United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of shares of the registrant's common stock outstanding on April 28,
2006 was 26,844,296.
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. . . . . . . . . . . . . . . . . 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . 29
ITEM 4. CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . . . . 30
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . 30
ITEM 1A. RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . 30
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. 30
ITEM 6. EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . . 32
EXHIBIT LIST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
------
(In thousands) March 31, December 31,
2006 2005
- ----------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 9,023 $ 10,298
Accounts receivable - net 84,757 82,155
Inventories 18,237 20,397
Deferred income taxes 7,315 8,257
Income taxes receivable 4,616 5,163
Prepaid expenses 19,084 24,462
Other 3,836 3,843
- ----------------------------------------------------------------------
Total current assets 146,868 154,575
- ----------------------------------------------------------------------
Other Assets:
Investments 11,661 10,730
Goodwill - net 368,359 357,243
Intangible assets - net 113,412 116,477
Developed technology and content 25,207 25,317
Upfront contract payments - net 55,494 45,993
Other 4,621 4,896
- ----------------------------------------------------------------------
Total investments and other assets 578,754 560,656
- ----------------------------------------------------------------------
Property, plant and equipment 358,949 354,935
Less accumulated depreciation
and amortization 258,286 250,317
- ----------------------------------------------------------------------
Property, plant and equipment - net 100,663 104,618
- ----------------------------------------------------------------------
Total $ 826,285 $ 819,849
======================================================================
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
-3-
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
(In thousands, except share and March 31, December 31,
per share amounts) 2006 2005
- ----------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 37,923 $ 38,822
Deferred revenues 79,649 72,245
Current maturities of long-term debt 5,217 5,448
Accrued liabilities:
Salaries, wages and employee benefits 22,695 44,343
Taxes 14,933 10,664
Customer Incentives 12,887 12,075
Other 19,191 22,516
- ----------------------------------------------------------------------
Total current liabilities 192,495 206,113
- ----------------------------------------------------------------------
Long-Term Liabilities:
Long-term debt 263,617 250,116
Deferred income taxes 5,986 9,148
Other 39,544 35,330
- ----------------------------------------------------------------------
Total long-term liabilities 309,147 294,594
- ----------------------------------------------------------------------
Total liabilities 501,642 500,707
- ----------------------------------------------------------------------
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 5,455 2,612
Retained earnings 558,153 540,894
Accumulated other comprehensive loss 1,423 1,253
- ----------------------------------------------------------------------
602,938 582,666
Less 11,052,962 and 10,707,645 shares
in treasury - at cost,
respectively 278,295 263,524
- ----------------------------------------------------------------------
Total shareholders' equity 324,643 319,142
- ----------------------------------------------------------------------
Total $ 826,285 $ 819,849
======================================================================
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
-4-
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
Three Month Periods Ended
(In thousands, except March 31, April 1,
per share amounts) 2006 2005
- ----------------------------------------------------------------------
Sales:
Product sales $ 209,190 $ 174,379
Service sales 64,274 41,468
- ----------------------------------------------------------------------
Total sales 273,464 215,847
Cost of sales:
Cost of products sold 109,054 96,209
Cost of services sold 30,160 15,138
- ----------------------------------------------------------------------
Total cost of sales 139,214 111,347
- ----------------------------------------------------------------------
Gross Profit 134,250 104,500
Selling, general and administrative expenses 92,537 74,440
Amortization of intangibles 4,065 999
- ----------------------------------------------------------------------
Income From Operations 37,648 29,061
- ----------------------------------------------------------------------
Other Income (Expense):
Interest expense (3,729) (1,176)
Other - net 468 (8)
- ----------------------------------------------------------------------
Total (3,261) (1,184)
- ----------------------------------------------------------------------
Income before income taxes and
cumulative effect of change
in accounting principle 34,387 27,877
Income taxes 13,387 10,593
- ----------------------------------------------------------------------
Income before cumulative effect of change
in accounting principle 21,000 17,284
Cumulative effect of change
in accounting principle, net of taxes 345 -
- ----------------------------------------------------------------------
Net Income 21,345 17,284
======================================================================
Weighted Average Shares Outstanding:
Basic 26,631 26,962
Diluted 27,366 27,841
======================================================================
Earnings Per Common Share:
Income before cumulative effect of change
in accounting principle:
Basic $ 0.79 $ 0.64
Diluted $ 0.77 $ 0.62
Net Income:
Basic $ 0.80 $ 0.64
Diluted $ 0.78 $ 0.62
======================================================================
Cash Dividends Per Common Share $ 0.15 $ 0.125
======================================================================
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
-5-
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Month Periods Ended
March 31, April 1,
(In thousands) 2006 2005
- -----------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 21,345 $ 17,284
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 9,088 8,472
Amortization of upfront contract payments 7,987 8,135
Other amortization 5,831 2,014
Cumulative effect of change in accounting
principle, net of taxes (345) -
(Gain) loss on disposal of assets - net (20) 10
Stock-based compensation 2,716 842
Tax benefits from stock-based compensation - 1,135
Gain on sale of investments - net - (59)
Deferred income taxes (2,290) (41)
Other 333 (284)
Change in assets and liabilities, net of effects of
businesses acquired:
Accounts receivable (2,574) 1,062
Inventories and other current assets 6,618 (462)
Deferred revenues 7,321 9,067
Accounts payable and accrued liabilities (23,729) (15,301)
Upfront contract payments (17,489) (16,800)
- -----------------------------------------------------------------------------
Net cash provided by operating activities 14,792 15,074
- -----------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (5,956) (5,206)
Proceeds from sale of property, plant and equipment 44 45
Payment for acquisition of businesses-
net of cash acquired (7,046) -
Long-term investments and other (53) (252)
- -----------------------------------------------------------------------------
Net cash (used in) investing activities (13,011) (5,413)
- -----------------------------------------------------------------------------
FINANCING ACTIVITIES:
Credit facility borrowings 110,378 72,985
Credit facility payments (96,881) (80,534)
Repurchases of stock (16,851) -
Issuance of treasury stock 4,011 4,499
Dividends paid (4,056) (3,426)
Tax benefits from stock-based compensation 729 -
Other - net (386) (447)
- -----------------------------------------------------------------------------
Net cash (used in) financing activities (3,056) (6,923)
- -----------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (1,275) 2,738
Cash and cash equivalents at beginning of period 10,298 9,214
- -----------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 9,023 $ 11,952
=============================================================================
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
-6-
JOHN H. HARLAND COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006
(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.
The condensed consolidated financial statements included herein should be read
in conjunction with the consolidated financial statements and notes thereto, and
the Independent Registered Public Accounting Firm's Report included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2005 ("2005
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 2005 Form 10-K,
except for the adoption of Statement of Financial Accounting Standards No.
123(R), Share-Based Payment, as disclosed below.
Stock-Based Compensation
Effective, January 1, 2006, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123(R) ("SFAS 123(R)"), "Share-Based
Payment," which establishes accounting for stock-based awards exchanged for
employee services. Under the provisions of SFAS 123(R), share-based
compensation cost is measured at the grant date, based on the fair value of the
award, and is recognized as expense over the employee's requisite service
period (generally the vesting period of the equity grant). The Company
amortizes stock-based compensation by using the straight-line method. The
Company elected to adopt the modified prospective transition method as provided
by SFAS 123(R). In accordance with the requirements of the modified prospective
transition method, consolidated financial statements for prior year periods
have not been restated to reflect the fair value method of expensing
share-based compensation. Additionally, effective with the adoption of
SFAS 123(R) excess tax benefits realized from the exercise of stock-based
awards are classified in cash flows from financing activities.
Prior to January 1, 2006, the Company applied Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related interpretations in accounting for its stock-based compensation plans and
applied the disclosure-only provisions of FASB Statement No. 123, "Accounting
for Stock-Based Compensation ("SFAS 123"), as amended by FASB Statement No. 148,
"Accounting for Stock-Based Compensation-Transition and Disclosure" ("SFAS
148"). In accordance with APB 25, no stock-based compensation cost was reflected
in net income for options or purchases under the Company's stock purchase plans.
Had compensation cost for options granted under the Company's stock-based
compensation plans and purchases under the employee stock purchase plan been
determined based on the fair value at the grant dates consistent with SFAS 123,
the Company's net income and earnings per share would have changed to the pro
forma amounts listed below (in thousands):
-7-
Three Month Period Ended
(In thousands, except April 1,
per share amounts) 2005
- --------------------------------------------------------------------
Net income:
As reported $ 17,284
Add: stock-based compensation
expense included in reported
net income, net of tax 514
Deduct: stock-based compensation
expense determined under the
fair value based method for
all awards, net of tax (1,278)
- --------------------------------------------------------------------
Pro forma net income $ 16,520
====================================================================
Earnings per common share:
As reported
Basic $ 0.64
Diluted $ 0.62
Pro forma
Basic $ 0.61
Diluted $ 0.59
The fair value of each stock option award is estimated on the date of grant
using the Black-Scholes option valuation model. The Black-Scholes model
incorporates assumptions as to dividend yield, volatility, an appropriate
risk-free interest rate and the expected life of the option. Many of these
assumptions require management's judgment. The Company's volatility is based
upon historical volatility of the Company's stock unless management has reason
to believe that future volatility will differ from the past. The expected term
for grants under SFAS 123(R) are derived using the simplified method which is
the average of the weighted average vesting period and the contractual term. The
risk-free rate is based on the yield on the zero coupon U.S. Treasury in effect
at the time of grant based on the expected term of the option. The fair value of
restricted stock awards is based on the market value at the date of grant.
Shares issued under stock compensation plans are issued from the Company's
treasury shares. In December 2005, the Company's board of directors approved a
plan to repurchase 3,000,000 shares. Shares purchased may be held in treasury,
used for acquisitions, used to fund the Company's stock-based benefit and
compensation plans or for other corporate purposes. During the three months
ended March 31, 2006, the Company repurchased 507,100 shares under this plan.
Although the Company currently has authority to purchase additional shares under
this plan for the purposes stated above during the remaining periods of 2006,
the timing and extent of such purchases, if any, is dependent upon a number of
factors making it difficult to estimate the number of shares that may be
purchased during this period.
Upon the adoption of SFAS 123(R) the Company recognized a benefit of $0.6
million ($0.3 million after tax) as the cumulative effect of a change in
accounting principle resulting from the requirement to estimate forfeitures of
the Company's restricted stock grants at the date of grant instead of
recognizing them as incurred. The estimated forfeiture rate was applied to the
previously recorded compensation expense of the Company's unvested restricted
stock in determining the cumulative effect of a change in accounting principle.
The cumulative benefit, net of tax, increased both basic and diluted earnings
per share by $0.01 for the three month period ended March 31, 2006.
As a result of the SFAS 123(R) requirement to expense stock options, stock-based
compensation costs increased $1.3 million before income taxes, or $0.03 per
diluted share, in the three month period ended March 31, 2006.
-8-
Reclassifications
Prior to 2006, the Company included substantially all stock compensation expense
and a 401(k) plan performance contribution as a corporate expense classified
within selling, general and administrative expenses. In conjunction with the
adoption of SFAS 123(R) and pursuant to SEC Staff Accounting Bulletin No. 107,
the Company elected to include stock compensation and the 401(k) plan
performance contribution expense in results of operations of the related
business segment and to classify a portion of these expenses to cost of goods
sold based on the individuals within the business segment that are participants
in these compensation programs. Prior periods have been reclassified to conform
to these changes. This reclassification to prior periods had no impact on net
income or on shareholders' equity as previously reported.
Research and Development
For the three month period ended March 31, 2006, the Company incurred research
and development costs of $6.2 million, compared to $5.7 million for the three
month period ending April 1, 2005, an increase of $0.5 million, or 8.8%.
Research and development costs are primarily costs incurred related to the
development of software and are recorded in selling, general and administrative
expenses.
3. Acquisitions
All acquisitions in 2006 and 2005 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. At
March 31, 2006, $10.5 million was being held in escrow to satisfy
indemnification claims, if any, under the terms of the purchase agreements.
2006 Acquisition
On January 31, 2006, Harland Financial Solutions, Inc. ("HFS"), a wholly owned
subsidiary of the Company, acquired Financialware, Inc. ("Financialware") for
approximately $7.0 million in a cash for equity transaction. Financialware was a
provider of enterprise content management solutions, serving domestic and
international financial institution clients. The acquisition expands and
strengthens the Company's position in electronic check processing, statement
rendering, document archival and retrieval, report management and image exchange
software. The enterprise content management system technology, through
automation, allows a consolidated view of customer accounts, transactions and
documents via an accessible browser by both the financial institution's
employees and their customers. Financialware's results of operations were
included in the Company's operations as of January 31, 2006.
The estimated fair value of assets and liabilities at the acquisition date
consisted of goodwill of $5.4 million which is expected to be deductible for
tax purposes, other intangible assets of $2.5 million (estimated weighted
average useful life of six years), which included $1.5 million in developed
technology (estimated weighted average useful life of six years), and $0.8
million in customer lists (estimated weighted average useful life of six years)
and $0.2 million in trademarks (estimated weighted average useful life of ten
years), other assets of $0.7 million and assumed liabilities of $1.6 million.
The allocations of purchase price are preliminary and subject to refinement as
the Company finalizes the valuation of certain assets and liabilities. The pro
forma effects of the Financialware acquisition were not material to the
Company's results of operations.
-9-
2005 Acquisitions
On June 10, 2005, the Company acquired substantially all of the assets of
Liberty Enterprises, Inc. ("Liberty") for approximately $161.7 million in cash,
including acquisition costs. Liberty was a provider of checks, marketing
services, card services, education and e-commerce solutions primarily to credit
unions. The addition of Liberty expanded the Company's presence among credit
unions, and management believes that the combined range of products and services
positions the Company to be a preferred partner for credit unions across the
country.
On April 13, 2005, HFS amended its asset purchase agreement with Mitek Systems,
Incorporated ("Mitek Systems"), which was originally entered into in July 2004,
to purchase certain additional assets for $1.0 million. These assets had been
excluded in the original agreement pending settlement of certain third party
contractual issues by Mitek Systems.
On April 4, 2005, HFS acquired Intrieve, Incorporated ("Intrieve") for
approximately $77.1 million, including acquisition costs, in a cash for equity
transaction. This acquisition expanded the HFS product and service offerings to
include outsourced core processing, comprehensive item processing and electronic
banking and payments processing for thrifts and community banks. The acquisition
also included in-house financial management software, turnkey check and MICR
document printing systems, and a datacenter operation that provides co-location
and hot-site disaster recovery services.
The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed on the acquisition dates during 2005 (in thousands):
Weighted Average
Useful Life
Value in Years
- ---------------------------------------------------------------
Current assets $ 22,832
Property, plant and equipment 13,519
Goodwill 131,406
Intangibles:
Customer lists 103,300 18.7
Developed technology 12,640 5.0
Trademarks 7,600 5.4
--------
Total intangibles 123,540
Other assets 1,449
- ---------------------------------------------------------------
Total assets acquired 292,746
- ---------------------------------------------------------------
Current liabilities 37,055
Deferred income taxes 11,502
Other 4,443
- ---------------------------------------------------------------
Total liabilities assumed 53,000
- ---------------------------------------------------------------
Net assets $239,746
===============================================================
The allocations of purchase price to the assets and liabilities acquired in 2005
are preliminary pending detailed examinations and appraisals of the assets and
liabilities acquired and the completion of an integration plan for the Liberty
operations. The allocation of the purchase price includes $7.7 million for
actions taken or to be undertaken for the integration of Liberty operations.
-10-
The allocations of purchase price resulted in $131.4 million allocated to
goodwill of which $60.5 million is expected to be deductible for tax purposes.
Goodwill of $49.2 million and $82.2 million was preliminarily assigned to the
Company's Printed Products and Software & Services business segments,
respectively. The principal factor affecting the purchase price, which resulted
in the recognition of goodwill, was the fair value of the going-concern element
of the Liberty and Intrieve businesses, which includes the assembled workforces
and synergies that are expected to be achieved.
The following unaudited pro forma summary presents information as if the
acquisitions of the businesses acquired in 2005 occurred at the beginning of
2005 (in thousands, except per share amounts):
Three Month
Period Ended
April 1,
(Unaudited) 2005
- ------------------------------------------------------------------------
Net Sales $ 265,397
Net Income $ 11,653
Earnings per common share:
Basic $ .43
Diluted $ .42
The unaudited pro forma summary for the period presented includes adjustments
for changes in levels of amortization of intangible assets, interest income,
interest expense, and income taxes. The pro forma results for the three month
period ended April 1, 2005 include $10.8 million of nonrecurring
acquisition-related expenses incurred by the acquired operations prior to the
business combinations. The Company expects to realize operating synergies with
the acquired operations. This pro forma information does not reflect any such
potential synergies. The unaudited pro forma summary does not purport to be
indicative of either the results of operations that would have occurred had the
acquisitions taken place at the beginning of the periods presented or of future
results.
4. Goodwill and Intangible Assets
Goodwill and intangible assets with indefinite lives are not amortized but are
tested at least annually for impairment. Separable intangible assets with
definitive lives are amortized over their useful lives.
The changes in the carrying amounts of goodwill by business segment for the
three month period ended March 31, 2006 are as follows (in thousands):
Printed Software &
Products Services Scantron Consolidated
- ------------------------------------------------------------------------
Balances as of
December 31, 2005 $ 72,128 $241,724 $ 43,391 $357,243
Goodwill acquired
in 2006 - 5,439 - 5,439
Purchase price
allocation adjustments 1,831 3,846 - 5,677
- ------------------------------------------------------------------------
Balances as of
March 31, 2006 $ 73,959 $251,009 $ 43,391 $368,359
========================================================================
-11-
Intangible assets with definitive lives were comprised of the following (in
thousands):
March 31, 2006 December 31, 2005
- ------------------------------------------------------------------------
Gross Net Gross Net
Carrying Accum. Carrying Carrying Accum. Carrying
Amount Amort. Amount Amount Amort. Amount
- ------------------------------------------------------------------------
Developed
technology $ 47,372 $(23,620) $ 23,752 $ 45,834 $(22,030) $ 23,804
Customer
Lists 134,030 (29,719) 104,311 133,305 (26,143) 107,162
Trademarks 11,650 (2,549) 9,101 11,400 (2,085) 9,315
Content 2,300 (845) 1,455 2,300 (787) 1,513
- ------------------------------------------------------------------------
Total $195,352 $(56,733) $138,619 $192,839 $(51,045) $141,794
========================================================================
Amortization of developed technology and content is included in the cost of
sales caption on the statements of income. Aggregate amortization expense for
intangible assets totaled $5.7 million and $1.9 million for the three month
periods ended March 31, 2006 and April 1, 2005, respectively. The estimated
future intangible amortization expense as of March 31, 2006 is as follows (in
thousands):
Year Amount
- --------------------------------------------------------------------
Remaining 2006 $ 16,680
2007 20,879
2008 17,746
2009 14,594
2010 12,844
Thereafter 55,876
- --------------------------------------------------------------------
Total $138,619
====================================================================
5. Integration Actions
Upon the acquisition of Liberty, an integration plan for the Liberty operations
was developed that includes the consolidation of six Liberty facilities into the
Company's existing network of regional production facilities and the elimination
of duplicate selling, general and administrative expenses. As of March 31, 2006,
costs of $7.7 million were recorded for actions taken or to be undertaken for
the integration of Liberty operations. These costs were primarily for severance
benefits and lease abandonment charges and are included in other current and
noncurrent liabilities in the balance sheet.
The following table presents the cumulative net costs of these actions incurred
through March 31, 2006 (in thousands):
Liberty
Integration
- ----------------------------------------------------------------
Employee severance $ 6,034
Contract termination costs
related to leaseholds 1,339
Other 346
- ----------------------------------------------------------------
Total $ 7,719
================================================================
The following table reconciles the beginning and ending liability balances for
the three month period ended March 31, 2006 related to the integration plan and
are included in the other accrued liabilities captions on the balance sheet (in
thousands):
-12-
Charged to Utilized
----------------- ----------------
Beginning Costs and Ending
Balance Goodwill Expenses Cash Non-Cash Balance
- -------------------------------------------------------------------------------
Liberty integration:
Employee severance $ 2,942 $ 112 $ 20 $ (701) $ - $ 2,373
Contract termination
costs related to
leaseholds 1,339 - - - - 1,339
Other - 346 - (132) - 214
- -------------------------------------------------------------------------------
Total $ 4,281 $ 458 $ 20 $ (833) $ - $ 3,926
===============================================================================
6. Inventories
As of March 31, 2006 and December 31, 2005, inventories consisted of the
following (in thousands):
March 31, December 31,
2006 2005
- ----------------------------------------------------------------------
Raw materials $ 15,210 $ 17,739
Work in progress 356 596
Finished goods 2,671 2,062
- ----------------------------------------------------------------------
Total $ 18,237 $ 20,397
======================================================================
7. 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 and will decrease by $5.0
million per annum. As a result, the Credit Facility will decrease to $400.0
million at the 2009 maturity date. 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 0.20% 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 as defined): the
Federal Funds Rate, the SunTrust Bank Base Rate or LIBOR (as defined therein).
The Credit Facility has certain financial covenants including, among other
items, leverage, fixed charge coverage 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 March 31, 2006, the Company had $268.1 million in outstanding cash borrowings
under the Credit Facility, $5.2 million in outstanding letters of credit and
$140.4 million available for borrowing under the Credit Facility. The average
interest rate in effect on outstanding cash borrowings at March 31, 2006 was
5.79%.
8. Income Taxes
The Company's consolidated effective income tax rates were 38.9% and 38.0% for
the first quarter of 2006 and the first quarter of 2005, respectively. The
effective income tax rate for the first quarter of 2006 reflected the
elimination of the IRC Section 936 U.S credit for Puerto Rico that expired
December 31, 2005 and an increase in the effective state income tax rate for
the consolidated group.
-13-
9. Stock Compensation Plans
Employee Stock Purchase Plan
Under the Company's Employee Stock Purchase Plan ("ESPP"), the Company is
authorized to issue up to 5,100,000 shares of common stock to its employees,
most of whom are eligible to participate. Under the ESPP, eligible employees may
exercise an option to purchase common stock through payroll deductions. The
option price is 85% of the lower of the beginning- or end-of-quarter market
price. During the three months ended March 31, 2006, employees exercised 53,278
options to purchase stock at a price of $32.17. At March 31, 2006, there were
136,530 shares of common stock reserved for issuance under the ESPP. The Company
recognized ESPP related compensation expense of $0.4 million for the three
months ended March 31, 2006.
Stock Options and Restricted Stock Plans
Under the Company's 1999 Stock Option Plan, the Company may grant stock options
to key employees to purchase common stock at no less than the fair market value
on the date of the grant or issue restricted stock to such employees. The
Company is authorized to issue up to 2,000,000 shares under the plan. Stock
options have a maximum life of ten years and generally vest ratably over a
five-year period beginning on the first anniversary date of the grant. Upon
adoption of the 1999 plan, the Company terminated a previous plan except for
options outstanding thereunder.
In 2000, the Company adopted the 2000 Stock Option Plan which authorizes the
issuance of up to 3,000,000 shares through stock options and grants of
restricted stock. The 2000 Plan is substantially similar to the 1999 Plan,
except that the Company's executive officers are ineligible to receive grants
thereunder.
In 2002, the Company adopted the 2002 Stock Option Plan which authorizes the
issuance of up to 1,000,000 shares through stock options and grants of
restricted stock. The 2002 plan is substantially similar to the 1999 plan.
In 2005, the Company adopted the 2005 New Employee Stock Option Plan which
authorizes the issuance of up to 100,000 shares. The 2005 plan is similar to the
1999 Plan except that existing employees are not eligible to receive stock
options and it is limited to grants of stock options only. Stock options may
only be granted to newly-hired employees or persons rehired following a bona
fide interruption of employment. Pursuant to an exception from the New York
Stock Exchange rules for employment inducement awards, the 2005 Plan was adopted
without shareholder approval.
As of March 31, 2006, there were 2,787,097 shares of common stock reserved for
issuance under these stock option plans.
Restricted stock grants prior to April 2004 generally vest over a period of five
years, subject to earlier vesting if the Company's common stock outperforms the
S&P 500 in two of three consecutive years. The certificates covering the
restricted stock are not issued until the restrictions lapse. The shares have
all the rights of holders of common stock, including the right to receive cash
dividends, but are not transferable. The restricted stock is generally forfeited
if the employee terminates for any reason prior to the lapse in restrictions,
other than death or disability. Commencing in April 2004, restricted stock
grants do not contain the accelerated performance-related vesting described
above and generally vest ratably over five years or, in the case of certain
officers, vest on the third, fourth and fifth anniversary dates at the rate of
one third on each such date.
On December 31, 2005, the conditions for early vesting were met on 145,195
shares after the common stock outperformed the S&P 500 in 2005 and 2004. On
December 31, 2004, the conditions for early vesting were met on 136,500 shares
after the common stock outperformed the S&P 500 in 2004 and 2002.
-14-
In February 2006, the Chief Executive Officer ("CEO") was granted 15,700
restricted shares with performance-based vesting. The basis for vesting is the
cumulative fully-diluted earnings per share of the Company for the years 2006 to
2008. The award is subject to threshold and maximum performance limitations. If
the threshold is met, 3,530 shares would vest. If actual performance exceeds the
threshold (but is less than maximum performance), the number of shares vesting
will be determined on a directly proportional basis using straight-line
interpolation. If the threshold is not achieved, the entire award will be
forfeited and cancelled. However, the award will vest 100% upon (a) the
occurrence of a change in control of the Company, (b) the Company's termination
of the CEO's employment without cause, (c) termination of employment for good
reason or (d) termination of employment by reason of death or disability on or
before December 31, 2009. No dividends will be paid on these shares until the
number of shares that vest is determined. Compensation cost related to this
award is based on an estimate of the number of shares expected to vest.
In August 2005, the CEO was granted 16,900 restricted shares with
performance-based vesting with terms similar to the February 2006
performance-based award. The basis for vesting is the cumulative fully-diluted
earnings per share of the Company for the years 2005 to 2007. The award is
subject to threshold and maximum performance limitations. If the threshold is
met, 3,800 shares would vest. Compensation cost related to this award is based
on an estimate of the number of shares expected to vest.
In April 2005, the CEO was granted stock options to purchase 500,000 shares of
stock at a price of $37.59. These stock options have a ten-year life and vest
ratably over five years beginning on December 1, 2005.
The Company did not grant any stock options for the three month periods ended
March 31, 2006 and April 1, 2005.
A summary of stock option transactions for the three months ended March 31, 2006
follows:
Weighted
Weighted Average Aggregate
Average Remaining Intrinsic
Exercise Contractual Value
Shares Price Term (000)
- -----------------------------------------------------------------------------
Outstanding - December 31, 2005 2,709,090 $ 25.14
Granted - -
Exercised (113,890) 20.17
Forfeited (66,440) 21.78
Expired (240) 20.88
- -----------------------------------------------------------------------------
Outstanding - March 31, 2006 2,528,520 $ 25.45 6.1 $ 35,011
=============================================================================
Exercisable - March 31, 2006 1,698,600 $ 23.17 5.2 $ 27,396
=============================================================================
During the three month periods ended March 31, 2006 and April 1, 2005, the total
intrinsic value of options exercised was $1.9 million and $2.9 million,
respectively, and the total amount of cash received from the exercise of these
options was $2.3 million and $3.5 million, respectively. During the three month
periods ended March 31, 2006 and April 1, 2005, the Company recognized an
excess tax benefit of $0.7 million and $1.1 million, respectively from stock
option exercises.
-15-
A summary of restricted stock transactions for the three months ended March 31,
2006 follows:
Weighted
Average
Grant Date
Fair
Shares Value
- ----------------------------------------------------------------------
Outstanding - December 31, 2005 673,760 $ 35.41
Granted 24,370 36.08
Restricted stock vested (8,564) 31.26
Forfeited (29,190) 33.34
- ----------------------------------------------------------------------
Outstanding - March 31, 2006 660,376 $ 35.58
======================================================================
The total fair value of restricted stock grants that vested during the three
month periods ended March 31, 2006 and April 1, 2005 was $0.3 million and $2.0
million.
Directors Deferred Stock Compensation Plans
The Company has deferred compensation plans for its non-employee directors
covering a maximum of 400,000 shares. At March 31, 2006 and April 1, 2005 there
were 369,716 and 372,097 shares, respectively, reserved for issuance of which
191,194 and 157,428 shares, respectively, were allocated but unissued. The
remaining 178,522 and 214,669 shares, respectively, were reserved and
unallocated under those plans.
Stock Compensation Costs
The following table presents the classification of stock-based compensation
included in the Company's condensed consolidated statements of income for the
three month periods ended March 31, 2006 and April 1, 2005 (in thousands):
Three Month Period Ended
March 31, April 1,
2006 2005
- ---------------------------------------------------------------------
Stock-based compensation included in:
Cost of sales $ 297 $ 61
Selling, general and
administrative 2,419 781
- ---------------------------------------------------------------------
Stock-based compensation 2,716 842
Less income tax benefits (1,059) (320)
- ---------------------------------------------------------------------
Stock-based compensation,
net of tax benefits $ 1,657 $ 522
=====================================================================
At March 31, 2006, unrecognized stock-based compensation costs related to
nonvested awards was $26.7 million, which is expected to be recognized over a
weighted average period of 3.2 years.
-16-
10. Comprehensive Income
Other comprehensive income for the Company includes foreign currency translation
adjustments and unrealized gains (losses) on investments. Total comprehensive
income for the three month periods ended March 31, 2006 and April 1, 2005 was as
follows (in thousands):
Three Month Periods Ended
March 31, April 1,
2006 2005
- ----------------------------------------------------------------------
Net income: $ 21,345 $ 17,284
Other comprehensive
income (loss):
Foreign exchange
translation adjustments 68 (154)
Unrealized gain (loss) on
investments, net of ($69) and $(93)
in tax benefits 103 141
- ----------------------------------------------------------------------
Comprehensive income $ 21,516 $ 17,271
======================================================================
11. Earnings per Common Share
The computation of basic and diluted earnings per share for the three month
periods ended March 31, 2006 and April 1, 2005 is as follows (in thousands,
except per share amounts):
Three Month Periods Ended
March 31, April 1,
2006 2005
- ----------------------------------------------------------------------
Computation of basic earnings per common share:
Numerator
Net income $ 21,345 $ 17,284
- ----------------------------------------------------------------------
Denominator
Weighted average shares
outstanding 26,446 26,804
Weighted average deferred
shares outstanding under
non-employee directors
compensation plan 185 158
- ----------------------------------------------------------------------
Weighted average shares
outstanding - basic 26,631 26,962
- ----------------------------------------------------------------------
Earnings per share - basic $ 0.80 $ 0.64
======================================================================
Computation of diluted earnings per common share:
Numerator
Net income $ 21,345 $ 17,284
- ----------------------------------------------------------------------
Denominator
Weighted average shares
outstanding - basic 26,631 26,962
Dilutive effect of stock
options and restricted stock 735 879
- ----------------------------------------------------------------------
Weighted average shares
outstanding - diluted 27,366 27,841
- ----------------------------------------------------------------------
Earnings per share - diluted $ 0.78 $ 0.62
======================================================================
-17-
The potentially dilutive common shares relate to options and restricted stock
granted under stock compensation plans. Potentially dilutive common shares that
were not included in the calculation of diluted earnings per share for the
three month periods ended March 31, 2006 and April 1, 2005 because they were
anti-dilutive were 69,351 and 0 shares, respectively.
12. Postretirement Benefits
The Company sponsors 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. The Company previously disclosed in its 2005 Form 10-K that it
expected to contribute $1.5 million to its postretirement benefit plan in 2006.
During the three month period ended March 31, 2006, the Company contributed $0.2
million to the plans.
Net periodic postretirement costs for the three month periods ended March 31,
2006 and April 1, 2005 are summarized as follows (in thousands):
Three Month Periods Ended
March 31, 2006 April 1, 2005
- --------------------------------------------------------------------
Interest on APBO $ 305 $ 302
Net amortization 70 55
- --------------------------------------------------------------------
Total $ 375 $ 357
====================================================================
13. Business Segments
The Company operates its business in three segments. The Company is organized on
the basis of products, services and markets served. Within each business segment
are division presidents who report to the Company's Chief Executive Officer, the
chief operating decision maker.
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, thrifts and community banks,
education and e-commerce solutions primarily for credit unions, lending and
mortgage origination applications, mortgage servicing applications, branch
automation applications and customer relationship management applications and
fraud prevention solutions. The Scantron segment represents products and
services sold by the Company's Scantron subsidiary including scanning equipment
and software, scannable forms, survey solutions, 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 located in the United States and Puerto
Rico. During the three month periods ended March 31, 2006 and April 1, 2005,
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 and revenues, 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. Certain 2005 stock compensation expenses and a 401(k) plan
performance contribution were reclassified from Corporate to the related
business segments to conform to the 2006 classifications. Corporate assets
consist primarily of cash and cash equivalents, deferred income taxes,
investments and other assets not employed in production.
-18-
Summarized financial information for the three month periods ended March 31,
2006 and April 1, 2005 was as follows (in thousands):
Business Segment
-------------------------------
Printed Software & Corporate & Consoli-
Products Services Scantron Eliminations dated
- ------------------------------------------------------------------------------
Three month periods ended:
March 31, 2006
Sales $ 172,780 $ 71,322 $ 29,712 $ (350) $ 273,464
Income (loss)
before income
taxes 32,442 5,598 8,005 (11,658) 34,387
April 1, 2005
Sales $ 140,448 $ 47,620 $ 28,214 $ (435) $ 215,847
Income (loss)
before income
taxes 24,377 4,192 6,456 (7,148) 27,877
14. Contingencies
In the ordinary course of business, the Company is subject to various legal
proceedings and claims. The Company believes that the ultimate outcome of these
matters will not have a material effect on its financial statements.
-19-
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, thrifts and community banks, education and
e-commerce solutions primarily to credit unions, lending and mortgage
origination applications, mortgage servicing applications, branch automation
applications, customer relationship management applications and fraud payment
prevention solutions.
The Scantron segment ("Scantron") includes scanning equipment and software,
scannable forms, survey solutions, 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 for the fiscal year ended December
31, 2005 (the "2005 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 material
changes in its critical accounting policies during the three-month period ended
March 31, 2006, other than the change in accounting principle described below.
See the 2005 Form 10-K for additional disclosure with respect to the Company's
critical accounting policies.
Change in Accounting Principle
Effective, January 1, 2006, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123(R) ("SFAS 123(R)"), "Share-Based
Payment," which establishes accounting for stock-based awards exchanged for
employee services. Under the provisions of SFAS 123(R), share-based compensation
cost is measured at the grant date, based on the fair value of the award, and is
recognized as expense over the employee's requisite service period (generally
the vesting period of the equity grant). The Company amortizes stock-based
compensation by using the straight-line method. The Company elected to adopt the
modified prospective transition method as provided by SFAS 123(R). In accordance
with the requirements of the modified prospective method, consolidated
financial statements for prior year periods have not been restated to reflect
the fair value method of expensing share-based compensation.
Prior to January 1, 2006, the Company applied Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related interpretations in accounting for its stock-based compensation plans and
applied the disclosure-only provisions of FASB Statement No. 123, "Accounting
for Stock-Based Compensation ("SFAS 123"), as amended by FASB Statement No. 148,
"Accounting for Stock-Based Compensation-Transition and Disclosure" ("SFAS
148"). In accordance with APB 25, no stock-based compensation cost was reflected
in net income for options or purchases under the Company's employee stock
purchase plan.
Upon the adoption of SFAS 123(R) the Company recognized a benefit of $0.6
million ($0.3 million after tax) as the cumulative effect of a change in
accounting principle resulting from the requirement to estimate forfeitures of
the Company's restricted stock grants at the date of grant instead of
recognizing them as incurred. The estimated forfeiture rate was applied to the
previously recorded compensation expense of the Company's unvested restricted
stock in determining the cumulative effect of a change in accounting principle.
The cumulative benefit, net of tax, increased both basic and diluted earnings
per share by $0.01.
-20-
As a result of the SFAS 123(R) requirement to expense stock options, stock-based
compensation costs increased $1.3 million before income taxes, or $0.03 per
diluted share, in the three month period ended March 31, 2006. The Company
believes the adoption of SFAS 123(R) will continue to have a material effect on
its future period results of operations and financial position dependent upon
the level of awards granted. At March 31, 2006, unrecognized stock-based
compensation costs related to nonvested awards was $26.7 million, which is
expected to be recognized over a weighted average period of 3.2 years. See Notes
2 and 9 to the Condensed Consolidated Financial Statements regarding the
Company's accounting policy and other information pertaining to stock
compensation plans.
Reclassifications
Prior to 2006, the Company included substantially all stock compensation expense
and a 401(k) plan performance contribution as a corporate expense classified
within selling, general and administrative expenses. In conjunction with the
adoption of SFAS 123(R) and pursuant to SEC Staff Accounting Bulletin No. 107,
the Company elected to include stock compensation and the 401(k) plan
performance contribution expense in results of operations of the related
business segment and to classify a portion of these expenses to cost of goods
sold. Prior periods have been reclassified to conform to these changes. This
reclassification to prior periods had no impact on net income or on
shareholders' equity as previously reported.
The following table presents stock-based compensation included in the Company's
condensed consolidated statements of income by classification and by business
segment for the three month periods ended March 31, 2006 and April 1, 2005 (in
thousands):
Three Month Period Ended
March 31, April 1,
2006 2005
- ---------------------------------------------------------------------
Stock-based compensation included in:
Cost of sales $ 297 $ 61
Selling, general and
administrative 2,419 781
--------------------------------------------------------------------
Total stock-based compensation $ 2,716 $ 842
=====================================================================
Stock-based compensation included in:
Printed Products $ 701 $ 265
Software & Services 812 255
Scantron 295 208
Corporate 908 115
--------------------------------------------------------------------
Total stock-based compensation $ 2,716 $ 842
=====================================================================
Significant Events
On January 31, 2006, Harland Financial Solutions, Inc. ("HFS"), a wholly owned
subsidiary of the Company, acquired Financialware, Inc. ("Financialware") for
approximately $7.0 million in a cash for equity transaction. In June 2005, the
Company acquired substantially all of the assets of Liberty Enterprises, Inc.
("Liberty") for approximately $161.7 million in cash including acquisition
costs. In April 2005, the Company acquired Intrieve, Incorporated ("Intrieve")
for approximately $77.1 million, including acquisition costs, in a cash for
equity transaction. See Note 3 to the Consolidated Financial Statements for
further information regarding these acquisitions.
-21-
In March 2005, the Company was notified that a major customer in its Printed
Products segment would not renew its contract that expired in March 2006. The
annual sales under this contract were approximately $32 million with annual
pre-tax operating income of approximately $10 million. The Company believes it
will be able to eliminate all variable costs associated with this customer and
will adjust its infrastructure wherever possible to minimize the impact of fixed
costs. This customer loss was effective during March 2006.
RESULTS OF OPERATIONS - FIRST QUARTER OF 2006 VERSUS FIRST QUARTER OF 2005
Sales
Consolidated sales and sales by segment for the three month periods ended March
31, 2006 and April 1, 2005 were as follows (in thousands):
Three Month Periods Ended
March 31, 2006 April 1, 2005
- ----------------------------------------------------------------------
% of % of
Amount Total Amount Total
- ----------------------------------------------------------------------
Printed Products $172,780 63.2% $140,448 65.1%
Software & Services 71,322 26.1% 47,620 22.0%
Scantron 29,712 10.9% 28,214 13.1%
Eliminations (350) (0.2%) (435) (0.2%)
- ----------------------------------------------------------------------
Total $273,464 100.0% $215,847 100.0%
======================================================================
Consolidated sales increased $57.6 million, or 26.7%, in the first quarter of
2006 compared to the first quarter of 2005. Sales increases occurred in all
three segments. 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 $34.8 million, or 20.0%, in the
first quarter of 2006 compared to the first quarter of 2005. Sales of services,
which consist of software maintenance services, field maintenance services, core
processing services, analytical and consulting services and other services,
increased $22.8 million, or 55.0%, in the first quarter of 2006 compared to the
first quarter of 2005.
Printed Products sales increased $32.3 million, or 23.0%, in the first quarter
of 2006 compared to the first quarter of 2005. The portions of the acquired
Liberty operations aligned under Printed Products contributed $27.3 million of
the increase. Excluding the impact of acquired Liberty operations, Printed
Products sales increased $5.0 million, or 3.5%, in the first quarter of 2006
compared with the first quarter of 2005, with all businesses reporting higher
sales. Legacy imprint check printing operations (which exclude Liberty
operations) were favorably impacted by an average price per unit increase of
3.1% partially offset by a volume decrease of 2.0%. The increase in average
price per unit was primarily due to a price increase implemented during the
first quarter of 2006. The volume decrease was primarily attributable to
customer losses in 2005 and the first quarter of 2006, the impact of one less
production day for Printed Products in the first quarter of 2006 compared to the
first quarter of 2005 and by general market volume erosion related to
alternative payments systems. The volume decrease was partially offset by
customer gains in 2005. Sales of computer checks and related products increased
4.8% in the first quarter of 2006 compared to the first quarter of 2005 due
primarily to increased volume through the financial institution channel and the
expansion of premium delivery options. Sales of direct marketing activities
increased 20.6% in the first quarter of 2006 compared to the first quarter of
2005 primarily due to operations acquired in the Liberty acquisition that have
been aligned under direct marketing, new business with a national credit card
company, an expansion in statement printing sales and stronger seasonal volumes
in on-going direct marketing programs.
-22-
Software & Services sales increased $23.7 million, or 49.8%, in the first
quarter of 2006 compared to the first quarter of 2005. The increase in sales was
due primarily to the Intrieve acquisition, the portions of the operations from
the Liberty acquisition that were aligned under Software & Services and organic
sales increases in core systems and retail and lending solutions. See Note 3 to
the Condensed Consolidated Financial Statements regarding business acquisitions
in 2006 and 2005. Excluding the impact of the acquisitions, Software & Services
sales increased approximately $2.9 million, or 6.1% in the first quarter of 2006
compared to the first quarter of 2005. Core systems organic sales increased
11.0% primarily due to higher sales in banking systems and credit union systems
partially offset by decreases in credit union service bureau services. Retail
and lending solutions organic sales increased 2.6% in the first quarter of 2006
compared to the first quarter of 2005 primarily due to higher sales of lending
solutions partially offset by a decrease in sales from mortgage and retail
solutions.
At March 31, 2006, Software & Services backlog, which consists of contracted
products and services prior to delivery, was $256.4 million, an increase of
131.4% compared to $110.8 million at the end of the first quarter of 2005, and
increased $1.1 million, or 0.4%, from $255.3 million at the end of the fourth
quarter of 2005. The increase from the first quarter of 2005 was due primarily
to businesses acquired in 2005, stronger bookings in lending solutions and core
banking systems over the last 12 months partially offset by the drawdown of
backlog related to mortgage solutions products and credit union service bureau.
The increase from the fourth quarter of 2005 was due primarily to the
Financialware acquisition. Backlog increases for lending solutions and retail
solutions were offset by decreases for service bureau business. Approximately
$101.7 million, or 39.7%, of the backlog at March 31, 2006 is expected to be
delivered over the next twelve months and $154.7 million, or 60.3%, is expected
to be delivered beyond the next twelve months due to the long-term nature of
certain service contracts.
Scantron sales increased $1.5 million, or 5.3%, in the first quarter of 2006
compared to the first quarter of 2005. The increase was due primarily to
increases in sales of testing and custom data collection forms, field
maintenance services, data collection software and survey solution products and
services, partially offset by decreases in optical mark reading equipment and
testing and assessment software products. Increased sales of newer technology
products in the education market were more than offset by lower sales of legacy
technology products in that market. Revenue for the newer technology products is
recognized over the contract term, which results in deferrals of revenue into
future periods, whereas revenue for the legacy products is generally recognized
when the product is shipped. Certain of the legacy technology products were
sunset in 2005 and are no longer actively marketed. Sales of hardware were lower
for commercial market applications and non-testing applications in the education
market due to a continuing trend in data collection methods moving away from
optical mark reading to imaging and direct input technologies. Scantron backlog
at the end of the first quarter of 2006 was $16.9 million, a decrease of $3.1
million, or 15.5%, from $20.0 million at the end of the first quarter of 2005,
and a decrease of $0.7 million, or 4.0%, from $17.6 million at December 31,
2005. Approximately $15.0 million of the backlog at March 31, 2006 is expected
to be delivered within twelve months.
-23-
Gross Profit
Consolidated gross profit and gross profit by segment for the three month
periods ended March 31, 2006 and April 1, 2005 were as follows (in thousands):
Three Month Periods Ended
March 31, 2006 April 1, 2005
- ----------------------------------------------------------------------
% of % of
Amount Sales(a) Amount Sales(a)
- ----------------------------------------------------------------------
Printed Products $ 75,698 43.8% $ 57,330 40.8%
Software & Services 42,018 58.9% 31,490 66.1%
Scantron 16,534 55.6% 15,680 55.6%
- ----------------------------------------------------------------------
Total $134,250 49.1% $104,500 48.4%
======================================================================
<FN>
(a) Percentage of sales for each segment is calculated using sales for that
segment.
</FN>
Printed Products gross profit increased $18.4 million, or 32.0%, in the first
quarter of 2006 compared to the first quarter of 2005 and increased as a
percentage of sales from 40.8% in the first quarter of 2005 to 43.8% in the
first quarter of 2006. The portions of the acquired Liberty operations aligned
under Printed Products accounted for 82.4% of the gross profit increase in the
first quarter of 2006. Additionally, Printed Products gross profit was favorably
impacted by sales increases in legacy imprint check printing operations (which
exclude Liberty operations), computer checks and related products and direct
marketing activities. Lower volume in legacy imprint check printing operations
(which exclude Liberty operations) partially offset these favorable factors.
Software & Services gross profit increased $10.5 million, or 33.4%, in the first
quarter of 2006 compared to the first quarter of 2005. The gross profit increase
was due to businesses acquired in 2005, sales mix and lower costs in its other
businesses. As a percentage of sales, Software & Services gross profit decreased
to 58.9% in the first quarter of 2006 from 66.1% in the first quarter of 2005
due primarily to the lower margin nature of the acquired operations. Excluding
the impact of acquisitions, Software & Services gross profit increased
approximately 7.1% in the first quarter of 2006 compared to the first quarter of
2005 due primarily to organic sales growth.
Scantron gross profit increased $0.9 million, or 5.4%, in the first quarter of
2006 compared to the first quarter of 2005. The gross profit increase was due
primarily to the increase in sales. As a percentage of sales, Scantron gross
profit remained constant at 55.6% for the first quarters of 2006 and 2005.
Selling, General & Administrative Expenses (SG&A)
Consolidated SG&A and SG&A by segment for the three month periods ended March
31, 2006 and April 1, 2005 were as follows (in thousands):
Three Month Periods Ended
March 31, 2006 April 1, 2005
- ----------------------------------------------------------------------
% of % of
Amount Sales(a) Amount Sales(a)
- ----------------------------------------------------------------------
Printed Products $ 41,591 24.1% $ 33,014 23.5%
Software & Services 34,269 48.0% 26,367 55.4%
Scantron 8,459 28.5% 9,126 32.3%
Corporate 8,218 5,933
- ----------------------------------------------------------------------
Total $ 92,537 33.8% $ 74,440 34.5%
======================================================================
<FN>
(a) Percentage of sales for each segment is calculated using sales for that
segment.
</FN>
-24-
Printed Products SG&A increased $8.6 million, or 26.0%, in the first quarter of
2006 compared to the first quarter of 2005. The increase was primarily due to
the portions of the acquired Liberty operations aligned under Printed Products
which accounted for approximately 90% of the increase and the impact of
implementing SFAS 123(R), the new accounting pronouncement for stock-based
compensation.
Software and Services SG&A increased $7.9 million, or 30.0%, in the first
quarter of 2006 compared to the first quarter of 2005. The increase was due
primarily to expenses related to operations acquired in 2005, increased expenses
in the Core Systems business unit and the impact of implementing SFAS 123(R).
Scantron SG&A decreased $0.7 million, or 7.3%, in the first quarter of 2006
compared to the first quarter of 2005. The decrease was primarily due to cost
reductions implemented in late 2005 and slightly lower product development costs
in the first quarter of 2006 compared to the first quarter of 2005 partially
offset by the impact of implementing SFAS 123(R).
Corporate SG&A increased $2.3 million, or 38.5%, in the first quarter of 2006
compared to the first quarter of 2005. The increase was primarily due to
increases in stock compensation costs and increases in cash incentive
compensation costs due to the Company's favorable financial performance in 2006
and to compensation costs recognized due to an increase in the fair value of
assets of a nonqualified deferred compensation plan. Stock compensation costs
increased primarily due to the adoption of SFAS 123(R).
Amortization of Intangibles
Amortization of intangible assets increased $3.1 million to $4.1 million in the
first quarter of 2006 from $1.0 million in the first quarter of 2005. The
increase was primarily due to the impact of operations acquired in 2005.
Consolidated Income from Operations
Consolidated income from operations increased $8.6 million, or 29.5%, to $37.6
million in the first quarter of 2006 from $29.1 million in the first quarter of
2005, primarily due to higher gross profit which was partially offset by higher
SG&A and amortization of intangibles in 2006 compared to 2005.
Other Income (Expense)
Other Income (Expense) increased $2.1 million to an expense of $3.3 million in
the first quarter of 2006 from an expense of $1.2 million in the first quarter
of 2005. The increase was due primarily to an increase in interest expense
partially offset by an increase in the fair value of assets of a nonqualified
deferred compensation plan. The increase in interest expense resulted from
higher amounts of debt outstanding and higher average interest rates in the
first quarter of 2006 compared to the first quarter of 2005.
Consolidated Income before Income Taxes and Cumulative Effect of Change in
Accounting Principle
Consolidated income before income taxes increased $6.5 million, or 23.3%, to
$34.4 million in the first quarter of 2006 from $27.9 million in the first
quarter of 2005 due to increased income from operations partially offset by
increased interest expense.
Income Taxes
The Company's consolidated effective income tax rates were 38.9% and 38.0% for
the first quarter of 2006 and the first quarter of 2005, respectively. The
effective income tax rate for the first quarter of 2006 reflected the
elimination of the IRC Section 936 U.S credit for Puerto Rico that expired
December 31, 2005 and an increase in the effective state income tax rate for the
consolidated group.
-25-
Cumulative Effect of Change in Accounting Principle
Upon the adoption of SFAS 123(R) the Company recognized a benefit of $0.6
million ($0.3 million after tax) as a cumulative effect of a change in
accounting principle resulting from the requirement to estimate forfeitures of
the Company's restricted stock grants at the date of grant instead of
recognizing them as incurred. The estimated forfeiture rate was applied to the
previously recorded compensation expense of the Company's unvested restricted
stock in determining the cumulative effect of a change in accounting principle.
Net Income and Earnings Per Share
Net income in the first quarter of 2006 was $21.3 million compared to $17.3
million in the first quarter of 2005. Basic and diluted earnings per share were
$0.80 and $0.78, respectively, for the first quarter of 2006 compared to basic
and diluted earnings per share of $0.64 and $0.62, respectively, for the first
quarter of 2005. The cumulative effect of a change in accounting principle, net
of tax, increased both basic and diluted earnings per share by $0.01 in the
first quarter of 2006.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Sources and Uses of Cash
- ------------------------------------------------------------------------
Three Month Periods Ended
(In thousands) March 31, 2006 April 1, 2005
- ------------------------------------------------------------------------
Net cash provided by
operating activities $ 14,792 $ 15,074
Net cash used for
investing activities (13,011) (5,413)
Net cash used for
financing activities (3,056) (6,923)
========================================================================
Cash flow provided from operations decreased $0.3 million, or 1.9%, in the first
quarter of 2006 compared to the first quarter of 2005. The decrease was
primarily due to a decrease in working capital, an increase in net deferred
income tax assets, the impact of adopting SFAS 123(R) (see note 2 to the
Condensed Consolidated Statements) whereby tax benefits from stock compensation
which were previously included in cash flows from operations are now included in
cash flows from financing and an increase in upfront contract payments. The
decrease was partially offset by cash provided by net income adjusted for
depreciation, amortization and the cumulative effect of change in accounting
principle (net of taxes) which accounted for an increase of $8.0 million in cash
provided by operations in the first quarter of 2006 compared to the first
quarter of 2005. An increase in stock-based compensation also had a favorable
impact on cash flow provided by operations in the first quarter of 2006 compared
with the first quarter of 2005. The principal uses of cash in the first quarter
of 2006 were for upfront payment contracts ($17.5 million), repurchases of stock
($16.9 million), a business acquisition ($7.0 million), capital expenditures
($6.0 million) and dividend payments to shareholders ($4.1 million). Cash from
the Company's credit facility provided a net inflow of $13.5 million in the
first quarter of 2006. During the first quarter of 2006, cash flow provided by
the issuance of treasury stock totaled $4.0 million as a result of the exercise
of stock options ($2.3 million) and the employee stock purchase plan ($1.7
million).
Purchases of property, plant and equipment totaled $6.0 million in the first
quarter of 2006, an increase of $0.8 million, compared to $5.2 million in the
first quarter of 2005 and were primarily in Printed Products for customer care
infrastructure initiatives, system development and equipment costs related to
acquisition integration activities.
-26-
In December 2005, the Board of Directors authorized the purchase of 3,000,000
shares of its outstanding common stock. Shares purchased under this program may
be held in treasury, used for acquisitions, used to fund the Company's stock
benefit and compensation plans or for other corporate purposes. During the first
quarter of 2006, the Company purchased 507,100 shares of its common stock for a
total cost of $18.7 million or an average cost of $36.95 per share. As of March
31, 2006, 2,492,900 shares remained under the current authorization.
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 and will decrease by $5.0
million per annum. As a result, the Credit Facility will decrease to $400.0
million at the 2009 maturity date. 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 0.20% 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 March 31, 2006, the total size of the Credit Facility was $413.7 million
consisting of $268.1 million in outstanding cash borrowings, $5.2 million in
outstanding letters of credit and $140.4 million available for borrowing. The
average interest rate in effect on outstanding cash borrowings at March 31, 2006
was 5.79%.
At March 31, 2006, the Company had $9.0 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 acquisitions, 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
The Company has contracts with certain customers that contain provisions that
call for future payments to the customers. These payments are amortized as a
reduction of sales over the life of the related contract and are generally
refundable from the customer on a pro-rata basis if the contract is terminated.
As of March 31, 2006, the remaining payment obligations under the existing
customer contracts are scheduled to be paid as follows: $5.2 million for the
nine months ending December 31, 2006; $49.6 million for the two year period
ending December 31, 2008 and $14.8 million for the year ending December 31,
2009.
Borrowings under the Company's line of credit increased $13.5 million since
December 31, 2005 from $254.6 million to $268.1 million primarily due to the
repurchases of its common stock and the acquisition of Financialware, Inc. Other
contractual obligations and commitments have not increased materially since
December 31, 2005. See the 2005 Form 10-K with respect to the Company's other
contractual obligations and commitments.
-27-
ACQUISITIONS
All acquisitions in 2006 and 2005 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 operations of the acquired businesses have been included in the
Company's operations since the respective closing dates (see Note 3 to the
Condensed Consolidated Financial Statements).
OUTLOOK
Net income for 2006 is expected to be higher than 2005 with all three segments
expected to show growth in sales and income before income taxes. The impact of
implementing FASB Statement No. 123R, "Share-Based Payment" effective January 1,
2006, combined with expected higher interest expense and a higher effective
income tax rate, are expected to partially offset the favorable impact of growth
in sales and income before income taxes for the three operating segments.
The Company believes cash flow will remain strong in all business units in 2006.
The Company currently estimates that capital expenditures will range from $26
million to $29 million. The Company believes upfront contract payments in 2006
will be slightly lower than 2005 based on commitments in place at the beginning
of the year. The Company currently expects depreciation and amortization in 2006
will approximate 2005 and that interest expense will be approximately $14
million. The Company also expects weighted average diluted shares outstanding
will be approximately 27.5 million and the effective income tax rate will be
approximately 39%.
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 in Item 1A of the 2005 Form 10-K and are
incorporated into this Item 2 of this report as if fully stated herein, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
All financial instruments are held for purposes other than trading with the
exception of $7.9 million of assets held in a trust related to a nonqualified
deferred compensation plan. The Company is exposed primarily to market risks
related to interest rates and equity prices.
-28-
Interest Rate Risk
The Company is exposed to interest rate risk on its variable rate debt. 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. These
derivative financial instruments are viewed as risk management tools and, when
used, are entered into for hedging purposes only. The Company does not use
derivative financial instruments for trading or speculative purposes. As of
March 31, 2006, there were no interest rate swap agreements in effect. At March
31, 2006, the Company had outstanding variable rate debt of $268.1 million. The
impact on quarterly results of operations of a hypothetical one-point interest
rate change on the outstanding debt as of March 31, 2006 would be approximately
$410,000.
Equity Price Risk
The fair value of the Company's trading securities investments, which is related
to a nonqualified deferred compensation plan for eligible employees, is included
in investments with an offsetting obligation included in other noncurrent
liabilities. Realized and unrealized holding gains and losses related to those
investments are recorded in other income with an offsetting adjustment to
compensation expense which is included in selling, general and administrative
expenses.
The fair value of the Company's available-for-sale investments is primarily
affected by fluctuations in the market price for the common stock of Mitek
Systems, Inc. The change in market value has been accounted for as a component
of other comprehensive income. The following presents the Company's investment
in Mitek reflecting the high and low closing market prices during the period
subsequent to the date of the investment (February 22, 2005) to March 31, 2006:
Carrying
(In thousands) Value (a) High (b) Low (b)
- ------------------------------------------------------------------------
Investment in Mitek $3,581 $3,921 $1,179
<FN>
(a) Based on market value as of March 31, 2006
(b) Based on quoted market prices
</FN>
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including the
principal executive officer and principal financial officer, the Company
conducted an evaluation of its disclosure controls and procedures, as such term
is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on
this evaluation, such officers concluded that the Company's disclosure controls
and procedures were effective as of March 31, 2006.
Changes in Internal Control over Financial Reporting
On January 31, 2006, HFS acquired Financialware, Inc. ("Financialware") for
approximately $7.0 million in a cash for equity transaction. For more details on
this acquisition, see Note 3 to the Condensed Consolidated Financial Statements.
The Company has not evaluated any changes in internal control over financial
reporting associated with this acquisition, and, therefore, any material changes
that might result are not included in this report. The Company will disclose any
material changes resulting from this acquisition within the annual assessment
reports of internal control over financial reporting that are required to
include them. The total assets of the acquisition constitute approximately 1.0%
of consolidated assets as of March 31, 2006.
-29-
Subject to the foregoing, there have been no 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.
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 1A. RISK FACTORS
In the Company's 2005 Form 10-K, the risk factors relating to the Company's
business and operations were set forth. Reference should be made to the 2005
Form 10-K for the risks that could materially adversely affect the result of
operations and financial condition of the Company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the first quarter ended March 31, 2006, the Company made the following
purchases of common stock:
Total
Number of Maximum
Shares Number of
Total Average Purchased Shares
Number Price as Part of Remaining
of Paid Publicly Under
Shares Per Announced Authorized
Period Purchased Share Program(1) Program
- ------------------------------------------------------------------------
January 1 - January 31 - $ - - 3,000,000
February 1 - February 28 163,000 36.40 163,000 2,837,000
March 1 - March 31 344,100 37.21 344,100 2,492,900
- ------------------------------------------------------------------------
Total 507,100 $36.95 507,100 2,492,900
========================================================================
<FN>
(1) In December 2005, the Board of Directors authorized the purchase of
3,000,000 shares of its outstanding common stock. Shares purchased under this
program may be held in treasury, used for acquisitions, used to fund the
Company's stock benefit and compensation plans or for other corporate purposes.
During the first quarter of 2006, the Company purchased 507,100 shares of its
common stock for a total cost of $18.7 million or an average cost of $36.95 per
share. As of March 31, 2006, 2,492,900 shares remained under the current
authorization.
</FN>
-30-
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.
- ------------------------
(1)Data required by SFAS No. 128, "Earnings Per Share," is provided in Note 11
to the Condensed Consolidated Financial Statements included in this report.
-31-
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: May 9, 2006 By: /s/ J. Michael Riley
-----------------------------
J. Michael Riley
Vice President and Controller
(Duly Authorized Officer and
Chief Accounting Officer)
-32-
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.
-33-