UNITED STATES
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 28, 2002
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
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(Address of principal executive (Zip Code)
offices)
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 / /
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes /X/ No / /
Common stock outstanding as of October 21, 2002 - 25,328,721 shares.
BANTA CORPORATION AND SUBSIDIARIES
Quarterly Report on Form 10-Q
For the Three and Nine Months Ended September 28, 2002
INDEX
Page Number
-----------
PART I FINANCIAL INFORMATION:
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
September 28, 2002 and December 29, 2001............... 3
Condensed Consolidated Statements of Earnings
for the Three Months and Nine Months Ended
September 28, 2002 and September 29, 2001.............. 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 28, 2002
and September 29, 2001................................. 5
Notes to Condensed Consolidated Financial Statements..... 6-9
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 10-14
Item 3 - Quantitative and Qualitative Disclosures about
Market Risk ............................................ 14
Item 4 - Controls and Procedures................................... 14
PART II OTHER INFORMATION
Item 5 - Other Information......................................... 15
Item 6 - Exhibits and Reports on Form 8-K.......................... 15
SIGNATURES.................................................................. 15
CERTIFICATIONS............................................................ 16-17
2
Part 1 Item 1. Financial Statements
BANTA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS September 28, 2002 December 29, 2001
------ ------------------ -----------------
(unaudited)
Current Assets
Cash and cash equivalents $ 143,508 $ 65,976
Receivables 204,858 215,505
Inventories 66,711 71,079
Other current assets 23,240 21,056
--------- ---------
Total Current Assets 438,317 373,616
--------- ---------
Plant and equipment 922,168 908,525
Less accumulated depreciation 628,216 583,541
--------- ---------
Plant and equipment, net 293,952 324,984
Goodwill 64,673 63,801
Other assets 23,688 25,645
--------- ---------
$ 820,630 $ 788,046
--------- ---------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
Accounts payable $ 95,663 $ 98,391
Accured salaries and wages 36,250 32,218
Other accrued liabilities 31,786 28,226
Current maturities of long-term debt 19,416 25,915
--------- ---------
Total Current Liabilities 183,115 184,750
--------- ---------
Long-term debt 113,659 130,981
Deferred income taxes 21,412 21,080
Other non-current liabilities 42,447 43,957
--------- ---------
Total Liabilities 360,633 380,768
--------- ---------
Shareholders' Investment
Preferred stock-$10 par value;
authorized 300,000 shares; none issued -- --
Common stock-$.10 par value, authorized
75,000,000 shares; 28,471,772 and 27,874,263
shares issued, respectively 2,847 2,787
Amount in excess of par value of stock 19,372 3,366
Accumulated other comprehensive loss (5,669) (10,914)
Treasury stock, at cost - 3,144,400 shares (66,814) (66,814)
Retained earnings 510,261 478,853
--------- ---------
Total Shareholders' Investment 459,997 407,278
--------- ---------
$ 820,630 $ 788,046
========= =========
See accompanying notes to unaudited condensed consolidated financial statements
3
BANTA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 28, 2002 September 29, 2001 September 28, 2002 September 29, 2001
------------------ ------------------ ------------------ ------------------
Net sales $ 352,076 $ 377,817 $ 1,018,306 $ 1,090,508
Cost of goods sold 270,026 299,373 793,744 872,728
----------- ----------- ----------- -----------
Gross earnings 82,050 78,444 224,562 217,780
Selling and administrative expenses 48,820 44,062 146,127 139,654
----------- ----------- ----------- -----------
Earnings from operations 33,230 34,382 78,435 78,126
Interest expense (2,063) (3,303) (8,116) (10,807)
Write-off of investment -- -- -- (12,500)
Other income, net 758 (531) 852 432
----------- ----------- ----------- -----------
Earnings before income taxes 31,925 30,548 71,171 55,251
Provision for income taxes 12,386 11,800 27,764 21,400
----------- ----------- ----------- -----------
Net earnings $ 19,539 $ 18,748 $ 43,407 $ 33,851
=========== =========== =========== ===========
Basic earnings per share of common stock $ 0.77 $ 0.76 $ 1.72 $ 1.37
=========== =========== =========== ===========
Diluted earnings per share of common stock $ 0.76 $ 0.75 $ 1.70 $ 1.36
=========== =========== =========== ===========
Cash dividends per share of common stock $ 0.16 $ 0.15 $ 0.48 $ 0.45
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements
4
BANTA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
Nine Months Ended
September 28, 2002 September 29, 2001
------------------ ------------------
Cash Flows from Operating Activities
Net earnings $ 43,407 $ 33,851
Depreciation and amortization 55,572 56,370
Deferred income taxes 891 468
Write-off of investment -- 12,500
Gain (loss) on sale of plant and equipment 18 (160)
Change in assets and liabilities
Decrease in receivables 10,647 10,395
Decrease in inventories 4,368 23,298
Increase (decrease) in accounts payable
and accrued liabilities 5,374 (23,707)
Net change in other current assets and liabilities (2,743) (2,266)
Net change in other non-current assets and liabilities (760) (2,060)
Tax benefit from exercise of stock options 2,818 127
Other, net 3,290 1,958
--------- ---------
Cash provided from operating activities 122,882 110,774
--------- ---------
Cash Flows From Investing Activities
Capital expenditures (21,020) (40,151)
Additions to long-term investments (1,731) (1,964)
--------- ---------
Cash used for investing activities (22,751) (42,115)
--------- ---------
Cash Flows From Financing Activities
Repayments of short-term debt, net -- (30,811)
Repayments of long-term debt (23,821) (8,805)
Dividends paid (12,027) (11,069)
Proceeds from exercise of stock options 13,249 2,208
--------- ---------
Cash used for financing activities (22,599) (48,477)
--------- ---------
Net increase in cash 77,532 20,182
Cash and cash equivalents at the beginning of period 65,976 27,660
--------- ---------
Cash and cash equivalents at the end of the period $ 143,508 $ 47,842
========= =========
Cash payments for:
Interest, net of capitalized interest $ 7,990 $ 9,442
Income taxes 19,876 13,567
See accompanying notes to condensed consolidated financial statements
5
BANTA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 2002
(UNAUDITED)
1) Basis of Presentation
The unaudited condensed consolidated financial statements of Banta
Corporation (the Corporation) included herein have been prepared in
accordance with accounting principles generally accepted in the United
States for interim financial information and 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 accounting principles generally
accepted in the United States 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 consolidated 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 financial statements
include 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 28, 2002 are not
necessarily indicative of results that may be expected for the year
ending December 28, 2002.
2) Inventories
Inventories consist of the following (dollars in thousands):
September 28, 2002 December 29, 2001
------------------ -----------------
Raw materials and supplies $31,555 $38,432
Work-in-process and finished goods 35,156 32,647
------ ------
$66,711 $71,079
======== =======
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 during the period. 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
consist of the following (in millions of shares):
----------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 28, 2002 September 29, 2001 September 28, 2002 September 29, 2001
------------------ ------------------ ------------------ ------------------
Basic 25.3 24.7 25.2 24.6
Diluted 25.7 24.9 25.6 24.8
----------------------------------------------------------------------------------------------
4) Comprehensive Earnings
Comprehensive earnings consist of the following (dollars in thousands):
Three Months Ended Nine Months Ended
September 28, 2002 September 29, 2001 September 28, 2002 September 29, 2001
------------------ ------------------ ------------------ ------------------
Net earnings $19,539 $18,748 $43,407 $33,851
Other comprehensive earnings (loss):
Foreign currency translation
adjustments (457) 2,970 5,245 (637)
----- ----- ----- ----
Comprehensive earnings 19,082 $21,718 48,652 33,214
====== ======= ====== ======
5) Goodwill
The Corporation adopted Statement of Financial Accounting Standards
("SFAS") No. 142, Goodwill and Other Intangible Assets, effective
December 30, 2001. Under SFAS No. 142, goodwill and certain other
intangible assets are no longer amortized but are reviewed for
impairment. In connection with the adoption of SFAS No. 142, the
Corporation has completed the first step of the transitional goodwill
impairment test, which required the Corporation to compare the fair value
of its reporting units to the carrying value of the net assets of the
respective reporting units as of December 30, 2001. Based on this
analysis, the Corporation has concluded that no impairment existed at the
time of adoption, and, accordingly, the Corporation has not recognized
any transitional impairment loss.
Changes in the carrying amount of goodwill of ($54,000) and $872,000 for
the three and nine months periods ended September 28, 2002, respectively,
consist solely of translation adjustments for goodwill denominated in
foreign currencies.
As required by SFAS No. 142, the results of operations for periods prior
to its adoption have not been restated. The following table reconciles
reported net earnings and earnings per share to pro-forma net earnings
and earnings per share that would have resulted for the three and nine
months ended September 28, 2002 if SFAS No. 142 had been adopted on
December 31, 2000 (dollars in thousands, except per share amounts):
7
Three Months Ended Nine Months Ended
------------------ -----------------
September 28, 2002 September 29, 2001 September 28, 2002 September 29, 2001
------------------ ------------------ ------------------ ------------------
Reported net earnings $19,539 $18,748 $43,407 $33,851
Goodwill amortization - 461 - 1,381
------ ------ ------ ------
Adjusted net earnings 19,539 $19,209 $43,307 $35,232
====== ====== ====== ======
Basic earnings per share:
Reported net earnings $0.77 $0.76 $1.72 $1.37
Goodwill amortization - .02 - .06
------ ------ ------ ------
Adjusted basic earnings per share $0.77 $0.78 $1.72 $1.43
====== ====== ====== ======
Diluted earnings per share:
Reported net earnings $0.76 $0.75 $1.70 $1.36
Goodwill amortization - .02 - .06
------ ------ ------ ------
Adjusted diluted earnings per
share $0.76 $0.77 $1.70 $1.42
====== ====== ====== ======
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 after tax). The restructuring primarily involved the
Corporation's print segment and resulted in three facility closings and
the elimination of certain under-performing 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. With the
exception of continued lease payments for certain of the closed
facilities, all restructuring actions were substantially completed in
fiscal 2000.
The restructuring charge consists of the following (dollars in
thousands):
Original
Restructuring Used in Used in Used in Used through Balance
Charge 1999 2000 2001 Sept. 28, 2002 Sept. 28, 2002
----------------------------------------------------------------------------------------------------------------------------
Writedown of intangible assets,
including goodwill $ 15,600 $ (15,600) $ - $ - $ - $ -
Writedown of tangible assets 15,300 (15,300) - - - -
Lease termination payments 11,500 (2,764) (1,940) (1,318) (510) 4,968
Employee severance and termination
benefits 8,300 (6,588) (1,712) - - -
Other facility exit costs 4,300 (2,799) (1,501) - - -
----------------------------------------------------------------------------------------------------------------------------
Total $ 55,000 (43,051) $(5,153) $(1,318) $ (510) $ 4,968
----------------------------------------------------------------------------------------------------------------------------
8
7) Segment Information
The Corporation operates in two primary business segments, print and
supply-chain management, with other business operations in healthcare
products. Summarized segment data for the three and nine months ended
September 28, 2002 and September 29, 2001 are as follows (dollars in
thousands):
Three Months Ended Nine Months Ended
------------------ -----------------
September 28, 2002 September 29, 2001 September 28, 2002 September 29, 2001
------------------ ------------------ ------------------ ------------------
Net sales
Print $ 267,157 $ 272,236 $ 739,712 $ 755,033
Supply-Chain Management 62,849 80,929 205,476 258,174
Healthcare 22,070 24,652 73,118 77,301
---------- ---------- ---------- ----------
Total $ 352,076 $ 377,817 $1,018,306 $1,090,508
========== ========== ========== ==========
Earnings from operations
Print $ 28,860 $ 29,336 $ 66,783 $ 66,573
Supply-Chain Management 6,566 7,121 16,992 18,346
Healthcare 2,626 2,165 7,591 7,231
---------- ---------- ---------- ----------
Total $ 38,052 $ 38,622 $ 91,366 $ 92,150
========== ========== ========== ==========
The following table presents a reconciliation of segment earnings from
operations to the totals contained in the consolidated condensed
financial statements for the three and nine months ended September 28,
2002 and September 29, 2001 (dollars in thousands):
Three Months Ended Nine Months Ended
------------------ -----------------
September 28, 2002 September 29, 2001 September 28, 2002 September 29, 2001
------------------ ------------------ ------------------ ------------------
Reportable segment earnings from
operations $ 38,052 $ 38,622 $ 91,366 $ 92,150
Corporate expenses (not allocated to
segments) (4,822) (4,240) (12,931) (14,024)
Interest expense (2,063) (3,303) (8,116) (10,807)
Write-off of investment -- -- -- (12,500)
Other income (expense) 758 (531) 852 432
------- ------- ------- -------
Earnings before income taxes $ 31,925 $ 30,548 $ 71,171 $ 55,251
======= ======= ======= =======
9
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRD QUARTER AND FIRST NINE MONTHS OF 2002 COMPARED TO 2001
Net Sales
Net sales for the third quarter of 2002 totaled approximately $352 million, 7%
less than net sales for the third quarter of 2001. Net sales for the quarter by
segment are shown below (dollars in thousands):
---------------------------- ----------------- --------------------- -------------------
Segment Quarter 3 Quarter 3 Increase
2002 2001 (Decrease) %
---------------------------- ----------------- --------------------- -------------------
Print $267,157 $272,236 (2%)
---------------------------- ----------------- --------------------- -------------------
Supply-Chain Management 62,849 80,929 (22%)
---------------------------- ----------------- --------------------- -------------------
Healthcare 22,070 24,652 (10%)
---------------------------- ----------------- --------------------- -------------------
Total $352,076 $377,817 (7%)
---------------------------- ----------------- --------------------- -------------------
Print sales for the third quarter were 2% lower than the comparable quarter in
the prior year, with strength in the Book Group offset by lower revenues in
Publications, Catalog and Direct Marketing. The key issues related to revenues
in this segment were:
o Book Group sales have been strong year to date, with third quarter revenues
5% above the prior year. The third quarter is historically a strong quarter
for business-to-business catalogs and calendars, specifically day-to-day
calendars. The business continues to expand its literature management
services to a broader list of customers, and several major literature
management customers were recently added, representing the healthcare,
financial services and medical products industries.
o The Catalog Group had strong volumes, with third quarter print production
(as measured by impressions) up 5% from the prior year. This is the result
of gaining market share with several new niche catalogs and a limited
number of longer run catalogs. Pricing in this marketplace remains a
challenge, however. As a result, Catalog Group revenues in the 2002 third
quarter were down 6% from the comparable quarter in the prior year.
o The Publications Group continues to outperform the market adding new titles
and generating record impression counts in a very tough economy. However,
advertising page counts moved down in September for the 20th straight
month. Revenues for this Group for the third quarter were down 3% from the
comparable quarter in the prior year.
o Direct Marketing has been one of the fastest growing markets in the print
industry, but in 2002 both the commercial and direct mail segments have
been the hardest hit by slowness in the economy. Retailers, consumer
package goods companies and several financial service companies became
increasingly conservative in the number and amount of pieces mailed. The
result has been a very challenging nine months for the Direct Marketing
Group's customers, with revenues down 9% from the prior year.
Consolidated net sales for the Supply-Chain Management segment for the third
quarter of 2002 continued to decline from 2001 levels, with the third quarter
down 22% from the comparable quarter of the prior year. Ongoing softness within
the technology sector continues to put downward pressure on revenues.
Healthcare net sales in the third quarter were $22 million, down 10% versus the
comparable period in 2001.
Net sales for the first nine months of 2002 were $1.02 billion, a decrease of 7%
from the first nine months of 2001. Print segment sales for the nine-month
period were $740 million compared to $755 million in
10
the first nine months of 2001, a decrease of 2%. Sales for the supply-chain
management segment in the first nine months of 2002 were $205 million, down 20%
from the prior year comparable period sales of $258 million. Healthcare sales
were slightly lower than the prior year, with $73 million in the first nine
months of 2002 versus $77 million in the first nine months of 2001. Factors
primarily affecting operating activity levels for the first nine months were
similar to those described above for the third quarter.
Earnings from operations
Consolidated earnings from operations decreased by 3.4% to $33.2 million in the
third quarter of 2002 as compared with $34.4 million in the third quarter of
2001. This decrease resulted from higher selling, general and administrative
(SG&A) costs as compared with the third quarter of the prior year. SG&A costs in
the third quarter of 2001 were unusually low due to cost cutting initiatives,
including an adjustment to commission expense. SG&A costs in the third quarter
of 2002 were consistent with prior quarters in fiscal 2002. Operating earnings
as a percentage of sales increased from 9.1% in 2001 to 9.4% in 2002.
Segment operating margins were as follows for the third quarter:
Segment 2002 2001
Print 10.8% 10.8%
Supply-Chain Management 10.4% 8.8%
Healthcare 11.9% 8.8%
Operating margins for the print segment for the third quarter of 2002 were
unchanged from operating margins in the comparable quarter of 2001.
Despite reduced revenue in the Corporation's Supply-Chain Management segment,
operating performance and product mix generated an operating margin of 10.4% in
the third quarter of 2002. Ongoing margins in the Supply-Chain Management
segment with a normalized product mix would be expected to be in the 5.5% to
6.5% range. Several factors drove the strong 10.4% operating margin in the third
quarter of 2002 in spite of the revenue shortage:
o The percentage or amount of material pass-through to value-added services
varies greatly by customer and product. Third quarter revenue contained a
higher portion of value added work, thus allowing the Corporation to
achieve better than expected margins due to a more favorable product mix.
In addition, stringent cost controls and increased efficiencies contributed
to the improved margin.
o The release of $1.2 million of reserves related to the shutdown of a
facility in Fort Worth, TX completed during the quarter. Ongoing analysis
of reserves in this sector will be completed in the fourth quarter.
The Healthcare segment improved operating margins in the third quarter of 2002
to 11.9%, as compared to 8.8% in the third quarter of 2001, the result of an
increased number of products sourced from lower cost foreign suppliers and tight
control of working capital.
Consolidated earnings from operations for the first nine months of 2002 were $78
million, equal to the prior year period. Operating margins of 7.7% for the first
nine months of 2002 were higher than the 7.2% for the same period in 2001. Print
segment earnings in the 2002 nine-month period were equivalent to the 2001
results despite lower revenues. The 2002 performance was the result of stringent
cost controls, utilization and mix factors. Earnings from operations for the
supply-chain management segment were 7% lower for the current nine-month period
compared to the prior year period primarily due to reduced sales volumes.
Healthcare earnings from operations were consistent at approximately $7 million
for both the first nine months of 2002 and 2001, despite lower revenues.
11
The principal raw material used by the Corporation in the print segment is
paper. Paper prices in the third quarter of 2002 were nearly 8% below the third
quarter of 2001.
Interest Expense
Interest expense for the third quarter of 2002 was $2.1 million, a reduction of
38% compared to interest expense of $3.3 million in the prior year third
quarter. The Corporation had no short-term debt outstanding in the third
quarter, compared to $16 million in short-term debt outstanding at the end of
third quarter 2001. Long-term debt at September 28, 2002 of approximately $133
million was down from $179 million at the end of the 2001 third quarter. The
reduction in interest expense is the result of the reduction in long-term and
short-term debt. Essentially all of the Corporation's long-term debt is at fixed
interest rates, so reduced interest rates in the market have not significantly
impacted interest expense.
Interest expense for the first nine months of 2002 was $8.1 million, a reduction
of 25% compared to the first nine months of 2001. The decrease in interest
expense is the result of the reduction in total debt.
Income Taxes
As indicated below, the Corporation's effective third quarter and nine-month tax
rates for 2002 were slightly higher than the third quarter and nine-month 2001
rates. The 2001 tax rates were impacted by foreign earnings taxed at a lower
rate and an investment write-off in the 2001 first quarter.
Effective Tax Rate
2002 2001
------------- -------------
Third Quarter 38.8% 38.6%
First Nine Months 39.0% 38.7%
Liquidity and Capital Resources
The Corporation's net working capital (current assets less current liabilities)
increased by approximately $66 million at the end of the first nine months of
2002 compared to the end of fiscal 2001. Cash balances increased by
approximately $78 million, primarily the result of increased cash flow from
operations, reduced capital expenditures and decreases in accounts receivable of
$11 million and inventory of $4 million, as compared to December 29, 2001
balances. Free cash flow for the third quarter of 2002 was $46 million, compared
to $44 million in the third quarter of 2001. Earnings before interest, taxes and
depreciation totaled $52 million in the third quarter of 2002, comparable to the
$53 million recorded in the third quarter of 2001.
The Corporation has in effect a stock repurchase program pursuant to which it
may repurchase shares of its common stock on the open market or in privately
negotiated transactions from time to time. During the quarter ended September
28, 2002, the Corporation did not effect any repurchases of common stock.
Capital expenditures were $21 million during the first nine months of 2002, a
decrease of $19 million from the $40 million spent during the first nine months
of 2001. The Corporation reduced capital expenditures due to continued softness
in the general economy. Capital expenditures for the full year are expected to
be approximately $35 - $40 million and will be funded by cash provided from
operations. Capital expenditures for 2001 were approximately $50 million.
Total debt as a percentage of total capitalization at September 28, 2002 was
22%, compared to 28% at December 29, 2001.
Given cash and cash equivalents on hand as well as borrowing capacity currently
in place, the Corporation believes it has sufficient liquidity to fund its
operations for the foreseeable future.
12
The Corporation has estimated the fair value of plan assets and obligations
as of December 31, 2002 of the primary defined benefit pension plans. At this
time the Corporation anticipates a large unrecognized net loss due to asset
performance and the decline in prevailing interest rates. However, the plans are
adequately funded and the Corporation does not expect to incur a charge to other
comprehensive income. Plan assets and obligations will be monitored closely
through the balance of the year and the Corporation may consider an additional
contribution in 2002.
Termination of Proposed Acquisition of Mentor Media
On October 21, 2002, the Corporation announced its intention to seek a court
ruling for the termination of its proposed acquisition of Singapore-based Mentor
Media Ltd. (Singapore Stock Exchange) due to, among other things, Mentor's
failure to satisfy certain material conditions required to close the
transaction. The Corporation has consulted with the Singapore Securities
Industry Council in connection with this intention, as required under the
Singapore Takeovers Code. The Corporation has also commenced litigation in
Singapore seeking termination of the acquisition agreement. The Corporation
believes that it has meritorious grounds upon which to seek termination of the
transaction. The proposed transaction was announced on June 20, 2002.
FUTURE OUTLOOK
Despite the persistence of a depressed economy and the lack of visibility in the
marketplace, the Corporation currently believes that for the full-year 2002 it
will exceed last year's net earnings and diluted EPS of $2.31 per share (before
the write-off of investment in Xyan.com). However, EPS guidance of $2.40 to
$2.45, given July 26 when the Corporation released its 2002 second quarter
earnings, now appears too optimistic given economic conditions. Given the
continued sluggishness of the economy and the lack of signs for revenue recovery
from the Corporation's customers until possibly the latter part of next year,
the Corporation is currently examining all options to insure that its cost
structure and capacity are properly aligned with revenue expectations.
CRITICAL ACCOUNTING POLICIES
The Corporation's accounting policies are more fully described in Note 1 to the
consolidated financial statements included in the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 29, 2001. As disclosed in Note 1,
the preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions about future events that affect the amounts reported in the
financial statements and footnotes. Future events and their effects cannot be
determined with absolute certainty. Therefore, the determination of estimates
requires the exercise of judgment. Actual results inevitably will differ from
those estimates, and such differences may be material to the financial
statements.
The most significant accounting estimates inherent in the preparation of the
Corporation's consolidated financial statements include estimates as to the
recovery of receivables and the realization of inventories, plant and equipment,
long term investments and goodwill. Significant assumptions are also used in the
determination of liabilities related to pension and post-retirement benefits.
The process of determining significant estimates is fact specific and takes into
account factors such as historical experience, current and expected economic
conditions, product mix, and in some cases, actuarial assumptions. The
Corporation re-evaluates these significant factors as facts and circumstances
dictate. Historically, actual results have not differed significantly from those
determined using the estimates described above.
The Corporation believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements:
o Revenue Recognition. Revenues are recognized on products shipped to
unaffiliated customers when the risk of loss transfers or when services are
performed. The Securities and Exchange Commission's Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition" provides guidance on the
application of accounting principles generally accepted in the United
States to selected revenue recognition issues. In addition, revenues in the
supply-chain management segment are recognized in accordance with Emerging
Issues Task Force (EITF) Issue No. 99-19, which provides guidance on
13
whether revenue should be recorded gross as a principal or net as an agent.
Each major contract is evaluated based on various criteria, with management
judgment required to assess the importance of each criterion in reaching
the final decision.
o The Company adopted Statement of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets," effective December 30, 2001.
Under SFAS No. 142, goodwill and certain other intangible assets are no
longer amortized but are reviewed for impairment. In connection with the
adoption of SFAS No. 142, the Company has completed the first step of the
transitional goodwill impairment test, which requires the Company to
compare the fair value of its reporting units to the carrying value of the
net assets of the respective reporting units as of December 30, 2001. Based
on this analysis, the Company has concluded that no impairment existed at
the time of adoption, and, accordingly, the Company has not recognized any
transitional impairment loss.
o 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.
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. 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 operation expenses, unanticipated
production difficulties, issues related to the termination of Mentor Media
acquisition, changes in the pattern of outsourcing supply-chain management
functions by customers, and any unanticipated delay in the economic recovery.
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. As of September 28, 2002, the Corporation had no notes
payable outstanding against lines of credit with banks. Since essentially all
the Corporation's long-term debt is at fixed interest rates, exposure to
interest rate fluctuations is minimal.
Exposure to adverse changes in foreign exchange rates is not considered
material. Potential market risk associated with changes in foreign exchange is
considered in contractual arrangements with customers.
Item 4. Controls and Procedures
Within the 90-day period prior to the filing of this report, an evaluation was
carried out under the supervision and with the participation of the
Corporation's management, including the Corporation's Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
the Corporation's disclosure controls and procedures (as defined in Rule
13a-14(c) under the Securities Exchange Act of 1934). Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the design and operation of these disclosure controls and procedures were
effective. No significant changes were made in the Corporation's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.
14
PART II: OTHER INFORMATION
Item 5. Other Information
The Corporation announced on October 29, 2002 that Daniel W. Kiener,
Vice President and Chief Financial Officer, resigned due to a family
medical issue that requires him to return to his home in Pittsburgh,
PA. Mr. Kiener's resignation as Chief Financial Officer becomes
effective following the Corporation's third quarter reporting cycle,
which will conclude in mid-November. Succeeding Mr. Kiener as interim
Chief Financial Officer will be Gerald A. Henseler, who retired as the
Corporation's Executive Vice President and Chief Financial Officer on
August 1, 2002.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
4.1 - Amendment to Rights Agreement
99.1 - Written Statement of Chief Executive Officer
99.2 - Written Statement of Chief Financial Officer
(b) Reports on Form 8-K -
The Corporation filed a Current Report on Form 8-K, dated August 13,
2002, furnishing written statements of its principal executive officer
and principal financial officer relating to certain of the
Corporation's filings under the Securities Act of 1934.
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/ Daniel W. Kiener
------------------------------------------
Daniel W. Kiener
Vice President and Chief Financial Officer
Date November 12, 2002
15
I, Stephanie A. Streeter, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Banta Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-13 and 15d-14) for the registrant and we have:
o designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
o evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
o presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
o all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
o any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
/s/ Stephanie A. Streeter
-------------------------------------
Stephanie A. Streeter
President and Chief Executive Officer
16
CERTIFICATIONS
I, Daniel W. Kiener, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Banta Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-13 and 15d-14) for the registrant and we have:
o designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
o evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
o presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
o all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
o any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
/s/ Daniel W. Kiener
------------------------------------------
Daniel W. Kiener
Vice President and Chief Financial Officer
17
BANTA CORPORATION
EXHIBIT INDEX TO FORM 10-Q
For The Quarter Ended September 28, 2002
Exhibit Number
4.1 Amendment to Rights Agreement
99.1 Written Statement of Chief Executive Officer
99.2 Written Statement of Chief Financial Officer
18