<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
-----------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-4694
R. R. DONNELLEY & SONS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-1004130
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
77 WEST WACKER DRIVE, CHICAGO,
ILLINOIS 60601
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER (312) 326-8000
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.
X
Yes------- No -------
NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING
AS OF SEPTEMBER 30, 1997 145,867,433
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<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
INDEX NUMBER(S)
----- ---------
<S> <C>
Condensed Consolidated Statements of Income (Unaudited) for the
three and nine month periods ended September 30, 1997 and
1996.......................................................... 3
Condensed Consolidated Balance Sheets as of September 30, 1997
(Unaudited) and December 31, 1996............................. 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for
the nine months ended September 30, 1997 and 1996............. 5
Notes to Condensed Consolidated Financial Statements
(Unaudited)................................................... 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comparison of Third Quarter and First Nine Months 1997 to 1996. 8-11
Changes in Financial Condition................................. 12
Other Information.............................................. 12-13
Outlook........................................................ 14
</TABLE>
PART II
OTHER INFORMATION
<TABLE>
<S> <C>
ITEM 1. LEGAL PROCEEDINGS................................................... 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................... 15
</TABLE>
2
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
----------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales............... $ 1,557,349 $ 1,592,790 $ 4,537,584 $ 4,697,316
Cost of sales........... 1,257,461 1,309,608 3,754,436 3,883,249
------------ ------------ ------------ ------------
Gross profit............ 299,888 283,182 783,148 814,067
Selling and
administrative
expenses............... 174,426 157,419 528,151 520,692
Restructuring charges... -- -- -- 560,632
------------ ------------ ------------ ------------
Earnings (loss) from
operations............. 125,462 125,763 254,997 (267,257)
Other income (expense):
Interest expense....... (22,079) (21,818) (67,262) (71,614)
Gain on Metromail stock
offering............... -- -- -- 44,158
Other income
(expense)--net......... 8,490 1,198 28,039 30,757
------------ ------------ ------------ ------------
Earnings (loss) before
income taxes........... 111,873 105,143 215,774 (263,956)
Provision (benefit) for
income taxes........... 39,715 37,275 76,600 (9,182)
------------ ------------ ------------ ------------
Net income (loss)....... $ 72,158 $ 67,868 $ 139,174 $ (254,774)
============ ============ ============ ============
Per common share:
Net income (loss)..... $ 0.49 $ 0.45 $ 0.95 $ (1.66)
============ ============ ============ ============
Cash dividends........ $ 0.20 $ 0.19 $ 0.58 $ 0.55
============ ============ ============ ============
Average shares
outstanding............ 146,192,000 152,444,000 146,086,000 153,416,000
============ ============ ============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
------------
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(THOUSANDS OF DOLLARS)
<TABLE>
<S> <C> <C>
ASSETS
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash and equivalents................................. $ 66,462 $ 31,142
Receivables, less allowance for doubtful accounts of
$42,119 and $24,735 at September 30, 1997 and
December 31, 1996, respectively..................... 1,145,852 1,324,252
Inventories.......................................... 299,571 288,506
Prepaid expenses..................................... 117,653 108,957
----------- -----------
Total current assets............................... 1,629,538 1,752,857
----------- -----------
Property, plant and equipment, at cost............... 4,452,690 4,289,101
Accumulated depreciation............................. (2,485,486) (2,344,374)
----------- -----------
Net property, plant and equipment.................. 1,967,204 1,944,727
Goodwill and other intangibles--net.................. 498,361 541,319
Other noncurrent assets.............................. 662,526 610,101
----------- -----------
Total assets....................................... $ 4,757,629 $ 4,849,004
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable..................................... $ 459,551 $ 487,914
Accrued compensation................................. 187,644 131,644
Short-term debt...................................... 33,296 33,296
Current and deferred income taxes.................... 81,884 56,163
Other accrued liabilities............................ 342,729 438,530
----------- -----------
Total current liabilities.......................... 1,105,104 1,147,547
----------- -----------
Long-term debt....................................... 1,330,919 1,430,671
Deferred income taxes................................ 251,908 253,850
Other noncurrent liabilities......................... 411,013 385,655
Shareholders' equity:
Common stock, at stated value ($1.25 par value).... 320,962 320,962
Retained earnings, net of cumulative translation
adjustments of $36,550 and $26,580 at September
30, 1997 and December 31, 1996, respectively...... 1,523,941 1,486,215
Unearned compensation.............................. (10,780) (5,402)
Reacquired common stock, at cost................... (175,438) (170,494)
----------- -----------
Total shareholders' equity..................... 1,658,685 1,631,281
----------- -----------
Total liabilities and shareholders' equity..... $ 4,757,629 $ 4,849,004
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash flows provided by (used for) operating activities:
Net income (loss)...................................... $ 139,174 $(254,774)
Restructuring charge, net of tax and minority interest. -- 435,380
Depreciation........................................... 258,200 256,995
Amortization........................................... 34,125 43,112
Gain on Metromail stock offering....................... -- (44,158)
Gains on sales of assets............................... (16,028) (16,310)
Net change in operating working capital................ 117,481 118,882
Net change in other assets and liabilities............. 20,132 (19,230)
Other.................................................. (5,205) 2,488
--------- ---------
Net cash provided by operating activities................ 547,879 522,385
--------- ---------
Cash flows provided by (used for) investing activities:
Capital expenditures................................... (321,746) (321,675)
Proceeds from receivables from Metromail............... -- 248,510
Other investments including acquisitions, net of cash
acquired.............................................. (47,826) (22,278)
Dispositions of assets................................. 59,306 18,068
--------- ---------
Net cash used for investing activities................... (310,266) (77,375)
--------- ---------
Cash flows provided by (used for) financing activities:
Net decrease in borrowings............................. (99,751) (246,603)
Disposition of reacquired common stock................. 36,275 32,420
Acquisition of common stock............................ (52,205) (157,887)
Cash dividends on common stock......................... (85,871) (84,597)
--------- ---------
Net cash used for financing activities................... (201,552) (456,667)
--------- ---------
Effect of exchange rate changes on cash and equivalents.. (741) 102
--------- ---------
Net increase (decrease) in cash and equivalents.......... 35,320 (11,555)
--------- ---------
Cash and equivalents at beginning of period.............. 31,142 33,122
--------- ---------
Cash and equivalents at end of period.................... $ 66,462 $ 21,567
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. The condensed consolidated financial statements included herein are
unaudited (although the balance sheet at December 31, 1996 is condensed from
the audited balance sheet at that date) and have been prepared by the company
to conform with the requirements applicable to this quarterly report on Form
10-Q. Certain information and disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting
principles, have been omitted as permitted by such requirements. However, the
company believes that the disclosures made are adequate to make the information
presented not misleading. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
the related notes included in the company's 1996 annual report on Form 10-K.
The condensed consolidated financial statements included herein reflect, in
the opinion of the company, all adjustments (which include only normal,
recurring adjustments) necessary to present fairly the financial information
for such periods. Certain immaterial prior year amounts have been reclassified
to maintain comparability with current year classifications.
Note 2. Components of the company's inventories at September 30, 1997 and
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF
DOLLARS)
------------------
1997 1996
-------- --------
<S> <C> <C>
Raw materials and manufacturing supplies.................... $150,934 $154,734
Work in process............................................. 228,740 183,248
Finished goods.............................................. 26,439 34,325
Progress billings........................................... (61,716) (40,475)
LIFO reserve................................................ (44,826) (43,326)
-------- --------
Total inventories....................................... $299,571 $288,506
======== ========
Note 3. The following provides supplemental cash flow information:
<CAPTION>
(THOUSANDS OF
DOLLARS)
------------------
NINE MONTHS ENDED
SEPTEMBER 30
------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flow data:
Interest paid, net of capitalized interest................. $ 51,000 $ 54,927
Income taxes paid.......................................... $ 46,233 $ 56,845
</TABLE>
Note 4. In the first half of 1996, the company provided for the restructuring
and realignment of its gravure printing operations in North America, the
repositioning of other businesses, the write-down of certain equipment, and the
impairment of intangible assets and investments in non-core businesses. These
actions resulted in pre-tax charges of $561 million ($435 million after taxes
and a minority interest benefit). Approximately $195 million of the charges
related to the gravure platform realignment and approximately $233 million
related to other manufacturing restructuring. Pre-tax cash outlays associated
with the restructuring and realignment charges are expected to total
approximately $177 million through 1998, of which $87 million was incurred
prior to September 30, 1997. In addition, the company recognized the impairment
of approximately $133 million in equipment, intangibles and investments in non-
core businesses. The impairment loss was calculated based on the excess of the
carrying amount of the assets over the assets' fair values. The fair value of
an asset is generally determined as the discounted estimates of future cash
flows generated by the asset.
6
<PAGE>
The following table presents the components of the company's restructuring
reserves along with charges against these reserves from their establishment
until September 30, 1997 (in thousands of dollars):
<TABLE>
<CAPTION>
WRITEDOWN OF
PROPERTY AND
ORIGINAL INVESTMENTS RESTRUCTURING
RESTRUCTURING TO FAIR CASH RESERVES AS OF
RESERVES VALUE PAYMENTS SEPTEMBER 30, 1997
------------- ------------ -------- ------------------
<S> <C> <C> <C> <C>
Restructuring loss on
writedown of property,
plant and equipment,
and
other assets........... $250,731 $(250,731) $ -- $ --
Restructuring
expenditures to
reposition
operations and close
facilities............. 176,960 -- (86,500) 90,460
Impairment loss on
intangible assets and
investments............ 132,941 (132,941) -- --
-------- --------- -------- -------
Total restructuring
reserves........... $560,632 $(383,672) $(86,500) $90,460
======== ========= ======== =======
</TABLE>
Note 5. On November 25, 1996, a purported class action was brought against
the company in federal district court in Chicago, Ill., on behalf of all
current and former African-American employees, alleging that the company
racially discriminated against them. The complaint seeks declaratory and
injunctive relief, and asks for actual, compensatory, consequential and
punitive damages in an amount not less than $500 million. Most of the specific
factual assertions of the original complaint were related to the closing by
the company of its Chicago, Ill., catalog production operations begun in 1993.
The complaint was amended on February 7, 1997, to reflect more general claims
applicable to other company locations. Plaintiffs have filed a motion seeking
nationwide class certification. The company has filed a motion for partial
summary judgment as to all claims relating to its Chicago catalog operations
on the grounds that those claims are untimely.
On December 18, 1995, a purported class action was filed against the company
in federal district court in Chicago, Ill., alleging that older workers were
discriminated against in selection for termination upon the closing of the
Chicago catalog operations. The suit also alleges that the company violated
the Employee Retirement Income Security Act (ERISA) in determining benefits
payable to retiring or terminated employees. On October 8, 1996, plaintiffs
filed a motion to maintain the ERISA claims as a class action on behalf of all
company retirement plan participants who were eligible for early retirement
benefits at the time of their termination. On August 14, 1997, the court
denied plaintiffs' motion and ruled that the proper ERISA class is limited to
the former Chicago employees. On September 4, 1997, plaintiffs filed a motion
to reconsider the court's ruling.
Both cases relate at least in part to the circumstances surrounding the
closure of the Chicago catalog operations. The company believes that it acted
properly in the closing of the operations, has a number of valid defenses to
all of the claims made and is vigorously defending its actions. However,
management is unable to make a meaningful estimate of any loss which could
result from an unfavorable outcome of either case.
7
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
COMPARISON OF THIRD QUARTER AND FIRST NINE MONTHS 1997 TO 1996
ABOUT THE COMPANY
R.R. Donnelley & Sons Company is a world leader in distributing, managing
and reproducing print and digital information for the publishing, retailing,
merchandising and information-technology markets worldwide. The company is the
largest commercial printer in North America, with approximately 38,000
employees in 26 countries on five continents.
On October 21, 1997, the company announced a reorganization of its business
structure. The new structure merges the previous sectors--Commercial Print
Sector, Information Management Sector and Global Commercial Print Sector--into
one central organization.
The company is now organized into five business units: Merchandise Media
(servicing catalog, retail advertising and direct mail markets), Magazine
Publishing Services, Book Publishing Services, Telecommunications (servicing
domestic and international telephone directory markets) and Financial
Services.
The company's operations in Europe and Latin America will continue to be
managed on a geographic basis.
In addition, the company owns approximately 80% of Stream International
Holdings, Inc. (SIH), which includes Modus Media International (software
replication, documentation and kitting and assembly), Corporate Software &
Technology (licensing and fulfillment, customized documentation, license
administration and user training) and Stream International (technical and
help-line support). The business was formed in April 1995 by a merger of the
company's Global Software Services business with Corporate Software Inc.
On April 30, 1997, SIH announced that a registration statement had been
filed with the Securities and Exchange Commission for the proposed initial
public offering of the common shares of Stream International. Prior to the
closing of the proposed offering, SIH would be reorganized such that the only
business it conducts would be the outsource technical support business and
will be named Stream International Inc. SIH's two other business units,
Corporate Software & Technology and Modus Media International, would be spun
off and the equity would be distributed to the current SIH stockholders. After
completion of the reorganization and public offering, the company would own
less than 50% of the outstanding shares of Stream International. It would
account for its interest in Stream International and in the remaining
businesses as investments. The planned offering of Stream International shares
will be made only by means of a prospectus.
8
<PAGE>
Sales results by business unit for the third quarter and first nine months
of 1997 and 1996 are presented below:
NET SALES BY BUSINESS UNIT--THIRD QUARTER
<TABLE>
<CAPTION>
THIRD QUARTER ENDED SEPTEMBER
30,
(THOUSANDS OF DOLLARS) 1997 % OF TOTAL 1996 % OF TOTAL
----------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Stream International Holdings,
Inc............................ $ 392,029 25.2% $ 382,604 24.0%
Merchandise Media............... 323,130 20.7% 348,902 21.9%
Magazine Publishing Services.... 281,330 18.1% 273,874 17.2%
Book Publishing Services........ 215,219 13.8% 198,895 12.5%
Telecommunications.............. 146,320 9.4% 166,919 10.5%
Financial Services.............. 119,896 7.7% 103,033 6.5%
Global Commercial Print......... 77,041 4.9% 85,326 5.4%
Other........................... 2,384 0.2% 33,237 2.0%
---------- ----- ---------- -----
$1,557,349 100.0% $1,592,790 100.0%
========== ===== ========== =====
</TABLE>
NET SALES BY BUSINESS UNIT--YEAR TO DATE
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
(THOUSANDS OF DOLLARS) 1997 % OF TOTAL 1996 % OF TOTAL
------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Stream International Holdings,
Inc............................ $1,228,852 27.1% $1,178,238 25.0%
Merchandise Media............... 876,856 19.3% 928,397 19.8%
Magazine Publishing Services.... 811,935 17.9% 803,621 17.1%
Book Publishing Services........ 590,308 13.0% 540,415 11.5%
Telecommunications.............. 415,214 9.2% 480,135 10.2%
Financial Services.............. 367,483 8.1% 305,426 6.5%
Global Commercial Print......... 232,637 5.1% 242,432 5.2%
Metromail Corporation........... -- 0.0% 125,522 2.7%
Other........................... 14,299 0.3% 93,130 2.0%
---------- ----- ---------- -----
$4,537,584 100.0% $4,697,316 100.0%
========== ===== ========== =====
</TABLE>
CONSOLIDATED RESULTS OF OPERATIONS
The company reported third quarter 1997 net income of $72 million, a 6%
increase from last year's third quarter. Earnings per share increased $0.04 to
$0.49. Third quarter net sales of $1.6 billion were down 2% from the year-
earlier quarter.
Results for the 1997 quarter reflect the decision by Metromail Corporation,
in which the company has a 38% ownership interest, to expense as in-process
research and development $23 million pre-tax ($13.8 million after tax) of the
purchase price of Saxe, Inc., which Metromail acquired in the third quarter.
Excluding the effect of Metromail's write-down, third quarter earnings totaled
$75 million, or $0.51 per share, a 13% increase in earnings per share from the
previous year's quarter.
For the first nine months of 1997, the company reported net income of $139
million, or $0.95 per share. In the previous year's nine-month period, the
company reported a net loss of $255 million, or $1.66 per share, reflecting
the $561 million in pre-tax restructuring charges ($435 million after taxes
and a minority interest benefit), primarily to realign gravure operations in
North America and to reposition SIH. These charges were partially offset by a
$44 million pre-tax gain ($26 million after taxes) on the initial public
offering of Metromail common shares. Excluding the restructuring charges and
the Metromail gain, net income for the first nine months of 1996 totaled $154
million, or $1.01 per share.
9
<PAGE>
Year-to-date net income and earnings per share declined 10% and 6%,
respectively, from last year's first nine months, excluding the restructuring
charges and the Metromail gain. The company's performance in the first nine
months of 1997 was impacted by higher expenses associated with the continued
development of the company's logistics and fulfillment businesses and the
startup of a short-run, four-color book printing facility in Roanoke, Virginia
(Roanoke facility).
CONSOLIDATED NET SALES
Net sales for the third quarter of 1997 decreased approximately $35 million,
or 2%, to approximately $1.6 billion. The decline was principally due to
decreases in the cost of materials (primarily paper) in Merchandise Media and
Telecommunications and declines in Global Commercial Print due to the
discontinuation of commercial printing in the United Kingdom. These declines
were partially offset by increased volume in most business units.
Net sales from foreign operations represented approximately $244 million, or
16% of total net sales in the third quarter, up 2% from $239 million, or 15%
of total net sales in the year-earlier quarter.
Net sales for the first nine months of 1997 decreased $160 million, or 3%,
to approximately $4.5 billion. The decline was primarily due to the factors
identified above, as well as price and volume declines in Telecommunications
and the company's deconsolidation of Metromail as a result of reduced
ownership following the second quarter 1996 public offering. These declines
were partially offset by increased demand in most business units.
Net sales from foreign operations represented approximately $747 million, or
17% of total net sales in the first nine months of 1997, down 2% from $765
million, or 16% of total net sales in the first nine months of 1996. The
decline in foreign sales reflects the discontinuation of commercial printing
in the United Kingdom and the worldwide repositioning of SIH's international
operations.
CONSOLIDATED EXPENSES
Cost of sales for the third quarter decreased $52 million, or 4%, to $1.3
billion primarily as a result of the material declines discussed above. Gross
profit in the third quarter of 1997 increased 6% to $300 million.
Cost of sales for the first nine months of 1997 decreased $129 million, or
3%, to $3.8 billion. Gross profit for the first nine months of 1997 declined
4% to $783 million due to the company's reduced ownership of Metromail, price
and volume declines in Telecommunications and higher expenses associated with
the development of the company's logistics and fulfillment businesses and the
startup of the Roanoke facility. In addition, the indirect costs of
restructuring activities led to temporarily higher manufacturing costs in the
company's gravure platform and in the United Kingdom during the first half of
the year. These declines were partially offset by manufacturing cost
improvements in most business units.
Selling and administrative expenses in the third quarter of 1997 increased
11% to $174 million, due to the volume increases in most business units and
the increased cost of operating SIH as three separate businesses. Other income
in the third quarter of 1997 increased $7 million due primarily to the
decrease in cost of the company's corporate-owned life insurance program
resulting from discontinuation of premium payments, as well as gains on the
sale of investments in the company's venture-capital portfolio, partially
offset by the impact of the writedown by Metromail discussed above.
Selling and administrative expenses in the first nine months of 1997
increased 1% to $528 million, due to the factors identified above. Interest
expense decreased approximately $4 million, due to lower average debt balances
associated with improvements in operating working capital and the reduction
10
<PAGE>
of debt using a portion of the proceeds of the public offering of Donnelley
Enterprise Solutions Incorporated (DESI). Other income for the first nine
months of 1997 decreased $3 million, primarily due to non-recurring events in
the first nine months of 1996, including a $14 million gain on the sale of
investments in the company's venture-capital portfolio and a $17 million
minority interest benefit arising from SIH's portion of the restructuring
charges. These non-recurring events were offset by a $6 million gain on the
sale of the company's interest in a magazine distribution venture in the
United Kingdom, gains on the sale of investments in the company's venture-
capital portfolio and the other factors identified above for the quarter.
SUMMARY OF EXPENSE TRENDS
<TABLE>
<CAPTION>
THIRD QUARTER ENDED SEPTEMBER
30, % INCREASE
(THOUSANDS OF DOLLARS) 1997 1996 (DECREASE)
---------------------- ---------- ---------- ---------- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Cost of materials............ $ 720,096 $ 765,844 (6.0%)
Cost of manufacturing........ 436,623 453,420 (3.7%)
Depreciation................. 86,356 80,387 7.4%
Amortization................. 14,386 9,957 44.5%
Selling and administrative... 174,426 157,419 10.8%
Net interest expense......... 22,079 21,818 1.2%
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
30, % INCREASE
(THOUSANDS OF DOLLARS) 1997 1996 (DECREASE)
---------------------- ---------- ---------- ---------- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Cost of materials............ $2,120,571 $2,227,079 (4.8%)
Cost of manufacturing........ 1,341,540 1,356,063 (1.1%)
Depreciation................. 258,200 256,995 0.5%
Amortization................. 34,125 43,112 (20.8%)
Selling and administrative... 528,151 520,692 1.4%
Net interest expense......... 67,262 71,614 (6.1%)
</TABLE>
RESULTS OF OPERATIONS OF PRINT-RELATED BUSINESSES AND SIH
Print-Related Businesses
Net sales for the company's print-related businesses (all consolidated
business units other than SIH and excluding Metromail in 1996) in the third
quarter of 1997 decreased $45 million to $1.2 billion. The decline was
principally due to decreases in material costs (primarily paper) in
Merchandise Media and Telecommunications and declines in Global Commercial
Print due to the discontinuation of commercial printing in the United Kingdom.
These declines were partially offset by increased demand in most business
units. Print-related businesses had operating income of $133 million in the
third quarter of 1997, a $1 million decrease from the third quarter of 1996.
For the first nine months of 1997, net sales declined $85 million to $3.3
billion. The decline primarily reflects the factors identified above.
Operating income for the first nine months of 1997 was $281 million, a 6%
decline from the first nine months of 1996, excluding the 1996 restructuring
charge. The decline is attributable to higher expenses associated with the
development of the company's logistics and fulfillment businesses, the startup
of the Roanoke facility, and price and volume declines in Telecommunications.
SIH
Net sales for SIH in the third quarter 1997 increased by $9 million, or 2%,
to $392 million. SIH had an operating loss of approximately $8 million, a $1
million improvement over the third quarter of 1996.
For the first nine months of 1997, net sales increased by $51 million, or
4%, to $1.2 billion. For the period, SIH had an operating loss of $26 million,
a $7 million decline from the first nine months of 1996. The decline is
attributable to the cost of operating SIH as three separate businesses and an
additional bad debt reserve recorded in the first quarter of 1997.
11
<PAGE>
CHANGES IN FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
For the first nine months of 1997, net cash flow provided by operating
activities increased by $25 million, or 5%, to $548 million. Reductions in
operating working capital (defined as inventories, accounts receivable and
prepaid expenses, minus accounts payable, accrued compensation and other
accrued liabilities, including the restructuring reserve) provided cash of
$117 million compared to $119 million for the first nine months of 1996.
Management believes that the company's cash flow and borrowing capacity are
sufficient to fund current operations and growth. Capital expenditures totaled
$79 million and $322 million for the third quarter and first nine months of
1997, respectively, including purchases for the new short-run four-color book
facility and purchases related to revamping the company's gravure
manufacturing platform. Full-year capital spending is expected to be
approximately $450 million.
At September 30, 1997, the company had an unused revolving credit facility
of $550 million with a number of banks. This credit facility provides support
for the issuance of commercial paper and other credit needs. In addition,
certain subsidiaries of the company had credit facilities with unused
borrowing capacities totaling approximately $110 million at September 30,
1997.
OTHER INFORMATION
Metromail--On June 19, 1996, Metromail completed an initial public offering
of its common stock, resulting in the company's interest in Metromail being
reduced to approximately 38% and the company changing its method of accounting
for Metromail from consolidation to the equity method. Under the equity
method, the company recognizes in income its proportionate share of net income
of Metromail. Metromail had net sales and operating earnings of $126 million
and $12 million, respectively, in the first half of 1996.
DESI--On November 4, 1996, DESI completed an initial public offering of its
common stock, resulting in the company's interest in DESI being reduced to
approximately 43% and the company changing its method of accounting for DESI
from consolidation to the equity method. Under the equity method, the company
recognizes in income its proportionate share of net income of DESI. DESI's net
sales and operating earnings were not material to the consolidated results of
the company in 1996.
Restructurings--On March 28, 1996, the company announced a $512 million pre-
tax charge to first-quarter earnings ($411 million after taxes and a minority
interest benefit) to restructure and realign its gravure operations in North
America, reposition other businesses and write down certain equipment,
investments in non-core businesses and intangible assets. Approximately $195
million of the charge was related to the gravure platform realignment.
Approximately $189 million was related to other manufacturing restructuring,
including approximately $92 million to reposition SIH's worldwide operations.
Additionally, the company wrote down approximately $128 million in equipment,
intangibles and investments in non-core businesses, in accordance with SFAS
121.
On July 25, 1996, the company announced a $48 million pre-tax restructuring
charge ($24 million after taxes and a minority interest benefit) primarily to
restructure SIH's software manufacturing, printing, kitting and fulfillment
operations. The restructuring reflects changes in customer demand, which is
shifting from disk-based media and printed materials to CD-ROM and other forms
of electronic media, packaging and delivery.
Pre-tax cash outlays associated with the restructuring and realignment
charges are expected to total approximately $177 million and will be incurred
through the first half of 1998 ($87 million of this amount has been paid
through September 30, 1997). The remaining $383 million relates to non-cash
items, mainly the write-down of fixed assets and goodwill.
12
<PAGE>
Human Resources and Plant Closings--As part of the first-half 1996
restructuring discussed above, the company has discontinued catalog and
magazine printing operations in the United Kingdom, closed SIH's
Crawfordsville, Ind., documentation printing and diskette replication
operations, consolidated a stand-alone book bindery in Scranton, Pa., closed a
book prepress operation in Barbados and closed a gravure-printing plant in
Casa Grande, Ariz. In addition, as part of the first-half 1996 restructuring,
the company announced plans to close a gravure-printing plant in Newton, N.C.,
which is expected to occur by the end of 1997.
In July 1997, the company announced plans to close a fulfillment and
distribution center in Crawfordsville, Ind. and plans to close Coris, a
content-management software subsidiary in Willowbrook, Ill. Both closings,
which may include the sale of certain assets, are expected to occur by the end
of 1997. Costs associated with the closings are not expected to have a
material effect on the company's financial results.
Litigation--On November 25, 1996, a purported class action was brought
against the company in federal district court in Chicago, Ill., on behalf of
all current and former African-American employees, alleging that the company
racially discriminated against them. The complaint seeks declaratory and
injunctive relief, and asks for actual, compensatory, consequential and
punitive damages in an amount not less than $500 million. Most of the specific
factual assertions of the original complaint were related to the closing by
the company of its Chicago, Ill., catalog production operations begun in 1993.
The complaint was amended on February 7, 1997, to reflect more general claims
applicable to other company locations. Plaintiffs have filed a motion seeking
nationwide class certification. The company has filed a motion for partial
summary judgment as to all claims relating to its Chicago catalog operations
on the grounds that those claims are untimely.
On December 18, 1995, a purported class action was filed against the company
in federal district court in Chicago, Ill., alleging that older workers were
discriminated against in selection for termination upon the closing of the
Chicago catalog operations. The suit also alleges that the company violated
the Employee Retirement Income Security Act (ERISA) in determining benefits
payable to retiring or terminated employees. On October 8, 1996, plaintiffs
filed a motion to maintain the ERISA claims as a class action on behalf of all
company retirement plan participants who were eligible for early retirement
benefits at the time of the termination. On August 14, 1997, the court denied
plaintiffs' motion and ruled that the proper ERISA class is limited to the
former Chicago employees. On September 4, 1997, plaintiffs filed a motion to
reconsider the court's ruling.
Both cases relate at least in part to the circumstances surrounding the
closure of the Chicago catalog operations. The company believes that it acted
properly in the closing of the operations, has a number of valid defenses to
all of the claims made and is vigorously defending its actions. However,
management is unable to make a meaningful estimate of any loss which could
result from an unfavorable outcome of either case.
Corporate-Owned Life Insurance--As a part of the Health Insurance
Portability and Accountability Act enacted in August 1996, the income tax
deduction for interest on loans from corporate-owned life insurance (COLI)
policies is being phased out and then eliminated, effective in 1999. The
company has used loans from COLI to finance certain employee benefits
liabilities, and the loss of the interest deduction may cause the company's
effective tax rate to rise as the deduction is phased out over the next few
years.
Share Repurchase--The company announced and completed the repurchase of $250
million of its common stock in 1996, which was in addition to its ordinary
purchase of 1.8 million shares for issuance under various employee stock
plans. The average number of outstanding shares was 146 million and 153
million in the first nine months of 1997 and 1996, respectively.
13
<PAGE>
OUTLOOK
The commercial printing business in North America (the company's primary
geographic market) is highly competitive in most product categories and
geographic regions. Industry analysts consider most commercial print markets to
suffer from overcapacity, leading to fierce competition. Competition is based
largely on price, quality and servicing the special needs of customers.
The company believes that demand for most product categories should continue
to improve. This belief may be affected by a number of factors including
increased utilization of customer supplied paper, which creates difficult top-
line comparisons without the corresponding impact on earnings; and movement
toward increased versioning and target marketing, which favors shorter run
counts that have traditionally been more cost effective on an offset platform.
The trend provides challenges for the company, which include the availability
of offset capacity in the last quarter of the year and utilization of existing
gravure capacity. The company continues to evaluate these factors and position
its platform configuration to ensure that it responds to customer needs.
Within Book Publishing Services, one- and two-color trade books have shown
some weakness, as publishers develop their fourth quarter manufacturing plans
and attempt to adjust to the changing dynamics of the publishing industry. The
company is beginning to see shifts in print orders as publishers attempt to
reduce returns. This dynamic will lead to a lower growth rate in the fourth
quarter than the company has experienced in the first nine months of the year
and will continue to impact demand in the future.
A significant customer of the Telecommunications business unit has modified
its production cycle to move work that has been traditionally produced in the
fourth quarter into the first quarter of next year. In the short term, this
action will affect revenue and earnings comparisons in the current year. In the
long term, it should create manufacturing efficiencies as the work is moved to
slower production periods.
The company anticipates that because information systems are becoming
increasingly important to the effective management of the company, increased
spending will likely be necessary to update systems and ensure that the company
effectively manages the transition to the year 2000.
Over the past three years, the company has adopted the principles of Economic
Value Added (EVA) as its primary financial framework. The objective of this
system is to put in place a system of value-based metrics that measures
periodic progress toward improved shareholder value creation. To enhance value,
the company moved to improve its manufacturing efficiencies in 1996 by
initiating the restructuring of its U.S. gravure printing platform; closing of
its commercial print operations in the United Kingdom; and integrating of its
Digital Division assets into other operations. These actions should generate
sustainable cost savings in the long run. During 1997, as the restructuring
continues, operating efficiency will decline temporarily due to the movement of
equipment, retraining of people and movement of printing among facilities.
Over time, the application of the EVA financial framework to the company's
decision-making process is likely to produce slower revenue growth, enhanced
free cash flow, a stronger competitive position and improved return on invested
capital.
14
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 25, 1996, a purported class action was brought against the
company alleging racial discrimination and seeking actual, compensatory,
consequential and punitive damages in an amount not less than $500 million. On
December 18, 1995, a purported class action was brought against the company
alleging age discrimination in connection with the 1993 closing of the
company's Chicago, Ill., catalog operations, and violation of the Employee
Retirement Income Security Act. These actions are described in the company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
<TABLE>
<C> <S>
3(ii)(a) By-Laws
3(ii)(b) Amendment to By-Laws adopted September 25, 1997.
27 Financial Data Schedule
</TABLE>
- --------
(b) No current Report on Form 8-K was filed during the third quarter of
1997.
15
<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS 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.
R. R. Donnelley & Sons Company
/s/ Peter F. Murphy
By __________________________________
Peter F. Murphy
Corporate Controller
(Authorized Officer and
Chief Accounting Officer)
October 28, 1997
Date __________________________
16
<PAGE>
Exhibit 3(ii)(a)
As Amended through September 25, 1997
BY-LAWS OF
R. R. DONNELLEY & SONS COMPANY
ARTICLE I
---------
Section 1.1. Principal Office. The principal office in the State of
Delaware shall be in the City of Wilmington, County of New Castle, State of
Delaware, and the name of the resident agent in charge thereof is The
Corporation Trust Company.
Section 1.2. Other Offices. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
----------
Meetings of Stockholders
------------------------
Section 2.1. Annual Meeting. The annual meeting of the stockholders shall
be held on the fourth Thursday in March of each year for the purpose of electing
Directors of the class for which the term expires on that date and for the
transaction of such other business as may properly be brought before the
meeting. Such meeting shall be held at eight o'clock in the morning or such
other time during normal business hours as may be fixed by the Board of
Directors and stated in the notice of the meeting. If the day fixed for the
annual meeting shall be a legal holiday, the Board of Directors may, subject to
the provisions of Article X hereof, designate another day on which such meeting
shall be held. If the election of Directors shall not be held on the date
designated for any annual meeting, or any adjournment thereof, the Board of
Directors shall cause the election to be held at a special meeting of the
stockholders as soon thereafter as conveniently may be.
Except as otherwise provided by statute or the certificate of
incorporation, the only business which properly shall be conducted at any annual
meeting of the stockholders shall (i) have been specified in the written notice
of the meeting (or any supplement thereto) given as provided in Section 2.4,
(ii) be brought before the meeting by or at the direction of the Board of
Directors or the officer of the corporation presiding at the meeting or (iii)
have been specified in a written notice (a "Stockholder Meeting Notice") given
to the corporation, in accordance with all of the following requirements, by or
on behalf of any stockholder who is entitled to vote at such meeting. Each
Stockholder Meeting Notice must be delivered personally to, or be mailed to and
received by, the Secretary of the corporation at the principal executive offices
of the corporation in the City of Chicago, State of
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Illinois, not less than 60 days nor more than 90 days prior to the annual
meeting; provided, however, that in the event that less than 75 days' notice or
prior public disclosure of the date of the annual meeting is given or made to
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the tenth day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made, whichever first occurs. Each Stockholder Meeting Notice shall set
forth: (i) a description of each item of business proposed to be brought before
the meeting and the reasons for conducting such business at the annual meeting;
(ii) the name and record address of the stockholder proposing to bring such item
of business before the meeting and the reasons for conducting such business at
the annual meeting; (iii) the class and number of shares of stock held of
record, owned beneficially and represented by proxy by such stockholder as of
the record date for the meeting (if such date shall then have been made publicly
available) and as of the date of such Stockholder Meeting Notice and (iv) all
other information which would be required to be included in a proxy statement
filed with the Securities and Exchange Commission if, with respect to any such
item of business, such stockholder were a participant in a solicitation subject
to Section 14 of the Securities Exchange Act of 1934. No business shall be
brought before any annual meeting of stockholders of the corporation otherwise
than as provided in this Section; provided, however, that nothing contained in
this Section shall be deemed to preclude discussion by any stockholder of any
business properly brought before the annual meeting. The officer of the
corporation presiding at the annual meeting of stockholders shall, if the facts
so warrant, determine that business was not properly brought before the meeting
in accordance with the provisions of this Section and, if he should so
determine, he should so declare to the meeting and any such business so
determined to be not properly brought before the meeting shall not be
transacted. (Amended 10/27/94)
Section 2.2. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the Chief Executive Officer,
President, or the Chairman of the Board, and shall be called by the Secretary
pursuant to a resolution duly adopted by the affirmative vote of a majority of
the whole Board of Directors. Such call shall state the purposes of the proposed
meeting. Business transacted at any special meeting shall be limited to the
general objectives stated in the call. (Amended 12/15/88)
Section 2.3. Place of Meeting. All meetings of stockholders for the
election of Directors shall be held in the City of Chicago, County of Cook,
State of Illinois and the Board of Directors is authorized to fix the place
within the City of Chicago for the holding of such meeting. Meetings of
stockholders for any other purpose may be held at such place, within or without
the State of Delaware, and time as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof. (Amended 1/9/57)
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<PAGE>
Section 2.4. Notice of Meetings. Written or printed notice stating the
place, day and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten nor more than fifty days before the date of the meeting, either
personally or by mail, by or at the direction of the Board of Directors, the
Chief Executive Officer, the Chairman of the Board or the President, to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail in a
sealed envelope addressed to the stockholder at his address as it appears on the
records of the corporation, with postage thereon prepaid. (Amended 12/15/88)
Section 2.5. Closing Transfer Books or Fixing Record Date. The Board of
Directors may close the stock transfer books of the corporation for a period not
exceeding fifty (50) days preceding the date of any meeting of stockholders, or
the date for payment of any dividend, or the date for the allotment of rights or
the date when any change, or conversion or exchange of capital stock shall go
into effect or for a period of not exceeding fifty (50) days in connection with
obtaining the consent of stockholders for any purpose. In lieu of closing the
stock transfer books as aforesaid, the Board of Directors may fix in advance a
date, not exceeding fifty (50) days preceding the date of any meeting of the
stockholders, or the date for payment of any dividend, or the date for the
allotment of rights, or the date when any change, or conversion or exchange of
capital stock shall go into effect, or a date in connection with obtaining such
consent, as a record date for the determination of the stockholders entitled to
notice of, and to vote at, any such meeting and any adjournment thereof, or
entitled to receive payment of any such dividend, or to any such allotment of
rights, or to exercise the rights in respect of any such change, conversion or
exchange of capital stock, or to give such consent and in such case such
stockholders and only such stockholders as shall be stockholders of record on
the date so fixed shall be entitled to such notice of and to vote at, such
meeting and any adjournment thereof, or to receive payments of such dividend, or
to receive such allotment of rights, or to exercise such rights, or to give such
consent, as the case may be notwithstanding any transfer of any stock on the
books of the corporation after any such record date fixed as aforesaid.
Section 2.6. Voting List. At least ten days before every election of
Directors, a complete list of the stockholders entitled to vote at such
election, arranged in alphabetical order with the residence of and the number of
voting shares held by each, shall be prepared by the Secretary. Such list shall
be open at the place where said election is to be held for ten days, to the
examination of any stockholders, and shall be produced and kept at the time and
place of election during the whole time thereof, and subject to the inspection
of any stockholder who may be present.
Section 2.7. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy,
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<PAGE>
shall constitute a quorum at any meeting of stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of stockholders, the stockholders entitled to vote thereat, present
in person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented any business may be transacted which
might have been transacted at the meeting as originally notified.
Section 2.8. Proxies. At all meetings of stockholders a stockholder may
vote by proxy executed in writing by the stockholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
Section 2.9. Voting. When a quorum is present at any meeting of
stockholders, the affirmative vote of the holders of a majority of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the subject matter shall decide any question brought before such meeting, unless
the question is one upon which, by express provision of the statutes, the
certificate of incorporation or these by-laws, a different vote is required, in
which case such express provision shall govern and control the decision of such
question. Every stockholder having the right to vote shall be entitled to vote
in person, or by proxy appointed by an instrument in writing subscribed by such
stockholder and bearing a date not more than eleven months prior to voting,
unless such instrument provides for a longer period. Every such stockholder
shall have one vote for each share of stock having voting power registered in
his name on the books of the corporation. Except where the transfer books of the
corporation shall have been closed or a date shall have been fixed as a record
date for the determination of its stockholders entitled to vote, no share of
stock shall be voted on at any election for Directors which has been transferred
on the books of the corporation within twenty days next preceding such election
of Directors. (Amended 1/28/93)
Section 2.10. Voting of Stock of Certain Holders. Shares standing in the
name of another corporation, domestic or foreign, may be voted by such officer,
agent or proxy as the by-laws of such corporation may prescribe or, in the
absence of such provision, as the Board of Directors of such corporation may
determine. Shares standing in the name of a deceased person may be voted by
executor or administrator of such deceased person, either in person or by proxy.
Shares standing in the name of a guardian, conservator or trustee may be voted
by such fiduciary, either in person or by proxy, but no such fiduciary shall be
entitled to vote shares held in such fiduciary capacity without a transfer of
such shares into the name of such fiduciary. Shares standing in the name of a
receiver may be voted by such receiver. A stockholder whose shares are pledged
shall be entitled to vote such shares, unless in the transfer by the pledger or
on the books of the corporation,
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<PAGE>
he has expressly empowered the pledgee to vote thereon, in which case only the
pledgee, or his proxy, may represent the stock and vote thereon.
Section 2.11. Treasury Stock. The corporation shall not vote shares of
its own stock directly or indirectly; and such shares shall not be counted in
determining the total number of outstanding shares.
Section 2.12. Election of Directors. When a quorum is present at any
meeting of stockholders, directors shall be elected by a plurality of the votes
of the shares present in person or represented by proxy at such meeting of
stockholders and entitled to vote on the election of directors. (New Section
10/22/92)
ARTICLE III
-----------
Directors
---------
Section 3.1. General Powers. The property and business of the corporation
shall be managed by its Board of Directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these by-laws directed or required to
be exercised or done by the stockholders. (Amended 9/28/90)
Without limiting the generality of the foregoing, it shall be the
responsibility of the Board of Directors to establish broad objectives and the
general course of the business, determine basic policies, appraise the adequacy
of overall results, and generally represent and further the interests of the
Company's stockholders and insure the most effective use of the Company's
assets.
Several examples of the responsibilities of the Board are as follows:
1. Establish broad Company objectives and basic policies and maintain
overall control of the business.
2. Make necessary revisions of the by-laws (in accordance with Article X).
3. Determine dividend action (in accordance with Article VIII).
4. Authorize necessary action with respect to issuance of new securities
and listing securities for trading on exchanges.
5. Fix time and place and take other necessary action with respect to
stockholders meetings (in accordance with Article II).
6. Approve issuance of stock certificates to replace those lost or
destroyed (in accordance with Section 7.2).
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<PAGE>
7. Fill Vacancies in the Board of Directors (in accordance with Section
3.8).
8. Elect the officers of the corporation (in accordance with Section
4.2.) and appraise their performance.
9. Determine the basic organization structure of the business.
10. Authorize any necessary action with respect to loans and pledging of
assets (in accordance with Section 6.2.).
11. Designate officers authorized to buy or sell corporate investment
securities.
12. Designate persons authorized to execute contracts and other documents
requiring signatures of officers or specific individuals (in
accordance with Section 6.1).
13. Select, or designate those authorized to select, depositaries for
corporate funds and investment securities and designate check
signatories and persons authorized to have access to safe deposit
boxes (in accordance with Sections 6.3 and 6.4).
14. Approve proposals to convey corporate-owned land or buildings or
designate those authorized to take such action.
15. Designate the person or persons authorized to appoint proxies to vote
stock in subsidiary and other concerns in which the corporation has a
significant interest and the person or persons authorized to determine
who shall serve as Directors in representing the parent corporation in
such concerns.
16. Designate stock transfer agents, registrars, and paying agents with
respect to corporate securities and other special purpose agents.
17. Procure special professional services required by and for the Board.
18. Provide for issuance of an annual report to stockholders and such
other reports and notices as the Board deems advisable.
19. Employ, upon recommendation of the Audit Committee (in accordance with
Section 3.13), public accountants to audit the corporation's financial
statements.
20. Review and approve new employee benefit plans and major revisions of
employee stock incentive plans.
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21. Review and approve the actions of the Executive Committee as reported
in the minutes of their meetings.
22. Approve the annual operating budget.
23. Review and approve the annual capital budget.
24. Direct the manner of handling matters outside the ordinary course of
business of the corporation.
Section 3.2. Number, Election and Term. The number of Directors which
shall constitute the whole Board shall be thirteen (13) of whom four (4) shall
be Directors of the First Class, five (5) shall be Directors of the Second Class
and four (4) shall be Directors of the Third Class. The term of office of each
class shall be three years, with the term of one class expiring in each year,
and the successors to the class of Directors whose terms shall expire shall be
elected at each annual election or adjournment thereof. Each Director shall
hold office until his successor shall be elected and shall qualify or until his
earlier resignation or removal. Directors need not be residents of Delaware or
stockholders. (Amended 9/29/95, 11/7/96, 3/18/97)
Section 3.3. Meetings. The Board of Directors may hold meetings, both
regular and special, either within or without the State of Delaware. Regular
meetings of the Board of Directors may be held without notice at such time and
such place as may from time to time be determined by the Board. Special
meetings of the Board of Directors may be called by or at the request of the
Chief Executive Officer, the Chairman of the Board, a Vice Chairman, President,
or any two directors. (Amended 12/15/88)
Section 3.4. Notice. Notice of any special meeting of the Board of
Directors stating the place, date and hour of the special meeting shall be given
in writing to each director, either personally, or by mail, telex, telegram or
cable, addressed to the director's residence or usual place of business, not
less than two days before the date of such meeting, or by such other means,
whether or not in writing, and within such lesser period, as circumstances
require in the reasonable judgment of the person calling the meetings. If
mailed, such notice shall be deemed to be given at the time when it is deposited
in the United States mail with first class postage prepaid. Notice by telegram
or cable shall be deemed given when the notice is delivered to the telegraph or
cable company; notice by telex shall be deemed given when the notice is
transmitted by telex. Any director may waive notice of any meeting. The
attendance of a director at any meeting shall constitute a waiver of notice at
such meeting, except where the director attends the meeting for the express
purpose of objecting to the transaction of any business because the meeting is
not lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any special meeting of the Board of Directors need be specified
in the
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notice or waiver of notice of such meeting, unless otherwise provided by
statute, the Certificate of Incorporation or these By-Laws. (Amended 6/24/76)
Section 3.5. Quorum. A majority of the Board of Directors shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, provided, that if less than a majority of the Directors are
present at said meeting, a majority of the Directors present may adjourn the
meeting from time to time without further notice. (Renumbered 6/24/76)
Section 3.6. Manner of Acting. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors. (Renumbered 6/24/76)
Section 3.7. Use of Communications Equipment. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
section shall constitute presence in person at such meeting. (New Section
6/24/76)
Section 3.8. Vacancies and Additional Directors. Any director may resign
at any time upon written notice to the corporation. If any vacancy occurs in the
Board of Directors caused by death, resignation, retirement, disqualification or
removal from office of any Director, or otherwise, or if any new directorship is
created by any increase in the authorized number of Directors, a majority of the
Directors then in office, though less than a quorum may choose a successor or
fill the newly created directorship; and a Director so chosen shall hold office
until the next annual election at which Directors of the class to which he was
chosen are elected and until his successor shall be duly elected and shall
qualify or until his earlier resignation or removal. (Amended 3/26/70)
Section 3.9. Compensation. Directors who are not full-time employees of
the Company shall receive a stated salary and may receive options to purchase
shares of the Company's stock as provided under the Company's stock plans, for
their services, and, in addition thereto, shall receive a fixed fee and
expenses, if any, for attendance at each regular or special meeting of the Board
of Directors from time to time. Directors who are full-time employees of the
Company shall not receive any compensation for their services as such; provided
that nothing herein contained shall be construed to preclude any Director from
serving the corporation in any other capacity and receiving compensation
thereof. (Amended 3/28/91)
Section 3.10. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the whole Board, may designate not fewer than three nor
more than seven Directors to constitute an Executive Committee. The Chairman of
the Executive Committee shall be the Chief Executive Officer. The Executive
Committee shall have and exercise all of the authority of the Board of Directors
in
Page 8
<PAGE>
the management of the corporation, except that such Committee shall not have the
power to take specific actions which have been delegated to other committees of
the Board and shall not be empowered to take action with respect to: declaring
dividends; issuing bonds, debentures, or the borrowing of moneys except within
limits expressly approved by the Board of Directors; amending by-laws; filling
vacancies and newly created directorships in the Board of Directors; removing
Directors of the corporation; mergers or consolidations; the sale, lease or
exchange of all or substantially all of the assets of the corporation;
dissolution; or any other action requiring the approval of stockholders. The
designation of such Committee and the delegation thereto of authority shall not
operate to relieve the Board of Directors or any member thereof of any
responsibility imposed upon it or him by law. (Amended 9/28/90, 10/26/95)
Section 3.11. Finance Committee. The Board of Directors, by resolution
adopted by a majority of the whole Board, may designate not fewer than three nor
more than seven Directors, a majority of whom shall not be employees of the
Company, to constitute a Finance Committee, which Committee is charged with
reviewing the overall financial policies of the Company and making
recommendations to the Board regarding the Company's financial condition and
requirements for and disposition of funds, including: capital structure,
raising long-term capital, dividend policy, and material changes in the
Company's financial position with respect to cash, investments, debt and
accounts receivable. The Committee shall review the performance and management
of the Company's Retirement Benefit Plan including the investment policy, the
performance of the Investment Trustee on a regular periodic basis, the
reasonableness of the actuarial assumptions in relation to investment
performance, the funding status of the Plan and shall make recommendations with
respect to the selection of one or more investment trustees or other investment
agencies, and undertake such other studies and make such other recommendations
to the Board as it may deem desirable with respect to the Investment Trust of
the Retirement Benefit Plan. (Amended and Renamed 9/28/90, 10/26/95)
Section 3.12. Human Resources Committee. The Board of Directors, by
resolution adopted by a majority of the whole Board, may designate not fewer
than three nor more than seven Directors who are not employees of the Company,
to constitute a Human Resources Committee. The Human Resources Committee shall
determine the annual salary, bonus and other benefits of selected senior
officers and key management employees of the Company and review, as appropriate,
performance standards under compensation programs for key employees. The Human
Resources Committee shall also recommend to the Board candidates for election as
corporate officers.
The Human Resources Committee shall recommend new employee benefit plans
and changes to stock incentive plans to the Board, approve amendments to the
non-stock employee benefit plans of the Company and oversee the administration
of all of the Company's employee benefit plans. The Human Resources Committee
Page 9
<PAGE>
may delegate to one or more officers of the Company the power to approve any
amendment of any non-stock employee benefit plan of the Company or the Donnelley
Tax Credit Stock Ownership Plan which in the reasonable opinion of such officer
will not materially affect the costs to the Company of, or benefits under, such
plans. (Amended 7/22/93, 10/26/95, 1/25/96)
Section 3.13. Audit Committee. The Board of Directors, by resolution
adopted by a majority of the whole Board, may designate not fewer than three nor
more than seven Directors who are not employees of the Company to constitute an
Audit Committee, which Committee shall review on behalf of the stockholders of
the Company: the qualifications and services of the independent public
accountants employed by the Company from time to time to audit the books of the
Company, the scope of their audits, the adequacy of their audit reports, and
recommendations made by them. The Committee may also make such reviews of
internal financial audits and controls as the Committee considers desirable.
The Audit Committee will recommend to the Board the selection of the
independent public accountants.
The Audit Committee shall review the Company's financial disclosure
documents, management perquisites, significant developments in accounting
principles and significant proposed changes in financial statements. The Audit
Committee shall also review and monitor the Company's codes of conduct to guard
against significant conflicts of interest and dishonest, unethical or illegal
activities. The Audit Committee shall review periodically the performance of the
Company's accounting and financial personnel, and shall review material
litigation and regulatory proceedings and other issues relating to potentially
significant corporate liability. (Amended 9/28/90, 10/26/95)
Section 3.14. Corporate Responsibility and Governance Committee. The
Board of Directors, by resolution adopted by a majority of the whole Board, may
designate not fewer than three nor more than seven Directors to constitute a
Corporate Responsibility and Governance Committee, which Committee shall oversee
the Company's commitment to employee health and safety, equal employment
opportunity and the environment.
The Committee shall also recommend to the Board nominees for election to the
Board of Directors in connection with any meeting of stockholders at which
directors are to be elected and persons for appointment to fill any Board
vacancy which the Board of Directors is authorized under the By-Laws to fill,
and may also recommend to the Board policies or guidelines concerning criteria
for Board membership, the structure and composition of Board Committees, the
size and composition of the Board and the selection, tenure and retirement of
Directors and matters related thereto. (Amended 9/28/90, 10/26/95, 1/25/96,
9/25/97)
Page 10
<PAGE>
Section 3.15. Other Committees. The Board of Directors, by resolution
adopted by a majority of the whole Board, may designate two or more Directors to
constitute committees other than the Executive Committee, Finance Committee,
Human Resources Committee, Audit Committee and Corporate Responsibility and
Governance Committee, which committees shall have and exercise such authority as
may be provided for in the resolution creating such committee. (Amended
9/28/90, 1/25/96, 9/25/97)
Section 3.16. Honorary Directors. The Board of Directors may select from
time to time, and for such periods of time as it may deem appropriate, one or
more past Chairmen of the Board, Presidents or Chief Executive Officers elected
a Director prior to September 28, 1990, to serve as Honorary Directors.
Honorary Directors shall be entitled to receive notice of and to attend all
meetings of the Board of Directors, to receive copies of all reports or other
communications made to the Board of Directors, to give counsel and advice on any
subject, to receive such fees and expense reimbursements as may be provided from
time to time by the Board of Directors. The Board of Directors, Chief Executive
Officer, Chairman of the Board or President may invite an Honorary Director to
attend meetings of any committee of the Board of Directors or to undertake
temporary assignments, but this shall not preclude any other arrangements,
consulting or otherwise, between the corporation and an Honorary Director. The
presence or absence of an Honorary Director shall not be counted for purposes or
determining the existence of a quorum. Honorary Directors shall not have the
right to vote on any matters voted on by the Board of Directors or any of the
rights, duties, privileges, or responsibilities of Directors of the corporation.
(Amended 9/28/90)
Section 3.17. Nomination of Directors. Except as otherwise fixed pursuant
to the certificate of incorporation relating to the rights of the holders of any
one or more classes or series of Preferred Stock issued by the corporation,
acting separately by class or series, to elect, under specified circumstances,
directors at a meeting of stockholders, nominations for the election of
directors may be made by the Board of Directors or a committee appointed by the
Board of Directors pursuant to Section 3.14 or by any stockholder entitled to
vote in the election of directors generally. However, any stockholder entitled
to vote in the election of directors generally may nominate one or more persons
for election as directors at a meeting at which directors are to be elected only
if written notice of such stockholder's intent to make such nomination or
nominations has been delivered personally to, or been mailed to and received by,
the Secretary of the corporation at the principal executive offices of the
corporation in the City of Chicago, State of Illinois, not less than 60 days nor
more than 90 days prior to the meeting; provided, however, that, in the event
that less than 75 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made, whichever first occurs. Each such notice shall
set forth: (i) the name and record address of the stockholder who intends to
make the
Page 11
<PAGE>
nomination; (ii) the name, age, principal occupation or employment, business
address and residence address of the person or persons to be nominated; (iii)
the class and number of shares of stock held of record, owned beneficially and
represented by proxy by such stockholder and by the person or persons to be
nominated as of the record date for the meeting (if such date shall then have
been made publicly available) and of the date of such notice; (iv) a
representation that the stockholder intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice; (v) a
description of all arrangements or understandings between such stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by such
stockholder; (vi) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the Securities Exchange Act of 1934 and the proxy rules of the
Securities and Exchange Commission; and (vii) the consent of each nominee to
serve as a director of the corporation if so elected. The corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the corporation to determine the eligibility of such proposed
nominee to serve as a director of the corporation. The officer of the
corporation presiding at the annual meeting of stockholders shall, if the facts
so warrant, determine that a nomination was not made in accordance with the
provisions of this Section, and if he should so determine, he should so declare
to the meeting and the defective nomination shall be disregarded. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth herein. (Added 3/24/88)
ARTICLE IV
----------
Officers of the Corporation
---------------------------
Section 4.1. Officers and Number. The officers of the corporation shall be
a Chief Executive Officer, a Chairman of the Board, one or more Vice Chairmen, a
President, one or more Executive Vice Presidents, one or more Sector Presidents,
one or more Business Unit Presidents, one or more Senior Vice Presidents, one or
more Vice Presidents, a Secretary, a Treasurer, a Controller, a General Counsel,
one or more Assistant Secretaries, one or more Assistant General Counsels, one
or more Assistant Treasurers and one or more Assistant Controllers. Any two or
more offices may be held by the same person except the offices of President and
Secretary. The Chief Executive Officer shall be either the Chairman, a Vice
Chairman or the President, as designated by the Board of Directors. The Board of
Directors may elect one or more Vice Chairmen of the Board and one or more
Executive Vice Presidents. The Board of Directors may elect an Honorary Director
to the office of Honorary Chairman of the Board. (Amended 1/27/94)
Page 12
<PAGE>
Section 4.2. Election and Term of Office. The officers of the corporation
shall be elected annually by the Board of Directors at the first meeting of the
Board of Directors held after each annual meeting of the stockholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as conveniently may be. Vacancies may be filled or new
offices created and filled at any meeting of the Board of Directors. Each
officer shall hold office until his successor shall have been duly elected and
shall have qualified or until his death or until he shall resign or shall have
been removed in the manner hereinafter provided. (Adopted 10/21/60)
Section 4.3. Removal. Any officer elected by the Board of Directors may be
removed by the Board of Directors whenever in its judgment the best interests of
the corporation would be served thereby. (Amended 12/15/88)
Section 4.4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term. (Adopted 10/21/60)
Section 4.5. Salaries. No officer shall be prevented from receiving a
salary for his services as an officer by reason of the fact that he is also a
Director of the corporation.
Section 4.6. Chief Executive Officer. The Chief Executive Officer shall
have overall supervision of, and responsibility for, the business, and shall
direct the affairs and policies of the corporation. (Adopted 12/15/88)
Section 4.7. Chairman of the Board. The Chairman of the Board shall preside
at all meetings of the stockholders and Board of Directors. The Chairman of the
Board shall perform such other duties and responsibilities as may be assigned to
him by the Board of Directors. (Amended 9/28/90)
Section 4.8. Vice Chairmen of the Board. The Vice Chairmen of the Board
shall, in the absence of the Chairman of the Board (in the order prescribed by
the Board), preside at all meetings of the stockholders and Board of Directors,
and shall perform such other duties as may be assigned to them by the Board of
Directors. (Amended 12/15/88)
Section 4.9. Honorary Chairman of the Board. The Honorary Chairman of the
Board shall consult with the Chief Executive Officer and other officers of the
corporation, as he or they shall determine, with respect to the general policies
and affairs of the corporation, and shall have such authority and perform such
duties as from time to time may be prescribed by the Board of Directors or as
may be granted by the Chief Executive Officer. (Renumbered 9/28/90)
Section 4.10. President. Subject to the supervision and direction of the
Chief Executive Officer, the President shall have responsibility for such of the
operations
Page 13
<PAGE>
and other functions of the corporation as may be assigned to him. The President
shall perform such other duties and responsibilities as may be assigned to him
by the Chief Executive Officer. In the absence of the Chairman of the Board and
Vice Chairmen of the Board, the President shall preside at meetings of the
stockholders and Board of Directors. (Renumbered and Amended 9/28/90)
Section 4.11. Vice Presidents. Each Vice President shall have such
corporate powers, if any, as may be assigned to him from time to time by the
Board of Directors, Chief Executive Officer, Chairman of the Board or the
President. (Renumbered 9/28/90)
Section 4.12. Senior Vice Presidents. Each Senior Vice President shall have
such corporate powers, if any, as may be assigned to him by the Board of
Directors, Chief Executive Officer, Chairman of the Board or the President.
(Renumbered 9/28/90)
Section 4.13. Sector Presidents. The Board of Directors may from time to
time designate as Sector President one or more of the individuals who occupies
the position of senior officer heading a Sector consisting of one or more
business units and to whom one or more of the Business Unit Presidents reports.
(Amended 1/27/94)
Section 4.14. Business Unit Presidents. The Board of Directors may from
time to time designate as Business Unit President one or more of the individuals
who occupies the position of senior officer heading a business unit consisting
of one or more divisions and one or more sales units and who reports to one or
more of the Sector Presidents or other senior officers of the corporation.
(Added 1/27/94)
Section 4.15. Executive Vice Presidents. The Board of Directors may
designate as an Executive Vice President the officer to whom one or more other
senior officers of this corporation reports. (Amended and Renumbered 1/27/94)
Section 4.16. Order of Succession. Such of the directors of the corporation
as shall be designated by resolution of the Board of Directors, and in the order
of such designation, shall in the absence of the Chairman of the Board perform
the duties of the Chairman of the Board and shall have all of the powers and
shall be subject to any restrictions imposed upon the Chairman.
Such of the officers of the corporation as may be designated by resolution
of the Board of Directors, and in the order of such designation, shall in the
absence of the Chief Executive Officer, perform the duties of the Chief
Executive Officer and when so acting shall have all the powers of and be subject
to any restrictions imposed upon the Chief Executive Officer.
Such of the officers of the corporation as may be designated by resolution
of the Board of Directors, and in the order of such designation, shall in the
absence of
Page 14
<PAGE>
the President perform the duties of the President and when so acting shall have
all the powers of and be subject to any restrictions imposed upon the President.
(Renumbered 1/27/94)
Section 4.17. Secretary. The Secretary shall keep the minutes of all
meetings of the stockholders and Board of Directors of the corporation, shall
have charge of the corporate records and the corporate seal, and shall have the
power to attach the seal to all instruments which shall require sealing after
the same shall have been signed as authorized by the Board of Directors.
(Renumbered 1/27/94)
Section 4.18. Treasurer. The Treasurer shall be responsible for the
receipt, custody and disbursement of all funds of the corporation in the form of
both cash and securities. He may delegate the details of his office to someone
in his stead, but this shall nowise relieve him of the responsibilities and
liability of his office. The Treasurer shall have the power to attach the seal
to all instruments which shall require sealing after the same shall have been
signed as authorized by the Board of Directors. (Renumbered 1/27/94)
Section 4.19. Controller. The Controller reports to the Chief Executive
Officer directly or through such other management executives as the Chief
Executive Officer may direct. The Controller, however, may directly submit any
matter to the Board of Directors for their consideration. The Controller shall
maintain adequate records of all assets, liabilities, and transactions of the
corporation, and in conjunction with other officers and department heads, shall
initiate and enforce measures and procedures whereby the business of the
corporation shall be conducted with the maximum of safety, efficiency and
economy. He shall attend that part of the meetings of the Board of Directors
which is concerned with the review of the financial and operating reports of the
business, except when, in the discretion of the Board, he shall be asked not to
attend. (Renumbered 1/27/94)
Section 4.20. General Counsel. The General Counsel shall be the chief legal
officer of the corporation and have legal responsibility for all aspects of the
business. The General Counsel shall have the power to attach the seal to all
instruments which shall require sealing after the same shall have been signed as
authorized by the Board of Directors. (Renumbered 1/27/94)
Section 4.21. Assistant Treasurers. The Assistant Treasurers shall in the
absence of the Treasurer perform all functions and duties of the Treasurer and
in addition shall perform such functions and duties as the Treasurer may
delegate, but this shall in nowise relieve the Treasurer of the responsibilities
and liability of his office. (Renumbered 1/27/94)
Section 4.22. Assistant Secretaries. The Assistant Secretaries shall in the
absence of the Secretary perform all functions and duties of the Secretary and
in addition shall assume such functions and duties as the Secretary may
delegate, but
Page 15
<PAGE>
this shall in nowise relieve the Secretary of the responsibilities and liability
of his office. (Renumbered 1/27/94)
Section 4.23. Assistant General Counsels. The Assistant General Counsels
shall in the absence of the General Counsel perform all functions and duties of
the General Counsel and in addition shall assume such functions and duties as
the General Counsel may delegate, but this shall in nowise relieve the General
Counsel of the responsibilities and liabilities of his office. (Renumbered
1/27/94)
Section 4.24. Assistant Controllers. The Assistant Controllers shall in
the absence of the Controller perform all functions and duties of the Controller
and in addition shall assume such functions and duties as the Controller may
delegate, but this shall in nowise relieve the Controller of the
responsibilities and liabilities of such office. (Renumbered 1/27/94)
ARTICLE V
---------
Appointed Officers
------------------
The Chief Executive Officer may appoint officials assigned to a particular
Sector or other business unit as such officers of such Sector or business unit
and having such titles as he shall deem appropriate. Any such officer appointed
by the Chief Executive Officer may be removed by the Chief Executive Officer
whenever in his judgment the best interests of the corporation would be served
thereby. The term of office, compensation, powers and duties and other terms of
employment of appointed officers shall be such as the Chief Executive Officer
may from time to time deem proper, and the authority of such officers shall be
limited to acts pertaining to the business of such Sector or business unit.
(Amended 1/27/94)
ARTICLE VI
----------
Contracts, Loans, Checks and Deposits
-------------------------------------
Section 6.1. Contracts. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 6.2. Loans. No loans shall be contracted on behalf of the
corporation and no evidence of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors (or a resolution of a
committee of Directors pursuant to authority conferred upon that committee).
Such authority may be general or confined to specific instances.
Page 16
<PAGE>
Section 6.3. Checks, etc. All checks, demands, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers or such
agent or agents of the corporation, and in such manner, as may be designated by
the Board of Directors or by one or more officers of the corporation named by
the Board of Directors for such purpose.
Section 6.4. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies and other depositaries as the Board of Directors
may select.
(Entire Article Renumbered 6/28/84)
ARTICLE VII
-----------
Certificates of Stock and Their Transfer
----------------------------------------
Section 7.1. Certificates of Stock. Certificates of stock of the
corporation shall be in such form as may be determined by the Board of
Directors, shall be numbered and shall be entered in the books of the
corporation as they are issued. They shall exhibit the holder's name and number
of shares and shall be signed by the Chief Executive Officer, Chairman of the
Board or President or a Vice President and by the Secretary or Assistant
Secretary or the Treasurer or an Assistant Treasurer. If any stock certificate
is signed manually (a) by a transfer agent other than the corporation or its
employee or (b) by a registrar other than the corporation or its employee, any
other signature on the certificate may be a facsimile.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, such
certificate may nevertheless be issued by the corporation with the same effect
as if he were such officer, transfer agent, or registrar at the date of issue.
All certificates properly surrendered to the corporation for transfer shall be
cancelled and no new certificates shall be issued to evidence transferred shares
until the former certificate for at least a like number of shares shall have
been surrendered and cancelled and the corporation reimbursed for any applicable
taxes on the transfer, except that in the case of a lost, destroyed or mutilated
certificate, a new one may be issued therefor upon such terms, and with such
indemnification (if any) to the corporation, as the Board of Directors may
prescribe specifically or in general terms or by delegation to a transfer agent
for the corporation. Certificates shall not be issued representing fractional
shares of stock. (Amended 12/15/88)
Page 17
<PAGE>
Section 7.2. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost or
destroyed upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue
of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost or destroyed certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate alleged
to have been lost or destroyed.
Section 7.3. Transfers. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Transfers of shares shall be made only on the books
of the corporation by the registered holder thereof or by his attorney thereunto
authorized by power of attorney and filed with the Secretary or transfer agent
of the corporation.
Section 7.4. Registered Stockholders. The corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
(Entire Article Renumbered 6/28/84)
ARTICLE VIII
------------
Dividends
---------
Section 8.1. Declaration. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.
Section 8.2. Reserve. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the Directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
such other purposes as
Page 18
<PAGE>
the Directors shall think conducive to the interest of the corporation, and the
Directors may modify or abolish any such reserve in the manner in which it was
created.
(Entire Article Renumbered 6/28/84)
ARTICLE IX
----------
Miscellaneous
-------------
Section 9.1. Fiscal Year. Unless otherwise fixed by the resolution of the
Board of Directors, the fiscal year of the corporation shall be the calendar
year.
Section 9.2. Seal. The corporate seal shall have inscribed thereon the
name of the corporation and the words "Corporate Seal, Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
otherwise reproduced.
Section 9.3. Books. The books of the corporation may be kept (subject to
any provision contained in the statutes) outside the State of Delaware at the
offices of the corporation at Chicago, Illinois, or at such other place or
places as may be designated from time to time by the Board of Directors.
(Entire Article Renumbered 6/28/84)
ARTICLE X
---------
Amendment
---------
These by-laws may be altered or repealed at any regular meeting of the
Board of Directors or at any special meeting of the Board of Directors if notice
of such alteration or repeal be contained in the notice of such special meeting,
provided that no amendment of these by-laws shall conflict with the provisions
of the Certificate of Incorporation, whether relating to the number of Directors
which shall constitute the whole Board or the number of Directors of any class
or otherwise. (Renumbered 6/28/84)
Page 19
<PAGE>
Exhibit 3(ii)(b)
R. R. Donnelley & Sons Company
Amendment to By-Laws
Adopted September 25, 1997
RESOLVED, that Section 3.14 of the Company's by-laws be and hereby is amended to
delete the existing Section 3.14 and insert a new Section 3.14 as follows:
Section 3.14. Corporate Responsibility and Governance Committee.
------------- --------------------------------------------------
The Board of Directors, by resolution adopted by a majority of the whole
Board, may designate not fewer than three nor more than seven Directors to
constitute a Corporate Responsibility and Governance Committee, which
Committee shall oversee the Company's commitment to employee health and
safety, equal employment opportunity and the environment.
The Committee shall also recommend to the Board nominees for election to
the Board of Directors in connection with any meeting of stockholders at
which Directors are to be elected and persons for appointment to fill any
Board vacancy which the Board of Directors is authorized under the By-Laws
to fill, and may also recommend to the Board policies or guidelines
concerning criteria for Board membership, the structure and composition of
Board Committees, the size and composition of the Board and the selection,
tenure and retirement of Directors and matters related thereto.
FURTHER RESOLVED, that Section 3.15 of the Company's by-laws be and hereby is
amended to substitute "Corporate Responsibility and Governance Committee" for
the term "Nominating and Governance Committee" wherever it appears.
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