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 April 3, 1999
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
BANTA CORPORATION
(Exact name of registrant as specified on its charter)
Wisconsin 39-0148550
(State of other jurisdiction (IRS Employer
of incorporation or organization) I.D. Number)
225 Main Street, Menasha, Wisconsin 54952
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (920) 751-7777
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 April 3, 1999, 27,574,609 shares of
$.10 par value common stock.
<PAGE>
BANTA CORPORATION AND SUBSIDIARIES
Quarterly Report on Form 10-Q
For the Quarter Ended April 3, 1999
INDEX
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Page Number
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PART I FINANCIAL INFORMATION:
Item 1 - Financial Statements
Unaudited Consolidated Condensed Balance Sheets
April 3, 1999 and January 2, 1999 ..............................3
Unaudited Consolidated Condensed Statements of Earnings for
the Three Months Ended April 3, 1999 and April 4, 1998 ..........4
Unaudited Consolidated Condensed Statements of Cash Flows
for the Three Months Ended April 3, 1999 and April 4, 1998.......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 - Quantitative and Qualitative Disclosures about Market Risk......11
PART II OTHER INFORMATION AND SIGNATURES:
Item 6 - Exhibits and Reports on Form 8-K................................12
Exhibit Index ................................................................13
<PAGE>
PART I Item 1. Financial Statements
BANTA CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands)
April 3, 1999 January 2, 1999
------------- ---------------
ASSETS
- ------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 28,118 $ 26,584
Receivables 198,866 233,200
Inventories 77,474 74,724
Other current assets 21,853 20,112
------------ -------------
Total Current Assets 326,311 354,620
------------ -------------
Plant and Equipment 772,486 758,440
Less: Accumulated Depreciation (453,169) (439,805)
------------ -------------
Plant and Equipment, net 319,317 318,635
Other Assets 21,851 20,989
Cost in Excess of Net Assets of Subsidiaries Acquired 74,391 75,722
------------ -------------
$ 741,870 $ 769,966
============ =============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- ----------------------------------------
Current Liabilities
Short-term debt $ 33,865 $ 36,140
Accounts payable 90,127 107,649
Accrued salaries and wages 23,150 25,085
Other accrued liabilities 23,936 20,706
Current maturities of long-term debt 6,829 6,911
------------ -------------
Total Current Liabilities 177,907 196,491
------------ -------------
Long-term Debt 120,573 120,628
Deferred Income Taxes 21,617 22,214
Other Non-Current Liabilities 21,235 20,702
Shareholders' Investment
Preferred stock-$10 par value;
authorized 300,000 shares; none issued 0 0
Common stock-$.10 par value;
Authorized 75,000,000 shares;
27,574,609 and 28,260,957 shares issued
and outstanding, respectively 2,757 2,826
Accumulated other comprehensive loss (4,699) (2,308)
Retained earnings 402,480 409,413
------------ -------------
Total Shareholders' Investment 400,538 409,931
------------ -------------
$ 741,870 $ 769,966
============ =============
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
BANTA CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
Three Months Ended
April 3, 1999 April 4, 1998
------------- -------------
<S> <C> <C>
Net sales $ 309,286 $ 330,810
Cost of goods sold 247,591 265,996
------------ ------------
Gross earnings 61,695 64,814
Selling and administrative expenses 42,304 43,500
------------ ------------
Earnings from operations 19,391 21,314
Interest expense (2,947) (2,918)
Other, net (432) (364)
------------ ------------
Earnings before income taxes 16,012 18,032
Provision for income taxes 6,300 7,000
------------ ------------
Net earnings $ 9,712 $ 11,032
============ ============
Basic earnings per share of common stock $ .35 $ .37
============ ============
Diluted earnings per share of common stock $ .35 $ .37
============ ============
Cash dividends per common share $ .14 $ .13
============ ============
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
BANTA CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in thousands)
Three Months Ended
April 3, 1999 April 4, 1998
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities
Net earnings $ 9,712 $ 11,032
Depreciation and amortization 17,172 16,533
Deferred income taxes (597) 143
Change in assets and liabilities:
Decrease in receivables 34,334 4,051
Decrease in inventories 1,803 11,992
Increase in other current assets (1,741) (1,197)
Decrease in accounts payable
and accrued liabilities (18,048) (2,315)
Increase in other non-current assets (862) (872)
Other, net (1,327) (663)
------------- -------------
Cash provided from operating activities 40,446 38,704
------------- -------------
Cash Flows From Investing Activities
Capital expenditures, net (17,051) (16,392)
------------- -------------
Cash Flows From Financing Activities
Repayment of short-term debt, net (2,275) (13,175)
Repayment of long-term debt (137) (149)
Dividends paid (3,950) (3,575)
Proceeds from exercise of stock options 55 1,238
Repurchase of common stock (15,554) (3,232)
------------- -------------
Cash used for financing activities (21,861) (18,893)
------------- -------------
Net increase in cash 1,534 3,419
Cash and cash equivalents at beginning of period 26,584 16,432
------------- -------------
Cash and cash equivalents at end of period $ 28,118 $ 19,851
============= =============
Cash payments for:
Interest, net of amount capitalized $ 2,035 $ 3,123
Income taxes 1,373 1,338
See accompanying notes to consolidated statements
</TABLE>
<PAGE>
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 months ended April 3, 1999, are not necessarily indicative
of results that may be expected for the year ending January 1, 2000.
2) Inventories
The Corporation's inventories are stated at the lower of cost or market
using the first-in, first-out (FIFO) method. Until the current fiscal
year, approximately one-third of the Corporation's inventories were
accounted for at cost determined on a last-in, first-out (LIFO) basis.
Effective January 3, 1999, these operations changed to the FIFO method.
The change in accounting principle was made to provide a better matching
of revenue and expenses and to be consistent with prevalent industry
practice. This accounting change was not material to the financial
statements on an annual or quarterly basis, and accordingly, no
retroactive restatement of prior years' financial statements was made.
Inventories include material, labor and manufacturing overhead.
Inventory amounts at April 3, 1999 and January 2, 1999 were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
April 3, 1999 January 2, 1999
------------- ---------------
<S> <C> <C>
Raw Materials and Supplies $ 38,267 $ 35,270
Work-In-Process and Finished Goods 39,207 43,963
------------- ---------------
FIFO value (current cost of all inventories) 77,474 79,233
LIFO reserve - (4,509)
------------- ---------------
Net Inventories $ 77,474 $ 74,724
============= ===============
</TABLE>
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 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, which relate entirely to the assumed exercise
of stock options.
<PAGE>
The weighted average shares used in the computation of earnings per share
were as follows (in millions of shares):
April 3, 1999 April 4, 1998
------------- -------------
Basic 27.9 29.7
Diluted 27.9 29.9
4) Comprehensive Income
Total comprehensive income, comprised of net income and other
comprehensive income (loss), was $7,321,000 and $9,873,000 for the first
quarter of 1999 and 1998, 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 one primary business segment, print, with
other business operations in turnkey services and healthcare products.
Summarized segment data for the three months ended April 3, 1999 and
April 4, 1998 are as follows:
Dollars in thousands Printing All Other 1 Total
---------------------------------------------------------------------
1999
Net sales $236,420 $72,866 $309,286
Intersegment sales 1,301 4 1,305
Earnings from operations 19,321 4,173 23,494
1998
Net sales $254,467 $76,343 $330,810
Intersegment sales 330 332 662
Earnings from operations 21,223 4,465 25,688
1 "All Other" includes the operations within turnkey services
and healthcare products which have been aggregated.
<PAGE>
The following table presents a reconciliation of segment earnings from
operations to the totals contained in the condensed financial statements:
Dollars in thousands 1999 1998
Reportable segment earnings $19,321 $21,223
Other segment earnings 4,173 4,465
Unallocated corporate expenses (4,103) (4,374)
Interest expense (2,947) (2,918)
Other income (expense) (432) (364)
------- -------
Earnings before income taxes $16,012 $18,032
======= =======
6) Subsequent Event
On April 12, 1999, the Corporation announced a major profit-improvement
program that targets revenue and earnings growth, increased efficiencies
and enhanced shareholder returns. The program will result in a pretax
restructuring charge of between $50 million and $55 million ($1.30-$1.40
per diluted share, after tax) to be recorded in the second quarter of
1999. The restructuring initiatives primarily involve the Corporation's
print segment and include three facility closings and the elimination of
certain underperforming business lines. These initiatives will result in
workforce reductions of approximately 650 employees (350 employees at the
three facilities closed) and the writedown of certain long-lived assets,
including goodwill.
Actions within the print segment include the closing of the mailing and
fulfillment facility in Berkeley, Illinois, the prepress facility in
Charlotte, North Carolina and the printing plant in Kent, Washington.
These closings and the related asset writedowns were primarily the result
of volume shortfalls and continuing losses in 1999. Actions taken during
1998 improved operating results, but fell short of substantial
improvement necessary to create profitability and create positive
shareholder value. Initiatives within the turnkey services and healthcare
products business operations primarily relate to the elimination or
realignment of manufacturing capacity based on anticipated customer
sourcing requirements.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Liquidity and Capital Resources
The Corporation's net working capital decreased by approximately $9.7
million during the first quarter of 1999 due to a reduction in the level
of receivables offset in part by a decrease in payables. The decrease in
receivables compared to the balance at January 2, 1999 was the result of
seasonality in the Corporation's business and a continued emphasis on
asset management. The decrease in payables compared to the balance at
January 2, 1999 was primarily due to lower sales volume. Also during the
first quarter of 1999, the Corporation repurchased approximately 689,000
shares of common stock at an aggregate purchase price of $15.6 million
pursuant to its common stock repurchase program. Cash provided from
operations funded these repurchases. Future stock repurchases will be
funded by a combination of cash provided from operations and short-term
borrowings, if necessary.
Capital expenditures were $17.1 million during the first quarter of 1999,
an increase of $0.7 million from the amount expended during the prior
year first quarter. Capital requirements for the full year are expected
to be approximately $90 million and will be funded by a combination of
cash provided from operations and short-term borrowings. Long-term debt
as a percentage of total capitalization remained consistent with the
percentage at January 2, 1999.
On April 12, 1999, the Corporation announced a major profit-improvement
program that targets revenue and earnings growth, increased efficiencies
and enhanced shareholder returns. The program will result in a pretax
restructuring charge of between $50 million and $55 million to be
recorded in the second quarter of 1999. The initiatives are expected to
generate between $5 million and $7 million in cost savings during the
second half of 1999 and savings for the years 2000 and forward of $18
million to $20 million annually. The restructuring initiatives primarily
involve the Corporation's print segment and include three facility
closings and the elimination of certain underperforming business lines.
These initiatives will result in workforce reductions of approximately
650 employees and the writedown of certain long-lived assets, including
goodwill. The cash portion of the charge is expected to be between $20
million and $25 million and will be funded by the cost savings from the
restructuring initiatives.
RESULTS OF OPERATIONS
Net Sales
Sales for the first quarter of 1999 were $21.5 million (7%) lower than
the first quarter of 1998. The decrease in print segment sales was
primarily due to lower volume in the educational book market and lower
paper prices in the first quarter of 1999 as compared with the first
quarter of 1998. The cost of paper is generally passed on to the
Corporation's customers and, as a result, as paper prices decreased from
1998 levels, the Corporation's sales also decreased. Turnkey services
sales were lower in the first quarter of 1999 compared to the prior
year's first quarter due to the loss of low margin business from certain
U.S. customers and lower material pass-through from the type of projects
performed during the current year quarter. Healthcare products sales for
the first quarter of 1999 were comparable to the prior year first
quarter.
<PAGE>
Cost of Goods Sold
Cost of goods sold as a percentage of sales decreased from 80.4% for the
first quarter of 1998 to 80.1% for the first quarter of 1999. This
overall margin gain was partially due to the decrease in paper sales
since the sale of paper generally has lower margins than manufacturing
sales. Margins within the turnkey services operations improved as a
result of lower material pass-through, which essentially has no margin
associated with the revenue.
Selling and Administrative Expenses
Selling and administrative expenses were $1.2 million lower for the first
quarter of 1999 than for the first quarter of 1998. The decrease is
essentially due to lower sales volume in the current year's first quarter
compared to the prior year's quarter. Selling and administrative expenses
as a percent of sales increased from 13.1% to 13.7% primarily as a result
of the aforementioned lower sales volume.
Interest Expense
Interest expense for the first quarter of 1999 was comparable to the
prior year first quarter.
Income Taxes
The Corporation's effective first quarter income tax rate for 1999 of
39.3% was slightly more than the 38.8% tax rate for 1998 partially due to
a decrease in tax-free interest income earned in 1999 as compared to
1998.
Other Matters
During 1998, the Corporation completed an evaluation of its computer
software to determine its ability to handle dates beginning with the year
2000. It was determined that a significant portion of the Corporation's
software was already year-2000 compliant. This evaluation also resulted
in the development of detailed plans to replace certain software and to
reprogram other software. The Corporation also implemented a program to
confirm that business and manufacturing system hardware, control systems
and software supplied by significant third party vendors is year-2000
ready. Although complete assurance cannot be given, management currently
believes it is devoting the necessary resources to resolve all
significant year-2000 issues, both Information Technology ("IT") and
non-IT related, by mid-1999. The Corporation has nearly completed the
audits and operational readiness testing as well as received
certification of year-2000 readiness from significant third party
vendors.
The Corporation's contingency plan related to third party vendors is to
identify additional suppliers and alternate sources for essential
materials, primarily paper, in case one or more of its suppliers were not
year-2000 ready. The majority of the Corporation's internal IT-related
systems has either been replaced or is in the process of being replaced
with year-2000 compliant systems. Accordingly, a contingency plan has not
been developed for internal IT-related systems and is not currently
considered necessary. The Corporation is continuing to test
non-IT-related systems (HVAC, safety and security) and has developed a
contingency plan.
The risk of not being year-2000 compliant on a timely basis is that
product shipments could potentially be delayed, which could have an
adverse impact on, among other things, the Corporation's revenues and
earnings. Additional resources, which cannot be accurately estimated at
this time, would be required to process and fulfill customer orders.
During 1998, the Corporation spent approximately $3.5 million to upgrade
and replace its systems to ensure year-2000 readiness. The Corporation
estimates it will incur additional costs of $3 to $4 million in 1999. The
majority of the systems development costs will be capitalized.
<PAGE>
Cautionary Statements for Forward-Looking Information
This document includes forward-looking statements. Statements that
describe future expectations, plans or strategies are considered
forward-looking. 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' demand for the Corporation's
products, changes in raw material costs and availability, seasonal or
unanticipated changes in customer orders, pricing actions by competitors,
success in the implementing the Corporation's recently announced revenue
and margin enhancement program, unanticipated events relating to
achieving year-2000 compliance, 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 disclosure about Market Risk
The Corporation is exposed to market risk from changes in interest rates
and foreign exchange rates. At April 3, 1999, the Corporation had notes
payable outstanding aggregating $33.9 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 $339,000 annually. Since essentially all long-term debt is
at fixed interest rates, exposure to interest rate fluctuations is
minimal. Exposure to adverse changes in foreign exchange rates is also
considered immaterial.
<PAGE>
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
18 - Letter regarding change in accounting
principles
27 - Financial Data Schedule (EDGAR version only)
(b) 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 May 18, 1999
<PAGE>
BANTA CORPORATION
EXHIBIT INDEX TO FORM 10-Q
For The Quarter Ended April 3, 1999
Exhibit Number
- --------------
18 Letter regarding change in accounting principles
27 Financial Data Schedule (EDGAR version only)
EXHIBIT 18
May 17, 1999
Mr. Gerald A. Henseler
Banta Corporation
225 Main Street
Post Office Box 8003
Menasha, Wisconsin 54952-8003
Re: Form 10-Q Report for the quarter ended April 3, 1999.
Dear Mr. Henseler:
This letter is written to meet the requirements of Regulation S-K calling for a
letter from a registrant's independent accountants whenever there has been a
change in accounting principle or practice.
We have been informed that, as of January 3, 1999, the Company changed from the
last-in first-out method of accounting for inventory to the first-in first-out
method. According to the management of the Company, this change was made to
provide a better matching of revenues and expenses and to be consistent with
prevalent industry practice.
A complete coordinated set of financial and reporting standards for determining
the preferability of accounting principles among acceptable alternative
principles has not been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change in accounting
described in the preceding paragraph is to a preferable method. However, we have
reviewed the pertinent factors, including those related to financial reporting,
in this particular case on a subjective basis, and our opinion stated below is
based on our determination made in this manner.
We are of the opinion that the Company's change in method of accounting is to an
acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under the
circumstances in this particular case. In arriving at this opinion, we have
relied on the business judgment and business planning of your management.
We have not audited the application of this change to the financial statements
of any period subsequent to January 2, 1999. Further, we have not examined and
do not express any opinion with respect to your financial statements for the
three months ended April 3, 1999.
Very truly yours,
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF BANTA CORPORATION AS OF AND FOR THE THREE
MONTHS ENDED APRIL 3, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> APR-03-1999
<CASH> 2,780
<SECURITIES> 25,338
<RECEIVABLES> 202,956
<ALLOWANCES> 4,090
<INVENTORY> 77,474
<CURRENT-ASSETS> 326,311
<PP&E> 772,486
<DEPRECIATION> 453,169
<TOTAL-ASSETS> 741,870
<CURRENT-LIABILITIES> 177,907
<BONDS> 120,573
0
0
<COMMON> 2,757
<OTHER-SE> 397,781
<TOTAL-LIABILITY-AND-EQUITY> 741,870
<SALES> 309,286
<TOTAL-REVENUES> 309,286
<CGS> 247,591
<TOTAL-COSTS> 247,591
<OTHER-EXPENSES> 42,304
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,947
<INCOME-PRETAX> 16,012
<INCOME-TAX> 6,300
<INCOME-CONTINUING> 9,712
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,712
<EPS-PRIMARY> 0.35 <F1>
<EPS-DILUTED> 0.35
<FN>
<F1> THE EPS UNDER THE "EPS-PRIMARY" TAG REPRESENTS BASIC EARNINGS PER SHARE
</FN>
</TABLE>
