DECATUR, Ga., Nov. 9 /PRNewswire-FirstCall/ -- Harland Clarke
Holdings Corp. ("Harland Clarke Holdings"), formerly known as
Clarke American Corp., today reported results for the third quarter
and nine months ended September 30, 2007. 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. 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. Harland Clarke
Holdings' results for the third quarter and nine months ended
September 30, 2007 reflect Harland results from and after May 1,
2007. As a result of the acquisition of Harland, Harland Clarke
Holdings now has three business lines - 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. Having completed the Harland acquisition, Harland Clarke
Holdings is focused on improving operating margins through
consolidating facilities and reducing duplicative selling, general
and administrative expenses and executive and shared services
costs. Harland Clarke Holdings believes that it is on target to
achieve cost reduction goals previously disclosed in connection
with the financing for the Harland acquisition. Third Quarter
Performance Consolidated net revenues for the third quarter of 2007
were $432.8 million, as compared to $155.3 million for the third
quarter of 2006. Harland Clarke Holdings' revenues increased by
$277.5 million in the third quarter of 2007 primarily as a result
of the acquisition of Harland, which accounted for $263.4 million
of the increase. Net income for the third quarter of 2007 was $7.5
million, as compared to $7.3 million for the third quarter of 2006.
The net income in the third quarter of 2007 includes pre-tax
charges of $4.0 million ($2.4 million after tax) due to non-cash
fair value purchase accounting adjustments to inventory and
deferred revenue, $2.0 million ($1.2 million after tax) for
restructuring costs and $3.1 million ($1.9 million after tax) due
to impairment of Alcott Routon intangible assets. For the third
quarter of 2007, adjusted EBITDA increased by $76.3 million to
$113.5 million as compared to $37.2 million for the third quarter
of 2006 primarily as a result of the acquisition of Harland, which
accounted for $66.0 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. Net revenues
from the Harland Clarke segment increased by $177.1 million to
$332.4 million for the third quarter of 2007 from $155.3 million in
the third quarter of 2006, primarily as a result of the Harland
acquisition which accounted for $163.1 million of the increase. The
remaining $14.0 million of the increase was primarily due to an
increase in revenues from a large client and higher revenues per
unit, partially offset by a decline in units. Net revenues from the
Harland Financial Solutions and Scantron segments for the third
quarter of 2007 were $79.0 million and $21.9 million, respectively.
Year-to-Date Performance Consolidated net revenues for the first
nine months of 2007 were $937.0 million, as compared to $474.4
million for the first nine months of 2006. Harland Clarke Holdings'
revenues increased by $462.6 million in the nine months ended
September 30, 2007 primarily as a result of the Harland
acquisition, which accounted for $438.1 million of the increase.
Net loss for the nine months ended September 30, 2007 was $24.9
million, as compared to $17.6 million of net income for the 2006
period. The net loss for the nine months ended September 30, 2007
includes a nonrecurring 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 nine months ended September 30,
2007 also includes pre- tax charges of $12.6 million ($8.0 million
after tax) due to non-cash fair value purchase accounting
adjustments to inventory and deferred revenue, $2.4 million ($1.4
million after tax) for Harland acquisition-related retention
bonuses, $4.9 million ($3.1 million after tax) for restructuring
costs and $3.1 million ($1.9 million after tax) due to impairment
of Alcott Routon intangible assets. For the nine months ended
September 30, 2007, adjusted EBITDA increased by $123.9 million to
$236.9 million, as compared to $113.0 million for the 2006 period,
primarily as a result of the Harland acquisition, which accounted
for $109.2 million of the increase. Net revenues from the Harland
Clarke segment increased by $298.9 million to $773.3 million in the
nine months ended September 30, 2007 from $474.4 million in the
first nine months of 2006, primarily as a result of the Harland
acquisition which accounted for $274.4 million of the increase. The
remaining $24.5 million of the increase was primarily due to an
increase in revenues from a large client and an increase in
revenues per unit, partially offset by a decline in units. Net
revenues from the Harland Financial Solutions and Scantron segments
from May 1, 2007, the date of the Harland acquisition, through
September 30, 2007 were $131.1 million and $33.3 million,
respectively. 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,
representing an approximate transaction value of $1.7 billion. In
connection with the Harland acquisition, Clarke American Corp.'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
repayment 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, comprised of $310.0 million principal amount of 9 1/2% senior
fixed rate notes and $305.0 million principal amount of senior
floating rate notes bearing interest at LIBOR plus 4.75%. 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
acquisition of Harland, Harland Clarke Holdings reorganized its
business and corporate structure along three business segments,
Harland Clarke (which consists of the combined check and related
products business of Clarke American Corp. and Harland), 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 as
well as maintenance services to financial and other institutions.
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. The factors which 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 and the ability to retain Harland Clarke
Holdings' key employees and management; 6) lower than expected cash
flow from operations; 7) significant increases in interest rates;
8) intense competition in all areas of Harland Clarke Holdings'
business; 9) interruptions or adverse changes in Harland Clarke
Holdings' supplier relationships, technological capacity,
intellectual property matters, and applicable laws; 10) variations
in contemplated brand strategies, business locations, management
positions and other business decisions in connection with
integrating Harland; 11) Harland Clarke Holdings' ability to
successfully integrate Harland into its business and manage future
acquisitions; 12) 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;
and 13) the acquisition of Harland 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' Quarterly Report on Form 10-Q for the
quarter ended June 30, 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 upfront contract 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 noncash 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' industry 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 us 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 further 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, non-recurring purchase accounting
adjustments, an earnout related to the Alcott Routon acquisition
and other non-recurring acquisition related expenses. 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. Harland Clarke Holdings Corp. And
Subsidiaries Consolidated Statements of Operations (in millions)
(unaudited) Three Months Ended Nine Months Ended September 30,
September 30, 2007 2006 2007 2006 Product revenues, net $367.2
$154.8 $831.2 $473.0 Service revenues, net 65.6 0.5 105.8 1.4 Total
net revenues 432.8 155.3 937.0 474.4 Cost of products sold 226.6
95.6 513.9 292.3 Cost of services provided 33.2 0.4 58.5 1.1 Total
cost of revenues 259.8 96.0 572.4 293.4 Gross profit 173.0 59.3
364.6 181.0 Selling, general and administrative expenses 106.3 35.8
232.8 110.5 Restructuring costs 2.0 1.0 4.9 1.9 Operating income
64.7 22.5 126.9 68.6 Interest income 2.0 - 3.3 - Interest expense
(52.6) (15.4) (113.1) (44.6) Loss on early extinguishment of debt -
- (54.6) - Other income (expense), net 0.1 - 0.2 - Income (loss)
before income taxes 14.2 7.1 (37.3) 24.0 Provision (benefit) for
income taxes 6.7 (0.2) (12.4) 6.4 Net income (loss) $ 7.5 $ 7.3
$(24.9) $ 17.6 Harland Clarke Holdings Corp. And Subsidiaries
Business Segment Information (in millions) (unaudited) Three Months
Ended Nine Months Ended September 30, September 30, 2007 2006 2007
2006 Net revenues Harland Clarke segment $332.4 $155.3 $773.3
$474.4 Harland Financial Solutions segment 79.0 - 131.1 - Scantron
segment 21.9 - 33.3 - Eliminations (0.5) - (0.7) - Total revenue
$432.8 $155.3 $937.0 $474.4 Operating income (loss) Harland Clarke
segment $ 55.4 $ 22.5 $122.8 $ 68.6 Harland Financial Solutions
segment 9.6 - 13.5 - Scantron segment 4.7 - 1.6 - Corporate (5.0) -
(11.0) - Total operating income (loss) $ 64.7 $ 22.5 $126.9 $ 68.6
Reconciliation of net income to EBITDA and EBITDA to Adjusted
EBITDA (in millions) (unaudited): Three Months Ended Nine Months
Ended September 30, September 30, 2007 2006 2007 2006 Net income
(loss) $ 7.5 $ 7.3 $(24.9) $ 17.6 Interest expense, net 50.6 15.4
109.8 44.6 Loss on early extinguishment of debt - - 54.6 -
Provision (benefit) for income taxes 6.7 (0.2) (12.4) 6.4
Depreciation and amortization 39.6 13.5 86.8 40.7 EBITDA 104.4 36.0
213.9 109.3 Adjustments: Restructuring (a) 2.0 1.0 4.9 1.9 Alcott
Routon earn-out (b) - 0.3 - 0.7 Impairment of intangible assets (c)
3.1 - 3.1 - Transaction related expenses (d) - - 2.4 - Impact of
purchase accounting adjustments (e) 4.0 (0.1) 12.6 1.1 Adjusted
EBITDA $113.5 $ 37.2 $236.9 $113.0 (a) Reflects restructuring
expenses, including adjustments, recorded in accordance with GAAP,
consisting primarily of severance, post-closure facility expenses
and other related expenses, which could not be recorded in purchase
accounting. The expenses recorded in the three months ended
September 30, 2007 primarily relate to closures of facilities and
other restructuring activities in connection with the Harland
acquisition. The expenses recorded in the nine months ended
September 30, 2007 and 2006 include expenses related to
restructuring activities in Harland Clarke Holdings' business that
were not related to the Harland acquisition. (b) Reflects charges
accrued under an earnout arrangement recorded as SG&A expense
resulting from the 2004 purchase of Alcott Routon, Inc. In
accordance with the agreement, the maximum of $3.0 million was paid
in 2007. (c) Reflects a non-cash impairment charge from the
write-down of Alcott Routon intangible assets. (d) Reflects
non-recurring employee retention bonuses incurred in connection
with the Harland acquisition. (e) Reflects the negative effect on
net income primarily from the non-cash fair value inventory and
deferred revenue adjustments related to purchase accounting. The
charges incurred in the nine months ended September 30, 2006 are
related to the acquisition of Clarke American Corp. by M & F
Worldwide in December 2005. DATASOURCE: Harland Clarke Holdings
Corp. CONTACT: Peter A. Fera Jr. of Harland Clarke Holdings Corp.,
+1-210-697-1208
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