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Slide 1: Investor Meeting June 21, 2007
Slide 2: Today’s Schedule Time 11:00 - 11:30am Topic Registration & Display of RR Donnelley Offerings Welcome and Introduction One RR Donnelley Industry Dynamics & RR Donnelley Strategy Financial Review Dan Leib Tom Quinlan John Paloian Dan Knotts Dan Leib Tom Quinlan Speaker 11:30 - 11:45am 11:45 - 12:00pm 12:00 - 1:00pm 1:00 - 1:30pm Q&A 2 June 21, 2007
Slide 3: Safe Harbor Statement Use of Forward-Looking Statements This presentation contains "forward-looking statements" as defined in the U.S. Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on these forward-looking statements and any such forwardlooking statements are qualified in their entirety by reference to the following cautionary statements. All forward-looking statements speak only as of the date of this presentation and are based on current expectations and involve a number of assumptions, risks and uncertainties that could cause the actual results to differ materially from such forward-looking statements. The company does not undertake to and specifically declines 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 statement or to reflect the occurrence of anticipated or unanticipated events. The factors that could cause material differences in the expected results of RR Donnelley include, without limitation, the following: the successful execution and integration of acquisitions and the performance of the company's businesses following acquisitions; the ability to implement comprehensive plans for the execution of cross-selling, cost containment, asset rationalization and other key strategies; competitive pressures in all markets in which the company operates; factors that affect customer demand, including changes in postal rates and postal regulations, changes in the capital markets, changes in advertising markets, the rate of migration from paper-based forms to digital format, customers' budgetary constraints and customers' changes in short-range and long-range plans; shortages or changes in availability, or increases in costs of, key materials (such as ink, paper and fuel); and other risks and uncertainties described in RR Donnelley's periodic filings with the Securities and Exchange Commission (SEC). Readers are strongly encouraged to read the full cautionary statements contained in RR Donnelley's filings with the SEC. RR Donnelley disclaims any obligation to update or revise any forward-looking statements. 3 June 21, 2007
Slide 4: Non-GAAP Financial Information The company believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP measures, are useful because that information is an appropriate measure for evaluating the company’s operating performance. Internally, the company uses this non-GAAP information as an indicator of business performance, and evaluates management’s effectiveness with specific reference to these indicators. These measures should be considered in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. A reconciliation of GAAP net earnings to non-GAAP net earnings and further descriptions are presented in the tables attached to our Earnings Releases, which are available in the investors section of our website, rrdonnelley.com. Also available in the investors section of our website, rrdonnelley.com, is a description of additional non-GAAP financial measures referred to in this presentation. Twelve Months Ended December 31, In $ millions, except EPS 2003 Income from Cont. Ops GAAP results Adjustments Restructuring and impairments - net Integration charges Income Tax adjustment Net (income) from Discontinued Operations Cumulative effect of change in accounting principle Other non-GAAP adjustments Total Adjustment Non-GAAP results Depreciation and amortization EBITDA (non-GAAP) $292.7 2004 Income from Cont. Ops $459.2 2005 Income from Cont. Ops $450.4 2006 Income from Cont. Ops $750.7 EPS $1.54 EPS $0.88 EPS $0.63 EPS $1.83 12.5 12.5 305.2 270.3 $575.5 0.07 (0.44) 0.13 0.01 (0.23) $1.31 107.4 80.8 188.2 647.4 385.5 $1,032.9 0.31 0.23 (0.16) 0.39 0.03 (0.03) 0.77 $1.65 419.8 8.3 428.1 878.5 425.0 $1,303.5 1.83 0.02 (0.19) 1.66 $2.29 206.1 206.1 956.8 463.3 $1,420.1 0.79 (0.11) 0.01 0.03 0.72 $2.55 4 June 21, 2007
Slide 5: Agenda One RR Donnelley Industry Dynamics & RR Donnelley Strategy Financial Review Q&A 5 June 21, 2007
Slide 6: Building RR Donnelley to Succeed May 2003 February 2004 Divestitures Package Logistics Acquisitions(1) June 2005 July 2005 Sept 2005 October 2004 December 2005 April 2006 Poligrafia January 2007 May 2007 Note: (1) In addition, RRD completed the acquisition of Ad-Plex Rhodes Charlestown facility in August, 2005, Spencer Press in November, 2005, CMCS in December, 2005 and Canadian Bank Note in October, 2006 6 June 21, 2007
Slide 7: Product and Related Services Opportunity PREPARE PRODUCE DELIVER Print Logistics Print Distribution Fulfillment and Kitting Expedited Services Broadest Product Portfolio Premedia Services Catalogs Studio Photography Magazines Color Services Retail Inserts Page Layout & Processing Directories Facilities Management Books Ad Management Commercial Digital Asset Management Direct Mail Offshore Service Offering Statements Financial Forms Labels BPO Gravure, Offset and Digital Capabilities 2006: $374 Billion Print Market Worldwide, $172 Billion in the U.S. 7 June 21, 2007
Slide 8: The World’s Premier Print and Related Services Company Strategic Serve > 90% of the Fortune 500 Operational Over 40,000 Customers Financial Recurring Revenue Brand Strength Over 600 locations in 35+ countries Low Cost Provider Product Line Breadth Platform Flexibility Financial Flexibility Distinct Service Offering June 21, 2007 Scale Advantages Delivers on Promises 8
Slide 9: Simplified Branding Rebrand Moore Wallace and certain other trade names as RR Donnelley Effective Q3 2007, we will realign the management and reporting structure Simplifies client and internal interactions Results in an approximately $315 million non-cash impairment charge 9 June 21, 2007
Slide 10: Deep Customer Relationships Blue Chip Customer Relationships Total of 40,000 Customers 125 customers with revenue > $10 million (1) 950 customers with revenue > $1 million (1) Serve over 90% of Fortune 500 and have approximately 15% of their print spend • Opportunity to continue to grow our Fortune 500 Relationships 10 And many others… (1) Includes only revenue generated in North America 10 June 21, 2007
Slide 11: Plenty of Opportunity to Expand Relationships We offer 15 core products and services 150 customers purchase 7 or more products/services Multi-offering purchasers 70 60 # of Customers 50 40 30 20 10 10 0 7 8 9 10 11 12+ # of products/services purchased from RR Donnelley (1) Includes only products/services provided in North America 66 38 27 5 6 11 June 21, 2007
Slide 12: A Simple Story Largest player in a highly fragmented market Scale Differentiating front-end and logistics capabilities Cost advantage driven by platform flexibility and economies in procurement, production and distribution Blue chip customer relationships; single source provider opportunities Breadth & Depth Broadest offering of industry leading products and services Industry experienced executive and senior management teams Growth rate has been greater than the broader print market; largest opportunity is with existing clients Success in managing, acquiring and integrating acquisitions in a challenging price environment Financial discipline and operational focus on productivity Strong cash flow generation Financial The Way Forward Operational / productivity focus Continue M&A activities and/or return cash to shareholders Integration of Banta, Perry Judd’s and Von Hoffmann proceeding well 12 June 21, 2007
Slide 13: Agenda One RR Donnelley Industry Dynamics & RR Donnelley Strategy Financial Review Q&A 13 June 21, 2007
Slide 14: Trends Shaping Industry Consolidation (Printers, Suppliers & Customers) Pricing pressure Large / diversified printers are better positioned to be successful Private equity presence changing buying dynamics Total System Cost Focus Printers who are able to offer lowest total print / document management cost and higher ROI are advantaged Customer Relationship Management Shift toward variable (customized), higher value-add print IT / data management capabilities increasingly important to customers Trends generally continuing at same pace Impact differs by print sector: results in new products / services Electronic Substitution Regulatory Changes Positive and negative implications Printers’ ability to offer compliance assurance / secure environment increasingly important 14 June 21, 2007
Slide 15: Consolidating Industry* *Sample representation – estimated total of 39,088 printing facilities in the United States at the end of 2006 (PIA/GATF, April 3, 2007). Source: RR Donnelley management estimates 15 June 21, 2007
Slide 16: Consolidating Supplier Base Paper Suppliers 1980 Ink Suppliers Stora/Enso Bowater/Avenor Dai Nippon/Sun INX/Acme + Midland Domtar/Weyerhaeuser Abitibi/Bowater Mead/Westvaco UPM/Kymmene IP/Champion Georgia Pacific/Ft. James 2007 Source: RR Donnelley management estimates Flint/NAPIC + Continental BASF Graphics + Alper Ink Group + SICPA + Day Flint acquired by XSYS European 16 June 21, 2007
Slide 17: Consolidation Runs Across Business Spectrum Media Companies Retailers Catalogers Magazine & Book Publishers Pharmaceuticals Automotive Bank/Financial Institutions Food Industry 17 June 21, 2007
Slide 18: Private Equity Impact on Customer Consolidations Evercore & TH Lee 1999 Evercore acquires AMI 1999 AMI acquires Globe 2003 AMI acquires Weider 2003 AMI recapitalized by Evercore/THL Golden Gate Capital Appleseed’s Norm Thompson Haband Express Eddie Bauer Draper’s & Damon’s Outfitters Newport News Spiegel JP Morgan Partners Retail 1-800-Flowers.com Cabela’s Cornerstone Brands Crosstown Traders Vitamin Shoppe Industries Publishing Ascend Media Hanley Wood Wasserstein Publishing Holdings American Lawyer The Deal LLC Real Estate Media New York Magazine Primedia B to B Hanley Wood (20% share with JPM) Penton Sun Capital Mervyn’s Shopko Lillian Vernon Eddie Bauer Bear Stearns TransAmerican Auto Parts Playcore Inc. NY & Co Harlem Furniture Everything But Water Francesca’s Balducci’s Stuart Weitzman 18 June 21, 2007
Slide 19: Change in Ownership has Driven Change in Buying Dynamics From… Fragmented print procurement across different functions / divisions / geographies Focus on lowest print cost To… Consolidated print procurement, centrally managed Focus on lowest total document management costs and also on achieving highest ROI Outsourcing non-core processes including print / document process management Contractual relationship In-house print / document management Transactional relationships 19 June 21, 2007
Slide 20: The Evolution of Print Relationships Customer Relationships Total Cost of Process/Procurement Function Outsourced print and Value-Added Services 100% of Core Product(s) Client’s focus on print supply chain, not just print RRD reaches across total value chain Ability to bring scale • Procurement • Distribution • Production Leverage the relationship • 100% Positions Multiple Product Relationships Single Product Relationships • Trust in place • Vested Interest 1864 Source: Derived from InfoTrends/Cap Ventures 2000 2006 2007+ Time 20 June 21, 2007
Slide 21: The Evolution of RR Donnelley’s Strategy Put “World Class” team together Built support infrastructure • Admin/Finance/Ops Developed and implemented new strategy Investment Built, through organic investments and acquisitions, flexible full-service platform Management Focused on continual productivity improvements Operational Absorbed equipment installs Absorbed and integrated acquisitions Asserted disciplines/metrics (cost compression culture) 21 June 21, 2007
Slide 22: The RR Donnelley Strategy – Profitable Growth Targeted sales strategy • Winners/consolidators in their space • Contractual opportunities – opening the window • 100% positions Disciplined investment approach • Organic investment • Targeted acquisitions Trade-off with capital expenditures Productivity and waste reduction Building a Global Platform for Global Customer Needs 22 June 21, 2007
Slide 23: The RR Donnelley Strategy – A Disciplined Approach Key Elements Market / platform versus business unit approach Window of opportunity - prioritization Standardized capital investment approach Flexibility to adapt to evolving customer needs 23 June 21, 2007
Slide 24: One RR Donnelley (Illustrative) Sales and Marketing Magazine Publisher Book Publisher Directory Publisher Healthcare Financial Retail Internal Process (Pricing, Production Planning) One Global Platform PREPARE PRODUCE Gravure Sheetfed Offset Digital Bindery DELIVER 24 June 21, 2007
Slide 25: The RR Donnelley Strategy - Driving Profitable Growth Sales growth targets Platform optimization • Asset utilization • Productivity focus Organic investment • Expand and upgrade base platform • Equipment balance Acquisitions • Targeted for customers, equipment, capacity, capabilities, people • Disciplined analysis 25 June 21, 2007
Slide 26: Platform Optimization - Asset Utilization Off peak (1H) growth has exceeded peak (2H) growth by over $100 million from 2004 to 2006 % of Revenue Growth (2004 – 2006)* 64% 36% 1st Half 2nd Half * 2004-06 growth in most historically seasonal offerings (magazines, catalogs, retail inserts, books and directories) 26 June 21, 2007
Slide 27: Platform Optimization – Productivity Focus Leverage RR Donnelley scale • Supply chain • Shared services • One platform Targeted investment • Quality and service • Waste, throughput and cost takeout 27 June 21, 2007
Slide 28: Organic Investment Capacity investment • 50+ presses and binding lines installed • Assortment of standardized asset types to optimize platform • Overall increase in capacity utilization Capability investment • Targeted to meet market and customer requirements • Standardization to drive flexibility Productivity / Compliance / Maintenance investment • Relentless approach to cost takeout and waste reduction • Safety focused • Infrastructure requirements 28 June 21, 2007
Slide 29: The RR Donnelley Strategy – A Living Process Sales Growth Targets Keys to Success Industry and market knowledge Sales planning Platform Optimization Leveraging scale as one platform Investment prioritization Organic Investment Acquisitions 29 June 21, 2007
Slide 30: RR Donnelley - An Unmatched Portfolio Direct Mail eCommerce Tools Labels & Label Systems Forms Retail Inserts Books Directories Magazines Premedia Services Financial Services 2006: $374 Billion Market Worldwide, $172 Billion in the U.S. Logistics/Fulfillment Services Catalogs Commercial Printing Statements In-Box & Global Turnkey Solutions BPO & Document Management 30 June 21, 2007
Slide 31: RR Donnelley International Presence 31 June 21, 2007
Slide 32: New Customers and Expansion of Relationships Since February 2004, the contract value of our largest new business wins and renewals… Totals over $6.5 billion 32 June 21, 2007
Slide 33: RRD Existing Global Customers 33 June 21, 2007
Slide 34: RR Donnelley is Differentiated to Drive Growth Comprehensive global printing & print-related services platform • Reaches across total value chain • Allows for maximum cost compression Global outsourcing / procurement capability Scale associated with leveraged buying • Materials • Logistics Leveraging long-term customer relationships/contracts • 100% positions in place • Trust is already earned • “Vested interest” Financial strength and stability 34 June 21, 2007
Slide 35: Agenda One RR Donnelley Industry Dynamics & RR Donnelley Strategy Financial Review Q&A 35 June 21, 2007
Slide 36: Strong Sales Growth Proforma Revenue Growth* 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% GDP RRD Global Industry 1Q05 3.4% 5.4% NA 2Q05 3.3% 4.8% NA 3Q05 4.2% 6.1% NA 4Q05 1.8% 4.1% NA FY05 3.2% 5.5% 3.0% 1Q06 5.6% 6.5% NA 2Q06 2.6% 6.8% NA 3Q06 2.0% 3.3% NA 4Q06 2.5% 1.9% NA FY06 3.3% 4.7% 2.0% 1Q07 1.3% 3.6% NA *Proforma for acquisitions as presented in quarterly earnings releases; growth rate stated as if the acquisition took place at the beginning of the period in which it occurred (and the comparable prior year period). Not adjusted for Fx and paper prices. GDP is expressed in real terms. Industry growth from Datamonitor. 36 June 21, 2007
Slide 37: EBITDA Growth has Exceeded Sales Growth CAGR = 31% 10,000 8,430 9,317 1,600 CAGR = 35% 1,420 1,304 8,000 7,156 1,200 1,033 Revenue ($mm) 6,000 4,183 4,000 EBITDA ($mm) 800 576 400 2,000 0 2003 2004 2005 2006 0 2003 2004 2005 2006 37 June 21, 2007
Slide 38: 2006 Profitability and Cost Detail 100% % of Revenue 0% Revenue Cost of Sales SG&A D&A Earnings from Cont. Ops Materials Labor Other Semi-variable Fixed D&A 38 June 21, 2007
Slide 39: Material and Commodities Paper • Primarily contractual pass-through • Relationships vary among: RR Donnelley supplied Customer directed Customer supplied Other commodities • Ink • Fuel • Natural Gas • Electricity 39 June 21, 2007
Slide 40: Historically, D&A has exceeded Capital Expenditures Capital expenditure as a % of Revenue is expected to decrease in 2008 $ in Millions 700 600 Depreciation & Amortization Capex Capex as % Revenue 471 425 386 Platform refresh investments 595 500 463 450-475 400 374 300 270 193 265 200 5.6% 4.6% 100 3.7% 4.0% 4.0% 0 2003 2004 2005 2006 2007 2008 capex expected to decrease to 3.5% to 4.0% of revenue 40 June 21, 2007
Slide 41: Strong Non-GAAP Earnings per Share Growth Non-GAAP EPS Dilutive Impact of Purchasing Accounting $3.50 CAGR = 20% $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 CAGR = 24%, adjusted for purchasing accounting amortization $0.35 $0.23 $0.18 $2.29 $0.11 $1.65 $2.55 $2.70 - 2.75 $0.00 $1.31 2003 2004 2005 2006 2007 Note: Dilutive impact of Purchase Accounting amortization calculated using amortization of intangibles, tax effected at the company’s non-GAAP effective tax rate. 41 June 21, 2007
Slide 42: Business Generates Substantial Cash Flow $mm Cash Flow from Continuing Ops (CFFCO) 1,200 1,000 800 600 400 200 0 $376 $759 CFFCO - Capex $972 $904 $494 $501 $530 $183 2003 42 June 21, 2007 2004 2005 2006
Slide 43: Debt Maturity Profile Weighted average interest rate of ~5.50% on existing long-term debt • Most outstanding debt at fixed rate Few near-term maturities $ in millions $1,200 $1,000 $800 624 $600 400 $400 $200 $0 2007 Interest Rate 43 June 21, 2007 969 598 499 499 2008 2009 3.75% 2010 4.95% 2011 2012 5.63% 2013 2014 4.95% 2015 2016+ 5.50% 6.65%
Slide 44: Multiple Avenues to Value Creation • Topline growth in line with GDP • Productivity to offset price • Cash flow and capital allocated to drive value Cash Internal Investment • Organic Growth • Cost Management • Maintenance Share Buyback • Discount to intrinsic value • Accretive use of cash Dividend Acquisition Debt Repay • Investor preference for distribution • Furthers customer relationship • Cost synergies • Excess capacity • ST cash management • Strong credit metrics 44 June 21, 2007
Slide 45: Balanced Capital Deployment Very strong balance sheet and cash position Strong investment grade credit ratings • Moody’s = Baa2 • S&P = BBB+ Prioritization of cash flows • Dividend maintained at $1.04 per share/year • Internal capital to support growth/productivity • Continued M&A and/or return cash to shareholders 45 June 21, 2007
Slide 46: Long-term Targets Revenue growth* in line with GDP • Acquisitions drive additional topline Productivity savings offset pricing pressure • Margin enhancement opportunities from incremental sales and acquisition integration Strong cash flow generation and credit metrics Balanced capital deployment Financial flexibility and levers to pull * Pro forma for acquisitions 46 June 21, 2007
Slide 47: Financial Strength US$ in millions US$ in millions 31% AGR: C $8,430 $7,156 $4,183 5% R: 3 $1,304 CAG $1,033 $1,420 $9,317 $576 2003 2004 2005 2006 2003 2004 2005 2006 Revenue US$ in millions EBITDA (2) CAG $1.31 % R: 25 $2.29 $2.55 C 0% R: 4 AG $768 $1,046 $833 $1.65 $383 2003 2004 2005 2006 2003 2004 2005 2006 Non-GAAP EPS (2) (1) (2) EBITDA-Capex Proforma for acquisitions as presented in quarterly earnings releases. Not adjusted for Fx and paper prices. Excludes restructuring, impairment, integration charges and other one-time items. 47 June 21, 2007
Slide 48: The RR Donnelley Opportunity Industry leadership Deep, scalable customer relationships Experienced management team Economies of scale in procurement, production and distribution Platform refresh and ongoing capital investment drives platform flexibility Future opportunities for continued productivity Stable, Diversified Cash Generating Platform Low-Cost Advantages Distinct Non-Price Differentiators Premedia & front-end Logistics Proven track record of producing results Strong liquidity and balance sheet Financial flexibility Strong Financial Position 48 June 21, 2007
Slide 49: Agenda One RR Donnelley Industry Dynamics & RR Donnelley Strategy Financial Review Q&A 49 June 21, 2007
Slide 50: Investor Meeting June 21, 2007