Form 10-Q

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MbQnfPX/Mqhg71c9xnR3eaZ4fyVwgnLbBQx47yCq8C3LY6H+pucZhysYfdUSbXWD cZ1fQ6zko7ZZtXBEnbTS4g== 0001193125-07-108426.txt : 20070509 0001193125-07-108426.hdr.sgml : 20070509 20070509172059 ACCESSION NUMBER: 0001193125-07-108426 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20070331 FILED AS OF DATE: 20070509 DATE AS OF CHANGE: 20070509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RR Donnelley & Sons Co CENTRAL INDEX KEY: 0000029669 STANDARD INDUSTRIAL CLASSIFICATION: COMMERCIAL PRINTING [2750] IRS NUMBER: 361004130 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04694 FILM NUMBER: 07833588 BUSINESS ADDRESS: STREET 1: 111 SOUTH WACKER DRIVE CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3123268000 MAIL ADDRESS: STREET 1: 111 SOUTH WACKER DRIVE CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: DONNELLEY R R & SONS CO DATE OF NAME CHANGE: 19920703 10-Q 1 d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2007

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-4694

R.R. DONNELLEY & SONS COMPANY

(Exact name of registrant as specified in its charter)


Delaware		36-1004130
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

111 South Wacker Drive, Chicago, Illinois		60606
(Address of principal executive offices)		(Zip code)

(312) 326-8000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer x Accelerated filer ¨ Non-Accelerated Filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of April 30, 2007, 220.1 million shares of common stock were outstanding.

R.R. DONNELLEY & SONS COMPANY

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007

TABLE OF CONTENTS


		Page

PART I

FINANCIAL INFORMATION		3

Item 1: Condensed Consolidated Financial Statements (unaudited)		3

Condensed Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006		3

Condensed Consolidated Statements of Operations for the three months ended March 31, 2007 and 2006		4

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006		5

Notes to Condensed Consolidated Financial Statements		6

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

Item 3: Quantitative and Qualitative Disclosures About Market Risk		27

Item 4: Controls and Procedures		28

PART II

OTHER INFORMATION		29

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds		29

Item 6: Exhibits		29

Signatures		33

PART I. FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except per share data)

(UNAUDITED)


	March 31, 2007			December 31, 2006
ASSETS
Cash and cash equivalents	$	299.6		$	211.4
Restricted cash equivalents (Note 2)		34.8			—
Receivables, less allowance for doubtful accounts of $84.3 (2006—$79.8)		2,010.9			1,638.6
Inventories (Note 4)		626.0			501.8
Prepaid expenses and other current assets		89.5			70.4
Deferred income taxes		124.4			94.8

Total current assets		3,185.2			2,517.0

Property, plant and equipment—net (Note 5)		2,556.8			2,142.3
Goodwill (Note 6)		3,565.5			2,886.8
Other intangible assets—net (Note 6)		1,485.8			1,119.8
Prepaid pension cost		763.9			638.6
Other noncurrent assets		438.7			331.3

Total assets	$	11,995.9		$	9,635.8

LIABILITIES
Accounts payable	$	918.7		$	749.1
Accrued liabilities		965.0			839.2
Short-term and current portion of long-term debt (Note 14)		348.5			23.5

Total current liabilities		2,232.2			1,611.8

Long-term debt (Note 14)		3,601.8			2,358.6
Postretirement benefits		292.8			288.0
Deferred income taxes		860.0			604.1
Other noncurrent liabilities		730.1			645.4
Liabilities of discontinued operations (Note 3)		2.9			3.2

Total liabilities		7,719.8			5,511.1

SHAREHOLDERS’ EQUITY
Preferred stock, $1.00 par value
Authorized: 2.0 shares; Issued: None		—			—
Common stock, $1.25 par value
Authorized: 500.0 shares;
Issued: 243.0 shares in 2007 and 2006		303.7			303.7
Additional paid-in capital		2,831.3			2,871.8
Retained earnings (Note 15)		1,669.0			1,615.0
Accumulated other comprehensive income		140.7			62.1
Treasury stock, at cost, 22.3 shares in 2007 (2006—24.2 shares)		(668.6	)		(727.9	)

Total shareholders’ equity		4,276.1			4,124.7

Total liabilities and shareholders’ equity	$	11,995.9		$	9,635.8

(See Notes to Condensed Consolidated Financial Statements)

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2007 and 2006

(In millions, except per share data)

(UNAUDITED)


	Three Months Ended March 31,
	2007			2006
Net sales	$	2,792.6		$	2,266.9

Cost of sales (exclusive of depreciation and amortization shown below)		2,056.0			1,661.5
Selling, general and administrative expenses (exclusive of depreciation and amortization shown below)		324.5			262.1
Restructuring and impairment charges—net (Note 7)		11.4			16.6
Depreciation and amortization		142.2			114.8

Total operating expenses		2,534.1			2,055.0

Income from continuing operations		258.5			211.9
Interest expense—net		53.4			34.8
Investment and other income (expense)—net		2.2			(0.8	)

Earnings from continuing operations before income taxes and minority interest		207.3			176.3
Income tax expense		67.9			62.6
Minority interest		0.5			(0.5	)

Net earnings from continuing operations		138.9			114.2
Loss from discontinued operations, net of tax		(0.1	)		(2.3	)

Net earnings	$	138.8		$	111.9

Earnings per share (Note 10):
Basic:
Net earnings from continuing operations	$	0.64		$	0.53
Loss from discontinued operations, net of tax		—			(0.01	)

Net earnings	$	0.64		$	0.52

Diluted:
Net earnings from continuing operations	$	0.63		$	0.52
Loss from discontinued operations, net of tax		—			(0.01	)

Net earnings	$	0.63		$	0.51

Dividends declared per common share	$	0.26		$	0.26
Weighted average number of common shares outstanding:
Basic		218.5			216.5
Diluted		220.5			217.8

(See Notes to Condensed Consolidated Financial Statements)

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2007 and 2006

(In millions)

(UNAUDITED)


	Three Months Ended March 31,
	2007			2006
OPERATING ACTIVITIES
Net earnings	$	138.8		$	111.9
Adjustments to reconcile net earnings to cash provided by operating activities:
Loss from discontinued operations		0.1			2.3
Impairment charges		0.1			0.4
Depreciation and amortization		142.2			114.8
Provision for doubtful accounts receivable		3.2			7.7
Share-based compensation		8.9			8.9
Deferred taxes		(4.8	)		2.3
Loss on sale of property, plant and equipment		0.3			1.3
Other		3.7			6.6
Changes in operating assets and liabilities of continuing operations—net of acquisitions:
Accounts receivable—net		(20.0	)		18.1
Inventories		(12.3	)		(24.2	)
Prepaid expenses and other current assets		(14.0	)		(19.6	)
Accounts payable		—			(54.3	)
Accrued liabilities and other		(24.5	)		(66.6	)

Net cash provided by operating activities of continuing operations		221.7			109.6
Net cash used in operating activities of discontinued operations		(0.3	)		(0.6	)

Net cash provided by operating activities		221.4			109.0

INVESTING ACTIVITIES
Capital expenditures		(109.4	)		(90.9	)
Acquisition of businesses, net of cash acquired		(1,546.4	)		—
Proceeds from sale of investments and other assets		0.9			0.8

Net cash used in investing activities		(1,654.9	)		(90.1	)

FINANCING ACTIVITIES
Proceeds from issuance of long-term debt		1,244.2			—
Net change in short-term debt		324.7			5.7
Payments of current maturities and long-term debt		(4.1	)		(19.5	)
Debt issuance costs		(13.0	)		—
Issuance of common stock, net		24.1			4.8
Acquisition of common stock		—			(0.7	)
Dividends paid		(56.7	)		(56.1	)

Net cash provided by (used in) financing activities		1,519.2			(65.8	)

Effect of exchange rate on cash flows and cash equivalents		2.5			0.9
Net increase (decrease) in cash and cash equivalents		88.2			(46.0	)
Cash and cash equivalents at beginning of period		211.4			366.7

Cash and cash equivalents at end of period	$	299.6		$	320.7

(See Notes to Condensed Consolidated Financial Statements)

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Tabular amounts in millions, except per share data unless otherwise indicated)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated interim financial statements include the accounts of R.R. Donnelley & Sons Company and its subsidiaries (the “Company” or “RR Donnelley”) and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated interim financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. These unaudited condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and the related notes thereto included in the Company’s latest Annual Report on Form 10-K for the year ended December 31, 2006 filed with the SEC on February 28, 2007. Operating results for the three months ended March 31, 2007 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2007. All significant intercompany transactions have been eliminated in consolidation. These unaudited condensed consolidated interim financial statements include estimates and assumptions of management that affect the amounts reported in the condensed consolidated financial statements. Actual results could differ from these estimates. Certain prior year amounts have been reclassified to conform to the Company’s current segment structure.

2. ACQUISITIONS

2007 Acquisitions

On January 9, 2007, the Company acquired Banta Corporation (“Banta”), a provider of comprehensive printing and digital imaging solutions to leading publishers and direct marketers, including advanced digital content management and e-business services. Additionally, Banta provides a wide range of procurement management and other outsourcing capabilities to the world’s largest technology companies. The purchase price for Banta was approximately $1,386.5 million, net of cash acquired of $38.6 million and including $13.5 million of acquisition costs and the assumption of $17.6 million of Banta’s debt. Banta is included in the Global Print Solutions segment with the exception of its premedia and labels operations, which are included in the Global Services segment.

On January 24, 2007, the Company acquired Perry Judd’s Holdings Incorporated (“Perry Judd’s”), a provider of consumer and business-to-business catalogs as well as consumer, trade, and association magazines. The purchase price for Perry Judd’s was approximately $177.1 million, net of cash acquired of $0.3 million and including acquisition costs of $2.5 million. Perry Judd’s is included in the Global Print Solutions segment.

These acquisitions were recorded by allocating the cost of the assets acquired, including intangible assets and liabilities assumed, based on their estimated fair values at the acquisition dates. The excess of the cost of each acquisition over the net amounts assigned to the fair value of the assets acquired and the liability assumed was recorded as goodwill. The allocation below is preliminary, as the final valuation of identifiable intangible assets, property, plant and equipment, leases, deferred taxes and tax contingencies has not been completed. The preliminary purchase price allocation is as follows:


Restricted cash equivalents	$	102.5
Accounts receivable		352.7
Inventories		111.0
Other current assets		40.2
Property, plant and equipment and other long-term assets		468.6
Amortizable intangible assets		387.0
Goodwill		639.1
Accounts payable and accrued liabilities		(308.5	)
Postretirement and pension benefits and other long-term liabilities		(32.4	)
Deferred taxes—net		(196.6	)

Total purchase price—net of cash acquired		1,563.6
Debt assumed and not repaid		17.6
Net cash paid	$	1,546.0

At March 31, 2007, restricted cash equivalents of $93.7 million, of which $58.9 million is classified in other noncurrent assets, are held in a trust to cover payments, both immediate and long-term, due to certain retired and former employees of Banta Corporation. This trust was funded by Banta in October 2006 after Banta received an unsolicited proposal from a third party other than the Company to acquire Banta. This unsolicited proposal automatically triggered a requirement for Banta to fund the trust to cover such payments. The trust was originally adopted by the Board of Directors of Banta in 1991.

2006 Acquisition

On April 27, 2006, the Company acquired OfficeTiger Holdings, Inc. (“OfficeTiger”), a leading provider of integrated business process outsourcing services through its operations in North America, Europe, India, the Philippines and Sri Lanka. OfficeTiger’s transaction processing services were closely related and complementary to the Company’s existing business process outsourcing resources. The purchase price for OfficeTiger was approximately $248.8 million, net of cash acquired of $5.6 million and including acquisition costs of $4.4 million. OfficeTiger is included in the Global Services segment.

The OfficeTiger acquisition was recorded by allocating the cost to the assets acquired, including intangible assets and liabilities assumed, based on their estimated fair values at the acquisition date. The excess of the cost of the acquisition over the net amounts assigned to the fair value of the assets acquired and the liabilities assumed was recorded as goodwill. The allocation below is preliminary, as the final valuation of certain tax contingencies has not been resolved. The preliminary purchase price allocation is as follows:


Accounts receivable	$	20.4
Other current assets		1.5
Property, plant and equipment and other long-term assets		7.2
Amortizable intangible assets		54.4
Goodwill		208.9
Accounts payable and accrued liabilities		(26.3	)
Other long-term liabilities		(4.2	)
Deferred taxes—net		(13.1	)

Net cash paid	$	248.8

Pro forma results

The following unaudited pro forma financial information for the three months ended March 31, 2007 presents the combined results of operations of the Company, Banta and Perry Judd’s as if the acquisition of each of Banta and Perry Judd’s had occurred at January 1, 2007 and January 1, 2006. The pro forma information for the three months ended March 31, 2006 also reflects the acquisition of OfficeTiger as if the acquisition of OfficeTiger had occurred at January 1, 2006.

The unaudited pro forma financial information is not intended to represent or be indicative of the Company’s consolidated results of operations or financial condition that would have been reported had these acquisitions been completed as of the beginning of the period presented and should not be taken as indicative of the Company’s future consolidated results of operations or financial condition. Pro forma adjustments are tax-effected at the applicable statutory tax rates.


	Three Months Ended March 31,
	2007		2006
Net sales	$	2,842.7	$	2,745.0
Net earnings		134.3		104.1
Earnings per share:
Basic	$	0.61	$	0.48
Diluted	$	0.61	$	0.48

The unaudited pro forma results for the three months ended March 31, 2007 and 2006 include $27.2 million and $26.9 million, respectively, for the amortization of purchased intangibles. The pro forma financial information for the three months ended March 31, 2007 and 2006 also includes net restructuring and impairment charges of $11.4 million and $16.6 million, respectively (see Note 7).

3. DISCONTINUED OPERATIONS AND DIVESTITURES

On December 22, 2005 the Company sold its Peak Technologies business (“Peak”), which was formerly reported in the Global Services segment. On October 29, 2004, the Company sold its package logistics business. Both Peak and the package logistics business have been reported as discontinued operations for all periods presented. As of March 31, 2007 and December 31, 2006, the Company had remaining liabilities for contractual obligations related to these discontinued businesses of $2.9 million and $3.2 million, respectively. These liabilities have been classified separately in the Condensed Consolidated Balance Sheets as liabilities of discontinued operations.

Included in the net loss from discontinued operations in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2007 and 2006 are the following:


	Three Months Ended March 31,
	2007			2006
Net sales	$	—		$	—
Income tax benefit		—			(1.2	)
Loss from discontinued operations, net of tax		(0.1	)		(2.3	)

4. INVENTORIES


	March 31, 2007			December 31, 2006
Raw materials and manufacturing supplies	$	291.0		$	229.6
Work-in-process		182.9			135.0
Finished goods		223.2			207.5
LIFO reserves		(71.1	)		(70.3	)

	$	626.0		$	501.8

5. PROPERTY, PLANT AND EQUIPMENT


	March 31, 2007			December 31, 2006
Land	$	93.1		$	70.4
Building		1,115.3			1,004.4
Machinery and equipment		5,428.3			5,103.3

		6,636.7			6,178.1
Less: Accumulated depreciation		(4,079.9	)		(4,035.8	)

Total	$	2,556.8		$	2,142.3

Assets Held for Sale

As a result of recent restructuring actions, certain facilities and equipment are considered held for sale. The net book value of assets held for sale was $5.2 million at March 31, 2007 and $0.9 million at December 31, 2006. These assets are included in other noncurrent assets in the Condensed Consolidated Balance Sheets and have been assessed for impairment based on their estimated fair value, less estimated costs to sell.

6. GOODWILL AND OTHER INTANGIBLE ASSETS


Goodwill	December 31, 2006		Dispositions		Acquisitions		Foreign Exchange and Other Adjustments		March 31, 2007
Global Print Solutions	$	575.1	$	—	$	618.2	$	4.8	$	1,198.1
Global Services		2,311.7		—		20.9		34.8		2,367.4

	$	2,886.8	$	—	$	639.1	$	39.6	$	3,565.5


Other Intangible Assets	Gross Carrying Amount at January 1, 2007		Additions During the Year		Accumulated Amortization and Foreign Exchange			March 31, 2007		Weighted- Average Amortization Period
Trademarks, licenses and agreements	$	21.9	$	—	$	(21.5	)	$	0.4	1.4 years
Patents		98.3		—		(37.7	)		60.6	5.0 years
Customer relationship intangibles		839.0		387.0		(140.8	)		1,085.2	11.7 years
Trade names		38.3		—		(3.4	)		34.9	11.4 years
Indefinite-lived trade names		304.7		—		—			304.7	Indefinite

	$	1,302.2	$	387.0	$	(203.4	)	$	1,485.8

Amortization expense for other intangible assets was $26.2 million and $17.0 million for the three months ended March 31, 2007 and 2006, respectively. Estimated future annual amortization expense, excluding pending acquisitions, will be approximately $109.0 million for 2008, $108.0 million for 2009, 2010 and 2011, and $96.0 million for 2012.

7. RESTRUCTURING AND IMPAIRMENT CHARGES

Restructuring and Impairment Costs Charged to Results of Operations

For the three months ended March 31, 2007 and 2006, the Company recorded the following net restructuring and impairment charges:


	March 31, 2007								March 31, 2006
	Employee Terminations		Other Charges		Impairment		Total		Employee Terminations		Other Charges			Impairment		Total
Global Print Solutions	$	4.3	$	—	$	—	$	4.3	$	5.3	$	(0.1	)	$	—	$	5.2
Global Services		1.6		1.3		0.1		3.0		4.2		0.8			0.4		5.4
Corporate		3.4		0.7		—		4.1		4.0		2.0			—		6.0

	$	9.3	$	2.0	$	0.1	$	11.4	$	13.5	$	2.7		$	0.4	$	16.6

For the three months ended March 31, 2007, the Company recorded net restructuring charges of $9.3 million for employee termination costs for 198 employees, 123 of whom were terminated as of March 31, 2007, associated with actions resulting from the reorganization of certain operations and the exiting of certain business activities. In addition, the Company incurred other restructuring charges, primarily lease termination costs, of $2.0 million for the three months ended March 31, 2007 and impairment charges of $0.1 million.

For the three months ended March 31, 2006, the Company recorded net restructuring charges of $13.5 million for employee termination costs for 297 employees, all of whom were terminated as of March 31, 2007, associated with actions resulting from the reorganization of certain operations and the exiting of certain business activities. In addition, the Company incurred other restructuring charges, primarily lease termination costs, of $2.7 million for the three months ended March 31, 2006 and impairment charges of $0.4 million.

Restructuring Costs Capitalized as a Cost of Acquisition

During the first quarter of 2007, the Company recorded $62.0 million of restructuring costs related to employee terminations and other costs in connection with the acquisitions of Banta and Perry Judd’s.

Restructuring Reserve

In addition to the 2007 restructuring actions, the Company initiated various restructuring actions in 2006 and prior years, which included the consolidation of operations and workforce reductions, for which restructuring reserves continue to be utilized. The reconciliation of the restructuring reserve as of March 31, 2007 is as follows:


			Restructuring Cost, Net
	December 31, 2006		Charged to Results of Operations		Capitalized as a Cost of Acquisitions		Cash Paid		March 31, 2007
Employee terminations	$	26.2	$	9.3	$	61.0	$	13.7	$	82.8
Other		9.1		2.0		1.0		3.3		8.8

	$	35.3	$	11.3	$	62.0	$	17.0	$	91.6

The restructuring reserves classified as “other” consist of the estimated remaining payments related to lease terminations and facility closing costs. Payments on certain of these lease obligations are scheduled to continue until 2011. Market conditions and the Company’s ability to sublease these properties may affect the ultimate charge related to these lease obligations. Any potential recoveries or additional charges may affect amounts reported in the consolidated financial statements of future periods. The Company anticipates that payments associated with employee terminations relating to the aforementioned restructuring actions will be substantially completed by March 2008.

8. EMPLOYEE BENEFITS

The components of the estimated pension and postretirement benefits expense for the three months ended March 31, 2007 and 2006 were as follows:


	Three Months Ended March 31,
	2007			2006
Pension expense
Service cost	$	23.6		$	19.9
Interest cost		37.8			32.4
Expected return on assets		(60.4	)		(51.3	)
Amortization, net		(0.9	)		0.7
Settlement		0.6			—
Curtailment		—			—

Net pension expense	$	0.7		$	1.7

Postretirement benefits expense
Service cost	$	3.0		$	3.1
Interest cost		7.2			7.5
Expected return on assets		(3.8	)		(4.0	)
Amortization, net		(2.3	)		(2.1	)

Net postretirement benefits expense	$	4.1		$	4.5

In accordance with Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS 158”), the Company adopted the provisions requiring a fiscal year-end measurement date. Because the Company’s previous measurement date was September 30, 2006, this change required the company to perform a new valuation of the pension and postretirement obligation and assets at December 31, 2006. As part of this valuation, the Company updated its assumed discount rates. The weighted-average discount rate used to calculate net periodic benefit expense for pension and postretirement benefits was 5.7% and 5.8%, respectively at December 31, 2006 and 5.6% and 5.7%, respectively at September 30, 2006. All other assumptions used to calculate net periodic benefit expense remain unchanged from the September 30, 2006 measurement date. The impact of the measurement date change is as follows:


	September 30, 2006 Measurement Date			Effect of Change in Measurement Date			December 31, 2006 Measurement Date
Pension asset	$	638.6		$	95.3		$	733.9
Accrued pension and postretirement liability		(460.7	)		4.3			(456.4	)
Deferred income taxes		(87.8	)		(39.3	)		(127.1	)
Accumulated other comprehensive income		(43.1	)		(63.7	)		(106.8	)
Retained Earnings		—			3.4			3.4

9. SHARE-BASED COMPENSATION

The Company recognizes compensation expense, based on estimated fair values, for all share-based awards made to employees and directors, including stock options, restricted stock, restricted stock units and performance share units.

The total compensation expense related to all share-based compensation plans was $8.9 million for both the three months ended March 31, 2007 and 2006.

Stock Options

The Company granted 467,000 stock options during the three months ended March 31, 2007. The fair value of each stock option award is estimated on the date of grant using the Black Scholes Option Pricing Model. The Company did not grant stock options during the three months ended March 31, 2006. The fair value of these stock options was determined using the following assumptions for the first quarter of fiscal 2007:


	Three Months Ended March 31, 2007
Expected volatility	20.34	%
Risk-free interest rate	4.52	%
Expected life (years)	7.00
Expected dividend yield	2.85	%

The weighted average grant date fair value of these options was $7.84 per stock option.

The following table is a summary of the Company’s stock option activity:


	Shares (Thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (Millions)
Outstanding at December 31, 2006	7,545		$	28.88	4.5
Granted	467			36.52	10.0
Exercised	(883	)		24.93
Cancelled/forfeited/expired	(65	)		30.72	—

Outstanding at March 31, 2007	7,064		$	29.86	4.7	$	47.5
Exercisable at March 31, 2007	5,977		$	29.01	4.0	$	45.3

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of three month period ended March 31, 2007 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2007. This amount will change in future periods based on the fair market value of the Company’s stock. Total intrinsic value of options exercised for the three months ended March 31, 2007 was $10.7 million.

Compensation expense recognized related to stock options for the three months ended March 31, 2007 and 2006 was $0.8 million and $0.9 million, respectively. As of March 31, 2007, $6.3 million of total unrecognized compensation expense related to stock options is expected to be recognized over a weighted average period of 2.6 years.

Restricted Stock and Restricted Stock Units

Nonvested restricted stock and restricted stock unit awards as of March 31, 2007 and December 31, 2006 and changes during the three months ended March 31, 2007 were as follows:


	Shares (Thousands)		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2006	1,354		$	32.55
Granted	1,008			32.92
Vested	(539	)		32.32
Forfeited	(16	)		32.97

Nonvested at March 31, 2007	1,807		$	32.86

Compensation expense recognized related to restricted stock awards and restricted stock units for the three months ended March 31, 2007 and 2006 was $6.2 million and $4.5 million, respectively. As of March 31, 2007, there was $48.0 million of unrecognized share-based compensation expense related to nonvested restricted stock and restricted stock unit awards. That cost is expected to be recognized over a weighted-average period of 1.9 years.

Performance Share Unit Awards

Nonvested performance share unit awards as of March 31, 2007 and December 31, 2006 and changes during the three months ended March 31, 2007 were as follows:


	Shares (Thousands)		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2006	1,305		$	30.68
Granted	275			33.66
Vested	(1,305	)		30.68
Forfeited	—			—

Nonvested at March 31, 2007	275		$	33.66

During the three months ended March 31, 2007, a total of 435,000 performance share unit awards with a payout of 1,305,000 shares vested upon the achievement of all previously established performance targets. Additionally, the Company granted new performance share unit awards to certain senior officers. Distributions under these awards are payable at the end of the performance period in common stock or cash, at the Company’s discretion. A total of 110,000 nonvested performance share unit awards were outstanding as of March 31, 2007 with a potential payout ranging from 55,000 shares to 275,000 shares should certain performance targets be achieved. These awards are subject to forfeiture upon termination of employment prior to vesting, subject in some cases to early vesting upon specified events, including death or permanent disability of the grantee or a change in control of the Company. Compensation expense is currently being recognized based on a potential payout of 110,000 performance share unit awards.

Compensation expense recognized related to performance share unit awards for the three months ended March 31, 2007 and 2006 was $1.9 million and $3.5 million, respectively. As of March 31, 2007, there was $3.7 million of unrecognized share-based compensation expense related to nonvested performance share unit awards. That cost is expected to be recognized over a weighted average period of 3.0 years.

Other Information

Authorized unissued shares or treasury shares may be used for issuance under the share-based compensation plans. The Company intends to use treasury shares of its common stock to meet the stock requirements of its awards in the future. The Company is authorized, under the terms of a share repurchase program approved by the Board of Directors, to repurchase up to 10 million shares.

10.

EARNINGS PER SHARE


	Three Months Ended March 31,
	2007		2006
Net earnings	$	138.8	$	111.9
Basic:
Weighted average number of common shares outstanding		218.5		216.5

Net earnings per share – basic	$	0.64	$	0.52

Diluted:
Dilutive options and awards (a)		2.0		1.3
Diluted weighted average number of common shares outstanding		220.5		217.8

Net earnings per share – diluted	$	0.63	$	0.51

Cash dividends paid per common share	$	0.26	$	0.26

(a)	For the three months ended March 31, 2007 and 2006, 1.1 million and 3.3 million common stock equivalents, respectively, were excluded as their effect would be anti-dilutive.

11.

COMPREHENSIVE INCOME


	Three Months Ended March 31,
	2007			2006
Net earnings, as reported	$	138.8		$	111.9
Translation adjustments		9.2			0.4
Unrealized loss on investments, net of tax		(0.1	)		(0.1	)
Adjustment for net periodic pension and postretirement benefit cost, net of tax		(2.7	)		—
Change in fair value of derivatives, net of tax		8.5			(5.5	)

Comprehensive income	$	153.7		$	106.7

For the three months ended March 31, 2007, the changes in other comprehensive income were net of tax benefits of $0.9 million related to unrealized foreign currency gains, $6.4 million related to changes in the fair value of derivatives and $1.5 million for the adjustment for net periodic pension and postretirement benefit cost.

12.

SEGMENT INFORMATION

Global Print Solutions. The Global Print Solutions segment consists of the following:

•

Magazine, catalog and retail: Provides print services to consumer magazine and catalog publishers as well as retailers.

•

Directories: Serves the printing needs of yellow and white pages directory publishers.

•

Book: Provides print services to the consumer, religious, educational and specialty book markets.

•

Logistics: Consolidates and delivers Company-printed products, as well as products printed by third parties; also provides expedited distribution of time-sensitive and secure material, print-on-demand, warehousing and fulfillment services.

•

Direct mail: Offers services with respect to direct marketing programs including content creation, database management, printing, personalization, finishing and distribution in North America.

•

Short-run commercial print: Provides print and print-related services to a diversified customer base. Examples of materials produced include annual reports, marketing brochures, catalog and marketing inserts, pharmaceutical inserts and other marketing, retail point-of-sale and promotional materials and technical publications.

•

Europe: Provides print and print-related services to the telecommunications, direct mail, consumer magazine, catalog and book sectors.

•

Asia: Provides print and print-related services to the book, telecommunications, technology and consumer magazine sectors.

•

Global Turnkey Solutions: Provides outsourcing capabilities including materials sourcing, product configuration, customized kitting and order fulfillment to technology companies and medical device manufacturers in North America, Europe and Asia.

Global Services. The Global Services segment consists of short-run and variable print, business process outsourcing and related services as follows:

•

Digital Solutions: Offers conventional and digital photography, creative, color matching, page production and content management services to the advertising, catalog, corporate, magazine, retail and telecommunications sectors.

•

Financial print: Provides information management, content assembly and print services to a diversified customer base for financial and investor communications documents. Examples of materials include annual reports, regulatory documents for corporate transactions and securities offerings, securities compliance filings and marketing communications.

•

RR Donnelley Global Document Solutions: Provides business process outsourcing services, transactional print and mail services, data and print management and document production, primarily in the United Kingdom. This business also provides direct mail and marketing support services in Europe.

•

OfficeTiger: Provides integrated business process outsourcing and transaction processing services through its operations in North America, Europe, India, the Philippines and Sri Lanka.

•

Forms, Labels and Statement Printing: Designs and manufactures paper-based forms, labels and printed office products, and provides print management and other related services from facilities located in North America. This business also includes the Company’s Canadian operations, which produce forms, labels, commercial print and outsourced statements and provide logistics services. Additionally, this business includes the Company’s statement printing business (formerly business communication services), which offers customized, variably-imaged business communications, including account statements, customer invoices, insurance policies, enrollment kits, transaction confirmations and database services, primarily to the financial services, telecommunications, insurance and healthcare industries.

•

Latin America: Provides print and print-related services to the book, consumer magazine and catalog sectors; also designs and manufactures paper-based forms and labels.

Corporate. Corporate consists of unallocated general and administrative activities and associated expenses including, in part, executive, legal, finance, information technology, human resources and certain facility costs. In addition, it includes certain costs and earnings of employee benefit plans that are not allocated to operating segments, primarily components of net pension and post-retirement benefits expense other than service cost. The Company has disclosed income (loss) from continuing operations as the primary measure of segment earnings (loss). This is the measure of profitability used by the Company’s chief operating decision-maker and is most consistent with the presentation of profitability reported within the condensed consolidated financial statements.


	Total Sales		Intersegment Sales			Net Sales		Income (Loss) from Continuing Operations			Assets of Continuing Operations		Depreciation and Amortization		Capital Expenditures
*Three months ended March 31, 2007*
Global Print Solutions	$	1,848.9	$	(27.1	)	$	1,821.8	$	225.5		$	5,833.5	$	90.9	$	90.8
Global Services		977.3		(6.5	)		970.8		87.3			4,939.8		42.6		14.4

Total operating segments		2,826.2		(33.6	)		2,792.6		312.8			10,773.3		133.5		105.2
Corporate		—		—			—		(54.3	)		1,222.6		8.7		4.2

Total continuing operations	$	2,826.2	$	(33.6	)	$	2,792.6	$	258.5		$	11,995.9	$	142.2	$	109.4


	Total Sales		Intersegment Sales			Net Sales		Income (Loss) from Continuing Operations			Assets of Continuing Operations		Depreciation and Amortization		Capital Expenditures
*Three months ended March 31, 2006 (Reclassified)*
Global Print Solutions	$	1,398.9	$	(27.1	)	$	1,371.8	$	177.2		$	3,731.5	$	67.6	$	76.4
Global Services		899.4		(4.3	)		895.1		83.1			4,539.8		39.4		11.2

Total operating segments		2,298.3		(31.4	)		2,266.9		260.3			8,271.3		107.0		87.6
Corporate		—		—			—		(48.4	)		1,111.1		7.8		3.3

Total continuing operations	$	2,298.3	$	(31.4	)	$	2,266.9	$	211.9		$	9,382.4	$	114.8	$	90.9

13. COMMITMENTS AND CONTINGENCIES

The Company is subject to laws and regulations relating to the protection of the environment. The Company provides for expenses associated with environmental remediation obligations when such amounts are probable and can be reasonably estimated. Such accruals are adjusted as new information develops or circumstances change and are not discounted. The Company has been designated as a potentially responsible party in ten federal and state Superfund sites. In addition to the Superfund sites, the Company may also have the obligation to remediate seven other previously owned facilities and three other currently owned facilities. At the Superfund sites, the Comprehensive Environmental Response, Compensation and Liability Act provides that the Company’s liability could be joint and several, meaning that it could be required to pay an amount in excess of its proportionate share of the remediation costs. The Company’s understanding of the financial strength of other potentially responsible parties at the Superfund sites and of other liable parties at the previously owned facilities has been considered, where appropriate, in the determination of the Company’s estimated liability. The Company has established reserves that are believed to be adequate to cover its share of the potential costs of remediation at each of the Superfund sites and the previously and currently owned facilities. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect on the Company’s annual consolidated results of operations, financial position or cash flows.

From time to time, customers of the Company or others file voluntary petitions for reorganization under the United States bankruptcy laws. In such cases, certain pre-petition payments received by the Company could be considered preference items and subject to return to the bankruptcy administrator. In addition, the Company is a party to certain litigation and claims arising in the ordinary course of business. Management believes that the final resolution of these preference items and litigation will not be material in relation to the Company’s annual consolidated results of operations, financial position or cash flows.

14. DEBT

The	Company’s debt consists of the following:


	March 31, 2007			December 31, 2006
Commercial paper		300.1			—
3.75% senior notes due April 1, 2009		399.8			399.7
4.95% senior notes due May 15, 2010		499.2			499.1
5.625% senior notes due January 15, 2012		624.1			—
4.95% senior notes due April 1, 2014		598.3			598.3
5.50% senior notes due May 15, 2015		499.3			499.3
6.125% senior notes due January 15, 2017		620.2			—
8.875% debentures due April 15, 2021		80.9			80.9
6.625% debentures due April 15, 2029		199.2			199.2
8.820% debentures due April 15, 2031		68.9			68.9
Other, including capital leases		60.3			36.7

Total debt		3,950.3			2,382.1
Less: current portion		(348.5	)		(23.5	)

Long-term debt	$	3,601.8		$	2,358.6

On January 8, 2007, the Company issued $625.0 million principal amount of 5.625% notes due January 15, 2012 and $625.0 million principal amount of 6.125% notes due January 15, 2017. Interest is payable semi-annually on January 15 and July 15 of each year, commencing July 15, 2007. The net proceeds from the offering were used to pay a portion of the purchase price of the acquisition of Banta Corporation. The notes were issued at a discount of $5.8 million.

As of March 31, 2007, the Company had $300.1 million of borrowings under its commercial paper program. The weighted average interest rate on commercial paper for the quarter ended March 31, 2007 was 5.4%.

15. INCOME TAXES

On January 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109.” Upon adoption, the Company recorded increases to other noncurrent liabilities, goodwill and other noncurrent assets of $82.8 million, $27.6 million and $1.4 million, respectively, and decreases to accrued liabilities and noncurrent deferred income tax liabilities of $15.1 million and $13.8 million, respectively. The net effect of these changes to assets and liabilities of $24.9 million was recorded as a cumulative effect adjustment to reduce retained earnings.

As of January 1, 2007, the date of adoption of FIN 48, and March 31, 2007, the Company had $224.9 million and $224.3 million, respectively, of unrecognized tax benefits. Of these unrecognized tax benefits at January 1, 2007, $94.2 million if recognized, would decrease the effective income tax rate and increase net income. The impact on net income reflects the reduction of unrecognized tax benefits net of certain deferred tax assets and the federal tax benefit of state income tax items.

As of January 1, 2007, it is reasonably possible that the total amounts of unrecognized tax benefits will significantly decrease within 12 months by as much as $7.8 million due to resolution of audits or statute expirations related to state tax positions and $4.2 million due to non-US tax exposures in which the Company has reached tentative settlement with local taxing authorities.

The Company has tax years from 1998 that remain open and subject to examination by the IRS and state taxing authorities. The Company also has tax years from 1998 that remain subject to examination by major foreign tax jurisdictions.

The Company classifies interest expense and any related penalties related to income tax uncertainties as a component of income tax expense. The total interest expense related to tax uncertainties recognized in the Condensed Consolidated Statement of Operations for the three months ended March 31, 2007 was $3.6 million. Penalties in the amount of $0.2 million were recognized for the three months ended March 31, 2007. Accrued interest of $69.8 million and $73.4 million related to income tax uncertainties was recognized as a component of other noncurrent liabilities on the Condensed Consolidated Balance Sheet at January 1, 2007 and March 31, 2007, respectively. Accrued penalties of $2.7 million and $2.9 million related to income tax uncertainties were recognized in other noncurrent liabilities on the Condensed Consolidated Balance Sheet at January 1, 2007 and March 31, 2007, respectively.

16. PENDING ACCOUNTING STANDARDS

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”), which is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. This statement clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures on fair value measurements. The Company does not expect the adoption of SFAS 157 to have a material impact on the Company’s consolidated financial position, annual results of operations or cash flows.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statements No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose, upon recognition or at specified other election dates, to measure eligible financial assets and liabilities at fair value (the “fair value option”). This election is made on an instrument-by-instrument-basis and unrealized gains and losses on items for which the fair value option has been elected must be reported in earnings for each subsequent reporting period. This accounting standard is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The effect, if any, of adopting SFAS No. 159 on the Company’s consolidated financial position, annual results of operations or cash flows has not been finalized.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

R.R. Donnelley & Sons Company (“RR Donnelley,” the “Company,” “we,”, “us,” and “our”) is the world’s premier full-service provider of print and related services, including business process outsourcing. Founded more than 140 years ago, the Company provides solutions in commercial printing, direct mail, financial printing, print fulfillment, labels, forms, logistics, call centers, transactional print-and-mail, print management, online services, digital photography, color services, and content and database management to customers in the publishing, healthcare, advertising, retail, technology, financial services and many other industries. The largest companies in the world and others rely on RR Donnelley’s scale, scope and insight through a comprehensive range of online tools, variable printing services and market-specific solutions.

BUSINESS ACQUISITIONS

On January 24, 2007, the Company acquired Perry Judd’s Holdings Incorporated (“Perry Judd’s”), a privately-owned printer of magazines and catalogs with long- and short-run capabilities for producing consumer and business-to-business catalogs as well as consumer, trade and association magazines. Perry Judd’s is included in the Global Print Solutions segment.

On January 9, 2007, the Company acquired Banta Corporation (“Banta”), a provider of comprehensive printing and digital imaging solutions to leading publishers and direct marketers, including advanced digital content management and e-business services. Additionally, Banta provides a wide range of procurement management and other outsourcing capabilities to the world’s largest technology companies. Banta is included in the Global Print Solutions segment with the exception of its premedia and labels operations, which are included in the Global Services segment.

On January 3, 2007, the Company signed a definitive agreement to acquire Von Hoffmann, a leading U.S.-based printer of books and other products that serve primarily the education, trade and business-to-business catalog sectors, from Visant Corporation. The Company believes this acquisition will offer our customers enhanced responsiveness, as well as the ability to leverage our leading catalog, premedia, logistics and other production and service resources. The all cash deal is expected to close in the spring of 2007. Von Hoffmann is expected to be included in the Global Print Solutions segment.

DISCONTINUED OPERATIONS

In December 2005, the Company sold its Peak Technologies business (“Peak”), which was acquired in the 2004 acquisition of Moore Wallace Incorporated. In October 2004, the Company sold its package logistics business. For all periods presented, these businesses have been classified as discontinued operations in the condensed consolidated financial statements.

SEGMENT DESCRIPTION

The Company operates primarily in the commercial print portion of the printing industry, with related service offerings designed to offer customers complete solutions for communicating their messages to target audiences. The Company’s segments and business units, reflecting the changes described above, are summarized below:

Global Print Solutions. The Global Print Solutions segment consists of the following:

•

Magazine, catalog and retail: Provides print services to consumer magazine and catalog publishers as well as retailers.

•

Directories: Serves the printing needs of yellow and white pages directory publishers.

•

Book: Provides print services to the consumer, religious, educational and specialty book markets.

•

Direct mail: Offers services with respect to direct marketing programs including content creation, database management, printing, personalization, finishing and distribution in North America.

•

Europe: Provides print and print-related services to the telecommunications, direct mail, consumer magazine, catalog and book sectors.

•

Asia: Provides print and print-related services to the book, telecommunications, technology and consumer magazine sectors.

•

Global Services. The Global Services segment consists of short-run and variable print, business process outsourcing and related services as follows:

•

OfficeTiger: Provides integrated business process outsourcing and transaction processing services through its operations in North America, Europe, India, the Philippines and Sri Lanka.

•

Latin America: Provides print and print-related services to the book, consumer magazine and catalog sectors; also designs and manufactures paper-based forms and labels.

EXECUTIVE SUMMARY

Financial Performance: Three Months Ended March 31, 2007

The changes in the Company’s income from continuing operations, operating margin, net earnings and net earnings per diluted share for the three months ended March 31, 2007, from the three months ended March 31, 2006, were due primarily to the following (in millions, except per share data):


	Income from Continuing Operations			Operating Margin		Net Earnings			Net Earnings Per Diluted Share
For the three months ended March 31, 2006	$	211.9		9.3	%	$	111.9		$	0.51
2007 restructuring and impairment charges – net		(11.4	)	(0.4	)%		(7.0	)		(0.03	)
2006 restructuring and impairment charges – net		16.6		0.8	%		10.2			0.05
Discontinued operations							2.2			0.01
Operations		41.4		(0.4	)%		21.5			0.09

For the three months ended March 31, 2007	$	258.5		9.3	%	$	138.8		$	0.63

2007 restructuring and impairment charges – net: included pre-tax charges of $9.3 million for employee termination costs, substantially all of which were associated with restructuring actions resulting from the reorganization of certain operations and the exiting of certain business activities; $2.0 million of other restructuring costs, primarily lease termination costs; and $0.1 million for impairment of long-lived assets.

2006 restructuring and impairment charges – net: included pre-tax charges of $13.5 million for employee termination costs, substantially all of which were associated with restructuring actions resulting from the reorganization of certain operations and the exiting of certain business activities; $2.7 million of other restructuring costs, primarily lease termination costs; and $0.4 million for impairment of long-lived assets.

Discontinued operations: reflects certain ongoing costs related to a facility previously occupied by the Company’s package logistics business including costs resulting from a sub-lessee bankruptcy in 2006.

Operations: reflects higher operating income in the Global Print Solutions segment, primarily driven by the Banta acquisition, higher volume and productivity, and improved operating income in the Global Services segments which was primarily driven by strong performance in the financial print business, partially offset by higher interest expense. See further details in the review of operating results by segment that follows.

Successes

During the first quarter of 2007, the Company made significant progress in its integration of the Banta and Perry Judd’s acquisitions. Net sales from these acquired businesses were approximately $417 million, an increase of approximately 3.5% from their combined pre-acquisition pro forma revenues in the first quarter of 2006. Due to the sales increase combined with the benefits of restructuring and other cost reduction actions, these acquisitions were accretive to the Company’s net earnings in the quarter.

Excluding the impact of Banta, Perry Judd’s and OfficeTiger acquisitions, net sales growth was 3.6%. This growth was driven by strong volume in financial print, short-run commercial print, Asia, book, logistics and Latin America. In addition, favorable foreign exchange impacts resulted in growth in Europe net sales.

The Company also continued to achieve productivity benefits resulting from restructuring actions, investments in equipment and technology, and procurement savings. These savings more than offset the impact of competitive price pressure and inflation-driven cost increases. As a result, the Company’s operating margin remained consistent with the first quarter of 2006, despite the impact of the acquisitions of Banta and Perry Judd’s, which historically had lower margins.

Challenges

Net sales in forms, labels and statement printing, included in the Global Services segment, declined in the first quarter of 2007 as compared to 2006. The decline was mainly caused by customer losses and volume declines in statement printing. The loss of these customers is expected to result in further volume declines throughout 2007. Management has implemented cost controls partially to offset the impact of these declines and a refocused sales effort is in place to regain momentum in this industry segment.

On May 14, 2007, new postage rates will go into effect for all mail classes in the United States under approved Postal Rate Case 2006-1. When implemented, the new rates will substantially increase the cost of standard mail, which is a significant component of many customers’ cost structures. This cost increase could have significant impact on several operations including statement printing in the Global Services segment and direct mail, magazine, catalog and retail and logistics in the Global Print Solutions segment. Management is developing plans to mitigate the financial effect of this postage increase and will evaluate any long-term impact it might have on volume.

OUTLOOK

Competition and Strategy

The print and related services environment is highly competitive and in general tends to have excess capacity. Despite some recent consolidation, the printing industry remains large and highly fragmented, and the industry is projecting only modest growth over the next several years. Across the Company’s segments, competition is based primarily on price in addition to quality and the ability to service the special needs of customers. The Company expects competition in most sectors served by the Company to remain intense in coming years. In this environment, the Company believes it needs to continue to maintain and enhance operating margins through productivity initiatives and by offering higher-value products and services.

Technological changes, including the electronic distribution of documents and data and the on-line distribution and hosting of media content, advances in digital printing, print-on-demand, and internet technologies continue to impact the market for the Company’s products and services. The Company seeks to leverage distinctive capabilities to improve its customers’ communications, whether in paper form or through electronic communications. The Company’s goal remains to help its customers succeed by delivering effective and targeted communications in the right format to the right audiences at the right time. Management believes that with the Company’s competitive strengths, including its broad range of complementary print-related services, strong logistics capabilities, technology leadership, depth of management experience, customer relationships and economies of scale, the Company has developed and can further develop valuable, differentiated solutions for its customers.

The Company seeks to leverage its position and size to generate continued productivity improvements and enhance the value the Company delivers to its customers. The Company continues to enhance its products and services through the successful integration of recently announced acquisitions that offer both increased breadth and depth of products and services and create additional scale advantages. To attain its productivity goals, the Company has implemented a number of strategic initiatives to reduce its overall cost structure and improve the efficiency of its operations. These initiatives include the restructuring and integration of operations, the expansion of internal sales efforts, leveraging the Company’s global infrastructure, streamlining administrative and support activities, integrating common systems and the disposal of non-core operations. Future cost reduction initiatives could include the reorganization of operations and the consolidation of facilities. Implementing such initiatives may result in future restructuring or impairment charges, which may be substantial. Management also reviews its operations on a regular basis to balance appropriate risks and opportunities to maximize efficiencies and to support the Company’s long-term strategic growth goals.

Seasonality

Advertising and consumer spending trends affect demand in several of the end-markets served by the Global Print Solutions segment. Historically, the Company’s magazine, catalog, retail and book operations generate higher revenues in the second half of the year driven by increased advertising pages within magazines, and holiday catalog, retail and book volumes. Compared to 2006, the Company expects a slightly higher impact from seasonal increases in sales volume in 2007, primarily due to its recent acquisitions.

Raw Materials

The primary raw materials the Company uses in its print businesses are paper and ink. The Company negotiates with leading suppliers to maximize its purchasing efficiencies, uses a wide variety of grades and formats and does not rely on any one supplier. In addition, a substantial amount of paper used by the Company is supplied directly by customers. The cost and supply of certain paper grades used in the manufacturing process may continue to affect the Company’s consolidated financial results. Customers directly absorb the impact of increasing prices on customer-supplied paper, though higher prices may have an impact on those customers’ demand for printed product. With respect to paper purchased by the Company, the Company has historically been able to raise its prices to cover a substantial portion of paper cost increases. Contractual arrangements and industry practice should support the Company’s continued ability to pass on paper price increases to a large extent, but there is no assurance that market conditions will continue to enable the Company successfully to do so.

The Company continues to monitor the impact of changes in the price of crude oil and other energy costs. The Company believes its logistics services will continue to be able to pass on a substantial portion of increases in fuel prices directly to our customers in order to offset the impact of these increases. However, the Company generally cannot pass on to customers the impact of higher energy prices on its manufacturing costs, and increases in energy prices have resulted in higher costs for certain of the Company’s operations. The Company cannot predict the impact that possible future energy price increases may have upon either future operating costs or customer demand and the related impact either will have on the Company’s consolidated annual results of operations, financial position or cash flows.

Distribution

The Company’s products are distributed to end-users through the U.S. or foreign postal services, through retail channels, or by direct shipment to customer facilities. The Company’s logistics services manage distribution of most customer products printed by the Company in the U.S. and Canada to maximize efficiency and reduce costs for customers.

Postal costs are a significant component of many customers’ cost structures and postal rate changes can influence the number of pieces that the Company’s customers are willing to mail. In December 2006, the United States Congress passed the Postal Accountability and Enhancement Act (“the Act”). The Act provides a mechanism for controlling pricing that will replace a lengthy rate-setting process with more predictable, manageable price adjustments, held at or below the rate of inflation with a cap tied to the consumer price index. This new pricing mechanism is expected to be established by the Postal Regulatory Commission 18 months after the legislation is signed into law. Additionally, a postal rate increase will go into effect on May 14, 2007 that is not part of the Act. The Company’s logistics services is well-positioned to adapt to changes in the mailing industry.

FINANCIAL REVIEW

In the financial review that follows, the Company discusses its consolidated results of operations, financial position, cash flows and certain other information. This discussion should be read in conjunction with the Company’s condensed consolidated financial statements and related notes.

Results Of Operations For The Three Months Ended March 31, 2007 As Compared To The Three Months Ended March 31, 2006

The following table shows net sales and income (loss) from continuing operations for each of the Company’s segments:


	Net Sales (1)				Income (Loss) From Continuing Operations (1)
	Three Months Ended March 31,
	2007		2006		2007			2006
	(in millions)
Global Print Solutions	$	1,821.8	$	1,371.8	$	225.5		$	177.2
Global Services		970.8		895.1		87.3			83.1

Total operating segments		2,792.6		2,266.9		312.8			260.3
Corporate		—		—		(54.3	)		(48.4	)

Total continuing operations	$	2,792.6	$	2,266.9	$	258.5		$	211.9

(1)	Reflects the results of acquired businesses from the relevant acquisition dates.

Consolidated

Net sales for the three months ended March 31, 2007 increased $525.7 million, or 23.2%, to $2,792.6 million versus the same period in the prior year. Of this increase, approximately 85% was due to the acquisitions of Banta, Perry Judd’s and OfficeTiger and $29.0 million resulted from changes in foreign exchange rates. In addition, the increase in net sales was driven by volume growth in both segments. In the Global Print Solutions segment, volume increases were seen in commercial, book, logistics and Asia. In the Global Services segment, net sales increases were driven by financial print and Latin America.

Income from continuing operations for the three months ended March 31, 2007 was $258.5 million, an increase of 22.0% compared to the three months ended March 31, 2006. The increase was driven by the increase in net sales, productivity efforts and the benefits achieved from procurement savings and restructuring activities, partially offset by increased depreciation and amortization expense.

Cost of sales (exclusive of depreciation and amortization) increased $394.5 million to $2,056.0 million for the three months ended March 31, 2007 versus the same period in the prior year primarily due to acquisitions and the increased net sales volume. Cost of sales as a percentage of consolidated net sales increased from 73.3% to 73.6%.

Selling, general and administrative expenses (exclusive of depreciation and amortization) increased $62.4 million to $324.5 million for the three months ended March 31, 2007 versus the same period in the prior year primarily due to the acquisitions and other net sales increases. Selling, general and administrative expenses as a percentage of consolidated net sales remained flat at 11.6%.

For the three months ended March 31, 2007, the Company recorded a net restructuring and impairment provision of $11.4 million compared to $16.6 million in the same period of 2006. In 2007, these charges included $9.3 million for workforce reductions of 198 people (of which 123 were terminated as of March 31, 2007) associated with the reorganization of certain operations and the exiting of certain business activities. In addition, these charges include $2.0 million of other restructuring costs primarily related to lease terminations in exited facilities. Restructuring charges for the three months ended March 31, 2006 included $13.5 million related to work force reductions of 297 people (all of whom were terminated as of March 31, 2007) associated with the reorganization of certain operations and the exiting of certain business activities. In addition, these charges include $2.7 million of other restructuring costs primarily related to lease terminations in exited facilities. Management believes that certain restructuring activities will continue throughout the remainder of 2007 as the Company continues to streamline its manufacturing, sales and administrative operations.

Depreciation and amortization increased $27.4 million to $142.2 million for the three months ended March 31, 2007 compared to the same period in 2006 primarily due to acquisitions. Depreciation and amortization includes $26.2 million and $17.0 million of amortization of purchased intangibles related to customer relationships, trade names and patents for the three months ended March 31, 2007 and 2006, respectively.

Net interest expense increased by $18.6 million for the three months ended March 31, 2007 versus the same period in 2006, primarily due to the issuance of approximately $1.3 billion of debt in January 2007 and increased short-term borrowings to finance the acquisitions of Banta and Perry Judd’s.

Net investment and other income (expense) for the three months ended March 31, 2007 and 2006 was $2.2 million and ($0.8) million, respectively. Included in net investment and other income (expense) were charges of $0.3 million and $1.4 million for the three months ended March 31, 2007 and 2006, respectively, reflecting declines in the underlying estimated fair market values of the Company’s affordable housing investments. In addition, the Company recorded a gain of $1.1 million for the three months ended March 31, 2007 for the portion of the changes in fair value of derivative financial instruments that was ineffective as a net investment hedge.

The effective income tax rate for the three months ended March 31, 2007 was 32.8% compared to 35.5% in the same period of 2006. The decrease primarily reflects an increased benefit from the domestic manufacturing deduction and the impact of the increased proportion of the Company’s taxable income derived from lower-tax jurisdictions.

Net earnings from continuing operations for the three months ended March 31, 2007 was $138.9 million or $0.63 per diluted share compared to $114.2 million or $0.52 per diluted share for the three months ended March 31, 2006. In addition to the factors described above, the per share results reflect an increase in weighted average diluted shares outstanding of 2.7 million.

The net loss from discontinued operations for the three months ended March 31, 2007 was $0.1 million compared to $2.3 million for the same period in 2006, which primarily reflected costs resulting from a subtenant bankruptcy related to a facility previously occupied by the Company’s package logistics business.

Global Print Solutions

The following table summarizes net sales, income from continuing operations and certain items impacting comparability within the Global Print Solutions segment:


	Three Months Ended March 31,
	2007			2006
	(in millions)
Net sales	$	1,821.8		$	1,371.8
Income from continuing operations		225.5			177.2
Operating Margin		12.4	%		12.9	%
Items impacting comparability:
Restructuring and impairment charges—net		4.3			5.2

Net sales for the Global Print Solutions segment for the three months ended March 31, 2007 were $1,821.8 million, an increase of $450 million, or 32.8%, compared to the same period in 2006. Of this increase, approximately 90% was due to the acquisitions of Banta and Perry Judd’s. The remaining increase resulted from volume increases and favorable foreign exchange rates, partially offset by downward price pressures. Excluding the acquisition impact, net sales of magazines, catalogs and retail inserts declined due to product mix and lower pricing on major customer contracts. Book sales increased reflecting higher volume in consumer books, partially offset by lower prices on major customer contract renewals. Net sales for directories decreased, primarily due to continued pricing pressure and the impact of major contract renewals. Logistics services increased primarily due to volume growth on new and existing customers, higher prices and fuel surcharges. Declines in direct mail reflect lower volume from key customers. Commercial printing sales increased as a result of increased volume from large corporate customers. Substantially all of the net sales increase in Europe resulted from foreign exchange rates. In Asia, net sales improvement was due to gains in book production mainly for the U.S. and Europe markets, as well as continued growth with telecommunications and technology customers.

Global Print Solutions’ income from continuing operations increased $48.3 million, driven by the impact of acquisitions, higher volume and improved productivity, partially offset by the impact of competitive price pressures. Operating margins in the Global Print Solutions Segment decreased as a percent of sales from 12.9% to 12.4% for the three months ended March 31, 2007. The margin decrease resulted from the acquisitions of Banta and Perry Judd’s, both of which had lower margins than the segment’s historical margins. In addition, acquisitions resulted in $7.1 million of incremental amortization expense on intangible assets, which reduced operating margins by 40 basis points.

Global Services

The following table summarizes net sales, income from continuing operations and certain items impacting comparability within the Global Services segment:


	Three Months Ended March 31,
	2007			2006
	(in millions)
Net sales	$	970.8		$	895.1
Income from continuing operations		87.3			83.1
Operating Margin		9.0	%		9.3	%
Items impacting comparability:
Restructuring and impairment charges—net		3.0			5.4

Net sales for the Global Services segment for the three months ended March 31, 2007 were $970.8 million, an increase of $75.7 million, or 8.5%, compared to the same period in 2006. Of this increase, approximately 60% was due to the acquisitions of OfficeTiger and Banta. The remaining increase in net sales was primarily driven by strong volume growth across most of the segment, partially offset by competitive price pressure. Financial print net sales increased significantly, primarily driven by domestic and international capital markets transactions and global investment company compliance services. Global Document Solutions net sales increased over 2006, primarily due to favorable foreign exchange and volume growth in the statement outsourcing business, partially offset by the volume declines in direct mail. Forms, labels and statement printing net sales decreased primarily due to volume declines in statement printing, partially offset by higher forms and labels revenues in both the U.S. and Canada. Net sales increased in Latin America as a result of stronger volume, primarily commercial print. Digital solutions net sales increased from the prior year, driven primarily by the Banta acquisition.

Income from continuing operations increased $4.2 million primarily due to volume growth and productivity efforts, partially offset by the ongoing impact of competitive price pressures. Operating margins as a percentage of sales decreased from 9.3% to 9.0% for the three months ended March 31, 2007 due to the impact of the Banta and OfficeTiger acquisitions and continued price pressure.

Corporate

Corporate operating expenses increased $5.9 million to $54.3 million for the three months ended March 31, 2007. The increase in expense in the first quarter of 2007 reflected higher information technology and incentive compensation expense partially offset by cost reductions from productivity efforts and restructuring actions. Corporate restructuring charges of $4.1 million in the three months ended March 31, 2007 primarily reflect the employee termination costs of actions taken to streamline operations. Corporate restructuring charges of $6.0 million in the three months ended March 31, 2006 primarily related to actions taken to reorganize certain operations and the relocation of the global headquarters within Chicago.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

The Company believes it has sufficient liquidity to support the ongoing activities of the businesses and to invest in future growth to create value for its shareholders. Operating cash flows are the Company’s primary source of liquidity and are expected to be used for, among other things, interest and principal on the Company’s debt obligations, dividend payments that may be approved by the board of directors, capital expenditures as necessary to support growth and productivity improvement, completion of restructuring programs, additional acquisitions and future common stock repurchases based upon market conditions. Additional sources of liquidity include cash and cash equivalents of $299.6 million at March 31, 2007, a commercial paper program and credit facilities described under “Capital Resources” below.

Cash Flows From Operating Activities

Net cash provided by operating activities of continuing operations was $221.7 million for the three months ended March 31, 2007, compared to net cash provided by operating activities of continuing operations of $109.6 million for the same period last year. The increase reflects the impact of higher earnings driven by volume growth and productivity efforts and the impact of acquisitions. Additionally, a smaller reduction in accounts payable and accrued liabilities due to the timing of vendor and customer contract payments, respectively, partially offset by a larger increase in accounts receivable contributed to the increase in operating cash flow.

Cash Flows From Investing Activities

Net cash used in investing activities of continuing operations for the three months ended March 31, 2007 was $1,654.9 million versus net cash used in investing activities of continuing operations of $90.1 million for the three months ended March 31, 2006. Net cash used for acquisition of businesses in the three months ended March 31, 2007 included $1,546.4

million for the acquisition of Banta and Perry Judd’s. Capital expenditures were $109.4 million, an increase of $18.5 million compared to the first quarter of 2006. The increase reflects increased investment in expansion projects to support increased volume in the Global Print Solutions’ Asian and European businesses and capital spending at acquired businesses. The Company continues to fund capital expenditures primarily through cash provided by operations. The Company expects that capital expenditures for 2007 will be between $450 and $475 million.

Cash Flows From Financing Activities

Net cash provided by financing activities of continuing operations for the three months ended March 31, 2007 was $1,519.2 million compared to net cash used in financing activities of $65.8 million in the same period of 2006. The Company received proceeds of $1,244.2 million from an issuance of long-term debt in order to fund a portion of the acquisitions of Banta and Perry Judd’s. The net change in short-term debt was a cash inflow of $324.7 million in the three months ended March 31, 2007 due to the issuance of commercial paper related to the Banta and Perry Judd’s acquisitions.

Cash Flows From Discontinued Operations

Net cash used by discontinued operations for the three months ended March 31, 2007 was $0.3 million, consisting of lease and maintenance payments related to facilities vacated by the Company’s package logistics business.

Dividends

On January 11, 2007, the Board of Directors of the Company declared a quarterly cash dividend of $0.26 per common share, and the total amount of $56.7 million was paid on March 1, 2007 to shareholders of record on January 26, 2007. On April 17, 2007, the Board of Directors of the Company declared a quarterly cash dividend of $0.26 per common share payable on June 1, 2007 to shareholders of record on May 11, 2007.

Capital Resources

The Company has a $2.0 billion unsecured revolving credit facility (the “Facility”) that can be used for general corporate purposes, including letters of credit and as a backstop for the Company’s $2.0 billion commercial paper program. The Facility is subject to a number of restrictive and financial covenants that, in part, limit the ability of the Company to create liens on assets, engage in mergers and consolidations, or dispose of assets. The financial covenants require a minimum interest coverage ratio and a maximum leverage ratio. The Company pays an annual commitment fee of 0.08% on the total unused portion of the Facility. As of March 31, 2007, there were no borrowings under the Facility. The Company also has $245.4 million in credit facilities outside of the U.S., most of which are uncommitted. As of March 31, 2007, the Company had $56.8 million in outstanding letters of credit, of which $28.7 million reduced availability under the Company’s credit facilities. At March 31, 2007, approximately $2.2 billion was available under the Company’s credit facilities. Additionally, as of March 31, 2007, there were $300.1 million of borrowings under the Company’s $2.0 billion commercial paper program.

On January 8, 2007, the Company issued $625 million of 5.625% notes due January 15, 2012 and $625 million of 6.125% notes due January 15, 2017. On January 9, 2007, the Company completed its acquisition of Banta for approximately $1.4 billion in cash. The Company financed this acquisition with the proceeds from the issuance of the notes described previously and short-term borrowings under its commercial paper program.

On January 24, 2007, the Company acquired Perry Judd’s, a privately-owned printer of magazines and catalogs, for a purchase price of approximately $177 million. The Company financed this acquisition with existing cash on hand and through issuances of commercial paper.

On January 3, 2007, the Company signed a definitive agreement to acquire Von Hoffmann, a leading U.S.-based printer of books and other products that serve primarily the education, trade and business-to-business catalog sectors, from Visant Corporation for a purchase price of approximately $412 million. The Company expects to finance this acquisition through the issuance of commercial paper and with existing cash on hand.

The Company was in compliance with its debt covenants as of March 31, 2007.

RISK MANAGEMENT

The Company is exposed to interest rate risk on its variable debt and price risk on its fixed rate debt. As of March 31, 2007, substantially all of the Company’s outstanding term debt was comprised of fixed-rate debt. The Company’s

acquisitions of Banta and Perry Judd’s were financed through the issuance of fixed rate debt and commercial paper in the first quarter of 2007. The Company’s planned acquisition of Von Hoffmann is expected to be financed through the issuance of commercial paper and cash on hand. As a result, the Company’s variable rate debt is expected to increase. However, the Company’s exposure to interest rate risk is expected to be minimal due to the majority of its debt being fixed rate.

The Company is exposed to the impact of foreign currency fluctuations in certain countries in which it operates. The exposure to foreign currency movements is limited because the operating revenues and expenses of its various subsidiaries and business units are substantially in the local currency of the country in which they operate. To the extent borrowings, sales, purchases, revenues, expenses or other transactions are not in the local currency of the operating unit, the Company may enter into foreign currency forward contracts to hedge the currency risk. As of March 31, 2007, the aggregate notional amount of outstanding forward contracts was approximately $143.5 million. Unrealized gains and losses from these foreign currency contracts were not significant at March 31, 2007. The Company does not use derivative financial instruments for trading or speculative purposes.

The Company has outstanding cross currency swaps with an aggregate notional value of $1,176.3 million; British pound sterling (“GBP”) 395.0 million, which exchange GBP for U.S. dollars, Eurodollar (“EUR”) 182.7 million, which exchange EUR for U.S. dollars and GBP 125.0 million, which exchange GBP for EUR. These swaps require the Company to pay a fixed interest rate on the GBP notional amount and receive a fixed interest rate on the U.S. dollar notional amount, pay a fixed interest rate on the EUR notional amount and receive a fixed interest rate on the U.S. dollar notional amount and pay a fixed interest rate on the GBP notional amount and receive a fixed interest rate on the EUR notional amount, respectively. These swaps expire in 2010 ($682.5 million notional amount) and 2015 ($493.8 million notional amount). The Company has designated $675.8 million of the swaps as a cash flow hedge of the variability of the forecasted cash receipts from GBP denominated intercompany loans and $500.5 million of the swaps as a hedge of a net investment of GBP and EUR denominated foreign operations. At March 31, 2007, the fair market value of these cross currency swaps of $68.4 million is included in other noncurrent liabilities. A gain of $1.1 million was recognized in net other expense for the three months ended March 31, 2007 for the portion of the changes in fair value of the cross-currency swaps that was ineffective as a net investment hedge.

CAUTIONARY STATEMENT

The Company has made forward-looking statements in this Quarterly Report on Form 10-Q that are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of the Company. Generally, forward-looking statements include information concerning possible or assumed future actions, events, or results of operations of the Company.

These statements may include, or be preceded or followed by, the words “may,” “will,” “should,” “potential,” “possible,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “hope” or similar expressions. The Company claims the protection of the Safe Harbor for Forward-Looking Statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements.

Forward-looking statements are not guarantees of performance. You should understand that the following important factors, in addition to those discussed elsewhere in this Form 10-Q, could affect the future results of the Company and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements:

•

successful execution and closing of planned acquisitions and the performance of the Company’s businesses following the acquisitions of OfficeTiger, Banta, Perry Judd’s and Von Hoffmann, successful negotiation of future acquisitions and the ability of the Company to integrate operations successfully and achieve enhanced earnings or effect cost savings;

•

the ability to implement comprehensive plans for the execution of cross-selling, cost containment, asset rationalization, system integration and other key strategies;

•

the ability to divest non-core businesses;

•

future growth rates in the Company’s core businesses;

•

competitive pressures, including increased margin pressure and excess capacity, in all segments in which the Company operates;

•

factors that affect customer demand, including changes in postal rates and postal regulations, changes in the capital markets that affect demand for financial printing, changes in advertising markets, the rate of migration from paper-based forms to digital formats, customers’ budgetary constraints, and customers’ changes in short-range and long-range plans;

•

the ability to gain customer acceptance of the Company’s new products and technologies;

•

the ability to secure and defend intellectual property rights and, when appropriate, license required technology;

•

customer expectations;

•

performance issues with key suppliers;

•

shortages or changes in the availability, or increases in costs of, key materials (such as ink, paper and fuel);

•

the ability to generate cash flow or obtain financing to fund growth;

•

the effect of inflation, changes in currency exchange rates and changes in interest rates;

•

the effect of changes in laws and regulations, including changes in accounting standards, trade, tax, health and welfare benefits, price controls and other regulatory matters and the cost of complying with these laws and regulations;

•

contingencies related to actual or alleged environmental contamination;

•

the retention of existing, and continued attraction of additional, customers and key employees;

•

the effect of a material breach of security of any of the Company’s systems;

•

the effect of labor disruptions or labor shortages;

•

the effect of economic and political conditions on a regional, national or international basis;

•

the possibility of future terrorist activities or the possibility of a future escalation of hostilities in the Middle East or elsewhere;

•

the possibility of a regional or global health pandemic outbreak;

•

adverse outcomes of pending and threatened litigation; and

•

other risks and uncertainties detailed from time to time in the Company’s filings with the SEC, including under “Risk Factors” in the Company’s Annual Report on Form 10-K.

Because forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Undue reliance should not be placed on such statements, which speak only as of the date of this document or the date of any document that may be incorporated by reference into this document.

Consequently, readers of this Quarterly Report should consider these forward-looking statements only as our current plans, estimates and beliefs. We do not undertake and specifically decline any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. We undertake no obligation to update or revise any forward-looking statements in this Quarterly Report to reflect any new events or any change in conditions or circumstances. Even if these plans, estimates or beliefs change because of future events or circumstances after the date of these statements, or because anticipated or unanticipated events occur, we decline and cannot be required to accept an obligation to publicly release the results of revisions to these forward-looking statements.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

See Item 2 of Part I under “Liquidity and Capital Resources.”

Item 4.

Controls and Procedures

(a) Disclosure controls and procedures.

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company’s management carried out an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as of the end of the last fiscal quarter. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2007, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We intend to continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

(b) Changes in internal control over financial reporting.

There have not been any changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

ISSUER PURCHASES OF EQUITY SECURITIES


Period	(a) Total Number of Shares Purchased		(b) Average Price Paid per Share	(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2007 – January 31, 2007	127,588	(2)	36.49	—	10,000,000	(1)
February 1, 2007 – February 28, 2007	371,143	(2)	36.65	—	10,000,000	(1)
March 1, 2007 – March 31, 2007	5,579	(2)	36.91	—	10,000,000	(1)
Total	504,310	(2)	36.62	—	10,000,000	(1)

(1)

On February 22, 2006, the Company’s Board of Directors authorized a share repurchase program of up to 10 million shares of the Company’s common stock through a variety of methods, including open market purchases, block transactions, accelerated share repurchase agreements or private transactions. Such purchases may be made from time to time and may be discontinued at any time.

(2)	Shares withheld for tax liabilities upon vesting of equity awards.

Item 6. Exhibits


2.1		Combination Agreement, dated as of November 8, 2003, between R.R. Donnelley & Sons Company and Moore Wallace Incorporated (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated November 8, 2003, filed on November 10, 2003)

2.2		First Amendment to Combination Agreement, dated as of February 19, 2004, between R.R. Donnelley & Sons Company and Moore Wallace Incorporated (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated February 20, 2004, filed on February 20, 2004)

2.3		Agreement for the Sale and Purchase of The Astron Group Limited between R.R. Donnelley & Sons Company and PPV Nominees Limited, David Mitchell, Richard Baker, Mark Haselden, Orbis Trustees Jersey Limited as trustees of the Nomad Trust, e-doc Group Employee Benefit Trustees Limited, Kay Smith, Mark Underwood, Thomas Roy Patterson, Kevin Woor, Anthony Hall, John Farmer, Michael Reed and RRD Inks Limited, an indirect wholly owned subsidiary of R.R. Donnelley & Sons Company (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K dated April 16, 2005, filed on April 21, 2005)

2.4		Agreement and Plan of Merger, dated as of October 31, 2006, among Banta Corporation, R.R. Donnelley & Sons Company and Soda Acquisition, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated October 31, 2006, filed on November 1, 2006.

2.5		Stock Purchase Agreement, dated as of January 2, 2007, by and among Visant Corporation, R.R. Donnelley & Sons Company and, solely for purposes of Section 5.8 thereof, Visant Holding Corp. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated January 2, 2007, filed on January 8, 2007)

3.1		Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, filed on May 3, 1996)

3.2 (a)		Amendment to By-Laws adopted February 23, 2007 (incorporated by reference to Exhibit 3.2(a) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, filed on February 28, 2007)

3.2 (b)		By-Laws (incorporated by reference to Exhibit 3.2(a) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, filed on February 28, 2007)

4.1		Instruments, other than those defining the rights of holders of long-term debt not registered under the Securities Exchange Act of 1934 of the registrant and of all subsidiaries for which consolidated or unconsolidated financial statements are required to be filed are being omitted pursuant to paragraph (4)(iii)(A) of Item 601 of Regulation S-K. Registrant agrees to furnish a copy of any such instrument to the Commission upon request.


4.2		Indenture dated as of November 1, 1990 between the Company and Citibank, N.A., as Trustee (incorporated by reference to Exhibit 4 filed with the Company’s Form SE filed on March 26, 1992)

4.3		Indenture dated as of March 10, 2004 between the Company and LaSalle National Bank Association, as Trustee (incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, filed on May 10, 2004)

4.4		Indenture dated as of May 23, 2005 between the Company and LaSalle Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated May 23, 2005, filed on May 25, 2005)

4.5		Indenture dated as of January 3, 2007 between the Company and LaSalle Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-3 filed on January 3, 2007)

4.6		Credit Agreement dated January 8, 2007 among the Company, the Banks named therein and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K dated January 22, 2007, filed on January 23, 2007)

10.1		Policy on Retirement Benefits, Phantom Stock Grants and Stock Options for Directors (incorporated by reference to Exhibit 10(a) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000, filed on March 30, 2001)*

10.2		Non-Employee Director Compensation Plan (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed on March 14, 2005) *

10.3		Directors’ Deferred Compensation Agreement, as amended (incorporated by reference to Exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, filed on November 12, 1998)*
10.4		Non-Qualified Deferred Compensation Plan (incorporated by reference to Exhibit 99 to the Company’s Registration Statement on Form S-8 filed on February 27, 2002)*

10.5		1995 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, filed on November 12, 1998)*

10.6		2000 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, filed on November 12, 2003)*

10.7		2000 Broad-based Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, filed on November 12, 2003)*

10.8		2004 Performance Incentive Plan (incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 filed on March 3, 2004)*

10.9		Amended and Restated R.R. Donnelley & Sons Company Unfunded Supplemental Benefit Plan, as amended (incorporated by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, filed on May 14, 2003)*

10.10		Supplemental Executive Retirement Plan for Designated Executives—B (incorporated by reference to Exhibit 10.1 to Moore Wallace Incorporated’s (Commission file number 1-8014) Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, filed on November 14, 2001)*

10.11		2001 Long Term Incentive Plan (incorporated by reference to Exhibit 10.2 to Moore Wallace Incorporated’s (Commission file number 1-8014) Annual Report on Form 10-K for the year ended December 31, 2001, filed on March 29, 2002)*

10.12		2003 Long Term Incentive Plan, as amended October 15, 2003 (incorporated by reference to Exhibit 10.12 to Moore Wallace Incorporated’s (Commission file number 1-8014) Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed March 1, 2004)*



10.13		Amendment to 2003 Long Term Incentive Plan dated February 27, 2004 (incorporated by reference to Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, filed on May 10, 2004)*

10.14		2000 Inducement Option Grant Agreement (incorporated by reference to Exhibit 99.1 to Moore Wallace Incorporated’s (formerly Moore Corporation Limited, Commission file number 1-8014) Registration Statement on Form S-8 filed on February 13, 2003)*

10.15		2003 Inducement Option Grant Agreement (incorporated by reference to Exhibit 4.4 to Moore Wallace Incorporated’s (Commission file number 1-8014) Registration Statement on Form S-8 filed September 29, 2003)*

10.16		Form of Option Agreement for certain executive officers (incorporated by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed on March 14, 2005)*

10.17		Form of Option Agreement for certain executive officers (filed herewith)*

10.18		Form of Performance Share Unit Award Agreement for certain executive officers (filed herewith)*

10.19		Form of Restricted Stock Unit Award Agreement for certain executive officers (incorporated by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed on March 14, 2005)*

10.20		Form of Restricted Stock Unit Award Agreement for certain executive officers (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed on March 14, 2005)*

10.21		Form of Restricted Stock Unit Award Agreement for certain executive officers (filed herewith)*

10.22		Form of Restricted Stock Unit Award Agreement for directors (incorporated by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed on March 14, 2005)*

10.23		Employment Agreement effective as of November 8, 2003 between the Company and Mark A. Angelson (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K dated March 24, 2005, filed on March 29, 2005)*

10.24		Amended and Restated Employment Agreement dated as of April 30, 2007 between the Company and Thomas J. Quinlan, III (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 30, 2007, filed on May 1, 2007)*

10.25		Amended and Restated Employment Agreement dated May 8, 2007 between the Company and John R. Paloian (filed herewith)*

10.26		Employment Agreement dated January 27, 2004 between the Company and Suzanne S. Bettman (incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, filed on February 28, 2007)*

10.27		Employment Agreement dated February 5, 2007 between the Company and Miles W. McHugh (incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, filed on February 28, 2007)*

10.28		Trust Agreement, dated November 7, 2005, between the Company and Northern Trust Corporation (incorporated by reference to Exhibit. 10.32 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, filed on November 8, 2005)*

10.29		Form of Indemnification Agreement for directors (incorporated by reference to Exhibit. 10.32 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, filed on November 8, 2005)*

14		Code of Ethics (incorporated by reference to Exhibit 14 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed on March 1, 2004)



21		Subsidiaries of the Company (incorporated by reference to Exhibit 21 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, filed on February 28, 2007)

31.1		Certification by Thomas J. Quinlan III, Chief Executive Officer, required by Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith)

31.2		Certification by Thomas J. Quinlan III, Chief Financial Officer, required by Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith)

32.1		Certification by Thomas J. Quinlan III, Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code (filed herewith)

32.2		Certification by Thomas J. Quinlan III, Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code (filed herewith)

*	Management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


R.R. DONNELLEY & SONS COMPANY

By:		/S/ THOMAS J. QUINLAN, III
		Thomas J. Quinlan, III
		Chief Financial Officer

By:		/S/ MILES W. MCHUGH
		Miles W. McHugh
		Senior Vice President and Controller (Chief Accounting Officer)

Date: May 9, 2007

EX-10.17 2 dex1017.htm FORM OF OPTION AGREEMENT FOR CERTAIN EXECUTIVE OFFICERS Form of Option Agreement for certain executive officers

Exhibit 10.17

R. R. DONNELLEY & SONS COMPANY

STOCK OPTION AGREEMENT

(2004 PIP)

R. R. DONNELLEY & SONS COMPANY, a Delaware corporation (herein called the "Company"), acting pursuant to the provisions of its 2004 Performance Incentive Plan (herein called the "Plan"), hereby grants to [Name] (herein called "Optionee"), as of March , 2007 (herein called the "Option Date"), an option (herein called the "Option") to purchase from the Company [Number of options] shares of common stock of the Company, par value $1.25 per share (herein called "Common Stock"), at a price of $xx.xx per share to be exercisable during the term set forth herein, but only upon the following terms and conditions:

1.	The Option may be exercised by Optionee, in whole or in part, from time to time, during the Option Term (as defined below) only in accordance with the following conditions and limitations:

(a)

Except as provided in Sections 5 and 7 hereof, Optionee must, at any time the Option becomes exercisable and at any time the Option is exercised, have been continuously in the employment of the Company since the date hereof, unless otherwise determined by the Committee administering the Plan (the “Committee”). Leave of absence for periods and purposes conforming to the personnel policies of the Company and approved by the Committee shall not be deemed terminations of employment or interruptions of continuous service.

(b)

(i) Subject to Sections 5 and 7 hereof and subsection (ii) below, at any time on and after the dates indicated in column (1), Optionee may purchase such whole number of shares of Common Stock which, when added to all shares theretofore purchased under the Option, does not exceed the total number of shares subject to the Option multiplied by the percentage indicated in column (2) opposite such respective date, as follows:


Date (1)		Percentage of Total (2)
March 21, 2008		25%
March 21, 2009		25%
March 21, 2010		25%
March 21, 2011		25%

(ii) Notwithstanding the foregoing subsection (i), if while any portion of the Option is outstanding and unexercisable, a Change in Control (as defined in the Plan) occurs, then from and after the Acceleration Date (as defined in the Plan), the Option shall be exercisable with respect to all of the shares of Common Stock subject to the Option.

(iii) The Option awarded hereby shall expire on the first business day preceding the tenth anniversary of the Option Date (the period beginning on the date hereof and ending on such date being the “Option Term”).

(c)

No fractional shares may be purchased at any time.

Subject to the limitations herein set forth, the Option may be exercised by delivery of notice to the Company, in such form as the Company determines, specifying the number of shares of Common Stock to be purchased and accompanied by payment in full of the option price (or arrangement made for such payment to the Company's satisfaction) for the number of shares so purchased. No shares of Common Stock may be purchased under the Option unless Optionee (or in the event of Optionee's death, Optionee's executor, administrator or personal representative or Optionee's beneficiary designated pursuant to the Beneficiary Designation Form on file with the Company (herein called a "Beneficiary")) shall pay to the Company such amount as the Company is advised it is required under applicable federal, state, local or other tax laws to withhold and pay over to governmental taxing authorities by reason of the purchase of shares of Common Stock pursuant to the Option.

The option price and any federal, state, local and other taxes required to be withheld in connection with such exercise may be paid (i) in cash, (ii) by delivering previously owned whole shares of Common Stock (which Optionee has held for at least six months prior to the delivery of such shares or which Optionee purchased on the open market and for which Optionee has good title, free and clear of all liens and encumbrances) having a fair market value, determined on the date of exercise, equal to the option price and such amount of tax, (iii) with respect to taxes only, by authorizing the Company to withhold whole shares of Common Stock which would otherwise be delivered having a fair market value equal to such amount of tax, (iv) in a combination of (i)—(iii), (v) in cash by a broker-dealer acceptable to the Company to whom Optionee has submitted an irrevocable notice of exercise or (vi) to the extent previously expressly authorized by the Committee, via a cashless exercise arrangement with the Company; provided that the Committee shall have the sole discretion to disapprove of an election pursuant to clause (vi). Payment of the option price and such tax, or any part thereof, in previously owned shares of Common Stock shall not be effective unless Optionee delivers one or more stock certificates (or otherwise delivers shares of Common Stock or evidence of ownership to the satisfaction of the Company) representing shares having a fair market value on the date of exercise equal to or in excess of the option price and such tax, or applicable portion thereof, accompanied by such endorsements, signature guarantees or other documents or assurances as may reasonably be required by the Company. For purposes of this Agreement, the fair market value of the Common Stock on a specified date shall be determined by reference to the average of the high and low transaction prices in trading of the Common Stock on such date as reported in the New York Stock Exchange-Composite Transactions, or, if no such trading in the Common Stock occurred on such date, then on the next preceding date when such trading occurred.

Upon exercise of the Option in whole or in part pursuant to Section 2 hereof, the Company shall deliver or cause to be delivered a certificate (or other evidence of ownership) representing the number of shares specified against payment therefor and shall pay all original issue or transfer taxes and all other fees and expenses incident to such delivery.

4.	Optionee shall be entitled to the privileges of ownership with respect to shares subject to the Option only with respect to shares purchased upon exercise of all or part of the Option and as to which Optionee becomes a stockholder of record.


5.		(a)		If Optionee ceases to be employed by the Company by reason of death or disability as defined in the Company’s long-term disability policy as in effect at the time of the Optionee’s disability (“Disability”), then from and after the date of death or such Disability the Option shall be exercisable by Optionee, the executor, administrator, personal representative or Beneficiary of Optionee during the 1-year period commencing on the date of Optionee’s death or Disability, but only during the Option Term, with respect to all of the shares of Common Stock subject to the Option.

(b)

If Optionee ceases to be employed by the Company by reason of retirement on or after age 65 or by reason of a Qualifying Retirement, then, subject to the provisions of Section 7, from and after the effective date of such cessation of employment the portion of the Option that is not exercisable shall continue to vest in accordance with the provisions of Section 1(b) and the Option shall be exercisable by Optionee during the five-year period commencing on the effective date of such cessation of employment, but only during the Option Term, with respect to all of the shares of Common Stock subject to the Option. For purposes of this Agreement, the term “Qualifying Retirement” shall be defined as follows:

(i)

Optionee is an active participant in a Company sponsored retirement benefit plan and is eligible to commence benefits thereunder at the time of cessation of employment and the Company has not terminated Optionee’s employment for cause. An Optionee that is a participant in the Retirement Benefit Plan of R.R. Donnelley & Sons Company (the “ RR Donnelley Pension Plan”) is eligible to commence benefits under the plan if Optionee is eligible to commence benefits under the traditional formula of the RR Donnelley Pension Plan, or would have been eligible to commence benefits under the traditional formula of the RR Donnelley Pension Plan had Optionee been a participant in the traditional formula of the RR Donnelley Pension Plan during his/her service with R.R. Donnelley & Sons Company and/or any of the entities described in Section 10 hereof at the time of cessation of employment; or

(ii)

Optionee is not an active participant in a Company sponsored retirement benefit plan but Optionee would have been eligible to commence benefits under the traditional formula of the RR Donnelley Pension Plan had Optionee been a participant in the traditional formula of the RR Donnelley Pension Plan during his/her service with R.R. Donnelley & Sons Company and/or any of the entities described in Section 10 hereof at the time of cessation of employment; or

(iii)

the Committee has otherwise determined the cessation of employment to constitute a Qualifying Retirement.

(d)

If Optionee ceases to be employed by the Company for any reason other than death, retirement on or after age 65, a Qualifying Retirement or Disability, then from and

after the effective date of such cessation of employment the Option shall be exercisable by Optionee during the 90-day period commencing on the effective date of such cessation of employment, but only during the Option Term, to the extent it is exercisable on the effective date of such cessation of employment. The portion of the Option that is not exercisable pursuant to the preceding sentence shall be cancelled as of the effective date of Optionee’s cessation of employment.

The Option may not be transferred by Optionee other than by will, the laws of descent and distribution or pursuant to the beneficiary designation procedures approved by the Company or as otherwise set forth in an amendment to this Agreement. The Option is exercisable only by Optionee or Optionee's guardian, personal representative or similar person or by a permitted transferee. Except as permitted by the foregoing, the Option may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of the Option, the Option and all rights hereunder shall immediately become null and void.

In the event of the death of Optionee during the five-year period commencing on the effective date of Optionee's cessation of employment by reason of retirement under Section 5(b) or (c), the Option may be exercised by the executor, administrator, personal representative or Beneficiary of Optionee during the one-year period commencing on the date of Optionee's death, but only during the Option Term remaining, and only to the extent Optionee was entitled to exercise the Option on the date of Optionee's death. In the event of the death of Optionee (a) during the one-year period commencing on the effective date of Optionee's cessation of employment by reason of Disability, or (b) during the 90-day period commencing on the effective date of Optionee's cessation of employment for reason other than retirement under Section 5(b) or (c), or Disability, the Option may be exercised by the executor, administrator, personal representative or Beneficiary of Optionee during the Option Term remaining, and only to the extent Optionee was entitled to exercise the Option on the date of Optionee's death.

8.	[Reserved]

In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than a regular cash dividend, the number and class of securities subject to the Option and the purchase price per security shall be appropriately adjusted by the Committee without an increase in the aggregate purchase price, other than an increase resulting from rounding. If any adjustment would result in a fractional security being subject to the Option, the Company shall pay Optionee, in connection with the first exercise of the Option, in whole or in part, occurring after such adjustment, an amount in cash determined by multiplying (i) the fraction of such security (rounded to the nearest hundredth) by (ii) the excess, if any, of (A) the fair market value of the Common Stock on the exercise date over (B) the exercise price of the Option; provided, however, that if the fair market value of such fractional security immediately after such adjustment is less than the fair market value of one share of Common Stock immediately prior to such adjustment, such fractional security shall be disregarded and no payment shall be made. The decision of the Committee regarding the amount and timing of any adjustment pursuant to this Section 9 shall be final, binding and conclusive.

10.

For purposes of this Agreement, employment by the Company shall be deemed to include employment by a corporation which is a direct or indirect majority-owned subsidiary of the Company, employment by any other entity designated by the Board of Directors of the Company or the Committee in which the Company has a direct or indirect equity interest and employment by any corporation which succeeds to the obligations of the Company hereunder.


11.		(a)		Optionee shall not, while employed by the Company and for a period of one year from the date of termination of Optionee’s employment with the Company for any reason, including termination by the Company with or without cause, directly or indirectly, either on Optionee’s own behalf or on behalf of any other person, firm or entity, solicit or provide services that are the same as or similar to the services the Company provided or offered while Optionee was employed by the Company to any customer or prospective customer of the Company (i) with whom Optionee had direct contact during the last two years of Optionee’s employment with the Company or about whom Optionee learned confidential information as a result of his or her employment with the Company and (ii) with whom any person over whom Grantee had supervisory authority at any time had direct contact during the last two years of Grantee’s employment with the Company or about whom such person learned confidential information as a result of his or her employment with the Company.

(b)

Optionee shall not while employed by the Company and for a period of two years from the date of termination of Optionee’s employment with the Company for any reason, including termination by the Company with or without cause, either directly or indirectly solicit, induce or encourage any individual who was a Company employee at the time of, or within six months prior to, Grantee’s termination to terminate their employment with the Company or to accept employment with any entity, including but not limited to a competitor, supplier or customer of the Company, nor shall Optionee cooperate with any others in doing or attempting to do so. As used herein, the term "solicit, induce or encourage" includes, but is not limited to, (i) initiating communications with a Company employee relating to possible employment, (ii) offering bonuses or other compensation to encourage a Company employee to terminate his or her employment with the Company and accept employment with any entity, including but not limited to a competitor, supplier or customer of the Company, or (iii) referring Company employees to personnel or agents employed by any entity, including but not limited to competitors, suppliers or customers of the Company.

12.

The Option is subject to the condition that if the listing, registration or qualification of the shares subject to the Option on any securities exchange or under any state or federal law, or if the assent or approval of any regulatory body shall be necessary as a condition of, or in connection with, the granting of the Option or the delivery or purchase of shares thereunder, the Option may not be exercised in whole or in part unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained. The Company agrees to use its best efforts to obtain any such requisite listing, registration, qualification, consent or approval.

13.	The Committee, as from time to time constituted, shall have the right to determine any questions that arise in connection with this Agreement or the Option. This Agreement and the Option are subject to the provisions of the Plan and shall be interpreted in accordance therewith.

14.

This Agreement shall not be construed as an employment contract and does not give Optionee any right to continued employment by the Company or any affiliate of the Company, and the fact that the termination of Optionee's employment occurs during the Option Term shall in no way be construed as giving Optionee the right to continue in the Company's or any such affiliate's employ.

15.	The Option shall not be treated as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code.

16.	This Agreement shall be binding upon and shall inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of Optionee, acquire any rights in the Option.

17.

Any notice, including a notice of exercise of the Option, required to be given hereunder to the Company shall be addressed to the Company at its headquarters in Chicago, Illinois, attention of the Corporate Secretary, and any notice required to be given hereunder to Optionee shall be addressed to Optionee at Optionee's residence address as shown in the Company's records, subject to the right of either party hereafter to designate in writing to the other some other address. Any such notice shall be (i) delivered by personal delivery, facsimile, United States mail or by express courier service and (ii) deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission or upon receipt if by United States mail or express courier service; provided, however, that if any notice is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company.

18.

The Option, this Agreement, and all determinations made and actions taken pursuant hereto and thereto, to the extent not governed by the laws of the United States, shall be governed by the laws of the State of Delaware and construed in accordance therewith without giving effect to principles of conflicts of laws.

IN WITNESS WHEREOF, R. R. DONNELLEY & SONS COMPANY has caused this instrument to be executed as of the day and year first above written.


R. R. DONNELLEY & SONS COMPANY

By:		/s/ Andrew Panega
Name:		Andrew Panega
Title:		Chief Human Resources Officer

All of the terms of this Agreement are

accepted as of this day of ,

200 .

Optionee:

EX-10.18 3 dex1018.htm FORM OF PERFORMANCE SHARE UNIT AWARD AGREEMENT Form of Performance Share Unit Award Agreement

Exhibit 10.18

R.R. DONNELLEY & SONS COMPANY

PERFORMANCE UNIT AWARD (2004 PIP)

This Performance Unit Award (“Award”) is granted as of March , 2007 (the “Grant Date”), by R. R. Donnelley & Sons Company (the “Company”) (Name) (“Grantee”).

1. Grant of Award. The Company hereby credits to Grantee XXXXXX stock units (the “Performance Units”), subject to the restrictions and on the terms and conditions set forth herein. This Award is made pursuant to the provisions of the R. R. Donnelley & Sons Company 2004 Performance Incentive Plan (“2004 PIP”). Capitalized terms not defined herein shall have the meanings specified in the 2004 PIP. Grantee shall indicate acceptance of this Award by signing and returning a copy hereof.

2. Determination of Achievement; Distribution of Award.

(a) The number of shares of common stock, par value $1.25 per share, of the Company (the “Common Stock”) payable in respect of the Performance Units will be determined based on the performance of the Company against the “Normalized Earnings Per Share Matrix” as shown on Attachment A hereto. Promptly following December 31, 2009 (or promptly following such earlier date as of which, pursuant to Section 4 hereof, a determination of the attainment by the Company of the targets set forth on the Normalized Earnings Per Share Matrix is to be made), the Committee (as defined in the 2004 PIP) shall determine whether and to what extent the Normalized Earnings Per Share target has been met.

(b) Distribution with respect to this Award shall be made to Grantee as soon as practicable following the determination described in (a) above. Distribution of this Award may be made in Common Stock, cash (based upon the fair market value of the Common Stock on the date of distribution) or any combination thereof as determined by the Committee.

3. Dividends; Voting.

(a) No dividends or dividend equivalents will accrue with respect to the Performance Units.

(b) Grantee shall have no rights to vote shares of common stock represented by the Performance Units unless and until distribution with respect to this Award is made in Common Stock pursuant to paragraph 2(b) above.

4. Treatment upon Separation or Termination.

(a) Notwithstanding any other agreement with Grantee to the contrary, if Grantee terminates his employment for Good Reason (as defined in the Grantee’s employment agreement) or the Company terminates the Grantee’s employment without Cause (as defined in the Grantee’s employment agreement) the Performance Units shall

vest and be payable, if at all, on the same terms and conditions that would have applied had Grantee’s employment not terminated (i.e., performance measured on December 31, 2009).

(b) Notwithstanding any other agreement with Grantee to the contrary, if Grantee’s employment terminates by reason of death or Disability (as defined as “total and permanent” disability under the Company’s long-term disability plan for senior executives), fifty percent of any unvested Performance Units shall vest and become payable, assuming the attainment of target performance (100% achievement) or, if greater, based on actual performance through the date of death or determination of Disability.

(c) If Grantee’s employment terminates by reason of retirement on or after age 65 or by reason of a Qualifying Retirement (together, “Retirement”), a pro-rated portion of the Performance Units shall vest and be payable, if at all, on the same terms and conditions that would have applied had Grantee’s employment not terminated (i.e., performance measured on December 31, 2009). The pro-rated portion of the Performance Units shall be determined by multiplying the total number of Performance Units by a fraction, the numerator of which is the total number of days between March 21, 2007 and the date of Grantee’s termination by reason of Retirement and the denominator of which is 1095. A “Qualifying Retirement” is defined as

(i) Grantee is an active participant in a Company sponsored retirement benefit plan and is eligible to commence benefits thereunder at the time of cessation of employment and the Company has not terminated Grantee’s employment for cause (a Grantee that is a participant in the Retirement Benefit Plan of R.R. Donnelley & Sons Company (the “RR Donnelley Pension Plan”) is eligible to commence benefits under the plan if Grantee is eligible to commence benefits under the traditional formula of the RR Donnelley Pension Plan, or would have been eligible to commence benefits under the traditional formula of the RR Donnelley Pension Plan had Grantee been a participant in the traditional formula of the RR Donnelley Pension Plan during his or her service with R.R. Donnelley & Sons Company and/or any subsidiary at the time of cessation of employment);

(ii) Grantee is not an active participant in a Company sponsored retirement benefit plan but Grantee would have been eligible to commence benefits under the traditional formula of the RR Donnelley Pension Plan had Grantee been a participant in the traditional formula of the RR Donnelley Pension Plan during his or her service with the Company and/or any subsidiary at the time of cessation of employment; or

(iii) a cessation of employment that the Committee determines is a Qualifying Retirement.

(d) Notwithstanding any other agreement with Grantee to the contrary, if Grantee’s employment is terminated by the Company for Cause or is terminated by Grantee other than for Good Reason or by reason of Retirement, any unvested Performance Units shall be forfeited.

5. Treatment upon Change in Control. Notwithstanding anything provided in the 2004 PIP or any other agreement with Grantee to the contrary, upon the Acceleration Date associated with a Change in Control, all of the Performance Units shall vest and become payable with respect to that number of shares of Common Stock that would be payable at target performance (100% achievement) or, if greater, based on actual performance through the Acceleration Date against the “Change in Control Normalized Earnings Per Share Matrix” as shown on Attachment A hereto.

6. Withholding Taxes.

(a) As a condition precedent to the issuance to Grantee of any shares of Common Stock pursuant to this Award, the Grantee shall, upon request by the Company, pay to the Company such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the “Required Tax Payments”) with respect to the Award. If Grantee shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to Grantee.

(b) Grantee may elect to satisfy his obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company, (2) delivery to the Company of previously owned whole shares of Stock for which Grantee has good title, free and clear of all liens and encumbrances, having a fair market value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Award (the “Tax Date”), equal to the Required Tax Payments, or (3) directing the Company to withhold a number of shares of Common Stock otherwise issuable to Grantee pursuant to this Award having a fair market value, determined as of the Tax Date, equal to the Required Tax Payments or any combination of (1)-(3). Any fraction of a share of Common Stock that would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by Grantee. No certificate representing a share of Common Stock shall be delivered until the Required Tax Payments have been satisfied in full. For purposes of this Award, the fair market value of a share of Common Stock on a specified date shall be determined by reference to the average of the high and low transaction prices in trading of the Common Stock on such date as reported in the New York Stock Exchange-Composite Transactions, or, if no such trading in the Common Stock occurred on such date, then on the next preceding date when such trading occurred.

7. Miscellaneous

(a) The Company shall pay all original issue or transfer taxes with respect to the issuance or delivery of shares of Common Stock pursuant hereto and all other fees and expenses necessarily incurred by the Company in connection therewith, and will use reasonable efforts to comply with all laws and regulations which, in the opinion of counsel for the Company, shall be applicable thereto.

(b) Nothing in this Award shall confer upon Grantee any right to continue in the employ of the Company or any other company that is controlled, directly or indirectly, by the Company or to interfere in any way with the right of the Company to terminate Grantee’s employment at any time.

(d) This Award shall be governed in accordance with the laws of the state of Illinois.

(e) This Award shall be binding upon and inure to the benefit of any successor or successors to the Company.

(f) Neither this Award nor the Performance Units nor any rights hereunder or thereunder may be transferred or assigned by Grantee other than by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company or other procedures approved by the Company. Any other transfer or attempted assignment, pledge or hypothecation, whether or not by operation of law, shall be void.

(g) The Committee, as from time to time constituted, shall have the right to determine any questions that arise in connection with this Agreement or the Performance Units. This Agreement and the Performance Units are subject to the provisions of the Plan and shall be interpreted in accordance therewith.

(h) If there is any inconsistency between the terms and conditions of this Award and the terms and conditions of the Employment Agreement, the terms and conditions of the Employment Agreement shall control.

IN WITNESS WHEREOF, the Company has caused this Award to be duly executed by its duly authorized officer.

R. R. DONNELLEY & SONS COMPANY


By:
Name:
Title:



Accepted:

EX-10.21 4 dex1021.htm FORM OF RESTRICTED STOCK UNIT AWARD AGREEMENT Form of Restricted Stock Unit Award Agreement

Exhibit 10.21

R.R. DONNELLEY & SONS COMPANY

STOCK UNIT AWARD

(2004 PIP)

This Stock Unit Award (“Award”) is granted as of March 21, 2007 by R.R. Donnelley & Sons Company, a Delaware corporation (the “Company”), to «First_Name» «Last_Name» (“Grantee”).

1. Grant of Award. The Company hereby credits to Grantee «RRD_RSU_Grant» stock units (the “Stock Units”), subject to the restrictions and on the terms and conditions set forth herein. This Award is made pursuant to the provisions of the Company’s 2004 Performance Incentive Plan (the “2004 PIP”). Capitalized terms not defined herein shall have the meanings specified in the 2004 PIP. Grantee shall indicate acceptance of this Award by signing and returning a copy hereof.

2. Vesting.

(a) Except to the extent otherwise provided in paragraphs 2(b) or 3 below, the Stock Units shall vest in four equal 25% increments on January 10, 2008, January 10, 2009, January 10, 2010 and January 10, 2011.

(b) Upon the Acceleration Date associated with a Change in Control, any portion of the Stock Units that is not fully vested, shall, in accordance with the terms of the 2004 PIP, become fully vested.

3. Treatment Upon Separation or Termination.

(a) If Grantee’s employment terminates by reason of death or Disability (as defined as in the Company’s long-term disability policy as in effect at the time of Grantee’s disability), any portion of the Stock Units that is unvested as of the date of such a termination shall become fully vested.

(b) If Grantee’s employment terminates by reason of retirement on or after age 65 (“Normal Retirement”) or due to an involuntary Qualifying Retirement (“Involuntary Qualifying Retirement), any portion of the Stock Units that is unvested as of the date of such termination shall continue to vest in accordance with the terms of paragraph 2 above. A “Qualifying Retirement” is defined as

under the traditional formula of the RR Donnelley Pension Plan, or would have been eligible to commence benefits under the traditional formula of the RR Donnelley Pension Plan had Grantee been a participant in the traditional formula of the RR Donnelley Pension Plan during his or her service with R.R. Donnelley & Sons Company and/or any subsidiary at the time of cessation of employment); or

(iii) a cessation of employment that the Committee determines is a Qualifying Retirement.

(c) If Grantee’s employment terminates other than for death, Disability or Normal Retirement or Involuntary Qualifying Retirement, any portion of the Stock Units that is unvested as of the date of such a termination shall be forfeited.

(d) The Committee may, in its sole discretion and subject to the terms of the 2004 PIP, determine such other circumstances that will result in accelerated vesting, in whole or part, of the Stock Units.

4. Issuance of Common Stock in Satisfaction of Stock Units. As soon as practicable following each vesting date, the Company shall issue one share of common stock of the Company (“Common Stock”) to Grantee for each Stock Unit that has vested on such date. Each Stock Unit shall be cancelled upon the issuance of a share of Common Stock with respect thereto.

5. Dividends. No dividends or dividend equivalents will accrue with respect to the Stock Units.

6. Rights as a Shareholder. Prior to issuance, Grantee shall not have the right to vote, nor have any other rights of ownership in, the shares of Common Stock to be issued in satisfaction of the Stock Units.

7. Withholding Taxes.

(b) Grantee may elect to satisfy his obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company, (2) delivery to the Company of previously owned whole shares of Common Stock for which Grantee has good title, free and clear of all liens and encumbrances, having a fair market value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Award (the “Tax Date”), equal to the Required Tax Payments, or (3) directing the Company to withhold a number of shares of Common Stock otherwise issuable to Grantee pursuant to this Award having a fair market value, determined as of the Tax Date, equal to the Required Tax Payments or any combination of (1)-(3). Any fraction of a share of Common Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by Grantee. No certificate representing a share of Common Stock shall be delivered until the Required Tax Payments have been satisfied in full. For purposes of this Award, the fair market value of a share of Common Stock on a specified date shall be determined by reference to the average of the high and low transaction prices in trading of the Common Stock on such date as reported in the New York Stock Exchange-Composite Transactions, or, if no such trading in the Common Stock occurred on such date, then on the next preceding date when such trading occurred.

8. Non-Solicitation.

(a) Grantee shall not, while employed by the Company and for a period of one year from the date of termination of Grantee’s employment with the Company for any reason, including termination by the Company with or without cause, directly or indirectly, either on Grantee’s own behalf or on behalf of any other person, firm or entity, solicit or provide services that are the same as or similar to the services the Company provided or offered while Grantee was employed by the Company to any customer or prospective customer of the Company (i) with whom Grantee had direct contact during the last two years of Grantee’s employment with the Company or about whom Grantee learned confidential information as a result of his or her employment with the Company and (ii) with whom any person over whom Grantee had supervisory authority at any time had direct contact during the last two years of Grantee’s employment with the Company or about whom such person learned confidential information as a result of his or her employment with the Company.

(b) Grantee shall not while employed by the Company and for a period of two years from the date of termination of Grantee’s employment with the Company for any reason, including termination by the Company with or without cause, either directly or indirectly solicit, induce or encourage any individual who was a Company employee at the time of, or within six months prior to, Grantee’s termination to terminate their employment with the Company or to accept employment with any entity, including but not limited to a competitor, supplier or customer of the Company, nor shall Grantee cooperate with any others in doing or attempting to do so. As used herein, the term

"solicit, induce or encourage" includes, but is not limited to, (i) initiating communications with a Company employee relating to possible employment, (ii) offering bonuses or other compensation to encourage a Company employee to terminate his or her employment with the Company and accept employment with any entity, including but not limited to a competitor, supplier or customer of the Company, or (iii) referring Company employees to personnel or agents employed by any entity, including but not limited to competitors, suppliers or customers of the Company.

9. Miscellaneous

(d) This Award shall be binding upon and inure to the benefit of any successor or successors to the Company.

(e) Neither this Award nor the Stock Units nor any rights hereunder or thereunder may be transferred or assigned by Grantee other than by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company or other procedures approved by the Company. Any other transfer or attempted assignment, pledge or hypothecation, whether or not by operation of law, shall be void.

(f) The Committee, as from time to time constituted, shall have the right to determine any questions that arise in connection with this Agreement or the Stock Units. This Agreement and the Stock Units are subject to the provisions of the 2004 PIP and shall be interpreted in accordance therewith.

(g) If Grantee is a resident of Canada, Grantee further agrees and represents that any acquisitions of Common Stock hereunder are for his own account for investment, and without the present intention of distributing or selling such Common Stock or any of them. Further, the Company and its subsidiaries expressly reserve the right at any time to dismiss Grantee free from any liability, or any claim under this Award, except as provided herein or in any agreement entered into hereunder. Any obligation of the Company under this Award to make any payment at any future date or

issue Common Stock merely constitutes the unfunded and unsecured promise of the Company to make such payment or issue such Common Stock; any payment shall be from the Company’s general assets in accordance with this Award and the issuance of any Common Stock shall be subject to the Company’s compliance with all applicable laws including securities law and the laws its jurisdiction of incorporation or continuance, as applicable, and no Grantee shall have any interest in, or lien or prior claim upon, any property of the Company or any subsidiary by reason of that obligation. If Grantee is a resident of Canada, Grantee hereby indemnifies the Company against and agrees to hold it free and harmless from any loss, damage, expense or liability resulting to the Company if any sale or distribution of the Common Stock by Grantee is contrary to the representations and agreements referred to above.

(h) If there is any inconsistency between the terms and conditions of this Award and the terms and conditions of Grantee’s employment agreement, employment letter or other similar agreement, the terms and conditions of such agreement shall control.

IN WITNESS WHEREOF, the Company has caused this Award to be duly executed by its duly authorized officer.


R.R. Donnelley & Sons Company

By:		/s/ Andrew Panega
Name:		Andrew Panega
Title:		Chief Human Resources Officer

All of the terms of this Award are

accepted as of this day of ,

200 .

Grantee:

EX-10.25 5 dex1025.htm AMENDED AND RESTATED EMPLOYMENT AGREEMENT DATED MAY 8, 2007 Amended and Restated Employment Agreement dated May 8, 2007

Exhibit 10.25

R.R. Donnelley & Sons Company

111 South Wacker Drive

Chicago, IL 60606-4301

Amended and Restated as of May 8, 2007

Mr. John Paloian

[address]

Dear John:

The purpose of this letter is to amend and restate in its entirety the Employment Agreement, dated as of March 25, 2004, between you and R.R. Donnelley & Sons Company (the “Company”). You are currently the Group President, RR Donnelley Global Print Solutions of the Company and, effective as of the date hereof, you shall serve as Chief Operating Officer of the Company in accordance with the terms and provisions of this Agreement as well as any employment and other policies applicable to employees of the Company and its subsidiaries from time to time during the term of your employment. All capitalized terms used but not defined in the text of this letter shall have the meanings assigned to such terms in Annex A.

We and you hereby acknowledge that your employment with the Company constitutes “at-will” employment and that either party may terminate this Agreement at any time, upon written notice of termination within a reasonable period of time before the effective date of the termination. With respect to the terms of your employment with the Company, you will have the customary duties, responsibilities and authorities of a chief operating officer at a corporation of a similar size and nature. You will report to the Chief Executive Officer of the Company (the “CEO”). You will receive such office, staffing and other assistance as is commensurate with that received by other senior executive officers at your level at a corporation of similar size and nature.

I. Compensation

You will receive the following compensation and benefits, from which the Company may withhold any amounts required by applicable law:

(i) The Company will pay you a base salary (“Base Salary”) at the rate of $700,000 per year. This Base Salary will be paid in accordance with the normal payroll practices of the Company.

(ii) You will be eligible to receive an annual bonus (the “Annual Bonus”) at a target level of 150% of Base Salary in respect of each fiscal year of the Company in accordance with the Company’s annual incentive compensation plan and payable if the Company achieves the performance objectives set forth by the Board of Directors (the “Board”) (or any designated committee thereof) from time to time. These performance objectives will be communicated to you no later than April 1^st of each year. The Annual Bonus shall be approved by the Board.

(iii) In addition, you will continue to be eligible to participate in any nonqualified pension plans and qualified plans in the same manner as you currently participate or may elect to participate from time to time after the date of this Agreement.

(iv) You shall be eligible for four (4) weeks vacation annually.

(v) You shall be eligible for a car allowance pursuant to policies applicable to senior officers of the Company from time to time during the term of your employment.

(vi) You shall be eligible for an allowance for financial planning (including tax advice and legal fees related thereto) pursuant to policies applicable to senior officers of the Company from time to time during the term of your employment.

(vii) You shall be eligible for supplemental term life insurance benefits and supplemental long-term disability benefits pursuant to policies applicable to senior officers of the Company ( but no less than $2,000,000) from time to time during the term of your employment, provided that you are insurable in accordance with standard underwriting requirements (including passing any physical exams and providing any information necessary to obtain such insurance coverage).

(viii) On March 21, 2007, the Company granted to you, under the R.R. Donnelley & Sons Company 2004 Performance Incentive Plan, the following: 30,000 Performance Share Units (pursuant to which grant if certain performance targets are achieved the amount payable could reach 250% of the initial award) and options to purchase 130,000 shares of common stock of the Company. It is the Company’s current intention that annual equity grants will be made to you in each of 2008 and 2009 that will, at a minimum, be consistent with the levels granted in the Performance Unit Award and Stock Option Agreement awarded March 21, 2007.

II. Severance

(i) Termination Not Following a Change in Control

If, prior to a Change in Control, the Company terminates your employment as Chief Operating Officer without Cause or if you terminate your employment for Good Reason:

(A) the Company will pay you an amount equal to two times your Annualized Total Compensation, subject to the execution by you of a customary release, which amount shall be payable in equal installments over the twenty-four (24) months following the date your employment with the Company is terminated (the “Termination Date”);

(B) the Company will provide to you a continuation of all benefits, including a car allowance and other related benefits, if any, which you were eligible to receive immediately prior to such termination, for the twenty-four (24) months following the Termination Date; and

(C) all outstanding stock options, restricted stock or restricted stock unit awards or other equity grants (other than performance shares or performance share units) issued to you will vest 100% immediately as of the Termination Date.

Upon any termination of your employment prior to a Change in Control, any performance shares or performance share units will vest in accordance with the applicable award agreement. Your rights of indemnification under the Company’s and any of its subsidiaries organizational documents, any plan or agreement at law or otherwise and your rights thereunder to director’s and officer’s liability insurance coverage for, in both cases, actions as an officer and director of the Company and its affiliates shall survive any termination of your employment. In the event of any termination, you agree to resign as an officer and director of the Company and its subsidiaries and affiliates.

(ii) Termination Following a Change in Control

If, following a Change in Control, the Company terminates your employment as Chief Operating Officer without Cause or if you terminate your employment for Good Reason:

(A) the Company will pay you an amount equal to three times your Annualized Total Compensation, subject to the execution by you of a customary release, which amount shall be paid to you in a lump sum as soon as is reasonably practicable following the Termination Date;

(B) the Company will provide to you a continuation of all benefits, including a car allowance and other related benefits, if any, which you were eligible to receive immediately prior to such termination, for the thirty-six (36) months following the Termination Date;

(D) all outstanding stock options, restricted stock or restricted stock unit awards or other equity grants (other than performance shares or performance share units) issued to you will vest 100% immediately as of the Termination Date and any performance shares or performance share units will vest in accordance with the applicable award agreement; and

(E) you shall be entitled to a pro rata bonus under the Company’s annual bonus program in effect for the year in which the Termination Date occurs, which pro rata bonus shall be paid at the same time as annual bonuses for such year are paid to the Company’s senior executives and shall be equal to the amount, if any, which you would have received under such plan (without regard to any executive-specific objectives), on the basis of the Company’s actual performance for the year, had your employment not terminated, multiplied by a fraction, the numerator of which is the number of days in the year elapsed prior to the Termination Date and the denominator of which is 365.

Your rights of indemnification under the Company’s and any of its subsidiaries organizational documents, any plan or agreement at law or otherwise and your rights thereunder to director’s and officer’s liability insurance coverage for, in both cases, actions as an officer and director of the Company and its affiliates shall survive any termination of your employment. In the event of any termination, you agree to resign as an officer and director of the Company and its subsidiaries and affiliates.

Notwithstanding the foregoing, any termination by the Company without Cause or termination by you for Good Reason which takes place within six (6) months prior to a Change in Control, shall be, presumptively, a termination following a Change in Control.

III. Compliance with Section 409A of the Internal Revenue Code.

All payments and benefits pursuant to this letter shall be subject to the provisions of this Section III. If you are a “Specified Employee” of the Company for purposes of Internal Revenue Code Section 409A (“Code Section 409A”) at the time of a payment event set forth in this letter, then no severance or other payments or benefits pursuant to this letter shall be made to you by the Company until the amount of time has passed that is necessary to avoid incurring excise taxes under Code Section 409A. Should this Section III result in a delay of payments to you, on the first day any such payments may be made without incurring a penalty pursuant to Code Section 409A (the “409A Payment Date”), the Company shall begin to make such payments as provided for in this letter, provided that any amounts that would have been payable earlier but for the application of this Section III, shall be paid in lump-sum on the 409A Payment Date. For purposes of this provision, the term Specified Employee shall have the meaning set forth in Section 409A(2)(B)(i) of the Internal Revenue Code of 1986, as amended or any successor provision and the treasury regulations and rulings issued thereunder. If any compensation or benefits provided by this letter may result in the application of Code Section 409A, the Company shall, in consultation with you, modify this letter in the least restrictive manner necessary in order to exclude such compensation from the definition of “deferred compensation” within the meaning of such Code Section 409A or in order to comply with the provisions of Code Section 409A of the Code and without any diminution in the value of the payments or benefits to you.

IV. General

You agree (i) that at all times both during and after your employment, you will respect the confidentiality of Company’s and its subsidiaries and affiliates’ confidential information and will not disparage the Company and its subsidiaries and affiliates or their officers, directors or employees, and (ii) during your employment and for twenty-four (24) months thereafter, you will not (a) accept a position with, or provide material services to, an entity that competes with a portion of the Company’s business representing more than $25 million of the Company’s revenues on the date of your departure, (b) solicit or hire, or assist others in the solicitation or hiring of, the Company’s employees or (c) interfere with the Company’s business relationships with any material customers or suppliers.

All notices or communications under this Agreement must be in writing, addressed; (i) if to the Company, to the attention of the Chief Human Resources Officer at the Company’s address first written above and (ii) if to you, at your address first written above (or to any other addresses as either party may designate in a notice duly delivered as described in this paragraph). Any notice or communication shall be delivered by telecopy, by hand or by courier. Notices and communications may also be sent by certified or registered mail, return receipt requested, postage prepaid, addressed as above and Notice shall be effective upon the actual receipt of

notice by the recipient thereof. Any controversy or claim arising out of or relating to this Agreement or the breach of this Agreement that cannot be resolved by you and the Company, including any dispute as to the calculation of any payments hereunder, and the terms of this Agreement, shall be determined by a single arbitrator in New York, NY, in accordance with the rules of the American Arbitration Association. The decision of the arbitrator shall be final and binding and may be entered in any court of competent jurisdiction. The arbitrator may award the party he determines has prevailed in the arbitration any legal fees and other fees and expenses that may be incurred in respect of enforcing its respective rights under this Agreement. This Agreement shall be interpreted in accordance with the laws of the State of New York.

This Agreement sets forth the entire agreement between us with respect to the matters set forth herein, and fully supersedes any prior agreements or understandings between us. This Agreement may be executed in counterparts. This Agreement may not be modified or terminated orally.

If the foregoing terms and conditions are acceptable and agreed to by you, please sign on the line provided below to signify such acceptance and agreement and return the executed copy to the Chief Human Resources Officer of the Company, at the Company’s address first written above.


R.R. Donnelley & Sons Company

By:
Name:
Title:

Accepted and Agreed as of this 8th day of May, 2007

/s/ John Paloian

John Paloian

Annex A

Definitions

a. “Annualized Total Compensation” means Base Salary plus Annual Bonus (as if all necessary targets and objectives were met at target level) for one year at the rate in effect immediately before the Termination Date.

b. “Cause” means (i) the willful and continued failure of Executive to perform substantially his duties with the Company (other than any such failure resulting from Executive’s incapacity due to physical or mental illness or any such failure subsequent to Executive being delivered a notice of termination without Cause by the Company or delivering a notice of termination for Good Reason to the Company) after a written demand for substantial performance is delivered to Executive by the CEO, the Chairman or the Board that specifically identifies the manner in which the CEO, the Chairman or the Board believes that Executive has not substantially performed Executive’s duties, (ii) the willful engaging by Executive in illegal conduct or misconduct which is demonstrably and materially injurious (monetarily or otherwise) to the Company or its subsidiaries and affiliates, (iii) conviction of or the pleading of nolo contendere with regard to, a felony or any crime involving fraud, dishonesty or moral turpitude, or (iv) refusal or failure to attempt in good faith to follow the written direction of the CEO, the Chairman or the Board (provided that such written direction is consistent with Executive’s duty and station) promptly upon receipt of such written direction. A termination for Cause after a Change in Control shall be based only on events occurring after such Change in Control; provided, however, the foregoing limitation shall not apply to an event constituting Cause which was not discovered by the Company prior to a Change in Control. For purpose of this paragraph (a), no act or failure to act by Executive shall be considered “willful” unless done or omitted to be done by Executive in bad faith and without reasonable belief that Executive’s action or omission was in the best interests of the Company or its subsidiaries and affiliates. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company. Notwithstanding the foregoing, the Company shall provide Executive a reasonable amount of time, after a notice and demand for substantial performance is delivered to Executive, to cure any failure to perform, and if such failure is so cured within a reasonable amount of time thereafter, such failure shall not be deemed to have occurred.

c. “Change in Control” means the occurrence of any one of the following events:

(i) individuals who, on the date of this Agreement, constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date of this Agreement, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director;

(ii) any “person” (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the “Exchange Act”) and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Company’s then outstanding securities eligible to vote for the election of the Board (the “Company Voting Securities”); provided, however, that the event described in this paragraph (ii) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (A) by the Company or any subsidiary, (B) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, or (D) pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii);

(iii) the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries that requires the approval of the Company’s stockholders, whether for such transaction or the issuance of securities in the transaction (a “Business Combination”), unless immediately following such Business Combination: (A) more than 50% of the total voting power of (x) the corporation resulting from such Business Combination (the “Surviving Corporation”), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the “Parent Corporation”), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 35% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) other than persons set forth in (A) through (F) of paragraph (ii) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a “Non-Qualifying Transaction”);

(iv) the closing of a sale of all or substantially all of the Company’s assets, other than to an entity or in a manner where the voting securities immediately prior to such sale represent directly or indirectly after such sale at least 50% of the voting securities of the entity acquiring such assets in approximately the same proportion as prior to such sale; or

(v) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company.

Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 35% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur.

d. “Good Reason” means, without Executive’s express written consent, the occurrence of any of the following events:

(i) a change in the Executive’s duties or responsibilities (including reporting responsibilities) that taken as a whole represents a material and adverse diminution of the Executive’s duties, responsibilities or status with the Company (other than a temporary change that results from or relates to the incapacitation of the Executive due to physical or mental illness);

(ii) a reduction by the Company in Executive’s rate of annual base salary or annual target bonus opportunity (including any material and adverse change in the formula for such annual bonus target) as the same may be increased from time to time thereafter;

(iii) any requirement of the Company that Executive’s office be more than seventy-five (75) miles from Executive’s place of residence as of the date of this Agreement; or

(iv) any material breach of the Agreement by the Company.

Notwithstanding the foregoing, a Good Reason event shall not be deemed to have occurred if the Company cures such action, failure or breach within ten (10) days after receipt of notice thereof given by Executive. Executive’s right to terminate employment for Good Reason shall not be affected by Executive’s incapacities due to mental or physical illness and Executive’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any event or condition constituting Good Reason; provided, however, that Executive must provide notice of termination of employment within ninety (90) days following Executive’s knowledge of an event constituting Good Reason or such event shall not constitute Good Reason under this Agreement.

Annex B

Gross-Up Payments

(a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) or any entity which effectuates a Change in Control (or any of its affiliated entities) to or for the benefit of Executive (whether pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Annex B) (the “Payments”) would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Company shall pay to Executive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by Executive of all taxes (including any Excise Tax) imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. For purposes of determining the amount of the Gross-up Payment, the Executive shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Gross-up Payment is to be made, and (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. Notwithstanding the foregoing provisions of this Annex B, if it shall be determined that Executive is entitled to a Gross-Up Payment, but that the Payments would not be subject to the Excise Tax if the Payments were reduced by an amount that is less than 10% of the portion of the Payments that would be treated as “parachute payments” under Section 280G of the Code, then the amounts payable to Executive under this Agreement shall be reduced (but not below zero) to the maximum amount that could be paid to Executive without giving rise to the Excise Tax (the “Safe Harbor Cap”), and no Gross-Up Payment shall be made to Executive. The reduction of the amounts payable hereunder, if applicable, shall be made by reducing first the payments under Section I(a)(ii), unless an alternative method of reduction is elected by Executive. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable under this Agreement (and no other Payments) shall be reduced. If the reduction of the amounts payable hereunder would not result in a reduction of the Payments to the Safe Harbor Cap, no amounts payable under this Agreement shall be reduced pursuant to this provision.

(b) Subject to the provisions of paragraph (a) of this Annex B, all determinations required to be made under this Annex B, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment, the reduction of the Payments to the Safe Harbor Cap and the assumptions to be utilized in arriving at such determinations, shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) business days of the receipt of notice from the Company or the Executive that there has been a Payment, or such earlier time as is requested by the Company (collectively, the “Determination”). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in

Control, Executive may appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and the Company shall enter into any agreement requested by the Accounting Firm in connection with the performance of the services hereunder. The Gross-up Payment under this Annex B with respect to any Payments shall be made no later than thirty (30) days following such Payment. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on Executive’s applicable federal income tax return will not result in the imposition of a negligence or similar penalty. In the event the Accounting Firm determines that the Payments shall be reduced to the Safe Harbor Cap, it shall furnish Executive with a written opinion to such effect. The Determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (“Underpayment”) or Gross-up Payments are made by the Company which should not have been made (“Overpayment”), consistent with the calculations required to be made hereunder. In the event that the Executive thereafter is required to make payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the benefit of Executive. In the event the amount of the Gross-up Payment exceeds the amount necessary to reimburse the Executive for his Excise Tax, the Accounting Firm shall determine the amount of the Overpayment that has been made and any such Overpayment (together with interest at the rate provided in Section 1274(b)(2) of the Code) shall be promptly paid by Executive (to the extent he has received a refund if the applicable Excise Tax has been paid to the Internal Revenue Service) to or for the benefit of the Company. Executive shall cooperate, to the extent his expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax and the Executive shall permit the Company to control issues related to the Excise Tax (at its expense) to permit a representative of the Company to accompany the Executive to any conference with any taxing authority and to promptly deliver to the Company copies of any written communications and summaries of any verbal communications with any taxing authority regarding the Excise Tax.

EX-31.1 6 dex311.htm SECTION 302 CEO CERTIFICATION Section 302 CEO Certification

EXHIBIT 31.1

Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a)

of the Securities Exchange Act of 1934

I, Thomas J. Quinlan, III, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of R.R. Donnelley & Sons Company;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

designed such disclosure controls and procedures, or caused such disclosures controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over the financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2007

/s/ THOMAS J. QUINLAN, III

Thomas J. Quinlan, III

Chief Executive Officer

EX-31.2 7 dex312.htm SECTION 302 CFO CERTIFICATION Section 302 CFO Certification

EXHIBIT 31.2

Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a)

of the Securities Exchange Act of 1934

I, Thomas J. Quinlan, III, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of R.R. Donnelley & Sons Company;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)

(c)

(d)

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a)

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2007

/s/ THOMAS J. QUINLAN, III

Thomas J. Quinlan, III

Chief Financial Officer

EX-32.1 8 dex321.htm SECTION 906 CEO CERTIFICATION Section 906 CEO Certification

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

CERTIFICATION PURSUANT TO RULE 13a-14(a) AND RULE 15d-14(a)

SECTION 1350, CHAPTER 63 OF TITLE 18

OF THE UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of R. R. Donnelley & Sons Company (the “Company”) on Form 10-Q for the period ending March 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas J. Quinlan, III, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/S/ THOMAS J. QUINLAN, III

May 9, 2007

Thomas J. Quinlan, III

Chief Executive Officer

EX-32.2 9 dex322.htm SECTION 906 CFO CERTIFICATION Section 906 CFO Certification

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

CERTIFICATION PURSUANT TO RULE 13a-14(a) AND RULE 15d-14(a)

SECTION 1350, CHAPTER 63 OF TITLE 18

OF THE UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of R. R. Donnelley & Sons Company (the “Company”) on Form 10-Q for the period ending March 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas J. Quinlan, III, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ THOMAS J. QUINLAN, III

May 9, 2007

Thomas J. Quinlan, III

Chief Financial Officer

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