August 16, 2006 -- R.R. Donnelley & Sons Company (NYSE: RRD) has reported second quarter 2006 net earnings from continuing operations of $124.4 million, or $0.57 per diluted share, on net sales of $2.3 billion, compared to net earnings from continuing operations of $95.3 million, or $0.44 per diluted share, on net sales of $1.9 billion last year. Earnings included charges for restructuring ($12.7 million) and impairment ($1.9 million) totaling $14.6 million. Net earnings from continuing operations in the second quarter of 2005 included charges for restructuring ($22.2 million), integration ($2.6 million) and impairment ($2.2 million) totaling $27.0 million, primarily related to the integration of the 2004 acquisition of Moore Wallace. Contents of this Summary * Quarter Highlights * Segment Performance * Guidance * Raine Radar * Q & A Quarter Highlights • The company's effective tax rate decreased to 31.9% in the second quarter of 2006 from 35.8% last year. • Discontinued operations produced net income of $0.8 million in the second quarter of 2006 and a net loss of $4.6 million in the second quarter of 2005. • Including discontinued operations, net earnings were $125.2 million, or $0.57 per diluted share, in the second quarter of 2006, compared to net earnings of $90.7 million, or $0.42 per diluted share, in the second quarter of 2005. • SG&A expense as a percentage of net sales was 12.1%, flat from last year. • Operating margin, which was negatively impacted by charges for restructuring and impairment totaling $14.6 million in the second quarter of 2006 and by charges for restructuring, impairment and integration totaling $27.0 million in the second quarter of 2005, was 9.8% in the second quarter of 2006 compared to 9.1% in the second quarter of 2005. Segment Performance Publishing and Retail Services Segment Net sales for the segment increased 14.8% to $1.1 billion from the second quarter of 2005. This was primarily due to increased sales from their international operations and directory business and the acquisitions of the Asia Printers Group, Spencer Press, and the Charlestown, IN, print operations of Adplex-Rhodes and Poligrafia. The segment's operating margin, which was negatively impacted by charges totaling $10.5 million, was 15.5% in the second quarter compared to 14.3% last year. Excluding restructuring and impairment charges, the segment's non-GAAP operating margin for the second quarter was 15.8% compared to 15.0% last year. The company attributed the increase to increased sales volume, a favorable shift in the business mix, and the benefits of productivity initiatives. Integrated Print Communications Segment Net sales for the segment increased 33.5% to $727.2 million from the second quarter of 2005, primarily due to the acquisitions of The Astron Group and OfficeTiger. Segment earnings were negatively impacted by charges of $8.5 million, compared to $2.9 million in the second quarter of 2005. Operating margin decreased to 9.6% from 11.9% last year. Excluding restructuring, impairment and integration charges, the segment's non-GAAP operating margin decreased to 10.8% in the second quarter of 2006 from 12.4% in the second quarter of 2005. This decrease was due to mix shift to lower margin businesses and incremental non-cash depreciation and purchase accounting-related amortization expenses associated with the acquisitions of The Astron Group and OfficeTiger. Forms and Labels Segment Net sales for the segment increased 3.5% to $423.6 million in the second quarter of 2006 from the same period last year, primarily due to favorable foreign exchange rates and increased volume in Latin America. The segment's operating margin, which was negatively impacted by charges totaling $2.2 million, decreased to 7.5% from 7.9% in the second quarter of 2005. Excluding restructuring, impairment and integration charges, non-GAAP operating margin decreased to 8% from 8.4% last year, primarily due to continued pricing pressure, offset in part by increased sales volume and productivity improvements. Guidance For the full year of 2006, RR Donnelley is projecting non-GAAP net earnings per diluted share from continuing operations to be in the range of $2.45 to $2.50, but trending toward the high end of the range. This guidance includes the expected dilutive impact from both the acquisition of OfficeTiger and the adoption, in the first quarter of 2006, of SFAS No. 123(R), Share-Based Payment, and assumes no shares repurchased under the authorization available to the company. The non-GAAP effective tax rate for 2006 is expected to be approximately 34.5%. Raine Radar RR Donnelley has had a strong run of acquisitions over the last year or two. This has contributed to the quick growth, and the company will likely continue to add new acquisitions to its portfolio during the next six months. Though assisted by tax benefits and favorable exchange rates, the company beat analyst expectations for earnings and put up a very strong quarter. Q & A 1. U.K. based RR Donnelley subsidiary Astron has been awarded a multi-year, $110 million agreement by British Telecom. 2. The company’s stated strategy of the last 12 to18 months, growing through low-capital, high-return acquisitions, will continue at least through the end of 2006. 3. Mark A. Angelson, CEO, stated, "During the quarter, we benefited as we ramped up our new and expanded customer relationships and as we continued to integrate the strategic acquisitions that broadened our business services capabilities and the tuck-in acquisitions that increased our flexibility and responsiveness." 4. The company is not forecasting any substantial changes to the competitive pricing dynamics of the industry in the short to medium term. 5. The company feels that it is the “printer of choice,” thus allowing it to gain important contracts with customers. RR Donnelley also believes it is the undisputed technological leader in the print industry.