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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, 2000 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 16, 2001 was $442,278,807.
The number of shares of the Registrant's Common Stock outstanding on March 16,
2001, was 28,622,791.
A portion of the Registrant's Proxy Statement dated March 16, 2001, 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 7
Item 3: Legal Proceedings 7
Item 4: Submission of Matters to a Vote of Security Holders 7
Executive Officers of the Registrant 8
Part II
Item 5: Market for the Registrant's Common Equity and
Related Stockholder Matters 8
Item 6: Selected Financial Data 8
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 7A: Quantitative And Qualitative Disclosures About
Market Risk 9
Item 8: Financial Statements and Supplementary Data 9
Item 9: Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 9
PART III
Item 10: Directors and Executive Officers of the Registrant 9
Item 11: Executive Compensation 9
Item 12: Security Ownership of Certain Beneficial Owners
and Management 9
Item 13: Certain Relationships and Related Transactions 9
PART IV
Item 14: Exhibits, Financial Statement Schedule and
Reports on Form 8-K 10
-2-
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 include financial printing (checks, forms and business
products) and, through its Harland Financial Solutions, Inc. subsidiary ("HFS"),
database marketing software, 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 education, financial institution,
and commercial markets.
The Company serves its major markets through three primary business
segments, each of which is described below. Reference is made to Note 12 of
the Notes to Consolidated Financial Statements on page F28 of this Annual
Report on Form 10-K with respect to information concerning the Company's
business segments.
Recent Developments
On August 23, 2000, the Company completed its cash tender offer for
the outstanding common stock of Concentrex Incorporated ("Concentrex"). The
acquired operations provide technology-powered solutions to deliver
financial services, including a broad range of traditional software and
services integrated with e-commerce solutions to over 5,000 financial
institutions of all types and sizes in the United States. The Company
believes that this acquisition made it one of the larger providers of
software focused on the financial institution market and gives the Company
leading positions in a number of key market segments. The acquired
operations are part of the Company's Software and Services segment.
The Company announced a reorganization primarily related to the
three segment operating structure implemented during the fourth quarter.
This reorganization eliminated 145 positions to streamline the Company's
operations. During the fourth quarter of 2000, the Company decided to
discontinue certain of its DOS-based software products and migrate current
customers to similar product offerings acquired in the Concentrex
acquisition. Also, the Company revised the long-term prospects of another
of its software operations.
In November 2000, in conjunction with the sale of certain assets to
Netzee, Inc. ("Netzee") the Company extended a guaranty to a financial
institution, on behalf of Netzee, of Automated Clearing House exposures up
to an amount not to exceed $15 million. In March 2001, the guaranty was
terminated with no liability to the Company.
-3-
Printed Products
The Printed Products segment ("Printed Products") provides products
and services to financial institutions, including banks, credit unions,
brokerage houses and financial software companies. These offerings include
checks, forms and business documents marketed to financial institutions or
customers of those institutions on their behalf.
Printed Products traditional products are checks, forms and related
magnetic ink character recognition ("MICR") documents, including personal,
business and computer checks and forms. Printed Products also produces a
variety of financial documents, in conjunction with personal and/or small
business financial software applications.
Printed Products 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 the Company.
While accurate statistics with respect to the aggregate level of check
production are not readily available, the Company believes that Printed
Products is the second-largest producer of MICR-encoded documents and
related forms in the United States.
Printed Products markets its products and services primarily in the
United States, although there is varying market penetration in the
Caribbean and Mexico. Distinct sales groups focus on community, regional
and national banks, credit unions, brokerage houses, financial software
companies and office supply superstores. Printed Products also produces
checks on behalf of a direct mail check supplier.
Printed Products maintains 15 production facilities in the United
States. These facilities consist of nine imprint plants, two computer
checks facilities, one facility dedicated to direct marketing and brokerage
production and three forms and specialty production facilities. Printed Products
also has an imprint facility in Puerto Rico. The Company has a 51%-ownership in
a check printing company in Mexico, which has one production facility.
Printed Products is currently converting four of its imprint plants to
digital printing technology. The conversion, which began in 2000, will
ultimately cost approximately $25 million when completed. One plant was
converted during 2000, with three more plants scheduled for conversion by the
end of 2001. This technology is currently in use in the facility dedicated to
direct marketing and brokerage production.
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 Printed Products operations.
The Company believes that the loss of any one Printed Products
customer would not have a materially adverse effect on its consolidated
results of operations.
-4-
Software and Services
The Software and Services segment provides products and services to
financial institutions, including banks and credit unions. These software
offerings include loan origination, database marketing, host processing,
mortgage services and analytical services. Software and Services market its
products and services primarily in the United States and operates ten
facilities nationwide. The segment is composed of HFS and Harland Services.
HFS consists of four business units: Delivery Systems, Financial
Intelligence, Mortgage Services and Host Processing.
Delivery Systems products include loan and deposit origination and
compliance software for the financial institution market. These products
are marketed and supported to a customer base of approximately 4,000
financial institutions. Delivery Systems has both a Windows(R)-based and
web-based product, which the Company believes form the most complete
product suite in the industry. Competition within this market varies by
financial institution size.
Financial Intelligence products includes marketing customer
information file ("MCIF") software, a decision support solution which
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. Additionally, the Company is 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. Financial
Intelligence also includes the Encore! product line, which provides
financial institutions with cross-selling opportunities at branch, call
center and teller levels.
The market for the Financial Intelligence products and services is
growing within the financial services industry. More than 750 financial
institutions utilize one of the Company's database marketing products,
giving the Company a leadership position in this emerging market.
Host Processing provides real-time host processing solutions for
mid-to-large-sized credit unions. It also provides PC-based host solutions
for smaller credit unions. The main business is a company called ULTRADATA,
which was part of the Concentrex acquisition. Believing that there was
brand recognition and credibility to the ULTRADATA name, the Company
revived the ULTRADATA brand after the acquisition. Host Processing works
with approximately 800 customers.
Mortgage Services develops, markets and provides maintenance
services for three integrated mortgage software applications, including an
origination system, a secondary market system, and a risk analysis and
pipeline management system. Mortgage Services provides these services to
approximately 40 financial institutions.
The Company believes that the primary competitive factor influencing
buying decisions within the Software and Services segment is the ability to
help financial institutions improve profitability and increase operational
efficiencies. The Company believes that Software and Services compares
favorably with its competitors in this respect.
The Company believes that the loss of any one Software and Services
customer would not have a materially adverse effect on its consolidated
results of operations.
-5-
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 education, financial
institution and commercial markets. These primary offerings include
scannable forms, optical mark readers ("OMRs"), application software and
maintenance services.
Scantron's brand awareness is strong in the K-12 and post secondary
education markets, where the name "Scantron" is readily associated with
testing and data collection technology. In addition to test scoring, a
Scantron system, which includes a scanner, forms and software, is used to
collect and analyze data for attendance, course scheduling, evaluations,
payroll, skills assessments, balloting, employee surveys, 360-Degree
Surveys, customer satisfaction surveys and patient surveys.
Related lines of businesses include the Scantron Survey Services
Division, 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 and services primarily through inside
and outside sales and service representatives throughout the United States
and Canada. Representatives sell machines, forms, software, scanner
maintenance, survey services, and on-site support and installation services
of PC hardware, peripherals and computer networks. Scantron's products
(principally machines and forms) 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.
-6-
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, 2000, the Company and its subsidiaries employed
5,445 people.
ITEM 2. PROPERTIES
As of December 31, 2000, the Company and its subsidiaries owned and
leased facilities throughout the United States, Puerto Rico and Mexico.
The Printed Products facilities consist of nine imprint plants, two computer
checks facilities, one facility dedicated to direct marketing and brokerage
production and three forms and specialty production facilities. The Company also
leases a production facility in Puerto Rico. The Company has a 51% ownership in
a check printing company in Mexico, which has one production facility.
The Software and Services segment leases office space for sales and
service activities in ten states.
The Scantron subsidiary conducts its business in three facilities
located in California, Texas and Nebraska and leases small amounts of space for
its field services activities in various states.
The Company owns ten of the Printed Product facilities and one of the
Scantron facilities and leases the remainder of its properties. These leases
have expiration dates ranging from 2001 to 2012. The Company also owns three
buildings located in Atlanta, Georgia which houses its Printed Products support
and administrative services and also its corporate offices.
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.
-7-
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 53 Chairman, President and Chief Executive
Officer
Charles B. Carden 56 Vice President Finance and Chief Financial
Officer
S. David Passman III 48 President, Printed Products
John C. Walters 60 Vice President, Secretary and General
Counsel
Mr. Tuff joined the Company as President and Chief Executive Officer 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 in 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 Corporation 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 2000. He was
previously employed by Deloitte & Touche LLP for 20 years, last serving as
Managing Partner of its Atlanta office.
Mr. Walters has been employed by the Company for more than five
years.
Mr. Tuff also serves on the Board of Directors and was elected as
Chairman of the Board in 2000. Officers are elected annually and serve at
the pleasure of the Board.
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 F32. 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
F32.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
See the information under the caption Management's Discussion and
Analysis of Results of Operations and Financial Condition on pages F2
through F8 of this Annual Report on Form 10-K.
-8-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the information with respect to Quantitative And Qualitative
Disclosures About Market Risk on pages F7 and F8 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 F9 through F32.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding Directors required herein is incorporated
by reference to the information under the captions "Election of Directors"
and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Registrant's Proxy Statement for the Annual Meeting of Shareholders dated
March 16, 2001 (the "Proxy Statement").
The information regarding Executive Officers required herein is
included in Part I of this Annual 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.
-9-
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:
Consolidated Balance Sheets F9
Consolidated Statements of Operations F11
Consolidated Statements of Cash Flows F12
Consolidated Statements of Shareholders' Equity F13
Notes to Consolidated Financial Statements F14
Independent Auditors' Report F30
Management's Responsibility for Financial Statements F31
Supplemental Financial Information (unaudited) F32
(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.
3.1 * Amended and Restated Articles of Incorporation (Exhibit B to
Registrant's 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 * Revolving Credit Agreement, dated as of August 23, 2000, among Registrant
and the Lenders named therein (Exhibit 10.1 to the Registrant's Current
Report on Form 8-K dated August 23, 2000).
4.2 First Amendment dated October 19, 2000 to the Revolving Credit
Agreement.
4.3 Second Amendment dated February 28, 2001 to the Revolving Credit
Agreement.
4.4 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).
4.5 * Rights Agreement, dated as of December 17, 1998, between Registrant and
First Chicago Trust Company of New York (Exhibit 4.1 to Registrant's
Current Report on Form 8-K dated July 1, 1999).
4.6 * Note Agreement dated as of December 1, 1993 relating to Registrant's
6.60% Series A Senior Notes Due December 30, 2008 (Exhibit 4.5 to the
1995 10-K).
4.7 See Articles IV, V and VII of Registrant's Amended and Restated Articles
of Incorporation, filed as Exhibit 3.1, and Articles I, V and VIII of
Registrant's Bylaws, filed as Exhibit 3.2.
10.1 * Form of Noncompete and Termination Agreement between Registrant,
Charles B. Carden, S. David Passman III and John C. Walters
(Exhibit 10.6 to the 1995 10-K).
-10-
10.2 * Noncompete and Termination Agreement, dated as of October 6,1998,
between Registrant and Timothy C. Tuff (Exhibit 10.7 to the 1998 10-K).
10.3 * Restricted Stock Agreement, dated October 6, 1998, between Registrant
and Mr. Tuff (Exhibit 10.8 to the 1998 10-K).
10.4 Form of Restricted Stock Agreement between Registrant and Messrs.
Carden, Passman, Tuff and Walters.
10.5 * Supplemental Retirement Agreement, dated as of January 14, 1999,
between Registrant and Mr. Tuff (Exhibit 10.9 to the 1998 10-K).
10.6 * 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).
10.7 * John H. Harland Company 2000 Stock Option Plan (Exhibit 99-1 to
Registration Statement on Form S-8, File No. 333-50892)
10.8 John H. Harland Company Employee Stock Purchase Plan, as amended.
10.9 * 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.
(b) Reports on Form 8-K.
On November 6, 2000, the Company filed a Form 8-K/A Amendment No. 1 to
the Current Report on Form 8-K dated August 23, 2000. The Form 8-K/A provides
the financial statements and pro forma financial information required to be
filed by the Company with respect to Concentrex Incorporated becoming a wholly
owned subsidiary of Harland as of August 23, 2000.
-11-
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 3/30/01 /s/ J. Michael Riley 3/30/01
- ------------------------ --------- ------------------------ -------
Charles B. Carden Date J. Michael Riley Date
Vice President Finance and Vice President and
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 3/30/01 /s/ William S. Antle III 3/30/01
- ------------------------ --------- ------------------------ -------
Timothy C. Tuff Date William S. Antle III Date
Chairman, President and Director
Chief Executive Officer
(Principal Executive Officer)
/s/ John D. Johns 3/30/01 /s/ Richard K. Lochridge 3/30/01
- ------------------------ --------- ------------------------ -------
John D. Johns Date Richard K. Lochridge Date
Director Director
/s/ G. Harold Northrop 3/27/01
- ----------------------- --------- ------------------------ -------
John J. McMahon Jr. Date G. Harold Northrop Date
Director Director
/s/ Larry L. Prince 3/30/01 /s/ Eileen M. Rudden 3/29/01
- ----------------------- --------- ------------------------ -------
Larry L. Prince Date Eileen M. Rudden Date
Director Director
/s/ Jesse J. Spikes 3/30/01
- ----------------------- ---------
Jesse J. Spikes Date
Director
-12-
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, 2000
Management's Discussion and Analysis of
Results of Operations and Financial Condition F2
Consolidated Financial Statements
and Notes to Consolidated Financial Statements F9
Independent Auditors' Report F30
Management's Responsibility For Financial Statements F31
Supplemental Financial Information (Unaudited) F32
Financial Statement Schedule S1
-F1-
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
three segments. The Printed Products segment ("Printed Products") includes
checks and direct marketing activities marketed primarily to financial
institutions.
The Software and Services segment ("Software") is focused on the
financial institution market and includes lending and mortgage origination
and closing applications, database marketing software, host processing and
business intelligence solutions.
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
services. Scantron sells these products and services to the commercial,
financial institution and education markets.
Results of Operations
2000 versus 1999
Consolidated net sales for the year ended December 31, 2000 were
$720.7 million, compared to $702.5 million for the year ended December 31,
1999, an increase of 2.6%. Printed Products sales were $567.5 million in
2000, a decrease of 1.8% from 1999. The largest decrease in Printed
Products occurred in traditional check printing operations where a 6.0%
volume decrease was due to a decline in orders received from a direct check
marketer and the loss of certain large customers resulting from continued
consolidation in the financial institution industry. Average sales per unit
in traditional check printing operations grew by 2.7% and partially offset
the impact of lower volumes. Direct marketing volume and sales also
declined in 2000.
Software sales increased 120.0% from $27.5 million in 1999 to $60.5
million in 2000 primarily due to the acquisition of Concentrex Incorporated
("Concentrex")(see Note 2). Sales from the acquired operations totaled
$36.8 million for the period from August 23, 2000 (date of acquisition) to
December 31, 2000. Sales in previously existing Software operations were
down compared to 1999 due to a delay in the delivery of a new loan and
deposit origination product and slower than anticipated sales of database
marketing software products.
Scantron's sales were $93.4 million in 2000, a decrease of 4.3% from
1999. The decrease in sales was primarily due to the divestiture of
Scantron Quality Computers ("SQC") in December 1999. Adjusted for the
divestiture of SQC, Scantron sales increased 2.2% with the increases
occurring in its scanning and survey divisions. Scantron's field services
division had a slight decrease in sales compared to 1999.
Consolidated gross profit increased by 11.3% from $264.3 million in
1999 to $294.1 million in 2000 and increased as a percentage of sales from
37.6% in 1999 to 40.8% in 2000. The increase in Printed Products gross
profit as a percentage of sales to 37.1% in 2000 from 35.0% in 1999
accounted for most of the consolidated gross profit increase. Printed
Products gross profit improvement resulted primarily from a price increase,
a favorable product pricing/mix and improvement in productivity due to the
implementation of new technology and price enhancements. Software's gross
profit, as a percent of sales, increased to 58.0% in 2000 from 52.0% in
1999. Scantron's gross profit increased by 0.9% over 1999 and increased as
a percentage of sales to 51.7% in 2000 from 49.0% in 1999 due to product
mix and the divestiture of SQC in 1999, which had lower margins.
-F2-
Selling, general and administrative expenses ("SG&A") totaled $201.7
million in 2000, an increase of 9.0% over 1999. As a percentage of sales,
SG&A increased from 26.3% in 1999 to 28.0% in 2000. The increase was due in
part to the addition of Concentrex operations which had higher SG&A costs
in relation to sales than the Company's traditional operations. The impact
of the Concentrex acquisition was partially offset by decreases in
corporate expenditures relating to Year 2000 and other projects in 1999.
During the fourth quarter of 2000, the Company recorded a
restructuring charge of $14.5 million (see Note 3) which was primarily for
impairment of intangible assets and severance-related expenses. The
impairment of intangibles was a result of the Company's examination during
the fourth quarter of the long-term viability of product offerings in two
of its software operations. Subsequent to the acquisition of Concentrex in
August 2000, the Company decided to discontinue certain DOS-based products
and migrate current customers to similar Concentrex product offerings or to
a web-based product currently in development. As a result of this decision,
the remaining intangibles associated with these products were written off.
Due to lower than anticipated sales of a new version of an existing
product, the Company revised the long-term prospects of another of its
software operations. The revision of expectations required an adjustment of
the carrying value of the operation's long-term assets to the calculated
value based on discounted projected cash flows. The impairment charges for
these two actions had a total pre-tax impact of $9.4 million, or $7.9
million after tax. The severance costs resulted primarily from a
reorganization of the Company into three distinct segments. In connection
with the reorganization during the fourth quarter, the Company eliminated
145 positions, which resulted in a pre-tax charge of $4.3 million, or $2.6
million after tax.
Amortization of intangibles in 2000 increased by $3.3 million from
1999 primarily due to the Concentrex acquisition in August 2000.
Interest expense increased by $3.2 million in 2000 due to increases
in debt levels related to the financing of the Concentrex acquisition and
refinancing of existing debt.
Other income - net increased $1.8 million in 2000 due primarily to a
gain on the sale of a Company investment in the fourth quarter.
The Company's effective income tax rate was 47.1% in 2000 and 37.7%
in 1999. The effective rate increased due to the impact of non-deductible
costs in 2000, including acquired in-process research and development,
impairment of intangibles included in restructuring costs and
Concentrex-related intangible amortization. The increase between years was
moderated by an increase in tax credits in 2000. See Note 5 to the
consolidated financial statements for factors affecting the tax rate in
each year.
Net income for 2000 was $28.7 million compared to $42.7 million for
1999. Basic and diluted earnings per share for 2000 were $1.01 and $1.00,
respectively, compared to basic and diluted earnings per share of $1.39 and
$1.37 in 1999. Included in 2000 were charges for restructuring and acquired
in-process research and development costs, which reduced diluted earnings
by $0.66 per share. These were offset partially by a gain on the sale of
investments, which increased earnings per share by $0.10. The acquisition
of Concentrex had a dilutive impact on 2000 earnings of $0.10 per share.
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%.
Printed Products sales were $577.7 million in 1999, an increase of
5.6% over 1998. The increase in Printed Products sales was spread among
printing operations. The largest increase was in direct marketing
operations. In traditional check printing operations, a 1.0% volume decline
was offset by a small positive price variance that resulted despite the
pricing pressure experienced in large contract renewals.
-F3-
In Software, sales declined during 1999 primarily due to a drop in
new installations resulting from delays in the introduction of new
generation software products. The initial installations of MAX$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 operations
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 Printed Products, gross profit as a percentage of sales increased
to 35.0% in 1999 from 31.0% in 1998. All operating areas in this segment
showed improvement in 1999. The overall 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% in 1999 from 50.7% in 1998, primarily
reflecting declines in gross margins in field maintenance services and
survey solutions, partially offset by an improvement in gross margin for
scannable forms and OMR equipment.
Consolidated 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, costs related to Year 2000 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.
In 1998, the Company expensed $12.8 million primarily associated
with the development of the Harland Relationship Manager software system.
During 1998, the Company recorded 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 fourth quarter of 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 - net 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 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 5 to
the consolidated financial statements for factors impacting the tax rate in
each year.
-F4-
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.
Financial Condition, Capital
Resources and Liquidity
Cash flows provided from operations in 2000 were $101.6 million, an
increase of 5.2% over $96.6 million for 1999. Cash flows provided by
financing activities totaled $69.8 million in 2000 as compared to cash used
by financing activities of $56.5 million in 1999. The primary uses of funds
in 2000 were for the acquisition of Concentrex, capital expenditures,
refundable contract payments, dividend payments to shareholders and
purchases of treasury stock.
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, 2000, the Company had paid $56.5
million to repurchase 3,040,000 shares under this authorization. In March
2000, the Board of Directors approved an extension of this program to
include up to an additional 2.9 million shares of common stock.
Capital expenditures totaled $40.5 million in 2000 compared to $23.8
million in 1999. The increase in capital expenditures related primarily to
digital printing equipment purchases. In January 2000, the Company entered
into a purchase agreement to purchase digital printing equipment. As of
December 31, 2000 the Company purchased approximately $16.3 million of
digital printing equipment with additional purchases projected at $7.4
million for 2001.
As of December 31, 2000, the Company's assets included a net
unrealized gain of $5.4 million primarily related to appreciation of the
Company's investment in Bottomline Technologies, Inc. ("Bottomline"). This
unrealized gain was partially offset by an unrealized loss related to the
Company's investment in Netzee, Inc. ("Netzee"). The net unrealized gain
was recorded as a component of accumulated other comprehensive income in
the shareholders' equity section of the balance sheet.
In connection with the Concentrex acquisition, the Company entered
into a $300 million revolving credit facility maturing in 2004 (see Note
4). The facility may be used for general corporate purposes, including
acquisitions, and includes both direct borrowings and letters of credit. As
of December 31, 2000, direct borrowings totaled $185 million under the
credit facility and there was $3.2 million in outstanding letters of
credit; $0.1 million of these letters of credit were issued under the
credit facility.
On December 31, 2000, the Company had $18.5 million in cash and cash
equivalents and $114.9 million available for borrowing under the credit
facility. The Company believes that its current cash position, funds from
operations and the availability of funds under the new credit facility will
be sufficient to meet anticipated requirements for working capital,
dividends, capital expenditures and other corporate needs. Management is
not aware of any condition that would materially alter this trend. The
Company also believes that it possesses sufficient unused debt capacity and
access to equity capital markets to pursue additional acquisition
opportunities.
-F5-
Concentrex Acquisition
On August 23, 2000, the Company completed its cash tender offer for
the outstanding common stock of Concentrex. The acquired operations provide
technology-powered solutions to deliver financial services, including a
broad range of traditional software and services integrated with e-commerce
solutions to over 5,000 financial institutions of all types and sizes in
the United States.
The acquisition costs totaled $146.5 million which included the
purchase of outstanding shares of common stock of Concentrex, preferred
stock and stock options ($42.0 million), the payoff of Concentrex's loan
obligations ($83.9 million) and certain other acquisition costs ($20.6
million). Approximately $100 million of the acquisition cost was funded
from a new credit facility obtained by the Company (see Note 4).
The acquisition costs have been allocated on the basis of the
preliminary estimated fair market values of the assets acquired and
liabilities assumed.
As part of the acquisition, the Company acquired in-process research
and development costs of $8.2 million, which were expensed at acquisition,
and represented the fair value of certain acquired research and development
projects that were determined to have not reached technological
feasibility.
A portion of the acquisition cost was allocated to the net
realizable value of certain assets of the acquired operation's online
banking and electronic payments business which the Company identified as a
business held for sale. In November 2000, these assets, which totaled $8.2
million, were sold to Netzee for consideration of 4.4 million shares of
Netzee common stock. The Company also extended a line of credit to Netzee
of which the maximum amount of $5.0 million was outstanding at December 31,
2000.
The purchase price allocation for this acquisition is preliminary
and may be revised at a later date. The acquisition was accounted for using
the purchase method of accounting and, accordingly, the results of
operations of Concentrex have been included in the Company's consolidated
financial statements from the date of acquisition.
Outlook
The Company believes that its financial position continues to be
strong. The Software and Services segment operations related to the
Concentrex acquisition were less dilutive in 2000 than anticipated. The
Company anticipates this segment will continue to be dilutive to earnings,
including the impact of acquisition-related interest, in 2001. However, the
Company expects this segment's profitability will improve during 2001.
The Company is projecting continued growth in the Printed Products
segment's profits due to implementation of new technology, including
digital printing, process improvements and growth in direct marketing
operations.
The Company is projecting the Scantron segment will increase sales
and profits nominally in 2001 primarily in its survey business.
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
-F6-
should be taken not to place undue reliance on any such forward-looking
statements, which speak only as of the date such statements are made and
which may or may not be based on historical experiences and/or trends which
may or may not continue in the future. The Company does not undertake and
specifically declines any obligation to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect
events or circumstances occurring after the date of such statements or to
reflect the occurrence of unanticipated events.
Various factors may affect the Company's financial performance,
including, but not limited to, those factors discussed below and could
cause the Company's actual results for future periods to differ from any
opinions, statements or projections expressed with respect thereto. Such
differences could be material and adverse. Many variables will impact the
ability to improve service quality, achieve production efficiencies and
reduce expenses. These include, but are not limited to, the development and
implementation of new technology and processes 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 and services, and other such factors
outside of the Company's control, may adversely affect prices and may
materially impact the Company's results.
Several factors outside the Company's control could negatively
impact check revenue. These include the continuing expansion of alternative
payment systems such as credit cards, debit cards and other forms of
electronic commerce or on-line payment systems. Check revenues could also
be adversely affected by continued consolidation of financial institutions
and competitive check pricing, among other factors. There can be no
assurances that the Company will not lose significant customers or that any
such loss could be offset by the addition of new customers. Also, there can
be no assurance that the Company will experience similar or higher revenue
compared to prior years, or that any targets or projections made relating
to check revenues will be achieved.
While the Company believes substantial growth opportunities exist,
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
As a result of the variable nature of the revolving credit
facility's interest rate, the fair value of the Company's revolving credit
debt approximates its carrying value.
-F7-
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 and
Netzee. 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, 2000 and the value at risk
for the Company's investment in Netzee reflecting the high and low closing
market prices for the period November 10, 2000 (date of acquisition)
through December 31, 2000 (in thousands):
Carrying
Value(a) High(b) Low(b)
- ----------------------------------------------------------------------
Investment in:
Bottomline $12,946 $27,657 $7,560
Netzee 1,650 8,800 1,375
[FN]
(a) Based on market value as of December 31, 2000.
(b) Based on quoted market prices for these items.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"), as amended by Statements No. 137 and No. 138,
which provides a comprehensive and consistent standard for the recognition
and measurement of derivatives and hedging activities. Upon adoption, all
derivative instruments will be recognized in the balance sheet at fair
value, and changes in the fair values of such instruments must be
recognized currently in earnings unless specific hedge accounting criteria
are met. FAS 133 will be effective for the Company on January 1, 2001.
Adoption of these pronouncements will not have an initial material effect on
the Company's financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides
guidance on applying generally accepted accounting principles to revenue
recognition issues in financial statements. The Company adopted SAB 101 as
required in the fourth quarter of 2000 and the adoption of SAB 101 did not
have a material impact on the financial position or results of operations
of the Company.
Year 2000 Compliance
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 2000 in these areas due to the Year 2000 issues.
-F8-
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31,
2000 1999
- -------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 18,480 $ 49,823
Accounts receivable from customers, less
allowance for doubtful accounts of $4,272
and $6,456 86,767 60,901
Inventories:
Raw materials and semi-finished goods 19,506 22,628
Hardware component parts 342 191
Finished goods 755 592
Deferred income taxes 19,217 12,664
Prepaid income taxes 15,738 379
Other 7,211 5,870
- -------------------------------------------------------------------------------
Total current assets 168,016 153,048
- -------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS:
Investments 16,740 23,167
Goodwill and other intangibles - net 142,960 61,213
Deferred income taxes 6,614 9,911
Refundable contract payments 25,705 19,793
Other - net 33,301 12,277
- -------------------------------------------------------------------------------
Total investments and other assets 225,320 126,361
- -------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 3,555 3,555
Buildings and improvements 49,098 45,570
Machinery and equipment 216,138 196,393
Furniture and fixtures 14,230 11,687
Leasehold improvements 10,150 7,727
Additions in progress 17,426 7,623
- -------------------------------------------------------------------------------
Total property, plant and equipment 310,597 272,555
Less accumulated depreciation and amortization 181,007 160,559
- -------------------------------------------------------------------------------
Property, plant and equipment - net 129,590 111,996
- -------------------------------------------------------------------------------
TOTAL $522,926 $391,405
===============================================================================
-F9-
CONSOLIDATED BALANCE SHEETS (continued)
December 31,
2000 1999
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 29,313 $ 29,587
Deferred revenues 47,622 22,471
Accrued liabilities:
Salaries, wages and employee benefits 28,365 25,793
Restructuring costs 3,296 1,238
Taxes 8,015 6,284
Other 23,836 13,360
- --------------------------------------------------------------------------------
Total current liabilities 140,447 98,733
- --------------------------------------------------------------------------------
LONG-TERM LIABILITIES:
Long-term debt 191,617 106,446
Other 19,497 17,200
- --------------------------------------------------------------------------------
Total long-term liabilities 211,114 123,646
- --------------------------------------------------------------------------------
Total liabilities 351,561 222,379
- --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (see Note 11)
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 343,998 326,049
Accumulated other comprehensive income 5,084 19,091
Unamortized restricted stock awards (1,591) (415)
- --------------------------------------------------------------------------------
385,398 382,632
Less 9,383,806 and 9,263,895 shares in
treasury, at cost 214,033 213,606
- --------------------------------------------------------------------------------
Total shareholders' equity 171,365 169,026
- --------------------------------------------------------------------------------
TOTAL $522,926 $391,405
================================================================================
[FN]
See Notes to Consolidated Financial Statements.
-F10-
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year ended December 31,
2000 1999 1998
---------------------------------------------------------------------------------
Net Sales $ 720,677 $ 702,512 $ 673,947
Cost of sales 426,589 438,223 437,598
---------------------------------------------------------------------------------
Gross Profit 294,088 264,289 236,349
Selling, general and administrative
expenses 201,653 185,072 170,466
Amortization of intangibles 9,318 6,035 10,213
Acquired in-process research and development
and other software charges 8,248 - 12,771
Restructuring charge 14,451 - 51,087
---------------------------------------------------------------------------------
Income (Loss) From Operations 60,418 73,182 (8,188)
---------------------------------------------------------------------------------
Other Income (Expense):
Interest expense (10,379) (7,170) (7,457)
Other - net 4,225 2,447 4,684
---------------------------------------------------------------------------------
Total (6,154) (4,723) (2,773)
---------------------------------------------------------------------------------
Income (Loss) Before Income Taxes 54,264 68,459 (10,961)
Income taxes 25,567 25,775 9,686
---------------------------------------------------------------------------------
Net Income (Loss) $ 28,697 $ 42,684 $ (20,647)
=================================================================================
Earnings (Loss) Per Common Share
Basic $ 1.01 $ 1.39 $ (0.66)
Diluted $ 1.00 $ 1.37 $ (0.66)
=================================================================================
[FN]
See Notes to Consolidated Financial Statements.
-F11-
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year ended December 31,
2000 1999 1998
-----------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income (loss) $ 28,697 $ 42,684 $(20,647)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 29,595 29,738 27,463
Amortization 18,867 10,826 14,952
Noncash portion of restructuring charge 12,415 - 46,857
Acquired in-process research and development
and other software charges 8,248 - 10,927
Loss (gain) on sale of assets (2,426) 1,547 (2,991)
Other - net 2,208 3,531 5,184
Change in assets and liabilities net of
effects of businesses acquired/disposed:
Deferred income taxes 15,867 5,040 (8,738)
Accounts receivable (7,584) 6,913 (680)
Inventories and other current assets 11,408 3,324 18,495
Accounts payable and accrued expenses (15,694) (6,969) (9,449)
-----------------------------------------------------------------------------------
Net cash provided by operating activities 101,601 96,634 81,373
-----------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (40,474) (23,794) (33,486)
Proceeds from sale of property, plant and equipment 412 1,797 10,627
Proceeds from sale of investments 3,350 - -
Refundable contract payments (12,959) (10,529) (9,048)
Payment for acquisition of businesses -
net of cash acquired (143,195) - (2,252)
Note receivable (5,000) - -
Other - net (4,842) (376) (6,477)
-----------------------------------------------------------------------------------
Net cash used in investing activities (202,708) (32,902) (40,636)
-----------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Short-term borrowings - net 155 24 -
Proceeds from credit facility - net 184,995 - -
Repayment of long-term debt (100,000) (625) (2,287)
Purchases of treasury stock (7,000) (49,535) (2,999)
Issuance of treasury stock 2,315 2,154 2,507
Dividends paid (8,519) (9,188) (9,328)
Debt issuance costs paid (1,369) - -
Other - net (813) 720 907
-----------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 69,764 (56,450) (11,200)
-----------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (31,343) 7,282 29,537
Cash and cash equivalents at beginning of year 49,823 42,541 13,004
-----------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 18,480 $ 49,823 $ 42,541
===================================================================================
Supplemental cash flow information:
Interest paid $ 8,741 $ 7,133 $ 7,085
Income taxes paid 23,302 19,013 13,546
Exchange of net noncash assets for investment
in Netzee, Inc. 8,139 - -
===================================================================================
[FN]
See Notes to Consolidated Financial Statements.
-F12-
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 2000, 1999 and 1998
(In thousands, except share Accumulated Unamortized
and per share amounts) Additional Other Restricted Total
Common Paid-in Retained Comprehensive Treasury Stock Shareholders'
Stock Capital Earnings Income (Loss) Stock Awards Equity
- --------------------------------------------------------------------------------------------------------------------
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 stock compensation plans (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 stock compensation plans (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
Net income 28,697 28,697
Other comprehensive income (loss):
Foreign currency
translation adjustments (440) (440)
Unrealized losses on investments,
net of taxes (13,567) (13,567)
-------------
Comprehensive income 14,690
-------------
Cash dividends, $.30 per share (8,519) (8,519)
Purchase of 412,641 shares of treasury
stock (7,000) (7,000)
Issuance of 295,834 shares of treasury
stock under stock compensation plans (2,628) 6,611 (1,668) 2,315
Other 399 (38) 492 853
- --------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 $ 37,907 $ - $ 343,998 $5,084 $ (214,033) $(1,591) $ 171,365
====================================================================================================================
[FN]
See Notes to Consolidated Financial Statements.
-F13-
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
accounting principles generally accepted in the United States of America
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 ("SFAS") 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 3).
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, 2000 and 1999 (in thousands):
Available-for-sale securities
-----------------------------
Cost Market Value
- --------------------------------------------------------------
2000
Corporate equity securities $10,021 $14,829
Other equity investments 597 1,911
- --------------------------------------------------------------
Total 10,618 16,740
==============================================================
1999
Corporate equity securities 2,000 20,930
Other equity investments 823 2,237
- --------------------------------------------------------------
Total $ 2,823 $23,167
==============================================================
-F14-
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 11 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 3). Amortization
periods of intangible assets are also reviewed to determine whether events
or circumstances warrant revision to estimated useful lives.
Refundable Contract Payments
Certain contracts with the Company's customers involve up front
payments to the customer. These 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 is computed primarily by the declining balance method.
Depreciation of equipment, furniture and fixtures is calculated by the
straight-line or sum-of-the-years digits 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. 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. Accelerated methods are
used for income tax purposes for all property where allowed.
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. Revenue from
licensing of software with no follow-on obligations on the part of the
Company is recognized upon delivery. Revenue from licenses which require
installation and training is recognized upon completion of the
installation and training. Revenue from licenses which include significant
amounts of tailoring and/or customization is recognized on a percentage of
completion basis as the services are performed. Estimates of efforts to
complete a project are used in the percentage of completion calculation.
Due to the uncertainties inherent in these estimates, actual results could
differ from those estimates. If the license agreement obligates the
Company to provide post-contract support ("PCS") at no additional cost to
the customer, the revenue related to PCS, which is based on prices charged
when sold separately from the software, is recognized ratably over the
support period.
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 2000, 1999 and 1998 was $28,968,000, $42,958,000 and
$(20,647,000), respectively. The average number of common shares used in
the calculation of basic earnings per common share for 2000, 1999 and 1998
-F15-
was 28,468,887, 30,637,619 and 31,087,214, respectively. The average number of
common shares and dilutive potential common shares used in the calculation
of diluted earnings per common share for 2000, 1999 and 1998 was
28,831,637, 31,261,483 and 31,087,214, respectively. Dilutive potential
common shares that were not included in the calculation of diluted
earnings per share for 2000, 1999 and 1998 were 1,011,000, 615,000 and
749,000, respectively, because they were antidilutive. The dilutive
potential common shares 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 does not qualify for
capitalization.
The Company accounts for costs to develop or obtain computer
software for internal use in accordance with Accounting Standards
Executive Committee Statement of Position 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use" which
requires certain costs to be capitalized.
Software development costs incurred prior to the establishment of
technological feasibility are expensed as incurred. Software development
costs incurred after the technological feasibility of the subject software
product has been established are capitalized in accordance with SFAS 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed." Capitalized software development costs are amortized
on a product-by-product basis using the estimated economic life of the
product on a straight-line basis over three to four years. Unamortized
software development costs in excess of estimated future net revenues from
a particular product are written down to estimated net realizable value.
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.
Reclassifications
Certain reclassifications have been made in the 1998 and 1999
financial statements and notes to financial statements to conform to the
2000 classifications.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), as amended by Statements No. 137 and No. 138,
which provides a comprehensive and consistent standard for the recognition
and measurement of derivatives and hedging activities. Upon adoption, all
derivative instruments will be recognized in the balance sheet at fair
value, and changes in the fair values of such instruments must be
recognized currently in earnings unless specific hedge accounting criteria
are met. SFAS 133 will be effective for the Company on January 1, 2001.
Adoption of these pronouncements will not have an initial material effect
on the Company's financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101
provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The Company adopted
SAB 101 as required in the fourth quarter of 2000 and the adoption of SAB
101 did not have a material impact on the financial position or results of
operations of the Company.
-F16-
2. Acquisitions
On August 23, 2000, the Company completed a cash tender offer for
all of the outstanding common stock of Concentrex Incorporated
("Concentrex"). Concentrex was a provider of technology-powered solutions
to deliver financial services, including a broad range of traditional
software and services integrated with e-commerce solutions serving over
5,000 financial institutions of all types and sizes in the United States.
The acquisition costs totaled $146.5 million which included the
purchase of outstanding shares of common stock of Concentrex at $7 per
share, preferred stock and stock options ($42.0 million), the payoff of
Concentrex's loan obligations ($83.9 million) and certain other
acquisition costs ($20.6 million). Approximately $100 million of the
acquisition costs was funded from a new credit facility obtained by the
Company (see Note 4).
The acquisition costs have been allocated on the basis of the
estimated fair market values of the assets acquired and liabilities
assumed. Acquisition costs were allocated as follows and are being
amortized on a straight-line basis over the useful life indicated below
(in thousands):
Useful Life
Value In Years
- --------------------------------------------------------------------------
Tangible net assets acquired $ 17,232 -
Goodwill 88,856 11
Other intangible assets 10,668 7
Software 13,274 4
Net assets held for sale 8,242 -
In-process research and development 8,248 -
- --------------------------------------------------------------------------
Total $ 146,520
==========================================================================
As part of the acquisition, the Company acquired in-process
research and development costs of $8.2 million, which were expensed at
acquisition, and which represented the fair value of certain acquired
research and development projects that were determined to have not reached
technological feasibility.
A portion of the acquisition cost was allocated to the net
realizable value of certain assets of the acquired operation's online
banking and electronic payments business which the Company identified as a
business held for sale. In November 2000, these assets, which totaled $8.2
million, were sold to Netzee, Inc. ("Netzee") for consideration of 4.4
million shares of Netzee common stock. The Company also extended a line of
credit to Netzee of which the maximum amount of $5.0 million was
outstanding at December 31, 2000.
The purchase price allocation for the Concentrex acquisition is
preliminary and may be revised at a later date. The acquisition was
accounted for using the purchase method of accounting and, accordingly,
the results of operations of Concentrex have been included in the
Company's consolidated financial statements from the date of acquisition.
The following unaudited pro forma summary presents information as
if the Concentrex 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 (in thousands, except per share amounts):
1999 2000
- -------------------------------------------------------------------------
Net sales $ 786,682 $ 809,082
Net income $ 13,982 $ 12,661
Earnings per common share:
Basic $ .49 $ .41
Diluted $ .49 $ .40
-F17-
The unaudited pro forma summary includes adjustments related to the
purchase of 100% of the common stock of ULTRADATA Corporation by
Concentrex in 1999. The pro forma summary includes adjustments which
remove the operating results of the business held for sale and certain
other adjustments, primarily increased amortization of intangible assets,
increased interest expense and reduced interest income. Pro forma results
also include the write-off of acquired in-process research and development
costs of $8.2 million and $18.5 million for the years ended December 31,
2000, and 1999, respectively
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.
Goodwill and other intangible assets acquired in acquisitions
consist of the following as of December 31 (in thousands):
2000 1999
- -------------------------------------------------------------------------
Goodwill $ 208,631 $ 118,825
Non-compete covenants 30,100 30,100
Customer lists 23,510 12,842
- -------------------------------------------------------------------------
Total 262,241 161,767
Less accumulated amortization 119,281 100,554
- -------------------------------------------------------------------------
Total $ 142,960 $ 61,213
=========================================================================
3. Restructuring Charge
In the fourth quarter of 2000, the Company recorded a restructuring
charge of $14.5 million which was primarily for impairment of intangible
assets and severance costs.
The impairment of intangibles was a result of the Company's
examination during the fourth quarter of the long-term viability of
product offerings in two of its software operations. Subsequent to the
acquisition of Concentrex in August 2000, the Company decided to
discontinue certain DOS-Concentrex product offerings and migrate current
customers to similar Concentrex product offerings or to a web-based
product currently in development. As a result of this decision, the
remaining intangibles associated with these products were written off. Due
to lower than anticipated sales of a new version of an existing product
released in late 1999, the Company revised the long-term prospects of
another of its software operations. The revision of expectations required
an adjustment of the carrying value of the operation's long-term assets to
the calculated value based on discounted projected cash flows. The
impairment charges for these two actions had a total pre-tax impact of
$9.4 million, or $7.9 million after tax.
The severance costs resulted primarily from a reorganization of the
Company into three distinct segments. In connection with the
reorganization during the fourth quarter of 2000, the Company eliminated
approximately 145 positions, which resulted in a pre-tax charge of $4.3
million, or $2.6 million after tax.
In 1998, the Company recorded a pre-tax restructuring charge of
$51.1 million related to an evaluation of certain software operations and
to a reorganization of the Company. The 1998 charges included impairment,
severance and other costs pertaining to these actions.
Restructuring charges by operating segment are presented in Note 12.
-F18-
The cash and noncash elements of the restructuring charge for
each of the years ended December 31, 2000, 1999 and 1998, as well as
the beginning and ending balances of accrued restructuring costs,
consisted of the following components (in thousands):
Utilized
Beginning Restructuring -------------------- Ending
Balance Charge Cash Non-Cash Balance
- -------------------------------------------------------------------------------
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
===============================================================================
2000
Write-down of
intangible and
other assets - 9,417 - (9,417) -
Employee severance 443 4,334 (1,662) - 3,115
Other 795 700 (614) (700) 181
- -------------------------------------------------------------------------------
Total $ 1,238 $ 14,451 $ (2,276) $(10,117) $ 3,296
===============================================================================
The remaining accrued restructuring costs are expected to be
paid primarily in 2001.
4. Long-Term Debt
Long-term debt consisted of the following as of December 31,
2000 and 1999 (in thousands):
2000 1999
- -------------------------------------------------------------------------
Revolving Credit Facility $ 185,000 $ -
Series A Senior Notes and Bank Term Loan - 100,000
Convertible Subordinated Debentures, net of
unamortized issuance costs of $132,000
and $147,000 6,444 6,440
Other 894 11
- -------------------------------------------------------------------------
Total 192,338 106,451
Less current portion 721 5
- -------------------------------------------------------------------------
Long-term debt $ 191,617 $ 106,446
=========================================================================
The Company has a $300 million revolving credit facility (the
"Credit Facility") which matures in 2004. The Credit Facility may be
used for general corporate purposes, including acquisitions, and
includes both direct borrowings and letters of credit. The Credit
-F19-
Facility is unsecured and the Company presently pays a commitment fee
of 0.225% on the unused amount of the Credit Facility. Borrowings under
the Credit Facility bear interest, at the Company's option, on the
following indices: the Federal Funds Rate, the SunTrust Bank Base Rate
or LIBOR. The Credit Facility has certain financial covenants including
leverage, fixed charge and minimum net worth tests. The Credit Facility
also has restrictions that limit the Company's ability to incur
additional indebtedness, grant security interests, or sell its assets
beyond certain amounts. At December 31, 2000, interest rate contracts
under the Credit Facility totaled $185.0 million with interest rates in
effect ranging from 7.55% to 7.76% and maturity dates of less than six
months. At December 31, 2000, the Company had $114.9 million available
for borrowing under the Credit Facility.
As of December 31, 1999, the Company had outstanding $85
million of Series A Senior Notes ("Senior Notes") and a $15 million
Term Loan ("Term Loan"), which bore interest at fixed interest rates of
6.60% and 6.63%, respectively. In August 2000, the Company used
proceeds from the Credit Facility to pay off the Senior Notes and Term
Loan.
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,
2000, a total of 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.
At December 31, 2000, there was $3.2 million in outstanding
letters of credit; $0.1 million of these letters of credit were issued
under the Credit Facility.
At December 31, 2000, management believes the Company was in
compliance with the covenants associated with these debt instruments.
The sinking fund requirements under the Debentures have been
met for 2001 and 2002. Annual maturities of long-term debt and sinking
fund requirements are $0.7 million in 2001, $0.1 million in 2002, $0.5
million in 2003, $185.6 million in 2004 and $0.6 million in 2005.
5. Income Taxes
The income tax provision (benefit) for the years ended December
31, 2000, 1999 and 1998 consisted of the following (in thousands):
2000 1999 1998
- -------------------------------------------------------------------------
Current:
Federal $ 7,225 $ 17,400 $16,610
State 2,475 3,335 1,814
- -------------------------------------------------------------------------
Total 9,700 20,735 18,424
- -------------------------------------------------------------------------
Deferred:
Federal 13,302 4,213 (7,286)
State 2,565 827 (1,452)
- -------------------------------------------------------------------------
Total 15,867 5,040 (8,738)
- -------------------------------------------------------------------------
Total $ 25,567 $ 25,775 $ 9,686
=========================================================================
-F20-
The tax effects of significant items comprising the Company's
net deferred tax assets as of December 31 were as follows (in
thousands):
2000 1999
- ---------------------------------------------------------------------------
Current deferred tax asset:
Accrued vacation $ 2,315 $ 1,883
Deferred revenue 646 623
Accrued liabilities 4,679 3,986
Benefit of net operating loss carryforwards 2,664 360
Allowance for doubtful accounts 4,182 2,438
Other 4,731 3,374
- ----------------------------------------------------------------------------
Total 19,217 12,664
- ----------------------------------------------------------------------------
Non-current deferred tax asset (liability):
Difference between book and tax basis
of property (9,208) -
Deferred revenue 1,213 1,117
Deferred compensation 1,798 1,371
Postretirement benefit obligation 4,333 3,655
Capital loss carryforward 20,625 24,082
Unrealized gain on investments (718) (6,625)
Acquisitions and restructuring reserves 3,293 2,102
Benefit of net operating loss carryforwards 5,773 -
Other 3,504 1,666
- ----------------------------------------------------------------------------
Total 30,613 27,368
Valuation allowance (23,999) (17,457)
- ----------------------------------------------------------------------------
Net deferred tax asset $ 25,831 $ 22,575
============================================================================
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 9). During 2000, the Company utilized approximately $4.8
million of capital loss to offset unrealized capital gains associated
with investments and approximately $2.9 million to offset current year
realized capital gains.
The Company has established a valuation allowance for certain
net operating loss and 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. The valuation adjustment increased in 2000 due to the
Company recording other comprehensive losses on investments thereby
reducing the utilization of loss carryforwards. Additionally, the
Company recorded a valuation allowance of $3,374,000 related to certain
deferred tax assets acquired from Concentrex.
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):
2000 1999 1998
- -------------------------------------------------------------------------
Statutory rate $ 18,992 $ 23,994 $ (3,836)
State and local income taxes, net
of Federal income tax benefit 3,453 2,710 235
Non-deductible goodwill 3,326 448 12,418
Other comprehensive items (4,942) 6,625 -
Loss from benefits subsidiary - (25,261) -
Change in valuation allowance 3,168 17,457 -
In-process research and development
costs 2,887 - -
Benefits from tax credits (1,078) - -
Other-- net (239) (198) 869
- -------------------------------------------------------------------------
Income tax provision $ 25,567 $ 25,775 $ 9,686
=========================================================================
-F21-
6. Shareholders' Equity
In 2000, the Company purchased 413,000 shares of common stock
for $7.0 million under a 1999 authorization to purchase up to 3.1
million shares of the Company's outstanding common stock, representing
approximately ten percent of the Company's then outstanding shares.
Including the purchases made in 2000, the Company repurchased 3,040,000
shares for $56.5 million under this authorization. In March 2000, the
Board of Directors approved an extension of this program to include up
to an additional 2.9 million shares of common stock. In 1998, the
Company repurchased 200,000 shares for $2.9 million under a previous
authorization. The funding of stock purchases came from internally
generated cash. In 2000, the Company issued 295,834 shares of treasury
stock under its stock compensation plans.
On July 5, 1999, the Company renewed its Shareholder Rights
Agreement. 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. Each right entitles shareholders to buy, upon
occurrence of certain events, one share of common stock for $90.00. 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.
7. Stock Compensation Plans
The Company applies Accounting Principles Board Opinion No. 25
and related interpretations in accounting for its stock-based
compensation plans and applies the disclosure-only provisions of SFAS
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):
2000 1999 1998
- --------------------------------------------------------------------------
Net income (loss):
As reported $ 28,697 $ 42,684 $(20,647)
Pro forma $ 25,093 $ 40,038 $(22,573)
Earnings (loss)
per common share:
As reported
Basic $ 1.01 $ 1.39 $ (.66)
Diluted $ 1.00 $ 1.37 $ (.66)
Pro forma
Basic $ .88 $ 1.31 $ (.73)
Diluted $ .87 $ 1.29 $ (.73)
Under the Company's 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 through payroll deductions. The option price is 85% of
the lower of the beginning-of-quarter or end-of-quarter market price.
During 2000, 1999 and 1998, employees exercised options to purchase
148,415 shares, 155,413 shares and 200,033 shares, respectively.
Options granted under the ESPP were at prices ranging from $11.98 to
$12.75 in 2000, $10.81 to $16.60 in 1999 and $11.42 to $13.79 in 1998.
Pro forma compensation cost associated with options granted under the
ESPP is estimated based on the discount from market value. At December
31, 2000, there were 117,768 shares of common stock reserved for
purchase under the ESPP. The Board of Directors has approved an
amendment to the ESPP increasing the number of authorized shares to
5,100,000, subject to shareholder approval.
-F22-
Under the Company's 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 or issue restricted stock to such employees. The
Company is authorized to issue up to 2,000,000 shares of common stock
under the plan. Stock 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. Restricted stock grants vest over a period of five years,
subject to earlier vesting if the Company's common stock outperforms
the S&P 500 in two of three consecutive years. The certificates
covering the restricted stock are held by the Company, but such shares
are deemed to be outstanding for all other purposes. The restricted
stock is forfeited if the employee is terminated for any reason prior
to the lapse in restrictions, other than death or disability.
Upon adoption of the 1999 plan, the Company terminated a
previous plan except for options outstanding thereunder. Options
granted under such plan 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.
In 2000, the Company adopted the 2000 Stock Option Plan which
authorizes 1,000,000 shares for issuance through stock options and
grants of restricted stock. The 2000 Plan is substantially similar to
the 1999 Plan, except that the Company's executive officers are
ineligible to receive options or stock grants thereunder.
The following presents the estimated weighted average 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, 2000, 1999 and 1998:
2000 1999 1998
- -------------------------------------------------------------------
Fair value per option $5.91 $6.48 $4.36
Weighted average assumptions:
Dividend yield 2.1% 1.5% 2.2%
Expected volatility 34.7% 29.6% 26.0%
Risk-free interest rate 6.0% 5.4% 5.4%
Assumed forfeiture rate 3.0% 3.0% 3.0%
Expected life (years) 8.2 8.7 8.0
-F23-
A summary of option transactions during the three years ended
December 31, 2000, follows:
Weighted
Average
Exercise
Shares Price
- -------------------------------------------------------------------------
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
Options granted 1,549,250 14.50
Options canceled (552,400) 18.28
Options exercised (35,200) 14.20
- -------------------------------------------------------------------------
Outstanding - December 31, 2000 4,501,650 $ 17.47
=========================================================================
As of December 31, 2000, there were 4,938,828 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, 2000:
Options Outstanding
- -------------------------------------------------------------------------
Weighted Weighted
Average Average
Range of Contractual Exercise
Exercise Prices Options Life(Years) Price
- -------------------------------------------------------------------------
$12.75 to $15.44 2,823,350 8.68 $ 14.11
$16.13 to $20.00 587,300 8.17 19.34
$20.06 to $23.63 527,000 6.78 22.16
$25.00 to $25.00 295,000 8.09 25.00
$30.50 to $31.88 269,000 5.81 31.24
- -------------------------------------------------------------------------
Total 4,501,650 8.18 $ 17.47
=========================================================================
Options Exercisable
- -------------------------------------------------------------------------
Weighted
Average
Range of Exercise
Exercise Prices Options Price
- -------------------------------------------------------------------------
$12.75 to $15.44 668,800 $ 13.63
$16.13 to $20.00 153,460 19.47
$20.06 to $23.63 276,400 23.07
$25.00 to $25.00 9,000 25.00
$30.50 to $31.88 215,200 31.24
- -------------------------------------------------------------------------
Total 1,322,860 $ 19.22
=========================================================================
-F24-
In 2000, the Company issued 111,400 shares of restricted stock
to certain employees, 4,500 shares of restricted stock were canceled
and returned to treasury stock and restrictions were lifted on 2,500
shares. Compensation expense is being recognized related to restricted
stock issued in 2000 over five years based on the value of the shares
on the grant date.
In 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 issued in 1999. The shares have all the rights of other
shares of common stock, subject to certain restrictions and forfeiture
provisions. The restrictions expire as to 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.
For the years ending December 31, 2000, 1999 and 1998 the
Company recognized compensation expense for restricted stock awards of
$423,000, $187,000 and $35,000, respectively.
The Company has a deferred compensation plan for its
non-employee directors covering a maximum of 100,000 shares. At
December 31, 2000 and 1999, there were 62,329 and 37,909 shares,
respectively, reserved for issuance under the Plan.
8. 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 $3.9 million in 2000, $3.4 million in 1999 and $2.9
million in 1998.
The Company has unfunded deferred compensation agreements with
certain officers. The present value of cash benefits payable under the
agreements is being provided over the periods of active employment and
totaled $3.8 million and $4.0 million at December 31, 2000 and 1999,
respectively. The charge to expense for these agreements is not
significant.
9. 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 Company's
intent is that the retirees provide the majority of the actual cost of
providing the medical plan. The life insurance plan is noncontributory.
Neither plan is funded.
-F25-
As of December 31, 2000 and 1999, the accumulated
postretirement benefit obligation ("APBO") under such plans was $17.9
million and $19.1 million, respectively. 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):
2000 1999
- ----------------------------------------------------------------------
APBO as of January 1:
Retirees $ 10,135 $ 9,591
Fully eligible participants 5,473 1,856
Other participants 3,525 4,152
- ----------------------------------------------------------------------
19,133 15,599
Net Change in APBO:
Service costs 360 408
Interest costs 1,499 1,029
Benefits paid (602) (886)
Change in discount rate 851 (3,029)
Change in assumed claims - 2,312
Demographic experience
and other - 1,218
Plan curtailment (3,292) -
Plan amendment - 2,482
- ----------------------------------------------------------------------
Total net change in APBO (1,184) 3,534
- ----------------------------------------------------------------------
APBO as of December 31:
Retirees 10,641 10,135
Fully eligible participants 7,308 5,473
Other participants - 3,525
- ----------------------------------------------------------------------
17,949
19,133
Unrecognized net loss (5,617) (6,080)
Unrecognized prior service cost - (2,483)
- ----------------------------------------------------------------------
Accrued postretirement cost--
included in Other Liabilities $ 12,332 $ 10,570
======================================================================
Net periodic postretirement costs ("NPPC") are summarized as
follows (in thousands):
2000 1999 1998
- -------------------------------------------------------------------------
Service costs $ 360 $ 408 $ 336
Interest on APBO 1,499 1,029 910
Net amortization 504 309 194
- -------------------------------------------------------------------------
Total $ 2,363 $ 1,746 $ 1,440
=========================================================================
In 2000, the Company eliminated employer subsidies for all
future retirees except those that have twenty or more years of service
as of December 31, 2000 and retire prior to December 31, 2003. 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 6.0% in 2001 and 5.5% in 2002 and each year beyond 2002. The medical
cost trend rate assumption could have a significant effect on amounts
reported. An increase of 1.0% in the assumed trend rates would have had
the effect of increasing the APBO by $1.4 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 $1.2 million and the NPPC by
-F26-
$197,000. The weighted average discount rate used in determining the
APBO was 7.50% in 2000, 8.00% in 1999 and 6.75% in 1998, and employee
earnings were estimated to increase 3.5% annually until age 65.
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.
10. 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 carrying value of the revolving credit facility
approximates fair value based on notes currently available to the
Company. 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):
Carrying Value Fair Value
- -------------------------------------------------------------------------
2000 1999 2000 1999
- -------------------------------------------------------------------------
Investments:
Long-term $ 16,740 $ 23,167 $ 16,740 $ 23,167
Debt:
Long-term $191,617 $106,446 $189,912 $ 98,366
11. 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 $13.4 million in 2000, $11.8 million
in 1999 and $11.7 million in 1998. Minimum annual rentals under
noncancelable operating leases at December 31, 2000 are as follows (in
thousands):
2001 $ 16,334
2002 13,449
2003 11,569
2004 8,937
2005 8,348
Thereafter 30,460
- -----------------------------------------------------------------------
Total $ 89,097
=======================================================================
-F27-
The Company has an agreement with a vendor who will perform
certain customer-related functions through 2001. Costs under this
relationship are estimated to be $9.3 million in 2001.
In January 2000, the Company entered into a purchase agreement
to purchase digital printing equipment with an aggregate purchase
commitment over the next two years. As of December 31, 2000 the
Company has a commitment to purchase $7.4 million of equipment in 2001.
In November 2000, in conjunction with the sale of certain
assets to Netzee, the Company extended a guaranty to a financial
institution, on behalf of Netzee, of Automated Clearing House ("ACH")
exposures up to an amount not to exceed $15 million. This guaranty
obligation is secured by all assets of Netzee. The guaranty expires in
March 2001 but may be extended for an additional 60 day period under
certain conditions. As of December 31, 2000, no payments have been made
with regards to this guaranty.
12. Business Segments
In 2000, the Company reorganized into three distinct operating
segments (see Note 3). The Printed Products segment ("Printed
Products") includes checks and direct marketing activities marketed
primarily to financial institutions. The Software and Services segment
("Software") is focused on the financial institution market and
includes lending and mortgage origination and closing applications,
database marketing software, host processing and business intelligence
solutions. 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 services. Scantron sells these products and services
to the commercial, financial institution and education markets. Prior
periods have been restated to reflect the new segments.
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 and software and other development costs, but
excludes interest income, interest expense and certain other
nonoperating gains and losses, all of which are considered corporate
items. Corporate assets consist primarily of cash and cash equivalents,
deferred income taxes, investments and other assets not employed in
production.
-F28-
Summarized financial information for 2000, 1999 and 1998 is as
follows (in thousands):
Business Segment
------------------------------
Printed Software and
Products Services Scantron Corporate & Consoli-
Eliminations dated
- -----------------------------------------------------------------------------------
2000
Net sales $ 567,514 $ 60,463 $ 93,361 $ (661) $ 720,677
Restructuring charge 2,074 11,875 502 14,451
Income (loss) 94,779 (26,664) 19,502 (33,353) 54,264
Identifiable assets 223,320 166,631 37,952 95,023 522,926
Depreciation and
amortization 31,193 10,136 4,631 2,502 48,462
Capital expenditures 37,706 991 1,126 651 40,474
1999
Net sales $ 577,708 $ 27,486 $ 97,569 $ (251) $ 702,512
Income (loss) 87,618 (3,220) 17,256 (33,195) 68,459
Identifiable assets 210,607 22,315 48,948 109,535 391,405
Depreciation and
amortization 30,182 3,375 4,787 2,220 40,564
Capital expenditures 18,084 1,457 3,626 627 23,794
1998
Net sales $ 547,104 $ 38,759 $ 88,440 $ (356) $ 673,947
Restructuring charge 7,263 41,961 1,863 51,087
Income (loss) 53,420 (50,710) 13,604 (27,275) (10,961)
Identifiable assets 218,201 27,365 50,444 95,760 391,770
Depreciation and
amortization 27,852 7,808 5,147 1,608 42,415
Capital expenditures 24,455 3,248 3,873 1,910 33,486
-F29-
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, 2000 and 1999, and the related
consolidated statements of operations, cash flows and shareholders' equity for
each of the three years in the period ended December 31, 2000. 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 auditing standards generally
accepted in the United States of America. 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, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic financial statements as a
whole, presents fairly, in all material respects the information set forth
therein.
/s/Deloitte & Touche LLP
Deloitte & Touche LLP
Atlanta, Georgia
January 26, 2001
-F30-
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS>
The financial statements included in this report were prepared by the
Company in conformity with accounting principles generally accepted in the
United States of America 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 auditing standards
generally accepted in the United States of America 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
Chairman, President Vice President Finance
and Chief Executive Officer and Chief Financial Officer
January 26, 2001
-F31-
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
------------Quarter ended --------
March 31 June 30 September 29 December 31
- -------------------------------------------------------------------------------
2000:
Net sales $ 176,702 $ 171,691 $ 179,784 $ 192,500
Gross profit 67,707 68,764 74,906 82,711
Net income 11,522 12,374 4,600 (a) 201 (b)
Per common share:
Basic earnings .41 .44 .16 .01
Diluted earnings .40 .43 .16 .01
Dividends paid .075 .075 .075 .075
Stock market price:
High 17.95 16.13 15.53 16.65
Low 12.06 13.29 11.74 12.25
---------- Quarter ended --------
April 2 July 2 October 1 December 31
-----------------------------------------------------------------------------
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 16.38 20.94 21.25 20.06
Low 12.38 12.56 19.13 17.75
[FN]
(a) Third quarter 2000 results include an $8.2 million charge for acquired
in-process research and development related to the acquisition of
Concentrex Incorporated on August 23, 2000 (see Note 2). The results of
operations of Concentrex are included in the Company's financial statements
from the date of acquisition.
(b) In the fourth quarter of 2000, the Company recorded restructuring charges
of $14.5 million, which had an impact of $0.38 per share for the period.
Also included in the charges were costs associated with organizational
changes and impairment of certain assets (see Note 3).
SELECTED FINANCIAL DATA
---------- Year ended December 31 ---------
2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------
Net sales $720,677 $ 702,512 $ 673,947 $ 659,954 $ 713,819
Net income (loss) 28,697 42,684 (20,647) 17,296 (13,854)
Total assets 522,926 391,405 391,770 426,186 454,731
Long-term debt 191,617 106,446 107,071 109,358 114,075
Per common share:
Basic earnings (loss) 1.01 1.39 (.66) .56 (.45)
Diluted earnings (loss) 1.00 1.37 (.66) .56 (.45)
Cash dividends .30 .30 .30 .30 1.02
Average number of shares
outstanding:
Basic 28,469 30,638 31,087 30,971 31,056
Diluted 28,832 31,261 31,087 31,446 31,056
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, 2000 there were 5,212 shareholders of record.
See Note 2 regarding acquisitions in 2000 and Note 3 regarding restructuring
charges in 2000 and 1998.
-F32-
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(In thousands of dollars)
- -------------------------------------------------------------------------------
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)
- -------------------------------------------------------------------------------
Year Ended December 31, 2000
Allowance for doubtful
accounts $ 6,456 $ (867) $ 24 $ 1,341 $ 4,272
======= ======== ======= ======= =======
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
======= ======== ======= ======= =======
[FN]
Notes:
(1) Represents recovery of previously written-off and credit balance accounts
receivable.
(2) Represents write-offs of uncollectible accounts receivable.
-S1-