United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ________________
Commission file number 1-6352
JOHN H. HARLAND COMPANY
(Exact name of registrant as specified in its charter)
GEORGIA 58-0278260
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2939 Miller Rd.
Decatur, Georgia 30035
(Address of principal executive offices) (Zip code)
(404) 981-9460
(Registrant's telephone number, including area code)
(Not Applicable)
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes (X) No ( ).
The number of shares of the Registrant's Common Stock outstanding on May 2,
1995 was 30,504,139.
-1-
<PAGE>
Item 1. FINANCIAL STATEMENTS
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS
------
March 31, December 31,
(In thousands) 1995 1994
- ----------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 18,660 $ 12,049
Accounts receivable 58,756 59,403
Inventories 24,376 25,428
Deferred income taxes 8,065 6,471
Other 14,506 13,872
---------- ----------
Total current assets 124,363 117,223
---------- ----------
INVESTMENTS AND OTHER ASSETS:
Investments 11,387 11,606
Goodwill and intangibles-net 98,594 101,887
Other 22,222 21,856
---------- ----------
Total investments and other assets 132,203 135,349
---------- ----------
PROPERTY, PLANT AND EQUIPMENT 341,509 335,668
Less accumulated depreciation
and amortization 180,337 173,867
---------- ----------
Property, plant and equipment - net 161,172 161,801
---------- ----------
Total $ 417,738 $ 414,373
========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
-2-
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
March 31, December 31,
(In thousands, except share amounts) 1995 1994
- ----------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Short-term debt $ - $ 14,000
Accounts payable - trade 13,993 11,235
Deferred revenues 17,604 17,724
Accrued liabilities:
Salaries, wages and employee benefits 15,793 16,937
Taxes 13,382 4,836
Other 16,538 14,588
---------- ----------
Total current liabilities 77,310 79,320
---------- ----------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 115,153 115,226
Deferred income taxes 3,973 4,806
Other 11,813 11,607
---------- ----------
Total long-term liabilities 130,939 131,639
---------- ----------
Total liabilities 208,249 210,959
---------- ----------
SHAREHOLDERS' EQUITY:
Series preferred stock, authorized 500,000
shares of $1.00 par value, none issued
Common stock - authorized 144,000,000
shares of $1.00 par value, issued
37,907,497 37,907 37,907
Additional paid-in capital 2,976 3,389
Foreign exchange translation adjustments 54 54
Retained earnings 351,674 346,660
---------- ----------
Total 392,611 388,010
Less 7,403,358 and 7,468,591 shares of
treasury stock - at cost 183,122 184,596
---------- ----------
Total shareholders' equity 209,489 203,414
---------- ----------
Total $ 417,738 $ 414,373
========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
-3-
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
<CAPTION>
(In thousands, except
per share amounts) 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 138,291 $ 131,043
---------- ----------
COST AND EXPENSES:
Cost of sales 70,604 69,106
Selling, general and
administrative expenses 38,634 33,664
Employees' profit sharing 2,479 2,481
Amortization of intangibles 3,355 2,410
---------- ----------
Total 115,072 107,661
---------- ----------
INCOME FROM OPERATIONS 23,219 23,382
---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (1,996) (1,909)
Other - net 49 106
---------- ----------
Total (1,947) (1,803)
---------- ----------
INCOME BEFORE INCOME TAXES 21,272 21,579
INCOME TAXES 8,509 8,593
---------- ----------
NET INCOME 12,763 12,986
RETAINED EARNINGS AT BEGINNING
OF PERIOD 346,660 325,323
---------- ----------
359,423 338,309
Cash dividends (7,749) (7,469)
---------- ----------
RETAINED EARNINGS AT END OF PERIOD $ 351,674 $ 330,840
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 30,475 30,519
========== ==========
NET INCOME PER COMMON SHARE $ .42 $ .43
========== ==========
CASH DIVIDENDS PER COMMON
SHARE $ .255 $ .245
========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
-4-
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
<CAPTION>
(In thousands) 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 12,763 $ 12,986
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 11,096 9,213
Other 520 15
Change in assets and liabilities net of
effect of acquisitions:
Accounts receivable 440 3,596
Inventories and other current assets 568 (771)
Accounts payable and accrued expenses 9,563 13,465
Other-net (74) 129
---------- ----------
Net cash provided by operating activities 34,876 38,633
---------- ----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (6,494) (5,896)
Proceeds from sale of property, plant and equipment 125 2,433
Change in short-term investments-net (149) (152)
Payment for acquisition of businesses,
net of cash acquired (40,202)
Long-term investments and other assets-net (986) (2,910)
---------- ----------
Net cash used in investing activities (7,504) (46,727)
---------- ----------
FINANCING ACTIVITIES:
Sale of common stock 1,113 1,012
Dividends paid (7,749) (7,469)
Purchase of treasury stock (52) (55)
Short-term debt (14,000)
Other (73) (269)
---------- ----------
Net cash used in financing activities (20,761) (6,781)
---------- ----------
Increase (decrease) in cash and cash equivalents 6,611 (14,875)
Cash and cash equivalents at beginning of period 12,049 26,224
---------- ----------
Cash and cash equivalents at end of period $ 18,660 $ 11,349
========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
-5-
<PAGE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements contained in this report
are unaudited but reflect all adjustments, consisting only of normal
recurring accruals, which are, in the opinion of management, necessary for
a fair presentation of the results of operations, financial position and
cash flows of the John H. Harland Company and subsidiaries ("the Company")
for the interim periods reflected. Certain information and note disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to
applicable rules and regulations of the Securities and Exchange Commission.
The results of operations for the interim period reported herein are not
necessarily indicative of results to be expected for the full year.
2. Accounting Policies
The condensed consolidated financial statements included herein should be
read in conjunction with the consolidated financial statements and notes
thereto, and the Independent Auditors' Report included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
Reference is made to the accounting policies of the Company described in
the notes to consolidated financial statements included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994. The
Company has consistently followed those policies in preparing this report.
3. 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 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 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 a provider of maintenance and
repair services for a broad variety of computers, peripherals, networks and
operating systems. FPC serves financial, commercial, governmental and
medical markets.
-6-
<PAGE>
The MPI, FormAtion and FPC acquisitions were 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.
The following represents the unaudited pro forma results of operations
which assume the acquisitions occurred on January 1, 1994. These results
include certain adjustments, primarily increased amortization expense
related to intangible assets and increased interest expense (in thousands
of dollars, except per share amounts):
Three months ended
March 31, 1994
- ---------------------------------------------------------------------
Net sales $ 138,290
Net income 12,827
Net income per common share .42
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 on January 1, 1994 or of future
consolidated results of operations.
4. Accounting for Income Taxes
The provision for income tax expense for the three months ended March 31,
1995 and 1994 includes the following (in thousands):
1995 1994
- ---------------------------------------------------------------------
Current provision $ 10,936 $ 11,251
Deferred benefit (2,427) (2,658)
--------- --------
Total $ 8,509 $ 8,593
========= ========
5. Employee Stock Plans
The Company has an Employee Stock Purchase Plan under which employees are
granted an option to purchase shares of the Company's common stock during
the quarter in which the option is granted. The option price is 85% of the
fair market value of the stock at the beginning or end of the quarter,
whichever is lower. In the quarter ended March 31, 1995, options
representing 59,737 shares were exercised at a price of $16.89 per share.
At March 31, 1995, there were 404,795 shares reserved for purchase under
the Employee Stock Purchase Plan.
-7-
<PAGE>
The Company has incentive and non-qualified stock option plans ("Plans")
which provide for the granting of options to certain key employees of the
Company to purchase shares of the Company's common stock at the fair market
value of the common stock on the date of the grant. Option transactions for
the three months ended March 31, 1995 are as follows:
Shares Exercise Price
- -----------------------------------------------------------------------
Options outstanding at December 31, 1994 385,853 $ 11.59 - 26.25
Options granted 120,250 19.38
Options exercised (7,833) 11.59 - 15.56
Options cancelled (71,943) 22.75 - 26.25
---------
Options outstanding at March 31, 1995 426,327 11.59 - 26.25
=========
The options generally become exercisable one year from the date of the
grant. At March 31, 1995, there were 306,077 options exercisable and
669,411 shares reserved for options under the Plans.
6. Net Income Per Share
Net income per share is based on the weighted average number of common
shares and common share equivalents outstanding during the period. Common
share equivalents include the number of shares issuable upon the exercise
of the Company's stock options.
7. Inventories
Inventories consisted of the following (in thousands of dollars):
March 31, December 31,
1995 1994
- -----------------------------------------------------------------------
Raw materials and semi-finished goods $ 20,662 $ 22,014
Finished goods 2,087 2,024
Hardware component parts 1,627 1,390
-------- --------
Total $ 24,376 $ 25,428
======== ========
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
First Quarter 1995 vs. 1994
Consolidated net sales for the first quarter 1995 increased $7.2 million or
5.5% as compared to the first quarter of 1994.
Sales for the Company's Financial Services Group ("FSG") decreased $3.9
million or 3.4%, which consisted of a 10.0% decrease in units and a price
and product mix increase of 6.6%. The positive price and product mix is
attributable in part to a general price increase which FSG implemented in
December 1994, to increased revenues from FSG's specialty printing
operations and to revenues from expedited delivery programs. The unit
decrease is partially due to two events which occurred during 1994,
specifically the loss of business with one large customer and a reduction
of business under contract with another large customer, although the
business retained was renewed at more favorable pricing. FSG continues to
experience pricing pressures within the check printing industry.
Sales for the Company's Data Services Group ("DSG") increased $5.2 million
or 43.0% in the first quarter 1995 versus the comparable period in 1994.
The DSG sales increase was primarily due to the acquisition of Financial
Products Corporation ("FPC") in September 1994. FPC contributed over $4
million to DSG's first quarter 1995 sales. Also, DSG's sales to commercial
customers increased over 1994, primarily from increases in custom form
sales.
Sales for the Company's Information Services Group ("ISG") contributed
$7.7 million to consolidated sales in the first quarter of 1995. ISG
consists of Marketing Profiles Inc. ("MPI") and FormAtion Technologies,
Inc. ("FormAtion") which were acquired in January 1994 and March 1994,
respectively. Cooperative marketing efforts between ISG and FSG
contributed to revenue increases over 1994.
Sales for the Company's Direct Marketing Group ("DMG"), which consists of
The Check Store, Inc. ("The Check Store"), substantially exceeded the
Company's expectations for the first quarter of 1995. The Check Store
markets checks and related products directly to consumers and began
production operations during the second quarter of 1994.
Consolidated cost of goods sold increased by $1.5 million or 2.2%, and
decreased as a percentage of net sales from 52.7% for the first quarter
1994 to 51.1% for the first quarter 1995.
FSG's gross margin improved from 47.8% in 1994 to 49.5% in 1995. The FSG
margin improvement is attributable to the price increase mentioned
previously and margin improvements related to product shipment. FSG's gross
margin was also favorably impacted by efficiencies realized from process
improvements but was negatively impacted by increased paper prices.
DSG experienced an improvement in gross margin from 43.3% in 1994 to 46.9%
in 1995. DSG's margin improvement is primarily due to the increase in form
sales which have a higher gross margin than machine sales and service
activities. Also, margins from form sales were improved due to printing
process improvements recently implemented by DSG.
-9-
<PAGE>
Cost of goods sold for ISG and DMG totaled $5.4 million in 1995.
Consolidated selling, general and administrative expense increased by $5.0
million or 14.8%, and increased as a percentage of sales from 25.7% in the
first quarter 1994 to 27.9% for the first quarter 1995. This increase is
primarily due to marketing expenditures associated with The Check Store.
Other components of the increase were expenses resulting from acquired
operations (principally FormAtion and FPC). These increases were partially
offset by a decrease in FSG administrative expenses primarily from plant
consolidation expenses incurred in 1994.
Amortization of intangibles, principally resulting from acquisitions,
increased by $0.9 million or 39.2%, and decreased as a percentage of net
sales from 1.9% in the first quarter 1994 to 1.8% for the first quarter
1995. This increase is primarily attributable to the acquisitions of
FormAtion and FPC.
Other income (expense) increased $144,000 over the first quarter 1994
primarily due to higher average balances of short-term debt during the first
quarter of 1995 coupled with the impact of higher interest rates in 1995.
The Company's consolidated effective income tax rate for the first quarter
1995 was 40.0% compared to 39.8% in 1994.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Cash flows provided by operations in the first quarter of 1995 were $34.9
million compared to $38.6 million in 1994. The primary uses of funds during
the first quarter of 1995 were to reduce short-term debt, to pay dividends
to the Company's shareholders and for capital expenditures.
Purchases of property, plant and equipment totaled $6.5 million in the first
quarter of 1995, compared to $5.9 million in 1994. The Company estimates
that its capital expenditures will total approximately $30 million in 1995.
The Company has unsecured lines of credit which provide for borrowings up
to $111.0 million. At March 31, 1995, no amounts were outstanding under
these lines of credit.
On March 31, 1995, the Company had $21.5 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.
-10-
<PAGE>
PART II. OTHER INFORMATION
===========================
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Referance No. Description of Exhibit
- ----------------------------------------------------------------
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the three months ended March
31, 1995.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHN H. HARLAND COMPANY
(Registrant)
May 15, 1995 William M. Dollar
Date: _________________ By:_____________________________
William M. Dollar
Vice-President and Treasurer
(Authorized Officer and
Principal Financial Officer)
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements for the three months ended March 31, 1995
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> MAR-31-1995
<CASH> 18,660
<SECURITIES> 3,400
<RECEIVABLES> 61,005
<ALLOWANCES> 2,249
<INVENTORY> 24,376
<CURRENT-ASSETS> 124,363
<PP&E> 341,509
<DEPRECIATION> 180,337
<TOTAL-ASSETS> 417,738
<CURRENT-LIABILITIES> 77,310
<BONDS> 115,153
<COMMON> 37,907
0
0
<OTHER-SE> 171,582
<TOTAL-LIABILITY-AND-EQUITY> 417,738
<SALES> 138,291
<TOTAL-REVENUES> 138,291
<CGS> 70,604
<TOTAL-COSTS> 70,604
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,996
<INCOME-PRETAX> 21,272
<INCOME-TAX> 8,509
<INCOME-CONTINUING> 12,763
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,763
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
