EX-13 8 pdm288i.txt PORTIONS OF ANNUAL REPORT Five-Year Summary of Selected Financial Data
Not Covered by Report of Independent Public Accountants Dollars in thousands (except per share data) 2001 2000 1999 1998 1997 -------------------------------------------------------------------------------------------------------------- SUMMARY OF EARNINGS1 Net sales $1,457,935 $1,537,729 $1,315,278 $1,372,796 $1,202,483 Net earnings: Before one-time charges2 57,497 58,743 54,510 52,940 51,423 After one-time charges 49,997 58,743 16,010 52,940 43,323 Diluted earnings per common share: Before one-time charges2 2.31 2.35 2.01 1.80 1.71 After one-time charges 2.01 2.35 .59 1.80 1.44 Dividends paid per common share .61 .60 .56 .51 .47 FINANCIAL SUMMARY Working capital3 148,805 194,064 178,471 174,596 187,942 Net plant and equipment 324,984 344,261 327,350 318,635 338,357 Total assets 788,046 854,524 773,344 769,966 781,216 Long-term debt, excluding current maturities 130,981 179,202 113,520 120,628 130,065 Interest expense 13,720 16,754 12,362 10,825 11,062 EBITDA4 183,787 190,537 171,582 164,407 155,151 Shareholders' investment 407,278 370,912 353,775 409,931 414,103 Book value per share of common stock5 16.47 15.10 13.70 14.51 13.90 ---------------------------------------------------------------------------------------------------------------- 1 All years comprised 52 weeks, except 1997, which comprised 53 weeks. 2 One-time charges consist of restructuring charges in 1997 and 1999, and the investment write-off in 2001. 3 Working capital is defined as current assets, excluding cash and cash equivalents, less current liabilities, excluding short-term debt and current maturities. 4 EBITDA is defined as earnings from operations before depreciation, amortization and restructuring charges. 5 Book values per share of common stock are based on shares outstanding at year-end.
18 Banta Corporation Management's Discussion & Analysis OVERVIEW Banta Corporation (the "Corporation" or "Banta") is a technology and market leader in its two primary business segments, namely print and supply-chain management. Banta provides a comprehensive combination of printing and digital imaging solutions to leading publishers and direct marketers, including advanced digital content management and e-business services. Banta's global supply-chain management businesses provide a wide range of outsourcing capabilities to the world's largest technology companies. Services range from component procurement, product assembly and packaging to inventory control and global distribution. In addition to its primary segments, the Corporation's healthcare business produces and sources disposable products used in outpatient clinics, dental offices and hospitals. HIGHLIGHTS Results for 2001 included the following: o Consistent delivery of solid operating performance in a challenging economic environment o Maintenance of a strong cash position due to aggressive cost controls, reduced capital expenditures and effective management of working capital requirements o Continued growth in sales and earnings within the supply-chain management segment o Improved operating performance within the print segment commercial markets o Higher operating margins for the healthcare business due to successful global sourcing and domestic manufacturing initiatives Sales for 2001 were $1.46 billion, a 5% decrease from the prior-year sales of $1.54 billion. Print segment sales for 2001 were approximately 8% below the prior year. Lower sales within the print segment were primarily influenced by a softer economy, which specifically impacted the educational book market and publications market, and a reduction in paper prices of approximately 9%. Of the 8% reduction in print segment sales for 2001, approximately one-third was due to lower paper prices. The cost of paper is passed through to the customer and variations in paper prices do not significantly impact the Corporation's margin on print segment sales. Lower sales within the print segment were partially offset by sales increase of approximately 3% for the supply-chain management segment. This sales increase was primarily due to the expansion of existing customer relationships in Europe and Asia and the growing trend among many companies to outsource non-core functions. Despite the reduction in consolidated sales, gross profit as a percentage of sales improved from 20.2% in 2000 to 20.4% in 2001. Contributing to this improvement were changes in product mix, improved operating efficiencies and aggressive cost control measures. Consistent with the sales reduction, earnings from operations for 2001 were 5.6% below the prior year. Net earnings of $57.5 million for 2001, before an after-tax investment charge of $7.5 million, were 2% lower than the prior-year earnings of $58.7 million. Diluted earnings per share for 2001 of $2.31, prior to the investment charge, were slightly below the record high of $2.35 per share for 2000. In response to Xyan.com, Inc. ("Xyan.com") filing for bankruptcy in the first quarter of 2001, the Corporation wrote-off the cost of its minority interest in Xyan.com. This write-off resulted in a non-operating, non-cash charge of $12.5 million ($7.5 million or $0.30 per diluted share, after tax). Aggressive cost controls implemented early in 2001 contributed to the solid performance during the year. Planned capital expenditures were reduced by more than $50 million due to an anticipated decrease in capacity requirements. The actions to reduce costs were taken without jeopardizing the ability to respond quickly to future growth opportunities. Manufacturing expenses were effectively managed without significant layoffs while working capital requirements reached the lowest level in recent history. These factors contributed to the strong cash position at the end of 2001 and lower interest expense. Despite the softening in the technology sector, supply-chain management sales for 2001 of $346 million were 3% higher than the prior-year sales of $336 million. Earnings from operations as a percentage of sales ("operating margin") improved from 6.2% in 2000 to 7.1% in 2001. This improvement in operating margin was primarily due to a level cost structure during 2001 as compared with 2000. Operating expenses in 2000 included one-time start-up costs at the Corporation's European and Asian facilities that service Compaq Computer Corporation. Through improved operational efficiencies, cost containment efforts and product mix changes, the print segment's commercial operations were able to improve profitability on a slight reduction in sales. Increased demand for one-to-one marketing solutions created strong utilization of in-line imaging and personalization systems within the direct marketing business. 2001 Annual Report 19 Operating margins in the book market were lower due to the weakening activity in the educational sector and excess publisher inventories at the beginning of 2001, which impacted the first six months of 2001. Despite a full-year reduction in page counts of approximately 10% within the publications market, the Corporation increased market share by adding new customers and titles. The Corporation's healthcare business continued to realize the benefits from the prior year's successful global sourcing and domestic manufacturing initiatives, reducing costs and providing lower-priced product options for customers. As a result of these efforts, operating margins increased from 7.1% in 2000 to 9.3% in 2001. NET SALES 2001 compared with 2000 Print segment net sales of $1.0 billion for 2001 were $91 million, or 8.3%, lower than the prior-year total of $1.1 billion. The decrease in print segment net sales was primarily due to a softer economy and lower paper prices during 2001 compared to the prior year. For the full year, paper prices decreased on a composite average approximately 9%. Paper prices are influenced by cyclical advertising, economic activity and world pulp prices. As is customary in the print markets, the customer generally absorbs fluctuations in paper prices. Paper prices are estimated to remain stable during the first half of 2002 with moderate increases expected toward the end of the year. Net sales for the printing segment market classifications, as a percent of total print segment sales, were as follows: 2001 2000 1999 --------------------------------------------------------- Books 33% 33% 29% Direct Marketing 22 21 24 Catalogs 22 22 23 Magazines 19 19 17 Other 4 5 7 --------------------------------------------------------- 100% 100% 100% --------------------------------------------------------- Book market sales for 2001 were approximately 14% lower than the prior year due in part to lower textbook adoption activity and the aforementioned reduction in paper prices. In addition, expectations for additional federal and state funding for education in 2001 did not materialize as projected, resulting in excess publisher inventories and lower sales for the first half of 2001 compared to the prior-year period. Fewer textbook adoptions during 2001 also resulted in a reduction in educational component sales, which are influenced by the sales and marketing activities to school systems during adoption periods. Catalog market sales and sales for direct marketing materials were modestly below the levels of the prior year primarily due to reduced paper prices. Through a targeted sales effort to increase business with small- to mid-size business and consumer catalog customers and maintain a high customer retention rate, Banta partially offset the impact of business-to-business biennial catalogs not being printed in 2001. Sales of direct marketing materials benefited from increased demand for one-to-one marketing solutions, which enhanced demand for the Corporation's inline imaging and personalization services. Sales in the magazine market decreased in 2001 due to paper price reductions, an unusually high incidence of magazine attrition and a reduction in page counts resulting from a weak advertising environment. On average, page counts for 2001 were approximately 10% lower than the prior year. In any given year, page count levels tend to vary based on economic growth trends. Despite the high incidence of magazine attrition and the operating environment within the magazine market, the Corporation increased the number of magazines it prints to over 800 titles. Supply-chain management segment sales were $346 million in 2001, an increase of 3% from 2000 sales. Expansion of existing customer relationships within European and Asian facilities offset a softening of sales to technology customers in the U.S. Although full-year revenue for supply-chain management was slightly above the prior year, fourth quarter 2001 sales, which were heavily influenced by lower sales to Compaq and a weakening in the technology sector, were 21% below the prior-year fourth quarter. Higher sales to Compaq during the fourth quarter 2000 were due to the inventory build requirements to support the start up of the Corporation's European and Asian facilities. Healthcare segment sales for 2001 of $103 million were slightly above the prior year. The increase in healthcare sales was primarily due to volume increases for medical and dental paper and film products, which more than offset reductions in material costs and lower per unit prices for products sourced globally. Corporate expectations for the full-year 2002 are for growth in sales, with growth rates in the mid-single digits, reflective of expectations for a gradually improving economy. 2000 compared with 1999 Print segment net sales of $1.1 billion for 2000 were $103 million, or 10.3% higher than the $997 million in 1999. The increase in print segment net sales was primarily due to strong market demand, market share growth and higher paper prices during 2000 compared to the prior year. Book market sales for 2000 were 30% higher than the prior year primarily due to strong educational activity, the acquisition of Southeastern Color Graphics in May 2000 and the aforementioned increase in paper prices. Sales to educational customers increased due to a strong textbook adoption year and improved market penetration. Sales in the magazine market increased in 2000 due to market share growth and strong increases in page counts resulting from an aggressive advertising environment. 20 Banta Corporation Sales for direct marketing materials in 2000 were comparable to the prior year while catalog market sales were slightly higher than the prior year primarily due to higher paper prices and the business-to-business biennial catalog cycle. Supply-chain management segment sales were $336 million in 2000, an increase of 57% from 1999 sales. This increase was primarily related to the successful start up of operations to service the Compaq contract. Sales to Compaq in 1999 were modest. The Corporation also gained new opportunities with other major technology companies, which included the continued expansion into Mexico to service additional customers. Healthcare segment sales for 2000 of $102 million were slightly below the prior year. Several product lines were moved off-shore to Mexico and Asia, which caused interruption to customers' supply-chains. EARNINGS FROM OPERATIONS 2001 compared with 2000 Consolidated earnings from operations for 2001 decreased 5.6% to $108.4 million compared with the prior year's $114.8 million. Both the supply-chain management segment and healthcare business recorded double-digit percentage increases in earnings while the print segment was below the prior year. Consolidated operating margins of 7.4% for 2001 were comparable with the prior-year operating margins. Gross margins increased from 20.2% in 2000 to 20.4% in 2001 primarily due to changes in product mix, improved operating efficiencies and aggressive cost control measures. The improvement in gross margins was offset in part by fixed operating costs increasing as a percentage of net sales due to the decline in overall net sales. Print segment earnings from operations for 2001 were $93.8 million, 11.7% lower than the prior year's $106.2 million. Operating margins for the print segment were 9.3% for 2001 compared to 9.7% for 2000. The reductions in earnings and operating margins were primarily the result of the lower sales volume within the educational and magazine markets. Lower equipment utilization within these markets was partially offset by improved utilization of in-line imaging equipment within the direct marketing business and improved operational efficiencies within the consumer catalog business. The Corporation also aggressively managed costs by balancing facility staffing with plant utilization requirements. Earnings from operations for the supply-chain management segment increased to $24.7 million in 2001 compared with $20.7 million in 2000 and operating margins increased to 7.1% compared with 6.2% in the prior year. These improvements were primarily due to a level cost structure during 2001 as compared with 2000. Operating expenses in 2000 included one-time start-up costs at Banta's European and Asian Compaq service facilities. Healthcare earnings from operations for 2001 were $9.5 million compared with the prior year's $7.2 million. Operating margins for 2001 were 9.3% compared with 7.1% for 2000. The 2001 operating margins were positively impacted by the domestic manufacturing and global sourcing initiatives undertaken in 2000, which included establishing a management office in Hong Kong and forming supply relationships in Asia and Mexico. The earnings from operations in 2000 were lower as a result of the start-up costs associated with these initiatives. 2000 compared with 1999 Consolidated earnings from operations for 2000 increased 11% to $114.8 million compared with the prior year's $103.4 million, before consideration of the 1999 restructuring charge. All earnings from operations and operating margins for 1999 discussed below are before the restructuring charge incurred in that year. Both the print and supply-chain management segments recorded double-digit increases in income during 2000 while the healthcare business was below the prior year. Consolidated operating margins of 7.5% for 2000 were slightly lower than the prior-year operating margins of 7.9%, primarily due to increased selling and administrative costs, product mix and reduced operating results from the healthcare segment. Higher sales volume from supply-chain management, which generally has a lower gross margin percentage because of the high material content, also contributed to the overall lower margin. Earnings from operations for 1999 included a second quarter restructuring charge of $55.0 million ($38.5 million or $1.40 per diluted share, after tax). The restructuring initiatives primarily involved the Corporation's print segment and included three facility closings and the elimination of certain underperforming business assets. At December 29, 2001, the remaining restructuring reserve was $5.5 million. With the exception of continued lease payments for certain of the closed facilities, all restructuring actions were substantially completed in 2000. Print segment earnings from operations for 2000 increased to $106.2 million, 13.7% higher than the prior year's $93.4 million. Segment earnings growth reflected the increased sales volume within the educational and magazine markets, efficiency improvements, cost-control initiatives within the commercial print markets and a full year benefit from the 1999 restructuring. Operating margins for the print segment increased to 9.7% for 2000 from 9.4% for the prior year. In addition to the aforementioned improvements in earnings from operations, operating margins increased due to better utilization within most print markets and the product mix within the commercial markets. The segment's operating margins were negatively impacted by higher material and energy costs and additional investments in digital technologies. 2001 Annual Report 21 Earnings from operations for the supply-chain management segment doubled during 2000 to $20.7 million, and operating margins increased from 4.8% in 1999 to 6.2% in 2000. These increases were primarily due to the substantial volume from the Compaq project at the Houston facility for three quarters of the year and the successful start up of the European and Asian facilities that service the Compaq contract. Strong volume increases at several of the other European and U.S. facilities also contributed to the significant gains. Healthcare segment earnings from operations for 2000 were $7.2 million compared with the prior year's $15.0 million. Operating margins for 2000 were 7.1% compared with 14.3% for 1999. The reduction in earnings and operating margins was attributed to lower sales volume from industry consolidation, substantial start-up costs associated with foreign sourcing initiatives of selected non-paper products and higher raw material prices, which could not be passed on to customers due to competitive pricing and timing of contractual arrangements. INVESTMENT WRITE-OFF Xyan.com filed for Chapter 11 bankruptcy 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 markets. In response to Xyan.com's filing for bankruptcy, the Corporation wrote-off the cost of its minority interest in Xyan.com in March 2001. This write-off resulted in a non-operating, non-cash charge of $12.5 million ($7.5 million or $.30 per diluted share, after tax). INTEREST EXPENSE AND OTHER EXPENSE Interest expense of $13.7 million in 2001 was $3.1 million lower than the prior year interest expense of $16.8 million. This decrease was due to reduced debt levels and lower interest rates. Through effectively managing working capital related to receivables and inventory, and reducing capital expenditures, the Corporation eliminated all commerical paper borrowings at the end of 2001. Average commercial paper borrowings during 2001 were $21.3 million compared with $75.8 million in the prior year. The weighted-average interest rates on such borrowings during 2001 and 2000 were 5.2% and 6.6%, respectively. Interest expense increased from $12.4 million in 1999 to $16.8 million in 2000. The increase in interest expense during 2000 was primarily due to higher interest rates and increased debt levels to support the Corporation's common stock repurchase program, capital expenditures and higher working capital needs during 2000. Other expense for 2001 was approximately $1.4 million lower than the prior year due to interest income on cash balances and other miscellaneous income. Other expense for 2000 of $1.4 million was comparable to 1999. PROVISION FOR INCOME TAXES Effective income tax rates were 39.2%, 39.2% and 53.7% in 2001, 2000 and 1999, respectively. The higher effective tax rate in 1999 was primarily due to nondeductible charges taken in conjunction with the 1999 restructuring. Without giving effect to the restructuring charge, the effective income tax rate for 1999 was 39.2%. The effective income tax rate for 2002 is expected to approximate 39.4%. NET INCOME The Corporation's net income for 2001 was $57.5 million, or $2.31 per diluted share, before consideration of the write-off of the investment in Xyan.com. Net income for 2001 before the write-off was slightly lower than the $58.7 million, or $2.35 per diluted share for 2000, primarily due to the reduction in earnings from operations, partially offset by lower interest expense. Net income for 2001 after giving effect to the Xyan.com write-off was $50.0 million, or $2.01 per diluted share. Expectations for the full-year 2002 are for growth in earnings, with growth rates in the mid-single digits, reflective of expectations for a gradually improving economy. LIQUIDITY AND CAPITAL RESOURCES The Corporation has historically raised long-term debt financing by periodically issuing unsecured promissory notes to institutional investors on a private placement basis. No significant long-term borrowings were recorded in 2001 or 1999. During 2000, the Corporation issued $70 million of long-term debt at interest rates ranging from 6.98% to 8.05%. The proceeds were used to repay a portion of the Corporation's short-term debt. Of the $156.9 million of total long-term debt at the end of 2001, including current maturities, $25.9 million matures in 2002 with the remaining balance maturing through 2015. The Corporation primarily raises short-term funds by selling commercial paper. Such borrowings are supported by a credit facility with a total borrowing capacity of $105 million. Average outstanding short-term borrowings during 2001, 2000 and 1999 were $21.3 million, $75.8 million and $49.8 million, respectively. The decrease in 2001 was due to aggressively managing working capital requirements and reducing planned capital expenditures by over $50 million. The increases in 2000 resulted primarily from borrowings used to fund the repurchase of shares of common stock at an aggregate cost of $24.0 million. At December 29, 2001, the Corporation had no short-term commercial paper borrowings outstanding. Management believes the Corporation's liquidity continues to be strong and the degree of leverage allows the Corporation to finance, at attractive borrowing rates, its capital expenditures and other investment opportunities that may arise. 22 Banta Corporation During 2001, working capital, excluding cash and short-term debt, decreased approximately $45 million. This improvement was primarily due to aggressive management of working capital and lower sales volume for the print segment. Year-end receivables were nearly 14% lower than the 2000 year-end level and inventories were down $37 million, or 34%. Through aggressively managing the asset base, the Corporation reached the lowest level in recent history of material inventory days on hand. During 2001, no shares of the Corporation's common stock were repurchased. During 2000, the Corporation repurchased approximately 1.3 million shares of its common stock at an aggregate cost of $24.0 million. The share repurchase program, authorized by the Corporation's Board of Directors during 1998 and expanded during 1999, has in excess of $80 million in authority remaining for future share repurchases. Banta may continue its repurchase of shares in the future pursuant to this authorization if market conditions warrant. Any future stock repurchases will be funded by a combination of cash provided from operations and short-term borrowings. The Corporation's capital expenditures were approximately $50 million in 2001 compared to approximately $80 million in both 2000 and 1999. The Corporation is committed to maintaining modern, efficient plants and to providing customers with enhanced supply-chain management services and new printing and digital imaging technologies. Though planned expenditures for 2001 were reduced by over $50 million as a result of a decrease in anticipated capacity requirements, the Corporation believes that this reduction and other cost-cutting initiatives will not diminish its ability to respond to increasing demand as the economy strengthens. Preliminary plans for 2002 are for capital expenditures to approximate $70 million. ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," and No. 142, "Goodwill and Other Intangible Assets." The statements eliminate the pooling-of-interests method of accounting for business combinations and require goodwill to no longer be amortized but to instead be tested for impairment at least annually. Amortization is required for other intangible assets with determinable lives. SFAS No. 141 is effective for business combinations initiated after June 30, 2001. The Corporation adopted SFAS No. 142 on December 30, 2001. Goodwill amortization expense in 2001 was approximately $3 million. The Corporation does not currently believe there will be any significant impairment. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses accounting and reporting for the impairment or disposal of long-lived assets, superseding SFAS No. 121. The statement was effective for the Corporation in 2002, and did not have a significant impact on its financial position or results of operations. RISK MANAGEMENT The Corporation is exposed to market risk from changes in interest rates and foreign exchange rates. At December 29, 2001, the Corporation had no outstanding borrowings against its lines of credit with banks and minimal floating rate long-term debt. Since essentially all long-term debt is at fixed interest rates, exposure to interest rate fluctuations is immaterial. Disclosure relating to the fair value of long-term debt is included in Note 4 to the Consolidated Financial Statements. Portions of potential market risk associated with changes in foreign exchange rates are 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 December 29, 2001, a 10% change in foreign currency exchange rates would not have had a material effect on the Corporation's balance sheet, statement of earnings or cash flows. FORWARD LOOKING STATEMENTS The foregoing Management's Discussion and Analysis as well as other portions of this Annual Report to Shareholders includes forward-looking statements. Statements that describe future expectations, plans or strategies (including, without limitation, earnings and performance projections) 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 are described on page 40 of this Annual Report to Shareholders. 2001 Annual Report 23 Consolidated Balance Sheets
December 29, 2001, and December 30, 2000 -------------------------------------------------------------------------------------------------------------- Dollars in thousands 2001 2000 -------------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents $ 65,976 $ 27,660 Receivables, less reserves of $7,084 and $8,105, respectively 215,505 249,200 Inventories 71,079 108,109 Prepaid expenses 4,898 5,636 Deferred income taxes 16,158 16,070 373,616 406,675 Plant and Equipment: Land 9,075 9,075 Buildings and improvements 136,716 134,932 Machinery and equipment 762,734 732,236 -------------------------------------------------------------------------------------------------------------- 908,525 876,243 Less accumulated depreciation (583,541) (531,982) -------------------------------------------------------------------------------------------------------------- 324,984 344,261 Other Assets 25,645 37,663 Goodwill 63,801 65,925 -------------------------------------------------------------------------------------------------------------- $ 788,046 $ 854,524 -------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' INVESTMENT Current Liabilities: Short-term debt $ -- $ 46,863 Accounts payable 98,391 117,499 Accrued salaries and wages 32,218 43,235 Other accrued liabilities 28,226 24,217 Current maturities of long-term debt 25,915 8,505 -------------------------------------------------------------------------------------------------------------- 184,750 240,319 Non-current Liabilities: Long-term debt 130,981 179,202 Deferred income taxes 21,080 24,106 Other non-current liabilities 43,957 39,985 -------------------------------------------------------------------------------------------------------------- 196,018 243,293 Shareholders' Investment: Common stock - $.10 par value, authorized 75,000,000 shares; 27,874,263 and 27,711,028 shares issued, respectively 2,787 2,771 Amount in excess of par value of stock 3,366 43 Accumulated other comprehensive loss (10,914) (8,964) Treasury stock, at cost (3,144,400 shares) (66,814) (66,814) Retained earnings 478,853 443,876 -------------------------------------------------------------------------------------------------------------- 407,278 370,912 -------------------------------------------------------------------------------------------------------------- $ 788,046 $ 854,524 -------------------------------------------------------------------------------------------------------------- The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
24 Banta Corporation Consolidated Statements of Earnings
For the Periods Ended December 29, 2001, December 30, 2000, and January 1, 2000 -------------------------------------------------------------------------------------------------------------- Dollars in thousands (except earnings per share) 2001 2000 1999 -------------------------------------------------------------------------------------------------------------- Net sales $1,457,935 $1,537,729 $1,315,278 Cost of goods sold 1,159,822 1,227,254 1,048,916 -------------------------------------------------------------------------------------------------------------- GROSS EARNINGS 298,113 310,475 266,362 Selling and administrative expenses 189,704 195,682 162,992 Restructuring charge -- -- 55,000 -------------------------------------------------------------------------------------------------------------- EARNINGS FROM OPERATIONS 108,409 114,793 48,370 Interest expense (13,720) (16,754) (12,362) Write-off of investment (12,500) -- -- Other income (expense), net 8 (1,396) (1,398) -------------------------------------------------------------------------------------------------------------- EARNINGS BEFORE INCOME TAXES 82,197 96,643 34,610 Provision for income taxes 32,200 37,900 18,600 -------------------------------------------------------------------------------------------------------------- NET EARNINGS $ 49,997 $ 58,743 $ 16,010 -------------------------------------------------------------------------------------------------------------- BASIC EARNINGS PER SHARE OF COMMON STOCK $ 2.03 $ 2.35 $ .59 -------------------------------------------------------------------------------------------------------------- DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 2.01 $ 2.35 $ .59 -------------------------------------------------------------------------------------------------------------- The accompanying notes to consolidated financial statements are an integral part of these statements. 2001 Annual Report 25
Consolidated Statements of Cash Flows
For the Periods Ended December 29, 2001, December 30, 2000 and January 1, 2000 -------------------------------------------------------------------------------------------------------------- Dollars in thousands 2001 2000 1999 -------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 49,997 $ 58,743 $ 16,010 Adjustments to reconcile net earnings to net cash provided by operating activities, net of acquisitions: Depreciation and amortization 75,378 75,744 68,212 Deferred income taxes (3,114) 4,217 (8,541) Restructuring charge -- -- 55,000 Restructuring charges paid (1,318) (5,153) (12,151) Write-off of investment 12,500 -- -- Change in assets and liabilities, net of effects of acquisitions: Decrease (increase) in receivables 33,170 (25,532) 14,253 Decrease (increase) in inventories 37,030 (19,191) (7,809) Decrease in other current assets 738 1,424 813 (Decrease) increase in accounts payable and accrued liabilities (24,798) 37,352 (3,319) (Increase) decrease in other non-current assets (2,374) 1,711 (875) Other, net 1,434 (3,358) 3,990 -------------------------------------------------------------------------------------------------------------- Cash provided by operating activities 178,643 125,957 125,583 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (50,169) (80,548) (83,952) Proceeds from sale of plant and equipment 1,771 1,689 3,836 Cash used for acquisitions, net of cash acquired -- (11,547) (5,750) Additions to long-term investments (2,574) (13,951) (13,220) -------------------------------------------------------------------------------------------------------------- Cash used for investing activities (50,972) (104,357) (99,086) CASH FLOWS FROM FINANCING ACTIVITIES Short-term debt (payments) proceeds, net (46,863) (45,636) 52,359 Proceeds from issuance of long-term debt -- 70,000 -- Payments on long-term debt (30,811) (6,924) (6,904) Proceeds from exercise of stock options 3,339 43 2,774 Dividends paid (15,020) (15,050) (15,317) Repurchase of common stock -- (24,024) (58,342) -------------------------------------------------------------------------------------------------------------- Cash used for financing activities (89,355) (21,591) (25,430) Net increase in cash and cash equivalents 38,316 9 1,067 Cash and cash equivalents at beginning of year 27,660 27,651 26,584 -------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 65,976 $ 27,660 $ 27,651 -------------------------------------------------------------------------------------------------------------- Cash payments for: Interest, net of amount capitalized $ 13,392 $ 16,583 $ 12,634 Income taxes 25,905 38,777 17,448 -------------------------------------------------------------------------------------------------------------- The accompanying notes to consolidated financial statements are an integral part of these statements.
26 Banta Corporation Consolidated Statements of Shareholders' Investment
For the Periods Ended December 29, 2001, December 30, 2000, and January 1, 2000 --------------------------------------------------------------------------------------------------------------------------- Amount in Accumulated Common Stock Excess of Other Compre- Retained Treasury Dollars in thousands Shares Issued Par Value Par Value hensive Loss Earnings Stock Total --------------------------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 2, 1999 28,260,957 $2,826 $ -- $(2,308) $409,413 $ -- $409,931 -------- Net earnings 16,010 16,010 Cumulative translation adjustment (4,081) (4,081) -------- Comprehensive income 11,929 Change in accounting principle 2,800 2,800 Cash dividends ($.56 per share) (15,317) (15,317) Stock options exercised 137,246 14 2,760 2,774 Repurchase of common stock (689,100) (69) (2,760) (12,723) (15,552) Treasury stock purchases (42,790) (42,790) --------------------------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 1, 2000 27,709,103 2,771 -- (6,389) 400,183 (42,790) 353,775 -------- Net earnings 58,743 58,743 Cumulative translation adjustment (2,575) (2,575) -------- Comprehensive income 56,168 Cash dividends ($.60 per share) (15,050) (15,050) Stock options exercised 1,925 43 43 Treasury stock purchases (24,024) (24,024) --------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 30, 2000 27,711,028 2,771 43 (8,964) 443,876 (66,814) 370,912 -------- Net earnings 49,997 49,997 Cumulative translation adjustment (1,950) (1,950) -------- Comprehensive income 48,047 Cash dividends ($.61 per share) (15,020) (15,020) Stock options exercised 163,235 16 3,323 3,339 --------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 29, 2001 27,874,263 $2,787 $ 3,366 $(10,914) $478,853 $(66,814) $407,278 --------------------------------------------------------------------------------------------------------------------------- There are 300,000 shares of $10 par value preferred stock authorized, none of which is issued. The accompanying notes to consolidated financial statements are an integral part of these statements. 2001 Annual Report 27
Notes to Consolidated Financial Statements For the Periods Ended December 29, 2001, December 30, 2000, and January 1, 2000 >> 1 Summary of Accounting Policies Significant accounting policies followed by the Banta Corporation (the "Corporation" or "Banta") in maintaining financial records and preparing financial statements are: BUSINESS The Corporation provides a wide variety of print and print-related services to publishers of educational and general books, special-interest magazines, consumer and business catalogs, and direct marketing materials. Banta also offers supply-chain management services, digital services and single-use healthcare products. Customers, who are primarily located throughout the United States and Europe, are granted credit on an unsecured basis. No single customer accounted for more than 10% of consolidated sales during 2001, 2000 or 1999. YEAR-END The Corporation's operating year ends on the Saturday closest to December 31. Operating years 2001, 2000 and 1999 ended on December 29, 2001, December 30, 2000, and January 1, 2000, respectively, and comprised 52 weeks each. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Corporation and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. RECOGNITION OF REVENUE The Corporation recognizes revenue at the time the products are shipped, risk of loss transfers or as services are performed. Most products are produced to customer specifications, therefore, the Corporation has no material amounts of finished goods inventory. In accordance with Emerging Issues Task Force Issue 00-10, the Corporation recognizes as revenues shipping and handling fees billed to customers and the corresponding cost is included in cost of sales for all years presented. Foreign Currency Translation Financial statements of foreign subsidiaries are translated into United States dollars in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 52. Foreign currency transaction gains and losses were insignificant in 2001, 2000 and 1999. 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. Average common shares for computation of basic earnings per share were 24,659,129; 24,955,750; and 27,153,280 in 2001, 2000 and 1999, respectively. Average common and common equivalent shares for computation of diluted earnings per share were 24,857,239; 24,980,228; and 27,177,205, in 2001, 2000 and 1999, respectively. The shares outstanding used to compute diluted earnings per share for 2001, 2000 and 1999 excluded outstanding options to purchase 268,883; 1,863,037; and 1,391,777 shares of common stock, respectively, with weighted-average exercise prices of $26.64, $24.75 and $26.20, respectively. The options were excluded because their exercise prices were greater than the average market price of the common shares and their inclusion in the computation would have been antidilutive. CAPITALIZED INTEREST The Corporation capitalizes interest on major building and equipment installations and depreciates the amount over the lives of the related assets. The total interest incurred was $15,386,000 in 2001, $17,919,000 in 2000, and $13,100,000 in 1999 of which $1,666,000, $1,165,000 and $738,000 was capitalized in 2001, 2000 and 1999, respectively. CASH AND CASH EQUIVALENTS Short-term investments, with maturities of less than 90 days at the date of purchase, are considered cash equivalents for purposes of the accompanying consolidated balance sheets and statements of cash flows. These investments are stated at cost which approximates market. 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 December 29, 2001, and December 30, 2000, were as follows: ------------------------------------------------------------------- Dollars in thousands 2001 2000 ------------------------------------------------------------------- Raw materials and supplies $38,432 $ 58,513 Work-in-process and finished goods 32,647 49,596 ------- -------- Net inventories $71,079 $108,109 ------------------------------------------------------------------- 28 Banta Corporation SOFTWARE DEVELOPMENT Costs incurred in the development of new products, prior to establishing technological feasibility, are charged to expense as incurred. SFAS No. 86 requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based upon the Corporation's product development process, technological feasibility is established upon completion of a detailed design. Capitalized software costs are amortized on a product-by-product basis over a period of five years, depending on the estimated useful life of the software. The unamortized balance, as included in other assets, was $11,058,000, and $11,494,000 at December 29, 2001 and December 30, 2000, respectively. Accumulated amortization of capitalized software costs was $5,333,000 at December 29, 2001. The Corporation believes the capitalized software development costs are realizable based on the projected undiscounted earnings of the related product. PLANT AND EQUIPMENT Plant and equipment (including major renewals and betterments) are carried at cost and depreciated over the estimated useful life of the assets. Substantially all depreciation is computed using the straight-line method for financial reporting purposes. Accelerated depreciation methods are used for tax purposes. Leasehold improvements are generally amortized over the term of the leases on a straight-line basis. The general range of useful lives for financial reporting is 15 to 30 years for buildings and improvements and 3 to 10 years for machinery and equipment. INCOME TAXES Deferred tax liabilities and assets are determined based on the difference between the book and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. GOODWILL Goodwill is amortized and charged against operations on a straight-line method over periods of 20 to 25 years. The realizability of goodwill is evaluated annually based upon the undiscounted cash flows of the businesses acquired compared with the unamortized amount of goodwill. Accumulated amortization of goodwill was $17,920,000, and $14,915,000 as of December 29, 2001, and December 30, 2000, respectively. In June 2001, the Financial Accounting Standards Board issued SFAS No. 142, "Goodwill and Other Intangible Assets." Under the statement, goodwill will no longer be amortized; however, it must be tested for impairment at least annually. Amortization will continue to be recorded for other intangible assets with determinable lives. The Corporation adopted the statement for 2002. Goodwill amortization expense in 2001 was $3,005,000. The Corporation is in the process of assessing the impairment provisions of SFAS No. 142. Such assessment must be completed by the second quarter of 2002. The Corporation does not currently believe there will be any significant impairment. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates. DERIVATIVE FINANCIAL INSTRUMENTS The Corporation enters into forward exchange contracts to mitigate exposure related to receivables and payables denominated in foreign currencies. Those foreign currency contracts are adjusted to their fair market value with the gain or loss reflected in other income (expense) in the accompanying consolidated statements of earnings. For each of the three years presented, the gain or loss recognized on these contracts was not material. >> 2 Acquisitions and Investments INVESTMENT IN XYAN.COM During 2000, the Corporation acquired a minority equity interest of approximately 13% in Xyan.com Inc., ("Xyan.com") a start-up Internet-enabled digital document solutions provider. In March 2001, Xyan.com filed for bankruptcy under Chapter 11 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.com's filing for bankruptcy, the Corporation wrote-off the cost of its minority interest in Xyan.com. This write-off resulted in a non-operating charge of $12.5 million ($7.5 million or $.30 per diluted share, after tax). OTHER ACQUISITIONS 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. The purchase price plus the liabilities assumed exceeded the fair value of the tangible assets acquired by $6.3 million. The acquisition was accounted for as a purchase. In July 1999, the Corporation acquired a 50 percent equity interest in a newly formed joint venture for approximately $5.8 million. The joint venture, Banta G. Imagen S. de R.L. de C.V., based in Queretaro, Mexico, provides a variety of products and services for the commercial print market. The equity method of accounting is used to account for this investment. Annual Report 29 >> 3 Short-Term Debt The Corporation generally obtains short-term financing through the issuance of commercial paper and borrowing against lines of credit with banks. At December 29, 2001, the Corporation had credit facilities totaling $113 million. Of this total, $105 million represents credit facilities made available by three banks, which can be used to support both commercial paper and unsecured borrowings. The remaining $8 million is a secured credit facility denominated in Irish punts, which is used to finance the Corporation's European operations. At December 29, 2001, the Corporation had no borrowings outstanding. At December 30, 2000, the Corporation had notes payable outstanding aggregating $46.9 million against the credit facilities, which consisted entirely of commercial paper with a weighted average interest rate of 7.0%. The maximum outstanding borrowings during 2001 and 2000 were $55.2 million and $89.5 million, respectively. The average outstanding borrowings during 2001 and 2000 were $21.3 million and $75.8 million, respectively. The weighted-average interest rates on such borrowings during 2001 and 2000 were 5.2% and 6.6%, respectively. >> 4 Long-Term Debt Long-term debt, including amounts payable within one year, consists of the following: -------------------------------------------------------------------------------- Dollars in thousands Maturities 2001 2000 -------------------------------------------------------------------------------- Promissory Notes: 8.05% 2002-2005 $ 50,000 $ 50,000 7.45% 2001 -- 20,000 6.81% 2004-2010 35,000 35,000 7.62% 2002-2009 17,857 20,238 7.98% 2002-2010 20,238 22,619 9.53% 2002-2005 7,273 9,091 7.38% 2005-2015 15,000 15,000 Notes Payable and Capital Lease Obligations, generally fixed rates of interest, 7.2% to 10.7% 2002-2008 5,750 6,112 Industrial Revenue Bonds: Floating rates of interest, approximating 80% of the prime rate 2002-2015 3,800 6,150 Fixed rate of interest at 7.5% 2002 120 260 Other fixed rates of interest, 6.0% to 9.4% 2002-2005 1,858 3,237 -------------------------------------------------------------------------------- 156,896 187,707 Less current maturities (25,915) (8,505) -------------------------------------------------------------------------------- Long-term debt $130,981 $179,202 -------------------------------------------------------------------------------- Maturities of long-term debt during the next five years are: 2002, $25,915,000; 2003, $19,492,000; 2004, $19,485,000; 2005, $25,735,000; and 2006, $11,414,000. Industrial Revenue Bonds aggregating $920,000 are secured by certain real estate and equipment. The Promissory Note agreements contain various operating and financial covenants. The more restrictive of these covenants require that working capital be maintained at a minimum of $40,000,000, current assets be 150% of current liabilities and consolidated tangible net worth be not less than $125,000,000. Funded debt of up to 50% of the sum of consolidated tangible net worth and consolidated funded debt may be incurred without prior consent of the noteholders. The Corporation may incur short-term debt of up to 25% of consolidated tangible net worth at any time and is required to be free of all such obligations in excess of 12.5% of consolidated tangible net worth for 60 consecutive days each year. The agreements also contain limitations on leases and ratable security on certain types of liens. The Corporation was in compliance with all debt covenants at December 29, 2001. One of the Promissory Note agreements contains covenants, which restrict the payment of dividends. As of December 29, 2001, $100,596,000 of retained earnings was available for the payment of dividends under the most restrictive of such covenants. Based on the borrowing rates currently available to the Corporation for loans with similar terms and average maturities, the fair value of long-term debt as of December 29, 2001, including current maturities, was estimated by management to be $176,047,000. 30 Banta Corporation >> 5 Stock Option Plans At December 29, 2001, the Corporation had options outstanding or available for grant under two stock option plans -- the 1995 Equity Incentive Plan and the 1991 Stock Option Plan. Under the plans, options to purchase common stock are granted to officers and key employees at prices not less than the fair market value of the common stock on the date of the grant. Options granted under the 1991 plan may be exercised up to five years after the date of the grant. Options granted under the 1995 plan may be exercised up to ten years from the date of the grant. At December 29, 2001, 2,177,799 shares of the Corporation's common stock were reserved for future option grants. The plans permit participants to use option shares for the purpose of offsetting income tax liabilities incurred upon the exercise of stock options and allow for grants of either Incentive Stock Options or Nonstatutory Stock Options. The plans include provisions that authorize options to be granted to non-employee Directors. The following table summarizes activity under the stock option plans: Weighted Options Price Range Average Price -------------------------------------------------------------------------------- OUTSTANDING AT JANUARY 2, 1999 1,945,370 $20 - $31 $25 Granted 691,000 19 - 24 23 Exercised (277,855) 21 - 24 21 Canceled or expired (217,531) 20 - 31 26 -------------------------------------------------------------------------------- OUTSTANDING AT JANUARY 1, 2000 2,140,984 19 - 31 25 Granted 573,500 18 - 22 20 Exercised (2,000) 21 - 21 21 Canceled or expired (327,616) 21 - 28 26 -------------------------------------------------------------------------------- OUTSTANDING AT DECEMBER 30, 2000 2,384,868 18 - 31 23 Granted 775,500 26 - 28 28 Exercised (278,523) 18 - 28 23 Canceled or expired (75,668) 18 - 31 24 -------------------------------------------------------------------------------- OUTSTANDING AT DECEMBER 29, 2001 2,806,177 $18 - $31 $25 -------------------------------------------------------------------------------- Of the options outstanding at December 29, 2001, 1,506,378 were exercisable at prices ranging from $18 to $31, and a weighted average of $24. The balance of the options become exercisable at various times through 2004 at prices ranging from $18 to $28, and a weighted average of $25. During 2001, 2000 and 1999, 115,288; 75; and 140,609 shares, respectively, were submitted to the Corporation in partial payment for stock option exercises and to offset income tax liabilities. The Corporation canceled these shares. The Corporation accounts for stock options pursuant to the provisions of APB Opinion No. 25, which requires no compensation cost to be recognized when stock options are granted at fair value. If the Corporation had charged earnings for the compensation cost related to its stock option grants determined consistent with SFAS No. 123, its net earnings and earnings per share would have been reduced to the following pro forma amounts: Dollars in thousands, except per share amounts 2001 2000 1999 -------------------------------------------------------------------------------- Net Earnings: As Reported $49,997 $58,743 $16,010 Pro Forma 47,691 56,485 14,123 Earnings per share of common stock: Basic: As Reported $2.03 $2.35 $0.59 Pro Forma 1.93 2.26 0.52 Diluted: As Reported 2.01 2.35 0.59 Pro Forma 1.92 2.26 0.52 -------------------------------------------------------------------------------- The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2001, 2000 and 1999, respectively: risk-free interest rates of 5.2%, 5.9% and 5.9%; expected dividend yields of 2.3%, 2.9% and 2.0%; expected lives of 6.0 years; expected volatility of 35%, 35% and 33%. The weighted average fair value of the options granted in 2001, 2000 and 1999 was $6.77, $5.12 and $5.89, respectively. >> 6 Operating Leases The Corporation leases a variety of assets used in its operations including manufacturing facilities, warehouses, office space, office equipment, automobiles and trucks. Annual rentals amounted to $22,338,869, $18,733,000 and $13,819,000 in 2001, 2000 and 1999, respectively. Minimum rental commitments for the years 2002 through 2006 aggregate $18,465,000, $16,507,000, $13,896,000, $9,905,000 and $7,816,000, respectively, and $28,496,000, thereafter. 2001 Annual Report 31 >> 7 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 2000.
Details of the restructuring charge are as follows (in thousands): ------------------------------------------------------------------------------------------------------------ Original Restructuring Used in Used in Used in Year-End Dollars in thousands Charge 1999 2000 2001 Balance ------------------------------------------------------------------------------------------------------------ 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) 5,478 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) $5,478 ------------------------------------------------------------------------------------------------------------
>> 8 Employee Benefit Plans The Corporation and its unions have several pension plans covering substantially all employees. The plans are non-contributory and benefits are based on an employee's years of service and earnings. The Corporation makes contributions to the qualified plans each year, at least equal to the minimum required contributions as defined by the Employee Retirement Income Security Act (ERISA) of 1974. The Corporation also maintains a non-qualified supplemental retirement plan, which is not funded. The Corporation and its subsidiaries also provide non-contractual limited healthcare benefits for certain retired employees. The program provides for defined initial contributions by the Corporation toward the cost of postretirement healthcare coverage. The balance of the cost is borne by the retirees. The program provides that increases in the Corporation's contribution toward coverage will not exceed 4% per year. Due to the terms of the Corporation's postretirement healthcare program, assumed healthcare cost rate trends do not affect the Corporation's costs. Net periodic pension and postretirement benefit costs for the Corporation-sponsored plans, were as follows:
Pension Benefits Other Benefits -------------------------------------------------------------------------------------------------------------- 2001 2000 1999 2001 2000 1999 -------------------------------------------------------------------------------------------------------------- Service cost-benefits earned during the year $ 6,042 $ 5,431 $ 5,794 $1,141 $ 990 $1,144 Interest cost on projected benefit obligation 7,349 6,897 6,442 1,032 879 855 Expected return on plan assets (10,814) (10,027) (9,015) -- -- -- Amortization of prior service cost 448 448 443 26 26 26 Amortization of transition obligation (asset) (346) (394) (394) 255 255 255 Amortization of net gain (1,014) (1,068) (96) -- (29) -- -------------------------------------------------------------------------------------------------------------- Net pension and other benefits expense $ 1,665 $ 1,287 $ 3,174 $2,454 $2,121 $2,280 -------------------------------------------------------------------------------------------------------------- 32 Banta Corporation
Significant assumptions used in determining net pension and postretirement benefit expense for the Corporation's plans are as follows:
Pension Benefits Other Benefits -------------------------------------------------------------------------------------------------------------- 2001 2000 1999 2001 2000 1999 -------------------------------------------------------------------------------------------------------------- Discount Rate 7.50% 7.75% 7.00% 7.50% 7.75% 7.00% Expected rate of increase in compensation 4.0 4.0 4.0 -- -- -- Expected long-term rate of return on plan assets 9.5 9.5 9.5 -- -- -- --------------------------------------------------------------------------------------------------------------
All of the Corporation's pension plans, except the supplemental retirement plan, have assets in excess of the accumulated benefit obligation. The projected benefit obligation and accumulated benefit obligation for the supplemental retirement plan were $11,715,000 and $8,873,000 in 2001, respectively, and $10,230,000 and $6,647,000 in 2000, respectively. Plan assets for the funded plans include commingled funds, marketable equity securities and corporate and government debt securities. The following table presents a reconciliation of the funded status of the plans using an assumed discount rate of 7.25% at December 29, 2001 and 7.50% at December 30, 2000:
Pension Benefits Other Benefits -------------------------------------------------------------------------------------------------------------- Dollars in thousands 2001 2000 2001 2000 -------------------------------------------------------------------------------------------------------------- Change in benefit obligation: Benefit obligation at beginning of year $103,419 $ 91,724 $13,606 $12,553 Service cost 6,042 5,431 1,141 990 Interest cost 7,349 6,897 1,032 879 Change in assumptions 763 3,613 1,104 (454) Participants' contributions -- -- 442 362 Plan amendments -- 81 -- -- Benefits paid (4,460) (4,327) (887) (724) -------------------------------------------------------------------------------------------------------------- 113,113 103,419 16,438 13,606 -------------------------------------------------------------------------------------------------------------- Change in plan assets: Fair value of plan assets at beginning of year 116,528 115,192 -- -- Actual return on plan assets (3,072) 5,288 -- -- Employer contributions 358 375 445 362 Participants' contributions -- -- 442 362 Benefits paid (4,460) (4,327) (887) (724) -------------------------------------------------------------------------------------------------------------- 109,354 116,528 -- -- -------------------------------------------------------------------------------------------------------------- Plan assets less than (in excess of) benefit obligation 3,759 (13,109) 16,438 13,606 Unrecognized net gain 7,753 23,416 2 1,105 Unrecognized prior service cost (1,877) (2,325) (402) (428) Unrecognized net asset (obligation) 207 553 (2,800) (3,055) Adjustment required to recognize minimum liability 1,200 158 -- -- -------------------------------------------------------------------------------------------------------------- Accrued pension cost (included in other non-current liabilities) $ 11,042 $ 8,693 $13,238 $11,228 -------------------------------------------------------------------------------------------------------------- Intangible asset recognized in Consolidated Balance Sheets $ 1,200 $ 158 $ -- $ -- --------------------------------------------------------------------------------------------------------------
Approximately 28% of the Corporation's non-salaried employees are covered by multi-employer union-sponsored, collectively bargained defined benefit pension plans. Pension expense includes $2,406,000, $2,406,000 and $2,628,000 in 2001, 2000 and 1999, respectively, attributable to the multi-employer plans. These costs are determined in accordance with the provisions of negotiated labor contacts. The Corporation has established an Incentive Savings Plan (401k) for substantially all of its non-bargaining unit employees. Employee contributions are partially matched by the Corporation in accordance with criteria set forth in the plan. Matching contributions charged to earnings for 2001, 2000 and 1999 were $2,779,000, $2,863,000 and $2,832,000, respectively. 2001 Annual Report 33 >> 9 Capital Stock In April 1998 the Board of Directors authorized a program for the repurchase of $60 million of common stock. This program was expanded in October 1998 for the repurchase of an additional $50 million of common stock. During 1999, 2,572,400 shares were repurchased under this authority for an aggregate cost of $58,342,000. In December 1999 this program was expanded for the repurchase of an additional $100 million of common stock. During 2000, an additional 1,261,100 shares were repurchased under the authority for an aggregate cost of $24,024,000. No shares were repurchased during 2001. Prior to the second quarter of 1999, all of the repurchased shares were canceled. Beginning April 4, 1999, the Corporation's repurchases of outstanding common stock were recorded as treasury stock. At December 29, 2001, the Corporation held 3,144,400 shares of its common stock in treasury. These shares may be reissued pursuant to the Corporation's stock option plans or for other purposes. Pursuant to the Corporation's Shareholder Rights Plan, which was modified on November 5, 2001, one common stock purchase right is included with each outstanding share of common stock. In the event the rights become exercisable, each right will initially entitle its holder to buy one-half of one share of the Corporation's common stock at a price of $140 per share (equivalent to $70 per one-half share), subject to adjustment. The rights will become exercisable if a person or group acquires 15% or more of the Corporation's common stock or announces a tender offer for 15% or more of the common stock. Upon the occurrence of certain events, including a person, or group, acquiring 15% or more of the Corporation's common stock, each right will entitle the holder to purchase, at the right's then-current exercise price, common stock of the Corporation or, depending on the circumstances, common stock of the acquiring corporation having a market value of twice such exercise price. The rights may be redeemed by the Corporation at a price of $.001 per right at any time prior to the rights becoming exercisable or prior to their expiration in November 2011, subject to amendment. >> 10 Income Taxes The provision for income taxes consists of the following: ------------------------------------------------------------------------------- Dollars in thousands 2001 2000 1999 ------------------------------------------------------------------------------- Current: Federal $26,853 $24,881 $18,852 State 5,226 6,577 5,465 Foreign 3,235 2,225 2,824 ------------------------------------------------------------------------------- 35,314 33,683 27,141 Deferred (3,114) 4,217 (8,541) ------------------------------------------------------------------------------- Provision for income taxes $32,200 $37,900 $18,600 ------------------------------------------------------------------------------- Below is a reconciliation of the statutory federal income tax rate and the effective income tax rate: ------------------------------------------------------------------------------- 2001 2000 1999 ------------------------------------------------------------------------------- Statutory federal tax rate 35.0% 35.0% 35.0% Foreign rate differential (4.1) (1.5) -- Subsidiary basis adjustment -- -- 7.9 State and local income taxes, less applicable federal tax benefit 4.5 4.7 5.6 Amortization of nondeductible goodwill .6 .5 2.3 Other, net 3.2 .5 2.9 ------------------------------------------------------------------------------- Effective income tax rate 39.2% 39.2% 53.7% ------------------------------------------------------------------------------- Temporary differences which give rise to the deferred tax assets and liabilities at December 29, 2001, and December 30, 2000, are as follows: ------------------------------------------------------------------------------- Dollars in thousands 2001 2000 ------------------------------------------------------------------------------- Net current deferred tax assets: Vacation accrual $ 3,615 $ 3,533 Other accrued liabilities 8,207 9,851 Reserve for uncollectible accounts 2,510 2,437 Other 1,826 249 ------------------------------------------------------------------------------- Net current deferred tax assets $ 16,158 $ 16,070 ------------------------------------------------------------------------------- Net long-term deferred tax liabilities: Accelerated depreciation $(28,010) $(27,909) Deductible goodwill amortization (1,512) (1,541) Accrued pension cost 4,426 3,685 Accrued postretirement benefit cost 5,423 4,429 Deferred compensation 3,179 2,387 Other (4,586) (5,157) ------------------------------------------------------------------------------- Net long-term deferred tax liabilities $(21,080) $(24,106) ------------------------------------------------------------------------------- 34 Banta Corporation No United States deferred taxes have been provided on the undistributed foreign subsidiary earnings which aggregated $27,735,000 at December 29, 2001, and are considered permanently invested. If undistributed earnings were remitted, tax credits would substantially offset any resulting domestic tax liability. The non-United States component of income before income taxes was $20,996,000, $10,260,000 and $6,730,000 in 2001, 2000 and 1999, respectively. >> 11 Contingencies The Corporation is involved in various claims, including those related to environmental matters, and lawsuits arising in the normal course of business. In the opinion of management, the ultimate liability, if any, for these claims and lawsuits beyond any reserves already provided, will not have a material adverse effect on the consolidated statements of earnings of the Corporation. >> 12 Segment Information The Corporation operates in two primary business segments, print and supply-chain management, with other business operations in healthcare products. The print segment provides products, including digital imaging, and services to publishers of educational and general books, and special-interest magazines, and is a supplier of consumer and business catalogs, and direct marketing materials. The supply-chain management segment provides product assembly, testing, fulfillment and product localization services primarily to technology companies in North America, Europe and Asia. The healthcare products business is primarily engaged in the production of disposable products used in outpatient clinics, dental offices and hospitals. These operations are strategic business units that service different markets and offer different products and services. The accounting policies of the segments are the same as those described in the Summary of Accounting Policies. The Corporation evaluates performance based on earnings from operations. Summarized segment data for 2001, 2000 and 1999 are as follows: ------------------------------------------------------------------------------- Dollars in thousands 2001 2000 1999 ------------------------------------------------------------------------------- NET SALES Printing $1,009,047 $1,100,213 $ 997,150 Supply-chain management 345,865 335,772 213,397 Healthcare 103,023 101,744 104,731 ------------------------------------------------------------------------------- Total $1,457,935 $1,537,729 $1,315,278 ------------------------------------------------------------------------------- DEPRECIATION AND AMORTIZATION Printing $ 59,447 $ 60,942 $ 59,213 Supply-chain management 9,732 8,379 3,532 Healthcare 4,749 4,688 4,370 ------------------------------------------------------------------------------- Total(1) $ 73,928 $ 74,009 $ 67,115 ------------------------------------------------------------------------------- EARNINGS FROM OPERATIONS(2) Printing $ 93,778 $ 106,196 $ 93,410 Supply-chain management 24,683 20,698 10,308 Healthcare 9,549 7,243 14,992 ------------------------------------------------------------------------------- Total $ 128,010 $ 134,137 $ 118,710 ------------------------------------------------------------------------------- TOTAL ASSETS Printing $ 530,769 $ 604,454 $ 562,677 Supply-chain management 151,867 163,046 114,296 Healthcare 66,596 74,054 72,160 ------------------------------------------------------------------------------- Total $ 749,232 $ 841,554 $ 749,133 ------------------------------------------------------------------------------- CAPITAL EXPENDITURES Printing $ 41,146 $ 65,264 $ 65,656 Supply-chain management 5,933 11,421 13,946 Healthcare 1,616 1,430 3,595 ------------------------------------------------------------------------------- Total(1) $ 48,695 $ 78,115 $ 83,197 ------------------------------------------------------------------------------- 1 Difference between segment total and the total included in the consolidated financial statements is unallocated corporate headquarter amounts. 2 Earnings from operations for 1999 exclude a restructuring charge (see Note 7) of $55.0 million. 2001 Annual Report 35 The following table presents a reconciliation of certain segment information to the totals contained in the Consolidated Financial Statements: ------------------------------------------------------------------------------- Dollars in thousands 2001 2000 1999 ------------------------------------------------------------------------------- Earnings from operations: Reportable segment earnings $128,010 $134,137 $118,710 Unallocated corporate expenses (19,601) (19,344) (15,340) Restructuring charge -- -- (55,000) Interest expense (13,720) (16,754) (12,362) Write-off of investment (12,500) -- -- Other income (expense) 8 (1,396) (1,398) ------------------------------------------------------------------------------- Earnings before income taxes $ 82,197 $ 96,643 $ 34,610 ------------------------------------------------------------------------------- Total assets: Reportable segment assets $749,232 $841,554 $749,133 Intergroup receivable elimination (330) (378) (1,405) Other unallocated amounts1 39,144 13,348 25,616 ------------------------------------------------------------------------------- Consolidated total assets $788,046 $854,524 $773,344 ------------------------------------------------------------------------------- 1 Prior to 2000, deferred tax assets were included in the "other unallocated amounts." In 2001, "other unallocated amounts" included $28.0 million of cash and short-term investments. Summarized geographic data for the Corporation's operations for 2001, 2000 and 1999 are as follows (net sales are attributed to countries primarily based on location of operation): ------------------------------------------------------------------------------- Dollars in thousands 2001 2000 1999 ------------------------------------------------------------------------------- Net sales: United States $1,244,783 $1,358,233 $1,153,779 Ireland 105,368 89,467 91,423 Other foreign countries 107,784 90,029 70,076 ------------------------------------------------------------------------------- $1,457,935 $1,537,729 $1,315,278 ------------------------------------------------------------------------------- Assets: United States $ 678,322 $ 758,512 $ 697,814 Ireland 71,240 50,705 48,346 Other foreign countries 38,484 45,307 27,184 ------------------------------------------------------------------------------- $ 788,046 $ 854,524 $ 773,344 ------------------------------------------------------------------------------- Unaudited Quarterly Financial Information The following table presents financial information by quarter for the years 2001 and 2000.
Quarter Ended Quarter Ended Quarter Ended Quarter Ended March June September December ----------------------------------------------------------------------------------------------------------------------------------- Dollars in thousands (except per share data) 2001 2000 2001 2000 2001 2000 2001 2000 ----------------------------------------------------------------------------------------------------------------------------------- Net sales $372,777 $341,534 $337,396 $358,592 $376,615 $417,395 $371,147 $420,208 Gross earnings 67,396 66,507 71,940 74,491 78,444 86,875 80,333 82,602 Net earnings 2,632* 9,894 12,471 12,644 18,748 19,247 16,146 16,958 Basic earnings per share .11* .39 .51 .50 .76 .78 .65 .69 Diluted earnings per share .11* .39 .50 .50 .75 .78 .65 .69 ----------------------------------------------------------------------------------------------------------------------------------- *First quarter 2001 results of operations include a non-cash write-off of the investment in XYAN.com of $7.5 million, after tax ($.30 per common share).
Dividend Record and Market Prices First Second Third Fourth Entire Per Share of Common Stock Quarter Quarter Quarter Quarter Year ------------------------------------------------------------------------------ 2001 dividends paid $ .15 $ .15 $ .15 $ .16 $ .61 Price range: High $27.39 $29.68 $30.92 $30.23 $30.92 Low 22.93 24.43 25.31 26.80 22.93 2000 dividends paid $ .15 $ .15 $ .15 $ .15 $ .60 Price range: High $22.19 $19.92 $24.44 $25.37 $25.37 Low 17.56 18.00 18.19 21.00 17.56 ------------------------------------------------------------------------------ The stock prices listed above are the high and low trades. As of January 28, 2002, the Corporation had 1,898 shareholders of record. 36 Banta Corporation Report of Independent Public Accountants TO THE SHAREHOLDERS OF BANTA CORPORATION: We have audited the accompanying consolidated balance sheets of Banta Corporation (a Wisconsin corporation) and subsidiaries as of December 29, 2001, and December 30, 2000, and the related consolidated statements of earnings, shareholders' investment and cash flows for each of the fiscal years in the three-year period ended December 29, 2001. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Banta Corporation and subsidiaries as of December 29, 2001, and December 30, 2000, and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended December 29, 2001, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP Arthur Andersen LLP Milwaukee, Wisconsin January 28, 2002 Responsibility for Financial Statements The Consolidated Financial Statements and other financial references appearing in this Annual Report were prepared by management in conformity with generally accepted accounting principles appropriate for the circumstances. Where acceptable alternative accounting principles exist, as described in Note 1 of the Notes to the Consolidated Financial Statements, management uses its best judgment in selecting those principles that reflect fairly the financial position and results of operations of the Corporation. The accounting records and systems of internal control are designed to reflect the transactions of the Corporation in accordance with established policies and procedures. Financial and operational reviews are undertaken by management to provide assurance that the books and records properly reflect transactions authorized by the Corporation. The Consolidated Financial Statements appearing in this Annual Report have been audited by Arthur Andersen LLP. Its audits were made in accordance with auditing standards generally accepted in the United States and provide an independent review of those management responsibilities that relate to the preparation of this Annual Report. The Audit Committee of the Board of Directors, comprised of directors who are not officers or employees, reviews the financial and accounting reports of the Corporation, including a review and discussion of the principles and procedures used by management in preparation of the financial statements. The independent auditors have full and free access to the Audit Committee and meet with it to review the results of the audit engagement, the preparation of the Annual Report and to discuss auditing and financial reporting matters.