Management's Discussion and Analysis of Financial Condition and Results of Operations

Other
In April 1998, the Company achieved the performance goal for the performance-based stock options granted under the Company's 1995 Incentive Compensation Plan. As a result, the Company was required to record a nonrecurring, noncash charge to earnings of approximately $76.8 million (approximately $50.3 million, or $.51 per share, after-tax) in April 1998. The repurchase of certain of the options by the Company and the exercise of the remaining options resulted in a net cash outlay of approximately $69.4 million.

In July and August 1998, the Company granted new options under the 1995 Incentive Compensation Plan to officers and employees for the purchase of 3,592,250 shares of Class A Common Stock at exercise prices equal to the fair market value on the grant dates, which ranged from $21.38 to $27.25 per share. One-third of the options become exercisable in 20 percent annual increments beginning on July 17, 1999. The remaining two-thirds of the options become exercisable in full on the first day between the grant date and July 17, 2003 that the average of the closing sale prices of a share of Class A Common Stock over the 20 preceding consecutive trading days equals or exceeds $67.81, which represents a 20 percent annual compounded growth in the price of a share of Class A Common Stock over five years. Generally accepted accounting principles require that a charge to earnings be recorded for the performance-based options for the difference between the exercise price and the then current stock price when achievement of the performance objective becomes probable. All of the options expire on July 31, 2004.

Corporate general and administrative expenses declined to 2.6 percent of revenue in fiscal year 1998, as compared to 2.9 percent in fiscal year 1997, despite an aggregate increase of $1.2 million for the current year. The increase in these expenses is the result of activities to support the Company's growth.

Net interest expense increased $5.4 million during fiscal year 1998 when compared to fiscal year 1997, resulting from an increase in average borrowings, which was partially offset by a decrease in average interest rates from 6.6 percent in 1997 to 6.4 percent in 1998 and an increase in the investment earnings on excess cash in fiscal year 1998 as compared to 1997. Approximately $492.0 million, or 53 percent, of the $924.4 million borrowings outstanding as of October 31, 1998 was subject to short-term variable interest rates averaging approximately 5.7 percent.

In December 1998, the Company entered into an interest rate swap agreement on a notional amount of $200 million. Under the terms of the agreement, effective March 4, 1999, the Company pays a fixed rate of 4.915 percent and receives three-month LIBOR. The swap expires on March 4, 2002.

Other income increased $3.0 million during fiscal year 1998 when compared to the prior year, due principally to an approximate $2.3 million gain on the sale of non-essential assets.

The Company experienced an increase in its effective tax rate from 34.5 percent in fiscal year 1997 to 35.5 percent in fiscal year 1998. The increase in the effective tax rate was due to an increase in income from jurisdictions with higher effective tax rates.