Fitch Revises R.R. Donnelley’s Outlook from Stable to Negative

Fitch believes that debt reduction will need to be a primary use of free cash flow (FCF) going forward in order to maintain current ratings. Given the secular challenges facing the company, deleveraging will primarily be driven through debt level reductions. There is no tolerance in the ratings for material share buy backs and/or increases in the current dividend level.

Rating Drivers:

• Ratings may be stabilized if the company executes on its intention to reduce absolute levels of debt and is able to demonstrate organic revenue growth.

• Sustained revenue declines and/or heightened concerns regarding secular challenges would likely result in a one notch rating downgrade.

Liquidity:

Fitch calculates RRD’s FCF (after dividends) for the last 12 months ended June 30, 2012 at $381 million. Fitch expects FCF to be approximately $300 million in 2012. RRD’s pension was $1 billion underfunded at the end of 2011. The company intends to contribute $205 million to its various retirement funds, including its pension, in 2012. The 2012 contribution is reflected in Fitch’s FCF expectations. The updated contributions reflect the passing of the Surface Transportation Extension Act of 2012, which provided pension funding relief.

As of June 30, 2012, liquidity was supported by $369 million in cash ($338 million located outside of the U.S.) and $1 billion available under its $1.75 billion revolver that matures in December 2013.

As of June 30, 2012, there is approximately $325 million in revolver debt balance outstanding, reflecting seasonal working capital balances and borrowing used to fund the January 2012 $160 million maturity. After the revolver balance has been repaid, Fitch expects the company to continue to reduce debt through repurchases of notes in the open market or via tender offers.

RRD’s next bond maturity is its $258 million 4.95 percent notes due in April 2014, $300 million 5.5 percent notes due in May 2015 and its $347 million 8.6 percent notes due in August 2016.

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