DECATUR, Ga., Nov. 9 2007 - Harland Clarke Holdings Corp. ("Harland Clarke Holdings"), formerly known as Clarke American Corp., today reported results for the third quarter and nine months ended September 30, 2007. In addition to the Harland Clarke Holdings 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., which is the indirect parent company of Harland Clarke Holdings.
As previously announced, on May 1, 2007, M & F Worldwide Corp. completed the acquisition of John H. Harland Company ("Harland") and related financing transactions. Upon the completion of the acquisition, Harland became a wholly owned subsidiary of Clarke American Corp., which was then renamed Harland Clarke Holdings Corp. Harland Clarke Holdings' results for the third quarter and nine months ended September 30, 2007 reflect Harland results from and after May 1, 2007. As a result of the acquisition of Harland, Harland Clarke Holdings now has three business lines - Harland Clarke (which is the combination of Clarke American Corp.'s check printing, contact center and direct marketing capabilities with Harland's corresponding businesses), Harland Financial Solutions and Scantron.
Having completed the Harland acquisition, Harland Clarke Holdings is focused on improving operating margins through consolidating facilities and reducing duplicative selling, general and administrative expenses and executive and shared services costs. Harland Clarke Holdings believes that it is on target to achieve cost reduction goals previously disclosed in connection with the financing for the Harland acquisition.
Third Quarter Performance
Consolidated net revenues for the third quarter of 2007 were $432.8 million, as compared to $155.3 million for the third quarter of 2006. Harland Clarke Holdings' revenues increased by $277.5 million in the third quarter of 2007 primarily as a result of the acquisition of Harland, which accounted for $263.4 million of the increase. Net income for the third quarter of 2007 was $7.5 million, as compared to $7.3 million for the third quarter of 2006. The net income in the third quarter of 2007 includes pre-tax charges of $4.0 million ($2.4 million after tax) due to non-cash fair value purchase accounting adjustments to inventory and deferred revenue, $2.0 million ($1.2 million after tax) for restructuring costs and $3.1 million ($1.9 million after tax) due to impairment of Alcott Routon intangible assets. For the third quarter of 2007, adjusted EBITDA increased by $76.3 million to $113.5 million as compared to $37.2 million for the third quarter of 2006 primarily as a result of the acquisition of Harland, which accounted for $66.0 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.
Net revenues from the Harland Clarke segment increased by $177.1 million to $332.4 million for the third quarter of 2007 from $155.3 million in the third quarter of 2006, primarily as a result of the Harland acquisition which accounted for $163.1 million of the increase. The remaining $14.0 million of the increase was primarily due to an increase in revenues from a large client and higher revenues per unit, partially offset by a decline in units.
Net revenues from the Harland Financial Solutions and Scantron segments for the third quarter of 2007 were $79.0 million and $21.9 million, respectively.
Year-to-Date Performance
Consolidated net revenues for the first nine months of 2007 were $937.0 million, as compared to $474.4 million for the first nine months of 2006. Harland Clarke Holdings' revenues increased by $462.6 million in the nine months ended September 30, 2007 primarily as a result of the Harland acquisition, which accounted for $438.1 million of the increase. Net loss for the nine months ended September 30, 2007 was $24.9 million, as compared to $17.6 million of net income for the 2006 period. The net loss for the nine months ended September 30, 2007 includes a nonrecurring pre-tax loss on early extinguishment of debt of $54.6 million ($34.1 million after tax) related to refinancing transactions completed in connection with the Harland acquisition. The net loss for the nine months ended September 30, 2007 also includes pre- tax charges of $12.6 million ($8.0 million after tax) due to non-cash fair value purchase accounting adjustments to inventory and deferred revenue, $2.4 million ($1.4 million after tax) for Harland acquisition-related retention bonuses, $4.9 million ($3.1 million after tax) for restructuring costs and $3.1 million ($1.9 million after tax) due to impairment of Alcott Routon intangible assets. For the nine months ended September 30, 2007, adjusted EBITDA increased by $123.9 million to $236.9 million, as compared to $113.0 million for the 2006 period, primarily as a result of the Harland acquisition, which accounted for $109.2 million of the increase.
Net revenues from the Harland Clarke segment increased by $298.9 million to $773.3 million in the nine months ended September 30, 2007 from $474.4 million in the first nine months of 2006, primarily as a result of the Harland acquisition which accounted for $274.4 million of the increase. The remaining $24.5 million of the increase was primarily due to an increase in revenues from a large client and an increase in revenues per unit, partially offset by a decline in units.
Net revenues from the Harland Financial Solutions and Scantron segments from May 1, 2007, the date of the Harland acquisition, through September 30, 2007 were $131.1 million and $33.3 million, respectively.
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, representing an approximate transaction value of $1.7 billion. In connection with the Harland acquisition, Clarke American Corp.'s prior senior secured credit facility, Harland's then outstanding credit facility and Clarke American Corp.'s prior 11.75% senior notes due 2013 were repaid in full. The acquisition and debt repayment 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, comprised of $310.0 million principal amount of 9 1/2% senior fixed rate notes and $305.0 million principal amount of senior floating rate notes bearing interest at LIBOR plus 4.75%.