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
July 1, 2000 1-3246
BELL & HOWELL 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, $.001 par
value, outstanding as of August 10, 2000 was 23,664,723.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
------ --------------------- ----
Item 1. Consolidated Financial Statements
Consolidated Statements of Operations for
the Thirteen and Twenty-Six Weeks Ended
July 1, 2000 and July 3, 1999 ................ 1
Consolidated Balance Sheets - Assets at
July 1, 2000 and January 1, 2000 ............. 2
Consolidated Balance Sheets - Liabilities
and Shareholders' Equity at July 1, 2000 and
January 1, 2000 .............................. 3
Consolidated Statements of Cash Flows for
the Twenty-Six Weeks Ended July 1, 2000 and
July 3, 1999 ................................. 4
Notes to the Consolidated Financial
Statements ................................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations .................................... 10
Item 3. Quantitative and Qualitative Disclosures
About Market Risk ............................. 14
PART II. OTHER INFORMATION
------- -----------------
Item 1. Legal Proceedings .............................. 14
Item 6. Exhibits and Reports on Form 8-K ............... 14
SIGNATURE PAGE ............................................ 15
<PAGE>
<TABLE>
Bell & Howell 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, July 3, July 1, July 3,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ............................................... $ 95,132 $ 90,875 $ 181,093 $ 170,894
Cost of sales ........................................... 47,833 46,956 95,159 89,474
Research and development expense ........................ 4,141 5,247 8,510 9,830
Selling and administrative expense ...................... 31,449 27,221 60,345 55,151
Gains on sales of assets ................................ (1,395) -- (2,751) --
Restructuring charges ................................... 1,233 -- 1,233 --
-------- -------- -------- --------
Earnings from continuing operations before interest,
income taxes, equity in earnings (loss) of affiliate and
cumulative effect of a change in accounting principle .. 11,871 11,451 18,597 16,439
Net interest expense:
Interest income ......................................... -- (350) (272) (772)
Interest expense ........................................ 5,255 3,684 11,128 7,529
-------- -------- -------- --------
Net interest expense .................................... 5,255 3,334 10,856 6,757
Earnings from continuing operations before income taxes,
equity in earnings (loss) of affiliate and cumulative
effect of a change in accounting principle ............. 6,616 8,117 7,741 9,682
Income tax expense ...................................... 2,646 3,247 3,096 3,873
Equity in earnings (loss) of affiliate .................. (5,051) -- (8,772) --
-------- -------- -------- --------
Earnings (loss) from continuing operations before
cumulative effect of a change in accounting principle .. (1,081) 4,870 (4,127) 5,809
Earnings (loss) from discontinued operations ............ (388) 7,138 743 11,275
Cumulative effect of a change in accounting principle ... -- -- (5,628) --
-------- -------- -------- --------
Net earnings (loss) ..................................... $ (1,469) $ 12,008 $ (9,012) $ 17,084
======== ======== ======== ========
Net earnings (loss) per common share:
Basic:
Earnings (loss) from continuing operations before
cumulative effect of a change in accounting principle .. $ (0.04) $ 0.21 $ (0.17) $ 0.25
Earnings from discontinued operations ................... (0.02) 0.30 0.03 0.48
Cumulative effect of a change in accounting principle ... -- -- (0.24) --
-------- -------- -------- --------
Net earnings (loss) per common share .................... $ (0.06) $ 0.51 $ (0.38) $ 0.73
======== ======== ======== ========
Diluted:
Earnings (loss) from continuing operations before
cumulative effect of a change in accounting principle .. $ (0.04) $ 0.20 $ (0.17) $ 0.25
Earnings from discontinued operations ................... (0.02) 0.30 0.03 0.47
Cumulative effect of a change in accounting principle ... -- -- (0.24) --
-------- -------- -------- --------
Net earnings (loss) per common share .................... $ (0.06) $ 0.50 $ (0.38) $ 0.72
======== ======== ======== ========
Average number of common shares and equivalents outstanding:
Basic ................................................... 23,680 23,600 23,679 23,488
Diluted ................................................. 23,734 23,949 23,811 23,827
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements
</TABLE>
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<PAGE>
<TABLE>
Bell & Howell Company and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
Assets
<CAPTION>
July 1, January 1,
2000 2000
---------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................ $ 13,882 $ 4,773
Accounts receivable .............................. 64,421 72,118
Inventory ........................................ 8,326 9,302
Other current assets ............................. 10,272 8,898
-------- --------
Total current assets ............................. 96,901 95,091
Property, plant and equipment, at cost ........... 379,801 363,380
Accumulated depreciation ......................... (253,839) (237,061)
-------- --------
Net property, plant and equipment ................ 125,962 126,319
Long-term receivables ............................ 16,807 15,371
Goodwill, net of accumulated amortization ........ 222,418 224,809
Net assets of discontinued operations ............ 260,689 278,524
Other assets ..................................... 45,558 46,505
-------- --------
Total assets ..................................... $ 768,335 $ 786,619
======== ========
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
-2-
<PAGE>
<TABLE>
Bell & Howell Company and Subsidiaries
Consolidated Balance Sheets
(Dollars and shares in thousands)
(Unaudited)
Liabilities and Shareholders' Equity
<CAPTION>
July 1, January 1,
2000 2000
------------ -------------
<S> <C> <C>
Current liabilities:
Notes payable ........................................... $ 14,186 $ 25,646
Current maturities of long-term debt .................... 598 1,916
Accounts payable ........................................ 31,671 37,632
Accrued expenses ........................................ 28,590 34,295
Deferred income ......................................... 88,730 107,638
-------- --------
Total current liabilities ............................... 163,775 207,127
Long-term liabilities:
Long-term debt .......................................... 541,551 506,783
Other liabilities ....................................... 71,577 72,990
-------- --------
Total long-term liabilities ............................. 613,128 579,773
Shareholders' equity:
Common Stock, $.001 par value, 24,069 shares issued
and 23,662 shares outstanding at July 1, 2000,
and 23,969 shares issued and 23,632 shares outstanding
at January 1, 2000 ..................................... 24 24
Capital surplus ......................................... 156,324 153,654
Notes receivable from executives ........................ (2,169) (1,544)
Retained earnings (deficit) ............................. (152,221) (143,209)
Cumulative foreign exchange translation adjustments ..... (206) (414)
Treasury stock .......................................... (10,320) (8,792)
-------- --------
Total shareholders' equity (deficit) .................... (8,568) (281)
-------- --------
Total liabilities and shareholders' equity .............. $ 768,335 $ 786,619
======== ========
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
-3-
<PAGE>
<TABLE>
Bell & Howell Company and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<CAPTION>
Twenty-Six Weeks Ended
------------------------
July 1, July 3,
2000 1999
-------- --------
<S> <C> <C>
Operating Activities:
Earnings (loss) from continuing operations before
cumulative effect of a change in accounting principle .. $ (4,127) $ 5,809
Depreciation and amortization ........................... 26,746 21,841
Changes in operating assets and liabilities:
Accounts receivable ..................................... 6,225 10,850
Inventory ............................................... 914 238
Other current assets .................................... 445 2,307
Long-term receivables ................................... (1,436) (3,024)
Income taxes ............................................ 634 (702)
Accounts payable ........................................ (6,081) (3,816)
Accrued expenses ........................................ (2,623) (9,764)
Deferred income and other long-term liabilities ......... (30,926) (27,334)
Other, net .............................................. (857) (3,290)
------- -------
Net cash used by continuing operations .................. (11,086) (6,885)
Net cash provided by discontinued operations ............ 24,158 3,118
------- -------
Net cash provided (used) by operating activities ........ 13,072 (3,767)
Investing activities:
Expenditures for property, plant and equipment .......... (23,981) (21,387)
Acquisitions ............................................ (5,150) (33,548)
Proceeds from asset sales ............................... 2,551 --
------- -------
Net cash used by investing activities ................... (26,580) (54,935)
Financing activities:
Proceeds from short-term debt ........................... 7,859 7,411
Repayment of short-term debt ............................ (18,142) (3,279)
Proceeds from long-term debt ............................ 35,554 48,534
Repayment of long-term debt ............................. (2,104) (8,582)
Proceeds from Common Stock, net ......................... 548 8,088
------- -------
Net cash provided by financing activities ............... 23,715 52,172
Effect of exchange rate changes on cash ................. (1,098) (830)
------- -------
Increase (decrease) in cash and cash equivalents ........ 9,109 (7,360)
Cash and cash equivalents, beginning of period .......... 4,773 18,074
------- -------
Cash and cash equivalents, end of period ................ $ 13,882 $ 10,714
======= =======
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
-4-
<PAGE
Bell & Howell Company and Subsidiaries
Notes to the Consolidated Financial Statements
(Dollars and shares in thousands)
Note 1 - Basis of Presentation
The consolidated financial statements include the accounts
of Bell & Howell Company and its subsidiaries (collectively the
"Company") and have been prepared without independent audit.
As a result of the Company's adoption of a plan in the first
quarter of fiscal 2000 to divest its Mail and Messaging
Technologies/Imaging businesses and its financing subsidiary (see
Note 3 to the Consolidated Financial Statements), the Company now
operates in one reportable business segment.
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 consolidated financial statements should be read in
conjunction with the Consolidated Financial Statements and the
notes thereto included in the Company's annual report for the
fiscal year ended January 1, 2000.
Note 2 - Significant Accounting Policies
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 LIFO inventory values over replacement cost was
approximately $2,800 at July 1, 2000, and January 1, 2000. The
components of inventory are shown in the table below as of the
dates indicated:
<TABLE>
<CAPTION>
July 1, January 1,
2000 2000
---------- ----------
<S> <C> <C>
Finished products .................... $ 2,863 $ 3,400
Products in process and materials .... 5,463 5,902
------- -------
Total inventory ...................... $ 8,326 $ 9,302
======= =======
</TABLE>
-5-
<PAGE>
Net Earnings per Common Share. Basic net earnings per common
share is computed by dividing net earnings by the weighted
average number of common shares outstanding during the period.
Diluted net earnings per common share is computed by dividing net
earnings by the weighted average number of common shares
outstanding during the period, and assumes the issuance of
additional common shares for all dilutive stock options
outstanding during the period. A reconciliation of the weighted
average number of common shares and equivalents outstanding in
the calculation of basic and diluted earnings per share is shown
in the table below for the periods indicated:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
--------------------- ----------------------
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic ................................ 23,680 23,600 23,679 23,488
Dilutive effect of stock options ..... 54 349 132 339
------ ------ ------ ------
Diluted .............................. 23,734 23,949 23,811 23,827
====== ====== ====== ======
</TABLE>
Earnings per common share from continuing operations in fiscal
2000 includes the impact of restructuring charges and the
Company's equity investment in its affiliate, bigchalk.com:
<TABLE>
<CAPTION>
Diluted Earnings Per Common Share from Continuing Operations before
Cumulative Effect of a Change in Accounting Principle
<S> <C> <C> <C> <C>
Earnings before restructuring charges and
equity in earnings (loss) of affiliate ... $ .20 $ .20 $ .23 $ .25
Restructuring charges ..................... (.03) -- (.03) --
Equity in earnings (loss) of affiliate .... (.21) -- (.37) --
----- ------ ----- -----
Earnings per common share ................. (.04) .20 (.17) .25
===== ====== ===== =====
</TABLE>
Note 3 - Discontinued Operations
In the first quarter of fiscal 2000, the Company adopted a plan
to divest its Mail and Messaging Technologies/Imaging businesses
and its financing subsidiary. Accordingly, the operating results
and net assets of these businesses have been segregated from the
Company's continuing operations. The Consolidated Statements of
Operations separately reflect the earnings of these businesses,
which includes an allocation of the Company's interest expense.
The Consolidated Balance Sheets separately reflect the net assets
of these businesses as a non-current asset.
-6-
<PAGE>
Results from discontinued operations are shown in the table below
for the periods indicated:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
---------------------- ----------------------
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales .............................. $131,620 $157,817 $269,444 $300,994
Earnings before restructuring charges,
interest and income taxes ............. 3,824 14,549 12,031 24,034
Restructuring charges .................. 2,064 -- 5,640 --
Interest expense, net .................. 2,407 2,653 5,153 5,243
------- ------- ------- -------
Earnings (loss) before income taxes .... (647) 11,896 1,238 18,791
Income tax expense (benefit) ........... (259) 4,758 495 7,516
------- ------- ------- -------
Earnings (loss) from discontinued
operations ............................ $ (388) $ 7,138 $ 743 $ 11,275
======= ======= ======= =======
</TABLE>
Note 4 - Sales of Assets
Gains on sales of assets in the first half of fiscal 2000
include:
- the sale of a portion of the Company's investment in
its affiliate (bigchalk.com) resulting from the
exercise of stock options granted to employees
(proceeds of $1,156 and gain on sale of $867),
- the sale of the Company's investment in an entity
acquired by bigchalk.com in exchange for additional
common stock in bigchalk.com (with a value of $4,935
and a resulting gain on sale of $489), and
- additional proceeds related to the sale in 1999 of
vacant land which was adjacent to one of the
Company's manufacturing operations (additional
proceeds/gain on sale of $1,395).
-7-
<PAGE>
Note 5 - Restructuring
In December 1999, the Company announced a plan to restructure and
consolidate certain of its operations, which resulted in the
Company recording a charge of $36,765 ($28,277 after-tax). In
the first half of fiscal 2000, further restructuring charges of
$6,873 ($4,124 after-tax) were recorded primarily for severance
cost and future lease obligations related to the businesses to be
divested (see Note 3 to the Consolidated Financial Statements).
The restructuring plan will be substantially completed over the
next twelve months, with the details of the restructuring charges
as follows:
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended July 1, 2000
Balance ----------------------------------- Balance
January 1, 2000 Restruct. Utilized July 1, 2000
Charge Cash Noncash
--------------- -------- ------- -------- -------------
<S> <C> <C> <C> <C> <C>
Continuing Operations
---------------------
Severance ................ $ 5,905 $ 747 $ 1,566 $ -- $ 5,086
Obligations under various
noncancellable leases ... 4,600 -- -- -- 4,600
Business separation costs -- 486 486 -- --
------ ------ ------ ------ ------
Continuing Operations .... 10,505 1,233 2,052 -- 9,686
Discontinued Operations
Severance ................ 4,411 3,321 4,011 -- 3,721
Asset impairment costs ... 18,742 255 255 18,742 --
Obligations under various
noncancellable leases ... 3,107 2,064 1,139 -- 4,032
------ ------ ------ ------ ------
Discontined Operations .. 26,260 5,640 5,405 18,742 7,753
------ ------ ------ ------ ------
Total Company ............ $36,765 $ 6,873 $ 7,457 $18,742 $17,439
====== ====== ====== ====== ======
</TABLE>
The restructuring plan has been approved by the Company's
Board of Directors, with the related severance costs based on
preexisting severance agreements and the number, job
classification and location of affected employees to be
terminated. Accrued costs for obligations under various
noncancellable leases relate to contractual payments that were
committed to prior to approving the restructuring plan, for which
no economic benefit to the Company will be subsequently realized.
The restructuring plan identifies all significant actions to be
taken and significant changes to such plan are not likely.
-8-
<PAGE>
Note 6 - Cumulative Effect of a Change in Accounting Principle
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements. As a result of this pronouncement, the
Company has modified its accounting for new on-line subscriptions
in the Information and Learning business. Previously, revenue
for new on-line subscriptions was recognized during the initial
subscription period in proportion to costs incurred, in order to
yield a constant gross profit percentage throughout the
subscription period. Consistent with the new SEC guidelines,
such revenues are now recognized equally throughout the initial
subscription period, with appropriate cost deferral. The
cumulative effect of adopting this change in accounting principle
of $5,628 was recognized as of the beginning of fiscal 2000.
Note 7 - Comprehensive Income
The components of comprehensive income for the Company include
net earnings and unrealized gains and losses relating to the
translation of foreign currency balance sheets. Comprehensive
income is shown in the table below for the periods indicated:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Earnings (loss) from continuing operations
before cumulative effect of a change in
accounting principle ....................... $(1,081) $ 4,870 $(4,127) $ 5,809
Earnings (loss) from discontinued operations (388) 7,138 743 11,275
Cumulative effect of a change in accounting
principle .................................. -- -- (5,628) --
------ ------ ------ ------
Net earnings (loss) ......................... (1,469) 12,008 (9,012) 17,084
Other comprehensive income (loss):
Foreign currency translation adjustments .... (446) (1,312) (1,710) (3,357)
------ ------ ------ ------
Comprehensive income (loss) ................. $(1,915) $10,696 $(10,722) $13,727
====== ====== ====== ======
</TABLE>
The foreign currency translation adjustments do not impact the
Company's income tax expense.
-9-
<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 Company and Subsidiaries
(collectively the "Company") and the notes thereto included in the
annual report for the year ended January 1, 2000.
Results of Operations
---------------------
First Half 2000 Compared to First Half 1999
-------------------------------------------
The Company's net sales from continuing operations increased
$10.2 million, or 6%, to $181.1 million in the first half of
2000, resulting from strong sales growth of the Information and
Learning business. Net sales of the Information and Learning
business increased $13.4 million, or 14%, to $106.2 million due
to a growing electronic subscription base, and reflects the
acquisition of Chadwyck-Healey (a leading provider of humanities
and social service reference and research publications for the
academic, professional and library markets) in the fourth quarter
of 1999. Sales of electronic content (adjusted to reflect
consistent revenue recognition for new on-line subscriptions)
increased 40%, with the electronic subscription base continuing
to reflect strong sales of ProQuest (the Company's internet based
product offering), which was partially offset by lower CD-
ROM/tape subscriptions as customers migrate to on-line delivery
of information via the internet. Net sales of the more
traditional microfilm and paper products (which represent 46% of
Information and Learning first half 2000 sales) were constant
versus the prior year as increased pricing was offset by lower
unit volumes.
Net sales of the Publishing Services business decreased $3.2
million, or 4%, to $74.9 million in the first half of 2000 as
increased sales of dealer management systems to powersports
dealerships and increased sales of performance database products
were more than offset by lower sales of electronic parts catalogs
and ancillary products to automotive dealerships. The adverse
prior year comparison for automotive sales is impacted by a
strong first half of 1999, an announcement by Chrysler to
eventually produce their own electronic parts catalog (which has
slowed both sales and renewals with Chrysler dealerships), and
lower hardware sales in the current year (as the former
proprietary hardware systems have been previously replaced). As
the hardware products were at modest gross margins, the lower
hardware sales had minimal impact on profitability. Despite the
-10-
<PAGE>
modest sales decline in the current year, the installed base of
systems continues to grow in the mid-teens and now exceeds 30,000
sites worldwide.
The Company's cost of sales increased $5.7 million, or 6% to
$95.2 million in the first half of 2000, with the gross profit
(net sales less cost of sales) percentage essentially constant at
47.5% as the impact of a more profitable product mix was offset
by additional costs to provide increased data center capacity for
ProQuest to accommodate current/future sales growth
opportunities.
Research and development expense decreased $1.3 million, or 13%,
to $8.5 million in the first half of 2000 as the prior year
reflected additional Y2K and ProQuest product development costs.
The Company continually seeks to take advantage of new
product/technology opportunities (with a continued emphasis on
internet capabilities and software solutions) in each of its
businesses. The Company's research and development expenditures
include investments in a variety of e-commerce initiatives,
expenses for database and software development, information
delivery systems and other electronic devices for the Information
and Learning and Publishing Services businesses.
Selling and administrative expense increased $5.2 million, or 9%,
to $60.3 million in the first half of 2000, reflecting additional
sales/marketing resources to capitalize on the sales growth
opportunities from internet based products, as well as increased
distribution costs associated with the higher sales volumes.
Partially offsetting investments in e-commerce initiatives in the
first half of 2000 (which totaled $5.8 million in the Information
and Learning and Publishing Services businesses), were gains on
sales of assets of $2.8 million related to:
- the sale of a portion of the Company's investment in its
affiliate (bigchalk.com) resulting from the exercise of
stock options granted to employees (gain of $.9 million),
- the sale of the Company's investment in an entity
acquired by bigchalk.com in exchange for additional
common stock of bigchalk.com (gain of $.5 million), and
- additional proceeds related to the sale in 1999 of vacant
land adjacent to one of the Company's manufacturing
operations (gain of $1.4 million).
-11-
<PAGE>
Related to the restructuring plan (which commenced in December
1999), additional restructuring charges for the Company's
continuing operations of $1.2 million were incurred in the first
half of 2000 related to severance and business separation costs.
Earnings from continuing operations before interest, income
taxes, equity in earnings of affiliate, and cumulative effect of
a change in accounting principle increased $2.2 million, or 13%,
to $18.6 million in the first half of 2000 resulting from the
higher sales volumes and gains on asset sales (which were
partially offset by investments in e-commerce related initiatives
and incurring the aforementioned further restructuring costs).
EBITDA (which adds back restructuring costs, and depreciation and
amortization - including $4.2 million in acquisition
amortization) increased $8.3 million, or 22%, to $46.4 million in
the first half of 2000.
Net interest expense increased $4.1 million, or 61%, to $10.9
million in the first half of 2000, primarily reflecting increased
debt levels associated with funding acquisitions in the prior
year.
Income tax expense decreased in the first half of 2000 as a
result of the lower level of pretax profit, with the income tax
rate remaining constant with the prior year.
In December 1999, the Company combined its kindergarten through
twelfth grade ("K-12") internet business with the K-12 internet
business of Infonautics, Inc., to form bigcalk.com, with the
equity in bigchalk.com's loss equaling $8.8 million in the first
half of 2000. Subsequent to both venture capital financing and
the sale of the Company's investment in an entity acquired by
bigchalk.com (in exchange for additional common stock) in the
first half of 2000, the company owns approximately 43% of
bigchalk.com. bigchalk.com develops and markets products and
services for research, curriculum integration, assessment, peer
collaboration, professional development, online community, and
e-commerce for teachers, students, parents, librarians and school
administrators in the K-12 educational community.
In the first quarter of 2000, the Company adopted a plan to
divest its Mail and Messaging Technologies/Imaging business and
its financing subsidiary. Accordingly, the operating results of
these businesses have been segregated from the Company's
continuing operations, and are separately reported as a
discontinued operation in the consolidated financial statements.
Net sales for these businesses decreased $31.6 million, or 10%,
to $269.4 million in the first half of 2000. Although service
revenues increased $11.7 million, or 9%, to $142.0 million (and
represent 53% of first half sales) due to both an expanded
-12-
<PAGE>
customer base and increased pricing as well as the acquisition of
the service business of TAB Products Company in the second
quarter of 1999, such increase was more than offset by lower
equipment sales in the current year. While equipment sales have
declined, order intake momentum has strengthened in the second
quarter, which has resulted in an increased backlog. Earnings
before restructuring charges, interest and income taxes decreased
$12.0 million, or 50%, to $12.0 million resulting from the lower
sales volumes and reflecting certain non-recurring expense items.
A further restructuring charge of $5.6 million was recorded in
the first half of 2000 primarily related to further personnel
reductions/space consolidation in Europe.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements. As a result of this pronouncement, the
Company has modified its accounting for new on-line subscriptions
in the Information and Learning business. Previously, revenue
for new on-line subscriptions was recognized during the initial
subscription period in proportion to costs incurred, in order to
yield a constant gross profit percentage throughout the
subscription period. Consistent with the new SEC guidelines,
such revenues are now recognized equally throughout the initial
subscription period, with appropriate cost deferral. The
cumulative effect of adopting this change in accounting principle
of $5.6 million was recognized as of the beginning of the current
fiscal year.
Cash provided by operations was $13.1 million in the first half
of 2000, versus cash used by operations of $3.8 million in the
prior year. Primarily as a result of capital
expenditures/acquisitions and seasonal working capital
requirements, debt (net of cash and cash equivalents) increased
by $12.9 million, to $542.5 million in the first half of 2000.
Recently Issued Financial Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS)
No. 133, Accounting for Derivative Instruments and Hedging
Activities, the effective date of which was postponed until 2001
per SFAS No. 137. This statement, which provides a comprehensive
standard for the recognition and measurement of derivatives and
hedging activities will not have a material impact on the
Company's financial results.
-13-
<PAGE>
Item 3.
------
Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
There have been no material changes in the Company's market risk
during the quarter ended July 1, 2000. For additional
information on market risk, refer to the "Quantitative and
Qualitative Disclosures About Market Risk" section of the
Company's annual report for the fiscal year ended January 1,
2000.
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
------------ -----------
EX-27.1 Financial Data Schedule for Q2 2000,
and restated for Q2 1999
(b) Reports on Form 8-K.
No reports on Form 8-K were filed for the thirteen weeks
ended July 1, 2000.
-14-
<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 10, 2000 BELL & HOWELL COMPANY
/s/ James P. Roemer
---------------------------
James P. Roemer
Chairman of the Board
of Directors, President and
Chief Executive Officer
/s/ Nils A. Johansson
---------------------------
Nils A. Johansson
Executive Vice President,
Chief Financial Officer
and Director
-15-
