<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM__________ TO__________
------------------------
COMMISSION FILE NUMBER 1-5842
------------------------
BOWNE & CO., INC.
(Exact name of registrant as specified in its charter)
NEW YORK
(State or other jurisdiction of
incorporation or organization)
345 HUDSON STREET
NEW YORK, NEW YORK
(Address of principal executive offices)
13-2618477
(IRS Employer Identification Number)
10014
(Zip code)
(212) 924-5500
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares outstanding of each of the issuer's classes of common
stock was 18,201,941 shares of common stock, par value $.01, outstanding as at
September 10, 1997.
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<PAGE> 2
FINANCIAL STATEMENTS
BOWNE & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31,
1997 OCTOBER 31,
(UNAUDITED) 1996
------------ ------------
(000'S OMITTED
EXCEPT PER SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 24,944 $ 31,879
Marketable securities............................................................... 5,431 4,618
Trade accounts receivable, less allowance for doubtful accounts of $10,177 and
$8,763............................................................................. 201,635 156,817
Inventories......................................................................... 44,779 33,509
Prepaid expenses and other current assets........................................... 12,720 8,080
-------- --------
Total current assets.................................................... 289,509 234,903
Property, plant and equipment, less depreciation and amortization of $132,329 and
$110,804.............................................................................. 138,737 128,583
Excess cost of subsidiaries over net assets at date of acquisition...................... 60,434 13,867
Other assets............................................................................ 10,210 8,469
-------- --------
Totals.............................................................. $498,890 $385,822
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt................................. $ 15,300 $ 2,753
Accounts payable.................................................................... 26,320 21,317
Accrued liabilities................................................................. 93,201 63,471
-------- --------
Total current liabilities............................................... 134,821 87,541
Long-term debt -- net of current portion................................................ 5,239 2,495
Deferred employee compensation and benefits............................................. 16,441 15,052
-------- --------
Total liabilities....................................................... 156,501 105,088
-------- --------
Stockholders' equity:
Common stock, par value $.01, issued 19,549,023 shares in 1997 and 19,365,605 shares
in 1996............................................................................ 195 194
Additional paid-in capital.......................................................... 35,778 28,090
Retained earnings................................................................... 322,946 271,195
Unrealized gains on marketable securities........................................... 977 747
Foreign currency translation adjustment............................................. (1,939) (882)
Treasury stock, at cost, 1,349,407 shares in 1997 and 1,677,184 shares in 1996...... (15,568) (18,610)
-------- --------
Total stockholders' equity.............................................. 342,389 280,734
-------- --------
Totals.............................................................. $498,890 $385,822
======== ========
</TABLE>
See accompanying notes.
1
<PAGE> 3
BOWNE & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
JULY 31,
(UNAUDITED)
------------------------
(000'S OMITTED
EXCEPT PER SHARE DATA)
1997 1996*
-------- --------
<S> <C> <C>
Net sales................................................................................ $182,672 $134,153
Expenses:
Cost of sales........................................................................ 99,335 72,346
Selling and administrative........................................................... 51,612 36,336
Depreciation and amortization........................................................ 7,561 5,398
Interest............................................................................. 684 163
-------- --------
159,192 114,243
-------- --------
Operating income......................................................................... 23,480 19,910
Other income............................................................................. 705 2,375
-------- --------
Income before income taxes............................................................... 24,185 22,285
-------- --------
Income taxes:
State and local...................................................................... 2,351 1,427
Federal.............................................................................. 7,114 7,376
Foreign.............................................................................. 503 320
-------- --------
9,968 9,123
-------- --------
Net income............................................................................... $ 14,217 $ 13,162
======== ========
Net income per share..................................................................... $.78 $.75
======== ========
Dividends per share...................................................................... $.09 $.09
======== ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
JULY 31,
(UNAUDITED)
------------------------
(000'S OMITTED
EXCEPT PER SHARE DATA)
1997 1996*
-------- --------
<S> <C> <C>
Net sales................................................................................ $496,125 $361,277
Expenses:
Cost of sales........................................................................ 270,039 201,844
Selling and administrative........................................................... 142,719 97,473
Depreciation and amortization........................................................ 21,164 15,200
Interest............................................................................. 1,156 602
-------- --------
435,078 315,119
-------- --------
Operating income......................................................................... 61,047 46,158
Gain on sale of subsidiary............................................................... 35,273 --
Other income............................................................................. 2,024 4,815
-------- --------
Income before income taxes............................................................... 98,344 50,973
-------- --------
Income taxes:
State and local...................................................................... 10,615 4,110
Federal.............................................................................. 29,262 16,736
Foreign.............................................................................. 1,839 858
-------- --------
41,716 21,704
-------- --------
Net income............................................................................... $ 56,628 $ 29,269
======== ========
Net income per share..................................................................... $3.15 $1.67
======== ========
Dividends per share...................................................................... $.27 $.27
======== ========
</TABLE>
- ---------------
* Certain amounts have been reclassified to conform to the current year
presentation.
See accompanying notes.
2
<PAGE> 4
BOWNE & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF RETAINED EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
JULY 31, 1997
(UNAUDITED)
----------------
(000'S OMITTED)
<S> <C>
Retained earnings at beginning of period........................................ $271,195
Net income...................................................................... 56,628
Dividends....................................................................... (4,877)
--------
Retained earnings at end of period.............................................. $322,946
=================
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JULY 31,
(UNAUDITED)
---------------------------
(000'S OMITTED)
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................................... $ 56,628 $ 29,269
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................ 21,164 15,200
Provision for deferred employee compensation................................. 1,482 1,271
Gain on sale of subsidiary................................................... (35,273) --
Changes in other current assets and liabilities, net of non-cash
transactions................................................................. (34,534) (41,722)
-------- --------
Net cash provided by operating activities........................................ 9,467 4,018
-------- --------
Cash flows from investing activities:
Proceeds from sale of subsidiary................................................. 36,679 --
Acquisitions of businesses, net of cash acquired................................. (34,118) --
Purchase of marketable securities or other investments........................... (3,127) (3,017)
Proceeds from the sale of marketable securities and other investments............ 1,744 16,210
Purchase of property, plant and equipment........................................ (25,033) (32,662)
-------- --------
Net cash used in investing activities............................................ (23,855) (19,469)
-------- --------
Cash flows from financing activities:
Proceeds from borrowings......................................................... 22,820 --
Payment of debt.................................................................. (12,328) (2,323)
Proceeds from stock options exercised............................................ 2,776 2,921
Purchase of treasury stock....................................................... (968) (417)
Payment of dividends............................................................. (4,877) (4,748)
-------- --------
Net cash provided by (used in) financing activities.................................. 7,423 (4,567)
-------- --------
Effect of exchange rate changes on cash.............................................. 30 36
-------- --------
Decrease in cash and cash equivalents................................................ $ (6,935) $(19,982)
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 5
BOWNE & CO., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. The financial information included herein as at July 31, 1997 and
for the three and nine months ended July 31, 1997 and 1996 is unaudited and, in
the opinion of the Company, reflects all adjustments necessary for a fair
presentation of the financial position as of those dates and the results of
operations for those periods. The information in the Condensed Consolidated
Balance Sheet as at October 31, 1996 was derived from the Company's audited
annual report for 1996.
NOTE 2. Inventories of $44,779,000 in 1997 include raw materials of
$5,726,000 and work in process of $39,053,000. At October 31, 1996, inventories
of $33,509,000 included raw materials of $5,583,000 and work in process of
$27,926,000.
NOTE 3. Net income per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the period. The
weighted average number of shares was 18,151,250 (three months) and 17,999,608
(nine months) in 1997, and 17,625,439 (three months) and 17,575,904 (nine
months) in 1996.
NOTE 4. The Company classifies its investment in marketable securities as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported as a separate
component of stockholders' equity. At July 31, 1997, the fair value of
marketable securities exceeded cost by $1,656,000. At October 31, 1996, the fair
value of marketable securities exceeded cost by $1,311,000. The net unrealized
gains, after deferred taxes, were $977,000 and $747,000 at July 31, 1997 and
October 31, 1996, respectively.
NOTE 5. During March 1997, the Company entered into a temporary short-term
line of credit for $25,000,000 to be used for general corporate purposes. The
Company borrowed $20,000,000 under this agreement, of which $10,000,000 was
repaid in July with the remainder paid in August.
On July 7, 1997, the Company entered into a new unsecured five-year
revolving credit agreement for $200,000,000 with a consortium of banks. This
agreement replaced the temporary $25,000,000 short-term line, which was repaid
in August. There were no borrowings or amounts outstanding under the new
revolving credit agreement as of July 31, 1997.
4
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position continues to be strong with excellent
liquidity. On July 31, 1997, the Company had a working capital ratio of 2.15 to
1 and working capital of $154,688,000.
During March 1997, the Company completed the cash purchases of four
localization companies with three located in Europe and the other in Japan. In
addition, two smaller entities, including an Internet company, were acquired
with a combination of cash and common stock of the Company. The cash generated
from the sale of a subsidiary, Baseline Financial Services, Inc., during January
1997 plus cash generated from operations were used to fund these acquisitions.
It is expected that the cash generated from operations, working capital and the
Company's existing and available credit facilities will be sufficient to fund
these new businesses during the integration process, finance future
acquisitions, finance capital expenditures, and provide for the payment of
dividends.
CASH FLOWS
The Company had net cash provided by operating activities of $9,467,000 and
$4,018,000 for the nine months ended July 31, 1997 and 1996, respectively.
Net cash used in investing activities was $23,855,000 and $19,469,000 for
the nine months ended July 31, 1997 and 1996, respectively. This included
expenditures related to the expansion of facilities and continued investments in
new technologies. In 1997, the Company derived $36,679,000 from the sale of a
subsidiary, which was principally used to fund the cash expenditures for new
businesses of $34,118,000.
Net cash provided by (used in) financing activities was $7,423,000 and
$(4,567,000) for the nine months ended July 31, 1997 and 1996, respectively. In
1997, the Company borrowed $20,000,000 from a temporary short-term line of
credit facility, of which $10,000,000 was repaid in July with the remainder
repaid in August. During July 1997, the Company entered into a $200,000,000
five-year revolving line of credit facility.
FOREIGN EXCHANGE
The Company derives a portion of its revenues from various foreign sources.
The Company has not experienced significant gains or losses as a result of
fluctuations in the exchange rates of the related foreign currencies. To date,
the Company has not used foreign currency hedging instruments to reduce its
exposure to foreign exchange fluctuations.
RESULTS OF OPERATIONS AND OUTLOOK
The Company primarily provides printing and other related services. The
Company recently expanded its lines of business to include information
management, global document creation and dissemination, and Internet services.
Revenues related to the transactional financial printing business are affected
by cyclical conditions of the capital markets.
As mentioned above, the Company acquired three localization companies based
in Europe and one in Japan. These acquisitions, along with the localization
company purchased during the first quarter of fiscal 1997, will provide the
Company with a major presence in the localization market. Microsoft, Inc. is
expected to be the largest customer of the localization business. In addition,
in late 1996 the Company started two new business units to provide document
outsourcing and digital print services. The Company also acquired two small
units, one of which provides Internet services. The revenues associated with the
localization business and the newly formed document outsourcing and digital
print units traditionally have lower margins than those of the print operations
when the capital markets are robust. However, these units are less cyclical in
nature and are expected to have steadier margins. During the nine months ended
July 31, 1997 the sales related to these acquisitions and the new business units
amounted to 7.3% of sales. At this time management believes that these
businesses will not have a significant impact on the Company's overall revenues
and income from operations for 1997.
5
<PAGE> 7
QUARTER ENDED JULY 31, 1997 COMPARED TO QUARTER ENDED JULY 31, 1996
Net sales increased by $48,519,000, or 36%, to $182,672,000. The increase
was primarily attributable to higher levels of demand for transactional printing
services and continued growth in non-transactional printing services.
Secondarily, sales increased as a result of the acquisitions completed during
the year. The overall increase in sales contributed to a $21,530,000 growth in
gross margin.
Other income decreased $1,670,000 due to lower levels of capital gains on
the sale of marketable securities.
Selling and administrative expenses increased $15,276,000 to $51,612,000.
This increase was due in part to the variable costs associated with sales and
profitability and to a lesser extent, to the selling and administrative costs
related to the new businesses.
Depreciation and amortization increased $2,163,000, or 40%, primarily due
to the expansion of facilities and the acquisition of equipment and, to a lesser
extent, the depreciation and amortization related to the new businesses.
Interest expense increased by $521,000 primarily as a result of interest
related to borrowings under the short-term line of credit.
The effective overall tax rate remained relatively unchanged at 41%.
As a result of the foregoing, net income was $14,217,000 an increase of 8%
compared with $13,162,000 for the same period last year.
NINE MONTHS ENDED JULY 31, 1997 COMPARED TO NINE MONTHS ENDED JULY 31, 1996
Net sales increased 37%, or $134,848,000, to $496,125,000 as a result of
higher levels of demand for transactional financial printing services, which
generated higher margins. In addition, sales increased as a result of the
acquisitions completed during the year. The overall increase in sales
contributed to an increase in gross margin of $66,653,000.
Other income, consisting primarily of investment income, decreased
$2,791,000 due to lower levels of capital gains on the sale of marketable
securities.
Selling and administrative expenses increased $45,246,000 to $142,719,000,
due to increases in expenses related to sales and profitability and, to a lesser
extent, to the selling and administrative costs related to the new businesses.
Depreciation and amortization increased $5,964,000, primarily due to
expansion of facilities and the acquisition of equipment and, to a lesser
extent, the depreciation and amortization related to the new businesses.
Interest expense increased by $554,000 primarily as a result of interest
related to borrowings under the short-term line of credit.
The effective overall income tax rate decreased slightly from 43% to 42%.
As a result of the foregoing, net income, after deducting the net gain of
$20,005,000 from the sale of Baseline Financial Services, Inc., was $36,623,000,
an increase of 25% compared with $29,269,000 from the prior year period.
6
<PAGE> 8
SIGNATURES
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.
BOWNE & CO., INC.
<TABLE>
<S> <C>
Date: September 15, 1997 ROBERT M. JOHNSON
-----------------------------------------------
ROBERT M. JOHNSON
(CHAIRMAN OF THE BOARD (AND DIRECTOR)
AND CHIEF EXECUTIVE OFFICER)
Date: September 15, 1997 DENISE K. FLETCHER
-----------------------------------------------
DENISE K. FLETCHER
(VICE PRESIDENT, CHIEF FINANCIAL OFFICER)
</TABLE>
7
<PAGE> 9
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Financial Condition at July 31, 1997
(Unaudited) and the Condensed Consolidated Statement of Income for the Nine
Months Ended July 31, 1997 (Unaudited) and is qualified in it entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 24,944
<SECURITIES> 5,431
<RECEIVABLES> 211,812
<ALLOWANCES> 10,177
<INVENTORY> 44,779
<CURRENT-ASSETS> 289,509
<PP&E> 271,066
<DEPRECIATION> 132,329
<TOTAL-ASSETS> 498,890
<CURRENT-LIABILITIES> 134,821
<BONDS> 0
0
0
<COMMON> 195
<OTHER-SE> 342,194
<TOTAL-LIABILITY-AND-EQUITY> 498,890
<SALES> 496,125
<TOTAL-REVENUES> 533,422
<CGS> 270,039
<TOTAL-COSTS> 270,039
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,218
<INTEREST-EXPENSE> 1,156
<INCOME-PRETAX> 98,344
<INCOME-TAX> 41,716
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,628
<EPS-PRIMARY> 3.15
<EPS-DILUTED> 3.15
</TABLE>
