UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
(Mark One)
|x| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994 or
| | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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
incorporation or organization) Identification No.)
2939 Miller Road, Decatur, Georgia 30035
(Address of principal executive offices) (Zip Code)
(404) 981-9460
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------------- -----------------------------------------
Common Stock $1 par value New York Stock Exchange
Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of the close of business on March 13, 1995 was $643,526,000.
The number of shares of the Registrant's Common Stock outstanding on March
13, 1995 was 30,446,739.
A portion of the Registrant's Definitive Proxy Statement dated March 13, 1995
is incorporated by reference in Part III hereof.
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John H. Harland Company and Subsidiaries
Index to Annual Report on Form 10-K
Page
Part I
Item 1: Business 3
Item 2: Properties 7
Item 3: Legal Proceedings 8
Item 4: Submission of Matters to a Vote of Security Holders 8
Item X: Executive Officers of the Registrant 8
Part II
Item 5: Market for the Registrant's Common Equity and
Related Stockholder Matters 8
Item 6: Selected Financial Data 8
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 8: Financial Statements and Supplementary Data 9
Item 9: Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 9
PART III
Item 10: Directors and Executive Officers of the Registrant 9
Item 11: Executive Compensation 9
Item 12: Security Ownership of Certain Beneficial Owners
and Management 9
Item 13: Certain Relationships and Related Transactions 9
PART IV
Item 14: Exhibits, Financial Statement Schedules and
Reports on Form 8-K 9
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PART I
ITEM 1. BUSINESS
GENERAL
John H. Harland Company (the "Company" or the "Registrant") was
founded in 1923 as a general printer and lithographer. The Company, a
Georgia corporation headquartered in Atlanta, Georgia, is one of the
nation's leading providers of checks, business documents and forms to the
financial industry. The Company also provides other products and services to
the financial industry, educational and commercial markets and directly to
consumers. Its core business is providing financial institutions with
magnetic ink character recognition ("MICR") documents. The Company also
provides financial institutions with platform automation systems, compliance
systems, database marketing, data management, check verification, magnetic
stripe cards, desktop MICR systems and survey services. In addition, Harland
is a participant in the data service industry, providing turnkey data man-
agement solutions for educational and commercial markets.
In October 1993, the Company formed a new subsidiary, The Check
Store, Inc. ("The Check Store"), which markets checks and related products
directly to consumers. The Check Store began production operations in April
1994.
On January 7, 1994, the Company acquired Marketing Profiles, Inc.
("MPI"). MPI is based in Orlando, 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. ("FormAtion"). FormAtion develops, markets and supports
lending and platform automation software for the financial services
industry.
On September 31, 1994, the Company's wholly-owned subsidiary,
Scantron Corporation ("Scantron"), acquired the net assets of Financial
Products Corporation ("FPC"). FPC is based in Omaha, Nebraska and is a
provider of maintenance and repair services for a broad variety of
computers, peripherals, networks and operating systems.
In 1994, the Company invested $2.3 million in a joint venture with
Miguel Galas, S.A., a Mexican printing company. The joint venture, Galas
Harland S.A de C.V. ("Galas Harland"), prints personal and commercial checks
for the Mexican market. The Company's investment in Galas Harland is
accounted for on the equity method.
Additionally, in 1994 the Company invested $2.0 million in Bottomline
Technologies, Inc. ("Bottomline"). Bottomline is a provider of desktop laser
software and hardware for issuing MICR financial documents. The Company's
investment represents approximately an eight percent equity interest in
Bottomline.
DESCRIPTION OF BUSINESS UNITS
Overview
In 1994, the Company redefined its business into four distinct
operating groups: the Financial Services Group ("FSG"), the Information
Services Group ("ISG"), the Data Services Group ("DSG") and the Direct
Marketing Group ("DMG"). FSG includes the Company's check printing and
specialty printing operations and provides checks, forms and specialty
products to financial institutions and pertinent non-financial markets. ISG
consists of the Company's MPI and FormAtion subsidiaries and provides
platform automation, compliance solutions and targeted marketing consulting
to the financial, cable television, insurance and mutual funds industries.
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DSG includes Scantron and its subsidiaries and provides data management
solutions for educational, commercial and governmental markets. DMG consists
of The Check Store and offers checks and related products directly to
consumers. See Note 14 of the Notes to Consolidated Financial Statements on
page F16 of this Annual Report on Form 10-K with respect to financial
information about the Company's business segments.
Financial Services Group
FSG provides MICR encoded documents and related forms to financial
institutions and their customers. FSG's product line includes personal and
business checks in a variety of multi-colored scenic styles, as well as
three-to-a-page, carbonized payroll, voucher, window, and continuous and
laser printed computer check formats. Through its specialty print
operations, FSG produces a variety of small-volume generic and customized
products and computer-related documents for financial institutions and other
commercial establishments. Such items include custom designed checks,
deposit tickets and related products printed with an individual's design
and/or personalization, MICR encoded internal control documents and carbon-
interleaved forms.
Through strategic alliances with independent companies, FSG addresses
security and fraud concerns of financial institutions (via TeleCheck
Services, Inc.); provides full-service plastic card programs for financial
institutions (via Cardpro Services, Inc.); offers point-of-service
production capabilities of MICR readable documents (via Bottomline
Technologies, Inc.); and markets recyclable deposit bags to financial
institutions (via Learoyd Packaging, Inc.).
FSG's documents are printed on stock lithographed in its six base
stock plants and at one of its specialty printing plants. FSG imprints
checks and related product documents at its 42 check printing facilities
located in 30 states and at 1 plant located in Puerto Rico. All of these
plants are principally devoted to printing checks, deposit tickets and
related forms. Additionally, FSG has three printing facilities (located in
three states) dedicated to its specialty print operations.
FSG markets products across the United States and in Puerto Rico. FSG
also markets products in other areas of the West Indies, Mexico, and Panama.
The FSG sales force of approximately 375 people services customers by type
(financial, non-financial and international) to provide solutions that meet
customer's individual needs. Financial customers include community-based and
regional financial institutions and are served by approximately 94 percent
of FSG's sales force. Non-financial customers consist of selected retail
markets such as superstores, software companies, catalog merchandisers and
affinity groups and are served by approximately four percent of FSG's sales
force. International customers are served by the remaining two percent of
the sales force and include financial and non-financial customers in
international markets.
Information Services Group
ISG, the Company's newest business segment, provides technology for
easy-to-use, cost effective and efficient data-base solutions for its
customers. ISG primarily markets its products and services to the financial
industry and recently entered the cable television, insurance and mutual
funds industries.
ISG's principal products are computer software products and services
designed to increase efficiency and profitability of financial institutions.
ISG's products include database marketing, consulting and direct mail
services through the Company's MPI subsidiary and through its FormAtion
subsidiary ISG provides platform automation and compliance solutions.
Through these products and services, ISG is building recurring revenue
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through compliance royalties, on-going consulting services and annual
software maintenance fees.
ISG products are marketed primarily through approximately 50 ISG sales
representatives in various locations throughout the United States.
Representatives sell and distribute software products directly to customers.
Sales of products in 1994 were also due in part to promoting ISG products
through FSG's sales force.
Data Services Group
DSG provides an array of data management solutions for educational,
commercial and governmental customers. These data management solutions are
generated through DSG's principal products and services which include data
collection (through optical mark reading, optical character recognition and
imaging systems), forms printing, field service and a service bureau.
DSG serves its primary educational market with forms and equipment
used to capture, tabulate and analyze data for test scoring and grade
reporting. Within its commercial and government sectors, DSG equipment and
forms are used to collect and analyze survey responses, inventory
information, employee evaluations, order information and other forms of data
collection and analysis.
DSG's products are supported through its field service division, which
offers maintenance services for the scanning machines and software products
related to data collection and analysis activities. In September 1994, DSG
expanded its field service division with the acquisition of FPC and now
provides maintenance and repair for a variety of computers, peripherals,
networks and operating systems.
DSG also operates a service bureau which provides turnkey survey and
other data collection solutions to organizations that may or may not own
scanning equipment.
DSG markets its products primarily through 193 sales and service
representatives from 49 locations throughout the United States and from two
locations in Canada. Representatives sell systems, distribute new equipment
and provide ongoing assistance, such as machine servicing and forms
development to customers. DSG's products are also marketed internationally
through distributorships.
Direct Marketing Group
DMG produces checks and financial related products for sale directly
to consumers. The Company operates in this business through The Check Store
subsidiary which consists of an imprint/fulfillment facility in Denver,
Colorado. DMG's business uses numerous advertising sources including news-
papers, freestanding inserts, co-op mailings and magazines to sell its
products direct-to-consumers.
Seasonal Business
There is a seasonal nature to DSG's business in the educational
market, but it does not significantly affect the Company's consolidated
results. Generally, the balance of the Company's business is not seasonal.
Patent, Trademarks, Licenses, Franchises and Concessions
On February 4, 1992, the Company received a patent on a Scannable
Form and System developed by Scantron. This patent expires on February 4,
2009. Also, the Company has trademarks on names of several of its products
and services. The Company believes these patents and trademarks impact
business, however, it does not consider any of them to be critical to its
operation.
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Competition
Financial Services Group -- At the present time, there are a number
of domestic companies specializing in the production of MICR encoded checks
and related items similar to those produced by the Company. The Company
believes that the primary competitive factors considered by customers are
printing accuracy, service capabilities, price and the availability of a
complete product line. The Company compares favorably with its competitors
with regard to these above mentioned factors. Although complete statistics
on check production are not available, the Company believes it is among the
largest printers of MICR encoded personalized checks in the United States.
One other printer has substantially greater sales and financial resources
than the Company.
Technological advancements in electronics have created possible
alternatives to the check as a medium of transferring funds. While
electronic funds transfer has gained acceptance for some applications, the
Company believes electronic funds transfer has had minimal acceptance by
consumers as a mode of personal payment. At this time, the Company cannot
determine or predict what effect this technology may eventually have on the
check printing business.
Information Services Group -- Database marketing and compliance
services are rapidly growing niche markets in the financial services and
other industries. The Company believes its MPI subsidiary to be a leader
among the competition at this time. Competition in the compliance services
industry varies by bank size with FormAtion competing with a host of
companies for both small and large accounts.
Data Services Group -- The data collection market is a highly
fragmented industry, with many large and small competitors, and is growing
at approximately 15% annually. DSG products are sold mainly in the United
States with minor sales activity in Puerto Rico, Canada, Europe, the Middle
East and the Far East. Scannable forms are produced by commercial and
specialized forms printers throughout the United States. DSG has attempted
to identify and develop specialized products for niche markets. DSG believes
it is the leading provider of OMR stand-alone equipment to the educational
market in the United States.
Direct Marketing Group -- There are a number of companies selling
checks and financial related products directly to consumers. The Company
believes The Check Store's variety of products make it highly competitive in
the marketplace.
The loss of any one customer would not have a material adverse effect
on the Company.
Raw Materials
The Company purchases its principal raw materials (safety paper, form
paper and MICR bond) from several large domestic manufacturers. Past
conditions in the paper market have resulted in temporary increases in paper
prices and required advanced scheduling of paper deliveries. Recent market
conditions have resulted in general availability constraints and some price
volatility within the domestic paper supply, however, the Company has been
assured by its suppliers that adequate raw materials will be available to
support its operations.
The Company purchases other raw materials, such as vinyl (used in the
production of check book covers), inks, checkboards, packaging materials and
miscellaneous paper from a number of suppliers.
The components used in the assembly and manufacturing of the OMR
equipment are purchased from equipment manufacturers, supply firms and
others. The Company has no reason to believe that it cannot continue to
obtain such materials or suitable substitutes for its operation. The Company
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has no long-term contracts with any of its raw material suppliers.
Number of Employees
As of December 31, 1994, the Company and its subsidiaries employed
approximately 7,000 people.
ITEM 2. PROPERTIES
As of December 31, 1994, the Company and its subsidiaries owned 47
facilities located in 29 states of which all but 2 facilities were
production and service facilities. Approximate square footage of owned
facilities totaled 2,100,000 square feet. The Company leases approximately
277,000 square feet in 10 facilities for printing and/or warehouse
activities. The leased facilities are located in 6 states and Puerto Rico.
Printing production locations:
Atlanta (Decatur), GA (2) Miami (Sunrise), FL
Baltimore (Columbia), MD Minneapolis (Plymouth), MN
Birmingham, AL Nashville (Antioch), TN
Boston (Rockland), MA New Orleans, LA
Centralia, WA (2) Newark (West Caldwell), NJ
Chicago (Burr Ridge), IL Oklahoma City, OK
Cincinnati, OH Orlando, FL
Cleveland (East Lake), OH Phoenix, AZ
Covington, GA Portland (Tualatin), OR
Dallas (Irving), TX Richmond, VA
Denver (Aurora), CO Rochester, NY
Denver (Lakewood), CO Salt Lake City, UT (2)
Des Moines (Urbandale), IA San Antonio, TX
Detroit (Plymouth), MI San Diego, CA
Essex, MD San Francisco (Livermore), CA
Fresno, CA San Juan (Gurabo), PR
Greensboro, NC Shreveport (Bossier City), LA
Hartford (Enfield), CT St. Louis (St. Peters), MO
Houston, TX St. Petersburg, FL
Indianapolis, IN Tustin, CA
Jackson, MS West Columbia, SC
Jacksonville, FL Wilkes-Barre, PA
Kansas City, MO Yorba Linda, CA
Memphis (Bartlett), TN
Idle production locations:
Alburqueque, NM (leased) El Paso, TX
Concord, CA (leased) Tucson, AZ (leased)
Warehouse locations:
Chicago (Arlington Heights), IL West Columbia, SC
The foregoing information excludes Company held properties leased to
others. The Company leases office space for sales and services activities in
areas where there are no production facilities. These leases are not
considered to be significant.
The Company leases approximately 79,000 square feet of office space
for two of its subsidiary companies. The Company also has facilities in
Omaha, Nebraska (38,000 square feet) and in Villeret, Switzerland (9,000
square feet).
The Company's executive offices are located in Atlanta, Georgia.
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ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, the Company is subject to various
legal proceedings and claims. The Company believes that the ultimate outcome
of these matters will not have a material effect on its financial
statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names and ages of all executive
officers of the Company and all positions and offices with the Company
presently held by such executive officers.
Name Age Office Held
Robert R. Woodson 62 Chairman, President and Chief Executive Officer
William M. Dollar 46 Vice President, Treasurer, and Chief Financial
Officer
Earl W. Rogers Jr. 46 Executive Vice President
Of the foregoing officers, Mr. Woodson is also a Director of the
Registrant. Officers are elected annually by the Board of Directors.
Mr. Woodson was elected Chairman of the Board in April 1992 and has
been Chief Executive Officer since April 1990 and President since April
1984.
Mr. Dollar was elected Vice President in April 1992 and has been
Treasurer and Chief Financial Officer of the Registrant since February 1990.
Prior to his employment with the Company, Mr. Dollar served as Assistant
Vice President and Regional Controller of units of Sonat Inc., a Birmingham,
Alabama-based energy company, from 1981 through 1989.
Mr. Rogers was elected Vice President in April 1989, Senior Vice
President in April 1993, Executive Vice President in April 1994 and was
named manager of the Company's Financial Services Group in July 1993. Mr.
Rogers joined the Company in 1976 and has served in the positions of plant
manager, district operations manager and FSG operations manager.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
See the information with respect to the market for and number of
holders of the Company's common stock, quarterly market information and
dividend information which is set forth on page F18 of this Annual Report on
Form 10-K. The number of holders of record of the Company's common stock was
computed by a count of record holders on December 31, 1994.
ITEM 6. SELECTED FINANCIAL DATA
See the information with respect to selected financial data on page
F18 of this Annual Report on Form 10-K.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
See the information under the caption Management's Discussion and
Analysis of Results of Operations and Financial Condition on pages F19
through F22 of this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the information with respect to Financial Statements and
Supplementary Data on pages F2 through F17 and page F18, respectively of
this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding Directors required herein is incorporated by
reference to the information under the caption "Management of the Company"
in the Registrant's Definitive Proxy Statement for the Annual Shareholders'
Meeting dated March 13, 1995 (the "Proxy Statement").
The information regarding Executive Officers required herein is
included in Part I, Item X of this report and incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information regarding executive compensation is incorporated by
reference to the information under the caption "Executive Compensation and
Other Information" in the Registrant's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required herein is incorporated by reference to the
information under the caption "Management of the Company -- Beneficial
Ownership" in the Registrant's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
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Page in this
Annual Report
on Form 10-k
-------------
(a)1. Financial Statements:
Management Responsibility for Financial Statements F2
Independent Auditors' Report F3
Consolidated Balance Sheets F4
Consolidated Statements of Income F6
Consolidated Statements of Cash Flows F7
Consolidated Statements of Shareholders' Equity F8
Notes to Consolidated Financial Statements. F9
Quarterly Financial Information (unaudited) F18
(a)2. Financial Statement Schedules:
Schedule II. Valuation and qualifying accounts S1
(a)3. Exhibits
(Asterisk indicates exhibit previously filed with the Securities and
Exchange Commission and incorporated herein by reference.)
3.1 * Amended and Restated Articles of Incorporation. Filed as Exhibit 3.1
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993.
3.2 * By-Laws, as amended. Adopted by the Board of Directors on July 27,
1990 filed as Exhibit 3(D) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1990.
4.1 Indenture, as supplemented and amended, relating to 6.75% Convertible
Subordinated Debentures due 2011 of Scantron Corporation (omitted
pursuant to Item 601(b)(4)(iii) of Regulation S-K; will be filed
upon request).
4.2 * Form of Rights Agreement dated as of June 9, 1989, between the
Registrant and Citizens and Southern Trust Company. Filed as Exhibit
1 to Form 8-K dated June 9, 1989.
4.3 * First Amendment dated June 12, 1992 to Rights Agreement dated June 9,
1989 between the Company and NationsBank of Georgia Inc., N.A.,
successor to Citizens and Southern Trust Company. Filed as exhibit
4.1 on Form 10-Q for the quarter ended September 30, 1992.
4.4 * Second Amendment dated July 24, 1992 to Rights Agreement dated June 9,
1989 between the Company and Trust Company Bank, successor to
NationsBank of Georgia Inc., N.A., and to Citizens and Southern
Trust Company. Filed as exhibit 4.2 on Form 10-Q for the quarter
ended September 30, 1992.
4.5 * Note Agreement dated as of December 1, 1993 between the Company and
the purchasers listed on Schedule I of the agreement, for the
issuance and sale of $85,000,000 aggregate principle amount of 6.60%
Series A Senior Notes Due December 30, 2008. Filed as Exhibit 4.5 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993.
10.1 * Form of Deferred Compensation Agreement between the Registrant and Mr.
Woodson, Executive Officer and Director. Filed as Exhibit 10.1 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993.
10.2 * Form of Monthly Benefit Amendment to Deferred Compensation Agreement
between the Registrant and Mr. Woodson, Executive Officer and
Director. Filed as Exhibit 10(H) to the Registrant's Annual Report
on Form 10-K for the year ended December 3l, 1990.
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10.3 * Form of Deferred Compensation Agreement between the Registrant and the
following Executive Officers: Messrs. Dollar and Rogers. Filed as
Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993.
10.4 * Form of Amendment to Deferred Compensation Agreement between the
Registrant and the following Executive Officer and Director: Mr.
Woodson, and the following Executive Officers: Messrs. Dollar and
Rogers. Filed as Exhibit 10.6 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993.
10.5 * Form of Non-Compete and Termination Agreement between the Registrant
and the following Executive Officer and Director: Mr. Woodson, and
the following Executive Officers: Messrs. Dollar and Rogers. Filed
as Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993.
10.6 * Form of Executive Life Insurance Plan between the Registrant and the
following Executive Officer and Director: Mr. Woodson, and the
following Executive Officers: Messrs. Dollar and Rogers. Filed as
Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993.
10.7 * The John H. Harland Company Incentive Stock Option Plan filed as
Exhibit (28)(a) to the Registrant's Registration Statement on Form
S-8 (no. 33-1402).
10.8 * Amendment to the John H. Harland Company Incentive Stock Option Plan.
Filed as Exhibit 10.10 to the Registrant's Annual Report on Form 10-
K for the year ended December 31, 1993.
10.9 * John H. Harland Company 1981 Incentive Stock Option Plan, As Extended.
Filed as Exhibit 10.1 to the Registrant's Report on Form 10-Q for
the quarterly period ended June 30, 1993.
10.10 * Asset Purchase Agreement, dated as of November 13, 1992, by and among
the Registrant, The Rocky Mountain Bank Note Company and Romo Corp.;
and as amended on November 25, 1992, by and among the Registrant,
The Rocky Mountain Bank Note Company and Romo Corp. Filed as exhibit
2.1 and 2.2 on Form 8-K dated January 11, 1993.
10.11 * Term Loan Agreement dated as of October 25, 1993 between the Company
and Trust Company Bank for a $15,000,000 Term Loan due 2003. Filed
as Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the last
quarter of the period covered by this report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
William M. Dollar
____________________
William M. Dollar
Vice President, Treasurer and
Chief Financial Officer
March 30, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Robert R. Woodson 3/30/95 G. Harold Northrop 3/30/95
______________________ ________ ______________________ ________
Robert R. Woodson Date G. Harold Northrop Date
Chairman, President and Director Director
(Principal Executive Officer)
William M. Dollar 3/30/95 H.G. Pattillo 3/30/95
______________________ ________ ______________________ ________
William M. Dollar Date H.G. Pattillo Date
Vice President, Treasurer and Director
Chief Financial Officer
(Principal Financial and
Accounting Officer)
______________________ ________ ______________________ ________
Juanita Powell Baranco Date Larry L. Prince Date
Director Director
John H. Weitnauer, Jr. 3/30/95
______________________ ________ ______________________ ________
Lawrence L. Date John H. Weitnauer, Jr. Date
Gellerstedt Jr. Director
Director
Robert A. Yellowlees 3/30/95
______________________ ________ ______________________ ________
Edward J. Hawie Date Robert A. Yellowlees Date
Director Director
John J. McMahon, Jr. 3/30/95
______________________ ________
John J. McMahon, Jr. Date
Director
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JOHN H. HARLAND COMPANY
_______________________
Management Responsibility For Financial Statements
Independent Auditors' Report
Consolidated Financial Statements and
Notes to Consolidated Financial Statements
Supplemental Financial Information
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Supplemental Financial Statement Schedule
For Inclusion in the Annual Report on Form 10-K
to the Securities and Exchange Commission
for the year ended December 31, 1994.
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JOHN H. HARLAND COMPANY AND SUBSIDIARIES
MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS
The financial statements included in this report were prepared by the
Company in conformity with generally accepted accounting principles
consistently applied. Management's best estimates and judgments were used,
where appropriate. Management is responsible for the integrity of the
financial statements and for other financial information included in this
report. The financial statements have been audited by the Company's
independent auditors, Deloitte & Touche LLP. As set forth in their report,
their audits were conducted in accordance with generally accepted auditing
standards and formed the basis for their opinion on the accompanying
financial statements. They consider the Company's control structure and
perform such tests and other procedures as they deem necessary to express an
opinion on the fairness of the financial statements.
The Company maintains a control structure which is designed to provide
reasonable assurance that assets are safeguarded and that the financial
records reflect the authorized transactions of the Company. As a part of
this process, the Company has an internal audit function which assists
management in evaluating the adequacy and effectiveness of the control
structure.
The Audit Committee of the Board of Directors is composed of directors
who are neither officers nor employees of the Company. The Committee meets
periodically with management, the Director of the Internal Audit and the
independent auditors to discuss auditing, the Company's control structure
and financial reporting matters. The Director of Internal Audit and the
independent auditors have full and free access to the Audit Committee.
William M. Dollar
William M. Dollar
Chief Financial Officer, Vice President
and Treasurer
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<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
John H. Harland Company:
We have audited the accompanying consolidated balance sheets of John H.
Harland Company and its subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, cash flows and shareholders' equity
for each of the three years in the period ended December 31, 1994. Our audits
also included the financial statement schedule listed in Item 14(a)2. These
financial statements and financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of John H. Harland Company
and its subsidiaries as of December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1994 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 6 to the consolidated financial statements,
effective January 1, 1993, the Company changed its method of accounting for
income taxes to conform with the provisions of Statement of Financial
Accounting Standards No. 109.
DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
January 27, 1995
- F3 -
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share amounts)
<CAPTION>
December 31
1994 1993
-----------------------------------------------------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 12,049 $ 26,224
Short-term investments 3,250 1,900
Accounts receivable from customers, less
allowance for doubtful accounts of $1,970
and $1,753 59,403 63,660
Inventories:
Raw materials and semi-finished goods 22,014 22,389
Hardware component parts 1,390 1,478
Finished goods 2,024 2,133
Deferred income taxes 6,471 6,694
Other 10,622 10,417
-----------------------------------------------------------------------
Total current assets 117,223 134,895
-----------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS:
Investments 11,606 8,103
Goodwill and other intangibles - net 101,887 54,080
Other 21,856 6,987
-----------------------------------------------------------------------
Total investments and other assets 135,349 69,170
-----------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 9,687 9,201
Buildings and improvements 75,638 72,212
Machinery and equipment 218,965 202,851
Furniture and fixtures 17,284 15,082
Leasehold improvements 2,319 2,134
Additions in progress 11,775 3,562
-----------------------------------------------------------------------
Total 335,668 305,042
Less accumulated depreciation and amortization 173,867 152,656
-----------------------------------------------------------------------
Property, plant and equipment - net 161,801 152,386
-----------------------------------------------------------------------
Total $ 414,373 $ 356,451
=======================================================================
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
- F4 -
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS (continued)
<CAPTION>
December 31
1994 1993
-----------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Short-term debt $ 14,000 $ 4,000
Accounts payable - trade 11,235 8,690
Deferred revenues 17,724
Accrued liabilities:
Salaries, wages and employee benefits 16,937 15,458
Taxes 4,836 649
Other 14,588 15,182
-----------------------------------------------------------------------
Total current liabilities 79,320 43,979
-----------------------------------------------------------------------
LONG-TERM LIABILITIES:
Long-term debt 115,226 111,542
Deferred income taxes 4,806 6,393
Other 11,607 10,863
-----------------------------------------------------------------------
Total long-term liabilities 131,639 128,798
-----------------------------------------------------------------------
Total liabilities 210,959 172,777
-----------------------------------------------------------------------
Commitments and Contingencies (see Note 13)
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, 37,907,497 shares issued 37,907 37,907
Additional paid-in capital 3,389 4,225
Foreign currency translation adjustment 54 72
Retained earnings 346,660 325,323
-----------------------------------------------------------------------
Total shareholders' equity 388,010 367,527
Less 7,468,591 and 7,421,903 shares in
treasury, at cost 184,596 183,853
-----------------------------------------------------------------------
Shareholders' equity - net 203,414 183,674
-----------------------------------------------------------------------
TOTAL $ 414,373 $ 356,451
=======================================================================
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
- F5 -
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
<CAPTION>
Year ended December 31
1994 1993 1992
-------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 521,266 $ 519,486 $ 444,980
-------------------------------------------------------------------------
COST AND EXPENSES:
Cost of sales 271,650 288,786 236,559
Selling, general and administrative
expenses 136,100 125,077 111,100
Employees' profit sharing 9,914 9,614 9,118
Amortization of intangibles 11,590 8,702 4,673
-------------------------------------------------------------------------
Total 429,254 432,179 361,450
-------------------------------------------------------------------------
INCOME FROM OPERATIONS 92,012 87,307 83,530
-------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (7,747) (2,603) (976)
Other-net 861 970 5,713
-------------------------------------------------------------------------
Total (6,886) (1,633) 4,737
-------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 85,126 85,674 88,267
INCOME TAXES 33,886 33,152 31,629
-------------------------------------------------------------------------
NET INCOME $ 51,240 $ 52,522 $ 56,638
=========================================================================
NET INCOME PER COMMON SHARE $ 1.68 $ 1.62 $ 1.59
=========================================================================
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
- F6 -
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Year ended December 31
1994 1993 1992
-------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 51,240 $ 52,522 $ 56,638
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 41,539 35,102 29,662
Loss (gain) on sale of assets 472 599 (3,410)
Other 2,365 1,733 1,710
Change in assets and liabilities net of
effects of businesses acquired:
Accounts receivable 7,586 3,059 (3,706)
Inventories and other current assets 987 3,347 1,540
Accounts payable and accrued expenses 5,289 (5,257) (4,277)
Other - net (1,031) (434) 229
-------------------------------------------------------------------------
Net cash provided by operating activities 108,447 90,671 78,386
-------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (37,474) (27,121) (18,721)
Proceeds from sale of property, plant and
equipment 3,902 1,474 1,979
Change in short-term investments - net (601) (1,750) 52,350
Payment for acquisition of businesses -
net of cash acquired (60,571) (9,564) (54,826)
Acquisition deposit (31,900)
Investment in equity securities (4,300)
Proceeds from sale of Puerto Rico bonds 49,982
Other - net (5,762) (2,469) (2,169)
-------------------------------------------------------------------------
Net cash used in investing activities (104,806) (39,430) (3,305)
-------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 4,000 100,000
Short-term borrowings-net 10,000 (18,000) 18,000
Purchases of treasury stock (5,484) (99,435) (65,565)
Issuance of treasury stock 3,826 4,779 4,818
Dividends paid (29,903) (30,448) (32,088)
Other - net (255) (1,046) (36)
-------------------------------------------------------------------------
Net cash used in financing activities (17,816) (44,150) (74,871)
-------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents (14,175) 7,091 210
Cash and cash equivalents at beginning of
year 26,224 19,133 18,923
-------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 12,049 $ 26,224 $ 19,133
=========================================================================
Cash paid during the year for:
Interest $ 8,061 $ 2,144 $ 998
=========================================================================
Income Taxes $ 32,263 $ 38,785 $ 36,613
=========================================================================
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
- F7 -
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands except share and per share amounts)
<CAPTION>
--- Years Ended December 31, 1994, 1993 and 1992 ---
Foreign
Additional Currency
Common Paid-In Retained Treasury Translation
Stock Capital Earnings Stock Adjustment
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1991 $ 37,907 $ 4,693 $ 278,699 $ (29,342) $ 306
Net Income 56,638
Cash dividends, $.90 per share (32,088)
Purchase of 2,781,813 shares of treasury
stock (65,565)
Issuance of 261,308 shares of treasury
stock under employee stock plans (642) 5,460
Foreign currency translation adjustment (119)
Other 275
-------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992 37,907 4,326 303,249 (89,447) 187
Net Income 52,522
Cash dividends, $.94 per share (30,448)
Purchase of 3,792,377 shares of treasury
stock (99,435)
Issuance of 228,523 shares of treasury
stock under employee stock plans (250) 5,029
Foreign currency translation adjustment (115)
Other 149
-------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 37,907 4,225 325,323 (183,853) 72
Net Income 51,240
Cash dividends, $.98 per share (29,903)
Purchase of 258,847 shares of treasury
stock (5,484)
Issuance of 212,159 shares of treasury
stock under employee stock plans (915) 4,741
Foreign currency translation adjustment (18)
Other 79
-------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 $ 37,907 $ 3,389 $ 346,660 $ (184,596) $ 54
=======================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
- F8 -
- F8 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Consolidation - The consolidated financial statements include the
financial statements of John H. Harland Company and its wholly-owned
subsidiaries (the "Company"). Intercompany balances and transactions have
been eliminated. The Company's 50% investment in an affiliated company is
accounted for on the equity method.
Cash Equivalents - The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
Inventories - Inventories are stated at the lower of cost or market.
Cost of inventory for checks and related forms is determined by average
costing. Cost of scannable forms and hardware component parts inventories is
determined by the first-in, first-out method. Cost of data entry terminals
is determined by the specific identification method.
Investments - Short-term investments are carried at cost plus accrued
interest, which approximates market, and consist primarily of certificates
of deposit and demand notes with original maturities in excess of three
months. Marketable equity securities included in long-term investments are
carried at the lower of cost or market. Other long-term investments are
carried principally at cost.
Property, Plant and Equipment - Property, plant and equipment are
carried at cost. Depreciation of buildings is computed primarily by the
declining balance method. Depreciation of equipment, furniture and fixtures
is calculated by the straight-line or sum-of-the-years digits methods.
Leasehold improvements are amortized by the straight-line method over the
life of the lease or the life of the property, whichever is shorter.
Accelerated methods are used for income tax purposes for all property where
it is allowed.
Goodwill and Other Intangibles - Goodwill represents the excess of
acquisition costs over the fair value of net assets of businesses acquired
and is amortized on a straight-line basis over periods from 10 to 40 years.
Other intangible assets consist primarily of purchased customer lists and
non-compete covenants which are amortized on a straight-line basis over
periods ranging from 5 to 8 years. Carrying values of goodwill and other
intangibles are periodically reviewed to assess recoverability based on
expectations of undiscounted cash flows and operating income for each
related business unit having a material balance of goodwill and/or other
intangibles. Impairments would be recognized in operating results if a
permanent diminution in value were expected. The Company also evaluates the
amortization periods of intangible assets to determine whether events or
circumstances warrant revised estimates of useful lives. The Company
believes that no material impairment of goodwill and other intangibles
exists at December 31, 1994.
Revenue Recognition - Sales of products and services are recorded
based on shipment of products or performance of services. Revenue from
maintenance contracts is deferred and recognized over the period of the
agreements.
Net Income Per Share - Net income per common share is based on the
weighted average number of shares of common stock and common share
equivalents outstanding during each year which was 30,516,799 for 1994;
32,460,128 for 1993 and 35,688,645 for 1992. Common share equivalents
include the number of shares issuable upon the exercise of the Company's
stock options and the conversion of convertible securities, if dilutive. The
difference between primary and fully diluted common share equivalents is not
significant.
Income Taxes - Effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109") in which deferred tax liabilities and assets are
- F9 -
<PAGE>
determined based on the difference between financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
Reclassifications - Certain reclassifications have been made in the
1992 and 1993 financial statements to conform to the 1994 classifications.
2. ACQUISITIONS: 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. MPI is based in Orlando, 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. ("FormAtion") for cash paid at closing and a contingent
purchase payment payable in 1997 to the former FormAtion shareholders. The
contingent purchase payment is based upon a multiple of FormAtion's
operating results during the three-year period ending in 1996 as defined in
the acquisition agreement. FormAtion is based in Denver, Colorado and
develops, markets and supports lending and platform automation software for
the financial industry.
On September 30, 1994, the Company's wholly-owned subsidiary, Scantron
Corporation, acquired the net assets of Financial Products Corporation
("FPC") for cash paid at closing. FPC is based in Omaha, Nebraska and is a
provider of installation, maintenance and repair services for a broad
variety of computers, peripherals, networks and operating systems. FPC
serves financial, commercial, governmental and medical markets.
The MPI, FormAtion and FPC acquisitions have been accounted for using
the purchase method of accounting and, accordingly, the results of
operations of each acquisition are included in the consolidated financial
statements from the date of acquisition. Assets acquired totaled $65.4
million, net of liabilities assumed of $18.9 million. The cash paid for
these acquisitions totaled $65.0 million and estimated acquisition-related
costs totaled $0.4 million. The purchases were funded with a portion of the
proceeds received in the December 1993 issuance of long-term debt, proceeds
from short-term borrowings and from internally generated funds. Of the total
acquisition costs, $59.3 million was preliminarily allocated to intangible
assets, of which $52.6 million represented goodwill. Subsequent contingent
purchase payments will be recorded as an increase in goodwill and will be
amortized over the remaining life of the goodwill at the time of payment.
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 using the purchase method of accounting
and, accordingly, 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 cost, $25.7 million was allocated to
intangible assets, of which $10.7 million represented goodwill.
On February 19, 1992, the Company completed the acquisition of
substantially all the net assets of Interchecks Inc. ("Interchecks"), a
Seattle, Washington-based check printer for a cash purchase price of $50
million and acquisition-related costs of $9.4 million. The acquisition has
been accounted for as a purchase and, accordingly, the acquired net assets
and operations have been included in the consolidated financial statements
from the date of acquisition. Assets acquired totaled $59.4 million, net of
liabilities assumed of $4.7 million. Of the total acquisition cost, $38.4
million was allocated to intangible assets, of which $13.4 million
- F10 -
<PAGE>
represented goodwill.
Goodwill and other intangible assets acquired in acquisitions consist
of the following as of December 31, (in thousands):
<TABLE>
<CAPTION>
1994 1993
----------------------------------------------------------------------
<S> <C> <C>
Goodwill $ 79,943 $ 27,367
Non-compete covenants 30,600 30,000
Customer lists 16,133 10,000
----------------------------------------------------------------------
Total 126,676 67,367
Less accumulated amortization 24,789 13,287
----------------------------------------------------------------------
Total $ 101,887 $ 54,080
======================================================================
</TABLE>
The following represents the unaudited pro forma results of operations
which assume the acquisitions occurred at the beginning of the respective
year in which the assets were acquired as well as the beginning of the
immediately preceding year. These results include certain adjustments,
primarily increased amortization of intangible assets, increased interest
expense, and reduced interest income and depreciation expense (in thousands
of dollars, except per share amounts):
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------------------
<S> <S> <S> <S>
Net sales $ 536,728 $ 560,231 $ 539,889
Net income 51,335 52,004 55,968
Net income per common share 1.68 1.60 1.57
</TABLE>
The pro forma financial information presented above does not purport
to be indicative of either the results of operations that would have
occurred had the acquisitions taken place at the beginning of the periods
presented or of future consolidated results of operations.
3. INVESTMENTS AND OTHER ASSETS: Effective January 1, 1994, the Company
adopted Statement of Financial Accounting Standards No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"), and
accordingly, certain of the Company's investments have been classified as
available-for-sale securities. The difference between market value of such
investments and cost is not significant at December 31, 1994. The impact of
the adoption of SFAS 115 was not significant to the Company's financial
statements.
In 1994, the Company made an equity investment of $2.0 million in
Bottomline Technologies, Inc., a provider of desktop laser software and
hardware for issuing magnetic ink encoded financial documents, and invested
$2.3 million in Galas Harland, S.A. de C.V. ("Galas Harland"), a check
printing joint venture in Mexico. The investment in Galas Harland is
accounted for using the equity method. At December 31, 1994, the Company's
long-term investments primarily consisted of investments in limited
partnerships, Bottomline Technologies, Inc. and Galas Harland.
Other assets consist primarily of capitalized software development
costs which are amortized over a period of three years, prepaid customer
incentive payments which are amortized as a reduction of sales over the
life of the related contract and field service parts.
4. SHORT-TERM DEBT: At December 31, 1994, the Company had available
unsecured lines of credit under which it could borrow up to $111 million in
the form of short-term notes, for which no compensating balances or
commitment fees are required. At December 31, 1994, $14 million was
outstanding under these unsecured lines of credit, bearing an average
- F11 -
<PAGE>
interest rate of 6.41%. No amounts were outstanding under these unsecured
lines of credit at December 31, 1993.
At December 31, 1993, the Company had outstanding an Industrial
Development Revenue Bond, due on demand, in the amount of $4 million. On
July 1, 1994, the Company repaid this amount in full, and executed
agreements for the issuance of $4 million face value of Industrial
Development Refunding Revenue Bonds (see Note 5).
5. LONG-TERM DEBT: The Company's long-term debt consisted of the following
as of December 31, (in thousands):
<TABLE>
<CAPTION>
1994 1993
----------------------------------------------------------------------
<S> <C> <C>
Series A Senior Notes $ 85,000 $ 85,000
Term Loan 15,000 15,000
Convertible Subordinated Debentures 10,621 10,600
Industrial Development Refunding
Revenue Bonds 4,000
Other 1,185 1,477
----------------------------------------------------------------------
Total 115,806 112,077
Less current portion 580 535
----------------------------------------------------------------------
Long-term debt $ 115,226 $ 111,542
======================================================================
</TABLE>
In December 1993, the Company issued $85 million of Series A Senior
Notes ("Senior Notes") and arranged a $15 million Term Loan ("Term Loan").
The Senior Notes and the Term Loan bear interest at fixed interest rates of
6.60% and 6.63%, respectively. The Senior Notes mature from 2004 to 2008 and
the Term Loan is due 2003.
The Company's 6.75% convertible subordinated debentures are
convertible into common stock of the Company at any time prior to maturity,
at a conversion price of $25.17 per share, subject to adjustment in certain
events. At December 31, 1994, 328,249 shares of common stock were reserved
for conversion of the debentures. The debentures are entitled to an annual
mandatory sinking fund, commencing June 1, 1996, calculated to retire 75% of
the debentures prior to maturity in 2011. The debentures are redeemable, in
whole or in part, at any time at the option of the Company at specific
redemption prices plus accrued interest. The debentures are subordinated to
all senior debt.
On July 1, 1994, the Company executed certain agreements under which
$4 million face value of Industrial Development Refunding Revenue Bonds -
Series 1994 ("the Bonds") were issued with interest at variable rates which
averaged 4.22% in 1994 and are due 2004. Proceeds from the issuance were
used to repay in full the Company's existing Industrial Development Revenue
Bond, which matured on July 1, 1994 (see Note 4).
The debt agreements relating to the Senior Notes, the Term Loan and
the Bonds contain certain covenants, the most restrictive of which limit the
amount of funded indebtedness of the Company and require the Company to
maintain a minimum fixed charge coverage ratio. At December 31, 1994, the
Company was in compliance with the covenants associated with these debt
instruments.
Other long-term debt relates principally to capitalized lease
obligations.
Annual maturities of long-term debt including sinking fund
requirements during the next five years are: 1995-$580,000; 1996-$937,000;
1997-$629,000; 1998-$550,000; and 1999-$550,000.
6. INCOME TAXES: Effective January 1, 1993, the Company adopted SFAS 109.
Previously, the Company had computed its income tax expense in accordance
- F12 -
<PAGE>
with the provisions of the Accounting Principles Board Opinion No. 11. The
cumulative effect of adopting SFAS 109 was not significant to the Company's
consolidated financial statements.
The provision for income taxes for the years ended December 31, 1994,
1993 and 1992 includes the following (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------------------
<S> <S> <S> <S>
Current:
Federal $ 30,809 $ 28,350 $ 29,709
State 4,234 7,090 4,055
----------------------------------------------------------------------
Total 35,043 35,440 33,764
----------------------------------------------------------------------
Deferred:
Federal (1,031) (1,999) (1,879)
State (126) (289) (256)
----------------------------------------------------------------------
Total (1,157) (2,288) (2,135)
----------------------------------------------------------------------
Total $ 33,886 $ 33,152 $ 31,629
======================================================================
</TABLE>
The tax effects of significant items comprising the Company's net
deferred tax asset and liability as of December 31 are as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993
----------------------------------------------------------------------
<S> <C> <C>
Current deferred tax asset:
Accrued vacation $ 2,367 $ 2,634
Other accrued liabilities 4,150 4,742
Other (46) (682)
----------------------------------------------------------------------
Total 6,471 6,694
----------------------------------------------------------------------
Noncurrent deferred tax liability:
Difference between book and tax basis
of property (15,077) (13,976)
Other liabilities 7,869 5,542
Postretirement benefit obligation 2,316 2,085
Other 86 (44)
----------------------------------------------------------------------
Total (4,806) (6,393)
Valuation allowance 0 0
----------------------------------------------------------------------
Net deferred tax asset $ 1,665 $ 301
======================================================================
</TABLE>
A reconciliation between the Federal income tax statutory rate and the
Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------------------
<S> <S> <S> <S>
Statutory rate 35.0% 35.0% 34.0%
State and local income taxes,
net of Federal income tax benefit 4.8 5.0 4.3
Income from Puerto Rico (1.6) (3.7) (3.3)
Other, net 1.6 2.4 0.8
----------------------------------------------------------------------
Effective income tax rate 39.8% 38.7% 35.8%
======================================================================
</TABLE>
- F13 -
<PAGE>
7. SHAREHOLDERS' EQUITY: Each share of common stock includes a stock
purchase right which is not currently exercisable but would become
exercisable upon occurrence of certain events as provided for in the Rights
Agreement. The rights expire on July 5, 1999.
8. EMPLOYEE STOCK PURCHASE PLAN: 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 85% of the fair market value of the stock at the
beginning or end of the quarter, whichever is lower. Options for shares were
exercised at prices ranging from $17.16 to $18.70 in 1994, $18.70 to $23.06
in 1993 and $17.64 to $20.24 in 1992. At December 31, 1994, there were
464,532 shares of common stock reserved for purchase under the plan.
9. STOCK OPTION PLANS: The Company has granted incentive and non-qualified
stock options to certain key employees to purchase shares of the Company's
common stock at the fair market value of the common stock on the date of the
grant. The options generally become exercisable one year from the date of
grant.
Option transactions during the three years ended December 31, 1994 are
as follows:
<TABLE>
<CAPTION>
Exercise
Shares Price
----------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1991 405,239 $ 9.11-25.13
Options
Granted 92,500 23.88-24.75
Exercised (90,414) 9.11-23.50
Cancelled (47,176) 11.59-25.13
----------------------------------------------------------------------
Balance, December 31, 1992 360,149 9.11-24.75
Options
Granted 102,157 23.88-26.25
Exercised (55,467) 9.11-23.50
Cancelled (31,151) 11.34-24.75
----------------------------------------------------------------------
Balance, December 31, 1993 375,688 9.11-26.25
Options
Granted 114,250 21.75
Exercised (4,034) 9.11-21.88
Cancelled (100,051) 11.59-26.25
----------------------------------------------------------------------
Balance, December 31, 1994 385,853 $ 11.59-26.25
======================================================================
</TABLE>
At December 31, 1994, there were options for 281,103 shares
exercisable and 677,244 shares of common stock reserved for options under
the plans.
10. PROFIT SHARING AND DEFERRED COMPENSATION: The Company has a non-
contributory profit sharing plan to provide retirement income for most of
its employees. The Company is required to contribute to the profit sharing
plan's trust fund an amount equal to 7.5% of its income before income taxes
and profit sharing contribution plus such additional amount as the Board of
Directors may determine, up to a maximum of 15% of the aggregate
compensation of participating employees (see Consolidated Statements of
Income).
The Company has deferred compensation agreements with certain officers.
The present value of cash benefits payable under the agreements is being
provided over the periods of active employment. The charge to expense for
- F14 -
<PAGE>
the agreements was $365,000 in 1994, $345,000 in 1993 and $286,000 in 1992.
11. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS: The Company sponsors two
defined postretirement benefit plans that cover qualifying salaried and non-
salaried employees. One plan provides health care benefits and the other
provides life insurance benefits. The medical plan is contributory and
contributions are adjusted annually based on actual claims experience, while
the life insurance plan is noncontributory. The Company's intent is that the
retiree provide approximately 50% of the actual cost of providing the
medical plan. Neither plan is funded.
As of December 31, 1994, the accumulated postretirement benefit
obligation ("APBO") was $6,874,000. The following table reconciles the
plans' status to the accrued postretirement health care and life insurance
liability as reflected on the balance sheet as of December 31, (in
thousands):
<TABLE>
<CAPTION>
1994 1993
----------------------------------------------------------------------
<S> <C> <C>
APBO:
Retirees $ 1,609 $ 1,890
Fully eligible participants 1,516 1,790
Other participants 3,749 3,934
----------------------------------------------------------------------
6,874 7,614
Unrecognized net gain (loss 269 (1,195)
----------------------------------------------------------------------
Accrued postretirement benefit obligation
- included in Other Liabilities $ 7,143 $ 6,419
======================================================================
</TABLE>
Net postretirement costs are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------------------
<S> <S> <S> <S>
Service costs $ 303 $ 245 $ 184
Interest on APBO 564 523 456
Net amortization 33
----------------------------------------------------------------------
Net periodic postretirement cost $ 900 $ 768 $ 640
======================================================================
</TABLE>
For measurement purposes, the cost of providing medical benefits was
assumed to increase by 11% in 1994, decreasing to an annual rate of 7.5%
after 1998. The medical cost trend rate assumption could have a significant
effect on amounts reported. An increase of 1% in the assumed rate of
increase would have had the effect of increasing the APBO by $705,000 and
the net periodic postretirement cost by $113,000. The weighted average
discount rate used in determining the APBO was 8.0% in 1994, 7.5% in 1993
and 8.5% in 1992 and employee earnings were estimated to increase 4.5%
annually until age 65.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112 "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"). The adoption of SFAS 112 was not significant to the
Company's financial position or results of operations.
12. FINANCIAL INSTRUMENTS: The following methods and assumptions were used
to estimate the fair value of each class of financial instruments for which
it is practicable to estimate that value:
Short-term investments _ The carrying amount approximates fair value
because of the short maturity of those instruments.
Long-term investments _ The fair values of certain investments are
estimated based on quoted market prices. The fair values of the Company's
- F15 -
<PAGE>
investments in limited partnerships are based on estimates by general
partners in the absence of readily ascertainable market values. For the
Company's other investments, which are not actively traded and are
immaterial, fair value is based on an estimate of the net realizable value
of those investments.
Long-term debt _ The fair value of the Company's convertible
debentures are based on recent market quotes. The fair value of the other
long-term debt is based on estimated rates currently available to the
Company for debt with similar terms and maturities.
The carrying value and estimated fair values of the Company's
financial instruments at December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
Carrying Value Fair Value
1994 1993 1994 1993
----------------------------------------------------------------------
<S> <S> <S> <S> <S>
Assets:
Short-term investments $ 3,250 $ 1,900 $ 3,250 $ 1,900
Long-term investments 9,125 8,103 10,322 9,169
Liabilities:
Long-term debt 115,226 111,542 99,622 112,105
</TABLE>
13. COMMITMENTS AND CONTINGENCIES: In the ordinary course of business, the
Company is subject to various legal proceedings and claims. The Company
believes that the ultimate outcome of these matters will not have a material
effect on its financial statements.
Total rental expense was $9,147,000 in 1994, $12,257,000 in 1993 and
$6,969,000 in 1992. Minimum annual rentals under non-cancellable operating
leases total $21,949,000 and range from $7,510,000 in 1995 to $2,009,000 in
1999.
14. BUSINESS SEGMENTS: In 1994, the Company redefined its business segments
into four operating business groups. The Financial Services Group is
primarily a printer and supplier of checks, forms and specialty products to
financial institutions and pertinent non-financial markets. The Data
Services Group provides data management forms and equipment and maintenance
solutions for educational, commercial and governmental markets. The
Information Services Group provides platform automation, compliance
solutions and targeted marketing and consulting services to financial
institutions to increase efficiency and profitability. The Direct Marketing
Group markets checks and related products directly to consumers. The Direct
Marketing Group's financial information is not significant and is combined
with corporate items.
There were no significant intersegment sales during 1994, 1993 and
1992 and no material amounts of the Company's sales are dependent upon a
single customer. Equity investees as well as foreign assets, revenues, and
export sales are not significant to the consolidated results of the Company.
Operating income excludes interest income, interest expense and other non-
operating gains and losses. Corporate assets consist primarily of cash and
cash equivalents, investments and other assets not employed in production.
Summarized financial information by business segment for 1994,
1993 and 1992 is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------------------
<S> <S> <S> <S>
Net Sales:
Financial Services $ 433,584 $ 464,462 $ 392,388
Data Services 58,457 55,024 52,592
Information Services 26,027
Corporate and Other 3,198
----------------------------------------------------------------------
Total $ 521,266 $ 519,486 $ 444,980
======================================================================
- F16 -
<PAGE>
Operating Income (loss):
Financial Services $ 98,364 $ 90,300 $ 87,254
Data Services 7,863 7,087 5,685
Information Services 42
Corporate and Other (14,257) (10,080) (9,409)
----------------------------------------------------------------------
Total $ 92,012 $ 87,307 $ 83,530
======================================================================
Identifiable Assets:
Financial Services $ 269,094 $ 281,940 $ 275,943
Data Services 59,596 30,757 30,829
Information Services 49,782
Corporate and Othe 35,901 43,754 33,108
----------------------------------------------------------------------
Total $ 414,373 $ 356,451 $ 339,880
======================================================================
Depreciation and Amortization:
Financial Services $ 30,024 $ 29,466 $ 23,278
Data Services 4,680 4,518 5,250
Information Services 5,434
Corporate and Other 1,401 1,118 1,134
----------------------------------------------------------------------
Total $ 41,539 $ 35,102 $ 29,662
======================================================================
Capital Expenditures:
Financial Services $ 30,221 $ 22,674 $ 15,212
Data Services 3,309 3,483 2,573
Information Services 1,861
Corporate and Other 2,083 964 936
----------------------------------------------------------------------
Total $ 37,474 $ 27,121 $ 18,721
======================================================================
</TABLE>
- F17 -
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES - Supplemental Financial Information
SELECTED QUARTERLY FINANCIAL DATA, DIVIDENDS PAID AND STOCK PRICE RANGE
(unaudited)
(In thousands except per share amounts)
<CAPTION>
--------- Quarter ended ----------
March 31 June 30 September 30 December 31
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994:
Net sales $ 131,043 $ 130,752 $ 129,154 $ 130,317
Gross profit 61,937 62,547 62,299 62,833
Net income 12,986 12,841 13,133 12,280
Per common share:
Net income .43 .42 .43 .40
Dividends paid .245 .245 .245 .245
Market price:
High 24 3/4 23 1/4 22 5/8 22
Low 21 5/8 21 1/8 20 1/4 19 3/8
1993:
Net sales $ 133,504 $ 129,979 $ 129,922 $ 126,081
Gross profit 58,928 59,814 56,892 55,066
Net income 13,119 14,127 13,318 11,958
Per common share:
Net income .39 .42 .42 .39
Dividends paid .235 .235 .235 .235
Market price:
High 27 1/2 28 1/8 27 3/4 25 5/8
Low 24 1/4 25 5/8 25 1/4 20 7/8
</TABLE>
The Company's common stock (symbol:JH) is listed on the New York Stock
Exchange. At December 31, 1994 there were 7,782 shareholders of record.
<TABLE>
SELECTED FINANCIAL DATA
(In thousands except per share amounts)
<CAPTION>
--------- Year ended December 31 ---------
1994 1993 1992 1991 1990
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 521,266 $ 519,486 $ 444,980 $ 378,659 $ 366,834
Net income 51,240 52,522 56,638 47,435 57,167
Total assets 414,373 356,451 339,880 351,554 347,105
Long-term debt 115,226 111,542 12,622 11,661 11,304
Per common share:
Net income 1.68 1.62 1.59 1.27 1.52
Dividends paid .98 .94 .90 .86 .78
Average number of
shares outstanding 30,517 32,460 35,689 37,469 37,604
<FN>
Refer to Note 2 of the Notes to Consolidated Financial Statements
regarding the impact of acquisitions in 1994, 1993 and 1992. In 1991, the
Company's financial results were impacted by a change in accounting method
for postretirement benefits and by a restructuring charge which included
restructuring and revaluation of certain subsidaries and investments and
certain taxes related to the repatriations of earnings from Puerto Rico.
</TABLE>
- F18 -
<PAGE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
RESULTS OF OPERATIONS
1994 versus 1993
Consolidated net sales increased $1.8 million or 0.3% over 1993 and
represented the 45th consecutive year of sales increases. The Company's
Financial Services Group ("FSG") had a net sales decrease of 6.6% which
consisted of a 9.0% decrease in units and a price and product mix increase
of 2.4%. FSG units were impacted by the loss of several former Rocky
Mountain Bank Note ("RMBN") accounts, which had been anticipated when the
Company acquired RMBN in January 1993. Also, FSG's units were impacted by
the loss of one large customer and by a reduction of business under contract
with another large customer, although the business retained was renewed at
more favorable pricing. The positive price and product mix is attributable
in part to a general price increase which FSG implemented in December 1993
and by the loss of business with certain customers which was priced at a
greater discount than average. FSG continues to experience competitive
pricing pressures within the check printing industry.
Net sales by the Company's Data Services Group ("DSG") increased $3.4
million or 6.2% in 1994. The DSG sales increase was primarily due to the
acquisition of Financial Products Corporation ("FPC") in September 1994
which contributed $4.0 million of sales in 1994. DSG's sales to educational
markets and international markets decreased in 1994, but sales to commercial
markets increased 24.6% over 1993 primarily due to increased maintenance and
other services related to new products and services which were introduced
during 1993 and 1994.
The Company's Information Services Group ("ISG") contributed $26.0
million to consolidated net sales for the 1994 period. ISG consists of
Marketing Profiles, Inc. ("MPI") and FormAtion Technologies, Inc.
("FormAtion") which were acquired in January 1994 and March 1994,
respectively. The Direct Marketing Group ("DMG"), which consists of The
Check Store, Inc., markets checks and related products directly to consumers
and began production operations during the second quarter of 1994. DMG
contributed $3.2 million to the Company's consolidated sales in 1994.
Consolidated cost of goods sold decreased $17.1 million or 5.9% from
1993 and decreased as a percentage of consolidated sales from 55.6% in 1993
to 52.1% in 1994. FSG's gross margin improved from 44.0% in 1993 to 47.8% in
1994. The FSG margin improvement is attributable to cost reductions gained
from consolidations of imprint and base stock facilities, process
improvements and other cost reduction efforts. DSG experienced an
improvement in gross margin from 48.2% in 1993 to 50.0% in 1994. Cost
control improvements and increases in sales of higher margin products and
services are the primary reasons for DSG's gross margin improvement. Cost of
goods sold for ISG and DMG totaled $15.5 million in 1994.
Consolidated selling, general and administrative expenses increased by
$11.0 million or 8.8% in 1994 and increased as a percentage of consolidated
sales from 24.1% in 1993 to 26.1% in 1994. The primary components of this
increase were expenses from acquired operations (MPI, FormAtion and FPC) as
well as marketing costs associated with The Check Store. These increases
were partially offset by a decrease in FSG administrative expenses which was
primarily due to consolidation of administrative functions of RMBN
operations acquired in 1993. Profit sharing costs increased $0.3 million or
3.1% over 1993 and remained 1.9% of consolidated sales.
Amortization of intangibles increased $2.9 million or 33.2% over 1993,
and increased as a percentage of consolidated sales from 1.7% in 1993 to
- F19 -
<PAGE>
2.2% in 1994. This increase is primarily attributable to the acquisitions of
MPI and FormAtion in January 1994 and March 1994, respectively. Of the total
1994 amortization of intangibles, $8.1 million relates to intangible assets
which are being amortized over 5 years.
Other income (expense) - net increased from an expense of $1.6 million
in 1993 to an expense of $6.9 million in 1994. This increase is principally
due to interest expense associated with the Company's issuance of $100
million in long-term debt in December 1993 at an annual interest rate of
6.6%.
Income before income taxes decreased $0.5 million or 0.6% from 1993
and decreased as a percentage of consolidated sales from 16.5% in 1993 to
16.3% in 1994. The effective consolidated income tax rate for 1994 was 39.8%
compared to 38.7% in 1993. The primary factors contributing to the increase
in the consolidated effective income tax rate are impacts of the Omnibus Tax
Reconciliation Act of 1993, along with certain non-deductible amortization
of intangible assets associated with acquired businesses.
For 1994, net income was $51.2 million compared to $52.5 million in
1993, a decrease of $1.3 million or 2.4%. However, net income per share was
$1.68 in 1994 versus $1.62 in 1993 or a 3.7% increase. Net income per share
increased due to fewer average shares outstanding in 1994, a result of the
repurchase of 3.8 million shares of the Company's common stock during 1993.
Additionally, the Company's new businesses (MPI, FormAtion, FPC and The
Check Store) had a net dilutive impact of 12 cents per share on net income
per share in 1994.
1993 versus 1992
1993 consolidated net sales increased $74.5 million or 16.7% over
1992. FSG had a net sales increase of $72.1 million or 18.4% which consisted
of an 18.1% increase in units and a price and product mix increase of 0.3%.
The FSG sales increase is attributable to the acquisition of RMBN in January
1993 coupled with the impact of the February 1992 acquisition of Interchecks
Inc. (see Note 2). Competitive pricing pressures within the check printing
industry contributed to the mild change in the FSG price and product mix.
DSG's net sales increased $2.4 million or 4.6% in 1993 primarily due to
increases in hardware sales and service-related revenues while 1993 form
sales were flat compared to 1992. The hardware sales and service-related
revenue increases offset sales decreases by DSG's European sales subsidiary
Datascan and the loss of revenues associated with American Testronics
Company, the assets of which were sold in June 1992.
Consolidated cost of goods sold increased $52.2 million or 22.1% and
increased as a percentage of sales to 55.6% from 53.2% in 1992. FSG's cost
of goods sold increased as a percentage of sales to 56.0% from 53.4% in 1992
primarily due to acquired operations, which had lower margins, and
duplication of costs during integration of acquired operations. DSG's cost
of goods sold increased slightly as a percentage of sales to 51.8% in 1993
from 51.1% in 1992. DSG's gross margin improved as a result of the 1992 sale
of American Testronics Company, which had lower margins, but the improvement
was offset by increased machine sales and service-related revenues, which
have lower margins than forms, and by increased product development costs.
Consolidated selling, general and administrative expenses increased
$14.0 million or 12.6% in 1993 primarily due to acquired operations, higher
information systems costs and increases in employee health care costs. As a
percentage of sales, consolidated selling, general and administrative
expenses decreased from 25.0% in 1992 to 24.1% in 1993. The consolidation of
selling and certain administrative functions of the acquired operations was
a primary factor contributing to this decrease. Profit sharing costs
increased $0.5 million but decreased as a percentage of sales from 2.0% in
1992 to 1.9% in 1993.
- F20 -
<PAGE>
Due to the February 1992 acquisition of Interchecks and the January
1993 acquisition of RMBN, amortization of intangibles increased $4.0 million
over 1992 and was 1.7% as a percentage of sales in 1993 compared to 1.1% in
1992. Of the total 1993 amortization of intangibles, $8.0 million relates to
intangible assets which are being amortized over 5 years.
Other income (expense) - net decreased $6.3 million from income of
$4.7 million in 1992 to expense of $1.6 million in 1993. The primary
components of the change were gains of $3.4 million realized in 1992 on the
dispositions of American Testronics Company and the Puerto Rico bond
investment portfolio and increased interest expense, which totaled $2.6
million in 1993 due to increased levels of debt. Another component of the
interest income (expense) - net change was reduced interest income earned in
1993 due to lower average cash and investment balances.
Income before income taxes decreased $2.6 million or 2.9% from 1992
and decreased as a percentage of sales from 19.8% in 1992 to 16.5% in 1993.
The effective consolidated income tax rate for 1993 was 38.7% compared to
35.8% in 1992. The effective tax rate increased primarily as a result of the
Omnibus Tax Reconciliation Act of 1993, which increased the federal
corporate tax rate from 34% to 35%, and certain nonrecurring tax exempt
items and higher tax exempt income in 1992.
Outlook
The Company anticipates that, in the aggregate, its new businesses
will be less dilutive in 1995. ISG, which targets the same financial
institution customers as FSG, should experience growth via joint sales and
marketing efforts. Also, ISG plans to enter markets other than financial
institutions to further expand its marketing and consulting business. Growth
in DMG revenues is anticipated with the Company's commitment to increase
marketing expenditures; however, the Company expects that the higher
marketing expenditures will increase DMG's dilutive impact on consolidated
earnings in 1995.
FSG expects revenue growth from more non-traditional channels such as
its specialty products areas which include business checks, financial forms,
stamps and small financial packages and from its business services
activities. Although a recent increase in prices by FSG's paper suppliers
will impact FSG's operating results, the increase should be offset somewhat
by the ongoing investments in production process improvements.
In 1995, DSG will focus on developing additional products and services
that serve the educational and commercial markets for automated data
collection and will complete the integration of FPC into its field service
efforts.
During 1995, the Company will continue to search for and evaluate
potential acquisition candidates for each of its four business groups.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Cash flows provided by operations in 1994 were $108.4 million compared
to $90.7 million in 1993, an increase of 19.5%. The primary uses of funds in
1994 were to acquire MPI, FormAtion and FPC, expenditures for property,
plant and equipment and disbursements of dividends to the Company's
shareholders. Additionally, the Company made an equity investment of $2.0
million in Bottomline Technologies, Inc., a New Hampshire-based company
which is a provider of desktop laser software and hardware for issuing
magnetic ink encoded financial documents, and invested $2.3 million in Galas
Harland, S.A. de C.V., a check printing joint venture in Mexico.
Purchases of property, plant and equipment totaled $37.5 million in
1994, compared to $27.1 million in 1993. This increase is primarily
attributable to equipment purchased to improve FSG production processes. The
- F21 -
<PAGE>
Company estimates that its capital expenditures will total approximately $30
million in 1995.
During 1994, the Company repurchased 259,000 shares of its common
stock at an average cost of $21.18 per share to offset shares issued under
its employee stock purchase plan.
At December 31, 1994, $14.0 million was outstanding under the
Company's unsecured lines of credit. The Company has unsecured lines of
credit which provide for borrowings up to $111.0 million.
On December 31, 1994, the Company had $15.3 million in cash and cash
equivalents and short-term investments. The Company believes that its
current cash position, funds from operations and the availability of funds
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
sufficient unused debt capacity and access to equity capital markets to
pursue additional acquisition opportunities.
- F22 -
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(In thousands of dollars)
<CAPTION>
____________________________________________________________________________________________
COLUMN A COLUMN B ---- COLUMN C ---- COLUMN D COLUMN E
ADDITIONS
BALANCE CHARGED TO CHARGED TO BALANCE
AT BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
(1) (2)
____________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994
Allowance for doubtful accounts $ 1,753 $ 818 $ 191 $ 792 $ 1,970
======= ======= ====== ====== =======
Year Ended December 31, 1993
Allowance for doubtful accounts $ 1,343 $ 620 $ 215 $ 425 $ 1,753
======= ======= ====== ====== =======
Year Ended December 31, 1992
Allowance for doubtful accounts $ 1,348 $ 583 $ 332 $ 920 $ 1,343
======= ======= ====== ====== =======
<FN>
Notes:
(1) Represents recovery of previously written-off and credit balance accounts receivable.
(2) Represents write-offs of uncollectible accounts receivable.
</TABLE>
- S1 -
<PAGE>
EXHIBIT INDEX
(* indicates document is incorporated by reference)
Page Number
Location of
Documents or
Exhibit Incorporation
Desig- by Reference
nation Description (Inclusive)
______ ___________ ___________
3.1 * Amended and Restated Articles of Incorporation. 10
3.2 * By-laws, as amended. Adopted by the Board of
Directors on July 27, 1990. 10
4.1 Indenture, as supplemented and amended, relating
to 6.75% Convertible Subordinated Debentures due
2011 of Scantron Corporation (omitted pursuant to
Item 601(b)(4)(iii) of Regulation S-K; will be
filed upon request). 10
4.2 * Form of Rights Agreement, dated as of June 9,
between the Registrant and Citizens and Trust
Company. 10
4.3 * First Amendment dated June 12, 1992 to Rights
Agreement dated June 9, 1989 between the Company
and NationsBank of Georgia Inc., N.A., successor
to Citizens and Southern Trust Company. 10
4.4 * Second Amendment dated July 24, 1992 to Rights
Agreement dated June 9, 1989 between the Company
and Trust Company Bank, successor to NationsBank
of Georgia Inc., N.A., and to Citizens and
Southern Trust Company. 10
4.5 * Note Agreement dated as of December 1, 1993
between the Company and the purchasers listed on
Schedule I of the agreement, for the issuance and
sale of $85,000,000 aggregate principle amount of
6.60% Series A Senior Notes Due December 30,
2008. 10
10.1 * Form of Deferred Compensation Agreement between
the Registrant and Mr. Woodson, Executive
Officer and Director. 10
10.2 * Form of Monthly Benefit Amendment to Deferred
Compensation Agreement between the Registrant and
Mr. Woodson, Executive Officer and Director. 10
10.3 * Form of Deferred Compensation Agreement between the
Registrant and the following Executive Officers:
Messrs. Dollar and Rogers. 10
- E1 -
<PAGE>
EXHIBIT INDEX continued
Page Number
Location of
Documents or
Exhibit Incorporation
Desig- by Reference
nation Description (Inclusive)
______ ___________ ___________
10.4 * Form of Amendment to Deferred Compensation
Agreement between the Registrant and the
following Executive Officer and Director: Mr.
Woodson and the following Executive Officers:
Messrs. Dollar and Rogers. 10
10.5 * Form of Non-Compete and Termination Agreement
between the Registrant and the following Executive
Officer and Director: Mr. Woodson and the
following Executive Officers: Messrs. Dollar
and Rogers. . 10
10.6 * Form of Executive Life Insurance Plan between the
Registrant and the following Executive Officer
and Director: Mr. Woodson and the following
Executive Officers: Messrs. Dollar and Rogers. 11
10.7 * The John H. Harland Company Incentive Stock
Option Plan. 11
10.8 * Amendment to the John H. Harland Company
Incentive Stock Option Plan. 11
10.9 * John H. Harland Company 1981 Incentive Stock
Option Plan, As Extended. 11
10.10 * Asset Purchase Agreement, dated as of November
13, 1992, by and among the Registrant, The Rocky
Mountain Bank Note Company and Romo Corp.; and as
amended on November 25, 1992, by and among the
Registrant, The Rocky Mountain Bank Note Company
and Romo Corp. 11
10.11 * Term Loan Agreement dated as of October 25, 1993
between the Company and Trust Company Bank for a
$15,000,000 Term Loan due 2003. 11
21.1 Subsidiaries of the Registrant. 11
23.1 Independent Auditors' Consent 11
27 Financial Data Schedule 11
- E2 -
EXHIBIT 21.1
Subsidiaries of Company
Subsidiaries (100% owned by Parent) State of Incorporation
___________________________________ ______________________
FormAtion Technologies, Inc. Georgia
J. William Company Georgia
Marketing Profiles, Inc. Florida
Scantron Corporation Delaware
The Check Store, Inc. Georgia
EXHIBIT - 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
No. 33-1402 and No. 33-26215 and in Post-Effective Amendment No. 3 to
Registration Statement No. 2-64079 of John H. Harland Company on Forms
S-8 of our report dated January 27, 1995, appearing in this Annual
Report on Form 10-K of John H. Harland Company for the year ended
December 31, 1994.
DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 30, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements for year ended December 31, 1994 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 12,049
<SECURITIES> 3,250
<RECEIVABLES> 61,373
<ALLOWANCES> 1,970
<INVENTORY> 25,428
<CURRENT-ASSETS> 117,223
<PP&E> 335,668
<DEPRECIATION> 173,867
<TOTAL-ASSETS> 414,373
<CURRENT-LIABILITIES> 79,320
<BONDS> 115,226
<COMMON> 37,907
0
0
<OTHER-SE> 165,507
<TOTAL-LIABILITY-AND-EQUITY> 414,373
<SALES> 521,266
<TOTAL-REVENUES> 521,266
<CGS> 271,650
<TOTAL-COSTS> 271,650
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,747
<INCOME-PRETAX> 85,126
<INCOME-TAX> 33,886
<INCOME-CONTINUING> 51,240
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,240
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.68
