UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended Commission file number
September 28, 1996 1-3246
BELL & HOWELL OPERATING COMPANY
(Exact Name of Registrant as Specified in its Charter)
Delaware 36-3580106
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5215 Old Orchard Road, Skokie, Illinois 60077-1076
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (847) 470-7100
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
--- ---
The number of shares of the Registrant's Common Stock, $.01
par value, outstanding as of November 11, 1996 was 2,955.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Statements of Operations for
the Thirteen and Thirty-Nine Weeks Ended
September 30, 1995 and September 28, 1996 .... 1
Consolidated Balance Sheets - Assets at
December 30, 1995 and September 28, 1996 ..... 2
Consolidated Balance Sheets - Liabilities
and Shareholders' Equity at December 30, 1995
and September 28, 1996 ....................... 3
Consolidated Statements of Cash Flows
for the Thirty-Nine Weeks Ended September 30, 1995
and September 28, 1996 ........................ 4
Notes to the Consolidated Financial
Statements ................................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations .................................... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .............................. 18
Item 6. Exhibits and Reports on Form 8-K ............... 18
SIGNATURE PAGE ............................................ 19
<PAGE>
<TABLE>
Bell & Howell Operating Company and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)
<CAPTION>
Thirteen Weeks Thirty-Nine Weeks
Ended Ended
---------------------- ----------------------
Sept. 30, Sept. 28, Sept. 30, Sept. 28,
1995 1996 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 203,009 $ 218,840 $ 580,193 $ 633,905
Operating costs and expenses:
Cost of sales 127,958 140,995 369,437 410,407
Research and development 7,704 9,492 22,363 25,946
Selling and administrative 48,432 47,910 141,604 145,310
-------- -------- -------- -------
Total operating costs and expenses 184,094 198,397 533,404 581,663
Operating income 18,915 20,443 46,789 52,242
Net interest expense:
Interest (income) (3,151) (5,389) (10,502) (13,603)
Interest expense 9,397 10,041 31,472 28,534
-------- -------- -------- --------
Net interest expense 6,246 4,652 20,970 14,931
Earnings before income taxes
and extraordinary items 12,669 15,791 25,819 37,311
Income tax expense 2,828 5,137 3,469 8,868
-------- -------- -------- --------
Earnings before extraordinary items 9,841 10,654 22,350 28,443
Extraordinary losses -- -- (3,219) (1,088)
-------- -------- -------- --------
Net earnings $ 9,841 $ 10,654 $ 19,131 $ 27,355
Dividends on preferred stock 6,070 5,712 17,743 18,603
-------- -------- -------- --------
Net earnings applicable to common stock $ 3,771 $ 4,942 $ 1,388 $ 8,752
======== ======== ======== ========
Net earnings per common share:
Earnings before extraordinary items $ 1,276 $ 1,672 $ 1,560 $ 3,330
Extraordinary losses -- -- (1,090) (368)
-------- -------- -------- --------
Net earnings per common share $ 1,276 $ 1,672 $ 470 $ 2,962
======== ======== ======== ========
Average common shares outstanding: 2,955 2,955 2,954 2,955
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these statements.
-1-
</TABLE>
<PAGE>
<TABLE>
Bell & Howell Operating Company and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
Assets
<CAPTION>
December 30, September 28,
1995 1996
------------ ------------
(Audited) (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,051 $ 6,365
Accounts receivable, less allowance for
doubtful accounts of $4,406 and $6,002,
respectively 181,247 177,825
Inventory 105,918 148,426
Other current assets 11,768 10,750
-------- --------
Total current assets 305,984 343,366
Property, plant and equipment, at cost 316,036 353,388
Accumulated depreciation (171,057) (200,444)
-------- --------
Net property, plant and equipment 144,979 152,944
Long-term receivables 57,062 51,056
Goodwill, net of accumulated amortization 133,422 187,868
Other assets 35,497 37,317
-------- --------
Total assets $ 676,944 $ 772,551
======== ========
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these statements.
-2-
</TABLE>
<PAGE>
<TABLE>
Bell & Howell Operating Company and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
Liabilities and Shareholders' Equity
<CAPTION>
December 30, September 28,
1995 1996
------------ -------------
(Audited) (Unaudited)
<S> <C> <C>
Current liabilities:
Notes payable $ 14,939 $ 9,897
Current maturities of long-term debt 14,707 1,441
Accounts payable 65,444 65,138
Accrued expenses 83,846 81,021
Deferred income 176,351 166,136
Accrued income taxes 6,539 5,321
-------- --------
Total current liabilities 361,826 328,954
Long-term liabilities:
Long-term debt 243,300 375,039
Other liabilities 44,627 49,842
-------- --------
Total long-term liabilities 287,927 424,881
Shareholders' equity:
$121.33 Intercompany Preferred Stock, $.01 par value,
208,059 shares issued and outstanding at
December 30, 1995 and 199,636 shares issued and
outstanding at September 28, 1996 2 2
Common Stock, $.01 par value, 2,955 shares
issued and outstanding at December 30, 1995, and
September 28, 1996 -- --
Capital surplus 152,485 117,533
Retained earnings (deficit) (126,484) (99,129)
Cumulative foreign exchange translation adjustments 1,188 310
-------- --------
Total shareholders' equity 27,191 18,716
Commitments and contingencies -- --
-------- --------
Total liabilities and shareholders' equity $ 676,944 $ 772,551
======== ========
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these statements.
-3-
</TABLE>
<PAGE>
<TABLE>
Bell & Howell Operating Company and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<CAPTION>
Thirty-Nine Weeks
Ended
-----------------------------
Sept. 30, Sept. 28,
1995 1996
-------- --------
<S> <C> <C>
Operating activities:
Net earnings $ 19,131 $ 27,355
Depreciation and amortization 31,500 34,480
Changes in operating assets and liabilities:
Accounts receivable (2,972) 4,840
Inventory (26,678) (43,071)
Other current assets 1,326 1,688
Long-term receivables (11,780) 6,006
Income taxes (207) (756)
Accounts payable 1,701 (981)
Accrued expenses (11,572) (3,514)
Deferred income and other long-term liabilities 25,916 (8,207)
Other, net (910) (2,239)
------- -------
Net cash provided by operating activities 25,455 15,601
Investing activities:
Expenditures for property, plant and equipment (30,734) (30,440)
Acquisitions (2,438) (62,568)
------- -------
Net cash used by investing activities (33,172) (93,008)
Financing activities:
Proceeds from short-term debt 13,199 11,409
Repayment of short-term debt (13,919) (16,058)
Proceeds from long-term debt 50,887 235,384
Repayment of long-term debt (120,922) (118,232)
Proceeds from issuance of Common Stock 71,660 --
Redemption of Intercompany Preferred Stock -- (35,795)
------- -------
Net cash provided by financing activities 905 76,708
Effect of exchange rate changes on cash (476) 13
------- -------
Increase (decrease) in cash and cash equivalents (7,288) (686)
Cash and cash equivalents, beginning of period 16,128 7,051
------- -------
Cash and cash equivalents, end of period $ 8,840 $ 6,365
======= =======
Supplemental schedule of non-cash activities:
Preferred dividends paid-in-kind $ 17,743 $ 18,603
======= =======
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these statements.
-4-
</TABLE>
<PAGE>
Bell & Howell Operating Company and Subsidiaries
Notes to the Consolidated Financial Statements
(Dollars in thousands)
Note 1 - Basis of Presentation
Bell & Howell Operating Company is a wholly-owned subsidiary
of Bell & Howell Company, which is a holding company, the primary
assets of which are all of the issued and outstanding shares of
Common Stock and the Intercompany Preferred Stock of Bell &
Howell Operating Company. Bell & Howell Company conducts
business through Bell & Howell Operating Company and has no
operations of its own.
The consolidated financial statements include the accounts
of Bell & Howell Operating Company and its subsidiaries
(collectively the "Company") and have been prepared without
independent audit, except for the balance sheet data as of
December 30, 1995. Certain prior year amounts have been
reclassified to conform with the 1996 presentation.
In the opinion of the Company's management, the consolidated
financial statements include all adjustments necessary to present
fairly the information required to be set forth therein, and such
adjustments are of a normal and recurring nature. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
The Company's management believes, however, that the disclosures
are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with the
Consolidated Financial Statements and the notes thereto included
in Bell & Howell Operating Company's annual report for the year
ended December 30, 1995.
-5-
<PAGE>
Note 2 - Significant Accounting Policies
Net Earnings per Common Share. Net earnings per common
share are determined by dividing net earnings, after deducting
dividends on preferred stock, by the weighted average number of
common shares outstanding during the period.
Inventory. The Company uses the last-in, first-out (LIFO)
method of valuing the majority of its domestic inventory. Use of
the LIFO method is predicated on a determination of inventory
quantities and costs at the end of each fiscal year, and
therefore interim determinations of LIFO inventory values and
results of operations are by necessity based on management's
estimates of expected year-end inventory quantities and costs.
The excess of replacement cost over the LIFO values of inventory
was $4,413 at December 30, 1995 and September 28, 1996.
Note 3 - Capital Contribution
In May 1995, the Company's parent made a capital
contribution in the amount of $71,660, the net proceeds of which
were used to retire $50,000 of the 10 3/4% Senior Subordinated
Notes (and associated debt repurchase premium) and to prepay
$17,628 of term loans under the Credit Agreement.
Note 4 - Credit/Lease Receivable Sales Agreements
In April 1996, the Company amended its Credit Agreement.
Under the terms of the amendment, the Company increased its
revolving credit facility to $275,000, reduced its interest rate
and extended the maturity on all outstanding Credit Agreement
borrowings (to April 2001). In September 1996, the Company
further amended its Credit Agreement to increase the revolving
credit facility to $350,000.
In May 1996, Bell & Howell Acceptance Corporation ("BHAC"),
the Company's financing subsidiary, entered into a new receivable
sales agreement under which the buyer commits to purchase new
lease receivables. There is no recourse to BHAC or to the
Company after the sale of lease receivables pursuant to the
agreement.
-6-
<PAGE>
Note 5 - Extraordinary Losses
The extraordinary loss of $1,088 ($1,700 pretax) in 1996 was
comprised of the debt repurchase premium and write-off of
unamortized debt issuance costs associated with the retirement of
$17,920 of the 10 3/4% Senior Subordinated Notes, which were
redeemed with proceeds from the amended Credit Agreement.
The extraordinary losses of $3,219 ($5,030 pretax) in 1995
were comprised of the debt repurchase premium and write-off of
unamortized debt issuance costs associated with the retirement
of $50,000 of the 10 3/4% Senior Subordinated Notes and the
write-off of unamortized debt issuance costs associated with the
prepayment of $17,628 of term loans under the Credit Agreement,
both of which reflect the application of the net proceeds from
the capital contribution by the Company's parent.
Note 6 - Subsidiary Guarantors
The 9 1/4% Senior Notes, the 10 3/4% Senior Subordinated
Notes, and the Credit Agreement are jointly and severally
guaranteed by each direct domestic operating subsidiary of the
Company (except for BHAC) (the "Guarantors"). Such guarantees
are irrevocable and unconditional, and represent a substantial
portion of each Guarantor's net worth.
The condensed consolidating information which follows
presents:
1. Condensed consolidating balance sheets at September 28, 1996
and December 30, 1995 and related condensed consolidating
statements of operations and cash flows for the thirty-nine
weeks ended September 28, 1996 and September 30, 1995.
Investments in subsidiaries are accounted for by their
parent companies on the cost basis for purposes of the
condensed consolidating income statements, and
therefore, earnings of subsidiaries are not reflected
in the respective parent's net earnings.
2. Elimination entries necessary to consolidate Bell & Howell
Operating Company and its subsidiaries.
-7-
<PAGE>
<TABLE>
CONDENSED CONSOLIDATING BALANCE SHEET
At September 28, 1996
<CAPTION>
ASSETS
Parent Combined Non-
Consolidated Eliminations Company Guarantors Guarantors
------------ ------------ ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 6,365 $ -- $ 1,462 $ 1,286 $ 3,617
Accounts receivable 177,825 -- 46 134,066 43,713
Inventory 148,426 (1,162) -- 111,992 37,596
Other current assets 10,750 -- 1,448 6,709 2,593
------- -------- ------- ------- -------
Total current assets 343,366 (1,162) 2,956 254,053 87,519
Investment in subsidiaries -- 72,929 (72,929) -- --
Intercompany accounts -- -- 149,617 (127,304) (22,313)
Net property, plant &
equipment 152,944 -- 1,673 140,994 10,277
Other non-current assets 276,241 (362,375) 376,899 217,372 44,345
------- -------- ------- ------- -------
Total assets $772,551 $(290,608) $458,216 $485,115 $119,828
======= ======== ======= ======= =======
</TABLE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
Parent Combined Non-
Consolidated Eliminations Company Guarantors Guarantors
------------ ------------ ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Liabilities:
Current liabilities $ 328,954 $ -- $ 21,602 $ 249,120 $ 58,232
Long-term debt 375,039 (362,373) 370,780 362,426 4,206
Other liabilities 49,842 -- 47,424 1,649 769
-------- -------- -------- -------- -------
Total liabilities 753,835 (362,373) 439,806 613,195 63,207
Shareholders' equity (deficit):
Intercompany Preferred
Stock 2 -- 2 -- --
Capital surplus 117,533 (179,319) 117,537 139,637 39,678
Retained earnings (deficit) (99,129) 251,084 (99,129) (267,717) 16,633
Cumulative foreign exchange
translation adjustments 310 -- -- -- 310
-------- -------- -------- -------- -------
Total shareholders' equity
(deficit) 18,716 71,765 18,410 (128,080) 56,621
-------- -------- -------- -------- -------
Total liabilities &
shareholders' equity
(deficit) $ 772,551 $(290,608) $ 458,216 $ 485,115 $119,828
======== ======== ======== ======== =======
-8-
</TABLE>
<PAGE>
<TABLE>
CONDENSED CONSOLIDATING BALANCE SHEET
At December 30, 1995
<CAPTION>
ASSETS
Parent Combined Non-
Consolidated Eliminations Company Guarantors Guarantors
------------ ------------ ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 7,051 $ -- $ 2,518 $ 1,857 $ 2,676
Accounts receivable 181,247 -- 220 125,062 55,965
Inventory 105,918 (1,163) -- 75,637 31,444
Other current assets 11,768 -- 998 8,525 2,245
-------- -------- -------- -------- --------
Total current assets 305,984 (1,163) 3,736 211,081 92,330
Investment in subsidiaries -- 105,198 (105,218) 20 --
Intercompany accounts -- -- 63,429 (32,910) (30,519)
Net property, plant &
equipment 144,979 -- 1,805 132,350 10,824
Other non-current assets 225,981 (362,373) 377,465 161,277 49,612
-------- -------- -------- -------- --------
Total assets $ 676,944 $(258,338) $ 341,217 $ 471,818 $ 122,247
======== ======== ======== ======== ========
</TABLE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
Parent Combined Non-
Consolidated Eliminations Company Guarantors Guarantors
------------ ------------ ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Liabilities:
Current liabilities $ 361,826 $ -- $ 33,794 $ 265,782 $ 62,250
Long-term debt 243,300 (362,373) 237,937 362,465 5,271
Other liabilities 44,627 -- 43,483 343 801
-------- -------- -------- -------- --------
Total liabilities 649,753 (362,373) 315,214 628,590 68,322
Shareholders' equity (deficit):
Intercompany Preferred
Stock 2 -- 2 -- --
Capital surplus 152,485 (164,436) 152,485 124,738 39,698
Retained earnings (deficit) (126,484) 268,471 (126,484) (281,510) 13,039
Cumulative foreign exchange
translation adjustments 1,188 -- -- -- 1,188
-------- -------- -------- -------- --------
Total shareholders' equity
(deficit) 27,191 104,035 26,003 (156,772) 53,925
-------- -------- -------- -------- --------
Total liabilities &
shareholders' equity
(deficit) $ 676,944 $(258,338) $ 341,217 $ 471,818 $ 122,247
======== ======== ======== ======== ========
</TABLE>
-9-
<PAGE>
<TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Thirty-Nine Weeks Ended September 28, 1996
<CAPTION>
Parent Combined Non-
Consolidated Eliminations Company Guarantors Guarantors
------------ ------------ ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $633,905 $(33,199) $ -- $542,889 $124,215
Cost of sales 410,407 (33,199) -- 356,412 87,194
Operating expenses 171,256 -- (7,340) 146,572 32,024
Net interest expense
(income) 14,931 -- (9,720) 26,112 (1,461)
------- ------- ------ ------- -------Earnings before income
Earnings before income
taxes and extraordinary item 37,311 -- 17,060 13,793 6,458
Income tax expense 8,868 -- 6,003 -- 2,865
------- ------- ------ ------- -------
Earnings before
extraordinary item 28,443 -- 11,057 13,793 3,593
Extraordinary loss (1,088) -- (1,088) -- --
------- ------- ------ ------- -------
Net earnings $ 27,355 $ -- $ 9,969 $ 13,793 $ 3,593
======= ======= ====== ======== =======
</TABLE>
<TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Thirty-Nine Weeks Ended September 30, 1995
<CAPTION>
Parent Combined Non-
Consolidated Eliminations Company Guarantors Guarantors
------------ ------------ ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $580,193 $(34,071) $ -- $485,090 $129,174
Cost of sales 369,437 (34,071) -- 313,866 89,642
Operating expenses 163,967 -- (8,142) 135,921 36,188
Net interest expense
(income) 20,970 -- (5,492) 29,204 (2,742)
------- ------- ------- ------- -------
Earnings before income
taxes and extraordinary items 25,819 -- 13,634 6,099 6,086
Income tax expense 3,469 -- 1,430 -- 2,039
------- ------- ------- ------- -------
Earnings before
extraordinary items 22,350 -- 12,204 6,099 4,047
Extraordinary losses (3,219) -- (3,219) -- --
------- ------- ------- ------- -------
Net earnings $ 19,131 $ -- $ 8,985 $ 6,099 $ 4,047
======= ======= ======= ======= =======
</TABLE>
-10-
<PAGE>
<TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Thirty-Nine Weeks Ended September 28, 1996
<CAPTION>
Parent Combined Non-
Consolidated Eliminations Company Guarantors Guarantors
------------ ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net cash provided (used)
by operating activities $ 15,601 $ -- $(82,650) $ 90,720 $ 7,531
------- ------- ------- ------- -------
Investing activities:
Expenditures for property,
plant and equipment (30,440) -- (265) (28,723) (1,452)
Acquisitions (62,568) -- -- (62,568) --
------- ------- ------- ------- -------
Net cash used by
investing activities (93,008) -- (265) (91,291) (1,452)
------- ------- ------- ------- -------
Financing activities:
Net short-term borrowings (4,649) -- -- -- (4,649)
Net long-term borrowings 117,152 -- 117,654 -- (502)
Redemption of Intercompany
Preferred Stock (35,795) -- (35,795) -- --
------- ------- ------- ------- -------
Net cash provided (used)
by financing activities 76,708 -- 81,859 -- (5,151)
------- ------- ------- ------- -------
Effect of exchange rate
changes on cash 13 -- -- -- 13
------- ------- ------- ------- -------
Increase (decrease) in cash
and cash equivalents $ (686) $ -- $ (1,056) $ (571) $ 941
======= ======= ======= ======= ======
</TABLE>
-11-
<PAGE>
<TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Thirty-Nine Weeks Ended September 30, 1995
<CAPTION>
Parent Combined Non-
Consolidated Eliminations Company Guarantors Guarantors
------------ ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net cash provided (used)
by operating activities $ 25,455 $ -- $ (10,608) $ 32,235 $ 3,828
------- ------- ------- ------- -------
Investing activities:
Expenditures for property,
plant and equipment (30,734) -- (123) (29,000) (1,611)
Acquisitions (2,438) -- -- (2,438) --
------- ------- ------- -------- -------
Net cash used by
investing activities (33,172) -- (123) (31,438) (1,611)
------- ------- ------- ------- -------
Financing activities:
Net short-term borrowings (720) -- -- -- (720)
Net long-term borrowings (70,035) -- (69,762) -- (273)
Proceeds from issuance of
Common Stock 71,660 -- 71,660 -- --
------- ------- ------- ------- -------
Net cash provided (used)
by financing activities 905 -- 1,898 -- (993)
------- ------- ------- ------- -------
Effect of exchange rate
changes on cash (476) -- -- -- (476)
------- ------- ------- ------- -------
Increase (decrease) in cash
and cash equivalents $ (7,288) $ -- $ (8,833) $ 797 $ 748
======= ======= ======= ======= =======
-12-
</TABLE>
<PAGE>
Item 2.
- ------
Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
This section should be read in conjunction with the
Consolidated Financial Statements of Bell & Howell Operating
Company and Subsidiaries (collectively the "Company") and the
notes thereto included in the annual report for the year ended
December 30, 1995.
Results of Operations
- ---------------------
Nine Months Year-to-Date 1996 Compared to Nine Months
Year-to-Date 1995
- -----------------------------------------------------
The Company's net sales increased $53.7 million, or 9%, to
$633.9 million in the first nine months of 1996.
Information Access net sales increased $11.9 million, or 4%,
to $332.0 million in the first nine months of 1996. Within the
Information Access businesses, the Company focuses on providing
its customers solutions to their information access needs.
UMI focuses on the education and library market as well
as the business desktop user market. PSC focuses on the
transportation/vehicle market. Information Management's primary
focus is on the financial services market, while additionally
supplying technologically advanced digital paper scanners to
other markets. UMI's net sales increased $5.6 million, or 5%, to
$122.9 million due to a growing electronic subscription base,
which continued to reflect high renewal rates on existing
products and new product placements. Sales of electronic content
increased 20% over the prior year as customers increasingly
demand electronic information solutions while they are evaluating
the rapid changes in technology and the evolution of on-line
-13-
<PAGE>
delivery. Net sales of microfilm and paper products were
virtually constant with the prior year as increased pricing
offset lower unit volumes, as certain customers migrated to these
electronic product offerings. PSC's net sales increased $8.0
million, or 12%, to $74.9 million due to strong replacement and
add-on/upgrade sales related to previously placed electronic
parts catalogs to automotive dealerships, and increased sales of
dealer management systems and electronic parts catalogs to
powersports dealerships. Information Management net sales
decreased $1.7 million, or 1%, to $134.2 million as increased
worldwide sales of digital paper scanners were more than offset
by lower microfilm product sales as a result of a sales force
reduction (reflecting a shift to directly serving only the
financial services market in the U.S.).
Mail-Processing net sales increased $41.8 million, or 16%,
to $301.9 million in the first nine months of 1996. Sales of
commercial mail processing systems increased $24.2 million or
11%, to $245.5 million reflecting strong market demand for
inserting and sorting systems both domestically and abroad, and
increased service revenue (due to both an expanding customer
service base and improved pricing). Sales of commercial sorting
equipment (which represent 13% of new equipment sales) increased
$8.8 million, or 93%, to $18.3 million in the first nine months
of 1996 as the recently approved U.S. Postal Service guidelines
governing the operating requirements to qualify for incentives to
bar code and presort mail (which became effective July 1, 1996)
have created a more favorable environment for customers to invest
in advanced sorting automation technology. Sales of customized
mail automation equipment/services to governmental postal
authorities increased $17.6 million, or 45%, to $56.4 million
primarily as a result of a production contract for the German
Postal service.
The Company's cost of sales increased $41.0 million, or 11%,
to $410.4 million in the first nine months of 1996, with the
gross profit (net sales less cost of sales) percentage decreasing
by 1.0 percentage point to 35.3% in the current year. The lower
gross profit rate in 1996 resulted from a shift in sales mix (as
the growth rate in lower gross margin percentage Mail Processing
Systems revenues exceeded the growth rate in higher gross margin
percentage Information Access revenues), which more than offsets
the impact of improved manufacturing productivity and increased
pricing.
-14-
<PAGE>
Research and development expense increased $3.6 million, or
16%, to $25.9 million in the first nine months of 1996 as the
Company continued to increase its investment in new product
offerings. Such increase primarily related to increased
investment to develop higher technology mail processing
systems/software and to develop enhanced versions of digital
paper scanners. The Company has continually positioned itself to
take advantage of new product/technology opportunities (with an
increased emphasis on software solutions and electronic products)
in each of its businesses.
Selling and administrative expense increased $3.7 million,
or 3%, to $145.3 million in the first nine months of 1996
reflecting the Company's increased investment in sales and
marketing resources as well as increased distribution costs
associated with the higher sales volumes. The ratio of selling
and administrative expense to net sales of 22.9% in the first
nine months of 1996 improved by 1.5 percentage points versus the
prior year as a result of various expense leveraging initiatives.
EBITDA (defined as operating income plus depreciation and
amortization) increased $9.9 million, or 13%, to $85.1 million
in the first nine months of 1996 resulting from the higher sales
level and leveraged operating costs and expenses. Operating
income increased $5.5 million, or 12%, to $52.2 million in the
first nine months of 1996.
Information Access EBITDA increased $3.0 million, or 5%,
to $65.7 million in the first nine months of 1996. This increase
resulted from the higher sales volumes, an improved gross
profit percentage reflecting a sales mix emphasizing the
Company's more profitable products (i.e., a greater proportion of
revenues related to software and publishing and a lower
proportion of revenues related to the sale of hardware), and the
profitability improvement resulting from the domestic refocusing
of the Information Management sales force on the financial
services market. Information Access operating income of $39.3
million in the first nine months of 1996 was constant with the
prior year as the EBITDA increase was offset by both higher
depreciation cost on UMI's product capital and goodwill
amortization related to two acquisitions in 1996.
-15-
<PAGE>
Mail-Processing EBITDA increased $7.4 million, or 35%, to
$28.8 million in the first nine months of 1996. The increase
resulted from the increased sales volume and leveraged operating
costs and expenses, which included the increased investment in
research and development for higher technology mail processing
systems/software. Mail-Processing Systems operating income
increased $5.9 million, or 35%, to $22.7 million in the first
nine months of 1996.
Corporate expenses (excluding depreciation and amortization)
increased $.5 million, or 6%, to $9.4 million in the first nine
months of 1996, reflecting inflationary cost increases and costs
associated with increased corporate senior management.
Net interest expense decreased $6.0 million, or 29%, to
$14.9 million in the first nine months of 1996, primarily
reflecting the reduction in interest expenses resulting from the
capital contribution by the Company's parent in May 1995, (the
net proceeds of which were used to retire $50.0 million of the
10 3/4% Senior Subordinated Notes and to prepay $17.6 million of
term loans under the Credit Agreement). Net interest expense was
further reduced by the repurchase in 1996 of $17.9 million of the
10 3/4% Senior Subordinated Notes, which were redeemed with
proceeds from the amended Credit Agreement. Net interest income
of Bell & Howell Acceptance Corporation, the Company's financing
subsidiary, increased $1.5 million to $5.1 million in the first
nine months of 1996 due to continued growth in the lease
receivables portfolio.
Income tax expense increased in the first nine months of
1996 as a result of a higher level of pretax profit in the
current year. Pursuant to a tax sharing agreement with
Bell & Howell Company, the interest expense from the Senior
Discount Debentures of Bell & Howell Company is included in the
Company's domestic consolidated income tax return.
The extraordinary loss of $1.1 million ($1.7 million pretax)
in the first nine months of 1996 was comprised of the debt
repurchase premium and write-off of unamortized debt issuance
costs associated with the aforementioned repurchase and
retirement of the 10 3/4% Senior Subordinated Notes. The
extraordinary losses of $3.2 million ($5.0 million pretax) in the
first nine months of 1995 were comprised of the debt
-16-
<PAGE>
repurchase premium and write-off of unamortized debt issuance
costs associated with the aforementioned retirement of the
10 3/4% Senior Subordinated Notes and the write-off of
unamortized debt issuance costs associated with the
aforementioned prepayment of term loans under the Credit
Agreement, both of which reflected the application of the net
proceeds from the capital contribution by the Company's parent.
In 1996 the Company repurchased $35.8 million of the
Intercompany Preferred Stock ($33.4 million in accreted value),
with proceeds from the amended Credit Agreement.
Cash provided by operations was $13.2 million in the first
nine months of 1996 versus cash provided by operations of $25.5
million in the first nine months of 1995. The prior year
comparison is adversely impacted by the increased investment in
inventory in 1996 related to the European postal service
contracts, for which a significant prepayment was received in
1995. The Company operates with a negative/minimal working
capital level principally as a result of substantial customer
prepayments for both annual service contracts in each of the
business segments and subscriptions in the Information Access
business segment.
As a result of acquisitions (primarily the acquisitions of
DataTimes Corporation and Protocorp International, Inc.),
continued capital expenditures, the aforementioned inventory
investments, the redemption of the Intercompany Preferred Stock
and the seasonal nature of the Company's cash collections and
disbursements, debt (net of cash and cash equivalents) increased
by $114.1 million to $380.0 million in the first nine months of
1996.
-17-
<PAGE>
Part II. Other Information
- ---------------------------
Item 1. Legal Proceedings.
- ------ -----------------
The Company is involved in various legal proceedings
incidental to its business. Management believes that the outcome
of such proceedings will not have a material adverse effect upon
the consolidated operations or financial condition of the
Company.
Item 6. Exhibits and Reports on Form 8-K.
- ------ --------------------------------
(a) Exhibits:
Index Number Description
------------ ----------------------------
(10.1) Amended and Restated Credit
Agreement, dated as of
September 4, 1996, among
Bell & Howell Operating Company,
the Lenders listed therein and
Bankers Trust Company, as Agent
(11.1) Computation of Earnings (Loss)
Per Common Share
(b) Reports on Form 8-K.
No reports on Form 8-K were filed for the thirteen weeks
ended September 28, 1996.
-18-
<PAGE>
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.
Date: November 11, 1996 BELL & HOWELL OPERATING COMPANY
/s/William J. White
William J. White
Chairman of the Board, Chief
Executive Officer and
Director
/s/Nils A. Johansson
Nils A. Johansson
Executive Vice President,
Chief Financial Officer
and Director
-19-
BELL & HOWELL OPERATING COMPANY Exhibit 10.1
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT
AGREEMENT (this "Amendment") is dated as of September 4, 1996 and
entered into by and among Bell & Howell Operating Company, a
Delaware corporation ("Company"), Bell & Howell Company, a
Delaware corporation and owner of all of the equity securities of
Company ("Parent"), the financial institutions listed on the
signature pages hereof (each individually a "Lender" and
collectively "Lenders"), Bank of America National Trust and
Savings Association and The First National Bank of Chicago, as
co-agents for Lenders (in such capacity, each individually a
"Co-Agent" and collectively "Co-Agents"), Bankers Trust Company,
as administrative agent for Lenders ("Agent"), and, for purposes
of Section 5 hereof, the Credit Support Parties (as defined in
Section 5 hereof) listed on the signature pages hereof, and is
made with reference to that certain Amended and Restated Credit
Agreement dated as of April 22, 1996 (the "Credit Agreement"), by
and among Company, Parent, Lenders,, Co-Agents and Agent.
Capitalized terms used herein without definition shall have the
same meanings as set forth in the Credit Agreement.
RECITALS
WHEREAS, Company and Lenders desire to amend the Credit
Agreement (i) to modify the interest rates applicable to the
Revolving Loans, (ii) to increase the aggregate Revolving Loan
Commitments by $75 million (from $275 million to $350 million)
and (iii) to make certain other amendments as set forth below;
and
WHEREAS, subject to the terms and conditions of this
Amendment, Lenders are willing to agree to such amendments.
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, the
parties hereto agree as follows:
Section 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 Amendment to Cover Page
The cover page of the Credit Agreement is hereby amended by
deleting the reference to "$275,000,000" contained therein and
substituting "$350,000,000" therefor.
1.2 Amendment to Recitals
The recitals of the Credit Agreement are hereby amended by
deleting the reference to "$275,000,000" contained therein and
substituting "$350,000,000" therefor.
1.3 Amendments to Section 1: Certain Defined Terms
Subsection 1.1 of the Credit Agreement is hereby amended by
adding thereto the following definitions, which shall be inserted
in proper alphabetical order:
"First Amendment" means the First Amendment to Amended and
Restated Credit Agreement dated as of September 4, 1996, among
Company, Parent, Lenders, Co-Agents, Agent and each of the other
Loan Parties.
"First Amendment Effective Date" means the date on which the
conditions precedent to the effectiveness of the First Amendment
set forth in Section 3 thereof shall have been satisfied.
1.4 Amendments to Section 2: Amounts and Terms of Commitments
and Loans
A. Revolving Loan Commitment. Subsection 2.lA(i) of the
Credit Agreement is hereby amended by deleting the reference to
"$275,000,000" contained therein and substituting "$350,000,000"
therefor.
B. Interest on the Loans. Clause (i) of subsection 2.2A of
the Credit Agreement is hereby amended by:
1. Adding immediately following the table set forth
therein the following:
";provided that, notwithstanding anything to the
contrary in this Agreement, during any period that the Total
Utilization of Revolving Loan Commitments exceeds $300,000,000,
the Eurodollar Rate Margin, the Base Rate Margin, the Applicable
Eurodollar Rate Margin or the Applicable Base Rate Margin (as
such terms are used in this subsection 2.2A(i), subsection
2.2A(ii), subsection 3.2 or otherwise), shall refer to the
applicable percentages set forth in the table above plus 0.
1875%."; and
2. Inserting the following immediately before the last
provision in such clause (1):
"(or, during any such time that the Total Utilization of
Revolving Loan Commitments exceeds $300,000,000, the Applicable
Eurodollar Rate Margin shall be 1.6875% per annum and the
Applicable Base Rate Margin shall be 0.6875% per annum)".
1.5 Amendments to Section 6: Company's Affirmative Covenants
Section 6 of the Credit Agreement is hereby amended by adding a
new subsection 6.12 at the end thereof as follows:
"6.12 Further Assurances with Respect to the First Amendment.
Company and Lenders hereby agree that all Obligations under
this Agreement, including the $75,000,000 increase in the
Revolving Loan Commitments, shall be secured by the Collateral
and shall constitute Secured Obligations as defined in the
Collateral Documents. Company hereby agrees that Company shall,
and shall cause each of its Subsidiaries to, within 30 days of
the First Amendment Effective Date, at the Company's expense,
execute and deliver to Agent such documents, agreements and
instruments and take all such further actions as may be necessary
or, in the opinion of Agent (or its counsel), desirable in order
for the Agent to continue the perfection and priority of Agent's
security interests in Collateral located in the United States or
as may be reasonably requested by Agent to continue the
perfection and priority of Agent's security interests in
Collateral consisting of the shares of capital stock of the
Foreign Subsidiaries."
1.6 Substitution of Schedules
Schedule 2.1: Lenders' Commitments and Pro Rata Shares.
Schedule 2.1 to the Credit Agreement is hereby amended by
deleting said Schedule 2.1 in its entirety and substituting in
place thereof a new Schedule 2.1 in the form of Annex A to this
Amendment.
1.7 Amendment of Exhibits
Form of Revolving Note. The third paragraph of Exhibit IV to
the Credit Agreement is hereby amended by deleting the reference
to "$275,000,000" and substituting "$350,000,000" therefor.
Section 2. ADDITION OF NEW LENDERS; PRO RATA SHARES AND NOTICE
ADDRESSES
The Credit Agreement is hereby amended to include as Lenders
for all purposes under the Credit Agreement the financial
institutions identified as new Lenders (the "New Lenders") on
Schedule 2.1 to the Credit Agreement, as amended by this
Amendment. Each New Lender shall hereby become a party to the
Credit Agreement, shall hereby become vested with and shall agree
to accept all the rights, powers, privileges and duties of a
Lender under the Credit Agreement and each of the other Loan
Documents and shall hereby be deemed to have made all of the
covenants and agreements contained in the Credit Agreement and
the other Loan Documents, in each case to the same extent as if
originally a party thereto. For purposes of the Credit Agreement,
the address of each New Lender shall be as set forth under such
New Lender's name on the signature pages hereof. Schedule 2.1 to
the Credit Agreement, as amended by this Amendment, reflects each
New Lender's Pro Rata Share. Upon the effectiveness of this
Amendment, each New Lender shall pay to Agent by wire transfer of
immediately available funds such amount, as calculated by Agent,
as reflects such New Lender's Pro Rata Share of the outstanding
Revolving Loans (and, if applicable, such New Lender's Pro Rata
Share of any participations which have been funded by Lenders
with respect to outstanding Letters of Credit or Swing Line
Loans). Upon the effectiveness of this Amendment, each existing
Lender which increases its Revolving Loan Commitment (the
"Increasing Lenders"), as set forth on Schedule 2.1 to the Credit
Agreement, as amended by this Amendment, shall pay to Agent by
wire transfer of immediately available funds such amount, if any,
as calculated by Agent, as reflects such Increasing Lender's
increased Pro Rata Share of the outstanding Revolving Loans (and,
if applicable, such Increasing Lender's increased Pro Rata Share
of any participations which have been funded by Lenders with
respect to outstanding Letters of Credit or Swing Line Loans).
Agent shall promptly pay to each other Lender such amounts, as
calculated by Agent, as may be necessary to reflect such other
Lender's then Pro Rata Share, as set forth on Schedule 2.1 to the
Credit Agreement, as amended by this Amendment, of the
outstanding Revolving Loans (and, if applicable, such other
Lender's then Pro Rata Share of any participations which have
been funded by Lenders with respect to outstanding Letters of
Credit or Swing Line Loans).
Section 3. CONDITIONS TO EFFECTIVENESS
Sections I and 2 of this Amendment shall become effective
only upon the satisfaction of all of the following conditions
precedent (such date of satisfaction being referred to herein as
the "First Amendment Effective Date"):
A. On or before the First Amendment Effective Date, Company
shall deliver to Lenders (or to Agent for Lenders with sufficient
originally executed copies, where appropriate, for each Lender
and its counsel) the following with respect to each Loan Party,
each, unless otherwise noted, dated the First Amendment Effective
1. Certified copies of its Articles or Certificate of
Incorporation, or a certificate by its corporate secretary or an
assistant secretary certifying that there has been no change in
the Articles or Certificate of Incorporation subsequent to the
Effective Date, except as disclosed in such certificate and
attaching thereto copies of any such amendments certified by the
Secretary of State of the Jurisdiction of its incorporation,
together with a good standing certificate from the Secretary of
State of the jurisdiction of its incorporation and the
Jurisdiction in which its principal place of business is located,
each dated a recent date prior to the First Amendment Effective
Date;,
2. Copies of its Bylaws, certified as of the First Amendment
Effective Date by its corporate secretary or an assistant
secretary or a certificate by such secretary or assistant
secretary certifying that there has been no change in the Bylaws
subsequent to the Effective Date;
3. Resolutions of its Board of Directors approving and
authorizing the execution, delivery and performance of this
Amendment and, in the case of Company, approving and authorizing
the execution, delivery and payment of the Revolving Notes issued
to New Lenders (the "New Notes") and each Allonge to Revolving
Note, substantially in the form of Annex B to this Amendment
(collectively, the "Allonges"), certified as of the First
Amendment Effective Date by its corporate secretary or an
assistant secretary as being in full force and effect without
modification or amendment;
4. Signature and incumbency certificates of its officers
executing this Amendment and, in the case of Company, the
Allonges and the New Notes;
5. An Officer's Certificate of Company, in form and substance
satisfactory to Agent, to the effect that the Indebtedness
permitted under the Credit Agreement is permitted under each of
the Indentures and that the incurrence of all Indebtedness under
the Credit Agreement will not require equal and ratable security
to be provided to the Senior Notes; and
6. This Amendment executed by each Loan Party, the New Notes and
the Allonges, each executed by Company, drawn to the order of
each Increasing Lender.
B. On or before the First Amendment Effective Date, Lenders
and their respective counsel shall have received originally
executed copies of one or more favorable written opinions of Gary
Salit, Counsel to Loan Parties, in form and substance reasonably
satisfactory to Agent and its counsel, dated as of the First
Amendment Effective Date, substantially in the form set forth in
Annex C hereto and as to such other matters as Agent acting on
behalf of Lenders may reasonably request.
C. On or before the First Amendment Effective Date, each
Increasing Lender, each New Lender and Requisite Lenders (as
determined without giving effect to the transactions contemplated
by this Amendment) shall have delivered to Agent originally
executed copies of this Amendment.
D. On or before the First Amendment Effective Date, Agent
shall have received from Company and each Domestic Subsidiary
which owns property subject to a Mortgage as set forth in
Schedule 5.5 to the Credit Agreement fully executed counterparts
of amendments to Mortgage in form and substance satisfactory to
Agent.
E. Agent and each Lender shall have received the fees
payable by Company on the First Amendment Effective Date in such
amounts as have been separately agreed upon.
F. On or before the First Amendment Effective Date, all
corporate and other proceedings taken or to be taken in
connection with the First Amendment and all documents incidental
thereto not previously found acceptable by Agent, acting on
behalf of Lenders, and its counsel shall be satisfactory in form
and substance to Agent and such counsel, and Agent and such
counsel shall have received all such counterpart originals or
certified copies of such documents as Agent may reasonably
request.
Section 4. REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment and to
amend the Credit Agreement in the manner provided herein, Parent
and Company represent and warrant to each Lender that the
following statements are true, correct and complete:
A. Corporate Power and Authority. Each Loan Party has all
requisite corporate power and authority to enter into this
Amendment, each of Parent and Company has all requisite corporate
power and authority to carry out the transactions contemplated
by, and perform its obligations under, the Credit Agreement as
amended by this Amendment (the "Amended Agreement"), and Company
has all requisite corporate power and authority to issue the
Allonges and the New Notes.
B. Authorization of Agreements. The execution and delivery
of this Amendment, the Allonges and the New Notes, the
performance of the Amended Agreement and the payment of the New
Notes and the Notes as amended by the Allonges (the "Amended
Notes") have been duly authorized by all necessary corporate
action on the part of each Loan Party thereto.
C. No Conflict. The execution and delivery by each Loan
Party of this Amendment, the execution and delivery by
Company of the New Notes and the Allonges and the
performance by Company and Parent of the Amended Agreement
and the payment of the New Notes and the Amended Notes by
Company do not and will not violate any provision of any law or
any governmental rule or regulation applicable to Parent or any
of its Subsidiaries, the Certificate or Articles of
Incorporation or Bylaws of Parent or any of its Subsidiaries
or any order, judgement decree of any court or other agency
of government binding on Parent or any of its Subsidiaries,
(ii) conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any
Contractual Obligation of Parent or any of its Subsidiaries,
(iii) result in or require the creation or imposition of any
Lien upon any of the properties or assets of Parent or any of
its Subsidiaries (other than any Liens created under any of
the Loan Documents in favor of Agent on behalf of Lenders),
or (iv) require any approval of stockholders or any approval
or consent of any Person under any Contractual Obligation of
Parent or any of its Subsidiaries.
D. Governmental Consents. The execution and delivery by
each Loan Party of this Amendment, the execution and delivery by
Company of the New Notes and the Allonges and the performance by
Company and Parent of the Amended Agreement and the payment of
the New Notes and the Amended Notes by Company do not and will
not require any registration with, consent or approval of, or
notice to, or other action to, with or by, any federal, state or
other governmental authority or regulatory body.
E. Binding Obligation. This Amendment has been duly
executed and delivered by each Loan Party, the Amended Agreement
has been duly executed and delivered by Company and Parent and
the Allonges and the New Notes have been duly executed and
delivered by Company and each of this Amendment, the Amended
Agreement, the New Notes and the Amended Notes are the legally
valid and binding obligations of each Loan Party thereto,
enforceable against such Loan Party in accordance with their
respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating
to or limiting creditors' rights generally or by equitable
principles relating to enforceability.
F. Incorporation of Representations and Warranties From
Credit Agreement. The representations and warranties contained in
Section 5 of the Credit Agreement are incorporated herein by this
reference and are and will be true, correct and complete in all
material respects on and as of the First Amendment Effective Date
to the same extent as though made on and as of that date, except
to the extent such representations and warranties specifically
relate to an earlier date, in which case they were true, correct
and complete in all material respects on and as of such earlier
date.
G. Absence of Default. No event has occurred and is
continuing or will result from the consummation of the
transactions contemplated by this Amendment that would constitute
an Event of Default or a Potential Event of Default.
Section ACKNOWLEDGMENT AND CONSENT
Company is a party to Company Pledge Agreement, Company
Security Agreement. Company Trademark Security Agreement, Company
Patent Security, Agreement, Collateral Account Agreement,
Mortgages and Auxiliary Pledge Agreements. Each Domestic
Subsidiary of Company (other than BHAC Group and the Inactive
Subsidiaries) (a "Subsidiary Guarantor") is a party to the
Subsidiary Guaranty, Subsidiary Security Agreement, Subsidiary
Pledge Agreement, Subsidiary Patent Security Agreement,
Subsidiary Trademark Security Agreement, Mortgages and Auxiliary
Pledge Agreements, in each case as amended through the First
Amendment Effective Date, pursuant to which such Subsidiary
Guarantor has (i) guarantied the Obligations, (ii) created Liens
in favor of Agent on certain Collateral, and (iii) pledged
certain Collateral to Agent to secure the obligations of such
Subsidiary Guarantor under the Subsidiary Guaranty. Additionally,
Parent, pursuant to Section 10 of the Credit Agreement, has
guarantied the Obligations. Company, Subsidiary Guarantors and
Parent are collectively referred to herein as the "Credit Support
Parties," and the Company Pledge Agreement, Company Security
Agreement, Company Trademark Security Agreement, Company Patent
Security Agreement, Collateral Account Agreement, Mortgages,
Auxiliary Pledge Agreements, Subsidiary Guaranty, Subsidiary
Security Agreements, Subsidiary Pledge Agreements, Subsidiary
Patent Security Agreements, Subsidiary Trademark Security
Agreements and the Parent's guaranty set forth in the Credit
Agreement are collectively referred to herein as the "Credit
Support Documents."
Each Credit Support Party hereby acknowledges that it has
reviewed the terms and provisions of the Credit Agreement and
this Amendment and consents to the amendment of the Credit
Agreement effected pursuant to this Amendment. Each Credit
Support Party hereby confirms that each Credit Support Document
to which it is a party or otherwise bound and all Collateral
encumbered thereby will continue to guaranty or secure, as the
case may be, to the fullest extent possible the payment and
performance of all "Obligations," "Guarantied Obligations" and
"Secured Obligations," as the case may be (in each case as such
terms are defined in the applicable Credit Support Document),
including without limitation the payment and performance of all
such "Obligations," "Guarantied Obligations" or "Secured
Obligations," as the case may be, in respect of the Obligations
of Company now or hereafter existing under or in respect of the
Amended Agreement and the Notes defined therein. Without limiting
the generality of the foregoing, each Credit Support Party hereby
acknowledges and confirms the understanding and intent of such
party that, upon the effectiveness of this Amendment, and as a
result thereof, the definition of "Obligations" contained in the
Amended Agreement includes the obligations of Company under the
New Notes and the Amended Notes.
Each Credit Support Party acknowledges and agrees that any of
the Credit Support Documents to which it is a party or by which it
is otherwise bound shall continue in full force and effect and that
all of its obligations thereunder shall be valid and enforceable
and shall not be impaired or limited by the execution or
effectiveness of this Amendment. Each Credit Support Party
represents and warrants that all representations and warranties
contained in the Amended Agreement and the Credit Support Documents
to which it is a party or other-wise bound are true, correct and
complete in all material respects on and as of the First Amendment
Effective Date to the same extent as though made on and as of that
date, except to the extent such representations and warranties
specifically relate to an earlier date, in which case they were
true, correct and complete in all material respects on and as of
such earlier date.
Each Credit Support Party (other than Company) acknowledges and
agrees that (i) notwithstanding the conditions to effectiveness set
forth in this Amendment, such Credit Support Party is not required
by the terms of the Credit Agreement or any other Loan Document to
consent to the amendments to the Credit Agreement effected pursuant
to this Amendment and (ii) nothing in the Credit Agreement, this
Amendment or any other Loan Document shall be deemed to require the
consent of such Credit Support Party to any future amendments to
the Credit Agreement.
Section 6. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the
Other Loan Documents.
(i) On and after the First Amendment Effective Date, each
reference in the Credit Agreement to "this Agreement", "hereunder",
"hereof', "herein" or words of like import referring to the Credit
Agreement, and each reference in the other Loan Documents to the
"Credit Agreement", "thereunder", "thereof' or words of like import
referring to the Credit Agreement shall mean and be a reference to
the Amended Agreement. (iii) The execution, delivery and
performance of this Amendment shall not, except as expressly
provided herein, constitute a waiver of any provision of, or
operate as a waiver of any right, power or remedy of Agent or any
Lender under, the Credit Agreement or any of the other Loan
Documents.
B. Fees and Expenses. Company acknowledges that all costs, fees
and expenses as described in subsection 11.2 of the Credit
Agreement incurred by Agent and its counsel with respect to this
Amendment and the documents and transactions contemplated hereby
shall be for the account of Company.
<PAGE>
BELL & HOWELL OPERATING COMPANY
By: /s/ Kevin O'Shea
Title: Vice President and Treasurer
BELL & HOWELL MAIL COMPANY
By: /s/ Kevin O'Shea
Title: Vice President and Treasurer
BELL & HOWELL MAIL DOCUMENT MANAGEMENT PRODUCTS COMPANY (for
purposes of Section 5 only) as a Credit Support Party
By: /s/ Kevin O'Shea
Title: Treasurer
BELL & HOWELL MAILMOBILE COMPANY (for purposes of Section 5 only)
as a Credit Support Party
By: /s/ Kevin O'Shea
Title: Treasurer
BELL & HOWELL MAIL PROCESSING SYSTEM`S COMPANY (for purposes of
Section 5 only) as a Credit Support Party
By: /s/ Kevin O'Shea
Title: Treasurer
BELL & HOWELL POSTAL SYSTEMS
INC. (for purposes of Section 5 only) as a Credit Support Party
By: /s/ Kevin O'Shea
Title: Treasurer
BELL & HOWELL PUBLICATION SYSTEMS COMPANY (for purposes of Section
5 only) as a Credit Support Party
By: /s/ Kevin O'Shea
Title: Treasurer
UMI COMPANY (for purposes of Section 5 only) as a Credit Support
Party
By: /s/ Kevin O'Shea
Title: Treasurer
<PAGE>
BELL & HOWELL PROTOCORP INTERNATIONAL INC. (for purposes of Section
5 only) as a Credit Support Party
By: /s/ Kevin O'Shea
Title: Vice President and Treasurer
BANKERS TRUST COMPANY, Individually and as Agent
By:/s/ Robert R. Telesca
Title: Assistant Vice President
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
Individually and as Co-Agent
By: /s/ R. Guy Stapleton
Title: Managing Director
THE FIRST NATIONAL BANK OF CHICAGO, Individually and as Co-Agent
By: /s/ Stephen C. Price
Title: Vice President
ABN AMRO BANK N.V., as a Lender
By: /s/ Thomas M. Toerpe
Title: Vice President
By: /s/ Angela Reitz
Title: Assistant Vice President
THE BANK OF NOVA SCOTIA, as a
Lender
By: /s/ F.C.H. Ashby
Title: Senior Manager Loan Operator
<PAGE>
BANQUE PARIBAS, as a Lender
By: /s/ Larry Robinson
Title: /Vice President
By: /s/ Rosemary Davis
Title: /Vice President
THE DAY-CHI CAWING BANK, LTD., CHICAGO BRANCH, as a Under
By:/s/ SACEUR In
Title: Vice President
DRESDNER BANK AG, CHICAGO BRANCH AND GRAND CAYMAN BRANCH, as a
Lender
By: /s/ Thomas J. Neidman
Title: Vice President
By: /s/ John W. Sweeney
Title: Assistant Vice President
THE FIRST NATIONAL BANK OF BOSTON, as a Lender
BY:/s/ Rod Quinn
Title: Director
FIRST UNION BANK OF NORTH CAROLINA, as a Lender
By: /s/ Mark M. Harden
Title: Vice President
HARRIS TRUST AND SAVINGS BANK, as a Lender
By: /s/ Patrick McDonnell
Title: Vice President
<PAGE>
THE LONG-TERM CREDIT BANK OF JAPAN, LTD., as a Lender
By: /s/ Mark A. Thompson
Title: Vice President and Deputy General Manager
THE MITSUBISH TRUST AND BANKING CORPORATION, Chicago Branch, as a
Lender
By: /s/ Masaaki Yamagishi
Title: Chief Manage
THE SANWA BANK, LIMITED, CHICAGO BRANCH, as a Lender
By: /s/ Richard H. Ault
Title: Vice President
UNITED STATES NATIONAL BANK OF OREGON, as a Lender
By: /s/ Tom Lee
Title: Vice President
DLJ CAPITAL FUNDING, as a Lender
By: /S/ Eric Swanson
Title: Managing Director
CREDIT LYONNAIS CHICAGO BRANCH, as a Lender
By: /S/ Michael Buysschaert
Title: Vice President
Exhibit 11.1
Bell & Howell Operating Company and Subsidiaries
Computation of Earnings per Common Share
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Thirty-Nine Weeks
Ended Ended
--------------------- ---------------------
Sept. 30, Sept. 28, Sept. 30, Sept. 28,
1995 1996 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings:
Earnings before extraordinary items $ 9,841 $10,654 $22,350 $28,443
Extraordinary losses -- -- (3,219) (1,088)
------ ------ ------ ------
Net earnings 9,841 10,654 19,131 27,355
Dividends on preferred stock 6,070 5,712 17,743 18,603
------ ------ ------ ------
Net earnings applicable to
common stock $ 3,771 $ 4,942 $ 1,388 $ 8,752
====== ====== ====== ======
Average common shares outstanding 2,955 2,955 2,954 2,955
Net earnings per common share:
Earnings before extraordinary
items $ 1,276 $ 1,672 $ 1,560 $ 3,330
Extraordinary losses -- -- (1,090) (368)
------ ------ ------ ------
Net earnings per common share $ 1,276 $ 1,672 $ (470) $ 2,962
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 6365
<SECURITIES> 0
<RECEIVABLES> 183827
<ALLOWANCES> 6002
<INVENTORY> 148426
<CURRENT-ASSETS> 343366
<PP&E> 353388
<DEPRECIATION> (200444)
<TOTAL-ASSETS> 772551
<CURRENT-LIABILITIES> 328954
<BONDS> 375039
0
2
<COMMON> 0
<OTHER-SE> 18714
<TOTAL-LIABILITY-AND-EQUITY> 772551
<SALES> 633905
<TOTAL-REVENUES> 633905
<CGS> 410407
<TOTAL-COSTS> 410407
<OTHER-EXPENSES> 25946
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14931
<INCOME-PRETAX> 37311
<INCOME-TAX> 8868
<INCOME-CONTINUING> 28443
<DISCONTINUED> 0
<EXTRAORDINARY> (1,088)
<CHANGES> 0
<NET-INCOME> 27355
<EPS-PRIMARY> 2962
<EPS-DILUTED> 2962
</TABLE>
