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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 24, 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 October 22,
2004 was 27,806,528.
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 . 31
ITEM 4. CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . . . . 31
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . 32
ITEM 6. EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
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) September 24, December 31,
2004 2003
- ----------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 12,364 $ 8,525
Accounts receivable - net 75,193 60,338
Inventories 15,407 15,517
Deferred income taxes 19,614 32,517
Income taxes receivable 12,960 37
Prepaid expenses 10,619 11,096
Other 10,118 7,316
- ----------------------------------------------------------------------
Total current assets 156,275 135,346
- ----------------------------------------------------------------------
Other Assets:
Goodwill - net 223,191 217,749
Intangible assets - net 15,531 16,835
Refundable contract payments 54,469 52,933
Other 19,010 19,681
- ----------------------------------------------------------------------
Total other assets 312,201 307,198
- ----------------------------------------------------------------------
Property, plant and equipment 334,824 356,172
Less accumulated depreciation
and amortization 232,917 231,739
- ----------------------------------------------------------------------
Property, plant and equipment - net 101,907 124,433
- ----------------------------------------------------------------------
Total $ 570,383 $ 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 September 24, December 31,
per share amounts) 2004 2003
- ----------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 28,281 $ 26,030
Deferred revenues 62,319 57,745
Accrued liabilities:
Salaries, wages and employee benefits 31,363 30,376
Taxes 23,331 17,669
Other 28,315 29,602
- ----------------------------------------------------------------------
Total current liabilities 173,609 161,422
- ----------------------------------------------------------------------
Long-Term Liabilities:
Long-term debt, less current maturities 92,500 122,059
Deferred income taxes 4,738 5,087
Other 23,940 22,966
- ----------------------------------------------------------------------
Total long-term liabilities 121,178 150,112
- ----------------------------------------------------------------------
Total liabilities 294,787 311,534
- ----------------------------------------------------------------------
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 11,003 7,788
Retained earnings 470,577 448,688
Accumulated other comprehensive loss (487) (735)
Unamortized restricted stock awards (15,506) (5,408)
- ----------------------------------------------------------------------
503,494 488,240
Less 10,139,459 and 10,413,501 shares
in treasury - at cost,
respectively 227,898 232,797
- ----------------------------------------------------------------------
Total shareholders' equity 275,596 255,443
- ----------------------------------------------------------------------
Total $ 570,383 $ 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 Nine Month Period Ended
(In thousands, except Sep 24, Sep 26, Sep 24, Sep 26,
per share amounts) 2004 2003 2004 2003
- ---------------------------------------------------------------------------
Sales:
Product sales $ 157,043 $ 154,582 $ 464,074 $ 472,166
Service sales 38,932 37,912 115,456 106,181
- ---------------------------------------------------------------------------
Total sales 195,975 192,494 579,530 578,347
Cost of sales:
Cost of products sold 84,629 84,806 260,146 260,551
Cost of services sold 13,765 13,371 41,144 36,146
- ---------------------------------------------------------------------------
Total cost of sales 98,394 98,177 301,290 296,697
Gross Profit 97,581 94,317 278,240 281,650
Selling, general and
administrative expenses 69,058 70,883 212,684 214,839
Asset impairment charges 7,885 - 10,167 -
(Gain) loss on disposal
of assets 8 (1,130) (3,541) (1,199)
Amortization of
intangibles 975 939 2,809 2,371
- ---------------------------------------------------------------------------
Income From Operations 19,655 23,625 56,121 65,639
- ---------------------------------------------------------------------------
Other Income (Expense):
Interest expense (951) (1,424) (3,082) (4,487)
Other - net 77 127 267 272
- ---------------------------------------------------------------------------
Total (874) (1,297) (2,815) (4,215)
- ---------------------------------------------------------------------------
Income Before Income Taxes 18,781 22,328 53,306 61,424
Income taxes 6,688 7,633 19,297 22,300
- ---------------------------------------------------------------------------
Net Income 12,093 14,695 34,009 39,124
Retained Earnings at
Beginning of Period 461,974 425,130 448,688 409,110
Cash Dividends (3,471) (2,806) (9,057) (7,017)
Issuance of treasury shares
under stock plans and other (19) (990) (3,063) (5,188)
- ---------------------------------------------------------------------------
Retained Earnings at
End of Period $ 470,577 $ 436,029 $ 470,577 $ 436,029
===========================================================================
Weighted Average Shares
Outstanding:
Basic 27,182 27,760 27,339 27,747
Diluted 27,906 28,488 28,112 28,383
===========================================================================
Earnings Per Common Share:
Basic $ 0.44 $ 0.53 $ 1.24 $ 1.41
Diluted $ 0.43 $ 0.52 $ 1.21 $ 1.38
===========================================================================
Cash Dividends Per
Common Share $ 0.125 $ 0.10 $ 0.325 $ 0.25
===========================================================================
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 24, Sep 26,
(In thousands) 2004 2003
- -----------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 34,009 $ 39,124
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 27,551 27,664
Amortization of refundable contract payments 18,733 9,980
Other amortization 7,284 6,871
Stock-based compensation 2,839 1,775
Tax benefits from stock-based compensation 2,324 1,306
Gain on disposal of assets (3,541) (1,199)
Asset impairment charges 10,167 -
Deferred income taxes 12,505 (2,541)
Other 1,419 1,346
Change in assets and liabilities:
Accounts receivable (15,550) (4,770)
Income taxes receivable (12,924) -
Inventories and other current assets 2,964 (1,579)
Deferred revenues 1,932 2,496
Accounts payable and accrued liabilities 7,498 (1,861)
Refundable contract payments (20,270) (40,081)
- -----------------------------------------------------------------------------
Net cash provided by operating activities 76,940 38,531
- -----------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (20,741) (21,134)
Proceeds from sale of property, plant and equipment 5,522 3,038
Payment for acquisition of businesses -
net of cash acquired (7,118) (11,303)
Long-term investments and other assets (130) 1,270
- -----------------------------------------------------------------------------
Net cash used in investing activities (22,467) (28,129)
- -----------------------------------------------------------------------------
FINANCING ACTIVITIES:
Credit facility borrowings 197,107 224,443
Credit facility payments (226,664) (228,443)
Repayment of long-term debt (89) (103)
Repurchases of stock (20,738) (19,138)
Issuance of treasury stock 10,528 7,067
Dividends paid (9,057) (7,017)
Other - net (1,721) 257
- -----------------------------------------------------------------------------
Net cash used in financing activities (50,634) (22,934)
- -----------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 3,839 (12,532)
Cash and cash equivalents at beginning of period 8,525 19,218
- -----------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 12,364 $ 6,686
=============================================================================
See Notes to Condensed Consolidated Financial Statements.
-6-
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 24, 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.
The accumulated postretirement benefit obligations and net periodic
postretirement benefit cost included in the accompanying condensed consolidated
financial statements and notes to condensed consolidated financial statements do
not reflect the effects of the Act on the health care benefit plan because the
Company is currently unable to determine whether plan benefits are at least
actuarially equivalent to portions of the Act due to the lack of final
regulations regarding this determination. Management does not believe that the
effects of the Act will materially affect the Company's postretirement
obligations or its future postretirement benefit expense.
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 nine month
periods ended September 24, 2004 and September 26, 2003 would have changed to
the pro forma amounts listed below:
-7-
Three Month Period Ended Nine Month Period Ended
(In thousands, except Sep 24, Sep 26, Sep 24, Sep 26,
per share amounts) 2004 2003 2004 2003
- ------------------------------------------------------------------------
Net income:
As reported $12,093 $14,695 $34,009 $39,124
Add: stock-based
compensation expense
included in reported
net income, net of tax 738 349 1,732 1,083
Deduct: stock-based
compensation expense
determined under the
fair value based method
for all awards,
net of tax (1,651) (1,445) (4,618) (4,362)
- ------------------------------------------------------------------------
Pro forma net income $11,180 $13,599 $31,123 $35,845
========================================================================
Earnings per common share:
As reported
Basic $ 0.44 $ 0.53 $ 1.24 $ 1.41
Diluted $ 0.43 $ 0.52 $ 1.21 $ 1.38
Pro forma
Basic $ 0.41 $ 0.49 $ 1.14 $ 1.29
Diluted $ 0.40 $ 0.48 $ 1.11 $ 1.26
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 third 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 nine month periods ended September 24, 2004 and September 26,
2003:
Nine Month Period Ended
Sep 24, Sep 26,
2004 2003
- ------------------------------------------------------------------------
Fair value per option $ 9.60 $ 7.98
Weighted average assumptions:
Dividend yield 1.4% 1.4%
Expected volatility 36.1% 40.8%
Risk-free interest rate 4.1% 4.0%
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 Acquisitions
On July 7, 2004, Harland Financial Solutions, Inc. ("HFS"), a wholly owned
subsidiary of the Company, acquired certain assets and exclusive distribution
and licensing rights related to the CheckQuest(R) item processing and
CaptureQuest(R) electronic document management solutions from Mitek Systems,
Inc. Mitek Systems is a provider of recognition software-based fraud protection
and document processing solutions to banks and other businesses, and licenses
its recognition engine toolkits to major software and hardware providers in the
imaging and document processing industry. CheckQuest provides financial
institutions with a check imaging and item processing solution that enables them
to take advantage of the efficiencies offered by the Federal Check Clearing for
the 21st Century Act. CaptureQuest is an electronic document management system
that allows financial institutions to file, distribute, archive, retrieve and
automatically process documents and forms of all types and quantities. As part
of the agreement, HFS has also licensed from Mitek Systems the QuickStrokes(R)
family of recognition toolkits and the QuickFX(R) Pro form identification
toolkit for use with CheckQuest and a variety of other applications.
On April 30, 2004, HFS acquired certain assets related to the electronic
mortgage document business of Greatland Corporation. Greatland is a provider of
forms technology, compliance expertise and software compatible products used to
meet the needs of businesses to convey regulatory information. 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 combined purchase price of net assets acquired through acquisitions in 2004
totaled approximately $7.1 million. The fair value of assets and liabilities at
the acquisition dates consisted of deductible goodwill of $5.4 million, other
intangible assets of $3.4 million (estimated weighted average useful life of
eight years), other assets of $0.7 million and assumed liabilities of $2.4
million. The allocations of purchase price are subject to refinement as the
Company finalizes the valuation of certain assets and liabilities. The pro forma
effects of the 2004 acquisitions 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 nine
month period ended September 24, 2004 are as follows (in thousands):
-9-
Printed Software &
Products Services Scantron Consolidated
- ------------------------------------------------------------------------
Balances as of
December 31, 2003 $ 24,709 $149,474 $ 43,566 $217,749
Goodwill acquired
in 2004 - 5,362 - 5,362
Purchase price
allocation adjustments - 80 - 80
- ------------------------------------------------------------------------
Balances as of
September 24, 2004 $ 24,709 $154,916 $ 43,566 $223,191
========================================================================
Intangible assets with definitive lives were comprised of the following (in
thousands):
September 24, 2004 December 31, 2003
- ------------------------------------------------------------------------
Gross Net Gross Net
Carrying Accum. Carrying Carrying Accum. Carrying
Amount Amort. Amount Amount Amort. Amount
- ------------------------------------------------------------------------
Developed
technology $25,314 $(13,912) $11,402 $24,787 $(11,851) $12,936
Customer
lists 27,405 (14,890) 12,515 25,900 (12,366) 13,534
Trademarks 3,800 (784) 3,016 3,800 (499) 3,301
Content 2,300 (500) 1,800 2,300 (327) 1,973
- ------------------------------------------------------------------------
Total $58,819 $(30,086) $28,733 $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 $6.9 million and
$6.5 million for the nine month periods ended September 24, 2004 and September
26, 2003, respectively.
The estimated future intangible amortization expense as of September 24, 2004 is
as follows (in thousands):
Year Amount
- --------------------------------------------------------------------
Remaining 2004 $ 1,869
2005 6,680
2006 6,121
2007 5,196
2008 3,593
Thereafter 5,274
- --------------------------------------------------------------------
Total $28,733
====================================================================
5. Asset Impairment Charges
In September 2004, the Company concluded that upgrading certain existing
customer care systems in its Printed Products segment will be more economical
than continued development of portions of certain new customer care systems for
the segment. The decision to terminate development efforts required a non-cash,
pre-tax impairment charge of $7.9 million. The Company will continue with
development and implementation of the remaining portions of the customer care
infrastructure project for the Printed Products segment.
-10-
During the second quarter of 2004, a Printed Product's facility was closed
pursuant to the plant consolidation plan (see note 6). A $2.3 million charge,
which is included in asset impairment charges 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 (see note 7).
6. Reorganization
In September 2003, the Company announced a reorganization of its Printed
Products operations including the consolidation of its domestic manufacturing
operations from 14 plants to 9 plants, which was completed during the third
quarter of 2004. Two of the facilities that were closed were leased. One of
these facilities is under lease through late 2005 and the other is under lease
through mid-2010. During the third quarter of 2004, the Company sublet the
latter facility to a third party for the remaining term of the lease.
In addition to the plant consolidation, Printed Products implemented other
staffing reductions beginning in the fourth quarter of 2003 which have continued
throughout 2004. These actions were 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.
The Company estimates net pre-tax expenses associated with the plant
consolidations will total $8.0 million consisting of employee severance ($2.8
million), revision of depreciable lives and salvage values of furniture and
equipment, asset impairment charge and disposal gains and losses ($2.1 million),
relocation and other costs ($2.2 million) and contract termination costs related
to leaseholds ($0.9 million). The other staffing reduction actions are expected
to result in a total estimated expense of $5.1 million related to employee
severance costs.
The following is the cumulative net costs of these actions incurred through
September 24, 2004 (in thousands):
Staffing
Plant Reduction
Consolidation Actions
- ----------------------------------------------------------------------------------
Employee severance $ 2,827 $ 4,545
Revision of depreciable lives and
salvage values 3,458 -
Asset impairment charge and
disposal (gains) and losses (1,330) -
Relocation and other costs 2,061 -
Contract termination costs related
to leaseholds 850 -
- ----------------------------------------------------------------------------------
Total $ 7,866 $ 4,545
==================================================================================
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).
-11-
The following reconciles the beginning and ending liability balances for the
nine month period ended September 24, 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 $ 1,096 $ (2,193) $ - $ 562
Revision of
depreciable lives
and salvage values - 1,321 - (1,321) -
Asset impairment charge
and disposal (gains)
and losses - (1,330) 5,301 (3,971) -
Relocation and other
costs - 1,979 (1,979) - -
Contract termination
costs related to
leaseholds - 850 (194) 167 823
Staffing reduction
actions:
Employee severance 1,125 1,644 (2,659) - 110
- ----------------------------------------------------------------------------------
Total $ 2,784 $ 5,560 $ (1,724) $ (5,125) $ 1,495
==================================================================================
7. Property Held for Sale
At September 24, 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.
During the second quarter of 2004, a Printed Products facility in Denver was
closed pursuant to the plant consolidation plan. A $2.3 million charge, which is
included in asset impairment charges 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 facility.
8. Income Taxes
The Company's consolidated effective income tax rates were 36.2% and 36.3% for
the first nine months of 2004 and the first nine months of 2003, respectively.
The lower effective income tax rate for the first nine months of 2004 resulted
primarily from 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 and an adjustment for prior year foreign transfer pricing agreements.
9. Inventories
As of September 24, 2004 and December 31, 2003, inventories consisted of the
following (in thousands):
September 24, December 31,
2004 2003
- ----------------------------------------------------------------------
Raw materials $ 12,814 $ 13,028
Work in progress 832 920
Finished goods 1,761 1,569
- ----------------------------------------------------------------------
Total $ 15,407 $ 15,517
======================================================================
-12-
10. 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 September 24, 2004, the total size of the Credit Facility
was $422.5 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 September 24, 2004, the Company had $97.5 million in outstanding cash
borrowings under the Credit Facility, $5.5 million in outstanding letters of
credit and $319.5 million available for borrowing under the Credit Facility. The
average interest rate in effect on outstanding cash borrowings at September 24,
2004 was 2.34%.
11. 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
nine month periods ended September 24, 2004 and September 26, 2003 was as
follows (in thousands):
Three Month Period Ended Nine Month Period Ended
Sep 24, Sep 26, Sep 24, Sep 26,
2004 2003 2004 2003
- ------------------------------------------------------------------------
Net income: $12,093 $14,695 $34,009 $39,124
Other comprehensive
Income (loss):
Foreign exchange
translation adjustments 173 (270) (1) 257
Unrealized gains (losses)
on investments, net
of $(1), ($21), $15, and
($1,132) in tax benefits
(provisions) 2 33 (24) 96
Changes in fair value of
cash flow hedging
instruments, net of ($30),
($242),($175) and ($522)
in tax (provisions) 46 378 273 817
- ------------------------------------------------------------------------
Comprehensive income $12,314 $14,836 $34,257 $40,294
========================================================================
-13-
12. Earnings per Common Share
The computation of basic and diluted earnings per share for the three and nine
month periods ended September 24, 2004 and September 26, 2003 is as follows (in
thousands, except per share amounts):
Three Month Period Ended Nine Month Period Ended
Sep 24, Sep 26, Sep 24, Sep 26,
2004 2003 2004 2003
- ------------------------------------------------------------------------
Computation of basic earnings per common share:
Numerator
Net Income $ 12,093 $ 14,695 $ 34,009 $ 39,124
- ------------------------------------------------------------------------
Denominator
Weighted average shares
outstanding 27,038 27,641 27,203 27,634
Weighted average deferred
shares outstanding under
non-employee directors
compensation plan 144 119 136 113
- ------------------------------------------------------------------------
Weighted average shares
outstanding - basic 27,182 27,760 27,339 27,747
- ------------------------------------------------------------------------
Earnings per share-basic $ 0.44 $ 0.53 $ 1.24 $ 1.41
========================================================================
Computation of diluted earnings per common share:
Numerator
Net Income $ 12,093 $ 14,695 $ 34,009 $ 39,124
- ------------------------------------------------------------------------
Denominator
Weighted average shares
outstanding - basic 27,182 27,760 27,339 27,747
Dilutive effect of stock
options and restricted
stock 724 728 773 636
- ------------------------------------------------------------------------
Weighted average shares
outstanding - diluted 27,906 28,488 28,112 28,383
- ------------------------------------------------------------------------
Earnings per share-diluted $ 0.43 $ 0.52 $ 1.21 $ 1.38
========================================================================
13. 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 nine month periods ended September 24, 2004,
the Company contributed $0.3 million and $0.8 million, respectively, to the
plans.
Net periodic postretirement costs for the three and nine month periods ended
September 24, 2004 and September 26, 2003 are summarized as follows (in
thousands):
Three Month Period Ended Nine Month Period Ended
Sep 24, Sep 26, Sep 24, Sep 26,
2004 2003 2004 2003
- ------------------------------------------------------------------------
Interest on APBO $ 198 $ 348 $ 906 $1,047
Net amortization (7) 70 165 211
- ------------------------------------------------------------------------
Total $ 191 $ 418 $1,071 $1,258
========================================================================
-14-
14. 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.
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 nine month periods
ended September 24, 2004 and September 26, 2003 was as follows (in thousands):
Business Segment
-------------------------------
Printed Software & Corporate & Consoli-
Products Services Scantron Eliminations dated
- ------------------------------------------------------------------------------
Three month period ended:
September 24, 2004
Sales $ 117,908 $ 47,264 $ 31,628 $ (825) $ 195,975
Income (loss)
before income
taxes 9,683 7,369 9,786 (8,057) 18,781
September 26, 2003
Sales $ 118,384 $ 44,512 $ 30,051 $ (453) $ 192,494
Income (loss)
before income
taxes 17,042 2,869 7,628 (5,211) 22,328
Nine month period ended:
September 24, 2004
Sales $ 356,497 $139,743 $ 85,338 $ (2,048) $ 579,530
Income (loss)
before income
taxes 38,194 15,002 23,585 (23,475) 53,306
September 26, 2003
Sales $ 369,366 $126,743 $ 83,483 $ (1,245) $ 578,347
Income (loss)
before income
taxes 54,809 10,745 16,692 (20,822) 61,424
-15-
15. 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 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
nine month period ended September 24, 2004 to warrant further disclosure. See
the 2003 Form 10-K for additional disclosure with respect to the Company's
critical accounting policies.
Significant Events
In September 2004, the Company concluded that upgrading certain existing
customer care systems in its Printed Products segment will be more economical
than continued development of portions of certain new customer care systems for
the segment. The decision to terminate development efforts required a non-cash
pre-tax impairment charge of $7.9 million. The Company will continue with
development and implementation of the remaining portions of the customer care
infrastructure project for the Printed Products segment.
In September 2003, the Company announced a reorganization of its Printed
Products operations including the consolidation of its domestic manufacturing
operations from 14 plants to 9 plants, which was completed during the third
quarter of 2004. Two of the facilities that were closed were leased. One of
these facilities is under lease through late 2005 and the other is under lease
through mid-2010. During the third quarter of 2004, the Company sublet the
latter facility to a third party for the remaining term of the lease.
In addition to the plant consolidation, Printed Products implemented other
staffing reductions beginning in the fourth quarter of 2003 which have continued
throughout 2004. These actions were 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.
-17-
The Company estimates net pre-tax expenses associated with the plant
consolidations will total $8.0 million consisting of employee severance ($2.8
million), revision of depreciable lives and salvage values of furniture and
equipment, asset impairment charge and disposal gains and losses ($2.1 million),
relocation and other costs ($2.2 million) and contract termination costs related
to leaseholds ($0.9 million). The other staffing reduction actions are expected
to result in a total estimated expense of $5.1 million related to employee
severance costs.
The following table presents plant consolidation and other staffing reduction
actions net expenses by income statement caption for the three and nine periods
ended September 24, 2004 and September 26, 2003 (in thousands):
Three Month Period Ended Nine Month Period Ended
Sep 24, Sep 26, Sep 24, Sep 26,
2004 2003 2004 2003
- ---------------------------------------------------------------------------
Plant consolidation
expenses:
Cost of products sold $(348) $ 132 $5,247 $ 132
Asset impairment
charges - - 2,282 -
(Gain) on asset
disposals - - (3,612) -
- ---------------------------------------------------------------------------
Total $(348) $ 132 $3,917 $ 132
===========================================================================
Other staffing reduction
actions:
Selling, general and
administrative
expenses $ 371 $ - $1,644 $ -
===========================================================================
RESULTS OF OPERATIONS - THIRD QUARTER OF 2004 VERSUS THIRD QUARTER OF 2003
Sales
Consolidated sales and sales by segment for the three month periods ended
September 24, 2004 and September 26, 2003 were as follows (in thousands):
Three Month Period Ended
September 24, 2004 September 26,2003
- ----------------------------------------------------------------------
% of % of
Amount Total Amount Total
- ----------------------------------------------------------------------
Printed Products $117,908 60.2% $118,384 61.5%
Software & Services 47,264 24.1% 44,512 23.1%
Scantron 31,628 16.1% 30,051 15.6%
Eliminations (825) (0.4%) (453) (0.2%)
- ----------------------------------------------------------------------
Total $195,975 100.0% $192,494 100.0%
======================================================================
-18-
Consolidated sales increased $3.5 million, or 1.8%, to $196.0 million in the
third quarter of 2004 from $192.5 million in the third quarter of 2003. Sales
increases in Software & Services and Scantron more than 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 increased 1.6% to $157.0 million in the
third quarter of 2004 from $154.6 million in the third 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 2.7% to $38.9 million in the third quarter of 2004 from $37.9
million in the third quarter of 2003.
Printed Products sales decreased $0.5 million, or 0.4%, to $117.9 million in the
third quarter of 2004 from $118.4 million in the third quarter of 2003. Domestic
imprint check printing operations were unfavorably impacted by an average price
per unit decrease of 4.6% partially offset by a volume increase of 3.5%. The
decrease in average price per unit was primarily due to incentives and price
reductions resulting from contract renewals. The volume increase was primarily a
result of a favorable impact from a package size change made during the second
half of 2003 and increased volumes in some large accounts partially offset by
general market volume decline. Sales of computer checks and related products
increased 2.7% in the third quarter of 2004 compared to the third quarter of
2003 due primarily to the addition of a new retail customer in 2004 partially
offset by lower sales from financial institution channels and lower pricing on
increased volume with a large software customer. Sales of direct marketing
activities increased 2.9% in the third quarter of 2004 compared to the third
quarter of 2003 primarily due to higher direct marketing sales partially offset
by lower investment services and analytical services sales.
Software & Services sales increased $2.8 million, or 6.2%, to $47.3 million in
the third quarter of 2004 from $44.5 million in the third quarter of 2003. The
increase in sales was due primarily to the acquisitions of certain assets of
Greatland Corporation in April 2004 and Mitek Systems in July 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 3.6%, due primarily to the initial recognition of
revenue related to the release of a new mortgage loan product in 2004. Sales of
core systems products and services increased 5.7% in the third quarter of 2004
compared to the third quarter of 2003 primarily due to increased customer
installations of banking systems and item processing/electronic document
management sales resulting from the business acquired from Mitek Systems. The
core system sales increase was partially offset by lower add-on sales for credit
union systems. Retail and lending solutions sales increased 6.8% in the third
quarter of 2004 compared to the third quarter of 2003 primarily due to increased
sales in mortgage solutions, resulting from the initial revenue recognition for
a new mortgage loan product, and to business acquired from the Greatland
Corporation.
Software & Services backlog at the end of the third quarter of 2004 was $96.4
million, an increase of 5.8% compared to $91.1 million at the end of the third
quarter of 2003, and decreased $1.0 million, or 1.0%, from $97.4 million at the
end of the second quarter of 2004. The increase from the third quarter of 2003
was due primarily to stronger bookings of banking and credit union systems over
that twelve-month period. The decrease from the second quarter of 2004 was due
to the initial recognition of revenue related to the release of a new mortgage
product. Excluding the impact of the acquisitions, backlog increased 3.8% from
the third quarter of 2003. Approximately $42.6 million, or 44.2%, of the backlog
at September 24, 2004 is expected to be realized over the next twelve months and
$53.8 million, or 55.8%, is expected to be realized beyond the next twelve
months due to the long-term nature of certain service contracts.
-19-
Scantron sales increased $1.5 million, or 5.2%, to $31.6 million in the third
quarter of 2004 from $30.1 million in the third quarter of 2003 due primarily to
increases in sales of forms, software and services for education, survey
services, and field services. Scantron backlog at the end of the third quarter
of 2004 was $22.0 million, of which $20.9 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 September 24, 2004 and September 26, 2003 were as follows (in
thousands):
Three Month Period Ended
September 24, 2004 September 26,2003
- ----------------------------------------------------------------------
% of % of
Amount Sales(a) Amount Sales(a)
- ----------------------------------------------------------------------
Printed Products $ 47,610 40.4% $ 47,653 40.3%
Software & Services 31,780 67.2% 29,336 65.9%
Scantron 18,191 57.5% 17,328 57.7%
- ----------------------------------------------------------------------
Total $ 97,581 49.8% $ 94,317 49.0%
======================================================================
(a) Percentage of sales for each segment is calculated using sales for that
segment.
Printed Products gross profit in the third quarter of 2004 decreased $0.1
million, or 0.1%, from $47.7 million in the third quarter of 2003 to $47.6
million in the third quarter of 2004 and increased as a percentage of sales from
40.3% in the third quarter of 2003 to 40.4% in the third quarter of 2004. Gross
profit increases in domestic imprint check printing operations and direct
marketing and investment services were more than offset by a decrease in gross
profit in computer checks and related products operations. Gross profit in
domestic imprint operations increased due to production efficiencies, primarily
a result of the plant consolidations, which more than offset a decrease in
sales. Gross profit in direct marketing activities increased due to a sales
increase as well as efficiencies realized from plant consolidations. Gross
profit in computer checks and related products operations were unfavorably
impacted by lower pricing for a large software customer and costs related to
implementation of digital printing technology partially offset by higher
volumes. Printed Products gross profit was also favorably impacted by a net $0.3
million decrease in plant consolidation costs, primarily due to the subleasing
of a closed facility earlier and at more favorable terms than originally
anticipated.
Software & Services gross profit in the third quarter of 2004 increased $2.5
million, or 8.3%, from $29.3 million in the third quarter of 2003 to $31.8
million in the third quarter of 2004. The gross profit increase was due
primarily to the initial revenue recognition from a new mortgage loan product
and to the Greatland and Mitek acquisitions. As a percentage of sales, Software
& Services gross profit increased to 67.2% in the third quarter of 2004 from
65.9% in the third quarter of 2003.
Scantron gross profit in the third quarter of 2004 increased $0.9 million, or
5.0%, from $17.3 million in the third quarter of 2003 to $18.2 million in the
third quarter of 2004. The gross profit increase was due primarily to the
increase in overall sales volume. As a percentage of sales, Scantron gross
profit decreased to 57.5% in the third quarter of 2004 from 57.7% in the third
quarter of 2003.
-20-
Selling, General & Administrative Expenses (SG&A)
Consolidated SG&A and SG&A by segment for the three month periods ended
September 24, 2004 and September 26, 2003 were as follows (in thousands):
Three Month Period Ended
September 24, 2004 September 26,2003
- ----------------------------------------------------------------------
% of % of
Amount Sales(a) Amount Sales(a)
- ----------------------------------------------------------------------
Printed Products $ 30,081 25.5% $ 31,389 26.5%
Software & Services 23,508 49.7% 25,595 57.5%
Scantron 8,318 26.3% 9,666 32.2%
Corporate 7,151 4,233
- ----------------------------------------------------------------------
Total $ 69,058 35.2% $ 70,883 36.8%
======================================================================
(a) Percentage of sales for each segment is calculated using sales for that
segment.
Printed Products SG&A decreased $1.3 million, or 4.2%, to $30.1 million in the
third quarter of 2004 from $31.4 million in the third quarter of 2003. The
decrease was primarily due to lower selling, client support and information
technology expenses primarily due to staffing reductions actions over the
previous twelve months. The decrease in Printed Products SG&A was partially
offset by an increase in certain incentive compensation in 2004 compared to an
adjustment to reduce such compensation in 2003 and to an increase in call center
expenses.
Software and Services SG&A decreased $2.1 million, or 8.2%, to $23.5 million in
the third quarter of 2004 from $25.6 million in the third quarter of 2003. The
decrease was due primarily to lower headcount in 2004 compared to 2003 due to
cost reduction initiatives in late 2003 and throughout 2004 and lower product
development costs in 2004 compared to 2003. These reductions were partially
offset by increased expenses related to operations acquired in 2004.
Scantron SG&A decreased $1.4 million, or 13.9%, to $8.3 million in the third
quarter of 2004 from $9.7 million in the third quarter of 2003. The decrease was
due primarily to lower selling and marketing expenses and product development
costs resulting from cost reduction initiatives implemented in late 2003.
Corporate SG&A increased $3.0 million, or 68.9%, to $7.2 million in the third
quarter of 2004 from $4.2 million in the third quarter of 2003. The increase was
primarily due to an increase in certain incentive compensation in 2004 compared
to an adjustment to reduce such compensation in 2003, increased stock-based
compensation costs in 2004 related to restricted stock grants, and increased
professional fees in 2004 related primarily to audit services for Sarbanes-Oxley
compliance and tax services.
Asset Impairment Charges
As previously mentioned, the Company recorded a $7.9 million asset impairment
charge in the third quarter of 2004 related to certain portions of the Printed
Products customer care infrastructure project.
(Gain) Loss on Disposal of Assets
During the third quarter of 2003, the Company realized a net gain of $1.1
million on the disposal of assets primarily consisting of a $0.8 million gain in
Printed Products on the sale of a former check printing facility and a $0.2
million gain in Corporate on the sale of certain property.
-21-
Consolidated Income from Operations
Consolidated income from operations decreased $3.9 million, or 16.8%, to $19.7
million in the third quarter of 2004 from $23.6 million in the third quarter of
2003, primarily due to the $7.9 million asset impairment charge. The impact of
the charge was partially offset by Software & Services' and Scantron's gross
profit increases and lower SG&A.
Other Income (Expense)
Other Income (Expense) decreased $0.4 million to an expense of $0.9 million in
the third quarter of 2004 from an expense of $1.3 million in the third quarter
of 2003. The decrease was due primarily to lower average interest rates in
effect during the third quarter of 2004 compared to the third quarter of 2003
and also due to lower average debt outstanding during the third quarter of 2004
compared with the third quarter of 2003. The lower average interest rates were
primarily due to reduced borrowings at higher fixed rates during the third
quarter of 2004 compared to the third quarter of 2003.
Consolidated Income Before Income Taxes
Consolidated income before income taxes decreased $3.5 million, or 15.9%, to
$18.8 million in the third quarter of 2004 from $22.3 million in the third
quarter of 2003 due to decreased income from operations.
Income Taxes
Consolidated effective income tax rates were 35.6% and 34.2% for the third
quarter of 2004 and the third quarter of 2003, respectively. The effective tax
rate for the third quarter of 2004 was favorably impacted by an adjustment for
foreign transfer pricing agreements as well as a reduction in the effective
state rate in 2004 and state retraining credits. The effective tax rate for the
third quarter of 2003 was favorably impacted by adjustments related to a
reduction in the effective state rate in 2003, a favorable renewal in late 2003
of an industrial revenue grant related to the Company's operations in Puerto
Rico and by the release of a portion of the valuation allowance related to the
utilization of capital loss carryforwards.
Net Income and Earnings Per Share
Net income in the third quarter of 2004 was $12.1 million compared to $14.7
million in the third quarter of 2003. Basic and diluted earnings per share were
$0.44 and $0.43, respectively, for the third quarter of 2004 compared to basic
and diluted earnings per share of $0.53 and $0.52, respectively, for the same
period in 2003.
-22-
RESULTS OF OPERATIONS - YEAR TO DATE 2004 VERSUS YEAR TO DATE 2003
Sales
Consolidated sales and sales by segment for the nine month periods ended
September 24, 2004 and September 26, 2003 were as follows (in thousands):
Nine Month Period Ended
September 24, 2004 September 26,2003
- ----------------------------------------------------------------------
% of % of
Amount Total Amount Total
- ----------------------------------------------------------------------
Printed Products $356,497 61.5% $369,366 63.9%
Software & Services 139,743 24.1% 126,743 21.9%
Scantron 85,338 14.7% 83,483 14.4%
Eliminations (2,048) (0.4%) (1,245) (0.2%)
- ----------------------------------------------------------------------
Total $579,530 100.0% $578,347 100.0%
======================================================================
Consolidated sales increased $1.2 million, or 0.2%, to $579.5 million for the
nine month period ended September 24, 2004 from $578.3 million for the nine
month period ended September 26, 2003. Sales increases in Software & Services
and Scantron more than 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 $8.1 million, or 1.7%, to $464.1 million for the first
nine months of 2004 from $472.2 million in the first nine 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 $9.3 million, or 8.7%, to $115.5 million for the first nine
months of 2004 from $106.2 million for the first nine months of 2003.
Printed Products sales decreased $12.9 million, or 3.5%, to $356.5 million in
the first nine months of 2004 from $369.4 million in the first nine 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 1.8%
and a decrease in the average price per unit of 4.3%. 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 4.2% for the
first nine months of 2004 compared to the first nine months of 2003 due
primarily to the addition of a new retail customer in 2004 and increased sales
with an existing customer in 2004. Sales of direct marketing activities
decreased 7.1% for the first nine months of 2004 compared to the first nine
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.
-23-
Software & Services sales increased $13.0 million, or 10.3%, to $139.7 million
in the first nine months of 2004 from $126.7 million in the first nine months of
2003. The increase in sales was due primarily to the acquisitions of Premier
Systems, Inc. ("PSI") in 2003 and certain assets acquired from Greatland and
Mitek in 2004. Excluding the impact of the acquisitions, Software & Services
sales increased approximately $3.3 million, or 2.6%, due primarily to initial
recognition of revenue related to the release of a new mortgage loan product in
2004, increased user conference fees and increases in core systems and retail
solutions sales, partially offset by a decrease in lending solutions sales. Core
system sales increases were primarily due to increased customer installations of
banking systems. Retail solutions sales increases were primarily due to higher
sales of branch automation products, partially offset by lower sales in customer
relationship management applications. Lending solutions sales decreases were
primarily in mortgage solutions attributable to lower refinancing activity
during 2004 partially offset by the initial revenue recognition for a new
mortgage loan product.
Scantron sales increased $1.8 million, or 2.2%, to $85.3 million in the first
nine months of 2004 from $83.5 million in the first nine months of 2003 due
primarily to increases in sales of forms, software and services for education,
survey services and field services partially offset by decreases in sales of
imaging solutions.
Gross Profit
Consolidated gross profit and gross profit by segment for the nine month periods
ended September 24, 2004 and September 26, 2003 were as follows (in thousands):
Nine Month Period Ended
September 24, 2004 September 26,2003
- ----------------------------------------------------------------------
% of % of
Amount Sales(a) Amount Sales(a)
- ----------------------------------------------------------------------
Printed Products $137,012 38.4% $149,463 40.5%
Software & Services 93,122 66.6% 86,348 68.1%
Scantron 48,106 56.4% 45,839 54.9%
- ----------------------------------------------------------------------
Total $278,240 48.0% $281,650 48.7%
======================================================================
(a) Percentage of sales for each segment is calculated using sales for that
segment.
Printed Products gross profit decreased $12.5 million, or 8.3%, from $149.5
million for the first nine months of 2003 to $137.0 million for the first nine
months of 2004 and as a percentage of sales was 38.4% in the first nine months
of 2004 compared to 40.5% in the first nine 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 of $5.2 million during the first nine months of 2004. Gross
profit in computer checks and related products operations were unfavorably
impacted by lower pricing for a large software customer and costs related to
implementation of digital printing technology partially offset by higher
volumes.
Software & Services gross profit increased $6.8 million, or 7.8%, from $86.3
million in the first nine months of 2003 to $93.1 million in the first nine
months of 2004 due primarily to the PSI acquisition, certain assets acquired
from Greatland and Mitek and higher sales in credit union and community bank
markets as well as higher sales of retail solutions. As a percentage of sales,
Software & Services gross profit decreased to 66.6% in the first nine months of
2004 from 68.1% in the first nine months of 2003, due primarily to the lower
margin nature of the acquired operations.
-24-
Scantron gross profit increased $2.3 million, or 4.9%, from $45.8 million in the
first nine months of 2003 to $48.1 million in the first nine months of 2004. The
gross profit increase was due primarily to an increase in sales, 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 56.4% in the first
nine months of 2004 from 54.9% in the first nine months of 2003 due primarily to
the change in sales mix and unfavorable costs and production inefficiencies
experienced during the facility relocation early in the first quarter of 2003.
Selling, General & Administrative Expenses
Consolidated SG&A and SG&A by segment for the nine month periods ended September
24, 2004 and September 26, 2003 were as follows (in thousands):
Nine Month Period Ended
September 24, 2004 September 26,2003
- ----------------------------------------------------------------------
% of % of
Amount Sales(a) Amount Sales(a)
- ----------------------------------------------------------------------
Printed Products $ 92,141 25.8% $ 95,545 25.9%
Software & Services 75,521 54.0% 73,451 58.0%
Scantron 24,295 28.5% 28,919 34.6%
Corporate 20,727 16,924
- ----------------------------------------------------------------------
Total $212,684 36.7% $214,839 37.1%
======================================================================
(a) Percentage of sales for each segment is calculated using sales for that
segment.
Printed Products SG&A decreased $3.4 million, or 3.6%, to $92.1 million in the
first nine months of 2004 from $95.5 million in the first nine months of 2003.
The decrease was due in part to lower selling, support and technology expenses
resulting from cost reduction initiatives. These decreases were partially offset
by staffing reduction severance charges of $1.6 million during the first nine
months of 2004 related to the Printed Products reorganization.
Software and Services SG&A increased $2.0 million, or 2.8%, to $75.5 million in
the first nine months of 2004 from $73.5 million in the first nine months of
2003. The increase was due primarily to the acquisitions during 2003 and 2004
and other core systems SG&A, which was higher in the first nine months of 2004
compared to the first nine months of 2003 resulting primarily from increased
headcount and commission expense related to increased sales. Severance costs of
$2.1 million related to cost reduction initiatives in 2004 also contributed to
the increase in SG&A.
Scantron SG&A decreased $4.6 million, or 16.0%, to $24.3 million in the first
nine months of 2004 from $28.9 million in the first nine months of 2003. The
decrease was due primarily to lower selling and marketing expenses and
development costs resulting from cost reduction initiatives implemented in late
2003.
Corporate SG&A increased $3.8 million, or 22.5%, to $20.7 million in the first
nine months of 2004 from $16.9 million in the first nine months of 2003. The
increase was due primarily to an increase in certain incentive compensation in
2004 compared to an adjustment to reduce such compensation in 2003, increased
restricted stock amortization expense, higher audit fees, insurance costs and
fees related to Sarbanes-Oxley compliance efforts, partially offset by a
reduction in amortization expense related to an enterprise information system
that became fully amortized during 2003 and lower healthcare costs in 2004.
-25-
Asset Impairment Charges
Asset impartment charges for the first nine months of 2004 totaled $10.2 million
and consisted of a $7.9 million asset impairment charge in the third quarter of
2004 related to certain portions of Printed Products customer care
infrastructure project and a $2.3 million charge during the second quarter of
2004 on a Printed Products' facility to adjust the basis of the facility to its
estimated fair value. The facility was closed pursuant to the Printed Products
plant consolidation plan.
(Gain) Loss on Disposal of Assets
During the first nine months of 2004, the Company realized a net gain of $3.5
million on the disposal of assets primarily due to a Printed Products plant
consolidation-related net gain of $3.7 million realized on a facility that was
closed and sold during the first quarter of 2004. During the first nine months
of 2003, the Company realized a net gain of $1.2 million primarily consisting of
a $0.8 million gain in Printed Products on the sale of a former check printing
facility and a $0.2 million gain in Corporate on the sale of certain property.
Consolidated Income from Operations
Consolidated income from operations decreased $9.5 million, or 14.5%, to $56.1
million in the first nine months of 2004 from $65.6 million in the first nine
months of 2003, primarily due to $5.6 million of net expense related to the
Printed Products plant consolidation and staffing reduction activities incurred
during the first nine months of 2004 as well as a $7.9 million asset impairment
charge incurred in the third quarter of 2004 related to certain portions of
Printed Products customer care infrastructure project.
Other Income (Expense)
Other Income (Expense) decreased $1.4 million to an expense of $2.8 million in
the first nine months of 2004 from an expense of $4.2 million in the first nine
months of 2003. The decrease was due primarily to lower average interest rates
in effect during the first nine months of 2004 compared to the first nine months
of 2003 because of lower amounts borrowed at fixed rates and also due to lower
debt outstanding during the first nine months of 2004 compared with the first
nine months of 2003.
Consolidated Income Before Income Taxes
Consolidated income before income taxes decreased $8.1 million, or 13.2%, to
$53.3 million in the first nine months of 2004 from $61.4 million in the first
nine months of 2003 due to decreased income from operations.
Income Taxes
Consolidated effective income tax rates were 36.2% and 36.3% for the first nine
months of 2004 and the first nine months of 2003, respectively. The lower
effective income tax rate for the first nine months of 2004 resulted primarily
from 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
and an adjustment for prior year foreign transfer pricing agreements. The
effective income tax rate for the first nine months of 2003 was favorably
impacted by the release of a valuation allowance related to the utilization of
capital loss carryforwards and a favorable renewal in late 2003 of an industrial
revenue grant related to the Company's operations in Puerto Rico.
-26-
Net Income and Earnings Per Share
Net income in the first nine months of 2004 was $34.0 million compared to $39.1
million in the first nine months of 2003. Basic and diluted earnings per share
were $1.24 and $1.21, respectively, for the first nine months of 2004 compared
to basic and diluted earnings per share of $1.41 and $1.38, respectively, for
the same period in 2003.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Sources and Uses of Cash
Although net income for the first nine months of 2004 was $5.1 million lower
than the first nine months of 2003, adjustments for non-cash charges, primarily
depreciation and amortization, asset impairment charges, and lower refundable
contract payments resulted in an increase in cash flows provided by operating
activities for the first nine months of 2004 compared to the same period in
2003. Cash flows provided by operating activities increased $38.4 million, or
99.7%, to $76.9 million in the first nine months of 2004 from $38.5 million in
the first nine months of 2003. Refundable contract payments totaled $20.3
million in the first nine months of 2004 compared to $40.1 million in the first
nine months of 2003. Other primary uses of cash in the first nine months of 2004
were for the reduction of borrowed amounts ($29.6 million), purchases of
treasury stock ($20.7 million), capital expenditures ($20.7 million), dividend
payments to shareholders ($9.1 million) and acquisitions ($7.1 million).
Purchases of property, plant and equipment totaled $20.7 million in the first
nine months of 2004, a decrease of $0.4 million, compared to $21.1 million in
the first nine months of 2003 and were primarily for customer care
infrastructure initiatives. The Company's customer care infrastructure
initiatives for the Printed Products segment focused on improving systems that
support sales, marketing and customer service to ensure exceptional service and
added functionality for the Company's call centers. In September 2004, the
Company concluded that upgrading certain existing customer care systems will be
more economical than continued development of portions of certain new customer
care systems. The decision to terminate development efforts required a non-cash,
pre-tax impairment charge of $7.9 million. The Company will continue with
development and implementation of the remaining portions of the customer care
infrastructure project for its Printed Products segment. The Company expects
total expenditures for the project over the four-year period ending in 2004 will
be approximately $57 million including the $7.9 million write off, a decrease
from the previously disclosed range of $65 to $70 million for the same period.
Additionally, the Company anticipates it will spend approximately $4 million,
primarily in 2005, to complete the remaining new systems, and it will spend
approximately $14 to $18 million over the 2005-2007 period to enhance certain
existing systems and infrastructure to replace the portions of the project being
discontinued.
During the nine month period ended September 24, 2004, the Company repurchased
686,600 shares of its common stock at an average cost per share of $30.20. These
purchases were made pursuant to an authorization approved by the Company's Board
of Directors in January 2003 to repurchase 3,000,000 shares. At September 24,
2004, 1,891,422 shares were remaining under the January 2003 authorized program.
-27-
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 September 24, 2004, the total size of the Credit Facility was $422.5
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 September 24, 2004, the Company had $97.5 million in outstanding cash
borrowings under the Credit Facility, $5.5 million in outstanding letters of
credit and $319.5 million available for borrowing under the Credit Facility. The
average interest rate in effect on outstanding cash borrowings at September 24,
2004 was 2.34%.
At September 24, 2004, the Company had $12.4 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 nine month period ended September 24, 2004, the Company entered into
agreements with certain customers, under which the Company is obligated to pay a
total of $82.4 million during the years 2004 through 2009. As of September 24,
2004, the remaining payment obligations under these existing customer contracts
totaled $72.4 million and are scheduled to be paid as follows: $1.3 million for
the three months ending December 31, 2004; $38.2 million for the two year period
ending December 31, 2006; $24.9 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).
-28-
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.
However, net income for the full year of 2004 is expected to be lower than 2003
net income, largely as a result of the asset impairment charge related to
certain portions of the Printed Products customer care infrastructure project
and costs related to a reorganization of the Printed Products segment, including
the consolidation of domestic manufacturing operations from 14 plants to 9
plants.
The Printed Products segment income is expected to improve during the fourth
quarter of 2004 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 not
affected by the consolidation were staffed up in anticipation of the actual
closure of the affected plants.
The Software & Services segment income is expected to continue to improve during
the fourth quarter of 2004 as the result of the impact of new products and
services and cost reduction initiatives as well as the impact of acquisitions.
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 is expected to continue to benefit from cost
reduction initiatives implemented throughout 2003.
The Company currently estimates that capital expenditures for 2004 will be in
the range of $27 million to $30 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. The Company currently
expects depreciation and amortization will total approximately $72 million in
2004, a $9 million increase over 2003, primarily due to the amortization of
refundable contract payments. The Company expects its effective tax rate will be
approximately 36.6% in 2004 including adjustments related to prior years. The
effective tax rate for on-going operations in 2004 is expected to be
approximately 37.5%.
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.
-29-
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 successful
implementation of major new accounts and 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
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. Revenues may continue to be
adversely affected by continued consolidation of financial institutions. 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, software 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.
-30-
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
September 24, 2004, the Company had outstanding variable rate debt of $ 97.5
million. In order to manage its exposure to fluctuations in interest rates, the
Company from time to time has entered into interest rate swap agreements, which
allow it to raise funds at floating rates and effectively swap them into fixed
rates. As of September 24, 2004, there were no interest rate swap agreements in
effect. 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 September 24, 2004 was minimal.
The impact on quarterly results of operations of a hypothetical one-point
interest rate change on the outstanding debt as of September 24, 2004 would be
approximately $244,000.
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.
-31-
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
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.
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.
-32-
- --------
(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.
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 3, 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.
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.
- --------
(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-