United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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 May 2,
1997 was 30,913,267.
<PAGE>
Item 1. FINANCIAL STATEMENTS
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
------
<CAPTION>
March 31, December 31,
(In thousands) 1997 1996
- ----------------------------------------------------------------------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 10,633 $ 22,667
Accounts receivable 69,188 69,596
Inventories 28,297 33,464
Deferred income taxes 10,188 8,347
Other 10,777 14,329
---------- ----------
Total current assets 129,083 148,403
---------- ----------
INVESTMENTS AND OTHER ASSETS:
Assets held for disposal 30,785 30,656
Investments 6,161 6,178
Goodwill and intangibles - net 123,561 127,491
Deferred income taxes 18,336 20,012
Other 29,500 25,596
---------- ----------
Total investments and other assets 208,343 209,933
---------- ----------
PROPERTY, PLANT AND EQUIPMENT 217,956 215,140
Less accumulated depreciation
and amortization 119,799 118,745
---------- ----------
Property, plant and equipment - net 98,157 96,395
---------- ----------
Total $ 435,583 $ 454,731
========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<CAPTION>
March 31, December 31,
(In thousands, except share amounts) 1997 1996
- ----------------------------------------------------------------------
(Unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Short-term debt $ 27,541 $ 43,089
Accounts payable - trade 28,769 27,057
Deferred revenues 23,960 25,069
Accrued liabilities:
Salaries, wages and employee benefits 16,581 21,560
Restructuring costs 11,517 12,694
Taxes 4,580 6,031
Other 11,949 9,211
---------- ----------
Total current liabilities 124,897 144,711
---------- ----------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 110,030 114,075
Other 13,906 13,542
---------- ----------
Total long-term liabilities 123,936 127,617
---------- ----------
Total liabilities 248,833 272,328
---------- ----------
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 1,961 2,032
Foreign exchange translation adjustments (32) 54
Retained earnings 319,017 316,315
---------- ----------
Total shareholders' equity 358,853 356,308
Less 6,898,400 and 6,983,520 shares of
treasury stock - at cost 172,103 173,905
---------- ----------
Shareholders' equity - net 186,750 182,403
---------- ----------
Total $ 435,583 $ 454,731
========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<CAPTION>
(In thousands, except
per share amounts) 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 139,266 $ 152,247
---------- ----------
COST AND EXPENSES:
Cost of sales 79,489 84,992
Selling, general and
administrative expenses 42,174 44,380
Amortization of intangibles 3,918 4,647
Restructuring charge 2,734 1,571
---------- ----------
Total 128,315 135,590
---------- ----------
INCOME FROM OPERATIONS 10,951 16,657
---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (2,419) (2,225)
Other - net 54 (19)
---------- ----------
Total (2,365) (2,244)
---------- ----------
INCOME BEFORE INCOME TAXES 8,586 14,413
INCOME TAXES 3,563 5,967
---------- ----------
NET INCOME 5,023 8,446
RETAINED EARNINGS AT BEGINNING
OF PERIOD 316,315 361,554
---------- ----------
321,338 370,000
Cash dividends (2,321) (7,828)
---------- ----------
RETAINED EARNINGS AT END OF PERIOD $ 319,017 $ 362,172
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 31,263 30,709
========== ==========
NET INCOME PER COMMON SHARE $ .16 $ .28
========== ==========
CASH DIVIDENDS PER COMMON
SHARE $ .075 $ .255
========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<CAPTION>
(In thousands) 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 5,023 $ 8,446
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 9,991 13,768
Other 1,360 801
Change in assets and liabilities:
Deferred income taxes 1,252 (3,221)
Accounts receivable 408 (1,564)
Inventories and other current assets 3,190 6,003
Accounts payable and accrued expenses (154) 5,410
---------- ---------
Net cash provided by operating activities 21,070 29,643
---------- ---------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (8,144) (5,343)
Proceeds from sale of property, plant and equipment 398 333
Short-term investments - net 400
Long-term investments and other assets (5,083) (2,803)
---------- ---------
Net cash used in investing activities (12,829) (7,413)
---------- ---------
FINANCING ACTIVITIES:
Issuance of treasury stock 1,725 1,009
Dividends paid (2,321) (7,828)
Short-term debt - net (15,548) (4,000)
Long-term debt - net (4,000)
Other - net (131) (87)
---------- ----------
Net cash used in financing activities (20,275) (10,906)
---------- ----------
Increase (decrease) in cash and cash equivalents (12,034) 11,324
Cash and cash equivalents at beginning of period 22,667 12,862
---------- ----------
Cash and cash equivalents at end of period $ 10,633 $ 24,186
========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(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, 1996
("1996 10-K").
Reference is made to the accounting policies of the Company described in
the notes to consolidated financial statements included in the 1996 10-K.
The Company has consistently followed those policies in preparing this
report.
3. Restructuring Charge
In April 1996, the Company announced plans to consolidate its core printing
plants into a network of regional facilities over a two-year period. Costs
totaling $1.6 million and $2.7 million were incurred in the first quarters
of 1996 and 1997, respectively. The 1997 costs related to employee
severance resulting from the consolidation of manufacturing operations.
Management expects to incur additional charges in 1997 and in early 1998,
predominantly related to employee severance. As part of this restructuring,
certain assets, predominantly land, buildings and equipment at the
facilities to be closed, with a carrying value of $30.8 million are now
being held for sale. The Company expects to sell these assets within one
year of the related facility being closed.
4. Acquisitions
In May 1996, the Company acquired OKRA Marketing Corporation. The following
represents the unaudited pro forma results of operations which assume the
acquisition occurred on January 1, 1996. These results include certain
adjustments, primarily increased amortization expense related to intangible
assets and increased interest expense (in thousands, except per share amounts):
Three months ended
March 31, 1996
- ---------------------------------------------------------------------
Net sales $ 156,331
Net income 7,707
Net income per common share .25
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 or of future consolidated
results of operations.
<PAGE>
5. Accounting for Income Taxes
The provision for income tax expense for the three months ended March 31,
1997 and 1996 includes the following (in thousands):
1997 1996
- ----------------------------------------------------------------------
Current provision $ 3,729 $ 6,561
Deferred benefit (166) (594)
--------- ---------
Total $ 3,563 $ 5,967
========= =========
6. Inventories
Inventories consisted of the following (in thousands):
March 31, December 31,
1997 1996
- -----------------------------------------------------------------------
Raw materials and semi-finished goods $ 23,241 $ 28,190
Finished goods 2,285 2,504
Hardware component parts 2,771 2,770
--------- ---------
Total $ 28,297 $ 33,464
========= =========
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
First Quarter 1997 vs. 1996
Consolidated net sales for the first quarter 1997 decreased $13.0 million
or 8.5% as compared to the first quarter of 1996. The Company's Financial
Services ("FS") segment sales decreased $14.7 million or 12.3% from the
1996 period. The revenue decrease reflects the previously disclosed loss of
certain financial institution contracts and the continued wind down of the
Company's direct check operations. In August 1996, the Company entered
into a long-term contract with a direct mail check supplier, which helped
offset this reduction in unit volumes. Although revenue per unit from the
contract is lower than average revenue per unit, the costs to produce these
units are also significantly lower. FS's direct marketing and decision
support product and service revenues increased by $1.9 million compared to
the 1996 period. The Scantron segment's sales increased 0.9%.
Consolidated gross profit decreased as a percentage of sales from 44.2% in
1996 to 42.9% in 1997. Pricing, the reduction in unit volume and transition
costs associated with rebuilding the Company's printing infrastructure
negatively impacted FS's margins. The transition costs include redundant
expenses related to customer service, plant closings and employee
relocations. FS's direct marketing and decision support gross profit
increased by 39.2%. Scantron's gross margin change was not significant.
Consolidated selling, general and administrative expenses decreased by $2.2
million or 5.0 million primarily as a result of reduced marketing expense
relating to the wind down of the Company's direct check operations.
Amortization of intangibles, principally resulting from acquisitions,
decreased by $0.7 million or 15.7%, and decreased as a percentage of net
sales from 3.1% in the first quarter of 1996 to 2.8% for the first quarter
of 1997. This change is a result of reduced amortization related to
intangible assets written down as part of the second quarter 1996
restructuring charge, offset partially by increased goodwill related to the
acquisition of OKRA Marketing Corporation in May 1996.
During 1996, the Company recognized a restructuring charge reflecting its
plans for consolidation of operations and other strategic decisions related
to products. Costs totaling $1.6 million and $2.7 million were incurred in
the first quarters of 1996 and 1997, respectively. The 1997 costs related
to employee severance resulting from the consolidation of manufacturing
operations.
The Company's consolidated effective income tax rate for the first quarter
of 1997 was 41.5% compared to 41.4% in 1996. First quarter 1997 net income
per share was $0.16 or a 43% decrease compared to $0.28 in the 1996
quarter. Earnings were impacted by transition costs associated with
rebuilding the Company's printing infrastructure, check pricing and lower
unit volumes.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Cash flows provided by operations in the first quarter of 1997 were $21.1
million compared to $29.6 million in 1996. The primary uses of funds in the
first quarter of 1997 were to reduce borrowings and for capital
expenditures.
Purchases of property, plant and equipment totaled $8.1 million in the
first quarter of 1997, compared to $5.3 million in 1996.
<PAGE>
The Company has unsecured lines of credit which provide for borrowings up
to $111.0 million. At March 31, 1997, $27.5 million was outstanding under
these lines of credit.
On March 31, 1997, the Company had $10.6 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, and management
is not aware of any condition that would materially alter this trend. The
Company also believes that it possesses sufficient unused debt capacity and
access to equity capital markets to pursue additional acquisition
opportunities.
OUTLOOK
The Company is standardizing products and pricing and consolidating and
restructuring its manufacturing operations to provide a platform for new
services, reduce costs and increase product service quality in its check
printing business. This strategy includes creating an enterprise-wide
communications network linking the check printing business with marketing
services. The strategy also requires the development of additional
marketing services which will enhance the Company's database management
capabilities.
In 1996, the Company announced plans to consolidate its 40 check imprint
plants into a network of regional facilities and to incorporate advanced
manufacturing technology and systems into this network. All but eight of
the plants scheduled for consolidation are anticipated to close by December
31, 1997, with the balance to close by the middle of 1998. Approximately 40
percent of all check volume is already being printed in the Company's
network plant locations.
In 1996, the Company announced an agreement with APAC TeleServices, Inc.
("APAC"), to develop and staff two state-of-the-art call centers for
centralized customer service. Approximately 50 percent of customer calls
are now being managed by APAC. The Company has also combined various sales
and marketing functions into a multi-product organization, focused on
serving the financial institution market. This organization offers an
integrated product line of marketing services and printed products under
the Harland brand. Plans include developing and acquiring new technology
and businesses to enhance this product line.
To support its new business strategies, the Company recorded a pre-tax
restructuring charge of $2.7 million in the first quarter of 1997.
Management expects to incur additional charges in 1997 and in early 1998,
predominantly related to employee severance.
In January 1997, the Company reduced the annual dividend on its common
stock from $1.02 to $0.30 per share to support long-term growth through a
more strategic use of cash.
In April, 1997, the Company authorized the repurchase of up to 1.5 million
shares of the Company's outstanding common stock, representing
approximately five percent of the Company's outstanding shares. The Company
will make periodic purchases in cash on the open market or in private
transactions which will be funded through working capital and/or short-term
borrowings. Shares repurchased under this program will be held in treasury,
used for acquisitions, used to fund the Company's employee benefits
programs or for other corporate purposes. On April 30, 1997, the Company
repurchased 100,000 shares at a cost of $2.0 million.
<PAGE>
With the exception of historical information, the matters discussed or
incorporated by reference in the 10-Q are forward-looking statements that
involve risks and uncertainties including, but not limited to, economic
conditions, product demand and industry capacity, competitive products
and pricing, manufacturing efficiencies, new product development, availability
of raw materials and critical manufacturing equipment, the regulatory and
trade environment, and other risks indicated in filings with the Securities
and Exchange Commission. Actual future results could differ materially as a
result of such factors.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128") was issued and is effective for financial
statements ending after December 15, 1997. SFAS 128 simplifies the standard
for computing earnings per share ("EPS") previously found in APB Opinion
No. 15, "Earnings per Share", by replacing the presentation of primary EPS
with basic EPS. It also requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator
of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. The Company plans to adopt SFAS 128 in 1997 and
believes that there will be no material effect on its financial position or
results of operations resulting from its adoption.
<PAGE>
PART II. OTHER INFORMATION
===========================
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 March
31, 1997.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHN H. HARLAND COMPANY
(Registrant)
May 15, 1997 William M. Dollar
Date: _________________ By:_____________________________
William M. Dollar
Vice President, Finance and
Treasurer
(Principal Accounting Officer)
May 15, 1997 S. David Passman III
Date: _________________ By:_____________________________
S. David Passman III
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements for the three months ended March 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 23,786
<SECURITIES> 0
<RECEIVABLES> 72,269
<ALLOWANCES> 3,081
<INVENTORY> 28,297
<CURRENT-ASSETS> 129,083
<PP&E> 217,956
<DEPRECIATION> 119,799
<TOTAL-ASSETS> 435,583
<CURRENT-LIABILITIES> 124,897
<BONDS> 110,030
<COMMON> 37,907
0
0
<OTHER-SE> 172,103
<TOTAL-LIABILITY-AND-EQUITY> 435,583
<SALES> 139,266
<TOTAL-REVENUES> 139,266
<CGS> 79,489
<TOTAL-COSTS> 79,489
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,419
<INCOME-PRETAX> 8,586
<INCOME-TAX> 3,563
<INCOME-CONTINUING> 5,023
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,023
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
