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 30, 2000
------------------
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
--------- -------------
(State or 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 September 30, 2000, 24,568,503 shares of
$.10 par value common stock.
<PAGE>
BANTA CORPORATION AND SUBSIDIARIES
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2000
INDEX
Page
Number
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PART I FINANCIAL INFORMATION:
Item 1 - Financial Statements
Unaudited Consolidated Condensed Balance Sheets
September 30, 2000 and January 1, 2000 .......................... 3
Unaudited Consolidated Condensed Statements of Earnings
for the Three Months and Nine Months Ended September 30,
2000 and October 2, 1999 ........................................ 4
Unaudited Consolidated Condensed Statements of Cash Flows
for the Three Months and Nine Months Ended September 30,
2000 and October 2, 1999 ......................................... 5
Notes to Unaudited Consolidated Condensed
Financial Statements ............................................. 6-9
Item 2 - Management's Discussion and Analysis of Results of
Operation and Financial Condition ........................ 10-12
Item 3 - Quantitative and Qualitative Disclosures about
Market Risk ............................................... 12
PART II OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K .................... 13
Exhibit Index .......................................................... 14
2
<PAGE>
PART I Item 1. Financial Statements
BANTA CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
September 30, January 1,
2000 2000
------------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 20,180 $ 27,651
Receivables 273,553 218,047
Inventories 114,961 86,094
Other current assets 21,533 24,069
-------- --------
Total Current Assets 430,227 355,861
-------- --------
Plant and Equipment 867,585 811,800
Less: Accumulated Depreciation (523,441) (484,450)
-------- --------
Plant and Equipment, net 344,144 327,350
Other Assets and Investments 39,918 31,111
Cost in Excess of Net Assets of
Subsidiaries Acquired 63,828 59,022
-------- --------
$878,117 $773,344
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
Short-term debt $ 74,973 $ 88,499
Accounts payable 122,337 96,456
Accrued salaries and wages 41,988 31,848
Other accrued liabilities 31,164 21,435
Current maturities of long-term debt 5,465 7,115
-------- --------
Total Current Liabilities 275,927 245,353
-------- --------
Long-term Debt 184,135 113,520
Deferred Income Taxes 20,344 20,382
Other Non-Current Liabilities 41,515 40,314
-------- --------
Total Liabilities 521,921 419,569
-------- --------
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;
27,709,103 shares issued 2,771 2,771
Accumulated other comprehensive loss (10,444) (6,389)
Treasury stock, at cost (66,735) (42,790)
Retained earnings 430,604 400,183
-------- --------
Total Shareholders' Investment 356,196 353,775
-------- --------
$878,117 $773,344
======== ========
See accompanying notes to consolidated financial statements
3
<PAGE>
<TABLE>
BANTA CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
(Dollars in thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Net Sales $ 404,645 $ 331,572 $ 1,079,271 $ 939,938
Cost of goods sold 317,770 259,324 851,398 744,310
--------- --------- ----------- ---------
Gross earnings 86,875 72,248 227,873 195,628
Selling and administrative
expenses 50,180 39,952 145,369 121,295
Restructuring charge - - - 55,000
--------- --------- ----------- ---------
Earnings from operations 36,695 32,296 82,504 19,333
Interest expense (4,772) (2,996) (12,400) (8,795)
Other expense, net (276) (562) (1,219) (1,315)
--------- --------- ----------- ---------
Earnings before income taxes 31,647 28,738 68,885 9,223
Provision for income taxes 12,400 11,200 27,100 8,700
--------- --------- ----------- ---------
Net earnings $ 19,247 $ 17,538 $ 41,785 $ 523
========= ========= =========== =========
Basic earnings per share of
common stock $ 0.78 $ 0.65 $ 1.67 $ 0.02
========= ========= =========== =========
Diluted earnings per share
of common stock $ 0.78 $ 0.65 $ 1.67 $ 0.02
========= ========= =========== =========
Cash dividends per common share $ 0.15 $ 0.14 $ 0.45 $ 0.42
========= ========= =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
BANTA CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended
September 30, October 2,
2000 1999
------------- -----------
Cash Flows From Operating Activities
Net earnings $ 41,785 $ 523
Depreciation and amortization 55,795 51,157
Deferred income taxes 1,330 6,330
Restructuring charge - 55,000
Cash paid for restructuring (3,678) (10,155)
Gain on sale of assets 91 -
Change in assets and liabilities, net
of acquisition:
(Increase) decrease in receivables (49,885) 789
(Increase) in inventories (26,043) (5,851)
Decrease (increase) in other current assets 722 (3,959)
Increase in accounts payable
and accrued liabilities 49,366 11,387
Other, net (2,903) (1,809)
-------- --------
Cash provided from operating activities 66,580 103,412
-------- --------
Cash Flows From Investing Activities
Capital expenditures, net (60,995) (60,780)
Cash used for acquisitions, net of cash acquired (11,547) -
Additions to long-term investments (13,643) (10,398)
-------- --------
Cash used for investing activities (86,185) (71,178)
-------- --------
Cash Flows From Financing Activities
(Repayments of) proceeds from short-term debt, net (17,526) 27,235
Proceeds from (repayment of) long-term debt, net 64,969 (5,368)
Dividends paid (11,364) (11,613)
Proceeds from exercise of stock options - 1,608
Repurchase of common stock (23,945) (39,462)
-------- --------
Cash provided by (used for) financing
activities 12,134 (27,600)
-------- --------
Net (decrease) increase in cash (7,471) 4,634
Cash and cash equivalents at beginning of period 27,651 26,584
-------- --------
Cash and cash equivalents at end of period $ 20,180 $ 31,218
======== ========
Cash payments for:
Interest, net of amount capitalized $ 10,349 $ 7,770
Income taxes 25,451 12,273
See accompanying notes to consolidated statements
5
<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 and nine months ended September 30, 2000 are not necessarily
indicative of results that may be expected for the year ending December 30,
2000.
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 30, 2000
and January 1, 2000 were as follows:
(Dollars in thousands)
September 30, January 1,
2000 2000
------------- ----------
Raw Materials and Supplies $ 62,333 $ 51,425
Work-In-Process and Finished Goods 52,628 34,669
-------- --------
FIFO value (current cost of all inventories) $114,961 $ 86,094
======== ========
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
<PAGE>
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
---------------------------- ----------------------------
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
------------- ---------- ------------- ----------
Basic 24.6 27.0 25.1 27.5
Diluted 24.7 27.1 25.1 27.5
4) Comprehensive Income (Loss)
Total comprehensive income, comprised of net earnings and other
comprehensive income, was $17,171,000 and $18,879,000 for the third quarter
of 2000 and 1999, respectively. For the first three quarters of 2000 and
1999, comprehensive income (loss) was $37,730,000 and $(1,873,000),
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 30, 2000 and
October 2, 1999 are as follows:
Turnkey
Dollars in thousands Printing Services Healthcare Total
---------------------------------------------------------------------------
2000
Net sales $284,697 $95,038 $24,910 $404,645
Earnings from operations 32,969 6,738 1,854 41,561
1999
Net sales $247,233 $57,965 $26,374 $331,572
Earnings from operations 28,110 4,112 3,875 36,097
7
<PAGE>
Summarized segment data for the nine months ended September 30, 2000 and
October 2, 1999 are as follows:
Turnkey
Dollars in thousands Printing Services Healthcare Total
--------------------------------------------------------------------------
2000
Net sales $781,473 $224,265 $73,533 $1,079,271
Earnings from operations 78,386 11,468 6,455 96,309
1999
Net sales $710,433 $150,976 $78,529 $939,938
Earnings before
restructuring 69,748 4,584 11,245 85,577
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 30, 2000 and October 2, 1999:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, October 2, September 30, October 2,
Dollars in thousands 2000 1999 2000 1999
------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Reportable segment earnings $ 41,561 $ 36,097 $ 96,309 $ 85,577
Restructuring charge - - - (55,000)
Unallocated corporate expenses (4,866) (3,801) (13,805) (11,244)
Interest expense (4,772) (2,996) (12,400) (8,795)
Other income (expense) (276) (562) (1,219) (1,315)
-------- -------- -------- --------
Earnings before income taxes $ 31,647 $ 28,738 $ 68,885 $ 9,223
======== ======== ======== ========
</TABLE>
6) Restructuring Charge
In the second quarter of 1999, the Corporation recorded a restructuring
charge, including related asset writedowns, of $55.0 million ($38.5 million
or $1.40 per diluted share, after tax). The restructuring primarily
involved the Corporation's print segment and resulted in three facility
closings and the elimination of certain underperforming business assets.
The restructuring also resulted in workforce reductions of approximately
650 employees (350 employees at the three facilities closed) and the
writedown of certain long-lived assets, including goodwill. It is expected
that the restructuring activities will be substantially completed in 2000.
8
<PAGE>
Details of the remaining restructuring activity are as follows (in
thousands):
January 1, Used in September 30,
2000 2000 2000
---------- ------- -------------
Lease termination payments $ 8,736 $ (1,293) $ 7,443
Employee severance and
termination benefit 1,712 (884) 828
Other facility exit costs 1,501 (1,501) -
-------- -------- -------
$ 11,949 $ (3,678) $ 8,271
======== ======== =======
7) Treasury Stock
At September 30, 2000, the Corporation held 3,140,600 shares of its common
stock in treasury. These shares were acquired during 1999 and the first
nine months of 2000 through the common stock repurchase program and may be
reissued pursuant to the Corporation's equity incentive plan or for other
purposes.
8) Acquisition of Business
In May 2000, the Corporation acquired Southeastern Color Graphics
("Southeastern") for approximately $11.5 million in cash plus the
assumption of approximately $8.0 million in debt. Southeastern focuses on
product niches that address the non-textbook print component requirements
of elementary and high school markets. Southeastern reported sales for 1999
in excess of $20 million. The purchase price plus the liabilities assumed
exceeded the fair value of the tangible and intangible assets acquired by a
preliminary estimate of $6.3 million. The acquisition was accounted for as
a purchase and, accordingly, the accompanying financial statements of the
Corporation include the results of Southeastern beginning with the
acquisition date.
9) Long-term Investments
In 2000, the Corporation acquired approximately a 13 percent interest in
Xyan.com, Inc. for approximately $6.0 million in cash and the contribution
of $1.6 million of assets. Xyan.com, Inc. is a leading Internet-enabled
digital document solutions provider with document service centers
throughout the United States. The cost method of accounting will be used to
account for this investment.
10) New Accounting Pronouncements
In December of 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition. This SAB provides
guidance for registrants regarding certain criteria which must be met in
order for revenue to be recognized. Adoption of this pronouncement was
initially required to be completed during the first quarter of fiscal 2000.
However, the SEC has subsequently extended the required implementation date
of SAB No. 101 until the fourth quarter. The Corporation is currently
evaluating the impact of the adoption of SAB No. 101, however, the
Corporation does not expect the adoption to have a material impact on the
Corporation's financial position or results of operations.
9
<PAGE>
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 2000 increased to $404.6 million, 22.0%
higher than the $331.6 million in the prior year quarter.
Third quarter sales for the print segment reached $284.7 million, a 15.1%
increase from the prior year's $247.2 million. This increase in print
segment sales was primarily the result of a high degree of utilization
within most print facilities and an increase in paper prices of
approximately 13% compared to the prior year quarter. The acquisition of
Southeastern Color Graphics ("Southeastern") in May 2000 which positively
impacted third quarter sales by $7.1 million, along with the strong demand
for educational and trade books resulted in an increase in the book market
sales. Higher magazine advertising page counts and expanded market share
contributed to an increase in the publications market sales
Supply-chain management sales of $95.0 million for the current quarter were
64% higher than the prior period's $58.0 million. This increase was
primarily due to sales from the late-1999 facility start-up in Houston to
service Compaq Computer in North America and strong volume increases at
other U.S. facilities. The contract with Compaq Computer will continue to
positively impact supply-chain management segment sales for the remainder
of 2000.
Healthcare sales of $24.9 million for the current year third quarter were
5.7% lower than the prior period sales of $26.4 million. This decrease is
partially attributed to lower unit sales prices for imported gauze products
and the continued consolidation within the customer base, which has
eliminated redundant warehouse requirements.
Corporate-wide sales for the first three quarters of 2000 increased to $1.1
billion, 14.8% higher than the $940 million in the first three quarters of
last year. Trends in operating activity levels for the first three quarters
were similar to those described above for the third quarter.
Earnings from operations
Third quarter earnings from operations rose to $36.7 million, 13.6% higher
than the prior year's $32.3 million. Operating margins of 9.1% were
slightly lower than the prior year operating margins of 9.7%, primarily due
to product mix and reduced operating results from the healthcare segment.
Higher sales volume from supply-chain management, which generally provide a
lower percentage margin because of their higher material content also
contributed to the overall lower margin.
Print segment earnings from operations for the third quarter increased
17.2% from the prior year primarily due to aforementioned sales increase
and improved utilization within most print facilities, however higher
selling and administrative expenses moderated the increase. Operating
margins for the third quarter of 11.6% were slightly higher than the prior
year quarter's operating margin of 11.4%.
10
<PAGE>
Earnings from operations for the supply-chain management segment increased
64% from the prior year period primarily from improved utilization at the
Houston facility for Compaq assembly and strong volume increases at the
U.S. facilities. Operating margins for the third quarter compared to the
prior year quarter remained consistent at 7.1%.
Healthcare segment earnings from operations were approximately $2.0 million
lower than the prior year period and operating margins were 7.4% compared
to 14.7% in the prior year. The reduction in earnings and operating margins
was attributed to lower sales volume from industry consolidation, start up
costs associated with foreign sourcing of selected products and higher raw
material prices, which could not be passed on to customers due to
competitive pricing and contractual arrangements.
Earnings from operations on a corporate-wide basis for the first three
quarters of 2000 increased to $82.5 million, 11.0% higher than the prior
year's $74.3 million, before giving effect to the 1999 second quarter
restructuring charge. The improvement in earnings from operations resulted
from the same factors that impacted the third quarter. Operating margins
for the first three quarters of 7.6% were slightly lower than the prior
period operating margins of 7.9%. Similar to the third quarter, the lower
margins are primarily a result of product mix, due to a larger sales volume
from the turnkey services segment at lower margins than the print segment
and reduced operating results from the healthcare segment.
Restructuring Charge
Earnings from operations for the second quarter of 1999 included a
restructuring charge of $55.0 million. The restructuring initiatives
primarily involved the Corporation's print segment and included three
facility closings and the elimination of certain underperforming business
assets. These initiatives resulted in workforce reductions of approximately
650 employees and the writedown of certain long-lived assets, including
goodwill. At September 30, 2000 the remaining restructuring reserve was
$8.3 million. It is expected that the restructuring activities will be
substantially completed in 2000.
Interest Expense
Interest expense for the third quarter and the first three quarters of 2000
was $1.8 million and $3.6 million higher than the comparable periods in the
prior year. This increase was primarily due to higher rates on short-term
commercial paper and increased debt levels to support the common stock
repurchase program, capital expenditures and working capital needs.
Income Taxes
As indicated below, the Corporation's 2000 third quarter and first three
quarters effective income tax rates were comparable to the prior year
periods before giving effect to the 1999 second quarter restructuring
charge.
Effective Tax Rate
2000 1999
-------- --------
Third quarter 39.2% 39.0%
First three quarters 39.3% 39.2%
11
<PAGE>
FINANCIAL CONDITION
Liquidity and Capital Resources
The Corporation's net working capital increased by approximately $43.8
million during the first three quarters of 2000. The increase was primarily
in receivables and inventories and partially offset by an increase in
accounts payable. Changes in working capital primarily related to the
ramp-up of the Houston and Cork, Ireland facilities to support Compaq, the
acquisition of Southeastern and increased print segment sales volumes.
During the first three quarters of 2000, the Corporation repurchased
approximately 1.3 million shares of common stock at an aggregate purchase
price of $23.9 million pursuant to its common stock repurchase program. A
combination of short-term borrowings and cash provided from operations
funded these repurchases. At September 30, 2000, the share repurchase
program had in excess of $80 million in authority remaining for future
share repurchases. Future stock repurchases, if any are expected to be
funded by a combination of cash provided from operations and short-term
borrowings.
Long-term debt as a percentage of total capitalization increased to 34.1%
compared with 24.3% at January 1, 2000. This increase was a result of the
Corporation converting $20 million of its short-term floating debt into
long-term debt in March 2000 and issuing $50 million of 8.05% long-term
debt in June 2000.
Capital expenditures were $61.0 million during the first three quarters of
2000, consistent with the amount expended during the first three quarters
of the prior year. Significant expenditures included additional equipment
to support the Compaq contract, initial payments for four new presses and
continued investment in new printing and digital imaging technologies.
Capital requirements for the full year are expected to be approximately
$100 million and will be funded by a combination of cash provided from
operations and short-term borrowings.
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 September 30, 2000, the Corporation had
notes payable outstanding aggregating $75.0 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
$750,000 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 considered minimal.
Currently, the Corporation does not use derivative instruments to hedge
foreign currency exposures; however, as the Corporation continues to invest
in and grow foreign markets, forward contracts may be used to hedge
exposures.
12
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This document includes forward-looking statements. Statements that describe
future expectations, plans, results 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' order patterns or demand for
the Corporation's products, the timing and magnitude of orders placed by
Compaq, unanticipated changes in the level of capital expenditures, changes
in interest rates and foreign exchange rates, changes in raw material costs
and availability (especially paper), success with operational start-ups,
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.
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
27 - Financial Data Schedule (EDGAR version only)
(b) A Current Report on Form 8-K was filed on September 20, 2000. The
Form 8-K reported (under Item 5) the Corporation's participation in
an analyst conference and includes copies of the scripts used at such
conference as an exhibit thereto.
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 14, 2000
13
<PAGE>
BANTA CORPORATION
EXHIBIT INDEX TO FORM 10-Q
For The Quarter Ended September 30, 2000
Exhibit Number
27 - Financial Data Schedule (EDGAR version only)
14
