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Bowne revenues slide 19%

Thursday, March 19, 2009

Press release from the issuing company

NEW YORK, NY -- Bowne & Co., Inc. , a global leader in shareholder and marketing communications services, today announced its fourth quarter and full year operating results.

Bowne also announced that it is in discussions with its bank group for the amendment and extension of its $150 million senior revolving credit facility, and expects to close on the credit facility extension in the near future. The Company has support from its bank group and is in the final stages of contract negotiations. Its existing credit facility expires May 2010.

Revenue was $156.9 million in the fourth quarter of 2008 compared to $194.7 million in the fourth quarter of 2007, a decline of $37.8 million, or 19%. In the fourth quarter of 2008, the Company generated gross profit of $42.0 million, with a 27% gross margin contribution, compared to $73.9 million and a 38% gross margin contribution in the prior year period. Segment loss was ($2.2) million compared to segment profit of $6.2 million in the fourth quarter of 2007. Loss from continuing operations was ($15.5) million, or ($0.56) per diluted share, compared to income of $0.4 million, or $0.01 per diluted share, in the fourth quarter of 2007.

For the year ended December 31, 2008, revenue was $766.6 million, down 10% from $850.6 million reported for the prior year. Gross profit in 2008 was $241.6 million, with a 32% gross margin contribution, compared to $319.4 million and a 38% gross margin contribution in the comparable prior year period. Segment profit was $33.2 million for the full year 2008, compared to $77.3 million in the comparable 2007 period. Segment profit margin for the full year 2008 was 4%, compared to 9% in the same period in 2007. Loss from continuing operations was ($28.9) million, or ($1.05) per diluted share for the year ended December 31, 2008, compared to income of $27.3 million, or $0.90 per diluted share, in the comparable 2007 period.

Pro forma loss from continuing operations totaled ($11.2) million in the fourth quarter of 2008 and ($6.1) million for the 2008 full year period, compared to income of $2.1 million and $31.7 million, respectively, in the comparable prior year periods. This resulted in pro forma diluted loss per share of ($0.40) in the fourth quarter of 2008 and ($0.22) for the 2008 full year period, compared to diluted earnings per share of $0.08 and $1.03, respectively, in the comparable 2007 periods. (See page 9, Pro Forma Supplemental Income Information, for a reconciliation between the non-GAAP financial measures and the Company's Condensed Consolidated Statements of Operations.)

"Activity in the capital markets remains at its lowest level since the mid 1990s. During the past three years we've taken proactive steps to streamline our operating environment, including a 25% reduction in our workforce over the past 12 months. These actions will result in incremental cost savings in 2009 of $55 million," said Dave Shea, Chairman and Chief Executive Officer. "In this very challenging environment, we're pleased that we have support from our bank group to amend and extend our revolving credit facility and expect to close shortly. We're confident that the initiatives we've implemented, combined with our ongoing focus on improving the efficiency and flexibility of our operating model, as well as bringing new products and services to the market, positions us as a stronger company."

Additional comments on the operating results in the fourth quarter and full year of 2008, as well as the 2009 annual guidance, are provided below.

Revenue:

Capital markets services revenue was $44.7 million in the fourth quarter of 2008, which is $44.8 million, or 50%, lower than the comparable 2007 period. For the year ended December 31, 2008, capital markets services revenue was $203.5 million, which is $110.2 million, or 35%, lower than 2007. Revenue for both periods of time continues to be impacted by the decline in overall capital markets activity. Specifically, IPO activity declined 97% for the quarter and 78% year-to-date. The number of market-wide priced IPOs decreased from 264 in 2007 to 59 in 2008, with only one priced IPO occurring during the fourth quarter of 2008. The decline in the Company's capital markets services revenue was partially offset by an increase in revenue from Bowne Virtual Dataroom(TM) (VDR). VDR revenue, which is now reported as part of capital markets services revenue, increased 26% for the quarter and 49% year-to-date.

Shareholder reporting services revenue, which includes compliance reporting, investment management services and translations services revenue, was $61.1 million and $361.6 million for the 2008 fourth quarter and year-to-date periods, an increase of 9% for the quarter and no change for the full year compared to the comparable 2007 periods, respectively. For the fourth quarter and year-to-date periods, compliance reporting revenue decreased approximately 7% and 8%, investment management services revenue increased 28% and 8%, and translations services revenue decreased 8% for the quarter and increased 16% year-to-date. Compliance reporting revenue in 2007 benefited from new SEC regulations regarding executive compensation proxy disclosures and revenue from special notice and proxy filings in 2007 that did not recur in 2008. The increase in revenue from investment management services is primarily the result of revenue gained through the acquisition of GCom2 Solutions, Inc. ("GCom") and Capital Systems, Inc. ("Capital").

Marketing communications services revenue increased $5.4 million, or 15%, to $42.1 million during the fourth quarter of 2008, and increased $35.9 million, or 27%, to $166.7 million during the full year 2008. The increase in revenue is due to the acquisitions of the digital print division of Rapid Solutions Group ("RSG"), Alliance Data Mail Services ("Alliance"), and GCom.

Acquisition activity and integration of acquired businesses: The Company has made substantial progress in the integration of its latest acquisitions of Alliance, acquired in November 2007; GCom, acquired in February 2008; RSG, acquired in April 2008; and Capital, acquired in July 2008. During 2008 the Company closed five of the acquired digital print facilities, migrating client work to existing Bowne digital print facilities, and in the process, eliminated 400 positions that were redundant. These proactive initiatives were part of the Company's plan to achieve synergies upon the integration of these acquired businesses.

Together, these acquisitions contributed approximately $25.1 million in revenue during the fourth quarter and approximately $80.6 million during the full year 2008. Growing Bowne's non-transactional recurring revenue stream has been an ongoing strategic goal during the past several years and the revenue contributions from the acquisitions of RSG, Alliance and GCom will continue to support that objective.

Segment Profit: The Company had a segment loss of ($2.2) million in the fourth quarter and segment profit of $33.2 million year to-date, compared to segment profit of $6.2 million and $77.3 million in the comparable prior year periods. The decline in capital markets services revenue is the primary driver of the reduction in segment profit in the fourth quarter and full year 2008.

Cost Reduction Initiatives: The Company continues to be proactive in reducing its fixed costs and consolidating operations, which has positioned the Company to respond to these changing economic conditions and to compete more effectively when the markets strengthen.

During 2008 the Company reduced its core workforce (excluding acquisitions) by approximately 700 positions, and in January 2009, the Company further reduced its workforce by an additional 200 positions; in total, headcount was reduced by 25%. These reductions included a broad range of enterprise-wide functions and demonstrate the Company's continued focus on improving its cost structure and realizing operating efficiencies. These efficiencies are made possible by a combination of technology and process improvements and have helped the Company implement a more variable cost structure.

In addition, given the current economic environment, the Company continues to evaluate its cost structure and has implemented several other initiatives effective January 1, 2009, including: a suspension of the Company's match to the 401(k) Savings Plan, the elimination of normal merit increases in 2009, and additional measures to reduce our travel and marketing spending.

The impact of the above referenced cost reduction initiatives is expected to result in annualized cost savings of $70 million. In 2008 we realized approximately $15 million in cost savings from these initiatives. In 2009 we expect that these initiatives will result in incremental cost savings estimated at $55 million.

Balance Sheet and Cash Flow: The Balance Sheet at December 31, 2008 includes $11.7 million in cash and marketable securities, which is $92.0 million lower than the prior year-end. This decline reflects a decrease in operating income; the utilization of cash for the acquisitions of GCom, RSG, and Capital; the funding of the exercise of the put options on the Company's Convertible Subordinated Debentures ("the Notes"); and cash used in restructuring, integration and capital expenditure activities.

Average days sales outstanding was 70 days for the year ended December 31, 2008 and 68 days for the comparable period in 2007. Work-in-process inventory was $17.9 million at December 31, 2008 compared to $16.7 million at December 31, 2007.

As of December 31, 2008 the Company had $79.5 million outstanding under its $150 million five-year senior, unsecured revolving credit facility and $8.3 million outstanding under the Notes. The Company remains in compliance with its existing credit facility, which is in place until May 2010. The Company is in discussions with the members of its bank group to amend and extend its existing revolving credit facility. Such amendment and extension is expected to be completed in the near future.

Business Outlook:

The Company notes that forward-looking statements of future performance made 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.

 

 

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