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
For the fiscal year ended December 31, 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
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
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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
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
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 12, 1999 was
$409,356,547.
The number of shares of the Registrant's Common Stock outstanding on
March 12, 1999, was 31,103,263.
A portion of the Registrant's Definitive Proxy Statement dated March
12, 1999, 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 6
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 7A: Quantitative And Qualitative Disclosures About
Market Risk 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 Schedule 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 Registrant is incorporated
under the laws of Georgia and is headquartered in Atlanta.
The Company works with banks, credit unions, brokerage houses and
financial software companies, providing these institutions with products and
services that help strengthen relationships with their customers. These
offerings range from financial printing (checks, forms and business products)
to database marketing software, direct marketing, and loan and deposit
origination software. The Company's subsidiary, Scantron Corporation
("Scantron"), sells information management products and services, including
optical mark reading equipment, scannable forms, survey services and field
maintenance services. Scantron sells these products and services primarily to
the commercial and education markets.
The Company serves its major markets through two primary business
segments, each of which is described below. Reference is made to Note 13 of
the Notes to Consolidated Financial Statements on page F25 of this Annual
Report on Form 10-K with respect to information concerning the Company's
business segments.
Recent Developments
Timothy C. Tuff was elected president, chief executive officer and
director of the Company on October 6, 1998.
In December 1998, the Company announced a restructuring of the
organization that is designed to strengthen relationships with customers and
increase bottom-line accountability. The reorganization involved separating
corporate and line functions, and creating individual business units focused
on either product lines or distinct customer groups. The Company believes that
the business unit structure will help strengthen the role each unit plays in
enhancing shareholder value.
The Company took steps to align the interests of the board of directors
with those of shareholders, including a new committee structure for the board
and new ownership guidelines for directors. There are now three committees:
Audit, Executive and Governance. The Governance Committee, which incorporates
the compensation and nominating functions, will also address broader
governance issues. The ownership guidlines require directors to own five times
the amount of their annual retainer in company stock. This threshold must be
achieved within five years. Annual retainers for directors are paid in Company
stock.
The Company plans to release a WindowsRM version of its MAX$ELL database
management system later in 1999. Recent development efforts had focused on the
Harland Relationship ManagerTM system, a next-generation database management
system. These development efforts were discontinued in late 1998 due to
product performance issues.
Scantron purchased Equitrac Computer Services (ECS) in 1998 to strengthen
its service capabilities in several of the 42 states in which it does
business. The Company anticipates that growth of the service business will
come through internal development and additional acquisitions. Scantron also
introduced eListen,TM a universal electronic survey and data collection
software system that enables organizations to conduct surveys through popular
electronic media, including Intranet, World Wide Web, e-mail and corporate
network. In addition to expanding the functionality of a core offering,
eListen increases the Company's capabilities for surveying large
constituencies.
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Financial Services
The Financial Services ("FS") segment focuses on providing
products and services to financial institutions, including banks,
credit unions, brokerage houses and financial software companies. These
offerings range from financial printing (checks, forms and business
documents) to database marketing systems, direct marketing campaign
management, and loan and deposit origination and compliance software.
FS core printed products are checks, forms and related magnetic
ink character recognition ("MICR") documents sold to financial
institutions and their customers. These documents include personal,
business and computer checks and forms. FS also produces a variety of
financial documents, including checks, invoices, statements and other
forms, used by individuals in conjunction with personal and/or small
business financial software applications. Through a strategic alliance
with Bottomline Technologies, Inc.("Bottomline"), FS offers point-of-
service capability to produce MICR-readable documents. (The Company has
an equity investment in Bottomline totaling 5.9% of Bottomline's
outstanding common stock.)
FS primary competitors in the sale of MICR-encoded documents and
related forms to financial institutions are two national financial
printers specializing in check printing, one of which possesses
substantially greater sales and financial resources than FS. While
accurate statistics with respect to the aggregate level of check
production are not readily available, the Company believes that FS is
the second-largest producer of MICR-encoded documents and related forms
in the United States.
Recognizing that growth in financial printing is slowing and that
its customers have a growing need to improve profitability and increase
operational efficiencies, the Company began expanding its offerings
several years ago. The Company now also offers financial institutions
database marketing systems, direct marketing campaign management, and
loan and deposit origination and compliance software.
Product expansion has benefited from a number of acquisitions,
including two companies that offer marketing customer information file
("MCIF") software and related services. The Company markets these
products and services under the term "Decision Support." Financial
institutions use this software to identify profitable customers and
prospects, develop sound marketing strategies and execute information-
driven plans aimed at building and retaining profitable relationships.
MCIF software enables financial institutions to quickly and
accurately gauge profitability potential and target potential
customers. Utilization of external and internal data, such as
demographic and geographic information, can enhance analysis, which is
then merged into multi-contact direct marketing programs. Additional
services include consulting, creative services, printing and
fulfillment, and campaign management, all of which are designed to
deliver a strong return on investment for financial institutions.
The market for the Company's Decision Support products and
services is growing within the financial services industry. More than
1,300 financial institutions utilize one of the Company's database
marketing products, giving the Company a leadership position in this
emerging market.
FS also markets and supports loan and deposit origination and
compliance software for the financial institution market. Competition
within this market varies by financial institution size.
The Company believes that the primary competitive factor
influencing buying decisions within the FS segment is the ability to
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help financial institutions improve profitability and increase
operational efficiencies. The Company believes that FS compares
favorably with its competitors in this respect.
FS markets its products and services primarily in the United
States, although there is varying market penetration in the Caribbean,
Mexico, Canada and other limited markets. Financial institution
customers include community, regional and national banks, credit unions
and brokerage houses. Non-financial institution customers include
financial software companies, superstores, direct mail check suppliers,
catalog merchandisers and affinity groups.
FS markets its products and services primarily through one sales
force divided into two groups, with one group focused on national
accounts, and the second group servicing the needs of community banks
and credit unions. Database marketing and direct marketing specialists
support this sales force.
FS principal raw materials are safety paper, form paper and MICR
bond paper. Other related products, such as vinyl, inks, checkboards,
packaging material and miscellaneous supplies, are purchased from a
number of suppliers. The Company believes that adequate raw materials
will be available to support FS operations.
The Company believes that the loss of any one FS customer would
not have a materially adverse effect on its consolidated results of
operations.
Scantron Corporation
Scantron was founded in 1972 and acquired by the Company in 1988.
Scantron provides products and services utilized primarily in the areas of
surveying, assessment and data collection for commercial and educational
institutions. These core offerings include scannable forms, optical mark
readers ("OMRs"), application software and maintenance services.
Scantron's brand awareness is strong in the K-12 and post secondary
education markets, where the name "Scantron" is readily associated with
testing and data collection technology. In addition to test scoring, a
Scantron system, which includes a scanner, forms and software, is used to
collect and analyze data for surveys, grade reporting and balloting.
Related lines of businesses include the Scantron Survey Group, which
offers full-service data collection and survey services; and the Scantron
Service Group, a provider of scanner, personal computer, and network systems
maintenance, support and installation services.
Scantron is developing new products and services that it believes will
help it penetrate emerging high technology markets, including enterprise-wide
survey and assessment solutions.
Scantron's markets are diverse and competitive. The Company believes
Scantron is the second-largest provider of data collection systems to
commercial and educational markets in the United States. The Company also
believes that Scantron's scanning technologies are more accurate than other
methods of capturing and tabulating high volumes of data.
Scantron's forms printing operation competes with commercial and
specialized forms printers, principally on the basis of systems compatibility,
product quality, customer services, and availability of a complete product
line to the end user.
Scantron's field service operation competes with various organizations
that provide installation and maintenance services, including technology
manufacturers, other national and local field service and maintenance
companies.
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The Company believes that Scantron's breadth of products and services,
brand name, and new product and service offerings compare favorably with
competitors.
Scantron markets its products primarily through inside and outside sales
and service representatives throughout the United States and Canada.
Representatives sell new systems, sell reorders for existing installations,
provide scanner servicing, and deliver forms design, development and software
customization services. Scantron's products are also marketed internationally
through distributorships.
Scantron purchases a majority of its paper from one supplier. It
purchases scanner components from equipment manufacturers, supply firms and
others. It purchases software for resale from leaders in the software
industry. The Company believes Scantron can continue to obtain such materials
or suitable substitutes in acceptable quantities and at acceptable prices to
continue all operations.
There is a seasonal nature to Scantron'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 Scantron customer would not
have a materially adverse effect on the Company's consolidated results of
operations.
Patents and Trademarks
The Company has patents on several products and processes and
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 December 31, 1998, the Company and its subsidiaries employed
5,393 people.
ITEM 2. PROPERTIES
As of December 31, 1998, the Company and its subsidiaries owned 16
facilities located in 13 states and in Puerto Rico, all but five of
which were primarily production and service facilities. The Company
leases 24 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 two of its
subsidiaries. These leases have expiration dates ranging from 1999 to
2012. 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.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information with respect to all
executive officers of the Company.
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Name Age Office Held
John H. Weitnauer Jr. 72 Chairman of the Board
Timothy C. Tuff 51 President and Chief Executive Officer
S. David Passman III 46 Vice President and General Manager -
South/International Region
Mark C. Perlberg 42 Vice President and General Manager -
North Region
Earl W. Rogers Jr. 50 Vice President, Manufacturing Services and
Technology
John C. Walters 58 Vice President, Secretary and General Counsel
Mr. Weitnauer served as Chairman and Interim President and Chief
Executive Officer of the Company from January 1998 until Mr. Tuff
joined the Company. He previously served as Chairman and Chief
Executive Officer of Richway Stores, a division of Federated Department
Stores, Inc., an operator of discount department stores, for seven
years until his retirement in 1987.
Mr. Tuff was elected to his present positions with the Company in
October 1998. From 1993 to October 1998, he served as President and
Chief Executive Officer of Boral Industries, Inc., managing the North
American and European operations of Australian-based Boral, Ltd., a
world leader in building and construction materials, since 1993.
Mr. Passman joined the Company in October 1996 as Senior Vice
President and Chief Financial Officer and assumed his present position
in January 1999. He was previously employed by Deloitte & Touche LLP
for 20 years, last serving as Managing Partner of its Atlanta office.
Mr. Perlberg joined the Company in February 1996 and served as
Senior Vice President and President, Financial Markets Division of the
Company until he assumed his present position in January 1999. He was
previously employed by New Valley Corporation, a financial services
company, and its Western Union Financial Services subsidiary, since
1989, last serving as Vice President in its international operations.
Mr. Rogers has been employed as an executive officer of the
Company for more than the past five years.
Mr. Walters joined the Company in January 1996. He previously
served as Executive Vice President of First Financial Management
Corporation, a diversified information and financial services company,
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. Tuff and Weitnauer also serve on 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 F29 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 the Company's pattern of growth,
profitability, financial condition and other factors which the Board of
Directors may deem appropriate.
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ITEM 6. SELECTED FINANCIAL DATA
See the information with respect to selected financial data on
page F29 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 F2
through F8 of this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the information with respect to Quantitative And Qualitative
Disclosures About Market Risk on page F5 under the caption of Market
Risk 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 F10 through F29 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 Meeting of Shareholders' dated March 12, 1999 (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 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 "Stock Ownership of Directors and
Executive Officers and Certain Other Persons" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K
Page in this
Annual Report
on Form 10-K
-------------
(a)1. Financial Statements:
Management's Discussion and Analysis of
Operations and Financial Condition F2
Consolidated Balance Sheets F10
Consolidated Statements of Operations F12
Consolidated Statements of Cash Flows F13
Consolidated Statements of Shareholders' Equity F14
Notes to Consolidated Financial Statements F15
Quarterly Financial Information (unaudited) F29
Independent Auditors' Report F27
Management Responsibility for Financial Statements F28
(a)2. Financial Statement Schedule:
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
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 (the "1993 10-K")).
3.2 Bylaws, as amended through February 1, 1999.
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
Registrant and Citizens and Southern Trust Company (Exhibit 1 to
Registrant's Current Report on Form 8-K dated June 9, 1989).
4.3 * First Amendment dated June 12, 1992 to Rights Agreement
(Exhibit 4.1 to 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
(Exhibit 4.2 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992).
4.5 * Rights Agreement, dated as of December 17, 1998, between
Registrant and First Chicago Trust Company of New York (Exhibit 4.1
to Registrant's Current Report on Form 8-K dated December 17, 1998).
4.6 * Note Agreement dated as of December 1, 1993 relating to
Registrant's 6.60% Series A Senior Notes Due December 30, 2008
(Exhibit 4.5 to the 1995 10-K).
4.7 See Articles IV, V and VII of Registrant's Amended and Restated
Articles of Incorporation, filed as Exhibit 3.1, and Articles I, V
and VIII of Registrant's Bylaws, filed as Exhibit 3.2.
10.1 * Form of Deferred Compensation Agreement between Registrant
and Robert R. Woodson (Exhibit 10.1 to the 1993 10-K).
10.2 * Form of Monthly Benefit Amendment to Deferred Compensation
Agreement between Registrant and Mr. Woodson (Exhibit 10(H) to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1990).
10.3 * Form of Deferred Compensation Agreement between the
Registrant and Earl W. Rogers Jr. (Exhibit 10.3 to the 1993 10-K).
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10.4 * Form of Amendment to Deferred Compensation Agreement
between Registrant and Messrs. Woodson and Rogers (Exhibit 10.6 to
the 1993 10-K).
10.5 * Form of Noncompete and Termination Agreement between
Registrant and S. David Passman III, Mark C. Perlberg, Mr. Rogers
and John C. Walters (Exhibit 10.6 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995 (the "1995 10-K").
10.6 * Form of Executive Life Insurance Plan between Registrant and
Messrs. Woodson and Rogers (Exhibit 10.8 to the 1993 10-K).
10.7 Noncompete and Termination Agreement, dated as of October 6,
1998, between Registrant and Timothy C. Tuff.
10.8 Restricted Stock Agreement, dated October 6, 1998, between
Registrant and Mr. Tuff.
10.9 Supplemental Retirement Agreement, dated as of January 14,
1999, between Registrant and Mr. Tuff.
10.10 * John H. Harland Company 1981 Incentive Stock Option Plan, as
Extended (Exhibit 10.9 to the 1995 10-K).
10.11 John H. Harland Company 1999 Stock Option Plan.
10.12 * John H. Harland Company Employee Stock Purchase Plan, as
amended (Exhibit 10.10 to the 1995 10-K).
10.13 * John H. Harland Company Deferred Compensation Plan for
Outside Directors (Exhibit 10.10 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996).
21 Subsidiaries of the Registrant.
23 Independent Auditors' Consent.
27 Financial Data Schedule for the year ending December 31, 1998
10-K.
(b) Reports on Form 8-K
The Registrant filed a Form 8-K dated December 17, 1998 with respect to
the adoption of a Rights Agreement. See Exhibit 4.5.
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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
/s/William M. Dollar 3/30/1999
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William M. Dollar Date
Vice President
Corporate Controller
(Principal Financial and Accounting Officer)
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.
/s/John H. Weitnauer Jr 3/29/1999 /s/Timothy C. Tuff 3/30/1999
- - ---------------------- -------- ---------------------- --------
John H. Weitnauer Jr. Date Timothy C. Tuff Date
Chairman President and
Chief Executive Officer
(Principal Executive Officer)
/s/Juanita P. Baranco 3/26/1999 /s/Edward J. Hawie 3/26/1999
- - ---------------------- -------- ---------------------- --------
Juanita P. Baranco Date Edward J. Hawie Date
Director Director
- - ---------------------- -------- ---------------------- --------
Richard K. Lochridge Date John J. McMahon Jr. Date
Director Director
/s/H.G. Pattillo 3/26/1999
- - ---------------------- -------- ---------------------- --------
G. Harold Northrop Date H.G. Pattillo Date
Director Director
/s/Larry L. Prince 3/25/1999 /s/Robert R. Woodson 3/29/1999
- - ---------------------- -------- ---------------------- --------
Larry L. Prince Date Robert R. Woodson Date
Director Director
/s/Robert A. Yellowlees 3/28/1999
- - ---------------------- --------
Robert A. Yellowlees Date
Director
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JOHN H. HARLAND COMPANY AND SUBSIDIARIES
Index to Information For Inclusion
in the Annual Report on Form 10-K
for the year ended December 31, 1998
Management's Discussion and Analysis of
of Operations and Financial Condition F2
Consolidated Financial Statements
and Notes to Consolidated Financial Statements F10
Independent Auditors' Report F27
Management Responsibility For Financial Statements F28
Supplemental Financial Information F29
Supplemental Financial Statement Schedule S1
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JOHN H. HARLAND COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company operates its business in two segments. The Financial
Services segment ("FS") includes checks and forms, database marketing
software, direct marketing, and loan and deposit 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, survey services and field maintenance services. Scantron
sells these products and services primarily to the commercial and
education markets.
Results Of Operations 1998 Versus 1997
Consolidated net sales for the year ended December 31, 1998 were
$566.7 million compared to $562.7 million for the year ended December 31,
1997. FS sales were flat in 1998 in relation to 1997 totaling $478.3
million versus the previous year total of $477.5 million. Traditional
check volumes increased 7.4% due to the implementation of large contracts
during 1998, but the impact was offset by a decrease in average check
unit pricing of 10.5%. The decline in pricing reflects a continued trend
in discounting in traditional check markets, along with the impact of
higher volume, lower priced national accounts. Revenue from marketing
services, including database marketing software, direct marketing, and
loan and deposit origination software was $61.6 million in 1998, an
increase of $3.0 million over 1997. The increase resulted from growth in
direct marketing, which was offset partially by a decline in installation
of database marketing software. The decline in database marketing
software revenue was due to a delay in introduction of new products (see
Note 2 to Financial Statements). Scantron's sales increased $3.2 million
or 3.8% over 1997, due to expansion of field maintenance operations.
Consolidated gross profit increased from 42.3% of sales in 1997 to
44.3% in 1998. FS gross profit increased to 43.9% in 1998 from 40.9% in
1997. This increase resulted from lower costs for printed products in
1998 due to improvements in operations from plant consolidations and
process improvements. Scantron's gross profit as a percentage of sales
increased to 50.7% in 1998 from 50.1% in 1997, due primarily to an
improvement in core product margins.
Consolidated selling, general and administrative expenses ("SG&A")
increased $3.4 million in 1998 in comparison to the previous year with
the largest increases related to upgrading technology and management
bonuses. Selling expenses were lower in 1998 as a result of headcount
reductions made early in 1998. SG&A expenses increased as a percentage of
sales from 32.3% in 1997 to 32.7% in 1998.
In 1998, the Company expensed $12.8 million of costs primarily
associated with the development of the Harland Relationship Manager
software system. Development costs for this product had been previously
capitalized. In December 1998, the Company decided to discontinue
development of this product. In 1997, the Company expensed $4.5 million
for research and development related to equipment development.
During 1998, the Company recognized restructuring charges totaling
$51.1 million. Of this total, $4.9 million was incurred during the first
nine months of 1998 and was primarily for severance-related expenses
applicable to the plant network restructuring announced in 1996 and
certain other organizational changes. The Company recognized $46.2
million in the quarter ended December 31, 1998. These costs were related
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primarily to organizational changes announced in December and impairment
of assets due to the decision to discontinue development of Harland
Relationship Manager.
Amortization of intangibles decreased by $3.1 million from 1997
compared to 1998 due to certain intangible assets becoming fully
amortized in 1997.
Other income (expense) was a net expense of $5.2 million in 1997
versus a net expense of $3.1 million in 1998. This decrease of $2.1
million in net expense was due primarily to gains from the sale of
production facilities and the Company aircraft as well as lower interest
expense from short-term debt.
The Company had a net tax expense of $9.7 million on a pre-tax loss
of $11.0 million in 1998. The Company incurred tax expense due to the
effects of permanent tax differences associated with certain intangible
assets which made up a large portion of the restructuring charges
incurred in 1998. The consolidated effective income tax rate for 1997 was
41.5%.
The Company's net loss for 1998 was $20.6 million compared to net
income of $17.3 million for 1997. Basic and diluted earnings (loss) per
share for 1998 were ($0.66) in 1998 compared to $0.56 in 1997. Included
in the calculation of earnings per share for 1998 were costs related to
the development of software and restructuring charges, which reduced
earnings per share by approximately $0.23 and $1.41 per share,
respectively, offset partially by a gain on the sale of assets, which
increased earnings per share by approximately $0.07. Net income in 1997
included restructuring charges and other development costs, which reduced
earnings per share by approximately $0.07 and $0.08 per share,
respectively, offset by a gain on the sale of buildings, which increased
earnings per share by approximately $0.05.
Results of Operations 1997 versus 1996
Consolidated net sales for the year ended December 31, 1997 were
$562.7 million compared to $609.4 million for the year ended December 31,
1996. FS sales totaled $477.5 million and $527.2 million for 1997 and
1996, respectively. Traditional check volumes, decreased 3.7% from 1996,
and the average check unit price decreased by 10.0%. The volume decrease
is attributable to the loss of accounts through merger of certain
customers into non-customer banks, partially offset by the addition of a
large direct mail check supplier. The price and product mix decrease is
attributable primarily to lower prices experienced as a result of the
level of discounting occurring in traditional check markets and lower
prices associated with checks sold to a direct mail supplier. Revenue
from marketing services, including database marketing software, direct
marketing and loan and deposit compliance services, was $58.6 million in
1997, an increase of $4.6 million over 1996. Scantron's sales increased
$3.0 million or 3.7% over 1996, due to increases in its core optical mark
reading equipment and forms and expansion of field maintenance
operations.
Consolidated gross profit decreased by 15.7% and gross margin
decreased from 46.3% in 1996 to 42.3% in 1997. The consolidated gross
margin decrease resulted from a decrease in FS gross margin, offset
partially by an increase in Scantron's gross margin. FS gross margin
decreased from 46.5% in 1996 to 40.9% in 1997 due to the decline in check
pricing resulting from discounting and to transition costs related to
plant consolidations and customer service centralization. Scantron's
gross margin increased from 45.3% in 1996 to 50.1% in 1997 principally
due to changes in product mix.
Consolidated SG&A expenses increased by $9.8 million due primarily
to increased costs related to restructuring the sales organization and to
costs of upgrading technology. These increases were offset by a $9.4
million reduction in marketing expense related to the winding down of the
- F3 -<PAGE>
<PAGE>
Company's direct check operations. SG&A expenses increased as a
percentage of sales from 28.2% in 1996 to 32.3% in 1997.
In 1997, the Company expensed $4.5 million for research and
development related to equipment development.
Amortization of intangibles decreased by $3.1 million from 1996
compared to 1997 as certain intangible assets were fully amortized, and
certain balances were written down in connection with the Company's
restructuring recorded in 1996.
Other income (expense) decreased from $7.4 million in 1996 to $5.2
million in 1997 due primarily to the reduction in interest expense
associated with the repayment of short-term borrowings during 1997 and
gains on sales of closed imprint facilities.
The Company's consolidated effective income tax rate for 1997 was
41.5% compared to 10.5% for 1996. The effective income tax rate of 10.5%
in 1996 and the associated benefit was lower because of the effects of
permanent tax differences in 1996 related to the restructuring charge,
non-deductible acquired in-process research and development charge and
non-deductible amortization of intangibles.
The Company's net income for 1997 was $17.3 million compared to a
net loss of $13.9 million for 1996. Basic and diluted earnings per share
were $.56 in 1997 compared to a loss per share of $.45 in 1996. Included
in the calculation of earnings per share of $.56 were research and
development and restructuring charges, which reduced earnings per share
by approximately $.08 and $.07 per share, respectively, offset by a gain
on the disposal of assets, which increased earnings per share by
approximately $.05. The net loss in 1996 included restructuring charges
for plant consolidations and other strategic decisions related to product
development and a charge for acquired in-process research and development
costs. The total pre-tax impact of these charges in 1996 was $102.1
million or a reduction in earnings per share of $2.09.
Financial Condition, Capital Resources and Liquidity
Cash flows provided by operations in 1998 were $81.4 million
compared to $66.4 million for 1997. The primary uses of funds in 1998
were for capital expenditures, software development cost, dividends paid
and customer incentive payments.
Purchases of property, plant and equipment totaled $33.5 million in
1998, compared to $45.4 million in 1997. Proceeds from the sale of
property, plant and equipment totaled $10.6 million in 1998 compared to
$27.5 million in 1997.
In April 1997, the Company's board of directors authorized the
repurchase of up to 1.5 million shares of the Company's outstanding
common stock. In May 1997, the Company paid $2.0 million to repurchase
100,000 shares. In August 1998, the Company paid $2.9 million to
repurchase 200,000 shares. The Company also had other transactions
related to treasury stock for its employee stock plans.
The Company has unsecured lines of credit which provide for
borrowings up to $61.0 million. As of December 31, 1998, the Company had
no outstanding balances under these lines of credit.
On December 31, 1998, the Company had $42.5 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 for the 1999
- F4 -<PAGE>
<PAGE>
operating period. 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's operating results have been positively impacted by a
number of factors, including continued cost reductions in labor,
materials and overhead in the Company's check printing operations. SG&A
costs were reduced in the latter portion of 1998 due primarily to the
Company's efforts to reduce SG&A, both as a percentage of sales and in
aggregate dollars.
To improve service and quality, further reduce costs and increase
the profitability of its check printing operations, the Company will
continue to consolidate printing facilities, install new equipment and
develop systems and processes for its production facilities.
Six printing facilities remain to be closed as part of the Company's
plant consolidation program. The final phase of this program began in the
fourth quarter of 1998, and is expected to be completed during 2000. The
Company expects to incur duplicate costs as part of plant consolidation.
The Company anticipates revenue to soften slightly as a result of
overall pricing erosion and a continued shift to a higher percentage of
large national accounts during 1999 as new contracts acquired during 1998
are in effect a full year. In an effort to increase volume and pricing,
the Company is strengthening its marketing efforts with regional and
community accounts.
The Company's decision to discontinue development of Harland
Relationship Manager and begin development of a Windows version of its
MAX$ELL system will delay the introduction of a new database marketing
software product and will have a negative impact on revenues for this
product for most of 1999.
To support the current business strategies, the Company expects to
incur additional charges, predominantly related to employee severance, of
approximately $1.0 million in 1999.
Market Risk
<TABLE>
All financial instruments held by the Company are held for
purposes other than trading. The fair value of the Company's long-term
debt is affected by changes in interest rates. The following presents
the sensitivity of the fair value of the Company's long-term debt to a
hypothetical 10% decrease in interest rates as of December 31, 1998 (in
thousands):
<CAPTION>
Carrying Fair Hypothetical
Value Value(a) Fair Value(b)
<S> <C> <C> <C>
Long-term debt, including
current portion $107,071 $109,969 $113,576
======== ======== ========
(a) Based on quoted market prices for these or similar items.
(b) Calculated based on the change in discounted cash flow.
</TABLE>
Year 2000 Compliance
Background
The Year 2000 issue is the result of potential problems with
computer systems or any equipment with computer chips using just two
- F5 -<PAGE>
<PAGE>
digits rather than four to identify years (e.g., 98 for 1998). On January
1, 2000, any clock or date-recording mechanism, including date-sensitive
software using 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.
Therefore, a program was instituted by the Company to assess and fix all
potentially significant Year 2000 problems.
The program consists of three phases: (1) identification and
assessment (including prioritization) in relation to the Company's
business processes of all information technology ("IT") systems and non-
information technology systems, including buildings, plant equipment,
telephone systems, and other infrastructure systems which contain
microcontroller technology (non-IT systems) that may be sensitive to the
Year 2000 issue; (2) remediation (including modification, upgrade and
replacement) of systems that have a Year 2000 problem; and (3) testing
the systems for compliance.
The Company is also reviewing the Year 2000 readiness of third
parties which provide goods or services that are mission critical to the
Company's operations, as well as its relationship with other key
strategic partners (including large customers). The Company's senior
management and Board of Directors receive regular updates on the status
of the Year 2000 program.
State of Readiness
The Company has completed the Phase 1 identification and readiness
assessment of all IT and non-IT systems. A risk assessment was utilized
to assign priorities to all IT components. Phase 3 compliance testing
began in August 1998. All mission-critical applications are in Phase 3
compliance testing and have been 100% remediated. The majority (96%) of
these applications are scheduled to be fully tested during the first
quarter of 1999 with the few exceptions (4%) being scheduled for
completion no later than June 30, 1999. A risk assessment is also
underway for all non-IT systems to include manufacturing and facility
components. Plans to upgrade or replace non-compliant components are
expected to be in place by March 31, 1999. The Company believes that all
significant Year 2000 problems related to IT and non-IT systems will be
resolved with the completion of Phase 3 compliance testing.
The Company estimates that the cost of repairing and testing IT and
non-IT systems will approximate $5.0 to $7.0 million which will be funded
through operating cash flows. Of such costs, approximately $3.0 million
was incurred through December 31, 1998. Costs associated with correcting
and testing existing systems are expensed as incurred. The Company
believes that such costs will not have a material effect on its
liquidity, financial condition or results of operations. The Company is
replacing certain systems in the normal course of business with new
systems, which are expected to improve functionality, usefulness and
efficiency. Approximately $7.0 million will be spent on these activities
in 1999, most of which will be capitalized. The timing of the replacement
of systems was not accelerated as a result of Year 2000 issues.
Third Party Suppliers
The Company has initiated and is reviewing formal communications
with mission-critical third parties which provide goods or services
essential to the Company's operations. These communications are to
determine the extent to which the Company is vulnerable to any failure by
such third parties to remediate their respective Year 2000 problems and
to resolve such problems to the extent practicable.
In July 1998 the Company surveyed key suppliers and utilities
initially identified as potentially mission critical to the Company.
- F6 -<PAGE>
<PAGE>
Follow-up communication was sent to vendors and service providers that
did not initially respond or whose initial responses were deemed
unsatisfactory in some respect by the Company. As of December 31, 1998,
the Company had received survey responses from 83% of such third parties,
each of which has provided written assurances that it expects to address
all significant Year 2000 issues on a timely basis. The Company plans to
continue to follow up by telephone with third parties from whom it has
not yet received responses and will update its risk assessment quarterly.
The Company will then develop contingency plans, including a selection of
alternate providers, as and if necessary.
The Company has initiated formal communications with key large
customers to determine the extent to which electronic interfaces with
such entities are vulnerable to the Year 2000 issue and the steps needed
to be Year 2000 compliant.
Risks and Contingency Planning
To the extent practicable, the Company is revising its existing
business interruption contingency plans to address internal and external
issues specific to the Year 2000 problem. These plans, which are intended
to enable the Company to continue to operate effectively, include
performing certain processes manually, repairing or obtaining replacement
systems, changing suppliers, and reducing or suspending operations. The
Company expects to finalize its contingency planning by September 30,
1999.
The Company is conducting a comprehensive analysis and risk
assessment of the operational problems, customer disruption and costs
(including loss of revenues) that would be most likely to result from the
failure by the Company or certain third parties to complete efforts
necessary to achieve Year 2000 compliance on a timely basis. Contingency
plans are being developed for dealing with the most reasonably likely
worst case scenarios for IT systems, non-IT systems, including
manufacturing systems, facilities, vendors and customers. In regard to
the IT systems risk assessment, the most reasonably likely worst case
scenario is that the Company's billing system will fail to function
properly. Should the billing system fail completely, the Company would be
unable to submit invoices to the customers for a period of time. In this
situation the Company would expect to recover all or most of the unbilled
revenue upon resolving the causes of the system failure. The most
reasonably likely worst case scenarios for non-IT systems, vendors and
suppliers will be developed upon completion of the risk assessments.
In April 1998, the Company organized a Program Management Office
("PMO") focusing on developing and implementing a best practice Year 2000
remediation and testing methodology, and retained a third party
consulting group to manage the Year 2000 PMO. In addition, the Company
has engaged another independent party to provide feedback on its approach
and planning activities.
Possible Consequences of Year 2000 Problems
To date, the Company has not identified any IT or non-IT system that
presents a material risk of not being Year 2000 compliant or for which a
suitable alternative cannot be implemented. However, as the initiative
moves through the testing phase, it is possible that the Company may
identify potential risks of Year 2000 disruption. It is also possible
that such a disruption could have a material effect on its financial
condition and results of operations. In addition, if any key third
parties who provide goods or services that are mission critical to the
Company's business activities fail to appropriately address their Year
2000 issues, there could be a material adverse effect on the Company's
financial condition and results of operations.
Risk Factors and Cautionary Statements
- F7 -<PAGE>
<PAGE>
When used in this report 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",
"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 a 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
development of database marketing software, including the timing and
costs of the development effort, product performance, functionality,
product acceptance and competition. In 1998, the Company expensed $12.8
- F8 -<PAGE>
<PAGE>
million of costs primarily associated with the development of the Harland
Relationship Manager system. 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
customers in the form of discounted prices. As a result, the full impact
of the cost savings may not be reflected in operating income.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments and for
hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position
and measure those instruments at fair value. The Company plans to adopt
SFAS 133 in 2000. The Company has not determined what effect, if any,
adoption of SFAS 133 will have on the Company's financial statements.
- F9 -<PAGE>
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<CAPTION>
December 31
1998 1997
-----------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 42,541 $ 13,004
Accounts receivable from customers, less
allowance for doubtful accounts of $6,806
and $3,341 68,925 73,130
Inventories:
Raw materials and semi-finished goods 22,865 21,606
Hardware component parts 422 2,720
Finished goods 1,605 2,116
Deferred income taxes 14,396 10,763
Prepaid Income Taxes 1,892 13,907
Other 6,709 11,140
-----------------------------------------------------------------------
Total current assets 159,355 148,386
-----------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS:
Investments 4,276 5,185
Goodwill and other intangibles - net 68,172 115,538
Deferred income taxes 14,600 9,494
Other 24,472 29,640
-----------------------------------------------------------------------
Total investments and other assets 111,520 159,857
-----------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 3,271 3,271
Buildings and improvements 41,569 38,006
Machinery and equipment 171,736 169,287
Furniture and fixtures 15,716 14,984
Leasehold improvements and other 15,665 16,521
Additions in progress 11,265 7,281
-----------------------------------------------------------------------
Total 259,222 249,350
Less accumulated depreciation and amortization 138,327 131,407
-----------------------------------------------------------------------
Property, plant and equipment - net 120,895 117,943
-----------------------------------------------------------------------
Total $ 391,770 $ 426,186
=======================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
- F10 -<PAGE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS (continued)
<CAPTION>
December 31
1998 1997
-----------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 29,441 $ 33,816
Deferred revenues 23,821 25,799
Accrued liabilities:
Salaries, wages and employee benefits 26,495 21,829
Restructuring costs 9,059 6,634
Taxes 5,353 10,986
Other 12,213 10,703
-----------------------------------------------------------------------
Total current liabilities 106,382 109,767
-----------------------------------------------------------------------
LONG-TERM LIABILITIES:
Long-term debt 107,071 109,358
Other 16,003 14,235
-----------------------------------------------------------------------
Total long-term liabilities 123,074 123,593
-----------------------------------------------------------------------
Total liabilities 229,456 233,360
-----------------------------------------------------------------------
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 1,458
Retained earnings 293,425 324,324
Accumulated other comprehensive loss (400) (186)
Unamortized restricted stock award (470)
-----------------------------------------------------------------------
Total shareholders' equity 330,462 363,503
Less 6,814,638 and 6,849,524 shares in
treasury, at cost 168,148 170,677
-----------------------------------------------------------------------
Shareholders' equity - net 162,314 192,826
-----------------------------------------------------------------------
TOTAL $ 391,770 $ 426,186
=======================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
- F11 -<PAGE>
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<CAPTION>
Year ended December 31
1998 1997 1996
-------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 566,722 $ 562,709 $ 609,384
-------------------------------------------------------------------------
COST AND EXPENSES:
Cost of sales 315,462 324,775 327,162
Selling, general and administrative
expenses 185,081 181,660 171,839
Software and other development charges 12,771 4,477
Amortization of intangibles 10,213 13,348 16,432
Restructuring charge 51,087 3,644 94,054
Acquired in-process research and
development costs 7,973
-------------------------------------------------------------------------
Total 574,614 527,904 617,460
-------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (7,892) 34,805 (8,076)
-------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (7,457) (8,421) (10,330)
Other - net 4,388 3,182 2,929
-------------------------------------------------------------------------
Total (3,069) (5,239) (7,401)
-------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (10,961) 29,566 (15,477)
INCOME TAXES 9,686 12,270 (1,623)
-------------------------------------------------------------------------
NET INCOME (LOSS) $ (20,647) $ 17,296 $(13,854)
=========================================================================
EARNINGS (LOSS) PER COMMON SHARE
BASIC $ (.66) $ .56 $ (.45)
DILUTED $ (.66) $ .56 $ (.45)
=========================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
- F12 -<PAGE>
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Year ended December 31
1998 1997 1996
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(20,647) $ 17,296 $(13,854)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 27,463 25,266 24,494
Amortization 14,952 14,008 18,220
Provision for restructuring charge 46,857 (2,341) 87,631
Software development charge 10,927
Acquired in-process research and development costs 7,973
Gain on sale of assets (2,991) (2,746) (214)
Other - net 5,184 3,859 1,041
Change in assets and liabilities net of
effects of businesses acquired:
Deferred income taxes (8,738) 8,102 (34,205)
Accounts receivable (680) (3,534) (848)
Inventories and other current assets 18,495 (2,588) 11,131
Accounts payable and accrued expenses (9,449) 9,032 (3,105)
-----------------------------------------------------------------------------------
Net cash provided by operating activities 81,373 66,354 98,264
-----------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (33,486) (45,394) (28,920)
Proceeds from sale of property, plant and equipment 10,627 27,486 5,699
Payment for acquisition of businesses -
net of cash acquired (2,252) (35,023)
Change in short-term investments - net 139 248
Other - net (15,525) (3,583) (11,397)
-----------------------------------------------------------------------------------
Net cash used in investing activities (40,636) (21,352) (69,393)
-----------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Short-term borrowings - net (43,089) 8,000
Repayment of long-term debt (2,287) (4,717)
Purchases of treasury stock (2,999) (2,221) (739)
Issuance of treasury stock 2,507 4,771 6,234
Dividends paid (9,328) (9,287) (31,385)
Other - net 907 (122) (1,176)
-----------------------------------------------------------------------------------
Net cash used in financing activities (11,200) (54,665) (19,066)
-----------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 29,537 (9,663) 9,805
Cash and cash equivalents at beginning of year 13,004 22,667 12,862
-----------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 42,541 $ 13,004 $ 22,667
===================================================================================
Cash paid during the year for:
Interest $ 7,085 $ 8,270 $ 10,425
===================================================================================
Income taxes $ 13,546 $ 5,529 $ 32,205
===================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
- F13 -<PAGE>
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share and per share amounts)
--- Years Ended December 31, 1998, 1997 and 1996 ---
<CAPTION>
Accumulated Unamortized
Additional Other Restricted Total
Common Paid-In Retained Comprehensive Treasury Stock Shareholders'
Stock Capital Earnings Income (Loss) Stock Award Equity
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $ 37,907 $ 2,375 $ 361,554 $ 54 $(179,743) $ -- $ 222,147
Net loss and comprehensive loss (13,854) (13,854)
Cash dividends, $1.02 per share (31,385) (31,385)
Purchase of 28,916 shares of treasury
stock (739) (739)
Issuance of 298,136 shares of treasury
stock under employee stock plans and
conversion of debentures (343) 6,577 6,234
- - ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 37,907 2,032 316,315 54 (173,905) -- 182,403
Net income 17,296 17,296
Other comprehensive loss:
Foreign currency
translation adjustments (240) (240)
Comprehensive income 17,056
--------
Cash dividends, $.30 per share (9,287) (9,287)
Purchase of 107,558 shares of treasury
stock (2,221) (2,221)
Issuance of 241,554 shares of treasury
stock under employee stock plans and
conversion of debentures (678) 5,449 4,771
Other 104 104
- - ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 37,907 1,458 324,324 (186) (170,677) -- 192,826
Net income (20,647) (20,647)
Other comprehensive loss:
Foreign currency
translation adjustments (214) (214)
Comprehensive loss (20,861)
--------
Cash dividends, $.30 per share (9,328) (9,328)
Purchase of 205,543 shares of treasury
stock (2,999) (2,999)
Issuance of 240,429 shares of treasury
stock under employee stock plans and
restricted stock award (1,458) (1,046) 5,528 (505) 2,519
Other 122 35 157
- - ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $ 37,907 $ -- $ 293,425 $(400) $(168,148) $ (470) $ 162,314
========================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-F14-<PAGE>
<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 majority-owned subsidiaries
(the "Company"). Intercompany balances and transactions have been
eliminated.
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 with a
maturity, when purchased, 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.
Impairment of Long-Lived Assets
Assets held for disposal are carried at the lower of carrying amount
or fair value, less estimated cost to sell such assets in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". The Company reviews long-lived assets and certain intangibles for
impairment when events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable, and any impairment
losses are reported in the period in which the recognition criteria are
first applied based on the fair value of the asset. See Note 2.
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 and other long-term investments are
carried at cost, which approximates market. The Company classifies its
investments as available-for-sale securities.
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 12 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 two to eight 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 are recognized in operating results if
a permanent diminution in value is indicated. See Note 2. Amortization
periods of intangible assets are also reviewed to determine whether
events or circumstances warrant revision to estimated useful lives.
Other Assets
-F15-<PAGE>
<PAGE>
Other assets consist primarily of prepaid customer incentive
payments, which are amortized as a reduction of sales over the life of
the related contract.
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 allowed. The Company
capitalizes the qualifying costs of software developed or obtained for
internal use. Depreciation is computed for internal use software by using
the straight-line method over three to five years.
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.
Earnings Per Common Share
Earnings per common share for all periods have been computed under
the provisions of Statement of Financial Accounting Standards No. 128
"Earnings Per Share". The net income (loss) used in the calculation of
diluted earnings per common share is adjusted for the effect of the
interest on the conversion of the subordinated debt. The net income
(loss) used for the calculation of diluted earnings (loss) per common
share for 1998, 1997 and 1996 was $(20,647,000), $17,702,000 and
$(13,854,000), respectively. The average number of common shares used in
the calculation of basic earnings per common share for 1998, 1997 and
1996 was 31,087,214, 30,970,900 and 31,056,200, respectively. The average
number of common share equivalents used in the calculation of diluted
earnings per common share for 1998, 1997 and 1996 was 31,087,214,
31,445,500 and 31,056,200, respectively. The common share equivalents
relate to options under stock compensation plans and the effect of the
conversion of the subordinated debt.
Software and Other Development
The Company expenses research and development costs, including
expenditures related to development of software that do not qualify for
capitalization.
Income Taxes
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
differences are expected to reverse.
Reclassifications
Certain reclassifications have been made in the 1996 and 1997
financial statements and notes to financial statements to conform to the
1998 classifications.
New Accounting Standards
Effective January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"), which establishes new rules for the reporting and display
of comprehensive income and its components. SFAS 130 requires currency
translation adjustments and certain other items, which prior to adoption
were reported separately in shareholders' equity, to be included in other
comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of SFAS 130. The only
component of accumulated other comprehensive income is foreign currency
translation adjustments at December 31, 1998 and 1997.
-F16-<PAGE>
<PAGE>
Effective January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), which changes the
method used by the Company to report information about its operating
segments. SFAS 131 establishes standards to be used by enterprises to
identify and report information about operating segments and for related
disclosures about products and services, geographic areas and major
customers. The adoption of SFAS 131 did not affect results of operations
or financial position, but did affect the disclosure of segment
information contained in Note 13.
Effective January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits-an amendment of FASB
Statements No. 87, 88, and 106" ("SFAS 132"). SFAS 132 revised employers'
disclosures about pension and other postretirement benefit plans.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
establishes accounting and reporting standards for derivative instruments
and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company plans
to adopt SFAS 133 in 2000. The Company has not determined the effect, if
any, of adoption of SFAS 133 will have on the Company's financial
statements.
2. RESTRUCTURING CHARGE
In 1998, the Company recorded a pre-tax restructuring charge of
$51.1 million, a result of certain actions taken by the Company in 1998
(the "1998 Restructuring"), and including certain costs related to
actions initiated by the Company in 1996 (the "1996 Restructuring").
The most significant portion of the 1998 Restructuring was the
decision to discontinue development of the Harland Relationship Manager
("HRM") system. The discontinuance of the development of the HRM system
prompted a revision of projected operations for this business and an
assessment of the recoverability of certain long-term assets, including
acquisition-related intangibles. The Company adjusted the carrying value
of assets to the calculated value based on discounted projected cash
flows. The 1998 Restructuring also includes a reorganization which
eliminated approximately 100 positions, consolidation of its database
marketing operations, recognition of the impairment of certain assets and
reductions in selling and marketing personnel. In 1998 and 1997, the
Company also incurred $2.9 million and $3.2 million, respectively, in
severance-related expenses related to the 1996 Restructuring. All of the
1998 and 1997 charges were incurred in the Financial Services segment
with the exception of a write-down of $1.9 million in 1998 of intangible
assets in the Scantron segment (see Note 13).
The 1996 Restructuring related to consolidation of manufacturing
operations, including severance and associated revaluation of assets, and
valuation adjustments related to discontinuing certain subsidiary product
lines. Of the total 1996 charge, $84.7 million was incurred in the
Financial Services segment and $9.4 million in the Scantron segment.
The cash and non-cash elements of the restructuring charge for each
of the years ended December 31, 1998, 1997 and 1996, as well as the
beginning and ending balances of accrued restructuring costs, consisted
of the following components (in thousands):
-F17-<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Utilized
Beginning Restructuring ------------------------ Ending
Balance Charge Cash Non-Cash Balance
- - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Write down of intangible
and other assets $ 23,198 $(23,198)
Write down of equipment
and facilities 45,132 (45,132)
Employee severance 17,943 $ (5,924) 200 $ 12,21
Other 7,781 (499) (6,601) 68
- - ---------------------------------------------------------------------------------------------
Total -- $ 94,054 (6,423) (74,731) 12,90
=============================================================================================
1997
Employee severance $ 12,219 3,644 (9,566) 6,29
Other 681 (344) 33
- - ---------------------------------------------------------------------------------------------
Total 12,900 3,644 (9,910) -- 6,63
=============================================================================================
1998
Write down of intangible
and other assets -- 38,807 (38,807) -
Write down of equipment
and facilities -- 2,600 (2,600) -
Employee severance 6,297 7,059 (6,687) 6,66
Other 337 2,621 (111) (457) 2,39
- - ---------------------------------------------------------------------------------------------
Total $ 6,634 $ 51,087 $ (6,798) $(41,864) $ 9,05
=============================================================================================
</TABLE>
Accrued restructuring costs are expected to be paid primarily in 1999.
3. ACQUISITIONS
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.
In 1998, the Company's subsidiary, Scantron, acquired the Equitrac
Computer Services ("ECS") division of Equitrac Corporation for cash of
$2.3 million. The purchase price was funded from operating cash flows.
ECS provides computer maintenance and integration services. Of the total
acquisition costs, $1.9 million was allocated to goodwill which is being
amortized on a straight line basis over 15 years.
On May 31, 1996, a subsidiary of the Company acquired the common
stock of Florida-based OKRA Marketing Corporation ("OKRA") for cash. OKRA
designs, develops, markets and supports proprietary application software
products and systems, and provides data processing services utilizing
such products and systems. Cash paid for this acquisition totaled $24.6
million, net of related acquisition costs of $0.4 million and was funded
with proceeds from short-term borrowings. As part of this acquisition,
the Company acquired in-process research and development costs of $8.0
million, which was expensed at acquisition. Of the total acquisition
costs, approximately $19.4 million was allocated to intangible assets, of
which $11.5 million represented goodwill which is being amortized on a
straight-line basis over 15 years.
-F18-<PAGE>
<PAGE>
<TABLE>
Goodwill and other intangible assets acquired in acquisitions
consist of the following as of December 31 (in thousands):
<CAPTION>
1998 1997
- - ---------------------------------------------------------
<S> <C> <C>
Goodwill $ 122,666 $ 120,766
Non-compete covenants 30,350 30,350
Customer lists 22,014 22,014
- - ---------------------------------------------------------
Total 175,030 173,130
Less accumulated amortization 106,858 57,592
- - ---------------------------------------------------------
Total $ 68,172 $ 115,538
=========================================================
</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, reduced interest income and
depreciation expense, offset by in-process research and development costs
expensed in 1996 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
- - ----------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 572,598 $ 568,116 $615,063
Net income (loss) (20,693) 16,824 (7,762)
Earnings (loss) per common share:
Basic (.66) .54 (.25)
Diluted (.66) .54 (.25)
</TABLE>
The unaudited pro forma financial information presented 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 results.
4. SHORT-TERM DEBT
As of December 31, 1998, the Company had available unsecured lines
of credit under which it could borrow up to $61.0 million in the form of
short-term notes, for which no compensating balances or commitment fees
are required. There were no amounts outstanding under these unsecured
lines of credit at December 31, 1998 or December 31, 1997.
5. LONG-TERM DEBT
<TABLE>
Long-term debt consisted of the following as of December 31 (in
thousands):
<CAPTION>
1998 1997
- - ----------------------------------------------------------------------
<S> <C> <C>
Series A Senior Notes $ 85,000 $ 85,000
Term Loan 15,000 15,000
Convertible Subordinated Debentures 6,961 9,288
Other 123 252
- - ----------------------------------------------------------------------
Total 107,084 109,540
Less current portion 13 182
- - ----------------------------------------------------------------------
Long-term debt $ 107,071 $ 109,358
======================================================================
</TABLE>
The Company has outstanding $85 million of Series A Senior Notes
("Senior Notes") and a $15 million Term Loan ("Term Loan"), which 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 in 2003.
The Company's 6.75% Convertible Subordinated Debentures ("the
-F19-<PAGE>
<PAGE>
("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 under certain circumstances. As of December 31, 1998, 282,916
shares of common stock were reserved for conversion of the Debentures.
The Debentures are entitled to an annual mandatory sinking fund, which
commenced June 1, 1996, calculated to retire 75% of the Debentures prior
to maturity in 2011. The Debentures are redeemable, in whole or in part,
at any time at the option of the Company at par plus accrued interest.
The Debentures are subordinated to all senior debt.
The debt agreements relating to the Senior Notes and the Term Loan
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, 1998, management
believes the Company was in compliance with the covenants associated with
these debt instruments. Other long-term debt relates principally to
capitalized lease obligations.
There are no annual maturities of long-term debt and all sinking
fund requirements have been met for the years 1999, 2000 and 2001. Annual
maturities of long-term debt and sinking fund requirements are $.3
million in 2002 and $15.6 million in 2003.
6. INCOME TAXES
<TABLE>
The provisions (benefit) for the years ended December 31, 1998, 1997
and 1996 consisted of the following (in thousands):
<CAPTION>
1998 1997 1996
- - ----------------------------------------------------------------------
<S> <C> <C> <C>
Current: Federal $ 16,610 $ 3,731 $ 22,218
State 1,814 437 4,794
- - ----------------------------------------------------------------------
Total 18,424 4,168 27,012
- - ----------------------------------------------------------------------
Deferred: Federal (7,286) 6,642 (24,107)
State (1,452) 1,460 (4,528)
- - ----------------------------------------------------------------------
Total (8,738) 8,102 (28,635)
- - ----------------------------------------------------------------------
Total $ 9,686 $ 12,270 $ (1,623)
======================================================================
The tax effects of significant items comprising the Company's net
deferred tax assets as of December 31 were as follows (in thousands):
1998 1997
- - ----------------------------------------------------------------------
Current deferred tax asset:
Accrued vacation $ 1,937 $ 1,413
Deferred revenue 676 1,787
Accrued liabilities 4,212 1,844
Other 7,571 5,719
- - ----------------------------------------------------------------------
Total 14,396 10,763
- - ----------------------------------------------------------------------
Non-current deferred tax asset (liability):
Difference between book and tax basis
of property 2,387 (1,468)
Deferred revenue 1,161 2,069
Deferred compensation 1,584 1,643
Postretirement benefit obligation 3,329 3,118
Other 6,139 4,132
- - ----------------------------------------------------------------------
Total 14,600 9,494
Valuation allowance 0 0
- - ----------------------------------------------------------------------
Net deferred tax asset $ 28,996 $ 20,257
======================================================================
</TABLE>
-F20-<PAGE>
<PAGE>
<TABLE>
The following reconciles the income tax provision (benefit) at the
U.S. federal income tax statutory rate to that in the financial
statements (in thousands):
<CAPTION>
1998 1997 1996
- - ----------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate $(3,836) $10,348 $(5,417)
State and local income taxes, net of
Federal income tax benefit 235 1,233 172
Income from Puerto Rico (175) (113) (1,378)
In-process research
and development costs 2,791
Non-deductible goodwill 12,418 1,514 2,269
Other " net 1,044 (712) (60)
- - ----------------------------------------------------------------------
Effective income tax rate $ 9,686 $12,270 $(1,623)
======================================================================
</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 Shareholder Rights Agreement. The
rights expire on July 5, 1999.
In December 1998, the Company announced it had renewed its
Shareholder Rights Agreement to take effect when the existing rights
expire. The renewed plan is substantially similar to the current plan.
Rights will be distributed as a dividend at the rate of one Right for
each share of common stock of the Company held by shareholders of record
at the close of business on July 5, 1999. Each Right will entitle
shareholders to buy, upon occurrence of certain events, one share of
common stock for $90.00 (compared to $80.00 under the current plan). The
Rights generally will be exercisable only if a person or group acquires
beneficial ownership of 15 percent or more of the Company's common stock,
or commences a tender or exchange offer that, upon consummation, would
result in a person or group owning 30 percent or more of the Company's
common stock. Under certain circumstances the new Rights are redeemable
at a price of $.001 per Right and will expire on July 5, 2009.
8. STOCK COMPENSATION PLANS
The Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its stock-based compensation
plans. Effective January 1, 1996, the Company adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). Had compensation
cost for the Company's stock-based compensation plans been determined
based on the fair value at the grant dates consistent with the method of
SFAS 123, the Company's net income (loss) and earnings (loss) per share
would have changed to the pro forma amounts listed below (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1998 1997
- - ------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss):
As reported $(20,647) $ 17,296
Pro forma (22,573) 15,738
Basic and diluted earnings (loss) per common share:
As reported $ (.66) $ .56
Pro forma (.73) .51
</TABLE>
Under the John H. Harland Company Employee Stock Purchase Plan
("ESPP"), the Company is authorized to issue up to 4,350,000 shares of
common stock to its employees, most of whom are eligible to participate.
Under the ESPP, eligible employees may exercise an option to purchase
shares of Company stock with earnings, which have been withheld during
each quarter. The option price is 85% of the lower of the beginning-of-
quarter or end-of-quarter market price. During 1998, 1997 and 1996,
-F21-<PAGE>
<PAGE>
employees exercised options to purchase 200,033 shares, 194,003 shares
and 196,458 shares, respectively. Options granted under the ESPP were at
prices ranging from $11.42 to $13.79 in 1998, $17.64 to $20.77 in 1997,
and $17.80 to $25.87 in 1996. Pro forma compensation cost associated with
options granted under the ESPP is estimated based on the discount from
market value. At December 31, 1998, there were 421,596 shares of common
stock reserved for purchase under the ESPP.
Under the John H. Harland Company 1981 Incentive Stock Option Plan,
As Extended ("ISOP"), the Company may grant stock options to certain key
employees to purchase shares of Company stock at no less than the fair
market value of the stock on the date of the grant. The Company is
authorized to issue up to 2,685,955 shares of common stock under the
ISOP. Options granted under the ISOP through July 1995 became fully
exercisable one year from the date of the grant, with a maximum life of
five years. Options granted under the ISOP after July 1995 vest ratably
over a five-year period beginning on the first anniversary of the date of
the grant, and have a maximum life of 10 years
In December 1998, the board of directors of the Company adopted a
new stock option plan covering the issuance of options to purchase up to
2,000,000 shares of common stock to employees at no less than fair market
value on the date of grant. On December 17, 1998, options covering an
aggregate of 483,340 shares were issued under this plan. Such options are
exercisable ratably over a five year period beginning on the first
anniversary of the date of grant, and have a maximum life of ten years.
The fair value of options granted during 1998 was estimated as
$4.36, using the Black-Scholes option pricing model and the following
weighted average assumptions: dividend yield 2.2%, expected volatility of
26.0%, risk-free interest rate of 5.4%, assumed forfeiture rate of 3.0%
and an expected life of eight years. The fair value of options granted
during 1997 was estimated as $7.47, using the Black-Scholes option
pricing model and the following weighted average assumptions: dividend
yield 2.3%, expected volatility of 24.1%, risk-free interest rate of
6.3%, assumed forfeiture rate of 3.0% and an expected life of eight
years. The fair value of options granted during 1996 was estimated as
$7.40, using the following weighted average assumptions: dividend yield
3.9%, expected volatility of 25.4%, risk-free interest rate of 6.4%,
assumed forfeiture rate of 3.0% and an expected life of eight years.
<TABLE>
A summary of option transactions during the three years ended
December 31, 1998, follows:
<CAPTION>
Weighted Average
Shares Exercise Price
- - -------------------------------------------------------------------------
<S> <C> <C>
Outstanding - December 31, 1995 1,411,008 $ 24.30
Options granted 1,090,000 26.52
Options exercised (85,579) 21.05
Options canceled (60,143) 23.08
- - ------------------------------------------------------------------------
Outstanding - December 31, 1996 2,355,286 $ 25.47
Options granted 105,000 24.27
Options exercised (44,280) 20.84
Options canceled (182,072) 23.83
- - ------------------------------------------------------------------------
Outstanding - December 31, 1997 2,233,934 $ 25.64
Options granted 1,973,250 14.47
Options canceled (927,184) 23.37
- - ------------------------------------------------------------------------
Outstanding - December 31, 1998 3,280,000 $ 19.16
========================================================================
</TABLE>
-F22-<PAGE>
<PAGE>
<TABLE>
As of December 31, 1998, there were 2,576,828 and 2,000,000 shares
of common stock reserved for issuance under the ISOP and the new plan,
respectively. The following tables summarizes information pertaining to
options outstanding and exercisable as of December 31, 1998:
<CAPTION>
- - -----------------------------------------------------------------------------------
Outstanding Exercisable
------------------------------------ --------------------------
Weighted Weighted Weighted
Average Average Average
Range of Contractual Exercise Exercise
Exercise Prices Options Life(Years) Price Options Price
- - -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$12.75 to $14.75 1,708,250 9.83 $ 13.88
$16.13 to $20.00 311,750 7.81 19.07 67,750 $ 19.07
$20.75 to $23.63 613,334 5.85 22.86 379,334 22.86
$25.00 to $30.00 311,666 4.55 27.77 275,666 27.77
$30.50 to $31.88 335,000 7.81 31.36 140,000 31.36
- - -----------------------------------------------------------------------------------
Total 3,280,000 8.19 $ 19.16 862,750 $ 25.51
===================================================================================
</TABLE>
In October 1998, the board of directors granted 50,000 restricted
shares of the Company's common stock to the Company's chief executive
officer. Of this amount, 39,596 shares were immediately issued in the
name of the individual with the remainder being issued in January 1999.
The shares have all the rights of other shares of common stock, subject
to certain restrictions and forfeiture provisions. The restriction
expires as follows: 25,000 shares in October 2001; 12,500 shares in
October 2002; and 12,500 shares in October 2003. Unearned compensation
was recorded at the date of the award based on the market value of shares
issued and is being amortized over the periods of restriction.
9. EMPLOYEE RETIREMENT AND SAVINGS PLANS
Effective April 1, 1996, the Company merged substantially all of the
Company's profit sharing plan assets with the Company's Master 401(k)
Plan and Trust ("401(k) plan"). John H. Harland Company of Puerto Rico
("Harland PR") assumed sponsorship of the profit sharing plan since
remaining assets relate only to Harland PR employees.
Harland PR's profit sharing plan is a non-contributory plan to
provide retirement income for Harland PR employees. In 1996,
contributions to the profit sharing plan were $0.4 million.
The 401(k) plan is a defined contribution 401(k) plan with an
employer match covering any employee of the Company or a participating
affiliate of the Company who is not a non-resident alien. Participants
may contribute on a pre-tax and after-tax basis, subject to maximum IRS
limits and not exceeding 17% of annual compensation. The Company matches
employee contributions $0.50 for every dollar up to a maximum Company-
matching contribution of 3% of qualified annual compensation. Additional
contributions may be made from accumulated or current net profits at the
discretion of the board of directors. Contributions to the 401(k) plan
were $2.9 million in 1998, $3.4 million in 1997 and $3.5 million in 1996.
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 $3.7 million and $3.9 million at December 31, 1998 and 1997,
respectively. The charge to expense for these agreements is not
significant.
10. 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. The life insurance plan is non-
-F23-<PAGE>
<PAGE>
contributory. The Company's intent is that the retiree provide the
majority of the actual cost of providing the medical plan. Neither plan
is funded.
<TABLE>
As of December 31, 1998, the accumulated postretirement benefit
obligation ("APBO") under such plans was $15.6 million. The following
table reconciles the plans' beginning and ending balances of the APBO and
reconciles the plans' status to the accrued postretirement health care
and life insurance liability reflected on the balance sheet as of
December 31 (in thousands):
<CAPTION>
1998 1997
- - -------------------------------------------------------------------
<S> <C> <C>
APBO:
Retirees $ 7,248 $ 3,201
Fully eligible participants 1,720 2,054
Other participants 3,804 4,094
- - -------------------------------------------------------------------
12,772 9,349
Net Change in APBO:
Service Costs 336 322
Interest Costs 910 711
Benefits Paid (707) (431)
Change in Discount Rate 1,569 804
Change in Assumed Claims (2,213) (268)
Demographic Experience 3,490 2,285
Other (558)
- - -------------------------------------------------------------------
Total Net Change in APBO 2,827 3,423
- - -------------------------------------------------------------------
APBO as of December 31:
Retirees 9,591 7,248
Fully eligible participants 1,856 1,720
Other participants 4,152 3,804
- - -------------------------------------------------------------------
15,599 12,772
Unrecognized net loss (5,888) (3,794)
- - -------------------------------------------------------------------
Accrued postretirement cost "
included in Other Liabilities $ 9,711 $ 8,978
===================================================================
</TABLE>
<TABLE>
Net periodic postretirement costs ("NPPC") are summarized as follows
(in thousands):
<CAPTION>
1998 1997 1996
- - -------------------------------------------------------------------
<S> <C> <C> <C>
Service costs $ 336 $ 322 $ 313
Interest on APBO 910 712 661
Net amortization 194 3 1
- - -------------------------------------------------------------------
Total $ 1,440 $1,037 $ 975
===================================================================
</TABLE>
The cost of providing medical benefits was assumed to increase by
7.0% in 1999 with a reduction of 0.5% each year until a 5.5% rate is
reached in 2002. The medical cost trend rate assumption could have a
significant effect on amounts reported. An increase of 1.0% in the
assumed trend rates would have had the effect of increasing the APBO by
$1.7 million and the NPPC by $158,000. A decrease of 1.0% in the assumed
trend rates would have had the effect of decreasing the APBO by $1.7
million and the NPPC by $143,000. The weighted average discount rate used
in determining the APBO was 6.75% in 1998, 7.25% in 1997 and 7.75% in
1996, and employee earnings were estimated to increase 3.5% annually
until age 65.
11. 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:
-F24-<PAGE>
<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. The fair value of the Company's
other investments, which are not actively traded and are immaterial, 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 fair value of other long-term debt is based on
estimated rates currently available to the Company for debt with similar
terms and maturities.
<TABLE>
The carrying values and estimated fair values of the Company's
financial instruments at December 31 are as follows (in thousands):
<CAPTION>
Carrying Value Fair Value
- - ------------------------------------------------------------------
1998 1997 1998 1997
- - ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments:
Long-term $ 4,276 $ 5,185 $ 4,465 $ 5,321
Debt:
Long-term 107,071 109,358 109,969 109,095
</TABLE>
12. 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.
<TABLE>
Total rental expense was $11.7 million in 1998 and $9.4 million in
1997 and 1996. Minimum annual rentals under non-cancelable operating
leases at December 31, 1998 are as follows (in thousands):
<S> <C>
1999 $ 11,364
2000 8,970
2001 6,069
2002 5,721
2003 5,755
Thereafter 29,951
- - ------------------------------------------------
Total $ 67,830
================================================
</TABLE>
The Company has an agreement with a vendor who will perform certain
customer-related functions through 2001. Annual costs under this
relationship are estimated to be $12.0 million per year through 2001.
13. BUSINESS SEGMENTS
The Company operates its business in two segments. The Financial
Services segment ("FS") includes checks and forms, database marketing
software, direct marketing and loan and deposit origination software sold
primarily to financial institutions.
The Scantron segment includes optical mark reading equipment,
scannable forms, survey services and field maintenance services. Scantron
sells these products and services primarily to the commercial and
education markets.
The Company's operations are primarily in the United States and
Puerto Rico. There were no significant inter-segment sales and no
material amounts of the Company's sales are dependent upon a single
-F25-<PAGE>
<PAGE>
customer. Equity investments as well as foreign assets are not
significant to the consolidated results of the Company. The Company's
accounting policies for segments are the same as those described in Note
1. Management evaluates segment performance based on segment income or
loss before income taxes. Segment income or loss includes restructuring
charges, software and other development and acquired in-process research
and development costs written off but excludes interest income, interest
expense and certain other non-operating gains and losses which are
considered corporate items. Corporate assets consist primarily of cash
and cash equivalents, investments and other assets not employed in
production.
<TABLE>
Summarized financial information for 1998, 1997 and 1996 is as follows
(in thousands):
<CAPTION>
Business Segment
------------------------ Consol-
FS Scantron Corporate idated
- - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Net Sales $ 478,282 $ 88,440 $ 566,722
Income (loss) 5,974 13,604 $ (30,539) (10,961)
Identifiable assets 271,408 51,436 68,926 391,770
Depreciation and amortization 36,956 5,459 42,415
Capital expenditures 29,613 3,873 33,486
1997
Net Sales $ 477,480 $ 85,229 $ 562,709
Income (loss) 46,162 13,018 $ (29,614) 29,566
Identifiable assets 330,635 55,107 40,444 426,186
Depreciation and amortization 34,192 5,082 39,274
Capital expenditures 42,589 2,805 45,394
1996
Net Sales $ 527,168 $ 82,216 $ 609,384
Income (loss) 13,888 629 $ (29,994) (15,477)
Identifiable assets 349,105 57,217 48,409 454,731
Depreciation and amortization 36,297 6,417 42,714
Capital expenditures 26,309 2,611 28,920
</TABLE>
-F26-<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
John H. Harland Company:
We have audited the consolidated balance sheets of John H. Harland
Company and its subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, cash flows and
shareholders' equity for each of the three years in the period ended
December 31, 1998. Our audits also included the financial statement
schedule listed in Item 14(a)2. These financial statements and financial
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, 1998 and 1997,
and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, 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.
/s/DELOITTE & TOUCHE LLP
Atlanta, Georgia
January 29, 1999
-F27-<PAGE>
<PAGE>
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, Internal Audit and the
independent auditors to discuss auditing, the Company's control structure
and financial reporting matters. Internal Audit and the independent
auditors have full and free access to the Audit Committee.
/s/William M. Dollar
Corporate Controller
January 29, 1999
-F28-<PAGE>
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
Supplemental Financial Information
(In thousands except per share amounts)
SELECTED QUARTERLY FINANCIAL DATA, DIVIDENDS PAID AND STOCK PRICE RANGE
<CAPTION>
--------- Quarter ended ----------
April 3 July 3 October 2 December 31
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998:
Net sales $ 143,538 $ 135,272 $ 147,364 $ 140,548
Gross profit 62,143 57,373 69,055 62,689
Net income 6,071 4,081 4,008 (34,807)(a)
Per common share:
Basic and diluted
earnings .20 .13 .13 (1.12)
Dividends paid .075 .075 .075 .075
Stock market price:
High 21 7/8 19 3/16 17 7/16 16 7/8
Low 14 1/8 15 9/16 12 1/2 12 1/4
(a) In the fourth quarter of 1998, the Company recorded restructuring
charges of $46.2 million, which had an impact of $1.32 per share for
the period. These charges primarily reflected the impact of the
Company's decision to discontinue development of the Harland
Relationship Manager Product. Also included in the charges were
costs associated with organizational changes and impairment of
certain assets.
--------- Quarter ended ----------
March 31 June 30 September 30 December 31
------------------------------------------------------------------------
1997:
Net sales $ 139,266 $ 139,691 $ 142,099 $ 141,653
Gross profit 59,777 57,889 59,521 60,747
Net income 5,023 6,592 4,829 852
Per common share:
Basic and diluted
earnings .16 .21 .16 .03
Dividends paid .075 .075 .075 .075
Stock market price:
High 32 7/8 24 1/2 24 1/4 23 15/16
Low 23 5/8 18 3/8 18 3/8 20 1/4
SELECTED FINANCIAL DATA
--------- Year ended December 31 --------
1998 1997 1996 1995 1994
-----------------------------------------------------------------------------
Net sales $ 566,722 $ 562,709 $ 609,384 $ 561,617 $521,266
Net income (loss) (20,647) 17,296 (13,854) 46,017 51,240
Total assets 391,770 426,186 454,731 474,650 422,283
Long-term debt 107,071 109,358 114,075 114,574 115,226
Per common share:
Basic earnings (loss) (.66) .56 (.45) 1.51 1.68
Diluted earnings (loss) (.66) .56 (.45) 1.50 1.67
Cash dividends .30 .30 1.02 1.02 .98
Average number of
shares outstanding:
Basic 31,087 30,971 31,056 30,558 30,517
Diluted 31,087 31,446 31,056 30,878 30,999
Earnings (loss) per share are calculated based on the weighted average
number of shares outstanding during the quarter
The Company's common stock (symbol:JH) is listed on the New York Stock
Exchange. At December 31, 1998 there were 6,618 shareholders of record.
<FN>
Refer to Note 2 regarding the impact of restructuring charges in 1998,
1997 and 1996.
Refer to Note 3 regarding the impact of acquisitions in 1998 and 1996.
</FN>
</TABLE>
-F29-<PAGE>
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(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, 1998
Allowance for doubtful accounts $ 3,341 $ 5,581 $ 245 $ 2,361 $ 6,806
======= ======== ======= ======= =======
Year Ended December 31, 1997
Allowance for doubtful accounts $ 2,886 $ 1,682 $ 367 $ 1,594 $ 3,341
======= ======== ======= ======= =======
Year Ended December 31, 1996
Allowance for doubtful accounts $ 2,251 $ 737 $ 1,266 $ 1,368 $ 2,886
======= ======== ======= ======= =======
(1) Represents recovery of previously written-off and credit balance accounts receivable.
(2) Represents write-off of uncollectible accounts receivable.
-S1-<PAGE>
<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 through February 1,1999.
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 * Rights Agreement, dated as of December 17, 1998, between
Registrant and First Chicago Trust Company of New York.
4.6 * 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.
4.7 See Articles IV, V and VII 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 Registrant
and Robert R. Woodson.
10.2 * Form of Monthly Benefit Amendment to Deferred Compensation
Agreement between Registrant and Mr. Woodson .
10.3 * Form of Deferred Compensation Agreement between the
Registrant and Earl W. Rogers Jr.
10.4 * Form of Amendment to Deferred Compensation Agreement between
Registrant and Messrs. Woodson and Rogers.
10.5 * Form of Noncompete and Termination Agreement between
Registrant and S. David Passman III, Mark C. Perlberg, Mr. Rogers
and John C. Walters
10.6 * Form of Executive Life Insurance Plan between Registrant and
Messrs. Woodson and Rogers
10.7 Noncompete and Termination Agreement, dated as of October 6,
1998, between Registrant and Timothy C. Tuff.
10.8 Restricted Stock Agreement, dated October 6, 1998, between
Registrant and Mr. Tuff.
10.9 Supplemental Retirement Agreement, dated as of January 14, 1999,
between Registrant and Mr. Tuff.
10.10 * John H. Harland Company 1981 Incentive Stock Option Plan, as
Extended.
10.11 John H. Harland Company 1999 Stock Option Plan.
10.12 * John H. Harland Company Employee Stock Purchase Plan, as
extended
10.13 * John H. Harland Company Deferred Compensation Plan for
Outside Directors.
21 Subsidiaries of the Registrant.
23 Independent Auditors' Consent.
27 Financial Data Schedule for the year ending December 31,1998
-X1-<PAGE>
<PAGE>
</TABLE>
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
JOHN H. HARLAND COMPANY
AS AMENDED THROUGH FEBRUARY 1, 1999
ARTICLE I
SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of
the shareholders for the election of directors and for the
transaction of such other business as may properly come before
the meeting shall be held at such place, either within or without
the State of Georgia, on such date, and at such time, as the
Board of Directors may by resolution provide, or if the Board of
Directors fail to provide, then such meeting shall be held at the
principal office of the Company in Atlanta, Georgia at 10:00
a.m., on the fourth Friday of April of each year, if not a legal
holiday under the laws of the State of Georgia, and if a legal
holiday, on the next succeeding business day.
Section 2. Special Meetings. Special meetings of
the shareholders may be called by the Board of Directors, by the
Chairman of the Board of Directors, by the President, or by the
Company upon the written request (which request shall set forth
the purpose or purposes of the meeting) of the shareholders of
record (see Section 6(b) of Article I of these Bylaws) of
outstanding shares representing more than 50% of all the votes
entitled to be cast on any issue proposed to be considered at the
proposed special meeting. In the event such meeting is called by
the Board of Directors, such meeting may be held at such place,
either within or without the State of Georgia, as is stated in
the call and notice thereof. If such meeting is called at the
request of shareholders as provided in this Section 2, then such
meeting shall be held in Atlanta, Georgia.
Section 3. Notice of Meetings. A written or
printed notice stating the place, day and hour of the meeting,
and in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered or mailed by the
Secretary of the Company to each holder of record of stock of the
Company at the time entitled to vote, at his address as it
appears upon the records of the Company, not less than 10 nor
more than 60 days prior to such meeting. If the Secretary fails
to give such notice within 20 days after the call of a meeting,
the person calling or requesting such meeting, or any person
designated by them, may give such notice within 20 days after the<PAGE>
call of a meeting, the person calling or requesting such meeting,
or any person designated by them, may give such notice. Notice
of such meeting may be waived in writing by any shareholder.
Attendance at any meeting, in person or by proxy, shall
constitute a waiver of notice of such meeting. Notice of any
adjourned meeting of the shareholders shall not be required if
the time and place to which the meeting is adjourned are
announced at the meeting at which the adjournment is taken,
unless the Board of Directors sets a new record date for such
meeting in which case notice shall be given in the manner
provided in this Section 3.
Section 4. Quorum and Shareholder Vote. A quorum
for action on any subject matter at any annual or special meeting
of shareholders shall exist when the holders of shares entitled
to vote a majority of the votes entitled to be cast on such
subject matter are represented in person or by proxy at such
meeting. If a quorum is present, the affirmative vote of such
number of shares as is required by the Georgia Business
Corporation Code (as in effect at the time the vote is taken),
for approval of the subject matter being voted upon, shall be the
act of the shareholders, unless a greater vote is required by the
Articles of Incorporation or these Bylaws. If a quorum is not
present, a meeting of shareholders may be adjourned from time to
time by the vote of shares having a majority of the votes of the
shares represented at such meeting, until a quorum is present.
When a quorum is present at the reconvening of any adjourned
meeting, and if the requirements of Section 3 of this Article I
have been observed, then any business may be transacted at such
reconvened meeting in the same manner and to the same extent as
it might have been transacted at the meeting as originally
noticed.
Section 5. Proxies. A shareholder may vote either
in person or by proxy duly executed in writing by the
shareholder. Unless written notice to the contrary is delivered
to the Company by the shareholder, a proxy for any meeting shall
be valid for any reconvention of any adjourned meeting.
Section 6. Fixing Record Date.
(a)Except provided in paragraph (b) of this Section 6,
for the purpose of determining shareholders entitled to notice of
or to vote at any meeting of shareholders or any adjournment
thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other
proper purpose, the Board of Directors shall have the power to
fix a date, not more than 70 days prior to the date on which the
particular action requiring a determination of shareholders is to
be taken, as the record date for any such determination of
shareholders. A record date for the determination of
shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof shall not be set less
than 10 days prior to such meeting; provided that the record date
2<PAGE>
for the determination of shareholders entitled to notice of or to
vote at any special meeting of shareholders called by the Company
at the request of holders of shares pursuant to Section 2 of
Article I hereof or any adjournment thereof shall be 20 days
after the "Determination Date" (as defined in paragraph (b) of
this Section 6), and provided further that such record date shall
be 70 days prior to such special meeting. In any case where a
record date is set, under any provision of this Section 6, only
shareholders of record on the said date shall be entitled to
participate in the action for which the determination of
shareholders of record is made, whether the action is payment of
a dividend, allotment of any rights or any change or conversion
or exchange of capital stock or other such action, and, if the
record date is set for the determination of shareholders entitled
to notice of or to vote at a meeting of shareholders, only such
shareholders of record shall be entitled to such notice or vote,
notwithstanding any transfer of any shares on the books of the
Company after such record date.
(b) (i) In order that the Company may determine the
shareholders entitled to request a special meeting of the
shareholders or a special meeting in lieu of the annual meeting
of the shareholders pursuant to Section 2 of Article I hereof,
the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which date
shall not be more than 10 days after the date upon which the
resolution fixing the record date is adopted by the Board of
Directors. Any shareholder of record seeking to have the
shareholders request such a special meeting shall, by written
notice to the Secretary, request the Board of Directors to fix a
record date. The Board of Directors shall, within 10 business
days after the date on which such a request is received adopt a
resolution fixing the record date. If no record date has been
fixed by the Board of Directors within 10 business days after the
date on which such a request is received, the record date for
determining shareholders entitled to request such a special
meeting shall be the first day on which a signed written request
setting forth the request to fix a record date is delivered to
the Company by delivery to its principal place of business, or
any officer or agent of the Company having custody of the books
in which proceedings of meetings of shareholders are recorded.
(ii) Every written request for a special meeting shall
bear the date of signature of each shareholder who signs the
request and no such request shall be effective to request such a
meeting unless, within 70 days after the record date established
in accordance with paragraph (b) (i) of this Section, written
requests signed by a sufficient number of record holders as of
such record date to request a special meeting in accordance with
Section 2 of Article I hereof are delivered to the Company in the
manner prescribed in paragraph (b) (i) of this Section.
(iii) In the event of the delivery, in the manner
provided by this Section, to the Company of the requisite written
request or requests for a special meeting and/or any related
revocation or revocations, the Company shall engage nationally
3<PAGE>
recognized independent inspectors of elections for the purpose of
promptly performing a ministerial review of the validity of the
requests and revocations. For the purpose of permitting a prompt
ministerial review by the independent inspectors, no request by
shareholders for a special meeting shall be effective until the
earlier of (i) five business days following delivery to the
Company of requests signed by the holders of record (on the
record date established in paragraph (b) (i) of this Section) of
the requisite minimum number of shares that would be necessary to
request such a meeting under Section 2 of Article I hereof, or
(ii) such date as the independent inspectors certify to the
Company that the requests delivered to the Company in accordance
with this Article represent at least the minimum number of shares
that would be necessary to request such meeting (the earlier of
such dates being herein referred to as the "Determination Date").
Nothing contained in this paragraph shall in any way be construed
to suggest or imply that the Board of Directors or any
shareholder shall not be entitled to contest the validity of any
request or revocation thereof, whether during or after such five
business day period, or to take any other action (including,
without limitation, the commencement, prosecution or defense of
any litigation with respect thereto).
(iv) Unless the independent inspectors shall
deliver, on or before the Determination Date, a certified report
to the Company stating that the valid requests for a special
meeting submitted pursuant to paragraph (iii) above represent
less than the requisite minimum number of shares that would be
necessary to request a special meeting under Section 2 of Article
I hereof, the Board of Directors shall, within five business days
after the Determination Date, adopt a resolution calling a
special meeting of the shareholders and fixing a record date for
such meeting, in accordance with Section 6(a) of Article I of
these Bylaws.
Section 7. Notice of Shareholder Business. At an
annual meeting of the shareholders, only such business shall be
conducted as shall have been brought before the meeting (a) by or
at the direction of the Board of Directors or (b) by any
shareholder of the Company who complies with the notice
procedures set forth in this Section 7 and only to the extent
that such business is appropriate for shareholder action under
the provisions of the Georgia Business Corporation Code. For
business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice
thereof in writing to the Secretary of the Company. To be
timely, a shareholder's notice must be delivered to or mailed and
received at the principal executive offices of the Company, not
less than 60 days prior to the meeting; provided, however, that
in the event that less than 40 days' notice or prior public
disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be
received not later than the close of business on the 10th day
following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made. A
shareholder's notice to the Secretary shall set forth as to each
4<PAGE>
matter the shareholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting
such business at the annual meeting, (b) the name and address, as
they appear on the Company's books, of the shareholder proposing
such business, (c) the class and number of shares of the Company
which are beneficially owned by the shareholder and (d) any
material interest of the shareholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no
business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 7. At
an annual meeting, the Chairman shall, if the facts warrant,
determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the
provisions of this Section 7, and if he should so determine, he
shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
Section 8. Notice of Shareholder Nominees. Except
for Directors who are elected by Directors pursuant to the
provisions of Section 2 of Article II of these Bylaws, only
persons who are nominated in accordance with the procedures set
forth in this Section 8 shall be eligible for election as
Directors. Nominations of persons for election to the Board of
Directors of the Company may be made at a meeting of shareholders
(a) by or at the direction of the Board of Directors or (b) by
any shareholder of the Company entitled to vote for the election
of Directors at the meeting who complies with the notice
procedures set forth in this Section 8. Such nominations, other
than those made by or at the direction of the Board of Directors,
shall be made pursuant to timely notice in writing to the
Secretary of the Company. To be timely, a shareholder's notice
must be delivered to or mailed and received at the principal
executive offices of the Company not less than 60 days prior to
the meeting; provided, however, that in the event that less than
40 days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the
shareholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public
disclosure was made. Such shareholder's notice shall set forth
(a) as to each person whom the shareholder proposes to nominate
for election or reelection as a Director, all information
relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is
otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended; and (b) as to
the shareholder giving the notice (i) the name and address, as
they appear on the Company's books, of such shareholder and (ii)
the class and number of shares of the Company which are
beneficially owned by such shareholder. No person shall be
eligible for election as a Director of the Company unless
nominated in accordance with the procedures set forth in the
Bylaws. The Chairman shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by the Bylaws, and if
5<PAGE>
he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
ARTICLE II
DIRECTORS
Section 1. Powers of Directors. The Board of
Directors shall have the management of the business of the
Company and, subject to any restrictions imposed by law, by the
Articles of Incorporation, or by these bylaws, may exercise all
the powers of the Company.
Section 2. Number and Term of Directors. The number
of Directors that shall constitute the full Board shall be
determined from time to time exclusively by the Board by a vote
of not less than 75% of the Directors then in office. No
decrease in the number of Directors shall shorten the term of an
incumbent Director. Directors shall be elected in the manner and
for the terms set out below:
Directors shall be divided into three classes, to be
known as Class A, Class B, and Class C. Each Class shall,
insofar as possible, be composed of an equal number of Directors.
The shareholders shall first elect Class A Directors to
serve until the first annual meeting of shareholders next
following.
The shareholders shall first elect Class B Directors to
serve until the second annual meeting next following.
The shareholders shall first elect Class C Directors to
serve until the third annual meeting next following.
At each annual meeting after the first election of
classified Directors, the successors of the class of Directors
whose terms shall expire in that year shall be elected to hold
office for the term of three (3) years, so that the term of
office of one class of Directors shall expire in each year.
The shareholders may elect less than the full number of
Directors, and any vacancy occurring in the Board of Directors by
reason of an increase in the number of Directors may be filled by
the Board of Directors, but only for a term of office continuing
until the next election of Directors by the shareholders and
until the election and qualification of the successor. Any
vacancy occurring in the Board of Directors by reason of death,
retirement, resignation or removal may be filled by the Board of
Directors, and the Director elected to fill such vacancy shall be
elected for the unexpired term of his predecessor in office. Any
Director elected by the Board of Directors to fill a vacancy
occurring on the Board shall be elected by the affirmative vote
of a majority of the remaining Directors.
6<PAGE>
Section 3. Meetings of the Directors. The Board of
Directors shall meet each year at such time and place as the
Board may provide, and the Board may by resolution provide for
the time and place of other regular meetings. Special meetings
of the Directors may be called by the Chairman of the Board or by
the President or by any two of the Directors.
Section 4. Notice of Meetings. Notice of each
meeting of the Directors shall be given by the Secretary by mail
or by telephone, facsimile or in person at least two days before
the meeting, to each Director, except that no notice need be
given of regular meetings fixed by the resolution of the Board.
Any Director may waive notice, either before or after the
meeting, and shall be deemed to have waived notice if he or she
is present at the meeting.
Section 5. Action of Directors Without a Meeting.
Any action required by law to be taken at a meeting of, the Board
of Directors, or any action which may be taken at a meeting of
the Board of Directors, or of any committee thereof, may be taken
without a meeting if written consent, setting forth the action so
taken, shall be signed by all the Directors, or all the members
of the committee, as the case may be, and be filed with the
minutes of the proceedings of the Board or the committee. Such
consent shall have the same force and effect as a unanimous vote
of the Board or the committee, as the case may be.
Section 6. Committees. The Board of Directors may,
in its discretion, appoint committees, each consisting of one or
more Directors, which shall have and may exercise such delegated
powers as shall be conferred on or authorized by the resolutions
appointing them, except that no such committee may: (1) approve
or propose to shareholders action that the Georgia Business
Corporation Code requires to be approved by shareholders, (2)
fill vacancies on the Board of Directors or any of its
committees, (3) amend the Articles of Incorporation of the
Corporation pursuant to Section 14-2-1002 of the Georgia Business
Corporation Code, (4) adopt, amend or repeal these Bylaws, (5)
approve a plan of merger not requiring shareholder approval or
(6) appoint another committee of the Board. A majority of any
such committee may determine its action, fix the time and place
of its meetings, and determine its rules of procedure. Each
committee shall keep minutes of its proceedings and actions and
shall report regularly to the Board of Directors. The Board of
Directors shall have power at any time to fill vacancies in,
change the membership of, or discharge any such committee.
Section 7. Compensation. An annual retainer, as
well as a fee and reimbursement for expenses for attendance at
meetings of, or service on, the Board of Directors or any
7<PAGE>
committee thereof, may be fixed by resolution of the Board of
Directors.
Section 8. Removal. Any or all Directors may be
removed from office at any time with or without cause, but only
by the same affirmative shareholder vote required to amend this
Section 8 as provided in Article IX of the Articles of
Incorporation.
Section 9. Telephone Conference Meetings. Members
of the Board of Directors or any committee of the Board may
participate in a meeting of the Board or committee by means of
telephone conference or similar communications equipment by means
of which all persons participating in the meeting can hear each
other, and participation in a meeting pursuant to this Section 9
shall constitute presence in person at such meeting.
ARTICLE III
OFFICERS
Section 1. Officers. The officers of the Company
shall consist of a Chairman of the Board of Directors, a
President, one or more Vice-Presidents, a Secretary and a
Treasurer, and such other officers or assistant officers as may
be elected by the Board of Directors. Any two offices may be
held by the same person. The Board may designate a Vice-
President as an Executive or Senior Vice-President, and may
designate the order in which the other Vice-Presidents may act.
Section 2. Chairman of the Board. The Chairman of
the Board shall be a member of the Board of Directors as well as
serve as chairman of the executive committee. He shall preside
at all meetings of shareholders and directors. In the absence or
disability of the President, the Chairman shall perform the
duties of the President.
Section 3. President. The President shall be the
chief executive officer of the Company, subject to the direction
of the Board of Directors. He shall have such further powers and
duties as from time to time may be conferred on him by the Board
of Directors. In the absence of the Chairman of the Board the
President shall preside at all meetings of the shareholders and
the Board of Directors.
Section 4. Vice-President. The Vice-President
shall act in the case of the absence or disability of the
Chairman of the Board and the President. If there is more than
one Vice-President, such Vice-Presidents shall act in the order
of precedence, as set out by the Board of Directors.
8<PAGE>
Section 5. Treasurer. The Treasurer shall be
responsible for the maintenance of proper financial books and
records of the Company.
Section 6. Secretary. The Secretary shall keep the
minutes of the meetings of the shareholders and the Directors and
shall have custody of and attest the seal of the Company.
Section 7. Other Duties and Authorities. Each
officer, employee and agent shall have such other duties and
authorities as may be conferred on them by the Board of
Directors.
Section 8. Removal. Any officer may be removed at
any time by the Board of Directors. A contract of employment for
a definite term shall not prevent the removal of any officer, but
this provision shall not prevent the making of a contract of
employment with any officer and shall have no effect upon any
cause of action which any officer may have as a result of removal
in breach of a contract of employment.
9<PAGE>
ARTICLE IV
DEPOSITORIES, SIGNATURE AND SEAL
Section 1. Depositories. All funds of the Company
shall be deposited in the name of the Company in such depository
or depositories as the Board may designate and shall be drawn out
on checks, drafts or other orders signed by such officer,
officers, agent or agents as the Board may from time to time
authorize.
Section 2. Contracts. All contracts and other
instruments shall be signed on behalf of the Company by the
President or by such other officer, officers, agent or agents, as
the President from time to time may provide by delegation of
authority.
Section 3. Seal. The corporate seal of the Company
shall read as follows: _John H. Harland Company, Atlanta,
Georgia, Corporate Seal 1923._ The seal may be manually affixed
to any document or may be lithographed or otherwise printed on
any document with the same force and effect as if it had been
affixed manually. The signature of the Secretary or Assistant
Secretary shall attest the seal and may be a facsimile if and to
the extent permitted by law.
ARTICLE V
STOCK TRANSFERS
Section 1. Form and Execution of Certificates. The
certificates of shares of capital stock of the Company shall be
in such form as may be approved by the Board of Directors and
shall be signed by the Chairman of the Board, the President or a
Vice-President and by the Secretary or any Assistant Secretary or
the Treasurer or any Assistant Treasurer, provided that any such
certificate may be signed by the facsimile signature of either or
both of such officers imprinted thereon if the same is
countersigned by a transfer agent of the Company, and provided
further that certificates bearing the facsimile of the signature
of such officers imprinted thereon shall be valid in all respects
as if such person or persons were still in office, even though
such officer or officers shall have died or otherwise ceased to
be officers.
Section 2. Transfers of Shares. Shares of stock in
the Company shall be transferable only on the books of the
Company by proper transfer signed by the holder of record thereof
or by a person duly authorized to sign for such holder of record.
The Company or its transfer agent or agents shall be authorized
to refuse any transfer unless and until it is furnished such
10<PAGE>
evidence as it may reasonably require showing that the requested
transfer is proper.
Section 3. Lost, Destroyed or Stolen Certificates.
Where the holder of record of a share or shares of stock of the
Company claims that the certificate representing said share has
been lost, destroyed or wrongfully taken, the Board shall by
resolution provide for the issuance of a certificate to replace
the original if the holder of record so requests before the
Company has notice that the certificate has been acquired by a
bona fide purchaser, files with the Company a sufficient
indemnity bond, and furnishes evidence of such loss, destruction
or wrongful taking satisfactory to the Company, in the reasonable
exercise of its discretion. The Board may authorize such officer
or agent as it may designate to determine the sufficiency of such
an indemnity bond and to determine reasonably the sufficiency of
the evidence of loss, destruction or wrongful taking.
Section 4. Transfer Agent and Registrar. The Board
may (but shall not be required to) appoint a transfer agent or
agents and a registrar or registrars, and may require that all
stock certificates bear the signature of such transfer agent or
of such transfer agent and registrar.
ARTICLE VI
INDEMNIFICATION
Section 1. Mandatory Indemnification. The Company
shall indemnify to the fullest extent permitted by the Georgia
Business Corporation Code, and to the extent that applicable law
from time to time in effect shall permit indemnification that is
broader than is provided in these Bylaws, then to the maximum
extent authorized by law, any individual made a party to a
proceeding (as defined in the Georgia Business Corporation Code)
because he or she is or was a Director or an executive or
corporate officer, against liability (as defined in the Georgia
Business Corporation Code), incurred in the proceeding, if he or
she conducted himself or herself in good faith and reasonably
believed such conduct was in or not opposed to the best interests
of the Company and, in the case of any criminal proceeding, he or
she had no reasonable cause to believe such conduct was unlawful.
Section 2. Advance for Expenses. The Company shall
pay for or reimburse the reasonable expenses incurred by a
Director or any such officer who is a party to a proceeding in
advance of the final disposition of the proceeding if:
(a) Such person furnishes the Company a written
affirmation of his or her good faith belief that he
11<PAGE>
or she has met the standard of conduct set forth in
Section 1 above; and
(b) Such person furnishes the Company a written
undertaking, executed personally on his or her
behalf to repay any advances if it is ultimately
determined that he or she is not entitled to
indemnification.
The written undertaking required by paragraph (b) above
must be an unlimited general obligation of such person but need
not be secured and may be accepted without reference to financial
ability to make repayment.
Section 3. Indemnification Not Exclusive. The right
to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition
conferred in this Article VI shall not be exclusive of any other
right which any person may have or hereafter acquire under any
statute, provision of the Articles of Incorporation, provision of
these Bylaws, agreement, vote of shareholders or disinterested
Directors or otherwise.
Section 4. Amendment or Repeal. Any repeal or
modification of the foregoing provisions of this Article VI shall
not adversely affect any right or protection hereunder of any
person in respect of any act or omission occurring prior to the
time of such repeal or modification.
ARTICLE VII
AMENDMENT OF BYLAWS
Section 1. Amendment. Except as provided in
Article IX of the Company's Articles of Incorporation, these
Bylaws may be altered, amended, repealed or new Bylaws adopted by
the Board of Directors by the affirmative vote of a majority of
all Directors then holding office, but any Bylaws adopted by the
Board of Directors may be altered, amended, repealed, or any new
Bylaws adopted, by the shareholders by the affirmative vote of a
majority of all shares entitled to vote at any annual meeting or
by like vote at any special meeting when notice of any such
proposed alteration, amendment, repeal or addition shall have
been given in the notice of any such meeting. The shareholders
may prescribe that any Bylaw or Bylaws adopted by them shall not
be altered, amended or repealed by the Board of Directors.
ARTICLE VIII
BUSINESS COMBINATIONS
12<PAGE>
Section 1. Election of Georgia Business Combination
Statute. All requirements of Sections 14-2-1131 through 14-2-
1133 of the Georgia Business Corporation Code, as may be in
effect from time to time, shall apply to all "business
combinations" (as defined in Section 14-2-1131 of the Georgia
Business Corporation Code as in effect from time to time)
involving the Company.
ARTICLE IX
RETIREMENT POLICY
Section 1. Retirement of Directors. No member of
the Board of Directors of the Company (but excluding the Chairman
of the Board) will seek reelection to the Board after the normal
expiration of his or her term in office after reaching the age of
72 years. In addition, the Chief Executive Officer of the
Company will resign as a Director effective with the annual
meeting next following his or her 65th birthday, notwithstanding
the expiration of his or her then current term of office.
Section 2. Retirement of Officers. Those persons
occupying the position of corporate or divisional officers of the
Company, including but not limited to the President, Executive or
Senior Vice President or Vice President (but excluding the
Chairman of the Board), will be expected to retire at the end of
the month following his or her 65th birthday, consistent with
applicable laws.
13<PAGE>
Exhibit 10.7
NONCOMPETE AND TERMINATION AGREEMENT
THIS AGREEMENT (the _Agreement_), dated as of September
_____, 1998, between JOHN H. HARLAND COMPANY (the _Company_)
and Timothy C. Tuff (_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 Acknowledgment of Access to Confidential Matters.
Employee and the Company recognize and acknowledge that as a
result of his employment with the Company:
(a) Employee will 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, quality control practices, decision support,
database marketing and other technology developed by the
Company for its various products and systems.
(b) Employee will 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 and services.
(c) Employee will have specific knowledge
regarding the Company's customers, including their
specific needs and current and anticipated requirements
for the Company's products and services.<PAGE>
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 Sections
1.1 and 1.2 above and except as set forth below, Employee
covenants and agrees that so 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. 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<PAGE>
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 Section 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 below, 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 years after such
termination, disclose any confidential information
belonging to the Company, including, but not limited to,
the confidential information described in Section 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 such employment 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. 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.<PAGE>
Section 3. Effect of Certain Terminations of Employment.
3.1 After Change in Control.
(a) In the event that, at any time after a "Change
in Control_ of the Company (as defined in Section 3.3)
shall have occurred, Employee's employment with the
Company is terminated by the Company or its successor for
any reason other than Good Cause, then the Company or its
successor shall pay to Employee, in a lump sum at the
time of such termination, his "Severance Pay" (as defined
in Section 3.4).
(b) In addition, after a Change in Control of the
Company, if Employee remains with the Company, then any
reduction in Employee's base compensation or an 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 100 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 entitling Employee to Severance Pay 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) For the purposes of this Agreement, Good Cause
shall consist of (i) Employee's embezzlement of funds,
Employee's commission of fraud against the Company, or
Employee's gross negligence or willful misconduct in the
performance of his duties (ii) Employee's failure to
devote substantially all of his full working time to the
fulfillment of his duties with the Company
(iii) Employee's conviction of, guilty plea to, or
confession of a felony or any act of fraud or any other
act of moral turpitude (iv) Employee's engaging in
conduct or activities materially damaging to the
property, business, or reputation of the Company or
(v) Employee's failure or refusal to substantially follow
or comply with the directions of the Board of Directors.
3.2 By the Company. In the event of any involuntary
termination of employment of the Employee by the Company,
other than termination for Good Cause, in the absence of a
Change in Control, including any reduction in compensation or<PAGE>
adverse change of duties or responsibilities as referred to in
Section 3.1 (b), Employee shall be entitled to continue to
receive, as severance pay, his base salary for a period of
twelve months from the date of termination, as if his
employment had continued with the Company.
3.3 Change in Control of the Company. Change of Control
shall be deemed to occur (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, (b) if Beneficial Ownership of 30% or
more of the Common Stock of the Company is held by any person
or entity, or (c) in the event that a "Triggering Event" (as
defined therein) shall have occurred under the Company's Share
Purchase Rights Plan currently in effect or any successor
plan. "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 highest annual
compensation as reported by the Company to the Internal
Revenue Service on its form W-2 (or any successor to such
form) for any calendar year during the term hereof (or
his annualized compensation in the event such calculation
is for a partial year), 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 12-month periods,<PAGE>
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.
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
with respect to the subject matter hereof and is the complete
and exclusive statement thereof notwithstanding any prior
representation or statements to the contrary. 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: <PAGE>
President
Attest:
EMPLOYEE
Timothy C. Tuff
Witness:<PAGE>
Exhibit 10.8
JOHN H. HARLAND COMPANY
RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement evidences the grant by
John H. Harland Company, a Georgia corporation, (the
"Company") of shares of restricted stock to Timothy C. Tuff
("Executive"), subject to all of the specific terms and
conditions set forth in this agreement.
Specific Terms and Conditions
I. S Grant Date. The grant date is October 6, 1998
(the "Grant Date").
I. S Total Number of Shares. The total number of
shares of restricted par value $1.00 Common Stock of John H.
Harland Company (the "restricted stock") subject to the grant
is 39,596 shares.
I. S Dividends and Voting. Executive shall have all
shareholder voting rights and rights to dividends paid in cash
with respect to the shares of stock subject to the grant.
The Company shall retain any dividends paid in stock, subject
to vesting pursuant to this agreement of the corresponding
restricted stock.
I. S Holding and Transfer of Stock Certificate. The
Company shall issue the shares of restricted stock in the name
of Executive; however, the Company shall hold the shares until
Executive vests in the shares or until the shares are
forfeited as described in S 5. If Executive vests in shares
of the restricted stock, the Company shall transfer physical
custody of vested shares to Executive free of any forfeiture
restrictions on such date or on the next business date if the
Executive vests on a date that it not a business date. Any
shares that are forfeited automatically shall revert back to
the Company. Executive shall have no right to transfer or
otherwise alienate or assign his interest in any shares of the
restricted stock, except through the laws of descent and
distribution, before Executive vests in the shares and
physical custody of the shares is transferred to Executive.
I. S Vesting and Forfeiture.<PAGE>
A. General Rule. Executive's right to the
shares of restricted stock shall remain subject to forfeiture
until Executive vests in the shares in accordance with this S
5. Executive shall vest in the shares of restricted stock,
and such shares shall no longer be subject to forfeiture, in
accordance with the following schedule based on his completed,
continuous years of employment with the Company, or, earlier,
in accordance with S 5(b), (c) or (d) below:
Completed Years of Number of
Employment with the Company Shares Vested
3 50%
4 75%
5 100%
A. Termination Without Good Cause. If the
Company terminates Executive without Good Cause (as defined
below) prior to his completion of 5 continuous years of
employment with the Company, Executive will vest in the shares
in accordance with the following schedule:
Completed Years of Number of
Employment with the Company Shares Vested
less than 3 50%
at least 3 but less than 4 75%
at least 4 but less than 5 100%
A. Death or Disability. Executive shall vest
completely in the shares of restricted stock and such shares
shall no longer be subject to forfeiture upon Executive's
death or total disability (as determined by the Company's
Board of Directors (the "Board")) while employed with the
Company.<PAGE>
A. Change in Control. Except as otherwise
provided in this S5(d), in the event of a Change in Control of
the Company (as defined below), Executive shall vest
completely in any shares of restricted stock not previously
vested. Notwithstanding the foregoing, if the Company
determines that, as a result of a Change in Control, any cash
compensation, benefits, acceleration of vesting of stock
options or restricted stock, or other payments in the nature
of compensation (within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended ("Code")) to (or for
the benefit of) Executive provided under the terms of this
Agreement or otherwise (collectively, such cash compensation,
benefits, acceleration and other payments are referred herein
as the "Payments") would constitute parachute payments (within
the meaning of Section 280G of the Code) that would cause
Executive to incur an excise tax under Section 4999 of the
Code or the Company to lose a tax deduction under Section 280G
of the Code for any Payments, such Payments shall be reduced
to the extent the Company deems necessary so that the
Executive is not subject to an excise tax under Section 4999
of the Code and the Company does not lose a tax deduction
under Section 280G of the Code for any Payments. The Company
shall reduce Payments in the following order: (1) by reducing
the number of stock options that become vested upon a Change
in Control (in reverse order of price, with the highest priced
options first becoming unvested), (2) by reducing the number
of shares of restricted stock that become vested upon a Change
in Control, and (3) by reducing cash compensation. In the
event that any shares of restricted stock covered by this
Agreement are not vested by reason of the reduction in
Payments pursuant to this S 5(d), such shares will
nevertheless continue to vest in accordance with the
provisions of S 5(a), (b) and (c) hereof. The Company (at the
Company's expense) shall use a public accounting firm
reasonably acceptable to Executive to make calculations
necessary for determining any such reduction of Payments and
to certify to Executive that the remaining Payments will not
cause Executive to incur an excise tax under Section 4999 of
the Code and to prepare Executive's federal income tax return
for the year of the Change in Control.
A. Voluntary Termination or Termination for
Good Cause. Executive shall completely forfeit his entire
interest in any shares of restricted stock that have not yet
previously vested (and shall receive no consideration from the
Company on account of such forfeiture) if (1) Executive
voluntarily terminates his employment before a vesting event
described in S 5(a), (b), (c) or (d) above, other than as a
result of a material breach by the Company of any written
agreement between Executive and the Company relating to<PAGE>
Executive's employment, including this Agreement, or (2)
Executive is terminated by the Company for Good Cause.
A. Definitions.
1. A "Change of Control" shall be deemed
to occur (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, (B) if Beneficial Ownership
of 30% or more of the Common Stock of the Company is held
by any person or entity, or (C) in the event that a
"Triggering Event" (as defined therein) shall have
occurred under the Company's Share Purchase Rights Plan
currently in effect or any successor plan. "Beneficial
Ownership" shall have the meaning provided in Rule 13d-3
under the Securities Exchange Act of 1934.
1. "Good Cause" shall mean (A) the
Executive's embezzlement of funds, commission of fraud
against the Company, or gross negligence or willful
misconduct in the performance of his duties; (B) the
failure of Executive to devote substantially all of his
full working time to the fulfillment of his duties with
the Company; (C) Executive's conviction of, guilty plea
to, or confession of a felony or any act of fraud or any
other act of moral turpitude; or (D) Executive's engaging
in conduct or activities materially damaging to the
property, business or reputation of the Company;
provided, however, that no conduct, action or decision
made or taken by Executive in good faith consistent with
the business judgment rule shall provide a basis for
termination for Good Cause.
A. Date of Employment. For the purposes of
this Agreement, Executive's employment shall be deemed to
commence on the Grant Date.
I. S Securities Registration. Executive agrees that,
if the shares of restricted stock are not registered under the
Securities Act of 1933 ("1933 Act") or any applicable state
securities law at the time of vesting, Executive will execute
a written representation to the Company, in form and substance
satisfactory to the Company, that such shares are being
acquired only for investment purposes and not with a view to,
or for resale in connection with, the distribution thereof.
In such case the certificate representing such shares may bear
a legend to the effect that there has been no such
registration and that such shares may not be transferred, sold
or offered for resale in the absence of such registration or<PAGE>
delivery to the Company of an opinion of legal counsel that
such registration is not required. In addition, if Executive
is an "affiliate" of the Company at the time of any proposed
sale, Executive shall not sell or otherwise transfer such
shares in the absence of an effective registration statement
under the 1933 Act or such state law or the availability of an
exemption from such registration.
I. S Other Laws. The Company shall have the right
to refuse to issue or transfer any stock pursuant to this
agreement if the Company acting in its absolute discretion
determines that the issuance or transfer of such stock might
violate any applicable law or regulation.
I. S Sale or Merger. Notwithstanding any other
provision of this agreement, 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, share exchange, division or
other corporate transaction in which stock is converted into
another security or into the right to receive securities or
property, the Board may in its sole discretion vest some or
all of the shares of restricted stock not previously vested.
I. S Employment and Termination. Nothing in this
agreement shall give Executive the right to continue in
employment by the Company or adversely affect the right of the
Company to terminate Executive's employment with or without
cause at any time.
I. S Section 83(b) Election. Executive agrees to
make a timely election under Section 83(b) of the Internal
Revenue Code with respect to the restricted stock which will
cause Executive to recognize as compensation income the fair
market value of such shares on the Grant Date. The Company
agrees to pay Executive a bonus on the Grant Date in an amount
sufficient (on a fully grossed-up basis) to offset the tax
expense associated with such election. The Executive shall
execute the form of election contained at Exhibit A, and shall
file the same within 30 days of the Grant Date as provided for
under the Code.
I. S Binding Effect. This agreement shall be
binding upon the Company and Executive and their respective
heirs, executors, administrators and successors.
I. S Interpretation. The Board, or its delegate,
shall have the power to interpret this agreement. The<PAGE>
interpretation of any provision of this agreement by the Board
shall be final and binding on all persons.
I. S Governing Law. This agreement shall be
governed by the laws of the State of Georgia.
I. S Headings. The headings contained in this
agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this agreement.
I. S Sections. All references to sections (S) in
this agreement shall be to sections (S) of this agreement
unless otherwise expressly indicated in this agreement.
I. S Entire Agreement. This agreement is intended
by the parties hereto to be the final expression of their
agreement with respect to the subject matter hereof and is the
complete and exclusive statement thereof notwithstanding any
prior representation or statements to the contrary. This
agreement may be modified only by written instrument signed by
each of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this
Restricted Stock Agreement.
JOHN H. HARLAND COMPANY
___________________________
_________
President
Date: October 6, 1998
___________________________
_________
Timothy C. Tuff
Date: October 6, 1998<PAGE>
Exhibit 10.9
John H. Harland Company
Supplemental Retirement Agreement
THIS AGREEMENT (the "Agreement"), dated as of January 14, 1999,
between John H. Harland Company, a Georgia corporation (the
"Corporation"), and Timothy C. Tuff (the "Employee").
WHEREAS, the Employee serves as President and Chief Executive
Officer of the Corporation, and is in a position to contribute
materially to the continued growth, development and future business
of the Corporation; and
WHEREAS, the Corporation desires to provide supplemental retirement
and life insurance benefits to the Employee, in accordance with the
employment letter dated October 6, 1998;
NOW, THEREFORE, the Corporation and the Employee agree as follows:
A. Supplemental Retirement Benefits.
(1) Normal Retirement Benefit: Upon retirement from the
Corporation after attaining age 65, the Employee shall be
eligible to receive from the Corporation an annual benefit of
$186,288, payable in equal monthly installments of $15,524,
for a period of 10 consecutive years.
(2) Termination Prior to Age 65: In the event the Employee's
employment with the Corporation terminates prior to age 65,
for any reason other than his death or disability or early
retirement pursuant to subparagraph (4) below, and provided
that he has completed at least 60 months of continuous active
service with the Corporation (including active service as
referred to in the last sentence of subparagraph (5) below),
his vested annual benefit at age 65 will be reduced according
to the following vesting schedule:
Date of Termination of Employment Annual Benefit
October 6, 2003 - December 31, 2004 $ 36,725
January 1 - December 31, 2005 44,709
January 1 - December 31, 2006 53,225
January 1 - December 31, 2007 62,274
January 1 - December 31, 2008 93,144
January 1 - December 31, 2009 108,047
January 1 - December 31, 2010 128,539
January 1, 2011 or thereafter 186,288
(3) Monthly installment payments to the Employee shall commence on
the first day of the month following the later of the
Employee's 65th birthday or his termination of employment with
the Corporation.
1<PAGE>
(4) Early Retirement Benefit: If Employee retires from the
Corporation after attaining age 62, but prior to age 65, he
shall be entitled to receive, at his option, an annual benefit
of $91,947, payable in equal monthly installments, for a
period of 10 consecutive years commencing on the first day of
the month following his early retirement.
(5) Disability: In the event the Employee becomes disabled while
in active service with the Corporation, as defined by the
Corporation's long-term disability program, prior to age 65
and such disability continues until age 65, he shall commence
receiving payment of his full normal retirement benefit at age
65, regardless of whether he has completed 60 months of
continuous active service. If the Employee subsequently ceases
to be disabled prior to age 65, he shall be deemed to have
terminated service with the Corporation as of the date he
ceased to be disabled, unless he resumes service with the
Corporation within 30 days after such date. The Employee
shall be deemed to be in active service for periods during
which he is on permitted leave of absence not in excess of 2
years pursuant to a written agreement with the Corporation,
and for temporary periods of disability, provided that he
returns within 30 days after the termination of such temporary
disability or permitted leave of absence.
(6) Death Prior to Age 65: In the event the Employee dies while
in active service (including active service as referred to in
the last sentence of subparagraph (5) above) or during the
continuation of any disability, his designated beneficiary
shall receive the supplemental retirement benefit payable
under this agreement at the time of death commencing on the
first day of the month following the Employee's death and
continuing for a period of 10 years.
(7) Death Following Commencement of Benefit Payments: In the
event the Employee dies following commencement of monthly
retirement benefit payments under this Agreement, such
payments shall continue in the same amount to his beneficiary
for the remainder of the 10 years for which such retirement
benefit payments were payable to the Employee.
(8) Notwithstanding the foregoing provisions of this Agreement,
the Corporation, in the discretion of its Board of Directors,
and with the concurrence of Employee or his designated
representative or beneficiary, may prepay all or any part of
the benefits under this Agreement. The present value of the
future payments shall be determined by the Corporation. Any
prepayment shall be in full satisfaction of the obligations
hereunder to the recipient to the extent thereof.
(9) The Employee hereby designates the persons named on Exhibit A
hereto as his Primary and Contingent Beneficiaries under this
Agreement. The Employee may at any time change such
designations upon written notice to the Corporation. Any
change of Beneficiary or Contingent Beneficiary will be
effective only upon written acknowledgment by the Corporation,
a copy of which shall be promptly returned to the Employee
after execution by the Corporation.
2<PAGE>
(10) This Agreement is intended to be an unfunded plan of deferred
compensation maintained for the Employee. The obligation of
the Corporation to make payments hereunder shall constitute a
general unsecured obligation of the Corporation to the
Employee. Such payments shall be from the general assets of
the Corporation, and the Corporation shall not be required to
establish or maintain any special or separate fund or
otherwise segregate assets to assure that such payments shall
be made. Neither the Employee nor his estate shall have any
interest in any particular asset of the Corporation by reason
of the Corporation's obligations hereunder. Nothing
contained herein shall create or be construed as creating a
trust or any other fiduciary relationship between the
Corporation and the Employee or any other person. To the
extent that any person acquires a right to receive payments
from the Corporation hereunder, such right shall be no
greater than the right of an unsecured creditor of the
Corporation.
(11) No portion of the vested retirement benefit of the Employee
shall be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance or charge, and
any attempt to do so shall be void. No portion of such vested
retirement benefit in any manner shall be payable to any
assignee, receiver or trustee; be liable for the Employee's
debts, contracts or other liabilities; or be subject to any
legal process.
3<PAGE>
B. Supplemental Life Insurance Benefits.
(12) The Corporation agrees to obtain supplemental life insurance
coverage for the Employee in the amount of $750,000 (the
_Policy_). Until attaining age 66, the Employee's coverage
amount shall be $750,000. Beginning with Employee's 66th
birthday, such death benefit shall decrease by $75,000 each
year until Employee attains the age of 75, at which time all
coverage will terminate.
(13) Employee will cooperate in the securing of such Policy, and if
he is for any reason unable to obtain insurance in the
specified amount at standard rates or rates otherwise
acceptable to the Corporation, the Corporation shall have no
obligation to the Employee with respect to such insurance.
Employee will have the right to approve the insurer and the
Policy terms and conditions.
(14) The Corporation shall have no obligation of any nature
whatsoever to Employee or his beneficiaries under the Policy,
if the circumstances of the Employee's death preclude payment
of death proceeds under the Policy.
(15) The Employee's beneficiaries under the Policy are set forth on
Exhibit A. The Employee shall execute a beneficiary
designation on the form approved by the Corporation and the
Insurer.
(16) The Corporation shall be responsible for paying the annual
premiums on the Policy to the Insurer. The amount of annual
premium attributable to the Employee shall be equal to the
"current term rate" for the Employee's age multiplied by the
Employee's endorsed death benefit. This amount should be
added to the Employee's annual W-2. "Current term rate" shall
be defined as the lesser of (i) the Insurer's current
published rate for annually renewable term insurance for
standard risks or (ii) the rates specified in Revenue Rulings
64-328 and 66-110. The Corporation will reimburse Employee
(on a fully-grossed up basis) to offset the tax expense
associated with such imputed income.
(17) This Agreement shall terminate with respect to the Policy in
the event of Employee's termination of employment with the
Corporation prior to October 6, 2003, either voluntarily or
involuntarily for any reason other than death or disability,
as described in Section 18. Upon such termination, the
Employee will have no further interest in the Policy.
(18) In the event the Employee becomes disabled, as defined by the
Corporation's long-term disability program, and such
disability continues until October 6, 2003, his rights under
the Policy shall remain in effect until he attains age 75.
C. General.
(19) If any individual entitled to receive any payment under this
Agreement shall be physically, mentally or legally incapable
of receiving or acknowledging receipt of such payment, the
4<PAGE>
Corporation, upon the receipt of satisfactory evidence (i) of
his incapacity, (ii) that another person or institution is
maintaining him, and (iii) that no guardian or committee has
been appointed for him, may cause any payment otherwise
payable to him to be made to such person or institution.
Payment to such person or institution shall be in full
satisfaction of all claims by or through the Employee to the
extent of the amount thereof.
(20) A benefit shall be deemed forfeited if the Corporation is
unable after a reasonable period of time to locate the
Employee or any party claiming under or through him to whom
payment is due; provided, however, that such benefit shall be
reinstated if a valid claim is made by or on behalf of such
person for the forfeited benefit.
(21) This Agreement shall be administered by the Board of Directors
of the Corporation. The Board shall have the authority to
amend, modify or terminate this Agreement at any time, with
the consent of Employee, provided that any such amendment,
modification or termination may not reduce the retirement
benefit of the Employee or otherwise adversely impact his
rights hereunder. No action to terminate, amend or modify
this Agreement shall be taken except upon 30 days' prior
written notice to the Employee. The Board may appoint other
persons to assist it in performing its duties and
responsibilities hereunder.
(22) Nothing contained in this Agreement shall be construed as a
contract of employment between the Corporation and the Employee,
or as a right of the Employee to be continued in the employment
of the Corporation, or as a limitation on the right of the
Corporation to discharge the Employee at any time, with or
without cause.
(23) Any notice under this Agreement shall be in writing and shall be
mailed by United States first class mail, postage prepaid, as
follows:
To the Corporation:
John H. Harland Company
2939 Miller Road
Decatur, GA 30035
Attention: Vice President, Human Resources
To the Employee:
Timothy C. Tuff
3406 Valley Circle
Atlanta, GA 30305
Either party may change the address to which notices shall be
mailed upon written notice.
(24) This Agreement shall be binding upon the Corporation and its
successors and assigns, and upon the Employee, his
beneficiaries, heirs, executors and administrators.
(25) This Agreement shall be construed and governed in all respects
5<PAGE>
under and by the laws of the State of Georgia. If any provision
of this Agreement shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining
provisions hereof shall continue to be fully effective.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first set forth above.
Attest: John H. Harland Company
______________________________
By:______________________________________
Witness: Employee
______________________________
____________________________________________
Timothy C. Tuff
6<PAGE>
<PAGE>
EXHIBIT 21
Subsidiaries of Company
Subsidiaries (100% owned by Parent) State of Incorporation<PAGE>
Harland dataPRINT, Inc. Georgia
Harland International Company Georgia
Scantron Corporation Delaware
This list excludes subsidiaries which, considered in the
aggregate as a single subsidiary, would not constitute a
_significant subsidiary_.<PAGE>
EXHIBIT - 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in
Registration Statement No. 33-60151 of John H. Harland
Company on Form S-8 of our report dated January 29, 1999,
appearing in this Annual Report on Form 10-K of John H.
Harland Company for the year ended December 31, 1998.
Deloitte & Touche LLP
Atlanta, Georgia
March 31, 1999<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from the Company's financial statements for year
ended December 31, 1998 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-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 42,541
<SECURITIES> 0
<RECEIVABLES> 75,731
<ALLOWANCES> 6,806
<INVENTORY> 24,892
<CURRENT-ASSETS> 159,355
<PP&E> 259,222
<DEPRECIATION> 138,327
<TOTAL-ASSETS> 391,770
<CURRENT-LIABILITIES> 106,382
<BONDS> 107,071
<COMMON> 37,907
0
0
<OTHER-SE> 124,407
<TOTAL-LIABILITY-AND-EQUITY> 391,770
<SALES> 566,722
<TOTAL-REVENUES> 566,722
<CGS> 315,462
<TOTAL-COSTS> 315,462
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,457
<INCOME-PRETAX> (10,961)
<INCOME-TAX> 9,686
<INCOME-CONTINUING> (20,647)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,647)
<EPS-PRIMARY> (.66)
<EPS-DILUTED> (.66)
<PAGE>
</TABLE>
