Back to GetFilings.com
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 June 25, 2004
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 July 23,
2004 was 27,749,647.
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. . . . . . . . . . . . . . . . . 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . 29
ITEM 4. CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . . . . 29
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . 30
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES
OF EQUITY SECURITIES . . . . . . . . . . . . . . . . . . . 30
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . 30
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . 31
EXHIBIT LIST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
-2-
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
------
(In thousands) June 25, December 31,
2004 2003
- ----------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 6,797 $ 8,525
Accounts receivable - net 61,384 60,338
Inventories 15,634 15,517
Deferred income taxes 19,627 32,517
Income taxes receivable 11,477 37
Prepaid expenses 11,396 11,096
Other 10,221 7,316
- ----------------------------------------------------------------------
Total current assets 136,536 135,346
- ----------------------------------------------------------------------
Other Assets:
Goodwill - net 223,328 217,749
Intangible assets - net 15,873 16,835
Refundable contract payments 58,169 52,933
Other 17,874 19,681
- ----------------------------------------------------------------------
Total other assets 315,244 307,198
- ----------------------------------------------------------------------
Property, plant and equipment 342,763 356,172
Less accumulated depreciation
and amortization 232,428 231,739
- ----------------------------------------------------------------------
Property, plant and equipment - net 110,335 124,433
- ----------------------------------------------------------------------
Total $ 562,115 $ 566,977
======================================================================
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 June 25, December 31,
per share amounts) 2004 2003
- ----------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 28,087 $ 26,030
Deferred revenues 60,705 57,745
Accrued liabilities:
Salaries, wages and employee benefits 24,974 30,376
Taxes 18,189 17,669
Other 27,486 29,602
- ----------------------------------------------------------------------
Total current liabilities 159,441 161,422
- ----------------------------------------------------------------------
Long-Term Liabilities:
Long-term debt, less current maturities 110,092 122,059
Deferred income taxes 4,709 5,087
Other 23,918 22,966
- ----------------------------------------------------------------------
Total long-term liabilities 138,719 150,112
- ----------------------------------------------------------------------
Total liabilities 298,160 311,534
- ----------------------------------------------------------------------
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 11,012 7,788
Retained earnings 461,974 448,688
Accumulated other comprehensive (loss) (708) (735)
Unamortized restricted stock awards (16,896) (5,408)
- ----------------------------------------------------------------------
493,289 488,240
Less 10,191,043 and 10,413,501 shares
in treasury - at cost,
respectively 229,334 232,797
- ----------------------------------------------------------------------
Total shareholders' equity 263,955 255,443
- ----------------------------------------------------------------------
Total $ 562,115 $ 566,977
======================================================================
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 Period Ended Six Month Period Ended
(In thousands, except June 25, June 27, June 25, June 27,
per share amounts) 2004 2003 2004 2003
- ---------------------------------------------------------------------------
Sales:
Product sales $ 153,324 $ 157,175 $ 307,031 $ 317,584
Service sales 39,655 35,253 76,524 68,269
- ---------------------------------------------------------------------------
Total sales 192,979 192,428 383,555 385,853
Cost of sales:
Cost of products sold 86,642 87,134 175,517 175,745
Cost of services sold 14,128 11,793 27,379 22,775
- ---------------------------------------------------------------------------
Total cost of sales 100,770 98,927 202,896 198,520
Gross Profit 92,209 93,501 180,659 187,333
Selling, general and
administrative expenses 76,672 73,669 142,359 143,887
Amortization of
intangibles 927 762 1,834 1,432
- ---------------------------------------------------------------------------
Income From Operations 14,610 19,070 36,466 42,014
- ---------------------------------------------------------------------------
Other Income (Expense):
Interest expense (1,007) (1,505) (2,131) (3,063)
Other - net 37 102 190 145
- ---------------------------------------------------------------------------
Total (970) (1,403) (1,941) (2,918)
- ---------------------------------------------------------------------------
Income Before Income Taxes 13,640 17,667 34,525 39,096
Income taxes 4,777 6,417 12,609 14,667
- ---------------------------------------------------------------------------
Net Income 8,863 11,250 21,916 24,429
Retained Earnings at
Beginning of Period 456,029 418,208 448,688 409,110
Cash Dividends (2,806) (2,070) (5,586) (4,211)
Issuance of treasury shares
under stock plans (112) (2,258) (3,044) (4,198)
- ---------------------------------------------------------------------------
Retained Earnings at
End of Period $ 461,974 $ 425,130 $ 461,974 $ 425,130
===========================================================================
Weighted Average Shares
Outstanding:
Basic 27,397 27,607 27,417 27,740
Diluted 28,191 28,258 28,215 28,331
===========================================================================
Earnings Per Common Share:
Basic $ 0.32 $ 0.41 $ 0.80 $ 0.88
Diluted $ 0.31 $ 0.40 $ 0.78 $ 0.86
===========================================================================
Cash Dividends Per
Common Share $ 0.10 $ 0.075 $ 0.20 $ 0.15
===========================================================================
See Notes to Condensed Consolidated Financial Statements.
-5-
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Month Period Ended
June 25, June 27,
(In thousands) 2004 2003
- -----------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 21,916 $ 24,429
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 19,137 18,462
Amortization of refundable contract payments 11,754 5,892
Other amortization 4,893 4,450
Stock-based compensation 1,629 1,203
Tax benefits from stock-based compensation 2,199 1,019
(Gain) on sale of assets (3,549) (69)
Asset impairment charge 2,282 -
Deferred income taxes 12,495 (1,378)
Other 3,088 584
Change in assets and liabilities:
Accounts receivable (2,064) 81
Inventories and other current assets (9,711) (1,492)
Deferred revenues 785 5,424
Accounts payable and accrued liabilities (5,007) (3,161)
Refundable contract payments (16,990) (20,922)
- -----------------------------------------------------------------------------
Net cash provided by operating activities 42,857 34,522
- -----------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (12,906) (14,314)
Proceeds from sale of property, plant and equipment 5,493 198
Payment for acquisition of businesses -
net of cash acquired (5,867) (11,293)
Long-term investments and other assets (175) 1,190
- -----------------------------------------------------------------------------
Net cash (used in) investing activities (13,455) (24,219)
- -----------------------------------------------------------------------------
FINANCING ACTIVITIES:
Credit facility borrowings 123,577 133,157
Credit facility payments (135,542) (137,871)
Repayment of long-term debt (69) (74)
Repurchases of stock (20,738) (19,138)
Issuance of treasury stock 9,063 5,038
Dividends paid (5,586) (4,211)
Other - net (1,835) 528
- -----------------------------------------------------------------------------
Net cash (used in) financing activities (31,130) (22,571)
- -----------------------------------------------------------------------------
(Decrease) in cash and cash equivalents (1,728) (12,268)
Cash and cash equivalents at beginning of period 8,525 19,218
- -----------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 6,797 $ 6,950
=============================================================================
See Notes to Condensed Consolidated Financial Statements.
-6-
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 25, 2004
(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 (the
"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 2003 financial
statements and notes to financial statements to conform to 2004 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, as amended, for the year ended December 31, 2003 ("2003 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 2003 Form 10-K.
Accounting Pronouncements
In May 2004, the Financial Accounting Standards Board ("FASB") issued FASB Staff
Position ("FSP") regarding SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." FSP 106-2, "Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement
and Modernization Act of 2003" discusses the effect of the Medicare Prescription
Drug, Improvement and Modernization Act ("the Act") enacted on December 8, 2003.
FSP 106-2 considers the effect of the two new features introduced in the Act in
determining accumulated postretirement benefit obligation ("APBO") and net
periodic postretirement benefit cost, which may serve to reduce a company's
postretirement benefit costs. Companies may elect to defer accounting for this
benefit or may attempt to reflect the best estimate of the impact of the Act on
net periodic costs currently. The Company may benefit from the subsidy and is
currently evaluating the impact of FSP 106-2, which the Company is required to
adopt in the third quarter of 2004.
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 FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
the Company's net income and earnings per share for the three and six month
periods ended June 25, 2004 and June 27, 2003 would have changed to the pro
forma amounts listed below:
-7-
Three Month Period Ended Six Month Period Ended
(In thousands, except June 25, June 27, June 25, June 27,
per share amounts) 2004 2003 2004 2003
- ------------------------------------------------------------------------
Net income:
As reported $ 8,863 $11,250 $21,916 $24,429
Add: stock-based
compensation expense
included in reported
net income, net of tax 652 370 994 734
Deduct: stock-based
compensation expense
determined under the
fair value based method
for all awards,
net of tax (1,577) (1,242) (2,967) (2,917)
- ------------------------------------------------------------------------
Pro forma net income $ 7,938 $10,378 $19,943 $22,246
========================================================================
Earnings per common share:
As reported
Basic $ 0.32 $ 0.41 $ 0.80 $ 0.88
Diluted $ 0.31 $ 0.40 $ 0.78 $ 0.86
Pro forma
Basic $ 0.29 $ 0.38 $ 0.73 $ 0.80
Diluted $ 0.28 $ 0.37 $ 0.71 $ 0.79
Pro forma compensation costs associated with options granted under the employee
stock purchase plan were estimated based on the discount from market value.
There were no stock options granted during the second quarter of 2004. 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 six month periods ended June 25, 2004 and June 27, 2003:
Six Month Period Ended
June 25, June 27,
2004 2003
- ------------------------------------------------------------------------
Fair value per option $ 9.60 $ 7.92
Weighted average assumptions:
Dividend yield 1.40% 1.42%
Expected volatility 36.10% 41.10%
Risk-free interest rate 4.10% 4.02%
Expected life (years) 5.0 5.2
3. Acquisitions
All acquisitions in 2004 and 2003 were paid for with cash provided from
operating activities and proceeds from the Company's credit facility. The
results of operations of each acquired business have been included in the
Company's operations beginning as of the date of the particular acquisition.
-8-
2004 Acquisition
On April 30, 2004, Harland Financial Solutions, Inc. ("HFS"), a wholly owned
subsidiary of the Company, acquired certain assets related to the electronic
mortgage document business of Greatland Corporation for approximately $5.6
million in cash. The fair value of assets and liabilities at the date of
acquisition consisted of deductible goodwill of $5.5 million, other intangible
assets of $1.2 million (estimated weighted useful life of seven years), other
assets of $0.2 million and assumed liabilities of $1.3 million. The allocation
of purchase price is subject to refinement as the Company finalizes the
valuation of certain assets and liabilities. Greatland is a leading provider of
forms technology, compliance expertise and software compatible products used to
meet the needs of businesses to convey regulatory information. It has been a
leader for 20 years in the evolution of electronic mortgage document technology
helping financial institutions complete and distribute information more easily.
The Greatland mortgage document set is employed by many of the industry's
leading mortgage lenders and mortgage loan origination system technology
providers. Greatland's electronic mortgage document products will allow Software
and Services to build on its leadership position in compliance and mortgage
solutions. The pro forma effects of the acquisition were not material to the
Company's results of operations.
2003 Acquisition
On June 3, 2003, HFS 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. The fair value of assets and liabilities at the
date of acquisition consisted of non-deductible goodwill of $9.5 million,
customer list of $6.0 million (estimated useful life of ten years), other assets
of $4.3 million and assumed liabilities of $8.5 million. 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 pro
forma effects of the PSI acquisition were not material to the Company's results
of operations.
4. Goodwill and Intangible Assets
The changes in the carrying amounts of goodwill by business segment for the six
month period ended June 25, 2004 are as follows (in thousands):
Printed Software &
Products Services Scantron Consolidated
- ------------------------------------------------------------------------
Balances as of
December 31, 2003 $ 24,709 $149,474 $ 43,566 $217,749
Goodwill acquired
in 2004 5,530 5,530
Purchase price
allocation adjustments - 49 - 49
- ------------------------------------------------------------------------
Balances as of
June 25, 2004 $ 24,709 $155,053 $ 43,566 $223,328
========================================================================
-9-
Intangible assets with definitive lives were comprised of the following (in
thousands):
June 25, 2004 December 31, 2003
- ------------------------------------------------------------------------
Gross Net Gross Net
Carrying Accum. Carrying Carrying Accum. Carrying
Amount Amort. Amount Amount Amort. Amount
- ------------------------------------------------------------------------
Developed
technology $25,699 $(14,657) $11,042 $24,787 $(11,851) $12,936
Customer
lists 26,765 (14,003) 12,762 25,900 (12,366) 13,534
Trademarks 3,800 (689) 3,111 3,800 (499) 3,301
Content 2,300 (442) 1,858 2,300 (327) 1,973
- ------------------------------------------------------------------------
Total $58,564 $(29,791) $28,773 $56,787 $(25,043) $31,744
========================================================================
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 $4.7 million and
$4.2 million for the six month periods ended June 25, 2004 and June 27, 2003,
respectively.
The estimated future intangible amortization expense as of June 25, 2004 is as
follows (in thousands):
Year Amount
- --------------------------------------------------------------------
Remaining 2004 $ 3,880
2005 6,174
2006 5,695
2007 5,402
2008 3,267
Thereafter 4,355
- --------------------------------------------------------------------
Total $28,773
====================================================================
5. 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. During the first six months of 2004, four
plants were closed. The last affected plant is scheduled to be closed in the
third quarter of 2004. Two of the facilities being closed are leased. One of
these facilities is under lease through late 2005 and the other is under lease
through mid-2010.
In addition to the plant consolidation, Printed Products implemented other
staffing reductions beginning in the fourth quarter of 2003 and will continue
with additional staffing reductions throughout 2004. These actions are primarily
due to excess capacity in production facilities resulting from efficiencies
realized from digital printing technology and other production and support
systems and lower volumes attributable to the losses of certain large customers,
including a direct check marketer, and general market volume decline.
-10-
The Company estimates net pre-tax expenses associated with the plant
consolidations will total $9.4 million consisting of employee severance ($2.9
million), revision of depreciable lives and salvage values of furniture and
equipment, asset impairment charge and disposal gains and losses ($2.2 million),
relocation and other costs ($2.0 million) and contract termination costs related
to leaseholds ($2.3 million). The other staffing reduction actions will result
in a total estimated expense of $5.7 million related to employee severance
costs.
The following is the cumulative net costs of these actions incurred through June
25, 2004 (in thousands):
Staffing
Plant Reduction
Consolidation Actions
- ----------------------------------------------------------------------------------
Employee severance $ 2,844 $ 4,175
Revision of depreciable lives and
salvage values 3,498 -
Asset impairment charge and
disposal (gains) and losses (1,330) -
Relocation and other costs 1,662 -
Contract termination costs related
to leaseholds 1,541 -
- ----------------------------------------------------------------------------------
Total $ 8,215 $ 4,175
==================================================================================
Plant consolidation costs are included in cost of goods sold except for asset
impairment charges ($2.3 million) and net disposal gains ($3.6 million) which
are included in selling, general and administrative costs along with other
staffing reduction costs.
The following reconciles the beginning and ending liability balances for the six
month period ended June 25, 2004 related to these actions and are included in
the other accrued liabilities caption on the balance sheet (in thousands):
Charged to Utilized
Beginning Costs and -------------------- Ending
Balance Expenses Cash Non-Cash Balance
- ----------------------------------------------------------------------------------
Plant consolidation:
Employee severance $ 1,659 $ 1,113 $ (1,844) $ - $ 928
Revision of
depreciable lives
and salvage values - 1,361 - (1,361) -
Asset impairment charge
and disposal (gains)
and losses - (1,330) 5,301 (3,971) -
Relocation and other
costs - 1,580 (1,580) - -
Contract termination
costs related to
leaseholds - 1,541 (28) 167 1,680
Staffing reduction
actions:
Employee severance 1,125 1,274 (2,121) - 278
- ----------------------------------------------------------------------------------
Total $ 2,784 $ 5,539 $ (272) $ (5,165) $ 2,886
==================================================================================
6. Property Held for Sale
At June 25, 2004, property held for sale was $6.2 million, which consisted of
the Company's Printed Products facilities in St. Louis, Missouri and Denver,
Colorado. Management is actively marketing the sale of both facilities.
-11-
During the second quarter of 2004, the Denver facility was closed pursuant to
the plant consolidation plan. A $2.3 million charge, which is included in
selling, general and administrative expenses on the statement of income, was
recorded to adjust the basis of the facility to its estimated fair value and the
fair value was reclassified as held for sale. During the first quarter of 2004,
the Company sold its Printed Products facility in San Diego, California, which
became available pursuant to the plant consolidation plan, and realized a
pre-tax gain of $3.7 million on the sale of the property. The gain was included
as a reduction of selling, general and administrative expenses on the statement
of income.
7. Income Taxes
The Company's consolidated effective income tax rates were 36.5% and 37.5% for
the first six months of 2004 and 2003, respectively. The lower effective income
tax rate for the first six months of 2004 resulted primarily from the reduction
in the effective state rate, a favorable renewal of an industrial revenue grant
related to the Company's operations in Puerto Rico and favorable adjustments
related to the partial closure of a review by the Internal Revenue Service of
the Company's income tax filings for 1999 and 2000.
8. Inventories
As of June 25, 2004 and December 31, 2003, inventories consisted of the
following (in thousands):
June 25, December 31,
2004 2003
- ----------------------------------------------------------------------
Raw materials $ 12,922 $ 13,028
Work in progress 929 920
Finished goods 1,783 1,569
- ----------------------------------------------------------------------
Total $ 15,634 $ 15,517
======================================================================
9. Long Term Debt
In February 2004, the Company amended its credit facility (the "Credit
Facility") with a syndicate of banks increasing the amount from $325.0 million
to $425.0 million. The Credit Facility is comprised of a $100.0 million term
loan and a $325.0 million revolving loan, both of which mature in 2009. The term
loan requires annual repayments of $5.0 million. As a result, the Credit
Facility will decrease by $5.0 million per annum to $400.0 million at the 2009
maturity date. As of June 25, 2004 the Credit Facility totaled $423.8 million.
The Credit Facility 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 a commitment fee of
0.175% on the unused amount of the Credit Facility. Borrowings under the Credit
Facility bear interest, at the Company's option, based upon one of the following
indices (plus a margin specified in the agreement): the Federal Funds Rate, the
SunTrust Bank Base Rate or LIBOR. The Credit Facility has certain financial
covenants including, among other items, leverage, fixed charge and minimum net
worth requirements. 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 June 25, 2004, the Company had $115.1 million in outstanding cash borrowings
under the Credit Facility, $5.1 million in outstanding letters of credit and
$303.6 million available for borrowing under the Credit Facility. The average
interest rate in effect on outstanding cash borrowings at June 25, 2004,
including the effect of the Company's interest rate hedging program was 2.14%.
-12-
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 three and
six month periods ended June 25, 2004 and June 27, 2003 was as follows (in
thousands):
Three Month Period Ended Six Month Period Ended
June 25, June 27, June 25, June 27,
2004 2003 2004 2003
- ------------------------------------------------------------------------
Net income: $ 8,863 $11,250 $21,916 $24,429
Other comprehensive
Income (loss):
Foreign exchange
translation adjustments (112) 474 (174) 527
Unrealized gains (losses)
on investments, net
of $5, ($595), $16, and
($1,111) in tax benefits
(provisions) (9) 911 (26) 63
Changes in fair value of
cash flow hedging
instruments, net of ($43),
($123),($145) and ($280)
in tax (provisions) 67 193 227 438
- ------------------------------------------------------------------------
Comprehensive income $ 8,809 $12,828 $21,943 $25,457
========================================================================
11. Earnings per Common Share
The computation of basic and diluted earnings per share for the three and six
month periods ended June 25, 2004 and June 27, 2003 is as follows (in thousands,
except per share amounts):
Three Month Period Ended Six Month Period Ended
June 25, June 27, June 25, June 27,
2004 2003 2004 2003
- ------------------------------------------------------------------------
Computation of basic earnings per common share:
Numerator
Net Income $ 8,863 $ 11,250 $ 21,916 $ 24,429
- ------------------------------------------------------------------------
Denominator
Weighted average shares
outstanding 27,261 27,494 27,285 27,630
Weighted average deferred
shares outstanding under
non-employee directors
compensation plan 136 113 132 110
- ------------------------------------------------------------------------
Weighted average shares
Outstanding - basic 27,397 27,607 27,417 27,740
- ------------------------------------------------------------------------
Earnings per share-basic $ 0.32 $ 0.41 $ 0.80 $ 0.88
========================================================================
-13-
Three Month Period Ended Six Month Period Ended
June 25, June 27, June 25, June 27,
2004 2003 2004 2003
- ------------------------------------------------------------------------
Computation of diluted earnings per common share:
Numerator
Net Income $ 8,863 $ 11,250 $ 21,916 $ 24,429
- ------------------------------------------------------------------------
Denominator
Weighted average shares
outstanding - basic 27,397 27,607 27,417 27,740
Dilutive effect of stock
options and restricted
stock 794 651 798 591
- ------------------------------------------------------------------------
Weighted average shares
outstanding - diluted 28,191 28,258 28,215 28,331
- ------------------------------------------------------------------------
Earnings per share-diluted $ 0.31 $ 0.40 $ 0.78 $ 0.86
========================================================================
12. Postretirement Benefits
The Company sponsors two unfunded defined postretirement benefit plans that
cover certain salaried and nonsalaried employees. One plan provides health care
benefits and the other provides life insurance benefits. The medical plan is
contributory and contributions are adjusted annually based on actual claims
experience. During the three and six month periods ended June 25, 2004, the
Company contributed $0.3 million and $0.5 million, respectively, to the plans.
Net periodic postretirement costs for the three and six month periods ended June
25, 2004 and June 27, 2003 are summarized as follows (in thousands):
Three Month Period Ended Six Month Period Ended
June 25, June 27, June 25, June 27,
2004 2003 2004 2003
- ------------------------------------------------------------------------
Interest on APBO $ 354 $ 333 $ 708 $ 699
Net amortization 86 67 172 141
- ------------------------------------------------------------------------
Total $ 440 $ 400 $ 880 $ 840
========================================================================
13. Business Segments
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 core processing applications and services for
credit unions and community banks, lending and mortgage origination
applications, mortgage servicing applications, branch automation applications
and customer relationship management applications. The Scantron segment
represents products and services sold by the Company's Scantron subsidiary
including scanning equipment and software, scannable forms, survey solutions,
curriculum planning software, testing and assessment tools, training and field
maintenance services. Scantron sells these products and services to the
education, commercial and financial institution markets.
-14-
The Company's operations are primarily in the United States and Puerto Rico.
There were no significant intersegment sales. 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 described 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
and certain other non-operating gains and losses, all of which are considered
corporate items. Corporate assets consist primarily of cash and cash
equivalents, deferred income taxes, investments and other assets not employed in
production. Total assets of each business segment did not change materially from
the amount disclosed in the 2003 Form 10-K.
Selected summarized financial information for the three and six month periods
ended June 25, 2004 and June 26, 2003 was as follows (in thousands):
Business Segment
-------------------------------
Printed Software & Corporate & Consoli-
Products Services Scantron Eliminations dated
- ------------------------------------------------------------------------------
Three month period ended:
June 25, 2004
Sales $ 118,170 $ 47,716 $ 27,797 $ (704) $ 192,979
Income (loss)
before income
taxes 10,719 3,622 7,499 (8,200) 13,640
June 27, 2003
Sales $ 123,088 $ 42,291 $ 27,418 $ (369) $ 192,428
Income (loss)
before income
taxes 16,986 3,577 5,217 (8,113) 17,667
Six month period ended:
June 25, 2004
Sales $ 238,589 $ 92,479 $ 53,710 $ (1,223) $ 383,555
Income (loss)
before income
taxes 28,511 7,633 13,799 (15,418) 34,525
June 27, 2003
Sales $ 250,982 $ 82,231 $ 53,432 $ (792) $ 385,853
Income (loss)
before income
taxes 37,767 7,876 9,064 (15,611) 39,096
14. 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.
-15-
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 core processing applications and
services for credit unions and community banks, lending and mortgage origination
applications, mortgage servicing applications, branch automation applications
and customer relationship management applications.
The Scantron segment ("Scantron") includes scanning equipment and software,
scannable forms, survey solutions, curriculum planning software, testing and
assessment tools, training and field maintenance services. Scantron sells these
products and services to the education, commercial and financial institution
markets.
CRITICAL ACCOUNTING POLICIES
In the Company's Annual Report on Form 10-K, as amended, for the fiscal year
ended December 31, 2003 (the "2003 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 intangible assets, 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
six month period ended June 25, 2004 to warrant further disclosure. See the 2003
Form 10-K for additional disclosure with respect to the Company's critical
accounting policies.
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. During the first six months of 2004, four
plants were closed. The last affected plant is scheduled to be closed in the
third quarter of 2004. Two of the facilities being closed are leased. One of
these facilities is under lease through late 2005 and the other is under lease
through mid-2010.
In addition to the plant consolidation, Printed Products implemented other
staffing reductions beginning in the fourth quarter of 2003 and will continue
with additional staffing reductions throughout 2004. These actions are primarily
due to excess capacity in production facilities resulting from efficiencies
realized from digital printing technology and lower volumes attributable to the
losses of certain large customers, including a direct check marketer, and
general market volume decline. The Company believes these actions will bring its
production and support structures in line with its business levels. Management
expects to achieve savings increasing to approximately $20 million on an annual
run rate basis by the end of 2005 as a result of the reorganization.
The Company estimates net pre-tax expenses associated with the plant
consolidations will total $9.4 million consisting of employee severance ($2.9
million), revision of depreciable lives and salvage values of furniture and
equipment, asset impairment charge and disposal gains and losses ($2.2 million),
relocation and other costs ($2.0 million) and contract termination costs related
to leaseholds ($2.3 million). The other staffing reduction actions will result
in a total estimated expense of $5.7 million related to employee severance
costs.
-16-
For the three and six month periods ended June 25, 2004, plant consolidation
expenses totaled $5.2 million and $4.3 million, respectively. For the three
month period ended June 25, 2004, plant consolidation expenses included in cost
of goods sold totaled $2.9 million and a $2.3 million charge, to reduce the
carrying value of a closed facility to its estimated fair value, was included in
selling, general and administrative expenses. For the six month period ended
June 25, 2004, plant consolidation expenses included in cost of good sold
totaled $5.6 million and a net gain of $1.3 million related to asset disposals
and fair value adjustments was included in selling, general and administrative
expenses. For the three and six month periods ended June 25, 2004, other
staffing reduction actions resulted in $0.8 million and $1.3 million,
respectively, of expenses that were included in selling, general and
administrative expenses.
RESULTS OF OPERATIONS - SECOND QUARTER OF 2004 VERSUS SECOND QUARTER OF 2003
SALES
Consolidated sales and sales by segment for the three month periods ended June
25, 2004 and June 27, 2003 were as follows (in thousands):
Three Month Period Ended
June 25, 2004 June 27,2003
- ----------------------------------------------------------------------
% of % of
Amount Total Amount Total
- ----------------------------------------------------------------------
Printed Products $118,170 61.2% $123,088 64.0%
Software & Services 47,716 24.7% 42,291 22.0%
Scantron 27,797 14.4% 27,418 14.2%
Eliminations (704) (0.3%) (369) (0.2%)
- ----------------------------------------------------------------------
Total $192,979 100.0% $192,428 100.0%
======================================================================
Consolidated sales increased $0.6 million, or 0.3%, to $193.0 million in the
second quarter of 2004 from $192.4 million in the second quarter of 2003. Sales
increases in Software & Services and Scantron offset a decrease in Printed
Products sales. Sales of products, which consist of all Printed Products sales
(except analytical services), software licensing sales, scanning equipment and
scannable forms and other products decreased 2.5% to $153.3 million in the
second quarter of 2004 from $157.2 million in the second quarter of 2003. Sales
of services, which consist of software maintenance services, field maintenance
services, core processing services, analytical and consulting services and other
services increased 12.8% to $39.7 million in the second quarter of 2004 from
$35.2 million in the second quarter of 2003.
Printed Products sales decreased $4.9 million, or 4.0%, to $118.2 million in the
second quarter of 2004 from $123.1 million in the second quarter of 2003.
Domestic imprint check printing operations were unfavorably impacted by a volume
decrease of 1.1% and a decrease in the average price per unit of 5.6%. The
volume decrease was primarily due to general market volume decline and a
declining volume runoff related to the loss of certain large customers during
2003, partially offset by a favorable impact from a package size change made
during second half of 2003. The decrease in the average price per unit was
primarily due to incentives and price reductions resulting from contract
renewals, partially offset by the loss of lower priced business. Sales of
computer checks and related products increased in the second quarter of 2004
compared to the second quarter of 2003 due primarily to the addition of a new
retail customer in 2004 and to higher fulfillment sales with an existing
customer in 2004. Sales of direct marketing activities decreased by $2.1
million, primarily due to lower direct marketing sales in several large
accounts, lower investment services sales and lower analytical services sales
attributable to contracts not being renewed with certain major financial
institutions.
-17-
Software & Services sales increased $5.4 million, or 12.8%, to $47.7 million in
the second quarter of 2004 from $42.3 million in the second quarter of 2003. The
increase in sales was due primarily to the acquisitions of Premier Systems, Inc.
("PSI") in June 2003 and certain assets of Greatland Corporation in April 2004
(see Note 3 to the Condensed Consolidated Financial Statements included in this
report). Excluding the impact of the acquisitions, Software & Services sales
increased approximately $1.6 million, or 3.9%, due primarily to increases in
user conference fees and core systems sales, which were partially offset by a
decrease in retail and lending solutions sales. The increase in core system
sales was primarily due to increased customer installations of credit union
systems. The sales decrease in retail and lending solutions was primarily due to
decreased sales in mortgage solutions, attributable to lower refinancing
activity, and decreased sales to large customers for loan and deposit
origination and compliance solutions partially offset by increased sales of
branch automation applications. Software & Services backlog at the end of the
second quarter of 2004 was $97.4 million, an increase of 36.6% compared to $71.3
million at the end of the second quarter of 2003, and decreased $2.6 million, or
2.6%, from $100.0 million at the end of the first quarter of 2004. The increase
from the second quarter of 2003 was due primarily to stronger bookings of
banking and credit union systems over that twelve-month period. Excluding the
impact of the Greatland acquisition, backlog increased 34.9% from the second
quarter of 2003. Approximately $45.2 million, or 46.4%, of the backlog at June
25, 2004 is expected to be realized over the next twelve months and $52.2
million, or 53.6%, is expected to be realized beyond the next twelve months due
to the long-term nature of certain service contracts.
Scantron sales increased $0.4 million, or 1.5%, to $27.8 million in the second
quarter of 2004 from $27.4 million in the second quarter of 2003. Increases in
sales of survey services, standard forms, and software and services were
partially offset by decreases in sales of imaging solutions, custom forms and
installation services. Scantron backlog at the end of the second quarter of 2004
was $18.7 million, of which $17.8 million is expected to be realized in twelve
months or less.
GROSS PROFIT
Consolidated gross profit and gross profit by segment for the three month
periods ended June 25, 2004 and June 27, 2003 were as follows (in thousands):
Three Month Period Ended
June 25, 2004 June 27,2003
- ----------------------------------------------------------------------
% of % of
Amount Sales(a) Amount Sales(a)
- ----------------------------------------------------------------------
Printed Products $ 45,011 38.1% $ 49,919 40.6%
Software & Services 31,695 66.4% 28,923 68.4%
Scantron 15,503 55.8% 14,659 53.5%
- ----------------------------------------------------------------------
Total $ 92,209 47.8% $ 93,501 48.6%
======================================================================
(a) Percentage of sales for each segment is calculated using sales for that
segment.
Consolidated gross profit decreased $1.3 million, or 1.4%, from $93.5 million in
the second quarter of 2003 to $92.2 million in the second quarter of 2004, and
decreased as a percentage of sales from 48.6% in the second quarter of 2003 to
47.8% in the second quarter of 2004.
-18-
Printed Products gross profit in the second quarter of 2004 decreased $4.9
million, or 9.8%, from the second quarter of 2003 and as a percentage of sales
was 38.1% in the second quarter of 2004 compared to 40.6% in the second quarter
of 2003. Printed Products gross profit decrease was primarily due to the sales
decreases in domestic imprint check printing, direct marketing and analytical
services operations and plant consolidation costs of $2.9 million incurred
during the second quarter of 2004. Production efficiencies in domestic check
operations, due primarily to plant consolidations, partially offset the impact
of sales decreases and plant consolidation costs.
Software & Services gross profit in the second quarter of 2004 increased $2.8
million, or 9.6%, from the second quarter of 2003. Gross profit increases in
core systems, due primarily to the PSI acquisition and higher sales in credit
union and community bank markets, were partially offset by a decrease in retail
and lending solutions, primarily due to the decrease in mortgage solutions
sales. As a percentage of sales, Software & Services gross profit decreased to
66.4% in the second quarter of 2004 from 68.4% in the second quarter of 2003,
due primarily to the lower margin nature of the acquired operation.
Scantron gross profit in the second quarter of 2004 increased $0.8 million, or
5.8%, over the second quarter of 2003, due primarily to a change in sales mix
and cost reduction initiatives implemented throughout 2003. As a percentage of
sales, Scantron gross profit increased to 55.8% in the second quarter of 2004
from 53.5% in the second quarter of 2003.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES (SG&A)
Consolidated SG&A and SG&A by segment for the three month periods ended June 25,
2004 and June 27, 2003 were as follows (in thousands):
Three Month Period Ended
June 25, 2004 June 27,2003
- ----------------------------------------------------------------------
% of % of
Amount Sales(a) Amount Sales(a)
- ----------------------------------------------------------------------
Printed Products $ 34,207 28.9% $ 32,947 26.8%
Software & Services 27,224 57.1% 24,661 58.3%
Scantron 7,913 28.5% 9,344 34.1%
Corporate 7,328 6,717
- ----------------------------------------------------------------------
Total $ 76,672 39.7% $ 73,669 38.3%
======================================================================
(a) Percentage of sales for each segment is calculated using sales for that
segment.
Consolidated SG&A increased $3.0 million, or 4.1%, in the second quarter of 2004
from the second quarter of 2003. These expenses as a percentage of sales were
39.7% in the second quarter of 2004 compared to 38.3% in the second quarter of
2003.
Printed Products SG&A increased $1.3 million, or 3.8%, to $34.2 million in the
second quarter of 2004 from $32.9 million in the second quarter of 2003. The
increase was primarily due to plant consolidation costs of $2.3 million and
staffing reduction severance charges of $0.8 million, partially offset by lower
selling, customer support and information technology expenses resulting from
cost containment initiatives.
-19-
Software and Services SG&A increased $2.5 million, or 10.4%, to $27.2 million in
the second quarter of 2004 compared to $24.7 million in the second quarter of
2003. The increase was due primarily to the acquisition of PSI in June 2003 and
severance costs of $1.1 million, which were incurred during the second quarter
of 2004 as part of a cost reduction initiative. SG&A expenses in core systems
were higher in the second quarter of 2004 compared to the second quarter of 2003
resulting primarily from increased headcount and commission expense related to
increased sales.
Scantron SG&A decreased $1.4 million, or 15.3%, to $7.9 million in the second
quarter of 2004 compared to $9.3 million in the second quarter of 2003. The
decrease was due primarily to lower development costs and selling and marketing
expenses resulting from cost reduction initiatives implemented in late 2003.
Corporate SG&A increased $0.6 million, or 9.1%, to $7.3 million in the second
quarter of 2004 compared to $6.7 million in the second quarter of 2003. The
increase was primarily due to environmental remediation expenses related to a
former printing facility, increased fees for audit and Sarbanes-Oxley compliance
services and increased amortization expense related to restricted stock grants
in 2004, partially offset by a reduction in amortization expense in 2004 related
to an enterprise information system that became fully amortized during 2003 and
lower healthcare costs in 2004.
Consolidated Income from Operations
Consolidated income from operations decreased $4.5 million, or 23.4%, to $14.6
million in the second quarter of 2004 from $19.1 million in the second quarter
of 2003, primarily due to $6.0 million of expense incurred under Printed
Products plant consolidation and staffing reduction activities during the second
quarter of 2004. This decrease was partially offset by Scantron's gross profit
increase and lower Scantron SG&A.
Other Income (Expense)
Other Income (Expense) decreased $0.4 million to an expense of $1.0 million in
the second quarter of 2004 from an expense of $1.4 million in the second quarter
of 2003. The decrease was due primarily to lower average interest rates in
effect during the second quarter of 2004 compared to the second quarter of 2003
and also due to lower average amounts outstanding during the second quarter of
2004 compared with the second quarter of 2003. The lower average interest rates
were primarily due to lower amounts borrowed at fixed rates during the second
quarter of 2004 compared to the second quarter of 2003.
Consolidated Income Before Income Taxes
Consolidated income before income taxes decreased $4.1 million, or 22.8%, to
$13.6 million in the second quarter of 2004 from $17.7 million in the second
quarter of 2003 due to decreased income from operations.
Income Taxes
Consolidated effective income tax rates were 35.0% and 36.3% for the second
quarter of 2004 and the second quarter of 2003, respectively. The lower
effective income tax rate for the second quarter of 2004 resulted primarily from
the reduction in the effective state rate, a favorable renewal in late 2003 of
an industrial revenue grant related to the Company's operations in Puerto Rico
and favorable adjustments recorded in the second quarter of 2004 related to the
partial closure of a review by the Internal Revenue Service of the Company's
income tax filings for 1999 and 2000. The effective income tax rate for the
second quarter of 2003 was favorably impacted by the release of a valuation
allowance related to the utilization of capital loss carryforwards.
-20-
Net Income and Earnings Per Share
Net income in the second quarter of 2004 was $8.9 million compared to $11.3
million in the second quarter of 2003. Basic and diluted earnings per share were
$0.32 and $0.31, respectively, for the second quarter of 2004 compared to basic
and diluted earnings per share of $0.41 and $0.40, respectively, for the same
period in 2003.
RESULTS OF OPERATIONS - YEAR TO DATE 2004 VERSUS YEAR TO DATE 2003
SALES
Consolidated sales and sales by segment for the six month periods ended June 25,
2004 and June 27, 2003 were as follows (in thousands):
Six Month Period Ended
June 25, 2004 June 27,2003
- ----------------------------------------------------------------------
% of % of
Amount Total Amount Total
- ----------------------------------------------------------------------
Printed Products $238,589 62.2% $250,982 65.0%
Software & Services 92,479 24.1% 82,231 21.3%
Scantron 53,710 14.0% 53,432 13.8%
Eliminations (1,223) (0.3%) (792) (0.1%)
- ----------------------------------------------------------------------
Total $383,555 100.0% $385,853 100.0%
======================================================================
Consolidated sales decreased $2.3 million, or 0.6%, to $383.6 million for the
six month period ended June 25, 2004 from $385.9 million for the six month
period ended June 27, 2003. Sales increases in Software & Services and Scantron
partially offset a decrease in Printed Products sales. Sales of products, which
consist of all Printed Products sales (except analytical services), software
licensing sales, scanning equipment and scannable forms and other products
decreased $10.6 million, or 3.3%, to $307.0 million for the first six months of
2004 from $317.6 million in the first six months of 2003. Sales of services,
which consist of software maintenance services, field maintenance services, core
processing services, analytical and consulting services and other services
increased $8.2 million, or 12.0%, to $76.5 million for the first six months of
2004 from $68.3 million for the first six months of 2003.
Printed Products sales decreased $12.4 million, or 4.9%, to $238.6 million in
the first six months of 2004 from $251.0 million in the first six months of
2003. Domestic imprint check printing operations, which accounted for a majority
of the sales decrease, were unfavorably impacted by a volume decrease of 4.2%
and a decrease in the average price per unit of 4.0%. The volume decrease was
primarily due to the loss of certain large customers during 2003, including a
direct check marketer, and to general market volume decline. The decrease in the
average price per unit was due primarily to incentives and price reductions
resulting from contract renewals, partially offset by the loss of lower priced
business. Sales of computer checks and related products increased for the first
six months of 2004 compared to the first six months of 2003 due primarily to the
addition of a new retail customer in 2004 and increased fulfillment sales with
an existing customer in 2004. Sales of direct marketing activities decreased
$2.9 million for the first six months of 2004 compared to the first six months
of 2003 due primarily to lower direct marketing sales in several large accounts,
lower investment services sales and lower analytical services sales attributable
to contracts not being renewed with certain major banks.
-21-
Software & Services sales increased $10.3 million, or 12.5%, to $92.5 million in
the first six months of 2004 from $82.2 million in the first six months of 2003.
The increase in sales was due primarily to the acquisition of PSI. Excluding the
impact of the acquisitions, Software & Services sales increased approximately
$1.7 million, or 2.0%, due primarily to increased user conference fees and
increases in core systems sales, partially offset by a decrease in retail and
lending solutions sales. The core system sales increase was primarily due to
increased customer installations of credit union systems. The retail and lending
solutions sales decrease was primarily due to lower sales in mortgage solutions,
attributable to lower refinancing activity, and lower sales to large customers
for loan and deposit origination and compliance solutions.
Scantron sales increased $0.3 million, or 0.5%, to $53.7 million in the first
six months of 2004 from $53.4 million in the first six months of 2003. Increases
in sales of software and services, standard forms and survey services were
partially offset by decreases in sales of imaging solutions and custom forms.
GROSS PROFIT
Consolidated gross profit and gross profit by segment for the six month periods
ended June 25, 2004 and June 27, 2003 were as follows (in thousands):
Six Month Period Ended
June 25, 2004 June 27,2003
- ----------------------------------------------------------------------
% of % of
Amount Sales(a) Amount Sales(a)
- ----------------------------------------------------------------------
Printed Products $ 89,402 37.5% $101,811 40.6%
Software & Services 61,342 66.3% 57,011 69.3%
Scantron 29,915 55.7% 28,511 53.4%
- ----------------------------------------------------------------------
Total $180,659 47.1% $187,333 48.6%
======================================================================
(a) Percentage of sales for each segment is calculated using sales for that
segment.
Consolidated gross profit decreased $6.6 million, or 3.6%, from $187.3 million
in the first six months of 2003 to $180.7 million in the first six months of
2004, and decreased as a percentage of sales from 48.6% in the first six months
of 2003 to 47.1% in the first six months of 2004.
Printed Products gross profit for the six month period ended June 25, 2004
decreased $12.4 million, or 12.2%, from the six month period ended June 27, 2003
and as a percentage of sales was 37.5% in the first six months of 2004 compared
to 40.6% in the first six months of 2003. Printed Products gross profit was
unfavorably impacted by sales decreases in domestic imprint check printing,
direct marketing and analytical services operations and plant consolidation
costs ($5.6 million) incurred during the first six months of 2004.
Software & Services gross profit in the first six months of 2004 increased $4.3
million, or 7.6%, from the first six months of 2003 due primarily to the PSI
acquisition and higher sales in credit union and community bank markets,
partially offset by a decrease in retail and lending solutions sales. As a
percentage of sales, Software & Services gross profit decreased to 66.3% in the
first six months of 2004 from 69.3% in the first six months of 2003, due
primarily to the lower margin nature of the acquired operation.
-22-
Scantron gross profit in the first six months of 2004 increased $1.4 million, or
4.9%, over the first six months of 2003, due primarily to a change in sales mix
and to unfavorable costs and production inefficiencies experienced during a
facility relocation that occurred early in the first quarter of 2003. As a
percentage of sales, Scantron gross profit increased to 55.7% in the first six
months of 2004 from 53.4% in the first six months of 2003.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES (SG&A)
Consolidated SG&A and SG&A by segment for the six month periods ended June 25,
2004 and June 27, 2003 were as follows (in thousands):
Six Month Period Ended
June 25, 2004 June 27,2003
- ----------------------------------------------------------------------
% of % of
Amount Sales(a) Amount Sales(a)
- ----------------------------------------------------------------------
Printed Products $ 60,817 25.5% $ 64,075 25.5%
Software & Services 52,015 56.2% 47,858 58.2%
Scantron 15,951 29.7% 19,262 36.0%
Corporate 13,576 12,692
- ----------------------------------------------------------------------
Total $142,359 37.1% $143,887 37.3%
======================================================================
(a) Percentage of sales for each segment is calculated using sales for that
segment.
Consolidated SG&A decreased $1.5 million, or 1.1%, in the first six months of
2004 from the first six months of 2003. These expenses as a percentage of sales
were 37.1% in the first six months of 2004, down from 37.3% in the first six
months of 2003.
Printed Products SG&A decreased $3.3 million, or 5.1%, to $60.8 million in the
first six months of 2004 compared to $64.1 million in the first six months of
2003. The decrease was partially due to a plant consolidation related net gain
of $1.3 million, which consisted of a $3.7 million gain realized on a facility
that was closed and sold during the first quarter of 2004, a $2.3 million charge
recorded during the second quarter of 2004 to reduce the carrying value of a
facility to its estimated fair value when the facility was closed and made
available for sale and losses of $0.1 million on certain other asset disposals.
The decrease was also due in part to lower sales, support and technology
expenses resulting from cost reduction initiatives. These decreases were
partially offset by staffing reduction severance charges of $1.3 million during
the first six months of 2004 related to the Printed Products reorganization.
Software and Services SG&A increased $4.1 million, or 8.7%, to $52.0 million in
the first six months of 2004 compared to $47.9 million in the first six months
of 2003. The increase was due primarily to the acquisition of PSI in June 2003
and other core systems SG&A, which was higher in the first six months of 2004
compared to the first six months of 2003 resulting primarily from increased
headcount and commission expense related to increased sales. Severance costs of
$1.1 million related to a cost reduction initiative in 2004 also contributed to
the increase in SG&A.
Scantron SG&A decreased $3.3 million, or 17.2%, to $16.0 million in the first
six months of 2004 compared to $19.3 million in the first six months of 2003.
The decrease was due primarily to lower development costs and selling and
marketing expenses resulting from cost reduction initiatives implemented in late
2003.
-23-
Corporate SG&A increased $0.9 million, or 7.0%, to $13.6 million in the first
six months of 2004 compared to $12.7 million in the first six months of 2003.
The increase was due primarily to environmental expenses related to a former
printing facility, higher audit fees, insurance costs and fees related to
Sarbanes-Oxley compliance efforts, partially offset by a reduction in
amortization expense in the first quarter of 2004 related to an enterprise
information system that became fully amortized during 2003 and lower healthcare
costs in 2004.
Consolidated Income from Operations
Consolidated income from operations decreased $5.5 million, or 13.2%, to $36.5
million in the first six months of 2004 from $42.0 million in the first six
months of 2003, primarily due to $5.5 million of expenses incurred during the
first six months of 2004 pursuant to Printed Products plant consolidation and
staffing reduction activities.
Other Income (Expense)
Other Income (Expense) decreased $1.0 million to an expense of $1.9 million in
the first six months of 2004 from an expense of $2.9 million in the first six
months of 2003. The decrease was due primarily to lower average interest rates
in effect during the first six months of 2004 compared to the first six months
of 2003 because of lower amounts borrowed at fixed rates and also due to lower
debt outstanding during the first six months of 2004 compared with the first six
months of 2003.
Consolidated Income Before Income Taxes
Consolidated income before income taxes decreased $4.6 million, or 11.7%, to
$34.5 million in the first six months of 2004 from $39.1 million in the first
six months of 2003 due to decreased income from operations.
Income Taxes
Consolidated effective income tax rates were 36.5% and 37.5% for the first six
months of 2004 and the first six months of 2003, respectively. The lower
effective income tax rate for the first six months of 2004 resulted primarily
from the reduction in the effective state rate, a favorable renewal in late 2003
of an industrial revenue grant related to the Company's operations in Puerto
Rico and favorable adjustments recorded in the second quarter of 2004 related to
the partial closure of a review by the Internal Revenue Service of the Company's
income tax filings for 1999 and 2000. The effective income tax rate for the
first six months of 2003 was favorably impacted by the release of a valuation
allowance related to the utilization of capital loss carryforwards.
Net Income and Earnings Per Share
Net income in the first six months of 2004 was $21.9 million compared to $24.4
million in the first six months of 2003. Basic and diluted earnings per share
were $0.80 and $0.78, respectively, for the first six months of 2004 compared to
basic and diluted earnings per share of $0.88 and $0.86, respectively, for the
same period in 2003.
-24-
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Sources and Uses of Cash
Although net income for the first six months of 2004 was $2.5 million lower than
the first six months of 2003, adjustments for non-cash charges, primarily
depreciation and amortization, and lower refundable contract payments resulted
in an increase in cash flows provided by operating activities for the first six
months of 2004 compared to the same period in 2003. Cash flows provided by
operating activities increased $8.4 million to $42.9 million in the first six
months of 2004 from $34.5 million in the first six months of 2003. Refundable
contract payments totaled $17.0 million in the first six months of 2004 compared
to $20.9 million in the first six months of 2003. The primary uses of cash in
the first six months of 2004 were for purchases of treasury stock, refundable
customer contract payments, capital expenditures and dividend payments to
shareholders.
Purchases of property, plant and equipment totaled $12.9 million in the first
six months of 2004, a decrease of $1.4 million, compared to $14.3 million in the
first six months of 2003 and 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 have spent a total of approximately $65 to
$70 million on customer care infrastructure initiatives over a four-year period
ending in 2004. As of June 25, 2004, $53.1 million has been expended on these
initiatives, of which $38.7 million was capitalized. The Company currently
estimates it will spend an additional $12 to $17 million on customer care
infrastructure initiatives in 2004. Although development of customer care
infrastructure will continue throughout 2004, the Company expects to delay
implementation of certain functionality in the second half of 2004 in order to
evaluate controls and processes as required by Section 404 of the Sarbanes-Oxley
Act, thereby deferring certain expenditures into 2005.
During the six month period ended June 25, 2004, the Company repurchased 686,600
shares of its common stock at an average cost per share of $30.20. See Part II,
Item 2. "Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities" in this report on Form 10-Q, related to the Company's repurchases of
its common stock during the three month period ended June 25, 2004. These
purchases were made pursuant to an authorization approved by the Company's Board
of Directors in January 2003.
-25-
In February 2004, the Company amended its credit facility (the "Credit
Facility") with a syndicate of banks increasing the amount from $325.0 million
to $425.0 million. The Credit Facility is comprised of a $100.0 million term
loan and a $325.0 million revolving loan, both of which mature in 2009. The term
loan requires annual repayments of $5.0 million, therefore the Credit Facility
will decrease by $5.0 million per annum to $400.0 million at the 2009 maturity
date. As of June 25, 2004 the Credit Facility totaled $423.8 million. The Credit
Facility 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 a commitment fee of 0.175% on the
unused amount of the Credit Facility. Borrowings under the Credit Facility bear
interest, at the Company's option, based upon one of the following indices (plus
a margin specified in the agreement): the Federal Funds Rate, the SunTrust Bank
Base Rate or LIBOR. The Credit Facility has certain financial covenants
including, among other items, leverage, fixed charge and minimum net worth
requirements. 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 June 25, 2004, the Company had $115.1 million
in outstanding cash borrowings under the Credit Facility, $5.1 million in
outstanding letters of credit and $303.6 million available for borrowing under
the Credit Facility. The average interest rate in effect on outstanding cash
borrowings at June 25, 2004, including the effect of the Company's interest rate
hedging program was 2.14%.
At June 25, 2004, the Company had $6.8 million in cash and cash equivalents. The
Company believes that its current cash position, funds from operations and the
availability of funds under its Credit Facility will be sufficient to meet
anticipated requirements for working capital, dividends, capital expenditures
and other corporate needs. Management is not aware of any condition that would
materially alter this trend.
The Company also believes that it possesses sufficient unused debt capacity and
access to equity capital markets to pursue additional acquisition opportunities
if funding beyond that available under the Credit Facility were required.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
During the six month period ended June 25, 2004, the Company entered into
agreements with certain customers, which obligate the Company to pay a total of
$64.7 million during the years 2004 through 2009. Of this amount, $15.6 million
was paid as of June 25, 2004. As of June 25, 2004, the remaining payments under
these contracts, as well as remaining payment obligations under previously
existing customer contracts, totaled $56.6 million and are scheduled to be paid
as follows: $1.8 million for the six months ending December 31, 2004; $25.7
million for the two year period ending December 31, 2006; $21.1 million for the
two year period ending December 31, 2008; and $8.0 million for the periods
beyond December 31, 2008. These payments are amortized as a reduction of sales
over the life of the related contract and are refundable from the customer on a
pro-rata basis if the contract is terminated.
Other contractual obligations and commitments have not changed significantly
since December 31, 2003. See the 2003 Form 10-K with respect to the Company's
other contractual obligations and commitments.
ACQUISITIONS
All acquisitions in 2004 and 2003 were paid for with cash provided from
operating activities and proceeds from the Credit Facility. The acquisitions
were accounted for using the purchase method of accounting and accordingly, the
results of operation of the acquired business have been included in the
Company's operations since the closing date (see Note 3 to the Condensed
Consolidated Financial Statements).
-26-
OUTLOOK
The Company believes that its financial position continues to be strong and
expects positive cash flows from operations in all business segments in 2004.
Net income during the second half of 2004 is expected to be higher than net
income during the comparable period of 2003 due to anticipated higher sales in
Software and Services and Scantron and anticipated efficiencies during the
second half of 2004 related to plant consolidation activities. However, net
income for the full year of 2004 is expected to be relatively flat compared with
2003 net income, largely as a result of lower net income in the first half of
the year.
The Printed Products segment income is expected to improve slightly during the
second half of the year as cost reductions are implemented and after the
majority of the reorganization expenses and expenses required to support the
increased use of an outsourcing model by many financial institutions have been
incurred. Some duplicate costs were incurred earlier in the year as the
remaining plants were staffed up in anticipation of the actual closure of the
plants already announced. Printed Products will incur implementation costs
during the last half of the year related to the addition of a major new checks
customer with production anticipated to begin in December 2004.
The Software & Services segment income is expected to improve throughout 2004 as
the result of a full-year impact of a 2003 acquisition as well as the impact of
new products and services and cost reduction initiatives.
The Scantron segment is expected to benefit from continuing strong sales of
traditional products as well as growth in the sales of existing and new
technology products. Scantron should also continue to benefit from cost
reduction initiatives implemented throughout 2003.
The Company believes cash flow will remain strong in all business units in 2004.
The Company currently estimates that capital expenditures will be in the range
of $27 million to $32 million. The Company believes refundable contract payments
in 2004 will be made at a higher level than existed before 2003, but expects
such payments to be less than in 2003 depending upon the timing and extent of
new contracts in 2004. The Company currently expects depreciation and
amortization will total approximately $75 million in 2004, a $12 million
increase over 2003, primarily due to the amortization of refundable contract
payments. The Company expects its effective tax rate will be approximately 37.5%
in 2004.
ACCOUNTING PRONOUNCEMENTS
See Note 2 to the Condensed Consolidated Financial Statements regarding the
impact of recent accounting pronouncements on the Company's financial condition
and results of operations.
-27-
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,
and the ongoing plant consolidation and relocation program.
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
including significant up-front contract incentive payments, and the impact of
governmental laws and regulations. There can be no assurances that the Company
will not lose significant customers or that any such losses could be offset by
the addition of new customers.
While the Company believes 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 & Services business, including but not limited to the
retention of employee talent and customers. Also, variables exist in the
development of new Software & Services 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 solutions and testing and assessment methods, which could negatively
impact 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 and 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 levels, all of which could have an
impact on the Company's business.
-28-
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 imposed and such
returns and reports filed with respect to such tax regulations are materially
correct. The results of these various 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 primarily to market risks related to interest
rates.
Interest Rate Risk
The Company is exposed to interest rate risk on its variable rate debt. At June
25, 2004, the Company had outstanding variable rate debt of $115.1 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. The notional
principal amount of interest rate swaps outstanding was $8.0 million at June 25,
2004. 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
Company believes that its interest rate risk at June 25, 2004 was minimal. The
impact on quarterly results of operations of a hypothetical one-point interest
rate change on the outstanding debt as of June 25, 2004 would be approximately
$268,000.
The fair value of the swaps, which represent what the Company would have to pay
to terminate the swaps, reflected a loss of $0.1 million at June 25, 2004. 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 will net to zero over the term of interest rate swap agreements.
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.
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 control over financial reporting 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.
-29-
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 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES
OF EQUITY SECURITIES
During the second quarter ended June 25, 2004, the Company made the following
purchases of treasury stock:
Total
Number of Maximum
Shares Number of
Total Average Purchased Shares
Number Price as Part of Remaining
of Paid Publicly Under
Shares Per Announced Authorized
Period Purchased Share Program(1) Program
- ------------------------------------------------------------------------
March 27 - April 25 10,000 $31.00 10,000 2,459,222
April 26 - May 25 378,800 30.28 378,800 2,080,422
May 26 - June 25 189,000 30.61 189,000 1,891,422
- ------------------------------------------------------------------------
Total 577,800 $30.40 577,800 1,891,422
========================================================================
(1) On January 28, 2003, the Company's Board of Directors authorized the
purchase of up to 3,000,000 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. Unless terminated earlier by resolution of the
Company's Board of Directors, the 2003 stock repurchase program will expire when
the Company has repurchased all shares authorized for repurchase under the
program. As of June 25, 2004, a total of 1,108,578 shares had been purchased
under the 2003 stock repurchase program at an average cost of $29.12 per share.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders of the Company was held on April 22,
2004.
(b) At the Annual Meeting John J. McMahon, Larry L. Prince and Jesse J.
Spikes were elected for three-year terms expiring in 2007. The
Directors whose terms continued after the Annual Meeting are William S.
Antle III, Robert J. Clanin, John D. Johns, Richard K. Lochridge, Jr.,
G. Harold Northrop, Eileen M. Rudden and Timothy C. Tuff.
-30-
(c) A brief description of each matter voted upon and the results of the
voting are as follows:
Election of Directors for Three-Year Term:
John J. McMahon
Voting for 24,304,040
Withheld 1,087,635
Larry L. Prince
Voting for 24,414,189
Withheld 977,486
Jesse J. Spikes
Voting for 24,412,719
Withheld 978,956
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Description
3.1 * Amended and Restated Articles of Incorporation (Exhibit 3.1 to
registrant's Quarterly Report on Form 10-Q for the three months ended
March 26, 2004).
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, 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.
10.1 + John H. Harland Company 1999 Stock Option Plan, as amended.
10.2 + John H. Harland Company Compensation Plan for Non-Employee
Directors, as amended.
11.1 Computation of Per Share Earnings. (1)
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.
Asterisk (*) indicates exhibit previously filed with the Securities and Exchange
Commission as indicated in parentheses and incorporated herein by reference.
Plus (+) indicates management contracts and compensatory arrangements required
to be filed pursuant to Item 6 of Form 10-Q.
- --------
(1)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-
(b) Reports on Form 8-K
On April 26, 2004, the Registrant furnished to the Securities and Exchange
Commission a Report on Form 8-K dated April 20, 2004 including its Press Release
for the three month period ended March 26, 2004, as well as the transcript of
its conference call on April 21, 2004 discussing its first quarter results.
-32-
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: August 4, 2004 By: /s/ J. Michael Riley
-----------------------------
J. Michael Riley
Vice President and Controller
(Duly Authorized Officer and
Chief Accounting Officer)
-33-
EXHIBIT LIST
Exhibit Description
3.1 * Amended and Restated Articles of Incorporation (Exhibit 3.1 to
registrant's Quarterly Report on Form 10-Q for the three months ended
March 26, 2004).
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, 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.
10.1 + John H. Harland Company 1999 Stock Option Plan, as amended.
10.2 + John H. Harland Company Compensation Plan for Non-Employee Directors,
as amended.
11.1 Computation of Per Share Earnings. (1)
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.
Asterisk (*) indicates exhibit previously filed with the Securities and Exchange
Commission as indicated in parentheses and incorporated herein by reference.
Plus (+) indicates management contracts and compensatory arrangements required
to be filed pursuant to Item 6 of Form 10-Q.
- --------
(1)Data required by SFAS No. 128, "Earnings Per Share," is provided in Note 11
to the Condensed Consolidated Financial Statements included in this report.
-34-