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8-K - FORM 8-K - M & F WORLDWIDE CORP | y04823e8vk.htm |
Exhibit 99.1
M & F WORLDWIDE CORP.
REPORTS FIRST QUARTER 2011 RESULTS
REPORTS FIRST QUARTER 2011 RESULTS
M & F Worldwide Corp. to Hold Conference Call on May 9, 2011
New York, NY May 5, 2011 M & F Worldwide Corp. (M & F Worldwide or the Company)
(NYSE: MFW) today reported results for the first quarter ended March 31, 2011. Additionally, M & F
Worldwide filed its quarterly report on Form 10-Q with the Securities and Exchange Commission
today.
M & F Worldwide will host a conference call to discuss its first quarter 2011 results on May
9, 2011, at 9:00 a.m. (EDT). The conference call will be accessible by dialing (800) 230-1085 in
the United States and (612) 288-0329 internationally. For those unable to listen live, a replay of
the call will be available by dialing (800) 475-6701 in the United States and (320) 365-3844
internationally; Access Code: 202674. The replay will be available from 11:00 a.m. (EDT) Monday,
May 9, 2011, through 11:59 p.m. (EDT) Monday, May 23, 2011.
First Quarter 2011 Highlights
| The Company continued to expand Scantrons web-based education solutions through the acquisition of GlobalScholar, which was completed on January 3, 2011. | ||
| Net revenues of $433.4 million, down $23.8 million, or 5.2%, as compared to first quarter of 2010. | ||
| Operating income of $65.6 million, down $22.4 million, or 25.5%, as compared to the first quarter of 2010, in part due to costs associated with Scantrons recent acquisitions of GlobalScholar and Spectrum K12 including investments in growth initiatives and product development. | ||
| Net income of $12.9 million, down $20.7 million, or 61.6%, as compared to the first quarter of 2010, in part due to a $20.0 million ($12.8 million after tax) one-time charge associated with the disposition of the Companys former non-operating subsidiary, Pneumo Abex LLC. |
First Quarter 2011 Performance
Consolidated Results
Consolidated net revenues decreased by $23.8 million, or 5.2%, to $433.4 million for the first
quarter of 2011 from $457.2 million for the first quarter of 2010. The decrease was primarily due
to volume declines in checks and related products and decreased revenues per unit at the Harland
Clarke segment, partially offset by increases in revenues at the Harland Financial Solutions,
Licorice Products and Scantron segments.
Operating income decreased by $22.4 million, or 25.5%, to $65.6 million for the first quarter
of 2011 from $88.0 million for the first quarter of 2010. The decrease was primarily
due to costs incurred at the Scantron segment related to the acquisitions of KUE Digital Inc.,
KUED Sub I LLC and KUED Sub II LLC (collectively referred to as GlobalScholar) in January 2011
and Spectrum K12 School Solutions, Inc. (Spectrum K12) in July 2010, as further described in
Segment Results below. Volume declines in check and related products and decreased revenues per
unit at the Harland Clarke segment also contributed to the decrease in operating income.
Net income decreased by $20.7 million, or 61.6%, to $12.9 million for the first quarter of
2011 from $33.6 million for the first quarter of 2010. The decrease was primarily due to the $22.4
million ($13.7 million after tax) decrease in operating income, as well as a one-time charge of
$20.0 million ($12.8 million after tax) associated with the disposition of the Companys former
non-operating subsidiary, Pneumo Abex LLC, partially offset by a decline in interest expense and a
lower effective tax rate.
Adjusted EBITDA decreased by $22.0 million, or 16.6%, to $110.5 million for the first quarter
of 2011 from $132.5 million for the first quarter of 2010. Adjusted EBITDA is a non-GAAP measure
that is defined in the footnotes to this release and reconciled to net income, the most directly
comparable GAAP measure, in the accompanying financial tables.
Segment Results
Net revenues for the Harland Clarke segment decreased by $30.3 million, or 9.8%, to
$279.4 million for the first quarter of 2011 from $309.7 million for the first quarter of 2010.
The decrease was primarily due to volume declines in check and related products, and decreased
revenues per unit. Operating income for the Harland Clarke segment decreased by $9.8
million, or 14.9%, to $55.8 million for the first quarter of 2011 from $65.6 million for the first
quarter of 2010. The decrease in operating income was primarily due to volume declines and
decreased revenues per unit, partially offset by labor cost reductions resulting from restructuring
activities and lower depreciation and travel expenses. Operating income for the first quarters of
2011 and 2010 includes restructuring costs of $2.6 million and $1.7 million, respectively.
Net revenues for the Harland Financial Solutions segment increased by $2.7 million, or
3.9%, to $72.0 million for the first quarter of 2011 from $69.3 million for the first quarter of
2010. The increase was primarily due to revenues from the acquisition of Parsam Technologies, LLC
(Parsam) in December 2010 and increases in software revenues and services revenues, partially
offset by decreases in maintenance fees. Operating income for the Harland Financial Solutions
segment increased by $2.6 million, or 22.8%, to $14.0 million for the first quarter of 2011 from
$11.4 million for the first quarter of 2010. The increase in operating income was primarily due to
the increase in revenues, a decrease in amortization expense and a decrease in compensation expense
related to an incentive agreement from an acquisition, partially offset by costs related to the
acquisition of Parsam.
Net revenues for the Scantron segment increased by $1.5 million, or 2.9%, to $52.6 million for
the first quarter of 2011 from $51.1 million for the first quarter of 2010. The increase was
primarily due to the acquisitions of GlobalScholar and Spectrum K12, increases in field
services installations and increases in revenues from web-based products and services for the
education market. Revenue increases were partially offset by declines in forms, systems hardware
and survey services revenues. Net revenues in the 2011 period included charges of $2.9 million for
non-cash fair value acquisition accounting adjustments to deferred revenue related to the
GlobalScholar and Spectrum K12 acquisitions. In addition, the current accounting for revenue
recognition for the recent acquisitions results in a substantial deferral of revenue into future
periods for amounts that are billed and collected, while costs related to these sales are incurred
and recognized in the current period. Operating income (loss) for the Scantron segment decreased by
$13.7 million, or 147.3%, to an operating loss of $(4.4) million for the first quarter of 2011 from
operating income of $9.3 million for the first quarter of 2010. The decrease in operating income
was primarily due to costs associated with Spectrum K12 and GlobalScholar, including $4.4 million
of intangible asset amortization expense in the first quarter of 2011, the impact of the revenue
acquisition accounting adjustments, as well as investments in growth initiatives and product
development costs.
Net revenues for the Licorice Products segment increased by $2.3 million, or 8.5%, to
$29.5 million in the first quarter of 2011 from $27.2 million in the first quarter of 2010.
Magnasweet and pure licorice derivative sales increased by $1.7 million primarily due to increased
shipment volumes of pure licorice derivatives to international cosmetic, pharmaceutical, food, and
beverage customers as a result of focused marketing efforts. Sales of licorice extract to the
worldwide tobacco industry increased by $0.7 million and sales of licorice extract to non-tobacco
customers declined by $0.2 million primarily due to order timing. Operating income for the
Licorice Products segment increased by $0.9 million, or 13.0%, to $7.8 million for the first
quarter of 2011 from $6.9 million for the first quarter of 2010, primarily due to the increase in
sales.
About M & F Worldwide
M & F Worldwide has four business segments, which are operated by Harland Clarke, Harland
Financial Solutions, Scantron and Mafco Worldwide. Harland Clarke is a provider of checks and
related products, direct marketing services and customized business and home office products.
Harland Financial Solutions provides technology products and related services to financial
institutions. Scantron is a leading provider of data management solutions and related services to
educational, healthcare, commercial and governmental entities worldwide including testing and
assessment solutions, patient information collection and tracking, and survey services. Mafco
Worldwide produces licorice products for sale to the tobacco, food, pharmaceutical and
confectionery industries.
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Forward-Looking Statements
This press release contains forward-looking statements that reflect managements 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
Worldwides control. All statements other than statements of historical facts included in this
press release, including those regarding M & F Worldwides 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 Worldwides Securities and Exchange Commission filings and
others, the following factors may cause M & F Worldwides 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) additional government regulation of tobacco products, tobacco industry
litigation or enactment of new or increased taxes on cigarettes or other tobacco products, to the
extent any of the foregoing curtail growth in or actually reduce consumption of tobacco products in
which licorice products are used or place limitations on the use of licorice extracts as additives
used in manufacturing tobacco products; (3) the failure of third parties to make full and timely
payment to M & F Worldwide for environmental, tax and other matters for which M & F Worldwide is
entitled to indemnification; (4) unfavorable foreign currency fluctuations; (5) difficult
conditions in financial markets, the downturn in and potential worsening of general economic and
market conditions and the impact of the credit crisis; (6) M & F Worldwides substantial
indebtedness; (7) covenant restrictions under M & F Worldwides indebtedness that may limit its
ability to operate its business and react to market changes; (8) 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, a decline in consumer confidence and/or checking account openings and other
factors, and our ability to grow non-check-related product lines; (9) consolidation among or
failure of financial institutions, decreased spending by financial institutions on our products and
services and other adverse changes among the large clients on which M & F Worldwide depends,
resulting in decreased revenues and/or pricing pressure; (10) the ability to retain M & F
Worldwides clients; (11) the ability to retain M & F Worldwides key employees and management;
(12) lower than expected cash flow from operations; (13) significant increases in interest rates;
(14) intense competition in all areas of M & F Worldwides business; (15) interruptions or adverse
changes in M & F Worldwides supplier relationships, technological capacity, intellectual property
matters, and applicable laws; (16) decreases to educational budgets as a result of the continued
general economic downturn and the resulting impact on Scantrons customers; (17) variations in
contemplated brand strategies, business locations, management positions and other business
decisions in connection with integrating acquisitions; (18) M & F Worldwides ability to
successfully integrate and manage recent acquisitions as well as future acquisitions; (19) M & F
Worldwides ability to achieve vendor-specific objective evidence for software businesses we have
acquired or will acquire, which could affect the timing of recognition of revenue; (20) M & F
Worldwides ability to implement any or all components of its business strategy or realize all of
its expected cost savings or synergies from acquisitions; (21) acquisitions otherwise not being
successful from a financial point of view, including, without limitation, due to any
difficulties with M & F Worldwides servicing its debt obligations; and (22) weak economic
conditions and declines in the financial performance of our businesses that may result in material
impairment charges.
You should read carefully the factors described in M & F Worldwides Annual Report on Form
10-K for the year ended December 31, 2010 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 in the 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 frequently
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used by securities analysts,
investors and other interested parties in the evaluation of companies in M & F Worldwides
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 Worldwides and Harland
Clarke Holdings senior credit facilities use EBITDA (with additional adjustments) to measure
compliance with financial covenants such as debt incurrence. M & F Worldwides 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 Worldwides presentation of this
measure should not be construed as an inference that its future results will be unaffected by
unusual or non-recurring items.
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. Some of these limitations are:
| it does not reflect M & F Worldwides cash expenditures and future requirements for capital expenditures or contractual commitments; | ||
| it does not reflect changes in, or cash requirements for, M & F Worldwides 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 Worldwides 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 Worldwides statements of cash flows; and | ||
| other companies in M & F Worldwides 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 Worldwides 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 Worldwides GAAP results and using EBITDA only
supplementally.
M & F Worldwide presents Adjusted EBITDA as a 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 Worldwides ongoing operating performance. Such items
include, but are not limited to, restructuring costs, asset impairment charges, settlement of
certain contingent claims, deferred purchase price compensation related to an acquisition and
certain acquisition 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
Worldwides presentation of Adjusted EBITDA should not be construed as an inference that its future
results will be unaffected by unusual or non-recurring items.
For additional information contact:
Christine Taylor
(212) 572-5988
(212) 572-5988
- tables to follow -
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M & F Worldwide Corp. and Subsidiaries
Consolidated Statements of Income
(in millions)
Consolidated Statements of Income
(in millions)
(unaudited) | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Product revenues, net |
$ | 353.5 | $ | 377.4 | ||||
Service revenues, net |
79.9 | 79.8 | ||||||
Total net revenues |
433.4 | 457.2 | ||||||
Cost of products sold |
215.6 | 223.5 | ||||||
Cost of services provided |
39.7 | 40.9 | ||||||
Total cost of revenues |
255.3 | 264.4 | ||||||
Gross profit |
178.1 | 192.8 | ||||||
Selling, general and administrative expenses |
108.9 | 101.6 | ||||||
Asset impairment charges |
1.3 | | ||||||
Restructuring costs |
2.3 | 3.2 | ||||||
Operating income |
65.6 | 88.0 | ||||||
Interest income |
0.1 | 0.3 | ||||||
Interest expense |
(27.4 | ) | (30.6 | ) | ||||
Settlement of contingent claims |
(20.0 | ) | | |||||
Other expense, net |
| (0.2 | ) | |||||
Income before income taxes |
18.3 | 57.5 | ||||||
Provision for income taxes |
5.4 | 23.9 | ||||||
Net income |
$ | 12.9 | $ | 33.6 | ||||
Earnings per common share |
||||||||
Basic |
$ | 0.67 | $ | 1.74 | ||||
Diluted |
$ | 0.66 | $ | 1.73 | ||||
Weighted average number of shares used in per
share calculations: |
||||||||
Basic shares |
19.3 | 19.3 | ||||||
Diluted shares |
19.5 | 19.4 | ||||||
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M & F Worldwide Corp. and Subsidiaries
Business Segment Information
(in millions)
Business Segment Information
(in millions)
(unaudited) | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Net revenues |
||||||||
Harland Clarke segment |
$ | 279.4 | $ | 309.7 | ||||
Harland Financial Solutions segment |
72.0 | 69.3 | ||||||
Scantron segment |
52.6 | 51.1 | ||||||
Licorice Products segment |
29.5 | 27.2 | ||||||
Eliminations |
(0.1 | ) | (0.1 | ) | ||||
Total net revenues |
$ | 433.4 | $ | 457.2 | ||||
Operating income |
||||||||
Harland Clarke segment |
$ | 55.8 | $ | 65.6 | ||||
Harland Financial Solutions segment |
14.0 | 11.4 | ||||||
Scantron segment |
(4.4 | ) | 9.3 | |||||
Licorice Products segment |
7.8 | 6.9 | ||||||
Corporate |
(7.6 | ) | (5.2 | ) | ||||
Total operating income |
$ | 65.6 | $ | 88.0 | ||||
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Reconciliation of net income to EBITDA and EBITDA to Adjusted EBITDA (in millions):
(unaudited) | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Net income |
$ | 12.9 | $ | 33.6 | ||||
Interest expense, net |
27.3 | 30.3 | ||||||
Provision for income taxes |
5.4 | 23.9 | ||||||
Depreciation and amortization |
40.8 | 40.7 | ||||||
EBITDA |
86.4 | 128.5 | ||||||
Adjustments: |
||||||||
Restructuring costs (a) |
2.3 | 3.2 | ||||||
Acquisition-related
deferred compensation and changes in contingent consideration (b) |
(2.7 | ) | 0.4 | |||||
Asset impairment charges (c) |
1.3 | | ||||||
Impact of purchase accounting adjustments (d) |
3.2 | 0.4 | ||||||
Settlement of contingent claims (e) |
20.0 | | ||||||
Adjusted EBITDA |
$ | 110.5 | $ | 132.5 | ||||
(a) | Reflects restructuring costs, including adjustments, recorded in accordance with GAAP, consisting primarily of severance, post-closure facility expenses and other related expenses. | |
(b) | Reflects charges accrued under deferred purchase price agreements and changes in estimates of contingent consideration related to acquisitions. | |
(c) | Reflects non-cash impairment charges from the write-down of assets. | |
(d) | Reflects the non-cash fair value deferred revenue adjustments related to acquisition accounting. | |
(e) | Reflects a one-time charge associated with the disposition of the Companys former non-operating subsidiary, Pneumo Abex LLC. |
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