RR Donnelley & Sons Co (Form: 10-Q, Received: 10/30/2019 16:03:51)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2019

☐	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.)

35 West Wacker Drive, Chicago, Illinois		60601
(Address of principal executive offices)		(Zip code)

(312) 326-8000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	RRD	New York Stock Exchange
Preferred Stock Purchase Rights		New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes ☒ No ☐

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

Large Accelerated filer	☐	Accelerated filer	☒

Non-Accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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 ☒

As of October 28, 2019, 70.9 million shares of common stock were outstanding.

R.R. DONNELLEY & SONS COMPANY

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

TABLE OF CONTENTS

		Page
	PART I

Item 1.	Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018	4
	Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2019 and 2018	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42

	PART II

Item 1.	Legal Proceedings	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 4.	Mine Safety Disclosures	43
Item 6.	Exhibits	44

Signatures		45

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

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

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except per share data)

(UNAUDITED)

	September 30,			December 31,
	2019			2018
ASSETS
Cash and cash equivalents	$	144.7		$	370.6
Receivables, less allowances for doubtful accounts of $23.5 in 2019 (2018 - $25.9)		1,248.9			1,298.3
Inventories (Note 3)		338.7			329.7
Prepaid expenses and other current assets		111.7			101.1
Total current assets		1,844.0			2,099.7
Property, plant and equipment-net (Note 4)		513.6			531.3
Goodwill (Note 5)		554.9			553.4
Other intangible assets-net (Note 5)		105.6			113.3
Deferred income taxes		57.4			66.9
Operating lease assets (Note 13)		197.1			—
Other noncurrent assets		267.9			276.2
Total assets	$	3,540.5		$	3,640.8
LIABILITIES
Accounts payable	$	803.2		$	987.3
Accrued liabilities and other		348.8			347.4
Short-term operating lease liabilities (Note 13)		67.8			—
Short-term and current portion of long-term debt (Note 14)		100.6			216.2
Total current liabilities		1,320.4			1,550.9
Long-term debt (Note 14)		1,928.5			1,875.3
Pension liabilities		87.9			97.9
Other postretirement benefits plan liabilities		66.2			67.8
Long-term income tax liability		76.2			91.1
Long-term operating lease liabilities (Note 13)		133.1			—
Other noncurrent liabilities		205.1			203.2
Total liabilities		3,817.4			3,886.2
Commitments and Contingencies (Note 13)
EQUITY (Note 9)
RRD stockholders' equity
Preferred stock, $1.00 par value
Authorized: 2.0 shares; Issued: None		—			—
Common stock, $0.01 par value
Authorized: 165.0 shares;
Issued: 89.0 shares in 2019 and 2018		0.9			0.9
Additional paid-in-capital		3,357.3			3,404.0
Accumulated deficit		(2,244.7	)		(2,225.7	)
Accumulated other comprehensive loss		(173.9	)		(153.8	)
Treasury stock, at cost, 18.2 shares in 2019 (2018 - 18.6 shares)		(1,230.4	)		(1,285.5	)
Total RRD stockholders' equity		(290.8	)		(260.1	)
Noncontrolling interests		13.9			14.7
Total equity		(276.9	)		(245.4	)
Total liabilities and equity	$	3,540.5		$	3,640.8

See Notes to Condensed Consolidated Financial Statements

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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(UNAUDITED)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Products net sales	$	1,328.8		$	1,329.8		$	3,774.4		$	3,881.6
Services net sales		290.6			319.7			875.6			1,155.2
Total net sales		1,619.4			1,649.5			4,650.0			5,036.8

Products cost of sales (exclusive of depreciation and amortization)		1,073.5			1,076.8			3,076.4			3,167.7
Services cost of sales (exclusive of depreciation and amortization)		235.0			257.3			706.2			968.4
Total cost of sales		1,308.5			1,334.1			3,782.6			4,136.1

Products gross profit		255.3			253.0			698.0			713.9
Services gross profit		55.6			62.4			169.4			186.8
Total gross profit		310.9			315.4			867.4			900.7
Selling, general and administrative expenses (exclusive of depreciation and amortization)		190.5			203.8			589.1			626.4
Restructuring and other (income) expense-net (Note 6)		(2.3	)		11.0			30.8			22.8
Depreciation and amortization		43.5			44.2			126.2			137.5
Other operating expense (income)		5.4			(4.5	)		3.3			(4.6	)
Income from operations		73.8			60.9			118.0			118.6
Interest expense-net		37.4			42.0			115.6			125.7
Investment and other income-net		(4.6	)		(5.5	)		(11.3	)		(14.7	)
Loss on debt extinguishment		0.8			—			0.8			0.1
Income before income taxes		40.2			24.4			12.9			7.5
Income tax expense (benefit)		27.3			(10.4	)		15.9			(5.4	)
Net income (loss)		12.9			34.8			(3.0	)		12.9
Less: income attributable to noncontrolling interests		0.3			0.5			0.2			1.2
Net income (loss) attributable to RRD common stockholders	$	12.6		$	34.3		$	(3.2	)	$	11.7

Net income (loss) per share attributable to RRD common stockholders (Note 10):
Basic net income (loss) per share	$	0.18		$	0.49		$	(0.04	)	$	0.17
Diluted net income (loss) per share	$	0.18		$	0.49		$	(0.04	)	$	0.17

Weighted average number of common shares outstanding:
Basic		71.4			70.6			71.2			70.5
Diluted		71.4			70.7			71.2			70.8

See Notes to Condensed Consolidated Financial Statements

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in millions)

(UNAUDITED)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Net income (loss)	$	12.9		$	34.8		$	(3.0	)	$	12.9

Other comprehensive loss, net of tax (Note 11):
Translation adjustments		(19.9	)		(8.4	)		(21.9	)		(31.1	)
Adjustments for net periodic pension and postretirement benefits plan cost		(0.2	)		1.6			(0.6	)		5.9
Other		0.6			—			2.1			—
Other comprehensive loss		(19.5	)		(6.8	)		(20.4	)		(25.2	)
Comprehensive (loss) income		(6.6	)		28.0			(23.4	)		(12.3	)
Less: comprehensive (loss) income attributable to noncontrolling interests		(0.1	)		0.1			(0.1	)		0.7
Comprehensive (loss) income attributable to RRD common stockholders	$	(6.5	)	$	27.9		$	(23.3	)	$	(13.0	)

See Notes to Condensed Consolidated Financial Statements

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(UNAUDITED)

	Nine Months Ended
	September 30,
	2019			2018
OPERATING ACTIVITIES
Net (loss) income	$	(3.0	)	$	12.9
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization		126.2			137.5
Provision for doubtful accounts receivable		6.9			10.6
Share-based compensation		9.3			6.4
Deferred income taxes		9.8			7.3
Net pension and other postretirement benefits plan income		(12.1	)		(15.9	)
Other		(3.1	)		(5.9	)
Changes in operating assets and liabilities:
Accounts receivable-net		17.7			(5.7	)
Inventories		(21.1	)		(16.6	)
Prepaid expenses and other current assets		(11.4	)		(5.9	)
Accounts payable		(172.3	)		(150.7	)
Current income taxes		(41.1	)		(26.7	)
Accrued liabilities and other		11.5			2.3
Pension and other postretirement benefits plan contributions		(5.1	)		(13.5	)
Net cash used in operating activities		(87.8	)		(63.9	)
INVESTING ACTIVITIES
Capital expenditures		(107.4	)		(72.7	)
Acquisition of business		(3.0	)		—
Proceeds from sales of investments and other assets		32.8			49.9
Disposition of businesses		10.4			50.5
Payments related to company-owned life insurance		(1.3	)		(1.8	)
Net cash (used in) provided by investing activities		(68.5	)		25.9
FINANCING ACTIVITIES
Proceeds from other short-term debt		—			56.5
Payments on other short-term debt		(8.0	)		(12.2	)
Payments of current maturities and long-term debt		(221.6	)		(0.2	)
Proceeds from credit facility borrowings		1,061.8			975.1
Payments on credit facility borrowings		(897.8	)		(949.1	)
Dividends paid		(6.4	)		(21.8	)
Payments of withholding taxes on share-based compensation		(0.9	)		(0.7	)
Other financing activities		(1.0	)		(0.9	)
Net cash (used in) provided by financing activities		(73.9	)		46.7
Effect of exchange rate on cash, cash equivalents and restricted cash		(6.3	)		(14.0	)
Net decrease in cash, cash equivalents and restricted cash		(236.5	)		(5.3	)
Cash, cash equivalents and restricted cash at beginning of year		403.6			301.5
Cash, cash equivalents and restricted cash at end of period	$	167.1		$	296.2

See Notes to Condensed Consolidated Financial Statements

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

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 (“RRD,” the “Company,” “we,” “us,” and “our”) and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated interim financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods and should be read in conjunction with the consolidated financial statements and the related notes thereto included in our latest Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 27, 2019. Operating results for the nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019. 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.

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash at September 30, 2019 and December 31, 2018 reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statement of Cash Flows.

	September 30, 2019		December 31, 2018
Cash and cash equivalents	$	144.7	$	370.6
Restricted cash - current^(a)		22.3		32.9
Restricted cash - noncurrent^(b)		0.1		0.1
Total cash, cash equivalents and restricted cash	$	167.1	$	403.6

(a)	Included within Prepaid expenses and other current assets within the Condensed Consolidated Balance Sheets

(b)	Included within Other noncurrent assets within the Condensed Consolidated Balance Sheets

Cash payments for income taxes were $54.5 million and $28.4 million for the nine months ended September 30, 2019 and 2018, respectively. Cash refunds for income taxes were $7.7 million and $14.0 million for the nine months ended September 30, 2019 and 2018, respectively. Income taxes receivable of $25.5 million and $11.7 million as of September 30, 2019 and December 31, 2018, respectively, are included within Prepaid expenses and other current assets.

2. Revenue Recognition

On January 1, 2018, we adopted ASC Topic 606, “Revenue from Contracts with Customers” using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. All revenue recognized in the Condensed Statements of Operations is considered to be revenue from contracts with clients.

We recorded a net increase to opening retained earnings of $12.9 million as of January 1, 2018 due to the cumulative impact of adopting Topic 606, with the impact primarily related to the timing of revenue recognition for certain inventory that had been billed but not yet shipped.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Disaggregation of Revenue

The following table presents net sales disaggregated by products and services:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Products
Commercial print	$	442.9	$	496.4	$	1,278.8	$	1,421.3
Direct marketing		193.5		142.7		479.0		424.1
Packaging		182.1		179.7		484.2		474.0
Statements		134.0		133.5		417.1		436.4
Labels		124.0		118.8		364.1		355.5
Digital print and fulfillment		122.5		113.5		347.2		332.6
Supply chain management		69.8		81.5		222.4		242.2
Forms		60.0		63.7		181.6		195.5
Total products net sales	$	1,328.8	$	1,329.8	$	3,774.4	$	3,881.6
Services
Logistics	$	204.6	$	229.1	$	614.3	$	880.3
Business process outsourcing		58.6		60.5		181.0		183.1
Digital and creative solutions		27.4		30.1		80.3		91.8
Total services net sales	$	290.6	$	319.7	$	875.6	$	1,155.2
Total net sales	$	1,619.4	$	1,649.5	$	4,650.0	$	5,036.8

Products

Our products revenue is primarily recognized at a point in time. We generally recognize revenue for products upon the transfer of control of the products to the client which typically occurs upon transfer of title and risk of ownership, which is generally upon shipment to the client. For certain products, we are able to recognize revenue for completed inventory billed but not yet shipped at the client’s direction.

The following is a description of our products:

Commercial Print

We generate revenue by providing various commercial printing products and offer a full range of branded materials including manuals, publications, brochures, business cards, flyers, post cards, posters and promotional items.

Direct Marketing

We generate revenue by providing audience segmentation, creative development, program testing, print production, postal optimization and performance analytics for large-scale personalized direct mail programs.

Packaging

We generate revenue by providing packaging solutions, ranging from rigid boxes to in-box print materials, for clients in consumer electronics, life sciences, cosmetics and consumer packaged goods industries.

Statements

We generate revenue by creating critical business communications, including customer billings, financial statements, healthcare communications and insurance documents. Our capabilities include design and composition, variable imaging, email, archival and digital mail interaction, as well as our innovative RRDigital solution set.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Labels

We generate revenue by producing custom labels for clients across multiple industries including warehouse and distribution, retail, pharmaceutical, manufacturing and consumer packaging. We offer distribution and shipping labels, healthcare and durable goods labels, promotional labels and consumer product goods packaging labels.

Digital Print and Fulfillment

We generate revenue by providing in-store marketing materials, including signage and point-of-purchase materials, as well as custom marketing kits that require multiple types of marketing collateral. Under the trade name Motif^TM, we also create custom photobooks.

Supply Chain Management

We generate revenue by providing workflow design to assembly, configuration, kitting and fulfillment for clients in consumer electronics, telecommunications, life sciences, cosmetics, education and industrial industries.

Forms

We generate revenue by producing a variety of forms including invoices, order forms and business forms that support both the private and public sectors for clients in financial, government, retail, healthcare and business services industries.

Services

Our services revenue is recognized both at a point in time and over time. Our logistics revenue is primarily recognized over time as the performance obligation is completed. Due to the short transit period of logistics performance obligations, the timing of revenue recognition does not require significant judgment. Our business process outsourcing and digital and creative solutions revenue is recognized over time or at a point in time, depending on the nature of the service which could be either recurring or project-based.

Logistics

We generate revenue by providing specialized transportation and distribution services using our third party logistics solutions. These services are comprised of freight services, including truckload, less-than-truckload, intermodal and international freight forwarding; international mail and parcel distribution; and courier services, including same day and next day delivery. As discussed in Note 16, Dispositions, we sold our Print Logistics business on July 2, 2018. Print Logistics services included the distribution of retail and newsstand printed materials.

Business Process Outsourcing

We generate revenue by providing outsourcing services including creative services, research and analytics, financial management and other services for legal providers, insurance, telecommunications, utilities, retail and financial services companies.

Digital and Creative Solutions

We generate revenue by creating and managing content for delivery across multiple marketing communications channels including print and digital advertising, direct marketing and mail, packaging, sales collateral, in-store marketing and social media.

Variable Consideration

Certain clients may receive volume-based rebates or early payment discounts, which are accounted for as variable consideration. We estimate these amounts based on the expected amount to be earned by our clients and reduce revenue accordingly. We do not expect significant changes to estimates of variable consideration. Given the nature of our products and the history of returns, product returns are not significant.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Contract Balances

The following table provides information about contract assets and liabilities from contracts with clients:

	Contract Assets		Contract Liabilities
	Short-Term		Short-Term		Long-Term
Balance at December 31, 2018	$	2.7	$	16.5	$	0.6
Balance at September 30, 2019		3.1		24.9		0.5

Contract liabilities primarily relate to client advances received prior to completion of performance obligations. Reductions in contract liabilities are a result of our completion of performance obligations.

Revenue recognized during the nine months ended September 30, 2019 from amounts included in contract liabilities at the beginning of the period was approximately $14.0 million. During the nine months ended September 30, 2019, we reclassified $2.7 million of contract assets to receivables as a result of the completion of the performance obligation and the right to the consideration becoming unconditional.

3. Inventories

The components of inventories, net of excess and obsolescence reserves for raw materials and finished goods, at September 30, 2019 and December 31, 2018 were as follows:

	September 30, 2019			December 31, 2018
Raw materials and manufacturing supplies	$	145.8		$	153.1
Work in process		83.1			75.1
Finished goods		129.2			120.1
LIFO reserve		(19.4	)		(18.6	)
Total inventories	$	338.7		$	329.7

4. Property, Plant and Equipment

The components of property, plant and equipment at September 30, 2019 and December 31, 2018 were as follows:

	September 30, 2019			December 31, 2018
Land	$	47.8		$	51.0
Buildings		380.7			389.5
Machinery and equipment		1,778.4			1,797.1
		2,206.9			2,237.6
Less: Accumulated depreciation		(1,693.3	)		(1,706.3	)
Total property, plant and equipment-net	$	513.6		$	531.3

During the three and nine months ended September 30, 2019 depreciation expense was $30.2 million and $85.4 million, respectively. During the three and nine months ended September 30, 2018 depreciation expense was $30.9 million and $96.5 million, respectively.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

5. Goodwill and Other Intangible Assets

The carrying amount of goodwill at September 30, 2019 and December 31, 2018 were as follows:

	Business Services			Marketing Solutions			Total
Net book value as of December 31, 2018
Goodwill	$	2,604.3		$	519.5		$	3,123.8
Accumulated impairment losses		(2,316.3	)		(254.1	)		(2,570.4	)
Total		288.0			265.4			553.4
Acquisition		4.1			—			4.1
Foreign exchange		(2.6	)		—			(2.6	)

Net book value as of September 30, 2019
Goodwill		2,598.2			519.5			3,117.7
Accumulated impairment losses		(2,308.7	)		(254.1	)		(2,562.8	)
Total	$	289.5		$	265.4		$	554.9

The components of other intangible assets at September 30, 2019 and December 31, 2018 were as follows:

	September 30, 2019							December 31, 2018
	Gross							Gross
	Carrying		Accumulated			Net Book		Carrying		Accumulated			Net Book
	Amount		Amortization			Value		Amount		Amortization			Value

Client relationships	$	518.3	$	(429.1	)	$	89.2	$	520.3	$	(425.5	)	$	94.8
Patents		2.0		(2.0	)		—		2.0		(2.0	)		—
Trademarks, licenses and agreements		24.6		(24.4	)		0.2		25.7		(25.2	)		0.5
Trade names		31.8		(15.6	)		16.2		34.6		(16.6	)		18.0
Total other intangible assets	$	576.7	$	(471.1	)	$	105.6	$	582.6	$	(469.3	)	$	113.3

Amortization expense for other intangible assets was $5.9 million and $18.1 million for the three and nine months ended September 30, 2019, respectively, and was $6.8 million and $20.7 million for the three and nine months ended September 30, 2018, respectively.

6. Restructuring and Other

For the three months ended September 30, 2019 and 2018, we recorded the following net restructuring and other (income) expenses:

	Three Months Ended
	September 30, 2019
	Employee			Other Restructuring			Multi-Employer Pension Plan
	Terminations			Charges			Charges		Other			Total
Business Services	$	(0.4	)	$	(0.7	)	$	0.7	$	(4.7	)	$	(5.1	)
Marketing Solutions		—			—			0.1		—			0.1
Corporate		1.0			1.7			—		—			2.7
Total	$	0.6		$	1.0		$	0.8	$	(4.7	)	$	(2.3	)

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

	Three Months Ended
	September 30, 2018
	Employee		Other Restructuring		Multi-Employer Pension Plan
	Terminations		Charges		Charges		Other		Total
Business Services	$	2.7	$	3.4	$	0.6	$	0.4	$	7.1
Marketing Solutions		0.1		—		0.1		—		0.2
Corporate		—		3.0		—		0.7		3.7
Total	$	2.8	$	6.4	$	0.7	$	1.1	$	11.0

For the nine months ended September 30, 2019 and 2018, we recorded the following net restructuring and other expenses (income):

	Nine Months Ended
	September 30, 2019
	Employee		Other Restructuring		Multi-Employer Pension Plan
	Terminations		Charges		Charges		Other			Total
Business Services	$	17.6	$	7.0	$	1.9	$	(4.6	)	$	21.9
Marketing Solutions		0.4		0.1		0.3		—			0.8
Corporate		1.5		6.6		—		—			8.1
Total	$	19.5	$	13.7	$	2.2	$	(4.6	)	$	30.8

	Nine Months Ended
	September 30, 2018
	Employee		Other Restructuring		Multi-Employer Pension Plan
	Terminations		Charges		Charges		Other			Total
Business Services	$	8.8	$	5.2	$	1.9	$	(4.3	)	$	11.6
Marketing Solutions		1.9		—		0.3		1.5			3.7
Corporate		0.5		6.3		—		0.7			7.5
Total	$	11.2	$	11.5	$	2.2	$	(2.1	)	$	22.8

Restructuring and Other

For the three and nine months ended September 30, 2019, we recorded net restructuring charges of $0.6 million and $19.5 million, respectively, for employee termination costs. These charges primarily relate to the relocation of a printing facility in Shenzhen, China, other announced facility closures in the Business Services segment and the reorganization of selling, general and administrative functions across each segment. Other restructuring charges of $1.0 million and $13.7 million for the three and nine months ended September 30, 2019 are primarily comprised of increased reserves for employee termination litigation, environmental matters and lease terminations. Additionally, we recorded net gains of $4.7 million and $4.6 million on the sale of restructured facilities for the three and nine months ended September 30, 2019, respectively.

For the three and nine months ended September 30, 2018, we recorded net restructuring charges of $2.8 million and $11.2 million, respectively, for employee termination costs. These charges primarily related to the reorganization of selling, general and administrative functions across each segment and three facility closures in the Business Services segment. We also incurred charges for lease termination and other restructuring of $6.4 million and $11.5 million and multi-employer pension plan (“MEPP”) withdrawal obligations of $0.7 million and $2.2 million for the three and nine months ended September 30, 2018, respectively. Additionally, we recorded a $5.4 million net gain on the sale of previously impaired assets in the Business Services segment for the nine months ended September 30, 2018. These assets were impaired in 2015. We also recorded impairment charges related to facility closures of $3.3 million for the nine months ended September 30, 2018.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Restructuring and MEPP Reserves

Restructuring and MEPP reserves as of December 31, 2018 and September 30, 2019, and changes during the nine months ended September 30, 2019, were as follows:

			Restructuring		Foreign
	December 31,		and Other		Exchange and			Cash			September 30,
	2018		Charges		Other			Paid			2019
Employee terminations	$	4.8	$	19.5	$	(1.2	)	$	(18.4	)	$	4.7
MEPP withdrawal obligations		44.2		2.2		(0.1	)		(4.8	)		41.5
Other		6.2		13.7		—			(9.6	)		10.3
Total	$	55.2	$	35.4	$	(1.3	)	$	(32.8	)	$	56.5

The current portion of restructuring reserves of $17.8 million at September 30, 2019 was included in Accrued liabilities and other, while the long-term portion of $38.7 million, primarily related to MEPP withdrawal obligations, employee terminations in litigation, environmental matters and lease liabilities related to restructured facilities, was included in Other noncurrent liabilities at September 30, 2019. The liabilities for the withdrawal obligations associated with our decision to withdraw from all MEPPs included in Accrued liabilities and other and Other noncurrent liabilities are $6.6 million and $34.9 million, respectively, as of September 30, 2019.

We anticipate that payments associated with the employee terminations reflected in the above table will be substantially completed by September 2020, excluding employee terminations in litigation within the Business Services segment.

Payments on all of our MEPP withdrawal obligations are scheduled to be substantially completed by 2034. Changes based on uncertainties in these estimated withdrawal obligations could affect the ultimate charges related to MEPP withdrawals.

The restructuring liabilities classified as “other” primarily consisted of reserves for employee termination litigation, environmental matters and lease liabilities related to restructured facilities. Any potential recoveries or additional charges could affect amounts reported in our consolidated financial statements.

7. Retirement Plans

Components of net pension and other postretirement benefits plan (“OPEB”) income for the three and nine months ended September 30, 2019 and 2018 were as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Pension expense (income):
Service cost	$	0.2		$	0.1		$	0.7		$	0.5
Interest cost		8.2			7.7			24.9			23.4
Expected return on plan assets		(11.5	)		(12.4	)		(34.7	)		(37.6	)
Amortization, net		1.6			2.0			4.6			5.9
Settlements		—			0.2			—			1.5
Net pension income	$	(1.5	)	$	(2.4	)	$	(4.5	)	$	(6.3	)

OPEB expense (income):
Service cost	$	—		$	(0.3	)	$	—		$	0.5
Interest cost		2.7			2.5			7.7			7.7
Expected return on plan assets		(3.3	)		(3.5	)		(9.9	)		(10.5	)
Amortization, net		(1.9	)		(0.8	)		(5.4	)		(2.2	)
Other		—			(5.1	)		—			(5.1	)
Net OPEB income	$	(2.5	)	$	(7.2	)	$	(7.6	)	$	(9.6	)

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

During the nine months ended September 30, 2019 and 2018, we contributed $5.1 million and $13.5 million, respectively, to our retirement plans.

Other OPEB income during the three and nine months ended September 30, 2018 reflects the change in one of our OPEB liabilities due to a revision to participant demographic data utilized in the actuarial valuations.

8. Share-Based Compensation

Share-based compensation expense was $2.6 million and $9.3 million for the three and nine months ended September 30, 2019, respectively, and was $2.2 million and $6.4 million for the three and nine months ended September 30, 2018, respectively.

In March 2019, we awarded our annual share-based compensation grants, which consisted of 0.6 million restricted stock units with a grant date fair value of $4.77 per unit and 0.6 million performance share units also with a grant date fair value of $4.77 per unit. The restricted stock units are subject to a three year graded vesting period and the performance share units are subject to a 34 month cliff vesting period. Dividends are not paid on restricted stock units.

In addition, in March 2019 we granted 1.3 million cash-settled restricted stock units (“phantom restricted stock units”) and 0.4 million cash-settled performance stock units (“phantom performance stock units”). Our share price on the date of grant was $5.03. The phantom restricted stock units vest and are payable in three equal installments over a period of three years after the grant date. The phantom performance stock units are subject to a 34 month cliff vesting period. Phantom stock units are not shares of our common stock and therefore the recipients of these awards do not receive ownership interest in the Company or stockholder voting rights. Phantom stock unit awards are subject to forfeiture upon termination of employment prior to vesting, subject in some cases to early vesting upon specified events, including death or permanent disability of the grantee, termination of the grantee’s employment under certain circumstances or a change in control of the Company. All phantom stock unit awards are classified as liability awards due to their expected settlement in cash, and are included in Accrued liabilities and other in the Condensed Consolidated Balance Sheets. Compensation expense for these awards is measured based upon the fair value of the awards at the end of each reporting period. Dividends are not paid on phantom stock units.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

9. Equity

Our equity as of December 31, 2018 and September 30, 2019, and changes during the three and nine months ended September 30, 2019, were as follows:

	Common		Additional Paid-in-			Treasury			Accumulated			Accumulated Other Comprehensive			Total RRD's Stockholders'			Noncontrolling			Total
	Stock		Capital			Stock			Deficit			Loss			Equity			Interests			Equity
Balance at December 31, 2018	$	0.9	$	3,404.0		$	(1,285.5	)	$	(2,225.7	)	$	(153.8	)	$	(260.1	)	$	14.7		$	(245.4	)
Net (loss) income										(8.8	)					(8.8	)		0.3			(8.5	)
Other comprehensive income													1.4			1.4			0.2			1.6
Share-based compensation				3.4												3.4						3.4
Issuance of share-based awards, net of withholdings and other				(54.7	)		53.8									(0.9	)					(0.9	)
Cash dividends paid										(2.1	)					(2.1	)					(2.1	)
Cumulative impact of adopting ASU 2016-02, net of tax										2.6						2.6						2.6
Distributions to noncontrolling interests																—			(0.7	)		(0.7	)
Balance at March 31, 2019	$	0.9	$	3,352.7		$	(1,231.7	)	$	(2,234.0	)	$	(152.4	)	$	(264.5	)	$	14.5		$	(250.0	)
Net loss										(7.0	)					(7.0	)		(0.4	)		(7.4	)
Other comprehensive loss													(2.4	)		(2.4	)		(0.1	)		(2.5	)
Share-based compensation				3.3												3.3						3.3
Issuance of share-based awards, net of withholdings and other				(0.5	)		0.5									—						—
Cash dividends paid										(2.2	)					(2.2	)					(2.2	)
Spinoff adjustments										(12.0	)					(12.0	)					(12.0	)
Balance at June 30, 2019	$	0.9	$	3,355.5		$	(1,231.2	)	$	(2,255.2	)	$	(154.8	)	$	(284.8	)	$	14.0		$	(270.8	)
Net income										12.6						12.6			0.3			12.9
Other comprehensive loss													(19.1	)		(19.1	)		(0.4	)		(19.5	)
Share-based compensation				2.6												2.6						2.6
Issuance of share-based awards, net of withholdings and other				(0.8	)		0.8									—						—
Cash dividends paid										(2.1	)					(2.1	)					(2.1	)
Distributions to noncontrolling interests																—						—
Balance at September 30, 2019	$	0.9	$	3,357.3		$	(1,230.4	)	$	(2,244.7	)	$	(173.9	)	$	(290.8	)	$	13.9		$	(276.9	)

On October 1, 2016, we completed the separation of LSC Communications, Inc. and Donnelley Financial Solutions, Inc. (“Spin Companies”) into two separate publicly-traded companies. The distribution of the Spin Companies was recorded as a reduction in Stockholder's Equity during the fourth quarter of 2016. During the second quarter of 2019, we identified an error in the accounting for the distribution of the Spin Companies. As a result, the error, which was determined by management to be immaterial to the previously issued Consolidated Financial Statements, has been corrected herein by increasing Accumulated Deficit by $12.0 million.

Stockholder Rights Plan

On August 28, 2019, our Board of Directors approved a Stockholder Rights Agreement (the “Rights Agreement”). Under the terms of the Rights Agreement, each share of our common stock is accompanied by one right; each right entitles the stockholder to purchase from the Company one one-thousandth of a newly issued share of Series A Junior Participating Preferred Stock at an exercise price of $12, subject to adjustment.

Subject to certain exceptions, the rights become exercisable 10 business days following a public announcement that a person (the “Acquiring Person”) has acquired beneficial ownership of 10% (or 20% in certain circumstances ) or more of the outstanding shares of common stock of the Company (the “Stock Acquisition Date”). The rights will expire on August 28, 2020, unless redeemed, exchanged or terminated earlier by the Company. At any time until 10 business days following the Stock Acquisition Date, the Company may redeem the rights for $0.001 per right.

In the event a person becomes an Acquiring Person, each holder of a right, other than the Acquiring Person, will have the right to receive common stock (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two times the exercise price of the right.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

In the event that we are acquired in a merger or other business combination as defined in the Rights Agreement, or 50% or more of our assets or earnings power is sold, each right entitles the holders to purchase common stock of the acquiring company having a value equal to two times the exercise price of the right.

At any time after a person becomes an Acquiring Person and prior to the acquisition by any person or group of 50% or more of the outstanding common stock, the Board of Directors may exchange the rights (other than rights owned by such person or group which have become void), in whole or in part, at an exchange ratio of one share of common stock, or one one-thousandth of a share of Series A Preferred Stock (or of a share of a class or series of the Company’s preferred stock having equivalent rights, preferences and privileges), per right, subject to adjustment.

Our equity as of December 31, 2017 and September 30, 2018, and changes during three and nine months ended September 30, 2018, were as follows:

	Common		Additional Paid-in-			Treasury			Accumulated			Accumulated Other Comprehensive			Total RRD's Stockholders'			Noncontrolling			Total
	Stock		Capital			Stock			Deficit			Loss			Equity			Interests			Equity
Balance at December 31, 2017	$	0.9	$	3,444.0		$	(1,333.1	)	$	(2,225.7	)	$	(103.7	)	$	(217.6	)	$	14.7		$	(202.9	)
Net (loss) income										(9.6	)					(9.6	)		0.3			(9.3	)
Other comprehensive income													21.0			21.0			0.5			21.5
Share-based compensation				1.2												1.2						1.2
Issuance of share-based awards, net of withholdings and other				(32.7	)		31.9			(0.1	)					(0.9	)					(0.9	)
Cash dividends paid										(9.8	)					(9.8	)					(9.8	)
Cumulative impact of adopting ASU 2014-09, net of tax										12.9						12.9						12.9
Distributions to noncontrolling interests																—			(1.0	)		(1.0	)
Balance at March 31, 2018	$	0.9	$	3,412.5		$	(1,301.2	)	$	(2,232.3	)	$	(82.7	)	$	(202.8	)	$	14.5		$	(188.3	)
Net (loss) income										(13.0	)					(13.0	)		0.4			(12.6	)
Other comprehensive loss													(39.3	)		(39.3	)		(0.6	)		(39.9	)
Share-based compensation				3.0												3.0						3.0
Issuance of share-based awards, net of withholdings and other				(4.5	)		4.5			0.1						0.1						0.1
Cash dividends paid										(9.8	)					(9.8	)					(9.8	)
Balance at June 30, 2018	$	0.9	$	3,411.0		$	(1,296.7	)	$	(2,255.0	)	$	(122.0	)	$	(261.8	)	$	14.3		$	(247.5	)
Net income										34.3						34.3			0.5			34.8
Other comprehensive loss													(6.4	)		(6.4	)		(0.4	)		(6.8	)
Share-based compensation				2.2												2.2						2.2
Issuance of share-based awards, net of withholdings and other				(0.9	)		0.9									—						—
Cumulative impact of adopting ASU 2018-02, net of tax										22.1			(22.1	)		—						—
Cash dividends paid										(2.2	)					(2.2	)					(2.2	)
Balance at September 30, 2018	$	0.9	$	3,412.3		$	(1,295.8	)	$	(2,200.8	)	$	(150.5	)	$	(233.9	)	$	14.4		$	(219.5	)

10. Earnings per Share

Basic earnings per share is calculated by dividing net earnings attributable to RRD common stockholders 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 excluded if the performance targets upon which the issuance of the shares is contingent have not been achieved and the respective performance period has not been completed as of the end of the current period. Additionally, stock options are considered anti-dilutive when the exercise price exceeds the average market value of our stock price during the applicable period. In periods when we are in a net loss, share-based awards are excluded from the calculation of earnings per share as their inclusion would have an anti-dilutive effect.

During the nine months ended September 30, 2019 and 2018, no shares of common stock were purchased by us; however, shares were withheld for tax liabilities upon the vesting of equity awards.

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

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 nine months ended September 30, 2019 and 2018 were as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018			2019			2018
Net income (loss) per share attributable to RRD common stockholders:
Basic	$	0.18	$	0.49	$	(0.04	)	$	0.17
Diluted	$	0.18	$	0.49	$	(0.04	)	$	0.17

Numerator:
Net income (loss) attributable to RRD common stockholders	$	12.6	$	34.3	$	(3.2	)	$	11.7

Denominator:
Basic weighted average number of common shares outstanding		71.4		70.6		71.2			70.5
Dilutive options and awards		—		0.1		—			0.3
Diluted weighted average number of common shares outstanding		71.4		70.7		71.2			70.8

Weighted average number of anti-dilutive share-based awards:
Stock options		0.4		0.7		0.5			0.9
Restricted stock units		1.3		0.5		1.0			0.6
Total		1.7		1.2		1.5			1.5

Dividends declared per common share	$	0.03	$	0.03	$	0.09		$	0.31

11. Other Comprehensive Loss

The components of other comprehensive loss and income tax (benefit) expense allocated to each component for the three and nine months ended September 30, 2019 and 2018 were as follows:

	Three Months Ended									Nine Months Ended
	September 30, 2019									September 30, 2019
	Before						Net of			Before						Net of
	Tax			Income			Tax			Tax			Income			Tax
	Amount			Tax			Amount			Amount			Tax			Amount
Translation adjustments	$	(19.9	)	$	—		$	(19.9	)	$	(21.9	)	$	—		$	(21.9	)
Adjustments for net periodic pension and OPEB cost		(0.3	)		(0.1	)		(0.2	)		(0.8	)		(0.2	)		(0.6	)
Other		—			(0.6	)		0.6			—			(2.1	)		2.1
Other comprehensive loss	$	(20.2	)	$	(0.7	)	$	(19.5	)	$	(22.7	)	$	(2.3	)	$	(20.4	)

	Three Months Ended								Nine Months Ended
	September 30, 2018								September 30, 2018
	Before					Net of			Before					Net of
	Tax			Income		Tax			Tax			Income		Tax
	Amount			Tax		Amount			Amount			Tax		Amount
Translation adjustments	$	(8.4	)	$	—	$	(8.4	)	$	(31.1	)	$	—	$	(31.1	)
Adjustments for net periodic pension and OPEB cost		2.1			0.5		1.6			7.9			2.0		5.9
Other comprehensive loss	$	(6.3	)	$	0.5	$	(6.8	)	$	(23.2	)	$	2.0	$	(25.2	)

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Accumulated other comprehensive (loss) income by component as of December 31, 2018 and September 30, 2019, and changes during the nine months ended September 30, 2019, were as follows:

	Pension and OPEB Cost			Translation Adjustments			Other		Total
Balance at December 31, 2018	$	(155.2	)	$	1.4		$	—	$	(153.8	)
Other comprehensive (loss) income before reclassifications		—			(17.1	)		2.1		(15.0	)
Amounts reclassified from accumulated other comprehensive (loss) income		(0.6	)		(4.5	)		—		(5.1	)
Net change in accumulated other comprehensive (loss) income		(0.6	)		(21.6	)		2.1		(20.1	)
Balance at September 30, 2019	$	(155.8	)	$	(20.2	)	$	2.1	$	(173.9	)

Accumulated other comprehensive (loss) income by component as of December 31, 2017 and September 30, 2018, and changes during the nine months ended September 30, 2018, were as follows:

	Pension and OPEB Cost			Translation Adjustments			Total
Balance at December 31, 2017	$	(144.6	)	$	40.9		$	(103.7	)
Other comprehensive income (loss) before reclassifications		1.2			(30.6	)		(29.4	)
Amounts reclassified from accumulated other comprehensive (loss) income		4.1			—			4.1
Impact of adopting ASU 2018-02		(22.1	)		—			(22.1	)
Other		0.6			—			0.6
Net change in accumulated other comprehensive (loss) income		(16.2	)		(30.6	)		(46.8	)
Balance at September 30, 2018	$	(160.8	)	$	10.3		$	(150.5	)

Reclassifications from accumulated other comprehensive loss for the three and nine months ended September 30, 2019 and 2018 were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,						Classification in the Condensed
	2019			2018			2019			2018			Consolidated Statements of Operations
Translation Adjustments:
Net realized gain, before tax	$	—		$	—		$	(4.5	)	$	—		Other operating expense (income)
Reclassification, net of tax	$	—		$	—		$	(4.5	)	$	—

Amortization of pension and OPEB cost:
Net actuarial loss	$	1.1		$	2.0		$	3.3		$	5.9		Investment and other income-net
Net prior service credit		(1.4	)		(0.8	)		(4.1	)		(2.2	)	Investment and other income-net
Settlements		—			0.2			—			1.5		Investment and other income-net
Reclassifications before tax		(0.3	)		1.4			(0.8	)		5.2
Income tax benefit		(0.1	)		0.4			(0.2	)		1.1
Reclassification, net of tax		(0.2	)		1.0		$	(0.6	)	$	4.1
Total reclassifications, net of tax	$	(0.2	)	$	1.0		$	(5.1	)	$	4.1

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

12. Segment Information

Our segments and their product and service offerings are summarized below:

Business Services

Business Services provides customized solutions at scale to help clients inform, service and transact with their customers. The segment’s primary product and service offerings include commercial print, logistics, statement printing, labels, packaging, supply chain management, forms and business process outsourcing. This segment also includes all of our operations in Asia, Europe, Canada and Latin America.

Marketing Solutions

Marketing Solutions leverages an integrated portfolio of data analytics, creative services and multichannel execution to deliver comprehensive, end-to-end solutions. The segment’s primary product and service offerings include direct marketing, in-store marketing, digital print, kitting, fulfillment, digital and creative solutions and list services.

Corporate

Corporate consists of unallocated selling, general and administrative activities and associated expenses including, in part, executive, legal, finance, communications, certain facility costs and last-in-first-out inventory provisions. In addition, certain costs and earnings of employee benefit plans, such as pension and OPEB expense (income) and share-based compensation, are included in Corporate and not allocated to the operating segments. Corporate also manages our cash pooling structures, which enables participating international locations to draw on our international cash resources to meet local liquidity needs.

Information by Segment

We have disclosed income (loss) from operations as the primary measure of segment earnings (loss). This is the measure of profitability used by our chief operating decision-maker and is most consistent with the presentation of profitability reported within the Condensed Consolidated Financial Statements.

	Three Months Ended
	September 30, 2019
															Assets of
								Income (Loss)			Depreciation				Operations
	Total		Intersegment			Net		from			and		Capital		As of
	Sales		Sales			Sales		Operations			Amortization		Expenditures		September 30, 2019
Business Services	$	1,303.0	$	(27.0	)	$	1,276.0	$	80.6		$	26.2	$	17.6	$	2,533.2
Marketing Solutions		352.0		(8.6	)		343.4		24.4			14.7		8.0		766.7
Total operating segments		1,655.0		(35.6	)		1,619.4		105.0			40.9		25.6		3,299.9
Corporate		—		—			—		(31.2	)		2.6		5.4		240.6
Total operations	$	1,655.0	$	(35.6	)	$	1,619.4	$	73.8		$	43.5	$	31.0	$	3,540.5

	Three Months Ended
	September 30, 2018
															Assets of
								Income (Loss)			Depreciation				Operations
	Total		Intersegment			Net		from			and		Capital		As of
	Sales		Sales			Sales		Operations			Amortization		Expenditures		December 31, 2018
Business Services	$	1,385.7	$	(22.5	)	$	1,363.2	$	74.8		$	31.5	$	14.6	$	2,764.5
Marketing Solutions		295.6		(9.3	)		286.3		11.8			11.7		2.7		674.6
Total operating segments		1,681.3		(31.8	)		1,649.5		86.6			43.2		17.3		3,439.1
Corporate		—		—			—		(25.7	)		1.0		7.4		201.7
Total operations	$	1,681.3	$	(31.8	)	$	1,649.5	$	60.9		$	44.2	$	24.7	$	3,640.8

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

	Nine Months Ended
	September 30, 2019
								Income (Loss)			Depreciation
	Total		Intersegment			Net		from			and		Capital
	Sales		Sales			Sales		Operations			Amortization		Expenditures
Business Services	$	3,812.7	$	(69.2	)	$	3,743.5	$	150.8		$	82.1	$	60.4
Marketing Solutions		930.9		(24.4	)		906.5		38.9			38.2		31.6
Total operating segments		4,743.6		(93.6	)		4,650.0		189.7			120.3		92.0
Corporate		—		—			—		(71.7	)		5.9		15.4
Total operations	$	4,743.6	$	(93.6	)	$	4,650.0	$	118.0		$	126.2	$	107.4

	Nine Months Ended
	September 30, 2018
								Income (Loss)			Depreciation
	Total		Intersegment			Net		from			and		Capital
	Sales		Sales			Sales		Operations			Amortization		Expenditures
Business Services	$	4,265.4	$	(77.1	)	$	4,188.3	$	152.9		$	98.7	$	51.6
Marketing Solutions		876.2		(27.7	)		848.5		32.7			35.3		8.1
Total operating segments		5,141.6		(104.8	)		5,036.8		185.6			134.0		59.7
Corporate		—		—			—		(67.0	)		3.5		13.0
Total operations	$	5,141.6	$	(104.8	)	$	5,036.8	$	118.6		$	137.5	$	72.7

Net restructuring and other (income) expenses by segment are described in Note 6, Restructuring and Other.

13. Commitments and Contingencies

We are subject to laws and regulations relating to the protection of the environment. We provide 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. We have been designated as a potentially responsible party or have received claims in two active federal and state Superfund and other multiparty remediation sites. In addition to these sites, we may also have the obligation to remediate six other previously and currently owned facilities. At the Superfund sites, the Comprehensive Environmental Response, Compensation and Liability Act provides that our liability could be joint and several, meaning that we could be required to pay an amount in excess of our proportionate share of the remediation costs.

Our 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 our estimated liability. We believe that our recorded reserves, recorded in Accrued liabilities and other and Other noncurrent liabilities, are adequate to cover our 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 we may undertake in the future. However, in our opinion, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material effect on our consolidated results of operations, financial position or cash flows.

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

In April 2019, we received a subpoena from the SEC related to previous business dealings with the Brazilian Ministry of Education. The SEC and Department of Justice (“DOJ”) are investigating the matter, and we are cooperating as they conduct their investigations. In addition, the DOJ has informed us that the Brazil authorities are also investigating the matter.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Leases

We determine if an arrangement is a lease at inception. Operating leases are recorded in Operating lease assets, Short-term operating lease liabilities and Long-term operating lease liabilities on the Condensed Consolidated Balance Sheets. Operating lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, we use our incremental borrowing rate based on the information available at the lease commencement date. Operating lease assets also include any lease payments made and are reduced by any lease incentives received. Our lease terms may include options to extend or not terminate the lease when we are reasonably certain that we will exercise any such options. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense is recognized on a straight-line basis over the expected lease term.

Our most significant leases are real estate leases for plants, warehouses, storage facilities, offices and other facilities. For real estate leases, we elected the practical expedient permitted under Topic 842 to combine lease and non-lease components. As a result, non-lease components, such as common area maintenance charges, are accounted for as a single lease element. Our remaining operating leases are primarily comprised of leases of machinery and technology equipment. Finance leases are not material.

Certain of our operating lease agreements include variable payments that are passed-through by the landlord, such as insurance, taxes and common area maintenance, payments based on the usage of the asset and rental payments adjusted periodically for inflation. Pass-through charges, payments due to change in usage of the asset and payments due to changes in inflation are included within variable rent expense.

Our lease agreements do not contain material residual value guarantees, restrictions or covenants.

The components of lease expense for the three and nine months ended September 30, 2019 were as follows:

	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease cost	$	26.2		$	73.4
Variable lease cost		9.9			28.6
Short-term lease cost		0.1			2.4
Sublease income		(0.3	)		(0.9	)
Total lease cost	$	35.9		$	103.5

Supplemental cash flow information related to leases for the nine months ended September 30, 2019 was as follows:

	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows	$	64.8
Right-of-use assets obtained in exchange for lease obligations
Operating leases	$	26.6

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

As of September 30, 2019, the future lease payments under operating leases were as follows:

Year Ended December 31	Operating Leases
2019 (excluding the nine months ended September 30, 2019)	$	21.6
2020		69.0
2021		52.4
2022		34.1
2023		23.8
2024 and thereafter		32.9
Total lease payments		233.8
Less: Amount representing interest		32.9
Present value of lease obligation	$	200.9

Weighted average remaining lease term	4.1 years
Weighted average discount rate		6.6	%

Comparative Period Disclosures under Topic 840

Rent expense for facilities in use and equipment was $26.3 million and $83.7 million for the three and nine months ended September 30, 2018, respectively. Sublease rental income for the nine months ended September 30, 2018 was not significant.

As of December 31, 2018, future minimum rental commitments under operating leases were as follows:

Year Ended December 31	Operating Leases
2019	$	77.8
2020		56.9
2021		41.3
2022		27.7
2023		21.4
2024 and thereafter		33.4
	$	258.5

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

14. Debt

Debt at September 30, 2019 and December 31, 2018 consisted of the following:

	September 30, 2019			December 31, 2018
Borrowings under the ABL Credit Agreement	$	223.0		$	59.0
11.25% senior notes due February 1, 2019 ^(a)		—			172.2
7.625% senior notes due June 15, 2020		65.8			65.8
7.875% senior notes due March 15, 2021		167.1			190.4
8.875% debentures due April 15, 2021		60.2			81.0
7.00% senior notes due February 15, 2022		140.0			140.0
6.50% senior notes due November 15, 2023		290.6			290.6
Term Loan Credit Agreement due January 15, 2024 ^(b)		541.4			544.7
6.00% senior notes due April 1, 2024		298.2			298.3
6.625% debentures due April 15, 2029		158.0			157.9
8.820% debentures due April 15, 2031		69.0			69.0
Other ^(c)		29.4			38.9
Unamortized debt issuance costs		(13.6	)		(16.3	)
Total debt		2,029.1			2,091.5
Less: current portion		100.6			216.2
Long-term debt	$	1,928.5		$	1,875.3

(a)	As of December 31, 2018 the interest rate on the 11.25% senior notes due February 1, 2019 had contractually increased to 13.25%.

(b)	As of September 30, 2019 and December 31, 2018, the interest rate on the Term Loan Credit Agreement due January 15, 2024 was 7.04% and 7.51%, respectively.

(c)	Includes miscellaneous debt obligations.

The fair values of the senior notes and debentures, which were determined using the market approach based upon interest rates available to us for borrowings with similar terms and maturities, were determined to be Level 2 under the fair value hierarchy. The fair value of our total debt was higher than its book value by approximately $10.1 million and less than its book value by approximately $14.4 million at September 30, 2019 and December 31, 2018, respectively.

During the three months ended September 30, 2019, we repurchased on the open market $23.4 million and $20.7 million in aggregate principal amount of the 7.875% senior notes due 2021 and 8.875% debentures due 2021, respectively. We recorded a loss on debt extinguishment of $0.8 million in the third quarter of 2019 on the repurchase of the bonds.

On February 1, 2019, we retired the $172.2 million 11.25% senior notes using availability under our asset-based revolving credit facility (the “ABL Credit Agreement”).

On October 15, 2018, we entered into a $550.0 million senior secured Term Loan B credit facility pursuant to a credit agreement (the “Term Loan Credit Agreement”). Proceeds from the Term Loan Credit Agreement, net of a $5.5 million discount, were used to repurchase certain senior notes, pay transaction fees and repay a portion of borrowings under the ABL Credit Agreement.

Our obligations under the Term Loan Credit Agreement are guaranteed by our material domestic subsidiaries (the “Guarantors”) and are secured by a security interest in substantially all assets of ours and the Guarantors, including certain material real property, subject to certain exceptions and exclusions. The ABL Priority Collateral (as defined below) secures our obligations and the obligations of the Guarantors under the Term Loan Credit Agreement and related guarantees on a second-priority basis, and all other collateral other than the ABL Priority Collateral secures our obligations and the obligations of the Guarantors under the Term Loan Credit Agreement and related guarantees on a first-priority basis, in each case, subject to permitted liens.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The Term Loan Credit Agreement contains customary affirmative and negative covenants including negative covenants restricting, among other things, our ability to incur debt, make investments, make certain restricted payments (including payments on certain other debt and external dividends), incur liens securing other debt, consummate certain fundamental transactions, enter into transactions with affiliates and consummate asset sales. The Term Loan Credit Agreement requires that the net cash proceeds of significant asset sales be used to prepay borrowings under the Term Loan Credit Agreement, except in certain circumstances, including the reinvestment of net cash proceeds in assets useful to our business, repayment of borrowings under our ABL Credit Agreement or the funding of debt tenders, in each case, subject to certain restrictions and limitations set forth in the Term Loan Credit Agreement.

The Term Loan Credit Agreement is scheduled to mature on January 15, 2024, at which time all amounts outstanding under the Term Loan Credit Agreement will be due and payable. Principal payments of $1.4 million are due quarterly. Borrowings will bear interest at a Eurocurrency rate plus a margin of 5% or a base rate plus a margin of 4%.

On October 15, 2018, we repurchased $172.6 million and $257.4 million in aggregate principal amount of the 7.625% senior notes due 2020 and 7.875% senior notes due 2021, respectively, pursuant to a tender offer. We recorded a loss on debt extinguishment of $32.3 million in the fourth quarter of 2018 on the repurchase of the bonds, representing tender premiums paid of $29.0 million, write-off of unamortized debt issuance costs of $1.5 million and fees and expenses of $1.8 million.

On September 29, 2017, we entered into the ABL Credit Agreement which amended and restated our prior $800.0 million senior secured revolving credit facility dated September 30, 2016. The ABL Credit Agreement provides for a senior secured asset-based revolving credit facility of up to $800.0 million. The amount available to be borrowed under the ABL Credit Agreement is equal to the lesser of (a) $800.0 million and (b) a borrowing base formula based on the amount of accounts receivable, inventory, machinery, equipment and, if we were to so elect in the future subject to the satisfaction of certain conditions, fee-owned real estate of ours and the Guarantors, subject to certain eligibility criteria and advance rates (collectively, the “Borrowing Base”). The aggregate amount of real estate, machinery and equipment that can be included in the Borrowing Base cannot exceed $200.0 million.

On October 15, 2018, we entered into Amendment No. 1 to the ABL Credit Agreement, which amended the ABL Credit Agreement to, among other things, permit (i) the incurrence of the debt pursuant to the Term Loan Credit Agreement and (ii) the incurrence of a lien on the ABL Priority Collateral to secure our obligations under the Term Loan Credit Agreement and related guarantees on a second-priority basis.

Our obligations under the ABL Credit Agreement are guaranteed by the Guarantors and are secured by a security interest in substantially all assets of ours and the Guarantors, including, only to the extent included in the Borrowing Base, real property, in each case subject to certain exceptions and exclusions. The assets of ours and the Guarantors consisting of accounts receivable, inventory, deposit accounts, securities accounts, machinery and equipment and, to the extent related to the foregoing, general intangibles, documents and instruments, as well as 65% of the equity interests of our first-tier foreign subsidiaries (collectively, the “ABL Priority Collateral”), secure our obligations and the obligations of the Guarantors under the ABL Credit Agreement and the related guarantees on a first-priority basis, and all other collateral other than the ABL Priority Collateral secures our obligations and the obligations of the Guarantors under the ABL Credit Agreement on a second-priority basis, in each case, subject to permitted liens.

The ABL Credit Agreement contains customary restrictive covenants, including a covenant which requires us to maintain a minimum fixed charge coverage ratio under certain circumstances. In addition, our ability to undertake certain actions, including, among other things, prepay certain junior debt, incur additional indebtedness and make certain restricted payments (including external dividends) depends on satisfaction of certain conditions, including, among other things, meeting minimum borrowing availability thresholds under the ABL Credit Agreement.

Borrowings under the ABL Credit Agreement bear interest at a rate dependent on the average quarterly availability under the ABL Credit Agreement and is calculated according to a base rate (except in certain circumstances, based on the prime rate) or a Eurocurrency rate (except in certain circumstances, based on London Inter-bank Offered Rate or “LIBOR”) plus an applicable margin. The applicable margin for base rate loans ranges from 0.25% to 0.50% and the applicable margin for Eurocurrency loans ranges from 1.25% to 1.50%. In addition, a fee is payable quarterly on the unused portion of the amount available to be borrowed under the ABL Credit Agreement. The fee accrues at a rate of either 0.25% or 0.375% depending upon the average usage of the facility.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The ABL Credit Agreement is scheduled to mature on September 29, 2022, at which time all outstanding amounts under the ABL Credit Agreement will be due and payable. Borrowings under the ABL Credit Agreement may be used for working capital and general corporate purposes.

Based on our borrowing base as of September 30, 2019 and existing borrowings, we had approximately $438.6 million borrowing capacity available under the ABL Credit Agreement.

The weighted average interest rate on borrowings under our current facility was 3.7% and 3.4% during the nine months ended September 30, 2019 and 2018, respectively.

Interest paid, net of interest capitalized, was $27.0 million and $112.5 million for the three and nine months ended September 30, 2019, respectively, and $38.2 million and $120.0 million for the three and nine months ended September 30, 2018, respectively.

Interest income was $0.6 million and $2.3 million for the three and nine months ended September 30, 2019, respectively, and $0.8 million and $2.0 million for the three and nine months ended September 30, 2018, 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 the Condensed Consolidated Statements of Operations, or in other comprehensive income (loss), net of applicable income taxes, depending on the purpose for which the derivative is held. At the inception of a hedge transaction, we formally document the hedge relationship and the risk management objective for undertaking the hedge. In addition, we assess 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 in the Condensed Consolidated Statements of Operations.

We are exposed to the impact of foreign currency fluctuations based on our global operations. The exposure to foreign currency movements within many countries is limited because the operating revenues and expenses of our 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, we are exposed to currency risk. Periodically, we use foreign exchange spot and forward contracts to hedge exposures resulting from foreign exchange fluctuations. To the extent the gains and losses associated with the fair values of foreign currency exchange contracts are recognized in the Condensed Consolidated Statements of Operations, they are generally offset by gains and losses on underlying payables, receivables and net investments in foreign subsidiaries. We do not use derivative financial instruments for trading or speculative purposes. The aggregate notional value of the forward contracts at September 30, 2019 and December 31, 2018 was $144.4 million and $170.8 million, respectively. The fair values of foreign currency contracts were determined to be Level 2 under the fair value hierarchy and are valued using market exchange rates.

The total fair value of our foreign currency contracts, which were the only derivatives not designated as hedges, included in Prepaid expenses and other current assets at September 30, 2019 and December 31, 2018, was $0.2 million and $0.9 million, respectively. In addition, there was $3.0 million and $0.3 million of these derivatives included in Accrued liabilities and other at September 30, 2019 and December 31, 2018, respectively.

16. Acquisition and Dispositions

On August 1, 2019, we completed an acquisition within the Business Services segment for a purchase price of $14.6 million consisting of $3.0 million in cash paid at closing, a $3.0 million note payable due January 1, 2020 and $8.6 million in contingent consideration based on the future performance of the acquired business. The cost of the acquisition is primarily allocated to intangible assets related to client relationships based on the fair value at the acquisition date.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

On May 8, 2019, we sold our R&D business within the Business Services segment for net proceeds of $11.7 million, which was received during the nine months ended September 30, 2019. The disposition of this business resulted in a net gain of $6.2 million during the nine months ended September 30, 2019, which was recorded in Other operating expense (income) in the Condensed Consolidated Statements of Operations.

On March 31, 2019, our subsidiary, RR Donnelley Editora e Grafica Ltda. (“RRD Brazil”), filed for bankruptcy liquidation in bankruptcy court in Brazil. The bankruptcy petition was approved by the court shortly thereafter and a bankruptcy trustee was appointed. As a result of the bankruptcy liquidation, we recorded a gain of $4.0 million in Other operating expense (income) for the nine months ended September 30, 2019, primarily reflecting the reclassification of cumulative currency translation adjustments into earnings and ongoing expenses associated with the bankruptcy proceedings. Subsequent to March 31, 2019, the operating results of RRD Brazil are no longer included in our consolidated results of operations. RRD Brazil had net sales of $8.8 million for the three months ended March 31, 2019 and $12.4 million and $43.2 million for the three and nine months ended September 30, 2018, respectively. RRD Brazil had a loss before income taxes of $4.1 million for the three months ended March 31, 2019 and $4.1 million and $15.6 million for the three and nine months ended September 30, 2018, respectively. The operations of RRD Brazil were included in the Business Services segment.

On July 2, 2018, we completed the sale of our Print Logistics business for $60.0 million cash, of which we received $43.9 million after transaction costs, working capital adjustments and $4.9 million of cash which was included in the disposition. Net proceeds from the sale were used to reduce borrowings outstanding on our ABL Credit Agreement. The disposition resulted in a pre-tax gain of $3.6 million in the third quarter of 2018, which was recorded in Other operating expense (income) in the Condensed Consolidated Statements of Operations. Income taxes paid as a result of the sale were insignificant due to the utilization of capital loss carryforwards to offset the taxable gain. Prior to the sale, operating results for the Print Logistics business were reported as services within the Business Services segment.

17. Subsequent Event

On October 25, 2019, we completed the sale of substantially all of our Global Document Solutions (“GDS”) business for approximately $42.3 million, subject to a working capital adjustment. GDS primarily provides statements and print management services in Europe and reported net sales of $185.1 million and $207.2 million during the nine months ended September 30, 2019 and 2018, respectively, and $272.8 million during the year ended December 31, 2018. As of September 30, 2019, net assets sold, excluding currency translation adjustments, were approximately $21.0 million.

18. New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02 “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which permits the reclassification of tax effects stranded in accumulated other comprehensive income to retained earnings as a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The standard also requires entities to disclose whether or not they elected to reclassify the tax effects related to the Tax Act from accumulated other comprehensive income. The standard allows the option of applying either a retrospective adoption, meaning the standard is applied to all periods in which the effect of the Tax Act is recognized, or applying the amendments in the period of adoption, meaning an adjustment is made to stockholders’ equity as of the beginning of the reporting period. ASU 2018-02 was effective in the first quarter of 2019; however, early adoption was permitted for interim and annual periods, including the reporting period in which the Tax Act was enacted. As of July 1, 2018, we adopted the provisions of ASU 2018-02, which resulted in a decrease to Accumulated deficit and increase to Accumulated other comprehensive loss of $22.0 million.

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions in the Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or treating any taxes on GILTI inclusions as period costs are both acceptable methods subject to an accounting policy election. During the fourth quarter of 2018, we elected to treat the tax effect of GILTI as a current period expense when incurred.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

In February 2016, the FASB issued ASU No. 2016-02 “Leases (Topic 842)” which requires lessees to record most leases on the balance sheet. Topic 842 was effective for annual reporting periods beginning after December 15, 2018, including interim periods within those reporting periods, with early adoption permitted. The new standard requires a lessee to recognize a right-of use (“ROU”) asset and lease liability on the balance sheet for all leases with a term longer than 12 months and requires additional disclosures. For lessors, Topic 842 also modifies the classification criteria and the accounting for sales-type and direct financing leases. Topic 842 was subsequently amended by ASU No. 2018-01 “Land Easement Practical Expedient for Transition to Topic 842”; ASU No. 2018-10 “Codification Improvements to Topic 842, Leases”; ASU No. 2018-11 “Leases (Topic 842): Targeted Improvements” (“ASU 2018-11”); ASU No. 2018-20 “Narrow-Scope Improvements for Lessors”; and ASU No. 2019-01 “Leases (Topic 842): Codification Improvements”. ASU 2018-11 provides clarity on separating components of a lease contract and includes an option to not restate comparative periods in transition and elect to use the effective date of Topic 842 as the date of initial application.

We adopted the guidance as of January 1, 2019 using the effective date as the date of initial application. Results for the three and nine months ended September 30, 2019 are presented under Topic 842. Information prior to the effective date continues to be presented in accordance with the previous lease guidance, “Leases (Topic 840)”.

We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification of those leases in place as of December 31, 2018.

See Note 13, Commitments and Contingencies, for further discussion.

Accounting Pronouncements Issued and Not Yet Adopted

In August 2018, the FASB issued ASU No. 2018-15 “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 will be effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, however early adoption is permitted. We are currently evaluating the impact of ASU 2018-15 on the consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-14 “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans” (“ASU 2018-14”), which removes certain disclosures that are no longer cost beneficial and also includes additional disclosures to improve the overall usefulness of the disclosure requirements to financial statement users. ASU 2018-14 will be effective for public entities for fiscal years beginning after December 15, 2020, however early adoption is permitted. We are currently evaluating the impact of ASU 2018-14 on the consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which changes the impairment model for most financial assets and certain other instruments. Under the new guidance, entities will be required to measure expected credit losses for financial instruments, including trade receivables, based on historical experience, current conditions and reasonable forecasts. ASU 2016-13 will be effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We are currently evaluating the impact ASU 2016-13 will have on the consolidated financial statements.

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

Company Overview

R.R. Donnelley & Sons Company (“RRD,” the “Company,” “we,” “us,” and “our”), a Delaware corporation, helps organizations communicate more effectively by working to create, manage, produce, distribute and process content on behalf of our clients. We assist clients in developing and executing multichannel communication strategies that engage audiences, reduce costs, drive revenues and enhance compliance. Our innovative content management offering, production platform, logistics services, supply chain management, outsourcing capabilities and customized consultative expertise assists our clients in the delivery of integrated messages across multiple media to highly targeted audiences at optimal times to their customers in virtually every private and public sector. We have strategically located operations that provide local service and responsiveness while leveraging the economic, geographic and technological advantages of a global organization.

Segment Descriptions

Our segments and their product and service offerings are summarized below:

Business Services

Marketing Solutions

Corporate

Corporate consists of unallocated selling, general and administrative activities and associated expenses including, in part, executive, legal, finance, communications, certain facility costs and last-in-first-out inventory provisions. In addition, certain costs and earnings of employee benefit plans, such as pension and other postretirement benefits plan (“OPEB”) expense (income) and share-based compensation, are included in Corporate and not allocated to the operating segments. Corporate also manages our cash pooling structures, which enables participating international locations to draw on our international cash resources to meet local liquidity needs.

Products and Services

We separately report our net sales, related costs of sales and gross profit for our product and service offerings. Our product offerings primarily consist of commercial print, statements, direct marketing, packaging, labels, digital print and fulfillment, supply chain management and forms. Our service offerings primarily consist of logistics, business process outsourcing and digital and creative solutions.

Executive Overview

Third Quarter Overview

Net sales decreased by $30.1 million, or 1.8%, for the three months ended September 30, 2019 compared to the same period in 2018. Net sales decreased $13.4 million due to recent business dispositions, primarily the bankruptcy liquidation of RRD Brazil, and $10.5 million due to changes in foreign exchange rates. Net sales also decreased due to lower volume within the Business Services segment, partially offset by higher volume within the Marketing Solutions segment.

We continue to assess opportunities to reduce our cost structure and enhance productivity throughout the business. During the three months ended September 30, 2019, we realized cost savings from previous restructuring activities including the reorganization of administrative and support functions across all segments, as well as facility consolidations.

Net cash used in operating activities for the nine months ended September 30, 2019 was $87.8 million as compared to $63.9 million for the nine months ended September 30, 2018. The change in net cash flow from operating activities related primarily to higher tax payments.

Goodwill Impairment Assessment

We perform our goodwill impairment tests annually 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 our interim review for indicators of impairment, we analyzed potential changes in value of individual reporting units with goodwill based on each reporting unit’s operating results for the nine months ended September 30, 2019 compared to expected results. In addition, we 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.

We considered trends in these factors when performing our assessment of whether an interim impairment review was required for any reporting unit. Based on this interim assessment, we concluded that as of September 30, 2019, 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 economic and market conditions could result in changes to expectations of future financial results and key valuation assumptions. Such changes could result in revisions of our estimates of the fair value of our reporting units and could result in a material impairment of goodwill in a future interim period or as of October 31, 2019, our next annual measurement date.

In particular, we had one reporting unit in the Business Services segment experience a decline in sales during the nine months ended September 30, 2019. Continued negative trends could impact the estimated fair value of this reporting unit and could result in a future impairment charge. As of the October 31, 2018 annual goodwill impairment test, the fair value of this reporting unit exceeded its book value by approximately 29%. As of September 30, 2019, $151.8 million of goodwill was allocated to this reporting unit.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019 AS COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2018

The following table shows the results of operations for the three months ended September 30, 2019 and 2018:

	Three Months Ended
	September 30,
	2019			2018			$ Change			% Change
	(in millions, except percentages)
Products net sales	$	1,328.8		$	1,329.8		$	(1.0	)		(0.1	%)
Services net sales		290.6			319.7			(29.1	)		(9.1	%)
Total net sales		1,619.4			1,649.5			(30.1	)		(1.8	%)
Products cost of sales (exclusive of depreciation and amortization)		1,073.5			1,076.8			(3.3	)		(0.3	%)
Services cost of sales (exclusive of depreciation and amortization)		235.0			257.3			(22.3	)		(8.7	%)
Total cost of sales		1,308.5			1,334.1			(25.6	)		(1.9	%)
Products gross profit		255.3			253.0			2.3			0.9	%
Services gross profit		55.6			62.4			(6.8	)		(10.9	%)
Total gross profit		310.9			315.4			(4.5	)		(1.4	%)
Selling, general and administrative expenses (exclusive of depreciation and amortization)		190.5			203.8			(13.3	)		(6.5	%)
Restructuring and other (income) expense-net		(2.3	)		11.0			(13.3	)	nm
Depreciation and amortization		43.5			44.2			(0.7	)		(1.6	%)
Other operating expense (income)		5.4			(4.5	)		9.9		nm
Income from operations	$	73.8		$	60.9		$	12.9			21.2	%

Consolidated

Net sales of products for the three months ended September 30, 2019 decreased $1.0 million, or 0.1%, to $1,328.8 million versus the same period in 2018. The third quarter of 2019 included a $13.4 million decrease due to recent business dispositions and a $9.4 million decrease due to changes in foreign exchange rates. Net sales of products also decreased due to lower volume in commercial print due to ongoing secular pressure and continued planned reduction in low margin sales, offset by higher volume in direct marketing primarily attributable to the 2020 Census contract.

Net sales from services for the three months ended September 30, 2019 decreased $29.1 million, or 9.1%, to $290.6 million versus the same period in 2018. Net sales from services decreased due primarily to lower volume in our logistics business.

Products cost of sales for the three months ended September 30, 2019 decreased $3.3 million, or 0.3%, to $1,073.5 million versus the same period in 2018. Products cost of sales decreased primarily due to changes in foreign exchange rates, cost control initiatives across both segments and lower volume in commercial print, partially offset by cost inflation and higher volume in direct marketing primarily attributable to the 2020 Census contract. As a percentage of net sales, products cost of sales decreased 0.2 percentage points for the three months ended September 30, 2019 versus the same period in 2018.

Services cost of sales decreased $22.3 million, or 8.7%, for the three months ended September 30, 2019 versus the same period in 2018, primarily due to lower volume in our logistics business and cost control initiatives, partially offset by cost inflation. As a percentage of net sales, services cost of sales increased 0.4 percentage points for the three months ended September 30, 2019 versus the same period in 2018.

Products gross profit increased $2.3 million to $255.3 million for the three months ended September 30, 2019 versus the same period in 2018, primarily due to favorable product mix, changes in foreign exchange rates and cost control initiatives, partially offset by price pressures and cost inflation. Products gross margin increased from 19.0% in 2018 to 19.2% in 2019.

Services gross profit decreased $6.8 million to $55.6 million for the three months ended September 30, 2019 versus the same period in 2018, primarily due to lower volume in our logistics business and cost inflation. Services gross margin decreased from 19.5% in 2018 to 19.1% in 2019.

Selling, general and administrative expenses decreased $13.3 million to $190.5 million for the three months ended September 30, 2019 versus the same period in 2018 reflecting cost control initiatives and recent business dispositions. As a percentage of net sales, selling, general and administrative expenses decreased from 12.4% to 11.8% for the three months ended September 30, 2019 versus the same period in 2018.

For the three months ended September 30, 2019, we recorded net restructuring and other income of $2.3 million versus net restructuring and other expense of $11.0 million in the same period in 2018. Net restructuring and other income included $0.6 million for employee termination costs and other restructuring charges of $1.0 million for the three months ended September 30, 2019. Additionally, we recorded a $4.7 million net gain on the sale of restructured facilities for three months ended September 30, 2019. See Note 6, Restructuring and Other, within the Notes to the Condensed Consolidated Financial Statements for further discussion.

Depreciation and amortization decreased $0.7 million to $43.5 million for the three months ended September 30, 2019 compared to the same period in 2018. Depreciation and amortization included $5.9 million and $6.8 million of amortization of other intangible assets related to client relationships, trade names, trademarks, licenses and agreements for the three months ended September 30, 2019 and 2018, respectively.

Other operating expense for the three months ended September 30, 2019 was $5.4 million compared to other operating income of $4.5 million in the same period in 2018. The expense in 2019 primarily related to the ongoing SEC and DOJ investigations and the ongoing bankruptcy liquidation of RRD Brazil. The prior year amount related to a pre-tax gain on the sale of our Print Logistics business in July 2018.

Income from operations for the three months ended September 30, 2019 was $73.8 million, an increase of $12.9 million, or 21.2%, compared to the three months ended September 30, 2018.

	Three Months Ended
	September 30,
	2019			2018			$ Change			% Change
	(in millions, except percentages)
Interest expense-net	$	37.4		$	42.0		$	(4.6	)		(11.0	%)
Investment and other income-net		(4.6	)		(5.5	)		(0.9	)		16.4	%
Loss on debt extinguishment		0.8			—			0.8		nm

Net interest expense decreased by $4.6 million for the three months ended September 30, 2019 versus the same period in 2018, primarily due to lower average interest rates and lower average debt outstanding during the three months ended September 30, 2019.

Investment and other income, net for the three months ended September 30, 2019 and 2018 was $4.6 million and $5.5 million, respectively, and principally comprised of net OPEB and pension income.

Loss on debt extinguishment for the three months ended September 30, 2019 was $0.8 million which related to the repurchase of senior notes and debentures. See Note 14, Debt, within the Notes to the Condensed Consolidated Financial Statements for further discussion.

	Three Months Ended
	September 30,
	2019			2018			$ Change		% Change
	(in millions, except percentages)
Income before income taxes	$	40.2		$	24.4		$	15.8		64.8	%
Income tax expense (benefit)		27.3			(10.4	)		37.7	nm
Effective income tax rate		67.9	%		42.6	%

The effective income tax rate for the three months ended September 30, 2019 was an expense of 67.9% and was higher than the Federal statutory rate primarily due to limitations on the interest expense deduction as a result of the Tax Act. The effective income tax rate for the three months ended September 30, 2018 was a benefit of 42.6% which included adjustments to the provisional amounts related to the Tax Act, the release of a valuation allowance utilized due to the gain on the sale of our Print Logistics business and the inability to recognize a tax benefit on certain losses.

Income attributable to noncontrolling interests was $0.3 million and $0.5 million for the three months ended September 30, 2019 and 2018, respectively.

Net income attributable to RRD common stockholders was $12.6 million and $34.3 million for the three months ended September 30, 2019 and 2018, respectively.

Information by Segment

Business Services

	Three Months Ended
	September 30,
	2019			2018
	(in millions, except percentages)
Net sales	$	1,276.0		$	1,363.2
Income from operations		80.6			74.8
Operating margin		6.3	%		5.5	%
Restructuring and other (income) expense-net		(5.1	)		7.1
Other operating income		—			(4.5	)

Net sales for the Business Services segment for the three months ended September 30, 2019 were $1,276.0 million, a decrease of $87.2 million, or 6.4%, compared to 2018. Net sales decreased $13.4 million due to business dispositions, primarily our Brazil business, and $10.5 million due to changes in foreign exchange rates. The remaining decrease in net sales was primarily due to lower volume in commercial print due to ongoing secular pressure and continued planned reduction in low margin sales, lower volume in our logistics business and modest price pressures across the segment. The following table summarizes net sales by products and services in the Business Services segment:

	Three Months Ended
	September 30,
Products and Services	2019		2018		$ Change			% Change
	(in millions, except percentages)
Commercial print	$	442.9	$	496.4	$	(53.5	)		(10.8	%)
Logistics		204.6		229.1		(24.5	)		(10.7	%)
Packaging		182.1		179.7		2.4			1.3	%
Statements		134.0		133.5		0.5			0.4	%
Labels		124.0		118.8		5.2			4.4	%
Supply chain management		69.8		81.5		(11.7	)		(14.4	%)
Forms		60.0		63.7		(3.7	)		(5.8	%)
Business process outsourcing		58.6		60.5		(1.9	)		(3.1	%)
Total Business Services	$	1,276.0	$	1,363.2	$	(87.2	)		(6.4	%)

Business Services segment income from operations increased $5.8 million to $80.6 million for the three months ended September 30, 2019, primarily due to lower restructuring expense mostly attributable to net gains on the sale of restructured facilities, lower depreciation and amortization expense and cost control initiatives, including the closure of our operation in Brazil, partially offset by lower volume, price pressures and cost inflation.

Marketing Solutions

	Three Months Ended
	September 30,
	2019			2018
	(in millions, except percentages)
Net sales	$	343.4		$	286.3
Income from operations		24.4			11.8
Operating margin		7.1	%		4.1	%
Restructuring and other-net		0.1			0.2

Net sales for the Marketing Solutions segment for the three months ended September 30, 2019 were $343.4 million, an increase of $57.1 million, or 19.9%, compared to 2018. Net sales increased primarily due to higher volume in direct marketing attributable to the 2020 Census contract. The following table summarizes net sales by products and services in the Marketing Solutions segment:

	Three Months Ended
	September 30,
Products and Services	2019		2018		$ Change			% Change
	(in millions, except percentages)
Direct marketing	$	193.5	$	142.7	$	50.8			35.6	%
Digital print and fulfillment		122.5		113.5		9.0			7.9	%
Digital and creative solutions		27.4		30.1		(2.7	)		(9.0	%)
Total Marketing Solutions	$	343.4	$	286.3	$	57.1			19.9	%

Marketing Solutions segment income from operations increased $12.6 million to $24.4 million for the three months ended September 30, 2019, primarily due to higher volume in direct marketing attributable to the 2020 Census contract.

Corporate

Corporate operating expenses during the three months ended September 30, 2019 were $31.2 million, an increase of $5.5 million compared to the same period in 2018. The increase was primarily driven by higher other operating expense related to the ongoing SEC and DOJ investigations and the ongoing bankruptcy liquidation of RRD Brazil. The following table summarizes unallocated operating expenses and certain items impacting comparability within the activities presented as Corporate:

	Three Months Ended
	September 30,
	2019		2018
	(in millions)
Operating expenses	$	31.2	$	25.7
Restructuring and other-net		2.7		3.7
Other operating expense		5.4		—
Acquisition-related expenses		0.3		—

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2018

The following table shows the results of operations for the nine months ended September 30, 2019 and 2018:

	Nine Months Ended
	September 30,
	2019		2018			$ Change			% Change
	(in millions, except percentages)
Products net sales	$	3,774.4	$	3,881.6		$	(107.2	)		(2.8	%)
Services net sales		875.6		1,155.2			(279.6	)		(24.2	%)
Total net sales		4,650.0		5,036.8			(386.8	)		(7.7	%)
Products cost of sales (exclusive of depreciation and amortization)		3,076.4		3,167.7			(91.3	)		(2.9	%)
Services cost of sales (exclusive of depreciation and amortization)		706.2		968.4			(262.2	)		(27.1	%)
Total cost of sales		3,782.6		4,136.1			(353.5	)		(8.5	%)
Products gross profit		698.0		713.9			(15.9	)		(2.2	%)
Services gross profit		169.4		186.8			(17.4	)		(9.3	%)
Total gross profit		867.4		900.7			(33.3	)		(3.7	%)
Selling, general and administrative expenses (exclusive of depreciation and amortization)		589.1		626.4			(37.3	)		(6.0	%)
Restructuring and other-net		30.8		22.8			8.0			35.1	%
Depreciation and amortization		126.2		137.5			(11.3	)		(8.2	%)
Other operating expense (income)		3.3		(4.6	)		7.9		nm
Income from operations	$	118.0	$	118.6		$	(0.6	)		(0.5	%)

Consolidated

Net sales of products for the nine months ended September 30, 2019 decreased $107.2 million, or 2.8%, to $3,774.4 million versus the same period in 2018. The nine months ended September 30, 2019 included a $45.0 million decrease due to changes in foreign exchange rates and a $26.7 million decrease due to the bankruptcy liquidation of RRD Brazil. Net sales of products also decreased due to lower volume in commercial print due to ongoing secular pressure and continued planned reduction in low margin sales, as well as price pressure, partially offset by higher volume in direct marketing primarily attributable to the 2020 Census contract.

Net sales from services for the nine months ended September 30, 2019 decreased $279.6 million, or 24.2%, to $875.6 million versus the same period in 2018. Net sales from services decreased $205.0 million due to business dispositions, primarily our Print Logistics business. Net sales from services also decreased due to lower volume in the remaining logistics business.

Products cost of sales for the nine months ended September 30, 2019 decreased $91.3 million, or 2.9%, to $3,076.4 million versus the same period in 2018 primarily due to the reduction in net sales.

Services cost of sales decreased $262.2 million, or 27.1%, for the nine months ended September 30, 2019 versus the same period in 2018, primarily due to the disposition of our Print Logistics business and cost control initiatives. As a percentage of net sales, services cost of sales decreased 3.1 percentage points for the nine months ended September 30, 2019 versus the same period in 2018.

Products gross profit decreased $15.9 million to $698.0 million for the nine months ended September 30, 2019 versus the same period in 2018, primarily due to lower volume, unfavorable product mix, cost inflation and price pressures, partially offset by changes in foreign exchange rates and cost control initiatives. Products gross margin increased from 18.4% to 18.5% for the nine months ended September 30, 2019 versus the same period in 2018.

Services gross profit decreased $17.4 million to $169.4 million for the nine months ended September 30, 2019 versus the same period in 2018, primarily due to lower volume in our logistics business. Services gross margin increased from 16.2% in 2018 to 19.3% in 2019.

Selling, general and administrative expenses decreased $37.3 million to $589.1 million for the nine months ended September 30, 2019 versus the same period in 2018 reflecting cost control initiatives and the recent dispositions. As a percentage of net sales, selling, general and administrative expenses increased from 12.4% to 12.7% for the nine months ended September 30, 2019 versus the same period in 2018.

For the nine months ended September 30, 2019, net restructuring and other expense of $30.8 million increased $8.0 million versus the same period in 2018. These expenses included $19.5 million for employee termination costs, primarily related to the relocation of a printing facility in Shenzhen, China and $13.7 million for other restructuring charges for the nine months ended September 30, 2019. Additionally, we recorded a $4.6 million net gain on the sale of restructured facilities for the nine months ended September 30, 2019. See Note 6, Restructuring and Other, within the Notes to the Condensed Consolidated Financial Statements for further discussion.

Depreciation and amortization decreased $11.3 million to $126.2 million for the nine months ended September 30, 2019 compared to the same period in 2018 primarily due to lower capital spending in recent years compared to historical levels. Depreciation and amortization included $18.1 million and $20.7 million of amortization of other intangible assets related to client relationships, trade names, trademarks, licenses and agreements for the nine months ended September 30, 2019 and 2018, respectively.

Other operating expense for the nine months ended September 30, 2019 was $3.3 million compared to other operating income of $4.6 million for the same period in 2018. The expense in 2019 was primarily related to the ongoing SEC and DOJ investigations, an increase in reserves for an unfavorable state sales tax matter and expenses related to the ongoing bankruptcy liquidation of RRD Brazil, partially offset by the gains from the recent dispositions. The prior year amount primarily included a $4.5 million pre-tax gain on the sale of our Print Logistics business in July 2018.

Income from operations for the nine months ended September 30, 2019 was $118.0 million, a decrease of $0.6 million, or 0.5%, compared to the nine months ended September 30, 2018.

	Nine Months Ended
	September 30,
	2019			2018			$ Change			% Change
	(in millions, except percentages)
Interest expense-net	$	115.6		$	125.7		$	(10.1	)		(8.0	%)
Investment and other income-net		(11.3	)		(14.7	)		(3.4	)		(23.1	%)
Loss on debt extinguishment		0.8			0.1			0.7		nm

Net interest expense decreased by $10.1 million for the nine months ended September 30, 2019 versus the same period in 2018, primarily due to lower average borrowings and interest rates during nine months ended September 30, 2019.

Investment and other income, net for the nine months ended September 30, 2019 and 2018 was $11.3 million and $14.7 million, respectively, and principally comprised of net pension and OPEB income.

Loss on debt extinguishment for the nine months ended September 30, 2019 was $0.8 million which related to the repurchase of senior notes and debentures. See Note 14, Debt, within the Notes to the Condensed Consolidated Financial Statements for further discussion.

	Nine Months Ended
	September 30,
	2019			2018			$ Change			% Change
	(in millions, except percentages)
Income before income taxes	$	12.9		$	7.5		$	5.4			72.0	%
Income tax expense (benefit)		15.9			(5.4	)		(21.3	)	nm
Effective income tax rate		123.3	%		72.0	%

The effective income tax rate for the nine months ended September 30, 2019 was an expense of 123.3% and was higher than the Federal statutory rate primarily due to the inability to recognize a tax benefit on certain losses and limitations on the interest expense deduction as a result of the Tax Act. The effective income tax rate for the nine months ended September 30, 2018 was a benefit of 72.0% which included adjustments to the provisional amounts related to the Tax Act, the release of a valuation allowance utilized due to the gain on the sale of our Print Logistics business and the inability to recognize a tax benefit on certain losses.

Income attributable to noncontrolling interests was $0.2 million and $1.2 million for the nine months ended September 30, 2019 and 2018, respectively.

Net (loss) income attributable to RRD common stockholders was a loss of $3.2 million and income of $11.7 million for the nine months ended September 30, 2019 and 2018, respectively.

Information by Segment

Business Services

	Nine Months Ended
	September 30,
	2019			2018
	(in millions, except percentages)
Net sales	$	3,743.5		$	4,188.3
Income from operations		150.8			152.9
Operating margin		4.0	%		3.7	%
Restructuring and other-net		21.9			11.6
Other operating income		(0.2	)		(4.6	)

Net sales for the Business Services segment for the nine months ended September 30, 2019 were $3,743.5 million, a decrease of $444.8 million, or 10.6%, compared to the nine months ended September 30, 2018. Net sales decreased $231.7 million due to business dispositions, primarily our Print Logistics business, and $49.3 million due to changes in foreign exchange rates. The remaining decrease in net sales was primarily due to lower volume in commercial print due to ongoing secular pressure and continued planned reduction in low margin sales, lower volume in the remaining logistics business and price pressures across the segment. The following table summarizes net sales by products and services in the Business Services segment:

	Nine Months Ended
	September 30,
Products and Services	2019		2018		$ Change			% Change
	(in millions, except percentages)
Commercial print	$	1,278.8	$	1,421.3	$	(142.5	)		(10.0	%)
Logistics		614.3		880.3		(266.0	)		(30.2	%)
Packaging		484.2		474.0		10.2			2.2	%
Statements		417.1		436.4		(19.3	)		(4.4	%)
Labels		364.1		355.5		8.6			2.4	%
Supply chain management		222.4		242.2		(19.8	)		(8.2	%)
Forms		181.6		195.5		(13.9	)		(7.1	%)
Business process outsourcing		181.0		183.1		(2.1	)		(1.1	%)
Total Business Services	$	3,743.5	$	4,188.3	$	(444.8	)		(10.6	%)

Business Services segment income from operations decreased $2.1 million for the nine months ended September 30, 2019, primarily due to higher restructuring expense, lower volume, price pressures and cost inflation, partially offset by changes in foreign exchange rates, lower depreciation and amortization expense and cost control initiatives.

Marketing Solutions

	Nine Months Ended
	September 30,
	2019			2018
	(in millions, except percentages)
Net sales	$	906.5		$	848.5
Income from operations		38.9			32.7
Operating margin		4.3	%		3.9	%
Restructuring and other-net		0.8			3.7

Net sales for the Marketing Solutions segment for the nine months ended September 30, 2019 were $906.5 million, an increase of $58.0 million compared to the nine months ended September 30, 2018. Net sales increased primarily due to higher volume in direct marketing attributable to the 2020 Census contract. The following table summarizes net sales by products and services in the Marketing Solutions segment:

	Nine Months Ended
	September 30,
Products and Services	2019		2018		$ Change			% Change
	(in millions, except percentages)
Direct marketing	$	479.0	$	424.1	$	54.9			12.9	%
Digital print and fulfillment		347.2		332.6		14.6			4.4	%
Digital and creative solutions		80.3		91.8		(11.5	)		(12.5	%)
Total Marketing Solutions	$	906.5	$	848.5	$	58.0			6.8	%

Marketing Solutions segment income from operations increased $6.2 million to $38.9 million for the nine months ended September 30, 2019, primarily due to higher volume in direct marketing attributable to the 2020 Census contract.

Corporate

Corporate operating expenses during the nine months ended September 30, 2019 were $71.7 million, an increase of $4.7 million compared to the same period in 2018. The following table summarizes unallocated operating expenses and certain items impacting comparability within the activities presented as Corporate:

	Nine Months Ended
	September 30,
	2019		2018
	(in millions)
Operating expenses	$	71.7	$	67.0
Restructuring and other-net		8.1		7.5
Other operating expense		3.5		—
Acquisition-related expenses		0.5		—

LIQUIDITY AND CAPITAL RESOURCES

We believe that we have sufficient liquidity to support our ongoing operations and to invest in future growth to create value for our stockholders. Our operating cash flows, existing cash balances and available capacity under our asset-based senior secured revolving credit facility (the “ABL Credit Agreement”) are our primary sources of liquidity and are expected to be used for, among other things, capital expenditures necessary to support productivity improvement and growth, completion of restructuring programs, payment of interest and principal on our long-term debt obligations, acquisitions and distributions to stockholders that require approval by the Board of Directors.

The following describes our cash flows for the nine months ended September 30, 2019 and 2018.

	Nine Months Ended
	September 30,
	2019			2018			$ Change
	(in millions)
Net cash used in operating activities	$	(87.8	)	$	(63.9	)	$	(23.9	)
Net cash (used in) provided by investing activities		(68.5	)		25.9			(94.4	)
Net cash (used in) provided by financing activities		(73.9	)		46.7			(120.6	)
Effect of exchange rates on cash, cash equivalents and restricted cash		(6.3	)		(14.0	)		7.7
Net decrease in cash, cash equivalents and restricted cash	$	(236.5	)	$	(5.3	)	$	(231.2	)

Operating cash inflows are largely attributable to sales of our 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 used in operating activities for the nine months ended September 30, 2019 was $23.9 million higher than in the same period in 2018, primarily due to higher tax payments.

Included in net cash used in operating activities were the following operating cash outflows:

	Nine Months Ended
	September 30,
	2019		2018		$ Change
	(in millions)
Income tax payments, net of tax refunds	$	46.8	$	14.4	$	32.4
Interest payments, net of interest income		110.2		118.0		(7.8	)
Performance-based compensation payments		43.7		35.6		8.1
Restructuring and MEPP payments		32.8		28.0		4.8
Pension and other postretirement benefits plan contributions		5.1		13.5		(8.4	)

Significant cash (outflows) inflows included in investing and financing activities for each period were as follows:

	Nine Months Ended
	September 30,
	2019			2018			$ Change
	(in millions)
Capital expenditures	$	(107.4	)	$	(72.7	)	$	(34.7	)
Acquisition of business		(3.0	)		—			(3.0	)
Proceeds from sale of investments and other assets		32.8			49.9			(17.1	)
Disposition of businesses		10.4			50.5			(40.1	)
Proceeds from other short-term debt		—			56.5			(56.5	)
Payments of current maturities and long-term debt		(221.6	)		(0.2	)		(221.4	)
Net borrowings under credit facilities		164.0			26.0			138.0
Dividends paid		(6.4	)		(21.8	)		15.4

Capital expenditures for the nine months ended September 30, 2019 were $34.7 million higher than the same period in 2018, primarily due to investments associated with building a new facility following the expected sale and relocation of a printing facility in Shenzhen, China and additional investments related to the 2020 Census contract.

Proceeds from sale of investments and other assets for the nine months ended September 30, 2019 primarily included $23.7 million cash received as a deposit for the expected sale of a printing facility in Shenzhen, China and cash proceeds from the sale of two restructured facilities of $8.1 million. Proceeds from sale of investments and other assets for the nine months ended September 30, 2018 included $32.1 million cash received as a deposit for the expected sale of a printing facility in Shenzhen, China and cash proceeds from the sale of investments and other assets of $17.8 million.

LIQUIDITY

Cash and cash equivalents of $144.7 million as of September 30, 2019 included $21.6 million in the U.S. and $123.1 million at international locations. We have recognized deferred tax liabilities of $6.6 million as of September 30, 2019 related to local taxes on certain foreign earnings that are not considered to be permanently reinvested. Certain other cash balances of foreign subsidiaries, if repatriated to the U.S., may be subject to additional tax which would depend on income tax laws and circumstances at the time of distribution. In addition, repatriation of some foreign cash balances is further restricted by local laws. We regularly evaluate whether foreign earnings are expected to be permanently reinvested. This evaluation requires judgment about our future operating and liquidity needs. Changes in economic and business conditions, foreign or U.S. tax laws, or our financial situation could result in changes to these judgments and the need to record additional tax liabilities.

Included in Cash and cash equivalents at September 30, 2019 were $12.2 million of short-term investments, which primarily consisted of short-term deposits and money market funds. These investments are held at institutions with sound credit ratings and are expected to be highly liquid.

On February 1, 2019, we retired the $172.2 million 11.25% senior notes using availability under our ABL Credit Agreement.

Borrowings under the ABL Credit Agreement bear interest at a rate dependent on the average quarterly availability under the ABL Credit Agreement and are calculated according to a base rate (except in certain circumstances, based on the prime rate) or a Eurocurrency rate (except in certain circumstances, based on LIBOR) plus an applicable margin. The applicable margin for base rate loans ranges from 0.25% to 0.50% and the applicable margin for Eurocurrency loans ranges from 1.25% to 1.50%. In addition, a fee is payable quarterly on the unused portion of the amount available to be borrowed under the ABL Credit Agreement. The fee accrues at a rate of either 0.25% or 0.375% depending upon the average usage of the facility.

There were $223.0 million of borrowings under the ABL Credit Agreement as of September 30, 2019. Based on our borrowing base as of September 30, 2019 and existing borrowings, we had approximately $438.6 million borrowing capacity available under the ABL Credit Agreement.

The current availability under the ABL Credit Agreement as of September 30, 2019 is shown in the table below:

	September 30, 2019
Availability	(in millions)
ABL Credit Agreement	$	800.0
Availability reduction due to available borrowing base		99.3
	$	700.7
Usage
Borrowings under the ABL Credit Agreement	$	223.0
Outstanding letters of credit		39.1
	$	262.1

Current availability at September 30, 2019	$	438.6
Cash and cash equivalents		144.7
Total available liquidity ^(a)	$	583.3

(a)	Total available liquidity does not include credit facilities of non-U.S. subsidiaries, which are uncommitted facilities.

During the nine months ended September 30, 2019, we transferred approximately $256 million of cash held in international jurisdictions to the U.S. which was used to reduce debt outstanding. Based on current regulations and process requirements, we expect to transfer additional cash held in international jurisdictions to the U.S. in the fourth quarter of 2019.

As of September 30, 2019, we were in compliance with the debt covenants under the ABL Credit Agreement and expect to remain in compliance based on our estimates of operating and financial results for 2019 and the foreseeable future. As of September 30, 2019, we met all the conditions required to borrow under the ABL Credit Agreement and we expect to continue to meet the borrowing conditions.

The failure of a financial institution supporting the ABL Credit Agreement would reduce the size of our committed facility unless a replacement institution was added. Currently, the ABL Credit Agreement is supported by eight U.S. financial institutions.

As of September 30, 2019, we had $144.4 million in other uncommitted credit facilities, primarily outside the U.S. (the “Other Facilities”). There were $107.6 million in outstanding letters of credit, bank guarantees and bank acceptance drafts of which $39.1 million were issued, and reduced availability, under the ABL Credit Agreement. Total borrowings under the ABL Credit Agreement and the Other Facilities (the “Combined Facilities”) were $252.4 million as of September 30, 2019.

Our credit ratings from Moody’s Investors Service, Inc. (“Moody’s”) and S&P Global Ratings (“S&P”) as of September 30, 2019 are shown in the table below:

	S&P	Moody's
Long-term corporate credit rating	B, Neg	B2, Stable
Senior unsecured debt	B-	B3
Term Loan Credit Agreement	B+	B1

During the fourth quarter of 2017, we entered into an agreement to sell a printing facility in Shenzhen, China and transfer the related land use rights. As of September 30, 2019, we have received non-refundable deposits in accordance with the terms of the agreement of approximately $68.3 million which is recorded in Other noncurrent liabilities on the Condensed Consolidated Balance Sheets. Additional deposits will be paid to us in accordance with the agreement. Gross proceeds from the sale, including non-refundable deposits, are expected to be approximately $250.0 million, subject to changes in the exchange rate, and we expect the transaction to close in 2021 after closing conditions are satisfied and government approvals are obtained. As of September 30, 2019, the carrying cost of the building and land use rights is recorded in Other noncurrent assets and is not material.

Dividends

During the nine months ended September 30, 2019, we paid cash dividends of $6.4 million. On October 24, 2019, the Board of Directors of the Company declared a quarterly cash dividend of $0.03 per common share, payable on December 2, 2019 to stockholders of record on November 15, 2019.

MANAGEMENT OF MARKET RISK

We are exposed to interest rate risk on our variable debt and price risk on our fixed-rate debt. At September 30, 2019, our variable-interest borrowings were $798.3 million. Approximately 61.0% of our outstanding debt was comprised of fixed-rate debt as of September 30, 2019.

We assess 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 September 30, 2019 and December 31, 2018 by approximately $28.2 million and $35.4 million, respectively.

We are exposed to the impact of foreign currency fluctuations based on our global operations. The exposure to foreign currency movements within many countries is limited because the operating revenues and expenses of our 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, we are exposed to currency risk and may enter into foreign exchange contracts to hedge the currency risk. As of September 30, 2019 and December 31, 2018, the aggregate notional amount of outstanding foreign currency contracts was approximately $144.4 million and $170.8 million, respectively (see Note 15, Derivatives, to the Condensed Consolidated Financial Statements). Net unrealized (losses) gains from these foreign currency contracts were losses of $2.8 million at September 30, 2019 and gains of $0.6 million at December 31, 2018. We do not use derivative financial instruments for trading or speculative purposes.

OTHER INFORMATION

Litigation and Contingent Liabilities

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

New Accounting Pronouncements and Pending Accounting Standards

Recently issued accounting standards and their estimated effect on our consolidated financial statements are described in Note 18, New Accounting Pronouncements, to the Condensed Consolidated Financial Statements.

CAUTIONARY STATEMENT

This Quarterly Report on Form 10-Q and any documents incorporated by reference contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties and are based on our beliefs and assumptions. Generally, forward-looking statements include information concerning possible or assumed future actions, events, or results of operations of ours. 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. We claim 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 factors identified below are believed to be significant factors, but not necessarily all of the significant factors, that could cause actual results to differ materially from those expressed in any forward-looking statement. Unpredictable or unknown factors could also have material effects on us.

The following important factors, in addition to those discussed elsewhere in this Quarterly Report on Form 10-Q and under the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements:

•

adverse changes in global economic conditions and the resulting effect on the businesses of our clients;

•

changes in customer preferences or a failure to otherwise manage relationships with our significant clients;

•

loss of brand reputation and decreases in quality of client support and service offerings;

•

political and regulatory risks and uncertainty in the countries in which we operate or sell our products and services;

•

taxation related risks in multiple jurisdictions;

•

adverse credit market conditions and other issues that may affect our ability to obtain future financing on favorable terms;

•

limitations on our borrowing capacity in our credit facilities;

•

increases in interest rates;

•

our ability to make payments on, reduce or extinguish any of our material indebtedness;

•

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

•

our ability to improve operating efficiency rapidly enough to meet market conditions;

•

impairment of assets as a result of a decline in our individual reporting units’ expected profitability;

•

our ability and/or our vendors’ ability to implement and maintain information technology and security measures sufficient to protect against breaches and data leakage or the failure to properly use and protect customer, Company and employee information and data;

•

a failure in or breach of data held in the computer systems we and our vendors maintain;

•

increased pricing pressure as a result of the competitive environment in which we operate;

•

successful negotiation, execution and integration of acquisitions;

•

our ability to execute on our portfolio optimization strategies, including potential sales of non-core assets;

•

increasing health care and benefits costs for employees and retirees;

•

changes in our pension and OPEB obligations;

•

adverse trends or events in our operations outside of the United States;

•

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

•

catastrophic events which may damage our facilities or otherwise disrupt the business;

•

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

•

changes in the regulations applicable to our clients, which may adversely impact demand for our products and services;

•

factors that affect client demand, including changes in postal rates, postal regulations and service levels, changes in the capital markets, changes in advertising markets, clients’ budgetary constraints and changes in clients’ short-range and long-range plans;

•

failures or errors in our products and services;

•

changes in technology, including electronic substitution and migration of paper based documents to digital data formats, and our ability to adapt to these changes;

•

inability to hire and retain employees;

•

the spinoffs resulting in significant tax liability; and

•

other risks and uncertainties detailed from time to time in our filings with the SEC.

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 disclaims 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 “Management of Market Risk.” There have been no significant changes to our market risk since December 31, 2018. For a discussion of exposure to market risk, refer to Part II, Item 7A – Quantitative and Qualitative Disclosures about Market Risk, set forth in our 2018 Form 10-K.

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 September 30, 2019, 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 September 30, 2019 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 were no changes in our 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 September 30, 2019 that had materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

PART II— OTHER INFORMATION

Item 1. Legal Proceedings

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

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
July 1, 2019 - July 31, 2019		3,906	$	2.06	—	$	—
August 1, 2019 - August 31, 2019	—		—		—	$	—
September 1, 2019 - September 30, 2019		—		—	—	$	—
Total		3,906	$	2.06	—

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

___________________________________

Each of our ABL Credit Agreement and Term Loan Credit Agreement limit our ability to make restricted payments, including dividends and share repurchases, subject to specified exceptions.

Item 4. Mine Safety Disclosures

Not applicable

Item 6. Exhibits


3.1*		Restatement of Certificate of Incorporation of R.R. Donnelley & Sons Company

4.1		Rights Agreement, dated as of August 28, 2019, between R.R. Donnelley & Sons Company and Computershare Trust Company, N.A., as rights agent (incorporated by reference to Exhibit 4.1 to the Company’s Current Report 8-K/A filed August 29, 2019).

31.1*		Certification by Daniel L. Knotts, President and Chief Executive Officer, required by Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934

31.2*		Certification by Terry D. Peterson, 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

32.1**		Certification by Daniel L. Knotts, 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

32.2**		Certification by Terry D. Peterson, 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

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

*	Filed herewith

**	Furnished herewith

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/ TERRY D. PETERSON
		Terry D. Peterson
		Executive Vice President and Chief Financial Officer

Date: October 30, 2019

EXHIBIT 3.1

RESTATED

CERTIFICATE OF INCORPORATION

R. R. DONNELLEY & SONS COMPANY

R. R. Donnelley & Sons Company, a Delaware corporation (the “Company”), a corporation organized and existing under the General Corporation Law of the State of Delaware hereby certifies as follows:

1. The name of the Company is R. R. Donnelley & Sons Company. The name under which it was originally incorporated is “Donnelley, Inc.”, pursuant to an original Certificate of Incorporation filed with the Secretary of the State on May 7, 1956.

2. This Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Certificate of Incorporation of this corporation as heretofore amended or supplemented and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation.

3. The Restated Certificate of Incorporation herein certified has been duly adopted in accordance with the provisions of Section 245 of the General Corporation Law of the State of Delaware.

4. This Restated Certificate of Incorporation shall be effective as of 12:03 a.m. Eastern Time on October 1, 2016.

5. The text of the Certificate of Incorporation as heretofore amended or supplemented is hereby restated to read as herein set forth in full:

FIRST: The name of the corporation is:

R. R. DONNELLEY & SONS COMPANY

SECOND. Its principal office in the State of Delaware is located at Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name and address of its resident agent is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.

THIRD. The nature of the business, or objects or purposes to be transacted, promoted or carried on are:

To carry on a printing business in all its phases.

To furnish services of every kind or description in or related to the graphic arts.

To manufacture, process, purchase, otherwise acquire, prepare for market, publish, merchandise, sell, otherwise dispose of, at wholesale or retail or both, or otherwise deal in all kinds of printing, printed goods, printing machinery, paper, and other materials on or in which printing may be incorporated and by-products thereof and all other kinds of goods, wares, merchandise, commodities or other property of any class whatsoever in any part of the world; and to carry on, and engage in any phase of, a general business of manufacturing, merchandising and trading.

To engage in, carry on or otherwise conduct, directly or through employees or others, research or investigation for general purposes or for the development of new or improved products, by-products, equipment or processes, or uses therefor, or for improving the ease or efficiency of the operations of the corporation or for other purposes.

To produce, process, otherwise acquire, own, modify, sell, transport, dispose of or deal in any and all kinds of raw materials, semi-finished or finished materials, goods, products and any tangible or intangible interests or property.

To purchase, erect, construct, build, rebuild, rent, otherwise acquire, own, hold, use, operate, maintain, alter, manage, deal in, sell, exchange, transfer, mortgage, pledge, encumber, lease, remove, otherwise dispose of or deal with land, buildings, structures, laboratories, equipment, machinery, facilities or any other improvements or real property or personal property whatsoever, either tangible or intangible, or any interest therein.

To purchase, otherwise acquire, own, hold, invest in, deal in, sell, exchange, assign, transfer, mortgage, pledge, encumber, otherwise dispose of, or deal with, as principal or agent, stock of, or evidences of indebtedness created or assumed by, this corporation or any other corporation or corporations of the State of Delaware, any other state, the District of Columbia, or any country or any political subdivision, territory, colony, or possession thereof, or created by any other person or persons including, without limiting the generality of the foregoing, securities, shares, bonds, debentures, notes, open accounts and other evidences of indebtedness, or other interest in, or obligations of, corporations, foreign or domestic, associations, trusts, partnerships, individuals, governmental bodies or authorities, or any other person; and to exercise all the rights, powers and privileges with respect thereto which natural persons might, could or would exercise, including, except in the case of stock or any other securities issued by this corporation having voting rights, the right to vote thereon.

To borrow money and to make or issue evidences of indebtedness of this corporation of all kinds, including bonds, debentures, notes or other evidences of indebtedness whether or not convertible into stock or other securities of the corporation of any class and whether or not secured by mortgage or pledge of the whole or any part of the corporation’s property or otherwise.

To purchase or otherwise acquire the good will, rights, and other property of all kinds, and to undertake and assume the whole or any part of the liabilities, of any corporation, foreign or domestic, association, trust, partnership, individual or other person; and to pay for the same in cash or other property of the corporation, or with stock, bonds, debentures, notes, other evidences of indebtedness issued or created by the corporation, or otherwise.

To promote, finance, invest in, aid or assist, financially or otherwise, any corporation, foreign or domestic, association, trust, partnership, individual or any other person in which or in whom the corporation has any interest of whatever nature or with which or with whom it has business dealings, and in connection therewith to guarantee or become surety for the performance or payment of any undertaking or obligation whatsoever; and to aid in any manner any such person and generally to do any acts or things designed to protect, preserve, improve or enhance the value of any such interest.

To apply for, obtain, register, purchase, license, otherwise acquire, own, hold, use, operate, deal in, introduce, sell, assign, exchange, lease, license, otherwise dispose of or deal with, in whole or in part, any trade names, trade-marks, distinctive marks, copyrights, patents, inventions, formulas, secret processes, licenses, concessions, improvements, processes or the like used in connection with, or secured under, letters patent of the United States of America, or the laws of any other jurisdiction, or otherwise; and to issue, exercise, develop, grant licenses in respect thereof or otherwise turn them to account.

To perform services, or act as agent or broker, for others for any purpose for which it might itself act.

To make and enter into contracts of every kind and description with any corporation, foreign or domestic, association, trust, partnership, individual, governmental body or authority, or any other person; to do and transact all acts, business and things incident to or relating to or convenient in connection with any business, objects or purpose of the corporation as principal or agent or otherwise, and by or through agents, and either alone or in conjunction with others; and to remunerate any corporation, partnership, individual, or other person for services rendered or to be rendered, including, without limitation, the placing or assisting to place or guaranteeing the placing of any stocks, bonds, debentures, or other securities of the corporation or of any other corporation.

To carry on all or any of its operations and business without restriction or limitation as to amount; to have one or more offices in any state, territory or possession of the United States of America, or the District of Columbia, and in any foreign country, or any political subdivision, territory, colony or possession subject to the laws thereof.

In general, to carry on any business or to perform any service in connection with the foregoing, and to have and exercise all the powers conferred by the laws of the State of Delaware upon corporations formed under the general corporation law of such state, and to do any or all of the things hereinbefore set forth to the same extent as natural persons might, could or would do.

The foregoing clauses shall be liberally construed, both as objects and powers; and the objects and purposes specified therein shall, except where otherwise expressed, be in nowise limited or restricted by reference to, or inference from, the terms of any other clause in this Certificate of Incorporation.

FOURTH. The total number of shares of all classes of capital stock which the corporation shall have the authority to issue is 167,000,000 shares which shall be divided into two classes as follows:

2,000,000 shares of Preferred Stock (Preferred Stock) of the par value of $1.00 per share, and

165,000,000 shares of Common Stock (Common Stock) of the par value of $0.01 per share.

Upon the filing and effectiveness (the “Effective Time”) pursuant to the Delaware General Corporation Law of this Certificate of Amendment dated September 30, 2016 to the Restated Certificate of Incorporation of the corporation, every three (3) shares of Common Stock, par value $0.01 per share either issued and outstanding or held by the corporation in treasury stock immediately prior to the Effective Time shall, automatically and without any action on the part of the respective holders thereof, be combined and converted into one (1) share of Common Stock (the “Reverse Stock Split”). No fractional shares shall be issued in connection with the Reverse Stock Split. Stockholders who otherwise would be entitled to receive a fractional share of Common Stock shall be entitled to receive cash (without interest or deduction) from the corporation’s transfer agent in lieu of such fractional share interests, upon, where shares are held in certificated form the surrender of the stockholder’s Old Certificates (as defined below), in an amount equal to the product obtained by multiplying (a) the closing price per share of the Common Stock as reported on the NASDAQ or any national securities exchange upon which the Common Stock is listed as of the date of the Effective Time, by (b) the fraction of one share owned by the stockholder. Stockholders who hold their shares of Common Stock in book entry form do not need to take any action in to receive shares of Common Stock reflecting the Reverse Stock Split or cash payments in lieu of fractional share interests, if applicable. Each certificate that immediately prior to the Effective Time represented shares of Common Stock (“Old Certificates”), shall thereafter represent that number of shares of Common Stock into which the shares of Common Stock represented by the Old Certificate shall have been combined, subject to the elimination of fractional share interests as described above.

The designations, voting powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of the above classes of stock shall be as follows:

PREFERRED STOCK

1.	Shares of Preferred Stock may be issued in one or more series at such time or times, and for such consideration or considerations, as the Board of Directors may determine.

The Board of Directors is expressly authorized at any time, and from time to time, to provide for the issuance of shares of Preferred Stock in one or more series with such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as shall be stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the Board of Directors, and as are not stated and expressed in this Certificate of Incorporation or any amendment thereto including, but not limited to, determination of any of the following:

(a)

the distinctive serial designation and the number of shares constituting a series;

(b)

the dividend rate or rates, whether dividends shall be cumulative and, if so, from what date, the payment date or dates for dividends, and the participating or other special rights, if any, with respect to dividends;

(c)

the voting powers, full or limited, if any, of the shares of such series;

(d)

whether the shares shall be redeemable and, if so, the price or prices at which, and the terms and conditions on which, the shares may be redeemed;

(e)

the amount or amounts payable upon the shares in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation prior to any payment or distribution of the assets of the corporation to any class or classes of stock of the corporation ranking junior to the Preferred Stock;

(f)

whether the shares shall be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of shares of a series and, if so entitled, the amount of such fund and the manner of its application, including the price or prices at which the shares may be redeemed or purchased through the application of such fund;

(g)

whether the shares shall be convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock of the corporation or any other corporation, and if so convertible or exchangeable, the conversion price or prices, or the rates of exchange, and adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; and

(h)

any other preferences, privileges and powers, and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of such series, as the Board of Directors may deem advisable and as shall not be inconsistent with the provisions of this Certification of Incorporation.

Shares of Preferred Stock which have been issued and reacquired in any manner by the corporation (excluding, until the corporation elects to retire them, shares which are held as treasury shares but including shares redeemed, shares purchased and retired and shares which have been converted into shares of Common Stock) shall have the status of authorized but unissued shares of Preferred Stock and may be reissued.

II.

COMMON STOCK

Subject to the preferential rights of the Preferred Stock, the holders of the Common Stock shall be entitled to receive, to the extent permitted by law, such dividends as may be declared from time to time by the Board of Directors.

Except as may be otherwise required by law or this Certificate of Incorporation, each holder of Common Stock shall have one vote in respect of each share of stock held by him of record on the books of the corporation on all matters voted upon by the stockholders.

III.

OTHER PROVISIONS

Subject to the protective conditions and restrictions of any outstanding Preferred Stock, any amendment to this Certificate of Incorporation which shall increase or decrease the authorized capital stock of any class or classes may be adopted by the affirmative vote of the holders of a majority of the outstanding shares of the voting stock of the corporation.

No holder of Preferred Stock or Common Stock shall have any right as such holder to purchase or subscribe for any security of the corporation now or hereafter authorized or issued. All such securities may be issued and disposed of by the Board of Directors to such persons, firms, corporations and associations for such lawful considerations, and on such terms, as the Board of Directors in its discretion may determine, without first offering the same, or any part thereof, to the holders of Preferred Stock or Common Stock.

3.	Any action required or permitted to be taken by the stockholders of the corporation must be effected at an annual or special meeting of stockholders of the corporation and may not be effected by any consent in writing by such stockholders.

FIFTH. The minimum amount of capital with which the corporation will commence business is one thousand dollars ($1,000).

SIXTH. [Intentionally omitted]

SEVENTH. The number of Directors which shall constitute the whole Board shall be determined by the By-Laws of the corporation except that their number shall be not less than six (6) nor more than twelve (12). Each director who is serving as a director on the date of this Amendment to the Certificate of Incorporation shall hold office until the next annual meeting of stockholders after such date and until his or her successor has been duly elected and qualified.

At each annual meeting of stockholders after the date of this Amendment to the Certificate of Incorporation, directors elected at such annual meeting shall be elected for a one-year term expiring at the next annual meeting of stockholders. Each Director elected shall hold office until his successor shall be elected and shall qualify or until his earlier resignation or removal.

EIGHTH. [RESERVED]

NINTH. The corporation is to have perpetual existence.

TENTH. The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatever.

ELEVENTH. In furtherance and not in limitation of the powers conferred by statute, the board of directors is expressly authorized:

To make, alter, amend or repeal the by-laws of the corporation.

From time to time, (a) to issue, sell and dispose of shares of the authorized and previously unissued Common Stock of the corporation and shares of its outstanding Common Stock held in its treasury; (b) to issue, sell and dispose of the bonds, debentures, notes and other obligations or evidences of indebtedness of the corporation, including bonds, debentures, notes and other obligations or evidences of indebtedness of the corporation convertible into stock of the corporation of any class; and (c) to authorize and cause to be executed mortgages and liens upon the real and personal property of the corporation.

To declare and pay dividends on the capital stock as permitted by law.

To set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created.

By resolution passed by a majority of the whole board, to designate one or more committees, each committee to consist of two or more of the directors of the corporation, which, to the extent provided in the resolution or in the by-laws of the corporation, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers

which may require it. Such committee or committees shall have such name or names as may be stated in the by-laws of the corporation or as may be determined from time to time by resolution adopted by the board of directors.

The corporation may in its by-laws confer powers upon its board of directors in addition to the foregoing, and in addition to the powers and authorities expressly conferred upon such board by statute.

The corporation may enter into contracts or transact business with one or more of its directors, or with any firm of which one or more of its directors are members or with any trust, firm, corporation or association in which any one or more of its directors is a stockholder, director or officer or otherwise interested, and any such contract or transaction shall not be invalidated in the absence of fraud because such director or directors have or may have interests therein which are or might be adverse to the interest of the corporation, even though the presence and/or vote of the director or directors having such adverse interest shall have been necessary to constitute a quorum and/or to obligate the corporation upon such contract or transaction; and in the absence of fraud no director having such adverse interest shall be liable to this corporation or to any stockholder or creditor thereof, or to any other person, for any loss incurred by it under or by reason of any such contract or transaction, nor shall any such director or directors be accountable for any gains or profits realized thereon.

TWELFTH. (1) A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the Delaware General Corporation Law is amended after approval by the stockholders of this provision to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.

Any repeal or modification of the foregoing paragraph by the stockholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification.

The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.

Any indemnification under paragraphs (2) and (3) of this Article (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in said paragraphs (2) and (3). Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable and a quorum of disinterested directors so directs, by independent legal counsel (compensated by the corporation) in a written opinion, or (iii) by the stockholders.

The Board of Directors of the corporation shall have the power, in its discretion, to cause the corporation to indemnify any person who was or is a party to any action, suit or proceeding referred to in paragraphs (2) and (3) of this Article by reason of the fact that he is or was an employee or agent (although not a director or officer) of the corporation, or is or was serving at the request of the corporation as an employee or agent (although not a director or officer) of another corporation, partnership, joint venture, trust or other enterprise, to the extent that any such person would have been entitled to be indemnified under the preceding paragraphs of this Article had he been a director or officer of the corporation or serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise and been a party to such action, suit or proceeding by reason of being such director or officer.

To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in paragraphs (2), (3), or (5) of this Article, or in defense of any claim, issue or matter therein, he shall be indemnified by the corporation against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection herewith.

Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article.

The indemnification and advancement of expenses provided by, or granted pursuant to, the other paragraphs of this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled as a matter of law.

The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article or of the General Corporation Law of Delaware.

The indemnification and advancement of expenses provided by, or granted pursuant to, this Article shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent, and shall inure to the benefit of the heirs, executors and administrators of such person.

THIRTEENTH. Meetings of stockholders may be held outside the State of Delaware, if the by-laws so provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of this corporation. Elections of directors need not be by ballot unless the by-laws of the corporation shall so provide.

FOURTEENTH. The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation, provided that in the case of any Article which, by its express terms, requires the authorization of a higher percentage of stockholders than that required by statute for its amendment, alteration, change or repeal, such Article shall be amended, altered, changed or repealed only in accordance with its express terms.

IN WITNESS WHEREOF, R. R. Donnelley & Sons Company has caused this certificate to be signed by Suzanne S. Bettman, its Executive Vice President, Secretary; Chief Compliance Officer, this 30^th day of September, 2016.


By:	/s/ Suzanne S. Bettman
	Name:	Suzanne S. Bettman
	Title:	Executive Vice President, Secretary; Chief Compliance Officer

CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

R. R. Donnelley & Sons Company

Pursuant to Section 151 of the General Corporation Law of the State of Delaware

R. R. Donnelley & Sons Company, a corporation organized and existing under the General Corporation Law of the State of Delaware (the “Company”), in accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY:

That pursuant to the authority conferred upon the Board of Directors of the Company (the “Board”) by the Restated Certificate of Incorporation, as it may be amended from time to time (the “Certificate of Incorporation”), of the Company, the Board on August 28, 2019 duly adopted the following resolution creating a series of shares of Preferred Stock, par value $1.00 per share, designated as Series A Junior Participating Preferred Stock:

RESOLVED, that pursuant to the authority granted to and vested in the Board in accordance with the provisions of the Certificate of Incorporation, a series of Preferred Stock of the Company be and it hereby is created, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows:

Section 1.Designation and Amount. The shares of such series shall be designated as “Series A Junior Participating Preferred Stock” and the number of shares constituting such series shall be 165,000. Such number of shares may be increased or decreased by resolution of the Board; provided, that no decrease shall reduce the number of shares of Series A Junior Participating Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the exercise of any options, rights or warrants issuable upon conversion of any outstanding securities issued by the Company convertible into Series A Junior Participating Preferred Stock.

Section 2.Dividends and Distributions.

(A)Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Junior Participating Preferred Stock with respect to dividends, the holders of shares of Series A Junior Participating Preferred Stock, in preference to the holders of Common Stock, par value $0.01 per share, of the Company (“Common Stock”), and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of each fiscal quarter of the Company (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Junior Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set forth, one thousand (1,000) times the aggregate per share amount of all cash dividends, and one thousand (1,000) times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Junior Participating Preferred Stock. In the event the Company shall at any time after August 28, 2019 (the “Rights Declaration Date”) (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is

the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

(B)The Company shall declare a dividend or distribution on the Series A Junior Participating Preferred Stock as provided in Paragraph 0 above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series A Junior Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

(C)Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Junior Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board may fix a record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than thirty (30) days prior to the date fixed for the payment thereof.

Section 3.Voting Rights. The holders of shares of Series A Junior Participating Preferred Stock shall have the following voting rights:

(A)Subject to the provision for adjustment hereinafter set forth, each share of Series A Junior Participating Preferred Stock shall entitle the holder thereof to one thousand (1,000) votes on all matters submitted to a vote of the stockholders of the Company. In the event the Company shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

(B)Except as otherwise provided herein or by law, the holders of shares of Series A Junior Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Company.

(C)

(i)If at any time dividends on any Series A Junior Participating Preferred Stock shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a “default period”) which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series A Junior Participating Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock (including holders of the Series A Junior Participating Preferred Stock) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect two (2) directors.

(ii)During any default period, such voting right of the holders of Series A Junior Participating Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph 0 of this 0 or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that such voting right shall not be exercised unless the holders of a majority of the number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect directors to fill such vacancies, if any, in the Board as may then exist up to two (2) directors or, if such right is exercised at an annual meeting, to elect two (2) directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect directors in any default period and during the continuance of such period, the number of directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Junior Participating Preferred Stock.

(iii)Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect directors, the Board may order, or any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the Chief Executive Officer, the Chief Financial Officer or the General Counsel of the Company. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this Paragraph 00 shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Company. Such meeting shall be called for a time not earlier than twenty (20) days and not later than sixty (60) days after such order or request or in default of the calling of such meeting within sixty (60) days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this Paragraph 00, no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the stockholders.

(iv)In any default period, the holders of Common Stock, and other classes of stock of the Company if applicable, shall continue to be entitled to elect the whole number of directors until the holders of Preferred Stock shall have exercised their right to elect two (2) directors voting as a class, after the exercise of which right (x) the directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board may (except as provided in Paragraph 00 of this 0) be filled by vote of a majority of the remaining directors theretofore elected by the holders of the class of stock which elected the director whose office shall have become vacant. References in this Paragraph 0 to directors elected by the holders of a particular class of stock shall include directors elected by such directors to fill vacancies as provided in clause (y) of the foregoing sentence.

(v)Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock as a class to elect directors shall cease, (y) the term of any directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of directors shall be such number as may be provided for in the Certificate of Incorporation or Amended and Restated By-Laws of the Company (as the same may be amended from time to time, the “Bylaws”) irrespective of any increase made pursuant to the provisions of Paragraph 00 of this 0 (such number being subject, however, to change thereafter in any manner provided by law or in the Certificate of Incorporation or Bylaws). Any vacancies in the Board effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining directors.

(D)Except as set forth herein, holders of Series A Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.

Section 4.Certain Restrictions.

(A)Whenever quarterly dividends or other dividends or distributions payable on the Series A Junior Participating Preferred Stock as provided in 0 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Participating Preferred Stock outstanding shall have been paid in full, the Company shall not:

(i)declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock;

(ii)declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, except dividends paid ratably on the Series A Junior Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

(iii)redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Company ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Junior Participating Preferred Stock; or

(iv)purchase or otherwise acquire for consideration any shares of Series A Junior Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Junior Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board) to all holders of such shares upon such terms as the Board, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

(B)The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under Paragraph 0 of this 0, purchase or otherwise acquire such shares at such time and in such manner.

Section 5.Reacquired Shares. Any shares of Series A Junior Participating Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board, subject to the conditions and restrictions on issuance set forth herein.

Section 6.Liquidation, Dissolution or Winding Up. (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Company, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Junior Participating Preferred Stock shall have received an amount equal to $1,000 per share of Series A Junior Participating Preferred Stock, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the “Series A Liquidation Preference”). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an

amount per share (the “Common Adjustment”) equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) one thousand (1,000) (as appropriately adjusted as set forth in subparagraph 0 below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the “Adjustment Number”). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Junior Participating Preferred Stock and Common Stock, respectively, holders of Series A Junior Participating Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively.

(B)In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of preferred stock, if any, which rank on a parity with the Series A Junior Participating Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock.

(C)In the event the Company shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

Section 7.Consolidation, Merger, etc. In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Junior Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to one thousand (1,000) times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Company shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Junior Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

Section 8.No Redemption. The shares of Series A Junior Participating Preferred Stock shall not be redeemable.

Section 9.Ranking. The Series A Junior Participating Preferred Stock shall rank junior to all other series of the Company’s Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise.

Section 10.Amendment. At any time when any shares of Series A Junior Participating Preferred Stock are outstanding, neither the Certificate of Incorporation nor this Certificate of Designation shall be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Junior Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Series A Junior Participating Preferred Stock, voting separately as a class.

Section 11.Fractional Shares. Series A Junior Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder’s fractional shares, to exercise

voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Junior Participating Preferred Stock.

IN WITNESS WHEREOF, R. R. Donnelley & Sons Company has caused this certificate to be executed in its corporate name this 28th day of August 2019.

	R. R. Donnelley & Sons Company
	By	/s/ Deborah L. Steiner
		Name: Deborah L. Steiner
		Title: Executive Vice President, General Counsel and Corporate Secretary

Exhibit 31.1

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

of the Securities Exchange Act of 1934

I, Daniel L. Knotts, 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 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 the registrant’s board of directors (or persons performing the equivalent functions):

(a)

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

(b)

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

Date: October 30, 2019

/s/ DANIEL L. KNOTTS

Daniel L. Knotts

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, Terry D. Peterson, 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)

(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 the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

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

Date: October 30, 2019

/s/ TERRY D. PETERSON

Terry D. Peterson

Executive Vice President and Chief Financial Officer

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

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

AND SECTION 1350 OF 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 ended September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel L. Knotts, 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 to the best of my knowledge:

(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 results of operations of the Company.

October 30, 2019

/s/ DANIEL L. KNOTTS

Daniel L. Knotts

President and Chief Executive Officer

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

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

AND SECTION 1350 OF 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 ended September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Terry D. Peterson, 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 to the best of my knowledge:

(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 results of operations of the Company.

October 30, 2019

/s/ TERRY D. PETERSON

Terry D. Peterson

Executive Vice President and Chief Financial Officer