M & F Worldwide Corp. to Hold Conference Call on March 5, 2008 NEW YORK, Feb. 29 /PRNewswire-FirstCall/ -- M & F Worldwide Corp.(NYSE: MFW), today reported results for the fourth quarter and year endedDecember 31, 2007. 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. M & F Worldwide's resultsfor the year ended December 31, 2007 reflect Harland results from and afterMay 1, 2007. As a result of the acquisition of Harland, M & F Worldwide nowhas four business segments, which are operated by Harland Clarke (which isthe combination of Clarke American's check printing, contact center anddirect 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 fourthquarter and fiscal 2007 results on March 5, 2008, at 9:30 a.m. (EST). Theconference call will be accessible by dialing (800) 230-1093 in the US and(612) 332-0107 internationally. For those unable to listen live, a replayof 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 available12:00 p.m. EST, Wednesday, March 5, 2008, through 12:00 p.m. EDT,Wednesday, March 19, 2008. Fourth Quarter Performance Consolidated Results Consolidated net revenues for the fourth quarter of 2007 were $458.8million, as compared to $174.6 million for the fourth quarter of 2006. TheCompany's revenues increased by $284.2 million in the fourth quarter of2007 primarily as a result of the acquisition of Harland, which accountedfor $261.1 million of the increase. Net income for the fourth quarter of2007 was $11.5 million, as compared to $6.6 million for the fourth quarterof 2006. The net income for the fourth quarter of 2007 includes pre-taxcharges of $4.0 million ($2.4 million after tax) for non-cash fair valuepurchase accounting adjustments to deferred revenue and $0.7 million ($0.4million after tax) for restructuring costs. For the fourth quarter of 2007,Adjusted EBITDA increased by $74.6 million to $116.7 million as compared to$42.1 million for the fourth quarter of 2006 primarily as a result of theacquisition of Harland, which accounted for $73.3 million of the increase.Adjusted EBITDA is a non-GAAP measure that is defined in the footnotes tothis release and which is reconciled to net income, the most directlycomparable GAAP measure, in the accompanying financial tables. Basic earnings per common share was $0.54 for the fourth quarter of2007 compared to $0.33 for the fourth quarter of 2006. Diluted earnings percommon share was $0.54 for the fourth quarter of 2007 compared to $0.32 forthe fourth quarter of 2006. 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. Operatingincome for the Harland Clarke segment was $58.3 million for the fourthquarter of 2007 as compared to $18.4 million for the fourth quarter of2006, primarily as a result of the Harland acquisition which accounted for$35.0 million of the increase. The remaining $4.9 million was largelyrelated to the increase in revenues per unit and cost reductions, partiallyoffset by increased incentive compensation expense and restructuring andintegration costs. Net revenues and operating income from the Harland Financial Solutionssegment for the fourth quarter of 2007 were $80.8 million and $8.7 million,respectively. Net revenues and operating income from the Scantron segmentfor the fourth quarter of 2007 were $21.4 million and $5.4 million,respectively. Operating income for the Harland Financial Solutions segmentincludes pre-tax charges of $3.9 million for non-cash fair value purchaseaccounting adjustments to deferred revenue. Net revenues from the Licorice Products segment, operated by MafcoWorldwide, increased by $0.8 million, or 3.2%, to $25.9 million in thefourth quarter of 2007 from $25.1 million in the fourth quarter of 2006.Operating income was $9.4 million for the fourth quarter of 2007 ascompared to $9.0 million for the fourth quarter of 2006. The increase inoperating income of $0.4 million was mainly due to the increase in netrevenues, offset in part by an increase in manufacturing costs, especiallyraw materials. Year-to-Date Performance Consolidated Results Consolidated net revenues for the year ended December 31, 2007 were$1,472.8 million, as compared to $722.0 million for the year ended December31, 2006. The Company's revenues increased by $750.8 million in the 2007period primarily as a result of the Harland acquisition, which accountedfor $699.2 million of the increase. Net loss for the year ended December31, 2007 period was $4.2 million, as compared to $36.2 million of netincome for the 2006 period. The net loss for the year ended December 31,2007 includes a non-recurring pre-tax loss on early extinguishment of debtof $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) for non-cash fair value purchase accounting adjustments toinventory and deferred revenue, $2.4 million ($1.4 million after tax) foracquisition-related retention bonuses, $5.6 million ($3.4 million aftertax) for restructuring costs, and $3.1 million ($1.9 million after tax) dueto impairment of Alcott Routon intangible assets. For 2007, Adjusted EBITDAincreased by $193.1 million to $373.7 million, as compared to $180.6million for 2006, primarily as a result of the Harland acquisition, whichaccounted for $186.5 million of the increase. Basic loss per common share was $0.20 for the year ended December 31,2007 compared to basic earnings per share of $1.82 for 2006. Diluted lossper common share was $0.20 for the year ended December 31, 2007 compared todiluted earnings per share of $1.78 for the year ended December 31, 2006. Segment Results Net revenues from the Harland Clarke segment increased by $480.6million to $1,104.5 million for the year ended December 31, 2007 from$623.9 million in the year ended December 31, 2006, primarily as a resultof the Harland acquisition which accounted for $433.8 million of theincrease. The remaining $46.8 million of the increase was primarily due toan increase in revenues from a large client and higher revenues per unit,partially offset by a decline in units. Operating income for the HarlandClarke segment was $181.1 million for the year ended December 31, 2007 ascompared to $87.0 million for 2006, primarily as a result of the Harlandacquisition which accounted for $83.1 million of the increase. Theremaining $11.0 million was largely related to the increase in revenues perunit and cost reductions, partially offset by increased incentivecompensation expense and restructuring and integration costs. Net revenues and operating income from the Harland Financial Solutionssegment for the period from May 1, 2007, the date of the Harlandacquisition, through December 31, 2007 were $211.9 million and $22.2million, respectively. Net revenues and operating income from the Scantronsegment for the same period were $54.7 million and $7.0 million,respectively. Operating income for the Harland Financial Solutions andScantron segments reflect pre-tax charges of $10.2 million and $4.4million, respectively, for non-cash fair value purchase accountingadjustments to deferred revenue and inventory. Net revenues from the Licorice Products segment, operated by MafcoWorldwide, increased by $4.8 million, or 4.9%, to $102.9 million for theyear ended December 31, 2007 from $98.1 million for the year ended December31, 2006. Operating income was $35.5 million for the year ended December31, 2007 as compared to $35.7 million for 2006. The decrease in operatingincome of $0.2 million was mainly due to an increase in manufacturingcosts, especially raw materials, and higher professional fees, which morethan offset the increase in net revenues. 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.Upon the completion of the transaction, Harland became a wholly ownedsubsidiary of Clarke American Corp. ("Clarke American"), a wholly-ownedsubsidiary of the Company. Clarke American was renamed Harland ClarkeHoldings Corp. ("Harland Clarke Holdings") after completion of the Harlandacquisition. In connection with the Harland acquisition, Clarke American'sprior senior secured credit facility, Harland's then outstanding creditfacility and Clarke American's prior 11.75% senior notes due 2013 wererepaid in full. The acquisition and debt repayments were funded with newborrowings by Harland Clarke Holdings, consisting of a $1.8 billion seniorsecured term loan and an aggregate $615.0 million principal amount ofsenior notes due 2015, composed of $310.0 million principal amount of 9.50%senior fixed rate notes and $305.0 million principal amount of seniorfloating rate notes 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 M & F Worldwide Prior to the acquisition of Harland on May 1, 2007, M & F Worldwide hadtwo business lines operated by Clarke American and Mafco Worldwide. ClarkeAmerican 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, M & F Worldwide now has four business lines,which are operated by Harland Clarke, Harland Financial Solutions, Scantronand Mafco Worldwide. Subsequent to the closing of the Harland acquisition,Clarke American's check printing, contact center and direct marketingcapabilities have been combined with Harland's corresponding business andoperate under the name "Harland Clarke." Mafco Worldwide produces licoriceproducts for sale to the tobacco, food, pharmaceutical and confectioneryindustries (which is M & F Worldwide's Licorice Products segment). Theoperations of Harland Financial Solutions include core processing, retailand lending software solutions as well as maintenance services to financialand other institutions. Scantron is a leading provider of data collectionand testing and assessment products sold primarily to educational andcommercial customers. Forward Looking Statements This press release contains forward-looking statements, within themeaning of the Private Securities Litigation Reform Act of 1995, whichinvolve risks and uncertainties. M & F Worldwide's actual results maydiffer materially from those discussed in such forward-looking statements.In addition to factors described in M & F Worldwide's Securities andExchange Commission filings and others, the following factors could cause M& F Worldwide's actual results to differ materially from those expressed inany forward-looking statements made by M & F Worldwide: (a) economic,climatic or political conditions in countries in which Mafco Worldwidesources licorice root; (b) economic, regulatory or political conditionsthat have an impact on the worldwide tobacco industry or on the consumptionof tobacco products in which licorice products are used; (c) the failure ofthird parties to make full and timely payment to M & F Worldwide forenvironmental, asbestos, tax and other matters for which M & F Worldwide isentitled to indemnification; (d) the maturity of the principal industry inwhich the Company's Harland Clarke segment operates and trends in the papercheck industry, including a faster than anticipated decline in check usagedue to increasing use of alternative payment methods and other factors; (e)consolidation among financial institutions and other adverse changes amongthe large clients on which Harland Clarke Holdings depends, resulting indecreased revenues; (f) the ability to retain Harland Clarke Holdings'clients; (g) the ability to retain Harland Clarke Holdings' key employeesand management; (h) lower than expected cash flow from operations; (i)significant increases in interest rates; (j) unfavorable foreign currencyfluctuations; (k) M & F Worldwide's substantial indebtedness; (l)variations in contemplated brand strategies, business locations, managementpositions and other business decisions in connection with integratingHarland; (m) our ability to successfully integrate Harland into ourbusiness and manage future acquisitions; (n) our ability to implement anyor all components of our business strategy or realize all of our expectedcost savings or synergies from the Harland acquisition or from otheracquisitions, including the recent acquisition of Data Management byScantron; and (o) the acquisition of Harland otherwise not being successfulfrom a financial point of view, including, without limitation, anydifficulties with Harland Clarke Holdings servicing its debt obligations. Non-GAAP Financial Measures In this release, M & F Worldwide presents certain adjusted financialmeasures that are not calculated according to generally accepted accountingprinciples in the United States ("GAAP"). These non-GAAP financial measuresare designed to complement the GAAP financial information presented in thisrelease because management believes they present information regarding M &F Worldwide that management believes is useful to investors. The non-GAAPfinancial measures presented should not be considered in isolation from oras a substitute for the comparable GAAP financial measure. EBITDA represents net income before interest income and expense, incometaxes, depreciation and amortization (other than amortization related tocontract acquisition payments). M & F Worldwide presents EBITDA because itbelieves it is an important measure of its performance and believes it isfrequently used by securities analysts, investors and other interestedparties in the evaluation of companies in M & F Worldwide's industries. M & F Worldwide believes EBITDA provides useful information withrespect 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, M & F Worldwide utilizes EBITDA when interpretingoperating trends and results of operations of its business. M & F Worldwide also uses EBITDA for the following purposes: MafcoWorldwide's and Harland Clarke Holdings' senior credit facilities useEBITDA (with additional adjustments) to measure compliance with financialcovenants such as debt incurrence. M & F Worldwide's subsidiaries executivecompensation is based on EBITDA (with additional adjustments) performancemeasured against targets. EBITDA is also widely used by M & F Worldwide andothers in its industry to evaluate and value potential acquisitioncandidates. EBITDA has limitations as an analytical tool, and you shouldnot consider it in isolation or as a substitute for analysis of our resultsas reported under GAAP. See below for a description of these limitations.Because of these limitations, EBITDA should not be considered as a measureof discretionary cash available to M & F Worldwide to invest in the growthof its business. In addition, in evaluating EBITDA, you should be aware that in thefuture M & F Worldwide may incur expenses such as those excluded incalculating it. M & F Worldwide's presentation of this measure should notbe construed as an inference that its future results will be unaffected byunusual 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 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' 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 ameasure of discretionary cash available to us to invest in the growth of M& F Worldwide's business or as a measure of cash that will be available toM & F Worldwide to meet its obligations. You should compensate for theselimitations by relying primarily on M & F Worldwide's GAAP results andusing EBITDA only supplementally. M & F Worldwide presents Adjusted EBITDA as a further supplementalmeasure of its performance. M & F Worldwide prepares Adjusted EBITDA byadjusting EBITDA to reflect the impact of a number of items it does notconsider indicative of M & F Worldwide's ongoing operating performance.Such items include restructuring costs, non-recurring purchase accountingadjustments, an earnout related to the Alcott Routon acquisition and othernon-recurring acquisition related expenses. You are encouraged to evaluateeach adjustment and the reasons M & F Worldwide considers them appropriatefor supplemental analysis. As an analytical tool, Adjusted EBITDA and issubject to all of the limitations applicable to EBITDA. In addition, inevaluating Adjusted EBITDA, you should be aware that in the future, M & FWorldwide may incur expenses, including cash expenses, similar to theadjustments in this presentation. M & F Worldwide's presentation ofAdjusted EBITDA should not be construed as an inference that its futureresults will be unaffected by unusual or non- recurring items.
For additional information contact: Christine Taylor (212)-572-5988 - tables to follow - M & F Worldwide Corp. and Subsidiaries Consolidated Statements of Operations (in millions, except per share data) (Unaudited) Three Months Ended Year Ended December 31, December 31, 2007 2006 2007 2006 Product revenues, net $394.0 $174.4 $1,302.2 $720.4 Service revenues, net 64.8 0.2 170.6 1.6 Total net revenues 458.8 174.6 1,472.8 722.0 Cost of products sold 253.6 108.2 808.6 438.0 Cost of services provided 22.2 0.1 80.7 1.2 Total cost of revenues 275.8 108.3 889.3 439.2 Gross profit 183.0 66.3 583.5 282.8 Selling, general and administrative expenses 109.5 39.2 360.6 162.0 Restructuring costs 0.7 1.4 5.6 3.3 Operating income 72.8 25.7 217.3 117.5 Interest income 3.6 0.9 9.4 2.7 Interest expense (54.4) (17.4) (172.7) (68.0) Loss on early extinguishment of debt - - (54.6) - Other (expense) income, net (0.5) - 0.1 - Income (loss) before income taxes 21.5 9.2 (0.5) 52.2 Provision for income taxes 10.0 2.6 3.7 16.0 Net income (loss) $11.5 $6.6 $(4.2) $36.2 Earnings (loss) per common share: Basic $0.54 $0.33 $(0.20) $1.82 Diluted $0.54 $0.32 $(0.20) $1.78 M & F Worldwide 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 - Licorice Products segment 25.9 25.1 102.9 98.1 Eliminations (0.5) - (1.2) - Total net revenues $458.8 $174.6 $1,472.8 $722.0 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 - Licorice Products segment 9.4 9.0 35.5 35.7 Corporate (9.0) (1.7) (28.5) (5.2) Total operating income $72.8 $25.7 $217.3 $117.5 Reconciliation of net income to EBITDA and EBITDA to Adjusted EBITDA (in millions) (unaudited): Three Months Ended Year Ended December 31, December 31, 2007 2006 2007 2006 Net income (loss) $11.5 $6.6 $(4.2) $36.2 Interest expense, net 50.8 16.5 163.3 65.3 Loss on early extinguishment of debt - - 54.6 - Provision for income taxes 10.0 2.6 3.7 16.0 Depreciation and amortization 39.7 14.5 128.6 57.5 EBITDA 112.0 40.2 346.0 175.0 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 $116.7 $42.1 $373.7 $180.6 (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 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. in December 2005.
