TORONTO, Ontario (May 1st, 2003) – MDC Corporation Inc. (“MDC”) of Toronto today announced its financial results for the first quarter ended March 31, 2003. Consolidated sales for the quarter decreased 23% to $209.8 million from the $271.3 million reported for the same quarter of the previous year. Operating income before other charges was $13.0 million, representing a decline of 56% from the $29.9 million achieved in the quarter ended March 31, 2002. Net income for the first quarter of 2003 was $1.3 million compared to $12.1 million in 2002. Fully diluted earnings per share for the quarter ended March 31, 2003 was $0.05 compared to $0.45 last year. Fully diluted cashflow per share was $0.30, a decrease of 29% over the $0.42 achieved in 2002.
The financial results for the first quarter of 2002 include the results of operations that have been disposed. Pro forma 2002 results have been compiled that exclude the results of divested operations and restructuring and other charges. Comparing first quarter 2003 to pro forma 2002, sales increased by $4.8 million or 2% from $204.9 million and operating income before other charges increased by $1.5 million or 13% from $11.5 million. On the same basis, net income improved $0.3 million from the $1.0 million generated in the previous year, and fully diluted earnings per share increased to $0.05 from $0.03.
“We are pleased with the progress we have made in improving all aspects of our financial performance in our core operations despite a difficult economic environment. In addition, the strengthening Canadian dollar negatively impacted operating income by approximately $0.9 million,” said Miles S. Nadal, Chairman, President and Chief Executive Officer.
The Secure Transactions Division reported sales of $66.2 million for the first quarter, down 49% from the $131.0 million achieved in the same quarter of 2002. Operating income before other charges was $7.9 million, down from $24.3 million in the 2002 first quarter. However, excluding divested operations, sales increased by $1.6 million or 3% and operating income increased $1.9 million or 32%, primarily as a result of improvements at Custom Direct, MDC’s U.S. direct-to-consumer cheque operation, and at Metaca, the Canadian card operation, partially offset by a reduction in the operating income of the stamp group.
As recently announced, revenues and operating income at Custom Direct have improved due to an increase in both the number of orders and the average order revenue with the continued migration of customers to higher value ordering channels including the telephone and Internet. During the quarter, sales increased 9.8% to US$29.0 million and operating income increased 23.9% to US$6.0 million over the same period last year. Operating income margins improved to 20.6% of sales from 18.2% a year earlier.
Ashton-Potter, our stamp operation, operated at low production levels in the first quarter of 2003, but has recently been awarded a significant long-term contract to produce definitive and commemorative postage stamp products for the United States Postal Service. The increased volumes anticipated under this contract are expected to positively impact revenues and operating profits in the latter half of the year.
For the first quarter, Maxxcom achieved sales of $143.5 million, an increase of $3.2 million from the $140.3 million recorded in the first quarter of 2002. Operating income before other charges was $5.2 million, a decrease of $0.4 million or 7% from the $5.6 million generated in the first quarter of 2002. The U.S. operations, which comprised 71% of revenues in the quarter, experienced moderate growth, which was offset by the stronger Canadian dollar and reduced revenues in Canada and the United Kingdom.
“The difficult economic environment continues to impact the advertising and communications industry, particularly in the United States,” said Mr. Nadal. “However, we remain encouraged by the recent increase in business activity witnessed by the Maxxcom subsidiaries, and are confident that profitability will improve throughout the balance of the year.”
“With regards to the balance sheet, we are pleased with the progress we have made to date and remain committed to improving our working capital and reducing the Corporation’s indebtedness further,” said Peter Lewis, Executive Vice-President and Chief Financial Officer.
MDC recommenced plans for an initial public offering of its U.S.-based cheque business, operated by Custom Direct, Inc., through Custom Direct Income Fund, with the refiling of the preliminary prospectus with the securities regulatory authorities in Canada.
“The revenue growth and improved operating performance achieved by Custom Direct is expected to continue throughout 2003,” commented Mr. Nadal. “MDC has grown Custom Direct to become the second largest direct-to-consumer cheque supplier in the U.S., and we are excited by the opportunity provided by the income fund offering to crystallize the value that has been created.”
About MDC Corporation Inc. (“MDC”)
MDC is a publicly traded international business services organization with operating units in Canada, the United States, United Kingdom and Australia. MDC provides marketing communication services, through Maxxcom, and offers security sensitive transaction products and services in four primary areas: personalized transaction products such as personal and business cheques; electronic transaction products such as credit, debit, telephone & smart cards; secure ticketing products, such as airline, transit and event tickets, and stamps, both postal and excise. MDC shares are traded on the Toronto Stock Exchange under the symbol MDZ.A and on NASDAQ National Market under the symbol MDCA.
About Maxxcom Inc. (“Maxxcom”)
Maxxcom, a subsidiary of MDC, is a multi-national business services company with operating units in Canada, the United States and the United Kingdom. Maxxcom is built around entrepreneurial partner firms that provide a comprehensive range of communications services to clients in North America and the United Kingdom. Services include advertising, direct marketing, database management, sales promotion, corporate communications, marketing research, corporate identity and branding, and interactive marketing. Maxxcom shares are traded on the Toronto Stock Exchange under the symbol MXX.
MDC CORPORATION INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FIRST QUARTER 2003 and 2002
(Unaudited, $CDN 000's - except per share amounts)
For the Three Months Pro forma
Ended March 31, 2003 2002 2002(*)
-------------------------------------------------------------------------
Sales 209,758 271,305 204,933
Cost of sales 109,542 138,999 105,159
-----------------------------------------
Gross profit 100,216 132,306 99,774
Operating expenses 87,181 102,401 88,229
-----------------------------------------
Operating income before other
income (charges) 13,035 29,905 11,545
-----------------------------------------
Other income (charges)
Restructuring, dispositions,
and other charges - 9,544 -
Unrealized foreign
exchange loss - (280) -
Amortization (5,378) (8,567) (5,215)
Interest, net (5,678) (10,157) (6,075)
-----------------------------------------
(11,056) (9,460) (11,290)
-----------------------------------------
Income before income taxes and
minority interest 1,979 20,445 255
Income taxes (recovery) 636 4,631 (673)
-----------------------------------------
Income before minority interest 1,343 15,814 928
Minority interest (recovery) 9 3,679 (39)
-----------------------------------------
Net income for the period 1,334 12,135 967
-----------------------------------------
-----------------------------------------
Cash Flow from operations 7,833 11,455 3,601
-----------------------------------------
-----------------------------------------
Earnings Per Share
Net income
- Basic 0.05 0.69 0.03
- Fully Diluted 0.05 0.45 0.03
Cash Flow Per Share
- Basic 0.44 0.65 0.19
- Fully Diluted 0.30 0.42 0.14
Weighted average shares
outstanding during the period
Earnings per share
- Basic 16,915,341 16,915,341 16,915,341
- Fully Diluted 16,951,759 27,606,645 16,921,345
Cashflow per share
- Basic 16,915,341 16,915,341 16,915,341
- Fully Diluted(xx) 26,403,555 27,606,645 27,606,645
-------------------------------------------------------------------------
-------------------------------------------------------------------------
SEGMENTED INFORMATION - BY OPERATING DIVISION
Pro forma
For the Three Months Ended March 31, 2003 2002 2002
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Secure Transactions
Sales 66,236 130,968 64,596
Operating Income 7,876 24,331 5,971
Maxxcom
Sales 143,522 140,337 140,337
Operating Income 5,159 5,574 5,574
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(*) Pro forma results exclude the impact of restructuring, dispositions,
and other charges, foreign exchange, the results of divested
operations and removal of interest associated with indebtedness that
has been repaid.
(xx) The Company has the option to satisfy the $50,000 of 7% Convertible
Notes ("Notes") with cash or Class A Subordinated Voting Shares
("Shares") at 95% of the current share price. As a result, the fully
diluted shares outstanding include 9,451,796 (2002 - 10,351,967)
Shares for the conversion of the Notes at 95% of the average closing
price of the Shares during the period.
MDC CORPORATION INC.
CONSOLIDATED BALANCE SHEETS
($CDN 000's)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at As at
March 31, December 31,
2003 2002
(Unaudited) (Audited)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents 48,108 59,615
Accounts receivable 108,808 106,419
Inventory 10,305 11,050
Prepaid expenses and sundry 12,568 9,886
------------- -------------
179,789 186,970
Capital and other assets 121,469 126,155
Goodwill 266,707 292,861
------------- -------------
567,965 605,986
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 154,840 168,550
Deferred revenue 23,703 17,517
Current portion of long-term indebtedness 5,806 6,450
------------- -------------
184,349 192,517
Long-term indebtedness 231,406 245,339
------------- -------------
415,755 437,856
------------- -------------
Minority interest 14,985 15,499
------------- -------------
Shareholders' equity
Share capital 144,542 144,542
Other paid-in capital 38,812 38,145
Cumulative translation adjustment 3,155 20,139
Retained earnings (deficit) (49,284) (50,195)
------------- -------------
137,225 152,631
------------- -------------
567,965 605,986
------------- -------------
------------- -------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------