DECATUR, Ga., May 5 /PRNewswire/ -- Harland Clarke Holdings
Corp. ("Harland Clarke Holdings" or the "Company") today
reported results for the first quarter ended March 31, 2010. In addition to the Harland
Clarke Holdings quarterly report on 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. ("M & F
Worldwide") (NYSE: MFW), which is the indirect parent company of
Harland Clarke Holdings.
M & F Worldwide will host a conference call to discuss its
first quarter 2010 results on May 13,
2010, at 9:00 a.m. (EDT).
The conference call will be accessible by dialing (800)
230-1074 in the United States and
(612) 234-9960 internationally. For those unable to listen
live, a replay of the call will be available by dialing (800)
475-6701 in the United States and
(320) 365-3844 internationally; Access Code: 154441. The
replay will be available from 11:00 a.m.
(EDT) Thursday, May 13, 2010, through 11:59 p.m. (EDT) Thursday, May 27, 2010.
First Quarter 2010 Highlights
- Net revenues of $430.0 million,
down $8.6 million, or 2.0%, as
compared to the first quarter of 2009.
- Operating income of $83.2
million, up $20.8 million, or
33.3%, as compared to the first quarter of 2009.
- Net income of $32.2 million, down
$15.0 million, or 31.8%, as compared
to the first quarter of 2009. Net income for the first
quarter of 2009 includes the impact of a $52.6 million ($32.5
million after tax) gain on early extinguishment of
debt.
First Quarter 2010 Performance
Consolidated Results
Consolidated net revenues decreased by $8.6 million, or 2.0%, to $430.0 million for the first quarter of 2010 from
$438.6 million for the first quarter
of 2009. The decrease was primarily due to volume declines at
Harland Clarke and Scantron, partially offset by increased revenues
per unit and revenues related to the SubscriberMail and Protocol
IMS acquisitions completed in the fourth quarter of 2009 at the
Harland Clarke segment.
Operating income increased by $20.8
million, or 33.3%, to $83.2
million for the first quarter of 2010 from $62.4 million for the first quarter of 2009.
The increase was primarily due to labor cost reductions
resulting from restructuring activities, increased revenues per
unit in the Harland Clarke segment, and a $7.9 million decrease in restructuring costs.
These increases were partially offset by volume declines in
the Harland Clarke and Scantron segments.
Net income decreased by $15.0
million, or 31.8%, to $32.2
million for the first quarter of 2010 from $47.2 million for the first quarter of 2009.
The decrease in net income was due to a $52.6 million ($32.5
million after tax) gain on early extinguishment of debt
related to the purchase of $90.5
million principal amount of the Company's Senior Notes for
aggregate consideration of $35.1
million in the first quarter of 2009. The decrease in
net income was partially offset by improvements in operating
income, which increased $20.8 million
($12.7 million after tax), and
interest expense, which declined $8.2
million ($5.0 million after
tax) as compared to the first quarter of 2009.
Adjusted EBITDA increased by $12.4
million, or 10.8%, to $127.5
million for the first quarter of 2010 from $115.1 million for the first quarter of 2009.
Adjusted EBITDA is a non-GAAP measure that is defined in the
footnotes to this release and reconciled to net income, the most
directly comparable GAAP measure, in the accompanying financial
tables.
Segment Results
Net revenues for the Harland Clarke segment decreased by
$5.4 million, or 1.7%, to
$309.7 million for the first quarter
of 2010 from $315.1 million for the
first quarter of 2009. The decrease was primarily a result of
volume declines in check and related products, partially offset by
increased revenues per unit and revenues from the 2009
acquisitions. Operating income for the Harland Clarke segment
increased by $14.7 million, or 28.9%,
to $65.6 million for the first
quarter of 2010 from $50.9 million
for the first quarter of 2009. The increase in operating
income was primarily due to labor cost reductions resulting from
restructuring activities, increased revenues per unit, and a
$5.6 million decrease in
restructuring costs, partially offset by volume declines.
Operating income for the first quarters of 2010 and 2009
includes restructuring costs of $1.7
million and $7.3 million,
respectively.
Net revenues for the Harland Financial Solutions segment
increased by $0.1 million, or 0.1%,
to $69.3 million for the first
quarter of 2010 from $69.2 million
for the first quarter of 2009. Increases in maintenance
revenues and outsourced host processing revenues were substantially
offset by decreases in early termination fees and hardware sales.
Operating income for the Harland Financial Solutions segment
increased by $4.0 million, or 54.1%,
to $11.4 million for the first
quarter of 2010 from $7.4 million for
the first quarter of 2009. The increase in operating income
was primarily due to labor cost reductions resulting from
restructuring activities and a $2.2
million decrease in restructuring costs. Operating
income for the first quarter of 2010 includes charges of
$0.4 million for compensation expense
related to an incentive agreement from an acquisition and
$0.2 million for restructuring costs.
Operating income for the first quarter of 2009 includes
charges of $1.0 million for
compensation expense related to an incentive agreement from an
acquisition and $2.4 million for
restructuring costs.
Net revenues for the Scantron segment decreased by $3.3 million, or 6.1%, to $51.1 million for the first quarter of 2010 from
$54.4 million for the first quarter
of 2009. The decrease was primarily due to declines in service
maintenance, forms and hardware revenues, which the Company
believes were negatively affected by the economic downturn. These
declines were partially offset by increases in revenues from
web-based products and services. Operating income for the
Scantron segment increased by $2.5
million, or 36.8%, to $9.3
million for the first quarter of 2010 from $6.8 million for the first quarter of 2009.
The increase in operating income was primarily due to a
reduction in integration expenses, labor cost reductions resulting
from restructuring activities, and a $1.3
million one-time expense related to a contractual obligation
owing to a former employee upon termination of employment that
occurred in the first quarter of 2009, which were partially offset
by volume declines. Operating income for the first quarters
of 2010 and 2009 includes restructuring costs of $1.3 million and $1.4
million, respectively.
About Harland Clarke Holdings
Harland Clarke Holdings has three business segments, which are
operated by Harland Clarke, Harland Financial Solutions and
Scantron. Harland Clarke is a provider of checks and related
products, direct marketing services and customized business and
home office products. Harland Financial Solutions provides
technology products and related services to financial institutions.
Scantron is a leading provider of data management solutions
and related services to educational, healthcare, commercial and
governmental entities.
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) difficult conditions in financial markets, the
downturn in and potential worsening of general economic and market
conditions and the impact of the credit crisis; (3) covenant
restrictions under Harland Clarke Holdings' indebtedness that may
limit its ability to operate its business and react to market
changes; (4) 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, a
decline in consumer confidence and/or checking account openings and
other factors, and our ability to grow non-check-related product
lines; (5) consolidation among or failure of financial
institutions, decreased spending by financial institutions on our
products and services and other adverse changes among the large
clients on which Harland Clarke Holdings depends, resulting in
decreased revenues and/or pricing pressure; (6) the ability to
retain Harland Clarke Holdings' clients; (7) the ability to retain
Harland Clarke Holdings' key employees and management; (8) lower
than expected cash flow from operations; (9) significant increases
in interest rates; (10) intense competition in all areas of Harland
Clarke Holdings' business; (11) interruptions or adverse changes in
Harland Clarke Holdings' supplier relationships, technological
capacity, intellectual property matters, and applicable laws; (12)
decreases to educational budgets as a result of the continued
general economic downturn and the resulting impact on Scantron's
customers; (13) variations in contemplated brand strategies,
business locations, management positions and other business
decisions in connection with integrating acquisitions; (14) Harland
Clarke Holdings' ability to successfully integrate and manage
future acquisitions; (15) 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 acquisitions;
(16) acquisitions 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; and (17) weak economic conditions and declines in the
financial performance of our businesses that may result in material
impairment charges.
You should read carefully the factors described in Harland
Clarke Holdings' Annual Report on Form 10-K for the year ended
December 31, 2009 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
non-recurring items.
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. 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, but are not limited to, gain on early extinguishment
of debt, restructuring costs, intangible asset impairment charges,
deferred purchase price compensation related to an acquisition and
certain acquisition 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,
|
|
|
2010
|
2009
|
|
Product revenues, net
|
$
355.6
|
$
363.1
|
|
Service revenues, net
|
74.4
|
75.5
|
|
Total
net revenues
|
430.0
|
438.6
|
|
Cost
of products sold
|
209.8
|
221.2
|
|
Cost
of services provided
|
37.7
|
39.9
|
|
Total
cost of revenues
|
247.5
|
261.1
|
|
Gross
profit
|
182.5
|
177.5
|
|
Selling, general and administrative
expenses
|
96.1
|
104.0
|
|
Restructuring costs
|
3.2
|
11.1
|
|
Operating income
|
83.2
|
62.4
|
|
Interest income
|
0.2
|
0.3
|
|
Interest expense
|
(29.9)
|
(38.1)
|
|
Gain
on early extinguishment of debt
|
—
|
52.6
|
|
Income
before income taxes
|
53.5
|
77.2
|
|
Provision for income taxes
|
21.3
|
30.0
|
|
Net
income
|
$
32.2
|
$
47.2
|
|
|
|
|
|
|
|
|
|
|
Harland Clarke
Holdings Corp. and Subsidiaries
Business Segment
Information
(in
millions)
|
|
|
(unaudited)
Three Months Ended
March 31,
|
|
|
2010
|
2009
|
|
Net
revenues
|
|
|
|
Harland Clarke segment
|
$
309.7
|
$
315.1
|
|
Harland Financial Solutions
segment
|
69.3
|
69.2
|
|
Scantron segment
|
51.1
|
54.4
|
|
Eliminations
|
(0.1)
|
(0.1)
|
|
Total
net revenues
|
$
430.0
|
$
438.6
|
|
|
|
|
|
Operating income
|
|
|
|
Harland Clarke segment
|
$
65.6
|
$
50.9
|
|
Harland Financial Solutions
segment
|
11.4
|
7.4
|
|
Scantron segment
|
9.3
|
6.8
|
|
Corporate
|
(3.1)
|
(2.7)
|
|
Total
operating income
|
$
83.2
|
$
62.4
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
net income to EBITDA and EBITDA to Adjusted EBITDA (in
millions):
|
|
|
(unaudited)
Three Months Ended
March 31,
|
|
|
2010
|
2009
|
|
Net
income
|
$
32.2
|
$
47.2
|
|
Interest expense, net
|
29.7
|
37.8
|
|
Provision for income taxes
|
21.3
|
30.0
|
|
Depreciation and
amortization
|
40.3
|
40.4
|
|
EBITDA
|
123.5
|
155.4
|
|
Adjustments:
|
|
|
|
Restructuring costs (a)
|
3.2
|
11.1
|
|
Deferred purchase price compensation
(b)
|
0.4
|
1.0
|
|
Gain
on early extinguishment of debt (c)
|
–
|
(52.6)
|
|
Impact
of acquisition accounting adjustments (d)
|
0.4
|
0.2
|
|
Adjusted EBITDA
|
$
127.5
|
$
115.1
|
|
|
|
(a) Reflects
restructuring costs, including adjustments, recorded in accordance
with GAAP, consisting primarily of severance, post-closure
facility expenses and other related expenses.
(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 an acquisition.
(c) Reflects gains from
the purchase of Harland Clarke Holdings bonds at less than their
principal amount.
(d) Reflects the
non-cash fair value deferred revenue adjustments related to
acquisition accounting.
|
|
|
|
|
SOURCE Harland Clarke Holdings Corp.