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 June 30, 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
BANTA CORPORATION
--------------------------------------------------------------------------------
(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 June 30, 2001, 24,631,710 shares of
$.10 par value common stock.
BANTA CORPORATION AND SUBSIDIARIES
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 2001
INDEX
Page Number
PART I FINANCIAL INFORMATION:
Item 1 - Financial Statements
Unaudited Consolidated Condensed Balance
Sheets June 30, 2001 and December 30, 2000 .................... 3
Unaudited Consolidated Condensed Statements
of Earnings for the Three Months and Six
Months Ended June 30, 2001 and July 1, 2000 ................... 4
Unaudited Consolidated Condensed Statements
of Cash Flows for the Six Months Ended
June 30, 2001 and July 1, 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 - Quantitative and Qualitative Disclosures
about Market Risk ........................................ 11
PART II OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders ....... 12
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)
June 30, 2001 December 30, 2000
------------- -----------------
ASSETS
Current Assets
Cash and cash equivalents $ 28,934 $ 27,660
Receivables 215,224 249,200
Inventories 94,673 108,109
Other current assets 25,151 21,706
---------- ----------
Total Current Assets 363,982 406,675
---------- ----------
Plant and Equipment 900,087 876,243
Less: Accumulated Depreciation (558,073) (531,982)
---------- ----------
Plant and Equipment, net 342,014 344,261
Other Assets and Investments 25,899 37,663
Cost in Excess of Net Assets
of Subsidiaries Acquired 65,048 65,925
---------- ----------
$ 796,943 $ 854,524
========== ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
Short-term debt $ 22,101 $ 46,863
Accounts payable 88,974 117,499
Accrued salaries and wages 28,414 43,235
Other accrued liabilities 30,698 24,217
Current maturities of long-term debt 13,360 8,505
---------- ----------
Total Current Liabilities 183,547 240,319
---------- ----------
Long-term Debt 168,911 179,202
Deferred Income Taxes 24,463 24,106
Other Non-Current Liabilities 43,692 39,985
---------- ----------
Total Liabilities 420,613 483,612
---------- ----------
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;
27,776,110 and 27,711,028 shares
issued, respectively 2,777 2,771
Amount in excess of par value of stock 1,333 43
Accumulated other comprehensive loss (12,571) (8,964)
Treasury stock, at cost (3,144,400 shares) (66,814) (66,814)
Retained earnings 451,605 443,876
---------- ----------
Total Shareholders' Investment 376,330 370,912
---------- ----------
$ 796,943 $ 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 Six Months Ended
June 30, July 1, June 30, June 1,
2001 2000 2001 2000
--------- --------- --------- ---------
Net Sales $337,396 $358,592 $710,173 $700,126
Cost of goods sold 265,456 284,101 570,837 559,128
-------- -------- -------- --------
Gross earnings 71,940 74,491 139,336 140,998
Selling and administrative
expenses 48,777 49,319 95,592 95,189
-------- -------- -------- --------
Earnings from operations 23,163 25,172 43,744 45,809
Interest expense (3,493) (3,738) (7,504) (7,628)
Write-off of investment - - (12,500) -
Other income (expense), net 801 (590) 963 (943)
-------- -------- -------- --------
Earnings before income taxes 20,471 20,844 24,703 37,238
Provision for income taxes 8,000 8,200 9,600 14,700
-------- -------- -------- --------
Net earnings $ 12,471 $ 12,644 $ 15,103 $ 22,538
======== ======== ======== ========
Basic earnings per share of
common stock $0.51 $0.50 $0.61 $0.89
======== ======== ======== ========
Diluted earnings per share of
common stock $0.50 $0.50 $0.61 $0.89
======== ======== ======== ========
Cash dividends per common share $0.15 $0.15 $0.30 $0.30
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
4
BANTA CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months Ended
June 30, 2001 July 1, 2000
------------- ------------
Cash Flows From Operating Activities
Net earnings $ 15,103 $ 22,538
Depreciation and amortization 37,571 36,681
Deferred income taxes 208 789
Cash paid for restructuring (800) (3,139)
Write-off of investment 12,500 -
(Gain) loss on sale of assets (161) 76
Change in assets and liabilities, net of
acquisition:
Decrease in receivables 33,451 669
Decrease (increase) in inventories 13,436 (28,684)
Decrease (increase) in other current assets (3,296) 658
(Decrease) increase in accounts payable
and accrued liabilities (36,065) 19,703
Increase in other non-current assets (1,572) (1,369)
Other, net (232) (1,507)
-------- --------
Cash provided from operating activities 70,143 46,415
-------- --------
Cash Flows From Investing Activities
Capital expenditures, net (31,167) (44,239)
Cash used for acquisitions, net of
cash acquired - (11,547)
Additions to long-term investments (1,426) (10,416)
-------- --------
Cash used for investing activities (32,593) (66,202)
-------- --------
Cash Flows From Financing Activities
Repayments of short-term debt, net (24,762) (32,496)
(Repayment of) proceeds from long-term debt (5,436) 67,399
Dividends paid (7,374) (7,639)
Proceeds from exercise of stock options 1,296 -
Repurchase of common stock - (16,736)
-------- --------
Cash (used for) provided by
financing activities (36,276) 10,528
-------- --------
Net increase (decrease) in cash 1,274 (9,259)
Cash and cash equivalents at beginning
of period 27,660 27,651
-------- --------
Cash and cash equivalents at end
of period $ 28,934 $ 18,392
======== ========
Cash payments for:
Interest, net of amount capitalized $ 6,742 $ 6,396
Income taxes 2,343 17,595
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 six months ended June 30, 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 June 30, 2001 and
December 30, 2000 were as follows:
(Dollars in thousands)
June 30, December 30,
2001 2000
-------- ------------
Raw Materials and Supplies $ 48,857 $ 58,513
Work-In-Process and Finished Goods 45,816 49,596
-------- ---------
FIFO value (current cost of all inventories) $ 94,673 $ 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 Six Months Ended
----------------------------- -----------------------------
June 30, 2001 July 1, 2000 June 30, 2001 July 1, 2000
------------- ------------ ------------- ------------
Basic 24.6 25.1 24.6 25.3
Diluted 24.8 25.1 24.8 25.3
4) Comprehensive Income
Total comprehensive income, comprised of net earnings and other
comprehensive income (loss), was $11,114,000 and $12,131,000 for the second
quarter of 2001 and 2000, respectively. For the first half of 2001 and
2000, comprehensive income was $11,496,000 and $20,559,000 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 June 30, 2001 and July
1, 2000 are as follows:
Turnkey
Dollars in thousands Printing Services Healthcare Total
--------------------------------------------------------------------------
2001
Net sales $226,788 $85,450 $25,158 $337,396
Earnings from operations 19,813 5,392 2,529 27,734
2000
Net sales $263,260 $69,218 $26,114 $358,592
Earnings from operations 24,685 3,507 1,986 30,178
7
Summarized segment data for the six months ended June 30, 2001 and July 1,
2000 are as follows:
Turnkey
Dollars in thousands Printing Services Healthcare Total
--------------------------------------------------------------------------
2001
Net sales $482,797 $177,245 $50,131 $710,173
Earnings from operations 37,237 11,225 5,066 53,528
2000
Net sales $519,776 $129,227 $51,123 $700,126
Earnings from operations 45,417 4,730 4,601 54,748
The following table presents a reconciliation of segment earnings from
operations to the totals contained in the condensed financial statements
for the three and six months ended June 30, 2001 and July 1, 2000:
Three Months Ended Six Months Ended
------------------ ----------------
June 30, July 1, June 30, July 1,
Dollars in thousands 2001 2000 2001 2000
-------- -------- --------- --------
Reportable segment earnings $27,734 $30,178 $ 53,528 $54,748
Unallocated corporate expenses (4,571) (5,006) (9,784) (8,939)
Interest expense (3,493) (3,738) (7,504) (7,628)
Write-off of investment - - (12,500) -
Other income (expense) 801 (590) 963 (943)
------- ------- -------- -------
Earnings before income taxes $20,471 $20,844 $ 24,703 $37,238
======= ======= ======== =======
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 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 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. Although recognition of an impairment loss is
not anticipated, the Corporation will 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 second quarter of 2001 were $337.4 million, 5.9% lower than
the $358.6 million in the prior year quarter.
Second quarter sales for the print segment were $226.8 million, a 13.9% decrease
from the prior year's $263.3 million. The decrease in print segment sales is
primarily attributable to a lower utilization within most of the Corporation's
print facilities and a reduction in paper prices of approximately 5% compared to
the prior year quarter. Educational book and component sales were lower due to
delays in textbook adoption activity and higher 2000 year-end customer
inventories, which reduced activity during the first six months of 2001.
Reductions in page counts of approximately 10%, lowered sales in the magazine
market while catalog market sales were lower due to increased postage costs and
the challenging economic environment.
Supply-chain management sales of $85.5 million for the current quarter were
23.5% higher than the prior period's $69.2 million. This increase was partially
due to a full quarter of activity under the Corporation's fulfillment contract
with Compaq in each of three geographic locations, namely the U.S., Europe, and
Asia. Additional outsourcing opportunities with other technology companies in
Europe also increased second quarter sales compared to the prior year.
Healthcare sales of $25.2 million for the current year second quarter were
slightly lower than the prior period sales of $26.1 million.
Net sales for the first half of 2001 increased to $710.2 million, slightly
higher than the $700.1 million in the first half of last year. Print segment
sales for the six-month period were $482.8 million in 2001 compared to $519.8
million in 2000. Sales for the supply-chain management segment reached $177.2
million, 37% higher than the prior year six months $129.2 million. Healthcare
sales were consistent at approximately $50 million. Trends in operating activity
levels for the first two quarters were similar to those described above for the
second quarter.
Earnings from operations
Second quarter earnings from operations were $23.2 million, 8.0% lower than the
prior year's $25.2 million. Operating margins of 6.9% were slightly lower than
the prior year operating margins of 7.0%, primarily due to product mix.
Print segment earnings from operations for the second quarter decreased 19.7%
from the prior year and operating margins for this segment decreased to 8.7%
from 9.4%. These reductions were due to aforementioned sales reductions and
lower utilization primarily within the educational book and component market.
Partially offsetting these reductions were improved utilization of in-line
imaging equipment within the direct marketing business and improved operational
efficiencies within the consumer catalog business.
Earnings from operations for the supply-chain management segment increased $1.9
million or 53.7% from the prior year period. Operating margins increased to 6.3%
from 5.1% in 2000. These improvements were primarily due to improved utilization
at the European facilities servicing the Compaq contract and the aforementioned
sales increases at other European facilities.
9
Healthcare segment earnings from operations were 27.3% higher than the prior
year period and operating margins were 10.1% compared to 7.6% 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 half of 2001 decreased to $43.7 million,
4.5% lower than the prior year's $45.8 million. Operating margins of 6.2% were
slightly lower than the prior year's 6.5%. Print segment earnings from
operations for the six-month period were 18.0% lower than the prior year period
due to the aforementioned reductions in the second quarter in addition to 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 137% higher for the current year six-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. Healthcare segment earnings from operations for the
first half of 2001 improved due to the same factors that impacted the 2001
second 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 diluted share, after tax).
Interest Expense
Interest expense for the second quarter and first six months of 2001 was
comparable to the prior year periods.
Income Taxes
As indicated below, the Corporation's effective second quarter and first half
income tax rates for 2001 were slightly lower than the 2000 rates. The current
year tax rate was impacted by the rate applied to the first quarter investment
write-off along with higher tax-exempt earnings and foreign earnings taxed at
lower rates. Without giving effect to the investment write-off, the effective
income tax rate for the first six months was 39.2%.
Effective Tax Rate
2001 2000
---------- ----------
Second Quarter 39.1% 39.3%
First Half 38.9% 39.5%
FINANCIAL CONDITION
Liquidity and Capital Resources
The Corporation's net working capital increased by approximately $14 million
during the first half of 2001 due to a decrease in payables and short-term debt.
These decreases more than offset the reductions in 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 six
months of 2001 resulted in a reduction in short-term borrowings.
10
Capital expenditures were $31.2 million during the first half of 2001, a
decrease of $13.1 million from the amount expended during the prior year first
half. Included in the prior year capital expenditure amount were significant
expenditures to support the Compaq start-up. Capital requirements for the full
year are now expected to be approximately $65 to $70 million and will be funded
by a combination of cash provided from operations and short-term borrowings. As
a result of lower capital requirements, the Corporation's availability under
short-term credit facilities increased from $58.1 million at December 30, 2000
to $82.9 million at June 30, 2001.
Long-term debt as a percentage of total capitalization at June 30, 2001 of 31.0%
was comparable to the percentage 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 second six months. Thus, for the full-year
2001, the Corporation's diluted earnings per share are expected to be comparable
to last year, 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 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 customer 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 could 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 June 30, 2001, the Corporation had notes payable
outstanding aggregating $22.1 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 $221,000 annually. Since
essentially all long-term debt is at fixed interest rates, exposure to interest
rate fluctuations is minimal.
Any potential market risk associated with changes in foreign exchange 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
June 30, 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.
11
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of shareholders held on April 24, 2001, all of
the persons nominated as directors were elected for terms expiring at
the 2002 annual meeting. The following table sets forth certain
information with respect to such election:
Shares
Shares Withholding
Name Voted For Authority
---- --------- -----------
Jameson A. Baxter 20,888,179 546,422
Donald D. Belcher 20,891,265 543,336
John F. Bergstrom 20,890,437 544,164
Henry T. DeNero 20,899,541 535,060
Richard L. Gunderson 20,881,630 552,971
Gerald A. Henseler 20,896,783 537,818
Bernard S. Kubale 20,698,930 735,671
Raymond C. Richelsen 20,888,770 545,831
Michael J. Winkler 20,656,590 778,011
In addition, at the annual meeting, shareholders approved the Banta
Corporation Equity Incentive Plan, as amended. With respect to such
matter, the number of shares voted for and against was 14,004,063 and
4,828,837, respectively. The number of shares abstaining was 324,400.
There were no shares subject to broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
3.1 - Amendment to By-laws
3.2 - By-laws as amended
10.1 - Equity Incentive Plan, as amended
10.2 - Executive Deferred Compensation Plan "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 August 14, 2001
12
BANTA CORPORATION
EXHIBIT INDEX TO FORM 10-Q
For The Quarter Ended June 30, 2001
Exhibit Number
--------------
3.1 Amendment to By-laws
3.2 By-laws, as amended
10.1 Equity Incentive Plan, as amended
10.2 Executive Deferred Compensation Plan "B"
13