Highlights: Second-quarter 2008 GAAP net earnings from continuing
operations of $145.1 million or $0.68 per diluted share vs. a net
loss of $69.4 million or $0.32 per diluted share in 2007
Second-quarter 2008 non-GAAP net earnings from continuing
operations of $156.4 million or $0.73 per diluted share, an
increase of 9.0% in non-GAAP earnings per diluted share from 2007
Reaffirms full-year, 2008 non-GAAP net earnings per diluted share
from continuing operations guidance of $3.08 to $3.15 Repurchased 5
million shares year-to-date through today; remaining authorization
of 5 million shares R.R. Donnelley & Sons Company (NYSE:RRD)
today reported second-quarter net earnings from continuing
operations of $145.1 million or $0.68 per diluted share on net
sales of $2.9 billion compared to a net loss from continuing
operations of $69.4 million or $0.32 per diluted share on net sales
of $2.8 billion in the second quarter of 2007. The second-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 ($15.8 million) and impairment ($0.4 million)
totaling $16.2 million in 2008. The net loss from continuing
operations in the second quarter of 2007 included pre-tax charges
for impairment ($316.7 million) and restructuring ($13.8 million),
totaling $330.5 million. Substantially all of the second-quarter
2007 impairment charge related to the write-off of the Moore
Wallace, OfficeTiger and other trade names and substantially all of
the second quarter-2007 restructuring charges related to the
reorganization of certain operations and exiting of certain
business activities. The company�s effective tax rate was 33.5% in
the second quarter of 2008 compared to a net tax benefit of 37.8%
in the second quarter of 2007 primarily due to a tax benefit
recognized on the pre-tax loss resulting from the non-cash
impairment charge included in the second quarter of 2007. 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 $156.4 million or $0.73 per diluted share in the second
quarter of 2008 compared to $149.2 or $0.67 per diluted share in
the second quarter of 2007. Second-quarter non-GAAP net earnings
from continuing operations exclude restructuring and impairment
charges in both 2008 and 2007. For non-GAAP comparison purposes,
the effective tax rate increased to 33.3% in the second quarter of
2008 from 31.9% in the second quarter of 2007 due to a larger
proportion of taxable income being generated in higher tax
jurisdictions in 2008. A reconciliation of GAAP net earnings to
non-GAAP net earnings for these adjustments is presented in the
attached tables. "As we mentioned in the pre-release of our
second-quarter results on July 16, we are pleased with our results
in the context of challenging global economic conditions,� said
Thomas J. Quinlan III, RR Donnelley's President and Chief Executive
Officer. �The preparation and diligence in continuously managing
our cost structure paid off as operating margins expanded, driven
by our U.S. Print and Related Services segment. We reaffirm our
full-year non-GAAP operating margin guidance of slightly greater
than 10.0%.� Quinlan added, �We continue to employ a balanced
approach to capital deployment allowing us to maintain investment
grade credit metrics and substantial liquidity.� 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 The company acquired Von Hoffmann in May of 2007, Cardinal
Brands in December of 2007 and Pro Line Printing in March of 2008.
In aggregate, these 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 $2.9 billion, up nearly
4.6% from the second quarter of 2007. The increase was due to
acquisitions and favorable foreign exchange rates, offset in part
by continued price pressure and volume declines. The gross margin
rate decreased to 26.7% in the second quarter of 2008 from 27.1% in
the second 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. While the gross
margin rate decreased, the Company�s aggressive cost management
resulted in a larger decrease in SG&A as a percentage of
revenue than the gross margin decrease. SG&A expense as a
percentage of net sales decreased to 11.1% in the second quarter of
2008 from 11.9% in the second quarter of 2007 due to the benefits
of our productivity initiatives. Operating margin, which was
negatively impacted by charges for restructuring and impairment of
$16.2 million in the second quarter of 2008 and $330.5 million in
the second quarter of 2007, increased to 9.5% in the second quarter
of 2008 from �1.9% in the second quarter of 2007. Excluding charges
for restructuring and impairment, the non-GAAP operating margin in
the second quarter of 2008 increased to 10.0% from 9.9% in the
second quarter of 2007, as benefits from our costs savings and
productivity efforts offset continued price pressure, the inclusion
of the acquired companies that in aggregate carried a lower margin
historically and changes in foreign exchange rates. Segments Net
sales for the U.S. Print and Related Services segment increased
4.5% to $2.2 billion from the second quarter of 2007 due to the
acquisitions of Von Hoffmann, Cardinal Brands and Pro Line, as well
as sales increases in logistics services and volume increases in
stock products, direct mail and digital solutions, offset in part
by decreases in commercial print, financial print and forms. The
segment�s operating margin, which was negatively impacted by
charges for restructuring of $3.9 million in the second quarter of
2008 and restructuring and impairment charges of $263.3 million in
the second quarter of 2007, increased to 13.1% from 0.2% in the
second quarter of 2007. Excluding restructuring and impairment
charges, the segment�s non-GAAP operating margin increased to 13.3%
in the second quarter of 2008 from 12.9% in the second quarter of
2007, as the benefit of productivity efforts more than offset the
impact of continued price pressure and the inclusion of the
acquired companies that in aggregate carried a lower margin
historically. Net sales for the International segment increased
4.8% to $762.0 million from the second quarter of 2007 due to the
impact of changes in foreign exchange rates and increased sales in
Global Turnkey Solutions and Latin America, partially offset by
continued price pressure. The segment�s operating margin, which was
negatively impacted by charges for restructuring of $9.2 million in
the second quarter of 2008 and restructuring and impairment charges
of $65.6 million in the second quarter of 2007, increased to 5.1%
in the second quarter of 2008 from �2.0% in the second quarter of
2007. Excluding restructuring and impairment charges, the segment�s
non-GAAP operating margin decreased to 6.3% in the second quarter
of 2008 from 7.0% in the second quarter of 2007 due to changes in
foreign exchange rates, an unfavorable business mix and continued
price pressure. Unallocated Corporate operating expense increased
slightly to $44.7 million in the second quarter of 2008 from $43.6
million in the second quarter of 2007. Excluding restructuring and
impairment charges of $3.1 million in the second quarter of 2008
and restructuring charges of $1.6 million in the second quarter of
2007, Corporate operating expense decreased slightly from $42.0
million to $41.6 million in the second quarter of 2008. Outlook �
2008 Full-year non-GAAP EPS from Continuing Operations Reaffirmed
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. This guidance includes the expected impact
of the previously completed 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 33.5% to 34.5%. 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 call and simultaneous webcast to discuss its
second quarter results today, Wednesday, August 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 55582190. 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 144 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 June 30, 2008
and December 31, 2007 (UNAUDITED) (In millions, except per share
data) � � � � June 30, 2008 � December 31, 2007 Assets � � Current
Assets Cash and cash equivalents 435.3 379.0 Restricted cash
equivalents 8.4 63.9 Receivables, less allowance for doubtful
accounts 2,165.4 2,181.2 Inventories 748.5 709.5 Prepaid expenses
and other current assets 84.5 85.5 Deferred income taxes 119.8 � �
102.2 � Total current assets 3,561.9 � � 3,521.3 � � Property,
plant and equipment, net 2,758.5 2,726.0 Goodwill 3,287.1 3,264.9
Other intangibles - net 1,283.6 1,323.2 Prepaid pension cost 846.6
833.2 Other noncurrent assets 433.2 418.1 � � � � � � � � � � Total
Assets � � � � 12,170.9 � � 12,086.7 � � � Liabilities � Accounts
payable Accounts payable 875.5 954.9 Accrued liabilities 986.6
1,085.3 Short-term and current portion of long-term debt 1,211.1 �
� 725.0 � Total Current Liabilities 3,073.2 � � 2,765.2 � �
Long-term debt 3,198.3 3,601.9 Postretirement benefit obligations
254.2 247.9 Deferred income taxes 900.3 872.3 Other noncurrent
liabilities 651.4 689.1 Liabilities from discontinued operations
0.5 3.0 � � � � � � � � � � Total Liabilities � � � � 8,077.9 � �
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 2,874.1 2,858.4 � Retained
earnings 1,530.4 1,312.9 � Accumulated other comprehensive income
423.1 341.3 � Treasury stock, at cost, 31.3 shares (1,038.3 )
(909.0 ) in 2008 (2007 - 27.1 shares) � � � � � � � � � � � Total
Shareholders' Equity � � � 4,093.0 � � 3,907.3 � � � � � � � � � �
� Total Liabilities and Shareholders' Equity � � � 12,170.9 � �
12,086.7 � � � � � � � � � � � � � R. R. Donnelley & Sons
Company Condensed Consolidated Statements of Operations Three and
Six Months Ended June 30, 2008 and 2007 (In millions, except per
share data) (UNAUDITED) � � � � � � � � � � � � � � � � � � � � � �
� � � Three months ended June 30, Six months ended June 30, 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 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 $ 2,923.6 � $ - � � $ 2,923.6 �
� $ 2,796.3 � � $ - � � $ 2,796.3 � $ 5,920.7 � $ - � � $ 5,920.7 �
� $ 5,588.9 � � $ - � � $ 5,588.9 � Cost of sales (exclusive of
depreciation and amortization shown below) 2,143.5 - 2,143.5
2,039.8 - 2,039.8 4,361.7 - 4,361.7 4,095.8 - 4,095.8 Selling,
general and administrative expenses (exclusive of depreciation and
amortization shown below) 323.3 - 323.3 331.7 - 331.7 668.0 - 668.0
656.2 - 656.2 Restructuring and impairment charges 16.2 (16.2 ) -
330.5 (330.5 ) - 23.1 (23.1 ) - 341.9 (341.9 ) - Depreciation and
amortization 164.2 � - � � 164.2 � � 148.7 � � - � � 148.7 � 321.8
� - � � 321.8 � � 290.9 � � - � � 290.9 Total operating expenses
2,647.2 � (16.2 ) � 2,631.0 � � 2,850.7 � � (330.5 ) � 2,520.2 �
5,374.6 � (23.1 ) � 5,351.5 � � 5,384.8 � � (341.9 ) � 5,042.9
Income (loss) from continuing operations 276.4 � 16.2 � � 292.6 � �
(54.4 ) � 330.5 � � 276.1 � 546.1 � 23.1 � � 569.2 � � 204.1 � �
341.9 � � 546.0 � Interest expense - net 57.8 - 57.8 55.4 - 55.4
114.8 - 114.8 108.8 - 108.8 Investment and other income - net 3.4 -
3.4 (0.4 ) - (0.4 ) 8.0 - 8.0 1.8 - 1.8 � � � � � � � � � � � � � �
� � � � � � � � � � � Earnings (loss) from continuing operations
before income taxes and minority interest 222.0 � 16.2 � � 238.2 �
� (110.2 ) � 330.5 � � 220.3 � 439.3 � 23.1 � � 462.4 � � 97.1 � �
341.9 � � 439.0 � Income tax expense (benefit) 74.4 4.9 79.3 (41.7
) 111.9 70.2 109.8 45.3 155.1 26.2 116.3 142.5 Minority interest
2.5 - 2.5 0.9 - 0.9 2.4 - 2.4 1.4 - 1.4 � � � � � � � � � � � � � �
� � � � � � � � � � � Net earnings (loss) from continuing
operations 145.1 � 11.3 � � 156.4 � � (69.4 ) � 218.6 � � 149.2 �
327.1 � (22.2 ) � 304.9 � � 69.5 � � 225.6 � � 295.1 � Income
(loss) from discontinued operations - net of tax 1.2 (1.2 ) - - - -
1.7 (1.7 ) - (0.1 ) 0.1 - � � � � � � � � � � � � � � � � � � � � �
� � � � � Net earnings (loss) $ 146.3 � $ 10.1 � � $ 156.4 � � $
(69.4 ) � $ 218.6 � � $ 149.2 � $ 328.8 � $ (23.9 ) � $ 304.9 � � $
69.4 � � $ 225.7 � � $ 295.1 Earnings per share: Basic: Net
earnings (loss) from continuing operations $ 0.68 $ 0.74 $ (0.32 )
$ 0.67 $ 1.53 $ 1.43 $ 0.32 $ 1.34 Income (loss) from discontinued
operations, net of tax $ 0.01 $ - � $ - � $ - � $ 0.01 $ - � $ - �
$ - Net earnings $ 0.69 $ 0.74 � � $ (0.32 ) $ 0.67 � $ 1.54 $ 1.43
� � $ 0.32 � $ 1.34 Diluted: Net earnings (loss) from continuing
operations $ 0.68 $ 0.73 $ (0.32 ) $ 0.67 $ 1.53 $ 1.43 $ 0.31 $
1.33 Income (loss) from discontinued operations, net of tax $ 0.01
$ - � $ - � $ - � $ 0.01 $ - � $ - � $ - Net earnings $ 0.69 $ 0.73
� � $ (0.32 ) $ 0.67 � $ 1.54 $ 1.43 � � $ 0.31 � $ 1.33 � � � � �
� � � � � � � � Weighted average common shares outstanding: Basic
212.3 212.3 220.9 220.9 213.4 213.4 219.7 219.7 Diluted 212.9 � � �
212.9 � � 220.9 � � � � 221.8 � 213.9 � � � 213.9 � � 221.1 � � � �
221.1 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 June 30, 2008 Three months ended June 30,
2007 Income fromcontinuingoperations Operatingmargin Net earnings
Net earningsper dilutedshare Income (loss)fromcontinuingoperations
Operatingmargin Net earnings(loss) Net earnings(loss) perdiluted
share GAAP basis measures $ 276.4 9.5 % $ 146.3 $ 0.69 $ (54.4 )
-1.9 % $ (69.4 ) $ (0.32 ) � Non-GAAP adjustments: Restructuring
and impairment charges (1) 16.2 0.5 % 11.3 0.05 330.5 11.8 % 218.6
0.99 Net income from discontinued operations (2) - � - � � (1.2 ) �
(0.01 ) - � � - � � - � � - � Total Non-GAAP adjustments 16.2 � 0.5
% � 10.1 � � 0.04 � 330.5 � � 11.8 % � 218.6 � � 0.99 � Non-GAAP
measures $ 292.6 � 10.0 % � $ 156.4 � � $ 0.73 � $ 276.1 � � 9.9 %
� $ 149.2 � � $ 0.67 � � � (1) Restructuring and impairment
(pre-tax): Operating results for the three months ended June 30,
2008 and 2007 were affected by the following restructuring and
impairment charges: - 2008 included restructuring charges of $10.3
million for employee termination costs resulting from the
reorganization of certain operations and the exiting of certain
business activities; $5.5 million of other restructuring costs,
including lease termination and other facility closure costs; and
$0.4 million of impairment charges related to the impairment of
other long-lived assets. � - 2007 included impairment charges of
$316.1 million for the write-off of the Moore Wallace, OfficeTiger,
and other trade names; restructuring charges of $11.7 million for
employee termination costs resulting from the reorganization of
certain operations and the exiting of certain business activities;
$2.1 million of other restructuring costs, including lease
termination costs; and $0.6 million for the impairment of other
long-lived assets. � � (2) Net income from discontinued operations:
The net income from discontinued operations for the three months
ended June 30, 2008 reflects the reversal of a deferred tax
liability for the Company's package logistics business. R.R.
Donnelley & Sons Company Reconciliation of GAAP to Non-GAAP
Measures IN MILLIONS, EXCEPT PER SHARE AND MARGIN DATA (UNAUDITED)
� � � � � � � � Six months ended June 30, 2008 Six months ended
June 30, 2007 Income fromcontinuingoperations Operatingmargin Net
earnings Net earningsper dilutedshare Income
fromcontinuingoperations Operatingmargin Net earnings Net
earningsper dilutedshare GAAP basis measures $ 546.1 9.2 % $ 328.8
$ 1.54 $ 204.1 3.7 % $ 69.4 $ 0.31 � Non-GAAP adjustments:
Restructuring and impairment charges (1) 23.1 0.4 % 15.8 0.07 341.9
6.1 % 225.6 1.02 Income tax adjustments (2) - - (38.0 ) (0.17 ) - -
- - Net (income) loss from discontinued operations (3) - � - � �
(1.7 ) � (0.01 ) - � - � � 0.1 � - Total Non-GAAP adjustments 23.1
� 0.4 % � (23.9 ) � (0.11 ) 341.9 � 6.1 % � 225.7 � 1.02 Non-GAAP
measures $ 569.2 � 9.6 % � $ 304.9 � � $ 1.43 � $ 546.0 � 9.8 % � $
295.1 � $ 1.33 � � (1) Restructuring and impairment (pre-tax):
Operating results for the six months ended June 30, 2008 and 2007
were affected by the following restructuring and impairment
charges: - 2008 included restructuring charges of $15.0 million for
employee termination costs resulting from the reorganization of
certain operations and the exiting of certain business activities;
$6.0 million of other restructuring costs, including lease
termination and other facility closure costs; and $2.1 million of
impairment charges related to the impairment of other long-lived
assets. � - 2007 included impairment charges of $316.1 million for
the write-off of the Moore Wallace, OfficeTiger, and other trade
names; restructuring charges of $21.0 million for employee
termination costs resulting from the reorganization of certain
operations and the exiting of certain business activities; $4.1
million of other restructuring costs, including lease termination
costs; and $0.7 million for the impairment of other long-lived
assets. � (2) Income tax adjustments: Net earnings for the six
months ended June 30, 2008 were affected by a $38 million reversal
of reserves for uncertain tax positions. � (3) Net income (loss)
from discontinued operations: The net income from discontinued
operations for the six months ended June 30, 2008 reflects the
reversal of a deferred tax liability for the Company's package
logistics business. R. R. Donnelley & Sons Company Segment GAAP
to Non-GAAP Operating Income and Margin Reconciliation For the
Three months ended June 30, 2008 and 2007 $ IN MILLIONS (UNAUDITED)
� � � � U.S. Print andRelated Services � International � Corporate
� � Consolidated � Three Months Ended June 30, 2008 Net Sales $
2,161.6 $ 762.0 $ - $ 2,923.6 Operating Expense 1,879.0 � � 723.5 �
� 44.7 � � 2,647.2 � Operating Income (Loss) 282.6 38.5 (44.7 )
276.4 Operating Margin % 13.1 % 5.1 % nm 9.5 % � Non-GAAP
Adjustments Restructuring charges 3.9 9.2 2.7 15.8 Impairment
charges - � � - � � 0.4 � � 0.4 � Total Non-GAAP Adjustments 3.9
9.2 3.1 16.2 � Operating income (loss) excluding restructuring and
impairment charges $ 286.5 $ 47.7 $ (41.6 ) $ 292.6 Operating
margin before restructuring and impairment charges % 13.3 % 6.3 %
nm 10.0 % � Depreciation and amortization 109.2 44.8 10.2 164.2
Capital expenditures 53.6 26.4 5.5 85.5 � Three Months Ended June
30, 2007 Net Sales $ 2,069.2 $ 727.1 $ - $ 2,796.3 Operating
Expense 2,065.4 � � 741.7 � � 43.6 � � 2,850.7 � Operating Income
(Loss) 3.8 (14.6 ) (43.6 ) (54.4 ) Operating Margin % 0.2 % (2.0 )%
nm (1.9 )% � Non-GAAP Adjustments Restructuring charges 5.3 6.9 1.6
13.8 Impairment charges 258.0 � 58.7 � - � 316.7 � Total Non-GAAP
Adjustments 263.3 65.6 1.6 330.5 � Operating income (loss)
excluding restructuring and impairment charges $ 267.1 $ 51.0 $
(42.0 ) $ 276.1 Operating margin before restructuring and
impairment charges % 12.9 % 7.0 % nm 9.9 % � Depreciation and
amortization 100.1 40.1 8.5 148.7 Capital expenditures 66.6 55.0
5.8 127.4 R. R. Donnelley & Sons Company Segment GAAP to
Non-GAAP Operating Income and Margin Reconciliation For the Six
months ended June 30, 2008 and 2007 $ IN MILLIONS (UNAUDITED) � � �
� U.S. Print andRelated Services � International � Corporate � �
Consolidated � Six Months Ended June 30, 2008 Net Sales $ 4,402.3 $
1,518.4 $ - $ 5,920.7 Operating Expense 3,853.0 � � 1,431.0 � �
90.6 � � 5,374.6 � Operating Income (Loss) 549.3 87.4 (90.6 ) 546.1
Operating Margin % 12.5 % 5.8 % nm 9.2 % � Non-GAAP Adjustments
Restructuring charges 7.5 12.0 1.5 21.0 Impairment charges 1.7 � �
- � � 0.4 � � 2.1 � Total Non-GAAP Adjustments 9.2 12.0 1.9 23.1 �
Operating income (loss) excluding restructuring and impairment
charges $ 558.5 $ 99.4 $ (88.7 ) $ 569.2 Operating margin before
restructuring and impairment charges % 12.7 % 6.5 % nm 9.6 % �
Depreciation and amortization 213.5 87.7 20.6 321.8 Capital
expenditures 101.3 47.6 8.5 157.4 � Six Months Ended June 30, 2007
Net Sales $ 4,171.0 $ 1,417.9 $ - $ 5,588.9 Operating Expense
3,907.9 � � 1,379.0 � � 97.9 � � 5,384.8 � Operating Income (Loss)
263.1 38.9 (97.9 ) 204.1 Operating Margin % 6.3 % 2.7 % nm 3.7 % �
Non-GAAP Adjustments Restructuring charges 10.1 9.3 5.7 25.1
Impairment charges 258.0 � � 58.8 � � - � � 316.8 � Total Non-GAAP
Adjustments 268.1 68.1 5.7 341.9 � Operating income (loss)
excluding restructuring and impairment charges $ 531.2 $ 107.0 $
(92.2 ) $ 546.0 Operating margin before restructuring and
impairment charges % 12.7 % 7.5 % nm 9.8 % � Depreciation and
amortization 194.0 79.6 17.3 290.9 Capital expenditures 138.4 88.4
10.0 236.8 � � � � R. R. Donnelley & Sons Company Condensed
Consolidated Statements of Cash Flows For the six months ended June
30, 2008 and 2007 IN MILLIONS (UNAUDITED) � � � � 2008 � 2007
Operating Activities � Net earnings $ 328.8 $ 69.4 � Net (earnings)
loss from discontinued operations (1.7 ) 0.1 � Adjustment to
reconcile net earnings to cash provided by operating activities
314.3 516.1 � � Changes in operating assets and liabilities � �
(269.7 ) � (149.1 ) Net cash provided by operating activities of
continuing operations 371.7 436.5 Net cash used in operating
activities of discontinued operations � � (0.8 ) � (0.6 ) Net cash
provided by operating activities � � 370.9 � � 435.9 � � � � � � �
� � � Net cash used in investing activities of continuing
operations (197.0 ) (2,163.5 ) Net cash used in investing
activities of discontinued operations � � - � � - � Net cash used
in investing activities � � (197.0 ) � (2,163.5 ) � � � � � � � � �
Net cash (used in) provided by financing activities of continuing
operations (134.5 ) 1,806.1 Net cash used in financing activities
of discontinued operations � � - � � - � Net cash (used in)
provided by financing activities � � (134.5 ) � 1,806.1 � � Effect
of exchange rate on cash and cash equivalents 16.9 11.2 � � � � � �
� � � Net increase in cash and cash equivalents � � 56.3 � � 89.7 �
� Cash and cash equivalents at beginning of period 379.0 211.4 � �
� � � � � � � Cash and cash equivalents at end of period � � $
435.3 � � $ 301.1 � Supplemental non-cash disclosure: � Use of
restricted cash to fund obligations associated with deferred
compensation plans $ 24.2 � � $ 10.4 � R.R. Donnelley & Sons
Company Revenue Reconciliation Reported to Pro Forma For the three
months ended June 30, 2008 and 2007 $ IN MILLIONS (UNAUDITED) � � �
Reported netsales Adjustmentfor net salesof acquiredbusinesses Pro
forma netsales Three Months Ended June 30, 2008 U.S. Print and
Related Services $ 2,161.6 $ - $ 2,161.6 International 762.0 � � -
� 762.0 � Consolidated $ 2,923.6 $ - $ 2,923.6 � Three Months Ended
June 30, 2007 U.S. Print and Related Services $ 2,069.2 $ 117.1 $
2,186.3 International 727.1 � � - � 727.1 � Consolidated $ 2,796.3
$ 117.1 $ 2,913.4 � Net sales change U.S. Print and Related
Services 4.5 % -1.1 % International 4.8 % 4.8 % Consolidated 4.6 %
0.4 % 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 June 30, 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 June 30, 2007, the adjustment
for net sales of acquired businesses reflects the net sales of Von
Hoffmann (acquired May 16, 2007), Cardinal Brands, Inc. (acquired
December 27, 2007) and Pro Line Printing, Incorporated (acquired
March 14, 2008). R.R. Donnelley & Sons Company Revenue
Reconciliation Reported to Pro Forma For the six months ended June
30, 2008 and 2007 $ IN MILLIONS (UNAUDITED) � � � Reported netsales
Adjustmentfor net salesof acquiredbusinesses Pro forma netsales Six
Months Ended June 30, 2008 U.S. Print and Related Services $
4,402.3 $ 23.6 $ 4,425.9 International 1,518.4 � - � 1,518.4
Consolidated $ 5,920.7 $ 23.6 $ 5,944.3 � Six Months Ended June 30,
2007 U.S. Print and Related Services $ 4,171.0 $ 306.6 $ 4,477.6
International 1,417.9 � 9.2 � 1,427.1 Consolidated $ 5,588.9 $
315.8 $ 5,904.7 � Net sales change U.S. Print and Related Services
5.5% -1.2% International 7.1% 6.4% Consolidated 5.9% 0.7% 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 six
months ended June 30, 2008 and 2007 to pro forma net sales as if
the acquisitions took place at the beginning of the respective
periods. For the six months ended June 30, 2008, the adjustment for
net sales of acquired businesses reflects the net sales of Pro Line
Printing, Incorporated (acquired March 14, 2008). For the six
months ended June 30, 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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