# Managements
Discussion & Analysis

# Overview

Banta Corporation (the Corporation)
operates in three business segments, printing services, supply-chain management services
and healthcare products. The Corporations printing services segment provides a
comprehensive combination of printing and digital imaging solutions to leading publishers
and direct marketers. Products and services in this segment include books, catalogs,
publications, product brochures, literature management services, educational materials and
e-business services. The Corporations global supply-chain management services
segment provides a wide range of outsourcing capabilities, primarily to some of the
worlds largest technology companies. Services in this segment range from materials
sourcing, product configuration and customized kitting, to order fulfillment and global
distribution. The Corporations healthcare segment whose sale was announced February
14, 2005, produces and sources disposable products used in outpatient clinics, dental
offices and hospitals.

Results for 2004 included the
following:

| | Revenue
up 7% over the prior year, with increases in all segments.
|- | ------------------------------------------------------------------

| | Record
levels of net earnings and diluted earnings per share.
|- | -------------------------------------------------------------

| | Improved
profitability in the printing services segment, particularly in the catalog and direct
marketing operating units.
|- | --------------------------------------------------------------------------------------------------------------------------

| | Continued
excellent performance in the supply-chain management services segment.
|- | --------------------------------------------------------------------------------

| | A
difficult year for the healthcare products segment, with revenue slightly higher than in
2003 and operating earnings down based primarily on higher raw material costs.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Revenue for 2004 was $1.52 billion, a
7% increase from prior-year revenue of $1.42 billion. Operating earnings in 2004 increased
by 34% over the prior year, which included special charges of $21.6 million. The
Corporations net earnings were $68.0 million for 2004, 46% higher than the $46.6
million reported in 2003. Diluted earnings per share were $2.67 in 2004 compared with
$1.81 in the prior year.

The printing services segment
accounted for approximately 66% of the Corporations total revenue in 2004. The key
factors monitored by management in this segment include:

| | Economic
conditions in the United States, particularly advertising and promotional spending.
Advertising and promotional spending directly impacts three of the four operating units
in this segment: direct marketing, publications and catalogs. Key indicators in this area
include capital spending by businesses, general advertising spending and advertising
pages printed, which are tracked by several publishing organizations. Improving economic
conditions in 2004, leading to increases in advertising spending and advertising pages
printed, contributed to revenue growth in the printing services segment of 5% over the
prior year and significantly improved profitability.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
impact of internal initiatives to improve profitability, including the results of the
prior-year restructuring activity. In 2005, management expects to focus on a number of
initiatives, primarily plant productivity and raw material utilization.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
level of educational spending in the United States, which directly impacts the book
operating unit. Educational spending is dependent on both the general level of budgetary
appropriations for educational materials by state and local governments, and the rate of
adoption of new materials. Educational spending and adoptions were flat in 2004 compared
with 2003. This was reflected in a slower revenue growth rate in the book operating unit
than in the printing services segment as a whole. Both spending and adoptions are
expected to increase in 2005.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Trends
in outsourcing non-core activities by the Corporations existing or potential
customers, which impact revenue in the Corporations literature management programs.
Increased outsourcing activity has resulted in higher revenue for the Corporations
literature management programs in recent years.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Trends
in foreign sourcing of printed materials. To date, these trends have not had a
significant impact on revenue.
|- | --------------------------------------------------------------------------------------------------------------------

---

| | Paper
pricing, which has had a significant impact on the printing services segment in prior
years. Paper prices are influenced by world pulp prices, capacity utilization in the
worldwide paper industry and the value of the dollar in comparison to other currencies.
Paper prices increased by an average of 4% in 2004 and decreased by 2% in 2003. The cost
of paper, when supplied by the Corporation, is passed through to the customer. As a
result, increased paper prices in 2004 had a modest positive impact on revenues,
estimated to be approximately one-third of the 5% increase in revenue. The Corporation
made strategic decisions to buy paper for certain customers in advance of several paper
price increases during 2004, including near the end of the fourth quarter, resulting in
higher raw materials inventory at year-end.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The supply-chain management services
segment accounted for approximately 27% of the Corporations revenue in 2004. The key
factors monitored by management in this segment include:

| | The
performance of the segments significant customers. These customers primarily sell
computer hardware, consumer software, and communications and networking equipment. The
Corporation provides a customized service to each customer and makes significant
commitments in technology and location of facilities. Performance by these customers, and
the continuation of these relationships, has a significant impact on this segment.
Continued strong performance by these customers in 2004 was reflected in the increased
revenue in this segment.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
general level of spending within the economy on technology, and the mix of that spending.
Spending in this sector of the economy continued to increase during 2004, and was
reflected in the increased revenue in this segment.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Trends
in outsourcing non-core activities by the Corporations existing or potential
customers. Increased outsourcing activity resulted in higher revenue in this segment in
recent years.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Component
material prices, since customer demand for improved pricing may be partially satisfied by
reducing the costs of materials acquired for inclusion in finished products.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The healthcare segment accounted for
approximately 7% of the Corporations revenue in 2004. The key factors monitored by
management in this segment include revenue growth of major healthcare products
distributors, raw material prices and the general trend in healthcare spending.

# Revenue

2004 compared with 2003

Printing services segment revenue of
$1.01 billion for 2004 was $50 million, or 5%, higher than the prior-year total of $959
million. The increase in revenue was the result of the paper price increases discussed
above as well as revenue increases of 20% in the direct marketing operating unit and 8% in
the publications operating unit.

Revenue for the printing services
segment operating units in 2004 and 2003, as a percent of total printing services segment
revenue, was as follows:

|                
|----------------
|2004            
|Book            
|                
|Catalog         
|                
|Direct Marketing
|                
|Publications    
|                
|Other           
|                
|                
|                

---

Book operating unit revenue for 2004
was approximately 4% higher than the prior year due primarily to increased revenue in
literature management services. Catalog operating unit revenue decreased by 10% in 2004.
Approximately 45% of the decrease was related to revenue that was transferred to other
Banta plants as a result of the 2003 restructuring activity. The remaining decrease was
due to lost capacity following the closure of one of the two facilities in this operating
unit during the 2003 restructuring activity. Revenue for the direct marketing operating
unit was approximately 20% above the level of the prior year due to increased sales in
advertising and promotional material, particularly related to increased volume of printed
direct mail, and increased sales of in-line, custom personalized marketing materials that
are printed in this operating unit. In the publications operating unit, revenue increased
by 8% primarily as a result of the Corporation increasing its market share within the
magazine printing market. Despite the competitive operating environment and a high
incidence of magazine title attrition within the magazine printing market, this operating
unit increased the number of magazines it prints by approximately 220 titles in 2004.

Supply-chain management services
segment revenue was $412 million in 2004, an increase of 15% from 2003. Of this increase,
$22 million resulted from favorable changes in foreign currency exchange rates. The
remaining increase was the result of continued strong levels of consumer spending on
technology and increased outsourcing of non-core activities. Both factors drove the
significant increase in demand for products and services by the Corporations major
technology customers.

The Corporation has a contract with
Hewlett-Packard Company that runs through 2005, subject to one-year extensions pursuant to
an evergreen provision. Pursuant to this evergreen clause, the contract has been extended
through 2005. Revenue from Hewlett-Packard Company under this agreement totaled
approximately $134 million in 2004 and $133 million in 2003. The loss of this contract
could have a material adverse impact on the Corporations financial results.

Healthcare segment revenue for 2004
of $101 million increased by 1% compared with 2003 results.

2003 compared with 2002

Printing services segment revenue of
$959 million for 2003 was $18 million, or 2%, lower than the prior-year total of $977
million. The decrease in printing services segment revenue was related to economic trends
in the printing industry, including reduced educational spending, and lower advertising
and promotional spending. Several of the Corporations major print customers chose to
supply their own paper in 2003, which further reduced revenue since the cost of paper,
when supplied by the Corporation, is passed through to the customer. In addition, printing
services segment revenue continued to be impacted by a very competitive pricing climate
resulting from excess capacity in the industry.

Revenue for the printing services
segment operating units in 2003 and 2002, as a percent of total printing services segment
revenue, was as follows:

|                
|----------------
|2003            
|Book            
|                
|Catalog         
|                
|Direct Marketing
|                
|Publications    
|                
|Other           
|                
|                
|                

Book operating unit revenue for 2003
was approximately 2% lower than the prior year due to a few major customers who supplied
their own paper and lower educational spending. The direct sourcing of paper by customers
accounted for approximately 65% of the decrease in net revenue from 2002 to 2003. The
remaining decrease was the result of delayed spending on educational materials because of
reduced state budget appropriations, and fewer adoptions of new educational materials.

---

Catalog operating unit revenue
decreased by 6% in 2003. Approximately 45% of the decrease was related to sales that were
transferred to other Banta plants as a result of the restructuring activity in 2003. The
remaining decrease was due to lost capacity following the closure of one of the two
facilities in this operating unit during the 2003 restructuring activity. Sales of direct
marketing materials were approximately 4% below the levels of the prior year due to
reduced advertising and promotional spending and very competitive pricing in the
commercial print market. In the publications operating unit, revenue increased by 9%,
primarily result of increased market share. Despite the competitive operating environment
and the high incidence of magazine title attrition within the magazine market, the
Corporation in 2003 increased the number of magazines it prints to over 925 titles.

Supply-chain management services
segment revenue was $359 million in 2003, an increase of 23% from 2002. Of this increase,
$19 million was related to the increased value of local currencies in comparison to the
dollar. The remaining increase was the result of a recovery in technology spending in 2003
and increased outsourcing of non-core activities, which drove the significant increase in
demand for products and services by the Corporations major technology customers.

Healthcare segment revenue for 2003
of $100 million was 4% above the prior year, primarily as a result of increased sales to
several large distributors of healthcare products.

# Earnings from Operations

2004 compared with 2003

Earnings from operations for 2004
were $109.1 million, an increase of 34% compared with the prior year. Of this increase,
80% was a result of the Corporation having no special charges in 2004. Special charges,
which are discussed in more detail below, were $21.6 million in 2003. Gross margin on a
corporatewide basis decreased to 21.3% in 2004 from 21.5% in 2003 as a result of decreased
gross margin in 2004 in both the supply-chain management services and healthcare segments.
Gross margin for the printing services segment improved in 2004 compared with the prior
year. Explanations for changes in gross margin are described below in the discussion of
earnings from operations.

Printing services segment earnings
from operations for 2004 were $79.1 million, 45% higher than the prior years $54.7
million. Operating margin for the printing services segment was 7.8% for 2004 compared
with 5.7% during 2003. Restructuring charges of $12 million were included in the 2003
results. Excluding the impact of the special charges, the increase in 2004 printing
services segment operating earnings was primarily the result of improved results in the
catalog and direct marketing operating units. The operating earnings for the catalog
operating unit increased significantly in 2004, primarily as the result of the
restructuring activity in 2003. Operating earnings also increased for the direct marketing
operating unit, primarily due to increased demand and pricing for in-line, custom
personalized marketing materials.

Earnings from operations for the
supply-chain management services segment increased to $46.7 million in 2004 from $35.8
million in 2003, and operating margin increased to 11.3% compared with 10.0% in the prior
year. Earnings from operations were reduced during 2003 by special charges totaling $9.6
million. The absence of these charges in 2004 contributed 2.6 percentage points of
improvement in operating margin. This improvement was partially offset by a lower
proportion of value-added content in the product mix and continued pricing pressure from
existing and new customers.

Healthcare earnings from operations
for 2004 were $10.6 million compared with the prior years $12.1 million. Operating
margin for 2004 was 10.5% compared with 12.0% for 2003. The reduction in operating margin
was primarily the result of significant increases in raw material prices for paper, tissue
and resin in 2004.

2003 compared with 2002

Earnings from operations for 2003
were $81.6 million, equal to the prior year. Special charges, which are discussed in more
detail below, were $21.6 million in 2003 and $26.8 million in 2002. Gross margin on a
corporatewide basis decreased from 22.2% in 2002 to 21.5% in 2003, due to increased
pricing pressure throughout the printing services segment and additional costs incurred in
the catalog operating unit during the restructuring activities. Both the supply-chain
management services and healthcare segments had improved earnings from operations in 2003
compared with 2002, while the printing services segment earnings were below the prior
year.

---

Printing services segment earnings
from operations for 2003 were $54.7 million, 24% lower than the prior years $72
million. Operating margin for the segment was 5.7% for 2003 compared with 7.4% during
2002. Special charges were recorded in both years, $12 million in restructuring charges in
2003 and $16 million in non-cash impairment charges in 2002. Excluding the impact of the
special charges, the reduction in 2003 printing services segment earnings was primarily
the result of reduced operating earnings from the catalog operating unit, which were
negatively impacted by the costs of relocating existing equipment and placing new
equipment in service during the restructuring activity in 2003. This unit had reduced
operating earnings compared to the prior year of $14 million. The remaining $7 million
decrease was the result of continued pricing pressures throughout the printing services
segment, particularly in the direct marketing operating unit.

Earnings from operations for the
supply-chain management services segment increased to $35.8 million in 2003 compared with
$27.8 million in 2002 and operating margin increased to 10.0% compared with 9.5% in the
prior year. This improvement in operating margin was primarily due to a higher proportion
of value-added content in the product mix. Earnings from operations were reduced during
2003 by special charges totaling $9.6 million.

Healthcare earnings from operations
for 2003 were $12.1 million compared with the prior years $10.3 million. Operating
margin for 2003 was 12.0% compared with 10.6% for 2002. Improvements in operating margin
were the result of improved productivity and cost-containment initiatives.

# Fiscal 2003 and 2002
Special Charges

During 2003, the Corporation
announced and completed a restructuring involving its consumer catalog business and a
realignment of operating activities within its printing services and supply-chain
management services segments. Charges incurred in the restructuring totaled $17.0 million.
The objective of the plan was to consolidate certain operations, leverage existing
capacity, improve efficiencies and reduce costs. The components of the restructuring
expenses were as follows: employees severance and benefits, $9.3 million; facility
costs, including lease terminations, $2.8 million; and reduction in the carrying value of
impaired assets and other, $4.9 million. Approximately $12.0 million of the restructuring
charges related to the printing services segment and the remaining $5.0 million related to
the supply-chain management services segment.

During 2003, the Corporation settled
a lawsuit with Singapore-based Mentor Media, Ltd. (Mentor) relating to its proposed
acquisition of Mentor. The Corporation recorded a charge of $4.6 million in the second
quarter of 2003 in connection with the settlement.

The Corporation recorded a non-cash
impairment charge of $26.8 million during the fourth quarter of 2002. The impairment
charge included a $9.8 million reduction in the carrying value of the Corporations
digital content management software product, based on an analysis of future cash flow
projections for the product. The charge also included a $7.4 million impairment of an
investment in a Mexican joint venture; a reduction of $2.2 million of goodwill associated
with a past acquisition; a $3.9 million reduction in the carrying value of assets
held-for-sale in the printing services segment; and updated assessments of other
long-lived assets.

# Geographic Analysis of
Revenue and Earnings from Operations

Revenue and earnings from operations
(excluding unallocated corporate expenses) by geographic area for 2004 and 2003 are
presented below. Virtually all revenue for the printing services and healthcare segments
was from customers in the United States. Revenue in the supply-chain management services
segment was from customers in the United States, Europe and Asia.

---

|Dollars in thousands     | 2004        | 2003        
|------------------------ | ----------- | ------------
|Revenue                  |             |             
|United States            | $1,200,897  | $1,146,900  
|Non-United States        | 322,355     | 271,597     
|Total                    | $1,523,252  | $1,418,497  
|Earnings from operations
|United States            | $   104,504 | $     82,842
|Non-United States        | 31,858      | 19,772      
|Total                    | $   136,362 | $   102,614 

Revenue in the United States
increased by 5% in 2004 from the prior year. This increase was consistent with the
increase in revenue in the printing services segment, which constituted the majority of
the Corporations revenue in the United States. Non-United States revenue increased
by 19% in 2004 from 2003 levels. Virtually all non-United States revenue was in the
supply-chain management services segment and the increase in revenue was consistent with
the strong growth in new customers in these locations.

Earnings from operations in the
United States increased by 26% in 2004 compared with the prior year. The improvements were
the result of factors described above impacting the printing services segment, primarily
the absence of special charges in 2004 and improved earnings for the catalog and direct
marketing operating units. Non-United States earnings from operations increased by 61% in
2004, compared with the prior year, due primarily to the absence of special charges in
2004 and changes in mix and pricing described above. In addition, increases in earnings
from operations in non-United States locations were the result of demand by new customers
in these geographical markets.

# Interest Expense and
Other Expense

Interest expense of $6.2 million in
2004 was $2.2 million lower than the prior-year interest expense of $8.4 million. Total
debt at January 1, 2005, of $87.9 million was 21% less than the $111.8 million of debt at
the end of the prior year. The reduction in interest expense was the result of scheduled
repayments of long-term debt. In addition, the Corporation capitalized approximately $1.3
million of interest in connection with major ongoing capital projects during 2004.
Capitalized interest was $800,000 for 2003 and $170,000 for 2002.

Interest expense of $8.4 million in
2003 was $2.9 million lower than the prior-year interest expense of $11.3 million.
Interest expense continued to decline as the Corporation made its scheduled long-term debt
payments.

Other income for 2004 was
approximately $1.5 million higher than 2003 based on the gain recognized from the sale of
assets and two facilities that were idled. Other income for 2003 was approximately
$500,000 lower than 2002 due to higher losses on foreign currency transactions, offset
primarily by an increased gain from the sale of assets.

# Provision for Income
Taxes

Effective income tax rates were
35.5%, 37.4% and 39.0% in 2004, 2003 and 2002, respectively. The continuing reductions in
the effective tax rates were due to a greater mix of earnings generated by the
supply-chain management services segment, which has extensive operations in countries
whose tax rates are more favorable than the rates in the United States.

# Net Earnings

The Corporations net earnings
were $68.0 million in 2004, 46% higher than the $46.6 million in 2003. Diluted earnings
per share were $2.67 in 2004 compared with $1.81 in 2003. The increase in net earnings
reflected the absence of special charges and the increased profitability of both the
printing services segment and the supply-chain management services segment. Approximately
9% of the increase in diluted earnings per share in 2004 is the result of the share
repurchase, which is described in more detail below.

---

The Corporations net earnings
were $46.6 million for 2003, 6% higher than the $43.8 million in 2002. Diluted earnings
per share were $1.81 in 2003 compared with $1.71 the prior year. The increase in net
earnings reflected the increased profitability of the supply-chain management services and
healthcare segments, and lower special charges compared with the prior year. These
improvements were partially offset by reduced earnings in the printing services segment.

# Liquidity and Capital
Resources

On January 1, 2005, the Corporation
had cash and cash equivalents of $133 million. Management believes the Corporations
liquidity continues to be strong and the current level of leverage will allow the
Corporation to finance its capital expenditures and any other investment opportunities that
may arise in the foreseeable future.

The Corporation did not incur any
long-term borrowings in 2004 or 2003. Of the $87.9 million of total debt at the end of
2004, $25.6 million matures in 2005 with the remaining balance maturing at varying
intervals through 2015. The Corporation has historically raised short-term funds by
selling commercial paper. Such borrowings are supported by a credit facility with three
banks, which provide a total borrowing capacity of $80 million. During the fourth quarter
of 2004, the Corporation had a maximum of $10 million outstanding under this short-term
credit facility, all of which was repaid prior to January 1, 2005. There were no
short-term borrowings during 2003 under this facility.

During 2004, working capital remained
flat compared with the prior year. Increases in accounts receivable and inventories during
2004 were offset by reduced cash balances. Accounts receivable increased at year-end as
the result of strong sales in the fourth quarter of 2004, particularly in December 2004.
Inventories increased as the result of higher work-in-process inventories and the
strategic pre-buying of paper in advance of announced paper price increases. Cash
decreased by approximately $48 million, $44 million of which was used to repurchase shares
of the Corporations stock as described in Note 7 to the Consolidated Financial
Statements.

On March 19, 2004, the Corporation
announced that it had entered into an Accelerated Share Repurchase (ASR)
agreement whereby 1,000,000 shares of the Corporations common stock were repurchased
at an initial price of $43.69 per share. The ASR required the counterparty to acquire the
shares in the open market over a fixed period of time. On July 27, 2004, the Corporation
paid $663,000 to settle the ASR. The final settlement amount was based on the
volume-weighted average price of $44.35 per share for actual repurchases made by the
counterparty.

During 2003, no shares of the
Corporations common stock were repurchased. During 2002, the Corporation repurchased
112,000 shares of its common stock at an aggregate price of $3.4 million. In February
2005, the Board of Directors approved a $150 million share repurchase program, which
replaces the Corporations previous program. The Corporation may continue its
repurchase of shares in the future pursuant to this authorization if market conditions
warrant. Any future stock repurchases are expected to be funded by a combination of
existing cash, cash provided from operations and short-term borrowings.

The Corporations capital
expenditures were $65 million in 2004 compared with $71 million in 2003. 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. Preliminary plans for 2005 are for capital expenditures of approximately $70
million. Capital expenditures are expected to be funded by existing cash, cash provided
from operations and short-term borrowings.

At January 1, 2005, the Corporation
had the following contractual obligations. These obligations are discussed in more detail
in Notes 5 and 9 to the Consolidated Financial Statements. The Corporation has no
off-balance sheet arrangements.

---

|                                              
|----------------------------------------------
|Payments Due by Period                        
|Contractual Obligations (dollars
in thousands)
|Long-Term Debt                                
|                                              
|Interest on Long-Term Debt                    
|                                              
|Operating Lease Obligations                   
|                                              
|Total Contractual Obligations                 
|                                              

# Litigation

In the ordinary course of its
business, the Corporation is involved in litigation matters. Based on the
Corporations assessment of these matters and on the existing accruals provided for
them, the Corporation does not believe that any of these matters, either individually or
in the aggregate, will have a material adverse effect on its results of operations, cash
flows or financial condition.

# Outlook

With a continued favorable economic
climate, expectations on a consolidated basis for the full-year 2005 are for revenue in
the range of $1.5 billion to $1.55 billion. Diluted earnings per share from continuing
operations, including the effect of a continued reduction in the Corporations
effective income tax rate to 32% and a planned share repurchase, are expected to be in the
range of $2.80 to $2.95. This estimate excludes the tax impact of any repatriation of
foreign earnings and the effects of expensing stock options required under Statement of
Financial Accounting Standards (SFAS) No. 123 (R), Share Based Payment.

# Critical Accounting
Policies

The Corporations accounting
policies are described in Note 1 to the Consolidated Financial Statements. The preparation
of financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions about future events
that affect the amounts reported in the financial statements and footnotes. Future events
and their effects cannot be determined with absolute certainty. Therefore, the
determination of estimates requires the exercise of judgment. Actual results inevitably
will differ from those estimates, and such differences may be material to the financial
statements.

The most significant accounting
estimates inherent in the preparation of the Corporations consolidated financial
statements include estimates as to the recovery of receivables and the realization of
inventories, plant and equipment, and goodwill. Significant assumptions are also used in
the determination of liabilities related to pension and post-retirement benefits,
obligations for lease terminations, income taxes and environmental matters. The process of
determining significant estimates is fact specific and takes into account factors such as
historical experience, current and expected economic conditions, product mix and, in some
cases, actuarial assumptions. The Corporation re-evaluates these significant factors as
facts and circumstances dictate. Historically, actual results have not differed
significantly from those determined using the estimates described above.

The Corporation believes the
following critical accounting policies affect its more significant judgments and estimates
used in the preparation of its consolidated financial statements:

| | Revenue
Recognition. Revenue is recognized, net of estimated discounts, allowances and
returns, when title and risk of loss transfers to the customer and the earnings process
is complete. The Securities and Exchange Commissions Staff Accounting Bulletin
(SAB) No. 104, Revenue Recognition, provides guidance on the application of
accounting principles generally accepted in the United States to selected revenue
recognition issues. In addition, revenue in the supply-chain management services segment
is recognized in accordance with Emerging Issues Task Force (EITF) Issue No. 99-19, Reporting
Revenue Gross as a Principal versus Net as an Agent. Each major contract is
evaluated based on various criteria, with management judgment required to assess the
importance of each criterion in reaching the final decision. In general, revenue is
recognized on a gross basis if the Corporation has the risks and rewards of ownership,
latitude in establishing component vendors and pricing, and bears all credit risk.
Revenue from contracts that do not meet these criteria is recognized on a net basis,
recording only the portion that is related to services or products provided directly by
the Corporation.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| | Goodwill.
 The Corporation adopted SFAS No. 142, "Goodwill and Other Intangible Assets," effective
December 30, 2001.  Under      SFAS No. 142, goodwill is no longer amortized, but is
reviewed for impairment on an annual basis.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Corporation completed the annual impairment tests in the fourth quarter of each of 2004,
2003 and 2002. This analysis was based on the comparison of the fair value of its
reporting units to the carrying value of the net assets of the respective reporting units.
The Corporation concluded that no impairment of goodwill existed at the time of the annual
impairment tests in 2004 and 2003. During 2002, the Corporation determined that goodwill
for one of its reporting units was impaired and, accordingly, the Corporation recognized a
goodwill impairment charge in the fourth quarter of 2002 of $2.2 million.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Retirement
benefits. The Corporation has significant pension and postretirement benefit costs
that are developed from actuarial valuations. The valuations reflect key assumptions
regarding, among other things, discount rates, expected return on plan assets, retirement
ages and years of service. Consideration is given to current market conditions, including
changes in interest rates and investment returns, in making these assumptions. Changes in
these assumptions will affect the amount of pension and postretirement expense recognized
in future periods. Changes in the following key assumptions would impact the funded
status and cost of the pension and postretirement plans as described below (dollars in
thousands):
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                
|------------------------------------------------
|Discount rate change of +/- 50 basis points     
|                                                
|Increase (decrease) net periodic benefit cost   
|                                                
|Increase (decrease) funded status at end of year
|                                                

| | The
Corporation recognized pension and postretirement benefit expense of $7.1 million, $7.2
million and $3.5 million in 2004, 2003 and 2002, respectively. As of January 1, 2005, the
Corporations pension plans had accumulated benefit obligations of $181.5 million
compared with plan assets of $147.5 million. The Corporation elected to contribute
approximately $10 million to the qualified pension plan in 2004 and $9.9 million in 2003
to maintain the funded status of the plan at a level comparable to recent years.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Asset
Impairments.Impairments of long-lived assets are accounted for under SFAS No. 144
Accounting for the Impairment or Disposal of Long-Lived Assets.Long-lived
assets are tested for recoverability whenever events or changes in circumstances indicate
that the carrying value of the asset may not be recoverable. Asset impairment charges
were recognized in both 2003 and 2002, as described in Note 11 and 12 to the Consolidated
Financial Statements. No asset impairment charges were recognized in 2004.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Income
taxes.The Corporations annual tax rate is determined based on income,
statutory tax rates and the tax impacts of items treated differently for tax purposes
than for financial reporting purposes. Tax law requires some items to be included in the
tax return at different times than the items reflected in the financial statements. As a
result, the annual tax rate in the financial statements is different than the rate
reported on the Corporations tax return. Some of these differences are permanent,
such as expenses that are not deductible in the tax return and some differences are
temporary, reversing over time, such as depreciation expense. These temporary differences
create deferred tax assets and liabilities.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| | Inherent
in determining the annual tax rate are judgments regarding business plans, planning
opportunities and expectations about future outcomes. Significant management judgments are
required for the following items:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ° | Management
reviews the Corporations deferred tax assets for realizability. Valuation
allowances are established when management believes that it is more likely than not that
some portion of the deferred tax assets will not be realized. Changes in valuation
allowances from period to period are included in the tax provision.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ° | The
Corporation establishes accruals for certain tax contingencies when, despite the belief
that the Corporations tax return positions are fully supported, the Corporation
believes that certain positions may be challenged. The tax contingency accruals are
adjusted in light of changing facts and circumstances, such as the progress of tax
audits, case law and emerging legislation.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ° | The
Corporation has not provided for possible U.S. taxes on the undistributed earnings of
foreign subsidiaries that are considered to be reinvested indefinitely.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ° | The
Corporation is currently evaluating the effects of repatriating certain foreign earnings,
as described in Note 13 to the Consolidated Financial Statements. The Corporation may
repatriate as much as $100 million of its foreign earnings, which would carry a one-time
tax charge to the Corporations consolidated results of operations of up to
approximately $8.5 million.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Accounting Pronouncements

In December 2004, the Financial
Accounting Standards Board (FASB) issued SFAS No. 123 (R), Share Based
Payment. SFAS No. 123 (R) requires that compensation cost related to share-based
payment transactions be recognized in the financial statements. Share-based payment
transactions within the scope of SFAS No. 123 (R) include stock options, restricted stock
awards, performance-based awards, stock appreciation rights, and employee share purchase
plans. The provisions of SFAS No. 123 (R) are effective as of the first interim period
that begins after June 15, 2005. Accordingly, the Corporation will implement the
revised standard in the third quarter of fiscal year 2005. Currently, the Corporation
accounts for its share-based payment transactions under the provisions of APB Opinion No.
25, which generally does not require the recognition of compensation cost for employee
stock options in the financial statements. Management believes that the current required
disclosures in Note 1 to the Consolidated Financial Statements appropriately reflect the
impact this standard would have on reported net earnings if adopted in the periods
presented.

In December 2004, the FASB issued
SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion
No. 29, Accounting for Nonmonetary Transactions. This statement amends APB
Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of nonmonetary assets that
do not have commercial substance. Under SFAS No. 153, if a nonmonetary exchange of similar
productive assets meets a commercial-substance criterion and fair value is determinable,
the transaction must be accounted for at fair value resulting in recognition of any gain
or loss. SFAS No. 153 is effective for nonmonetary transactions in fiscal periods that
begin after June 15, 2005. The Corporation does not anticipate that the
implementation of this standard will have a material impact on its financial position,
results of operations or cash flows.

In May 2004, the FASB issued Staff
Position (FSP) No. 106-2, Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of 2003, in response
to a new law regarding prescription drug benefits under Medicare as well as a federal
subsidy to sponsors of retiree healthcare benefit plans. The Corporation has applied the
provisions of FSP No. 106-2 to the calculation of retiree healthcare benefits plans for
2004.

# Risk Management

The Corporation is exposed to market
risk from changes in interest rates and foreign exchange rates. On January 1, 2005, the
Corporation had no outstanding borrowings under 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 1 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 on January 1, 2005,
a 10% change in foreign currency exchange rates would not have had a material effect on
the Corporations financial position, net 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
include forward-looking statements. Statements that describe future expectations,
including revenue and earnings projections, plans, results or strategies, are considered
forward-looking. The statements that are not purely historical should be considered
forward-looking statements. Often they can be identified by the use of forward-looking
words, such as may, will, could, project,
believe, anticipate, expect, estimate,
continue, potential, plan, forecasts, and
the like. Such statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those currently anticipated. Factors that could
affect actual results include, among others, unanticipated issues associated with the
closing of the sale of Banta Healthcare Group, Ltd. and unexpected issues related to the
application of the net proceeds received therefrom, changes in customers order
patterns or demand for the Corporations products and services, pricing, changes in
raw material costs and availability, unanticipated changes in sourcing of raw materials
(including paper) by customers, unanticipated changes in operating expenses, unanticipated
production difficulties, unanticipated issues associated with the Corporations
non-U.S. operations, changes in the pattern of outsourcing supply-chain management
functions by customers, unanticipated acquisition or loss of significant customer
contracts or relationships, unanticipated difficulties and costs associated with the
design and implementation of new administrative systems, the impact of any acquisition or
divestiture effected by the Corporation, changes in the Corporations effective
income tax rate, potential repatriation of foreign earnings, unanticipated swings in
foreign currency exchange rates and any unanticipated weakening of the economy. These
factors should be considered in evaluating the forward-looking statements, and undue
reliance should not be placed on such statements. The forward-looking statements included
herein are made as of the date of the printing of this Annual Report to Shareholders, and
the Corporation undertakes no obligation to update publicly such statements to reflect
subsequent events or circumstances.

# Managements Report
on Internal Control Over Financial Reporting

The Corporations management is
responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934.  The Corporations internal control over
financial reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles.

Because of inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to risk that
controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

The Corporations management
assessed the effectiveness of the Corporations internal control over financial
reporting as of January 1, 2005, using criteria set forth in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.  Based on this assessment, the Corporations management believes
that, as of January 1, 2005, the Corporations internal control over financial
reporting was effective based on those criteria.

---

The Corporations independent
registered public accounting firm, Ernst & Young LLP, have issued an attestation
report on managements assessment of the Corporations internal control over
financial reporting. That attestation report is included herein.

# Attestation Report of
Independent Registered Public Accounting Firm

We have audited managements
assessment, included in the accompanying Managements Report on Internal Control Over
Financial Reporting, that Banta Corporation maintained effective internal control over
financial reporting as of January 1, 2005, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Banta Corporations management is
responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on managements assessment and an opinion on
the effectiveness of the companys internal control over financial reporting based on
our audit.

We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.

A companys internal control
over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material
effect on the financial statements.

Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.

In our opinion, managements
assessment that Banta Corporation maintained effective internal control over financial
reporting as of January 1, 2005, is fairly stated, in all material respects, based on the
COSO criteria. Also, in our opinion, Banta Corporation maintained, in all material
respects, effective internal control over financial reporting as of January 1, 2005 based
on the COSO criteria.

We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Banta Corporation as of January 1, 2005 and January 3,
2004, and the related consolidated statements of earnings, shareholders investment,
and cash flows for each of the three years in the period ended January 1, 2005, and
our report dated February 7, 2005 expressed an unqualified opinion thereon.

Ernst & Young LLPMilwaukee,
WisconsinFebruary 7, 2005

---

# Report of Independent
Registered Public Accounting Firm

The Board of Directors
and Shareholders Banta Corporation

We have audited the accompanying
 consolidated balance sheets of Banta Corporation as of January 1, 2005 and January 3,
2004, and the related  consolidated  statements of  earnings,  shareholders  investment,
 and cash  flows for each of the three  years in the  period  ended  January  1, 2005.
 These  financial  statements  are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in
accordance with the standards of the Public Company  Accounting  Oversight Board (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
consolidated  financial  position of Banta Corporation at January 1, 2005 and January 3,
2004,  and the  consolidated  results of its  operations  and its cash flows for each of
the three years in the period ended  January 1, 2005, in conformity with U.S. generally
accepted accounting principles.

We also have audited,  in accordance
with the standards of the Public Company  Accounting  Oversight Board (United States),
 the  effectiveness of Banta  Corporations internal control over financial  reporting as
of January 1, 2005,  based on criteria  established in Internal  ControlIntegrated
 Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 7, 2005, expressed an unqualified opinion thereon.

# ERNST & YOUNG LLP

Milwaukee, Wisconsin
February 7, 2005

---

# Consolidated Balance
Sheets

January 1, 2005, and
January 3, 2004

|                                                                      
|----------------------------------------------------------------------
|Dollars in thousands                                                  
|Assets                                                                
|                                                                      
|Current Assets:                                                       
|                                                                      
|Cash and cash equivalents                                             
|                                                                      
|Receivables, less reserves of $5,578 and $6,257, respectively         
|                                                                      
|Inventories                                                           
|                                                                      
|Prepaid expenses                                                      
|                                                                      
|Deferred income taxes                                                 
|                                                                      
|Total Current Assets                                                  
|                                                                      
|Plant and Equipment:                                                  
|                                                                      
|Land                                                                  
|                                                                      
|Buildings and improvements                                            
|                                                                      
|Machinery and equipment                                               
|                                                                      
|                                                                      
|                                                                      
|Less accumulated depreciation                                         
|                                                                      
|                                                                      
|                                                                      
|Other assets                                                          
|                                                                      
|Goodwill                                                              
|                                                                      
|Total Assets                                                          
|                                                                      
|Liabilities and Shareholders' Investment                              
|                                                                      
|Current Liabilities:                                                  
|                                                                      
|Accounts payable                                                      
|                                                                      
|Accrued salaries and wages                                            
|                                                                      
|Other accrued liabilities                                             
|                                                                      
|Current maturities of long-term debt                                  
|                                                                      
|Total Current Liabilities                                             
|                                                                      
|Non-current Liabilities:                                              
|                                                                      
|Long-term debt                                                        
|                                                                      
|Deferred income taxes                                                 
|                                                                      
|Other non-current liabilities                                         
|                                                                      
|Total Non-current Liabilities                                         
|                                                                      
|Commitments and Contingencies (Notes 6 and 9)                         
|                                                                      
|                                                                      
|Shareholders' Investment:                                             
|                                                                      
|Preferred stock                                                       
|                                                                      
|Common stock - 29,278,884 and 29,048,188 shares issued, respectively  
|                                                                      
|Amount in excess of par value of stock                                
|                                                                      
|Retained earnings                                                     
|                                                                      
|Unearned compensation                                                 
|                                                                      
|Treasury stock, at cost - 4,232,412 and 3,256,400 shares, respectively
|                                                                      
|Accumulated other comprehensive income                                
|                                                                      
|Total Shareholders' Investment                                        
|                                                                      
|Total Liabilities and Shareholders' Investment                        
|                                                                      

The accompanying notes to consolidated
financial statements are an integral part of these balance sheets.

---

# Consolidated Statements
of Earnings

For the Years Ended
January 1, 2005, January 3, 2004, and December 28, 2002

|                                                
|------------------------------------------------
|Dollars in thousands (except earnings per share)
|Revenue:                                        
|                                                
|Printing and supply-chain services              
|                                                
|Product sales                                   
|                                                
|Total revenue                                   
|                                                
|                                                
|Cost of printing and supply-chain services      
|                                                
|Cost of products sold                           
|                                                
|Gross earnings                                  
|                                                
|Selling and administrative expenses             
|                                                
|Restructuring charge                            
|                                                
|Litigation settlement                           
|                                                
|Asset impairment charge                         
|                                                
|Earnings from operations                        
|                                                
|Interest expense                                
|                                                
|Interest income                                 
|                                                
|Other income (expense), net                     
|                                                
|Earnings before income taxes                    
|                                                
|Provision for income taxes                      
|                                                
|Net earnings                                    
|                                                
|                                                
|Basic earnings per share of common stock        
|                                                
|Diluted earnings per share of common stock      
|                                                

The accompanying notes to
consolidated financial statements are an integral part of these statements.

---

# Consolidated Statements
of Cash Flows

For the Years Ended
January 1, 2005, January 3, 2004, and December 28, 2002

|                                                            
|------------------------------------------------------------
|Dollars in thousands                                        
|Cash Flows from Operating Activities                        
|                                                            
|Net earnings                                                
|                                                            
|Adjustments to reconcile net earnings to cash provided by   
|operating activities, net of acquisition:                   
|                                                            
|Depreciation and amortization                               
|                                                            
|Gain on sale of plant and equipment                         
|                                                            
|Deferred income taxes                                       
|                                                            
|Tax benefit from the exercise of stock options              
|                                                            
|Non-cash stock compensation                                 
|                                                            
|Non-cash restructuring charges                              
|                                                            
|Asset impairment charge                                     
|                                                            
|Change in assets and liabilities, net of effects of         
|acquisitions:                                               
|                                                            
|Decrease (increase) in receivables                          
|                                                            
|Decrease (increase) in inventories                          
|                                                            
|Decrease (increase) in prepaid expenses                     
|                                                            
|Increase in other non-current assets                        
|                                                            
|(Decrease) increase in accounts payable                     
|and accrued liabilities                                     
|                                                            
|(Decrease) increase in other non-current liabilities        
|                                                            
|Cash provided by operating activities                       
|                                                            
|Cash Flows from Investing Activities                        
|                                                            
|Capital expenditures                                        
|                                                            
|Proceeds from sale of plant and equipment                   
|                                                            
|Business acquisition                                        
|                                                            
|Additions to long-term investments                          
|                                                            
|Cash used for investing activities                          
|                                                            
|Cash Flows from Financing Activities                        
|                                                            
|Payments on long-term debt, net                             
|                                                            
|Proceeds from exercise of stock options, net                
|                                                            
|Dividends paid                                              
|                                                            
|Repurchase of common stock                                  
|                                                            
|Cash used for financing activities                          
|                                                            
|                                                            
|Effect of exchange rate changes on cash and cash equivalents
|                                                            
|                                                            
|Net increase (decrease) in cash and cash equivalents        
|                                                            
|Cash and cash equivalents at beginning of year              
|                                                            
|Cash and cash equivalents at end of year                    
|                                                            
|Cash payments for:                                          
|                                                            
|Interest, net of amount capitalized                         
|                                                            
|Income taxes                                                
|                                                            

The accompanying notes to
consolidated financial statements are an integral part of these statements.

---

# Consolidated Statements
of Shareholders Investment

For the Years Ended
January 1, 2005, January 3, 2004, and December 28, 2002

|                                  
|----------------------------------
|Dollars in thousands              
|Balance, December 29, 2001        
|                                  
|Net earnings                      
|                                  
|Cumulative foreign currency       
|translation adjustments           
|                                  
|Comprehensive income              
|                                  
|Cash dividends declared ($.64 per 
|share)                            
|                                  
|Stock options exercised, net of   
|shares tendered                   
|                                  
|Treasury stock purchases          
|                                  
|Other                             
|                                  
|Balance, December 28, 2002        
|                                  
|Net earnings                      
|                                  
|Cumulative foreign currency       
|translation adjustments           
|                                  
|Comprehensive income              
|                                  
|Cash dividends declared ($.67 per 
|share)                            
|                                  
|Stock options exercised, net of   
|shares tendered                   
|                                  
|Other                             
|                                  
|Balance, January 3, 2004          
|                                  
|Net earnings                      
|                                  
|Cumulative foreign currency       
|translation adjustments           
|                                  
|Comprehensive income              
|                                  
|Cash dividends declared ($.68 per 
|share)                            
|                                  
|Stock options exercised, net of   
|shares tendered                   
|                                  
|Restricted stock issuance         
|                                  
|Unearned compensation amortization
|                                  
|Treasury stock purchases          
|                                  
|Balance, January 1, 2005          
|                                  

The accompanying notes to
consolidated financial statements are an integral part of these statements.

---

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

For the Years Ended January 1, 2005,
January 3, 2004, and December 28, 2002

# 1 significant accounting
policies

Significant accounting policies
followed by Banta Corporation (the Corporation) in maintaining financial
records and preparing financial statements are:

# BUSINESS

The Corporation operates in three
business segments, printing services, supply-chain management services and healthcare
products. The Corporations printing services segment provides a comprehensive
combination of printing and digital imaging solutions to leading publishers and direct
marketers. Products and services in this segment include books, catalogs, publications,
product brochures, literature management services, educational materials and e-business
services. The Corporations global supply-chain management services segment provides
a wide range of outsourcing capabilities, primarily to some of the worlds largest
technology companies. Services in this segment range from materials sourcing, product
configuration and customized kitting, to order fulfillment and global distribution. The
Corporations healthcare segment produces and sources disposable products used in
outpatient clinics, dental offices and hospitals. Customers, who are primarily located
throughout the United States and Europe, are granted credit on an unsecured basis. The
Corporation maintains an allowance for doubtful accounts based upon the expected
collectibility of accounts receivable and, to date, such losses have been within
managements expectations. No single customer accounted for more than 10% of
consolidated sales during 2004, 2003 or 2002.

# YEAR-END

The Corporation reports its results
of operations on a 52/53 week year ending on the Saturday closest to December 31.
Operations included 52 weeks in 2004, 53 weeks in 2003 and 52 weeks in 2002.

# 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.

# REVENUE RECOGNITION

Revenue is recognized, net of
estimated discounts, allowances and returns, when title and risk of loss transfers to the
customer and the earnings process is complete. The Securities and Exchange
Commissions Staff Accounting Bulletin (SAB) No. 104, Revenue
Recognition, provides guidance on the application of accounting principles generally
accepted in the United States to selected revenue recognition issues. In addition, revenue
in the supply-chain management services segment is recognized in accordance with Emerging
Issues Task Force (EITF) Issue No. 99-19, Reporting Revenue Gross as a Principal
versus Net as an Agent. Each major contract is evaluated based on various criteria,
with management judgment required to assess the importance of each criterion in reaching
the final decision. In general, revenue is recognized on a gross basis if the Corporation
has the risks and rewards of ownership, latitude in establishing component vendors and
pricing, and bears all credit risk. Revenue from contracts that do not meet these criteria
are recognized on a net basis, recording only the portion that is related to services or
products provided directly by the Corporation.

The Corporation records all shipping
and handling fees billed to customers as revenue, and related costs as cost of services
and cost of products sold, when incurred.

# FOREIGN CURRENCY
TRANSLATION

For all subsidiaries outside the
United States, with the exception of operations in Mexico and Hungary, the Corporation
uses the local currency as the functional currency. For those operations using a
functional currency other than the U.S. dollar, assets and liabilities are translated into
U.S. dollars at year-end exchange rates, and revenue and expenses are translated at
weighted-average exchange rates. The resulting translation adjustments are recorded as a
separate component of shareholders investment. Operations in Mexico and Hungary use
the U.S. dollar as the functional currency. Gains and losses from foreign currency
transactions are included in net earnings, and totaled losses of $944,000, $1,503,000 and
$245,000 in 2004, 2003 and 2002, respectively.

---

# CASH AND CASH EQUIVALENTS

The Corporation considers all highly
liquid investments, with maturities of less than 90 days at the date of purchase, to be
cash equivalents. The cost of these investments, which are considered as available
for sale for financial reporting purposes, approximates fair value at January 1,
2005, and January 3, 2004. There were no realized gains or losses on these investments
during 2004, 2003 and 2002.

# FAIR VALUE OF FINANCIAL
INSTRUMENTS

The carrying amounts of cash and cash
equivalents, receivables and accounts payable approximated fair value as of January 1,
2005, and January 3, 2004, due to the short maturities of these instruments. 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 January 1, 2005, and January 3,
2004, including current maturities, was estimated to be $95,719,000 and $124,462,000,
respectively.

# INVENTORIES

Inventories are stated at the lower
of cost, using the first-in, first-out method, or market. Inventories include material,
labor and manufacturing overhead. Inventories at January 1, 2005, and January 3, 2004,
were as follows:

|                                  
|----------------------------------
|Dollars in thousands              
|Raw materials and supplies        
|                                  
|Work-in-process and finished goods
|                                  
|Net inventories                   
|                                  

# PLANT AND EQUIPMENT

Plant and equipment are stated at
cost and depreciated over the estimated useful life of the assets. Depreciation is
computed using the straight-line method for financial reporting purposes. Accelerated
depreciation methods are used for income tax reporting purposes. Leasehold improvements
are amortized over the shorter of the term of the lease or the estimated useful life on a
straight-line basis. The range of useful lives for financial reporting is 15 to 40 years
for buildings and improvements, 3 to 7 years for information systems and equipment
installations, and 3 to 10 years for machinery and equipment.

Plant and equipment are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset or group of assets may not be recoverable. If the sum of the expected
undiscounted cash flows is less than the carrying value of the related asset or group of
assets, a loss is recognized for the difference between the fair value and carrying value
of the asset or group of assets. Such analyses necessarily involve significant judgment.

# CAPITALIZED INTEREST

The Corporation capitalizes interest
on major buildings, information systems and equipment installations and depreciates the
amount capitalized over the lives of the related assets. Total interest incurred was
$7,527,000 in 2004, $9,218,000 in 2003, and $11,509,000 in 2002 of which $1,279,000,
$798,000 and $166,000 was capitalized in 2004, 2003 and 2002, respectively.

---

# CAPITALIZED SOFTWARE
DEVELOPMENT COSTS

The Corporation capitalizes costs
incurred to develop or obtain software for internal use based on guidance provided by the
Accounting Standards Executive Committee SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. Qualifying costs incurred
during the application development stage are capitalized, and such costs are depreciated
over the estimated useful life of the software when it is placed into service.

The Corporation capitalizes costs
incurred to develop software products for sale to third parties based on guidance provided
by Statement of Financial Accounting Standards (SFAS) No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, and as such,
capitalizes such costs upon determination that technological feasibility has been
established for that product. Costs incurred prior to the establishment of technological
feasibility are charged to expense. When the software product is available for general
release to customers, capitalization ceases and such costs are amortized on a
product-by-product basis over the estimated useful life of the software. There were no
costs related to developing software products for sale to third parties capitalized at
January 1, 2005, or January 3, 2004. At December 28, 2002, the Corporation determined that
its capitalized software costs related to the digital content management product were not
realizable based on the projected undiscounted cash flows of the related product.
Accordingly, the unamortized balance at December 28, 2002, of $9,843,000 was written-off
and is included in the asset impairment charge described in Note 12.

# GOODWILL

The Corporation adopted SFAS No.
142, "Goodwill and Other Intangible Assets," effective December 30, 2001. Under SFAS No.
142, goodwill is no longer amortized, but is reviewed for impairment on an annual basis.

The Corporation completed the annual
impairment tests in the fourth quarter of each of 2004, 2003 and 2002. This analysis was
based on the comparison of the fair value of its reporting units to the carrying value of
the net assets of the respective reporting units. The Corporation concluded that no
impairment of goodwill existed at the time of the annual impairment tests in 2004 and
2003. During 2002, the Corporation determined that goodwill for one of its reporting units
was impaired and, accordingly, the Corporation recognized a goodwill impairment charge in
the fourth quarter of 2002 of $2,241,000.

# ENVIRONMENTAL COSTS

The Corporation accrues for losses
associated with environmental obligations when such losses are probable and reasonably
estimable. Costs of estimated future expenditures are not discounted to their present
value. The accruals, which are subject to management judgment, are adjusted as facts and
circumstances change.

# 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 primarily to the assumed exercise of stock options.
Weighted average common shares for computation of basic earnings per share were
25,123,022; 25,499,789; and 25,227,990, in 2004, 2003 and 2002, respectively. Weighted
average common and common equivalent shares for computation of diluted earnings per share
were 25,508,380; 25,742,979; and 25,565,826, in 2004, 2003 and 2002, respectively.

The shares outstanding used to
compute diluted earnings per share for 2004, 2003 and 2002 excluded outstanding options to
purchase 114,548, 524,584 and 196,000 shares of common stock, respectively, with
weighted-average exercise prices of $45.52, $35.08 and $35.20, respectively. These 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.

---

# STOCK-BASED COMPENSATION

The Corporation has two stock-based
employee compensation plans (see Note 8). The Corporations stock-based employee
compensation plans are accounted for under the recognition and measurement principles of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Because the number of shares is fixed and
the exercise price of the stock options equals the market price of the underlying stock on
the date of grant, no cost is reflected in net earnings for stock options granted under
these plans. The Corporation amortizes restricted stock awards to net earnings over the
vesting period based on the fair value of the stock at the date of grant.

Had compensation cost been determined
based upon the fair value at the grant date for awards under the plans based on the
provisions of SFAS No. 123 Accounting for Stock-Based Compensation, the
Corporations pro forma net earnings and earnings per share would have been as
follows:

|                                               
|-----------------------------------------------
|Dollars in thousands, except per share amounts 
|Net earnings:                                  
|As reported                                    
|Add: Compensation expense related to restricted
|stock included in net earnings, net of         
|related taxes                                  
|Deduct: Total stock-based employee             
|compensation expense determined under fair     
|value based method, net of related taxes       
|Pro forma                                      
|                                               
|Earnings per share:                            
|As reported:                                   
|Basic                                          
|Diluted                                        
|Pro forma:                                     
|Basic                                          
|Diluted                                        
|                                               

The fair value of each stock 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 2004, 2003 and 2002,
respectively: risk-free interest rates of 3.6%, 3.4% and 3.6%; expected dividend yields of
1.7%, 1.8% and 1.8%; expected option lives of 6.0, 5.7 and 6.0 years; and expected
volatility of 26% for all years presented. Based on these assumptions, the weighted
average fair value of the options granted at the date of grant in 2004, 2003 and 2002 was
$10.53, $9.51 and $9.17, respectively.

# RESEARCH AND DEVELOPMENT
COSTS

Research and development costs are
charged to operations as incurred and amounted to $650,000, $851,000 and $919,000 in 2004,
2003 and 2002, respectively.

---

# DERIVATIVE FINANCIAL
INSTRUMENTS

The Corporation enters into foreign
currency forward exchange contracts to mitigate exposure related to receivables and
payables denominated in foreign currencies. Those contracts are adjusted to fair value at
each balance sheet date with the gain or loss reflected in operations. For each of the
three years presented, the gain or loss recognized on these contracts was not material.

# USE OF ESTIMATES

The preparation of financial
statements in conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect the amounts
reported in the accompanying financial statements and notes. Actual results could differ
from those estimates.

# NEW ACCOUNTING STANDARDS

In December 2004, the Financial
Accounting Standards Board (FASB) issued SFAS No. 123 (R), Share-Based
Payment. SFAS No. 123 (R) requires that compensation cost related to share-based
payment transactions be recognized in the financial statements. Share-based payment
transactions within the scope of SFAS No. 123 (R) include stock options, restricted stock
awards, performance-based awards, stock appreciation rights and employee share purchase
plans. The provisions of SFAS No. 123 (R) are effective as of the first interim period
that begins after June 15, 2005. Accordingly, the Corporation will implement the
revised standard in the third quarter of fiscal year 2005. Currently, the Corporation
accounts for its share-based payment transactions under the provisions of APB Opinion No.
25, which generally does not require the recognition of compensation cost for employee
stock options in the financial statements. Management believes that the current required
disclosures in Note 1 under Stock-Based Compensation, appropriately reflect the impact
this standard would have on reported net earnings if adopted in the periods presented.

In December 2004, the FASB issued
SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion
No. 29, Accounting for Nonmonetary Transactions. This statement amends APB
Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of nonmonetary assets that
do not have commercial substance. Under SFAS No. 153, if a nonmonetary exchange of similar
productive assets meets a commercial-substance criterion and fair value is determinable,
the transaction must be accounted for at fair value resulting in recognition of any gain
or loss. SFAS No. 153 is effective for nonmonetary transactions in fiscal periods that
begin after June 15, 2005. The Corporation does not anticipate that the
implementation of this standard will have a material impact on its financial position,
results of operations or cash flows.

In May 2004, the FASB issued Staff
Position (FSP) No. 106-2, Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of 2003, in response
to a new law regarding prescription drug benefits under Medicare, as well as a federal
subsidy to sponsors of retiree healthcare benefit plans. The Corporation has applied the
provisions of FSP No. 106-2 to the calculation of retiree healthcare benefits plans for
2004 (see Note 10).

# RECLASSIFICATIONS

Certain reclassifications have been
made to the 2003 and 2002 financial statements to conform to the 2004 presentation.

# 2 acquisition

On February 24, 2003, the Corporation
acquired Qualipak Incorporated (Qualipak) for $2,379,000 in cash. Qualipak is
a provider of packaging, kit assembly, fulfillment and distribution services for
publishers, consumer healthcare markets and over-the-counter pharmaceuticals. The purchase
price plus the liabilities assumed exceeded the fair value of the tangible and intangible
assets acquired by $2.0 million, which has been recorded as goodwill. The Corporation has
included the results of Qualipak in the consolidated financial statements since the
acquisition date. The purchase price allocation for this acquisition is as follows:

---

|                      
|----------------------
|(Dollars in thousands)
|                      
|Current assets        
|                      
|Plant and equipment   
|                      
|Goodwill              
|                      
|Current liabilities   
|                      
|Total purchase price  
|                      

# 3 goodwill

Changes in the carrying amount of
goodwill by segment during the years ended January 1, 2005, and January 3, 2004, consist
of the following:

|(Dollars in thousands)              | Printing
Services | Supply-Chain
Management
Services | Healthcare | Total 
|----------------------------------- | ----------------- | -------------------------------- | ---------- | ------
|Balance at December 28, 2002        |                   |                                  | $          | 35,552
|Translation adjustments for         |                   |                                 
|goodwill denominated in foreign     |                   |                                 
|currencies                          |                   |                                  |            |       
|Acquistion of Qualipak (see Note 2) |                   |                                  |            | 2,000 
|Balance at January 3, 2004          |                   |                                  |            | 37,552
|Translation adjustments for         |                   |                                 
|goodwill denominated in foreign     |                   |                                 
|currencies                          |                   |                                  |            |       
|Balance at January 1, 2005          |                   |                                  | $          | 37,552

# 4 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 January 1, 2005, the Corporation had short-term credit facilities
totaling $83 million. Of this total, $75 million represents a credit facility made
available by three banks, which can be used to support both commercial paper and unsecured
borrowing; $5 million represents a facility in place to support the issuance of letters of
credit and to meet short-term liquidity needs; and the remaining $3 million is comprised
of secured credit facilities denominated in Euros and Pounds Sterling, which can be used
to finance the Corporations European operations. The Corporation had $4 million of
letters of credit outstanding as of January 1, 2005, and January 3, 2004. As of January 1,
2005, and January 3, 2004, the Corporation had no short-term borrowings outstanding.
During the fourth quarter of 2004, the Corporation had a maximum of $10 million
outstanding under short-term credit facilities, all of which was repaid prior to January
1, 2005.

---

# 5 long-term debt

Long-term debt consists of the
following:

|                                                   
|---------------------------------------------------
|Dollars in thousands                               
|Promissory Notes:                                  
|                                                   
|8.05%                                              
|                                                   
|6.81%                                              
|                                                   
|7.98%                                              
|                                                   
|7.62%                                              
|                                                   
|7.38%                                              
|                                                   
|9.53%                                              
|                                                   
|Capital Lease Obligations at 1.39% to 8.75%        
|                                                   
|Industrial Revenue Bonds, floating interest rate,  
|approximating 50% of the prime rate                
|                                                   
|Other note, variable rate based on 10-year Treasury
|note rate                                          
|                                                   
|                                                   
|                                                   
|Less current maturities                            
|                                                   
|Long-term debt                                     
|                                                   

Maturities of long-term debt during
the next five years are: $25,594,000 in 2005, $11,552,000 in 2006, $12,348,000 in 2007,
$11,126,000 in 2008 and, $9,935,000 in 2009.

The Promissory Notes 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 are 150% or more
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 note holders. 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 certain types of liens. The Corporation was in compliance with all debt
covenants at January 1, 2005.

One of the Promissory Notes restricts
the payment of dividends. As of January 1, 2005, $93,278,000 of retained earnings was
available for the payment of dividends under the most restrictive of such covenants.

# 6 contingencies

On June 26, 2003, the Corporation
settled its lawsuit with Singapore-based Mentor Media, Ltd.  (Mentor)         relating to
its proposed acquisition of Mentor. The Corporation recorded a           charge of
$4,602,000 in the second quarter of 2003 in connection with the           settlement.

In the ordinary course of its
business, the Corporation is also involved in other litigation matters. Based on the
Corporations assessment of these matters and on the existing accruals provided for
them, the Corporation does not believe that any of these matters, either individually or
in the aggregate, will have a material adverse effect on its results of operations, cash
flows or financial condition.

---

# 7 capital stock

The Corporations authorized
capital consists of 300,000 shares of preferred stock ($10 par value) and 75 million
shares of common stock ($.10 par value).

In February 2005, the Board of
Directors approved a $150 million share repurchase program, which replaced the
Corporations previous program. Through January 1, 2005, the Corporation had
purchased 6,519,400 shares of its common stock under the previous authority at an
aggregate cost of $173,870,000. 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 have been recorded as treasury stock. At January
1, 2005, the Corporation held 4,232,412 shares of its common stock in treasury. These
shares may be reissued pursuant to the Corporations equity incentive plans, or for
other purposes.

On March 19, 2004, the Corporation
announced that it had entered into an Accelerated Share Repurchase (ASR)
agreement whereby 1,000,000 shares of the Corporations common stock were repurchased
at an initial price of $43.69 per share. The ASR required the counterparty to acquire the
shares in the open market over a fixed period of time. On July 27, 2004, the Corporation
paid $663,000 to settle the ASR. The final settlement amount was based on the
volume-weighted average price of $44.35 per share for actual repurchases made by the
counterparty. There were no shares repurchased in 2003.

Pursuant to the Corporations
Shareholder Rights Plan, 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.

# 8 stock-based
compensation plans

At January 1, 2005, the Corporation
had options outstanding or available for grant under two equity incentive plans  the
Equity Incentive Plan and the 1991 Stock Option Plan (1991 Plan). The Equity Incentive
Plan provides for the issuance of non-qualified and incentive stock options and restricted
stock 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 grant. Options granted under the Equity
Incentive Plan may be exercised up to 10 years from the date of grant. The Equity
Incentive Plan includes automatic grants of stock options to non-employee Directors on an
annual basis. At January 1, 2005, 316,221 shares of the Corporations common stock
were reserved for future equity incentive awards.

---

The following table summarizes stock
option activity under the equity incentive plans:

|                                
|--------------------------------
|Options                         
|Outstanding at December 29, 2001
|                                
|Granted                         
|                                
|Exercised                       
|                                
|Canceled or expired             
|                                
|Outstanding at December 28, 2002
|                                
|Granted                         
|                                
|Exercised                       
|                                
|Canceled or expired             
|                                
|Outstanding at January 3, 2004  
|                                
|Granted                         
|                                
|Exercised                       
|                                
|Canceled or expired             
|                                
|Outstanding at January 1, 2005  
|                                

The following table summarizes
weighted average information by range of exercise prices for stock options outstanding and
exercisable at January 1, 2005:

|                       
|-----------------------
|Options Outstanding    
|Range of
Exercise Price
|$18-$27                
|                       
|$28-$34                
|                       
|$35-$38                
|                       
|$39-$46                
|                       
|$18-$46                
|                       

The options outstanding, but not
exercisable at January 1, 2005, become exercisable at various times through 2007 in
accordance with the vesting schedules of the plans.

During 2004, 2003 and 2002, 130,136,
136,874 and 116,034 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.

During 2004, the Corporation awarded
an aggregate of 23,988 shares of restricted stock to certain employees pursuant to the
Corporations Equity Incentive Plan. Restricted stock is granted in the name of the
employee, who has all the rights of a shareholder, subject to certain restrictions. The
restricted stock vests ratably over three years from the date of grant, subject to
acceleration in certain cases. The shares issued were previously acquired treasury shares.
Upon issuance of the restricted stock, unearned compensation of $1,077,000 was charged to
shareholders investment for the fair value of the restricted stock and is being
recognized as compensation expense ratably over the three-year period. Compensation
expense related to restricted stock for the year ended January 1, 2005, was $237,000
($142,000 net of related taxes).

---

# 9 operating leases

The Corporation leases certain
manufacturing facilities, warehouses, office space, office equipment, automobiles and
trucks. Annual rentals amounted to $25,266,000, $24,512,000 and $22,824,000 in 2004, 2003
and 2002, respectively. Minimum rental commitments for the years 2005 through 2009
aggregate $22,609,000, $18,781,000, $15,919,000, $12,394,000 and $8,157,000, respectively,
and $31,554,000, thereafter.

As the result of business decisions
in prior years, the Corporation is obligated for lease payments for three facilities that
are no longer in use. The costs of future lease obligations including real estate taxes,
less expected sub-lease income, have been included in the consolidated balance sheets and
total $3,837,000 and $6,399,000 at January 1, 2005, and January 3, 2004, respectively.
Gross commitments for the years 2005 through 2007 aggregate $2,206,000, $1,702,000, and
$1,299,000, respectively.

# 10 employee benefit plans

The Corporation has two 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 also maintains
a non-qualified supplemental retirement plan, which is not funded. The disclosures for
this plan for all years presented are combined with the pension plans. The Corporation
makes contributions to the qualified plans each year in an amount that is at least equal
to the minimum required contributions as defined by the Employee Retirement Income
Security Act (ERISA) of 1974.

The Corporation also provides
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 materially affect the
Corporations costs.

The Corporations postretirement
healthcare program provides for prescription drug benefits. On December 8, 2003, the
Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed
into law. The Act introduced a prescription drug benefit under Medicare (Medicare Part D).
In May 2004, the FASB issued Staff Position No. 106-2 (FSP 106-2), which provides
accounting guidance to employers that offer prescription drug benefits under retiree
healthcare benefit plans to Medicare eligible retirees. FSP 106-2 requires that the
benefit attributable to past service be accounted for as an actuarial gain and the benefit
related to current service be reported as a reduction in service cost. The Corporation has
elected to integrate retiree healthcare coverage with the new Medicare Part D, in a method
similar to the way benefits currently integrate with Medicare Parts A and B. In the third
quarter of 2004, the Corporation adopted FSP 106-2 retroactive to January 4, 2004.

The following table summarizes the
effect of the implementation of FSP 106-2 on the components of net periodic postretirement
benefit cost for 2004:

---

|                                                   
|---------------------------------------------------
|(Dollars in thousands)                             
|Accumulated postretirement benefit obligation as of
|January 1, 2004                                    
|                                                   
|Components of net periodic benefit cost for 2004   
|                                                   
|Service cost - benefits earned during the year     
|                                                   
|Interest cost on projected benefit obligation      
|                                                   
|Amortization of transition obligation              
|                                                   
|Amortization of net gain                           
|                                                   
|Net periodic benefit cost                          
|                                                   

Net periodic pension and
postretirement benefit costs for the Corporation-sponsored plans, were as follows:

|                      
|----------------------
|(Dollars in thousands)
|2004                  
|Service cost-benefits 
|earned during the year
|                      
|Interest cost on      
|projected benefit     
|obligation            
|                      
|Expected return on    
|plan assets           
|                      
|Amortization of prior 
|service cost          
|                      
|Amortization of       
|transition obligation 
|(asset)               
|                      
|Amortization of net   
|loss (gain)           
|                      
|Net pension and       
|postretirement        
|benefits cost         
|                      

Significant assumptions used by the
Corporations actuary in determining net pension and postretirement benefits expense
for the Corporations plans are as follows:

---

|                
|----------------
|Pension Benefits
|                
|Discount rate   
|for periodic    
|benefit cost    
|                
|Rate of increase
|in compensation 
|                
|Long-term rate  
|of return on    
|plan assets     
|                

The expected long-term rate of return
on assets assumption was chosen from the range of likely results of compound average
annual returns over a 10-year time horizon based on the plans current investment
policy. The expected return and volatility for each asset class was based on historical
equity, bond and cash market returns during the period 1926 through 2004. While this
approach gives appropriate consideration to recent fund performance and historical
returns, the assumption is primarily a long-term, prospective rate. Based on the analysis,
the expected long-term return assumption for our plan will remain at 9.0%.

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 $11,928,000 and $10,101,000 in 2004, respectively,
and $12,750,000 and $9,105,000 in 2003, respectively.

The following table presents a
reconciliation of the funded status of the plans using an assumed discount rate of 6.00%
at January 1, 2005, and 6.25% at January 3, 2004:

|                                        
|----------------------------------------
|Pension Benefits                        
|Dollars in thousands                    
|Change in benefit obligation:           
|                                        
|Benefit obligation at beginning         
|of year                                 
|                                        
|Service cost                            
|                                        
|Interest cost                           
|                                        
|Actuarial loss (gain)                   
|                                        
|Participants' contributions             
|                                        
|Plan amendments                         
|                                        
|Benefits paid                           
|                                        
|Benefit obligations at end of year      
|                                        
|Change in plan assets:                  
|                                        
|Fair value of plan assets at            
|beginning of year                       
|                                        
|Actual return on plan assets            
|                                        
|Employer contributions                  
|                                        
|Participants' contributions             
|                                        
|Benefits paid                           
|                                        
|Fair value of plan assets at end of     
|year                                    
|                                        
|Plan assets less than benefit obligation
|                                        
|Unrecognized net actuarial gain (loss)  
|                                        
|Unrecognized prior-service cost         
|                                        
|Unrecognized transition obligation      
|                                        
|Accrued (prepaid) pension and           
|postretirement benefits cost            
|                                        

---

The following table details the
accrued or prepaid benefit cost recorded as of January 1, 2005, and January 3, 2004, as
related to the Corporations pension plans:

|                               
|-------------------------------
|Accrued (prepaid) benefit cost:
|Employees pension plan         
|                               
|Hourly pension plan            
|                               
|Supplemental retirement plan   
|                               
|Total                          
|                               

The Corporation maintains target
allocation percentages among various asset classes based on an investment policy
established for the pension plan, which is designed to achieve long-term objectives of
return, while mitigating against downside risk and considering expected cash flows. The
current weighted-average target asset allocations are as follows: equity securities 70%
and debt securities 30%. The investment policy is reviewed periodically in order to
achieve overall objectives in light of current circumstances. There are no trust assets
invested in the common stock of the Corporation.

The Corporations pension plan
weighted-average asset allocations for the qualified plans at January 1, 2005, and January
3, 2004, by asset category are as follows:

|                      
|----------------------
|Total Pension Benefits
|Asset Category:       
|Equity securities     
|                      
|Debt securities       
|                      
|Other                 
|                      
|Total                 
|                      

The Corporation expects to make no
contributions to its qualified pension plans during 2005. A contribution of $716,000 is
expected to be made as benefit payments to retired supplemental retirement plan
participants. A contribution of $496,000 is expected to be made as benefit payments to
retirees under the postretirement healthcare plan.

The following benefit payments, which
reflect expected future service, as appropriate, are expected to be paid:

---

|                    
|--------------------
|Dollars in thousands
|2005                
|2006                
|2007                
|2008                
|2009                
|2010-2014           
|                    

Approximately 800 of the
Corporations U.S. employees are covered by multi-employer union-sponsored,
collectively bargained defined benefit pension plans. Pension expense includes $1,436,000,
$2,194,000 and $2,453,000 in 2004, 2003 and 2002, respectively, attributable to the
multi-employer plans. These costs are determined in accordance with the provisions of
negotiated labor contracts.

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 2004, 2003
and 2002 were $3,346,000, $3,287,000 and $3,023,000, respectively.

# 11 restructuring

Effective January 1, 2003, the
Corporation adopted SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies the previous guidance on
the subject. It requires, among other things, that a liability for a cost associated with
an exit or disposal activity initiated after December 31, 2002, be recognized at fair
value when the liability is incurred rather than at the commitment date of the exit or
disposal plan.

On January 28, 2003, the Corporation
announced a restructuring involving its consumer catalog business and a realignment of
operating activities within its supply-chain management services segment. The objective of
the plan, which was implemented throughout 2003, was to consolidate certain operations,
leverage existing capacity, improve efficiencies and reduce costs.

The reconciliation of the beginning
and ending restructuring liabilities included in the balance sheet at January 1, 2005, and
January 3, 2004, are as follows (dollars in thousands):

|                         
|-------------------------
|Employee severance and   
|benefits liabilities     
|Facility costs           
|Impaired assets and other
|liabilities              
|                         
|Total                    
|                         

---

Restructuring charges by segment for
2003 were:

|                               
|-------------------------------
|Employee severance and benefits
|Facility costs                 
|Impaired assets and other      
|liabilities                    
|                               
|Total                          
|                               

The 2003 restructuring included the
decision to exit three facilities, the largest of which was the consumer catalog facility
in St. Paul, Minnesota. An asset impairment charge totaling $4.4 million was recorded for
machinery and equipment, building and building improvements at this facility. The
remaining impairment charges related to machinery, equipment and fixtures at two
facilities in the supply-chain management services segment. Assets were reviewed for
recoverability and adjusted to their fair value as appropriate in the quarter in 2003 in
which the decision to close the facility was made, in accordance with the
Corporations accounting policy.

Employee severance amounts were
determined based on the Corporations policy and varied based on factors including
the tenure of the employee. Employee severance and benefit charges in 2003 included $1.3
million of estimated costs to exit certain multi-employer, defined benefit pension plans.

The restructuring activities were
substantially completed in 2003, and the Corporation did not record additional charges in
2004 related to these activities.

# 12 asset impairment
charge

In the fourth quarter of 2002, the
Corporation recorded a non-cash asset impairment charge of $26.8 million. The impairment
charge included a reduction in the asset carrying value of the Corporations digital
content management software product of $9.8 million based on an analysis of future cash
flow projections for the product. The charge also included a $7.4 million write-off of the
Corporations investment in and advances to Banta G. Imagen S. de R. L. de C.V., a
Mexican joint venture based in Queretaro, Mexico. The 50% equity interest was acquired in
July of 1999 and disposed of in 2003. The remaining components of the impairment charge
included a $3.9 million reduction in the carrying value of assets held for sale in the
print segment, a $2.2 million goodwill impairment charge, and updated assessments on other
long-lived assets.

# 13 income taxes

The provision for income taxes
consists of the following:

|                          
|--------------------------
|Dollars in thousands      
|Current:                  
|                          
|Federal                   
|                          
|State                     
|                          
|Foreign                   
|                          
|                          
|                          
|Deferred                  
|                          
|Provision for income taxes
|                          

---

Below is a reconciliation of the
statutory federal income tax rate and the effective income tax rate:

|                                    
|------------------------------------
|                                    
|Statutory federal income tax rate   
|                                    
|Foreign income tax rate differential
|                                    
|State and local income taxes,       
|less applicable federal tax benefit 
|                                    
|Other, net                          
|                                    
|Effective income tax rate           
|                                    

Temporary differences that give rise
to the deferred tax assets and liabilities at January 1, 2005, and January 3, 2004, are as
follows:

|                                                 
|-------------------------------------------------
|Dollars in thousands                             
|Net current deferred tax assets:                 
|                                                 
|Vacation accrual                                 
|                                                 
|Other accrued liabilities                        
|                                                 
|Reserve for uncollectible accounts               
|                                                 
|Other                                            
|                                                 
|Net current deferred tax assets                  
|                                                 
|Net long-term deferred tax liabilities:          
|                                                 
|Accelerated depreciation                         
|                                                 
|Deductible goodwill amortization                 
|                                                 
|Capital loss carryforward                        
|                                                 
|Accrued pension cost                             
|                                                 
|Accrued postretirement benefit cost              
|                                                 
|Deferred compensation                            
|                                                 
|Other                                            
|                                                 
|Valuation allowance for capital loss carryforward
|                                                 
|Net long-term deferred tax liabilities           
|                                                 

No provision for U.S. income taxes or
foreign withholding taxes has been made on the undistributed earnings of foreign
subsidiaries as such earnings are considered to be permanently invested. At January 1,
2005, the undistributed earnings amounted to $126,758,000. In addition, no provision or
benefit for U.S. income taxes has been made on foreign currency translation gains or
losses.

The non-United States component of
income before income taxes was $32,913,000, $24,958,000 and $17,571,000 in 2004, 2003 and
2002, respectively.

At January 1, 2005, the Corporation
had capital loss carryforwards of $16.3 million, of which $3.5 million expire in 2005. To
the extent that management believes there is significant uncertainty regarding realization
of such carryforwards, valuation allowances have been provided.

On October 22, 2004, the
American Jobs Creation Act of 2004 (the Act) was signed into law. The Act
provides for a special one-time deduction of 85 percent of certain foreign earnings. The
Corporation is currently evaluating the effects of this repatriation provision, and
expects to complete its evaluation within a reasonable amount of time after further
clarification is provided by Congress or the Treasury Department. The Corporation may
repatriate as much as $100 million of its foreign earnings, which would carry a one-time
tax charge to the Corporations consolidated results of operations of up to
approximately $8.5 million.

---

# 14 segment information

The Corporation operates in three
business segments: printing services, supply-chain management services, and healthcare
products. 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 Note 1 Significant Accounting Policies. The Corporation
evaluates performance based on earnings from operations. Summarized segment data for 2004,
2003 and 2002 are as follows:

|                                
|--------------------------------
|                                
|Dollars in thousands            
|Revenue                         
|                                
|Printing services               
|                                
|Supply-chain management services
|                                
|Healthcare                      
|                                
|Total                           
|                                
|Earnings from operations        
|                                
|Printing services               
|                                
|Supply-chain management services
|                                
|Healthcare                      
|                                
|Total 1                         
|                                
|Total assets                    
|                                
|Printing services               
|                                
|Supply-chain management services
|                                
|Healthcare                      
|                                
|Total 1                         
|                                
|Capital expenditures            
|                                
|Printing services               
|                                
|Supply-chain management services
|                                
|Healthcare                      
|                                
|Total 1                         
|                                
|Depreciation and Amortization   
|                                
|Printing services               
|                                
|Supply-chain management services
|                                
|Healthcare                      
|                                
|Total 1                         
|                                

1 Difference between
segment total and the total included in the consolidated financial statements is
unallocated corporate headquarters amounts and $10.8 million in unallocated corporate
headquarters asset impairment charges in 2002.

---

The following table presents a
reconciliation of certain segment information to the totals contained in the consolidated
financial statements:

|                                   
|-----------------------------------
|Dollars in thousands               
|Earnings from operations:          
|                                   
|Reportable segment earnings        
|                                   
|Unallocated corporate expenses     
|                                   
|Unallocated asset impairment charge
|                                   
|Interest expense                   
|                                   
|Interest income                    
|                                   
|Other income (expense), net        
|                                   
|Earnings before income taxes       
|                                   
|Total assets:                      
|                                   
|Reportable segment assets          
|                                   
|Intergroup receivable elimination  
|                                   
|Other unallocated amounts          
|                                   
|Consolidated total assets          
|                                   

Summarized geographic data for the
Corporations operations for 2004, 2003 and 2002 are as follows (revenue is
attributed to countries primarily based on location of operation):

|                       
|-----------------------
|Dollars in thousands   
|Revenue:               
|                       
|United States          
|                       
|Ireland                
|                       
|Other foreign countries
|                       
|                       
|                       
|Assets:                
|                       
|United States          
|                       
|Ireland                
|                       
|Other foreign countries
|                       
|                       
|                       

# 15 subsequent events

The Corporation announced on February
14, 2005, that it had reached an agreement to sell substantially all of the assets of its
single-use healthcare products subsidiary, Banta Healthcare Group, Ltd., to Fidelity
Capital Investors, Inc. Fidelity Capital, a private equity investment division of
Boston-based Fidelity Strategic Investments, will pay $67 million in cash in connection
with the sale of Banta Healthcare, which is headquartered at its manufacturing facility in
Neenah, WI. Closing of the transaction, which is scheduled for the first quarter of 2005,
is subject to customary closing conditions, including the receipt of financing and
anti-trust clearance.

---

In a separate transaction related to
the divestiture of Banta Healthcare Group, the Corporation sold its warehouse in Rialto,
CA, to a California real estate investment company for $7 million.

In February 2005, the Board of
Directors approved a $150 million share repurchase program, which replaced the
Corporations previous program.

# Unaudited Quarterly
Financial Information

The following table presents
financial information by quarter for the years 2004 and 2003.

|                                            
|--------------------------------------------
|Quarter Ended
March                         
|Dollars in thousands
(except per share data)
|Revenue                                     
|                                            
|Gross earnings                              
|                                            
|Net earnings                                
|                                            
|Restructuring charges                       
|included in net earnings,                   
|before taxes                                
|                                            
|Litigation settlement                       
|included in net earnings,                   
|before taxes                                
|                                            
|Basic earnings per share                    
|                                            
|Diluted earnings per share                  
|                                            

# Dividend Record and
Market Prices

|                         
|-------------------------
|Per Share of Common Stock
|2004 dividends paid      
|                         
|Price range:             
|                         
|High                     
|                         
|Low                      
|                         
|                         
|2003 dividends paid      
|                         
|Price range:             
|                         
|High                     
|                         
|Low                      
|                         

The stock prices listed above are
the high and low trades.  As of January 27, 2005 the Corporation had 1,642 shareholders
of record.