<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 SEPTEMBER 30, 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>
DELAWARE
(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 36,800,923 shares of common stock, par value $.01, outstanding as at
November 12, 1998.
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<PAGE> 2
FINANCIAL STATEMENTS
BOWNE & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
(UNAUDITED)
--------------------
(000'S OMITTED
EXCEPT SHARE
AMOUNTS)
1998 1997
---- ----
<S> <C> <C>
Net sales................................................... $225,420 $177,667
Expenses:
Cost of sales........................................... 130,488 97,662
Selling and administrative.............................. 66,161 53,733
Depreciation............................................ 9,712 7,465
Amortization............................................ 2,636 193
Interest................................................ 2,960 514
Purchased in-process research and development and other
charges................................................ 6,000 1,700
-------- --------
217,957 161,267
-------- --------
Operating income............................................ 7,463 16,400
Other income, net........................................... 1,255 910
-------- --------
Income before income taxes.................................. 8,718 17,310
-------- --------
Income taxes................................................ 7,266 6,640
-------- --------
Net income.................................................. $ 1,452 $ 10,670
======== ========
Earnings per share:
Basic................................................... $ .04 $ .30
======== ========
Diluted................................................. $ .04 $ .29
======== ========
Dividends per share......................................... $ .055 $ .045
======== ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
(UNAUDITED)
--------------------
(000'S OMITTED
EXCEPT SHARE
AMOUNTS)
1998 1997
---- ----
<S> <C> <C>
Net sales................................................... $639,033 $525,191
Expenses:
Cost of sales........................................... 347,261 289,727
Selling and administrative.............................. 195,126 149,784
Depreciation............................................ 24,341 20,958
Amortization............................................ 4,733 632
Interest................................................ 3,940 1,173
Purchased in-process research and development and other
charges................................................ 7,200 2,900
-------- --------
582,601 465,174
-------- --------
Operating income............................................ 56,432 60,017
Gain on sale of subsidiary.................................. -- 35,273
Other income, net........................................... 1,114 2,199
-------- --------
Income before income taxes.................................. 57,546 97,489
-------- --------
Income taxes................................................ 27,689 40,882
-------- --------
Net income.................................................. $ 29,857 $ 56,607
======== ========
Earnings per share:
Basic................................................... $ .82 $ 1.57
======== ========
Diluted................................................. $ .79 $ 1.53
======== ========
Dividends per share......................................... $ .145 $ .135
======== ========
</TABLE>
See accompanying notes.
1
<PAGE> 3
BOWNE & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
(UNAUDITED)
-------------
1998 1997
---- ----
(000'S OMITTED)
<S> <C> <C>
Net income.................................................. $ 1,452 $10,670
Foreign currency translation adjustment................... (1,952) (132)
Net unrealized (losses) gains arising from marketable
securities during the period, after (crediting)/
deducting taxes of $(320) and $52 for September 30, 1998
and 1997, respectively.................................. (347) 57
------- -------
Comprehensive income........................................ $ (847) $10,595
======= =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
(UNAUDITED)
-------------
1998 1997
---- ----
(000'S OMITTED)
<S> <C> <C>
Net income.................................................. $29,857 $56,607
Foreign currency translation adjustment................... (2,147) (537)
Net unrealized (losses) gains arising from marketable
securities during the period, after (crediting)/
deducting taxes of $(182) and $299 for September 30,
1998 and 1997, respectively............................. (398) 324
------- -------
Comprehensive income........................................ $27,312 $56,394
======= =======
</TABLE>
See accompanying notes.
2
<PAGE> 4
BOWNE & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000'S OMITTED EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 DECEMBER 31,
(UNAUDITED) 1997
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 32,355 $ 40,646
Marketable securities................................... 5,437 5,829
Trade accounts receivable, less allowance for doubtful
accounts of $13,732 (1998) and $12,441 (1997).......... 224,040 187,573
Inventories............................................. 43,519 35,617
Prepaid expenses and other current assets............... 19,538 15,839
-------- --------
Total current assets........................ 324,889 285,504
Property, plant and equipment, less depreciation and
amortization of $157,990 (1998) and $139,055 (1997)....... 159,724 138,933
Goodwill and other intangible assets, net of accumulated
amortization of $10,467 (1998) and $7,174 (1997).......... 186,391 64,452
Other assets................................................ 24,118 11,764
-------- --------
Totals.................................. $695,122 $500,653
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt..... $ 7,603 $ 5,755
Accounts payable........................................ 37,887 28,097
Accrued liabilities..................................... 109,972 86,787
-------- --------
Total current liabilities................... 155,462 120,639
Long-term debt -- net of current portion.................... 134,204 2,537
Deferred employee compensation and benefits and other
liabilities............................................... 22,939 18,877
-------- --------
Total liabilities........................... 312,605 142,053
-------- --------
Stockholders' equity:
Preferred stock, par value $.01, none issued
Common stock, par value $.01, issued 39,544,060 shares
in 1998 and 39,211,910 shares in 1997.................. 395 392
Additional paid-in capital.............................. 38,977 36,489
Retained earnings....................................... 363,938 339,407
Treasury stock, at cost, 2,745,137 shares in 1998 and
2,720,398 shares in 1997............................... (16,514) (15,954)
Other, net.............................................. (4,279) (1,734)
-------- --------
Total stockholders' equity.................. 382,517 358,600
-------- --------
Totals.................................. $695,122 $500,653
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 5
BOWNE & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED)
-----------------------
(000'S OMITTED)
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 29,857 $ 56,607
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................ 24,341 20,958
Amortization........................................ 4,733 632
Provision for deferred employee compensation........ 396 315
Gain on sale of subsidiary.......................... -- (35,273)
Changes in other assets and liabilities, net of
non-cash transactions............................... (30,037) (1,676)
--------- --------
Net cash provided by operating activities............... 29,290 41,563
--------- --------
Cash flows from investing activities:
Proceeds from sale of subsidiary........................ -- 36,679
Acquisitions of businesses, including covenants not to
compete, net of proceeds from sale of LANSystems
division and cash acquired............................. (126,267) (33,546)
Purchase of marketable securities or other
investments............................................ (2,904) (2,119)
Proceeds from the sale of marketable securities and
other investments...................................... 1,684 3,417
Purchase of property, plant and equipment............... (32,158) (25,418)
--------- --------
Net cash used in investing activities................... (159,645) (20,987)
--------- --------
Cash flows from financing activities:
Proceeds from borrowings................................ 161,651 23,722
Payment of debt......................................... (36,075) (19,766)
Proceeds from stock options exercised................... 2,491 3,051
Purchase of treasury stock.............................. (678) (1,114)
Payment of dividends.................................... (5,325) (6,515)
--------- --------
Net cash provided by (used in) financing activities......... 122,064 (622)
--------- --------
(Decrease) increase in cash and cash equivalents............ $ (8,291) $ 19,954
========= ========
</TABLE>
See accompanying notes.
4
<PAGE> 6
BOWNE & CO., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. The financial information as of September 30, 1998 and for the
three and nine month periods ended September 30, 1998 and 1997 has been prepared
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, all adjustments (consisting
of only normal recurring adjustments) necessary for a fair presentation of the
consolidated financial position, results of operations and of cash flows for
each period presented have been made on a consistent basis. Certain information
and footnote disclosures normally included in consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. It is suggested that these financial statements be read in
conjunction with the Company's annual consolidated financial statements.
Operating results for the three and nine months ended September 30, 1998 may not
be indicative of the results that may be expected for the full year.
NOTE 2. Inventories of $43,519,000 at September 30, 1998 include raw
materials of $7,314,000 and work in process of $36,205,000. 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. The Company had a two-for-one stock split in the form of a 100%
stock dividend to shareholders of record at the close of business on August 14,
1998. The shares were distributed on August 26, 1998. In addition, effective
with the third quarter, the split-adjusted quarterly dividend rate was raised
from $0.045 to $0.055.
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. The following weighted-average shares outstanding reflect the
aforementioned stock split:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Weighted-average Basic shares............................... 36,726,844 36,316,190
Weighted-average Diluted shares............................. 37,794,791 37,225,844
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Weighted-average Basic shares............................... 36,630,584 36,152,996
Weighted-average Diluted shares............................. 37,790,247 37,023,278
</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 September 30, 1998, the fair value of
marketable securities exceeded cost by $1,338,000. At December 31, 1997, the
fair value of marketable securities exceeded cost by $1,918,000. The net
unrealized gains, after deferred taxes, were $695,000 and $1,093,000 at
September 30, 1998 and December 31, 1997, respectively.
The foreign currency translation adjustment was $4,974,000 and $2,827,000
at September 30, 1998 and December 31, 1997, respectively.
NOTE 5. During 1998, the Company made several acquisitions. They are
mentioned in chronological order:
The Company acquired 80% of Quadravision Communications Limited and 100% of
Sitewerks, Inc. Quadravision and Sitewerks are Internet development companies
serving the banking, insurance, mutual fund, brokerage, and software markets.
The total purchase price of these two companies, including related acquisition
costs, approximated $13,300,000, of which goodwill and other intangible assets
were approximately $11,400,000. In addition, the Company and the selling
shareholders 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.
5
<PAGE> 7
In the second quarter, the Company expanded its presence in the area of
software globalization and localization solutions services by acquiring
Technical Core Co., Ltd., Datalink Co., Ltd. and 80% of NorthWord A/S. The total
purchase price of these three companies, including related acquisition costs,
approximated $3,246,000, of which goodwill and other intangible assets were
approximately $2,100,000. The Company also retained an option for three years to
purchase the minority interest in NorthWord A/S.
In June 1998, the Company acquired Mountain Lake Software Corporation and
Open Sesame, a division of Charles River Analytics, Inc. These acquisitions
increase the Company's ability to provide clients with integrated Internet
solutions. The total purchase price for these two companies, including related
acquisition costs, approximated $12,900,000, of which goodwill and other
intangible assets (non-compete agreements) were approximately $12,800,000. The
non-compete agreements will be paid in equal annual installments over a period
of three to five years.
In July 1998, the Company acquired all of the outstanding shares of
Donnelley Enterprise Solutions Incorporated (DESI), pursuant to a tender offer,
at a price of $21 per share. The total acquisition costs, excluding fees and
expenses, for the outstanding stock of DESI amounted to approximately
$105,000,000, of which goodwill and other intangible assets were approximately
$95,000,000. DESI provides a comprehensive array of business services, including
document services, desktop publishing, and imaging services. The cost of this
acquisition was financed through borrowings under the company's revolving credit
agreement.
DESI's operations included the LANSystems division, which provides services
for systems integration, software development and technical training services.
Based on the Company's determination that the LANSystems operations did not fit
the Company's strategy, the Company sold these assets in August 1998.
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if the acquisition of DESI and the sale of
LANSystems had occurred at the beginning of 1998 and 1997 and does not purport
to be indicative of what would have occurred had the acquisition been made as of
that date or of results which may occur in the future:
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1998 1997
------------------------------------- ------------ ------------
<S> <C> <C>
Total revenue............................................... $685,127,000 $580,303,000
Net income.................................................. $ 21,054,000 $ 52,079,000
Net income per common share -- Basic........................ $ 0.57 $ 1.44
-- Diluted................. $ 0.56 $ 1.41
------------ ------------
</TABLE>
In July 1998, the Company acquired all of the stock of Mapora Books, S.L.
for approximately $1,300,000, of which goodwill was approximately $1,100,000.
Mapora, which is located in Spain, will help enhance the Company's global
solutions services in foreign projects.
These acquisitions have been accounted for under the purchase method of
accounting. In connection with the acquisitions, the Company recorded $7,200,000
of purchased in-process research and development as an operating expense. Some
of these acquisitions provide for additional purchase payouts based on achieving
certain earnings levels.
NOTE 6. At September 30, 1998, the Company had borrowings of $126,000,000
under its $200,000,000 unsecured five-year revolving credit agreement, with a
blended interest rate of approximately 6%. The maximum available credit under
the agreement was increased to $275,000,000 at October 30, 1998.
6
<PAGE> 8
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 September 30, 1998, the Company had a working capital ratio of
2.09 to 1 and working capital of $169,427,000.
During the first nine months of 1998, the Company completed several
acquisitions to strengthen and broaden its Internet and globalization and
localization solutions. 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), finance
future acquisitions and capital expenditures, provide for the payment of
dividends, and meet the carrying costs of existing debt.
CASH FLOWS
The Company had net cash provided by operating activities of $29,290,000
and $41,563,000 for the nine months ended September 30, 1998 and 1997,
respectively. This reflects the effects of reduced net income, increases in
certain assets (including accounts receivable), and non-cash transactions,
offset by depreciation and amortization.
Net cash used in investing activities was $159,645,000 and $20,987,000 for
the nine months ended September 30, 1998 and 1997, respectively. This was
primarily as a result of 1998 acquisitions as well as expenditures related to
the expansion of facilities and continued investments in new technologies.
Net cash provided by (used in) financing activities was $122,064,000 and
$(622,000) for the nine months ended September 30, 1998 and 1997, respectively.
This increase was provided by the proceeds from borrowings related to the
company's 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.
Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities," was issued in
June 1998. SFAS 133 standardizes the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, by
requiring recognition of those instruments as assets and liabilities and to
measure them at fair value. SFAS 133 will be effective for the Company in the
year 2000. The adoption of this pronouncement is not expected to have a material
effect on the Company's consolidated financial statements.
IMPACT OF THE EURO CONVERSION
On January 1, 1999, 11 of the 15 member countries of the European Union are
scheduled to establish fixed conversion rates between their existing sovereign
currencies ("legacy currencies") and a single currency called the euro. The
legacy currencies are scheduled to remain legal tender as denominations of the
euro during the transition period from January 1, 1999 to January 1, 2002.
Beginning January 1, 2002, euro-denominated bills and coins will be introduced
and by July 1, 2002, legacy currencies will no longer be legal tender.
The Company has initiated an internal analysis regarding the business and
systems issues related to the euro conversion and is in the process of
developing a plan to ensure that all necessary modifications are made on a
timely basis. As the first step to accommodate the introduction of the euro on
January 1, 1999, the Company's operations in markets that are adopting the euro
expect to be able to accept payments and pay suppliers in euros at that time, as
well as have the ability to indicate the euro equivalent of pricing on invoices.
During the transition period, the Company will be monitoring customer and
competitor reaction to the euro and will update the plan as needed.
The Company believes that the conversion to the euro will not have a
significant impact on the marketing strategy for the Company's European
operations. The euro is not expected to have a significant competitive
7
<PAGE> 9
impact, including the resulting need to synchronize prices between markets. The
estimated costs to convert all affected systems to the euro will not be
finalized until the Company has developed a strategic plan; however, it is not
likely that the costs of conversion will have a material adverse effect on the
Company's results of operations, financial position or cash flow.
YEAR 2000 UPDATE
The Year 2000 issue (Y2K) is the result of computer programs that have been
written using the last two digits rather than four digits to represent the
applicable year (i.e. "97" for 1997). Certain of the Company's computer programs
that have date-sensitive software may not operate properly when the last two
digits become "00", as it will on January 1, 2000. To the extent that this
situation exists, there is a potential for computer system failure or
miscalculations, which could cause a disruption of the operation of that
program. The problem is not limited to computer software, since some equipment
may have date-sensitive processors that may not be able to properly use the
dates.
Therefore, the Company initiated a project in 1997 to address the potential
impact of the Year 2000 computer problems on the business. The project includes
an analysis of all computer systems, computer-based systems (manufacturing
equipment with embedded chips) and suppliers. The Company has made substantial
progress in assessing how the Year 2000 issue will affect it. It has completed
the remediation of its typesetting system and is currently in the process of
modifying or replacing other computer systems or date-sensitive equipment. The
Company presently believes that the plan in place to make the changes to
essential systems and deploy any necessary software will be completed in 1999.
Management believes that the cost of the Year 2000 effort would not materially
impact the Company's result of operations, liquidity, and financial condition.
Since Bowne understands that the Year 2000 problem can affect its
suppliers, the Company is in the process of analyzing its critical suppliers to
ensure that the delivery of supplies and services to Bowne will not be
interrupted. Where a risk is identified, Bowne is developing contingency plans
to minimize the impact. The Company presently believes that the contingency
plans for supply chain failures will be completed in 1999, and will be updated
as necessary when there are changes in the business.
The Company is using the Year 2000 issue as an opportunity to accelerate
the development of process improvements. The remediation planning includes
analyses of the best use of the resources for the Company. Developing software
and hardware inventories, evaluating the business worth of components, and
standardizing computer hardware and software are just some of the benefits
expected to be derived from the Company's effort. The project is currently
staffed with a combination of consultants and full-time Company employees, many
of whom were involved in the development of the most critical systems used by
the Company today.
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 service offerings to include information management, global
document creation and dissemination, and Internet services.
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 in building its
resources outside the United States to enable it to provide worldwide
information empowerment solutions to its global clients. While the Company is
growing and integrating these services outside the United States, these
operations are anticipated to operate at a loss. We expect to continue to invest
outside the United States as the Company grows in the newer information solution
fields and as it positions itself to take advantage of the impact of the
European Monetary Union in the financial services industry.
8
<PAGE> 10
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 management's estimates and assumptions and subject to risk
and uncertainties. For such statements, and others given at times orally or in
writing, the Company claims the protection of the safe harbor for forward
looking statements contained in the Private Securities Litigation Reform Act of
1995.
QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1997
Net sales increased by $47,753,000, or 27% to $225,420,000. The increase
was attributable to acquisitions made in 1997 and 1998, higher levels of demand
for transactional printing through July 1998, and growth in non-transactional
printing services. The overall increase in sales contributed to a $14,927,000
growth in gross margin. The gross margin percentage decreased approximately 3%
to 42%. This decrease was primarily attributable to reduced levels of
transactional business in August and September 1998 and a greater percentage of
sales from the acquired businesses, which have lower margins.
Selling and administrative expenses increased by $12,428,000 to
$66,161,000. This increase was due to the selling and administrative costs
related to the new businesses, increased staff, variable costs associated with
increased sales and profitability, and continued investments in technological
efficiencies and Y2K costs.
Depreciation and amortization increased $4,690,000, or 61%, primarily due
to new businesses, the expansion of facilities, and the acquisition of
equipment.
Interest expense increased by $2,446,000 primarily from borrowings under
the revolving credit agreement to finance the DESI acquisition.
Other income remained relatively constant with an increase of $345,000.
During the quarter the Company recorded charges of $6,000,000 for purchased
in-process research and development, which was not deductible for tax purposes.
This impacted the effective overall tax rate for the quarter, which increased
from 38% to 83%. The effective tax rate, without taking into account the
in-process research and development costs, increased to 49%, due to increased
goodwill amortization and other non-deductible items as a percentage of pre-tax
income.
As a result of the foregoing, net income was $1,452,000 compared to
$10,670,000 for the same period last year.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Net sales increased by $113,842,000, or 22%, to $639,033,000. The increase
was primarily attributable to higher levels of demand for transactional printing
and 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 $56,308,000 growth in gross margin. The gross margin
percentage remained relatively constant at 46%. Higher margins in transactional
business during the first seven months were offset by lower margins in acquired
businesses.
Selling and administrative expenses increased $45,342,000 to $195,126,000.
This increase was due to the selling and administrative costs related to
businesses acquired during the latter part of the second quarter in 1997,
acquisitions during 1998, increases in staff, variable costs associated with
increased sales and profitability, and continued investments in technological
efficiencies and Y2K costs.
Depreciation and amortization increased $7,484,000, or 35%, primarily due
to the expansion of facilities, acquisition of equipment, and depreciation and
amortization related to the new businesses.
Interest expense increased by $2,767,000 primarily from borrowings under
the revolving credit agreement to finance acquisitions.
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 $1,085,000 due to lower levels of gains from the
sale of marketable securities.
9
<PAGE> 11
During the period the Company increased charges by $4,300,000 to $7,200,000
for purchased in-process research and development, (which was not deductible for
tax purposes)and other one-time charges. This impacted the effective overall tax
rate which increased from 42% to 48%. The effective tax rate without taking into
account the in-process research and development costs was 43%.
As a result of the foregoing, net income was $29,857,000 compared to
$56,607,000 for the same period.
10
<PAGE> 12
Part II -- Other Information
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 1-Exhibit 27 -- Financial Data Schedule
2-Amendment No. 1 and Master Assignment to Credit Agreement dated July
7, 1997
(b) Reports on Form 8-K/A
Report dated September 14, 1998, relating to the acquisition of
Donnelley Enterprise Solutions Incorporated.
11
<PAGE> 13
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: November 16, 1998 ROBERT M. JOHNSON
--------------------------------------------------------
ROBERT M. JOHNSON
(CHAIRMAN OF THE BOARD (AND DIRECTOR)
AND CHIEF EXECUTIVE OFFICER)
Date: November 16, 1998 DENISE K. FLETCHER
--------------------------------------------------------
DENISE K. FLETCHER
(SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER)
Date: November 16, 1998 THOMAS P. MEOLA
--------------------------------------------------------
THOMAS P. MEOLA
(VICE PRESIDENT, FINANCE AND CORPORATE CONTROLLER)
</TABLE>
12
<PAGE> 14
EXHIBIT INDEX
Exhibit 4 -- Amendment No. 1 and Master Assignment to Credit Agreement dated
July 7, 1997
Exhibit 27 -- Financial Data Schedule
<PAGE> 1
AMENDMENT NO. 1 AND MASTER ASSIGNMENT
AMENDMENT NO. 1 and MASTER ASSIGNMENT, dated as of October 30, 1998 (this
"Amendment"), to and under the Credit Agreement, dated as of July 7, 1997, by
and among Bowne & Co., Inc., the Subsidiary Borrowers party thereto, the Lenders
party thereto, Bank of Montreal, as Documentation Agent, and Fleet Bank, as
Administrative Agent (as amended, the "Credit Agreement").
RECITALS
I. Terms defined in the Credit Agreement are used herein with the same
meanings.
II. The Parent Borrower has requested that the Administrative Agent and
the Lenders agree to (i) an amendment to the Credit Agreement to provide for,
among other things, an increase in the Aggregate Commitment Amount and (ii) a
reallocation by the Lenders of the outstanding principal amount of their
respective Revolving Credit Loans, and the Administrative Agent and the Lenders
are willing so to agree, subject to the terms and conditions set forth herein.
Therefore, in consideration of the foregoing and the covenants and
conditions hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
1. The Commitment Amount of each Lender is increased by the amount,
if any, set forth on the signature page hereof for such Lender, provided
that the Aggregate Commitment Amount shall in no event exceed $275,000,000.
2. Exhibit A to the Credit Agreement is amended and restated in its
entirety in the form attached hereto as Attachment 1.
3. Each Lender assigns or assumes from each other Lender such rights,
and assigns or delegates to each other Lender such obligations, in each
case without recourse, representation or warranty (except as expressly
provided in paragraph 6 hereof), as shall cause the outstanding principal
balance of its Revolving Credit Loans to be as set forth on Attachment 2
hereto, and in connection therewith:
(a) in consideration of the assignments and assumptions set forth
in this paragraph 3, each Lender will, on and as of the date hereof, pay
to the Administrative Agent at the applicable Agent Payment Office, in
the applicable Currency and in funds immediately available to the
Administrative Agent at such Agent Payment Office by 1:00 p.m. (local
time in the city in which such Agent Payment Office is located) each
amount set forth adjacent to such Lender's name on Attachment 3 hereto
under the heading "Net to Administrative Agent", and upon receipt
thereof, the Administrative Agent shall promptly pay each Lender in like
funds as received each amount set forth adjacent to the name of such
Lender on Attachment 4 hereto under the heading "Net from Administrative
Agent";
(b) each Lender will, independently and without reliance upon any
other Lender, and based on such documents and information as it shall
deem appropriate at the time, continue to make it's own credit analysis,
evaluations and decisions in taking or not taking action under the Loan
Documents, and to make such investigation as it deems necessary to
inform itself as to the business, operations, Property, financial and
other condition and creditworthiness of the Parent Borrower and its
Subsidiaries; and
(c) from and after the date hereof, the Administrative Agent will
make all payments in respect of the interests assigned hereby
(including, without limitation, payments of principal, interest, fees
and other amounts) to each Lender in proportion to Attachment 2 hereto,
and each Lender that has assigned or delegated hereunder any rights or
obligations shall be released from all obligations under the Loan
Documents to the extent so assigned or delegated.
<PAGE> 2
4. Paragraphs 1 through 3 of this Amendment shall not be effective
until such time as each of the following conditions is satisfied:
(a) the Administrative Agent, the Parent Borrower and all of the
Lenders shall each have executed and delivered a counterpart of this
Amendment; and
(b) all accrued monetary obligations and liabilities (other than
Indebtedness in respect of the Loans) of the Credit Parties under the
Loan Documents shall have been paid in full through the date hereof
(including, without limitation, any breakage costs incurred as a result
of the assignments and assumptions contemplated hereby, all of which
shall have been paid in full by the Parent Borrower).
5. The Parent Borrower hereby reaffirms and admits the validity and
enforceability of the Loan Documents and all of the obligations of each
Credit Party thereunder.
6. Each Lender represents, warrants and agrees that, on and as of the
date hereof, the outstanding principal balance of its Revolving Credit
Loans is as set forth on Attachment 2 hereto.
7. This Amendment may be executed in any number of counterparts all
of which, taken together, shall constitute one amendment and agreement. In
making proof of this Amendment, it shall only be necessary to produce the
counterpart executed and delivered by the party to be charged.
8. THIS AMENDMENT IS BEING EXECUTED AND DELIVERED IN, AND IS INTENDED
TO BE PERFORMED IN, THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND
ENFORCEABLE IN ACCORDANCE WITH, AND BE GOVERNED BY, THE INTERNAL LAWS OF
THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
2
<PAGE> 3
AMENDMENT NO. 1 AND MASTER ASSIGNMENT
AS EVIDENCE of the agreement by the parties hereto to the terms and
conditions herein contained, each such party has caused this Amendment to be
executed on its behalf.
BOWNE & CO., INC.
By: /s/ DENISE K. FLETCHER
--------------------------------------
Name: Denise K. Fletcher
Title: Senior Vice President & Chief
Financial Officer
<PAGE> 4
AMENDMENT NO. 1 AND MASTER ASSIGNMENT
AS EVIDENCE of the agreement by the parties hereto to the terms and
conditions herein contained, each such party has caused this Amendment to be
executed on its behalf.
ABN AMRO BANK N.V., NEW YORK BRANCH
By: /s/ STEPHEN VAN BESIEN
--------------------------------------
Name: Stephen Van Besien
Title: Group Vice President
By: /s/ DONALD SUTTON
--------------------------------------
Name: Donald Sutton
Title: Vice President
COMMITMENT AMOUNT INCREASE: $0
<PAGE> 5
AMENDMENT NO. 1 AND MASTER ASSIGNMENT
AS EVIDENCE of the agreement by the parties hereto to the terms and
conditions herein contained, each such party has caused this Amendment to be
executed on its behalf.
FIRST UNION NATIONAL BANK
By: /s/ CHRISTOPHER STRAUSS
--------------------------------------
Name: Christopher Strauss
Title: Vice President
COMMITMENT AMOUNT INCREASE: $0
<PAGE> 6
AMENDMENT NO. 1 AND MASTER ASSIGNMENT
AS EVIDENCE of the agreement by the parties hereto to the terms and
conditions herein contained, each such party has caused this Amendment to be
executed on its behalf.
THE BANK OF TOKYO-MITSUBISHI, LTD.,
NEW YORK BRANCH
By: /s/ LILLIAN KIM
------------------------------------------
Name: Lillian Kim
Title: Attorney-In-Fact
COMMITMENT AMOUNT INCREASE: $9,000,000
<PAGE> 7
AMENDMENT NO. 1 AND MASTER ASSIGNMENT
AS EVIDENCE of the agreement by the parties hereto to the terms and
conditions herein contained, each such party has caused this Amendment to be
executed on its behalf.
NATIONAL WESTMINSTER BANK PLC
By: /s/ PETER J. STRINGER
----------------------------------------
Name: Peter J. Stringer
Title: Senior Vice President
COMMITMENT AMOUNT INCREASE: $10,000,000
<PAGE> 8
AMENDMENT NO. 1 AND MASTER ASSIGNMENT
AS EVIDENCE of the agreement by the parties hereto to the terms and
conditions herein contained, each such party has caused this Amendment to be
executed on its behalf.
WACHOVIA BANK, N.A.
By: /s/ JOHN C. COFFIN
------------------------------------------
Name: John C. Coffin
Title: Senior Vice President
COMMITMENT AMOUNT INCREASE: $13,000,000
<PAGE> 9
AMENDMENT NO. 1 AND MASTER ASSIGNMENT
AS EVIDENCE of the agreement by the parties hereto to the terms and
conditions herein contained, each such party has caused this Amendment to be
executed on its behalf.
BANK OF MONTREAL,
Individually and as Documentation Agent
By: /s/ BRIAN L. BANKE
------------------------------------------
Name: Brian L. Banke
Title: Director
COMMITMENT AMOUNT INCREASE: $20,000,000
<PAGE> 10
AMENDMENT NO. 1 AND MASTER ASSIGNMENT
AS EVIDENCE of the agreement by the parties hereto to the terms and
conditions herein contained, each such party has caused this Amendment to be
executed on its behalf.
FLEET BANK, N.A.,
Individually and as Administrative Agent
By: /s/ MICHAEL P. O'BRIEN
------------------------------------------
Name: Michael P. O'Brien
Title: Vice President
COMMITMENT AMOUNT INCREASE: $23,000,000
<PAGE> 11
ATTACHMENT 1
BOWNE EXHIBIT A
LIST OF COMMITMENT AMOUNTS
<TABLE>
<CAPTION>
COMMITMENT
LENDER AMOUNT
------ ------------
<S> <C>
Fleet Bank, N.A. $ 68,000,000
Bank of Montreal $ 65,000,000
The Bank of Tokyo-Mitsubishi, Ltd., New York Branch $ 34,000,000
Wachovia Bank, N.A. $ 33,000,000
First Union National Bank $ 30,000,000
National Westminster Bank PLC $ 25,000,000
ABN AMRO Bank N.V., New York Branch $ 20,000,000
------------
TOTAL $275,000,000
============
</TABLE>
<PAGE> 12
ATTACHMENT 2
<TABLE>
<CAPTION>
REVOLVING
LENDER CREDIT LOANS
------ ---------------
<S> <C>
Fleet Bank, N.A. $ 31,156,363.64
Bank of Montreal $ 29,781,818.18
The Bank of Tokyo-Mitsubishi, Ltd., New York Branch $ 15,578,181.82
Wachovia Bank, N.A. $ 15,120,000.00
First Union National Bank $ 13,745,454.55
National Westminster Bank PLC $ 11,454,545.45
ABN AMRO Bank N.V., New York Branch $ 9,163,636.36
---------------
TOTAL $126,000,000.00
===============
</TABLE>
<PAGE> 13
ATTACHMENT 3
<TABLE>
<CAPTION>
LENDER NET TO ADMINISTRATIVE AGENT
- - ------ ---------------------------
<S> <C>
Fleet Bank, N.A. $ 2,806,363.64
Bank of Montreal $ 1,431,818.18
Wachovia Bank, N.A. $ 2,520,000.00
National Westminster Bank PLC $ 2,004,545.45
The Bank of Tokyo-Mitsubishi, Ltd., New York Branch $ 0
First Union National Bank $ 0
ABN AMRO Bank N.V., New York Branch $ 0
</TABLE>
<PAGE> 14
ATTACHMENT 4
<TABLE>
<CAPTION>
NET FROM
LENDER ADMINISTRATIVE AGENT
- - ------ --------------------
<S> <C>
Fleet Bank, N.A. $ 0
Bank of Montreal $ 0
Wachovia Bank, N.A. $ 0
National Westminster Bank PLC $ 0
The Bank of Tokyo-Mitsubishi, Ltd., New York Branch $ 171,818.18
First Union National Bank $5,154,545.45
ABN AMRO Bank N.V., New York Branch $3,436,363.64
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statements of Financial Condition at September 30, 1998
and September 30, 1997 (Unaudited) and the Condensed Consolidated Statements of
Income for the nine Months Ended September 30, 1998 and September 30, 1997
(Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 32,355 40,646
<SECURITIES> 5,437 5,829
<RECEIVABLES> 237,772 200,014
<ALLOWANCES> 13,732 12,441
<INVENTORY> 43,519 35,617
<CURRENT-ASSETS> 324,889 285,504
<PP&E> 317,714 277,988
<DEPRECIATION> 157,990 139,055
<TOTAL-ASSETS> 695,122 500,653
<CURRENT-LIABILITIES> 155,462 120,639
<BONDS> 0 0
0 0
0 0
<COMMON> 198 196
<OTHER-SE> 382,319 358,404
<TOTAL-LIABILITY-AND-EQUITY> 695,122 500,653
<SALES> 639,033 525,191
<TOTAL-REVENUES> 640,147 562,663
<CGS> 347,261 289,727
<TOTAL-COSTS> 347,261 289,727
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 7,049 6,141
<INTEREST-EXPENSE> 3,940 1,173
<INCOME-PRETAX> 57,546 97,489
<INCOME-TAX> 27,689 40,882
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 29,857 56,607
<EPS-PRIMARY> .82 1.57
<EPS-DILUTED> .79 1.53
</TABLE>
