SAN ANTONIO, May 5, 2011 /PRNewswire/ -- Harland Clarke
Holdings Corp. ("Harland Clarke Holdings" or the "Company")
today reported results for the first quarter ended March 31, 2011. 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 2011 results on May 9,
2011, at 9:00 a.m. (EDT).
The conference call will be accessible by dialing (800)
230-1085 in the United States and
(612) 288-0329 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: 202674. The
replay will be available from 11:00 a.m.
(EDT) Monday, May 9, 2011, through 11:59 p.m. (EDT) Monday, May 23, 2011.
First Quarter 2011 Highlights
- The Company continued to expand Scantron's web-based education
solutions through the acquisition of GlobalScholar, which was
completed on January 3, 2011.
- Net revenues of $403.9 million,
down $26.1 million, or 6.1%, as
compared to first quarter of 2010.
- Operating income of $61.8
million, down $21.4 million,
or 25.7%, as compared to the first quarter of 2010, in part due to
costs associated with Scantron's recent acquisitions of
GlobalScholar and Spectrum K12 including investments in growth
initiatives and product development.
- Net income of $23.4 million, down
$8.8 million, or 27.3%, as compared
to the first quarter of 2010.
First Quarter 2011 Performance
Consolidated Results
Consolidated net revenues decreased by $26.1 million, or 6.1%, to $403.9 million for the first quarter of 2011 from
$430.0 million for the first quarter
of 2010. The decrease was primarily due to volume declines in
checks and related products and decreased revenues per unit at the
Harland Clarke segment, partially offset by increases in revenues
at the Harland Financial Solutions and Scantron segments.
Operating income decreased by $21.4
million, or 25.7%, to $61.8
million for the first quarter of 2011 from $83.2 million for the first quarter of 2010.
The decrease was primarily due to costs incurred at the
Scantron segment related to the acquisitions of KUE Digital Inc.,
KUED Sub I LLC and KUED Sub II LLC (collectively referred to as
"GlobalScholar") in January 2011 and
Spectrum K12 School Solutions, Inc. ("Spectrum K12") in
July 2010, as further described in
Segment Results below. Volume declines in check and related
products and decreased revenues per unit at the Harland Clarke
segment also contributed to the decrease in operating income.
Net income decreased by $8.8
million, or 27.3%, to $23.4
million for the first quarter of 2011 from $32.2 million for the first quarter of 2010,
primarily resulting from the $21.4
million ($13.1 million after
tax) decrease in operating income, partially offset by a decline in
interest expense and a lower effective tax rate.
Adjusted EBITDA decreased by $21.2
million, or 16.6%, to $106.3
million for the first quarter of 2011 from $127.5 million for the first quarter of 2010.
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
$30.3 million, or 9.8%, to
$279.4 million for the first quarter
of 2011 from $309.7 million for the
first quarter of 2010. The decrease was primarily due to
volume declines in check and related products, and decreased
revenues per unit. Operating income for the Harland Clarke segment
decreased by $9.8 million, or 14.9%,
to $55.8 million for the first
quarter of 2011 from $65.6 million
for the first quarter of 2010. The decrease in operating
income was primarily due to volume declines and decreased revenues
per unit, partially offset by labor cost reductions resulting from
restructuring activities and lower depreciation and travel
expenses. Operating income for the first quarters of 2011 and
2010 includes restructuring costs of $2.6
million and $1.7 million,
respectively.
Net revenues for the Harland Financial Solutions segment
increased by $2.7 million, or 3.9%,
to $72.0 million for the first
quarter of 2011 from $69.3 million
for the first quarter of 2010. The increase was primarily due
to revenues from the acquisition of Parsam Technologies, LLC
("Parsam") in December 2010 and
increases in software revenues and services revenues, partially
offset by decreases in maintenance fees. Operating income for
the Harland Financial Solutions segment increased by $2.6 million, or 22.8%, to $14.0 million for the first quarter of 2011 from
$11.4 million for the first quarter
of 2010. The increase in operating income was primarily due
to the increase in revenues, a decrease in amortization expense and
a decrease in compensation expense related to an incentive
agreement from an acquisition, partially offset by costs related to
the acquisition of Parsam.
Net revenues for the Scantron segment increased by $1.5 million, or 2.9%, to $52.6 million for the first quarter of 2011 from
$51.1 million for the first quarter
of 2010. The increase was primarily due to the acquisitions of
GlobalScholar and Spectrum K12, increases in field services
installations and increases in revenues from web-based products and
services for the education market. Revenue increases were
partially offset by declines in forms, systems hardware and survey
services revenues. Net revenues in the 2011 period included charges
of $2.9 million for non-cash fair
value acquisition accounting adjustments to deferred revenue
related to the GlobalScholar and Spectrum K12 acquisitions. In
addition, the current accounting for revenue recognition for the
recent acquisitions results in a substantial deferral of revenue
into future periods for amounts that are billed and collected,
while costs related to these sales are incurred and recognized in
the current period. Operating income (loss) for the Scantron
segment decreased by $13.7 million,
or 147.3%, to an operating loss of $(4.4)
million for the first quarter of 2011 from operating income
of $9.3 million for the first quarter
of 2010. The decrease in operating income was primarily due
to costs associated with Spectrum K12 and GlobalScholar, including
$4.4 million of intangible asset
amortization expense in the first quarter of 2011, the impact of
the revenue acquisition accounting adjustments, as well as
investments in growth initiatives and product development
costs.
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 worldwide including testing and assessment
solutions, patient information collection and tracking, and survey
services.
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
recent acquisitions as well as future acquisitions; (15) Harland
Clarke Holdings' ability to achieve vendor-specific objective
evidence for software businesses we have acquired or will acquire,
which could affect the timing of recognition of revenue; (16)
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; (17) 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 (18) 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, 2010 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 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, restructuring costs, 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.
Harland
Clarke Holdings Corp. and Subsidiaries
Consolidated
Statements of Income
(in
millions)
|
|
|
|
|
|
|
(unaudited)
Three Months
Ended
March
31,
|
|
|
2011
|
2010
|
|
Product revenues, net
|
$ 324.0
|
$ 350.2
|
|
Service revenues, net
|
79.9
|
79.8
|
|
Total net revenues
|
403.9
|
430.0
|
|
Cost of products sold
|
197.1
|
206.6
|
|
Cost of services
provided
|
39.7
|
40.9
|
|
Total cost of
revenues
|
236.8
|
247.5
|
|
Gross profit
|
167.1
|
182.5
|
|
Selling, general and
administrative expenses
|
101.7
|
96.1
|
|
Asset impairment
charges
|
1.3
|
—
|
|
Restructuring costs
|
2.3
|
3.2
|
|
Operating income
|
61.8
|
83.2
|
|
Interest income
|
0.1
|
0.2
|
|
Interest expense
|
(27.2)
|
(29.9)
|
|
Income before income
taxes
|
34.7
|
53.5
|
|
Provision for income
taxes
|
11.3
|
21.3
|
|
Net income
|
$
23.4
|
$
32.2
|
|
|
|
|
|
|
Harland
Clarke Holdings Corp. and Subsidiaries
Business
Segment Information
(in
millions)
|
|
|
(unaudited)
Three Months
Ended
March
31,
|
|
|
2011
|
2010
|
|
Net revenues
|
|
|
|
Harland Clarke
segment
|
$ 279.4
|
$ 309.7
|
|
Harland Financial Solutions
segment
|
72.0
|
69.3
|
|
Scantron segment
|
52.6
|
51.1
|
|
Eliminations
|
(0.1)
|
(0.1)
|
|
Total net revenues
|
$
403.9
|
$
430.0
|
|
|
|
|
|
Operating income
|
|
|
|
Harland Clarke
segment
|
$ 55.8
|
$ 65.6
|
|
Harland Financial Solutions
segment
|
14.0
|
11.4
|
|
Scantron segment
|
(4.4)
|
9.3
|
|
Corporate
|
(3.6)
|
(3.1)
|
|
Total operating
income
|
$
61.8
|
$
83.2
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of net income to
EBITDA and EBITDA to Adjusted EBITDA (in millions):
|
|
|
(unaudited)
|
|
|
Three Months
Ended
March
31,
|
|
|
2011
|
2010
|
|
Net income
|
$ 23.4
|
$ 32.2
|
|
Interest expense, net
|
27.1
|
29.7
|
|
Provision for income
taxes
|
11.3
|
21.3
|
|
Depreciation and
amortization
|
40.4
|
40.3
|
|
EBITDA
|
102.2
|
123.5
|
|
Adjustments:
|
|
|
|
Restructuring costs
(a)
|
2.3
|
3.2
|
|
Acquisition-related deferred
compensation and
changes in contingent
consideration (b)
|
(2.7)
|
0.4
|
|
Asset impairment charges
(c)
|
1.3
|
—
|
|
Impact of purchase accounting
adjustments (d)
|
3.2
|
0.4
|
|
Adjusted EBITDA
|
$
106.3
|
$
127.5
|
|
|
|
(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 deferred purchase price agreements and changes
in
estimates of contingent
consideration related to acquisitions.
(c) Reflects non-cash
impairment charges from the write-down of assets.
(d) Reflects the non-cash
fair value deferred revenue adjustments related to
acquisition
accounting.
|
|
|
|
|
SOURCE Harland Clarke Holdings Corp.