NEW YORK, Nov. 9 2007 -- M & F Worldwide Corp., today reported results for the third quarter and nine months ended September 30, 2007. As previously announced, on May 1, 2007, M & F Worldwide completed the acquisition of John H. Harland Company and related financing transactions. M & F Worldwide's 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, 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.
Third Quarter Performance
Consolidated Results
Consolidated net revenues for the third quarter of 2007 were $456.9 million, as compared to $178.0 million for the third quarter of 2006. The Company's revenues increased by $278.9 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 $10.1 million, as compared to $11.2 million for the third quarter of 2006. The net income for 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. Basic earnings per common share was $0.47 for the third quarter of 2007 compared to $0.56 for the third quarter of 2006. Diluted earnings per common share was $0.47 for the third quarter of 2007 compared to $0.55 for the third quarter of 2006.
Segment Results
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. Operating income for the Harland Clarke segment was $55.4 million for the third quarter of 2007 as compared to $22.5 million for the third quarter of 2006, primarily resulting from the Harland acquisition which accounted for $29.4 million of the increase. The remaining $3.5 million was largely related to the increase in revenues per unit and cost reductions, partially offset by increased bonus expense and restructuring and integration costs.
Net revenues and operating income from the Harland Financial Solutions segment for the third quarter of 2007 were $79.0 million and $9.6 million, respectively. Net revenues and operating income from the Scantron segment for the third quarter of 2007 were $21.9 million and $4.7 million, respectively. Operating income for the Harland Financial Solutions and Scantron segments reflect pre-tax charges of $3.1 million and $0.6 million, respectively, for non-cash fair value purchase accounting adjustments to inventory and deferred revenue.
Net revenues from the Licorice Products segment increased by $1.4 million, or 6.2%, to $24.1 million in the third quarter of 2007 from $22.7 million in the third quarter of 2006. Operating income was $7.6 million for the third quarter of 2007 as compared to $7.3 million for the third quarter of 2006. The increase in operating income of $0.3 million was mainly due to the increase in net revenues, offset in part by an increase in manufacturing costs, especially raw materials.
Year-to-Date Performance
Consolidated Results
Consolidated net revenues for the nine months ended September 30, 2007 were $1,014.0 million, as compared to $547.4 million for the nine months ended September 30, 2006. The Company's revenues increased by $466.6 million in the 2007 period 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 period was $15.7 million, as compared to $29.6 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 2007 period also includes pre-tax charges of $12.6 million ($8.0 million after tax) for non-cash fair value purchase accounting adjustments to inventory and deferred revenue, $2.4 million ($1.4 million after tax) for 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. Basic loss per common share was $0.75 for the nine months ended September 30, 2007 compared to basic earnings per share of $1.50 for the 2006 period. Diluted loss per common share was $0.75 for the nine months ended September 30, 2007 compared to diluted earnings per share of $1.46 for the 2006 period.
Segment Results
Net revenues from the Harland Clarke segment increased by $298.9 million to $773.3 million for the nine months ended September 30, 2007 from $474.4 million in the nine months ended September 30, 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 higher revenues per unit, partially offset by a decline in units. Operating income for the Harland Clarke segment was $122.8 million for the nine months ended September 30, 2007 as compared to $68.6 million for the 2006 period, primarily resulting from the Harland acquisition which accounted for $48.1 million of the increase. The remaining $6.1 million was largely related to the increase in revenues per unit and cost reductions, partially offset by increased bonus expense and restructuring and integration costs.
Net revenues and operating income from the Harland Financial Solutions segment for the period of May 1, 2007, the date of the Harland acquisition, through September 30, 2007 were $131.1 million and $13.5 million, respectively. Net revenues and operating income from the Scantron segment for the same period were $33.3 million and $1.6 million, respectively. Operating income for the Harland Financial Solutions and Scantron segments reflect pre- tax charges of $6.4 million and $4.3 million, respectively, for non-cash fair value purchase accounting adjustments to inventory and deferred revenue.
Net revenues from the Licorice Products segment increased by $4.0 million, or 5.5%, to $77.0 million for the nine months ended September 30, 2007 from $73.0 million for the nine months ended September 30, 2006. Operating income was $26.1 million for the nine months ended September 30, 2007 as compared to $26.7 million for the 2006 period. The decrease in operating income of $0.6 million was mainly due to an increase in manufacturing costs, especially raw materials, and higher professional fees associated with Mafco Worldwide's indemnification liabilities, 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, representing an approximate transaction value of $1.7 billion. Upon the completion of the transaction, Harland became a wholly owned subsidiary of Clarke American Corp. ("Clarke American"), a wholly-owned subsidiary of the Company. Clarke American was renamed Harland Clarke Holdings Corp. ("Harland Clarke Holdings") after 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, comprised 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%.