RR Donnelley Reports Gains, Largely Due to Bowne Acquisition

Operating earnings were negatively impacted by restructuring and impairment charges and acquisition expenses of $34.9 million in the third quarter of 2011 and $51.3 million in the third quarter of 2010, resulting in operating income of $156.8 million in 2011 and $148.7 million in 2010. Operating margin was 5.8 percent in 2011 and 6.0 percent in 2010.

Segments

Net sales for the U.S. Print and Related Services segment increased 6.3 percent from the third quarter of 2010, to $2.0 billion. The increase was primarily due to the acquisition of Bowne and volume increases in commercial print and logistics, partially offset by volume declines in books and directories and continued pricing pressure across the segment. Pro forma for acquisitions, net sales in the segment decreased 0.4 percent.

The segment’s operating income, which was negatively impacted by charges for restructuring and impairment of $28.1 million in the third quarter of 2011 and $18.5 million in the third quarter of 2010, improved to $169.3 million in the third quarter of 2011—up from $168.3 million in the third quarter of 2010.

Net sales for the International segment increased 12.3 percent from the third quarter of 2010 to $703.9 million, including increased sales due to the acquisition of Bowne. Pro forma for acquisitions, net sales grew by $49.2 million, or 7.5 percent, as changes in foreign exchange rates ($26.8 million or 409 basis points) and increased volume more than offset the impact of continued pricing pressure.

The segment’s operating income, which was negatively impacted by charges for restructuring of $4.6 million in the third quarter of 2011 and charges for restructuring and impairment of $29.6 million in the third quarter of 2010, improved to $36.7 million in the third quarter of 2011—up from $23.5 million in the third quarter of 2010.

Excluding the restructuring and impairment charges, the segment’s non-GAAP operating margin declined to 5.9 percent in the third quarter of 2011 from 8.5 percent in the third quarter of 2010 as pricing pressure, an unfavorable impact from changes in foreign exchange rates (primarily due to export sales from certain operations) as well as wage and other inflation in certain countries were only partially offset by lower variable compensation expense.

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