Form 10-K

Indicated by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 the filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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

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

The aggregate market value of the shares of common stock (based on the closing price of these shares on the New York Stock Exchange—Composite Transactions) on June 30, 2005, the last business day of the registrant’s most recently completed second fiscal quarter, held by nonaffiliates was $ 7,348,581,866.

Portions of the Registrant’s proxy statement related to its annual meeting of stockholders scheduled to be held on May 25, 2006 are incorporated by reference into Part III of this Form 10-K.

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

On June 20, 2005, the Company acquired The Astron Group (“Astron”), a leader in the document-based business process outsourcing (“DBPO”) market, providing transactional print and mail services, data and print management, document production and marketing support services primarily in the United Kingdom. Astron’s position in these markets is expected to enhance the Company’s ability to leverage global relationships and to expand the Company’s presence in the DBPO market. During the fourth quarter of 2005, Astron acquired Critical Mail Continuity Services, Limited (“CMCS”), a UK-based provider of disaster recovery, business continuity, digital printing, and print-and-mail services. Astron and CMCS are reported in the Company’s Integrated Print Communications segment.

Also during 2005, the Company completed several additional acquisitions to expand and enhance its capabilities in key markets. Asia Printers Group Ltd. (“Asia Printers”) is a book printer for North American, European and Asian markets under the South China Printing brand and is also one of Hong Kong’s leading financial printers under the Roman Financial Press brand. Poligrafia S.A. (“Poligrafia”) is the third largest printer of magazines, catalogs, retail inserts and books in Poland. The Company also acquired Spencer Press, Inc. (“Spencer”), a Wells, Maine based printer serving the catalog, retail and direct mail markets, and the Charlestown, Indiana print operations of Adplex-Rhodes (“Charlestown”), a producer of tabloid-sized retail inserts. These acquisitions are included in the Company’s Publishing and Retail Services segment except for Asia Printers’ Roman Financial Press unit, which is included in the Integrated Print Communications segment.

On February 27, 2004, the Company acquired Moore Wallace Incorporated (“Moore Wallace”), a leading provider of printed products and print management services. The results of Moore Wallace are primarily reflected in the Company’s Forms and Labels and Integrated Print Communications segments.

In December 2005, the Company sold its Peak Technologies business (“Peak”), which was acquired in the Moore Wallace acquisition. During the three months ended September 30, 2004, the Company completed the shutdown of Momentum Logistics, Inc. (“MLI”). In October 2004, the Company sold its package logistics business. For all years presented, these businesses have been classified as discontinued operations in the consolidated financial statements and all prior periods have been reclassified to conform to this presentation.

During 2005, management changed the Company’s reportable segments to better reflect the new structure of the Company and the manner in which the chief operating decision maker regularly assesses information for

decision-making purposes, including the allocation of resources. As a result, the Company’s book, Europe (excluding Astron, direct mail and global capital markets) and Asia operations (excluding global capital markets), all previously reported in the Integrated Print Communications segment, are now reported in the Publishing and Retail Services segment. All prior periods have been reclassified to conform to this current reporting structure.

Publishing and Retail Services. The Publishing and Retail Services segment consists of the following businesses:

The Publishing and Retail Services segment accounted for approximately 50% of the Company’s consolidated net sales in 2005.

Integrated Print Communications. The Integrated Print Communications segment consists of short-run and variable print operations in the following lines of business:

The Integrated Print Communications segment accounted for approximately 30% of the Company’s consolidated net sales in 2005.

Forms and Labels. The Forms and Labels segment designs and manufactures paper-based business forms, labels and printed office products, and provides print-related services, including print-on-demand and kitting services, from facilities located in North America and Latin America. The Latin American business also prints magazines, catalogs and books.

The Forms and Labels segment accounted for approximately 20% of the Company’s consolidated net sales in 2005.

Corporate. The Corporate segment consists of unallocated general and administrative activities and associated expenses including, in part, executive, legal, finance, information technology, human resources and certain facility costs. In addition, certain costs and earnings of employee benefit plans, primarily components of net pension and postretirement benefits expense other than service cost, are not allocated to operating segments.

Financial and other information related to these segments is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in Note 20, Industry Segment Information, to the consolidated financial statements. Information related to the Company’s international operations is included in Note 21, Geographic Area Information, to the consolidated financial statements.

The environment is highly competitive in most of the Company’s product categories and geographic regions. In addition to price, competition is also based on quality and ability to service the special needs of customers. Because the Company believes there is excess and underutilized capacity in most of the printing markets served by the Company, prices for the Company’s products and services are generally declining. The Company expects competition in most sectors served by the Company to remain intense in coming years.

Technological changes, including the electronic distribution of documents and data and the on-line distribution and hosting of media content, present both risks and opportunities for the Company. The Company’s businesses seek to leverage distinctive capabilities to improve our customers’ communications, whether in paper form or through electronic communications. The Company’s goal remains to help its customers succeed by delivering effective and targeted communications in the right format to the right audiences at the right time. Management believes that with the Company’s competitive strengths, including its broad range of complementary print-related services, strong logistics capabilities, technology leadership, depth of management experience, customer relationships and economies of scale, the Company can develop valuable, differentiated solutions for its customers. Management believes the acquisition of Astron builds on these strengths and extends the Company’s distinctive capabilities into the higher growth document-based business process outsourcing sector.

The Company seeks to leverage its position and size to generate continued productivity improvements and enhance the value the Company delivers to its customers. The Company also plans to enhance its products and services through strategic acquisitions that offer both increased breadth and depth of products and services. To attain its productivity goals, the Company has implemented a number of strategic initiatives to reduce its overall cost structure and improve the efficiency of its operations. These initiatives include the restructuring and integration of operations, the expansion of internal cross-selling, leveraging the Company’s global infrastructure, streamlining administrative and support activities, integrating common systems and the disposal of non-core businesses. Future cost reduction initiatives could include the reorganization of operations and the consolidation of facilities. Implementing such initiatives may result in future restructuring or impairment charges, which may be substantial. Management also reviews its portfolio of businesses on a regular basis to ensure it supports the Company’s long-term strategic growth goals and that risks and opportunities are appropriately balanced.

Advertising and consumer spending trends affect demand in several of the end-markets served by the Publishing and Retail Services segment. Historically, the Company’s businesses that serve the magazine, catalog and retail and book businesses generate higher revenues in the second half of the year driven by increased advertising pages within magazines, and holiday catalog, retail and book volumes.

The primary raw materials the Company uses in its print business are paper and ink. The Company negotiates with leading suppliers to maximize its purchasing efficiencies, but it does not rely on any one supplier. In addition, a substantial amount of paper used by the Company is supplied directly by customers. The cost and supply of certain paper grades used in the manufacturing process will continue to affect the Company’s consolidated financial results. Prices for most paper grades increased during 2005. The impact of increasing prices on customer-supplied paper is directly absorbed by customers, though higher prices may have an impact on those customers’ demand for printed product. With respect to paper purchased by the Company, the Company has historically been able to raise its prices to cover a substantial portion of paper cost increases. Contractual arrangements and industry practice should support the Company’s continued ability to pass on paper price increases, but there is no assurance that market conditions will continue to enable the Company to successfully do so.

The Company continues to monitor the impact of the rise in the price of crude oil and other energy costs. The Company believes its logistics business will continue to be able to pass a substantial portion of the increase in fuel prices directly to our customers in order to offset the impact of these increases. However, the Company generally cannot pass on to customers the impact of higher energy prices on its manufacturing costs. The Company does not believe that the recent increase in energy prices has had a material impact on the Company’s consolidated annual results of operations, financial condition or cash flows. However, the Company cannot predict the impact that energy price increases will have upon either future operating costs or customer demand and the related impact either will have on the Company’s consolidated annual results of operations, financial condition or cash flows.

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

Postal costs are a significant component of many customers’ cost structures and postal rate changes can influence the number of pieces that the Company’s customers are willing to mail. Any resulting decline in print volumes mailed could have an adverse effect on the Company’s consolidated annual financial results of operations and cash flows. In January, 2006, a 5.4% postal rate increase across most mail categories went into effect in the U.S. Postal rate increases can enhance the value of the Company’s logistics business to its customers, as the Company is able to improve customers’ cost efficiency of mail processing and distribution.

For the year ended December 31, 2005, 2004 and 2003, no customer accounted for 10% or more of the Company’s consolidated net sales.

The Company has research facilities in Grand Island, New York and Downers Grove, Illinois, that support the development and implementation of new technologies to better meet customer needs and improve operating efficiencies. The Company’s cost for research and development activities is not material to the Company’s consolidated annual results of operations or cash flows.

The Company’s overriding objectives in the environmental, health and safety areas are to maintain compliance with laws and regulations and to create an injury-free workplace. The Company believes that estimated capital expenditures for environmental controls to comply with federal, state and local provisions, as well as expenditures, if any, for its share of costs to clean hazardous waste sites that have received the Company’s waste, will not have a material effect on its consolidated annual results of operations, financial position or cash flows.

We maintain an Internet website at www.rrdonnelley.com where our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports are available without charge, as soon as reasonably practicable following the time they are filed with or furnished to the Securities and Exchange Commission (SEC). The Corporate Governance Principles of the Company’s Board of Directors, the charters of the Audit, Human Resources and Corporate Responsibility & Governance Committees of the Board of Directors and the Company’s Principles of Ethical Business Conduct are also available on the Investor Relations portion of www.rrdonnelley.com, and will be provided, free of charge, to any shareholder who requests a copy. References to the Company’s website address do not constitute incorporation by reference of the information contained on the website, and the information contained on the website is not part of this document.

In June 2005, the Company submitted to the New York Stock Exchange a certificate of the Chief Executive Officer of the Company certifying that he is not aware of any violation by the Company of New York Stock Exchange corporate governance listing standards. The Company also filed as exhibits to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004 certificates of the Chief Executive Officer and Chief Financial Officer as required under Section 302 of the Sarbanes-Oxley Act.

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

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

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

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

The Company’s consolidated results of operations, financial condition and cash flows can be adversely affected by various risks. These risks include, but are not limited to, the principal factors listed below and the other matters set forth in this annual report on Form 10-K. You should carefully consider all of these risks.

Fluctuations in the costs of paper, ink, energy and other raw materials may adversely impact the Company.

Purchases of paper, ink, other raw materials, and energy represent a large portion of the Company’s costs. Increases in the costs of these inputs may increase the Company’s costs, and the Company may not be able to pass these costs on to customers through higher prices. Increases in the costs of materials may adversely impact our customers’ demand for printing and related services.

Many of our customers participate in highly-competitive markets, and their financial condition may deteriorate as a result. A decline in the financial condition of our customers could hinder the Company’s ability to collect amounts owed by customers. In addition, such a decline could result in lower demand for the Company’s products and services.

The Company may not be able to improve its operating efficiency rapidly enough to meet market conditions.

Because the markets in which the Company competes are highly-competitive, the Company must continue to improve its operating efficiency in order to maintain or improve its profitability. Although the Company has been able to improve efficiency and reduce costs in the past, there is no assurance that it will continue to do so in the future. In addition, the need to reduce ongoing operating costs may result in significant up-front costs to reduce workforce, close or consolidate facilities, or upgrade equipment and technology.

The Company may be unable to successfully integrate the operations of acquired businesses and may not achieve the cost savings and increased revenues anticipated as a result of these acquisitions.

Achieving the anticipated benefits of acquisitions, including the 2005 acquisitions of Astron, Asia Printers, Poligrafia, Charlestown, Spencer and CMCS, will depend in part upon the Company’s ability to integrate these businesses in an efficient and effective manner. The integration of companies that have previously operated independently may result in significant challenges, and the Company may be unable to accomplish the integration smoothly or successfully. In particular, the coordination of geographically dispersed organizations with differences in corporate cultures and management philosophies may increase the difficulties of integration. The integration of acquired businesses may also require the dedication of significant management resources, which may temporarily distract management’s attention from the day-to-day operations of the Company. The process of integrating operations may also cause an interruption of, or loss of momentum in, the activities of one or more of the Company’s businesses and the loss of key personnel from the Company or the acquired businesses. Employee uncertainty and lack of focus during the integration process may also disrupt the businesses of the Company or the acquired businesses. The Company’s strategy is, in part, predicated on our ability to realize cost savings and to increase revenues through the acquisition of businesses that add to the breadth and depth of the Company’s products and services. Achieving these cost savings and revenue increases is dependent upon a number of factors, many of which are beyond our control. In particular, the Company may not be able to realize the anticipated cross-selling opportunities, develop and market more comprehensive product and service offerings, or generate anticipated cost savings and revenue growth.

The Company may be unable to hire and retain talented employees, including management.

The Company’s success depends, in part, on our general ability to attract, develop, motivate and retain highly skilled employees. The loss of a significant number of the Company’s employees or the inability to attract, hire, develop, train and retain additional skilled personnel could have a serious negative effect on the Company. Although the Company’s manufacturing platform consists of many locations with a wide geographic dispersion, individual locations may encounter strong competition with other manufacturers for skilled labor. Many of these competitors may be able to offer significantly greater compensation and benefits or more attractive lifestyle choices than the Company offers. In addition, many members of the Company’s management have significant industry experience that is valuable to the Company’s competitors. The Company does, however, enter into non-solicitation and non-competition agreements with its executive officers, prohibiting them contractually from leaving and joining a competitor within a specified period. If one or more members of our senior management team leave and we cannot replace them with a suitable candidate quickly, we could experience difficulty in managing our business properly, which could harm our business prospects and results of operations.

Costs to provide health care and other benefits to the Company’s employees may increase.

The Company provides health care and other benefits to both employees and retirees. In recent years, costs for health care have increased more rapidly than general inflation in the U.S. economy. If this trend in health care costs continues, the Company’s cost to provide such benefits could increase, adversely impacting the Company’s profitability.

Declines in the general economic conditions may adversely impact the Company’s business.

In most of the Company’s businesses, demand for products and services is highly correlated with general economic conditions. Declines in economic conditions in the U.S. or in other countries in which the Company operates may therefore adversely impact the Company’s consolidated financial results. Because such declines in demand are difficult to predict, the Company or the industry may have increased excess capacity as a result. An increase in excess capacity may result in declines in prices for the Company’s products and services. The overall business climate may also be impacted by wars or acts of terrorism in the countries in which we operate or other countries. Such acts may have sudden and unpredictable adverse impacts on demand for the Company’s products and services.

The Company has significant operations outside the United States. Revenues from the Company’s operations outside the United States accounted for approximately 18% of the Company’s consolidated net sales for the year ended December 31, 2005. As a result, the Company is subject to the risks inherent in conducting business outside the United States, including the impact of economic and political instability.

The Company is exposed to significant risks related to potential adverse changes in currency exchange rates.

The Company is exposed to market risks resulting from changes in the currency exchange rates of the currencies in the countries in which it does business. Although operating in local currencies may limit the impact of currency rate fluctuations on the operating results of our non-U.S. subsidiaries and business units, fluctuations in such rates may affect the translation of these results into the Company’s financial statements. To the extent revenues and expenses are not in the applicable local currency, the Company may enter into foreign currency forward contracts to hedge the currency risk. We cannot be sure, however, that the Company’s efforts at hedging will be successful. There is always a possibility that attempts to hedge currency risks will lead to even greater losses than predicted.

The highly competitive market for the Company’s products and industry consolidation may create adverse pricing pressures.

The markets for the majority of the Company’s product categories are highly fragmented and the Company has a large number of competitors. We believe that excess capacity in the Company’s markets have caused downward pricing pressure and increased competition. In addition, consolidation in the markets in which the Company competes may increase competitive pricing pressures.

The substitution of electronic delivery for printed materials may adversely affect our businesses.

Electronic delivery of documents and data, including the online distribution and hosting of media content, offer alternatives to traditional delivery of printed documents. Consumer acceptance of electronic delivery is uncertain, as is the extent to which consumers are replacing traditional reading of print materials with online hosted media content, and we have no ability to predict the rates of their acceptance of these alternatives. To the extent that our customers accept these alternatives, many of our businesses may be adversely affected.

Changes in the rules and regulations to which the Company is subject may increase the Company’s costs.

The Company is subject to numerous rules and regulations, including, but not limited to, environmental and health and welfare benefit regulations. These rules and regulations may be changed by local, state or federal governments in countries in which the Company operates. Changes in these regulations may result in a significant increase in the Company’s costs to comply. Compliance with changes in rules and regulations could require increases to the Company’s workforce, increased cost for compensation and benefits, or investments in new or upgraded equipment.

Changes in the rules and regulations to which our customers are subject may impact demand for the Company’s products and services.

Many of the Company’s customers are subject to rules and regulations requiring certain printed or electronic communications, governing the form of such communications, and protecting the privacy of consumers. Changes in these regulations may impact customers’ business practices and could reduce demand for printed products and related services. Changes in such regulations could eliminate the need for certain types of printed communications altogether or such changes may impact the quantity or format of printed communications.

Changes in postal rates and postal regulations may adversely impact demand for the Company’s products and services.

Postal costs are a significant component of many of our customers’ cost structures and postal rate changes can influence the number of pieces that the Company’s customers are willing to mail. Any resulting decline in print volumes mailed could have an adverse effect on the Company’s business.

Changes in the advertising, retail, and capital markets may impact the demand for printing and related services.

Many of the end markets in which our customers compete are experiencing changes due to technological progress and changes in consumer preferences. The Company cannot predict the impact that these changes will have on demand for the Company’s products and services. Such changes may decrease demand, increase pricing pressures, require investment in updated equipment and technology, or cause other adverse impacts to the Company’s business. In addition, the Company must monitor changes in our customers’ markets and develop new solutions to meet customers’ needs. The development of such solutions may be costly, and there is no assurance that these solutions will be accepted by customers.

The Company has no unresolved written comments from the SEC staff regarding its periodic or current reports under the Exchange Act.

The Company’s corporate office is located in leased office space in Chicago, Illinois. In addition, as of December 31, 2005, the Company leases or owns 375 U.S. facilities, some of which have multiple buildings and warehouses and these U.S. facilities encompass approximately 28.9 million square feet. The Company leases or owns 196 international facilities encompassing approximately 10.1 million square feet in Canada, Latin America, Europe and Asia. Of the U.S. and international manufacturing and warehouse facilities, approximately 26.7 million square feet of space is owned, while the remaining 12.3 million square feet of space is leased.

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

From time to time, our customers file voluntary petitions for reorganization under United States bankruptcy laws. In such cases, certain pre-petition payments received by us could be considered preference items and subject to return to the bankruptcy administrator. Management believes that the final resolution of these preference items will not have a material adverse effect on the Company’s consolidated annual results of operations, financial position or cash flows.

In addition, we are a party to certain litigation arising in the ordinary course of business that, in the opinion of management, will not have a material adverse effect on the Company’s consolidated annual results of operations, financial condition or cash flows.

No matters were submitted to a vote of security holders during the three months ended December 31, 2005.

ITEM 5. MARKET FOR R.R. DONNELLEY & SONS COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF SECURITIES

RR Donnelley’s common stock is listed and traded on the New York Stock Exchange, Chicago Stock Exchange, Pacific Exchange and Toronto Stock Exchange.

As of February 15, 2006, there were approximately 10,735 stockholders of record. Quarterly prices of the Company’s common stock, as reported on the New York Stock Exchange-Composite Transactions, and dividends paid per share during the years ended December 31, 2005 and 2004, are contained in the chart below:

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of RR Donnelley’s financial condition and results of operations should be read together with our consolidated financial statements and notes to those statements included in Item 15 of Part IV of this Form 10-K.

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

The Company operates in three segments: Publishing and Retail Services, Integrated Print Communications, and Forms and Labels. Publishing and Retail Services offers its customers a broad range of printed products and related services, such as magazines, catalogs, retail inserts, books, directories, pre-media, logistics and other value-added services. Integrated Print Communications consists of short-run and variable print operations including direct mail, short-run commercial print and customized communication solutions to a diversified customer base. Additionally, this segment serves the document-based business process outsourcing market by providing transactional print and mail services, data and print management, and document production and marketing support services. Forms and Labels designs and manufactures paper-based forms, labels and printed office products, and provides print-related services including print-on-demand and kitting services, from facilities located in North America and Latin America. The Latin America business also prints magazines, catalogs and books.

RR Donnelley measures its financial performance using both generally accepted accounting principles (“GAAP”) and non-GAAP measures. 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 this indicator. 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 complete reconciliation of GAAP net earnings to non-GAAP net earnings is presented on pages 24 and 25 of this annual report on Form 10-K. On a GAAP basis, the Company’s results on key measures in 2005 versus 2004 were as follows:

The strong 2005 financial results reflect the successful integration of RR Donnelley and Moore Wallace, significant new customer wins, expansion of existing customer relationships, improved cross-selling and substantial cost savings from procurement, operational re-engineering and administrative streamlining efforts.

The acquisition of Astron in June 2005 was an important extension of the Company into the higher-growth document-based business process outsourcing (“DBPO”) sector. Astron is the leading provider of end-to-end DBPO solutions in the United Kingdom. With a full service model, Astron delivers inbound and outbound customer communication services, print management, statement processing, and document storage. Combined with the strength of the RR Donnelley brand, the Company believes that Astron is positioned to grow beyond its traditional markets by better competing for large, long-term government and commercial outsourcing contracts and by leveraging its low-cost customer support centers in India, Poland and Sri Lanka to serve markets worldwide.

The Company’s two largest segments, Publishing and Retail Services and Integrated Print Communications, both delivered strong gains in net sales and operating margins during 2005. The Company’s increased capital investments in the domestic Publishing and Retail Services platform supported revenue and productivity gains across most businesses. In addition, Europe and Asia annualized revenues increased over 50% through a combination of strong growth across key customer relationships and the acquisitions of Asia Printers Group and Poligrafia.

The Forms and Labels business continues to be challenged by difficult market trends due to continued electronic substitution of forms and a declining pricing environment with overall 2005 segment results below expectations. As a result, in the fourth quarter, the Company recorded a non-cash charge for impairment of goodwill and identifiable intangibles of $362.3 million to reflect a reduction in the fair value of this business based on forward net sales and operating margin expectations for the North American Forms and Labels business consistent with current trends. RR Donnelley, however, continues to be a market leader in this segment, and management is committed to maximizing the value of this business. In 2005, the Company took important steps to strengthen its sales effort and reduce its cost base in Forms and Labels. Based on these actions, management believes that the Forms and Labels business will continue to be profitable and a stable source of cash flow for the Company.

In 2006, the Company expects that the competitive environment, for most of its business lines, will continue to remain intense with excess industry capacity continuing to drive price declines. To counter this trend, the Company expects to continue to identify productivity opportunities and target its investments at higher growth sectors such as DBPO and digital print. Capital spending of $471 million in 2005 was higher than historical levels due to the Company’s strategic decision to update its Publishing and Retail Services manufacturing platform and support new business. In 2006, the Company’s capital investment is expected to be lower than in 2005 as the Company completes its program to update its Publishing and Retail Services manufacturing platform. In addition, management expects that continued focus on productivity will drive costs lower in order to offset price declines and inflation in wages, benefits, and energy prices.

RR Donnelley made significant strategic, operational and financial gains in 2005, resulting in strong improvement in many key performance indicators. The Company expects to further strengthen its leadership position as the premier provider of print and related services in 2006.

RR Donnelley’s vision is to be the world’s premier printing and print-related services company by providing our customers with the highest quality products and services.

The Company’s strategy is focused on maximizing long-term shareholder value by driving profitable growth, a continued focus on productivity, and acquiring and integrating complementary businesses. To increase shareholder value, the Company pursues three major strategic objectives. These objectives are summarized below, along with more specific areas of focus and the key indicators used by management to gauge progress towards these objectives.

To generate profitable growth, the Company will continue to make targeted capital investments to support new business, accelerate cross-selling to leverage the Company’s broad customer relationships, and increase the Company’s focus on higher growth sectors such as DBPO and digital print. The Company has made significant investments directed at improving the competitiveness of the Company’s manufacturing platform after several years of lower investment levels. In addition to supporting growth, this investment has enhanced the platform through new technology that better meets customer needs and improves operating efficiency. The Company also seeks opportunities to cross-sell by leveraging current customer relationships. While RR Donnelley serves nearly every company in the Fortune 500 in some capacity, the Company’s estimated share of these customers’ overall print services expenditures that RR Donnelley supplies is less than 15%. With the integration of RR Donnelley and Moore Wallace, the Company offers a broad base of solutions to meet customer needs and expand its relationships with key customers.

Management believes productivity improvement and cost reduction are critical to the Company’s competitiveness. Since the acquisition of Moore Wallace, the Company has significantly reduced its cost structure through integration of operations, restructuring and disposal of non-core businesses. The Company’s efforts have focused on reducing procurement costs, streamlining sales, operations and administrative functions and the consolidation of facilities to reduce expenses and increase productivity. Within traditional print sectors, the primary focus of capital investments in coming years will be to drive continued increases in productivity and support new business. In addition, management plans to further reduce administrative and overhead costs by leveraging the Company’s global capabilities and through additional standardization of systems, processes and procedures throughout the Company.

Targeted acquisitions are another important component of the Company’s strategy to extend its capabilities and its industry leadership. With its strong financial position relative to most competitors, the Company plans to make acquisitions to build on its scale advantages and extend its product offerings in key markets. In addition to the acquisition of Astron, the acquisitions of Asia Printers Group, Ltd. (“Asia Printers”), Poligrafia SA (“Poligrafia”), the Charlestown, Indiana facility of AdPlex-Rhodes (“Charlestown”), Spencer Press, Inc. (“Spencer”), and Critical Mail Continuity Services, Ltd. (“CMCS”) in 2005 demonstrate the capability of the Company to leverage its depth of industry experience and integrate acquired companies to drive growth, cost savings and higher profitability. Additionally, in December of 2005, the Company completed the sale of its Peak Technologies business (“Peak”), which was not central to the Company’s core business or strategy.

The Company faces many challenges and risks operating globally in highly competitive markets. Item 1A, Risk Factors, discusses many of these issues, but the Company’s strategy is primarily focused on meeting the challenges of industry-wide price competition and the advancement of technology.

The print and related services industry in general continues to have excess capacity and remains highly competitive. Across the Company’s business segments, many competitors rely on price as a key competitive lever. Management expects that prices for the Company’s products and services will therefore continue to be a focal point for customers in coming years. In this environment, the Company believes it needs to continue to lower its cost structure, and extend into higher-value service offerings. While the industry environment has been difficult for a number of years, the Company has demonstrated its ability to maintain and enhance margins through productivity and by offering higher-value products and services.

Technological changes, such as the electronic distribution of documents and data, on-line distribution and hosting of media content, advances in digital printing, print-on-demand, and internet technologies continue to

impact the market for the Company’s products and services. As a substitute for print, the impact of these technologies has been felt most strongly in the Forms and Labels segment, as electronic communication and transaction technology has eliminated or devalued the role of many traditional paper forms. These factors contributed to the $362.3 million non-cash impairment charge for the North American Forms and Labels reporting unit, recorded in the Forms and Labels segment during 2005. The future impact of technology on the Company’s business is difficult to predict and could result in additional charges in the future.

While new technologies present significant challenges to certain of the Company’s traditional businesses, management believes that the Company is a leader in key technologies that will be valuable sources of industry growth. These technologies include digital content management and premedia services, digital print for personalization and print-on-demand, and low-cost document process management. In 2005, the Company took key steps to capitalize on these technology advantages through its acquisition of Astron and by taking actions to more strongly protect its patented technology advantages in digital print processes. The Company also plans to focus more of its growth investments in digital technologies in future years.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Securities and Exchange Commission (“SEC”) has defined a company’s most critical accounting policies as those that are most important to the portrayal of its financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, the Company has identified the following critical accounting policies and judgments. Although management believes that its estimates and assumptions are reasonable, they are based upon information available when they are made. Actual results may differ significantly from these estimates under different assumptions or conditions.

The Company recognizes revenue for the majority of its products upon shipment to the customer and the transfer of title and risk of loss. Contracts generally specify F.O.B. shipping point terms. Under agreements with certain customers, custom products may be stored by the Company for future delivery. In these situations, the Company receives a logistics and warehouse management fee for the services it provides. In certain cases, delivery and billing schedules are outlined in the customer agreement and product revenue is recognized when manufacturing is complete, title and risk of loss transfer to the customer, and there is a reasonable assurance as to collectibility. Because the majority of products are customized, product returns are not significant; however, the Company accrues for the estimated amount of customer credits at the time of sale. Billings for third-party shipping and handling costs are included in net sales.

Revenue from services is recognized as services are performed. Long-term product contract revenue is recognized based on the completed contract method or percentage of completion method. The percentage of completion method is used only for contracts that will take longer than three months to complete, where project stages are clearly defined and can be invoiced and where the contract contains enforceable rights by both parties. Revenue related to short-term service contracts and contracts that do not meet the percentage of completion criteria is recognized when the contract is completed.

Within the Company’s global capital markets business, which serves the global financial services end market, the Company produces highly customized materials such as regulatory S-filings, initial public offerings and EDGAR-related services. Revenue is recognized for these services following final delivery of the printed product or upon completion of the service performed.

Revenues related to the Company’s premedia operations, which include digital content management, photography, color services and page production, are recognized in accordance with the terms of the contract, typically upon completion of the performed service and acceptance by the customer. With respect to the Company’s logistics operations, whose operations include the delivery of printed material, the Company recognizes revenue upon completion of the delivery of services.

The Company records deferred revenue in situations where amounts are invoiced but the revenue recognition criteria outlined above are not met. Such revenue is recognized when all criteria are subsequently met.

The Company maintains an allowance for doubtful accounts, which is reviewed for estimated losses resulting from the inability of its customers to make required payments for products and services. Specific customer provisions are made when a review of significant outstanding amounts, utilizing information about customer creditworthiness and current economic trends, indicates that collection is doubtful. In addition, provisions are made at differing rates, based upon the age of the receivable and the Company’s historical collection experience. The Company’s estimates of the recoverability of amounts due could change, and additional changes to the allowance could be necessary in the future if a major customer’s creditworthiness deteriorates, or if actual defaults are higher than the Company’s historical experience.

The Company records inventories at the lower of cost or market values. Most of the Company’s inventories are valued under the last-in first-out (LIFO) basis. Changes in the inflation indices may cause an increase or decrease in the value of inventories accounted for under the LIFO costing method. The Company maintains inventory allowances based on excess and obsolete inventories determined in part by future demand forecasts. If there were to be a sudden and significant decrease in demand for its products, or if there were a higher incidence of inventory obsolescence because of changing technology and customer requirements, the Company could be required to increase its inventory allowances.

The Company’s methodology for allocating the purchase price relating to acquisitions is based on established valuation techniques that reflect the consideration of a number of factors including valuations performed by third party appraisers. Goodwill is measured as the excess of the cost of an acquired entity over the fair value assigned to identifiable assets acquired and liabilities assumed. Based on its organization structure, the Company has identified 14 reporting units for which cash flows are determinable and to which goodwill is allocated. Goodwill is either assigned to a specific reporting unit or allocated between reporting units based on the relative excess fair value of each reporting unit. When the Company’s organization structure changes, new or revised reporting units may be identified, and goodwill is reallocated, if necessary, based on relative excess fair value.

The Company performs goodwill impairment tests on an annual basis or more frequently in certain circumstances. The Company compares the fair value of the reporting unit to its carrying amount including goodwill. If the carrying amount of a reporting unit exceeds the fair value, the Company performs an additional fair value measurement calculation to determine the impairment loss, which is charged to operations. In 2005, the Company recorded a non-cash charge of $362.3 million to reflect impairment of goodwill and identifiable intangible assets in the North American Forms and Labels reporting unit. As part of its annual impairment analysis for this reporting unit, the Company engaged a third-party appraisal firm to determine the fair value of the unit, in part based on estimates of future net sales, operating margin and cash flows developed by management. In order to determine the amount of goodwill impairment, the Company also used the third-party appraisal firm to value the significant tangible and intangible long-lived assets of the reporting unit.

The Company evaluates the recoverability of other long-lived assets, including property, plant and equipment and certain identifiable intangible assets, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company performs indefinite-lived impairment tests on an annual basis or more frequently in certain circumstances. Factors considered important which could trigger an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the assets or the strategy for the overall business, significant decrease in the market value of the assets and significant negative industry or economic trends. When the Company determines that the carrying amount of long-lived assets may not be recoverable based upon the existence of one or more of the indicators, the assets are assessed for impairment based on the estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying amount over its fair value.

All of the Company’s goodwill and long-lived asset impairment assessments are determined based on established fair value techniques, including discounted cash flow analysis. These analyses require management to estimate both future cash flows and an appropriate discount rate to reflect the risk inherent in the current business model. The assumptions supporting valuation models, including discount rates, are determined using the best estimates as of the date of the impairment review.

Certain investments in affordable housing, which are included in other noncurrent assets, are recorded at cost, as adjusted for the Company’s share of any declines in the fair value of the underlying properties that are deemed to be other than temporary. The Company’s basis for determining fair value of the underlying properties requires applying management’s judgment using a significant number of estimates. Management derives its estimates of fair value using remaining future tax credits and tax deductions to be realized and expected residual values upon sale or disposition of the Company’s ownership interests. Expected residual values are developed from industry assumptions and cash flow projections provided by the underlying partnerships and include certain assumptions with respect to operating costs, debt levels and certain market data related to the properties such as assumed vacancy rates. Should these assumptions differ from actual results in the future, the Company might be required to further write down its carrying value of these investments.

The Company is subject to lawsuits, investigations and other claims related to environmental, employment and other matters, as well as preference claims related to amounts received from customers prior to their seeking bankruptcy protection. Periodically, the Company reviews the status of each significant matter and assesses potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss. Because of uncertainties related to these matters, accruals are based on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to pending claims and might revise its estimates.

The Company purchases third-party insurance for workers’ compensation, automobile and general liability claims that exceed a certain level. The Company is responsible for the payment of claims below these insured limits, and consulting actuaries are utilized to estimate the obligation associated with incurred losses, which is recorded in accrued liabilities. Historical loss development factors are utilized to project the future development of incurred losses, and these amounts are adjusted based upon actual claims experience and settlement. If actual experience of claims development is significantly different from these estimates, an adjustment in future periods may be required.

The Company records restructuring charges when liabilities are incurred as part of a plan approved by management, with the appropriate level of authority, for the elimination of duplicative functions, the closure of facilities, or the exit of a line of business, generally in order to reduce the Company’s overall cost structure. Certain

restructuring costs are recognized as a cost of acquisitions because the plans were contemplated at the time of the acquisition and were, therefore, included in the purchase price allocation. These restructuring charges and related liabilities are based on contractual obligations or management’s best estimates at the time the charges are recorded.

The restructuring liabilities might change in future periods based on several factors that could differ from original estimates and assumptions. These include, but are not limited to: contract settlements on terms different than originally expected; ability to sublease properties based on market conditions at rates or on timelines different than originally estimated; or changes to original plans as a result of mergers or acquisitions. Such changes might result in reversals of or additions to restructuring charges that could affect amounts reported in the consolidated statements of operations of future periods.

Significant judgment is required in determining the provision for income taxes and related accruals, deferred tax assets and liabilities and any valuation allowance recorded against deferred tax assets. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. Additionally, the Company’s tax returns are subject to audit by various U.S. and foreign tax authorities. The Company accrues for uncertain tax positions for which it believes a loss is probable and estimable. Although management believes that its estimates are reasonable, the final outcome of uncertain tax positions may be materially different from that which is reflected in the Company’s historical income tax provisions and accruals.

The Company has recorded deferred tax assets related to domestic and foreign tax loss and credit carryforwards. Limitations on the utilization of these tax assets generally apply; accordingly, management has provided a valuation allowance to reduce certain of these deferred tax assets when management has concluded that, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be fully realized. If actual results differ from these estimates, or the estimates are adjusted in future periods, adjustments to the valuation allowance might need to be recorded.

The Company records annual amounts relating to its pension and postretirement benefit plans based on calculations which include various actuarial assumptions, including discount rates, assumed rates of return, compensation increases, turnover rates and health care cost trend rates. The Company reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is deemed appropriate to do so. The effect of modifications is generally deferred and amortized over future periods. The Company believes that the assumptions utilized in recording its obligations under its plans are reasonable based on its experience, market conditions and input from its actuaries and investment advisors. The pension and postretirement obligations are measured as of September 30 for all years presented. The Company determines its assumption for the discount rate to be used for purposes of computing annual service and interest costs based on an index of high-quality corporate bond yields and matched-funding yield curve analysis as of that date.

The Company employs a total return investment approach for its pension and postretirement benefit plans whereby a mix of equities and fixed income investments are used to maximize the long-term return of pension and postretirement plan assets. The intent of this strategy is to minimize plan expenses by outperforming the growth in plan liabilities over the long run. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. The investment portfolios contain a diversified blend of equity and fixed-income investments. Furthermore, equity investments are diversified across geography and market capitalization through investments in U.S. large-capitalization stocks, U.S. small-capitalization stocks and international securities. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews.

The expected long-term rate of return for plan assets is based upon many factors including expected asset allocations, historical asset returns, current and expected future market conditions, risk and active management

premiums. The prospective target asset allocation percentage for both the pension and postretirement benefit plans is approximately 75% for equity securities and approximately 25% for fixed income and other securities.

The expected return on plan assets assumption at September 30, 2005 ranged from 8.0% to 8.5% for the Company’s major U.S and Canadian pension plans and was 8.0% for the Company’s funded U.S. postretirement medical benefit plan. The discount rates used at September 30, 2005 to measure pension and postretirement benefit obligations of the major U.S. and Canadian plans ranged from 5.0% to 5.8%. A one percentage point decrease in the discount rates at September 30, 2005 would increase the pension plans’ accumulated benefit obligation by approximately $345.4 million.

The Company also maintains several pension plans in international locations. The assets, liabilities and expense associated with these plans are not material to the Company’s consolidated financial statements. The expected returns on plan assets and discount rates for these plans are determined based on each plan’s investment approach, local interest rates, and plan participant profiles.

The health care cost trend rates used in valuing the Company’s postretirement benefit obligations are established based upon actual health care cost trends and consultation with actuaries and benefit providers. At September 30, 2005, the current weighted average health care trend rate assumption was 10.2% for pre-age 65 participants and 11.9% for post-age 65 participants. The current trend rate gradually decreases to an ultimate trend rate of 6.0%.

A one percentage point increase in the assumed health care cost trend rates would have the following effects (in millions):

A one percentage point decrease in the assumed health care cost trend rates would have the following effects (in millions):

Other than non-cancelable operating lease commitments, the Company does not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities.”

In the financial review that follows, the Company discusses its consolidated results of operations, financial condition, cash flows and certain other information. This discussion should be read in conjunction with the Company’s consolidated financial statements and related notes that begin on page F-1.

The Company believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP measures, are useful because they are appropriate measures for evaluating the Company’s operating performance. Internally, the Company uses 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.

Non-GAAP net earnings from continuing operations excludes restructuring, impairment and integration charges, gains or losses on the disposition of investments, the non-cash write-down of the Company’s investment in affordable housing, net income or loss from discontinued operations and the cumulative effect of a change in an accounting principle. The Company used an effective tax rate of 34.8% in 2005 and 38.3% in 2004, which it believes is its pro forma annual tax rate, in calculating non-GAAP net earnings. A reconciliation of GAAP net earnings to non-GAAP net earnings for the years ended December 31, 2005 and 2004 for these adjustments is presented in the following table:

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2005 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 2004

The following table shows net sales and income (loss) from continuing operations for each of the Company’s reportable segments. A complete description of the Company’s reportable segments is included in Item 1, “Business.”

Net sales for the year ended December 31, 2005 increased $1,273.8 million, or 17.8%, to $8,430.2 million versus the prior year. Of this increase, $932.0 million was due to acquisitions, most significantly Moore Wallace and Astron. In addition, the increase was driven by volume growth across all businesses in the Publishing and Retail Services segment and in the Dynamic Communications Solutions and direct mail businesses within the Integrated Print Communications segment. Net sales also reflect the pass-through to customers of higher materials prices, offset by the continuing impact of competitive price pressures in most markets. The Forms and Labels segment’s net sales increased due to the impact of the Moore Wallace acquisition, offset by price and volume declines, reflecting the continuing downward trend in demand due to continued electronic substitution primarily in the Forms sector.

Income from continuing operations for the year ended December 31, 2005 was $450.4 million compared to $459.2 million for the year ended December 31, 2004. This decrease reflected restructuring and impairment charges of $419.8 million compared to $107.4 million in 2004. These charges include a non-cash charge of $362.3 million for impairment of goodwill and identifiable intangible assets in the Forms and Labels segment. The impact of these charges was mostly offset by increased earnings from acquisitions, growth in net sales, cost reductions achieved through restructuring actions, productivity efforts, procurement savings and lower acquisition-related costs (including fair-value adjustments for inventory) of $72.5 million.

Cost of sales (exclusive of depreciation and amortization) increased $820.7 million to $6,090.3 million for the year ended December 31, 2005 versus the prior year primarily due to acquisitions and the increased net sales volume. Cost of sales as a percentage of consolidated net sales decreased from 73.6% to 72.2% primarily due to cost reductions achieved through restructuring activities and incremental procurement savings, partially offset by the impact of higher paper prices which were largely passed through to customers and continuing price competition in most markets. Cost of sales for the year ended December 31, 2005 also included the fair value adjustments for inventory of acquired business of $4.1 million compared to $66.9 million of similar adjustments in the year ended December 31, 2004 due to the acquisition of Moore Wallace.

Selling, general and administrative expenses (exclusive of depreciation and amortization) increased $110.0 million to $1,044.7 million for the year ended December 31, 2005 versus the prior year primarily due to acquisitions

and other net sales increases. Selling, general and administrative expenses as a percentage of consolidated net sales decreased to 12.4% in 2005 from 13.1% in 2004. This decrease was primarily due to benefits achieved from restructuring activities. Other items impacting this comparison include $7.8 million related to recovery of an international value-added tax refund and the collection of a bankruptcy receivable which was previously written-off, lower bad debt expense and provisions of $27.3 million recorded in the prior year related to litigation, insurance, termination benefits, and sales and use taxes.

For the year ended December 31, 2005, the Company recorded a net restructuring and impairment provision of $419.8 million, compared to $107.4 million in 2004. These charges include $362.3 million for the impairment of goodwill and identifiable intangible assets within the Forms and Labels segment; $15.7 million primarily related to the relocation of the Company’s global corporate headquarters within Chicago; $15.9 million related to workforce reductions of 500 employees (of whom 395 were terminated as of December 31, 2005); and other costs incurred to restructure operations within the business segments. For the year ended December 31, 2004, the charges reflected workforce reductions of 1,368 employees (all of whom were terminated as of December 31, 2005), primarily related to the elimination of duplicative administrative functions resulting from the acquisition of Moore Wallace. Management expects that restructuring activities will continue in 2006 as the Company continues to streamline its manufacturing, sales and administrative operations.

Payments on certain lease obligations associated with various restructuring plans are scheduled to continue until 2011. The Company anticipates that payments associated with employee terminations relating to restructuring actions will be substantially completed by the end of 2006.

Depreciation and amortization increased $39.5 million to $425.0 million for the year ended December 31, 2005 compared to 2004, primarily due to acquisitions. Depreciation and amortization included $58.3 million and $37.1 million of amortization of purchased intangibles related to customer relationships, patents and non-compete covenants for the year ended December 31, 2005 and 2004, respectively.

Net interest expense increased by $24.8 million to $110.7 million for the year ended December 31, 2005 versus 2004 primarily reflecting interest expense related to the issuance of approximately $1.0 billion of debt in March 2004 and $1.0 billion of debt in May 2005 due to the acquisitions of Moore Wallace and Astron, respectively.

Net investment and other expense for the year ended December 31, 2005 was $7.9 million versus $16.5 million in 2004. Included in investment and other expense, net, were charges of $8.1 million and $34.6 million for the year ended December 31, 2005 and 2004, respectively, reflecting declines in the underlying estimated fair market values of the Company’s affordable housing investments. During the year ended December 31, 2004, the Company recorded a gain of $14.3 million on the sale of certain investments in Latin America.

The effective income tax rate for the year ended December 31, 2005 was 71.5%, primarily reflecting the charge for impairment of goodwill of $353.6 million, for which the Company did not record any tax benefit. For the year ended December 31, 2004, the effective income tax rate was 25.9%. In addition to the impact of the goodwill impairment charge, the higher effective rate in 2005 reflects lower reversals of state tax contingencies upon the expiration of certain state statutory limitations ($6.7 million in 2005 compared to $30.5 million in 2004), lower affordable housing credits ($2.7 million and $8.8 million in 2005 and 2004, respectively) and the impact of the 2004 sale of an investment in Latin America. These impacts were partially offset by the reduction of $13.5 million in non-U.S. valuation allowances compared to total reductions of non-U.S. valuation allowances of $7.1 million in 2004.

Earnings from continuing operations before cumulative effect of change in accounting principle for the year ended December 31, 2005 was $95.6 million, or $0.44 per diluted share, compared to $264.9, million or $1.30 per diluted share, for the year ended December 31, 2004. In addition to the factors discussed above, the per-share results reflect an increase in weighted average diluted shares outstanding of 12.5 million shares primarily due to the acquisition of Moore Wallace, partially offset by share repurchases.

Income from discontinued operations, net of tax, for the year ended December 31, 2005 was $41.5 million and was primarily related to Peak. The loss from discontinued operations, net of tax, for the year ended December 31, 2004 was $80.0 million, and included the results of Momentum Logistics, Inc. (“MLI”) and package logistics prior to their dispositions. A net gain on the sale of Peak of $55.2 million, including pre-tax impairment charges of $36.6 million and tax benefits of $93.5 million, is included in the income from discontinued operations, net of tax, compared to $118.3 million ($59.6 million after-tax) in impairment charges and loss on sale for MLI and the Company’s package logistics business included in the 2004 loss from discontinued operations, net of tax.

For the year ended December 31, 2004, the Company recorded a cumulative effect of a change in accounting principle of $6.6 million, net of taxes of $4.3 million, reflecting the adoption of the Financial Accounting Standards Board Interpretation No. 46R “Consolidation of Variable Interest Entities.” The charge reflects the difference between the carrying amount of the Company’s investments in certain partnerships related to affordable housing and the underlying carrying values of the partnerships upon consolidating these entities into the Company’s financial statements. Management does not believe that the consolidation of these partnerships will have an ongoing material effect on the Company’s consolidated annual results of operations, cash flows or financial condition.

The following table summarizes net sales, income from continuing operations and non-GAAP adjustments within the Publishing and Retail Services segment:

Net sales for the Publishing and Retail Services segment for the year ended December 31, 2005 were $4,269.8 million, an increase of $448.1 million, or 11.7%, compared to 2004. Of this increase, $125.9 million was due to the Moore Wallace, Asia Printers, Charlestown, Poligrafia and Spencer acquisitions. The remaining increase resulted from strong volume increases across all businesses in the segment and higher paper prices passed on to customers, partially offset by downward price pressures. Net sales increases in the magazine, catalog and retail business were driven by volume increases from new customer contracts, increased business with existing customers and higher paper prices that were passed on to customers, partially offset by lower prices associated with major contract renewals. In the book business, the increased net sales reflected higher consumer, education, and juvenile book volume. Consumer and juvenile volume was driven by strong performance of customers’ titles, and education volume reflected the impact of increased elementary and high school textbook volume driven by state adoption cycles. Net sales in the book business also reflected gains in the telecommunications and technology market and the impact of higher paper prices, partially offset by lower prices on major customer contract renewals. Net sales for the directories business also increased, primarily reflecting higher volume from most major customers and the impact of higher paper prices passed on to customers. Logistics net sales increased due to the Moore Wallace acquisition, strong volumes in the domestic print platform, growth in third party sales and higher fuel prices passed on to customers. Premedia net sales increased, also driven by higher print volumes, as well as work for new customers, offset by continuing price pressures in

this market. Net sales in Europe and Asia increased sharply from 2004. In Europe, this increase reflected higher telecommunication and technology, directory, magazine and retail volume, reflecting further penetration in these markets and the acquisition of Poligrafia. In Asia, the Company’s net sales improvement was driven by strong gains in book production for the U.S. market, both from the Asia Printers acquisition and organic growth. Asian volume increases also reflected strong growth with telecommunications and technology customers.

On a GAAP basis, Publishing and Retail Services’ income from continuing operations increased $155.5 million, including the impact of lower restructuring and impairment charges, and integration charges of $30.5 million. Non-GAAP income from continuing operations for the Publishing and Retail Services segment for the year ended December 31, 2005 of $629.6 million increased $125.0 million, or 24.8%, compared to the prior year. In addition to the net sales increase, the increase in GAAP and non-GAAP income from continuing operations included the benefits of cost reduction actions and procurement savings, partially offset by inflationary increases in wages, benefits and energy costs. The significant growth in operating income was achieved across all of the segment’s businesses. Non-GAAP operating margins in Publishing and Retail Services increased to 14.7% in 2005 from 13.2% in 2004.

The following table summarizes net sales, income from continuing operations and non-GAAP adjustments within the Integrated Print Communications segment:

Net sales for the Integrated Print Communications segment for the year ended December 31, 2005 were $2,491.5 million, an increase of $610.8 million, or 32.5%, compared to 2004. Of this increase $577.1 million was due to the acquisitions of Moore Wallace, Astron and Asia Printers. The remaining increase in net sales was primarily driven by the Dynamic Communications Solutions and direct mail businesses. Dynamic Communications Solutions experienced a strong increase in net sales compared to 2004, primarily driven by volume in services to the mutual fund industry. Net sales in the direct mail business grew as increased long run marketing programs for financial and not-for-profit markets more than offset revenue decreases related to prior year facility closures and customer losses. In addition to the impact of the Moore Wallace acquisition, short-run commercial print net sales were up slightly from 2004 as pricing pressures nearly offset volume growth. Global capital markets net sales decreased from 2004 as transactional volume declines were only partially offset by an increase in compliance volume.

On a GAAP basis, income from continuing operations increased $100.0 million. Fair market value adjustments of inventory acquired in the Moore Wallace acquisition resulted in charges of $17.5 million in 2004 and net restructuring, impairment and integration charges declined $8.7 million from 2004. Non-GAAP income from continuing operations for the Integrated Print Communications segment for the year ended December 31, 2005 increased $73.8 million to $291.1 million due to acquisitions, Dynamic Communications Solutions and direct mail volume growth, benefits achieved from restructuring actions, including plant consolidations and other cost reduction initiatives. Non-GAAP operating margins increased to 11.7% in 2005 from 11.6% in 2004.

The following table summarizes net sales, income (loss) from continuing operations and non-GAAP adjustments within the Forms and Labels segment:

Net sales for the Forms and Labels segment increased $214.9 million, or 14.8%, to $1,668.9 million due to the Moore Wallace acquisition. Overall, the forms and labels industry is in secular decline due to electronic substitution, with the pace of the decline difficult to predict. Excluding the impact of the Moore Wallace acquisition, both the U.S. and Canada forms and labels businesses experienced a continuing decline in net sales as this industry continues to be adversely affected by electronic substitution and intense price competition related to excess industry capacity. Net sales in Latin America, including the commercial print and catalog, magazine and book businesses, increased due to higher volume and favorable foreign currency exchange rates.

On a GAAP basis, income from continuing operations decreased $287.2 million from 2004, primarily reflecting the non-cash charge for impairment of goodwill and identifiable intangible assets of $362.3 million in 2005. Other net restructuring and impairment charges decreased $19.0 million. In addition, 2004 results include $49.4 million in charges related to the fair market value adjustment of inventory and backlog due to the Moore Wallace acquisition. Non-GAAP income from continuing operations for the year ended December 31, 2005 was $129.9 million, an increase of $4.4 million from 2004. This increase was due to the Moore Wallace acquisition and significant improvements in the Latin American operating results. Non-GAAP operating margins in Forms and Labels declined to 7.8% from 8.6% in the prior year, reflecting price pressures and volume declines, partially offset by cost savings from restructuring actions.

The following table summarizes operating expenses and non-GAAP adjustments within the Corporate segment:

On a GAAP basis, corporate operating expenses decreased $22.9 million despite an increase in restructuring, impairment and integration charges of $5.0 million. In 2005, $15.7 million of the net restructuring and impairment charges are related to the consolidation and relocation of the global headquarters within Chicago. Corporate non-GAAP operating expenses decreased $27.9 million to $172.1 million for the year ended December 31, 2005. The current year corporate expenses reflect the inclusion of Moore Wallace for a full year compared to the prior year’s corporate expense that only included corporate expense attributable to Moore Wallace after the acquisition date. The decrease in corporate expense reflects the benefits achieved through restructuring actions and cost containment initiatives, partially offset by increased incentive compensation expenses.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 2003

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

Net sales for 2004 increased $2,973.8 million, or 71.1% to $7,156.4 million versus the prior year. The increase was primarily due to the Moore Wallace acquisition ($2,669.6 million) and increased volumes in the Integrated Print Communications and Publishing and Retail Services segments. Net sales increases in the Publishing and Retail Services segment reflected volume increases across all business as well as favorable foreign currency exchange in international operations. Improved volumes in the Integrated Print Communications segment were attributable to the Global Capital Markets business, which benefited from improved capital market transaction levels in the U.S. and international markets.

Income from continuing operations for 2004 increased $166.5 million, or 56.9%, versus the prior year to $459.2 million. The increase was primarily due to the Moore Wallace acquisition and improved operating results in 2004, which more than offset a $66.9 million adjustment for the fair value of inventory and backlog from the Moore Wallace acquisition, $107.4 million of net restructuring and impairment charges ($12.5 million in 2003), higher pension and post retirement expenses and $13.9 million of total integration related charges in 2004.

Cost of sales increased $2,184.0 million to $5,269.6 million for 2004 versus the prior year, primarily due to the Moore Wallace acquisition ($1,957.4 million). Acquisition and integration costs included in cost of sales related to a charge associated with fair value adjustments for inventory and backlog ($66.9 million) and $5.3 million primarily related to equipment transfers and facility reconfigurations. These increases were partially offset by benefits achieved through restructuring and cost reduction initiatives, incremental procurement savings, and higher by-product recoveries of $13.3 million, that are recognized as a reduction of cost of sales.

Selling, general and administrative expenses increased $413.2 million versus the prior year, to $934.7 million for 2004, primarily due to the Moore Wallace acquisition ($437.9 million). Selling, general and administrative expenses as a percentage of consolidated net sales increased to 13.1% in 2004 from 12.5% in 2003. This increase was primarily due to provisions of $27.3 million related to litigation, insurance, termination benefits and sales and use taxes, as well as a $31.3 million increase in certain employee incentive related costs for 2004 versus the prior year. The Company incurred $7.5 million in third party costs in 2004 associated with Sarbanes-Oxley Act compliance for auditor attestation and Company readiness. Also included in 2004 were $8.6 million of integration charges related to the Moore Wallace acquisition. In addition, the Company recognized $34.2 million of pension and postretirement expense in 2004 versus $4.2 million of expense in 2003 due to changes in actuarial benefit assumptions and the inclusion of benefit obligations acquired in the Moore Wallace acquisition.

During 2004, the Company recorded net restructuring and impairment charges of $107.4 million. These charges included $85.1 million for workforce reduction costs (approximately 1,368 positions) primarily related to the elimination of duplicative administrative functions resulting from the Moore Wallace acquisition and the reorganization of certain operating activities, as well as lease exit costs. For 2004, the Company recorded impairment charges of $22.3 million. The impairment charges primarily included $14.0 million for the abandonment of certain Publishing and Retail Services related enterprise software projects and other assets, $2.1 million for the write-down of a Publishing and Retail Services customer contract and $6.2 million related to software and other assets in the Forms and Labels and Integrated Print Communications segments. During 2003, the Company recorded $12.5 million of net restructuring and impairment charges, primarily related to workforce reductions (approximately 279 positions), the relocation of employees and equipment from closed facilities and the curtailment of the Company’s postretirement benefit plan.

Depreciation and amortization increased $115.2 million to $385.5 million for 2004 compared to 2003, which was more than accounted for by the Moore Wallace acquisition. Acquisition related depreciation and amortization included $36.7 million of amortization of purchased intangibles related to customer relationships, patents and covenants not to compete.

Interest expense, net, increased by $34.5 million for 2004 versus 2003, primarily due to the $1.0 billion of debt issued in conjunction with the Moore Wallace acquisition.

Investment and other expense, net, for 2004 was $16.5 million versus $12.9 million for 2003. The change was due to a higher write-down of affordable housing investments ($34.6 million in 2004 versus $23.3 million in 2003) that was partially offset by higher net gains on the disposals of investments in 2004 (which included a $14.3 million gain on sale of certain investments in Latin America). The write-downs of affordable housing investments in 2004 and 2003 reflected declines in the estimated fair market values of the Company’s affordable housing investments.

For 2004, the difference between the effective tax rate and the statutory tax rate primarily relates to the benefit associated with the reversal of tax contingencies upon the expiration of certain state statutory limitations ($30.5 million), the reversal of a non-U.S. valuation allowance ($7.1 million) and affordable housing credits ($8.8 million).

Earnings from continuing operations for 2004 increased by $76.4 million versus the prior year to $264.9 million, or $1.30 per diluted share. For 2003, net earnings from continuing operations were $188.5 million, or $1.65 per diluted share. Net earnings per share in 2004 reflect the impact of the 102.1 million shares issued in conjunction with the Moore Wallace acquisition. Net earnings for 2004 also reflect the incremental results of the Moore Wallace acquisition and improved operating results, which more than offset the unfavorable impact of the fair value adjustment of inventory and backlog and net restructuring and impairment and integration charges.

Net loss from discontinued operations was $80.0 million for 2004 compared to a net loss of $12.0 million in 2003. The net loss for 2004 was primarily due to net restructuring and impairment charges of $109.1 million. During the first quarter of 2004, the Company recorded an impairment charge of $13.9 million for the goodwill,

intangibles and fixed assets of momentum Logistics, Inc. (MLI), as the carrying value of the assets exceeded the future cash flows expected to be generated by the assets. During the second quarter of 2004, the Company recorded an impairment charge of $89.1 million in conjunction with the then pending disposition of its package logistics business, as the fair value was less than the carrying amount of the net assets. Fair value was determined by using management’s best estimate of the amounts for which the net assets could be sold in the marketplace. The results of discontinued operations for 2004 reflected restructuring charges of $0.5 million recorded prior to the decision to dispose of the package logistics business and $4.7 million for the shutdown of MLI. These restructuring charges included workforce reduction (750 employees) and lease exit costs. Also included in the net loss from discontinued operations was a net loss of $10.1 million related to Peak, which included restructuring charges of $0.9 million for workforce reductions (57 employees).

For 2004, the Company recorded a cumulative effect of a change in accounting principle of $6.6 million, net of taxes of $4.3 million, reflecting the adoption of the Financial Accounting Standards Board Interpretation No. 46R, Consolidation of Variable Interest Entities. The charge reflects the difference between the carrying amount of the Company’s investments in certain partnerships related to affordable housing and the underlying carrying values of the partnerships upon consolidating these entities into the Company’s financial statements. Management does not believe that the consolidation of these partnerships will have an ongoing material effect on the Company’s consolidated results of operations or financial position.

The following table summarizes net sales, income from continuing operations and non-GAAP adjustments within the Publishing and Retail Services segment:

Net sales for the Publishing and Retail Services segment for 2004 were $3,821.7 million, an increase of $312.9 million, or 8.9%, compared to 2003, primarily due to the Moore Wallace acquisition ($75.2 million) and volume increases across all businesses in the segment. Net sales in the magazine, catalog and retail business increased in 2004 versus the prior year due to volume increases related to major customers and increased paper prices that were partially offset by industry pricing pressures. Net sales in the directories business for 2004 increased versus the prior year due to volume improvements that more than offset pricing pressures. The net sales for the premedia business benefited from higher volumes from both existing Publishing and Retail Services and third-party customers. Net sales for the logistics business reflected increased print logistics and expedited service volumes due to growth in volume from existing Publishing and Retail Services and third-party customers. The book business benefited from improved sales in the educational book market in the second half of 2004. The international operations in this segment, which benefited from improved volumes and favorable foreign currency exchange, also contributed to the sales increases.

On a GAAP basis, income from continuing operations increased $37.5 million, reflecting net restructuring charges of $30.2 million and impairment charges of $16.1 million in 2004 compared to total restructuring and impairment charges of $2.8 million in 2003. The 2004 restructuring charges primarily related to employee terminations as the Company continued to focus on reducing its operating cost structure. The 2004 impairment

charge primarily included $14.0 million for the abandonment of certain enterprise software projects and other assets and $2.1 million for the write-down of a customer contract. Non-GAAP income from continuing operations for the Publishing and Retail Services segment for 2004 increased $81.4 million, or 19.2%, to $504.6 million compared to 2003 due to the Moore Wallace acquisition ($19.3 million) and improved operating results across all businesses within the Publishing and Retail Services segment generated from improved volumes, productivity, by-product recoveries, cost containment and incremental procurement savings offset by and increased employee related incentive costs.

The following table summarizes net sales, income from continuing operations and non-GAAP adjustments within the Integrated Print Communications segment:

Net sales for the Integrated Print Communications segment increased by $1,339.8 million to $1,880.7 million in 2004 compared to the prior year primarily due to the Moore Wallace acquisition ($1,285.7 million) and increased global capital markets sales resulting from increased volume and increased volume in services to the mutual fund industry.

Because the Integrated Print Communications segment’s results only reflect the acquired operations of Moore Wallace subsequent to the acquisition Date, management believes that the following comments related to the revenue trends affecting the acquired operations in the segment for 2004 versus the results for 2003 are relevant. Short-run commercial print results reflected the continued pressures from price erosion related to excess capacity in the industry. Increased volumes reflected increased cross-selling activities into the commercial print facilities. Growth in the Dynamic Communications Solutions business was attributable to new customer volumes and increased activity across most industry sectors served. These increases more than offset pricing pressure and a slowdown in the mortgage refinancing market. Declines in the direct mail businesses related to facility closures and pricing and volume pressures at existing customers that were partially offset by new customer and new program growth.

On a GAAP basis, income from continuing operations for 2004 included $16.4 million of net restructuring and impairment charges across the financial print and direct mail businesses, $17.5 million of charges for the fair market value adjustment for inventory and backlog, $19.3 million of amortization of purchased intangibles and $3.6 million of integration costs related to the Moore Wallace acquisition. The 2003 income from continuing operations included $5.3 million of restructuring and impairment charges. Non-GAAP income from continuing operations for the Integrated Print Communications segment for 2004 increased $200.6 million to $217.3 million versus 2003, due to the Moore Wallace acquisition ($136.2 million), volume increases and benefits achieved from prior year restructuring actions and other cost reduction efforts.

The following table summarizes net sales, income (loss) from continuing operations and non-GAAP adjustments within the Forms and Labels segment:

Net sales for 2004 increased $1,321.1 million to $1,454.0 million primarily due to the Moore Wallace acquisition ($1,308.6 million). Because the Forms and Labels segment results primarily reflect the acquired operations of Moore Wallace subsequent to the acquisition date, management believes that the following comments in relation to the revenue trends affecting net sales in the Forms and Labels segment for 2004 versus 2003 are relevant. The forms and labels industry is in secular decline, but the pace of this decline remains difficult to predict. The business continued to be adversely affected by volume declines attributable to continuing industry-wide trends of electronic substitution for higher margin multi-part and other long-run forms products and price competition related to excess capacity in the industry.

Income from continuing operations for 2004 of $47.9 million included $49.4 million of charges for the fair market value adjustment for inventory and backlog, $17.4 million of amortization of purchased intangibles and $3.2 million of integration costs related to the Moore Wallace acquisition. In addition, the 2004 operating results included $25.0 million of net restructuring and impairment charges related to the reorganization of the segment subsequent to the Moore Wallace acquisition. In addition to $4.2 million of restructuring and impairment charges, the 2003 results include a provision for doubtful accounts receivable of $6.3 million.

Corporate operating expenses for 2004 increased $109.0 million to $226.4 million versus the same period in 2003. The increase is primarily due to the Moore Wallace acquisition, restructuring charges of $19.7 million primarily for workforce reductions, integration charges of $6.8 million, provisions for litigation, insurance, termination benefits and sales and use taxes of $27.3 million and lower benefit plan earnings. In addition, 2004 included increased employee related incentive costs ($20.1 million) and incremental third party costs associated with Sarbanes-Oxley Act compliance ($7.5 million). These increases were partially offset by benefits achieved through restructuring actions and cost containment initiatives taken during the year.

During 2005, the Company recorded restructuring and impairment charges of $419.8 million, including $362.3 million in non-cash charges for the impairment of goodwill and identifiable intangible assets within the Forms and Labels segment. This impairment charge was the result of the Company’s annual goodwill impairment analysis and relates to the North American Forms and Labels reporting unit within the Forms and Labels segment. As part of its annual impairment analysis for this reporting unit, the Company engaged a third-

party appraisal firm to determine the fair value of the unit, in part based on estimates of future cash flows developed by management. In order to determine the amount of goodwill impairment, the Company also used the outside appraisal firm to value the significant tangible and intangible long-lived assets of the reporting unit. The impairment analysis reflected that the estimated fair value of the North American Forms and Labels reporting unit had declined since the Company previously performed this annual test in 2004. The decline in estimated value of the reporting unit was primarily attributable to changes in estimated future revenues and cash flows for the business. In 2005, the business was impacted by larger-than-expected price and volume declines driven by the ongoing drop in market demand. The Company has incorporated these changes in market trends into its estimates of future revenues and cash flows, resulting in the lower estimated fair value.

Also reflected in 2005 restructuring and impairment charges was $15.7 million primarily related to the relocation of the Company’s global corporate headquarters within Chicago, $15.9 million related to workforce reductions of 500 employees (of whom 395 were terminated as of December 31, 2005) and $18.1 million in other costs incurred to restructure operations within the business segments.

Throughout 2004, management approved and initiated various plans to restructure the operations of the Company predominantly in connection with the Moore Wallace acquisition. These included plans to eliminate certain duplicative functions and vacate redundant facilities in order to reduce the Company’s cost structure. As a result, the Company recorded $85.1 million of net restructuring charges that are included in the 2004 results of operations. Additionally, for 2004, the Company recorded $24.7 million of restructuring costs to exit certain operations and activities of Moore Wallace, which were contemplated at the time of the acquisition and therefore the related restructuring costs were capitalized as a cost of the acquisition.

For 2004, the Company recorded impairment charges of $22.3 million. The impairment charges included $14.0 million for the abandonment of certain Publishing and Retail Services related enterprise software projects and other assets and $2.1 million for the write-down of a Publishing and Retail Services customer contract. Additional impairment charges related to software and other assets in the Forms and Labels ($4.3 million) and Integrated Print Communications ($1.9 million) segments.

During 2003, the Company recorded net restructuring and impairment charges of $12.5 million. The 2003 charges included costs associated with workforce reductions, as well as period costs associated with defined exit activities from previously announced restructuring plans. Included were impairment charges of $3.7 million primarily related to the closure of a directory plant in Chile ($3.2 million).

Acquisition and integration costs of $80.8 million were recorded in 2004. The acquisition and integration costs recorded in cost of sales of $72.2 million related to fair value adjustments for inventory and backlog ($66.9 million) as well as to equipment transfers from vacated facilities, facility reconfiguration due to consolidations, training and travel in the Forms and Labels ($1.6 million), Integrated Print Communications ($3.5 million), and Publishing and Retail Services ($0.2 million) segments. Selling, general and administrative expenses included acquisition and integration costs of $8.6 million for consulting expenses associated with system integration and facility reconfiguration expenses due to office consolidations, in the Forms and Labels ($1.6 million), Integrated Print Communications ($0.1 million), Publishing and Retail Services ($0.2 million) and Corporate ($6.7 million) segments.

In 2006, the Company expects to realize the cost savings associated with the restructuring actions taken in 2005, primarily through reduced employee and facility costs. The Company anticipates that payments associated with employee terminations ($14.6 million) related to its various restructuring programs will be substantially complete by the fourth quarter of 2006. The Company anticipates that payments associated with lease exit costs ($21.2 million) will be substantially complete by 2011. Market conditions and the Company’s ability to sublease these properties could affect the ultimate charge and cash payments related to these lease obligations. The Company expects to identify further cost reduction opportunities which may result in additional restructuring charges.

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

Net cash provided by operating activities of continuing operations was $971.5 million for the year ended December 31, 2005, compared to net cash provided by operating activities of continuing operations of $759.4 million for the same period last year. The increase reflects the impact of acquisitions and improved operating results driven by volume growth and cost reduction actions.

Net cash used in investing activities of continuing operations for the year ended December 31, 2005 was $1,621.9 million versus net cash used in investing activities of continuing operations of $119.5 million for the year ended December 31, 2004. For the year ended December 31, 2005, capital expenditures were $471.0 million versus $265.2 million for the year ended December 31, 2004. The increase was driven primarily by investments to update the Publishing and Retail Services manufacturing platform and support new businesses. The Company continues to fund capital expenditures primarily through cash provided by operations. The Company expects that capital expenditures for 2006 will be between $350 and $370 million. Cash used in acquisitions of businesses, net of cash acquired, includes the acquisitions of Astron, Asia Printers, Charlestown, Poligrafia, Spencer and CMCS in 2005 compared to the net cash acquired in the 2004 all-stock acquisition of Moore Wallace. During the year ended December 31, 2005, the Company received $43.4 million in proceeds from the sale of various assets. During the year ended December 31, 2004, the Company received $37.5 million on the sale of an investment in Latin America, $36.8 million on the sale of miscellaneous assets, and $5.3 million from an eminent domain settlement with the state of Georgia.

Net cash provided by financing activities of continuing operations for the year ended December 31, 2005 was $378.5 million compared to net cash used in financing activities of continuing operations of $191.8 million in 2004. The change primarily related to the issuance of $1.0 billion of debt related to the acquisition of Astron, offset by purchases of Company shares pursuant to the Company’s share repurchase program and the increase in cash dividends paid in the current year on the incremental shares issued in conjunction with the Moore Wallace acquisition. During the year ended December 31, 2005, the Company purchased approximately 8.5 million shares of its common stock at a total cash cost of $270.4 million, of which 6.0 million of these shares were purchased from affiliates of GSC Partners in a privately negotiated transaction at a purchase price of approximately $200.0 million. At the time of the repurchase, two of the Company’s then directors were affiliated with GSC. Both directors recused themselves from deliberations related to the repurchase. The remaining stock purchases during the year were made in the open market.

Net cash used by discontinued operations for 2005 was $4.6 million including the proceeds from the sale of Peak compared to net cash provided by discontinued operations of $115.6 million in 2004, including the sale of the package logistics business.

An additional source of liquidity at year-end was the Company’s short-term investments in the amount of $230.1 million, which primarily consists of certificate and short-term deposits and money market funds. These investments are with institutions of sound credit rating, are highly liquid and are classified as “cash and cash equivalents.”

Cash dividends paid to shareholders totaled $223.4 million, $200.8 million and $115.7 million in 2005, 2004 and 2003, respectively. The Company has consistently paid a dividend since becoming a public company in 1956 and currently has no plans to cease or reduce its dividend payments in 2006. The Company believes it will continue to generate sufficient cash flows from operations to pay future dividends that may be approved by the Company’s board of directors. On January 5, 2006, the board of directors of the Company declared a quarterly cash dividend of $0.26 per common share, payable on March 1, 2006 to shareholders of record on February 10, 2006.

The following table quantifies our future contractual obligations as of December 31, 2005:

Based on interest rates and debt outstanding, including related derivative financial instruments, at December 31, 2005, the Company expects to pay approximately $127.8 million in interest in 2006, which is not reflected above. In addition, the Company expects to make cash contributions of approximately $16 million to its pension plans and approximately $17 million to its postretirement benefit plans in 2006, which are not reflected above.

On February 22, 2006, the Company’s board of directors authorized a share repurchase program of up to 10 million shares of the Company’s common stock.

In May 2005, the Company issued $500.0 million of 4.95% notes due in 2010 and $500.0 million of 5.5% notes due in 2015 (collectively, the “Senior Notes”) at a combined $2.1 million discount to the principal amount. Interest on the Senior Notes is payable semi-annually on May 15 and November 15 of each year, commencing November 15, 2005. The Company has the option to redeem the Senior Notes at any time subject to a make-whole premium that is based upon a spread over the applicable market interest rate at the time of the redemption. The proceeds from the issuance of the Senior Notes were used to acquire Astron and to fund the redemption of Astron debt assumed in connection with the acquisition.

The Company has a $1.0 billion five-year unsecured revolving credit facility (the “Facility”), including letters of credit, that can be used for general corporate purposes and as a backstop for the Company’s commercial paper program. The Facility is subject to a number of restrictive and financial covenants that, in part, limit the

ability of the Company to create liens on assets, engage in mergers and consolidations, or dispose of assets. The financial covenants require a minimum interest coverage ratio. As of December 31, 2005, there were no borrowings under the Facility. The Company pays an annual commitment fee of 0.10% on the total unused portion of the Facility. The Company also has $226.0 million in credit facilities outside of the U.S., most of which are uncommitted. As of December 31, 2005, the Company had $66.0 million in outstanding letters of credit, of which $48.7 million reduced availability under the Company’s credit facilities. At December 31, 2005, approximately $1.1 billion was available under the Company’s credit facilities. Additionally, as of December 31, 2005, there were no borrowings under the Company’s $1.0 billion commercial paper program.

As a result of the Astron acquisition, the Company’s senior debt rating was downgraded to Baa2 from Baa1 by Moody’s Investor Services. While this downgrade may increase future borrowing costs, it is not expected to significantly impact the Company’s access to liquidity. Standard & Poor’s reaffirmed the Company’s senior debt rating at A-, and the Company’s senior debt ratings remain investment grade.

As of December 31, 2005, $500.0 million of debt securities were available for issuance by the Company under a registration statement on Form S-3 filed by the Company with the Securities and Exchange Commission.

In connection with the issuance of the Senior Notes, the Company entered into interest rate lock agreements with a notional amount of $1.0 billion to hedge against fluctuations in interest rates prior to the issuance of the Senior Notes. These agreements were terminated upon issuance of the Senior Notes and the loss of $12.9 million is being recognized in interest expense over the term of the hedged forecasted interest payments.

In the second quarter of 2005, the Company also entered into cross currency swaps with an aggregate notional value of $948.8 million (British pound sterling “GBP” 520.0 million), which exchange GBP for U.S. dollars. These swaps require the Company to pay a fixed interest rate on the GBP notional amount and receive a fixed interest rate on the U.S. dollar notional amount. These swaps expire in 2010 ($455.0 million notional amount) and 2015 ($493.8 million notional amount).

The Company has designated $675.8 million of the swaps as a cash flow hedge of the variability of the forecasted cash receipts from GBP denominated intercompany loans and $273.0 million of the swaps as a hedge of a net investment of GBP denominated foreign operations. At December 31, 2005, the fair market value of these cross-currency swaps of $16.2 million is included in other assets.

The Company uses interest rate swaps to manage its interest rate risk by balancing its exposure to fixed and variable interest rates while attempting to minimize interest costs. As part of its interest rate risk management program, at December 31, 2005, the Company had $200.0 million notional amount interest rate swaps that exchange a fixed rate interest to floating rate LIBOR plus a basis point spread. These floating rate swaps are designated as a fair value hedge against $200.0 million of principal on the Company’s 5.0% debentures due November 2006. At December 31, 2005, the fair market value of these swaps of $1.2 million was included in accrued liabilities on the Consolidated Balance Sheet.

The Company is exposed to interest rate risk on its variable rate debt and price risk on its fixed rate debt. As such, the Company monitors the interest rate environment and uses interest rate swap agreements to manage its interest rate risk and price risk by balancing its exposure to fixed and variable interest rates while attempting to minimize interest costs. As of December 31, 2005, all of the Company’s outstanding term debt is comprised of fixed-rate debt, with the exception of the $200.0 million of fixed-rate debt that was swapped to floating rates. The Company’s exposure to interest rate risk is mitigated by its investment in short-term marketable securities. As of December 31, 2005, the Company has short-term investments of $230.1 million consisting primarily of short-term deposits and money market funds. The interest rates on these investments are generally tied to market rates.

The Company is exposed to the impact of foreign currency fluctuations. The exposure to foreign currency movements is limited because the operating revenues and expenses of its various subsidiaries and business units are substantially in the local currency of the country in which they operate. To the extent borrowings, sales, purchases, revenues, expenses or other transactions are not in the local currency of the operating unit, the Company may enter into foreign currency forward contracts to hedge the currency risk. As of December 31, 2005, the notional amount of the Company’s outstanding forward contract was $6.9 million. Unrealized gains and losses from this foreign currency contract were not significant at December 31, 2005. The Company does not use derivative financial instruments for trading or speculative purposes.

For a discussion of certain environmental, health and safety issues involving the Company, see Note 10, Commitments and Contingencies, to the consolidated financial statements.

For a discussion of certain litigation involving the Company, see Note 10, Commitments and Contingencies, to the consolidated financial statements.

During 2005, 2004 and 2003, the Company adopted various accounting standards as described in Note 22, New Accounting Pronouncements, to the consolidated financial statements, none of which had a material effect on the consolidated financial statements.

Pending standards and their estimated effect on the Company’s consolidated financial statements are described in Note 22, New Accounting Pronouncements, to the consolidated financial statements.

The Company is exposed to interest rate risk on its variable rate debt and price risk on its fixed rate debt. As such, the Company monitors the interest rate environment and uses interest rate swap agreements to manage its interest rate risk and price risk by balancing its exposure to fixed and variable interest rates while attempting to minimize interest costs. As of December 31, 2005, all of the Company’s outstanding term debt was comprised of fixed-rate debt, with the exception of $200.0 million fixed-rate debt that was swapped to floating rates. The Company’s exposure to interest rate risk is mitigated by its investment in short-term marketable securities. As of December 31, 2005, the Company had short-term investments of $230.1 million consisting primarily of short-term deposits and money market funds. The interest rates on these investments are generally tied to market rates.

The Company is exposed to the impact of foreign currency fluctuations in certain countries in which it operates. The exposure to foreign currency movements is limited because the operating revenues and expenses of its various subsidiaries and business units are substantially in the local currency of the country in which they operate. To the extent revenues, expenses and other transactions are not in the local currency of the operating unit, the Company selectively enters into foreign currency forward contracts to hedge the currency risk. As of December 31, 2005 and 2004, the notional amount of the Company’s outstanding forward contracts was $6.9 million and $14.8 million, respectively.

The Company assesses market risk based on changes in interest rates and foreign currency 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 and foreign currency rates. Using this sensitivity analysis, such changes would not have a material effect on interest income/expense, foreign currency gains and losses, and cash flows; and would change the fair values of fixed rate debt at December 31, 2005 and 2004 by approximately $91 million and $58 million, respectively.

The Company is exposed to credit risk on accounts receivable balances. This risk is limited due to the Company’s large, diverse customer base, dispersed over various geographic regions and industrial sectors. No single customer comprised more than 10% of the Company’s consolidated net sales in 2005, 2004 or 2003. The Company maintains provisions for potential credit losses and any such losses to date have been within the Company’s expectations.

The primary raw materials used by the Company are paper and ink. To reduce price risk caused by market fluctuations, the Company has incorporated price adjustment clauses in certain sales contracts. Management believes a hypothetical 10% change in the price of paper and other raw materials would not have a significant effect on the Company’s consolidated annual results of operations or cash flows because these costs are generally passed through to its customers.

The financial information required by Item 8 is contained in Item 15 of Part IV.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 December 31, 2005, 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 December 31, 2005 were effective in ensuring information required to be disclosed in this Annual Report on Form 10-K 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.

There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that occurred during the quarter ended December 31, 2005 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The management of the Company, including the Company’s Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934).

Management of the Company, including the Company’s Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005. Management based this assessment on criteria for effective internal control over financial reporting described in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Management has not evaluated the internal control over financial reporting related to its ownership interest in certain investment partnerships, all of which were in existence prior to December 31, 2003 (see Note 8, Investments in Affordable Housing, to the consolidated financial statements). These investment partnerships have been consolidated in the Company’s financial statements in accordance with Financial Accounting Standards Board Interpretation No. 46, “Consolidation of Variable Interest Entities—An Interpretation of ARB No. 51” and would not have been consolidated in the absence of this guidance. The Company does not have the ability to dictate or modify the controls of these investment partnerships and does not have the ability, in practice, to assess those controls. Therefore, management’s conclusion regarding the effectiveness of its internal controls over financial reporting set forth below does not extend to these investment partnerships. The consolidated financial statements as of and for the year ended December 31, 2005 include assets of $16.9 million pertaining to these investment partnerships, which represent less than one percent of the Company’s consolidated total assets.

Based on this assessment, management determined that, as of December 31, 2005, the Company maintained effective internal control over financial reporting, except that management’s conclusion does not extend to the investment partnerships described in Note 8, Investments in Affordable Housing, to the consolidated financial statements.

Deloitte & Touche LLP, an independent registered public accounting firm, who audited the consolidated financial statements of the Company included in this Annual Report on Form 10-K, has also issued a report on management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005 as stated in its report appearing below.

We have audited management’s assessment, included in the accompanying “Item 9A. Controls and Procedures,” that R.R. Donnelley & Sons Company and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in “Item 9A. Controls and Procedures,” management excluded from their assessment the internal control over financial reporting related to the Company’s ownership interest in certain investment partnerships, all of which were in existence prior to December 31, 2003, which were consolidated in the Company’s financial statements in accordance with Financial Accounting Standards Board Interpretation No. 46R, “Consolidation of Variable Interest Entities—An Interpretation of ARB No. 51” and would not have been consolidated in absence of this guidance, as the Company does not have the ability to dictate or modify the controls of these investment partnerships, and does not have the ability, in practice, to assess those controls. The consolidated financial statements as of and for the year ended December 31, 2005 include assets of $16.9 million pertaining to these investment partnerships, which represent less than one percent of the Company’s consolidated total assets. Accordingly, our audit did not include the internal control over financial reporting at these investment partnerships. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2005 of the Company and our report dated March 1, 2006 expressed an unqualified opinion on those financial statements (which report includes an explanatory paragraph concerning the Company’s acquisition on February 27, 2004 of all the outstanding shares of Moore Wallace Incorporated).

Information regarding directors and executive officers of the Company is incorporated herein by reference to the descriptions under “Proposal 1: Election of Directors,” “About the Current Directors,” “The Board’s Committees and their Functions” and “Section 16(a) Beneficial Ownership Reporting Compliance” of our Proxy Statement for the Annual Meeting of Shareholders scheduled to be held May 25, 2006 (the “2006 Proxy Statement”). See also the information with respect to our executive officers at the end of Part I of this Report under the caption “Executive Officers of R.R. Donnelley & Sons Company.”

The Company has adopted a policy statement entitled Code of Ethics that applies to our chief executive officer and our senior financial officers. In the event that an amendment to, or a waiver from, a provision of the Code of Ethics is necessary, the Company intends to post such information on its web site, www.rrdonnelley.com. A copy of our Code of Ethics has been filed as Exhibit 14 to our Report on Form 10-K for the fiscal year ended December 31, 2003.

Information regarding executive compensation is incorporated by reference to the material under the captions “Director Compensation,” “Executive Compensation,” “Retirement Benefits,” and “Executive Agreements” of the 2006 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information regarding security ownership of certain beneficial owners and management is incorporated herein by reference to the material under the heading “Stock Ownership” of the 2006 Proxy Statement.

Information as of December 31, 2005 concerning compensation plans under which RR Donnelley’s equity securities are authorized for issuance is as follows:

Upon acquiring Moore Wallace, the Company assumed the Moore Wallace 2003 Long-Term Incentive Plan (2003 LTIP) pursuant to which subsequent awards can be made. The shareholders of Moore Wallace previously had approved the 2003 LTIP. Under the 2003 LTIP, all employees of Moore Wallace and its subsidiaries who have demonstrated significant management potential or who have the capacity for contributing in a substantial measure to the successful performance of Moore Wallace are eligible to participate in the plan. Awards under the 2003 LTIP may consist of restricted stock or restricted stock units, and also pursuant to the plan, a one time grant of 85,000 options to purchase common shares of Moore Wallace was issued to a particular employee. The 2003 LTIP is administered by the board of directors of the Company which may delegate any or all of its responsibilities to the human resources committee of the board of directors.

There are 6,300,000 shares of common stock of the Company reserved and authorized for issuance under the 2003 LTIP (as adjusted to reflect the conversion ratio used in the acquisition of Moore Wallace). As of December 31, 2005, there were 965,562 restricted stock units outstanding and 5,031,268 shares available for future issuance under the 2003 LTIP. The time period during which these shares will be available for issuance will not be extended beyond the period when they would have been available under the plan absent the acquisition of Moore Wallace. The restricted stock units generally vest equally over a period of four years and are forfeited 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”). No awards will be granted under the 2003 LTIP to any legacy RR Donnelley or RR Donnelley subsidiary employees.

In 2000, the board of directors approved the adoption of the 2000 Broad-Based Stock Incentive Plan (2000 Broad-Based Plan) to provide incentives to key employees of the Company and its subsidiaries. Awards under the 2000 Broad-Based Plan were generally not restricted to any specific form or structure and could include, without limitation, stock options, stock units, restricted stock awards, cash or stock bonuses and stock appreciation rights. The 2000 Broad-Based Plan is administered by the human resources committee of the board of directors, which may delegate its responsibilities to the chief executive officer or another executive officer. The 2000 Broad-Based Plan was terminated in February 2004 and no new awards may be made under the plan.

Originally, 2,000,000 shares of RR Donnelley common stock were reserved and authorized for issuance under the 2000 Broad-Based Plan. An additional 3,000,000 shares (for an aggregate of 5,000,000 shares) were

subsequently reserved and authorized for issuance under the 2000 Broad-Based Plan. As of December 31, 2005, options to purchase 1,814,456 shares of common stock were outstanding under the 2000 Broad-Based Plan. These options have a purchase price equal to the fair market value of a share of common stock at the time of the grant. All of the outstanding options generally vest over a period of three years, are not exercisable unless vested (subject in some cases to early vesting and exercisability upon specified events, including the death or permanent disability of the optionee, termination of the optionee’s employment under specified circumstances or a “change in control”) and generally expire 10 years after the date of grant. No awards other than options were made under the 2000 Broad-Based Plan.

In 1994, the board of directors approved the adoption of the Donnelley Shares Stock Option Plan (Donnelley Shares Plan). All employees (other than officers) were eligible to receive options under the plan. The Donnelley Shares Plan was administered by the human resources committee of the board of directors, which had full authority to grant options under the plan and to determine the terms and conditions of all options granted under the plan. The Company last granted options under the Donnelley Shares Plan in 1996, and the plan expired in 1999.

There were 6,000,000 shares of common stock reserved and authorized for issuance under the Donnelley Shares Plan. As of December 31, 2005, options to purchase 684,525 shares of common stock were outstanding under the Donnelley Shares Plan. The purchase price for options granted under the Donnelley Shares Plan was the fair market value of a share of RR Donnelley common stock at the time of the grant. All of the outstanding options generally vested over a period of three years, were not exercisable unless vested (subject in some cases to early vesting and exercisability in certain events, including the death or permanent disability of the optionee, termination of the optionee’s employment under certain circumstances or a “change in control”) and generally expire 10 years after the date of grant.

Information regarding certain relationships and related transactions is incorporated herein by reference to the material under the heading “Certain Transactions” of the 2006 Proxy Statement.

Information regarding principal accounting fees and services is incorporated herein by reference to the material under the heading “The Company’s Independent Registered Public Accounting Firm” of the 2006 Proxy Statement.

The financial statements listed in the accompanying index (page F-1) to the financial statements are filed as part of this Annual Report on Form 10-K.

The financial statement schedule listed in the accompanying index (page F-1) to the financial statements is filed as part of this Annual Report on Form 10-K.

The exhibits listed on the accompanying index to exhibits (pages E-1 through E-3) are filed as part of this Annual Report on Form 10-K.

The exhibits listed on the accompanying index (pages E-1 through E-3) are filed as part of this Annual Report on Form 10-K.

Certain schedules have been omitted because the required information is included in the consolidated financial statements and notes thereto or because they are not applicable or not required.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 2nd day of March 2006.


R.R. DONNELLEY & SONS COMPANY

By:		/s/ GLENN R. RICHTER Glenn R. Richter Executive Vice President and Chief Financial Officer *(Principal Financial Officer)*

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on the 2nd day of March 2006.


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

111 South Wacker Drive, Chicago, Illinois		60606
(Address of principal executive offices)		(ZIP Code)


	Form 10-K Item No.	Name of Item	Page
Part I
	Item 1.	Business	3
	Item 1A.	Risk Factors	9
	Item 1B.	Unresolved Staff Comments	12
	Item 2.	Properties	12
	Item 3.	Legal Proceedings	12
	Item 4.	Submission of Matters to a Vote of Security Holders	12
		Executive Officers of R.R. Donnelley & Sons Company	13

Part II

	Item 5.	Market for R.R. Donnelley & Sons Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	15
	Item 6.	Selected Financial Data	16
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	40
	Item 8.	Financial Statements and Supplementary Data	41
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	41
	Item 9A.	Controls and Procedures	41
	Item 9B.	Other Information	43

Part III

	Item 10.	Directors and Executive Officers of R.R. Donnelley & Sons Company	44
	Item 11.	Executive Compensation	44
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	44
	Item 13.	Certain Relationships and Related Transactions	46
	Item 14.	Principal Accounting Fees and Services	46

Part IV

	Item 15.	Exhibits, Financial Statement Schedules	47
		Signatures	48


Name, Age and Positions with the Company	Officer Since	Business Experience During Past Five Years
Mark A. Angelson 55, Director and Chief Executive Officer	2004	Served as RR Donnelley’s Chief Executive Officer and Director since February 2004. Prior to this, served in various capacities at Moore Wallace Incorporated* that included: Chief Executive Officer since January 2003; Director since November 2001; Lead Independent Director from April 2002 until December 2002 and Non-Executive Chairman of the Board from November 2001 until April 2002. From December 1999 through January 2002, served as the Deputy Chairman of Chancery Lane Capital LLC (a private equity investment firm), and from March 1996 until March 2001 served in various executive capacities at Big Flower Holdings, Inc. (a printing, marketing and advertising services company) and its successor, Vertis Holdings, Inc., including as Deputy Chairman.

Suzanne S. Bettman 41, Senior Vice President, General Counsel	2004	Served as RR Donnelley’s Senior Vice President, General Counsel since March 2004. Prior to this, served as Group Managing Director, General Counsel of Huron Consulting Group LLC (a financial and operational consulting firm) from September 2002 to February 2004. Served previously as Executive Vice President, General Counsel of True North Communications Inc. (a global advertising and marketing communications holding company) from 1999 through 2001.

Dean E. Cherry 45, Group President, Integrated Print Communications and Global Solutions	2004	Served as RR Donnelley’s Group President, Integrated Print Communications since February 2004. Prior to this, served in various capacities at Moore Wallace Incorporated* that included: Group President, Commercial, Direct Mail, BCS and Print Fulfillment Services from 2001 until 2004; President, Commercial and Subsidiary Operations in 2001 and President, International and Subsidiary Operations in 2001. Previously held executive positions at World Color Press, Inc. (a commercial printer) and Capital Cities/ABC Publishing Division.

Michael J. Graham 45, Senior Vice President, Controller	2005	Served as RR Donnelley’s Senior Vice President, Controller since May 2005. Prior to this, served as Vice President, Controller of Sears, Roebuck and Co. (a multi-line retailer) from 2003 to 2005, and was Chief Financial Officer and Executive Vice President-Corporate Development of Aegis Communications Group, Inc. (provider of outsourced customer care services) from 2000 to 2003.

Michael S. Kraus 33, Executive Vice President, Mergers, Acquisitions & Corporate Transactions	2004	Served as RR Donnelley’s Executive Vice President, Mergers, Acquisitions & Corporate Transactions since February 2004. Prior to this, served as Senior Vice President-Mergers and Acquisitions of Moore Wallace Incorporated* since January 2003. From 1999 until 2002,


Name, Age and Positions with the Company	Officer Since	Business Experience During Past Five Years
		served as a managing director of Chancery Lane Capital LLC (a private equity investment firm) and from 1995 until 1999, served in various capacities at Big Flower Holdings, Inc. and its successor, Vertis Holdings, Inc. including as a managing director responsible for corporate acquisitions, investments, divestitures and mergers, including planning and analysis, execution and related financings.

John R. Paloian 47, Group President, Publishing and Retail Services	2004	Served as RR Donnelley’s Group President, Publishing and Retail Services since March 2004. Prior to this, from 1997 until 2003, he served in various capacities, including Co-Chief Operating Officer, at Quebecor World, Inc. (a commercial printer) and its predecessors.

Thomas J. Quinlan, III 43, Executive Vice President, Operations	2004	Served as RR Donnelley’s Executive Vice President, Operations since February 2004. Prior to this, served in various capacities at Moore Wallace Incorporated* that included: Executive Vice President—Business Integration since May 2003; Executive Vice President—Office of the Chief Executive from January 2003 until May 2003; and Executive Vice President and Treasurer from December 2000 until December 2002. Served in 2000 as Executive Vice President and Treasurer of Walter Industries, Inc. (a homebuilding industrial conglomerate) and held various positions from 1994 until 1999, including Vice President and Treasurer, at World Color Press, Inc.

Glenn R. Richter 44, Executive Vice President, Chief Financial Officer	2005	Served as RR Donnelley’s Executive Vice President, Chief Financial Officer since April 2005. Prior to this, from 2000 to April 2005, served in various capacities at Sears, Roebuck and Co. (a multi-line retailer), including as Executive Vice President and Chief Financial Officer, Senior Vice President, Finance and Vice President and Controller. Prior to joining Sears, served as Senior Vice President and Chief Financial Officer of Dade Behring International (a manufacturer of medical testing systems) from 1998 to 2000.

Theodore J. Theophilos 52, Group President, Corporate Strategic Initiatives	2004	Served as RR Donnelley’s Group President, Corporate Strategic Initiatives since April, 2005. Prior to this, served as RR Donnelley’s Chief Administrative Officer and Secretary since February 2004. Previously, served as Executive Vice President—Business and Legal Affairs at Moore Wallace Incorporated since March 2003. Previously held positions include Senior Vice President and General Counsel of Palm Inc. (a provider of handheld computing devices and operating systems for handheld devices) from 2002 to 2003 and Chief Legal Affairs Officer from 1999 until 2001 at E*TRADE Group (a financial services holding company).


	Dividends Paid				Common Stock Prices
	Dividends Paid				2005				2004
	2005		2004		High		Low		High		Low
First Quarter	$	0.26	$	0.26	$	35.25	$	29.54	$	32.50	$	27.62
Second Quarter		0.26		0.26		34.63		31.08		33.27		28.37
Third Quarter		0.26		0.26		38.27		34.54		33.14		29.33
Fourth Quarter		0.26		0.26		37.47		32.28		35.37		30.55


Large accelerated filer þ		Accelerated filer ¨		Non-accelerated filer ¨


Period	(a) Total Number of Shares Purchased		(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
October 1, 2005 – October 31, 2005	9,334	(1)	$	36.10	—	$	31,250,000
November 1, 2005 – November 30, 2005	—			—	—	$	31,250,000
December 1, 2005 – December 31, 2005	—			—	—	$	31,250,000

Total	9,334	(1)	$	36.10	—	$	31,250,000


	2005		2004		2003			2002		2001
Net sales(1)	$	8,430.2	7,156.4		$	4,182.6		$	4,247.2	$	4,828.8
Net earnings from continuing operations(1)*		95.6	264.9			188.5			136.8		27.8
Net earnings from continuing operations per diluted share(1)*		0.44	1.30			1.65			1.19		0.23
Income (loss) from discontinued operations, net of tax		41.5	(80.0	)		(12.0	)		5.4		(2.8	)
Net earnings*		137.1	178.3			176.5			142.2		25.0
Net earnings per diluted share*		0.63	0.88			1.54			1.24		0.21
Total assets		9,373.7	8,553.7			3,203.3			3,203.6		3,431.4
Long-term debt		2,365.4	1,581.2			750.4			752.9		881.3
Cash dividends per common share		1.04	1.04			1.02			0.98		0.94


Strategic Objective	Focus Areas	Key Performance Indicators
Profitable growth	- Targeted capital investments - Accelerate cross-selling - Focus on higher growth sectors	- Net sales growth - Operating margins (including on a non-GAAP basis) - Cash flow provided by operating activities

Productivity	- Disciplined cost management - Productivity-focused investment plans - Integration of acquisitions - Streamline / standardize processes

Targeted mergers and acquisitions	- Extend capabilities and service offerings - Leverage strong balance sheet - Disciplined due diligence and financial analysis


Postretirement benefit obligation	$	22.7
Total postretirement benefit service and interest cost components		2.7


Postretirement benefit obligation	$	(20.8	)
Total postretirement benefit service and interest cost components net		(2.5	)


	Twelve months ended December 31, 2005										Twelve months ended December 31, 2004
	Income from continuing operations		Operating margin		Net earnings			Net earnings per diluted share			Income from continuing operations		Operating margin		Net earnings			Net earnings per diluted share
GAAP basis measures	$	450.4	5.3	%	$	137.1		$	0.63		$	459.2	6.4	%	$	178.3		$	0.88
Non-GAAP adjustments:
Restructuring and impairment charges, net (1)		419.8	5.0	%		395.6			1.83			107.4	1.5	%		63.7			0.31
Integration charges (2)		8.3	0.1	%		5.2			0.02			80.8	1.1	%		47.9			0.23
Gain on sale of investments (3)																(13.9	)		(0.07	)
Non-cash write-down of affordable housing investments (4)																8.5			0.04
Income tax adjustments (5)																(34.1	)		(0.16	)
Net (income) loss from discontinued operations (6)						(41.5	)		(0.19	)						80.0			0.39
Cumulative effect of change in accounting principle (7)																6.6			0.03

Total non-GAAP adjustments		428.1	5.1	%		359.3			1.66			188.2	2.6	%		158.7			0.77

Non-GAAP measures	$	878.5	10.4	%		496.4		$	2.29		$	647.4	9.0	%		337.0		$	1.65


	Net Sales (1)				Income (Loss) from Continuing Operations (1)
	Years Ended December 31,				Years Ended December 31,
	2005		2004		2005			2004
	(in millions)
Publishing and Retail Services	$	4,269.8	$	3,821.7	$	613.4		$	457.9
Integrated Print Communications		2,491.5		1,880.7		279.8			179.8
Forms and Labels		1,668.9		1,454.0		(239.3	)		47.9

Total operating segments		8,430.2		7,156.4		653.9			685.6
Corporate		—		—		(203.5	)		(226.4	)

Total continuing operations	$	8,430.2	$	7,156.4	$	450.4		$	459.2


	Year Ended December 31,
	2005			2004
	(in millions)
Net sales	$	4,269.8		$	3,821.7
Income from continuing operations		613.4			457.9
Operating Margin		14.4	%		12.0	%
Non-GAAP adjustments:
Restructuring and impairment charges—net		15.8			46.3
Integration charges		0.4			0.4

Non-GAAP income from continuing operations	$	629.6		$	504.6

Non-GAAP operating margin		14.7	%		13.2	%


	Years Ended December 31,
	2005			2004
	(in millions)
Net sales	$	2,491.5		$	1,880.7
Income from continuing operations		279.8			179.8
Operating margin		11.2	%		9.6	%
Non-GAAP adjustments:
Restructuring and impairment charges—net		10.8			16.4
Fair market value adjustment for inventory and backlog related to acquisitions		—			17.5
Integration charges		0.5			3.6

Non-GAAP income from continuing operations	$	291.1		$	217.3

Non-GAAP operating margin		11.7	%		11.6	%


	Net Sales				Income (Loss) from Continuing Operations
	Years Ended December 31,				Years Ended December 31,
	2004		2003		2004			2003
	(in millions)
Publishing and Retail Services	$	3,821.7	$	3,508.8	$	457.9		$	420.4
Integrated Print Communications		1,880.7		540.9		179.8			11.4
Forms and Labels		1,454.0		132.9		47.9			(21.7	)

Total operating segments		7,156.4		4,182.6		685.6			410.1
Corporate		—		—		(226.4	)		(117.4	)

Total continuing operations	$	7,156.4	$	4,182.6	$	459.2		$	292.7


	Payments Due In
	Total		2006		2007		2008		2009		2010		Thereafter
	(in millions)
Total debt	$	2,641.0	$	270.4	$	7.2	$	5.2	$	403.8	$	502.8	$	1,451.6
Operating leases		555.3		121.5		97.4		70.7		55.6		39.0		171.1
Other (1)		245.6		145.9		33.4		32.6		31.8		1.9		—

Total	$	3,441.9	$	537.8	$	138.0	$	108.5	$	491.2	$	543.7	$	1,622.7


Plan Category(1)	Number of Securities to Be Issued upon Exercise of Outstanding Options, Warrants and Rights	Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights(4)		Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
(in thousands)	(a)	(b)		(c)
Equity compensation plans approved by security holders(2)	9,057.0	$	31.15	2,550.5	(5)
Equity compensation plans not approved by security holders(3)	3,464.5		27.36	5,031.3

Total	12,521.5		30.11	7,581.8


Signature and Title		Signature and Title

/s/ MARK A. ANGELSON Mark A. Angelson Chief Executive Officer, Director *(Principal Executive Officer)*		/s/ JOHN C. POPE * John C. Pope Director

/s/ GLENN R. RICHTER Glenn R. Richter Executive Vice President and Chief Financial Officer *(Principal Financial Officer)*		/s/ MICHAEL T. RIORDAN * Michael T. Riordan Director

/s/ MICHAEL J. GRAHAM Michael J. Graham Senior Vice President and Controller *(Principal Accounting Officer)*		/s/ LIONEL H. SCHIPPER * Lionel H. Schipper Director

/s/ JUDITH H. HAMILTON * Judith H. Hamilton Director		/s/ OLIVER R. SOCKWELL * Oliver R. Sockwell Director

/s/ THOMAS S. JOHNSON * Thomas S. Johnson Director		/s/ BIDE L. THOMAS * Bide L. Thomas Director

		/s/ NORMAN H. WESLEY * Norman H. Wesley Director

		/s/ STEPHEN M. WOLF * Stephen M. Wolf Chairman of the Board, Director


		Page
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2005		F-2

Consolidated Balance Sheets as of December 31, 2005 and 2004		F-3

Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2005		F-4

Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended December 31, 2005		F-5

Notes to Consolidated Financial Statements		F-6

Report of Independent Registered Public Accounting Firm		F-39

Unaudited Interim Financial Information, Dividend Summary and Financial Summary		F-40

Report of Independent Registered Public Accounting Firm on Financial Statement Schedule		F-42

Consolidated Financial Statement Schedule II—Valuation and Qualifying Accounts		F-43