Highlights: Third-quarter 2008 GAAP net earnings from continuing
operations of $168.2 million or $0.80 per diluted share vs. net
earnings from continuing operations of $175.0 million or $0.80 per
diluted share in 2007 Third-quarter 2008 non-GAAP net earnings from
continuing operations of $183.2 million or $0.87 per diluted share,
an increase of 7.4% over the $0.81 in non-GAAP earnings per diluted
share in the third quarter of 2007 Repurchased 10 million shares of
common stock year-to-date through today Additional share
repurchases have been authorized, bringing the total available
authorization back to 10 million shares R.R. Donnelley & Sons
Company (NYSE: RRD) today reported third-quarter net earnings from
continuing operations of $168.2 million or $0.80 per diluted share
on net sales of $2.9 billion compared to net earnings from
continuing operations of $175.0 million or $0.80 per diluted share
on net sales of $2.9 billion in the third quarter of 2007. The
third-quarter net earnings from continuing operations in both 2008
and 2007 included pre-tax charges, substantially all associated
with the reorganization of certain operations and the exiting of
certain business activities, for restructuring ($22.9 million) and
impairment ($0.5 million) totaling $23.4 million in 2008 and for
restructuring ($18.4 million) and impairment ($1.5 million),
totaling $19.9 million in 2007. The company�s effective tax rate
increased to 32.0% in the third quarter of 2008 from 25.1% in the
third quarter of 2007 primarily due to the favorable impact on the
2007 tax rate of the lower statutory tax rate in the United Kingdom
that generated a $9.3 million reduction in net deferred tax
liabilities, a larger proportion of taxable income being generated
in higher tax jurisdictions and a higher effective tax rate on
foreign earnings in 2008 that was partially offset by the benefit
in the current quarter from the resolution of uncertain tax
positions. 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 $183.2 million or $0.87 per diluted share in the
third quarter of 2008 compared to $177.8 or $0.81 per diluted share
in the third quarter of 2007. Third-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 32.3% in the third quarter of
2008 from 29.9% in the third quarter of 2007 due to both a larger
proportion of taxable income being generated in higher tax
jurisdictions and a higher effective tax rate on foreign earnings
in 2008. A reconciliation of GAAP net earnings to non-GAAP net
earnings for these adjustments is presented in the attached tables.
"Given these unprecedented times, we are pleased with the earnings
generated in the quarter,� said Thomas J. Quinlan III, RR
Donnelley's President and Chief Executive Officer. �In a
challenging revenue environment, we have generated nearly $700
million in cash from operations through the third quarter of 2008,
validating our strategy and demonstrating the benefits of our
diverse and flexible platform and broad product offering. We
continued to secure new business, including the recently announced
print management deals with Houghton Mifflin Harcourt Publishing
Company and Harrah's. Through continued expense management, we
reaffirm our full-year non-GAAP operating margin guidance for the
year of slightly greater than 10.0%." Quinlan added, �Our
discipline in capital deployment and management as well as the
resulting strong balance sheet and liquidity profile differentiate
us in our industry and position us to serve our customers well.�
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 Cardinal Brands in
December of 2007 and Pro Line Printing in March of 2008. 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 $2.9 billion, down 1.6%
from the third quarter of 2007. The decrease was caused by volume
declines and continued price pressure primarily due to the global
economic slowdown, offset in part by acquisitions and favorable
foreign exchange rates. Gross margin decreased slightly to 27.0% in
the third quarter of 2008 from 27.1% in the third quarter of 2007
due to volume and price declines, as well as the inclusion of the
acquired companies that in aggregate carried a lower margin
historically, offset in part by the benefits of our productivity
efforts and a variable compensation expense reduction. SG&A
expense as a percentage of net sales decreased to 9.8% in the third
quarter of 2008 from 11.0% in the third quarter of 2007, primarily
due to variable compensation expense reduction. Operating margin,
which was negatively impacted by charges for restructuring and
impairment of $23.4 million in the third quarter of 2008 and $19.9
million in the third quarter of 2007, increased to 10.7% in the
third quarter of 2008 from 10.1% in the third quarter of 2007.
Excluding charges for restructuring and impairment, the non-GAAP
operating margin in the third quarter of 2008 increased to 11.5%
from 10.8% in the third quarter of 2007, as the reduction in
variable compensation expense improved margins by 277 basis points
and the benefits from our productivity efforts offset the impact of
volume and price declines and the inclusion of the acquired
companies that in aggregate carried a lower margin historically.
Segments Net sales for the U.S. Print and Related Services segment
decreased 0.8% to $2.1 billion from the third quarter of 2007 due
to volume declines across most product lines and continued price
pressure primarily due to the global economic slowdown. Partially
offsetting these declines were sales from the acquisitions of
Cardinal Brands and Pro Line Printing, as well as sales increases
in logistics services and volume increases in forms and labels. The
segment�s operating margin, which was negatively impacted by
charges for restructuring and impairment of $16.7 million in the
third quarter of 2008 and $11.8 million in the third quarter of
2007, increased to 13.4% from 12.8% in the third quarter of 2007.
Excluding restructuring and impairment charges, the segment�s
non-GAAP operating margin increased to 14.2% in the third quarter
of 2008 from 13.4% in the third quarter of 2007, as the reduction
in variable compensation expense and the benefits of our
productivity efforts more than offset the impact of volume and
price declines and the inclusion of the acquired companies that in
aggregate carried a lower margin historically. Net sales for the
International segment decreased 3.6% to $721.2 million from the
third quarter of 2007 due to volume declines in business process
outsourcing services, European print and financial print as well as
continued price pressure. Partially offsetting these declines were
favorable foreign exchange rates and volume increases in Asia
printing services and Latin America. The segment�s operating
margin, which was negatively impacted by charges for restructuring
and impairment of $5.0 million in the third quarter of 2008 and
charges for restructuring of $3.8 million in the third quarter of
2007, increased to 8.4% in the third quarter of 2008 from 7.2% in
the third quarter of 2007. Excluding restructuring and impairment
charges, the segment�s non-GAAP operating margin increased to 9.1%
in the third quarter of 2008 from 7.7% in the third quarter of 2007
due to productivity and cost management initiatives and the
variable compensation expense reduction, which more than offset
volume and price pressure and an unfavorable change in foreign
exchange rates. Unallocated Corporate operating expense increased
to $42.4 million in the third quarter of 2008 from $36.1 million in
the third quarter of 2007. Excluding restructuring charges of $1.7
million in the third quarter of 2008 and $4.3 million in the third
quarter of 2007, Corporate operating expense increased from $31.8
million to $40.7 million in the third quarter of 2008 due to
increases in both the LIFO inventory provision and the bad debt
provision partially offset by the variable compensation expense
reduction. Outlook � 2008 Full-year non-GAAP EPS from Continuing
Operations Revised Although the economic outlook is more uncertain,
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 $3.11. 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 32.5% to 33.5%. 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 and simultaneous webcast to discuss its
third quarter results today, Wednesday, November 5, 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 65893129. 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;
the volatility and disruption of the capital and credit markets,
and adverse changes in the global economy; our ability to access
unsecured debt in the capital markets and our beliefs regarding the
reliability of the participants to our contractual lending
agreements; factors that affect customer demand, including changes
in postal rates and postal regulations, 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; customers� financial strength;
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 September 30,
2008 and December 31, 2007 (UNAUDITED) (In millions, except per
share data) � � � � September 30, 2008 � December 31, 2007 Assets �
� Current Assets Cash and cash equivalents $ 435.7 $ 379.0
Restricted cash equivalents 5.1 63.9 Receivables, less allowance
for doubtful accounts 2,115.7 2,181.2 Inventories 791.4 709.5
Prepaid expenses and other current assets 83.7 85.5 Deferred income
taxes 115.5 � � 102.2 � Total current assets 3,547.1 � � 3,521.3 �
� Property, plant and equipment, net 2,671.9 2,726.0 Goodwill
3,245.1 3,264.9 Other intangible assets - net 1,200.4 1,323.2
Prepaid pension cost 851.2 833.2 Other noncurrent assets 421.4
418.1 � � � � � � � � Total Assets � � � � $ 11,937.1 � � $
12,086.7 � � � Liabilities � Current Liabilities Accounts payable $
889.8 $ 954.9 Accrued liabilities 994.5 1,085.3 Short-term and
current portion of long-term debt 1,191.7 � � 725.0 � Total Current
Liabilities 3,076.0 � � 2,765.2 � � Long-term debt 3,198.1 3,601.9
Postretirement benefits 255.2 247.9 Deferred income taxes 847.6
872.3 Other noncurrent liabilities 561.3 689.1 Liabilities of
discontinued operations 0.5 3.0 � � � � � � � � Total Liabilities �
� � � 7,938.7 � � 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 2,881.1
2,858.4 � Retained earnings 1,643.9 1,312.9 � Accumulated other
comprehensive income 363.4 341.3 � Treasury stock, at cost, 37.2
shares (1,193.7 ) (909.0 ) in 2008 (2007 - 27.1 shares) � � � � � �
� � � Total Shareholders' Equity � � � 3,998.4 � � 3,907.3 � � � �
� � � � � Total Liabilities and Shareholders' Equity � � � $
11,937.1 � � $ 12,086.7 � � � � � � � � � � � � � R. R. Donnelley
& Sons Company Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2008 and 2007 (In
millions, except per share data) (UNAUDITED) � � � � � � � � � � �
� � � � � � � � � � � � Three months ended September 30, Nine
months ended September 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 $ 2,864.6 � � $ - �
� $ 2,864.6 � � $ 2,910.0 � $ - � � $ 2,910.0 $ 8,785.3 � $ - � � $
8,785.3 � $ 8,498.9 � � $ - � � $ 8,498.9 � Cost of sales
(exclusive of depreciation and amortization shown below) 2,090.3 -
2,090.3 2,122.4 - 2,122.4 6,452.0 - 6,452.0 6,218.2 - 6,218.2
Selling, general and administrative expenses (exclusive of
depreciation and amortization shown below) 279.8 - 279.8 320.5 -
320.5 947.9 - 947.9 976.7 - 976.7 Restructuring and impairment
charges 23.4 (23.4 ) - 19.9 (19.9 ) - 46.5 (46.5 ) - 361.8 (361.8 )
- Depreciation and amortization 164.7 � � - � � 164.7 � � 152.8 � -
� � 152.8 486.5 � - � � 486.5 � 443.7 � � - � � 443.7 Total
operating expenses 2,558.2 � � (23.4 ) � 2,534.8 � � 2,615.6 �
(19.9 ) � 2,595.7 7,932.9 � (46.5 ) � 7,886.4 � 8,000.4 � � (361.8
) � 7,638.6 Income from continuing operations 306.4 � � 23.4 � �
329.8 � � 294.4 � 19.9 � � 314.3 852.4 � 46.5 � � 898.9 � 498.5 � �
361.8 � � 860.3 � Interest expense - net 56.2 - 56.2 59.1 - 59.1
171.0 - 171.0 167.9 - 167.9 Investment and other income (expense) -
net (1.1 ) - (1.1 ) 0.5 - 0.5 7.0 - 7.0 2.3 - 2.3 � � � � � � � � �
� � � � � � � � � � � � � � Earnings from continuing operations
before income taxes and minority interest 249.1 � � 23.4 � � 272.5
� � 235.8 � 19.9 � � 255.7 688.4 � 46.5 � � 734.9 � 332.9 � � 361.8
� � 694.7 � Income tax expense 79.7 8.4 88.1 59.3 17.1 76.4 189.5
53.7 243.2 85.5 133.4 218.9 Minority interest 1.2 - 1.2 1.5 - 1.5
3.6 - 3.6 2.9 - 2.9 � � � � � � � � � � � � � � � � � � � � � � �
Net earnings from continuing operations 168.2 � � 15.0 � � 183.2 �
� 175.0 � 2.8 � � 177.8 495.3 � (7.2 ) � 488.1 � 244.5 � � 228.4 �
� 472.9 � Income (loss) from discontinued operations - net of tax -
- - - - - 1.7 (1.7 ) - (0.1 ) 0.1 - � � � � � � � � � � � � � � � �
� � � � � � � � Net earnings $ 168.2 � � $ 15.0 � � $ 183.2 � � $
175.0 � $ 2.8 � � $ 177.8 $ 497.0 � $ (8.9 ) � $ 488.1 � $ 244.4 �
� $ 228.5 � � $ 472.9 Earnings per share: Basic: Net earnings from
continuing operations $ 0.80 $ 0.88 $ 0.80 $ 0.82 $ 2.33 $ 2.30 $
1.12 $ 2.16 Income from discontinued operations, net of tax $ - � $
- � � $ - $ - $ 0.01 $ - � $ - � $ - Net earnings $ 0.80 � $ 0.88 �
� $ 0.80 $ 0.82 $ 2.34 $ 2.30 � $ 1.12 � $ 2.16 Diluted: Net
earnings from continuing operations $ 0.80 $ 0.87 $ 0.80 $ 0.81 $
2.33 $ 2.30 $ 1.11 $ 2.15 Income from discontinued operations, net
of tax $ - � $ - � � $ - $ - $ 0.01 $ - � $ - � $ - Net earnings $
0.80 � $ 0.87 � � $ 0.80 $ 0.81 $ 2.34 $ 2.30 � $ 1.11 � $ 2.15 � �
� � � � � � � � � Weighted average common shares outstanding: Basic
209.1 209.1 217.8 217.8 212.0 212.0 219.1 219.1 Diluted 209.7 � � �
� 209.7 � � 218.5 � � � 218.5 212.5 � � � 212.5 � 220.3 � � � �
220.3 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 September 30, 2008 Three months ended
September 30, 2007 Income fromcontinuingoperations Operatingmargin
Net earnings Net earningsper dilutedshare Income
fromcontinuingoperations Operatingmargin Net earnings Net
earningsper dilutedshare GAAP basis measures $ 306.4 10.7 % $ 168.2
$ 0.80 $ 294.4 10.1 % $ 175.0 $ 0.80 � Non-GAAP adjustments:
Restructuring and impairment charges (1) 23.4 0.8 % 15.0 0.07 19.9
0.7 % 12.1 0.05 Income tax adjustments (2) - � - � � - � - - � - �
� (9.3 ) � (0.04 ) Total Non-GAAP adjustments 23.4 � 0.8 % � 15.0 �
0.07 19.9 � 0.7 % � 2.8 � � 0.01 � Non-GAAP measures $ 329.8 � 11.5
% � $ 183.2 � $ 0.87 $ 314.3 � 10.8 % � $ 177.8 � � $ 0.81 � � �
(1) Restructuring and impairment (pre-tax): Operating results for
the three months ended September 30, 2008 and 2007 were affected by
the following restructuring and impairment charges: � - 2008
included restructuring charges of $21.6 million for employee
termination costs resulting from the reorganization of certain
operations and the exiting of certain business activities; $1.3
million of other restructuring costs, including lease termination
and other facility closure costs; and $0.5 million of impairment
charges related to the impairment of other long-lived assets. � -
2007 included restructuring charges of $13.7 million for employee
termination costs resulting from the reorganization of certain
operations and the exiting of certain business activities; $4.7
million of other restructuring costs, including lease termination
costs; and $1.5 million for the impairment of other long-lived
assets. � (2) Income tax adjustments: Income tax expense for the
three months ended September 30, 2007 reflects a $9.3 million
benefit from a reduction in net deferred tax liabilities due to a
decrease in the statutory rate in the United Kingdom. R.R.
Donnelley & Sons Company Reconciliation of GAAP to Non-GAAP
Measures IN MILLIONS, EXCEPT PER SHARE AND MARGIN DATA (UNAUDITED)
� � � � � � � Nine months ended September 30, 2008 Nine months
ended September 30, 2007 Income fromcontinuingoperations
Operatingmargin Net earnings Net earningsper dilutedshare Income
fromcontinuingoperations Operatingmargin Net earnings Net
earningsper dilutedshare GAAP basis measures $ 852.4 9.7 % $ 497.0
$ 2.34 $ 498.5 5.9 % $ 244.4 $ 1.11 � Non-GAAP adjustments:
Restructuring and impairment charges (1) 46.5 0.5 % 30.8 0.14 361.8
4.2 % 237.7 1.08 Income tax adjustments (2) - - (38.0 ) (0.17 ) - -
(9.3 ) (0.04 ) Net (income) loss from discontinued operations (3) -
� - � � (1.7 ) � (0.01 ) - � - � � 0.1 � � - � Total Non-GAAP
adjustments 46.5 � 0.5 % � (8.9 ) � (0.04 ) 361.8 � 4.2 % � 228.5 �
� 1.04 � Non-GAAP measures $ 898.9 � 10.2 % � $ 488.1 � � $ 2.30 �
$ 860.3 � 10.1 % � $ 472.9 � � $ 2.15 � � � (1) Restructuring and
impairment (pre-tax): Operating results for the nine months ended
September 30, 2008 and 2007 were affected by the following
restructuring and impairment charges: � - 2008 included
restructuring charges of $36.6 million for employee termination
costs resulting from the reorganization of certain operations and
the exiting of certain business activities; $7.3 million of other
restructuring costs, including lease termination and other facility
closure costs; and $2.6 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 $34.7 million for employee termination costs resulting from the
reorganization of certain operations and the exiting of certain
business activities; $8.8 million of other restructuring costs,
including lease termination costs; and $2.2 million for the
impairment of other long-lived assets. � (2) Income tax
adjustments: Net earnings for the nine months ended September 30,
2008 were affected by a $38 million reversal of reserves for
uncertain tax positions. Income tax expense for the nine months
ended September 30, 2007 reflects a $9.3 million benefit from a
reduction in net deferred tax liabilities due to a decrease in the
statutory rate in the United Kingdom. � (3) Net income (loss) from
discontinued operations: The net income from discontinued
operations for the nine months ended September 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 September 30, 2008 and 2007 $ IN MILLIONS
(UNAUDITED) � � � U.S. Print andRelated Services � International �
Corporate � Consolidated � Three Months Ended September 30, 2008
Net sales $ 2,143.4 $ 721.2 $ - $ 2,864.6 Operating expense 1,855.5
� � 660.3 � � 42.4 � � 2,558.2 � Operating income (loss) 287.9 60.9
(42.4 ) 306.4 Operating margin % 13.4 % 8.4 % nm 10.7 % � Non-GAAP
Adjustments Restructuring charges 16.3 4.9 1.7 22.9 Impairment
charges 0.4 � � 0.1 � � - � � 0.5 � Total Non-GAAP adjustments 16.7
5.0 1.7 23.4 � Operating income (loss) excluding restructuring and
impairment charges $ 304.6 $ 65.9 $ (40.7 ) $ 329.8 Operating
margin before restructuring and impairment charges % 14.2 % 9.1 %
nm 11.5 % � Depreciation and amortization 109.3 45.2 10.2 164.7
Capital expenditures 42.3 24.9 14.0 81.2 � Three Months Ended
September 30, 2007 Net sales $ 2,161.7 $ 748.3 $ - $ 2,910.0
Operating expense 1,884.8 � � 694.7 � � 36.1 � � 2,615.6 �
Operating income (loss) 276.9 53.6 (36.1 ) 294.4 Operating margin %
12.8 % 7.2 % nm 10.1 % � Non-GAAP Adjustments Restructuring charges
10.3 3.8 4.3 18.4 Impairment charges 1.5 � � - � � - � � 1.5 �
Total Non-GAAP adjustments 11.8 3.8 4.3 19.9 � Operating income
(loss) excluding restructuring and impairment charges $ 288.7 $
57.4 $ (31.8 ) $ 314.3 Operating margin before restructuring and
impairment charges % 13.4 % 7.7 % nm 10.8 % � Depreciation and
amortization 103.0 41.0 8.8 152.8 Capital expenditures 51.4 26.5
6.4 84.3 R. R. Donnelley & Sons Company Segment GAAP to
Non-GAAP Operating Income and Margin Reconciliation For the Nine
months ended September 30, 2008 and 2007 $ IN MILLIONS (UNAUDITED)
� � � � U.S. Print andRelated Services � International � Corporate
� Consolidated � Nine Months Ended September 30, 2008 Net sales $
6,545.8 $ 2,239.5 $ - $ 8,785.3 Operating expense 5,708.6 � �
2,091.2 � � 133.1 � � 7,932.9 � Operating income (loss) 837.2 148.3
(133.1 ) 852.4 Operating margin % 12.8 % 6.6 % nm 9.7 % � Non-GAAP
Adjustments Restructuring charges 23.8 16.9 3.2 43.9 Impairment
charges 2.1 � � 0.2 � � 0.3 � � 2.6 � Total Non-GAAP adjustments
25.9 17.1 3.5 46.5 � Operating income (loss) excluding
restructuring and impairment charges $ 863.1 $ 165.4 $ (129.6 ) $
898.9 Operating margin before restructuring and impairment charges
% 13.2 % 7.4 % nm 10.2 % � Depreciation and amortization 322.7
132.9 30.9 486.5 Capital expenditures 143.6 72.6 22.5 238.7 � Nine
Months Ended September 30, 2007 Net sales $ 6,332.7 $ 2,166.2 $ - $
8,498.9 Operating expense 5,792.8 � � 2,073.6 � � 134.0 � � 8,000.4
� Operating income (loss) 539.9 92.6 (134.0 ) 498.5 Operating
margin % 8.5 % 4.3 % nm 5.9 % � Non-GAAP Adjustments Restructuring
charges 20.4 13.1 10.0 43.5 Impairment charges 259.5 � � 58.8 � � -
� � 318.3 � Total Non-GAAP adjustments 279.9 71.9 10.0 361.8 �
Operating income (loss) excluding restructuring and impairment
charges $ 819.8 $ 164.5 $ (124.0 ) $ 860.3 Operating margin before
restructuring and impairment charges % 12.9 % 7.6 % nm 10.1 % �
Depreciation and amortization 297.0 120.6 26.1 443.7 Capital
expenditures 189.8 114.9 16.4 321.1 � � � � R. R. Donnelley &
Sons Company Condensed Consolidated Statements of Cash Flows For
the nine months ended September 30, 2008 and 2007 IN MILLIONS
(UNAUDITED) � � � � 2008 � 2007 Operating Activities � Net earnings
$ 497.0 $ 244.4 � Net (earnings) loss from discontinued operations
(1.7 ) 0.1 � Adjustment to reconcile net earnings to cash provided
by operating activities 460.2 681.9 � � Changes in operating assets
and liabilities � � (265.1 ) � (143.7 ) Net cash provided by
operating activities of continuing operations 690.4 782.7 Net cash
used in operating activities of discontinued operations � � (0.8 )
� (0.5 ) Net cash provided by operating activities � � 689.6 � �
782.2 � � � � � � � � � � Net cash used in investing activities of
continuing operations � � (276.8 ) � (2,228.2 ) Net cash used in
investing activities � � (276.8 ) � (2,228.2 ) � � � � � � � � �
Net cash (used in) provided by financing activities of continuing
operations � � (347.4 ) � 1,559.0 � Net cash (used in) provided by
financing activities � � (347.4 ) � 1,559.0 � � Effect of exchange
rate on cash and cash equivalents (8.7 ) 18.6 � � � � � � � � � Net
increase in cash and cash equivalents � � 56.7 � � 131.6 � � Cash
and cash equivalents at beginning of period 379.0 211.4 � � � � � �
� � � Cash and cash equivalents at end of period � � $ 435.7 � � $
343.0 � Supplemental non-cash disclosure: � Use of restricted cash
to fund obligations associated with deferred compensation plans $
25.0 � � $ 35.8 � R.R. Donnelley & Sons Company Revenue
Reconciliation Reported to Pro Forma For the three months ended
September 30, 2008 and 2007 $ IN MILLIONS (UNAUDITED) � � �
Reported netsales Adjustmentfor net salesof acquiredbusinesses Pro
forma netsales Three Months Ended September 30, 2008 U.S. Print and
Related Services $ 2,143.4 $ - $ 2,143.4 International 721.2 � � -
� 721.2 � Consolidated $ 2,864.6 $ - $ 2,864.6 � Three Months Ended
September 30, 2007 U.S. Print and Related Services $ 2,161.7 $ 74.8
$ 2,236.5 International 748.3 � � - � 748.3 � Consolidated $
2,910.0 $ 74.8 $ 2,984.8 � Net sales change U.S. Print and Related
Services -0.8 % -4.2 % International -3.6 % -3.6 % Consolidated
-1.6 % -4.0 % 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 September 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 September 30,
2007, the adjustment for net sales of acquired businesses reflects
the net sales of 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 nine months ended September 30, 2008 and 2007 $ IN
MILLIONS (UNAUDITED) � � � Reported netsales Adjustmentfor net
salesof acquiredbusinesses Pro forma netsales Nine Months Ended
September 30, 2008 U.S. Print and Related Services $ 6,545.8 $ 23.6
$ 6,569.4 International 2,239.5 � � - � 2,239.5 � Consolidated $
8,785.3 $ 23.6 $ 8,808.9 � Nine Months Ended September 30, 2007
U.S. Print and Related Services $ 6,332.7 $ 381.3 $ 6,714.0
International 2,166.2 � � 9.2 � 2,175.4 � Consolidated $ 8,498.9 $
390.5 $ 8,889.4 � Net sales change U.S. Print and Related Services
3.4 % -2.2 % International 3.4 % 2.9 % Consolidated 3.4 % -0.9 %
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 nine
months ended September 30, 2008 and 2007 to pro forma net sales as
if the acquisitions took place at the beginning of the respective
periods. For the nine months ended September 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 nine months ended September 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). R.R.
Donnelley & Sons Company Liquidity Summary As of September 30,
2008 $ IN MILLIONS (UNAUDITED) � � � � Total Liquidity (1) Cash $
435.7 Committed Credit Facility ("Facility") (2) 2,000.0 2,435.7
Usage Commercial paper 483.8 Borrowings under Facility 275.0
Letters of credit outstanding under Facility 38.8 797.6 � Net
Available Liquidity $ 1,638.1 � � (1) - Liquidity does not include
credit facilities of foreign subsidiaries, which are uncommitted
facilities. � (2) - $2 billion committed credit facility maturing
on January 6, 2012.
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