United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ________________
Commission file number 1-6352
JOHN H. HARLAND COMPANY
(Exact name of registrant as specified in its charter)
GEORGIA 58-0278260
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2939 Miller Rd
Decatur, Georgia 30035
(Address of principal executive offices) (Zip code)
(404) 981-9460
(Registrant's telephone number, including area code)
(Not Applicable)
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes (X) No ( ).
The number of shares of the Registrant's Common Stock outstanding on July 29,
1994 was 30,537,867.
<PAGE>
Item 1. FINANCIAL STATEMENTS
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
------
<CAPTION>
June 30, December 31,
(In thousands) 1994 1993
- ----------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 15,149 $ 26,224
Accounts receivable 54,882 63,660
Inventories 25,567 26,000
Deferred income taxes 8,599 6,694
Other 12,210 12,317
---------- ----------
Total current assets 116,407 134,895
---------- ----------
INVESTMENTS AND OTHER ASSETS:
Investments 9,159 8,103
Goodwill and intangibles-net 92,945 54,053
Other 8,310 7,014
---------- ----------
Total investments and other assets 110,414 69,170
---------- ----------
PROPERTY, PLANT AND EQUIPMENT 321,705 305,042
Less accumulated depreciation
and amortization 163,893 152,656
---------- ----------
Property, plant and equipment - net 157,812 152,386
---------- ----------
Total $ 384,633 $ 356,451
========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<CAPTION>
June 30, December 31,
(In thousands, except share amounts) 1994 1993
- ----------------------------------------------------------------------
(Unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Short-term debt $ 10,000 $ 4,000
Accounts payable - trade 9,705 8,690
Accrued liabilities:
Salaries, wages and employee benefits 16,387 15,458
Taxes 4,332 649
Other 21,003 15,182
---------- ----------
Total current liabilities 61,427 43,979
---------- ----------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 111,354 111,542
Deferred income taxes 5,301 6,393
Other 11,252 10,863
---------- ----------
Total long-term liabilities 127,907 128,798
---------- ----------
Total liabilities 189,334 172,777
---------- ----------
SHAREHOLDERS' EQUITY:
Series preferred stock, authorized 500,000
shares of $1.00 par value, none issued
Common stock - authorized 144,000,000
shares of $1.00 par value, issued
37,907,497 37,907 37,907
Additional paid-in capital 3,848 4,225
Foreign exchange translation adjustments 53 72
Retained earnings 336,199 325,323
---------- ----------
Total 378,007 367,527
Less 7,369,630 and 7,421,903 shares of
treasury stock - at cost 182,708 183,853
---------- ----------
Shareholders' equity - net 195,299 183,674
---------- ----------
Total $ 384,633 $ 356,451
========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1994 AND 1993
(Unaudited)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
(In thousands, except JUNE 30, JUNE 30,
per share amounts) 1994 1993 1994 1993
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 130,752 $ 129,979 $ 261,795 $ 263,483
---------- ---------- ---------- ----------
COST AND EXPENSES:
Cost of sales 67,455 70,165 136,311 144,741
Selling, general and
administrative expenses 34,437 32,121 68,101 64,883
Employees' profit sharing 2,487 2,426 4,968 4,866
Amortization of intangibles 3,639 2,169 6,299 4,331
---------- ---------- ---------- ----------
Total 108,018 106,881 215,679 218,821
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 22,734 23,098 46,116 44,662
OTHER INCOME (EXPENSES):
Interest expense (1,873) (391) (3,782) (871)
Other - net 461 15 567 251
---------- ---------- ---------- ----------
Total (1,412) (376) (3,215) (620)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 21,322 22,722 42,901 44,042
INCOME TAXES 8,481 8,595 17,074 16,796
---------- ---------- ---------- ----------
NET INCOME 12,841 14,127 25,827 27,246
RETAINED EARNINGS AT BEGINNING
OF PERIOD 330,840 308,415 325,323 303,249
---------- ---------- ---------- ----------
Total 343,681 322,542 351,150 330,495
Cash dividends 7,482 7,959 14,951 15,912
---------- ---------- ---------- ----------
RETAINED EARNINGS AT END OF PERIOD $ 336,199 $ 314,583 $ 336,199 $ 314,583
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 30,548 33,647 30,534 33,802
========== ========== ========== ==========
NET INCOME PER COMMON SHARE $ 0.42 $ 0.42 $ 0.85 $ 0.81
========== ========== ========== ==========
CASH DIVIDENDS PER COMMON
SHARE $ 0.245 $ 0.235 $ 0.49 $ 0.47
========== ========== ========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1994 AND 1993
(Unaudited)
<CAPTION>
(In thousands) 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 25,827 $ 27,246
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 19,656 17,321
Other (2,614) 943
Change in assets and liabilities net of
effect of acquisitions:
Accounts receivable 10,943 1,229
Inventories and other current assets (260) 3,800
Accounts payable and accrued expenses 1,108 5,252
Other-net 48
---------- ----------
Net cash provided by operating activities 54,708 55,791
---------- ----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (19,672) (10,978)
Proceeds from sale of equipment 2,740 635
Change in short-term investments-net 2,148 (1,350)
Payment for acquisition of businesses,
net of cash acquired (40,202) (37,769)
Acquisition deposit 31,900
Long-term investments and other assets-net (2,408) (769)
---------- ----------
Net cash used in investing activities (57,394) (18,331)
---------- ----------
FINANCING ACTIVITIES:
Sale of common stock 1,977 2,618
Dividends paid (14,951) (15,912)
Purchase of treasury stock (1,209) (45,618)
Short-term borrowings 6,000 10,000
Other (206) (1,404)
---------- ----------
Net cash used in financing activities (8,389) (50,316)
---------- ----------
Decrease in cash and cash equivalents (11,075) (12,856)
Cash and cash equivalents at beginning of period 26,224 19,133
---------- ----------
Cash and cash equivalents at end of period $ 15,149 $ 6,277
========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1994
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements contained in this report
are unaudited but reflect all adjustments, consisting only of normal
recurring accruals, which are, in the opinion of management, necessary
for a fair presentation of the results of operations, financial position
and cash flows of the John H. Harland Company and subsidiaries ("the
Company") for the interim periods reflected. Certain information and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
omitted pursuant to applicable rules and regulations of the Securities
and Exchange Commission. The results of operations for the interim
period reported herein are not necessarily indicative of results to be
expected for the full year.
2. Accounting Policies
The condensed consolidated financial statements included herein should
be read in conjunction with the consolidated financial statements and
notes thereto, and the Independent Auditors' Report included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1993.
Reference is made to the accounting policies of the Company described in
the notes to consolidated financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1993. The
Company has consistently followed those policies in preparing this
report.
3. Acquisitions
On January 1, 1993, the Company completed the acquisition of
substantially all the net assets of the Denver-based Rocky Mountain Bank
Note Company ("RMBN") for cash of $37.9 million and acquisition related
costs of approximately $8.9 million. The purchase was funded through
short-term borrowings of $18.0 million and by internally generated
funds. The acquisition has been accounted for as a purchase and, accord-
ingly, the acquired net assets and operations have been included in the
consolidated financial statements from the date of acquisition. Assets
acquired totaled $46.8 million, net of liabilities assumed of $2.0
million. Of the total acquisition costs, $25.7 million was allocated to
intangible assets of which $10.7 million represented goodwill.
On January 7, 1994, the Company acquired Marketing Profiles, Inc.
("MPI") for cash paid at closing and a contingent purchase payment
payable in 1997 to the former MPI shareholders. The contingent purchase
payment is based upon a multiple of MPI's 1996 operating results as
defined in the acquisition agreement. The acquisition price was funded
with a portion of the proceeds received in the December 1993 issuance of
<PAGE>
long-term debt. The acquisition was accounted for using the purchase
method of accounting and, accordingly, the results of operations of MPI
have been included in the Company's consolidated financial statements
from the date of acquisition. MPI is based in Maitland, Florida and is a
database marketing and consulting company which provides software
products and related marketing services to the financial industry.
On March 31, 1994, the Company acquired the net assets of FormAtion
Technologies, Inc. ("FTI") for cash paid at closing and a contingent
purchase payment payable in 1997 to the FTI shareholders. The contingent
purchase payment is based upon a multiple of FTI's operating results
during the three year period ending in 1996 as defined in the
acquisition agreement. The acquisition price was funded with portion of
the proceeds received in the December 1993 issuance of long-term debt.
The acquisition was accounted for using the purchase method of
accounting and, accordingly, the acquired net assets of FTI have been
included in the Company's consolidated financial statements from the
date of acquisition. FTI is based in Denver, Colorado and develops,
markets and supports lending and platform automation software for the
financial industry.
The cash paid for the acquisitions of MPI and FTI totaled $45,050,000.
4. Investments
As of January 1, 1994, the Company adopted SFAS No. 115, entitled
"Accounting for Certain Investments in Debt and Equity Securities".
Investments classified as available for sale are carried at cost which
approximates market. The effect of adopting SFAS No. 115 was not
significant to the Company's financial statements.
5. Accounting for Income Taxes
The provision for income tax expense for the six months ended June 30,
1994 and 1993 includes the following (in thousands):
1994 1993
---------------------------------------------------------------------
Current provision $ 20,071 $ 17,003
Deferred benefit (2,997) (207)
--------- ---------
Total $ 17,074 $ 16,796
========= =========
On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 ("OBRA
'93") was signed into law by the President. The OBRA '93 increased the
corporate tax rate from 34% to 35% as well as made other changes to
corporate tax law. Pursuant to SFAS 109, the Company recorded the
cumulative effect of the changes on current and deferred income taxes as
a result of the OBRA '93 during the third quarter of 1993.
6. Employee Stock Plans
The Company has an Employee Stock Purchase Plan under which employees
are granted an option to purchase shares of the Company's common stock
during the quarter in which the option is granted. The option price is
<PAGE>
85% of the fair market value of the stock at the beginning or end of the
quarter, whichever is lower. In the quarter ended June 30, 1994, options
representing 52,346 shares were exercised at a price of $18.43 per
share. At June 30, 1994, there were 569,288 shares reserved for purchase
under the Employee Stock Purchase Plan.
The Company has incentive and non-qualified stock option plans ("Plans")
which provide for the granting of options to certain key employees of
the Company to purchase shares of the Company's common stock at the fair
market value of the common stock on the date of the grant. Option
transactions for the three months ended June 30, 1994 are as follows:
Shares Exercise Price
-----------------------------------------------------------------------
Options outstanding at March 31, 1994 487,084 11.59 - 26.25
Options cancelled (58,615) 11.59 - 24.75
---------
Options outstanding at June 30, 1994 428,469 11.59 - 26.25
=========
The options generally become exercisable one year from the date of the
grant. At June 30, 1994, there were 291,219 options exercisable and
680,124 shares reserved for options under the Plans.
7. Net Income Per Common Share
Net income per common share is based on the weighted average number of
common shares and common share equivalents outstanding during the peri-
od. Common share equivalents include the number of shares issuable upon
the exercise of the Company's stock options.
8. Inventories
Inventories consisted of the following (in thousands of dollars):
June 30, December 31,
1994 1993
-----------------------------------------------------------------------
Raw materials and semi-finished goods $ 21,296 $ 22,389
Finished goods 2,822 2,133
Hardware component parts 1,449 1,478
-------- --------
Total $ 25,567 $ 26,000
======== ========
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Second Quarter 1994 vs. 1993
Consolidated net sales increased $773,000 or 0.6% over the same period in
1993. The Company's Financial Services Group ("FSG") had a sales decrease of
$6,262,000 or 5.4% which consisted of a 7.1% decrease in units and a
price/mix increase of 1.7%. The loss of several former Rocky Mountain Bank
Note ("RMBN") accounts, which was known when the Company acquired RMBN in
January 1993, continued to impact FSG sales units. In addition, units
were impacted by loss of one large customer and by a reduction in the
amount under contract with another large customer, although the business
retained was renewed at more favorable pricing. The FSG price/mix increase
is attributable to increases in sales of higher priced product lines, a
general price increase effective in December 1993 and efforts by FSG to
reduce discounting. Sales for the Company's Data Services Group ("DSG")
increased $107,000 or 0.8% over 1993. DSG's sales in commercial markets
increased primarily due to increased maintenance services and other revenues
related to new products and services which were introduced during 1993.
These increases were offset by a decrease in DSG's sales in international
markets. DSG sales to its educational customers showed a small increase when
compared to the 1993 period. The Company's recently formed Information
Services Group ("ISG"), which consists of Marketing Profiles Inc. ("MPI")
acquired in January 1994 and FormAtion Technologies, Inc. ("FTI") acquired
at the end of March 1994, contributed $6,062,000 to consolidated net sales
for the 1994 period. The Check Store, Inc. ("The Check Store"), which
markets checks and related products directly to consumers, began production
operations during the second quarter 1994. Sales by The Check Store exceeded
the Company's expectations but were not significant as a portion of
consolidated net sales.
Consolidated cost of goods sold decreased $2,710,000 or 3.9% from 1993 and
decreased as a percentage of sales from 54.0% in 1993 to 51.6% in 1994. As a
percentage of its sales, FSG's cost of goods improved from 54.1% in 1993 to
51.6% in 1994. The FSG margin improvement is attributable to cost reductions
gained from consolidations of excess imprint and base stock facilities as
well as from lower material costs. DSG's cost of goods sold declined as a
percentage of its sales from 51.8% in 1993 to 49.0% in 1994. Cost control
improvements and increases in sales of higher margin products are the
primary reasons for DSG's gross margin improvement. Cost of goods sold for
ISG and The Check Store totaled $3,741,000 for the 1994 second quarter.
Consolidated selling, general and administrative expense increased by
$2,316,000 or 7.2%, and increased as a percentage of sales from 24.7% in
1993 to 26.3% in 1994. Major components of the increase were expenses
resulting from acquired operations (MPI and FTI) as well as marketing costs
associated with the start-up of The Check Store. DSG selling, general and
administrative expense increased $532,000 and increased as a percentage of
its sales from 36.2% in 1993 to 39.9% in 1994. FSG continued its trend of
lower selling, general and administrative expense which decreased by
<PAGE>
$2,309,000 and as a percentage of its sales improved from 20.4% in 1993 to
19.5% in 1994. This favorable comparison is principally due to consolidation
of selling and administrative functions of RMBN which was acquired in
January 1993.
Amortization of intangibles, principally resulting from acquisitions,
increased $1,470,000 or 67.8%, and increased as a percentage of sales from
1.7% in 1993 to 2.8% in 1994. This increase is attributable to the
acquisitions of MPI and FTI in January 1994 and March 1994, respectively.
Other income (expense) increased, from a net expense of $376,000 in 1993 to
a net expense of $1,412,000 in 1994. This increase is principally due to the
Company's issuance of $100,000,000 in long-term debt in December 1993 at an
annual interest rate of 6.6%.
Income before income taxes decreased $1,400,000 or 6.2% and decreased as a
percentage of sales from 17.5% in 1993 to 16.3% in 1994. The Company's
consolidated effective income tax rate for the 1994 period was 39.8%
compared to 37.8% in 1993. The primary factors contributing to the increase
in the consolidated effective income tax rate are impacts of OBRA '93, along
with certain non-deductible amortization of intangible assets associated
with acquired businesses.
Year to Date Analysis
Consolidated net sales decreased $1,688,000 or 0.6% over the same period in
1993. FSG sales decreased $14,062,000 or 5.9% which consisted of a unit
decrease of 6.4% and a price/mix increase of 0.5%. DSG sales increased
$1,138,000 or 4.6% primarily for the same reasons discussed in the analysis
of second quarter results. ISG contributed $10,370,000 to consolidated net
sales for the 1994 period.
Consolidated cost of goods sold decreased $8,430,000 or 5.8% from the same
period in 1993 and as a percentage of sales decreased from 54.9% in 1993 to
52.1% in 1994. FSG's improvement in cost of goods sold as a percentage of
sales was the primary reason for the improvement in the consolidated gross
margin.
Consolidated selling, general and administrative expense increased by
$3,218,000 or 5.0%, and increased as a percentage of sales from 24.6% in
1993 to 26.0% in 1994. Major components of the increase were expenses
resulting from acquired operations (MPI and FTI) as well as marketing costs
associated with the start-up of The Check Store. These increases were offset
by FSG's decreased selling, general and administrative expenses primarily as
a result of the consolidation of selling and administrative functions of
RMBN.
Principally due to the acquisitions of MPI and FTI, amortization of
intangibles increased $1,968,000 over 1993 and increased as a percentage of
sales from 1.6% in 1993 to 2.4% in 1994.
Other income (expense) increased, from a net expense of $620,000 in 1993 to
$3,215,000 in 1994. This increase is principally due to the Company's
issuance of $100,000,000 in long-term debt in December 1993 at an annual
interest rate of 6.6%.
<PAGE>
Income before income taxes decreased $1,141,000 or 2.6% and decreased as a
percentage of sales from 16.7% in 1993 to 16.4% in 1994. The consolidated
effective tax rate for the 1994 period was 39.8% versus 38.1% in 1993.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
At June 30, 1994 the Company had $54,980,000 in consolidated working capital
including $15,149,000 of cash and cash equivalents. Cash and cash
equivalents decreased by $11,075,000 during the first six months of 1994. At
June 30, 1994, $6,000,000 in borrowing was outstanding under the Company's
unsecured lines of credit. The Company has unsecured lines of credit which
provide for borrowing up to $111.0 million.
Primary uses of funds during the six month period ended June 30, 1994 were
to acquire MPI and FTI, expenditures for property, plant and equipment and
disbursements of dividends to the Company's shareholders. Additionally, the
Company made an equity investment of $2,000,000 in Bottomline Technologies,
Inc., a New Hampshire-based company which is a leading provider of desktop
laser software and hardware for issuing magnetic ink encoded financial
documents. Cash flows generated from operations for the six month period
ended June 30, 1994 totaled $54,708,000, compared to $55,791,000 for the
comparable period in 1993. Purchases of property, plant and equipment
totaled $19,672,000 for the six month period ended June 30, 1994, compared
with $10,978,000 for the comparable period in 1993. This increase is
primarily attributable to equipment purchased to improve FSG production
processes and a property located in Denver, Colorado. The Company estimates
that its capital expenditures will exceed $30 million for the 1994 year.
The Company believes that funds from operations and available amounts under
its lines of credit will be sufficient to meet anticipated requirements for
working capital, dividends, capital expenditures and other corporate needs,
and management is not aware of any condition that would materially alter
this trend. The Company also believes that it possesses ample unused debt
capacity to pursue additional acquisition opportunities should they avail
themselves to the Company.
<PAGE>
PART II. OTHER INFORMATION
===========================
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of shareholders of the Company was held on April
22, 1994 in Atlanta, GA. There was no solicitation in opposition to
management's nominees for Directors as listed in the Proxy Statement
and all such nominees were elected.
(c) Below is a brief description of matters voted on at the Annual Meeting
and the results of the voting:
Votes Votes
For Opposed Abstain
--------- --------- --------
Election of directors:
Lawrence L. Gellerstedt, Jr. 25,502,978 193,772
Edward J. Hawie 25,498,251 198,499
G. Harold Northrop 25,506,486 190,264
Robert A. Yellowlees 25,485,769 210,981
Ratify the appointment of
Deloitte & Touche as the
Company's independent
certified public
accountants for the year
ending December 31, 1994 25,640,394 19,499 36,857
Item 6. Exhibits and Reports on Form 8-K.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the three months ended June
30, 1994.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHN H. HARLAND COMPANY
(Registrant)
August 15, 1994 William M. Dollar
Date: _________________ By:_____________________________
William M. Dollar
Vice-President and Treasurer
(Authorized Officer and
Principal Financial Officer)
