SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________to___________
Commission File Number 0-6187
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BANTA CORPORATION
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(Exact name of registrant as specified in its charter)
Wisconsin 39-0148550
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(State or other jurisdiction (IRS Employer
of incorporation or organization) I.D. Number)
225 Main Street, Menasha, Wisconsin 54952
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(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code: (920) 751-7777
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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 registrant had outstanding on September 29, 2001, 24,685,753 shares
of $.10 par value common stock.
BANTA CORPORATION AND SUBSIDIARIES
Quarterly Report on Form 10-Q
For the Quarter Ended September 29, 2001
INDEX
Page
Number
PART I FINANCIAL INFORMATION:
Item 1 - Financial Statements
Unaudited Consolidated Condensed Balance Sheets
September 29, 2001 and December 30, 2000 ........... 3
Unaudited Consolidated Condensed Statements of
Earnings for the Three Months and Nine Months
Ended September 29, 2001 and September 30, 2000 .... 4
Unaudited Consolidated Condensed Statements of
Cash Flows for the Nine Months Ended September 29,
2001 and September 30, 2001.......................... 5
Notes to Unaudited Consolidated Condensed
Financial Statements ................................ 6-8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 9-11
Item 3 - Qualitative and Quantitative Disclosures about
Market Risk .......................................... 11
PART II OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K ...................... 12
2
PART I Item 1. Financial Statements
BANTA CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
September 29, December 30,
2001 2000
ASSETS
Current Assets
Cash and cash equivalents $ 47,842 $ 27,660
Receivables 238,280 249,200
Inventories 84,811 108,109
Other current assets 24,121 21,706
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Total Current Assets 395,054 406,675
--------- ---------
Plant and Equipment 901,280 876,243
Less: Accumulated Depreciation (567,230) (531,982)
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Plant and Equipment, net 334,050 344,261
Other Assets and Investments 25,823 37,663
Cost in Excess of Net Assets of Subsidiaries Acquired 64,788 65,925
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$ 819,715 $ 854,524
========= =========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
Short-term debt $ 16,052 $ 46,863
Accounts payable 95,024 117,499
Accrued salaries and wages 31,160 43,235
Other accrued liabilities 33,875 24,217
Current maturities of long-term debt 10,126 8,505
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Total Current Liabilities 186,237 240,319
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Long-term Debt 168,776 179,202
Deferred Income Taxes 24,723 24,106
Other Non-Current Liabilities 44,587 39,985
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Total Liabilities 424,323 483,612
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Shareholders' Investment
Preferred stock-$10 par value;
authorized 300,000 shares; none issued -- --
Common stock-$.10 par value;
authorized 75,000,000 shares; 27,830,153
and 27,711,028 shares issued, respectively 2,783 2,771
Amount in excess of par value of stock 2,366 43
Accumulated other comprehensive loss (9,601) (8,964)
Treasury stock, at cost (3,144,400 shares) (66,814) (66,814)
Retained earnings 466,658 443,876
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Total Shareholders' Investment 395,392 370,912
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$ 819,715 $ 854,524
========= =========
See accompanying notes to consolidated financial statements
3
BANTA CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 29, 2001 September 30, 2000 September 29, 2001 September 30, 2000
Net Sales $ 376,615 $ 417,395 $ 1,086,788 $ 1,117,521
Cost of goods sold 298,171 330,520 869,008 889,648
----------- ----------- ----------- -----------
Gross earnings 78,444 86,875 217,780 227,873
Selling and administrative expenses 44,062 50,180 139,654 145,369
----------- ----------- ----------- -----------
Earnings from operations 34,382 36,695 78,126 82,504
Interest expense (3,303) (4,772) (10,807) (12,400)
Write-off of investment -- -- (12,500) --
Other income (expense), net (531) (276) 432 (1,219)
----------- ----------- ----------- -----------
Earnings before income taxes 30,548 31,647 55,251 68,885
Provision for income taxes 11,800 12,400 21,400 27,100
----------- ----------- ----------- -----------
Net earnings $ 18,748 $ 19,247 $ 33,851 $ 41,785
=========== =========== =========== ===========
Basic earnings per share of common stock $ 0.76 $ 0.78 $ 1.37 $ 1.67
=========== =========== =========== ===========
Diluted earnings per share of common stock $ 0.75 $ 0.78 $ 1.36 $ 1.67
=========== =========== =========== ===========
Cash dividends per common share $ 0.15 $ 0.15 $ 0.45 $ 0.45
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
4
BANTA CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended
September 29, 2001 September 30, 2000
Cash Flows From Operating Activities
Net earnings $ 33,851 $ 41,785
Depreciation and amortization 56,370 55,795
Deferred income taxes 468 1,330
Cash paid for restructuring (1,185) (3,678)
Write-off of investment 12,500 --
(Gain) loss on sale of assets (160) 91
Change in assets and liabilities, net of acquisition:
Decrease (increase) in receivables 10,395 (49,885)
Decrease (increase) in inventories 23,298 (26,043)
(Increase) decrease in other current assets (2,266) 722
(Decrease) increase in accounts payable
and accrued liabilities (23,707) 48,165
(Increase) decrease in other non-current assets (2,060) 464
Other, net 3,143 (2,166)
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Cash provided from operating activities 110,647 66,580
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Cash Flows From Investing Activities
Capital expenditures, net (40,151) (60,995)
Cash used for acquisitions, net of cash acquired -- (11,547)
Additions to long-term investments (1,964) (13,643)
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Cash used for investing activities (42,115) (86,185)
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Cash Flows From Financing Activities
Repayments of short-term debt, net (30,811) (17,526)
(Repayment of) proceeds from long-term debt (8,805) 64,969
Dividends paid (11,069) (11,364)
Proceeds from exercise of stock options 2,335 --
Repurchase of common stock -- (23,945)
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Cash (used for) provided by financing activities (48,350) 12,134
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Net increase (decrease) in cash 20,182 (7,471)
Cash and cash equivalents at beginning of period 27,660 27,651
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Cash and cash equivalents at end of period $ 47,842 $ 20,180
========= =========
Cash payments for:
Interest, net of amount capitalized $ 9,442 $ 10,349
Income taxes 13,567 25,451
See accompanying notes to consolidated statements
5
BANTA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) Basis of Presentation
The condensed financial statements included herein have been prepared by
the Corporation, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Corporation believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Corporation's latest
Annual Report on Form 10-K.
In the opinion of management, the aforementioned statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary
for a fair presentation of the results for the interim periods. Results
for the three and nine months ended September 29, 2001 are not
necessarily indicative of results that may be expected for the year
ending December 29, 2001.
2) Inventories
The Corporation's inventories are stated at the lower of cost or market
using the first-in, first-out (FIFO) method. Inventories include
material, labor and manufacturing overhead. Inventory amounts at
September 29, 2001 and December 30, 2000 were as follows:
(Dollars in thousands)
September 29, 2001 December 30, 2000
------------------- -----------------
Raw Materials and Supplies $ 47,838 $ 58,513
Work-In-Process and Finished Goods 36,973 49,596
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FIFO value (current cost of all inventories) $ 84,811 $ 108,109
======== =========
3) Earnings Per Share of Common Stock
Basic earnings per share of common stock is computed by dividing net
earnings by the weighted average number of common shares outstanding
during the period. Diluted earnings per share of common stock is computed
by dividing net earnings by the weighted average number of common shares
and common equivalent shares outstanding. The common equivalent shares
relate entirely to the assumed exercise of stock options.
6
The weighted average shares used in the computation of earnings per
share were as follows (in millions of shares):
Three Months Ended Nine Months Ended
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September 29, 2001 September 30, 2000 September 29, 2001 September 30, 2000
------------------ ------------------ ------------------ ------------------
Basic 24.7 24.6 24.6 25.1
Diluted 24.9 24.7 24.8 25.1
4) Comprehensive Income
Total comprehensive income, comprised of net earnings and other
comprehensive income was $21,718,000 and $17,171,000 for the third
quarter of 2001 and 2000, respectively. For the first three-quarters of
2001 and 2000, comprehensive income was $33,214,000 and $37,730,000,
respectively. Other comprehensive income (loss) was comprised solely of
foreign currency translation adjustments. The Corporation does not
provide U.S. income taxes on foreign currency translation adjustments
because it does not provide for such taxes on undistributed earnings of
foreign subsidiaries.
5) Segment Information
The Corporation operates in two primary business segments, print and
turnkey services, with other business operations in healthcare products.
Summarized segment data for the three months ended September 29, 2001 and
September 30, 2000 are as follows:
Turnkey
Dollars in thousands Printing Services Healthcare Total
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2001
Net sales $272,236 $80,929 $23,450 $376,615
Earnings from operations 29,336 7,121 2,165 38,622
2000
Net sales $296,197 $95,038 $26,160 $417,395
Earnings from operations 32,969 6,738 1,854 41,561
7
Summarized segment data for the nine months ended September 29, 2001
and September 30, 2000 are as follows:
Turnkey
Dollars in thousands Printing Services Healthcare Total
------------------------------------------------------------------------------------------
2001
Net sales $755,033 $258,174 $73,581 $1,086,788
Earnings from operations 66,573 18,346 7,231 92,150
2000
Net sales $815,973 $224,265 $77,283 $1,117,521
Earnings from operations 78,386 11,468 6,455 96,309
The following table presents a reconciliation of segment earnings from
operations to the totals contained in the condensed financial statements
for the three and nine months ended September 29, 2001 and September 30,
2000:
Three Months Ended Nine Months Ended
Dollars in thousands September 29, September 30, September 29, September 30,
2001 2000 2001 2000
---- ---- ---- ----
Reportable segment earnings $38,622 $41,561 $92,150 $96,309
Unallocated corporate expenses (4,240) (4,866) (14,024) (13,805)
Interest expense (3,303) (4,772) (10,807) (12,400)
Write-off of investment - - (12,500) -
Other income (expense) (531) (276) 432 (1,219)
------- -------- ------- -------
Earnings before income taxes $30,548 $ 31,647 $55,251 $68,885
======= ======== ======= =======
6) Write-off of Investment
XYAN.com, Inc. ("Xyan") filed for bankruptcy under Chapter 11 on March
31, 2001 as a result of the inability to obtain additional financing for
its continued operation, coupled with the unfavorable operating results
due to the economic downturn in its market. In response to Xyan's filing
for bankruptcy, the Corporation wrote-off the cost of its minority
interest in Xyan in March 2001. This write-off resulted in a
non-operating charge of $12.5 million ($7.5 million or $.30 per diluted
share, after tax).
7) Accounting Pronouncement
On June 30, 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill
and Other Intangible Assets. SFAS No. 142 establishes accounting and
reporting standards associated with goodwill, defined by the Corporation
as Costs in Excess of Net Assets of Subsidiaries Acquired, and other
intangible assets. At the time of adoption of SFAS No. 142, goodwill will
no longer be subject to amortization over its estimated useful life.
Rather, goodwill and intangibles with indefinite lives will be subject to
at least annual assessment for impairment by applying a fair-value-based
test. SFAS No. 142 also stipulates that an acquired intangible asset
should be separately recognized if the benefit of the intangible asset is
obtained through contractual or other legal rights, or if the intangible
asset can be sold, transferred, licensed, rented, or exchanged,
regardless of the acquirer's intent to do so. The Corporation will adopt
SFAS No. 142 on December 30, 2001. The adoption of SFAS No. 142 is
expected to decrease amortization expense in fiscal 2002 by approximately
$2.7 million. The Corporation will annually perform the necessary
impairment tests to assess whether or not recognition of an impairment
loss is necessary.
8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales
Net sales for the third quarter of 2001 were $376.6 million, 9.8% lower than the
$417.4 million in the prior year quarter.
Third quarter sales for the print segment were $272.2 million, an 8.1% decrease
from the prior year's $296.2 million. Approximately 40% of the decrease in print
segment sales was attributable to a reduction in paper prices of approximately
13% compared to the prior year quarter. Also contributing to the sales decline
was the absence of biennial business-to-business catalogs, which were not
printed during the current year third quarter, and a softer economy. With the
challenging economic environment, the Corporation's short-run publication
markets experienced reductions in advertising page counts and lower print
quantities. Consumer catalogs experienced a favorable third quarter with volumes
ahead of last year in a competitive pricing environment.
Supply-chain management sales of $80.9 million for the current quarter were
14.8% lower than the prior period's $95.0 million. Fewer revenue opportunities
from the Corporation's major technology customers led to a reduction in sales
from the U.S. facilities. This reduction was partially offset by stronger demand
and favorable product mix from European and Asian facilities.
Healthcare sales of $23.5 million for the current year third quarter were 10.4%
lower than the prior period sales of $26.2 million. The decrease in healthcare
sales was primarily related to a reduction in paper and resin prices compared to
the prior year quarter.
Net sales for the first three-quarters of 2001 were $1.09 billion, slightly
lower than the $1.12 billion in the first three-quarters of last year.
Print segment sales for the nine-month period were $755.0 million in 2001
compared to $816.0 million in 2000. Healthcare sales were $73.6 million, a 4.8%
decrease from the prior year's $77.3 million. Trends in operating activity
levels within the print and healthcare segments for the first three-quarters
were similar to those described above for the third quarter.
Nine-month sales for the supply-chain management segment reached $258.2 million,
15.1% higher than the $224.3 million in sales for the nine months ended
September 30, 2000. This increase was primarily due to three full quarters of
activity under the Corporation's fulfillment contract with Compaq Computer in
each of the three geographic locations.
Earnings from Operations
Third quarter earnings from operations were $34.4 million, 6.3% lower than the
prior year's $36.7 million. Operating margins of 9.1% were slightly higher than
the prior year operating margins of 8.8%, primarily due to product mix and
improved operating performance.
Print segment earnings from operations for the third quarter decreased 11.0%
from the same period in the prior year. Operating margins of 10.8% were only
slightly lower than the prior year's 11.1%. These reductions were primarily due
to the aforementioned sales decrease. Partially offsetting the reductions were
improved utilization of in-line imaging equipment within the direct marketing
business and improved operational efficiencies within the consumer catalog
business. The Corporation also aggressively managed costs by balancing facility
staffing with plant utilization requirements.
9
Earnings from operations for the supply-chain management segment increased 5.7%
from the prior year period. Operating margins increased to 8.8% from 7.1% in
2000. These improvements were primarily due to a level cost structure during the
current year third quarter compared to the higher cost structure during the
third quarter of 2000 which included one-time start-up costs as a result of the
European and Asian Compaq contract.
Healthcare segment earnings from operations were 16.8% higher than the prior
year period and operating margins were 9.2% compared to 7.1% in the prior year.
This segment benefited from last year's domestic manufacturing and global
sourcing initiatives, which included establishing a management office in Hong
Kong and forming supply relationships in Asia. The prior year earnings were
lower as a result of the start-up costs associated with these initiatives.
Earnings from operations for the first three-quarters of 2001 decreased to $78.1
million, 5.3% lower than the prior year's $82.5 million. Operating margins of
7.2% were slightly lower than the prior year's 7.4%. Print segment earnings from
operations for the nine-month period were 15.1% lower than the prior year period
due to the factors discussed in the analysis of third quarter earnings as well
as higher utility and employee healthcare costs during the first quarter of 2001
compared to the prior year first quarter. Earnings from operations for the
supply-chain management segment were 60% higher for the current year nine-month
period compared to the prior year primarily due to improved utilization at all
the facilities servicing Compaq and strong volume increases at other U.S.,
Europe and Mexican facilities during the first half of 2001. Healthcare segment
earnings from operations for the first nine months of 2001 improved from the
same period in 2000 due to the same factors that impacted the 2001 third
quarter.
Investment Write-off
XYAN.com, Inc. ("Xyan") filed for bankruptcy under Chapter 11 on March 31, 2001
as a result of the inability to obtain additional financing for its continued
operation, coupled with the unfavorable operating results due to the economic
downturn in its market. In response to Xyan's filing for bankruptcy, the
Corporation wrote-off the cost of its minority interest in Xyan in March 2001.
This write-off resulted in a non-operating charge of $12.5 million ($7.5 million
or $.30 per diluted share, after tax).
Interest Expense
Interest expense for the third quarter and first three-quarters of 2001 was $1.5
million and $1.6 million lower, respectively, than in the comparable periods in
the prior year. This decrease was primarily due to lower rates on short-term
commercial paper and decreased debt levels primarily due to lower capital
requirements.
Income Taxes
As indicated below, the Corporation's effective third quarter and first three
quarters income tax rates for 2001 were slightly lower than the 2000 rates. The
current year tax rate was impacted by higher tax-exempt earnings and foreign
earnings taxed at lower rates.
Effective Tax Rate
2001 2000
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Third Quarter 38.6% 39.2%
First Three Quarters 38.7% 39.3%
10
FINANCIAL CONDITION
Liquidity and Capital Resources
The Corporation's net working capital increased by approximately $42 million
during the first three-quarters of 2001 due to a decrease in accounts payables
and short-term debt. These decreases more than offset the reductions in accounts
receivables and inventory. Reductions in these balances from December 30, 2000
were primarily due to lower sales volume. Reduced capital spending and no share
repurchases in the first nine months of 2001 resulted in a reduction in
short-term borrowings.
Capital expenditures were $40.2 million during the first three-quarters of 2001,
a decrease of $20.8 million from the amount expended during the prior year
period. Capital requirements for the full year are expected to be approximately
$65 to $70 million and will be funded by cash provided from operations. As a
result of lower capital requirements, the Corporation's availability under its
short-term credit facilities increased from $58.1 million at December 30, 2000
to $88.9 million at September 29, 2001.
Long-term debt as a percentage of total capitalization of 30.0% at September 29,
2001 was slightly lower than the 32.6% at December 30, 2000.
Future Outlook
The Corporation believes that, given the continued soft economy, it will be a
challenge to fully achieve the levels of revenue and earnings reached during
last year's exceptionally strong fourth quarter. Thus, for the full-year 2001,
the Corporation's diluted earnings per share are expected to be modestly below
last year's record of $2.35, before the one-time charge taken during 2001's
first quarter.
Cautionary Statements for Forward-Looking Information
This document includes forward-looking statements. Statements that describe
future expectations, including revenue and earnings projections, plans, results
or strategies, are considered forward-looking statements. Such statements are
subject to certain risks and uncertainties, which could cause actual results to
differ materially from those currently anticipated. Factors that could affect
actual results include, among others, changes in customers' order patterns or
demand for the Corporation's products and services, changes in raw material
costs and availability, unanticipated changes in operating expenses,
unanticipated production difficulties, demand for products and services in the
technology sector, and general changes in economic conditions. These factors
should be considered in evaluating the forward-looking statements, and undue
reliance should not be placed on such statements. The forward-looking statements
included herein are made as of the date hereof, and the Corporation undertakes
no obligation to update publicly such statements to reflect subsequent events or
circumstances.
Item 3.Qualitative and Quantitative Disclosures About Market Risk
The Corporation is exposed to market risk from changes in interest rates and
foreign exchange rates. At September 29, 2001, the Corporation had notes payable
outstanding aggregating $16.1 million against lines of credit with banks. These
notes consist entirely of commercial paper and bear interest at floating rates.
Each 1% fluctuation in the interest rate will increase or decrease interest
expense for the Corporation by approximately $161,000 annually. Since
essentially all long-term debt is at fixed interest rates, exposure to interest
rate fluctuations is not material.
11
Any potential market risk associated with changes in foreign exchange rates is
considered in contractual arrangements with customers. The Corporation also
manages foreign currency exchange rate exposure by utilizing some natural hedges
to mitigate a portion of its transaction and commitment exposures, and may
utilize forward contracts in certain situations.
Based on the Corporation's overall foreign currency exchange rate exposure at
September 29, 2001, a 10% change in foreign currency exchange rates will not
have a material effect on the Corporation's balance sheet, statement of earnings
or cash flows.
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - No exhibits filed with this report
No reports on Form 8-K were filed during the quarter for which this report is
filed
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.
BANTA CORPORATION
/S/GERALD A. HENSELER
--------------------------------
Gerald A. Henseler
Executive Vice President, Chief Financial Officer and Treasurer
Date November 13, 2001
12