DONNELLEY R R & SONS CO, 10-K405, 1997-03-10

DONNELLEY R R & SONS CO
10-K405, 1997-03-10
COMMERCIAL PRINTING

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1996

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
------------ ----------

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ----------------------------- ---------------------------------------------
COMMON (PAR VALUE $1.25) NEW YORK, CHICAGO AND PACIFIC STOCK EXCHANGES
PREFERRED STOCK PURCHASE RIGHTS NEW YORK, CHICAGO AND PACIFIC STOCK EXCHANGES

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO THE
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATE-
MENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT
TO THIS FORM 10-K. [X]

AS OF FEBRUARY 28, 1997, 145,649,354 SHARES OF COMMON STOCK WERE OUTSTAND-
ING, AND THE AGGREGATE MARKET VALUE OF THE SHARES OF COMMON STOCK (BASED ON
THE CLOSING PRICE OF THESE SHARES ON THE NEW YORK STOCK EXCHANGE--COMPOSITE
TRANSACTIONS ON FEBRUARY 28, 1997) HELD BY NONAFFILIATES WAS $4,252,537,682.

DOCUMENTS INCORPORATED BY REFERENCE

PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT DATED FEBRUARY 18,
1997 ARE INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-K.

================================================================================
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TABLE OF CONTENTS

<TABLE>
<CAPTION>
FORM 10-K
ITEM NO. NAME OF ITEM PAGE
--------- ------------ ----
<C> <S> <C>
Part I
Item 1. Business................................................. 3
Item 2. Properties............................................... 5
Item 3. Legal Proceedings........................................ 5
Item 4. Submission of Matters to a Vote of Security Holders...... 6
Executive Officers of R. R. Donnelley & Sons Company..... 6
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters..................................... 7
Item 6. Selected Financial Data.................................. 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 8
Item 8. Financial Statements and Supplementary Data.............. 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................... 13
Part III
Item 10. Directors and Executive Officers of the Registrant....... 14
Item 11. Executive Compensation................................... 14
Item 12. Security Ownership of Certain Beneficial Owners and
Management.............................................. 14
Item 13. Certain Relationships and Related Transactions........... 14
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K................................................ 14
Signatures............................................... 15
Index to Financial Statements and Financial Statement
Item 14(a). Schedules............................................... F-1
Index to Exhibits........................................ E-1
</TABLE>

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PART I

ITEM 1. BUSINESS

R. R. Donnelley & Sons Company (the company), incorporated in the state of
Delaware in 1956 as the successor to a business founded in 1864, 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. It is a major supplier in the United Kingdom and also provides
services in Latin America, other locations in Europe and in Asia. Services
provided to customers include presswork and binding, including on-demand
customized publications; conventional and digital preproduction operations,
including desktop publishing and filmless color imaging necessary to create a
printed image; software manufacturing, marketing and support services (through
Stream International Holdings Inc.); design and related creative services
(provided through Coris Inc.); electronic communication networks for
simultaneous worldwide product releases; digital services to publishers; and
the planning for and fulfillment of truck, rail, mail and air distribution for
products of the company and its customers, as well as third parties.

In April, 1995, Stream International Holdings Inc. (formerly Stream
International Inc., hereinafter referred to as Stream International or Stream)
was formed from the merger of the company's Global Software Services business
unit with Corporate Software Inc. Stream International is approximately 80%
owned by the company and is the world's largest software manufacturer,
marketer and technical support and services provider.

On March 28, 1996, the company announced a restructuring of certain of its
operations. As part of this restructuring, the company began the
discontinuation of catalog and magazine printing operations in the United
Kingdom and closed Stream's plant in Wetherby, England, as well as its
Crawfordsville, Ind., documentation printing and diskette replication
operations. In addition, the company announced plans to close or consolidate
four other operations, including gravure printing plants in Newton, N.C. and
Casa Grande, Ariz.; a book preproduction operation in Barbados; and a stand
alone book bindery in Scranton, Pa. (see restructuring charges discussion on
page 10). In addition to the restructuring, on June 19, 1996, Metromail
Corporation ("Metromail"), a wholly-owned subsidiary of the company, completed
an initial public offering of its common stock. As a result of the offering,
the company's interest in Metromail was reduced to approximately 38%. On
November 4, 1996, Donnelley Enterprise Solutions Incorporated ("DESI"), a
wholly-owned subsidiary of the company, completed an initial public offering
of its common stock, and as a result of the offering, the company's interest
in DESI was reduced to approximately 43% (see divestitures discussion on page
11).

The company provides its services to publishers of consumer and trade
magazines, books and telephone and other directories; direct mail (catalog)
and in-store merchandisers; software publishers and computer hardware
manufacturers; financial institutions; corporate users of software products
and related services; and other firms requiring substantial amounts of
printing and other related information services. Due to the range of services
it provides, the company believes it is uniquely positioned to meet the
information and communication needs of its customers.

In January, 1996, the company announced a reorganization of its business
groups to include the following operating units and subsidiaries:

Commercial Print Sector, which includes Merchandise Media (catalogs, retail
advertising circulars and direct-mail products--$1.3 billion, or 20% of 1996
consolidated net sales) and Magazine Publishing Services (consumer and trade
magazines--$1.1 billion, or 17% of 1996 consolidated net sales). These are
businesses with common requirements in scale, equipment, services and
distribution.

Information Management Sector, which includes Book Publishing Services ($718
million, or 11% of 1996 consolidated net sales), Telecommunications
(directories--$704 million, or 11% of 1996 consolidated net sales) and
Financial Services (financial printing and communications-process services--
$441 million, or 7% of 1996 consolidated net sales). These businesses serve
customers that need to reproduce and distribute information in a variety of
formats globally and share requirements for flexible, fast-response production
systems.

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This sector also includes Information Services ($275 million, or 4% of 1996
consolidated net sales), which includes the 77 Capital venture-capital fund,
creative design and communication services, and a variety of information
services. These operations provide direct-marketing, graphics-management and
graphic-design services. Using digital technologies, these business units are
developing services that help customers create new products, enhance their
marketing communications or increase the value of information by combining
digital media with print. Information Services included 6 months' revenues from
Metromail of $126 million and 10 months' revenues from DESI of $80 million.

Global Commercial Print Sector, which includes the company's directory, book,
magazine and catalog operations outside North America--in Europe, Latin America
and Asia ($327 million, or 5% of 1996 consolidated net sales).

Stream International ($1.7 billion, or 25% of 1996 consolidated net sales),
formed in April 1995 by a merger of the company's Global Software Services
business with Corporate Software Inc. Approximately 80% owned by the company,
it is the world's largest software manufacturer, marketer and technical-support
and services provider. Stream is organized into three business units: Outsource
Manufacturing (software replication, documentation, and kitting and assembly);
Corporate Technologies (licensing and fulfillment, customized documentation,
license administration and user training); and Outsource Technical Support
(technical and help-line support).

For the fiscal year ended December 31, 1996, international operations
represented approximately 16% of consolidated net sales. See "Geographic
Segments" in the Notes to Consolidated Financial Statements for further
information.

A significant portion of the company's sales are made pursuant to term
contracts with customers, with the remainder being made on a single-order
basis. For some customers, the company prints and provides related services
for several different publications under different contracts. The company's
contracts with its larger customers normally run for a period of years (usually
three to five years, but longer in the case of contracts requiring significant
capital investment) or for an indefinite period subject to termination on
specified notice by either party. Such sales contracts generally provide for
timely price adjustments to reflect price changes for materials, wages and
utilities. No single customer has a relationship with the company that
accounted for 5% or more of the company's sales in 1996. The company's
dependence for sales from its ten largest customers has declined in the past
ten years to approximately 19% of sales in 1996, from 28% of sales in 1986.

The various phases of the information industry in which the company is
involved are highly competitive. While the company has contracts with many of
its customers as discussed above, there are numerous competing companies and
renewal of such contracts is dependent, in part, on the ability of the company
to continue to differentiate itself from the competition. Differentiation
results, in part, from the company's broad range of value-added services, which
include: conventional and digital preproduction, computerized printing,
Selectronic(R) imaging and gathering and sophisticated pool shipping and
distribution services for printed products; information content repackaging
into multiple formats, including print, magnetic and optical media; fulfillment
and returned books inventory management; software manufacturing, marketing and
support services; reprographics and facilities management; and graphic design
and editorial services. Although the company believes it is the largest
commercial printer in the United States, it estimates that its revenues
represent approximately 8% of total sales in the industry. Although the
company's plants are well located for the global, national or regional
distribution of its products, competitors in some areas of the United States
have a competitive advantage in some instances due to such factors as freight
rates, wage scales and customer preference for local services. In addition to
location, other important competitive factors are price and quality as well as
the range of available services.

The primary raw materials used by the company are paper and ink. In 1996, the
company spent approximately $3.2 billion on raw materials. The company is a
large purchaser of paper and leverages its volume requirements to improve
materials management and materials performance for its customers and believes
this is a competitive advantage. The company negotiates with leading suppliers
to maximize its purchasing efficiencies, but does not rely on any one supplier.
The company has existing paper supply contracts (at prevailing market

4
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prices) to cover substantially all of the company's requirements through 1997,
and management believes extensions and renewals of these purchase contracts
will provide adequate paper supplies in the future. Ink and ink materials are
currently available in sufficient amounts, and the company believes that it
will have adequate supplies in the future. Purchasing activity at both the
local plant and corporate levels are coordinated to increase economies of
scale.

The company estimates that its capital expenditures in 1997 and 1998, to
comply with federal, state and local provisions for environmental controls, as
well as expenditures, if any, for the company's share of costs to clean
hazardous waste sites that have received waste from the company, will not have
a material effect upon its earnings or its competitive position.

The company employed an average of approximately 38,800 persons in 1996
(38,000 persons at December 31, 1996), of whom more than 9,800 had been with
the company for more than 10 years and over 3,300 for 25 years or longer. As of
December 31, 1996, the company employed approximately 29,000 people in the
United States, approximately 1,000, or 3%, of whom were covered by collective
bargaining agreements. In addition, the company employed approximately 9,000
people in its foreign operations, the majority of whom were covered by
collective bargaining agreements, as is customary in those markets.

ITEM 2. PROPERTIES

The company's corporate office is located in a leased office building in
Chicago, Illinois. As of December 31, 1996, the company and its subsidiaries
operated 10 plants encompassing approximately 6.7 million square feet of
manufacturing and warehouse space and constituting its gravure printing
platform in the United States; 47 other U.S. facilities encompassing
approximately 12.1 million square feet of manufacturing, operations and
warehouse space; and 24 plants encompassing approximately 2.4 million square
feet in Latin America, Europe and Asia. Of the total manufacturing and
warehouse facilities, approximately 17.5 million square feet of space is owned
by the company and its subsidiaries, while the remaining 3.7 million square
feet of space is leased. In addition, the company has sales offices across the
U.S., Latin America, Europe and Asia.

The company has historically followed the practice of adding capacity to meet
customer requirements, and has retained a substantial portion of its earnings
for reinvestment in plant and equipment for this purpose. The company will
continue to manage its assets in order to meet its customers' needs and growth
objectives, while focusing on the generation of maximum value for its
shareholders.

ITEM 3. LEGAL PROCEEDINGS

On November 25, 1996, a purported class action was brought against the
company in federal district court in Chicago, Ill., on behalf of 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 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 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 terminating 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. The company's position is that the proper ERISA
class is limited to the former Chicago employees.

5
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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 that could
result from an unfavorable outcome of either case.

In September, 1995, an amended administrative complaint by the U.S.
Environmental Protection Agency Region V seeking $210,000 in penalties was
filed against the company's Warsaw, Ind., facility alleging violations of the
Resource Conservation and Recovery Act. The complaint alleges that filtercake
from wastewater treatment operations was mischaracterized by the company as
non-hazardous waste. The original complaint contained other allegations which
were dismissed by an administrative law judge. In December, 1996, the
administrative law judge granted Region V's motion for an accelerated decision,
denied a similar motion made by the company and issued a ruling requiring a
hearing to determine if certain of the company's operations fall within the
definition of "electroplating" operations making the filtercake a listed
hazardous waste.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the quarter
ended December 31, 1996.

EXECUTIVE OFFICERS OF R. R. DONNELLEY & SONS COMPANY

<TABLE>
<CAPTION>
NAME, AGE AND OFFICER BUSINESS EXPERIENCE DURING
POSITIONS WITH THE COMPANY(1) SINCE PAST FIVE YEARS(2)
- ----------------------------- ------- --------------------------
<S> <C> <C>
J. M. Richman 1996 Management responsibilities as Acting Chairman
69, Director, Acting Chair- of the Board and Chief Executive Officer.
man of the Board and Counsel to the law firm of Wachtell, Lipton,
Chief Executive Officer(2) Rosen & Katz.

J. R. Donnelley 1983 Management responsibilities as Vice Chairman of
61, Director, Vice Chairman the Board and for Corporate Communication,
of the Board Community Relations and Government Affairs.
Prior management responsibility for Corporate
Development.

S. J. Baumgartner 1993 Management responsibilities for R. R. Donnelley
45, Executive Vice Presi- Europe, R. R. Donnelley Latin America and R. R.
dent and Sector President, Donnelley Asia Operations. Prior management
Global Commercial Print responsibilities for Strategy, Technology and
Sector(2) Information Systems, Human Resources, Corporate
Affairs and Compensation and Benefits. Prior
experience as a co-owner and member of board of
directors of FRC Management, Inc., a provider of
retirement, consulting and real estate
investment services, and as a Senior Vice
President, Human Resources and Public Affairs at
Rhone-Poulenc Rorer/Rorer Group, Inc., a
pharmaceutical manufacturer.

C. A. Francis 1995 Management responsibilities for Corporate
43, Executive Vice Presi- Development and Strategy, Investor Relations,
dent and Chief Financial Treasury, Financial Reporting and Accounting,
Officer(2) Real Estate, Internal Audit and Taxes. Prior
management responsibilities for Purchasing.
Prior experience as Treasurer at FMC
Corporation, a diversified manufacturer of
chemicals and machinery.

W. E. Tyler 1989 Management responsibilities for Information
44, Executive Vice Presi- Services, Technology, Information Systems,
dent and Sector President, Environmental Affairs, Financial Services,
Information Management Telecommunications and Book Publishing Services.
Prior management responsibilities for Global
Software Services, R. R. Donnelley Europe,
R. R. Donnelley Latin America and R. R.
Donnelley Asia Operations; prior sales and
manufacturing responsibility for Global Software
Services.
</TABLE>

6
<PAGE>

<TABLE>
<CAPTION>
NAME, AGE AND OFFICER BUSINESS EXPERIENCE DURING
OSITIONS WITH THE COMPANY(1)P SINCE PAST FIVE YEARS(2)
- ----------------------------- ------- --------------------------
<S> <C> <C>
J. P. Ward 1991 Management responsibilities for Merchandise Me-
42, Executive Vice Presi- dia, Magazine Publishing Services and Worldwide
dent Procurement. Prior management responsibilities
and Sector President, for Telecommunications; prior sales and manufac-
Commercial Print Sector turing responsibility for Merchandise Media and
Financial Services.
</TABLE>
- --------
(1) Each officer named is a member of the company's Office of the Chairman.

(2) Each officer named has carried on his principal occupation and employment
in the company for more than five years with the exception of J. M.
Richman, S. J. Baumgartner and C. A. Francis as noted in the above table.
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The common stock is listed and traded on the New York Stock Exchange,
Chicago Stock Exchange and Pacific Stock Exchange.

As of February 28, 1997 there were 11,316 stockholders of record.
Information about the quarterly prices of the common stock, as reported on the
New York Stock Exchange-Composite Transactions, and dividends paid during the
two years ended December 31, 1996, is contained in the chart below:

<TABLE>
<CAPTION>
COMMON STOCK PRICES
-------------------------------
DIVIDENDS
PAID 1996 1995
----------- --------------- ---------------
1996 1995 HIGH LOW HIGH LOW
----- ----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
First Quarter....................... $0.18 $0.16 $39 7/8 $34 1/8 $35 7/8 $28 7/8
Second Quarter...................... 0.18 0.16 37 3/4 29 3/4 37 3/8 32 5/8
Third Quarter....................... 0.19 0.18 35 3/4 29 3/4 41 1/4 35 7/8
Fourth Quarter...................... 0.19 0.18 34 5/8 29 3/8 41 35 7/8
Full Year........................... 0.74 0.68 39 7/8 29 3/8 41 1/4 28 7/8
</TABLE>

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ITEM 6. SELECTED FINANCIAL DATA

SELECTED FINANCIAL DATA
(NOT COVERED BY AUDITORS' REPORT)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $6,598,958 $6,511,786 $4,888,786 $4,387,761 $4,193,072
(Loss) earnings from
operations*............ (135,976) 559,409 459,431 325,607 405,501
Net (loss) income from
operations before
cumulative effect of
accounting changes..... (157,623) 298,793 268,603 178,920 234,659
Net (loss) income**..... (157,623) 298,793 268,603 109,420 234,659
PER COMMON SHARE:***
Net (loss) income from
operations before
cumulative effect of
accounting changes..... (1.04) 1.95 1.75 1.16 1.51
Net (loss) income**..... (1.04) 1.95 1.75 0.71 1.51
Dividends............... 0.74 0.68 0.60 0.54 0.51
<CAPTION>
DECEMBER 31
-------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $4,849,004 $5,384,810 $4,452,143 $3,654,026 $3,410,247
Noncurrent liabilities.. 2,070,176 2,081,266 1,671,924 1,124,594 949,537
</TABLE>
- --------
* 1996 loss from operations included restructuring charges of $560 million;
1993 earnings from operations included a restructuring charge of $90
million.

** 1996 net loss and net loss per common share included the one-time items for
restructuring charges ($435.4 million or $2.87 per common share) and gains
on the stock offerings of subsidiaries ($48.0 million or $0.32 per common
share); 1993 net income and net income per common share included the one-
time items for the restructuring charge ($60.8 million or $0.39 per share),
the net cumulative effect of accounting changes ($69.5 million or $0.45 per
share), and the deferred income tax charge related to the federal income
tax rate increase ($6.2 million or $0.04 per share).

*** Reflects the 2-for-1 stock split effective September 1, 1992.

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

RESULTS OF OPERATIONS

Highlights 1996--R.R. Donnelley's 1996 net loss was $158 million, or $1.04
per share, including the effects of two restructuring charges taken in 1996,
as well as the gains resulting from the partial divestitures of Metromail and
DESI. Excluding the restructuring charges and the gains, the company earned
$230 million, or $1.51 per share, compared to 1995 net income of $299 million,
or $1.95 per share. Net sales were $6.6 billion, up 1 percent, compared to
1995 net sales of $6.5 billion. In the fourth quarter, excluding the gain from
the partial divestiture of DESI, the company earned $76 million, down 21
percent from 1995's fourth quarter, and earnings per share declined to $0.51.

Highlights 1995--R.R. Donnelley's 1995 net income rose to $299 million, or
$1.95 per share, compared to 1994 net income of $269 million, or $1.75 per
share. Net sales were $6.5 billion, up 33 percent, compared to 1994 net sales
of $4.9 billion.

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NET SALES

1996 Compared to 1995--Net sales increased 1% from $6.5 billion to $6.6
billion, reflecting the impact from the merger that created Stream, higher
volume in Telecommunications and strong volume increases in Financial Services.
These increases were offset by the impact of decreased paper prices ($293
million), the partial divestiture of Metromail ($121 million) and lower by-
product revenue ($58 million).

Net sales from foreign operations represented approximately $1.1 billion, or
16% of consolidated net sales in 1996, up from approximately $1.0 billion, or
16% of consolidated net sales in 1995. The increase in foreign sales reflects
volume growth in the United Kingdom and Poland, partially offset by declines in
Latin America.

1995 Compared to 1994--Net sales increased 33% from $4.9 billion to $6.5
billion, reflecting the inclusion of Corporate Software Inc. beginning in April
1995, higher 1995 paper prices, growth in foreign operations and strong demand
across most business units. Approximately 37%, or $606 million, of the revenue
increase was due primarily to the merger that created Stream, while higher
paper prices accounted for approximately 28%, or $460 million, of the gain.
Excluding acquisitions and new locations, the 11% growth in net sales was the
result of strong volume across all business units. Significant increases from
the prior year were primarily in the manufacturing and servicing side of
Stream--reflecting the release of Microsoft Corporation's Windows(R) 95;
Telecommunications--reflecting new business with Southwestern Bell Yellow
Pages, Inc., and other affiliates of SBC Communications, Inc.; and Specialized
Publishing Services (trade magazines), Book Publishing Services and Catalog
Services--reflecting higher volume from new and existing customers.

Net sales from foreign operations represented approximately $1.0 billion, or
16% of consolidated net sales in 1995, up from approximately $553 million, or
11% of consolidated net sales in 1994. The growth in foreign sales reflected
the merger that created Stream and volume increases from established foreign
operations and newer operations in Latin America, Central Europe and Asia.

EXPENSES

1996 Compared to 1995--Gross profit decreased 7%, to $1.1 billion, reflecting
lower by-product paper revenue ($58 million) and the company's reduced
ownership position in Metromail, partially offset by increased volume in
Financial Services and a lower LIFO (Last-In, First-Out) provision (decrease of
$15 million before taxes, or $0.06 per share after taxes).

Selling and administrative expenses increased 7% to $698 million, reflecting
higher expenses at Stream (due primarily to the inclusion of Corporate Software
Inc. beginning in April 1995--$37 million of expense in the 1996 first quarter)
and higher volume-related expenses at Financial Services, partially offset by
the company's reduced ownership position in Metromail. The ratio of selling and
administrative expenses to net sales, at 11% in 1996, was 1% higher than in
1995. Net interest expense decreased $14 million, or 13%, reflecting lower
interest rates and lower average debt balances. Other income increased $51
million due to a $13 million increase
in gains on the sales of investments, primarily in the company's venture
capital portfolio, and $33 million of minority interest benefits, primarily
related to Stream's operating performance and the restructuring charges taken
during the first half of 1996.

1995 Compared to 1994--Gross profit increased 27% to $1.2 billion, which was
lower than the sales growth rate due to the impact of the change in revenue mix
associated with the merger that created Stream, a higher LIFO provision
(increase of $10 million before taxes, or $0.04 per share after taxes) and
higher paper costs (which are generally recovered, but at low margins). In
addition, in the third quarter of 1995, the company changed its method of
calculating its LIFO provision from the components of cost method of valuing
LIFO inventories to the external-index method. The external-index method
includes a blend of several indices and takes into account the effects of
productivity improvements in the company's cost of sales. The change in
calculation resulted in a $37 million benefit before taxes, or $0.15 per share
after taxes.

9
<PAGE>

Selling and administrative expenses increased 32% to $650 million, reflecting
volume increases and expenses associated with the merger that created Stream,
other acquisitions and new operations. The ratio of selling and administrative
expenses to net sales, at 10% in 1995, remained unchanged from 1994. Interest
expense increased $56 million, reflecting both higher average interest rates
and higher average debt balances associated with capital spending, acquisitions
and increased working capital needs primarily from higher paper quantities and
prices.

RESULTS FROM OPERATIONS--PRINT-RELATED BUSINESSES

Excluding the restructuring charges, the company's print-related businesses
(all business sectors other than Stream and excluding Metromail) had 1996
operating earnings of $441 million, a 10% decrease from 1995 operating earnings
of $491 million, primarily related to a $55 million reduction in by-product
paper revenue. Net sales of these businesses were $4.8 billion in both 1996 and
1995.

The company's print-related businesses had fourth-quarter operating earnings
of $142 million, a 2% decrease from 1995 fourth-quarter operating earnings of
$145 million, primarily reflecting lower revenue from the sale of by-product
paper ($8 million). Net sales in the quarter were $1.4 billion, a 6% decrease
from 1995 fourth-quarter net sales of $1.5 billion, reflecting lower paper
prices and decreased by-product paper revenue, partially offset by increased
volume in most businesses.

RESULTS FROM OPERATIONS--STREAM

Excluding the restructuring charges, Stream's 1996 operating loss was $29
million, compared to 1995 operating earnings of $32 million, due to a shift in
product mix to lower-margin products and decreased demand for new systems and
software, printed product and diskette replication. Net sales were $1.7
billion, up 18% from 1995 net sales of $1.4 billion, largely due to the
inclusion of Corporate Software Inc. beginning in April 1995 ($190 million of
net sales in the first quarter of 1996).

Stream's fourth-quarter operating loss was $10 million, down from 1995's
fourth-quarter operating earnings of $17 million. Stream's fourth-quarter net
sales were $504 million, a 7% increase over 1995 fourth-quarter net sales of
$473 million.

EVENTS AFFECTING COMPARABILITY

Restructuring Charges--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 Stream's worldwide
operations. Additionally, the company wrote down approximately $128 million in
equipment, intangibles and investments in non-core businesses, in accordance
with Statement of Financial Accounting Standard No. 121.

As part of this restructuring, the company began the discontinuation of
catalog and magazine printing operations in the United Kingdom and closed
Stream's plant in Wetherby, England, as well as its Crawfordsville, Ind.,
documentation printing and diskette replication operations. In addition, as
part of the restructuring, the company announced plans to close or consolidate
four other operations, including gravure-printing plants in Newton, N.C., and
Casa Grande, Ariz.; a book preproduction operation in Barbados; and a stand-
alone book bindery in Scranton, Pa.

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 Stream's software manufacturing, printing, kitting and fulfillment
operations. The restructuring was taken due to 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.

10
<PAGE>

Pre-tax cash outlays associated with the restructuring and realignment
charges are expected to be $177 million (approximately $30 million of this
amount has been paid through December 31, 1996). The remaining $383 million
relates to non-cash items, mainly the write-down of fixed assets and goodwill.
Because of this write-down, 1996 depreciation and amortization expenses were
approximately $11 million (pre-tax) less than they would have been had the
charges not been incurred.

Divestitures--On June 19, 1996, Metromail completed an initial public
offering of its common stock. As a result of the offering, the company's
interest in Metromail was reduced to approximately 38%. The transaction
resulted in a pre-tax gain of approximately $44 million ($26 million after
tax). Metromail had net sales and operating earnings of $126 million and $13
million, respectively, through the date of the public offering. In 1995,
Metromail had net sales and operating earnings of $247 million and $36
million, respectively. As a result of the initial public offering, the company
received $250 million in proceeds that were used to repurchase its shares
(refer to share repurchase discussion below).

On November 4, 1996, DESI completed an initial public offering of its common
stock. As a result of the offering, the company's interest in DESI was reduced
to approximately 43%. The transaction resulted in a pre-tax gain of $36
million ($22 million after taxes). DESI's net sales and operating earnings
were not material to the consolidated results of the company. As a result of
the public offering, the company received $52 million in proceeds, which were
used for general corporate purposes.

Prior to the initial public offerings, the company accounted for Metromail
and DESI on a consolidated basis. Following these offerings, the company
accounted for them using the equity method. Under the equity method, the
company recognizes its proportionate share of net income from both entities.

Corporate-owned Life Insurance--In August 1996, the Health Insurance
Portability and Accountability Act was enacted, eliminating the deduction for
interest on loans borrowed against corporate-owned life insurance (COLI)
programs. The company has used COLI to finance employee benefits for several
years. As a result of the legislation, the company expects its effective tax
rate to rise over the next four 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 number of shares outstanding at December 31, 1996, was 146 million,
with an average outstanding number of shares for the year of 152 million. In
1995, the average outstanding number of shares was 153 million.

LIQUIDITY AND CAPITAL RESOURCES

1996 Compared to 1995--Working capital, particularly cash, accounts
receivable and inventories, is closely controlled and continually monitored.
Working capital decreased $172 million from December 31, 1995, due to
decreased accounts receivable, the impact of the tight paper market in 1995
(which included higher paper
prices and inventories) and the company's reduced ownership position in
Metromail and DESI. During 1996, cash flow from operations was $647 million,
up 67% from 1995. Management believes that the company's cash flow and
borrowing capability are sufficient to fund its operations.

Capital expenditures during 1996 totaled $403 million, down from the $456
million spent in 1995. This capital investment reflects the company's program
to expand and upgrade operations in specific markets and to restructure other
operations to make them more efficient, competitive and profitable over time.
For 1997, the company expects to spend between $450 million and $500 million.
The company's capital investments over the past five years have trended toward
capital for productivity improvements and away from expansion projects and
acquisitions.

At December 31, 1996, 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 have credit facilities with unused borrowing
capacities totaling approximately $105 million at December 31, 1996.

11
<PAGE>

1995 Compared to 1994--Working capital increased $226 million from December
31, 1994, due to increased accounts receivable, the impact of the tight paper
market, business growth and the merger that created Stream. During 1995, cash
flow from operations was $387 million, up from $188 million in 1994.

Capital expenditures during 1995 totaled $456 million, including purchases of
equipment to meet the needs of customers and expansions of manufacturing
plants. This capital investment reflected the company's program to expand and
upgrade operations, targeting specific markets in the United States, Europe,
Asia and Latin America. Along those lines, in January 1996 the company
increased its ownership interest in Chile-based Cochrane, S.A., to 55.3%, up
from its 51% interest at year-end 1995.

At December 31, 1995, the company had an unused revolving credit facility of
$550 million with a number of banks. This credit facility provided 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 $100 million at December 31, 1995.

OTHER INFORMATION

Human Resources--As of December 31, 1996, the company employed approximately
38,000 people worldwide. Of that number, approximately 29,000, or 85%, were
employed in the United States--3% of whom were covered by collective bargaining
agreements. In addition, the company employed approximately 9,000 people in its
foreign operations, the majority of whom were covered by collective bargaining
agreements, as is customary in those markets.

From 1995 to 1996, the number of U.S. employees decreased by 3%. Despite this
decline, minority representation in the workforce continued to rise, increasing
by 8%. Specifically, African-American representation rose by 7%, Hispanic
representation rose by 12% and Asian-American representation rose by 2%. From
1994 to 1995, the number of U.S. employees increased by 23% while minority
employment increased much faster, rising by 40%. The representative breakdowns
were African-American representation up by 21%, Hispanic representation up by
56% and Asian-American representation up by 84%.

In these periods of both rising and declining employment, the company's
minority representation has increased. As of December 31, 1996, total minority
workforce representation in the United States stood at 13%, with 10%
representation in the company's managerial/professional staff.

Approximately 32% of the company's workforce in the United States is female.
On average, 13% of the female managers and professionals are minority, as are
almost 17% of female hourly employees. Every major location has female managers
and professionals, and every manufacturing plant has female skilled
craftspeople. Approximately 34% of the company's sales force is female, and
women hold several senior positions within the company.

Technology--The company remains a technology leader, investing not only in
print-related technologies such as computer-to-plate and digital printing, but
also in areas such as distribution of content and images over the Internet.

At year end, the company had more than 25 computer-to-plate devices deployed
in operations around the world. Approximately 75% of the company's customers
prepare content on desktop publishing workstations, and nearly 1,000 were
transmitting data directly to the company. Additionally, at year end, the
company held unexpired patents on more than 100 proprietary printing and
binding technologies.

Litigation--On November 25, 1996, a purported class action was brought
against the company in federal district court in Chicago, Ill., on behalf of
current and former African-American employees, alleging that the company
racially discriminated against them. The complaint seeks declaratory and
injunctive relief, and asks for

12
<PAGE>

actual, compensatory, consequential and punitive damages in an amount not less
than $500 million. Most of the specific factual assertions of the original
complaint relate 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.

Environmental Regulations--The company is subject to various laws and
regulations relating to employee health and safety and to environmental
protection. The company's policy is to be in compliance with all such laws and
regulations that govern protection of the environment and employee health and
safety. The company does not anticipate that compliance with such
environmental, safety and health laws and regulations will have a material
adverse effect upon the company's competitive or consolidated financial
position.

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 printing markets
to suffer from overcapacity, and competition therefore is fierce. Competition
is largely based on price, quality and servicing the special needs of
customers.

The company is a large consumer of paper, acquired for customers and by
customers. As in 1996, the cost and supply of certain paper grades consumed in
the manufacturing process will continue to affect the company's financial
results. However, management believes that the industry will experience
relatively stable paper prices and balanced supplies in 1997.

In December 1996, the company announced its intent to undertake an initial
public offering of Stream's Outsource Technical Support business. The company
is also working closely with Stream to evaluate alternatives to realize the
value of its investment in Stream's other two businesses, Corporate
Technologies and Outsource Manufacturing, but no transactions, approaches or
timelines have been determined.

The company's competitive strengths rest in its worldwide geographic
coverage, strategic raw materials purchasing (primarily paper and ink),
comprehensive service offerings, technology advantage and economies of scale.
These, together with the steps already taken in 1996 based on the principles of
EVA, should help the company improve its return on capital in 1997.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial information required by Item 8 is contained in Item 14 of Part
IV and listed on page F-1.

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

None

13
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning the directors and officers of the company is contained
on pages 2-6 and 8 of the company's definitive Proxy Statement dated February
18, 1997 and is incorporated herein by reference. See also the list of the
company's executive officers and related information under "Executive Officers
of R. R. Donnelley & Sons Company" at the end of Part I of this Report.

ITEM 11. EXECUTIVE COMPENSATION

Information concerning executive compensation for the year ended December 31,
1996, and, with respect to certain of such information, prior years, is
contained on pages 8-13 of the company's definitive Proxy Statement dated
February 18, 1997 and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information concerning the beneficial ownership of the company's common stock
is contained on pages 6-7 of the company's definitive Proxy Statement dated
February 18, 1997 and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information concerning certain relationships and related transactions for the
year ended December 31, 1996, is contained on page 5 of the company's
definitive Proxy Statement dated February 18, 1997 and is incorporated herein
by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)1. Financial Statements
The financial statements listed in the accompanying index (page F-1) to
the financial statements are filed as part of this annual report.
2. Financial Statement Schedule
The financial statement schedule listed in the accompanying index (page
F-1) to the financial statements is filed as part of this annual
report.
3. Exhibits
The exhibits listed on the accompanying index to exhibits (pages E-1
through E-2) are filed as part of this annual report.
(b)Reports on Form 8-K
None
(c)Exhibits
The exhibits listed on the accompanying index (Pages E-1 through E-2)
are filed as part of this annual report.
(d)Financial Statements omitted--
Separate financial statements of the parent company have been omitted
since it is primarily an operating company and the minority interest
and indebtedness to persons other than the parent of the subsidiaries
included in the consolidated financial statements are less than 5% of
total consolidated assets.

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

14
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THE 10TH DAY
OF MARCH, 1997.

R. R. DONNELLEY & SONS COMPANY

/s/ Peter F. Murphy
By __________________________________
Peter F. Murphy,
Vice President and Controller

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED, ON THE 10TH DAY OF MARCH, 1997.

SIGNATURE AND TITLE SIGNATURE AND TITLE

/s/ John M. Richman /s/ Thomas S. Johnson
- ------------------------------------- -------------------------------------
John M. Richman Thomas S. Johnson
Acting Chairman of the Board and Director
Chief Executive Officer, Director

(Principal Executive Officer) /s/ George A. Lorch
-------------------------------------

/s/ Cheryl A. Francis George A. Lorch
- ------------------------------------- Director
Cheryl A. Francis

Executive Vice President and /s/ M. Bernard Puckett
Chief Financial Officer -------------------------------------
(Principal Financial Officer) M. Bernard Puckett
Director

/s/ Peter F. Murphy
- ------------------------------------- /s/ William D. Sanders
Peter F. Murphy -------------------------------------
Vice President and Controller William D. Sanders
(Principal Accounting Officer) Director

/s/ Martha Layne Collins /s/ Bide L. Thomas
- ------------------------------------- -------------------------------------
Martha Layne Collins Bide L. Thomas
Director Director

/s/ James R. Donnelley /s/ H. Blair White
- ------------------------------------- -------------------------------------
James R. Donnelley H. Blair White
Director Director

/s/ Charles C. Haffner III /s/ Stephen M. Wolf
- ------------------------------------- -------------------------------------
Charles C. Haffner III Stephen M. Wolf
Director Director

/s/ Judith H. Hamilton
- -------------------------------------
Judith H. Hamilton
Director

15
<PAGE>

ITEM 14(A). INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Consolidated Statements of Income for each of the three years ended
December 31, 1996..................................................... F-2
Consolidated Balance Sheets at December 31, 1996 and 1995.............. F-3
Consolidated Statements of Cash Flows for each of the three years ended
December 31, 1996..................................................... F-4
Consolidated Statements of Shareholders' Equity for each of the three
years ended December 31, 1996......................................... F-5
Notes to Consolidated Financial Statements............................. F-6
Report of Independent Public Accountants............................... F-16
Interim Financial Information.......................................... F-19
Report of Independent Public Accountants on Financial Statement
Schedule.............................................................. F-20
Financial Statement Schedule
II--Valuation and Qualifying Accounts................................ F-21
</TABLE>

F-1
<PAGE>

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

THOUSANDS OF DOLLARS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net sales.................................... $6,598,958 $6,511,786 $4,888,786
Cost of sales................................ 5,475,959 5,302,394 3,938,494
---------- ---------- ----------
Gross profit................................. 1,122,999 1,209,392 950,292
Selling and administrative expenses.......... 698,343 649,983 490,861
Restructuring charges........................ 560,632 -- --
---------- ---------- ----------
(Loss) earnings from operations.............. (135,976) 559,409 459,431
Other expense (income):
Interest expense............................. 95,482 109,759 53,493
Gain on stock offerings of subsidiaries...... (80,041) -- --
Other, net................................... (40,940) 10,118 10,934
---------- ---------- ----------
(Loss) earnings before income taxes.......... (110,477) 439,532 395,004
Income taxes................................. 47,146 140,739 126,401
---------- ---------- ----------
Net (loss) income........................ $ (157,623) $ 298,793 $ 268,603
========== ========== ==========
Net (loss) income per share of common
stock................................... $ (1.04) $ 1.95 $ 1.75
========== ========== ==========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-2
<PAGE>

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
THOUSANDS OF DOLLARS

<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Assets
Cash and equivalents................................. $ 31,142 $ 33,122
Receivables, less allowances for doubtful accounts of
$24,735 in 1996 and $25,311 in 1995................. 1,324,252 1,466,159
Inventories.......................................... 288,506 380,078
Prepaid expenses..................................... 108,957 28,600
---------- ----------
Total current assets............................... 1,752,857 1,907,959
Net property, plant and equipment, at cost, less
accumulated depreciation of $2,344,374 in 1996 and
$2,111,461 in 1995.................................. 1,944,727 2,008,988
Goodwill and other intangibles, net of accumulated
amortization of $129,510 in 1996 and $178,997 in
1995................................................ 541,319 1,024,954
Other noncurrent assets.............................. 610,101 442,909
---------- ----------
Total assets....................................... $4,849,004 $5,384,810
========== ==========
Liabilities
Accounts payable..................................... $ 487,914 $ 601,814
Accrued compensation................................. 131,644 126,483
Short-term debt...................................... 33,296 50,000
Current and deferred income taxes.................... 56,163 86,737
Other accrued liabilities............................ 438,530 265,340
---------- ----------
Total current liabilities.......................... 1,147,547 1,130,374
---------- ----------
Long-term debt....................................... 1,430,671 1,560,960
Deferred income taxes................................ 253,850 300,840
Other noncurrent liabilities......................... 385,655 219,466
---------- ----------
Total noncurrent liabilities....................... 2,070,176 2,081,266
---------- ----------
Shareholders' Equity
Common stock at stated value ($1.25 par value)
Authorized shares: 500,000,000; Issued: 150,889,050
in 1996 and 158,608,800 in 1995..................... 320,962 330,612
Retained earnings, net of cumulative translation
adjustments of $26,580 in 1996 and $29,031 in 1995.. 1,486,215 1,994,098
Unearned compensation................................ (5,402) (9,297)
Reacquired common stock, at cost..................... (170,494) (142,243)
---------- ----------
Total shareholders' equity......................... 1,631,281 2,173,170
---------- ----------
Total liabilities and shareholders' equity........... $4,849,004 $5,384,810
========== ==========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-3
<PAGE>

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

THOUSANDS OF DOLLARS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows provided by (used for) operating
activities:
Net (loss) income .......................... $(157,623) $ 298,793 $ 268,603
Restructuring charges, net of tax and
minority interest.......................... 435,380 -- --
Depreciation................................ 337,370 330,579 285,446
Amortization................................ 51,778 67,619 28,017
Gain on stock offerings of subsidiaries..... (80,041) -- --
Net change in operating working capital..... 4,427 (272,390) (68,222)
Net change in other assets and liabilities.. 82,858 (21,677) (287,712)
Other....................................... (27,424) (15,679) (38,586)
--------- --------- ---------
Net cash provided by operating activities. 646,725 387,245 187,546
--------- --------- ---------
Cash flows provided by (used for) investing
activities:
Capital expenditures........................ (402,624) (455,662) (425,190)
Proceeds from collection of advances to
affiliates................................. 277,013 -- --
Proceeds from sale of DESI shares........... 23,492 -- --
Other investments including acquisitions,
net of cash acquired....................... (12,771) (34,756) (120,461)
--------- --------- ---------
Net cash used for investing activities.... (114,890) (490,418) (545,651)
--------- --------- ---------
Cash flows provided by (used for) financing
activities:
Net (decrease) increase in borrowings....... (146,887) 227,774 500,951
Disposition of reacquired common stock...... 53,058 37,857 20,585
Acquisition of common stock................. (327,130) (34,429) (57,363)
Cash dividends paid......................... (112,645) (104,364) (92,352)
--------- --------- ---------
Net cash (used for) provided by financing
activities............................... (533,604) 126,838 371,821
--------- --------- ---------
Effect of exchange rate changes on cash and
equivalents.................................. (211) (11,112) (3,863)
--------- --------- ---------
Net (decrease) increase in cash and
equivalents.................................. (1,980) 12,553 9,853
Cash and equivalents at beginning of year..... 33,122 20,569 10,716
--------- --------- ---------
Cash and equivalents at end of year........... $ 31,142 $ 33,122 $ 20,569
========= ========= =========

Changes in operating working capital, net of acquisitions and divestitures, were
as follows:

<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Decrease (increase) in assets:
Receivables--net............................ $ 70,197 $(342,899) $(125,001)
Inventories--net............................ 79,033 (41,833) (53,214)
Prepaid expenses............................ (87,102) 47,142 (601)
Increase (decrease) in liabilities:
Accounts payable............................ (101,119) 17,958 97,439
Accrued compensation........................ 13,245 19,316 28,603
Other accrued liabilities................... 30,173 27,926 (15,448)
--------- --------- ---------
Net change in operating working capital... $ 4,427 $(272,390) $ (68,222)
========= ========= =========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-4
<PAGE>

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THOUSANDS OF DOLLARS

<TABLE>
<CAPTION>
REACQUIRED UNEARNED
COMMON STOCK COMMON STOCK COMPENSATION
--------------------- --------------------- RESTRICTED RETAINED
SHARES AMOUNT SHARES AMOUNT STOCK EARNINGS TOTAL
----------- -------- ---------- --------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... 158,608,800 $330,612 (4,450,767) $(116,294) $ -- $1,629,673 $1,843,991
Net income.............. 268,603 268,603
Treasury stock
purchases.............. (1,958,193) (57,363) (57,363)
Cash dividends.......... (92,352) (92,352)
Cost of common shares
issued under stock
programs............... 885,478 18,637 1,948 20,585
Translation adjustments. (5,095) (5,095)
----------- -------- ---------- --------- ------- ---------- ----------
Balance at December 31,
1994................... 158,608,800 330,612 (5,523,482) (155,020) -- 1,802,777 1,978,369
Net income.............. 298,793 298,793
Treasury stock
purchases.............. (996,464) (34,429) (34,429)
Cash dividends.......... (104,364) (104,364)
Cost of common shares
issued under stock
programs............... 1,863,685 47,206 (9,297) 7,688 45,597
Translation adjustments. (10,796) (10,796)
----------- -------- ---------- --------- ------- ---------- ----------
Balance at December 31,
1995................... 158,608,800 330,612 (4,656,261) (142,243) (9,297) 1,994,098 2,173,170
Net loss................ (157,623) (157,623)
Treasury stock
purchases.............. (2,333,691) (77,131) (77,131)
Cash dividends.......... (112,645) (112,645)
Cost of common shares
issued under stock
programs............... 1,654,697 48,880 3,895 283 53,058
Cost of common shares
retired under
repurchase plan........ (7,719,750) (9,650) (240,349) (249,999)
Translation adjustments. 2,451 2,451
----------- -------- ---------- --------- ------- ---------- ----------
Balance at December 31,
1996................... 150,889,050 $320,962 (5,335,255) $(170,494) $(5,402) $1,486,215 $1,631,281
=========== ======== ========== ========= ======= ========== ==========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-5
<PAGE>

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation The consolidated financial statements include the
accounts of the company and its majority-owned subsidiaries. Minority
interests in the income (losses) of consolidated subsidiaries ($24 million of
income, $8 million of expense and $3 million of expense in 1996, 1995 and
1994, respectively) are included in other expense on the Consolidated
Statements of Income. Intercompany items and transactions are eliminated in
consolidation.

Nature of Operations The company provides a wide variety of print and print-
related services and products for specific customers, virtually always under
contract. Some contracts provide for progress payments from customers as
certain phases of the work are completed; however, revenue is not recognized
until the earnings process has been completed in accordance with the terms of
the contracts. Some customers furnish paper for their work, while in other
cases the company purchases and sells the paper.

Cash and Equivalents The company considers all highly liquid debt
instruments purchased with original maturities of three months or less to be
cash equivalents.

Inventories Inventories include material, labor and factory overhead and are
stated at the lower of cost or market. The cost of approximately 67% and 66%
of the inventories at December 31, 1996 and 1995, respectively, has been
determined using the Last-In, First-Out (LIFO) method. This method reflects
the effect of inventory replacement costs in earnings; accordingly, charges to
cost of sales reflect recent costs of material, labor and factory overhead.
The remaining inventories are valued using the First-In, First-Out (FIFO) or
specific identification methods.

Foreign Currency Translation Gains and losses arising from the translation
of the company's international subsidiaries' financial statements are
reflected in retained earnings.

Net Income (Loss) Per Share of Common Stock Net income (loss) per share is
computed on the basis of average shares outstanding during each year. No
material dilution would result if effect were given to the exercise of
outstanding stock options.

Capitalization, Depreciation and Amortization Property, plant and equipment
are stated at cost. Depreciation is computed principally on the straight-line
method based on useful lives of 15 to 33 years for buildings and 3 to 15 years
for machinery and equipment. Maintenance and repair costs are charged to
expense as incurred. Major overhauls are capitalized as reductions to
accumulated depreciation. When properties are retired or disposed, the costs
and accumulated depreciation are eliminated and the resulting profit or loss
is recognized in income. Goodwill ($245 million and $691 million, net of
accumulated amortization, at December 31, 1996 and 1995, respectively) is
amortized over periods ranging from 10 to 40 years. Other intangibles
represent primarily the cost of acquiring print contracts and volume
guarantees and are amortized over the periods in which benefits will be
realized.

Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

RESTRUCTURING CHARGES

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 writedown of certain equipment and the

F-6
<PAGE>

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 its 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, of which $30 million was incurred in 1996 and the
remaining $147 million will be incurred in 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 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.

The following table presents the components of the company's restructuring
reserves along with charges against these reserves from their establishment
until December 31, 1996:

<TABLE>
<CAPTION>
WRITEDOWN OF RESTRUCTURING
ORIGINAL PROPERTY AND RESERVES AS OF
RESTRUCTURING INVESTMENTS CASH DECEMBER 31,
CHARGES TO FAIR VALUE PAYMENTS 1996
------------- ------------- -------- --------------
THOUSANDS OF DOLLARS
<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 -- (29,949) 147,011
Impairment loss on
intangible assets and
investments.............. 132,941 (132,941) -- --
-------- --------- -------- --------
Total restructuring
reserves............. $560,632 $(383,672) $(29,949) $147,011
======== ========= ======== ========
</TABLE>

DIVESTITURES

On June 19, 1996, Metromail Corporation (the company's previously wholly-
owned subsidiary, which is a leading provider of market-oriented consumer
information and reference services) completed an initial public offering of
13.8 million shares of its common stock at $20.50 per share. As a result of
the offering, the company's interest in Metromail was reduced to approximately
38%. Approximately $250 million of the proceeds from the completed offering
were used by Metromail to retire certain indebtedness owed to the company. The
company in turn used the payment from Metromail to pay down debt and for
general corporate purposes. The transaction resulted in a pre-tax gain for the
company of $44 million and a tax provision of $18 million. As a result of this
transaction, the company changed its method of accounting for Metromail from
consolidation to the equity method, effective July 1, 1996. Under the equity
method, the company recognizes in income its proportionate share of the net
income of Metromail ($5 million for the six months ended December 31, 1996).
Metromail's 1996 net sales and operating earnings were $126 million and $13
million, respectively, through the date of the initial public offering.
Metromail had net sales and operating earnings of $247 million and $36
million, respectively, in 1995. Net sales and operating earnings in 1994 were
$203 million and $28 million, respectively.

On November 4, 1996, Donnelley Enterprise Solutions Incorporated (DESI),
formerly a wholly-owned subsidiary of the company and a single-source provider
of integrated information-management services to professional service
organizations, completed an initial public offering of 2.9 million shares of
its common stock at $25.00 per share, of which 1.0 million were offered by the
company. As a result of the offering, the company's interest in DESI was
reduced to approximately 43%. The company received approximately $52 million
from the net proceeds of the shares sold and from repayment of amounts owed by
DESI, which was used for general corporate purposes. The transaction resulted
in a pre-tax gain of $36 million, or $22 million after taxes. As a result of
this transaction, the company changed its method of accounting for DESI from
consolidation to the equity method, effective November 1, 1996. DESI's net
sales and operating earnings were not material to the consolidated operating
results or financial condition of the company.

F-7
<PAGE>

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

ACQUISITIONS

Effective April 1, 1995, the company merged its Global Software Services
business (GSS) with Corporate Software Inc. (CSI) to form what is now known as
Stream International Holdings, Inc. (Stream), a software manufacturer,
distributor and technical-support organization. The company owns approximately
80% of the capital stock of Stream, which is not a publicly traded
corporation. The remaining 20% is owned by the former owners of CSI and
management. No gain or loss was recognized on the merger as the book value of
GSS approximated its fair market value on the date of the transaction.

The Stream transaction was accounted for using the purchase method.
Accordingly, amounts assigned in the accompanying Consolidated Balance Sheets
to the assets and liabilities of CSI were based on their estimated fair market
values. The cost in excess of net assets acquired of $109 million is being
amortized on a straight-line basis over 15 years. The results of operations of
CSI are included in the accompanying Consolidated Income Statements from the
date of the merger.

Certain officers and current and former employees of Stream hold options to
buy up to 11% of Stream at formula-based prices which approximate, on a per
share basis, the book value of the company's investment in Stream. The Stream
shares not owned by the company and the shares to be sold under the
aforementioned option agreements are subject to certain put and call
arrangements whereby the company would acquire the shares based on a multiple
of Stream's earnings, as defined. If all such shares were put to the company
at December 31, 1996, the aggregate purchase price would be less than the
minority interest liability recorded in the accompanying Consolidated Balance
Sheets.

The company made several other acquisitions, joint venture and equity
investments in 1996, 1995 and 1994, none of which, either individually or in
the aggregate, were material to the company's financial statements. The
acquisitions were accounted for using the purchase method; accordingly, the
assets and liabilities of the acquired entities have been recorded at their
estimated fair values at their respective dates of acquisition.

Liabilities incurred and assumed in connection with acquisitions totaled
$386.8 million and $87.2 million for the years ended December 31, 1995 and
1994, respectively.

INVENTORIES

The components of the company's inventories were as follows:

<TABLE>
<CAPTION>
DECEMBER 31
------------------
1996 1995
-------- --------
THOUSANDS OF
DOLLARS
<S> <C> <C>
Raw materials and manufacturing supplies............... $154,734 $230,694
Work in process........................................ 183,248 213,741
Finished goods......................................... 34,325 34,041
Progress billings...................................... (40,475) (47,549)
LIFO reserve........................................... (43,326) (50,849)
-------- --------
Total.............................................. $288,506 $380,078
======== ========
</TABLE>

The company's cost of sales was decreased by LIFO provisions of $8 million
in 1996 and $2 million in 1994, and increased by $8 million in 1995. In the
third quarter of 1995, the company changed from the double-extension method of
valuing LIFO inventories to the external-index method. The company believes
that this change will result in a better measurement of operating results by
properly reflecting the effect of productivity improvements in the company's
cost of sales. Because the cumulative effect of this change on periods prior
to 1995 cannot be determined, the impact has been reflected in 1995
operations. This accounting change was adopted effective January 1, 1995;
however, the effect of the change on the first two quarters of 1995

F-8
<PAGE>

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

was immaterial, and the financial statements for those periods have not been
restated. Net income for 1995 was approximately $22 million ($0.15 per share)
higher than it would have been had the change not been made.
PROPERTY, PLANT AND EQUIPMENT

The following table summarizes the components of property, plant and
equipment (at cost):

<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1995
---------- ----------
THOUSANDS OF DOLLARS
<S> <C> <C>
Land................................................. $ 34,891 $ 44,438
Buildings............................................ 591,553 622,326
Machinery and equipment.............................. 3,662,657 3,453,685
---------- ----------
Total............................................ $4,289,101 $4,120,449
========== ==========
</TABLE>

COMMITMENTS AND CONTINGENCIES

As of December 31, 1995, authorized expenditures on incomplete projects for
the purchase of property, plant and equipment totaled $280 million. Of this
total, $167 million has been contractually committed. The company has a
variety of commitments with suppliers for the purchase of paper, ink and other
materials for delivery in future years at prevailing market prices.

The company has operating lease commitments totaling $393 million extending
through various periods to 2020. The lease commitments total $70 million for
1997, range from $35 million to $59 million in each of the years 1998-2001 and
total $141 million for years 2002 and thereafter.

The company is not exposed to significant accounts receivable credit risk,
due to the diversity of industry classification, distribution channels and
geographic location of its customers.

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 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. The company's position is that the
proper ERISA class is limited to the former Chicago employees.

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.

In addition, the company is a party to certain litigation arising in the
ordinary course of business which, in the opinion of management, will not have
a material adverse effect on the operations or financial condition of

F-9
<PAGE>

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the company. The company also has future annual commitments totaling $77
million to invest in various affordable housing limited partnerships which
provide annual tax benefits and credits in amounts greater than the
investments.

RETIREMENT BENEFIT PLAN

The company's restated Retirement Benefit Plan (the Plan) is a non-
contributory defined benefit plan. Substantially all U.S. employees age 21 or
older are covered by the Plan. Normal retirement age is 65, but reduced early
retirement benefits are paid to fully vested participants at or after age 55.
As required, the company uses the projected unit credit actuarial cost method
to determine pension cost for financial reporting purposes. In conjunction with
this method, the company amortizes deferred gains and losses (using the
corridor method) and prior service costs over the average remaining service
life of its active employee population. In addition, a transition credit (the
excess of Plan assets plus balance sheet accruals over the projected
obligation, as of January 1, 1987) is amortized over 19 years. For tax and
funding purposes, the entry age normal actuarial cost method is used.

Net pension credits included in operating results for the Plan were:

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- --------
THOUSANDS OF DOLLARS
<S> <C> <C> <C>
Service cost................................... $ 32,619 $ 23,393 $ 28,158
Interest cost on the projected benefit
obligation.................................... 58,121 54,524 51,604
Actual (return) loss on Plan assets............ (169,301) (217,662) 3,858
Amortization of excess Plan net assets at
adoption of SFAS No. 87 and deferrals--net.... 63,332 120,698 (97,293)
--------- --------- --------
Net pension credit............................. $ (15,229) $ (19,047) $(13,673)
========= ========= ========
</TABLE>

The actuarial computations that derived the above amounts assumed a discount
rate on projected benefit obligations of 7.5% (7.25% at December 31, 1995 and
8.5% at December 31, 1994), an expected long-term rate of return on Plan assets
of 9.5% and annual salary increases averaging 4% for 1996, 1995 and 1994.

Plan assets include primarily government and corporate debt securities and
marketable equity securities, and, to a lesser extent, commingled funds, real
estate and a group annuity contract purchased from a life insurance company.
The funded status and prepaid pension cost (included in Other Noncurrent Assets
on the accompanying Consolidated Balance Sheets) are as follows:

<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1996 1995
---------- ----------
THOUSANDS OF DOLLARS
<S> <C> <C>
Fair value of Plan assets.............................. $1,238,315 $1,113,505
Actuarial present value of benefit obligations:
Vested............................................... 743,133 733,920
Non-vested........................................... 10,389 11,726
---------- ----------
Total accumulated benefit obligations.................. 753,522 745,646
Additional amounts related to projected wage increases. 84,483 86,378
---------- ----------
Projected benefit obligations for services rendered to
date.................................................. 838,005 832,024
---------- ----------
Excess of Plan assets over projected benefit
obligations........................................... 400,310 281,481
Unrecognized net deferrals............................. (109,228) 4,221
Unrecognized net excess Plan assets to be amortized
through the year 2005................................. (88,648) (98,497)
---------- ----------
Prepaid pension costs.................................. $ 202,434 $ 187,205
========== ==========
</TABLE>

F-10
<PAGE>

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In the event of Plan termination, the Plan provides that no funds can revert
to the company and any excess assets over Plan liabilities must be used to
fund retirement benefits.

OTHER RETIREMENT BENEFITS

In addition to pension benefits, the company provides certain health care
and life insurance benefits for retired employees. Substantially all of the
company's regular full-time U.S. employees become eligible for these benefits
upon reaching age 55 while working for the company and having 10 years
continuous service at retirement. The company funds a portion of the
liabilities associated with these plans through a tax-exempt trust. The assets
of the trust are invested primarily in life insurance covering some of the
company's employees.

The net (credit) expense for postretirement benefits during 1996, 1995 and
1994 included the following components:

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
THOUSANDS OF DOLLARS
<S> <C> <C> <C>
Service cost..................................... $ 8,626 $ 9,492 $ 11,807
Interest cost on the projected benefit
obligations..................................... 14,712 17,319 18,532
Actual return on assets.......................... (28,676) (34,626) (1,296)
Deferrals--net................................... 1,247 16,503 (11,113)
-------- -------- --------
Net postretirement (credit) cost................. $ (4,091) $ 8,688 $ 17,930
======== ======== ========
</TABLE>

The liability (included in Other Noncurrent Liabilities on the accompanying
Consolidated Balance Sheets) for postretirement benefits, net of the partial
funding, is as follows:

<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
THOUSANDS OF
DOLLARS
<S> <C> <C>
Actuarial present value of benefit obligations:
Retirees................................................. $ 139,341 $ 152,981
Fully eligible active plan participants.................. 38,819 4,856
Other active plan participants........................... 42,810 93,048
--------- ---------
Total accumulated benefit obligations.................... 220,970 250,885
Fair value of Plan assets................................ (219,719) (191,042)
Unrecognized net deferrals............................... 52,155 20,596
--------- ---------
Excess of accumulated benefit obligations over plan
assets.................................................. $ 53,406 $ 80,439
========= =========
</TABLE>

The actuarial computations to determine the accumulated post-retirement
benefit obligation assumed a discount rate of 7.50% (7.25% at December 31,
1995), an expected long-term rate of return on plan assets of 9.0% and a
health care cost trend rate of 7.8% initially, declining gradually to 5.5% in
2023 and thereafter. The medical cost trend assumed can have a significant
effect on the amounts reported. A one-percentage point increase in the assumed
health care cost trend rate would increase the 1996 postretirement benefit
expense (service cost and interest cost) by $0.5 million and the accumulated
postretirement benefit obligation as of December 31, 1996 by $6.9 million.

Effective January 1, 1996, a plan amendment was adopted to make certain
changes to plan provisions. Significant effects of the amendment include the
setting of specific limits on future company increases in retiree costs
beginning in 1996 and changes in how the plan integrates with medicare and the
contribution schedule for substantially all participants beginning in 1997.
This amendment reduced 1996 postretirement benefit expense by $13 million and
the January 1, 1996, postretirement benefit obligation by $43 million. In
1996, the company recognized curtailment gains of $4 million associated with
the partial divestitures of Metromail and DESI.

F-11
<PAGE>

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

INCOME TAXES

Cash payments for income taxes were $76 million, $98 million and $102
million in 1996, 1995 and 1994, respectively. The components of income tax
expense for the years ending December 31, 1996, 1995 and 1994, were as
follows:

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
THOUSANDS OF DOLLARS
<S> <C> <C> <C>
Federal
Current........................................... $ 84,340 $ 85,225 $ 79,483
Deferred.......................................... (38,719) 31,230 23,218
State............................................... 1,525 24,284 23,700
-------- -------- --------
Total........................................... $ 47,146 $140,739 $126,401
======== ======== ========
</TABLE>

The significant deferred tax assets and liabilities at December 31, 1996 and
1995, were as follows:

<TABLE>
<CAPTION>
1996 1995
-------- --------
THOUSANDS OF
DOLLARS
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation................................... $212,214 $193,717
Investments in safe harbor leases.......................... 11,543 23,362
Pensions................................................... 86,606 69,869
Other...................................................... 94,996 83,226
-------- --------
Total deferred tax liabilities........................... 405,359 370,174
-------- --------
Deferred tax assets:
Postretirement benefits.................................... 21,362 32,176
Accrued liabilities........................................ 159,985 21,614
Other...................................................... 112,953 54,971
-------- --------
Total deferred tax assets................................ 294,300 108,761
-------- --------
Valuation allowance.......................................... 37,494 23,205
-------- --------
Net deferred tax liabilities................................. $148,553 $284,618
======== ========
</TABLE>

At December 31, 1996, Stream International had deferred tax assets of $60
million, net of valuation allowances of $20 million. Although realization of
these deferred tax assets is not assured, management believes it is more
likely than not that the net asset will be realized through future taxable
earnings of Stream or alternative tax strategies.

The following table outlines the reconciling differences between the U.S.
statutory tax rates and the rates used by the company in the determination of
net income:

<TABLE>
<CAPTION>
1996 1995 1994
----- ---- ----
<S> <C> <C> <C>
Federal statutory rate..................................... (35.0)% 35.0% 35.0%
Restructuring charges...................................... 78.9 -- --
Foreign tax rates.......................................... (3.0) 0.6 (0.2)
State and local income taxes, net of U.S. federal income
tax benefit............................................... 12.8 3.6 3.9
Goodwill amortization...................................... 5.6 1.7 1.3
Benefits resulting from corporate-owned life insurance
programs.................................................. (7.5) (5.8) (4.7)
Affordable housing investment credits...................... (17.6) (3.9) (3.1)
Change in valuation allowance.............................. 11.0 (0.6) 0.8
Other...................................................... (2.5) 1.4 (1.0)
----- ---- ----
Total.................................................. 42.7% 32.0% 32.0%
===== ==== ====
</TABLE>

F-12
<PAGE>

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DEBT FINANCING AND INTEREST EXPENSE

The company's debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1995
---------- ----------
THOUSANDS OF DOLLARS
<S> <C> <C>
Commercial paper......................................... $ 404,500 $ 314,264
Medium-term notes due 1997-2005 at a weighted average
interest rate of 6.93%.................................. 500,000 500,000
9.125% debentures due December 1, 2000................... 199,718 199,646
8.875% debentures due April 15, 2021..................... 149,678 149,665
7.0% notes due January 1, 2003........................... 109,764 109,725
Subsidiary revolving line of credit...................... -- 162,000
Other.................................................... 100,307 175,660
---------- ----------
Total................................................ $1,463,967 $1,610,960
========== ==========
</TABLE>

Based upon the interest rates currently available to the company for
borrowings with similar terms and maturities, the fair value of the company's
debt exceeds its book value at December 31, 1996, by approximately $51
million. The company's notes and debentures are not actively traded and
contain no call provisions.

At December 31, 1996, the company had an available credit facility of $550
million with a group of domestic and foreign banks that expires December 21,
1999. The credit arrangement provides support for the issuance of commercial
paper and other credit needs. Borrowings under the facility (none during the
past two years) bear interest at various rates not exceeding the banks' prime
rates. The company pays an annual fee of 0.08% on the total unused credit
facility.

At December 31, 1995, a subsidiary of the company had an available line of
credit of $200 million with a group of domestic and foreign banks that expires
April 21, 2000. Borrowings under this facility amounted to $162 million at
December 31, 1995, and were paid off in March 1996.

At December 31, 1996, the company had $565 million of commercial paper and
short-term debt outstanding, of which $532 million is classified as long-term
since the company has the ability and intent to maintain such debt on a long-
term basis. The weighted average interest rate on all commercial paper debt
outstanding during 1996 was 5.36% (5.97% at December 31, 1996). Annual
maturities of long-term debt (excluding commercial paper and short-term debt)
are as follows: 1998--$52 million, 1999--$111 million, 2000--$238 million,
2001--$5 million and thereafter $493 million.

The following table summarizes interest expense included in the Consolidated
Statements of Income:

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
THOUSANDS OF DOLLARS
<S> <C> <C> <C>
Interest incurred................................ $107,198 $120,658 $ 63,726
Amount capitalized as property, plant and
equipment....................................... (11,716) (10,899) (10,233)
-------- -------- --------
Total........................................ $ 95,482 $109,759 $ 53,493
======== ======== ========
</TABLE>

Interest paid, net of capitalized interest, was $93 million, $102 million
and $52 million in 1996, 1995 and 1994, respectively.

F-13
<PAGE>

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

STOCK AND INCENTIVE PROGRAMS FOR EMPLOYEES

Restricted Stock Awards--At December 31, 1996 and 1995, the company had
outstanding 301,000 and 461,000, respectively, restricted shares of its common
stock granted to certain officers. These shares are registered in the names of
the recipients, but are subject to conditions of forfeiture and restrictions
on sale or transfer for five to seven years from the grant date. Dividends on
the restricted shares are paid currently to the recipients and, accordingly,
the restricted shares are treated as outstanding shares. The expense of the
grant is recognized evenly over the vesting period.

The value of the restricted stock awards was $9 million and $18 million
based upon the closing price of the company's stock at each year end ($31.375
and $39.375 at December 31, 1996 and 1995, respectively). Charges to expense
for this stock plan were $2 million, $1 million and $1 million in 1996, 1995
and 1994, respectively.

Stock Purchase Plan--The company has a stock purchase plan for selected
managers and key staff employees. Under the plan, the company is required to
contribute an amount equal to 70% of participants' contributions, of which 50%
is applied to the purchase of stock and 20% is paid in cash. In 1996, the
company failed to meet performance targets required under the plan, and no
contributions were incurred. Amounts charged to expense for this plan were $6
million in 1995 and 1994.

Incentive Compensation Plans--The company has incentive compensation plans
covering selected officers. Amounts charged to expense for supplementary
compensation ($4 million in 1996 and 1995 and $3 million in 1994) are
determined from the level of achievement of performance measures related to
earnings, margins and returns applied to the participants' base salaries.
Similar incentive and gain sharing compensation plans exist for other
officers, managers, supervisors and production employees.

Stock Options--The company has incentive stock option plans for its
employees. Under these plans, the options vest from three to nine and one-half
years and may be exercised, once vested, up to 10 years from the date of
grant. Under authorized Stock Incentive Plans, a maximum of 5.0 million shares
were available for future grants of stock options and restricted stock awards
as of December 31, 1996. The company accounts for employee stock options under
APB Opinion No. 25, under which no compensation cost has been recognized. Had
compensation cost been determined based on the fair value of options at their
grant dates consistent with the method of Statement of Financial Accounting
Standards No. 123 (SFAS 123), the company's net income and earnings per share
would have been reduced to the following pro forma amounts:

<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Net income (thousands):
As reported......................................... $(157,623) $298,793
Pro forma........................................... (171,330) 290,455
Earnings per share:
As reported......................................... $ (1.04) $ 1.95
Pro forma........................................... (1.13) 1.89
</TABLE>

Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the pro forma compensation cost may not be
representative of the pro forma cost to be expected in future years.

F-14
<PAGE>

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

A summary of the status of the company's stock option plans at December 31,
1996 and 1995 and changes during the years then ended is presented in the
table and narrative below:

<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE
(THOUSANDS) PRICE (THOUSANDS) PRICE
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Options outstanding at
beginning of year............. 14,246 $30.98 11,057 $25.79
Options granted................ 3,320 34.09 4,979 39.58
Options exercised.............. (1,245) 21.41 (1,238) 19.88
Options forfeited.............. (1,405) 39.39 (552) 29.57
------ ------ ------ ------
Options outstanding at end of
year.......................... 14,916 $31.68 14,246 $30.98
====== ====== ====== ======
Options exercisable at end of
year.......................... 6,618 $27.18 4,832 $23.52
====== ====== ====== ======
Weighted average fair value of
options granted with:
Exercise price equal to stock
price on grant date......... $11.64 $13.42
Exercise price exceeding
stock price on grant date... $ 7.74 $ 5.81
</TABLE>

Of the options outstanding at December 31, 1996, 14.2 million had exercise
prices between $16.19 and $39.19, with a weighted average exercise price of
$30.60 and a weighted average remaining contractual life of 7.4 years; 6.6
million of these were exercisable at a weighted average exercise price of
$27.18. The remaining 0.7 million options had exercise prices between $43.27
and $76.96, with a weighted average exercise price of $53.33 and a weighted
average remaining contractual life of 8.2 years. None of these options were
exercisable at December 31, 1996.

The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option pricing model, using the following assumptions for
grants in 1996 and 1995, respectively: risk-free interest rates of 6.39% and
6.58%, expected dividend yields of 2.16% and 1.89%, and expected volatility of
22.92% and 21.18%. A 10-year estimated life was used for all grants.

Other Information--Under the stock programs, authorized and unissued shares
or treasury shares may be used. If authorized and unissued shares are used,
not more than 11.3 million shares may be issued in the aggregate. The company
intends to reacquire shares of its common stock to meet the stock requirements
of these programs in the future.

PREFERRED STOCK

The company has two million shares of $1.00 par value preferred stock
authorized for issuance. The Board of Directors may divide the preferred stock
into one or more series and fix the redemption, dividend, voting, conversion,
sinking fund, liquidation and other rights. The company has no present plans
to issue any preferred stock. One million of the shares are reserved for
issuance under the Shareholder Rights Plan discussed below.

SHAREHOLDER RIGHTS PLAN

The company maintains a Shareholder Rights Plan (the Plan) designed to deter
coercive or unfair takeover tactics, to prevent a person or group from gaining
control of the company without offering fair value to all shareholders and to
deter other abusive takeover tactics which are not in the best interest of
shareholders.

F-15
<PAGE>

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Under the terms of the Plan, each share of common stock is accompanied by
one right; each right entitles the shareholder to purchase from the company,
one one-thousandth of a newly issued share of Series A Junior Preferred Stock
at an exercise price of $140.

The rights become exercisable 10 days after a public announcement that an
acquiring person (as defined in the Plan) has acquired 15% or more of the
outstanding common stock of the company (the Stock Acquisition Date), 10
business days after the commencement of a tender offer which would result in a
person owning 15% or more of such shares or 10 business days after an adverse
person (as defined in the Plan) has acquired 10% or more of such shares and
such ownership interest is likely to have a material adverse impact on the
company. The company can redeem the rights for $.01 per right at any time
until 10 days following the Stock Acquisition Date (under certain
circumstances, the 10-day period can be shortened or lengthened by the
company). The rights will expire on August 8, 2006, unless redeemed earlier by
the company.

If, subsequent to the rights becoming exercisable, the company is acquired
in a merger or other business combination at any time when there is a 15% or
more holder, the rights will then entitle a holder (other than a 15% or more
shareholder or an adverse person) to buy shares of the acquiring company with
a market value equal to twice the exercise price of each right. Alternatively,
if a 15% holder acquires the company by means of a merger in which the company
and its stock survives, if any person acquires 15% or more of the company's
common stock or if an adverse person acquires 10% or more of the company's
common stock and such ownership is likely to have a material adverse impact on
the company, each right not owned by a 15% or more shareholder or an adverse
person would become exercisable for common stock of the company (or, in
certain circumstances, other consideration) having a market value equal to
twice the exercise price of the right.

GEOGRAPHIC SEGMENTS

The following table summarizes the company's results of operations and
identifiable assets, as of and for the years ended December 31, 1996, 1995 and
1994:

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
THOUSANDS OF DOLLARS
<S> <C> <C> <C>
Net sales:
Domestic.................................. $5,495,605 $5,502,566 $4,343,477
Foreign................................... 1,112,643 1,018,524 553,395
Less transfers between geographic areas... (9,290) (9,304) (8,086)
---------- ---------- ----------
Total................................... $6,598,958 $6,511,786 $4,888,786
========== ========== ==========
(Loss) earnings from operations:
Domestic.................................. $ (18,677) $ 580,410 $ 497,120
Foreign................................... (78,824) 19,928 4,118
Corporate and other expenses--net......... (38,475) (40,929) (41,807)
---------- ---------- ----------
Total................................... $ (135,976) $ 559,409 $ 459,431
========== ========== ==========
Identifiable assets:
Domestic.................................. $3,698,918 $4,442,825 $3,719,974
Foreign................................... 748,280 674,387 541,614
Investment in unconsolidated affiliates... 207,393 91,221 80,580
Corporate and other....................... 194,413 176,377 109,975
---------- ---------- ----------
Total................................... $4,849,004 $5,384,810 $4,452,143
========== ========== ==========
</TABLE>

F-16
<PAGE>

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

Sales to affiliates are at negotiated prices based on specific market
conditions. Earnings from operations is net sales less cost of sales, selling
and administrative expenses, assessments to operating units for various
corporate expenses and goodwill amortization. In computing earnings from
operations, none of the following items has been added or deducted: interest
expense, income taxes and equity in income from unconsolidated investees.
Domestic and foreign losses from operations in 1996 include restructuring
charges of $473 million and $87 million, respectively. Identifiable assets are
those assets of the company that are identified with the operations in each
geographic area. Corporate and other assets are principally investments.

F-17
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
R. R. Donnelley & Sons Company:

We have audited the accompanying consolidated balance sheets of R. R.
Donnelley & Sons Company (a Delaware corporation) and Subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years ended December
31, 1996. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of R. R. Donnelley & Sons
Company and Subsidiaries as of December 31, 1996 and 1995, and the results of
its operations and its cash flows for each of the three years ended December
31, 1996, in conformity with generally accepted accounting principles.

As explained in the Notes to Consolidated Financial Statements, effective
January 1, 1995, the company changed its method of accounting for LIFO
inventories.

Arthur Andersen LLP

Chicago, Illinois
January 23, 1997

F-18
<PAGE>

UNAUDITED INTERIM FINANCIAL INFORMATION

THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1996
Net sales............... $1,546,995 $1,577,500 $1,602,528 $1,871,935 $6,598,958
Gross profit............ 240,822 290,062 283,182 308,933 1,122,999
Net (loss) income....... (376,918) 54,277 67,868 97,150 (157,623)
Net (loss) income per
common share........... (2.45) 0.35 0.45 0.66 (1.04)
1995
Net sales............... $1,318,089 $1,490,633 $1,704,793 $1,998,271 $6,511,786
Gross profit............ 229,815 278,132 338,746 362,699 1,209,392
Net income.............. 46,842 64,461 92,057 95,433 298,793
Net income per common
share.................. 0.31 0.42 0.60 0.62 1.95
</TABLE>

F-19
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON

FINANCIAL STATEMENT SCHEDULE

To the Shareholders of R. R. Donnelley & Sons Company:

We have audited, in accordance with generally accepted auditing standards,
the financial statements included in the Company's Annual Report to
Shareholders included in this Form 10-K, and have issued our report thereon
dated January 23, 1997. Our audit was made for the purpose of forming an
opinion on those statements taken as a whole. The schedule listed in the index
to the financial statements and financial statement schedules is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

Arthur Andersen LLP

Chicago, Illinois
January 23, 1997

F-20
<PAGE>

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

Transactions affecting the allowances for doubtful accounts during the years
ended December 31, 1996, 1995 and 1994 were as follows:

<TABLE>
<CAPTION>
1996 1995 1994
------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Allowance for trade receivable losses:
Balance, beginning of year................. $25,311 $ 19,168 $ 14,795
Balance, companies (sold) acquired during
year...................................... (4,949) 3,761 5,257
Provisions charged to income............... 13,617 22,615 14,047
------- -------- --------
33,979 45,544 34,099
Uncollectible accounts written off, net of
recoveries................................ (9,244) (20,233) (14,931)
------- -------- --------
Balance, end of year....................... $24,735 $ 25,311 $ 19,168
======= ======== ========
</TABLE>

F-21
<PAGE>

INDEX TO EXHIBITS*

DESCRIPTION EXHIBIT NO.
------- --------
<S> <C>
Restated Certificate of Incorporation(9)....................... 3(i)
By-Laws........................................................ 3(ii)(a)
Amendment to By-Laws adopted November 7, 1996.................. 3(ii)(b)
Form of Rights Agreement, dated as of April 25, 1996 between
R. R. Donnelley & Sons Company and First Chicago Trust Com-
pany of New York(10)..........................................
4(a)

Instruments Defining the Rights of Security Holders(1)......... 4(b)

Indenture dated as of November 1, 1990 between the Company and
Citibank, N.A. as Trustee(5)..................................
4(c)

Credit Agreement dated December 21, 1994 among R. R. Donnelley
& Sons Company, the Banks named therein and Citibank, N.A.,
as Administrative Agent(8)....................................
4(d)

Retirement Policy for Directors**.............................. 10(a)

Directors' Deferred Compensation Agreement(7)**................ 10(b)

Donnelley Shares Stock Option Plan, as amended................. 10(c)

1993 Stock Ownership Plan for Non-Employee Directors, as 10(d)
amended(11)**..................................................

Senior Management Annual Incentive Plan, as amended(5)**....... 10(e)

Form of Severance Agreement for Senior Officers, as amend- 10(f)
ed(7)**.......................................................

1993 Stock Purchase Plan for Selected Managers and Key Staff
Employees, as amended(11)**...................................
10(g)

1986 Stock Incentive Plan, as amended(11)**.................... 10(h)

1991 Stock Incentive Plan, as amended(11)**.................... 10(i)

1995 Stock Incentive Plan, as amended**........................ 10(j)

Form of premium priced option agreement with certain executive
officers, as amended(11)**....................................
10(k)

Unfunded Supplemental Benefit Plan(5)**........................ 10(l)

Amendment to Unfunded Supplemental Benefit Plan adopted on 10(m)
April 25, 1991(4)**...........................................

Agreement with John R. Walter for 1988 award of stock 10(n)
units(2)**....................................................

Employment Agreement between R. R. Donnelley & Sons Company
and Cheryl A. Francis**.......................................
10(o)

Subsidiaries of R. R. Donnelley & Sons Company................. 21

Consent of Independent Public Accountants dated March 11, 23
1996..........................................................

Financial Data Schedule........................................ 27
</TABLE>
- --------
*Filed with the Securities and Exchange Commission. Each such exhibit
may be obtained by a shareholder of the Company upon payment of $5.00
per exhibit.
**Management contract or compensatory plan or arrangement.

(1) Instruments, other than that described in 4(d) and 4(e), defining
the rights of holders of long-term debt not registered under the
Securities Exchange Act of 1934 of the registrant and of all
subsidiaries for which consolidated or unconsolidated financial
statements are required to be filed are being omitted pursuant to
paragraph (4)(iii)(A) of Item 601 of Regulation S-K. Registrant agrees
to furnish a copy of any such instrument to the Commission upon
request.

(2) Filed as Exhibit with Form SE filed on March 24, 1988, and
incorporated herein by reference.

E-1
<PAGE>

(3) Filed as Exhibit with Form SE filed on March 25, 1991, and
incorporated herein by reference.

(4) Filed as Exhibit with Form SE filed on May 9, 1991 and incorporated
herein by reference.

(5) Filed as Exhibit with Form SE filed on March 26, 1992 and
incorporated herein by reference.

(6) Filed as Exhibit with Form SE filed on March 30, 1993 and
incorporated herein by reference.

(7) Filed on March 28, 1994 as Exhibit to Annual Report on Form 10-K
for the year ended December 31, 1993.

(8) Filed on March 27, 1995 as Exhibit to Annual Report on Form 10-K
for the year ended December 31, 1994.

(9) Filed on May 3, 1996, as Exhibit to Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1996.

(10) Filed on June 5, 1996 as Exhibit to Form 8-A.

(11) Filed on November 1, 1996 as Exhibit to Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1996.

E-2

<PAGE>

Exhibit 3(ii)(a)

As Amended through November 7, 1996

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
<PAGE>

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 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

2
<PAGE>

1/9/57)

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.

3
<PAGE>

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, 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

4
<PAGE>

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, 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).

5
<PAGE>

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).

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.

6
<PAGE>

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.

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 twelve (12) of whom four (4) shall be
Directors of the First Class, four (4) 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)

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

7
<PAGE>

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 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)

8
<PAGE>

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 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

9
<PAGE>

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 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.

10
<PAGE>

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. Nominating 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 Nominating and
Governance Committee, which Committee shall 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. The Committee 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)

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 Nominating 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)

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

11
<PAGE>

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 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

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<PAGE>

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)

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

13
<PAGE>

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 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,

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<PAGE>

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 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)

15
<PAGE>

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)

16
<PAGE>

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 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.

17
<PAGE>

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.

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

18
<PAGE>

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)

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)

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<PAGE>

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 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)

20
<PAGE>

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>

Exhibit 3(ii)(b)

R. R. DONNELLEY & SONS COMPANY
AMENDMENT TO BY-LAWS
ADOPTED NOVEMBER 7, 1996

RESOLVED, that Section 3.2 of the Company's By-Laws be and hereby is amended,
effective immediately, to delete the first sentence thereof and substitute the
following therefor:

"The number of Directors which shall constitute the whole Board shall be
twelve (12) of whom four (4) shall be Directors of the First Class, four
(4) shall be Directors of the Second Class and four (4) shall be Directors
of the Third Class."

<PAGE>

Exhibit 10(a)

RETIREMENT POLICY FOR DIRECTORS
(As revised, effective November 21, 1996)

1. An outside director will retire from the Board as of the first day of the
month following his or her attaining age 70. An outside director, for the
purposes of this policy, is one who has never been an employee of the
Company. For the purposes of determining the retirement date of John M.
Richman under this policy, John M. Richman is considered an outside
director and will therefore retire as of December 1, 1997.

2. Any employee director who was first elected to the Board prior to September
28, 1990 will tender his or her resignation from the Board as of the
effective date of his or her retirement from the Company and such
resignation will be accepted absent a determination by the Board that the
services of the director are unique and essential for such period as the
Board may determine. However, in the case of such a director who has served
as Chairman, President or Chief Executive Officer for a period of at least
ten years and retired under normal procedures at or after early retirement
age, the director may continue to serve until completing his or her term
after reaching age 72, and upon completing that term or upon his or her
earlier resignation, he or she will automatically become an Honorary
Director.

3. Any employee director who was first elected to the Board on or after
September 28, 1990 will retire from the Board as of the effective date of
his or her termination of employment for any reason or at the age of 65,
whichever occurs first. However, such an employee director who has served
as Chief Executive Officer will retire from the Board at the end of his or
her current term upon retirement as an employee from the Company or
immediately upon termination of employment prior to retirement. If desired
by the Board, such a retiring Chief Executive Officer may serve as a
consultant to the Board.

4. Nothing in this policy shall be construed to restrict the stockholders'
right to elect any person a director of the Company in accordance with the
Certificate of Incorporation and By-Laws.
<PAGE>

RETIREMENT BENEFITS AND PHANTOM STOCK GRANTS FOR DIRECTORS
(As revised, effective January 1, 1997)

Retirement benefits for directors will be determined as follows:

. A director who is retired as of January 1, 1997 will receive an annual
retirement benefit equal to 10% of the annual retainer fee payable to
active directors at the time such benefit is actually paid for each year or
fraction thereof of service as a director (with a maximum of ten years).

. A director who is active as of January 1, 1997 shall elect, prior to
February 15, 1997, to:

(1) receive an annual retirement benefit equal to 10% of the annual
retainer fee payable to active directors at the time such benefit is
actually paid for each year or fraction thereof of service as a director
(with a maximum of ten years); or

(2) have an amount equal to the present value of that director's earned
annual retirement benefit at December 31, 1996 credited as of January 1,
1997 to a book-entry account of that director pursuant to a Deferred
Compensation Agreement; or

(3) convert the present value of that director's earned annual retirement
benefit at December 31, 1996 to the number of shares of phantom stock
(carried to four decimal places) determined by dividing such present value
by the fair market value of a share of common stock on the most recent
trading day of the common stock on the NYSE, which shares will be credited
as of January 1, 1997 to a book-entry phantom stock account.

. A non-employee director who is either (i) active as of January 1, 1997 with
less than ten years of service as a director and who chose alternative (2)
or (3) in the preceding paragraph or (ii) first elected to the Board on or
after January 1, 1997, will be credited as of January 1 of each year
beginning January 1, 1997 with the number of shares of phantom stock
(carried to four decimal places) determined by dividing 35% of the annual
retainer fee payable to active directors for such year by the fair market
value of a share of common stock on the most recent trading day of the
common stock; provided that a non-employee director shall be credited with
phantom shares only until the commencement of the tenth year of service as
a non-employee director.

2
<PAGE>

PAYMENT OF ANNUAL RETIREMENT BENEFITS, DEFERRED COMPENSATION AND PHANTOM STOCK

Annual Retirement Benefits
- --------------------------

Annual retirement benefits will be paid quarterly in advance as follows:

. The annual retirement benefit of a director whose service on the Board
terminates at or after age 65 for any reason will begin with the first
calendar quarter following the effective date of retirement.

. The annual retirement benefit of a director whose service on the Board
terminates prior to age 65 for any reason except disability that ends the
director's active business career or employment will begin with the first
calendar quarter following the attainment of age 65.

. The annual retirement benefit of a director whose service on the Board
terminates prior to age 65 by reason of disability that ends the director's
active business career or employment will begin with the first calendar
quarter following the effective date of retirement.

. In all cases, no payment of an annual retirement benefit will occur
following the date of death.

. Former directors will receive any future increases in annual retirement
benefits from and after the time such increases are put into effect.

Deferred Compensation
- ---------------------

. A director who is active as of January 1, 1997 who elected to have an
amount equal to the present value of that director's earned annual
retirement benefit at December 31, 1996 credited as of January 1, 1997 to a
book-entry account pursuant to a Director Deferred Compensation Agreement
will be paid in accordance with the terms and conditions of that Agreement.

Phantom Stock
- -------------

. On each dividend payment date in respect of the common stock, a director's
phantom stock account shall be credited with the number of shares of
phantom stock (carried to four decimal places) determined by dividing (i)
the product of the number of shares of phantom stock credited to that
director's phantom stock account as of the record date for such dividend
multiplied by the per share amount of the dividend by (ii) the fair market
value of a share of common stock on the dividend payment date (or if the
dividend payment date is not a trading day on the NYSE, the most recent
trading day of the common stock on the NYSE).

3
<PAGE>

. In the event of any stock split, stock dividend, recapitalization,
reorganization, merger, consolidation, combination, exchange of shares,
liquidation, spin-off or other similar change in capitalization or event,
or any distribution to holders of common stock other than a regular cash
dividend, the number and class of phantom securities credited to a
director's account shall be appropriately adjusted by a committee
designated by the Board.

. In connection with termination of service on the Board for any reason other
than death, the director may elect as of the effective date of such
cessation of service (and if the director's cessation of service is by
reason of death, the director shall be deemed to elect as of the date of
death) to convert the value of that director's phantom stock account
(determined by multiplying the number of shares of phantom stock by the
fair market value of the common stock on the effective date of such
cessation of service) to a cash amount to be credited to a book-entry cash
account. Such cash account shall be credited quarterly (beginning on the
last day of the calendar quarter in which the retirement occurred) with an
amount of interest on the balance (including interest previously credited)
at an annual rate equal to the then current yield obtainable on United
States government bonds having a maturity date of approximately five years.
Failure to make such an election shall result in the continuation of the
director's phantom stock account.

A director's cash account or phantom stock account will be paid as follows:

. A director whose service on the Board terminates at or after age 65 for any
reason except death shall elect to receive, as of the first day of the
first calendar quarter following the effective date of such cessation of
service, either (1) an annual amount in cash for the lesser of ten years or
the number of years of service (rounded to the nearest whole number)
determined by dividing the value of the director's cash account or phantom
stock account (the value of the phantom stock is to be determined by
reference to the fair market value of the common stock on the date of such
cessation of service) as of the effective date of such cessation of service
by the number of annual payments to be made; provided that the last payment
made shall be for 100% of the value of the director's account as of the
date of the last payment, (2) an annual amount in cash for the lesser of
ten years or the number of years of service (rounded to the nearest whole
number) determined by dividing the value of the director's cash account or
phantom stock account (the value of the phantom stock is to be determined
by reference to the fair market value of the common stock on the effective
date of the distribution) as of the effective date of the distribution by
the number of annual payments remaining to be made; provided that the last
payment made shall be for 100% of the value of the director's account as of
the date of the last payment, or (3) a lump sum amount in cash equal to the
value of the director's cash account or phantom stock account (the value of
the phantom stock is to be determined by reference to the fair market value
of the common stock on the effective date of such cessation of service) as
of the effective date of such cessation of service. In the absence of an
election, a director shall be deemed to have elected option (1).

4
<PAGE>

. A director whose service on the Board terminates prior to age 65 for any
reason except death or disability that ends the director's active business
career or employment shall elect to receive, as of the first day of the
first calendar quarter following the attainment of age 65, either (1) an
annual amount in cash for the lesser of ten years or the number of years of
service (rounded to the nearest whole number) determined by dividing the
value of the director's cash account or phantom stock account (the value of
the phantom stock is to be determined by reference to the fair market value
of the common stock on the date of such cessation of service) as of the
effective date of such cessation of service by the number of annual
payments to be made; provided that the last payment made shall be for 100%
of the value of the director's account as of the date of the last payment,
(2) an annual amount in cash for the lesser of ten years or the number of
years of service (rounded to the nearest whole number) determined by
dividing the value of the director's cash account or phantom stock account
(the value of the phantom stock is to be determined by reference to the
fair market value of the common stock on the effective date of the
distribution) as of the effective date of the distribution by the number of
annual payments remaining to be made; provided that the last payment made
shall be for 100% of the value of the director's account as of the date of
the last payment, or (3) a lump sum amount in cash equal to the value of
the director's cash account or phantom stock account (the value of the
phantom stock is to be determined by reference to the fair market value of
the common stock on the effective date of such cessation of service) as of
the effective date of such cessation of service. In the absence of an
election, a director shall be deemed to have elected option (1).

. A director whose service on the Board terminates prior to age 65 by reason
of disability that ends the director's active business career or employment
shall elect to receive, as of the first day of the first calendar quarter
following the effective date of such cessation service, either (1) an
annual amount in cash for the lesser of ten years or the number of years of
service (rounded to the nearest whole number) determined by dividing the
value of the director's cash account or phantom stock account (the value of
the phantom stock is to be determined by reference to the fair market value
of the common stock on the date of such cessation of service) as of the
effective date of such cessation of service by the number of annual
payments to be made; provided that the last payment made shall be for 100%
of the value of the director's account as of the date of the last payment,
(2) an annual amount in cash for the lesser of ten years or the number of
years of service (rounded to the nearest whole number) determined by
dividing the value of the director's cash account or phantom stock account
(the value of the phantom stock is to be determined by reference to the
fair market value of the common stock on the effective date of the
distribution) as of the effective date of the distribution by the number of
annual payments remaining to be made; provided that the last payment made
shall be for 100% of the value of the director's account as of the date of
the last payment, or (3) a lump sum amount in cash equal to the value of
the director's cash account or phantom stock account (the value of the
phantom stock is to be determined by reference to the fair market value

5
<PAGE>

of the common stock on the effective date of such cessation of service) as
of the effective date of such cessation of service. In the absence of an
election, a director shall be deemed to have elected option (1).

. In all cases, if a director's cessation of service as a director is by
reason of death or if a director dies while retired and amounts remain to
be paid under the director's cash account or phantom stock account, 100% of
the value of the director's cash account or phantom stock account (the
value of the phantom stock is to be determined by reference to the fair
market value of the common stock on the date of death) as of the date of
death shall be paid as soon as practicable after the date of death to the
director's estate or any beneficiaries designated by the director.

MISCELLANEOUS

To be entitled to receive any benefits under this policy, a former director must
agree to consult with and render advice to the Company as requested at times
that do not unreasonably interfere with his personal or other business
activities. Conduct detrimental to the Company, as determined by the Board of
Directors, will result in forfeiture of all benefits under this policy.

These provisions on benefits will apply to all living, former directors
effective January 1, 1997, regardless of when they were first elected or ceased
to serve, and to all active, non-employee directors as of January 1, 1997 whose
service on the Board terminates after January 1, 1997.

. A director's rights to receive benefits shall be no greater than the rights
of any unsecured general creditor of the Company.

. A director shall not have any rights as a stockholder of the Company with
respect to any shares of phantom stock.

. This policy and all determinations made and actions taken pursuant hereto,
to the extent not governed by the Internal Revenue Code or the laws of the
United States, shall be governed by the laws of the State of Delaware and
construed in accordance therewith without giving effect to principles of
conflict of laws.

. Benefits described herein may not be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of
law or otherwise) or be subject to execution, attachment or similar
process.

For the purposes of these provisions on retirement benefits and phantom stock
grants:

. A non-employee director is a director who is not currently an employee of
the Company and/or its subsidiaries and who never has been an employee of
the Company and/or its subsidiaries.

6
<PAGE>

. The fair market value of the common stock shall be determined by reference
to the average of the high and low trading prices as reported in the New
York Stock Exchange Composite Transactions in the Wall Street Journal for
the relevant trading day.

<PAGE>

Exhibit 10(c)

DONNELLEY SHARES STOCK OPTION PLAN

(as amended on July 28, 1994, January 25, 1996, November 21, 1996)

1. Plan. The purpose of this Donnelley Shares Stock Option Plan (the "Plan")
is to provide incentives to employees through rewards based upon the ownership
and performance of the common stock of R. R. Donnelley & Sons Company (the
"Company"). The Committee hereinafter designated shall grant options to purchase
shares of common stock, par value $1.25 per share, of the Company (the "Common
Stock") to eligible employees on the terms and subject to the conditions stated
in the Plan.

2. Eligibility. All employees (other than officers) of the Company and all of
its direct or indirect wholly-owned subsidiaries (the "Employers") shall be
eligible, upon selection by the Committee, to receive options under the Plan;
provided, however, that an otherwise eligible employee whose terms and
conditions of employment are covered by a collective bargaining agreement shall
be eligible to receive options under the Plan only if expressly provided for in
the collective bargaining agreement or supplemental letter of understanding
signed by such employee's Employer and the recognized representative of the
collective bargaining unit in which the employee is a member; provided further,
that the preceding proviso shall not apply to employees who are not subject to
the United States labor laws. An employee granted an option pursuant to the Plan
shall be referred to herein from time to time as an "Optionee".

3. Limitation on Shares Available. Subject to adjustment as provided in
Section 5 of the Plan, the maximum number of shares of Common Stock available
for all grants made under the Plan shall be 6,000,000. Shares of Common Stock
subject to grants made hereunder which, by reason of the expiration,
cancellation, forfeiture or other termination of such grants prior to purchase,
are not purchased shall again be available for future grants.

Shares of Common Stock to be delivered may be authorized and unissued
shares of stock, treasury stock or a combination thereof. The Company reserves
the right to purchase shares of Common Stock for the Plan in the open market.

4. Administration of the Plan. The Plan shall be administered by a committee
(the "Committee") designated by the Board of Directors of the Company (the
"Board"). Except as otherwise set forth in the Plan, the Committee shall,
subject to the terms of the Plan, select groups of eligible employees for
participation in the Plan and, with respect to such groups of eligible
employees, shall determine the number of shares of Common Stock subject to each
option granted hereunder, the terms and conditions of exercise of such option
and all other terms and conditions of such option. The Committee shall, subject
to the terms of the Plan, have the authority to interpret the
<PAGE>

Plan, establish rules and regulations for the administration of the Plan and
impose, incidental to the grant of an option, conditions with respect to the
grant. All such rules, regulations and interpretations adopted by the Committee
shall be conclusive and binding on all parties. The Committee may delegate its
authority to interpret all or part of the Plan to designated officers of the
Company.

5. Adjustments for Changes in Capitalization. The Committee shall make
appropriate adjustments to the number of shares available under the Plan, the
option exercise price and the number of shares subject to any option granted
hereunder in order to give effect to any stock split, stock dividend, merger,
consolidation, reorganization, spin-off, liquidation or other similar change in
capitalization or event that occurs after the effective date of the Plan, such
adjustments to be made in the case of outstanding options without a change in
the aggregate purchase price. If any adjustment would result in a fractional
security being available under the Plan or subject to a grant under the Plan,
such fractional security shall be disregarded.

6. Effective Date and Term of Plan. The Plan shall become effective on
January 27, 1994 (the "Effective Date"). The Plan shall terminate five (5) years
after the Effective Date unless terminated prior thereto by action of the Board.
No further grants shall be made under the Plan after termination, but
termination shall not affect the rights of any Optionee under any grants made
prior to termination.

7. Amendments. The Plan may be amended or terminated by the Board in any
respect and at any time, provided that such action shall not adversely affect
any rights or obligations with respect to any outstanding grants under the Plan.

8. Grants. (a) Options to purchase 100 shares of Common Stock shall be
granted on March 24, 1994 to eligible employees employed on such date who had
completed at least two (2) years of continuous service with any one or more of
the Employers as of December 31, 1993; provided, however, that employees who, as
of March 24, 1994, are members of a collective bargaining unit shall be deemed
eligible employees for purposes of this paragraph 8(a) only if a collective
bargaining agreement or supplemental letter of understanding providing for the
receipt of such options by such employees was fully executed by such employee's
Employer and the recognized representative of the collective bargaining unit
prior to March 1, 1994; and provided further, that eligible employees who are
not employed in the United States of America as of March 24, 1994 shall not
receive such options. All options granted on March 24, 1994 shall become
exercisable in full on December 31, 1996.

(b) Additional options may be granted, in the sole and absolute discretion
of the Committee, to groups of eligible employees at any time.

(c) The option price per share of Common Stock purchasable upon the
exercise of any option granted pursuant to the Plan shall be the fair market
value of a share of Common Stock on the date of grant of such option. For
purposes of the Plan, the fair market value shall be

-2-
<PAGE>

determined by reference to the average of the high and low transaction prices in
trading of the Common Stock as reported in the New York Stock Exchange-Composite
Transactions on the date of grant.

(d) All options granted hereunder shall be evidenced by a certificate
substantially in the form of Exhibit A hereto. Each certificate shall be dated
and signed by an officer of the Company as of the date of the grant.

9. Terms of Options. (a) No option shall be exercisable earlier than one (1)
year, nor more than ten (10) years, after the date of grant. Each option granted
hereunder shall become exercisable in full on the third anniversary of the date
of the grant, unless otherwise determined by the Committee and except as
otherwise set forth in Section 8(a). Notwithstanding the foregoing, if an
Optionee is no longer employed by at least one of the Employers for any reason
(including due to death or long-term disability but excluding due to termination
of employment upon retirement at normal retirement age or early retirement at or
after age 55 with the consent of the Company), each option held by such Optionee
which is not exercisable on the date of termination of employment shall
terminate automatically on such date. Options held by an Optionee who retires at
normal retirement age or who takes early retirement at or after age 55 with the
consent of the Company, regardless of whether or not such options are
exercisable at the date of retirement, shall not terminate as a result of such
retirement but shall continue to remain outstanding and subject to the terms and
conditions of the Plan; provided, however, that in the event that such an
Optionee dies, each option held by such Optionee which is not exercisable on the
date of death of such Optionee shall terminate automatically upon the death of
such Optionee. Additionally, after an option held by an Optionee has become
exercisable, if such Optionee is no longer employed by at least one of the
Employers for any reason (other than retirement at normal retirement age or
early retirement at or after age 55 with the consent of the Company or for any
of the reasons specified in Section 9(c)) and/or such Optionee dies, then such
Optionee (or in the case of death, such Optionee's executor, administrator,
personal representative, beneficiary or similar person) may exercise such
exercisable option until ninety (90) days from the date of such termination of
employment and/or the date of death, as the case may be, or until the expiration
of the term of such option, whichever is earlier.

(b) No option hereunder shall be transferable other than by will, the laws
of descent and distribution or pursuant to the beneficiary designation
procedures approved by the Committee. Each option shall be exercisable during
the Optionee's lifetime only by the Optionee or the Optionee's guardian, legal
representative or similar person, provided that evidence of such person's
identity and rights with respect to such exercise are acceptable to the
Committee. Except as permitted by the first sentence of Section 9(b) of the
Plan, no option hereunder shall be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Any
such attempt to so sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of any option hereunder shall be null and void and no person
shall be entitled to any rights hereunder by virtue of any attempted execution,
attachment or similar process. In the event of the death of

-3-
<PAGE>

an Optionee, any unexercised portion of an option that, but for the death of the
Optionee, would have been exercisable on the date of such Optionee's death by
such Optionee may be exercised by the executor, administrator, personal
representative, beneficiary or similar person of such deceased Optionee within
ninety (90) days of the death of such Optionee, but not after the expiration of
the term of the option; provided that evidence of such person's identity and
rights with respect to such exercise are acceptable to the Committee.

(c) Notwithstanding anything contained herein to the contrary, in the
event the Committee shall determine that an Optionee's employment was terminated
by the Optionee's Employer on account of (i) an unauthorized disclosure of
confidential information or trade secrets of any Employer, (ii) unlawful trading
in the securities of the Company or any customers of any of the Employers, or
(iii) fraud, theft or embezzlement with respect to any of the Employers or any
breach of the Optionee's duties to the Optionee's Employer or any of the other
Employers, then such Optionee shall forfeit all rights to the unexercised
portion of any option held by the Optionee under the Plan, and all such options
shall automatically terminate.

(d) Options must be exercised in full. No partial exercise is permitted.
No shares of Common Stock may be purchased under any option granted under the
Plan unless prior to or simultaneously with the purchase, the Optionee shall
have delivered by such means as have been identified by the Committee notice to
the Company, accompanied by payment therefor in full of the option price, any
brokerage fees associated with the exercise of the options (the "Brokerage
Fees"), and any local, state, federal or other taxes required to be withheld and
paid over to governmental taxing authorities by the Company due to such exercise
("Taxes") (or arrangement made for such payment to the satisfaction of the
Company). Upon exercise, the option price, the Brokerage Fees and the Taxes may
be paid according to procedures established by the Committee as follows: (i) in
cash or (ii) by electing to sell, through an agent or broker designated by the
Company, whole shares of Common Stock issuable upon exercise of the option
having a fair market value determined on the date of exercise as close as is
practicable to the sum of (A) the option price for shares of Common Stock
subject to such exercise, (B) the Brokerage Fees associated with such exercise
and (C) the Taxes associated with such exercise, provided that the number of
whole shares sold shall be sufficient to pay in full the option price, the
Brokerage Fees and the Taxes. No option may be exercised by an Optionee through
any agent or broker other than an agent or broker designated by the Company.
Notwithstanding the foregoing, in the event that an Optionee has notified the
Company through the Company's electronic system that such Optionee is exercising
an option and is paying cash for the option price and the Taxes and such cash is
not received within 30 calendar days following such notice, then the Company may
automatically order the sale, through the designated agent or broker, of whole
shares of Common Stock to pay in full the option price, the Brokerage Fees and
the Taxes and deliver any whole shares of Common Stock not so applied to the
Optionee, plus any cash owed in lieu of fractional shares. The Committee shall
have sole discretion to disapprove of an election pursuant to clause (ii). No
shares of Common Stock shall be delivered to the Optionee until the full option
price, the Brokerage Fees and the Taxes have been paid. Optionees shall be
required to receive all shares acquired under an option in the form of stock
certificates (or other evidence of stock ownership);

-4-
<PAGE>

cash shall not be paid to an Optionee in lieu of the delivery of stock
certificates (or other evidence of stock ownership) upon the exercise of any
option, except to the extent necessary to compensate for fractional shares.

(e) Optionees shall be entitled to the privilege of ownership with respect
to shares of Common Stock subject to options granted hereunder only as to shares
of Common Stock purchased and delivered to an Optionee upon exercise of an
option.

10. Miscellaneous.

(a) Effect of Leaves of Absence. Leaves of absence for periods and
purposes conforming to the personnel policies of the Company and approved by the
Employer shall not be deemed terminations of employment or interruptions of
continuous service.

(b) Restrictions on Shares. Notwithstanding any provision of the Plan to
the contrary, unless a registration statement under the Securities Act of 1933,
as amended (the "Securities Act"), is in effect as to the shares purchasable
under any option granted under the Plan, no shares of Common Stock may be
purchased under such option. In addition, notwithstanding any provision of this
Plan to the contrary, any option granted under the Plan is subject to the
condition that if at any time the Company determines that the listing,
registration or qualification of the shares of Common Stock subject to such
option upon any securities exchange or under any law, the consent or approval of
any regulatory body, or the taking of any other actions necessary or desirable
as a condition of, or in connection with, the delivery of the shares thereunder,
such shares shall not be delivered unless such listing, registration,
qualification, consent, approval or other action shall have been effected or
obtained, free of any conditions not acceptable to the Company.

(c) No Right to Employment. Neither the Plan nor the grant of options
hereunder shall be construed as giving any employee any right to be retained in
the employ of any Employer.

(d) Governing Law. The Plan shall be governed by and interpreted in
accordance with the laws of the State of Delaware.

(e) Nature of Option. The options granted under the Plan shall not be
treated as incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended.

11. Acceleration of Options Upon a Change in Control. If while any option
remains unexercised and outstanding under the Plan:

(a) any "person", as such term is defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
modified and used in Section 13(d) and 14(d) thereof (but not including (i)
the Company or any of its subsidiaries, (ii) a

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<PAGE>

trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its subsidiaries, (iii) an underwriter
temporarily holding securities pursuant to an offering of such securities,
or (iv) a corporation owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as their ownership of
stock of the Company) (hereinafter a "Person") is or becomes the beneficial
owner, as defined in Rule 13d-3 of the Exchange Act, directly or
indirectly, of securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly from the
Company or its affiliates) representing 50% or more of the combined voting
power of the Company's then outstanding securities; or

(b) during any period of two (2) consecutive years, individuals who
at the beginning of such period constitute the Board and any new director
(other than a director designated by a Person who has entered into any
agreement with the Company to effect a transaction described in clause (a),
(c) or (d) of this Section) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason to constitute
a majority thereof; or

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

(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all the Company's assets;

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<PAGE>

Exhibit A

Donnelley Shares

STOCK OPTION PLAN

This is to certify that

(OPTIONEE NAME)

was granted on (DATE), an option to purchase

(NUMBER)

SHARES
of R. R. Donnelley & Sons Company common stock at a fixed
option price of (PRICE) per share. This option is subject to the
terms and conditions of the Donnelley Shares
Stock Option Plan.

[logo] RR Donnelley This certificate has been
& Sons Company executed as of (DATE),
on behalf of R. R. Donnelley
& Sons Company by
(FACSIMILE SIGNATURE)
John R. Walter
Chairman and
Chief Executive Officer

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<PAGE>

DONNELLEY SHARES STOCK OPTION PLAN
----------------------------------
FOR UK EMPLOYEES
----------------

(as adopted July 28, 1994 and amended September 6, 1994)

1. Introduction. R. R. Donnelley & Sons Company ("the Company") has established
its Donnelley Shares Stock Option Plan ("the US Plan") for the benefit of
employees of it and its subsidiaries under which it may grant stock options to
such employees. The Company intends to grant Options to employees in the United
Kingdom under a UK sub-plan of the US Plan to be known as the Donnelley Shares
Stock Option Plan for UK Employees ("the UK Plan"). The UK Plan shall be
governed by these Rules ("the Rules"). The UK Plan is intended to qualify as an
approved share option plan under Schedule 9 to the Income and Corporation Taxes
Act 1988.

2. The Appendix. The US Plan attached as an Appendix to these Rules shall apply
to the UK Plan subject to the additional restrictions and amendments specified
below. References to Schedule 9 are to Schedule 9 to the Income and Corporation
Taxes Act 1988.

3. Exclusion. Section 8(a) of the US Plan relating to Option Grants on 24 March
1994 will not apply to the UK Plan.

4. Subsidiaries. The direct and indirect wholly-owned subsidiaries of the
Company referred to in Section 2 of the US Plan shall include, for purposes of
the UK Plan, only those companies of which the Company has control within the
meaning of Section 840 of the Income and Corporation Taxes Act 1988.

5. Shares. The shares of common stock of the Company in respect of which
Options may be granted under the UK Plan must satisfy the conditions specified
in paragraphs 10 to 14 inclusive of Schedule 9.

6. Eligibility.

6.1. For the avoidance of doubt, it is hereby clarified that directors of the
Company and its subsidiaries are not eligible to receive Options under the UK or
US Plans. The description of eligible employees in Section 2 of the US Plan
shall also be subject to the additional requirement that an employee must, in
order to be eligible to receive Options, be an employee of the Company or a
subsidiary of the Company who is required to devote to his duties not less than
20 hours per week excluding meal breaks and who is not precluded by paragraph 8
of Schedule 9 from participating in the UK Plan.

6.2. The proviso in Section 2 of the US Plan relating to eligible employees
covered by collective bargaining agreements will not apply to the UK Plan.

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<PAGE>

6.3. Persons who are not eligible employees, as described in Section 2 of the
US Plan and qualified by Rules 6.1 and 6.2 above, shall not be eligible to
receive Options under the UK Plan.

6.4. Any Option granted to an eligible employee shall be limited and take
effect so that the aggregate Fair Market Value of Common Stock subject to that
Option, when aggregated with the Fair Market Value of Common Stock subject to
subsisting Options, shall not exceed the greater of:

6.4.1. (Pounds)100,000; and

6.4.2. four times the amount of the individual's Relevant Emoluments for the
current or preceding Year of Assessment (whichever of those years gives the
greater amount) or, if there were no Relevant Emoluments for the preceding Year
of Assessment, four times the amount of the Relevant Emoluments for the period
of twelve months beginning with the first day during the current Year of
Assessment in respect of which there are Relevant Emoluments./(1)/

For the purposes of this restriction:

(i) "Options" includes all Options granted under the UK Plan and all
options granted under any other plan approved under Schedule 9 (not being a
savings-related share option scheme) and established by the Company or any
associated company thereof (within the meaning of Section 416 of the Income
and Corporation Taxes Act 1988);

(ii) "Relevant Emoluments" means such of the emoluments of the office or
employment by virtue of which an individual is eligible to receive Options
under the UK Plan as are liable to be paid in that year under deduction of
tax pursuant to Section 203 of the Income and Corporation Taxes Act 1988
("Pay As You Earn") after deducting therefrom amounts included by virtue of
Chapter II of Part V of the Income and Corporation Taxes Act 1988 (benefits
derived by directors and others from their employment);

(iii) "Year of Assessment" means a year beginning on any 6 April and ending
on the following 5 April; and (iv) The "Fair Market Value" of the Common
Stock shall be calculated in accordance with Section 8(c) of the US Plan as
at the dates when the Options in relation to the Common Stock were granted
or such earlier time as may have been agreed in writing with the Board of
Inland Revenue./(1)/

7. Exercise of Options.

7.1 The provisions of Section 9(a) to (d) of the US Plan relating to the
exercise of Options shall be subject to the additional restriction that no
Option may be exercised by an Optionee at any time when he is precluded by
paragraph 8 of Schedule 9 from participating in the UK Plan.

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<PAGE>

7.2 The provision in Section 9(d)(ii) of the US Plan for Optionees to pay the
option price by electing to sell whole shares of Common Stock through an agent
or broker designated by the Company will not apply for purposes of the UK Plan.

7.3 No cash payments may be made to Optionees pursuant to the final sentence of
Section 9(d) of the US Plan.

7.4 Shares must be allotted within 30 days after the date of exercise.

8. Conditions. No conditions may be imposed by the Committee pursuant to the
third sentence in Section 4 of the US Plan to the extent that they affect the UK
Plan without the prior approval of the Board of Inland Revenue. If such
conditions involve the satisfaction of performance criteria, those criteria must
be of an objective nature.

9. Adjustments Upon Changes in Capitalisation. The provisions of Section 5 of
the US Plan concerning the adjustment of Options shall be subject to the
requirement that all such adjustments must be certified in writing by the
Auditors as being fair and reasonable and that no adjustment in respect of
subsisting Options and of Options to be granted under the UK Plan shall take
effect without the prior approval of the Board of Inland Revenue. Also, no
adjustment may be made under the UK Plan in relation to a spin-off.

For the purposes of this restriction, "Auditors" means the auditors for the time
being of the Company (acting as experts and not as arbitrators).

10. Amendment of the Plan. Any amendment of the US or UK Plans which is made
under the provisions of Section 7 of the US Plan and which affects the UK Plan
shall only take effect in respect of the UK Plan with the prior approval of the
Board of Inland Revenue.

/(1)/Note: Options granted on or after 29 April 1996 are subject to the new
(Pounds)30,000 limit set out in Rule 6.4. For purposes of calculating whether
this limit would be exceeded by a new Option grant, it is necessary to include
the value of shares subject to subsisting (unexercised) Options granted in the
past (whether or not they were granted before 29 April 1996) as well as the
value of the shares which would be subject to the proposed new Option. This
would include subsisting Options granted under the UK Sub-Plans of the 1991
Stock Incentive Plan and the 1995 Stock Incentive Plan. The value of shares
subject to subsisting Options should be worked out on the basis of their value
at the original dates of grant, converted into pounds Sterling at the exchange
rates in effect on such dates.

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<PAGE>

Exhibit 10(j)

R.R. DONNELLEY & SONS COMPANY
1995 STOCK INCENTIVE PLAN

(as amended on January 25, 1996, September 1, 1996 and November 7, 1996)

I. GENERAL

1. Plan. To provide incentives to management through rewards based upon the
ownership or performance of the common stock of R.R. Donnelley & Sons Company
(the "Company"), the Committee hereinafter designated, may grant cash or bonus
awards, stock options, stock appreciation rights ("SARs"), or combinations
thereof, to eligible officers and other key management employees, on the terms
and subject to the conditions stated in the Plan. In addition, to provide
incentives to members of the Board of Directors ("Board") who are not employees
of the Company ("non-employee directors"), such non-employee directors are
hereby granted options on the terms and subject to the conditions set forth in
the Plan. For purposes of the Plan, references to employment by the Company also
means employment by a majority-owned subsidiary of the Company and employment by
any other entity designated by the Board or the Committee in which the Company
has a direct or indirect equity interest.

2. Eligibility. Officers and other key management employees of the Company,
its subsidiaries, and any other entity designated by the Board or the Committee
in which the Company has a direct or indirect equity interest, shall be
eligible, upon selection by the Committee, to receive cash or bonus awards,
stock options or SARs, either singly or in combination, as the Committee, in its
discretion, shall determine. Non-employee directors shall receive stock options
on the terms and subject to the conditions stated in the Plan.

3. Limitation on Shares to be Issued. Subject to adjustment as provided in
Section 5 of this Article I, 7,500,000 shares of common stock, par value $1.25
per share ("common stock"), shall be available under the Plan, reduced by the
aggregate number of shares of common stock which become subject to outstanding
bonus awards, stock options and SARs which are not granted in tandem with or by
reference to a stock option ("free-standing SARs"). Shares subject to a grant or
award which for any reason are not issued or delivered, including by reason of
the expiration, termination, cancellation or forfeiture of all or a portion of
the grant or award or by reason of the delivery or withholding of shares to pay
all or a portion of the exercise price or to satisfy tax withholding
obligations, shall again be available for future grants and awards; provided,
however, that for purposes of this sentence, stock options and SARs granted in
tandem with or by reference to a stock option granted prior to the grant of such
SARs ("tandem SARs") shall be treated as one
<PAGE>

grant. For the purpose of complying with Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"), and the rules and regulations thereunder,
the maximum number of shares of common stock with respect to which options or
SARs or a combination thereof may be granted during any three-year period to any
person shall be 1,000,000, subject to adjustment as provided in Section 5 of
this Article I. The maximum number of shares of common stock with respect to
which fixed awards in the form of restricted stock may be granted hereunder is
500,000 in the aggregate, subject to adjustment as provided in Section 5 of this
Article I.

Shares of common stock to be issued may be authorized and unissued shares
of common stock, treasury stock or a combination thereof.

4. Administration of the Plan. The Plan shall be administered by a Committee
designated by the Board of Directors (the "Committee"). Each member of the
Committee shall be (i) an "outside director" within the meaning of Section
162(m) of the Code and (ii) a "Non-Employee Director" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Committee shall, subject to the terms of the Plan, select eligible
officers and key management employees for participation; determine the form of
each grant and award, either as cash, a bonus award, stock options or SARs or a
combination thereof; and determine the number of shares or units subject to the
grant or award, the fair market value of the common stock or units when
necessary, the time and conditions of vesting, exercise or settlement, and all
other terms and conditions of each grant and award, including, without
limitation, the form of instrument evidencing the grant or award. The Committee
may establish rules and regulations for the administration of the Plan,
interpret the Plan, and impose, incidental to a grant or award, conditions with
respect to competitive employment or other activities not inconsistent with the
Plan. All such rules, regulations, interpretations and conditions shall be
conclusive and binding on all parties. Each grant and award shall be evidenced
by a written instrument and no grant or award shall be valid until an agreement
is executed by the Company and the recipient thereof and, upon execution by each
party and delivery of the agreement to the Company, such grant or award shall be
effective as of the effective date set forth in the agreement.

The Committee may delegate some or all of its power and authority hereunder
to the Chief Executive Officer or other executive officer of the Company as the
Committee deems appropriate; provided, however, that the Committee may not
delegate its power and authority with regard to (i) the selection for
participation in the Plan of (A) an employee who is a "covered employee" within
the meaning of Section 162(m) of the Code or who, in the Committee's judgment,
is likely to be a covered employee at any time during the period a grant or
award hereunder to such employee would be outstanding or (B) an officer or other
person subject to Section 16 of the Exchange Act or (ii) decisions concerning
the timing, pricing or amount of a grant or award to such an employee, officer
or other person.

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<PAGE>

A majority of the Committee shall constitute a quorum. The acts of the
Committee shall be either (i) acts of a majority of the members of the Committee
present at any meeting at which a quorum is present or (ii) acts approved in
writing by a majority of the members of the Committee without a meeting.

5. Adjustments. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of common stock other than a regular cash
dividend, the number and class of securities available under the Plan, the
number and class of securities subject to each outstanding bonus award, the
number and class of securities subject to each outstanding stock option and the
purchase price per security, the number of securities subject to each stock
option to be granted to non-employee directors pursuant to Article III and the
terms of each outstanding SAR shall be appropriately adjusted by the Committee,
such adjustments to be made in the case of outstanding stock options and SARs
without a change in the aggregate purchase price or base price. If any such
adjustment would result in a fractional security being (i) available under the
Plan, such fractional security shall be disregarded, or (ii) subject to an
outstanding grant or award under the Plan, the Company shall pay the holder
thereof, in connection with the first vesting, exercise or settlement of such
grant or award, in whole or in part, occurring after such adjustment, an amount
in cash determined by multiplying (i) the fraction of such security (rounded to
the nearest hundredth) by (ii) the excess, if any, of (A) the fair market value
on the vesting, exercise or settlement date over (B) the exercise or base price,
if any, of such grant or award.

6. Effective Date and Term of Plan. The Plan shall be submitted to the
stockholders of the Company for approval at the 1995 annual meeting of
stockholders and, if approved, shall become effective on January 1, 1995. The
Plan shall terminate on December 31, 1999 unless terminated prior thereto by
action of the Board. No further grants or awards shall be made under the Plan
after termination, but termination shall not affect the rights of any
participant under any grants or awards made prior to termination.

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

8. Prior Plans. Upon approval of the Plan by the stockholders of the Company,
no further grants or awards shall be made under the Company's 1981 Stock
Incentive Plan, as amended (the "1981 Plan"), the 1986 Stock Incentive Plan, as
amended (the "1986 Plan"), or the 1991 Stock Incentive Plan, as amended (the
"1991 Plan"), except that SARs may be granted with respect to options previously
granted and outstanding under such Plans. Grants and awards made under the 1981

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<PAGE>

Plan, the 1986 Plan and the 1991 Plan prior to approval of the Plan by the
stockholders of the Company shall continue in effect in accordance with their
terms.

II. BONUS AWARDS

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

2. Performance Awards. Awards may be made in terms of a stated potential
maximum dollar amount, percentage of compensation or number of units or shares,
with the actual such amount, percentage or number to be determined by reference
to the level of achievement of corporate, sector, business unit, division,
individual or other specific objectives over a performance period of not less
than one nor more than ten years, as determined by the Committee. No rights or
interests of any kind shall be vested in an individual receiving a performance
award until the conclusion of the performance period and the determination of
the level of achievement specified in the award, and the time of vesting, if
any, thereafter shall be as specified in the award.

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

4. Rights with Respect to Restricted Shares. If shares of restricted common
stock are subject to an award, the participant shall have the right, unless and
until such award is forfeited or unless otherwise determined by the Committee at
the time of grant, to vote the shares and to receive dividends thereon from the
date of grant and the right to participate in any capital adjustment applicable
to all holders of common stock; provided, however, that a distribution with
respect to shares of common stock, other than a regular quarterly cash dividend,
shall be deposited with the Company and shall be subject to the same
restrictions as the shares of common stock with respect to which such
distribution was made.

During the restriction period, a certificate or certificates representing
restricted shares shall be registered in the holder's name and may bear a
legend, in addition to any legend which may be required under applicable laws,
rules or regulations, indicating that the ownership of the shares of common
stock represented by such certificate is subject to the restrictions, terms and
conditions of the Plan and the agreement relating to the restricted shares. All
such certificates shall be deposited with the Company, together with stock
powers or other instruments of

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<PAGE>

assignment (including a power of attorney), each endorsed in blank with a
guarantee of signature if deemed necessary or appropriate, which would permit
transfer to the Company of all or a portion of the shares of common stock
subject to the award in the event such award is forfeited in whole or in part.
Upon termination of any applicable restriction period, including, if applicable,
the satisfaction or achievement of applicable objectives, and subject to the
Company's right to require payment of any taxes, a certificate or certificates
evidencing ownership of the requisite number of shares of common stock shall be
delivered to the holder of such award.

5. Rights with Respect to Stock Units. If stock units are credited to a
participant pursuant to an award, then, subject to the Committee's discretion,
amounts equal to dividends and other distributions otherwise payable on a like
number of shares of common stock after the crediting of the units (unless the
record date for such dividends or other distributions precedes the date of grant
of such award) shall be credited to an account for the participant and held
until the award is forfeited or paid out. Interest shall be credited on the
account annually at a rate equal to the return on five year U.S. Treasury
obligations.

6. Vesting and Resultant Events. The Committee may, in its discretion,
provide for early vesting of an award in the event of the participant's death,
permanent and total disability or retirement. At the time of vesting, (i) the
award, if in units, shall be paid to the participant either in shares of common
stock equal to the number of units, in cash equal to the fair market value of
such shares, or in such combination thereof as the Committee shall determine,
and the participant's account to which dividend equivalents, other distributions
and interest have been credited shall be paid in cash, (ii) the award, if a cash
bonus award, shall be paid to the participant either in cash, or in shares of
common stock with a then fair market value equal to the amount of such award, or
in such combination thereof as the Committee shall determine and (iii) shares of
restricted common stock issued pursuant to an award shall be released from the
restrictions.

III. STOCK OPTIONS

1. Grants. (a) Options for Officers and Key Management Employees. Options to
purchase shares of common stock of the Company may be granted to such eligible
officers and key management employees as may be selected by the Committee. These
options may, but need not, constitute "incentive stock options" under Section
422 of the Code or any other form of option under the Code. To the extent that
the aggregate fair market value (determined as of the date of grant) of shares
of common stock with respect to which options designated as incentive stock
options are exercisable for the first time by a participant during any calendar
year (under the Plan or any other plan of the Company, or any parent or
subsidiary) exceeds the amount (currently $100,000) established by the Code,
such options shall not constitute incentive stock options.

(b) Options for Non-Employee Directors. An option to purchase 4,000 shares
of common stock of the Company shall be granted on the date of the 1995 annual
meeting of stockholders and, thereafter, annually on the date of the Company's
annual meeting of stockholders to each

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<PAGE>

individual who immediately following such meeting on such date is a director but
not an employee (hereinafter, a "non-employee director"). An option granted to a
non-employee director pursuant to this Section 1(b) (a "Director Option") shall
become exercisable in whole or in part on the earlier to occur of (i) the date
which is the first anniversary of the date the Director Option is granted (the
date of grant being hereafter referred to as the "Option Date") or (ii) the day
immediately preceding the date of the first annual meeting of stockholders of
the Company next following the Option Date.

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

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

An option may be exercised (i) by giving written notice to the Company
specifying the number of whole shares of common stock to be purchased and
accompanied by payment therefor in full (or arrangement made for such payment to
the Company's satisfaction) either (A) in cash, (B) in previously owned whole
shares of common stock (which the optionee has held for at least six months
prior to delivery of such shares or which the optionee purchased on the open
market and for which the optionee has good title free and clear of all liens and
encumbrances) having a fair market value, determined as of the date of exercise,
equal to the aggregate purchase price payable by reason of such exercise, (C) in
cash by a broker-dealer acceptable to the Company to whom the optionee has
submitted an irrevocable notice of exercise or (D) a combination of (A) and (B),
(ii) if applicable, by surrendering to the Company any SARs which are cancelled
by reason of the exercise of the option and (iii) by executing such documents as
the Company may

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<PAGE>

reasonably request. The Committee shall have sole discretion to disapprove of an
election pursuant to any of clauses (B)-(D). Any fraction of a share of common
stock which would be required to pay such purchase price shall be disregarded
and the remaining amount due shall be paid in cash by the optionee. No
certificate representing common stock shall be delivered until the full purchase
price therefor has been paid.

4. Termination of Employment or Service. An option may be exercised during
the optionee's continued employment with the Company or service on the Board, as
the case may be, and, unless otherwise determined by the Committee as set forth
in the agreement relating to the option, for a period not in excess of ninety
days following termination of employment or service on the Board and only within
the original term of the option; provided, however, that if employment of the
optionee by the Company or service on the Board, as the case may be, shall have
terminated by reason of retirement or total and permanent disability, then the
option may be exercised to the extent set forth in the agreement relating to the
option for a period not in excess of five years (or such other period (not to
exceed the original term of the option) as is set forth in the agreement
relating to the option) following termination of employment or service on the
Board, but not after the expiration of the term of the option. In the event of
the death of an optionee (i) during employment or service on the Board, as the
case may be, (ii) within a period not in excess of five years (or such other
period (not to exceed the original term of the option) as is set forth in the
agreement relating to the option) after termination of employment or service on
the Board, as the case may be, by reason of retirement or total and permanent
disability or (iii) within ninety days (or such other period (not to exceed the
original term of the option) as is set forth in the agreement relating to the
option) after termination of employment or service on the Board, as the case may
be, for any other reason, outstanding options held by such optionee at the time
of death may be exercised to the extent set forth in the agreement relating to
the option by the executor, administrator, personal representative, beneficiary
or similar persons of such deceased optionee within ninety days of the date of
death (or such other period (not to exceed the original term of the option) as
is set forth in the agreement relating to the option).

IV. UK STOCK OPTION SUB-PLAN

1. GENERAL

(a) Sub-Plan. The UK Stock Option Sub-Plan ("the Sub-Plan") has been established
in order to vary the terms on which options may be given to officers and other
key management employees who are employed in the United Kingdom by the Company
or any of its subsidiaries. Stock options granted under the Sub-Plan shall be
deemed granted under the Plan and shall, unless otherwise stated or implied in
this Article IV, comply in all respects with the terms and conditions applicable
to options granted under Article III of the Plan. Articles II and V and Clause 2
of Article VI shall not apply to options granted under the Sub-Plan.

-7-
<PAGE>

(b) Definitions. In the Sub-Plan the following terms shall have the following
meanings:

"the Subsidiaries" shall mean all companies which are controlled by the Company
(as defined in Section 840 of the Income and Corporation Taxes Act 1988) and
which are affiliates controlled by the Company directly or indirectly through
one or more intermediaries for the purposes of Rule 12b-2 of the Exchange Act;

"the Group" shall mean the Company and the Subsidiaries;

"Associated Company" shall have the meaning attributed to it in Section 416(1)
of the Income and Corporation Taxes Act 1988;

"the Committee" shall mean the committee designated to administer the Plan;

"Full Time Employee" shall mean any director or employee who is employed by the
Group in the United Kingdom and who is required to devote to his duties not less
than 25 hours (or in the case of an employee who is not a director of any
company in the Group, 20 hours) per week (excluding meal breaks) and is not
precluded by paragraph 8 of Schedule 9 from participating in the Sub-Plan;

"Relevant Emoluments" shall have the meaning which the term bears in sub-
paragraph (2) of paragraph 28 of Schedule 9 by virtue of sub-paragraph (4) of
that paragraph;

"Year of Assessment" shall mean a year beginning on any 6 April and ending on
the following 5 April;

"Market Value" shall mean on any day the average of high and low transaction
prices in trading in the common stock of the Company as reported on the New York
Stock Exchange--Composite Transactions compiled by Associated Press or if no
trading occurred on such date then on the next preceding date on which such
trading occurred;

"Schedule 9" shall mean Schedule 9 of the United Kingdom Income and Corporation
Taxes Act 1988;

"Share" or "Shares" shall mean a share or shares of common stock of par value
$1.25 which satisfy the conditions specified in Paragraphs 10 to 14 inclusive of
Schedule 9.

-8-
<PAGE>

(c) Sub-Plan. The Committee may grant stock options to officers and other key
management employees eligible to participate in the Sub-Plan on the terms and
subject to the conditions stated in the Sub-Plan.

(d) Eligibility. Full Time Employees who are officers or other key management
employees employed by the Group in the United Kingdom under selection guidelines
to be established by the Committee, shall be eligible, upon selection by the
Committee, to receive stock options.

(e) Shares to be Issued. Shares to be issued shall be authorized and unissued
shares of common stock, treasury stock or a combination thereof. The issue of
shares of common stock shall be subject to the maximum specified in the Plan.

(f) Administration. The Sub-Plan shall be administered by the Committee in
accordance with the provisions set out in the Plan and varied by the terms of
the Sub-Plan.

(g) Effective Date and Term of the Sub-Plan. The Sub-Plan shall be submitted to
the stockholders of the Company for approval at the 1995 annual meeting of
stockholders and, if approved, shall become effective on January 1, 1995.
Options shall not be granted until the Sub-Plan has been approved by the Board
of UK Inland Revenue under the provisions of paragraph 1 of Schedule 9. Any
change required to be made to the Plan by the Board of UK Inland Revenue in
order to obtain its approval may be made without stockholder approval, except as
otherwise provided in Clause 7 of Article I. The Sub-Plan shall terminate on
December 31, 1999 unless terminated prior thereto by action of the Board. No
further grants shall be made under the Sub-Plan after termination, but
termination shall not affect the rights of any participant under the grants made
prior to termination.

(h) Amendments. The Sub-Plan may be amended or terminated by the Board subject
to the conditions specified in the Plan. No amendment may be made which will put
the Sub-Plan in breach of conditions for approval set out in Schedule 9 and no
amendment to the Sub-Plan or any provision in the Plan which applies to options
granted under the Sub-Plan shall be made without prior approval of the Board of
UK Inland Revenue.

2. STOCK OPTIONS

(a) Grants. Options to purchase shares of common stock may be granted to such
eligible Full-Time Employees as may be selected by the Committee. No variation
shall be made in relation to a spin-off nor to any class of securities available
under the Sub-Plan.

(b) Variations in Options. Variations may not be made to options granted under
the Sub-Plan pursuant to Article I clause 5 of the Plan without prior consent of
the Board of UK Inland Revenue.

-9-
<PAGE>

(c) Terms of Options. Terms attaching to options shall be contained in a stock
option agreement, the form of which must be approved in advance by the Board of
UK Inland Revenue. If any performance targets are attached to the exercisability
of an option, these shall be objectively determined and subject to the prior
approval of the Board of UK Inland Revenue. No option shall be exercisable more
than ten years after its date of grant. The per share option price shall be
stated at the time the option is granted and shall be not less than 100% of the
Market Value of the share on the date on which the optionee is offered options
under the Sub-Plan. Upon exercise, the option price shall be paid in cash. The
provisions in Clause 3 of Article III for the exercise of options by payment in
whole shares of common stock or in cash by a broker-dealer to whom the optionee
has submitted an irrevocable notice of exercise will not apply for the purposes
of the Sub-Plan unless, in the case of the latter, approved by the Board of UK
Inland Revenue. Options shall not be transferable except that such options may
be exercised by the personal representative of a deceased optionee or a
beneficiary of such deceased optionee who has been designated pursuant to
beneficiary designation procedures approved by the Company, in each case within
ninety days of the death of the optionee. Options may be exercised during the
individual's continued employment with the Group and for a period not in excess
of ninety days following termination of employment and only within the original
term of the option. No option may be exercised by an individual at any time when
he is precluded by Paragraph 8 of Schedule 9 from participating in the Sub-Plan.

(d) Exercise of Option. An option may be exercised by delivery of written
notice to the Company specifying the number of shares to be purchased and
accompanied by payment in full of the option price for the number of shares so
purchased. The Company shall within thirty days post to the optionee
certificates representing the number of shares specified, and shall pay all
original issue or transfer taxes and all other fees and expenses incidental to
such delivery.

(e) Limits on Options. No person shall be granted options under the Sub-Plan
which would, at the time that they are obtained, cause the aggregate Market
Value of the shares which such person may acquire in pursuance of rights
obtained under the Sub-Plan or under any other scheme established by the Group
or by any Associated Company of the Company and approved by the Board of UK
Inland Revenue under Schedule 9 (and not exercised) to exceed or further exceed
the greater of:

(1) 100,000 British Pounds Sterling or

(2) Four times the Relevant Emoluments of the optionee for the
current or preceding Year of Assessment (whichever of those years gives the
greater amount) or if there were no Relevant Emoluments for the preceding
Year of Assessment four times the amount of the Relevant Emoluments for the
period of twelve months beginning with the first day during the current
Year of Assessment in respect of which there are Relevant Emoluments. For
the purposes of this clause the Market Value of the shares shall be
converted from US Dollars to sterling at the middle rate for the buying and
selling of that

-10-
<PAGE>

amount of sterling for US Dollars as quoted by the Barclays Bank PLC at the
opening of business on the day on which the optionee is offered options
under the Sub-Plan./(1)/

V. STOCK APPRECIATION RIGHTS

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

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

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

-11-
<PAGE>

shares, the holder of such SAR shall have no rights as a stockholder of the
Company with respect to the shares of common stock subject to such SAR.

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

4. Termination of Employment. An SAR may be exercised during the grantee's
continued employment with the Company and, unless otherwise determined by the
Committee as set forth in the agreement relating to the SAR, for a period not in
excess of ninety days following termination of employment and only within the
original term of the SAR; provided, however, that if employment of the grantee
by the Company shall have terminated by reason of retirement or total and
permanent disability, then the SAR may be exercised to the extent set forth in
the agreement relating to the SAR for a period not in excess of five years
following termination of employment but not after the expiration of the term of
the SAR. In the event of the death of a holder of an SAR (i) during employment,
(ii) within a period not in excess of five years after termination of employment
by reason of retirement or total and permanent disability or (iii) within ninety
days after termination of employment for any other reason, outstanding SARs held
by such holder at the time of death may be exercised to the extent set forth in
the agreement relating to the SAR by the executor, administrator, personal
representative, beneficiary or similar persons of such deceased holder within
ninety days of the date of death.

VI. OTHER

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

2. Tax Withholding. The Company shall have the right to require, prior to the
issuance or delivery of any shares of common stock or the payment of any cash
pursuant to a grant or award hereunder, payment by the holder thereof of any
Federal, state, local or other taxes which may be required to be withheld or
paid in connection therewith. An agreement may provide that (i) the

-12-
<PAGE>

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

3. Acceleration Upon Change in Control. If while (i) any performance award or
fixed award granted under Article II is outstanding or (ii) any stock option
granted under Article III or IV of the Plan or SAR granted under Article V of
the Plan is outstanding--

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

(b) during any period of two (2) consecutive years (not including any
period prior to the effective date of the Plan), individuals who at the
beginning of such period

-13-
<PAGE>

constitute the Board and any new director (other than a director designated
by a Person who has entered into any agreement with the Company to effect a
transaction described in Clause (a), (c) or (d) of this Section) whose
election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously
so approved, cease for any reason to constitute a majority thereof; or

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

(any of such events being hereinafter referred to as a "Change in Control"),
then from and after the date on which public announcement of the acquisition of
such percentage shall have been made, or the date on which the change in the
composition of the Board set forth above shall have occurred, or the date of any
such stockholder approval of a merger, consolidation, plan of complete
liquidation or an agreement for the sale of the Company's assets as described
above occurs (the applicable date being hereinafter referred to as the
"Acceleration Date"), (i) with respect to such performance awards, the highest
level of achievement specified in the award shall be deemed met and the award
shall be immediately and fully vested, (ii) with respect to such fixed awards,
the period of continued employment specified in the award upon which the award
is contingent shall be deemed completed and the award shall be immediately and
fully vested and (iii) with respect to such options and SARs, all such options
and SARs, whether or not then exercisable in whole or in part, shall be fully
and immediately exercisable.

4. Restrictions on Shares. Each grant and award made hereunder shall be
subject to the requirement that if at any time the Company determines that the
listing, registration or qualification of the shares of common stock subject
thereto upon any securities exchange or under any law, or the consent or
approval of any governmental body, or the taking of any other action is
necessary or desirable as a condition of, or in connection with, the delivery of
shares thereunder, such shares shall not be delivered unless such listing,
registration, qualification, consent, approval

-14-
<PAGE>

or other action shall have been effected or obtained, free of any conditions not
acceptable to the Company. The Company may require that certificates evidencing
shares of common stock delivered pursuant to any grant or award made hereunder
bear a legend indicating that the sale, transfer or other disposition thereof by
the holder is prohibited except in compliance with the Securities Act of 1933,
as amended, and the rules and regulations thereunder.

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

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

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

8. Approval of Plan. The Plan and all grants and awards made hereunder shall
be null and void if the adoption of the Plan is not approved by the affirmative
vote of a majority of the shares of common stock present in person or
represented by proxy at the 1995 annual meeting of stockholders.

/(1)/Note: Options granted on or after April 29, 1996 are subject to
(Pounds)30,000 limit instead of the (Pounds)100,000 limit set out in Article IV,
Section 2(e). For purposes of calculating whether this limit would be exceeded
by a subsequent option grant, it is necessary to include the value of shares
subject to unexercised options granted in the past (whether or not they were
granted before April 29, 1996) as well as the value of the shares which would be
subject to the proposed grant. The calculation would include unexercised options
granted under the UK Sub-Plans of the 1991 Stock Incentive Plan, the 1986 Stock
Incentive Plan and the Donnelley Shares Stock Option Plan. The value of shares
subject to unexercised options should be calculated on the basis of their fair
market value at the original dates of grant (that is, their exercise price),
converted into pounds Sterling at the exchange rates in effect on such dates.

-15-

<PAGE>

September 20, 1995

Ms. Cheryl Francis
100 Stirrup Lane
Burr Ridge, IL 60521

Dear Cheryl:

I am pleased to confirm our offer of employment. Your start date will be
October 16, 1995. You will be elected a Senior Officer at the first Board of
Directors meeting after you join the Company. Thereafter your title will be
Executive Vice President, Chief Financial Officer. You will report to John
Walter, our Chairman and Chief Executive Officer.

BASE AND INCENTIVE COMPENSATION
-------------------------------

Your base salary will be paid at the rate of $25,000 per month. This level of
pay will provide annualized compensation of $300,000 per year. As soon as
practicable after January 31, 1996, you will be paid $180,000 as a 1995 bonus.
Beginning with calendar year 1996, you will be placed on our Company's Senior
Officer Annual Bonus Plan which provides a bonus potential of 60% of base pay;
the target payout is 40% of base pay. The bonus is currently based on two
factors: Return on Equity and Earnings Per Share.

LONG-TERM INCENTIVE PLAN
------------------------

We also have a Senior Management Long-Term Incentive Plan in which you will
participate. The plan provides for a bonus potential of 80% of your Base
Compensation over the three-year performance period; the target payout is 40% of
base compensation. The bonus is currently based on Return on Equity. The LTIP
bonus is paid following the three-year period and may be paid in either cash or
stock at the Compensation Committee's discretion.
<PAGE>

Page 2

STOCK OPTIONS AND RESTRICTED STOCK GRANTS
-----------------------------------------

We have a Stock Incentive Plan for officers under which participants are
selected periodically and awarded the option to purchase stock at the value at
the time of the award throughout the option period. Selection of participants
is determined on a discretionary basis by the Compensation Committee of the
Board on the recommendation of John Walter. You will receive a stock option
grant of 25,000 shares and a restricted stock award of 10,000 shares at the
earliest Compensation Committee meeting after your start date. In addition, you
will be awarded 120,000 premium-priced options on January 1, 1996. These
premium-priced options will be under the same terms as the premium-priced
options granted to executives on January 1, 1995. The vesting of these awards
will be as described in the materials included with this letter. In the future,
you will be considered for additional stock option grants and restricted stock
awards commensurate with your position and responsibilities.

STOCK PURCHASE PLAN
-------------------

We have a Company Stock Purchase Plan for which selected Managers and key staff
personnel are eligible. Under this Plan, participants may contribute up to 5%
of their annual gross compensation for the preceding calendar year to be applied
together with a Company contribution equal to 50% of the amount so applied by
the participant for the purchase of shares of common stock of the Company. The
Company also provides an additional 20% match to help cover income taxes on the
entire Company match. You will be eligible to participate in 1995. The first
purchase will be in March of 1996.

RETIREMENT PLAN
---------------

We have a Retirement Plan in which you will become a member and will be fully
vested on your first day of employment.

In addition to your pension accrual under the Donnelley Retirement Plan, you
will accrue an additional annual amount (per year of R.R. Donnelley service) in
age 65 life annuitant benefits. This amount represents an estimate of the
difference of age 65 benefits between the FMC Retirement Plan based on actual
service with FMC and imputed service with RRD and the Donnelley Retirement Plan
based on actual service with RRD.
<PAGE>

Page 3

The calculations will assume 5% annual wage increases and the amount will be
fixed and confirmed in writing to you by December 31, 1995. This added benefit
will be subject to the same actuarial reductions as the benefit earned under
the Donnelley Retirement Plan. It will be offset by any enhanced retirement
benefit granted to you individually apart from the Retirement Plan.

SEVERANCE AGREEMENT
-------------------

If your employment is terminated by R.R. Donnelley for reasons other than cause
(as "Cause" is defined in the form of Change in Control Agreement included with
this letter) prior to October 8, 1997, you will receive a lump-sum payment
calculated as follows:

(1) Two year's base salary $600,000
(2) Two year's Annual Plan bonus at target (40%) $240,000
--------
Subtotal $840,000

(3) $840,000 divided by 24 months = $35,000. This is your "Monthly Severance
Amount."
(4) $35,000 times the number of months (and fraction thereof) between your
termination date and October 8, 1997 is your payment under this clause.

In addition, you have represented to us that the value of your FMC "in-the-
money" stock options and restricted stock (using a share price of $79.375) is
$888,525. If your employment is terminated by R.R. Donnelley for reasons other
than cause (as "Cause" is defined in the form of Change in Control Agreement
included with this letter) prior to June 30, 2005 (it being understood that you
will vest in all options and restricted stock described in subparagraph II below
no later than June 30, 2005), you will also receive a lump-sum payment equal to
the following amount (not less than zero):

(I.) $838,525, with such $838,525 amount increased by R.R. Donnelley's short-
term borrowing rate as in effect from time to time, for the period from your
start date until the date of payment. ($838,525 = $888,525 less $50,000 included
as part of your 1995 bonus payment.)
<PAGE>

Page 4

LESS:
- ----

(II.) the sum of:

(A) The vested appreciation of R.R. Donnelley stock with respect to (i) all
shares covered by your January 1, 1996 premium-priced option grant, and (ii) the
first 10,000 shares covered by your initial stock option grant. The "vested
appreciation" with respect to shares acquired by exercise of an option is equal
to the ordinary income actually recognized by you from such exercise. The
"vested appreciation" with respect to any share of R.R. Donnelley stock covered
by an option that is unexercised on your termination date is equal to the value
of R.R. Donnelley stock on such termination date reduced by the option exercise
price; except that to the extent an option is not exercised and not exercisable
immediately following your termination date, the "vested appreciation" shall be
zero; and

(B) The value of your initial award of 10,000 shares of restricted stock
determined on the date the restrictions lapsed. To the extent you are not vested
in the shares on your termination date, this paragraph (B) will equal zero.

If you voluntarily resign from R.R. Donnelley, no payments under this "Severance
Agreement" clause will be made to you.

OTHER FRINGE BENEFITS
---------------------

Your position entitles you to five weeks vacation. You will be eligible to
participate in our Medical Plan on the first day of the second calendar month
after your date of hire. Eligibility for participation in the various other
benefit programs occurs after varying periods of service as provided in the
individual plans which are summarized in the materials I have included.

FINANCIAL PLANNING, SUPPLEMENTAL LIFE AND DISABILITY INSURANCE
--------------------------------------------------------------

In addition to the above-mentioned benefit plans, you will be provided with an
$8,000 Financial Planning reimbursement annually as well as supplemental life
and disability insurance (which is provided at your option). If you decide to
accept the supplemental life or disability insurance, the Company pays the
premiums on the policies and the premiums are taxable
<PAGE>

Page 5

income to you. You are the owner of these policies and the policies are
portable.

OTHER
-----

Because we are committed to provide a safe and healthy workplace for all
employees, successful completion of a drug screen is required. Therefore, this
offer is contingent upon and any employment relationship is probationary pending
successful completion of a drug screen. The Company will not be responsible for
any expenses or liabilities incurred if you do not pass the drug screen.

Also, you will be required to sign the following documents when you begin your
employment. I have included copies of these documents for your review.

. Company Policies on Use of Customer Information and Taking Customer Property

. An Agreement Regarding Confidential Information, Intellectual Property and
Non-Solicitation of employees

Finally, we are required by law to document proof that all employees are
authorized to work in the United States. Therefore, you need to provide, at the
time of your employment, any of the documents listed on the enclosed I-9 form
that will prove identity and employment eligibility.
<PAGE>

Page 6

If you have any questions regarding this letter, please give me a call. I am
confident that if you decide to accept our offer, you will find a successful and
personally rewarding career with Donnelley.

Sincerely,

Steven J. Baumgartner
Senior Vice President &
Chief Administrative Officer

SJB/nm
Enc.

Enclosures:

. Highlights of Our Benefits Program
. Company Policies on Use of Customer Information and Taking of Customer
Property
. Agreement Regarding Confidential Information, Intellectual Property and
Non-Solicitation of Employees
. I-9
. Change in Control Agreement
. Equity Grant Terms

Accepted:_______________________ Dated:______________
Cheryl Francis

DI95-164

<PAGE>

Form 10-K
Year-Ended 12/31/96
Exhibit 21

Subsidiaries of R. R. DONNELLEY & SONS COMPANY
(As of March 7, 1997)

Subsidiaries of Place of
R. R. Donnelley & Sons Company Incorporation
------------------------------ -------------

77 Capital Corporation Delaware
77 Capital Partners L.P. Delaware
Allentown S.H. Leasing Company Delaware
C & E Transport, Inc. Delaware
Caslon Incorporated Delaware
Chemical Equipment S.H. Leasing Company Delaware
Coris Inc. Delaware
DPA Printing Company, SP. Zo.o. Poland
Donnelley Caribbean Graphics, Inc. Delaware
Donnelley Holdings, Limited Delaware
Donnelley Satellite Services, Limited Delaware
Donnelley Satellite Graphics, Limited Delaware
Editorial Lord Cochrane, S.A. Chile
European-American Ink Sales Corporation Iowa
FFH Corporation Delaware
HCI Holdings Delaware
Haddon Craftsmen, Inc. Delaware
Heritage Preservation Corporation South Carolina
Impresora Donneco Internacional, S.A. de C.V. Mexico
Kittyhawk S.H. Leasing Company Delaware
Laboratorio Lito Color S.A. de C.V. Mexico
M/B Companies, Inc. Iowa
Pan Associates L.P. Delaware
R.R. Donnelley Far East, Limited Delaware
R.R. Donnelley Deutschland GmbH Frankfort
R.R. Donnelley Printing (France) SARL France
R.R. Donnelley International, Inc. Delaware
R.R. Donnelley Financial (Hong Kong) Limited Hong Kong
<PAGE>
Page 2
<TABLE>
<CAPTION>
Subsidiaries of Place of
R. R. Donnelley & Sons Company Incorporation
------------------------------ -------------
<S> <C>
R. R. Donnelley Limited United Kingdom

R. R. Donnelley Mendota, Inc. Delaware

R. R. Donnelley Marketing Services Group Limited United Kingdom

R. R. Donnelley Nederland B.V. The Netherlands

R. R. Donnelley Norwest Inc. Oregon

R. R. Donnelley Printing Company Delaware

R. R. Donnelley Printing Company L.P. Delaware

R. R. Donnelley Receivables, Inc. Nevada

R. R. Donnelley Sales Corporation Barbados

R. R. Donnelley Seymour, Inc. New Jersey

R. R. Donnelley U.K. Marketing Services Limited United Kingdom

R. R. Donnelley (Chile) Holdings, Inc. Delaware

R. R. Donnelley (Europe) Limited Delaware

R. R. Donnelley (India) Pvt Ltd India

R. R. Donnelley (Santiago) Holdings Chile
Inc. y Compania

R. R. Donnelley (Mauritius) Holdings Ltd Mauritius

R. R. Donnelley (Mexico) S.A. de C.V. Mexico

R. R. Donnelley (Santiago), Inc. Delaware

R. R. Donnelley (U.K.) Limited United Kingdom

Shenzhen Donnelley Bright Sun Printing Co. Republic of China

Siegwerk Sales & Services L.P. Delaware

Wyoming Avenue Holdings, Inc. Delaware

Winfield Avenue Holdings, Inc. Delaware

Stream International Holdings Inc. Delaware

Software Holdings, Inc. Delaware

Stream International Inc. Delaware
</TABLE>
<PAGE>

Page 3

Subsidiaries of Place of
R. R. Donnelley & Sons Company Incorporation
------------------------------ --------------

Corporate Software GmbH Germany

Corporate Software Limited United Kingdom

Corporate Software Europe B.V. Netherlands

Corporate Software SA France

Stream International Limited United Kingdom

Stream International Ltda. Brazil

Stream Japan K.K. Japan

Stream International S.A. de C.V. Mexico

R. R. Donnelley Holdings (Australia) Limited Delaware

Stream International PTE LTD. Singapore

Donnelley Documentation Services (Ireland)
Limited Delaware

R.R. Donnelley (Ireland) Limited Delaware

Stream International Ireland (Holdings) Ireland

Stream International Dublin Ireland

Stream International Kildare Ireland

Stream Korea Ltd. Korea

Stream International Fulfillment Services
Europe Ireland

R. R. Donnelley Deutschland Gmbh Germany

R. R. Donnelley France, S.A. France

<PAGE>

EXHIBIT 23

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated January 23, 1997 included in this Annual Report
of R. R. Donnelley & Sons Company on Form 10-K for the year ended December 31,
1996, into the Company's previously filed Registration Statements on Form S-8
(File Nos. 33-19803, 33-43632, 33-49431, 33-49809, 33-52805 and 33-61387), Form
S-3 (33-57807) and previously filed post-effective amendments thereto.

Chicago, Illinois
March 10, 1997

<PAGE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 31,142
<SECURITIES> 0
<RECEIVABLES> 1,348,987
<ALLOWANCES> 24,735
<INVENTORY> 288,506
<CURRENT-ASSETS> 1,752,857
<PP&E> 4,289,101
<DEPRECIATION> 2,344,374
<TOTAL-ASSETS> 4,849,004
<CURRENT-LIABILITIES> 1,147,547
<BONDS> 1,430,671
<COMMON> 320,962
0
0
<OTHER-SE> 1,310,319
<TOTAL-LIABILITY-AND-EQUITY> 4,849,004
<SALES> 6,598,958
<TOTAL-REVENUES> 6,598,958
<CGS> 5,475,959
<TOTAL-COSTS> 6,734,934
<OTHER-EXPENSES> (120,981)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95,482
<INCOME-PRETAX> (110,477)
<INCOME-TAX> 47,146
<INCOME-CONTINUING> (157,623)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (157,623)
<EPS-PRIMARY> (1.04)
<EPS-DILUTED> (1.04)

</TABLE>