RR Donnelley & Sons Co (Form: 10-Q, Received: 07/30/2013 17:01:56)

Large Accelerated filer

Accelerated filer

Non-Accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

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 June 30, 2013

¨	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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

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

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 July 26, 2013, 181.7 million shares of common stock were outstanding.

R.R. DONNELLEY & SONS COMPANY

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2013

TABLE OF CONTENTS

		Page
	PART I
FINANCIAL INFORMATION		3

Item 1:	Condensed Consolidated Financial Statements (unaudited)	3

	Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012	3

	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012	4

	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2013 and 2012	5

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3:	Quantitative and Qualitative Disclosures About Market Risk	46

Item 4:	Controls and Procedures	46

	PART II

OTHER INFORMATION

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 4:	Mine Safety Disclosures	47

Item 6:	Exhibits	47

Signatures		50

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

(UNAUDITED)

	June 30, 2013			December 31, 2012
ASSETS

Cash and cash equivalents	$	354.4		$	430.7
Receivables, less allowances for doubtful accounts of $ 50.0 in 2013 (2012—$49.6)		1,804.7			1,878.8
Inventories (Note 3)		493.3			510.2
Prepaid expenses and other current assets		155.0			157.7
Total current assets		2,807.4			2,977.4
Property, plant and equipment-net (Note 4)		1,487.6			1,616.6
Goodwill (Note 5)		1,432.7			1,436.4
Other intangible assets-net (Note 5)		349.6			382.9
Deferred income taxes		448.2			445.1
Other noncurrent assets		376.1			404.3
Total assets	$	6,901.6		$	7,262.7
LIABILITIES

Accounts payable	$	961.1		$	1,210.3
Accrued liabilities		695.4			825.2
Short-term and current portion of long-term debt (Note 14)		277.6			18.4
Total current liabilities		1,934.1			2,053.9
Long-term debt (Note 14)		3,237.7			3,420.2
Pension liabilities		1,104.3			1,150.5
Other postretirement benefits plan liabilities		240.3			241.7
Other noncurrent liabilities		330.1			327.7
Total liabilities		6,846.5			7,194.0
Commitments and Contingencies (Note 13)
EQUITY (Note 9)
RR Donnelley 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 2013 and 2012		303.7			303.7
Additional paid-in-capital		2,795.0			2,839.4
Accumulated deficit		(497.6	)		(496.1	)
Accumulated other comprehensive loss		(1,044.0	)		(1,029.2	)
Treasury stock, at cost, 61.3 shares in 2013 (2012 – 62.6 shares)		(1,516.2	)		(1,565.0	)
Total RR Donnelley shareholders’ equity		40.9			52.8
Noncontrolling interests		14.2			15.9
Total equity		55.1			68.7
Total liabilities and equity	$	6,901.6		$	7,262.7

(See Notes to Condensed Consolidated Financial Statements)

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions)

(UNAUDITED)

		Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013			2012
Products net sales	$	2,135.0	$	2,189.7	$	4,264.7		$	4,386.2
Services net sales		436.6		338.9		845.4			667.3
Total net sales		2,571.6		2,528.6		5,110.1			5,053.5

Products cost of sales (exclusive of depreciation and amortization)		1,641.7		1,689.6		3,310.0			3,392.5
Services cost of sales (exclusive of depreciation and amortization)		331.7		244.3		643.6			486.4
Total cost of sales		1,973.4		1,933.9		3,953.6			3,878.9

Products gross profit		493.3		500.1		954.7			993.7
Services gross profit		104.9		94.6		201.8			180.9
Total gross profit		598.2		594.7		1,156.5			1,174.6
Selling, general and administrative expenses (exclusive of depreciation and amortization)		294.2		275.9		576.4			559.4
Restructuring and impairment charges-net (Note 6)		19.8		34.0		42.5			84.0
Depreciation and amortization		111.0		120.9		224.6			245.9
Income from operations		173.2		163.9		313.0			285.3
Interest expense-net		65.5		63.6		128.3			124.3
Investment and other expense-net		6.0		4.8		9.5			3.6
Loss on debt extinguishment		—		—		35.6			12.1
Earnings before income taxes		101.7		95.5		139.6			145.3
Income tax expense		35.2		6.5		47.8			18.4
Net earnings		66.5		89.0		91.8			126.9
Less: Income (loss) attributable to noncontrolling interests		1.1		0.2		(0.7	)		0.7
Net earnings attributable to RR Donnelley common shareholders	$	65.4	$	88.8	$	92.5		$	126.2

Net earnings per share attributable to RR Donnelley common shareholders (Note 10):

Basic net earnings per share	$	0.36	$	0.49	$	0.51		$	0.70
Diluted net earnings per share	$	0.36	$	0.49	$	0.51		$	0.69

Dividends declared per common share	$	0.26	$	0.26	$	0.52		$	0.52

Weighted average number of common shares outstanding:
Basic		182.0		180.7		181.6			180.1
Diluted		183.2		181.8		183.1			181.9

(See Notes to Condensed Consolidated Financial Statements)

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(UNAUDITED)

		Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Net earnings	$	66.5		$	89.0		$	91.8		$	126.9

Other comprehensive loss, net of tax (Note 11):
Translation adjustments		(25.8	)		(61.6	)		(18.7	)		(19.8	)
Adjustment for net periodic pension and other postretirement benefits plan cost		4.8			0.8			3.9			1.5
Change in fair value of derivatives		—			0.1			0.1			0.4
Other comprehensive loss		(21.0	)		(60.7	)		(14.7	)		(17.9	)
Comprehensive income		45.5			28.3			77.1			109.0
Less: comprehensive income (loss) attributable to noncontrolling interests		1.2			0.1			(0.6	)		0.7

Comprehensive income attributable to RR Donnelley common shareholders	$	44.3		$	28.2		$	77.7		$	108.3

(See Notes to Condensed Consolidated Financial Statements)

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(UNAUDITED)

	Six Months Ended June 30,
	2013			2012
OPERATING ACTIVITIES
Net earnings	$	91.8		$	126.9
Adjustments to reconcile net earnings to net cash provided by operating activities:
Impairment charges		7.8			18.0
Depreciation and amortization		224.6			245.9
Provision for doubtful accounts receivable		4.7			2.4
Share-based compensation		11.1			14.8
Deferred income taxes		(11.3	)		11.5
Changes in uncertain tax positions		4.3			(23.9	)
Loss on investments and other assets—net		3.3			3.9
Loss related to Venezuela currency devaluation		3.2			—
Loss on debt extinguishment		35.6			12.1
Net pension and other postretirement benefits plan income		(9.3	)		(23.7	)
Other		14.1			18.6
Changes in operating assets and liabilities—net of acquisitions:
Accounts receivable—net		45.6			(110.0	)
Inventories		12.7			3.7
Prepaid expenses and other current assets		(6.1	)		(2.3	)
Accounts payable		(236.9	)		(112.5	)
Income taxes payable and receivable		(9.4	)		(5.7	)
Accrued liabilities and other		(113.2	)		(113.2	)
Pension and other postretirement benefits plan contributions		(14.7	)		(56.6	)
Net cash provided by operating activities		57.9			9.9
INVESTING ACTIVITIES
Capital expenditures		(84.3	)		(93.7	)
Acquisitions of businesses, net of cash acquired		0.3			0.5
Proceeds from return of capital and sale of investments and other assets		2.2			5.9
Other investing activities		3.2			(2.6	)
Net cash used in investing activities		(78.6	)		(89.9	)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt		447.8			450.0
Net change in short-term debt		2.4			(0.6	)
Payments of current maturities and long-term debt		(386.8	)		(621.7	)
Net proceeds from credit facility borrowings		—			260.0
Debt issuance costs		(8.2	)		(7.5	)
Dividends paid		(94.0	)		(93.3	)
Other financing activities		(6.1	)		14.7
Net cash provided by (used in) financing activities		(44.9	)		1.6
Effect of exchange rate on cash and cash equivalents		(10.7	)		(2.3	)
Net decrease in cash and cash equivalents		(76.3	)		(80.7	)
Cash and cash equivalents at beginning of year		430.7			449.7
Cash and cash equivalents at end of period	$	354.4		$	369.0

(See Notes to Condensed Consolidated Financial Statements)

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(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, as well as an other than normal adjustment as described in the paragraph below, that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods and 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, 2012 filed with the SEC on February 26, 2013. Operating results for the three and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2013. 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.

During the first quarter of 2012, the Company identified and recognized $19.8 million to correct an over-accrual for rebates owed to certain office products customers, which understated accounts receivable and net sales during the years 2008 through 2011. Following qualitative and quantitative review, the Company concluded that the over-accrual was not material to any prior period or to the full year 2012 or the trend of annual operating results.

2. Acquisitions

For the three and six months ended June 30, 2013, the Company recorded $0.1 million and $1.1 million of acquisition-related expenses, respectively, associated with contemplated acquisitions within selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

2012 Acquisitions

On December 28, 2012, the Company acquired Presort Solutions (“Presort”), a provider of mail presorting services to businesses in various industries. The acquisition of Presort expanded the range of logistics co-mailing capabilities that the Company can provide to its customers and enhanced its integrated offerings. The purchase price for Presort was $11.9 million, net of cash acquired of $0.8 million.

On December 17, 2012, the Company acquired Meisel Photographic Corporation (“Meisel”), a provider of custom designed visual graphics products to the retail market. The acquisition of Meisel expanded and enhanced the range of services the Company offers to its customers. The purchase price for Meisel was $25.4 million, net of cash acquired of $1.0 million.

On September 6, 2012, the Company acquired Express Postal Options International (“XPO”), a provider of international outbound mailing services to pharmaceutical, e-commerce, financial services, information technology, catalog, direct mail and other businesses. The acquisition of XPO expanded the range of logistics capabilities that the Company can provide to its customers and enhanced its integrated offerings. The purchase price for XPO, which included the Company’s estimate of contingent consideration, was $23.4 million, net of cash acquired of $1.0 million. The former owners of XPO may receive contingent consideration in the form of cash payments of up to $4.0 million subject to XPO achieving certain gross profit targets. As of the acquisition date, the Company estimated the fair value of the contingent consideration to be $3.5 million using a probability weighting of the potential payouts. The Company has subsequently revised the estimated fair value of the contingent consideration to $2.9 million as the result of a decrease in the likelihood of achieving certain gross profit targets. The adjustment to the fair value of the contingent consideration was recognized in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. Any further changes in the estimated contingent consideration will also be recognized in the Condensed Consolidated Statements of Operations.

On August 14, 2012, the Company acquired EDGAR Online, a leading provider of disclosure management services, financial data and enterprise risk analytics software and solutions. The acquisition of EDGAR Online expanded and enhanced the range of services that the Company offers to its customers. The purchase price for EDGAR Online was $71.5 million, including debt assumed of $1.4 million and net of cash acquired of $2.1 million. Immediately following the acquisition, the Company repaid the $1.4 million of debt assumed.

Operations of all of the 2012 acquisitions are included in the U.S. Print and Related Services segment.

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

For the three and six months ended June 30, 2012, the Company recorded $0.5 million and $0.8 million of acquisition-related expenses, respectively, associated with acquisitions contemplated or completed in subsequent periods within selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

The Presort, Meisel, XPO and EDGAR Online acquisitions were recorded by allocating the cost of the acquisitions to the assets acquired, including other intangible assets, based on their estimated fair values at the acquisition date. The excess of the cost of the acquisitions and the fair value of the contingent consideration over the net amounts assigned to the fair value of the assets acquired was recorded as goodwill. The tax deductible goodwill related to these acquisitions was $23.7 million.

Based on the valuations, the final purchase price allocations for these acquisitions were as follows:

Accounts receivable	$	18.3
Inventories		2.0

Prepaid expenses and other current assets		4.3

Property, plant and equipment		10.4

Amortizable other intangible assets		37.5
Other noncurrent assets		15.1

Goodwill		55.8
Accounts payable and accrued liabilities		(21.5	)
Other noncurrent liabilities		(0.1	)
Deferred taxes-net		10.4
Total purchase price-net of cash acquired		132.2

Less: debt assumed		1.4
Less: fair value of contingent consideration		3.5

Net cash paid	$	127.3

The fair values of technology, amortizable other intangible assets, contingent consideration and goodwill associated with the acquisitions of Presort, Meisel, XPO and EDGAR Online were determined to be Level 3 under the fair value hierarchy.

The following table presents the fair value, valuation techniques and related unobservable inputs for these Level 3 measurements:

	Fair Value		Valuation Technique	Unobservable Input	Range
Customer relationships	$	31.4	Excess earnings, with and without method	Discount rate Attrition rate	16.0% - 17.0% 7.0% - 20.0%

Technology		14.5	Excess earnings, relief-from-royalty method, cost approach	Discount rate Obsolescence factor Royalty rate (after-tax)	16.0% - 17.0% 10.0% - 20.0% 4.5%

Trade names		3.5	Relief-from-royalty method	Discount rate Royalty rate (after-tax)	15.5% - 17.0% 0.3% - 1.2%

Non-compete agreements		2.6	Excess earnings, with and without method	Discount rate	16.0% - 17.0%

Contingent consideration		3.5	Probability weighted discounted future cash flows	Discount rate	4.5%

Pro forma

If the 2012 acquisitions described above had occurred at January 1, 2011, the Company’s pro forma net sales for the three and six months ended June 30, 2012 would have been $2,596.0 million and $5,187.7 million, respectively.

The unaudited pro forma net sales are 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

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

periods presented and should not be taken as indicative of the Company’s future consolidated results of operations or financial condition.

3. Inventories

The components of the Company’s inventories, net of excess and obsolescence reserves for raw materials and finished goods, at June 30, 2013 and December 31, 2012 were as follows:

	June 30, 2013			December 31, 2012
Raw materials and manufacturing supplies	$	215.0		$	214.2
Work in process		157.2			158.8
Finished goods		214.2			229.3
LIFO reserve		(93.1	)		(92.1	)

Total	$	493.3		$	510.2

4. Property, Plant and Equipment

The components of the Company’s property, plant and equipment at June 30, 2013 and December 31, 2012 were as follows:

	June 30, 2013			December 31, 2012
Land	$	95.0		$	98.7
Buildings		1,154.7			1,167.0
Machinery and equipment		5,986.8			6,022.7
		7,236.5			7,288.4
Accumulated depreciation		(5,748.9	)		(5,671.8	)
Total	$	1,487.6		$	1,616.6

During the three months and six months ended June 30, 2013, depreciation expense was $86.4 million and $174.9 million, respectively. During the three and six months ended June 30, 2012, depreciation expense was $92.6 million and $188.0 million, respectively.

Assets Held for Sale

Primarily as a result of restructuring actions, certain facilities and equipment are considered held for sale. The net book value of assets held for sale was $24.1 million and $19.2 million at June 30, 2013 and December 31, 2012, respectively. These assets were included in other current assets in the Condensed Consolidated Balance Sheets at June 30, 2013 and December 31, 2012 at the lower of their historical net book value or their estimated fair value, less estimated costs to sell.

5. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill for the six months ended June 30, 2013 were as follows:

	U.S. Print and Related Services			International			Total
Net book value as of December 31, 2012
Goodwill	$	3,299.2		$	1,321.5		$	4,620.7
Accumulated impairment losses		(1,989.9	)		(1,194.4	)		(3,184.3	)
Total		1,309.3			127.1			1,436.4
Foreign exchange and other adjustments		(2.2	)		(1.5	)		(3.7	)
Net book value as of June 30, 2013
Goodwill		3,297.0			1,267.4			4,564.4
Accumulated impairment losses		(1,989.9	)		(1,141.8	)		(3,131.7	)
Total	$	1,307.1		$	125.6		$	1,432.7

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The components of other intangible assets at June 30, 2013 and December 31, 2012 were as follows:

	June 30, 2013							December 31, 2012
	Gross Carrying Amount		Accumulated Amortization			Net Book Value		Gross Carrying Amount		Accumulated Amortization			Net Book Value
Customer relationships	$	723.5	$	(411.3	)	$	312.2	$	731.1	$	(388.0	)	$	343.1
Patents		98.3		(98.2	)		0.1		98.3		(98.1	)		0.2
Trademarks, licenses and agreements		31.4		(27.2	)		4.2		31.7		(26.1	)		5.6
Trade names		26.9		(11.9	)		15.0		27.1		(11.2	)		15.9
Total amortizable other intangible assets		880.1		(548.6	)		331.5		888.2		(523.4	)		364.8
Indefinite-lived trade names		18.1		—			18.1		18.1		—			18.1
Total other intangible assets	$	898.2	$	(548.6	)	$	349.6	$	906.3	$	(523.4	)	$	382.9

Amortization expense for other intangible assets was $16.1 million and $22.1 million for the three months ended June 30, 2013 and 2012, respectively, and $32.4 million and $46.4 million for the six months ended June 30, 2013 and 2012, respectively.

The following table outlines the estimated annual amortization expense related to other intangible assets as of June 30, 2013:

For the year ending December 31,	Amount
2013	$	64.2
2014		63.2
2015		57.5
2016		39.1
2017		32.7
2018 and thereafter		107.2
Total	$	363.9

6. Restructuring and Impairment Charges

Restructuring and Impairment Costs Charged to Results of Operations

For the three months ended June 30, 2013 and 2012, the Company recorded the following net restructuring and impairment charges:

	Three Months Ended June 30, 2013								Three Months Ended June 30, 2012
	Employee Terminations		Other Charges		Impairment		Total		Employee Terminations		Other Charges		Impairment		Total
U.S. Print and Related Services	$	2.4	$	8.0	$	2.8	$	13.2	$	10.5	$	8.6	$	7.0	$	26.1
International		4.1		0.8		0.9		5.8		3.0		0.5		—		3.5
Corporate		0.8		—		—		0.8		0.3		2.8		1.3		4.4
Total	$	7.3	$	8.8	$	3.7	$	19.8	$	13.8	$	11.9	$	8.3	$	34.0

For the six months ended June 30, 2013 and 2012, the Company recorded the following net restructuring and impairment charges:

	Six Months Ended June 30, 2013								Six Months Ended June 30, 2012
	Employee Terminations		Other Charges		Impairment		Total		Employee Terminations		Other Charges		Impairment		Total
U.S. Print and Related Services	$	9.5	$	16.5	$	6.7	$	32.7	$	38.9	$	11.9	$	15.0	$	65.8
International		5.8		1.3		0.7		7.8		6.8		1.1		1.0		8.9
Corporate		0.8		0.8		0.4		2.0		4.9		2.8		1.6		9.3
Total	$	16.1	$	18.6	$	7.8	$	42.5	$	50.6	$	15.8	$	17.6	$	84.0

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

For the three and six months ended June 30, 2013, the Company recorded net restructuring charges of $7.3 million and $16.1 million, respectively, for employee termination costs for 579 employees, of whom 504 were terminated as of June 30, 2013. These charges primarily related to the closing of two manufacturing facilities within the U.S. Print and Related Services segment and the reorganization of certain operations. Additionally, the Company incurred lease termination and other restructuring charges of $8.8 million and $18.6 million, respectively, for the three and six months ended June 30, 2013, including charges related to multi-employer pension plan withdrawal obligations. For the three and six months ended June 30, 2013, the Company also recorded $3.7 million and $7.8 million, respectively, of impairment charges primarily related to buildings and machinery and equipment associated with facility closings.

For the three and six months ended June 30, 2012, the Company recorded net restructuring charges of $13.8 million and $50.6 million, respectively, for employee termination costs for 1,820 employees, substantially all of whom were terminated as of June 30, 2013. These charges primarily related to actions resulting from the reorganization of sales and administrative functions across all segments, the closing of four manufacturing facilities within the U.S. Print and Related Services segment and one manufacturing facility within the International segment and the reorganization of certain operations. Additionally, the Company incurred lease termination and other restructuring charges of $11.9 million and $15.8 million for the three and six months ended June 30, 2012, respectively. The Company also recorded $8.3 million and $17.6 million, respectively, of impairment charges primarily related to machinery and equipment associated with the facility closings and other asset disposals for the three and six months ended June 30, 2012, respectively.

The fair values of the buildings and machinery and equipment were determined to be Level 3 under the fair value hierarchy and were estimated based on discussions with real estate brokers, review of comparable properties, if available, discussions with machinery and equipment brokers, dealer quotes and internal expertise related to the current marketplace conditions.

Restructuring Reserve

Activity impacting the Company’s restructuring reserve for the six months ended June 30, 2013 was as follows:

	December 31, 2012		Restructuring Charges		Foreign Exchange and Other			Cash Paid			June 30, 2013
Employee terminations	$	23.4	$	16.1	$	(0.3	)	$	(18.6	)	$	20.6
Multi-employer pension plan withdrawal obligations		25.1		10.6		(0.1	)		(1.3	)		34.3
Lease terminations and other		30.0		8.0		0.7			(14.6	)		24.1
Total	$	78.5	$	34.7	$	0.3		$	(34.5	)	$	79.0

The current portion of restructuring reserves of $30.1 million at June 30, 2013 was included in accrued liabilities, while the long-term portion of $48.9 million, primarily related to multi-employer pension plan complete or partial withdrawal obligations and lease termination costs, was included in other noncurrent liabilities at June 30, 2013.

The Company anticipates that payments associated with the employee terminations reflected in the above table will be substantially completed by June of 2014. Payments on the multi-employer pension plan complete or partial withdrawal obligations are scheduled to be substantially completed by 2032. Changes based on uncertainties in these estimated withdrawal obligations, such as the financial stability of other employers participating in the plan, could affect the ultimate charges related to multi-employer pension plan withdrawals.

As of June 30, 2013, the restructuring liabilities classified as “lease terminations and other” consisted of lease terminations, other facility closing costs and contract termination costs. Payments on certain of the lease obligations are scheduled to continue until 2026. Market conditions and the Company’s ability to sublease these properties could affect the ultimate charges related to the lease obligations. Any potential recoveries or additional charges could affect amounts reported in the Condensed Consolidated Financial Statements of future periods.

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

7. Employee Benefits

The components of the estimated net pension and other postretirement benefits plan income for the three and six months ended June 30, 2013 and 2012 were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Pension (income) expense
Service cost	$	0.8		$	1.6		$	1.6		$	3.5
Interest cost		44.5			47.4			89.1			94.8
Expected return on plan assets		(60.6	)		(65.8	)		(121.2	)		(131.6	)
Amortization, net		12.6			6.8			25.2			13.9
Net pension income	$	(2.7	)	$	(10.0	)	$	(5.3	)	$	(19.4	)
Other postretirement benefits plan (income) expense
Service cost	$	1.9		$	1.6		$	3.7		$	3.3
Interest cost		4.0			4.6			8.1			9.2
Expected return on plan assets		(2.9	)		(3.4	)		(5.9	)		(6.9	)
Amortization, net		(5.0	)		(4.9	)		(9.9	)		(9.9	)
Net other postretirement benefits plan income	$	(2.0	)	$	(2.1	)	$	(4.0	)	$	(4.3	)

8. Share-Based Compensation

The Company recognizes compensation expense based on estimated grant date fair values for all share-based awards issued to employees and directors, including stock options, restricted stock units and performance share units. The total compensation expense related to all share-based compensation plans was $7.1 million and $11.1 million for the three and six months ended June 30, 2013, respectively. The total compensation expense related to all share-based compensation plans was $7.4 million and $14.8 million for the three and six months ended June 30, 2012, respectively.

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Stock Options

There were no options granted during the six months ended June 30, 2013. The Company granted 1,221,000 stock options, with a grant date fair market value of $2.96, during the six months ended June 30, 2012. The fair market value of each stock option award was estimated based on the assumptions below as of the grant date using the Black-Scholes-Merton option pricing model.

The assumptions used to determine the fair market value of the stock options granted during the six months ended June 30, 2012 were as follows:

	2012
Expected volatility		39.71	%
Risk-free interest rate		1.18	%
Expected life (years)		6.25
Expected dividend yield		5.06	%

Stock option awards as of December 31, 2012 and June 30, 2013, and changes during the six months ended June 30, 2013, were as follows:

	Shares Under Option (thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (millions)
Outstanding at December 31, 2012		4,726		$	18.90		6.2	$	2.1
Exercised		(88	)		7.09
Cancelled/forfeited/expired		(361	)		18.20
Outstanding at June 30, 2013		4,277			19.20		6.2		7.9
Vested and expected to vest at June 30, 2013		4,235			19.26		6.2		7.9
Exercisable at June 30, 2013		1,356		$	8.68		6.5	$	7.2

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on June 30, 2013 and December 31, 2012, respectively, 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 in-the-money options on June 30, 2013 and December 31, 2012. This amount will change in future periods based on the fair market value of the Company’s stock and the number of options outstanding. Total intrinsic value of options exercised for the three and six months ended June 30, 2013 was $0.4 million. There were no options exercised during the three months ended June 30, 2012. Total intrinsic value of options exercised for the six months ended June 30, 2012 was $1.2 million.

Compensation expense related to stock options for the three and six months ended June 30, 2013 was $0.4 million and $0.8 million, respectively. Compensation expense related to stock options for the three and six months ended June 30, 2012 was $0.7 million and $1.8 million, respectively. As of June 30, 2013, $2.4 million of total unrecognized compensation expense related to 1.0 million stock options with a weighted average fair market value of $3.28, is expected to be recognized over a weighted average period of 2.2 years.

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Restricted Stock Units

Nonvested restricted stock unit awards as of December 31, 2012 and June 30, 2013, and changes during the six months ended June 30, 2013, were as follows:

	Shares (thousands)			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2012		3,246		$	11.85
Granted		1,377			9.59
Vested		(1,998	)		10.19
Forfeited		(72	)		11.27
Nonvested at June 30, 2013		2,553		$	11.94

Compensation expense related to restricted stock units for the three and six months ended June 30, 2013 was $6.0 million and $9.2 million, respectively. Compensation expense related to restricted stock units for the three and six months ended June 30, 2012 was $6.2 million and $12.0 million, respectively. As of June 30, 2013, there was $20.7 million of unrecognized share-based compensation expense related to approximately 2.4 million of restricted stock unit awards, with a weighted average grant date fair market value of $11.95, that are expected to vest over a weighted average period of 2.4 years. The fair value of these awards was determined based on the Company’s stock price on the grant date reduced by the present value of expected dividends through the vesting period.

Performance Share Units

Nonvested performance share unit awards as of December 31, 2012 and June 30, 2013, and changes during the six months ended June 30, 2013, were as follows:

	Shares (thousands)		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2012		468	$	12.84
Granted		485		8.85
Nonvested at June 30, 2013		953	$	10.81

During the six months ended June 30, 2013, 485,000 performance share unit awards were granted to certain executive officers, payable upon the achievement of certain established performance targets. The performance period for the shares awarded is January 1, 2013 through December 31, 2015. Distributions under these awards are payable at the end of the performance period in common stock or cash, at the Company’s discretion. The total potential payouts for awards granted during the six months ended June 30, 2013 range from 242,500 to 485,000 shares, should certain performance targets be achieved. The fair value of these awards was determined based on the Company’s stock price on the grant date reduced by the present value of expected dividends through the vesting period. 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, permanent disability or retirement of the grantee or a change in control of the Company.

Compensation expense for the performance share unit awards granted in 2013 and 2012 is being recognized based on the maximum estimated payout of 485,000 and 233,000 shares, for each respective period. Compensation expense for awards granted during 2011 is currently being recognized based on an estimated payout of 50%, or 117,500 shares. Compensation expense related to performance share unit awards for the three and six months ended June 30, 2013 was $0.7 million and $1.1 million, respectively. Compensation expense related to performance share unit awards for the three and six months ended June 30, 2012 was $0.5 million and $1.0 million respectively. As of June 30, 2013, there was $5.0 million of unrecognized compensation expense related to performance share unit awards, which is expected to be recognized over a weighted average period of 2.2 years.

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

9. Equity

The Company’s equity as of December 31, 2012 and June 30, 2013, and changes during the six months ended June 30, 2013, were as follows:

	RR Donnelley Shareholders’ Equity			Noncontrolling Interest			Total Equity
Balance at December 31, 2012	$	52.8		$	15.9		$	68.7
Net earnings (loss)		92.5			(0.7	)		91.8
Other comprehensive income (loss)		(14.8	)		0.1			(14.7	)
Share-based compensation		11.1			—			11.1
Issuance of share-based awards, net of withholdings and other		(6.7	)		—			(6.7	)
Dividends paid		(94.0	)		—			(94.0	)
Distributions to noncontrolling interests		—			(1.1	)		(1.1	)
Balance at June 30, 2013	$	40.9		$	14.2		$	55.1

The Company’s equity as of December 31, 2011 and June 30, 2012, and changes during the six months ended June 30, 2012, were as follows:

	RR Donnelley Shareholders’ Equity			Noncontrolling Interest			Total Equity
Balance at December 31, 2011	$	1,042.7		$	19.5		$	1,062.2
Net earnings		126.2			0.7			126.9
Other comprehensive loss		(17.9	)		—			(17.9	)
Share-based compensation		14.8			—			14.8
Issuance of share-based awards, net of withholdings and other		(11.8	)		—			(11.8	)
Dividends paid		(93.3	)		—			(93.3	)
Distributions to noncontrolling interests		—			(1.2	)		(1.2	)
Balance at June 30, 2012	$	1,060.7		$	19.0		$	1,079.7

10. Earnings per Share

Basic earnings per share is calculated by dividing net earnings attributable to RR Donnelley common shareholders by the weighted average number of common shares outstanding for the period. In computing diluted earnings per share, basic earnings per share is adjusted for the assumed issuance of all potentially dilutive share-based awards, including stock options, restricted stock units and performance share units. Performance share units are considered anti-dilutive and excluded if the performance targets upon which the issuance of the shares is contingent have not yet been achieved as of the end of the current period. Additionally, stock options are considered anti-dilutive when the exercise price exceeds the average of the Company’s stock price during the applicable period.

During the six months ended June 30, 2013 and 2012, no shares of common stock were purchased by the Company; however, shares were withheld for tax liabilities upon the vesting of equity awards.

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The reconciliation of the numerator and denominator of the basic and diluted earnings per share calculation and the anti-dilutive share-based awards for the three and six months ended June 30, 2013 and 2012 were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Net earnings per share attributable to RR Donnelley common shareholders
Basic	$	0.36	$	0.49	$	0.51	$	0.70
Diluted	$	0.36	$	0.49	$	0.51	$	0.69
Dividends declared per common share	$	0.26	$	0.26	$	0.52	$	0.52
Numerator:
Net earnings attributable to RR Donnelley common shareholders	$	65.4	$	88.8	$	92.5	$	126.2
Denominator:
Weighted average number of common shares outstanding		182.0		180.7		181.6		180.1
Dilutive options and awards		1.2		1.1		1.5		1.8
Diluted weighted average number of common shares outstanding		183.2		181.8		183.1		181.9
Weighted average number of anti-dilutive share-based awards:
Restricted stock units		1.9		2.5		1.7		2.3
Performance share units		1.0		0.5		0.8		0.5
Stock options		4.0		4.5		4.2		4.2
Total		6.9		7.5		6.7		7.0

11. Comprehensive Income

Income tax expense allocated to each component of other comprehensive income (loss) for the three and six months ended June 30, 2013 and 2012 was as follows:

	Three Months Ended June 30, 2013								Six Months Ended June 30, 2013
	Before Tax Amount			Income Tax Expense		Net of Tax Amount			Before Tax Amount			Income Tax Expense		Net of Tax Amount
Translation adjustments	$	(25.8	)	$	—	$	(25.8	)	$	(18.7	)	$	—	$	(18.7	)
Adjustment for net periodic pension and other postretirement benefits plan cost		7.6			2.8		4.8			15.4			11.5		3.9
Change in fair value of derivatives		0.1			0.1		—			0.2			0.1		0.1
Other comprehensive income (loss)	$	(18.1	)	$	2.9	$	(21.0	)	$	(3.1	)	$	11.6	$	(14.7	)

During the six months ended June 30, 2013, translation adjustments and income tax expense on pension and other postretirement benefits plan cost were adjusted to reflect previously recorded changes at their historical exchange rates.

	Three Months Ended June 30, 2012								Six Months Ended June 30, 2012
	Before Tax Amount			Income Tax Expense		Net of Tax Amount			Before Tax Amount			Income Tax Expense		Net of Tax Amount
Translation adjustments	$	(61.6	)	$	—	$	(61.6	)	$	(19.8	)	$	—	$	(19.8	)
Adjustment for net periodic pension and other postretirement benefits plan cost		2.0			1.2		0.8			3.6			2.1		1.5
Change in fair value of derivatives		0.1			—		0.1			0.6			0.2		0.4
Other comprehensive income (loss)	$	(59.5	)	$	1.2	$	(60.7	)	$	(15.6	)	$	2.3	$	(17.9	)

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Changes in accumulated other comprehensive loss by component for the six months ended June 30, 2013 and 2012 were as follows:

	Changes in the Fair Value of Derivatives			Pension and Other Postretirement Benefits Plan Cost			Translation Adjustments			Total
Balance at December 31, 2012	$	(0.6	)	$	(1,085.1	)	$	56.5		$	(1,029.2	)
Other comprehensive loss before reclassifications		—			(5.8	)		(18.8	)		(24.6	)
Amount reclassified from accumulated other comprehensive loss		0.1			9.7			—			9.8
Net change in accumulated other comprehensive loss		0.1			3.9			(18.8	)		(14.8	)
Balance at June 30, 2013	$	(0.5	)	$	(1,081.2	)	$	37.7		$	(1,044.0	)

	Changes in the Fair Value of Derivatives			Pension and Other Postretirement Benefits Plan Cost			Translation Adjustments			Total
Balance at December 31, 2011	$	(1.1	)	$	(907.5	)	$	45.3		$	(863.3	)
Other comprehensive loss before reclassifications		—			(0.8	)		(19.8	)		(20.6	)
Amount reclassified from accumulated other comprehensive loss		0.4			2.3			—			2.7
Net change in accumulated other comprehensive loss		0.4			1.5			(19.8	)		(17.9	)
Balance at June 30, 2012	$	(0.7	)	$	(906.0	)	$	25.5		$	(881.2	)

Reclassifications from accumulated other comprehensive loss for the three and six months ended June 30, 2013 and 2012 were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,						Classification in the Condensed Consolidated Statements of Operations
	2013			2012			2013			2012
Amortization of pension and other postretirement benefits plan cost:
Net actuarial loss	$	12.6		$	6.8		$	25.2		$	13.9		(a)
Net prior service credit		(5.0	)		(4.9	)		(9.9	)		(9.9	)	(a)
Reclassifications before tax		7.6			1.9			15.3			4.0
Income tax expense		2.7			1.1			5.6			1.7
Reclassifications, net of tax	$	4.9		$	0.8		$	9.7		$	2.3

(a)

These accumulated other comprehensive income (loss) components are included in the calculation of net periodic pension and other postretirement benefits plan income recognized in cost of sales and selling, general and administrative expenses in the Condensed Consolidated Statements of Operations (see Note 7).

12. Segment Information

The Company operates primarily in the printing industry, with related product and service offerings designed to offer customers complete solutions for communicating their messages to target audiences. The Company’s reportable segments reflect 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 Company’s segments and their product and related service offerings are summarized below:

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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 logistics, premedia, print management and other print related services. This segment’s product and related service offerings include magazines, catalogs, retail inserts, books, directories, financial printing and related services, direct mail, forms, labels, office products, packaging, statement printing, commercial print, premedia and logistics services.

International

The International segment includes the Company’s non-U.S. printing operations in Asia, Europe, Latin America and Canada. This segment’s product and related service offerings include magazines, catalogs, retail inserts, books, directories, financial printing and related services, direct mail, forms, labels, packaging, manuals, statement printing, premedia and logistics services. 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, commercial print, 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, medical device and other companies around the world through its operations in Europe, North America and Asia.

Corporate

Corporate consists of unallocated general and administrative activities and associated expenses including, in part, executive, legal, finance, information technology, human resources, certain facility costs and LIFO inventory provisions. In addition, certain costs and earnings of employee benefit plans are included in Corporate and not allocated to operating segments. Corporate manages the Company’s cash pooling structure, which enables participating international locations to draw on the Company’s overseas cash resources to meet local liquidity needs.

The Company has disclosed income (loss) from 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 consistent with the presentation of profitability reported within the Condensed Consolidated Financial Statements.

Three months ended June 30, 2013	Total Sales		Intersegment Sales			Net Sales		Income (Loss) from Operations			Depreciation and Amortization		Capital Expenditures
U.S. Print and Related Services	$	1,898.3	$	(7.5	)	$	1,890.8	$	181.6		$	71.6	$	26.1
International		703.7		(22.9	)		680.8		38.4			26.5		7.3
Total operating segments		2,602.0		(30.4	)		2,571.6		220.0			98.1		33.4
Corporate		—		—			—		(46.8	)		12.9		13.0
Total operations	$	2,602.0	$	(30.4	)	$	2,571.6	$	173.2		$	111.0	$	46.4

Three months ended June 30, 2012	Total Sales		Intersegment Sales			Net Sales		Income (Loss) from Operations			Depreciation and Amortization		Capital Expenditures
U.S. Print and Related Services	$	1,856.4	$	(10.4	)	$	1,846.0	$	165.7		$	83.3	$	27.3
International		707.5		(24.9	)		682.6		42.0			27.1		6.9
Total operating segments		2,563.9		(35.3	)		2,528.6		207.7			110.4		34.2
Corporate		—		—			—		(43.8	)		10.5		14.2
Total operations	$	2,563.9	$	(35.3	)	$	2,528.6	$	163.9		$	120.9	$	48.4

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Six months ended June 30, 2013	Total Sales		Intersegment Sales			Net Sales		Income (Loss) from Operations			Assets of Operations		Depreciation and Amortization		Capital Expenditures
U.S. Print and Related Services	$	3,778.7	$	(15.4	)	$	3,763.3	$	326.6		$	4,429.5	$	146.6	$	47.3
International		1,393.3		(46.5	)		1,346.8		70.5			1,884.6		52.9		18.6
Total operating segments		5,172.0		(61.9	)		5,110.1		397.1			6,314.1		199.5		65.9
Corporate		—		—			—		(84.1	)		587.5		25.1		18.4
Total operations	$	5,172.0	$	(61.9	)	$	5,110.1	$	313.0		$	6,901.6	$	224.6	$	84.3

Six months ended June 30, 2012	Total Sales		Intersegment Sales			Net Sales		Income (Loss) from Operations			Assets of Operations		Depreciation and Amortization		Capital Expenditures
U.S. Print and Related Services	$	3,747.1	$	(19.7	)	$	3,727.4	$	304.9		$	5,586.9	$	170.9	$	54.4
International		1,371.5		(45.4	)		1,326.1		72.6			2,191.5		54.6		18.0
Total operating segments		5,118.6		(65.1	)		5,053.5		377.5			7,778.4		225.5		72.4
Corporate		—		—			—		(92.2	)		321.4		20.4		21.3
Total operations	$	5,118.6	$	(65.1	)	$	5,053.5	$	285.3		$	8,099.8	$	245.9	$	93.7

Restructuring and impairment charges by segment for the three and six months ended June 30, 2013 and 2012 are described in Note 6.

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 generally not discounted. The Company has been designated as a potentially responsible party or has received claims in eleven active federal and state Superfund and other multiparty remediation sites. In addition to these sites, the Company may also have the obligation to remediate ten other previously and 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 the Company 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 multiparty 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 established reserves, recorded in accrued liabilities and other noncurrent liabilities, that it believes are adequate to cover its share of the potential costs of remediation at each of the multiparty sites and the previously and currently owned facilities. 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. However, 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 effect on the Company’s consolidated results of operations, financial position or cash flows.

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

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

14. Debt

The Company’s debt at June 30, 2013 and December 31, 2012 consisted of the following:

	June 30, 2013			December 31, 2012
4.95% senior notes due April 1, 2014	$	258.2		$	258.1
5.50% senior notes due May 15, 2015		299.9			299.9
8.60% senior notes due August 15, 2016		218.4			347.4
6.125% senior notes due January 15, 2017		350.5			523.3
7.25% senior notes due May 15, 2018		550.0			600.0
11.25% debentures due February 1, 2019 (a)		172.2			172.2
8.25% senior notes due March 15, 2019		450.0			450.0
7.625% senior notes due June 15, 2020		400.0			400.0
7.875% senior notes due March 15, 2021		447.8			—
8.875% debentures due April 15, 2021		80.9			80.9
6.625% debentures due April 15, 2029		199.4			199.4
8.820% debentures due April 15, 2031		69.0			69.0
Other (b)		19.0			38.4
Total debt		3,515.3			3,438.6
Less: current portion		(277.6	)		(18.4	)
Long-term debt	$	3,237.7		$	3,420.2

(a)	As of June 30, 2013 and December 31, 2012, the interest rate on the 11.25% senior notes due February 1, 2019 was 12.50% as a result of downgrades in the ratings of the notes by the rating agencies.

(b)	Includes miscellaneous debt obligations, capital leases and fair value adjustments to the 4.95% senior notes due April 1, 2014 and 8.25% senior notes due March 15, 2019 related to the Company’s fair value hedges.

The fair values of the senior notes and debentures, which were determined using the market approach based upon interest rates available to the Company for borrowings with similar terms and maturities, were determined to be Level 2 under the fair value hierarchy. The fair value of the Company’s debt was greater than its book value by approximately $163.1 million and less than its book value by approximately $3.7 million at June 30, 2013 and December 31, 2012, respectively.

On March 14, 2013, the Company issued $450.0 million of 7.875% senior notes due March 15, 2021. Interest on the notes is payable semi-annually on March 15 and September 15 of each year, commencing on September 15, 2013. The net proceeds from the offering were used to repurchase $173.5 million of the 6.125% senior notes due January 15, 2017, $130.2 million of the 8.60% senior notes due August 15, 2016 and $50.0 million of the 7.25% senior notes due May 15, 2018 and to reduce borrowings under the Company’s $1.15 billion senior secured revolving credit facility (the “Credit Agreement”). The repurchases resulted in a pre-tax loss on debt extinguishment of $35.6 million for the six months ended June 30, 2013 related to the premiums paid, unamortized debt issuance costs and other expenses.

There were no borrowings outstanding under the Credit Agreement as of June 30, 2013 or December 31, 2012. The weighted average interest rate on borrowings under the Credit Agreement and the Company’s previous $1.75 billion revolving credit facility (the “Previous Credit Agreement”) during the six months ended June 30, 2013 and 2012 was 2.04% and 2.07%, respectively.

On March 13, 2012, the Company issued $450.0 million of 8.25% senior notes due March 15, 2019. Interest on the notes is payable semi-annually on March 15 and September 15 of each year, commencing on September 15, 2012. The net proceeds from the offering and cash on hand were used to repurchase $341.8 million of the 4.95% senior notes due April 1, 2014 and $100.0 million of the 5.50% senior notes due May 15, 2015. The repurchases resulted in a pre-tax loss on debt extinguishment of $12.1 million for the six months ended June 30, 2012, consisting of a loss of $23.2 million related to the premiums paid, unamortized debt issuance costs and other expenses, partially offset by the elimination of $11.1 million of the fair value adjustment on the 4.95% senior notes.

On January 15, 2012, proceeds from borrowings under the Company’s Previous Credit Agreement were used to pay the $158.6 million 5.625% senior notes that matured on January 15, 2012.

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Interest income was $2.5 million and $6.3 million for the three and six months ended June 30, 2013 respectively. Interest income was $4.1 million and $7.7 million for the three and six months ended June 30, 2012, respectively.

15. Derivatives

All derivatives are recorded as other current or noncurrent assets or other current or noncurrent liabilities in the Condensed Consolidated Balance Sheets at their respective fair values. Unrealized gains and losses related to derivatives are recorded in other comprehensive income (loss), net of applicable income taxes, or in the Condensed Consolidated Statements of Operations, depending on the purpose for which the derivative is held. For derivatives designated and that qualify as cash flow hedges, the effective portion of the unrealized gain or loss related to the derivatives are generally recorded in other comprehensive income (loss) until the transaction affects earnings. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in the Condensed Consolidated Statements of Operations. Changes in the fair value of derivatives that do not meet the criteria for designation as a hedge at inception, or fail to meet the criteria thereafter, are recognized currently in the Condensed Consolidated Statements of Operations. At the inception of a hedge transaction, the Company formally documents the hedge relationship and the risk management objective for undertaking the hedge. In addition, the Company assesses both at inception of the hedge and on an ongoing basis, whether the derivative in the hedging transaction has been highly effective in offsetting changes in fair value or cash flows of the hedged item and whether the derivative is expected to continue to be highly effective. The impact of any ineffectiveness is also recognized currently in the Condensed Consolidated Statements of Operations.

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 in many countries 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 subsidiary or operating unit, the Company is exposed to currency risk. Periodically, the Company uses foreign exchange spot and forward contracts to hedge exposures resulting from foreign exchange fluctuations. Accordingly, the implied gains and losses associated with the fair values of foreign currency exchange contracts are generally offset by gains and losses on underlying payables, receivables and net investments in foreign subsidiaries. The Company does not use derivative financial instruments for trading or speculative purposes.

The Company has entered into foreign exchange forward contracts in order to manage the currency exposure of certain assets and liabilities. The foreign exchange forward contracts were not designated as hedges, and accordingly, the fair value gains or losses from these foreign currency derivatives are recognized currently in the Condensed Consolidated Statements of Operations, generally offsetting the foreign exchange gains or losses on the exposures being managed. The aggregate notional value of the forward contracts at June 30, 2013 and December 31, 2012 was $ 504.6 million and $654.2 million, respectively. The fair values of foreign exchange forward contracts were determined to be Level 2 under the fair value hierarchy and are valued using market exchange rates.

On March 13, 2012, the Company entered into interest rate swap agreements to manage interest rate risk exposure, effectively changing the interest rate on $400.0 million of its fixed-rate senior notes to a floating-rate based on LIBOR plus a basis point spread. The interest rate swaps, with a notional value of $400.0 million, are designated as fair value hedges against changes in the value of the Company’s $450.0 million 8.25% senior notes due March 15, 2019, which are attributable to changes in the benchmark interest rate.

On April 9, 2010, the Company entered into interest rate swap agreements to manage interest rate risk exposure, effectively changing the interest rate on $600.0 million of its fixed-rate senior notes to a floating-rate LIBOR plus a basis point spread. The interest rate swaps, with a notional value of $600.0 million at inception, are designated as fair value hedges against changes in the value of the Company’s 4.95% senior notes due April 1, 2014, which are attributable to changes in the benchmark interest rate. During March 2012, the Company repurchased $341.8 million of the 4.95% senior notes due April 1, 2014, and related interest rate swaps with a notional amount of $342.0 million were terminated, resulting in proceeds of $11.0 million for the fair value of the interest rate swaps.

The fair values of interest rate swaps were determined to be Level 2 under the fair value hierarchy and were developed using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on the expectation of future interest rates derived from observed market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential nonperformance risk. The Company evaluates the credit value adjustments of the interest rate swap agreements, which take into account the possibility of counterparty and the Company’s own default, on at least a quarterly basis.

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The Company’s foreign exchange forward contracts and interest rate swaps are subject to enforceable master netting agreements that allow the Company to settle positive and negative positions with the respective counterparties. The Company settles foreign exchange forward contracts on a net basis when possible. Foreign exchange forward contracts that can be settled on a net basis are presented net in the Condensed Consolidated Balance Sheets. Interest rate swaps are settled on a gross basis and presented gross in the Condensed Consolidated Balance Sheets.

The Company manages credit risk for its derivative positions on a counterparty-by-counterparty basis, considering the net portfolio exposure with each counterparty, consistent with its risk management strategy for such transactions. The Company’s agreements with each of its counterparties contain a provision where the Company could be declared in default on its derivative obligations if it either defaults or, in certain cases, is capable of being declared in default of any of its indebtedness greater than specified thresholds. These agreements also contain a provision where the Company could be declared in default subsequent to a merger or restructuring type event if the creditworthiness of the resulting entity is materially weaker.

At June 30, 2013 and December 31, 2012, the total fair value of the Company’s foreign exchange forward contracts, which were the only derivatives not designated as hedges, and fair value hedges, along with the accounts in the Condensed Consolidated Balance Sheets in which the fair value amounts were included, were as follows:

	June 30, 2013		December 31, 2012
Derivatives not designated as hedges
Prepaid expenses and other current assets	$	0.8	$	0.6
Accrued liabilities		10.3		24.0
Derivatives designated as fair value hedges
Prepaid expenses and other current assets	$	3.8	$	—
Other noncurrent assets		—		14.7
Other noncurrent liabilities		6.7		—

The gross and net amounts of foreign exchange forward contracts and interest rate swaps recognized in the Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012 were as follows:

June 30, 2013	Gross Amounts of Assets and Liabilities		Impact of Netting			Net Amounts of Assets and Liabilities Presented in the Condensed Consolidated Balance Sheet		All Other Amounts Subject to Master Netting Agreements			Potential Net Amounts of Assets and Liabilities
Assets
Foreign exchange forward contracts reported gross	$	0.8	$	—		$	0.8	$	(0.8	)	$	—
Foreign exchange forward contracts reported net		0.1		(0.1	)		—		—			—
Total foreign exchange forward contracts		0.9		(0.1	)		0.8		(0.8	)		—
Interest rate swaps		3.8		—			3.8		(0.7	)		3.1
Total	$	4.7	$	(0.1	)	$	4.6	$	(1.5	)	$	3.1

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

June 30, 2013	Gross Amounts of Assets and Liabilities		Impact of Netting			Net Amounts of Assets and Liabilities Presented in the Condensed Consolidated Balance Sheet		All Other Amounts Subject to Master Netting Agreements			Potential Net Amounts of Assets and Liabilities
Liabilities
Foreign exchange forward contracts reported gross	$	6.2	$	—		$	6.2	$	(1.1	)	$	5.1
Foreign exchange forward contracts reported net		4.2		(0.1	)		4.1		—			4.1
Total foreign exchange forward contracts		10.4		(0.1	)		10.3		(1.1	)		9.2
Interest rate swaps		6.7		—			6.7		(0.4	)		6.3
Total	$	17.1	$	(0.1	)	$	17.0	$	(1.5	)	$	15.5

December 31, 2012	Gross Amounts of Assets and Liabilities		Impact of Netting		Net Amounts of Assets and Liabilities Presented in the Condensed Consolidated Balance Sheet		All Other Amounts Subject to Master Netting Agreements			Potential Net Amounts of Assets and Liabilities
Assets
Foreign exchange forward contracts reported gross	$	0.6	$	—	$	0.6	$	(0.1	)	$	0.5
Interest rate swaps		14.7		—		14.7		(3.5	)		11.2
Total	$	15.3	$	—	$	15.3	$	(3.6	)	$	11.7

Liabilities
Foreign exchange forward contracts reported gross	$	24.0	$	—	$	24.0	$	(3.6	)	$	20.4

The pre-tax (gains) losses related to derivatives not designated as hedges recognized in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012 were as follows:

	Classification of (Gain) Loss Recognized in the Condensed Consolidated Statements of Operations	Three Months Ended June 30,				Six Months Ended June 30,
		2013		2012		2013			2012
Derivatives not designated as hedges
Foreign exchange forward contracts	Selling, general and administrative expenses	$	7.3	$	3.1	$	(5.5	)	$	2.4

For derivatives designated as fair value hedges, the pre-tax (gains) losses related to the hedged items, attributable to changes in the hedged benchmark interest rate and the offsetting gain or loss on the related interest rate swaps for the three and six months ended June 30, 2013 and 2012 were as follows:

	Classification of (Gain) Loss Recognized in the Condensed Consolidated Statements of Operations	Three Months Ended June 30,						Six Months Ended June 30,
		2013			2012			2013			2012
Fair Value Hedges
Interest rate swaps	Investment and other expense - net	$	13.3		$	(8.7	)	$	17.6		$	(3.5	)
Hedged items	Investment and other expense – net		(13.0	)		9.5			(16.7	)		3.3
Total (gain) loss recognized as ineffectiveness in the condensed consolidated statements of operations	Investment and other expense - net	$	0.3		$	0.8		$	0.9		$	(0.2	)

The Company also recognized a net reduction to interest expense of $2.2 million and $4.5 million for three and six months ended June 30, 2013, respectively, and $2.0 million and $4.0 million for the three and six months ended June 30, 2012, respectively, related to the Company’s fair value hedges, which included interest accruals on the derivatives and amortization of the basis in the hedged items.

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

16. Fair Value Measurement

Certain assets and liabilities are required to be recorded at fair value on a recurring basis. The Company’s only assets and liabilities adjusted to fair value on a recurring basis are pension and other postretirement benefits plan assets, foreign exchange forward contracts and interest rate swaps. See Note 15 for further discussion on the fair value of the Company’s foreign exchange forward contracts and interest rate swaps as of June 30, 2013 and December 31, 2012.

In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company is required to record certain assets and liabilities at fair value on a nonrecurring basis, generally as a result of acquisitions or the remeasurement of assets resulting in impairment charges. See Note 2 for further discussion on the fair value of assets and liabilities associated with acquisitions.

Assets measured at fair value on a nonrecurring basis subsequent to initial recognition during the three and six months ended June 30, 2013 and 2012 are summarized below:

	Three Months Ended June 30, 2013				Six Months Ended June 30, 2013				As of June 30, 2013
	Impairment Charge		Fair Value Measurement (Level 3)		Impairment Charge		Fair Value Measurement (Level 3)		Net Book Value
Long-lived assets held and used	$	0.3	$	0.3	$	0.8	$	0.6	$	0.5
Long-lived assets held for sale or disposal		3.4		12.2		7.6		13.9		12.1
Total	$	3.7	$	12.5	$	8.4	$	14.5	$	12.6

	Three Months Ended June 30, 2012				Six Months Ended June 30, 2012				As of June 30, 2012
	Impairment Charge		Fair Value Measurement (Level 3)		Impairment Charge		Fair Value Measurement (Level 3)		Net Book Value
Long-lived assets held and used	$	1.6	$	4.9	$	7.2	$	9.1	$	8.7
Long-lived assets held for sale or disposal		7.6		9.2		11.4		10.7		8.1
Total	$	9.2	$	14.1	$	18.6	$	19.8	$	16.8

The fair values of long-lived assets held for sale that were remeasured during the three and six months ended June 30, 2013 and 2012 were reduced by estimated costs to sell of $0.9 million and $0.4 million, respectively.

The Company’s accounting and finance management determines the valuation policies and procedures for Level 3 fair value measurements and is responsible for the development and determination of unobservable inputs.

The fair values of the long-lived assets held and used and long-lived assets held for sale or disposal were determined using Level 3 inputs and were estimated based on discussions with real estate brokers, review of comparable properties, if available, discussions with machinery and equipment brokers, dealer quotes and internal expertise related to the current marketplace conditions. Unobservable inputs obtained from third parties are adjusted as necessary for the condition and attributes of the specific asset.

See Note 14 for the fair value of the Company’s debt.

17. New Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2013-11 “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”), which requires an unrecognized tax benefit to be presented as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward that the entity intends to use and is available for settlement at the reporting date. ASU 2013-11 will be effective for the Company in the first quarter of 2014. The adoption of ASU 2013-11 is not expected to have a material impact on the Company’s condensed consolidated financial position, results of operations or cash flows.

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RR DONNELLEY”)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

In July 2013, the FASB issued Accounting Standards Update No. 2013-10 “Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes” (“ASU 2013-10”), which permits the Fed Funds Effective Swap Rate to be used as a U.S. benchmark interest rate for hedge accounting purposes and removes the restriction on using different benchmark rates for similar hedges. ASU 2013-10 will be effective for the Company in the third quarter of 2013 and is not expected to have a material impact on the Company’s condensed consolidated financial position, results of operations or cash flows.

In March 2013, the FASB issued Accounting Standards Update No. 2013-05 “Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity” (“ASU 2013-05”), which requires the release of cumulative translation adjustments into net income when an entity ceases to have a controlling financial interest resulting in the complete or substantially complete liquidation of a subsidiary or group of assets within a foreign entity. ASU 2013-05 will be effective for the Company in the first quarter of 2014. The adoption of ASU 2013-05 is not expected to have a material impact on the Company’s condensed consolidated financial position, results of operations or cash flows.

In February 2013, the FASB issued Accounting Standards Update No. 2013-04 “Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date” (“ASU 2013-04”), which requires the measurement of joint and several liability arrangements, when the total amount of the obligation is fixed as of the reporting date, as the sum of the amount the entity has agreed to pay as well as any additional amounts expected to be paid on behalf of co-obligors. ASU 2013-04 will be effective for the Company in the first quarter of 2014. The adoption of ASU 2013-04 is not expected to have a material impact on the Company’s condensed consolidated financial position, results of operations or cash flows.

In December 2011, the FASB issued Accounting Standards Update No. 2011-11 “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”), which requires disclosures of gross and net information about financial and derivative instruments eligible for offset in the statement of financial position or subject to a master netting agreement. In January 2013, the FASB issued Accounting Standards Update No. 2013-01 “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” (“ASU 2013-01”), which narrows the scope of the disclosure requirements to derivatives, securities borrowings, and securities lending transactions that are either offset or subject to a master netting arrangement. ASU 2011-11 and ASU 2013-01 were effective for and adopted by the Company in the first quarter of 2013 and required additional disclosures, but otherwise did not have a material impact on the Company’s condensed consolidated financial position, results of operations or cash flows.

In June 2011, the FASB issued Accounting Standards Update No. 2011-05 “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05”), which prohibits the presentation of other comprehensive income in the statement of changes in stockholders’ equity and requires the presentation of net income, items of other comprehensive income and total comprehensive income in one continuous statement or two separate but consecutive statements. In December 2011, the FASB issued Accounting Standards Update No. 2011-12 “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU 2011-12”), which deferred the requirement to present reclassification adjustments for each component of other comprehensive income on the face of the financial statements. In February 2013, the FASB issued Accounting Standards Update No. 2013-02 “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income” (“ASU 2013-02”), which requires disclosures of the amounts reclassified out of accumulated other comprehensive income by component, including the respective line items of net income if the amount is required to be reclassified to net income in its entirety in the same reporting period. ASU 2011-05 and 2011-12 were effective for and adopted by the Company in the first quarter of 2012 and ASU 2013-02 was effective and adopted by the Company in the first quarter of 2013. The ASUs have impacted the Company’s financial statement presentation and disclosures, but otherwise did not impact the Company’s condensed consolidated financial position, results of operations or cash flows.

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

Company Overview

R.R. Donnelley & Sons Company (“RR Donnelley,” the “Company,” “we,” “us,” and “our”), a Delaware corporation, is a global provider of integrated communications. The Company works collaboratively with more than 60,000 customers worldwide to develop custom communications solutions that reduce costs, drive top line growth, enhance return on investment and increase compliance. Drawing on a range of proprietary and commercially available digital and conventional technologies deployed across four continents, the Company employs a suite of leading Internet-based capabilities and other resources to provide premedia, printing, logistics and business process outsourcing services to clients in virtually every private and public sector.

Business acquisitions

On December 28, 2012, the Company acquired Presort Solutions (“Presort”), a provider of mail presorting services to businesses in various industries.

On December 17, 2012, the Company acquired Meisel Photographic Corporation (“Meisel”), a provider of custom designed visual graphics products to the retail market.

On August 14, 2012, the Company acquired EDGAR Online, a leading provider of disclosure management services, financial data and enterprise risk analytics software and solutions.

Operations of all of the 2012 acquisitions are included in the U.S. Print and Related Services segment.

Segment descriptions

The Company operates primarily in the printing industry, with product and related service offerings designed to offer customers complete solutions for communicating their messages to target audiences. The Company’s segments and their product and related 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. This segment’s product and related service offerings include magazines, catalogs, retail inserts, books, directories, financial printing and related services, direct mail, forms, labels, packaging, manuals, statement printing, commercial print, premedia and logistics services. 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, medical device and other companies around the world through its operations in Europe, North America and Asia.

Corporate

Corporate consists of unallocated general and administrative activities and associated expenses including, in part, executive, legal, finance, information technology, human resources, certain facility costs and LIFO inventory provisions. In addition, certain costs and earnings of employee benefit plans are included in Corporate and not allocated to the operating segments. Corporate also manages the Company’s cash pooling structure, which enables participating international locations to draw on the Company’s overseas cash resources to meet local liquidity needs.

Products and Services

The Company separately reports its net sales, related costs of sales and gross profit for its product and related service offerings. The Company’s product offerings primarily consist of magazines, catalogs, retail inserts, books, directories, direct mail, financial print, forms, labels, statement printing, commercial print, office products, packaging, manuals and print management. The Company’s service offerings primarily consist of logistics, premedia, EDGAR-related and eXtensible Business Reporting Language (“XBRL”) financial services and certain business outsourcing services.

Executive Summary

Financial Performance: Three Months Ended June 30, 2013

The changes in the Company’s income from operations, operating margin, net earnings attributable to RR Donnelley common shareholders and net earnings attributable to RR Donnelley common shareholders per diluted share for the three months ended June 30, 2013, from the three months ended June 30, 2012, were due to the following:

	Income from Operations			Operating Margin			Net Earnings Attributable to RR Donnelley Common Shareholders			Net Earnings Attributable to RR Donnelley Shareholders Per Diluted Share
	(in millions, except margin and per share data)
For the three months ended June 30, 2012	$	163.9			6.5	%	$	88.8		$	0.49
2013 restructuring and impairment charges—net		(19.8	)		(0.8	%)		(13.4	)		(0.07	)
2012 restructuring and impairment charges—net		34.0			1.3	%		22.7			0.13
Acquisition-related expenses		0.4			0.0			0.4			0.00
Loss on investments		—			—			(1.0	)		(0.01	)
Income tax adjustments		—			—			(26.1	)		(0.14	)
Operations		(5.3	)		(0.3	%)		(6.0	)		(0.04	)
For the three months ended June 30, 2013	$	173.2			6.7	%	$	65.4		$	0.36

2013 restructuring and impairment charges—net: included pre-tax charges of $7.3 million for employee termination costs; $8.8 million of lease termination and other restructuring costs, including charges related to multi-employer pension plan withdrawal obligations; and $3.7 million for impairment of other long-lived assets, primarily for buildings and machinery and equipment associated with facility closures.

2012 restructuring and impairment charges—net: included pre-tax charges of $13.8 million for employee termination costs; $11.9 million of lease termination and other restructuring costs; and $8.3 million for impairment of other long-lived assets, primarily for machinery and equipment associated with facility closures and other asset disposals.

Acquisition-related expenses: included pre-tax charges of $0.1 million ($0.1 million after-tax) related to legal, accounting and other expenses for the three months ended June 30, 2013 associated with contemplated acquisitions. For the three months ended June 30, 2012, these pre-tax charges were $0.5 million ($0.5 million after-tax) for acquisitions contemplated or completed in subsequent periods.

Loss on investments: included pre-tax impairment losses on equity investments of $5.5 million ($3.6 million after-tax) for the three months ended June 30, 2013 and $4.1 million ($2.6 million after-tax) for the three months ended June 30, 2012.

Income tax adjustments: included the recognition of previously unrecognized tax benefits due to the resolution of certain U.S. federal uncertain tax positions for the three months ended June 30, 2012.

Operations: reflected price pressures, a decline in pension and other postretirement benefits plan income, lower recoveries on print-related by-products and wage and other inflation, partially offset by lower depreciation and amortization expense, the suspension of the Company’s 401(k) match, cost savings from restructuring activities and lower incentive compensation expense. See further details in the review of operating results by segment that follows below.

Financial Performance: Six Months Ended June 30, 2013

The changes in the Company’s income from operations, operating margin, net earnings attributable to RR Donnelley common shareholders and net earnings attributable to RR Donnelley common shareholders per diluted share for the six months ended June 30, 2013, from the six months ended June 30, 2012, were due to the following:

	Income from Operations			Operating Margin		Net Earnings Attributable to RR Donnelley Common Shareholders			Net Earnings Attributable to RR Donnelley Shareholders Per Diluted Share
	Income from Operations			Operating Margin
	(in millions, except margin and per share data)
For the six months ended June 30, 2012	$	285.3		5.6	%	$	126.2		$	0.69
2013 restructuring and impairment charges—net		(42.5	)	(0.8	%)		(28.1	)		(0.15	)
2012 restructuring and impairment charges—net		84.0		1.7	%		55.9			0.31
Acquisition-related expenses		(0.3	)	0.0	%		(0.3	)		(0.01	)
Loss on investments		—		—			(1.0	)		(0.01	)
2013 Venezuela devaluation		—		—			(2.2	)		(0.01	)
Loss on debt extinguishment		—		—			(15.2	)		(0.09	)
Income tax adjustments		—		—			(26.1	)		(0.14	)
Operations		(13.5	)	(0.4	%)		(16.7	)		(0.08	)
For the six months ended June 30, 2013	$	313.0		6.1	%	$	92.5		$	0.51

2013 restructuring and impairment charges—net: included pre-tax charges of $16.1 million for employee termination costs; $18.6 million of lease termination and other restructuring costs, including charges related to multi-employer pension plan withdrawal obligations; and $7.8 million for impairment of other long-lived assets, primarily for buildings and machinery and equipment associated with facility closures.

2012 restructuring and impairment charges—net: included pre-tax charges of $50.6 million for employee termination costs; $15.8 million of lease termination and other restructuring costs; and $17.6 million for impairment of other long-lived assets, primarily for machinery and equipment associated with facility closures and other asset disposals.

Acquisition-related expenses: included pre-tax charges of $1.1 million ($1.1 million after-tax) related to legal, accounting and other expenses for the six months ended June 30, 2013 associated with contemplated acquisitions. For the six months ended June 30, 2012, these pre-tax charges were $0.8 million ($0.8 million after-tax) for acquisitions contemplated or completed in subsequent periods.

Loss on investments: included pre-tax impairment losses on equity investments of $5.5 million ($3.6 million after-tax) for the six months ended June 30, 2013 and $4.1 million ($2.6 million after-tax) for the six months ended June 30, 2012.

2013 Venezuela devaluation : currency devaluation in Venezuela resulted in a pre-tax loss of $3.2 million ($3.2 million after-tax), of which $1.0 million was included in loss attributable to noncontrolling interests .

Loss on debt extinguishment: included a pre-tax loss of $35.6 million ($23.1 million after-tax) for the six months ended June 30, 2013, related to the premiums paid, unamortized debt issuance costs and other expenses due to the repurchase of $173.5 million of the 6.125% senior notes due January 15, 2017, $130.2 million of the 8.60% senior notes due August 15, 2016 and $50.0 million of the 7.25% senior notes due May 15, 2018. For the six months ended June 30, 2012, a pre-tax loss of $12.1 million ($7.9 million after-tax) was recognized due to the repurchase of $341.8 million of the 4.95% senior notes due April 1, 2014 and $100.0 million of the 5.50% senior notes due May 15, 2015. The loss consisted of $23.2 million related to the premiums paid, unamortized debt issuance costs and other expenses, partially offset by the elimination of $11.1 million of the fair value adjustment on the 4.95% senior notes.

Income tax adjustments: included the recognition of previously unrecognized tax benefits due to the resolution of certain U.S. federal uncertain tax positions for the six months ended June 30, 2012.

Operations: reflected price pressures, the $19.8 million prior year adjustment to net sales to correct an over-accrual of rebates due to certain office products customers, a decline in pension and other postretirement benefits plan income, wage and other inflation in Latin America and Asia, lower volume and unfavorable mix in books and directories, variable print, commercial print

and magazines, catalogs and retail inserts and lower recoveries on print-related by-products, partially offset by reduced depreciation and amortization expense, the suspension of the Company’s 401(k) match, lower healthcare costs due to favorable claims experience and headcount reductions, lower incentive compensation expense and cost savings from restructuring activities. Income tax expense during the six months ended June 30, 2012 reflected the release of valuation allowances on certain deferred tax assets in Europe. See further details in the review of operating results by segment that follows below.

Overview

Net sales from acquisitions more than accounted for the increase in net sales in the U.S. Print and Related Services segment during the second quarter of 2013 compared to the second quarter of 2012. Pro forma net sales (see Note 2 to the Condensed Consolidated Financial Statements) in the U.S. Print and Related Services segment declined as a result of price pressures, lower volume in certain products and lower pass-through paper sales, partially offset by an increase in logistics and premedia volume. The largest net sales declines in the U.S. Print and Related Services segment were experienced in magazines, catalogs and retail inserts and books and directories. Net sales in the International segment decreased slightly as a result of a decline in pass-through sales in print management and lower volume in business process outsourcing and price pressures, largely offset by higher book export volume in Asia and an increase in pass-through paper sales in Asia and Europe.

The Company continues to implement strategic initiatives across all platforms to reduce its overall cost structure and enhance productivity. During the six months ended June 30, 2013, the Company realized cost savings from the suspension of the Company’s 401(k) match, reduced healthcare costs, lower incentive compensation expense and cost savings from restructuring activities, including the impact of the prior year reorganization of sales and administrative functions across all segments as well as continuing facility consolidations and reorganizations across certain platforms.

Net cash provided by operating activities for the six months ended June 30, 2013 was $57.9 million as compared to $9.9 million for the six months ended June 30, 2012. The increase in net cash provided by operating activities primarily resulted from higher net sales and improved invoicing cycle time and collections efforts, lower payments related to incentive compensation, the 2013 suspension of the Company’s 401(k) match and lower pension and other postretirement benefits plan contributions, partially offset by higher supplier payments in the first half of 2013 due to timing and higher cash payments for income taxes. Similar to 2012, the Company expects higher net cash inflows from operations in the second half of 2013 as compared to the first half of 2013 due to normal operating cycles of the Company’s business.

OUTLOOK

Competition and Strategy

The print and related services industry, in general, continues to have excess capacity and remains highly competitive. Despite some consolidation in recent years, the industry remains highly fragmented. 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. Management expects that prices for the Company’s products and services will continue to be a focal point for customers in coming years. Therefore, the Company believes it needs to continue to lower its cost structure and differentiate its product and related service offerings.

Technological changes, including the electronic distribution of documents and data, online distribution and hosting of media content, and 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 the distinctive capabilities of its products and services 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 unified platform and strong customer relationships in order to serve a larger share of its customers’ print and related services needs.

As a substitute for print, the impact of digital technologies has been felt mainly in books, directories, forms and statement printing. Electronic communication and transaction technology has eliminated or reduced the role of many traditional printed products and has continued to drive electronic substitution in directory and statement printing, in part driven by environmental concerns and cost pressures at key customers. In addition, rapid growth in the adoption of e-books is having a continuing impact on consumer print book volume, though only a limited impact on educational and specialty books. Digital technologies have also impacted printed magazines, as some advertising spending has moved from print to electronic media. The future impact of technology on the Company’s business is difficult to predict and could result in additional expenditures to restructure impacted operations or develop

new technologies. In addition, the Company has made targeted acquisitions and investments in the Company’s existing business to offer customers innovative services and solutions that further secure the Company’s position as a technology leader in the industry.

The Company has implemented a number of strategic initiatives to reduce its overall cost structure and improve efficiency, including the restructuring, reorganization and integration of operations and streamlining of administrative and support activities. Future cost reduction initiatives could include the reorganization of operations and the consolidation of facilities. Implementing such initiatives might result in future restructuring or impairment charges, which may be substantial. Management also reviews the Company’s operations and management structure on a regular basis to balance appropriate risks and opportunities to maximize efficiencies and to support the Company’s long-term strategic goals.

Seasonality

Advertising and consumer spending trends affect demand in several of the end-markets served by the Company. Historically, demand for printing of magazines, catalogs, retail inserts and books is higher in the second half of the year driven by increased advertising pages within magazines, and holiday catalog, retail insert and book volumes. This typical seasonal pattern can be impacted by overall trends in the U.S. and world economy. The Company expects the seasonality impact in 2013 and future years to be in line with historical patterns.

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 and uses a wide variety of paper grades, formats, ink formulations and colors. In addition, a substantial amount of paper used by the Company is supplied directly by customers. Variations in the cost and supply of certain paper grades and ink formulations used in the manufacturing process may affect the Company’s consolidated financial results. Paper prices fluctuated during the first six months of 2013, and volatility in the future is expected. Generally, customers directly absorb the impact of changing prices on customer-supplied paper. With respect to paper purchased by the Company, the Company has historically passed most changes in price through to its customers. Contractual arrangements and industry practice should support the Company’s continued ability to pass on any future paper price increases, but there is no assurance that market conditions will continue to enable the Company to successfully do so. Management believes that the paper supply is consolidating, and there may be shortfalls in the future in supplies necessary to meet the demands of the entire marketplace. Higher paper prices and tight paper supplies may have an impact on customers’ demand for printed products. Additionally, the Company has undertaken various strategic initiatives to mitigate any foreseeable supply disruptions with respect to the Company’s ink requirements. The Company also resells waste paper and other by-products and may be impacted by changes in prices for these by-products.

The Company continues to monitor the impact of changes in the price of crude oil and other energy costs, which impact the Company’s ink suppliers, logistics operations and manufacturing costs. Crude oil and energy prices continue to be volatile. The Company believes its logistics operations will continue to be able to pass a substantial portion of any increases in fuel prices directly to its customers in order to offset the impact of related cost increases. The Company generally cannot pass on to customers the impact of higher energy prices on its manufacturing costs. However, the Company enters into fixed price contracts for a portion of its natural gas purchases to mitigate the impact of changes in energy prices. The Company cannot predict sudden changes in energy prices and the impact that possible future changes in energy prices might 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, electronically or by direct shipment to customer facilities. Through its logistics operations, the Company manages the 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 print and mail. On January 27, 2013, the United States Postal Service (“USPS”) increased postage rates across all classes of mail by approximately 2.6%, on average. Under the 2006 Postal Accountability and Enhancement Act it is anticipated that postage will increase annually by an amount equal to or slightly less than the Consumer Price Index. As a leading provider of print logistics and among the largest mailers of standard mail in the U.S., the Company works closely with the USPS and its customers to offer innovative products and services to minimize postage costs. While the Company does not directly absorb the impact of higher postal rates on its customers’ mailings, demand for products distributed through the U.S. or foreign postal services is expected to be impacted by changes in the postal rates. During the third quarter of 2012, the USPS defaulted on two mandatory payments for the funding of retiree health benefits. The USPS announced that these defaults were not expected to impact mail services. However, the USPS is continuing to pursue its previously announced plans to restructure its mail delivery network, including the closure of many post office facilities. On April 10, 2013, the USPS announced that it will delay the shift to a five-day mail and six-day package delivery schedule initially scheduled for August 2013, until legislation is passed that provides the

authority to do so. Mail delivery services through the USPS accounted for approximately 48% of the Company’s logistics revenues during the six months ended June 30, 2013. The impact to the Company of the USPS’s restructuring plans, many of which require legislative action, cannot currently be estimated.

Risks Related to Market Conditions

The Company performs its annual goodwill impairment tests as of October 31, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. As part of its interim review for indicators of impairment, management analyzed potential changes in value of individual reporting units with goodwill based on each reporting unit’s operating results for the six months ended June 30, 2013 compared to expected results as of October 31, 2012. In addition, management considered how other key assumptions, including discount rates and expected long-term growth rates, used in the last fiscal year’s impairment analysis, could be impacted by changes in market conditions and economic events. Since October 31, 2012, the market value of the Company’s stock has increased and market yields on the Company’s debt have decreased.

Management considered these trends in performing its assessment of whether an interim impairment review was required for any reporting unit. Based on this interim assessment, management concluded that as of June 30, 2013, no events or changes in circumstances indicated that it was more likely than not that the fair value for any reporting unit had declined below its carrying value. Nevertheless, significant changes in global economic and market conditions could result in changes to expectations of future financial results and key valuation assumptions. These changes could result in revisions of management’s estimates of the fair value of the Company’s reporting units and could result in a material impairment of goodwill prior to October 31, 2013, the Company’s next annual measurement date.

The funded status of the Company’s pension and other postretirement benefits plans is dependent upon many factors, including returns on invested assets and the level of certain market interest rates. Market conditions may lead to changes in the discount rates (used to value the year-end benefit obligations of the plans) and the market value of the securities held by the plans, which could significantly increase or decrease the funded status of the plans. The Company reviews its actuarial assumptions on an annual basis as of December 31. As of June 30, 2013, changes in market interest rates have resulted in an estimated increase of approximately 80 basis points for the Company’s most significant pension and other postretirement benefits plans from the discount rate assumptions of 4.2% and 3.9%, respectively, at December 31, 2012. The Company estimates that these increases in discount rates as of June 30, 2013 would have reduced the December 31, 2012 underfunded obligation of $1,396.6 million for the Company’s pension and other postretirement benefits plans by approximately $425 million. The Company continues to recognize current year estimated pension and other postretirement benefits plan income and expense based on the actuarial assumptions as of December 31, 2012.

Based on current estimates, the Company expects to make required cash contributions of $23.1 million to its pension and other postretirement benefits plans in 2013, of which $14.7 million has been contributed during the six months ended June 30, 2013, and approximately $85 million in 2014.

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 JUNE 30, 2013 AS COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2012

The following table shows the results of operations for the three months ended June 30, 2013 and 2012, which includes the results of acquired businesses from the relevant acquisition dates:

		Three Months Ended June 30,
		2013	2012		$ Change			% Change
		(in millions, except percentages)
Products net sales	$	2,135.0	$	2,189.7	$	(54.7	)		(2.5	%)
Services net sales		436.6		338.9		97.7			28.8	%
Total net sales		2,571.6		2,528.6		43.0			1.7	%
Products cost of sales (exclusive of depreciation and amortization)		1,641.7		1,689.6		(47.9	)		(2.8	%)
Services cost of sales (exclusive of depreciation and amortization)		331.7		244.3		87.4			35.8	%
Total cost of sales		1,973.4		1,933.9		39.5			2.0	%
Products gross profit		493.3		500.1		(6.8	)		(1.4	%)
Services gross profit		104.9		94.6		10.3			10.9	%
Total gross profit		598.2		594.7		3.5			0.6	%
Selling, general and administrative expenses (exclusive of depreciation and amortization)		294.2		275.9		18.3			6.6	%
Restructuring and impairment charges—net		19.8		34.0		(14.2	)		(41.8	%)
Depreciation and amortization		111.0		120.9		(9.9	)		(8.2	%)
Income from operations	$	173.2	$	163.9	$	9.3			5.7	%

Consolidated

Net sales of products for the three months ended June 30, 2013 decreased $54.7 million, or 2.5%, to $2,135.0 million versus the same period in 2012, including a $0.1 million increase due to changes in foreign exchange rates. Net sales of products decreased primarily due to a sales decline in the U.S. Print and Related Services segment as a result of price pressures, lower pass-through paper sales and lower volume in books and directories and commercial print and in the International segment due to a decline in pass-through sales in print management and lower volume in business process outsourcing and price pressures. These decreases were partially offset by an increase in sales resulting from higher book export volume in Asia and increased pass-through paper sales in Asia and Europe in the International segment.

Net sales from services for the three months ended June 30, 2013 increased $97.7 million, or 28.8%, to $436.6 million versus the same period in 2012, including a $0.8 million, or 0.2%, decrease due to changes in foreign exchange rates. The increase in net sales from services was primarily due to the acquisitions of Presort and XPO. Net sales from services also increased as a result of higher print logistics, freight brokerage services and premedia volume, partially offset by a decline in XBRL and compliance volume in financial services.

Products gross profit decreased $6.8 million to $493.3 million for the three months ended June 30, 2013 versus the same period in 2012 primarily due to price pressures in magazines, catalogs and retail inserts, lower recoveries on print-related by-products and wage and other inflation in Asia, partially offset by the suspension of the Company’s 401(k) match, cost savings from restructuring activities and lower incentive compensation expense. Products gross margin increased from 22.8% to 23.1%, reflecting the suspension of the Company’s 401(k) match, cost savings from restructuring activities and lower incentive compensation expense, partially offset by price pressures, lower recoveries on print-related by-products, unfavorable mix in certain products and wage and other inflation in Asia.

Services gross profit increased $10.3 million to $104.9 million for the three months ended June 30, 2013 versus the same period in 2012 due to higher sales in logistics primarily as a result of the acquisitions of XPO and Presort, higher print logistics and freight brokerage services volume, as well as higher volume in premedia. These increases were partially offset by lower XBRL and compliance volume in financial services and price pressures in premedia. Services gross margin decreased from 27.9% to 24.0% reflecting pass-through postage sales from the acquisition of Presort, price declines in premedia and wage and other inflation in business process outsourcing.

Selling, general and administrative expenses increased $18.3 million to $294.2 million, and from 10.9% to 11.4% as a percentage of net sales, for the three months ended June 30, 2013 versus the same period in 2012 reflecting a decline in pension and

other postretirement benefits plan income, wage and other inflation in Asia and business process outsourcing and higher technology related expenses, partially offset by the suspension of the Company’s 401(k) match and cost savings from restructuring activities.

For the three months ended June 30, 2013, the Company recorded net restructuring and impairment charges of $19.8 million compared to $34.0 million in the same period in 2012. In 2013, these charges included $7.3 million of employee termination costs for 186 employees, of whom 164 were terminated as of June 30, 2013. These charges were the result of the reorganization of certain operations. Additionally, the Company incurred lease termination and other restructuring charges of $8.8 million for the three months ended June 30, 2013, including charges related to multi-employer pension plan withdrawal obligations. For the three months ended June 30, 2013, the Company also recorded $3.7 million of impairment charges primarily related to buildings and machinery and equipment associated with facility closures.

Restructuring charges for the three months ended June 30, 2012 included $13.8 million of employee termination costs for 455 employees, substantially all of whom were terminated as of June 30, 2013. These charges were primarily the result of the reorganization of sales and administrative functions across all segments, as well as two manufacturing facility closures within the U.S. Print and Related Services segment and the reorganization of certain operations. Additionally, the Company incurred lease termination and other restructuring charges of $11.9 million for the three months ended June 30, 2012. The Company also recorded $8.3 million of impairment charges primarily related to machinery and equipment associated with the facility closings and other asset disposals for the three months ended June 30, 2012.

Depreciation and amortization decreased $9.9 million to $111.0 million for the three months ended June 30, 2013 compared to the same period in 2012, primarily due to the impairment of $158.0 million of other intangible assets in the fourth quarter of 2012 and the impact of lower capital spending in recent years compared to historical levels. Depreciation and amortization included $16.1 million and $22.1 million of amortization of other intangible assets related to customer relationships, patents, trademarks, licenses and agreements and trade names for the three months ended June 30, 2013 and 2012, respectively.

Income from operations for the three months ended June 30, 2013 was $173.2 million, an increase of 5.7% compared to the three months ended June 30, 2012. The increase was due to lower restructuring and impairment charges, reduced depreciation and amortization expense, the suspension of the Company’s 401(k) match, cost savings from restructuring activities, lower incentive compensation expense and lower healthcare costs due to favorable claims experience and headcount reductions, partially offset by price pressures, a decline in pension and other postretirement benefits plan income, lower recoveries on print-related by-products and wage and other inflation in Asia and business process outsourcing.

	Three Months Ended June 30,
	2013		2012		$ Change		% Change
		(in millions, except percentages)
Interest expense—net	$	65.5	$	63.6	$	1.9		3.0	%
Investment and other expense—net		6.0		4.8		1.2		25.0	%

Net interest expense increased by $1.9 million for the three months ended June 30, 2013 versus the same period in 2012, primarily due to higher average interest rates on senior notes, largely offset by lower average credit facility borrowings and associated fees.

Net investment and other expense for the three months ended June 30, 2013 and 2012 was $6.0 million and $4.8 million, respectively. For the three months ended June 30, 2013 and 2012, the Company recorded $5.5 million and $4.1 million of impairment losses on equity investments, respectively.

	Three Months Ended June 30,
	2013			2012			$ Change		% Change
	(in millions, except percentages)
Earnings before income taxes	$	101.7		$	95.5		$	6.2		6.5	%
Income tax expense		35.2			6.5			28.7		nm
Effective income tax rate		34.6	%		6.8	%

The effective income tax rate for the three months ended June 30, 2013 was 34.6 % compared to 6.8% in the same period in 2012. The tax rate in 2012 reflected the recognition of previously unrecognized tax benefits due to the resolution of certain U.S. federal uncertain tax positions.

Income attributable to noncontrolling interests was $1.1 million and $0.2 million for the three months ended June 30, 2013 and 2012, respectively.

Net earnings attributable to RR Donnelley common shareholders for the three months ended June 30, 2013 was $65.4 million, or $0.36 per diluted share, compared to $88.8 million, or $0.49 per diluted share, for the three months ended June 30, 2012. In addition to the factors described above, the per share results reflect an increase in weighted average diluted shares outstanding of 1.4 million.

U.S. Print and Related Services

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

	Three Months Ended June 30,
	2013			2012
	(in millions, except percentages)
Net sales	$	1,890.8		$	1,846.0
Income from operations		181.6			165.7
Operating margin		9.6	%		9.0	%
Restructuring and impairment charges—net		13.2			26.1

The amounts included in the table below represent net sales by reporting unit and the descriptions reflect the primary products or services provided by each reporting unit. Included in these net sales amounts are sales of other products or services that may be produced within a reporting unit to meet customer needs and improve operating efficiency.

	Net Sales for the Three Months Ended June 30,
Reporting unit	2013		2012		$ Change			% Change
	(in millions, except percentages)
Magazines, catalogs and retail inserts	$	403.9	$	424.3	$	(20.4	)		(4.8	%)
Variable print		281.0		276.3		4.7			1.7	%
Logistics		269.8		180.9		88.9			49.1	%
Books and directories		259.2		277.1		(17.9	)		(6.5	%)
Financial print		261.2		265.9		(4.7	)		(1.8	%)
Forms and labels		180.8		185.5		(4.7	)		(2.5	%)
Commercial		127.1		133.1		(6.0	)		(4.5	%)
Office products		65.8		66.4		(0.6	)		(0.9	%)
Premedia		42.0		36.5		5.5			15.1	%
Total U.S. Print and Related Services	$	1,890.8	$	1,846.0	$	44.8			2.4	%

Net sales for the U.S. Print and Related Services segment for the three months ended June 30, 2013 were $1,890.8 million, an increase of $44.8 million, or 2.4%, compared to the same period in 2012. Net sales increased due to an increase in logistics sales, primarily due to acquisitions, higher print logistics and freight brokerage services volume, as well as an increase in premedia volume, partially offset by price pressures primarily in magazines, catalogs and retail inserts, decreases in pass-through paper sales and lower volume in books and directories and commercial print. An analysis of net sales by reporting unit follows:

—	Magazines, catalogs and retail inserts: Sales declined due to price declines, reduced volume in magazines, decreases in pass-through paper sales and unfavorable mix, partially offset by higher volume in catalogs.

—	Variable print: Sales increased as a result of the acquisition of Meisel and higher statement printing volume, partially offset by lower print and fulfillment volume.

—

Logistics: Sales increased due to the acquisition of Presort, which includes pass-through postage sales, the acquisition of XPO, higher print logistics and freight brokerage services volume, higher pass-through postage sales and volume for international mail services and an increase in courier services volume.

—	Books and directories: Sales decreased primarily as a result of a decline in pass-through paper sales and lower volume in directories as well as unfavorable mix in educational books, partially offset by an increase in book fulfillment and packaging volume and favorable mix in consumer books.

—	Financial print: Sales decreased due to lower XBRL and compliance volume and lower investment management volume, partially offset by an increase in capital markets transactions activity and sales from the acquisition of Edgar Online.

—	Forms and labels: Sales decreased due to lower volume in forms and price pressures, partially offset by higher volume in labels, primarily for consumer goods.

—	Commercial: Sales decreased due to lower volume from existing customers, partially offset by higher pass-through print management volume.

—	Office products: Sales decreased slightly as a result of a decline in prices and lower filing product volume, partially offset by an increase in binder products volume.

—	Premedia: Sales increased due to higher creative, photography and prepress services volume, partially offset by price pressures in prepress services.

U.S. Print and Related Services segment income from operations increased $15.9 million for the three months ended June 30, 2013, mainly driven by lower restructuring and impairment charges, reduced depreciation and amortization expense and cost savings from restructuring activities, partially offset by price pressures and lower recoveries on print-related by-products. Operating margins increased from 9.0% for the three months ended June 30, 2012 to 9.6% for the three months ended June 30, 2013, due to lower restructuring and impairment charges, lower depreciation and amortization expense, lower pass-through paper sales and cost savings from restructuring activities, partially offset by price declines, lower recoveries on print-related by-products and increased pass-through postage sales.

International

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

	Three Months Ended June 30,
	2013			2012
	(in millions, except percentages)
Net sales	$	680.8		$	682.6
Income from operations		38.4			42.0
Operating margin		5.6	%		6.2	%
Restructuring and impairment charges—net		5.8			3.5

	Net Sales for the Three Months Ended June 30,
Reporting unit	2013		2012		$ Change			% Change
	(in millions, except percentages)
Asia	$	189.4	$	170.8	$	18.6			10.9	%
Business process outsourcing		125.7		159.0		(33.3	)		(20.9	%)
Latin America		116.8		109.1		7.7			7.1	%
Europe		103.7		94.0		9.7			10.3	%
Global Turnkey Solutions		72.3		79.4		(7.1	)		(8.9	%)
Canada		72.9		70.3		2.6			3.7	%
Total International	$	680.8	$	682.6	$	(1.8	)		(0.3	%)

Net sales for the International segment for the three months ended June 30, 2013 were $680.8 million, a decrease of $1.8 million, or 0.3%, compared to the same period in 2012, including a $0.7 million, or 0.1%, decrease due to changes in foreign exchange rates. The net sales decrease was due to lower pass-through sales in print management and lower volume in business process outsourcing, price pressures and decreased sales to existing customers in Global Turnkey Solutions, partially offset by higher book export volume in Asia and increased pass-through paper sales in Asia and Europe. An analysis of net sales by reporting unit follows:

—	Asia: Sales increased due to higher book export volume and increased pass-through paper sales, partially offset by lower volume in packaging products and technology manuals as well as price pressures.

—	Business process outsourcing: Sales decreased due to lower pass-through sales in print management , primarily due to the loss of a customer, changes in foreign exchange rates, the loss of a customer in outsourcing services and lower real estate outsourcing services volume.

—	Latin America: Sales increased due to price increases driven by inflation and higher forms and book volume, partially offset by lower catalog and magazine volume and changes in foreign exchange rates.

—	Europe: Sales increased due to an increase in print and packaging volume, changes in foreign exchange rates, higher pass-through paper sales and higher translation services volume, partially offset by a decline in technology manuals volume.

—	Global Turnkey Solutions: Sales decreased due to lower volume from existing customers and price pressures, partially offset by favorable mix and volume increases from new customers.

—	Canada: Sales increased due to higher statement printing and forms and labels volume and an increase in compliance volume, partially offset by changes in foreign exchange rates.

Income from operations decreased $3.6 million primarily due to price pressures, wage and other inflation in Asia and business process outsourcing, higher restructuring and impairment charges and changes in foreign exchange rates, partially offset by higher volume in Canada and Asia. Operating margins decreased from 6.2% for the three months ended June 30, 2012 to 5.6% for the three months ended June 30, 2013, reflecting price pressures, wage and other inflation and higher restructuring and impairment charges, partially offset by lower pass-through sales in print management and lower incentive compensation expense.

Corporate

The following table summarizes unallocated operating expenses and certain items impacting comparability within the Corporate segment:

	Three Months Ended June 30,
	2013		2012
	(in millions)
Operating expenses	$	46.8	$	43.8
Restructuring and impairment charges—net		0.8		4.4
Acquisition-related expenses		0.1		0.5

Corporate operating expenses in the three months ended June 30, 2013 were $46.8 million, an increase of $3.0 million compared to the same period in 2012. The increase was driven by lower pension and other postretirement benefits plan income, higher depreciation and amortization expense, primarily due to an increase in software amortization expense, and higher technology related expenses, largely offset by the suspension of the Company’s 401(k) match and lower restructuring and impairment charges.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2013 AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2012

The following table shows the results of operations for the six months ended June 30, 2013 and 2012, which includes the results of acquired businesses from the relevant acquisition dates:

	Six Months Ended June 30,
	2013		2012		$ Change			% Change
	(in millions, except percentages)
Products net sales	$	4,264.7	$	4,386.2	$	(121.5	)		(2.8	%)
Services net sales		845.4		667.3		178.1			26.7	%
Total net sales		5,110.1		5,053.5		56.6			1.1	%
Products cost of sales (exclusive of depreciation and amortization)		3,310.0		3,392.5		(82.5	)		(2.4	%)
Services cost of sales (exclusive of depreciation and amortization)		643.6		486.4		157.2			32.3	%
Total cost of sales		3,953.6		3,878.9		74.7			1.9	%
Products gross profit		954.7		993.7		(39.0	)		(3.9	%)
Services gross profit		201.8		180.9		20.9			11.6	%
Total gross profit		1,156.5		1,174.6		(18.1	)		(1.5	%)
Selling, general and administrative expenses (exclusive of depreciation and amortization)		576.4		559.4		17.0			3.0	%
Restructuring and impairment charges—net		42.5		84.0		(41.5	)		(49.4	%)
Depreciation and amortization		224.6		245.9		(21.3	)		(8.7	%)
Income from operations	$	313.0	$	285.3	$	27.7			9.7	%

Consolidated

Net sales of products for the six months ended June 30, 2013 decreased $121.5 million, or 2.8%, to $4,264.7 million versus the same period in 2012, including a $2.3 million, or 0.1%, decrease due to changes in foreign exchange rates. Net sales of products decreased primarily due to a decline in the U.S. Print and Related Services segment as a result of price pressures primarily in

magazines, catalogs and retail inserts, lower pass-through paper sales, lower volume and unfavorable mix in commercial print, magazines, catalogs and retail inserts and books and directories and the $19.8 million prior year adjustment to net sales to correct for an over-accrual of rebates due to certain office products customers. In the International segment, net sales for products increased as a result of higher volume in Asia and increased pass-through paper sales in Asia and Europe, partially offset by lower pass-through sales in print management and lower volume in business process outsourcing. .

Net sales from services for the six months ended June 30, 2013 increased $178.1 million, or 26.7%, to $845.4 million versus the same period in 2012, including a $1.1 million, or 0.2%, decrease due to changes in foreign exchange rates. The increase in net sales from services was primarily due to the acquisitions of Presort and XPO. Net sales from services also increased as a result of higher print logistics and freight brokerage services volume, higher pass-through postage sales for international mail services and an increase in premedia volume, partially offset by a decline in XBRL and compliance volume in financial services.

Products gross profit decreased $39.0 million to $954.7 million for the six months ended June 30, 2013 versus the same period in 2012 primarily due to price pressures, the prior year rebate adjustment, lower recoveries on print-related by-products, wage and other inflation in Latin America and Asia and lower volume and unfavorable mix in books and directories, variable print, commercial print and magazines, catalogs and retail inserts, partially offset by the suspension of the Company’s 401(k) match, reduced healthcare costs due to favorable claims experience and headcount reductions, higher volume in Asia, cost savings from restructuring activities and lower incentive compensation expense. Products gross margin decreased from 22.7% to 22.4%, reflecting price pressures, the prior year rebate adjustment, lower recoveries on print-related by-products, wage and other inflation in Latin America and Asia and unfavorable mix in certain products, partially offset by lower print management and paper pass-through sales, the suspension of the 401(k) match, reduced healthcare costs, cost savings from restructuring and lower incentive compensation expense.

Services gross profit increased $20.9 million to $201.8 million for the six months ended June 30, 2013 versus the same period in 2012 primarily due to higher sales in logistics as a result of the acquisitions of XPO and Presort, higher freight brokerage services and print logistics volume and higher pass-through postage sales for international mail services, as well as the suspension of the Company’s 401(k) match, an increase in premedia volume and reduced healthcare costs due to favorable claims experience and headcount reductions. These increases were partially offset by lower XBRL and compliance volume in financial services, price pressures in premedia and wage and other inflation and lower volume in business process outsourcing. Services gross margin decreased from 27.1% to 23.9%, reflecting pass-through postage sales from the acquisition of Presort and international mail services, price declines in premedia and wage and other inflation in business process outsourcing.

Selling, general and administrative expenses increased $17.0 million to $576.4 million, and increased from 11.1% to 11.3% as a percentage of net sales, for the six months ended June 30, 2013 versus the same period in 2012 reflecting a decline in pension and other postretirement benefits plan income and wage and other inflation in Latin America and Asia, partially offset by lower incentive and share-based compensation expense, the suspension of the Company’s 401(k) match, reduced healthcare costs due to favorable claims experience and headcount reductions and cost savings from restructuring activities.

For the six months ended June 30, 2013, the Company recorded net restructuring and impairment charges of $42.5 million compared to $84.0 million in the same period in 2012. In 2013, these charges included $16.1 million of employee termination costs for 579 employees, of whom 504 were terminated as of June 30, 2013. These charges were the result of the closing of two manufacturing facilities within the U.S. Print and Related Services segment and the reorganization of certain operations. Additionally, the Company incurred lease termination and other restructuring charges of $18.6 million for the six months ended June 30, 2013, including charges related to multi-employer pension plan withdrawal obligations. For the six months ended June 30, 2013, the Company also recorded $7.8 million of impairment charges primarily related to buildings and machinery and equipment associated with the facility closings.

Restructuring charges for the six months ended June 30, 2012 included $50.6 million of employee termination costs for 1,820 employees, substantially all of whom were terminated as of June 30, 2013. These charges were primarily the result of the reorganization of sales and administrative functions across all segments, as well as four manufacturing facility closures within the U.S. Print and Related Services segment, one manufacturing facility closure within the International segment and the reorganization of certain operations. Additionally, the Company incurred lease termination and other restructuring charges of $15.8 million for the six months ended June 30, 2012. The Company also recorded $17.6 million of impairment charges primarily related to machinery and equipment associated with the facility closings and other asset disposals for the six months ended June 30, 2012.

Depreciation and amortization decreased $21.3 million to $224.6 million for the six months ended June 30, 2013 compared to the same period in 2012, primarily due to the impairment of $158.0 million of other intangible assets in the fourth quarter of 2012 and the impact of lower capital spending in recent years compared to historical levels. Depreciation and amortization included $32.4 million and $46.4 million of amortization of other intangible assets related to customer relationships, patents, trademarks, licenses and agreements and trade names for the six months ended June 30, 2013 and 2012, respectively.

Income from operations for the six months ended June 30, 2013 was $313.0 million, an increase of 9.7% compared to the six months ended June 30, 2012. The increase was due to lower restructuring and impairment charges, reduced depreciation and amortization expense, the suspension of the Company’s 401(k) match, lower healthcare costs due to favorable claims experience and headcount reductions, lower incentive compensation expense and cost savings from restructuring activities, partially offset by price pressures, the prior year rebate adjustment, a decline in pension and other postretirement benefits plan income, wage and other inflation in Latin America and Asia, lower volume and unfavorable mix in certain products and lower recoveries on print-related by-products.

	Six Months Ended June 30,
	2013		2012		$ Change		% Change
	(in millions, except percentages)
Interest expense—net	$	128.3	$	124.3	$	4.0	3.2	%
Investment and other expense—net		9.5		3.6		5.9	163.9	%
Loss on debt extinguishment		35.6		12.1		23.5	194.2	%

Net interest expense increased by $4.0 million for the six months ended June 30, 2013 versus the same period in 2012, primarily due to higher average interest rates on senior notes, largely offset by lower average credit facility borrowings and associated fees.

Net investment and other expense for the six months ended June 30, 2013 and 2012 was $9.5 million and $3.6 million, respectively. For the six months ended June 30, 2013, the Company recorded $5.5 million of impairment losses on equity investments and a $3.2 million loss related to the devaluation of the Venezuelan currency. The six months ended June 30, 2012 included an impairment loss on an equity investment of $4.1 million.

Loss on debt extinguishment for the six months ended June 30, 2013 was $35.6 million related to the premiums paid, unamortized debt issuance costs and other expenses due to the repurchase of $173.5 million of the 6.125% senior notes due January 15, 2017, $130.2 million of the 8.60% senior notes due August 15, 2016 and $50.0 million of the 7.25% senior notes due May 15, 2018. Loss on debt extinguishment for the six months ended June 30, 2012 was $12.1 million due to the repurchase of $341.8 million of the 4.95% senior notes due April 1, 2014 and $100.0 million of the 5.50% senior notes due May 15, 2015. The loss consisted of $23.2 million related to the premiums paid, unamortized debt issuance costs and other expenses, partially offset by the elimination of $11.1 million of the fair value adjustment on the 4.95% senior notes.

	Six Months Ended June 30,
	2013			2012			$ Change			% Change
	(in millions, except percentages)
Earnings before income taxes	$	139.6		$	145.3		$	(5.7	)		(3.9	%)
Income tax expense		47.8			18.4			29.4			nm
Effective income tax rate		34.2	%		12.7	%

The effective income tax rate for the six months ended June 30, 2013 was 34.2 % compared to 12.7% in the same period in 2012. The 2012 income tax rate reflected the recognition of previously unrecognized tax benefits due to the resolution of certain U.S. federal uncertain tax positions and the release of valuation allowances on certain deferred tax assets in Europe.

Income (loss) attributable to noncontrolling interests was a loss of $0.7 million and income of $0.7 million for the six months ended June 30, 2013 and 2012, respectively. For the six months ended June 30, 2013, the devaluation of the Venezuelan currency resulted in a $1.0 million loss attributable to noncontrolling interests.

Net earnings attributable to RR Donnelley common shareholders for the six months ended June 30, 2013 was $92.5 million, or $0.51 per diluted share, compared to $126.2 million, or $0.69 per diluted share, for the six months ended June 30, 2012. In addition to the factors described above, the per share results reflect an increase in weighted average diluted shares outstanding of 1.2 million.

U.S. Print and Related Services

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

	Six Months Ended June 30,
	2013			2012
	(in millions, except percentages)
Net sales	$	3,763.3		$	3,727.4
Income from operations		326.6			304.9
Operating margin		8.7	%		8.2	%
Restructuring and impairment charges—net		32.7			65.8

	Net Sales for the Six Months Ended June 30,
Reporting unit	2013		2012		$ Change			% Change
	(in millions, except percentages)
Magazines, catalogs and retail inserts	$	811.7	$	865.1	$	(53.4	)	(6.2	%)
Variable print		594.3		576.4		17.9		3.1	%
Logistics		533.6		361.2		172.4		47.7	%
Books and directories		524.4		556.8		(32.4	)	(5.8	%)
Financial print		477.2		490.4		(13.2	)	(2.7	%)
Forms and labels		365.3		376.4		(11.1	)	(2.9	%)
Commercial		256.9		277.7		(20.8	)	(7.5	%)
Office products		121.5		147.2		(25.7	)	(17.5	%)
Premedia		78.4		76.2		2.2		2.9	%
Total U.S. Print and Related Services	$	3,763.3	$	3,727.4	$	35.9		1.0	%

Net sales for the U.S. Print and Related Services segment for the six months ended June 30, 2013 were $3,763.3 million, an increase of $35.9 million, or 1.0%, compared to the same period in 2012. Net sales increased due to an increase in logistics sales, primarily due to acquisitions, higher print logistics and freight brokerage services volume and higher pass-through postage sales for international mail services, as well as an increase in premedia volume. These increases were partially offset by price pressures primarily in magazines, catalogs and retail inserts, decreases in pass-through paper sales, a decline in XBRL and compliance volume in financial services, lower volume and unfavorable mix in commercial print, magazines, catalogs and retail inserts and books and directories and the $19.8 million prior year adjustment to net sales to correct for an over-accrual of rebates due to certain office products customers. An analysis of net sales by reporting unit follows:

—	Magazines, catalogs and retail inserts: Sales declined due to price pressures, reduced volume in magazines and decreases in pass-through paper sales.

—	Variable print: Sales increased as a result of the acquisition of Meisel and higher direct mail and statement printing volume, partially offset by lower print and fulfillment volume and price declines.

—

Logistics: Sales increased primarily due to the acquisition of Presort, which includes pass-through postage sales, the acquisition of XPO, higher print logistics and freight brokerage services volume, higher pass-through postage sales and volume for international mail services and an increase in courier services volume.

—

Books and directories: Sales decreased primarily as a result of a decline in pass-through paper sales and lower volume in directories, unfavorable mix in educational books and a decline in consumer books volume, partially offset by an increase in book fulfillment, packaging and testing materials volume and favorable pricing.

—	Financial print: Sales decreased due to lower XBRL and compliance volume and lower volume and pass-through postage sales for investment management products, partially offset by an increase in capital markets transactions activity and sales from the acquisition of Edgar Online.

—	Forms and labels: Sales decreased due to lower forms volume and price pressures, partially offset by higher volume in labels, primarily for consumer goods, and an increase in outsourced products volume.

—	Commercial: Sales decreased due to lower volume from existing customers, partially offset by higher pass-through print management volume.

—	Office products: Sales decreased as a result of the prior year rebate adjustment , lower filing and forms, note taking and outsourced products volume and price declines, partially offset by an increase in binder products volume.

—	Premedia: Sales increased due to higher photography, creative and prepress services volume, partially offset by price pressures in prepress services.

U.S. Print and Related Services segment income from operations increased $21.7 million for the six months ended June 30, 2013 compared to the same period in 2012, mainly driven by lower restructuring and impairment charges, reduced depreciation and amortization expense, cost savings from restructuring activities and lower incentive compensation expense, partially offset by price pressures, lower volume and unfavorable mix in books and directories, variable print, commercial print and magazines, catalogs and retail inserts, the prior year rebate adjustment and lower recoveries on print-related by-products. Operating margins increased from 8.2% for the six months ended June 30, 2012 to 8.7% for the six months ended June 30, 2013, due to lower restructuring and impairment charges, lower depreciation and amortization expense, a decline in pass-through paper sales and lower incentive compensation expense, partially offset by price declines, the rebate adjustment, unfavorable mix in certain products, lower recoveries on print-related by-products and increased pass-through postage sales.

International

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

	Six Months Ended June 30,
	2013			2012
	(in millions, except percentages)
Net sales	$	1,346.8		$	1,326.1
Income from operations		70.5			72.6
Operating margin		5.2	%		5.5	%
Restructuring and impairment charges—net		7.8			8.9

	Net Sales for the Six Months Ended June 30,
Reporting unit	2013		2012		$ Change			% Change
	(in millions, except percentages)
Asia	$	361.5	$	310.8	$	50.7			16.3	%
Business process outsourcing		256.4		309.1		(52.7	)		(17.0	%)
Latin America		223.9		221.3		2.6			1.2	%
Europe		212.3		195.4		16.9			8.6	%
Global Turnkey Solutions		151.4		148.9		2.5			1.7	%
Canada		141.3		140.6		0.7			0.5	%
Total International	$	1,346.8	$	1,326.1	$	20.7			1.6	%

Net sales for the International segment for the six months ended June 30, 2013 were $1,346.8 million, an increase of $20.7 million, or 1.6%, compared to the same period in 2012, including a $3.4 million, or 0.3%, decrease due to changes in foreign exchange rates. The net sales increase was due to higher volume in Asia, increased pass-through paper sales in Asia and Europe and an increase in financial print and related services volume, partially offset by lower pass-through sales in print management and lower volume in business process outsourcing and price pressures. An analysis of net sales by reporting unit follows:

—	Asia: Sales increased due to higher book export volume, increased pass-through paper sales, changes in foreign exchange rates and higher volume in packaging products and technology manuals, partially offset by price pressures and a decline in capital markets transactions activity.

—

Business process outsourcing: Sales decreased due to lower pass-through sales in print management primarily due to the loss of a customer, lower real estate outsourcing services, the loss of a customer in outsourcing services, lower volume in staffing services and direct mail volume and changes in foreign exchange rates.

—	Latin America: Sales increased due to price increases driven by inflation, higher forms, security products and books volume and an increase in capital markets transactions activity, partially offset by changes in foreign exchange rates and lower catalog and magazine volume.

—

Europe: Sales increased due to an increase in print and packaging volume, changes in foreign exchange rates, higher pass through paper sales, higher retail inserts and magazine volume, an increase in capital markets transactions activity and higher translation services volume, partially offset by a decline in technology manuals and directories volume and price pressures.

—	Global Turnkey Solutions: Sales increased due to volume increases from new customers and changes in foreign exchange rates, partially offset by lower volume from existing customers and price pressures.

—	Canada: Sales increased due to increases in statement printing and compliance volume, partially offset by changes in foreign exchange rates and lower commercial volume.

Income from operations decreased $2.1 million primarily due to wage and other inflation in Latin America and Asia, price pressures and lower recoveries on print-related by-products, largely offset by higher volume in Asia, reduced depreciation and amortization expense, cost savings from restructuring activities and lower restructuring and impairment expense. Operating margins decreased from 5.5% for the six months ended June 30, 2012 to 5.2% for the six months ended June 30, 2013, reflecting wage and other inflation, price pressures, higher pass-through paper sales and lower recoveries on print-related by products.

Corporate

The following table summarizes unallocated operating expenses and certain items impacting comparability within the Corporate segment:

	Six Months Ended June 30,
	2013		2012
	(in millions)
Operating expenses	$	84.1	$	92.2
Restructuring and impairment charges—net		2.0		9.3
Acquisition-related expenses		1.1		0.8

Corporate operating expenses in the six months ended June 30, 2013 were $84.1 million, a decrease of $8.1 million compared to the same period in 2012. The decrease was driven by the suspension of the Company’s 401(k) match, reduced healthcare costs due to favorable claims experience and headcount reductions, lower restructuring and impairment charges and lower share-based and incentive compensation expense, partially offset by lower pension and other postretirement benefits plan income and higher depreciation and amortization expense, primarily due to an increase in software amortization expense.

LIQUIDITY AND CAPITAL RESOURCES

The following describes the Company’s cash flows for the six months ended June 30, 2013 and 2012.

Cash Flows From Operating Activities

Operating cash inflows are largely attributable to sales of the Company’s products and services. Operating cash outflows are largely attributable to recurring expenditures for raw materials, labor, rent, interest, taxes and other operating activities.

Net cash provided by operating activities was $57.9 million for the six months ended June 30, 2013, compared to $9.9 million for the same period in 2012. The increase in net cash provided by operating activities reflected higher net sales and improved invoicing cycle time and collections efforts, lower payments related to incentive compensation, the 2013 suspension of the Company’s 401(k) match and lower pension and other postretirement benefit plan contributions, partially offset by higher supplier payments in the first half of 2013 due to timing and higher cash payments for income taxes.

Cash Flows From Investing Activities

Net cash used in investing activities for the six months ended June 30, 2013 was $78.6 million compared to $89.9 million for the six months ended June 30, 2012. Capital expenditures were $84.3 million during the first half of 2013, a decrease of $9.4 million as compared to the same period of 2012. The Company expects that capital expenditures for 2013 will be approximately $200 million to $225 million, compared to $205.9 million in 2012.

Cash Flows From Financing Activities

Net cash used in financing activities for the six months ended June 30, 2013 was $44.9 million compared to net cash provided by financing activities of $1.6 million in the same period in 2012. During the six months ended June 30, 2013, the Company received proceeds of $447.8 million from the issuance of 7.875% senior notes due March 15, 2021, which were used to repurchase $173.5 million of the 6.125% senior notes due January 15, 2017, $130.2 million of the 8.60% senior notes due August 15, 2016 and $50.0 million of the 7.25% senior notes due May 15, 2018 and to reduce borrowings under the Company’s Credit Agreement. During the six months ended June 30, 2012, proceeds from borrowings under the Company’s previous $1.75 billion revolving credit agreement (the “Previous Credit Agreement”) of $260.0 million were used to pay $158.6 million of the 5.625% senior notes that matured during the first quarter. Additionally, during the six months ended June 30, 2012, the Company received proceeds of $450.0 million from the issuance of 8.25% senior notes due March 15, 2019, which, along with cash on hand, were used to repurchase $341.8 million of the 4.95% senior notes due April 1, 2014 and $100.0 million of the 5.50% senior notes due May 15, 2015.

Dividends

During the six months ended June 30, 2013, the Company paid cash dividends of $94.0 million. On July 26, 2013, the Board of Directors of the Company declared a quarterly cash dividend of $0.26 per common share payable on September 3, 2013 to RR Donnelley shareholders of record on August 15, 2013.

LIQUIDITY

The Company believes it has sufficient liquidity to support its ongoing operations and to invest in future growth to create value for its shareholders. Operating cash flows and the Credit Agreement are the Company’s primary sources of liquidity and are expected to be used for, among other things, payment of interest and principal on the Company’s long term debt obligations, capital expenditures as necessary to support productivity improvement and growth, completion of restructuring programs, acquisitions and distributions to shareholders that may be approved by the Board of Directors.

Cash and cash equivalents of $354.4 million as of June 30, 2013 included $105.0 million in the U.S. and $249.4 million at international locations. During the second half of 2013, the Company’s foreign subsidiaries are expected to make intercompany payments to the U.S. of approximately $40 million from foreign cash balances as of June 30, 2013. These payments, and additional payments up to approximately $340 million expected to be made in future years, will be made in satisfaction of intercompany obligations. The Company has recognized deferred tax liabilities of $5.5 million as of June 30, 2013 related to local withholding taxes on certain foreign earnings that are not considered to be permanently reinvested. Certain other cash balances of foreign subsidiaries may be subject to U.S. or local country income or withholding taxes if repatriated to the U.S. In addition, repatriation of some foreign cash balances is further restricted by local laws. Management regularly evaluates whether foreign cash balances are expected to be permanently reinvested. This evaluation requires judgment about the future operating and liquidity needs of the Company’s foreign subsidiaries. Changes in economic and business conditions, foreign or U.S. tax laws, or the Company’s financial situation could result in changes to these judgments and the need to record additional tax liabilities.

The Company’s debt maturities as of June 30, 2013 are shown in the following table:

	Debt Maturity Schedule
	Total		2013		2014		2015		2016		2017		Thereafter
	(in millions)
Senior notes, debentures and borrowings under the Credit Agreement ^(a)	$	3,501.6	$	—	$	258.2	$	300.0	$	219.8	$	351.5	$	2,372.1
Capital lease obligations		2.9		0.4		0.9		1.0		0.6		—		—
Miscellaneous debt obligations		18.0		15.0		—		3.0		—		—		—
Total	$	3,522.5	$	15.4	$	259.1	$	304.0	$	220.4	$	351.5	$	2,372.1

^(a)	Excludes a debt discoun t of $5.4 million and a debt adjustment for fair value hedges of $1.8 million related to the Company’s 4.95% senior notes due April 1, 2014 and 8.25% senior notes due March 15, 2019, which do not represent contractual commitments with a fixed amount or maturity date.

The Company has a $1.15 billion senior secured revolving Credit Agreement which expires October 15, 2017. Borrowings under the Credit Agreement bear interest at a base or Eurocurrency rate plus an applicable margin determined at the time of the borrowing. In addition, the Company pays facility commitment fees which, subsequent to April 15, 2013, fluctuate dependent on the Credit Agreement’s credit ratings. The Credit Agreement is used for general corporate purposes, including acquisitions and letters of credit. The Company’s obligations under the Credit Agreement are guaranteed by its material domestic subsidiaries and are secured by

a pledge of the equity interests of certain subsidiaries, including most of its domestic subsidiaries, and a security interest in substantially all of the domestic current assets and mortgages of certain domestic real property of the Company.

The Credit Agreement is subject to a number of covenants, including a minimum Interest Coverage Ratio and a maximum Leverage Ratio, as defined and calculated pursuant to the Credit Agreement, that, in part, restrict the Company’s ability to incur additional indebtedness, create liens, engage in mergers and consolidations, make restricted payments and dispose of certain assets and may also limit the use of proceeds. There were no borrowings under the Credit Agreement as of June 30, 2013. Based on the Company’s results of operations for the twelve months ended June 30, 2013 and existing debt, the Company would have had the ability to utilize $1.0 billion of the $1.15 billion Credit Agreement and not have been in violation of the terms of the agreement.

The current availability as of June 30, 2013 under the Credit Agreement is shown in the table below:

	June 30, 2013
Availability	(in millions)
Committed Credit Agreement	$	1,150.0
Availability reduction from covenants		162.3
Current availability at June 30, 2013	$	987.7

The Company was in compliance with its debt covenants as of June 30, 2013, and expects to remain in compliance based on management’s estimates of operating and financial results for 2013 and the foreseeable future. However, declines in market and economic conditions or demand for certain of the Company’s products and services could impact the Company’s ability to remain in compliance with its debt covenants in future periods. As of June 30, 2013, the Company met all the conditions required to borrow under the Credit Agreement and management expects the Company to continue to meet the applicable borrowing conditions.

The failure of a financial institution supporting the Credit Agreement would reduce the size of the Company’s committed facility unless a replacement institution were added. Currently, the Credit Agreement is supported by fifteen U.S. and international financial institutions.

The Company also had $191.5 million in credit facilities outside the U.S. as of June 30, 2013, most of which were uncommitted. As of June 30, 2013, the Company had $77.9 million in outstanding letters of credit and bank guarantees, of which $43.9 million were issued under the Credit Agreement.

On August 1, 2012, Standard & Poor’s Rating Services (“S&P”) lowered the Company’s long-term corporate credit and senior unsecured debt ratings from BB+ with a negative outlook to BB with a stable outlook. On September 19, 2012, S&P assigned a rating of BBB- to the Credit Agreement. On November 6, 2012, S&P reaffirmed Company’s long-term corporate credit rating of BB and revised the outlook from stable to negative.

On September 19, 2012, Moody’s Investors Service (Moody’s) lowered the Company’s senior unsecured debt ratings from Ba2 to Ba3, assigned a rating of Baa2 to the Credit Agreement and reaffirmed the Company’s long-term corporate family rating of Ba2 with a negative outlook.

On February 28, 2013, Moody’s and S&P assigned a rating of Ba3 and BB, respectively, to the Company’s $450.0 million 7.875% senior notes due March 15, 2021 and Moody’s reaffirmed the Company’s long-term corporate family rating and negative outlook.

As a result of the August 1, 2012 downgrade by S&P, the interest rate on the Company’s 11.25% senior notes due February 1, 2019 was increased from 12.0%, as of the June 13, 2012 downgrade by Moody’s, to 12.25%. The September 19, 2012 downgrade by Moody’s further increased the rate on these notes from 12.25% to 12.50%. Subsequent to April 15, 2013, the applicable margin used in the calculation of interest on borrowings under the Credit Agreement and rate for the related facility commitment fees fluctuate dependent on the Credit Agreement’s credit ratings. The terms and conditions of future borrowings may also be impacted as a result of ratings downgrades.

Acquisitions

During the three months ended December 31, 2012, the Company paid $37.5 million, net of cash acquired, to purchase Presort and Meisel. During the three months ended September 30, 2012, the Company paid $90.1 million, net of cash acquired, to purchase EDGAR Online and XPO. The Company financed these acquisitions with a combination of cash on hand and borrowings under the Credit Agreement and the Previous Credit Agreement.

Debt Issuances

RISK MANAGEMENT

The Company is exposed to interest rate risk on its variable debt and price risk on its fixed-rate debt. At June 30, 2013, the Company’s exposure to rate fluctuations on variable-interest borrowings was $676.0 million, including $658.0 million notional value of interest rate swap agreements (See Note 15, Derivatives , to the Condensed Consolidated Financial Statements) and $18.0 million in borrowings under international credit facilities and other long-term debt. Including the effect of the fixed to floating interest rate swaps, approximately 81% of the Company’s outstanding term debt was comprised of fixed-rate debt as of June 30, 2013.

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 in many countries 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 that borrowings, sales, purchases, revenues, expenses or other transactions are not in the local currency of the subsidiary, the Company is exposed to currency risk and may enter into foreign exchange spot and forward contracts to hedge the currency risk. As of June 30, 2013, the aggregate notional amount of outstanding foreign exchange forward contracts was approximately $504.6 million (see Note 15, Derivatives , to the Condensed Consolidated Financial Statements). Net unrealized losses from these foreign exchange forward contracts were $9.5 million at June 30, 2013. The Company does not use derivative financial instruments for trading or speculative purposes.

The Company assesses market risk based on changes in interest rates utilizing a sensitivity analysis that measures the potential loss in earnings, fair values and cash flows based on a hypothetical 10% change in interest rates. Using this sensitivity analysis, such changes would not have a material effect on interest income or expense and cash flows and would change the fair values of fixed-rate debt at June 30, 2013 by approximately $103.1 million.

OTHER INFORMATION

Environmental, Health and Safety

For a discussion of certain environmental, health and safety issues involving the Company, see Note 13, Commitments and Contingencies, to the Condensed Consolidated Financial Statements.

Litigation and Contingent Liabilities

For a discussion of certain litigation involving the Company, see Note 13, Commitments and Contingencies, to the Condensed Consolidated Financial Statements.

New Accounting Pronouncements and Pending Accounting Standards

During the six months ended June 30, 2013, the Company adopted various accounting standards. See Note 17, New Accounting Pronouncements , to the Condensed Consolidated Financial Statements for a description of the accounting standards adopted during the six months ended June 30, 2013.

Pending standards and their estimated effect on the Company’s consolidated financial statements are described in Note 17, New Accounting Pronouncements , to the Condensed Consolidated Financial Statements.

CAUTIONARY STATEMENT

We have 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,” “might,” “could,” “would,” “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. The following important factors, in addition to those discussed elsewhere in this Quarterly Report on 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:

—	the volatility and disruption of the capital and credit markets, and adverse changes in the global economy;

—	successful execution and integration of acquisitions;

—	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, systems integration and other key strategies;

—	the ability to divest non- core businesses;

—	future growth rates in the Company ’s core businesses;

—	competitive pressures in all markets in which the Company operates;

—	the Company ’s ability to access debt and the capital markets and the ability of our counterparties to perform their contractual obligations under our lending and insurance agreements;

—	changes in technology, including electronic substitution and migration of paper based documents to digital data formats;

—	factors that affect customer demand, including changes in postal rates, postal regulations and service levels, changes in the capital markets, changes in advertising markets, customers ’ budgetary constraints and changes in customers’ 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 and financial strength;

—	performance issues with key suppliers;

—	changes in the availability or costs of key materials (such as ink, paper and fuel) or in prices received for the sale of by- products;

—	changes in ratings of the Company ’s debt securities;

—	the ability of the Company to comply with covenants under its credit agreement and indentures governing its debt securities;

—	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, environmental compliance (including the emission of greenhouse gases and other air pollution controls), health and welfare benefits (including the Patient Protection and Affordable Care Act, as modified by the Health Care and Education Reconciliation Act, and further healthcare reform initiatives), price controls and other regulatory matters and the cost, which could be substantial, 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 failure to properly use and protect customer information and data;

—	the effect of labor disruptions or labor shortages;

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

—	the effect of economic weakness and constrained advertising;

—	uncertainty about future economic conditions;

—	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;

—	disruptions to the Company ’s operations resulting from possible natural disasters, interruptions in utilities and similar events;

—	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 on Form 10-Q 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 on Form 10-Q to reflect any new events or any change in conditions or circumstances.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

(a)	Disclosure controls and procedures.

As required by Rule 13a-15(b) and Rule 15d-15(e) of the Securities Exchange Act of 1934, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. As of June 30, 2013, an evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures as of June 30, 2013 were effective in ensuring information required to be disclosed in our SEC reports was recorded, processed, summarized, and reported within the time periods specified in the SEC’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.

(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) under the Securities Exchange Act of 1934) that occurred during the quarter ended June 30, 2013 that had materially affected, or were 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	Total Number of Shares Purchased(a)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
April 1, 2013 – April 30, 2013		—	$	—		—	$	—
May 1, 2013 – May 31, 2013		24,929		12.88		—	$	—
June 1, 2013 – June 30, 2013		55,828		13.27		—	$	—
Total		80,757	$	13.15		—

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

The Credit Agreement generally allows annual dividend payments of up to $200.0 million in aggregate, though additional dividends may be allowed subject to certain conditions. See Exhibit 4.6 for additional details.

Item 4: Mine Safety Disclosures

Not applicable

Item 6. Exhibits


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		By-Laws (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K dated February 16, 2012, filed on February 21, 2012)

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 October 15, 2012, among the Company, as the borrower, certain of its subsidiaries, as guarantors, the lenders party thereto, 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 October 15, 2012, filed on October 16, 2012)

10.1		Policy on Retirement Benefits, Phantom Stock Grants and Stock Options for Directors (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, filed on August 6, 2008)*

10.2		Non-Employee Director Compensation Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, filed on August 1, 2012)*

10.3		Directors’ Deferred Compensation Agreement, as amended (incorporated by reference to Exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, filed on November 12, 1998)*

10.4		Amended and Restated Non-Qualified Deferred Compensation Plan (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, filed on February 27, 2008)*

10.5		2012 Performance Incentive Plan (filed herewith)*

10.6		Amended and Restated R.R. Donnelley & Sons Company Unfunded Supplemental Benefit Plan (incorporated by reference to Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, filed on November 3, 2010)*

10.7		Amendment to Amended and Restated R.R. Donnelley & Sons Company Unfunded Supplemental Benefit Plan (incorporated by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, filed on November 3, 2010)*

10.8		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)*

10.9		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)*

10.10		Form of Cash Bonus Agreement for certain executive officers (incorporated by reference to Exhibit 10.16 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, filed on May 5, 2010)*

10.11		Form of Restricted Stock Unit Award Agreement for certain executive officers, as amended (incorporated by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed on February 25, 2009)*

10.12		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)*

10.13		Form of Restricted Stock Unit Award Agreement for directors (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, filed on February 27, 2008)*

10.14		Form of Amendment to Director Restricted Stock Unit Awards dated May 21, 2009 (incorporated by reference to Exhibit 10.23 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, filed on August 5, 2009)*

10.15		Form of Amendment to Director Restricted Stock Unit Awards (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed on February 25, 2009)*

10.16		Form of Restricted Stock Unit Award Agreement for directors (incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed on February 25, 2009)*

10.17		Form of Director Restricted Stock Unit Awards (incorporated by reference to Exhibit 10.26 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, filed on August 5, 2009)*

10.18		Form of Performance Share Unit Award Agreement (incorporated by reference to Exhibit 10.28 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, filed May 4, 2011)*

10.19		Form of Performance Share Unit Award Agreement (incorporated by reference to Exhibit 10.29 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, filed May 2, 2012)*

10.20		Form of Performance Share Unit Award Agreement (incorporated by reference to Exhibit 10.20 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, filed April 25, 2013)*

10.21		Form of Cash Retention Award Agreement (incorporated by reference to Exhibit 10.21 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, filed April 25, 2013)*

10.22		Form of Cash Bonus Award Agreement for certain executive officers (incorporated by reference to Exhibit 10.30 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, filed May 2, 2012)*

10.23		Amended and Restated Employment Agreement dated as of November 30, 2008 between the Company and Thomas J. Quinlan, III (incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed on February 25, 2009)*

10.24		Amended and Restated Employment Agreement dated as of November 30, 2008 between the Company and John R. Paloian (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed on February 25, 2009)*

10.25		Amended and Restated Employment Agreement dated as of November 28, 2008 between the Company and Daniel L. Knotts (incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed on February 25, 2009)*

10.26		Amended and Restated Employment Agreement dated as of December 18, 2008 between the Company and Suzanne S. Bettman (incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed on February 25, 2009)*

10.29		Amended and Restated Employment Agreement dated as of May 3, 2011 between the Company and Daniel N. Leib (incorporated by reference to Exhibit 10.34 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, filed May 4, 2011)*

10.30		Amended and Restated Employment Agreement dated as of November 21, 2008 between the Company and Andrew B. Coxhead (incorporated by reference to Exhibit 10.30 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, filed April 25, 2013)*

10.31		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)*

10.32		Amended and Restated Management by Objective Plan (incorporated by reference to Exhibit 10.32 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, filed April 25, 2013)*

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, 2012, filed on February 26, 2013)

31.1		Certification by Thomas J. Quinlan, III, President and 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 Daniel N. Leib, Executive Vice President and 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, President and 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 Daniel N. Leib, Executive Vice President and 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)

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

*	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/ D ANIEL N. L EIB
		Daniel N. Leib
		Executive Vice President and Chief Financial Officer

By:		/S/ A NDREW B. C OXHEAD
		Andrew B. Coxhead
		Senior Vice President and Chief Accounting Officer

Date: July 30, 2013

EXHIBIT 10.5

R.R. DONNELLEY & SONS COMPANY

2012 PERFORMANCE INCENTIVE PLAN

(as adopted by the Board of Directors on April 5, 2012)

I. General

1. Plan . To provide incentives to officers, other employees and other persons providing services to R.R. Donnelley & Sons Company (the “Company”) through rewards based upon the ownership or performance of the common stock, par value $1.25 per share, of the Company (“common stock”) or other performance measures, the Committee hereinafter designated may grant cash or bonus awards, stock options, stock appreciation rights (“SARs”), restricted stock, stock units or combinations thereof, to eligible participants, on the terms and subject to the conditions stated in this 2012 Performance Incentive Plan (the “Plan”). In addition, to provide incentives to members of the Board of Directors (the “Board”) who are not employees of the Company (“non-employee directors”), such non-employee directors are eligible to receive awards as set forth in Article V of the Plan. For purposes of the Plan, references to employment by or service to the Company also means employment by or service to a direct or indirect majority-owned subsidiary of the Company and employment by or service to any other entity designated by the Board or the Committee in which the Company has a direct or indirect equity interest.

2. Eligibility . Officers and other employees of, and other persons providing services to the Company (“participants”) shall be eligible, upon selection by the Committee, to receive cash or bonus awards, stock options, SARs, restricted stock and stock units, either singly or in combination, as the Committee, in its discretion, shall determine. In addition, non-employee directors shall receive awards on the terms and subject to the conditions stated in the Plan.

3. Limitation on Shares to be Issued . Subject to adjustment as provided in Section 5 of this Article I, 10,000,000 shares of common stock shall be available under the Plan, reduced by the aggregate number of shares of common stock which become subject to outstanding bonus awards, stock options, SARs which are not granted in tandem with or by reference to a stock option (“free-standing SARs”), restricted stock awards and stock unit awards. Shares subject to a grant or award under the Plan which are not issued or delivered, by reason of the expiration, termination, cancellation or forfeiture of all or a portion of the grant or award or the settlement of the grant or award in cash shall again be available for future grants and awards under the Plan; provided, however , that for purposes of this sentence, stock options and SARs granted in tandem with or by reference to a stock option granted prior to the grant of such SARs (“tandem SARs”) shall be treated as one grant. Shares tendered or withheld upon exercise of an option, vesting of restricted stock or stock units, settlement of an SAR or upon any other event to pay exercise price or tax withholding shall not be available for future issuance under the Plan. In addition, upon exercise of an SAR, the total number of shares remaining available for issuance under the Plan shall be reduced by the gross number of shares for which the SAR is exercised.

For the purpose of complying with Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and the rules and regulations thereunder, the maximum number of shares of common stock with respect to which options or SARs or a combination thereof may be granted during any calendar year to any person shall be 1,500,000, subject to adjustment as provided in Section 5 of this Article I; provided, however , that for purposes of this sentence, stock options and tandem SARs shall be treated as one grant. If the Plan becomes effective, no new grants shall be made under any equity plan of the Company that is in effect as of the date immediately prior to the date of stockholder approval of the Plan (the “Existing Company Plans”) and all such Existing Company Plans shall be terminated, provided, however , that such termination shall have no effect on any outstanding awards granted under any Existing Company Plan.

Shares of common stock to be issued may be treasury shares reacquired by the Company or authorized and unissued shares, or a combination of both.

4. Administration of the Plan . The Plan shall be administered by a Committee designated by the Board (the “Committee”), provided that the Board may designate a separate committee, also meeting the requirements set forth in the following sentence, to administer Article V hereof. Each member of the Committee shall be a director that the Board has determined to be (i) an “outside director” within the meaning of Section 162(m) of the Code, (ii) a “Non-Employee Director” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and (iii) “independent” within the meaning of the rules of the principal stock exchange on which the common stock is traded. The Committee shall, subject to the terms of the Plan, select eligible participants for grants and awards; determine the form of each grant and award, either as cash, bonus awards, stock options, SARs, restricted stock awards, stock unit awards or a combination thereof; and determine the number of shares or units subject to the grant or award, the fair market value of the common stock or units when necessary, the timing and conditions of vesting, exercise or settlement, whether dividends or dividend equivalents accrue under any award, and all other terms and conditions of each grant and award, including, without limitation, the form of instrument evidencing the grant or award. Notwithstanding the foregoing, all stock option awards, SARs, restricted stock awards and stock unit awards, other than awards that are subject to performance-based vesting

EXHIBIT 10.5

conditions over a performance period of at least one year, shall have a minimum vesting period of at least three years from the date of grant (such vesting may, in the discretion of the Committee, occur in full at the end of such period or may occur in specified installments over such period, provided that no more than 40% of any particular award may vest by the end of the first year following the date of grant and no more than 80% of any particular award may vest by the end of the second year following the date of grant); provided, however , that the Committee may provide for early vesting upon the death, permanent and total disability, retirement or termination of service of the award recipient. The Committee may also waive this minimum vesting-period requirement (A) with respect to awards made to newly hired employees, (B) to accelerate vesting of awards made to existing employees affected by workforce reductions, (C) in similar circumstances, as determined by the Committee in the exercise of its discretion and (D) as otherwise required by law or the terms of the Plan. The Committee may establish rules and regulations for the administration of the Plan, interpret the Plan, and impose, incidental to a grant or award, conditions with respect to competitive employment or other activities not inconsistent with the Plan. All such rules, regulations, interpretations and conditions shall be conclusive and binding on all parties. Notwithstanding anything in this Plan to the contrary and subject to Section 5 of this Article I, to the extent required by the Nasdaq Stock Market, or any other stock exchange on which shares of Common Stock are traded, the Committee will not amend or replace any previously granted option or SAR in a transaction that constitutes a repricing, without the approval of the stockholders of the Company.

Each grant and award shall be evidenced by a written instrument and no grant or award shall be valid until an agreement is executed by the Company and such grant or award shall be effective as of the effective date set forth in the agreement. The Committee may delegate some or all of its power and authority hereunder to the chief executive officer or other executive officer of the Company as the Committee deems appropriate; provided, however , that the Committee may not delegate its power and authority with regard to (i) the selection for participation in the Plan of (A) a person who is a “covered employee” within the meaning of Section 162(m) of the Code or who, in the Committee’s judgment, is likely to be a covered employee at any time during the period a grant or award hereunder to such participant would be outstanding, (B) an officer or other person subject to Section 16 of the Exchange Act or (C) a person who is not an employee of the Company or (ii) decisions concerning the time, pricing or amount of a grant or award to a participant, officer or other person described in clause (i) above. A majority of the Committee shall constitute a quorum. The acts of the Committee shall be either (i) acts of a majority of the members of the Committee present at any meeting at which a quorum is present or (ii) acts approved in writing by all of the members of the Committee without a meeting.

5. Adjustments . In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event affecting the Company or its common stock, or any distribution to holders of the Company’s common stock other than a regular cash dividend, the number, class and kind of securities (including, for this purpose, securities of any other entity that is a party to such transaction) available under the Plan, the specific share limitations otherwise set forth in the Plan, the number, class and kind of securities (including, for this purpose, securities of any other entity that is a party to such transaction) subject to each outstanding bonus award, the number, class and kind of securities (including, for this purpose, securities of any other entity that is a party to such transaction) subject to each outstanding stock option and the purchase price per security and the terms of each outstanding SAR shall be appropriately adjusted by the Committee, such adjustments to be made in the case of outstanding stock options and SARs without an increase in the aggregate purchase price or base price. For purposes of the Plan, the fair market value of the common stock on a specified date shall be the closing market price of the common stock on such date, or, if no such trading in the common stock occurred on such date, then on the next preceding date when such trading occurred.

6. Effective Date and Term of Plan . The Plan shall be submitted to the stockholders of the Company for approval at the next meeting of stockholders held following the Board’s adoption of the Plan and, if approved, shall become effective on the date of such stockholder approval. The Plan shall terminate on the date on which shares are no longer available for grants or awards under the Plan, unless terminated prior thereto by action of the Board; provided, however that if the Plan itself has not previously terminated, Section 1 of Article V shall terminate on the date that is ten years from the date of stockholder approval of the Plan. No further grants or awards shall be made under the Plan after termination, but termination shall not affect the rights of any participant under any grants or awards made prior to termination.

7. Amendments . The Plan may be amended or terminated by the Board in any respect except that no amendment may be made without stockholder approval if stockholder approval is required by applicable law, rule or regulation, including Section 162(m) of the Code, or such amendment would increase (subject to Section 5 of this Article I) the number of shares available under the Plan or would amend the prohibition on repricing of awards set forth in Section 4 of this Article I or otherwise permit the repricing of awards granted hereunder. No amendment may impair the rights of a holder of an outstanding grant or award without the consent of such holder.

EXHIBIT 10.5

II. Bonus Awards

1. Form of Award . Bonus awards, whether performance awards or fixed awards, may be made to eligible participants in the form of (i) cash, whether in an absolute amount or as a percentage of compensation, (ii) stock units, each of which is substantially the equivalent of a share of common stock but for the power to vote and, if the Committee so determines, in its sole discretion, the entitlement to an amount equal to dividends or other distributions otherwise payable on a like number of shares of common stock, (iii) shares of common stock issued to the participant but forfeitable and with restrictions on transfer in any form as hereinafter provided or (iv) any combination of the foregoing.

2. Performance Awards . (a) Awards may be made in terms of a stated potential maximum dollar amount, percentage of compensation or number of units or shares, with such actual amount, percentage or number to be determined by reference to the level of achievement of corporate, sector, business unit, division, individual or other specific performance goals over a performance period of not less than one nor more than ten years, as determined by the Committee.

(b) In no event shall any participant receive a payment with respect to any performance award if the minimum threshold performance goals requirement applicable to the payment is not achieved during the performance period.

(c) If the Committee desires that compensation payable pursuant to performance awards be “qualified performance-based compensation” within the meaning of Section 162(m) of the Code, then with respect to such performance awards, for any calendar year (i) the maximum compensation payable pursuant to any such performance awards granted during such year, to the extent payment thereunder is determined by reference to shares of common stock (or the fair market value thereof), shall not exceed 900,000 shares of common stock (or the fair market value thereof), subject to adjustment as set forth in Section 5 of Article I, and (ii) the maximum compensation payable pursuant to any such performance awards granted during such year, to the extent payment is not determined by reference to shares of common stock, shall not exceed $9,000,000. The limits set forth in this Section (c) of Article II shall be proportionately increased for performance periods that are longer than 12 months.

(d) The Committee may provide in any agreement evidencing a performance award under the Plan that the Committee shall retain sole discretion to reduce the amount of or eliminate any payment otherwise payable to a participant with respect to any performance award. If so provided in any agreement evidencing a performance award, the Committee may exercise such discretion by establishing conditions for payments in addition to the performance goals, including the achievement of financial, strategic or individual goals, which may be objective or subjective, as it deems appropriate.

(e) For purposes of the Plan, “performance goals” means the objectives established by the Committee which shall be satisfied or met during the applicable performance period as a condition to a participant’s receipt of all or a part of a performance-based award under the Plan. The performance goals shall be tied to one or more of the following business criteria, determined with respect to the Company or the applicable sector, business unit or division: net sales; cost of sales; gross profit; earnings from operations; earnings before interest, taxes, depreciation and amortization; earnings before income taxes; earnings before interest and taxes; cash flow measures; return on equity; return on assets; return on net assets employed; return on capital; working capital; leverage ratio; stock price measures; enterprise value; safety measures; net income per common share (basic or diluted); EVA ^™ (Economic Value Added, which represents the cash operating earnings of the Company after deducting a charge for capital employed); cost reduction objectives or, in the case of awards not intended to be “qualified performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code, any other similar criteria established by the Plan Committee for the applicable performance period. The Committee may provide in any agreement evidencing a performance award under the Plan that the Committee shall amend or adjust the performance goals or other terms or conditions of an outstanding award in recognition of unusual or nonrecurring events. If the Committee desires that compensation payable pursuant to any award subject to performance goals be “qualified performance-based compensation” within the meaning of Section 162(m) of the Code, the performance goals (i) shall be established by the Committee no later than 90 days after the beginning of the applicable performance period (or such other time designated by the Internal Revenue Service) and (ii) shall satisfy all other applicable requirements imposed under Treasury Regulations promulgated under Section 162(m) of the Code, including the requirement that such performance goals be stated in terms of an objective formula or standard.

3. Fixed Awards . Awards may be made which are not contingent on the achievement of specific objectives, but are contingent on the participant’s continuing in the Company’s employ for a period specified in the award.

4. Rights with Respect to Restricted Shares . If shares of restricted common stock are subject to an award, the participant shall have the right, unless and until such award is forfeited or unless otherwise determined by the Committee at the time of grant, to vote the shares and to receive dividends thereon from the date of grant and the right to participate in any capital adjustment applicable to all holders of common stock; provided, however , that (i) a distribution with respect to shares of common stock, other than a regular quarterly cash dividend, and (ii) a regular cash dividend with respect to shares of common stock that are subject to performance-based vesting

EXHIBIT 10.5

conditions, in each case shall be deposited with the Company and shall be subject to the same restrictions as the shares of common stock with respect to which such distribution was made.

During the restriction period, the shares subject to a restricted stock award shall be held in book entry form, with the restrictions, terms and conditions duly noted, or alternatively a certificate or certificates representing restricted shares shall be registered in the holder’s name or the name of a nominee of the Company and may bear a legend, in addition to any legend which may be required under applicable laws, rules or regulations, indicating that the ownership of the shares of common stock represented by such certificate is subject to the restrictions, terms and conditions of the Plan and the agreement relating to the shares of restricted common stock. All such certificates shall be deposited with the Company, together with stock powers or other instruments of assignment (including a power of attorney), each endorsed in blank with a guarantee of signature if deemed necessary or appropriate, which would permit transfer to the Company of all or a portion of the shares of common stock subject to the award in the event such award is forfeited in whole or in part. Upon termination of any applicable restriction period, including, if applicable, the satisfaction or achievement of applicable objectives, and subject to the Company’s right to require payment of any taxes, the requisite number of shares of common stock shall be delivered to the holder of such award.

5. Rights with Respect to Stock Units . If stock units are credited to a participant pursuant to an award, then, except as otherwise provided by the Committee in its sole discretion, amounts equal to dividends and other distributions otherwise payable on a like number of shares of common stock after the crediting of the units (unless the record date for such dividends or other distributions precedes the date of grant of such award) shall be credited to an account for the participant and held until the award is forfeited or paid out and interest may be credited on the account at a rate determined by the Committee.

6. Events Upon Vesting . At the time of vesting of an award made pursuant to this Article II, (i) the award (and any dividend equivalents, other distributions and interest which have been credited), if in units, shall be paid to the participant either in shares of common stock equal to the number of units, in cash equal to the fair market value of such shares, or in such combination thereof as the Committee shall determine, (ii) the award, if a cash bonus award, shall be paid to the participant either in cash, or in shares of common stock with a then fair market value equal to the amount of such award, or in such combination thereof as the Committee shall determine and (iii) shares of restricted common stock issued pursuant to an award shall be released from the restrictions.

III. Stock Options

1. Options for Eligible Participants . Options to purchase shares of common stock may be granted to such eligible participants as may be selected by the Committee. These options may, but need not, constitute “incentive stock options” under Section 422 of the Code. To the extent that the aggregate fair market value (determined as of the date of grant) of shares of common stock with respect to which options designated as incentive stock options are exercisable for the first time by an optionee during any calendar year (under the Plan or any other plan of the Company, or any parent or subsidiary) exceeds the amount (currently $100,000) established by the Code, such options shall not constitute incentive stock options. No incentive stock options may be granted under the Plan after the earlier of the tenth anniversary of (a) the date the Plan is approved by the Board or (b) the effective date of the Plan.

2. Number of Shares and Purchase Price . The number of shares of common stock subject to an option and the purchase price per share of common stock purchasable upon exercise of the option shall be determined by the Committee; provided, however , that the purchase price per share of common stock shall not be less than 100% of the fair market value of a share of common stock on the date of grant of the option; provided, further , that if an incentive stock option shall be granted to any person who, on the date of grant of such option, owns capital stock possessing more than ten percent of the total combined voting power of all classes of capital stock of the Company (or of any parent or subsidiary) (a “Ten Percent Holder”), the purchase price per share of common stock shall be the price (currently 110% of fair market value) required by the Code in order to constitute an incentive stock option.

3. Exercise of Options . The period during which options granted hereunder may be exercised shall be determined by the Committee; provided, however , that no stock option shall be exercised later than ten years after its date of grant; provided further , that if an incentive stock option shall be granted to a Ten Percent Holder, such option shall not be exercisable more than five years after its date of grant. The Committee may, in its discretion, establish performance measures which shall be satisfied or met as a condition to the grant of an option or to the exercisability of all or a portion of an option. The Committee shall determine whether an option shall become exercisable in cumulative or non-cumulative installments and in part or in full at any time. An exercisable option, or portion thereof, may be exercised only with respect to whole shares of common stock.

An option may be exercised (i) by giving written notice to the Company (or following other procedures designated by the Company) specifying the number of whole shares of common stock to be purchased and accompanied by payment therefor in full (or arrangement made for such payment to the Company’s satisfaction) either (A) in cash, (B) in previously owned whole shares of common stock (for which the optionee has good title free and clear of all liens and encumbrances) having a fair market value, determined as of the date of exercise, equal to the aggregate purchase price payable by reason of such exercise, (C) by authorizing the

EXHIBIT 10.5

Company to withhold whole shares of Common Stock that would otherwise be delivered having a fair market value, determined as of the date of exercise, equal to the aggregate purchase price payable by reason of such exercise, (D) in cash by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise, (E) to the extent expressly authorized by the Committee, via a cashless exercise arrangement with the Company or (F) a combination of (A) and (B), (ii) if applicable, by surrendering to the Company any SARs which are canceled by reason of the exercise of the option and (iii) by executing such documents as the Company may reasonably request. The Committee shall have the sole discretion to disapprove of an election pursuant to clause (D). Any fraction of a share of common stock which would be required to pay such purchase price shall be disregarded and the remaining amount due shall be paid in cash by the optionee. No shares of common stock shall be delivered until the full purchase price therefor has been paid.

IV. Stock Appreciation Rights

1. Grants . Free-standing SARs entitling the grantee to receive cash or shares of common stock having a fair market value equal to the appreciation in market value of a stated number of shares of common stock from the date of grant to the date of exercise of such SARs, or in the case of tandem SARs, from the date of grant of the related stock option to the date of exercise of such tandem SARs, may be granted to such participants as may be selected by the Committee. The holder of a tandem SAR may elect to exercise either the option or the SAR, but not both. Tandem SARs shall be automatically canceled upon exercise of the related stock option.

2. Number of SARs and Base Price . The number of SARs subject to a grant shall be determined by the Committee. Any tandem SAR related to an incentive stock option shall be granted at the same time that such incentive stock option is granted. The base price of a tandem SAR shall be the purchase price per share of common stock of the related option. The base price of a free-standing SAR shall be determined by the Committee; provided, however , that such base price shall not be less than 100% of the fair market value of a share of common stock on the date of grant of such SAR.

3. Exercise of SARs . The agreement relating to a grant of SARs may specify whether such grant shall be settled in shares of common stock (including restricted shares of common stock) or cash or a combination thereof. Upon exercise of an SAR, the grantee shall be paid the excess of the then fair market value of the number of shares of common stock to which the SAR relates over the base price of the SAR. Such excess shall be paid in cash or in shares of common stock having a fair market value equal to such excess or in such combination thereof as the Committee shall determine. The period during which SARs granted hereunder may be exercised shall be determined by the Committee; provided, however , no SAR shall be exercised later than ten years after the date of its grant; and provided, further , that no tandem SAR shall be exercised if the related option has expired or has been canceled or forfeited or has otherwise terminated. The Committee may, in its discretion, establish performance measures which shall be satisfied or met as a condition to the grant of an SAR or to the exercisability of all or a portion of an SAR. The Committee shall determine whether an SAR may be exercised in cumulative or non-cumulative installments and in part or in full at any time. An exercisable SAR, or portion thereof, may be exercised, in the case of a tandem SAR, only with respect to whole shares of common stock and, in the case of a free-standing SAR, only with respect to a whole number of SARs. If an SAR is exercised for restricted shares of common stock, the restricted shares shall be issued in accordance with Section 4 of Article II and the holder of such restricted shares shall have such rights of a stockholder of the Company as determined pursuant to such Section. Prior to the exercise of an SAR for shares of common stock, including restricted shares, the holder of such SAR shall have no rights as a stockholder of the Company with respect to the shares of common stock subject to such SAR.

A tandem SAR may be exercised (i) by giving written notice to the Company (or following other procedures designated by the Company) specifying the number of whole SARs which are being exercised, (ii) by surrendering to the Company any options which are canceled by reason of the exercise of such SAR and (iii) by executing such documents as the Company may reasonably request. A free-standing SAR may be exercised (i) by giving written notice to the Company specifying the whole number of SARs which are being exercised and (ii) by executing such documents as the Company may reasonably request.

V. Awards to Non-Employee Directors

1. Annual Grants to Non-Employee Directors . On the date of the Company’s 2012 annual meeting of stockholders, and on the date of each subsequent annual meeting prior to the termination of this Section 1, the Company shall make an award under the Plan to each individual who is, immediately following such annual meeting, a non-employee director. Awards granted pursuant to this Section 1 of Article V shall be in the form of stock options, restricted stock, stock units or SARs. The form of such awards, and the number of shares subject to each such award, shall be determined by a committee meeting the requirements for the Committee described above in Section 4 of Article I in the exercise of its sole discretion.

2. Elective Options for Non-Employee Directors. Each non-employee director may from time to time elect, in accordance with procedures to be specified by the Committee, to receive in lieu of all or part of (i) any annual base cash retainer fee for services as a

EXHIBIT 10.5

director of the Company, any fees for attendance at meetings of the Board or any committee of the Board and any fees for serving as a member or chairman of any committee of the Board that would otherwise be payable to such non-employee director (“Fees”) or (ii) any annual phantom stock award granted to such non-employee director pursuant to the Retirement Benefits and Phantom Stock Grants for Directors Policy (“Retirement Benefit”), an option to purchase shares of common stock, which option shall have a value (as determined in accordance with the Black-Scholes stock option valuation method) as of the date of grant of such option equal to the amount of such Fees or Retirement Benefit and which shall be subject to all of the terms and conditions set forth in Article III of the Plan. Notwithstanding anything to the contrary set forth elsewhere in the Plan, an option granted to a non-employee director pursuant to this Section 2 of Article V shall become exercisable in full on the first anniversary of the date of grant.

VI. Other

1. Non-Transferability of Options and Stock Appreciation Rights. No option or SAR shall be transferable other than (i) by will, the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company or (ii) as otherwise set forth in the agreement relating to such option or SAR. Each option or SAR may be exercised during the participant’s lifetime only by the participant or the participant’s guardian, legal representative or similar person or the permitted transferee of the participant. Except as permitted by the second preceding sentence, no option or SAR may be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of any option or SAR, such award and all rights thereunder shall immediately become null and void.

2. Tax Withholding . The Company shall have the right to require, prior to the issuance or delivery of any shares of common stock or the payment of any cash pursuant to a grant or award hereunder, payment by the holder thereof of any federal, state, local or other taxes which may be required to be withheld or paid in connection therewith. An agreement may provide that (i) the Company shall withhold whole shares of common stock which would otherwise be delivered to a holder, having an aggregate fair market value determined as of the date the obligation to withhold or pay taxes arises in connection therewith (the “Tax Date”), or withhold an amount of cash which would otherwise be payable to a holder, in the amount necessary to satisfy any such obligation or (ii) the holder may satisfy any such obligation by any of the following means: (A) a cash payment to the Company, (B) delivery to the Company of previously owned whole shares of common stock (which the holder has held for at least six months prior to the delivery of such shares or which the holder purchased on the open market and for which the holder has good title, free and clear of all liens and encumbrances) having an aggregate fair market value determined as of the Tax Date, equal to the amount necessary to satisfy any such obligation, (C) authorizing the Company to withhold whole shares of common stock which would otherwise be delivered having an aggregate fair market value determined as of the Tax Date or withhold an amount of cash which would otherwise be payable to a holder, equal to the amount necessary to satisfy any such liability, (D) in the case of the exercise of an option, a cash payment by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise or (E) any combination of (A), (B) and (C); provided, however , that the Committee shall have sole discretion to disapprove of an election involving clause (D). An agreement relating to a grant or award hereunder may not provide for shares of common stock to be withheld having an aggregate fair market value in excess of the minimum amount of taxes required to be withheld. Any fraction of a share of common stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the holder.

3. Acceleration Upon Change in Control . If while (i) any performance award or fixed award granted under Article II is outstanding, (ii) any stock option granted under Article III of the Plan or SAR granted under Article IV of the Plan is outstanding or (iii) any award made to non-employee directors pursuant to Article V (“nonemployee director awards”) is outstanding:

(a) any “person,” as such term is defined in Section 3(a)(9) of the Exchange Act, as modified and used in Section 13(d) and 14(d) thereof (but not including (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) (hereinafter a “Person”) is or becomes the beneficial owner, as defined in Rule 13d-3 of the Exchange Act, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates, excluding an acquisition resulting from the exercise of a conversion or exchange privilege in respect of outstanding convertible or exchangeable securities) representing 50% or more of the combined voting power of the Company’s then outstanding securities; or

(b) during any period of two (2) consecutive years beginning on the date that stockholders approve the Plan, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into any agreement with the Company to effect a transaction described in Clause (a), (c) or (d) of this Section) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still

EXHIBIT 10.5

in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

(c) a merger or consolidation of the Company with any other corporation (hereinafter, a “Corporate Transaction”) is consummated, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or acquiring entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, at least 50% of the combined voting power of the voting securities of the Company or such surviving or acquiring entity outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person acquires more than 50% of the combined voting power of the Company’s then outstanding securities; or

(d) the stockholders of the Company approve a plan of complete liquidation of the Company or for the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets,

(any of such events being hereinafter referred to as a “Change in Control”), then upon the date of such Change in Control, (i) with respect to such performance awards, the highest level of achievement specified in the award shall be deemed met and the award shall be immediately and fully vested, (ii) with respect to such fixed awards, the period of continued employment specified in the award upon which the award is contingent shall be deemed completed and the award shall be immediately and fully vested, (iii) with respect to such options and SARs, all such options and SARs, whether or not then exercisable in whole or in part, shall be immediately and fully exercisable and (iv) with respect to such non-employee director awards, all conditions with respect to vesting or exercisability shall be deemed to be satisfied and such awards shall be immediately and fully vested and exercisable. In connection with such Change in Control, the Board (as constituted prior the Change in Control) may, in its discretion:

(i) require that shares of capital stock of the corporation resulting from or succeeding to the business of the Company pursuant to such Change in Control, or a parent corporation thereof, be substituted for some or all of the shares of common stock subject to an outstanding award, with an appropriate and equitable adjustment to such award as determined by the Committee in accordance with Section 5 of Article I; and/or

(ii) require outstanding awards, in whole or in part, to be surrendered to the Company by the holder, and to be immediately cancelled by the Company, and to provide for the holder to receive (a) a cash payment in an amount equal to (1) in the case of an option or an SAR, the number of shares of common stock then subject to the portion of such option or SAR surrendered multiplied by the excess, if any, of the fair market value of a share of common stock as of the date of the Change in Control, over the exercise price or base price per share of common stock subject to such option or SAR, (2) in the case of a restricted stock award, stock unit award or bonus award denominated in shares of common stock, the number of shares of common stock then subject to the portion of such award surrendered, multiplied by the fair market value of a share of common stock as of the date of the Change in Control, and (3) in the case of a bonus award denominated in cash, the value of the bonus award then subject to the portion of such award surrendered; (b) shares of capital stock of the corporation resulting from or succeeding to the business of the Company pursuant to such Change in Control, or a parent corporation thereof, having a fair market value not less than the amount determined under clause (a) above; or (c) a combination of the payment of cash pursuant to clause (a) above and the issuance of shares pursuant to clause (b) above.

4. Restrictions on Shares . Each grant and award made hereunder shall be subject to the requirement that if at any time the Company determines that the listing, registration or qualification of the shares of common stock subject thereto upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the delivery of shares thereunder, such shares shall not be delivered unless such listing, registration, qualification, consent, approval or other action shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company may require that certificates evidencing shares of common stock delivered pursuant to any grant or award made hereunder bear a legend indicating that the sale, transfer or other disposition thereof by the holder is prohibited except in compliance with the Securities Act of 1933, as amended, and the rules and regulations thereunder.

6. No Right of Participation or Employment . No person (other than non-employee directors to the extent provided in Article V) shall have any right to participate in the Plan. Neither the Plan nor any grant or award made hereunder shall confer upon any person any right to employment or continued employment by the Company, any subsidiary or any affiliate of the Company or affect in any manner the right of the Company, any subsidiary or any affiliate of the Company to terminate the employment of any person at any time without liability hereunder.

7. Rights as Stockholder . No person shall have any right as a stockholder of the Company with respect to any shares of common stock or other equity security of the Company which is subject to a grant or award hereunder unless and until such person becomes a stockholder of record with respect to such shares of common stock or equity security.

EXHIBIT 10.5

8. Awards Subject to Clawback . The awards and any cash payment or securities delivered pursuant to an award are subject to forfeiture, recovery by the Company or other action pursuant to the applicable award agreement or any clawback or recoupment policy which the Company may adopt from time to time, including without limitation any such policy which the Company may be required to adopt under the Dodd-Frank Wall Street Reform and Consumer Protection Act and implementing rules and regulations thereunder, or as otherwise required by law.

9. Governing Law . The Plan, each grant and award hereunder and the related agreement, and all determinations made and actions taken pursuant thereto, to the extent not otherwise governed by the Code or the laws of the United States, shall be governed by the laws of the State of Delaware and construed in accordance therewith without giving effect to principles of conflicts of laws.

10. Foreign Participants . Notwithstanding any provision of the Plan to the contrary the Committee may, with a view to both promoting achievement of the purposes of the Plan and complying with (i) provisions of laws in countries outside the United States in which the Company or its subsidiaries operate or have employees and (ii) the rules of any foreign stock exchange upon which the common stock may be listed, determine which persons outside the United States shall be eligible to participate in the Plan on such terms and conditions different from those specified in the Plan as may in the judgment of the Committee be necessary or advisable and, to that end, the Committee may establish sub-plans, modified option exercise procedures and other terms and procedures.

11. Insider Limits . Notwithstanding any other provision of the Plan, (i) the maximum number of shares of common stock which may be reserved for issuance to insiders (as defined in the Ontario Securities Act) under the Plan, together with any other previously established or proposed incentive plan, shall not exceed 10% of the outstanding shares of common stock, (ii) the maximum number of shares of common stock which may be issued to insiders under the Plan, together with any other previously established or proposed incentive plan, within any one year period shall not exceed 10% of the outstanding shares of common stock, and (iii) the maximum number of shares of common stock which may be issued to any one insider and his or her associates under the Plan, together with any other previously established or proposed incentive plan, within a one year period, shall not exceed 5% of the outstanding shares of common stock.

12. Approval of Plan . The Plan and all grants and awards made hereunder shall be null and void if the adoption of the Plan is not approved by the affirmative vote of a majority of the shares of common stock present in person or represented by proxy at the next meeting of stockholders following the Board’s adoption of the Plan.

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 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 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: July 30, 2013

/s/ Thomas J. Quinlan, III

Thomas J. Quinlan, III

President and Chief Executive Officer

EXHIBIT 31.2

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

of the Securities Exchange Act of 1934

I, Daniel N. Leib, 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)

(b)

(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)

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: July 30, 2013

/s/ Daniel N. Leib

Daniel N. Leib

Executive Vice President and Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

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

SECTION 1350, CHAPTER 63 OF TITLE 18

OF THE UNITED STATES CODE (18 U.S.C. 1350),

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 June 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas J. Quinlan, III, President and 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

July 30, 2013	Thomas J. Quinlan, III
	President and Chief Executive Officer

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

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

SECTION 1350, CHAPTER 63 OF TITLE 18

OF THE UNITED STATES CODE (18 U.S.C. 1350),

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 June 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel N. Leib, Executive Vice President and 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/ Daniel N. Leib

July 30, 2013	Daniel N. Leib
	Executive Vice President and Chief Financial Officer