<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 10-K
------------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM
TO
COMMISSION FILE NO. 1-5842
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BOWNE & CO., INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-2618477
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
ORGANIZATION)
345 HUDSON STREET 10014
NEW YORK, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
(212) 924-5500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
<S> <C>
COMMON STOCK, PAR VALUE $.01 AMERICAN STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
(TITLE OF CLASS)
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 such
filing requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Common Stock issued and outstanding and
held by nonaffiliates of the Registrant, based upon the closing price for the
Common Stock on the American Stock Exchange on March 29, 1999, was $455,813,507.
For purposes of the foregoing calculation, the Registrant's Employees' Stock
Purchase Plan is deemed to be an affiliate of the Registrant.
The number of shares outstanding of each of the Registrant's classes of
common stock was 36,834,123 shares of Common Stock outstanding as at March 29,
1999.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the documents of the Registrant listed below have been
incorporated by reference into the indicated parts of this Annual Report on Form
10-K:
<TABLE>
<S> <C>
Notice of Annual Meeting of Stockholders and Proxy Statement
anticipated to be dated April 7, 1999..................... Part III, Items 11-12
Part IV, Item 14
</TABLE>
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<PAGE> 2
PART I
ITEM 1. BUSINESS
The Registrant was established in 1775, incorporated in 1909,
reincorporated in 1968 in the State of New York, and reincorporated again in
1998 in Delaware. (The Registrant and its subsidiaries are hereinafter
collectively referred to as the "Company," unless otherwise noted.)
During the past few years the Company has been re-focused on "Empowering
Information," a term used to define the management, repurposing and distribution
of a client's information to any audience, through any medium, in any language,
anywhere in the world. The Company offers its customers an integrated way to
design and manage their information flows to take advantage of the latest
technologies for creating, storing, moving, presenting, and utilizing
information in any combination of paper and electronic forms. It manages
documents on the clients' site or at its own facilities. It provides business
services and solutions for transactional financial, corporate reporting and
mutual fund printing, as well as providing digital data management, integrated
Internet applications, localization, translation and document management
outsourcing, among others. Prior to this, the Company's focus was principally on
financial printing and certain types of commercial printing. Management believes
this transition will allow the Company to leverage the document management and
information management technologies it has traditionally employed into a variety
of new business solutions for its customers worldwide. Those newer business
solutions complement the Company's core business, as well as one another.
Consistent with its new focus, the Company currently operates the following
business lines:
Financial Printing -- Consisting of transactional financial, corporate
reporting, mutual fund, commercial and digital printing.
Outsourcing -- Consisting of document management solutions primarily for the
legal and financial communities.
Localization -- Consisting of translation and reengineering of software
products.
Internet Consulting and Development -- Consisting of integrated Internet
applications primarily for the financial sector.
The financial printing market consists primarily of transactional
financial, corporate reporting, and mutual fund printing. Transactional
financial printing includes registration statements, tax-exempt offering
circulars, prospectuses, debt agreements, special proxy statements, tender offer
materials and other documents related to corporate financings, acquisitions and
mergers. Corporate reporting includes interim reports and regular proxy
materials prepared by corporations for distribution to stockholders, Securities
and Exchange Commission reports on Form 10-K and other forms, and stock exchange
listing applications. Mutual fund printing includes regulatory and stockholder
communications such as annual or interim reports, prospectuses, information
statements, and marketing-related materials. The Company receives its clients'
information in myriad formats and repurposes it for distribution typically in
print or digitally via EDGAR or Internet formats. One of the Company's newer
printing solution offerings, digital data management, assists customers by
providing their individual clients with high-speed, customized periodic
statements or other on-demand printing. Such customers include mutual funds,
stock brokers, investment banks, retail banks and other financial institutions
that manage multi-option client portfolios, healthcare providers, insurance
companies and others that manage 401(k) and other retirement plans, and
employers which offer multiple benefit options to their employees.
In addition, the Company provides some commercial printing which consists
of annual reports, sales and marketing literature and aids, point of purchase
materials, market letters, newsletters and other custom-printed matter prepared
for commercial customers.
By combining a 1998 acquisition in the outsourcing field with its own unit
serving that market, the Company offers outsourcing of document management to
the financial service and legal communities. Outsourcing includes the on-site
management of document-building and reproduction operations at the
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facilities of customers, off-site backup of those same services, specialized
applications of graphics and presentation technologies, and digital file and
case management systems.
In addition, the Company began offering localization services in 1996. The
Company's localization services principally focus on the worldwide software
industry by localizing and re-engineering software for use in countries other
than the country of original development. The Company also provides the
traditional translation of written documents, including highly confidential
legal and financial documents.
In 1997, the Company began offering its customers the design and
maintenance of customized websites. Through recent acquisitions, the Company has
begun to provide integrated consulting, interactive design, and technology
consulting and development services for the financial services industry in the
Internet channel.
In January 1997, the Company sold its Baseline Financial Services, Inc.
("Baseline") subsidiary which, in the Company's view, did not fit with the
Company's information empowerment strategy.
A number of developments supported the Company's transition to this broader
spectrum of information empowerment services for its clients. In November 1996,
March 1997 and June 1997, the Company acquired five unrelated companies in
software localization, namely IDOC based in Los Angeles, GECAP based in Munich,
the ME&TA companies in Madrid, I&G COM in Paris, and Pacifitech in Tokyo. These
companies allow the Company to offer its clients localized information
solutions. In February 1997, to enhance its outsourcing segment, the Company
acquired Imagineer, Inc., a Phoenix-based provider of facilities management
services to the West-coast and Southwest legal communities. The Internet
Factory, Inc., a Detroit-based developer of websites, was acquired in March 1997
to enable the Company to offer business solutions via the Internet. The assets
of United Media Corporation, a presentation technology firm based in Houston,
and the assets of J. Feuerstein Systems, formerly a division of Docucon,
Incorporated based in San Antonio, were purchased in late 1997 to enhance the
outsourcing business and the support provided to law firms, respectively.
In January and February 1998, 80% of Quadravision Communications Limited of
Toronto, a provider of Internet solutions, and 100% of SiteWerks, Inc., a
website developer based in Seattle, were acquired to enhance the Company's
ability to provide Internet business solutions. In the second quarter of 1998,
the Company acquired Technical Core Co., Ltd. and Datalink Co., Ltd., both in
Japan, and 80% of NorthWord A/S of Denmark in order to expand its presence in
the localization of these languages. In June 1998, the Company acquired 86.5% of
Mountain Lake Software Corporation, based in Ontario, and Open Sesame, formerly
a division of Charles River Analytics, Inc. in Boston, to increase the Company's
ability to provide clients with integrated Internet applications. The Company
acquired Donnelley Enterprise Solutions Incorporated (DESI) by a public tender
offer in July 1998. DESI provides an array of business services, including
document management outsourcing services, desktop publishing, and imaging
services. This acquisition significantly increased the Company's outsourcing
business. In connection with this transaction, the Company sold the assets of
its LANSystems, Inc. division of DESI because it did not fit the Company's
strategy. In July 1998, the Company acquired Mapora Books, S.L., a Spain-based
publishing house, which will help enhance the Company's localization solutions
services in foreign projects.
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For each of the last three fiscal years, the Company's financial printing
business segment has accounted for the largest share of consolidated total
sales, as shown below:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, YEAR ENDED
------------ OCTOBER 31,
TYPE OF SERVICE 1998 1997 1996
- --------------- ---- ---- -----------
<S> <C> <C> <C>
Transactional financial printing................... 42% 52% 45%
Corporate reporting printing....................... 14 18 20
Mutual fund printing............................... 12 12 14
Commercial printing................................ 10 9 15
Digital printing and other*........................ 4 1 6
--- --- ---
Financial printing............................... 82 92 100
Outsourcing........................................ 10 2 --
Internet consulting and development................ 2 -- --
Localization....................................... 6 6 --
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
- ---------------
* In 1996, Baseline was the largest service in this category.
The Company has facilities to serve customers throughout the United States
and Canada and around the world, including offices in London, Paris, Dublin,
Frankfurt, Munich, Madrid, Rio de Janeiro, Mexico City, Hong Kong, Singapore,
Tokyo and many other cities. Segment revenues, operating results and
identifiable assets attributable to the Company's operations for the calendar
years 1998 and 1997, and fiscal year 1996 are shown in Note 15 of the Notes to
Consolidated Financial Statements.
Although substantial investment in equipment and facilities is required,
the Company's business is principally service-oriented. Printing solutions
rendered by the Company normally call for speed and accuracy at all stages.
Speed and accuracy are also highly important for the Company's outsourcing and
Internet services. In all these activities, the need to preserve the
confidentiality of the customers' information is paramount.
The Company maintains conference rooms and telecommunications capabilities
at many of its financial printing offices for use by customers while jobs are in
progress. On-site conveniences are also provided to customers which promote
speed and ease of editorial changes and otherwise facilitate the completion of
jobs. For many of its outsourcing customers, the Company maintains facilities
and stations staff at the customers' own premises as well as outsourcing
centers. The Company's localization activities are conducted in a number of
countries around the world. The Company's Internet consulting activities are
conducted in five main locations. In addition, the Company uses an extensive
electronic communications network which facilitates data handling and makes
collaboration practicable among customers at different sites.
COMPETITION
The Company believes that no other company offers the same array of
information empowerment solutions for their clients. However, competition with
other providers of the various services described above is intense, not only the
speed and accuracy with which the Company can meet customer needs, but also the
price of the services and quality of the product and supporting services are
factors in this competition. The Company's customers include a wide variety of
business corporations, law firms, investment banks, insurance companies, bond
dealers, mutual funds and other financial institutions, as well as the leading
software companies. Microsoft Corporation is the Company's single largest
customer.
In the case of financial printing, the Company competes directly with a
number of other financial printers having the same degree of specialization.
Some of those financial printers operate at multiple locations, and some are
subsidiaries or divisions of companies having greater financial resources than
those of the Company. Although there is no published information available to
determine its exact share of the total financial printing
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market, the Company believes it is the largest in terms of sales volume in this
field. In addition to its customer base, the Company has experienced competition
for sales, customer service, and production personnel in financial printing.
In commercial printing and digital solutions, the Company competes not only
with other financial printers but also with general commercial printers, which
are far more numerous than those in the financial printing arena.
The field of document management outsourcing also has a great deal of
competition, with some participants having been established in this field much
longer than the Company. Furthermore, the costs of entry into this market are
much lower than those associated with the Company's other business activities.
Finally, with respect to its localization and Internet service offerings,
the Company has a large number of competitors. Some of them have offered their
services to the same potential customers for a longer time, but none of them is
believed to have acquired a dominant market position. Considerable consolidation
is going on presently in these business areas, and some of the organizations
making acquisitions in these fields have resources comparable or greater than
those of the Company.
CYCLICAL, SEASONAL AND OTHER FACTORS AFFECTING THE COMPANY'S BUSINESS
The Company's transactional financial printing service is affected by
conditions in the world's capital markets. Sales and net income in that area
depend upon the volume of public financings, particularly equity offerings which
are influenced by corporate funding needs, stock market fluctuations, prevailing
interest rates, and general economic and political conditions. The corporate
reporting revenue is seasonal as the greatest number of proxy statements and
annual reports are required to be printed during the Company's first fiscal
quarter ending March 31 and the early part of the Company's second quarter
ending June 30. Because of these cyclical and seasonal factors, coupled with the
general need to complete certain printing jobs quickly after delivery of copy by
the customers, the Company must maintain physical plant and customer service
staff sufficient to meet maximum work loads.
While the previously discussed services of the financial printing segment
are seasonal or cyclical, the Company's other business segments are less
cyclical or seasonal. Furthermore, mutual fund printing, commercial printing and
digital printing are not believed to be cyclical or seasonal.
RESEARCH AND DEVELOPMENT
The Company maintains a research and development capability to evaluate, on
an ongoing basis, advances in computer software, hardware and peripherals,
computer networking, telecommunication systems and Internet-related technologies
as they relate to the Company's business and to develop and install enhancements
to the Company's proprietary systems. Like its principal competitors, the
Company utilizes a computerized typesetting and telecommunications system in the
process of preparing documentation. In order to serve the customers of its
localization and Internet services, the Company continually tests new programs
and often works directly with its customers in the design and development of new
software and other technological products.
PATENTS AND OTHER RIGHTS
The Company has no significant patents, licenses, franchises, concessions
or similar rights other than certain trademarks. Except for a proprietary
computer typesetting and telecommunications system, the Company does not have
specialized machinery, facilities or contracts which are unavailable to other
firms providing the same or similar services to customers. The Company has many
trademarks and service marks worldwide, most of which are registered or pending
registration. The most significant of these is the trademark and tradename
"Bowne." The Company owns the service mark "Empowering Information" and other
trademarks such as ME!, BowneLink, and FundSmith.
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MARKETING
The Company employs approximately 225 sales people. In addition to
soliciting business from existing and prospective customers, the sales people
act as a liaison between the customer and those in charge of service operations.
They also provide advice and assistance to customers. The Company regularly
advertises in financial newspapers and trade publications and conducts sales
promotion by mail and by presentations at seminars and trade shows.
CUSTOMERS AND BACKLOG OF ORDERS
The Company has no significant long-term contracts with its customers.
During the fiscal year ended December 31, 1998, no customer accounted for 10% or
more of the Company's sales. The Company has no backlog, within the common
meaning of that term, which is normal throughout the service offerings in which
the Company is focused.
EMPLOYEES
At December 31, 1998, the Company had approximately 7,200 employees.
Relations with the Company's employees are considered to be satisfactory. A very
small portion of the Company's employees are members of various unions. Certain
subsidiaries of the Company which have union employees enter into separate
contracts with various local unions. Such contracts include provisions for
employer contributions to pension and welfare plans. The Company also provides
pension, profit-sharing, certain insurance and other benefits to most non-union
employees.
SUPPLIERS
The Company purchases various materials and services from a number of
suppliers, of which the most important items are paper, computer hardware,
copiers, software and peripherals, communication equipment and services, and
electrical energy. The Company purchases paper from paper mills and from paper
merchants. No difficulty has been experienced to date in obtaining adequate
amounts of paper, computer hardware, software and peripherals, communication
equipment and services or electrical energy, and alternate sources of supply are
presently available. However, a severe paper or energy shortage could have an
adverse effect upon many of the Company's operations.
FOREIGN SALES
The Company conducts foreign operations in Toronto, Montreal, London,
Paris, Dublin, Frankfurt, Munich, Madrid, Rio de Janeiro, Mexico City, Hong
Kong, Singapore, Tokyo and many other cities. In addition, the Company has
affiliations with certain firms providing similar services abroad. Sales derived
from foreign countries other than Canada were approximately 11% of the Company's
total sales in 1998, 13% in 1997 and less than 10% in 1996. During 1998, 1997
and 1996 sales derived from foreign countries other than Canada totaled $96, $92
and $34 million, respectively. The financial printing segment had $52, $59 and
$34 million in these years, respectively. The localization segment had sales of
$44, $33 and $0 million in 1998, 1997 and 1996, respectively.
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ITEM 2. PROPERTIES
Information regarding the material facilities of the Company, as of
December 31, 1998, five of which were leased and ten of which were owned in fee,
is set forth below.
<TABLE>
<CAPTION>
YEAR
LEASE SQUARE
LOCATION EXPIRES DESCRIPTION FOOTAGE
-------- ------- ----------- -------
<S> <C> <C> <C>
345 Hudson Street 2006 Typesetting, general office space 222,000
New York, NY and computer center.
99 Caven Point 2003 Warehouse and fulfillment center. 158,000
Jersey City, NJ
60 Gervais Drive 2000 Typesetting, printing plant and 71,000
Don Mills (Toronto), general office space.
Ontario, Canada
1570 Northside Drive 2002 Typesetting, printing plant and 44,000
Atlanta, GA general office space.
1341 G Street NW 2009 Typesetting and general office 30,000
Washington, DC space
5021 Nimtz Parkway Owned Typesetting, printing plant and 127,000
South Bend, IN general office space.
1200 Oliver Street Owned Typesetting, printing plant and 110,000
Houston, TX general office space.
215 County Avenue Owned Printing plant and general 105,000
Secaucus, NJ office space.
2103 East University Owned Printing plant and general 103,000
Drive office space.
Dominguez Hills, CA
325 West Ohio Street Owned Typesetting, printing plant and 100,000
Chicago, IL general office space.
411 D Street Owned Typesetting, printing plant and 73,000
Boston, MA general office space.
1241 Superior Avenue Owned Typesetting, printing plant and 73,000
Cleveland, OH general office space.
1931 Market Center Blvd. Owned Typesetting, printing plant and 68,000
Dallas, TX general office space.
5400 Chemin SL Francois Owned Typesetting, printing plant and 55,000
St. Laurent (Montreal), general office space.
Quebec, Canada
1500 North Central Avenue Owned Typesetting, printing plant and 50,000
Phoenix, AZ general office space.
In addition, the following leases will begin in 1999:
800 Central Blvd. 2009 Typesetting, printing plant and 130,000
Carlstadt, NJ general office space.
55 St. Clair Avenue 2004 Internet services and 33,000
Toronto, Canada general office space.
71 Columbia Street 2003 Internet services and 30,000
Seattle, WA general office space.
</TABLE>
All of the properties described above are well maintained, in good
condition and suitable for all presently anticipated requirements of the
Company. A majority of the Company's equipment is owned outright. The
outsourcing solutions business leases over a term of three to five years most of
its machinery and equipment. Reference is made to Note 13 of the Notes to
Consolidated Financial Statements.
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ITEM 3. PENDING LEGAL PROCEEDINGS
The Company is involved in no pending legal proceedings other than routine
litigation incidental to the conduct of its business which is not material to
its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
SHARE PRICES
The Company's common stock is traded on the American Stock Exchange under
the symbol "BNE." The following is the range of high and low share prices as
reported by the American Stock Exchange and dividends paid per share for
calendar 1998 and 1997 by year and quarters, adjusted for the 1998 2-for-1 stock
split.
<TABLE>
<CAPTION>
RANGE OF RANGE OF DIVIDENDS
SHARE PRICES SHARE PRICES PER
HIGH LOW SHARE
------------ ------------ ---------
<S> <C> <C> <C>
1998
Fourth quarter.................................... $18 $10 1/8 $.055
Third quarter..................................... 23 29/32 15 3/8 .055
Second quarter.................................... 22 3/4 20 1/8 .045
First quarter..................................... 21 7/16 17 15/32 .045
-----
Calendar year..................................... 23 29/32 10 1/8 $ .20
=====
1997
Fourth quarter.................................... 20 5/16 16 5/16 $.045
Third quarter..................................... 17 9/16 14 .045
Second quarter.................................... 17 15/32 12 5/8 .045
First quarter..................................... 15 1/8 10 7/8 .045
-----
Calendar year..................................... 20 5/16 10 7/8 $ .18
=====
</TABLE>
The number of holders of record of the Company's common stock on March 29,
1999 was approximately 1,425.
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ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR FINANCIAL SUMMARY
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED DECEMBER 31, YEAR ENDED OCTOBER 31, ENDED
----------------------- --------------------------------- DECEMBER 31,
1998 1997 1996 1995 1994 1996
--------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Net sales.............................. $ 847,566 $ 716,647 $ 501,369 $ 392,713 $ 380,653 $ 90,218
Expenses:
Cost of sales........................ 487,954 392,120 276,141 233,493 221,943 49,467
Selling and administrative........... 251,632 203,362 133,194 102,439 93,452 26,831
Depreciation......................... 34,375 27,991 20,621 16,604 13,786 4,599
Amortization......................... 7,551 1,678 626 1,248 1,372 117
Purchased in-process research and
development and other charges........ 9,025 6,991 -- -- -- --
--------- --------- --------- --------- --------- ---------
Operating income....................... 57,029 84,505 70,787 38,929 50,100 9,204
Gain on sale of subsidiary........... -- 35,273 -- -- -- --
Interest expense..................... (5,492) (1,621) (677) (884) (1,130) (120)
Other income......................... 2,878 2,456 4,905 3,706 5,233 228
--------- --------- --------- --------- --------- ---------
Income before income taxes............. 54,415 120,613 75,015 41,751 54,203 9,312
Income taxes......................... 27,288 51,070 32,512 18,465 22,963 4,128
--------- --------- --------- --------- --------- ---------
Net income............................. $ 27,127 $ 69,543 $ 42,503 $ 23,286 $ 31,240 $ 5,184
========= ========= ========= ========= ========= =========
BALANCE SHEET DATA
Current assets....................... $ 276,064 $ 285,504 $ 234,903 $ 200,349 $ 157,750 $ 245,821
Current liabilities.................. 162,500 120,639 87,541 67,300 51,253 98,966
Working capital...................... $ 113,564 $ 164,865 $ 147,362 $ 133,049 $ 106,497 $ 146,855
Current ratio........................ 1.70 to 1 2.37 to 1 2.68 to 1 2.98 to 1 3.08 to 1 2.48 to 1
Net plant and equipment.............. $ 166,367 $ 138,933 $ 128,583 $ 105,130 $ 101,522 $ 131,983
Total assets......................... 642,298 500,653 385,822 325,670 291,581 408,267
Long-term debt....................... 74,887 2,537 2,495 2,830 3,178 2,424
Stockholders' equity................. 378,819 358,600 280,734 241,509 222,795 291,556
PER SHARE (ADJUSTED FOR 1998 STOCK
SPLIT)
Net income
Basic.............................. $.74 $1.92 $1.21 $.67 $.90 $.15
Diluted............................ .72 1.87 1.20 .67 .89 .15
Dividends............................ .20 .18 .18 .18 .16 --
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION AND WHERE NOTED)
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS
The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995 (the "1995 Act"). The 1995
Act provides a "safe harbor" for forward-looking statements to encourage
companies to provide information without fear of litigation so long as those
statements are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected.
Set forth below is a summary of factors the Company believes important and
that could cause actual results to differ from the Company's expectations. The
Company is publishing these factors pursuant to the 1995 Act. Such factors
should not be construed as exhaustive or as an admission regarding the adequacy
of disclosure made by the Company prior to the effective date of the 1995 Act.
Readers should understand that many factors govern whether any forward-looking
statements can or will be achieved. Any one of those results could cause actual
results to differ materially from those projected. The words "believe,"
"expect," "anticipate," "intend," "aim," "will" and similar words identify
forward looking statements. The Company cautions readers that the following
important factors, among others, could affect the Company's actual results and
could cause the Company's actual results to differ materially from those
expressed either orally or in writing in any forward-looking statements made by
or on behalf of the Company.
- Loss or retirement of key executives, employees or technical personnel.
- The effect of changes within the Company's organization or in the
compensation and benefit plans and the ability of the Company to attract
and retain experienced and qualified management and sales personnel.
- Natural events and acts of God such as earthquakes, fires or floods.
- The Company's ability and the ability of third-parties with whom the
Company has relationships to become year 2000 compliant.
- The ability of the Company to integrate the operations of acquisitions
into its operations.
- General economic or market conditions affecting the demand for
transactional financial printing.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position continues to be strong with excellent
liquidity. On December 31, 1998, the Company had a working capital ratio of 1.70
to 1 and working capital of $113,564.
During 1998, the Company completed several acquisitions to strengthen and
broaden its Internet business, outsourcing 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 debt
service requirements.
CASH FLOWS
The Company had net cash provided by operating activities of $101,916 and
$58,035 for the years ended December 31, 1998 and 1997, respectively. This
included the impact of improved accounts receivable collections, an increase in
accounts payable and certain non-cash items, partially offset by reduced net
income.
Net cash used in investing activities was $166,390 and $35,498 for the
years ended December 31, 1998 and 1997, respectively. This was primarily as a
result of 1998 acquisitions (in excess of 1997 by approximately $80,000) and
expenditures related to the expansion of facilities and continued investments in
equipment and technology. In 1997, the Company received cash of $36,679 ($20,005
after-tax) from the sale of Baseline, which was principally used to fund the
cash expenditures for acquisitions of $40,491.
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Net cash provided by (used in) financing activities was $47,629 and
$(5,988) for the years ended December 31, 1998 and 1997, respectively. This
increase was a result of the net 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.
PROSPECTIVE ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities," was issued in
June 1998. SFAS 133 standardized 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
established 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, the
Company's operations in markets that are adopting the euro expect to be able to
accept payments and pay suppliers in euros and 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 impact,
including the resulting need to synchronize prices between markets.
The estimated costs to convert all effected 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 READINESS DISCLOSURE
Computer systems which have defined the applicable year with two digits
rather than four may produce erroneous results or fail to operate when handling
dates near the end of 1999 and into 2000. This Year 2000 problem may arise
within the Company's administrative, production, communications and distribution
operations.
The Company initiated a project in 1997 to evaluate the potential impact of
the Year 2000 computer problems on its business. The project included an
analysis of all of the Company's computer systems and suppliers and the
development of a plan to make any changes required to essential systems and
deploy any necessary software by 1999.
The Company has continued its program to minimize the impact of the Year
2000 problem by addressing internal computer systems and other intelligent
equipment deployed globally across all of our business units. With the aid of
third party service providers, we have inventoried all components critical to
the continued operation of all of our facilities and support functions.
10
<PAGE> 12
The on-going changes, replacement or retirement of non-compliant
inventoried items is being monitored and has progressed on schedule in
accordance with our structured program designed to achieve full Year 2000
compliance in 1999. As we enter the closing stages of our Year 2000 compliance
program, we continue to test our mission critical production and operational
systems to ensure that they remain compliant.
Bowne is quite sensitive to the Year 2000 well being of its key suppliers.
We have instituted a program to manage the business risks posed by the potential
inability of our key suppliers and service providers to properly respond to
their own Year 2000 issues by contacting them to inquire as to their year 2000
compliance. Although there can be no certainty that any major business partner
will function without disruption, we have been developing contingency plans for
each of these critical business partner risks and will continue to monitor the
status of their Year 2000 programs. This business continuity focus has been
designed to mitigate serious disruptions to our operations beyond the end of
1999 and operate independent of our external providers' Year 2000 compliance.
The Company estimate of the total cost related to our Year 2000 program is
approximately $6 to $8 million of which $1 million has been incurred through
December 31, 1998. Of the total estimated costs, approximately $3 million, or
40%, will be capitalized for new equipment and software. Spending for the Year
2000 program is being funded through operating cash flows. These costs do not
include normal system upgrades and replacements.
RESULTS OF OPERATIONS
Historically, the Company has primarily provided printing and other related
services. Revenues related to transactional financial printing services are
affected by cyclical conditions of the capital markets. Over the past few years
the Company has expanded its service offerings.
The Company decided to focus its business on empowering information to
become a 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 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 inside and outside the United States, the newer
information solution operations are anticipated to operate at a loss in 1999. 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.
Management evaluates the performance of its operating segments separately
to monitor the different factors affecting financial results. "EBITDA" and
"EBITA" are measured because management believes that such information is useful
in evaluating the results of certain segments relative to other entities which
operate within these industries and to its affiliated segments. EBITDA and EBITA
are alternatives to and not a replacement measure of operating performance as
determined in accordance with generally accepted accounting principles.
Consistent with its focus on expanding various service offerings to clients
and empowering information, the Company made a number of acquisitions in the
outsourcing, localization and Internet business segments. As anticipated, these
acquisitions, along with the resources allocated to integrating these services,
had an impact on the results of operations during 1998. Management plans to
continue to invest in the non-printing segments as well as the financial
printing segment. Historically, the company primarily provided financial
printing services which have experienced fluctuations related to market trends.
Revenues (as a percentage of the total Company's revenues) relating to that
segment represent 82% in 1998, compared to 92% in 1997.
The decline in 1998 from 1997 in EBITDA and EBITA in the financial printing
segment is primarily due to the decrease in activity for public offerings and
mergers and acquisitions during the third and fourth quarters of 1998. EBITDA
loss from the Company's outsourcing segment narrowed in 1998 primarily as a
result of the acquisition of DESI in July 1998. This acquisition not only
produced an increase in revenue from 1997, it allowed the outsourcing segment to
better leverage certain selling, general and administrative expenses through its
integration with the Company's previous outsourcing business. EBITA loss for the
outsourcing
11
<PAGE> 13
segment also decreased; however, not at the same rate as EBITDA due to the
increased depreciation expense on equipment associated with the DESI
acquisition.
In connection with the Company's expansion, EBITDA loss relating to the
Company's localization and Internet segments continued to increase reflecting
the Company's investments in these businesses. However, the EBITDA loss from the
localization segment was substantially reduced in the last six months of 1998
when compared to the first six months of the year. These investments are a
contributing factor to the decline in the Company's overall EBITDA from 1997
after excluding purchased in-process research and development and other one-time
charges and the gain on the sale of Baseline, Inc.
CHANGE IN FISCAL YEAR
On October 30, 1997, the Company elected to change the date of its fiscal
year-end to December 31. The management discussion and analysis that follows
compares the results for the year ended December 31, 1998 to the results for the
year ended December 31, 1997, and December 31, 1997 to the year ended October
31, 1996.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Sales increased 18% to $847,566, $80,362 of the increase was attributable
to acquisitions made in 1997 and 1998, with the remaining increase of $50,557
attributed to increased sales from existing business units. The existing units
of the financial printing, outsourcing, localization, and Internet segments
increased by $34,277, $10,718, $5,313, and $249, respectively. The overall
increase in sales contributed to a $35,085 growth in gross margin. The gross
margin percentage slid 3% to 42%, primarily because of the lower margins in the
acquired businesses.
Selling and administrative expenses increased 24% to $251,632. This
increase was due to the 1998 acquisitions, increases in staff, variable costs
associated with increased sales and profits, and continued investments in
technological efficiencies, partially offset by a reduction of employee
healthcare expenses.
Depreciation and amortization increased by $12,257 (or 41%) primarily due
to the expansion of facilities, acquisition of equipment, and depreciation and
amortization related to the new businesses.
Purchased in-process research and development and other one-time charges
increased by $2,034. This was a result of increased purchased in-process
research and development charges of $4,200 (primarily related to the DESI
acquisition) and a decrease in one-time charges of $2,166 related to the new
acquisitions. In 1998, one-time charges of $1,825 were related to the write-off
of goodwill and certain assets related to Linguistix, Inc.
Operating income was $57,029 for fiscal 1998, compared to $84,505 for
fiscal 1997. Excluding the costs associated with purchased in-process research
and development and other charges, income from operations would have been
$66,054 as compared to $91,496 for the year ended December 31, 1997, or a 28%
decrease.
Interest expense increased by $3,871 primarily from borrowings under the
revolving credit agreement to finance acquisitions.
During the first quarter of 1997, the Company realized a pre-tax gain of
$35,273 as a result of the sale of Baseline, Inc. The net of tax effect of this
item was $20,005.
Other income increased $422 due to gains from the sale of marketable
securities.
The effective overall income tax rate increased from 42% to 50% due to
increased nondeductible purchased in-process research and development charges as
well as increased amortization of intangibles. The effective income tax rate on
pre-tax income before charges for purchased in-process research and development
and amortization of intangibles decreased from 41% to 39% due to the change in
the geographic distribution of pre-tax income from jurisdictions with higher
rates to those with lower tax rates.
As a result of the foregoing, net income was $27,127 compared to $69,543
for the same period last year.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED OCTOBER 31, 1996
Sales increased 43% to $716,647. The increase was primarily attributable to
higher levels of demand for transactional financial printing solutions and
continued growth in non-transactional financial printing offerings.
12
<PAGE> 14
Secondarily, sales increased as a result of acquisitions completed during the
year. The gross margin percentage remained at 45%. The overall increase in sales
contributed to an increase in gross margin of $99,299, or 44% over the year
ended October 31, 1996.
Selling and administrative expenses increased 53% to $203,362 primarily as
a result of increases in sales commissions, incentive compensation and other
variable expenses related to higher sales and profitability and to selling and
administrative costs related to the new solution offerings.
Depreciation and amortization increased $8,422, 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 new businesses.
During 1997, acquisition costs of $3,000 associated with purchased
in-process research and development were expensed. In 1997, the Company incurred
charges of $3,991 pertaining to certain non-recurring post-acquisition costs for
the newly acquired companies and costs associated with the start-up of new
services.
Operating income was $84,505 for fiscal 1997, compared to $70,787 for
fiscal 1996. Excluding the costs associated with purchased in-process research
and development and other charges, income from operations would have been
$91,496 as compared to $70,787 for the year ended October 31, 1996, or a 29%
increase.
The Company realized a pre-tax gain of $35,273 as a result of the sale of
Baseline in early 1997. The net of tax effect of this item was $20,005.
Interest expense increased by $944 primarily as a result of borrowings
under the short-term line of credit.
Other income decreased $2,449 due to lower levels of capital gains on the
sale of marketable securities.
The effective overall income tax rate decreased from 43% to 42% due to the
change in the geographic distribution of pre-tax income from jurisdictions with
higher rates to those with lower tax rates.
Income before income taxes was $120,613 producing a net income of $69,543,
a 61% and 64% increase, respectively, over the results reported for the year
ended October 31, 1996.
ITEM 7A: MARKET RISK EXPOSURE
The Company's market risk is principally associated with market interest
rate fluctuations related to its debt obligations. Any such market risk is not
considered significant by the Company.
13
<PAGE> 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
BOWNE & CO., INC.:
We have audited the accompanying consolidated balance sheet of Bowne & Co.,
Inc. and subsidiaries as of December 31, 1998 and the related consolidated
statements of income, stockholders' equity, and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. The accompanying
consolidated financial statements of Bowne & Company, Inc. as of December 31,
1997 and for the year ended December 31, 1997, the two months ended December 31,
1996 and the year ended October 31, 1996, were audited by other auditors whose
report thereon dated March 4, 1998, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1998 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Bowne
& Co., Inc. and subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1998
the Company changed its method of accounting for certain internal-use software
development costs to conform with Statement of Position 98-1.
KPMG LLP
New York, New York
February 23, 1999
14
<PAGE> 16
BOWNE & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED DECEMBER 31, YEAR ENDED ENDED
------------------------ OCTOBER 31, DECEMBER 31,
1998 1997 1996 1996
---------- ---------- ----------- ------------
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<S> <C> <C> <C> <C>
NET SALES.................................... $847,566 $716,647 $501,369 $90,218
-------- -------- -------- -------
Expenses:
Cost of sales.............................. 487,954 392,120 276,141 49,467
Selling and administrative................. 251,632 203,362 133,194 26,831
Depreciation............................... 34,375 27,991 20,621 4,599
Amortization............................... 7,551 1,678 626 117
Purchased in-process research and
development and other charges........... 9,025 6,991 -- --
-------- -------- -------- -------
790,537 632,142 430,582 81,014
-------- -------- -------- -------
Operating income............................. 57,029 84,505 70,787 9,204
Gain on sale of subsidiary................... -- 35,273 -- --
Interest expense............................. (5,492) (1,621) (677) (120)
Other income................................. 2,878 2,456 4,905 228
-------- -------- -------- -------
Income before income taxes................... 54,415 120,613 75,015 9,312
Income taxes................................. 27,288 51,070 32,512 4,128
-------- -------- -------- -------
Net income................................... $ 27,127 $ 69,543 $ 42,503 $ 5,184
======== ======== ======== =======
NET INCOME PER SHARE:
Basic...................................... $ .74 $ 1.92 $ 1.21 $ .15
Diluted.................................... $ .72 $ 1.87 $ 1.20 $ .14
</TABLE>
See Notes to Consolidated Financial Statements
15
<PAGE> 17
BOWNE & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE INFORMATION)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 23,801 $ 40,646
Marketable securities..................................... 391 5,829
Accounts receivable, less allowance for doubtful accounts
of $12,264 (1998) and $12,441 (1997)................... 188,470 187,573
Inventories............................................... 30,593 35,617
Prepaid expenses and other current assets................. 32,809 15,839
-------- --------
Total current assets.............................. 276,064 285,504
-------- --------
Property, plant and equipment at cost, less accumulated
depreciation of $157,725 (1998) and $139,055 (1997)....... 166,367 138,933
Other assets:
Goodwill and other intangible assets, net of accumulated
amortization of $14,725 (1998) and $7,174 (1997)....... 188,619 64,452
Deferred income taxes..................................... 2,807 5,434
Other..................................................... 8,441 6,330
-------- --------
Total Assets...................................... $642,298 $500,653
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and other short-term
borrowings............................................. $ 4,578 $ 5,755
Accounts payable.......................................... 45,307 28,097
Employee compensation..................................... 61,465 44,791
Accrued expenses.......................................... 51,150 41,996
-------- --------
Total current liabilities......................... 162,500 120,639
-------- --------
Other liabilities:
Long-term debt -- net of current portion.................. 74,887 2,537
Deferred employee compensation and benefits............... 26,092 18,877
-------- --------
Total liabilities................................. 263,479 142,053
-------- --------
Stockholders' equity:
Preferred stock:
Authorized 2,000,000 shares, par value $.01
Issuable in series -- none issued...................... -- --
Common stock:
Authorized 60,000,000 shares, par value $.01
Issued 39,546,860 shares (1998) and 39,211,910 shares
(1997)................................................ 395 392
Additional paid-in-capital................................ 39,474 36,489
Retained earnings......................................... 359,185 339,407
Treasury stock, at cost, 2,745,137 shares (1998) and
2,720,398 shares (1997)................................ (16,514) (15,954)
Accumulated other comprehensive loss, net................. (3,721) (1,734)
-------- --------
Total stockholders' equity........................ 378,819 358,600
-------- --------
Total Liabilities and Stockholders' Equity........ $642,298 $500,653
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
16
<PAGE> 18
BOWNE & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR TWO MONTHS
DECEMBER 31, ENDED ENDED
-------------------- OCTOBER 31, DECEMBER 31,
1998 1997 1996 1996
--------- -------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 27,127 $ 69,543 $ 42,503 $ 5,184
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................... 34,375 27,991 20,621 4,599
Amortization.................................... 7,551 1,678 626 117
Provision for doubtful accounts................. 7,414 7,871 5,208 729
Gain on sale of subsidiary...................... -- (35,273) -- --
Loss (gain) on disposal of fixed assets......... 1,162 (959) -- (17)
Gain on sales of securities and other
investments.................................. (1,592) (706) (3,010) --
Provision for deferred employee compensation.... 3,997 3,729 1,229 282
Deferred income taxes........................... (2,709) (2,117) (1,740) (329)
Other........................................... 2,327 4,647 101 (280)
Increase (decrease) in cash resulting from changes
in:
Accounts receivable............................. 10,131 (31,010) (47,392) (1,822)
Inventories..................................... 6,048 6,693 (6,468) (6,388)
Prepaid expenses and other current assets....... (11,661) (3,367) (1,298) (4,010)
Accounts payable................................ 10,996 (6,585) 4,345 1,616
Employee compensation........................... 12,965 12,283 9,767 (8,003)
Accrued expenses................................ (6,215) 3,617 6,448 9,741
--------- -------- -------- --------
Net cash provided by operating activities......... 101,916 58,035 30,940 1,419
--------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of subsidiary.................. -- 36,679 -- --
Proceeds from the sale of fixed assets............ 678 3,992 -- 20
Acquisition of businesses, including covenants not
to compete, net of proceeds from sale of
LANSystems division and cash acquired........... (120,323) (40,491) -- (3,369)
Purchase of marketable securities and other
investments..................................... (3,275) (2,429) (3,854) (232)
Proceeds from sales of marketable securities and
other investments............................... 6,748 1,939 16,402 300
Purchase of property, plant and equipment......... (50,218) (35,188) (44,485) (5,649)
--------- -------- -------- --------
Net cash used in investing activities............. (166,390) (35,498) (31,937) (8,930)
--------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings.......................... 162,844 20,974 -- 894
Payment of debt................................... (109,870) (22,612) (658) (1,265)
Proceeds from stock options exercised............. 2,682 3,412 3,696 207
Payment of dividends.............................. (7,349) (6,515) (6,335) --
Purchase of treasury stock........................ (678) (1,247) (417) (107)
--------- -------- -------- --------
Net cash provided by (used in) financing
activities...................................... 47,629 (5,988) (3,714) (271)
--------- -------- -------- --------
Net (decrease) increase in cash and cash
equivalents..................................... (16,845) 16,549 (4,711) (7,782)
Cash and Cash Equivalents -- Beginning............ 40,646 24,097 36,590 31,879
--------- -------- -------- --------
CASH AND CASH EQUIVALENTS -- END.................. $ 23,801 $ 40,646 $ 31,879 $ 24,097
========= ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
17
<PAGE> 19
BOWNE & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998 AND 1997,
2 MONTHS ENDED DECEMBER 31, 1996 AND YEAR ENDED OCTOBER 31, 1996
--------------------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY
STOCK CAPITAL EARNINGS INCOME STOCK TOTAL
------ ---------- -------- ------------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE NOV. 1, 1995................................ $382 $24,079 $235,027 $ 214 $(18,193) $241,509
- --------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income.......................................... 42,503 42,503
Foreign currency translation adjustment............. 211 211
Unrealized gains on securities:
Unrealized holding gains arising during period.... 1,988 1,988
Less: reclassification adjustment for gains
included in net income.......................... (3,011) (3,011)
Income tax benefit related to items of other
comprehensive income.............................. 463 463
--------
Comprehensive income................................ 42,154
--------
Cash dividends ($.18 per share, adjusted for 2-for-1
stock split)...................................... (6,335) (6,335)
Acquisition of treasury stock....................... (417) (417)
Non-cash stock compensation......................... 127 127
Exercise of stock options........................... 6 3,690 3,696
- --------------------------------------------------------------------------------------------------------------------------
BALANCE OCT. 31, 1996............................... 388 27,896 271,195 (135) (18,610) 280,734
- --------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income.......................................... 5,184 5,184
Foreign currency translation adjustment............. (401) (401)
Unrealized gains on securities:
Unrealized holding losses arising during period... (42) (42)
Less: reclassification adjustment for gains
included in net income.......................... -- --
Income tax expense related to items of other
comprehensive income.............................. (45) (45)
--------
Comprehensive income................................ 4,696
--------
Issuance of stock for acquisition................... 3,099 2,901 6,000
Acquisition of treasury stock....................... (107) (107)
Non-cash stock compensation......................... 26 26
Exercise of stock options........................... 207 207
- --------------------------------------------------------------------------------------------------------------------------
BALANCE DEC. 31, 1996............................... $388 $31,228 $276,379 $ (623) $(15,816) $291,556
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 20
BOWNE & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998 AND 1997,
2 MONTHS ENDED DECEMBER 31, 1996 AND YEAR ENDED OCTOBER 31, 1996
--------------------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY
STOCK CAPITAL EARNINGS INCOME STOCK TOTAL
------ ---------- -------- ------------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
BALANCE DEC. 31, 1996............................... $388 $31,228 $276,379 $ (623) $(15,816) $291,556
- --------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income.......................................... 69,543 69,543
Foreign currency translation adjustment............. (1,544) (1,544)
Unrealized gains on securities:
Unrealized holding gains arising during period.... 1,354 1,354
Less: reclassification adjustment for gains
included in net income.......................... (706) (706)
Income tax expense related to items of other
comprehensive income.............................. (215) (215)
--------
Comprehensive income................................ 68,432
--------
Cash dividends ($.18 per share, adjusted for 2-for-1
stock split)...................................... (6,515) (6,515)
Issuance of stock for acquisitions.................. 1,700 1,109 2,809
Acquisition of treasury stock....................... (1,247) (1,247)
Non-cash stock compensation......................... 153 153
Exercise of stock options........................... 4 3,408 3,412
- --------------------------------------------------------------------------------------------------------------------------
BALANCE DEC. 31, 1997............................... 392 36,489 339,407 (1,734) (15,954) 358,600
- --------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income.......................................... 27,127 27,127
Foreign currency translation adjustment............. (996) (996)
Unrealized gains on securities:
Unrealized holding losses arising during period... (129) (129)
Less: reclassification adjustment for gains
included in net income.......................... (1,592) (1,592)
Income tax benefit related to items of other
comprehensive income.............................. 730 730
--------
Comprehensive income................................ 25,140
--------
Cash dividends ($.20/share, adjusted for 2-for-1
stock split)...................................... (7,349) (7,349)
Issuance of stock for acquisitions.................. 153 118 271
Acquisition of treasury stock....................... (678) (678)
Non-cash stock compensation......................... 153 153
Exercise of stock options........................... 3 2,679 2,682
- --------------------------------------------------------------------------------------------------------------------------
BALANCE DEC. 31, 1998............................... $395 $39,474 $359,185 $(3,721) $(16,514) $378,819
==== ======= ======== ======= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
19
<PAGE> 21
BOWNE & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES
A summary of the Company's significant accounting policies followed in the
preparation of the accompanying financial statements is set forth below:
Change in Fiscal Year End
On October 30, 1997, the Company elected to change the date of its fiscal
year-end to December 31. As a result, a transition period for the two months
ended December 31, 1996 was previously reported on a transition report on Form
10-Q. The statements of income, stockholders' equity, and cash flows present
information for the years ended December 31, 1998, December 31, 1997, two months
ended December 31, 1996 and the year ended October 31, 1996.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All of the significant intercompany accounts and
transactions are eliminated in consolidation.
Reclassification
Certain amounts have been reclassified to conform to the current year's
presentation.
Revenue Recognition
For substantially all services, revenues are recognized when products or
services are delivered or rendered to customers.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
by using purchase cost (first-in, first-out method) for materials and standard
costs, which approximate actual costs, for work-in-process.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Maintenance and repairs
are expensed as incurred. Depreciation for financial statement purposes is
provided on the straight-line method. The following table summarizes the
components of property, plant and equipment:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Land and buildings..................................... $ 75,847 $ 73,008
Machinery and plant equipment.......................... 175,058 141,524
Furniture, fixtures and vehicles....................... 34,655 31,192
Leasehold improvements................................. 38,532 32,264
-------- --------
Total........................................ $324,092 $277,988
======== ========
</TABLE>
20
<PAGE> 22
BOWNE & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Estimated lives used in the calculation of depreciation for financial
statement purposes are:
<TABLE>
<S> <C>
Buildings............................... 20-40 years
Machinery and plant equipment........... 3-12 1/2 years
Furniture and fixtures.................. 5-12 1/2 years
Vehicles................................ 3-5 years
Leasehold improvements.................. Shorter of useful life or term of lease
</TABLE>
Intangible Assets
Intangible assets acquired in business combinations accounted for by the
purchase method of accounting are capitalized and amortized over their expected
useful life as a non-cash charge against future results of operations.
The Company amortizes goodwill using the straight-line method over forty
years for its printing acquisitions, thirty years for its business solution
acquisitions, and twenty-five years for its localization acquisitions. Goodwill
arising from acquisitions related to the Company's Internet services are
amortized using the straight-line method over fifteen years. The non-compete
agreements are amortized over the life of the non-compete, which is three to
five years. The realizability of goodwill and other intangibles is evaluated
periodically to determine the recoverability of carrying amounts. The
evaluation, based on various analyses including cash flow and profitability
projections, addresses the impact on the existing Company business. The
evaluation necessarily involves significant management judgment.
Stock-Based Compensation
The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair-value-based method, as defined in SFAS No. 123, had been applied. The
Company has elected to continue to apply provisions of APB Opinion No. 25 and
provide the pro forma disclosure required by SFAS No. 123. See Note 8.
Income Taxes
The Company uses the liability method to account for income taxes. Under
the liability method, deferred income taxes reflect tax carryforwards and the
net tax effects of temporary differences between the carrying amount of assets
and liabilities for financial statement and income tax purposes, as determined
under enacted tax laws and rates.
United States income tax has not been provided on the unremitted earnings
of the Company's foreign operations since the Company intends to continue to
reinvest its undistributed foreign earnings to expand its foreign operations. In
addition, applicable foreign taxes have been provided and credits for foreign
income taxes will be available to significantly reduce any U.S. tax liability if
foreign earnings are remitted. At December 31, 1998, the cumulative amount of
undistributed foreign earnings was approximately $34 million.
Net Income Per Share
In 1997, the Financial Accounting Standards Board issued Statement 128
"Earnings per Share" which became effective for interim and annual financial
statements for periods ending after December 15, 1997. Net income is calculated
for basic earnings per share based on the average number of shares outstanding
and for diluted earnings per share as adjusted for the assumed conversion of all
potentially dilutive securities. All
21
<PAGE> 23
BOWNE & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to the Statement 128 requirements.
The following table sets forth the basic and diluted average share amounts,
adjusted for the August, 1998 2-for-1 stock split:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, TWO MONTHS ENDED YEAR ENDED
------------------------ DECEMBER 31, OCTOBER 31,
1998 1997 1996 1996
---------- ---------- ---------------- -----------
<S> <C> <C> <C> <C>
Average shares outstanding -- basic
shares............................. 36,655,821 36,210,168 35,313,206 35,127,508
Potential dilutive effect of stock
options and deferred stock units... 968,908 968,764 674,472 410,484
---------- ---------- ---------- ----------
Average shares outstanding -- diluted
shares............................. 37,624,729 37,178,932 35,987,678 35,537,992
========== ========== ========== ==========
</TABLE>
Foreign Currency Translation
Financial statements of international subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and a weighted-average exchange rate for each period of revenues,
expenses, gains and losses. Where the local currency is the functional currency,
translation adjustments are recorded as a separate component of stockholders'
equity and comprehensive income. Where the U.S. dollar is the functional
currency, translation adjustments are recorded in income.
Fair Value of Financial Instruments
The Company defines the fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current transaction between
willing parties. The carrying value of cash and cash equivalents, accounts
receivable and accounts payable approximates the fair value because of the short
maturity of those instruments. The carrying amounts of notes payable (see Note
10) approximates the fair value due to these debt instruments having variable
interest rates similar to those that are currently available to the Company.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the period.
Actual results can differ from those estimates.
Recent Accounting Pronouncements
In 1998, the Company adopted AICPA Statement of Position ("SOP") No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP No. 98-1 requires certain costs in connection with developing
or obtaining internally used software to be capitalized that previously would
have been expensed as incurred. The adoption of SOP No. 98-1 resulted in the
capitalization of approximately $8 million related to software development costs
pertaining to improvements in the financial printing business' typesetting,
pricing, and billing systems, as well as the development of a workflow system
for its localization business and the installation of a financial reporting
system.
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income." This statement establishes standards for
the reporting and display of comprehensive
22
<PAGE> 24
BOWNE & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
income, requiring its components to be reported in a financial statement that is
displayed with the same prominence as other financial statements. The Company
adopted this standard in the first quarter of 1998.
In 1998, the company adopted FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which requires the Company to report
information about its operating segments according to the management approach
for determining reportable segments. This approach is based on the way
management organizes segments within a company for making operating decisions
and assessing performance. FAS No. 131 also establishes standards for
supplemental disclosure about products and services, geographical areas and
major customers. Segment results have been reported for the years presented and
are described in Note 15.
NOTE 2 -- SALE OF SUBSIDIARY
On January 6, 1997, the Company sold its 90% interest in Baseline Financial
Services, Inc. The Company recorded a pre-tax gain of $35,273 and an after-tax
gain of $20,005, or $0.56 per share (post-split) on a diluted basis.
NOTE 3 -- ACQUISITIONS
The Company made several acquisitions, as follows:
During the two month period ended December 31, 1996, the Company acquired
80% of IDOC, Inc., a localization solutions company, by issuing 261,438 shares
from treasury, and 100% of the financial printing business of the Williams Lea
Group, Ltd. of the United Kingdom for cash. The total purchase price of these
two companies approximated $10,700, with goodwill recorded of approximately
$8,300. These acquisitions are part of the localization and financial printing
segments, respectively.
During March 1997 the Company purchased 100% of several foreign companies,
including their ownership of certain affiliates, offering localization and
globalization solutions. The companies (and respective locations) purchased
were: I&G COM (France); ME&TA Software Localization Company, S.L. (Spain);
Pacifitech (Japan); and GECAP Localization Technologies (Germany). In June 1997,
the Company purchased ME&TA MULTIMEDIA. The total purchase price and acquisition
costs related to these acquisitions were approximately $31,500, paid in cash.
These companies are part of the localization segment.
The Company also purchased several U.S. based companies. The companies
purchased were: Imagineer, Inc. (February 1997 -- outsourcing segment); Internet
Factory, Inc. (March 1997 -- Internet segment); the assets of J. Feuerstein
Systems (JFS), (November 1997 -- financial printing segment); the assets of
United Media Corporation (November 1997 -- outsourcing segment); and Linguistix,
Inc. (December 1997 -- financial printing segment). The total purchase price of
these companies was approximately $16,400, including acquisition costs. As part
of these acquisitions, 98,888 shares were issued in 1997 and 10,000 shares each
in 1998 and 1999.
The goodwill and other intangible assets recorded during 1997 as a result
of the acquisitions approximated $46,000. Approximately $3,000 of the purchase
price for JFS and Linguistix was assigned to purchased in-process research and
development and written off at the time of acquisition. During 1998, management
determined that the carrying value of the remaining goodwill for Linguistix was
not recoverable and approximately $1,800 was written off.
During the first quarter of 1998, the Company acquired 80% of Quadravision
Communications Limited and 100% of Sitewerks, Inc. (Internet segment). Both
companies are Internet development companies. The total purchase price of these
two companies, including related acquisition costs, approximated $13,300, of
which goodwill and other intangible assets were approximately $11,400. In
addition, the Company and the
23
<PAGE> 25
BOWNE & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
selling shareholders entered into non-compete agreements totaling $6,000, of
which an aggregate of $4,000 was paid at closing and the balance is payable over
the next two years.
During the second and third quarters, the Company acquired several
localization companies. The total purchase price of these companies, including
related acquisition costs, approximated $4,546, of which goodwill and other
intangible assets were approximately $3,200.
Also during the second quarter, the Company acquired 86.5% of Mountain Lake
Software Corporation and the assets of Open Sesame, formerly a division of
Charles River Analytics, Inc., now part of the Company's Internet segment. These
acquisitions increase the Company's ability to provide clients with integrated
Internet applications. The total purchase price for these two companies,
including related acquisition costs, approximated $12,900. Goodwill and other
intangible assets, including non-compete agreements were approximately $12,800.
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
price of $21 per share, aggregating to $105 million. This acquisition added to
the Company's outsourcing segment. Goodwill and other intangible assets were
approximately $95 million. DESI provides a comprehensive array of business
outsourcing services, including document services, desktop publishing, and
imaging services. The cost of this, and some of the other acquisitions, was
financed through borrowings under the Company's revolving credit agreement.
DESI's operations included the LANSystems division, which the Company sold 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>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Total revenue.......................................... $893,660 $792,346
Net income............................................. $ 18,324 $ 64,675
Net income per common share -- Basic................... $ 0.50 $ 1.79
-- Diluted............ $ 0.49 $ 1.74
</TABLE>
All of the acquisitions were accounted for using the purchase method of
accounting and the results from these operations were included in the statements
of income and cash flows after the date of acquisition. The Company recorded
$7,200 in 1998 and $3,000 in 1997 of purchased in-process research and
development as an operating expense. These amounts were recorded in connection
with the DESI and Quadravision 1998 acquisitions, and the JFS and Linguistix
1997 acquisitions. Some of the Company's acquisitions provide for additional
purchase payouts based on achieving certain earnings levels, which amounts will
be included as goodwill in the period earned.
NOTE 4 -- CASH AND CASH EQUIVALENTS
Cash equivalents of $1,542 and $25,703 at December 31, 1998 and 1997,
respectively, are carried at cost, which approximates market, and include
certificates of deposit and money market accounts, substantially all of which
have maturities of three months or less when purchased.
24
<PAGE> 26
BOWNE & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 5 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Raw materials............................................ $ 6,977 $ 5,750
Work in process.......................................... 23,616 29,867
------- -------
$30,593 $35,617
======= =======
</TABLE>
NOTE 6 -- MARKETABLE SECURITIES
The Company classifies its investment in marketable equity 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. The fair value of marketable securities
exceeded cost by $197 and $1,918, at December 31, 1998 and 1997, respectively.
NOTE 7 -- EMPLOYEE BENEFIT PLANS
Pension Plans
The Company sponsors a defined benefit pension plan which covers most of
its United States employees not covered by union agreements. Benefits are based
upon salary and years of service under the projected unit benefit method. The
Company's policy is to fund each year's pension expense to the maximum allowable
level. The Company also has an unfunded supplemental retirement program for
certain management employees. Employees covered by union agreements are included
in separate multi-employer pension plans to which the Company makes
contributions. Plan benefit and net asset data for these multi-employer pension
plans are not available. Also, certain non-union Canadian employees are covered
by defined contribution retirement plans.
Pension costs, including the Supplementary Employee Retirement Plan, are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR
DECEMBER 31, ENDED
---------------- OCTOBER 31,
1998 1997 1996
------ ------ -----------
<S> <C> <C> <C>
Service cost........................................... $5,413 $4,176 $ 3,077
Interest cost.......................................... 3,759 3,313 2,549
Expected return on plan assets......................... (4,534) (3,687) (3,190)
Amortization of transition asset....................... (220) (220) (321)
Amortization of prior service cost..................... 370 370 14
Actuarial gain......................................... (401) (481) (416)
------ ------ -------
Net periodic pension cost of defined benefit plans..... 4,387 3,471 1,713
Union plans............................................ 642 444 534
Defined contribution plans............................. 932 765 679
------ ------ -------
Total pension cost..................................... $5,961 $4,680 $ 2,926
====== ====== =======
</TABLE>
25
<PAGE> 27
BOWNE & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The status of the Company's funded defined benefit pension plan is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Projected benefit obligation at beginning of year........... $40,731 $32,680
Service cost................................................ 5,174 3,864
Interest cost............................................... 3,075 2,536
Actuarial loss.............................................. 7,438 4,151
Benefits paid............................................... (1,240) (2,500)
------- -------
Projected benefit obligation at end of year................. 55,178 40,731
------- -------
Fair value of plan assets at beginning of year.............. 48,500 41,942
Actual return on plan assets................................ 10,068 9,058
Employer contributions...................................... -- --
Benefits paid............................................... (1,240) (2,500)
------- -------
Fair value of plan assets at end of year.................... 57,328 48,500
------- -------
Plan assets in excess of projected benefit obligation....... 2,150 7,769
Unrecognized net transition asset........................... (3,485) (3,806)
Unrecognized prior service cost............................. 544 591
Unrecognized net actuarial gain............................. (10,261) (12,567)
------- -------
Net accrued pension cost.................................... $11,052 $ 8,013
======= =======
</TABLE>
At December 31, 1998 and 1997, the projected net liability under the
unfunded supplemental retirement program amounted to $5,701 and $5,639,
respectively, which amounts are included in current and long-term liabilities
for employee compensation and benefits. The plan contains covenants which
prohibit retired participants from engaging in competition with the Company.
The discount rate used to calculate the projected benefit obligations was
6.75% and 7.25% at December 31, 1998 and 1997, respectively. The rate used to
project future salary increases was 4.0% at December 31, 1998 and 1997. The
expected long-term rate of return on plan assets was 9.5% and 9.0% for the years
ended December 31, 1998 and 1997, respectively. The assets of the funded plan
consist primarily of equity and fixed income securities.
Profit Sharing Plan
The Company and certain subsidiaries are participating in a qualified
profit sharing plan covering most employees of those subsidiaries who are not
covered by union agreements. Amounts charged to income for the Profit Sharing
Plan were $9,596 and $9,483 for the years ended December 31, 1998 and 1997,
respectively, and $8,364 for the year ended October 31, 1996.
Stock Purchase Plan
Under the Employees' Stock Purchase Plan, the Company and participating
subsidiaries match 50% of amounts contributed (after-tax) by employees up to
twelve hundred dollars per employee per year. All contributions are invested in
the common stock of the Company. The plan acquired 145,115 and 230,510 shares
(post-split) in the years ended December 31, 1998 and 1997, respectively, and
176,906 shares (post-split) in the year ended October 31, 1996, of the Company's
common stock on the open market. At December 31, 1998 and 1997, the Stock
Purchase Plan held 1,102,902 shares and 1,094,524 shares (post-split) of the
Company's common stock, respectively. Charges to income amounted to $1,433,
$1,138, and
26
<PAGE> 28
BOWNE & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
$603 for the years ended December 31, 1998 and 1997 and the year ended October
31, 1996, respectively. The shares held by the plan are considered outstanding
in computing the Company's diluted earnings per share, and dividends paid to the
plan are charged to retained earnings.
Health Plan
The Company maintains a voluntary employee benefit health and welfare plan
covering substantially all of its employees. The Company has established and
funded a VEBA (Voluntary Employees' Beneficiary Association) trust to cover its
medical and related costs. During 1998, the Company reviewed the trust's funded
status and determined that it had over-estimated plan funding requirements by
approximately $4 million (after-tax). The Company recognized such amount as
income in the fourth quarter of 1998.
NOTE 8 -- STOCK OPTION PLANS
The Company has three stock option plans, a 1981 Plan, a 1992 Plan and a
1997 Plan.
The 1981 Plan, which provided for the granting of options to purchase
2,800,000 shares (post-split) of the Company's common stock, expired December
15, 1991 except as to options then outstanding. The Company's 1992 and 1997
Stock Option Plans both provide for the granting of options to purchase
1,700,000 shares (each plan post-split) to officers and key employees at a price
not less than the fair market value on the date each option is granted.
All plans permit grants of either Incentive Stock Options or Non-Qualified
Options. Options become exercisable as determined at the date of grant by a
committee of the Board of Directors. Options expire ten years after the date of
grant unless an earlier expiration date is set at the time of grant. The 1997
Plan permits the issuance of stock appreciation rights ("SARs"), limited stock
appreciation rights ("LSARs") and awards that are valued in whole or in part on
the fair value of the shares. SARs, LSARs and awards may be paid in shares, cash
or combinations thereof.
27
<PAGE> 29
BOWNE & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Details of stock options are as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF OPTION
SHARES PRICE
--------- --------
<S> <C> <C>
YEAR ENDED OCTOBER 31, 1996
Outstanding, beginning of year....................... 2,084,352 $ 7.75
Granted.............................................. 444,600 10.10
Exercised............................................ 547,752 6.75
Cancelled............................................ 125,300 9.50
Outstanding, end of year............................. 1,855,900 8.49
Exercisable, end of year............................. 529,800 7.43
TWO MONTHS ENDED DECEMBER 31, 1996
Granted.............................................. 288,600 $11.16
Exercised............................................ 19,700 10.51
Cancelled............................................ 800 9.06
Outstanding, end of year............................. 2,124,000 8.84
Exercisable, end of year............................. 595,900 7.34
YEAR ENDED DECEMBER 31, 1997
Granted.............................................. 1,018,100 $18.53
Exercised............................................ 453,400 7.53
Cancelled............................................ 118,850 10.57
Outstanding, end of year............................. 2,569,850 12.83
Exercisable, end of year............................. 668,450 8.38
YEAR ENDED DECEMBER 31, 1998
Granted.............................................. 820,000 $16.11
Exercised............................................ 358,350 7.48
Cancelled............................................ 207,500 17.24
Outstanding, end of year............................. 2,824,000 14.13
Exercisable, end of year............................. 840,150 11.42
</TABLE>
Options to purchase 190,050 shares (at December 31, 1998) and 802,550
shares (at December 31, 1997) were available for grant under the 1997 and 1992
Plan.
The following table summarizes weighted-average option exercise price
information:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF NUMBER AVERAGE AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES DECEMBER 31, 1998 LIFE PRICE DECEMBER 31, 1998 PRICE
- ---------------- ----------------- --------- -------- ----------------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 5.57 - $ 9.53 539,900 4 years $ 8.41 492,000 $ 8.45
9.54 - 11.16 624,500 7 years 10.58 137,500 11.16
11.17 - 18.25 675,000 10 years 14.74 -- --
18.26 - 22.50 984,600 9 years 19.11 210,650 18.53
--------- -------- ------ ------- ------
2,824,000 8 years $14.13 840,150 $11.42
========= ======== ====== ======= ======
</TABLE>
28
<PAGE> 30
BOWNE & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
In accordance with APB Opinion 25 and related interpretations, no
compensation cost has been recognized for the Company's stock option plans. Had
compensation cost been based upon the fair value at the grant dates for all
awards granted during the years ended December 31, 1998 and 1997, and the year
ended October 31, 1996, net income and earnings per share would have been
reduced on a pro forma basis as follows:
<TABLE>
<CAPTION>
YEAR ENDED TWO MONTHS ENDED
YEAR ENDED DECEMBER 31, OCTOBER 31, DECEMBER 31
------------------------ ----------- ----------------
1998 1997 1996 1996
--------- --------- ----------- ----------------
<S> <C> <C> <C> <C>
Net Income:
As Reported............ $27,127 $69,543 $42,503 $5,184
Pro Forma.............. 24,989 68,756 42,332 5,107
Pro Forma Per Share:
Basic.................. $ .68 $ 1.90 $ 1.21 $ .14
Diluted................ .66 1.85 1.19 .14
======= ======= ======= ======
</TABLE>
In accordance with SFAS No. 123, the pro forma information excludes options
granted prior to December 31, 1994. The grants issued during the year ended
October 31, 1995 were issued on December 14, 1994. Since the compensation
expense associated with the grants would have been recognized generally over a
four year vesting period, the initial impact of applying Statement No. 123 on
pro forma net income is not representative of the potential impact on pro forma
net income in future years, when the pro forma effect would be fully reflected.
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years. The fair
value for these options was estimated at the date of grant using the
Black-Scholes model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
GRANTS GRANTS GRANTS
-------- -------- --------
<S> <C> <C> <C>
Expected dividend yield................... 1.4% 1.2% 1.7%
Expected stock price volatility........... 37.1% 30.1% 32.2%
Risk-free interest rate................... 4.7% 5.8% 6.0%
Expected life of options.................. 5 years 5 years 5 years
Weighted average fair value............... $5.62 $6.12 $3.68
</TABLE>
Deferred Stock Awards
In October 1996, the Company initiated a program for certain key
executives, and in 1997 for directors, that provided for the conversion of a
portion of their cash bonuses or directors fees into deferred stock units. These
units are convertible into the Company's common stock on a one-for-one basis
generally at the time of retirement or earlier under certain specific
circumstances. At December 31, 1998 and 1997, there were 239,105 and 205,312
units (post-split) outstanding, respectively.
29
<PAGE> 31
BOWNE & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 9 -- INCOME TAXES
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED TWO MONTHS
DECEMBER 31, YEAR ENDED ENDED
------------------ OCTOBER 31, DECEMBER 31,
1998 1997 1996 1996
------- ------- ----------- ------------
<S> <C> <C> <C> <C>
CURRENT:
U.S. Federal......................... $23,090 $39,346 $25,813 $3,308
Foreign.............................. 4,422 3,183 1,504 91
State and local...................... 2,485 10,658 6,935 852
------- ------- ------- ------
29,997 53,187 34,252 4,251
------- ------- ------- ------
DEFERRED:
U.S. Federal......................... (1,305) (1,415) (1,220) 166
Foreign.............................. (1,115) (379) (229) (327)
State and Local...................... (289) (323) (291) 38
------- ------- ------- ------
(2,709) (2,117) (1,740) (123)
------- ------- ------- ------
$27,288 $51,070 $32,512 $4,128
======= ======= ======= ======
</TABLE>
Income taxes paid during the years ended December 31, 1998 and 1997 and the
year ended October 31, 1996 were $44,926, $51,523 and $31,508, respectively.
The provision for income taxes differed from the U.S. Federal statutory
rate for the following reasons:
<TABLE>
<CAPTION>
TWO
YEAR ENDED MONTHS
DECEMBER 31, YEAR ENDED ENDED
------------ OCTOBER 31, DECEMBER 31,
1998 1997 1996 1996
---- ---- ----------- ------------
<S> <C> <C> <C> <C>
Statutory tax rate............................. 35.0% 35.0% 35.0% 35.0%
Increase in tax resulting from:
State and local taxes........................ 2.6 5.5 5.8 6.2
Foreign taxes................................ 0.3 0.1 0.3 0.3
Non-deductible items:
Purchased in process research and
development............................... 4.8 0.2 -- --
Goodwill..................................... 2.8 0.4 0.2 0.4
Other nondeductible items.................... 4.7 1.9 2.0 2.4
Other.......................................... (0.1) (0.8) -- --
Effective income tax rate...................... 50.1% 42.3% 43.3% 44.3%
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion of all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities and projected future taxable income in making this
assessment. Based upon the level of historical taxable income and projections
for future taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not the Company will
realize the benefits of these deductible
30
<PAGE> 32
BOWNE & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
differences. Significant components of the Company's deferred tax assets and
liabilities at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- ------
<S> <C> <C>
Non-current deferred tax assets (liability):
Deferred compensation and benefits...................... $10,842 $8,742
Depreciation............................................ (3,674) (4,115)
Deferred taxes on intangibles, other than goodwill...... (5,328) --
Other................................................... 967 807
------- ------
Total net non-current asset..................... $ 2,807 $5,434
======= ======
</TABLE>
NOTE 10 -- DEBT
In March 1997, the Company entered into a short-term line of credit for
$25,000 used for general corporate purposes. The Company borrowed $20,000 in
July 1997 under this agreement, of which $10,000 was re-paid in July and the
remainder re-paid in August, 1997.
In July 1997, the Company entered into a new unsecured five-year revolving
credit agreement (expiring in July, 2002) for $200,000 with a consortium of
banks. Under the new credit agreement, interest is charged at London Interbank
Offered Rate (LIBOR) plus 1/4% to 1/2% depending on certain leverage ratios
plus ten basis points on the unused portion. During 1998, the average interest
rate approximated 6%. This agreement replaced a $50,000 uncommitted line of
credit and the $25,000 short-term line of credit. The maximum available credit
under the agreement was increased to $300,000 in November, 1998. The purpose of
the revolving credit agreement is for general corporate purposes, including
acquisitions. The Company was in compliance with all loan covenants as of
December 31, 1998. Amounts outstanding under this agreement are classified as
long-term debt and were $68,000 at December 31, 1998 and zero at December 31,
1997. In addition, the Company had $3,164 of capital leases and $3,723 of notes
payable at December 31, 1998.
Aggregate annual installments of both notes payable and long-term debt
(other than the revolving credit agreement) due for the next five years and
thereafter are $4,578, $3,941, $2,020, $652, $89, and $185, respectively.
Interest paid was $5,391, $1,535, and $662 for the years ended December 31,
1998 and 1997 and October 31, 1996, respectively.
NOTE 11 -- DEFERRED EMPLOYEE COMPENSATION AND BENEFITS
Liabilities for deferred employee compensation and benefits consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Pension and other retirement costs....................... $11,569 $ 8,540
Supplemental retirement, long term....................... 5,321 5,133
Deferred compensation and other long term benefits....... 9,202 5,204
------- -------
$26,092 $18,877
======= =======
</TABLE>
31
<PAGE> 33
BOWNE & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 12 -- OTHER INCOME
The components of other income (expense) are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, YEAR ENDED
---------------- OCTOBER 31,
1998 1997 1996
------ ------ -----------
<S> <C> <C> <C>
Interest income................................ $1,531 $1,569 $ 991
Dividends...................................... 246 202 642
Realized gains (losses) on sales of marketable
securities and other assets.................. 1,789 (228) 2,809
Other.......................................... (688) 913 463
------ ------ ------
$2,878 $2,456 $4,905
====== ====== ======
</TABLE>
NOTE 13 -- LEASE COMMITMENTS
The Company and its subsidiaries occupy premises and utilize equipment
under leases which are classified as operating leases and expire at various
dates to 2009. Many of the leases provide for payment of certain expenses and
contain renewal and purchase options.
One operating lease is for equipment leased through a master agreement
administered by a commercial bank. This agreement enables the Company to lease
equipment up to an aggregate initial cost of $25 million through April, 2003.
The rental payments are based on LIBOR plus 25 basis points and the cost of the
equipment. At the expiration of the lease, the Company has the right to purchase
the equipment for the guaranteed residual value. The equipment under lease as of
December 31, 1998 has an aggregate guaranteed residual value of approximately $4
million.
Rent expense relating to premises and equipment amounted to $22,893 and
$12,736 for the years ended December 31, 1998 and 1997, respectively, and $9,823
for the year ended October 31, 1996. The minimum annual rental commitments under
non-cancelable leases as of December 31, 1998, are summarized as follows:
<TABLE>
<S> <C>
1999.................... $ 26,336
2000.................... 24,935
2001.................... 20,900
2002.................... $ 15,996
2003.................... 11,579
2004-2009............... 25,201
--------
Total.............. $124,947
========
</TABLE>
NOTE 14 -- STOCKHOLDERS' EQUITY
During 1997, the Company adopted a Stockholder Rights Plan that granted a
Right to each Stockholder of record on February 10, 1997 and all shares issued
thereafter to purchase 1/1000th of a share of the Preferred Stock for each share
of common stock owned when certain events occur. When the Company reincorporated
in Delaware in 1998, a new Rights Agreement dated June 19, 1998 was adopted in
place of the earlier plan. This plan is triggered when certain events that
involve the acquisition, tender offer or exchange of 20% or more of the Common
Stock by a person or group of persons, without the approval of the Company's
Board of Directors, occur. Prior to the event, the Rights will be linked to the
underlying shares of the Common stock and may not be transferred by themselves.
In 1998, the Board of Directors approved a 2-for-1 stock split to
Shareholders of record as of the close of business on August 14, 1998. The
shares were distributed on August 26, 1998. Share and per share amounts for
prior periods have been adjusted to reflect the stock split.
32
<PAGE> 34
BOWNE & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 15 -- SEGMENT INFORMATION
The Company focus remains on "Empowering Information," a term used to
define the management, repurposing and distribution of a client's information.
The Company manages and repurposes the information for distribution by digital,
Internet or paper media. It manages documents on the clients' site or at its own
facilities.
The Company's operations are classified into four reportable business
segments; Financial Printing, Outsourcing, Localization and Internet. The
services of each segment are marketed throughout the world. The major services
provided by each segment are as follows:
Financial Printing -- transactional financial, corporate reporting, mutual
fund, commercial and digital printing.
Outsourcing -- document management solutions primarily for the legal and
financial communities.
Localization -- translation and reengineering of software products.
Internet Consulting & Development -- integrated Internet solutions
primarily for the financial sector.
Information as to the operations of each business segment is set forth
below. Performance is evaluated based on several factors, of which the primary
financial measure is business segment income before depreciation and
amortization of intangible assets ("EBITDA"). The Company also uses income
before amortization expenses ("EBITA"), as a measure of performance; therefore,
this information is also presented. The Company manages income taxes on a global
basis. Segment performance is evaluated exclusive of the disposal of business
units, purchased in-process research and development and other charges, and
other income. The accounting policies of the business segments are the same as
those described in the summary of significant accounting policies.
<TABLE>
<CAPTION>
FOR YEAR ENDED FOR YEAR ENDED FOR YEAR ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 31,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES FROM EXTERNAL CUSTOMERS:
Financial Printing....................... $697,642 $660,249 $501,219
Outsourcing.............................. 81,361 11,679 150
Localization............................. 55,366 41,423 --
Internet Consulting & Development........ 13,197 3,296 --
-------- -------- --------
$847,566 $716,647 $501,369
======== ======== ========
EBITDA:
Financial Printing....................... $137,175 $141,220 $ 92,837
Outsourcing.............................. (6,518) (10,920) (803)
Localization............................. (11,118) (7,903) --
Internet Consulting & Development........ (11,559) (1,232) --
Other.................................... (6,147) 30,738 4,905
-------- -------- --------
$101,833 $151,903 $ 96,939
-------- -------- --------
Depreciation expense:
Financial Printing....................... $ 27,337 $ 24,145 $ 20,564
Outsourcing.............................. 3,502 786 57
Localization............................. 2,704 2,905 --
Internet Consulting & Development........ 832 155 --
-------- -------- --------
$ 34,375 $ 27,991 $ 20,621
-------- -------- --------
</TABLE>
33
<PAGE> 35
BOWNE & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
FOR YEAR ENDED FOR YEAR ENDED FOR YEAR ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 31,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
EBITA:
Financial Printing....................... $109,838 $117,075 $ 72,273
Outsourcing.............................. (10,020) (11,706) (860)
Localization............................. (13,822) (10,808) --
Internet Consulting & Development........ (12,391) (1,387) --
Other.................................... (6,147) 30,738 4,905
-------- -------- --------
67,458 123,912 76,318
Amortization expense..................... (7,551) (1,678) (626)
Interest expense......................... (5,492) (1,621) (677)
-------- -------- --------
Income before income taxes............... $ 54,415 $120,613 $ 75,015
======== ======== ========
ASSETS:
Financial Printing....................... $379,979 $419,294 $385,470
Outsourcing.............................. 146,486 13,951 352
Localization............................. 75,587 62,118 --
Internet Consulting & Development........ 40,246 5,290 --
-------- -------- --------
$642,298 $500,653 $385,822
======== ======== ========
CAPITAL SPENDING:
Financial Printing....................... $ 38,299 $ 28,505 $ 44,485
Outsourcing.............................. 4,041 2,556 --
Localization............................. 5,971 3,274 --
Internet Consulting & Development........ 1,907 853 --
-------- -------- --------
$ 50,218 $ 35,188 $ 44,485
======== ======== ========
</TABLE>
Geographic information about the Company's revenue, which is principally
based on the location of the selling organization, and long-lived assets,
is presented below:
<TABLE>
<CAPTION>
FOR YEAR ENDED FOR YEAR ENDED FOR YEAR ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 31,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUE SOURCES:
United States............................ $681,402 $547,880 $404,683
Canada................................... 69,813 76,695 62,513
Other foreign............................ 96,351 92,072 34,173
-------- -------- --------
$847,566 $716,647 $501,369
======== ======== ========
LONG-LIVED ASSETS, NET:
United States............................ $306,390 $160,690 $131,013
Canada................................... 11,873 12,941 15,958
Other foreign............................ 47,971 41,518 3,948
-------- -------- --------
$366,234 $215,149 $150,919
======== ======== ========
</TABLE>
34
<PAGE> 36
BOWNE & CO., INC. AND SUBSIDIARIES
SUMMARY OF QUARTERLY DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER FULL YEAR
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Net sales......................... $194,285 $219,328 $225,420 $208,533 $847,566
Gross margin...................... 92,805 104,035 94,932 67,840 359,612
Income (loss) before income
taxes.......................... 21,992 26,837 8,718 (3,132) 54,415
Income taxes (benefit)............ 9,038 11,385 7,266 (401) 27,288
-------- -------- -------- -------- --------
Net income (loss)................. $ 12,954 $ 15,452 $ 1,452 $ (2,731) $ 27,127
======== ======== ======== ======== ========
Net income (loss) per share:
Basic.......................... $.36 $.42 $.04 $(.07) $.74
-------- -------- -------- -------- --------
Diluted........................ $.34 $.41 $.04 $(.07) $.72
-------- -------- -------- -------- --------
Average shares outstanding
(Adjusted for 1998 stock
split):
Basic.......................... 36,480 36,578 36,727 36,732 36,656
-------- -------- -------- -------- --------
Diluted........................ 37,751 37,890 37,795 36,732 37,625
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER FULL YEAR
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Net sales......................... $153,696 $193,828 $177,667 $191,456 $716,647
Gross margin...................... 70,460 84,999 80,005 89,063 324,527
Income before income taxes........ 53,956 26,223 17,310 23,124 120,613
Income taxes...................... 23,433 10,809 6,640 10,188 51,070
-------- -------- -------- -------- --------
Net income........................ $ 30,523 $ 15,414 $ 10,670 $ 12,936 $ 69,543
======== ======== ======== ======== ========
Net income per share:
Basic.......................... $.85 $.43 $.29 $.36 $1.92
-------- -------- -------- -------- --------
Diluted........................ $.83 $.42 $.29 $.34 $1.87
-------- -------- -------- -------- --------
Average shares outstanding
(Adjusted for 1998 stock
split):
Basic.......................... 35,972 36,170 36,316 36,382 36,210
-------- -------- -------- -------- --------
Diluted........................ 36,779 37,065 37,226 37,509 37,179
======== ======== ======== ======== ========
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In 1998, the Company with the approval of the Audit Committee replaced
Ernst & Young LLP with KPMG LLP as independent auditors. There were no
disagreements with Ernst & Young LLP on any matters which would have caused
Ernst & Young LLP to reference the subject matter of any disagreement in its
reports for the years ended December 31, 1997 or October 31, 1996. The Company
filed a current report on Form 8-K dated June 25, 1998 relating to this change.
35
<PAGE> 37
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Regarding the directors of the Company, reference is made to the
information set forth under the caption "Election of Directors" in the Company's
definitive Proxy Statement anticipated to be dated April 7, 1999, which
information is incorporated by reference herein.
The executive officers of the Company and their recent business experience
are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OFFICER
NAME DURING PAST FIVE YEARS AGE SINCE
- ---- ---------------------- --- -------
<S> <C> <C> <C>
Robert M. Johnson................. Chairman of the Board and Chief Executive 53 1996
Officer of the Company since June 1996;
previously Vice Chairman, President and Chief
Executive Officer of the Company from January
1996; before that, Publisher, President and
Chief Executive Officer of Newsday, Inc. a
subsidiary of The Times Mirror, Co.
James P. O'Neil................... President and Chief Operating Officer since 54 1984
January 1996; previously Executive Vice
President and Chief Operating Officer;
theretofore Vice President, Finance, of the
Company
Carl J. Crosetto.................. Executive Vice President since December 1998; 50 1998
previously Senior Vice President since May
1998; prior to that Director of Sales of the
Company
Denise K. Fletcher................ Senior Vice President and Chief Financial 50 1996
Officer since May 1998; previously Vice
President, Chief Financial Officer, from July
1996; previously principal of Fletcher
Associates, Inc., a management consulting firm
Susan W. Cummiskey................ Senior Vice President, Human Resources since 45 1998
December 1998; previously Vice President, Human
Resources, from January 1998, and Director,
Human Resources from February 1997; theretofore
Vice President, Human Resources for the
Chemical Group of Degussa Corporation
Philip E. Kucera.................. Senior Vice President and General Counsel since 56 1998
December 1998; previously Deputy General
Counsel of The Times Mirror, Co.
Judith Shapiro.................... Senior Vice President and Chief Information 52 1998
Officer since July 1998; formerly a director of
the Company from November 1997 and also Senior
Vice President for Management Information
Systems, Joseph E. Seagram & Sons, Inc.
Kenneth W. Swanson................ Senior Vice President, Print Manufacturing 42 1998
since December 1998; also President of Bowne
Business Communications, Inc., a subsidiary of
the Company
Duncan Varty...................... Senior Vice President, Financial Print 54 1998
Operations since December 1998; also President
of Bowne of Cleveland, Inc., a subsidiary of
the Company
Bruce Bezpa....................... Vice President from December 1998; theretofore 43 1996
Vice President, Strategic Development, from
November 1996; previously Director of Mutual
Funds for the Company
C. Cody Colquitt.................. Vice President and Corporate Controller since 37 1999
February 1999; previously Vice President,
Finance and Controller from September 1996 of
Bowne of Dallas, L.P., a subsidiary of the
Company; theretofore Controller for Sammons
Communications, Inc.
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OFFICER
NAME DURING PAST FIVE YEARS AGE SINCE
- ---- ---------------------- --- -------
<S> <C> <C> <C>
Thomas P. Meola................... Vice President, Finance since November 1996; 56 1987
previously Vice President, Finance and
Corporate Controller of the Company
Douglas F. Bauer.................. Counsel and Corporate Secretary 56 1986
William J. Coote.................. Treasurer since December 1998; formerly 44 1999
Assistant Treasurer from January 1998;
previously Manager, Financial Analysis since
November 1995; theretofore Director of
Financial Analysis, Prudential Resources
Management Inc.
</TABLE>
There are no family relationships among any of the executive officers, and
there are no arrangements or understandings between any of the executive
officers and any other person pursuant to which any of such officers was
selected. The executive officers are normally elected by the Board of Directors
at its first meeting following the Annual Meeting of Stockholders for a one-year
term or until their respective successors are duly elected and qualify.
To the best of the Company's knowledge, none of the directors and officers
of the Company failed to file on a timely basis any report on Forms 3, 4 and 5
which was required pursuant to Section 16(a) of the Securities Exchange Act of
1934 with respect to the Company's most recent fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information set forth under the caption "Executive
Compensation" appearing in the Company's definitive Proxy Statement anticipated
to be dated April 7, 1999, which information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information contained under the captions
"Principal Stockholders" and "Executive Compensation" in the Company's
definitive Proxy Statement anticipated to be dated April 7, 1999, which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Inapplicable.
37
<PAGE> 39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
(1) Financial Statements:
<TABLE>
<CAPTION>
PAGE NUMBER
IN THIS REPORT
--------------
<S> <C>
Independent Auditors' Report................................ 14
Consolidated Statements of Income -- Years Ended December
31, 1998 and 1997, Two Months Ended December 31, 1996,
Year Ended October 31, 1996............................... 15
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... 16
Consolidated Statements of Cash Flows -- Years Ended
December 31, 1998 and 1997, Two Months Ended December 31,
1996, Year Ended October 31, 1996......................... 17
Consolidated Statements of Stockholders' Equity -- Year
Ended December 31, 1998 and 1997, Two Months Ended
December 31, 1996, Year Ended October 31, 1996............ 18-19
Notes to Consolidated Financial Statements.................. 20-35
</TABLE>
(2) Financial Statement Schedule -- Years Ended December 31, 1998 and 1997,
Two Months Ended December 31, 1996, and Year Ended October 31, 1996:
<TABLE>
<S> <C>
Schedule II -- Valuation and Qualifying Accounts.......... S-1
</TABLE>
All other schedules are omitted because they are not applicable.
(3) Exhibits:
<TABLE>
<C> <C> <S>
3.1 -- Certificate of Incorporation (incorporated by reference to
Exhibit 3 to the Company's current report on Form 8-K dated
June 23, 1998)
3.2 -- Certificate of Designations (incorporated by reference to
Exhibit 2 to the Company's current report on Form 8-K dated
June 23, 1998)
3.5 -- By-Laws (incorporated by reference to Exhibit 4 to the
Company's current report on Form 8-K dated June 23, 1998)
4.1 -- Rights Agreement dated June 19, 1998 (incorporated by
reference to Exhibit 5 to the Company's current report on
Form 8-K dated June 23, 1998)
10.1 -- Amended and Restated 1981 Stock Option Plan (incorporated by
reference to the Company's definitive Proxy Statement dated
January 30, 1985)
10.2 -- Amendment to 1981 Stock Option Plan (incorporated by
reference to the Company's Post-Effective Amendment No. 1 on
Form S-8 relating to the Company's Stock Option Plan dated
April 16, 1987)
10.3 -- Amendment to 1981 Stock Option Plan (incorporated by
reference to the Company's Post-Effective Amendment No. 2 on
Form S-8 relating to the Company's Stock Option Plan dated
October 19, 1988)
10.4 -- 1992 Stock Option Plan (incorporated by reference to Exhibit
A to the Company's definitive Proxy Statement dated February
10, 1992)
10.5 -- 1997 Stock Incentive Plan (incorporated by reference to
Exhibit A to the Company's definitive Proxy Statement date
February 6, 1997)
10.6 -- Form of Supplemental Retirement Agreement for selected key
employees (incorporated by reference to Exhibit 10.2 to the
Company's annual report on Form 10-K for the year ended
October 31, 1984) (such agreements having been entered into
in the years 1979-1980)
10.7 -- Form of Supplemental Retirement Agreement for selected key
employees with change of control provisions (incorporated by
reference to Exhibit 10.3 to the Company's annual report on
Form 10-K for the year ended October 31, 1984) (such
agreements having been entered into in 1984)
</TABLE>
38
<PAGE> 40
<TABLE>
<C> <C> <S>
10.8 -- Form of Supplemental Retirement Agreement for selected key employees, being the most current
version of the agreements in Exhibits 10.5 and 10.6 above (incorporated by reference to Exhibit
10.4 to the Company's annual report on Form 10-K for the year ended October 31, 1986) (such
agreements having been entered into since 1985 without material revisions)
10.9 -- Summary restatement dated June 29, 1998 of Supplemental Retirement Agreement for selected key
employees, being an amendment to the agreements in Exhibits 10.6, 10.7 and 10.8 above
10.10 -- Form of Termination Protection Agreement for selected key employees providing for a possible
change in ownership or control of the Company (incorporated by reference to Exhibit 10.8 to the
Company's annual report on Form 10-K for the year ended October 31, 1995)
10.11 -- Retirement Plan for non-management members of the Board of Directors (incorporated by reference to
the description under the caption "Meetings, Attendance and Fees" on page 4 of the Company's
definitive Proxy Statement dated January 30, 1989)
10.12 -- Letter agreement dated January 29, 1996 between the Company and Robert M. Johnson relating to
restricted stock and certain compensation and benefits matters (incorporated by reference to
Exhibit 10.10 to the Company's annual report on Form 10-K/A for the year ended December 31, 1997)
10.13 -- Amendment dated September 1, 1998 to the letter agreement in Exhibit 10.12 above
10.14 -- Amendment #1 to Master Agreement to Credit Agreement dated July 7, 1997 (Exhibit #99 in 1997
10-K/A Report)
21 -- Subsidiaries of the Company
23.1 -- Consent of KPMG LLP, Independent Auditors
23.2 -- Consent of Ernst & Young LLP, Independent Auditors
23.3 -- Auditors' Report on Schedule, KPMG, LLP
23.4 -- Report of Ernst & Young LLP, Independent Auditors
24 -- Powers of Attorney
27 -- Financial Data Schedule, which is submitted electronically to the Securities and Exchange
Commission for information only and not filed
99 -- Master Agreement to Credit Agreement dated July 7, 1997 (incorporated by reference to the
Company's annual report on Form 10-K/A for the year ended December 31, 1997)
</TABLE>
(b) No reports on Form 8-K were filed by the Company during the quarter
ended December 31, 1998.
39
<PAGE> 41
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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.
Dated: March 31, 1999
By: ROBERT M. JOHNSON
------------------------------------
ROBERT M. JOHNSON
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
ROBERT M. JOHNSON Chairman of the Board and March 31, 1999
- --------------------------------------------------- Chief Executive Officer (and
(Robert M. Johnson) Director)
JAMES P. O'NEIL President and Chief Operating March 31, 1999
- --------------------------------------------------- Officer (and Director)
(James P. O'Neil)
DENISE K. FLETCHER Senior Vice President and March 31, 1999
- --------------------------------------------------- Chief Financial Officer
(Denise K. Fletcher)
C. CODY COLQUITT Vice President and Controller March 31, 1999
- --------------------------------------------------- (Principal Accounting Officer)
(C. Cody Colquitt)
Director March , 1999
- ---------------------------------------------------
(Robert M. Conway)
* Director March 31, 1999
- ---------------------------------------------------
(Edward H. Meyer)
* Director March 31, 1999
- ---------------------------------------------------
(H. Marshall Schwarz)
* Director March 31, 1999
- ---------------------------------------------------
(Wendell M. Smith)
* Director March 31, 1999
- ---------------------------------------------------
(Lisa A. Stanley)
</TABLE>
40
<PAGE> 42
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director March 31, 1999
- ---------------------------------------------------
(Vincent Tese)
Director March , 1999
- ---------------------------------------------------
(Harry Wallaesa)
Director March 31, 1999
- ---------------------------------------------------
(Richard R. West)
*ByROBERT M. JOHNSON Attorney-in-Fact
----------------------------------------------
(Robert M. Johnson)
</TABLE>
41
<PAGE> 43
BOWNE & CO., INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------ ------------ ------------ ----------- -----------
ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS/ BALANCE AT
BEGINNING OF COSTS AND (ADDITIONS) END OF
DESCRIPTION PERIOD EXPENSES (A)/(B) PERIOD
----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year Ended December 31, 1998............ $12,441 $7,414 $7,591 $12,264
Year Ended December 31, 1997............ $ 9,702 $7,871 $5,132 $12,441
Two Months Ended December 31, 1996...... $ 8,763 $ 729 $ (210) $ 9,702
Year Ended October 31, 1996............. $ 6,269 $5,208 $2,714 $ 8,763
</TABLE>
- ---------------
(a) Uncollectible accounts written off, net of recoveries.
(b) For the two months ended December 31, 1996 writeoffs were $83 and the
allowance was increased by $293 to reflect acquired businesses during this
period.
S-1
<PAGE> 44
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------
<S> <C>
10.9 SERP, summary restatement dated June 29, 1998
10.13 Amendment dated September 1, 1998 for letter agreement
between the Company and Robert Johnson
21 Subsidiaries of the Company
23.1 Consent of KPMG LLP, Independent Auditors
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Auditors' Report on Schedule, KPMG, LLP
23.4 Report of Ernst & Young LLP, Independent Auditors
24 Powers of Attorney
27 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information
only and not filed
</TABLE>
<PAGE> 1
EXHIBIT 10.9
From: Robert Johnson
Sent: June 29, 1998
To: Jim ONeil; Carl Crosetto; Denise Fletcher; Susan Cummiskey;
Tom Meola; Bruce Bezpa; Doug Bauer; Bob Baker; Don Cannava;
Jeff Chipman; Mike Schlanger; Reed Smith; Kenneth Swanson;
Duncan Varty; Andy Williams
Subject: SERP
I thought each of you would be interested in the improvements to our SERP
plan that were approved by the Bowne Board of Directors at our meeting last
week. These improvements keep Bowne's SERP very competitive and recognize
that this benefit is very important to those who have built Bowne into the
company it is today. As you know the SERP is a very important benefit that
is only available to senior corporate executives and Presidents of the
Financial Print companies. Because of the salary plus bonus compensation
approach used for determining base compensation, the SERP really is best
suited to rewarding those in the traditional parts of our business whose
compensation is driven by the more standard measures of financial
performance.
The major improvements to the SERP are the vesting formula (5 years);
providing credit for prior service with another company; the crediting of
deferred bonus compensation for the year the bonus is accrued; using the
compensation for the highest 60 consecutive months during the past 120
months of employment; lowering normal retirement to age 62 and 5 years
service from age 65 or alternatively, 30 years service regardless of age,
for full benefits; providing early retirement with company approval
beginning at age 55 with a 5% a year benefit reduction from normal
retirement at age 62 and a number of other changes. You will shortly be
receiving a new plan description which will include all of the changes. We
have recalculated your benefits based upon the current and new plans using
assumptions which obviously can change but which should give you a sense of
the magnitude of the improvements. I will be sending this comparison to you
within the next week so you can better understand the important value of
these changes. If you have any questions, please call Susan Cummiskey who
will get the answers for you.
These enhancements to your SERP plan are very significant. They represent
yet another way for me and the Board to thank you for your efforts.
<PAGE> 1
EXHIBIT 10.13
Bowne & Co., Inc.
345 Hudson Street
New York, NY 10014
212/924-5500
------------------------------------
BOWNE LOGO
September 1, 1998
Robert M. Johnson
8 Smugglers Cove
Lloyd Harbor, NY 11743
Dear Bob:
This letter records the understanding you and the Company have reached with
regard to amending our letter agreement (the "Letter") dated January 29, 1996.
All capitalized terms used here have the same meanings as in the Letter.
In particular, it is our understanding that the Letter be amended, with
immediate effect, so as to add the following provisions to Section 5 about your
one-time award of "restricted stock":
"(i) The 40,000 shares were duly registered under the Securities Act
of 1933 on August 12, 1998, and any shares hereafter delivered to you will
consequently be covered by a valid registration statement. The restrictive
legend called for by Section 5(f) above is therefore no longer relevant.
"(j) Due to the two-for-one stock-split effected by the Company on
August 26, 1998, the 40,000 restricted shares now number 80,000, and the
three installments thereof consist of 26,666, 26,666 and 26,668 shares,
with restrictions lapsing respectively on January 3, 1999 and on the first
and second anniversaries thereof.
"(k) The Board of Directors has delegated to the Compensation
Committee (the "Committee") authority to cancel any installment of the
restricted stock before the restrictions on that installment lapse at one
of the anniversaries listed above. In the event that any installment is so
cancelled, the Committee will cause a like number of "deferred stock units"
to be credited to a special account maintained for you on the Company's
books, and the deferred stock units in that account will be comparable in
all relevant respects to others that may be issued pursuant to the
Company's Deferred Award Plan. When cash dividends are paid to other
shareholders of the Company, the Committee will cause a number of
additional deferred stock units to be credited to your account that will
represent the number of whole and fractional shares that could have been
purchased with that cash dividend using the closing price at which the
Company's stock was traded in the open market on the payment date for the
dividend, without deduction for tax withholding.
"(l) After the cancellation of any installment of restricted shares,
you will not have the right to vote them until such time as the deferred
stock units resulting from the cancellation are converted back into
outstanding shares. When the deferred stock units are
<PAGE> 2
converted again into outstanding shares, they will still be covered by the
Company's registration statement filed on August 12, 1998. If an
installment of restricted stock has previously been converted into deferred
stock units, any event which would have caused the restrictions on the
actual stock to lapse early will also cause the deferred stock units to be
converted into outstanding stock at the same time; and any event which
would have caused the actual shares themselves to revert to the Company
will also cause the deferred stock units to revert to the Company.
"(m) On June 25, 1998, the Committee exercised its authority to cancel
the first installment of one-third (or 26,666) of the restricted shares,
the restrictions on which would otherwise have lapsed on January 3, 1999.
The Committee will consider taking similar action before January 3, 2000
and again before January 3, 2001 with regard to the other two installments
of restricted stock."
If the foregoing correctly states our understanding, please countersign
and return the copy which is enclosed for that purpose.
Sincerely yours,
BOWNE & CO., INC.
By /s/ Denise K. Fletcher
-----------------------------
Denise K. Fletcher
Senior Vice President and
Chief Financial Officer
Enclosure
Agreed to and accepted:
/s/ Robert M. Johnson
---------------------
Robert M. Johnson
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Listed below are the significant subsidiaries of the Company and their
jurisdictions of organization. All are wholly-owned unless otherwise indicated.
Other subsidiaries have been omitted because, considered in the aggregate, they
would not constitute a significant subsidiary.
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY ORGANIZATION
- ------------------ ---------------
<S> <C>
Bowne Business Communications, Inc. ........................ New York
Bowne Business Solutions, L.L.C. ........................... New York
Bowne de Montreal, Inc. .................................... Canada
Bowne Digital Solutions, L.L.C.............................. New York
Bowne Global Solutions, Inc.(1)............................. California
Bowne Global Solutions (France), S.A.R.L. .................. France
Bowne Global Solutions (Germany) G.m.b.H. .................. Germany
Bowne Global Solutions (Ireland), Ltd. ..................... Ireland
Bowne Global Solutions (Japan), K.K. ....................... Japan
Bowne Global Solutions (Netherlands), B.V................... Netherlands
Bowne Global Solutions (Spain), S.L. ....................... Spain
Bowne Information Services, Inc. ........................... New Jersey
Bowne International, Ltd. .................................. United Kingdom
Bowne International, S.A.R.L. .............................. France
Bowne Internet Solutions, Inc. ............................. Delaware
Bowne Litigation Solutions, L.P. ........................... Delaware
Bowne Localization, Inc. ................................... Delaware
Bowne of Atlanta, Inc. ..................................... Georgia
Bowne of Boston, Inc. ...................................... Massachusetts
Bowne of Canada, Ltd. ...................................... Canada
Bowne of Chicago, Inc. ..................................... Delaware
Bowne of Cleveland, Inc. ................................... Ohio
Bowne of Dallas, L.P. ...................................... Delaware
Bowne of Europe, B.V........................................ Netherlands
Bowne of Germany Holding G.m.b.H. .......................... Germany
Bowne of Los Angeles, Inc. ................................. California
Bowne of New York City, Inc. ............................... New York
Bowne of Ontario, L.P. ..................................... Canada
Bowne of Phoenix, Inc. ..................................... Arizona
Bowne Solutions, L.L.C. .................................... Delaware
Bowne of South Bend, Inc. .................................. Delaware
Donnelley Enterprise Solutions, Inc. ....................... Delaware
</TABLE>
- ---------------
(1) 80% owned by the Company.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 2-96887, 33-48831, 33-35810 and 333-57045 and Form S-3 No.
333-18629 and 333-25861) of Bowne & Co., Inc. of our report dated February 23,
1999 relating to the consolidated financial statements of Bowne & Co., Inc. and
subsidiaries as of December 31, 1998 and the related consolidated statements of
income, stockholders' equity, and cash flows for the year then ended which
report appears in the December 31, 1998 annual report on Form 10-K of Bowne &
Co., Inc. We also consent to incorporation by reference of our report on the
related financial statement schedule included elsewhere herein.
KPMG LLP
New York, New York
March 26, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 2-96887, 33-48831 and 33-35810 and Form S-3 No. 333-18629)
pertaining to the Stock Option Plans, Employees' Stock Purchase Plan and the
registration of 261,438 shares of Common Stock of Bowne & Co., Inc. and in the
related Prospectuses of our report dated March 4, 1998 with respect to the
consolidated financial statements and schedule of Bowne & Co., Inc. and
Subsidiaries included in the Annual Report (Form 10-K) for the year ended
December 31, 1998.
ERNST & YOUNG LLP
New York, New York
March 26, 1999
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors and Stockholders
Bowne and Co., Inc.
The audit referred to in our report dated February 23, 1999, included the
related financial statement schedule as of and for the year then ended December
31, 1998, as contained in the annual report on Form 10-K for the year 1998. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
which, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
KPMG LLP
New York, New York
February 23, 1999
<PAGE> 1
EXHIBIT 23.4
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
BOWNE & CO., INC.
We have audited the accompanying consolidated balance sheet of Bowne & Co., Inc.
and Subsidiaries as of December 31, 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for the year ended
December 31, 1997, the two months ended December 31, 1996, and the year ended
October 31, 1996. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bowne & Co., Inc.
and Subsidiaries at December 31, 1997, and the consolidated results of their
operations and their cash flows for the year ended December 31, 1997, the two
months ended December 31, 1996, and the year ended October 31, 1996, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as whole, presents fairly in all material
respects the information set forth therein.
Ernst & Young LLP
New York, New York
March 4, 1998
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
BOWNE & CO., INC. AND EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY
AUTHORIZE BOTH ROBERT M. JOHNSON AND DENISE K. FLETCHER, EACH WITH FULL POWER TO
ACT ALONE, TO FILE IN EITHER PAPER OR ELECTRONIC FORM AN ANNUAL REPORT ON FORM
10-K AND ANY AND ALL AMENDMENTS THERETO, UNDER THE SECURITIES EXCHANGE ACT OF
1934 AS AMENDED, FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998, WHICH REPORT AND
AMENDMENTS SHALL CONTAIN SUCH INFORMATION AND EXHIBITS AS ROBERT M. JOHNSON OR
DENISE K. FLETCHER DEEMS APPROPRIATE. BOWNE & CO., INC. AND EACH SUCH PERSON
HEREBY FURTHER APPOINT BOTH ROBERT M. JOHNSON AND DENISE K. FLETCHER AS HIS OR
HER AND ITS ATTORNEYS-IN-FACT, EACH WITH FULL POWER TO ACT ALONE, TO EXECUTE
SUCH REPORT AND ANY AND ALL AMENDMENTS THERETO IN THE NAME AND ON BEHALF OF
BOWNE & CO., INC. AS WELL AS IN THE NAME AND ON BEHALF OF EACH SUCH PERSON,
INDIVIDUALLY AND IN EACH CAPACITY STATED BELOW, THEREBY GRANTING TO SAID
ATTORNEYS-IN-FACT AND EACH OF THEM FULL POWER AND AUTHORITY TO DO AND PERFORM
EACH AND EVERY ACT AND THING WHATSOEVER THAT ANY OF THEM MAY DEEM NECESSARY OR
ADVISABLE IN ORDER TO CARRY OUT FULLY THE INTENT OF THE FOREGOING AS THE
UNDERSIGNED MIGHT OR COULD DO PERSONALLY OR IN THEIR CAPACITIES AFORESAID.
BOWNE & CO., INC.
By: ROBERT M. JOHNSON
------------------------------------
Robert M. Johnson
Chairman of the Board
and Chief Executive Officer
Dated: March 31, 1999
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
ROBERT M. JOHNSON Chairman of the Board and Chief March 29, 1999
- --------------------------------------------------- Executive Officer (and Director)
(Robert M. Johnson)
JAMES P. O'NEIL President and Chief Operating March 29, 1999
- --------------------------------------------------- Officer (and Director)
(James P. O'Neil)
DENISE K. FLETCHER Senior Vice President and Chief March 29, 1999
- --------------------------------------------------- Financial Officer
(Denise K. Fletcher)
C. CODY COLQUITT Vice President and Controller March 29, 1999
- --------------------------------------------------- (Principal Accounting Officer)
(C. Cody Colquitt)
Director March , 1999
- ---------------------------------------------------
(Robert M. Conway)
EDWARD H. MEYER Director March 29, 1999
- ---------------------------------------------------
(Edward H. Meyer)
H. MARSHALL SCHWARZ Director March 29, 1999
- ---------------------------------------------------
(H. Marshall Schwarz)
WENDELL M. SMITH Director March 29, 1999
- ---------------------------------------------------
(Wendell M. Smith)
LISA A. STANLEY Director March 29, 1999
- ---------------------------------------------------
(Lisa A. Stanley)
VINCENT TESE Director March 29, 1999
- ---------------------------------------------------
(Vincent Tese)
Director March , 1999
- ---------------------------------------------------
(Harry Wallaesa)
Director March , 1999
- ---------------------------------------------------
(Richard R. West)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE CONSOLIDATED
BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS PART OF
THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 23,801
<SECURITIES> 391
<RECEIVABLES> 200,734
<ALLOWANCES> 12,264
<INVENTORY> 30,593
<CURRENT-ASSETS> 276,064
<PP&E> 324,092
<DEPRECIATION> 157,725
<TOTAL-ASSETS> 642,298
<CURRENT-LIABILITIES> 162,500
<BONDS> 0
0
0
<COMMON> 395
<OTHER-SE> 378,424
<TOTAL-LIABILITY-AND-EQUITY> 642,298
<SALES> 847,566
<TOTAL-REVENUES> 850,444
<CGS> 487,954
<TOTAL-COSTS> 487,954
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 7,414
<INTEREST-EXPENSE> 5,492
<INCOME-PRETAX> 54,415
<INCOME-TAX> 27,288
<INCOME-CONTINUING> 27,127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,127
<EPS-PRIMARY> .74
<EPS-DILUTED> .72
</TABLE>
