e10vq

Large accelerated filer o

Accelerated filer þ

Non-accelerated filer o

Smaller reporting company o

(Do not check if a smaller reporting company)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-13780

M & F WORLDWIDE CORP.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		02-0423416 (I.R.S. Employer Identification No.)

35 East 62^nd Street New York, New York (Address of principal executive offices)		10065 (Zip code)

(212) 572-8600
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

As of June 30, 2010, there were 19,333,931 shares of the registrant’s common stock outstanding, of which 7,248,000 shares were held by MFW Holdings One LLC and 1,012,666 shares were held by MFW Holdings Two LLC, each of which are wholly owned subsidiaries of MacAndrews & Forbes Holdings Inc.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

M & F Worldwide Corp. and Subsidiaries

Consolidated Balance Sheets

(in millions, except share and per share data)


	June 30,			December 31,
	2010			2009
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	272.5		$	133.7
Accounts receivable (net of allowances of $3.2 and $3.3)		143.4			133.1
Investments in marketable securities		—			24.6
Inventories		133.8			139.4
Income taxes receivable		11.6			12.2
Deferred tax assets		22.4			22.4
Prepaid expenses and other current assets		72.5			78.1

Total current assets		656.2			543.5
Property, plant and equipment		397.5			389.9
Less accumulated depreciation		(236.4	)		(214.3	)

Property, plant and equipment, net		161.1			175.6
Goodwill		1,513.9			1,517.3
Other intangible assets, net		1,244.0			1,297.9
Pension asset		10.2			10.5
Contract acquisition payments, net		29.8			28.6
Investments in auction-rate securities		14.8			29.4
Other assets		85.4			83.2

Total assets	$	3,715.4		$	3,686.0


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	42.2		$	41.0
Deferred revenues		115.3			116.1
Short-term debt		11.1			22.2
Current maturities of long-term debt		19.4			24.5
Accrued liabilities:
Salaries, wages and employee benefits		71.7			56.7
Income and other taxes payable		21.8			15.5
Customer incentives		27.1			23.5
Other current liabilities		28.4			34.6

Total current liabilities		337.0			334.1
Long-term debt		2,253.7			2,269.5
Deferred tax liabilities		448.0			462.6
Other liabilities		107.2			105.8
Commitments and contingencies
Stockholders’ equity:
Common stock, par value $0.01; 250,000,000 shares authorized; 23,875,831 shares issued at June 30, 2010 and December 31, 2009		0.2			0.2
Additional paid-in capital		76.0			75.4
Treasury stock at cost; 4,541,900 shares at June 30, 2010 and December 31, 2009		(106.6	)		(106.6	)
Retained earnings		620.1			556.7
Accumulated other comprehensive (loss) income, net of taxes:
Currency translation adjustments		(0.7	)		6.5
Funded status of benefit plans		(10.5	)		(10.5	)
Derivative fair-value adjustments		(10.0	)		(8.6	)
Unrealized gains on investments, net		1.0			0.9

Total accumulated other comprehensive loss, net of taxes		(20.2	)		(11.7	)

Total stockholders’ equity		569.5			514.0

Total liabilities and stockholders’ equity	$	3,715.4		$	3,686.0

See Notes to Consolidated Financial Statements

M & F Worldwide Corp. and Subsidiaries

Consolidated Statements of Income

(in millions, except per share data)

(unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Product revenues, net	$	374.0		$	377.4		$	756.8		$	766.2
Service revenues, net		77.3			74.5			151.7			150.0

Total net revenues		451.3			451.9			908.5			916.2
Cost of products sold		217.9			225.2			444.6			460.4
Cost of services provided		40.8			38.0			78.5			77.9

Total cost of revenues		258.7			263.2			523.1			538.3

Gross profit		192.6			188.7			385.4			377.9
Selling, general and administrative expenses		105.5			105.1			207.1			214.9
Asset impairment charges		0.6			—			0.6			—
Restructuring costs		7.0			13.6			10.2			24.7

Operating income		79.5			70.0			167.5			138.3
Interest income		0.3			0.4			0.6			0.9
Interest expense		(30.8	)		(36.2	)		(61.4	)		(74.8	)
Gain on early extinguishment of debt		—			8.9			—			61.5
Other (expense) income, net		—			(0.1	)		(0.2	)		0.8

Income before income taxes		49.0			43.0			106.5			126.7
Provision for income taxes		19.2			13.9			43.1			46.3

Net income	$	29.8		$	29.1		$	63.4		$	80.4

Earnings per common share:
Basic	$	1.54		$	1.51		$	3.28		$	4.16

Diluted	$	1.53		$	1.50		$	3.26		$	4.14

See Notes to Consolidated Financial Statements

M & F Worldwide Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(in millions)

(unaudited)


	Six Months Ended
	June 30,
	2010			2009
Operating activities
Net income	$	63.4		$	80.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		26.4			30.6
Amortization of intangible assets		54.3			51.4
Amortization of deferred financing fees		3.8			3.6
Gain on early extinguishment of debt		—			(61.5	)
Deferred income taxes		(14.1	)		8.2
Restricted stock amortization		0.6			0.6
Asset impairments		0.6			—
Realized and unrealized losses on marketable securities		0.3			—
Changes in operating assets and liabilities, net of effect of businesses acquired:
Accounts receivable		(11.0	)		(6.8	)
Inventories		3.4			(14.0	)
Prepaid expenses and other assets		(3.5	)		(11.4	)
Pension asset		0.3			(0.1	)
Contract acquisition payments, net		(1.2	)		(1.5	)
Accounts payable and accrued liabilities		10.6			(22.5	)
Deferred revenues		2.5			7.4
Income and other taxes		6.9			9.0
Other, net		0.6			3.2

Net cash provided by operating activities		143.9			76.6
Investing activities
Net repayments of related party notes receivable		3.0			4.8
Proceeds from sale of property, plant and equipment		2.5			0.4
Proceeds from sale and redemption of marketable securities		39.0			—
Capital expenditures		(15.4	)		(23.6	)
Capitalized interest		—			(0.2	)
Other, net		(1.3	)		(2.1	)

Net cash provided by (used in) investing activities		27.8			(20.7	)
Financing activities
Redemption of notes		—			(49.7	)
Repayments of short-term debt		(11.1	)		—
Repayments of credit agreements and other borrowings		(21.0	)		(16.9	)
Other, net		(0.5	)		(0.4	)

Net cash used in financing activities		(32.6	)		(67.0	)
Effect of exchange rate changes on cash and cash equivalents		(0.3	)		—

Net increase (decrease) in cash and cash equivalents		138.8			(11.1	)
Cash and cash equivalents at beginning of period		133.7			102.2

Cash and cash equivalents at end of period	$	272.5		$	91.1


Supplemental disclosure of cash paid for:
Interest, net of amounts capitalized	$	57.1		$	77.2
Income taxes, net of refunds		46.7			28.9

See Notes to Consolidated Financial Statements

M & F Worldwide Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(dollars in millions, except per share data)

(unaudited)

1. Description of Business and Basis of Presentation

M & F Worldwide Corp. (“M & F Worldwide” and, together with its subsidiaries, the “Company”) was incorporated in Delaware on June 1, 1988. M & F Worldwide is a holding company that conducts its operations through its indirect wholly owned subsidiaries, Harland Clarke Holdings Corp. (“Harland Clarke Holdings”) and Mafco Worldwide Corporation (“Mafco Worldwide”). At June 30, 2010, MacAndrews & Forbes Holdings Inc. (“Holdings”), through its wholly owned subsidiaries MFW Holdings One LLC and MFW Holdings Two LLC, beneficially owned approximately 43.4% of the outstanding M & F Worldwide common stock.

During December 2009, Harland Clarke Corp., a wholly owned subsidiary of Harland Clarke Holdings, acquired in separate transactions SubscriberMail and Protocol Integrated Marketing Services (“Protocol IMS”), a division of Protocol Global Solutions. The acquisition-date aggregate consideration of $13.1 for these transactions includes contingent consideration of $1.8 for SubscriberMail upon the achievement of certain revenue targets in 2010 and 2011, with a maximum contingent consideration of $2.0 if the targets are met (see Note 3). SubscriberMail is a leading email marketing service provider that offers patented tools to develop and deliver professional email communications. Protocol IMS focuses on direct marketing services with solutions that include business to business strategic services, business to consumer strategic services, database marketing and analytics, outbound business to business teleservices, production and fulfillment.

The Company has organized its business and corporate structure along the following four business segments: Harland Clarke, Harland Financial Solutions, Scantron and Licorice Products.

The Harland Clarke segment offers checks and related products, forms and treasury supplies, and related delivery and fraud prevention products to financial services, retail and software providers. It also provides direct marketing services to their clients including direct marketing campaigns, direct mail, database marketing, telemarketing and e-mail marketing. In addition to these products and services, the Harland Clarke segment offers stationery, business cards and other business and home office products to consumers and small businesses.

The Harland Financial Solutions segment provides technology products and services to financial services clients worldwide including lending and mortgage compliance and origination applications, risk management solutions, business intelligence solutions, Internet and mobile banking applications, branch automation solutions and core processing systems.

The Scantron segment provides data management solutions and related services to educational, commercial, healthcare and governmental entities worldwide including testing and assessment solutions, patient information collection and tracking, and survey services. Scantron’s solutions combine a variety of data collection, analysis, and management tools including web-based solutions, software, scanning equipment, forms and related field maintenance services.

The Licorice Products segment, which is operated by Mafco Worldwide, produces a variety of licorice products from licorice root, intermediary licorice extracts produced by others and certain other ingredients. Approximately 67% of Mafco Worldwide’s licorice product sales are to the worldwide tobacco industry for use as tobacco flavor enhancing and moistening agents in the manufacture of American blend cigarettes, moist snuff, chewing tobacco and pipe tobacco. Mafco Worldwide also manufactures and sells natural products for use in the tobacco industry. Mafco Worldwide also sells licorice products to food processors, confectioners, cosmetic companies and pharmaceutical manufacturers for use as flavoring or masking agents, including its Magnasweet brand flavor enhancer, which is used in various brands of chewing gum, energy bars, non-carbonated beverages, lip balm, chewable vitamins, aspirin and other products. In addition, Mafco Worldwide sells licorice root residue as garden mulch under the name Right Dress.

The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries after the elimination of all material intercompany accounts and transactions. The Company has consolidated the results of operations and accounts of businesses acquired from the date of acquisition. Investments in which the Company has at least a 20%, but not more than a 50%, interest are generally accounted for under the equity method.

M & F Worldwide Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(dollars in millions, except per share data)
(unaudited)

Harland Clarke Holdings and each of its existing subsidiaries other than unrestricted subsidiaries and certain immaterial subsidiaries are guarantors and may also be co-issuers under the 2015 Senior Notes (as hereinafter defined) (see Note 13). Harland Clarke Holdings is a holding company, and has no independent assets at June 30, 2010, and no operations. The guarantees and the obligations of the subsidiaries of Harland Clarke Holdings are full and unconditional and joint and several, and any subsidiaries of Harland Clarke Holdings other than the subsidiary guarantors and obligors are not significant.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the full fiscal year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

All terms used but not defined elsewhere herein have the meaning ascribed to them in the Company’s 2009 Annual Report on Form 10-K.

2. Summary of Significant Accounting Policies

Reference is made to the significant accounting policies of the Company described in the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Recently Issued Accounting Guidance

In October 2009, the Financial Accounting Standards Board (the “FASB”) issued new guidance for certain arrangements that include software elements. The new guidance removes non-software components of tangible products and software components of tangible products that have software components essential to the functionality of the tangible product from the scope of software revenue recognition.

In October 2009, the FASB issued new guidance for multiple-deliverable revenue arrangements. The new guidance requires entities to allocate revenue in a multiple-deliverable arrangement within the scope of the guidance using estimated selling prices based on a selling price hierarchy. It also eliminates the residual method of revenue allocation and requires revenue to be allocated using the relative selling price method. In addition, the new guidance significantly expands qualitative and quantitative disclosure requirements for multiple-deliverable arrangements.

The new guidance for certain arrangements that include software elements and multiple-deliverable revenue arrangements is effective for fiscal years beginning on or after June 15, 2010. The guidance may be applied retrospectively for all periods presented, or prospectively to all arrangements entered into or materially modified after the adoption date. Early adoption is permitted provided that the guidance is retroactively applied to the beginning of the year of adoption. The Company is currently evaluating the impact of the new guidance on its consolidated financial condition and results of operations.

M & F Worldwide Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(dollars in millions, except per share data)
(unaudited)

3. Acquisitions

Acquisition of Protocol IMS and SubscriberMail

During December 2009, Harland Clarke Corp., a wholly owned subsidiary of Harland Clarke Holdings, acquired in separate transactions 100% of the equity of SubscriberMail and certain assets and liabilities of Protocol IMS. The acquisition-date aggregate consideration of $13.1 for these transactions includes contingent consideration of $1.8 for SubscriberMail upon the achievement of certain revenue targets in 2010 and 2011, with a maximum contingent consideration of $2.0 if the targets are met. SubscriberMail is a leading email marketing service provider that offers patented tools to develop and deliver professional email communications. SubscriberMail results of operations have been included in the Company’s operations since December 31, 2009, the date of its acquisition. Protocol IMS focuses on direct marketing services with solutions that include business to business strategic services, business to consumer strategic services, database marketing and analytics, outbound business to business teleservices, production and fulfillment. Protocol IMS results of operations have been included in the Company’s operations since December 4, 2009, the date of its acquisition. The preliminary allocations of purchase price resulted in identified intangible assets of $4.2 and goodwill of $7.2, which are deductible for tax purposes.

The pro forma effects on the results of operations for these acquisitions were not material.

4. Inventories

Inventories consist of the following:


	June 30,		December 31,
	2010		2009
Finished goods	$	31.1	$	36.0
Work-in-process		8.4		11.3
Raw materials		94.3		92.1

	$	133.8	$	139.4

5. Assets Held For Sale

At June 30, 2010, assets held for sale consist of the following Harland Clarke segment facilities:


Location	Former Use	Year Closed
Atlanta, GA	Operations Support		2008
Atlanta, GA	Printing		2008
Atlanta, GA	Information Technology		2010

During the first quarter of 2010, the Company closed its information technology facility in Atlanta, GA and relocated those operations into an existing facility. The other Atlanta facilities were closed as part of the Company’s plan to exit duplicative facilities related to an acquisition. Subsequent to the classification of the Atlanta facilities as assets held for sale, there have been significant changes in the real estate market. During the second quarter of 2010, non-cash impairment charges of $0.6 were recorded to adjust the carrying values of the print facility and information technology facility to reflect an updated estimate of the fair values less costs to sell. The Company has made appropriate changes to its marketing plan and believes these facilities will be sold within twelve months. In January 2010, the Company sold its Syracuse facility, which was closed in 2009, for its carrying value of $1.1. In June 2010, the Company sold its Greensboro facility, which was closed in 2009, for $1.3 and realized a gain of $0.3, which is included in restructuring costs in the accompanying consolidated statements of income.

M & F Worldwide Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(dollars in millions, except per share data)
(unaudited)

Assets held for sale are included in prepaid expenses and other current assets on the accompanying consolidated balance sheets and consist of the following:


	June 30,		December 31,
	2010		2009
Land	$	1.6	$	1.4
Buildings and improvements		2.1		3.5

	$	3.7	$	4.9

6. Goodwill and Other Intangible Assets

The change in carrying amount of goodwill by business segment for the six months ended June 30, 2010 is as follows:


			Harland
	Harland		Financial					Licorice
	Clarke		Solutions			Scantron		Products			Total
Balance as of December 31, 2009	$	779.4	$	425.2		$	268.6	$	44.1		$	1,517.3
Effect of exchange rate changes		—		(1.1	)		—		(2.3	)		(3.4	)

Balance as of June 30, 2010	$	779.4	$	424.1		$	268.6	$	41.8		$	1,513.9

Useful lives, gross carrying amounts and accumulated amortization for other intangible assets are as follows:


		Gross Carrying Amount				Accumulated Amortization
	Useful Life	June 30,		December 31,		June 30,		December 31,
	(in years)	2010		2009		2010		2009
Amortized intangible assets:
Customer relationships	3-20	$	1,234.5	$	1,234.6	$	306.1	$	261.5
Trademarks and tradenames	2-25		154.5		154.5		7.8		3.4
Software and other	2-10		65.5		65.1		32.5		28.2
Patents and patents pending	3-20		20.0		20.0		4.8		4.0

			1,474.5		1,474.2		351.2		297.1

Indefinite-lived intangible assets:
Product formulations			109.7		109.8		—		—
Trademarks and tradenames			11.0		11.0		—		—

Total other intangible assets		$	1,595.2	$	1,595.0	$	351.2	$	297.1

Amortization expense was $27.2 and $54.3 for the three and six months ended June 30, 2010, respectively, and $25.8 and $51.4 for the three and six months ended June 30, 2009, respectively.

Estimated aggregate amortization expense for intangible assets through December 31, 2014 is as follows:


Six months ending December 31, 2010	$	54.3
Year ending December 31, 2011		102.6
Year ending December 31, 2012		95.1
Year ending December 31, 2013		83.9
Year ending December 31, 2014		77.3

M & F Worldwide Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(dollars in millions, except per share data)
(unaudited)

7. Business Segment Information

The Company has organized its business along four reportable segments together with a corporate group for certain support services. The Company’s operations are aligned on the basis of products, services and industry. Management measures and evaluates the reportable segments based on operating income. The current segments and their principal activities consist of the following:

•

Harland Clarke segment — Provides checks and related products, direct marketing services and customized business and home products to financial, retail and software providers as well as consumers and small businesses. This segment operates primarily in the United States and Puerto Rico.

•

Harland Financial Solutions segment — Provides technology products and services to financial services clients worldwide. This segment operates primarily in the United States, Israel and Ireland.

•

Scantron segment — Provides data management solutions and related services to educational, commercial, healthcare and governmental entities worldwide. This segment operates in the United States and Canada.

•

Licorice Products segment — Produces licorice products used primarily by the tobacco and food industries. This segment operates in the United States, France and the People’s Republic of China.

Selected summarized financial information for the three months ended June 30, 2010 and 2009 is as follows:


			Harland						Corporate
	Harland		Financial				Licorice		and
	Clarke⁽¹⁾		Solutions		Scantron		Products		Other			Total
Product revenues, net:
Three months ended June 30, 2010	$	303.1	$	17.0	$	25.9	$	28.0	$	—		$	374.0
Three months ended June 30, 2009		305.3		18.3		28.3		25.5		—			377.4
Service revenues, net:
Three months ended June 30, 2010	$	4.1	$	53.1	$	20.1	$	—	$	—		$	77.3
Three months ended June 30, 2009		1.0		51.4		22.1		—		—			74.5
Intersegment revenues:
Three months ended June 30, 2010	$	0.1	$	—	$	3.1	$	—	$	(3.2	)	$	—
Three months ended June 30, 2009		—		—		0.3		—		(0.3	)		—
Operating income (loss):⁽²⁾
Three months ended June 30, 2010	$	66.3	$	11.4	$	1.8	$	7.2	$	(7.2	)	$	79.5
Three months ended June 30, 2009		52.3		11.2		6.7		7.9		(8.1	)		70.0
Depreciation and amortization (excluding amortization of deferred financing fees):
Three months ended June 30, 2010	$	25.9	$	7.1	$	6.5	$	0.5	$	—		$	40.0
Three months ended June 30, 2009		27.4		6.8		6.5		0.5		—			41.2
Capital expenditures (excluding capital leases):
Three months ended June 30, 2010	$	5.4	$	1.4	$	1.2	$	0.5	$	—		$	8.5
Three months ended June 30, 2009		8.2		1.1		1.9		0.4		—			11.6

M & F Worldwide Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(dollars in millions, except per share data)
(unaudited)

Selected summarized financial information for the six months ended June 30, 2010 and 2009 is as follows:


			Harland						Corporate
	Harland		Financial				Licorice		and
	Clarke⁽¹⁾		Solutions		Scantron		Products		Other			Total
Product revenues, net:
Six months ended June 30, 2010	$	611.7	$	33.8	$	56.1	$	55.2	$	—		$	756.8
Six months ended June 30, 2009		619.4		35.3		60.3		51.2		—			766.2
Service revenues, net:
Six months ended June 30, 2010	$	5.2	$	105.6	$	40.9	$	—	$	—		$	151.7
Six months ended June 30, 2009		2.0		103.6		44.4		—		—			150.0
Intersegment revenues:
Six months ended June 30, 2010	$	0.1	$	—	$	3.2	$	—	$	(3.3	)	$	—
Six months ended June 30, 2009		—		—		0.4		—		(0.4	)		—
Operating income (loss):⁽²⁾
Six months ended June 30, 2010	$	131.9	$	22.8	$	11.1	$	14.1	$	(12.4	)	$	167.5
Six months ended June 30, 2009		103.2		18.6		13.5		16.3		(13.3	)		138.3
Depreciation and amortization (excluding amortization of deferred financing fees):
Six months ended June 30, 2010	$	52.7	$	14.2	$	12.9	$	0.9	$	—		$	80.7
Six months ended June 30, 2009		54.7		13.5		12.9		0.9		—			82.0
Capital expenditures (excluding capital leases):
Six months ended June 30, 2010	$	9.8	$	2.3	$	2.5	$	0.8	$	—		$	15.4
Six months ended June 30, 2009		16.4		2.1		4.5		0.6		—			23.6


⁽¹⁾		Includes results of the acquired Protocol IMS and SubscriberMail businesses from their respective dates of acquisition.

⁽²⁾		Includes restructuring costs of $7.0 and $13.6 for the three months ended June 30, 2010 and 2009, respectively and $10.2 and $24.7 for the six months ended June 30, 2010 and 2009, respectively (see Note 18).

8. Comprehensive Income

Total comprehensive income for the three and six months ended June 30, 2010 and 2009 is as follows:


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2010			2009		2010			2009
Net income	$	29.8		$	29.1	$	63.4		$	80.4
Other comprehensive income (loss):
Foreign currency translation adjustments, net of taxes of $—, $—, $0.2 and $—		(4.1	)		2.9		(7.2	)		0.7
Derivative fair value adjustments, net of taxes of $0.3, $1.6, $0.9 and $4.0		(0.3	)		2.3		(1.4	)		5.9
Unrealized gains on investments, net of taxes of $0.2, $0.5, $0.1 and $0.6		0.3			0.8		0.1			1.2

Comprehensive income	$	25.7		$	35.1	$	54.9		$	88.2

M & F Worldwide Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(dollars in millions, except per share data)
(unaudited)

9. Earnings Per Share

The basic and diluted per share data is based on the weighted average number of common shares outstanding during the following periods (in millions):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009
Basic weighted average common shares outstanding		19.3		19.3		19.3		19.3
Diluted weighted average common shares outstanding		19.4		19.3		19.4		19.3

Common equivalent shares consisting of directors’ stock units are included in the diluted earnings per share calculations.

10. Income Taxes

The Company is subject to taxation in the United States and various state and foreign jurisdictions. The statute of limitations for the Company’s federal and state tax returns for the tax years 2006 through 2009 generally remain open. In addition, open tax years related to foreign jurisdictions remain subject to examination but are not considered material.

There are no events that have occurred since December 31, 2009 that had a material impact on amounts accrued for the Company’s uncertain tax positions.

11. Defined Benefit Pension and Other Postretirement Benefit Plans

Mafco Worldwide

Certain current and former employees of Mafco Worldwide are covered under various defined benefit retirement plans. Plans covering Mafco Worldwide’s salaried employees generally provide pension benefits based on years of service and compensation. Plans covering Mafco Worldwide’s union members generally provide stated benefits for each year of credited service. The Company’s funding policy is to contribute annually the statutory required amount as actuarially determined.

The components of net periodic pension expense for Mafco Worldwide’s pension plans consist of the following:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Service cost	$	0.2		$	0.1		$	0.3		$	0.2
Interest cost		0.3			0.2			0.5			0.5
Expected return on plan assets		(0.3	)		(0.4	)		(0.6	)		(0.8	)
Net amortization		0.2			0.3			0.5			0.5

Net periodic pension expense	$	0.4		$	0.2		$	0.7		$	0.4

Harland Clarke Holdings

Harland Clarke Holdings sponsors two unfunded postretirement defined benefit plans that cover certain former salaried and non-salaried employees. One plan provides healthcare benefits and the other provides life insurance benefits. The medical plan is contributory and contributions are adjusted annually based on actual claims experience. For retirees who retired prior to December 31, 2002 with twenty or more years of service at December 31, 2000, the Company contributes approximately 50% of the cost of the medical plan. For all other retirees, the Company’s intent is that the retirees provide the majority of the actual cost of the medical plan. The life insurance plan is noncontributory for those employees that retired by December 31, 2002.

M & F Worldwide Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(dollars in millions, except per share data)
(unaudited)

Net periodic postretirement benefit expense for the Harland Clarke Holdings postretirement benefit plans is as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009
Interest cost	$	0.2	$	0.2	$	0.5	$	0.5
Net amortization		—		—		—		—

Net postretirement benefit expense	$	0.2	$	0.2	$	0.5	$	0.5

12. Short-Term Debt

On June 13, 2008, M & F Worldwide entered into a Secured Loan Agreement with a financial institution, which provided for a loan in the amount of $27.2. The loan is secured by M & F Worldwide’s investments in auction-rate securities. The Secured Loan Agreement was amended in June 2010 to extend the maturity date from June 11, 2010 to June 10, 2011. The interest rate continues to be the federal funds rate plus 2.25%. M & F Worldwide may prepay the loan prior to maturity in minimum amounts of $1.0 without penalty. M & F Worldwide is required to make mandatory prepayments in amounts equal to 70% of all proceeds received from the early termination, redemption, or prepayment of any pledged securities. During the six months ended June 30, 2010, M & F Worldwide paid $11.1 of the principal in connection with the sale and redemption of certain securities with a face value of $15.8. The loan agreement also provides for customary events of default, including, but not limited to, non-payment of amounts when due, material inaccuracy of representations and warranties, bankruptcy and other insolvency events. The outstanding balance was $11.1 and $22.2 at June 30, 2010 and December 31, 2009, respectively.

13. Long-Term Debt


	June 30,			December 31,
	2010			2009
Harland Clarke Holdings $1,900.0 Senior Secured Credit Facilities	$	1,746.0		$	1,755.0
Harland Clarke Holdings Senior Floating Rate Notes due 2015		206.8			206.8
Harland Clarke Holdings 9.50% Senior Fixed Rate Notes due 2015		271.3			271.3
Mafco Worldwide $125.0 Senior Secured Credit Facilities		44.2			55.2
Capital lease obligations and other indebtedness		4.8			5.7

		2,273.1			2,294.0
Less: current maturities		(19.4	)		(24.5	)

Long-term debt, net of current maturities	$	2,253.7		$	2,269.5

Harland Clarke Holdings $1,900.0 Senior Secured Credit Facilities

On April 4, 2007, Harland Clarke Holdings and substantially all of its subsidiaries as co-borrowers entered into a credit agreement (the “Credit Agreement”). The Credit Agreement provides for a $1,800.0 senior secured term loan (the “Term Loan”), which was fully drawn at closing on May 1, 2007 and matures on June 30, 2014. Harland Clarke Holdings is required to repay the Term Loan in equal quarterly installments in aggregate annual amounts equal to 1% of the original principal amount. In addition, the Credit Agreement requires that a portion of Harland Clarke Holdings’ excess cash flow be applied to prepay amounts borrowed, as further described below. The Credit Agreement also provides for a $100.0 revolving credit facility (the “Revolver”) that matures on June 28, 2013. The Revolver includes an up to $60.0 subfacility in the form of letters of credit and an up to $30.0 subfacility in the form of short-term swing line loans. The weighted average interest rate on borrowings outstanding under the Term Loan was 2.9% at June 30, 2010. As of June 30, 2010, there were no outstanding borrowings under the Revolver and there was $90.8 available for borrowing (giving effect to the issuance of $9.2 of letters of credit).

Under certain circumstances, Harland Clarke Holdings is permitted to incur additional term loan and/or revolving credit facility indebtedness in an aggregate principal amount of up to $250.0. In addition, the terms of the Credit Agreement and the 2015 Senior Notes (as defined below) allow Harland Clarke Holdings to incur substantial additional debt.

M & F Worldwide Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(dollars in millions, except per share data)
(unaudited)

Loans under the Credit Agreement bear, at Harland Clarke Holdings’ option, interest at:

•

A rate per annum equal to the higher of (a) the prime rate of Credit Suisse and (b) the Federal Funds rate plus 0.50%, in each case plus an applicable margin of 1.50% per annum for revolving loans and for term loans; or

•

A rate per annum equal to a reserve-adjusted LIBOR rate, plus an applicable margin of 2.50% per annum for revolving loans and for term loans.

The Credit Agreement has a commitment fee for the unused portion of the Revolver and for issued letters of credit of 0.50% and 2.63%, respectively. Interest rate margins and commitment fees under the Revolver are subject to reduction in increments based upon Harland Clarke Holdings achieving certain consolidated leverage ratios.

Harland Clarke Holdings and each of its existing and future domestic subsidiaries, other than unrestricted subsidiaries and certain immaterial subsidiaries, are guarantors and may also be co-borrowers under the Credit Agreement. In addition, Harland Clarke Holdings’ direct parent, CA Acquisition Holdings, Inc., is a guarantor under the Credit Agreement. The senior secured credit facilities are secured by a perfected first priority security interest in substantially all of Harland Clarke Holdings’, each of the co-borrowers’ and the guarantors’ tangible and intangible assets and equity interests (other than voting stock in excess of 65.0% of the outstanding voting stock of each direct foreign subsidiary and certain other excluded property).

The Credit Agreement contains customary affirmative and negative covenants including, among other things, restrictions on indebtedness, liens, mergers and consolidations, sales of assets, loans, acquisitions, restricted payments, transactions with affiliates, dividends and other payment restrictions affecting subsidiaries and sale-leaseback transactions. The Credit Agreement requires Harland Clarke Holdings to maintain a maximum consolidated leverage ratio for the benefit of lenders under the Revolver only. Harland Clarke Holdings has the right to prepay the Term Loan at any time without premium or penalty, subject to certain breakage costs, and Harland Clarke Holdings may also reduce any unutilized portion of the Revolver at any time, in minimum principal amounts set forth in the Credit Agreement. Harland Clarke Holdings is required to prepay the Term Loan with 50% of excess cash flow (as defined in the Credit Agreement, with certain reductions set forth in the Credit Agreement, based on achievement and maintenance of leverage ratios) and 100% of the net proceeds of certain issuances, offerings or placements of debt obligations of Harland Clarke Holdings or any of its subsidiaries (other than permitted debt). Each such prepayment will be applied first to the next eight unpaid quarterly amortization installments on the term loans and second to the remaining amortization installments on the term loans on a pro rata basis. No such excess cash flow payment was required to be paid in 2010 with respect to 2009.

The Credit Agreement also contains certain customary affirmative covenants and events of default. Such events of default include, but are not limited to: non-payment of amounts when due; violation of covenants; material inaccuracy of representations and warranties; cross default and cross acceleration with respect to other material debt; bankruptcy and other insolvency events; certain ERISA events; invalidity of guarantees or security documents; and material judgments. Some of these events of default allow for grace periods.

If a change of control (as defined in the Credit Agreement) occurs, Harland Clarke Holdings will be required to make an offer to prepay all outstanding term loans under the Credit Agreement at 101% of the outstanding principal amount thereof plus accrued and unpaid interest, and lenders holding a majority of the revolving credit commitments may elect to terminate the revolving credit commitments in full. Harland Clarke Holdings is also required to offer to prepay outstanding term loans at 100% of the principal amount to be prepaid, plus accrued and unpaid interest, with the proceeds of certain asset sales under certain circumstances.

Under the terms of the Credit Agreement, Harland Clarke Holdings was required to ensure that, until no earlier than May 1, 2009, at least 40% of the aggregate principal amount of its long-term indebtedness bore interest at a fixed rate, either by its terms or through entering into hedging agreements within 180 days of the effectiveness of the Credit Agreement. In order to comply with this requirement, Harland Clarke Holdings entered into interest rate derivative arrangements described in Note 14.

M & F Worldwide Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(dollars in millions, except per share data)
(unaudited)

Harland Clarke Holdings Senior Notes due 2015

On May 1, 2007, Harland Clarke Holdings issued $305.0 aggregate principal amount of Senior Floating Rate Notes due 2015 (the “Floating Rate Notes”) and $310.0 aggregate principal amount of 9.50% Senior Fixed Rate Notes due 2015 (the “Fixed Rate Notes” and, together with the Floating Rate Notes, the “2015 Senior Notes”). The 2015 Senior Notes mature on May 15, 2015. The Fixed Rate Notes bear interest at a rate per annum of 9.50%, payable on May 15 and November 15 of each year. The Floating Rate Notes bear interest at a rate per annum equal to the Applicable LIBOR Rate (as defined in the indenture governing the 2015 Senior Notes (the “Indenture”)), subject to a floor of 1.25%, plus 4.75%, payable on February 15, May 15, August 15 and November 15 of each year. The interest rate on the Floating Rate Notes was 6.0% at June 30, 2010. The Senior Notes are unsecured and are therefore effectively subordinated to all of Harland Clarke Holdings’ senior secured indebtedness, including outstanding borrowings under the Credit Agreement. Harland Clarke Holdings and each of its existing subsidiaries, other than unrestricted subsidiaries and certain immaterial subsidiaries, are guarantors and may also be co-issuers under the 2015 Senior Notes.

The Indenture contains customary restrictive covenants, including, among other things, restrictions on Harland Clarke Holdings’ ability to incur additional debt, pay dividends and make distributions, make certain investments, repurchase stock, incur liens, enter into transactions with affiliates, enter into sale and lease back transactions, merge or consolidate and transfer or sell assets. Harland Clarke Holdings must offer to repurchase all of the 2015 Senior Notes upon the occurrence of a “change of control,” as defined in the Indenture, at a purchase price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest. Harland Clarke Holdings must also offer to repurchase the 2015 Senior Notes with the proceeds from certain sales of assets, if it does not apply those proceeds within a specified time period after the sale, at a purchase price equal to 100% of their aggregate principal amount, plus accrued and unpaid interest.

During 2009, Harland Clarke Holdings extinguished $136.9 principal amount of debt by purchasing 2015 Senior Notes in individually negotiated transactions for an aggregate purchase price of $67.6.

Gain on Early Extinguishment of Debt

Of the $136.9 principal amount of debt extinguished in 2009, $114.7 was extinguished during the six months ended June 30, 2009 by purchasing Harland Clarke Holdings 2015 Senior Notes in individually negotiated transactions for an aggregate purchase price of $49.7, resulting in a gain of $61.5 after the write-off of $3.5 of unamortized deferred financing fees related to the extinguished debt. There were no early extinguishments of debt during the six months ended June 30, 2010.

Mafco Worldwide $125.0 Senior Secured Credit Facilities

On December 8, 2005, Mafco Worldwide entered into a credit agreement governing its $125.0 senior secured credit facilities. The Mafco Worldwide credit facilities consist of a $110.0 term loan which was drawn on December 8, 2005 and matures in December 2011 and a $15.0 revolving credit facility that matures in December 2010. The indebtedness under the Mafco Worldwide credit facilities is guaranteed by Mafco Worldwide’s domestic subsidiaries and its parent corporation, Flavors Holdings Inc. (collectively, the “Mafco Worldwide Guarantors”). Mafco Worldwide’s obligations under the Mafco Worldwide credit facilities and the guarantees of the Mafco Worldwide Guarantors are secured by a first-priority security interest in substantially all of Mafco Worldwide’s and the Mafco Worldwide Guarantors’ assets. Borrowings under the Mafco Worldwide credit facilities bear interest, at Mafco Worldwide’s option, at either an adjusted Eurodollar rate plus an applicable margin of 2.25% in the case of revolving loans or 2.00% in the case of term loans, or an alternative base rate, plus an applicable margin of 1.25% in the case of revolving loans or 1.00% in the case of term loans. The weighted average interest rate on borrowings outstanding under the Mafco Worldwide credit facilities was 2.4% at June 30, 2010.

The Mafco Worldwide credit facilities contain affirmative and negative covenants customary for such financings. The Mafco Worldwide credit facilities also require Mafco Worldwide to maintain a maximum total debt ratio and a minimum consolidated interest expense ratio as of the last day of each fiscal quarter. The Mafco Worldwide credit facilities contain events of default customary for such financings, including but not limited to: nonpayment of

M & F Worldwide Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(dollars in millions, except per share data)
(unaudited)

principal, interest, fees or other amounts when due; violation of covenants; failure of any representation or warranty to be true in all material respects when made or deemed made; cross default and cross acceleration to certain indebtedness; certain ERISA events; change of control; dissolution, insolvency and bankruptcy events; material judgments; actual or asserted invalidity of the guarantees or security documents; and violation of limitations on the activities of Flavors Holdings Inc. Some of these events of default allow for grace periods and materiality concepts.

The Mafco Worldwide term loan is repayable in quarterly installments of up to approximately $0.2. Due to repayments made in 2007, there were no quarterly installment requirements in 2009. Due to prepayments of $11.0 in March 2010, no quarterly installment payments are required in 2010. In addition, the Mafco Worldwide term loan facility requires that a portion of Mafco Worldwide’s excess cash flow be applied to prepay amounts borrowed under that facility. No excess cash flow payment is required to be paid in 2010 related to fiscal year 2009. In March 2009, Mafco Worldwide made a $6.5 excess cash flow payment related to fiscal year 2008. As of June 30, 2010, there were no borrowings under the Mafco Worldwide revolving credit facility and $15.0 was available for borrowing. There were no letters of credit issued by Mafco Worldwide as of June 30, 2010.

Capital Lease Obligations and Other Indebtedness

Subsidiaries of the Company have outstanding capital lease obligations and other indebtedness with principal balances totaling $4.8 and $5.7 at June 30, 2010 and December 31, 2009, respectively. These obligations have imputed interest rates ranging from 5.7% to 9.6% and have required payments, including interest, of $0.7 remaining in 2010, $1.6 in 2011, $1.2 in 2012, $1.1 in 2013 and $0.9 in 2014. During the six months ended June 30, 2010 and 2009, a subsidiary of Harland Clarke Holdings entered into capital leases and other indebtedness totaling $0.1 and $1.2, respectively, and, accordingly, such non-cash transaction amounts have been excluded from the consolidated statements of cash flows.

Mafco Worldwide’s French subsidiary has lines of credit renewable annually with two banks whereby it may borrow up to 1.5 million Euros (approximately $1.8 at June 30, 2010) for working capital purposes. The subsidiary had no borrowings at June 30, 2010 and December 31, 2009.

14. Derivative Financial Instruments

Interest Rate Hedges

The Company uses hedge transactions, which are accounted for as cash flow hedges, to limit the Company’s risk on a portion of its variable-rate debt.

During February 2006, Harland Clarke Holdings entered into interest rate hedge transactions in the form of three-year interest rate swaps with a total notional amount of $150.0, which became effective on July 1, 2006. The hedges expired on June 30, 2009. The hedges were designed to swap the underlying variable rate for a fixed rate of 4.992%. On May 1, 2007, Harland Clarke Holdings’ prior credit facilities were repaid in full. The Company redesignated the swaps as a hedge against the variable interest rate on a portion of Harland Clarke Holdings’ Term Loan. The Company amortized the fair value of the derivative liability of $0.4 as of May 1, 2007 in interest expense in the consolidated statements of income over the remaining life of the derivative contract using the straight-line method.

During June 2007, Harland Clarke Holdings entered into additional interest rate derivative transactions in the form of a two-year interest rate swap with a notional amount of $255.0 and a three-year interest rate swap with a notional amount of $255.0, both of which became effective on June 29, 2007. The two-year hedge, which expired on June 30, 2009, swapped the underlying variable rate for a fixed rate of 5.323% and the three-year hedge, which expired on June 30, 2010, swapped the underlying variable rate for a fixed rate of 5.362%. During August 2007, Harland Clarke Holdings entered into an additional interest rate derivative transaction in the form of a two-year interest rate swap with a notional amount of $250.0, which became effective on September 28, 2007. The hedge, which expired on September 28, 2009, swapped the underlying variable rate for a fixed rate of 4.977%.

During June 2009, Harland Clarke Holdings entered into an interest rate derivative transaction in the form of a three-year interest rate swap with a notional amount of $350.0, which became effective on June 30, 2009. This

M & F Worldwide Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(dollars in millions, except per share data)
(unaudited)

hedge swaps the underlying variable rate for a fixed rate of 2.353%. During September 2009, Harland Clarke Holdings entered into an additional interest rate derivative transaction in the form of a three-year interest rate swap with a notional amount of $250.0, which became effective on September 30, 2009. This hedge swaps the underlying variable rate for a fixed rate of 2.140%.

During June 2010, Harland Clarke Holdings entered into an interest rate derivative transaction in the form of a three-year interest rate swap with a notional amount of $255.0, which became effective on June 30, 2010. This hedge swaps the underlying variable rate for a fixed rate of 1.264%.

The following presents the fair values of these derivative instruments and the classification in the consolidated balance sheets.


		June 30,		December 31,
Derivatives Designated as Cash Flow Hedging Instruments:	Balance Sheet Classification	2010		2009
Interest rate swaps	Other current liabilities	$	—	$	6.3
	Other liabilities		16.5		7.9

Fair value of interest rate swaps is based on forward-looking interest rate curves as provided by the counterparty, adjusted for the Company’s credit risk.

These derivative instruments had no ineffective portions during the three and six months ended June 30, 2010 and 2009. Accordingly, no amounts were required to be reclassified from accumulated other comprehensive loss to the consolidated statements of income due to ineffectiveness. The following presents the effect of these derivative instruments (effective portion) on other comprehensive income and amounts reclassified from accumulated other comprehensive loss into interest expense.

Loss Reclassified from

Accumulated Other

Loss Recognized in Other

Comprehensive Loss into Interest

Comprehensive Income

Expense

Three Months

Six Months

Three Months

Six Months

Ended

June 30,

Derivatives Designated as Cash Flow Hedging Instruments:

2010

2009

2010

2009

2010

2009

2010

2009

Interest rate swaps

6.8

5.0

14.8

7.5

6.2

9.0

12.5

17.5

The Company expects to reclassify approximately $13.5 into net income as additional interest expense during the twelve months ending June 30, 2011.

The following presents the balances and net changes in accumulated other comprehensive loss related to these derivative instruments, net of income taxes.


	Six Months Ended
	June 30,
Balances and Net Changes:	2010			2009
Balance at beginning of period	$	8.6		$	16.6
Loss reclassified from accumulated other comprehensive loss into interest expense, net of taxes of $4.9 and $6.8		(7.6	)		(10.7	)
Net change in fair value of interest rate swaps, net of taxes of $5.8 and $2.7		9.0			4.8

Balance at end of period	$	10.0		$	10.7

See Note 8 for additional information regarding the effect of these derivative instruments on other comprehensive income.

M & F Worldwide Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(dollars in millions, except per share data)
(unaudited)

15. Fair Value Measurements

The Company measures fair value using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Recurring Fair Value Measurements

As of June 30, 2010, the Company held two types of financial instruments subject to valuation on a recurring basis, marketable securities and interest rate swaps. Marketable securities consist of corporate equity securities, auction-rate securities (“ARS”) and United States treasury securities. The marketable securities are included in investments in marketable securities, investments in auction-rate securities and other assets in the accompanying consolidated balance sheets. The interest rate swaps are included in other current liabilities and other liabilities in the accompanying consolidated balance sheets. Fair values as of June 30, 2010 and December 31, 2009 are as follows:


	Balance at
	June 30, 2010		(Level 1)		(Level 2)		(Level 3)
ARS	$	14.8	$	—	$	—	$	14.8
Corporate equity securities		2.0		2.0		—		—
Liability for interest rate swaps		16.5		—		16.5		—

	Balance at
	December 31, 2009		(Level 1)		(Level 2)		(Level 3)
ARS	$	29.4	$	—	$	—	$	29.4
United States treasury securities		24.6		24.6		—		—
Corporate equity securities		1.9		1.9		—		—
Liability for interest rate swaps		14.2		—		14.2		—

Fair value of interest rate swaps is based on forward-looking interest rate curves as provided by the counterparty, adjusted for the Company’s credit risk. Fair value of corporate equity securities and United States treasury securities are based on quoted market prices.

The fair value of the ARS as of June 30, 2010 and December 31, 2009 was estimated utilizing discounted cash flow analyses. The analyses consider, among other items, the collateral underlying the securities, the creditworthiness of the counterparty, the timing of expected future principal and interest payments as well as forecasted probabilities of default, auction failure and a successful auction at par or repurchase at par for each period. Since the fourth quarter of 2009, the Company has recorded any fluctuations in fair value related to these securities in earnings.

The following table presents the Company’s marketable securities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):


	Six Months Ended
	June 30,
	2010			2009
Balance at beginning of period	$	29.4		$	33.6
Transfers to Level 3		—			—
Unrealized gain recorded in accumulated other comprehensive loss		—			1.1
Realized loss recorded in other (expense) income, net		(0.3	)		—
Sale and redemption of securities		(14.3	)		—

Balance at end of period	$	14.8		$	34.7

M & F Worldwide Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(dollars in millions, except per share data)
(unaudited)

Fair Value of Financial Instruments

Most of the Company’s clients are in the financial services and educational industries. The Company performs ongoing credit evaluations of its clients and maintains allowances for potential credit losses. The Company does not generally require collateral. Actual losses and allowances have been within management’s expectations.

The carrying amounts for cash and cash equivalents, trade accounts receivable, accounts payable, short-term debt and accrued liabilities approximate fair value. The estimated fair value of long-term debt is determined by Level 2 inputs and is based primarily on quoted market prices for the same or similar issues as of the measurement date. The estimated fair value of long-term debt at June 30, 2010 and December 31, 2009 was approximately $1,953.1 and $1,966.1, respectively. The carrying value of long-term debt at June 30, 2010 and December 31, 2009 was $2,273.1 and $2,294.0, respectively.

16. Marketable Securities

The Company’s marketable securities are classified as available-for-sale and are reported at their fair values, which are as follows:


			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Balance at June 30, 2010:
ARS	$	14.8	$	—	$	—		$	14.8
Corporate equity securities		0.3		1.8		(0.1	)		2.0

Total marketable securities	$	15.1	$	1.8	$	(0.1	)	$	16.8


Balance at December 31, 2009:
ARS	$	29.4	$	—	$	—		$	29.4
United States treasury securities		24.6		—		—			24.6
Corporate equity securities		0.3		1.7		(0.1	)		1.9

Total marketable securities	$	54.3	$	1.7	$	(0.1	)	$	55.9

The United States treasury securities mature in 2012. During the second quarter of 2010, the Company sold its investment in United States treasury securities for $24.7 in cash and recognized a gain of $0.1.

The Company’s ARS are collateralized by student loan portfolios (substantially all of which are guaranteed by the United States Government). The ARS are securities with long-term maturities ranging between 22 and 36 years for which the interest rates reset every 28 days by an auction process. Historically, these types of ARS have been highly liquid. Beginning in 2008, there was insufficient demand at auction for ARS collateralized by student loans, including auctions for ARS held by the Company. As a result, these ARS continue to pay interest in accordance with their terms until the next successful auction; however, liquidity will be limited until there is a successful auction or until such time as other markets for these ARS develop.

In the event the Company needs to access the funds that are in an illiquid state, it will not be able to do so without the possible loss of principal, until either a future auction for these investments is successful, they are redeemed by the issuer or they mature. The Company does not have a need to access these funds for operational purposes for the foreseeable future. Because there is no assurance that auctions for these securities will be successful in the near term, as of June 30, 2010 and December 31, 2009, the ARS were classified as long-term investments. During the six months ended June 30, 2010, the Company sold ARS with a face value of $13.1 for total proceeds of $11.6. Also, ARS issues were redeemed by the issuers at par value of $2.7 in June 2010.

The following presents the gross unrealized losses and fair values of the Company’s investments in individual securities that have been in a continuous unrealized position deemed to be temporary for less than 12 months and for more than 12 months, aggregated by category:

M & F Worldwide Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(dollars in millions, except per share data)
(unaudited)


	Less Than 12 Months				More Than 12 Months
			Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses
At June 30, 2010:
Corporate equity securities	$	—	$	—	$	0.1	$	0.1

At December 31, 2009:
Corporate equity securities	$	—	$	—	$	0.1	$	0.1

The Company has determined that the gross unrealized losses on its corporate equity securities at June 30, 2010 are temporary in nature. Accordingly, the Company does not consider such investments to be other-than-temporarily impaired at June 30, 2010.

17. Commitments and Contingencies

Non-Operating Contingent Claims, Indemnification and Insurance Matters

The Company’s non-operating contingent claims are generally associated with its indirect, wholly owned, non-operating subsidiary, Pneumo Abex LLC (together with its predecessors in interest, “Pneumo Abex”). Substantially all of these contingent claims are the financial responsibility of third parties and include various environmental and asbestos-related claims. As a result, the Company has not since 1995 paid and does not expect to pay on its own behalf material amounts related to these matters.

In 1988, a predecessor of Pepsi Cola Metropolitan Bottling Company, Inc. (the “Original Indemnitor”) sold to Pneumo Abex various operating businesses, all of which Pneumo Abex re-sold by 1996. Prior to the 1988 sale, those businesses had manufactured certain asbestos-containing friction products. Pneumo Abex has been named, typically along with 10 to as many as 100 or more other companies, as a defendant in various personal injury lawsuits claiming damages relating to exposure to asbestos. Pursuant to indemnification agreements, the Original Indemnitor has ultimate responsibility for all the remaining asbestos-related claims asserted against Pneumo Abex through August 1998 and for certain asbestos-related claims asserted thereafter. In connection with the sale by Pneumo Abex in December 1994 of its Friction Products Division, a subsidiary (the “Friction Buyer”) of Cooper Industries, Inc. (now Cooper Industries, LLC, the “Friction Guarantor”) assumed all liability for substantially all asbestos-related claims asserted against Pneumo Abex after August 1998 and not indemnified by the Original Indemnitor. Following the Friction Products sale, Pneumo Abex treated the Division as a discontinued operation and stopped including the Division’s assets and liabilities in its financial statements.

In 1995, MCG Intermediate Holdings Inc. (“MCGI”), M & F Worldwide and two subsidiaries of M & F Worldwide entered into a transfer agreement (the “Transfer Agreement”). Under the Transfer Agreement, Pneumo Abex transferred to MCGI substantially all of its assets and liabilities other than the assets and liabilities relating to its former Abex NWL Aerospace Division (“Aerospace”) and certain contingent liabilities and the related assets, including its historical insurance and indemnification arrangements. The Transfer Agreement provides for appropriate transfer, indemnification and tax sharing arrangements, in a manner consistent with applicable law and previously existing contractual arrangements, as further explained below.

The Transfer Agreement also requires MCGI, which currently is an indirect subsidiary of Holdings, to undertake certain administrative and funding obligations with respect to certain categories of asbestos-related claims and other liabilities, including environmental claims, that Pneumo Abex did not transfer. Pneumo Abex will be obligated to reimburse the amounts so funded only when it receives amounts under related indemnification and insurance agreements. Such administrative and funding obligations would be terminated as to these categories of asbestos-related claims in the case of a bankruptcy of Pneumo Abex or M & F Worldwide or of certain other events affecting the availability of coverage for such claims from third-party indemnitors and insurers. In the event of certain kinds of disputes with Pneumo Abex’s indemnitors regarding their indemnities, the Transfer Agreement permits Pneumo Abex to require MCGI to fund 50% of the costs of resolving the disputes.

Pneumo Abex’s former subsidiary maintained product liability insurance covering substantially all of the period during which it manufactured or distributed asbestos-containing products. The subsidiary and its successors have

M & F Worldwide Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(dollars in millions, except per share data)
(unaudited)

pursued litigation against the insurers providing this coverage in order to confirm its availability and obtain its benefits. As a result of settlements in that litigation, other coverage agreements with other carriers, payments by the Original Indemnitor and funding payments pursuant to the Transfer Agreement, all of Pneumo Abex’s monthly expenditures for asbestos-related claims other than as described below are managed and paid by others. As of June 30, 2010, the Company has not incurred and does not expect to incur material amounts related to asbestos-related claims not subject to the arrangements described above (the “Remaining Claims”). Management does not expect the Remaining Claims to have a material adverse effect on the Company’s financial position or results of operations, but the Company is unable to forecast either the number of future asbestos-related claimants or the amount of future defense and settlement costs associated with present or future asbestos-related claims.

The Transfer Agreement further provides that MCGI will assume from Pneumo Abex all liability for environmental matters associated with Pneumo Abex’s and its predecessor’s operations to the extent not paid by third-party indemnitors or insurers, other than matters relating to Pneumo Abex’s former Aerospace business. Accordingly, environmental liabilities arising after the 1988 transaction with the Original Indemnitor that relate to the former Aerospace business are the Company’s responsibility. The Original Indemnitor is obligated to indemnify Pneumo Abex for costs, expenses and liabilities relating to environmental and natural resource matters to the extent attributable to the pre-1988 operation of the businesses acquired from the Original Indemnitor, subject to certain conditions and limitations principally relating to compliance with notice, cooperation and other procedural requirements. The Original Indemnitor is generally discharging its environmental indemnification liabilities in the ordinary course, and MCGI manages and advances all costs associated with such matters pending reimbursement by the Original Indemnitor.

It is generally not possible to predict the ultimate total costs relating to any remediation that may be demanded at any of the sites subject to the indemnity from the Original Indemnitor due to, among other factors, uncertainty regarding the extent of prior pollution, the complexity of applicable environmental laws and regulations and their interpretations, uncertainty regarding future changes to such laws and regulations or their enforcement, the varying costs and effectiveness of alternative cleanup technologies and methods, and the questionable and varying degrees of responsibility and/or involvement by Pneumo Abex. However, the Company does not itself expect to pay any of these costs due to the Transfer Agreement and the Original Indemnitor’s indemnity.

The Company considers Pneumo Abex’s unassumed contingent claims, except for certain immaterial matters where no third-party indemnification or assumption arrangement exists, to be the financial responsibility of those third parties and monitors their financial positions to determine the level of uncertainty associated with their abilities to satisfy their obligations.

While the Friction Guarantor has been fulfilling its obligation to guarantee the Friction Buyer’s performance since October 2001, when the successor in interest to the Friction Buyer filed for Chapter 11 bankruptcy and stopped performing itself, in May 2010, Pneumo Abex commenced a lawsuit in the New York Supreme Court against the Friction Guarantor and certain of its affiliates alleging, among other things, that various corporate transactions in which the Friction Guarantor and its affiliates had engaged since 2002 had improperly reduced the resources available to satisfy the guaranty obligation. Pneumo Abex seeks in this lawsuit injunctive relief remedying the financial consequences of these corporate transactions to Pneumo Abex, a constructive trust over the transferred assets, and damages. The Friction Guarantor has continued to perform under its guaranty during the pendency of the lawsuit and the Company still considers Pneumo Abex’s contingent claims assumed by the Friction Buyer in the Friction Products sale to be the financial responsibility of the Friction Guarantor under its guarantee of the Friction Buyer. Based upon the Original Indemnitor’s repeated acknowledgements of its obligations, management’s view of the aggregate resources of the Friction Guarantor and the noted affiliates, the active management by both the Original Indemnitor and the Friction Guarantor of pending contingent claims, the discharging of the related liabilities when required, and their respective financial positions based upon publicly filed financial statements, as well as the history of insurance recovery set forth above, the Company believes that the likelihood that Pneumo Abex will be required to pay material amounts of unreimbursed expense for its contingent claims is remote.

In October 2008, Pneumo Abex received $2.0 plus interest earned since December 2007, and the Friction Guarantor received $138.0 plus interest in full satisfaction of the claims of Pneumo Abex and the Friction Guarantor

M & F Worldwide Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(dollars in millions, except per share data)
(unaudited)

in the Friction Buyer’s successor’s bankruptcy case. Resolution of these claims did not affect the Friction Guarantor’s guaranty in favor of Pneumo Abex.

Pneumo Abex’s former Aerospace business sold certain of its aerospace products to the United States Government or to private contractors for the United States Government. Pneumo Abex retained in the Aerospace sale certain claims for allegedly defective pricing that the Government made with respect to certain of these products. In the first quarter of 2009, Pneumo Abex resolved the final remaining pricing matter that it managed for a payment of $0.1, resulting in a gain of $0.9 due to the release of a reserve previously accrued for this claim.

Honeywell Indemnification

Certain of the intermediate holding companies of the predecessor of Harland Clarke Holdings had issued guarantees on behalf of operating companies formerly owned by these intermediate holding companies, which operating companies are not part of Harland Clarke Holdings’ businesses. In the stock purchase agreement executed in connection with the acquisition of Clarke American by the Company, Honeywell agreed to use its commercially reasonable efforts to assume, replace or terminate such guarantees and indemnify M & F Worldwide and its affiliates, including Harland Clarke Holdings and its subsidiaries, with respect to all liabilities arising under such guarantees.

Other

In June 2008, Kenneth Kitson, purportedly on behalf of himself and a class of other alleged similarly situated commercial borrowers from the Bank of Edwardsville, an Illinois-based community bank (“BOE”), filed in an Illinois state court an amended complaint that re-asserted previously filed claims against BOE and added claims against Harland Financial Solutions, Inc. (“HFS”). The amended complaint alleged, among other things, that HFS’s LaserPro software permitted BOE to generate loan documents that were deceptive and usurious in that they failed to disclose properly the effect of the “365/360” method of calculating interest. Following the removal of the action to the United States District Court for the Southern District of Illinois, the District Court entered an order granting with prejudice HFS’s motion to dismiss Mr. Kitson’s claims. In August 2009, Mr. Kitson, individually and as class representative, and BOE agreed to settle and dismiss with prejudice all remaining claims. Separately but concurrently, BOE’s warranty claim against HFS was settled, in exchange for, among other things, payment by HFS of $0.2. The class settlement agreement was approved by the District Court in January 2010.

Other commercial borrowers that have obtained loans from other banks in five states have commenced similar class actions against their banks using similar theories. In some cases, the banks have made warranty claims against HFS related to these class actions. Many of the class actions and related warranty claims are at early stages, and the likely progress of those matters still pending is not yet clear. The Company has not accepted any of the asserted warranty claims and does not believe that any of these claims will result in material liability for the Company, but there can be no assurance.

Various other legal proceedings, claims and investigations are pending against the Company, including those relating to commercial transactions, product liability, environmental, safety and health matters, employment matters and other matters. Most of these matters are covered by insurance, subject to deductibles and maximum limits, and by third-party indemnities. In the opinion of management, based upon the information available at this time, the outcome of the matters referred to above will not have a material adverse effect on the Company’s financial position or results of operations.

18. Restructuring

Harland Clarke and Corporate

The Company adopted plans during 2008, 2009 and 2010 to realize cost savings in the Harland Clarke segment by consolidating printing plants, contact centers and selling, general and administrative functions.

M & F Worldwide Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(dollars in millions, except per share data)
(unaudited)

The Company expensed $1.1 and $2.4 for severance and severance-related costs and $0.5 and $0.9 for facilities closures and other costs during the three and six months ended June 30, 2010, respectively, and expensed $8.5 and $15.3 for severance and severance-related costs and $2.6 and $3.1 for facilities closures and other costs during the three and six months ended June 30, 2009, respectively. The Company expects to incur in future periods an additional $8.2 for costs related to these plans. Ongoing lease commitments related to these plans continue through 2017.

The following table details the components of the Company’s restructuring accruals under its plans related to the Harland Clarke segment and Corporate for the six months ended June 30, 2010 and 2009:


	Beginning				Paid in			Non-cash			Ending
	Balance		Expensed		Cash			Utilization			Balance
Six Months Ended June 30, 2010:
Severance and severance-related	$	2.5	$	2.4	$	(2.5	)	$	—		$	2.4
Facilities closures and other costs		2.5		0.9		(0.9	)		(0.7	)		1.8

Total	$	5.0	$	3.3	$	(3.4	)	$	(0.7	)	$	4.2


Six Months Ended June 30, 2009:
Severance and severance-related	$	7.4	$	15.3	$	(12.6	)	$	—		$	10.1
Facilities closures and other costs		2.3		3.1		(1.1	)		(1.7	)		2.6

Total	$	9.7	$	18.4	$	(13.7	)	$	(1.7	)	$	12.7

In addition to the amounts disclosed in the table above, the Company also incurred other expenses related to the facility closures, including inventory write-offs, training, hiring and travel.

Harland Financial Solutions

During the first quarter of 2009, the Company initiated a multi-year plan to reorganize certain operations and sales and support functions within the Harland Financial Solutions segment. The plan, which is expected to be completed by the end of 2011, focuses on moving from a product-centric organization to a functional organization in order to enhance customer support.

The Company expensed $0.2 and $0.4 for severance and severance-related costs during the three and six months ended June 30, 2010, respectively, and expensed $0.8 and $2.2 for severance and severance-related costs and $0.0 and $1.0 for facilities and other costs during the three and six months ended June 30, 2009, respectively. The Company currently does not expect to incur significant additional costs related to these plans, which are subject to further refinement as the reorganization progresses.

M & F Worldwide Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(dollars in millions, except per share data)
(unaudited)

The following table details the Company’s restructuring accruals related to the Harland Financial Solutions segment for the six months ended June 30, 2010 and 2009:


	Beginning				Paid in			Ending
	Balance		Expensed		Cash			Balance
Six months ended June 30, 2010:
Severance and severance-related	$	1.0	$	0.4	$	(0.9	)	$	0.5
Facilities and other costs		0.1		—		(0.1	)		—

Total	$	1.1	$	0.4	$	(1.0	)	$	0.5


Six months ended June 30, 2009:
Severance and severance-related	$	1.4	$	2.2	$	(2.5	)	$	1.1
Facilities and other costs		0.7		1.0		(0.5	)		1.2

Total	$	2.1	$	3.2	$	(3.0	)	$	2.3

Scantron

As a result of an acquisition, the Company adopted plans to restructure the Scantron segment in 2008. These plans focused on improving operating margins through consolidating manufacturing and printing operations and reducing duplicative selling, general and administrative expenses through workforce rationalization, consolidation of certain redundant outsourcing and the reduction of consulting and other professional services. The Company completed substantially all of the planned employee terminations and consolidation of printing and manufacturing operations related to the acquisition as of March 31, 2009 and expensed $1.4 and $2.8 for severance and severance-related costs and $0.3 and $0.3 for facilities and other costs related to further consolidation of operations and elimination of certain selling, general and administrative expenses during the three and six months ended June 30, 2009, respectively.

The Company expensed $0.7 and $2.0 for severance and severance-related costs and $4.5 and $4.5 for facilities and other costs related to further consolidation of operations and elimination of certain selling, general and administrative expenses during the three and six months ended June 30, 2010, respectively. Ongoing lease commitments related to these plans continue through 2013.

The following table details the components of the Company’s restructuring accruals related to the Scantron segment for the six months ended June 30, 2010 and 2009:


	Beginning				Paid in			Non-Cash			Ending
	Balance		Expensed		Cash			Utilization			Balance
Six months ended June 30, 2010:
Severance and severance-related	$	0.5	$	2.0	$	(2.2	)	$	—		$	0.3
Facilities and other costs		—		4.5		(0.2	)		0.2			4.5

Total	$	0.5	$	6.5	$	(2.4	)	$	0.2		$	4.8


Six months ended June 30, 2009:
Severance and severance-related	$	1.0	$	2.8	$	(2.4	)	$	—		$	1.4
Facilities and other costs		—		0.3		—			(0.3	)		—

Total	$	1.0	$	3.1	$	(2.4	)	$	(0.3	)	$	1.4

In addition to the amounts disclosed in the table above, the Company also incurred other expenses related to the initiatives including inventory write-offs, training, hiring, relocation and travel.

M & F Worldwide Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(dollars in millions, except per share data)
(unaudited)

Restructuring accruals for all of the segments’ plans are reflected in other current liabilities and other liabilities in the accompanying consolidated balance sheets. The Company expects to pay the remaining severance, facilities and other costs related to the segments’ restructuring plans through 2017.

19. Transactions with Related Parties

Management Services Agreement

MacAndrews & Forbes LLC, a wholly owned subsidiary of Holdings, provides the services of the Company’s Chief Executive Officer and Chief Financial Officer, as well as other management, advisory, transactional, corporate finance, legal, risk management, tax and accounting services pursuant to the terms of a management services agreement (the “Management Services Agreement”). Under the terms of the Management Services Agreement, the Company pays MacAndrews & Forbes LLC an annual fee of $10.0 for these services. The Management Services Agreement also contains customary indemnities covering MacAndrews & Forbes LLC and its affiliates and personnel.

The Management Services Agreement will terminate on December 31, 2010, subject to automatic one-year renewal periods unless either party gives the other party written notice at least 90 days prior to the end of the initial term or a subsequent renewal period. The Management Services Agreement will also terminate in the event that MacAndrews & Forbes LLC or its affiliates no longer in the aggregate retain beneficial ownership of 10% or more of the outstanding common stock of the Company.

Restricted Stock

On May 30, 2007, the Company issued 200,000 shares of restricted common stock to Mr. Ronald O. Perelman under the Company’s 2003 Stock Incentive Plan (the “Restricted Stock”). Mr. Perelman is the Chairman of the Company’s Board of Directors and is the sole shareholder of Holdings. The Restricted Stock vested in equal installments on each of the first three anniversaries of the issuance date. The Company recorded non-cash compensation expense related to the Restricted Stock using the straight-line method over the vesting period. The Company expensed $0.4 and $0.6 related to the Restricted Stock in the three and six months ended June 30, 2010, respectively, and $0.5 and $0.6 related to the Restricted Stock in the three and six months ended June 30, 2009, respectively.

Notes Receivable

In 2008, Harland Clarke Holdings acquired the senior secured credit facility and outstanding note of Delphax Technologies, Inc. (“Delphax”), the supplier of Imaggia printing machines and related supplies and service for the Harland Clarke segment. The senior secured credit facility is comprised of a revolving credit facility of up to $14.0, subject to borrowing limitations set forth therein, that matures in September 2011. The senior secured credit facility is collateralized by a perfected security interest in substantially all of Delphax’s assets. The revolving facility has a borrowing base calculated based on Delphax’s eligible accounts receivable and inventory. The senior secured credit facility has an interest rate equal to the sum of Wells Fargo N. A. prime rate plus 2.5%, with accrued interest payable quarterly. The note had an original principal amount of $7.0, matures in September 2012 and originally bore interest at an annual rate of 12%, payable quarterly either in cash or in a combination of cash and up to 25% Delphax stock. Contemporaneous with its acquisition of the senior secured credit facility and the note, Harland Clarke Holdings also acquired 250,000 shares of Delphax common stock from the previous holder of the Delphax note. In January 2010, the note was amended to reduce the interest rate to 9%, payable solely in cash, effective October 1, 2009, and to require the repayment of $3.0 of principal in 2010.

The outstanding balances on the senior secured credit facility and the note are included in prepaid expenses and other current assets and other assets in the accompanying consolidated balance sheets. During the six months ended June 30, 2010, the Company received $3.0 in payments on the note, bringing the principal balance of the note to $4.0 at June 30, 2010. Interest income of $0.1 and $0.2 was recorded during the three and six months ended June 30,

M & F Worldwide Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(dollars in millions, except per share data)
(unaudited)

2010, respectively. Interest income of $0.2 and $0.5 was recorded during the three and six months ended June 30, 2009, respectively.

Other

The Company participates in Holdings’ directors and officers insurance program, which covers the Company as well as Holdings and Holdings’ other affiliates. The limits of coverage are available on aggregate losses to any or all of the participating companies and their respective directors and officers. The Company reimburses Holdings for its allocable portion of the premiums for such coverage, which the Company believes is more favorable than premiums the Company could secure were it to secure its own coverage. In December 2008, the Company elected to participate in third party financing arrangements, together with Holdings and certain of Holdings affiliates, to finance a portion of premium payments. The financing arrangements require the Company to make future fixed payments totaling $0.4 through June 2011 at an interest rate of 7.5%.

At June 30, 2010, the Company recorded prepaid expenses and other assets of $1.2 and $0.8, respectively, and other current liabilities of $0.4 relating to the directors and officers insurance programs and financing arrangements. At December 31, 2009, the Company recorded prepaid expenses and other assets of $1.2 and $0.8 and other current liabilities and other liabilities of $0.7 and $0.2, respectively, relating to the directors and officers insurance program and financing arrangements. The Company paid $0.5 and $0.4 to Holdings during the six months ended June 30, 2010 and 2009, respectively, under the insurance programs, including amounts due under the financing arrangements.

20. Subsequent Event

On July 21, 2010, Scantron acquired 100% of the equity interests of Spectrum K12 School Solutions, Inc. (“Spectrum K12”) for $30.0 in cash subject to post-closing adjustments. Additional contingent consideration may be payable upon the achievement of certain future revenue targets of Spectrum K12. Spectrum K12 develops, markets and sells student achievement management, response to intervention and special education software solutions. Spectrum K12’s offerings complement Scantron’s offerings in educational assessments, content and data management. The Company financed the Spectrum K12 acquisition and related fees and expenses with cash on hand at Harland Clarke Holdings. Due to the timing of the transaction, preliminary accounting for the business combination is not complete. Financial results for Spectrum K12 will be included in the Company’s results of operations beginning in the third quarter of 2010.

M & F Worldwide Corp. and Subsidiaries

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion regarding our financial condition and results of operations for the three and six months ended June 30, 2010 and 2009 should be read in conjunction with the more detailed financial information contained in our consolidated financial statements and their notes included elsewhere in this Quarterly Report on Form10-Q.

Overview of Business

M & F Worldwide Corp. (“M & F Worldwide” and, together with its subsidiaries, the “Company”) is a holding company that conducts its operations through its indirect wholly owned subsidiaries, Harland Clarke Holdings Corp. (“Harland Clarke Holdings”) and Mafco Worldwide Corporation (“Mafco Worldwide”). The Company’s businesses are organized along four business segments together with a corporate group for certain support services.

The Licorice Products segment, which is operated by Mafco Worldwide, produces a variety of licorice products from licorice root, intermediary licorice extracts produced by others and certain other ingredients. Approximately 67% of Mafco Worldwide’s licorice product sales are to the worldwide tobacco industry for use as tobacco flavor enhancing and moistening agents in the manufacture of American blend cigarettes, moist snuff, chewing tobacco and pipe tobacco. Mafco Worldwide also manufactures and sells natural products for use in the tobacco industry. Mafco Worldwide also sells licorice products to food processors, cosmetic companies, confectioners and pharmaceutical manufacturers for use as flavoring or masking agents, including its Magnasweet brand flavor enhancer, which is used in various brands of chewing gum, energy bars, non-carbonated beverages, lip balm, chewable vitamins, aspirin and other products. Mafco Worldwide sells licorice root residue as garden mulch under the name Right Dress.

The SubscriberMail and Protocol IMS Acquisitions

During December 2009, Harland Clarke Corp., a wholly owned subsidiary of Harland Clarke Holdings, acquired in separate transactions SubscriberMail and Protocol Integrated Marketing Services (“Protocol IMS”), a division of Protocol Global Solutions. The acquisition-date aggregate consideration of $13.1 million for these transactions includes contingent consideration of $1.8 million for SubscriberMail upon the achievement of certain revenue targets in 2010 and 2011, with a maximum contingent consideration of $2.0 million if the targets are met. SubscriberMail is a leading email marketing service provider that offers patented tools to develop and deliver professional email communications. Protocol IMS focuses on direct marketing services with solutions that include business to business strategic services, business to consumer strategic services, database marketing and analytics, outbound business to business teleservices, production and fulfillment. The Protocol IMS and SubscriberMail acquisitions are collectively referred to as the “2009 Acquisitions.”

M & F Worldwide Corp. and Subsidiaries

Recent Developments

On July 21, 2010, Scantron acquired 100% of the equity interests of Spectrum K12 School Solutions, Inc. (“Spectrum K12”) for $30.0 million in cash subject to post-closing adjustments. Additional contingent consideration may be payable upon the achievement of certain future revenue targets of Spectrum K12. Spectrum K12 develops, markets and sells student achievement management, response to intervention and special education software solutions. Spectrum K12’s offerings complement Scantron’s offerings in educational assessments, content and data management. The Company financed the Spectrum K12 acquisition and related fees and expenses with cash on hand at Harland Clarke Holdings. Due to the timing of the transaction, preliminary accounting for the business combination is not complete. Financial results for Spectrum K12 will be included in the Company’s results of operations beginning in the third quarter of 2010.

Economic and Other Factors Affecting the Businesses of the Company

Harland Clarke

While total non-cash payments — including checks, credit cards, debit cards and other electronic forms of payment — are growing, the number of checks written has declined and is expected to continue to decline. Harland Clarke believes the number of checks printed is driven by the number of checks written, the number of new checking accounts opened and reorders reflecting changes in consumers’ personal situations, such as name or address changes. In recent quarters, Harland Clarke had experienced check unit declines at a higher rate than in the past, as evidenced by recent period-over-period declines in Harland Clarke revenue which are discussed in more detail elsewhere in this report. Harland Clarke is unable to determine at this time whether these higher rates of decline are attributable to recent economic and financial market difficulties, the depth and length of the economic recession, higher unemployment, decreased openings of checking accounts, changing business strategies of our financial institution clients, decreased consumer spending and/or a further acceleration in the use of alternative non-cash payments. Harland Clarke expects that check unit volume will continue to decline at rates that are higher than it had previously experienced in recent years, resulting in a corresponding decrease in check revenues and depending on the nature and relative magnitude of the causes for the decreases, such decreases may not be mitigated when overall economic conditions improve. Harland Clarke is focused on growing its non-check related products and services, including marketing services, and optimizing its existing catalog of offerings to better serve its clients, as well as managing its costs, overhead and facilities to reflect the decline in check unit volumes. Harland Clarke does not believe that revenues from non-check related products and services will fully offset revenue declines from declining check unit volumes. In the future, Harland Clarke may not be able to mitigate the revenue declines from declining check unit volumes through cost management, which could negatively affect Harland Clarke’s margins.

Harland Clarke’s primary competition comes from alternative payment methods such as debit cards, credit cards, ACH, and other electronic and online payment options. Harland Clarke also competes with large providers that offer a wide variety of products and services including Deluxe Corporation, Harte-Hanks, Inc., and R.R. Donnelly & Sons Company. There are also many other competitors that specialize in providing one or more of the products and services Harland Clarke offers to its clients. Harland Clarke competes on the basis of service, convenience, quality, product range and price.

The Harland Clarke segment’s operating results are also affected by consumer confidence and employment. Consumer confidence directly correlates with consumer spending, while employment also affects revenues through the number of new checking accounts being opened. The Harland Clarke segment’s operating results may be negatively affected by slow or negative growth of, or downturns in, the United States economy. Business confidence affects a portion of the Harland Clarke segment. In addition, if Harland Clarke’s financial institution customers fail or merge with other financial institutions, Harland Clarke may lose any or all revenue from such financial institutions and/or experience further pricing pressure, which would negatively affect Harland Clarke’s operating results.

Harland Financial Solutions

Harland Financial Solutions’ operating results are affected by the overall demand for our products, software and related services, which is based upon the technology budgets of our clients and prospects. Economic downturns in

M & F Worldwide Corp. and Subsidiaries

one or more of the countries in which we do business and enhanced regulatory burdens, including through increased fees and assessments charged to financial institutions by the Federal Deposit Insurance Corporation and National Credit Union Association or due to newly enacted federal legislation for additional taxes on certain financial institutions, could result in reductions in the information technology budgets for some portion of our clients and potentially longer lead-times for acquiring Harland Financial Solutions products and services. In addition, if Harland Financial Solutions’ financial institution customers fail or merge with other financial institutions, Harland Financial Solutions may lose any or all revenue from such financial institutions and/or experience further pricing pressure, which would negatively affect Harland Financial Solutions’ operating results.

Harland Financial Solutions’ business is affected by technological change, evolving industry standards, regulatory changes in client requirements and frequent new product introductions and enhancements. The business of providing technological solutions to financial institutions and other enterprises requires that we continually improve our existing products and create new products while at the same time controlling our costs to remain price competitive.

Providing technological solutions to financial institutions is highly competitive and fragmented. Harland Financial Solutions competes with several large and diversified financial technology providers, including, among others, Fidelity National Information Services, Inc., FISERV, Inc., Jack Henry & Associates, Inc., Open Solutions Inc., Computer Services Inc., and many regional providers. Many multi-national and international providers of technological solutions to financial institutions also compete with Harland Financial Solutions both domestically and internationally, including TEMENOS Group AG, Misys plc, Infosys Technologies Limited, Tata Consultancy and BISYS Group, Inc. There are also many other competitors that offer one or more specialized products or services that compete with products and services offered by Harland Financial Solutions. Management believes that competitive factors influencing buying decisions include product features and functionality, client support, price and vendor financial stability.

Scantron

While the number of tests given annually in K-12 and higher education continues to grow, the demand for optical mark reader paper-based testing has declined and is expected to continue to decline. Changes in educational funding can affect the rate at which schools adopt new technology thus slowing the decline for paper-based testing but also slowing the demand for Scantron’s on-line testing products. Educational funding changes may also reduce the rate of consumption of Scantron’s forms and purchase of additional hardware to process these forms. Scantron’s education-based customers may turn to lower cost solutions for paper-based forms and hardware in furtherance of addressing their budget needs. A weak economy in the United States may negatively affect education budgets and spending, which would have an adverse impact on Scantron’s operating results. Data collection is also experiencing a conversion to non-paper based methods of collection. Scantron believes this trend will also continue as the availability of these alternative technologies becomes more widespread. While Scantron’s non-paper data collection business could benefit from this trend, Scantron’s paper-based data collection business could be negatively affected by this trend. Changes in the overall economy can affect the demand for data collection to the extent that Scantron’s customers adjust their research or testing expenditures.

Mafco Worldwide

Sales of licorice extract to the worldwide tobacco industry are a material part of the overall sales of Mafco Worldwide, so developments and trends within the tobacco industry may have a material effect on its operations.

Prior to 2009, Mafco Worldwide’s licorice extract sales to the worldwide tobacco industry experienced regular declines annually. These declines were primarily the result of a worldwide decline in the consumption of American blend cigarettes, which typically contain higher concentrations of licorice extract. The annual cigarette consumption decline was over 2% on a worldwide basis for several years. Beginning in 2009, Mafco Worldwide experienced a decline in its sales of licorice extract to the worldwide tobacco industry in excess of the rate of consumption decline of American blend cigarettes. This accelerated rate of decline was due in part to a shift in the strategy of worldwide cigarette manufacturers, which placed a greater emphasis on product changes and cost reductions to offer more value-positioned products to consumers.

M & F Worldwide Corp. and Subsidiaries

Changing public attitudes toward tobacco products, an increased emphasis on the public health aspects of tobacco product consumption, increases in excise and other taxes on tobacco products and a constant expansion of tobacco regulations in a number of countries have contributed significantly to this worldwide decline in consumption. Moreover, the trend is toward increasing regulation of the tobacco industry and taxation of tobacco products. Restrictive tobacco legislation has also included restrictions on where and how tobacco may be sold and used, imposition of warning labels and other graphic packaging images and, recently, restrictions on tobacco product ingredients.

Other tobacco products contain licorice extract, including chewing tobacco and moist snuff, and consumption of these products is concentrated primarily in the United States. Domestic consumption of chewing tobacco products has declined by approximately 7% per year over the past five years. Moist snuff consumption has increased approximately 4% per year over the past five years due at least in part to the shift away from cigarettes and other types of smoking and smokeless tobacco.

Producers of tobacco products are subject to regulation in the United States at the federal, state and local levels, as well as in foreign countries. In 2009, the United States government enacted the Family Smoking Prevention and Tobacco Control Act, which provides greater regulatory oversight for the manufacture of tobacco products, including the ability to regulate tobacco product additives. The United States Food & Drug Administration now has the power to limit the type or quantity of additives that may be used in the manufacture of tobacco products in the United States.

Similarly, countries outside the United States have rules restricting the use of various ingredients in tobacco products. During 2005, the World Health Organization promulgated its Framework Convention for Tobacco Control (the “FCTC”). The FCTC is the first international public health treaty and establishes a global agenda for tobacco regulation in order to limit the use of tobacco products. More than 160 countries, as well as the European Union, have become parties to the FCTC. The governing body of the FCTC has adopted several guidelines that provide non-binding recommendations supplementing specific articles of the treaty. The FCTC working group on product regulation is developing guidelines that may recommend banning or limiting ingredients in order to reduce the appeal of cigarettes. The European Commission and individual governments are also considering additional regulations limiting or banning various cigarette ingredients. Future regulations may be influenced by the FCTC’s guidelines.

In October 2009, the Canadian federal government adopted a law that banned virtually all flavor ingredients in cigarettes and little cigars. Certain tobacco-related businesses have contended that the Canadian law effectively bans the sale in Canada of traditional American blend cigarettes containing licorice extract.

Over the years, there has been substantial litigation between tobacco product manufacturers and individuals, various governmental units and private health care providers regarding increased medical expenditures and losses allegedly caused by use of tobacco products. Some of this litigation has been settled through the payment of substantial amounts to various state governments, and United States cigarette companies significantly increased the wholesale price of cigarettes in order to recoup a portion of the settlement cost. Cigarette companies have also sought to offset the cost of these payments by changing product formulations and introducing new products with decreased ingredient costs. There may be an increase in health-related litigation against the tobacco industry, and it is possible that Mafco Worldwide, as a supplier to the tobacco industry, may become a party to such litigation. This litigation, if successful, could have a material adverse effect on Mafco Worldwide.

The tobacco industry, including cigarettes and smokeless tobacco, has been subject to federal, state, local and foreign excise taxes for many years. In recent years, federal, state, local and foreign governments have increased such taxes as a means of both raising revenue and discouraging the consumption of tobacco products. In February 2009, the United States government enacted the State Children’s Health Insurance Program. The health programs in this legislation are being funded by an increase in the federal tax on cigarettes to $1.0066 per pack from the previous $0.39 per pack and by significant increases in federal taxes on cigars and other tobacco products. Other proposals to increase taxes on tobacco products are also regularly introduced in the United States and foreign countries. Additional taxes may lead to an accelerated decline in tobacco product sales.

M & F Worldwide Corp. and Subsidiaries

Mafco Worldwide is unable to predict whether there will be additional price or tax increases for tobacco products or the size of any such increases, or the effect of other developments in tobacco regulation or litigation or consumer attitudes on further declines in the consumption of either tobacco products containing licorice extract or on sales of licorice extract to the tobacco industry. Further material declines in sales to the tobacco industry are likely to have a material adverse effect on the financial performance of Mafco Worldwide.

Restructuring

Harland Clarke Holdings has taken restructuring actions in the past in an effort to achieve manufacturing and contact center efficiencies and other cost savings. Past restructuring actions have related to both acquisitions and ongoing cost reduction initiatives and have included manufacturing plant closures, contact center closures and workforce rationalization. Harland Clarke Holdings anticipates future restructuring actions, where appropriate, to realize process efficiencies and to continue to align its cost structure with business needs. Harland Clarke Holdings expects to incur severance and severance-related costs, facilities closures costs and other costs such as inventory write-offs, training, hiring and travel in connection with future restructuring actions.

Consolidated Operating Results

The Company has organized its businesses along four reportable segments together with a corporate group for certain support services. The Company’s operations are aligned on the basis of products, services and industry. Management measures and evaluates the reportable segments based on operating income.

Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009

The operating results for the three months ended June 30, 2010, as reflected in the accompanying consolidated statements of income and described below, include the operating results of the acquired Protocol IMS and SubscriberMail businesses from their respective dates of acquisition.

Net Revenues:


	Three Months Ended June 30,
*$ in millions*	2010			2009
Consolidated Net Revenues:
Harland Clarke segment	$	307.3		$	306.3
Harland Financial Solutions segment		70.1			69.7
Scantron segment		49.1			50.7
Licorice Products segment		28.0			25.5
Eliminations		(3.2	)		(0.3	)

Total	$	451.3		$	451.9

Net revenues decreased by $0.6 million, or 0.1%, to $451.3 million in the 2010 period from $451.9 million in the 2009 period.

Net revenues for the Harland Clarke segment increased by $1.0 million, or 0.3%, to $307.3 million in the 2010 period from $306.3 million in the 2009 period. The increase was primarily due to revenues from the businesses acquired in the 2009 Acquisitions, the addition of new clients, a one-time payment resulting from the loss of a client and increased revenues per unit. These increases were partially offset by volume declines in check and related products and other one-time nonrecurring items. Net revenues in the 2010 period included charges of $0.2 million for non-cash fair value acquisition accounting adjustments to deferred revenue related to the SubscriberMail acquisition.

Net revenues for the Harland Financial Solutions segment increased by $0.4 million, or 0.6%, to $70.1 million in the 2010 period from $69.7 million in the 2009 period. Increases in maintenance revenues, outsourced host processing revenues, early termination fees and term license revenues were partially offset by decreases in hardware sales and other license revenues.

M & F Worldwide Corp. and Subsidiaries

Net revenues for the Scantron segment decreased by $1.6 million, or 3.2%, to $49.1 million in the 2010 period from $50.7 million in the 2009 period. The decrease was primarily due to declines in service maintenance, hardware and forms revenues. These declines were partially offset by increases in revenues from web-based products and services for the education market and from sales of a newly introduced solution that assists financial institutions with the implementation of recent changes to federal regulations regarding overdraft services provided to financial institution customers.

Net revenues for the Licorice Products segment increased by $2.5 million, or 9.8%, to $28.0 million in the 2010 period from $25.5 million in the 2009 period. Magnasweet and pure licorice derivative sales increased by $2.0 million primarily due to an increase in shipment volumes of pure licorice derivatives. Sales of licorice extract to the worldwide tobacco industry increased by $0.9 million, primarily due to the timing of shipments during the 2010 period compared to the 2009 period. Sales of licorice extract to non-tobacco customers decreased by $0.4 million primarily due to the unfavorable impact of the U.S. dollar translation of Mafco Worldwide’s Euro denominated sales related to the stronger dollar in the 2010 period versus the 2009 period.

Elimination of net revenues increased from $0.3 million in the 2009 period to $3.2 million in the 2010 period primarily due to intersegment sales from the Scantron segment to the Harland Clarke segment. These intersegment sales are related to the new solution that assists financial institutions with the implementation of recent changes to federal regulations.

Cost of Revenues:


	Three Months Ended June 30,
*$ in millions*	2010			2009
Consolidated Cost of Revenues:
Harland Clarke segment	$	185.6		$	190.5
Harland Financial Solutions segment		30.3			29.5
Scantron segment		28.5			29.1
Licorice Products segment		17.5			14.4
Eliminations		(3.2	)		(0.3	)

Total	$	258.7		$	263.2

Cost of revenues decreased by $4.5 million, or 1.7%, to $258.7 million in the 2010 period from $263.2 million in the 2009 period.

Cost of revenues for the Harland Clarke segment decreased by $4.9 million, or 2.6%, to $185.6 million in the 2010 period from $190.5 million in the 2009 period. The decrease in cost of revenues was primarily due to labor cost reductions and decreases in depreciation and occupancy expenses, all of which resulted from restructuring activities. Additionally, lower volumes, which resulted in lower materials and other variable overhead expenses, contributed to the decrease. Decreases in cost of revenues were partially offset by increases resulting from the businesses acquired in the 2009 Acquisitions and by an increase in amortization expense of $1.4 million resulting from the reclassification of the Harland Clarke tradename from an indefinite-lived to a definite-lived intangible asset in the fourth quarter of 2009. Cost of revenues as a percentage of revenues for the Harland Clarke segment was 60.4% in the 2010 period as compared to 62.2% in the 2009 period.

Cost of revenues for the Harland Financial Solutions segment increased by $0.8 million, or 2.7%, to $30.3 million in the 2010 period from $29.5 million in the 2009 period. The increase in cost of revenues was primarily due to an increase in labor costs and an increase in amortization expense of $0.5 million resulting from the reclassification of the Harland Clarke tradename from an indefinite-lived to a definite-lived intangible asset in the fourth quarter of 2009, partially offset by a decrease in depreciation. Cost of revenues as a percentage of revenues for the Harland Financial Solutions segment was 43.2% in the 2010 period as compared to 42.3% in the 2009 period.

Cost of revenues for the Scantron segment decreased by $0.6 million, or 2.1% to $28.5 million in the 2010 period from $29.1 million in the 2009 period. The decrease was primarily due to volume declines and labor cost reductions resulting from restructuring activities, partially offset by an increase in delivery costs related to

M & F Worldwide Corp. and Subsidiaries

the Company’s new solution that assists financial institutions with the implementation of recent changes to federal regulations. Cost of revenues as a percentage of revenues for the Scantron segment was 58.0% in the 2010 period as compared to 57.4% in the 2009 period.

Cost of revenues for the Licorice Products segment increased $3.1 million, or 21.5%, to $17.5 million in the 2010 period from $14.4 million in the 2009 period. This increase was due to the increase in sales, a change in the mix of products sold and increased raw material costs. Cost of revenues as a percentage of revenues for the Licorice Products segment was 62.5% in the 2010 period as compared to 56.5% in the 2009 period due to the factors mentioned above and lower average revenues per unit.

Elimination of cost of revenues increased from $0.3 million in the 2009 period to $3.2 million in the 2010 period primarily due to intersegment costs from the Scantron segment to the Harland Clarke segment. These intersegment costs are related to the new solution that assists financial institutions with the implementation of recent changes to federal regulations.

Selling, General and Administrative Expenses:


	Three Months Ended June 30,
*$ in millions*	2010		2009
Consolidated Selling, General and Administrative Expenses:
Harland Clarke segment	$	53.2	$	52.4
Harland Financial Solutions segment		28.2		28.2
Scantron segment		13.6		13.2
Licorice Products segment		3.3		3.2
Corporate		7.2		8.1

Total	$	105.5	$	105.1

Selling, general and administrative expenses increased by $0.4 million, or 0.4%, to $105.5 million in the 2010 period from $105.1 million in the 2009 period.

Selling, general and administrative expenses for the Harland Clarke segment increased by $0.8 million, or 1.5%, to $53.2 million in the 2010 period from $52.4 million in the 2009 period. The increase was primarily due to the businesses acquired in the 2009 Acquisitions, partially offset by labor cost reductions resulting from restructuring activities and reductions in selling expenses. Selling, general and administrative expenses as a percentage of revenues for the Harland Clarke segment were 17.3% in the 2010 period as compared to 17.1% in the 2009 period.

Selling, general and administrative expenses for the Harland Financial Solutions segment were unchanged. Decreases in general overhead expenses and compensation expense related to an incentive agreement were offset by an increase in foreign currency transaction losses and selling expenses. Selling, general and administrative expenses in the 2010 and 2009 periods included charges of $0.4 million and $1.1 million, respectively, for compensation expense related to an incentive agreement for an acquisition in 2007. Selling, general and administrative expenses as a percentage of revenues for the Harland Financial Solutions segment were 40.2% in the 2010 period as compared to 40.5% in the 2009 period.

Selling, general and administrative expenses for the Scantron segment increased $0.4 million, or 3.0%, to $13.6 million in the 2010 period from $13.2 million in the 2009 period. The increase was primarily due to increases in labor costs, professional fees, and travel expenses in connection with investments in growth initiatives, partially offset by a decrease in integration expenses. Selling, general and administrative expenses as a percentage of revenues for the Scantron segment were 27.7% in the 2010 period as compared to 26.0% in the 2009 period.

Selling, general and administrative expenses for the Licorice Products segment increased $0.1 million, or 3.1%, to $3.3 million in the 2010 period from $3.2 million in the 2009 period primarily due to lower income earned on Mafco Worldwide’s overfunded pension plan.

M & F Worldwide Corp. and Subsidiaries

Corporate selling, general and administrative expenses decreased $0.9 million , or 11.1%, to $7.2 million in the 2010 period from $8.1 million in the 2009 period primarily due to a decrease in deferred directors’ compensation expense related to a decrease in the price of the Company’s common stock during the 2010 period, partially offset by increases in general overhead expenses.

Asset Impairment Charges

During the 2010 period, the Company recorded non-cash impairment charges of $0.6 million for the Harland Clarke segment to adjust the carrying value of certain held for sale facilities to reflect an updated estimate for the fair values less costs to sell.

Restructuring Costs

Harland Clarke Holdings adopted plans during 2008, 2009 and 2010 to strengthen operating margins and leverage incremental synergies within the printing plants, contact centers and selling, general and administrative areas by leveraging Harland Clarke Holdings’ shared services capabilities and reorganizing certain operations and sales and support functions.

In the 2010 period, the Company recorded restructuring costs of $1.6 million for the Harland Clarke segment, $0.2 million for the Harland Financial Solutions segment and $5.2 million for the Scantron segment related to these plans. In the 2009 period, the Company recorded restructuring costs of $11.1 million for the Harland Clarke segment, $0.8 million for the Harland Financial Solutions segment and $1.7 million for the Scantron segment related to these plans.

Interest Income

Interest income was $0.3 million in the 2010 period as compared to $0.4 million in the 2009 period. The decrease in interest income was primarily due to decreased interest on notes receivable from a related party. See Note 19 to the Company’s consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Interest Expense

Interest expense was $30.8 million in the 2010 period as compared to $36.2 million in the 2009 period. The decrease in interest expense was largely due to lower effective interest rates, as well as a decrease in total debt outstanding.

Gain on Early Extinguishment of Debt

During the 2009 period, Harland Clarke Holdings extinguished debt with a total principal amount of $24.2 million by purchasing Harland Clarke Holdings 2015 Senior Notes in individually negotiated transactions for an aggregate purchase price of $14.6 million, resulting in a gain of $8.9 million after the write-off of $0.7 million of unamortized deferred financing fees related to the extinguished debt. There were no early extinguishments of debt during the 2010 period.

Other (Expense) Income, Net

Other (expense) income, net was $0.0 million in the 2010 period as compared to an expense of $0.1 million in the 2009 period. The expense in the 2009 period was due to non-recurring miscellaneous income and expenses.

Provision for Income Taxes

The Company’s effective tax rate was 39.2% in the 2010 period and 32.3% in the 2009 period. The increase was primarily due to the effect of the release of a reserve for uncertain tax positions in the 2009 period.

M & F Worldwide Corp. and Subsidiaries

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009

The operating results for the six months ended June 30, 2010, as reflected in the accompanying consolidated statements of income and described below, include the operating results of the acquired Protocol IMS and SubscriberMail businesses from their respective dates of acquisition.

Net Revenues:


	Six Months Ended June 30,
*$ in millions*	2010			2009
Consolidated Net Revenues:
Harland Clarke segment	$	617.0		$	621.4
Harland Financial Solutions segment		139.4			138.9
Scantron segment		100.2			105.1
Licorice Products segment		55.2			51.2
Eliminations		(3.3	)		(0.4	)

Total	$	908.5		$	916.2

Net revenues decreased by $7.7 million, or 0.8%, to $908.5 million in the 2010 period from $916.2 million in the 2009 period.

Net revenues for the Harland Clarke segment decreased by $4.4 million, or 0.7%, to $617.0 million in the 2010 period from $621.4 million in the 2009 period. The decrease was primarily due to volume declines in check and related products and one-time nonrecurring items, partially offset by revenues from the businesses acquired in the 2009 Acquisitions, the addition of new clients, increased revenues per unit and a one-time payment resulting from the loss of a client. Net revenues in the 2010 period included charges of $0.5 million for non-cash fair value acquisition accounting adjustments to deferred revenue related to the SubscriberMail acquisition.

Net revenues for the Harland Financial Solutions segment increased by $0.5 million, or 0.4%, to $139.4 million in the 2010 period from $138.9 million in the 2009 period. Increases in maintenance revenues, outsourced host processing revenues, early termination fees and term license revenues were partially offset by decreases in hardware sales and other license revenues.

Net revenues for the Scantron segment decreased by $4.9 million, or 4.7%, to $100.2 million in the 2010 period from $105.1 million in the 2009 period. The decrease was primarily due to declines in service maintenance, forms and hardware revenues. These declines were partially offset by increases in revenues from web-based products and services for the education market and from sales of a newly introduced solution that assists financial institutions with the implementation of recent changes to federal regulations regarding overdraft services provided to financial institution customers.

Net revenues for the Licorice Products segment increased by $4.0 million, or 7.8%, to $55.2 million in the 2010 period from $51.2 million in the 2009 period. Magnasweet and pure licorice derivative sales increased by $2.7 million primarily due to an increase in shipment volumes of pure licorice derivatives. Sales of licorice extract to non-tobacco customers increased by $1.3 million primarily due to an increase in shipment volumes to confectionary customers and the favorable impact of the U.S. dollar translation of Mafco Worldwide’s Euro denominated sales due to the weaker dollar in the 2010 period versus the 2009 period. Sales of licorice extract to the worldwide tobacco industry were unchanged in the 2010 period compared to the 2009 period.

Elimination of net revenues increased from $0.4 million in the 2009 period to $3.3 million in the 2010 period primarily due to intersegment sales from the Scantron segment to the Harland Clarke segment. These intersegment sales are related to the new solution that assists financial institutions with the implementation of recent changes to federal regulations.

M & F Worldwide Corp. and Subsidiaries

Cost of Revenues:


	Six Months Ended June 30,
*$ in millions*	2010			2009
Consolidated Cost of Revenues:
Harland Clarke segment	$	375.8		$	391.3
Harland Financial Solutions segment		60.6			59.5
Scantron segment		55.6			59.5
Licorice Products segment		34.4			28.4
Eliminations		(3.3	)		(0.4	)

Total	$	523.1		$	538.3

Cost of revenues decreased by $15.2 million, or 2.8%, to $523.1 million in the 2010 period from $538.3 million in the 2009 period.

Cost of revenues for the Harland Clarke segment decreased by $15.5 million, or 4.0%, to $375.8 million in the 2010 period from $391.3 million in the 2009 period. The decrease in cost of revenues was primarily due to labor cost reductions and decreases in depreciation and occupancy expenses, all of which resulted from restructuring activities. Additionally, lower volumes, which resulted in lower materials and other variable overhead expenses, contributed to the decrease. Decreases in cost of revenues were partially offset by increases resulting from the businesses acquired in the 2009 Acquisitions and by an increase in amortization expense of $2.8 million resulting from the reclassification of the Harland Clarke tradename from an indefinite-lived to a definite-lived intangible asset in the fourth quarter of 2009. Cost of revenues as a percentage of revenues for the Harland Clarke segment was 60.9% in the 2010 period as compared to 63.0% in the 2009 period.

Cost of revenues for the Harland Financial Solutions segment increased by $1.1 million, or 1.8%, to $60.6 million in the 2010 period from $59.5 million in the 2009 period. The increase in cost of revenues was primarily due to an increase in amortization expense of $1.0 million resulting from the reclassification of the Harland Clarke tradename from an indefinite-lived to a definite-lived intangible asset in the fourth quarter of 2009. Cost of revenues as a percentage of revenues for the Harland Financial Solutions segment was 43.5% in the 2010 period as compared to 42.8% in the 2009 period.

Cost of revenues for the Scantron segment decreased by $3.9 million, or 6.6% to $55.6 million in the 2010 period from $59.5 million in the 2009 period. The decrease was primarily due to volume declines and labor cost reductions resulting from restructuring activities, partially offset by an increase in delivery costs related to the Company’s new solution that assists financial institutions with the implementation of recent changes to federal regulations. Cost of revenues as a percentage of revenues for the Scantron segment was 55.5% in the 2010 period as compared to 56.6% in the 2009 period.

Cost of revenues for the Licorice Products segment increased $6.0 million, or 21.1%, to $34.4 million in the 2010 period from $28.4 million in the 2009 period. This increase was due to the increase in sales, a change in the mix of products sold and increased raw material costs. Cost of revenues as a percentage of revenues for the Licorice Products segment was 62.3% in the 2010 period as compared to 55.5% in the 2009 period due to the factors mentioned above and lower average revenues per unit.

Elimination of cost of revenues increased from $0.4 million in the 2009 period to $3.3 million in the 2010 period primarily due to intersegment costs from the Scantron segment to the Harland Clarke segment. These intersegment costs are related to the new solution that assists financial institutions with the implementation of recent changes to federal regulations.

M & F Worldwide Corp. and Subsidiaries

Selling, General and Administrative Expenses:


	Six Months Ended June 30,
*$ in millions*	2010		2009
Consolidated Selling, General and Administrative Expenses:
Harland Clarke segment	$	105.4	$	108.5
Harland Financial Solutions segment		55.6		57.6
Scantron segment		27.0		29.0
Licorice Products segment		6.7		6.5
Corporate		12.4		13.3

Total	$	207.1	$	214.9

Selling, general and administrative expenses decreased by $7.8 million, or 3.6%, to $207.1 million in the 2010 period from $214.9 million in the 2009 period.

Selling, general and administrative expenses for the Harland Clarke segment decreased by $3.1 million, or 2.9%, to $105.4 million in the 2010 period from $108.5 million in the 2009 period. The decrease was primarily due to labor cost reductions resulting from restructuring activities and reductions in selling expenses and advertising expenses. Selling, general and administrative expenses from the businesses acquired in the 2009 Acquisitions partially offset the overall decrease. Selling, general and administrative expenses as a percentage of revenues for the Harland Clarke segment were 17.1% in the 2010 period as compared to 17.5% in the 2009 period.

Selling, general and administrative expenses for the Harland Financial Solutions segment decreased by $2.0 million, or 3.5%, to $55.6 million in the 2010 period from $57.6 million in the 2009 period. The decrease was primarily due to labor cost reductions resulting from restructuring activities, a reduction in compensation expense related to an incentive agreement, and decreases in general overhead expenses and depreciation. These decreases were partially offset by an increase in selling expenses and an increase in foreign currency transaction losses. Selling, general and administrative expenses in the 2010 and 2009 periods included charges of $0.8 million and $2.1 million, respectively, for compensation expense related to an incentive agreement for an acquisition in 2007. Selling, general and administrative expenses as a percentage of revenues for the Harland Financial Solutions segment was 39.9% in the 2010 period as compared to 41.5% in the 2009 period.

Selling, general and administrative expenses for the Scantron segment decreased $2.0 million, or 6.9%, to $27.0 million in the 2010 period from $29.0 million in the 2009 period. The decrease was primarily due to lower integration expenses in the 2010 period, a $1.3 million one-time expense in the 2009 period related to a contractual obligation owing to a former employee upon termination of employment, and a decrease in selling expenses. These decreases were partially offset by increases in labor, professional fees and travel expenses in connection with investments in growth initiatives. Selling, general and administrative expenses as a percentage of revenues for the Scantron segment was 26.9% in the 2010 period as compared to 27.6% in the 2009 period.

Selling, general and administrative expenses for the Licorice Products segment increased $0.2 million, or 3.1%, to $6.7 million in the 2010 period from $6.5 million in the 2009 period primarily due to lower income earned on Mafco Worldwide’s overfunded pension plan.

Corporate selling, general and administrative expenses decreased $0.9 million, or 6.8%, to $12.4 million in the 2010 period from $13.3 million in the 2009 period primarily due to a decrease in deferred directors’ compensation expense related to a decrease in the price of the Company’s common stock during the 2010 period, partially offset by increases in general overhead expenses.

Asset Impairment Charges

M & F Worldwide Corp. and Subsidiaries

Restructuring Costs

In the 2010 period, the Company recorded restructuring costs of $3.3 million for the Harland Clarke segment, $0.4 million for the Harland Financial Solutions segment and $6.5 million for the Scantron segment related to these plans. In the 2009 period, the Company recorded restructuring costs of $18.4 million for the Harland Clarke segment, $3.2 million for the Harland Financial Solutions segment and $3.1 million for the Scantron segment related to these plans.

Interest Income

Interest income was $0.6 million in the 2010 period as compared to $0.9 million in the 2009 period. The decrease in interest income was primarily due to decreased interest on notes receivable from a related party. See Note 19 to the Company’s consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Interest Expense

Interest expense was $61.4 million in the 2010 period as compared to $74.8 million in the 2009 period. The decrease in interest expense was largely due to lower effective interest rates, as well as a decrease in total debt outstanding.

Gain on Early Extinguishment of Debt

During the 2009 period, Harland Clarke Holdings extinguished debt with a total principal amount of $114.7 million by purchasing Harland Clarke Holdings 2015 Senior Notes in individually negotiated transactions for an aggregate purchase price of $49.7 million, resulting in a gain of $61.5 million after the write-off of $3.5 million of unamortized deferred financing fees related to the extinguished debt. There were no early extinguishments of debt during the 2010 period.

Other (Expense) Income, Net

Other (expense) income, net was an expense of $0.2 million in the 2010 period as compared to income of $0.8 in the 2009 period. The expense in the 2010 period was due to a loss on the sale of auction-rate securities (“ARS”). The income in the 2009 period was due to the favorable settlement of a claim pending against the Company related to a previously owned business.

Provision for Income Taxes

The Company’s effective tax rate was 40.5% in the 2010 period and 36.5% in the 2009 period. The increase was primarily due to a charge in the 2010 period for the change in federal tax law relating to the deductibility of retiree prescription drug subsidies and a valuation allowance relating to the ARS, in addition to the effect of the release of a reserve for uncertain tax positions in the 2009 period.

Liquidity and Capital Resources

Cash Flow Analysis

The Company’s net cash provided by operating activities during the six months ended June 30, 2010 was $143.9 million as compared to $76.6 million during the same period in 2009. The increase in net cash provided by operating activities of $67.3 million was due to changes in working capital and an increase in cash flow from operations. Working capital decreased during the six months ended June 30, 2010 compared to the same period in

M & F Worldwide Corp. and Subsidiaries

2009 primarily due to the timing of payments related to other accrued expenses and prepaid expenses and lower inventory requirements.

The Company’s net cash provided by investing activities was $27.8 million during the six months ended June 30, 2010 as compared to net cash used in investing activities of $20.7 million during the same period in 2009. The increase in cash provided by investing activities during the six months ended June 30, 2010 compared to the same period in 2009 was primarily due to proceeds from the sale and redemption of marketable securities and lower capital expenditures.

The Company’s net cash used in financing activities was $32.6 million during the six months ended June 30, 2010 as compared to $67.0 million during the same period in 2009. The decrease in net cash used in financing activities was primarily due to the extinguishment of $114.7 million principal amount of Harland Clarke Holdings 2015 Senior Notes for an aggregate purchase price of $49.7 million during the six months ended June 30, 2009, partially offset by $11.1 million of repayments of short-term debt and an $11.0 million prepayment by Mafco Worldwide on its senior secured credit facility during the same period in 2010.

M & F Worldwide is a holding company whose only material assets are its ownership interests in its subsidiaries, approximately $55.5 million in cash and cash equivalents and $14.8 million in ARS, which are pledged to secure short-term debt as of June 30, 2010. M & F Worldwide’s principal business operations are conducted by its subsidiaries, and M & F Worldwide has no operations of its own. Accordingly, M & F Worldwide’s only source of cash to pay its obligations, other than cash and cash equivalents and ARS on hand, is expected to be distributions and tax sharing payments with respect to its ownership interests in its subsidiaries. M & F Worldwide’s subsidiaries may not generate sufficient cash flow to pay dividends, tax sharing payments or distribute funds to M & F Worldwide and applicable state law and contractual restrictions, including negative covenants contained in the debt instruments of such subsidiaries, may not permit such dividends or distributions.

Investments

The Company’s investments include $14.8 million of ARS as of June 30, 2010. These investments are classified as available-for-sale and are reported at fair value. The Company’s ARS are collateralized by student loan portfolios (substantially all of which are guaranteed by the United States Government).

The ARS are securities with long-term maturities ranging between 22 and 36 years for which the interest rates reset every 28 days by an auction process. Historically, these types of ARS have been highly liquid. Beginning in February 2008, there was insufficient demand at auction for ARS collateralized by student loans, including auctions for ARS held by the Company. As a result, these ARS continue to pay interest in accordance with their terms until the next successful auction; however, liquidity will be limited until there is a successful auction or until such time as other markets for these ARS develop.

In the event the Company needs to access the funds that are in an illiquid state, it will not be able to do so without the possible loss of principal, until either a future auction for these investments is successful, they are redeemed by the issuer or they mature. The Company does not have a need to access these funds for operational purposes for the foreseeable future. Because there is no assurance that auctions for these securities will be successful in the near term, as of June 30, 2010 the ARS were classified as long-term investments. During the six months ended June 30, 2010, the Company sold ARS with a face value of $13.1 million for total proceeds of $11.6 million. Also, ARS issues were redeemed by the issuers at par value of $2.7 million in June 2010.

The fair value of these securities as of June 30, 2010 and December 31, 2009 was estimated utilizing discounted cash flow analyses. The analyses consider, among other items, the collateral underlying the securities, the credit worthiness of the counterparty, the timing of expected future principal and interest payments, as well as forecasted probabilities of default, auction failure and a successful auction at par or repurchase at par for each period.

M & F Worldwide Corp. and Subsidiaries

The Company’s Consolidated Contractual Obligations and Commitments

There were no material changes to the Company’s contractual obligations and commitments as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 during the three months ended June 30, 2010.

Liquidity Assessment

The Company believes that its cash and cash equivalents, borrowings available under the Harland Clarke Holdings and Mafco Worldwide credit agreements (as further discussed in Note 13 to the Company’s consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q) and anticipated cash flow from operating activities will be sufficient to meet the Company’s expected operating needs, investment and capital spending requirements and debt service requirements for the foreseeable future.

Harland Clarke Holdings

In addition to Harland Clarke Holdings’ normal operating cash, working capital requirements and service of its indebtedness, it also requires cash to fund capital expenditures, make contract acquisition payments to financial institution clients and enable cost reductions through restructuring projects as follows:

	•		Capital Expenditures. Harland Clarke Holdings’ capital expenditures are primarily related to infrastructure investments, internally developed software, cost reduction programs, marketing initiatives and other projects that support future revenue growth. During the six months ended June 30, 2010 and 2009, Harland Clarke Holdings incurred $14.6 million and $23.0 million of capital expenditures and $0.0 million and $0.2 million of capitalized interest, respectively.

	•		Contract Acquisition Payments. During the six months ended June 30, 2010 and 2009, Harland Clarke Holdings made $20.0 million and $27.9 million of contract acquisition payments to its clients, respectively.

	•		Restructuring/Cost Reductions. Restructuring accruals have been established for anticipated severance payments, costs related to facilities closures and other expenses related to the restructuring or consolidation of some of Harland Clarke Holdings’ operations. During the six months ended June 30, 2010 and 2009, Harland Clarke Holdings made $6.8 million and $19.1 million of payments for restructuring, respectively.

The Company may also, from time to time, seek to use its cash to make acquisitions or investments, and also to retire or purchase its outstanding debt in open market purchases, in privately negotiated transactions, or otherwise. Such retirement or purchase of debt may be funded from the operating cash flows of the business or other sources and will depend upon prevailing market conditions, liquidity requirements, contractual restrictions and other factors, and the amounts involved may be material. The Company used cash on hand at Harland Clarke Holdings to fund the $28.6 million net purchase price after giving effect to working capital adjustments for the acquisition of Spectrum K12 School Solutions, Inc. that was consummated in July 2010.

Mafco Worldwide

In addition to Mafco Worldwide’s normal operating cash and working capital requirements and service of its indebtedness, it also requires cash to fund capital expenditures, periodically build raw materials inventories and fund administrative and other expenses regarding indemnified liabilities as follows:

	•		Capital Expenditures. During the six months ended June 30, 2010 and 2009, Mafco Worldwide incurred $0.8 million and $0.6 million of capital expenditures, respectively. While expenditures for future years are expected to be within this general range, future changes in governmental regulations could require the Company to substantially increase capital expenditures in order to comply with these regulations.

	•		Inventories. Mafco Worldwide’s licorice raw materials are subject to a variety of agricultural risks. Additionally, most of the licorice root Mafco Worldwide purchases originates in countries and regions that have, from time to time, been subject to political instability. Accordingly, Mafco Worldwide must

M & F Worldwide Corp. and Subsidiaries

periodically build its raw materials supply in order to avoid material shortages or significant raw material price increases. Shortages of licorice raw materials could have a material adverse effect on Mafco Worldwide’s business, results of operations and financial condition.

Cash Flow Risks

Each of Harland Clarke Holdings’ and Mafco Worldwide’s ability to meet their respective debt service obligations and reduce their total debt will depend upon their respective ability to generate cash in the future which, in turn, will be subject to general economic, financial, business, competitive, legislative, regulatory and other conditions, many of which are beyond their respective control. Each of Harland Clarke Holdings and Mafco Worldwide may not be able to generate sufficient cash flow from operations or borrow under their credit facilities in an amount sufficient to repay their debt or to fund other liquidity needs. As of June 30, 2010, Harland Clarke Holdings had $90.8 million of availability under its revolving credit facility (after giving effect to the issuance of $9.2 million of letters of credit) and Mafco Worldwide had $15.0 million of availability under its revolving credit facility. There were no letters of credit issued by Mafco Worldwide as of June 30, 2010. The Company may also use the revolving credit facilities to fund potential future acquisitions or investments. If future cash flow from operations and other capital resources are insufficient to pay each’s respective obligations as they mature or to fund their liquidity needs, Harland Clarke Holdings or Mafco Worldwide, as the case may be, may be forced to reduce or delay business activities and capital expenditures, sell assets, obtain additional debt or equity capital or restructure or refinance all or a portion of their debt on or before maturity. Harland Clarke Holdings or Mafco Worldwide, as the case may be, may not be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all. In addition, the terms of their existing and future indebtedness may limit their ability to pursue any of these alternatives.

Mafco Worldwide may encounter liquidity risks arising from its supply of licorice root raw material. Mafco Worldwide tries to maintain a sufficient licorice root raw material inventory and open purchase contracts to meet normal production needs for approximately three years. At June 30, 2010, Mafco Worldwide had on hand a supply of licorice root raw material of approximately three years. Licorice root has an indefinite retention period as long as it is kept dry, and therefore has experienced little, if any, material spoilage. Although Mafco Worldwide has been able to obtain licorice root raw materials without interruption since World War II, since there has been periodic instability in the areas of the world where licorice root raw materials are obtained, Mafco Worldwide may in the future experience a short supply of licorice root raw materials due to these or other instabilities. If Mafco Worldwide is unable to obtain licorice root raw materials, or is unable to obtain them in a cost-effective manner, Mafco Worldwide’s business will be severely hampered and Mafco Worldwide will experience severe liquidity difficulties.

Critical Accounting Policies and Estimates

There were no material changes to the Company’s Critical Accounting Policies and Estimates as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 during the three months ended June 30, 2010.

M & F Worldwide Corp. and Subsidiaries

Forward-Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, as well as certain of the Company’s other public documents and statements and oral statements, contains forward-looking statements that reflect management’s current assumptions and estimates of future performance and economic conditions. When used in this Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q. Although the Company believes that its plans, intentions and expectations reflected in or suggested by the forward-looking statements are reasonable, such plans, intentions or expectations may not be achieved. Such forward-looking statements are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company cautions investors that any forward-looking statements are subject to risks and uncertainties that may cause actual results and future trends to differ materially from those projected, stated or implied by the forward-looking statements. In addition, the Company encourages investors to read the summary of the Company’s critical accounting policies and estimates included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates.”

In addition to factors described in the Company’s SEC filings and others, the following factors could cause the Company’s actual results to differ materially from those expressed in any forward-looking statements made by the Company:

	•		the substantial indebtedness of Harland Clarke Holdings and its subsidiaries, Mafco Worldwide and its subsidiaries and M & F Worldwide;

	•		further adverse changes in or worsening of general economic and industry conditions, including the depth and length of the economic recession and higher unemployment, which could result in more rapid declines in product sales of and/or pricing pressure on the Harland Clarke and Scantron segments, and reductions in information technology budgets, which could result in adverse impacts on the Harland Financial Solutions segment;

	•		weak economic conditions and declines in the financial performance of our business that may result in material impairment charges, which could have a negative effect on the Company’s earnings, total assets and market prices of the Company’s outstanding securities;

	•		our ability to generate sufficient cash in the future that affects our ability to make payments on our indebtedness;

	•		our ability to incur substantially more debt that could exacerbate the risks associated with our substantial leverage;

	•		covenant restrictions under Harland Clarke Holdings’, Mafco Worldwide’s and M & F Worldwide’s indebtedness that may limit our ability to operate our businesses and react to market changes;

	•		lack of access to cash flow or other assets of the Company’s subsidiaries, including Harland Clarke Holdings and Mafco Worldwide;

	•		increases in interest rates;

	•		the maturity of the paper check industry, including a faster than anticipated decline in check usage due to increasing use of alternative payment methods, decreased consumer spending and other factors and our ability to grow non-check related product lines;

	•		consolidation among financial institutions;

M & F Worldwide Corp. and Subsidiaries

	•		adverse changes or failures or consolidation of the large financial institution clients on which we depend, resulting in decreased revenues and/or pricing pressure;

	•		intense competition in all areas of our businesses;

	•		our ability to successfully manage future acquisitions;

	•		our ability to implement any or all components of our business strategy;

	•		interruptions or adverse changes in our vendor or supplier relationships;

	•		increased production and delivery costs;

	•		fluctuations in the costs of raw materials and other supplies;

	•		our ability to attract, hire and retain qualified personnel;

	•		technological improvements that may reduce any advantage over other providers in our respective industries;

	•		our ability to protect customer or consumer data against data security breaches;

	•		changes in legislation relating to consumer privacy protection that could increase our costs or limit our future business opportunities;

	•		contracts with our clients relating to consumer privacy protection that could restrict our business;

	•		our ability to protect our intellectual property rights;

	•		our reliance on third-party providers for certain significant information technology needs;

	•		software defects or cyber attacks that could harm our businesses and reputation;

	•		sales and other taxes that could have adverse effects on our businesses;

	•		environmental risks;

	•		the ability of our Harland Financial Solutions segment to achieve organic growth;

	•		regulations governing the Harland Financial Solutions segment;

	•		our ability to develop new products for our Scantron segment;

	•		future warranty or product liability claims which could be costly to resolve and result in negative publicity;

	•		government and school clients’ budget deficits, which could have an adverse impact on our Scantron segment;

	•		softness in direct mail response rates;

	•		economic, climatic or political conditions in countries in which Mafco Worldwide sources licorice root or in countries where Mafco Worldwide manufactures licorice extracts and licorice derivatives;

	•		economic, climatic or political conditions that have an impact on the worldwide tobacco industry or on the consumption of tobacco products in which licorice products are used;

	•		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

M & F Worldwide Corp. and Subsidiaries

			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;

	•		additional government regulation relating to non-tobacco uses of Mafco Worldwide’s products;

	•		the failure of third parties to make full and timely payment in our favor for environmental, asbestos, tax, acquisition-related and other matters for which we are entitled to indemnification;

	•		any material failure of the indemnification, assumption, guaranty or management arrangements that protect Pneumo Abex against contingent claims;

	•		lower than expected cash flow from operations;

	•		unfavorable foreign currency fluctuations;

	•		the loss of one of our significant customers;

	•		work stoppages and other labor disturbances; and

	•		unanticipated internal control deficiencies or weaknesses.

The Company encourages investors to read carefully the risk factors described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 in the section entitled “Risk Factors” and this Quarterly Report on Form 10-Q in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company has exposure to market risk from changes in interest rates and foreign currency exchange rates, which could affect its business, results of operations and financial condition. The Company manages its exposure to these market risks through its regular operating and financing activities.

At June 30, 2010, Harland Clarke Holdings had $1,746.0 million of term loans outstanding under its credit agreement, $9.2 million of letters of credit outstanding under its revolving credit facility, $206.8 million of floating rate senior notes and $271.3 million of 9.50% fixed rate senior notes. At June 30, 2010, Mafco Worldwide had $44.2 million of term loans outstanding under its credit agreement and no letters of credit outstanding under its revolving credit facility. At June 30, 2010, M & F Worldwide had $11.1 million of short-term debt outstanding. All of these outstanding loans bear interest at variable rates, with the exception of the $271.3 million of fixed rate senior notes. Accordingly, the Company is subject to risk due to changes in interest rates. The Company believes that a hypothetical increase of 1 percentage point in the variable component of interest rates applicable to its floating rate debt outstanding at June 30, 2010 would have resulted in an increase in its interest expense for the six months ended June 30, 2010 of approximately $4.7 million, including the effect of the interest rate derivative transactions discussed below.

In order to manage its exposure to fluctuations in interest rates on a portion of the outstanding variable rate debt, the Company entered into interest rate derivative transactions in 2009 and 2010 in the form of swaps for Harland Clarke Holdings with notional amounts totaling $855.0 million currently outstanding, as further described in the notes to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. The Harland Clarke Holdings’ derivatives currently swap the underlying variable rates for fixed rates ranging from 1.264% to 2.353%.

Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 presents additional quantitative and qualitative disclosures about exposure to risk in foreign currency exchange rates. There have been no material changes to the disclosures regarding foreign currency exchange rates as of June 30, 2010.

M & F Worldwide Corp. and Subsidiaries

The Company’s investments include $14.8 million of ARS as of June 30, 2010, which are classified as available-for-sale and are recorded at fair value. The Company’s ARS are collateralized by student loan portfolios (substantially all of which are guaranteed by the United States Government).

The ARS are securities with long-term nominal maturities ranging from 22 to 36 years for which the interest rates reset every 28 days by an auction process. Historically, these types of ARS have been highly liquid. Beginning in February 2008, there was insufficient demand at auction for ARS collateralized by student loans, including auctions for ARS held by the Company. As a result, these ARS continue to pay interest in accordance with their terms until the next successful auction; however, liquidity will be limited until there is a successful auction or until such time as other markets for these ARS develop.

In the event the Company needs to access the funds that are in an illiquid state, it will not be able to do so without the possible loss of principal, until either a future auction for these investments is successful or they are redeemed by the issuer or they mature. The Company does not have a need to access these funds for operational purposes for the foreseeable future. Because there is no assurance that auctions for these securities will be successful in the near term, as of June 30, 2010 the ARS were classified as long-term investments.

The fair value of the ARS as of June 30, 2010 was estimated utilizing discounted cash flow analyses. The analyses consider, among other items, the collateral underlying the securities, the credit worthiness of the counterparty, the timing of expected future principal and interest payments, as well as forecasted probabilities of default, auction failure and a successful auction at par or repurchase at par for each period.

Item 4. Controls and Procedures

(a) Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.

(b) Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

M & F Worldwide Corp. and Subsidiaries

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In June 2008, Kenneth Kitson, purportedly on behalf of himself and a class of other alleged similarly situated commercial borrowers from the Bank of Edwardsville, an Illinois-based community bank (“BOE”), filed in an Illinois state court an amended complaint that re-asserted previously filed claims against BOE and added claims against Harland Financial Solutions, Inc. (“HFS”). The amended complaint alleged, among other things, that HFS’s LaserPro software permitted BOE to generate loan documents that were deceptive and usurious in that they failed to disclose properly the effect of the “365/360” method of calculating interest. Following removal of the action to the United States District Court for the Southern District of Illinois, the District Court entered an order granting with prejudice HFS’s motion to dismiss Mr. Kitson’s claims. In August 2009, Mr. Kitson, individually and as class representative, and BOE agreed to settle and dismiss with prejudice all remaining claims. Separately but concurrently, BOE’s warranty claim against HFS was settled, in exchange for, among other things, payment by HFS of $0.2 million. The class settlement agreement was approved by the District Court in January 2010.

Pneumo Abex’s former Aerospace business sold certain of its aerospace products to the United States Government or to private contractors for the United States Government. Pneumo Abex retained in the Aerospace sale certain claims for allegedly defective pricing that the United States Government made with respect to certain of these products. In the first quarter of 2009, Pneumo Abex resolved the final remaining pricing matter that it managed for a payment of $0.1 million, resulting in a gain of $0.9 million due to the release of a reserve previously accrued for this claim.

Various other legal proceedings, claims and investigations are pending against the Company, including those relating to commercial transactions, product liability, environmental, safety and health matters, employment matters and other matters. The Company is also involved in various stages of legal proceedings, claims, investigations and cleanup relating to environmental or natural resource matters, some of which relate to waste disposal sites. Most of these matters are covered by insurance, subject to deductibles and maximum limits, and by third-party indemnities.

The Company believes that the outcome of all pending legal proceedings in the aggregate will not have a material adverse effect on its consolidated financial position or results of operations.

Item 1A. Risk Factors

There was no material change to the Company’s risk factors as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 during the three months ended June 30, 2010, other than the risk factor set forth below.

The tobacco industry has been subject to increased governmental taxation and regulation and in recent years has been subject to substantial litigation. These trends are likely to continue and it is likely that these trends will negatively affect tobacco product consumption and tobacco product manufacturers.

M & F Worldwide Corp. and Subsidiaries

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

There was no event of default upon senior securities during the three months ended June 30, 2010.

Item 4. Removed and Reserved

Item 5. Other Information

No additional information need be presented.


31.1		Certification of Barry F. Schwartz, Chief Executive Officer, dated August 5, 2010.

31.2		Certification of Paul G. Savas, Chief Financial Officer, dated August 5, 2010.

32.1		Certification of Barry F. Schwartz, Chief Executive Officer, dated August 5, 2010, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Paul G. Savas, Chief Financial Officer, dated August 5, 2010, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


	M & F WORLDWIDE CORP.
Date: August 5, 2010	By:	/s/ Paul G. Savas
		Paul G. Savas
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)


Date: August 5, 2010	By:	/s/ Alison M. Horowitz
		Alison M. Horowitz
		Vice President, Treasurer and Controller (Principal Accounting Officer)


31.1		Certification of Barry F. Schwartz, Chief Executive Officer, dated August 5, 2010.

31.2		Certification of Paul G. Savas, Chief Financial Officer, dated August 5, 2010.

32.1		Certification of Barry F. Schwartz, Chief Executive Officer, dated August 5, 2010, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Paul G. Savas, Chief Financial Officer, dated August 5, 2010, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets			1

Consolidated Statements of Income			2

Consolidated Statements of Cash Flows			3

Notes to Consolidated Financial Statements			4

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25

Item 3. Quantitative and Qualitative Disclosures About Market Risk			42

Item 4. Controls and Procedures			43

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			44

Item 1A. Risk Factors			44

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			45

Item 3. Defaults Upon Senior Securities			45

Item 4. Removed and Reserved			45

Item 5. Other Information			45

Item 6. Exhibits			46
EX-31.1
EX-31.2
EX-32.1
EX-32.2