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 30, 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 November 9, 2000 was 23,639,734.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
------ --------------------- ----
Item 1. Consolidated Financial Statements
Consolidated Statements of Operations for
the Thirteen and Thirty-Nine Weeks Ended
September 30, 2000 and October 2, 1999 ....... 1
Consolidated Balance Sheets - Assets at
September 30, 2000 and January 1, 2000 ....... 2
Consolidated Balance Sheets - Liabilities
and Shareholders' Equity at September 30, 2000
and January 1, 2000 .......................... 3
Consolidated Statements of Cash Flows for
the Thirty-Nine Weeks Ended September 30, 2000
and October 2, 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 ............................. 15
PART II. OTHER INFORMATION
------- -----------------
Item 1. Legal Proceedings .............................. 15
Item 6. Exhibits and Reports on Form 8-K ............... 15
SIGNATURE PAGE ............................................ 16
<PAGE>
<TABLE>
Bell & Howell Company and Subsidiaries
Consolidated Statements of Operations
(Dollars and shares in thousands, except per share data)
(Unaudited)
<CAPTION>
Thirteen Weeks Thirty-Nine Weeks
Ended Ended
--------------------- ---------------------
Sep. 30, Oct. 2, Sep. 30, Oct. 2,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales .............................................. $ 94,087 $ 86,519 $ 275,180 $ 257,413
Cost of sales .......................................... 46,534 44,641 141,693 134,115
Research and development expense ....................... 4,943 4,660 13,453 14,490
Selling and administrative expense ..................... 28,413 25,585 88,758 80,736
Gains on sales of assets ............................... -- -- (2,751) --
Restructuring charges .................................. 1,194 -- 2,427 --
-------- -------- -------- --------
Earnings from continuing operations before interest,
income taxes, equity in earnings (loss) of affiliate and
cumulative effect of a change in accounting principle .. 13,003 11,633 31,600 28,072
Net interest expense:
Interest income ......................................... (358) (3,151) (630) (3,923)
Interest expense ........................................ 5,564 3,761 16,692 11,290
-------- -------- -------- --------
Net interest expense .................................... 5,206 610 16,062 7,367
Earnings from continuing operations before income taxes,
equity in earnings (loss) of affiliate and cumulative
effect of a change in accounting principle ............. 7,797 11,023 15,538 20,705
Income tax expense ...................................... 3,119 4,409 6,215 8,282
Equity in earnings (loss) of affiliate .................. (5,573) -- (14,345) --
-------- -------- -------- --------
Earnings (loss) from continuing operations before
cumulative effect of a change in accounting principle .. (895) 6,614 (5,022) 12,423
Earnings from discontinued operations ................... 3,282 6,362 4,025 17,637
Cumulative effect of a change in accounting principle ... -- -- (5,628) --
-------- -------- -------- --------
Net earnings (loss) ..................................... $ 2,387 $ 12,976 $ (6,625) $ 30,060
======== ======== ======== ========
Net earnings (loss) per common share:
Basic:
Earnings (loss) from continuing operations before
cumulative effect of a change in accounting principle .. $ (0.04) $ 0.28 $ (0.21) $ 0.53
Earnings from discontinued operations ................... 0.14 0.27 0.17 0.75
Cumulative effect of a change in accounting principle ... - -- (0.24) --
-------- -------- -------- --------
Net earnings (loss) per common share .................... $ 0.10 $ 0.55 $ (0.28) $ 1.28
======== ======== ======== ========
Diluted:
Earnings (loss) from continuing operations before
cumulative effect of a change in accounting principle .. $ (0.04) $ 0.28 $ (0.21) $ 0.52
Earnings from discontinued operations ................... 0.14 0.26 0.17 0.74
Cumulative effect of a change in accounting principle ... -- -- (0.24) --
-------- -------- -------- --------
Net earnings (loss) per common share .................... $ 0.10 $ 0.54 $ (0.28) $ 1.26
======== ======== ======== ========
Average number of common shares and equivalents outstanding:
Basic ................................................... 23,671 23,669 23,685 23,548
Diluted ................................................. 23,700 23,953 23,764 23,870
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
-1-
<PAGE>
<TABLE>
Bell & Howell Company and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
Assets
<CAPTION>
September 30, January 1,
2000 2000
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................ $ 7,483 $ 4,773
Accounts receivable .............................. 61,669 72,118
Inventory ........................................ 8,705 9,302
Other current assets ............................. 10,197 8,898
-------- --------
Total current assets ............................. 88,054 95,091
Property, plant and equipment, at cost ........... 387,524 363,380
Accumulated depreciation ......................... (261,034) (237,061)
-------- --------
Net property, plant and equipment ................ 126,490 126,319
Long-term receivables ............................ 16,966 15,371
Goodwill, net of accumulated amortization ........ 219,064 224,809
Net assets of discontinued operations ............ 262,439 278,524
Other assets ..................................... 46,481 46,505
-------- --------
Total assets ..................................... $ 759,494 $ 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>
September 30, January 1,
2000 2000
------------- -------------
<S> <C> <C>
Current liabilities:
Notes payable ........................................... $ 17,383 $ 25,646
Current maturities of long-term debt .................... 486 1,916
Accounts payable ........................................ 32,606 37,632
Accrued expenses ........................................ 32,007 34,295
Deferred income ......................................... 75,962 107,638
-------- --------
Total current liabilities ............................... 158,444 207,127
Long-term liabilities:
Long-term debt .......................................... 530,321 506,783
Other liabilities ....................................... 76,271 72,990
-------- --------
Total long-term liabilities ............................. 606,592 579,773
Shareholders' equity:
Common Stock, $.001 par value, 24,084 shares issued
and 23,640 shares outstanding at October 1, 2000,
and 23,969 shares issued and 23,632 shares outstanding
at January 1, 2000 ..................................... 24 24
Capital surplus ......................................... 156,614 153,654
Notes receivable from executives ........................ (1,123) (1,544)
Retained earnings (deficit) ............................. (149,834) (143,209)
Cumulative foreign exchange translation adjustments ..... -- (414)
Treasury stock .......................................... (11,223) (8,792)
-------- --------
Total shareholders' equity (deficit) .................... (5,542) (281)
-------- --------
Total liabilities and shareholders' equity .............. $ 759,494 $ 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>
Thirty-Nine Weeks Ended
------------------------
Sep. 30, Oct 2,
2000 1999
-------- --------
<S> <C> <C>
Operating Activities:
Earnings (loss) from continuing operations before
cumulative effect of a change in accounting principle .. $ (5,022) $ 12,423
Depreciation and amortization ........................... 38,598 32,358
Changes in operating assets and liabilities:
Accounts receivable ..................................... 9,407 (17,143)
Inventory ............................................... 491 1,081
Other current assets .................................... 924 (7)
Long-term receivables ................................... (1,595) (3,914)
Income taxes ............................................ 4,930 3,159
Accounts payable ........................................ (5,041) (4,974)
Accrued expenses ........................................ 24 (7,097)
Deferred income and other long-term liabilities ......... (42,811) 8,121
Other, net .............................................. (2,764) (8,773)
------- -------
Net cash provided (used) by continuing operations ....... (2,859) 15,234
Net cash provided (used) by discontinued operations ..... 31,031 (1,049)
------- -------
Net cash provided by operating activities ............... 28,172 14,185
Investing activities:
Expenditures for property, plant and equipment .......... (35,679) (33,807)
Acquisitions ............................................ (7,484) (34,172)
Proceeds from asset sales ............................... 2,551 --
------- -------
Net cash used by investing activities ................... (40,612) (67,979)
Financing activities:
Proceeds from short-term debt ........................... 12,600 12,508
Repayment of short-term debt ............................ (18,819) (7,750)
Proceeds from long-term debt ............................ 37,058 63,069
Repayment of long-term debt ............................. (14,950) (32,480)
Proceeds from Common Stock, net ......................... 976 9,066
------- -------
Net cash provided by financing activities ............... 16,865 44,413
Effect of exchange rate changes on cash ................. (1,715) (448)
------- -------
Increase (decrease) in cash and cash equivalents ........ 2,710 (9,829)
Cash and cash equivalents, beginning of period .......... 4,773 18,074
------- -------
Cash and cash equivalents, end of period ................ $ 7,483 $ 8,245
======= =======
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 and 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 September 30, 2000, and January 1, 2000.
The components of inventory are shown in the table below as of
the dates indicated:
<TABLE>
<CAPTION>
September 30, January 1,
2000 2000
------------- -----------
<S> <C> <C>
Finished products .................... $ 3,306 $ 3,400
Products in process and materials .... 5,399 5,902
------- -------
Total inventory ...................... $ 8,705 $ 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 Thirty-Nine Weeks Ended
-------------------- -----------------------
Sep. 30, Oct. 2, Sep. 30, Oct. 2,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic ............................... 23,671 23,669 23,685 23,548
Dilutive effect of stock options .... 29 284 79 322
------ ------ ------ ------
Diluted ............................. 23,700 23,953 23,764 23,870
====== ====== ====== ======
</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 ... $ .23 $ .28 $ .45 $ .52
Restructuring charges ..................... (.03) -- (.06) --
Equity in earnings (loss) of affiliate .... (.24) -- (.60) --
----- ------ ----- -----
Earnings (loss) per common share .......... $ (.04) .28 (.21) .52
===== ====== ===== =====
</TABLE>
Note 3 - Discontinued Operations
In the first quarter of fiscal 2000, the Company adopted a plan
to divest its Mail and Messaging Technologies and 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 Thirty-Nine Weeks Ended
---------------------- ----------------------
Sept. 30, Oct. 2, Sept. 30, Oct. 2,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales .............................. $143,814 $151,798 $413,258 $452,792
Earnings before restructuring charges,
interest and income taxes ............. 10,390 13,182 22,421 37,216
Restructuring charges .................. 1,734 -- 7,374 --
Interest expense, net .................. 3,185 2,578 8,338 7,821
------- ------- ------- -------
Earnings before income taxes ........... 5,471 10,604 6,709 29,395
Income tax expense ..................... 2,189 4,242 2,684 11,758
------- ------- ------- -------
Earnings from discontinued operations .. $ 3,282 $ 6,362 $ 4,025 $ 17,637
======= ======= ======= =======
</TABLE>
In October 2000, the Company announced an agreement to sell its
Imaging business to Eastman Kodak for approximately $150,000 in
cash, with the proceeds used to reduce debt outstanding. Such
sale is subject to obtaining regulatory approvals and is expected
to close near the end of the current fiscal year.
Note 4 - Sales of Assets
Gains on sales of assets in the first nine months 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
recording a charge of $36,765 ($28,277 after-tax). In the first
nine months of fiscal 2000, further restructuring charges of
$9,801 ($5,881 after-tax) were recorded primarily for severance
cost and future lease obligations. The restructuring plan will
be substantially completed over the next twelve months, with the
details of the restructuring charges as follows:
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
Balance September 30, 2000 Balance
--------------------------------
January 1, 2000 Restruct. Utilized Sept. 30, 2000
Charge Cash Noncash
--------------- -------- ------- -------- -------------
<S> <C> <C> <C> <C> <C>
Continuing Operations
Severance ................ $ 5,905 $ 187 $ 2,287 $ -- $ 3,805
Obligations under various
noncancellable leases ... 4,600 1,445 1,100 -- 4,945
Business separation costs -- 795 795 -- --
------ ------ ------ ------ ------
Continuing Operations .... 10,505 2,427 4,182 -- 8,750
Discontinued Operations
-----------------------
Severance ................ 4,411 5,055 6,221 -- 3,245
Asset impairment costs ... 18,742 255 255 18,742 --
Obligations under various
noncancellable leases ... 3,107 2,064 1,438 -- 3,733
------ ------ ------ ------ ------
Discontinued Operations . 26,260 7,374 7,914 18,742 6,978
------ ------ ------ ------ ------
Total Company ............ $36,765 $ 9,801 $12,096 $18,742 $15,728
====== ====== ====== ====== ======
</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 Thirty-Nine Weeks Ended
-------------------- -----------------------
Sep. 30, Oct. 2, Sep. 30, Oct. 2,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Earnings (loss) from continuing operations
before cumulative effect of a change in
accounting principle ....................... $ (895) $ 6,614 $(5,022) $12,423
Earnings from discontinued operations ....... 3,282 6,362 4,025 17,637
Cumulative effect of a change in accounting
principle .................................. -- -- (5,628) --
------ ------ ------ ------
Net earnings (loss) ......................... 2,387 12,976 (6,625) 30,060
Other comprehensive income (loss):
Foreign currency translation adjustments .... (1,606) 2,209 (3,316) (1,148)
------ ------ ------ ------
Comprehensive income (loss) ................. $ 781 $15,185 $(9,941) $28,912
====== ====== ====== ======
</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
---------------------
Nine Months Year-to-Date 2000 Compared to Nine Months
-----------------------------------------------------
Year-to-Date 1999
-----------------
The Company's net sales from continuing operations increased
$17.8 million, or 7%, to $275.2 million in the first nine months
of 2000, resulting from strong sales growth of the Information
and Learning business. Net sales of the Information and Learning
business increased $19.8 million, or 14%, to $158.4 million due
to a growing electronic subscription base, and reflects the
acquisition of Chadwyck-Healey (a leading provider of humanities
and social science reference and research publications for the
academic, professional and library markets) in the fourth quarter
of 1999. If the prior year sales were adjusted to reflect
consistent revenue recognition for new on-line subscriptions and
consistent treatment for the results of the Company's
kindergarten through twelfth grade ("K-12") internet business
(which was combined with the K-12 internet business of
Infonautics, Inc. in December 1999 to form bigchalk.com),
year-to-date sales growth increases to 19%. Sales of electronic
content (on a comparable basis) increased 40%, with the
electronic subscription base continuing to reflect strong sales
of ProQuest TM (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 44% of Information and Learning
year-to-date 2000 sales) were slightly below the prior year as
increased pricing was more than offset by lower unit volumes.
Net sales of the Publishing Services business decreased $2.0
million, or 2%, to $116.8 million in the first nine months of
2000 as increased sales of dealer management systems to
powersports dealerships, increased sales of performance database
products and increased micropublishing sales to select vertical
markets, were more than offset by lower sales of electronic parts
catalogs and ancillary products to automotive dealerships. The
-10-
<PAGE>
adverse prior year comparison for automotive sales is impacted by
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,
which were non-Y2K compliant, have been previously replaced).
Despite the modest sales decline in the current year, the
installed base of systems increased 8% and now exceeds 31,000
sites worldwide.
The Company's cost of sales increased $7.6 million, or 6% to
$141.7 million in the first nine months of 2000, with the gross
profit (net sales less cost of sales) percentage increasing by .6
percentage points to 48.5% reflecting a more profitable product
mix, increased pricing, and improved leveraging of the ProQuest
TM data center cost infrastructure.
Research and development expense decreased $1.0 million, or 7%,
to $13.5 million in the first nine months of 2000 as the prior
year reflected additional Y2K and ProQuest TM 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 $8.0 million, or
10%, to $88.8 million in the first nine months 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.
Current year operating expenses include significant investments
in new e-commerce initiatives such as Xanedu TM (a product line
which leverages Information and Learning's content to equip
students and professors with electronic learning tools and
applications), CollisionLink TM (a product which leverages
Publishing Services' content to allow automotive dealerships to
sell parts to collision/body shops), and Motorcycleworld.com
(the Company's motorcycle portal focused on providing
business-to-business and business-to-consumer services to the
motorcycle market). Such investments totaled $10.2 million
year-to-date.
-11-
<PAGE>
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).
Related to the restructuring plan (which commenced in December
1999), additional restructuring charges for the Company's
continuing operations of $2.4 million were incurred in the first
nine months of 2000 related to severance, obligations under
non-cancelable leases for which no economic benefit will be
subsequently realized, 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 $3.5 million, or 13%,
to $31.6 million in the first nine months of 2000 resulting from
the higher sales volumes, leveraged operating costs and expenses,
and gains on asset sales (which were partially offset by the
aforementioned investments in e-commerce related initiatives and
restructuring costs). EBITDA (which adds back restructuring
costs, and depreciation and amortization - including $6.3 million
in acquisition amortization) increased $12.2 million, or 20%, to
$72.3 million in the first nine months of 2000.
Net interest expense increased $8.7 million to $16.1 million in
the first nine months of 2000, primarily reflecting increased
debt levels associated with funding acquisitions in the prior
year, and the impact of $3.0 million of interest income accrued
in the prior year related to a favorable settlement with the
Internal Revenue Service which resulted in an income tax refund
with interest.
Income tax expense decreased in the first nine months of 2000 as
a result of the lower level of pretax profit, with the income tax
rate remaining constant with the prior year.
As previously mentioned, in December 1999, the Company combined
its 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 $14.3 million in the first nine
months of 2000. Subsequent to both venture capital financing and
-12-
<PAGE>
the sale of the Company's investment in an entity acquired by
bigchalk.com (in exchange for additional common stock) in the
first nine months 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 and Imaging businesses
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 $39.5 million, or 9%, to
$413.3 million in the first nine months of 2000. Although
service revenues increased $9.9 million, or 5%, to $208.8 million
(and represent 51% of year-to-date 2000 sales) due to both an
expanded 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 and third quarters, which has resulted in an increased
backlog. Earnings before restructuring charges, interest and
income taxes decreased $14.8 million to $22.4 million, resulting
from the lower sales volumes and reflects certain non-recurring
expense items. A further restructuring charge of $7.4 million
was recorded in the first nine months of 2000 primarily related
to further personnel reductions/space consolidation in Europe. In
October 2000, the Company announced an agreement to sell its
Imaging business to Eastman Kodak for approximately $150.0
million in cash, with the proceeds used to reduce debt
outstanding. Such sale is subject to obtaining regulatory
approvals and is expected to close near the end of the current
fiscal year.
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
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of $5.6 million was recognized as of the beginning of the current
fiscal year. In addition, pursuant to this SEC pronouncement,
the Company plans to modify revenue recognition for its domestic
automotive subscriptions in the Publishing Services business.
Such impact (the cumulative effect of which will also be
recognized as of the beginning of the current fiscal year, and
which will serve to restate the current year results) will be
reflected in the fourth quarter of 2000.
Cash provided by operations increased $14.0 million to $28.2
million in the first nine months of 2000. Primarily as a result
of capital expenditures/acquisitions and seasonal working capital
requirements, debt (net of cash and cash equivalents) increased
by $11.1 million, to $540.7 million in the first nine months 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 (which has been amended by SFAS No. 137 and 138), the
effective date of which was postponed until 2001. 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.
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<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 September 30, 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
Q3 2000, and restated for
Q3 1999
(b) Reports on Form 8-K.
No reports on Form 8-K were filed for the thirteen weeks
ended September 30, 2000.
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<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 9, 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
and Director
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