities; and $2.0 million of
other restructuring costs, including lease termination and other
facility closure costs; $0.1 million of impairment charges related
to the impairment of other long-lived assets � � (2) Income tax
adjustments: Net earnings for the three months ended March 31, 2008
were affected by a $38 million reversal of reserves for uncertain
tax positions. R. R. Donnelley & Sons Company Segment GAAP to
Non-GAAP Operating Income and Margin Reconciliation For the Three
months ended March 31, 2008 and 2007 $ IN MILLIONS (UNAUDITED) � �
� � � U.S. Print and Related Services � International � Corporate �
� Consolidated � Three Months Ended March 31, 2008 Net Sales $
2,240.7 $ 756.4 $ - $ 2,997.1 Operating Expense � 1,974.0 � � �
707.4 � � � 46.0 � � � 2,727.4 � Operating Income (Loss) 266.7 49.0
(46.0 ) 269.7 Operating Margin % 11.9 % 6.5 % nm 9.0 % � Non-GAAP
Adjustments Restructuring charges 3.6 2.8 (1.2 ) 5.2 Impairment
charges � 1.7 � � � - � � � - � � � 1.7 � Total Non-GAAP
Adjustments 5.3 2.8 (1.2 ) 6.9 � Operating income (loss) excluding
restructuring and impairment charges $ 272.0 $ 51.8 $ (47.2 ) $
276.6 Operating margin before restructuring and impairment charges
% 12.1 % 6.8 % nm 9.2 % � Depreciation and amortization 104.3 42.9
10.4 157.6 Capital expenditures 47.7 21.2 3.0 71.9 � Three Months
Ended March 31, 2007 Net Sales $ 2,101.8 $ 690.8 $ - $ 2,792.6
Operating Expense � 1,842.4 � � � 637.4 � � � 54.3 � � � 2,534.1 �
Operating Income (Loss) 259.3 53.5 (54.3 ) 258.5 Operating Margin %
12.3 % 7.7 % nm 9.3 % � Non-GAAP Adjustments Restructuring charges
4.8 2.4 4.1 11.3 Impairment charges � - � � � 0.1 � � � - � � � 0.1
� Total Non-GAAP Adjustments 4.8 2.5 4.1 11.4 � Operating income
(loss) excluding restructuring and impairment charges $ 264.1 $
56.0 $ (50.2 ) $ 269.9 Operating margin before restructuring and
impairment charges % 12.6 % 8.1 % nm 9.7 % � Depreciation and
amortization 93.9 39.6 8.7 142.2 Capital expenditures 71.8 33.4 4.2
109.4 R. R. Donnelley & Sons Company Condensed Consolidated
Statements of Cash Flows For the three months ended March 31, 2008
and 2007 IN MILLIONS (UNAUDITED) � � � � � � � 2008 � � � 2007 �
Operating Activities � Net earnings $ 182.5 $ 138.8 � Net (income)
loss from discontinued operations (0.5 ) 0.1 � Adjustment to
reconcile net earnings to cash provided by operating activities
177.7 153.6 � � Changes in operating assets and liabilities � �
(233.9 ) � � (70.8 ) Net cash provided by operating activities of
continuing operations 125.8 221.7 Net cash used in operating
activities of discontinued operations � � (0.8 ) � � (0.3 ) Net
cash provided by operating activities � � 125.0 � � � 221.4 � � � �
� � � Net cash used in investing activities of continuing
operations (170.0 ) (1,654.9 ) Net cash provided by investing
activities of discontinued operations � � - � � � - � Net cash used
in investing activities � � (170.0 ) � � (1,654.9 ) � � � � � � Net
cash provided by financing activities of continuing operations 49.1
1,519.2 Net cash provided by financing activities of discontinued
operations � � - � � � - � Net cash provided by financing
activities � � 49.1 � � � 1,519.2 � � Effect of exchange rate on
cash and cash equivalents 14.6 2.5 � � � � � � Net increase in cash
and cash equivalents � 18.7 � � 88.2 � � Cash and cash equivalents
at beginning of period 379.0 211.4 � � � � � � Cash and cash
equivalents at end of period � $ 397.7 � � $ 299.6 � Supplemental
non-cash disclosure: � Use of restricted cash to fund obligations
associated with deferred compensation plans � $ 24.0 � � $ - � R.R.
Donnelley & Sons Company Revenue Reconciliation Reported to Pro
Forma For the three months ended March 31, 2008 and 2007 $ IN
MILLIONS (UNAUDITED) � � � Reported net sales Adjustment for net
sales of acquired businesses Pro forma net sales Three Months Ended
March 31, 2008 U.S. Print and Related Services $ 2,240.7 $ 23.6 $
2,264.3 International � 756.4 � � � - � � 756.4 � Consolidated $
2,997.1 $ 23.6 $ 3,020.7 � Three Months Ended March 31, 2007 U.S.
Print and Related Services $ 2,101.8 $ 189.4 $ 2,291.2
International � 690.8 � � � 9.2 � � 700.0 � Consolidated $ 2,792.6
$ 198.6 $ 2,991.2 � Net sales change U.S. Print and Related
Services 6.6 % -1.2 % International 9.5 % 8.1 % Consolidated 7.3 %
1.0 % � The reported results of the company include the results of
acquired businesses from the acquisition date forward.��The company
has provided this schedule to reconcile reported net sales for the
three months ended March 31, 2008 and 2007 to pro forma net sales
as if the acquisitions took place at the beginning of the
respective periods. � For the three months ended March 31, 2008,
the adjustment for net sales of acquired businesses reflects the
net sales of Pro Line Printing, Incorporated (acquired March 14,
2008). � For the three months ended March 31, 2007, the adjustment
for net sales of acquired businesses reflects the net sales of
Banta Corporation (acquired January 9, 2007), Perry Judd's Holdings
Incorporated (acquired January 24, 2007), Von Hoffmann (acquired
May 16, 2007), Cardinal Brands, Inc. (acquired December 27, 2007)
and Pro Line Printing, Incorporated (acquired March 14, 2008).
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