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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 26, 2003
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 Rd.
Decatur, Georgia 30035
(Address of principal executive offices) (Zip code)
(770) 981-9460
(Registrant's telephone number, including area code)
(Not Applicable)
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( ).
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes (X) No ( ).
The number of shares of the registrant's common stock outstanding on October 24,
2003 was 28,088,063.
-1-
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS. . . . . . . . . . . . . . . 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS. 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS. . . . . . . . . . 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . .17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .27
ITEM 4. CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . . . .27
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . 29
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . .29
EXHIBIT LIST . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
-2-
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
------
(In thousands) September 26, December 31,
2003 2002
- ----------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 6,686 $ 19,218
Accounts receivable - net 64,461 58,871
Inventories 15,510 18,191
Deferred income taxes 27,800 26,977
Prepaid Expenses 11,189 7,430
Other 6,011 8,138
- ----------------------------------------------------------------------
Total current assets 131,657 138,825
- ----------------------------------------------------------------------
Other Assets:
Investments 5,145 3,917
Goodwill - net 217,467 210,462
Intangible assets - net 17,756 14,127
Refundable contract payments 53,381 23,281
Other 22,239 25,860
- ----------------------------------------------------------------------
Total other assets 315,988 277,647
- ----------------------------------------------------------------------
Property, plant and equipment 355,060 340,684
Less accumulated depreciation
and amortization 225,528 206,469
- ----------------------------------------------------------------------
Property, plant and equipment - net 129,532 134,215
- ----------------------------------------------------------------------
Total $ 577,177 $ 550,687
======================================================================
See Notes to Condensed Consolidated Financial Statements.
-3-
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
(In thousands, except share and September 26, December 31,
per share amounts) 2003 2002
- ----------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 22,784 $ 22,599
Current portion of long-term debt 140,075 83
Deferred revenues 61,508 53,311
Accrued liabilities:
Salaries, wages and employee benefits 28,397 31,039
Taxes 18,857 18,817
Other 22,129 21,237
- ----------------------------------------------------------------------
Total current liabilities 293,750 147,086
- ----------------------------------------------------------------------
Long-Term Liabilities:
Long-term debt, less current maturities 11 144,106
Other 25,142 25,501
- ----------------------------------------------------------------------
Total long-term liabilities 25,153 169,607
- ----------------------------------------------------------------------
Total liabilities 318,903 316,693
- ----------------------------------------------------------------------
Shareholders' Equity:
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 7,031 5,245
Retained earnings 436,029 409,110
Accumulated other comprehensive
income (loss) 838 (330)
Unamortized restricted stock awards (5,964) (5,785)
- ----------------------------------------------------------------------
475,841 446,147
Less 9,859,525 and 9,544,064 shares
in treasury - at cost,
respectively 217,567 212,153
- ----------------------------------------------------------------------
Shareholders' equity 258,274 233,994
- ----------------------------------------------------------------------
Total $ 577,177 $ 550,687
======================================================================
See Notes to Condensed Consolidated Financial Statements.
-4-
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
Three Month Nine Month
Period Ended Period Ended
(In thousands, except Sep 26, Sep 27, Sep 26, Sep 27,
per share amounts) 2003 2002 2003 2002
- ---------------------------------------------------------------------------
Sales:
Product sales $ 154,582 $ 160,541 $ 472,166 $ 477,426
Service sales 37,912 29,095 106,181 82,268
- ---------------------------------------------------------------------------
Total sales 192,494 189,636 578,347 559,694
Cost of sales:
Cost of products sold 84,806 88,736 260,551 268,912
Cost of services sold 13,371 9,716 36,146 28,616
- ---------------------------------------------------------------------------
Total cost of sales 98,177 98,452 296,697 297,528
Gross Profit 94,317 91,184 281,650 262,166
Selling, general and
administrative expenses 69,753 62,646 213,640 193,314
Amortization of other
intangibles 939 898 2,371 2,170
- ---------------------------------------------------------------------------
Income From Operations 23,625 27,640 65,639 66,682
- ---------------------------------------------------------------------------
Other Income (Expense):
Interest expense (1,424) (1,504) (4,487) (4,780)
Other - net 127 8 272 (114)
- ---------------------------------------------------------------------------
Total (1,297) (1,496) (4,215) (4,894)
- ---------------------------------------------------------------------------
Income Before Income Taxes 22,328 26,144 61,424 61,788
Income taxes 7,633 10,152 22,300 24,086
- ---------------------------------------------------------------------------
Net Income 14,695 15,992 39,124 37,702
Retained Earnings at
Beginning of Period 425,130 386,560 409,110 372,164
Cash Dividends (2,806) (2,206) (7,017) (6,608)
Issuance of treasury shares
under stock plans (990) (1,316) (5,188) (4,228)
- ---------------------------------------------------------------------------
Retained Earnings at
End of Period $ 436,029 $ 399,030 $ 436,029 $ 399,030
===========================================================================
Weighted Average Shares
Outstanding:
Basic 27,760 29,142 27,747 29,274
Diluted 28,488 29,960 28,383 30,594
===========================================================================
Earnings Per Common Share:
Basic $ 0.53 $ 0.55 $ 1.41 $ 1.29
Diluted $ 0.52 $ 0.53 $ 1.38 $ 1.23
===========================================================================
Cash Dividends Per
Common Share $ 0.10 $ 0.075 $ 0.25 $ 0.225
===========================================================================
See Notes to Condensed Consolidated Financial Statements.
-5-
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Month Period Ended
Sep 26, Sep 27,
(In thousands) 2003 2002
- -----------------------------------------------------------------------------
Operating Activities:
Net income $ 39,124 $ 37,702
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 27,664 27,135
Amortization 16,851 15,016
Gain on sale of assets (1,199) (96)
Investment write-down - 303
Stock-based compensation 1,775 8,173
Tax benefits from stock-based compensation 1,306 2,758
Deferred income taxes (2,541) (838)
Other 1,346 491
Change in assets and liabilities net of effects
of businesses acquired:
Accounts receivable (4,770) (64)
Inventories and other assets (1,579) 2,347
Deferred revenues 2,496 6,154
Accounts payable and accrued liabilities (1,861) 4,675
Refundable contract payments (40,081) (5,956)
- -----------------------------------------------------------------------------
Net cash provided by operating activities 38,531 97,800
- -----------------------------------------------------------------------------
Investing Activities:
Purchases of property, plant and equipment (21,134) (26,304)
Proceeds from sale of property, plant and equipment 3,038 1,769
Payment for acquisition of businesses -
net of cash acquired (11,303) (71,475)
Long-term investments and other assets 1,270 (331)
- -----------------------------------------------------------------------------
Net cash used in investing activities (28,129) (96,341)
- -----------------------------------------------------------------------------
Financing Activities:
Purchases of treasury stock (19,138) (5,404)
Issuance of treasury stock 7,067 10,474
Dividends paid (7,017) (6,608)
Long-term debt - net (4,103) 13,520
Other - net 257 (1,027)
- -----------------------------------------------------------------------------
Net cash provided by (used in) financing activities (22,934) 10,955
- -----------------------------------------------------------------------------
Changes in cash and cash equivalents (12,532) 12,414
Cash and cash equivalents at beginning of period 19,218 10,096
- -----------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 6,686 $ 22,510
=============================================================================
See Notes to Condensed Consolidated Financial Statements.
-6-
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 26, 2003
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements contained in this report are
unaudited but reflect all adjustments which are, in the opinion of management,
necessary for a normal presentation of the results of operations, financial
position and cash flows of the John H. Harland Company and subsidiaries
("Company") for the interim periods reflected. Certain information and note
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been omitted pursuant to applicable rules and regulations of the Securities
and Exchange Commission. The results of operations for the interim periods
reported herein are not necessarily indicative of results to be expected for the
full year. Certain reclassifications have been made in the 2002 financial
statements and notes to financial statements to conform to 2003 classifications.
The condensed consolidated financial statements included herein should be read
in conjunction with the consolidated financial statements and notes thereto, and
the Independent Auditors' Report included in the Company's Annual Report on Form
10-K for the year ended December 31, 2002 ("2002 Form 10-K").
2. Accounting Policies
Reference is made to the accounting policies of the Company described in the
notes to consolidated financial statements included in the 2002 Form 10-K.
Stock-Based Compensation
The Company accounts for employee stock-based compensation plans using the
recognition and measurement provisions of APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. If the Company
accounted for stock-based compensation using the fair value recognition
provisions of Financial Accounting Standards Board (the "FASB") Statement No.
123, "Accounting for Stock-Based Compensation," the Company's net income and
earnings per share for the three and nine month periods ended September 26, 2003
and September 27, 2002 would have changed to the pro forma amounts listed below:
Three Month Nine Month
Period Ended Period Ended
(In thousands, except Sep 26, Sep 27, Sep 26, Sep 27,
per share amounts) 2003 2002 2003 2002
- ------------------------------------------------------------------------
Net income:
As reported $14,695 $15,992 $39,124 $37,702
Add: stock-based
compensation expense
included in reported
net income, net of tax 349 423 1,083 4,986
Deduct: stock-based
compensation expense
determined under the fair
value based method for
all awards, net of tax (1,445) (1,336) (4,362) (8,991)
- ------------------------------------------------------------------------
Pro forma net income $13,599 $15,079 $35,845 $33,697
========================================================================
-7-
Three Month Nine Month
Period Ended Period Ended
Sep 26, Sep 27, Sep 26, Sep 27,
2003 2002 2003 2002
- ------------------------------------------------------------------------
Earnings per common share:
As reported
Basic $ 0.53 $ 0.55 $ 1.41 $ 1.29
Diluted $ 0.52 $ 0.53 $ 1.38 $ 1.23
Pro forma
Basic $ 0.49 $ 0.52 $ 1.29 $ 1.15
Diluted $ 0.48 $ 0.50 $ 1.26 $ 1.10
Pro forma compensation costs associated with options granted under the employee
stock purchase plan were estimated based on the discount from market value. 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 the three and nine month periods ended September 26, 2003 and
September 27, 2002:
Three Month Nine Month
Period Ended Period Ended
Sep 26, Sep 27, Sep 26, Sep 27,
2003 2002 2003 2002
- ------------------------------------------------------------------------
Fair value per option $ 8.72 $ 9.80 $ 7.98 $10.65
Weighted average
assumptions:
Dividend yield 1.54% 1.17% 1.43% 1.21%
Expected volatility 37.18% 41.04% 40.82% 41.04%
Risk-free interest rate 3.96% 4.36% 4.01% 5.02%
Expected life (years) 5.0 5.0 5.2 5.7
Accounting Pronouncements
In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements
4, 44 and 64, Amendment to FASB Statement 13, and Technical Corrections" ("SFAS
145"). One of the major changes of SFAS 145 is to change the accounting for the
classification of gains and losses from the extinguishment of debt. The Company
adopted SFAS 145 on January 1, 2003 and uses APB 30, "Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" in
determining whether such extinguishment of debt may be classified as
extraordinary. Adoption of SFAS 145 did not have a material effect on the
Company's financial position or results of operations.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 requires
recording costs associated with exit or disposal activities at their fair values
when a liability has been incurred. Under previous guidance, certain exit costs
were accrued upon management's commitment to an exit plan, which is generally
before an actual liability has been incurred. The Company adopted SFAS 146 on
January 1, 2003. Adoption of SFAS 146 did not have a material effect on the
Company's financial position or results of operations. The Company has applied
the provisions of SFAS 146 to the Company's reorganization actions initiated in
September 2003 (see Note 3).
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness
of Others" ("FIN 45"), which requires companies to recognize, at the inception
of a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. FIN 45 provides specific guidance identifying the
characteristics of contracts that are subject to its guidance in its entirety
from those only subject to the initial recognition and measurement provisions.
The recognition and measurement provisions of FIN 45 are effective on a
prospective basis for guarantees issued or modified after December 31, 2002. The
Company adopted the recognition and measurement provisions of FIN 45 on January
1, 2003. Adoption of these provisions did not have a material effect on the
Company's financial position or results of operations.
-8-
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). FIN 46 provides accounting requirements
for business enterprises to consolidate related entities in which they are
determined to be the primary beneficiary as a result of their variable economic
interests. The interpretation provides guidance in judging multiple economic
interests in an entity and in determining the primary beneficiary. FIN 46 is
effective immediately for all new variable interest entities created or acquired
after January 31, 2003. For variable interest entities created or acquired prior
to February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period ending after December 15, 2003. The Company adopted
certain provisions of FIN 46 during the second quarter of 2003 and this adoption
did not have a material effect on the Company's financial position or results of
operations. The Company believes that the adoption of the remaining provisions
of FIN 46 will not have a material effect on its financial position or results
of operations.
In April 2003, the FASB issued Statement No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 149 requires that contracts with
comparable characteristics be accounted for similarly for contracts entered into
or modified after June 30, 2003. The Company adopted SFAS 149 on July 1, 2003.
Adoption of SFAS 149 did not have a material effect on the Company's financial
position or results of operations.
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity"
("SFAS 150"). SFAS 150 requires that an issuer classify financial instruments
that are within its scope as a liability (or an asset in some circumstances)
instead of equity as previously classified. SFAS 150 is effective for financial
instruments entered into or modified after May 31, 2003 and otherwise effective
at the beginning of the first interim period beginning after June 15, 2003. As a
result of concerns over implementation and measurement issues, the FASB
unanimously decided on October 29, 2003 to defer the application of SFAS No. 150
to certain non-controlling interests of limited-life entities that are
consolidated in the financial statements. Adoption of SFAS 150 did not have a
material effect on the Company's financial position or results of operations.
Reclassifications
During the third quarter of 2003, the Company reclassified certain items in its
consolidated income statements. The reclassifications affected the categories of
Selling, General and Administrative expenses and Other Income (Expense). The
change primarily reflects the reclassification of gains or losses on the sale of
assets as well as certain other expenses from Other Income (Expense) to Selling,
General and Administrative expenses. Financial data for all periods presented
have been restated to reflect the impact of the reclassification. The
reclassifications had no impact on net income or shareholders' equity as
previously reported. Certain other reclassifications have been made in the 2002
financial statements and notes to financial statements to conform to the 2003
classifications.
3. Reorganization
In September 2003, the Company announced a reorganization of its Printed
Products operations including a plan to consolidate its domestic manufacturing
operations from 14 plants to 9 plants, with the first plant closing in the first
quarter of 2004 and the last affected plant closing in the third quarter of
2004. Two of the facilities being closed are leased. One facility is under lease
through late 2005 and the other is under lease through mid-2010. In addition to
the plant consolidation, Printed Products will implement other staffing
reductions beginning in the fourth quarter of 2003 and continuing throughout
2004. These actions are primarily due to efficiencies from digital technology,
lower volumes, and other production and support systems that have created excess
capacity in production facilities.
-9-
The Company estimates net pre-tax expenses associated with the plant
consolidations will total $13.0 million consisting of employee severance ($4.1
million), revision of depreciable lives and salvage values of furniture and
equipment, asset impairment charge and disposal gains and losses ($2.3 million),
relocation and other costs ($4.0 million) and contract termination costs related
to leaseholds ($2.6 million). Of these amounts, $0.1 million related to employee
severance was reflected in results of operations for the third quarter of 2003
in cost of goods sold. The other staffing reduction actions will result in a
total estimated expense of $6 million related to employee severance costs.
The following reconciles the beginning and ending liability balances related to
these actions:
Plant Staffing
Consolidation Reduction
(In thousands) Costs Actions
- ------------------------------------------------------------------------
Balances as of December 31, 2002 $ - $ -
Costs incurred and charged to
expense:
Employee severance 132 -
- ------------------------------------------------------------------------
Balances as of September 26, 2003 $ 132 $ -
========================================================================
4. Acquisitions
On June 3, 2003, Harland Financial Solutions, Inc. ("HFS"), a wholly owned
subsidiary of the Company, extended its core systems offering with the
acquisition of 100% of the equity of Premier Systems, Inc. ("PSI") for
approximately $11.3 million, net of cash acquired. PSI was a provider of core
processing service bureau deliverables that were based on HFS' widely used
ULTRADATA(R) System. With the addition of PSI, HFS now provides core processing
applications and services to more than 1,000 financial institutions. The
acquisition allows HFS to deliver its increasingly broad range of technological
solutions in an online service bureau environment.
The pro forma effects of the PSI acquisition were not material to the Company's
results of operations and are not reflected in the unaudited pro forma summary
indicated below.
On October 15, 2002, HFS acquired 100% of the equity in INTERLINQ Software
Corporation ("INTERLINQ") for approximately $23.0 million, net of cash acquired.
INTERLINQ was a leading provider of mortgage loan origination, production and
servicing solutions. As part of the acquisition, the Company acquired in-process
research and development costs totaling $3.0 million, which were immediately
expensed following the acquisition. These costs represented the fair value of
certain acquired research and development projects that were determined not to
have reached technological feasibility. As a result of the acquisition, the
Company believes HFS has a leadership position in the mortgage loan origination
market and good growth opportunity in the mortgage servicing market.
On September 20, 2002, HFS extended its core systems offering with the
acquisition of certain assets and related liabilities of SPARAK Financial
Systems, LLC ("SPARAK") for approximately $31.9 million, net of cash acquired.
The acquisition agreement includes a contingent purchase payment not to exceed
$2.0 million to be made in the event certain growth targets are achieved, as
defined in the agreement. The contingent purchase payment is payable in 2004 and
will be recorded as an increase in goodwill, to the extent such payment is
ultimately made. SPARAK was a leading provider of integrated hardware and
software systems for community banks. The acquisition was completed to build on
the HFS leadership position in the financial institutions market and add
additional value for SPARAK's existing customers, as well as for other community
banks nationwide.
-10-
On July 24, 2002, Scantron Corporation ("Scantron"), a wholly owned subsidiary
of the Company, acquired 100% of the equity in EdVISION Corporation ("EdVISION")
for approximately $28.8 million, net of cash acquired. Related to the
acquisition of EdVISION, the Company entered into an incentive agreement with
certain individuals that includes contingent payments to be made in the event
certain growth targets are achieved, as defined in the incentive agreement.
These contingent payments, which will not exceed $2.0 million, are payable
during or before 2005 and will be expensed at the time the related growth
targets are achieved, to the extent such payments are ultimately made. EdVISION
was a leading provider of curriculum development and assessment tools for the
education industry. This acquisition expands Scantron's ability to offer
advanced testing and assessment tools in the education market.
On May 28, 2002, HFS acquired 100% of the equity in Easy Systems, Inc. ("Easy
Systems") for approximately $10.8 million, net of cash acquired. Easy Systems
was a software solutions company that provided turnkey branch automation
solutions for the community bank market. The addition of Easy Systems allows HFS
to offer financial institutions proven and leading-edge solutions to help them
strengthen customer relationships while improving operations.
The combined purchase price for assets acquired through acquisitions in 2002
totaled $94.5 million, net of cash acquired.
The following unaudited pro forma summary presents information as if the
acquisitions of the businesses acquired in 2002 occurred on January 1, 2002:
Three Month Nine Month
Period Ended Period Ended
(In thousands, except Sep 27, Sep 27,
per share amounts) 2002 2002
- ----------------------------------------------------------------------
Net sales $ 197,208 $ 589,858
Net income $ 14,800 $ 32,349
Earnings per common share:
Basic $ 0.51 $ 1.10
Diluted $ 0.49 $ 1.05
The unaudited pro forma summary for the periods presented includes adjustments
for increased amortization of intangible assets and increased interest expense.
The pro forma summary also includes the write-off of acquired in-process
research and development costs totaling $3.0 million. The unaudited pro forma
summary 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 period presented or of future results.
All acquisitions were paid for with cash provided from operating activities and
proceeds from the Company's credit facility. The results of operations of the
acquired businesses have been included in the Company's operations since the
particular acquisition.
5. Goodwill and Intangible Assets
Under the FASB Statement No. 142, "Goodwill and Other Intangibles," goodwill and
intangible assets with indefinite lives are no longer amortized but are tested
at least annually for impairment. Separable intangible assets with definitive
lives will continue to be amortized over their useful lives.
-11-
The changes in the carrying amounts of goodwill by business segment for the nine
month period ended September 26, 2003 are as follows:
Printed Software &
(In thousands) Products Services Scantron Consolidated
- ------------------------------------------------------------------------
Balances as of
December 31, 2002 $ 24,709 $142,099 $ 43,654 $210,462
Goodwill acquired
during 2003 - 7,275 - 7,275
Purchase price
allocation
adjustments - net - (256) (14) (270)
- ------------------------------------------------------------------------
Balances as of
September 26, 2003 $ 24,709 $149,118 $ 43,640 $217,467
========================================================================
Intangible assets with definitive lives were comprised of the following:
(In thousands) September 26, 2003 December 31, 2002
- ------------------------------------------------------------------------
Gross Net Gross Net
Carrying Accum. Carrying Carrying Accum. Carrying
Amount Amort. Amount Amount Amort. Amount
- ------------------------------------------------------------------------
Developed
technology $24,724 $(10,537) $14,187 $25,467 $ (7,460) $18,007
Customer
lists 32,033 (17,673) 14,360 26,033 (15,587) 10,446
Trademarks 3,800 (404) 3,396 3,800 (119) 3,681
Content 2,300 (270) 2,030 2,300 (97) 2,203
- ------------------------------------------------------------------------
Total $62,857 $(28,884) $33,973 $57,600 $(23,263) $34,337
========================================================================
Carrying amounts of developed technology and content are included in the other
assets caption on the balance sheets and the related amortization expense is
included in the cost of sales caption on the statements of income.
Aggregate amortization expense for intangible assets totaled $6.5 million and
$5.7 million for the nine month periods ended September 26, 2003 and September
27, 2002, respectively.
The estimated future intangible amortization expense as of September 26, 2003 is
as follows:
For the years ending December 31,
(In thousands) Year Amount
- ------------------------------------------------------------------------
Remaining 2003 $ 2,293
2004 8,249
2005 5,835
2006 5,368
2007 4,619
Thereafter 7,609
- ------------------------------------------------------------------------
Total $33,973
========================================================================
6. Property Held for Sale
At September 26, 2003, property held for sale consisted of the Company's Printed
Products facility in St. Louis, Missouri. At December 31, 2002, property held
for sale consisted of Printed Products facilities in Portland, Oregon and St.
Louis, Missouri. These facilities were closed in 2002 as part of a production
consolidation program and reclassified as held for sale during 2002. In 2003,
the Company sold the Portland facility and realized a gain of $0.8 million,
which was included as a reduction of selling, general and administrative
expenses on the statement of income. Management is actively marketing the sale
of the St. Louis facility and believes this facility will be sold within the
next 12 months.
-12-
Property held for sale at September 26, 2003 and December 31, 2002 consists of
the following:
September 26, December 31,
(In thousands) 2003 2002
- ---------------------------------------------------------------
Land $ 190 $ 434
Buildings and improvements 2,362 3,775
Machinery and equipment 50 50
Furniture and fixtures 24 36
- ---------------------------------------------------------------
Property held for sale $2,626 $4,295
===============================================================
7. Income Taxes
The Company's consolidated effective income tax rates were 36.3% and 39.0% for
the first nine months of 2003 and 2002, respectively. The lower effective income
tax rate for the first nine months of 2003 resulted primarily from the release
of a $0.5 million valuation allowance related to the utilization of capital loss
carryforwards, a reduction in the effective state rate, a favorable renewal of
an industrial revenue grant related to the Company's operations in Puerto Rico
and a reduction of certain estimated permanent tax differences. The effective
tax rate for the first nine months of 2002 included favorable adjustments
related to prior years.
8. Inventories
As of September 26, 2003 and December 31, 2002, inventories consisted of the
following:
September 26, December 31,
(In thousands) 2003 2002
- ----------------------------------------------------------------------
Raw materials $ 12,651 $ 15,593
Work in progress 893 414
Finished goods 1,966 2,184
- ----------------------------------------------------------------------
Total $ 15,510 $ 18,191
======================================================================
9. Long Term Debt
The Company has a revolving credit facility (the "Credit Facility") with a
syndicate of banks in an amount of $325.0 million. The Credit Facility matures
in August 2004 and may be used for general corporate purposes, including
acquisitions, and includes both direct borrowings and letters of credit. The
Credit Facility is unsecured and the Company presently pays an annual commitment
fee of 0.175% on the unused amount of the Credit Facility. Borrowings under the
Credit Facility bear interest on the following indices at the Company's option
(plus a margin as defined): 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 September 26, 2003, the Company had $140.0 million in outstanding cash
borrowings under the Credit Facility, $5.1 million in outstanding letters of
credit and $179.9 million available for borrowing under the Credit Facility. The
average interest rate in effect on outstanding cash borrowings at September 26,
2003, including the effect of the Company's interest rate hedging program, was
3.11%.
-13-
The Company uses derivative financial instruments to manage interest rate risk.
The Company recognizes all derivatives at fair value as either assets or
liabilities in the statements of financial position. On the date the interest
rate derivative contract is entered into, the Company designates the derivative
as either a fair value hedge or a cash flow hedge. The Company formally
documents the relationships between hedging instruments and the hedged items, as
well as its risk-management objectives and strategy for undertaking various
hedge transactions. The Company formally assesses, both at the hedge's inception
and on an ongoing basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in cash flows of the
hedged items.
The Company enters into interest rate swap agreements to manage its exposure to
interest rate movements by effectively exchanging floating rate payments for
fixed rate payments without the exchange of the underlying principal. Both the
interest rate swaps and the Credit Facility mature in August 2004. The interest
rate swaps are structured to amortize on a quarterly basis so that on a
percentage basis, they approximate the Company's forecasted cash flows. The
differential between fixed and variable rates to be paid or received is accrued
as interest rates change in accordance with the agreements and recognized over
the life of the agreements as an adjustment to interest expense. At September
26, 2003, the notional principal amount of interest rate swaps outstanding was
$71 million and the average fixed rate in effect on the Company's interest rate
swap agreements, including the Company's credit margin, was 4.31%. The net
change in fair value of the swaps at September 26, 2003 is reported in other
comprehensive income (see Note 10). The swaps are highly effective and no
significant amounts for hedge ineffectiveness were reported in net income during
the nine-month periods ended September 26, 2003 and September 27, 2002.
10. Comprehensive Income
Other comprehensive income for the Company includes foreign currency translation
adjustments, unrealized gains (losses) on investments and changes in fair value
of cash flow hedging instruments. Total comprehensive income for the nine month
periods ended September 26, 2003 and September 27, 2002 was as follows:
Three Month Nine Month
Period Ended Period Ended
Sep 26, Sep 27, Sep 26, Sep 27,
(In thousands) 2003 2002 2003 2002
- ------------------------------------------------------------------------
Net income: $14,695 $15,992 $39,124 $37,702
Other comprehensive
Income (loss):
Foreign exchange
translation adjustments (270) 168 257 (550)
Unrealized gains (losses)
on investments, net
of ($21), $17, ($1,132),
and $262 in tax (provisions)
benefits 33 (318) 96 (3,867)
Changes in fair value of
cash flow hedging
instruments, net of ($242),
$125, ($522) and $49 in
tax (provisions) benefits 378 (195) 817 (76)
Reclassification for
investment write-down
included in net income - - - 303
- ------------------------------------------------------------------------
Comprehensive income $14,836 $15,647 $40,294 $33,512
========================================================================
-14-
11. Earnings per Common Share
The computation of basic and diluted earnings per share for the three and nine
month periods ended September 26, 2003 and September 27, 2002 is as follows:
Three Month Nine Month
Period Ended Period Ended
(In thousands, except Sep 26, Sep 27, Sep 26, Sep 27,
per share amounts) 2003 2002 2003 2002
- ------------------------------------------------------------------------
Computation of basic
earnings per common
share:
Numerator
Net Income $14,695 $15,992 $39,124 $37,702
- ------------------------------------------------------------------------
Denominator
Average weighted shares
outstanding 27,641 29,046 27,634 29,181
Average weighted deferred
shares outstanding under
non-employee directors
compensation plan 119 96 113 93
- ------------------------------------------------------------------------
Shares outstanding for
basic earnings per share
calculation 27,760 29,142 27,747 29,274
- ------------------------------------------------------------------------
Basic earnings
per share $ 0.53 $ 0.55 $ 1.41 $ 1.29
========================================================================
Computation of diluted
earnings per common
share:
Numerator
Net Income $14,695 $15,992 $39,124 $37,702
- ------------------------------------------------------------------------
Denominator
Basic weighted average
shares outstanding 27,760 29,142 27,747 29,274
Dilutive effect of stock
options and restricted
stock 727 818 636 1,320
- ------------------------------------------------------------------------
Shares outstanding for
diluted earnings per
share calculation 28,487 29,960 28,383 30,594
- ------------------------------------------------------------------------
Diluted earnings
per share $ 0.52 $ 0.53 $ 1.38 $ 1.23
========================================================================
12. Business Segments
The Company operates its business in three segments. The Printed Products
segment ("Printed Products") includes checks and direct marketing activities and
analytical services marketed primarily to financial institutions. The Software
and Services ("Software & Services") segment is focused on the financial
institution market and includes lending and mortgage origination, compliance and
closing applications, database marketing software, core processing applications
and services and retail solutions. The Scantron segment ("Scantron") represents
products and services sold by the Company's Scantron subsidiary including
scanning equipment and software, scannable forms, survey solutions, curriculum
development, testing and assessment tools and field maintenance services.
-15-
Scantron sells these products and services to the education, commercial and
financial institution markets. In 2003, the Company transferred its analytical
services business unit from Software & Services to Printed Products and also
transferred certain support activities to Printed Products from corporate
operations. Accordingly, prior period results reflect reclassifications to
conform to the 2003 presentation.
The Company's operations are located primarily in the United States and Puerto
Rico. There were no significant intersegment sales during the nine month periods
ended September 26, 2003 and September 27, 2002. The Company does not have sales
to any individual customer greater than 10% of total Company sales. 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 referenced in Note 2.
Management evaluates segment performance based on segment income or loss before
income taxes. Segment income or loss excludes interest income, interest expense,
certain other non-operating gains and losses, all of which are considered
corporate items. Prior to 2003, certain incentive compensation for segment
management was considered to be a corporate item. Corporate assets consist
primarily of cash and cash equivalents, investments and other assets not
employed in production. Total assets of each business segment did not change
materially from the amount disclosed in the 2002 Form 10-K.
Selected summarized financial information for the three and nine month periods
ended September 26, 2003 and September 27, 2002 were as follows:
Business Segment
-------------------------------
Printed Software &
Products Services Scantron Corporate & Consoli-
(In thousands) Eliminations dated
- -----------------------------------------------------------------------------------
Three month period ended September 26, 2003:
Net sales $ 118,384 $ 44,512 $ 30,051 $ (453) $ 192,494
Income (loss) 17,042(1) 2,869(1) 7,628 (5,211) 22,328
Three month period ended September 27, 2002:
Net sales $ 129,019 $ 30,903 $ 30,158 $ (444) $ 189,636
Income (loss) 21,582 3,937 9,377 (8,752) 26,144
Nine month period ended September 26, 2003:
Net sales $ 369,366 $126,743 $ 83,483 $ (1,245) $ 578,347
Income (loss) 54,809(1) 10,745(1) 16,692 (20,822) 61,424
Nine month period ended September 27, 2002:
Net sales $ 389,453 $ 91,969 $ 79,649 $ (1,377) $ 559,694
Income (loss) 62,637 10,477 22,750 (34,076) 61,788
(1) Includes adjustments to reduce certain incentive compensation costs of
($434) and ($43) for Printed Products and Software & Services, respectively, for
the three month period ended September 26, 2003 and certain incentive
compensation costs of $1,370 and $1,284, respectively, for the nine month period
ended September 26, 2003 that were included in Corporate prior to January 1,
2003.
13. 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.
-16-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company operates its business in three segments. The Printed Products
segment ("Printed Products") includes checks, direct marketing activities and
analytical services marketed primarily to financial institutions.
The Software and Services segment ("Software & Services") is focused on the
financial institution market and includes lending and mortgage origination,
compliance and closing applications, database marketing software, core
processing applications and services and retail solutions.
The Scantron segment ("Scantron") includes scanning equipment and software,
scannable forms, survey solutions, curriculum development, testing and
assessment tools and field maintenance services. Scantron sells these products
and services to the education, commercial and financial institution markets.
In 2003, the Company transferred a business unit from Software & Services to
Printed Products and also transferred certain support activities to Printed
Products from corporate operations. Accordingly, prior period results have been
restated to conform to the 2003 presentation.
CRITICAL ACCOUNTING POLICIES
In the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2002 (the "2002 Form 10-K"), the Company's most critical accounting policies
and estimates upon which its financial status depends were identified as those
relating to revenue recognition, impairment of long-lived assets, goodwill and
other intangibles, software and other developmental costs, income taxes and
stock-based compensation. The Company believes there were no significant changes
in the status of its accounting policies during the nine month period ended
September 26, 2003 to warrant further disclosure. Please see the 2002 Form 10-K
for additional disclosure with respect to the Company's critical accounting
policies.
RESULTS OF OPERATIONS - THIRD QUARTER OF 2003 VERSUS THIRD QUARTER OF 2002
Consolidated net sales increased 1.5% to $192.5 million in the third quarter of
2003 from $189.6 million in the third quarter of 2002. A sales increase in the
Software & Services segment more than offset a decrease in both Printed Products
and Scantron segment sales. Sales of products, which consist of checks and
related products, direct marketing products, software licensing sales, scanning
equipment and scannable forms and other products decreased 3.7% to $154.6
million in the third quarter of 2003 from $160.5 million in the third quarter of
2002. Sales of services, which consist of software maintenance services, field
maintenance services, analytical and consulting services as well as online
service bureau offerings and other services increased 30.2% to $37.9 million in
the third quarter of 2003 from $29.1 million in the third quarter of 2002.
-17-
Printed Products sales decreased 8.2% to $118.4 million in the third quarter of
2003 from $129.0 million in the third quarter of 2002. The sales decrease was
due primarily to a volume decline in domestic imprint check printing operations,
which decreased 11.5% and also to decreases in average price per unit. The
volume decrease was attributable primarily to losses of certain large customers
and general market volume decline. An average price per unit decrease of 1.6%
was primarily due to the impact of contract renewals with less favorable pricing
and to product mix. Sales in computer checks and related products decreased
slightly in the third quarter of 2003 compared to the third quarter of 2002. The
loss of business with a software company in late 2002 was substantially offset
by increased sales with existing customers and increased sales in the computer
check commercial referral business. Sales of direct marketing activities for the
third quarter of 2003 exceeded sales in the third quarter of 2002 by 7.9% due
primarily to increased volume in the statement mailings business.
Software & Services product sales increased 33.6% to $18.7 million in the third
quarter of 2003 from $14.0 million in the third quarter of 2002. Sales of
services in Software & Services increased 52.7% to $25.8 million in the third
quarter of 2003 from $16.9 million in the third quarter of 2002. The increase in
sales was due primarily to acquisitions made in 2002 and 2003 (see Note 4 to the
Condensed Consolidated Financial Statements included in this report), which
accounted for $12.3 million of the increase in sales. Excluding the impact of
acquisitions, sales increased 4.4% in the third quarter of 2003 compared to the
same period in 2002. Increased license sales and customer installations had a
favorable impact in core processing sales over the prior quarter. Lending
products and service sales increased slightly primarily due to higher
maintenance sales and user conference fees, which were substantially offset by
lower book and ship sales. Retail solutions sales were favorably impacted in the
third quarter of 2003 primarily due to user conferences fees and increased
branch automation sales.
At September 26, 2003, Software & Services backlog was $91.1 million, an
increase of $58.2 million from the backlog at September 27, 2002. Approximately
$45.0 million or 49.4% of the backlog at September 26, 2003 is expected to be
realized over the next twelve months and $46.1 million or 50.6% is expected to
be realized beyond the next twelve months due to the long-term nature of certain
service contracts. The backlog increase was due primarily to acquisitions and
stronger bookings. Excluding the impact of acquisitions, backlog increased 12.6%
from the backlog at September 27, 2002.
Scantron sales for the third quarter of 2003 decreased 0.4% to $30.1 million
from $30.2 million in the third quarter of 2002. The decrease was due primarily
to lower sales of EdVISION products and services and custom forms which were
substantially offset by increased sales of standard forms, imaging products,
optical mark reading (OMR) equipment, survey services and field services.
Consolidated gross profit increased 3.4% to $94.3 million in the third quarter
of 2003 from $91.2 million in the third quarter of 2002, and increased as a
percentage of sales from 48.1% in the third quarter of 2002 to 49.0% in 2003.
Decreases in gross profit in Printed Products and Scantron were more than offset
by an increase in gross profit in Software & Services due primarily to
acquisitions made in 2003 and late 2002.
Printed Products gross profit in the third quarter of 2003 decreased 6.6%
compared to the third quarter of 2002 and, as a percentage of sales, increased
to 40.3% in the third quarter of 2003 compared to 39.6% in the third quarter of
2002. The unfavorable change in gross profit was due primarily to the decrease
in sales in the domestic check imprint operations. The gross profit decrease was
partially offset by increases in gross profit from computer checks and related
products and analytical services sales. The improvement in gross profit as a
percentage of sales was due primarily to efficiencies realized from digital
printing technology and process improvements.
-18-
Software & Services gross profit in the third quarter of 2003 increased 34.8%
over the third quarter of 2002 due to acquisitions and higher sales in core
processing applications. As a percentage of sales, Software & Services gross
profit decreased to 65.9% in the third quarter of 2003 from 70.4% in the third
quarter of 2002, due primarily to the impact of acquired operations.
Scantron gross profit in the third quarter of 2003 decreased 5.7% from the third
quarter of 2002, due primarily to the decrease in sales of EdVISION products and
services and custom forms partially offset by increased sales in other product
lines. As a percentage of sales, Scantron gross profit decreased to 57.7% in the
third quarter of 2003 from 61.0% in the third quarter of 2002, due to lower
margins associated with EdVISION product lines and an unfavorable change in
sales mix.
Consolidated selling, general and administrative expenses ("SG&A") increased
$7.1 million, or 11.3%, in the third quarter of 2003 from the third quarter of
2002. These expenses as a percentage of sales were 36.2% in the third quarter of
2003 up from 33.0% in the third quarter of 2002. Printed Products SG&A increased
in the third quarter of 2003 compared to the third quarter of 2002 due primarily
to increased expenses in the selling, marketing and general management areas
partially offset by a $0.8 million gain realized on the sale of a former check
printing facility. Software & Services SG&A increased in the third quarter of
2003 from the third quarter of 2002 due primarily to acquisitions, increased
expenses related to a user conference and product development costs related to a
mortgage services application. Scantron's SG&A also increased for the comparable
periods due primarily to increased selling and marketing expenses related to
developing a national sales force, increased product development costs as well
as increased facilities expenses related to a move to a new facility that took
place in the first quarter of 2003. All business segments and Corporate SG&A
were favorably impacted in the third quarter of 2003 due to reductions to
performance based incentive compensation expense accruals. Additionally,
Corporate SG&A was favorably affected in the third quarter of 2003 compared to
the third quarter of 2002 related to an unfavorable adjustment for healthcare
expenses in 2002 that did not recur in 2003. The favorable impact of the
incentive compensation and healthcare expense adjustments totaled approximately
$2.9 million.
Amortization of other intangibles increased 4.6% to $0.9 million in the third
quarter of 2003 from the third quarter of 2002 due primarily to operations
acquired in late 2002 and in the second quarter of 2003, which were partially
offset by intangible assets that were fully amortized during the third quarter
of 2002.
Consolidated income from operations decreased $4.0 million or 14.5% to $23.6
million in the third quarter of 2003 from $27.6 million in the third quarter of
2002, due primarily to increases in SG&A that exceeded an increase in gross
profit.
Other Income (Expense) decreased $0.2 million to an expense of $1.3 million in
the third quarter of 2003 from an expense of $1.5 million in the third quarter
of 2002. The decrease was due primarily to a gain on the sale of investments
realized in the third quarter of 2003 and also to slightly lower interest
expense in the third quarter of 2003 compared to the third quarter of 2002. The
impact of lower interest rates substantially offset the impact of higher average
borrowings in the third quarter of 2003 compared with the third quarter 2002.
Consolidated income before income taxes decreased $3.8 million or 14.6% to $22.3
million in the third quarter of 2003 from $26.1 million in the third quarter of
2002, due to decreased income from operations.
-19-
The Company's consolidated effective income tax rates were 34.2% and 38.8% for
the third quarters of 2003 and 2002, respectively. The lower effective income
tax rate for the third quarter of 2003 compared with the third quarter of 2002
resulted primarily from the release of a valuation allowance related to the
utilization of capital loss carryforwards, a reduction in the effective state
rate, a favorable renewal of an industrial revenue grant related to the
Company's operations in Puerto Rico and a reduction of certain estimated
permanent tax differences. The effective tax rate for the third quarter of 2002
included favorable adjustments related to state tax credits and adjustments
related to prior years due to a conclusion of an IRS examination.
The Company's net income in the third quarter of 2003 was $14.7 million compared
to $16.0 million in the third quarter of 2002. Basic and diluted earnings per
share were $0.53 and $0.52, respectively, for the third quarter of 2003 compared
to basic and diluted earnings per share of $0.55 and $0.53, respectively, for
the same period in 2002. A reduction in basic and diluted weighted average
shares outstanding in the third quarter of 2003 compared to the third quarter of
2002, primarily due to the Company's purchases of treasury stock in the fourth
quarter of 2002 and the first quarter of 2003, favorably impacted basic and
diluted earnings per share in the third quarter of 2003 but was more than offset
by the decrease in net income for the comparable periods.
RESULTS OF OPERATIONS YEAR TO DATE 2003 VERSUS YEAR TO DATE 2002
Consolidated net sales increased 3.3% to $578.3 million for the nine months
ended September 26, 2003 compared to $559.7 million for the nine months ended
September 27, 2002. Sales increases in the Software & Services and Scantron
segments more than offset a decrease in Printed Products sales. Sales of
products decreased 1.1% to $472.2 million for the first nine months of 2003 from
$477.4 million for the first nine months of 2002. Sales of services increased
29.0% to $106.2 million for the first nine months of 2003 from $82.3 million for
the first nine months of 2002.
Printed Products sales totaled $369.4 million and $389.5 million for the first
nine months of 2003 and 2002, respectively, a decrease of $20.1 million, or
5.2%. Lower volumes in domestic imprint check printing operations, which
decreased 9.5% for the first nine months of 2003 compared to the first nine
months of 2002, accounted for a majority of the decrease in Printed Product
sales. The volume decline was primarily attributable to losses of certain large
customers, lower volumes from a direct check marketer and general market volume
decline. The impact of the volume decline was moderated by an improvement of
3.8% in average price per unit primarily due to a price increase implemented in
July 2002 and lower volume from customers that are less favorably priced. Sales
in computer checks and related products also decreased for the first nine months
of 2003 compared to the first nine months of 2002 due primarily to the loss of
business with a software company in late 2002 and lower computer checks and
fulfillment sales for small business software accounts. Sales in direct
marketing decreased due to the general economic slowdown, which resulted in
lower credit card promotions and fewer openings of brokerage accounts.
Software & Services sales for the first nine months increased $34.7 million, or
37.7%, from $92.0 million in 2002 to $126.7 million in 2003. Sales increases
were due primarily to acquisitions made in 2002 and 2003 (see Note 4 to the
Condensed Consolidated Financial Statements included in this report). Excluding
the impact of acquisitions, sales increases in lending products and services
more than offset a decrease in retail solutions while core processing sales were
flat for the comparable periods. The increase in lending products and services
was primarily due to higher book and ship sales, higher maintenance revenue and
the impact of subscription and loan block contracts over the past year. Retail
solutions sales were unfavorably impacted by a decrease in customer relationship
management sales and data appends by customers in 2003 partially offset by
higher sales of branch automation applications and user conference fees.
-20-
Scantron sales for the first nine months increased 4.8% from $79.6 million for
the first nine months of 2002 to $83.5 million for the first nine months of
2003. The increase was due primarily to the acquisition of EdVISION in July 2002
(see Note 4 to Condensed Consolidated Financial Statements included in this
report), increases in sales of imaging products and scannable forms and internal
growth in field services, which were partially offset by reduced sales of OMR
and custom forms due to a trend in data collections from optical mark reading to
imaging and direct input methods.
Consolidated gross profit of $281.7 million for the first nine months of 2003
increased $19.5 million, or 7.4%, from $262.2 million in the same period in
2002, and increased as a percentage of sales from 46.8% in 2002 to 48.7% in
2003.
Printed Products gross profit decreased 0.8% for the first nine months of 2003
from the first nine months of 2002 and as a percentage of sales was 40.5% for
the first nine months of 2003 compared to 38.7% for the first nine months of
2002. The decrease in gross profit was due to the decrease in sales in direct
marketing activities, reduced volume in domestic imprint check printing
operations and decreases in sales of computer checks and related products
partially offset by increases in analytical services gross profit. The
improvement in gross profit as a percentage of sales was due primarily to
efficiencies realized from digital printing technology, process improvements and
a favorable change in price and product mix.
Software & Services gross profit for the first nine months of 2003 increased
32.2% over the first nine months of 2002, due primarily to acquisitions and
higher sales in lending products. As a percentage of sales, Software & Services
gross profit decreased to 68.1% for the first nine months of 2003 from 71.0% for
the first nine months of 2002 due primarily to the impact of acquired operations
and a change in sales mix.
Scantron gross profit decreased by 0.6% for the first nine months of 2003
compared to the first nine months of 2002 due primarily to an unfavorable change
in sales mix. As a percentage of sales, Scantron gross profit decreased from
57.9% for the first nine months of 2002 to 54.9% for the first nine months of
2003 due primarily to an unfavorable change in sales mix and to costs and
production inefficiencies experienced during a facility relocation that occurred
in the first quarter of 2003.
Consolidated SG&A increased by $20.3 million, or 10.5%, from $193.3 million in
the first nine months of 2002 to $213.6 million in the first nine months of
2003. These expenses as a percentage of sales were 36.9% in 2003 compared to
34.5% in 2002. The increase was due primarily to the impact of acquisitions,
increases in Printed Products SG&A and increases in Scantron selling expenses
and product development costs partially offset by decreases in stock-based
compensation expense. Stock-based compensation totaled $1.8 million in the first
nine months of 2003 compared to $8.2 million in the first nine months of 2002.
The decrease in stock-based compensation was primarily due to a $6.9 million
charge in 2002 related to accelerated vesting of certain restricted stock grants
in the first quarter of 2002. These grants vested as a result of the Company's
favorable stock price performance. Printed Products SG&A increased in the first
nine months of 2003 over the first nine months of 2002 due to selling and
marketing activities, customer care initiatives and certain other initiatives
and was partially offset by a $0.8 million gain on the sale of a former check
printing facility realized in the third quarter of 2003.
Amortization of other intangibles increased to $2.4 million for the first nine
months of 2003 compared to $2.2 million for the first nine months of 2002 due
primarily to acquired operations partially offset by intangible assets that were
fully amortized during the third quarter of 2002.
Consolidated income from operations decreased $1.1 million, or 1.6%, to $65.6
million for the first nine months of 2003 from $66.7 million for the first nine
months of 2002 due primarily to increases in SG&A that exceeded an increase in
gross profit.
-21-
Other Income (Expense) decreased by $0.7 million from an expense of $4.9 million
for the first nine months of 2002 to an expense of $4.2 million for the first
nine months of 2003. The decrease was due primarily to a write-down of $0.3
million in the second quarter of 2002 on the Company's equity investment in
Netzee, Inc. Interest expense decreased $0.3 million from 2002 primarily due to
lower interest rates during the first nine months of 2003 compared with the
first nine months of 2002, which was partially offset by the impact of higher
average borrowings.
Consolidated income before income taxes decreased $0.4 million or 0.6% to $61.4
million for the first nine months of 2003 compared to $61.8 million for the
first nine months of 2002 due primarily to decreased income from operations.
The Company's consolidated effective income tax rates were 36.3% and 39.0% for
the first nine months of 2003 and 2002, respectively. The lower effective income
tax rate for the first nine months of 2003 resulted primarily from the release
of a valuation allowance related to the utilization of capital loss
carryforwards, a reduction in the effective state rate, a favorable renewal of
an industrial revenue grant related to the Company's operations in Puerto Rico
and a reduction of certain estimated permanent tax differences. The effective
tax rate for the first nine months of 2002 included favorable adjustments
related to state tax credits and adjustments related to prior years due to a
conclusion of an IRS examination.
The Company's net income for the first nine months of 2003 was $39.1 million
compared to $37.7 million for the first nine months of 2002. Basic and diluted
earnings per share were $1.41 and $1.38, respectively, for the first nine months
of 2003 compared to basic and diluted earnings per share of $1.29 and $1.23,
respectively, for the same period in 2002. The results for 2002 included a $6.9
million pre-tax charge for accelerated vesting of stock grants.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Cash flows provided by operating activities decreased $59.3 million to $38.5
million in the first nine months of 2003 from $97.8 million in the first nine
months of 2002 due primarily to upfront contract incentive payments made in the
second and third quarters of 2003, increases in accounts receivable and other
assets, and decreases in accounts payable and accrued liabilities. Other uses of
funds in the first nine months of 2003 were for capital expenditures, purchases
of treasury stock, acquisition of Premier Systems, Inc., dividend payments to
shareholders and repayment of long-term debt.
In March 2000, the Company's Board of Directors authorized the purchase of up to
2.9 million shares of the Company's outstanding common stock. Shares purchased
under this program may be held in treasury, used for acquisitions, used to fund
the Company's stock benefit and compensation plans or for other corporate
purposes. During the first nine months of 2003, the Company purchased 833,932
shares of its common stock pursuant to this authorization at a cost of
approximately $19.1 million, or an average cost per share of $22.95. As of
September 26, 2003, a total of 2,586,378 shares had been purchased under the
share purchase authorization at an average cost of $21.63 per share. In January
2003, the Company's Board of Directors authorized the repurchase of an
additional 3.0 million shares, upon completion of the existing authorization.
-22-
Purchases of property, plant and equipment totaled $21.1 million and $26.3
million in the first nine months of 2003 and 2002, respectively. Capital
expenditures in the first nine months of 2003 were primarily for customer care
infrastructure initiatives. The Company's customer care infrastructure
initiatives focus on improving systems that support sales, marketing and
customer service to ensure exceptional service and added functionality for the
Company's call centers. The Company currently estimates it will spend
approximately $60 million on customer care infrastructure initiatives over a
four-year period ending in 2004, with a majority of the expenditures being
incurred by the end of 2003. The total anticipated expenditures include capital
expenditures of approximately $42 million. Through September 26, 2003, $42.3
million has been expended on these initiatives, of which $30.3 million was
capitalized. The Company currently estimates capital expenditures will total
approximately $27 to $30 million in 2003.
The Company has entered into a contract with a customer that contains provisions
that call for future payments to the customer if the Company does not meet
certain performance measures. The contract also contains provisions that call
for the reduction or elimination of the Company's payment obligations if the
customer does not meet certain performance requirements. The Company does not
anticipate any payments pursuant to these contract provisions at this time.
As of September 26, 2003, the Company's accumulated other comprehensive income
was $0.8 million and consisted of net unrealized gains on investments, cash flow
hedging instruments and foreign currency translation adjustments.
The Company has a $325.0 million revolving Credit Facility with a syndicate of
banks. The Credit Facility matures in August 2004 and may be used for general
corporate purposes, including acquisitions, and includes both direct borrowings
and letters of credit. During the first nine months of 2003, the Company repaid
$4.1 million of its outstanding long-term debt. As of September 26, 2003, direct
borrowings totaled $140.0 million under the Credit Facility, compared to $144.0
million as of December 31, 2002. There were $5.1 million in outstanding letters
of credit, which were issued under the Credit Facility, leaving $179.9 million
available for borrowings at September 26, 2003. The Company plans to replace the
Credit Facility on or before its maturity date with an arrangement that will
provide similar or greater flexibility than the existing Credit Facility.
On September 26, 2003, the Company had $6.7 million in cash and cash
equivalents. The Company believes that its current cash position, funds from
operations, the availability of funds under the Credit Facility and available
additional borrowing capacity will be sufficient to meet anticipated
requirements for working capital, dividends, capital expenditures and other
corporate needs for the foreseeable future. Management is not aware of any
condition that would materially alter this trend.
The Company believes that it possesses sufficient unused debt capacity and
access to capital markets to pursue additional acquisition opportunities.
ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board (the "FASB") issued
Statement No. 145, "Rescission of FASB Statements 4, 44 and 64, Amendment to
FASB Statement 13, and Technical Corrections" ("SFAS 145"). One of the major
changes of SFAS 145 is to change the accounting for the classification of gains
and losses from the extinguishment of debt. The Company adopted SFAS 145 on
January 1, 2003 and uses APB 30, "Reporting the Results of Operations--Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions" in determining whether such
extinguishment of debt may be classified as extraordinary. Adoption of SFAS 145
did not have a material effect on the Company's financial position or results of
operations.
-23-
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 requires
recording costs associated with exit or disposal activities at their fair values
when a liability has been incurred. Under previous guidance, certain exit costs
were accrued upon management's commitment to an exit plan, which is generally
before an actual liability has been incurred. The Company adopted SFAS 146 on
January 1, 2003. Adoption of SFAS 146 did not have a material effect on the
Company's financial position or results of operations. The Company has applied
the provisions of SFAS 146 to the Company's reorganization actions initiated in
September 2003 (see Note 3 to the Condensed Consolidated Financial Statements
included in this report).
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness
of Others" ("FIN 45"), which requires companies to recognize, at the inception
of a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. FIN 45 provides specific guidance identifying the
characteristics of contracts that are subject to its guidance in its entirety
from those only subject to the initial recognition and measurement provisions.
The recognition and measurement provisions of FIN 45 are effective on a
prospective basis for guarantees issued or modified after December 31, 2002. The
Company adopted the recognition and measurement provisions of FIN 45 on January
1, 2003. Adoption of these provisions did not have a material effect on the
Company's financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). FIN 46 provides accounting requirements
for business enterprises to consolidate related entities in which they are
determined to be the primary beneficiary as a result of their variable economic
interests. The interpretation provides guidance in judging multiple economic
interests in an entity and in determining the primary beneficiary. FIN 46 is
effective immediately for all new variable interest entities created or acquired
after January 31, 2003. For variable interest entities created or acquired prior
to February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period ending after December 15, 2003. The Company adopted
certain provisions of FIN 46 during the second quarter of 2003 and this adoption
did not have a material effect on the Company's financial position or results of
operations. The Company believes that the adoption of the remaining provisions
of FIN 46 will not have a material effect on its financial position or results
of operations.
In April 2003, the FASB issued Statement No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 149 requires that contracts with
comparable characteristics be accounted for similarly for contracts entered into
or modified after June 30, 2003. The Company adopted SFAS 149 on July 1, 2003.
Adoption of SFAS 149 did not have a material effect on the Company's financial
position or results of operations.
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity"
("SFAS 150"). SFAS 150 requires that an issuer classify financial instruments
that are within its scope as a liability (or an asset in some circumstances)
instead of equity as previously classified. SFAS 150 is effective for financial
instruments entered into or modified after May 31, 2003 and otherwise effective
at the beginning of the first interim period beginning after June 15, 2003. As a
result of concerns over implementation and measurement issues, the FASB
unanimously decided on October 29, 2003 to defer the application of SFAS No. 150
to certain non-controlling interests of limited-life entities that are
consolidated in the financial statements. Adoption of SFAS 150 did not have a
material effect on the Company's financial position or results of operations.
-24-
RECLASSIFICATIONS
During the third quarter of 2003, the Company reclassified certain items in its
consolidated income statements. The reclassifications affected the categories of
Selling, General and Administrative expenses and Other Income (Expense). The
change primarily reflects the reclassification of gains or losses on the sale of
assets as well as certain other expenses from Other Income (Expense) to Selling,
General and Administrative expenses. Financial data for all periods presented
have been restated to reflect the impact of the reclassification. The
reclassifications had no impact on net income or shareholders' equity as
previously reported. Certain other reclassifications have been made in the 2002
financial statements and notes to financial statements to conform to the 2003
classifications.
REORGANIZATION
In September 2003, the Company announced a reorganization of its Printed
Products operations including a plan to consolidate its domestic manufacturing
operations from 14 plants to 9 plants, with the first plant closing in the first
quarter of 2004 and the last affected plant closing in the third quarter of
2004. Two of the facilities being closed are leased. One facility is under lease
through late 2005 and the other is under lease through mid 2010. In addition to
the plant consolidation, Printed Products will implement other staffing
reductions beginning in the fourth quarter of 2003 and continuing throughout
2004. These actions are primarily due to efficiencies from digital technology,
lower volumes, and other production and support systems that have created excess
capacity in production facilities.
The Company estimates net pre-tax expenses associated with the plant
consolidations will total $13.0 million consisting of employee severance ($4.1
million), revision of depreciable lives and salvage values of furniture and
equipment, asset impairment charge and disposal gains and losses ($2.3 million),
relocation and other costs ($4.0 million) and contract termination costs related
to leaseholds ($2.6 million). Of these amounts, $0.1 million related to employee
severance was reflected in results of operations for the third quarter of 2003
in cost of goods sold. The other staffing reduction actions will result in a
total estimated expense of $6 million related to employee severance costs.
OUTLOOK
The Company believes that its financial position continues to be strong and
expects a positive cash flow from operations in all business segments in 2003.
The Company projects that the Printed Products segment's profits will be down in
2003 compared with 2002 due to the costs of the previously discussed plant
consolidation and staffing reduction actions, the soft economy, losses of
certain large customers, the current level of spending on customer care
infrastructure, order entry systems and marketing activities and recent pricing
trends in Printed Products, which in certain circumstances includes significant
upfront contract incentive payments. In addition to these factors the Company is
not projecting its direct marketing business to increase from current levels in
the near term. The Company anticipates that the Software & Services segment's
profitability will continue to improve during the fourth quarter of 2003 as it
completes the integration of its 2003 and 2002 acquisitions. The Company is
projecting that the Scantron segment's profits will be down in 2003, primarily
reflecting the impact of state education budget reductions on the sales of its
new technology products and the continued sales decline of OMR equipment and
related custom forms resulting from a shift to imaging and other direct methods
of data collection.
-25-
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 "believe," "should result," "are expected to," "will
continue," "is anticipated," "estimate," "project" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are
necessarily subject to certain risks and uncertainties, including, but not
limited to, those discussed below that could cause actual results to differ
materially from the Company's historical experience and its present expectations
or projections. Caution should be taken not to place undue reliance on any such
forward-looking statements, which speak only as of the date such statements are
made and which may or may not be based on historical experiences and/or trends
which may or may not continue in the future. The Company does not undertake and
specifically declines any obligation to update 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 which 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 achieve sales levels,
improve service quality, achieve production efficiencies and reduce expenses in
Printed Products. These include, but are not limited to, the continuing upgrade
of the Company's customer care infrastructure and systems used in the Company's
manufacturing, sales, marketing, customer service and call center operations.
Several factors outside the Company's control could negatively impact check
revenues. 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 may continue to be adversely affected by
continued consolidation of financial institutions, competitive check pricing
(which in certain circumstances may include significant upfront contract
incentive payments) and the impact of governmental laws and regulations. There
can be no assurances that the Company will not lose additional customers or that
any such loss could be offset by the addition of new customers.
While the Company believes substantial growth opportunities exist in the
Software & Services segment, there can be no assurances that the Company will
achieve its revenue or earnings growth targets. The Company believes there are
many risk factors inherent in its software business, including but not limited
to the retention of talented employees and customers. Also, variables exist in
the development of new software products, including the timing and costs of the
development effort, product performance, functionality, product acceptance,
competition, the Company's ability to integrate acquired companies and general
changes in economic conditions or U.S. financial markets.
Several factors outside of the Company's control could affect results in the
Scantron segment. These include the rate of adoption of new electronic data
collection, testing and assessment methods, which could negatively impact
current forms, scanner sales and related service revenue. The Company continues
to develop products and services that it believes offer state of the art
electronic data collection, testing and assessment solutions. However, variables
exist in the development of new testing methods and technologies, including the
timing and costs of the development effort, product performance, functionality,
market acceptance, adoption rates, competition and the funding of education at
the federal, state and local level, and the Company's ability to integrate
acquired companies, all of which could have an adverse impact on the Company's
business.
-26-
As a matter of due course, the Company and its subsidiaries are subject to
various Federal and State tax examinations. The Company believes that it is in
compliance with the various Federal and State tax regulations and that the
returns and reports filed with respect to such tax regulations are materially
correct. The results of these Federal and State tax examinations could produce
both favorable and unfavorable adjustments to the Company's total tax expense
either currently or on a deferred basis. At such time when a favorable or
unfavorable adjustment is known, the effect on the Company's consolidated
financial statements is recorded.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
All financial instruments held by the Company are held for purposes other than
trading. The Company is exposed to primarily two types of market risks: interest
rate and equity price.
Interest Rate Risk
The Company is exposed to interest rate risk on its variable rate debt. At
September 26, 2003, the Company had outstanding variable rate debt of $140.0
million. In order to manage its exposure to fluctuations in interest rates, the
Company has entered into interest rate swap agreements, which allow it to raise
funds at floating rates and effectively swap them into fixed rates. At September
26, 2003, the notional principal amount of interest rate swaps outstanding was
$71.0 million. The Company believes that its interest rate risk at September 26,
2003 was minimal. The impact on quarterly results of operations of a
hypothetical one-point interest rate change on the outstanding debt as of
September 26, 2003 would be approximately $172,000. These derivative financial
instruments are viewed as risk management tools and are entered into for hedging
purposes only. The Company does not use derivative financial instruments for
trading or speculative purposes.
The fair value of the swaps, which represent what the Company would have to pay
to terminate the swaps, reflected a loss of $0.9 million ($0.5 million net of
income taxes) at September 26, 2003. The fair value of the swaps was recognized
on the balance sheet in other liabilities with a corresponding charge to
accumulated other comprehensive income, a component of shareholders' equity.
Charges and credits to other comprehensive income for interest rate swap
agreements that are not terminated early will net to zero over the term of the
agreements.
Equity Price Risk
The fair value of the Company's investments is primarily affected by
fluctuations in the market price for the common stock of Bottomline
Technologies, Inc. The change in market value has been accounted for as a
component of other comprehensive income. The following presents the Company's
investment in Bottomline reflecting the high and low closing market prices for
the nine month period ended September 26, 2003:
Carrying
(In thousands) Value(a) High(b) Low(b)
- ----------------------------------------------------------------------
Investment in Bottomline $ 4,234 $ 4,753 $ 2,591
(a) Based on market value as of September 26, 2003.
(b) Based on quoted market prices.
Item 4. Controls and Procedures
The Company's disclosure controls and procedures are designed to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules
and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that such information is accumulated
and communicated to management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.
-27-
As of the end of the period covered by this report, the Company evaluated, under
the supervision and with the participation of management, including the Chief
Executive Officer and Chief Financial Officer, the effectiveness of the design
and operation of the Company's disclosure controls and procedures, pursuant to
Exchange Act Rule 13a-14 and Rule 13a-15. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective. There have been no significant
changes in the Company's internal controls during the period covered by this
report that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
-28-
PART II. OTHER INFORMATION
Item 1. 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 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Description
3.1 * Amended and Restated Articles of Incorporation (Exhibit B to
registrant's Proxy Statement dated March 12, 1999).
3.2 * Amended and Restated Bylaws, as amended through December 19, 2002
(Exhibit 3.2 to registrant's Annual Report on Form 10-K for the year
ended December 31, 2002).
4.1 * Rights Agreement, dated as of December 17, 1998, as amended, between
registrant and First Chicago Trust Company of New York (Exhibit 4.1 to
registrant's Registration Statement on Form 8-A dated July 1, 1999).
4.2 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.
11.1 Computation of Per Share Earnings.+
31.1 Certification Pursuant to Rule 13a-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification Pursuant to Rule 13a-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Indicates exhibit previously filed with the Securities and Exchange Commission
as indicated in parentheses and incorporated herein by reference.
(b) Reports on Form 8-K
On July 30, 2003, the Registrant furnished to the Securities and Exchange
Commission a Report on Form 8-K dated July 28, 2003 including its Press Release
for the quarter ended June 27, 2003, as well as the transcript of its conference
call on July 29, 2003 discussing its second quarter results.
- --------
+ Data required by SFAS No. 128, "Earnings Per Share," is provided in Note 11 to
the Condensed Consolidated Financial Statements included in this report.
-29-
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHN H. HARLAND COMPANY
Date: November 7, 2003 By: /s/ J. Michael Riley
-----------------------------
J. Michael Riley
Vice President and Controller
(Duly Authorized Officer and
Chief Accounting Officer)
-30-
EXHIBIT LIST
Exhibit Description
3.1 * Amended and Restated Articles of Incorporation (Exhibit B to
registrant's Proxy Statement dated March 12, 1999).
3.2 * Amended and Restated Bylaws, as amended through December 19, 2002
(Exhibit 3.2 to registrant's Annual Report on Form 10-K for the year
ended December 31, 2002).
4.1 * Rights Agreement, dated as of December 17, 1998, as amended, between
registrant and First Chicago Trust Company of New York (Exhibit 4.1 to
registrant's Registration Statement on Form 8-A dated July 1, 1999).
4.2 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.
11.1 Computation of Per Share Earnings.+
31.1 Certification Pursuant to Rule 13a-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification Pursuant to Rule 13a-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Indicates exhibit previously filed with the Securities and Exchange Commission
as indicated in parentheses and incorporated herein by reference.
- ----------
+ Data required by SFAS No. 128, "Earnings Per Share," is provided in Note 11 to
the Condensed Consolidated Financial Statements included in this report.
-31-