ATLANTA, Feb. 7, 2007 (PRIME NEWSWIRE) -- John H. Harland Company (NYSE:JH) today reported results for the fourth quarter and full year of 2006. On December 20, 2006, Harland announced that it had signed a definitive merger agreement with M&F Worldwide Corp. by which M&F Worldwide would acquire John H. Harland Company for $52.75 per share in cash. The merger is expected to close in the second half of 2007, subject to the satisfaction of customary closing conditions, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and approval by Harland shareholders.
Consolidated sales for the quarter were $263.8 million, a 0.6% decrease from 2005 fourth-quarter sales of $265.3 million. Consolidated net income for the fourth quarter decreased 34.7% year-over-year to $13.6 million, compared to $20.9 million for the fourth quarter of 2005. Diluted earnings per share for the quarter were $0.52, a 30.7% decrease from 2005 fourth-quarter diluted earnings per share of $0.75.
The decrease in fourth-quarter net income and diluted earnings per share was more than explained by pre-tax costs of $12.6 million, or $0.34 per diluted share, associated with the company's pending merger with M&F Worldwide; a pre-tax impairment charge of $3.5 million, or $0.14 per diluted share, resulting from the company's decision to dispose of its Printed Products operations in Mexico, which are now reported as discontinued operations; and pre-tax compensation costs of $1.8 million, or $0.04 per diluted share, related to the implementation of FASB 123R. These costs were partially offset by tax credits of $0.09 per diluted share recognized during the quarter.
"The fourth quarter marked a milestone for Harland," said Timothy C. Tuff, chairman and chief executive officer of Harland. "The proposed merger with M&F Worldwide will combine both companies' complementary products and services to create a more effective and efficient strategic partner for financial institutions."
For the 12 months ended December 31, 2006, consolidated sales increased 7.5% year-over-year to $1.05 billion, compared to $976.6 million a year earlier. Consolidated net income for the year decreased 9.8% year-over-year to $68.1 million, compared to 2005 net income of $75.5 million. Diluted earnings per share for the year decreased 5.2% to $2.55 compared to 2005 diluted earnings per share of $2.69.
The decrease in full-year net income and diluted earnings per share was more than explained by pre-tax costs of $12.6 million, or $0.33 per diluted share, associated with the company's pending merger with M&F Worldwide; a pre-tax impairment charge of $3.5 million, or $0.13 per diluted share, associated with the company's decision to dispose of its Printed Products operations in Mexico; and pre-tax compensation costs of $6.4 million, or $0.15 per diluted share, related to the implementation of FASB 123R. These costs were partially offset by tax credits of $0.08 per diluted share. The full year per diluted share equivalents for transaction-related expenses, the impairment charge and tax credits were slightly lower than the fourth quarter per diluted share equivalents due to lower weighted average diluted shares for the fourth quarter than for the full year.
Segment Reporting
Harland reports results for three segments: Printed Products, Software and Services and Scantron.
Sales for the quarter from Harland's Printed Products segment decreased 3.9% year-over-year to $158.3 million, compared to $164.7 million a year earlier. Segment income from Printed Products increased 23.7% in the quarter year-over-year to $30.0 million, compared to $24.3 million in 2005.
"Margins improved year-over-year, driven by improved operating performance in all businesses," said Tuff. "While overall segment sales decreased in the quarter, sales in our Business Solutions and Integrated Client Solutions businesses increased significantly."
Software and Services sales in the quarter increased 4.4% year-over-year to $85.4 million, compared to $81.8 million in 2005. Segment income from Software and Services decreased 6.6% in the quarter year-over-year to $15.3 million, compared to $16.3 million in 2005.
"Our Lending and Retail businesses and the Financialware acquisition accounted for the increased segment sales in the quarter, partially offset by weaker sales in our Mortgage, Bank Core and Technology Services businesses," said Tuff. "The sales decreases in our Mortgage and Bank Core businesses negatively impacted margins. Backlog increased significantly in the quarter."
Scantron's sales for the quarter increased 8.5% to $20.4 million, compared to $18.8 million in 2005. Segment income from Scantron decreased 8.0% in the quarter year-over-year to $5.1 million, compared to $5.6 million in 2005.
"Testing and Assessment software sales continued to do well in the quarter," said Tuff. "But margins for Scantron were weaker, which was more than accounted for by higher legal and severance expenses."
Harland's board of directors declared a quarterly dividend of $0.175 per share, payable February 23, 2007 to shareholders of record as of February 14, 2007.
Due to the pending transaction, Harland will not be issuing earnings guidance for 2007.
Harland will hold a conference call February 8, 2007 at 10:00 a.m. EST to discuss the results of the fourth quarter and full year. Interested parties may listen in by accessing a live webcast in the investor relations section of Harland's Web site at www.harland.net. The live conference call can also be accessed by calling 1-719-457-2629 and using the access code #8582014.
A replay of the conference call will be available in the investor relations section of Harland's Web site (www.harland.net) beginning approximately two hours after the call. The rebroadcast will also be available until February 16, 2007 via telephone by calling 1-719-457-0820 and using the access code #8582014.
About Harland
Harland is a leading provider of printed products and software and related services sold to the financial institution market, including banks, credit unions, thrifts, brokerage houses and financial software companies. Harland's printed products operations are conducted through Harland Printed Products which includes checks operations, direct marketing and analytical services businesses and Harland's computer checks and forms businesses. Its software operations are conducted through Harland Financial Solutions which includes core processing, retail and lending solutions as well as maintenance services to financial and other institutions. Harland's Scantron division is a leading provider of data collection and testing and assessment products sold primarily to the educational, financial institution and commercial markets.
About M & F Worldwide Corp.
M & F Worldwide has two business lines, which are operated by Mafco Worldwide and Clarke American Corp. Mafco Worldwide's business is the production of licorice products for sale to the tobacco, food, pharmaceutical and confectionery industries (which is the Company's Licorice Products segment). Clarke American's business provides direct marketing services, customer contact solutions, and checks and check-related products and services. Clarke American's Checks in the Mail division supplies checks and other financial documents directly to over 3.5 million consumers, and Clarke American's B2Direct division offers customized business kits and treasury management services to businesses.
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.
The forward-looking statements in this press release include statements regarding the Company's expectations with respect to the pending merger pursuant to which M&F Worldwide would acquire Harland. Such statements relate to the Company's expectations regarding, among other things, the timing of certain events related to the merger, including closing of the transaction. The timing of such events and the closing of the merger are subject to factors beyond the Company's control.
The Company is subject to federal regulations implementing the information security requirements of the Gramm-Leach-Bliley Act and other federal regulations and state laws regarding the privacy and confidentiality of consumer information. These laws and regulations require the Company to develop, implement and maintain a comprehensive information security program designed to protect the security and confidentiality of consumers' nonpublic personal information and to define requirements for notification in the event of improper disclosure. The Company cannot be certain that advances in criminal capabilities, new discoveries in the field of cryptography or other developments will not compromise or breach the technology protecting the networks that utilize consumers' nonpublic personal information.
Many variables will impact the ability to achieve sales levels, improve service quality, achieve production efficiencies and reduce expenses in Printed Products. These include, but are not limited to, the successful implementation of new accounts, 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 customer rebates, and the impact of governmental laws and regulations. There can be no assurances that the Company will not lose customers or that any such loss could be offset by the addition of new customers.
While the Company believes 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 solutions, and testing and assessment methods, which could negatively impact forms, scanner sales and related service revenue. The Company continues to develop products and services that it believes offer state-of-the-art electronic data collection, testing and assessment solutions. However, variables exist in the development of new testing methods and technologies, including the timing and costs of the development effort, product performance, functionality, market acceptance, adoption rates, competition, and the funding of education at the federal, state and local level, all of which could have an impact on the Company's business.
Management believes these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations and speak only as of the date of the statements. Other important risk factors are discussed in detail in Section 1A of the company's Form 10-K filed with the Securities and Exchange Commission on March 16, 2006. The risk factors discussed in the company's Form 10-K are incorporated by reference in this press release.
Additional Information and Where to Find It
In connection with the previously announced proposed merger with M&F Worldwide Corp. and required shareholder approval, Harland has filed a preliminary proxy statement with the Securities and Exchange Commission and will file with the Securities and Exchange Commission a definitive proxy statement. INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ THE PROXY STATEMENT, AND ANY OTHER RELEVANT MATERIALS FILED BY HARLAND, BECAUSE THEY CONTAIN, OR WILL CONTAIN, IMPORTANT INFORMATION ABOUT HARLAND AND THE MERGER. Investors and security holders may obtain free copies of these documents and other documents filed with the Securities and Exchange Commission, at its website at www.sec.gov. In addition, the documents filed by Harland with the Securities and Exchange Commission may be obtained free of charge by contacting Harland at: John H. Harland Company, Attn: Henry R. Bond, Vice President, Investor Relations, Box 105250, Atlanta, Georgia 30348; Telephone: 770-593-5697. Harland's filings with the Securities and Exchange Commission are also available on Harland's website at www.harland.net.
Participants in the Solicitation
Harland and its officers and directors may be deemed to be participants in the solicitation of proxies from Harland's shareholders with respect to the merger. Information about Harland's executive officers and directors and their ownership of Harland's shares is set forth in the proxy statement for Harland's 2006 annual meeting of shareholders, which was filed with the Securities and Exchange Commission on March 27, 2006. Investors and security holders may obtain more detailed information regarding the direct and indirect interests of Harland and its respective executive officers and directors in the merger by reading the preliminary proxy statement, as well as the definitive proxy statements regarding the merger that Harland will file with the Securities and Exchange Commission.
John H. Harland Company
Financial Highlights (Unaudited)
4th Quarter 2006
(in 000's)
Three Months ended
December 31, December 31, %
2006 2005
Sales $ 263,824 $ 265,322 -0.6%
Cost of sales 126,326 131,238 -3.7%
Pct of Sales 47.9% 49.5%
--------- ---------
Gross profit 137,498 134,084 2.5%
Pct of Sales 52.1% 50.5%
Selling, general and
administrative expenses 105,844 92,828 14.0%
Pct of Sales 40.1% 35.0%
Amortization of intangibles 3,913 4,057 -3.5%
Pct of Sales 1.5% 1.5%
--------- ---------
Operating Income 27,741 37,199 -25.4%
Pct of Sales 10.5% 14.0%
Other Income (Expense):
Interest expense (3,819) (3,431) 11.3%
Pct of Sales -1.4% -1.3%
Other - net 492 140 251.4%
Pct of Sales 0.2% 0.1%
--------- ---------
Income from Continuing
Operations and before
Income Taxes 24,414 33,908 -28.0%
Pct of Sales 9.3% 12.8%
Income taxes 6,830 12,582 -45.7%
Pct of Sales 2.6% 4.7%
--------- ---------
Income from Continuing
Operations 17,584 21,326 -17.5%
Pct of Sales 6.7% 8.0%
Loss from Discontinued
Operations, Net of Tax (3,966) (463) 756.6%
--------- ---------
Net Income $ 13,618 $ 20,863 -34.7%
========= =========
Pct of Sales 5.2% 7.9%
Effective Tax Rate for
Continuing Operations 28.0% 37.1%
John H. Harland Company
Financial Highlights (Unaudited)
4th Quarter 2006
(in 000's)
Three Months ended
December 31, December 31,
2006 2005 %
----- ------
Earnings per Share - Basic
Income from
Continuing
Operations $ 0.69 $ 0.79 -12.7%
Discontinued
Operations $ (0.16) $ (0.02) -700.0%
Net Income $ 0.54 $ 0.77 -29.9%
Earnings per Share -
Diluted
Income from
Continuing
Operations $ 0.67 $ 0.76 -11.8%
Discontinued
Operations $ (0.15) $ (0.02) -650.0%
Net Income $ 0.52 $ 0.75 -30.7%
Weighted Average
Shares (000)
Basic 25,329 27,110 -6.6%
Diluted 26,079 27,979 -6.8%
Shares O/S at end of
period (000) 25,772 27,200 -5.3%
Return on Equity 17.7% 25.5% -7.8 pct pts
Depreciation and
Amortization (000) $ 21,029 $ 23,105 -9.0%
Capital Expenditures
(000) $ 6,896 $ 7,389 -6.7%
Number of Employees
(includes temporary
employees) 5,360 5,686 -5.7%
Segment Information
Printed Products
Sales $ 158,303 $ 164,722 -3.9%
Depreciation &
Amortization $ 15,626 $ 17,470 -10.6%
Segment Income $ 30,003 $ 24,253 23.7%
Software and Services
Sales $ 85,392 $ 81,820 4.4%
Depreciation &
Amortization $ 4,395 $ 4,568 -3.8%
Segment Income $ 15,265 $ 16,336 -6.6%
Scantron
Sales $ 20,399 $ 18,808 8.5%
Depreciation &
Amortization $ 824 $ 733 12.4%
Segment Income $ 5,110 $ 5,557 -8.0%
Corporate
Sales $ (270) $ (28) 864.3%
Depreciation &
Amortization $ 122 $ 127 -3.9%
Segment Income (Loss) $ (25,964) $ (12,238) 112.2%
Segment income (loss) is defined as income before income taxes
John H. Harland Company
Financial Highlights (Unaudited)
4th Quarter 2006
(in 000's)
Twelve Months ended
December 31, December 31, %
2006 2005
------ ------
Sales $1,050,179 $ 976,630 7.5%
Cost of sales 520,788 491,264 6.0%
Pct of Sales 49.6% 50.3%
--------- ---------
Gross profit 529,391 485,366 9.1%
Pct of Sales 50.4% 49.7%
Selling, general and administrative
expenses 383,686 342,446 12.0%
Pct of Sales 36.5% 35.1%
Amortization of intangibles 15,974 11,590 37.8%
Pct of Sales 1.5% 1.2%
--------- ---------
Operating Income 129,731 131,330 -1.2%
Pct of Sales 12.4% 13.4%
Other Income (Expense):
Interest expense (16,050) (9,994) 60.6%
Pct of Sales -1.5% -1.0%
Other - net 936 1,117 -16.2%
Pct of Sales 0.1% 0.1%
--------- ---------
Income from Continuing Operations
and before Income Taxes And
Cumulative Effect of Change in
Accounting Principle 114,617 122,453 -6.4%
Pct of Sales 10.9% 12.5%
Income taxes 41,688 46,201 -9.8%
Pct of Sales 4.0% 4.7%
--------- ---------
Income from Continuing Operations
and Before Cumulative Effect of
Change in Accounting Principle 72,929 76,252 -4.4%
Pct of Sales 6.9% 7.8%
Cumulative Effect of Change in
Accounting Principle, Net of Tax 345 0
Loss from Discontinued Operations,
Net of Tax (5,176) (774) 568.7%
--------- ---------
Net Income $ 68,098 $ 75,478 -9.8%
========= =========
Pct of Sales 6.5% 7.7%
Effective Tax Rate for Continuing
Operations 36.4% 37.7%
John H. Harland Company
Financial Highlights (Unaudited)
4th Quarter 2006
(in 000's)
Twelve Months ended
December 31, December 31, %
2006 2005
---- ----
Earnings per Share-Basic
Income from Continuing
Operations and Before
Accounting Change and
Discontinued
Operations $ 2.81 $ 2.80 0.4%
Accounting Change $ 0.01 $ --
Discontinued
Operations $ (0.20) $ (0.03) -604.0%
Net Income $ 2.62 $ 2.77 -5.4%
Earnings per Share -
Diluted
Income from Continuing
Operations and Before
Accounting Change and
Discontinued
Operations $ 2.73 $ 2.71 0.6%
Accounting Change 0.01 --
Discontinued
Operations $ (0.19) $ (0.03) -589.5%
Net Income $ 2.55 $ 2.69 -5.2%
Weighted Average Shares
(000)
Basic 25,955 27,244 -4.7%
Diluted 26,703 28,090 -4.9%
Shares O/S at end of
period (000) 25,772 27,200 -5.3%
Return on Equity 21.6% 25.4% -3.8 pct pts
Depreciation and
Amortization (000) $ 88,074 $ 87,196 1.0%
Capital Expenditures
(000) $ 23,451 $ 23,917 -1.9%
Number of Employees
(includes temporary
employees) 5,360 5,686 -5.7%
Segment Information
Printed Products
Sales $ 648,397 $ 615,565 5.3%
Depreciation &
Amortization $ 65,676 $ 66,797 -1.7%
Segment Income $ 112,393 $ 98,545 14.1%
Software and Services
Sales $ 324,583 $ 286,946 13.1%
Depreciation &
Amortization $ 17,916 $ 16,404 9.2%
Segment Income $ 43,792 $ 42,242 3.7%
Scantron
Sales $ 77,885 $ 74,483 4.6%
Depreciation &
Amortization $ 3,271 $ 2,926 11.8%
Segment Income $ 21,905 $ 20,264 8.1%
Corporate
Sales $ (686) $ (364) 88.5%
Depreciation &
Amortization $ 834 $ 542 53.9%
Segment Income (Loss) $ (63,473) $ (38,598) 64.4%
Segment income (loss) is defined as income before income taxes.
John H. Harland Company
Financial Highlights - 4th Quarter 2006
Condensed Statements of Cash Flows (Unaudited)
(in 000's)
Twelve Months ended
December 31, December 31,
2006 2005
---------------------------------------------------------------------
Operating Activities:
Net Income $ 68,098 $ 75,478
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 88,074 87,196
Contract payments (22,204) (25,231)
All other 19,224 16,314
--------- ---------
Net cash provided by operating activities 153,192 153,757
--------- ---------
Investing Activities:
Purchases of property, plant and equipment (23,451) (23,917)
Payments for acquisition of businesses,
net of cash acquired (10,296) (239,756)
All other 1,176 1,565
--------- ---------
Net cash (used in) investing activities (32,571) (262,108)
--------- ---------
Financing Activities:
Repurchases of stock (75,434) (45,052)
Long-term debt - net (43,963) 153,294
All other (1,064) 1,193
--------- ---------
Net cash provided by (used in) financing
activities (120,461) 109,435
--------- ---------
Increase (decrease) in cash and cash
equivalents 160 1,084
Cash and cash equivalents at beginning of
period 10,298 9,214
--------- ---------
Cash and cash equivalents at end of period $ 10,458 $ 10,298
========= =========