Harland Clarke Holdings Corp. to Participate in M & F Worldwide Corp. Conference Call on March 5, 2008 DECATUR, Ga., Feb. 29 /PRNewswire/ -- Harland Clarke Holdings Corp.("Harland Clarke Holdings"), formerly known as Clarke American Corp., todayreported results for the fourth quarter and year ended December 31, 2007.In addition to the Harland Clarke Holdings Form 10-K filed with theSecurities and Exchange Commission today, Harland Clarke Holdings'financial results are also consolidated in the annual report on Form 10-Kfiled today by M & F Worldwide Corp. (NYSE: MFW), which is the indirectparent company of Harland Clarke Holdings. Harland Clarke Holdings' parent, M & F Worldwide Corp., will host aconference call to discuss its fourth quarter and fiscal 2007 results,including results for Harland Clarke Holdings, on March 5, 2008, at 9:30a.m. (EST). The conference call will be accessible by dialing (800)230-1093 in the US and (612) 332-0107 internationally. For those unable tolisten live, a replay of the call will be available by dialing (800)475-6701 in the US and (320) 365-3844 internationally; Access Code: 913357.The replay will be available 12:00 p.m. EST, Wednesday, March 5, 2008,through 12:00 p.m. EDT, Wednesday, March 19, 2008. As previously announced, on May 1, 2007, M & F Worldwide Corp.completed the acquisition of John H. Harland Company ("Harland") andrelated financing transactions. Upon the completion of the acquisition,Harland became a wholly owned subsidiary of Clarke American Corp., whichwas then renamed Harland Clarke Holdings Corp. Harland Clarke Holdings'results for the year ended December 31, 2007 reflect Harland results fromand after May 1, 2007. As a result of the acquisition of Harland, HarlandClarke Holdings now has three business lines -- Harland Clarke (which isthe combination of Clarke American Corp.'s check printing, contact centerand direct marketing capabilities with Harland's corresponding businesses),Harland Financial Solutions and Scantron. Having completed the Harland acquisition, Harland Clarke Holdings isfocused on improving operating margins through consolidating facilities andreducing duplicative selling, general and administrative expenses andexecutive and shared services costs. Through December 31, 2007 HarlandClarke Holdings has taken actions to achieve approximately $59.7 million ofits Harland acquisition related synergy targets and has realizedapproximately $30.0 million of EBITDA improvement from such actions.Harland Clarke Holdings believes that it is on track to achieve costreduction targets previously disclosed in connection with the financing forthe Harland acquisition. Fourth Quarter Performance Consolidated Results Consolidated net revenues for the fourth quarter of 2007 were $432.9million, as compared to $149.5 million for the fourth quarter of 2006.Harland Clarke Holdings' revenues increased by $283.4 million in the fourthquarter of 2007 primarily as a result of the acquisition of Harland, whichaccounted for $261.1 million of the increase. Net income for the fourthquarter of 2007 was $9.5 million, as compared to $1.9 million for thefourth quarter of 2006. The net income in the fourth quarter of 2007includes pre- tax charges of $4.0 million ($2.4 million after tax) due tonon-cash fair value purchase accounting adjustments to inventory anddeferred revenue and $0.7 million ($0.4 million after tax) forrestructuring costs. For the fourth quarter of 2007, Adjusted EBITDAincreased by $76.6 million to $110.7 million as compared to $34.1 millionfor the fourth quarter of 2006 primarily as a result of the acquisition ofHarland, which accounted for $73.3 million of the increase. Adjusted EBITDAis a non-GAAP measure that is defined in the footnotes to this release andwhich is reconciled to net income, the most directly comparable GAAPmeasure, in the accompanying financial tables. Segment Results Net revenues from the Harland Clarke segment increased by $181.7million to $331.2 million for the fourth quarter of 2007 from $149.5million in the fourth quarter of 2006, primarily as a result of the Harlandacquisition which accounted for $159.4 million of the increase. Net revenues from the Harland Financial Solutions and Scantron segmentsfor the fourth quarter of 2007 were $80.8 million and $21.4 million,respectively. Year-to-Date Performance Consolidated Results Consolidated net revenues for 2007 were $1,369.9 million, as comparedto $623.9 million for 2006. Harland Clarke Holdings' revenues increased by$746.0 million in 2007 primarily as a result of the Harland acquisition,which accounted for $699.2 million of the increase. Net loss for 2007 was$15.4 million, as compared to $19.5 million of net income for 2006. The netloss for 2007 includes a nonrecurring pre-tax loss on early extinguishmentof debt of $54.6 million ($34.1 million after tax) related to refinancingtransactions completed in connection with the Harland acquisition. The netloss for 2007 also includes pre-tax charges of $16.6 million ($10.1 millionafter tax) due to non-cash fair value purchase accounting adjustments toinventory and deferred revenue, $2.4 million ($1.4 million after tax) forHarland acquisition-related retention bonuses, $5.6 million ($3.4 millionafter tax) for restructuring costs and $3.1 million ($1.9 million aftertax) due to impairment of Alcott Routon intangible assets. For 2007,adjusted EBITDA increased by $200.5 million to $347.6 million, as comparedto $147.1 million for 2006, primarily as a result of the Harlandacquisition, which accounted for $186.5 million of the increase. Segment Results Net revenues from the Harland Clarke segment increased by $480.6million to $1,104.5 million in the year ended December 31, 2007 from $623.9million in 2006, primarily as a result of the Harland acquisition whichaccounted for $433.8 million of the increase. The remaining $46.8 millionof the increase was primarily due to an increase in revenues from a largeclient and an increase in revenues per unit, partially offset by a declinein units. Net revenues from the Harland Financial Solutions and Scantron segmentsfrom May 1, 2007, the date of the Harland acquisition, through December 31,2007 were $211.9 million and $54.7 million, respectively. Harland Acquisition As previously announced, on May 1, 2007, M & F Worldwide completed itsacquisition of Harland at a price per share of Harland common stock of$52.75, contributing to an approximate transaction value of $1.7 billion.In connection with the Harland acquisition, Clarke American Corp.'s priorsenior secured credit facility, Harland's then outstanding credit facilityand Clarke American Corp.'s prior 11.75% senior notes due 2013 were repaidin full. The acquisition and debt repayment were funded with new borrowingsby Harland Clarke Holdings, consisting of a $1.8 billion senior securedterm loan and an aggregate $615.0 million principal amount of senior notesdue 2015, composed of $310.0 million principal amount of 9.50% senior fixedrate notes and $305.0 million principal amount of senior floating ratenotes bearing interest at LIBOR plus 4.75%. Subsequent Events On February 22, 2008, M & F Worldwide completed its previouslyannounced acquisition of all of the limited liability company membershipinterests of Data Management I LLC, a wholly-owned subsidiary of NCSPearson Inc., pursuant to the terms of the Membership Interest PurchaseAgreement, dated as of February 13, 2008, by and among M & F Worldwide, NCSPearson and Pearson Inc. Data Management designs, manufactures and servicesscannable data collection products, including printed forms, scanners andrelated software, and provides survey consulting and tracking services,including medical device tracking, to corporate and government clients.Prior to the closing, M & F Worldwide assigned the Purchase Agreement toits indirect wholly-owned subsidiary, Scantron Corporation, which uponclosing became the direct parent company of Data Management. The purchaseprice, paid at closing, was $225 million in cash, subject to post-closingadjustments. M & F Worldwide financed the Data Management acquisition andrelated fees and expenses with available cash from Harland Clarke Holdings.In connection with the Data Management acquisition, Harland Clarke Holdingspaid $2.0 million to MacAndrews & Forbes Holdings Inc. on February 22, 2008for services in sourcing, analyzing, negotiating and executing the DataManagement acquisition. About Harland Clarke Holdings Prior to the acquisition of Harland on May 1, 2007, Clarke AmericanCorp. provided checks and related products and direct marketing servicesthrough two segments: the Financial Institution segment, which was focusedon financial institution clients and their customers, and the Direct toConsumer segment, which was focused on individual customers. As a result ofthe acquisition of Harland, Harland Clarke Holdings reorganized itsbusiness and corporate structure along three business segments, HarlandClarke (which consists of the combined check and related products businessof Clarke American Corp. and Harland), Harland Financial Solutions, andScantron. Subsequent to the closing of the Harland acquisition, ClarkeAmerican Corp.'s check printing, contact center and direct marketingcapabilities have been combined with Harland's corresponding business andoperate under the name "Harland Clarke." The operations of HarlandFinancial Solutions include core processing, retail and lending softwaresolutions as well as maintenance services to financial and otherinstitutions. Scantron is a leading provider of data collection and testingand assessment products and services sold primarily to educational andcommercial customers. Forward Looking Statements This press release contains forward looking statements that reflectmanagement's current assumptions and estimates of future performance andeconomic conditions, which are forward-looking statements within themeaning of the Private Securities Litigation Reform Act of 1995. Thesestatements are subject to a number of risks and uncertainties, many ofwhich are beyond Harland Clarke Holdings' control. All statements otherthan statements of historical facts included in this press release,including those regarding Harland Clarke Holdings' strategy, futureoperations, financial position, estimated revenues, projected costs,projections, prospects, plans and objectives of management, areforward-looking statements. When used in this press release, the words"believes," "anticipates," "plans," "expects," "intends," "estimates" orsimilar 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 pressrelease. Although Harland Clarke Holdings believes that its plans,intentions and expectations reflected in or suggested by theforward-looking statements made in this press release are reasonable, suchplans, intentions or expectations may not be achieved. The factors whichmay cause Harland Clarke Holdings' actual results, performance orachievements to be materially different from any future results,performance or achievements expressed or implied by the forward-lookingstatements contained in this press release include: 1) Harland ClarkeHoldings' substantial indebtedness; 2) covenant restrictions under HarlandClarke Holdings' indebtedness that may limit its ability to operate itsbusiness and react to market changes; 3) the maturity of the principalindustry in which the Harland Clarke segment operates and trends in thepaper check industry, including a faster than anticipated decline in checkusage due to increasing use of alternative payment methods and otherfactors; 4) consolidation among financial institutions and other adversechanges among the large clients on which Harland Clarke Holdings depends,resulting in decreased revenues; 5) the ability to retain Harland ClarkeHoldings' clients and the ability to retain Harland Clarke Holdings' keyemployees and management; 6) lower than expected cash flow from operations;7) significant increases in interest rates; 8) intense competition in allareas of Harland Clarke Holdings' business; 9) interruptions or adversechanges in Harland Clarke Holdings' supplier relationships, technologicalcapacity, intellectual property matters, and applicable laws; 10)variations in contemplated brand strategies, business locations, managementpositions and other business decisions in connection with integratingHarland; 11) Harland Clarke Holdings' ability to successfully integrateHarland into its business and manage future acquisitions; 12) HarlandClarke Holdings' ability to implement any or all components of its businessstrategy or realize all of its expected cost savings or synergies from theHarland acquisition or for other acquisitions, including the recentacquisition of Data Management by Scantron; and 13) the acquisition ofHarland otherwise not being successful from a financial point of view,including, without limitation, due to any difficulties with Harland ClarkeHoldings servicing its debt obligations. You should read carefully the factors described in Harland ClarkeHoldings' Annual Report on Form 10-K for the year ended December 31, 2007for a description of risks that could, among other things, cause actualresults to differ from these forward looking statements. Non-GAAP Financial Measures In this release, Harland Clarke Holdings presents certain adjustedfinancial measures that are not calculated according to generally acceptedaccounting principles in the United States ("GAAP"). These non-GAAPfinancial measures are designed to complement the GAAP financialinformation presented in this release because management believes theypresent information regarding Harland Clarke Holdings that managementbelieves is useful to investors. The non-GAAP financial measures presentedshould not be considered in isolation from or as a substitute for thecomparable GAAP financial measure. EBITDA represents net income before interest income and expense, incometaxes, depreciation and amortization (other than amortization related tocontract acquisition payments). Harland Clarke Holdings presents EBITDAbecause it believes it is an important measure of its performance andbelieves it is frequently used by securities analysts, investors and otherinterested parties in the evaluation of companies in Harland ClarkeHoldings' industries. Harland Clarke Holdings believes EBITDA provides useful informationwith respect to its ability to meet its future debt service, capitalexpenditures, working capital requirements and overall operatingperformance although EBITDA should not be considered as a measure ofliquidity. In addition, Harland Clarke Holdings utilizes EBITDA wheninterpreting 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 (withadditional adjustments) to measure compliance with financial covenants suchas debt incurrence. Harland Clarke Holdings' executive compensation isbased on EBITDA (with additional adjustments) performance measured againsttargets. EBITDA is also widely used by Harland Clarke Holdings and othersin its industry to evaluate and value potential acquisition candidates.EBITDA has limitations as an analytical tool, and you should not considerit in isolation or as a substitute for analysis of our results as reportedunder GAAP. See below for a description of these limitations. Because ofthese limitations, EBITDA should not be considered as a measure ofdiscretionary cash available to Harland Clarke Holdings to invest in thegrowth of its business. In addition, in evaluating EBITDA, you should be aware that in thefuture Harland Clarke Holdings may incur expenses such as those excluded incalculating it. Harland Clarke Holdings' presentation of this measureshould not be construed as an inference that its future results will beunaffected by unusual or nonrecurring items. EBITDA has limitations as an analytical tool, and you should notconsider it in isolation or as substitutes for analysis of our results asreported 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' 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 ameasure of discretionary cash available to us to invest in the growth ofHarland Clarke Holdings' business or as a measure of cash that will beavailable to Harland Clarke Holdings to meet its obligations. You shouldcompensate for these limitations by relying primarily on Harland ClarkeHoldings' GAAP results and using EBITDA only supplementally. Harland Clarke Holdings presents Adjusted EBITDA as a supplementalmeasure of its performance. Harland Clarke Holdings prepares AdjustedEBITDA by adjusting EBITDA to reflect the impact of a number of items itdoes not consider indicative of Harland Clarke Holdings' ongoing operatingperformance. Such items include restructuring costs, non-recurring purchaseaccounting adjustments, an earnout related to the Alcott Routon acquisitionand other non-recurring acquisition related expenses. You are encouraged toevaluate each adjustment and the reasons Harland Clarke Holdings considersthem appropriate for supplemental analysis. As an analytical tool, AdjustedEBITDA is subject to all of the limitations applicable to EBITDA. Inaddition, in evaluating Adjusted EBITDA, you should be aware that in thefuture, Harland Clarke Holdings may incur expenses, including cashexpenses, similar to the adjustments in this presentation. Harland ClarkeHoldings' presentation of Adjusted EBITDA should not be construed as aninference that its future results will be unaffected by unusual ornon-recurring items.
For additional information contact: Pete Fera 210-697-1208 - tables to follow - Harland Clarke Holdings Corp. And Subsidiaries Consolidated Statements of Operations (in millions) (Unaudited) Three Months Ended Year Ended December 31, December 31, 2007 2006 2007 2006 Product revenues, net $368.1 $149.3 $1,199.3 622.3 Service revenues, net 64.8 0.2 170.6 1.6 Total net revenues 432.9 149.5 1,369.9 623.9 Cost of products sold 239.2 94.9 753.1 387.2 Cost of services provided 22.2 0.1 80.7 1.2 Total cost of revenues 261.4 95.0 833.8 388.4 Gross profit 171.5 54.5 536.1 235.5 Selling, general and administrative expenses 103.5 34.7 336.3 145.2 Restructuring costs 0.7 1.4 5.6 3.3 Operating income 67.3 18.4 194.2 87.0 Interest income 2.7 - 6.0 - Interest expense (52.8) (15.4) (165.9) (60.0) Loss on early extinguishment of debt - - (54.6) - Other (expense) income, net (0.7) - (0.5) - Income (loss) before income taxes 16.5 3.0 (20.8) 27.0 Provision (benefit) for income taxes 7.0 1.1 (5.4) 7.5 Net income (loss) $9.5 $1.9 $(15.4) $19.5 Harland Clarke Holdings Corp. And Subsidiaries Business Segment Information (in millions) (Unaudited) Three Months Ended Year Ended December 31, December 31, 2007 2006 2007 2006 Net revenues Harland Clarke segment $331.2 $149.5 $1,104.5 $623.9 Harland Financial Solutions segment 80.8 - 211.9 - Scantron segment 21.4 - 54.7 - Eliminations (0.5) - (1.2) - Total revenue $432.9 $149.5 $1,369.9 $623.9 Operating income (loss) Harland Clarke segment $58.3 $18.4 $181.1 $87.0 Harland Financial Solutions segment 8.7 - 22.2 - Scantron segment 5.4 - 7.0 - Corporate (5.1) - (16.1) - Total operating income $67.3 $18.4 $194.2 $87.0 Reconciliation of net income to EBITDA and EBITDA to Adjusted EBITDA (inmillions) (unaudited): Three Months Ended Year Ended December 31, December 31, 2007 2006 2007 2006 Net income (loss) $9.5 $1.9 $(15.4) $19.5 Interest expense, net 50.1 15.4 159.9 60.0 Loss on early extinguishment of debt - - 54.6 - Provision (benefit) for income taxes 7.0 1.1 (5.4) 7.5 Depreciation and amortization 39.4 13.8 126.2 54.5 EBITDA 106.0 32.2 319.9 141.5 Adjustments: Restructuring (a) 0.7 1.4 5.6 3.3 Alcott Routon earn-out (b) - 0.4 - 1.1 Impairment of intangible assets (c) - - 3.1 - Transaction related expenses (d) - - 2.4 - Impact of purchase accounting adjustments (e) 4.0 0.1 16.6 1.2 Adjusted EBITDA $110.7 $34.1 $347.6 $147.1 (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 December 31, 2007 primarily relate to closures of facilities and other restructuring activities in connection with the Harland acquisition. The expenses recorded in the year ended December 31, 2007 and 2006 include expenses related to restructuring activities that were not related to the Harland acquisition. (b) Reflects charges accrued under a contingent earnout payment recorded as selling, general and administrative 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 year ended December 31, 2006 are related to the acquisition of Clarke American Corp. by M & F Worldwide in December 2005.
