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, 1999 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
------------------------- -----------------------------------------
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 14, 2000 was $370,241,020.
The number of shares of the Registrant's Common Stock outstanding on March 14,
2000, was 28,271,357.
A portion of the Registrant's Definitive Proxy Statement dated March 17, 2000,
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 7
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 7A: Quantitative And Qualitative Disclosures About
Market Risk 7
Item 8: Financial Statements and Supplementary Data 7
Item 9: Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 7
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 solutions and field
maintenance services. Scantron sells these products and services primarily
to the financial, 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.
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 software.
FS traditional 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,
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 also has an equity investment in
Bottomline source totaling 5.4% 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 the needs of its customers for additional products
and services are increasing and that growth in financial printing is slowing,
the Company began expanding its offerings several years ago. The Company
now also offers financial institutions a variety of products and services
designed to strengthen customer relationships and increase their
profitability. These products and services include database marketing
systems, direct marketing campaign management and loan and deposit
origination 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 the profitability of customers and prospects, develop
sound marketing strategies and execute information-driven plans aimed at
building and retaining profitable relationships.
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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 1,000
financial institutions utilize one of the Company's database marketing
products, giving the Company a leadership position in this emerging market.
The Company is now developing a suite of ancillary products designed
to increase the effectiveness of financial institutions' MCIF systems,
including linking a bank's Web site to its MCIF system, enabling targeted
one-to-one marketing efforts via the Internet.
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 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 through sales groups focused on
national accounts, community banks and credit unions, brokerage firms,
financial software companies and other commercial companies. 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 financial, commercial
and educational institutions. These primary offerings include scannable
forms, financial optical mark readers ("OMRs"), application software and
maintenance services.
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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 Solutions,
which offers full-service data collection and survey solutions; and the
Scantron Services 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.
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. 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, 1999, the Company and its subsidiaries employed
5,068 people.
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ITEM 2. PROPERTIES
As of December 31, 1999, the Company and its subsidiaries owned 13
facilities located in 10 states, all but three of which were primarily
production and service facilities. The Company leases 17 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 2000 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.
Name Age Office Held
Timothy C. Tuff 52 President and Chief Executive Officer
Charles B. Carden 55 Vice President and Chief Financial Officer
S. David Passman III 47 Vice President and General Manager -
South/International Region
Earl W. Rogers Jr. 51 Vice President, Manufacturing Services and
Technology
John C. Walters 59 Vice President, Secretary and General Counsel
Mr. Tuff was elected to his present positions with the Company in 1998.
For the prior five years 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.
Mr. Carden joined the Company on June 30, 1999. He previously served as
Executive Vice President and Chief Financial Officer of Mariner Post-Acute
Network, a health care provider, since 1996, prior to which he was employed
by Leaseway Transportation Corp. for 14 years, last serving as Senior
Vice President and Chief Financial and Administrative Officer.
Mr. Passman joined the Company in 1996 as Senior Vice President and
Chief Financial Officer and assumed his present position in 1999. He was
previously employed by Deloitte & Touche LLP for 20 years, last serving as
Managing Partner of its Atlanta office.
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 1996. He previously served as
Executive Vice President of First Financial Management Corporation, a
diversified information and financial services company, from 1994 through
1995 and as General Counsel of its Western Union subsidiary for six years.
Mr. Tuff also serves on the Board of Directors. Officers are elected
annually and serve at the pleasure of the Board.
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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 F28. 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.
ITEM 6. SELECTED FINANCIAL DATA
See the information with respect to selected financial data on page F28.
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 F7.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the information with respect to Quantitative And Qualitative
Disclosures About Market Risk on pages F6 and F7 under the captions Market Risk,
Interest Rate Risk and Equity Price Risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the information with respect to Financial Statements and
Supplementary Data on pages F8 through F28.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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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 captions "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Registrant's
Definitive Proxy Statement for the Annual Meeting of Shareholders dated
March 17, 2000 (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 F8
Consolidated Statements of Operations F10
Consolidated Statements of Cash Flows F11
Consolidated Statements of Shareholders' Equity F12
Notes to Consolidated Financial Statements F13
Independent Auditors' Report F26
Management Responsibility for Financial Statements F27
Supplemental Financial Information (unaudited) F28
(a)2. Financial Statement Schedule:
Schedule II. Valuation and Qualifying Accounts S1
All other schedules have been omitted since the information required is either
in the financial statements or notes thereto or is not required.
(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 B to
Registrant's Definitive Proxy Statement dated March 12,1999).
3.2 * Bylaws, as amended through February 1, 1999 (Exhibit 3.2 to
Registrant's Annual Report on Form 10-K ("1998 10-K") for the year
ended December 31, 1998).
4.1 Indenture 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 * 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 July 1, 1999).
4.3 * 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).
4.4 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 the
Registrant and Earl W. Rogers Jr. (Exhibit 10.3 to the 1993 10-K).
10.2 * Form of Amendment to Deferred Compensation Agreement
between Registrant and Mr. Rogers (Exhibit 10.6 to the 1993 10-K).
10.3 * Form of Noncompete and Termination Agreement between
Registrant and S. David Passman III, Mr. Rogers and John C. Walters
(Exhibit 10.6 to the 1995 10-K).
10.4 * Form of Executive Life Insurance Plan between Registrant and
Mr. Rogers (Exhibit 10.8 to the 1993 10-K).
10.5 * Noncompete and Termination Agreement, dated as of October 6,
1998, between Registrant and Timothy C. Tuff (Exhibit 10.7 to the
1998 10-K).
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10.6 * Restricted Stock Agreement, dated October 6, 1998, between
Registrant and Mr. Tuff (Exhibit 10.8 to the 1998 10-K).
10.7 * Supplemental Retirement Agreement, dated as of January 14, 1999,
between Registrant and Mr. Tuff (Exhibit 10.9 to the 1998 10-K).
10.8 * John H. Harland Company 1999 Stock Option Plan, as amended
(Exhibit 99.1 to Registrant's Registration Statement on Form S-8,
File No. 333-94727).
10.9 * John H. Harland Company Employee Stock Purchase Plan, as
amended (Exhibit 10.10 to the 1995 10-K).
10.10 * John H. Harland Company Deferred Compensation Plan for
Outside Directors (Exhibit 10.10 to the 1996 10-K)
21 Subsidiaries of the Registrant.
23 Independent Auditors' Consent.
27.1 Financial Data Schedule for the year ending December 31, 1999
10-K.
27.2 Financial Data Schedule for the years ending December 31, 1998 and
1997 10-K.
27.3 Financial Data Schedule for first, second, and third fiscal quarters
of the year ending December 31, 1999 10-Q.
27.4 Financial Data Schedule for first, second, and third fiscal quarters
of the year ending December 31, 1998 10-Q.
(b) Reports on Form 8-K
None
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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/Charles B. Carden 3/30/2000 /s/ William M. Dollar 3/30/2000
______________________ ________ ______________________ ________
Charles B. Carden Date William M. Dollar Date
Vice President Vice President
Chief Financial Officer Corporate Controller
(Principal Financial Officer) (Principal 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/Timothy C. Tuff 3/23/2000
______________________ ________ ______________________ ________
John H. Weitnauer Jr. Date Timothy C. Tuff Date
Chairman President and
Chief Executive Officer
(Principal Executive Officer)
/s/Juanita P. Baranco 3/21/2000
______________________ ________ ______________________ ________
William S. Antle III Date Juanita P. Baranco Date
Director Director
/s/Edward J. Hawie 3/23/2000 /s/John D. Johns 3/21/2000
______________________ ________ ______________________ ________
Edward J. Hawie Date John D. Johns Date
Director Director
/s/Richard K. Lochridge 3/21/2000 /s/John J. McMahon Jr. 3/21/2000
______________________ ________ ______________________ ________
Richard K. Lochridge Date John J. McMahon Jr. Date
Director Director
/s/G. Harold Northrop 3/21/2000 /s/Larry L. Prince 3/21/2000
______________________ ________ ______________________ ________
G. Harold Northrop Date Larry L. Prince Date
Director Director
/s/Eileen M. Rudden 3/24/2000 /s/Robert A. Yellowlees 3/22/2000
______________________ ________ ______________________ ________
Eileen M. Rudden Date Robert A. Yellowlees Date
Director Director
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JOHN H. HARLAND COMPANY AND SUBSIDIARIES
Index to Information For Inclusion
in the Annual Report on Form 10-K
for the year ended December 31, 1999
Management's Discussion and Analysis of
of Results of Operations and Financial Condition F2
Consolidated Financial Statements
and Notes to Consolidated Financial Statements F8
Independent Auditors' Report F26
Management Responsibility For Financial Statements F27
Supplemental Financial Information (Unaudited) F28
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
John H. Harland Company (the "Company") operates its business in two
segments. The Financial Services segment ("FS") includes checks and bank
forms, database marketing software, direct marketing services, and loan and
deposit origination software sold primarily to financial institutions.
The Scantron segment ("Scantron") represents products and services sold
by the Company's Scantron subsidiary including optical mark reading ("OMR")
equipment, scannable forms, survey solutions and field maintenance. Scantron
sells these products and services to the commercial, financial and education
markets.
During 1999, the Company elected to reclassify certain items in its
consolidated statements of operations. As a result, net sales, cost of sales
and selling, general and administrative expenses have been restated for all
prior periods to reflect these new classifications (see Note 1 to the
consolidated financial statements).
Results of Operations
1999 versus 1998
Consolidated net sales for the year ended December 31, 1999 were $702.5
million, compared to $673.9 million for the year ended December 31, 1998, an
increase of 4.2%. FS sales were $604.9 million in 1999, an increase of 3.3%
over 1998. The increase in FS sales was spread among printing operations,
but the largest increase was in direct marketing operations. In traditional
checks, a volume decline of 1.0% was moderated by a small positive price
variance that resulted despite the pricing pressure experienced in large
contract renewals. Revenue from software operations, which include
database marketing software and loan and deposit origination software,
declined during 1999 due to a drop in new installations resulting from delays
in introduction of new generation software products. The initial
installations of Max$ell for Windows(R) occurred during the fourth quarter
of 1999.
Scantron's sales were $97.6 million in 1999, an increase of 10.4% over
1998. The increase occurred primarily in field maintenance and was largely
the result of an acquisition in late 1998. Scantron's sales of OMR equipment
and scannable forms also contributed to the increase.
Consolidated gross profit increased by 11.8% from 1998 to $264.3
million and increased as a percentage of sales from 35.1% in 1998 to 37.6%
in 1999. In FS, gross profit as a percentage of sales increased to 35.8% from
32.7%, as all operating areas in this segment other than software showed
improvement in 1999. The improvement came largely from lower printing
production costs resulting from plant consolidations, process improvements
and lower cost of raw materials. In addition, direct marketing margins
increased through improved pricing. Scantron's gross profit increased by 6.6%
over 1998 but decreased as a percentage of sales to 49.0% from 50.7%,
primarily reflecting declines in gross margins for the service group and for
the technology group, which includes survey solutions, partially offset by
an improvement in gross margin for scannable forms and OMR equipment.
Selling, general and administrative expenses ("SG&A") totaled $185.1
million in 1999, an increase of 8.6% over 1998. As a percentage of sales,
SG&A increased from 25.3% in 1998 to 26.3% in 1999. Higher expenses included
costs associated with the development of internal systems and processes and
the development of software products. In addition, the Company also incurred
higher sales commissions due to changes in program design and higher expenses
for incentive compensation.
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In 1998, the Company expensed $12.8 million primarily associated with
the development of the Harland Relationship Manager software system.
Development costs related to this product had been previously capitalized.
In December 1998, the Company decided to discontinue the development of
this product.
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 to
certain other organizational changes. The Company recognized $46.2 million
in the quarter ended December 31, 1998 related to organizational changes
announced in December 1998 and to impairment of assets due to
the decision to discontinue development of Harland Relationship Manager.
Amortization of intangibles in 1999 decreased by $4.2 million from
1998 primarily due to the write-down of certain intangible assets in the 1998
restructuring charge.
Other income was $2.4 million in 1999 versus $4.7 million in 1998.
In 1999, the primary component was interest income from temporary investments.
The 1999 total also included a $1.2 million gain on sale of certain
investments, offset by a loss of $1.1 million from disposal of certain assets
of a small subsidiary of Scantron. In 1998, the total included gains of $3.9
million from the sale of a Company aircraft and certain check production
facilities.
The Company's effective income tax rate in 1999 was 37.7%, which included
the benefit of a $924,000 tax credit. In 1998, the effective tax rate, before
the effect of restructuring charges, was 42.5%. See Note 6 to the consolidated
financial statements for factors impacting the tax rate in each year.
Net income for 1999 was $42.7 million compared to a net loss of $20.6
million for 1998. Basic and diluted earnings per share for 1999 were $1.39
and $1.37, respectively, compared to basic and diluted loss per share of $0.66
in 1998. Included in the calculation for 1998 were restructuring charges and
costs related to the development of software, which reduced earnings by $1.41
and $0.23 per share, respectively. These were offset partially by gains on the
sale of assets, which increased earnings per share by $0.07.
Results of Operations
1998 versus 1997
Consolidated net sales for the year ended December 31, 1998 were $673.9
million compared to $660.0 million for the year ended December 31, 1997. FS
sales were 1.9% higher in 1998 in relation to 1997, totaling $585.5 million
versus 1997's total of $574.7 million. Traditional check volumes increased
7.4% due to the implementation of large contracts during 1998, but the impact
was diluted by a decrease in average check unit pricing. The decline in
pricing reflected a continued trend in discounting in traditional check
markets, along with the impact of higher volume, lower-priced national
accounts. Revenue from direct marketing grew by $6.5 million in 1998,although
much of the increase was offset by the impact of a decline in installations
of database marketing software resulting from a delay in introduction of new
products. Scantron's net sales increased by $3.2 million, or 3.8%, over 1997
due to expansion of field maintenance operations.
Consolidated gross profit increased from 34.4% of sales in 1997 to 35.1%
in 1998. FS gross profit as a percentage of sales increased to 32.7% in 1998
from 32.1% 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 margins for forms and OMR products.
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Consolidated SG&A decreased $1.2 million in 1998 in comparison to the
previous year. Increases in SG&A resulting from higher technology spending and
management bonuses were more than offset by decreases in selling expenses due
to reductions in headcount during early 1998 and lower customer service costs.
In 1997, the Company had incurred significant start-up costs as it consolidated
its customer service functions. SG&A decreased as a percentage of sales to
25.3% in 1998 from 26.0% in 1997.
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 to certain other
organizational changes. The Company recognized $46.2 million in the quarter
ended December 31, 1998, related to organizational changes announced in
December 1998 and to 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.
Interest expense declined from $8.4 million in 1997 to $7.5 million in
1998 due to reductions in short-term debt. Other income increased to $4.7
million in 1998 from $3.8 million in 1997 due to gains from the sale of
production facilities and the Company aircraft.
The Company had tax expense of $9.7 million on a pretax 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 in 1998 was $20.6 million compared to net income
of $17.3 million for 1997. Basic and diluted loss per share for 1998 was
$0.66 in 1998 compared to basic and diluted earnings per share of $0.56 in
1997. Earnings for 1998 included costs related to the development of software
and to restructuring charges, which reduced earnings by $0.23 and $1.41 per
share, respectively, offset by gains on the sales of assets, which increased
earnings by $0.07 per share. Net income in 1997 included restructuring
charges and other development costs, which reduced earnings per share by
$0.07 and $0.08, respectively, offset by gains on the sale of buildings,
which increased earnings per share by $0.05.
Financial Condition, Capital
Resources and Liquidity
Cash flows provided from operations in 1999 were $96.6 million, an
increase of 18.7% over $81.4 million for 1998. The primary uses of funds
in 1999 were for the Company's stock repurchase program, capital expenditures,
refundable contract payments and dividend payments to shareholders.
In April 1999, the Company's Board of Directors authorized the repurchase
of up to 3.1 million shares of the Company's outstanding common stock,
representing approximately ten percent of the Company's then outstanding
shares. Through December 31, 1999, the Company had paid $49.5 million to
repurchase 2,629,623 shares under this authorization. In 1998, the Company
repurchased 200,000 shares for $2.9 million under a previous authorization.
The Company also had other transactions related to the issuance of treasury
-F4-
<PAGE>
stock for its employee stock plans. The funding of stock purchases came from
internally generated cash.
Capital expenditures totaled $23.8 million in 1999 compared to $33.5
million in 1998. Proceeds from the sale of property, plant and equipment were
$1.8 million in 1999 versus $10.6 million in 1998.
The Company has unsecured lines of credit, which provide for borrowing
of up to $61.0 million. As of December 31, 1999, there were no outstanding
balances under these lines of credit.
On December 31, 1999, the Company had $49.8 million in cash and cash
equivalents. The Company believes that its current cash position and its
strong flow of funds from operations will be sufficient to meet anticipated
requirements for working capital, dividends, capital expenditures, purchases
of treasury shares and other corporate needs during 2000. Management is not
aware of any condition that would materially alter this trend. The Company
also believes that it has sufficient unused debt capacity and access to equity
capital markets to pursue additional acquisition opportunities.
Outlook
The Company's operating results have been positively impacted by a number
of factors during 1999, including significant improvements in gross margins
for its checks business and growth in direct marketing revenues. The Company
will continue to consolidate printing facilities, install new equipment and
develop systems and processes to increase profitability and improve service
in its checks and other operations. Two printing facilities remain to be
closed as part of the previously announced plant consolidation program.
These plants will close during 2000 and early 2001.
The Company expects continued pricing pressure from renewals and
acquisitions of check printing contracts. In an effort to increase volume and
pricing, the Company has strengthened its marketing efforts with regional and
community accounts.
The Company introduced its Windows(R) version of Max$ell, its database
marketing software, in late 1999. The new release and ancillary products in
database marketing along with the introduction of other software products in
development should result in increased software revenues in 2000.
The Company expects to incur immaterial charges during 2000 for additional
employee severance related to previously announced restructurings.
Risk Factors and
Cautionary Statements
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.
-F5-
<PAGE>
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.
Many variables will impact the ability to improve service quality,
increase production efficiencies and reduce expenses. These include, but are
not limited to, the development and implementation of new technology
including digital printing systems and systems used in the Company's
manufacturing and 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, services and other such factors outside of the
Company's control, may adversely affect costs 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, direct
marketing and loan and deposit origination software, there can be no assurances
that the Company will achieve its growth targets. There are many variables
relating to the development and sale of new software products, including the
timing and costs of the development effort, product performance,
functionality, product acceptance and competition. Also, no assurance
can be made as to market acceptance and to the potential impact of
governmental regulations on the Company's ability to expand its
software and direct marketing business and meet projected growth targets.
Market Risk
All financial instruments held by the Company are held for purposes
other than trading and are exposed to primarily two types of market risks:
interest rate and equity price.
Interest Rate Risk
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, 1999 (in thousands):
<TABLE>
<CAPTION>
Carrying Fair Hypothetical
Value Value(a) Fair Value(b)
_________________________________________________________________________
<S> <C> <C> <C>
Long-term
debt, including
current portion $106,451 $98,371 $102,158
<FN>
(a) Based on quoted market prices for these or similar items.
(b) Calculated based on changes in discounted cash flow.
</FN>
</TABLE>
-F6-
<PAGE>
Equity Price Risk
The fair value of the Company's investments is primarily affected by
fluctuations in the market price for the common stock of Bottomline
Technologies, Inc. ("Bottomline"). The change in market value is accounted
for as a component of other comprehensive income. The following presents the
value at risk for the Company's investment in Bottomline reflecting the high
and low closing market prices for the year ended December 31, 1999
(in thousands):
<TABLE>
<CAPTION>
Carrying
Value(a) High Low
_________________________________________________________________________
<S> <C> <C> <C>
Investment
in Bottomline $20,930 $53,633 $8,067
<FN>
(a) Based on market value as of December 31, 1999.
</FN>
</TABLE>
Year 2000 Readiness
The Company's Year 2000 initiative defined and provided a continuing
process for assessment, remediation planning and plan implementation to
achieve a level of readiness that would meet the computer-related challenges
presented by the Year 2000 in a timely manner. Based on these efforts, the
Company considered its critical systems, critical electronic assets,
relationships with key business partners and contingency plans ready as
of December 31, 1999. The Company suffered no material consequences in
January 2000 in these areas due to the Year 2000 issues.
The Company believes that it will not incur significant expense
related to the Year 2000 initiatives in the year ending December 31, 2000.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This Statement requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains and losses resulting from changes in the fair
market values of those derivative instruments would be accounted for
depending on the use of the instrument and whether it qualifies for hedge
accounting. SFAS 133 will be effective for the Company beginning
January 1, 2001. The Company has not yet completed its analysis of the impact
of the statement.
-F7-
<PAGE>
<TABLE>
<CAPTION>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31,
1999 1998
-----------------------------------------------------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 49,823 $ 42,541
Accounts receivable from customers, less
allowance for doubtful accounts of $6,456
and $6,806 60,901 68,925
Inventories:
Raw materials and semi-finished goods 22,628 22,865
Hardware component parts 191 422
Finished goods 592 1,605
Deferred income taxes 12,664 14,396
Other 6,249 8,601
-----------------------------------------------------------------------
Total current assets 153,048 159,355
-----------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS:
Investments 23,167 4,276
Goodwill and other intangibles - net 61,213 68,172
Deferred income taxes 9,911 14,600
Refundable contract payments 19,793 14,031
Other 12,277 10,441
-----------------------------------------------------------------------
Total investments and other assets 126,361 111,520
-----------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 3,019 3,271
Buildings and improvements 42,579 41,569
Machinery and equipment 202,655 182,190
Furniture and fixtures 10,491 15,716
Leasehold improvements 6,607 5,211
Additions in progress 7,204 11,265
-----------------------------------------------------------------------
Total property, plant and equipment 272,555 259,222
Less accumulated depreciation and amortization 160,559 138,327
-----------------------------------------------------------------------
Property, plant and equipment - net 111,996 120,895
-----------------------------------------------------------------------
Total $ 391,405 $ 391,770
=======================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-F8-
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS (continued)
<CAPTION>
December 31,
1999 1998
-----------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable - trade $ 29,587 $ 29,441
Deferred revenues 22,471 23,821
Accrued liabilities:
Salaries, wages and employee benefits 25,793 26,495
Restructuring costs 1,238 9,059
Taxes 6,284 5,353
Other 13,360 12,213
-----------------------------------------------------------------------
Total current liabilities 98,733 106,382
-----------------------------------------------------------------------
LONG-TERM LIABILITIES:
Long-term debt 106,446 107,071
Other 17,200 16,003
-----------------------------------------------------------------------
Total long-term liabilities 123,646 123,074
-----------------------------------------------------------------------
Total liabilities 222,379 229,456
-----------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (see Note 12)
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 - -
Retained earnings 326,049 293,425
Accumulated other comprehensive income (loss) 19,091 (400)
Unamortized restricted stock award (415) (470)
-----------------------------------------------------------------------
382,632 330,462
Less 9,263,895 and 6,814,638 shares in
treasury, at cost 213,606 168,148
-----------------------------------------------------------------------
Total shareholders' equity 169,026 162,314
-----------------------------------------------------------------------
TOTAL $ 391,405 $ 391,770
=======================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-F9-
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<CAPTION>
Year ended December 31,
1999 1998 1997
-------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 702,512 $ 673,947 $ 659,954
-------------------------------------------------------------------------
COST AND EXPENSES:
Cost of sales 438,223 437,598 432,665
Selling, general and administrative
expenses 185,072 170,466 171,620
Software and other development charges - 12,771 4,477
Amortization of intangibles 6,035 10,213 13,348
Restructuring charge - 51,087 3,644
-------------------------------------------------------------------------
Total 629,330 682,135 625,754
-------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 73,182 (8,188) 34,200
-------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (7,170) (7,457) (8,421)
Other - net 2,447 4,684 3,787
-------------------------------------------------------------------------
Total (4,723) (2,773) (4,634)
-------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 68,459 (10,961) 29,566
INCOME TAXES 25,775 9,686 12,270
-------------------------------------------------------------------------
NET INCOME (LOSS) $ 42,684 $ (20,647) $ 17,296
=========================================================================
EARNINGS (LOSS) PER COMMON SHARE
BASIC $ 1.39 $ (.66) $ .56
DILUTED $ 1.37 $ (.66) $ .56
=========================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-F10-
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Year ended December 31,
1999 1998 1997
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 42,684 $(20,647) $ 17,296
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 29,738 27,463 25,266
Amortization 10,826 14,952 14,008
Provision for restructuring charge - 46,857 (2,341)
Software development charge - 10,927 -
Loss (gain) on sale of assets 1,547 (2,991) (2,746)
Other - net 3,531 5,184 3,859
Change in assets and liabilities net of
effects of businesses acquired/disposed:
Deferred income taxes 5,040 (8,738) 8,102
Accounts receivable 6,913 (680) (3,534)
Inventories and other current assets 3,324 18,495 (2,588)
Accounts payable and accrued expenses (6,969) (9,449) 9,032
-----------------------------------------------------------------------------------
Net cash provided by operating activities 96,634 81,373 66,354
-----------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (23,794) (33,486) (45,394)
Proceeds from sale of property, plant and equipment 1,797 10,627 27,486
Payment for acquisition of businesses -
net of cash acquired - (2,252) -
Other - net (10,905) (15,525) (3,444)
-----------------------------------------------------------------------------------
Net cash used in investing activities (32,902) (40,636) (21,352)
-----------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Short-term borrowings - net 24 - (43,089)
Repayment of long-term debt (625) (2,287) (4,717)
Purchases of treasury stock (49,535) (2,999) (2,221)
Issuance of treasury stock 2,154 2,507 4,771
Dividends paid (9,188) (9,328) (9,287)
Other - net 720 907 (122)
-----------------------------------------------------------------------------------
Net cash used in financing activities (56,450) (11,200) (54,665)
-----------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 7,282 29,537 (9,663)
Cash and cash equivalents at beginning of year 42,541 13,004 22,667
-----------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 49,823 $ 42,541 $ 13,004
===================================================================================
Cash paid during the year for:
Interest $ 7,133 $ 7,085 $ 8,270
===================================================================================
Income taxes $ 19,013 $ 13,546 $ 5,529
===================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-F11-
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share and per share amounts)
<CAPTION>
--- Years Ended December 31, 1999, 1998 and 1997 ---
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, 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 loss (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
Net income 42,684 42,684
Other comprehensive income:
Foreign currency
translation adjustments 528 528
Unrealized gains on investments,
net of taxes 18,963 18,963
--------
Comprehensive income 62,175
--------
Cash dividends, $.30 per share (9,188) (9,188)
Purchase of 2,629,623 shares of treasury
stock (49,535) (49,535)
Issuance of 180,366 shares of treasury
stock under employee stock plans and
restricted stock award (1,666) 4,077 (133) 2,278
Other 794 188 982
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $ 37,907 $ - $ 326,049 $19,091 $(213,606) $ (415) $ 169,026
===========================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-F12-
<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
The Company classifies all of its investments as available-for-sale
securities. Such investments consist primarily of U.S. corporate securities
and other equity interests which are stated at market value, with unrealized
gains and losses on such investments reflected, net of tax, as other
comprehensive income in shareholders' equity. Realized gains and losses on
investments are included in earnings and are derived using the specific
identification method. The following is a summary of investments at December
31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
Available-for-sale securities
-----------------------------
Cost Market Value
- ---------------------------------------------------------------------
1999
<S> <C> <C>
Corporate equity securities $2,000 $20,930
Other equity investments 823 2,237
- ---------------------------------------------------------------------
Total 2,823 23,167
=====================================================================
1998
Corporate equity securities 2,000 2,000
Other equity investments 2,276 2,276
- ---------------------------------------------------------------------
Total $4,276 $ 4,276
=====================================================================
</TABLE>
-F13-
<PAGE>
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 noncompete 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.
Refundable Contract Payments
Refundable contract payments are amortized as a reduction of sales over
the life of the related contract and are refundable from the customer if the
contract is terminated.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation of
buildings are 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 method. 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 (loss) 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 (loss) 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 1999, 1998 and
1997 was $42,958,000, $(20,647,000) and $17,702,000, respectively. The average
number of common shares used in the calculation of basic earnings per common
share for 1999, 1998 and 1997 was 30,637,619, 31,087,214 and 30,970,900,
respectively. The average number of common share equivalents used in the
calculation of diluted earnings per common share for 1999, 1998 and 1997 was
31,261,483, 31,087,214 and 31,445,500, 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
The Company recognizes a liability or asset for the deferred tax
consequences of temporary differences between financial statement and tax
bases of assets and liabilities.
-F14-
<PAGE>
Reclassifications
Effective October 2, 1999, the Company elected to reclassify certain
items in its consolidated statements of operations. As a result, net sales,
cost of sales, and selling, general and administrative expenses have been
restated for all prior periods to reflect these new classifications. The
Company now reflects delivery fees as revenue. Previously, the delivery fees
were included as cost of sales. The effect of this reclassification was to
increase net sales and cost of sales by $131.2 million, $107.2 million and
$97.2 million for the years ended December 31, 1999, 1998 and 1997,
respectively. Costs relating to reprinting check orders, certain products
given to customers and production-related information technology support costs
have been reclassified to cost of goods sold from selling, general and
administrative expenses. These reclassifications resulted in an increase in
cost of goods sold and a decrease of selling, general and administrative
expenses of $23.5 million, $28.3 million and $26.0 million for the years ended
December 31, 1999, 1998 and 1997, respectively. In addition, certain other
costs of the check printing operations have been reclassified. Costs relating
to customer service call centers have been reclassified from cost of sales to
selling, general and administrative expense. This reclassification resulted in
a decrease in cost of sales and an increase to selling, general and
administrative expenses of $14.2 million, $13.7 million and $16.0 million for
the years ended December 31, 1999, 1998 and 1997, respectively. Finally,
certain minor amounts reported in 1998 and 1997 have been reclassified to
conform with the 1999 presentation. These changes had no significant impact on
previously reported results of operations or shareholders' equity.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). This Statement
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains and losses resulting from changes
in the fair market values of those derivative instruments would be accounted
for depending on the use of the instrument and whether it qualifies for hedge
accounting. SFAS 133 will be effective for the Company beginning January 1,
2001. The Company has not yet completed its analysis of the impact of this
statement.
2. Restructuring Charge
In 1998, the Company recorded a pretax 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 included a
reorganization plan which eliminated approximately 100 positions, consolidated
its database marketing operations, recognized the impairment of certain assets
and reduced selling and marketing personnel. In 1998 and 1997, the Company
also incurred $2.9 million and $3.2 million, respectively, in severance-
related expenses associated with 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 the associated revaluation of assets, and
valuation adjustments related to discontinuing certain subsidiary product
lines.
-F15-
<PAGE>
The cash and noncash elements of the restructuring charge for each of the
years ended December 31, 1999, 1998 and 1997, as well as the beginning and
ending balances of accrued restructuring costs, consisted of the following
components (in thousands):
<TABLE>
<CAPTION>
Utilized
Beginning Restructuring ------------------------ Ending
Balance Charge Cash Non-Cash Balance
- ----------------------------------------------------------------------------------------------
1997
<S> <C> <C> <C> <C> <C>
Employee severance $ 12,219 $ 3,644 $ (9,566) $ - $ 6,297
Other 681 - (344) - 337
- ----------------------------------------------------------------------------------------------
Total 12,900 3,644 (9,910) - 6,634
==============================================================================================
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) -- 6,669
Other 337 2,621 (111) (457) 2,390
- ----------------------------------------------------------------------------------------------
Total 6,634 51,087 (6,798) (41,864) 9,059
==============================================================================================
1999
Employee severance 6,669 - (6,226) - 443
Other 2,390 - (1,460) (135) 795
- ----------------------------------------------------------------------------------------------
Total $ 9,059 $ - $ (7,686) $ (135) $ 1,238
==============================================================================================
</TABLE>
The remaining accrued restructuring costs are expected to be paid
primarily in 2000.
3. Acquisitions
In 1998, one of the Company's subsidiaries, 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. The
acquisition was accounted for using the purchase method of accounting and the
results of operations of the acquisition are included in the consolidated
financial results from the date of acquisition.
Goodwill and other intangible assets acquired in acquisitions consist of
the following as of December 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
Goodwill $ 118,825 $ 122,666
Non-compete covenants 30,100 30,350
Customer lists 12,842 22,014
- -------------------------------------------------------------------------
Total 161,767 175,030
Less accumulated amortization 100,554 106,858
- -------------------------------------------------------------------------
Total $ 61,213 $ 68,172
=========================================================================
</TABLE>
-F16-
<PAGE>
The following represents the unaudited pro forma results of operations
which assume the acquisition occurred at the beginning of the respective year
in which the assets were acquired as well as the beginning of the immediately
preceding year. These results include certain adjustments, primarily increased
amortization of intangible assets, increased interest expense and reduced
interest income (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Net sales $ 679,823 $ 665,361
Net income (loss) (20,693) 16,824
Earnings (loss) per common share:
Basic $ (.66) $ .54
Diluted $ (.66) $ .54
</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, 1999, 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, 1999 or December 31, 1998.
5. Long-Term Debt
Long-term debt consisted of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
Series A Senior Notes $ 85,000 $ 85,000
Term Loan 15,000 15,000
Convertible Subordinated Debentures 6,440 6,961
Other 11 123
- -------------------------------------------------------------------------
Total 106,451 107,084
Less current portion 5 13
- -------------------------------------------------------------------------
Long-term debt $ 106,446 $ 107,071
=========================================================================
</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
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, 1999, 261,065
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, 1999, 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.
-F17-
<PAGE>
There are no annual maturities of long-term debt and all sinking fund
requirements have been met for 2000 and 2001. Annual maturities of long-term
debt and sinking fund requirements are $0.3 million in 2002, $15.6 million in
2003 and $17.6 million in 2004.
6. Income Taxes
The income tax provision (benefit) for the years ended December 31, 1999,
1998 and 1997 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 17,400 $ 16,610 $ 3,731
State 3,335 1,814 437
- ----------------------------------------------------------------------------
Total 20,735 18,424 4,168
- ----------------------------------------------------------------------------
Deferred:
Federal 4,213 (7,286) 6,642
State 827 (1,452) 1,460
- ----------------------------------------------------------------------------
Total 5,040 (8,738) 8,102
- ----------------------------------------------------------------------------
Total $ 25,775 $ 9,686 $ 12,270
============================================================================
</TABLE>
The tax effects of significant items comprising the Company's net
deferred tax assets as of December 31 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Current deferred tax asset:
Accrued vacation $ 1,883 $ 1,937
Deferred revenue 623 676
Accrued liabilities 3,986 4,212
Other 6,172 7,571
- ----------------------------------------------------------------------------
Total 12,664 14,396
- ----------------------------------------------------------------------------
Non-current deferred tax asset (liability):
Difference between book and tax basis
of property - 2,387
Deferred revenue 1,117 1,161
Deferred compensation 1,371 1,584
Postretirement benefit obligation 3,655 3,329
Capital loss carryforward 24,082 -
Unrealized gain on investments (6,625) -
Other 3,768 6,139
- ----------------------------------------------------------------------------
Total 27,368 14,600
Valuation allowance (17,457) 0
- ----------------------------------------------------------------------------
Net deferred tax asset $ 22,575 $ 28,996
============================================================================
</TABLE>
In 1999, the Company recognized a capital loss for tax purposes of $72.2
million arising from the sale of an interest in a subsidiary (see Note 10).
During 1999, the Company utilized approximately $18.9 million of capital loss
to offset capital gains associated with unrealized gains on investments and
approximately $3.4 million to offset current and prior year capital gains.
-F18-
<PAGE>
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):
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate $ 23,994 $ (3,836) $ 10,348
State and local income taxes, net of
Federal income tax benefit 2,710 235 1,233
Income from Puerto Rico (757) (175) (113)
Non-deductible goodwill 448 12,418 1,514
Capital loss utilized (1,453) - -
Loss from benefits subsidiary (17,457) - -
Change in valuation allowance 17,457 - -
Other _ net 833 1,044 (712)
- ----------------------------------------------------------------------------
Income tax provision $25,775 $ 9,686 $12,270
============================================================================
</TABLE>
The Company has established a valuation allowance for capital loss
carryforwards. Management believes that, based on a number of factors, the
available objective evidence creates sufficient uncertainty regarding the
recoverability of these carryforwards.
7. Shareholders' Equity
In April 1999, the Company's board of directors authorized the repurchase
of up to 3.1 million shares of the Company's outstanding common stock,
representing approximately ten percent of the Company's then outstanding
shares. Through December 31, 1999, the Company had paid $49.5 million to
repurchase 2,629,623 shares under this authorization. In 1998, the Company
repurchased 200,000 shares for $2.9 million under a previous authorization.
The Company also had other transactions related to the issuance of treasury
stock for its employee stock plans. The funding of stock purchases came from
internally generated cash.
On July 5, 1999, the Company renewed its Shareholder Rights Agreement.
The renewed plan is substantially similar to the previous plan. The rights
were 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 entitles shareholders to buy, upon
occurrence of certain events, one share of common stock for $90.00 (compared
to $80.00 under the previous plan). The rights generally will be exercisable
only if a person or group acquires beneficial ownership of 15% 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% or more of the
Company's common stock. Under certain circumstances the rights are redeemable
at a price of $.001 per right. The rights expire on July 5, 2009.
-F19-
<PAGE>
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>
1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss):
As reported $ 42,684 $(20,647) $17,296
Pro forma 40,038 (22,573) 15,738
Earnings (loss)
per common share:
As reported
Basic $ 1.39 $ (.66) $ .56
Diluted $ 1.37 $ (.66) $ .56
Pro forma
Basic $ 1.31 $ (.73) $ .51
Diluted $ 1.29 $ (.73) $ .51
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 1999, 1998 and 1997, employees exercised options to purchase
155,413 shares, 200,033 shares and 194,003 shares, respectively. Options
granted under the ESPP were at prices ranging from $10.81 to $16.60 in 1999,
$11.42 to $13.79 in 1998 and $17.64 to $20.77 in 1997. Pro forma compensation
cost associated with options granted under the ESPP is estimated based on the
discount from market value. At December 31, 1999, there were 266,183 shares of
common stock reserved for purchase under the ESPP.
Under the John H. Harland Company 1999 Stock Option Plan, 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 2,000,000 shares of common
stock under the plan. Such options have a maximum life of ten years and
generally vest ratably over a five-year period beginning on the first
anniversary date of the grant. Certain options granted in 1998 and 1999 vest
per specified schedules beginning one to five years from the date of the
grant.
Upon adoption of the 1999 plan, the Company terminated a previous plan
except for options outstanding thereunder. Options granted under such plan
through July 1995 became fully exercisable one year from the date of the
grant, with a maximum life of five years. Options granted after July 1995 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.
-F20-
<PAGE>
The following presents the estimated fair value of options granted and
the weighted average assumptions used under the Black-Scholes option pricing
model for each of the years ended December 31, 1999, 1998 and 1997:
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Fair value per option $6.48 $4.36 $7.47
Weighted average assumptions:
Dividend yield 1.5% 2.2% 2.3%
Expected volatility 29.6% 26.0% 24.1%
Risk-free interest rate 5.4% 5.4% 6.3%
Assumed forfeiture rate 3.0% 3.0% 3.0%
Expected life (years) 8.7 8.0 8.0
</TABLE>
A summary of option transactions during the three years ended
December 31, 1999, follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
- -----------------------------------------------------------------------------
<S> <C> <C>
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) 22.37
- --------------------------------------------------------------------------
Outstanding - December 31, 1998 3,280,000 19.16
Options granted 1,039,000 20.52
Options canceled (771,050) 22.34
Options exercised (7,950) 16.92
- --------------------------------------------------------------------------
Outstanding - December 31, 1999 3,540,000 $ 18.87
==========================================================================
</TABLE>
As of December 31, 1999, there were 4,390,327 shares of common stock
reserved for issuance under these stock option plans. The following table
summarizes information pertaining to options outstanding and exercisable as of
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding
- --------------------------------------------------------------------------
Weighted Weighted
Average Average
Range of Contractual Exercise
Exercise Prices Options Life(Years) Price
- --------------------------------------------------------------------------
<S> <C> <C> <C>
$12.75 to $14.75 1,663,500 8.87 $ 13.83
$16.14 to $20.00 639,500 8.29 19.49
$20.06 to $23.63 607,000 7.60 22.33
$25.00 to $30.00 340,000 8.82 25.58
$30.50 to $31.88 290,000 6.81 31.28
- --------------------------------------------------------------------------
Total 3,540,000 8.37 $ 18.87
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
- --------------------------------------------------------------------------
Weighted
Average
Range of Exercise
Exercise Prices Options Price
- --------------------------------------------------------------------------
<S> <C> <C>
$12.75 to $14.75 404,600 $ 13.59
$16.14 to $20.00 77,000 19.00
$20.06 to $23.63 216,000 23.63
$25.00 to $30.00 18,000 29.38
$30.50 to $31.88 174,000 31.28
- --------------------------------------------------------------------------
Total 889,600 $ 20.27
==========================================================================
</TABLE>
-F21-
<PAGE>
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 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 period of restriction.
The Company has a deferred compensation plan for its non-employee
directors. At December 31, 1999 and 1998, there were 37,909 and 20,661 shares,
respectively, reserved for issuance under the Plan.
9. Employee Retirement and Savings Plans
The Company's Master 401(k) Plan and Trust ("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 nonresident
alien. Participants may contribute on a pretax 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. The Company recognized matching
contributions to the 401(k) plan of $3.4 million in 1999, $2.9 million in 1998
and $3.4 million in 1997.
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 $4.0 million
and $3.7 million at December 31, 1999 and 1998, respectively. The charge to
expense for these agreements is not significant.
10. Postretirement Benefits
The Company sponsors two defined postretirement benefit plans that cover
qualifying salaried and nonsalaried 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 noncontributory. The Company's intent
is that the retiree provide the majority of the actual cost of providing the
medical plan. Neither plan is funded.
-F22-
<PAGE>
As of December 31, 1999, the accumulated postretirement benefit
obligation ("APBO") under such plans was $19.1 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):
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
APBO:
Retirees $ 9,591 $ 7,248
Fully eligible participants 1,856 1,720
Other participants 4,152 3,804
- ----------------------------------------------------------------------------
15,599 12,772
Net change in APBO:
Service costs 408 336
Interest costs 1,029 910
Benefits paid (886) (707)
Change in discount rate (3,029) 1,569
Change in assumed claims 2,312 (2,213)
Demographic experience
and other 1,218 2,932
Plan amendment 2,482 -
- ----------------------------------------------------------------------------
Total net change in APBO 3,534 2,827
- ----------------------------------------------------------------------------
APBO as of December 31:
Retirees 10,135 9,591
Fully eligible participants 5,473 1,856
Other participants 3,525 4,152
- ----------------------------------------------------------------------------
19,133 15,599
Unrecognized net loss (6,080) (5,888)
Unrecognized prior service cost (2,483) -
- ----------------------------------------------------------------------------
Accrued postretirement cost _
included in Other Liabilities $ 10,570 $ 9,711
============================================================================
</TABLE>
Net periodic postretirement costs ("NPPC") are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Service costs $ 408 $ 336 $ 322
Interest on APBO 1,029 910 712
Net amortization 309 194 3
- ----------------------------------------------------------------------------
Total $ 1,746 $ 1,440 $ 1,037
============================================================================
</TABLE>
During 1999, benefit eligibility was extended below age fifty-five to any
retiree with twenty years of service. The cost of providing medical benefits
was assumed to increase by 6.5% in 2000 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
$2.2 million and the NPPC by $251,000. A decrease of 1.0% in the assumed trend
rates would have had the effect of decreasing the APBO by $1.8 million and the
NPPC by $197,000. The weighted average discount rate used in determining the
APBO was 8.00% in 1999, 6.75% in 1998 and 7.25% in 1997, and employee earnings
were estimated to increase 3.5% annually until age 65.
-F23-
<PAGE>
In 1999, the Company transferred its obligations under certain of its
benefits programs to an existing subsidiary to administer. In connection with
the transfer, the Company sold a minority interest in the subsidiary to a
third party benefits management company.
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:
Long-term investments
The fair values of certain investments are estimated based on quoted
market prices or on estimates in the absence of readily ascertainable market
values.
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.
The carrying values and estimated fair values of the Company's financial
instruments at December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
Carrying Value Fair Value
- ----------------------------------------------------------------------------
1999 1998 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments:
Long-term $ 23,167 $ 4,276 $ 23,167 $ 4,276
Debt:
Long-term 106,446 107,071 98,366 109,969
</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.
Total rental expense was $11.8 million in 1999, $11.7 million in 1998 and
$9.4 million in 1997. Minimum annual rentals under noncancelable operating
leases at December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2000 $ 10,777
2001 6,969
2002 6,129
2003 5,882
2004 5,912
Thereafter 23,242
- -----------------------------------------------------------------------
Total $ 58,911
=======================================================================
</TABLE>
The Company has an agreement with a vendor who will perform certain
customer-related functions through 2001. Annual costs under this relation-
ship are estimated to be $9.3 million per year through 2001.
In January 2000, the Company entered into a purchase agreement to
purchase digital printing equipment. The aggregate purchase commitment is
$21.3 million over the next two years (2000-$11.4 million, 2001-$9.9 million).
-F24-
<PAGE>
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 solutions and field maintenance services. Scantron sells these
products and services primarily to the commercial, financial institutions and
education markets.
The Company's operations are primarily in the United States and Puerto
Rico. There were no significant intersegment sales and no material amounts of
the Company's sales are dependent upon a single customer. Equity investments
as well as foreign assets are not significant to the consolidated results of
the Company. 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 costs written off but
excludes interest income, interest expense and certain other nonoperating
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.
In 1999, certain activities were reclassified between the FS business
segment and Corporate operations. Prior periods have been restated for these
reclassifications.
Summarized financial information for 1999, 1998 and 1997 is as follows
(in thousands):
<TABLE>
<CAPTION>
Business Segment
------------------------
Consol-
FS Scantron Corporate idated
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Net Sales $ 604,943 $ 97,569 - $ 702,512
Income (loss) 107,227 17,256 $ (56,024) 68,459
Identifiable assets 245,274 49,133 96,998 391,405
Depreciation and amortization 30,100 4,508 5,956 40,564
Capital expenditures 16,475 3,626 3,693 23,794
1998
Net Sales $ 585,507 $ 88,440 - $ 673,947
Income (loss) 20,981 13,604 $ (45,546) (10,961)
Identifiable assets 271,408 51,436 68,926 391,770
Depreciation and amortization 32,401 5,459 4,555 42,415
Capital expenditures 22,168 3,873 7,445 33,486
1997
Net Sales $ 574,725 $ 85,229 - $ 659,954
Income (loss) 57,920 13,018 $ (41,372) 29,566
Identifiable assets 330,635 55,107 40,444 426,186
Depreciation and amortization 31,930 5,082 2,262 39,274
Capital expenditures 32,623 2,805 9,966 45,394
</TABLE>
-F25-
<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, 1999 and 1998, and the related
consolidated statements of operations, cash flows and shareholders' equity for
each of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in Item 14(a)2. These
financial statements and financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of John H. Harland Company and
its subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the financial statements taken as a whole, presents
fairly, in all material respects the information set forth therein.
/s/DELOITTE & TOUCHE LLP
- ------------------------
Deloitte & Touche LLP
Atlanta, Georgia
January 28, 2000
-F26-
<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 audit matters, 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/Timothy C. Tuff /s/Charles B. Carden
- ------------------ ---------------------
Timothy C. Tuff Charles B. Carden
President Vice President
and Chief Executive Officer and Chief Financial Officer
January 28, 2000
-F27-
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
Supplemental Financial Information (Unaudited)
(In thousands except per share amounts)
SELECTED QUARTERLY FINANCIAL DATA, DIVIDENDS PAID AND STOCK PRICE RANGE
<CAPTION>
--------- Quarter ended ----------
April 2 July 2 October 1 December 31
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999:
Net sales $ 178,744 $ 178,400 $ 173,727 $ 171,641
Gross profit 66,819 65,519 66,779 65,172
Net income 10,017 9,929 12,531 10,207
Per common share:
Basic earnings .32 .32 .41 .35
Diluted earnings .32 .32 .40 .34
Dividends paid .075 .075 .075 .075
Stock market price:
High 16 3/8 20 15/16 21 1/4 20 1/16
Low 12 3/8 9/16 19 1/8 17 3/4
--------- Quarter ended ----------
April 3 July 3 October 2 December 31
-----------------------------------------------------------------------------
1998:
Net sales $ 170,176 $ 160,054 $ 174,769 $ 168,948
Gross profit 58,223 53,519 65,093 59,514
Net income (loss) 6,071 4,081 4,008 (34,807)(a)
Per common share:
Basic and diluted
earnings (loss) .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
<FN>
(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 software
system. Also included in the charges were costs associated with
organizational changes and impairment of certain assets.
</FN>
</TABLE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
--------- Year ended December 31 ---------
1999 1998 1997 1996 1995
------------------------------------------------------------------------------
<S> <C> <C> <C <C> <C>
Net sales $ 702,512 $ 673,947 $ 659,954 $ 713,819 $656,902
Net income (loss) 42,684 (20,647) 17,296 (13,854) 46,017
Total assets 391,405 391,770 426,186 454,731 474,650
Long-term debt 106,446 107,071 109,358 114,075 114,574
Per common share:
Basic earnings (loss) 1.39 (.66) .56 (.45) 1.51
Diluted earnings (loss) 1.37 (.66) .56 (.45) 1.50
Cash dividends .30 .30 .30 1.02 1.02
Average number of
shares outstanding:
Basic 30,638 31,087 30,971 31,056 30,558
Diluted 31,261 31,087 31,446 31,056 30,878
-F28-
<PAGE>
<FN>
In October 1999, the Company elected to reclassify certain items in its
consolidated statements of operations. All prior periods have been restated
to conform with the 1999 presentations. See Note 1 regarding the impact of
the reclassifications.
Earnings (loss) per share are calculated based on the weighted average
number of shares outstanding during the applicable period.
The Company's common stock (symbol: JH) is listed on the New York Stock
Exchange. At December 31, 1999 there were 5,346 shareholders of record.
See Note 2 regarding the impact of restructuring charges in 1998 and 1997.
See Note 3 regarding the impact of acquisitions in 1998.
</FN>
</TABLE>
-F29-
<PAGE>
<TABLE>
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998,AND 1997
(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, 1999
Allowance for doubtful accounts $ 6,806 $ 788 $ (36) $ 1,102 $ 6,456
======= ======== ======= ======= =======
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
======= ======== ======= ======= =======
<FN>
Notes:
(1) Represents recovery of previously written-off and credit balance accounts
receivable.
(2) Represents write-offs of uncollectible accounts receivable.
</FN>
</TABLE>
-S1-
<PAGE>
EXHIBIT INDEX
(* indicates document is incorporated by reference)
Exhibit
Designation Description
______ ___________
3.1 * Amended and Restated Articles of Incorporation (Exhibit B to
Registrant's Definitive Proxy Statement dated March 12,1999.
3.2 * Bylaws, as amended through February 1, 1999 (Exhibit 3.2 to
Registrant's Annual Report on Form 10-K (_1998 10-K_) for the year
ended December 31, 1998).
4.1 Indenture 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 * 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 A12B dated July 1, 1999).
4.3 * 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).
4.4 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 the
Registrant and Earl W. Rogers Jr. (Exhibit 10.3 to the 1993 10-K).
10.2 * Form of Amendment to Deferred Compensation Agreement
between Registrant and Mr. Rogers (Exhibit 10.6 to the 1993 10-K).
10.3 * Form of Noncompete and Termination Agreement between
Registrant and S. David Passman III, Mr. Rogers and John C. Walters
(Exhibit 10.6 to the 1995 10-K).
10.4 * Form of Executive Life Insurance Plan between Registrant and
Mr. Rogers (Exhibit 10.8 to the 1993 10-K).
10.5 * Noncompete and Termination Agreement, dated as of October 6,
1998, between Registrant and Timothy C. Tuff (Exhibit 10.7 to the
1998 10-K)
10.6 * Restricted Stock Agreement, dated October 6, 1998, between
Registrant and Mr. Tuff (Exhibit 10.8 to the 1998 10-K).
10.7 * Supplemental Retirement Agreement, dated as of January 14,
1999, between Registrant and Mr. Tuff.
10.8 * John H. Harland Company 1999 Stock Option Plan, as amended
(Exhibit 99.1 to Registrant's Registration 5 Statement Form S-8,
File No. 333-94727).
10.9 * John H. Harland Company Employee Stock Purchase Plan, as
amended (Exhibit 10.10 to the 1995 10-K).
10.10 * John H. Harland Company Deferred Compensation Plan for
Outside Directors (Exhibit 10.10 to the 1996 10-K)
21 Subsidiaries of the Registrant.
23 Independent Auditors' Consent.
27.1 Financial Data Schedule for the year ending December 31, 1999
10-K.
27.2 Financial Data Schedule for the year ending December 31, 1998 and 1997
10-K.
27.3 Financial Data Schedule for first, second, and third fiscal quarters
of the year ending December 31, 1999 10-Q.
27.4 Financial Data Schedule for first, second, and third fiscal quarters
of the year ending December 31, 1998 10-Q.
-X1-
<PAGE>
EXHIBIT 21
Subsidiaries of Company
Percentage Owned State of
Subsidiaries by Parent Incorporation
Harland dataPRINT, Inc. 100 Georgia
Harland International Company 100 Georgia
Scantron Corporation 100 Delaware
Harland Benefits Management Corporation 90 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
Nos. 333-94727 and 33-60151 of John H. Harland Company on Form S-8 of our
report dated January 28, 2000, appearing in this Annual Report on
Form 10-K of John H. Harland Company for the year ended December 31, 1999.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Atlanta, Georgia
March 30, 2000
<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, 1999
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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 49,823
<SECURITIES> 0
<RECEIVABLES> 67,357
<ALLOWANCES> 6,456
<INVENTORY> 23,411
<CURRENT-ASSETS> 153,048
<PP&E> 272,555
<DEPRECIATION> 160,559
<TOTAL-ASSETS> 391,405
<CURRENT-LIABILITIES> 98,733
<BONDS> 106,446
<COMMON> 37,907
0
0
<OTHER-SE> 131,119
<TOTAL-LIABILITY-AND-EQUITY> 391,405
<SALES> 702,512
<TOTAL-REVENUES> 702,512
<CGS> 438,223
<TOTAL-COSTS> 438,223
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,170
<INCOME-PRETAX> 68,459
<INCOME-TAX> 25,775
<INCOME-CONTINUING> 42,684
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,684
<EPS-BASIC> 1.39
<EPS-DILUTED> 1.37
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule is being restated and is to replace the previously
provided schedule for the years ending December 31, 1998 and 1997.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 42,541 9,829
<SECURITIES> 0 3,188
<RECEIVABLES> 75,731 76,471
<ALLOWANCES> 6,806 3,341
<INVENTORY> 24,892 26,442
<CURRENT-ASSETS> 159,355 148,386
<PP&E> 259,222 249,350
<DEPRECIATION> 138,327 131,407
<TOTAL-ASSETS> 391,770 426,186
<CURRENT-LIABILITIES> 106,382 109,767
<BONDS> 107,071 109,358
<COMMON> 37,907 37,907
0 0
0 0
<OTHER-SE> 124,407 154,919
<TOTAL-LIABILITY-AND-EQUITY> 391,770 426,186
<SALES> 673,947 659,954
<TOTAL-REVENUES> 673,947 659,954
<CGS> 437,598 432,665
<TOTAL-COSTS> 437,598 432,665
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 7,457 8,421
<INCOME-PRETAX> (10,961) 29,566
<INCOME-TAX> 9,686 12,270
<INCOME-CONTINUING> (20,647) 17,296
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (20,647) 17,296
<EPS-BASIC> (.66) .56
<EPS-DILUTED> (.66) .56
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule is being restated and is to replace the previously
provided schedule for the quarters ending April 2, July 2 and
October 1, 1999.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999 DEC-31-1999
<PERIOD-END> APR-02-1999 JUL-02-1999 OCT-01-1999
<CASH> 51,228 61,080 57,598
<SECURITIES> 0 0 0
<RECEIVABLES> 75,015 72,998 72,513
<ALLOWANCES> 6,745 6,672 6,839
<INVENTORY> 23,846 23,259 22,621
<CURRENT-ASSETS> 164,599 173,221 168,881
<PP&E> 261,294 265,920 273,168
<DEPRECIATION> 142,719 148,715 157,555
<TOTAL-ASSETS> 413,544 409,946 398,881
<CURRENT-LIABILITIES> 99,110 94,663 100,860
<BONDS> 106,585 106,588 106,522
<COMMON> 37,907 37,907 37,907
0 0 0
0 0 0
<OTHER-SE> 153,704 154,347 136,764
<TOTAL-LIABILITY-AND-EQUITY> 413,544 409,946 398,891
<SALES> 178,744 357,144 530,871
<TOTAL-REVENUES> 178,744 357,144 530,871
<CGS> 111,925 224,806 331,754
<TOTAL-COSTS> 111,925 224,806 331,754
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 1,799 3,553 5,552
<INCOME-PRETAX> 8,586 19,854 28,109
<INCOME-TAX> 16,978 33,243 51,726
<INCOME-CONTINUING> 10,017 19,946 32,477
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 10,017 19,946 32,477
<EPS-BASIC> .32 .64 1.05
<EPS-DILUTED> .32 .64 1.04
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule is being restated and is to replace the previously
provided schedule for the quarters ending April 3, July 3 and
October 2, 1998.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 DEC-31-1998
<PERIOD-END> APR-03-1998 JUL-03-1998 OCT-02-1998
<CASH> 15,953 6,813 22,821
<SECURITIES> 0 0 0
<RECEIVABLES> 73,516 73,225 77,011
<ALLOWANCES> 4,254 4,268 4,746
<INVENTORY> 26,719 26,686 24,092
<CURRENT-ASSETS> 139,461 134,202 143,622
<PP&E> 248,035 254,479 258,665
<DEPRECIATION> 129,075 132,895 136,265
<TOTAL-ASSETS> 414,435 416,532 416,344
<CURRENT-LIABILITIES> 95,838 95,339 94,834
<BONDS> 107,041 107,057 107,068
<COMMON> 37,907 37,907 37,907
0 0 0
0 0 0
<OTHER-SE> 159,329 161,597 160,750
<TOTAL-LIABILITY-AND-EQUITY> 414,435 416,532 416,344
<SALES> 170,176 330,230 504,999
<TOTAL-REVENUES> 170,176 330,230 504,999
<CGS> 111,953 218,488 328,164
<TOTAL-COSTS> 111,953 218,488 328,164
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 1,824 3,688 5,650
<INCOME-PRETAX> 10,468 17,511 24,626
<INCOME-TAX> 4,397 7,359 10,466
<INCOME-CONTINUING> 6,071 10,152 14,160
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 6,071 10,152 14,160
<EPS-BASIC> .20 .33 .46
<EPS-DILUTED> .20 .33 .46
</TABLE>
