RR Donnelley Q2 Sales Up Nearly 9%, but Earnings Fall

Highlights

• Second-quarter 2011 net sales of $2.6 billion increased 8.9% compared to the second quarter of 2010
• Second-quarter 2011 GAAP earnings per diluted share of $0.06 compared to $0.42 in the second quarter of 2010
• Second-quarter 2011 non-GAAP earnings per diluted share of $0.53 increased nearly 13% from $0.47 in the second quarter of 2010
• Reaffirms projected full-year operating cash flow less capital expenditures of approximately $600 million

R.R. Donnelley & Sons Company (RRD -10.44%) reported second-quarter net earnings attributable to common shareholders of $12.2 million, or $0.06 per diluted share, on net sales of $2.6 billion compared to $88.8 million, or $0.42 per diluted share, 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.

The Company believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP (Generally Accepted Accounting Principles) measures, are useful because that information is an appropriate measure for evaluating the Company's operating performance. Internally, the Company uses this non-GAAP information as an indicator of business performance, and evaluates management's effectiveness with specific reference to these indicators. These measures should be considered in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

Non-GAAP net earnings attributable to common shareholders totaled $105.6 million, or $0.53 per diluted share, in the second quarter of 2011 compared to $99.5 million, or $0.47 per diluted share, 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. In addition, second-quarter 2011 non-GAAP net earnings attributable to common shareholders exclude the loss on debt extinguishment and the investment gain. For non-GAAP comparison purposes, the effective tax rate decreased to 19.5% in the second quarter of 2011 from 26.2% in the second quarter of 2010, primarily due to the release of reserves related to the resolution of certain state audits and the release of valuation allowances on certain deferred tax assets. A reconciliation of GAAP net earnings attributable to common shareholders to non-GAAP net earnings attributable to common shareholders is presented in the attached tables.

"Our platform, like our customers, felt the economic challenges during the second quarter," said Thomas J. Quinlan III, RR Donnelley's President and Chief Executive Officer. "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."