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 July 4, 1998
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 July 4, 1998, 29,472,275 shares of
$.10 par value common stock.
BANTA CORPORATION AND SUBSIDIARIES
Quarterly Report on Form 10-Q
For the Quarter Ended July 4, 1998
INDEX
PART I - FINANCIAL INFORMATION Page Number
Item 1 - Financial Statements:
Unaudited Consolidated Condensed Balance Sheets at
July 4, 1998 and January 3, 1998 3
Unaudited Consolidated Condensed Statements of Earnings
for the Three Months and Six Months Ended July 4, 1998
and June 28, 1997 4
Unaudited Consolidated Condensed Statements of Cash Flows
for the Six Months Ended July 4, 1998 and June 28, 1997 5
Notes to Unaudited Consolidated Condensed
Financial Statements 6-7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
Item 3 - Qualitative and Quantitative Disclosures about
Market Risk 10
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 11
Item 5 - Other Information 11
Item 6 - Exhibits and Reports on Form 8-K 12
Exhibit Index 13
PART I Item 1. Financial Statements
BANTA CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
July 4, 1998 January 3, 1998
ASSETS
Current Assets
Cash and cash equivalents $ 19,048 $ 16,432
Receivables 197,235 228,483
Inventories 84,842 95,341
Other current assets 27,356 25,420
-------- --------
Total Current Assets 328,481 365,676
-------- --------
Plant and Equipment 744,128 718,669
Less: Accumulated Depreciation (409,600) (380,312)
-------- --------
Plant and Equipment, net 334,528 338,357
-------- --------
Other Assets 16,096 14,524
Cost in Excess of Net Assets
of Subsidiaries Acquired 64,457 62,659
-------- --------
$743,562 $781,216
======== ========
LIABILITIES AND SHAREHOLDERS'INVESTMENT
Current Liabilities
Short-term debt $ 27,525 $ 33,880
Accounts payable 80,726 106,235
Accrued salaries and wages 24,457 22,575
Other accrued liabilities 25,680 32,492
Current maturities of long-term debt 5,166 5,186
-------- --------
Total Current Liabilities 163,554 200,368
-------- --------
Long-term Debt 123,952 130,065
Deferred Income Taxes 18,540 19,831
Other Non-Current Liabilities 17,555 16,849
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;
29,472,275 and 29,793,279 shares issued
and outstanding, respectively
Amount in excess of par value of stock 2,947 2,979
Accumulated other comprehensive income (loss) 25,088 35,542
Retained earnings (4,138) (3,498)
Total Shareholders' Investment 396,064 379,080
-------- --------
419,961 414,103
-------- --------
$743,562 $781,216
======== ========
See accompanying notes to consolidated financial statements
BANTA CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
(Dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
Net sales $316,000 $276,217 $646,810 $551,580
Cost of goods sold 249,875 218,571 515,871 441,212
-------- -------- -------- --------
Gross earnings 66,125 57,646 130,939 110,368
Selling and administrative
expenses 41,041 35,110 84,541 69,495
-------- -------- -------- --------
Earnings from operations 25,084 22,536 46,398 40,873
Interest expense (2,769) (2,424) (5,687) (5,217)
Other, net (421) 572 (785) 1,446
-------- -------- -------- --------
Earnings before income taxes 21,894 20,684 39,926 37,102
Provision for income taxes 8,500 8,100 15,500 14,500
-------- -------- -------- --------
Net earnings $ 13,394 $ 12,584 $ 24,426 $ 22,602
======== ======== ======== ========
Basic earnings per share
of common stock $ .45 $ .42 $ .82 $ .75
======== ======== ======== ========
Diluted earnings per share
of common stock $ .45 $ .42 $ .82 $ .75
======== ======== ======== ========
Cash dividends per
common share $ .13 $ .12 $ .26 $ .23
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
BANTA CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months Ended
July 4, 1998 June 28, 1997
Cash Flows From Operating Activities
Net earnings $ 24,426 $ 22,602
Depreciation and amortization 33,862 30,324
Deferred income taxes (1,291) 96
Change in assets and liabilities
Decrease in receivables 31,248 8,003
Decrease (increase) in inventories 10,499 (8,409)
Increase in other current assets (1,936) (3,111)
(Decrease) increase in accounts payable
and accrued liabilities (29,733) 7,148
Increase in other non-current assets (1,572) (1,933)
Other, net (640) (1,403)
------- -------
Cash provided from operating activities 64,863 53,317
------- -------
Cash Flows From Investing Activities
Capital expenditures, net (31,831) (27,468)
------- -------
Cash Flows From Financing Activities
Repayment of notes payable, net (6,355) (2,390)
Repayment of long-term debt (6,133) (634)
Dividends paid (7,442) (6,980)
Proceeds from exercise of stock options 2,512 2,048
Repurchase of common stock (12,998) (32,570)
------- -------
Cash used for financing activities (30,416) (40,526)
------- -------
Net increase (decrease) in cash 2,616 (14,677)
Cash at beginning of period 16,432 57,417
------- -------
Cash at end of period $19,048 $42,740
======= =======
Cash payments for:
Interest, net of amount capitalized $ 6,802 $4,996
Income taxes 17,372 13,212
See accompanying notes to consolidated statements.
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 period ended July 4, 1998 are not
necessarily indicative of results that may be expected for the year
ending January 2, 1999.
2) Inventories
The majority of the Corporation's inventories used in its printing
operations are accounted for at cost determined on a last-in, first-
out (LIFO) basis, which is not in excess of market. The remaining
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 July 4, 1998 and January 3, 1998 were as
follows:
(Dollars in thousands)
July 4, 1998 January 3, 1998
Raw Materials and Supplies $47,909 $55,026
Work-In-Process and Finished Goods 41,824 44,908
------- -------
FIFO value (current cost of
all inventories) 89,733 99,934
Excess of current cost
over carrying value
of LIFO inventories (4,891) (4,593)
------- -------
Net Inventories $84,842 $95,341
======= =======
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, which relate entirely to
the assumed exercise of stock options. 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
July 4, 1998 June 28, 1997 July 4, 1998 June 28, 1997
Basic 29.7 29.8 29.7 30.1
Diluted 29.9 30.0 29.9 30.3
4) Restructuring Charge
In the third quarter of 1997, the Corporation recorded a
restructuring charge of $13.5 million ($8.1 million after tax or $.27
per common share) related to the sale of its point-of-purchase sign
and display business, the discontinuation of its intaglio print-
based security products business and the interactive video
operation, and the closing of three Global Turnkey facilities. At
January 3, 1998, the remaining reserve totaled $3.7 million, which
related to anticipated expenditures associated with the closing the
facilities and related matters. During the first half of 1998, costs
of approximately $2.3 million, related primarily to lease termination
costs, were charged against the reserve. It is expected that the
restructuring initiatives will be completed in 1998 and charged
against the remaining reserve.
5) Comprehensive Income
Total comprehensive income, comprised of net income and other
comprehensive income (loss), was $13,913,000 and $11,213,000 for the
second quarter of 1998 and 1997, respectively. For the first half of
1998 and 1997, comprehensive income was $23,786,000 and $19,635,000,
respectively. Other comprehensive income (loss) was comprised
solely of foreign currency translation adjustments. The Corporation
does not record U.S. income taxes on foreign currency translation
adjustments because it does not provide for such taxes on
undistributed earnings of foreign subsidiaries.
6) Accounting for Internal-use Software
In March 1998, the Accounting Standards Executive Committee of the
AICPA issued a Statement of Position (SOP) titled "Accounting for
the Costs of Computer Software Developed or Obtained for Internal
Use." The Corporation elected to adopt this SOP as of the beginning
of its 1998 fiscal year. The adoption of this SOP has not had a
material impact on the Corporation's financial statements.
7) Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, AAccounting for
Derivative Instruments and Hedging Activities.@ The new standard
requires that an entity recognize derivatives as either assets or
liabilities on its balance sheet and measure those instruments at
fair value. The Corporation intends to adopt this standard in 2000.
The adoption of this standard is not expected to have a material
effect on the Corporation's financial statements.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Liquidity and Capital Resources
The Corporation's net working capital decreased slightly during the first
half of 1998. Seasonality and aggressive management of receivables and
inventories during the quarter resulted in the reduction in current assets
incorporating the Corporation's program for increased shareholder value
concepts. The reduction in current liabilities was primarily due to the
repayment of short-term debt and payables with cash provided from
operations. Also during the first half of 1998, the Corporation
repurchased approximately 436,000 shares of common stock at an aggregate
purchase price of $13.0 million pursuant to its common stock repurchase
program. In April 1998, the Board authorized the repurchase of up to an
additional $60 million of common stock. Any future stock repurchases are
expected to be funded by a combination of cash provided from operations
and short-term borrowings.
Capital expenditures were $31.8 million during the first half of 1998, an
increase of $4.4 million from the amount expended during the first half of
1997. Capital requirements for the full year are expected to be between
$85 million and $95 million and are expected to be funded by a combination
of cash provided from operations and short-term borrowings. The increase
in capital spending reflects the Corporation's commitment to expand and
modernize its facilities. Long-term debt as a percentage of total
capitalization was down over 1% from 23.9% to 22.8% due to the current
year repayments.
RESULTS OF OPERATIONS
Net Sales
Sales for the second quarter of 1998 were $39.8 million or 14% higher than
in the second quarter of 1997. Over half of the increase was a result of
sales from companies acquired during the second half of 1997. Operating
activity levels during the second quarter of 1998, in all of the
Corporation's major operating groups, were above 1997 operating levels.
Sales gains continued in the book market where demand for educational
products, including educational media, was favorable. Activity levels
were also strong in the magazine market due to increased page counts and
market share gains as well as the impact of the acquisition of Greenfield
Printing & Publishing during the fourth quarter of 1997. Continued
imaging personalization resulted in additional sales for the direct
marketing group while software releases in Europe lead to increased sales
in turnkey services. Single-use product sales increased primarily due to
the acquisition of The Omnia Group during the third quarter of 1997.
Sales for the first half of 1998 were $95.2 million or 17% higher than for
the first half of 1997. Slightly over half of the increase was a result
of sales from companies acquired during the second half of 1997. Trends in
operating activity levels for the first two quarters of 1998 were similar
to those described above for the second quarter.
Cost of Goods Sold
Cost of goods sold as a percentage of sales remained at 79.1% for the
second quarter of 1998 compared to the second quarter of 1997. Cost of
goods sold as a percentage of sales decreased slightly from 80.0% for the
first half of 1997 to 79.2% for the first half of 1998. This slight
margin gain was primarily due to changes in product mix, which more than
offset a continued competitive pricing environment in commercial markets.
Selling and Administrative Expenses
Selling and administrative expenses were $5.9 million higher for the
second quarter of 1998 than for the second quarter of 1997 and $15.0
million higher for the first half of 1998 as compared with the first half
of 1997. The increase is primarily due to the inclusion of selling and
administrative expenses for the companies acquired in 1997 along with
higher levels of operating activity at previously owned facilities.
Interest Expense
Interest expense was $345,000 higher in the second quarter of 1998 than in
the second quarter of 1997 and $470,000 higher for the first half of 1998
than for the first half of 1997 due to increased debt levels to support
the 1997 acquisitions.
Income Taxes
The Corporation's effective income tax rates declined slightly as
indicated in the table below due to an increase in foreign earnings which
are taxed at lower rates.
Effective Tax Rate
1998 1997
Second Quarter 38.8% 39.2%
First Half 38.8% 39.1%
Other Matters
During 1998, the Corporation completed a preliminary evaluation of its
computer software to determine its ability to handle dates beginning with
the year 2000. It was determined that a significant portion of the
Corporation's software was year-2000 ready. This evaluation also resulted
in the development of detailed plans to replace certain software and to
reprogram other software. Banta has implemented a program to confirm that
all business and manufacturing system hardware, control systems and
software supplied by third party vendors is year-2000 ready. Although
complete assurance can not be given, management currently believes it is
devoting the necessary resources to resolve all significant year-2000
issues in a timely manner. The Corporation is currently conducting audits
and operational readiness testing as well as pursuing certification of
year-2000 readiness from significant third party vendors. There have
been no significant changes in the total costs expected to be incurred.
Currently, the Corporation expects the costs to approximate $3 million in
1998 and $2.5 million in 1999.
Cautionary Statements for Forward-Looking Information
This document includes forward-looking statements. Statements that
describe future expectations, plans or strategies are considered forward-
looking. Such statements are subject to certain risks and uncertainties
which could cause actual results to differ materially from those currently
anticipated. Factors that could affect actual results include, among
others, changes in customers' demand for the Corporation's products,
changes in raw material costs and availability, continued success in the
implementation of the Corporation's single-source marketing strategy,
pricing actions by competitors, success in the integration of businesses
acquired in 1997, unanticipated events relating to achieving year-2000
compliance and general changes in economic conditions. These factors
should be considered in evaluating the forward-looking statements, and
undue reliance should not be placed on such statements. The forward-
looking statements included herein are made as of the date hereof, and the
Corporation undertakes no obligation to update publicly such statements to
reflect subsequent events or circumstances.
Item 3. Qualitative and Quantitative Disclosures about Market Risk
Not applicable
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) - (c)
At the annual meeting of shareholders held on April 28, 1998, all of
the persons nominated as directors were elected for terms expiring at
the 1999 Annual Meeting. The following table sets forth certain
information with respect to such election:
Shares
Name Shares Withholding
Voted For Authority
Jameson A. Baxter 28,763,507 181,066
Donald D. Belcher 28,741,029 203,544
George T. Brophy 28,744,849 199,724
William J. Cadogan 28,763,507 181,066
Henry T. DeNero 28,763,307 181,266
Richard L. Gunderson 28,763,257 181,316
Gerald A. Henseler 28,763,507 181,066
Bernard S. Kubale 28,035,103 909,470
Michael J. Winkler 28,763,507 181,066
Item 5. Other Information
Proposals of shareholders pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, as amended ("Rule 14a-8"), that are intended to be
presented at the 1999 annual meeting must be received by the Corporation
no later than November 20, 1998 to be included in the Corporation's proxy
materials for that meeting. Further, a shareholder who otherwise intends
to present business at the 1999 annual meeting must comply with the
requirements set forth in the Corporation's By-Laws. Among other things,
to bring business before an annual meeting, a shareholder must give
written notice thereof, complying with the By-Laws, to the Secretary of
the Corporation not less than 60 days and not more than 90 days prior to
the second Tuesday in the month of April. Under the By-Laws for purposes
of the 1999 annual meeting of shareholders, if the Corporation does not
receive notice of a shareholder proposal (submitted otherwise than
pursuant to Rule 14a-8) on or prior to February 12, 1999, then the notice
will be considered untimely and the Corporation will not be required to
present such proposal at the 1999 annual meeting. If the Board of
Directors nonetheless chooses to present such proposal at the 1999 annual
meeting, then the persons named in proxies solicited by the Board of
Directors for the 1999 annual meeting may exercise discretionary voting
power with respect to such proposal.
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits-
3.1 - Amendment to By-laws
3.2 - By-laws as amended
27 - Financial Data Schedule (EDGAR version only)
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANTA CORPORATION
/S/ GERALD A. HENSELER
Gerald A. Henseler
Executive Vice President,
Chief Financial Officer and Treasurer
Date August 11, 1998
BANTA CORPORATION
EXHIBIT INDEX TO FORM 10-Q
For The Quarter Ended July 4, 1998
Exhibit Number
3.1 Amendment to By-laws
3.2 By-laws as amended
27 Financial Data Schedule (EDGAR version only)