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RR Donnelley Records Drop in Earnings on Higher Sales

August 3, 2011

Operating earnings were negatively impacted by restructuring and impairment charges and acquisition expenses of $76.6 million in the second quarter of 2011 and $14.0 million in the second quarter of 2010, resulting in operating income of $116.1 million in 2011 and $175.3 million in 2010. Operating margin was 4.4 percent in 2011 and 7.3 percent in 2010.

Excluding restructuring and impairment charges and acquisition expenses, non-GAAP operating margin declined to 7.3 percent in the second quarter of 2011 from 7.9 percent in the second quarter of 2010. Changes in foreign exchange rates, primarily due to export sales from certain international operations, and higher pass-through paper sales unfavorably impacted non-GAAP operating margin by approximately 29 basis points. The remainder of the margin decline was primarily due to lower volume, continued pricing pressure and higher unallocated Corporate costs for pension and other benefits-related expenses, which more than offset the impact of productivity initiatives and lower variable compensation expense.

Segments

Net sales for the U.S. Print and Related Services segment in the quarter increased 6.2 percent from the second quarter of 2010 to $1.9 billion primarily due to the acquisition of Bowne and volume increases in commercial, logistics and financial print, partially offset by volume declines in books and directories and continued pricing pressure across the segment. Pro forma for acquisitions, net sales in the U.S. Print and Related Services segment decreased by $50.7 million, or 2.6 percent, primarily due to volume declines in books and directories and continued pricing pressure across the segment.

The segment’s operating income, which was negatively impacted by charges for restructuring and impairment of $65.1 million in the second quarter of 2011 and $3.5 million in the second quarter of 2010, decreased to $132.8 million from $179.5 million in the second quarter of 2010.

Excluding the restructuring and impairment charges, the segment’s non-GAAP operating margin improved to 10.3 percent in the second quarter of 2011 from 10.1 percent in the second quarter of 2010, due to productivity initiatives, lower variable compensation expense and a higher recovery on print-related by-products, which more than offset the impact of volume declines and continued pricing pressure.

Net sales for the International segment in the quarter increased 17.2 percent from the second quarter of 2010 to $702.5 million, including increased sales related to the acquisition of Bowne. Pro forma for acquisitions, net sales grew by $58.5 million, or 9.1 percent as changes in foreign exchange rates and increased volume offset the impact of continued pricing pressure.

The segment’s operating income, which was negatively impacted by charges for restructuring and impairment of $9.8 million in the second quarter of 2011 and $6.5 million in the second quarter of 2010, improved to $43.6 million in the second quarter of 2011 from $42.7 million in the second quarter of 2010.

Excluding the restructuring and impairment charges, the segment’s non-GAAP operating margin declined to 7.6 percent in the second quarter of 2011 from 8.2 percent in the second quarter of 2010 as the 99 basis point impact from changes in foreign exchange rates, primarily due to export sales from certain operations, as well as pricing pressure more than offset the benefits of increased volume and productivity efforts.  

Unallocated Corporate operating expenses increased to $60.3 million in the second quarter of 2011 as compared to $46.9 million in the second quarter of 2010. Excluding restructuring and impairment charges of $0.8 million and acquisition expenses of $0.9 million in the second quarter of 2011 and restructuring and impairment charges of $0.7 million and acquisition expenses of $3.3 million in the second quarter of 2010, unallocated Corporate operating expenses increased $15.7 million to $58.6 million in the second quarter of 2011. Higher pension and other benefits-related expenses and the acquisition of Bowne were the primary factors contributing to the increase.

About RR Donnelley

RR Donnelley (Nasdaq:RRD) is a global provider of integrated communications. Founded more than 146 years ago, the Company works collaboratively with more than 60,000 customers worldwide to develop custom communications solutions that reduce costs, enhance ROI and ensure compliance. Drawing on a range of proprietary and commercially available digital and conventional technologies deployed across four continents, the Company employs a suite of leading Internet-based capabilities and other resources to provide premedia, printing, logistics and business process outsourcing products and services to leading clients in virtually every private and public sector.

For more information, and for RR Donnelley’s Corporate Social Responsibility Report, visit www.rrdonnelley.com.

Source: RRD.
 

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