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 March 31, 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 May 2,
1994 was 30,537,221.
<PAGE>
Item 1. FINANCIAL STATEMENTS
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
------
<CAPTION>
March 31, December 31,
(In thousands) 1994 1993
- - ----------------------------------------------------------------------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 11,349 $ 26,224
Accounts receivable 62,335 63,660
Inventories 25,483 26,000
Deferred income taxes 8,727 6,694
Other 15,105 12,317
---------- ----------
Total current assets 122,999 134,895
---------- ----------
INVESTMENTS AND OTHER ASSETS:
Investments 10,106 8,103
Goodwill and intangibles-net 96,560 54,053
Other 7,934 7,014
---------- ----------
Total investments and other assets 114,600 69,170
---------- ----------
PROPERTY, PLANT AND EQUIPMENT 308,811 305,042
Less accumulated depreciation
and amortization 157,721 152,656
---------- ----------
Property, plant and equipment - net 151,090 152,386
---------- ----------
Total $ 388,689 $ 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>
March 31, December 31,
(In thousands, except share amounts) 1994 1993
- - ----------------------------------------------------------------------
(Unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Short-term debt $ 4,000 $ 4,000
Accounts payable - trade 10,334 8,690
Accrued liabilities:
Salaries, wages and employee benefits 16,021 15,458
Taxes 14,244 649
Other 25,837 15,182
---------- ----------
Total current liabilities 70,436 43,979
---------- ----------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 111,380 111,542
Deferred income taxes 5,768 6,393
Other 11,063 10,863
---------- ----------
Total long-term liabilities 128,211 128,798
---------- ----------
Total liabilities 198,647 172,777
---------- ----------
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 4,048 4,225
Foreign exchange translation adjustments (33) 72
Retained earnings 330,840 325,323
---------- ----------
Total 372,762 367,527
Less 7,370,286 and 7,421,903 shares of
treasury stock - at cost 182,720 183,853
---------- ----------
Total shareholders' equity 190,042 183,674
---------- ----------
Total $ 388,689 $ 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 MONTH PERIODS ENDED MARCH 31, 1994 AND 1993
(Unaudited)
<CAPTION>
(In thousands, except
per share amounts) 1994 1993
- - --------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 131,043 $ 133,504
---------- ----------
COST AND EXPENSES:
Cost of sales 68,856 74,576
Selling, general and
administrative expenses 33,664 32,762
Employees' profit sharing 2,481 2,440
Amortization of intangibles 2,660 2,162
---------- ----------
Total 107,661 111,940
---------- ----------
INCOME FROM OPERATIONS 23,382 21,564
---------- ----------
OTHER INCOME (EXPENSES):
Interest expense (1,909) (480)
Other - net 106 236
---------- ----------
Total (1,803) (244)
---------- ----------
INCOME BEFORE INCOME TAXES 21,579 21,320
INCOME TAXES 8,593 8,201
---------- ----------
NET INCOME 12,986 13,119
RETAINED EARNINGS AT BEGINNING
OF PERIOD 325,323 303,249
---------- ----------
338,309 316,368
Cash dividends (7,469) (7,953)
---------- ----------
RETAINED EARNINGS AT END OF PERIOD $ 330,840 $ 308,415
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 30,519 33,961
========== ==========
NET INCOME PER COMMON SHARE $ .43 $ .39
========== ==========
CASH DIVIDENDS PER COMMON
SHARE $ .245 $ .235
========== ==========
<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 THREE MONTH PERIODS ENDED MARCH 31, 1994 AND 1993
(Unaudited)
<CAPTION>
(In thousands) 1994 1993
- - -----------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 12,986 $ 13,119
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 9,213 8,626
Other (2,643) 141
Change in assets and liabilities net of
effect of acquisitions:
Accounts receivable 3,596 2,999
Inventories and other current assets (771) 2,122
Accounts payable and accrued expenses 16,123 11,169
Other-net 129
---------- ----------
Net cash provided by operating activities 38,633 38,176
---------- ----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (5,896) (5,063)
Proceeds from sale of equipment 2,433 184
Change in short-term investments-net (152) (250)
Payment for acquisition of businesses,
net of cash acquired (40,202) (35,445)
Acquisition deposit 31,900
Long-term investments and other assets-net (2,910) (93)
---------- ----------
Net cash used in investing activities (46,727) (8,767)
---------- ----------
FINANCING ACTIVITIES:
Sale of common stock 1,012 1,621
Dividends paid (7,469) (7,953)
Purchase of treasury stock (55) (6,746)
Short-term borrowings 3,000
Other (269) (723)
---------- ----------
Net cash used in financing activities (6,781) (10,801)
---------- ----------
Increase (decrease) in cash and cash equivalents (14,875) 18,608
Cash and cash equivalents at beginning of period 26,224 19,133
---------- ----------
Cash and cash equivalents at end of period $ 11,349 $ 37,741
========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 fiscal 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 fiscal 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
long-term debt. The acquisition was accounted for using the purchase
<PAGE>
method of accounting and, accordingly, the results of operations of MPI
will be 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 will be
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 MPI and FTI acquisitions were for an aggregate cash amount of
$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 three months ended March
31, 1994 and 1993 includes the following (in thousands):
1994 1993
---------------------------------------------------------------------
Current provision $ 11,251 $ 9,076
Deferred benefit (2,658) (875)
--------- --------
Total $ 8,893 $ 8,201
========= ========
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 cumu-
lative 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
<PAGE>
during the quarter in which the option is granted. The option price is
85% of the fair market value of the stock at the beginning or end of the
quarter, whichever is lower. In the quarter ended March 31, 1994,
options representing 51,031 shares were exercised at a price of $18.70
per share. At March 31, 1994, there were 621,644 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 March 31, 1994 are as follows:
Shares Exercise Price
-----------------------------------------------------------------------
Options outstanding at December 31, 1993 375,688 $ 9.11 - 26.25
Options granted 114,250 21.75
Options exercised (2,854) 9.11 - 21.88
---------
Options outstanding at March 31, 1994 487,084 11.59 - 26.25
=========
The options generally become exercisable one year from the date of the
grant. At March 31, 1994, there were 348,834 options exercisable and
680,124 shares reserved for options under the Plans.
7. Net Income Per Share
Net income per share is based on the weighted average number of common
shares and common share equivalents outstanding during the period.
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):
March 31, December 31,
1994 1993
-----------------------------------------------------------------------
Raw materials and semi-finished goods $ 25,591 $ 22,389
Finished goods 2,540 2,133
Hardware component parts 1,352 1,478
-------- --------
Total $ 25,483 $ 26,000
======== ========
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
First Quarter 1994 vs. 1993
Consolidated net sales for the first quarter 1994 decreased $2,461,000 or
1.8% as compared to the first quarter of 1993. Sales for the Company's
Financial Services Group ("FSG") experienced a decrease of $7,800,000 or
6.4%, 5.7% of which represented a decrease in unit sales. The remaining 0.7%
decrease was attributable to price/mix. The decrease in FSG sales units is
primarily due to the loss of several former Rocky Mountain Bank Note
("RMBN") accounts soon after the Company's acquisition of RMBN in January
1993. Sales for the Company's Data Services Group ("DSG"), which
manufactures and distributes optical mark reading equipment and scannable
forms, increased $1,031,000 or 9.3% in the first quarter 1994 versus the
comparable period in 1993. Primary contributors to this increase were in-
creased penetration of new product sales and higher service bureau sales,
both of which were part of significantly stronger sales to commercial mar-
kets. On January 7, 1994 the Company purchased Marketing Profiles, Inc.
("MPI"), a Maitland, Florida based database marketing and consulting company
which provides software products and related marketing services to the
financial industry. MPI's results of operations have been included in the
Company's consolidated financial statements from the date of acquisition,
contributing $4,308,000 or 3.3% to the Company's first quarter 1994
consolidated net sales.
Consolidated cost of goods sold decreased by $5,720,000 or 7.7%, and
decreased as a percentage of net sales from 55.9% for the first quarter 1993
to 52.5% for the first quarter 1994. The major reason for this decline was a
decrease in FSG's cost of goods sold of $8,448,000 or 12.3% (from 55.9% of
net sales in 1993 to 52.3% of net sales in 1994). Consolidation of excess
imprint production capacity as well as reduced material costs (resulting
from the closing of two base stock facilities) favorably impacted FSG's cost
of goods sold. Cost of goods sold for DSG increased by $710,000 or 11.5%,
and increased slightly as a percentage of net sales from 55.6% in the first
quarter 1993 to 56.7% for the first quarter 1994.
Consolidated selling, general and administrative expense increased by
$902,000 or 2.8%, and increased as a percentage of sales from 24.5% in the
first quarter 1993 to 25.7% for the first quarter 1994. Major components of
the increase were expenses resulting from acquired operations (MPI) as well
as costs associated with the start-up of The Check Store, the Company's
subsidiary which was formed in October 1993 to market checks and related
products directly to consumers. DSG experienced a period-to-period increase
in selling, general and administrative expense of 5.8%, but as a percentage
of sales such expenses decreased from 40.2% in the first quarter 1993 to
38.9% for the first quarter 1994. FSG experienced a significant decrease in
selling, general and administrative expense from first quarter 1993 to first
quarter 1994 (period-to-period decrease of 10.5%), and as a percentage of
FSG net sales experienced an improvement from 19.8% in the first quarter
1993 to 19.0% for the first quarter 1994. The principal reason for FSG's
favorable comparison to 1993 was a reduction in the selling and
<PAGE>
administrative functions of RMBN which took place after RMBN was acquired in
January 1993; offset by increased investments in information technology.
Amortization of intangibles, principally resulting from acquisitions,
increased by $498,000 or 23.0%, and increased slightly as a percentage of
net sales from 1.6% in the first quarter 1993 to 2.0% for the first quarter
1994. This increase is primarily attributable to the acquisition of MPI
which took place on January 7, 1994.
Other income (expense) increased, from a net expense of $244,000 in the
first quarter 1993 to a net expense of $1,803,000 for the first quarter
1994. The principal reason for the increase relates to the Company's
issuance of $100,000,000 in long term debt in December 1993 ($85,000,000
senior notes and a $15,000,000 bank term loan), which bears interest at an
annual interest rate of 6.6%.
The Company's consolidated effective income tax rate for the first quarter
1994 was 39.8% compared to 38.5% for the first quarter 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.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
At March 31, 1994 the Company had $52,563,000 in consolidated working capi-
tal, of which $11,349,000 was represented by cash and cash equivalents. Cash
and cash equivalents decreased by $14,875,000 during the first three months
of 1994. Primary uses of funds during the three month period ended March 31,
1994 were to acquire MPI and FormAtion Technologies, Inc., and to disburse
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 soft-
ware and hardware for issuing magnetic ink encoded financial documents. Cash
flows generated from operations for the three month period ended March 31,
1994 totaled $38,633,000, compared to $38,176,000 for the comparable period
in 1993.
Purchases of property, plant and equipment totaled $5,896,000 for the three
month period ended March 31, 1994, compared with $5,063,000 for the compara-
ble period in 1993. The Company estimates that its capital expenditures will
exceed $30 million for the 1994 year.
The Company believes that funds from operations will be sufficient to meet
anticipated requirements for working capital, dividends, capital expendi-
tures and other corporate needs, and management is not aware of any condi-
tion 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 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
March 31, 1994.
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)
May 16, 1994 William M. Dollar
Date: _________________ By:_____________________________
William M. Dollar
Vice-President and Treasurer
(Authorized Officer and
Principal Financial Officer)
