JH Harland John H

Harland Reports Third Quarter Results ATLANTA, Oct. 29 /PRNewswire-FirstCall/ -- John H. Harland Company today reported results for the third quarter of 2003. Consolidated sales for the third quarter were $192.5 million, a 1.5% increase from the $189.6 million reported for the same period a year earlier. Consolidated net income for the quarter was $14.7 million, down 8.1% from the $16.0 million reported for the same period in 2002. The decrease in net income was primarily attributable to declines in both volumes and pricing in the company's Printed Products segment. Diluted earnings per share for the third quarter of 2003 were $0.52 per share, compared to $0.53 for the third quarter of 2002. Earnings per share were favorably impacted in 2003 by a reduction in weighted shares outstanding, which resulted from the company's repurchase of shares over the past 12 months. For the nine months ended September 26, 2003, consolidated sales were $578.3 million, 3.3% greater than the $559.7 million reported for the first nine months of 2002. Consolidated net income for the nine-month period was $39.1 million, or $1.38 per share, compared to $37.7 million, or $1.23 per share, for the same period in 2002. Results for the 2002 period included charges equivalent to $0.15 per share related to accelerated vesting of certain restricted stock grants and the write-down of an investment. Segment Reporting Harland reports results for three business segments: Printed Products, Software and Services, and Scantron. Sales for the third quarter from the company's Printed Products segment were $118.4 million, down 8.2% from the $129.0 million reported for the same period a year earlier. Segment income from Printed Products for the third quarter was $17.0 million, a 21.0% decrease from 2002's third quarter segment income of $21.6 million. "We recently announced a reorganization of our Printed Products business that includes the consolidation of five of our production facilities and a reduction in SG&A expenses," said Timothy C. Tuff, chairman and chief executive officer of Harland. "The reorganization, which has been enabled by our new digital technology and systems, will be completed in 2004. The reorganization had minimal impact on third quarter results. We expect that, once fully implemented, the reorganization will result in an annualized savings of approximately $20 million and the elimination of approximately 500 positions. These actions will bring our production and support structures in line with our business levels." Software and Services reported sales of $44.5 million for the third quarter, up 44.0% from the $30.9 million reported for the same period in 2002. The increase in sales was primarily attributable to the company's acquisitions of INTERLINQ Software Corporation; SPARAK Financial Systems, LLC; and Premier Systems, Inc. Segment income for the third quarter decreased 27.1% to $2.9 million from the $3.9 million reported for the same period in 2002. "Our software bookings were strong in the quarter but much of the benefit of these bookings will be reflected in future quarters," said Tuff. "Our backlog grew 27.7% in the quarter to $91.1 million as a substantial portion of revenue from these bookings is deferred into future periods. Segment income was negatively impacted by the decision to delay the launch of our new mortgage product to incorporate functionality requested by our beta customers." Scantron reported sales of $30.1 million for the third quarter, down 0.4% from 2002 third quarter sales of $30.2 million. Segment income for the third quarter decreased 18.7% to $7.6 million, compared with $9.4 million in the third quarter of 2002. "While we are seeing signs the economy is improving, this improvement is not being felt in the education market, particularly in spending on new products, and we have implemented appropriate cost reductions," said Tuff. "The lack of spending impacted Scantron's results for the quarter. However, our traditional testing forms business continues to perform well." The company expects to report 2003 diluted earnings per share in the range of $1.83 to $1.88. This range includes an estimate of $0.15 per share for exit costs and severance related to the previously announced cost reduction actions in the Printed Products segment. "We believe the improved economy should help our financial software business in particular as we move into 2004," said Tuff. "While we don't expect the checks business or educational testing markets to change fundamentally, improved sales execution and cost reduction actions taken should have a positive impact in 2004 and even more so in 2005." Harland's board of directors declared a dividend of $0.10 per share, payable November 28, 2003 to shareholders of record as of November 19, 2003. Harland will hold a conference call Thursday, October 30, 2003 at 10:00 a.m. EST to discuss the results of the quarter and future outlook. Interested parties may listen in by accessing a live webcast in the investor relations section of Harland's website at http://www.harland.net/ . Additionally, the live conference call may be accessed by calling 719-457-2665 and using the access code #338510. A replay of the conference call will be available in the investor relations section of Harland's website ( http://www.harland.net/ ) beginning approximately two hours after the call and will remain available through November 13. The rebroadcast will also be available until November 6, via telephone, by calling 719-457-0820 and using the access code #338510. The company has posted quarterly segment information dating back to 2000. The segment information can be found in the investor relations section of the company's web site at http://www.harland.net/ . About Harland Atlanta-based John H. Harland Company (NYSE:JH) ( http://www.harland.net/ ) is a leading provider of software and printed products to the financial and educational markets. Harland Financial Solutions, Inc., a wholly owned subsidiary ( http://www.harlandfinancialsolutions.com/ ), supplies software and services, including customer relationship management, deposit and loan origination, core systems and mortgage services to thousands of financial institutions of all sizes. Harland's printed products offerings include checks, direct marketing and financial forms. Scantron Corporation ( http://www.scantron.com/ ), a wholly owned subsidiary, is a leading provider of both paper and electronic-based services and systems for the collection, management and interpretation of data to the financial, commercial and educational markets. RISK FACTORS AND CAUTIONARY STATEMENTS This press release contains statements, which may constitute "forward- looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements include statements regarding the intent, belief or current expectations of John H. Harland Company and members of its management, as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that the actual results may differ materially from those contemplated by such forward-looking statements. 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 our 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 online payment systems. Check revenues may continue to be adversely affected by continued consolidation of financial institutions, competitive check pricing including up-front contract incentive payments, and the impact of governmental laws and regulations. There can be no assurances that the Company will not lose additional customers or that any such loss could be offset by the addition of new customers. While the Company believes substantial growth opportunities exist in the Software and Services segment, there can be no assurances that the Company will achieve its revenue or earnings growth targets. The Company believes there are many risk factors inherent in its software business, including but not limited to the retention of employee talent and customers. Also, variables exist in the development of new software products, including the timing and costs of the development effort, product performance, functionality, product acceptance, competition, the Company's ability to integrate acquired companies, and general changes in economic conditions or U.S. financial markets. Several factors outside of the Company's control could affect results in the Scantron segment. These include the rate of adoption of new electronic data collection, testing and assessment methods, which could negatively impact current forms, scanner sales and related service revenue. The Company continues to develop products and services that it believes offer state-of- the-art electronic data collection, testing and assessment solutions. However, variables exist in the development of new testing methods and technologies, including the timing and costs of the development effort, product performance, functionality, market acceptance, adoption rates, competition, the Company's ability to integrate acquired companies, and the funding of education at the federal, state and local level, all of which could have an impact on the Company's business. Reference should be made to the Risk Factors and Cautionary Statements section of Harland's Form 10-K and Form 10-Q for additional information. Harland undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results. John H. Harland Company Financial Highlights Condensed Statements of Income (Unaudited) (in 000's) Three Months ended Sep 26, 2003 Sep 27, 2002 % -------------------------------------------------------------------------- Sales $ 192,494 $ 189,636 1.5% Cost of sales 98,177 98,452 -0.3% Pct of Sales 51.0% 51.9% ---------- ---------- Gross profit 94,317 91,184 3.4% Pct of Sales 49.0% 48.1% Selling, general and administrative expenses 69,753 62,646 11.3% Pct of Sales 36.2% 33.0% Amortization of intangibles 939 898 4.6% Pct of Sales 0.5% 0.5% ---------- ---------- Operating Income 23,625 27,640 -14.5% Pct of Sales 12.3% 14.6% Other Income (Expense): Interest expense (1,424) (1,504) -5.3% Pct of Sales -0.7% -0.8% Other - net 127 8 Pct of Sales 0.1% 0.0% ---------- ---------- Income before Income Taxes 22,328 26,144 -14.6% Pct of Sales 11.6% 13.8% Income taxes 7,633 10,152 -24.8% Pct of Sales 4.0% 5.4% ---------- ---------- Net Income $ 14,695 $ 15,992 -8.1% ========== ========== Pct of Sales 7.6% 8.4% Earnings per Share Basic $ 0.53 $ 0.55 -3.6% Diluted $ 0.52 $ 0.53 -1.9% Weighted Average Shares (000) Basic 27,760 29,142 -4.7% Diluted 28,488 29,960 -4.9% Shares O/S at end of period (000) 28,048 29,381 -4.5% Return on Equity 23.4% 27.1% -3.7 pct pts Depreciation and Amortization (000) $ 15,711 $ 14,472 8.6% Capital Expenditures (000) $ 6,820 $ 7,577 -10.0% Number of Employees (includes temporary employees) 5,070 5,145 -1.5% Segment Information(A) Printed Products Sales $ 118,384 $ 129,019 -8.2% Depreciation & Amortization $ 11,355 $ 10,439 8.8% Segment Income(B) $ 17,042 $ 21,582 -21.0% Software and Services Sales $ 44,512 $ 30,903 44.0% Depreciation & Amortization $ 3,168 $ 2,393 32.4% Segment Income(B) $ 2,869 $ 3,937 -27.1% Scantron Sales $ 30,051 $ 30,158 -0.4% Depreciation & Amortization $ 1,023 $ 792 29.2% Segment Income(B) $ 7,628 $ 9,377 -18.7% Note: During the third quarter of 2003, the Company reclassified certain items in its consolidated income statements. The reclassifications affected the categories of Selling, General and Administrative expenses and Other Income (Expense). The change primarily reflects the reclassification of gains and losses on the sale of assets as well as certain other expenses from Other Income (Expense) to Selling, General and Administrative expenses. During the second quarter of 2003, the Company reclassified a business from Software and Services to Printed Products and reclassified certain support activities from corporate to Printed Products. Financial data for all periods presented have been restated to reflect the impact of the reclassification. The reclassifications had no impact on net income or shareholders' equity as previously reported. (A) Segment information does not include eliminations related to intercompany activity and does not include corporate expenses. (B) Segment income (loss) is defined as income before income taxes. John H. Harland Company Financial Highlights Condensed Statements of Income (Unaudited) (in 000's) Nine Months ended Sep 26, 2003 Sep 27, 2002 % -------------------------------------------------------------------------- Sales $ 578,347 $ 559,694 3.3% Cost of sales 296,697 297,528 -0.3% Pct of Sales 51.3% 53.2% ---------- ---------- Gross profit 281,650 262,166 7.4% Pct of Sales 48.7% 46.8% Selling, general and administrative expenses 213,640 193,314 10.5% Pct of Sales 36.9% 34.5% Amortization of intangibles 2,371 2,170 9.3% Pct of Sales 0.4% 0.4% ---------- ---------- Operating Income 65,639 66,682 -1.6% Pct of Sales 11.3% 11.9% Other Income (Expense): Interest expense (4,487) (4,780) -6.1% Pct of Sales -0.8% -0.9% Other - net 272 (114) Pct of Sales 0.0% 0.0% ---------- ---------- Income before Income Taxes 61,424 61,788 -0.6% Pct of Sales 10.6% 11.0% Income taxes 22,300 24,086 -7.4% Pct of Sales 3.9% 4.3% ---------- ---------- Net Income $ 39,124 $ 37,702 3.8% ========== ========== Pct of Sales 6.8% 6.7% Earnings per Share Basic $ 1.41 $ 1.29 9.3% Diluted $ 1.38 $ 1.23 12.2% Weighted Average Shares (000) Basic 27,747 29,274 -5.2% Diluted 28,383 30,594 -7.2% Shares O/S at end of period (000) 28,048 29,381 -4.5% Return on Equity 21.2% 22.7% -1.5 pct pts Depreciation and Amortization (000) $ 44,515 $ 42,151 5.6% Capital Expenditures (000) $ 21,134 $ 26,304 -19.7% Number of Employees (includes temporary employees) 5,070 5,145 -1.5% Segment Information(A) Printed Products Sales $ 369,366 $ 389,453 -5.2% Depreciation & Amortization $ 31,853 $ 31,075 2.5% Segment Income(B) $ 54,809 $ 62,637 -12.5% Software and Services Sales $ 126,743 $ 91,969 37.8% Depreciation & Amortization $ 8,734 $ 6,959 25.5% Segment Income(B) $ 10,745 $ 10,477 2.6% Scantron Sales $ 83,483 $ 79,649 4.8% Depreciation & Amortization $ 3,014 $ 1,979 52.3% Segment Income(B) $ 16,692 $ 22,750 -26.6% Note: During the third quarter of 2003, the Company reclassified certain items in its consolidated income statements. The reclassifications affected the categories of Selling, General and Administrative expenses and Other Income (Expense). The change primarily reflects the reclassification of gains and losses on the sale of assets as well as certain other expenses from Other Income (Expense) to Selling, General and Administrative expenses. During the second quarter of 2003, the Company reclassified a business from Software and Services to Printed Products and reclassified certain support activities from corporate to Printed Products. Financial data for all periods presented have been restated to reflect the impact of the reclassification. The reclassifications had no impact on net income or shareholders' equity as previously reported. (A) Segment information does not include eliminations related to intercompany activity and does not include corporate expenses. (B) Segment income (loss) is defined as income before income taxes. John H. Harland Company Financial Highlights Condensed Balance Sheets (Unaudited) (in 000's) September 26, December 31, 2003 2002 -------------------------------------------------------------------- Cash & Cash Equivalents $ 6,686 $ 19,218 Accounts Receivable - Net 64,461 58,871 Inventory 15,510 18,191 Deferred Income Taxes 27,800 26,977 Prepaid & Other 17,200 15,568 ---------- ---------- Total Current Assets 131,657 138,825 Investments 5,145 3,917 Goodwill - Net 217,467 210,462 Intangibles - Net 17,756 14,127 Refundable Contract Payments 53,381 23,281 Other 22,239 25,860 Property, Plant and Equipment - Net 129,532 134,215 ---------- ---------- Total Assets $ 577,177 $ 550,687 ========== ========== Accounts Payable $ 22,784 $ 22,599 Current Portion of Long-term Debt 140,075 83 Deferred Revenues 61,508 53,311 Accrued Liabilities: Salaries, Wages and Employee Benefits 28,397 31,039 Taxes 18,857 18,817 Other 22,129 21,237 ---------- ---------- Total Current Liabilities 293,750 147,086 Long-Term Debt 11 144,106 Other Liabilities 25,142 25,501 Shareholders' Equity 258,274 233,994 ---------- ---------- Total Liabilities and Equity $ 577,177 $ 550,687 ========== ========== John H. Harland Company Financial Highlights Condensed Statements of Cash Flows (Unaudited) (in 000's) Nine Months ended Sep 26, 2003 Sep 27, 2002 -------------------------------------------------------------------------- Operating Activities: Net income $ 39,124 $ 37,702 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 44,515 42,151 Stock-based compensation 1,775 8,173 Gain on sale of assets (1,199) (96) Tax benefits from stock-based compensation 1,306 2,758 Other (1,195) (44) Changes in assets and liabilities (5,714) 13,112 Refundable contract payments (40,081) (5,956) --------- --------- Net cash provided by operating activities 38,531 97,800 --------- --------- Investing Activities: Purchases of property, plant and equipment (21,134) (26,304) Payment of acquisition of businesses - net of cash acquired (11,303) (71,475) Other 4,308 1,438 --------- --------- Net cash used in investing activities (28,129) (96,341) --------- --------- Financing Activities: Purchases of treasury stock (19,138) (5,404) Issuance of treasury stock 7,067 10,474 Long-term debt - net (4,103) 13,934 Other (6,760) (8,049) --------- --------- Net cash provided by (used in) financing activities (22,934) 10,955 --------- --------- Increase (decrease) in cash and cash equivalents (12,532) 12,414 Cash and cash equivalents at beginning of period 19,218 10,096 --------- --------- Cash and cash equivalents at end of period $ 6,686 $ 22,510 ========= ========= DATASOURCE: John H. Harland Company CONTACT: Investors, Henry R. Bond, Vice President, Investor Relations & Treasurer, +1-770-593-5697, or , or Media, John Pensec, Director of Corporate Communications, +1-770-593-5443, or , both of John H. Harland Company Web site: http://www.harland.net/ http://www.harlandfinancialsolutions.com/ http://www.scantron.com/

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