Form 10-Q

RR DONNELLEY

Global Headquarters

111 South Wacker Drive

Chicago, Illinois 60606-4301

Telephone (312) 326 8000

-----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, EaPNuKkt3OUk9L0w06RxMVnSOkZuey0a2bGkx9vf0axDUYA3pmAGvPS+uTJ1TgC4 Ig4By5DKap1kjcyeRbWgtQ== 0001193125-07-229777.txt : 20071030 0001193125-07-229777.hdr.sgml : 20071030 20071030171936 ACCESSION NUMBER: 0001193125-07-229777 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20070930 FILED AS OF DATE: 20071030 DATE AS OF CHANGE: 20071030 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: 071200437 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 September 30, 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 October 24, 2007, 214.6 million shares of common stock were outstanding.

R.R. DONNELLEY & SONS COMPANY

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007

TABLE OF CONTENTS


		Page
PART I

FINANCIAL INFORMATION		3

Item 1: Condensed Consolidated Financial Statements (unaudited)		3

Condensed Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006		3

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2007 and 2006		4

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 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		23

Item 3: Quantitative and Qualitative Disclosures About Market Risk		41

Item 4: Controls and Procedures		41

PART II

OTHER INFORMATION		42

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds		42

Item 5: Other Information		42

Item 6: Exhibits		43

Signatures		47

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)


	September 30, 2007			December 31, 2006
ASSETS
Cash and cash equivalents	$	343.0		$	211.4
Restricted cash equivalents (Note 2)		59.6			—
Receivables, less allowance for doubtful accounts of $76.2 (2006—$79.8)		2,160.6			1,638.6
Inventories (Note 4)		710.2			501.8
Prepaid expenses and other current assets		94.5			70.4
Deferred income taxes		126.1			94.8

Total current assets		3,494.0			2,517.0

Property, plant and equipment—net (Note 5)		2,646.9			2,142.3
Goodwill (Note 6)		3,740.9			2,886.8
Other intangible assets—net (Note 6)		1,329.9			1,119.8
Prepaid pension cost		771.9			638.6
Other noncurrent assets		419.3			331.3

Total assets	$	12,402.9		$	9,635.8

LIABILITIES
Accounts payable	$	968.4		$	749.1
Accrued liabilities		1,125.8			839.2
Short-term and current portion of long-term debt (Note 14)		693.3			23.5

Total current liabilities		2,787.5			1,611.8

Long-term debt (Note 14)		3,602.5			2,358.6
Postretirement benefits		306.1			288.0
Deferred income taxes		779.3			604.1
Other noncurrent liabilities		774.9			645.4
Liabilities of discontinued operations (Note 3)		2.8			3.2

Total liabilities		8,253.1			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		2,850.0			2,871.8
Retained earnings (Note 15)		1,662.0			1,615.0
Accumulated other comprehensive income		202.5			62.1
Treasury stock, at cost, 26.0 shares in 2007 (2006—24.2 shares)		(868.4	)		(727.9	)

Total shareholders’ equity		4,149.8			4,124.7

Total liabilities and shareholders’ equity	$	12,402.9		$	9,635.8

(See Notes to Condensed Consolidated Financial Statements)

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three and Nine Months Ended September 30, 2007 and 2006

(In millions, except per share data)

(UNAUDITED)


	Three Months Ended September 30,					Nine Months Ended September 30,
	2007		2006			2007			2006
Net sales	$	2,910.0	$	2,308.7		$	8,498.9		$	6,849.3

Cost of sales (exclusive of depreciation and amortization shown below)		2,122.4		1,656.8			6,218.2			4,966.2
Selling, general and administrative expenses (exclusive of depreciation and amortization shown below)		320.5		268.5			976.7			805.8
Restructuring and impairment charges—net (Note 7)		19.9		6.6			361.8			37.8
Depreciation and amortization		152.8		116.0			443.7			345.0

Total operating expenses		2,615.6		2,047.9			8,000.4			6,154.8

Income from continuing operations		294.4		260.8			498.5			694.5
Interest expense—net		59.1		35.2			167.9			105.7
Investment and other income (expense)—net		0.5		0.5			2.3			(4.0	)

Earnings from continuing operations before income taxes and minority interest		235.8		226.1			332.9			584.8
Income tax expense		59.3		61.4			85.5			182.1
Minority interest		1.5		(0.4	)		2.9			(1.0	)

Net earnings from continuing operations		175.0		165.1			244.5			403.7
Loss from discontinued operations, net of tax (Note 3)		—		(0.4	)		(0.1	)		(1.9	)

Net earnings	$	175.0	$	164.7		$	244.4		$	401.8

Earnings per share (Note 10):
Basic:
Net earnings from continuing operations	$	0.80	$	0.76		$	1.12		$	1.87
Loss from discontinued operations, net of tax		—		—			—			(0.01	)

Net earnings	$	0.80	$	0.76		$	1.12		$	1.86

Diluted:
Net earnings from continuing operations	$	0.80	$	0.75		$	1.11		$	1.85
Loss from discontinued operations, net of tax		—		—			—			(0.01	)

Net earnings	$	0.80	$	0.75		$	1.11		$	1.84

Dividends declared per common share	$	0.26	$	0.26		$	0.78		$	0.78
Weighted average number of common shares outstanding (Note 10):
Basic		217.8		216.4			219.1			216.1
Diluted		218.5		218.8			220.3			218.7

(See Notes to Condensed Consolidated Financial Statements)

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2007 and 2006

(In millions)

(UNAUDITED)


	Nine Months Ended September 30,
	2007			2006
OPERATING ACTIVITIES
Net earnings	$	244.4		$	401.8
Adjustments to reconcile net earnings to cash provided by operating activities:
Loss from discontinued operations		0.1			1.9
Impairment charges		318.3			2.3
Depreciation and amortization		443.7			345.0
Provision for doubtful accounts receivable		9.3			21.7
Share-based compensation		22.0			27.4
Deferred taxes		(131.2	)		13.0
Loss on sale of property, plant and equipment		0.6			4.6
Other		19.2			16.9
Changes in operating assets and liabilities of continuing operations—net of acquisitions:
Accounts receivable—net		(101.8	)		(111.1	)
Inventories		(61.5	)		(67.2	)
Prepaid expenses and other current assets		(12.9	)		(8.7	)
Accounts payable		31.7			(9.2	)
Accrued liabilities and other		0.8			(71.6	)

Net cash provided by operating activities of continuing operations		782.7			566.8
Net cash used in operating activities of discontinued operations		(0.5	)		(0.7	)

Net cash provided by operating activities		782.2			566.1

INVESTING ACTIVITIES
Capital expenditures		(321.1	)		(258.2	)
Acquisition of businesses, net of cash acquired		(1,929.1	)		(244.3	)
Proceeds from return of capital and sale of investments and other assets		7.0			2.2
Transfers from restricted cash		15.0			—

Net cash used in investing activities		(2,228.2	)		(500.3	)

FINANCING ACTIVITIES
Proceeds from issuance of long-term debt		1,244.2			—
Net change in short-term debt		652.4			(14.6	)
Payments of current maturities and long-term debt		(4.8	)		(21.6	)
Debt issuance costs		(13.1	)		—
Issuance of common stock, net		102.1			18.4
Acquisition of common stock		(250.8	)		(1.8	)
Dividends paid		(171.0	)		(168.3	)

Net cash provided by (used in) financing activities		1,559.0			(187.9	)

Effect of exchange rate on cash flows and cash equivalents		18.6			6.1
Net increase (decrease) in cash and cash equivalents		131.6			(116.0	)
Cash and cash equivalents at beginning of period		211.4			366.7

Cash and cash equivalents at end of period	$	343.0		$	250.7
Supplemental non-cash disclosure:
Use of restricted cash to fund obligations associated with deferred compensation plans	$	35.8			—
Acquisition of assets through direct financing		—			10.8

(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 and nine months ended September 30, 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.

The accounts of businesses acquired during the nine months ended September 30, 2007 and 2006 are included in the consolidated financial statements from the dates of acquisition (See Note 2).

2. ACQUISITIONS

2007 Acquisitions

On January 9, 2007, the Company acquired Banta Corporation (“Banta”), a provider of comprehensive printing and digital imaging solutions, including digital content management and e-business services, to leading publishers and direct marketers. Additionally, Banta provided a wide range of procurement management and other outsourcing capabilities to the world’s largest technology companies. The purchase price for Banta was approximately $1,352.3 million, net of cash acquired of $72.9 million and including $13.6 million of acquisition costs and the assumption of $17.6 million of Banta’s debt. Banta’s operations are included in the U.S. Print and Related Services segment with the exception of its Global Turnkey Solutions’ operations, which are included in the International 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 $181.5 million, net of cash acquired of $0.3 million and including acquisition costs of $2.6 million. Perry Judd’s operations are included in the U.S. Print and Related Services segment.

On May 16, 2007, the Company acquired 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 purchase price for Von Hoffmann was approximately $412.5 million including acquisition costs of $7.5 million. Von Hoffmann’s operations are included in the U.S. Print and Related Services segment.

These acquisitions are complementary to the Company’s existing products and services. As a result, the addition of these businesses is expected to improve the Company’s ability to serve customers, increase capacity utilization and reduce management, procurement and manufacturing costs.

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

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

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 liabilities assumed was recorded as goodwill. The allocation below is preliminary, as the final valuation of identifiable intangible assets, property, plant and equipment, deferred taxes and tax contingencies has not been completed. The preliminary purchase price allocation is as follows:


Restricted cash equivalents	$	102.5
Accounts receivable		393.5
Inventories		135.5
Other current assets		7.9
Property, plant and equipment and other long-term assets		576.0
Amortizable intangible assets		584.8
Goodwill		807.5
Accounts payable and accrued liabilities		(335.3	)
Postretirement and pension benefits and other long-term liabilities		(39.0	)
Deferred taxes—net		(287.1	)

Total purchase price—net of cash acquired		1,946.3
Debt assumed and not repaid		17.6

Net cash paid	$	1,928.7

At September 30, 2007, restricted cash equivalents of $69.8 million, of which $10.2 million is classified in other noncurrent assets, are held in a trust to cover payments, both immediate and long-term, due to certain current employees of R.R. Donnelley and 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’s operations are included in the International segment.

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

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

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 finalized, except for the final valuation of certain tax contingencies. The Company is continuing its efforts to obtain certain information necessary to finalize its current estimate of the recorded liability associated with these tax contingencies. 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		222.8
Accounts payable and accrued liabilities		(33.3	)
Other long-term liabilities		(11.1	)
Deferred taxes—net		(13.1	)

Net cash paid	$	248.8

Pro forma results

The following unaudited pro forma financial information for the three and nine months ended September 30, 2007 presents the combined results of operations of the Company, Banta, Perry Judd’s and Von Hoffmann as if the acquisition of each of Banta, Perry Judd’s and Von Hoffmann had occurred at January 1, 2007 and January 1, 2006. The pro forma information for the three and nine months ended September 30, 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 September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
Net sales	$	2,910.0	$	2,831.7	$	8,665.0	$	8,441.2
Net earnings		175.0		160.2		234.5		387.4
Earnings per share:
Basic		0.80		0.74		1.07		1.79
Diluted		0.80		0.73		1.06		1.77

The unaudited pro forma results for the three months ended September 30, 2007 and 2006 include $30.5 million and $30.9 million, respectively, for the amortization of purchased intangibles. The unaudited pro forma results for the nine months ended September 30, 2007 and 2006 include $92.0 million and $93.1 million, respectively, for the amortization of purchased intangibles. Also included in the pro forma financial information for the three and nine months ended September 30, 2007 are net restructuring and impairment charges of $19.9 million and $361.8 million, respectively, and for the three and nine months ended September 30, 2006, $6.6 million and $37.8 million, respectively (see Note 7).

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

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

3. DISCONTINUED OPERATIONS AND DIVESTITURES

On December 22, 2005 the Company sold its Peak Technologies business (“Peak”). 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 September 30, 2007 and December 31, 2006, the Company had remaining liabilities for contractual obligations related to these discontinued businesses of $2.8 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 and nine months ended September 30, 2007 and 2006 are the following:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2007		2006			2007			2006
Net sales	$	—	$	—		$	—		$	—
Income tax expense (benefit)		—		(0.2	)		—			(1.2	)
Income (loss) from discontinued operations, net of tax		—		(0.4	)		(0.1	)		(1.9	)

4. INVENTORIES


	September 30, 2007			December 31, 2006
Raw materials and manufacturing supplies	$	315.1		$	229.6
Work-in-process		236.3			135.0
Finished goods		226.9			207.5
LIFO reserves		(68.1	)		(70.3	)

	$	710.2		$	501.8

5. PROPERTY, PLANT AND EQUIPMENT


	September 30, 2007			December 31, 2006
Land	$	107.9		$	70.4
Buildings		1,138.8			1,004.4
Machinery and equipment		5,662.9			5,103.3

		6,909.6			6,178.1
Less: Accumulated depreciation		(4,262.7	)		(4,035.8	)

Total	$	2,646.9		$	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 $11.1 million at September 30, 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.

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

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

6. GOODWILL AND OTHER INTANGIBLE ASSETS


Goodwill	December 31, 2006		Dispositions		Acquisitions		Foreign Exchange and Other Adjustments		September 30, 2007
U.S. Print and Related Services	$	1,914.7	$	—	$	712.6	$	0.1	$	2,627.4
International		972.1		—		94.9		46.5		1,113.5

	$	2,886.8	$	—	$	807.5	$	46.6	$	3,740.9


Other Intangible Assets	Gross Carrying Amount at January 1, 2007		Additions During the Year		Impairment Charge			Accumulated Amortization and Foreign Exchange			September 30, 2007		Weighted- Average Amortization Period
Trademarks, licenses and agreements	$	21.9	$	—	$	—		$	(21.6	)	$	0.3	1.1 years
Patents		98.3		—		—			(43.8	)		54.5	4.5 years
Customer relationship intangibles		839.0		584.8		—			(171.6	)		1,252.2	11.5 years
Trade names		38.3		—		(19.0	)		(4.0	)		15.3	32.4 years
Indefinite-lived trade names		304.7		—		(297.1	)		—			7.6	Indefinite

	$	1,302.2	$	584.8	$	(316.1	)	$	(241.0	)	$	1,329.9

In the second quarter of 2007, the Company recorded a non-cash charge of $316.1 million to reflect the write-off of the Moore Wallace, OfficeTiger and other trade names. See Note 7 for further discussion regarding this impairment charge.

Amortization expense for other intangibles was $30.5 million and $18.7 million for the three months ended September 30, 2007 and 2006, respectively, and $86.3 million and $54.2 million for the nine months ended September 30, 2007 and 2006, respectively. Estimated future annual amortization expense will be approximately $121 million for 2008 through 2011, and $109 million for 2012.

7. RESTRUCTURING AND IMPAIRMENT CHARGES

Restructuring and Impairment Costs Charged to Results of Operations

For the three months ended September 30, 2007 and 2006, the Company recorded the following net restructuring and impairment charges:


	Three Months Ended September 30, 2007								Three Months Ended September 30, 2006
	Employee Terminations		Other Charges		Impairment		Total		Employee Terminations		Other Charges		Impairment		Total
U.S. Print and Related Services	$	9.5	$	0.8	$	1.5	$	11.8	$	0.7	$	0.1	$	—	$	0.8
International		3.2		0.6		—		3.8		2.3		1.2		—		3.5
Corporate		1.0		3.3		—		4.3		0.5		1.8		—		2.3

	$	13.7	$	4.7	$	1.5	$	19.9	$	3.5	$	3.1	$	—	$	6.6

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

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

For the nine months ended September 30, 2007 and 2006, the Company recorded the following net restructuring and impairment charges:


	Nine Months Ended September 30, 2007								Nine Months Ended September 30, 2006
	Employee Terminations		Other Charges		Impairment		Total		Employee Terminations		Other Charges		Impairment		Total
U.S. Print and Related Services	$	19.3	$	1.1	$	259.5	$	279.9	$	13.5	$	1.8	$	0.7	$	16.0
International		10.1		3.0		58.8		71.9		8.7		2.5		1.6		12.8
Corporate		5.3		4.7		—		10.0		5.0		4.0		—		9.0

	$	34.7	$	8.8	$	318.3	$	361.8	$	27.2	$	8.3	$	2.3	$	37.8

For the three and nine months ended September 30, 2007, the Company recorded $1.5 million and $318.3 million, respectively for impairment of assets. The nine months ended September 30, 2007 includes a $316.1 million charge reflecting the write-off of the Moore Wallace, OfficeTiger and other trade names associated with the Company’s decision in June 2007 to unify most of its printing and related services offerings under the single RR Donnelley brand. For the three and nine months ended September 30, 2007, the Company recorded net restructuring charges of $13.7 million and $34.7 million, respectively for employee termination costs for 704 employees, 639 of whom were terminated as of September 30, 2007, associated with actions resulting from the reorganization of certain operations and the exiting of certain business activities. These actions include management changes to simplify the management reporting structure and cost structure reductions including the closing of two manufacturing facilities within the U.S. Print and Related Services segment. In addition, the Company incurred other restructuring charges, primarily lease termination costs, of $4.7 million and $8.8 million for the three and nine months ended September 30, 2007, respectively.

For the three and nine months ended September 30, 2006, the Company recorded net restructuring charges of $3.5 million and $27.2 million, respectively, for employee termination costs for 287 and 1,083 employees, respectively, all of whom were terminated as of September 30, 2007. These charges were 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 $3.1 million and $8.3 million for the three and nine months ended September 30, 2006, respectively. Impairment charges for the nine months ended September 30, 2006 were $2.3 million.

Restructuring Costs Capitalized as a Cost of Acquisition

During 2007, the Company recorded $61.9 million of restructuring costs related to employee terminations and other costs in connection with the acquisitions of Banta, Perry Judd’s and Von Hoffmann.

Restructuring Reserve

A summary of activity impacting recorded restructuring reserves is as follows:


			Restructuring Cost, Net
	December 31, 2006		Charged to Results of Operations		Capitalized as a Cost of Acquisitions		Cash Paid		September 30, 2007
Employee terminations	$	26.2	$	34.7	$	56.7	$	74.9	$	42.7
Other		9.1		8.8		5.2		11.6		11.5

	$	35.3	$	43.5	$	61.9	$	86.5	$	54.2

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

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

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 September 2008.

8. EMPLOYEE BENEFITS

The components of the estimated pension and postretirement benefits expense for the three and nine months ended September 30, 2007 and 2006 were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Pension expense
Service cost	$	23.6		$	19.9		$	71.1		$	59.9
Interest cost		38.1			32.4			114.2			97.1
Expected return on assets		(60.4	)		(51.3	)		(181.2	)		(153.9	)
Amortization, net		(0.9	)		0.7			(2.7	)		2.2
Settlement		—			—			0.6			—
Curtailment		—			—			—			—

Net pension expense	$	0.4		$	1.7		$	2.0		$	5.3

Postretirement benefits expense
Service cost	$	3.0		$	3.0		$	9.1		$	9.0
Interest cost		7.2			7.0			21.6			21.1
Expected return on assets		(3.8	)		(3.9	)		(11.4	)		(11.9	)
Amortization, net		(2.3	)		(2.7	)		(6.9	)		(8.0	)

Net postretirement expense	$	4.1		$	3.4		$	12.4		$	10.2

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

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

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 $6.4 million and $22.0 million for the three and nine months ended September 30, 2007. The total compensation expense related to all share-based compensation plans was $9.5 million and $27.4 million for the three and nine months ended September 30, 2006.

Stock Options

The Company granted 470,000 stock options during the nine months ended September 30, 2007, none of which were granted during the three months ended September 30, 2007. The Company did not grant stock options during the nine months ended September 30, 2006. The fair value of each stock option award was estimated as of the date of grant using the Black Scholes Option Pricing Model. The fair value of these stock options was determined using the following assumptions for fiscal 2007:


	Nine Months Ended September 30, 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.

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

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

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	470			36.22	10.0
Exercised	(3,487	)		26.52	3.9
Cancelled/forfeited/expired	(892	)		39.06	—

Outstanding at September 30, 2007	3,636		$	29.59	4.6	$	28.1
Exercisable at September 30, 2007	2,391		$	28.03	3.5	$	27.2

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 September 30, 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 September 30, 2007. The intrinsic value associated with these options will change in future periods based on the market value of the Company’s stock. Total intrinsic value of options exercised for the three and nine months ended September 30, 2007 was $3.7 and $49.2 million, respectively. Excess tax benefits on stock option exercises shown as financing cash inflows as a component in issuance of common stock, net in the Condensed Consolidated Statement of Cash Flows were $9.3 million and $0.7 million for the nine months ended September 30, 2007 and 2006, respectively.

Compensation expense recognized related to stock options for the three and nine months ended September 30, 2007 was $0.4 million and $1.9 million, respectively. Compensation expense recognized related to stock options for the three and nine months ended September 30, 2006 was $0.9 million and $2.7 million, respectively. As of September 30, 2007, $5.2 million of total unrecognized compensation expense related to stock options is expected to be recognized over a weighted average period of 2.1 years.

Restricted Stock and Restricted Stock Units

Nonvested restricted stock and restricted stock unit awards as of September 30, 2007 and December 31, 2006 and changes during the nine months ended September 30, 2007 were as follows:


	Shares (thousands)		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2006	1,354		$	32.55
Granted	1,043			33.13
Vested	(629	)		32.16
Forfeited	(289	)		32.14

Nonvested at September 30, 2007	1,479		$	33.14

Compensation expense recognized related to restricted stock awards and restricted stock units for the three and nine months ended September 30, 2007 was $5.7 million and $17.5 million, respectively. Compensation expense recognized related to restricted stock awards and restricted stock units for the three and nine months ended September 30, 2006 was $5.1 million and $14.2 million, respectively. As of September 30, 2007, there was $35.4 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 1.5 years.

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

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

Performance Share Unit Awards

Shares related to nonvested performance share unit awards as of September 30, 2007 and December 31, 2006 and changes during the nine months ended September 30, 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 September 30, 2007	275		$	33.66

During the nine months ended September 30, 2007, a total of 435,000 performance share unit awards vested upon the achievement of all previously established performance targets. As a result, the Company paid out 1,305,000 shares or 300% of the initial grant due to all performance targets being achieved. 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. No performance share unit awards were granted or vested during the three months ended September 30, 2007. A total of 110,000 nonvested performance share unit awards were outstanding as of September 30, 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 shares.

Compensation expense recognized related to performance share unit awards for the three and nine months ended September 30, 2007 was $0.3 million and $2.6 million, respectively. Compensation expense recognized related to performance share unit awards for the three and nine months ended September 30, 2006 was $3.5 million and $10.5 million, respectively. As of September 30, 2007, there was $3.1 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 2.5 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.

As of September 30, 2007, the Company is authorized, under the terms of a share repurchase program approved by the Board of Directors, to repurchase up to 7.4 million shares. During the nine months ended September 30, 2007, the Company purchased in the open market approximately 6.6 million shares of its common stock at a total cost of $267.9 million, of which approximately 5.3 million shares of common stock at a total cost of $212.5 million were purchased during the three months ended September 30, 2007.

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

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

10. EARNINGS PER SHARE


	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
Net earnings	$	175.0	$	164.7	$	244.4	$	401.8
Basic:
Weighted average number of common shares outstanding		217.8		216.4		219.1		216.1

Net earnings per share—basic	$	0.80	$	0.76	$	1.12	$	1.86

Diluted:
Dilutive options and awards (a)		0.7		2.4		1.2		2.6
Diluted weighted average number of common shares outstanding		218.5		218.8		220.3		218.7

Net earnings per share—diluted	$	0.80	$	0.75	$	1.11	$	1.84

Cash dividends paid per common share	$	0.26	$	0.26	$	0.78	$	0.78

(a)

For the three months ended September 30, 2007 and 2006, 1.2 million and 2.6 million common stock equivalents, respectively, were excluded as their effect would be anti-dilutive. For the nine months ended September 30, 2007 and 2006, 0.9 million and 2.6 million common stock equivalents, respectively, were excluded as their effect would be anti-dilutive.

11. COMPREHENSIVE INCOME


	Three Months Ended September 30,					Nine Months Ended September 30,
	2007			2006		2007			2006
Net earnings, as reported	$	175.0		$	164.7	$	244.4		$	401.8
Translation adjustments		35.4			17.5		75.2			27.9
Change in fair value of derivatives, net of tax		—			12.7		7.7			21.7
Adjustment for net periodic pension and postretirement benefit cost, net of tax		(1.6	)		—		(6.7	)		—
Unrealized (loss) gain on investment, net of tax		0.4			1.0		0.5			0.7

Comprehensive income	$	209.2		$	195.9	$	321.1		$	452.1

For the three and nine months ended September 30, 2007, the changes in other comprehensive income were net of tax benefits of $4.8 million and $4.9 million, respectively, related to unrealized foreign currency losses, $5.9 million of provision for the nine months ended September 30, 2007 related to changes in the fair value of derivatives and $2.0 million and $4.3 million, respectively, for the adjustment for net periodic pension and postretirement benefit cost. For the three months ended September 30, 2006, the changes in other comprehensive income were net of tax provisions of $0.8 million related to unrealized foreign currency gains and $8.3 million related to changes in the fair value of derivatives. For the nine months ended September 30, 2006, the changes in other comprehensive income were net of tax benefits of $4.8 million related to unrealized foreign currency gains and $6.9 million related to changes in the fair value of derivatives.

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

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

12. SEGMENT INFORMATION

The Company operates primarily in the printing industry, with related service offerings designed to offer customers complete solutions for communicating their messages to target audiences.

During the third quarter of 2007, management changed the Company’s reportable segments to reflect changes in the management reporting structure of the organization and the manner in which the chief operating decision maker regularly assesses information for decision-making purposes, including the allocation of resources. The revised reporting structure includes two segments: “U.S. Print and Related Services” and “International.”

Prior to the third quarter of 2007, the Company’s structure included two segments: “Global Print Solutions” and “Global Services.” A summary of the changes made to the Company’s reportable segments in the third quarter of 2007 as a result of the Company’s management reorganization is as follows:

•

Magazine, catalog, retail, book, directories, logistics, direct mail and short-run commercial printing operations, previously reported in the Global Print Solutions segment, are now reported in the U.S. Print and Related Services segment.

•

Digital solutions and the U.S. portions of the financial print, forms, labels and statement printing operations, previously reported in the Global Services segment, are now reported in the U.S. Print and Related Services segment.

•

Asia, Europe and the Global Turnkey Solutions operations, previously reported in the Global Print Solutions segment, are now reported in the International segment.

•

Latin America, Global Document Solutions, OfficeTiger, the Canadian portion of forms, labels and statement printing and the European, Asian and Canadian operations of financial print, previously reported in the Global Services segment, are now reported in the International segment.

The Company’s segments and their product and service offerings are summarized below:

U.S. Print and Related Services

The U.S. Print and Related Services segment includes the Company’s U.S. printing operations, managed as one integrated platform, along with related logistics, premedia and print-management services. This segment’s products and related service offerings include magazines, catalogs, retail inserts, books, directories, financial print, direct mail, forms, labels, premedia and logistic services.

International

The International segment includes the Company’s non-U.S. printing operations in Asia, Europe, Latin America and Canada. Additionally, this segment includes the Company’s business process outsourcing and Global Turnkey Solutions operations. Business process outsourcing provides transactional print and outsourcing services, statement printing, direct mail and print management services through its operations in Europe, Asia and North America. Global Turnkey Solutions provides outsourcing capabilities including product configuration, customized kitting and order fulfillment to technology and medical device companies around the world through its operations in Europe and North America.

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

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

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			Depreciation and Amortization		Capital Expenditures
*Three months ended* *September 30, 2007*
U.S. Print and Related Services	$	2,168.1	$	(6.4	)	$	2,161.7	$	276.9		$	103.0	$	51.4
International		757.1		(8.8	)		748.3		53.6			41.0		26.5

Total operating segments		2,925.2		(15.2	)		2,910.0		330.5			144.0		77.9
Corporate		—		—			—		(36.1	)		8.8		6.4

Total continuing operations	$	2,925.2	$	(15.2	)	$	2,910.0	$	294.4		$	152.8	$	84.3


	Total Sales		Intersegment Sales			Net Sales		Income (Loss) from Continuing Operations			Depreciation and Amortization		Capital Expenditures
*Three months ended* *September 30, 2006* *(Reclassified)*
U.S. Print and Related Services	$	1,752.1	$	(5.6	)	$	1,746.5	$	249.1		$	76.4	$	58.1
International		566.2		(4.0	)		562.2		54.5			32.4		14.5

Total operating segments		2,318.3		(9.6	)		2,308.7		303.6			108.8		72.6
Corporate		—		—			—		(42.8	)		7.2		7.9

Total continuing operations	$	2,318.3	$	(9.6	)	$	2,308.7	$	260.8		$	116.0	$	80.5


	Total Sales		Intersegment Sales			Net Sales		Income (Loss) from Continuing Operations			Assets of Continuing Operations		Depreciation and Amortization		Capital Expenditures
*Nine months ended* *September 30, 2007*
U.S. Print and Related Services	$	6,350.8	$	(18.1	)	$	6,332.7	$	539.9		$	7,646.3	$	297.0	$	189.8
International		2,186.7		(20.5	)		2,166.2		92.6			3,523.9		120.6		114.9

Total operating segments		8,537.5		(38.6	)		8,498.9		632.5			11,170.2		417.6		304.7
Corporate		—		—			—		(134.0	)		1,232.7		26.1		16.4

Total continuing operations	$	8,537.5	$	(38.6	)	$	8,498.9	$	498.5		$	12,402.9	$	443.7	$	321.1

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

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



	Total Sales		Intersegment Sales			Net Sales		Income (Loss) from Continuing Operations			Assets of Continuing Operations		Depreciation and Amortization		Capital Expenditures
*Nine months ended* *September 30, 2006* *(Reclassified)*
U.S. Print and Related Services	$	5,262.3	$	(14.8	)	$	5,247.5	$	692.6		$	5,882.2	$	229.7	$	199.2
International		1,610.2		(8.4	)		1,601.8		146.9			2,914.5		93.0		45.1

Total operating segments		6,872.5		(23.2	)		6,849.3		839.5			8,796.7		322.7		244.3
Corporate		—		—			—		(145.0	)		967.7		22.3		13.9

Total continuing operations	$	6,872.5	$	(23.2	)	$	6,849.3	$	694.5		$	9,764.4	$	345.0	$	258.2

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 eleven federal and state Superfund sites. In addition to the Superfund sites, the Company may also have the obligation to remediate six other previously owned facilities and two 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.

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

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

14. DEBT

The Company’s debt consists of the following:


	September 30, 2007			December 31, 2006
Commercial paper		235.3			—
Credit facility borrowings		400.0			—
3.75% senior notes due April 1, 2009		399.8			399.7
4.95% senior notes due May 15, 2010		499.3			499.1
5.625% senior notes due January 15, 2012		624.3			—
4.95% senior notes due April 1, 2014		598.5			598.3
5.50% senior notes due May 15, 2015		499.4			499.3
6.125% senior notes due January 15, 2017		620.4			—
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		69.8			36.7

Total debt		4,295.8			2,382.1
Less: current portion		(693.3	)		(23.5	)

Long-term debt	$	3,602.5		$	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 and Perry Judd’s. The notes were issued at a discount of $5.8 million.

As of September 30, 2007, the Company had $400.0 million of borrowings outstanding under its $2.0 billion unsecured revolving credit facility. These borrowings were entered into by the Company in August 2007 and have maturities ranging from six months to one year. The proceeds from these borrowings were used to replace a portion of the borrowings the Company had outstanding under its commercial paper program. The interest rates on these borrowings were based on LIBOR at the time when the advances were made plus a spread. The weighted average interest rate on these borrowings for the three and nine months ended September 30, 2007 was 5.56%. The Company also pays an annual commitment fee of 0.08% on this credit facility.

As of September 30, 2007, the Company had $235.3 million of borrowings under its commercial paper program. The weighted average interest rate on commercial paper for the three and nine months ended September 30, 2007 was 5.57% and 5.44%, respectively.

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, $29.5 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 $23.0 million was recorded as a cumulative effect adjustment to reduce retained earnings.

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

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

As of January 1, 2007, the date of adoption of FIN 48, and September 30, 2007, the Company had $224.9 million and $215.9 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. This potential impact on net income reflects the reduction of these unrecognized tax benefits net of certain deferred tax assets and the federal tax benefit of state income tax items. During the three and nine months ended September 30, 2007, the company recognized $12.4 million and $13.8 million, respectively, of previously unrecognized tax benefits due to the expiration of statutes of limitations and resolution of audits. As a result, the Company recorded $10.9 million as a reduction of goodwill and decreased income tax expense by $1.0 million and $1.8 million for the three and nine months ended September 30, 2007, respectively.

As of September 30, 2007, it is reasonably possible that the total amounts of unrecognized tax benefits will decrease within 12 months by as much as $38.6 million due to resolution of audits or statute expirations related to U.S. federal and state tax positions and $2.4 million due to non-U.S. tax exposures in which the Company has reached tentative settlement with local taxing authorities. The impact of these unrecognized tax benefits, if recognized, would increase net income by $38.7 million and decrease goodwill by $2.3 million, respectively.

The Company has tax years from 2000 that remain open and subject to examination by the IRS, certain state taxing authorities and certain 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, net of tax benefits, related to remaining tax uncertainties recognized in the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2007 was $3.5 million and $11.1 million, respectively. Penalties in the amount of $0.2 million and $0.7 million were recognized for the three and nine months ended September 30, 2007, respectively. Accrued interest of $69.8 million and $81.7 million related to income tax uncertainties was reported as a component of other noncurrent liabilities on the Condensed Consolidated Balance Sheet at January 1, 2007 and September 30, 2007, respectively. Accrued penalties of $2.7 million and $3.4 million related to income tax uncertainties were reported in other noncurrent liabilities on the Condensed Consolidated Balance Sheet at January 1, 2007 and September 30, 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.

17. SUBSEQUENT EVENTS

On October 16, 2007, the Company announced that it had signed a definitive agreement to acquire Cardinal Brands, Inc. (“Cardinal Brands”), for approximately $130 million in cash before reduction for repayment of indebtedness, retirement of preferred stock and other items. Cardinal Brands is a privately-owned designer, developer and manufacturer of document-related business, consumer and hobby products. Cardinal Brands, headquartered in Lawrence, Kansas, has manufacturing operations in the United States, Mexico and the United Kingdom. This acquisition is expected to close in the fourth quarter of 2007 and is subject to customary closing conditions, including regulatory approval.

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 products and 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 May 16, 2007, the Company acquired Von Hoffmann, a leading U.S.-based printer of books and other products that serves primarily the education, trade and business-to-business catalog sectors, from Visant Corporation. Von Hoffmann’s operations are included in the U.S. Print and Related Services segment.

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 operations are included in the U.S. Print and Related Services 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 digital content management and e-business services. Additionally, Banta provided a wide range of procurement management and other outsourcing capabilities to the world’s largest technology companies. Banta’s operations are included in the U.S. Print and Related Services segment with the exception of its Global Turnkey Solutions’ operations, which are included in the International 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 printing industry, with related service offerings designed to offer customers complete solutions for communicating their messages to target audiences.

•

Asia, Europe and the Global Turnkey Solutions operations, previously reported in the Global Print Solutions segment, are now reported in the International segment.

•

The Company’s segments and their product and service offerings are summarized below:

U.S. Print and Related Services

International

The International segment includes the Company’s non-U.S. printing operations in Asia, Europe, Latin America and Canada. Additionally, this segment includes the Company’s business process outsourcing and Global Turnkey Solutions operations. Business process outsourcing provides transactional print and outsourcing services, statement printing, direct mail and print management services through its operations in Europe, Asia and North America. Global Turnkey Solutions provides outsourcing capabilities including product configuration, customized kitting and order fulfillment for technology and medical device companies around the world through its operations in Europe and North America.

Corporate

EXECUTIVE SUMMARY

Financial Performance

Three Months Ended September 30, 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 September 30, 2007, from the three months ended September 30, 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 September 30, 2006	$	260.8		11.3	%	$	164.7		$	0.75
2007 restructuring and impairment charges—net		(19.9	)	(0.7	)		(12.1	)		(0.05	)
2006 restructuring and impairment charges—net		6.6		0.3			4.6			0.03
Non-recurring tax benefits							(14.2	)		(0.07	)
Discontinued operations		—		—			0.4			—
Operations		46.9		(0.8	)		31.6			0.14

For the three months ended September 30, 2007	$	294.4		10.1	%	$	175.0		$	0.80

2007 restructuring and impairment charges—net: included pre-tax charges of $13.7 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; $4.7 million of other restructuring costs, primarily lease termination costs; and $1.5 million for impairment of other long-lived assets.

2006 restructuring and impairment charges—net: included pre-tax charges of $3.5 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, and $3.1 million of other restructuring costs, primarily lease termination costs.

Non-recurring tax benefits: reflected a benefit of $9.3 million in 2007 from a reduction in net deferred tax liabilities due to a decrease in the statutory tax rate in the United Kingdom and a $23.5 million benefit in 2006 from the realization of a U.S. deferred tax asset.

Discontinued operations: reflected certain 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: reflected higher operating income, primarily driven by the Banta, Perry Judd’s and Von Hoffmann acquisitions and higher volume and productivity, partially offset by higher interest expense. See further details in the review of operating results by segment that follows.

Nine Months Ended September 30, 2007

The changes in the Company’s income from continuing operations, operating margin, net earnings and net earnings per diluted share for the nine months ended September 30, 2007, from the nine months ended September 30, 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 nine months ended September 30, 2006	$	694.5		10.1	%	$	401.8		$	1.84
2007 restructuring and impairment charges—net		(361.8	)	(4.2	)		(237.7	)		(1.08	)
2006 restructuring and impairment charges—net		37.8		0.6			24.2			0.11
Non-recurring tax benefits							(14.2	)		(0.07	)
Discontinued operations		—		—			1.8			0.01
Operations		128.0		(0.6	)		68.5			0.30

For the nine months ended September 30, 2007	$	498.5		5.9	%	$	244.4		$	1.11

2007 restructuring and impairment charges—net: included a non-cash pre-tax charge of $316.1 million reflecting the write-off of the Moore Wallace, OfficeTiger and other trade names; pre-tax charges of $34.7 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; $8.8 million of other restructuring costs, primarily lease termination costs; and $2.2 million for impairment of other long-lived assets.

2006 restructuring and impairment charges—net: included pre-tax charges of $27.2 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; $8.3 million of other restructuring costs, primarily lease termination costs; and $2.3 million for impairment of long-lived assets.

Operations: reflected higher operating income in the U.S. Print and Related Services segment, primarily driven by the Banta, Perry Judd’s and Von Hoffmann acquisitions and strong results in financial print and book sales, higher volume and productivity, and improved operating income in the International segment which was primarily driven by book production in Asia, partially offset by higher interest expense. See further details in the review of operating results by segment that follows.

Successes

During the third quarter of 2007, the Company unified most of its printing and related services offerings under the single RR Donnelley brand. The renaming reflects the Company’s ability to provide fully integrated single-source solutions that span a complete range of printing and service capabilities while allowing its customers the ability to access RR Donnelley’s global resources. In addition, the Company continued to successfully integrate its acquisitions of Banta, Perry Judd’s and Von Hoffmann under this global platform. The unified platform and continued successful integration of its acquisitions have expanded the Company’s flexibility to serve customer needs and achieve productivity and scale across most of its operations.

In the third quarter of 2007, the Company achieved net sales increases in both segments due to acquisitions, new customer wins and volume growth with existing customers. These sales increases were achieved despite the

continuing impact of competitive price pressure. The largest sales increases were from financial print and books. Increased sales of financial print were driven by domestic and international capital markets transactions and global investment company compliance. Net sales of financial print have continued to increase throughout 2007 despite the sub-prime credit market crisis. The Company’s diversified financial print product mix is expected to mitigate the potential impact of capital markets uncertainty. Book sales increased reflecting higher volume in education books. Net sales of print logistics services increased reflecting volume growth in the domestic print platform and related services. Net sales of office products increased due to increased volume from new customers. Internationally, net sales improved in Asia due to gains in book production mainly for the U.S. and European markets, as well as continued growth with telecommunications and technology customers and in Latin America due to increased book export sales and increased sales of forms, labels, commercial print and statement printing due to volume growth from existing customers.

The Company also continued to achieve productivity benefits resulting from restructuring actions, investments in equipment and technology, and procurement savings. These productivity savings continued to largely offset the impacts of price competition and cost inflation.

Challenges

Net sales of statement printing included in the U.S. Print and Related Services segment declined in the third quarter of 2007 as compared to 2006. The decline was mainly caused by customer losses and volume declines. Net sales of statement printing declined at a slower rate in the third quarter as compared to previous quarters in 2007. Management expects this trend to continue in the fourth quarter as a result of refocused sales efforts and cost control initiatives.

Net sales of directories, included in the U.S. Print and Related Services segment, declined in the third quarter of 2007 as compared to 2006. This decline is due to price reductions on contract renewals, timing of new contracts and the wind down of lost business. Management continues to offset the impact of these sales declines through cost control initiatives and expects net sales to decline at a slower rate in the fourth quarter of 2007.

Despite strong increases in net sales, margins for our business process outsourcing services, included in the International segment, decreased in the third quarter of 2007 as compared to 2006. Though the margin declines were in part driven by the start-up of a large customer contract, we are seeing an increase in price pressure and competition for high volume contracts in this sector.

Global Turnkey Solutions net sales were lower in the three and nine months ended September 30, 2007, than in the comparable pro forma pre-acquisition periods in 2006. This lower sales volume is due to price reductions on contract renewals and continuing price pressure. Management continues to offset the impact of these sales declines by reducing costs and shifting production to lower cost locations.

On May 14, 2007, new postage rates went into effect for all mail classes in the United States under Postal Rate Case 2006-1, with the exception of the periodicals class, for which new rates went into effect on July 15, 2007. The new rates substantially increase the cost of certain segments of standard mail, which is a significant component of many of our customers’ cost structures. During the third quarter, this cost increase impacted our direct mail sales in the U.S. Print and Related Services segment. The impact of the postal increases is expected to continue throughout the remainder of the year in direct mail as well as for magazine, retail, catalog and logistics services in the U.S. Print and Related Services segment. Management continues to develop plans to mitigate the financial effect of this postage increase and to 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, with

large diversified printing companies better positioned to be successful. The industry is projecting only modest growth over the next several years. Across the Company’s range of products and services, competition is based primarily on price in addition to quality and the ability to service the special needs of customers. Consolidation of customers and a shift in customer ownership towards private equity has also changed the dynamics of the industry toward more focus on the total cost of the print process, including materials and distribution. The Company expects competition in most sectors served by the Company to remain intense in coming years. In this environment, the Company expects to maintain or 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 drive profitable growth. The Company continues to enhance its products and services through the successful integration of acquisitions that create additional scale advantages and offer both increased breadth and depth of products and services. 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, leveraging the Company’s global infrastructure, streamlining administrative and support activities, integrating common systems and the disposing of non-core operations. Future 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 U.S. Print and Related Services segment. Historically, the Company’s magazine, catalog, retail insert and book operations generated 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 and paper availability 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 both paper price and ink cost increases to a large extent, but there is no assurance that market conditions will continue to enable

the Company successfully to do so. In addition, management believes that paper supply is tightening, and there may at times be shortfalls in supply to meet the demands of the entire marketplace.

The Company continues to monitor the impact of changes in the price of crude oil and other energy costs. The Company believes it will continue to be able to pass on a substantial portion of increases in fuel prices directly to its logistics services customers in order to offset the impact of these increases. However, the Company in some cases 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. Through its logistics operations, the Company manages 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 went into effect on May 14, 2007 that is not part of the Act. As a leading provider of print logistics, the Company works closely with the U.S. Postal Service and its customers on programs to minimize costs and ensure the viability of postal distribution.

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 SEPTEMBER 30, 2007 AS

COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2006

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


	Net Sales (1)				Income From Continuing Operations (1)
	Three Months Ended September 30,
	2007		2006		2007			2006
	(in millions)
U.S. Print and Related Services	$	2,161.7	$	1,746.5	$	276.9		$	249.1
International		748.3		562.2		53.6			54.5

Total operating segments		2,910.0		2,308.7		330.5			303.6
Corporate		—		—		(36.1	)		(42.8	)

Total continuing operations	$	2,910.0	$	2,308.7	$	294.4		$	260.8

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

Consolidated

Net sales for the three months ended September 30, 2007 increased $601.3 million, or 26.0%, to $2,910.0 million versus the same period in the prior year. Of this increase, approximately 84% or $502 million was due to sales from the acquired facilities of Banta, Perry Judd’s and Von Hoffmann and 5.5% or $33.1 million resulted from changes in foreign exchange rates. In addition, the increase in net sales was driven by volume growth in both segments offset in part by continued price pressure. In the U.S. Print and Related Services segment, volume increases were seen in book production, financial print and logistics services. In the International segment, net sales increases were driven by book production in Asia, favorable exchange rates and volume growth from new customers in business process outsourcing and increased export book sales and commercial print in Latin America.

Income from continuing operations for the three months ended September 30, 2007 was $294.4 million, an increase of 12.9% compared to the three months ended September 30, 2006. The increase was driven by sales volume, productivity efforts and the benefits achieved from procurement savings and restructuring activities, partially offset by higher incentive compensation and depreciation and amortization expense.

Cost of sales (exclusive of depreciation and amortization) increased $465.6 million to $2,122.4 million for the three months ended September 30, 2007 versus the same period in the prior year primarily due to acquisitions, increased incentive compensation and the increased net sales volume. Cost of sales as a percentage of consolidated net sales increased from 71.8% to 72.9% as a result of continuing price competition across most operations in both segments and an unfavorable business mix. The Company partially offset these factors with cost reductions achieved through restructuring activities.

Selling, general and administrative expenses (exclusive of depreciation and amortization) increased $52.0 million to $320.5 million for the three months ended September 30, 2007 versus the same period in the prior year primarily due to the acquisitions, increased incentive compensation and other net sales increases. Selling, general and administrative expenses as a percentage of consolidated net sales decreased to 11.0% from 11.6% for the three months ended September 30, 2007 and 2006, respectively. This decrease reflects scale advantages including the elimination of duplicative administrative functions at the acquired businesses.

For the three months ended September 30, 2007, the Company recorded a net restructuring and impairment provision of $19.9 million compared to $6.6 million in the same period of 2006. This provision included $13.7 million for workforce reductions of 249 people (of which 130 were terminated as of September 30, 2007)

associated with the reorganization of certain operations and the exiting of certain business activities. These actions include management changes to simplify the management reporting structure and cost structure reductions including the closing of one manufacturing facility within the U.S. Print and Related Services segment. These charges also include $4.7 million of other restructuring costs primarily related to lease terminations in exited facilities and $1.5 million for the impairment of long-lived assets. Restructuring charges for the three months ended September 30, 2006 included $3.5 million related to work force reductions of 287 people (all of whom were terminated as of September 30, 2007) associated with the reorganization of certain operations and the exiting of certain business activities. In addition, these charges include $3.1 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 and in the future as the Company continues to streamline its manufacturing, sales and administrative operations.

Depreciation and amortization increased $36.8 million to $152.8 million for the three months ended September 30, 2007 compared to the same period in 2006 primarily due to acquisitions. Depreciation and amortization includes $30.5 million and $18.7 million of amortization of purchased intangibles related to customer relationships, trade names and patents for the three months ended September 30, 2007 and 2006, respectively.

Net interest expense increased by $23.9 million for the three months ended September 30, 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, Perry Judd’s and Von Hoffmann.

Net investment and other expense for the three months ended September 30, 2007 and 2006 was $0.5 million, respectively.

The effective income tax rate for the three months ended September 30, 2007 was 25.1% compared to 27.2% in the same period of 2006. The tax rate for the three months ended September 30, 2007 includes a benefit of $9.3 million from a reduction in net deferred tax liabilities due to a decrease in the statutory tax rate in the United Kingdom, a greater proportion of earnings generated in lower tax jurisdictions and an increased benefit from the domestic manufacturing deduction. The effective income tax rate for the three months ended September 30, 2006 included a $23.5 million benefit from the realization of a U.S. deferred tax asset.

Net earnings from continuing operations for the three months ended September 30, 2007 was $175.0 million or $0.80 per diluted share compared to $165.1 million or $0.75 per diluted share for the three months ended September 30, 2006. In addition to the factors described above, the per share results reflect a decrease in weighted average diluted shares outstanding of 0.3 million. During the quarter ended September 30, 2007, the Company purchased in the open market approximately 5.3 million shares of its common stock at a total cost of $212.5 million.

The net loss from discontinued operations for the three months ended September 30, 2006 was $0.4 million, which primarily reflected the costs resulting from a sub-lessee bankruptcy related to a facility previously occupied by the Company’s package logistics business.

U.S. Print and Related Services

The following table summarizes net sales, income from continuing operations and certain items impacting comparability within the U.S. Print and Related Services segment:


	Three Months Ended September 30,
	2007			2006
	(in millions)
Net sales	$	2,161.7		$	1,746.5
Income from continuing operations		276.9			249.1
Operating Margin		12.8	%		14.3	%
Items impacting comparability:
Restructuring and impairment charges—net		11.8			0.8

Net sales for the U.S. Print and Related Services segment for the three months ended September 30, 2007 were $2,161.7 million, an increase of $415.2 million, or 23.8%, compared to the same period in 2006. Of this increase, approximately 94% or $391.5 million was due to sales from the acquired facilities of Banta, Perry Judd’s and Von Hoffmann. The remaining increase resulted from volume increases, partially offset by downward price pressures. Book sales increased reflecting higher volume in education books, partially offset by lower prices on major customer contract renewals. Financial print net sales increased, primarily driven by domestic capital markets transactions and global investment company compliance services. Logistics services increased primarily due to volume growth in the domestic print platform and from third-party customers and other related services. Net sales of office products increased due to volume increases from new customers. Net sales of catalogs increased reflecting volume increases from new customers partially offset by lower pricing on major contracts while magazines and retail inserts declined due to lower pricing on major customer contracts. Net sales of directories decreased due to continued price pressure impacting major contract renewals. Net sales for digital print decreased due to continued pricing pressure and the impact of major contract renewals within direct mail and price and volume declines in statement printing. Commercial printing sales decreased as a result of decreased volume from large corporate customers.

U.S. Print and Related Services’ income from continuing operations increased $27.8 million primarily due to the impact of acquisitions, higher volume and improved productivity, offset by continued competitive price pressures and increased incentive compensation. Operating margins in the U.S. Print and Related Services Segment decreased as a percent of sales from 14.3% to 12.8% for the three months ended September 30, 2007. The margin decrease reflects the impact of the acquired companies, which in the aggregate had lower margins than the segment’s historical margins. In addition, the reduced operating margins were impacted by $9.4 million of incremental amortization expense on intangible assets that reduced operating margins by 44 basis points and increased restructuring charges of $11.0 million.

International

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


	Three Months Ended September 30,
	2007			2006
	(in millions)
Net sales	$	748.3		$	562.2
Income from continuing operations		53.6			54.5
Operating Margin		7.2	%		9.7	%
Items impacting comparability:
Restructuring and impairment charges—net		3.8			3.5

Net sales for the International segment for the three months ended September 30, 2007 were $748.3 million, an increase of $186.1 million, or 33.1%, compared to the same period in 2006. Of this increase, approximately 60% or $110.8 million was due to sales from the acquired facilities of Banta and $33.1 million or 18% was the result of favorable exchange rates. The remaining increase in net sales was primarily driven by strong volume growth across most of the segment, partially offset by competitive price pressure. From our platform in Asia, book sales increased as a result of production mainly for the U.S. and European markets, as well as continued growth with telecommunications and technology customers. Net sales from the business process outsourcing operations increased over 2006, due to favorable foreign exchange rates and volume growth from new customers, partially offset by the volume declines in direct mail. We had higher sales across most products in Latin America, including increased book export sales and increased sales of forms, labels, commercial print and statement printing due to volume growth from existing customers. Net sales in Latin America were also impacted by favorable exchange rates. Net sales of forms and labels in Canada were up slightly due to increased volume and favorable exchange rates.

Income from continuing operations decreased $0.9 million due to the continuing impact of competitive price pressures. Operating margins as a percentage of sales decreased from 9.7% to 7.2% for the three months ended September 30, 2007 primarily due to continued price pressure and an unfavorable business mix.

Corporate

Corporate operating expenses decreased $6.7 million to $36.1 million for the three months ended September 30, 2007. The decrease in expense in the third quarter of 2007 is attributable to lower share-based and incentive compensation expense, reductions in LIFO inventory provisions, reductions in sales and use tax reserves, and other cost reductions resulting from productivity efforts and restructuring actions. These factors were partially offset by increased information technology expense and additional costs resulting from the Banta, Perry Judd’s and Von Hoffmann acquisitions. Corporate restructuring charges of $4.3 million in the three months ended September 30, 2007 primarily reflect the costs of actions taken to streamline operations. Corporate restructuring charges of $2.3 million in the three months ended September 30, 2006 primarily related to actions taken to reorganize certain operations and the relocation of the global headquarters within Chicago.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AS

COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 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)
	Nine Months Ended September 30,
	2007		2006		2007			2006
	(in millions)
U.S. Print and Related Services	$	6,332.7	$	5,247.5	$	539.9		$	692.6
International		2,166.2		1,601.8		92.6			146.9

Total operating segments		8,498.9		6,849.3		632.5			839.5
Corporate		—		—		(134.0	)		(145.0	)

Total continuing operations	$	8,498.9	$	6,849.3	$	498.5		$	694.5

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

Consolidated

Net sales for the nine months ended September 30, 2007 increased $1,649.6 million, or 24.1%, to $8,498.9 million versus the same period in the prior year. Of this increase, approximately 86% or approximately $1.4 billion was due to sales from the acquired facilities of Banta, Perry Judd’s, OfficeTiger and Von Hoffmann and 5% or $87.4 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 U.S. Print and Related Services segment, volume increases were seen in logistics services, book production, commercial printing and financial print. In the International segment, net sales increases were driven by increased book production in Asia, favorable exchange rates and volume growth from new customers in business process outsourcing, favorable exchange rates in Europe and increased export book sales and commercial print sales in Latin America.

Income from continuing operations for the nine months ended September 30, 2007 was $498.5 million, a decrease of $196.0 million compared to the nine months ended September 30, 2006. The decrease was driven by the $316.1 million non-cash pre-tax charge reflecting the write-off of the Moore Wallace, OfficeTiger and other trade names intangible assets, higher incentive compensation and depreciation and amortization expense, partially offset by the increase in net sales, productivity efforts and the benefits achieved from procurement savings and restructuring activities.

Cost of sales (exclusive of depreciation and amortization) increased $1,252.0 million to $6,218.2 million for the nine months ended September 30, 2007 versus the same period in the prior year primarily due to acquisitions, increased incentive compensation and the increased net sales volume. Cost of sales as a percentage of consolidated net sales increased from 72.5% to 73.2% as a result of continuing price competition across most of the operations in both segments and the impact of the acquired companies, which in the aggregate had lower margins than the Company’s historical margins. These factors were offset by cost reductions through restructuring activities.

Selling, general and administrative expenses (exclusive of depreciation and amortization) increased $170.9 million to $976.7 million for the nine months ended September 30, 2007 versus the same period in the prior year primarily due to the acquisitions, increased incentive compensation and other net sales increases. Selling, general and administrative expenses as a percentage of consolidated net sales decreased from 11.8% to 11.5%. This decrease reflects scale advantages including the elimination of duplicative administrative functions at the acquired businesses.

For the nine months ended September 30, 2007, the Company recorded a net restructuring and impairment provision of $361.8 million compared to $37.8 million in the same period of 2006. In 2007, these charges

included a non-cash pre-tax charge of $316.1 million reflecting the write-off of the Moore Wallace, OfficeTiger and other trade names intangible assets. In addition, these charges included $34.7 million for workforce reductions of 704 people (of which 639 were terminated as of September 30, 2007) associated with the reorganization of certain operations and the exiting of certain business activities. These actions include management changes to simplify the management reporting structure and cost structure reductions including the closing of two manufacturing facilities within the U.S. Print and Related Services segment. These charges also include $8.8 million of other restructuring costs primarily related to lease terminations in exited facilities and $2.2 million for the impairment of long-lived assets. Restructuring charges for the nine months ended September 30, 2006 included $27.2 million related to work force reductions of 1,083 people (all of whom were terminated as of September 30, 2007) associated with the reorganization of certain operations and the exiting of certain business activities. In addition, these charges include $8.3 million of other restructuring costs primarily related to lease terminations in exited facilities and $2.3 million for the impairment of long-lived assets. 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 $98.7 million to $443.7 million for the nine months ended September 30, 2007 compared to the same period in 2006 primarily due to acquisitions. Depreciation and amortization includes $86.3 million and $54.2 million of amortization of purchased intangibles related to customer relationships, trade names and patents for the nine months ended September 30, 2007 and 2006, respectively.

Net interest expense increased by $62.2 million for the nine months ended September 30, 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, Perry Judd’s and Von Hoffmann.

Net investment and other income (expense) for the nine months ended September 30, 2007 and 2006 was $2.3 million and $(4.0) million, respectively. Included in net investment and other income (expense) were charges of $0.2 million and $4.1 million for the nine months ended September 30, 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 nine months ended September 30, 2007 and a loss of $1.5 million for the nine months ended September 30, 2006 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 nine months ended September 30, 2007 was 25.7% compared to 31.1% in the same period of 2006. The decrease primarily reflects the tax benefit of $107.0 associated with the $316.1 million non-cash charge for the write-off of the Moore Wallace, OfficeTiger and other trade names, the enactment of a lower statutory tax rate in the United Kingdom, 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. The effective income tax rate for the nine months ended September 30, 2006 included a $23.5 million benefit from the realization of a U.S. deferred tax asset.

Net earnings from continuing operations for the nine months ended September 30, 2007 was $244.5 million or $1.11 per diluted share compared to $403.7 million or $1.85 per diluted share for the nine months ended September 30, 2006. During the nine months ended September 30, 2007, the Company purchased in the open market approximately 6.6 million shares of its common stock at a total cost of $267.9 million. In addition to the factors described above, the per share results reflect an increase in weighted average diluted shares outstanding of 1.6 million due to share-based compensation.

The net loss from discontinued operations for the nine months ended September 30, 2007 was $0.1 million compared to $1.9 million for the same period in 2006, which primarily reflected costs resulting from a sub-lessee bankruptcy related to a facility previously occupied by the Company’s package logistics business.

U.S. Print and Related Services

The following table summarizes net sales, income from continuing operations and certain items impacting comparability within the U.S. Print and Related Services segment:


	Nine Months Ended September 30,
	2007			2006
	(in millions)
Net sales	$	6,332.7		$	5,247.5
Income from continuing operations		539.9			692.6
Operating Margin		8.5	%		13.2	%
Items impacting comparability:
Restructuring and impairment charges—net		279.9			16.0

Net sales for the U.S. Print and Related Services segment for the nine months ended September 30, 2007 were $6,332.7 million, an increase of $1,085.2 million, or 20.7%, compared to the same period in 2006. Of this increase, approximately 95% or approximately $1.0 billion was due to sales from the acquired facilities of Banta, Perry Judd’s and Von Hoffmann. The remaining increase resulted from volume increases, partially offset by downward price pressures. Net sales of financial print increased significantly, primarily driven by domestic and international capital markets transactions and global investment company compliance services. Logistics services increased primarily due to volume growth in the domestic print platform and from third-party customers and other related services. Book sales increased reflecting higher volume in consumer and educational books, partially offset by lower prices on major customer contract renewals. Commercial printing sales increased as a result of increased volume from large corporate customers. Net sales of office products increased due to volume growth from new customers. Net sales of magazines, catalogs and retail inserts declined due to product mix and lower pricing on major customer contracts. Net sales of directories decreased, primarily due to continued pricing pressure and the impact of major contract renewals. Declines in the digital print operations reflect lower direct mail volume from key customers, the impact of postal rate increases and volume and price declines in statement printing.

U.S. Print and Related Services’ income from continuing operations decreased $152.7 million, driven by the non-cash charge of $257.4 million reflecting the write-off of the Moore Wallace and other trade names, the impact of competitive price pressures and increased incentive compensation, partially offset by the impact of acquisitions, higher volume and improved productivity. Operating margins in the U.S. Print and Related Services segment decreased as a percent of sales from 13.2% to 8.5% for the nine months ended September 30, 2007. The margin decrease primarily resulted from the non-cash charge of $257.4 million discussed above and the acquisitions of Banta and Perry Judd’s, both of which had lower margins than the segment’s historical margins, partially offset by the acquisition of Von Hoffmann which had higher historical margins. In addition, acquisitions resulted in $22.5 million of incremental amortization expense on intangible assets, which reduced operating margins by 36 basis points.

International

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


	Nine Months Ended September 30,
	2007			2006
	(in millions)
Net sales	$	2,166.2		$	1,601.8
Income from continuing operations		92.6			146.9
Operating Margin		4.3	%		9.2	%
Items impacting comparability:
Restructuring and impairment charges—net		71.9			12.8

Net sales for the International segment for the nine months ended September 30, 2007 were $2,166.2 million, an increase of $564.4 million, or 35.2%, compared to the same period in 2006. Of this increase, approximately 67% or $376.7 million was due to sales from the acquired facilities of OfficeTiger and Banta and $87.4 million or 16% was the result of favorable exchange rates. From our platform in Asia, book sales increased as a result of production mainly for the U.S. and European markets, as well as continued growth with telecommunications and technology customers. Net sales of business process outsourcing increased over 2006, primarily due to favorable foreign exchange and volume growth from new customers, partially offset by the volume declines in direct mail. We had higher sales of books, forms, labels and commercial printing in Latin America, while increases in sales in Europe were substantially the result of changes in foreign exchange rates. Net sales of forms and labels in Canada were up slightly due to increased volume and favorable exchange rates.

Income from continuing operations decreased $54.3 million primarily due to the non-cash charge of $58.7 million reflecting the write-off of the Moore Wallace, OfficeTiger and other trade names and the ongoing impact of competitive price pressures partially offset by volume growth and productivity efforts. Operating margins as a percentage of sales decreased from 9.2% to 4.3% for the nine months ended September 30, 2007 primarily due to the non-cash charge of $58.7 million discussed above. Also impacting the lower operating margins were the Banta and OfficeTiger acquisitions, continued price pressure and an unfavorable business mix.

Corporate

Corporate operating expenses decreased $11.0 million to $134.0 million for the nine months ended September 30, 2007. The decrease in expense in the nine months ended September 30, 2007 is attributable to lower share-based and incentive compensation expense, reductions in LIFO inventory provisions, reductions in sales and use tax reserves, and other cost reductions resulting from productivity efforts and restructuring actions. These factors were partially offset by increased information technology expense and additional costs resulting from the Banta, Perry Judd’s and Von Hoffmann acquisitions. Corporate restructuring charges of $10.0 million in the nine months ended September 30, 2007 primarily reflect the employee termination costs of actions taken to streamline operations. Corporate restructuring charges of $9.0 million in the nine months ended September 30, 2006 primarily included employee termination costs incurred as a result of actions taken to reorganize certain operations and costs related to 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 $343.0 million at September 30, 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 $782.7 million for the nine months ended September 30, 2007, compared to net cash provided by operating activities of continuing operations of $566.8 million for the same period last year. The increase primarily reflects the impact of higher cash earnings driven by volume growth and productivity efforts and the impact of acquisitions. In addition, the increase in operating cash flow reflects improvements in working capital management.

Cash Flows From Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2007 was $2,228.2 million versus net cash used in investing activities of $500.3 million for the nine months ended September 30, 2006. Net cash used for acquisition of businesses in the nine months ended September 30, 2007 included $1,929.1 million for the acquisition of Banta, Perry Judd’s and Von Hoffmann. Capital expenditures were $321.1 million, an increase of $62.9 million compared to the nine months ended September 30, 2006. The increase reflects increased investment in expansion projects to support increased volume in Asia and Europe 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 for the nine months ended September 30, 2007 was $1,559.0 million compared to net cash used in financing activities of $187.9 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 $652.4 million in the nine months ended September 30, 2007 reflecting the Company’s borrowings under its revolving credit facility and the issuance of commercial paper related to the Banta, Perry Judd’s and Von Hoffmann acquisitions and share repurchases compared to a net decrease in short-term debt of $14.6 million for the nine months ended September 30, 2006. Additionally, the Company received proceeds of $102.1 million from exercises of stock options. During the nine months ended September 30, 2007, the Company purchased in the open market approximately 6.6 million shares of its common stock at a total cost of $267.9 million, of which 6.1 million shares settled at a total cost of $250.8 million.

Dividends

During the nine months ended September 30, 2007, the Company paid cash dividends of $171.0 million. On October 24, 2007, the Board of Directors of the Company declared a quarterly cash dividend of $0.26 per common share payable on December 3, 2007 to shareholders of record on November 8, 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 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% and LIBOR plus a spread on borrowings under the Facility. As of September 30, 2007, there were $400.0 million of borrowings outstanding under the Facility. The Company also has $241.1 million in credit facilities outside of the U.S., most of which are uncommitted. As of September 30, 2007, the Company had $58.0 million in outstanding letters of credit, of which $24.6 million reduced availability under the Company’s credit facilities. At September 30, 2007, approximately $1.5 billion was available under the Company’s credit facilities. Additionally, as of September 30, 2007, there were $235.3 million of borrowings under the Company’s 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 these notes 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 $181 million. The Company financed this acquisition with the proceeds from the issuance of the notes described previously, through issuances of commercial paper and with existing cash on hand.

On May 16, 2007, the Company acquired 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 $413 million. The Company financed this acquisition through issuances of commercial paper and with existing cash on hand.

On October 16, 2007, the Company announced that it had signed a definitive agreement to acquire Cardinal Brands for approximately $130 million in cash before reduction for repayment of indebtedness, retirement of preferred stock and other items. This acquisition is expected to close in the fourth quarter of 2007 and is subject to customary closing conditions, including regulatory approval. The Company expects to finance this acquisition through the issuance of commercial paper and existing cash on hand.

As of September 30 2007, the Company purchased in the open market approximately 6.6 million shares of its common stock at a total cost of $267.9 million. The Company financed these share repurchases with existing cash on hand, through issuances of commercial paper and with borrowings under the revolving credit facility. As of September 30, 2007, the Company is authorized, under the terms of a share repurchase program approved by the Board of Directors, to repurchase up to 7.4 million shares. Additionally, subsequent to September 30, 2007, the Company purchased 1.0 million shares of its common stock.

The Company was in compliance with its debt covenants as of September 30, 2007.

RISK MANAGEMENT

The Company is exposed to interest rate risk on its variable-rate debt and price risk on its fixed rate-debt. As of September 30, 2007, approximately 84% of the Company’s outstanding debt was comprised of fixed-rate debt. Though variable-rate commercial paper borrowings have increased to partially fund the Company’s acquisitions of Banta, Perry Judd’s and Von Hoffmann and to finance share repurchases, the Company’s exposure to interest rate risk remains low.

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 September 30, 2007, the aggregate notional amount of outstanding forward contracts was approximately $159.6 million. Unrealized gains and losses from these foreign currency contracts were not significant at September 30, 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, consisting of 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 net investments in GBP and EUR denominated foreign operations. At September 30, 2007, the fair market value of these cross currency swaps of $104.2 million is included in other noncurrent liabilities. A gain of $1.1 million was recognized in net other expense for the nine months ended September 30, 2007 for the portion of the changes in fair value of the cross-currency swaps that was ineffective as a net investment hedge. A loss of $1.5 million was recognized in net other expense for the nine months ended September 30, 2006 related to 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, Von Hoffmann and Cardinal Brands, 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 integration of sales forces, 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.”

The Company assesses market risk based on changes in interest rates and foreign currency rates utilizing a sensitivity analysis that measure the potential loss in earnings, fair values and cash flows based on a hypothetical 10% change in interest and foreign currency rates. Using this sensitivity analysis, such changes would result in a $3.5 million increase in interest expense and would not have a material effect on foreign currency gains and losses and cash flows; and would change the fair values of fixed-rate debt at September 30, 2007 by approximately $113.9 million.

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 September 30, 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
July 1, 2007—July 31, 2007	2,711,393	(1)	$	44.53	2,711,300	10,000,000	(2)
August 1, 2007—August 31, 2007	690,400	(1)		35.39	690,200	9,309,800	(2)
September 1, 2007—September 30, 2007	1,912,621	(1)		35.50	1,897,900	7,411,900	(2)
Total	5,314,414	(1)		41.00	5,299,400	7,411,900	(2)

(1)	Includes shares withheld for tax liabilities upon vesting of equity awards and shares purchased pursuant to a 10b5-1 plan in the amount set forth in column (c) hereto.

(2)

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. Following such authorization and prior to July 25, 2007, the Company repurchased 4 million shares. On July 25, 2007, the Board increased the share repurchase program by 4 million shares, taking the total number of shares authorized for repurchase back to 10 million shares. Such purchases may be made from time to time and may be discontinued at any time.

Item 5. Other Information

(a) Amendment of ByLaws. Effective October 24, 2007, the Company’s Board of Directors amended (i) Sections 4.1 and 4.7 of the Company’s bylaws to delete provisions providing that the Chairman of the Board is a non-executive officer of the Company, (ii) Section 4.3 and Article X of the bylaws to delete provisions of the bylaws that only applied until February 27, 2007 and (iii) Section 4.16 to delete a provision requiring the Controller of the Company to attend that part of the meetings of the Board concerned with review of the financial and operating reports of the business except when, in the discretion of the Board, the Controller shall be asked not to attend. The Amended and Restated Bylaws are filed as Exhibit 3.2 of this Quarterly Report on Form 10-Q and are incorporated herein by reference.

(b) New Officer Appointments. On October 30, 2007, the Company announced that Miles W. McHugh has been appointed as Executive Vice President, Chief Financial Officer effective immediately, and on October 29, 2007, the Company and Mr. McHugh entered into an amended and restated employment agreement (the “Amended and Restated Employment Agreement”) pursuant to which Mr. McHugh agreed to serve as the Company’s Executive Vice President, Chief Financial Officer.

Under the terms of the Amended and Restated Employment Agreement:

•

Mr. McHugh will receive a base salary to be paid at a rate of $450,000 per year; and

•

Mr. McHugh will be eligible to receive an annual bonus with a target bonus opportunity of 150% of base salary; provided that, for 2007, he will be eligible to receive 100% of his base salary earned for the period January 1, 2007 through October 29, 2007 and 150% of his base salary earned for the period October 30, 2007 through December 31, 2007.

The Amended and Restated Employment Agreement provides that, upon a Change-in-Control (as defined in the Amended and Restated Employment Agreement), the Company will reimburse Mr. McHugh for all excise taxes that are imposed on him under Section 280G, as well as any income and excise taxes that are payable by Mr. McHugh as a result of reimbursement for Section 280G excise taxes. The Amended and Restated Employment Agreement further provides that if the Company terminates Mr. McHugh’s employment without Cause (as defined in the Amended and Restated Employment Agreement) or Mr. McHugh terminates his employment for Good Reason (as defined in the Amended and Restated Employment Agreement):

•

the Company will pay Mr. McHugh an amount equal to 150% of his base salary and target bonus;

•

Mr. McHugh will be entitled to 18 months of COBRA-subsidized medical benefits; and

•

all outstanding equity grants previously issued to Mr. McHugh will vest 100% as of the date of termination.

Mr. McHugh, 43, has been the Senior Vice President, Controller of the Company since June 5, 2006. Prior thereto, Mr. McHugh served as Vice President, Chief Financial Officer of the Company’s Logistics business since March 2004, the Company’s Assistant Controller since October 2003, the Controller of DPL, Inc. (utility holding company) during 2003 and as the Assistant Controller of Mirant Corporation (energy company) from 2000 to 2002.

On October 30, 2007, the Company also announced that Andrew B. Coxhead was promoted to the position of Senior Vice President, Controller effective immediately and on October 29, 2007, the Company and Mr. Coxhead entered into an employment agreement (the “Employment Agreement”) pursuant to which Mr. Coxhead agreed to serve as the Company’s Senior Vice President, Controller.

Under the terms of the Employment Agreement:

•

Mr. Coxhead will receive a base salary to be paid at a rate of $300,000 per year; and

•

Mr. Coxhead will be eligible to receive an annual bonus with a target bonus opportunity of 75% of base salary; provided that, for 2007, he will be eligible to receive 45% of his base salary earned for the period January 1, 2007 through October 29, 2007 and 75% of his base salary earned for the period October 30, 2007 through December 31, 2007.

The Employment Agreement provides that if the Company terminates Mr. Coxhead’s employment without Cause (as defined in the Employment Agreement):

•

the Company will pay Mr. Coxhead an amount equal to 100% of his base salary and target bonus; and

•

Mr. Coxhead will be entitled to 12 months of COBRA-subsidized medical benefits.

Mr. Coxhead, 39, has been the Vice President, Assistant Controller of the Company since September 14, 2006. Prior thereto, Mr. Coxhead served in a series of assignments in financial planning, accounting, manufacturing management, operational finance and mergers and acquisitions since his employment with the Company in July 1995, and as an auditor with Price Waterhouse LLP (an accounting firm) from 1990 to 1995.

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 June 30, 2007, filed on August 2, 2007)

3.2		Amended and Restated By-Laws (filed herewith)

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		Amended Non-Employee Director Compensation Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, filed on August 2, 2007)*



10.4		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)*

10.5		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)*

10.6		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)*

10.7		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)*

10.8		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)*

10.9		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)*

10.10		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)*

10.11		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)*

10.12		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)*

10.13		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)*

10.14		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)*

10.15		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)*

10.16		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)*

10.17		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)*

10.18		Form of Option Agreement for certain executive officers (incorporated by reference to Exhibit. 10.17 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, filed on May 9, 2007)*



10.19		Form of Performance Share Unit Award Agreement for certain executive officers (incorporated by reference to Exhibit. 10.18 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, filed on May 9, 2007)*

10.20		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)*

10.21		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)*

10.22		Form of Restricted Stock Unit Award Agreement for certain executive officers (incorporated by reference to Exhibit. 10.21 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, filed on May 9, 2007)*

10.23		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)*

10.24		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 (incorporated by reference to Exhibit. 10.25 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, filed on May 9, 2007)*

10.26		Amended and Restated Employment Agreement dated October 29, 2007 between the Company and Suzanne S. Bettman (filed herewith)

10.27		Amended and Restated Employment Agreement dated October 29, 2007 between the Company and Miles W. McHugh (filed herewith)

10.28		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 Miles W. McHugh, 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 Miles W. McHugh, 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/ MILES W. MCHUGH
		Miles W. McHugh
		Chief Financial Officer

By:		/s/ ANDREW B. COXHEAD
		Andrew B. Coxhead
		Senior Vice President and Controller (Chief Accounting Officer)

Date: October 30, 2007

EX-3.2 2 dex32.htm AMENDED AND RESTATED BYLAWS Amended and Restated Bylaws

Exhibit 3.2

Amended and Restated

October 24, 2007

BY-LAWS OF

R. R. DONNELLEY & SONS COMPANY

ARTICLE I

Section 1.1. Principal Office. The principal office in the State of Delaware shall be in the City of Wilmington, County of New Castle, State of Delaware, and the name of the resident agent in charge thereof is The Corporation Trust Company.

Section 1.2. Other Offices. The corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require.

ARTICLE II

Meetings of Stockholders

Section 2.1. Annual Meeting. The annual meeting of the stockholders shall be held for the purpose of electing Directors and for the transaction of such other business as may properly be brought before the meeting in accordance with these By-laws at such date, time and place, within or without the State of Delaware, as may be fixed by resolution of the Board of Directors of the corporation from time to time.

Except as otherwise provided by statute or the certificate of incorporation, the only business which properly shall be conducted at any annual meeting of the stockholders shall (i) have been specified in the written notice of the meeting (or any supplement thereto) given as provided in Section 2.4, (ii) be brought before the meeting by or at the direction of the Board of Directors or the officer of the corporation presiding at the meeting or (iii) be brought before the meeting by a stockholder who shall have complied with the notice requirements specified in this Section. For business to be brought before the meeting by a stockholder, the business must have been specified in a written notice (a “Stockholder Meeting Notice”) given to the corporation, in accordance with all of the following requirements, by or on behalf of any stockholder who is entitled to vote at such meeting. Each Stockholder Meeting Notice must be delivered personally to, or be mailed to and received by, the Secretary of the corporation at the principal executive offices of the corporation in the City of Chicago, State of Illinois, not less than 60 days nor more than 90 days prior to the annual meeting; provided, however, that in the event that less than 75 days’ notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, notice by the stockholder to be timely must be received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first occurs. Each Stockholder Meeting Notice shall set forth: (i) a description of each item of business proposed to be brought before the meeting and the reasons for conducting such business at the annual meeting; (ii) the name and record address of the stockholder proposing to bring such item of business before the meeting and the

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reasons for conducting such business at the annual meeting; (iii) the class and number of shares of stock held of record, owned beneficially and represented by proxy by such stockholder as of the record date for the meeting (if such date shall then have been made publicly available) and as of the date of such Stockholder Meeting Notice and (iv) all other information which would be required to be included in a proxy statement filed with the Securities and Exchange Commission if, with respect to any such item of business, such stockholder were a participant in a solicitation subject to Section 14 of the Securities Exchange Act of 1934. No business shall be brought before any annual meeting of stockholders of the corporation otherwise than as provided in this Section; provided, however, that nothing contained in this Section shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting. The person presiding at the annual meeting of stockholders shall, if the facts so warrant, determine that business was not properly brought before the meeting in accordance with the provisions of this Section and, if such person should so determine, such person should so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted.

Section 2.2. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the Chief Executive Officer, the President, or the Chairman and shall be called by the Secretary pursuant to a resolution duly adopted by the affirmative vote of a majority of the Whole Board of Directors. Such call shall state the purposes of the proposed meeting. Business transacted at any special meeting shall be limited to the general objectives stated in the call.

Section 2.3. Place of Special Meetings. Any special meeting of the stockholders properly called in accordance with Section 2.2 of these By-laws shall be held at such date, time and place, within or without the State of Delaware, as may be fixed by resolution of the Board of Directors from time to time.

Section 2.4. Notice of Meetings. A written notice of each annual or special meeting of stockholders shall be given stating the date, time and place of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the certificate of incorporation or these By-laws, such notice shall be given not less than ten nor more than 60 days before the date of the meeting, by or at the direction of the Board of Directors, the Chief Executive Officer, the Chairman or the President, to each stockholder of record entitled to vote at such meeting, personally, by mail or, to the extent and in the manner permitted by law, electronically. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the corporation.

Section 2.5. Fixing Record Date. In order that the corporation may determine the stockholders (i) entitled (A) to notice of or to vote at any meeting of stockholders or any adjournment thereof, (B) to receive payment of any dividend or other distribution or allotment of any rights, or (C) to exercise any rights in respect of any

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change, conversion or exchange of stock, or (ii) for the purpose of any other lawful action, the Board of Directors may fix a record date, which shall not be earlier than the date upon which the resolution fixing the record date is adopted by the Board of Directors and which (1) in the case of a determination of stockholders entitled to notice of or to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, be not more than 60 nor less than ten days before the date of such meeting; and (2) in the case of any other action, shall be not more than 60 days before such action.

If no record date is fixed, (i) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (ii) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting, but the Board of Directors may fix a new record date for the adjourned meeting.

Section 2.6. Voting List. The Secretary shall prepare, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least ten days prior to the meeting during ordinary business hours, at the principal place of business of the corporation. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present.

Section 2.7. Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified.

Section 2.8. Proxies. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy filed with the Secretary before or at the time of the meeting. No such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period.

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Section 2.9. Voting. When a quorum is present at any meeting of stockholders, the affirmative vote of the holders of a majority of the stock present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the statutes, the certificate of incorporation or these By-laws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Every stockholder having the right to vote shall be entitled to vote in person or by proxy. Every such stockholder shall have one vote for each share of stock having voting power registered in such stockholder’s name on the books of the corporation.

Section 2.10. Voting of Stock of Certain Holders. Shares of stock of the corporation standing in the name of another corporation, domestic or foreign, and entitled to vote may be voted by such officer, agent or proxy as the by-laws or other internal regulations of such corporation may prescribe or, in the absence of such provision, as the board of directors or comparable body of such corporation may determine. Shares of stock of the corporation standing in the name of a deceased person, a minor, an incompetent or a debtor in a case under Title 11, United States Code, and entitled to vote may be voted by an administrator, executor, guardian, conservator, debtor-in-possession or trustee, as the case may be, either in person or by proxy, without transfer of such shares into the name of the official or other person so voting. A stockholder whose shares of stock of the corporation are pledged shall be entitled to vote such shares, unless on the transfer records of the corporation, the pledgor has expressly empowered the pledgee to vote such shares, in which case only the pledgee, or the pledgee’s proxy, may vote such shares.

Section 2.11. Treasury Stock. Stock of the corporation belonging to the corporation, or to another corporation a majority of the shares entitled to vote in the election of directors of which are held by the corporation, shall not be voted at any meeting of stockholders and shall not be counted in the total number of outstanding shares for the purpose of determining whether a quorum is present. Nothing in this Section 2.11 shall limit the right of the corporation to vote shares of stock of the corporation held by it in a fiduciary capacity.

Section 2.12. Election of Directors. Except as otherwise provided pursuant to the certificate of incorporation relating to the rights of the holders of any one or more classes or series of Preferred Stock issued by the corporation, acting separately by class or series, each director shall be elected by the vote of the majority of the votes cast (meaning the number of shares voted “for” a nominee must exceed the number of shares voted “against” such nominee) at any meeting for the election of directors at which a quorum is present, provided that the directors shall be elected by a plurality of the votes cast (instead of by votes cast for or against a nominee) at any meeting at which a quorum is present for which (i) the Secretary of the Corporation receives a notice in compliance with the applicable requirements for stockholder nominations for director set forth in these Bylaws that a stockholder proposes to nominate a person for election to the Board of Directors and (ii) such proposed nomination has not been withdrawn by such stockholder on or prior to the tenth day preceding the date the corporation first mails its notice of meeting for such meeting to the stockholders.

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Section 2.13. Chairman of the Board of Directors. The director elected by the Board of Directors as its chairman (the “Chairman”), which position shall not be an officer of the corporation, shall preside at all meetings of stockholders.

ARTICLE III

Directors

Section 3.1. General Powers. The property and business of the corporation shall be managed by the Board of Directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these By-laws directed or required to be exercised or done by the stockholders.

Without limiting the generality of the foregoing, it shall be the responsibility of the Board of Directors to establish broad objectives and the general course of the business, determine basic policies, appraise the adequacy of overall results, and generally represent and further the interests of the corporation’s stockholders and insure the most effective use of the corporation’s assets.

Several examples of the responsibilities of the Board of Directors are as follows:

Establish broad corporation objectives and basic policies and maintain overall control of the business.

Make necessary revisions of the by-laws (in accordance with Article X).

Determine dividend action (in accordance with Article VIII).

Authorize necessary action with respect to issuance of new securities and listing securities for trading on exchanges.

Fix date, time and place of, and take other necessary action with respect to, meetings of stockholders (in accordance with Article II).

Approve issuance of stock certificates to replace those lost or destroyed (in accordance with Section 7.2).

Fill vacancies in the Board of Directors (in accordance with Sections 3.2 and 3.8).

Elect the officers of the corporation (in accordance with Section 4.2) and appraise their performance.

Determine the basic organization structure of the business.

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10.

Authorize any necessary action with respect to loans and pledging of assets (in accordance with Section 6.2).

11.

Designate officers authorized to buy or sell corporate investment securities.

12.

Designate persons authorized to execute contracts and other documents requiring signatures of officers or specific individuals (in accordance with Section 6.1).

13.

Select, or designate those authorized to select, depositaries for corporate funds and investment securities and designate check signatories and persons authorized to have access to safe deposit boxes (in accordance with Sections 6.3 and 6.4).

14.

Approve proposals to convey corporate-owned land or buildings or designate those authorized to take such action.

15.

Designate the person or persons authorized to appoint proxies to vote stock in subsidiary and other concerns in which the corporation has a significant interest and the person or persons authorized to determine who shall serve as Directors in representing the parent corporation in such concerns.

16.

Designate stock transfer agents, registrars, and paying agents with respect to corporate securities and other special purpose agents.

17.

Procure special professional services required by and for the Board.

18.

Provide for issuance of an annual report to stockholders and such other reports and notices as the Board deems advisable.

19.

Employ, upon recommendation of the Audit Committee, independent public accountants to audit the corporation’s financial statements.

20.

Review and approve new employee benefit plans and major revisions of employee stock incentive plans.

21.

Review and approve the actions of the Executive Committee as reported in the minutes of its meetings.

22.

Approve the annual operating budget.

23.

Review and approve the annual capital budget.

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24.

Direct the manner of handling matters outside the ordinary course of business of the corporation.

Section 3.2. Number, Election and Term. The number of Directors which shall constitute the Whole Board shall be fixed from time to time by a majority of the Whole Board, subject to the provisions of the certificate of incorporation.

The term of office of all Directors shall be a one year term, expiring at the Annual Meeting of Stockholders in each year. Each Director shall hold office until such Director’s successor shall be elected and shall qualify or until such Director’s earlier resignation or removal. Directors need not be residents of Delaware or stockholders.

“Whole Board” shall mean the total number of authorized directorships, whether or not there exist any vacancies or unfilled previously authorized directorships.

Section 3.3. Meetings. The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by or at the request of the Chief Executive Officer, Chairman, the President, or any two Directors. The Chairman shall preside at all meetings of the Board of Directors.

Section 3.4. Notice. Notice of any special meeting of the Board of Directors stating the place, date and time of the special meeting shall be given in writing to each Director, either personally, by mail or overnight courier, or by facsimile, telegram or cable or other means of electronic transmission, addressed to the Director’s residence or usual place of business, not less than two days before the date of such meeting, or by such other means, whether or not in writing, and within such lesser period, as circumstances require in the reasonable judgment of the person calling the meeting. If mailed or sent by overnight courier, such notice shall be deemed to be given at the time when it is deposited in the United States mail with first class postage prepaid or deposited with the overnight courier. Notice by telegram or cable shall be deemed given when the notice is delivered to the telegraph or cable company; notice by facsimile or other electronic transmission shall be deemed given when the notice is transmitted (except notice by email shall be deemed given only upon receipt). Any Director may waive notice of any meeting. The attendance of a Director at any meeting shall constitute a waiver of notice at such meeting, except where the Director attends the meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting, unless otherwise provided by statute, the certificate of incorporation or these By-Laws.

Section 3.5. Quorum. A majority of the Whole Board shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, provided, that if less than a majority of the Whole Board is present at said meeting, a majority of the Directors present may adjourn the meeting from time to time without further notice.

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Section 3.6. Manner of Acting. The act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.

Section 3.7. Use of Communications Equipment. Members of the Board of Directors, or any committee thereof, may participate in a meeting of the Board of Directors or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this section shall constitute presence in person at such meeting.

Section 3.8. Vacancies and Additional Directors. Any Director may resign at any time upon written notice to the corporation. If any vacancy occurs in the Board of Directors caused by death, resignation, retirement, disqualification or removal from office of any Director, or otherwise, or if any new directorship is created by any increase in the authorized number of Directors, a majority of the Directors then in office, though less than a quorum may choose a successor or fill the newly created directorship; and a Director so chosen shall hold office until the next annual election and until such Director’s successor shall be duly elected and shall qualify or until such Director’s earlier resignation or removal.

Section 3.9. Compensation. Unless otherwise restricted by the Certificate of Incorporation, the Board of Directors shall have the authority to fix the compensation of Directors. The Directors shall be paid their reasonable expenses, if any, of attendance at each meeting of the Board of Directors or a committee thereof and may be paid a fixed sum for attendance at each such meeting and an annual retainer or salary for services as a director or committee member. Directors who are full-time employees of the corporation shall not receive any compensation for their services as such. Nothing herein contained shall be construed to preclude any Director from serving the corporation in any other capacity and receiving compensation therefor.

Section 3.10. Executive Committee. The Board of Directors, by resolution adopted by a majority of the Whole Board, may designate not fewer than three nor more than seven Directors to constitute an Executive Committee. The Chief Executive Officer shall serve as the Chairman of the Executive Committee. The Executive Committee shall have and exercise all of the authority of the Board of Directors in the management of the corporation, except that such Committee shall not have the power to take specific actions which have been delegated to other committees of the Board and shall not be empowered to take action with respect to: declaring dividends; issuing bonds, debentures, or the borrowing of moneys except within limits expressly approved by the Board of Directors; amending by-laws; filling vacancies and newly created directorships in the Board of Directors; removing Directors of the corporation; mergers or consolidations; the sale, lease or exchange of all or substantially all of the assets of the corporation; dissolution; or any other action requiring the approval of stockholders. The designation of such Committee and the

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delegation thereto of authority shall not operate to relieve the Board of Directors or any member thereof of any responsibility imposed upon the Board or such member by law.

Section 3.11. Other Committees. The Board of Directors may designate two or more Directors to constitute committees (in addition to the Executive Committee provided for in Section 3.10 of these By-laws), including a Finance Committee, Human Resources Committee, Audit Committee and Corporate Responsibility and Governance Committee, which committees, to the extent permitted by law, shall have and exercise such authority as may be provided for in the resolutions creating such committee, as such resolutions may be amended from time to time.

Section 3.12. Nomination of Directors. Except as otherwise fixed pursuant to the certificate of incorporation relating to the rights of the holders of any one or more classes or series of Preferred Stock issued by the corporation, acting separately by class or series, to elect, under specified circumstances, Directors at a meeting of stockholders, nominations for the election of Directors may be made by the Board of Directors or a committee appointed by the Board of Directors pursuant to Section 3.11 or by any stockholder entitled to vote in the election of Directors generally. However, any stockholder entitled to vote in the election of Directors generally may nominate one or more persons for election as Directors at a meeting at which Directors are to be elected only if written notice of such stockholder’s intent to make such nomination or nominations has been delivered personally to, or been mailed to and received by, the Secretary of the corporation at the principal executive offices of the corporation in the City of Chicago, State of Illinois, not less than 60 days nor more than 90 days prior to the meeting; provided, however, that, in the event that less than 75 days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Each such notice shall set forth: (i) the name and record address of the stockholder who intends to make the nomination; (ii) the name, age, principal occupation or employment, business address and residence address of the person or persons to be nominated; (iii) the class and number of shares of stock held of record, owned beneficially and represented by proxy by such stockholder and by the person or persons to be nominated as of the record date for the meeting (if such date shall then have been made publicly available) and of the date of such notice; (iv) a representation that the stockholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (v) a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such stockholder; (vi) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed with the Securities and Exchange Commission pursuant to Section 14 of the Securities Exchange Act of 1934; and (vii) the consent of each nominee to serve as a Director of the corporation if so elected. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such

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proposed nominee to serve as a Director of the corporation. The person presiding at the annual meeting of stockholders shall, if the facts so warrant, determine that a nomination was not made in accordance with the provisions of this Section, and if such person should so determine, such person should so declare to the meeting and the defective nomination shall be disregarded. No person shall be eligible for election as a Director of the corporation unless nominated in accordance with the procedures set forth herein.

ARTICLE IV

Officers of the Corporation

Section 4.1. Officers and Number. The officers of the corporation shall be appointed or elected (a) in the manner set forth in this Article IV and in Article V hereof and (b) to the extent not so set forth, by the Board of Directors. The officers of the corporation shall be a Chief Executive Officer, a President, one or more Executive Vice Presidents, a Secretary, a Treasurer, a Controller and such other officers as the Board of Directors may from time to time determine. Any two or more offices may be held by the same person except the offices of President and Secretary. The Board of Directors may distinguish among officers bearing the same title by the addition of other designations, such as “Chief Financial Officer” or the like.

Section 4.2. Election and Term of Office. Each officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding such officer’s election, and until such officer’s successor is elected and qualified or until such officer’s earlier death, resignation or removal. Vacancies may be filled or new offices created and filled at any meeting of the Board of Directors.

Section 4.3. Removal. Any officer elected by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the corporation would be served thereby.

Section 4.4. Vacancies. Except as provided in Article V hereof, a vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors at any meeting of the Board of Directors.

Section 4.5. Salaries. No officer shall be prevented from receiving a salary for such officer’s services as an officer by reason of the fact that such officer is also a Director of the corporation.

Section 4.6. Chief Executive Officer. The Chief Executive Officer shall have overall supervision of, and responsibility for, the business, and shall direct the affairs and policies of the corporation. In the absence of the Chairman, the Chief Executive Officer shall preside at meetings of the stockholders and Board of Directors.

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Section 4.7. President. Subject to the supervision and direction of the Chief Executive Officer, the President shall have responsibility for such of the operations and other functions of the corporation as may be assigned to the President. The President shall perform such other duties and responsibilities as may be assigned to the President by the Chief Executive Officer.

Section 4.8. Vice Presidents. Any Vice President elected by the Board of Directors shall have such corporate powers, if any, as may be assigned to such Vice President from time to time by the Board of Directors, the Chief Executive Officer, or the President.

Section 4.9. Senior Vice Presidents. Any Senior Vice President elected by the Board of Directors shall have such corporate powers, if any, as may be assigned to such Senior Vice President by the Board of Directors, the Chief Executive Officer, or the President.

Section 4.10. Business Unit Presidents. Any Business Unit President elected by the Board of Directors shall have such corporate powers, if any, as may be assigned to such Business Unit President by the Board of Directors, the Chief Executive Officer, or the President.

Section 4.11. Executive Vice Presidents. The Board of Directors may designate as an Executive Vice President the officer to whom one or more other senior officers of the corporation reports.

Section 4.12. Order of Succession. Such of the Directors of the corporation as may be designated by resolution of the Board of Directors, and in the order of such designation, shall in the absence of the Chairman perform the duties of the Chairman and shall have all of the powers and shall be subject to any restrictions imposed upon the Chairman.

Such of the officers of the corporation as may be designated by resolution of the Board of Directors, and in the order of such designation, shall in the absence of the Chief Executive Officer, perform the duties of the Chief Executive Officer and when so acting shall have all the powers of and be subject to any restrictions imposed upon the Chief Executive Officer.

Such of the officers of the corporation as may be designated by resolution of the Board of Directors, and in the order of such designation, shall in the absence of the President perform the duties of the President and when so acting shall have all the powers of and be subject to any restrictions imposed upon the President.

Section 4.13. Secretary. The Secretary shall keep the minutes of all meetings of the stockholders and Board of Directors of the corporation, shall have charge of the corporate records and the corporate seal, and shall have the power to attach the seal to all instruments which shall require sealing after the same shall have been signed as authorized by the Board of Directors.

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Section 4.14. Treasurer. The Treasurer shall be responsible for the receipt, custody and disbursement of all funds of the corporation in the form of both cash and securities. The Treasurer may delegate the details of the office of Treasurer to someone else, but this shall nowise relieve the Treasurer of the responsibilities and liability of the office of Treasurer. The Treasurer shall have the power to attach the seal to all instruments which shall require sealing after the same shall have been signed as authorized by the Board of Directors.

Section 4.15. Controller. The Controller reports to the Chief Executive Officer directly or through such other management executives as the Chief Executive Officer may direct. The Controller, however, may directly submit any matter to the Board of Directors for its consideration. The Controller shall maintain adequate records of all assets, liabilities, and transactions of the corporation, and in conjunction with other officers and department heads, shall initiate and enforce measures and procedures whereby the business of the corporation shall be conducted with the maximum of safety, efficiency and economy.

ARTICLE V

Appointed Officers

The Chief Executive Officer may appoint any individual an officer having such title as the Chief Executive Officer shall deem appropriate, provided such officer is not an officer subject to Section 16 of the Exchange Act. Any such officer appointed by the Chief Executive Officer may be removed by the Chief Executive Officer whenever in the Chief Executive Officer’s judgment the best interests of the corporation would be served thereby. The term of office, compensation, powers and duties and other terms of employment of appointed officers shall be such as the Chief Executive Officer may from time to time deem proper, and the authority of such officers shall be limited to acts pertaining to the business of the unit, operation or function to which they are assigned.

ARTICLE VI

Contracts, Loans, Checks and Deposits

Section 6.1. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances.

Section 6.2. Loans. No loans shall be contracted on behalf of the corporation and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors (or a resolution of a committee of Directors pursuant to authority conferred upon that committee). Such authority may be general or confined to specific instances.

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Section 6.3. Checks, etc. All checks, demands, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers or such agent or agents of the corporation, and in such manner, as may be designated by the Board of Directors or by one or more officers of the corporation named by the Board of Directors for such purpose.

Section 6.4. Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies and other depositaries as the Board of Directors may select or as any one or more officers of the corporation named by the Board of Directors for such purpose may select.

ARTICLE VII

Certificates of Stock and Their Transfer

Section 7.1. Certificates of Stock. Certificates of stock of the corporation shall be in such form as may be determined by the Board of Directors, shall be numbered and shall be entered in the books of the corporation as they are issued. They shall exhibit the holder’s name and number of shares and shall be signed by the Chief Executive Officer, or President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer. If any stock certificate is signed manually (a) by a transfer agent other than the corporation or its employee or (b) by a registrar other than the corporation or its employee, any other signature on the certificate may be a facsimile.

In case any officer, transfer agent or registrar who has signed or whose facsimile has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the corporation with the same effect as if such officer, transfer agent or registrar continued to be such at the date of issue. All certificates properly surrendered to the corporation for transfer shall be cancelled and no new certificates shall be issued to evidence transferred shares until the former certificate for at least a like number of shares shall have been surrendered and cancelled and the corporation reimbursed for any applicable taxes on the transfer, except that in the case of a lost, destroyed or mutilated certificate, a new one may be issued therefor upon such terms, and with such indemnification (if any) to the corporation, as the Board of Directors may prescribe specifically or in general terms or by delegation to a transfer agent for the corporation. Certificates shall not be issued representing fractional shares of stock.

Section 7.2. Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance

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thereof, require the owner of such lost or destroyed certificates, or such owner’s legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed.

Section 7.3. Transfers. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Transfers of shares shall be made only on the books of the corporation by the registered holder thereof or by such holder’s attorney thereunto authorized by power of attorney and filed with the Secretary or transfer agent of the corporation.

Section 7.4. Registered Stockholders. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE VIII

Dividends

Section 8.1. Declaration. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation.

Section 8.2. Reserve. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or such other purposes as the Directors shall think conducive to the interest of the corporation, and the Directors may modify or abolish any such reserve in the manner in which it was created.

ARTICLE IX

Miscellaneous

Section 9.1. Fiscal Year. Unless otherwise fixed by the resolution of the Board of Directors, the fiscal year of the corporation shall be the calendar year.

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Section 9.2. Seal. The corporate seal shall have inscribed thereon the name of the corporation and the words “Corporate Seal, Delaware.” The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced.

Section 9.3. Books. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at the principal executive offices of the corporation in the City of Chicago, State of Illinois, or at such other place or places as may be designated from time to time by the Board of Directors.

ARTICLE X

Amendment

These By-laws may be altered, amended or repealed at any regular meeting of the Board of Directors or at any special meeting of the Board of Directors if notice of such alteration, amendment or repeal be contained in the notice of such special meeting, provided that no amendment of these By-laws shall conflict with the provisions of the Certificate of Incorporation, whether relating to the number of Directors which shall constitute the Whole Board or otherwise.

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EX-10.26 3 dex1026.htm AMENDED AND RESTATED EMPLOYMENT AGREEMENT Amended and Restated Employment Agreement

Exhibit 10.26

October 29, 2007

Suzanne Bettman

[address]

Dear Sue:

In recognition of your importance to R.R. Donnelley & Sons Company, its officers, directors, subsidiaries, affiliates, and successors, including but not limited to Moore Wallace North America, Inc. (“Donnelley” or “Company”) and to further the Company’s interests, we are pleased to offer you a new employment letter (“Agreement”). The purpose of this Agreement is to amend and restate in its entirety the Employment Agreement between you and Moore Wallace Incorporated dated January 27, 2004. All capitalized terms used but not defined in the text of this Agreement shall have the meanings assigned to such terms in Annex A.

The terms of this Agreement are as follows:

Title and Responsibilities. You will continue to serve as Executive Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer of the Company, reporting to the Chief Executive Officer, 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. You will have the customary duties, responsibilities and authorities of such position. You will also receive such office, staffing and other assistance as is commensurate with that received by other executives at your level in the Company.

Employment at Will. You and we hereby acknowledge that your employment with the Company constitutes “at-will” employment and that either party may terminate your employment at any time upon written notice of termination within a reasonable period of time before the effective date of the termination.

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

Base Salary. The Company will pay you a base salary (“Base Salary”) at the rate of $400,000 per year. This Base Salary will be paid in accordance with the normal payroll practices of the Company.

target bonus opportunity of 150% of Base Salary. The performance objectives for your Annual Bonus with respect to each calendar year will be determined as provided for in the Plan.

Vacation. You will be eligible for four weeks vacation annually.

Benefits. You will continue to be eligible to participate in the employee benefit plan and programs generally applicable to RR Donnelley employees.

Car Allowance. You will receive a car allowance in the amount of $1,000 per month.

Financial Planning, Supplemental Life and Disability. You will be entitled to a Financial Planning allowance, and Supplemental Life and Disability Insurance consistent with other executives at your level in the Company.

Severance. If the Company terminates your employment without Cause, or you terminate your employment for Good Reason, the following will apply:

Severance Pay. The Company will pay you an amount equal to one and one-half times your Annualized Total Compensation (“Severance Pay”), subject to the execution by you of the Company’s customary release, which amount shall be payable in equal installments on the 15^th and last days of each of the 18 months following your Separation Date (if the 15^th or last day of a month is not a business day, on the closest business day to such).

Benefits. The Company will provide to you a continuation of all benefits that you were eligible to receive immediately prior to the Separation Date, for a period of 18 months following the Separation Date.

Resignations. You shall resign from such offices and directorships, if any, of the Company that you may hold from time to time.

Indemnification. Your rights of indemnification under the Company’s 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 of the Company shall survive any termination of your employment.

Gross-up Payment. You will be entitled to receive a gross-up payment as provided in Annex B.

Vesting of Equity Grants. Any outstanding stock options, grants, restricted stock awards or other equity grants issued to you from time to time, will vest 100% immediately as of the Separation Date.

Section 409A. If you are considered a “specified employee” by the Committee on your Separation Date, then any amounts payable pursuant to this Agreement or otherwise that (i) become payable as a result of your Separation from Service and (ii) are subject to section 409A of the Code as a result of your Separation from Service (“Section 409A Severance”), shall not be paid until the earlier of (x) six months and two days after your Separation Date or (y) your death, unless such an amount may be paid earlier pursuant to final regulations or other ruling or pronouncement of the U.S. Department of Treasury or Internal Revenue Service. Notwithstanding the immediately preceding sentence, your Section 409A Severance not in excess of $400,000 shall not be subject to the six-month delay in payment.

Restrictive Covenants. You and Donnelley recognize that due to the nature of your employment and relationship with Donnelley, you will have access to and develop confidential business information, proprietary information, and trade secrets relating to the business and operations of Donnelley and its affiliates. You acknowledge that such information is valuable to the business of Donnelley and its affiliates, and that disclosure to, or use for the benefit of, any person or entity other than Donnelley or its affiliates, would cause substantial damage to Donnelley. You further acknowledge that your duties for Donnelley include the opportunity to develop and maintain relationships with Donnelley customers, employees, representatives and agents on behalf of Donnelley; and that access to and development of those close relationships with Donnelley customers render your services special, unique and extraordinary. In recognition that the good will and relationships described herein are assets and extremely valuable to Donnelley, and that loss of or damage to those relationships would destroy or diminish the value of Donnelley, you agree as follows:

Noncompetition. In consideration of the covenants and agreements of the Company herein contained, the payments to be made by the Company pursuant to this Agreement, the positions of trust and confidence you occupy and have occupied with the Company and the information of a highly sensitive and confidential nature obtained as a result of such positions, you agree that, from the date of your separation for any reason, including termination by Donnelley with or without Cause, and for 18 months thereafter, you will not, directly or indirectly, either as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director or in any other individual or representative capacity, worldwide, engage in any business which is competitive with the business of Donnelley. You may, however, own stock or the rights to own stock in a company covered by this paragraph that is publicly owned and regularly traded on any national exchange or in the over-the-counter market, so long as your holdings of stock or rights to own stock do not exceed the lesser of (i) 1% of the capital stock entitled to vote in the election of directors or (ii) the combined value of the stock or rights to acquire stock does not exceed your gross annual earnings from the Company.

Importance of Customer Relationships. You recognize that Donnelley’s relationship with the customer or customers you serve, and with other employees, is special and unique, based upon the development and maintenance of good will resulting from the customers’ and other employees’ contacts with Donnelley and its employees, including you. As a result of your position and customer contacts, you recognize that you will gain valuable information about (i) Donnelley’s relationship with its customers, their buying habits, special needs, purchasing policies, (ii) the skills, capabilities and other employment-related information about Donnelley employees, and (iii) other matters which you would not otherwise know and which is not otherwise readily available. Such knowledge is essential to the business of Donnelley and you recognize that if your employment terminates, Donnelley will be required to rebuild that customer relationship to retain the customer’s business. You recognize that during a period following termination of your employment, Donnelley is entitled to protection from your using the information and customer and employee relationships with which you have been entrusted by Donnelley during your employment.

Nonsolicitation of Customers. You shall not, while employed by Donnelley and for a period of 18 months from the date of termination of your employment with Donnelley for any reason, including termination by Donnelley with or without Cause, directly or indirectly, either on your own behalf or on behalf of any other person, firm or entity, solicit or provide services which are the same as or similar to the services Donnelley provided or offered while you were employed by Donnelley to any customer or prospective customer of Donnelley (i) with whom you had direct contact in the course of your employment with Donnelley or about whom you learned confidential information as a result of your employment with Donnelley or (ii) with whom any person over whom you had supervisory authority at any time had direct contact during the course of his or her employment with Donnelley or about whom such person learned confidential information as a result of his or her employment with Donnelley.

Nonsolicitation of Employees. You shall not while employed by Donnelley and for a period of two years from the date of termination of my employment with Donnelley for any reason, including termination by Donnelley with or without Cause, either directly or indirectly solicit, induce or encourage any Donnelley employee(s) to terminate their employment with Donnelley or to accept employment with any entity, including but not limited to a competitor, supplier or customer of Donnelley, nor shall you 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, (a) initiating communications with a Donnelley employee relating to possible employment, (b) offering bonuses or additional compensation to encourage

Donnelley employees to terminate their employment with Donnelley and accept employment with a competitor, supplier or customer of Donnelley, or (c) referring Donnelley employees to personnel or agents employed by competitors, suppliers or customers of Donnelley.

Confidential Information. You are prohibited from, at any time during your employment with the Company or thereafter, disclosing or using any Confidential Information for your benefit or any other person or entity, unless directed or authorized in writing by the Company to do so, until such time as the information becomes generally known to the public without your fault. “Confidential Information” means information (i) disclosed to or known by you as a consequence of your employment with the Company, (ii) not generally known to others outside the Company, and (iii) that relates to the Company’s marketing, sales, finances, operations, processes, methods, techniques, devices, software programs, projections, strategies and plans, personnel information, industry contacts made during your employment, and customer information, including customer needs, contacts, particular projects, and pricing. These restrictions are in addition to any confidentiality restrictions in any other agreement you may have signed with the Company.

Obligation upon Subsequent Employment. If you accept employment with any future employer during the time period that equals the greater of one year following the date of termination and the Severance Period (regardless of whether you actually receive severance benefits during that period), you will deliver a copy of this Agreement to such employer and advise such employer concerning the existence of your obligations under this Agreement.

Company’s Right to Injunctive Relief. By execution of this Agreement, you acknowledge and agree that the Company would be damaged irreparably if any provision under this Section 5 were breached by you and money damages would be an inadequate remedy for any such nonperformance or breach. Accordingly, the Company and its successors or permitted assigns in order to protect its interests, shall pursue, in addition to other rights and remedies existing in its favor, an injunction or injunctions to prevent any breach or threatened breach of any of such provisions and to enforce such provisions specifically (without posting a bond or other security). With respect to such enforcement, the prevailing party in such litigation shall be entitled to recover from the other party any and all attorneys’ fees, costs and expenses incurred by or on behalf of that party in enforcing or attempting to enforce any provision under this Section 5 or any other rights under this Agreement.

General

Acknowledgement of Reasonableness and Severability. You acknowledge and agree that the provisions of this Agreement, including Section 5, are

reasonable and valid in geographic, temporal and subject matter scope and in all other respects, and do not impose limitations greater than are necessary to protect the goodwill, Confidential Information and other business interests of the Company. If any court subsequently determines that any part of this Agreement, including Section 5, is invalid or unenforceable, the remainder of the Agreement shall not be affected and shall be given full effect without regard to the invalid portions. Further, any court invalidating any provision of this Agreement shall have the power to revise the invalidated provisions such that the provision is enforceable to the maximum extent permitted by applicable law.

Non-duplication of Severance Pay. If, upon ultimate termination of employment, the separation pay for which you would be eligible under the R.R. Donnelley & Sons Company Separation Pay Plan applicable to employees generally, if any, would be greater than the separation pay payable under to this Agreement, then your Severance Pay shall be increased to correspond to the pay you would have been eligible for under such Plan. To avoid duplicate payments, if you are eligible to receive severance under this Agreement, you hereby waive any payments under the R.R. Donnelley & Sons Company Separation Pay Plan.

Employee Breach. If you breach this Agreement or any other agreement you have signed with the Company, the Company may, in its complete discretion, stop making any of the payments provided for in this Agreement.

Arbitration. Any controversy 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, New York, in accordance with the rules of JAMS; provided, however, that either party may seek preliminary injunctive relief to maintain or restore the status quo pending a decision of the arbitrator, and the parties consent to the exclusive jurisdiction of the courts of the State of Delaware or the Federal courts of the United States of America located in the District of Delaware in connection therewith. 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.

Governing Law. All disputes arising under or related to this Agreement shall at all times be governed by and construed in accordance with the internal laws (as opposed to the conflict of law provisions) and decisions of the State of Delaware as applied to agreements executed in and to be fully performed within that State.

Notice and Execution. This Agreement may be executed in counterparts. Any notice or request required or permitted to be given hereunder shall be sufficient if in writing and deemed to have been given if delivered personally or sent by certified mail, return receipt requested, to you at the address above, and to the Company at its Corporate Headquarters (Attn: Corporate Secretary).

Entire Agreement. This Agreement shall constitute the entire agreement between the parties with respect to the subject matter contained herein, and fully supersedes any prior agreements or understandings between us. This Agreement may not be changed or amended orally, but only in writing signed by both parties.

Waiver. The failure of either party hereto to enforce at any time any provision of this Agreement shall not be construed as a waiver of such provision nor in any way to affect the validity of this Agreement or any part hereof or the right of such party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach.

Assignments and Successors. The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon its successors and assigns. Your rights and obligations under this Agreement shall inure to the benefit of and be binding upon your designated beneficiary or legal representative, provided, however, that you may not assign any of your rights and obligations hereunder.

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 Andrew Panega, Chief Human Resources Officer.


Very truly yours,

R. R. Donnelley & Sons Company

By:		/s/ Thomas J. Quinlan, III
		Thomas J. Quinlan, III
		President & Chief Executive Officer

ACCEPTED AND AGREED to this 29th day of October, 2007

/s/ Suzanne S. Bettman

Suzanne S. Bettman

Annex A

Definitions

“Annualized Total Compensation” means Base Salary plus Annual Bonus (at the target level) for one year at the rate in effect immediately before the Termination Date, but, for these calculations only, your Base Salary and target bonus percentage shall not be less than the amount set forth in Section 3, above

“Cause” means (i) your willful and continued failure to perform substantially your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such failure subsequent to you being delivered a notice of termination without Cause by the Company) after a written demand for substantial performance is delivered to employee by the Chief Executive Officer or the Board that specifically identifies the manner in which the Chief Executive Officer or the Board believes that you have not substantially performed your duties, (ii) the willful engaging by you in conduct which is demonstrably and materially injurious (monetarily or otherwise) to the business, reputation, character or community standing of 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 Chief Executive Officer or the Board (provided that such written direction is consistent with your 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 you shall be considered “willful” unless done or omitted to be done by you in bad faith and without reasonable belief that your 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 the Company’s principal outside counsel shall be conclusively presumed to be done, or omitted to be done, by you in good faith and in the best interests of the Company. Notwithstanding the foregoing, the Company shall provide you a reasonable amount of time, after a notice and demand for substantial performance is delivered to the employee, to cure any such failure to perform, and if such failure is so cured within a reasonable time thereafter, such failure shall not be deemed to have occurred.

3.	“Committee” means a committee designated by the Chief Human Resources Officer of the Company.

4.	“Good Reason” means, without your express written consent, the occurrence of any of the following events after the Closing Date:

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

A reduction by the Company in your 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;

Any requirement of the Company that your office be more than seventy-five (75) miles from Chicago, Illinois; and

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 you. Your right to terminate employment for Good Reason shall not be affected by your incapacities due to mental or physical illness and your 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 you must provide notice of termination of employment within ninety (90) days following your knowledge of an event constituting Good Reason or such event shall not constitute Good Reason under this Agreement.

5.	“Separation Date” means the date of your Separation from Service.

6.	“Separation from Service” means any separation from employment with the Company within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, as determined by the Committee.

7.	“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 an arrangement, amalgamation, 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 (D) 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. In addition, notwithstanding the foregoing, the consummation of (or any other action pursuant to the consummation of) the transaction contemplated by the Combination Agreement shall not be a Change in Control.

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 employee (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 employee 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 employee an additional payment (a “Gross-Up Payment”) in an amount such that after payment by employee of all taxes (including any Excise Tax) imposed upon the Gross-Up Payment, employee 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 employee 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 employee 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 employee under this Agreement shall be reduced (but not below zero) to the maximum amount that could be paid to employee without giving rise to the Excise Tax (the “Safe Harbor Cap”), and no Gross-Up Payment shall be made to employee. 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 employee. 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 employee within fifteen (15) business days of the receipt of notice from the Company or the employee 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, employee 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 reasonably 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 employee, it shall furnish employee with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on employee’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 employee with a written opinion to such effect. The Determination by the Accounting Firm shall be binding upon the Company and employee, except as provided below. 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 employee 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 employee. In the event the amount of the Gross-up Payment exceeds the amount necessary to reimburse the employee 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 employee (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. Employee 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 employee 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 employee 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-10.27 4 dex1027.htm AMENDED AND RESTATED EMPLOYMENT AGREEMENT Amended and Restated Employment Agreement

Exhibit 10.27

October 29, 2007

Miles W. McHugh

[address]

Dear Miles:

In recognition of your importance to R.R. Donnelley & Sons Company, its officers, directors, subsidiaries, affiliates, and successors, including but not limited to Moore Wallace North America, Inc. (“Donnelley” or “Company”) and to further the Company’s interests, we are pleased to offer you a new employment letter (“Agreement”). The purpose of this Agreement is to amend and restate in its entirety the Employment Agreement between you and Donnelley dated February 5, 2007. All capitalized terms used but not defined in the text of this Agreement shall have the meanings assigned to such terms in Annex A.

The terms of this Agreement are as follows:

Title and Responsibilities. You are currently Senior Vice President, Controller and, effective as of the date hereof, you shall serve as Executive Vice President, Chief Financial Officer, 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. You will have the customary duties, responsibilities and authorities of such position. You will also receive such office, staffing and other assistance as is commensurate with that received by other executives at your level in the Company.

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

Base Salary. The Company will pay you a base salary (“Base Salary”) at the rate of $450,000 per year. This Base Salary will be paid in accordance with the normal payroll practices of the Company.

Annual Bonus. In respect of each calendar year of the Company, you will be eligible to receive an annual bonus (the “Annual Bonus”) in accordance with the Company’s annual incentive compensation plan (“Plan”) with a target bonus opportunity of 150% of Base Salary. The performance objectives for your Annual Bonus with respect to each calendar year will be determined as provided for in the Plan.

Vacation. You will be eligible for four weeks vacation annually.

Benefits. You will continue to be eligible to participate in the employee benefit plan and programs generally applicable to RR Donnelley employees.

Car Allowance. You will receive a car allowance in the amount of $1,400 per month.

Financial Planning, Supplemental Life and Disability. You will be entitled to a Financial Planning allowance, and Supplemental Executive Life and Supplemental Executive Disability Insurance consistent with other executives at your level in the Company.

Severance. If the Company terminates your employment without Cause or you terminate your employment for Good Reason, the following will apply:

Benefits. Your medical, dental and vision insurance coverage in effect immediately before your Separation Date will continue to be available to you under the group health plan continuation coverage laws (“COBRA”) for a period of 18 months following your Termination Date (the “COBRA Period”). If you elect COBRA coverage, it will be available to you for the 18-month COBRA Period at the same cost your insurance coverage is available to active employees. Your short-term and long-term disability, group life insurance and accidental death and dismemberment insurance, Supplemental Executive Life Insurance and Supplemental Executive Disability Insurance end on your Termination Date.

Resignations. You shall resign from such offices and directorships, if any, of the Company that you may hold from time to time.

Gross-up Payment. You will be entitled to receive a gross-up payment as provided in Annex B.

Vesting of Equity Grants. Any outstanding stock options, grants, restricted stock awards or other equity grants issued to you from time to time, will vest 100% immediately as of the Separation Date.

Donnelley. You may, however, own stock or the rights to own stock in a company covered by this paragraph that is publicly owned and regularly traded on any national exchange or in the over-the-counter market, so long as your holdings of stock or rights to own stock do not exceed the lesser of (i) 1% of the capital stock entitled to vote in the election of directors or (ii) the combined value of the stock or rights to acquire stock does not exceed your gross annual earnings from the Company.

Nonsolicitation of Employees. You shall not while employed by Donnelley and for a period of two years from the date of termination of your employment with Donnelley for any reason, including termination by Donnelley with or without Cause, either directly or indirectly solicit, induce

or encourage any Donnelley employee(s) to terminate their employment with Donnelley or to accept employment with any entity, including but not limited to a competitor, supplier or customer of Donnelley, nor shall you 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, (a) initiating communications with a Donnelley employee relating to possible employment, (b) offering bonuses or additional compensation to encourage Donnelley employees to terminate their employment with Donnelley and accept employment with a competitor, supplier or customer of Donnelley, or (c) referring Donnelley employees to personnel or agents employed by competitors, suppliers or customers of Donnelley.

General

Acknowledgement of Reasonableness and Severability. You acknowledge and agree that the provisions of this Agreement, including Section 5, are reasonable and valid in geographic, temporal and subject matter scope and in all other respects, and do not impose limitations greater than are necessary to protect the goodwill, Confidential Information and other business interests of the Company. If any court subsequently determines that any part of this Agreement, including Section 5, is invalid or unenforceable, the remainder of the Agreement shall not be affected and shall be given full effect without regard to the invalid portions. Further, any court invalidating any provision of this Agreement shall have the power to revise the invalidated provisions such that the provision is enforceable to the maximum extent permitted by applicable law.


Very truly yours,

R. R. Donnelley & Sons Company

By:		/s/ Thomas J. Quinlan, III
		Thomas J. Quinlan, III
		President & Chief Executive Officer

ACCEPTED AND AGREED to this 29th day of October, 2007

/s/ Miles W. McHugh
Miles W. McHugh

Annex A

Definitions

“Cause” means (i) your willful and continued failure to perform substantially your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such failure subsequent to your being delivered a notice of termination without Cause) after a written demand for substantial performance is delivered to you by the Chief Executive Officer or the Board that identifies the manner in which you have not performed your duties, (ii) your willful engaging in conduct which is demonstrably and materially injurious (monetarily or otherwise) to the business, reputation, character or community standing of the Company, (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) a refusal or failure to attempt in good faith to follow the written direction of the Chief Executive Officer or the Board (provided that such written direction is consistent with your 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 the purposes of this definition, no act or failure to act by you shall be considered “willful” unless done or omitted to be done by you in bad faith and without reasonable belief that your action or omission was in the best interests of the Company. 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 the Company’s principal outside counsel shall be conclusively presumed to be done, or omitted to be done, by you in good faith and in the best interests of the Company. Notwithstanding the foregoing, the Company shall provide you with a reasonable amount of time, after a notice and demand for substantial performance is delivered to you, to cure any such failure to perform, and if such failure is so cured within a reasonable time thereafter, such failure shall not be deemed to have occurred.

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

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;

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”);

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

4.	“Committee” means a committee designated by the Chief Human Resources Officer of the Company.

5.	“Good Reason” means, without your express written consent, the occurrence of any of the following events after the Closing Date:

Any requirement of the Company that your office be more than seventy-five (75) miles from Chicago, Illinois; and

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 employee. Your right to terminate employment for Good Reason shall not be affected by your incapacities due to mental or physical illness and your 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 you must provide notice of termination of employment within ninety (90) days following your knowledge of an event constituting Good Reason or such event shall not constitute Good Reason under this Agreement.

6.	“Separation Date” means the date of your Separation from Service.

7.	“Separation from Service” means any separation from employment with the Company within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, as determined by the Committee.

Annex B

Gross-Up Payments

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 employee (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 employee 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 employee an additional payment (a “Gross-Up Payment”) in an amount such that after payment by employee of all taxes (including any Excise Tax) imposed upon the Gross-Up Payment, employee 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 employee 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 employee 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 employee under this Agreement shall be reduced (but not below zero) to the maximum amount that could be paid to employee without giving rise to the Excise Tax (the “Safe Harbor Cap”), and no Gross-Up Payment shall be made to employee. 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 employee. 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.

Subject to the provisions of paragraph (1) 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 employee within fifteen (15) business days of the receipt of notice from the Company or the employee 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, employee 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 reasonably 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 employee, it shall furnish employee with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on employee’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 employee with a written opinion to such effect. The Determination by the Accounting Firm shall be binding upon the Company and employee, except as provided below. 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 employee 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 employee. In the event the amount of the Gross-up Payment exceeds the amount necessary to reimburse the employee 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 employee (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. Employee 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 employee 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 employee 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 5 dex311.htm CERTIFICATION BY CEO Certification by CEO

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: October 30, 2007

/s/ THOMAS J. QUINLAN, III

Thomas J. Quinlan, III

Chief Executive Officer

EX-31.2 6 dex312.htm CERTIFICATION BY CFO Certification by CFO

EXHIBIT 31.2

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

of the Securities Exchange Act of 1934

I, Miles W. McHugh, 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: October 30, 2007

/s/ MILES W. MCHUGH

Miles W. McHugh

Chief Financial Officer

EX-32.1 7 dex321.htm CERTIFICATION BY CEO Certification by CEO

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 September 30, 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

October 30, 2007

Thomas J. Quinlan, III

Chief Executive Officer

EX-32.2 8 dex322.htm CERTIFICATION BY CFO Certification by CFO

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 September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Miles W. McHugh, 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/ MILES W. MCHUGH

October 30, 2007

Miles W. McHugh

Chief Financial Officer

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