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RR Donnelley Reports Higher Earnings on Slight Sales Decline

May 2, 2012

CHICAGO—May 2, 2012—R.R. Donnelley & Sons reported first-quarter net earnings attributable to common shareholders of $37.4 million on net sales of $2.5 billion compared to net earnings of $33.9 million on net sales of $2.6 billion in the first quarter of 2011.

First-quarter 2012 net earnings attributable to common shareholders included pre-tax charges for restructuring ($40.7 million) and impairment ($9.3 million, non-cash), a loss on debt extinguishment ($12.1 million), acquisition-related expenses ($0.3 million) and a $19.8 million pre-tax favorable adjustment to accounts receivable for prior periods' over-accruals of rebates owed to certain customers within the office products reporting unit in the U.S. Print and Related Services segment. First-quarter 2011 net earnings attributable to common shareholders included pre-tax charges for restructuring ($42.7 million) and impairment ($8.1 million, non-cash) and acquisition-related expenses ($0.4 million).

Non-GAAP net earnings attributable to common shareholders totaled $78.8 million, or $0.44 per diluted share, in the first quarter of 2012 compared to $68.6 million, or $0.33 per diluted share, in the first quarter of 2011. First-quarter non-GAAP net earnings attributable to common shareholders exclude restructuring and impairment charges and acquisition-related expenses for both years as well as the loss on debt extinguishment in 2012. For non-GAAP comparison purposes, the effective tax rate decreased to 29.3 percent in the first quarter of 2012 from 32.7 percent in the first quarter of 2011, resulting from a release of valuation allowances on deferred tax assets within Europe. A reconciliation of GAAP net earnings attributable to common shareholders to non-GAAP net earnings attributable to common shareholders is presented in the attached schedules.

"We are pleased with our first-quarter results," said Thomas J. Quinlan III, RR Donnelley's President and Chief Executive Officer. "The revenue trend improved from the fourth quarter of 2011, reflecting a favorable trend in customer demand and new customer wins that we added to the platform during the quarter. We expect this improved trend, in conjunction with our continuing cost management efforts, to have a positive impact going forward."

Business Review

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

Net sales in the quarter were $2.5 billion, down $58.6 million, or 2.3 percent, from the first quarter of 2011. Pro forma for acquisitions, net sales decreased 2.7 percent, due to volume declines in certain product offerings, price erosion and a 76 basis point unfavorable impact of changes in foreign exchange rates, partially offset by an adjustment to accounts receivable for prior periods' over-accruals of rebates owed to certain customers within the office products reporting unit. Gross margin of 23.0 percent in the first quarter of 2012 declined from 24.3 percent in the first quarter of 2011 as an unfavorable product mix, pricing pressure and the reinstatement of the Company's 401k plan match more than offset lower pension expense and the impact of the rebate adjustment. SG&A expense as a percentage of net sales in the first quarter of 2012 improved to 11.2 percent from 12.7 percent in the first quarter of 2011 primarily due to productivity improvements as well as lower pension and variable compensation expenses. Operating earnings of $121.4 million, which were impacted by restructuring and impairment charges and acquisition-related expenses totaling $50.3 million in the first quarter of 2012, compared to operating earnings of $109.4 million in the first quarter of 2011, which included restructuring and impairment charges and acquisition-related expenses totaling $51.2 million.

 

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