Harland Clarke Holdings Corp. Reports First Quarter 2008 Results Harland Clarke Holdings Corp. to Participate in M & F Worldwide Corp.

Conference Call on May 14, 2008



    DECATUR, Ga., May 9 /PRNewswire-FirstCall/ -- Harland Clarke Holdings
 Corp. ("Harland Clarke Holdings"), formerly known as Clarke American Corp.,
 today reported results for the quarter ended March 31, 2008. In addition to
 the Harland Clarke Holdings Form 10-Q filed with the Securities and
 Exchange Commission today, Harland Clarke Holdings' financial results are
 also consolidated in the quarterly report on Form 10-Q filed today by M & F
 Worldwide Corp. (NYSE:   MFW), which is the indirect parent company of
 Harland Clarke Holdings.
 
     Harland Clarke Holdings' parent, M&F Worldwide Corp., will host a
 conference call to discuss its first quarter 2008 results, including
 results for Harland Clarke Holdings, on May 14, 2008, at 4:30 p.m. (EDT).
 The conference call will be accessible by dialing (888) 423-3275 in the
 U.S. and (612) 332-0725 internationally. For those unable to listen live, a
 replay of the call will be available by dialing (800) 475-6701 in the U.S.
 and (320) 365-3844 internationally; Access Code: 920416. The replay will be
 available from 6:30 p.m. EDT, Wednesday, May 14, 2008, through 11:59 p.m.
 EDT, Wednesday, May 28, 2008.
 
     As previously announced, on May 1, 2007, M & F Worldwide Corp.
 completed the acquisition of John H. Harland Company ("Harland") and
 related financing transactions. Upon the completion of the acquisition,
 Harland became a wholly owned subsidiary of Clarke American Corp., which
 was then renamed Harland Clarke Holdings Corp. As a result of the
 acquisition of Harland, Harland Clarke Holdings now has three business
 segments -- Harland Clarke (which is the combination of Clarke American
 Corp.'s check printing, contact center and direct marketing capabilities
 with Harland's corresponding businesses), Harland Financial Solutions and
 Scantron.
 
     On February 22, 2008, the Company's wholly owned subsidiary, Scantron
 Corporation, purchased all of the limited liability membership interests of
 Data Management I LLC ("Data Management"), from NCS Pearson for $220.4
 million in cash, after giving effect to a preliminary working capital
 adjustment, and subject to further post-closing adjustments (the "Data
 Management Acquisition"). Data Management designs, manufactures and
 services scannable data collection products, including printed forms,
 scanning equipment and related software, and provides survey consulting and
 tracking services, including medical device tracking, as well as field
 maintenance services to corporate and governmental clients. Data
 Management's results of operations have been included in the Company's
 results of operations since February 22, 2008.
 
     Through March 31, 2008, Harland Clarke Holdings has taken actions to
 achieve approximately $84.4 million of its Harland acquisition related
 synergy targets, on an annual basis. As a result of these actions Harland
 Clarke Holdings realized approximately $17.3 million of EBITDA improvement
 in the quarter ended March 31, 2008. Harland Clarke Holdings believes that
 it is on track to achieve cost reduction targets previously disclosed in
 connection with the financing for the Harland acquisition.
 
     First Quarter Performance
 
     Consolidated Results
 
     Consolidated net revenues for the first quarter of 2008 were $444.5
 million, as compared to $164.6 million for the first quarter of 2007.
 Harland Clarke Holdings' revenues increased by $279.9 million in the first
 quarter of 2008 primarily as a result of the Harland and Data Management
 acquisitions, which accounted for $273.9 million of the increase. Net
 income for the first quarter of 2008 was $7.2 million, as compared to $5.1
 million for the first quarter of 2007. The net income for the first quarter
 of 2008 includes pre- tax charges of $1.6 million ($1.0 million after tax)
 due to non-cash fair value purchase accounting adjustments to deferred
 revenue and inventory and $1.4 million ($0.9 million after tax) for
 restructuring costs. The net income for the first quarter of 2007 includes
 pre-tax charges of $1.2 million ($0.7 million after tax) for restructuring
 costs. For the first quarter of 2008, Adjusted EBITDA increased by $69.0
 million to $107.4 million as compared to $38.4 million for the first
 quarter of 2007 primarily as a result of the acquisitions of Harland and
 Data Management, which collectively accounted for $68.1 million of the
 increase. Adjusted EBITDA is a non-GAAP measure that is defined in the
 footnotes to this release and which is reconciled to net income, the most
 directly comparable GAAP measure, in the accompanying financial tables.
 
     Segment Results
 
     Net revenues from the Harland Clarke segment increased by $167.5
 million to $332.1 million for the first quarter of 2008 from $164.6 million
 in the first quarter of 2007, primarily as a result of the Harland
 acquisition which accounted for $161.5 million of the increase. The
 remaining $6.0 million of the increase was primarily due to higher revenues
 per unit, partially offset by a decline in units. Operating income for the
 Harland Clarke segment increased by $29.9 million to $53.3 million for the
 first quarter of 2008 from $23.4 million for the first quarter of 2007,
 primarily as a result of the Harland acquisition which accounted for $27.9
 million of the increase. The remaining $2.0 million was largely related to
 the increase in revenues per unit, cost reductions and a decrease in
 restructuring costs, partially offset by integration costs.
 
     Net revenues and operating income from the Harland Financial Solutions
 segment for the first quarter of 2008 were $71.2 million and $6.4 million,
 respectively. Net revenues and operating income from the Scantron segment
 for the first quarter of 2008 were $41.6 million and $5.7 million,
 respectively. Net revenues for the Scantron segment includes $10.9 million
 for Data Management for the period from February 22, 2008 to March 31,
 2008. Operating income for the Harland Financial Solutions segment includes
 pre-tax charges of $1.0 million ($0.6 million after tax) for non-cash fair
 value purchase accounting adjustments to deferred revenue related to the
 Harland acquisition and $2.5 million ($1.5 million after tax) for
 compensation expense related to an incentive agreement for the Peldec
 assets purchase. Operating income for the Scantron segment includes pre-tax
 charges of $0.3 million ($0.2 million after tax) and $0.3 million ($0.2
 million after tax) for non-cash fair value purchase accounting adjustments
 to deferred revenue and inventory, respectively, related to the Harland and
 Data Management acquisitions.
 
     Harland Acquisition
 
     As previously announced, on May 1, 2007, M & F Worldwide completed its
 acquisition of Harland at a price per share of Harland common stock of
 $52.75, contributing to an approximate transaction value of $1.7 billion.
 Upon the completion of the transaction, Harland became a wholly owned
 subsidiary of the Company. In connection with the Harland acquisition,
 Clarke American's prior senior secured credit facility, Harland's then
 outstanding credit facility and Clarke American Corp.'s prior 11.75% senior
 notes due 2013 were repaid in full. The acquisition and debt repayments
 were funded with new borrowings by Harland Clarke Holdings, consisting of a
 $1.8 billion senior secured term loan and an aggregate $615.0 million
 principal amount of senior notes due 2015, composed of $310.0 million
 principal amount of 9.50% senior fixed rate notes and $305.0 million
 principal amount of senior floating rate notes bearing interest at LIBOR
 plus 4.75%.
 
     Data Management Acquisition
 
     As previously announced, on February 22, 2008, M & F Worldwide
 completed its acquisition of all of the limited liability company
 membership interests of Data Management, pursuant to the terms of the
 Membership Interest Purchase Agreement, dated as of February 13, 2008, by
 and among M & F Worldwide, NCS Pearson, Inc. and Pearson, Inc. Prior to the
 closing, M & F Worldwide assigned the Purchase Agreement to its indirect
 wholly owned subsidiary, Scantron Corporation, which upon closing became
 the direct parent company of Data Management. The net purchase price, paid
 at closing, was $220.4 million in cash, after giving effect to a
 preliminary working capital adjustment and subject to further post-closing
 adjustments. M & F Worldwide financed the Data Management Acquisition and
 related fees and expenses with cash on hand at Harland Clarke Holdings.
 
     About Harland Clarke Holdings
 
     Prior to the acquisition of Harland on May 1, 2007, Clarke American
 Corp. provided checks and related products and direct marketing services
 through two segments: the Financial Institution segment, which was focused
 on financial institution clients and their customers, and the Direct to
 Consumer segment, which was focused on individual customers. As a result of
 the Harland Acquisition, Harland Clarke Holdings now has three business
 segments, which are operated by Harland Clarke, Harland Financial
 Solutions, and Scantron. Subsequent to the closing of the Harland
 Acquisition, Clarke American Corp.'s check printing, contact center and
 direct marketing capabilities have been combined with Harland's
 corresponding business and operate under the name "Harland Clarke." The
 operations of Harland Financial Solutions include core processing, retail
 and lending software solutions. Scantron is a leading provider of data
 collection and testing and assessment products and services sold primarily
 to educational and commercial customers.
 
     Forward Looking Statements
 
     This press release contains forward looking statements that reflect
 management's current assumptions and estimates of future performance and
 economic conditions, which are forward-looking statements within the
 meaning of the Private Securities Litigation Reform Act of 1995. These
 statements are subject to a number of risks and uncertainties, many of
 which are beyond Harland Clarke Holdings' control. All statements other
 than statements of historical facts included in this press release,
 including those regarding Harland Clarke Holdings' strategy, future
 operations, financial position, estimated revenues, projected costs,
 projections, prospects, plans and objectives of management, are
 forward-looking statements. When used in this press release, the words
 "believes," "anticipates," "plans," "expects," "intends," "estimates" or
 similar expressions are intended to identify forward-looking statements,
 although not all forward-looking statements contain such identifying words.
 All forward-looking statements speak only as of the date of this press
 release. Although Harland Clarke Holdings believes that its plans,
 intentions and expectations reflected in or suggested by the
 forward-looking statements made in this press release are reasonable, such
 plans, intentions or expectations may not be achieved. In addition to
 factors described in Harland Clarke Holdings' Securities and Exchange
 Commission filings and others, the following factors may cause Harland
 Clarke Holdings' actual results, performance or achievements to be
 materially different from any future results, performance or achievements
 expressed or implied by the forward-looking statements contained in this
 press release include: 1) Harland Clarke Holdings' substantial
 indebtedness; 2) covenant restrictions under Harland Clarke Holdings'
 indebtedness that may limit its ability to operate its business and react
 to market changes; 3) the maturity of the principal industry in which the
 Harland Clarke segment operates and trends in the paper check industry,
 including a faster than anticipated decline in check usage due to
 increasing use of alternative payment methods and other factors; 4)
 consolidation among financial institutions and other adverse changes among
 the large clients on which Harland Clarke Holdings depends, resulting in
 decreased revenues; 5) the ability to retain Harland Clarke Holdings'
 clients; 6) the ability to retain Harland Clarke Holdings' key employees
 and management; 7) lower than expected cash flow from operations; 8)
 significant increases in interest rates; 9) intense competition in all
 areas of Harland Clarke Holdings' business; 10) interruptions or adverse
 changes in Harland Clarke Holdings' supplier relationships, technological
 capacity, intellectual property matters, and applicable laws; 11)
 variations in contemplated brand strategies, business locations, management
 positions and other business decisions in connection with integrating
 Harland and Data Management; 12) Harland Clarke Holdings' ability to
 successfully integrate Harland and Data Management into its business and
 manage future acquisitions; 13) Harland Clarke Holdings' ability to
 implement any or all components of its business strategy or realize all of
 its expected cost savings or synergies from the Harland acquisition or from
 other acquisitions, including the recent acquisition of Data Management by
 Scantron; and 14) the acquisitions of Harland and Data Management otherwise
 not being successful from a financial point of view, including, without
 limitation, due to any difficulties with Harland Clarke Holdings servicing
 its debt obligations.
 
     You should read carefully the factors described in Harland Clarke
 Holdings' Annual Report on Form 10-K for the year ended December 31, 2007
 for a description of risks that could, among other things, cause actual
 results to differ from these forward looking statements.
 
     Non-GAAP Financial Measures
 
     In this release, Harland Clarke Holdings presents certain adjusted
 financial measures that are not calculated according to generally accepted
 accounting principles in the United States ("GAAP"). These non-GAAP
 financial measures are designed to complement the GAAP financial
 information presented in this release because management believes they
 present information regarding Harland Clarke Holdings that management
 believes is useful to investors. The non-GAAP financial measures presented
 should not be considered in isolation from or as a substitute for the
 comparable GAAP financial measure.
 
     EBITDA represents net income before interest income and expense, income
 taxes, depreciation and amortization (other than amortization related to
 contract acquisition payments). Harland Clarke Holdings presents EBITDA
 because it believes it is an important measure of its performance and
 believes it is frequently used by securities analysts, investors and other
 interested parties in the evaluation of companies in Harland Clarke
 Holdings' industries.
 
     Harland Clarke Holdings believes EBITDA provides useful information
 with respect to its ability to meet its future debt service, capital
 expenditures, working capital requirements and overall operating
 performance, although EBITDA should not be considered as a measure of
 liquidity. In addition, Harland Clarke Holdings utilizes EBITDA when
 interpreting operating trends and results of operations of its business.
 
     Harland Clarke Holdings also uses EBITDA for the following purposes:
 Harland Clarke Holdings' senior credit facilities use EBITDA (with
 additional adjustments) to measure compliance with financial covenants such
 as debt incurrence. Harland Clarke Holdings' executive compensation is
 based on EBITDA (with additional adjustments) performance measured against
 targets. EBITDA is also widely used by Harland Clarke Holdings and others
 in its industry to evaluate and value potential acquisition candidates.
 EBITDA has limitations as an analytical tool, and you should not consider
 it in isolation or as a substitute for analysis of our results as reported
 under GAAP. See below for a description of these limitations. Because of
 these limitations, EBITDA should not be considered as a measure of
 discretionary cash available to Harland Clarke Holdings to invest in the
 growth of its business.
 
     In addition, in evaluating EBITDA, you should be aware that in the
 future Harland Clarke Holdings may incur expenses such as those excluded in
 calculating it. Harland Clarke Holdings' presentation of this measure
 should not be construed as an inference that its future results will be
 unaffected by unusual or nonrecurring items.
 
     EBITDA has limitations as an analytical tool, and you should not
 consider it in isolation or as substitutes for analysis of our results as
 reported under GAAP. Some of these limitations are:
 
 
-- it does not reflect Harland Clarke Holdings' cash expenditures and future requirements for capital expenditures or contractual commitments; -- it does not reflect changes in, or cash requirements for, Harland Clarke Holdings' working capital needs; -- it does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on Harland Clarke Holdings' debt; -- although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; -- it is not adjusted for all non-cash income or expense items that are reflected in Harland Clarke Holdings' statements of cash flows; and -- other companies in Harland Clarke Holdings' industries may calculate EBITDA differently from Harland Clarke Holdings, limiting its usefulness as a comparative measure. Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to invest in the growth of Harland Clarke Holdings' business or as a measure of cash that will be available to Harland Clarke Holdings to meet its obligations. You should compensate for these limitations by relying primarily on Harland Clarke Holdings' GAAP results and using EBITDA only supplementally. Harland Clarke Holdings presents Adjusted EBITDA as a supplemental measure of its performance. Harland Clarke Holdings prepares Adjusted EBITDA by adjusting EBITDA to reflect the impact of a number of items it does not consider indicative of Harland Clarke Holdings' ongoing operating performance. Such items include restructuring costs, deferred purchase price compensation related to the Peldec assets purchase and non-recurring purchase accounting adjustments. You are encouraged to evaluate each adjustment and the reasons Harland Clarke Holdings considers them appropriate for supplemental analysis. As an analytical tool, Adjusted EBITDA is subject to all of the limitations applicable to EBITDA. In addition, in evaluating Adjusted EBITDA, you should be aware that in the future, Harland Clarke Holdings may incur expenses, including cash expenses, similar to the adjustments in this presentation. Harland Clarke Holdings' presentation of Adjusted EBITDA should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items.
- tables to follow - Harland Clarke Holdings Corp. and Subsidiaries Consolidated Statements of Income (in millions) (Unaudited) Three Months Ended March 31, -------------------- 2008 2007 -------- -------- Product revenues, net $374.8 $164.5 Service revenues, net 69.7 0.1 -------- -------- Total net revenues 444.5 164.6 Cost of products sold 232.2 101.4 Cost of services provided 36.0 0.1 -------- -------- Total cost of revenues 268.2 101.5 -------- -------- Gross profit 176.3 63.1 Selling, general and administrative expenses 113.7 38.5 Restructuring costs 1.4 1.2 -------- -------- Operating income 61.2 23.4 Interest income 1.4 - Interest expense (50.2) (15.3) Other expense, net (0.3) - -------- -------- Income before income taxes 12.1 8.1 Provision for income taxes 4.9 3.0 -------- -------- Net income $7.2 $5.1 -------- -------- -------- -------- Harland Clarke Holdings Corp. and Subsidiaries Business Segment Information (in millions) (Unaudited) Three Months Ended March 31, -------------------- 2008 2007 -------- -------- Net revenues Harland Clarke segment $332.1 $164.6 Harland Financial Solutions segment (a) 71.2 - Scantron segment (a) 41.6 - Eliminations (0.4) - -------- -------- Total revenue $444.5 $164.6 -------- -------- -------- -------- Operating income Harland Clarke segment $53.3 $23.4 Harland Financial Solutions segment (a) 6.4 - Scantron segment (a) 5.7 - Corporate (4.2) - -------- -------- Total operating income $61.2 $23.4 -------- -------- -------- -------- (a) During the first quarter of 2008, the Company transferred its field maintenance services from the Harland Financial Solutions segment to the Scantron segment. Reconciliation of net income to EBITDA and EBITDA to Adjusted EBITDA (in millions) (unaudited): Three Months Ended March 31, -------------------- 2008 2007 -------- -------- Net income $7.2 $5.1 Interest expense, net 48.8 15.3 Provision for income taxes 4.9 3.0 Depreciation and amortization 41.0 13.8 -------- -------- EBITDA 101.9 37.2 Adjustments: Restructuring (a) 1.4 1.2 Peldec deferred purchase price compensation (b) 2.5 - Impact of purchase accounting adjustments (c) 1.6 - -------- -------- Adjusted EBITDA $107.4 $38.4 -------- -------- -------- -------- (a) Reflects restructuring expenses, including adjustments, recorded in accordance with GAAP, consisting primarily of severance, post-closure facility expenses and other related expenses, which were not recorded in purchase accounting. The expenses recorded in the three months ended March 31, 2008 primarily relate to closures of facilities and other restructuring activities in connection with the Harland and Data Management acquisitions. The expenses recorded in the three months ended March 31, 2007 include expenses from restructuring activities that were not related to the Harland or Data Management acquisitions. (b) Reflects charges accrued under a deferred purchase price agreement required to be recorded as compensation expense in selling, general and administrative expense resulting from the 2007 purchase of the Peldec assets. (c) Reflects the negative effect on net income primarily from the non-cash fair value inventory and deferred revenue adjustments related to purchase accounting.

SOURCE Harland Clarke Holdings Corp.

Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

 

PR Newswire Membership

Fill out a PR Newswire membership form or contact us at (888) 776-0942.

Learn about PR Newswire services

Request more information about PR Newswire products and services or call us at (888) 776-0942.