United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ________________
Commission file number 1-6352
JOHN H. HARLAND COMPANY
(Exact name of registrant as specified in its charter)
GEORGIA 58-0278260
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2939 Miller Rd.
Decatur, Georgia 30035
(Address of principal executive offices) (Zip code)
(770) 981-9460
(Registrant's telephone number, including area code)
(Not Applicable)
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes (X) No ( ).
The number of shares of the Registrant's Common Stock outstanding on October
28, 1996 was 30,876,193.
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<PAGE>
Item 1. FINANCIAL STATEMENTS
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
------
<CAPTION>
September 30, December 31,
(In thousands) 1996 1995
- ---------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 25,902 $ 12,862
Short term investments 140
Accounts receivable 80,127 67,660
Inventories 32,170 42,296
Deferred income taxes 15,071 6,523
Other 7,659 17,942
---------- ----------
Total current assets 161,069 147,283
---------- ----------
INVESTMENTS AND OTHER ASSETS:
Assets held for disposal 32,221
Investments 8,292 8,188
Goodwill and intangibles-net 130,441 133,092
Deferred income taxes 24,095
Other 21,951 20,978
---------- ----------
Total investments and other assets 217,000 162,258
---------- ----------
PROPERTY, PLANT AND EQUIPMENT 218,436 364,000
Less accumulated depreciation
and amortization 121,203 198,891
---------- ----------
Property, plant and equipment - net 97,233 165,109
---------- ----------
Total $ 475,302 $ 474,650
========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<CAPTION>
September 30, December 31,
(In thousands, except share amounts) 1996 1995
- ---------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Short-term debt $ 69,250 $ 35,000
Accounts payable - trade 20,967 26,311
Deferred revenues 25,568 25,141
Accrued liabilities:
Salaries, wages and employee benefits 19,499 18,217
Taxes 10,617 4,698
Other 19,707 11,703
---------- ----------
Total current liabilities 165,608 121,070
---------- ----------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 115,287 114,574
Deferred income taxes 4,504
Other 20,621 12,355
---------- ----------
Total long-term liabilities 135,908 131,433
---------- ----------
Total liabilities 301,516 252,503
---------- ----------
SHAREHOLDERS' EQUITY:
Series preferred stock, authorized 500,000
shares of $1.00 par value, none issued
Common stock - authorized 144,000,000
shares of $1.00 par value, issued
37,907,497 issued 37,907 37,907
Additional paid-in capital 1,848 2,375
Foreign exchange translation adjustments 54 54
Retained earnings 309,464 361,554
---------- ----------
Total shareholders' equity 349,273 401,890
Less 7,055,735 and 7,252,740 shares of
treasury stock - at cost 175,487 179,743
---------- ----------
Shareholders' equity - net 173,786 222,147
---------- ----------
Total $ 475,302 $ 474,650
========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
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<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(In thousands, except SEPTEMBER 30, SEPTEMBER 30,
per share amounts) 1996 1995 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 155,912 $ 141,348 $ 457,804 $ 415,707
---------- ---------- ---------- ----------
COST AND EXPENSES:
Cost of sales 83,055 77,028 247,956 219,483
Selling, general and
administrative expenses 42,384 40,494 129,950 120,820
Amortization of intangibles 3,998 3,668 12,355 10,376
Restructuring charge 94,054
Acquired in-process research
and development cost 7,973
---------- ---------- ---------- ----------
Total 129,437 121,190 492,288 350,679
---------- ---------- ---------- ----------
INCOME(LOSS) FROM
OPERATIONS 26,475 20,158 (34,484) 65,028
---------- ---------- ---------- ----------
OTHER INCOME(EXPENSE):
Interest expense (2,844) (2,274) (7,620) (6,269)
Other - net 514 380 1,411 1,556
---------- ---------- ---------- ----------
Total (2,330) (1,894) (6,209) (4,713)
---------- ---------- ---------- ----------
INCOME(LOSS) BEFORE
INCOME TAXES 24,145 18,264 (40,693) 60,315
INCOME TAXES 10,107 7,306 (12,114) 24,126
---------- ---------- ---------- ----------
NET INCOME(LOSS) 14,038 10,958 (28,579) 36,189
RETAINED EARNINGS AT
BEGINNING OF PERIOD 303,276 356,363 361,554 346,660
---------- ---------- ---------- ----------
317,314 367,321 332,975 382,849
Cash dividends (7,850) (7,790) (23,511) (23,318)
---------- ---------- ---------- ----------
RETAINED EARNINGS AT END
OF PERIOD $ 309,464 $ 359,531 $ 309,464 $ 359,531
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 30,984 30,585 30,836 30,534
========== ========== ========== ==========
NET INCOME(LOSS) PER
COMMON SHARE $ .45 $ .36 $ (.93) $ 1.19
========== ========== ========== ==========
CASH DIVIDENDS PER COMMON
SHARE $ .255 $ .255 $ 0.765 $ 0.765
========== ========== ========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<CAPTION>
(In thousands) 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (Loss)Income $ (28,579) $ 36,189
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 32,749 34,702
Provision for restructuring charge 88,564
Acquired in-process research and development cost 7,973
Other 1,372 871
Change in assets and liabilities net of
effect of acquisitions:
Deferred income taxes (36,882) (4,830)
Accounts receivable (10,803) (6,047)
Inventories and other current assets 13,784 (11,749)
Accounts payable and accrued expenses (4,504) 5,174
Other (15) 110
---------- ---------
Net cash provided by operating activities 63,659 54,420
---------- ---------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (22,132) (22,343)
Proceeds from sale of property, plant and equipment 921 1,518
Payment for acquisition of businesses,
net of cash acquired (35,080) (13,395)
Decrease in short-term investments - net 260 3,150
Increase in long-term investments and
other assets-net (9,092) (4,877)
---------- ---------
Net cash used in investing activities (65,123) (35,947)
---------- ---------
FINANCING ACTIVITIES:
Sale of common stock 4,368 3,060
Dividends paid (23,511) (23,318)
Purchase of Treasury Stock (706) (52)
Increase(decrease) in short-term debt - net 34,250 (2,000)
Other - net 103 (508)
---------- ----------
Net cash provided by(used in) financing activities 14,504 (22,818)
---------- ----------
Net increase(decrease) in cash and cash equivalents 13,040 (4,345)
Cash and cash equivalents at beginning of period 12,862 19,959
---------- ----------
Cash and cash equivalents at end of period $ 25,902 $ 15,614
========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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<PAGE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements contained in this report
are unaudited but reflect all adjustments, consisting only of normal
recurring accruals, which are, in the opinion of management, necessary
for a fair presentation of the results of operations, financial position
and cash flows of the John H. Harland Company and subsidiaries ("the
Company") for the interim periods reflected. Certain information and note
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
omitted pursuant to applicable rules and regulations of the Securities
and Exchange Commission. The results of operations for the interim period
reported herein are not necessarily indicative of results to be expected
for the full year.
2. Accounting Policies
The condensed consolidated financial statements included herein should be
read in conjunction with the consolidated financial statements and notes
thereto, and the Independent Auditors' Report included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995.
Reference is made to the accounting policies of the Company described in
the notes to consolidated financial statements included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995.
The Company has consistently followed those policies in preparing this
report.
3. Restructuring Charge
In April 1996, the Company announced plans to consolidate its 40 core
printing plants into a network of seven regional facilities over a two-
year period. As part of this strategy, the Company recorded a pre-tax
charge of $92.5 million in the second quarter of 1996 and incurred costs
of $1.6 million in the first quarter of 1996. The restructuring charge
related to costs of consolidation of manufacturing operations, including
severance and associated revaluation of assets, and valuation adjustments
related to discontinuing certain subsidiary product lines. These pre-tax
amounts include the following (in thousands):
- ----------------------------------------------------------------
Write down of equipment and facilities $ 45,132
Write down of intangibles 23,198
Employee severance 17,943
Other 7,781
----------
Total $ 94,054
==========
The Company has made payments totaling approximately $4.0 million,
related to the second quarter restructuring charge. Further restructuring
charges are anticipated in future periods, predominantly related to
employee severance, which are expected to total approximately $10
million. Related to the restructuring, certain assets, predominantly
land, buildings and equipment at the facilities to be closed, with a
carrying value of approximately $32.2 million are now being held for
sale. The Company expects to sell these assets within one year of the
related facility being closed.
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<PAGE>
4. Acquisitions
The following represents the unaudited pro forma results of operations
which assume acquisitions made during 1996 and 1995 occurred on January 1
of that year. These results include certain adjustments, primarily
increased amortization expense related to intangible assets, one-time
expenses and increased interest expense (in thousands, except per share
amounts):
Nine months ended Nine months ended
September 30, 1996 September 30, 1995
- ---------------------------------------------------------------------
Net sales $ 463,483 $ 442,412
Net (loss)income (22,487) 32,285
Net (loss)income per
common share (.73) 1.06
The pro forma financial information presented above does not purport to
be indicative of either the results of operations that would have
occurred had the acquisitions taken place on January 1, 1996 and 1995, or
of future consolidated results of operations.
5. Accounting for Income Taxes
The provisions for income tax expense for the nine months ended September
30, 1996 and 1995 include the following (in thousands):
1996 1995
- ----------------------------------------------------------------------
Current provision $ 25,034 $ 22,983
Deferred (benefit)provision (37,148) 1,143
---------- ----------
Total $ (12,114) $ 24,126
========== ==========
6. Inventories
Inventories consist of the following (in thousands):
September 30, December 31,
1996 1995
- ----------------------------------------------------------------------
Raw materials and semi-finished goods $ 26,166 $ 34,349
Finished goods 2,834 3,237
Hardware component parts 3,170 4,710
-------- --------
Total $ 32,170 $ 42,296
======== ========
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Third Quarter 1996 compared with Third Quarter 1995
Consolidated net sales for the third quarter of 1996 increased $14.6
million or 10.3% as compared to the third quarter of 1995. The Company's
Financial Markets ("FM") segment sales increased $13.6 million or 11.8%
over the 1995 period. FM's print and fulfillment division provided $10.1
million of this increase. FM's order volumes in its core check and
related products business increased by 4.0% over the 1995 period, offset
by a price and product mix decrease of 1.2%, which included the impact of
business lost to bank mergers in prior periods. The volume increase was
primarily attributable to the acquisition of dataPRINT in August 1995 and
to one-time conversion sales in the 1996 quarter, resulting from
financial institution mergers. FM's direct marketing and decision
support revenues increased $3.8 million compared to the 1995 period, $2.6
million of which was provided by the acquisition of OKRA Marketing
Corporation ("OKRA") in May 1996. Sales in the Education Markets segment
increased 5.8% over the 1995 period principally due to higher volume
forms sales.
Consolidated gross profit increased by 13.6% and increased as a
percentage of sales from 45.4% in the third quarter of 1995 to 46.7% in
1996. FM's gross margin increased from 44.3% in 1995 to 46.7% in 1996.
The gross margin from direct marketing and decision support increased
from 44.8% in 1995 to 48.5% in 1996. Consolidated gross margins
increased primarily as a result of reduced depreciation and amortization
related to revaluation adjustments to certain assets included within the
restructuring charge recorded in the 1996 second quarter.
Consolidated selling, general and administrative expenses increased by
5.2%, but declined as a percentage of sales from 28.5% in 1995 to 27.2%
in 1996. Components of this increase were costs related to the Company's
transition from a checks and forms printer to a financial marketing
services company and increased expenditures relating to acquired
operations (dataPRINT and OKRA), partially offset by reduced employee
benefit costs related to the Company's merger of its employee benefits
plans, reduced advertising costs relating to The Check Store and reduced
depreciation and amortization related to the restructuring charge
recorded in the 1996 second quarter.
The Company's consolidated effective income tax rate for the third
quarter of 1996 was 41.9% compared to 40.0% in 1995. This increase was
primarily due to the increase of non-deductible amortization of
intangibles associated with acquisition-related payments made in the
previous twelve months.
The Company reported net income of $14.0 million or $0.45 per share for
the third quarter of 1996, compared to $11.0 million, or $0.36 per share
in the 1995 quarter.
Year to Date 1996 compared with Year to Date 1995
Consolidated net sales for the nine month period ended September 30, 1996
increased $42.1 million or 10.1% as compared to the same period in 1995.
-8-
<PAGE>
FM's sales increased $35.3 million or 10.1% over the 1995 period. FM's
print and fulfillment division provided $26.2 million of this increase,
primarily due to the dataPRINT acquisition and to one-time conversion
sales in 1996, resulting from financial institution mergers. FM's order
volumes in its core check and related products business increased 2.3%
over the 1995 period, offset by a price and product mix decrease of 1.7%.
FM's direct marketing and decision support revenues increased by $9.1
million compared to 1995, $4.7 million of which was provided by the OKRA
acquisition. Sales in the Education Markets segment increased 7.4% over
the 1995 period principally due to the acquisition of Quality Computers,
Inc. ("QCA") in July 1995 and higher volume forms sales.
Consolidated gross profit increased by 7.2% but decreased as a percentage
of sales from 47.1% in 1995 to 45.8% in 1996. The pricing impact
resulting from the loss of bank contracts primarily due to mergers early
in 1996 or during 1995 and the impact of higher paper prices affected
FM's gross margins, which decreased from 46.7% in 1995 to 45.0% in 1996.
Consolidated gross margins increased primarily as a result of reduced
depreciation and amortization related to revaluation adjustments to
certain assets included within the restructuring charge recorded in the
1996 second quarter.
Consolidated selling, general and administrative expenses increased by
$9.7 million, reflecting a decrease as a percentage of sales from 28.9%
in 1995 to 28.4% in 1996. Components of this increase were costs related
to the Company's transition from a checks and forms printer to a
financial marketing services company and increased expenditures relating
to acquired operations (QCA, dataPRINT and OKRA) and information
technologies. The increase in selling, general and administrative
expenses was partially offset by reduced employee benefit costs related
to the Company's merger of its employee benefits plans and reduced
depreciation and amortization related to the restructuring charge
recorded in the 1996 second quarter.
Charges totaling $94.1 million and $8 million related to restructuring
and acquired in-process research and development, respectively, were
incurred in 1996. These costs reflect the Company's plans for plant
consolidation over the next two years and other strategic decisions
related to product development.
The Company's consolidated effective income tax rate for the first nine
months of 1996 was 29.8% compared to 40.0% for the same period in 1995.
The decrease in the effective tax rate and the associated tax benefit
were primarily due to the effects of permanent tax differences in the
restructuring charge, non-deductible acquired in-process research and
development charge and non-deductible amortization of intangibles.
The Company reported a net loss for the first nine months of 1996 of
$28.6 million, or $0.93 per share, compared to net income of $36.2
million or $1.19 per share for the same period in 1995. In the second
quarter, the Company recorded a restructuring charge, which reduced
earnings by approximately $1.80 per share, and a charge for acquired in-
process research and development costs, which reduced earnings by
approximately $0.26 per share. In addition, the Company incurred costs
related to restructuring which impacted earnings by approximately $0.03
per share in the first quarter of 1996.
-9-
<PAGE>
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Cash flows provided by operating activities in the first nine months of
1996 were $63.7 million compared to $54.4 million for the same period in
1995. The primary uses of funds in the first nine months of 1996 were for
acquisition of businesses, dividends paid to the Company's shareholders
and for capital expenditures. Payments made for acquisition of
businesses and for settlements of earnout provisions in previous
acquisitions were $35.1 million in the first nine months of 1996,
compared to $13.4 million for the same period in 1995. Purchases of
property, plant and equipment totaled $22.1 million in the first nine
months of 1996, compared to $22.3 million for the same period in 1995.
The Company has unsecured lines of credit which provide for borrowings up
to $111.0 million. At September 30, 1996, $69.3 million was outstanding
under these lines of credit. In January 1996, the Company paid a $12
million note related to the acquisition of dataPRINT.
On September 30, 1996, the Company had $25.9 million in cash and cash
equivalents. The Company believes that its current cash position, funds
from operations and the availability of funds under its lines of credit
will be sufficient to meet anticipated requirements for working capital,
dividends, capital expenditures and other corporate needs. The Company
also believes that it possesses sufficient unused debt capacity and
access to debt and equity capital markets to pursue additional
acquisition opportunities.
OUTLOOK
To improve service and increase the profitability of its check printing
business, the Company is standardizing products and pricing and
consolidating and restructuring its manufacturing operations.
Earlier this year, the Company announced plans to consolidate its 40
check imprint plants into a network of seven regional facilities and to
incorporate advanced manufacturing technology and systems into this
network. In the third quarter of 1996, the Company announced a
partnership with APAC Teleservices, Inc. to develop and manage two state-
of-the-art call centers for centralized order entry and customer service.
The Company is also in the process of combining its various sales and
marketing functions into a single, multi-product organization, focused on
serving the financial institution market. This organization offers an
integrated product line of marketing decision support, direct marketing
and print under the Harland brand. Future plans include developing and
acquiring new technology and businesses to enhance this product line.
In line with these business strategies, the Company incurred costs of
$1.5 million in the first quarter of 1996 and recorded a $92.5 million
pre-tax charge in the second quarter of 1996. Management expects to
incur future restructuring charges, predominantly related to employee
severance, totaling approximately $10 million. Annual savings in cash
operating costs associated with these and other initiatives are
ultimately expected to be in the $50 to $75 million range.
No change will be made to the Company's quarterly dividend of 25.5 cents
per share, payable December 5, 1996, to shareholders of record as of
November 21, 1996. However, in view of the Company's growth initiatives,
the Board of Directors is expected to review the Company's dividend
strategy in early 1997.
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
Reference No. Description of Exhibit
- ----------------------------------------------------------------
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the three months ended September
30, 1996.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHN H. HARLAND COMPANY
(Registrant)
November 14, 1996 William M. Dollar
Date: _________________ By:_____________________________
William M. Dollar
Vice-President, Finance and
Treasurer
(Authorized Officer and
Principal Accounting Officer)
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements for the nine months ended September 30, 1996
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 25,902
<SECURITIES> 140
<RECEIVABLES> 83,326
<ALLOWANCES> 3,199
<INVENTORY> 32,170
<CURRENT-ASSETS> 161,069
<PP&E> 218,436
<DEPRECIATION> 121,203
<TOTAL-ASSETS> 475,302
<CURRENT-LIABILITIES> 165,608
<BONDS> 115,287
<COMMON> 37,907
0
0
<OTHER-SE> 175,487
<TOTAL-LIABILITY-AND-EQUITY> 475,302
<SALES> 457,804
<TOTAL-REVENUES> 457,804
<CGS> 247,956
<TOTAL-COSTS> 247,956
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,620
<INCOME-PRETAX> (40,693)
<INCOME-TAX> (12,114)
<INCOME-CONTINUING> (28,579)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,579)
<EPS-PRIMARY> (0.93)
<EPS-DILUTED> (0.93)
<PAGE>
</TABLE>
