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, 1995 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)
(770) 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 re-
quired 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. (x)
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of the close of business on March 11, 1996 was $661,993,816.
The number of shares of the Registrant's Common Stock outstanding on March 11,
1996 was 30,654,738.
A portion of the Registrant's Definitive Proxy Statement dated March 14, 1996
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 6
Item 3: Legal Proceedings 6
Item 4: Submission of Matters to a Vote of Security Holders 6
Executive Officers of the Registrant 7
Part II
Item 5: Market for the Registrant's Common Equity and
Related Stockholder Matters 7
Item 6: Selected Financial Data 8
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 8: Financial Statements and Supplementary Data 8
Item 9: Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 8
PART III
Item 10: Directors and Executive Officers of the Registrant 8
Item 11: Executive Compensation 8
Item 12: Security Ownership of Certain Beneficial Owners
and Management 8
Item 13: Certain Relationships and Related Transactions 8
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, incorporated under
the laws of the State of Georgia, with its headquarters in Atlanta, is one of
the nation's leading providers of checks, forms and business documents to
financial institutions, consumers, brokerage firms and financial software
companies. The Company also provides value-added products and services to
financial institutions, including database management software systems, and
loan origination and platform automation systems. Educational technology
products and services are provided by the Company through its Scantron
Corporation ("Scantron") subsidiary.
On October 31, 1995, the Company named Robert J. Amman President and
Chief Executive Officer. Robert R. Woodson, formerly President, Chief
Executive Officer and Chairman of the Board of Directors, remains as Chairman
of the Board Of Directors.
The Company serves its major markets through two primary business
segments, each of which is described below. Reference is made to Note 14 of
the Notes to Consolidated Financial Statements on page F17 of this Annual
Report on Form 10-K with respect to information concerning the Company's
business segments.
Financial Markets
The Financial Markets ("FM") division is focused on providing products
and services to banks, credit unions, brokerage firms and financial software
companies. As a result of this focus, the value-added products consisting of
compliance solutions and targeted marketing and consulting services provided
to financial institutions previously shown as part of the Company's
Information Services Group have been combined with the Company's traditional
checks and forms printed products ("core business").
In August 1995, the Company acquired the net assets of dataPRINT, a
division of Seattle-based Data Print, Inc. The new entity, Harland dataPRINT,
Inc., produces computer-compatible checks and forms, used primarily with
personal finance software. Harland dataPRINT, Inc. operates within the FM
division.
FM provides MICR encoded documents and related forms to financial
institutions and their customers. FM'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, FM
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, FM 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 capability for the
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production of MICR readable documents (via Bottomline Technologies, Inc.); and
markets recyclable deposit bags to financial institutions (via Learoyd
Packaging, Inc.).
FM's documents are printed on stock lithographed at six base stock
plants. FM imprints checks and related related product documents at 41 check
printing facilities in 29 states and in Puerto Rico. All of these plants are
principally devoted to printing checks, deposit tickets and related forms.
Additionally, FM has five facilities dedicated to specialty print operations.
FM markets products across the United States, Puerto Rico, the West
Indies, Mexico, and Panama. The FM sales and marketing organization solicits
customers by type (financial, non-financial and international) to provide
solutions that meet the customer's individual needs. Financial customers
include community-based and regional financial institutions. Non-financial
customers consist of selected retail markets such as superstores, software
companies, catalog merchandisers and affinity groups. International customers
include financial and non-financial customers in international markets.
FM also provides value-added products and services to financial
institutions, including database management software systems, and loan
origination and platform automation systems. These products and services are
delivered by two of the Company's subsidiaries; Marketing Profiles, Inc.
("MPI") and FormAtion Technologies, Inc. ("FormAtion"), and are designed to
increase efficiency and profitability within financial institutions. These
products and services consist primarily of computer software and related
services, database marketing, consulting and direct mail services, and
automated compliance solutions.
The FM division's principal raw materials are safety paper, form paper
and MICR bond paper, which it purchases from a number of large domestic
manufacturers. Other raw materials, such as vinyl, inks, checkboards,
packaging materials and miscellaneous supplies, are purchased from a number of
suppliers. The Company believes that, while recent market conditions have
resulted in temporary price volatility with respect to paper purchases,
adequate raw materials will be available to support FM's operations.
FM's primary competitors in the sale of MICR encoded documents and
related forms to financial institutions are two other large national printers
specializing in check printing, one of which possesses substantially greater
sales and financial resources than FM. The Company believes that the primary
competitive factors influencing customer buying decisions are printing
accuracy, service capabilities, price and the availability of a complete
product line. FM compares favorably with its competitors with respect to the
factors mentioned above. While accurate statistics with respect to the
aggregate level of check production are not readily available, the Company
believes that FM is among the largest producers of MICR encoded documents and
related forms in the United States. Technological advancements in electronics
and personal computers have created possible alternatives to the check as a
means for transferring funds. While these alternatives have gained increased
market acceptance, the Company believes that they have achieved only limited
acceptance among consumers as a preferred method of payment. At this time,
the Company cannot accurately predict what future impact these advances in
technology may have on FM's check printing business.
The market for providing database marketing and automated compliance
solutions is growing rapidly within the financial services industry. The
Company believes that MPI is a leading provider of database marketing software
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and related solutions to financial institutions. Competition within the market
for supplying automated compliance solutions varies by size of financial
institution, and FormAtion competes with many other companies to provide
solutions for small as well as large financial institutions.
The Company believes that the loss of any one FM customer would not have
a materially adverse effect on the Company's consolidated results of
operations.
Education Markets
The Education Markets ("EM") segment is focused on providing educational
technology products, services and solutions to educational institutions. These
products and services are provided by the Company through Scantron.
In July 1995, Scantron purchased the net assets of Detroit-based Quality
Computers & Applications. This new entity, Scantron Quality Computers, Inc.
("Quality Computers"), utilizes catalogs and other direct mail to market a
proprietary line of software products and peripheral items. Quality Computers
is also an authorized distributor of educational products from industry
leaders such as Microsoft, Apple, Claris and Broderbund.
The EM segment provides an array of data management solutions for
educational institutions. These data management solutions are generated
through EM'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. EM serves its
primary educational market with forms and equipment used to capture, tabulate
and analyze data for test scoring and grade reporting. EM also provides
educational technology solutions through a proprietary line of software
products and peripheral equipment, and is also an authorized distributor of
educational software products from a number of leaders in the educational
software industry.
The EM segment'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. EM also
operates a service bureau which provides turnkey survey and other data
collection solutions to organizations that may or may not own scanning
equipment.
EM markets its products primarily through sales and service
representatives throughout the United States and also in Canada.
Representatives sell systems, distribute new equipment and provide ongoing
assistance, such as machine servicing and forms development to customers. EM's
products are also marketed internationally through distributorships, and via
direct mail channels.
The components used in the assembly and manufacturing of OMR equipment
are purchased from equipment manufacturers, supply firms and others. The
Company has no reason to believe that the EM segment cannot continue to obtain
such materials or suitable substitutes for its operation. EM purchases
software for resale from a number of leaders in the educational software
industry, and has no reason to believe that it cannot continue to obtain such
software in acceptable quantities and at acceptable prices for its operation.
The data collection market is a highly fragmented industry, with many
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large and small competitors. EM has focused its efforts within the education
market, where scanning technologies utilized by EM are perceived to have an
advantage over other methods of data capture and tabulation. The Company
believes that Scantron is a leading provider of OMR stand-alone equipment to
the educational market in the United States. EM's forms printing operation
competes with commercial and specialized forms printers, principally on the
basis of product quality, customer service, availability of a complete product
line and price to the end user. EM's field service operation competes with
various organizations which provide maintenance services, including
manufacturers and other national and local field service and maintenance
companies. The market for educational software is also highly fragmented, with
many large and small competitors. The Company believes that Quality Computers
is a leading provider of educational software to educational institutions. The
Company believes that the primary factors influencing customer buying
decisions in the educational software industry include availability of a broad
product line, customer service and price to the end user. EM compares
favorably with its competitors with respect to the factors mentioned above.
There is a seasonal nature to EM's business in the educational market,
but it does not significantly affect the Company's consolidated results.
The Company believes that the loss of any one EM customer would not have
a materially adverse effect on the Company's consolidated results of
operations.
Patents and Trademarks
In 1992, the Company received a patent on a Scannable Form and System
developed by Scantron. This patent expires in 2009. Also, the Company has
trademarks on names of several of its products and services. While the Company
believes these patents and trademarks to be of value, it does not consider any
of them to be critical to its operations.
Employees
As of February 29, 1996, the Company and its subsidiaries employed 6,887
people.
ITEM 2. PROPERTIES
As of December 31, 1995, the Company and its subsidiaries owned 47
facilities located in 29 states, all but 3 of which were primarily production
and service facilities. The Company leases 16 facilities for printing and/or
warehouse activities. The Company also leases office space for sales and
service activities where there are no production facilities, as well as space
for 3 of its subsidiaries. These leases have expiration dates ranging from 1996
to 2006. The Company owns its executive offices in Atlanta, Georgia.
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.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information with respect to all executive
officers of the Company.
Name Age Office Held
Robert R. Woodson 63 Chairman
Robert J. Amman 57 President and Chief Executive Officer
Joseph M. O'Connell 40 Senior Vice President and Chief Information Officer
Mark C. Perlberg 39 Senior Vice President and President, International
Markets Division
Earl W. Rogers Jr. 47 Senior Vice President and President, Printed
Products Division
John C. Walters 55 Senior Vice President and General Counsel
William M. Dollar 47 Vice President, Finance and Treasurer
Messrs. Woodson, Rogers and Dollar have been employed as executive
officers of the Company for more than the past five years.
Mr. Amman joined the Company in October 1995. Previously, he served as
Vice Chairman of First Financial Management Corporation, a diversified
information and financial services company, from November 1994 through October
1995. Prior to such time he served as President and Chief Executive Officer of
New Valley Corporation, a financial services company, and its Western Union
Financial Services subsidiary ("Western Union"), since 1988. A petition under
Chapter 11 of the Federal Bankruptcy Code was entered against New Valley
Corporation in March 1993, and it emerged from bankruptcy in January 1995.
Mr. O'Connell joined the Company in February 1996. He previously served
as Chief Operating Officer of National Bancard Corporation (NaBANCO), the
world's largest merchant credit card processor, from August 1995 until
February 1996. He was employed by Western Union for more than the prior five
years, last serving as a corporate Vice President.
Mr. Perlberg joined the Company in February 1996. He was previously
employed by Western Union since 1989, last serving as an area Vice President
in its international operations.
Mr. Walters joined the Company in January 1996. He previously served as
Executive Vice President of First Financial Management Corporation from
November 1994 until December 1995. From 1988 until November 1994 he served as
Senior Vice President and General Counsel of New Valley Corporation.
Messrs. Woodson and Amman are also members of the Board of Directors.
Officers are elected annually and serve at the pleasure of the Board of
Directors.
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 F19 of this Annual Report on Form 10-K.
The Company has an established policy of making quarterly dividend payments to
shareholders. The Company expects to pay future cash dividends depending upon
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the Company's pattern of growth, profitability, financial condition and other
factors which the Board of Directors may deem appropriate.
ITEM 6. SELECTED FINANCIAL DATA
See the information with respect to selected financial data on page F19
of this Annual Report on Form 10-K.
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 F20 through
F23 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 F18 and page F19, 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 "Election of Directors" in the
Registrant's Definitive Proxy Statement for the Annual Shareholders' Meeting
dated March 14, 1996 (the "Proxy Statement").
The information regarding Executive Officers required herein is included
in Part I 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 "Election of Directors -- Beneficial Ownership"
in the Registrant's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
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) F19
(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 as indicated in parentheses and incorporated herein by reference.)
3.1 * Amended and Restated Articles of Incorporation (Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1993 (the "1993 10-K")).
3.2 * By-Laws, as amended (Exhibit 3(D) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990 (the "1990 10-K")).
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 furnished
to the Commission upon request).
4.2 * Form of Rights Agreement dated as of June 9, 1989, between the
Registrant and Citizens and Southern Trust Company (Exhibit 1 to the
Registrant's Current Report on Form 8-K dated June 9, 1989).
4.3 * First Amendment dated June 12, 1992 to Rights Agreement dated June 9,
1989 between the Registrant and NationsBank of Georgia Inc., N.A.,
successor to Citizens and Southern Trust Company (Exhibit 4.1 to the
Registrant's Quarterly Report 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 Registrant and Trust Company Bank, successor to
NationsBank of Georgia Inc., N.A., and to Citizens and Southern Trust
Company (Exhibit 4.2 to the Registrant's Quarterly Report on Form 10-
Q for the quarter ended September 30, 1992).
4.5 * Note Agreement dated as of December 1, 1993 between the Registrant and
the purchasers listed on Schedule I of the agreement, for the issuance
and sale of $85,000,000 aggregate principal amount of 6.60% Series A
Senior Notes Due December 30, 2008 (Exhibit 4.5 to the 1993 10-K ).
4.6 See Articles IV, V and VIII of the Registrant's Amended and Restated
Articles of Incorporation, filed as Exhibit 3.1, and Articles I, V,
and VIII of the Registrant's By-Laws, as amended, filed as Exhibit
3.2.
10.1 * Form of Deferred Compensation Agreement between the Registrant and
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Robert R. Woodson (Exhibit 10.1 to the 1993 10-K).
10.2 * Form of Monthly Benefit Amendment to Deferred Compensation Agreement
between the Registrant and Mr. Woodson (Exhibit 10(H) to the 1990 10-
K).
10.3 * Form of Deferred Compensation Agreement between the Registrant and
William M. Dollar and Earl W. Rogers Jr. (Exhibit 10.3 to the 1993
10-K).
10.4 * Form of Amendment to Deferred Compensation Agreement between the
Registrant and Messrs. Woodson, Dollar and Rogers (Exhibit 10.6 to
the 1993 10-K).
10.5 * Form of Non-Compete and Termination Agreement between the Registrant
and Messrs. Woodson, Dollar and Rogers (Exhibit 10.7 to the 1993 10-
K).
10.6 Form of Noncompete and Termination Agreement between the Registrant and
Joseph M. O'Connell, Mark C. Perlberg and John C. Walters.
10.7 * Form of Executive Life Insurance Plan between the Registrant Messrs.
Woodson, Dollar and Rogers (Exhibit 10.8 to the 1993 10-K).
10.8 * John H. Harland Company 1981 Incentive Stock Option Plan, As Extended
(Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993).
10.9 Amendment to John H. Harland Company 1981 Incentive Stock Option Plan,
as Extended, effective April 26, 1996.
10.10 John H. Harland Company Employee Stock Purchase Plan, as amended.
10.11 * Term Loan Agreement dated as of October 25, 1993 between the Registrant
and Trust Company Bank for a $15,000,000 Term Loan due 2003 (Exhibit
10.14 to the 1993 10-K).
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, Finance and
Treasurer
March 29, 1996
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 J. Amman 3/26/96 Robert R. Woodson 3/29/96
______________________ ________ ______________________ ________
Robert J. Amman Date Robert R. Woodson Date
President and Director Chairman and Director
(Principal Executive Officer)
William M. Dollar 3/29/96 G. Harold Northrop 3/26/96
______________________ ________ ______________________ ________
William M. Dollar Date G. Harold Northrop Date
Vice President, Finance and Treasurer Director
(Principal Financial and
Accounting Officer)
H.G. Pattillo 3/26/96
______________________ ________ ______________________ ________
Juanita Powell Baranco Date H.G. Pattillo Date
Director Director
Lawrence L. 3/26/96
Gellerstedt Jr Larry L. Prince 3/26/96
______________________ ________ ______________________ ________
Lawrence L. Date Larry L. Prince Date
Gellerstedt Jr Director
Director
John H. Weitnauer, Jr. 3/25/96
______________________ ________ ______________________ ________
Edward J. Hawie Date John H. Weitnauer, Jr. Date
Director Director
John J. McMahon, Jr. 3/25/96
______________________ ________ ______________________ ________
John J. McMahon, Jr. Date Robert A. Yellowlees Date
Director Director
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JOHN H. HARLAND COMPANY AND SUBSIDIARIES
Index to Information For Inclusion
in the Annual Report on Form 10-K
to the Securities and Exchange Commission
for the year ended December 31, 1995
Management Responsibility For Financial Statements F2
Independent Auditors' Report F3
Consolidated Financial Statements
and Notes to Consolidated Financial Statements F4
Supplemental Financial Information F19
Management's Discussion and Analysis of
of Operations and Financial Condition F20
Supplemental Financial Statement Schedule S1
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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 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
Vice President, Finance and Treasurer
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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, 1995 and
1994, and the related consolidated statements of income, cash flows and
shareholders' equity for each of the three years in the period ended
December 31, 1995. 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, 1995 and 1994,
and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 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.
DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
January 26, 1996
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<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share amounts)
<CAPTION>
December 31
1995 1994
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ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 12,862 $ 19,959
Short-term investments 400 3,250
Accounts receivable from customers, less
allowance for doubtful accounts of $2,251
and $1,970 67,660 58,790
Inventories:
Raw materials and semi-finished goods 34,349 22,014
Hardware component parts 2,037 1,390
Finished goods 2,858 2,024
Deferred income taxes 6,523 6,471
Other 17,542 11,235
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Total current assets 144,231 125,133
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INVESTMENTS AND OTHER ASSETS:
Investments 8,188 11,606
Goodwill and other intangibles - net 133,092 101,887
Other 24,030 21,856
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Total investments and other assets 165,310 135,349
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PROPERTY, PLANT AND EQUIPMENT:
Land 9,852 9,687
Buildings and improvements 80,867 75,638
Machinery and equipment 234,284 218,965
Furniture and fixtures 19,884 17,284
Leasehold improvements 2,954 2,319
Additions in progress 16,159 11,775
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Total 364,000 335,668
Less accumulated depreciation and amortization 198,891 173,867
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Property, plant and equipment - net 165,109 161,801
- -----------------------------------------------------------------------
Total $ 474,650 $ 422,283
=======================================================================
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
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<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS (continued)
<CAPTION>
December 31
1995 1994
- -----------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Short-term debt $ 35,000 $ 14,000
Accounts payable - trade 26,311 18,981
Deferred revenues 25,141 17,724
Accrued liabilities:
Salaries, wages and employee benefits 18,217 17,101
Taxes 4,698 4,836
Other 11,703 14,588
- -----------------------------------------------------------------------
Total current liabilities 121,070 87,230
- -----------------------------------------------------------------------
LONG-TERM LIABILITIES:
Long-term debt 114,574 115,226
Deferred income taxes 4,504 4,806
Other 12,355 11,607
- -----------------------------------------------------------------------
Total long-term liabilities 131,433 131,639
- -----------------------------------------------------------------------
Total liabilities 252,503 218,869
- -----------------------------------------------------------------------
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 2,375 3,389
Foreign currency translation adjustment 54 54
Retained earnings 361,554 346,660
- -----------------------------------------------------------------------
Total shareholders' equity 401,890 388,010
Less 7,252,740 and 7,468,591 shares in
treasury, at cost 179,743 184,596
- -----------------------------------------------------------------------
Shareholders' equity - net 222,147 203,414
- -----------------------------------------------------------------------
TOTAL $ 474,650 $ 422,283
=======================================================================
<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
1995 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 561,617 $ 521,266 $ 519,486
- -------------------------------------------------------------------------
COST AND EXPENSES:
Cost of sales 301,921 271,650 288,786
Selling, general and administrative
expenses 153,762 136,100 125,077
Employees' profit sharing 7,874 9,914 9,614
Amortization of intangibles 14,840 11,590 8,702
- -------------------------------------------------------------------------
Total 478,397 429,254 432,179
- -------------------------------------------------------------------------
INCOME FROM OPERATIONS 83,220 92,012 87,307
- -------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (8,714) (7,747) (2,603)
Other-net 2,397 861 970
- -------------------------------------------------------------------------
Total (6,317) (6,886) (1,633)
- -------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 76,903 85,126 85,674
INCOME TAXES 30,886 33,886 33,152
- -------------------------------------------------------------------------
NET INCOME $ 46,017 $ 51,240 $ 52,522
=========================================================================
NET INCOME PER COMMON SHARE $ 1.51 $ 1.68 $ 1.62
=========================================================================
<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
1995 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 46,017 $ 51,240 $ 52,522
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 48,317 41,539 35,102
Loss (gain) on sale of assets (239) 472 599
Other 2,426 2,365 1,733
Change in assets and liabilities net of
effects of businesses acquired:
Accounts receivable (9,575) 7,586 3,059
Inventories and other current assets (18,986) 987 3,347
Accounts payable and accrued expenses 10,634 4,677 (1,939)
Other - net 114 (1,031) (434)
- -------------------------------------------------------------------------
Net cash provided by operating activities 78,708 107,835 93,989
- -------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (33,391) (37,474) (27,121)
Proceeds from sale of property, plant and
equipment 1,748 3,902 1,474
Payment for acquisition of businesses -
net of cash acquired (36,464) (60,571) (9,564)
Change in short-term investments - net 2,850 (601) (1,750)
Investment in equity securities (4,300)
Other - net (1,612) (5,762) (2,469)
- -------------------------------------------------------------------------
Net cash used in investing activities (66,869) (104,806) (39,430)
- -------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 4,000 100,000
Short-term borrowings-net 9,000 10,000 (18,000)
Purchases of treasury stock (52) (5,484) (99,435)
Issuance of treasury stock 3,879 3,826 4,779
Dividends paid (31,123) (29,903) (30,448)
Other - net (640) (255) (1,046)
- -------------------------------------------------------------------------
Net cash used in financing activities (18,936) (17,816) (44,150)
- -------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents (7,097) (14,787) 10,409
Cash and cash equivalents at beginning of
year 19,959 34,746 24,337
- -------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 12,862 $ 19,959 $ 34,746
=========================================================================
Cash paid during the year for:
Interest $ 8,483 $ 8,061 $ 2,144
=========================================================================
Income taxes $ 31,708 $ 32,263 $ 38,785
=========================================================================
<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, 1995, 1994 and 1993 ---
Foreign
Additional Currency
Common Paid-In Retained Treasury Translation
Stock Capital Earnings Stock Adjustment
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
Net income 46,017
Cash dividends, $1.02 per share (31,123)
Purchase of 2,337 shares of treasury
stock (52)
Issuance of 218,188 shares of treasury
stock under employee stock plans (1,026) 4,905
Other 12
- -------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 $ 37,907 $ 2,375 $ 361,554 $ (179,743) $ 54
=======================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
- 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.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
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, which are insignificant, are carried at cost which
approximates 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 2 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. 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
revision to estimated useful lives. The Company believes that no material
impairment of goodwill and other intangibles exists at December 31, 1995.
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 30,557,594 for 1995;
30,516,799 for 1994 and 32,460,128 for 1993. 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.
- F9 -
<PAGE>
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 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
1993 and 1994 financial statements to conform to the 1995
classifications.
New Accounting Standards - In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 addresses issues
surrounding the measurement and recognition of losses when the value of
certain assets has been deemed to be permanently impaired. The Company
plans to adopt SFAS 121 in 1996 and believes that there will be no
material effect on its financial position or results of operations from
adopting SFAS 121.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 establishes fair value
methods of accounting for stock options and other forms of stock-based
transactions and is effective for fiscal years beginning after December
15, 1995. Under SFAS 123, companies are not required to adopt a fair
value method of accounting for employee stock-based transactions. They
are permitted to continue to account for such transactions pursuant to
Accounting Principles Board Opinion No. 25 ("APB 25") but must disclose
pro forma net income and earnings per share as if a fair value method of
accounting had been applied. The Company intends to continue accounting
for employee stock option transactions in accordance with the
requirements of APB 25.
2. ACQUISITIONS: During 1995, 1994 and 1993, the Company acquired the
businesses described below, which were accounted for using the purchase
method of accounting. The results of operations of each acquisition are
included in the consolidated financial statements from the date of
acquisition. Certain of these purchase agreements provide for subsequent
contingent payments which, if paid, will be recorded as an increase in
goodwill and will be amortized over the remaining life of the associated
goodwill.
On July 3, 1995, the Company's wholly-owned subsidiary, Scantron
Corporation, acquired the net assets of Quality Computers & Applications
Inc. ("QCA") for cash paid at closing and a contingent purchase payment
payable in 1999. The contingent purchase payment is based upon a multiple
of QCA 1998 operating results as defined in the acquisition agreement.
The acquisition price was funded with proceeds from short-term
borrowings. QCA is based in Detroit, Michigan and is a mail-order
retailer of software and hardware to the educational technology
market.The new entity operates under the name Scantron Quality Computers,
Inc.
On August 31, 1995, the Company acquired the net assets of dataPRINT
("dataPRINT"), a division of Data Print, Inc., for cash and a note
payable. The cash paid at closing was funded with proceeds from short-
term borrowings. dataPRINT is based in Seattle, Washington and produces
computer-compatible forms, particularly forms utilized by personal
finance software packages. The new entity operates under the name Harland
dataPRINT, Inc.
Assets acquired through acquisitions in 1995 totaled $23.1 million,
net of liabilities assumed of $1.8 million. Cash paid out for these
acquisitions totaled $11.1 million along with a note payable made by the
- F10 -
<PAGE>
Company for $12.0 million which was paid in January 1996. Of the total
acquisition costs, $20.3 million was preliminarily allocated to
intangible assets, of which $10.6 million represented goodwill which is
being amortized over 15-20 year periods.
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. In October 1995, the acquisition
agreement related to the MPI acquisition was amended to redefine the
calculation of the contingent purchase payment and the related terms of
payment. In accordance with this amendment, the Company paid $22.7
million in October 1995 to former MPI shareholders for a portion of the
contingent purchase payment. The payment was recorded as an increase in
goodwill and is being amortized over the remaining estimated life which
was approximately 13 years at the time of payment. 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. In 1995, the Company paid $2.7
million for early settlement and termination of the contingent purchase
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.
Assets acquired through acquisitions in 1994 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.
In 1995, contingent purchase payments of $25.4 million were made related
to these acquisitions. Of the total acquisition costs (including
contingent purchase price payments), $84.7 million was allocated to
intangible assets, of which $78 million represented goodwill which is
being amortized over 10-25 year periods.
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.
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 which is
being amortized over a 40 year period.
Goodwill and other intangible assets acquired in acquisitions
consist of the following as of December 31, (in thousands):
- F11 -
<PAGE>
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------
<S> <C> <C>
Goodwill $ 116,267 $ 79,943
Non-compete covenants 30,650 30,600
Customer lists 25,843 16,133
- ----------------------------------------------------------------------
Total 172,760 126,676
Less accumulated amortization 39,668 24,789
- ----------------------------------------------------------------------
Total $ 133,092 $ 101,887
======================================================================
</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>
1995 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 577,204 $ 561,406 $ 560,231
Net income 44,657 51,617 52,004
Net income per common share 1.46 1.69 1.60
</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 impact of the adoption of SFAS 115 was
not significant to the Company's financial statements. The difference
between market value of such investments and cost is not significant at
December 31, 1995 and 1994.
In 1994, the Company 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, Galas Harland and other
investments.
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, 1995, 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, 1995, $23 million was
outstanding under these unsecured lines of credit, bearing an average
variable interest rate of 6.16%. At December 31, 1994, $14 million was
outstanding under these unsecured lines of credit, bearing an average
variable interest rate of 6.41%.
On August 31, 1995, the Company issued a note payable in the amount
of $12 million in conjunction with its acquisition of the net assets of
dataPRINT (see note 2). This note payable bears interest at a fixed rate
of 4% and was paid in January 1996.
- F12 -
<PAGE>
5. LONG-TERM DEBT: The Company's long-term debt consisted of the
following as of December 31, (in thousands):
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------
<S> <C> <C>
Series A Senior Notes $ 85,000 $ 85,000
Term Loan 15,000 15,000
Convertible Subordinated Debentures 10,157 10,621
Industrial Development Refunding
Revenue Bonds 4,000 4,000
Other 867 1,185
- ----------------------------------------------------------------------
Total 115,024 115,806
Less current portion 450 580
- ----------------------------------------------------------------------
Long-term debt $ 114,574 $ 115,226
======================================================================
</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, 1995, 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. In 1995, the Company acquired $500 thousand face value
of debentures and intends to utilize the reacquired debentures to
partially satisfy the 1996 sinking fund requirement. 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 3.96% in 1995 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.
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, 1995,
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 (less subordinated debentures reacquired) during the next
five years are: 1996-$450,000; 1997-$831,000; 1998-$686,000; 1999-
$590,000; and 2000-$590,000.
6. INCOME TAXES: The provision for income taxes for the years ended
December 31, 1995, 1994 and 1993 includes the following (in thousands):
- F13 -
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 27,226 $ 28,754 $ 28,350
State 4,014 6,289 7,090
- ----------------------------------------------------------------------
Total 31,240 35,043 35,440
- ----------------------------------------------------------------------
Deferred:
Federal (325) (963) (1,999)
State (29) (194) (289)
- ----------------------------------------------------------------------
Total (354) (1,157) (2,288)
- ----------------------------------------------------------------------
Total $ 30,886 $ 33,886 $ 33,152
======================================================================
</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>
1995 1994
- ----------------------------------------------------------------------
<S> <C> <C>
Current deferred tax asset:
Accrued vacation $ 2,124 $ 2,367
Deferred revenue 1,911
Accrued liabilities 2,103 4,150
Other 385 (46)
- ----------------------------------------------------------------------
Total 6,523 6,471
- ----------------------------------------------------------------------
Noncurrent deferred tax liability:
Difference between book and tax basis
of property (14,767) (15,063)
Deferred revenue 2,148 2,157
Deferred compensation 1,701 1,678
Acquisition reserves 1,952 2,326
Postretirement benefit obligation 2,806 2,316
Other 1,656 1,780
- ----------------------------------------------------------------------
Total (4,504) (4,806)
Valuation allowance 0 0
- ----------------------------------------------------------------------
Net deferred tax asset $ 2,019 $ 1,665
======================================================================
</TABLE>
A reconciliation between the Federal income tax statutory rate and the
Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State and local income taxes,
net of Federal income tax benefit 4.8 4.7 5.0
Income from Puerto Rico (1.7) (1.6) (3.7)
Other, net 2.1 1.7 2.4
- ----------------------------------------------------------------------
Effective income tax rate 40.2% 39.8% 38.7%
======================================================================
</TABLE>
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.
- F14 -
<PAGE>
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 $16.89 to $19.23
in 1995, $17.16 to $18.70 in 1994 and $18.70 to $23.06 in 1993. At
December 31, 1995, there were 1,012,090 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 no less than fair market value of the
common stock on the date of grant. Prior to 1995, the options generally
became fully exercisable one year from date of grant. One grant in 1995,
subject to shareholders' approving additional shares for the plan, will
vest over a five-year period.
Option transactions during the three years ended December 31, 1995
are as follows:
<TABLE>
<CAPTION>
Exercise
Shares Price
- ----------------------------------------------------------------------
<S> <C> <C>
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
Options:
Granted 1,123,250 19.38-30.00
Exercised (15,652) 11.59-18.28
Cancelled (82,443) 19.38-26.25
- ----------------------------------------------------------------------
Balance, December 31, 1995 1,411,008 $ 11.59-30.00
======================================================================
</TABLE>
At December 31, 1995, there were options for 295,423 shares
exercisable and 1,270,952 shares of common stock reserved for options
under the plans.
10. PROFIT SHARING, 401(k) 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 a 401(k) plan for all of its employees and matches a
portion of employees' contribution for certain of the company's
subsidiaries which do not participate in the previously mentioned profit
sharing plan. In January 1996, the Company's Board of Directors approved
the merger of the profit sharing plan into the 401(k) plan.
- F15 -
<PAGE>
The Company has unfunded 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 and
totaled approximately $4.2 million at December 31, 1995. The charge to
expense for the agreements was $317,000 in 1995, $365,000 in 1994 and
$345,000 in 1993.
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, 1995, the accumulated postretirement benefit
obligation ("APBO") under such plans was $8,657,123. 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>
1995 1994
- ----------------------------------------------------------------------
<S> <C> <C>
APBO:
Retirees $ 2,469 $ 1,609
Fully eligible participants 1,954 1,516
Other participants 4,234 3,749
- ----------------------------------------------------------------------
8,657 6,874
Unrecognized net gain (loss) (877) 269
- ----------------------------------------------------------------------
Accrued postretirement benefit obligation
- included in Other Liabilities $ 7,780 $ 7,143
======================================================================
</TABLE>
Net postretirement costs are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Service costs $ 280 $ 303 $ 245
Interest on APBO 543 564 523
Net amortization 33
- ----------------------------------------------------------------------
Net periodic postretirement cost $ 823 $ 900 $ 768
======================================================================
</TABLE>
For measurement purposes, the cost of providing medical benefits was
assumed to increase by 10.0% in 1995, 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 1.0% in the
assumed rate of increase would have had the effect of increasing the APBO
by $881,000 and the net periodic postretirement cost by $119,000. The
weighted average discount rate used in determining the APBO was 7.75% in
1995, 8.0% in 1994 and 7.5% in 1993 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:
- F16 -
<PAGE>
Short-term investments - The carrying value 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
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.
Short-term debt - The carrying value approximates fair value.
Long-term debt - The fair value of the Company's convertible
debentures is based on recent market quotes. The carrying value of the
Company's Industrial Development Refunding Revenue Bonds approximates
fair value.The fair value of 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
1995 1994 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Short-term investments $ 400 $ 3,250 $ 400 $ 3,250
Long-term investments 5,798 9,125 7,051 10,322
Liabilities:
Short-term debt 35,000 14,000 35,000 14,000
Long-term debt 114,574 115,226 114,315 99,622
</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 $8,081,000 in 1995, $9,147,000 in 1994 and
$12,257,000 in 1993. Minimum annual rentals under non-cancellable
operating leases total $22,920,000 and range from $7,968,000 in 1996 to
$1,819,000 in 2000.
14. BUSINESS SEGMENTS: In 1995, the Company redefined its business based
upon markets served. The Financial Markets ("FM") segment focuses on
providing products and services to banks, credit unions, brokerage firms
and financial software companies. As a result, the products consisting of
compliance solutions and targeted marketing and consulting services
provided to financial institutions previously shown as part of the
Information Services Group have been combined with the traditional check
and forms printing products in the FM segment. The Education Markets
("EM") segment is comprised of products targeted for educational
institutions and include data collection/tabulation solutions, and
equipment maintenance solutions. Remaining operations consist primarily
of data collection/tabulation and equipment maintenance solutions for
commercial, international and governmental markets. EM and other
operations' financial information is not significant and both are
combined with corporate items.
The Company's operations are primarily in the United States and Puerto
Rico. There were no significant intersegment sales and no material
amounts of the Company's sales are dependent upon a single customer.
Equity investments as well as foreign assets 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 1995, 1994
and 1993 is as follows (in thousands):
- F17 -
<TABLE>
<CAPTION>
Corporate
Financial and
Markets Other Consolidated
<S> <C> <C> <C>
1995
Sales $ 484,342 $ 77,275 $ 561,617
Operating income 88,756 (5,536) 83,220
Identifiable assets 383,493 91,157 474,650
Depreciation and
amortization 40,641 7,676 48,317
Capital expenditures 29,160 4,231 33,391
1994
Sales $ 462,809 $ 58,457 $ 521,266
Operating income 98,883 (6,871) 92,012
Identifiable assets 326,515 95,768 422,283
Depreciation and
amortization 36,278 5,261 41,539
Capital expenditures 33,673 3,801 37,474
1993
Sales $ 464,462 $ 55,024 $ 519,486
Operating income 93,439 (6,132) 87,307
Identifiable assets 282,760 82,212 364,972
Depreciation and
amortization 29,949 5,153 35,102
Capital expenditures 22,833 4,288 27,121
</TABLE>
- F18 -
<PAGE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES - Supplemental Financial
Information
<TABLE>
SELECTED QUARTERLY FINANCIAL DATA, DIVIDENDS PAID AND STOCK PRICE RANGE
(In thousands except per share amounts)
<CAPTION>
--------- Quarter ended ----------
March 31 June 30 September 30 December 31
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995:
Net sales $ 138,291 $ 136,068 $ 141,348 $ 145,910
Gross profit 67,687 64,217 64,320 63,472
Net income 12,763 12,468 10,958 9,828
Per common share:
Net income .42 .41 .36 .32
Dividends paid .255 .255 .255 .255
Market price:
High 22 7/8 23 5/8 23 22 1/8
Low 19 1/8 21 5/8 21 5/8 19 3/4
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
</TABLE>
The Company's common stock (symbol:JH) is listed on the New York Stock
Exchange. At December 31, 1995 there were 8,657 shareholders of record.
<TABLE>
SELECTED FINANCIAL DATA
(In thousands except per share amounts)
<CAPTION>
--------- Year ended December 31 ---------
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 561,617 $ 521,266 $ 519,486 $ 444,980 $ 378,659
Net income 46,017 51,240 52,522 56,638 47,435
Total assets 474,650 422,283 364,973 339,880 351,554
Long-term debt 114,574 115,226 111,542 12,622 11,661
Per common share:
Net income 1.51 1.68 1.62 1.59 1.27
Dividends paid 1.02 .98 .94 .90 .86
Average number of
shares outstanding 30,558 30,517 32,460 35,689 37,469
<FN>
Refer to Note 2 of the Notes to Consolidated Financial Statements
regarding the impact of acquisitions in 1995, 1994 and 1993. 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 subsidiaries and
investments and certain taxes related to the repatriations of earnings
from Puerto Rico.
</TABLE>
- F19 -
<PAGE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In 1995, the Company redefined its business based upon markets served.
The Financial Markets ("FM") segment is focused on providing products and
services to banks, credit unions, brokerage firms and financial software
companies. As a result of this focus, the value-added products consisting
of compliance solutions and targeted marketing and consulting services
provided to financial institutions previously shown as part of the
Company's Information Services Group have been combined with the
Company's traditional check and forms printing products.
The Education Markets ("EM") segment is comprised of products targeted
for educational institutions and includes data collection/tabulation and
equipment maintenance solutions.
The Company's remaining operations consist primarily of data
collection/tabulation and equipment maintenance solutions for commercial,
international and governmental markets.
Results of Operations
1995 versus 1994
Consolidated net sales increased $40.4 million or 7.7% and represented
the Company's 46th consecutive year of sales increases. FM sales totaled
$484.3 million, an increase of $21.5 million over the 1994 period. This
increase is due in part to the acquisition of dataPRINT ("dataPRINT") in
August 1995, the growth of a new business established in 1994 and an
increase in FM's targeted marketing and consulting services sales. Sales
for core check and forms products increased $3.8 million or 0.9% in 1995.
This change consisted of a 5.0% decrease in units and a price and product
mix increase of 5.9%. The positive price and product mix is attributable
in part to price increases implemented in December 1994 and 1995, the
acquisition of dataPRINT and revenues from expedited delivery programs.
The unit decrease is partially due to the loss during 1994 of one large
customer, the loss during 1995 of another large customer and the loss of
check orders to direct-to-consumer markets.
EM sales increased $4.7 million or 13.0% from the same period in 1994.
This increase was principally due to the acquisition of Quality Computers
& Applications Inc. ("QCA") in July 1995.
Sales from the Company's other businesses increased $14.5 million or
66% primarily due to the acquisition of Financial Products Corporation
("FPC") in September 1994.
Consolidated gross profit increased $10.0 million but decreased as a
percentage of sales from 47.9% in 1994 to 46.2% in 1995. FM's gross
margin decreased to 46.0% in 1995 from 47.6% in 1994, largely due to
paper price increases during 1995, competitive pricing pressures in the
core business and increased sales activity in non-traditional printing
activities. FM's gross margin decrease was mitigated by gains in
production efficiencies and by margin improvements attributable to price
increases. EM's gross margin decreased from 52.1% in 1994 to 49.9% in
1995 primarily due to product mix changes and increases in paper costs.
Consolidated selling, general and administrative expenses increased by
$17.7 million or 13.0%, and increased as a percentage of sales from 26.1%
in 1994 to 27.4% in 1995. This increase is primarily due to marketing
expenditures associated with The Check Store, Inc. ("The Check Store")
and expenses attributable to acquired operations. These increases were
partially offset by a decrease in FM administrative expenses due
primarily to plant consolidation in 1994. Profit sharing costs decreased
$2.0 million or 20.6% from 1994.
Amortization of intangibles increased by $3.3 million or 28.0%, and
increased as a percentage of sales from 2.2% in 1994 to 2.6% in 1995.
This increase is primarily attributable to acquisitions during 1994 and
1995: FormAtion Technologies, Inc. ("FormAtion"), FPC, QCA and dataPRINT
- F20 -
and partial settlement of an earnout with the former owners of Marketing
Profiles, Inc. ("MPI"). Of the total 1995 amortization of intangibles,
$8.7 million relates to assets which are being amortized over five years
or less.
Other income (expense) decreased from an expense of $6.9 million in
1994 to an expense of $6.3 million in 1995. Gains on sales of certain
investments offset an increase in interest expense in 1995. Interest
expense increased $1.0 million due to higher average levels of short-term
debt in 1995.
Income before income taxes decreased $8.2 million or 9.7% and decreased
as a percentage of sales from 16.3% in 1994 to 13.7% in 1995. The
Company's consolidated effective 1995 income tax rate was 40.2% compared
to 39.8% in 1994. Net income decreased $5.2 million or 10.2% and
decreased as a percentage of sales from 9.8% in 1994 to 8.2% in 1995. Net
income per share in 1995 was $1.51, a 10.1% decrease from $1.68 in 1994.
Increases in paper prices had a net dilutive impact of 14 cents per share
in 1995 and new businesses (MPI, FormAtion, FPC, QCA, dataPRINT and The
Check Store) had a net dilutive impact of 25 cents per share in 1995 as
compared to 12 cents per share in 1994.
1994 versus 1993
Consolidated net sales increased $1.8 million or 0.3% over 1993. FM
sales totaled $462.8 million, a decrease of $1.7 million from 1993. The
Company's core check and forms business experienced a net sales decrease
of 6.6% from 1993 comprised of a 9.0% decrease in units and a price and
product mix increase of 2.4%. Core check volumes were impacted by the
loss of several former Rocky Mountain Bank Note ("RMBN") accounts, which
had been anticipated when RMBN was acquired in January 1993. Units were
also impacted by the loss of a 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 price increase
implemented in December 1993 and by the loss of business with certain
customers which was priced at a greater discount than average. FM's sales
decrease was offset by $26 million in sales and revenues gained from MPI
and FormAtion, which were acquired by the Company in January 1994 and
March 1994, respectively.
Net sales attributable to the EM business segment decreased $1.6
million or 4.2% in 1994. Sales from the Company's other operations
increased $5.1 million over 1993 primarily due to the acquisition of FPC
in September 1994 which contributed $4.0 million of sales. The remaining
increase related to sales to commercial markets which experienced
increased revenues from maintenance and other services related to new
products and services introduced during 1993 and 1994.
Consolidated cost of goods sold decreased $17.1 million or 5.9% from
1993 and decreased as a percentage of sales from 55.6% in 1993 to 52.1%
in 1994. FM gross margin improved from 44.0% in 1993 to 47.6% in 1994
attributable to cost reductions realized from consolidations of imprint
and base stock facilities, process improvements and other cost reduction
efforts. EM and other operations 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 these improvements.
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 dollar increase were expenses from acquired operations
and marketing costs associated with The Check Store. These increases were
partially offset by a decrease in FM's core business administrative
expenses due to consolidation of RMBN operations acquired in 1993. Profit
sharing costs increased $0.3 million or 3.1% over 1993.
Amortization of intangibles increased $2.9 million or 33.2% over 1993,
- F21 -
<PAGE>
and increased as a percentage of consolidated sales from 1.7% in 1993 to
2.2% in 1994. This increase is primarily attributable to the acquisitions
of MPI and FormAtion. Of the total 1994 amortization of intangibles, $8.1
million relates to intangible assets which are being amortized over 5
years.
Other income (expense) 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 associated with the 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 effective rate are impacts of the Omnibus Tax
Reconciliation Act of 1993, along with non-deductible 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 common stock during 1993.
New businesses had a net dilutive impact of 12 cents per share in 1994.
Financial Condition, Capital Resources and Liquidity
Cash flows provided by operations in 1995 were $78.7 million compared
to $107.8 million in 1994. This decrease was primarily due to increases
in accounts receivable and inventories in 1995 versus a decrease of the
same in 1994. The Company increased its paper stock inventory levels in
1995 to reduce the impact of increases in the cost of paper. Changes in
accounts receivable balances generally are a result of the changes in the
levels of revenues. The primary uses of funds during 1995 were for
acquisitions ($11.1 million for new acquisitions and $25.4 million for
contingent purchase payments related to 1994 acquisitions), payments of
quarterly dividends to the Company's shareholders, and for capital
expenditures.
Purchases of property, plant and equipment were $33.4 million in 1995,
compared to $37.5 million in 1994.
The Company has unsecured lines of credit providing for borrowings up
to $111.0 million. At December 31, 1995, $23.0 million was outstanding
under these lines of credit. The Company also had a note payable
outstanding at December 31,1995 for $12.0 million related to the
acquisition of dataPRINT which was paid in January 1996.
On December 31, 1995, the Company had $13.3 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 unsecured 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 has sufficient unused debt capacity and access to equity
capital markets to pursue additional acquisition opportunities.
New Accounting Standards
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" ("SFAS 121"). SFAS 121 addresses issues surrounding the measurement
and recognition of losses when the value of certain assets has been
deemed to be permanently impaired. The Company plans to adopt SFAS 121 in
1996 and believes that there will be no material effect on its financial
position or results of operations from adopting SFAS 121.
In October 1995, the Financial Accounting Standards Board issued
- F22 -
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 establishes fair value
methods of accounting for stock options and other forms of stock-based
transactions and is effective for fiscal years beginning after December
15, 1995. Under SFAS 123, companies are not required to adopt a fair
value method of accounting for employee stock-based transactions. They
are permitted to continue to account for such transactions pursuant to
Accounting Principles Board Opinion No. 25 ("APB 25") but must disclose
pro forma net income and earnings per share as if a fair value method of
accounting had been applied. The Company intends to continue accounting
for employee stock option transactions in accordance with the
requirements of APB 25.
Outlook
In 1996, the Company will conduct an extensive review of its
businesses. This review will focus on lowering costs by standardizing and
streamlining products, simplifying procedures, eliminating inefficient
activities, automating functions and consolidating operations. In
addition, the Company will implement a strategy of offering value-added
products and services to the financial services marketplace. Future
product development activities, tactical acquisitions and the integration
of the sales and marketing functions of MPI and FormAtion with the core
sales force will reinforce this strategy.
The Company expects paper prices to moderate in 1996, but the price
increases experienced in 1995 will continue to impact the Company's
earnings on a comparative basis. Competitive pricing pressures in the
check printing markets are expected to continue for the foreseeable
future and will impact the Company's profitability.
The Company's focus in the educational and other markets will be on
those products and services which are presently profitable. Nonprofitable
areas are under evaluation and their ultimate disposition will be based
on the immediate prospects.
- F23 -
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(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, 1995
Allowance for doubtful accounts $ 1,970 $ 1,757 $ 274 $1,750 $ 2,251
======= ======= ====== ====== =======
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
======= ======= ====== ====== =======
<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)
Exhibit
Desig-
nation Description
______ ___________
3.1 * Amended and Restated Articles of Incorporation.
3.2 * By-Laws, as amended.
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
furnished to the Commission upon request).
4.2 * Form of Rights Agreement dated as of June 9, 1989,
between the Registrant and Citizens and Southern
Trust Company.
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.
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.
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 principal amount of 6.60%
Series A Senior Notes Due December 30, 2008.
4.6 See Articles IV, V and VIII of the Registrant's
Amended and Restated Articles of Incorporation,
filed as Exhibit 3.1, and Articles I, V, and VIII
of the Registrant's By-Laws, as amended, filed as
Exhibit 3.2.
10.1 * Form of Deferred Compensation Agreement between the
Registrant and Robert R. Woodson.
10.2 * Form of Monthly Benefit Amendment to Deferred
Compensation Agreement between the Registrant and
Mr. Woodson.
10.3 * Form of Deferred Compensation Agreement between the
Registrant and William M. Dollar and Earl W.
Rogers Jr.
10.4 * Form of Amendment to Deferred Compensation Agreement
between the Registrant and Messrs. Woodson, Dollar
and Rogers.
10.5 * Form of Non-Compete and Termination Agreement
between the Registrant and Messrs. Woodson, Dollar
and Rogers.
10.6 Form of Noncompete and Termination Agreement between
the Registrant and Joseph M. O'Connell, Mark C.
Perlberg and John C. Walters.
10.7 * Form of Executive Life Insurance Plan between the
Registrant and Messrs. Woodson, Dollar and Rogers.
10.8 * John H. Harland Company 1981 Incentive Stock Option
Plan, As Extended.
- X1 -
<PAGE>
10.9 Amendment to John H. Harland Company 1981 Incentive
Stock Option Plan, as Extended, effective April
26, 1996.
10.10 John H. Harland Company Employee Stock Purchase
Plan, as amended.
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.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors
27 Financial Data Schedule
- X2 -
<PAGE>
EXHIBIT 10.6
NONCOMPETE AND TERMINATION AGREEMENT
THIS AGREEMENT (the "Agreement"), made and entered into this day of
February, 1996 by and between JOHN H. HARLAND COMPANY (the "Company") and
("Employee");
In consideration of the mutual promises and agreements contained herein,
the parties hereto, intending to be legally bound, hereby agree as follows:
Section 1. Noncompetition Undertakings.
1.1 Acknowledgement of Access to Confidential Matters. Employee
and the Company recognize and acknowledge that as a result of his employment
with the Company:
(a) Employee has had and will continue to have access to
technology utilized by the Company and its subsidiaries (collectively,
the "Company") in connection with their operations, which, technology is
unique to the Company, including production operating systems, order
entry systems, conveyor systems, quality control practices and other
technology developed by the Company for its various products and
systems.
(b) Employee has had and will continue to have access to
and knowledge of all financial statements and related data for the
Company, including pricing, sales and training manuals, and other
confidential materials utilized by the Company; complete and detailed
knowledge of all the products of the Company and their capacities and
specifications; and knowledge of all of the systems and procedures of
the Company with regard to selling, pricing, and financing its products.
(c) Employee has had and will continue to have specific
knowledge regarding the Company's customers, including their specific
needs and current and anticipated requirements for the Company's
products.
1.2 Potential Injury to Company. Employee further recognizes,
acknowledges and agrees that the confidential information and trade secrets
specified herein constitute valuable, special and unique assets of the Company
and that the improper use or disclosure thereof would cause substantial loss
of competitive advantage and other injury to the Company. Employee further
agrees that the training and experience gained while employed by the Company
and the knowledge acquired during such employment regarding the aforesaid
information would enable him to injure and cause substantial harm to the
Company if he should compete with the Company in its business before the
expiration of a reasonable time after termination of his employment with the
Company.
1.3 Noncompetition. For the reasons recited in subsections 1.1 and
1.2 above and except as set forth below, Employee covenants and agrees that so
EX 10.6 - 1
<PAGE>
long as he is an employee of the Company and for a period of two (2) years
after termination of such employment, whether by Employee or by the Company,
Employee will not serve as an officer, executive, employee in a managerial
capacity, partner, consultant or stockholder (other than as a stockholder of
the Company) of any entity engaged in competition with the Company in the
continental United States, Puerto Rico or the Virgin Islands. The agreements
of Employee contained herein shall not prevent him from purchasing or owning
an investment of not more than 1% of the outstanding capital stock of a
publicly held company engaged in competition with the Company, so long as his
only relationship with such company is as an investor.
The covenant not to compete set forth in this subsection 1.3 shall not
apply to Employee in the event his employment with the Company is terminated
pursuant to either Section 3.1 or Section 3.2 hereof.
The covenants on the part of Employee contained in this Section 1.3, and
in Sections 1.4 and Section 1.5 hereof, shall be construed as agreements
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of Employee against the Company, whether predicated
on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of said covenants.
1.4 Nondisclosure. Employee further covenants and agrees that neither
during his employment by the Company nor after termination of such employment,
whether by Employee or by the Company, will he, for any reason or in any
manner whatsoever:
(a) disclose any trade secrets belonging to the Company, or
(b) for a period of two (2) years after such termination,
disclose any confidential information belonging to the Company,
including, but not limited to, the trade secrets and confidential
information described in subsection 1.1 above, of which he acquired
knowledge during and on account of his employment with the Company.
1.5 Company Materials. Employee further covenants and agrees that,
neither during his employment by the Company nor after termination of his
employment with the Company for any reason whatsoever, will he take from the
Company or any of its offices any customer lists, manuals or other records of
the Company, regardless of whether he has worked on such records, or any
account to which they pertain.
Section 2. Termination of Employment.
2.1 Termination. Except as provided in Section 2.2 hereof, nothing
herein shall affect the rights of the Company or Employee to terminate the
Employee's employment with the Company, with or without cause; provided,
however, that the covenants and agreements contained herein shall survive any
such termination of employment as provided for herein.
2.2 Company Obligation. The Company agrees that it will not terminate
Employee's employment with the Company, without good cause, for a period of
six (6) months from the date hereof.
EX 10.6 - 2
<PAGE>
Section 3. Effect of Certain Terminations of Employment.
3.1 By the Company.
(a) In the event that, at any time after a "Change in Control"
of the Company (as hereinafter defined), shall have occurred, Employee's
employment with the Company is terminated by the Company or its
successor for any reason other than for "Good Cause" (as defined below),
then (i) the Company or its successor shall pay to Employee, in a lump
sum at the time of such termination, his "Severance Pay" (as hereinafter
defined) and (ii) the covenant not to compete of Employee contained in
Section 1.3 hereof shall no longer be applicable.
(b) Any reduction in Employee's base compensation or a material
reduction or adverse change in his duties and responsibilities, or any
change in his work which involves a relocation of his principal place of
employment by more than 50 miles or which requires a change in his
residence shall be treated as a termination of his employment by the
Company under this Section 3.1 unless either (i) Employee consents in
writing to such reduction or change, (ii) the Company can demonstrate by
clear and convincing evidence that such reduction or change was based
primarily on Employee's failure to reasonably perform his duties and
responsibilities under the circumstances and, further, that such
reduction or change was made only after the Company had provided
Employee with written notice of such failure and a reasonable period of
time to correct such failure or (iii) such reduction or change comes
more than two years after such Change in Control.
(c) In the event of any involuntary termination of employment of
the Employee by the Company, other than termination for Good Cause,
Employee shall be entitled to receive, in a lump sum within ten business
days after the effective date of such termination, an amount equal to
the base salary to which Employee would have been entitled for the next
twelve months, had his employment continued with the Company. For the
purposes of this agreement, Good Cause shall consist of (i) embezzlement
of funds, the commission of fraud against the Employer, or gross
negligence or willful misconduct in the performance of Employee's
duties, (ii) the failure of Employee to devote substantially his full
time to the fulfillment of his duties with the Company, or (iii) the
Employee's conviction of a felony or any act of fraud or any other act
of moral turpitude.
3.2 By Employee. In the event that, within one year after a Change in
Control shall have occurred, Employee shall resign as an employee of the
Company for any reason whatsoever, then (i) the Company shall pay to Employee,
in a lump sum within ten (10) business days after such termination, his
Severance Pay (as hereinafter defined) and (ii) the covenant not to compete
of Employee contained in Section 1.3 hereof shall no longer be applicable.
3.3 Change in Control of the Company. For purposes of this Agreement,
a Change in Control shall be deemed to have occurred (a) upon the sale by the
Company of all or substantially all of its assets, the consolidation of the
Company with another person, or the merger of the Company with any person as a
result of which merger the Company is not the surviving entity, or (b) if
EX 10.6 - 3
<PAGE>
beneficial ownership of more than 50% ownership of the common stock of the
Company is held by any person or entity. "Beneficial Ownership" shall have
the meaning provided in Rule 13d-3 under the Securities Exchange Act of 1934.
3.4 Severance Pay. For the purpose of this Agreement, the Employee's
Severance Pay shall equal the lesser of
(a) three times Employee's average compensation as reported by
the Company to the Internal Revenue Service on its form W-2 (or any
successor to such form) for the five calendar year period (or such
lesser period as he has been employed by the Company) which immediately
precedes the date his employment terminates under either Section 3.1 or
Section 3.2, or
(b) the maximum payment which the Company can make to Employee
as a result of a Change in Control (i) without the Company's federal
income tax deduction for any portion of such payment being denied as an
"excess parachute payment" under Section 280G of the Internal Revenue
Code of 1986, as amended ("Code") or any successor to such section, and
(ii) without Employee being subject to a federal excise tax on all or
any part of such payment under Code Section 4999 or any successor to
such section, where a public accounting firm reasonably acceptable to
Employee shall (at the Company's expense) calculate such payment,
certify to Employee that such payment satisfies the requirements of this
Section 3.4(b) and prepare and sign Employee's federal income tax return
for the year for which such payment is reportable on such return.
Section 4. Term of Agreement.
This Agreement shall commence on the date first set forth above and
shall continue for an initial term of five years from such date. Thereafter,
this Agreement shall automatically be renewed for successive twelve- month
periods, unless terminated by either party upon written notice at least six
months prior to the anniversary date hereof.
Section 5. Miscellaneous.
5.1 Binding Effect.
(a) This Agreement shall inure to the benefit of and shall be
binding upon Employee, his executor, administrator and heirs but may not
be assigned by him. This Agreement shall be binding upon the Company
and its successors and assigns.
(b) (i) Prior to a Change in Control of the Company this
Agreement may not be transferred or assigned by the Company, either by
voluntary action or by operation of law.
(ii) After a Change in Control of the Company, this
Agreement may be transferred or assigned by the Company and shall be
binding on the transferee or assignee; provided, however, that Employee
shall be given written notice thereof at least twenty (20) days prior to
the proposed transfer or assignment.
EX 10.6 - 4
<PAGE>
5.2 Invalid Provisions. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such
invalid and unenforceable provision were omitted.
5.3 Headings. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
5.4. Entire Agreement. This Agreement is intended by the parties
hereto to be the final expression of their agreement and is the complete and
exclusive statement thereof notwithstanding
any representation or statements to the contrary heretofore made. This
Agreement may be modified only by written instrument signed by each of the
parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
JOHN H. HARLAND COMPANY
[CORPORATE SEAL] BY:
Attest:
EMPLOYEE
WITNESS:
EX 10.6 - 5
<PAGE>
Exhibit 10.9
JOHN H. HARLAND COMPANY
1981 INCENTIVE STOCK OPTION PLAN, AS EXTENDED
(As Amended Through April 26, 1996)
1.Background
The John H. Harland Company 1981 Incentive Stock Option Plan was adopted
effective as of September 21, 1981 and expired by its terms on September 20,
1991. There were 435,955 shares of $1.00 par value Common Stock ("Stock") of
the John H. Harland Company ("Company") available for options under such plan
at that time. The John H. Harland Company 1981 Incentive Stock Option Plan,
as Extended, ("Plan") was a reactivation of the 1981 Incentive Stock Option
Plan and extended the life of such plan effective as of November 18, 1992.
This amendment and restatement of the Plan incorporates all amendments made
through April 26, 1996.
2. Purpose
The purpose of this Plan is to promote the interests of the Company and
its subsidiaries by encouraging its key employees to continue their
association with the Company and by providing such employees with the
additional incentive for industry and efficiency inherent in an opportunity to
participate in the ownership of the Company and in its future growth.
3. Option Shares
The shares of the Company's Stock which may be subject to stock options
granted pursuant to this Plan shall be an aggregate number of 2,685,955 shares
of authorized but unissued Stock. In the event that a stock option granted
pursuant to this Plan to purchase any of such shares of Stock shall expire or
be exchanged for a new option for any reason before being exercised in full,
the shares of Stock reserved for the unexercised portion of such option again
shall become available for stock options granted pursuant to this Plan.
4. Effective Date of Plan
The effective date of this Plan shall be October 27, 1995, the date as
of which the Company's Board of Directors approved the most recent amendments
to this Plan, provided the shareholders of the Company (acting at a duly
called meeting of such shareholders) also approve this Plan on or before
October 27, 1996. All options granted before such shareholder approval shall
be granted subject to such approval.
5. Administration of the Plan
The Plan shall be administered by a Stock Option Committee ("Committee")
of not less than three (3) members appointed by the Board of Directors of the
EX 10.9 - 1
<PAGE>
Company from among its members. No member of such Board of Directors shall be
appointed or serve as a member of the Committee, and any such appointment or
service immediately and automatically shall terminate, in the event that
(1) such person is, or becomes, a key employee (as described in Section 6 of
this Plan), (2) such person is, or becomes, eligible for the allocation of
stock or the grant of any option or stock appreciation right under any other
plan of the Company or any of its affiliates (as such term is defined in the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended) or (3) such person was described in clause (1) or clause (2) of this
Section 5 within the immediately preceding year.
6. Eligibility
Only key employees of the Company and of each of its subsidiaries (as
defined in Section 424(f) of the Internal Revenue Code of 1986, as amended
("Code")) and as hereinafter referred to as "subsidiaries") shall be eligible
for the grant of an incentive stock option pursuant to this Plan. A key
employee can be a member of the Board of Directors of the Company, but no
member of the Board of Directors of the Company shall be a key employee under
this Plan solely by reason of his membership on such Board of Directors.
7. Grant of Options
Stock options shall be granted by the Company acting through the
Committee to key employees pursuant to the terms of this Plan from time to
time to purchase shares of Stock; provided, however, if the Committee intends
that such option qualify as an incentive stock option under Section 422 of the
Code, the aggregate fair market value (as determined as of the date an
incentive stock option is granted) of the Stock covered by such option and the
stock covered by any other incentive stock options granted to such key
employee (pursuant to any other plans of the Company or its subsidiaries)
which first become exercisable in any calendar year shall not exceed $100,000.
Such fair market value figure shall be determined by the Committee on the date
such incentive stock option is granted, and the Committee shall interpret and
administer the limitation set forth in this paragraph in accordance with
Section 422(d) of the Code. A stock option may be granted by a key employee
in exchange for the cancellation of any option to purchase Stock or under any
other circumstances under which the Committee deems appropriate. The
aggregate number of shares of Stock subject to options granted to a key
employee in any calendar year shall not exceed 350,000 shares of Stock.
Notwithstanding the foregoing, however, the Committee may make a one-time
grant of an option to the President and Chief Executive Officer of the Company
to purchase up to 1,000,000 shares of Stock; provided that the option price
(as described in Section 8) for at least 666,666 of the shares subject to such
option exceeds the fair market value of the Stock on the date of the grant of
the option.
Each grant of a stock option pursuant to this Plan shall be evidenced by
a written stock option agreement ("option agreement"), signed by a member of
the Committee or by a duly authorized officer of the Company, and each option
agreement shall incorporate such terms and conditions as the Committee acting
in its discretion deems consistent with the terms of this Plan and, if the
Committee intends such option to qualify as an incentive stock option, which
are not inconsistent with the provisions of Section 422 of the Code. The
EX 10.9 - 2
<PAGE>
Committee (with the written consent of a key employee) also shall have the
power to amend an option agreement to the extent that the Committee acting in
its discretion deems consistent with the terms of this Plan. The stock option
agreement for an option which the Committee intends to qualify as an incentive
stock option shall state that such option is an incentive stock option.
8. Option Price
The price for each share of Stock subject to purchase under a stock
option granted pursuant to this Plan ("option price") shall be determined by
the Committee but in no event shall be less than the fair market value of the
Stock on the date of the grant of the option; provided, however, (1) if a key
employee owns (after taking into account the attribution rules in
Section 424(d) of the Code) stock of the Company or its subsidiaries which
possesses more than ten percent of the total combined voting power of all
classes of stock of the Company or a subsidiary, the option price for a stock
option granted to such key employee which the Committee intends to qualify as
an incentive stock option shall in no event be less than one hundred ten
percent of the fair market value of the Stock on the date the option is
granted to such key employee and (2) if the Committee grants an option to a
key employee under this Plan for a number of shares of Stock in exchange for
the cancellation of any option (whether or not granted under this Plan) to
purchase the same number of shares of Stock, the option price under such
option for such shares shall be the same as the option price for such shares
under the option which is cancelled. An option agreement at the discretion of
the Committee can provide for the payment of the option price (upon the
exercise of a stock option) in cash, in Stock or in a combination of cash and
Stock. A payment by a check acceptable to the Committee shall be treated as a
payment in cash under this Plan.
9. Life of Option
Each stock option granted pursuant to this Plan shall be exercisable on
or, if so provided in the option agreement which evidences such option, after
the date the option is granted and shall expire automatically on the date the
option is exercised in full or, if earlier, shall expire according to the
terms of such option agreement; provided, however, the terms of each such
option agreement shall make each stock option (to the extent not fully
exercised) expire no later than on or before the first to occur of (1) the end
of the three consecutive month period which immediately follows the last day
(in his current period of employment) that the key employee is employed by the
Company or its subsidiaries (or the end of such longer period as the Committee
(subject to the rules in Section 9(2) and Section 9(3) in its discretion deems
appropriate under the circumstances), (2) the date which is the tenth
anniversary of the date the option is granted or (3) the date which is the
fifth anniversary of the date the option is granted in the event that (a) the
option is granted to a key employee who owns (after taking into account the
attribution rules in Section 424(d) of the Code) stock which possesses more
than ten percent of the total combined voting power of all classes of stock of
the Company or a subsidiary and (b) the Committee intends that such option
qualify as an incentive stock option. A transfer of employment from the
Company to a subsidiary or from a subsidiary to the Company or between two
subsidiaries shall not be treated as a termination of employment under this
EX 10.9 - 3
<PAGE>
Plan.
10. Death or Disability
In the event that the employment of a key employee by the Company or its
subsidiaries terminates because he dies or becomes disabled (within the
meaning of Section 23(e)(3) of the Code), the three consecutive month period
described in Section 9(l) of this Plan automatically shall become a twelve
consecutive month period.
11. Non-Transferability
No stock option granted pursuant to this Plan shall be transferable by a
key employee otherwise than by will or by the laws of descent and
distribution, and such option shall be exercisable during the key employee's
lifetime only by the key employee. The restriction on transfer described in
this Section 11 shall be incorporated in each option agreement.
12. Securities Registration
Each stock option agreement shall provide that, upon the receipt of
shares of Stock pursuant to the exercise of a stock option granted under this
Plan, the key employee shall, if so requested by the Company, hold such shares
of Stock for investment and not with a view
to resale or distribution to the public and, if so requested by the Company,
shall deliver to the Company a written undertaking satisfactory to the Company
to that effect. As for Stock issued pursuant to this Plan, the Company at its
expense shall take such action as it deems necessary or appropriate to
register the original issuance of such Stock to a key employee under the
Securities Act of 1933, as amended, or under any other applicable securities
laws or to qualify any such Stock for an exemption under any such laws prior
to the issuance of such Stock to a key employee; however, the Company shall
have no obligation whatsoever to take any such action in connection with the
transfer, resale or other disposition of such Stock by a key employee.
13. Life of Plan
This Plan shall terminate on November 17, 2002 or, if earlier, on the
date on which all of the Stock reserved under Section 3 of this Plan has been
issued as a result of the exercise of stock options granted pursuant to this
Plan. No options to purchase Stock shall be granted under this Plan after the
date the Plan terminates but, as for any stock options granted pursuant to
this Plan which are outstanding on such date, the Committee and its full
administrative powers shall survive (the termination of this Plan) until all
such options have been exercised in full or otherwise have expired.
14. Adjustment
The number of shares of Stock available for the granting of options
under Section 3 of this Plan and the number of shares of Stock subject to
stock options granted pursuant to this Plan and the related option price shall
EX 10.9 - 4
<PAGE>
be adjusted by the Committee in an equitable manner to reflect any change in
the capitalization of the Company, including, but not limited to, such changes
as stock dividends or stock splits. Furthermore, the Committee shall have the
right to adjust (in a manner which satisfies the requirements of
Section 424(a) of the Code) the number of shares of Stock available for the
granting of options under Section 3 of this Plan and the number of shares of
Stock covered by stock options granted under this Plan and the related option
price in the event of any corporate transaction described in 424(a) of the
Code which provides for the substitution or assumption of such options. If
any adjustment under this Section 14 would create a fractional share of Stock
or a right to acquire a fractional share of Stock, such fractional share shall
be disregarded and the number of shares of Stock available under this Plan and
the number subject to any options granted pursuant to this Plan shall be the
next lower number of shares of Stock, rounding all fractions downward. An
adjustment made under this Section 14 by the Committee shall be conclusive
and binding on all affected persons.
15. Sale of Merger of the Company
If the Company agrees to sell all or substantially all of its assets for
cash or property or for a combination of cash and property or agrees to any
merger, consolidation, reorganization, division or other corporate transaction
in which Stock is converted into another security or into the right to receive
securities or property and such agreement does not provide for the assumption
or substitution of stock options granted under this Plan, each option
agreement at the direction and discretion of the Company's Board of Directors
may be cancelled unilaterally by the Company if (1) any restrictions on the
exercise of a stock option are waived before the stock option agreement is
cancelled such that the key employee has the opportunity to exercise the
option in full before such cancellation, (2) the Company transfers to the key
employee shares of Stock, the number of which shall be determined by the
Company by dividing the excess of (a) the fair market value of the number of
shares which remain subject to the exercise of such option as of any date over
the total option price for such shares by (b) the fair market value of a share
of Stock on such date, which number shall be rounded down to the nearest whole
number, or (3) the Company transfers to a key employee the same consideration
which the key employee otherwise would receive as a shareholder of the Company
in connection with such sale or other corporate transaction if he held the
number of shares of Stock which would have been transferrable to him under
Section 15(2) if such number had been determined immediately before such sale
or other corporate transaction.
EX 10.9 - 5
<PAGE>
16. Amendment or Termination
This Plan may be amended by the Company's Board of Directors from time
to time to the extent that such Board of Directors deems necessary or
appropriate in light of, and consistent with, the provisions of Section 422 of
the Code; provided, however, no such amendment shall be made absent the
approval of the shareholders of the Company (1) to increase the number of
shares of Stock available under Section 3 for granting stock options, (2) to
extend the maximum life of the Plan under Section 13 or the maximum life of an
option under Section 9, (3) to decrease the minimum option price under
Section 8, (4) to change the class of employees eligible for stock options
under Section 6 or to otherwise materially modify (within the meaning of
Rule 16b-3 of the Securities Exchange Act of 1934, as amended) the
requirements as to eligibility for participation in this Plan or (5) to
otherwise materially increase (within the meaning of Rule 16b-3 of the
Securities Exchange Act of 1934, as amended) the benefits accruing to a key
employee under this Plan. The Company's Board of Directors also may suspend
the granting of stock options pursuant to this Plan at any time and may
terminate this Plan at any time; provided, however, the Board of Directors
shall not have the right to modify, amend or cancel any stock option granted
before such suspension or termination unless (1) the key employee consents in
writing to such modification, amendment or cancellation or (2) there is a
dissolution or liquidation of the Company or a transaction described in
Section 15 of this Plan.
17. Miscellaneous
The headings to sections in this Plan have been included for convenience
of reference only. The masculine pronoun shall include the feminine and the
singular the plural whenever appropriate.
EX 10.9 - 6
<PAGE>
Exhibit 10.10
JOHN H. HARLAND COMPANY
EMPLOYEE STOCK PURCHASE PLAN
(As Amended Through April 26, 1996)
1.Purpose
This document amends and restates the John H. Harland Company Employee
Stock Purchase Plan (the "Plan") effective for offerings beginning on or
after July 1, 1995. The Plan is intended as an incentive and to encourage
stock ownership by all employees of John H. Harland Company (the
"Company") and (subject to the conditions hereinafter set forth) of its
Subsidiaries, so that they may acquire or increase their proprietary
interest in the success of the Company, and to encourage them to remain in
the employ of the Company and its Subsidiaries. It is further intended
that the Plan qualify as an "employee stock purchase plan" within the
meaning of Section 423 of the Internal Revenue Code of 1986 (the "Code").
However, this Plan is not intended to constitute a plan described in
Section 401 of the Code or to constitute an "employee benefit plan" as
described in the Employee Retirement Income Security Act of 1974, as
amended.
As used herein, the term "Subsidiary" shall include each corporation that
the Committee may designate from time to time as eligible to participate
in this Plan; provided such corporation as of the applicable Offering Date
is a corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company, with each of the corporations in
such chain other than the last corporation owning stock possessing 50% or
more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
2.Administration
The Plan shall be administered by a committee (the "Committee") appointed
by the Board of Directors of the Company (the "Board"). The Committee
shall consist of not less than three members of the Board. Each member
must be a "disinterested person" under Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended, or any successor to such rule
("Rule 16b-3"). The Board may from time to time remove members from, or
add eligible individuals as members to, the Committee who are
"disinterested persons" under Rule 16b-3. Vacancies on the Committee,
howsoever caused, shall be filled by the Board. The Committee shall
select one of its members as Chairman, and shall hold meetings at such
times and places as it may determine. Minutes of all meetings shall be
made and preserved. A majority of the Committee shall control its actions
at any meeting.
The Committee shall have the power to delegate the duty to perform
recordkeeping, and such other administrative functions as the Committee
deems appropriate under the circumstances, to an officer of the Company,
a third party administrator (a "Third Party Administrator") or to any
other person or entity. Any person or entity to whom the duty to perform
an administrative function is delegated shall act on behalf of and shall
EX 10.10 - 1
<PAGE>
be responsible to the Committee for such function.
3.Eligibility
Any employee, as defined below, of the Company or any Subsidiary of the
Company shall be eligible to participate in the Plan on an Offering Date.
The term "employee" shall have the same meaning as the term "employee" as
defined by Section 3401(c) of the Code and shall include officers and
directors who are also employees but shall exclude individuals whose
customary employment is for not more than twenty hours per week or for not
more than five months in any calendar year.
Any provision of the Plan to the contrary notwithstanding, no employee
shall be granted an option:
(i)if, immediately after the grant, such employee would own
stock, and/or hold outstanding options to purchase stock, possess-
ing 5% or more of the total combined voting power or value of all
classes of stock of the Company, of any parent corporation of the
Company or of any subsidiary, determinations of employee stock
ownership being made for this purpose in accordance with Section
423(b)(3) of the Code; or
(ii)which permits his or her rights to purchase stock under
all employee stock purchase plans of the Company, of any parent
corporations of the Company and of any subsidiaries to accrue at a
rate which exceeds $25,000 of fair market value of such stock
(determined at the time such option is granted) for each calendar
year in which such stock option would be outstanding at any time,
within the meaning of Section 423(b)(8) of the Code.
4.Common Stock
The stock to be sold to participants under the Plan (the "Common Stock")
shall be $1 par value common stock of the Company and may, at the election
of the Company, be either treasury stock or stock originally issued for
such purpose. The maximum number of shares of Common Stock which shall be
made available for sale under the Plan during all offerings under the Plan
shall be 4,350,000 shares subject to adjustment upon changes in
capitalization of the Company as provided in paragraph 16.
The participant will have no interest in Common Stock covered by his or
her option until such option has been exercised.
Any shares which are subject to sale pursuant to an option granted under
the Plan but which are not purchased on the Termination Date of the
related offering shall again become available for sale pursuant to options
granted under the Plan.
5.Offering Dates
The Plan will be implemented by a continuous series of offerings, each of
which shall commence on the first business day of a calendar quarter (the
EX 10.10 - 2
<PAGE>
"Offering Date") and shall terminate on the last business day of such
quarter (the "Termination Date").
No offering shall be made if in the opinion of the Committee the Common
Stock made available under the Plan has been so substantially exhausted as
to make an offering to all eligible employees impractical under the Plan.
6.Participation
An eligible employee may become a participant by properly completing and
filing with his or her employer an authorization for payroll deductions to
purchase shares of Common Stock on the form approved by the Committee or
its delegate.
Payroll deductions shall become effective on the first Offering Date after
a participant has filed his or her authorization and shall terminate upon
the earlier to occur of (a) the participant's written request to cease
payroll deductions or terminate participation in the Plan as described in
paragraph 11 or (b) the participant's failure to satisfy the eligibility
requirements described in paragraph 3.
7.Payroll Deductions
At the time a participant files his or her authorization for a payroll
deduction, he or she shall elect to have deductions made from his or her
Annualized Cash Compensation, as hereinafter defined, on each payday
during the time he or she is a participant in an offering at the annual
rate of from 3 to 20% (in whole number percentage increments only) of his
or her Annualized Cash Compensation.
The term "Annualized Cash Compensation" shall mean the participant's
current annualized cash compensation from the Company or any Subsidiary,
including overtime, bonuses, commissions and other cash incentives and any
pre-tax deferrals under the Company's or any Subsidiary's employee benefit
plans.
All payroll deductions made for a participant shall be credited to the
bookkeeping account (the "payroll account") maintained for such
participant by the Company or a Subsidiary. A participant may not make
any contributions under the Plan other than by payroll deduction.
A participant may cease payroll deductions during an offering as provided
in paragraph 11, but no other change can be made during an offering and,
specifically, a participant may not otherwise alter the rate of his or her
payroll deduction for that offering.
A participant may change the amount of his or her payroll deductions for
any future offering by filing a new authorization with his or her employer
in accordance with this paragraph prior to commencement of the offering.
8.Granting of Option
On each Offering Date, each participant shall be granted an option to
purchase the number of full and partial shares of Common Stock equal to
the quotient obtained by dividing $6250 by the fair market value of a
EX 10.10 - 3
<PAGE>
share of Common Stock as determined below as of the Offering Date.
However, if the number of shares of Common Stock available for purchase
under the Plan is insufficient to grant to each participant an option to
purchase the maximum number of shares determined under the preceding
sentence or if on the Termination Date the number of shares available for
purchase is insufficient to permit each participant to purchase such
maximum number of shares, then each option shall be reduced to equal the
total number of available shares multiplied by a fraction the numerator of
which is such participant's Annualized Cash Compensation and the
denominator of which is the total Annualized Cash Compensation of all
participants.
The option price of each share of Common Stock for a particular offering
shall be the lower of:
(i)85% of the fair market value per share of the Common Stock
on the Offering Date of such offering, or
(ii)85% of the fair market value per share of the Common Stock
on the Termination Date of such offering.
The fair market value per share shall be (a) the mean of the highest and
lowest quoted selling prices of a share of Common Stock on the New York
Stock Exchange on the applicable valuation date as reported by The Wall
Street Journal or, if the Common Stock is no longer traded on The New York
Stock Exchange, under the quotation system under which such prices are
reported or, if The Wall Street Journal no longer reports such prices, the
mean of such prices as reported by a newspaper or trade journal selected
by the Committee, or, if no such prices are available on such date, (b)
the mean of the highest and lowest selling prices of a share of Common
Stock as so reported or quoted in accordance with clause (a) above for the
immediately preceding business day, or, if no newspaper or trade journal
reports such prices or if no such price quotations are available, (c) the
price which the Committee acting in good faith determines through any
reasonable valuation method that a share of Common Stock might change
hands through a willing buyer and a willing seller, neither being under
any compulsion to buy or to sell and both having reasonable knowledge of
the relevant facts.
9.Exercise of Option
A participant's option will be exercised automatically for him or her on
the Termination Date for the purchase of as many full and partial shares
of Common Stock subject to the option granted to him or her (determined in
accordance with paragraph 8) as the accumulated payroll deductions in his
or her payroll account at that time will purchase at the option price for
such offering.
The amount credited to a participant's payroll account in excess of that
which will purchase the number of shares for which his or her option was
granted shall be paid over to the participant (without interest) as soon
as practicable following the Termination Date for the offering period.
10.Delivery
EX 10.10 - 4
<PAGE>
As promptly as practicable after each Termination Date, any Common Stock
purchased upon the exercise of a participant's option will be registered
in the name of the participant or, if the participant so directs, in the
names of the participant and one such other person as may be designated by
the participant as joint tenants with rights of survivorship, but no
certificates will be issued until requested by the participant or as
required under paragraph 11. A bookkeeping account will be maintained for
each Participant (the "stock account"), which may consist of one or more
accounts to record his or her shares purchased under the Plan. Statements
shall be provided to each participant showing the shares purchased for his
or her stock account and such other information as the Committee or its
delegate deems appropriate to satisfy any reporting obligations under the
Plan.
A participant will be a fully vested, beneficial owner of all shares of
Common Stock registered to him or her (or to him or her and another person
as permitted under this paragraph) under the Plan.
Proxy material, meeting announcements, tender offer materials and other
communications distributed to holders of Common Stock will be distributed
to participants with respect to their shares purchased under this Plan in
the same manner and at the same time as such materials are distributed to
other holders of Common Stock while they remain the registered owners of
such shares.
A participant at any time may request that certificates be issued to him
or her with respect to any number of whole shares credited to his or her
stock account. No fees will be charged to the participant for such
certificates.
If a Third Party Administrator that maintains the stock account for a
participant also provides brokerage services, the participant may request
that the Third Party Administrator arrange for the sale of any whole
shares of Common Stock registered to him or her under the Plan; provided,
all transaction costs of such sale will be paid by the participant.
11.Cessation of Payroll Deductions and Termination of Employment
A participant may cease payroll deductions at any time during an offering
by giving written notice to his or her employer. A participant who ceases
payroll deductions during any offering shall not be allowed to resume
payroll deductions during such offering but may recommence participation
in any succeeding offering for which he or she is otherwise eligible in
accordance with paragraph 3 if he or she files with his or her employer an
authorization for payroll deductions in accordance with paragraph 7.
Upon termination of a participant's employment with the Company and all
Subsidiaries for any reason, including retirement or death, he or she
shall immediately cease to be a participant, any option which he or she
may have been granted under the Plan shall immediately expire and shall
not be exercised, and the payroll deductions credited to his or her
payroll account will be returned to him or her within 30 days after the
effective date of the termination (without interest), or, in the case of
his or her death, to the personal representative of his or her estate.
Certificates representing the whole shares of Common Stock credited to the
participant's stock account and a check for the value of any partial
shares will be issued to the participant. In the event of the
EX 10.10 - 5
<PAGE>
participant's death prior to the issuance of such certificates, the shares
shall be issued to the personal representative of the participant's estate
or if the shares were registered to the participant and another person as
joint tenants, to the surviving joint tenant or if both the participant
and the joint tenant are deceased, to the personal representative of the
estate of the last to die. If a Third Party Administrator that maintains
the stock account for the participant also provides brokerage services and
if so requested by the participant within 60 days of the termination, the
Third Party Administrator will arrange for the sale of the whole shares
credited to the participant's stock account and issue a check to the
participant for the value of any partial shares credited to his or her
stock account and the proceeds of the sale of whole shares less any
transaction costs of the sale.
12.Dividends
Any dividend with respect to the shares of Common Stock credited to a
participant's stock account under the Plan will be paid to the participant
to the extent such dividend is
paid in cash or credited to his or her stock account to the extent such
dividend is paid in Common Stock. However, upon the participant's written
request, cash dividends will be reinvested in additional shares of Common
Stock pursuant to the Company's dividend reinvestment plan.
13.Transferability
Neither payroll deductions credited to a participant's payroll account nor
any rights with regard to the exercise of an option or to receive stock
under the Plan may be assigned, transferred, pledged, or otherwise
disposed of in any way by the participant. Any such attempted assignment,
transfer, pledge, or other disposition shall be without effect, except
that the Company may treat such act as an election to cease payroll
deductions during the offering in accordance with paragraph 11.
14.Use of Funds
All payroll deductions received or held by the Company (or by any
Subsidiary as agent for the Company) under the Plan may be used by the
Company for any corporate purpose and the Company shall not be obligated
to segregate such payroll deductions.
15.Changes in Capitalization
The number of shares of Common Stock covered by each outstanding option
and the price per share thereof in each such option and the number of
shares of Common Stock issuable through options granted pursuant to the
Plan for which options have not been granted shall be proportionately
adjusted for any increase or decrease in the number of issued and
outstanding shares of Common Stock of the Company resulting from a
subdivision or consolidation of shares or the payment of a Common Stock
dividend (but only such a payment with respect to the Common Stock of the
Company) or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company. If
any adjustment to the number of shares of Common Stock issuable through
EX 10.10 - 6
<PAGE>
options granted pursuant to the Plan would create a fractional share, such
fractional share shall be disregarded and the number of shares available
under the Plan shall be the next lower number of whole shares, rounding
all fractions downward.
16.Securities Registration
In the event that the Company shall deem it necessary to register under
the Securities Act of 1933 or other applicable statutes any shares with
respect to which an option shall have been exercised, or to qualify any
such shares for exemption from the Securities Act of 1933, then the
Company shall take such action at its own expense before delivery of such
shares. In the event the shares of Common Stock shall be listed on any
national stock exchange at the time of the exercise of an option under the
Plan, then whenever required, the Company shall make prompt application
for the listing on such stock exchange of such shares, at the sole expense
of the Company.
17.Amendment or Termination
The Board may at any time terminate or amend the Plan. No such
termination can affect options previously granted, nor may an amendment
make any change in any option theretofore granted which would adversely
affect the rights of any participant unless (a) each participant consents
in writing to such amendment or (b) the Board acting in good faith deems
that such action is required under applicable law. No amendment may be
made without prior written approval of the shareholders of the Company if
such amendment would:
(i)permit the sale of more shares of Common Stock than are
authorized under paragraph 4 of the Plan;
(ii)effect any change in the designation of eligible employees
under paragraph 3 of the Plan;
(iii)permit payroll deductions at a rate in excess of 20% of a
participant's Annualized Cash Compensation; or
(iv)be subject to shareholder approval under the laws of the
State of Georgia or Rule 16b-3.
Finally, no provision of this Plan shall be amended more than once every 6
months if more frequent amendment of such provision would result in a loss
of exemption under Rule 16b-3.
18.Compliance with Rule 16b-3
All elections and transactions under the Plan by persons subject to
Section 16 of the Securities Exchange Act of 1934 involving shares of
Common Stock are intended to comply with all exemptive conditions under
Rule 16b-3. The Committee may establish and adopt written administrative
guidelines, designed to facilitate compliance with Rule 16b-3, as it may
deem necessary or proper for the administration and operation of the Plan
and the transaction of business thereunder. To the extent that any
EX 10.10 - 7
<PAGE>
provision of the Plan, the administrative guidelines or any action or
omission with respect to the Plan (including any action by an eligible
employee) does not satisfy the exemptive conditions under Rule 16b-3 or
otherwise is inconsistent with Rule 16b-3, the provision, guidelines or
action or omission shall be deemed null and void, as permitted by
applicable law.
19.Notices
All notices or other communications by a participant under or in
connection with the Plan shall be deemed to have been duly given when
received in the form specified by the Committee or its delegate at the
location, or by the person, designated by the Committee or its delegate
for the receipt thereof.
20.Employment
No offering under the Plan shall constitute an offer of employment, and no
participation in an offering under this plan shall constitute an
employment agreement. Any offering or participation in the Plan shall
have no bearing whatsoever on the employment relationship between any
employee and the Company or any of its Subsidiaries. No employee shall be
induced to participate in the Plan by the expectation of employment or
continued employment.
21.Headings and Construction
The headings to paragraphs in the Plan have been included for convenience
of reference only. The Plan shall be interpreted and construed in
accordance with the laws of the State of Georgia.
EX 10.10 - 8
<PAGE>
EXHIBIT 21.1
Subsidiaries of Company
Subsidiaries (100% owned by Parent) State of Incorporation
FormAtion Technologies, Inc. Georgia
Harland dataPRINT, Inc. Georgia
J. William Company Georgia
Marketing Profiles, Inc. Florida
Scantron Corporation Delaware
- 1 -
EXHIBIT - 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-26215, 2-64079 and 33-60151 of John H. Harland Company on Form S-8 of
our report dated January 26, 1996, appearing in this Annual Report on Form
10-K of John H. Harland Company for the year ended December 31, 1995.
DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements for year ended December 31, 1995 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-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 12,862
<SECURITIES> 400
<RECEIVABLES> 69,911
<ALLOWANCES> 2,251
<INVENTORY> 39,244
<CURRENT-ASSETS> 144,231
<PP&E> 364,000
<DEPRECIATION> 198,891
<TOTAL-ASSETS> 474,650
<CURRENT-LIABILITIES> 121,070
<BONDS> 114,574
<COMMON> 37,907
0
0
<OTHER-SE> 184,240
<TOTAL-LIABILITY-AND-EQUITY> 474,650
<SALES> 561,617
<TOTAL-REVENUES> 561,617
<CGS> 301,921
<TOTAL-COSTS> 301,921
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,714
<INCOME-PRETAX> 76,903
<INCOME-TAX> 30,886
<INCOME-CONTINUING> 46,017
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,017
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.51
</TABLE>
