<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
-----------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-4694
R. R. DONNELLEY & SONS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-1004130
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
77 WEST WACKER DRIVE, CHICAGO,
ILLINOIS 60601
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER (312) 326-8000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.
X
Yes------- No -------
NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING
AS OF JULY 31, 1997 146,296,724
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<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
INDEX NUMBER(S)
----- ---------
<S> <C>
Condensed Consolidated Statements of Income (Unaudited) for
the three and six month periods ended June 30, 1997 and
1996........................................................ 3
Condensed Consolidated Balance Sheets as of June 30, 1997
(Unaudited) and December 31, 1996........................... 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the six months ended June 30, 1997 and 1996............. 5
Notes to Condensed Consolidated Financial Statements
(Unaudited)................................................. 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comparison of Second Quarter and First Half 1997 to 1996..... 8-12
Changes in Financial Condition............................... 12
Other Information............................................ 12-13
Outlook...................................................... 14
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.................................... 15
Item 6. Exhibits and Reports on Form 8-K..................... 15
</TABLE>
2
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
----------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales............... $ 1,504,997 $ 1,569,114 $ 2,980,235 $ 3,104,526
Cost of sales........... 1,255,522 1,279,052 2,496,975 2,573,641
------------ ------------ ------------ ------------
Gross profit............ 249,475 290,062 483,260 530,885
Selling and
administrative
expenses............... 181,079 184,792 353,725 363,273
Restructuring charges... -- 48,084 -- 560,632
------------ ------------ ------------ ------------
Earnings (loss) from
operations............. 68,396 57,186 129,535 (393,020)
Other income (expense):
Interest expense...... (22,622) (24,713) (45,182) (49,796)
Gain on Metromail
stock offering....... -- 44,158 -- 44,158
Other income
(expense)--net....... 12,638 2,982 19,548 29,558
------------ ------------ ------------ ------------
Earnings (loss) before
income taxes........... 58,412 79,613 103,901 (369,100)
Provision (benefit) for
income taxes........... 20,736 25,336 36,885 (46,458)
------------ ------------ ------------ ------------
Net income (loss)....... $ 37,676 $ 54,277 $ 67,016 $ (322,642)
============ ============ ============ ============
Per common share:
Net income (loss)..... $ 0.26 $ 0.35 $ 0.46 $ (2.09)
============ ============ ============ ============
Cash dividends........ $ 0.19 $ 0.18 $ 0.38 $ 0.36
============ ============ ============ ============
Average shares
outstanding............ 146,431,909 154,113,294 146,076,430 154,062,081
============ ============ ============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
------------
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, 1997 AND DECEMBER 31, 1996
(THOUSANDS OF DOLLARS)
<TABLE>
<S> <C> <C> <C>
ASSETS
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C> <C>
Cash and equivalents............................. $ 70,669 $ 31,142
Receivables, less allowance for doubtful accounts
of $44,849 and $24,735 at June 30, 1997 and
December 31, 1996, respectively................. 1,058,241 1,324,252
Inventories...................................... 257,983 288,506
Prepaid expenses................................. 145,745 108,957
---------- ----------
Total current assets........................... 1,532,638 1,752,857
---------- ----------
Property, plant and equipment, at cost........... 4,424,978 4,289,101
Less accumulated depreciation.................... 2,430,604 2,344,374
---------- ----------
Net property, plant and equipment.............. 1,994,374 1,944,727
---------- ----------
Goodwill and other intangibles--net.............. 513,232 541,319
Other noncurrent assets.......................... 633,748 610,101
---------- ----------
Total assets................................... $4,673,992 $4,849,004
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable................................. $ 388,001 $ 487,914
Accrued compensation............................. 159,971 131,644
Short-term debt.................................. 33,296 33,296
Current and deferred income taxes................ 56,977 56,163
Other accrued liabilities........................ 407,303 438,530
---------- ----------
Total current liabilities...................... 1,045,548 1,147,547
---------- ----------
Long-term debt................................... 1,334,682 1,430,671
Deferred income taxes............................ 251,981 253,850
Other noncurrent liabilities..................... 391,720 385,655
Shareholders' equity:
Common stock, at stated value ($1.25 par
value)........................................ 320,962 320,962
Retained earnings, net of cumulative
translation adjustments of $29,219 and $26,580
at June 30, 1997 and December 31, 1996,
respectively.................................. 1,489,146 1,486,215
Unearned compensation.......................... (12,419) (5,402)
Reacquired common stock, at cost............... (147,628) (170,494)
---------- ----------
Total shareholders' equity................. 1,650,061 1,631,281
---------- ----------
Total liabilities and shareholders' equity. $4,673,992 $4,849,004
========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash flows provided by (used for) operating activities:
Net income (loss)...................................... $ 67,016 $(322,642)
Restructuring charges, net of tax and minority
interest.............................................. -- 435,380
Depreciation........................................... 171,844 176,608
Amortization........................................... 19,739 33,155
Gain on Metromail stock offering....................... -- (44,158)
Gain on sale of assets................................. (11,770) (16,310)
Net change in operating working capital................ 160,460 144,746
Net change in other assets and liabilities............. 11,778 (21,979)
Other.................................................. (3,254) (7,786)
--------- ---------
Net cash provided by operating activities................ 415,813 377,014
--------- ---------
Cash flows provided by (used for) investing activities:
Capital expenditures................................... (242,691) (235,997)
Proceeds from receivables from Metromail............... -- 248,510
Other investments including acquisitions, net of cash
acquired.............................................. (37,333) (22,368)
Dispositions of assets................................. 45,381 18,068
--------- ---------
Net cash provided by (used for) investing activities..... (234,643) 8,213
--------- ---------
Cash flows provided by (used for) financing activities:
Net increase (decrease) in borrowings.................. (95,989) (332,616)
Disposition of reacquired common stock................. 25,086 25,849
Acquisition of common stock............................ (14,081) (25,831)
Cash dividends on common stock......................... (56,603) (55,514)
--------- ---------
Net cash used for financing activities................... (141,587) (388,112)
--------- ---------
Effect of exchange rate changes on cash and equivalents.. (55) 455
--------- ---------
Net increase (decrease) in cash and equivalents.......... 39,528 (2,429)
--------- ---------
Cash and equivalents at beginning of period.............. 31,142 33,122
--------- ---------
Cash and equivalents at end of period.................... $ 70,670 $ 30,693
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. The condensed consolidated financial statements included herein are
unaudited (although the balance sheet at December 31, 1996 is condensed from
the audited balance sheet at that date) and have been prepared by the company
to conform with the requirements applicable to this quarterly report on Form
10-Q. Certain information and disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting
principles, have been omitted as permitted by such requirements. However, the
company believes that the disclosures made are adequate to make the information
presented not misleading. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
the related notes included in the company's 1996 annual report on Form 10-K.
The condensed consolidated financial statements included herein reflect, in
the opinion of the company, all adjustments (which include only normal,
recurring adjustments) necessary to present fairly the financial information
for such periods. Certain immaterial prior year amounts have been reclassified
to maintain comparability with current year classifications.
Note 2. Components of the company's inventories at June 30, 1997 and December
31, 1996 were as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF
DOLLARS)
------------------
1997 1996
-------- --------
<S> <C> <C>
Raw materials and manufacturing supplies.................... $127,016 $154,734
Work in process............................................. 180,317 183,248
Finished goods.............................................. 36,656 34,325
Progress billings........................................... (41,680) (40,475)
LIFO reserve................................................ (44,326) (43,326)
-------- --------
Total inventories....................................... $257,983 $288,506
======== ========
</TABLE>
Note 3. The following provides supplemental cash flow information:
<TABLE>
<CAPTION>
(THOUSANDS OF
DOLLARS)
---------------
SIX MONTHS
ENDED
JUNE 30
---------------
1997 1996
------- -------
<S> <C> <C>
Cash flow data:
Interest paid, net of capitalized interest.................... $44,546 $50,561
Income taxes paid............................................. $31,168 $31,847
</TABLE>
6
<PAGE>
Note 4. In the first half of 1996, the company provided for the
restructuring and realignment of its gravure printing operations in North
America, the repositioning of other businesses, the write-down of certain
equipment, and the impairment of intangible assets and investments in non-core
businesses. These actions resulted in pre-tax charges of $561 million ($435
million after taxes and a minority interest benefit). Approximately $195
million of the charges related to 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 $69 million was
incurred through June 1997, with the remainder expected to be incurred through
the first half of 1998. In addition, the company recognized the impairment of
approximately $133 million in equipment, intangibles and investments in non-
core businesses. The impairment loss was calculated based on the excess of the
carrying amount of the assets over the assets' fair values. The fair value of
an asset is generally determined as the discounted estimates of future cash
flows generated by the asset.
The following table presents the components of the company's restructuring
reserves along with charges against these reserves from their establishment
until June 30, 1997 (in thousands of dollars):
<TABLE>
<CAPTION>
WRITEDOWN OF
PROPERTY AND
ORIGINAL INVESTMENTS RESTRUCTURING
RESTRUCTURING TO FAIR CASH RESERVES AS OF
CHARGES VALUE PAYMENTS JUNE 30, 1997
------------- ------------ -------- --------------
<S> <C> <C> <C> <C>
Restructuring loss on
writedown of property,
plant and equipment, and
other assets.............. $250,731 $(250,731) $ -- $ --
Restructuring expenditures
to reposition operations
and close facilities...... 176,960 -- (68,952) 108,008
Impairment loss on
intangible assets and
investments............... 132,941 (132,941) -- --
-------- --------- -------- --------
Total restructuring
reserves.............. $560,632 $(383,672) $(68,952) $108,008
======== ========= ======== ========
</TABLE>
Note 5. On November 25, 1996, a purported class action was brought against
the company in federal district court in Chicago, Ill., on behalf of all
current and former African-American employees, alleging that the company
racially discriminated against them. The complaint seeks declaratory and
injunctive relief, and asks for actual, compensatory, consequential and
punitive damages in an amount not less than $500 million. Most of the specific
factual assertions of the original complaint were related to the closing by
the company of its Chicago, Ill., catalog production operations begun in 1993.
The complaint was amended on February 7, 1997, to reflect more general claims
applicable to other company locations. Plaintiffs have filed a motion seeking
nationwide class certification. The company has filed a motion for partial
summary judgment as to all claims relating to its Chicago catalog operations
on the grounds that those claims are untimely.
On December 18, 1995, a purported class action was filed against the company
in federal district court in Chicago, Ill., alleging that older workers were
discriminated against in selection for termination upon the closing of the
Chicago catalog operations. The suit also alleges that the company violated
the Employee Retirement Income Security Act (ERISA) in determining benefits
payable to retiring or terminated employees. On October 8, 1996, plaintiffs
filed a motion to maintain the ERISA claims as a class action on behalf of all
company retirement plan participants who were eligible for early retirement
benefits at the time of their termination. 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.
7
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
COMPARISON OF SECOND QUARTER AND FIRST HALF 1997 TO 1996
ABOUT THE COMPANY
R. R. Donnelley & Sons Company is a world leader in distributing, managing
and reproducing print and digital information for the publishing, retailing,
merchandising and information-technology markets worldwide. The company is the
largest commercial printer in North America, with approximately 38,000
employees in 26 countries on five continents.
The company is organized into sectors, which include the following business
units and subsidiaries:
Commercial Print Sector, which includes Merchandise Media (catalogs,
retail advertising circulars and direct mail products) and Magazine
Publishing Services (consumer and trade magazines). These businesses share
common requirements in scale, equipment, services and distribution.
Information Management Sector, which includes Book Publishing Services,
Telecommunications (domestic directories) and Financial Services (financial
printing and communications process services). These businesses serve
customers that need to reproduce and distribute information in a variety of
formats globally and share requirements for speed, flexibility and
integrated manufacturing.
This sector also includes Information Services, 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.
Global Commercial Print Sector, which includes the company's directory,
book, magazine and catalog operations outside North America--in Europe,
Latin America and Asia.
Stream International Holdings, Inc. (SIH), which includes Modus Media
International (software replication, documentation and kitting and
assembly), Corporate Software & Technology (licensing and fulfillment,
customized documentation, license administration and user training) and
Stream International (technical and help-line support). The business was
formed in April 1995 by a merger of the company's Global Software Services
business with Corporate Software Inc. Approximately 80% owned by the
company, it is the world's largest software manufacturer, marketer and
technical support and service provider.
On April 30, 1997, SIH announced that a registration statement had been
filed with the Securities and Exchange Commission for the proposed initial
public offering of the common shares of Stream International. Immediately
prior to the closing of the proposed offering, SIH would be reorganized
such that the only business it conducts would be the outsource technical
support business, which has changed its name to Stream International Inc.
SIH's two other business units, Corporate Software & Technology and Modus
Media International, would be spun off as two subsidiaries of a separate
entity, the equity of which would be distributed to the current SIH
stockholders. After completion of the reorganization and public offering,
the company would own less than 40% of the outstanding shares of Stream
International and less than a majority interest in the remaining two
business units, and would thereafter account for these interests using the
equity method. Proceeds to the company from the completed offering would be
used to pay down debt and for general corporate purposes. The planned
offering of Stream International shares will be made only by means of a
prospectus.
8
<PAGE>
Sales results by business unit for the second quarter and first half of 1997
and 1996 are presented below:
NET SALES BY BUSINESS UNIT--SECOND QUARTER
<TABLE>
<CAPTION>
SECOND QUARTER ENDED JUNE 30, % OF % OF
(THOUSANDS OF DOLLARS) 1997 SALES 1996 SALES
- ----------------------------- ------- ----- ------- -----
<S> <C> <C> <C> <C>
Stream International Holdings, Inc. ................ 414,879 28% 404,115 26%
Merchandise Media................................... 275,598 18% 288,056 18%
Magazine Publishing Services........................ 263,050 17% 251,778 16%
Book Publishing Services............................ 182,116 12% 161,369 10%
Telecommunications.................................. 132,655 9% 164,602 11%
Financial Services.................................. 132,308 9% 114,279 7%
Global Commercial Print............................. 84,557 6% 74,600 5%
Metromail........................................... -- -- 69,383 4%
Other............................................... 19,834 1% 40,932 3%
NET SALES BY BUSINESS UNIT--YEAR TO DATE
<CAPTION>
FIRST HALF ENDED JUNE 30, % OF % OF
(THOUSANDS OF DOLLARS) 1997 SALES 1996 SALES
- ------------------------- ------- ----- ------- -----
<S> <C> <C> <C> <C>
Stream International Holdings, Inc.................. 836,823 28% 795,633 26%
Merchandise Media................................... 553,727 19% 579,495 19%
Magazine Publishing Services........................ 530,605 18% 529,747 17%
Book Publishing Services............................ 353,165 12% 317,509 10%
Telecommunications.................................. 268,894 9% 313,216 10%
Financial Services.................................. 247,587 8% 202,393 6%
Global Commercial Print............................. 155,596 5% 157,107 5%
Metromail........................................... -- -- 125,522 4%
Other............................................... 33,838 1% 83,904 3%
</TABLE>
CONSOLIDATED RESULTS OF OPERATIONS
The company reported second quarter 1997 net income of $38 million, or $0.26
per share. In the previous year's second quarter, the company reported net
income of $54 million, or $0.35 per share, reflecting a $48 million pre-tax
restructuring charge recorded in the period ($24 million after taxes and a
minority interest benefit) that was primarily related to the repositioning of
Modus Media International, as well as a $44 million pre-tax gain ($26 million
after taxes) related to the June 1996 initial public offering of shares of
Metromail Corporation (Metromail). Excluding the restructuring charge and the
Metromail gain, net income for the second quarter of 1996 totaled $52 million,
or $0.34 per share. Second quarter 1997 net income declined 28%, and earnings
per share declined 24%, from the comparable quarter in 1996, excluding the
restructuring charge and the Metromail gain.
For the first half of 1997, the company reported net income of $67 million,
or $0.46 per share. In the previous year's first half, the company reported a
net loss of $323 million, or $2.09 per share, reflecting the $512 million pre-
tax restructuring charge ($411 million after taxes and a minority interest
benefit) recorded in the first quarter of 1996, as well as the above-mentioned
restructuring charge and Metromail gain recorded in the second quarter of
1996. Excluding the restructuring charges and the Metromail gain, net income
for the first half of 1996 totaled $86 million, or $0.56 per share. First half
net income declined 22%, and earnings per share declined 18%, from last year's
first half, excluding the restructuring charges and the Metromail gain.
The company's performance in the second quarter of 1997 was impacted by
declines in the Telecommunications business unit due to volume and price
reductions corresponding to contract renewals, increased losses in SIH due to
declines in demand at Modus Media International and
9
<PAGE>
increased costs of operating SIH as three separate businesses. In addition,
performance in the second quarter and first half of 1997 was impacted by higher
expenses associated with the continued development of the company's logistics
and fulfillment businesses and the startup of a short-run, four-color book
printing facility in Roanoke, Virginia (Roanoke facility).
CONSOLIDATED NET SALES
Net sales for the second quarter of 1997 decreased approximately $64 million,
or 4%, to approximately $1.5 billion. The decline was primarily due to price
and volume declines in Telecommunications (down approximately $32 million) and
the company's deconsolidation of Metromail due to reduced ownership following
the second quarter 1996 public offering (down $69 million). These declines were
partially offset by increased revenues in most business units, particularly in
Book Publishing Services and Financial Services.
Net sales from foreign operations represented approximately $254 million, or
17% of total net sales, in the second quarter, down 6% from $269 million, or
17% of total net sales, in the year earlier quarter. The decline in foreign
sales principally reflects the discontinuation of magazine and catalog printing
in the United Kingdom and the worldwide repositioning of Modus Media
International's foreign manufacturing operations, partially offset by increased
volume in Global Commercial Print.
Net sales for the first half decreased $124 million, or 4%, to approximately
$3.0 billion. The decline was primarily due to: lower paper prices in the first
quarter compared with the first quarter of 1996 (down approximately $50
million); price and volume declines in Telecommunications (down approximately
$44 million); and the company's deconsolidation of Metromail (down $126
million). These declines were partially offset by increased revenues primarily
in SIH, Financial Services and Book Publishing Services.
Net sales from foreign operations represented approximately $503 million, or
17% of total net sales, in the first half, down 4% from $525 million, or 17% of
total net sales, in the first half of 1996. The decline in foreign sales for
the first half reflects the factors identified above for the second quarter.
CONSOLIDATED EXPENSES
Gross profit declined 14% to $249 million and 9% to $483 million in the
second quarter and first half of 1997, respectively, from the comparable 1996
periods. The declines reflect the company's reduced ownership of Metromail
(down $32 million for the second quarter and $51 million for the first half),
price and volume declines in Telecommunications, and higher expenses associated
with the continued development of the company's logistics and fulfillment
businesses and the startup of the Roanoke facility. In addition, the indirect
costs of restructuring activities led to temporarily higher manufacturing costs
in the company's gravure platform and in the United Kingdom during the periods.
These declines were partially offset by manufacturing cost improvements in most
business units.
Selling and administrative expenses in the second quarter of 1997 declined 2%
to $181 million, due to the company's reduced ownership of Metromail (down $21
million), partially offset by volume-related increases primarily in the
Financial Services and Book Publishing Services business units. The ratio of
selling and administrative expense to net sales, at 12%, was the same in both
the second quarters of 1997 and 1996. Interest expense decreased approximately
$2 million, due to lower average debt balances associated with improvements in
operating working capital and the reduction of debt using a portion of the
proceeds of the fourth quarter 1996 public offering of Donnelley Enterprise
Solutions Incorporated (DESI). Other income in the second quarter 1997
decreased $35 million, primarily due to non-recurring events in the second
quarter of 1996, including a $44 million gain on the June 1996 Metromail public
offering and a $4 million minority interest benefit arising from SIH's portion
of the second quarter restructuring charge. These non-recurring events were
partially offset by 1997 gains on the sale of investments in the company's
venture-capital portfolio.
10
<PAGE>
Selling and administrative expenses in the first half of 1997 declined 3% to
$354 million, due to the company's reduced ownership of Metromail (down $39
million), partially offset by volume-related increases primarily in the
Financial Services and Book Publishing Services business units. The ratio of
selling and administrative expenses to net sales, at 12%, was the same in both
the first half of 1997 and 1996. Interest expense decreased approximately $5
million, due to lower average debt balances associated with improvements in
operating working capital and the reduction of debt using a portion of the
proceeds of the public offering of DESI. Other income for the half decreased
$54 million, primarily due to non-recurring events in the first half of 1996,
including a $14 million gain on the sale of investments in the company's
venture-capital portfolio, a $44 million gain on the June 1996 Metromail
public offering and a $17 million minority interest benefit arising from SIH's
portion of the restructuring charges. These non-recurring events were
partially offset by a $6 million gain on the sale of the company's interest in
a magazine distribution venture in the United Kingdom and gains on the sale of
investments in the company's venture-capital portfolio.
SUMMARY OF EXPENSE TRENDS
<TABLE>
<CAPTION>
SECOND QUARTER ENDED JUNE 30, % INCREASE
(THOUSANDS OF DOLLARS) 1997 1996 (DECREASE)
- ----------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Cost of materials.............................. $707,045 $729,429 (3)%
Cost of manufacturing.......................... 446,590 448,937 (1)%
Depreciation................................... 90,227 85,052 6%
Amortization................................... 11,660 15,634 (25)%
Selling and administrative..................... 181,079 184,792 (2)%
Net interest expense........................... 22,622 24,713 (8)%
<CAPTION>
FIRST HALF ENDED JUNE 30, % INCREASE
(THOUSANDS OF DOLLARS) 1997 1996 (DECREASE)
- ------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Cost of materials.............................. $1,400,475 $1,461,235 (4)%
Cost of manufacturing.......................... 904,917 902,643 3%
Depreciation................................... 171,844 176,608 (3)%
Amortization................................... 19,739 33,155 (40)%
Selling and administrative..................... 353,725 363,273 (3)%
Net interest expense........................... 45,182 49,796 (9)%
</TABLE>
RESULTS OF OPERATIONS OF PRINT-RELATED BUSINESSES AND OF SIH
Print-Related Businesses
Net sales for the company's print-related businesses (all consolidated
business units other than SIH and excluding Metromail in 1996) in the second
quarter of 1997 remained consistent with second quarter 1996 at $1.1 billion.
Increased demand primarily in the Book Publishing Services and Financial
Services business units was offset by price and volume declines in
Telecommunications. Print-related businesses had operating income of $78
million, a 19% decline from the same quarter in 1996, excluding the
restructuring charge. The decrease was attributable to higher expenses
associated with the continued development of the company's logistics and
fulfillment businesses, the startup of the Roanoke facility, and price and
volume declines in Telecommunications.
For the first half of 1997, net sales declined $40 million to $2.1 billion,
primarily reflecting lower paper prices, in addition to the factors identified
above. Operating income was $148 million, an 11% decline from the first half
of 1996, excluding the 1996 restructuring charges. The decrease is
attributable to the factors identified above.
11
<PAGE>
Stream International Holdings, Inc.
Net sales for SIH in the second quarter of 1997 increased by $11 million, or
3%, to $415 million. SIH had an operating loss of approximately $10 million, an
$8 million decline from the second quarter of 1996. The higher operating losses
reflect declines in demand in Modus Media International, and the increased
costs of operating SIH as three separate businesses.
For the first half of 1997, net sales for SIH increased by $41 million, or
5%, to $837 million. For the first half SIH had an operating loss of $18
million, an $8 million decline from the first half of 1996. The higher
operating loss is attributable to the factors identified above for the second
quarter and an additional bad debt reserve recorded in the first quarter of
1997.
CHANGES IN FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
For the first half of 1997, net cash flow provided by operating activities
increased by $39 million, or 10%, to $416 million. The increase is primarily
related to improvements in operating working capital.
Operating working capital (defined as inventories, accounts receivable and
prepaid expenses, minus accounts payable, accrued compensation and other
accrued liabilities, including the restructuring reserve) decreased $160
million in the first half of 1997. The decrease is due primarily to lower
inventory and accounts receivable, compared with a $145 million decrease during
the first half of 1996. Management believes that the company's cash flow and
borrowing capacity are sufficient to fund current operations and growth.
Capital expenditures in the first half totaled $243 million, including
purchases for the Roanoke facility and purchases related to revamping the
company's gravure manufacturing platform. Full-year capital spending is
expected to be between $450 million and $500 million.
At June 30, 1997, the company had an unused revolving credit facility of $550
million with a number of banks. This credit facility provides support for the
issuance of commercial paper and other credit needs. In addition, certain
subsidiaries of the company had credit facilities with unused borrowing
capacities totaling approximately $100 million at June 30, 1997.
OTHER INFORMATION
Metromail--On June 19, 1996, Metromail completed an initial public offering
of its common stock, resulting in the company's interest in Metromail being
reduced to approximately 38% and the company changing its method of accounting
for Metromail from consolidation to the equity method. Under the equity method,
the company recognizes in income its proportionate share of net income of
Metromail. Metromail had net sales and operating earnings of $69 million and
$11 million, respectively, in the second quarter of 1996 and $126 million and
$12 million, respectively, in the first half of 1996.
DESI--On November 4, 1996, DESI completed an initial public offering of its
common stock, resulting in the company's interest in DESI being reduced to
approximately 43% and the company changing its method of accounting for DESI
from consolidation to the equity method. Under the equity method, the company
recognizes in income its proportionate share of net income of DESI. DESI's net
sales and operating earnings were not material to the consolidated results of
the company in 1996.
Restructurings--On March 28, 1996, the company announced a $512 million pre-
tax charge to first quarter earnings ($411 million after taxes and a minority
interest benefit) to restructure and realign its gravure operations in North
America, reposition other businesses, and write down certain equipment,
investments in non-core businesses and intangible assets. Approximately $195
million of the charge was related to the gravure platform realignment.
Approximately $189 million was related to other manufacturing restructuring,
including approximately $92 million to reposition SIH's worldwide operations.
Additionally, the company wrote down approximately $128 million in equipment,
intangibles and investments in non-core businesses, in accordance with SFAS
121.
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On July 25, 1996, the company announced a $48 million pre-tax restructuring
charge ($24 million after taxes and a minority interest benefit) primarily to
restructure SIH's software manufacturing, printing, kitting and fulfillment
operations. The restructuring reflects changes in customer demand, which is
shifting from disk-based media and printed materials to CD-ROM and other forms
of electronic media, packaging and delivery.
Pre-tax cash outlays associated with the restructuring and realignment
charges are expected to total approximately $177 million and will be incurred
through the first half of 1998 ($69 million of this amount has been paid
through June 30, 1997). The remaining $383 million relates to non-cash items,
mainly the write-down of fixed assets and goodwill.
Human Resources and Plant Closings--As part of the first-half 1996
restructuring discussed above, the company has discontinued catalog and
magazine printing operations in the United Kingdom, closed SIH's
Crawfordsville, Ind., documentation printing and diskette replication
operations, consolidated a stand-alone book bindery in Scranton, Pa., closed a
book prepress operation in Barbados and closed a gravure-printing plant in Casa
Grande, Ariz. In addition, as part of the first-half 1996 restructuring, the
company announced plans to close a gravure-printing plant in Newton, N.C.,
which is expected to occur by the end of 1997.
Subsequent to the second quarter, on July 7th, 1997, the company announced
plans to close a fulfillment and distribution center in Crawfordsville, Ind. In
addition, on July 23, 1997, the company announced plans to close CORIS, a
content management software subsidiary in Willowbrook, Ill. Both closings are
expected to occur by the end of 1997. Costs associated with the closings are
not expected to have a material effect on the financial statements.
Litigation--On November 25, 1996, a purported class action was brought
against the company in federal district court in Chicago, Ill., on behalf of
all current and former African-American employees, alleging that the company
racially discriminated against them. The complaint seeks declaratory and
injunctive relief, and asks for actual, compensatory, consequential and
punitive damages in an amount not less than $500 million. Most of the specific
factual assertions of the original complaint were related to the closing by the
company of its Chicago, Ill., catalog production operations begun in 1993. The
complaint was amended on February 7, 1997, to reflect more general claims
applicable to other company locations. Plaintiffs have filed a motion seeking
nationwide class certification. The company has filed a motion for partial
summary judgment as to all claims relating to its Chicago catalog operations on
the grounds that those claims are untimely.
On December 18, 1995, a purported class action was filed against the company
in federal district court in Chicago, Ill., alleging that older workers were
discriminated against in selection for termination upon the closing of the
Chicago catalog operations. The suit also alleges that the company violated the
Employee Retirement Income Security Act (ERISA) in determining benefits payable
to retiring or terminated employees. On October 8, 1996, plaintiffs filed a
motion to maintain the ERISA claims as a class action on behalf of all company
retirement plan participants who were eligible for early retirement benefits at
the time of the termination. 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.
Corporate-Owned Life Insurance--As a part of the Health Insurance Portability
and Accountability Act enacted in August 1996, the income tax deduction for
interest on loans from corporate-owned life insurance (COLI) policies is being
phased out and then eliminated, effective in
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1999. The company has used loans from COLI to finance certain employee
benefits liabilities, and the loss of the interest deduction may cause the
company's effective tax rate to rise as the deduction is phased out over the
next few years.
Share Repurchase--The company announced and completed the repurchase of $250
million of its common stock in 1996, which was in addition to its ordinary
purchase of 1.8 million shares for issuance under various employee stock
plans. The number of shares outstanding at June 30 1997, was 146 million, with
an average outstanding number of shares for the half of 146 million. In the
first half of 1996, the average outstanding number of shares was 154 million.
OUTLOOK
The commercial printing business in North America (the company's primary
geographic market) is highly competitive in most product categories and
geographic regions. Industry analysts consider most commercial print markets
to suffer from overcapacity, leading to fierce competition. Competition is
based largely on price, quality and servicing the special needs of customers.
The company believes that demand for most product categories should continue
to improve over comparable periods in 1996. This belief may be affected by a
number of factors including: increased utilization of customer supplied paper,
which creates difficult top-line comparisons without the corresponding impact
on earnings; and movement toward increased versioning and target marketing,
which favors shorter run counts that have traditionally been more cost
effective on an offset platform. The company continues to evaluate these
factors and position of its platform configuration to ensure that it responds
to customer needs.
Recent high stock valuations and market volatility have created uncertainty
in the capital markets. The uncertainty has affected transaction flow, which
may impact results in the Financial Services business unit. Moreover, a
significant customer of the Telecommunications business unit has modified its
production cycle to move work that has been traditionally produced in the
fourth quarter into the first quarter of next year. In the short term, this
action will affect revenue and earnings comparisons in the current year. In
the long term, it should create manufacturing efficiencies as the work is
moved to slower production periods.
The company anticipates that because information systems are becoming
increasingly important to the effective management of the company, increased
spending will likely be necessary to update systems and ensure that the
company effectively manages the transition to the year 2000.
Over the past three years, the company has adopted the principles of
Economic Value Added (EVA) as its primary financial framework. The objective
of this system is to put in place a system of value-based metrics that
measures periodic progress toward improved shareholder value creation. To
enhance value, the company moved to improve its manufacturing efficiencies in
1996 by initiating the restructuring of its U.S. gravure printing platform;
the closure of its commercial print operations in the United Kingdom; and
integration of its Digital Division assets into other operations. These
actions should generate sustainable cost savings in the long-run. During 1997,
as the restructuring continues, operating efficiency will decline temporarily
due to the movement of equipment, retraining of people and movement of
printing among facilities. This short-term disruption will continue to occur
through 1997, but should provide tangible benefits in future years.
Over time, the application of the EVA financial framework to the company's
decision-making process is likely to produce slower revenue growth, enhanced
free cash flow, a stronger competitive position and improved return on
invested capital.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 25, 1996, a purported class action was brought against the
company alleging racial discrimination and seeking actual, compensatory,
consequential and punitive damages in an amount not less than $500 million. On
December 18, 1995, a purported class action was brought against the company
alleging age discrimination in connection with the 1993 closing of the
company's Chicago, Ill. catalog operations, and violation of the Employee
Retirement Income Security Act. These actions are described in the company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
10(a)1995 Stock Incentive Plan, as amended*
10(b)Donnelley Shares Stock Option Plan, as amended*
27Financial Data Schedule
- --------
*Management contract or compensatory plan or arrangement
(b) No current Report on Form 8-K was filed during the second quarter of
1997.
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SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
R. R. Donnelley & Sons Company
/s/ Peter F. Murphy
By __________________________________
Peter F. Murphy
Corporate Controller
(Authorized Officer and
Chief Accounting Officer)
August 5, 1997
Date __________________________
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R.R. DONNELLEY & SONS COMPANY
1995 STOCK INCENTIVE PLAN
(as amended on January 25, 1996, September 1, 1996, November 7, 1996 and July
24, 1997)
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
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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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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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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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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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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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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.
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<PAGE>
(b) Definitions. In the Sub-Plan the following terms shall have the following
meanings:
<TABLE>
<CAPTION>
<C> <S>
"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.
</TABLE>
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<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.
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<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 (i) payment in full of the option price in the form of cash,
cheque or credit transfer for the number of shares so purchased or (ii) if
permitted by the Committee in its sole discretion, irrevocable written
instructions to an agent or broker to effect the immediate sale of purchased
whole shares of Common Stock and remit to the Company, out of the proceeds from
such sale, sufficient funds to cover (A) the aggregate option price payable for
the shares subject to the exercise and (B) the taxes if any associated with such
exercise, and to pay to the optionee the balance (if any after payment of any
brokerage fees) remaining after the remission of such funds to the Company. The
Company shall within thirty days post to the optionee certificates representing
the number of shares over which the option has been exercised (less any sold by
the agent or broker referred to above) 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
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<PAGE>
(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 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
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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 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,
(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.
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<PAGE>
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 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
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<PAGE>
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.
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<PAGE>
Exhibit 10(b)
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
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<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
-5-
<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;
(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
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"), all such outstanding and unexercised options, whether or
not then exercisable, shall be fully and immediately exercisable.
-6-
<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
-7-
<PAGE>
DONNELLEY SHARES STOCK OPTION PLAN
----------------------------------
FOR UK EMPLOYEES
----------------
(as adopted July 28, 1994 and amended September 6, 1994 and July 24, 1997)
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.
-8-
<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.
-9-
<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.
Instead, an Optionee may, upon exercise, pay the option price, the Brokerage
Fees and the Taxes in accordance with procedures established by the Committee as
follows: (i) by payment in full in the form of cash, cheque or credit transfer
or (ii) by providing, if permitted by the Committee at its sole discretion,
irrevocable written instructions to an agent or broker designated by the Company
to effect the immediate sale of purchased whole shares of Common Stock and remit
to the Company, out of the proceeds from such sale, sufficient funds to cover
(A) the aggregate option price payable for the shares subject to the exercise
and (B) the taxes if any associated with such exercise, and to pay to the
Optionee the balance (if any after payment of any brokerage fees) remaining
after the remission of such funds to the Company.
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.
-10-
<PAGE>
/(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.
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 70,669
<SECURITIES> 0
<RECEIVABLES> 1,103,090
<ALLOWANCES> 44,849
<INVENTORY> 257,983
<CURRENT-ASSETS> 1,532,638
<PP&E> 4,424,978
<DEPRECIATION> 2,430,604
<TOTAL-ASSETS> 4,673,992
<CURRENT-LIABILITIES> 1,045,548
<BONDS> 1,334,682
0
0
<COMMON> 320,962
<OTHER-SE> 1,329,099
<TOTAL-LIABILITY-AND-EQUITY> 4,673,992
<SALES> 1,504,997
<TOTAL-REVENUES> 1,504,997
<CGS> 1,255,522
<TOTAL-COSTS> 1,436,601
<OTHER-EXPENSES> 12,638
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (22,622)
<INCOME-PRETAX> 58,412
<INCOME-TAX> 20,736
<INCOME-CONTINUING> 37,676
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,676
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
