UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~June~~September 30, 2013



£	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: 333-133253

HARLAND CLARKE HOLDINGS CORP.

(Exact name of registrant as specified in its charter)



Delaware	84-1696500
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

10931 Laureate Drive, San Antonio, TX	78249
(Address of principal executive offices)	(Zip code)

(210) 697-8888

(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 R No £ *

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 þ No £

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):



Large accelerated filer £	Accelerated filer £	Non-accelerated filer R	Smaller reporting company £
	(Do not check if a smaller reporting company)

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

Yes £ No R

As of ~~July~~October 31, 2013, there were 100 shares of the registrant's common stock outstanding, with a par value of $0.01 per share. All outstanding shares are owned by a subsidiary of M & F Worldwide Corp.

* The registrant is not required to file this Quarterly Report on Form 10-Q or other reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, but has filed all reports during the preceding 12 months that would have been required pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. The filing is required, however, pursuant to the terms of the indenture governing Harland Clarke Holdings Corp.'s senior notes due 2015.

Table of Contents

HARLAND CLARKE HOLDINGS CORP.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended ~~June~~September 30, 2013

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations	2
	Consolidated Statements of Comprehensive Income (Loss)	3
	Consolidated Statements of Cash Flows	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2526
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4140
Item 4.	Controls and Procedures	41
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	4342
Signatures		4443
Exhibit Index		4544

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Harland Clarke Holdings Corp. and Subsidiaries

Consolidated Balance Sheets

(in millions, except share and per share data)

	June 30, 2013			December 31, 2012
	September 30, 2013			December 31, 2012
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	841,037.68		$	102.0
Accounts receivable (net of allowances of $1.4 and $1.5)	150.5			132.1
Accounts receivable (net of allowances of $1.0 and $1.5)	111.1			132.1
Inventories	3634.43			29.0
Income taxes receivable	230.24			23.7
Notes receivable - related party	30.0			30.0
Deferred tax assets	4535.17			45.1
Prepaid expenses and other current assets	6741.68			56.7
Total current assets	~~437~~1,291.41			418.6
Property, plant and equipment	~~297~~290.82			269.5
Less accumulated depreciation	(~~114~~111.38		)	(79.5		)
Property, plant and equipment, net	~~183~~178.54			190.0
Goodwill	~~765~~483.60			761.6
Other intangible assets, net	1,~~501~~189.90			1,535.6
Contract acquisition payments, net	2223.53			17.6
Other assets	8757.91			63.0
Total assets	$	23,~~998~~221.89		$	2,986.4
LIABILITIES AND STOCKHOLDER'S EQUITY / DEFICIT
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable	$	4742.73		$	44.5
Deferred revenues	~~135~~63.50			133.9
Current maturities of long-term debt	8990.90			78.5
Accrued liabilities:
Salaries, wages and employee benefits	5754.70			55.9
Income and other taxes payable	1276.14			11.9
Customer incentives	5349.25			52.0
Payable to parent	0.31			0.1
Other current liabilities	5338.14			42.1
Total current liabilities	~~449~~413.57			418.9
Long-term debt	1,~~847~~839.73			1,769.3
Deferred tax liabilities	~~578~~467.08			622.7
Deferred revenues	5623.31			54.2
Other liabilities	6861.08			86.1
Commitments and contingencies
Stockholder's equity / deficit:
Stockholder's equity:
Common stock — 200 shares authorized; par value $0.01; 100 shares issued and outstanding at June 30, 2013 and December 31, 2012	—			—
Common stock — 200 shares authorized; par value $0.01; 100 shares issued and outstanding at September 30, 2013 and December 31, 2012	—			—
Additional paid-in capital	49.9			76.1
Accumulated deficit	(49.4		)	(40.6		)
Retained earnings / (accumulated deficit)	367.5			(40.6		)
Accumulated other comprehensive (loss) income:
Foreign currency translation adjustments	(0.5		)	0.4
Unrecognized amounts included in postretirement obligations, net of taxes	(0.7		)	(0.7		)
Total accumulated other comprehensive loss, net of taxes	(1.2		)	(0.3		)
Total stockholder's equity / deficit	(0.7		)	35.2
Total stockholder's equity	416.2			35.2
Total liabilities and stockholder's equity / deficit	$	2,998.8		$	2,986.4
Total liabilities and stockholder's equity	$	3,221.9		$	2,986.4

See Notes to Consolidated Financial Statements

Table of Contents

Harland Clarke Holdings Corp. and Subsidiaries

Consolidated Statements of Operations

(in millions)

(unaudited)

	Three Months Ended						~~Six~~Nine Months Ended
	June 30,						June 30,
	September 30,						September 30,
	2013			2012			2013			2012
Product revenues, net	$	~~326~~318.57		$	~~311~~303.61		$	~~647~~917.98		$	~~642~~914.83
Service revenues, net	~~110~~59.81			9454.38			~~218~~166.98			~~176~~154.98
Total net revenues	~~437~~377.38			~~405~~357.9			~~866~~1,084.86			~~819~~1,069.71
Cost of products sold	~~189~~197.34			~~197~~188.10			~~374~~560.12			~~415~~595.81
Cost of services provided	6541.24			6539.57			~~130~~119.54			~~130~~117.96
Total cost of revenues	~~254~~238.58			~~262~~227.67			~~504~~679.6			~~546~~712.7
Gross profit	~~182~~139.80			~~143~~130.32			~~362~~405.20			~~273~~356.04
Selling, general and administrative expenses	9772.38			~~101~~68.52			~~191~~210.20			~~207~~221.05
Revaluation of contingent consideration	—			—			—			(0.5		)
Asset impairment charges	0.2			0.7			1.1			0.7
Asset impairment charges	—			—			0.9			—
Restructuring costs	1.6			11.6			14.9			16.2
Restructuring costs	6.7			3.7			13.3			5.0
Operating income	64.4			49.7			179.0			118.0
Operating income	78.8			38.1			156.8			61.5
Interest income	0.2			0.2			0.6			0.7
Interest income	0.2			0.2			0.4			0.5
Interest expense	(53.5		)	(56.3		)	(165.4		)	(166.0		)
Interest expense	(55.8		)	(51.2		)	(111.8		)	(109.7		)
Loss on early extinguishment of debt	—			(34.2		)	(61.0		)	(34.2		)
Loss on early extinguishment of debt	(61.0		)	—			(61.0		)	—
Loss from equity method investment	(0.1		)	—			(0.5		)	—
Loss from equity method investment	(0.2		)	—			(0.4		)	—
Other expense, net	—			—			—			(0.2		)
Loss before income taxes	(38.0		)	(12.9		)	(16.0		)	(47.9		)
Income (loss) from continuing operations before income taxes	11.0			(40.6		)	(47.3		)	(81.7		)
Benefit for income taxes	(15.5		)	(5.2		)	(7.2		)	(17.3		)
Provision (benefit) for income taxes on continuing operations	3.4			(15.9		)	(19.2		)	(31.4		)
Net loss	$	(22.5	)	$	(7.7	)	$	(8.8	)	$	(30.6	)
Net income (loss) from continuing operations	7.6			(24.7		)	(28.1		)	(50.3		)
Net income from discontinued operations	412.3			5.7			439.2			0.7
Net income (loss)	$	419.9		$	(19.0	)	$	411.1		$	(49.6	)

See Notes to Consolidated Financial Statements

Table of Contents

Harland Clarke Holdings Corp. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(in millions)

(unaudited)

	Three Months Ended						~~Six~~Nine Months Ended
	June 30,						June 30,
	September 30,						September 30,
	2013			2012			2013			2012
Net loss	$	(22.5	)	$	(7.7	)	$	(8.8	)	$	(30.6	)
Net income (loss)	$	419.9		$	(19.0	)	$	411.1		$	(49.6	)
Other comprehensive (loss) income, net of tax:
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(0.43		)	(0.97		)	(0.96		)	(0.43		)
Reclassification adjustments for foreign currency translation adjustments included in gain on sale of HFS	(0.3		)	—			(0.3		)	—
Reclassification adjustments for loss on derivative instruments included in net loss	—			—			—			0.1
Unrealized losses on investments:
Unrealized losses on investments during period	—			—			—			(0.2		)
Less reclassification adjustment for amounts included in net loss	—			—			—			0.1
Net change in unrealized losses on investments	—			—			—			(0.1		)
Total other comprehensive loss, net of tax	(0.4		)	(0.9		)	(0.9		)	(0.4		)
Total other comprehensive income (loss), net of tax	—			0.7			(0.9		)	0.3
Comprehensive loss	$	(22.9	)	$	(8.6	)	$	(9.7	)	$	(31.0	)
Comprehensive income (loss)	$	419.9		$	(18.3	)	$	410.2		$	(49.3	)
Tax Expense of Other Comprehensive Loss Included in Above Amounts:
Tax Expense of Other Comprehensive Income (Loss) Included in Above Amounts:
Less reclassification adjustment for amounts included in net loss	$	—		$	—		$	—		$	(0.1	)
Total net tax expense included in other comprehensive loss	$	—		$	—		$	—		$	(0.1	)
Total net tax expense included in other comprehensive income (loss)	$	—		$	—		$	—		$	(0.1	)

See Notes to Consolidated Financial Statements

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Harland Clarke Holdings Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(in millions)

(unaudited)

	Six Months Ended
	Nine Months Ended
	June 30,
	September 30,
	2013			2012
Operating activities
Net loss	$	(8.8	)	$	(30.6	)
Net income (loss)	$	411.1		$	(49.6	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation	3044.43			3757.63
Amortization of intangible assets	6494.57			68102.29
Amortization of debt fair value adjustments, original issue discount, original issue premium and deferred financing fees	4662.52			6492.10
Loss on early extinguishment of debt	61.0			—
Gain on sale of discontinued operations	(647.0		)	—
Revaluation of contingent consideration	—			(0.5		)
Loss on early extinguishment of debt	61.0			34.2
Loss on sale of marketable securities	—			0.2
Deferred income taxes	(43144.84		)	(71127.56		)
Asset impairments	01.91			—0.7
Changes in operating assets and liabilities, net of effect of businesses acquired:
Changes in operating assets and liabilities, net of effect of business acquisitions and divestitures:
Accounts receivable	(1823.40		)	(1321.16		)
Inventories	(32.80		)	1213.87
Prepaid expenses and other assets	(12.73		)	(812.95		)
Contract acquisition payments, net	(45.9		)	(913.37		)
Accounts payable and accrued liabilities	(58.79		)	~~(12~~8.26		)
Deferred revenues	(10.35		)	5170.0
Income and other taxes	~~(14~~88.02		)	(58.56		)
Payable to parent	~~0.2~~—			(0.2		)
Other, net	67.26			1.5
Net cash provided by operating activities	107.3			83.6
Net cash (used in) provided by operating activities	(62.8		)	164.5
Investing activities
Purchase of businesses, net of cash acquired	(3435.82		)	(36.2		)
Proceeds from the sale of businesses included in discontinued operations, net of cash divested and costs to sell	1,181.9			—
Proceeds from sale of property, plant and equipment	0.9			0.1
Proceeds from sale of marketable securities	—			56.3
Capital expenditures	(2353.68		)	(3047.20		)
Capitalized interest	(0.35		)	(0.24		)
Computer software development	(68.51		)	(610.56		)
Net cash used in investing activities	(64.3		)	(16.7		)
Net cash provided by (used in) investing activities	1,085.2			(37.8		)
Financing activities
Dividends paid to parent	(2629.2		)	(25.8		)
Acquisition of business from parent	—			(33.8		)
Payments for derivative instruments	(1.3		)	(78.07		)
Issuance of notes	54.5			—225.6
Redemption of notes	(50.0		)	—
Borrowings on credit agreements	742.5			25.0
Repayments of credit agreements and other borrowings	(~~764~~786.05		)	(43324.30		)
Debt issuance costs	(1516.96		)	(012.43		)
Net cash used in financing activities	(6086.46		)	(85154.30		)
Net decrease in cash and cash equivalents	(17.4		)	(18.4		)
Net increase (decrease) in cash and cash equivalents	935.8			(27.3		)
Cash and cash equivalents at beginning of period	102.0			101.8
Cash and cash equivalents at end of period	$	841,037.68		$	8374.45
Supplemental disclosure of cash paid for:
Interest, net of amounts capitalized	$	54103.21		$	4360.8
Income taxes, net of refunds	50295.7			5887.34
Non cash financing activities:
Extinguishment of Faneuil debt to parent	$	—		$	25.4

See Notes to Consolidated Financial Statements

Table of Contents

Harland Clarke Holdings Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(dollars in millions)

(unaudited)

1. Description of the Business and Basis of Presentation

Harland Clarke Holdings Corp. ("Harland Clarke Holdings" and, together with its subsidiaries, the "Company") is a holding company that conducts its operations through its direct and indirect, wholly owned operating subsidiaries and was incorporated in Delaware on October 19, 2005. The Company is an indirect, wholly owned subsidiary of M & F Worldwide Corp. ("M & F Worldwide"), which is, as of December 21, 2011, an indirect, wholly owned subsidiary of MacAndrews & Forbes Holdings Inc. ("MacAndrews"). MacAndrews is wholly owned by Ronald O. Perelman. On September 12, 2011, M & F Worldwide agreed, subject to various closing conditions, to merge with an indirect wholly owned subsidiary of MacAndrews, and, following a vote of stockholders of M & F Worldwide and the satisfaction or waiver of all other closing conditions, that merger was effected on December 21, 2011 (hereafter referred to as the "MacAndrews Acquisition").

As a result of the MacAndrews Acquisition, which resulted in a change in ownership of M & F Worldwide, the Company was required to use the acquisition method of accounting to revalue its assets and liabilities as of the date of the MacAndrews Acquisition. Such accounting results in a number of changes, including, but not limited to, decreased revenues as a result of fair value adjustments to deferred revenues, increased depreciation and amortization as a result of the revaluation of assets and increased non-cash interest expense that results from adjusting the Company's long-term debt to fair value as of the date of the MacAndrews Acquisition.

On August 16, 2013, the Company completed the sale of each of Harland Financial Solutions, Inc., Harland Financial Solutions Worldwide Limited and Harland Israel Ltd. (collectively, "HFS") to affiliates of Davis + Henderson Corporation. The consideration received by the Company for the sale was approximately $1,200.0 in cash. The Company entered into an ancillary agreement providing for certain transitional services for a limited time to the buyer on terms customary for a transaction of this type. Results of operations for HFS through August 16, 2013, including the related gain, are reported as discontinued operations in the accompanying consolidated statements of operations (see Note 4). Results of operations for HFS are not included in segment or consolidated results of operations other than as discontinued operations and prior periods have been reclassified to remove results of operations for HFS from results reported for continuing operations.

On May 31, 2013, the Company acquired NCP Solutions, LLC ("NCP Solutions") (see Note 3). NCP Solutions is a leading end-to-end communications solutions provider to consumer finance companies, banks, mortgage lenders, mortgage subservicers, credit unions, auto and equipment finance companies, auto service contract providers, direct marketing companies, healthcare and health insurance companies, check producers and various other customers. The NCP Solutions business is included in the Harland Clarke segment for financial reporting purposes.

On March 19, 2012, the Company purchased Faneuil, Inc. ("Faneuil") from affiliates of MacAndrews (see Note 3). Under accounting guidance for transactions among entities under common control, the Company has accounted for the purchase at historical cost and has retrospectively recasted prior periods under common control to include Faneuil operations. The Company and Faneuil came under common control on December 21, 2011, the date of the MacAndrews Acquisition. Faneuil is a separate business segment for financial reporting purposes. On October 18, 2013, the Company completed the sale of Faneuil (see Note 19).

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

During the second quarter of 2012, the Company transferred certain product and service lines from the Scantron segment to other segments. toSpecifically, ~~better~~Scantron ~~align~~transferred ~~complementary~~the ~~products and services. The~~ Harland Technology Services and Medical Device Tracking businesses ~~were transferred~~ to the Faneuil segment and the Survey Services business ~~was transferred~~ to the Harland Clarke segment. Prior period segment information has been reclassified to reflect this change. With the October 18, 2013 sale of Faneuil, the Harland Technology Services business was transferred to and became part of the operations and results of Scantron from and after that date.

~~The~~ Harland Clarke ~~segment~~Holdings ~~offers~~delivers ~~checks~~to ~~and~~multiple ~~related~~industries ~~products,~~a ~~forms~~robust ~~and~~portfolio ~~treasury~~of ~~supplies,~~products and ~~related~~services ~~delivery~~designed to optimize customer relationships and ~~fraud~~generate ~~prevention~~revenue. ~~products~~Its asbusiness ~~well~~units have long been recognized as ~~transactional~~leading ~~document~~providers ~~printing~~of best-in-class payment solutions, ~~including~~marketing ~~statements~~services, ~~compliance~~data ~~documents~~capture and ~~communications~~analytics − delivered through multiple channels, toincluding ~~financial~~online, ~~and~~digital ~~commercial~~print ~~institutions~~technology, mobile and phone. ItHarland ~~also~~Clarke ~~provides~~Holdings' ~~direct~~portfolio ~~marketing~~offers ~~services~~retail toproducts, ~~their~~high-value ~~clients~~transactional ~~including~~print ~~direct~~and ~~marketing~~electronic ~~campaigns~~documentation, ~~direct~~security ~~mail~~solutions and business intelligence. Its skills in capturing, ~~database~~managing, ~~marketing~~analyzing and delivering data measurement and assessment information, ~~telemarketing~~through both print and digital ~~marketing~~channels, supports decision-making and improved outcomes for organizations worldwide. InHarland ~~addition~~Clarke toHoldings ~~these~~serves ~~products~~the financial, insurance and investment services industries, ~~the~~as ~~Harland~~well ~~Clarke~~as ~~segment~~education, ~~offers~~big-box ~~stationery~~retailing, ~~business~~accounting ~~cards~~software, ~~survey~~commercial, ~~services~~government and ~~other~~franchising. ~~business~~Its ~~and~~clients, ~~home~~including ~~office~~more ~~products~~than 8,500 financial institutions, range in size from major corporate brands and trade associations, to ~~consumers~~state and local governments, micro-businesses and individual consumers.

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

The Scantron segment provides data management and decision support solutions and related services to educational, commercial and governmental entities worldwide. Scantron products and services provide solutions for testing and assessment, instruction and performance management and business operational data collection. Scantron's solutions combine a variety of data collection, analysis, and management tools including web-based solutions, software, scanning equipment and forms.

The Faneuil segment provides business process outsourcing services including call center operations, back office operations, staffing services and toll collection services to government and regulated commercial clients. The Faneuil segment also provides patient information collection and tracking services, managed technical services and related field maintenance services to education, commercial, healthcare and governmental entities.

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Harland Clarke Holdings Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(dollars in millions)

(unaudited)

The Harland Clarke segment offers to its more than 12,500 financial institution and commercial clients a range of solutions to support their success. These include payment solutions, security solutions, forms and treasury supplies and related delivery and fraud prevention products, as well as transactional print and electronic documentation, including statements, compliance documents and communications. It provides marketing services including inbound and outbound contact center solutions and direct marketing campaigns delivered through the multiple channels of online, digital print technology, mobile and phone. Harland Clarke offers a spectrum of solutions based upon business intelligence and analytic services that range from surveys, database mining, strategic planning, creative development and production through fulfillment. Harland Clarke offers online customized social and business stationery, cards, office products and promotional products directly to consumers, small and medium businesses and direct selling associations. It also services some of the largest accounting software firms and big-box retailers by developing and managing e-commerce sites for the online ordering of customizable printed materials.

The Scantron segment provides data management and decision support solutions and related services to educational, commercial and governmental entities worldwide. Scantron products and services provide solutions for testing and assessment, instruction and performance management and business operational data collection. Scantron's solutions combine a variety of data collection, analysis and management tools including online solutions, software, scanning equipment, and pre-printed and customizable forms.

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 except for Faneuil as discussed above.

The Company and each of its existing domestic subsidiaries, other than unrestricted subsidiaries (of which there were none at ~~June~~ September 30, 2013) and certain immaterial subsidiaries, are guarantors and in some instances may also be co-borrowers under the Term Loan and co-issuers under the 2015 Senior Notes and 2018 Senior Secured Notes (as defined hereinafter) (see Note 1112). Harland Clarke Holdings is a holding company and has no significant assets at ~~June~~September 30, 2013 and no operations. The guarantees and the obligations of the subsidiaries of the Company are full and unconditional and joint and several, and any subsidiaries of the Company other than the subsidiary guarantors and obligors are not significant.

See ~~Note~~Notes 3, 4 and 19 for information regarding recent acquisitions and divestitures.

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, 2012.

All terms used but not defined elsewhere herein have the meaning ascribed to them in the Company's 2012 Annual Report on Form 10-K. All dollar amounts herein, unless otherwise specified, are given in millions.

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, 2012.

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.

Reclassifications

~~Prior~~As ~~period~~a ~~amounts~~result ~~have~~of ~~been~~the ~~reclassified~~sale inof ~~Note~~the 7HFS inbusinesses ~~accordance~~(see ~~with~~Note ~~applicable~~1), ~~accounting~~amounts ~~guidance~~related to ~~reflect~~ the ~~business~~HFS ~~segment~~businesses ~~changes~~previously ~~described~~reported inas ~~Note~~operating 1income ~~above~~have been reclassified as discontinued operations (see Note 4). Prior period amounts relating to business

Table of Contents

Harland Clarke Holdings Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(dollars in millions)

(unaudited)

segment changes (see Note 1) have been reclassified in Note 8. All reclassifications were made in accordance with applicable accounting guidance.

Recently Adopted Accounting Guidance

Effective January 1, 2013, the Company adopted amended guidance related to disclosures about offsetting assets and liabilities. The amendment enhances disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists, or that are subject to an enforceable master netting arrangement. This amendment affects disclosures only, and therefore adoption did not affect the Company's consolidated financial position, results of operations or cash flows.

Effective January 1, 2013, the Company adopted amended guidance related to the presentation of amounts reclassified out of accumulated other comprehensive income by component. The amendment requires companies to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income if the amount reclassified is required under United States generally accepted accounting principles ("US GAAP") to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under US GAAP to be reclassified in their entirety to net income, companies are required to cross-reference to other disclosures required under US GAAP that provide additional detail about those amounts. This amendment affects presentation only, and therefore adoption did not affect the Company's consolidated financial position, results of operations or cash flows.

Effective 6January 1, 2013, the Company adopted amended guidance related to the testing of indefinite-lived intangible assets for impairment. Under the amendment, entities testing indefinite-lived intangible assets for impairment have the option to perform a qualitative assessment to determine whether further impairment testing is necessary. If an entity determines, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is more-likely-than-not less than the carrying amount, a quantitative impairment test is required. Otherwise, no further impairment testing is required. This amendment affects testing steps only, and therefore adoption did not affect the Company's consolidated financial position, results of operations or cash flows.

New Accounting Guidance

In July 2013, the Financial Accounting Standards Board amended its guidance related to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. Under this standard an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use and the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. For the Company, this amended guidance is effective beginning January 1, 2014 with early adoption permitted. As this amended guidance affects presentation only, the adoption of this amended guidance is not expected to have a material impact on the Company’s consolidated financial condition, results of operations or cash flows.

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Harland Clarke Holdings Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(dollars in millions)

(unaudited)

Effective January 1, 2013, the Company adopted amended guidance related to the testing of indefinite-lived intangible assets for impairment. Under the amendment, entities testing indefinite-lived intangible assets for impairment have the option to perform a qualitative assessment to determine whether further impairment testing is necessary. If an entity determines, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is more-likely-than-not less than the carrying amount, a quantitative impairment test is required. Otherwise, no further impairment testing is required. This amendment affects testing steps only, and therefore adoption did not affect the Company's consolidated financial position, results of operations or cash flows.

3. Acquisitions

NCP Solutions Acquisition

On May 31, 2013, the Company acquired 100% of the equity of NCP Solutions for an acquisition-date purchase price of $35.2, net of cash acquired of $0.3, and after giving effect to working capital adjustments of $0.5 (the "NCP Solutions Acquisition"). NCP Solutions is a leading end-to-end communications solutions provider to consumer finance companies, banks, mortgage lenders, mortgage subservicers, credit unions, auto and equipment finance companies, auto service contract providers, direct marketing companies, healthcare and health insurance companies, check producers and various other customers.

NCP Solutions delivers personalized, time-sensitive and confidential print and electronic business communications. These communications include billing, investment, demand deposit and sharedraft statements, event-triggered letters, installment loan and mortgage payment coupon books and direct marketing materials. NCP Solutions' vertically integrated production process and electronic and print competencies enable it to supply customers with a robust outsourced document management solution.

The ~~preliminary~~ allocation of purchase price resulted in identified intangible assets of $25.0, including customer relationships of $20.0, trademarks of $3.0, software of $2.0 and goodwill of $4.2. The remaining $6.3 of purchase price was allocated to tangible assets and liabilities. The goodwill arises because the total consideration for NCP Solutions, which reflects its future earnings and cash flow potential, exceeds the fair value of net assets acquired. The goodwill resulting from the acquisition was assigned to the Harland Clarke segment. Of the goodwill recognized, $2.8 is deductible for income tax purposes. NCP Solutions' results of operations have been included in the Company's operations since the date of its acquisition. The Company financed the acquisition with Harland Clarke Holdings' cash on hand. The pro forma effects of the NCP Solutions Acquisition on the consolidated results of operations were not material.

Faneuil Acquisition

On March 19, 2012, the Company entered into a Stock Purchase Agreement pursuant to which the Company purchased 100% of the issued and outstanding shares of capital stock of New Faneuil, Inc. ("New Faneuil") for $70.0 in cash (the "Faneuil Acquisition") from affiliates of MacAndrews. The Company financed the Faneuil Acquisition with Harland Clarke Holdings' cash on hand. New Faneuil, through its wholly owned subsidiary, Faneuil, provides business process outsourcing services including call center operations, back office operations, staffing services and toll collection services to government and regulated commercial clients across the United States.

Under accounting guidance for transactions among entities under common control, the Company has accounted for the purchase at historical cost and has retrospectively recasted prior periods under common control to include Faneuil operations. The Company and Faneuil came under common control on December 21, 2011, the date of the MacAndrews Acquisition. Cash paid in excess of the carrying amount of the assets and liabilities assumed in the amount of $33.8 is treated as an equity transaction with the parent in accordance with accounting guidance for transactions among entities under common control.

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Harland Clarke Holdings Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(dollars in millions)

(unaudited)

The following table summarizes the historical cost of assets and liabilities assumed on March 19, 2012, the date of the Faneuil Acquisition:



Cash			$	2.3
Accounts receivable			11.8
Property, plant and equipment			10.3
Goodwill			13.0
Other intangible assets:
Customer relationships	$	0.2
Tradenames	0.8
Software	0.3
Total other intangible assets			1.3
Other assets			7.2
Total assets acquired			45.9
Deferred revenues			1.2
Capital leases			1.0
Other liabilities			7.5
Net assets acquired			$	36.2

The pro forma effects of the Faneuil Acquisition on the consolidated results of operations were not material.

4. ~~Inventories~~Discontinued Operations

	June 30, 2013		December 31, 2012
Finished goods	$	9.1	$	7.7
Work-in-process	12.2		8.2
Raw materials	15.1		13.1
	$	36.4	$	29.0

On August 16, 2013, the Company completed the divestiture of HFS, which was previously reported as the Harland Financial Solutions business segment, and recognized an after tax gain on the divestiture. A total of approximately $1,200.0 of cash proceeds was received from the divestiture. In connection with the divestiture, the Company has reclassified the results of the Harland Financial Solutions segment as discontinued operations for all periods presented. As part of the purchase and sale agreement, the Company will perform and be compensated for customary transition services for a limited time related to certain administrative functions for HFS as performed for HFS prior to its divestiture and as set forth specifically in a transition services agreement. Cash flows from the transition services are considered to be indirect cash flows under applicable accounting guidance. The Company expects the transition services to be completed within one year from the date of the divestiture.

5.Operating ~~Assets~~results ~~Held~~for ~~For~~discontinued ~~Sale~~operations are as follows:

	June 30, 2013		December 31, 2012
	Three Months Ended				Nine Months Ended
Land	$	—	$	1.0
	September 30,				September 30,
Buildings and improvements	—		2.1
	2013		2012		2013		2012
	$	—	$	3.1
Net revenues	$	45.7	$	64.7	$	205.7	$	173.2
Income from discontinued operations before gain on sale and income taxes	7.2		7.9		49.5		1.1
Gain on sale of discontinued operations	647.0		—		647.0		—
Income from discontinued operations before income taxes	654.2		7.9		696.5		1.1
Provision for income taxes on discontinued operations	241.9		2.2		257.3		0.4
Net income from discontinued operations	$	412.3	$	5.7	$	439.2	$	0.7

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Harland Clarke Holdings Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(dollars in millions)

(unaudited)

5. Inventories

Inventories consist of the following:



	September 30, 2013		December 31, 2012
Finished goods	$	8.2	$	7.7
Work-in-process	11.8		8.2
Raw materials	14.3		13.1
	$	34.3	$	29.0

6. Assets Held For Sale

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



	September 30, 2013		December 31, 2012
Land	$	—	$	1.0
Buildings and improvements	—		2.1
	$	—	$	3.1

At December 31, 2012, assets held for sale consisted 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 2010, the Company closed its information technology facility in Atlanta, GA and relocated those operations into an existing facility. During the first quarter of 2013, the Company sold the information technology facility for $0.8 and realized a loss of $0.1. The other listed Atlanta facilities were closed as part of the Company's plan to exit duplicative facilities related to an acquisition.

During 8the first quarter of 2013, the Company announced plans to relocate its Atlanta regional office facilities within the Harland Clarke segment to another facility. In conjunction with this plan, the Company made a change to the marketing plan for the other Atlanta facilities included in assets held for sale. The new marketing plan combines the marketing of the Atlanta regional office facilities and facilities formerly classified as held for sale and the Company estimates it will take longer than twelve months to sell the facilities. Accordingly, the facilities formerly classified as assets held for sale were reclassified to property, plant and equipment during the first quarter of 2013.

7. Goodwill and Other Intangible Assets

The change in carrying amount of goodwill by business segment for the nine months ended September 30, 2013 is as follows:



	Harland Clarke		Scantron			Faneuil		Harland Financial Solutions			Total
Balance as of December 31, 2012	$	417.0	$	40.2		$	21.7	$	282.7		$	761.6
2013 acquisition	4.2		—			—		—			4.2
2013 divestiture	—		—			—		(282.7		)	(282.7		)
Effect of exchange rate changes	—		(0.1		)	—		—			(0.1		)
Balance as of September 30, 2013	$	421.2	$	40.1		$	21.7	$	—		$	483.0

Table of Contents

Harland Clarke Holdings Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(dollars in millions)

(unaudited)

During the first quarter of 2013, the Company announced plans to relocate its Atlanta regional office facilities within the Harland Clarke segment to another facility later in 2013. In conjunction with these plans, the Company made a change to the marketing plan for the other Atlanta facilities included in assets held for sale. The new marketing plan combines the marketing of the Atlanta regional office facilities and facilities formerly classified as held for sale and the Company estimates it will take longer than twelve months to sell the facilities. Accordingly, the facilities formerly classified as assets held for sale were reclassified to property, plant and equipment during the first quarter of 2013.

6. Goodwill and Other Intangible Assets

	HarlandClarke		HarlandFinancialSolutions			Scantron			Faneuil		Total
Balance as of December 31, 2012	$	417.0	$	282.7		$	40.2		$	21.7	$	761.6
2013 acquisition	4.2		—			—			—		4.2
Effect of exchange rate changes	—		(0.1		)	(0.1		)	—		(0.2		)
Balance as of June 30, 2013	$	421.2	$	282.6		$	40.1		$	21.7	$	765.6

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

		Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount
	Useful Life (in years)	June 30, 2013		December 31, 2012		June 30, 2013		December 31, 2012		June 30, 2013		December 31, 2012
	Useful Life(in years)	September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012
Amortized intangible assets:
Customer relationships	3 - 19	$	1,~~547~~286.90	$	1,528.0	$	~~187~~184.65	$	132.7	$	1,~~360~~101.35	$	1,395.3
Trademarks and tradenames	15 - 25	~~104~~81.4		101.4		7.86		5.3		9673.68		96.1
Software	3 - 9	6418.43		56.5		205.24		13.1		4412.29		43.4
		1,716.7		1,685.9		215.6		151.1		1,501.1		1,534.8
		1,385.7		1,685.9		197.5		151.1		1,188.2		1,534.8
Indefinite-lived intangible assets:
Tradename		0.8		0.8		—		—		0.8		0.8
Total other intangible assets		$	1,~~717~~386.5	$	1,686.7	$	~~215~~197.65	$	151.1	$	1,~~501~~189.90	$	1,535.6

Amortization expense was $3230.82 and $6494.57 for the three and ~~six~~nine months ended ~~June~~September 30, 2013, respectively, and $34.7 and $68102.29 for the three and ~~six~~nine months ended ~~June~~September 30, 2012, respectively. These amounts include amortization expense for discontinued operations of $4.3 and $18.3 for the three and nine months ended September 30, 2013, respectively, and $7.3 and $21.8 for the three and nine months ended September 30, 2012, respectively. Amortization expense includes amortization of software of $3.90 and $710.0 for the three and ~~six~~nine months ended ~~June~~September 30, 2013, respectively, and $3.0 and $58.8 for the three and ~~six~~nine months ended ~~June~~September 30, 2012, respectively. These amounts include amortization of software for discontinued operations of $1.7 and $6.7 for the three and nine months ended September 30, 2013, respectively, and $2.7 and $7.9 for the three and nine months ended September 30, 2012, respectively.

The weighted average amortization period for all amortizable intangible assets recorded in connection with the NCP Solutions Acquisition was 12.9 years. The weighted average amortization period for each major class of amortizable intangible assets recorded in connection with the NCP Solutions Acquisition was as follows: customer relationships - 15 years, trademarks - 4 years and software - 5 years.

Estimated aggregate amortization expense for intangible assets through December 31, 2017 is as follows:

Six months ending December 31, 2013	$	66.8
Three months ending December 31, 2013	$	26.0
Year ending December 31, 2014	~~125~~97.21
Year ending December 31, 2015	~~117~~91.30
Year ending December 31, 2016	~~105~~82.38
Year ending December 31, 2017	9880.92

During the ~~six~~nine months ended ~~June~~ September 30, 2013, the Company recorded a non-cash impairment charge of $0.7 for the Scantron segment related to software that was determined to have no future use. That determination was the result of Scantron's decision to exit certain product lines in the education market (see Note 1617). The impairment charge ~~was~~is included in asset impairment charges in the accompanying consolidated statements of operations.

911

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Harland Clarke Holdings Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(dollars in millions)

(unaudited)

78. Business Segment Information

The Company has organized its business along ~~four~~three 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~~payment ~~and related products~~solutions, transactional and secure document printing, direct online and print marketing services, inbound and outbound contact center services, as well as customized social stationery, business and home office products to financial and commercial institutions, as well as consumers and other businesses. It services some of the largest accounting software firms and big-box retailers by developing and managing e-commerce sites for the online ordering of customizable printed materials. This segment operates primarily in the United States and Puerto Rico.

• ~~Harland~~Scantron ~~Financial Solutions~~ segment — Provides ~~technology~~data ~~products~~management and decision support solutions and related products and services to ~~financial~~educational, ~~institutions~~commercial and governmental entities worldwide through online and print channels. This segment operates primarily in the United States, ~~Israel,~~Canada ~~Ireland~~ and India and also has a network of international distributors.

• ~~Scantron~~Faneuil segment — Provides ~~data~~call ~~management~~center services, back office operations, staffing services and ~~decision~~toll ~~support~~collection ~~solutions~~services to governmental and regulated commercial clients and patient information collection and tracking, managed technical services and related field maintenance services to educational, commercial, healthcare and governmental entities ~~worldwide~~. This segment operates primarily in the United States, ~~Canada~~ and ~~India~~Canada.

•As ~~Faneuil~~discussed ~~segment~~in —Note ~~Provides~~1, ~~call~~the ~~center~~Company ~~services,~~made ~~back~~business ~~office~~segment ~~operations,~~changes ~~staffing~~in ~~services~~the ~~and~~second ~~toll~~quarter ~~collection~~of ~~services~~2012. toPrior ~~government~~period ~~and~~results ~~regulated~~in ~~commercial~~the ~~clients~~tables ~~and~~below ~~patient~~have ~~information~~been ~~collection~~reclassified ~~and~~to ~~tracking,~~conform ~~managed~~to ~~technical~~these ~~services~~business ~~and~~segment ~~related~~changes. ~~field~~The ~~maintenance~~results ~~services~~for tothe ~~educational,~~discontinued ~~commercial,~~operations ~~healthcare~~of ~~and~~HFS ~~governmental~~(see ~~entities.~~Note ~~This~~4) ~~segment~~are ~~operates~~not ~~primarily~~included in the ~~United~~tables ~~States and Canada~~below.

AsSelected ~~discussed~~summarized infinancial ~~Note~~information 1,for the ~~Company~~three ~~made~~months ~~business~~ended ~~segment~~September 30, ~~changes~~2013 inand ~~the second quarter of~~ 2012. ~~Prior~~is ~~period~~as ~~results in the tables below have been reclassified to conform to these business segment changes.~~follows:

Selected summarized financial information for the three months ended June 30, 2013 and 2012 is as follows:



	Harland Clarke⁽¹⁾		Scantron			Faneuil⁽²⁾		Corporate and Other			Total
Continuing operations
Product revenues, net
Three months ended September 30, 2013	$	292.0	$	24.6		$	2.1	$	—		$	318.7
Three months ended September 30, 2012	278.4		22.5			2.2		—			303.1
Service revenues, net
Three months ended September 30, 2013	$	11.8	$	7.1		$	40.2	$	—		$	59.1
Three months ended September 30, 2012	8.3		7.1			39.4		—			54.8
Intersegment revenues
Three months ended September 30, 2013	$	—	$	0.4		$	0.4	$	(0.8	)	$	—
Three months ended September 30, 2012	—		0.6			—		(0.6		)	—
Operating income (loss)⁽³⁾
Three months ended September 30, 2013	$	62.5	$	4.0		$	5.1	$	(7.2	)	$	64.4
Three months ended September 30, 2012	56.6		(5.2		)	2.9		(4.6		)	49.7
Depreciation and amortization (excluding amortization of deferred financing fees):
Three months ended September 30, 2013	$	31.3	$	4.8		$	2.5	$	—		$	38.6
Three months ended September 30, 2012	37.2		4.3			2.9		—			44.4
Capital expenditures (excluding capital leases):
Three months ended September 30, 2013	$	24.9	$	2.0		$	2.2	$	—		$	29.1
Three months ended September 30, 2012	11.8		0.8			1.2		—			13.8

	HarlandClarke(1)		HarlandFinancialSolutions		Scantron			Faneuil(2)		Corporateand Other			Total
Product revenues, net
Three months ended June 30, 2013	$	275.9	$	27.0	$	20.9		$	2.7	$	—		$	326.5
Three months ended June 30, 2012	273.1		15.9		21.3			1.3		—			311.6
Service revenues, net
Three months ended June 30, 2013	$	11.0	$	56.1	$	5.8		$	37.9	$	—		$	110.8
Three months ended June 30, 2012	9.0		42.3		7.0			36.0		—			94.3
Intersegment revenues
Three months ended June 30, 2013	$	0.1	$	—	$	0.5		$	0.2	$	(0.8	)	$	—
Three months ended June 30, 2012	0.1		—		0.4			0.1		(0.6		)	—
Operating income (loss)(3)
Three months ended June 30, 2013	$	63.2	$	22.6	$	(5.2	)	$	4.6	$	(6.4	)	$	78.8
Three months ended June 30, 2012	49.8		1.0		(10.0		)	1.9		(4.6		)	38.1
Depreciation and amortization (excluding amortization of deferred financing fees):
Three months ended June 30, 2013	$	30.8	$	9.3	$	5.4		$	2.5	$	—		$	48.0
Three months ended June 30, 2012	37.2		9.5		4.4			3.1		—			54.2
Capital expenditures (excluding capital leases):
Three months ended June 30, 2013	$	8.8	$	2.4	$	0.3		$	0.9	$	—		$	12.4
Three months ended June 30, 2012	7.2		1.0		1.1			1.2		—			10.5

Table of Contents

Harland Clarke Holdings Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(dollars in millions)

(unaudited)

Selected summarized financial information for the ~~six~~nine months ended ~~June~~September 30, 2013 and 2012 is as follows:

	HarlandClarke(1)		~~HarlandFinancialSolutions~~Scantron			~~Scantron~~Faneuil(2)			~~Faneuil(2)~~Corporateand Other			~~Corporateand Other~~Total			~~Total~~
Product revenues, net
Continuing operations
Six months ended June 30, 2013	$	548.7	$	48.8		$	45.0		$	5.4		$	—		$	647.9
Product revenues, net
Six months ended June 30, 2012	562.7		31.6			45.3			3.2			—			642.8
Nine months ended September 30, 2013	$	840.7	$	69.6		$	7.5		$	—		$	917.8
Service revenues, net
Nine months ended September 30, 2012	841.1		67.8			5.4			—			914.3
Six months ended June 30, 2013	$	22.1	$	111.2		$	11.1		$	74.5		$	—		$	218.9
Service revenues, net
Six months ended June 30, 2012	16.9		76.9			12.7			70.4			—			176.9
Nine months ended September 30, 2013	$	33.9	$	18.2		$	114.7		$	—		$	166.8
Intersegment revenues
Nine months ended September 30, 2012	25.2		19.8			109.8			—			154.8
Six months ended June 30, 2013	$	0.1	$	—		$	1.0		$	0.3		$	(1.4	)	$	—
Intersegment revenues
Six months ended June 30, 2012	0.1		—			0.8			0.2			(1.1		)	—
Nine months ended September 30, 2013	$	0.1	$	1.4		$	0.7		$	(2.2	)	$	—
Operating income (loss)(3)
Nine months ended September 30, 2012	0.1		1.4			0.2			(1.7		)	—
Six months ended June 30, 2013	$	130.2	$	42.2		$	(12.1	)	$	6.9		$	(10.4	)	$	156.8
Operating income (loss)(3)
Six months ended June 30, 2012	95.2		(6.8		)	(20.8		)	2.7			(8.8		)	61.5
Nine months ended September 30, 2013	$	192.7	$	(8.1	)	$	12.0		$	(17.6	)	$	179.0
Depreciation and amortization (excluding amortization of deferred financing fees):
Nine months ended September 30, 2012	151.8		(26.0		)	5.6			(13.4		)	118.0
Six months ended June 30, 2013	$	61.2	$	18.2		$	10.4		$	5.1		$	—		$	94.9
Depreciation and amortization (excluding amortization of deferred financing fees):
Six months ended June 30, 2012	73.3		18.6			8.8			5.1			—			105.8
Nine months ended September 30, 2013	$	92.5	$	15.2		$	7.6		$	—		$	115.3
Capital expenditures (excluding capital leases):
Nine months ended September 30, 2012	110.5		13.1			8.0			—			131.6
Six months ended June 30, 2013	$	15.5	$	4.8		$	1.5		$	1.8		$	—		$	23.6
Capital expenditures (excluding capital leases):
Six months ended June 30, 2012	20.2		3.3			4.6			2.1			—			30.2
Nine months ended September 30, 2013	$	40.4	$	3.5		$	4.0		$	—		$	47.9
Nine months ended September 30, 2012	32.0		5.4			3.3			—			40.7

___________________


(1)	Includes results of the acquired NCP Solutions business from the date of acquisition (see Note 3).


(2)	Includes results of the acquired Faneuil business from the date of common control (see Note 3).

(3) Includes ~~gain~~restructuring ~~from~~costs ~~revaluation~~ of ~~contingent consideration arrangements of~~ $01.06 and $014.59 for the three and ~~six~~nine months ended ~~June~~September 30, ~~2012,~~2013 ~~respectively,~~and ~~restructuring costs of~~ $611.76 and $1316.32 for ~~the~~ three and ~~six~~nine months ended ~~June~~September 30, ~~2013~~2012, respectively, (see Note 17) and non-cash impairment charges of $30.72 and $51.01 for the three and ~~six~~nine months ended ~~June~~September 30, ~~2012~~2013, respectively, ~~(see Note 16)~~ and ~~non-cash impairment charges of~~ $0.07 and $0.97 for the three and ~~six~~nine months ended ~~June~~September 30, ~~2013~~2012, respectively.

Discontinued 11operations

The amounts shown above do not include depreciation and amortization expense and capital expenditures for the discontinued operations of HFS. Depreciation and amortization (excluding amortization of deferred financing fees) for HFS was $5.5 and $23.7 for the three and nine months ended September 30, 2013, respectively, and $10.0 and $28.6 for the three and nine months ended September 30, 2012, respectively. Capital expenditures (excluding capital leases) for HFS was $1.1 and $5.9 for the three and nine months ended September 30, 2013, respectively, and $3.0 and $6.3 for the three and nine months ended September 30, 2012, respectively.

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Harland Clarke Holdings Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(dollars in millions)

(unaudited)

89. Accumulated Other Comprehensive Loss

The following presents changes in accumulated other comprehensive loss, net of tax, by component, during the ~~six~~nine months ended ~~June~~ September 30, 2013 and 2012:

	Foreign currency translation adjustments			Unrecognized amounts included in postretirement obligations			Derivative fair-value adjustments			Unrealized gains (losses) on investments, net			Total
Six months ended June 30, 2013:
Nine months ended September 30, 2013:
Beginning balance	$	0.4		$	(0.7	)	$	—		$	—		$	(0.3	)
Other comprehensive loss before reclassifications	(0.6		)	—			—			—			(0.6		)
Amounts reclassified from accumulated other comprehensive loss	(0.3		)	—			—			—			(0.3		)
Net current period other comprehensive loss	(0.9		)	—			—			—			(0.9		)
Ending balance	$	(0.5	)	$	(0.7	)	$	—		$	—		$	(1.2	)
Six months ended June 30, 2012:
Nine months ended September 30, 2012:
Beginning balance	$	—		$	(0.1	)	$	(0.1	)	$	0.1		$	(0.1	)
Other comprehensive loss before reclassifications	(0.4		)	—			—			(0.2		)	(0.6		)
Other comprehensive income (loss) before reclassifications	0.3			—			—			(0.2		)	0.1
Amounts reclassified from accumulated other comprehensive income	—			—			0.1			0.1			0.2
Amounts reclassified from accumulated other comprehensive loss	—			—			0.1			0.1			0.2
Net current period other comprehensive (loss) income	(0.4		)	—			0.1			(0.1		)	(0.4		)
Net current period other comprehensive income (loss)	0.3			—			0.1			(0.1		)	0.3
Ending balance	$	(0.43	)	$	(0.1	)	$	—		$	—		$	(0.52	)

The following presents amounts reclassified out of accumulated other comprehensive loss, by component, during the ~~six~~three and nine months ended ~~June~~ September 30, 2013 and 2012:

Details aboutaccumulated other comprehensive income components	Affected line in the statement of operations	Six Months EndedJune 30, 2012
Details aboutaccumulated other comprehensive loss components	Affected line in the statement of operations	Three Months Ended					Nine Months Ended
Derivative fair-value adjustments	Interest expense	$	(0.1	)
		September 30,					September 30,
	Benefit for income taxes	—
		2013			2012		2013		2012
	Net loss	$	(0.1	)
Derivative fair-value adjustments	Interest expense	$	—		$	—	$	—	$	(0.1	)
Unrealized gains on investments, net	Other (expense), net	$	(0.2	)
	Benefit for income taxes on continuing operations	—			—		—		—
	Benefit for income taxes	(0.1		)
	Net income (loss)	$	—		$	—	$	—	$	(0.1	)
	Net loss	$	(0.1	)
Unrealized gains on investments, net	Other expense, net	$	—		$	—	$	—	$	(0.2	)
	Benefit for income taxes on continuing operations	—			—		—		(0.1		)
	Net income (loss)	$	—		$	—	$	—	$	(0.1	)
Foreign currency translation adjustments	Income from discontinued operations before income taxes	$	0.3		$	—	$	0.3	$	—
	Provision for income taxes on discontinued operations	—			—		—		—
	Net income (loss)	$	0.3		$	—	$	0.3	$	—

~~There~~ ~~were no amounts reclassified out of accumulated other comprehensive loss during the three months ended June 30, 2013 and 2012 and the six months ended June 30, 2013.~~14

9. Postretirement Defined Benefit Plans

The Company 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 20 or more years of service at December 31, 2000, the Company contributes a portion 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.

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Harland Clarke Holdings Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(dollars in millions)

(unaudited)

10. Postretirement Defined Benefit Plans

The components of net periodic postretirement benefit cost for these plans consist of the following:

	Three Months Ended				~~Six~~Nine Months Ended
	June 30,				June 30,
	September 30,				September 30,
	2013		2012		2013		2012
Interest cost	$	0.1	$	0.1	$	0.23	$	0.23
Net postretirement benefit cost	$	0.1	$	0.1	$	0.23	$	0.23

1011. Income Taxes

The Company is subject to taxation in the United States and various state and foreign jurisdictions. The statute of limitations for the federal and state tax returns of the affiliated group of M & F Worldwide or MacAndrews and subsidiaries, as the case may be, including in each case the Company, for the tax years ~~2009~~2010 through 2012 generally remain open. In addition, open tax years related to foreign jurisdictions remain subject to examination but are not considered material. The Company has recently been notified that the Internal Revenue Service has selected to examine the affiliated group of M & F Worldwide and subsidiaries for the tax year ended December 21, 2011.

There are no events that have occurred since December 31, 2012 that had a material impact on amounts accrued for the Company's uncertain tax positions.

12. Long-Term Debt

	June 30, 2013			December 31, 2012
	September 30, 2013			December 31, 2012
$1,900.0 Senior Secured Credit Facilities:
Extended Term Loans due 2017	$	~~642~~625.85		$	677.4
Non-Extended Term Loans due 2014	—			728.6
Tranche B-3 Term Loans due 2018	~~750~~745.03			—
Total $1,900.0 Senior Secured Credit Facilities	1,~~392~~370.8			1,406.0
9.75% Senior Secured Notes due 2018	285.0			235.0
Senior Floating Rate Notes due 2015	204.3			204.3
9.50% Senior Fixed Rate Notes due 2015	221.3			271.3
Capital lease obligations	3.72			3.1
Unamortized original issue discount, original issue premium and acquisition accounting-related fair value discount	(~~169~~155.53		)	(271.9		)
	1,937.6			1,847.8
	1,929.3			1,847.8
Less: current maturities	(8990.90		)	(78.5		)
Long-term debt, net of current maturities	$	1,~~847~~839.73		$	1,769.3

New Facility Joinder Agreement to Credit Agreement

On April 26, 2013, the Company entered into a new facility joinder agreement to the Credit Agreement (as defined hereinafter) under which the Company borrowed $750.0 (the "Tranche B-3 Term Loans"). Proceeds of the Tranche B-3 Term Loans were used to repay, in full, together with all interest and fees accrued in respect of, the Non-Extended Term Loans plus other fees and expenses in connection with such refinancing.

The Tranche B-3 Term Loans will mature on May 22, 2018 subject (if the Revolving Facility (as defined hereinafter) is terminated and repaid in full) to a springing maturity 90 days prior to the maturity of the 2015 Senior Notes if they have not otherwise been repaid, extended or refinanced. The Company is required to repay the Tranche B-3 Term Loans in equal quarterly installments in aggregate annual amounts equal to 2.50% of the original amount. In addition, aggregate amortization in respect of all of the Tranche B-3 Term Loans and all other debt sharing liens with such loans (with certain exceptions) must be at least $75.0 per year (subject to certain reductions). The weighted average interest rate on the Tranche B-3 Term Loans outstanding was 7.0% at June 30, 2013.

1315

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Harland Clarke Holdings Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(dollars in millions)

(unaudited)

otherwise been repaid, extended or refinanced. The Company is required to repay the Tranche B-3 Term Loans in equal quarterly installments in aggregate annual amounts equal to 2.50% of the original amount. In addition, aggregate amortization in respect of all of the Tranche B-3 Term Loans and all other debt sharing liens with such loans (with certain exceptions) must be at least $75.0 per year (subject to certain reductions). The weighted average interest rate on the Tranche B-3 Term Loans outstanding was 7.0% at September 30, 2013.

The Tranche B-3 Term Loans bear, at the Company's 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 4.50% per annum, provided that the rate before the applicable margin shall not be less than 2.50% per annum; or


•	A rate per annum equal to a reserve adjusted LIBOR rate, plus an applicable margin of 5.50% per annum, provided that the reserve adjusted LIBOR rate shall not be less that 1.50% per annum.

All other terms are substantially the same as the Credit Agreement (as defined hereinafter).

Revolving Credit Facility due 2018

On February 20, 2013, Harland Clarke Holdings terminated the Revolver (as defined hereinafter) and along with certain of its domestic subsidiaries, as co-borrowers, and its direct parent, CA Acquisition Holdings, Inc. and certain of its other domestic subsidiaries as guarantors, entered into a senior secured asset based revolving credit facility (the "Revolving Facility") with Citibank, N.A., as administrative agent and collateral agent. The Revolving Facility provides for a facility equal to the lesser of $80.0 and a calculated borrowing base consisting of:


•	85% of eligible receivables less unearned revenue; plus


•	the lesser of (i) 85% of the orderly liquidation value of eligible inventory and (ii) 70% of eligible inventory (in each case, at the lower of book value and market); minus


•	eligibility reserves in effect at the time.

The borrowing base at ~~June~~September 30, 2013 was $5233.37, a decrease of $18.6 from the borrowing base at June 30, 2013. The decrease was primarily due to recent divestitures (see Notes 4 and 19). The Revolving Facility includes an up to $30.0 subfacility for letters of credit and an up to $10.0 subfacility in the form of short-term swingline loans. As of ~~June~~September 30, 2013, there were no outstanding borrowings under the Revolving Facility and there was $4123.93 available for borrowing (giving effect to the issuance of $10.4 of letters of credit).

Borrowings and other obligations under the Revolving Facility are guaranteed by CA Acquisition Holdings, Inc., Harland Clarke Holdings and certain of its domestic subsidiaries and secured by a lien on substantially all of the assets of such loan parties, including inventory, receivables, equipment, intellectual property and real property. The obligations under the Revolving Facility are secured by a first priority lien on inventory, receivables, payment intangibles and other current assets and other assets arising therefrom and proceeds thereof and second priority liens on the remaining collateral, subject to the first priority liens securing the Company's Tranche B-3 Term Loans, Extended Term Loans and 2018 Senior Secured Notes (as defined hereinafter).

The Revolving Facility will terminate on February 20, 2018, with springing maturities 91 days prior to the scheduled maturity date of the Company's Extended Term Loans and 2015 Senior Notes (each as defined hereinafter) all of which mature prior to the termination date of this Revolving Facility.

Borrowings against the Revolving Facility bear, at the Company's option, interest at:


•	A LIBOR rate borrowing, bearing interest at a rate per annum equal to a reserve-adjusted LIBOR rate, plus an applicable margin ranging from 1.75% to 2.25% per annum based on the average excess availability for the prior fiscal quarter; or


•	An Alternate Base Rate ("ABR") borrowing, bearing interest at a rate per annum equal to the greatest of:


•	The prime rate of Citibank;


▪	Federal Funds Effective Rate plus 0.5%; and


▪	LIBOR rate for a one-month interest period plus 1%,

plus an applicable margin ranging from 0.75% to 1.25% per annum based on the average excess availability for the prior fiscal quarter.

~~The~~ Revolving Facility has a commitment fee of 0.5% per annum if the average utilization of the Revolving Facility for the preceding fiscal quarter is less than 50% of the total commitments and 0.375% per annum if the average utilization for the preceding fiscal quarter is greater than or equal to 50% of the total commitments. The Revolving Facility has a weighted average fee of 2.00% for issued letters of credit.16

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Harland Clarke Holdings Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(dollars in millions)

(unaudited)

The Revolving Facility has a commitment fee of 0.5% per annum if the average utilization of the Revolving Facility for the preceding fiscal quarter is less than 50% of the total commitments and 0.375% per annum if the average utilization for the preceding fiscal quarter is greater than or equal to 50% of the total commitments. The Revolving Facility has a weighted average fee of 2.00% for issued letters of credit.

The Revolving Facility contains covenants that, among other things, limit the ability of the Company and its subsidiaries to (i) incur or guarantee additional indebtedness or capitalized lease obligations, or issue disqualified or preferred stock; (ii) grant liens on assets; (iii) transfer or sell assets; (iv) pay dividends or make distributions to stockholders; (v) enter into transactions with affiliates; (vi) make investments or acquisitions; (vii) enter into sale/leaseback transactions; (viii) amend certain of the Company's indebtedness; (ix) engage in substantially different lines of business; (x) change the Company's fiscal year; and (xi) engage in speculative hedging transactions. These covenants are subject to important exceptions and qualifications. The Revolving Facility also contains a fixed charge coverage ratio test that may apply if the Company's excess availability falls below specified levels, as well as affirmative covenants and events of default that are customary for such facilities.

$1,900.0 Senior Secured Credit Facilities

Extended Term Loans

On July 24, 2012, an amendment (the "Amendment") entered into on May 10, 2012 by the Company to its credit agreement dated as of April 4, 2007 (the "Credit Agreement") became effective, thereby extending the maturity of $973.0 of term loans under the Credit Agreement (the "Extended Term Loans") from June 2014 to June 2017 (subject to a springing maturity 90 days prior to the maturity date of the Company's 2015 Senior Notes (as defined hereinafter) if such notes have not been repaid, extended or refinanced). The effectiveness of the Amendment was conditioned on, among other customary conditions, the repayment of $280.2 of the Extended Term Loans, which repayment was made with net proceeds from the issuance of the 2018 Senior Secured Notes (as defined hereinafter) and cash on hand. After giving effect to such repayment and the effectiveness of the Amendment, there were $692.8 of Extended Term Loans outstanding and $729.0 of non-extended term loans (the "Non-Extended Term Loans") outstanding. The Company is required to repay the Extended Term Loans in equal quarterly installments in aggregate annual amounts equal to 10% of the original extended amount after giving effect to the $280.2 prepayment thereof required as a condition precedent to the effectiveness of the Amendment. The Amendment also includes several covenants in addition to those covenants in the Credit Agreement. The weighted average interest rate on the principal amount of Extended Term Loans outstanding was 5.4% at ~~June~~September 30, 2013.

The Extended Term Loans bear, at the Company's 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 4.25% per annum; or


•	A rate per annum equal to a reserve-adjusted LIBOR rate, plus an applicable margin of 5.25% per annum.

Non-Extended Term Loans

On April 4, 2007, the Company and substantially all of its subsidiaries as co-borrowers entered into 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~~was to mature on June 30, 2014 with respect to the Non-Extended Term Loans. The Non-Extended Term Loans were repaid on April 26, 2013 with proceeds from the Tranche B-3 Term Loans. The Company was required to repay the Non-Extended Term Loans in equal quarterly installments in aggregate annual amounts equal to 1% of the original principal amount multiplied by the ratio of Non-Extended Term Loans outstanding on the effective date of the Amendment to the total Non-Extended Term Loans and Extended Term Loans outstanding on the effective date of the Amendment prior to giving effect to the prepayment required as a condition precedent to the effectiveness of the Amendment. In addition, the Credit Agreement ~~required~~requires that a portion of the Company's excess cash flow be applied to prepay amounts borrowed, as further described below. The Credit Agreement also provided for a $100.0 revolving credit facility (the "Revolver"). The Revolver included 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 Revolver was terminated on February 20, 2013 upon the execution of the new Revolving Facility.

Under certain circumstances, the Company 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, the 2015 Senior Notes (as defined hereinafter), and the 2018 Senior Secured Notes (as defined hereinafter) allow the Company to incur substantial additional debt.

~~The~~ ~~Non-Extended Term Loans bore, at the Company's option, interest at:~~17

• 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; or

• A rate per annum equal to a reserve-adjusted LIBOR rate, plus an applicable margin of 2.50% per annum.

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Harland Clarke Holdings Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(dollars in millions)

(unaudited)

~~are~~The ~~guarantors and may also be co~~Non-~~borrowers~~Extended ~~under~~Term ~~the~~Loans ~~Credit Agreement. In addition~~bore, at the Company's ~~direct parent~~option, ~~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 the Company's, 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).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; or


•	A rate per annum equal to a reserve-adjusted LIBOR rate, plus an applicable margin of 2.50% per annum.

The Company and each of its existing and future domestic subsidiaries, other than unrestricted subsidiaries, certain immaterial subsidiaries, subsidiaries that do not guarantee other debt of the Company and subject to certain other exceptions, are guarantors and may also be co-borrowers under the Credit Agreement. In addition, the Company's 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 the Company's, 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 Company has the right to prepay the term loans at any time without premium or penalty, subject to certain breakage costs. The Company is required to prepay the term loans 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 the Company 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 excess cash flow payment was required in 2013 with respect to 2012. In March 2012, an excess cash flow payment of $12.5 was paid with respect to 2011. Under the terms of the Credit Agreement such excess cash flow payments were applied against other mandatory payments due in the same year of the excess cash flow payment.

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, the Company 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. The Company 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.

Senior Notes due 2015

On May 1, 2007, the Company 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 "2015 Senior Notes 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~~September 30, 2013. The Senior Notes are unsecured and are therefore effectively subordinated to all of the Company's senior secured indebtedness, including outstanding borrowings under the Credit Agreement and the 2018 Senior Secured Notes. The Company and each of its existing subsidiaries, other than unrestricted subsidiaries and certain immaterial subsidiaries and certain other exceptions, are guarantors and may also be co-issuers under the 2015 Senior Notes.

The 2015 Senior Notes Indenture contains customary restrictive covenants, including, among other things, restrictions on the Company's 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. The Company must offer to repurchase all of the 2015 Senior Notes upon the occurrence of a "change of control," as defined in the 2015 Senior Notes Indenture, at a purchase price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest. The Company 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.

~~9.75%~~ ~~Senior Secured Notes due 2018~~18

On July 24, 2012, the Company and Harland Clarke Corp., Harland Financial Solutions, Inc., Scantron Corporation and Checks in the Mail, Inc. (together, the "Co-Issuers") issued $235.0 aggregate principal amount of 9.75% Senior Secured Notes due 2018 (the "2018 Senior Secured Notes"). The Company used the net proceeds from the offering, together with cash on hand, to repay $280.2 aggregate principal amount of outstanding Extended Term Loans under its Credit Agreement.

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Harland Clarke Holdings Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(dollars in millions)

(unaudited)

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.

9.75% Senior Secured Notes due 2018

On July 24, 2012, the Company and Harland Clarke Corp., Harland Financial Solutions, Inc., Scantron Corporation and Checks in the Mail, Inc. (together, the "Co-Issuers") issued $235.0 aggregate principal amount of 9.75% Senior Secured Notes due 2018 (the "2018 Senior Secured Notes"). Harland Financial Solutions, Inc. was released from its obligations as a Co-Issuer and Guarantor (as defined below) in connection with the divestiture of HFS (see Notes 1 and 4). The Company used the net proceeds from the offering, together with cash on hand, to repay $280.2 aggregate principal amount of outstanding Extended Term Loans under its Credit Agreement.

The 2018 Senior Secured Notes were issued pursuant to an indenture, dated as of July 24, 2012 (the "2018 Senior Secured Notes Indenture"), among the Company, the Co-Issuers, certain of the Company's domestic subsidiaries that guarantee the 2018 Senior Secured Notes (the "Guarantors") and Wells Fargo Bank, National Association, as trustee and collateral agent (the "Trustee"). The Guarantors have guaranteed (the "Guarantees") the Company's and Co-Issuers' obligations under the 2018 Senior Secured Notes and the 2018 Senior Secured Notes Indenture on a senior secured basis. The 2018 Senior Secured Notes and the Guarantees are secured pursuant to a Security Agreement, dated as of July 24, 2012, by and among the Company, the Co-Issuers, the Guarantors and Wells Fargo Bank, National Association, as collateral trustee (the "Collateral Trustee") and a Collateral Trust Agreement, dated as of July 24, 2012, by and among the Company, certain subsidiaries of Harland Clarke Holdings named therein, Credit Suisse AG, Cayman Islands branch, as credit agreement collateral agent, and Wells Fargo Bank, National Association, as trustee and as collateral trustee.

The 2018 Senior Secured Notes mature on August 1, 2018. The 2018 Senior Secured Notes bear interest at a rate of 9.75% per annum, payable on each February 1 and August 1 to holders of record at the close of business on the immediately preceding January 15 and July 15 of each year.

On May 20, 2013, the Company completed an additional offering of $50.0 aggregate principal amount of the 2018 Senior Secured Notes (the "Additional Notes") pursuant to the 2018 Senior Secured Notes Indenture and supplemented on February 20, 2013 (as so supplemented, the "Indenture") under which the Company previously issued $235.0 aggregate principal amount of the 2018 Senior Secured Notes (the "Original Notes", and together with the Additional Notes, the "Notes"). The Additional Notes were sold at a price of 109.00% plus accrued interest from February 1, 2013. The Additional Notes trade as a single series with the Original Notes and are treated substantially the same as the Original Notes under the Indenture. On June 19, 2013, Harland Clarke Holdings used proceeds from the Additional Notes to repay and retire $50.0 of the Fixed Rate Notes.

The 2018 Senior Secured Notes are senior secured obligations of the Company and the Co-Issuers and the Guarantees are senior secured obligations of the Guarantors. The 2018 Senior Secured Notes and the Guarantees rank as follows: (i) secured on a first-priority basis, equally and ratably with all obligations of the Company, the Co-Issuers and the Guarantors that are secured by pari passu liens on the collateral, including their existing senior secured credit facilities; (ii) effectively junior to all of the Company's, Co-Issuers' and the Guarantors' obligations under any future asset-based revolving credit facility to the extent of the value of the current asset collateral held by the Company, the Co-Issuers and the Guarantors; (iii) structurally subordinated to any existing and future indebtedness and other liabilities of any existing and future subsidiaries of the Company that are not Guarantors; (iv) pari passu in right of payment with all of the existing and future senior indebtedness of the Company, the Co-Issuers and the Guarantors and effectively senior to the extent of the value of the collateral to any future unsecured indebtedness of the Company, the Co-Issuers and the Guarantors that is secured by liens on the collateral that are junior to the liens securing the Senior Secured Notes and the Guarantees or that is unsecured; and (v) senior in right of payment to any existing and future subordinated indebtedness of the Company, the Co-Issuers and the Guarantors.

The 2018 Senior Secured Notes and the Guarantees are secured on a first-priority basis, equally and ratably with the indebtedness under the Credit Agreement, by substantially all of the Company's, the Co-Issuers' and the Guarantors' assets, subject to certain exceptions and permitted liens.

Beginning with the fiscal year ending December 31, 2013, if the Company's secured leverage ratio exceeds certain levels, the Company will be required to offer to purchase an amount of the 2018 Senior Secured Notes equal to the greater of (1) $15.0 and (2) 50% of its excess cash flow for the applicable period, less any voluntary prepayments of 2018 Senior Secured Notes or credit facility indebtedness and certain mandatory prepayments made during the applicable period and subject to certain other exceptions, at a purchase price equal to 100% of the principal amount of the 2018 Senior Secured Notes, plus accrued and unpaid interest and additional interest. Upon the occurrence of a change of control or if the Company sells certain assets, the Company may be required to make an offer to purchase the 2018 Senior Secured Notes at certain specified prices.

~~The~~ 2018 Senior Secured Notes Indenture contains covenants that, among other things, limit the Company's, the Co-Issuers' and the Guarantors' ability to (i) incur or guarantee additional indebtedness or issue preferred stock; (ii) grant liens on assets; (iii) pay dividends or make distributions to stockholders; (iv) repurchase or redeem capital stock or subordinated indebtedness; (v) make investments or acquisitions; (vi) enter into sale/leaseback transactions; (vii) incur restrictions on the ability of the Company's subsidiaries to pay dividends or to make other payments to the Company; (viii) enter into transactions with the Company's affiliates; (ix) merge or consolidate with other companies or transfer all or substantially all assets; and (x) transfer or sell assets. These covenants are subject to important exceptions and qualifications. The 2018 Senior Secured Notes Indenture contains affirmative covenants and events of default that are customary for indentures governing high-yield debt securities.19

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Harland Clarke Holdings Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(dollars in millions)

(unaudited)

The 2018 Senior Secured Notes Indenture contains covenants that, among other things, limit the Company's, the Co-Issuers' and the Guarantors' ability to (i) incur or guarantee additional indebtedness or issue preferred stock; (ii) grant liens on assets; (iii) pay dividends or make distributions to stockholders; (iv) repurchase or redeem capital stock or subordinated indebtedness; (v) make investments or acquisitions; (vi) enter into sale/leaseback transactions; (vii) incur restrictions on the ability of the Company's subsidiaries to pay dividends or to make other payments to the Company; (viii) enter into transactions with the Company's affiliates; (ix) merge or consolidate with other companies or transfer all or substantially all assets; and (x) transfer or sell assets. These covenants are subject to important exceptions and qualifications. The 2018 Senior Secured Notes Indenture contains affirmative covenants and events of default that are customary for indentures governing high-yield debt securities.

Faneuil Revolving Credit Facilities

Faneuil had a $35.5 revolving credit facility (the "Revolving Credit Agreement"), which was to mature on June 1, 2012 and was paid in full on January 25, 2012. The Revolving Credit Agreement allowed Faneuil to choose from two different interest rate options. The first option was LIBOR plus 2.5% per annum and the second option was Prime Rate minus 1.25%. The Revolving Credit Agreement contained certain covenants and restrictions including covenants and restrictions related to change of control, mergers, dissolution, accounting methodology, indebtedness, dividends and distributions. The Revolving Credit Agreement was collateralized by substantially all of the assets of Faneuil, and was secured by a pledge of the shares of Faneuil's parent.

On January 25, 2012, Faneuil entered into a new $25.0, two-year, revolving credit agreement with MacAndrews & Forbes Group LLC, which is an indirect wholly owned subsidiary of MacAndrews. This revolver was drawn in full on January 25, 2012 and the proceeds, along with cash on hand, were used to pay in full the outstanding balance of $25.6 plus all accrued interest under the Revolving Credit Agreement. Faneuil terminated the Revolving Credit Agreement and it is no longer available for borrowing.

On March 19, 2012, in connection with the Faneuil Acquisition, Faneuil's $25.0 revolving credit facility with MacAndrews & Forbes Group LLC was extinguished and Faneuil no longer has any loans outstanding.

Loss on Early Extinguishment of Debt

In connection with the repayment of $726.6 of the Non-Extended Term Loans and $50.0 of Fixed Rate Notes in the second quarter of 2013, the Company recorded a non-cash loss on early extinguishment of debt of $61.0 resulting from the write-off of unamortized acquisition accounting-related fair value discount, which was attributable to the MacAndrews Acquisition.

In connection with the repayment of $280.2 of the Extended Term Loans in the third quarter of 2012, the Company recorded a loss on early extinguishment of debt of $34.2 resulting from the write-off of unamortized acquisition accounting-related fair value discount, which was attributable to the MacAndrews Acquisition.

Capital Lease Obligations

The Company ~~has~~had outstanding capital lease obligations with principal balances totaling $3.72 and $3.1 at ~~June~~September 30, 2013 and December 31, 2012, respectively. These obligations have imputed interest rates ranging from 0.0% to 9.6% and have required payments of $1.0.5 remaining in 2013, $1.87 in 2014, $0.5 in 2015, ~~and~~ $0.4 in 2016 and $0.1 in 2017.

1213. 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 June 2009, the Company 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 and expired on June 30, 2012. This hedge swapped the underlying variable rate for a fixed rate of 2.353%. During September 2009, the Company 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 and expired on September 30, 2012. This hedge swapped the underlying variable rate for a fixed rate of 2.140%.

During June 2010, the Company 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 and expired on June 30, 2013. This hedge swapped 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.~~20

Derivatives Designated as Cash Flow Hedging Instruments:		Balance Sheet Classification		June 30, 2013				December 31, 2012
Interest rate swaps		Other current liabilities		$	—			$	1.3

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.

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Harland Clarke Holdings Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(dollars in millions)

(unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
Interest Rate Swaps:
Loss reclassified from other comprehensive income into interest expense (effective portion)	$	—	$	—	$	—	$	0.1
Loss recognized in interest expense (ineffective portion)	—		0.2		—		1.5

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



Derivatives Designated as Cash Flow Hedging Instruments:	Balance Sheet Classification	September 30, 2013		December 31, 2012
Interest rate swaps	Other current liabilities	$	—	$	1.3

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 were ineffective during the six months ended June 30, 2013 and the three and nine months ended September 30, 2012. The following presents the effect of these derivative instruments (effective and ineffective portion) on other comprehensive loss and amounts reclassified from accumulated other comprehensive loss into interest expense.



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012
Interest Rate Swaps:
Loss reclassified from other comprehensive income into interest expense (effective portion)	$	—	$	—	$	—	$	0.1
Loss recognized in interest expense (ineffective portion)	—		0.3		—		1.8

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

	Six Months Ended
	Nine Months Ended
	June 30,
	September 30,
Balances and Net Changes:	2012
Balance at beginning of period	$	0.1
Loss reclassified from accumulated other comprehensive loss into interest expense, net of taxes of $0.0	(0.1		)
Balance at end of period	$	—

There were no balances related to these derivative instruments in accumulated other comprehensive loss in the ~~six~~nine months period ended ~~June~~ September 30, 2013.

1314. Fair Value Measurements

Nonrecurring Fair Value Measurements

During the ~~six~~nine months ended ~~June~~September 30, 2013, the Company recorded non-cash impairment charges of $0.2 for the Harland Clarke segment ~~related to assets that were determined to have no future use~~ and $0.79 for the Scantron segment related to ~~software~~assets that ~~was~~were determined to have no future use ~~(see Note 6)~~.

~~Recurring~~During ~~Fair~~the ~~Value~~nine ~~Measurements~~months ended September 30, 2012, the Company recorded non-cash impairment charges of $0.5 for the Faneuil segment related to abandoned leasehold improvements resulting from the loss of a client and $0.2 for the Harland Clarke segment related to assets that were determined to have limited future use.

	Balance at
	June 30, 2013		(Level 1)		(Level 2)		(Level 3)
Corporate equity securities	$	0.1	$	0.1	$	—	$	—

	Balance at
	December 31, 2012		(Level 1)		(Level 2)		(Level 3)
Corporate equity securities	$	0.1	$	0.1	$	—	$	—
Liability for interest rate swaps	1.3		—		1.3		—

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 is based on quoted market prices.

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Harland Clarke Holdings Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(dollars in millions)

(unaudited)

~~The~~Recurring ~~following~~Fair ~~table~~Value ~~presents the Company's liability for contingent consideration related to business combinations measured at fair value on a recurring basis using significant unobservable inputs (Level 3):~~Measurements

Fair values of financial instruments subject to recurring fair value measurements as of September 30, 2013 and December 31, 2012 are as follows:

	ThreeMonths Ended		Six Months Ended
	Balance at
	June 30,		June 30,
	September 30, 2013		(Level 1)			(Level 2)		(Level 3)
	2012		2012
Corporate equity securities	$	0.1	$	0.1		$	—	$	—
Balance at beginning of period	$	0.1	$	0.6
Net changes in fair value	—		(0.5		)
Balance at end of period	$	0.1	$	0.1

There was no liability for contingent consideration related to business combinations in the six months period ended June 30, 2013. Fair value of the liability for contingent consideration related to business combinations is estimated utilizing a discounted cash flow analysis. The analysis considers, among other things, estimates of future revenues and the timing of expected future contingent consideration payments.



	Balance at
	December 31, 2012		(Level 1)		(Level 2)		(Level 3)
Corporate equity securities	$	0.1	$	0.1	$	—	$	—
Liability for interest rate swaps	1.3		—		1.3		—

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 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~~September 30, 2013 and December 31, 2012 was approximately $2,~~053~~080.37 and $1,984.4, respectively. The carrying value of long-term debt at ~~June~~September 30, 2013 and December 31, 2012 was $1,~~937~~929.63 and $1,847.8 respectively. As described in Note 1, the carrying value of the Company's long-term debt was adjusted to fair value as of the date of the MacAndrews Acquisition.

1415. Investments

Equity Method Investment

During 2012, the Company purchased certain equity securities of Transactis, Inc. ("Transactis"), a privately held company, representing a 15.56% ownership interest for $7.0 in cash. The Company accounts for this investment using the equity method due to its ability to influence operating and financial matters of Transactis through its representation on the Transactis board of directors and certain rights under the terms of the stock purchase agreement. The assets, liabilities and results of operations are not significant to the Company's financial position or results of operations. The carrying value of this investment at ~~June~~September 30, 2013 and December 31, 2012 was $6.54 and $6.9, respectively, and is included in other assets in the accompanying consolidated balance sheets.

Marketable Securities

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

	AmortizedCost		GrossUnrealizedGains		GrossUnrealizedLosses		Fair Value
Balance at June 30, 2013:
Balance at September 30, 2013:
Corporate equity securities	$	0.1	$	—	$	—	$	0.1
Balance at December 31, 2012:
Corporate equity securities	$	0.1	$	—	$	—	$	0.1

During the ~~six~~nine months ended ~~June~~September 30, 2012, the Company sold its United States treasury securities, which were to mature in 2014, for $56.3 in cash and recognized a loss of $0.2, which is included in other expense, net in the accompanying consolidated statements of operations.

2022

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Harland Clarke Holdings Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(dollars in millions)

(unaudited)

1516. Commitments and Contingencies

Various legal proceedings, claims and investigations are pending against the Company, including those relating to commercial transactions, intellectual property matters, environmental matters and other matters. Certain of these matters are covered by insurance, subject to deductibles and maximum limits. 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 consolidated financial position or results of operations.

1617. Restructuring

Harland Clarke and Corporate

The Company adopted plans during 2011, 2012 and 2013 to realize cost savings in the Harland Clarke segment and Corporate by consolidating printing plants, contact centers and selling, general and administrative functions.

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~~nine months ended ~~June~~September 30, 2013 and 2012:

	BeginningBalance		Expensed		Paid inCash			Non-CashUtilization			EndingBalance
Six months ended June 30, 2013:
Nine months ended September 30, 2013:
Severance and severance-related	$	6.4	$	1.12	$	(34.1	)	$	—		$	43.45
Facilities closures and other costs	2.4		46.97		(1.09		)	(3.4.3		)	2.9
Total	$	8.8	$	67.09	$	(46.10	)	$	(3.4.3	)	$	76.34
Six months ended June 30, 2012:
Nine months ended September 30, 2012:
Severance and severance-related	$	4.5	$	17.65	$	(05.41	)	$	—		$	56.79
Facilities closures and other costs	3.0		1.16		(01.94		)	(0.58		)	2.74
Total	$	7.5	$	29.71	$	(16.35	)	$	(0.58	)	$	89.43

The non-cash utilization of $3.4.3 and $0.58 in 2013 and 2012, respectively, in the table above includes adjustments to the carrying value of other property, plant and equipment. The Company expects to incur in future periods an additional $21.56 for costs related to these plans. The Company expects to make payments for severance and severance-related costs through 2014. Ongoing lease commitments related to these plans continue through 2017.

~~Harland Financial Solutions~~Scantron

During ~~2012~~2013, the Company adopted a plan in the Scantron segment to ~~realize~~exit ~~additional~~certain ~~cost~~product ~~savings~~lines in the ~~Harland~~education ~~Financial~~market. ~~Solutions~~The ~~segment~~plan byresulted ~~eliminating~~in ~~certain~~the closure of four leased facilities and the elimination of operations and selling, general and administrative expenses associated with those product lines, largely occurring in the second quarter of 2013.

The ~~following~~Company ~~table~~previously ~~details~~adopted ~~the~~plans ~~components~~during of2011 ~~the~~and ~~Company's~~2012 ~~restructuring~~to ~~accruals~~realize ~~related~~cost tosavings in the ~~Harland~~Scantron ~~Financial~~segment ~~Solutions~~by ~~segment~~consolidating ~~for~~certain ~~the~~operations ~~six~~and ~~months~~eliminating ~~ended~~certain ~~June 30~~selling, ~~2013~~general and ~~2012:~~administrative expenses.

	BeginningBalance		Expensed			Paid inCash			Non-CashUtilization		EndingBalance
Six months ended June 30, 2013:
Severance and severance-related	$	0.1	$	0.2		$	—		$	—	$	0.3
Facilities and other costs	1.3		(0.2		)	(0.2		)	0.2		1.1
Total	$	1.4	$	—		$	(0.2	)	$	0.2	$	1.4
Six months ended June 30, 2012:
Severance and severance-related	$	—	$	0.4		$	(0.3	)	$	—	$	0.1
Facilities and other costs	1.5		—			(0.1		)	—		1.4
Total	$	1.5	$	0.4		$	(0.4	)	$	—	$	1.5

The following table details the components of the Company's restructuring accruals related to the Scantron segment for the nine months ended September 30, 2013 and 2012:



	Beginning Balance		Expensed		Paid in Cash			Non-Cash Utilization			Ending Balance
Nine months ended September 30, 2013:
Severance and severance-related	$	3.2	$	4.0	$	(5.2	)	$	—		$	2.0
Facilities and other costs	0.9		2.6		(2.0		)	(0.8		)	0.7
Total	$	4.1	$	6.6	$	(7.2	)	$	(0.8	)	$	2.7

Nine months ended September 30, 2012:
Severance and severance-related	$	2.0	$	4.1	$	(3.0	)	$	—		$	3.1
Facilities and other costs	1.4		1.2		(1.2		)	—			1.4
Total	$	3.4	$	5.3	$	(4.2	)	$	—		$	4.5

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Harland Clarke Holdings Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(dollars in millions)

(unaudited)

Scantron

During the six months ended June 30, 2013, the Company adopted a plan in the Scantron segment to exit certain product lines in the education market. The plan resulted in the closure of four leased facilities and the elimination of operations and selling, general and administrative expenses associated with those product lines, largely occurring in the second quarter of 2013.

The Company previously adopted plans during 2011 and 2012 to realize cost savings in the Scantron segment by consolidating certain operations and eliminating certain selling, general and administrative expenses.

The following table details the components of the Company's restructuring accruals related to the Scantron segment for the six months ended June 30, 2013 and 2012:

	BeginningBalance		Expensed		Paid inCash			Non-CashUtilization			EndingBalance
Six months ended June 30, 2013:
Severance and severance-related	$	3.2	$	3.8	$	(4.1	)	$	—		$	2.9
Facilities and other costs	0.9		3.1		(0.8		)	(0.8		)	2.4
Total	$	4.1	$	6.9	$	(4.9	)	$	(0.8	)	$	5.3
Six months ended June 30, 2012:
Severance and severance-related	$	2.0	$	1.3	$	(1.4	)	$	—		$	1.9
Facilities and other costs	1.4		0.3		(0.9		)	—			0.8
Total	$	3.4	$	1.6	$	(2.3	)	$	—		$	2.7

The non-cash utilization in the table above includes adjustments to the carrying value of other property, plant and equipment. Ongoing lease commitments related to these plans continue to 2018. The Company expects to make payments for severance and severance-related costs through 2014.

Faneuil

The Company adopted a plan in 2012 to realize cost savings in the Faneuil segment by consolidating certain operations and eliminating certain selling, general and administrative expenses. The following table details the components of the Company's restructuring accruals related to the Faneuil segment for the ~~six~~nine months ended ~~June~~September 30, 2013 and 2012:

	BeginningBalance		Expensed		Paid inCash			EndingBalance
Six months ended June 30, 2013:
Nine months ended September 30, 2013:
Severance and severance-related	$	0.6	$	0.4	$	(0.7	)	$	0.3
Facilities and other costs	0.2		—		—(0.1		)	0.21
Total	$	0.8	$	0.4	$	(0.78	)	$	0.54
Six months ended June 30, 2012:
Nine months ended September 30, 2012:
Facilities and other costs	$	—	$	0.3	$	(0.3	)	$	—
Severance and severance-related	$	—	$	0.9	$	—		$	0.9
Total	$	—	$	0.3	$	(0.3	)	$	—
Facilities and other costs	—		0.9		(0.3		)	0.6
Total	$	—	$	1.8	$	(0.3	)	$	1.5

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 2018.

1718. Transactions with Related Parties

The Company participates in MacAndrews' directors and officers insurance program, which covers the Company as well as MacAndrews and MacAndrews' 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 MacAndrews 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. At June 30, 2013, the Company recorded prepaid expenses and other assets of $0.8 Insurance

The 22Company participates in MacAndrews' directors and officers insurance program, which covers the Company as well as MacAndrews and MacAndrews' 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 MacAndrews 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. At September 30, 2013, the Company recorded prepaid expenses and other assets of $0.7 and $1.1, respectively, relating to the directors and officers insurance program. At December 31, 2012, the Company recorded prepaid expenses and other assets of $0.7 and $1.0, respectively, related to the directors and officers insurance program. The Company paid $1.0 and $1.9 to MacAndrews during the nine months ended September 30, 2013 and 2012, respectively, under the directors and officers insurance program. The Company also participates in certain other insurance programs with MacAndrews under which it pays premiums directly to the insurance broker.

Tax Sharing Agreement

The Company, MacAndrews and certain other subsidiaries of MacAndrews entered into a tax sharing agreement on December 21, 2011, whereby MacAndrews files consolidated federal income tax returns on the Company's behalf. Under the tax sharing agreement, the Company makes periodic payments to MacAndrews. These payments are based on the applicable federal income tax liability that the Company would have had for each taxable period if the Company had not been included in the MacAndrews consolidated group. Similar provisions apply with respect to any foreign, state or local income or franchise tax returns filed by any MacAndrews consolidated, combined or unitary group for each period that the Company is included in any such group for foreign, state or local tax purposes. The Company made net payments to MacAndrews of $228.3 and $270.3 for the three and nine months ended September 30, 2013, respectively, and $22.4 and $70.6 for the three and nine months ended September 30, 2012, respectively.

Notes Receivable

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Harland Clarke Holdings Corp. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(dollars in millions)

(unaudited)

~~and $1.3, respectively, relating to~~ the ~~directors~~three and ~~officers~~nine ~~insurance~~months ~~program.~~ended ~~At December 31~~September 30, ~~2012~~2013, ~~the~~respectively. ~~Company~~Interest ~~recorded~~income ~~prepaid expenses and other assets~~ of $0.72 and $1.0,.6 ~~respectively,~~was ~~related~~recorded ~~to the directors~~ and ~~officers~~related ~~insurance~~payments ~~program.~~were ~~The~~received ~~Company~~during ~~paid~~the ~~$1.0~~three and ~~$1.9~~nine ~~to MacAndrews during the six~~ months ended ~~June~~September 30, ~~2013 and~~ 2012, respectively~~, under the directors and officers insurance program~~. ~~The Company also participates in certain other insurance programs with MacAndrews under which it pays premiums directly to the insurance broker.~~

Notes Receivable

On December 27, 2011, the Company entered into a revolving credit agreement with its indirect parent, MacAndrews, whereby MacAndrews could borrow an amount not exceeding $30.0. The facility is unsecured, bears interest at LIBOR plus 2% and matures in December 2013. The facility was drawn in full by MacAndrews on December 27, 2011 and remained outstanding at June 30, 2013. Interest income of $0.1 and $0.3 was recorded and related payments were received during the three and six months ended June 30, 2013, respectively. Interest income of $0.2 and $0.4 was recorded and related payments were received during the three and six months ended June 30, 2012, respectively.

Other

The Company expensed $0.76 and $12.40 during the three and ~~six~~nine months ended ~~June~~September 30, 2013, respectively, and $0.76 and $12.40 during the three and ~~six~~nine months ended ~~June~~September 30, 2012, respectively, for services provided to the Company by M & F Worldwide. This amount is reflected in selling, general and administrative expenses.

During the ~~six~~nine months ended ~~June~~September 30, 2013 and 2012, the Company paid cash dividends of $2629.2 and $25.8, respectively, to M & F Worldwide as permitted by restricted payment baskets within the Company's debt agreements.

On March 19, 2012, the Company completed the Faneuil Acquisition from affiliates of MacAndrews, its indirect parent (see Note 3). In connection with the Faneuil Acquisition, Faneuil's revolving credit facility with an affiliate of MacAndrews, which was entered into on January 25, 2012, was extinguished (see Note 1112).

1819. Subsequent Event

On ~~July~~October 2318, 2013, the Company ~~entered~~completed ~~into a Stock Purchase Agreement (~~the ~~"Stock~~sale ~~Purchase~~of ~~Agreement") with Davis + Henderson Corporation ("D+H")~~Faneuil, ~~Spoke Acquisition,~~ Inc. ("~~Acquirer I~~Faneuil"), ~~D+H~~its ~~Ltd.~~wholly-owned ~~("Acquirer~~business ~~II"~~process outsourcing subsidiary, ~~collectively~~to ~~with~~ALJ ~~Acquirer~~Regional IHoldings, ~~the~~Inc. ("~~Buyer~~ALJ"), ~~and~~for ~~MacAndrews.~~consideration ~~Pursuant~~consisting ~~to the terms~~ of ~~the~~$25.0 ~~Stock~~in ~~Purchase Agreement~~cash, ~~the~~a ~~Buyer~~$25.0 ~~agreed~~two toyear ~~acquire~~note ~~all~~to of the ~~outstanding~~Company ~~shares~~and of3.0 ~~capital~~million ~~stock~~shares of ~~each~~ALJ's ofcommon ~~Harland Financial Solutions, Inc~~stock., ~~Harland~~The ~~Financial~~sale ~~Solutions~~did ~~Worldwide~~not ~~Limited~~include ~~and~~Faneuil's Harland ~~Israel~~Technology ~~Ltd.~~Services ~~(collectively~~business, ~~"HFS")~~which ~~from~~was ~~the~~transferred ~~Company~~to ~~(the~~and ~~"Transaction")~~became ~~for~~part ~~a purchase price~~ of ~~$1.2~~the ~~billion~~operations inand ~~cash,~~results ~~which~~of ~~amount~~Scantron isfrom ~~subject~~and toafter ~~both~~October 18, a2013 ~~pre-closing~~ and ~~post-closing~~the ~~adjustment~~Company ~~for~~is ~~working~~currently ~~capital~~evaluating inthe ~~accordance~~impact ~~with~~of the ~~terms~~divestiture ~~and~~on ~~conditions~~its ofconsolidated ~~the~~financial ~~Stock~~position ~~Purchase~~and ~~Agreement~~results of operations.

~~The~~ Transaction is subject to customary closing conditions, including the absence of a legal impediment to the Transaction and the expiration or termination of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Condition"). The obligations of the Company and Buyer to close the Transaction are also subject to, among others, (a) the accuracy of representations and warranties of the other party as set forth in the Stock Purchase Agreement (in each case subject to material adverse effect qualifications), (b) the other party having performed in all material respects its obligations under the Stock Purchase Agreement and (c) in the case of the Buyer's obligations to close, HFS not having suffered a material adverse effect and all third party debt of HFS having been released. The Transaction is not subject to a financing condition. The Company expects the Transaction to close in the third quarter of 2013.25

The Stock Purchase Agreement includes representations and warranties customary for an arm's length acquisition agreement. The Stock Purchase Agreement contains customary covenants of the Company and the Buyer, including with respect to the conduct of the HFS business during the interim period between the execution of the Stock Purchase Agreement and the earlier to occur of the closing of the Transaction and the termination of the Stock Purchase Agreement.

The Stock Purchase Agreement may be terminated at any time prior to the Closing: (a) by mutual written consent of the parties; (b) by either of the parties, if any governmental authority has issued a final and non-appealable order, decree or ruling prohibiting the Transaction; (c) by the Company, if there has been a breach by the Buyer of any representation or warranty or any covenant or agreement contained in the Stock Purchase Agreement that would result in a failure of a closing condition and which breach cannot be cured or has not been cured (to the extent necessary to avoid a failure of such condition) within fifteen (15) days after the giving of written notice to the Buyer; (d) by the Buyer, if there has been a breach by the Company of any representation or warranty or any covenant or agreement contained in the Stock Purchase Agreement that would result in a failure of a closing condition and which breach cannot be cured or has not been cured (to the extent necessary to avoid a failure of such condition) within fifteen (15) days after the giving of written notice to the Company; or (e) by either the Company or

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Notes to Consolidated Financial Statements (Continued)

(dollars in millions)

(unaudited)

the Buyer, if the Closing does not occur by the close of business on September 30, 2013, which date may be extended by either such party to February 28, 2014 if the HSR Condition remains unsatisfied as of three business days prior to September 30, 2013.

The Stock Purchase Agreement contains customary indemnification obligations of each party with respect to breaches of their respective representations, warranties, covenants and obligations, and certain other designated matters. D+H agreed to guarantee the performance of the Buyer, and guaranteed that the Buyer will fully, completely and timely pay and perform all its obligations and assume all its liabilities under the Stock Purchase Agreement.

The Stock Purchase Agreement provides that, at the Closing, the Company, the Buyer and D+H will enter into an ancillary agreement providing for certain transitional services to the Buyer following the Closing on terms customary for a transaction of this type.

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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 ~~six~~three and nine months ended ~~June~~September 30, 2013 and 2012 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 Form 10-Q.

Overview of Business

Harland Clarke Holdings Corp. ("Harland Clarke Holdings" and, together with its subsidiaries, the "Company") is a holding company that conducts its operations through its direct and indirect, wholly owned operating subsidiaries and was incorporated in Delaware on October 19, 2005. The Company is an indirect, wholly owned subsidiary of M & F Worldwide Corp. ("M & F Worldwide"), which is, as of December 21, 2011, an indirect, wholly owned subsidiary of MacAndrews & Forbes Holdings Inc. ("MacAndrews"). MacAndrews is wholly owned by Ronald O. Perelman. On September 12, 2011, M & F Worldwide agreed to merge with an indirect, wholly owned subsidiary of MacAndrews, and, following a vote of stockholders of M & F Worldwide and the satisfaction or waiver of closing conditions, that merger was effected on December 21, 2011 (the "MacAndrews Acquisition").

On ~~March~~August 1916, ~~2012~~2013, the Company ~~purchased~~completed ~~Faneuil~~the sale of each of Harland Financial Solutions, Inc., Harland Financial Solutions Worldwide Limited and Harland Israel Ltd. (collectively, "~~Faneuil~~HFS") ~~from~~to affiliates of ~~MacAndrews~~Davis ~~(see~~+ ~~Note~~Henderson 3Corporation. The consideration received by the Company for the sale was approximately $1.2 billion in cash. The Company entered into an ancillary agreement providing for certain transitional services for a limited time to the buyer on terms customary for a transaction of this type. Results of operations for HFS through August 16, 2013, including the related gain, are reported as discontinued operations in the accompanying consolidated ~~financial~~ statements of operations included elsewhere in this Quarterly Report on Form 10-‑Q). ~~Under~~(see ~~accounting~~Note ~~guidance~~4 ~~for~~to ~~transactions~~the ~~among~~accompanying ~~entities~~consolidated ~~under~~financial ~~common~~statements ~~control,~~included ~~the~~elsewhere ~~Company~~in ~~has~~this ~~accounted~~Quarterly ~~for~~Report ~~the~~on ~~purchase~~Form at10‑Q). ~~historical~~Results ~~cost~~of ~~and~~operations ~~has~~for ~~retrospectively~~HFS ~~recasted~~are ~~prior~~not ~~periods~~included ~~under~~in ~~common~~segment ~~control~~or toconsolidated ~~include~~results ~~Faneuil~~of operations. ~~The~~other ~~Company~~than ~~and~~as ~~Faneuil~~discontinued ~~came~~operations ~~under~~and ~~common~~prior ~~control~~periods onhave ~~December~~been ~~21,~~reclassified ~~2011,~~to ~~the~~remove ~~date~~results of ~~the~~operations ~~MacAndrews~~for ~~Acquisition.~~HFS ~~Faneuil~~from isresults areported ~~separate business segment~~ for ~~financial~~continuing ~~reporting purposes~~operations.

~~During~~On ~~the~~March ~~second~~19, ~~quarter of~~ 2012, the Company ~~transferred~~purchased ~~certain~~Faneuil, ~~product~~Inc. ~~and~~("Faneuil") ~~service~~from ~~lines~~affiliates ~~from~~of ~~the~~MacAndrews ~~Scantron~~(see ~~segment~~Note 3 to ~~other~~the ~~segments~~accompanying toconsolidated ~~better~~financial ~~align~~statements ~~complementary~~included ~~products~~elsewhere ~~and~~in ~~services.~~this ~~The~~Quarterly ~~Harland~~Report ~~Technology~~on ~~Services~~Form ~~("HTS"~~10-Q). Under accounting guidance for transactions among entities under common control, the Company has accounted for the purchase at historical cost and ~~Medical~~has ~~Device~~retrospectively ~~Tracking~~recasted ~~("MDT")~~prior ~~businesses~~periods ~~were~~under ~~transferred~~common control to ~~the~~include Faneuil ~~segment~~operations. The Company and ~~the~~Faneuil ~~Survey~~came ~~Services~~under ~~business~~common ~~was~~control ~~transferred~~on toDecember 21, 2011, the ~~Harland~~date ~~Clarke~~of ~~Segment~~the MacAndrews Acquisition. ~~Prior~~Faneuil ~~period~~is a separate business segment ~~information~~for ~~has~~financial ~~been~~reporting ~~reclassified~~purposes. On October 18, 2013, the Company completed the sale of Faneuil (see Note 19 to ~~reflect~~the accompanying consolidated financial statements included elsewhere in this ~~change~~Quarterly Report on Form 10-Q).

~~The~~During ~~Harland~~the ~~Clarke~~second ~~segment~~quarter ~~offers~~of ~~checks~~2012, ~~and~~the ~~related~~Company ~~products,~~transferred ~~forms~~certain product and ~~treasury~~service ~~supplies,~~lines ~~and~~from ~~related~~the ~~delivery~~Scantron ~~and~~segment ~~fraud~~to ~~prevention~~other ~~products~~segments. asSpecifically, ~~well~~Scantron astransferred ~~transactional~~the ~~document~~Harland ~~printing,~~Technology ~~including~~Services ~~statements,~~("HTS") ~~compliance~~and ~~documents~~Medical ~~and~~Device ~~communications,~~Tracking to("MDT") ~~financial~~businesses ~~and~~to ~~commercial~~the ~~institutions.~~Faneuil Itsegment ~~also~~and ~~provides~~the ~~direct~~Survey ~~marketing~~Services ~~services~~business to ~~their~~the ~~clients~~Harland ~~including~~Clarke ~~direct~~segment. ~~marketing~~Prior ~~campaigns,~~period ~~direct~~segment ~~mail,~~information ~~database~~has ~~marketing,~~been ~~telemarketing~~reclassified ~~and~~to ~~digital~~reflect ~~marketing~~this change. InWith ~~addition~~the toOctober ~~these~~18, ~~products~~2013 ~~and~~sale ~~services~~of Faneuil, the Harland ~~Clarke~~Technology ~~segment~~Services ~~offers stationery,~~ business ~~cards,~~was ~~survey~~transferred ~~services~~to and ~~other~~became ~~business~~part ~~and~~of ~~home~~the ~~office~~operations ~~products~~and toresults ~~consumers~~of Scantron from and ~~businesses~~after that date.

~~The~~ Harland ~~Financial~~Clarke ~~Solutions~~Holdings ~~segment~~delivers ~~provides~~to ~~technology~~multiple industries a robust portfolio of products and ~~related~~ services designed to ~~financial~~optimize ~~institutions~~customer ~~worldwide~~relationships ~~including~~and ~~lending~~generate revenue. Its business units have long been recognized as leading providers of best-in-class payment solutions, marketing services, data capture and ~~mortgage~~analytics ~~compliance~~− delivered through multiple channels, including online, digital print technology, mobile and ~~origination~~phone. ~~applications~~Harland Clarke Holdings' portfolio offers retail products, ~~risk~~high-value ~~management~~transactional ~~solutions~~print and electronic documentation, security solutions and business intelligence. ~~solutions~~Its skills in capturing, ~~Internet~~managing, analyzing and ~~mobile~~delivering ~~banking~~data ~~applications~~measurement and assessment information, ~~branch~~through ~~automation~~both ~~solutions~~print and digital channels, ~~self~~supports decision-~~service~~making ~~solutions~~and improved outcomes for organizations worldwide. Harland Clarke Holdings serves the financial, ~~electronic~~insurance ~~payment~~and ~~solutions~~investment services industries, as well as education, big-box retailing, accounting software, commercial, government and ~~core~~franchising. ~~processing~~Its ~~systems~~clients, including more than 8,500 financial institutions, range in size from major corporate brands and trade associations, to state and local governments, micro-businesses and individual consumers.

The ~~Scantron~~Harland Clarke segment ~~provides~~offers ~~data management and decision support solutions and related services~~ to ~~educational,~~its ~~commercial~~more ~~and~~than ~~governmental entities worldwide. Scantron products and services provide solutions for testing and assessment~~12,500 ~~instruction~~financial ~~and~~institution ~~performance management~~ and ~~business~~commercial ~~operational~~clients ~~data collection. Scantron's solutions combine~~ a ~~variety~~range of ~~data~~solutions ~~collection,~~to ~~analysis,~~support ~~and~~their ~~management~~success. ~~tools~~These ~~including~~include ~~web-based~~payment solutions, ~~software~~security solutions, ~~scanning~~forms ~~equipment~~and treasury supplies and ~~forms.~~related

~~The~~ Faneuil segment provides business process outsourcing services including call center operations, back office operations, staffing services and toll collection services to government and regulated commercial clients. The Faneuil segment also provides patient information collection and tracking services, managed technical services and related field maintenance services to educational, commercial, healthcare and governmental entities.26

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Harland Clarke Holdings Corp. and Subsidiaries

delivery and fraud prevention products, as well as transactional print and electronic documentation, including statements, compliance documents and communications. It provides marketing services including inbound and outbound contact center solutions and direct marketing campaigns delivered through the multiple channels of online, digital print technology, mobile and phone. Harland Clarke offers a spectrum of solutions based upon business intelligence and analytic services that range from surveys, database mining, strategic planning, creative development and production through fulfillment. Harland Clarke offers online customized social and business stationery, cards, office products and promotional products directly to consumers, small and medium businesses and direct selling associations. It also services some of the largest accounting software firms and big-box retailers by developing and managing e-commerce sites for the online ordering of customizable printed materials.

The Scantron segment provides data management and decision support solutions and related services to educational, commercial and governmental entities worldwide. Scantron products and services provide solutions for testing and assessment, instruction and performance management and business operational data collection. Scantron's solutions combine a variety of data collection, analysis and management tools including online solutions, software, scanning equipment, and pre-printed and customized forms.

The Faneuil segment provides business process outsourcing services including call center operations, back office operations, staffing services and toll collection services to governmental and regulated commercial clients. The Faneuil segment also provides patient information collection and tracking services, managed technical services and related field maintenance services to educational, commercial, healthcare and governmental entities.

Refinancing Transactions

On May 20, 2013, the Company completed the issuance of additional 2018 Senior Secured Notes. Proceeds from the issuance were used to repay and retire $50.0 million principal amount of fixed rate 2015 Senior Notes. On April 26, 2013, the Company completed a transaction to refinance its non-extended term loans that were to mature in June 2014. On February 20, 2013, the Company completed certain refinancing transactions with respect to its revolving credit facility dated as of April 4, 2007. On July 24, 2012, the Company completed certain refinancing transactions with respect to its credit agreement dated as of April 4, 2007, as amended on May 10, 2012. See Note 1112 to the accompanying consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

NCP Solutions Acquisition

On May 31, 2013, the Company acquired 100% of the equity of NCP Solutions, LLC ("NCP Solutions") for $35.52 million, net of cash acquired of $0.3 million, and after giving effect to working capital adjustments of $0.5 million (the "NCP Solutions Acquisition"). NCP Solutions is a leading end-to-end communications solutions provider to consumer finance companies, banks, mortgage lenders, mortgage subservicers, credit unions, auto and equipment finance companies, auto service contract providers, direct marketing companies, healthcare and health insurance companies, check producers and various other customers. The NCP Solutions business is included in the Harland Clarke segment for financial reporting purposes.

~~The~~ Faneuil ~~Acquisition~~

On March 19, 2012, the Company entered into a Stock Purchase Agreement pursuant to which the Company purchased 100% of the issued and outstanding shares of capital stock of New Faneuil, Inc. ("New Faneuil") for $70.0 million in cash (the "Faneuil Acquisition") from affiliates of MacAndrews. The Company financed the Faneuil Acquisition with Harland Clarke Holdings' cash on hand. New Faneuil, through its wholly owned subsidiary, Faneuil, provides business process outsourcing services including call center operations, back office operations, staffing services and toll collection services to ~~government~~governmental and regulated commercial clients across the United States. On October 18, 2013, the Company completed the sale of Faneuil (see Note 19 to the accompanying consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).

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~~continues ~~declined~~to ~~and~~decline, isalthough ~~expected~~at toa ~~continue~~slower rate of decline in the past two years compared to the decline experienced during the height of the financial crisis. Harland Clarke ~~believes~~maintains that 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 years, Harland Clarke has 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 and other recently filed reports on Form 10-K and Form 10-‑Q. Harland Clarke believes these higher rates of decline are attributable at least in part to changing business strategies of certain of our financial institution clients and an increase in the use of alternative non-cash payments in addition to other factors. Harland Clarke is unable to determine the extent to which other factors such as economic and financial market difficulties, the depth and length of the economic downturn, higher unemployment, decreased openings of checking accounts and decreased consumer spending have also contributed to the higher rates of decline. Beginning in 2011, this trend of higher check unit declines improved slightly from that experienced in recent years; however, Harland Clarke is unable to determine at this time if this improvement to the trend will continue. Harland Clarke still expects that check unit volume will continue to decline, 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 as and when overall economic conditions improve. Harland Clarke is focused on growing its non-check related products and services, optimizing its existing catalog of offerings and developing or acquiring new or expanded offerings, in each case 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. Donnelley & 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.27

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

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~~negative~~length ~~growth~~ of, orthe ~~downturns~~economic indownturn, higher unemployment, decreased openings of checking accounts and decreased consumer spending have also contributed to the ~~United~~higher ~~States~~rates ~~economy~~of decline. ~~Business~~As ~~confidence~~mentioned, ~~affects~~beginning ain ~~portion~~2011, this trend of higher check unit declines improved slightly from that experienced in recent years and continues to the present. However, Harland Clarke ~~segment.~~is Inunable ~~addition,~~to determine at this time if this improvement to the trend will continue. Harland Clarke's ~~financial~~still ~~institution~~expects ~~customers~~that ~~fail~~check orunit ~~merge~~volume ~~with~~will ~~other~~continue ~~financial~~to ~~institutions~~decline, ~~Harland~~resulting ~~Clarke~~in ~~may~~a ~~lose~~corresponding ~~any~~decrease orin ~~all~~check ~~revenue~~revenues ~~from~~and ~~such~~depending ~~financial~~on ~~institutions~~the nature and~~/or~~ ~~experience~~relative ~~further~~magnitude ~~pricing~~of ~~pressure~~the causes for the decreases, ~~which~~such ~~would~~decreases ~~negatively~~may ~~affect~~not ~~Harland~~be ~~Clarke's~~mitigated ~~operating~~as ~~results~~and when overall economic conditions improve.

Harland ~~Financial~~Clarke ~~Solutions~~continues managing its costs, overhead and facilities to reflect the decline in check unit volumes. However, the business anticipates that in the future, it will not be able to mitigate the revenue declines from declining check unit volumes through cost management, which could negatively affect Harland Clarke's margins. Therefore, Harland Clarke remains focused on growing its non-check related products and services, optimizing its existing catalog of offerings and developing or acquiring new or expanded offerings, in each case to better serve its clients. Harland Clarke does not believe that organic growth and revenues from non-check related products and services will fully offset revenue declines from declining check unit volumes.

Harland ~~Financial Solutions~~Clarke's ~~operating~~primary ~~results~~competition ~~are~~comes ~~affected~~from byalternative ~~the~~payment ~~overall~~methods ~~demand~~such ~~for~~as ~~our~~debit ~~products~~cards, ~~software~~credit ~~and~~cards, ~~related services~~ACH, ~~which~~and isother ~~based~~electronic ~~upon~~and ~~the~~online ~~technology~~payment ~~budgets of our clients and prospects~~options. ~~Economic~~Harland ~~downturns~~Clarke inalso ~~one~~competes orwith ~~more~~large ofproviders ~~the~~that ~~countries~~offer ina ~~which~~wide wevariety doof ~~business~~products and ~~enhanced~~services ~~regulatory burdens,~~ including ~~through~~Deluxe ~~increased~~Corporation, ~~fees~~Harte-Hanks, ~~and~~Inc., ~~assessments charged to financial institutions by the Federal Deposit Insurance Corporation~~ and ~~National~~R.R. ~~Credit~~Donnelley & ~~Union~~Sons ~~Association~~Company. orThere ~~due~~are toalso ~~federal~~many ~~legislation~~other ~~for~~competitors ~~additional~~that ~~taxes~~specialize ~~on certain financial institutions, could result~~ in ~~reductions~~providing inone ~~the~~or ~~information~~more ~~technology budgets for some portion~~ of ~~our~~the ~~clients~~products and ~~potentially~~services ~~longer lead-times for acquiring~~ Harland ~~Financial~~Clarke ~~Solutions~~offers ~~products~~to ~~and~~its ~~services~~clients. ~~In addition, if~~ Harland ~~Financial~~Clarke ~~Solutions'~~competes ~~financial~~on ~~institution~~the ~~customers~~basis ~~fail~~of orservice, ~~merge~~convenience, ~~with~~quality, ~~other~~product ~~financial institutions~~range, ~~Harland~~price ~~Financial Solutions may lose any or all revenue from such financial institutions~~ and~~/or~~ ~~experience~~the ~~further~~value ~~pricing~~its ~~pressure,~~solutions ~~which~~deliver ~~would~~to ~~negatively affect Harland Financial Solutions' operating results~~clients.

The Harland ~~Financial~~Clarke ~~Solutions~~segment's ~~business~~operating isresults are also affected by ~~technological~~consumer ~~change,~~confidence ~~evolving~~and ~~industry~~employment. ~~standards~~Consumer confidence directly correlates with consumer spending, ~~regulatory~~while ~~changes~~employment inalso ~~client~~affects ~~requirements~~revenues ~~and~~through ~~frequent~~the number of new ~~product~~checking ~~introductions~~accounts ~~and~~being ~~enhancements~~opened. The ~~business~~Harland Clarke segment's operating results may be negatively affected by slow or negative growth of, ~~providing~~or ~~technological~~downturns ~~solutions~~in, tothe United States economy. Business confidence affects a portion of the Harland Clarke segment. In addition, if Harland Clarke's financial ~~institutions~~institution ~~and~~customers fail or merge with other ~~enterprises~~financial ~~requires~~institutions, ~~that~~Harland weClarke ~~continually~~may ~~improve~~lose ~~our~~any ~~existing~~or ~~products~~all ~~and~~revenue ~~create~~from ~~new~~such ~~products~~financial ~~while~~institutions atand/or ~~the~~experience ~~same~~further ~~time~~pricing ~~controlling~~pressure, ~~our~~which ~~costs~~would tonegatively ~~remain~~affect ~~price~~Harland ~~competitive~~Clarke's operating results.

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., 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 Oracle Financial Services. 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~~online 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 effect on Scantron's operating results. Scantron's recent exit from certain product lines in the education market may also have an adverse effect on its ongoing business and business prospects. Scantron is subject to federal and state educational budget allotments. In the current economic and political landscapes, these budget allotments may come under pressure and could be reduced, thus affecting customer willingness to invest in Scantron products.

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.

Scantron must successfully develop new products and solutions to respond to the significant changes in the educational testing and data collection industry due to customer requirements, technological and regulatory changes. Scantron must continue to keep pace with changes in testing and data collection technology and the needs of its clients. The development of new education-related technologies depends on the timing and costs of the development effort, product performance, functionality, customer acceptance, adoption rates and competition, all of which could have a negative effect on our business. If Scantron is not able to adopt new electronic data collection and other education technology-related solutions at a rate that keeps pace with other technological advances, or in a manner that results in meaningful customer adoption, the business, business prospects, results of operations and financial condition of Scantron could be materially and adversely affected. In addition, Scantron has taken actions to and may from time to time, depending on the foregoing and other factors, determine to limit investment in, restrict marketing efforts for or discontinue certain of its products which are not part of Scantron's evolving ~~strategic plans.~~

2728

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~~Scantron~~strategic enters into contracts with customers that provide for multiple products and services or "elements," such as software, implementation, configuration, training and maintenance (referred to as "multiple-element contracts")plans. InActions ~~order~~ to ~~recognize~~further ~~revenue~~limit ~~for~~Scantron's ~~each~~product ~~element~~lines ofcould ~~the contract separately as earned, the relevant accounting guidance requires that the Company~~ have ~~"vendor-specific~~other ~~objective~~negative ~~evidence",~~consequences ~~or "VSOE", of fair value of each element. VSOE of fair value of each element is typically based~~ on ~~the~~Scantron's ~~price~~business ~~charged when sold separately. The Company does not yet have sufficient history with sales of products~~ and ~~services~~its ~~associated~~relationships with ~~acquisitions~~customers ~~completed in 2010~~ and ~~2011 to establish VSOE for elements within their contracts~~suppliers. As a result, for such contracts, the entire contract is bundled as a single unit for accounting purposes with revenue being recognized ratably over the initial term of the contract commencing with the delivery of the software or the completion of implementation services if such services are essential to the functionality of the software. This methodology results in substantial deferral of revenue into future periods, while the related costs, with the exception of direct implementation costs, are expensed as incurred rather than deferred. In addition, revenue from contracts that are subject to substantive customer acceptance provisions is deferred until the acceptance provisions have been met. As a result of these factors that cause deferral of significant revenue into future periods for amounts that are billed and collected, the Company recorded operating losses in 2012 and 2013 for the operations associated with the acquisitions completed in 2010 and 2011.

Scantron enters into contracts with customers that provide for multiple products and services or "elements," such as software, implementation, configuration, training and maintenance (referred to as "multiple-element contracts"). In order to recognize revenue for each element of the contract separately as earned, the relevant accounting guidance requires that the Company have "vendor-specific objective evidence", or "VSOE", of fair value of each element. VSOE of fair value of each element is typically based on the price charged when sold separately. The Company does not yet have sufficient history with sales of products and services associated with acquisitions completed in 2010 and 2011 to establish VSOE for elements within their contracts. As a result, for such contracts, the entire contract is bundled as a single unit for accounting purposes with revenue being recognized ratably over the initial term of the contract commencing with the delivery of the software or the completion of implementation services if such services are essential to the functionality of the software. This methodology results in substantial deferral of revenue into future periods, while the related costs, with the exception of direct implementation costs, are expensed as incurred rather than deferred. In addition, revenue from contracts that are subject to substantive customer acceptance provisions is deferred until the acceptance provisions have been met.

See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 for additional information regarding revenue recognition policies.

Faneuil

The Faneuil segment provides outsourcing solutions and information technology solutions to customers throughout the United States.

Faneuil is an outsourcer for government services and highly regulated industries with a focus on industries that remain robust under normal economic conditions, e.g., transportation, utilities, state agencies, municipal governments and healthcare. During economic downturns, the ability of both private and governmental entities to make expenditures may decline. Faneuil cannot be certain that economic or political conditions will be generally favorable or that there will not be significant fluctuations which adversely affect Faneuil's industry as a whole or key markets targeted by Faneuil. As Faneuil's operations are, in part, dependent upon government funding, significant decreases in the level of government funding could have an unfavorable effect on Faneuil's operating results.

Faneuil's business is subject to a variety of program related risks, including changes in political and other circumstances, particularly since contracts for major programs are performed over extended periods of time. These risks include the failure of applicable governing authorities to take necessary actions, opposition by third parties to specific programs and the failure by customers to obtain adequate financing for particular programs. Due to these factors, losses on a select contract or contracts could occur, and Faneuil could experience significant changes in operating results.

Faneuil's primary competition comes from other large providers of toll services such as Affiliated Computer Services, Inc. ("ACS") and TransCore, Inc., and providers of customer contact center services such as ACS and Convergys Corporation. If Faneuil cannot compete effectively, it will negatively affect its operating results. To remain competitive, Faneuil must continuously implement new technologies, expand its portfolio of outsourced services and may have to make occasional strategic adjustments to its pricing for its services.

Faneuil's operations are positively affected by the growing trend in government agencies to outsource their internal operations to address shrinking budgets and eliminate the historically higher costs associated with staffing government programs. Tolling operations are expected to increase across the country in an effort to provide new funding for government agencies realizing budgetary cutbacks as a result of the prevailing economic climate. Similarly, governments and other highly regulated businesses are seeking economic efficiencies by outsourcing their customer contact centers. While Faneuil will look to take advantage of these opportunities, some of these opportunities require performance bonds, and there can be no assurance that bonds will be available on reasonable terms.

Faneuil's HTS business is a nationwide information technology solutions and services provider offering installation, implementation, maintenance and repair, managed services and managed print services for computers, networks, printers, Scantron's data collection devices and a variety of other technology equipment. HTS provides these services to customers of all sizes nationwide in a variety of industries, e.g., banking, education, government, commercial businesses and healthcare. HTS competes with other hardware manufacturers that have a significant market-share in a highly fragmented environment. Falling technology prices and better hardware reliability pose a threat to the business, and HTS has expanded its focus to increase its sales of managed services solutions in response to these market trends.

~~Restructuring~~See Note 19 to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information regarding the divestiture of certain Faneuil businesses on October 18, 2013. Faneuil's HTS business was

~~The~~ Company 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 29

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~~initiatives~~excluded ~~and~~from ~~have~~the ~~included~~divestiture ~~manufacturing plant closures, contact center closures~~ and ~~workforce~~was ~~rationalization.~~transferred ~~The Company anticipates future restructuring actions, where appropriate,~~ to ~~realize process efficiencies, to continue to align its cost structure with business needs~~ and ~~remain~~became ~~competitive~~part inof the ~~marketplace.~~operations ~~The Company expects to incur severance~~ and ~~severance-related~~results ~~costs,~~of ~~facilities~~Scantron ~~closures~~from ~~costs~~ and ~~other~~after ~~costs~~October ~~such as inventory write-offs~~18, ~~training, hiring and travel in connection with future restructuring actions~~2013.

Restructuring

The Company 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. The Company anticipates future restructuring actions, where appropriate, to realize process efficiencies, to continue to align its cost structure with business needs and remain competitive in the marketplace. The Company 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~~three 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. During the second quarter of 2012, the Company transferred certain product and service lines from the Scantron segment to other segments. toSpecifically, ~~better~~Scantron ~~align~~transferred ~~complementary~~the ~~products and services. The~~ HTS and MDT businesses ~~were transferred~~ to the Faneuil segment and the Survey Services business ~~was transferred~~ to the Harland Clarke segment. Prior period results in the tables below have been reclassified to reflect these business segment changes. The results for the Harland Financial Solutions segment are reported as discontinued operations (see Note 1 and Note 4 to the accompanying consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q) for all periods presented.

In the tables below, dollars are in millions.

Three Months Ended ~~June~~September 30, 2013 Compared to Three Months Ended ~~June~~September 30, 2012

The operating results for the three months ended ~~June~~September 30, 2013 and 2012, as reflected in the accompanying consolidated statements of operations and described below, include the operating results of the acquired ~~Faneuil~~NCP Solutions business ~~for~~from ~~the~~May ~~full~~31, ~~period~~2013, ~~since Faneuil and~~ the ~~Company~~date ~~were under common control during each~~ of the ~~periods.~~acquisition, ~~They~~and ~~include~~ the ~~operating~~Faneuil ~~results~~businesses ofthat ~~the~~were ~~acquired~~sold ~~NCP~~on ~~Solutions~~October ~~business from May 31~~18, 2013~~, the date of the acquisition~~. They also include reclassifications related to the business segment changes discussed in the Consolidated Operating Results section above. They do not include operating results for the Harland Financial Solutions segment which are reported as discontinued operations.

Net Revenues:

	Three Months Ended
	June 30,
	September 30,
	2013			2012
Consolidated Net Revenues:
Harland Clarke segment	$	~~287~~303.08		$	~~282~~286.27
Harland Financial Solutions segment	83.1			58.2
Scantron segment	32.1			30.2
Scantron segment	27.2			28.7
Faneuil segment	42.7			41.6
Faneuil segment	40.8			37.4
Eliminations	(0.8		)	(0.6		)
Total	$	~~437~~377.38		$	~~405~~357.9

Net revenues increased by $3119.49 million, or 75.76%, to $~~437~~377.38 million in the 2013 period from $~~405~~357.9 million in the 2012 period.

Net revenues for the Harland Clarke segment increased by $417.81 million, or 16.70%, to $~~287~~303.08 million in the 2013 period from $~~282~~286.27 million in the 2012 period primarily due to the NCP Solutions Acquisition that increased net revenues by $824.0 million, ana $1.3 million increase in ~~revenues~~net ~~per~~benefits ~~unit~~for ~~that~~non-cash ~~increased~~fair ~~net~~value ~~revenues~~acquisition byaccounting adjustments related to the MacAndrews Acquisition, a $40.17 million ~~and an~~ increase in non-check revenues ofand ~~$0.4~~an ~~million~~additional one-half production day in the 2013 period. These increases were partially offset by ~~volume~~a ~~declines,~~decrease ~~net~~in ofrevenues ~~conversions~~per ~~and~~unit ~~client additions and losses,~~ that ~~reduced~~decreased net revenues by $710.50 million and a ~~decrease~~slight involume decline, net ~~benefits~~ of ~~$0.5~~conversions ~~million~~and ~~for~~client ~~non-cash~~losses, ~~fair~~that ~~value~~decreased ~~acquisition~~net ~~accounting~~revenues ~~adjustments~~by ~~related~~$0.7 ~~to the MacAndrews Acquisition~~million. Non-cash fair value acquisition accounting adjustments to deferred revenues and client incentives were a net benefit of $87.39 million in the 2013 period compared to a net benefit of $86.86 million in the 2012 period.

~~Net~~ revenues for the Harland Financial Solutions segment increased by $24.9 million, or 42.8%, to $83.1 million in the 2013 period from $58.2 million in the 2012 period primarily due to a $12.1 million net increase in software license revenues as a result of meeting revenue recognition criteria for certain product lines and organic growth, a $10.8 million decrease in charges from non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition as well as a $1.3 million increase in maintenance revenues and a $1.0 million increase in services revenues, each of which was due to increased implementations of credit management solutions. These increases were partially offset by a $0.6 million decrease in early termination fees. Charges for non-cash fair value acquisition accounting adjustments to deferred revenues were $0.5 million in the 2013 period compared to $11.3 million in the 2012 period.30

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Net revenues for the Scantron segment ~~decreased~~increased by $1.59 million, or 56.23%, to $2732.21 million in the 2013 period from $2830.72 million in the 2012 period primarily due to ~~volume~~a ~~declines~~$4.5 million increase in ~~scanners~~revenues ~~and~~for ~~forms~~online ~~that~~products ~~reduced~~primarily ~~net~~resulting from the recognition of deferred revenues byrelated ~~$2.4~~to ~~million~~contracts ~~and~~that were terminated in the 2013 period due to the discontinuation of certain online products, partially offset by a $02.96 million increase in charges for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition, ~~partially~~and ~~offset~~ by avolume ~~$1.9~~declines ~~million~~in ~~increase~~scanners inand forms that reduced net revenues ~~for~~by ~~the~~$0.3 ~~web-based products~~million. Charges for non-cash fair value acquisition accounting adjustments to deferred revenues were $12.96 million in the 2013 period ~~compared to $1~~.~~0 million in the 2012 period.~~

Net revenues for the Faneuil segment increased by $31.41 million, or 92.16%, to $4042.87 million in the 2013 period from $3741.46 million in the 2012 period primarily due to a $21.47 million increase from new business contracts and a $2.0.4 million decrease in charges for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition, partially offset by a $1.0 million decrease resulting from a contract price decrease. Charges for non-cash fair value acquisition accounting adjustments to deferred revenues were $20.1 million in the 2013 period compared to $0.5 million in the 2012 period.

Elimination of net revenues increased to $0.8 million in the 2013 period from $0.6 million in the 2012 period primarily due to intersegment sales of information technology services from the Scantron segment to the Harland Clarke segment.

Cost of Revenues:

	Three Months Ended
	June 30,
	September 30,
	2013			2012
Consolidated Cost of Revenues:
Harland Clarke segment	$	~~175~~190.69		$	~~184~~180.04
Harland Financial Solutions segment	32.4			30.9
Scantron segment	16.0			16.7
Scantron segment	16.2			18.6
Faneuil segment	32.7			31.2
Faneuil segment	31.1			29.7
Eliminations	(0.8		)	(0.6		)
Total	$	~~254~~238.58		$	~~262~~227.67

Cost of revenues ~~decreased~~increased by $811.1 million, or 34.19%, to $~~254~~238.58 million in the 2013 period from $~~262~~227.67 million in the 2012 period.

Cost of revenues for the Harland Clarke segment ~~decreased~~increased by $810.45 million, or 45.68%, to $~~175~~190.69 million in the 2013 period from $~~184~~180.04 million in the 2012 period primarily due to ~~$7.8~~the ~~million~~NCP ofSolutions ~~cost~~Acquisition ~~reductions~~that ~~resulting~~increased ~~from technology enabled efficiencies and other~~ cost ~~reduction~~of ~~and~~revenues ~~restructuring~~by ~~initiatives, a~~ $419.89 million ~~decrease in non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition~~, a $31.08 million ~~decrease~~increase in ~~variable~~professional ~~expenses~~fees ~~related to volume declines~~ and a $0.98 million ~~decrease~~increase in depreciation and amortization ~~not~~ related to ~~purchase~~investments ~~accounting~~in technology. These ~~decreases~~increases were partially offset by ~~the~~$7.7 ~~NCP~~million ~~Solutions~~of ~~Acquisition~~cost ~~that~~reductions ~~increased~~resulting ~~cost~~from oftechnology ~~revenues~~enabled byefficiencies ~~$6.9~~and ~~million~~other cost reduction and restructuring initiatives and a $14.25 million ~~increase~~decrease in ~~professional~~non-cash ~~fees~~fair value acquisition accounting adjustments related to the MacAndrews Acquisition. Non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition were $98.04 million in the 2013 period, including $98.15 million in depreciation and amortization and a benefit of $0.1 million in other non-cash acquisition accounting adjustments, compared to $1312.89 million in the 2012 period, including $1413.01 million in depreciation and amortization and a benefit of $0.2 million in other non-cash acquisition accounting adjustments. Cost of revenues as a percentage of revenues for the Harland Clarke segment decreased to 6162.28% in the 2013 period from 6562.29% in the 2012 period primarily due to technology enabled efficiencies and other cost reduction and restructuring initiatives and a decrease in non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition.

Cost of revenues for the ~~Harland~~Scantron ~~Financial Solutions~~ segment ~~increased~~decreased by $10.57 million, or 4.92%, to $3216.40 million in the 2013 period from $3016.97 million in the 2012 period primarily due to a decrease of $01.7 million ~~increase~~ resulting from ~~revenue~~volume ~~growth,~~declines and cost reduction and restructuring initiatives and a $01.56 million increase in ~~labor~~net ~~expense~~benefits ~~due~~for non-cash fair value acquisition accounting adjustments related to ~~increased~~the ~~headcount~~MacAndrews ~~and~~Acquisition, partially offset by a $02.3 million increase resulting from lower cost deferrals in ~~internal~~the ~~software~~2013 ~~expense~~period related to implementation services for revenues that have not yet been recognized and from recognition of deferred costs related to contracts that were terminated in the 2013 period due to the discontinuation of certain online products. Net ~~charges~~benefits for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition were $16.78 million in the 2013 period, including a $25.15 million benefit in depreciation and amortization and a $01.43 million benefit in other non-cash acquisition accounting adjustments, compared to a net benefit of $15.92 million in the 2012 period, ~~including~~all ~~$2.5 million~~ in depreciation and amortization ~~and a $0~~.6 ~~million benefit in other non-cash adjustments.~~ Cost of revenues as a percentage of revenues for the ~~Harland~~Scantron ~~Financial Solutions~~ segment decreased to 3949.08% in the 2013 period from 5355.13% in the 2012 period primarily due to ~~increased~~cost ~~revenues~~reduction and restructuring initiatives and an increase in ~~the~~net ~~2013~~benefits ~~period~~for asnon-cash ~~discussed~~fair ~~above~~value acquisition accounting adjustments.

3031

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Cost of revenues for the ~~Scantron~~Faneuil segment ~~decreased~~increased by $21.45 million, or 124.98%, to $1632.27 million in the 2013 period from $1831.62 million in the 2012 period primarily due to aan ~~decrease of $3.7 million resulting from volume declines and cost reduction and restructuring initiatives, partially offset by a $1.0 million~~ increase ~~resulting from lower cost deferrals~~ in ~~the~~implementation ~~2013~~costs ~~period~~ related to ~~implementation~~new ~~services~~contracts ~~for revenues that have not yet been recognized~~ and aoperational ~~$0.4~~costs ~~million~~associated ~~decrease~~with innew ~~net benefits for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition~~business. Net benefits for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition were $50.73 million in the 2013 ~~period, including a $5.2 million benefit in depreciation~~ and ~~amortization and a $0.5 million benefit in other non-cash adjustments, compared to $6.1 million in the~~ 2012 ~~period~~periods, ~~including~~all aof ~~$5.7~~which ~~million~~was ~~benefit~~ in depreciation and amortization ~~and a $0~~.~~4 million benefit in other non-cash adjustments.~~ Cost of revenues as a percentage of revenues for the ~~Scantron~~Faneuil segment ~~decreased~~increased to 5976.6% in the 2013 period from 6475.80% in the 2012 period ~~primarily~~ due to ~~cost~~the ~~reduction~~change ~~and~~in ~~restructuring~~business ~~initiatives~~mix.

Cost of revenues for the Faneuil segment increased by $1.4 million, or 4.7%, to $31.1 million in the 2013 period from $29.7 million in the 2012 period primarily due to a $0.8 million decrease in net benefits for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition and a $0.6 million increase in implementation costs related to new contracts and operational costs associated with the new business. Net benefits for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition were $0.2 million in the 2013 period, all of which was in depreciation and amortization, compared to $1.0 million in the 2012 period, including a $1.3 million benefit in depreciation and amortization and a $0.3 million charge in other non-cash adjustments. Cost of revenues as a percentage of revenues for the Faneuil segment decreased to 76.2% in the 2013 period from 79.4% in the 2012 period due to the change in business mix.

Elimination of cost of revenues increased to $0.8 million in the 2013 period from $0.6 million in the 2012 period primarily due to intersegment sales of information technology services from the Scantron segment to the Harland Clarke segment.

Selling, General and Administrative Expenses:

	Three Months Ended
	June 30,
	September 30,
	2013		2012
Consolidated Selling, General and Administrative Expenses:
Harland Clarke segment	$	4448.35	$	4643.41
Harland Financial Solutions segment	28.1		25.9
Scantron segment	12.2		15.0
Scantron segment	13.4		18.9
Faneuil segment	4.9		5.5
Faneuil segment	5.1		5.7
Corporate	7.2		4.6
Corporate	6.4		4.6
Total	$	72.8	$	68.2
Total	$	97.3	$	101.5

Selling, general and administrative expenses ~~decreased~~increased by $4.26 million, or 46.17%, to $9772.38 million in the 2013 period from $~~101~~68.52 million in the 2012 period.

Selling, general and administrative expenses for the Harland Clarke segment ~~decreased~~increased by $25.14 million, or 412.5%, to $4448.35 million in the 2013 period from $4643.41 million in the 2012 period primarily due to a $2.78 million ~~decrease~~accrual ~~resulting~~for ~~from~~legal ~~cost~~matters, ~~reduction~~the ~~and~~NCP ~~restructuring~~Solutions ~~initiatives~~Acquisition ~~consisting~~that ~~largely~~increased ofselling, ~~labor~~general ~~expense~~and ~~reductions~~administrative ~~and~~expenses by $2.7 million, a $1.42 million ~~decrease~~increase in ~~advertising~~general overhead expenses, ~~partially~~and ~~offset~~a by$0.4 ~~the~~million ~~NCP~~increase ~~Solutions~~in ~~Acquisition~~advertising ~~that increased selling~~expenses, ~~general~~partially ~~and~~offset ~~administrative expenses~~ by ~~$0.8 million,~~ a $01.5 million ~~increase~~decrease in ~~equipment~~depreciation ~~lease~~ and ~~maintenance~~amortization ~~expenses,~~not related to acquisition accounting and a $0.42 million ~~decrease~~increase in net benefits for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition ~~and a $0~~.2 ~~million increase in travel expenses.~~ Non-cash fair value acquisition accounting adjustments related to the MacAndrews acquisition were a net benefit of $0.32 million for the 2013 period, all of which was in depreciation and amortization, compared to ~~a net benefit of~~ $0.70 million in the 2012 period, including a $10.26 million ~~benefit~~charge infor ~~other~~depreciation ~~non-cash~~and ~~adjustments~~amortization and a $0.56 million ~~increase~~benefit in ~~depreciation~~other ~~and~~non-cash ~~amortization~~acquisition accounting adjustments. Selling, general and administrative expenses as a percentage of revenues for the Harland Clarke segment ~~decreased~~increased to 1516.40% in the 2013 period from 1615.40% in the 2012 period primarily due to ~~cost~~increased ~~reduction and restructuring initiatives~~expenses.

Selling, 31general and administrative expenses for the Scantron segment decreased $2.8 million, or 18.7%, to $12.2 million in the 2013 period from $15.0 million in the 2012 period primarily due to a decrease of $4.7 million resulting from cost reduction and restructuring initiatives, a $0.3 million decrease in costs related to projects to increase efficiencies and a $0.3 million decrease in charges for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition, partially offset by an increase of $2.2 million due to higher depreciation unrelated to acquisition accounting, a decrease in capitalization of software development costs and a decrease in cost deferrals related to implementation services for revenues that have not yet been recognized. Charges for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition were $0.1 million for the 2013 period, including $0.2 million in depreciation and amortization and a $0.1 million benefit in other non-cash acquisition accounting adjustments, compared to $0.4 million in the 2012 period, all in depreciation and amortization. Selling, general and administrative expenses as a percentage of revenues for the Scantron segment decreased to 38.0% in the 2013 period from 49.7% in the 2012 period primarily due to cost reduction and restructuring initiatives.

Selling, general and administrative expenses for the Faneuil segment decreased by $0.6 million, or 10.9%, to $4.9 million in the 2013 period from $5.5 million in the 2012 period primarily due to cost reductions of $0.9 million, partially offset by a $0.3 million increase in operational costs associated with new business. Selling, general and administrative expenses as a percentage of revenues for the Faneuil segment decreased to 11.5% in the 2013 period from 13.2% in the 2012 period primarily due to cost reductions and a change in business mix.

Corporate selling, general and administrative expenses increased by $2.6 million, or 56.5%, to $7.2 million in the 2013 period from $4.6 million in the 2012 period primarily due to an increase in corporate development activities.

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Harland Clarke Holdings Corp. and Subsidiaries

~~Selling,~~Asset ~~general~~Impairment and administrative expenses for the Harland Financial Solutions segment increased by $2.2 million, or 8.5%, to $28.1 million in the 2013 period from $25.9 million in the 2012 period primarily due to a $1.0 million increase in commission expense resulting from revenue growth, a $0.5 million decrease in net benefits for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition, a $0.5 million increase in travel expense, a $0.5 million increase in depreciation and amortization unrelated to purchase accounting and a $0.4 million increase in labor expense due to increased headcount. These increases were partially offset by a $0.7 million decrease resulting from an increase in capitalization of software development costs. Net benefits for non-cash fair value acquisition adjustments related to the MacAndrews Acquisition were $0.8 million in the 2013 period, all of which was in other non-cash adjustments, compared to $1.3 million in the 2012 period, including a $1.6 million benefit in other non-cash adjustments and a $0.3 million increase in depreciation and amortization. Selling, general and administrative expenses as a percentage of revenues for the Harland Financial Solutions segment decreased to 33.8% in the 2013 period from 44.5% in the 2012 period primarily due to increased revenues in the 2013 period as discussed above.Charges

~~Selling,~~During ~~general and administrative expenses for~~ the ~~Scantron segment decreased $5.5 million, or 29.1%, to $13.4 million in the~~ 2013 period, ~~from $18.9 million in~~ the ~~2012~~Company ~~period~~recorded ~~primarily~~non-cash ~~due~~impairment tocharges ~~a decrease~~ of $60.52 million ~~resulting~~for ~~from~~the ~~cost~~Scantron ~~reduction~~segment ~~and restructuring initiatives and a $1.0 million decrease in costs~~ related to ~~projects~~assets tothat ~~increase~~were ~~efficiencies,~~determined ~~partially~~to ~~offset~~have byno anfuture ~~increase of $2~~use.1 ~~million~~During ~~primarily~~the ~~due~~2012 ~~to higher depreciation unrelated to purchase accounting~~period, athe ~~decrease~~Company inrecorded ~~capitalization of software development costs and a decrease in cost deferrals related to implementation services for revenues that have not yet been recognized. Non~~non-cash ~~fair~~impairment ~~value~~charges ~~acquisition~~of ~~accounting adjustments related to the MacAndrews Acquisition were~~ $0.35 million infor ~~both~~ the ~~2013~~Faneuil ~~and~~segment ~~2012~~related ~~periods,~~to ~~with~~abandoned ~~each~~leasehold ~~period~~improvements ~~including~~resulting ~~$0.2~~from ~~million~~the inloss ~~depreciation~~of ~~and~~a ~~amortization~~client and a $0.12 million ~~charge in other non-cash adjustments. Selling, general and administrative expenses as a percentage of revenues~~ for the ~~Scantron~~Harland Clarke segment ~~decreased~~related to ~~49.3%~~assets inthat ~~the~~were ~~2013~~determined ~~period from 65.9% in the 2012 period primarily due~~ to ~~cost~~have ~~reduction~~limited ~~and~~future ~~restructuring initiatives~~use.

Selling, general and administrative expenses for the Faneuil segment decreased by $0.6 million, or 10.5%, to $5.1 million in the 2013 period from $5.7 million in the 2012 period primarily due to cost reductions of $0.7 million, partially offset by a $0.1 million increase in operational costs associated with new business. Selling, general and administrative expenses as a percentage of revenues for the Faneuil segment decreased to 12.5% in the 2013 period from 15.2% in the 2012 period primarily due to cost reductions and a change in business mix.

Corporate selling, general and administrative expenses increased by $1.8 million, or 39.1%, to $6.4 million in the 2013 period from $4.6 million in the 2012 period primarily due to corporate development activities.

Restructuring Costs

The Company has adopted plans to strengthen operating margins and leverage incremental synergies within the printing plants, contact centers and selling, general and administrative areas by relying on the Company's shared services capabilities and reorganizing certain operations and sales and support functions. During the first quarter of 2013, the Company adopted a plan in the Scantron segment to exit certain product lines in the education market, which resulted in the closure of leased facilities and the elimination of operations and selling, general and administrative expenses associated with those product lines.

In the 2013 period, the Company recorded restructuring costs of $31.9 million for the Harland Clarke segment and a benefit of $20.83 million for the Scantron segment related to these plans. In the 2012 period, the Company recorded restructuring costs of ~~$2.0~~ ~~million for the Harland Clarke segment,~~ $06.4 million for the Harland ~~Financial~~Clarke ~~Solutions~~ segment, $13.27 million for the Scantron segment and $0.1.5 million for the Faneuil segment related to these plans.

Interest Expense

Interest expense was $5553.85 million in the 2013 period compared to $5156.23 million in the 2012 period. The ~~increase~~decrease in interest expense was primarily due to ~~the refinancing of a portion of outstanding debt at higher interest rates and an increase in amortization of deferred financing fees and issuance discounts, partially offset by~~ fair value acquisition accounting adjustments to the principal amount of debt outstanding at the time of the MacAndrews Acquisition that resulted in an $1113.03 million decrease in non-cash interest expense, partially offset by the refinancing of a portion of outstanding debt at higher interest rates and an increase in amortization of deferred financing fees and issuance discounts. In addition, other fair value acquisition accounting adjustments to deferred financing costs and interest rate swaps resulted in a $14.62 million ~~decrease~~increase in non-cash interest expense.

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Harland Clarke Holdings Corp. and Subsidiaries

Loss on Early Extinguishment of Debt

The non-cash loss on early extinguishment of debt of $6134.02 million in the ~~2013~~2012 period, which was attributable to refinancing transactions, resulted from the write-off of unamortized acquisition accounting-related fair value discount related to the MacAndrews Acquisition (see Note 1 to the accompanying consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).

Provision (Benefit) for Income Taxes on Continuing Operations

The Company's effective tax rate on continuing operations was a ~~benefit~~provision of 4030.89% in the 2013 period and a benefit 4039.32% in the 2012 period. The ~~benefit~~provision for the 2013 period is ~~higher~~lower than the statutory rate primarily due to ~~foreign income for which no provision was recorded. The benefit for~~ the ~~2012~~domestic ~~period~~production isactivities ~~higher than the statutory rate primarily due to tax credits not previously recorded and certain foreign income not subject to tax~~deduction.

~~Six~~Nine Months Ended ~~June~~September 30, 2013 Compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2012

The operating results for the ~~six~~nine months ended ~~June~~September 30, 2013 and 2012, as reflected in the accompanying consolidated statements of operations and described below, include the operating results of the acquired Faneuil business for the full period since Faneuil and the Company were under common control during each of the periods. They include the operating results of the acquired NCP Solutions business from May 31, 2013, the date of the acquisition, and the Faneuil businesses that were sold on October 18, 2013. They also include reclassifications related to the business segment changes discussed in the Consolidated Operating Results section above. They do not include operating results for the Harland Financial Solutions segment which are reported as discontinued operations.

Net Revenues:

	Six Months Ended
	June 30,
	2013			2012
Consolidated Net Revenues:
Harland Clarke segment	$	570.9		$	579.7
Harland Financial Solutions segment	160.0			108.5
Scantron segment	57.1			58.8
Faneuil segment	80.2			73.8
Eliminations	(1.4		)	(1.1		)
Total	$	866.8		$	819.7

Net revenues increased by $47.1 million, or 5.7%, to $866.8 million in the 2013 period from $819.7 million in the 2012 period.

Net revenues for the Harland Clarke segment decreased by $8.8 million, or 1.5%, to $570.9 million in the 2013 period from $579.7 million in the 2012 period primarily due to volume declines, net of conversions and client additions and losses, that reduced net revenues by $15.7 million, one less production day in the 2013 period and a $0.3 million decrease in net benefits for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition, partially offset by the NCP Solutions Acquisition that increased net revenues by $8.0 million, an increase in revenues per unit that increased net revenues by $1.8 million and an increase in non-check revenues of $0.9 million. Non-cash fair value acquisition adjustments to deferred revenues and client incentives were a net benefit of $16.5 million in the 2013 period compared to a net benefit of $16.8 million in the 2012 period.

Net revenues for the Harland Financial Solutions segment increased by $51.5 million, or 47.5%, to $160.0 million in the 2013 period from $108.5 million in the 2012 period primarily due to a $29.5 million decrease in charges from non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition, an $18.0 million net increase in software license revenues as a result of meeting revenue recognition criteria for certain product lines and organic growth as well as a $2.0 million increase in maintenance revenues and a $2.0 million increase in services revenues, each of which was due to increased implementations of credit management solutions. Charges for non-cash fair value acquisition accounting adjustments to deferred revenues related to the MacAndrews Acquisition were $1.2 million in the 2013 period compared to $30.7 million in the 2012 period.

Net revenues for the Scantron segment decreased by $1.7 million, or 2.9%, to $57.1 million in the 2013 period from $58.8 million in the 2012 period primarily due to volume declines in scanners and forms that reduced net revenues by $4.5 million, partially offset by a $1.0 million increase in net revenues for web-based products and a $2.1 million decrease in charges for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition. Charges for non-cash fair value acquisition accounting adjustments to deferred revenues were $3.4 million in the 2013 period compared to $5.5 million in the 2012 period.

Table of Contents

Harland Clarke Holdings Corp. and Subsidiaries

Net revenues for the Faneuil segment increased by $6.4 million, or 8.7%, to $80.2 million in the 2013 period from $73.8 million in the 2012 period primarily due to a $4.4 million increase from new business contracts and a $4.1 million decrease in charges for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition, partially offset by a $2.1 million decrease resulting from a contract price decrease. Charges for non-cash fair value acquisition accounting adjustments to deferred revenues were $0.1 million in the 2013 period compared to $4.2 million in the 2012 period.Revenues:

Elimination of net revenues increased to $1.4 million in the 2013 period from $1.1 million in the 2012 period primarily due to intersegment sales of information technology services from the Scantron segment to the Harland Clarke segment.



	Nine Months Ended
	September 30,
	2013			2012
Consolidated Net Revenues:
Harland Clarke segment	$	874.7		$	866.4
Scantron segment	89.2			89.0
Faneuil segment	122.9			115.4
Eliminations	(2.2		)	(1.7		)
Total	$	1,084.6		$	1,069.1

	Six Months Ended
	June 30,
	2013			2012
Consolidated Cost of Revenues:
Harland Clarke segment	$	346.6		$	388.4
Harland Financial Solutions segment	63.8			61.7
Scantron segment	33.2			38.4
Faneuil segment	62.4			59.3
Eliminations	(1.4		)	(1.1		)
Total	$	504.6		$	546.7

Net revenues increased by $15.5 million, or 1.4%, to $1,084.6 million in the 2013 period from $1,069.1 million in the 2012 period.

~~Cost~~Net of revenues ~~decreased~~for the Harland Clarke segment increased by $428.13 million, or 71.70%, to $~~504~~874.67 million in the 2013 period from $~~546~~866.74 million in the 2012 period primarily due to the NCP Solutions Acquisition that increased net revenues by $32.0 million, a $1.6 million increase in non-check revenues and a $1.0 million increase in net benefits for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition, partially offset by volume declines, net of conversions and client additions and losses, that reduced net revenues by $16.4 million and a decrease in revenues per unit that decreased net revenues by $8.2 million. Non-cash fair value acquisition accounting adjustments to deferred revenues and client incentives were a net benefit of $24.4 million in the 2013 period compared to a net benefit of $23.4 million in the 2012 period.

~~Cost~~Net of revenues for the ~~Harland~~Scantron ~~Clarke~~ segment ~~decreased~~increased by $410.82 million, or 100.82%, to $~~346~~89.62 million in the 2013 period from $~~388~~89.40 million in the 2012 period primarily due to a ~~decrease in non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition of~~ $225.5 million, ~~including~~increase ~~decreases~~ in ~~inventory~~revenues ~~adjustments~~for ofonline ~~$12.7~~products ~~million~~primarily ~~and~~resulting ~~depreciation~~from ~~and~~the ~~amortization~~recognition of ~~$9.8~~deferred ~~million.~~revenues ~~The~~related ~~decrease was also due~~ to ~~$18.5~~contracts ~~million~~that ofwere ~~cost~~terminated ~~reductions~~in ~~resulting~~the ~~from~~2013 ~~technology~~period ~~enabled~~due ~~efficiencies~~to ~~and~~the ~~other~~discontinuation ~~cost~~of ~~reduction~~certain ~~and~~online ~~restructuring initiatives~~products, apartially ~~$7.2~~offset ~~million~~by ~~decrease in variable expenses related to~~ volume declines ~~and a $1.3 million decrease~~ in ~~depreciation~~scanners and ~~amortization~~forms ~~not related to acquisition accounting. These decreases were partially offset by the NCP Solutions Acquisition~~ that ~~increased~~reduced ~~cost~~net of revenues by $64.98 million and a $20.45 million increase in ~~professional~~charges ~~fees.~~for ~~Non~~non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition ~~were $18~~.5 ~~million~~Charges infor ~~the~~non-cash ~~2013~~fair ~~period,~~value ~~including~~acquisition ~~$18.7~~accounting ~~million~~adjustments into ~~depreciation~~deferred ~~and~~revenues ~~amortization~~were ~~and a~~ $06.~~2 million benefit in other non-cash adjustments, compared to $41.~~0 million in the ~~2012~~2013 period, ~~including~~compared ~~$28.5~~to ~~million in depreciation and amortization and~~ $125.5 million in ~~other non-cash adjustments. Cost of revenues as a percentage of revenues for~~ the ~~Harland Clarke segment decreased to 60.7% in the 2013 period from 67.0% in the~~ 2012 period primarily due to technology enabled efficiencies and other cost reduction and restructuring initiatives and a decrease in non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition.

~~Cost~~Net of revenues for the ~~Harland~~Faneuil ~~Financial Solutions~~ segment increased by $27.15 million, or 36.45%, to $63122.89 million in the 2013 period from $61115.74 million in the 2012 period primarily due to a $16.01 million increase ~~resulting~~ from ~~revenue~~new ~~growth,~~business acontracts ~~$0.6 million increase in labor expense due to increased headcount~~ and a $04.5 million ~~increase~~decrease in ~~internal software expense. Net~~ charges for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition ~~were $3.5 million in the 2013 period~~, ~~including~~partially ~~$4.3~~offset ~~million~~by ~~in depreciation and amortization and~~ a $~~0.8 million benefit in other non-cash adjustments, compared to $~~3.31 million indecrease ~~the~~resulting ~~2012~~from ~~period,~~a ~~including~~contract ~~$4.9~~price ~~million in depreciation and amortization and a $1~~decrease.6 ~~million~~Charges ~~benefit~~for ~~in other~~ non-cash ~~adjustments.~~fair ~~Cost~~value ofacquisition ~~revenues~~accounting asadjustments ato ~~percentage~~deferred of revenues ~~for~~were ~~the Harland Financial Solutions segment decreased to 39~~$0.9%2 million in the 2013 period ~~from~~compared ~~56.9% in the 2012 period primarily due~~ to ~~increased~~$4.7 ~~revenues~~million in the ~~2013~~2012 period ~~as discussed above~~.

~~Cost~~Elimination of net revenues ~~for~~increased ~~the~~to ~~Scantron segment decreased by~~ $5.2 ~~million, or 13~~.~~5%, to $33.~~2 million in the 2013 period from $381.47 million in the 2012 period primarily due to aintersegment ~~decrease~~sales of ~~$5.7~~information ~~million~~technology ~~resulting~~services from ~~volume declines and cost reduction and restructuring initiatives and a $0.6 million increase in net benefits for non-cash fair value acquisition accounting adjustments related to~~ the MacAndrews Acquisition, partially offset by a $1.4 million increase resulting from lower cost deferrals in the 2013 period related to implementation services for revenues that have not yet been recognized. Net benefits for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition were $11.8 million in the 2013 period, including a $10.9 million benefit in depreciation and amortization and a benefit of $0.9 million in other non-cash adjustments, compared to $11.2 million in the 2012 period, including an $11.3 million benefit in depreciation and amortization and a $0.1 million charge in other non-cash adjustments. Cost of revenues as a percentage of revenues for the Scantron segment ~~decreased~~ to ~~58.1% in~~ the ~~2013~~Harland ~~period~~Clarke ~~from 65~~segment.~~3% in the 2012 period primarily due to cost reduction and restructuring initiatives.~~

Cost of Revenues:



	Nine Months Ended
	September 30,
	2013			2012
Consolidated Cost of Revenues:
Harland Clarke segment	$	537.5		$	568.8
Scantron segment	49.2			55.1
Faneuil segment	95.1			90.5
Eliminations	(2.2		)	(1.7		)
Total	$	679.6		$	712.7

Cost of revenues decreased by $33.1 million, or 4.6%, to $679.6 million in the 2013 period from $712.7 million in the 2012 period.

Table of Contents

Harland Clarke Holdings Corp. and Subsidiaries

Cost of revenues for the ~~Faneuil~~Harland Clarke segment ~~increased~~decreased by $331.13 million, or 5.25%, to $62537.45 million in the 2013 period from $59568.38 million in the 2012 period primarily due to a $227.30 million ~~increase~~decrease in ~~implementation~~non-cash ~~costs~~fair value acquisition accounting adjustments related to ~~new~~the ~~contracts~~MacAndrews Acquisition, including decreases in depreciation and ~~operational~~amortization ~~costs~~of ~~associated~~$14.4 ~~with~~million ~~the~~and ~~new~~decreases ~~business~~in other non-cash acquisition accounting adjustments of $12.6 million. The decrease was also due to $26.2 million of cost reductions resulting from technology enabled efficiencies and other cost reduction and restructuring initiatives, a $7.2 million decrease in variable expenses related to volume declines and a $0.85 million decrease in ~~net~~depreciation ~~benefits~~and ~~for~~amortization ~~non-cash~~not ~~fair~~related ~~value~~to acquisition accounting. ~~adjustments~~These ~~related~~decreases towere partially offset by the ~~MacAndrews~~NCP Solutions Acquisition that increased cost of revenues by $26.8 ~~Net~~million ~~benefits~~and ~~for~~a ~~non~~$4.2 million increase in professional fees. Non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition were $026.59 million in the 2013 period, ~~all~~including of$27.2 ~~which~~million ~~was~~ in depreciation and amortization and a $0.3 million benefit in other non-cash acquisition accounting adjustments, compared to $153.39 million in the 2012 period, including a $241.06 million ~~benefit~~ in depreciation and amortization and a $012.73 million ~~charge~~ in other non-cash acquisition accounting adjustments. Cost of revenues as a percentage of revenues for the ~~Faneuil~~Harland Clarke segment decreased to 7761.84% in the 2013 period from 8065.47% in the 2012 period primarily due to ~~the~~technology ~~change~~enabled efficiencies and other cost reduction and restructuring initiatives and a decrease in ~~business~~non-cash ~~mix~~fair value acquisition accounting adjustments related to the MacAndrews Acquisition.

~~Elimination~~Cost of ~~cost~~revenues offor ~~revenues~~the ~~increased~~Scantron segment decreased by $5.9 million, or 10.7%, to $149.42 million in the 2013 period from $155.1 million in the 2012 period primarily due to ~~intersegment~~a ~~sales~~decrease of ~~information~~$7.4 ~~technology~~million resulting from volume declines and cost reduction and restructuring initiatives and a $2.2 million increase in net benefits for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition, partially offset by a $3.7 million increase resulting from lower cost deferrals in the 2013 period related to implementation services for revenues that have not yet been recognized and from recognition of deferred costs related to contracts that were terminated in the 2013 period due to the discontinuation of certain online products. Net benefits for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition were $18.6 million in the 2013 period, including a $16.4 million benefit in depreciation and amortization and a benefit of $2.2 million in other non-cash acquisition accounting adjustments, compared to a $16.4 million benefit in the 2012 period, including a $16.5 million decrease in depreciation and amortization and a $0.1 million charge for other non-cash acquisition accounting adjustments. Cost of revenues as a percentage of revenues for the Scantron segment decreased to 55.2% in the ~~Harland~~2013 ~~Clarke~~period ~~segment~~from 61.9% in the 2012 period primarily due to cost reduction and restructuring initiatives and an increase in net benefits for non-cash fair value acquisition accounting adjustments.

	Six Months Ended
	June 30,
	2013		2012
Consolidated Selling, General and Administrative Expenses:
Harland Clarke segment	$	87.9	$	93.4
Harland Financial Solutions segment	54.0		53.7
Scantron segment	28.4		39.6
Faneuil segment	10.5		11.5
Corporate	10.4		8.8
Total	$	191.2	$	207.0

Cost of revenues for the Faneuil segment increased by $4.6 million, or 5.1%, to $95.1 million in the 2013 period from $90.5 million in the 2012 period primarily due to a $3.8 million increase in implementation costs related to new contracts and operational costs associated with the new business and a $0.8 million decrease in net benefits for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition. Net benefits for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition were $0.8 million in the 2013 period, all of which was in depreciation and amortization, compared to $1.6 million in the 2012 period, including a $2.3 million benefit in depreciation and amortization and a $0.7 million charge in other non-cash acquisition accounting adjustments. Cost of revenues as a percentage of revenues for the Faneuil segment decreased to 77.4% in the 2013 period from 78.4% in the 2012 period due to the change in business mix.

~~Selling,~~Elimination ~~general~~of ~~and~~cost ~~administrative~~of ~~expenses~~revenues ~~decreased~~increased byto $152.82 million, orin ~~7.6%,~~the to2013 period from $~~191~~1.27 million in the ~~2013~~2012 period primarily due to intersegment sales of information technology services from ~~$207.0~~the ~~million~~Scantron insegment to the ~~2012~~Harland ~~period~~Clarke segment.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses for the Harland Clarke segment decreased by $5.5 million, or 5.9%, to $87.9 million in the 2013 period from $93.4 million in the 2012 period primarily due to a $5.7 million decrease resulting from cost reduction and restructuring initiatives largely of labor and general overhead expense reductions and a $2.7 million decrease in advertising expenses, partially offset by a $2.1 million decrease in net benefits for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition and the NCP Solutions Acquisition that increased selling, general and administrative expenses by $0.8 million. Non-cash fair value acquisition accounting adjustments related to the MacAndrews acquisition were a net benefit of $0.6 million for the 2013 period, including a $0.4 million benefit in depreciation and amortization and a $0.2 million benefit in other non-cash adjustments, compared to a net benefit of $2.7 million in the 2012 period, including a $3.4 million benefit in other non-cash adjustments and a $0.7 million increase in depreciation and amortization. Selling, general and administrative expenses as a percentage of revenues for the Harland Clarke segment decreased to 15.4% in the 2013 period from 16.1% in the 2012 period primarily due to cost reduction and restructuring initiatives.



	Nine Months Ended
	September 30,
	2013		2012
Consolidated Selling, General and Administrative Expenses:
Harland Clarke segment	$	136.4	$	136.5
Scantron segment	40.6		54.6
Faneuil segment	15.4		17.0
Corporate	17.6		13.4
Total	$	210.0	$	221.5

Selling, general and administrative expenses ~~for~~decreased ~~the Harland Financial Solutions segment increased~~ by $011.35 million, or 05.62%, to $54210.0 million in the 2013 period from $53221.~~7 million in the 2012 period primarily due to a $1.~~5 million ~~increase~~ in commission expense resulting from revenue growth, a $0.9 million increase in depreciation and amortization unrelated to purchase accounting, a $0.4 million decrease in net benefits for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition, a $0.3 million increase in travel expense and a $0.3 million increase in occupancy cost. These increases were partially offset by a $2.1 million decrease resulting from an increase in capitalization of software development costs, a $0.7 million decrease in internal software expense and a $0.3 million decrease in labor expense due to lower benefits expense. Net benefits for non-cash fair value acquisition adjustments related to the MacAndrews Acquisition were $2.0 million in the 2013 period, including a $2.1 million benefit in other non-cash adjustments and a $0.1 million increase in depreciation and amortization, compared to $2.4 million in the 2012 period~~, including a $3~~.0 million benefit in other non-cash adjustments and a $0.6 million increase in depreciation and amortization. Selling, general and administrative expenses as a percentage of revenues for the Harland Financial Solutions segment decreased to 33.8% in the 2013 period from 49.5% in the 2012 period primarily due to increased revenues in the 2013 period as discussed above.

Table of Contents

Harland Clarke Holdings Corp. and Subsidiaries

Selling, general and administrative expenses for the ~~Scantron~~Harland Clarke segment decreased by $110.21 million, or 280.31%, to $28136.4 million in the 2013 period from $39136.65 million in the 2012 period primarily due to a ~~decrease of~~ $124.04 million decrease resulting from cost reduction and restructuring initiatives largely of labor and general overhead expense reductions, a $2.3 million decrease in advertising expenses and a $1.5 million decrease in ~~costs~~depreciation ~~related~~and toamortization ~~projects~~not related to ~~increase~~acquisition ~~efficiencies~~accounting, partially offset by anthe ~~increase~~NCP ofSolutions ~~$3.1~~Acquisition ~~million~~that ~~primarily~~increased ~~due~~selling, togeneral ~~higher~~and ~~depreciation~~administrative ~~unrelated~~expenses toby ~~purchase~~$3.5 ~~accounting~~million, a ~~decrease~~$2.8 inmillion ~~capitalization~~accrual offor ~~software~~legal ~~development~~matters ~~costs~~ and a $1.9 million decrease in ~~cost~~net ~~deferrals~~benefits ~~related~~for tonon-cash ~~implementation~~fair ~~services~~value ~~for~~acquisition ~~revenues~~accounting ~~that~~adjustments ~~have~~related ~~not~~to ~~yet~~the ~~been~~MacAndrews ~~recognized~~Acquisition. ~~Charges for non~~Non-cash fair value acquisition accounting adjustments related to the MacAndrews ~~Acquisition~~acquisition were a net benefit of $0.68 million infor ~~both~~ the 2013 ~~and 2012 periods~~period, ~~with each period~~ including a $0.46 million benefit in depreciation and amortization and a $0.2 million benefit in other non-cash acquisition accounting adjustments, compared to a net benefit of $2.7 million in the 2012 period, including a $4.0 million benefit in other non-cash acquisition accounting adjustments and a $1.3 million increase in depreciation and amortization. Selling, general and administrative expenses as a percentage of revenues for the ~~Scantron~~Harland Clarke segment decreased to 4915.76% in the 2013 period from 6715.38% in the 2012 period primarily due to cost reduction and restructuring initiatives.

Selling, general and administrative expenses for the ~~Faneuil~~Scantron segment decreased by $114.0 million, or 825.76%, to $1040.56 million in the 2013 period from $1154.56 million in the 2012 period primarily due to ~~cost~~a ~~reductions~~decrease of $116.7 million resulting from cost reduction and restructuring initiatives, a $2.4 million decrease in costs related to projects to increase efficiencies, partially offset by an increase of $5.3 million primarily due to higher depreciation unrelated to acquisition accounting, a decrease in capitalization of software development costs and a decrease in cost deferrals related to implementation services for revenues that have not yet been recognized and a $0.43 million ~~increase~~decrease in ~~operational~~charges ~~costs~~for ~~associated~~non-cash ~~with~~fair ~~new~~value ~~business~~acquisition accounting adjustment related to the MacAndrews Acquisition. Charges for non-cash fair value acquisition accounting adjustments related to the MacAndrews Acquisition were $0.7 million in the 2013 period, including $0.6 million in depreciation and amortization and $0.1 million in other non-cash acquisition accounting adjustments, compared to $1.0 million in the 2012 period, including $0.8 million in depreciation and amortization and $0.2 million in other non-cash acquisition accounting adjustments. Selling, general and administrative expenses as a percentage of revenues for the ~~Faneuil~~Scantron segment decreased to 1345.15% in the 2013 period from 1561.63% in the 2012 period primarily due to cost ~~reductions~~reduction and arestructuring ~~change in business mix~~initiatives.

~~Corporate selling~~Selling, general and administrative expenses ~~increased~~for the Faneuil segment decreased by $1.6 million, or 189.24%, to $1015.4 million in the 2013 period from $817.80 million in the 2012 period primarily due to ~~corporate~~cost ~~development~~reductions ~~activities~~of $2.3 million, partially offset by a ~~reduction~~$0.7 million increase in operational costs associated with new business. Selling, general and administrative expenses ~~related~~as toa percentage of revenues for the ~~MacAndrews~~Faneuil ~~Acquisition~~segment ~~that~~decreased ~~occurred~~to 12.5% in the ~~first~~2013 ~~quarter~~period offrom 14.7% in the 2012 period primarily due to cost reductions and a change in business mix.

~~Revaluation~~Corporate ofselling, ~~Contingent~~general ~~Consideration~~and administrative expenses increased by $4.2 million, or 31.3%, to $17.6 million in the 2013 period from $13.4 million in the 2012 period primarily due to an increase in corporate development activities, partially offset by a reduction in expenses related to the MacAndrews Acquisition that occurred in the first quarter of 2012.

Operating expenses decreased by $0.5 million in the 2012 period due to a net decrease in the fair value of accrued contingent consideration primarily related to acquisitions in 2010, which resulted from a decrease in revenue projections that would trigger a payment. There was no revaluation of accrued contingent consideration in the 2013 period.

Asset Impairment Charges

During the 2013 period, the Company recorded non-cash impairment charges of $0.2 million for the Harland Clarke segment and $0.9 million for the Scantron segment related to assets that were determined to have no future use. ~~and~~During the 2012 period, the Company recorded non-cash impairment charges of $0.75 million for the ~~Scantron~~Faneuil segment related to ~~software~~abandoned ~~that~~leasehold ~~was~~improvements ~~determined~~resulting tofrom ~~have~~the noloss ~~future~~of ~~use~~a client and $0.2 ~~There~~million ~~were~~for nothe ~~asset~~Harland ~~impairment~~Clarke ~~charges~~segment ~~during~~related ~~the~~to ~~2012~~assets ~~period~~that were determined to have limited future use.

Restructuring Costs

In the 2013 period, the Company recorded restructuring costs of $67.09 million for the Harland Clarke segment, $6.96 million for the Scantron segment and $0.4 million for the Faneuil segment related to these plans. In the 2012 period, the Company recorded restructuring costs of $29.71 million for the Harland Clarke segment, $05.43 million for the ~~Harland Financial Solutions segment, $1.6 million for the~~ Scantron segment and $01.38 million for the Faneuil segment related to these plans.

Interest Income

Interest income was $0.46 million in the 2013 period compared to $0.57 million in the 2012 period. The decrease in interest income was primarily due to interest received on United States treasury securities in the 2012 period. The United States treasury securities were sold in the first quarter of 2012.

Interest Expense

Interest expense was $111.8 million in the 2013 period compared to $109.7 million in the 2012 period. The increase in interest expense was primarily due to the refinancing of a portion of outstanding debt at higher interest rates and an increase in amortization of deferred financing fees and issuance discounts, partially offset by fair value acquisition accounting adjustments to the principal amount of debt outstanding at the time of the MacAndrews Acquisition that resulted in a $20.3 million decrease in non-cash interest expense. In addition, other fair value acquisition accounting adjustments to deferred financing costs and interest rate swaps resulted in a $0.1 million decrease in non-cash interest expense.

Table of Contents

Harland Clarke Holdings Corp. and Subsidiaries

Interest Expense

Interest expense was $165.4 million in the 2013 period compared to $166.0 million in the 2012 period. The decrease in interest expense was primarily due to fair value acquisition accounting adjustments to the principal amount of debt outstanding at the time of the MacAndrews Acquisition that resulted in a $33.6 million decrease in non-cash interest expense, partially offset by the refinancing of a portion of outstanding debt at higher interest rates and an increase in amortization of deferred financing fees and issuance discounts. In addition, other fair value acquisition accounting adjustments to deferred financing costs and interest rate swaps resulted in a $4.1 million increase in non-cash interest expense.

Loss on Early Extinguishment of Debt

The non-cash ~~loss~~losses on early extinguishment of debt of $61.0 million in the 2013 period and $34.2 million in the 2012 period, which ~~was~~were attributable to refinancing transactions, resulted from the write-off of unamortized acquisition accounting-related fair value discount related to the MacAndrews Acquisition (see Note 1 to the accompanying consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).

Other Expense, net

Other expense, net was $0.2 million in the 2012 period due to a loss on the sale of marketable securities.

Provision (Benefit) for Income Taxes on Continuing Operations

The Company's effective tax rate on continuing operations was a benefit of 4540.06% in the 2013 period and a benefit of 3638.14% in the 2012 period. The benefit for the 2013 period is higher than the statutory rate primarily due to ~~foreign~~the ~~income~~domestic ~~for~~production ~~which~~activities ~~no provision was recorded~~deduction. The benefit for the 2012 period is ~~lower~~different ~~than~~from the statutory rate primarily due to ~~tax~~state ~~credits~~net ~~not~~operating ~~previously recorded and certain foreign income not subject to tax, partially offset by foreign~~ losses for which no benefit was recorded.

Liquidity and Capital Resources

Cash Flow Analysis

	Six Months Ended
	June 30,
(In millions)	2013			2012
Cash Provided By (Used In):
Operating activities	$	107.3		$	83.6
Investing activities	(64.3		)	(16.7		)
Financing activities	(60.4		)	(85.3		)

The following table summarizes the Company's historical cash flows which are presented on a consolidated basis and include cash flows from discontinued operations.

The Company's net cash provided by operating activities during the six months ended June 30, 2013 was $107.3 million compared to $83.6 million during the six months ended June 30, 2012. The increase in net cash provided by operating activities of $23.7 million was due to a $83.2 million increase in cash flows from operations, partially offset by a $59.5 million decrease in cash flows from changes in operating assets and liabilities. The $83.2 million increase in cash flow from operations was due to an increase in net income after adjusting for the effects of financing and investing activities and non-cash operating items including depreciation and amortization and deferred income taxes. The decrease in cash flows from changes in operating assets and liabilities was primarily due to changes in deferred revenues, inventories, contract acquisition payments and prepaid expenses and other assets totaling $57.3 million largely the result of fair value acquisition accounting adjustments related to the MacAndrews Acquisition.



	Nine Months Ended
	September 30,
(In millions)	2013			2012
Cash (Used In) Provided By:
Operating activities	$	(62.8	)	$	164.5
Investing activities	1,085.2			(37.8		)
Financing activities	(86.6		)	(154.0		)

The Company's net cash used in ~~investing~~operating activities ~~was $64.3 million~~ during the ~~six~~nine months ended ~~June~~September 30, 2013 was $62.8 million compared to net cash provided by operating activities of $16164.75 million during the ~~six~~nine months ended ~~June~~September 30, 2012. The increase in net cash used in ~~investing~~operating activities of $227.3 million was due to a $227.1 million decrease in cash flows from operations and a $0.2 million decrease in cash flows from changes in operating assets and liabilities. The $227.1 million decrease in cash flow from operations was primarily due to ~~proceeds~~payments of $56224.37 million ~~from~~related to taxes on the sale of ~~marketable~~HFS, ~~securities~~the ~~that~~proceeds ~~occurred~~of ~~during~~which are included in the ~~six~~investing ~~months~~activities ~~ended~~section ~~June 30~~of the cash flow statement. The decrease in cash flows from changes in operating assets and liabilities was primarily due to changes in deferred revenues, ~~2012~~inventories, ~~partially~~contract ~~offset~~acquisition bypayments aand ~~decrease~~prepaid ofexpenses and other assets totaling $667.62 million inlargely ~~capital~~the ~~expenditures~~result ~~during~~of ~~the~~fair ~~six~~value ~~months~~acquisition ~~ended~~accounting ~~June 30,~~adjustment ~~2013~~related ~~compared~~ to the ~~six~~MacAndrews ~~months~~Acquisition ~~ended~~and ~~June 30,~~changes ~~2012~~in accounts payable and aaccrued ~~decrease~~liabilities ofand other, net totaling $111.4 million, insubstantially ~~cash~~offset ~~expended~~by ona ~~acquisitions~~$79.6 ~~during~~million ~~the~~increase ~~six~~from ~~months~~accruals ~~ended~~for ~~June 30,~~income ~~2013~~taxes ~~compared~~primarily related to the ~~six~~sale ~~months~~of ~~ended June 30, 2012~~HFS.

The Company's net cash ~~used~~provided inby ~~financing~~investing activities was $601,085.42 million during the ~~six~~nine months ended ~~June~~September 30, 2013 compared to net cash used in investing activities of $8537.38 million during the ~~six~~nine months ended ~~June~~September 30, 2012. The ~~decrease~~increase in ~~net~~ cash ~~used~~provided inby ~~financing~~investing activities was primarily due to aproceeds of $331,181.89 million ~~decrease~~from inthe ~~payments~~sale of HFS, net of cash divested and costs to ~~parent~~sell, ~~for~~that occurred during the ~~Faneuil~~nine ~~Acquisition~~months ended September 30, 2013 and a $52.75 million decrease in ~~payments~~expenditures ~~related~~for capitalized computer software development costs during the nine months ended September 30, 2013 compared to ~~derivative~~the ~~instruments~~nine months ended September 30, 2012, partially offset by aproceeds of $1556.53 million ~~increase~~from inthe ~~debt~~sale ~~issuance~~of ~~costs~~marketable ~~related~~securities tothat ~~refinancing~~occurred ~~activities.~~during ~~Aggregate~~the ~~cash~~nine ~~inflows~~months ended September 30, 2012 and ~~outflows~~a ~~from~~$6.8 ~~refinancing~~million ~~activities~~increase ~~did~~in ~~not~~capital ~~have~~expenditures aduring ~~significant~~the ~~effect~~nine onmonths ~~net~~ended ~~cash~~September 30, ~~used~~2013 incompared ~~financing~~to ~~activities~~the nine months ended September 30, 2012.

Accounting guidance for acquisitions among entities under common control requires the $33.8 million of cash paid in excess of the carrying amount of the assets and liabilities assumed for the Faneuil Acquisition to be treated as an equity transaction with the parent in financing activities. The $36.2 million remaining balance of the $70.0 million purchase price is treated as consideration paid to purchase the affiliate in investing activities.

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The Company's net cash used in financing activities was $86.6 million during the nine months ended September 30, 2013 compared to $154.0 million during the nine months ended September 30, 2012. The decrease in net cash used in financing activities was primarily due to a $33.9 million decrease in net repayments of notes and credit agreements, a $33.8 million decrease in payments to parent for the Faneuil Acquisition and a $7.4 million decrease in payments related to derivative instruments, partially offset by a $4.3 million increase in debt issuance costs related to refinancing activities.

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, 2012 during the ~~six~~three months ended ~~June~~September 30, 2013 except for certain refinancing transactions. Oncompleted ~~February 20, 2013, the Company terminated its revolving credit facility~~ and ~~entered~~disclosed ~~into a new senior secured asset based revolving credit facility. On April 26, 2013, the Company completed a transaction to refinance its non-extended term loans that were to mature~~ in ~~June 2014. On May 20, 2013,~~ the Company's issued $50.0 million principal amount of its 2018 Senior Secured Notes. Proceeds from this transaction were used to repay and retire $50.0 million of fixed rate 2015 Senior Notes. See Note 11 - Long-Term Debt to the accompanying consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Atfor ~~June~~the ~~30,~~quarterly ~~2013,~~periods ~~contractual~~ended ~~obligations~~March ~~related~~31, to2013 ~~outstanding~~and ~~debt~~June ~~were~~30, ~~as follows:~~ 2013.

	Payments Due by Period
(In millions)	Total		Less than1 year		1-3 years		4-5 years		After5 years
Revolving credit facilities(1)(6)	$	—	$	—	$	—	$	—	$	—
Senior secured term loans(2)(6)	1,392.8		88.0		176.1		1,128.7		—
Senior notes(3)(6)	425.6		—		425.6		—		—
Senior secured notes(4)(6)	285.0		—		—		—		285.0
Interest on long-term debt(5)(6)	587.7		157.4		247.3		169.1		13.9
Total	$	2,691.1	$	245.4	$	849.0	$	1,297.8	$	298.9

_______________________

(1) Consists of our senior secured asset based revolving credit facility, which will mature on February, 20, 2018. See to the accompanying consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

(2) The senior secured term loans will mature on June 30, 2017 and May 22, 2018, and the Company is required to make payments of principal in quarterly installments. See to the accompanying consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

(3) The senior notes will mature in 2015 and include $221.3 million of fixed rate notes and $204.3 million of floating rate notes. See to the accompanying consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

(4) The senior secured notes will mature on August 1, 2018. See to the accompanying consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

(5) Interest on long-term debt assumes that all floating rates of interest remain the same as those in effect at June 30, 2013. The payments noted above also assume that the level of borrowing under the revolving credit facility remains at zero, as it was on June 30, 2103, and all mandatory payments are made.

(6) The credit facilities, senior notes and senior secured notes include early repayment provisions if certain events occur, including excess cash flow payments with respect to the senior secured credit facilities. See to the accompanying consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Payments in the table above assume that only mandatory principal payments will be made and that there will be no prepayments.

Liquidity Assessment

The Company believes that its cash and cash equivalents, borrowings available under its credit agreement (as further discussed in Note 1112 to the accompanying consolidated financial statements included 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.

In addition to normal operating cash, working capital requirements and service of indebtedness, the Company 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. The Company's 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~~nine months ended ~~June~~September 30, 2013 and 2012, the Company incurred $2353.68 million and $3047.20 million of capital expenditures and $0.35 million and $0.24 million of capitalized interest, respectively. These amounts include capital expenditures for discontinued operations of $5.9 million and $6.3 million for the nine months ended September 30, 2013 and 2012, respectively, and capitalized interest for discontinued operations of $0.1 million for the nine months ended September 30, 2013. The Company's capital expenditures are estimated to be in the range of $5060.0 million to $6065.0 million for the fiscal year ending December 31, 2013, which includes $5.9 million for discontinued operations.


•	Contract Acquisition Payments. During the nine months ended September 30, 2013 and 2012, the Company made $18.7 million and $36.6 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 planned restructuring or consolidation of some of the Company's operations. During the nine months ended September 30, 2013 and 2012, the Company made $14.0 million and $11.0 million of payments, respectively, for restructuring for continuing operations.

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 to fund the acquisition of NCP Solutions that was consummated on May 31, 2013. The Company used proceeds from the issuance of senior secured term loans and senior secured notes to fund the repayment of $726.6 million of non-extended term loans in April 2013 and $50.0 million of fixed rate senior notes in June 2013.

Cash Flow Risks

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•based ~~Contract~~revolving ~~Acquisition~~credit ~~Payments~~facility to fund potential future acquisitions or investments. ~~During~~If future cash flow from operations and other capital resources are insufficient to pay the ~~six~~Company's ~~months~~obligations ~~ended~~as ~~June~~they ~~30,~~mature ~~2013~~or ~~and~~to ~~2012~~fund its liquidity needs, the Company ~~made~~may ~~$14.2~~be ~~million~~forced to reduce or delay business activities and ~~$20.6~~capital ~~million~~expenditures, sell assets, obtain additional debt or equity capital or restructure or refinance all or a portion of ~~contract~~its ~~acquisition~~debt ~~payments~~on or before maturity. The Company may not be able to ~~its~~accomplish ~~clients~~any of these alternatives on a timely basis or on satisfactory terms, ~~respectively~~if at all. In addition, the terms of the Company's existing and future indebtedness may limit its ability to pursue any of these alternatives.

• Restructuring/Cost Reductions. Restructuring accruals have been established for anticipated severance payments, costs related to facilities closures and other expenses related to the planned restructuring or consolidation of some of the Company's operations. During the six months ended June 30, 2013 and 2012, the Company made $9.9 million and $4.3 million of payments for restructuring, respectively.

Cash Flow Risks

The Company's ability to meet its debt service obligations and reduce its total debt will depend upon its 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 the Company's control. The Company may not be able to generate sufficient cash flow from operations or borrow under its credit facility in an amount sufficient to repay its debt or to fund other liquidity needs. As of June 30, 2013, the Company had $41.9 million of availability under its senior secured asset based revolving credit facility (after giving effect to the issuance of $10.4 million of letters of credit). The Company may also use its senior secured asset based revolving credit facility to fund potential future acquisitions or investments. If future cash flow from operations and other capital resources are insufficient to pay the Company's obligations as they mature or to fund its liquidity needs, the Company 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 its debt on or before maturity. The Company 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 the Company's existing and future indebtedness may limit its ability to pursue any of these alternatives.

Critical Accounting Policies and Estimates

There were no material changes to 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, 2012 as filed on February 25, 2013 with the United States Securities and Exchange Commission ("SEC"), which is available on the SEC's website at www.sec.gov.

Forward-Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended ~~June~~September 30, 2013, 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, 2012 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:


•	our substantial indebtedness;

• further adverse changes in or worsening of general economic and industry conditions, including the depth and length of the economic downturn and higher unemployment, which could result in more rapid declines in product sales and/or pricing pressure ~~and reductions in information technology budgets~~ which could result in adverse effects on our businesses;

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•	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 our indebtedness that may limit our ability to operate our businesses and react to market changes;


•	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;


•	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 locate, execute, integrate and manage recent acquisitions as well as future acquisitions;


•	ongoing obligations with respect to divestiture transactions which could result in unanticipated liabilities;


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

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Harland Clarke Holdings Corp. and Subsidiaries


•	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;

• ~~the~~our ability ofto ~~our~~develop ~~Harland~~new ~~Financial~~products ~~Solutions~~for our Scantron segment and to ~~achieve~~grow ~~organic~~Scantron's ~~growth~~online education business;

• regulations governing the Harland Financial Solutions segment;

• our ability to develop new products for our Scantron segment and to grow Scantron's web-based education business;


•	determinations made to limit investments in, restrict marketing efforts for or discontinue certain products which are not part of the Company's strategic plans;


•	our ability to achieve VSOE of fair value for multiple-element arrangements for software businesses we have acquired or will acquire, which could affect the timing of recognition of revenue;


•	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 ~~and Faneuil segments~~segment;


•	softness in direct mail response rates;


•	lower than expected cash flow from operations;


•	unfavorable foreign currency fluctuations;

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Harland Clarke Holdings Corp. and Subsidiaries


•	the loss of one of our significant customers;


•	work stoppages and other labor disturbances;

• should the sale of our Harland Financial Solutions business not close, it may have an adverse effect on our business; 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, 2012 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~~September 30, 2013, the Company had $1,~~392~~370.8 million of term loans outstanding under its credit agreement, $10.4 million of letters of credit outstanding under its senior secured asset based revolving credit facility, $204.3 million of floating rate senior notes, $221.3 million of 9.50% fixed rate senior notes and $285.0 million of 9.75% senior secured notes. All of these outstanding loans bear interest at variable rates, with the exception of $221.3 million of fixed rate senior notes and $285.0 million of senior secured 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~~September 30, 2013 would have resulted in an increase in its interest expense for the ~~six~~nine months ended ~~June~~September 30, 2013 of approximately $34.27 million.

~~Item~~As 7A of September 30, 2013, the Company's ~~Annual~~net ~~Report~~foreign oncurrency ~~Form~~market ~~10-K~~exposures ~~for~~were ~~the~~$8.9 ~~year~~million. ~~ended~~This ~~December 31,~~is ~~2012~~the ~~presents~~value ~~additional~~of ~~quantitative~~the ~~and~~equity ~~qualitative~~of ~~disclosures~~the ~~about~~investments ~~exposure~~in tothe ~~risk~~foreign subsidiaries in ~~foreign~~Canada ~~currency~~and ~~exchange rates~~India. ~~There~~Since ~~have~~the ~~been~~exposures noare not material, ~~changes to~~ the ~~disclosures~~Company ~~regarding~~does ~~foreign~~not ~~currency~~generally ~~exchange~~hedge ~~rates~~against asforeign ofcurrency ~~June 30, 2013~~fluctuations.

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A 10% appreciation in foreign currency exchange rates from the prevailing market rates would result in a $0.8 million increase in the related assets or liabilities. Conversely, a 10% depreciation in these currencies from the prevailing market rates would result in a $0.9 million decrease in the related assets and liabilities.

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~~September 30, 2013 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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, 2012 during the three months ended ~~June~~September 30, 2013 ~~other than the risk set forth below~~.

Risks associated with the sale of the Harland Financial Solutions business

We have entered into an agreement to sell the HFS business for $1.2 billion in cash proceeds (subject to adjustment pursuant to the terms and conditions set forth in the stock purchase agreement related thereto). Should the sale transaction not close, it may have an adverse effect on our business. The transaction is expected to close in the third quarter of 2013 but remains subject to certain closing conditions customary for transactions of this nature.

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~~September 30, 2013.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

No additional information need be presented.

Item 6. Exhibits



Exhibit Number		Description
4.16		Indenture, dated as of July 24, 2012, by and among Harland Clarke Holdings Corp., as Issuer, the Co-Issuers named therein, the Guarantors named therein, and Wells Fargo Bank, National Association, as trustee and collateral agent. ⁽¹⁾

31.1		Certification of Charles T. Dawson, Chief Executive Officer, dated November 8, 2013.

31.2		Certification of Peter A. Fera, Jr., Chief Financial Officer, dated November 8, 2013.

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase.

101.DEF		XBRL Taxonomy Definition Linkbase.

101.LAB		XBRL Taxonomy Extension Labels Linkbase.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase.



	⁽¹⁾	This indenture replaces the document filed as Exhibit 4.16 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012 filed with the Securities and Exchange Commission on August 9, 2012. The document originally filed did not reflect the final version that was executed, which reflected corrections of a few typographical errors.

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Item 6. Exhibits

ExhibitNumber		Description
4.22		Credit Agreement, dated as of April 26, 2013, by and among the Lenders thereto, Credit Suisse AG, Cayman Islands Branch, as Administrative Agent and Collateral Agent, Harland Clarke Holdings Corp. as Borrower and subsidiaries of Harland Clarke Holdings Corp. party thereto, as subsidiary Co-Borrowers.
4.23		Purchase Agreement, dated as of May 15, 2013, by and among Harland Clarke Holdings Corp., as Issuer, and certain Co-Issuers named therein and Credit Suisse Securities (USA) LLC
31.1		Certification of Charles T. Dawson, Chief Executive Officer, dated August 2, 2013.
31.2		Certification of Peter A. Fera, Jr., Chief Financial Officer, dated August 2, 2013.
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase.
101.DEF		XBRL Taxonomy Definition Linkbase.
101.LAB		XBRL Taxonomy Extension Labels Linkbase.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HARLAND CLARKE HOLDINGS CORP.

Date:	~~August~~November 28, 2013	By:	/s/ Peter A. Fera, Jr.
			Peter A. Fera, Jr.
			Executive Vice President andChief Financial Officer(Principal Financial Officer)
Date:	~~August~~November 28, 2013	By:	/s/ J. Michael Riley
			J. Michael Riley
			Vice President and Controller(Principal Accounting Officer)

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EXHIBIT INDEX

ExhibitNumber		Description
4.22		Credit Agreement, dated as of April 26, 2013, by and among the Lenders thereto, Credit Suisse AG, Cayman Islands Branch, as Administrative Agent and Collateral Agent, Harland Clarke Holdings Corp. as Borrower and subsidiaries of Harland Clarke Holdings Corp. party thereto, as subsidiary Co-Borrowers.
4.16		Indenture, dated as of July 24, 2012, by and among Harland Clarke Holdings Corp., as Issuer, the Co-Issuers named therein, the Guarantors named therein, and Wells Fargo Bank, National Association, as trustee and collateral agent. (1)
4.23		Purchase Agreement, dated as of May 15, 2013, by and among Harland Clarke Holdings Corp., as Issuer, and certain Co-Issuers named therein and Credit Suisse Securities (USA) LLC
31.1		Certification of Charles T. Dawson, Chief Executive Officer, dated November 8, 2013.
31.1		Certification of Charles T. Dawson, Chief Executive Officer, dated August 2, 2013.
31.2		Certification of Peter A. Fera, Jr., Chief Financial Officer, dated November 8, 2013.
31.2		Certification of Peter A. Fera, Jr., Chief Financial Officer, dated August 2, 2013.
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase.
101.DEF		XBRL Taxonomy Definition Linkbase.
101.LAB		XBRL Taxonomy Extension Labels Linkbase.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase.
	(1)	This indenture replaces the document filed as Exhibit 4.16 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012 filed with the Securities and Exchange Commission on August 9, 2012. The document originally filed did not reflect the final version that was executed, which reflected corrections of a few typographical errors.

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