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RR Donnelley Records Drop in Earnings on Higher Sales

August 3, 2011
CHICAGO—August 3, 2011—R.R. Donnelley & Sons reported second-quarter net earnings attributable to common shareholders of $12.2 million on net sales of $2.6 billion, compared to $88.8 million on net sales of $2.4 billion in the second quarter of 2010.

The second-quarter net earnings attributable to common shareholders included pre-tax charges for restructuring ($51.4 million) and impairment ($24.3 million, non-cash), a loss on debt extinguishment related to the tender offers on the 2015, 2017 and 2019 Notes ($68.6 million),and acquisition-related costs ($0.9 million) totaling $145.2 million, partially offset by a pre-tax gain on an investment of $9.8 million in 2011, compared to charges for restructuring ($9.2 million) and impairment ($1.5 million, non-cash) and acquisition-related costs ($3.3 million) totaling $14.0 million in 2010. Additional details regarding the nature of these charges are included in the attached schedules.

Non-GAAP net earnings attributable to common shareholders totaled $105.6 million in the second quarter of 2011 vs. $99.5 million in the second quarter of 2010. Second-quarter non-GAAP net earnings attributable to common shareholders exclude restructuring and impairment charges and acquisition expenses for both years.

“Our platform, like our customers, felt the economic challenges during the second quarter,” said Thomas J. Quinlan III, RR Donnelley’s president and CEO. “Over the past month or so, customer demand in a variety of our offerings appears to be firming up, so we begin the second half of the year with renewed optimism.”

Quinlan continued, “The share repurchase program and successful bond offering that we launched in the second quarter demonstrate the confidence that management and investors alike have in our ability to continue to drive strong cash flow. We remain on track to deliver approximately $600 million of operating cash flow less capital expenditures for the full year.”

Summary   

Net sales in the quarter were $2.6 billion, up 8.9 percent from the second quarter of 2010, including increased sales related to the acquisition of Bowne. Pro forma for acquisitions, net sales grew by 0.3 percent. Changes in foreign exchange rates accounted for $46.0 million of the increase from the second quarter of 2010. 

Gross margin of 24.5 percent in the second quarter of 2011 was flat to the second quarter of 2010 as productivity efforts, the acquisition of Bowne, lower variable compensation expense and a higher recovery on print-related by-products were offset by lower volume, primarily in books and directories, and pricing pressure.

SG&A expense as a percentage of net sales in the second quarter of 2011 increased to 11.8 percent from 11.1 percent in the second quarter of 2010 primarily due to the acquisition of Bowne and higher pension and other benefits-related expenses.
 

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