Published:
M & F Worldwide Corp. Reports First Quarter 2008 Results
NEW YORK, May 9 /PRNewswire-FirstCall/ -- M & F Worldwide Corp.
(NYSE: MFW), today reported results for the quarter ended March 31, 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, 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 first quarter
2008 results 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.
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
$472.0 million, as compared to $191.3 million for the first quarter of 2007.
The Company's revenues increased by $280.7 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 $12.5 million, as compared to $9.4 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) for 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 $70.1 million to $117.1 million as compared
to $47.0 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.
Basic earnings per common share was $0.58 for the first quarter of 2008
compared to $0.45 for the first quarter of 2007. Diluted earnings per common
share was $0.58 for the first quarter of 2008 compared to $0.44 for the first
quarter of 2007.
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
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.
Net revenues from the Licorice Products segment, operated by Mafco
Worldwide, increased by $0.8 million, or 3.0%, to $27.5 million in the first
quarter of 2008 from $26.7 million in the first quarter of 2007. Operating
income was $9.9 million for the first quarter of 2008 as compared to
$10.3 million for the first quarter of 2007. The decrease in operating income
of $0.4 million was mainly due to increased costs, primarily for raw
materials, which more than offset the increase in net revenues.
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, 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.
About M & F Worldwide
Prior to the acquisition of Harland on May 1, 2007, M & F Worldwide had
two business lines operated by Clarke American and Mafco Worldwide. Clarke
American 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 Harland
Acquisition, M & F Worldwide now has four business segments, which are
operated by Harland Clarke, Harland Financial Solutions, Scantron and Mafco
Worldwide. Subsequent to the closing of the Harland Acquisition, Clarke
American's check printing, contact center and direct marketing capabilities
have been combined with Harland's corresponding business and operate under the
name "Harland Clarke." Mafco Worldwide produces licorice products for sale to
the tobacco, food, pharmaceutical and confectionery industries (which is M & F
Worldwide's Licorice Products segment). The operations of Harland Financial
Solutions include core processing, retail and lending software solutions.
Scantron is a leading provider of data collection and testing and assessment
products 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 M & F
Worldwide's control. All statements other than statements of historical facts
included in this press release, including those regarding M & F Worldwide's
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 M & F Worldwide 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 M & F Worldwide's
Securities and Exchange Commission filings and others, the following factors
may cause M & F Worldwide's 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) economic, climatic or political conditions in countries
in which Mafco Worldwide sources licorice root; (2) economic, regulatory or
political conditions that have an impact on the worldwide tobacco industry or
on the consumption of tobacco products in which licorice products are used;
(3) the failure of third parties to make full and timely payment to M & F
Worldwide for environmental, asbestos, tax and other matters for which M & F
Worldwide is entitled to indemnification; (4) unfavorable foreign currency
fluctuations; (5) M & F Worldwide's substantial indebtedness; (6) covenant
restrictions under M & F Worldwide's indebtedness that may limit its ability
to operate its business and react to market changes; (7) 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;
(8) consolidation among financial institutions and other adverse changes among
the large clients on which M & F Worldwide depends, resulting in decreased
revenues; (9) the ability to retain M & F Worldwide's clients; (10) the
ability to retain M & F Worldwide's key employees and management; (11) lower
than expected cash flow from operations; (12) significant increases in
interest rates; (13) intense competition in all areas of M & F Worldwide's
business; (14) interruptions or adverse changes in M & F Worldwide's supplier
relationships, technological capacity, intellectual property matters, and
applicable laws; (15) variations in contemplated brand strategies, business
locations, management positions and other business decisions in connection
with integrating Harland and Data Management; (16) M & F Worldwide's ability
to successfully integrate Harland and Data Management into its business and
manage future acquisitions; (17) M & F Worldwide's 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 or from other acquisitions,
including the recent acquisition of Data Management by Scantron; and (18) the
acquisitions of Harland and Data Management otherwise not being successful
from a financial point of view, including, without limitation, due to any
difficulties with M & F Worldwide's servicing its debt obligations.
You should read carefully the factors described in M & F Worldwide's
Annual Report on Form 10-K for the year ended December 31, 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, M & F Worldwide presents certain adjusted financial
measures that are not calculated according to generally accepted accounting
principles inthe 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 M & F
Worldwide 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). M & F Worldwide 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 M & F Worldwide's industries.
M & F Worldwide 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, M & F Worldwide
utilizes EBITDA when interpreting operating trends and results of operations
of its business.
M & F Worldwide also uses EBITDA for the following purposes: Mafco
Worldwide's and Harland Clarke Holdings' senior credit facilities use EBITDA
(with additional adjustments) to measure compliance with financial covenants
such as debt incurrence. M & F Worldwide's subsidiaries executive
compensation is based on EBITDA (with additional adjustments) performance
measured against targets. EBITDA is also widely used by M & F Worldwide 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 M & F Worldwide to invest in the growth of its business.
In addition, in evaluating EBITDA, you should be aware that in the future
M & F Worldwide may incur expenses such as those excluded in calculating it.
M & F Worldwide's 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 M & F Worldwide's cash expenditures and future
requirements for capital expenditures or contractual commitments;
-- it does not reflect changes in, or cash requirements for, M & F
Worldwide's working capital needs;
-- it does not reflect the significant interest expense or the cash
requirements necessary to service interest or principal payments on
M & F Worldwide's 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 M & F Worldwide's statements of cash flows; and
-- other companies in M & F Worldwide's industries may calculate EBITDA
differently from M & F Worldwide, 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 M & F Worldwide's
business or as a measure of cash that will be available to M & F Worldwide to
meet its obligations. You should compensate for these limitations by relying
primarily on M & F Worldwide's GAAP results and using EBITDA only
supplementally.
M & F Worldwide presents Adjusted EBITDA as a further supplemental measure
of its performance. M & F Worldwide prepares Adjusted EBITDA by adjusting
EBITDA to reflect the impact of a number of items it does not consider
indicative of M & F Worldwide's ongoing operating performance. Such items
include restructuring costs, deferred purchase price compensation related to
the Peldec assets purchase and non-recurring purchase accounting adjustments.
You are encouraged to evaluate each adjustment and the reasons M & F Worldwide
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, M & F Worldwide may incur expenses, including cash expenses, similar
to the adjustments in this presentation. M & F Worldwide's 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 -
M & F Worldwide Corp. and Subsidiaries
Consolidated Statements of Income
(in millions, except per share data)
(Unaudited)
Three Months Ended
March 31,
2008 2007
Product revenues, net $402.3 $191.2
Service revenues, net 69.7 0.1
Total net revenues 472.0 191.3
Cost of products sold 247.0 114.9
Cost of services provided 36.0 0.1
Total cost of revenues 283.0 115.0
Gross profit 189.0 76.3
Selling, general and administrative expenses 118.5 43.6
Restructuring costs 1.4 1.2
Operating income 69.1 31.5
Interest income 2.2 0.8
Interest expense (51.5) (17.1)
Other income, net 1.0 -
Income before income taxes 20.8 15.2
Provision for income taxes 8.3 5.8
Net income $12.5 $9.4
Earnings per common share:
Basic $0.58 $ 0.45
Diluted $0.58 $ 0.44
M & F Worldwide Corp. and Subsidiaries
Business Segment Information
(in millions)
(Unaudited)
Three Months Ended
March 31,
2008 2007
Net revenues
Harland Clarke segment $332.1 $164.6
Harland Financial Solutions segment(a) 71.2 -
Scantron segment(a) 41.6 -
Licorice Products segment 27.5 26.7
Eliminations (0.4) -
Total net revenues $472.0 $191.3
Operating income
Harland Clarke segment $53.3 $ 23.4
Harland Financial Solutions segment(a) 6.4 -
Scantron segment(a) 5.7 -
Licorice Products segment 9.9 10.3
Corporate (6.2) (2.2)
Total operating income $69.1 $31.5
(a) During the first quarter of 2008, the Company transferred its field
maintenance services from the Harland Financial Solutions segment to
the Scantron segment.
Reconciliation of net income to EBITDA and EBITDA to Adjusted EBITDA
(in millions)(unaudited):
Three Months Ended
March 31,
2008 2007
Net income $12.5 $9.4
Interest expense, net 49.3 16.3
Provision for income taxes 8.3 5.8
Depreciation and amortization 41.5 14.3
EBITDA 111.6 45.8
Adjustments:
Restructuring (a) 1.4 1.2
Peldec deferred purchase price compensation (b) 2.5 -
Impact of purchase accounting adjustments (c) 1.6 -
Adjusted EBITDA $117.1 $47.0
(a) Reflects restructuring expenses, including adjustments, recorded in
accordance with GAAP, consisting primarily of severance, post-closure
facility expenses and other related expenses, which were not recorded
in purchase accounting. The expenses recorded in the three months
ended March 31, 2008 primarily relate to closures of facilities and
other restructuring activities in connection with the Harland and Data
Management acquisitions. The expenses recorded in the three months
ended March 31, 2007 include expenses from restructuring activities
that were not related to the Harland or Data Management acquisitions.
(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 the 2007 purchase of the
Peldec assets.
(c) Reflects the negative effect on net income primarily from the non-cash
fair value inventory and deferred revenue adjustments related to
purchase accounting.
SOURCE M & F Worldwide Corp.
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