<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 MARCH 31, 1998
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)
<TABLE>
<S> <C>
NEW YORK
(State or other jurisdiction of 13-2618477
incorporation or organization) (IRS Employer Identification Number)
345 HUDSON STREET
NEW YORK, NEW YORK 10014
(Address of principal executive offices) (Zip code)
(212) 924-5500
(Registrant's telephone number, including area code)
</TABLE>
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 18,384,596 shares of common stock, par value $.01, outstanding as at
May 8, 1998.
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<PAGE> 2
FINANCIAL STATEMENTS
BOWNE & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
(UNAUDITED)
--------------------
(000'S OMITTED)
1998 1997
---- ----
<S> <C> <C>
Net sales................................................... $194,285 $153,696
Expenses:
Cost of sales........................................... 101,480 83,236
Selling and administrative.............................. 62,658 45,997
Depreciation and amortization........................... 7,998 6,502
Interest................................................ 253 183
-------- --------
172,389 135,918
-------- --------
Operating income............................................ 21,896 17,778
Gain on sale of subsidiary.................................. -- 35,273
Other income................................................ 96 905
-------- --------
Income before income taxes.................................. 21,992 53,956
-------- --------
Income taxes:
State and local......................................... 613 6,210
Federal................................................. 8,157 16,493
Foreign................................................. 268 730
-------- --------
9,038 23,433
-------- --------
Net income.................................................. $ 12,954 $ 30,523
======== ========
Earnings per share
Basic................................................... $ .71 $ 1.70
======== ========
Diluted................................................. $ .69 $ 1.66
======== ========
Dividends per share......................................... $.09 $.09
======== ========
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
(UNAUDITED)
------------
<S> <C> <C>
1998 1997
------------- -------------
<CAPTION>
(000'S OMITTED)
<S> <C> <C>
Net income.................................................. $ 12,954 $ 30,523
Foreign currency translation adjustment................... 156 (492)
Net unrealized gains arising from marketable securities
during the period, after deducting taxes of $83 and $9
for March 31, 1998 and 1997, respectively............... 111 10
------------- -------------
Comprehensive income........................................ $ 13,221 $ 30,041
============= =============
</TABLE>
See accompanying notes.
1
<PAGE> 3
BOWNE & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1998 DECEMBER 31,
(UNAUDITED) 1997
----------- ------------
(000'S OMITTED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 44,565 $ 40,646
Marketable securities................................... 6,311 5,829
Trade accounts receivable, less allowance for doubtful
accounts of $12,851,000 (1998) and $12,441,000 (1997).. 192,065 187,573
Inventories............................................. 51,506 35,617
Prepaid expenses and other current assets............... 16,055 15,839
-------- --------
Total current assets........................ 310,502 285,504
Property, plant and equipment, less depreciation and
amortization of $147,201,000 (1998) and
$139,055,000 (1997)....................................... 148,609 138,933
Goodwill, net of accumulated amortization of $7,934,000
(1998) and $7,174,000 (1997).............................. 75,819 64,452
Other assets................................................ 16,542 11,764
-------- --------
Totals.................................. $551,472 $500,653
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt..... $ 6,717 $ 5,755
Accounts payable........................................ 36,612 28,097
Accrued liabilities..................................... 91,784 86,787
-------- --------
Total current liabilities................... 135,113 120,639
Long-term debt -- net of current portion.................... 25,875 2,537
Deferred employee compensation and benefits................. 18,769 18,877
-------- --------
Total liabilities........................... 179,757 142,053
-------- --------
Stockholders' equity:
Preferred stock, par value $.01, none issued
Common stock, par value $.01, issued 19,713,080 shares
in 1998 and 19,605,555 shares in 1997.................. 197 196
Additional paid-in capital.............................. 38,539 36,685
Retained earnings....................................... 350,719 339,407
Treasury stock, at cost, 1,361,084 shares in 1998 and
1,360,199 shares in 1997............................... (16,273) (15,954)
Other, net.............................................. (1,467) (1,734)
-------- --------
Total stockholders' equity.................. 371,715 358,600
-------- --------
Totals.................................. $551,472 $500,653
======== ========
</TABLE>
See accompanying notes.
2
<PAGE> 4
BOWNE & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
----------------------
(000'S OMITTED)
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 12,954 $ 30,523
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization....................... 7,998 6,502
Provision for deferred employee compensation........ 442 659
Gain on sale of subsidiary.......................... -- (35,273)
Changes in other current assets and liabilities, net
of non-cash transactions............................ (3,483) (1,232)
-------- --------
Net cash provided by operating activities............... 17,911 1,179
-------- --------
Cash flows from investing activities:
Proceeds from sale of subsidiary........................ -- 36,679
Acquisitions of businesses, including convenants not to
compete, net of cash acquired.......................... (14,000) (27,602)
Purchase of marketable securities or other
investments............................................ (399) (446)
Proceeds from the sale of marketable securities and
other investments...................................... 150 695
Purchase of property, plant and equipment............... (16,315) (12,219)
-------- --------
Net cash used in investing activities................... (30,564) (2,893)
-------- --------
Cash flows from financing activities:
Proceeds from borrowings................................ 20,000 914
Payment of debt......................................... (3,014) (1,308)
Proceeds from stock options exercised................... 1,664 636
Purchase of treasury stock.............................. (436) (228)
Payment of dividends.................................... (1,642) (3,235)
-------- --------
Net cash provided by (used in) financing activities......... 16,572 (3,221)
-------- --------
Increase (decrease) in cash and cash equivalents............ $ 3,919 $ (4,935)
======== ========
</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 March 31, 1998 and
for the three months ended March 31, 1998 and 1997 is unaudited and, in the
opinion of the Company, reflects all adjustments, which are of a normal
recurring nature, 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 December 31, 1997 was derived
from the Company's 1997 audited financial statement.
NOTE 2. Inventories of $51,506,000 at March 31, 1998 include raw materials
of $5,878,000 and work in process of $45,628,000. At December 31, 1997,
inventories of $35,617,000 included raw materials of $5,750,000 and work in
process of $29,867,000.
NOTE 3. Net income per share is calculated for basic earnings per share
based on the weighted-average number of shares outstanding and for diluted
earnings per share after adjustment for the assumed conversion of all
potentially dilutive securities.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Weighted average Basic shares............................... 18,239,819 17,986,227
Dilutive stock options and deferred stock units............. 18,875,718 18,389,689
</TABLE>
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 March 31, 1998, the fair value of
marketable securities exceeded cost by $2,112,000. At December 31, 1997, the
fair value of marketable securities exceeded cost by $1,918,000. The net
unrealized gains, after deferred taxes, were $1,204,000 and $1,093,000 at March
31, 1998 and December 31, 1997, respectively.
The foreign currency translation adjustment was $2,671,000 and $2,827,000
at March 31, 1998 and December 31, 1997, respectively.
NOTE 5. During February 1998, the Company acquired 80% of Quadravision
Communications Limited and 100% of Sitewerks, Inc. Quadravision and Sitewerks
are worldwide Internet development companies serving the banking, insurance,
mutual funds, brokerage, automotive and software markets. The total purchase
price of these two companies, including related acquisition costs, approximated
$13,300,000 with goodwill recorded of approximately $12,800,000. A portion of
the purchase price ($3,000,000) for Quadravision was in the form of non-interest
bearing promissory notes, which have been recorded net of imputed interest. In
addition, the Company entered into non-compete agreements totaling $6,000,000 of
which $4,000,000 was paid at closing and the balance is payable over the next
two years.
NOTE 6. On March 20, 1998, the Company borrowed $20,000,000 under its
$200,000,000 unsecured five-year revolving credit agreement, with interest at
5.85%.
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 March 31, 1998, the Company had a working capital ratio of 2.30 to
1 and working capital of $175,389,000.
During February 1998, the Company completed two acquisitions to strengthen
and broaden its Internet solutions services. It is expected that the cash
generated from operations, working capital and the Company's borrowing capacity
will be sufficient to fund its development and integration needs (both foreign
and domestic), and to finance future acquisitions and capital expenditures, and
to provide for the payment of dividends.
CASH FLOWS
The Company had net cash provided by operating activities of $17,911,000
and $1,179,000 for the three months ended March 31, 1998 and 1997, respectively.
Net cash used in investing activities was $30,564,000 and $2,893,000 for
the three months ended March 31, 1998 and 1997, respectively. This included
expenditures related to the expansion of facilities and continued investments in
new technologies through acquisitions.
Net cash provided by (used in) financing activities was $16,572,000 and
($3,221,000) for the three months ended March 31, 1998 and 1997, respectively.
During March 1998, the Company borrowed $20,000,000 from its $200,000,000
five-year revolving line of credit facility to replace working capital used for
acquisitions.
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.
Revenues related to the transactional financial printing business are affected
by cyclical conditions of the capital markets. Over the past year the Company
has expanded its lines of business to include information management, global
document creation and dissemination, and Internet services.
As mentioned above, the Company completed two acquisitions related to its
Internet Solutions services. These acquisitions along with those made during
1997 for other non-print related services have broadened our services for
document solutions that are less cyclical in nature than our transactional
financial print services. However, margins associated with these businesses are
traditionally lower than those of the financial print services when capital
markets are robust.
The Company decided to focus its business on empowering information to
become the global market leader in this field by combining superior customer
service with appropriate new technologies to manage, repurpose and distribute a
client's information to any audience, through any medium, in any language,
anywhere in the world. The Company's goal is to become the empowerer of
information to global companies. The Company is investing heavily in building
its resources outside North America to enable it to provide worldwide
information empowerment solutions to its global clients. While the Company is
growing and integrating these services outside North America, these operations
are anticipated to operate at a loss. We expect to continue to invest outside
North America as the Company grows in the newer information solution fields and
5
<PAGE> 7
as it begins to position itself to take advantage of the impact of the European
Monetary Union on the financial services industry.
STATEMENT CONCERNING FORWARD LOOKING STATEMENTS
Information contained in this Management Discussion and Analysis with
respect to expected financial results and future events and trends is forward
looking, based upon managements' estimates and assumptions and subject to risk
and uncertainties. For such statements, the Company claims the protection of the
safe harbor for forward hooking statements contained in the Private Securites
Litigation Reform Act of 1995.
QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997
Net sales increased by $40,589,000, or 26%, to $194,285,000. 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 made in 1997 and in
1998. The overall increase in sales contributed to a $22,345,000 growth in gross
margin.
Selling and administrative expenses increased $16,661,000 to $62,658,000.
This increase was due to the selling and administrative costs related to the new
businesses and in part to the variable costs associated with sales and
profitability.
Depreciation and amortization increased $1,496,000, or 23%, primarily due
to the expansion of facilities and the acquisition of equipment and depreciation
and amortization related to the new businesses.
Interest expense increased by $70,000 primarily as a result of interest
related to borrowings under the revolving credit agreement.
During the first quarter of 1997, the Company realized a pre-tax gain from
the sale of Baseline, Inc. of $35,273,000. The net of tax effect of this item
was $20,005,000.
Other income decreased $809,000 due to lower levels of capital gains on the
sale of marketable securities.
The effective overall tax rate decreased 3%, from 44% to 41%, as a result
of income attributable to jurisdictions having lower tax rates.
As a result of the foregoing, net income was $12,954,000 compared to
$30,523,000 for the same period last year.
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: May 15, 1998 ROBERT M. JOHNSON
--------------------------------------------------------
ROBERT M. JOHNSON
(CHAIRMAN OF THE BOARD (AND DIRECTOR)
AND CHIEF EXECUTIVE OFFICER)
Date: May 15, 1998 DENISE K. FLETCHER
--------------------------------------------------------
DENISE K. FLETCHER
(VICE PRESIDENT, CHIEF FINANCIAL OFFICER)
Date: May 15, 1998 THOMAS P. MEOLA
--------------------------------------------------------
THOMAS P. MEOLA
(VICE PRESIDENT, FINANCE AND CORPORATE CONTROLLER)
</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 Statements of Financial Condition at March 31, 1998 and
March 31, 1997 (Unaudited) and the Condensed Consolidated Statements of Income
for the three Months Ended March 31, 1998 and March 31, 1997 (Unaudited) and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 44,565 19,162
<SECURITIES> 6,311 4,415
<RECEIVABLES> 204,916 189,087
<ALLOWANCES> 12,851 11,278
<INVENTORY> 51,506 51,410
<CURRENT-ASSETS> 310,502 264,950
<PP&E> 295,810 263,597
<DEPRECIATION> 147,201 122,444
<TOTAL-ASSETS> 551,472 475,147
<CURRENT-LIABILITIES> 135,113 131,686
<BONDS> 0 0
0 0
0 0
<COMMON> 197 194
<OTHER-SE> 371,518 323,652
<TOTAL-LIABILITY-AND-EQUITY> 551,472 475,147
<SALES> 194,285 153,696
<TOTAL-REVENUES> 194,381 189,874
<CGS> 101,480 83,236
<TOTAL-COSTS> 101,480 83,236
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 1,209 2,541
<INTEREST-EXPENSE> 253 183
<INCOME-PRETAX> 21,992 53,956
<INCOME-TAX> 9,038 23,433
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 12,954 30,523
<EPS-PRIMARY> .71 1.70
<EPS-DILUTED> .69 1.66
</TABLE>
