By Trevor Shackelford November 10, 2005 -- R.R. Donnelley & Sons Company (NYSE: RRD) announced their third quarter results today. Total revenue for the third quarter was $2.2 billion, 14.2% higher than the $1.9 billion reported for the third quarter of 2004. The addition of the Astron Group and Asia Printers Group contributed 6.1% of revenue growth. Donnelley also cited strong organic growth primarily from new customer wins and increased volume with existing customers in the publishing and retail services, and integrated print communications segments. On a GAAP basis, net income from continuing operations for the third quarter was $127.3 million, or $0.59 per diluted share compared to $116.7 million, or $0.53 per diluted share reported for the same period in 2004. Non-GAAP earnings from continuing operations for the third quarter was $134.1 million, or $0.62 per diluted share, compared to $116.7 million, or $0.53 per diluted share, last year. Contents of this Summary Quarter Highlights Segment Performance Guidance Raine Radar Q & A Quarter Highlights Revenues increased by 1% from higher paper prices being passed on to customers Operating income for the third quarter was $236.1 million or 10.8% of revenues, compared to $190.2 million or 9.9% of revenues reported in the third quarter of 2004 SG&A expenses as a percentage of revenue decreased approximately 70 basis points from last year to 12.2% During the first three quarters of 2005, company’s top line grew nearly 20% and Non-GAAP earnings from continuing operations were up 62% compared with last year’s results Restructuring, impairment and integration charges for the quarter were $21.7 million, compared to $6.8 million reported for the same period in 2004 Corporate expenses for the third quarter were approximately flat at $50 million The company acquired Asian Printers Group on July 7, 2005, the Charlestown, Indiana print facility acquired from Adplex-Rhodes on August 19, 2005, and Poligrafia S.A., a Polish printer of magazines, catalogs, retail inserts and books on September 7, 2005. Cash flow from operating activities for the first three quarters in 2005 were $640 million, 21% higher than $530 million reported for the same period in 2004. Year-to-date capital expenses were $324 million During the quarter, Donnelley retired $98.4 million in debt Segment Performance During the quarter the company combined its European direct mail operations with those of the Astron Group. To align the financial reporting of this business with management accountabilities, the European direct mail business is now being included within the integrated print communications segment rather than the publishing retail services segment. Publishing and Retail Services Segment This segment includes magazine, catalog, and retail directories and book businesses within North America, Europe and Asia, as well as its logistics and pre-media businesses. Revenue from this segment represents approximately 50% of total company’s revenue. Net sales for the segment increased 12.9% to $1.1 billion. Including acquisitions and higher paper prices, sales increased approximately 9% compared to last year. All businesses within the segment reported a solid organic top line growth for the quarter. Year-over-year operating income increased 14.4% on a GAAP basis and 13.3% on non-GAAP basis. Non-GAAP operating margin for the segment remained constant at 15.1%. During the quarter the company was awarded a multi-year $250 million contract with AARP that includes its magazine printing, paper, pre-media and logistic needs. Integrated Print Communications Segment This segment includes Donnelley’s direct mail, global capital markets, dynamic communication solutions, short-run commercial print and the Astron Group business. Revenue from this segment represents approximately 35% of the company’s total revenue. Net sales for the segment increased 30% to $675.3 million from the same period last year. The growth is primarily due to the acquisition of the Astron Group as well as sales growth in the dynamic communication solutions and North American direct mail businesses. Operating income for the segment on a GAAP basis increased 33.6% from the third quarter of 2004. During the quarter, the company was awarded a $120 million, multi-year contract for document based business process outsourcing services through Astron with the French government and other public sector clients. Forms and Labels segment This segment includes forms, labels, office products and all Latin American business. Revenue for the segment represents approximately 15% of the total company’s revenue. Certain businesses within the forms and labels market continue to be in secular decline. Net sales for the segment decreased 2.5% to $408.2 million in the third quarter of 2005 from the same period last year. The segment’s non-GAAP operating margin decreased to 9.6% in the third quarter of 2005 from 10.7% last year. This decrease was due to the continued challenging pricing environment as well as the timing of certain expenses. During the quarter the company renewed a multi million dollar contract with Xerox. Guidance For the full year of 2005, the company projected non-GAAP earnings per diluted share from continuing operation of $2.21, an increase of $0.04 per diluted share from previous guidance. In addition, the company expects: Capital expenditure for the full year 2005 of $450 million Estimated capital expenditure for 2006 of between $360 million - $400 million Next year scheduled maturity of debt is $225 million To be debt free by the end of 2009 Raine Radar The company’s debt is proportionally low compared to much of the rest of the industry, and should continue to improve with the company expecting to be completely debt free by 2009. The company has so far done an outstanding job with its acquisitions and will look to continue that trend going forward. The company has maintained its focus and there’s no reason to think their success won’t continue into the next quarter. Q & A Generally, Donnelley’s large circulated weekly magazines were not very profitable. The company believes that it has the largest digital print solutions in the world. The company remains confident about their ability to enhance productivity and achieve significant procurement savings to maintaining margins. Donnelley was very pleased with its book division. They are pleased with the people in place on that team and see the success continuing. The company intends to continue its strategic acquisitions by looking for a combination of “world class people and world class equipment.” The company stated that they are very proud about their investment credit ratings. Donnelley was very proud of its 60 basis point improvement in SG&A expenses.