By Ann Levine August 7, 2003 - Bowne & Co, Inc. (NYSE: BNE) announced second quarter income of $258,000 or $0.01 per share for the period ending June 30, 2003. For the same period last year, income was $11 million with earnings per share of $0.31. Revenues for the second quarter were $307.7 million compared to $313.3 million for the second quarter in 2002. The decrease in revenues was due to a 38% decline in transactional financial printing. The results for the quarter include restructuring charges, net of tax, of $6.1 million or $0.18 per share Topics of this summary: * Service Group Results * 2003 Outlook * Q & A Second quarter overall revenues were down 2%. During the second quarter Bowne's restructuring charge was $9.6 million. This charge was higher than forecasted due to additional cost reductions taken by the company. Restructuring and integration charges are expected to be $18 million for the year as compared with the previous forecast of $10-15 million. Cost saving should reach $35-40 million exceeding earlier projections. Total cost reductions since 2000 have totaled $140-145 million. Service Group Results Global Solutions - Bowne expected quarter-to-quarter improvement in this sector and posted record profit of $60 million. The strong growth in this sector was a result of top line growth and Bowne's ability to right size the business. GlobalNet and organic growth were also cited as impacting revenues. Organic growth in BGS was 10%. Key performance indicators were the diversity of the customer base, continuing to be the largest language provider to the U.S. government, leveraging government relationships to provide similar language services to other countries, increasing the globalization pipeline, providing localization manuals and the teaming up with Berlitz to increase interpretation services. Even with growth, Bowne continues to implement cost control programs such as a new global workforce process to manage the production of translation documents and a new global vendor management program that will help negotiate lower and manage costs. Business Solutions (Outsourcing) - BSS posted a 7% revenue increase primarily due to the acquisition of DecisionQuest. Revenues increased $4.2 million to $64.3 million. In the second quarter, 15 new contracts were signed. Volumes are expected to increase as capital markets improve. Financial Print - The financial print sector showed 20% decline in revenue and a 38% decline in transactional financial printing. However revenues were up from the first quarter of 2003. In today's conference call Bowne representatives stated that it appears the markets have bottomed out. The financial print sector has seen significant growth in debt transactions and expects robust business in the future. The bankruptcy business has shown $8 million in revenue for the first half of 2003. This sector is experiencing more traction in outsourcing as evidenced by recent deals with Merrill Lynch and an HR outsourcing group. During the second quarter, the Financial Print business fine-tuned the go-to-market approach and the company is targeting financial services, asset management and broker/dealers. Outlook Bowne expects a 2003 overall improvement over the results of 2002. Third quarter revenue is expected in the range of $250 -270 million with EPS in the range of ($0.05) to $0.05. Year end revenue is projected at $1.1 billion with earnings per share ranging from breakeven to $0.10 and a restructuring charge of $18 million. Q & A 1. Gross margins for BGS are expected to be relatively stable at approximately 35% and improvement is expected. Outsourcing saw a 200-basis point decline in gross margins due to volume decline, pricing pressures on renewals and the loss of business from the dissolution of law firms in the second quarter. In financial print, gross margins also declined because of the decline in transactional work. One large job had significant impact on this business. Pricing pressures and volume also impacted GM numbers in financial print. 2. The company's guidance is conservative as the economy and impending deals are difficult to predict. Bowne has seen some signs of improvement in June and July, as activities have been stronger than it has been in the past. Due to the uncertainty in the market, guidance is conservative. 3. BGS posted organic revenue growth of 16% in the second quarter with well over 60% of the growth in new business outside the IT arena. The market is beginning to respond in a way the company anticipated and companies are more comfortable with outsourcing as opposed to insourcing work. The IT market is changing and growing and the company is now seeing proof of it. 4. BGS has seen a gradual demand from the IT sector. As the IT sector begins to see some signs of rebound, companies get aggressive with new product releases. As an example, business with Microsoft was stronger than originally anticipated even though more than 50% of Microsoft's localization is done in house. BGS is now considered an overflow capacity provider. BGS is in discussions with a large number of clients regarding becoming a full outsourcing partner. 5. For the second half of 2003, Bowne expects BBS margins to get up to levels from a year ago. A number of factors will influence margins such as the financial services and investment banking markets hitting bottom, and extending lines of business in investment banking and adding new services. Litigation support services will need to grow faster than it has in the past. DecsionQuest is doing very well and exceeding expectations in revenue growth but the rest of litigation services have not grown at the same pace. 6. Second half gross margins in financial print will be in the range of 50% if the company does $100 million in revenue. Bowne's projections were that transactional revenues would drop from $250 million to $200 million and developed a business model based on the reduction. For the first half of the year, Bowne is at $100 million and on track to make margins.