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 July 3, 1998
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 July
14, 1998 was 31,057,973.
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Item 1. FINANCIAL STATEMENTS
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS
------
July 3, December 31,
(In thousands) 1998 1997
- ----------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,813 $ 13,004
Accounts receivable 68,957 73,130
Inventories 26,686 26,442
Deferred income taxes 12,576 10,763
Prepaid income taxes 9,253 13,907
Other 9,917 11,140
---------- ----------
Total current assets 134,202 148,386
---------- ----------
INVESTMENTS AND OTHER ASSETS:
Assets held for disposal 6,978 8,721
Investments 4,369 5,185
Goodwill and intangibles - net 110,126 115,538
Deferred income taxes 4,598 9,494
Other 34,675 20,919
---------- ----------
Total investments and other assets 160,746 159,857
---------- ----------
PROPERTY, PLANT AND EQUIPMENT 254,479 249,350
Less accumulated depreciation
and amortization 132,895 131,407
---------- ----------
Property, plant and equipment - net 121,584 117,943
---------- ----------
Total $ 416,532 $ 426,186
========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
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<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
July 3, December 31,
(In thousands, except share amounts) 1998 1997
- ----------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable - trade $ 26,991 $ 33,816
Deferred revenues 24,390 25,799
Accrued liabilities:
Salaries, wages and employee benefits 18,792 21,829
Taxes 8,280 10,986
Restructuring costs 5,917 6,634
Other 10,969 10,703
---------- ----------
Total current liabilities 95,339 109,767
---------- ----------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 107,057 109,358
Other 14,632 14,235
---------- ----------
Total long-term liabilities 121,689 123,593
---------- ----------
Total liabilities 217,028 233,360
---------- ----------
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 361 1,458
Foreign exchange translation adjustment (283) (186)
Retained earnings 329,813 324,324
---------- ----------
Total shareholders' equity 367,798 363,503
Less 6,746,574 and 6,849,524 shares
of treasury stock - at cost 168,294 170,677
---------- ----------
Shareholders' equity - net 199,504 192,826
---------- ----------
Total $ 416,532 $ 426,186
========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
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<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE AND SIX MONTH PERIODS ENDED JULY 3, 1998 AND JUNE 30, 1997
(Unaudited)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
(In thousands, except JULY 3, JUNE 30, JULY 3, JUNE 30,
per share amounts) 1998 1997 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 135,272 $ 139,691 $ 278,810 $ 278,958
---------- ---------- ---------- ----------
COST AND EXPENSES:
Cost of sales 77,899 81,802 159,294 161,291
Selling, general and
administrative expenses 44,372 43,134 93,669 85,309
Amortization of intangibles 2,522 3,501 5,047 7,419
Restructuring charge 1,518 (53) 3,588 2,681
---------- ---------- ---------- ----------
Total 126,311 128,384 261,598 256,700
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 8,961 11,307 17,212 22,258
---------- ---------- ---------- ----------
OTHER INCOME(EXPENSE):
Interest expense (1,864) (2,177) (3,688) (4,597)
Other - net (54) 2,139 3,987 2,193
---------- ---------- ---------- ----------
Total (1,918) (38) 299 (2,404)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 7,043 11,269 17,511 19,854
INCOME TAXES 2,962 4,676 7,359 8,239
---------- ---------- ---------- ----------
NET INCOME 4,081 6,593 10,152 11,615
RETAINED EARNINGS AT
BEGINNING OF PERIOD 328,066 319,017 324,324 316,315
---------- ---------- ---------- ----------
332,147 325,610 334,476 327,930
Cash dividends (2,334) (2,319) (4,663) (4,639)
---------- ---------- ---------- ----------
RETAINED EARNINGS AT END
OF PERIOD $ 329,813 $ 323,291 $ 329,813 $ 323,291
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING:
BASIC 31,131 30,951 31,100 30,946
DILUTED 31,481 31,397 31,444 31,526
========== ========== ========== ==========
EARNINGS PER COMMON SHARE:
BASIC $ .13 $ .21 $ .33 $ .38
DILUTED $ .13 $ .21 $ .33 $ .37
========== ========== ========== ==========
CASH DIVIDENDS PER
COMMON SHARE $ .075 $ .075 $ .15 $ .15
========== ========== ========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
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<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JULY 3, 1998 AND JUNE 30, 1997
(Unaudited)
<CAPTION>
(In thousands) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 10,152 $ 11,615
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 21,418 19,697
Gain on sale of assets (4,143) (1,650)
Other 3,492 2,159
Change in assets and liabilities:
Deferred income taxes 3,083 7,493
Accounts receivable 2,867 3,320
Inventories and other current assets 5,633 3,838
Accounts payable and accrued expenses (14,428) (12,792)
---------- ---------
Net cash provided by operating activities 28,074 33,680
---------- ---------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (17,821) (16,189)
Proceeds from sale of property, plant and equipment 6,219 13,071
Long-term investments and other assets (16,881) (7,960)
---------- ---------
Net cash used in investing activities (28,483) (11,078)
---------- ---------
FINANCING ACTIVITIES:
Issuance of treasury stock 1,279 2,767
Dividends paid (4,663) (4,639)
Repurchase of common stock (1,979)
Short-term debt - net (28,047)
Long-term debt - net (2,301) (4,000)
Other - net (97) (838)
---------- ----------
Net cash used in financing activities (5,782) (36,736)
---------- ----------
Decrease in cash and cash equivalents (6,191) (14,134)
Cash and cash equivalents at beginning of period 13,004 22,667
---------- ----------
Cash and cash equivalents at end of period $ 6,813 $ 8,533
========== ==========
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
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JOHN H. HARLAND COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 3, 1998
(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, 1997 ("1997 10-K").
Reference is made to the accounting policies of the Company described in
the notes to consolidated financial statements included in the 1997 10-
K. The Company has consistently followed those policies in preparing
this report.
Effective January 1, 1998, the Company began reporting its quarterly
results on a 13-week basis. As a result, the first quarter of 1998
ended on April 3, 1998 and the second quarter of 1998 ended on July 3,
1998.
3. Restructuring Charge
In April 1996, the Company announced plans to consolidate its check
imprint plants into a network of regional facilities. The Company
recorded restructuring charges of $1.5 million and $0.1 million in the
second quarters of 1998 and 1997, respectively, and $3.6 million and
$2.7 million in the six month period of 1998 and 1997, respectively, for
severance that was not previously accrued. In the second quarters of
1998 and 1997, the Company made payments totaling $1.2 million related
to previously accrued restructuring costs. Management expects to incur
additional charges in 1998 and 1999, 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 $7.0 million are held for sale at July 3, 1998. The
Company expects to sell these assets within one year of the related
facility being closed.
In June 1998, the Company announced plans for a new decision support
service center in Orlando, which will replace the existing offices
currently located in Tampa and Orlando. Included within the second
quarter 1998 restructuring charge detailed above is a $1.1 million
charge related to severance payments resulting from this relocation. The
new center is to open at the end of the fourth quarter of 1998.
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4. Accounting for Income Taxes
The provisions for income taxes for the six months ended July 3, 1998
and June 30, 1997, were as follows (in thousands):
July 3, June 30,
1998 1997
- ----------------------------------------------------------------------
Current provision $ 4,276 $ 6,277
Deferred provision 3,083 1,962
--------- ---------
Total $ 7,359 $ 8,239
========= =========
5. Inventories
Inventories consisted of the following (in thousands):
July 3, December 31,
1998 1997
- -----------------------------------------------------------------------
Raw materials and semi-finished goods $ 24,597 $ 23,902
Finished goods 1,900 2,116
Hardware component parts 189 424
--------- ---------
Total $ 26,686 $ 26,442
========= =========
6. Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
Statement requires that all items recognized under accounting standards
as components of comprehensive earnings be reported in financial
statements. This Statement also requires that an entity classify items
of other comprehensive earnings by their nature in an annual financial
statement. Other comprehensive earnings for the Company includes
foreign currency translation adjustments. Total comprehensive earnings
for the three and six month periods ended July 3, 1998 and June 30, 1997
were as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 3, JUNE 30, JULY 3, JUNE 30,
1998 1997 1998 1997
- -----------------------------------------------------------------------
Net earnings: $ 4,081 $ 6,593 $10,152 $11,615
Other comprehensive
earnings net of tax:
Change in equity due to
foreign exchange
translation adjustments (102) (56) (97) (143)
-------- -------- -------- --------
Comprehensive earnings $ 3,979 $ 6,537 $10,055 $11,472
======== ======== ======== ========
7. Earnings per Common Share
Earnings per common share (EPS) for all periods have been computed under
the provisions of Statement of Financial Accounting Standards No. 128
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"Earnings Per Share". The net income used in the calculation of diluted
EPS is adjusted for the effect of interest on the conversion of
subordinated debt. The net income used in the calculations of diluted
EPS for the second quarters of 1998 and 1997 were $4,160,000 and
$6,695,000, respectively. The net income used in the calculations of
diluted EPS for the six months ended July 3, 1998 and June 30, 1997 were
$10,331,000 and $11,819,000, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company operates its business in two segments. The Financial
Services segment ("FS") includes checks, forms and other printed products,
database marketing software, direct marketing campaign management and loan
origination software sold primarily to financial institutions.
The Scantron segment represents products and services sold by the
Company's Scantron subsidiary, including optical mark reading equipment,
scannable forms, mail order software and maintenance services. Scantron
sells these products and services to education and commercial markets.
RESULTS OF OPERATIONS SECOND QUARTER 1998 VERSUS SECOND QUARTER 1997
Consolidated net sales for the quarter ended July 3, 1998 were $135.3
million compared to $139.7 million for the quarter ended June 30, 1997.
FS sales totaled $113.4 million and $118.2 million for the second
quarter of 1998 and 1997, respectively. Sales price and product mix for
checks, excluding computer checks, decreased by 5.5% for 1998 over 1997
and was primarily attributable to lower pricing resulting from the level
of discounting occurring in traditional check markets. Volumes for
checks increased 3.5% in 1998 over 1997. Revenue from marketing
services, including database marketing software, direct marketing
campaign management and loan origination software was $15.0 million for
the quarter ended July 3, 1998, an increase of $0.7 million over 1997.
This increase primarily resulted from growth in the direct mail area.
Scantron's sales increased $0.4 million or 1.9% over 1997, primarily due
to expansion of field maintenance operations.
Consolidated gross profit decreased by 0.9% in the second quarter of
1998 from 1997. FS gross profit decreased 3.9% in the second quarter of
1998 from 1997. Primarily, this decrease resulted from lower prices
combined with lower costs for printed products in 1998. Scantron's
gross profit increased 12.7% in the second quarter of 1998 over 1997,
primarily due to an improvement in core product margins. Consolidated
gross margin was 41.4% in the second quarter of 1997 as compared to
42.4% in 1998.
Consolidated selling, general and administrative expenses increased by
$1.3 million, with the largest increases resulting from increased costs
related to upgrading technology and implementation of new customers.
Selling, general and administrative expenses increased as a percentage
of sales from 30.9% in the second quarter of 1997 to 32.8% in 1998.
Amortization of intangibles decreased by $1.0 million from the second
quarter of 1997 compared to the second quarter of 1998, due to certain
intangible assets becoming fully amortized in 1997.
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The Company's consolidated effective income tax rate for the quarter
ending July 3, 1998 was 42.0% compared to 41.5% for 1997.
The Company's net income for the second quarter of 1998 was $4.1 million
compared to $6.6 million for 1997. Basic and diluted earnings per share
were $0.13 for the second quarter of 1998 compared to $0.21 in 1997.
Included in the calculation of earnings per share for 1998 were
restructuring charges, which reduced earnings per share by approximately
$0.03 per share. Net income for the second quarter of 1997 included a
gain on the sale of buildings, which increased earnings per share by
approximately $0.03.
RESULTS OF OPERATIONS YEAR TO DATE 1998 VERSUS 1997
Consolidated net sales for the six months ended July 3, 1998 were $278.8
million compared to $279.0 million for the six months ended June 30,
1997. FS sales totaled $236.5 million and $238.6 million for 1998 and
1997, respectively. Sales price and product mix for checks, excluding
computer checks, decreased by 4.2% for 1998 over 1997 and was primarily
attributable to lower prices experienced as a result of the level of
discounting occurring in traditional check markets. Volumes for checks
increased 4.6% in 1998 over 1997. Revenue from marketing services,
including database marketing software, direct marketing campaign
management and loan origination software was $30.9 million for the first
six months of 1998, an increase of $2.8 million over 1997. Scantron's
sales increased $2.0 million or 5.0% over 1997, primarily due to
expansion of field maintenance operations.
Consolidated gross profit increased by 1.6% in 1998 from 1997. FS gross
profit decreased 0.9% in 1998 from 1997. Primarily, this decrease
resulted from lower prices offset by lower costs for printed products in
1998. Scantron's gross profit increased 13.0% in 1998 over 1997,
primarily due to an improvement in core products margins. Consolidated
gross margin was 42.2% in 1997 as compared to 42.9% in 1998.
Consolidated selling, general and administrative expenses increased by
$8.4 million, with the largest increases resulting from increased costs
related to upgrading technology and implementation of new customers.
Selling, general and administrative expenses increased as a percentage
of sales from 30.6% in 1997 to 33.6% in 1998.
Amortization of intangibles decreased by $2.4 million from 1997 compared
to 1998 due to certain intangible assets becoming fully amortized in
1997.
Other income (expense) increased $2.7 million in 1998 to a net $0.3
million primarily due to the gains from the sale of production
facilities and the Company aircraft.
The Company's consolidated effective income tax rate for 1998 was 42.0%
compared to 41.5% for 1997.
The Company's net income for 1998 was $10.2 million compared to $11.6
million for 1997. Basic and diluted earnings per share for 1998 were
$0.33 in 1998 compared to $0.38 and $0.37, respectively, in 1997.
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Included in the calculation of earnings per share for 1998 were
restructuring charges, which reduced earnings per share by approximately
$0.07 per share, offset by a gain on the sale of assets, which increased
earnings per share by approximately $0.08. Net income in 1997 included
restructuring charges, which reduced earnings per share by approximately
$0.05 per share, offset by a gain on the sale of buildings, which
increased earnings per share by approximately $0.03.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Cash flows provided by operations for the first six months of 1998 were
$28.1 million compared to $33.7 million for the first six months of
1997. The primary uses of funds in the first six months of 1998 were
for capital expenditures, customer incentive payments and dividends
paid.
Purchases of property, plant and equipment totaled $17.8 million in the
first six months of 1998, compared to $16.2 million in 1997. Proceeds
from the sale of property, plant and equipment totaled $6.2 million in
the first six months of 1998 compared to $13.1 million in 1997.
The Company has unsecured lines of credit which provide for borrowings
up to $111.0 million. As of July 3, 1998, the Company had no outstanding
balances under these lines of credit.
On July 3,1998, the Company had $6.8 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. 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
Harland is entering the final phase of its plant consolidation program,
with six plants remaining to be consolidated. It is expected that this
last phase of the program will extend into 1999. The Company continues
to install new equipment and develop systems and processes designed to
improve service quality, reduce costs and increase the profitability of
its check printing operations. The Company has already seen some of the
benefit of these initiatives, including higher quality and lower costs,
and expects to build on this progress in subsequent quarters.
Improved earnings from the Company's manufacturing operations will be
invested in new growth areas, such as Marketing Services, which includes
database marketing software and direct marketing capabilities. The
Company expects growth to come through internal product development and
acquisitions.
To support the business strategies, the Company expects to incur
additional charges, predominantly related to employee severance, of
approximately $6 million in 1998 and $2.5 million in 1999.
In June 1998, Harland announced plans for a new decision support service
center in Orlando, which will replace the Company's existing offices
currently located in Tampa and Orlando. The Company recorded a $1.1
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million charge related to severance payments resulting from the
consolidation of the two facilities into the new service center. The
new center is scheduled to open at the end of the fourth quarter 1998,
and management expects it will result in 1999 operating savings.
Management anticipates growth in the software business will primarily be
driven by new product development. A key component of this development
is Harland's Relationship Manager system, the Company's "next
generation" MCIF tool. This system was introduced to the marketplace on
a limited basis in the second quarter of 1998 and customer response has
been positive. Bookings have begun, but the Company does not anticipate
beginning installations or recognizing revenue until 1999.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of potential problems with computer
systems or any equipment with computer chips that use dates where the
date has been stored as just two digits (e.g., 98 for 1998). On January
1, 2000, any clock or date recording mechanism including date sensitive
software which uses only two digits to represent the year, may recognize
a date using 00 as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruption of
operations, including among other things, a temporary inability to
process transactions, send invoices, or engage in similar activities.
The Company has reviewed all significant financial and manufacturing
systems to determine compliance with the Year 2000 and has developed a
plan of action intended to correct or replace those systems not in
compliance. The Company will utilize both internal and external
resources to correct or replace and test all of its software for Year
2000 compliance. This project is estimated to cost approximately $5
million. Costs associated with correcting existing systems will be
expensed as incurred. In the normal course of business, the Company is
replacing certain systems with new Year 2000 compliant systems which are
expected to improve functionality, usefulness and efficiency of
information processing at the Company. The timing of the replacement of
the systems was not accelerated as a result of Year 2000.
The Company also conducts business electronically with certain external
partners, including suppliers, customers and financial service
organizations. The Company is currently contacting external parties to
determine the extent to which the Company may be vulnerable to those
third parties' failure to remediate their own Year 2000 issue. The
Company is developing contingency plans to deal with issues associated
with any external partner who fails to demonstrate Year 2000 compliance.
Failure to successfully execute the Company's Year 2000 compliance plans
on a timely basis or the failure of external parties to achieve Year
2000 compliance on a timely basis could have a material adverse impact
on the Company's financial position and results of operations.
RISK FACTORS AND CAUTIONARY STATEMENTS
When used in this Form 10-Q and in subsequent filings by the Company
with the Securities and Exchange Commission, in the Company's press
releases and in written or oral statements made by authorized
representatives of the Company, the words or phrases "should result",
"are expected to", "will continue", "is anticipated", "estimate",
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"project" or similar expressions are intended to identify "forward-
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are necessarily subject
to certain risks and uncertainties, including, but not limited to, those
discussed below that could cause actual results to differ materially
from the Company's historical experience and its present expectations or
projections. Caution should be taken not to place undue reliance on any
such forward-looking statements, which speak only as of the date such
statements are made and which may or may not be based on historical
experiences and/or trends which may or may not continue in the future.
The Company does not undertake and specifically declines any obligation
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances occurring
after the date of such statements or to reflect the occurrence of
unanticipated events.
Various factors may affect the Company's financial performance,
including, but not limited to, those factors discussed below and could
cause the Company's actual results for future periods to differ from any
opinions, statements or projections expressed with respect thereto. Such
differences could be material and adverse.
Regarding the rebuilding of the Company's manufacturing operations,
there can be no assurances that the printing plant consolidation will
occur within the projected time frame and that it, combined with the
centralization of customer service, will result in the anticipated
quality improvements or projected costs savings. Many variables will
impact the ability to improve production efficiencies and reduce
redundant expenses. These include, but are not limited to, the
development and implementation of new manufacturing technology and
information systems used in the Company's data entry and production
operations and the successful development of software to enhance call
center operations. Further, there can be no assurance that the Company
can reproduce or improve upon historic profit margin trends. Many
factors can affect the Company's ability to improve profitability,
including, among other factors, competitive pricing trends, the ability
to secure similar materials prices and labor rates, and the ability to
reduce the cost of manufacturing. Competition among suppliers,
restricted supply of materials, labor and services, and other such
factors outside of the Company's control, may adversely affect prices
and may materially impact the Company's results.
Several factors outside the Company's control, could negatively impact
check revenue. These include the continuing expansion of alternative
payment systems such as credit cards, debit cards and other forms of
electronic commerce or on-line payment systems. Check revenues could
also be adversely affected by continued consolidation of financial
institutions and competitive check pricing, among other factors. There
can be no assurances that the Company will not lose significant
customers or that any such loss could be offset by the addition of new
customers. Also, there can be no assurance that the Company will
experience similar or higher revenue compared to prior years, or that
any targets or projections made relating to check revenues will be
achieved.
While the Company believes substantial growth opportunities exist in FS,
specifically marketing services such as database marketing software and
direct marketing, there can be no assurances that the Company will
achieve its growth targets. There are many variables relating to the
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development of the next generation database marketing software,
including the timing and costs of the development effort, the viability
of the product, product acceptance and competition. Also, no assurance
can be made as to market acceptance and to the potential impact of
governmental regulations on the Company's ability to expand its direct
marketing business and meet projected growth targets.
There can also be no assurance that all or some of the anticipated cost
savings expected from rebuilding the manufacturing operation will not be
offset by increased expenses from other areas or be shared with the
customers in the form of discounted prices. As a result, the full impact
of the cost savings may not be reflected in operating income.
Although the Company is taking due precautions and believes its internal
systems and those of its vendors will be Year 2000 compliant on a timely
basis, it can make no assurances that there will not be a material
adverse impact on the Company or its customers as a result of Year 2000
delays or failures.
From time to time, authorized representatives of the Company may make
predictions or forecasts regarding the Company's future results,
including estimated earnings. Any such forecast reflects various
assumptions, which are subject to significant uncertainties, many of
which may prove to be incorrect. Further, the achievement of any
forecast depends on numerous factors, many of which are beyond the
Company's control. As a result, there can be no assurance that the
Company's performance will be consistent with any management forecasts
or that the variation from such forecasts may not be material and
adverse. Accordingly, investors are cautioned not to base their entire
analysis of the Company's business and prospects upon isolated
predictions, but instead are encouraged to utilize the entire available
mix of historical and forward-looking information when evaluating the
Company. Further, there can be no assurance that a review of both
historical trends and predictions will necessarily lead to the same
results that may actually be experienced in the future.
In addition, authorized representatives of the Company may occasionally
comment on published projections by independent analysts regarding the
Company's future performance. Such comments should not be interpreted as
an endorsement or adoption of any given estimate or range of estimates,
or the assumptions and methodologies upon which such estimates are
based. The Company expressly disclaims any continuing responsibility to
advise analysts or the public markets of its view regarding the current
accuracy of the published estimates of outside analysts. Persons relying
on such estimates should pursue their own independent investigation and
analysis of their accuracy and the reasonableness of the assumptions on
which they are based, and they should also be aware that actual results
could differ from such estimates.
Generally speaking, the Company does not make public its own internal
projections or budgets. Undue reliance should not be placed on any
comments regarding the differences between such independent estimates
and the Company's own expectations regarding its future operations. The
methodologies employed by the Company in arriving at its own internal
projections and the approaches taken by independent analysts in making
their estimates may differ in many significant respects. Although the
Company may presently perceive a given estimate to be reasonable,
changes in the Company's business, market conditions or the general
-13-PAGE
<PAGE>
economic climate may materially impact the results obtained through the
use of differing analyses and assumptions.
-14-PAGE
<PAGE>
PART II. OTHER INFORMATION
===========================
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of the Shareholders of the Company was held
on April 24, 1998, in Atlanta, GA. There was no solicitation in
opposition to management's nominees for Directors as listed in the
Proxy Statement and all such nominees were elected.
(c) Below is a brief description of matters voted on at the Annual
Meeting and the results of the voting:
Election of Directors for One-Year Term:
H.G. Pattillo
Voting for 25,276,827
Withhold authority 590,730
John H. Weitnauer Jr.
Voting for 25,293,265
Withhold authority 574,292
Robert R. Woodson
Voting for 24,864,618
Withhold authority 1,002,939
Election of Directors for Three-Year Term:
Juanita P. Baranco
Voting for 25,256,442
Withhold authority 611,115
John J. McMahon Jr.
Voting for 25,243,335
Withhold authority 624,222
Larry L. Prince
Voting for 25,240,517
Withhold authority 627,040
To ratify the appointment of Deloitte & Touche LLP as the Company's
independent certified public accountants for the year ending December
31, 1998:
Voting for 25,617,663
Voting against 132,185
Voting abstain 117,709
-15-PAGE
<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 quarterly period ended
July 3, 1998.
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)
August 17, 1998 /s/William M. Dollar
Date: _________________ By:_____________________________
William M. Dollar
Vice President, Finance and
Treasurer
(Principal Accounting Officer)
August 17, 1998 /s/S. David Passman III
Date: _________________ By:_____________________________
S. David Passman III
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
-16-PAGE
<PAGE>
-20-PAGE
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements for the quarterly period ended July 3,
1998 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUL-03-1998
<CASH> 6,813
<SECURITIES> 0
<RECEIVABLES> 73,225
<ALLOWANCES> 4,268
<INVENTORY> 26,686
<CURRENT-ASSETS> 134,202
<PP&E> 254,479
<DEPRECIATION> 132,895
<TOTAL-ASSETS> 416,532
<CURRENT-LIABILITIES> 95,339
<BONDS> 107,057
<COMMON> 37,907
0
0
<OTHER-SE> 176,229
<TOTAL-LIABILITY-AND-EQUITY> 416,532
<SALES> 278,810
<TOTAL-REVENUES> 278,810
<CGS> 159,294
<TOTAL-COSTS> 159,294
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,688
<INCOME-PRETAX> 17,511
<INCOME-TAX> 7,359
<INCOME-CONTINUING> 10,152
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,152
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
</TABLE>
