EXHIBIT 13
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
Not Covered by Auditors' Report
Dollars in thousands
(except per share data)
1993 1992 1991 1990 1989
Summary of Earnings (1)
Net sales $691,244 $637,416 $565,473 $577,614 $517,235
Net earnings from continuing
operations 40,992 35,662 28,219 29,352 25,688
Net earnings 40,992 35,662 20,619 18,171 33,599
Net earnings per common share from
continuing operations (2) 2.03 1.79 1.44 1.53 1.34
Net earnings per
common share (2) 2.03 1.79 1.05 .95 1.75
Dividends paid per
common share (2) .47 .41 .38 .37 .35
Financial Summary
Working capital 106,171 102,214 98,323 94,151 96,018
Net plant and equipment 232,888 205,246 200,938 194,977 171,102
Total assets 457,433 410,182 397,464 397,580 378,884
Long-term debt 45,603 52,491 64,061 75,378 69,005
Interest expense 5,346 5,786 5,398 5,378 5,511
Shareholders' investment 292,428 258,237 226,967 206,585 194,677
Book value per share
of common stock (2) (3) 14.62 13.00 11.56 10.80 10.24
(1) All years comprised 52 weeks except 1992 which comprised 53 weeks.
(2) Per share amounts have been adjusted for the three-for-two stock split
distributed in April 1993.
(3) Book values per share for common stock are based on shares outstanding at
year-end.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL POSITION AND OPERATIONS
Operational Highlights
1993 was another excellent year for Banta Corporation, resulting in
record sales and earnings. Exceptional support from our dedicated employees, a
strong capital investment program and high plant utilization fueled these
results. Sales for the year were $691 million, 8% above the $637 million for
1992. Net earnings were $41 million, a 15% increase over 1992. Earnings per
share were $2.03 compared with $1.79 in 1992. Record sales and earnings were
achieved during each quarter of 1993. These results continued the strong
overall performance achieved by the Corporation over the past five years,
during which time sales and net earnings from continuing operations grew at
average annual rates of 10% and 13%, respectively.
During early 1993, our print markets were influenced by overall
sluggishness in advertising which resulted in fewer market opportunities for
magazines, consumer catalogs, direct marketing pieces and the point-of-
purchase sign and display markets. Early in the third quarter the consumer
catalog market experienced a sharp increase in demand, resulting in a near
over-sold condition. Despite the underlying market softness, the other
commercial print markets increased activity in the second half due to typical
seasonality and due to increased market penetration. The Corporation's
software manual business made excellent progress in 1993 by increasing its
market penetration. Sales increases were also recorded in the educational,
general book and trade book markets.
The Corporation's average cost of paper fluctuated in 1993 with lower
costs during the first six months. A midyear price increase averaged about
10% on most coated paper and much of that increase eroded in the fourth
quarter. Overall, the average cost of paper to our customers was about 2%
higher in 1993 than in 1992.
Very competitive pricing continues within most print markets, including
the Corporation's markets, and on average, unit sales prices were lower in
1993 than in 1992. The Corporation's aggressive commitment to capital
expenditures adds capacity and the new more efficient equipment reduces unit
operating costs. These efficiencies enable the Corporation to produce at a
lower average unit cost.
Technologies are being developed within the television, telephone and
entertainment markets, which may result in a moderating of the future rate of
growth within print markets. These alternate media are discussed in such
broad terms as the Electronic Superhighway and Interactive Media. The
Corporation is investigating the opportunities provided by these developments
but, to date has not committed large portions of its capital expenditures to
alternate media. However, the Corporation's expertise in electronic prepress
technology and CD-ROM capabilities provide excellent positions from which to
pursue opportunities that we identify.
Sales
The Corporation classifies its sales as follows: commercial (catalogs,
direct marketing materials and single-use products); books (educational,
general, trade, data manuals and software services); magazines; and other
(point-of-purchase and prepress services). Sales for the market
classifications, as a percent of consolidated sales, are as follows:
1993 1992 1991
Commercial 44% 46% 47%
Books 34 30 31
Magazines 12 13 12
Other 10 11 10
---- ---- ----
100% 100% 100%
==== ==== ====
The percentage of sales by market classification has remained fairly
constant for the past three years. Percentage increases in sales by market
classification for 1993 compared with 1992 were as follows: commercial -- 3%;
books -- 21%; magazines -- 10%; and other -- 1%.
During the last three years, most of the operating units serving the
commercial market ran substantially on seven-day work weeks during much of the
second half of each year due to seasonal customer demand. Approximately 15%
additional press capacity was installed in 1993. An additional 20% increase
in capacity for these operating units is expected to be completed by midyear
1994. Sales of direct marketing materials increased 22% over 1992 as the
Corporation continues to be a leading supplier to this market.
During 1993, the consumer catalog printing market was characterized by
slower activity early in the year with significantly improved volume during
the last five months as retail catalog spending increased. The unexpected,
significant volume increase in the third quarter resulted in an over-sold
condition within our plants. This environment forced us to turn down sales
opportunities, increased our costs and reduced flexibility within our
production facilities. The Corporation's overall catalog sales were up only
modestly primarily because of the absence of certain cyclical business
catalogs, competitive pricing pressures and an increased amount of customer-
furnished paper within the consumer catalog market.
Sales of single-use products for the food service and non-sterile medical
markets were flat compared to 1992 primarily because the uncertainty in the
national health care scene altered buying patterns of health care providers.
Book product sales for 1993, much like 1992, increased for educational,
trade, general books, and data and software manuals. The Corporation
continues to emphasize the diversification of its book market product
offerings, reducing its reliance on educational products. Although school
systems are recording increased student enrollments, their funding is limited
due to budget constraints and a portion of the funding is being used for
alternate non-print products.
The Corporation has made good progress by increasing its share of the
market for computer hardware and software documentation services, which are
part of our book market. Service to this market is characterized by short
manufacturing cycles, flexibility in meeting the rapidly changing needs of
each customer and an "event" orientation, which results in variations in
manufacturing requirements. In 1993, the Corporation expanded the array of
services it offers customers in this market. New services include 1-800
telephone order fulfillment services, which allows orders to be received
directly by our fulfillment facility. The CYCLESpeed (SM) service is a new
manufacturing system that emphasizes shorter, more frequent production of
print orders to minimize our customers' inventory and provides constant
monitoring of inventory levels. The use of digital on-demand printing
technologies at our Minneapolis and Boston locations provides rapid response
for lower quantity requirements for manuals and parts lists. The Corporation
completed the construction and relocation of Bushman Press to a new
manufacturing facility in 1993. The Banta Digital Services facility,
providing both on-demand printing and prepress services, opened in Boston in
1993. A similar facility recently opened in the San Francisco Bay area.
The Corporation continued to gain new titles and market share in special-
interest magazines. The 10% sales gain was achieved by increased market
penetration and a modest increase in spending for magazine advertising pages.
The percentage of new titles printed in 1993 was less than in 1992 because
there was an increase in the competitive environment.
The 1% increase in the "Other" classification for 1993 resulted from an
increase in prepress volume offset by the expected lower demand for point-of-
purchase products for the brewing industry and major displays for the
electronic game market. Stamp production for the U.S. Postal Service was
fairly even compared to 1992. The Corporation completed the final year of its
initial stamp project and, together with its joint venture partners, was
successful in achieving substantial contract awards under the new five-year
multiprint stamp solicitation, with production scheduled to begin in the first
quarter of 1994.
Sales for 1992 increased 13% from 1991. All of the Corporation's major
market sectors registered sales increases for 1992: commercial -- 13%; books -
- - 12%; magazines -- 13%; and other -- 28%. Catalog sales, which benefited
from the introduction of advanced distribution and mailing services, accounted
for the majority of the increase in the commercial market classification.
Direct marketing sales, also within the commercial sector were about 5% higher
than 1991 and the Corporation continued its position as a prominent supplier
to the industry. In our other commercial market business, sales of single-use
products for the food service and non-sterile medical markets, along with
sales of extruded films for specialty markets, continued strong. Book product
sales for 1992 increased for educational, trade, general books, and data and
software manuals. During 1992, emphasis was placed on the development of the
infrastructure necessary to serve the computer hardware and software
documentation market. The Corporation's special-interest magazine units
registered a 13% sales gain with new titles and market share penetration.
Advertising for the magazine market increased modestly in 1992, after several
consecutive years of decreased spending.
The 28% increase in the "Other" classification for 1992 resulted from an
increase in prepress work for commercial customers, increased demand for
point-of-purchase products for the brewing industry and a strong second year
of postage stamp production for the U.S. Postal Service.
COST OF GOODS SOLD
In 1993, cost of goods sold as a percent of sales was 76.8% compared with
77.0% in 1992 and 77.8% in 1991. The reduction in cost of sales for 1993 is
primarily the result of increased utilization at units serving the direct
marketing and magazine markets. Also contributing to the cost of sales
percentage reduction were productivity improvements resulting from the
Corporation's Continuous Improvement processes and the absence of $1.8 million
of cost related to plant relocations incurred in 1992. The cost of sales
percentage reduction in 1992 from 1991 resulted from many of the same factors
which impacted 1993. In 1992, utilization increases particularly benefited
the cost of goods sold percentages for the operations serving the consumer and
business-to-business catalog markets. The Corporation utilizes the last-in,
first-out (LIFO) method of valuing the majority of the inventory of its print
operations. Lower year-end paper prices resulted in LIFO valuation
adjustments which reduced cost of goods sold by $272,000, $225,000 and
$663,000 in 1993, 1992 and 1991, respectively. Due to the significant ($63
million) capital expenditures in 1993, depreciation expense increased $2.9
million compared with 1992. In 1992, depreciation increased $2.3 million.
Health care costs, which were allocated both to cost of goods sold and
administrative expenses, increased in 1993 and 1992 by approximately $850,000
(7%) and $1.1 million (11%), respectively.
As evidenced by the large capital expenditures in 1993 and expenditures
planned for 1994, the Corporation is committed to continued investment in
equipment that will improve product quality, reduce turnaround time and reduce
unit manufacturing costs. Both capital and operating costs associated with
environmental issues (air quality and solid waste) have continued to increase.
The Corporation recycles substantially all of its waste materials generated by
the manufacturing process and emphasizes environmental safety in the
workplace.
EXPENSES
Selling and administrative expenses increased $4.7 million (5.6%) in 1993
and $9.2 million (12.4%) in 1992. Selling and administrative expenses as a
percentage of sales were 12.7%, 13.0% and 13.1% in 1993, 1992 and 1991,
respectively. The 1993 expense increase generally reflects increases required
to support the additional volume of sales produced in 1993. The larger cost
increase in 1992 was a result of significant sales office expansion, inclusion
of Bushman Press for a full year in 1992 and higher provisions for bad debts
in 1992. Costs associated with incentive programs also increased
administrative expenses in both 1993 and 1992 due to the strong performance of
the Corporation.
During 1993, the Corporation adopted Statement of Financial Accounting
Standard No. 106, "Employers' Accounting for Postretirement Benefits Other
than Pensions," as described in footnote [3] of the financial statements.
Adoption of this statement increased costs, which are allocated both to cost
of goods sold and selling and administrative expenses, by $901,000.
EARNINGS FROM OPERATIONS AND INTEREST EXPENSE
Earnings from operations as a percent of sales were 10.5%, 9.9%, and 9.1%
in 1993, 1992 and 1991, respectively. Interest expense has been $5.3 million,
$5.8 million and $5.4 million in 1993, 1992 and 1991, respectively. In
general, over the three-year period the Corporation's average debt levels have
declined, as have interest rates. The reduced interest on debt was partially
offset in 1993 by interest on tax assessments and in 1992 by a reduction in
the amount of interest expense allocated to the discontinued operation.
Pretax earnings from continuing operations as a percent of sales were
9.9%, 9.2% and 8.2% in 1993, 1992 and 1991, respectively. Effective income
tax rates were 40.3%, 39.0% and 38.9% in 1993, 1992 and 1991, respectively.
The increase in the effective tax rate for 1993 was a result of the federal
tax rate increase, which was enacted during 1993. The tax rate increase
reduced earnings per share approximately 4.5 cents.
LIQUIDITY AND CAPITAL RESOURCES
At Year-End
Selected Dollars in thousands
Financial Data (except current ratio)
1993 1992 1991
Receivables $125,004 $106,581 $ 95,939
Inventories 52,447 42,623 38,060
Notes payable 20,800 - 9,985
Accounts payable and
accrued liabilities 64,074 61,333 55,956
Working capital 106,171 102,214 98,323
Long-term debt 45,603 52,491 64,061
Shareholders' investment 292,428 258,237 226,967
Long-term debt to total long-term debt
and shareholders' investment 13.5% 16.9% 22.0%
Current ratio 2.16 2.40 2.27
The Corporation was generally able to fund its capital expenditures of
$63 million, $33 million and $32 million in 1993, 1992 and 1991, respectively,
from cash generated by operations and by issuing short-term commercial paper.
Management believes the Corporation's liquidity is very strong and the degree
of leverage puts the Corporation in the position to finance, at very
attractive borrowing rates, its capital expenditure program, as well as any
investment opportunities that may arise.
During the second quarter of 1992, the Corporation completed the sale of
the majority of its video operation for consideration that included $12
million in cash, 100,000 convertible preferred shares of the buyer, a $2.5
million note and the assumption of selected liabilities by the buyer. During
the second quarter of 1993, the preferred shares were converted into common
shares of the buyer, which were then sold in a secondary public offering
resulting in net proceeds to the Corporation of approximately $3.5 million.
The Corporation's capital investment program reflects its commitment to
maintain modern, efficient plants. Preliminary plans for 1994 are for capital
commitments of $75 million and approximately $100 million of cash
requirements, including unpaid commitments from 1993.
The Corporation generally raises short-term funds by selling commercial
paper. Such borrowings are supported by bank lines of credit totaling $40
million. Additionally, the Corporation has other committed bank lines of
credit totaling $5.2 million. Average outstanding commercial paper borrowings
during 1993 and 1992 were $7.4 million and $2.9 million, respectively.
CONSOLIDATED BALANCE SHEETS
January 1, 1994 (1993) and January 2, 1993 (1992)
Dollars in Thousands
ASSETS 1993 1992
Current Assets:
Cash and short-term investments, at cost which
approximates market $ 8,230 $ 13,305
Receivables, less reserves of 2,943,000 and
$2,933,000, respectively 125,004 106,581
Inventories 52,447 42,623
Prepaid expenses 4,511 4,244
Deferred income taxes 7,714 8,532
----------- ---------
197,906 175,285
----------- ---------
Plant and Equipment:
Land 6,597 6,551
Buildings 73,110 68,223
Machinery and equipment 350,650 296,296
----------- ---------
430,357 371,070
Less accumulated depreciation 197,469 165,824
----------- ---------
Plant and equipment, net 232,888 205,246
----------- ---------
Other Assets 9,303 11,786
Cost in Excess of Net Assets
Of Subsidiaries Acquired 17,336 17,865
----------- ---------
$ 457,433 $ 410,182
=========== =========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Notes payable $ 20,800 $ -
Accounts payable 27,364 27,142
Accrued salaries and wages 16,903 15,091
Other accrued liabilities 19,807 19,100
Current maturities of long-term debt 6,861 11,738
----------- ---------
91,735 73,071
----------- ---------
Non-current Liabilities:
Long-term debt 45,603 52,491
Deferred income taxes 18,257 18,359
Other non-current liabilities 9,410 8,024
----------- ---------
73,270 78,874
----------- ---------
Shareholders' Investment:
Common stock -
$.10 par value, authorized 75,000,000 shares in 1993
and 30,000,000 shares in 1992; 19,996,532 and 13,240,027
shares issued outstanding in 1993 and 1992, respectively 2,000 1,324
Amount in excess of par value of stock 54,436 51,948
Retained earnings 235,992 204,965
----------- ---------
292,428 258,237
----------- ---------
$ 457,433 $410,182
=========== =========
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
CONSOLIDATED STATEMENTS OF EARNINGS
For the Periods Ended January 1, 1994 (1993), January 2, 1993 (1992),
and December 28, 1991 (1991)
Dollars in thousands
(except earnings per share)
1993 1992 1991
(52 Weeks) (53 Weeks) (52 Weeks)
Net sales $691,244 $637,416 $565,473
Cost of goods sold 530,746 491,086 439,967
-------- -------- --------
Gross Earnings 160,498 146,330 125,506
Selling and administrative expenses 87,812 83,133 73,955
-------- -------- --------
Earnings from Operations 72,686 63,197 51,551
Interest expense (5,346) (5,786) (5,398)
Other income, net 1,352 1,051 66
-------- -------- --------
Earnings from Continuing
Operations Before Income Taxes 68,692 58,462 46,219
Provision for income taxes 27,700 22,800 18,000
-------- -------- --------
Net Earnings from
Continuing Operations 40,992 35,662 28,219
Discontinued Operations -
Provision for loss on sale - - (7,600)
-------- -------- --------
Net Earnings $ 40,992 $ 35,662 $ 20,619
======== ======== ========
Net earnings per share of common stock:
Continuing operations $ 2.03 $ 1.79 $ 1.44
Discontinued operations -
Provision for loss on sale - - (.39)
-------- -------- --------
TOTAL $ 2.03 $ 1.79 $ 1.05
======== ======== ========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Periods Ended January 1, 1994 (1993), January 2, 1993 (1992), and
December 28, 1991 (1991)
Dollars in thousands
1993 1992 1991
(52 Weeks) (53 Weeks) (52 Weeks)
CASH FLOW FROM OPERATING ACTIVITIES
Net earnings $ 40,992 $ 35,662 $ 20,619
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 33,701 30,839 28,558
Deferred income taxes 479 (1,083) (535)
Provision for loss on sale of video operations - - 7,600
Change in assets and liabilities, net of
effects of acquisitions and divestitures:
(Increase) decrease in receivables (18,423) (10,642) 4,817
Increase in inventories (9,824) (4,563) (114)
(Increase) decrease in net assets of businesses
held for sale - (283) 1,941
(Increase) decrease in other current assets (267) 1,949 (2,083)
Increase (decrease) in accounts payable
and accrued liabilities 4,710 3,491 (2,153)
Increase in other non-current assets (1,017) (802) (176)
Other, net 1,386 (332) 832
-------- -------- --------
Cash provided by operating activities 51,737 54,236 59,306
-------- --------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (62,960) (33,006) (31,619)
Proceeds from sale of video business assets 3,500 12,000 -
Proceeds from sale of plant and equipment 414 859 1,262
Cash used for acquisition - - (2,499)
-------- -------- --------
Cash used for investing activities (59,046) (20,147) (32,856)
-------- -------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Notes payable proceeds (payments), net 20,800 (9,985) (9,339)
Payments on long-term debt (11,765) (11,175) (10,358)
Proceeds and tax benefit from exercise of stock options 2,506 3,634 4,641
Dividends paid (9,303) (8,026) (7,366)
Purchase of treasury stock - - (118)
Fractional shares and rights redeemed (4) - (654)
-------- -------- --------
Cash provided by (used for) financing activities 2,234 (25,552) (23,194)
-------- -------- --------
Net (decrease) increase in cash (5,075) 8,537 3,256
Cash and short-term investments at beginning of year 13,305 4,768 1,512
-------- -------- --------
Cash and short-term investments at end of year $ 8,230 $ 13,305 $ 4,768
======== ======== ========
Cash payments for:
Interest, net of amount capitalized $ 5,471 $ 5,925 $ 5,579
Income taxes 23,789 24,224 14,552
The accompanying notes to consolidated financial statements are an integral
part of these statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
For the Periods Ended January 1, 1994 (1993), January 2, 1993 (1992), and
December 28, 1991 (1991)
Dollars in thousands
Common Stock Treasury Stock
------------ --------------
Amount in Number
Shares Par Excess of Retained of
Outstanding Value Par Value Earnings Shares Cost
----------- ----- ---------- -------- ------ ----
Balance, December 29, 1990 12,747,570 $1,275 $40,728 $164,730 9,052 $ 148
Stock options exercised 229,088 23 4,618
Shares issued for acquisition 124,206 12 3,248
Treasury shares purchased 4,243 118
Retirement of treasury shares (13,295) (1) (265) (13,295) (266)
Net earnings for the period 20,619
Rights redemption ($.03 per share) (654)
Cash dividends($.38 per share) (7,366)
---------- ------ ------- -------- ----- ------
Balance, December 28, 1991 13,087,569 1,309 48,329 177,329 - -
Stock options exercised 152,458 15 3,619
Net earnings for the period 35,662
Cash dividends($.41 per share) (8,026)
---------- ------ ------- -------- ----- ------
Balance, January 2, 1993 13,240,027 1,324 51,948 204,965 - -
Stock Options exercised 136,635 14 2,492
Three-for-two stock split
effected in the form of
a 50% stock dividend 6,619,870 662 (4) (662)
Net earnings for the period 40,992
Cash dividends ($.47 per share) (9,303)
---------- ------ ------- -------- ----- ------
Balance, January 1, 1994 19,996,532 $2,000 $54,436 $235,992 - $ -
========== ====== ======= ======== ===== ======
There are 300,000 shares of $10 par value preferred stock authorized, none of
which are issued.
The accompanying notes to consolidated financial statements are an integral
part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Periods Ended January 1, 1994 (1993), January 2, 1993 (1992), and
December 28, 1991 (1991)
(1) STATEMENT OF ACCOUNTING POLICIES
Significant accounting policies followed by the Banta Corporation (the
"Corporation") in maintaining financial records and preparing financial
statements are:
Business - The Corporation operates in a single business segment - printing
services. Customers, which consist primarily of publishers located throughout
the United States, are granted credit on an unsecured basis. No one customer
accounted for more than 10% of consolidated sales during 1993, 1992, or 1991.
Year-end - The Corporation's operating year ends on the Saturday closest to
December 31. The years 1993 and 1991 ended January 1, 1994 and December 28,
1991, respectively, and comprised 52 weeks each. Operating year 1992 ended on
January 2, 1993, and comprised 53 weeks.
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.
Earnings Per Share of Common Stock - Net earnings per share of common stock is
computed by dividing net earnings by the weighted average number of common
shares and common equivalent shares related to the assumed exercise of stock
options. Average common and common equivalent shares for computation of
earnings per share were 20,146,378, 19,939,436 and 19,617,963 in 1993, 1992
and 1991, respectively.
Cash and Short-term Investments - Short-term investments, with initial
maturities of generally less than 90 days, are considered cash equivalents for
purposes of the accompanying consolidated statements of cash flows.
Recognition of Sales - In accordance with trade practices of the printing
industry, sales are recorded by the Corporation primarily upon completion of
manufacturing. Substantially all such sales are produced to customer
specifications, therefore, the Corporation has no material amounts of finished
goods inventory.
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 $6,547,000 in 1993,
$6,473,000 in 1992 and $5,680,000 in 1991 of which $1,201,000, $687,000 and
$282,000 was capitalized in 1993, 1992 and 1991, respectively.
Inventories - The majority of the Corporation's inventories used in its
printing operations (approximately 46% and 52% of total inventories in 1993
and 1992, respectively) are accounted for at cost, determined by 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 year end are as follows:
Dollars in thousands
1993 1992
Raw materials and supplies $25,502 $22,751
Work-in-process and finished goods 30,941 24,140
------- -------
FIFO value (current cost) of all inventories 56,443 46,891
Excess of current cost over carrying value of
LIFO inventories (3,996) (4,268)
------- -------
Net inventories $52,447 $42,623
======= =======
Plant and Equipment - Plant and equipment (including major renewals and
betterments) are carried at cost and depreciated by ratable charges 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.
Income Taxes - The Corporation accounts for income taxes in accordance with
the Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." Under the provisions of the Statement, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Cost in Excess of Net Assets of Subsidiaries Acquired - Cost in of excess of
net assets of subsidiaries acquired is amortized and charged against
operations on a straight-line method over periods not exceeding 40 years.
Accumulated amortization of cost in excess of net assets of subsidiaries
acquired was $3,212,000 and $2,683,000 as of January 1, 1994 and January 2,
1993, respectively.
(2) LONG-TERM DEBT
Long-term debt, including amounts payable within one year, consists of the
following:
Dollars in thousands
1993 1992
9.53% Promissory Note payable in annual installments of
$1,818,000 from 1995 through 2005, interest payable semi-annually $20,000 $20,000
10.11% Promissory Note payable in annual installments of
$2,000,000 through 1995, $2,500,000 from
1996 through 1998 and $1,500,000 in 1999,
interest payable quarterly 13,000 15,000
8.58% Promissory Notes payable in annual installments of
$2,137,000 through 1995 and $2,176,000 in 1996,
interest payable quarterly 6,450 8,588
Notes Payable and Capital Lease Obligations,
generally fixed rates of interest, 6.0% to 11.3% due in
installments through 1995 3,074 10,411
Industrial Revenue Bonds:
Floating rates of interest, approximating 80% of the prime rate,
due in installments through 2015 7,200 7,350
Fixed rate of interest at 5.8% to 7.5% due in
installments through 2002 2,740 2,880
------- -------
52,464 64,229
Less current maturities 6,861 11,738
------- -------
Long-term debt $45,603 $52,491
======= =======
Maturities of long-term debt, during the next five years are: 1994,
$6,861,000; 1995, $6,887,000; 1996, $6,783,000; 1997, $4,608,000; and 1998,
$4,608,000. Industrial Revenue Bonds aggregating $3,240,000 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 175% of
current liabilities and consolidated tangible net worth be not less than
$100,000,000. Additional funded debt of up to 50% of the sum of consolidated
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 $25,000,000 at any time and
is required to be free of all such obligations in excess of $15,000,000 for 60
consecutive days each year. The agreements also contain limitations on leases
and on the granting of security interests in the Corporation's assets.
Each of the Promissory Note agreements contain covenants which restrict the
payment of dividends to 60% of net earnings, as defined. As of January 1,
1994, $56,032,000 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 bank
loans with similar terms and average maturities, the fair value of long-term
debt, including current maturities, as of January 1, 1994 was $56,929,000.
(3) EMPLOYEE BENEFIT PLANS
Pension 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. A Non-qualified Supplemental
Retirement Plan is not funded.
Total pension expense of continuing operations, including multiemployer and
union sponsored plans for 1993, 1992 and 1991 was $4,370,000, $3,868,000 and
$3,657,000, respectively. Net periodic pension cost for the Corporation-
sponsored qualified and supplemental plans was as follows:
Dollars in thousands
Qualified Plans Supplemental Plan
1993 1992 1991 1993 1992 1991
Service cost-benefits earned during the year $2,598 $2,284 $2,280 $119 $106 $ 97
Interest cost on projected benefit obligation 3,669 3,320 2,988 184 169 141
Actual return on plan assets, less unrecognized
gains of $2,671,000, $409,000,and $5,567,000
in 1993, 1992 and 1991, respectively (3,415) (3,100) (2,870) - - -
Net amortization (427) (427) (427) 54 53 40
------ ------ ------ ---- ---- ----
Net pension expense $2,425 $2,077 $1,971 $357 $328 $278
====== ====== ====== ==== ==== ====
Significant assumptions used for all periods in determining net pension
expense for the Corporation's plans are as follows:
Qualified Supplemental
Plans Plan
Discount rate 8.0% 8.0%
Expected rate of increase in compensation 5.0 5.0
Expected long-term rate of return on plan assets 8.5 -
All of the Corporation's plans, except the Supplemental Plan, have assets in
excess of the accumulated benefit obligation. Plan assets 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 7.5% and 8.0% for 1993
and 1992, respectively:
Dollars in thousands
Qualified Plans Supplemental Plan
1993 1992 1993 1992
Projected benefit obligation:
Vested benefits $(40,027) $(34,790) $(2,066) $ (1,934)
Non-vested benefits (4,596) (4,023) (193) (236)
-------- -------- ------- --------
Accumulated benefit obligation (44,623) (38,813) (2,259) (2,170)
Effect of projected future
compensation levels (10,173) (7,258) (347) (157)
-------- -------- ------- --------
(54,796) (46,071) (2,606) (2,327)
Plan assets at fair value 56,943 50,944 - -
-------- -------- ------- --------
Plan assets in excess of (less than)
projected benefit obligation 2,147 4,873 (2,606) (2,327)
Unrecognized net (gain) loss (1,744) (3,759) 632 545
Adjustment required to recognize minimum liability - - (473) (604)
Unrecognized net (asset) obligation being
amortized over 16 years (3,526) (3,953) 188 216
-------- -------- ------- --------
Accrued pension cost $ (3,123) $ (2,839) $(2,259) $ (2,170)
======== ======== ======= ========
Approximately 50% of the Corporation's non-salaried employees are covered by
multiemployer union sponsored, collectively bargained defined benefit pension
plans. Pension expense includes $1,588,000, $1,463,000 and $1,408,000 in
1993, 1992 and 1991, respectively, attributable to the multiemployer plans.
These costs are determined in accordance with the provisions of negotiated
labor contacts.
Postretirement Health Care Costs - The Corporation and its subsidiaries
provide non-contractual limited health care benefits for certain retired
employees. Through 1992 the cost of retiree health care benefits was
recognized as expense when claims were paid. Effective in 1993, the
Corporation established a new unfunded postretirement health care program
which covers most of its non-union employees. The new program provides for
defined initial contributions by the Corporation toward the cost of
postretirement health care 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.
Effective January 3, 1993, the Corporation adopted Statement of Financial
Accounting Standard No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions." In connection with the adoption of this
statement, the Corporation elected to amortize the accumulated postretirement
benefit obligation (transition obligation), aggregating $5,088,000 as of
January 3, 1993, over a 20-year period.
The following table sets forth the program's status at January 1, 1994:
Dollars in thousands
Accumulated postretirement benefit obligation:
Retirees $2,115
Other active plan participants 3,452
Fully eligible active plan participants 586
------
6,153
Unrecognized transition obligation (4,837)
Unrecognized net loss (415)
------
Accrued postretirement benefit cost $ 901
======
The net periodic postretirement benefit cost for 1993 included the following
components:
Dollars in thousands
Service cost - benefits earned during the year $ 385
Interest cost on accumulated postretirement benefit
obligation 400
Amortization of transition obligation 254
-------
Net periodic postretirement benefit cost $ 1,039
=======
The amounts charged to expense under the previous method of accounting for
postretirement health care were $243,000 and $174,000 in 1992 and 1991,
respectively.
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.5%. Due to the terms of the Corporation's postretirement
health care program, assumed health care cost rate trends do not affect the
Corporation's costs.
Other Benefits - The Corporation has established an Incentive Savings Plan
(401K) for substantially all of its non-bargained employees. Employee
contributions are partially matched by the Corporation in accordance with
criteria set forth in the plan. Matching contributions charged to earnings
for 1993, 1992 and 1991 were $1,311,000, $1,116,000 and $995,000,
respectively.
(4) 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.
(5) CAPITAL STOCK
In April 1993, the Corporation distributed a three-for-two stock split
effected in the form of a 50% stock dividend, following the action of the
shareholders increasing the authorized shares of common stock from 30,000,000
shares to 75,000,000 shares. The par value of the additional shares issued
was capitalized by a transfer of $662,000 from retained earnings to common
stock. All per share of common stock amounts and common stock data have been
restated in the consolidated financial statements and throughout the Annual
Report to reflect the stock split.
In connection with a 1988 acquisition, options to purchase 225,000 shares of
common stock were granted to a former owner and employees of the acquired
companies. These options became fully exercisable in 1990 at $11.33 per
share. Options were exercised for 9,975, 4,725 and 175,500 shares in 1993,
1992 and 1991, respectively. Options were canceled for 3,000 shares in 1991.
At January 1, 1994, there were no remaining options outstanding.
The Corporation has been authorized by the Board of Directors to purchase up
to 2,250,000 shares of outstanding common stock in the open market. As of
January 1, 1994, 11,250 shares of the Corporation's stock had been repurchased
and retired under this program.
Pursuant to the Shareholder Rights Plan, one common stock purchase right is
included with each outstanding share of common stock. When exercisable, each
right will entitle its holder to buy one-half of one share of the
Corporation's common stock at a price of $60 per share (equivalent to $30 per
one-half share), subject to adjustment. The rights will become exercisable if
a person or group acquires 20% or more of the Corporation's common stock or
announces a tender offer for 20% or more of the common stock. Upon the
occurrence of certain events, including a person, or group, acquiring 20% or
more of the Corporation's common stock, each right entitles the holder to
purchase, at the right's then-current exercise price, common stock of the
Corporation having a market value of twice such exercise price. The rights
may be redeemed by the Corporation at a price of one cent per right at any
time prior to the rights becoming exercisable or prior to their expiration in
November 2001.
(6) INCOME TAXES
The provision for federal and state income taxes consists of the following:
Dollars in thousands
1993 1992 1991
Current:
Federal $21,313 $18,405 $14,622
State 4,720 4,590 3,363
------- ------- -------
26,033 22,995 17,985
Tax impact of option exercises 1,188 888 550
Deferred 479 (1,083) (535)
------- ------- -------
Provision for income taxes $27,700 $22,800 $18,000
======= ======= =======
Below is a reconciliation of the statutory federal income tax rate and the
effective income tax rate:
1993 1992 1991
Statutory federal tax rate 35.0% 34.0% 34.0%
State and local income taxes,
less applicable federal tax benefit 4.5 5.2 4.7
Adjustment to deferred taxes resulting
from federal tax rate increase .3 - -
Other, net .5 (.2) .2
---- ---- ----
Effective income tax rate 40.3% 39.0% 38.9%
==== ==== ====
The components of the net deferred tax liability as of January 1, 1994 and
January 2, 1993 were as follows:
Dollars in thousands
1993 1992
Deferred tax liabilities:
Accelerated depreciation and capitalized interest $ 23,140 $ 23,187
Other 1,055 1,721
---------- ---------
Total deferred tax liabilities 24,195 24,908
---------- ---------
Deferred tax assets:
Accruals, not currently deductible for tax purposes (7,592) (8,270)
Pension accruals (2,048) (1,839)
Reserve for uncollectible accounts (1,237) (1,228)
Deferred compensation (1,831) (1,462)
Other (944) (2,282)
---------- ---------
Total deferred tax assets (13,652) (15,081)
---------- ---------
Net deferred tax liability $ 10,543 $ 9,827
========== =========
The net deferred tax liability is classified in the January 1, 1994, and
January 2, 1993 balance sheets as follows:
Dollars in thousands
1993 1992
Non-current deferred income taxes $ 18,257 $ 18,359
Current deferred income taxes (7,714) (8,532)
--------- ---------
Net deferred tax liability $ 10,543 $ 9,827
========= =========
(7) STOCK AND INCENTIVE PROGRAMS FOR MANAGEMENT EMPLOYEES
The Corporation has a Management Incentive Award Plan which provides for the
payment of cash awards or bonuses to officers and other key employees with
respect to any year in which the Corporation and its operating units achieve
specified objectives. Awards under the plan were $2,710,000 in 1993,
$2,280,000 in 1992 and $1,160,000 in 1991.
In January 1991, the Corporation's Compensation Committee approved a Long-term
Incentive Plan which provides for payment of cash awards to key officers and
executives of the Corporation upon achievement of specified objectives over
three-year performance periods. Awards under the plan were $530,000 for the
1991 to 1993 performance period.
At January 1, 1994, the Corporation had options outstanding or available for
grant under several stock option plans - the 1991 Stock Option Plan, the 1987
Incentive Stock Option Plan (1987 ISO Plan) and the 1987 Nonstatutory Stock
Option Plan (1987 NSO Plan). Options may no longer be granted under the 1987
plans. 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 grant. None of the options may be exercised
more than five years after the date of grant.
The 1987 ISO Plan provides for a $100,000 annual exercise limitation and the
1987 NSO Plan permits participants to use option shares for the purpose of
offsetting income tax liability incurred upon the exercise of nonstatutory
stock options. No options were granted under the 1987 ISO Plan. The terms of
the 1991 Plan allow for grants of either Incentive Stock Options or
Nonstatutory Stock Options and are similar to the separate 1987 Plans. The
1991 Plan includes provisions which authorize options to be granted to non-
employee Directors and which authorize option grants to contain "re-load"
provisions entitling an employee to a further option in the event the employee
exercises an option by surrendering previously acquired shares of the
Corporation's common stock. At January 1, 1994, no options containing re-load
provisions have been granted.
The following table summarizes activity under the stock plans:
OUTSTANDING
OPTIONS PRICE RANGE
December 29, 1990 989,400 11 3/8 - 18 1/2
Granted 287,400 16 5/8 - 20 1/8
Exercised (207,264) 11 3/8 - 15 7/8
Canceled or expired (44,175) 14 1/2 - 15 7/8
---------
December 28, 1991 1,025,361 11 3/8 - 20 1/8
Granted 306,300 22 1/2 - 24 7/8
Exercised (296,506) 11 3/8 - 20 1/8
Canceled or expired (26,700) 14 1/2 - 17
---------
January 2, 1993 1,008,455 14 1/2 - 24 7/8
Granted 223,250 27 3/8 - 35 1/8
Exercised (179,347) 14 1/2 - 24 7/8
Canceled or expired (3,038) 14 1/2 - 17
---------
January 1, 1994 1,049,320 14 1/2 - 35 1/8
=========
Of the options outstanding at January 1, 1994, 487,993 were exercisable at
prices ranging from $14 1/2 to $27 3/8. The balance of the options become
exercisable at various times through 1996 at prices ranging from $17 to
$35 1/8. At January 1, 1994, 447,438 shares of the Corporation's common stock
were reserved for future option grants.
During 1993, 1992 and 1991; 31,241, 53,157 and 39,282 shares, respectively,
were submitted to the Corporation in partial payment for stock option
exercises. These shares were canceled by the Corporation.
(8) 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 $3,199,000, $3,093,000 and
$2,943,000 in 1993, 1992 and 1991, respectively. Minimum rental commitments
for the years 1994 through 1998 aggregate $2,254,000, $1,771,000, $1,554,000,
$1,388,000 and $1,371,000, respectively, and $6,402,000 thereafter.
(9) NOTES PAYABLE
At January 1, 1994, the Corporation had lines of credit available totaling
$5,200,000, none of which were in use. Compensating balances approximating 2%
are required to support these lines. Compensating balances are not legally
restricted as to withdrawal. In addition, the Corporation has established
lines of credit aggregating $40,000,000 which support commercial paper
borrowings.
The Corporation had commercial paper aggregating $20,800,000 outstanding at
January 1, 1994. The weighted-average interest rate on borrowings outstanding
at January 1, 1994 was 3.43%. The average outstanding borrowings during 1993
and 1992 were $7,364,000 and $2,873,000, respectively. The weighted-average
interest rates on such borrowings during 1993 and 1992 were 3.32% and 4.33%,
respectively.
(10) DISCONTINUED OPERATIONS
During 1990, the Corporation announced its intention to sell its Banta
Ventures, Inc. (BVI) subsidiary and its net assets were written down to
estimated realizable value. BVI was primarily engaged in the video post-
production business. The accompanying financial statements reflect BVI as a
Discontinued Operation for all periods presented. During the third quarter of
1991, the Corporation revised its initial estimate of the realizable value of
BVI and recorded an additional $7,600,000 loss provision, net of applicable
income tax credits of $3,000,000.
During the second quarter of 1992, the Corporation completed the sale of the
majority of the video operations for consideration including $12,000,000 cash,
100,000 convertible preferred shares of the buyer, a $2,500,000 note and the
assumption of selected liabilities by the buyer. During the second quarter of
1993, the preferred shares were converted into common shares of the buyer
which were then sold in a secondary public offering resulting in net proceeds
to the Corporation of approximately $3,500,000. The remaining assets of BVI
are included in other assets and plant and equipment in the accompanying
balance sheets. The BVI operations remaining after the second quarter of 1992
are not material.
Net sales of BVI were and $44,912,000 for 1991. The net loss of BVI for 1991
was $1,927,000; which includes income tax credits of $1,000,000. Interest
expense totalling $2,920,000 was allocated to BVI in 1991. Losses since the
intent to dispose was announced have been applied to the reserves provided
therefore.
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 January 1, 1994
and January 2, 1993, and the related consolidated statements of earnings,
shareholders' investment and cash flows for each of the fiscal years in the
three-year period ended January 1, 1994. 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 generally accepted auditing
standards. 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 January 1, 1994 and January 2, 1993, and the results of
their operations and their cash flows for each of the fiscal years in the
three-year priod ended January 1, 1994, in conformity with generally accepted
accounting principles.
Arthur Andersen & Co.
Milwaukee, Wisconsin,
January 31, 1994.
UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following table presents financial information by quarter for the years
1993 and 1992.
Dollars in thousands (except per share data)
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
March June September December
1993 1992 1993 1992 1993 1992 1993 1992
Net sales $162,027 $152,530 $165,928 $151,785 $184,379 $166,158 $178,910 $166,943
Gross earnings 36,207 33,481 40,567 35,561 42,650 39,727 41,074 37,561
Net earnings 8,272 7,293 10,478 8,604 11,564 10,690 10,678 9,075
Net earnings per
share of common stock .41 .37 .52 .43 .57 .54 .53 .45
All periods shown consist of 13 weeks except the quarter ended December 1992,
which includes 14 weeks.
Per share amounts have been adjusted for the three-for-two stock split
distributed in April 1993.
DIVIDEND RECORD AND MARKET PRICES
Per Share of Common Stock
First Second Third Fourth Entire
Quarter Quarter Quarter Quarter Year
1993 dividends paid $ .11 $ .12 $ .12 $ .12 $ .47
Price range:
High 31 3/8 32 1/4 34 37 37
Low 26 5/8 26 5/8 29 1/4 31 1/2 26 5/8
1992 dividends paid .10 .10 .10 .11 .41
Price range:
High 23 1/8 25 5/8 25 1/2 27 5/8 27 5/8
Low 18 5/8 21 1/8 22 7/8 24 18 5/8
Banta Corporation is included in the NASDAQ National Market List and the
symbol is BNTA. The stock prices listed above are the high and low trades.
Per share amounts have been adjusted for the three-for-two stock split
distributed in April 1993.