D + H Reports Second Quarter 2013 Results, Prepares to Close Transformational Acquisition of Harland Financial Solutions Français

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Aug 07, 2013, 17:00 ET

Stock Exchange Symbol: DH
Website: www.dhltd.com

TORONTO, Aug. 7, 2013 /CNW/ - Davis + Henderson Corporation ("D+H" or the "Corporation" or the "Company") today reported solid financial results for the three and six months ended June 30, 2013 as it prepares to accelerate its strategic agenda of becoming a leading North American financial technology ("FinTech") provider through the previously announced agreement to acquire Harland Financial Solutions ("HFS") in a US $1.2 billion transaction.

"D+H continues to execute well on our strategies by building our presence in the U.S. community bank and credit union marketplace while supporting the growth of our Canadian customers," said Gerrard Schmid, Chief Executive Officer. "Notable second quarter highlights included the 58% year-over-year increase in U.S. revenues and the broad-based growth achieved across all Canadian service categories. We are encouraged by these results and by the prospects ahead as we finalize the recent acquisition of HFS, which we expect to close on or about August 19, 2013, and move forward as a larger, more capable North American FinTech provider.

As a result of growth in both the U.S. and Canada, D+H derived 11.2% of its second quarter revenue in the U.S., up from 7.7% a year ago.

"As second quarter results demonstrate, our business is operating on plan and with greater focus following the divestiture of non-strategic assets in May and success with recent initiatives designed to achieve tighter integration between our U.S. Point of Sale (POS), Loan Origination Systems (LOS) and cloud-based infrastructure solutions," said Brian Kyle, Chief Financial Officer. "As a result, the timing of the HFS acquisition is ideal. Following closing, we will move to integrate our sales activities and products to add more value to our existing customers and to attract new customers".

Second Quarter Highlights

Revenue from continuing operations increased 8.9% to $197.1 million from $181.0 million in the same quarter in 2012, reflecting U.S. Segment revenue growth of 58.2% year over year and a 4.8% increase in Canadian Segment.
Net income of $13.6 million ($0.2298 per share) decreased 34.8%, compared to $20.9 million ($0.3526 per share) for the same quarter in 2012, primarily due to loss from discontinued operations of $8.8 million, partially offset by an unrealized gain of $1.2 million on fair value changes related to interest-rate swaps.
Adjusted EBITDA¹ increased 2.2% to $58.3 million (29.6% margin) from $57.1 million (31.5% margin) for the same period in 2012.
Adjusted net income¹ increased 5.7% to $34.2 million from $32.3 million in 2012 and Adjusted net income per share increased to $0.5774 , from $0.5461 in the second quarter of 2012.
Debt repayments during the second quarter of 2013 were $20.5 million.
On May 10, 2013, D+H announced the closing of the previously announced divestiture of its non-strategic business processing operations ("discontinued operations").
During the second quarter of 2013, D+H paid a dividend of $0.32 per share to its shareholders.
On July 23, 2013, D+H announced the execution of a purchase agreement to acquire 100% of HFS, a leading U.S. based provider of strategic financial technology, including lending and compliance, core banking, and channel management technology solutions to U.S. banks, credit unions, and mortgage companies.

Six-Month Highlights

Revenue from continuing operations increased 6.5% to $368.8 million from $346.3 million for the same six-month period in 2012.
Net income was $19.4 million ($0.3267 per share), a decrease of $16.5 million, or 46.0%, compared to $35.8 million ($0.6047 per share) for the same period of 2012, mainly due to loss from discontinued operations of $19.5 million ($0.3289 per share), partially offset by an increase in EBITDA, lower interest expense and a non-cash gain on remeasurement of previously held equity interest in Compushare.
Adjusted EBITDA increased 3.4% to $101.4 million (27.5% margin) from $98.1 million (28.3% margin) for the same period in 2012.
Adjusted net income increased 5.8% to $57.3 million from $54.2 million for the same 2012 period and Adjusted net income per share increased to $0.9675 from $0.9143 .
Debt repayments for the first six months of 2013 were $21.5 million.
During the first six months of 2013, dividends of $0.64 per share were paid to shareholders, up from $0.62 per share in the same period of 2012.

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¹ D+H's financial results are prepared in accordance with IFRS. D+H reports several non-IFRS financial measures, including EBITDA, Adjusted EBITDA and Adjusted net income used above. Adjusted EBITDA is calculated as EBITDA, adjusted to remove certain items of note such as acquisition-related and other charges, including transaction costs and retention expenses related to acquisitions, corporate development charges related to strategic acquisition initiatives, business integration charges, and expenses associated with cost-realignment initiatives, all of which are not considered to be part of normal course of operations. Adjusted net income is calculated as net income, adjusted to remove certain non-cash items and certain items of note as described above, discontinued operations, gain on remeasurement of the previously held equity interest in Compushare, and the related tax effects of these adjustments including tax effects of acquisitions and corporate conversions. These items are excluded in calculating Adjusted EBITDA and Adjusted net income as they are not considered indicative of the underlying business performance for the period being reviewed and management believes that excluding these adjustments is more reflective of ongoing operating results. Any non-IFRS financial measures should be considered in context with the IFRS financial statement presentation and should not be considered in isolation or as a substitute for IFRS net income or cash flows. Further, D+H's measures may be calculated differently from similarly titled measures of other companies. See Non-IFRS Financial Measures for a more complete description of these terms.

D+H's unaudited condensed interim consolidated financial statements for the second quarter of 2013, accompanying notes to the financial statements and management's discussion & analysis ("MD&A") along with the supplementary financial information will be available today at www.dhltd.com and tomorrow on www.sedar.com.

For a more detailed discussion of the results, management's outlook, please see the MD&A below.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This press release contains certain statements that constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Statements concerning D+H's objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and the business, operations, financial performance and condition of D+H are forward-looking statements. The words "believe", "expect", "anticipate", "estimate", "intend", "may", "will", "would" and similar expressions and the negative of such expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are subject to important assumptions, including the following specific assumptions: the ability of D+H to meet its revenue, "EBITDA", "Adjusted EBITDA" and "Adjusted net income" targets (see Non-IFRS Financial Measures for a more complete description of the terms EBITDA, Adjusted EBITDA and Adjusted net income); general industry and economic conditions; changes in D+H's relationship with its customers and suppliers; pricing pressures and other competitive factors; the anticipated effect of acquisitions on the financial performance of D+H; and the expected benefits arising as a result of acquisitions. D+H has also made certain macroeconomic and general industry assumptions in the preparation of such forward-looking statements. While D+H considers these factors and assumptions to be reasonable based on information currently available, there can be no assurance that actual results will be consistent with these forward-looking statements.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause D+H's actual results, performance or achievements, or developments in its industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements.

Risks related to forward-looking statements include, among other things, challenges presented by declines in the use of personal and business cheques; the Company's dependence on a limited number of large financial institution customers and dependence on their acceptance of new programs; strategic initiatives being undertaken to meet the Company's financial objective; stability and growth in the real estate, mortgage and lending markets; increased pricing pressures and increased competition which could lead to loss of contracts or reduced margins; as well as general market conditions, including economic and interest rate dynamics. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The documents incorporated by reference herein also identify additional factors that could affect the operating results and performance of the Company. Forward-looking statements are based on management's current plans, estimates, projections, beliefs and opinions, and D+H does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change except as required by applicable securities laws.

All of the forward-looking statements made in this press release and the documents incorporated by reference herein are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company.

CONFERENCE CALL

D+H will discuss its financial results for the three and six months ended June 30, 2013 via conference call at 10:00 a.m. EST (Toronto time) on Thursday, August 8, 2013. The number to use for this call is 416-764-8609 for Local / International callers or 1-888-390-0605 for US / Canada callers. The conference call will be hosted by Gerrard Schmid, Chief Executive Officer and by Brian Kyle, Chief Financial Officer. The conference call will also be available on the web by accessing CNW Group's website www.newswire.ca/en/webcast/detail/1203055/1319325. For anyone unable to listen to the scheduled call, the rebroadcast number will be: 416-764-8677 for Toronto area callers, or 1-888-390-0541 for all other callers, with Encore Password 911804. The rebroadcast will be available until Thursday, August 22, 2013. An archive recording of the conference call will also be available at the above noted web address for one month following the call and a text version of the call will be available at www.dhltd.com.

ADDITIONAL INFORMATION

Additional information relating to the Company, including the Company's most recently filed Annual Information Form, is available on SEDAR at www.sedar.com.

MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management's Discussion and Analysis ("MD&A") of financial condition and results of operations has been prepared with an effective date of August 7, 2013 and should be read in conjunction with Davis + Henderson Corporation's (the "Corporation" or the "Company" or "Davis + Henderson" or "D+H" or the "Business" or "we" or "our") MD&A in the Annual Report for the year ended December 31, 2012, dated February 26, 2013, and the unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2013. External economic and industry factors remain substantially unchanged from those described in the annual MD&A and the Corporation's most recently filed Annual Information Form, except as described herein.

NON-IFRS FINANCIAL MEASURES

The information presented within the tables in this MD&A include certain adjusted financial measures such as "EBITDA" (Income from continuing operations excluding interest, taxes, depreciation and amortization and fair value adjustments of interest-rate swaps which are directly related to interest expense, income from investment in an associate and gain on remeasurement of a previously held equity interest in an associate), "EBITDA Margin" (EBITDA divided by revenue) and adjusted financial measures such as "Adjusted EBITDA" (EBITDA adjusted to remove acquisition-related and other charges, including expenses incurred in connection with cost-realignment initiatives, corporate development expenses related to strategic acquisition initiatives, certain retention and incentive expenses, transaction costs and business integration costs incurred in connection with acquisitions, all of which are not considered to be incurred in the normal course of operations and are not indicative of the underlying business performance), "Adjusted EBITDA Margin" (Adjusted EBITDA divided by revenue), "Adjusted net income" (net income before certain non-cash charges such as amortization of intangibles from acquisitions and fair value adjustments of interest-rate swaps and certain items of note such as acquisition-related and other charges, discontinued operations, including tax effects of these items and tax effects of acquisitions and corporate conversion), and "Adjusted net income per share", all of which are not defined terms under International Financial Reporting Standards ("IFRS").

These non-IFRS financial measures should be read in conjunction with the Consolidated Statements of Income. See the reconciliation of EBITDA, Adjusted EBITDA and Adjusted net income to the most directly comparable IFRS measure, "net income", in the "Operating Results" section of this MD&A.

Management believes these supplementary measures provide useful additional information related to the operating results of the Corporation. Management uses these subtotals as measures of financial performance and as a supplement to the Consolidated Statements of Income. Investors are cautioned that these measures should not be construed as an alternative to using net income as a measure of profitability or as an alternative to the IFRS Consolidated Statements of Income or other IFRS statements.

Further, these measures do not have any standardized meaning and D+H's method of calculating each balance may not be comparable to calculations used by other companies bearing the same description.

EBITDA

In addition to its use by management as an internal measure of financial performance, EBITDA (with adjustments) is used to measure compliance with certain financial covenants under the Company's credit facility and bonds. EBITDA is also used by D+H as a factor in assessing the performance and the value of a business. EBITDA has limitations as an analytical tool, and the reader should not consider it in isolation or as a substitute for analysis of results as reported under IFRS.

Adjusted EBITDA

Adjusted EBITDA is also used by D+H in assessing the performance of its businesses. Adjusted EBITDA excludes: (i) acquisition-related expenses such as transaction costs, business integration costs and certain retention and incentive costs incurred as part of acquisitions; and (ii) other charges such as corporate development costs related to strategic acquisition initiatives and costs incurred in connection with cost-realignment initiatives, all of which are not considered to be part of the normal course of operations. These items are excluded in calculating Adjusted EBITDA as they are not considered indicative of the underlying business performance for the period being reviewed and management believes that excluding these adjustments is more reflective of ongoing operating results.

Similar to EBITDA, Adjusted EBITDA also has limitations as an analytical tool, and the reader should not consider it in isolation or as a substitute for analysis of results as reported under IFRS.

Adjusted Net Income and Adjusted Net Income per Share

Adjusted net income is used as a measure of internal performance similar to net income, but is calculated after removing the impacts of certain items of note such as: acquisition-related and other charges, including transaction costs, retention and incentive expenses and business integration costs related to acquisitions; corporate development charges related to strategic acquisition initiatives and expenses associated with cost-realignment initiatives, all of which are not considered to be part of normal course of operations; discontinued operations; and, certain non-cash items such as amortization of intangibles from acquisitions, gain on remeasurement of the previously held equity interest in Compushare and fair value adjustments of interest-rate swaps. Also excluded from Adjusted net income are the tax effects of corporate conversion and acquisitions. These items are excluded in calculating Adjusted net income as they are not considered indicative of the financial performance of the Business for the periods being reviewed.

ADDITIONAL IFRS MEASURES

Income from Operating Activities

D+H provides as part of its Consolidated Statement of Income an additional IFRS measure for "Income from Operating Activities". Management believes that this measure provides relevant information to understand the Corporation's financial performance. This additional IFRS measure is representative of activities that would normally be regarded as "operating" for the Company.

STRATEGY

D+H's goal is to be a leading financial technology ("FinTech") provider to the North American financial services marketplace. FinTech companies develop and deliver technology and technology-enabled products and services to banks, credit unions and other leading financial services customers who use these solutions to drive growth, improve customer convenience, streamline operations, reduce infrastructure costs and enhance compliance.

D+H's strategy is to establish market-leading positions within well-defined and growing service areas in the financial services marketplace, and to reinforce these positions with technology solutions that deliver increasing value to our customers and shareholders. We expect to advance this strategy through organic initiatives, by partnering with third parties and making selective acquisitions. By growing revenue while maintaining efficient operations, D+H intends to achieve its long-term financial objective of growing earnings.

In July 2013, D+H significantly advanced its FinTech goal and strategy by agreeing to acquire Harland Financial Solutions (see Subsequent Event below) in a transaction designed to be immediately accretive to shareholders at an Adjusted net income per share level and with targeted accretion in the high single-digit range at the Adjusted net income per share level in 2014, before any potential synergies. HFS will add: 5,400 U.S. bank and credit union customers to bring our combined customer count to over 6,200 (not counting shared customer relationships); a suite of market-leading FinTech products including LaserPro®, America's first choice for lending and compliance solutions, core banking technology and a number of innovative channel solutions; 1,350 employees across some 17 facilities; and, Adjusted revenues (calculated as revenue after removing the effect of purchase accounting on the fair value of acquired deferred revenue) and Adjusted EBITDA of approximately $306 million and $104 million for the last 12 months ended March 31, 2013. Management believes the addition of HFS will provide D+H with sales and revenue synergies in the U.S. banking and credit union marketplace, and improve the Company's value proposition as a single-source FinTech provider. In particular, in HFS's experience, core banking technology providers enjoy a significant advantage in cross-selling additional FinTech solutions. As HFS is considered one of the top four providers of core banking technology in the United States, and one of only two providers of contemporary core banking solutions, D+H expects to benefit from its value proposition in cross-selling its expanded FinTech suite of products including our Mortgagebot and Compushare solutions.

The HFS acquisition is fully aligned with D+H's overall vision and with its ongoing plan to reduce risk by increasing revenue diversification by geography and service line. On a pro forma basis (amounts exclude revenue related to the Non-strategic Businesses, and pro forma amounts reflect the Corporation and HFS as a combined entity), the combined enterprise generated approximately 36% of its 2012 revenue in the U.S. (compared to 8% in 2012 prior to the acquisition). On service-line basis, the combined enterprise generated approximately 70% of its pro forma 2012 revenue from solutions serving customers' broader banking and lending operations and 30% from payment solutions versus 57% and 43% respectively prior to the acquisition. The acquisition will also enhance D+H's profile, creating a Company with 2012 pro forma revenues of approximately $1.1 billion, (including non-strategic operations divested in May 2013) and comparability with large U.S. FinTech companies that are owned and followed by U.S. investors and analysts. A high degree of pro forma revenue will be under long-term contract, adding further stability to our business.

Going forward, management will remain focused on executing its North American growth strategy with emphasis on: i) cross-selling its suite of FinTech solutions including Mortgagebot Point of Sale ("POS") and Loan Origination Systems ("LOS") products, Compushare cloud-based infrastructure technology and the HFS technology portfolio primarily within the U.S. marketplace to existing banks and credit union customers as well as some 6,000 plus other U.S. community banks and credit unions that could benefit from these offerings; ii) enhancing services, capabilities and cost effectiveness across all service lines in Canada and the U.S. as a means of enhancing customer value and creating additional free cash flow iii) building new subscription-based business in its payment solutions service line where it recently won number of Canadian financial institution mandates; iv) expanding its offering through strategic partnerships; v) reducing leverage taken on to acquire HFS while continuing to support the Company's current dividend to shareholders.

In addition, D+H will explore incremental growth opportunities by: i) creating adjacent offerings, such as our recent expansion into consumer loan origination technology ii) introducing our combined suite of products selectively in international markets, and iii) offering the HFS product suite to Canadian credit unions.

In carrying out its cross-selling strategy, D+H will work to achieve best practices and synergies in a number of areas including integrating sales activities to better serve our customers, and focusing on creating tighter linkages between our technologies to create a more integrated offering to enhance customer satisfaction as we grow.

As the Company has targeted reducing its Debt to EBITDA ratio (with adjustments as required pursuant to D+H's lending agreements) to below 2.5 times by 2016 from an expected 3.4 times when the acquisition of HFS closes on or about August 19, 2013, and management believes the addition of HFS has significantly accelerated its FinTech goal and market positioning, D+H plans to emphasize organic growth and growth through partnerships in the near term rather than growth through acquisition.

D+H's advancements on the FinTech 100, a list of the top financial technology firms in the world (according to their FinTech revenues) prepared by American Banker, Bank Technology News and IDC Financial Insights and the Branham300 are a reflection of D+H's increasing technological capabilities and steps taken to provide a broad spectrum of financial technology products and services to its customers including ongoing innovation and growth to better serve the financial services industry.

For a detailed discussion of the results for the three and six months ended June 30, 2013 and management's outlook, please see below.

ACCOUNTING PRINCIPLES AND FINANCIAL INFORMATION PRESENTATION

The Company's unaudited condensed interim consolidated financial statements have been prepared in accordance with IFRS, specifically IAS 34, Interim Financial Reporting, as issued by the International Accounting Standards Board ("IASB").

Results from continuing operations include the performance of acquired businesses from the respective dates of acquisition and exclude results from operations classified as discontinued operations.

Effective January 1, 2013, D+H reports its revenues under the following categories: (i) payment solutions; (ii) lending processing solutions (previously reported as loan servicing solutions and loan registration and recovery services) and; (iii) banking technology solutions (previously reported as lending technology services). For segment reporting purposes, payment solutions, lending processing solutions and the banking technology solutions which include banking technology solutions to the Canadian mortgage market and technology solutions in the commercial lending, small business lending and leasing areas are reported as part of the Canadian Segment. The U.S. Segment consists of banking technology solutions to the U.S. mortgage market, including results from SaaS POS and LOS as well as Compushare's cloud-based solutions.

Comparative periods have been conformed to the current period classification.

All amounts are in Canadian dollars, unless otherwise specified.

DIVESTITURE

On May 10, 2013, D+H closed the previously announced transaction to divest its non-strategic business processing operations, comprised of credit card services, contact centre services, benefits and administration, coupon and rebate services and real estate services. These operations largely served customers comprised of retailers, real estate boards and packaged goods companies and provided services that are not considered part of D+H's strategic business of serving financial institutions as its long-term strategy.

The results of operations of these components were included as part of business service solutions and loan servicing solutions in the Canadian Segment in prior periods. These components and the related transition services have been classified as discontinued operations for all periods presented. Refer to note 13 of the unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2013 for further information related to the impact of these discontinued operations on the financial statements of the Corporation.

SUBSEQUENT EVENT

On July 23, 2013, D+H announced that it had entered into an agreement to indirectly purchase all of the outstanding shares of capital stock of Harland Financial Solutions, Inc., Harland Financial Solutions Worldwide Limited and Harland Israel Ltd. (collectively referred to as "HFS"). HFS is a leading U.S. based provider of strategic financial technology, including lending and compliance, core banking, and channel management technology solutions to U.S. banks, credit unions, and mortgage companies. HFS is headquartered in Lake Mary, Florida and operates from offices throughout the U.S., as well as Dublin, Ireland, Trivandrum, India and Tel Aviv, Israel.

The purchase price is approximately US $1.2 billion in cash, subject to post-closing adjustments. The purchase price and associated transaction costs will be financed as follows (refer to the Short-Form Prospectus filed on SEDAR dated August 1, 2013 for further details):

(i) Gross proceeds of approximately $400.2 million from issuance of 18.7 million subscription receipts ("Subscription Receipts"). Each Subscription Receipt entitles the holder to receive one common share of the Corporation upon the close of the acquisition, at a price of $21.40;

(ii) Gross proceeds of $200 million from issuance of 6.00%, 5-year, extendible convertible unsecured subordinated debentures ("Debentures"). The Debentures are convertible at the holder's option into the common shares of the Corporation at the conversion price of $28.90 ("Conversion Price"). The Debentures can be converted anytime after closing of the acquisition and the earlier of a) September 30, 2018 and b) the last business day immediately preceding the date specified by the Corporation for redemption of the Debentures.

The Debentures may not be redeemed by the Corporation before September 30, 2016 (except in certain limited circumstances). On or after September 30, 2016 and prior to September 30, 2017, the Debentures may be redeemed at the Corporation's option at a redemption price equal to their principal amount plus accrued and unpaid interest, provided that the then market price of the common shares of the Corporation exceeds 125% of the Conversion Price. On or after September 30, 2017 and prior to the September 30, 2018, the Debentures may be redeemed by the Corporation, at a redemption price equal to their principal amount plus accrued and unpaid interest.

The Debentures will be the Corporation's direct obligations and will not be secured by any mortgage, pledge, hypothec or other charge and will be subordinated to the Corporation's other liabilities;

(iii) Balance of purchase price through non-revolving, non-amortizing secured credit facilities, maturing in 5 years and may include senior secured guaranteed notes.

As part of the above mentioned changes to D+H's structure, D+H will also replace its current $355 million revolving, non-amortizing term credit facility with a new revolving, non-amortizing 5-year term credit facility.

The financing includes an overallotment for both the subscription receipts and convertible debentures that may be exercised on closing; the impact of which will reduce borrowings against the secured credit facilities.

Closing of the transaction is subject to regulatory approvals and other customary conditions and is expected to occur on or about August 19, 2013.

In the event the acquisition does not close by February 28, 2014, or earlier if the stock purchase agreement between the Corporation and seller is terminated, or the Corporation announces that it does not intend to proceed with the acquisition (in any case, a "Termination Event", and the date upon which such event occurs, the "Termination Date"):

(i) Holders of the subscription receipts will be entitled to receive an amount equal to the full subscription price, plus certain accrued interest,

(ii) The Debentures' maturity will be deemed to be the Termination Date,

(iii) 50% of the commission payable for the Subscription Receipts and 100% of the commission payable for the Debentures will be payable to the underwriters.

OPERATING RESULTS - SECOND QUARTER AND YEAR-TO-DATE 2013

The following tables should be read in conjunction with the condensed interim consolidated statements of income for the three and six months ended June 30, 2013 and include non-IFRS financial measures. Management believes these supplementary disclosures provide useful additional information. See Non-IFRS Financial Measures and Additional IFRS Measures sections for a description of non-IFRS and additional IFRS measures terms used.

The consolidated results include those of Compushare effective from the date of acquisition of January 29, 2013. Revenues and expenses relating to Compushare have been reported as part of the U.S. Segment.

Overview

D+H delivered solid operating performance in the first six months of 2013 that was consistent with its strategic agenda of becoming a leading FinTech provider to the North American financial services marketplace. Year-over-year growth in revenues was attributable mainly to the U.S. Segment and reflected the inclusion of Compushare and Avista as well as organic growth in our other SaaS revenues. U.S. Segment contributed to year-over-year growth in EBITDA and Adjusted EBITDA as a result of acquisitions and organic growth. Consolidated EBITDA also included non-normal-course charges of $5.8 million related to corporate development costs related to strategic acquisition initiatives, certain retention and incentive costs in connection with the acquisition of businesses, business integration costs and expense related to cost-realignment initiatives, reported as part of Corporate. Consolidated net income for the second quarter of 2013 was lower compared to the same period in 2012 primarily due to loss from discontinued operations related to the divestiture. Consolidated Adjusted net income, which excluded the loss from discontinued operations, was higher than the comparative period.

(in thousands of Canadian dollars, except per share amounts, unaudited)

			Quarter ended June 30,		Six months ended June 30,
	2013		2012		2013		2012
Revenue	$	197,134	$	180,989	$	368,795	$	346,310
Expenses		144,551		128,289		274,215		253,363
EBITDA¹		52,583		52,700		94,580		92,947
Depreciation of capital assets and amortization of non-acquisition intangibles		6,657		6,986		13,176		13,451
Amortization of intangibles from acquisitions		11,060		10,706		21,974		21,101
Income from operating activities		34,866		35,008		59,430		58,395
Interest expense		4,516		4,821		8,987		9,642
Income from investment in an associate, net of tax ²		-		(38)		(130)		(38)
Gain on remeasurement of previously-held equity interest²		-		-		(1,587)		-
Fair value adjustment of derivative instruments ³		(1,203)		616		(1,310)		(1,029)
Income tax expense		9,158		8,345		14,638		13,379
Income from continuing operations		22,395		21,264		38,832		36,441
Loss from discontinued operations, net of tax ⁴		(8,786)		(377)		(19,481)		(620)
Net income	$	13,609	$	20,887	$	19,351	$	35,821

Income from operating activities per share, basic and diluted^{5, 6}	$	0.5886	$	0.5910	$	1.0033	$	0.9858
Income from continuing operations per share, basic and diluted^{5, 6}	$	0.3781	$	0.3590	$	0.6556	$	0.6152
Loss from discontinued operations, per share, basic and diluted, net of tax ^{4, 5, 6}	$	(0.1483)	$	(0.0064)	$	(0.3289)	$	(0.0105)
Net income per share, basic and diluted ^{5, 6}	$	0.2298	$	0.3526	$	0.3267	$	0.6047

¹	EBITDA is a non-IFRS term. See Non-IFRS Financial Measures for a more complete description of this term.
²	Income from investment in an associate consists of D+H's share of profit from Compushare, the minority investment purchased on April 24, 2012.Upon acquisition of the remaining interest in January 2013, a gain related to remeasurement of the previously held equity interest was recognized in accordance with IFRS standards.
³	Includes mark-to-market adjustments of interest-rate swaps that are not designated as hedges for hedge accounting purposes, and for which any change in the fair value of these contracts is recorded through the Consolidated Statements of Income.
⁴	On May 10, 2013 D+H closed the previously announced transaction to divest its non-strategic business processing operations. These operations were reported as part of business service solutions and loan servicing in prior periods and have now been classified as discontinued operations for both the current and comparative periods presented.
⁵	Diluted net income per share reflects the impacts of outstanding options. If the average market price during the period is below the option price plus the fair market value of the option, then the options are not included in the dilution calculation.
⁶	Weighted average number of shares outstanding during the second quarter and first six months of 2013 was 59,233,373 shares (Three and six months ended June 30, 2012 - 59,233,373 shares).

(in thousands of Canadian dollars, unaudited)

			Quarter ended June 30,			Six months ended June 30,
			2013	2012		2013		2012
Revenue		$	197,134	$	180,989	$	368,795	$	346,310
Expenses			144,551		128,289		274,215		253,363
EBITDA¹			52,583		52,700		94,580		92,947
EBITDA Margin			*26.7%*		29.1%		*25.6%*		26.8%
Adjustments:
	Acquisition-related and other charges ²		5,764		4,378		6,792		5,115
Adjusted EBITDA ¹		$	58,347	$	57,078	$	101,372	$	98,062
Adjusted EBITDA Margin			*29.6%*		31.5%		*27.5%*		28.3%

EBITDA and Adjusted EBITDA are non-IFRS terms. See Non-IFRS Financial Measures for a more complete description of these terms.

Acquisition-related and other charges for the second quarter of 2013 included corporate development costs related to strategic acquisition initiatives, certain retention and incentive costs in connection with the acquisitions of businesses, business integration costs and expenses related to cost-realignment initiatives. Acquisition-related and other charges for the same period in 2012 included certain retention and incentive costs related to the Mortgagebot and Avista acquisitions as well as expenses related to cost-realignment initiatives.

	Quarter ended June 30,	Six months ended June 30,
	2013 vs. 2012	2013 vs. 2012
	% change	% change
Revenue	8.9%	6.5%
EBITDA ¹	(0.2%)	1.8%
Adjusted EBITDA ¹	2.2%	3.4%

¹EBITDA and Adjusted EBITDA are non-IFRS terms. See Non-IFRS Financial Measures for a more complete description of these terms.

(in thousands of Canadian dollars, except per share amounts, unaudited)

				Quarter ended June 30,			Six months ended June 30,
				2013	2012		2013		2012
Net income			$	13,609	$	20,887	$	19,351	$	35,821
Adjustments:
	Non-cash items:
		Amortization of intangibles from acquisitions		11,060		10,706		21,974		21,101
		Gain on remeasurement of previously-held equity interest²		-		-		(1,587)		-
		Fair value adjustment of derivative instruments ³		(1,203)		616		(1,310)		(1,029)
	Other items of note:
		Acquisition-related and other charges ⁴		5,764		4,378		6,792		5,115
	Tax effect of above adjustments ⁶			(3,814)		(4,615)		(7,392)		(7,469)
	Loss from discontinued operations, net of tax ⁵			8,786		377		19,481		620
Adjusted net income ¹			$	34,202	$	32,349	$	57,309	$	54,159

Adjusted net income per share, basic and diluted ^{1, 7, 8}			$	0.5774	$	0.5461	$	0.9675	$	0.9143

	Quarter ended June 30,	Six months ended June 30,
	2013 vs. 2012	2013 vs. 2012
	% change	% change
Adjusted net income per share, basic and diluted ^{1, 7, 8}	5.7%	5.8%

¹	Adjusted net income and Adjusted net income per share are non-IFRS terms. See Non-IFRS Financial Measures for a more complete description of these terms.
²	Upon acquisition of the remaining interest in Compushare in January 2013, a gain related to remeasurement of the previously held equity interest was recognized in accordance with IFRS standards.
³	Includes mark-to-market adjustments of interest-rate swaps that are not designated as hedges for hedge accounting purposes, and for which any change in the fair value of these contracts is recorded through the Consolidated Statement of Income.
⁴	Acquisition-related and other charges for the second quarter of 2013 included corporate development costs related to strategic initiatives, certain retention and incentive costs in connection with the acquisitions of businesses, business integration costs and expenses related to cost-realignment initiatives. Acquisition-related and other charges for the same period in 2012 included certain retention and incentive costs related to the Mortgagebot and Avista acquisitions as well as expenses related to cost-realignment initiatives.
⁵	On May 10, 2013 D+H closed the previously announced transaction to divest its non-strategic business processing operations. The results of these components were included as part of business service solutions and loan servicing solutions in the Canadian Segment in prior periods. These components and the related transition services have been classified as discontinued operations for all periods presented.
⁶	The following adjustments to net income are tax effected at their respective tax rates: (i) amortization of acquisition intangibles; (ii) fair value adjustment of derivative instruments; and (iii) acquisition-related and other charges.
⁷	Diluted Adjusted net income per share (non-IFRS term) reflects the impacts of outstanding options. If the average market price during the period is below the option price plus the fair market value of the option, then the options are not included in the dilution calculation.
⁸	Weighted average number of shares outstanding during the second quarter and first six months of 2013 was 59,233,373 shares (Three and six months ended June 30, 2012 - 59,233,373 shares).

OPERATING RESULTS BY SEGMENT

(in thousands of Canadian dollars, unaudited)

														Quarter ended June 30,
			Canadian Segment				U.S. Segment			Corporate				Consolidated
			2013	2012		2013		2012	2013		2012		2013		2012
Revenue		$	175,092	$	167,054	$	22,042	$ 13,935	$	-	$	-	$	197,134	$	180,989
Expenses			125,909		117,177		12,878	6,734		5,764		4,378		144,551		128,289
EBITDA¹			49,183		49,877		9,164	7,201		(5,764)		(4,378)		52,583		52,700
EBITDA Margin			*28.1%*		29.9%		*41.6%*	51.7%		-		-		*26.7%*		29.1%
Adjustments:
	Acquisition-related and other charges ²		-		-		-	-		5,764		4,378		5,764		4,378
Adjusted EBITDA ¹		$	49,183	$	49,877	$	9,164	$ 7,201	$	-	$	-	$	58,347	$	57,078
Adjusted EBITDA Margin			*28.1%*		29.9%		*41.6%*	51.7%		-		-		*29.6%*		31.5%
		Six months ended June 30,
			Canadian Segment				U.S. Segment				Corporate			Consolidated
		2013		2012		2013		2012	2013		2012		2013		2012
Revenue		$	327,472	$	320,784	$	41,323	$ 25,526	$	-	$	-	$	368,795	$	346,310
Expenses			243,270		235,962		24,153	12,286		6,792		5,115		274,215		253,363
EBITDA¹			84,202		84,822		17,170	13,240		(6,792)		(5,115)		94,580		92,947
EBITDA Margin			*25.7%*		26.4%		*41.6%*	51.9%		-		-		*25.6%*		26.8%
Adjustments:
	Acquisition-related and other charges ²		-		-		-	-		6,792		5,115		6,792		5,115
Adjusted EBITDA ¹		$	84,202	$	84,822	$	17,170	$ 13,240	$	-	$	-	$	101,372	$	98,062
Adjusted EBITDA Margin			*25.7%*		26.4%		*41.6%*	51.9%		-		-		*27.5%*		28.3%

EBITDA and Adjusted EBITDA are non-IFRS terms. See Non-IFRS Financial Measures for a more complete description of these terms.

Acquisition-related and other charges for the second quarter of 2013 included corporate development costs related to strategic initiatives, certain retention and incentive costs in connection with the acquisitions of businesses, business integration costs and expenses related to cost-realignment initiatives. Acquisition-related and other charges for the same period in 2012 included certain retention and incentive costs related to the Mortgagebot and Avista acquisitions as well as expenses related to cost-realignment initiatives.

REVENUE

Revenue - Consolidated

(in thousands of Canadian dollars, unaudited)

		Quarter ended June 30,				Six months ended June 30,
		2013	2012			2013	2012
Payment solutions	$	78,591	$	76,787	$	152,270	$	151,568
Lending processing solutions ¹		76,145		70,581		141,268		134,982
Banking technology solutions ²		42,398		33,621		75,257		59,760
	$	197,134	$	180,989	$	368,795	$	346,310

¹		Reported as loan servicing solutions and loan registration and recovery services in prior periods.
²		Reported as lending technology services in prior periods.

Consolidated revenue for the second quarter of 2013 was $197.1 million, an increase of $16.1 million, or 8.9%, compared to the same period in 2012. For the first six months of 2013, consolidated revenue of $368.8 million, increased by $22.5 million, or 6.5%, compared to the same period in 2012. These increases were primarily due to higher transaction volumes in loan registration and recovery services and growth within the U.S. Segment as a result of the inclusion of Compushare effective from January 29, 2013, and annualization of Avista acquired on May 3, 2012, as well as ongoing organic growth in Mortgagebot.

Revenue - Canadian Segment

Total revenues in the Canadian Segment for the second quarter of 2013 of $175.1 million, increased by $8.0 million, or 4.8%, compared to the same quarter in 2012. For the first six months in 2013, total revenues were $327.5 million, an increase of $6.7 million, or 2.1%, compared to the same period in 2012.

(in thousands of Canadian dollars, unaudited)

Quarter ended June 30,					Six months ended June 30,
	2013		2012		2013		2012
Payment solutions	$	78,591	$	76,787	$	152,270	$	151,568
Lending processing solutions ¹		76,145		70,581		141,268		134,982
Banking technology solutions ²		20,356		19,686		33,934		34,234
	$	175,092	$	167,054	$	327,472	$	320,784

¹	Reported as loan servicing solutions and loan registration and recovery services in prior periods.
²	Reported as lending technology services in prior periods.

Payment Solutions

Payment solutions include: (i) the cheque supply program which serves the personal and small business account holders of our financial services customers; and (ii) various subscription fee-based enhancement services and other service offerings directed towards the chequing and credit card programs. These service offerings (excluding the component of enhancement and identity protection services that are integrated in the cheque order) currently represent a small component of revenues within this revenue category. Cheque order volumes are declining as consumers and small businesses choose other payment methods. These volume declines have been partially offset by increased average order values for cheques and growth in service enhancements to the chequing and credit card programs.

Revenue from payment solutions for the second quarter of 2013 was $78.6 million, an increase of $1.8 million, or 2.3%, compared to the same quarter in 2012. For the six months ended June 30, 2013, revenue was $152.3 million, an increase of $0.7 million, or 0.5%, compared to the same period in 2012. For the second quarter and first six-month period of 2013, revenues from payments solutions reflected the positive impact of higher average order values and product and service enhancements in the chequing and credit card programs partially offset by volume declines in cheque orders. Revenues for the second quarter of 2013 were also higher as a result of having one additional business day than in the prior-year period, whereas, revenues for the first six months of 2013 were impacted by having one less business day compared to the same period in 2012. Management believes that the downward trend in cheque order volumes is in the low to mid-single digit range annually, and in recent periods, there has been more volatility in personal cheque order volumes, while the decline in business cheque order volumes continues to be in the low single digit range with comparatively minimal volatility. Management expects that these trends will continue through the remainder of 2013. D+H continues to develop service enhancements to offset this impact and to generate future growth within this category.

Lending Processing Solutions

Lending processing solutions consist of two distinct customer solutions sets: loan registration and recovery and student loan administration services. Loan registration and recovery services, which accounts for approximately 55% to 65% of the revenues within this category, support the personal and commercial lending activities of our financial services customers with the registration and management of data related to secured lending for both personal and real property loans as well as recovery services related to both secured and unsecured lending activities. Loans relating to vehicle purchases are a significant driver of activity and are variable. In general, registration services are affected by both economic cyclicality and seasonality, while recovery services are, in general, counter-cyclical. Related services include mortgage discharge solutions and various search-related services, both of which we deliver on behalf of our financial institution customers.

In our student loan administration services area, which accounts for approximately 35% to 45% of revenues within this category, we manage a $20 billion student loan portfolio encompassing service to 1.7 million students on behalf of Canadian federal and provincial governments and lenders. Services include student enrollment, management of funds' disbursement, loan tracking, student support services, reporting and collections. In general, student loan servicing volumes have been stable and modestly growing on higher student loan balances and extended loan durations.

Lending processing solutions revenues for the second quarter of 2013 were $76.1 million, an increase of $5.6 million, or 7.9%, compared to the same quarter in 2012. For the first six months of 2013, revenues were $141.3 million, an increase of $6.3 million, or 4.7%, compared to the same period in 2012. For both the second quarter and the first-six months of 2013, the increase was mainly due to higher transaction volumes in registration and recovery services reflecting a continuing recovery within the auto and auto lending markets, an increase in automotive lending recovery services and higher average order values in the student loans program. These increases were partially offset by an expected reduction in fees from a previously announced consolidation and integration between two customers within the student loans program. Volumes in the student loan administration service area are expected to be relatively stable and modestly growing in the short term. Activities related to cost management and improving delivery efficiency are being directed towards lowering the impact of reduced pricing and fees related to the recent customer consolidation. The benefits from these cost management initiatives that we started to realize in 2012 will continue into 2013.

Banking Technology Solutions

Banking technology solutions reported as part of the Canadian segment include services directed towards mortgage markets in Canada. Also included in this category are the technology products and services we offer in both Canada and the U.S. directed towards leasing, commercial lending and small business lending. Revenues related to mortgage markets currently represent approximately 75% to 85% of revenues within this category with approximately 35% to 45% attributable to transaction-based fees earned in connection with Canadian mortgage originations. Mortgage origination fees can be variable and are impacted by many factors including the economy, the housing market, interest rates and changes in government regulations among others.

Revenue from banking technology solutions related to the Canadian Segment for the second quarter of 2013 was $20.4 million, an increase of $0.7 million, or 3.4%, compared to the same quarter in 2012. Revenue was $33.9 million for the first six months of 2013, a decrease of $0.3 million, or 0.9%, compared to the same quarter in 2012. The second quarter 2013 revenue increase was due to higher professional services revenue which was partially offset by lower mortgage origination fees resulting from softer Canadian housing and mortgage market activity and strategic price modifications. Revenue for the first six months of 2013 was impacted by lower mortgage origination fees and price modifications, partially offset by higher professional services fees. In general, industry analysts expect the recently observed softening in Canadian housing market prices and sales volumes to continue at a moderate level in major urban areas throughout the remainder of 2013. Revenues in future periods may continue to be impacted by strategic price modifications, which are expected to be offset by potential revenue from the launch of new products in the Canadian lending market, including extension of our technology solutions across various areas in the lending value chain.

Revenue - U.S. Segment

(in thousands of Canadian dollars, unaudited)

		Quarter ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Banking technology solutions	$	22,042	$	13,935	$	41,323	$	25,526
	$	22,042	$	13,935	$	41,323	$	25,526

Revenues from the U.S. SaaS loan origination solutions related to Mortgagebot and Avista and Compushare's cloud-based services are reported as part of the U.S. Segment. Within U.S. revenues related to mortgage markets, 65% to 75% relate to recurring subscription fees and approximately 15% to 25% relate to transaction-based activity.

Revenue for the second quarter of 2013 was $22.0 million, an increase of $8.1 million, or 58.2%, compared to $13.9 million for the same period in 2012. For the six months ended June 30, 2013, revenue was $41.3 million, an increase of $15.8 million, or 61.9%, compared to the same period in 2012. The increases for the current and six-month periods of 2013 were due to the inclusion of Compushare since its acquisition of January 29, 2013, annualization of Avista and organic growth in Mortgagebot related to the growing client base.

EXPENSES

Expenses - Consolidated

(in thousands of Canadian dollars, unaudited)

		Quarter ended June 30,			Six months ended June 30,
		2013	2012		2013		2012
Employee compensation and benefits ¹	$	49,120	$	44,066	$	96,167	$	88,638
Non-compensation direct expenses²		66,128		62,053		124,170		119,000
Other operating expenses ³		29,303		22,170		53,878		45,725
	$	144,551	$	128,289	$	274,215	$	253,363

¹	Employee compensation and benefits on a consolidated basis includes retention and incentive expenses related to acquisitions of businesses and are net of apprenticeship tax credits and amounts capitalized related to software product development.
²	Non-compensation direct expenses include materials, shipping, selling expenses and third party direct disbursements.
³	Other operating expenses include occupancy costs, communication costs, licensing fees, professional fees, contractor fees, transaction costs related to acquisitions of businesses, corporate development costs related to strategic acquisition initiatives and expenses not included in other categories.

Consolidated expenses of $144.6 million for the second quarter of 2013 increased by $16.3 million, or 12.7%, compared to the same quarter in 2012. For the first six months of 2013, consolidated expenses were $274.2 million, an increase of $20.9 million, or 8.2%, compared to the same period in 2012. Consolidated expenses included acquisition-related and other charges of $5.8 million for the second quarter of 2013 and $6.8 million for the first six months of 2013, which are considered non-normal-course expenses and recognized as part of Corporate. Acquisition-related and other charges of $4.4 million were recorded in the second quarter of 2012 and $5.1 million for the first six months of 2012. The inclusion of Compushare and annualization of Avista expenses also contributed to the increase for the second quarter and first six-month period of 2013.

Expenses - Canadian Segment

Total expenses for the Canadian Segment for the second quarter of 2013 of $125.9 million, increased $8.7 million, or 7.4%, compared to the same quarter in 2012 on higher revenues and other items explained below, partially offset by savings realized from recent transformation and cost reduction activities. Expenses for the first six months of 2013 were $243.3 million, an increase of $7.3 million, or 3.1%, on higher revenues that were partially offset by benefits from recent transformation and cost reduction activities. Increase in expenses for the second quarter and the first six months of 2013 were also attributable to change in product mix and timing related to new organic growth initiatives.

(in thousands of Canadian dollars, unaudited)

		Quarter ended June 30,			Six months ended June 30,
	2013		2012		2013		2012
Employee compensation and benefits ¹	$	38,892	$	36,235	$	78,415	$	77,037
Non-compensation direct expenses²		65,509		61,774		122,978		118,464
Other operating expenses ³		21,508		19,168		41,877		40,461
	$	125,909	$	117,177	$	243,270	$	235,962

¹	Employee compensation and benefits are net of apprenticeship tax credits and amounts capitalized related to software product development.
²	Non-compensation direct expenses include materials, shipping, selling expenses and third party direct disbursements.
³	Other operating expenses include occupancy costs, communication costs, licensing fees, professional fees, contractor fees and expenses not included in other categories. Other operating expenses are net of inter-segment management fees received from the U.S. segment.

Employee compensation and benefits costs of $38.9 million for the second quarter of 2013 for the Canadian Segment were higher by $2.7 million, or 7.3%, compared to the same quarter in 2012, and for the first six months of 2013, costs of $78.4 million, increased by $1.4 million, or 1.8%, compared to the same period in 2012 primarily due to timing of capitalization of projects related to professional services and employee related incentive costs.

Non-compensation direct expenses for the Canadian Segment were $65.5 million for the second quarter of 2013, an increase of $3.7 million, or 6.0%, compared to the same quarter in 2012. For the first six months of 2013, non-compensation direct expenses of $123.0 million, increased by $4.5 million, or 3.8%, compared to the same period in 2012. In general, these expenses directionally change with revenue changes. An increase in direct costs associated with the lending processing solutions and payment solutions service areas, is consistent with the increase in revenues.

Other operating expenses of $21.5 million for the second quarter of 2013 were higher by $2.3 million, or 12.2%, compared to the same quarter in 2012, and for the first six months of the current year, other operating expenses of $41.9 million, increased by $1.4 million, or 3.5%, compared to the same period in 2012. The increase in the second quarter of 2013 was due to replacement of full-time staff (recorded in employee compensation and benefits) with outsourced labour and higher consulting costs, partially offset by cost efficiencies realized from transformation and integration activities. Increase in the second quarter of 2013 is also attributable to a change in product mix in the Canadian Segment. The Canadian Segment is undergoing a transition where higher margin products are being replaced with lower margin offerings, however, this trend is expected to stabilize.

Expenses - U.S. Segment

Total expenses for the U.S. Segment for the second quarter of 2013 were $12.9 million, an increase of $6.1 million, or 91.2%, compared to the same quarter in 2012. For the first six months of 2013, expenses were $24.2 million, an increase of $11.9 million, or 96.6%. These increases were primarily due to the inclusion of the Compushare cost base and annualization of expenses for Avista.

(in thousands of Canadian dollars, unaudited)

		Quarter ended June 30,			Six months ended June 30,
	2013		2012		2013		2012
Employee compensation and benefits²	$	7,811	$	3,934	$	14,443	$	7,081
Non-compensation direct expenses		619		279		1,192		536
Other operating expenses ¹		4,448		2,521		8,518		4,669
	$	12,878	$	6,734	$	24,153	$	12,286

¹	Other operating expenses include inter-segment management fees, occupancy costs and expenses not included in other categories.
²	Employee compensation and benefits are net of amounts capitalized related to software product development.

Employee compensation and benefits costs of $7.8 million for the second quarter of 2013 for the U.S. Segment were higher by $3.9 million, or 98.6%, compared to the same quarter in 2012 and for the first six months of 2013, costs of $14.4 million, increased by $7.4 million, or 104.0%, compared to the same period in 2012. These increases were primarily due to the inclusion of the Compushare and Avista cost base and increased costs related to the alignment of employee benefits as a result of integration of the Mortgagebot and Avista businesses.

Non-compensation direct expenses for the U.S. Segment of $0.6 million for the second quarter of 2013 were higher by $0.3 million, or 121.9%, compared to the same period in 2012, and for the first six months of 2013, costs of $1.2 million, increased by $0.7 million, or 122.4%, compared to the same period in 2012, due to inclusion of Compushare.

Other operating expenses of $4.4 million for the second quarter of 2013 were higher by $1.9 million, or 76.4%, compared to the same quarter in 2012. For the six months ended June 30, 2013, costs of $8.5 million, increased by $3.8 million, or 82.4%, compared to the same period in 2012. These increases were primarily attributable to the inclusion of Compushare and Avista expenses and expenses associated with growth initiatives.

Expenses - Corporate

(in thousands of Canadian dollars, unaudited)

	Quarter ended June 30,				Six months ended June 30,
	2013			2012		2013		2012
Employee compensation and benefits	$	2,417	$	3,897	$	3,309	$	4,520
Other operating expenses		3,347		481		3,483		595
	$	5,764	$	4,378	$	6,792	$	5,115

Employee compensation and benefits

Employee compensation and benefits expenses for the second quarter of 2013 and 2012 consisted of retention and incentive expenses incurred in connection with Avista and Mortgagebot acquisitions. The second quarter of 2013 also included severances related to cost-realignment initiatives.

Other expenses

Other expenses for the second quarter of 2013 included transaction costs related to strategic acquisition initiatives, transaction costs incurred in connection with the acquisition of Compushare and business integration costs. For the same period in 2012, the other operating expenses related to transaction costs incurred in connection with the acquisition of Avista.

EBITDA AND EBITDA MARGIN

Consolidated EBITDA for the second quarter of 2013 was $52.6 million, a decrease of $0.1 million, or 0.2%, compared to $52.7 million for the same quarter in 2012. For the first six months of 2013, consolidated EBITDA of $94.6 million, increased $1.6 million, or 1.8%, from $92.9 million for the same period in 2012. EBITDA margin of 26.7% on a consolidated basis for the second quarter of 2013 decreased from 29.1% for the same period in 2012 due to inclusion of Compushare in the U.S. Segment for which margins are lower than the overall U.S. Segment in the 2013 period. EBITDA growth in the U.S. Segment was partially offset by retention and incentive expenses, cost-realignment initiatives and acquisition transaction costs in Corporate. For the six-month period of 2013, consolidated EBITDA margin of 25.6% decreased from 26.8% for the same period in 2012.

Canadian Segment

Canadian Segment EBITDA for the second quarter of 2013 was $49.2 million, a decrease of $0.7 million, or 1.4%, compared to the same quarter in 2012. EBITDA for the first six months of 2013 was $84.2 million, a decrease of $0.6 million, or 0.7%. The results in both 2013 periods reflected higher expenses related to changes in product mix and timing related to new organic growth initiatives, partially offset by growth in revenues and savings realized from recent transformation and cost reduction activities.

EBITDA margin for the second quarter and the first six months of 2013 was 28.1% and 25.7% respectively, compared to 29.9% and 26.4% for the same periods in 2012 due to the change in product mix.

U.S. Segment

U.S. Segment EBITDA for the second quarter of 2013 was $9.2 million, an increase of $2.0 million, compared to the same quarter in 2012, attributable to the inclusion of Compushare cloud-based services and annualization of Avista LOS services and continued growth in our other SaaS businesses. EBITDA for the first six months of 2013 was $17.2 million, an increase of $4.0 million, or 29.7%. EBITDA margin of 41.6% for the second quarter of 2013 was lower than the 51.7% a year-ago and EBITDA margin for the first six months of 2013 of 41.6%, was lower than 51.9% during the same period in 2012 primarily due to the inclusion of Compushare.

ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN

Consolidated Adjusted EBITDA during the second quarter of 2013 was $58.3 million, an increase of $1.3 million, or 2.2%, compared to the same quarter in 2012. For the first six months of 2013, consolidated Adjusted EBITDA of $101.4 million, increased by $3.3 million, or 3.4%. Consolidated Adjusted EBITDA excluded acquisition-related and other charges of $5.8 million for the second quarter of 2013, consisting of $3.0 million related to strategic acquisition initiatives, $1.8 million related cost-realignment initiatives and $1.0 million to retention and incentive costs and integration expenses associated with acquisitions. On a consolidated basis, Adjusted EBITDA margin for the second quarter and the first six months of 2013 was 29.6% and 27.5%, respectively, compared to 31.5% and 28.3% for the same period in 2012.

DEPRECIATION OF CAPITAL ASSETS AND AMORTIZATION OF NON-ACQUISITION INTANGIBLES

Consolidated depreciation of capital assets and amortization of non-acquisition intangible assets of $6.7 million in the second quarter of 2013 decreased by $0.3 million, or 4.7%, compared to the same period in 2012. For the first six months of 2013, depreciation and amortization was $13.2 million, a decrease of $0.3 million, or 2.0%, compared to the same period in 2012.

AMORTIZATION OF INTANGIBLES FROM ACQUISITIONS

Consolidated amortization of acquisition intangibles for the second quarter of 2013 was $11.1 million, an increase of $0.4 million, compared to the same period in 2012. For the six months ended June 30, 2013, the amortization was $22.0 million, an increase of $0.9 million, or 4.1%, compared to the same period in 2012. The increase was attributable to the amortization resulting from the acquisitions of Compushare in January 2013 and Avista in May 2012.

INCOME FROM OPERATING ACTIVITIES

Consolidated income from operating activities was $34.9 million for the three months ended June 30, 2013, a decrease of $0.1 million, or 0.4%, compared to $35.0 million for the same quarter in 2012. For the six months ended June 30, 2013, income from operating activities was $59.4 million, an increase of $1.0 million, or 1.8%, compared to $58.4 million for the same period in 2012. As discussed above, revenue growth reflected the inclusion of Compushare and annualization of Avista, as well as continued growth from our other SaaS businesses. Expenses reflected acquisition-related costs and other charges, as well as the inclusion of Compushare and Avista expenses.

INTEREST EXPENSE

Interest expense for the second quarter of 2013 decreased by $0.3 million compared to the same quarter in 2012 as a result of favourable pricing on the renewed credit facility, due to renegotiated terms, and a lower average loan balance as debt repayments have offset increases in long-term, fixed-rate borrowings related to acquisitions. For the six-month period in 2013, interest expense decreased by $0.7 million compared to the same period in 2012.

INCOME FROM INVESTMENT IN AN ASSOCIATE

Consolidated net income for the first six months of 2013 and 2012 included D+H's share of income related to the minority interest held in Compushare up to January 28, 2013, after which, the results were consolidated upon obtaining 100% ownership on January 29, 2013.

FAIR VALUE ADJUSTMENT OF DERIVATIVE INSTRUMENTS

Interest-rate swaps

Compared to a net unrealized loss of $0.6 million in the second quarter of 2012, a net unrealized gain of $1.2 million on interest-rate swaps was recognized in the second quarter of 2013 reflecting fair value adjustments related to changes in market interest rates at June 30, 2013 compared to March 31, 2013. For the first six months of 2013, the net unrealized gain related to the interest-rate swaps was $1.3 million, compared to a net unrealized gain of $1.0 million for the same period in 2012.

INCOME TAX EXPENSE

An income tax expense of $9.2 million was recorded in the second quarter of 2013 compared to an income tax expense of $8.3 million for the same period in 2012 on increased income from continuing operations before income tax. The second quarter of 2013 included a current tax expense of $5.4 million and a deferred tax expense of $3.8 million.

Tax expense for the first six months of 2013 was $14.6 million compared to $13.4 million for the same period in 2012.

INCOME FROM CONTINUING OPERATIONS

Income from continuing operations for the second quarter of 2013 was $22.4 million ($0.3781 per share) compared to $21.3 million ($0.3590 per share) for the same period in 2012. The increase in the second quarter of 2013 was primarily attributable to unrealized gain on fair value changes related to interest-rate swaps. Income from continuing operations for the first six months of 2013 was $38.8 million ($0.6556 per share) compared to $36.4 million ($0.6152 per share) for the same period in 2012. The increase was due to higher income from operating activities and gain on remeasurement of the previously held equity interest relating to Compushare, partially offset by an increase in income tax expense.

LOSS FROM DISCONTINUED OPERATIONS

Loss from discontinued operations of $8.8 million ($0.1483 per share) for the second quarter of 2013 was related to the divestiture of D+H's non-strategic business processing operations on May 10, 2013. See Divestiture section for more details. For the comparative period in 2012, the loss from discontinued operations was $0.4 million ($0.0064 per share). Loss from discontinued operations for the second quarter of 2013 included a loss on disposal of $8.1 million. For the first six months of 2013, loss from discontinued operations was $19.5 million ($0.3289 per share), which included a loss on disposal of $8.1 million and a loss of $11.2 million related to measurement to fair value less estimated costs to sell the assets held for sale, compared to a loss of $0.6 million ($0.0105 per share) for the same period in 2012.

NET INCOME

Consolidated net income of $13.6 million ($0.2298 per share) for the second quarter of 2013 was lower by $7.3 million, or 34.8%, compared to consolidated net income of $20.9 million ($0.3526 per share) for the same quarter in 2012, primarily due to the loss from discontinued operations of $8.8 million described above. This impact was partially offset by fair value changes related to interest-rate swaps of $1.8 million. For the six month period ended June 30, 2013, consolidated net income of $19.4 million ($0.3267 per share) was lower by $16.5 million, or 46.0%, compared to $35.8 million for the same period in 2012 ($0.6047 per share), primarily attributable to loss from discontinued operations, net of taxes, of $19.5 million. This decrease was partially offset by the gain on remeasurement of previously held equity interest in Compushare.

ADJUSTED NET INCOME

Consolidated Adjusted net income of $34.2 million ($0.5774 per share) for the second quarter of 2013 was higher by $1.9 million compared to the $32.3 million ($0.5461 per share) for the same period in 2012. Consolidated Adjusted net income for the first six months of 2013 was $57.3 million ($0.9675 per share), an increase of $3.2 million, or 5.8%, compared to $54.2 million ($0.9143 per share) for the same period in 2012. These increases were mainly due to higher Adjusted EBITDA. Consolidated Adjusted net income excludes the after-tax impacts of the following items: (i) impacts of non-cash items such as amortization of intangibles from acquisitions, gains and losses related to fair value adjustment of derivative instruments and a gain on remeasurement of previously held equity interest in Compushare; (ii) other items of note such as acquisition-related and other charges described earlier as well as the loss on discontinued operations; and (iii) non-cash tax expense / recoveries relating to acquisitions.

CONSOLIDATED CASH FLOW AND LIQUIDITY

The following table is derived from, and should be read in conjunction with, the Consolidated Statements of Cash Flows. Management believes this disclosure provides useful additional information related to the cash flows of the Corporation, repayment of debt and other investing activities.

Consolidated Summary of Cash Flows

(in thousands of Canadian dollars, unaudited)

		Quarter ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Cash and cash equivalents provided by (used in):

OPERATING ACTIVITIES
Income from continuing operations	$	22,395	$	21,264	$	38,832	$	36,441
Depreciation and amortization of assets		17,717		17,692		35,150		34,552
Amortization and fair value adjustment of derivative instruments		(1,203)		616		(1,310)		(1,029)
Income from investment in an associate, net of tax		-		(38)		(130)		(38)
Gain on remeasurement of previously held equity interest		-		-		(1,587)		-
Interest expense		4,516		4,821		8,987		9,642
Non-cash income tax and options expenses		9,200		8,242		14,791		15,194
		52,625		52,597		94,733		94,762
Changes in non-cash working capital items		5		(12,669)		(15,143)		(27,309)
Changes in other operating assets and liabilities		(1,355)		348		437		1,031
Cash flows from (used in) discontinued operations		(5,268)		406		(9,999)		992
Interest paid		(4,175)		(4,486)		(8,218)		(8,707)
Income tax paid		(779)		-		(2,123)		-
Net cash from operating activities		41,053		36,196		59,687		60,769

FINANCING ACTIVITIES
Net change in long-term indebtedness		(20,481)		35,561		5,568		40,561
Payment of issuance costs of long-term indebtedness		-		(111)		-		(111)
Dividends paid during the period		(18,955)		(18,362)		(37,910)		(36,724)
Net cash from (used in) financing activities		(39,436)		17,088		(32,342)		3,726

INVESTING ACTIVITIES
Capital expenditures		(6,635)		(6,130)		(12,921)		(16,666)
Acquisition of investment in an associate		-		(10,058)		-		(10,058)
Acquisition of subsidiary		(456)		(37,946)		(24,849)		(37,946)
Cash flows from (used in) discontinued operations		8,500		-		8,500		-
Net cash used in investing activities		1,409		(54,134)		(29,270)		(64,670)
Increase (decrease) in cash and cash equivalents for the period		3,026		(850)		(1,925)		(175)
Cash and cash equivalents, beginning of period		768		2,888		5,719		2,213
Cash and cash equivalents, end of period	$	3,794	$	2,038	$	3,794	$	2,038

As at June 30 2013, cash and cash equivalents totalled $3.8 million, compared to $5.7 million at December 31, 2012.

Operating Activities

Operating activities provided $41.1 million during the quarter ended June 30, 2013, compared to $36.2 million for the same period in 2012. For the first six months of 2013, operating activities provided $59.7 million, compared to $60.8 million for the same period in 2012. The change in net cash from operating activities for the quarter and six-month period ended June 30, 2013 was primarily due to working capital changes as described below.

Changes in Non-Cash Working Capital and Other Items

(in thousands of Canadian dollars, unaudited)

	Quarter ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Change in non-cash working capital	$	5	$	(12,669)	$	(15,143)	$	(27,309)
Change in other operating assets and liabilities		(1,355)		348		437		1,031
Discontinued operations		(5,268)		406		(9,999)		992
Increase in non-cash working capital and other items	$	(6,618)	$	(11,915)	$	(24,705)	$	(25,286)

The net increase in non-cash working capital in the second quarter of 2013 primarily related to an increase in trade receivables attributable to an increase in volumes and accruals related to certain incentive payments and apprenticeship tax credits, strategic acquisition initiatives, cost realignment initiatives and certain retention and incentive costs.

The net increase in non-cash working capital for the first six months of 2013 related to an increase in trade receivables partially offset by an increase in accrued payables.

Cash flows used in discontinued operations of $5.3 million represents the net change in operating activities and working capital from April 1, 2013 to May 10, 2013 closing, as well as incremental and directly attributable selling costs and the transfer of cash associated with these operations.

Financing Activities

Net cash used in financing activities was $39.4 million during the quarter ended June 30, 2013, compared to $17.1 million used for the same period in 2012. The net change during the quarter was primarily due to repayment of funds drawn from our credit facilities to finance the acquisition of Compushare and Avista and an increase in dividend payments following a dividend increase in the fourth quarter of 2012.

For the first six months of 2013, net cash used in financing activities was $32.3 million, compared to $3.7 million provided by financing activities for the same period in 2012. The net change was primarily due to funds drawn from our credit facilities to finance the acquisition of Avista and the minority investment in Compushare in 2012.

Dividends

During the second quarter of 2013, D+H paid a dividend of $0.32 per share to its shareholders. For the same quarter in 2012, $0.31 per share was paid to shareholders. During the first six months of 2013, D+H paid $0.64 per share to its shareholders, and for the same period in 2012, $0.62 per share was paid.

Investing Activities

During the second quarter of 2013, $1.4 million was used for investing activities, by way of capital expenditures, compared to $54.1 million for capital expenditures and acquisition of Avista and minority interest in Compushare during the same period in 2012. For the six-month period ended June 30, 2013, investing activities used $29.3 million for capital expenditures and acquisition of the remaining outstanding shares of Compushare, compared to $64.7 million during the same period in 2012 for capital expenditures and acquisition of Avista and the minority investment in Compushare. Investing activities also include the proceeds from the sale of the non-strategic business processing operations in May 2013.

Capital Expenditures

Consolidated capital expenditures were $6.6 million for the second quarter of 2013, $0.5 million higher compared to the same period of 2012. For the six months ended June 30, 2013, capital expenditures were $12.9 million, a decrease of $3.7 million, compared to the same period in 2012. Lower capital expenditures in the first six months of 2013 reflected timing of expenditures.

EIGHT QUARTER CONSOLIDATED STATEMENT OF INCOME - SUMMARY

(in thousands of Canadian dollars, except per share amounts, unaudited)

				2013				2012								2011
				Q2		Q1		Q4		Q3		Q2		Q1		Q4		Q3
Revenue			$	197,134	$	171,661	$	172,457	$	176,689	$	180,989	$	165,321	$	166,580	$	169,334
Expenses¹				144,551		129,664		131,082		129,405		128,289		125,074		121,865		123,655
EBITDA^{1, 3}				52,583		41,997		41,375		47,284		52,700		40,247		44,715		45,679
Adjustments:
Acquisition-related and other charges ¹				5,764		1,028		6,558		3,265		4,378		737		637		610
Adjusted EBITDA ³			$	58,347	$	43,025	$	47,933	$	50,549	$	57,078	$	40,984	$	45,352	$	46,289

EBITDA^{1, 3}			$	52,583	$	41,997	$	41,375	$	47,284	$	52,700	$	40,247	$	44,715	$	45,679
Depreciation of capital assets and amortization of non-acquisition intangibles				6,657		6,519		7,568		6,648		6,986		6,465		6,171		5,242
Amortization of intangibles from acquisitions				11,060		10,914		11,292		10,597		10,706		10,395		10,465		10,496
Income from operating activities³				34,866		24,564		22,515		30,039		35,008		23,387		28,079		29,941
Interest expense				4,516		4,471		4,629		4,943		4,821		4,821		4,909		4,792
Loss (income) from investment in an associate, net of tax				-		(130)		23		(53)		(38)		-		-		-
Gain on remeasurement of previously held equity interest ²				-		(1,587)		-		-		-		-		-		-
Amortization and fair value adjustment of derivative instruments⁴				(1,203)		(107)		(542)		(445)		616		(1,645)		(145)		3,991
Income tax expense				9,158		5,480		4,165		5,987		8,345		5,034		7,758		5,685
Income from continuing operations				22,395		16,437		14,240		19,607		21,264		15,177		15,557		15,473
Loss from discontinued operations, net of tax ⁵				(8,786)		(10,695)		(529)		(2)		(377)		(243)		(188)		(413)
Net income			$	13,609	$	5,742	$	13,711	$	19,605	$	20,887	$	14,934	$	15,369	$	15,060
Adjustments:
	Non-cash items:
		Amortization of intangibles from acquisitions	$	11,060	$	10,914	$	11,292	$	10,597	$	10,706	$	10,395	$	10,465	$	10,496
		Gain on remeasurement of previously held equity interest ²		-		(1,587)		-		-		-		-		-		-
		Amortization and fair value adjustment of derivative instruments ⁴		(1,203)		(107)		(542)		(445)		616		(1,645)		(145)		3,991
	Other items of note:
		Acquisition-related and other charges ¹		5,764		1,028		6,558		3,265		4,378		737		637		610
	Tax effect of above adjustments ⁶			(3,814)		(3,578)		(5,543)		(3,962)		(4,615)		(2,854)		(3,237)		(4,311)
	Loss from discontinued operations, net of tax ⁵			8,786		10,695		529		2		377		243		188		413
	Tax effect of acquisitions ⁷			-		-		-		(1,156)		-		-		2,080		-
Adjusted net income³			$	34,202	$	23,107	$	26,005	$	27,906	$	32,349	$	21,810	$	25,357	$	26,259
Adjusted net income per share, basic and diluted ^{3, 8, 9}			$	0.5774	$	0.3901	$	0.4390	$	0.4711	$	0.5461	$	0.3682	$	0.4281	$	0.4433
Income from continuing operations per share, basic and diluted ^8,9			$	0.3781	$	0.2775	$	0.2404	$	0.3310	$	0.3590	$	0.2562	$	0.2626	$	0.2612
Loss from discontinued operations per share, basic and diluted ^8,9			$	(0.1483)	$	(0.1806)	$	(0.0089)	$	-	$	(0.0064)	$	(0.0041)	$	(0.0032)	$	(0.0070)
Net income per share, basic and diluted ^8,9			$	0.2298	$	0.0969	$	0.2315	$	0.3310	$	0.3526	$	0.2521	$	0.2595	$	0.2542

¹	Acquisition-related and other charges for the second quarter of 2013 included corporate development costs related to strategic initiatives, certain retention and incentive costs in connection with the acquisitions of businesses, business integration costs and expenses related to cost-realignment initiatives. Acquisition-related and other charges for the same period in 2012 included certain retention and incentive costs related to the Mortgagebot and Avista acquisitions as well as expenses related to cost-realignment initiatives.
²	Upon acquisition of the remaining interest in January 2013, a gain related to remeasurement of the previously held equity interest was recognized in accordance with IFRS standards.
³	EBITDA, Adjusted EBITDA, Adjusted net income and Adjusted net income per share are non-IFRS terms. See Non-IFRS Financial Measures for a more complete description of these terms. Income from operating activities is an additional IFRS term. See Additional IFRS Measures for a more complete description of this term.
⁴	Includes mark-to-market adjustments of interest-rate swaps that are not designated as hedges for hedge accounting purposes, and for which any change in the fair value of these contracts is recorded through the Consolidated Statement of Income.
⁵	On May 10, 2013, D+H announced the closing of the previously announced divestiture of its non-strategic business processing operations. The results of operations of these components were included as part of business service solutions and loan servicing solutions in the Canadian Segment in prior periods. These components and the related transition services have been classified as discontinued operations for all periods presented.
⁶	The following adjustments to net income are tax effected at their respective tax rates: (i) amortization of acquisition intangibles; (ii) amortization and fair value adjustment of derivative instruments; and (iii) acquisition-related and other charges.
⁷	Adjustments for the third quarter of 2012 included a non-cash tax recovery related to liabilities recognized in connection with the acquisition of Mortgagebot. Adjustments for the fourth quarter of 2011 related to de-recognition of previously recognized tax attributes.
⁸	Diluted Adjusted net income per share (non-IFRS term) reflects the impacts of outstanding options. If the average market price during the period is below the option price plus the fair market value of the option, then the options are not included in the dilution calculation.
⁹	Weighted average number of shares outstanding during the second quarter of 2013 was 59,233,373 shares (Q2 2012 - 59,233,373 shares).

D+H has generally reported quarterly revenues that are relatively stable and growing when measured on a year-over-year basis. More recent changes in the economic environment, specifically the housing and mortgage markets and the auto lending markets, have increased volatility. Also, there has been more volatility in personal cheque order volumes. Measured on a sequential quarter-to-quarter basis, revenues can also vary due to seasonality. Fees earned in connection with mortgage origination services and automobile loan registration services are typically stronger in the second and third quarters than in the first and fourth quarters. The acquisitions of Avista on May 3, 2012 and Compushare on January 29, 2013 increased revenues and expenses. EBITDA was impacted by acquisition-related and other charges during the quarters, including transaction costs, business integration costs and certain retention and incentive costs related to acquisitions as well as other charges attributable to cost-realignment initiatives and strategic acquisition initiatives that are not considered to be incurred in the normal course of operations. Adjusted EBITDA removes the impacts of these charges as these are not indicative of the underlying business performance and management believes that excluding these items is more reflective of ongoing operating results.

Net income has been more variable as it has been affected by non-cash items such as fair value adjustments of interest-rate swaps, amortization of intangibles from acquisitions, acquisition-related and other charges, discontinued operations, gain on remeasurement of the equity-interest held in Compushare and changes in other non-cash tax items.

Common Shares Outstanding

As at June 30, 2013, and August 7, 2013, common shares outstanding were 59,233,373, the same as at December 31, 2012.

Normal Course Issuer Bid ("NCIB")

As of June 30, 2013 and August 7, 2013, no shares were purchased under the NCIB.

Financial Instruments

The Company utilizes interest-rate swaps to hedge interest rate exposure and foreign exchange forward contracts to hedge foreign currency.

Interest-rate swaps

In respect of interest-rate swap contracts with its lenders, as of June 30, 2013, the Company's borrowing rates on 53.0% of outstanding long-term indebtedness under the Seventh Amended and Restated Credit Agreement ("Credit Agreement") are effectively fixed at the interest rates and for the time periods ending as outlined in the following table:

(in thousands of Canadian dollars, unaudited)

				Fair value of interest-rate swaps
Maturity Date		Notional amount		Asset		Liability		Interest Rate ¹
	December 18, 2014	$	25,000	$	-	$	480	2.720%
	March 18, 2015		25,000		-		627	2.940%
	March 18, 2017		25,000		-		1,255	3.350%
	March 20, 2017		20,000		-		1,015	3.366%
		$	95,000	$	-	$	3,377

The listed interest rates exclude bankers' acceptance fees and prime-rate spreads currently in effect. Such fees and spreads could increase or decrease depending on the Company's financial leverage compared to certain levels specified in the Credit Agreement. Based on the financial leverage as at June 30, 2013, the Company's long-term bank indebtedness will be subject to bankers' acceptance fees of 1.50% over the applicable BA rate and prime rate spreads of 0.50% over the prime rate.

Foreign exchange forward contracts

The Company had no foreign exchange forward contracts in place as at June 30, 2013.

Long-Term Indebtedness

Long-term indebtedness is recorded on the Consolidated Statement of Financial Position, net of unamortized deferred financing fees. Long-term indebtedness as at June 30, 2013, before deducting unamortized deferred finance fees of $5.1 million, was $358.7 million, compared to $346.3 million at December 31, 2012.

As at June 30, 2013, the Company had $534.4 million of committed funds consisting of $355.0 million under the credit facility (of which $179.3 million was drawn as at June 30, 2013) and $179.4 million drawn from bonds. The Company also had $287.3 million of additional uncommitted arrangements available, subject to prior approval of the relevant lenders with any fees, spreads and other additional terms to be negotiated at that time, of which $150.0 million was under the credit facility and $137.3 million from the bonds.

The Company has historically hedged against increases in market interest rates on certain of its debt by utilizing interest-rate swaps and by issuing fixed rate long-term bonds as described above. As at June 30, 2013, the average effective interest rate on the Corporation's total indebtedness was approximately 4.4%, compared to 4.5% as at December 31, 2012.

The MD&A included in the 2012 Annual Report contains further details on the credit facility, bonds and hedging policies. Refer to the Short-Form Prospectus filed on SEDAR, dated August 1, 2013, for arrangements related to credit facility, and other debt instruments in connection with the announcement of the acquisition of HFS.

BUSINESS RISKS

A comprehensive discussion of the risks that impact the Business can be found on the Corporation's most recently filed Annual Information Form and the most recently filed annual MD&A, available on SEDAR at www.sedar.com. Risks and uncertainties related to the Corporation have not changed since the filing of the 2012 Annual Information Form and the 2012 annual MD&A. In addition to those risks, please refer to the Risk Factors in the Short Form Prospectus dated August 1, 2013 for specific risks related to the HFS acquisition.

OUTLOOK

D+H's long-term financial objective is to deliver sustainable and growing earnings through continued organic revenue growth and by way of strategic acquisitions. Management believes the recent agreement to acquire HFS (see Subsequent Event) will: (i) strengthen our ability to deliver on our goal of being a leading FinTech provider to the North American financial services industry; (ii) provide enhanced revenue diversification; (iii) deliver strong and sustainable cash flows to fund future growth, distributions and deleveraging; and (iv) support our long-term strategy.

Going forward, we will focus on executing our organic growth initiatives including cross-selling our now larger suite of FinTech solutions inclusive of HFS, achieving effective integration of our HFS platform technologies and sales plans, and continuing to diligently identify and realize on efficiency opportunities to better serve customers, and achieve our financial goals. We believe that our market leadership and combined capabilities will solidly position D+H in the markets we serve and allow us to grow, consistent with our long-term objectives.

As set out in our statement of strategy, we look to grow through a combination of organic initiatives, partnering with third parties and, over time, by way of selective additional acquisitions. Our organic initiatives include: (i) cross-selling our expanded FinTech products including SaaS mortgage POS, LOS and cloud-based offerings with those provided by the newly acquired HFS to both our now larger customer base and 6,000 plus other U.S. financial institutions who could benefit from our technology portfolio; (ii) advancing our payment solutions through growth in value-added consumer and business services to financial institution customers; (iii) expanding our current technology-enabled offerings within the mortgage, auto, personal, student lending, commercial and leasing markets; and (iv) exploring opportunities to provide our expanded solutions to customers in selected international markets and to Canada's credit unions.

We also look to add to our organic growth through partnerships with other leading providers. D+H has established a number of such partnerships over the years, as has HFS, and we intend to capitalize on our expanded customer base to build on these mutually beneficial relationships as we move forward.

The acquisition of HFS - along with the other eight acquisitions D+H has made since 2006 - has significantly advanced our FinTech vision, and added a defensible business model, growing revenues, strong cash flows, capable management and important new capabilities that improve our sales potential and risk profile. Following past acquisitions, D+H has focused on reducing leverage used for acquisition purposes. Consistent with our approach, we intend to repay debt following the HFS acquisition and have set a target of reducing our Debt to EBITDA ratio to below 2.5 times by 2016 while supporting our current dividend. During this period, we expect deleveraging to occur before we pursue additional acquisitions.

With the inclusion of several new service areas over the last several years, we expect to continue to experience some increase in variability in year-over-year quarterly revenues, EBITDA, net income and cash flows, due to, among other items: (i) volatility in personal cheque order volume declines; (ii) competitive dynamics in the Canadian lending environment; (iii) volume variances within the mortgage origination and lien registration markets; (iv) timing differences and variability in professional services work; and (v) fees and expenses associated with acquisitions and related integration activities. Within the Canadian Segment, D+H believes that revenues from banking technology solutions in 2013 may be impacted by more moderate housing prices and lower real estate activity compared to the previous years and potential pricing model adjustments, which are expected to be offset by potential revenue from the launch of new products in the Canadian lending market, including extension of our technology solutions across various areas in the lending value chain. In addition, within our Canadian Segment, EBITDA and margins may be impacted from the timing of customer adoption of new products and service, which may cause pressure on overall Canadian Segment EBITDA and margins in the short term as these programs mature. In the U.S. Segment, which will represent a larger share of our business following the acquisition of HFS, we expect to benefit more fully from the emerging recovery of the U.S. economy and banking sector, anticipated growth in spending by community banks and credit unions on core banking technology and additional FinTech solutions and increased need for lending technology products that can meet regulatory and compliance requirements. Further, a slight recovery in the U.S. housing market is expected to somewhat offset a reduction in refinancing activity in 2013.

Inclusive of HFS for the final months of 2013, we anticipate total capital spending of approximately $40 million for 2013, which may vary based on spending in support of new growth opportunities if and as they arise.

As described earlier, the Corporation does not expect to pay any significant cash taxes until after 2013.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This MD&A contains certain statements that constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Statements concerning D+H's objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and the business, operations, financial performance and condition of D+H are forward-looking statements. The words "believe", "expect", "anticipate", "estimate", "intend", "may", "will", "would" and similar expressions and the negative of such expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are subject to important assumptions, including the following specific assumptions: the ability of D+H to meet its revenue, "EBITDA", "Adjusted EBITDA" and "Adjusted net income" targets (see Non-IFRS Financial Measures for a more complete description of the terms EBITDA, Adjusted EBITDA and Adjusted net income); general industry and economic conditions; changes in D+H's relationship with its customers and suppliers; pricing pressures and other competitive factors; the anticipated effect of acquisitions on the financial performance of D+H; and the expected benefits arising as a result of acquisitions. D+H has also made certain macroeconomic and general industry assumptions in the preparation of such forward-looking statements. While D+H considers these factors and assumptions to be reasonable based on information currently available, there can be no assurance that actual results will be consistent with these forward-looking statements.

All of the forward-looking statements made in this MD&A and the documents incorporated by reference herein are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company.

ADDITIONAL INFORMATION

Additional information relating to the Company, including the Company's most recently filed Annual Information Form, is available on SEDAR at www.sedar.com.

Consolidated Statements of Financial Position
(in thousands of Canadian dollars, unaudited)

	June 30, 2013		December 31, 2012
ASSETS
Cash and cash equivalents	$	3,794	$	5,719
Trade and other receivables		85,770		84,996
Prepayments		12,422		14,104
Inventories		2,651		4,181
Total current assets		104,637		109,000
Deferred tax assets		29,918		28,095
Property, plant and equipment		28,329		30,201
Investment in an associate		-		10,145
Intangible assets		415,532		421,366
Goodwill		724,380		690,583
Total non-current assets		1,198,159		1,180,390
Total assets	$	1,302,796	$	1,289,390

LIABILITIES
Trade payables, accrued and other liabilities	$	91,272	$	99,910
Deferred revenue		15,168		12,586
Current tax liabilities		12,341		697
Total current liabilities		118,781		113,193
Deferred revenue		9,038		9,419
Derivative liabilities held for risk management		3,377		4,686
Loans and borrowings		353,588		340,577
Deferred tax liabilities		118,955		113,291
Other long-term liabilities		6,232		6,116
Total non-current liabilities		491,190		474,089
Total liabilities		609,971		587,282

EQUITY
Capital		673,833		673,680
Retained earnings		3,600		22,544
Accumulated other comprehensive income		15,392		5,884
Total equity		692,825		702,108
Total liabilities and equity	$	1,302,796	$	1,289,390


Consolidated Statements of Income
(in thousands of Canadian dollars, except per share amounts, unaudited)
		Three months ended				Six months ended
		June 30, 2013		June 30, 2012			June 30, 2013		June 30, 2012
Revenue		$	197,134	$	180,989		$	368,795	$	346,310
Employee compensation and benefits			49,120		44,066			96,167		88,638
Other expenses			95,431		84,223			178,048		164,725
Income from operating activities before depreciation and amortization			52,583		52,700			94,580		92,947
Depreciation of property, plant and equipment			2,273		2,312			4,209		4,205
Amortization of intangible assets			15,444		15,380			30,941		30,347
Income from operating activities			34,866		35,008			59,430		58,395
Finance expenses:
	Fair value adjustment of derivative instruments		(1,203)		616			(1,310)		(1,029)
	Interest expense		4,516		4,821			8,987		9,642
Gain on remeasurement of previously held equity interest			-		-			(1,587)		-
Income from investment in an associate, net of income tax			-		(38)			(130)		(38)
Income from continuing operations before income tax			31,553		29,609			53,470		49,820
Income tax expense			9,158		8,345			14,638		13,379
Income from continuing operations			22,395		21,264			38,832		36,441
Loss from discontinued operations, net of income tax			(8,786)		(377)			(19,481)		(620)
Net income		$	13,609	$	20,887		$	19,351	$	35,821
Income per share from continuing operations, basic and diluted		$	0.3781	$	0.3590		$	0.6556	$	0.6152
Loss per share from discontinued operations, basic and diluted		$	(0.1483)	$	(0.0064)		$	(0.3289)	$	(0.0105)
Net income per share, basic and diluted		$	0.2298	$	0.3526		$	0.3267	$	0.6047


Consolidated Statements of Comprehensive Income
(in thousands of Canadian dollars, unaudited)
		Three months ended				Six months ended
		June 30, 2013		June 30, 2012		June 30, 2013		June 30, 2012
Net income		$	13,609	$	20,887	$	19,351	$	35,821
The following items may be reclassified subsequently to profit or loss:
Cash flow hedges:
	Effective portion of changes in fair value		-		(244)		-		(74)
	Net amount transferred to profit or loss		-		196		-		(85)
Foreign currency translation			5,962		3,056		9,508		119
Total comprehensive income		$	19,571	$	23,895	$	28,859	$	35,781


Consolidated Statements of Changes in Equity
(in thousands of Canadian dollars, unaudited)

		Three months ended June 30, 2013
				Accumulated other comprehensive income (loss)
		Share capital		Foreign currency translation reserve		Hedging reserve		Retained earnings		Total equity
Balance at April 1, 2013	$	673,791	$	9,430	$	-	$	8,946	$	692,167
Net income for the period		-		-		-		13,609		13,609
Foreign currency translation		-		5,962		-		-		5,962
Dividends		-		-		-		(18,955)		(18,955)
Options		42		-		-		-		42
Balance at June 30, 2013	$	673,833	$	15,392	$	-	$	3,600	$	692,825


		Three months ended June 30, 2012
				Accumulated other comprehensive income (loss)
(in thousands of Canadian dollars, unaudited)		Share capital		Foreign currency translation reserve		Hedging reserve		Retained earnings		Total equity
Balance at April 1, 2012	$	673,352	$	6,389	$	(351)	$	24,021	$	703,411
Net income for the period		-		-		-		20,887		20,887
Cash flow hedges		-		-		(48)		-		(48)
Foreign currency translation		-		3,056		-		-		3,056
Dividends		-		-		-		(18,362)		(18,362)
Options		163		-		-		-		163
Balance at June 30, 2012	$	673,515	$	9,445	$	(399)	$	26,546	$	709,107


		Six months ended June 30, 2013
				Accumulated other comprehensive income (loss)
(in thousands of Canadian dollars, unaudited)		Share capital		Foreign currency translation reserve		Hedging reserve		Retained earnings		Total equity
Balance at January 1, 2013	$	673,680	$	5,884	$	-	$	22,544	$	702,108
Impact of transition to IAS 19R		-		-		-		(385)		(385)
Net income for the period		-		-		-		19,351		19,351
Foreign currency translation		-		9,508		-		-		9,508
Dividends		-		-		-		(37,910)		(37,910)
Options		153		-		-		-		153
Balance at June 30, 2013	$	673,833	$	15,392	$	-	$	3,600	$	692,825


		Six months ended June 30, 2012
				Accumulated other comprehensive income (loss)
(in thousands of Canadian dollars, unaudited)		Share capital		Foreign currency translation reserve		Hedging reserve		Retained earnings		Total equity
Balance at January 1, 2012	$	673,163	$	9,326	$	(240)	$	27,449	$	709,698
Net income for the period		-		-		-		35,821		35,821
Cash flow hedges		-		-		(159)		-		(159)
Foreign currency translation		-		119		-		-		119
Dividends		-		-		-		(36,724)		(36,724)
Options		352		-		-		-		352
Balance at June 30, 2012	$	673,515	$	9,445	$	(399)	$	26,546	$	709,107


Consolidated Statements of Cash Flows
(in thousands of Canadian dollars, unaudited)

			Three months ended				Six months ended
			June 30, 2013		June 30, 2012		June 30, 2013		June 30, 2012
Cash and cash equivalents provided by (used in):
OPERATING ACTIVITIES
Income from continuing operations		$	22,395	$	21,264	$	38,832	$	36,441
Adjustments for:
	Depreciation of property, plant and equipment		2,273		2,312		4,209		4,205
	Amortization of intangible assets		15,444		15,380		30,941		30,347
	Fair value adjustment of derivative instruments		(1,203)		616		(1,310)		(1,029)
	Interest expense		4,516		4,821		8,987		9,642
	Income tax expense		9,158		8,079		14,638		14,842
	Options expense		42		163		153		352
	Income from investment in an associate, net of income tax		-		(38)		(130)		(38)
	Gain on remeasurement of previously held equity interest		-		-		(1,587)		-
	Changes in non-cash working capital items		5		(12,669)		(15,143)		(27,309)
	Changes in other operating assets and liabilities		(1,355)		348		437		1,031
	Cash flows from (used in) discontinued operations		(5,268)		406		(9,999)		992
Cash generated from operating activities			46,007		40,682		70,028		69,476
	Interest paid		(4,175)		(4,486)		(8,218)		(8,707)
	Income taxes paid		(779)		-		(2,123)		-
Net cash from operating activities			41,053		36,196		59,687		60,769
FINANCING ACTIVITIES
Repayment of long-term indebtedness			(20,481)		(25,000)		(21,497)		(30,000)
Proceeds from long-term indebtedness			-		60,561		27,065		70,561
Payment of issuance costs of long-term			-		(111)		-		(111)
Dividends paid			(18,955)		(18,362)		(37,910)		(36,724)
Net cash from (used in) financing activities			(39,436)		17,088		(32,342)		3,726
INVESTING ACTIVITIES
Acquisition of property, plant and equipment			(2,770)		(512)		(4,693)		(4,197)
Acquisition of intangible assets			(3,865)		(5,618)		(8,228)		(12,469)
Acquisition of subsidiary			(456)		(37,946)		(24,849)		(37,946)
Sale of discontinued operations			8,500		-		8,500		-
Acquisition of investment in an associate			-		(10,058)		-		(10,058)
Net cash from (used in) investing activities			1,409		(54,134)		(29,270)		(64,670)
Increase (decrease) in cash and cash equivalents for the period			3,026		(850)		(1,925)		(175)
Cash and cash equivalents, beginning of period			768		2,888		5,719		2,213
Cash and cash equivalents, end of period		$	3,794	$	2,038	$	3,794	$	2,038

About D+H

D+H is a leading provider of secure and reliable technology solutions to North American financial institutions with a reputation for being a trusted partner that helps clients build deeper, more profitable relationships with their customers based on rich industry and market insight, and consumer knowledge. Our integrated, compliant technology solutions enable clients to grow, compete, and optimize their operations, while our forward looking approach helps them stay ahead of the market and anticipate changing consumer needs.

Today, more than 1,700 banks and credit unions across North America rely on D+H to deliver solutions across three broad service areas: Banking and Lending Technology, Lending Processing Solutions, and Payments Solutions. The acquisition of Harland Financial Solutions, and its complementary product suite, will enhance D+H's position as a North American financial technology ("FinTech") provider, increase our current client base to 6,200 banks and credit unions, expand our capabilities as a leader in lending and compliance solutions, core banking technology solutions and channel solutions, create significant cross-selling and revenue synergies, improve diversification and provide further support for our growth strategies.

In 2012, D+H rose to 35th on the FinTech 100, a ranking of the top technology providers to the global financial services industry, and is ranked 24th on the 2013 Branham 300, a listing of the top Canadian ICT companies.

Davis + Henderson Corporation is listed on the Toronto Stock Exchange under the symbol DH. Further information can be found at www.dhltd.com and in the disclosure documents filed by Davis + Henderson Corporation with the securities regulatory authorities at www.sedar.com.

SOURCE: Davis + Henderson Corporation

Brian Kyle, Executive Vice President and Chief Financial Officer, Davis + Henderson Corporation, (416) 696-7700, [email protected] or visit our website at www.dhltd.com.

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