TORONTO, Ontario (July 31, 2002) -MDC Corporation Inc. (“MDC”) of Toronto today announced its financial results for the second quarter and six months ended June 30, 2002.
Revenue was $221.0 million for the quarter ended June 30, 2002, a decrease of 21% compared to the $279.7 million achieved in the second quarter of 2001. Operating income before other charges declined to $13.9 million from the $27.3 million generated in 2001. Excluding the results of Davis + Henderson (“D+H”) from 2001, as the sale of 50.01% of D+H was completed at the beginning of the 2002 second quarter, revenues declined 5% and operating income increased 24%.
Income from continuing operations was $128.3 million, including a $147.5 million pre-tax gain on dispositions, comprised primarily of the sale of the remaining ownership interest in the Canadian cheque operations of D+H and the gain on the repurchase of US$112.5 million of 10.5% Senior Subordinated Notes at 89% of face value. Income from continuing operations in the second quarter of 2001 was $8.9 million. Net income for the quarter was $128.3 million, representing a $159.5 million increase over the restated loss of $31.1 million in the second quarter of the prior year.
Comparative results for second quarter and six months of 2001 were restated to conform with changes to Canadian GAAP effective January 1, 2002, with respect to foreign exchange gains and losses on non-hedged long-term monetary assets and liabilities. These unrealized exchange gains and losses, which were previously deferred and amortized over the term of the related item, are now expensed in the period. As a result, for the second quarter of 2001 an $11.3 million gain and for the year to date 2001 a $3.7 million loss was recognized due to fluctuations in the Canadian to U.S. dollar exchange rates. Unrealized foreign exchange gains of $6.9 million were recognized in the current quarter.
In accordance with the changes to Canadian GAAP effective January 1, 2002 to be applied prospectively, with respect to goodwill and other intangibles and the need to test formally for goodwill impairment on an annual basis, in the second quarter of 2002, the Company completed a program of transitional impairment tests, and as a result, an amount of $99.5 million (net of income tax recovery of $16.0 million) was charged to opening retained earnings.
Fully diluted earnings per share for the second quarter of 2002 was $5.43 versus an adjusted fully diluted loss per share of $1.60 for 2001 calculated on a comparable basis excluding goodwill charges. Cashflow from operations for the second quarter of 2002 was $5.8 million, a decrease from the $14.6 million achieved in the prior year. Fully diluted cashflow per share was $0.25 compared to the $0.69 achieved in 2001.
“Operationally, we remain focused on production efficiencies, continually reassessing the levels of our overhead cost structures, and looking to increase revenues in all of our businesses,” commented Miles S. Nadal, Chairman and Chief Executive Officer.
“As part of our previously announced strategic plan, a program to divest non-core assets was undertaken, and recently, we concluded the divestitures of A.E. McKenzie Co. Inc. and Ashton Potter Packaging for combined proceeds of approximately $10.0 million. We continue to examine opportunities to realize the value inherent in the remainder and expect the process will conclude over the next four quarters,” said Peter Lewis, Executive Vice-President and Chief Financial Officer.
The Secure Transactions division reported second quarter sales of $74.6 million, a 42% decline compared to the same quarter last year, due primarily to the sale of the Canadian cheque operations and reduced activity in e-commerce operations. In the core businesses, revenue growth achieved by the card operations was offset by reduced revenues in the stamp and ticketing businesses. Excluding the results of D+H and discontinued e-commerce operations from the second quarter of 2001, operating income before other charges for the second quarter of 2002 improved by $3.2 million to $8.6 million. Operating income improvements were primarily the result of cost reduction and productivity initiatives, leading to enhanced profitability in our US cheque and Canadian card operations.
“The economic recovery of the marketing and communications industry has not developed as quickly as anticipated, however, we believe that Maxxcom has taken the appropriate measures to restore profitability and achieve sustainable growth when such a recovery occurs. Restructuring and cost-cutting plans have been implemented, and during the quarter, Maxxcom successfully completed the re-negotiation of several partnership agreements,” said Mr. Nadal.
Second quarter revenues for Maxxcom were $146.3 million, a decline of $4.7 million compared to the $151.0 million recorded in the second quarter of 2001. Operating income before other charges was $5.3 million, a decline of 18% from the $6.5 million generated in the same prior-year period. The declines result from the lower level of revenues coupled with the negative impact of a strengthening Canadian dollar on the operating profits of U.S. operations and approximately $0.7 million of legal costs incurred related to the re-negotiation of partnership contracts.
“We are also delivering on our commitment to reduce consolidated debt and balance sheet leverage. At June 30, long-term indebtedness was $252.6 million, a reduction of $287.1 million from the levels of indebtedness at the end of March 2002. We have streamlined our operations and remain committed to growing revenues profitably,” stated Mr. Nadal.
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 Corporation, 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, public relations, public affairs, investor relations, marketing research and consulting, corporate identity and branding, and interactive marketing. Maxxcom shares are traded on the Toronto Stock Exchange under the symbol MXX.
MDC CORPORATION INC.
CONSOLIDATED STATEMENT OF OPERATIONS
SECOND QUARTER 2002 and 2001
(Unaudited, $CDN 000's - except per share amounts)
For the Three Months Ended June 30, 2002 2001(*) Change
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Sales 220,972 279,653 (21%)
Cost of sales 116,959 137,466 (15%)
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Gross profit 104,013 142,187 (27%)
Operating expenses 90,115 114,887 (22%)
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Operating income before other
income (charges) 13,898 27,300 (49%)
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Other income (charges)
Net gain on asset dispositions
and other charges 147,507 -
Unrealized foreign exchange gain 6,982 11,260
Amortization (5,119) (9,584)
Interest, net (5,925) (12,145)
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143,445 (10,469)
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Income before income taxes, goodwill
charges and minority interest 157,343 16,831
Income taxes 28,808 3,362
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Income before goodwill charges
and minority interest 128,535 13,469
Goodwill charges, net of income taxes - 4,681
Minority interest (recovery) 191 (66)
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Income from continuing operations 128,344 8,854
Loss from discontinued operations - (40,000)
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Net income (loss) for the period 128,344 (31,146)
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Cash Flow from operations 5,752 14,600
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Earnings Per Share
Income from continuing operations
- Basic 7.56 0.49
- Fully Diluted 5.43 0.42
Reported
- Basic 7.56 (1.88)
- Fully Diluted 5.43 (1.88)
Cash Flow Per Share
- Basic 0.32 0.83 (61%)
- Fully Diluted 0.25 0.69 (64%)
Weighted average shares outstanding
during the period
- Basic 16,915,341 16,874,691 0%
- Fully Diluted 23,658,938 21,224,007 11%
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SEGMENTED INFORMATION - BY OPERATING DIVISION
For the Three Months Ended June 30, 2002 2001 Change
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Secure Transactions
Sales 74,646 128,673 (42%)
Operating Income 8,598 20,803 (59%)
Maxxcom
Sales 146,326 150,980 (3%)
Operating Income 5,300 6,497 (18%)
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(*) Restated to reflect the change in accounting policy with respect to
foreign exchange gains and losses on non-hedged long-term monetary
assets and liabilities.
MDC CORPORATION INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FIRST HALF 2002 and 2001
(Unaudited, $CDN 000's - except per share amounts)
For the Six Months Ended June 30, 2002 2001(*) Change
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Sales 492,277 564,705 (13%)
Cost of sales 255,958 280,080 (9%)
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Gross profit 236,319 284,625 (17%)
Operating expenses 192,516 226,124 (15%)
-----------------------
Operating income before
other income (charges) 43,803 58,501 (25%)
-----------------------
Other income (charges)
Net gain on asset dispositions
and other charges 157,051 -
Unrealized foreign exchange gain (loss) 6,702 (3,640)
Amortization (13,686) (18,504)
Interest, net (16,082) (25,127)
-----------------------
133,985 (47,271)
-----------------------
Income before income taxes, goodwill
charges and minority interest 177,788 11,230
Income taxes 33,439 1,915
-----------------------
Income before goodwill charges
and minority interest 144,349 9,315
Goodwill charges, net of income taxes - 9,358
Minority interest (recovery) 3,870 (179)
-----------------------
Income from continuing operations 140,479 136
Loss from discontinued operations - (40,000)
-----------------------
Net income (loss) for the period 140,479 (39,864)
-----------------------
-----------------------
Cash Flow from operations 17,207 32,192
-----------------------
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Earnings Per Share
Income from continuing operations
- Basic 8.26 (0.06)
- Fully Diluted 5.62 (0.06)
Reported
- Basic 8.26 (2.43)
- Fully Diluted 5.62 (2.43)
Cash Flow Per Share
- Basic 0.97 1.84 (47%)
- Fully Diluted 0.70 1.53 (54%)
Weighted average shares outstanding
during the period
- Basic 16,915,341 16,859,211 0%
- Fully Diluted 25,055,517 21,225,986 18%
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SEGMENTED INFORMATION - BY OPERATING DIVISION
For the Six Months Ended June 30, 2002 2001 Change
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Secure Transactions
Sales 205,614 263,155 (22%)
Operating Income 32,929 44,572 (26%)
Maxxcom
Sales 286,663 301,550 (5%)
Operating Income 10,874 13,929 (22%)
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(*) Restated to reflect the change in accounting policy with respect to
foreign exchange gains and losses on non-hedged long-term monetary
assets and liabilities.
MDC CORPORATION INC.
CONSOLIDATED BALANCE SHEET
($CDN 000's - except per share amounts)
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As at As at
June 30, December 31,
2002 2001(*)
(Unaudited) (Audited)
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ASSETS
Current
Cash and cash equivalents 43,198 59,301
Accounts receivable 127,166 142,769
Inventory 12,216 23,282
Prepaid expenses and sundry 14,097 11,969
Future income taxes - 28,000
--------------------------
196,677 265,321
Capital and other assets 132,510 166,439
Goodwill 242,032 462,746
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571,219 894,506
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 151,710 204,994
Deferred revenue 19,791 23,771
Current portion of long-term indebtedness 7,251 12,049
--------------------------
178,752 240,814
Long-term indebtedness 245,322 527,468
--------------------------
424,074 768,282
--------------------------
Minority interest 14,584 15,253
--------------------------
Shareholders' equity
Share capital 144,542 142,599
Other paid-in capital 36,897 51,943
Cumulative translation adjustment 8,385 13,892
Retained earnings (deficit) (57,263) (97,463)
--------------------------
132,561 110,971
--------------------------
571,219 894,506
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(*) Restated to reflect the change in accounting policy with respect to
foreign exchange gains and losses on non-hedged long-term monetary
assets and liabilities. The effect was a reduction in capital and
other assets and retained earnings (deficit) of $23,809.