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Bowne & Co. Reports Strong Q3 '07 Results; Gross margin improved to 34.7%

Monday, November 12, 2007

Press release from the issuing company

NEW YORK, NY, Nov 09, 2007 Bowne & Co., Inc., a global leader in providing shareholder and marketing communications services, today announced continued solid operating results for the 2007 third quarter and year-to-date.
Revenue of $181.4 million in the third quarter of 2007 -- the Company's highest third quarter since 2000 -- compared to $175.1 million in 2006. Gross margin improved to 34.7% from 33.8%. Income from continuing operations increased to $0.9 million from $0.3 million. Earnings per diluted share from continuing operations were $0.03, compared to $0.01 for the same period last year.
For the nine months ended September 30, 2007, revenue was $654.9 million -- the highest level since 2000 -- up from $641.2 million reported in the comparable 2006 period. Gross margin increased $21.8 million, or 9.7%, and as a percentage of revenue improved to 37.4% from 34.8% in the nine months ended September 30, 2006. Income from continuing operations increased $14.8 million, or 124%, to $26.8 million from $11.9 million reported in 2006, with resulting earnings per diluted share of $0.86 versus $0.37 in 2006.
Pro forma income from continuing operations increased 53% to $2.2 million and 40% to $27.9 million for the quarter and year-to-date, respectively. Pro forma earnings per diluted share from continuing operations were $0.08 and $0.90 for the 2007 third quarter and year-to-date, compared to $0.05 and $0.60 in the comparable 2006 periods. (See page 9, Pro Forma Supplemental Income Information for a reconciliation of these non-GAAP financial measures to our Condensed Consolidated Statements of Operations.)
"We continue to be pleased with our overall performance," said David J. Shea, Bowne Chairman, President and Chief Executive Officer. "Our margin and profitability improvement is a direct result of the effective implementation of our strategic initiatives to grow non-transactional revenue and improve the efficiency and utilization of our operations. We're also excited about the acquisition of Alliance Data Mail Services, an affiliate of Alliance Data Systems Corporation (NYSE: ADS), which directly supports our strategy to grow non-transactional revenue with strategic, bolt-on acquisitions and accelerate our growth in marketing and business communications services by expanding our geographic reach and industry verticals, while adding new technology capabilities."
Financial Communications (FC): Financial Communications reported third quarter revenue of $157 million, a 6% increase over $148 million for the same period last year. Transactional revenue of $77.2 million -- the strongest third quarter since 2000 -- increased $10.1 million, or 15%, as compared to the 2006 third quarter. Non-transactional revenue decreased slightly from the third quarter of 2006, principally the result of decreased commercial revenue partially offset by revenue increases in mutual funds, translations and one of the Company's newest product offerings, Bowne Virtual Dataroom(TM).
For the nine months ended September 30, 2007, revenue increased $23.5 million, or 4%, to $568 million, primarily due to increased non-transactional revenue. This increase in revenue includes mutual fund business and compliance reporting, as well as significantly improved revenue in translations and virtual data room services. Non-transactional revenue of $350.4 million achieved a record high for the September year-to-date period. Transactional revenue increased 2% over the 2006 comparable period.
Revenue from international operations increased 23% to $44.4 million for the quarter ended September 30, 2007, compared to $36.1 million for the comparable 2006 period, primarily attributable to growth in Europe. Year-to-date international revenue of $138.5 million represents the Company's highest level ever.
Gross profit increased $3.7 million and $20.7 million for the three and nine month periods ended September 30, 2007 as compared to the comparable 2006 periods. As a percentage of sales, gross margins increased to 35.7% and 38.3% for the quarter and nine months ended September 30, 2007, respectively, compared to 35.4% and 36.1% for the comparable 2006 periods. The increases in gross margin reflect the favorable impact of the Company's strategic initiatives including cost saving measures.
Segment Profit for the quarter increased to $18.6 million from $17.7 million in 2006. Year-to-date segment profit was $97.2 million, an increase of $12.8 million, or 15%, and as a percentage of revenue was 17.1%, compared to 15.5% for the same period in 2006.
Marketing & Business Communications (MBC): MBC reported third quarter revenue of $24.4 million, $2.7 million lower than the third quarter of last year, principally the result of Vestcom transition revenue and other non-recurring revenue included in 2006. Year-to-date revenue of $87 million was $9.8 million lower than 2006. The 2006 year-to-date results included approximately $11.3 million of non-recurring revenue as previously noted including revenue related to the initial rollout of the Medicare Part D open enrollment program.
Gross margin for the quarter decreased to 8.4% from 9.6% as a result of lower revenue. Year-to-date gross margin increased to 15.6% from 13.7% in 2006, primarily due to improved operating efficiencies and the reduction of costs as a result of the consolidation of production facilities.
Segment Profit for the quarter was a loss of $2 million, flat with the 2006 third quarter. Year-to-date Segment Profit of $0.2 million improved $1.6 million from a loss of $1.4 in 2006.
Restructuring, integration and asset impairment charges: These charges totaled $2.1 and $12.2 million for the 2007 third quarter and year-to-date respectively, compared to $1.9 and $12.1 million in the comparable 2006 periods. Third quarter 2007 charges include $1.4 million related to the previously announced consolidation of the digital Milwaukee facility into the existing South Bend manufacturing facility, creating the Company's first fully-integrated offset and digital distributive platform. This consolidation should result in annual cost savings of approximately $2 to $3 million. Year-to-date 2007 charges include facility exit costs and asset impairment charges related to the consolidation of leased space at 55 Water Street in New York City, severance, integration and facility costs related to the integration of the St Ives Financial business and the aforementioned consolidation of the Milwaukee facility.
Balance Sheet and Cash Flow: For the nine months ended September 30, 2007, cash and marketable securities of $82.4 million declined $3.2 million from year-end 2006. This includes the funding of $40.1 million in stock repurchases, $12.6 million for acquisitions, $14.3 million in capital expenditures (including $3.0 million related to the consolidation of the 55 Water Street facility) and a $3.3 million contribution to the Company's pension plan.
The cash expenditures above were funded by an increase in net cash provided by operations of $72 million. Net cash provided by operating activities of $57 million for the nine months ended September 30, 2007 compared to net cash used in operating activities of $15.1 million for the nine months ended September 30, 2006. This significant increase is primarily due to improved operating results, reduced accounts receivable -- the result of improved billing and collection efforts -- and decreases in income taxes paid and in the funding of the Company's pension plans in 2007 as compared to 2006.
Accounts receivable declined approximately $10.0 million compared to December 2006. Compared to September 2006, accounts receivable decreased approximately $4.8 million as days sales outstanding improved to 71 days in September 2007 from 76 days in September 2006. Financial Communications work-in-process inventory was $17.9 million at September 30, 2007 compared to $21.2 million at September 30, 2006.
The Company has no borrowings outstanding under its $150 million five-year senior, unsecured revolving credit facility, maturing in May 2010.
Share Repurchase Program: In the 2007 third quarter, the Company spent $21.4 million repurchasing 1.3 million shares of its common stock at an average price per share of $16.71. During the nine months ended September 30, 2007, the Company repurchased 2.4 million shares of its common stock for $40.1 million (an average price of $16.37).
From December 2004, the inception of the Company's share repurchase program, through September 30, 2007, Bowne has spent approximately $185.3 million to repurchase 12.3 million shares at an average price per share of $15.08. As of November 5, 2007, $5.8 million of its share repurchase authorization remained.
Total shares outstanding as of November 1, 2007 were 26,691,860.
Business Outlook: Consistent with the Company's policy of not adjusting annual guidance unless it believes the actual results will be materially outside the range provided, the Company disclosed certain adjustments in the quarterly report on Form 10-Q for the six months ended June 30, 2007 to the estimates that it had previously provided in its 2007 Outlook included in its annual report on Form 10-K for the year ended December 31, 2006.
The Company expects overall operating performance will be in the range of the full-year guidance previously provided in August.
Forward-Looking Statements: The Company notes that forward-looking
statements of future performance contained in this release are based upon current expectations and are subject to factors that could cause actual results to differ materially from those suggested here, including demand for and acceptance of the Company's services, new technological developments, competition and general economic or market conditions, particularly in the domestic and international capital markets, regulatory rule changes, and the effect of potential dilution from the Convertible Subordinated Debt and the impact from any future purchases under the Company's share repurchase program.
Bowne & Co. will hold its earnings conference call to review the 2007 third quarter results and to discuss the acquisition of Alliance Data Mail Services on Thursday, November 8, 2007, at 11 a.m. Eastern Time. To join the Web cast, log on to http://www.bowne.com. To access the call via telephone, please dial (877) 407-0778 (domestic) or (201) 689-8565 (international), conference ID # 259575.




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