By Trevor Shackelford February 7, 2006 – Banta Corporation (NYSE: BN) announced their fourth quarter and fiscal 2005 results last week. Total revenue from continuing operations for Banta's fourth quarter was $410 million, 9% higher than the $376 million reported for the fourth quarter of 2004. Earnings from continuing operations for the quarter was $23.3 million, 32% higher than the $17.6 million reported for the fourth quarter of 2004. Diluted earnings per share from continuing operations were $0.95 per share, excluding a tax repatriation expense of $4.4 million, or $0.18 per share. This is up 36% from the fourth quarter of 2004. For the fiscal 2005, total revenue from continuing operations was $1.54 billion, 9% higher than the $1.42 billion reported for the fiscal 2004. Earnings from continuing operations for the fiscal 2005 were $72.7 million, 18% higher than the $61.5 million reported for the fiscal 2004. Diluted earnings per share from continuing operations for the fiscal 2005, excluding the tax expenses of $4.4 million incurred in the fourth quarter, were $2.93, 22% higher than the $2.41 reported for the fiscal 2004. Results from continuing operations exclude the contributions of Banta’s healthcare products business, which was sold effective April 12, 2005. Contents of this Summary * Quarter Highlights * Segment Performance * Guidance * Raine Radar * Q & A Quarter Highlights • For the fiscal 2005, gross profit increased 12% to $343 million; operating income increased 7% to $105 million. • SG&A expenses for the fiscal 2005 were $238 million, or 15.4% of total revenue, compared to $208 million, or 14.6% of total revenue reported in 2004. • Q4 operating earnings were $32.9 million, or 8% of revenue, compared to $27.8 million, or 7.4% of revenue reported in Q4 2004. For the full year, operating earnings were $105.1 million, or 6.8% of revenue, compared to $98.5 million, or 6.9% of revenue reported in the fiscal 2004. • In the fourth quarter, net interest expenses declined by $300,000 compared to the Q4 2004. For the full year net interest expenses declined by $1.9 million. • The company ended the year with $149 million cash balance, up $20 million from last year. • During 2005, the company repurchased approximately 458,500 shares of its stock at an average price of $44.96 per share, totaling $65.6 million. • At the end of fiscal 2005, debt-capital ratio was 13.8%, compared to 14% at the end of 2004. • Capital expenditure for the full year 2005 was $45 million and for the fourth quarter $13.4 million. • Depreciation expense for the full year 2005 was $55 million. Segment Performance Printing Services Segment Q4 revenues for the segment were $300 million, up 12% from $269 million reported for the same period in 2004. Higher paper prices contributed approximately 30% of the increase. Operating earnings increased 21% to $27 million, benefiting from improved facility utilization and productivity initiatives such as equipment rebuilds. For the full year, revenue increased 10% to $1.1 billion, while operating earnings increased approximately 10% to $86.6 million. The book division’s revenue increased 7% over the same period last year and operating earnings increased 13%. For the full year, book division revenue increased 7%, while operating earnings increased 8%. During 2005, the division’s educational revenue grew 17%, reflecting a strong year for textbook adoptions. In addition, major capital investments in the first half of the year, including the acquisition of a new press and the rebuild of another press, increased capacity and improved productivity. During the quarter, the direct marketing division’s revenue increased 2%, while operating earnings increased 16%. For the full year, revenue increased 7% and operating income increased 42%. Throughout 2005, the division benefited from a significantly improved product mix, as the division continued to shift its work mix to more complex and personalized direct mail products. The consumer catalog division’s revenue during the quarter was essentially flat from last year. However, operating earnings declined due to higher operating costs, equipment scheduling issues, and pricing pressures. For the full year, the catalog division’s revenue increased 13% and operating earnings increased 53% compared with 2004. Market share gains, improved production quality, and productivity improvements throughout the year combined to drive 2005’s results. Banta’s publication division reported an 11% revenue increase in the fourth quarter, with 35% of the increase stemming from higher paper prices. Operating earnings for the quarter declined 4%. Revenue for the full year increased 12% and operating earnings declined 6%. Banta’s literature management group nearly doubled fourth quarter revenue compared with the same period in 2004, while operating earnings increased dramatically. For the full year, revenue increased 28% and operating earnings, affected by additional expenses related to establishing the division’s new infrastructure, increased 9%. Supply-Chain Management Service Segment Fourth quarter revenue for the segment increased 3% to $111 million, while operating earnings grew 11% to $14.1 million. Full year revenue and operating earnings both increased 4% to $429 million and $48.7 million, respectively. Operating margins remained strong throughout the year, supported by a continuing favorable product mix, successful productivity improvement efforts, and aggressive cost controls. Revenue from new-business development during the year did not meet expectations. Guidance Banta management believes that revenue will be in the range of $1.6 billion to $1.65 billion. Diluted earnings per share for 2006 are expected to be in the range of $3.00 to $3.15, which includes the expected annual cost of $0.17 per diluted share for expensing stock options. Estimated effective tax rate for the fiscal 2006 is 30%. Total capital expenditure for 2006 expected to be $90 million. Depreciation expenses for the fiscal 2006 expected to be approximately $55 to $60 million. Raine Radar Banta continues to perform well. Strong growth in the education sector from textbook adoptions as well as organic growth in its key verticals drove the continued gains in revenue, while a continued focus on operational efficiency has paid off on the bottom line. Earnings for the quarter were in line with analyst expectations. Growth in the direct marketing group was probably slower than management would have anticipated, but it looks like they have done well in bringing their existing clients into more complex and profitable offerings. All in all, Banta posted a very solid end to 2005. Q & A 1. Banta said that in the supply chain business, it has been winning business in the medical devices and technology verticals. 2. The company showed some interest in using its available cash for acquisitions, among other possible strategies. 3. Working capital as a percentage of revenue was 22% at the end of 2005 up just one percent from the end of 2004. However, receivables were grew a little bit more than the company anticipated. Most of that growth in receivables was offset by inventory reduction. 4. In the company’s publication business, the employee training benefit programs did not show the expected improvements to productivity. 5. Sales to the education market were up about 17% this year. Banta expects that it will be flat in 2006 with a slight rebound in 2007. 6. The company expects that paper prices will be flat to down 5% this year over the full year. 7. The company had 6.2% operating margin in the first half and 9% margin in the second half of 2005. 8. For the year 2006, Banta expects the print sector margins to be flat. 9. The company’s cost of capital was 10%. The company said that it was comfortable with a debt to capital ratio in the range of 40% to 50%. 10. The company said that share buyback is an alternative to an investment in acquisition. The company is currently examining its acquisitions strategy. 11. The price for acquisitions will not be always an EBITDA multiple. It is sometimes based on present value, what the synergies are, what synergies the company wants to keep, and what the company wants to pay the seller for synergies.