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R.R. Donnelley Revises Guidance; Massive Changes Including 5% Staff Reduction

Press release from the issuing company

CHICAGO, June 12 -- R.R. Donnelley & Sons Company has provided new guidance for 2001 earnings per share. The company projects earnings per share for full-year 2001 to range from $1.60 to $1.75 before one-time items and restructuring charges, compared with prior guidance of $1.95 to $2.10 per share communicated on April 25, 2001. Management cited weaker than previously anticipated demand for the company's services in the second half of the year and short-term pricing pressures as factors contributing to the lowered guidance. To accelerate realignment of the company's printing platform while addressing lower printing activity, R.R. Donnelley has consolidated work in fewer plants, reduced workweeks, laid off workers and temporarily idled equipment in selected locations until demand recovers. To improve the way the company supports its operations, R.R. Donnelley has begun redesigning its support functions to a shared services model. This will centralize services common to all the company's businesses, allowing those businesses to focus on their core activities while significantly improving the efficiency and effectiveness of general and administrative (G&A) activities. Acknowledging the impact of the economy, the company has accelerated the first phase and by month's end, will cut G&A headcount and expenses by more than 250 positions, realizing $10 million in savings in the second half. Actions taken across the business year-to-date will result in reductions in headcount totaling 5 percent of R.R. Donnelley's workforce. "While these actions are clearly the right thing to do for our customers and our business, the decision isn't any easier when we factor in the lives of the people who are affected,'' said William L. Davis, chairman, president and chief executive officer. "Despite these short-term financial issues, we remain focused on our long-term goal of revolutionizing communications effectiveness,'' Davis added. "We are continuing to invest in strategic initiatives vital to our transformation that will enable us to focus on the right customers and markets, to sell integrated communications solutions instead of independent products and to change how we go to market.'' He pointed out that fundamental changes necessary to support this transformation are under way. As previously announced, the company is investing up to $300 million over the next two years to create a lower-cost, more flexible printing platform. This investment -- combined with savings from procurement and productivity tools such as continuous improvement -- is expected to reduce significantly the print platform's manufacturing cost structure. Most importantly, the investments will enable the company to stay in front of its customers' changing print needs by providing them with greater speed, flexibility, consistently high performance levels, and purchasing and distribution efficiencies. The company's transformation to delivering integrated communications solutions demands standardized and automated business processes, which are being achieved through business process and systems redesign. By investing in leading-edge Internet technologies to link the company's internal information systems, track production data and measure results, the company will be more closely integrated with key customers and suppliers. The investment is expected to provide significant process efficiencies, through standardization and automation. "Our cash flow from operations remains strong, supporting these investments in our future, a healthy dividend and our share repurchase program, even in these troubled times,'' Davis pointed out. The company is continuing to repurchase its shares under a $300 million program that expires on Jan. 31, 2002. So far, the company has repurchased 3.5 million shares for approximately $100 million, and expects to complete this program before year-end. Management expects capital spending in 2001 to range between $300 million and $350 million.

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