By Ann Levine February 4, 2003 -- R.R. Donnelley & Sons Company (NYSE: DNY) released fourth quarter earnings on Thursday, January 30, 2003. For the quarter ending December 31, 2002, revenues were $1.3 billion, down 6 percent from $1.41 billion for the same period in the prior year. Fourth quarter diluted earnings per share were 42 cents, compared to a loss of 33 cents in fourth quarter of 2001. For the full year, diluted earnings per share were $1.24, compared with $0.21 for 2001. Topics of this summary include: - 2003 Guidance - Market Environment - Restructuring/Productivity - 2003 New Business Initiatives 1. In 2003, R.R. Donnelly expects diluted earnings per share to be in the range of $1.25 – $1.40. A company spokesman predicts a flat market demand in 2003 in all business areas except Logistics and international concerns. 2. In 2002, the market environment for Donnelley produced a weak performance in the financial market, a 38% drop from 2001 levels in “S” filings, advertising in consumer magazines down 17%, a 32% decrease in business to business advertising and a 7% decrease in catalog markets. 3. Although 2002 was a challenging year, overall gross margin was up 100 basis points even though sales declined 10%. 4. Restructuring activities were completed on target, with the company showing a $175 million reduction in fixed costs on an annualized basis. Savings are from continuous improvement efforts, Six Sigma practices and productivity improvements that have become integrated with company operations around the world. The company fully expects to find other ways to improve productivity and reduce costs in the coming year. 5. Cash flow remains strong for R.R. Donnelley, while 2002 working capital was 2.7% of overall sales. The company has been able to reduce debt by $50 million making it possible to increase dividends for 32 years in a row. 6. New business initiatives for the company include the realization of investments made in Poland. A second plant was added to Polish operations in 2001 which improved revenue and earnings substantially. An additional press will be added to this operation due to demand. A new plant was added in Shanghai, China in 2002 and the company has supplemented print operations with pre-media services at three facilities. 7. The company’s Logistics business showed growth of 24% in package volume and $800 million in total revenue in 2002. As the Logistics operations had a strong showing, the company remains on target with growth estimates of 20% return on capital and a strong cash flow. A platform is in place that can sustain additional volume in this business and Donnelley is in the process of building a fully automated “Super-center” in York, PA, that will give the company access to the Northeast market. The company expects the new center to improve home delivery service by up to two days within the region. 8. 2003 forecast for the company includes no recovery in the Financial Services market for 2003, a flat market demand in Telecommunications and Magazines, minimal growth in Catalogs and Retail, but high single digit revenue growth and continued expansion in Logistics and continued top line growth in the international market. It is also expected the company will have $12 million in restructuring charges. 9. R.R. Donnelly also expects to remain on course with its long-term strategy of transforming the print business in a way that will sustain returns above the cost of capital and expanding services that will provide additional value to customers. 10. Two to three year projections for the future of Donnelly’s print operations include increased capacity as evidenced by the addition of several Gravure presses, the addition of 5 new offset printers. The company has closed 5 commercial facilities and consolidated their operations. Additional projections are for increased asset utilization through increased flexibility of operations for customers and to become expert at press change-overs.