R.R. Donnelley & Sons Company today reported second-quarter 2012 net earnings attributable to common shareholders of $88.8 million, or $0.49 per diluted share, on net sales of $2.5 billion compared to net earnings of $12.2 million, or $0.06 per diluted share, on net sales of $2.6 billion in the second quarter of 2011. Second-quarter 2012 net earnings attributable to common shareholders included pre-tax charges for restructuring ($25.7 million) and impairment ($8.3 million, non-cash), a pre-tax loss on an investment of $4.1 million (non-cash), and acquisition-related expenses ($0.5 million), offset by the recognition of previously unrecognized tax benefits ($26.1 million, non-cash). Second-quarter 2011 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 ($68.6 million), and acquisition-related expenses ($0.9 million), partially offset by a pre-tax gain on an investment of $9.8 million (non-cash).

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 $88.5 million, or $0.49 per diluted share, in the second quarter of 2012 compared to $105.6 million, or $0.53 per diluted share, in the second quarter of 2011. Second-quarter non-GAAP net earnings attributable to common shareholders exclude restructuring and impairment charges and acquisition-related expenses and gains and losses on investments for both years as well as the recognition of previously unrecognized tax benefits in 2012 and the loss on debt extinguishment in 2011. For non-GAAP comparison purposes, the effective tax rate increased to 33.9% in the second quarter of 2012 from 19.5% in the second quarter of 2011, 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 in the second quarter of 2011. A reconciliation of GAAP net earnings attributable to common shareholders to non-GAAP net earnings attributable to common shareholders is presented in the attached schedules.

"While economic headwinds continue to challenge our top line, the diversity of our product and service offering to a wide range of vertical markets, coupled with our disciplined cost management, enables us to reaffirm our non-GAAP earnings per diluted share guidance in the range of $1.84 to $1.92," said Thomas J. Quinlan III,RR Donnelley's President and Chief Executive Officer. "In addition, we remain on track to deliver full-year operating cash flow less capital expenditures of approximately $500 million, and expect to end the year within our targeted gross leverage range of 2.5x to 3.0x."

Business Review
The Company reports its results in two reportable segments: 1) U.S. Print and Related Services and 2) International. The Company reports as Corporate its unallocated expenses associated with general and administrative activities.

Summary
Net sales in the quarter were $2.5 billion, down $94.8 million, or 3.6%, from the second quarter of 2011. Pro forma for acquisitions, net sales decreased 4.0%, as a 164 basis point unfavorable impact of changes in foreign exchange rates, volume declines in certain product offerings, price erosion and a 53 basis point unfavorable impact due to lower pass-through paper sales more than offset volume growth in certain product offerings. Gross margin of 23.5% in the second quarter of 2012 declined from 24.5% in the second quarter of 2011 as an unfavorable product mix, volume declines, unfavorable pricing on by-products and pricing pressure more than offset lower pension expense and productivity improvements. SG&A expense as a percentage of net sales in the second quarter of 2012 improved to 10.9% from 11.8% in the second quarter of 2011 primarily due to lower pension expense and productivity improvements resulting from focused cost reduction actions. Operating earnings in the quarter were $163.9 million, which were impacted by restructuring and impairment charges and acquisition-related expenses totaling $34.5 million in the second quarter of 2012, compared to operating earnings in the second quarter of 2011 of $116.1 million, which included restructuring and impairment charges and acquisition-related expenses totaling $76.6 million.

Excluding restructuring and impairment charges and acquisition-related expenses, non-GAAP operating income increased from $192.7 million to $198.4 million in the second quarter of 2012 and non-GAAP operating margin improved to 7.8% in the second quarter of 2012 from 7.3% in the second quarter of 2011. Lower pension expense, productivity improvements and lower depreciation and amortization more than offset an unfavorable product mix, lower volume, continued pricing pressure and unfavorable pricing on by-products.

Segments
Net sales for the U.S. Print and Related Services segment decreased 3.9% from the second quarter of 2011 to $1.8 billion in the second quarter of 2012. Pro forma for acquisitions, net sales in the segment decreased 4.5%, as volume declines across most product offerings, lower pass-through paper sales of $21.6 million or 112 basis points, and continued pricing pressure across the segment more than offset volume increases in office products and logistics. The segment's operating income of $165.7 million in the second quarter of 2012, which was negatively impacted by charges for restructuring and impairment of $26.1 million, increased $32.9 millionfrom operating income of $132.8 million in the second quarter of 2011, which included charges for restructuring and impairment of $65.1 million. The segment's non-GAAP operating margin of 10.4% in the second quarter of 2012 improved 10 basis points from the second quarter of 2011, as productivity improvements and lower depreciation and amortization offset volume declines, an unfavorable product mix, unfavorable pricing on by-products and pricing pressure.

Net sales for the International segment of $682.6 million decreased $19.9 million, or 2.8%, from the second quarter of 2011, inclusive of a $43.3 million (616 basis points) unfavorable impact from changes in foreign exchange rates. The balance of the change in net sales was driven by volume growth in business process outsourcing, global turnkey and Asia and higher pass-through paper sales in Asia ($7.5 million or 107 basis points), which were only partially offset by volume declines in Europe, Canada and Latin America and the impact of continued pricing pressure across certain offerings within the segment. The segment's operating income of $42.0 million in the second quarter of 2012, which was negatively impacted by charges for restructuring of $3.5 million, decreased by $1.6 million from operating income of $43.6 million in the second quarter of 2011, which included charges for restructuring and impairment of $9.8 million. The segment's non-GAAP operating margin declined to 6.7% in the second quarter of 2012 from 7.6% in the second quarter of 2011 as an unfavorable product mix, pricing pressure and wage and other inflationary increases in certain countries were only partially offset by lower depreciation and amortization, productivity improvements and a favorable impact from changes in foreign exchange rates.

Unallocated Corporate operating expenses decreased to $43.8 million in the second quarter of 2012 as compared to $60.3 million in the second quarter of 2011. Excluding charges for restructuring and impairment and acquisition-related expenses totaling $4.9 million in the second quarter of 2012 and $1.7 million in the second quarter of 2011, unallocated Corporate operating expenses decreased $19.7 million to $38.9 million in the second quarter of 2012. Lower pension expense, lower LIFO inventory and bad debt provisions and productivity improvements were partially offset by higher benefits-related expense and the reinstatement of the 401(k) match.

Outlook - 2012 Full-Year Guidance
For the full year of 2012, the Company expects revenue of approximately $10.4 billion to $10.5 billion, which includes an unfavorable impact of changes in foreign exchange rates and pass-through paper sales of approximately $160 million. The Company expects non-GAAP operating margin in the range of 7.2% to 7.3% and continues to project non-GAAP net earnings per diluted share to be in the range of $1.84 to $1.92.  This guidance assumes no additional shares are repurchased pursuant to the current authorization from the Company's board of directors.  The non-GAAP effective tax rate for 2012 is expected to be in the range of 30% to 34%. GAAP net earnings per diluted share in 2012 may include restructuring and impairment charges, acquisition-related expenses, the resolution of certain tax items and other items that are not currently determinable, but may be significant.  For that reason, the Company is unable to provide full-year GAAP net earnings estimates at this time. In addition, the Company expects to deliver 2012 operating cash flow less capital expenditures of approximately $500 million.

Conference Call
RR Donnelley will host a conference call and simultaneous webcast to discuss its second-quarter results today, Wednesday, August 1, at 10:00 a.m. Eastern Time(9:00 a.m. Central Time). The live webcast will be accessible on RR Donnelley's web site: www.rrdonnelley.com. Individuals wishing to participate can join the conference call by dialing 847.413.9014, confirmation number 32852191. A webcast replay will be archived on the Company's web site for 30 days after the call. In addition, a telephonic replay of the call will be available for seven days at 630.652.3042, passcode 9850121#.