Bowne & Co., Inc. Wall Street Analyst Forum

Bowne & Co., Inc. (BNE)

Wall Street Analyst Forum

September 8, 2008 11:10 am ET

Executives

David J. Shea – Chairman and Chief Executive Officer

John H. Walker – Chief Financial Officer and Senior Vice President

William P. Penders - President

Presentation

Host

The next company we have presenting this morning is Bowne & Co. (Host Instructions) Bowne & Co., Inc. provides financial marketing and business communication services around the world. Dealmakers rely on Bowne to handle critical transactional communications with speed and accuracy. Compliance professionals turn to Bowne to prepare and file regulatory and shareholder communications online and in print. Marketers look to Bowne to create and distribute customized one-to-one communications on demand. With 3,400 employees in 60 offices around the globe, Bowne has met the ever-changing demands of its clients for more than 230 years.

Presenting this morning is David Shea, the Chairman and Chief Executive Officer.

David J. Shea

That was a bit of a mouthful so over the next 40 minutes I’m going to take you through just who is Bowne. Some of you may be familiar with the company because quite frankly as an organization that supports communication to shareholders, many of the documents that you look at today have hopefully been worked on by one of the members of the Bowne family. So what we’re going to do this morning is spend the first 20 minutes discussing who we are, how the business has changed and evolved with the market place; we’ll discuss our strategy going forward; and then we’ll give you some of the highlights of our operating performance both for 2007 and the first half of this year.

Who is Bowne? Bowne quite honestly is a company that was founded in 1775 and yet we’re a company that continues to innovate as we help our clients communicate with their shareholders and now with their clients. We’re a market leader that provides a whole array of document management services and we’re proud of the fact that we are the oldest company that is now traded on the New York Stock Exchange having been founded in 1775.

We’re a global organization. We’ve got offices in every major city worldwide. That’s where our clients are. We support not only the domestic market place for communications to shareholders but the market place in Asia and Europe, in Canada and other international cities. Our corporate headquarters is downtown off of 55 Water Street which happens to be a block from where we started the company back in 1775 on Pearl Street.

We’re in the services business and being in the services business we’ve got over 3,700 employees today. So we need to update our little script in the beginning as we’ve added about 200 or 300 employees as Helen made her introduction. But our employees are really the key to what Bowne does.

We are not viewed as in the printing business. We view ourselves as being really in the business services business helping our clients with complex information and documents to communicate.

We’re an industry leader. In the majority of the segments that we support, we’re the number one provider of those services and I’ll discuss that in a little more detail. We look at our business in two facets. One is shareholder communications, which is all the documents and information that a company needs to provide to shareholders either when they’re going public, when they’re acquiring another company or their responsibilities as a public company. We also are in the business of helping clients now personalize their content, their marketing material, to go out and attract new clients. So everything we look at is about how we can help a client more effectively communicate either to their shareholders or ultimately to their end user client.

Our business is looked at from both capital markets, which is really the historical part of Bowne and that represents about 37% of our business, and today we’ve now increased as part of our strategy to diversify our revenue stream so that over 63% of our revenue now comes from non-capital markets services. You’ll see the importance of that in a few minutes.

As I mentioned, we’re in the document management business. What we do is help clients create documents, edit documents, manage content, manage the database, receive information electronically, put that in the right format to communicate either to their shareholders or to their end user clients. That communication process today, 65% of what we bring to the environment is really about document management and content management. The other 35% is now how do we distribute that information. And we distribute information both from a print environment and an electronic environment.

We have the broadest range of services in the industry. When we think of capital markets, you can think of today’s environment. And we’ll talk a little bit about the difficulty in the capital markets environment of 2008. But that is supporting the entire IPO process, merger and acquisition process. Of all of the SEC related documents that a company needs to create and distribute, we are the leader in providing those services. When we look over compliance services, compliance is really “Once I become public, what are the documents I need to communicate with on a regular basis?” 8Ks, quarterlies, annual reports. Investment management. Those asset management firms also need to communicate to their shareholders and their supporters both on an annual basis and on a quarterly basis.

And then we have grown the other part of the business which is really about personalized marketing communications. How do I personalize statement solutions, confirms, enrollment kits for healthcare, for financial tools? The whole suite of services we have ranges from consulting to project management to actual database management to printing to electronic distribution fulfillment.

Shareholder communications. We used to call it financial print. So those of you that are familiar with Bowne and familiar with the industry, the industry was referred to as the financial printing industry. Today the printing piece of it is the least important. The information has become more complex, the time to market in terms of the time that our clients have to communicate information to the SEC and to their shareholders has shrunk, and we need to innovate how we do that and innovate how we can speed up the process and communicate both in hard copy and electronic services. When you look at our shareholder communications market place, we see that we did over $700 million in revenue in 2007. That was spread between our capital markets, which is once again as I mentioned supporting traditionally the IPO and M&A activity levels, of over $300 million; our corporate compliance reporting was over $180 million; investment management which is mutual fund firms like Schwab and Vanguard and Fidelity over $160 million; and then commercial and translation [inaudible]. A very strong suite of services that we have to offer in the market place.

It’s a market that is roughly $3 billion to $4 billion. That’s how we look at it. When you look at the domestic opportunities and the services we offer, we see that our compliance business as we look at the number of public companies and the number of public filers, that represents about a $600 million to $800 million market opportunity. When we look at investment management we’re over $1 billion between how they communicate information to their shareholders. Our capital markets activity fluctuates and today we’re on the low end between $1 billion and $1.3 billion.

Internationally this suite of services that we now bring to the international market does not have the exact same requirements but they do have similar requirements. We view that market place as a growth area for us, which is about $300 million to $400 million. And ultimately a piece that we’ve added into our service offering given the globalization of the economy is translations. We are one of the leaders in every major merger and acquisition transaction that takes place worldwide. In many of these cases you need the ability to translate the information not only in English but in other languages.

I talked about leadership. We do over 30% of every filing that takes place on a transactional basis within the SEC. That’s the number one provider of those overall transactional services. We consistently did greater than 50% of the largest M&A transactions and over 35% of every M&A transaction that takes place. In the IPO market place 2007-2006 was a very strong year. We did 34% of every IPO that came to market. And when we look at the compliance side, we do roughly 20% of all the 10K filings that are done on an annual basis. Each one of these areas are leadership positions against our main competitors.

What’s the marketing and business communications? Here we’re not talking about documents and content and information to help clients communicate to their shareholders and meet their SEC regulatory responsibility. We have shifted the area here to work with them on how they can more effectively communicate to their clients. How can they personalize information? How can they make their message more unique to the end user concerned? We’ve begun building this business over the past several years. You’ll see in a few minutes the dramatic growth that we’ve accomplished through some acquisitions as well as some of the capability we developed ourselves. And we see this area as one of the biggest growth areas for Bowne.

The two main service offerings we have is something we refer to as enrollment kits. Enrollment kits you can think of in healthcare when you enroll every year. In terms of the different services you’re going to select, there’s a whole enrollment process. When you enroll in a 401(k) program, there’s an enrollment process. We manage from beginning to end right off the desktop receiving information on an electronic basis from our clients, producing personalized enrollment kits and information.

And then the business communications is really about how do they personalize statements and confirms and other information that is typically on a weekly or a monthly basis. A recent study that was done by InfoTrends looks at this market place and looks at the whole marketing communication space and how clients now need to focus in on differentiating themselves through better communication to their consumer. That’s a $15 billion opportunity just within the industry segment that we looked at.

Our focus is really financial services, healthcare, insurance and the gaming and travel. And gaming and travel happens to be through an acquisition we did, and it’s working with the gaming industry on how do they on a regular basis communicate to potential folks to come to their casinos or their other entertainment devices.

But the $15 billion market has grown to 12% and that is one of the key reasons that we have decided to invest in this space because it’s the highest growth area in the communication space, it leverages some of the capabilities that we’ve built in our shareholder communications which is dealing with time sensitive critical information and how do I get that in the best format out to the end user.

At Bowne we’re proud and we’ve been proud for quite frankly well over 100 years of the client base that we have. We are the envy of our competitors. We have a “Who’s Who” in the financial service space, insurance and healthcare. Some of the largest institutions in the world have been clients of Bowne and continue to be clients of Bowne. One of the things you’ll see in a minute, but over 80% of our business is recurring. The key to our business is not only our ability to innovate and bring new services and leverage technology, but in the very end its service. We are viewed as the premier service provider in the industry and therefore, over 80% of the clients that do business with us continue to do business with us. Some are contractual and some are not contractual but that is something that we’re very proud of as a company.

Now what’s our strategy? Our strategy that we put in place over the past three years has been number 1, focus on diversifying our revenue stream; focusing so that we are not totally dependent on the capital markets. In 2008 this is the most difficult capital markets environment that we have seen in over 20 years. So we have put in place both programs and opportunities to introduce new products and services to drive organic growth, increase market share, expand into Europe and Asia, and then grow through acquisitions. We’ve done four acquisitions in the past 12 months. We’ve done seven acquisitions in the past three years. And those acquisitions have enabled us to build the base that is non-cyclical and non-dependent on capital markets activity.

But beyond that we had to relook at our whole operating structure. The operating model that Bowne had developed was built in the 80s and it was really centered around having a lot of highly qualified people available on demand so that when the capital markets spiked, we could service our clients better than anyone else. What it didn’t take into effect or it didn’t handle very well are the spikes downward in the market place. So we need more flexibility and we need to lower our costs.

We’ve seen significant success over the past four years in terms of diversifying the revenue base. On the bottom of that chart highlighted in red had been the different swings you’ll see in capital markets revenue. We saw back in 2005 $250 million of capital markets, IPO, M&A activity, and then a significant bounce-back in 06 and 07. And our results reflect it. But other areas that we’ve really focused in is to drive growth in our compliance reporting, to drive growth as you see from $148 million to $186 million last year, to drive growth in our investment management, in 2004 $129 million, 2007 over $160 million. And finally if you look at our marketing communication system in 2004 that was just under $40 million in revenue. Today its $131 million in revenue and by 2009 the run rate will be north of $180 million in revenue. And the reason for that is to have this base of business, the $537 million of non-capital markets revenue sustain us through challenging cyclical periods of the capital markets.

A couple of our acquisitions that we’ve done in the past four years. The two on the left, Alliance Data and Rapid Solutions Group. Both of those were viewed as bolt-on acquisitions. We acquired approximately $70 million of revenue to help build our personalized marketing communications business. That was their expertise. These were two small divisions of larger companies that were not making money to be honest with you. We were able to move in very quickly and do very attractive deals for us in terms of multiples significantly less than what we trade at and then very quickly we were able to consolidate their facilities. And you’ll see some of the financial ramifications we’ve been able to achieve.

GCom Solutions was a different type of acquisition for us. They were the leading supplier of technology and software in the asset management/investment management area sitting right on the desktop of advisors and analysts in terms of looking at the fund performance and helping them produce their fun fact sheets and their prospectuses in terms of analyzing a fund’s actual performance. We have now acquired that organization and are in the process of linking their technology with our composing technology and our other tools so we can now offer complete end-to-end solutions for the investment management/asset management base of clients. It’s a very exciting opportunity for us and it’s something that has been very well received by our base of clients.

Just this past July we acquired one of the few remaining small financial printing business. They were a real financial printing business based right here in Manhattan. They were doing about $40 million in revenue. We were able to acquire that business, consolidate it into our facilities, and quite honestly be able to reduce headcount by over 60% day one on closing. That was another bolt-on consolidation play for us.

So what we’re looking at here are three of these four acquisitions which totaled about $90 million of revenue. We were able to build up our non-transactional base and were able to achieve significant synergies and cost savings which we have already extracted out sitting here in September. And the third provided us with the type of technology capability that we feel will differentiate ourselves in the investment management business.

The other area that’s had intense focus by us. We sat down and we looked at this business back in 2005. At that point in time the Board of Directors as well as the management team looked at “What is the future of our business as it changes and what are the things we need to do differently to be successful?” We brought in [McKenzie] and worked with us for about three months in the latter part of 2005 and we put together a very aggressive program that looked at each one of our key cost areas as well as our customer service, composing, our finance back office, all of our facilities and some of our other benefits and “How could we change that cost structure?”

Within our customer service organization for example which is key. These are the clients facing individuals that are working with bankers and lawyers and marketing professional. How could we make them more productive? How could we increase their productivity? And we automated many of their functions; we introduced new technology; we implemented a whole new operating system for them to operate under; and during the two busiest years 2006 and 2007 we reduced over 20% of the staff. And in 2008 given the market place environment we have today, we did another series of reductions.

In composing. Composing for Bowne you can think of as word processing operators. Back in 2000 we had over 1,000 employees. Today we have under 500 and what we’ve done is automate some of their tasks but significantly look at an offshore provider. You’ll see the impact in the example.

Within our finance and sales organization, we looked at automating those processes and putting a very stringent evaluation of our sales organization in terms of performance and contribution.

Facilities. We have made significant as you’ll see it in 2008, over $17 million on an annualized basis has been consolidated in terms of combining both sales offices, manufacturing facilities, and composing facilities.

So what we’re looking at here as we move forward in 2009 and beyond is that during the busy period and then during the low period in the capital markets environment, we have been able to extract out over $80 million in costs. And this is what’s going to sustain us as a business moving forward no matter what happens in the capital markets.

Manufacturing as an example. Back in 2002 up above in blue we had dedicated offset production facilities. This is multi-million dollar printing operations that were really focused in on the capital markets investment management compliance market place. Down below in the gray area are all of the digital printing facilities. These were acquired through the acquisitions that we did. We had close to 2,000 employees in 21 facilities and they all operated independently in a point of matter. They were all focused really on servicing clients predominantly in their geographic areas.

Over the past several years and today what we’ve now accomplished is we’ve reduced headcount by close to 30%; we’ve reduced facilities from 21 down to 12; we have created integrated facilities for both offset and digital; and we have now networked these facilities. So what it allows us to do is to move work around and manage utilization and manage capacity based on the market environment and the timing when we receive work. Significant improvement aided us in productivity and a significant reduction for us in terms of cost.

Composing. Composing as I mentioned is a critical component of what we offer our clients because ultimately this is the team that is making all the changes to the documents that are about to be finalized and sent to the SEC. Back in 2002 we had 13 locations. We had a location in every geographic area that we thought had the work to warrant it. There were 820 employees that were locally managed. Today we’ve got four locations in the US; four hubs: Phoenix, Detroit, Toronto, Dallas. Under 500 employees. We’re moving work around these hubs from any city in the world and more importantly, we’ve built through a partnership a dedicated organization that supports only Bowne in this environment, a team that does about 35% to 40% of our work. The difference is that to create and manage a document in the US costs us roughly about $10.00 a page. When we move to the offshore work, it costs us about $3.00 a page. So the more work we’ve been able to move offshore the more dramatic it’s been able to do in terms of helping our productivity and our financials.

The other area we look at from a strategic viewpoint is what’s going on with the regulatory environment. For us, excluding us as the public company like all other companies that have to go through Sarbanes-Oxley and all the other reporting, the regulatory board is our friend. All the regulatory announcements for the most part enable us to really better support our clients and require our clients that need a service like what Bowne has to offer.

One of the biggest movements that’s taking place for all public companies is something called XBRL. And XBRL in its simplistic fashion is the new language that the SEC has now put in place to have companies prepare and file their regulatory documents. It is an interactive analytical outline which will allow openly analysts like yourselves to more easily compare financial information from one company to another because it standardizes the financial content of a 10K, a quarterly report and an annual report. The advantage to Bowne is that these companies are not capable of doing this themselves. So beginning January 1 of this year the largest filers now need to file their annual report and their 10K in an XBRL format. We have had tremendous need and tremendous interest from our clients.

We have something called [Access Eagle Delivery]. There is a migration and those of you that have looked at Bowne in the past, is print going to go away? Print will slowly evolve, not from an offset world but more of a print on demand world which is another reason why you saw us build a print on demand digital print facility versus the traditional offset print facility. This gives us the flexibility to provide an opportunity to our clients that we can store content and print on demand when they need to provide somebody with a proxy for example. Quite honestly, in 2008 this past year less than 20% of the public companies elected to not send a printed copy of their proxy to their shareholder base. They had the full opportunity this year to post everything on the website and not print. Quite frankly, less than 20% elected that and there is still a lot of hesitation out there to move away from the printed copy. For us, we can support our clients either way.

And the next regulatory action that is being looked at is in the investment management area. In 2009 there’s a possibility that fund companies will not have to send a large annual document to their shareholders. They’ll send a small five or six page summary. We may not be printing as many of the large documents; we’ll be printing a lot of the smaller documents. They still have to prepare the big document but they only have to send the hard copy once again if they choose to their shareholders. The difference is they’ve got to send it four times a year versus once a year. So every time we see changes in the regulatory environment, for the most part they represent more opportunity for Bowne.

When we looked at the proxy two years ago and you saw executive compensation disclosure issues, that represented a significant bump for us. A good 5% of our revenue increased in supporting our corporate plans because the size of the proxy just went bigger and the last minute changes and edits and the complexity of putting the schedule together made it a lot harder for a company to do it themselves. That’s what Bowne provides: The industry expertise, the knowledge of the regulatory process, and the ability to very quickly prepare these documents and get them submitted in a timely fashion.

Let’s take a look at the operating performance. The operating performance we’re sharing with you from two angles. In hindsight I would have brought up the 05 to 07 first because it is two different stories. But the first story, we talked a little bit about this, is in the 05 to 07 we saw a significant growth in revenue all through the acquisitions and diversification that we’ve done as well as the significant jump in the capital markets environment. Close to 13% compounded growth rate for Bowne during that three year window. Now realistically that is not the type of growth rate that we have seen historically as a company. We are typically more in the 5% to 7% growth rate in a healthy environment.

The first half of this year given the drop in capital markets, we have seen a drop in revenue, and it is no surprise to people that follow the stock and follow this company. We’ve seen a $30 million drop just in the first half of the year in capital markets. We have seen a decline in capital markets activity of 33% less filings that have been done; over 65% fewer IPOS have happened in the first half of this year. 2008 is positioning itself as the weakest capital markets year since the mid-90s. We are prepared for it; we anticipated that it would happen at some point in time; and that is one of the reasons you saw us aggressively move in 06 and 07. Even when the market was exploding, we began taking costs out. And then we had to accelerate our plan again in May of this year.

Our financial performance was the strongest it’s been since the year 2000 last year. We saw our gross profit improve by almost 16% to 37.5%. We saw our EBITDA go from $52 million in 2005 to $77 million and almost 10%. A key measure for us on the lower left-hand side there is our ROIC return on invested capital. It’s a key measure for us in terms of how well we’re doing with our capital and is also one of the key compensation measures for myself and the rest of the senior team. We have driven return on invested capital from 5% in 2003, just under 6%, to 17% last year as we more effectively managed our cash, collected receivables and generated earnings for the business. And lastly, last year was a record year for us over the past six or seven years as we did over $1.00 a share from an EPS viewpoint.

Now we look at 2008. In 2008 as we mentioned is a challenging year for us. We are pleased to see in 2008 that our gross margin level is 35% slightly below what it was last year. But I think more importantly, we move over to the EBITDA and the earnings per share. We’re at $43 million in the first six months of this year. We will exceed 2005 with probably $20 million to $30 million less in capital markets revenue and we believe we have the opportunity to meet or exceed our 2006 level of cash flow of $66 million based on the changes we’ve made with dramatically less capital markets revenue. So the strategy that we’ve put in place has been to diversify our revenue, lower the costs, be more efficient so that if we do have a down cycle we are still generating very positive cash flow or a strong cash flow and very strong returns for our shareholders.

So as we move to summarizing what we’ve talked about, the initiatives that we’ve put in place really begin first and foremost with being a far more productive and efficient organization automating and streamlining work flows, consolidating facilities, lowering our costs. We’ve been focused on improving market share and we’ve done that. We’re clearly the market leader. A number of our competitors have disappeared quite frankly in these challenging times particularly this year. And we are the clear market leader in terms of our shareholder communications and we’re building a leadership position in our marketing communications space, successfully diversified our revenue stream, we’ve taken over $80 million in costs on an annual basis out, and we’ve effectively grown through acquisitions.

One of the things that we’re proud of is we’ve put an experienced team together that we go in, we very quickly do our due diligence, we set aggressive targets in terms of what we value companies at, and we have achieved the synergies and the cost savings that we set out for each one of the acquisitions we’ve done over the past three years.

The result is the company’s positioned well to move through the cyclicality of the environment and when the capital markets returns or the strength of the capital markets returns, one of our beliefs is that the fundamentals of the US capital markets system is not going to change in terms of the oversight in the regulatory basis. And as long as you believe in the capital markets environment and you look at the other things we’ve done effectively with our business, this company is positioned for dramatic growth once we see a return to more normalized levels of capital markets activity levels.

We generate a heck of a lot of cash. Our conversion from EBITDA to cash was over 75%. We’ve had consistently about $20 million of capital expenditure on an annual basis for technology and other investments in our business.

We were recently upgraded even during these difficult times of 2008, I believe it was June, we were upgraded by Standards & Poore’s and in the May timeframe we were upgraded by Moody’s. We sat down with Moody’s and sat down with Standard & Poore’s and they looked at our balance sheet; they looked at our operating plan; they looked at our strategy; they looked at more detail than what obviously you’re seeing here today; and we are very pleased that they came back and they upgraded us as a company.

Now our 2008 guidance gives you an idea of a comparison of where we see 2008 and this is something that we provided and we made an adjustment to it. We came out in I think it was March with the original guidance and given the dramatic decline in capital markets activity, we made an adjustment last month. So right now we’re looking at, and I think the key areas to consider here, with capital markets we think we’re going to be anywhere from $220 million to $245 million. That is the lowest level we have had since 1997. We’re looking at an EBITDA range of $65 million to $80 million and if you look at it over 2006, we did $66 million on $300 million. So quite frankly one of our key goals is to be able to generate cash flow close to the levels when we were receiving high levels of capital markets revenue and that would give us that $65 million compared to the $66 million back in 2006. We’re looking at a range on the low end of $0.65 on an EPS basis up to $0.90 so if we just stick on the low end that $0.65 compares once again to what we achieved in 2006.

So we’re heading in the right direction. We’re making the improvements that we need. We’re going to continue to see these improvements because 50% of the costs that we took out in 2008 is only reflected for half a year. So we’re going to see the additional flow through in 2009 for the remainder of that cost and we believe that in some point in time over the next 12 to 18 months we will see improvements in the capital markets environment, which is our highest margin service. Capital markets, services and the margins there are significantly higher than all the other business segments because of the dramatic timing of those transactions.

In summary, as you look at Bowne from an investment viewpoint, you can look at our stock price; quite simply you can go and look over the past 10 years and see how the stock fluctuates during the down markets and how the stock does bounce back in the good markets. Last year we were trading at $18.00 to $20.00 a share. Today we’re trading at about $12.00 a share. We are still being viewed as a company that is 100% tied to the cyclicality of the capital markets. We believe we’ve made progress moving away from that. We’re a market leader. We’ve got great blue chip clients. We’re the number one provider of capital markets services year in and year out. We’ve diversified our revenue stream. We had a record year last year in terms of non-transactional revenue. We’ve increased the flexibility of our operating model. Over close to 40% of the work that we do today is through a third party in India which is a pay-as-you-go relationship with us. We’ve got an excellent management team that we meet on a monthly basis and look at every piece of data throughout the organization. We’ve made significant investments in technology both organically in terms of our capital investment and through acquisitions like we did with GCom. We’ve successfully rolled out and consolidated the acquisitions we’ve got, which are four in the past 12 months. Solid cash flow and quite frankly the broadest services that one can offer in the market place.

With that, I’ll be more than happy to take questions if you’ve got questions.

Question-and-Answer Session

[Inaudible - no microphone]

David J. Shea

Yes. The question is regarding our convertible bonds. Is it publicly traded? Yes it is.

Unidentified Analyst

And you purchase them in the open market? [Inaudible] or any other way [inaudible] purchase them in the open market?

John H. Walker

With regard to convertible bonds, something to keep in mind is October 1 is the sixth year anniversary for the first. That’s the first date where we can either by the bonds out or put. Our revolving credit facility allows us to refinance those bonds if they are put. So we can’t buy those and we have the liquidity to do that.

Question-and-Answer Session

[Inaudible - no microphone]

David J. Shea

My mistake. I have two folks joining me today. The question is: Bowne’s role in terms of supporting foreign capital markets activities and what impact if any has the delisting of companies and how we handle the growth in foreign markets?

Joining me today is not only John Walker, who is our Chief Financial Officer, but Bill Penders is our President and prior to this Bill ran our international market so I’ll let Bill answer the question.

Question-and-Answer Session

[Inaudible - no microphone]

David J. Shea

They’re off.

William P. Penders

We are actually well positioned in the international market place as the globalization of capital markets [inaudible] for companies that are looking to raise capital, so we are in a position where we’re doing business on a [inaudible] Stock Exchange or [inaudible] Stock Exchange and we provide the same services for those clients albeit [inaudible] fairly significant contact management does take place and do that in eight languages as well as the English language. We have several [inaudible] French and German and Italian, Mandarin for our Chinese companies that are listed on the Hong Kong Exchange]. So [inaudible] Brazil very strong financial [inaudible] Brazilian market place and we’re doing all that local business. So, as some non [inaudible] companies [inaudible] as a result of Sarbanes-Oxley and other requirements [inaudible] we’ve been able to capitalize on that growth in the foreign financial markets as well.

Unidentified Analyst

[Inaudible] share of those markets?

William P. Penders

That’s a very good question. I’d say that we’re going to [inaudible] share in the United States [inaudible]. It’s a bit more difficult to measure because there isn’t a central depository [inaudible].

David J. Shea

In the US in the capital markets side. There are two main competitors. There is ourselves and [Oragama]. And [Oragama] is a $14 billion commercial printing company.

Question-and-Answer Session

[Inaudible - no microphone].

William P. Penders

[Inaudible]

David J. Shea

As we measure in the US because as Bill mentioned it’s much easier, we’re the market leader in the US. When you get to the international market it’s more difficult but traditionally in the European market, Canadian market, and Asia market the two of us are very close. Several of the largest transactions we did in 2007 were IPOs out of China and large M&A transactions out of Europe, and they continue to be this year as well. The first half of the year one of the largest M&A transactions was a cross-border deal out of Europe. So we have a very, very strong position in the European/Asian/Canadian market and we also opened up an office in Russia which has been a source of growth with IPO and other types of capital markets activities there.

The international market for us is something that we are focused on growing. Not just capital markets but we’re also looking at how do we support the asset management/investment management organization. And that’s something that we’ve been able to implement through our recent acquisition of GCom and other companies.

Unidentified Analyst

How much of your cash on balance sheet is held outside the United States right now?

John H. Walker

At December 31^st per capita was about $38 million worth of cash; about $15 million or $16 million was held outside the United States.

Unidentified Analyst

And how much [inaudible]?

John H. Walker

We’ve put a [inaudible] where [inaudible] does not cause us to pick up the amount of tax [inaudible] to move cash into the United States. We’re very careful about that.

Unidentified Analyst

Also, you liquidated some option rate securities during the first half. What size did they liquidate as a percentage of what you paid to them?

John H. Walker

We’re happy to say it was [inaudible].

Unidentified Analyst

And the $5 million or so left on the books right now. What is the par value of those $5 million?

John H. Walker

It’s about $4.9 million.

Unidentified Analyst

So you’re carrying that cost in essence?

John H. Walker

Actually we break it down to the carried value so it’s $4.9 million or $4.95 million, something like that. It’s very close to par.

Unidentified Analyst

How do the auditors let you accomplish that feat?

John H. Walker

We were able to convince them that the quality of what we were investing in as well as the monoline insurance company was at par. We go through a quarterly analysis.

Unidentified Analyst

[Inaudible] convertible loans. If the prior issuers put back to you the bank line [inaudible] do cover it or does it have to be [inaudible] cash?

John H. Walker

The revolving credit facility provides us the opportunity to use the entire [inaudible] to refinance the put. So yes that is an allowable use.

Unidentified Analyst

Is that a one day put? [Inaudible]?

John H. Walker

No. It’s a one-day. Then the next time you can do it five years thereafter.

Unidentified Analyst

[Inaudible - no microphone]

John H. Walker

Yes, on both sides.

Unidentified Analyst

[Inaudible - no microphone]

John H. Walker

Well, I think until October 1.

Unidentified Analyst

[Inaudible - no microphone]

John H. Walker

$18.48. One of the things you should know is that we have recently gone out with a unilateral offer to amend and what we’ve done is with [inaudible], we will give them a two-year non-fault extended to October 1, 2010 as well as give them an additional put on the same date. What we’ve agreed to do to encourage them to stay in is we’ve increased the interest rate from 5% per annum up to 5.5% per annum. We’ve talked to all the major holders of the bond. The feedback we’ve gotten is they like the company, they like the story, they like the credit, they’d like to stay in so they’re evaluating, they’re running their models.

Unidentified Analyst

[Inaudible - no microphone].

John H. Walker

No. We didn’t allow a right to do that. They decide whether they want to stay in or whether they want to put.

Unidentified Analyst

[Inaudible - no microphone]

John H. Walker

Yes.

Unidentified Analyst

How does that help the shareholders, the equity holders? I can understand why the bond holders might like it but what benefit accrues to the equity holders from a move of that nature?

John H. Walker

One of the things we say is that if we can convince certain of the bond holders to stay in prior to the two-year period of time, what that does it gives us as a company the opportunity over the next two years to put in what we think would be the optimal capital structure at that point in time. So it just buys us some time, but we’re prepared to take out all the bonds if they sweat.

Unidentified Analyst

Again, I apologize, how does this positively impact the equity holder? I’m here as an equity holder, not a bond holder, how does this transaction improve my investment?

John H. Walker

I think it provides us with an operating flexibility on a going forward basis. For example every dollar we convince the note holders to stay in is a dollar available in the revolving credit facility so I think it just gives the company some flexibility. As an equity holder, I would think that the equity holders are comfortable knowing that the company as adequate liquidity flexibility.

David J. Shea

Our line of credit’s $150 million. At this point in time we’ve drawn down $30 million. If we pay off the convert holders 100% we’re at $100 million or $105 million. The interest rate is at market or below, right around market we’re offering for two years, it gives us flexibility. Flexibility if there are other acquisitions that we think can enhance the value of the company, we’ll be able to pursue them. If we don’t do this, then we’ll have some limitations.

Host

This concludes the webcast portion.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: [e-mail]. Thank you!