Business News

Harland Clarke Holdings Corp. Reports First Quarter 2008 Results

Monday 12. May 2008 - 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.