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SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
For the quarterly period ended March 31, 2000
or
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
For the transition period from to
Commission File Number 1-5842
BOWNE & CO., INC.
Delaware (State or other jurisdiction of incorporation or organization) 345 Hudson Street New York, New York (Address of principal executive offices) |
13-2618477 (IRS Employer Identification Number) 10014 (Zip Code) |
(212) 924-5500
NOT APPLICABLE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
The number of shares outstanding of each of the issuers classes of common stock was 35,238,872 shares of common stock, par value $.01, outstanding as at May 12, 2000.
________________________________________________________________________________
FINANCIAL STATEMENTS
BOWNE & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended | |||||||||
March 31, | |||||||||
2000 | 1999 | ||||||||
(Unaudited) | |||||||||
(000s omitted except | |||||||||
per share amounts) | |||||||||
Net sales | $ | 285,148 | $ | 218,647 | |||||
Expenses: | |||||||||
Cost of sales | 174,669 | 135,122 | |||||||
Selling and administrative | 82,911 | 65,079 | |||||||
Depreciation | 11,259 | 9,883 | |||||||
Amortization | 3,005 | 2,890 | |||||||
271,844 | 212,974 | ||||||||
Operating income | 13,304 | 5,673 | |||||||
Interest expense | (1,357 | ) | (1,601 | ) | |||||
Other income, net | 212 | 516 | |||||||
Income before income taxes | 12,159 | 4,588 | |||||||
Income taxes | 5,898 | 2,849 | |||||||
Net income | $ | 6,261 | $ | 1,739 | |||||
Earnings per share: | |||||||||
Basic | $ | .17 | $ | .05 | |||||
Diluted | $ | .17 | $ | .05 | |||||
Dividends per share | $ | .055 | $ | .055 | |||||
See Notes to Condensed Consolidated Financial Statements.
1
BOWNE & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended | |||||||||
March 31, | |||||||||
2000 | 1999 | ||||||||
(Unaudited) | |||||||||
(000s omitted) | |||||||||
Net income | $ | 6,261 | $ | 1,739 | |||||
Foreign currency translation adjustment | (1,377 | ) | (638 | ) | |||||
Net unrealized gains arising from marketable securities during the period, after deducting taxes of $1,135 for the period ended March 31, 2000 | 1,232 | | |||||||
Comprehensive income | $ | 6,116 | $ | 1,101 | |||||
See Notes to Condensed Consolidated Financial Statements.
2
BOWNE & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, | December 31, | ||||||||||
2000 | 1999 | ||||||||||
(Unaudited) | |||||||||||
(000s omitted | |||||||||||
except share amounts) | |||||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 10,576 | $ | 30,458 | |||||||
Marketable securities | 9,933 | 7,585 | |||||||||
Trade accounts receivable, less allowance for doubtful accounts of $17,773 (2000) and $13,547 (1999) | 280,717 | 219,271 | |||||||||
Inventories | 46,372 | 29,791 | |||||||||
Prepaid expenses and other current assets | 27,173 | 22,334 | |||||||||
Total current assets | 374,771 | 309,439 | |||||||||
Property, plant and equipment, less accumulated depreciation and amortization of $202,249 (2000) and $192,757 (1999) | 168,329 | 173,293 | |||||||||
Goodwill and other intangible assets, less accumulated amortization of $27,663 (2000) and $26,244 (1999) | 180,673 | 183,846 | |||||||||
Other assets | 12,469 | 12,046 | |||||||||
Total assets | $ | 736,242 | $ | 678,624 | |||||||
LIABILITIES AND STOCKHOLDERS EQUITY | |||||||||||
Current liabilities: | |||||||||||
Current portion of long-term debt and other short-term borrowings | $ | 2,325 | $ | 2,026 | |||||||
Accounts payable | 63,745 | 56,814 | |||||||||
Employee compensation and benefits | 61,319 | 74,086 | |||||||||
Accrued expenses and other obligations | 60,274 | 60,764 | |||||||||
Total current liabilities | 187,663 | 193,690 | |||||||||
Long-term debt net of current portion | 114,691 | 47,281 | |||||||||
Deferred employee compensation and benefits | 39,333 | 34,460 | |||||||||
Total liabilities | 341,687 | 275,431 | |||||||||
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 39,618,760 shares (2000) and 39,606,810 shares (1999) | 396 | 396 | |||||||||
Additional paid-in capital | 40,665 | 40,294 | |||||||||
Retained earnings | 383,136 | 378,885 | |||||||||
Treasury stock, at cost, 3,790,381 shares (2000) and 2,693,175 shares (1999) | (29,462 | ) | (16,347 | ) | |||||||
Accumulated other comprehensive loss, net | (180 | ) | (35 | ) | |||||||
Total stockholders equity | 394,555 | 403,193 | |||||||||
Total liabilities and stockholders equity | $ | 736,242 | $ | 678,624 | |||||||
See Notes to Condensed Consolidated Financial Statements.
3
BOWNE & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended | |||||||||||
March 31, | |||||||||||
2000 | 1999 | ||||||||||
(Unaudited) | |||||||||||
(000s omitted) | |||||||||||
Cash flows from operating activities: | |||||||||||
Net income | $ | 6,261 | $ | 1,739 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation | 11,259 | 9,883 | |||||||||
Amortization | 3,005 | 2,890 | |||||||||
Changes in other assets and liabilities, net of non-cash transactions | (87,481 | ) | (28,978 | ) | |||||||
Net cash used in operating activities | (66,956 | ) | (14,466 | ) | |||||||
Cash flows from investing activities: | |||||||||||
Acquisitions of businesses, including covenants not to compete, net of cash acquired | (4,064 | ) | (2,905 | ) | |||||||
Proceeds from sale of a division | 5,000 | | |||||||||
Purchase of other investments | (1,000 | ) | | ||||||||
Proceeds from the sale of marketable securities and fixed assets | 577 | | |||||||||
Purchase of property, plant and equipment | (6,019 | ) | (13,207 | ) | |||||||
Net cash used in investing activities | (5,506 | ) | (16,112 | ) | |||||||
Cash flows from financing activities: | |||||||||||
Proceeds from borrowings | 85,792 | 46,172 | |||||||||
Payment of debt | (18,077 | ) | (21,388 | ) | |||||||
Proceeds from stock options exercised | 113 | 93 | |||||||||
Purchase of treasury stock | (13,238 | ) | | ||||||||
Payment of dividends | (2,010 | ) | (2,025 | ) | |||||||
Net cash provided by financing activities | 52,580 | 22,852 | |||||||||
Decrease in cash and cash equivalents | $ | (19,882 | ) | $ | (7,726 | ) | |||||
See Notes to Condensed Consolidated Financial Statements.
4
BOWNE & CO., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The financial information as of March 31, 2000 and for the three month periods ended March 31, 2000 and 1999 has been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the consolidated financial position, results of operations and of cash flows for each period presented have been made on a consistent basis. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the Companys annual report and consolidated financial statements. Operating results for the three months ended March 31, 2000 may not be indicative of the results that may be expected for the full year.
Note 2. Inventories of $46,372 at March 31, 2000 include raw materials of $13,065 and work-in-process of $33,307. At December 31, 1999, inventories of $29,791 included raw materials of $8,065 and work-in-process of $21,726.
Note 3. Net income per share is calculated for basic earnings per share based on the weighted-average number of shares outstanding, and for diluted earnings per share after adjustment for the assumed conversion of all potentially dilutive securities.
Three Months Ended | ||||||||
March 31, | ||||||||
2000 | 1999 | |||||||
Basic shares | 36,461,778 | 36,778,161 | ||||||
Diluted shares | 37,317,648 | 37,529,011 |
Note 4. The Company classifies its investment in marketable securities as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders equity. At March 31, 2000, the fair value of marketable securities exceeded cost by $8,930. At December 31, 1999, the fair value of marketable securities exceeded cost by $6,563. The net unrealized gains, after deferred taxes, were $4,645 and $3,413 at March 31, 2000 and December 31, 1999, respectively.
The foreign currency translation adjustment was $4,825 and $3,448 at March 31, 2000 and December 31, 1999, respectively.
Note 5. During the first quarter of 2000, the Company acquired Record Technologies, Inc. (RTI), a document imaging, database and consulting company that provides litigation imaging for leading law firms. It was acquired for approximately $2.5 million and became part of the outsourcing segment.
In addition, the Company recorded approximately $1.4 million as goodwill in connection with acquiring the remaining interests of certain previous acquisitions in the Internet consulting and development segment.
During the first quarter of 2000, the Company sold the net assets of one of its divisions in the Internet segment for approximately $5 million. The proceeds approximated the net book value of the assets, comprised primarily of goodwill and other intangible assets.
Note 6. At March 31, 2000, the Company had borrowings of $113 million under its $300 million unsecured five year revolving credit agreement, with a blended interest rate of approximately 6.4%. At December 31, 1999, the Company had borrowings of $45 million under this agreement.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7. Segment Information
The Company continues to focus its business on Empowering Your Information, a term used to define the management, repurposing and distribution of a clients information. The Company manages and repurposes information for distribution by digital, Internet or paper media. It manages documents on the clients site or at its own facilities.
The Companys operations are classified into four reportable business segments: financial printing, outsourcing, globalization and Internet consulting and development. 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. | |
Globalization translation, localization and content reengineering of software and technology products. | |
Internet Consulting and Development integrated Internet applications primarily for the financial services sector. |
Information regarding 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 interest, taxes, depreciation and amortization of intangible assets (EBITDA). The Company also uses income before interest, taxes, and amortization expenses (EBITA) as a measure of performance; therefore, this information is also presented. The Company manages income taxes on a global basis. Intersegment sales are included at prevailing market prices. Segment performance is evaluated exclusive of the disposal of business units, other expenses, and other income.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three Months Ended | ||||||||
March 31, | ||||||||
2000 | 1999 | |||||||
(000s omitted) | ||||||||
Segment sales: | ||||||||
Financial printing | $ | 224,700 | $ | 166,469 | ||||
Outsourcing | 45,304 | 36,263 | ||||||
Globalization | 12,719 | 12,920 | ||||||
Internet consulting and development | 4,395 | 3,536 | ||||||
287,118 | 219,188 | |||||||
Elimination of intersegment sales | (1,970 | ) | (541 | ) | ||||
Sales to external customers | $ | 285,148 | $ | 218,647 | ||||
EBITDA: | ||||||||
Financial printing | $ | 34,208 | $ | 21,459 | ||||
Outsourcing | 1,334 | 1,492 | ||||||
Globalization | (3,290 | ) | (1,763 | ) | ||||
Internet consulting and development | (4,684 | ) | (2,742 | ) | ||||
Other | 212 | 516 | ||||||
$ | 27,780 | $ | 18,962 | |||||
Depreciation Expense: | ||||||||
Financial printing | $ | 8,358 | $ | 7,099 | ||||
Outsourcing | 1,596 | 1,664 | ||||||
Globalization | 763 | 792 | ||||||
Internet consulting and development | 542 | 328 | ||||||
$ | 11,259 | $ | 9,883 | |||||
EBITA: | ||||||||
Financial printing | $ | 25,850 | $ | 14,360 | ||||
Outsourcing | (262 | ) | (172 | ) | ||||
Globalization | (4,053 | ) | (2,555 | ) | ||||
Internet consulting and development | (5,226 | ) | (3,070 | ) | ||||
Other | 212 | 516 | ||||||
$ | 16,521 | $ | 9,079 | |||||
Amortization expense | (3,005 | ) | (2,890 | ) | ||||
Interest expense | (1,357 | ) | (1,601 | ) | ||||
Income before income taxes | $ | 12,159 | $ | 4,588 | ||||
Intersegment sales: | ||||||||
Financial printing | $ | 188 | $ | 4 | ||||
Outsourcing | 711 | 379 | ||||||
Globalization | | 12 | ||||||
Internet consulting and development | 1,071 | 146 | ||||||
$ | 1,970 | $ | 541 | |||||
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BOWNE & CO., INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
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 to its business and that could cause actual results to differ from the Companys 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 Companys actual results and could cause the Companys 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 Companys 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 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 or other solution offerings. |
Liquidity and Capital Resources
The Companys financial position and liquidity continues to be strong. At March 31, 2000, the Company had a working capital ratio of 2.0 to 1 and working capital of $187,108, compared to a ratio of 1.6 to 1 and working capital of $115,749 at December 31, 1999. The increase in working capital is attributed to the higher levels of accounts receivable and inventory resulting from a large volume of activity in the latter part of the quarter.
Cash Flows
The Company had net cash used in operating activities of $66,956 and $14,466 for the three months ended March 31, 2000, and 1999, respectively. This difference reflects larger increases in certain working capital (primarily accounts receivable and inventory). The increase in accounts receivable and inventory is primarily attributable to an increase in sales related to a large volume of activity in the latter part of the quarter.
Net cash used in investing activities was $5,506 and $16,112 for the three months ended March 31, 2000 and 1999, respectively. The decrease was primarily the result of the timing of capital expenditures which were lower in the first quarter of 2000, compared with 1999.
8
Net cash provided by financing activities was $52,580 and $22,852 for the three months ended March 31, 2000 and 1999, respectively. This increase was primarily a result of the higher net borrowings in the current year primarily used to fund a higher level of working capital, offset by cash used for the stock repurchase program.
Foreign Exchange
The Company derives a portion of its revenues from various foreign sources. To date, the Company has not experienced significant gains or losses as a result of fluctuations in the exchange rates of the related foreign currencies. However, as the Company expands its global presence, fluctuations may become significant. 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 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring recognition of those instruments as assets and liabilities and to measure them at fair value.
In June, 1999, the FASB issued Statement of Financial Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging Activities Deferral of the Effective date of SFAS No. 133, which amends SFAS No. 133 to be effective for all fiscal years beginning after June 15, 2000. The adoption of this pronouncement is not expected to have a material effect on the Companys 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 is in the process of implementing a global financial software solution as part of its overall strategy to standardize and improve its financial reporting systems globally. This system has the capability of being able to report, pay, and receive currencies using the euro as its functional currency. The costs associated with the euro conversion are anticipated to be minimal since this functionality is part of a delivered system. Thus, the cost of conversion should not have a material effect on the Company.
Results of Operations
Historically, the Company has primarily provided financial 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 the global market leader in this field by combining superior customer service with appropriate new technologies to manage, repurpose and distribute a clients information anywhere in the world. The Companys goal is to become the empowerer of its clients information to global companies. The Company is investing in building its resources outside the United States to enable it to provide worldwide information empowerment solutions to its global clients. While the Company is expanding and integrating these services outside the United States, these operations are anticipated to operate at a loss. We expect to continue to invest outside the United States as the Company builds its information solution offerings.
Management evaluates the performances 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
9
Management plans to continue to invest in each of its four operating segments. The performance of each segment is discussed below.
Quarter Ended March 31, 2000 Compared to Quarter Ended March 31, 1999
Financial Printing
Sales increased $58,231, or 35%. The demand for financial printing services resulting from the strong capital markets during the first quarter of 2000 contributed significantly to the increase in sales. Transactional financial printing had increased revenues of $32,833 or 41%, while mutual fund printing grew $7,791 or 25%, and corporate reporting printing revenues increased $7,763, or 28%. These classes of service account for $48,387 of the total increase in the segments revenues.
Gross margin contributed by this segment increased by $26,609, while the margin percentage grew by approximately one percentage point to 45%.
Selling and administrative expenses increased $13,860, or 27% to $65,708. The increase is attributed to costs directly resulting from increased sales, such as selling and certain administrative expenses.
EBITDA increased $12,749 to $34,208 as a result of the foregoing.
Outsourcing
Sales increased $9,041, or 25%. This increase resulted from new customers as well as increased volume with existing customers.
Gross margin from this segment increased $945 while the margin percentage decreased by two percentage points to 18%. The decrease in margin percentage is attributed in part to contract renewals at lower margin levels due to competitive pricing pressure during the latter part of 1999.
Selling and administrative expenses increased $1,103 or 19%, but as a percent of sales actually decreased by approximately one percentage point to 15%.
EBITDA from this segment decreased by $158 to $1,334.
Globalization
Sales decreased $201, or 2%. Sales were weaker due in part to certain projects which were delayed by customers.
EBITDA decreased $1,527 due to increased cost of sales and increased selling and administrative expenses. These costs increased as a result of a rise in productive capacity that was underutilized because of unexpected delays in certain customer projects.
Internet Consulting and Development
Sales increased $859, or 24%. Several new projects during this quarter contributed to the increase.
EBITDA decreased $1,942 as a result of increases in cost of sales and selling and administrative expenses. The increase in cost of sales reflects the additional expenditures related to expanding our professional staff that is expected to be utilized as customer demand increases. Administrative expenses such as hiring costs and salaries increased as the management team and infrastructure were enhanced.
10
Summary
Net sales increased $66,501, or approximately 30%, to $285,148. The increase was primarily attributable to growth in financial printing and outsourcing. There was a $26,954 increase in gross margin, and the gross margin percentage increased approximately one percentage point to 39%. This increase was primarily attributable to financial printing.
Selling and administrative expenses increased by $17,832, or 27%, to $82,911. This increase was due to the selling and administrative costs related to the increase in sales. As a percentage of sales, these expenses decreased approximately one percentage point to 29%.
Depreciation increased $1,376, or 14%, primarily due to the expansion of facilities and the acquisition of equipment, including computer systems. Amortization increased $115, or 4%.
Interest expense decreased $244 primarily as a result of lower average borrowings under the revolving credit agreement in the current years quarter.
Other income decreased by $304 primarily due to higher losses on foreign currency than were realized in the prior year.
The effective overall tax rate for the quarter decreased from 62% to 49% due to increased non-deductible expenses (primarily amortization) as a smaller percentage of increased pre-tax income in the first quarter of 2000 compared to the first quarter of 1999. The income tax rate on pre-tax income before amortization expense was 38.9% and 38.1% for the periods ended March 31, 2000 and 1999, respectively.
As a result of the foregoing, net income was $6,261 as compared to $1,739 for the same period last year.
Quantitative and Qualitative Disclosure about Market Risk
The Companys 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.
To date, the Company has not experienced significant gains or losses as a result of fluctuations in the exchange rates of the related foreign currencies. The Company continues to address the risks posed by exchange rate fluctuations.
11
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K for the quarter ended March 31, 2000.
II-1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BOWNE & CO., INC. | |
/s/ ROBERT M. JOHNSON | |
|
|
Robert M. Johnson | |
(Chairman of the Board (and Director), | |
Chief Executive Officer, and President) |
Date: May 15, 2000
/s/ DENISE K. FLETCHER | |
|
|
Denise K. Fletcher | |
(Senior Vice President, Chief | |
Financial Officer) |
Date: May 15, 2000
/s/ C. CODY COLQUITT | |
|
|
C. Cody Colquitt | |
(Vice President and Controller) | |
(Principal Accounting Officer) |
Date: May 15, 2000
II-2
|