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
March 29, 1997 33-59994
BELL & HOWELL COMPANY
(Exact Name of Registrant as Specified in its Charter)
Delaware 36-3875177
(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) 470-7660
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 May 2, 1997 was 18,331,483.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
Item 1. Financial Statements
Consolidated Statements of Operations for
the Thirteen Weeks Ended March 30, 1996
and March 29, 1997 ........................... 1
Consolidated Balance Sheets - Assets at
December 28, 1996 and March 29, 1997 ......... 2
Consolidated Balance Sheets - Liabilities
and Shareholders' Equity at December 28, 1996
and March 29, 1997 ........................... 3
Consolidated Statements of Cash Flows
for the Thirteen Weeks Ended March 30, 1996
and March 29, 1997 ............................ 4
Notes to the Consolidated Financial
Statements ................................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations .................................... 7
PART II. OTHER INFORMATION
- ------- -----------------
Item 1. Legal Proceedings .............................. 12
Item 6. Exhibits and Reports on Form 8-K ............... 12
SIGNATURE PAGE ............................................ 13
<PAGE>
<TABLE>
Bell & Howell Company and Subsidiaries
Consolidated Statements of Operations
(Dollars and shares in thousands, except per share data)
(Unaudited)
<CAPTION>
Thirteen Weeks Ended
--------------------------
March 30, March 29,
1996 1997
---------- ----------
<S> <C> <C>
Net sales $ 201,092 $ 200,018
Operating costs and expenses:
Cost of sales 130,578 129,159
Research and development 7,931 9,616
Selling and administrative 48,418 46,080
-------- --------
Total operating costs and expenses 186,927 184,855
Operating income 14,165 15,163
Net interest expense:
Interest (income) (4,272) (5,012)
Interest expense 15,214 16,671
-------- --------
Net interest expense 10,942 11,659
Earnings before income taxes and
extraordinary items 3,223 3,504
Income tax expense 1,370 1,454
-------- --------
Earnings before extraordinary items 1,853 2,050
Extraordinary losses -- (905)
-------- --------
Net earnings $ 1,853 $ 1,145
======== ========
Net earnings per common share:
Primary:
Earnings before extraordinary items $ 0.10 $ 0.11
Extraordinary losses -- (0.05)
-------- --------
Net earnings per common share 0.10 0.06
======== ========
Fully diluted:
Earnings before extraordinary items $ 0.10 0.11
Extraordinary losses -- (0.05)
-------- --------
Net earnings per common share $ 0.10 $ 0.06
======== ========
Average number of common shares and
equivalents outstanding:
Primary 18,588 18,391
Fully diluted 18,644 18,391
</TABLE>
The accompanying Notes to the Consolidated Financial statements
are an integral part of these statements.
-1-
<PAGE>
<TABLE>
Bell & Howell Company and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
Assets
<CAPTION>
December 28, March 29,
1996 1997
------------ ------------
(Audited) (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 15,500 $ 10,993
Accounts receivable, less allowance for
doubtful accounts of $5,294 and $5,386,
respectively 186,862 151,893
Inventory 139,831 139,741
Other current assets 11,826 12,538
-------- --------
Total current assets 354,019 315,165
Property, plant and equipment, at cost 363,015 370,407
Accumulated depreciation (207,287) (217,301)
-------- --------
Net property, plant and equipment 155,728 153,106
Long-term receivables 54,707 51,761
Goodwill, net of accumulated amortization 189,868 191,292
Other assets 42,464 41,694
-------- --------
Total assets $ 796,786 $ 753,018
======== ========
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an Integral part of these statements.
-2-
<PAGE>
<TABLE>
Bell & Howell Company and Subsidiaries
Consolidated Balance Sheets
(Dollars and shares in thousands)
Liabilities and Shareholders' Equity
<CAPTION>
December 28, March 29,
1996 1997
------------ -------------
(Audited) (Unaudited)
<S> <C> <C>
Current liabilities:
Notes payable $ 8,397 $ 7,603
Current maturities of long-term debt 1,667 1,329
Accounts payable 93,135 60,984
Accrued expenses 78,308 52,700
Deferred income 171,698 161,082
Accrued income taxes 1,143 128
-------- --------
Total current liabilities 354,348 283,826
Long-term liabilities:
Long-term debt 548,281 575,756
Other liabilities 61,049 60,901
-------- --------
Total long-term liabilities 609,330 636,657
Shareholders' equity (deficit):
Common Stock, $.001 par value, 18,359 shares
issued and 18,309 shares outstanding at
December 28, 1996, and 18,366 shares issued
and 18,331 shares outstanding at
March 29, 1997 18 18
Capital surplus 1,402 1,380
Notes receivable from executives (1,444) (1,360)
Retained earnings (deficit) (165,851) (164,706)
Cumulative foreign exchange translation adjustments 616 (1,653)
Treasury stock (1,633) (1,144)
-------- --------
Total shareholders' equity (deficit) (166,892) (167,465)
Commitments and contingencies -- --
-------- --------
Total liabilities and shareholders' equity (deficit) $ 796,786 $ 753,018
======== ========
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
-3-
<PAGE>
<TABLE>
Bell & Howell Company and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<CAPTION>
Thirteen Weeks
Ended
-----------------------------
March 30, March 29,
1996 1997
-------- --------
<S> <C> <C>
Operating Activities:
Net earnings $ 1,853 $ 1,145
Depreciation and amortization 11,713 14,753
Debt accretion 6,096 5,714
Changes in operating assets and liabilities:
Accounts receivable 26,431 32,436
Inventory (18,675) (1,542)
Other current assets 66 (848)
Long-term receivables (4,300) 2,946
Income taxes (4,699) (809)
Accounts payable (2,165) (31,513)
Accrued expenses (13,399) (24,573)
Deferred income and other long-term liabilities (4,723) (10,240)
Other, net 1,078 (1,579)
------- -------
Net cash used by operating activities (724) (14,110)
Investing activities:
Expenditures for property, plant and equipment (9,801) (9,262)
Acquisitions (19,718) (2,298)
------- -------
Net cash used by investing activities (29,519) (11,560)
Financing activities:
Proceeds from short-term debt 1,581 1,853
Repayment of short-term debt (7,484) (2,647)
Proceeds from long-term debt 42,100 45,301
Repayment of long-term debt (4,327) (23,365)
Proceeds from Common Stock, net 772 565
------- -------
Net cash provided by financing activities 32,642 21,707
Effect of exchange rate changes on cash (26) (544)
------- -------
Increase (decrease) in cash and cash equivalents 2,373 (4,507)
Cash and cash equivalents, beginning of period 7,262 15,500
------- -------
Cash and cash equivalents, end of period $ 9,635 $ 10,993
======= =======
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
-4-
<PAGE>
Bell & Howell Company and Subsidiaries
Notes to the Consolidated Financial Statements
(Dollars in thousands)
Note 1 - Basis of Presentation
Bell & Howell Company 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 Company and its subsidiaries (collectively the
"Company") and have been prepared without independent audit,
except for the balance sheet data as of December 28, 1996.
Certain prior year amounts have been reclassified to conform with
the 1997 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 Company's annual report for the year ended
December 28, 1996.
-5-
<PAGE>
Note 2 - Significant Accounting Policies
Net Earnings per Common Share. Net earnings per common
share are determined by dividing net earnings by the weighted
average number of common shares outstanding during the period.
If dilutive, stock options are included as common stock
equivalents.
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 $4,489 at December 28, 1996, and March 29, 1997.
Note 3 - Extraordinary Losses
The extraordinary losses of $905 ($1,415 pretax) in the first
quarter of 1997 were comprised of the debt repurchase premium and
write-off of unamortized debt issuance costs associated with the
repurchase of $15,598 (accreted value) of the 11 1/2% Senior Discount
Debentures and $600 of the 10 3/4% Senior Subordinated Notes, which
were redeemed with proceeds from the Credit Agreement.
-6-
<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 December 28, 1996.
Results of Operations
- ---------------------
First Quarter 1997 Compared to First Quarter 1996
- --------------------------------------------------
The Company's net sales for the first quarter of 1997 of
$200.0 million were virtually constant with the first quarter of
1996.
Information Access net sales increased $3.7 million, or
4%, to $110.2 million in the first quarter of 1997. Within the
Information Access businesses, the Company focuses on providing
its customers solutions to their information access needs.
UMI focuses on the education, public and academic as well
as the corporate library markets. PSC focuses on the
transportation/vehicle market. Information Management's primary
focus is on the financial services market, while additionally
supplying technologically advanced digital document scanners to
other markets. UMI's net sales increased $3.9 million, or 10%,
to $43.0 million due to a growing electronic subscription base,
which continued to reflect high renewal rates on existing
products, new product placements, and the impact of the
acquisition of DataTimes Corporation (in September 1996) which
added complementary information content, technology, and
distribution to UMI's electronic product offerings. Sales of
electronic content increased 28% over the prior year as customers
increasingly demand electronic information solutions while they
are evaluating the rapid changes in technology and the evolution
-7-
<PAGE>
of on-line delivery. Net sales of microfilm and paper products
were constant with the prior year as increased pricing offset
lower unit volumes. PSC's net sales increased $2.1 million, or
9%, to $25.9 million due to increased sales of electronic parts
catalogs and ancillary products to automotive dealerships, and
continued strong sales of dealer management systems and
electronic parts catalogs to powersports dealerships. In
addition to the increased new systems placements, PSC continued
to experience both strong sales of add-ons/upgrades and high
contract renewal rates related to previously placed systems in
automotive dealerships. Information Management net sales
decreased $2.3 million, or 5%, to $41.3 million as increased
sales of digital document scanners and imaging software systems
were more than offset by the impact of divesting certain low
margin product lines in the Canadian and French markets.
Excluding the impact of the divested product lines, Information
Management's net sales in the first quarter of 1997 would have
increased by 6% over the prior year.
Mail Processing net sales decreased $4.8 million, or 5%, to
$89.8 million in the first quarter of 1997. Although order
intake for commercial mail processing systems (which now
represents 90% of the sales in this segment) increased in excess
of 30% in the first quarter of 1997 reflecting strong market
demand, sales of $80.9 million in the first quarter of 1997 were
virtually constant with the prior year as the backlog grew, while
service revenue continued to increase (due to both an expanding
customer base and increased pricing). Sales of commercial
sorting equipment (which now represents 10% of commercial
equipment sales) increased $1.3 million, or 47%, to $4.1 million
as the U.S. Postal Service guidelines governing the operating
requirements to qualify for incentives to bar code and presort
mail (which became effective mid-1996) have created a more
favorable environment for customers to invest in advanced sorting
automation technology. Sales of customized mail automation
equipment and contractual engineering services to governmental
postal authorities decreased $4.1 million to $8.9 million in the
first quarter of 1997, primarily as a result of shipments of
significant one-time contracts to the U.S. Postal Service in the
first quarter of 1996.
-8-
<PAGE>
The Company's cost of sales decreased $1.4 million, or 1%,
to $129.2 million in the first quarter of 1997, with the gross
profit (net sales less cost of sales) percentage increasing by
0.4 percentage points to 35.4% in the current year. The higher
gross profit rate in 1997 resulted from a shift in sales mix (as
the growth rate in higher gross margin percentage Information
Access revenues exceeded the growth rate in lower gross margin
percentage Mail Processing revenues), and additionally reflects
both improved manufacturing productivity and increased pricing.
Research and development expense increased $1.7 million, or
21%, to $9.6 million in the first quarter of 1997 as the Company
continued to increase its investment in new product offerings.
Such increase primarily related to increased development costs to
integrate DataTimes and to develop a new technology platform for
the powersports market. 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 decreased $2.3 million,
or 5%, to $46.1 million and the ratio of selling and
administrative expense to net sales decreased by 1.0 percentage
point to 23.0% in the first quarter of 1997 (versus the prior
year) as a result of various expense leveraging initiatives.
EBITDA (defined as operating income plus depreciation and
amortization) increased $3.8 million, or 15%, to $29.1 million
in the first quarter of 1997 resulting from the improved gross
margin rate and leveraged operating expenses. Operating income
increased $1.0 million, or 7%, to $15.2 million in the first
quarter of 1997.
Information Access EBITDA increased $3.4 million, or 17%,
to $23.5 million in the first quarter of 1997. 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) which
more than offset the dilutive impact in 1997 of the acquisitions
of DataTimes and Protocorp, and increased research and
-9-
<PAGE>
development costs associated with new product offerings.
Information Access operating income increased $1.0 million, or
9%, to $12.2 million in the first quarter of 1997 as the EBITDA
increase was partially offset by both higher depreciation cost on
UMI's product capital investment and goodwill amortization
related to the aforementioned acquisitions in 1996.
Mail Processing EBITDA increased $0.4 million, or 5%, to
$8.9 million in the first quarter of 1997 as a result of
leveraged operating costs and expenses. Mail-Processing
operating income increased $0.1 million, or 1%, to $6.4 million
in the first quarter of 1997.
Corporate expenses (excluding depreciation and amortization)
were constant at $3.3 million in the first quarter of 1997 as
productivity improvements offset inflationary cost increases.
Net interest expense increased $0.7 million, or 7%, to $11.7
million in the first quarter of 1997, primarily reflecting the
increased debt resulting from the aforementioned 1996
acquisitions, which was partially offset by the impact of the
repurchase in 1996 and 1997 of portions of the 10 3/4% Senior
Subordinated Notes and the 11 1/2% Senior Discount Debentures,
which were redeemed with proceeds from the Credit Agreement. Net
interest income of Bell & Howell Financial Services Company, the
Company's financing subsidiary, increased $0.1 million to $2.0
million in the first quarter of 1997, primarily due to continued
growth in the lease receivables portfolio.
Income tax expense increased in the first quarter of 1997 as
a result of a higher level of pretax profit in the current year.
The extraordinary losses of $0.9 million ($1.4 million
pretax) in the first quarter of 1997 were comprised of the debt
repurchase premium and write-off of unamortized debt issuance
costs associated with the aforementioned repurchase of $15.6
million (accreted value) of the 11 1/2% Senior Discount
Debentures and $0.6 million of the 10 3/4% Senior Subordinated
Notes with proceeds from the Credit Agreement.
-10-
<PAGE>
Cash used by operations was $14.1 million in the first
quarter of 1997 versus cash used by operations of $0.7 million in
the first quarter of 1996. Although EBITDA increased by $3.8
million in the first quarter of 1997, the Company achieved a
greater reduction in working capital in the prior year. 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 prepaid subscriptions in the Information Access business
segment.
As a result of the cash used by operations (which reflects
the seasonal nature of the Company's cash collections and
disbursements), capital expenditures/acquisitions and continued
interest accretion on the 11 1/2% Senior Discount Debentures,
debt (net of cash and cash equivalents) increased by $30.9
million to $573.7 million in the first quarter of 1997.
Recently Issued Financial Accounting Standards
Statement of Financial Accounting Standards No. 128,
"Earnings per Share", was issued in February 1997. The standard
establishes new methods for computing and presenting earnings per
share ("EPS") and replaces the presentation of primary and
fully-diluted EPS with basic and diluted EPS. The Company is
required to adopt the new standard for periods ending after
December 15, 1997, with earlier adoption not permitted. The new
methods under this standard do not have a material impact on the
Company's current earnings per share amounts.
-11-
<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
Per Common Share
(27.1) Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed for the thirteen weeks
ended March 29, 1997.
-12-
<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: May 2, 1997 BELL & HOWELL COMPANY
/s/ James P. Roemer
--------------------------
James P. Roemer
President, Chief Executive
Officer and Director
/s/Nils A. Johansson
--------------------------
Nils A. Johansson
Executive Vice President,
Chief Financial Officer
and Director
-13-
<PAGE>
<TABLE>
Exhibit 11.1
Bell & Howell Company and Subsidiaries
Computation of Earnings per Common Share
(Dollars and shares in thousands, except per share data)
(Unaudited)
<CAPTION>
Thirteen Weeks
Ended
----------------------
March 30, March 29,
1996 1997
--------- ---------
<S> <C> <C>
Net earnings:
Earnings before extraordinary items $ 1,853 $ 2,050
Extraordinary losses -- (905)
------ ------
Net earnings $ 1,853 $ 1,145
====== ======
Average number of common shares and
equivalents outstanding:
Primary 18,588 18,391
Fully diluted 18,644 18,391
Net earnings per common share:
Primary:
Earnings before extraordinary
items $ 0.10 $ 0.11
Extraordinary losses -- (0.05)
------ ------
Net earnings per common share $ 0.10 $ 0.06
====== ======
Fully diluted:
Earnings before extraordinary
items $ 0.10 $ 0.11
Extraordinary losses -- (0.05)
------ ------
Net earnings per common share $ 0.10 $ 0.06
====== ======
</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> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> MAR-29-1997
<CASH> 10933
<SECURITIES> 0
<RECEIVABLES> 157279
<ALLOWANCES> (5386)
<INVENTORY> 139741
<CURRENT-ASSETS> 315165
<PP&E> 370407
<DEPRECIATION> (217301)
<TOTAL-ASSETS> 753018
<CURRENT-LIABILITIES> 283826
<BONDS> 0
0
0
<COMMON> 18
<OTHER-SE> (167483)
<TOTAL-LIABILITY-AND-EQUITY> (753018)
<SALES> 200018
<TOTAL-REVENUES> 200018
<CGS> 129159
<TOTAL-COSTS> 184855
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11659
<INCOME-PRETAX> 3504
<INCOME-TAX> 1454
<INCOME-CONTINUING> 2050
<DISCONTINUED> 0
<EXTRAORDINARY> (905)
<CHANGES> 0
<NET-INCOME> 1145
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
