Business News

M & F Worldwide Corp. Reports Second Quarter and First Half 2008 Results

Friday 08. August 2008 - M & F Worldwide Corp. (NYSE:MFW), today reported results for the second quarter and six months ended June 30, 2008. As previously announced, on May 1, 2007, M & F Worldwide (the "Company") completed the acquisition of John H. Harland Company ("Harland") and related financing transactions. As a result of the acquisition of Harland (the "Harland Acquisition"), M & F Worldwide now has four business segments, which are operated by Harland Clarke (which is the combination of Clarke American's check printing, contact center and direct marketing capabilities with Harland's corresponding businesses), Harland Financial Solutions, Scantron and Mafco Worldwide.

M & F Worldwide will host a conference call to discuss its second quarter and six months ended June 30, 2008 results on August 13, 2008, at 9:00 a.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: 954347. The replay will be available from 11:00 a.m. (EDT), Wednesday, August 13, 2008, through 11:59 p.m. (EDT), Wednesday, August 27, 2008.

As previously announced, 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 $218.7 million in cash, after giving effect to working capital adjustments of $1.6 million which were paid to Harland Clarke Holdings in July 2008 (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 June 30, 2008 Harland Clarke Holdings has taken actions to achieve approximately $102.3 million of its Harland Acquisition related synergy targets, on an annual basis. As a result of these actions, Harland Clarke Holdings has realized approximately $19.6 million and $36.9 million of EBITDA improvement in the second quarter and six months ended June 30, 2008, respectively. 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.

Second Quarter 2008 Performance

Consolidated Results


Consolidated net revenues increased by $119.1 million to $484.9 million in the second quarter of 2008 from $365.8 million in the second quarter of 2007, primarily as a result of the Harland Acquisition which accounted for $82.1 million of the increase and the Data Management Acquisition which accounted for $25.8 million of the increase. Net income for the second quarter of 2008 was $19.3 million, as compared to a net loss of $35.2 million for the second quarter of 2007. The net income for the second quarter of 2008 includes pre- tax charges of $0.6 million ($0.4 million after tax) for non-cash fair value purchase accounting adjustments to deferred revenue and inventory related to the Harland and Data Management Acquisitions and $3.9 million ($2.4 million after tax) for restructuring costs. The net loss for the second quarter of 2007 includes a non-recurring pre-tax loss on early extinguishment of debt of $54.6 million ($34.1 million after tax) related to refinancing transactions completed in connection with the Harland Acquisition. The net loss for the second quarter of 2007 also includes pre-tax charges of $8.6 million ($5.2 million after tax) for non-cash fair value purchase accounting adjustments to deferred revenue and inventory related to the Harland Acquisition and $1.7 million ($1.0 million after tax) for restructuring costs. For the second quarter of 2008, Adjusted EBITDA increased by $35.8 million to $126.3 million as compared to $90.5 million for the second quarter of 2007 primarily as a result of the Harland Acquisition which accounted for $22.9 million of the increase and the Data Management Acquisition which accounted for $4.9 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.

Basic and diluted earnings per common share were $0.92 and $0.92, respectively, for the second quarter of 2008 compared to a basic and diluted loss per common share of $1.68 and $1.68, respectively, for the second quarter of 2007.

Segment Results

Net revenues from the Harland Clarke segment increased by $52.7 million to $329.0 million for the second quarter of 2008 from $276.3 million in the second quarter of 2007, primarily as a result of the Harland Acquisition which accounted for $49.5 million of the increase. The remaining $3.2 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 $19.1 million to $63.1 million for the second quarter of 2008 from $44.0 million for the second quarter of 2007, of which the Harland Acquisition accounted for $10.2 million of the increase. The remaining $8.9 million was largely related to growth in revenue and cost reductions in labor and facilities expenses more than offsetting increased integration related costs.

Net revenues from the Harland Financial Solutions segment increased by $28.7 million to $73.9 million for the second quarter of 2008 from $45.2 million in the second quarter of 2007, primarily as a result of the Harland Acquisition which accounted for $23.5 million of the increase. The remaining $5.2 million of the increase was primarily due to a $2.9 million difference in the fair value adjustment to deferred revenue and organic growth in the risk management and enterprise solutions product lines. Operating income for the Harland Financial Solutions segment increased by $3.8 million to $6.4 million for the second quarter of 2008 from $2.6 million in the second quarter of 2007, partially as a result of the Harland Acquisition which accounted for $1.8 million of the increase. Operating income for the Harland Financial Solutions segment for the second quarter of 2008 includes pre-tax charges of $0.2 million ($0.1 million after tax) for non-cash fair value purchase accounting adjustments to deferred revenue related to the Harland Acquisition and $2.6 million ($1.6 million after tax) for compensation expense related to an incentive agreement for the Peldec assets purchase. Operating income for the Harland Financial Solutions segment for the second quarter of 2007 includes pre-tax charges of $3.1 million ($1.9 million after tax) for non-cash fair value purchase accounting adjustments to deferred revenue related to the Harland Acquisition.

Net revenues from the Scantron segment increased by $36.4 million to $54.7 million for the second quarter of 2008 from $18.3 million in the second quarter of 2007, primarily as a result of the Data Management Acquisition which accounted for $25.8 million of the increase and the Harland Acquisition which accounted for $9.3 million of the increase. The remaining $1.3 million of the increase was primarily due to a $0.6 million difference in the fair value adjustment of deferred revenues and organic growth, primarily in K-12 software. Operating income for the Scantron segment increased by $6.3 million to $4.5 million in the second quarter of 2008 from an operating loss of $1.8 million in the second quarter of 2007, primarily as a result of the Data Management Acquisition which accounted for $1.8 million of the increase, and the Harland Acquisition which accounted for $1.1 million of the increase and a decrease in non-cash purchase accounting adjustments, discussed below. Operating income for the Scantron segment for the second quarter of 2008 includes pre-tax charges of $0.4 million ($0.3 million after tax) for non-cash fair value purchase accounting adjustments to deferred revenue and inventory, related to the Harland and Data Management Acquisitions. Operating income for the Scantron segment for the second quarter of 2007 includes pre-tax charges of $3.8 million ($2.3 million after tax) for non-cash fair value purchase accounting adjustments to deferred revenue and inventory, related to the Harland Acquisition.

Net revenues from the Licorice Products segment, operated by Mafco Worldwide, increased by $1.3 million, or 5.0%, to $27.5 million in the second quarter of 2008 from $26.2 million in the second quarter of 2007. Operating income was $10.2 million for the second quarter of 2008 as compared to $8.3 million for the second quarter of 2007. The increase in operating income of $1.9 million was mainly due to lower professional fees.

First Half 2008 Performance

Consolidated Results


Consolidated net revenues increased by $399.8 million to $956.9 million in the six months ended June 30, 2008, from $557.1 million for the six months ended June 30, 2007, primarily as a result of the Harland Acquisition which accounted for $345.1 million of the increase and the Data Management Acquisition which accounted for $36.6 million of the increase. Net income for the six months ended June 30, 2008 was $31.8 million, as compared to a net loss of $25.8 million for the six months ended June 30, 2007. The net income for the six months ended June 30, 2008 includes pre-tax charges of $2.2 million ($1.3 million after tax) related to non-cash fair value purchase accounting adjustments to deferred revenue and inventory related to the Harland and Data Management Acquisitions and $5.3 million ($3.2 million after tax) for restructuring costs. The net loss for the six months ended June 30, 2007 includes a non-recurring pre-tax loss on early extinguishment of debt of $54.6 million ($34.1 million after tax) related to refinancing transactions completed in connection with the Harland Acquisition. The net loss for the six months ended June 30, 2007 also includes pre-tax charges of $8.6 million ($5.2 million after tax) for non-cash fair value purchase accounting adjustments to deferred revenue and inventory related to the Harland Acquisition and $2.9 million ($1.8 million after tax) for restructuring costs. For the six months ended June 30, 2008, Adjusted EBITDA increased by $105.9 million to $243.4 million as compared to $137.5 million for the six months ended June 30, 2007 primarily as a result of the Harland Acquisition which accounted for $87.7 million of the increase and the Data Management Acquisition which accounted for $7.8 million of the increase.

Basic and diluted earnings per common share were $1.50 and $1.50, respectively, for the six months ended June 30, 2008 compared to a basic and diluted loss per common share of $1.25 and $1.25, respectively, for the six months ended June 30, 2007.

Segment Results

Net revenues from the Harland Clarke segment increased by $220.2 million to $661.1 million for the six months ended June 30, 2008 from $440.9 million in the six months ended June 30, 2007, primarily as a result of the Harland Acquisition which accounted for $210.9 million of the increase. The remaining $9.3 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 $49.0 million to $116.4 million for the six months ended June 30, 2008 from $67.4 million for the six months ended June 30, 2007, of which the Harland Acquisition accounted for $38.1 million of the increase. The remaining $10.9 million of the increase was largely related to growth in revenue and cost reductions in labor, materials and facilities expenses more than offsetting increased integration related expenses.

Net revenues from the Harland Financial Solutions segment increased by $99.9 million to $145.1 million for the six months ended June 30, 2008 from $45.2 million in the six months ended June 30, 2007, primarily as a result of the Harland Acquisition which accounted for $94.8 million of the increase. The remaining $5.1 million of the increase was primarily due to a $2.9 million difference in the fair value adjustment to deferred revenues and organic growth in the risk management and enterprise solutions product lines. Operating income for the Harland Financial Solutions segment increased by $10.2 million to $12.8 million for the six months ended June 30, 2008 from $2.6 million in the six months ended June 30, 2007, primarily as a result of the Harland Acquisition which accounted for $8.2 million of the increase. Operating income for the Harland Financial Solutions segment for the six months ended June 30, 2008 includes pre-tax charges of $1.2 million ($0.7 million after tax) for non-cash fair value purchase accounting adjustments to deferred revenue related to the Harland Acquisition and $5.1 million ($3.1 million after tax) for compensation expense related to an incentive agreement for the Peldec assets purchase. Operating income for the Harland Financial Solutions segment for the six months ended June 30, 2007 includes pre-tax charges of $3.1 million ($1.9 million after tax) for non-cash fair value purchase accounting adjustments to deferred revenue related to the Harland Acquisition.

Net revenues from the Scantron segment increased by $78.0 million to $96.3 million for the six months ended June 30, 2008 from $18.3 million in the six months ended June 30, 2007, primarily as a result of the Harland Acquisition which accounted for $40.0 million of the increase and the Data Management Acquisition which accounted for $36.6 million of the increase. The remaining $1.4 million of the increase was primarily due to a $0.3 million difference in the fair value adjustment to deferred revenues and organic growth, primarily in K-12 software. Operating income for the Scantron segment increased by $12.0 million to $10.2 million in the six months ended June 30, 2008 from an operating loss of $1.8 million in the six months ended June 30, 2007, primarily as a result of the Harland Acquisition which accounted for $5.6 million of the increase, and the Data Management Acquisition which accounted for $3.1 million of the increase and a decrease in non-cash purchase accounting adjustments, discussed below. Operating income for the Scantron segment for the six months ended June 30, 2008 includes pre-tax charges of $1.0 million ($0.6 million after tax) for non-cash fair value purchase accounting adjustments to deferred revenue and inventory related to the Harland and Data Management Acquisitions. Operating income for the Scantron segment for the six months ended June 30, 2007 includes pre-tax charges of $3.8 million ($2.3 million after tax) for non-cash fair value purchase accounting adjustments to deferred revenue and inventory, related to the Harland Acquisition.

Net revenues from the Licorice Products segment, operated by Mafco Worldwide, increased by $2.1 million, or 4.0%, to $55.0 million in the six months ended June 30, 2008 from $52.9 million in the six months ended June 30, 2007. Operating income was $20.1 million for the six months ended June 30, 2008 as compared to $18.5 million for the six months ended 2007. The increase in operating income of $1.6 million was mainly due to lower professional fees.

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 Clarke American Corp., a wholly owned subsidiary of the Company. Clarke American was renamed Harland Clarke Holdings Corp. after the completion of the Harland Acquisition. In connection with the Harland Acquisition, Clarke American’s prior senior secured credit facility, Harland’s then outstanding credit facility and Clarke American’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 was $218.7 million in cash, after giving effect to working capital adjustments of $1.6 million which were paid to Harland Clarke Holdings in July 2008. M & F Worldwide financed the Data Management Acquisition and related fees and expenses with cash on hand at Harland Clarke Holdings.

Share Repurchase Program

As previously announced, during the second quarter of 2008, M & F Worldwide initiated and completed a share repurchase program pursuant to which it repurchased two million shares of its outstanding common stock.