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
June 29, 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 August 5, 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 Twenty-Six Weeks Ended
July 1, 1995 and June 29, 1996 ............... 1
Consolidated Balance Sheets - Assets at
December 30, 1995 and June 29, 1996 .......... 2
Consolidated Balance Sheets - Liabilities
and Shareholders' Equity at December 30, 1995
and June 29, 1996 ............................ 3
Consolidated Statements of Cash Flows for
the Twenty-Six Weeks Ended July 1, 1995 and
June 29, 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 and shares in thousands, except per share data)
(Unaudited)
<CAPTION>
Thirteen Weeks Twenty-Six Weeks
Ended Ended
--------------------- ---------------------
July 1, June 29, July 1, June 29,
1995 1996 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 190,119 $ 213,973 $ 377,184 $ 415,065
Operating costs and expenses:
Cost of sales 120,129 139,519 241,479 269,412
Research and development 7,199 8,523 14,659 16,454
Selling and administrative 47,692 48,378 93,172 97,399
-------- -------- -------- -------
Total operating costs and expenses 175,020 196,420 349,310 383,265
Operating income 15,099 17,553 27,874 31,800
Net interest expense:
Interest (income) (3,687) (3,972) (7,351) (8,214)
Interest expense 10,929 9,511 22,075 18,494
-------- -------- -------- --------
Net interest expense 7,242 5,539 14,724 10,280
Earnings before income taxes and
extraordinary items 7,857 12,014 13,150 21,520
Income tax expense 840 2,361 641 3,731
-------- -------- -------- --------
Earnings before extraordinary items 7,017 9,653 12,509 17,789
Extraordinary losses (3,219) (1,088) (3,219) (1,088)
-------- -------- -------- --------
Net earnings 3,798 8,565 9,290 16,701
Dividends on preferred stock 5,950 6,452 11,673 12,891
-------- -------- -------- --------
Net earnings (loss) applicable to
common stock $ (2,152) $ 2,113 $ (2,383) $ 3,810
======== ======== ======== ========
Net earnings (loss) per common share:
Earnings before extraordinary items $ 361 $ 1,083 $ 283 $ 1,657
Extraordinary losses (1,090) (368) (1,090) (368)
-------- -------- -------- --------
Net earnings (loss) per common share $ (729) $ 715 $ (807) $ 1,289
======== ======== ======== ========
Average common shares outstanding 2,954 2,955 2,954 2,955
<FN>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these statements.
</TABLE>
-1-
<PAGE>
<TABLE>
Bell & Howell Operating Company and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
Assets
<CAPTION>
December 30, June 29,
1995 1996
----------- -----------
(Audited) (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,051 $ 10,115
Accounts receivable, less allowance for
doubtful accounts of $4,406 and $5,096,
respectively 181,247 150,122
Inventory 105,918 138,373
Other current assets 11,768 12,658
-------- --------
Total current assets 305,984 311,268
Property, plant and equipment, at cost 316,036 330,816
Accumulated depreciation (171,057) (184,159)
-------- --------
Net property, plant and equipment 144,979 146,657
Long-term receivables 57,062 48,605
Goodwill, net of accumulated amortization 133,422 152,474
Other assets 35,497 35,370
-------- --------
Total assets $ 676,944 $ 694,374
======== ========
<FN>
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, June 29,
1995 1996
----------- -----------
(Audited) (Unaudited)
<S> <C> <C>
Current liabilities:
Notes payable $ 14,939 $ 11,438
Current maturities of long-term debt 14,707 1,469
Accounts payable 65,444 60,947
Accrued expenses 83,846 78,352
Deferred income 176,351 147,845
Accrued income taxes 6,539 1,870
-------- --------
Total current liabilities 361,826 301,921
Long-term liabilities:
Long-term debt 243,300 336,916
Other liabilities 44,627 47,815
-------- --------
Total long-term liabilities 287,927 384,731
Shareholders' equity:
$121.33 Intercompany Preferred Stock, $.01 par
value, 208,059 shares issued and outstanding at
December 30, 1995 and 187,260 shares outstanding
at June 29, 1996 2 2
Common Stock, $.01 par value, 2,955 shares
issued and outstanding at December 30, 1995,
and June 29, 1996 -- --
Capital surplus 152,485 117,533
Retained earnings (deficit) (126,484) (109,783)
Cumulative foreign exchange translation adjustments 1,188 (30)
-------- --------
Total shareholders' equity 27,191 7,722
Commitments and contingencies -- --
-------- --------
Total liabilities and shareholders' equity $ 676,944 $ 694,374
======== ========
<FN>
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>
Twenty-Six Weeks
Ended
-----------------------------
July 1, June 29,
1995 1996
-------- --------
<S> <C> <C>
Operating activities:
Net earnings (loss) $ 9,290 $ 16,701
Depreciation and amortization 22,490 23,529
Changes in operating assets and liabilities:
Accounts receivable 23,294 29,994
Inventory (17,410) (33,293)
Other current assets (749) (1,036)
Long-term receivables 466 8,457
Income taxes (2,355) (5,239)
Accounts payable (3,774) (4,625)
Accrued expenses (15,629) (5,024)
Deferred income and other long-term liabilities (24,442) (26,361)
Other, net (107) (612)
------- -------
Net cash provided (used) by operating activities (8,926) 2,491
Investing activities:
Expenditures for property, plant and equipment (22,797) (20,384)
Acquisitions (2,330) (19,718)
------- -------
Net cash used by investing activities (25,127) (40,102)
Financing activities:
Proceeds from short-term debt 10,980 9,224
Repayment of short-term debt (8,973) (12,235)
Proceeds from long-term debt 42,973 192,050
Repayment of long-term debt (92,040) (112,444)
Proceeds from issuance of Common Stock 71,660 --
Redemption of Intercompany Preferred Stock -- (35,795)
------- -------
Net cash provided by financing activities 24,600 40,800
Effect of exchange rate changes on cash (255) (125)
------- -------
Increase (decrease) in cash and cash equivalents (9,708) 3,064
Cash and cash equivalents, beginning of period 16,128 7,051
------- -------
Cash and cash equivalents, end of period $ 6,420 $ 10,115
======= =======
Supplemental schedule of non-cash activities:
Preferred dividends paid-in-kind $ 11,673 $ 12,891
======= =======
<FN>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these statements.
</TABLE>
-4-
<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, formerly Bell & Howell
Company, is a wholly-owned subsidiary of Bell & Howell Company,
formerly Bell & Howell Holdings 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 (Loss) per Common Share. Net earnings (loss)
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 June 29, 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 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 the
second quarter of 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 the
second quarter of 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 June 29, 1996
and December 30, 1995 and related condensed consolidating
statements of operations and cash flows for the twenty-six
weeks ended June 29, 1996 and July 1, 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 June 29, 1996
ASSETS
<CAPTION>
Parent Combined Non-
Consolidated Eliminations Company Guarantors Guarantors
------------ ------------ ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 10,115 $ -- $ 1,120 $ 2,654 $ 6,341
Accounts receivable 150,122 -- 70 106,082 43,970
Inventory 138,373 (1,163) -- 104,711 34,825
Other current assets 12,658 -- 1,657 8,248 2,753
------- -------- ------- ------- -------
Total current assets 311,268 (1,163) 2,847 221,695 87,889
Investment in subsidiaries -- 73,637 (73,637) -- --
Intercompany accounts -- 8,607 98,696 (84,736) (22,567)
Net property, plant &
equipment 146,657 -- 1,729 134,917 10,011
Other non-current assets 236,449 (362,373) 376,948 180,113 41,761
------- -------- ------- ------- -------
Total assets $694,374 $(281,292) $406,583 $451,989 $117,094
======= ======== ======= ======= =======
</TABLE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
Parent Combined Non-
Consolidated Eliminations Company Guarantors Guarantors
------------ ------------ ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Liabilities:
Current liabilities $ 301,921 $ -- $ 20,875 $ 224,362 $ 56,684
Long-term debt 336,916 (362,373) 332,481 362,432 4,376
Other liabilities 47,815 -- 45,474 1,546 795
-------- -------- -------- -------- -------
Total liabilities 686,652 (362,373) 398,830 588,340 61,855
Shareholders' equity (deficit):
Intercompany Preferred
Stock 2 -- 2 -- --
Capital surplus 117,533 (179,317) 117,533 139,639 39,678
Retained earnings (deficit) (109,783) 260,398 (109,783) (275,989) 15,591
Cumulative foreign exchange
translation adjustments (30) -- -- -- (30)
-------- -------- -------- -------- -------
Total shareholders' equity
(deficit) 7,722 81,081 7,752 (136,350) 55,239
-------- -------- -------- -------- -------
Total liabilities &
shareholders' equity
(deficit) $ 694,374 $(281,292) $ 406,582 $ 451,990 $117,094
======== ======== ======== ======== =======
-8-
</TABLE>
<PAGE>
<TABLE>
CONDENSED CONSOLIDATING BALANCE SHEET
At December 30, 1995
ASSETS
<CAPTION>
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 -- 102,689 (102,709) 20 --
Intercompany accounts -- 2,509 60,920 (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 Twenty-Six Weeks Ended June 29, 1996
<CAPTION>
Parent Combined Non-
Consolidated Eliminations Company Guarantors Guarantors
------------ ------------ ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $415,065 $(24,210) $ -- $354,364 $ 84,911
Cost of sales 269,412 (24,210) -- 233,573 60,049
Operating expenses 113,853 -- (5,168) 97,275 21,746
Net interest expense
(income) 10,280 -- (6,270) 17,994 (1,444)
------- ------- ------ ------- -------Earnings before income
taxes and extraordinary item 21,520 -- 11,438 5,522 4,560
Income tax expense 3,731 -- 1,723 -- 2,008
------- ------- ------ ------- -------
Earnings before
extraordinary item 17,789 -- 9,715 5,522 2,552
Extraordinary loss (1,088) -- (1,088) -- --
------- ------- ------ ------- -------
Net earnings $ 16,701 $ -- $ 8,627 $ 5,522 $ 2,552
======= ======= ====== ======== =======
</TABLE>
<TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Twenty-Six Weeks Ended July 1, 1995
<CAPTION>
Parent Combined Non-
Consolidated Eliminations Company Guarantors Guarantors
------------ ------------ ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $377,184 $(22,170) $ -- $312,794 $ 86,560
Cost of sales 241,479 (22,170) -- 204,248 59,401
Operating expenses 107,831 -- (5,318) 88,664 24,485
Net interest expense
(income) 14,724 -- (2,875) 19,466 (1,867)
------- ------- ------- ------- -------
Earnings before income taxes
and extraordinary items 13,150 -- 8,193 416 4,541
Income tax expense (benefit) 641 -- (664) -- 1,305
------- ------- ------- ------- -------
Earnings before
extraordinary items 12,509 -- 8,857 416 3,236
Extraordinary losses (3,219) -- (3,219) -- --
------- ------- ------- ------- -------
Net earnings $ 9,290 $ -- $ 5,638 $ 416 $ 3,236
======= ======= ======= ======= =======
</TABLE>
-10-
<PAGE>
<TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Twenty-Six Weeks Ended June 29, 1996
<CAPTION>
Parent Combined Non-
Consolidated Eliminations Company Guarantors Guarantors
------------ ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net cash provided (used)
by operating activities $ 2,491 $ -- $(45,337) $ 38,766 $ 9,062
------- ------- ------- ------- -------
Investing activities:
Expenditures for property,
plant and equipment (20,384) -- (180) (19,444) (760)
Acquisitions (19,718) -- -- (19,718) --
------- ------- ------- ------- -------
Net cash used by
investing activities (40,102) -- (180) (39,162) (760)
------- ------- ------- ------- -------
Financing activities:
Net short-term borrowings (3,011) -- -- -- (3,011)
Net long-term borrowings 79,606 -- 79,909 -- (303)
Redemption of Intercompany
Preferred Stock (35,795) -- (35,795) -- --
------- ------- ------- ------- -------
Net cash provided (used)
by financing activities 40,800 -- 44,114 -- (3,314)
------- ------- ------- ------- -------
Effect of exchange rate
changes on cash (125) -- -- -- (125)
------- ------- ------- ------- -------
Increase (decrease) in cash
and cash equivalents $ 3,064 $ -- $ (1,403) $ (396) $ 4,863
======= ======= ======= ======= ======
</TABLE>
-11-
<PAGE>
<TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Twenty-Six Weeks Ended July 1, 1995
<CAPTION>
Parent Combined Non-
Consolidated Eliminations Company Guarantors Guarantors
------------ ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net cash provided (used)
by operating activities $ (8,926) $ -- $(35,259) $ 23,804 $ 2,529
------- ------- ------- ------- -------
Investing activities:
Expenditures for property,
plant and equipment (22,797) -- (89) (21,669) (1,039)
Acquisitions (2,330) -- -- (2,330) --
------- ------- ------- -------- -------
Net cash used by
investing activities (25,127) -- (89) (23,999) (1,039)
------- ------- ------- ------- -------
Financing activities:
Net short-term borrowings 2,007 -- 1,919 -- 88
Net long-term borrowings (49,067) -- (48,533) -- (534)
Proceeds from issuance of
Common Stock 71,660 -- 71,660 -- --
------- ------- ------- ------- -------
Net cash provided (used)
by financing activities 24,600 -- 25,046 -- (446)
------- ------- ------- ------- -------
Effect of exchange rate
changes on cash (255) -- -- -- (255)
------- ------- ------- ------- -------
Increase (decrease) in cash
and cash equivalents $ (9,708) $ -- $(10,302) $ (195) $ 789
======= ======= ======= ======= =======
</TABLE>
-12-
<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
- ---------------------
First Half 1996 Compared to First Half 1995
- -------------------------------------------
The Company's net sales increased $37.9 million, or 10%, to
$415.1 million in the first half of 1996.
Information Access net sales increased $9.3 million, or 4%,
to $218.6 million in the first half 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 $4.2 million, or 6%, to $81.0 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 18% over the
prior year as customers increasingly demand electronic
information solutions. The increase in electronic content sales
in the first half of 1996 was tempered by a "strategic pause" in
the market as customers are evaluating alternative information
distribution modes. Net sales of microfilm and paper products
-13-
<PAGE>
increased slightly over the prior year as increased pricing more
than offset lower unit volumes, as certain customers migrated to
these electronic product offerings. PSC's net sales increased
$6.6 million, or 16%, to $47.8 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 $1.5 million, or 2%, to $89.8 million as increased
worldwide sales of digital paper scanners were more than offset
by lower microfilm product sales which were impacted by a sales
force reduction (reflecting a shift to directly serving only the
financial services market in the U.S.).
Mail-Processing Systems net sales increased $28.6 million,
or 17%, to $196.5 million in the first half of 1996. Sales of
commercial mail processing systems increased $22.8 million or
16%, to $165.3 million reflecting strong market demand for
inserting and sorting systems both domestically and abroad, and
increased service revenue (due to both an expanding customer base
serviced and improved pricing). Sales of commercial sorting
equipment (which represent 12% of new equipment sales) increased
$3.7 million, or 48%, to $11.3 million in the first half 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 $5.8 million, or 23%, to $31.2 million primarily as a
result of a production contract for the German Postal service.
The Company's cost of sales increased $27.9 million, or 12%,
to $269.4 million in the first half of 1996. The gross profit
(net sales less cost of sales) percentage of 35.1% in the first
half of 1996 decreased .9% percentage points from the prior year
resulting 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 $1.8 million, or
12%, to $16.5 million in the first half 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 $4.2 million,
or 5%, to $97.4 million in the first half 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 23.5% in the first half of 1996 improved
by 1.2 percentage points versus the prior year as a result of
expense leveraging initiatives.
EBITDA (defined as operating income plus depreciation and
amortization) increased $5.6 million, or 12%, to $53.4 million
in the first half of 1996 resulting from the higher sales level
and leveraged operating costs and expenses. Operating income
increased $3.9 million, or 14%, to $31.8 million in the first
half of 1996.
Information Access EBITDA increased $2.4 million, or 6%,
to $42.6 million in the first half 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 increased
$1.3 million, or 5%, to $25.1 million in the first half of 1996.
Mail-Processing Systems EBITDA increased $4.0 million, or
31%, to $17.2 million in the first half of 1996. The increase
resulted from the increased sales volume and leveraged operating
-15-
<PAGE>
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 $3.4 million, or 35%, to $13.4 million in the first
half of 1996.
Corporate expenses (excluding depreciation and amortization)
increased $0.8 million, or 14%, to $6.4 million in the first half
of 1996, reflecting inflationary cost increases and costs
associated with both increased corporate senior management and
becoming a publicly traded Company.
Net interest expense decreased $4.4 million, or 30%, to
$10.3 million in the first half of 1996, primarily reflecting the
reduction in interest costs 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 the second quarter of 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 $1.0 million to $3.4
million in the first half of 1996 due to growth in the lease
receivables portfolio.
Income tax expense increased in the first half 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 second quarter 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
second quarter of 1995 were comprised of the debt repurchase
premium and write-off of unamortized debt issuance costs
associated with the retirement of $50.0 million of the 10 3/4%
-16-
<PAGE>
Senior Subordinated Notes and the write-off of unamortized debt
issuance costs associated with the prepayment of $17.6 million 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.
In the second quarter of 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 $2.5 million in the first
half of 1996 versus cash used by operations of $8.9 million in
the first half of 1995. The improved cash flow in the first half
of 1996 primarily results from the $5.6 million increase in
EBITDA. 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 continued capital expenditures, acquisitions
(primarily the acquisition of Protocorp International, Inc.), 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 $73.8 million to
$339.7 million in the first half 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
------------ ----------------------------
(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 June 29, 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: August 5, 1996 BELL & HOWELL COMPANY
William J. White
William J. White
Chairman of the Board, Chief
Executive Officer and Director
Nils A. Johansson
Nils A. Johansson
Executive Vice President,
Chief Financial Officer
and Director
-19-
Exhibit 11.1
Bell & Howell Operating Company and Subsidiaries
Computation of Earnings (Loss) per Common Share
(Dollars and shares in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Twenty-six Weeks
Ended Ended
------------------- -------------------
July 1, June 29, July 1, June 29,
1995 1996 1995 1996
------- ------- ------ -------
<S> <C> <C> <C> <C>
Net earnings (loss):
Earnings before extraordinary items $ 7,017 $ 9,653 $12,509 $17,789
Extraordinary losses (3,219) (1,088) (3,219) (1,088)
------ ------ ------ ------
Net earnings 3,798 8,565 9,290 16,701
Dividends on preferred stock 5,950 6,452 11,673 12,891
------ ------ ------ ------
Net earnings (loss) applicable to
common stock $(2,152) $ 2,113 $(2,383) $ 3,810
====== ====== ====== ======
Average common shares outstanding 2,954 2,955 2,954 2,955
Net earnings (loss) per common share:
Earnings (loss) before extraordinary
items $ 361 $ 1,083 $ 283 $ 1,657
Extraordinary losses (1,090) (368) (1,090) (368)
------ ------ ------ ------
Net earnings (loss) per common share $ (729) $ 715 $ (807) $ 1,289
====== ====== ====== ======
</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> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 10,115
<SECURITIES> 0
<RECEIVABLES> 155,218
<ALLOWANCES> 5,096
<INVENTORY> 138,373
<CURRENT-ASSETS> 311,268
<PP&E> 330,816
<DEPRECIATION> (184,159)
<TOTAL-ASSETS> 694,374
<CURRENT-LIABILITIES> 301,921
<BONDS> 336,916
0
2
<COMMON> 0
<OTHER-SE> 7,720
<TOTAL-LIABILITY-AND-EQUITY> 694,374
<SALES> 415,065
<TOTAL-REVENUES> 415,065
<CGS> 269,412
<TOTAL-COSTS> 269,412
<OTHER-EXPENSES> 16,454
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,280
<INCOME-PRETAX> 21,520
<INCOME-TAX> 3,731
<INCOME-CONTINUING> 17,789
<DISCONTINUED> 0
<EXTRAORDINARY> (1,088)
<CHANGES> 0
<NET-INCOME> 16,701
<EPS-PRIMARY> 1,289
<EPS-DILUTED> 1,289
</TABLE>
