D + H Reports Fourth Quarter, Year-End 2013 Results

Stock Exchange Symbol: DH

Website: www.dhltd.com

TORONTO, Feb. 25, 2014 /CNW/ - Davis + Henderson Corporation ("D+H" or the "Corporation" or the "Company") delivered strong growth and performance for the three months and year ended December 31, 2013 as it continued to build its standing as a leading financial technology ("FinTech") provider.

"This was a transformational period for D+H as a combination of strategic FinTech acquisitions and organic growth more than tripled our U.S. customer base, broadened our suite of leading technology solutions for banks and credit unions, substantially diversified our revenues and drove strong bottom line accretion," said Gerrard Schmid, Chief Executive Officer. "We are particularly pleased to have ended the year with very positive momentum, including steady progression in our U.S. operational integration, and encouraging customer feedback to our cross-selling efforts. We are now well positioned for the growth trends in the North American financial services marketplace with technologies that address customer needs for compliance, fee-based revenue growth, greater operational efficiency and cloud computing."

As a result of progress in 2013, D+H expanded its customer base to approximately 7,000 banks, specialty lenders, community banks and credit unions. This further reduces our customer concentration, and results in better balance in our business with 35% of its 2013 Adjusted revenue1 generated in payments solutions, 32% in banking technology solutions and 33% in lending processing solutions, as well a balanced mix between Canadian and U.S. revenue. The Company expects to make further gains in 2014 as a result of the inclusion of Harland Financial Solutions ("HFS"), acquired in August 2013 and the growth within our U.S. businesses.

"During the fourth quarter, we completed the integration of our U.S. sales and administration functions, developed a technology integration plan that we are now deploying, and delivered strong growth in revenues and Adjusted net income1," said  Brian Kyle, Chief Financial Officer. "Positive cash flow allowed us to make another debt repayment in the fourth quarter. Looking to 2014, we intend to continue to deploy our cash surplus strategy with support for growth initiatives, debt repayment and dividends."

In early 2014, all of the Company's U.S. businesses aligned under the D+H brand, which replaced the legacy brands Harland Financial Solutions, Mortgagebot and Compushare. Moving to a unified brand enables D+H to better communicate its value proposition, build greater equity in the North American and global FinTech market and support cross-selling strategies.

Fourth Quarter Highlights 

  • Revenues from continuing operations increased by 50.2% to $259.1 million from $172.5 million in the same quarter in 2012, reflecting the inclusion of HFS revenues in the U.S. Segment and organic growth in the Canadian Segment.
  • Adjusted revenues1 of $272.1 million were $99.7 million, or 57.8%, higher than a year ago.
  • Adjusted EBITDA1 increased by 69.5% to $81.3 million (29.9% margin) from $47.9 million (27.8% margin) in 2012.
  • Net income of $17.4 million ($0.2151 per share, basic and $0.2147 per share, diluted), was higher compared to net income of $13.7 million ($0.2315 per share, basic and diluted) in the same quarter in 2012, reflecting higher EBITDA, offset by higher amortization of intangible assets from acquisitions and increased interest expense attributable to the HFS acquisition.
  • Adjusted net income1 increased by 61.6% to $42.0 million from $26.0 million in 2012 mainly due to the addition of HFS.  Adjusted net income per share1 increased by 18.6% to $0.5206, from $0.4390 in 2012 reflecting the additional common shares issued to finance the HFS acquisition on August 16, 2013.
  • Debt repayments during the fourth quarter of 2013 were $15.0 million, resulting in an end of year Debt to EBITDA ratio of 2.93. This ratio, after eliminating the impacts of non-cash foreign exchange volatility, was 2.87.
  • D+H paid $0.32 per share in dividends to its shareholders.
  • D+H climbed the Report on Business Board Games 2013 rankings this year, placing 25th out of 232 companies listed on the S&P/TSX.

2013 Highlights 

  • On August 16, 2013, D+H acquired 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 and credit unions, for approximately US$1.2 billion.
  • On May 10, 2013, D+H divested its non-strategic business processing operations that were not considered part of D+H's long-term strategic goal of providing technology solutions to the financial services marketplace.
  • Revenues from continuing operations increased by 20.4% to $837.1 million from $695.5 million for 2012.
  • Adjusted revenues were $866.3 million, an increase of $170.8 million, or 24.6%, compared to 2012.        
  • Adjusted EBITDA increased by 25.9% to $247.5 million (28.6% margin) from $196.5 million (28.3% margin) in 2012.
  • Net income was $43.7 million ($0.6480 per share, basic and $0.6472 per share, diluted), a decrease of $25.5 million, or 36.9%, compared to $69.1 million ($1.1672 per share, basic and diluted) in 2012, mainly due to a loss from discontinued operations of $18.1 million ($0.2680 per share, basic and $0.2677 per share, diluted), the after-tax impacts of transaction costs and acquisition related charges in connection with the acquisition of HFS, increased amortization of intangible assets from acquisitions and higher interest expense.
  • Adjusted net income increased by 25.9% to $136.1 million from $108.1 million in 2012 mainly due to the addition of HFS. Adjusted net income per share increased by 10.7% to $2.0197 per share from $1.8245 per share. Adjusted net income per share for 2013 was impacted by the additional 21,505,000 common shares issued to partially fund the acquisition of HFS.
  • D+H raised $460.2 million by issuing 21,505,000 common shares, $230.0 million by issuing 5-year 6% convertible debentures and issued 10-year bonds of US$225.0 million and $20 million.
  • Total debt repayments for 2013 were $51.5 million.
  • D+H paid $1.28 per share in dividends to shareholders, up from $1.25 per share in 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, EBIDTA Margin, Adjusted revenues, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted net income and Adjusted net income per share used above.  See Non-IFRS Financial Measures in D+H's Management Discussion and Analysis for the year ended December 31, 2013 for a more complete description of these terms. 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 revenues, net income or cash flows. Further, D+H's measures may be calculated differently from similarly titled measures of other companies.

D+H's consolidated financial statements for 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 and 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.

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 in Canada 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; changes in the U.S. banking and financial services industry and demand for HFS's products and services; 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 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

Davis + Henderson will discuss its financial results for the three and twelve months ended December 31, 2013 via conference call at 10:00 a.m. EST (Toronto time) on Wednesday, February 26, 2014. The number to use for this call is 647-427-7450 (Local/Int'l) or 1-888-231-8191 (toll-free within North America). 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 http://www.newswire.ca/en/webcast/detail/1295997/1429921. For anyone unable to listen to the scheduled call, the rebroadcast number will be: 416-849-0833 (Local/Int'l), or 1-855-859-2056 for all other callers, with Encore Password 52770382. The rebroadcast will be available until Wednesday March 12, 2014.  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 of Davis + Henderson Corporation (the "Corporation" or the "Company" or "D+H" or the "Business") has been prepared with an effective date of February 25, 2014 and should be read in conjunction with D+H's audited consolidated financial statements for the year ended December 31, 2013.  This MD&A comments on D+H's operations, performance and financial condition for the years ended December 31, 2013 and 2012.

NON-IFRS FINANCIAL MEASURES

The information presented within this MD&A include certain adjusted financial measures such as "Adjusted revenues", "EBITDA", "EBITDA Margin" (EBITDA divided by revenues), "Adjusted EBITDA", "Adjusted EBITDA Margin" (Adjusted EBITDA divided by Adjusted revenues), "Adjusted net income", 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 reconciliations of "Adjusted Revenues", "EBITDA", "Adjusted EBITDA" and "Adjusted net income" to the most directly comparable IFRS measures, "revenues" and "net income", in the "Operating Results" section of this MD&A.

Management believes these supplementary financial measures provide useful additional information related to the operating results of the Corporation.  Management uses these measures to assess 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 measure may not be comparable to calculations used by other companies bearing the same description.

Adjusted Revenues

Effective from the third quarter of 2013, the Company uses Adjusted revenues as a measure in determining Adjusted EBITDA and as a measure of performance due to the impact of applying acquisition accounting on the acquisition of HFS.

Upon acquisition, the acquired deferred revenue balances were adjusted to reflect the fair value based on estimated costs of future delivery of the related services. These fair value adjustments to deferred revenues, recorded as of the acquisition date in accordance with the business combination accounting standard, will reduce revenues recognized post-acquisition under IFRS.  Adjusted revenues exclude these acquisition accounting effects.

Management expects to use Adjusted revenues as a measure to the extent that the amortization impacts of the fair value adjustment to the acquired deferred revenues at the time of the HFS acquisition are significant to the Consolidated Statements of Income.

Management believes that this non-IFRS measure provides investors with useful information regarding the underlying performance of the business operations and facilitates meaningful comparisons of pre-acquisition operations to post-acquisition revenues. Without considering these non-IFRS adjustments, acquisition accounting adjustments made in accordance with IFRS may make it difficult to make meaningful comparisons of the underlying operations of the business between periods.

EBITDA

EBITDA is defined as income from continuing operations excluding interest, taxes, depreciation and amortization, other non-cash finance charges and fair value adjustments of interest-rate swaps which are directly related to interest expense, income from investment in an associate and gain on re-measurement of previously held equity interest in the Compushare investment.  EBITDA is also described as income from operating activities before depreciation and amortization in the Consolidated Statements of Income.

In addition to its use by management as an internal measure of financial performance, EBITDA (with certain adjustments) is used to measure compliance with certain financial covenants under the Company's Credit Facility (as defined in the "Contractual Obligations" section) 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 in connection with acquisitions; (ii) other charges such as corporate development costs related to strategic acquisition initiatives; and (iii) costs incurred in connection with cost-realignment initiatives, all of which are not considered to be part of the normal course of operations.    Beginning in the third quarter of 2013, the Company's calculation of Adjusted EBITDA also excluded effects of acquisition accounting on the fair value of deferred revenues and deferred costs acquired from the acquisition of HFS.

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.

As described above, upon acquisition of HFS, the acquired deferred revenue balances were adjusted to reflect the fair value based on estimated costs of future delivery of the related services. Similarly, deferred costs, which include sales commissions and implementation costs, were adjusted to reflect their fair values of these items at the acquisition date. These fair value adjustments to deferred revenue and deferred costs recorded as of the acquisition date will reduce revenues and expenses recognized post-acquisition under IFRS primarily over the next two years, after which the impact to the consolidated results would not be significant.  Adjusted EBITDA excludes these effects from the results in the periods reported.

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, basic

Adjusted net income is used as a measure of internal performance similar to net income, but is calculated by adjusting for the impacts of certain non-cash items and certain items of note on an after-tax basis.  These adjustments include the after-tax impacts of: the effects of acquisition accounting on fair value of deferred revenue and deferred costs acquired from the acquisition of HFS; acquisition-related and other charges; 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 intangible assets from acquisitions, gain on re-measurement of the previously held equity interest in Compushare, non-cash finance charges such as deferred financing fees associated with the Previous Credit Facility (as defined in the "Contractual Obligations" section) written off upon the refinancing in connection with the acquisition of HFS, amortization of other deferred financing charges, accretion of the Debentures (as defined in the "Contractual Obligations" section), fair value adjustments of interest-rate swaps and tax effects of acquisitions. These items are excluded in calculating Adjusted net income as they are not considered indicative of the financial performance of the Company for the periods being reviewed.

Basic Adjusted net income per share is calculated by dividing Adjusted net income for the period by the weighted average number of shares outstanding during the period.

ADDITIONAL IFRS MEASURES

Income from Operating Activities 

D+H provides as part of its Consolidated Statements 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.

ACQUISITIONS

Harland Financial Solutions

On August 16, 2013, D+H completed the acquisition of all of the outstanding shares of Harland Financial Solutions, Inc., Harland Financial Solutions Worldwide Limited and Harland Israel Ltd. (collectively referred to as "HFS"), for a purchase price of approximately US$1.2 billion in cash, subject to post-closing adjustments. 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 operates from offices throughout the U.S., as well as Dublin, Ireland, Trivandrum, India and Tel Aviv, Israel. For further information, refer to note 4(a) of the audited consolidated financial statements of the Corporation for the year ended December 31, 2013.

Revenues from HFS are included in the Banking Technology Solutions service area in the U.S. Segment.

Compushare

On January 29, 2013, D+H purchased all remaining shares of Santa Ana, California-based Compushare Inc. ("Compushare"), a technology management and cloud computing provider to financial institutions. Building on its initial minority investment in Compushare acquired on April 24, 2012, this transaction gives D+H one hundred percent ownership of Compushare. For further information, refer to note 4(b) of the audited consolidated financial statements of the Corporation for the year ended December 31, 2013.

Revenues from Compushare are included as part of the enterprise category within the Banking Technology Solutions service area in the U.S. Segment.

DIVESTITURE

On May 10, 2013, D+H divested 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 to be part of D+H's long-term strategic goal of providing technology solutions to the financial services marketplace.

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 now been classified as discontinued operations for all periods presented.  Refer to note 26 of the audited consolidated financial statements for the year ended December 31, 2013 for further information related to the impact of these discontinued operations on the financial statements of the Corporation.

STRATEGY

D+H's goal is to be a leading financial technology ("FinTech") provider to the financial services marketplace by delivering differentiated services that underpin comprehensive and robust product offerings. 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 and efficiencies, reduce infrastructure costs and enhance compliance requirements.

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 integrated technology solutions that deliver increasing value to our customers and shareholders. We expect to advance this strategy through organic initiatives and selective acquisitions. By growing revenue while maintaining efficient operations, D+H intends to achieve its long-term financial objective of growing earnings.

On August 16, 2013, D+H significantly advanced its FinTech goal and strategy by acquiring HFS. HFS added: over 5,000 U.S. bank and credit union customers to bring our combined customer count to approximately 7,000 (not counting shared customer relationships); a suite of market-leading FinTech products including lending and compliance solutions which lead in the United States, core banking technology and a number of innovative channel solutions; and over 1,400 employees across 17 facilities.  Management believes the addition of HFS provides D+H with revenue synergies in the U.S. banking and credit union marketplace and will improve the Company's value proposition as a single-source FinTech provider.

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.

Going forward, management will remain focused on executing its growth strategy with emphasis on: (i) developing an integrated operating model in the United States that will support efficient and effective growth; (ii) cross-selling D+H's suite of FinTech solutions including its SaaS products, cloud-based infrastructure technology and the HFS suite of FinTech products primarily within the U.S. marketplace to existing bank and credit union customers as well approximately 7,000 other U.S. community banks and credit unions that could benefit from these offerings; (iii) enhancing services, capabilities and cost effectiveness across all service lines in Canada and the U.S. as a means of enhancing customer value, expanding margins, and creating additional free cash flow; (iv) building new subscription-based offerings in its payments solutions service line where it won a number of Canadian financial institution mandates in recent years; (v) extending an integrated D+H brand into the U.S. market; and vi) expanding its offering through strategic partnerships.

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

In January 2014, we announced that D+H is now operating as a single brand in North America and globally, following the rebranding of our legacy HFS, Mortgagebot and Compushare brands to D+H. Leading technology products and solutions from these brands are now operating under the D+H brand, but will continue to use their existing product names. D+H anticipates the rebranding will be a strategic enabler that will allow us to unlock synergies and create tangible benefits for our businesses and clients. The move is aligned with our long-term plan, outlined following the HFS acquisition, and is the next step in D+H's continuing evolution as a FinTech leader.

The Company is committed to reducing leverage while continuing to support its current dividend payments.  Without taking into account any future acquisitions or strategic investment initiatives, the Company expects to reduce its Total Funded Debt/EBITDA ratio, as defined in the 'Contractual Obligations' section, to below 2.5 in 2015 from 3.05 on the date of acquisition of HFS. At year-end 2013, debt repayments had reduced this ratio to 2.93. After removing the impacts of foreign exchange fluctuations, this ratio was 2.87.

INDUSTRY TRENDS AND MARKET OPPORTUNITY

Payments Solutions

Payments 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 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 but growing component of revenues within this revenue category.

As a result of growth in credit cards, debit cards and other electronic forms of payment such as online banking and mobile payments, the number of cheques written has declined and is expected to continue to decline. Management believes that the downward trend in cheque order volumes is in the mid-single digits annually.  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 digits with comparatively less volatility. Management expects that these trends will continue in 2014. D+H continues to develop service enhancements to offset this impact and to generate future growth within this category.

Payments solutions revenues are also affected by consumer confidence and employment. D+H believes the number of cheques printed is driven by the number of cheques written, the number of new chequing accounts opened and reorders reflecting changes in consumers' personal situations (i.e., changes in address, marital status, employment status, etc.).  Consumer confidence directly correlates with consumer spending, while employment also affects revenues through the number of new chequing accounts being opened.  These volume declines have been partially offset by increased average order values for cheques, and growth in both service enhancements to the chequing and credit card programs and fee-based subscription offerings. Recently announced upcoming changes in Canada Post's delivery models may have a longer term impact on consumer appetite to order and receive cheques in the mail. The Company is currently developing strategies to mitigate the impact this change will have on our chequing business.

Lending Processing Solutions

Lending processing solutions consist of two distinct sets of customer solutions: loan registration and recovery and student loan administration services.

Loan Registration and Recovery

Loan registration and recovery services, which account 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, new and resale, 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. Registration activities are seasonally higher in the spring and summer relative to the fall and winter periods. Related services include mortgage discharge solutions and various search-related services, both of which we deliver on behalf of our financial institution customers. The economy has been experiencing continuing recovery within the auto and auto lending markets. The recovery is expected to continue in 2014. Increases in lender portfolios over the last three years should continue to drive volume increases in 2014 in our recovery business despite falling delinquency rates.

Student Loans Administration

In our student loans administration services area, which accounts for approximately 35% to 45% of revenues within the lending processing solutions category, we manage a $21 billion student loan portfolio servicing 1.7 million students on behalf of Canadian federal and provincial governments and lenders. Our capabilities include student enrollment, management of funds disbursement, loan tracking, student support services, reporting and collections. These capabilities rely on technology-driven solutions. We continue to evolve our service delivery primarily through the introduction of new digital service channels and self-serve options. Revenues from this program are primarily earned based upon the number of student loans serviced while enrolled in school and the number of loans serviced while students are in the repayment cycle. D+H also earns revenue from professional services work connected to program enhancements requested by the lenders. The delivery of these professional services is impacted by the timing of government approval of these services. Student loan servicing volumes are expected to stabilize and modestly grow on higher student loan balances and extended loan durations as demand among Canadian students for funds through the federal student loans program continues to increase.   Revenues in this area are not significantly impacted by seasonality.

Banking Technology Solutions

Canadian Banking Technology Solutions

In the Canadian Segment, banking technology solutions is reported within the lending category and includes solutions directed towards mortgage markets in Canada. Also included in this category are the technology products and services supporting leasing, commercial lending and small business lending.  Revenues related to Canadian mortgage markets currently represent approximately 75% to 85% of revenues within this category of which over 90% is 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.

Regulatory changes aimed at cooling the Canadian housing market have had less of an impact in 2013 than expected.  While interest rates are expected to remain steady in the near term, the government continues to closely monitor activity in the housing market and any further intervention may impact revenues in future periods. These revenues may also continue to be impacted by strategic price modifications, which are expected to be offset over time by potential revenues from the launch of new products for Canadian lenders, including extension of our technology solutions across various areas in the lending value chain.

U.S. Banking Technology Solutions

Effective August 16, 2013, the Company includes revenues from HFS in its U.S. Segment.   HFS derives its revenues from processing and account-based fees for cloud services (outsourcing), licenses for in-house solutions, and installation, maintenance, and support fees from its installed customer base. The majority of HFS' revenues are earned pursuant to long-term contracts with typical contract durations of five to seven years. Revenues from our U.S. banking technology solutions are classified into enterprise and lending offering categories.

Enterprise solutions primarily consist of revenues from core processing systems including content management, financial accounting and payments solutions, a number of innovative channel solutions related to self-service, business intelligence and branch automation solutions and cloud-based infrastructure technology solutions offerings.

Lending solutions primarily consist of loan and deposit origination and mortgage compliance offerings for a wide variety of loan types, including consumer, mortgage and commercial loans, and also market offerings related to commercial lending risk management, underwriting and portfolio management solutions. Within the U.S. lending solutions category revenues, approximately 55% to 65% come from recurring subscription fees, and less than 10% from transaction-based activity.

During the past 25 years, the number of financial institutions in the United States has been declining. While the decline accelerates at certain points (due to events like the 2008 financial crisis) it has a long term consolidation rate of approximately 3% per year, with most occurring amongst the very smallest of banks, primarily as a result of mergers and acquisitions. An acquisition benefits us when a newly combined institution is processed on our platform, or elects to move to one of our platforms, and negatively impacts us when a competing platform is selected. Financial institution acquisitions also impact our financial results due to early contract termination fees in our multi-year customer contracts. Contract termination fees are primarily generated when an existing customer with a multi-year contract is acquired by another financial institution. These fees can vary from period to period based on the number and size of customers that are acquired and how early in the contract term the contract is terminated.

Today we effectively serve the largest of financial institutions with several discrete market-leading products. We also target in the United States the 13,000 commercial banks, credit unions and other leading financial services customers that have assets less than US$10 billion with a broad array of solutions. These financial institutions are facing increasing challenges to improve their competitiveness and operational performance, including requirements to comply with an increasingly complex regulatory environment, the emergence of new technologies and channels, and margin compression on traditional products. As a result, financial institutions invest significant capital in order to process transactions more efficiently, manage risk and information more effectively, maintain regulatory compliance and offer new and innovative products and services to their customers.

For a detailed discussion of the operating results for the three months and year ended December 31, 2013 and management's outlook, please see below.

ACCOUNTING PRINCIPLES AND FINANCIAL INFORMATION PRESENTATION

The Company's audited consolidated financial statements have been prepared in accordance with IFRS, 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) payments 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). Beginning in the third quarter of 2013, the Company further segregates its U.S. banking technology solutions category into: a) enterprise; and b) lending offerings.   For segment reporting purposes, revenues in respect of payments solutions, lending processing solutions and banking technology solutions (including technology solutions to the Canadian mortgage market and the commercial lending, small business lending and leasing markets) are reported as part of the Canadian Segment.  The U.S. Segment includes revenues from banking technology solutions to the U.S. market and effective August 16, 2013, revenues relating to HFS.

Comparative periods have been conformed to the current period classification, where applicable.

All amounts are in Canadian dollars, unless otherwise specified.

OPERATING RESULTS - FOURTH QUARTER OF 2013

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

      Quarter ended December 31,
        2013   2012
Revenues $        259,075 $      172,457
Expenses           190,876        131,082
EBITDA 1           68,199           41,375
Depreciation of capital assets and amortization        
  of non-acquisition intangibles           10,937           7,568
Amortization of intangible assets from acquisitions           27,631       11,292
Income from operating activities         29,631         22,515
Interest expense        15,509       4,629
Loss from investment in an associate, net of tax 2                   -              23
Fair value adjustment of derivative instruments 3               (138)              (542)
Income tax expense (recovery)               (975)           4,165
Income from continuing operations            15,235       14,240
Income (loss) from discontinued operations, net of tax 4               2,133             (529)
Net income  $         17,368 $       13,711
             
Income from continuing operations per share,        
    Basic 5 $         0.1887 $       0.2404
    Diluted 6 $         0.1883 $       0.2404
Income (loss) from discontinued operations, per share, net of tax 4        
    Basic 5 $         0.0264 $      (0.0089)
    Diluted 6 $         0.0264 $      (0.0089)
Net income per share        
    Basic 5 $         0.2151 $       0.2315
    Diluted 6 $         0.2147 $       0.2315
1 EBITDA is a non-IFRS term. See Non-IFRS Financial Measures for a more complete description of
this term.
2 Loss from investment in an associate consists of D+H's share of loss from Compushare, the minority
investment purchased on April 24, 2012.  
3 Balance represents 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 divested its non-strategic business processing operations.   These operations
were reported as part of business service solutions and loan servicing solutions in prior periods and have
now been classified as discontinued operations for both the current and comparative periods
presented.  Income during the fourth quarter of 2013 mainly related to a working capital
adjustment.
5 Weighted average number of shares outstanding during the fourth quarter of 2013 was 80,738,373
shares (Q4 2012 - 59,233,373 shares).
6 Diluted per share measure reflects the impacts of outstanding stock 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 for income from operating activities per share.
Weighted average number of shares outstanding, on a diluted basis, during the fourth quarter of
2013 was 80,906,132 (Q4 2012 - 59,233,373 shares).

(in thousands of Canadian dollars, unaudited)

      Quarter ended December 31,
        2013   2012
Revenues $        259,075 $      172,457
Acquisition accounting adjustments 1             13,058                   -  
Adjusted revenues 2 $        272,133 $      172,457
1 Fair value of the deferred revenue balance acquired with the
acquisition of HFS was adjusted to reflect estimated costs of
future delivery of services. This add-back represents the
amortization of the deferred revenue that was written-off.
2 Adjusted revenues is a non-IFRS term.  See Non-IFRS Financial
Measures for a more complete description of this term.

(in thousands of Canadian dollars, unaudited)

      Quarter ended December 31,
        2013   2012
Revenues $ 259,075 $ 172,457
Expenses   190,876    131,082
EBITDA 1   68,199   41,375
EBITDA Margin 1   26.3%   24.0%
Adjustments:        
  Acquisition accounting adjustments  2   9,217   -  
  Acquisition-related and other charges 3   3,842   6,558
Adjusted EBITDA 1 $ 81,258 $ 47,933
Adjusted EBITDA Margin 1   29.9%   27.8%
1 EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin
are non-IFRS terms. See Non-IFRSFinancial Measures for a more
complete description of these terms.
2 Acquisition accounting adjustments relate to the amortization of the fair
value adjustments on deferred revenues and deferred costs acquired in
connection with the acquisition of HFS. See "Adjusted revenues" and
"Adjusted EBITDA" in the Non-IFRS Financial Measures for a more
complete description of these terms.
3 Acquisition-related and other charges for Q4 2013 included business
integration costs related to the acquisition of HFS and retention and
incentive costs in connection with the acquisitions of businesses.
Acquisition-related and other charges for Q4 2012 included transaction
costs and certain retention and incentive costs related to the Mortgagebot
and Avista acquisitions, charges related to cost-realignment initiatives,
corporate development expenses related to strategic acquisition initiatives
and business integration costs.

(in thousands of Canadian dollars, unaudited)

      Quarter ended December 31,
        2013   2012
Net income $ 17,368 $ 13,711
Adjustments:        
  Non-cash items:        
    Acquisition accounting adjustments 1   9,217   -  
    Non-cash interest expense 2    1,349   -    
    Amortization of intangible assets from acquisitions   27,631   11,292
    Fair value adjustment of derivative instruments 3   (138)   (542)
  Other items of note:        
    Acquisition-related and other charges 4   3,842   6,558
  Tax effect of above adjustments 5   (15,100)   (5,543)
  Loss (income) from discontinued operations, net of tax 6   (2,133)   529
Adjusted net income 7 $ 42,036 $ 26,005
Adjusted net income per share, basic  7, 8 $ 0.5206 $ 0.4390
             
             
      Quarter ended December 31,
            2013 vs. 2012
            % change
Adjusted net income 7       61.6%
Adjusted net income per share, basic  7, 8       18.6%
1 Acquisition accounting adjustments relate to the amortization of the fair value adjustments on
deferred revenues and deferred costs acquired in connection with the acquisition of HFS.
2 Non-cash interest expense relates to accretion of Debentures issued to partially fund the
acquisition of HFS and amortization of deferred financing charges incurred in connection
with the Company's financing arrangements.
3 Amounts include 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 Acquisition-related and other charges included business integration costs related to the
acquisition of HFS and retention and incentive costs in connection with the acquisitions of
businesses. Acquisition-related and other charges for Q4 2012 included transaction costs
and certain retention and incentive costs related to the Mortgagebot and Avista acquisitions,
charges related to cost-realignment initiatives, corporate development expenses related to
strategic acquisition initiatives and business integration costs.
5 The adjustments to net income are tax effected at their respective tax rates.
6 On May 10, 2013 D+H divested 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.
7 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.
8 Weighted average number of shares outstanding during the fourth quarter of 2013 was
80,738,373 shares (Q4 2012 - 59,233,373 shares).

OPERATING RESULTS BY SEGMENT

(in thousands of Canadian dollars, unaudited)

                                  Quarter ended December 31,
            Canadian
Segment
        U.S.
Segment
        Corporate         Consolidated
        2013   2012     2013   2012     2013   2012     2013   2012
Revenues $     159,193 $ 157,070   $   99,882 $ 15,387   $        - $             -   $     259,075 $   172,457
Acquisition accounting adjustments 1                   -              -           13,058             -                -              -             13,058               -  
Adjusted revenues 2 $     159,193 $ 157,070   $ 112,940 $ 15,387   $        - $          -   $     272,133 $   172,457
1 Fair value of the deferred revenue balance acquired with the acquisition of HFS was adjusted to reflect estimated costs of future delivery of services. This add-back represents the amortization of the deferred revenue that was written-off.
2 Adjusted revenues is a non-IFRS term. See Non-IFRS Financial Measures for a more complete description of this term.

        

(in thousands of Canadian dollars, unaudited)

                                          Quarter ended
December 31,
            Canadian
Segment
        U.S.
Segment
        Corporate         Consolidated
        2013   2012     2013   2012     2013   2012     2013   2012
Revenues $ 159,193 $ 157,070   $ 99,882 $ 15,387   $ - $ -   $ 259,075 $   172,457
Expenses   119,052     115,825      67,982       8,699     3,842   6,558     190,876   131,082
EBITDA 1    40,141   41,245     31,900   6,688      (3,842)    (6,558)     68,199       41,375
EBITDA Margin 1   25.2%   26.3%     31.%   43.5%     -   -     26.3%   24.0%  
Adjustments:                                      
  Acquisition accounting adjustments 2   -            -     9,217         -      -   -     9,217                -  
    Acquisition-related and other charges 3   -            -     -             -     3,842    6,558     3,842          6,558
Adjusted EBITDA 1 $ 40,141 $ 41,245   $ 41,117 $   6,688   $ - $ -   $ 81,258 $     47,933
Adjusted EBITDA Margin 1   25.2%   26.3%     36.4%   43.5%     -   -     29.9%   27.8%
1 EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin are non-IFRS terms. See Non-IFRS Financial Measures for a more complete description of these terms.
2 Acquisition accounting adjustments relate to the amortization of the fair value adjustments on deferred revenues and deferred costs acquired in connection with the acquisition of HFS. See "Adjusted revenues" and "Adjusted EBITDA" in the Non-IFRS Financial Measures for a more complete description of these terms.
3 Acquisition-related and other charges for Q4 2013 included business integration costs related to the acquisition of HFS and retention and incentive costs in connection with the acquisitions of businesses. Acquisition-related and other charges for Q4 2012 included transaction costs and certain retention and incentive costs related to the Mortgagebot and Avista acquisitions, charges related to cost-realignment initiatives, corporate development expenses related to strategic acquisition initiatives and business integration costs.

              Quarter ended December 31,
          Canadian   U.S.  
          Segment   Segment Consolidated
          2013 vs. 2012   2013 vs. 2012 2013 vs. 2012
          % change   % change % change
Revenues     1.4%   549.1% 50.2%
Adjusted revenues 1     1.4%   634.0% 57.8%
Adjusted EBITDA 1     (2.7%)   514.8% 69.5%
1 Adjusted revenues and Adjusted EBITDA are non-IFRS terms. See
Non-IFRS Financial Measures for a more complete description of
these terms.

REVENUES AND ADJUSTED REVENUES

Revenues and Adjusted Revenues - Consolidated

(in thousands of Canadian dollars, unaudited)

                                Quarter ended December 31,
  Canadian Segment       U.S. Segment                   Consolidated
    2013   2012               2013   2012               2013   2012
    Revenues   Revenues     Revenues   Adjustment1     Adjusted
revenues2
  Revenues     Revenues   Adjustment1     Adjusted
revenues2
  Revenues
Payments solutions $   75,958 $      76,113   $            - $              -  
$
            
-
$             -   $     75,958 $              -  
$
   
75,958
$     76,113
Lending processing solutions       67,852          63,683                 -                -                   -               -           67,852                 -           67,852         63,683
Banking technology solutions                                                
  Enterprise               -                  -         53,115           1,910           55,025                -           53,115           1,910           55,025                 -
  Lending       15,383          17,274         46,767         11,148           57,915         15,387           62,150         11,148           73,298         32,661
Total Revenues $ 159,193 $     157,070   $   99,882 $     13,058  
$
  
112,940
$    15,387   $   259,075 $     13,058  
$
 
272,133
$   172,457
1 Adjustment is related to non-cash fair value adjustment to deferred revenues acquired in connection with the acquisition of HFS. Fair value of the deferred revenue balance was adjusted to reflect estimated costs of future delivery of the services. This add-back represents the amortization of the deferred revenue that was written-off.
2 Adjusted revenues is a non-IFRS term.  See Non-IFRS Financial Measures for a more complete description of this term.

Consolidated Adjusted revenues for the fourth quarter of 2013 was $272.1 million, an increase of $99.7 million, or 57.8%, compared to the same period in 2012.  This increase was primarily due to the inclusion of HFS and Compushare revenues effective August 16, 2013 and January 29, 2013, respectively, in the U.S. Segment and growth in our other SaaS businesses in the U.S. Also contributing to this increase, but to a lesser extent, was revenue growth from lending processing solutions in the Canadian Segment.

Consolidated revenues for the fourth quarter of 2013 were $259.1 million, an increase of $86.6 million, or 50.2%, compared to the same period in 2012.  Revenues for the fourth quarter in 2013 were impacted by the fair value adjustment to deferred revenues acquired from HFS.

Revenues - Canadian Segment

Total revenues in the Canadian Segment for the fourth quarter of 2013 of $159.2 million, increased by $2.1 million, or 1.4%, compared to the same quarter in 2012. Adjusted revenues are the same as revenues for the Canadian Segment as this segment was not subject to acquisition accounting adjustments.

Payments Solutions

Revenues from payments solutions for the fourth quarter of 2013 were $76.0 million, a decrease of $0.2 million, or 0.2%, compared to the same quarter in 2012. Revenues from payments solutions reflected volume declines in cheque orders partially offset by the positive impact of higher average order values and product and service enhancements in the chequing and credit card programs.

Lending Processing Solutions

Lending processing solutions revenues for the fourth quarter of 2013 were $67.9 million, an increase of $4.2 million, or 6.5%, compared to the same quarter in 2012. 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 and higher average order values combined with higher volumes in the student loans program.

Banking Technology Solutions - Lending

Revenues in the fourth quarter of 2013 from banking technology solutions within the Canadian Segment were $15.4 million, a decrease of $1.9 million, or  10.9%, compared to the same quarter in 2012.  Fourth quarter 2013 revenues reflected lower mortgage origination fees resulting from strategic price modifications. We expect the impact of strategic price modifications to be fully accounted for by the end of the second quarter of 2014. Origination volumes during the quarter remained relatively unchanged compared to the same period in 2012.

Revenues and Adjusted Revenues - U.S. Segment

Total revenues in the U.S. Segment for the fourth quarter of 2013 of $99.9 million increased by $84.5 million, or 549.1%, compared to the same quarter in 2012. Fourth quarter Adjusted revenues for the U.S. Segment of $112.9 million were $97.6 million, or 634.0%, ahead of the same period of 2012. The sharp increase in revenues and Adjusted revenues in the fourth quarter of 2013 was primarily due to the inclusion of HFS and to a lesser degree, Compushare. A strong U.S. dollar in the latter part of the year compared to the prior year benefited Adjusted revenues in the U.S. Segment by $6.3 million. This impact was calculated using the methodology described previously.

Enterprise Solutions

Revenue from enterprise solutions within the U.S. Segment for the fourth quarter of 2013 was $53.1 million.

Adjusted revenues, which are calculated after removing the impacts of purchase accounting adjustments related to fair value of deferred revenues, were $55.0 million for the fourth quarter of 2013.  There were no comparable figures for the same period in 2012.

Lending Solutions

Revenue from lending solutions in the U.S. Segment for the fourth quarter of 2013 was $46.8 million, an increase of $31.4 million, or 203.9%, compared to $15.4 million for the same period in 2012. Revenues for the fourth quarter of 2013 benefited from inclusion of HFS since its acquisition on August 16, 2013.  Revenues recorded under IFRS for the fourth quarter of 2013 were impacted by acquisition-accounting adjustments related to fair value of deferred revenue acquired through the acquisition of HFS.  Adjusted revenues of $57.9 million, which removed these acquisition accounting impacts, increased by $42.5 million compared to the same quarter in 2012, due to the inclusion of HFS.

In our other SaaS businesses in the U.S., year-over-year increases in revenues were attributable to higher subscription fees from a growing customer base and were partially offset by the impact of lower re-financing activity compared to a year ago when historically low interest rates encouraged consumers to re-finance their mortgages.

EXPENSES

Expenses - Consolidated 

(in thousands of Canadian dollars, unaudited)

                                Quarter ended December 31,
        Canadian
Segment
        U.S.
Segment
        Corporate         Consolidated
    2013   2012     2013   2012     2013   2012     2013   2012
Employee compensation and benefits 1 $     40,454 $       36,433   $   42,179 $    4,697   $        878 $    3,284   $     83,511 $     44,414
Non-compensation direct expenses 2         58,949           58,708           6,956          269                -              -             65,905          58,977
Other operating expenses 3         19,649           20,684         18,847        3,733           2,964        3,274            41,460         27,691
Total Expenses $   119,052 $      115,825   $   67,982 $    8,699   $     3,842 $    6,558   $   190,876 $   131,082
1 Employee compensation and benefits on a consolidated basis includes retention and incentive expenses related to acquisitions of businesses and share-based compensation expenses 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, royalties and third party direct disbursements.
3 Other operating expenses include occupancy costs, communication costs, 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.  Other operating expenses in the Canadian Segment are net of management fees charged to the U.S. segment by the Canadian Segment.

Consolidated expenses of $190.9 million for the fourth quarter of 2013 increased by $59.8 million, or 45.6%, compared to the same quarter in 2012.  The increase was attributable to the inclusion of HFS expenses effective from August 16, 2013 and Compushare expenses effective from January 29, 2013.  Consolidated expenses also included acquisition-related and other charges of $3.8 million for the fourth quarter of 2013, which are not considered reflective of normal course operations and are disclosed as part of Corporate. Acquisition-related and other charges of $6.6 million were recorded in the fourth quarter of 2012.

Expenses - Canadian Segment

Total Canadian Segment expenses for the fourth quarter of 2013 of $119.1 million, increased $3.2 million, or 2.8%, compared to the same quarter in 2012.

Employee compensation and benefits costs of $40.5 million for the fourth quarter of 2013 for the Canadian Segment were higher by $4.0 million, or 11.0%, compared to the same quarter in 2012. The increase was primarily due to an increase in share-based compensation expense attributable to an increase in the share price of D+H partially offset by savings realized from cost-realignment initiatives.

Non-compensation direct expenses for the Canadian Segment were $58.9 million for the fourth quarter of 2013, an increase of $0.2 million, or 0.4%, compared to the same quarter in 2012.  In general, these expenses directionally change with revenue changes.  An increase in direct costs associated with the lending processing solutions area, consistent with the increase in revenues, was partially offset by savings realized from cost-realignment initiatives.

Other operating expenses of $19.6 million for the fourth quarter of 2013 decreased by $1.0 million, or 5.0%, compared to the same quarter in 2012. The decrease in the fourth quarter of 2013 was due to cost efficiencies realized from transformation and integration activities.

Expenses - U.S. Segment

Total expenses for the U.S. Segment for the fourth quarter of 2013 were $68.0 million, an increase of $59.3 million, or 681.5%, compared to the same quarter in 2012 with the increase mainly attributable to the inclusion of HFS and Compushare.

Employee compensation and benefits costs of $42.2 million for the fourth quarter of 2013 for the U.S. Segment increased by $37.5 million compared to the same period in 2012. Non-compensation direct expenses for the U.S. Segment of $7.0 million for the fourth quarter of 2013 were higher by $6.7 million compared to the same period in 2012. Other operating expenses of $18.8 million for the fourth quarter of 2013 were higher by $15.1 million,  compared to the same quarter in 2012. These increases were primarily attributable to the inclusion of HFS and Compushare expenses. Other operating expenses also included a management fee, for corporate-related services, charged to the U.S. Segment by the Canadian Segment.

Expenses - Corporate

Employee compensation and benefits

Employee compensation and benefits expenses of $0.9 million recorded as corporate expenses for the fourth quarter of 2013 consisted of retention and incentive expenses incurred in connection with the acquisitions. For the fourth quarter of 2012, expenses of $3.3 million consisted of charges related to cost-realignment initiatives of $1.2 million, and retention and incentive expenses of $2.1 million incurred in connection with Avista and Mortgagebot acquisitions.

Other expenses

Other expenses of $3.0 million mainly consisted of business integration costs incurred in connection with the acquisition of HFS.  For the same period in 2012, other operating expenses of $3.3 million included corporate development expenses related to strategic acquisition initiatives and business integration costs.

EBITDA AND EBITDA MARGIN

Consolidated EBITDA for the fourth quarter of 2013 was $68.2 million, an increase of $26.8 million, or 64.8%, compared to $41.4 million for the same quarter in 2012. Fourth quarter 2013 EBITDA margin of 26.3% was higher than the 24.0% margin for the same period in 2012.

Canadian Segment

Canadian Segment EBITDA for the fourth quarter of 2013 was $40.1 million, a decrease of $1.1 million, or 2.7%, compared to the same quarter in 2012. EBITDA margin for the Canadian Segment for the fourth quarter was 25.2%, compared to 26.3% for the same period in 2012.

U.S. Segment

U.S. Segment EBITDA for the fourth quarter of 2013 was $31.9 million, an increase of $25.2 million, compared to the same quarter in 2012. EBITDA margin was 31.9% for the fourth quarter of 2013 compared to 43.5% a year ago.

ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN

Consolidated Adjusted EBITDA during the fourth quarter of 2013 was $81.3 million, an increase of $33.3 million, or 69.5%, compared to the same quarter in 2012, primarily due to the inclusion of HFS. Adjusted EBITDA growth in the U.S. Segment for the three-month period in 2013 was partially offset by a lower Canadian Segment Adjusted EBITDA.

Fourth quarter 2013 consolidated Adjusted EBITDA was calculated by removing (i) $9.2 million of acquisition accounting adjustments to fair value of deferred revenues and deferred costs associated with the acquisition of HFS; and (ii) acquisition-related and other charges of $3.8 million, consisting of business integration costs incurred in connection with the acquisition of HFS and retention and incentive costs and integration expenses associated with acquisitions.

On a consolidated basis, Adjusted EBITDA margin for the fourth quarter of 2013 was 29.9%, compared to 27.8% for the same period in 2012, due to the inclusion of HFS in the U.S. Segment. Although HFS has lower margins than our other U.S. Segment offerings, it has a higher margin than the overall Canadian Segment.

Canadian Segment

Canadian Segment Adjusted EBITDA for the fourth quarter of 2013 was $40.1 million, a decrease of $1.1 million, or 2.7%, compared to the same quarter in 2012.  Adjusted EBITDA was impacted by lower cheque volumes, lower mortgage origination fees resulting from pricing modifications and an increase in share-based compensation as described above. The decrease in Adjusted EBITDA was partially offset by growth in product and service enhancements in the chequing and credit card programs, higher transaction volumes in registration and recovery services and savings realized from recent transformation and cost-realignment activities in the Canadian Segment.

Canadian Segment Adjusted EBITDA margin for the fourth quarter was 25.2% compared to 26.3% for the same period in 2012. Adjusted EBITDA is the same as EBITDA in the Canadian Segment. Lower margins in the fourth quarter of 2013 were primarily due to changes in product mix resulting from factors impacting Adjusted EBITDA described above, partially offset by savings realized from recent transformation and cost-realignment activities.

U.S. Segment

Adjusted EBITDA for the U.S. Segment during the fourth quarter of 2013 was $41.1 million, an increase of $34.4 million, or 514.8%, compared to the same quarter in 2012 mainly due to the inclusion of HFS and Compushare.

Adjusted EBITDA in the U.S. Segment excluded the impacts of $9.2 million attributable to acquisition accounting adjustments related to fair value of deferred revenues and deferred costs on D+H's acquisition of HFS,  in accordance with IFRS, which consisted of $13.1 million of acquisition accounting adjustments related to fair value of deferred revenues and $3.8 million of fair value adjustments related to deferred costs.  A strong U.S. dollar in the latter part of the year compared to the prior year benefited Adjusted EBITDA in the U.S. Segment by $2.2 million. This impact was calculated using the methodology described below.

Adjusted EBITDA margin for the U.S. Segment for the fourth quarter of 2013 was 36.4%, compared to 43.5% for the same period in 2012.  As described earlier, HFS margins are lower than the previously combined SaaS offerings in the U.S. Segment, which resulted in a lower Adjusted EBITDA margin in 2013, compared to 2012.

DEPRECIATION OF CAPITAL ASSETS AND AMORTIZATION OF NON-ACQUISITION INTANGIBLE ASSETS

Consolidated depreciation of capital assets and amortization of non-acquisition intangible assets of $10.9 million in the fourth quarter of 2013 increased by $3.4 million, or 44.5%, compared to the same period in 2012 due to the inclusion of HFS and Compushare. Depreciation of capital assets and amortization of non-acquisition intangible assets can be impacted by timing of capital expenditures and completion of projects.

AMORTIZATION OF INTANGIBLE ASSETS FROM ACQUISITIONS

Consolidated amortization of acquisition intangible assets for the fourth quarter of 2013 was $27.6 million, an increase of $16.3 million, compared to the same period in 2012. The increase for the fourth quarter was attributable to the amortization resulting from the acquisitions of HFS and Compushare.

INCOME FROM OPERATING ACTIVITIES

Consolidated income from operating activities was $29.6 million for the three months ended December 31, 2013, an increase of $7.1 million, or 31.6%, compared to $22.5 million for the same quarter in 2012. The increase in the fourth quarter of 2013 was as a result of an increase in EBITDA as described above. Income from operating activities was impacted by acquisition-related costs and other charges in connection with the HFS acquisition and higher amortization of intangible assets from acquisitions.

INTEREST EXPENSE

Interest expense of $15.5 million for the fourth quarter of 2013 increased by $10.9 million compared to the same quarter in 2012.  The increase was a result of incremental debt financing through the Credit Facility bearing a higher credit spread and bonds and Debentures issued to partially fund the HFS acquisition.  Interest expense for the fourth quarter of 2013 also included a non-cash interest charge of $1.3 million consisting of: (i) accretion expense of $0.5 million related to the Debentures, and (ii) $0.8 million related to amortization of deferred financing charges incurred in connection with the Company's financing arrangements. 

INCOME FROM INVESTMENT IN AN ASSOCIATE

Consolidated net income for the fourth quarter of 2012 included D+H's share of income related to the minority interest held in Compushare.  Effective January 29, 2013, Compushare's results were consolidated when D+H obtained 100% ownership.

FAIR VALUE ADJUSTMENT OF DERIVATIVE INSTRUMENTS

An unrealized gain of $0.1 million related to fair value changes on derivative instruments was recognized in the fourth quarter of 2013, compared to $0.5 million in the fourth quarter of 2012.

For interest-rate swaps that are not designated as hedges for accounting purposes, these unrealized gains and losses are recognized in income. In general, a loss on interest-rate swaps is recorded when interest rates decrease as compared to certain previous periods and a gain is recorded when interest rates increase. Provided the Company does not cancel its interest-rate swaps, the unrealized amounts represent a non-cash unrealized gain or loss that will subsequently reverse through the Consolidated Statements of Income as the related swaps mature. D+H has historically held its derivative contracts to maturity.

INCOME TAX EXPENSE

An income tax recovery of  $1.0 million was recorded in the fourth quarter of 2013 compared to an income tax expense of $4.2 million recognized for the same period in 2012. The income tax recovery is mainly attributable to a reduced income tax rate resulting from a change in the geographic mix of income from continuing operations and an increase in the amortization of intangible assets from acquisitions which resulted in a higher tax recovery.

INCOME FROM CONTINUING OPERATIONS

Income from continuing operations for the fourth quarter of 2013 was $15.2 million compared to $14.2 million for the same period in 2012.  Income from continuing operations was impacted by a higher EBITDA of $26.8 million resulting from the acquisition of HFS and was partially offset by higher amortization expense of $16.3 million relating to acquisition intangible assets and higher interest expense of $10.9 million on debt drawn to fund the HFS acquisition.

INCOME FROM DISCONTINUED OPERATIONS

Income from discontinued operations of $2.1 million for the fourth quarter of 2013 was mainly attributable to a working capital adjustment, offset by services performed pursuant to a previously negotiated transitional services agreement in connection with the divestiture of D+H's non-strategic business processing operations on May 10, 2013.  For the comparative period in 2012, the loss from discontinued operations was $0.5 million. Refer to the 'Divestiture' section for further details.

NET INCOME

Consolidated net income of $17.4 million for the fourth quarter of 2013 was higher by $3.7 million, compared to consolidated net income of $13.7 million for the same quarter in 2012. Net income in the fourth quarter of 2013 benefited from a higher EBITDA of $26.8 million resulting from the acquisition of HFS but was offset by higher amortization expense of $16.3 million relating to acquisition intangible assets, and higher interest expense of $10.9 million on debt drawn to fund the HFS acquisition. A loss from discontinued operations of $2.1 million also impacted net income in the fourth quarter of 2013.

NET INCOME PER SHARE

Net income per share, basic

Consolidated basic net income per share of $0.2151 for the fourth quarter of 2013 was lower compared to a net income per share of $0.2315 for the same quarter in 2012, primarily due to the additional common shares issued in connection with the acquisition of HFS and the other items discussed above impacting net income, including those related to the acquisition of HFS.

Net income per share, diluted

For the fourth quarter of 2013, the inclusion of additional potential shares related to share-based compensation had a dilutive effect on net income while additional potential shares related to the Debentures had an anti-dilutive effect on net income. Net income per share for the three-month period on a diluted basis was $0.2147 per share, compared to net income per share of $0.2315 for the same period in 2012. Per share amounts, on a diluted basis, were also impacted by the additional common shares issued to fund the HFS acquisition.  Refer to note 22 of the Company's audited consolidated financial statements for the year ended December 31, 2013 for the calculation of diluted net income per share.

ADJUSTED NET INCOME AND ADJUSTED NET INCOME PER SHARE

Consolidated Adjusted net income of $42.0 million for the fourth quarter of 2013 was higher by $16.0 million, or 61.6%,  compared to the $26.0 million for the same period in 2012.  Consolidated Adjusted net income per share of $0.5206 increased by 18.6% from $0.4390 per share for the same period in 2012. These increases were mainly due to higher Adjusted EBITDA resulting from the inclusion of HFS results, partially impacted by higher depreciation of capital assets and amortization of non-acquisition intangible assets and higher cash interest expense on debt drawn to fund the HFS acquisition. Adjusted net income per share for the fourth quarter of 2013 was impacted by the 21,505,000 additional shares issued to fund the acquisition of HFS.

CONSOLIDATED CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES

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 December 31,
            2013   2012
Cash and cash equivalents provided by (used in):          
OPERATING ACTIVITIES          
Income from continuing operations   $        15,235 $        14,240
Depreciation and amortization of assets            38,568            18,860
Fair value adjustment of derivative instruments               (138)               (542)
Interest expense, including amortization of deferred finance fees and accretion          15,509             4,629
Non-cash income tax and options expenses             (781)             4,091
Income from investment in an associate, net of tax               -                  23
Decrease in non-cash working capital and other items             21,075                  22,083
Cash generated from operating activities          89,468             63,384
Interest paid               (8,674)            (4,248)
Income tax paid            (1,670)                    -
Net cash from operating activities               79,124        59,136
FINANCING ACTIVITIES          
Net change in long-term indebtedness             (15,000)       (26,187)
Dividends paid               (25,836)       (18,956)
Net cash used in financing activities             (40,836)        (45,143)
                 
INVESTING ACTIVITIES          
Capital expenditures                   (17,639)                    (9,717)
Net cash used in investing activities             (17,639)            (9,717)
Increase in cash and cash equivalents for the period              20,649             4,276
Cash and cash equivalents, beginning of period           11,749             1,443
Cash and cash equivalents, end of period   $        32,398 $          5,719

As at December 31, 2013, cash and cash equivalents totalled $32.4 million, compared to $5.7 million at December 31, 2012.

Operating Activities

Operating activities provided $79.1 million during the quarter ended December 31, 2013, compared to $59.1 million for the same period in 2012. The change in net cash from operating activities was primarily attributable to higher EBITDA in the fourth quarter of 2013 due to the acquisition of HFS, and non-cash working capital changes as described below. Net cash from operating activities for the fourth quarter of 2013 were also impacted by increased interest payments reflecting the HFS acquisition and income tax installment payments made during the fourth quarter of 2013.

Changes in Non-Cash Working Capital and Other Items

(in thousands of Canadian dollars, unaudited)

    Quarter ended December 31,
      2013   2012
Change in non-cash working capital  $       29,374 $       25,091
Change in other operating assets and liabilities   (8,109)   (3,094)
Discontinued operations   (190)   86
Decrease in non-cash working capital and other items $       21,075 $       22,083

The net decrease in non-cash working capital in the fourth quarter of 2013 reflected an increase in compensation costs, increased trade payables reflecting cash management initiatives taken by the Company, and increased deferred revenues due to growth in the HFS business. This was partially offset by increased prepayments reflecting deferred costs and integration expenses.

The net increase in other operating assets and liabilities for the fourth quarter of 2013 primarily related to increased non-current accounts receivable and deferred costs, related to growth in our HFS business since its acquisition, and partially offset by increased other long-term liabilities mainly resulting from a higher share-based compensation expense attributable to an increase in the Company's share price.

Cash flows used in discontinued operations of $0.2 million in the fourth quarter of 2013 is attributable to activities undertaken in accordance with the previously negotiated transition services agreement associated with the divestiture of D+H's non-strategic business processing operations on May 10, 2013.

Financing Activities

Net cash used in financing activities was $40.8 million during the fourth quarter, compared to $45.1 million used in the same period in 2012. The net change was primarily due to debt repayments and a dividend payment. D+H made net debt repayments of $15.0 million during the fourth quarter of 2013, compared to $26.2 million in the same period in 2012.

Dividends

During the fourth quarter of 2013, D+H paid a dividend of $0.32 per share ( $25.8 million) to its shareholders on record as of November 30, 2013.  For the same quarter in 2012, $0.32 per share ( $19.0 million) was paid to shareholders. The increase in total dividends paid reflected 21,505,000 additional common shares issued in connection with the acquisition of HFS in August 2013.

Investing Activities

Net cash of $17.6 million was used in investing activities during the fourth quarter of 2013, reflecting capital expenditures, compared to $9.7 million used in investing activities in the fourth quarter of 2012, also for capital expenditures.

Higher capital expenditures in the fourth quarter of 2013 were mainly due to the inclusion of HFS.

Consolidated Operating Results - Overview

D+H delivered solid operating performance in 2013 that was consistent with its strategic agenda of becoming a leading FinTech provider to the financial services marketplace. Year-over-year growth in revenues and Adjusted revenues was attributable to the U.S. Segment and reflected the inclusion of HFS and Compushare. The U.S. Segment also contributed to year-over-year growth in Adjusted EBITDA as a result of acquisitions.  Consolidated EBITDA for 2013 was impacted by $23.8 million of acquisition-related expenses, which were reported as part of Corporate.  EBITDA was also negatively impacted by the acquisition accounting adjustments of $24.2 million related to the fair value of deferred revenues and deferred costs acquired from the acquisition of HFS. Consolidated net income for 2013 was lower compared to 2012 primarily due to the loss on discontinued operations and the impacts of higher debt and amortization expense in relation to the HFS acquisition, partially offset by higher EBITDA and lower income tax expense.  Consolidated Adjusted net income, which excluded non-cash and non-normal course items, was higher than the comparative period primarily as a result of the HFS acquisition.

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

      Years ended December 31,
        2013   2012
Revenues $ 837,093 $ 695,456
Expenses   637,630   513,850
EBITDA 1   199,463   181,606
             
Depreciation of capital assets and amortization of non-acquisition intangibles   31,645   27,667
Amortization of intangible assets from acquisitions   68,787    42,990
Income from operating activities   99,031   110,949
Interest expense   35,747   19,214
Other finance charges 2   3,224   -  
Income from investment in an associate, net of tax 3   (130)   (68)
Gain on re-measurement of previously-held equity interest 3   (1,587)   -  
Fair value adjustment of derivative instruments 4   (6,207)    (2,016)
Income tax expense   6,280   23,531
Income from continuing operations   61,704    70,288
Loss from discontinued operations, net of tax 5   (18,052)    (1,151)
Net income  $ 43,652 $ 69,137
Income from continuing operations per share,        
  Basic 7 $ 0.9160 $ 1.1866
  Diluted 6 $ 0.9149 $ 1.1866
Loss from discontinued operations, per share, net of tax 5        
  Basic 7 $ (0.2680) $ (0.0194)
  Diluted 6 $ (0.2677) $ (0.0194)
Net income per share,        
  Basic 7 $ 0.6480 $ 1.1672
  Diluted 6 $ 0.6472 $ 1.1672
1 EBITDA is a non-IFRS term. See Non-IFRS Financial Measures for a more complete description of this term.
2 Upon acquisition of HFS, the Credit Facility replaced the Previous Credit Facility entered into in 2011,
resulting in a write-off of the unamortized deferred debt issuance costs related to the Previous Credit
Facility.
3 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 re-measurement of the previously held equity interest was recognized in accordance with
IFRS standards.
4 Includes a gain recognized resulting from fair value changes relating to two foreign exchange forward
contracts entered into by D+H on July 25, 2013 to economically hedge the foreign exchange exposure
related to the U.S. dollar purchase price of HFS.  Amounts also included 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.
5 On May 10, 2013 D+H divested its non-strategic business processing operations.   These operations
were reported as part of business service solutions and loan servicing solutions in prior periods and have now
been classified as discontinued operations for both the current and comparative periods presented.
6 Diluted per share reflects the impacts of outstanding stock 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 for income from operating activities per share. Weighted average
number of shares outstanding on a diluted basis during 2013 was 67,443,419 shares (2012 - 59,233,373
shares).
7 Weighted average number of shares outstanding during 2013 was 67,364,031 shares (2012 - 59,233,373
shares).

(in thousands of Canadian dollars, unaudited)

      Years ended December 31,
        2013   2012
Revenues $         837,093 $        695,456
Acquisition accounting adjustments 1              29,165                     -  
Adjusted revenues 2 $         866,258 $        695,456
1 Fair value of the deferred revenue balance acquired with the acquisition
of HFS was adjusted to reflect estimated costs of future delivery of services.
This add-back represents the amortization of the deferred revenue that was
written-off.
2 Adjusted revenues is a non-IFRS term.  See Non-IFRS Financial Measures
for a complete description of this term.

(in thousands of Canadian dollars, unaudited)

      Years ended December 31,
        2013   2012
Revenue $ 837,093 $ 695,456
Expenses    637,630   513,850
EBITDA 1   199,463   181,606
EBITDA Margin 1   23.8%   26.1%
             
Adjustments:        
  Acquisition accounting adjustments 2   24,247   -  
  Acquisition-related and other charges 3   23,760   14,938
Adjusted EBITDA 1 $ 247,470 $ 196,544
Adjusted EBITDA Margin 1   28.6%   28.3%
1 EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin
are non-IFRS terms. See Non-IFRS Financial Measures for a more
complete description of these terms.
2 Acquisition accounting adjustments relate to the amortization of the fair
value adjustments on deferred revenues and deferred costs acquired
in connection with the acquisition of HFS. See "Adjusted revenues" and
"Adjusted EBITDA" in the Non-IFRS Financial Measures for a more
complete description of these terms.
3 Acquisition-related and other charges for 2013 included transaction
costs related to the acquisitions of HFS and Compushare, retention
and incentive costs in connection with the acquisitions, business
integration costs and expenses related to cost-realignment initiatives.
Acquisition-related and other charges for 2012 included transaction
costs and certain retention and incentive costs related to the Mortgagebot
and Avista acquisitions, charges related to cost-realignment initiatives,
corporate development expenses related to strategic acquisition initiatives
and business integration costs.

(in thousands of Canadian dollars, unaudited)

      Years ended December 31,
        2013   2012
Net Income $ 43,652 $ 69,137
Adjustments:        
  Non-cash items:        
    Acquisition accounting adjustments 1   24,247   -  
    Non-cash interest expense 2   2,058   -  
    Other finance charges 3   3,224   -  
    Amortization of intangible assets from acquisitions   68,787   42,990
    Gain on re-measurement of previous-held equity interest 4   (1,587)   -  
    Fair value adjustment of derivative instruments 5   (6,207)   (2,016)
  Other items of note:        
    Acquisition-related and other charges 6   23,760   14,938
  Tax effect of above adjustments 7   (38,207)   (16,974)
  Loss from discontinued operations, net of tax 8   18,052   1,151
  Tax effect of acquisitions 9   (1,726)   (1,156)
Adjusted net income 10 $ 136,053 $ 108,070
             
Adjusted net income per share 10, 11 $ 2.0197 $ 1.8245
             
             
            2013 vs. 2012
              % change
Adjusted net income 10       25.9%
Adjusted net income per share 10, 11       10.7%
1 Acquisition accounting adjustments relate to the amortization of the fair value adjustments on
deferred revenues and deferred costs acquired in connection with the acquisition of HFS.
2 Non-cash interest charges relate to accretion of Debentures issued to partially fund the
acquisition of HFS and amortization of deferred financing charges incurred in connection with
the Company's financing arrangements.
3 Upon acquisition of HFS, the Credit Facility replaced the Previous Credit Facility entered into
in 2011, resulting in a write-off of the unamortized deferred debt issuance costs related to the
Previous Credit Facility.
4 Upon acquisition of the remaining interest in Compushare in January 2013, a non-cash gain
related to re-measurement of the previously held equity interest was recognized in accordance
with IFRS standards.
5 Includes a gain recognized resulting from fair value changes relating to two foreign exchange
forward contracts entered into by D+H on July 25, 2013 to economically hedge the foreign
exchange exposure related to the U.S. dollar purchase price of HFS.  Amounts also included
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.
6 Acquisition-related and other charges for 2013 include transaction costs related to the
acquisition of HFS, 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 2012 included transaction costs and certain
retention and incentive costs related to the Mortgagebot and Avista acquisitions, charges
related to cost-realignment initiatives, corporate development expenses related to strategic
acquisition initiatives and business integration costs.
7 The adjustments to net income are tax effected at their respective tax rates.
8 On May 10, 2013 D+H divested 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.
9 This adjustment reflects: (i) a non-cash tax recovery related to liabilities recognized in
connection with the acquisition of Mortgagebot, and (ii) a one-time income tax expense
arising from the revaluation of the Company's deferred taxes to reflect the change in future
US income tax rates resulting from the acquisition of HFS.
10 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.
11 Weighted average number of shares outstanding during 2013 was 67,364,031 shares
(2012 - 59,233,373 shares).

OPERATING RESULTS BY SEGMENT

(in thousands of Canadian dollars, unaudited)

                                    Years ended December 31,
            Canadian
Segment
        U.S.
Segment
        Corporate         Consolidated
        2013   2012     2013   2012     2013   2012     2013   2012
Revenues $ 654,608 $ 638,811   $ 182,485 $ 56,645   $        - $           -   $ 837,093 $   695,456
Acquisition accounting adjustments 1    -               -        29,165            -        -                 -      29,165               -  
Adjusted revenues 2 $ 654,608 $ 638,811   $ 211,650 $ 56,645   $        - $          -   $ 866,258 $   695,456
1 Acquisition accounting adjustments in 2013 relate to non-cash fair value adjustments to deferred revenues acquired in connection with the acquisition of HFS. The deferred revenue balance was adjusted to reflect its fair value, calculated by estimating costs of future delivery of the services. This add-back represents the amortization of the deferred revenue that was written-off.
2Adjusted revenues is a non-IFRS term. See Non-IFRS Financial Measures for a more complete description of this term.

        

(in thousands of Canadian dollars, unaudited)

                                    Years ended December 31,
            Canadian
Segment
        U.S.
Segment
        Corporate         Consolidated
        2013   2012     2013   2012     2013   2012     2013   2012
Revenues $ 654,608 $ 638,811   $ 182,485 $ 56,645   $             - $             -   $ 837,093 $   695,456
Expenses   485,790   470,928      128,080      27,984     23,760   14,938      637,630        513,850
EBITDA 1   168,818   167,883     54,405      28,661     (23,760)   (14,938)     199,463       181,606
EBITDA Margin 1   25.8%   26.3%     29.8%   50.6%     -    -     23.8%   26.1%
Adjustments:                                        
  Acquisition accounting adjustments 2   -               -     24,247               -                 -               -       24,247                  -
  Acquisition-related and other charges 3   -               -      -              -      23,760    14,938     23,760         14,938
Adjusted EBITDA 1 $ 168,818 $ 167,883   $ 78,652 $ 28,661   $             - $             -   $ 247,470 $   196,544
Adjusted EBITDA Margin 1   25.8%   26.3%     37.2%   50.6%                 -                 -     28.6%   28.3%
1 EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin are non-IFRS terms. See Non-IFRS Financial Measures for a more complete description of these terms.
2 Acquisition accounting adjustments in 2013 relate to non-cash fair value adjustments to deferred revenues and deferred costs acquired in connection with the acquisition of HFS.
3 Acquisition-related and other charges for 2013 include transaction costs related to the acquisitions of HFS and Compushare, retention and incentive costs in connection with the acquisitions, business integration costs and expenses related to cost-realignment initiatives. Acquisition-related and other charges for 2012 included transaction costs and certain retention and incentive costs related to the Mortgagebot and Avista acquisitions, charges related to cost-realignment initiatives, corporate development expenses related to strategic acquisition initiatives and business integration costs.

                Years ended
December 31,
          Canadian   U.S.  
          Segment   Segment Consolidated
          2013 vs. 2012   2013 vs. 2012 2013 vs. 2012
          % change   % change % change
Revenues     2.5%   222.2% 20.4%
Adjusted revenues 1     2.5%   273.6% 24.6%
Adjusted EBITDA 1     0.6%   174.4% 25.9%
1 Adjusted revenues and Adjusted EBITDA are non-IFRS terms. See
Non-IFRS Financial Measures for a more complete description of
these terms.

REVENUES AND ADJUSTED REVENUES

Revenues and Adjusted Revenues - Consolidated

The table below shows the Company's Adjusted revenues by its major service areas: 

              Years ended December 31,
              2013 2012
Adjusted Revenues - Consolidated                
  Payments solutions             35% 43%
  Lending processing solutions 1             33% 38%
  Banking technology solutions 2                
    Enterprise             10%                -
    Lending             22% 19%
              100% 100%
1 Reported as loan servicing solutions and loan registration and recovery services
in prior periods.
2 Reported as lending technology services in prior periods. Beginning in the third
quarter of 2013, the Company reports banking technology solutions segregated
further into enterprise and lending categories to reflect the major service areas
of HFS.

(in thousands of Canadian dollars, unaudited)

                                        Years ended December 31,
        Canadian
Segment
                  U.S.
Segment
                  Consolidated
    2013   2012               2013   2012               2013   2012
    Revenues   Revenues     Revenues   Adjustment1     Adjusted
revenues 2
  Revenues     Revenues   Adjustment1     Adjusted
revenues2
  Revenues
Payments solutions $ 304,360 $ 301,432   $            - $              -   $              - $             -   $   304,360 $              -   $   304,360 $   301,432
Lending processing solutions     282,161      265,885                -                -                   -               -           282,161                 -       282,161   265,885
Banking technology solutions                                                
  Enterprise               -              -           79,564       7,102         86,666               -             79,564        7,102           86,666   -  
  Lending   68,087   71,494      102,921         22,063     124,984   56,645         171,008         22,063         193,071       128,139
                                                 
Total Revenues $ 654,608 $ 638,811   $ 182,485 $     29,165   $    211,650 $    56,645   $   837,093 $     29,165   $   866,258 $   695,456
1 Adjustment is related to non-cash fair value adjustment to deferred revenues acquired in connection with the acquisition of HFS. The deferred revenue balance was adjusted to reflect its fair value, calculated by estimating costs of future delivery of the services. This add-back represents the amortization of the deferred revenue that was written-off.
2 Adjusted revenues is a non-IFRS term.  See Non-IFRS Financial Measures for a more complete description of this term.

Consolidated Adjusted revenues for 2013 were $866.3 million, an increase of $170.8 million, or 24.6%, compared to 2012. This increase was primarily due to the inclusion of HFS and Compushare revenues effective August 16, 2013 and January 29, 2013, respectively, in the U.S. Segment and growth in our other SaaS businesses in the U.S.  Also contributing to this increase was revenue growth in payments solutions and lending processing solutions in the Canadian Segment.

Consolidated revenues for 2013 were $837.1 million, an increase of $141.6 million, or 20.4%, compared to 2012.  Revenues in 2013 were impacted by the fair value adjustment to deferred revenues acquired from HFS.

Revenues - Canadian Segment

Total revenues in the Canadian Segment for 2013 were $654.6 million, an increase of $15.8 million, or 2.5%, compared to 2012.  Adjusted revenues are the same as revenues for the Canadian Segment as this segment was not subject to acquisition-accounting adjustments.

Payments Solutions

Revenues from payments solutions for 2013 were $304.4 million, an increase of $2.9 million, or 1.0%, compared to 2012.  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. Management believes that the downward trend in cheque order volumes is in the mid-single digits, annually, with variations in the personal and business cheque categories. 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 digits with comparatively minimal volatility.

Lending Processing Solutions

Lending processing solutions revenues for 2013 were $282.2 million, an increase of $16.3 million, or 6.1%, compared to 2012.  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 and higher volumes in the student loans program. These increases were partially offset by lower professional service fees within the student loans program due to timing of customer approval of these services.

Banking Technology Solutions - Lending

All revenues from the banking technology solutions service area within the Canadian Segment come from lending solution offerings.  Revenues from this service area for 2013 were $68.1 million, a decrease of $3.4 million, or 4.8%, compared to 2012. Revenues for 2013 were impacted by price modifications and lower origination volumes within our mortgage origination business, partially offset by higher professional service fees earned in connection with our technology solutions directed towards leasing, commercial lending and small business lending.

Revenues and Adjusted Revenues - U.S. Segment

Total revenues in the U.S. Segment for 2013 were $182.5 million, an increase of $125.8 million, or 222.2%, compared to 2012.  For 2013, Adjusted revenues of $211.7 million, were $155.0 million, or 273.6%, ahead of the previous year. The sharp increases in both revenues and Adjusted revenues were due to the inclusion of HFS and Compushare. A strong U.S. dollar in the latter part of the year compared to the prior year benefited Adjusted revenues in the U.S. segment by $9.6 million. The foreign exchange impact was calculated as the difference between the current period's actual results and the current period's results in local currencies converted at the prior period's foreign exchange rates.

Enterprise Solutions

Revenues from enterprise solutions within the U.S. Segment for 2013 were $79.6 million. Revenues recorded under IFRS in 2013 were impacted by acquisition accounting adjustments related to fair value of deferred revenue acquired through the acquisition of HFS. Adjusted revenues, which are calculated after removing the impacts of purchase accounting adjustments related to fair value of deferred revenue, were $86.7 million for 2013.  There was no comparable for Adjusted revenues for the same period in 2012.

Lending Solutions

Revenues from lending solutions in the U.S. Segment for 2013 were $102.9 million, an increase of $46.3 million, or 81.7%, compared to 2012.  Revenues in 2013 benefited from the inclusion of HFS since its acquisition on August 16, 2013.  Revenues recorded under IFRS in 2013 were impacted by acquisition accounting adjustments related to the acquisition of HFS.  Adjusted revenues of $125.0 million, which removed these acquisition accounting impacts, increased by $68.3 million compared to 2012, due to the inclusion of HFS.

In our other SaaS businesses in the U.S., for 2013, revenues increased year over year primarily due to higher subscription fees from a growing customer base and were partially offset by lower transaction volumes due to the impact of lower re-financing activity compared to a year ago when historically low interest rates encouraged consumers to re-finance their mortgages. Revenues for 2013 also benefited from annualization of Avista, acquired in May 2012.

EXPENSES

Expenses - Consolidated 

(in thousands of Canadian dollars, unaudited)

                                  Years ended December 31,
        Canadian
Segment
        U.S.
Segment
        Corporate         Consolidated
    2013   2012     2013   2012     2013   2012     2013   2012
Employee compensation and benefits 1 $   159,208 $      151,862   $   78,886 $ 15,943   $     4,783 $ 11,001   $   242,877 $   178,806
Non-compensation direct expenses2       246,058         237,491         11,208        1,062                 -             -           257,266       238,553
Other operating expenses 3          80,524           81,575         37,986     10,979          18,977       3,937         137,487         96,491
Total Expenses $   485,790 $      470,928   $ 128,080 $ 27,984   $   23,760 $ 14,938   $   637,630 $   513,850
1 Employee compensation and benefits on a consolidated basis includes retention and incentive expenses related to acquisitions of businesses and share-based compensation expenses 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, royalties and third party direct disbursements.
3 Other operating expenses include occupancy costs, communication costs, 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.  Other operating expenses in the Canadian Segment are net of management fees charged to the U.S. segment by the Canadian Segment.

Consolidated expenses for 2013 were $637.6 million, an increase of $123.8 million, or 24.1%, compared to 2012. The increase was attributable to the inclusion of HFS expenses effective from August 16, 2013 and Compushare expenses effective from January 29, 2013. Consolidated expenses also included acquisition-related and other charges of $23.8 million for 2013, which are not considered reflective of normal course operations. These costs are not included in the segment results, but are disclosed as part of Corporate. Acquisition-related and other charges of $14.9 million were recorded in 2012.  Annualization of Avista expenses also contributed to the increase in 2013.

Expenses - Canadian Segment

Total expenses for the Canadian Segment in 2013 were $485.8 million, an increase of $14.9 million, or 3.2%, due to higher revenues, partially offset by benefits from recent transformation and cost-realignment activities.  The increase in expenses in 2013 was also attributable to a change in product mix and increased investments in new organic growth initiatives.

Employee compensation and benefits costs of $159.2 million for 2013 for the Canadian Segment were higher by $7.3 million, or 4.8%, compared to 2012.  This increase was primarily due to an increase in share-based compensation expense attributable to an increase in the share price of D+H, timing of capitalization of internally developed projects and employee related incentive costs. These increases were partially offset by savings realized from cost-realignment initiatives.

Non-compensation direct expenses for the Canadian Segment of $246.1 million for 2013 increased by $8.6 million, or 3.6%, compared to 2012. In general, these expenses directionally change with revenue changes.  An increase in direct costs associated with the lending processing solutions was consistent with the increase in revenue. These increases were partially offset by savings realized from cost re-alignment initiatives.

Other operating expenses of $80.5 million for 2013 decreased by $1.1 million, or 1.3%, compared to 2012. Benefits from cost-realignment initiatives were partially offset by an increase in expenses due to changes in product mix in the Canadian Segment, a trend that is expected to stabilize. Other operating expenses in the Canadian Segment are net of management fees charged to the U.S. Segment.

Expenses - U.S. Segment

Total expenses for the U.S. Segment in 2013 were $128.1 million, an increase of $100.1 million, with the increase attributable to the inclusion of HFS and Compushare in the 2013 periods and annualization of expenses for Avista, acquired in May 2012.

Employee compensation and benefits costs of $78.9 million in 2013, increased by $62.9 million, compared to 2012. This increase was primarily due to the inclusion of the HFS and Compushare cost bases.

Non-compensation direct expenses in 2013 of $11.2 million, increased by $10.1 million, compared to 2012,  primarily due to the inclusion of HFS and Compushare.

Other operating expenses of $38.0 million for 2013 were higher by $27.0 million, or 246.0%,  compared to the previous year. The increase was primarily attributable to the inclusion of HFS and Compushare expenses. Other operating expenses also included a management fee, for corporate-related services, charged to the U.S. Segment by the Canadian Segment.

Expenses - Corporate

Total expenses of $23.8 million were recorded in Corporate for 2013.

Employee compensation and benefits expenses of $4.8 million recorded as corporate expenses for 2013 and $11.0 million for 2012 consisted of retention and incentive expenses incurred in connection with acquisitions and severances related to cost-realignment initiatives.

Other expenses of $19.0 million for 2013 mainly consisted of transaction and business integration costs incurred in connection with the acquisition of HFS.  For 2012, other operating expenses of $3.9 million consisted of corporate development expenses related to strategic acquisition initiatives, transaction costs and business integration costs incurred in connection with the acquisition of Avista.

EBITDA AND EBITDA MARGIN

Consolidated EBITDA in 2013 of $199.5 million, increased by $17.9 million, or 9.8%, from $181.6 million for 2012. Consolidated EBITDA margin of 23.8% decreased from 26.1% in 2012.

Canadian Segment

Canadian Segment EBITDA for 2013 was $168.8 million, an increase of $0.9 million, or 0.6%, compared to 2012. EBITDA margin for the Canadian Segment for 2013 was 25.8%, compared to 26.3% in 2012.

U.S. Segment

U.S. Segment EBITDA in 2013 was $54.4 million, an increase of $25.7 million, or 89.8%, compared to 2012. EBITDA margin for 2013 of 29.8% was lower than the margin of 50.6% during 2012.

ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN

Consolidated Adjusted EBITDA of $247.5 million in 2013, increased by $50.9 million, or 25.9%, compared to 2012, primarily due to the inclusion of HFS. Consolidated Adjusted EBITDA was calculated by removing from EBITDA: (i) $24.2 million of acquisition accounting adjustments to fair value of deferred revenues and deferred costs associated with the acquisition of HFS; (ii) acquisition-related and other charges of $23.8 million, consisting of transaction costs expensed under IFRS, retention and incentive costs and integration expenses associated with acquisitions.

On a consolidated basis, Adjusted EBITDA margin for 2013 was 28.6% compared to 28.3% for 2012 due to the inclusion of HFS in the U.S. Segment. Although HFS has lower margins than our other U.S. Segment offerings, it has a higher margin than the overall Canadian Segment.

Canadian Segment

Adjusted EBITDA was $168.8 million for 2013, an increase of $0.9 million, or 0.6%, compared to 2012. Adjusted EBITDA in 2013 reflected growth in revenues, higher management fees charged to the U.S. Segment and savings realized from recent transformation and cost-realignment activities in the Canadian Segment. These increases were partially offset by higher expenses related to changes in product mix, price modifications related to mortgage originations, increased investments in new organic growth initiatives and an increase in share-based compensation expense as described above.

Adjusted EBITDA margin of 25.8% in 2013 was lower than the Adjusted EBITDA margin of 26.3% in 2012. Adjusted EBTIDA margin for 2013 was impacted by the changes in product mix and an increase in share-based compensation expense attributable to an increase in the share price of D+H.

U.S. Segment

U.S. Segment Adjusted EBITDA for 2013 of $78.7 million, increased by $50.0 million, or 174.4%, compared to 2012. This increase was primarily attributable to the inclusion of HFS and Compushare, annualization of Avista and continued growth in our other SaaS businesses. Adjusted EBITDA also benefited by $3.4 million due to a strong U.S. dollar in the latter part of the year. This impact was calculated using the methodology described previously.

Adjusted EBITDA in the U.S. Segment excluded the impacts of $24.2 million attributable to the IFRS acquisition accounting adjustments related to fair value of deferred revenues and deferred costs on D+H's acquisition of HFS. This consisted of $29.2 million of acquisition accounting adjustments related to fair value of deferred revenues and $5.0 million of fair value adjustments related to deferred costs.

U.S. Segment Adjusted EBITDA margin for 2013 was 37.2%, compared to 50.6% for 2012.  As described earlier, HFS margins are lower than the other SaaS offerings within our U.S. Segment, which resulted in lower Adjusted EBITDA margins in 2013.

DEPRECIATION OF CAPITAL ASSETS AND AMORTIZATION OF NON-ACQUISITION INTANGIBLE ASSETS

Consolidated depreciation of capital assets and amortization of non-acquisition intangible assets of $31.6 million increased by $4.0 million, or 14.4%, compared to 2012, mainly due to the inclusion of HFS and Compushare.

AMORTIZATION OF INTANGIBLE ASSETS FROM ACQUISITIONS

Consolidated amortization of intangible assets from acquisitions for 2013 was $68.8 million, an increase of $25.8 million, or 60.0%, compared to 2012.  The increase was attributable to the amortization resulting primarily from the acquisition of HFS on August 16, 2013 and to a lesser extent the acquisition of Compushare on January 29, 2013 and annualization of amortization expense resulting from the acquisition of Avista in May 2012.

INCOME FROM OPERATING ACTIVITIES

Consolidated income from operating activities was $99.0 million in 2013, a decrease of $11.9 million, or 10.7%, compared to $110.9 million for 2012. This reflected an increase in amortization and depreciation as described above, a decrease in EBITDA as a result of acquisition accounting adjustments related to fair value of deferred revenues, net of deferred costs, associated with the acquisition of HFS, and transaction and integration costs in connection with the HFS acquisition. These decreases were partially offset by EBITDA growth in our other SaaS businesses.

INTEREST EXPENSE

Interest expense of $35.7 million for 2013 increased by $16.5 million, or 86.0%, compared to 2012.  The increase reflected incremental debt financing through the Credit Facility bearing a higher credit spread and bonds and Debentures issued to partially fund the HFS acquisition in 2013.  Interest expense for 2013 also included a non-cash interest charge of $2.1 million consisting of: (i) accretion expense of $0.8 million related to Debentures issued in connection with the acquisition of HFS, and (ii) $1.3 million related to the amortization of deferred financing charges incurred in connection with the Company's financing arrangements. The difference between the carrying value and the face value of the Debentures is accreted over the 5-year term of the Debentures such that the liability at maturity will equal the face value of $230 million. Prior to the acquisition in August 2013, interest expense had been favourably impacted by lower average loan balances as a result of debt repayments and favourable pricing on the renewal of the Previous Credit Facility, due to renegotiated terms.

INCOME FROM INVESTMENT IN AN ASSOCIATE

Consolidated net income for 2012 and for the first 28 days of January 2013 included D+H's share of income related to the minority interest held in Compushare.  Compushare's results were consolidated when D+H obtained 100% ownership on January 29, 2013.

GAIN ON RE-MEASUREMENT OF PREVIOUSLY HELD EQUITY INTEREST

Upon acquisition of the remaining outstanding shares of Compushare, a gain of $1.6 million was recognized on re-measurement of the previously held equity interest in accordance with IFRS.

FAIR VALUE ADJUSTMENT OF DERIVATIVE INSTRUMENTS

A net gain of $6.2 million related to fair value changes on derivative instruments was recognized in 2013, compared to $2.0 million in 2012. The gain in 2013 was attributable to fair value adjustments pertaining to interest-rate swaps and foreign exchange forward contracts used to economically hedge a portion of the foreign exchange risk related to the U.S. dollar acquisition price of HFS, as described below:

Interest rate swaps
Net unrealized gain from interest-rate swaps, reflecting fair value adjustments related to changes in market interest rates over 2013 was $1.5 million. Net unrealized gain relating to interest-rate swaps was $2.0 million in 2012.

Foreign exchange forward contracts
D+H entered into two foreign exchange forward contracts to economically hedge the foreign exchange risk related to the U.S. dollar acquisition price of HFS.  A gain of $4.7 million relating to the fair value changes during the period was recorded in 2013.  These forward contracts were settled upon the completion of the acquisition of HFS on August 16, 2013.

OTHER FINANCE CHARGES

As a result of the acquisition of HFS, the Company entered into a new non-revolving, non-amortizing secured Credit Facility, maturing in five years and senior secured bonds with a 10-year term.

Also, this Credit Facility replaced the Company's Previous Credit Facility entered into in 2011, resulting in the unamortized deferred debt issuance costs related to the previous facilities of $3.2 million being written-off to net income.

INCOME TAX EXPENSE

An income tax expense of $6.3 million was recorded in 2013 compared to an income tax expense of $23.5 million in 2012.  The income tax expense was lower in 2013 compared to 2012 due to a change in the geographic mix of income from continuing operations. Also, an increase in the amortization of intangible assets from acquisitions resulted in a tax recovery which partially offset the income tax expense.

The 2013 income tax expense was increased as a result of non-deductible acquisition costs but was also reduced by a tax recovery related to liabilities recognized in connection with the acquisition of Mortgagebot and the recognition of previously unrecognized tax losses.  The 2012 income tax expense on income from operations was also reduced by a smaller tax recovery related to liabilities previously recognized in connection with the acquisition of Mortgagebot.

INCOME FROM CONTINUING OPERATIONS

Income from continuing operations for 2013 was $61.7 million compared to $70.3 million for 2012. The decrease was primarily attributable to lower income from operating activities as described earlier, higher interest expense on debt drawn to fund the HFS acquisition and the write-off of deferred finance fees related to the Previous Credit Facility, partially offset by a lower income tax expense and a higher gain on fair value changes related to derivative instruments compared to 2012.

LOSS FROM DISCONTINUED OPERATIONS

This loss was related to the divestiture of D+H's non-strategic business processing operations on May 10, 2013. See Divestiture section for more details.

Loss from discontinued operations in 2013 was $18.1 million ( $0.2680 per share, basic and $0.2677 per share, diluted), compared to a loss of $1.2 million ( $0.0194 per share, basic and diluted) for 2012. The results of 2013 included a loss on disposal of $5.9 million, a loss of $11.2 million related to measurement to fair value less estimated costs to sell the assets held for sale, and losses from operating activities of $2.5 million. The loss from discontinued operations was partially offset by an income tax recovery of $1.4 million pertaining to the discontinued operations.

NET INCOME

Consolidated net income of $43.7 million for 2013 was lower by $25.5 million, or 36.9%, compared to $69.1 million for 2012, primarily due to a loss from discontinued operations, net of taxes, of $18.1 million, transaction costs and other acquisition related charges in connection with the acquisition of HFS, an increase in amortization and depreciation, and interest on incremental debt. This decrease was partially offset by a lower income tax expense, the benefits of fair-value changes related to derivative instruments of $6.2 million and a gain on re-measurement of previously held equity interest in Compushare.

NET INCOME PER SHARE

Net income per share, basic
Basic net income per share is calculated by dividing net income for the year by the weighted average number of shares outstanding during the year.

Consolidated basic net income per share of $0.6480 for 2013 was lower compared to $1.1672 per share for 2012, primarily due to the 21,505,000 additional common shares issued in connection with the acquisition of HFS and the other items discussed above impacting net income, including those related to the acquisition.

Net income per share, diluted
Diluted net income per share is calculated by adjusting net income and the weighted average number of shares outstanding during the year for the effects of dilutive potential shares (resulting from share-based compensation and Debentures). The diluted per share amounts for share-based compensation are calculated using the treasury stock method, as if all the share equivalents, where the average market price exceeds the issue price, had been exercised at the beginning of the reporting period, or the date of issue, if later, and that the funds obtained thereby were used to purchase shares of the Company at the average trading price of the common shares during the period. Dilution impact of the Debentures is calculated using the if-converted method as at the beginning of the year, or the date of issue, if later.

For 2013, the inclusion of additional potential shares related to share-based compensation had a dilutive effect on net income while additional potential shares related to the Debentures had an anti-dilutive effect on net income. Net income per share on a diluted basis was $0.6472 in 2013 compared to $1.1672 for 2012.  Per share amounts were also impacted by the additional common shares issued in connection with the HFS acquisition.  Refer to note 22 of the Company's audited consolidated financial statements for the year ended December 31, 2013 for the calculation of diluted net income per share.

ADJUSTED NET INCOME AND ADJUSTED NET INCOME PER SHARE

Consolidated Adjusted net income for 2013 was $136.1 million ( $2.0197 per share), an increase of $28.0 million, or 25.9%, compared to $108.1 million ( $1.8245 per share) for 2012.  This increase was mainly due to higher Adjusted EBITDA in the U.S. segment resulting from the inclusion of HFS results and lower income tax expense, partially offset by higher depreciation and interest expense as a result of HFS.  Adjusted net income per share for 2013 was impacted by the additional shares issued to fund the acquisition of HFS.

CONSOLIDATED CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES

The following table is derived from, and should be read in conjunction with, the Consolidated Statements of Cash Flows for the year ended December 31, 2013. 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)

            Years ended December 31,
              2013   2012
Cash and cash equivalents provided by (used in):            
OPERATING ACTIVITIES            
Income from continuing operations     $ 61,704 $ 70,288
Depreciation and amortization of assets       100,432    70,657
Fair value adjustment of derivative instruments       (6,207)   (2,016)
Interest expense, including amortization of deferred finance fees and accretion   35,747    19,214
Other finance charges       3,224   -
Non-cash income tax and options expenses        6,822    25,184
Income from investment in an associate, net of tax       (130)   (68)
Gain on re-measurement of previously held equity interest       (1,587)   -
Decrease (increase) in non-cash working capital and other items        17,907   (2,955)
Cash generated from operating activities       217,912   180,304
Interest paid          (23,081)    (17,118)
Income tax paid          (4,966)   -
Net cash from operating activities       189,865   163,186
FINANCING ACTIVITIES            
Net change in long-term indebtedness        561,131   (3,415)
Proceeds from issuance of Debentures       230,000    -
Issuance costs of Credit Facility and Debentures       (17,878)    (902)
Proceeds from issuance of shares        460,207   -
Payment of issuance costs of shares       (19,883)    -
Dividends paid         (89,582)   (74,042)
Net cash from (used in) financing activities       1,123,995   (78,359)
INVESTING ACTIVITIES            
Capital expenditures        (39,862)   (33,317)
Acquisition of investment in an associate        -    (10,058)
Acquisition of subsidiaries       (1,256,450)   (37,946)
Proceeds from sale of property, plant and equipment        631   -
Proceeds from sale of discontinued operations       8,500   -
Net cash used in investing activities        (1,287,181)    (81,321)
Increase in cash and cash equivalents for the year       26,679   3,506
Cash and cash equivalents, beginning of year        5,719   2,213
Cash and cash equivalents, end of the year     $ 32,398 $ 5,719

D+H's primary liquidity needs are: (i) to fund normal operating expenses; (ii) to meet the interest and principal requirements of our outstanding indebtedness; (iii) to fund dividend payments; (iv) to fund capital expenditures, including product development, and operating lease payments; and (v) to fund strategic acquisitions. We believe these needs will be satisfied using cash flows generated by our operations, our cash and cash equivalents of $32.4 million as at December 31, 2013 ( $5.7 million at December 31, 2012) and available borrowings under our revolving Credit Facility.

Operating Activities

Operating activities provided $189.9 million for 2013, an increase of $26.7 million, compared to $163.2 million for 2012. This increase was primarily attributable to higher EBITDA as a result of the HFS acquisition, and non-cash working capital changes as described below. Net cash from operating activities were also impacted by increased interest payments reflecting the HFS acquisition and income tax installment payments made during 2013.

Changes in Non-Cash Working Capital and Other Items

(in thousands of Canadian dollars, unaudited)

    Years ended December 31,
      2013   2012
Change in non-cash working capital  $        38,134 $        (3,528)
Change in other operating assets and liabilities   (9,080)   (1,218)
Discontinued operations   (11,147)   1,791
Decrease (increase) in non-cash working capital and other items $        17,907 $        (2,955)

The net decrease in non-cash working capital in 2013 reflected increased trade payables reflecting cash management initiatives taken by the Company and increased deferred revenues due to growth in the HFS business. This was partially offset by increased prepayments reflecting deferred costs and integration expenses.

The net increase in other operating assets and liabilities for 2013 primarily related to increased non-current accounts receivable and deferred costs, related to growth in our HFS business since its acquisition, and was partially offset by increased other long-term liabilities mainly resulting from higher share-based compensation expense attributable to an increase in the Company's share price.

Cash flows used in discontinued operations of $11.1 million represent directly attributable selling costs and the transfer of cash associated with these operations and impact of activities undertaken in accordance with the previously negotiated transition services agreement.

The Company expects to experience continued variability of non-cash working capital due to the nature and timing of services rendered in connection with the businesses acquired.

Financing Activities

Net cash provided by financing activities was $1.1 billion for 2013, compared to $78.4 million used in financing activities for 2012.  The net change was primarily due to funds drawn from the Credit Facility and proceeds from issuances of bonds, common shares and Debentures in connection with the acquisition of HFS, net of issue costs.

During 2013, D+H made net debt repayments of $51.5 million, compared to $54.0 million in the previous year. D+H also made dividend payments totalling $89.6 million ($1.28 per share) during 2013, compared to $74.0 million ($1.25 per share) in 2012. This increase in dividend payments reflected a dividend increase in the fourth quarter of 2012 and dividends on the 21,505,000 additional common shares issued in connection with the acquisition of HFS in August 2013.

Issuance of Common Shares
Gross proceeds of approximately $460.2 million were received from the issuance of 21,505,000 subscription receipts to partially fund the acquisition of HFS, which included an over-allotment option for the subscription receipts exercised on closing.  Each subscription receipt entitled the holder to receive one common share of the Corporation upon the close of the acquisition, at a price of $21.40.

With the completion of the acquisition on August 16, 2013, each subscription receipt was automatically exchanged into one common share of the Corporation.

Investing Activities

During 2013, investing activities used $1.3 billion of cash, which was primarily for the acquisition of HFS on August 16, 2013 for a cash purchase price of approximately US$1.2 billion and $39.9 million on capital expenditures. Cash used in investing activities during the year was partially offset by the proceeds from the sale of the non-strategic business processing operations in May 2013. In 2012, $81.3 million was used in investing activities reflecting capital expenditures, the acquisition of Avista and a minority investment in Compushare.

Capital Expenditures
For 2013, capital expenditures were $39.9 million, an increase of $6.5 million, compared to 2012. The increase in capital expenditures was primarily attributable to the acquisition of HFS. Total capital expenditure for 2013 was also higher than the previous guidance provided by management in the third quarter of 2013 due to increased investments in growth opportunities during the fourth quarter of 2013. Expenditures in 2013 and 2012 included investment in integration and upgrade activities as well as development of technology products and capability.

EIGHT QUARTER CONSOLIDATED STATEMENTS OF INCOME - SUMMARY

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

                     
                      2013   2012
        Q4   Q3   Q2   Q1   Q4   Q3   Q2   Q1
Revenues $ 259,075 $ 209,223 $ 197,134 $ 171,661 $ 172,457 $ 176,689 $ 180,989 $ 165,321
Acquisition accounting adjustments 1        13,058        16,107                  -                  -                  -                  -                   -                  -
Adjusted revenues 2     $ 272,133 $ 225,330 $ 197,134 $ 171,661 $ 172,457 $ 176,689 $ 180,989 $ 165,321
                                       
Revenue $ 259,075 $ 209,223 $ 197,134 $ 171,661 $ 172,457 $ 176,689 $ 180,989 $ 165,321
Expenses 3     190,876      172,539      144,551       129,664      131,082      129,405       128,289      125,074
EBITDA 2, 3        68,199         36,684       52,583         41,997        41,375         47,284         52,700         40,247
EBITDA Margin 2   26.3%   17.5%   26.7%   24.5%   24.0%   26.8%   29.1%   24.3%
Adjustments:                                
  Acquistion accounting adjustments 1          9,217        15,030                  -                  -                  -                   -                  -                   -
  Acquisition-related and other charges 3              3,842        13,126           5,764       1,028          6,558           3,265           4,378              737
Adjusted EBITDA 2 $    81,258 $    64,840 $    58,347 $    43,025 $    47,933 $    50,549 $    57,078 $    40,984
Adjusted EBITDA Margin 2   29.9%   28.8%   29.6%   25.1%   27.8%   28.6%   31.5%   24.8%
                                   
EBITDA 2, 3 $    68,199 $    36,684 $    52,583 $    41,997 $    41,375 $    47,284 $    52,700 $    40,247
Depreciation of capital assets and amortization                                  
  of non-acquisition intangibles         10,937          7,532           6,657           6,519          7,568           6,648          6,986           6,465
Amortization of intangible assets from acquisitions        27,631        19,182         11,060        10,914        11,292         10,597         10,706         10,395
Income from operating activities 2         29,631          9,970        34,866        24,564        22,515        30,039         35,008         23,387
Interest expense        15,509        11,251          4,516          4,471          4,629           4,943           4,821          4,821
Other finance charges 4                  -          3,224                  -                  -                   -                  -                  -                  -
Loss (income) from investment in an associate, net of tax                  -                  -                  -         (130)               23              (53)              (38)                   -
Gain on re-measurement of previously held equity interest 5                  -                   -                  -     (1,587)                  -                  -                  -                  -
Fair value adjustment of derivative instruments 6            (138)         (4,759)         (1,203)     (107)            (542)            (445)             616          (1,645)
Income tax expense (recovery)            (975)   (7,383)           9,158     5,480          4,165           5,987          8,345           5,034
Income from continuing operations        15,235          7,637         22,395     16,437         14,240         19,607        21,264         15,177
Income (loss) from discontinued operations, net of tax 7          2,133            (704)         (8,786)       (10,695)            (529)                (2)            (377)            (243)
Net income        17,368          6,933        13,609          5,742         13,711        19,605       20,887         14,934
Adjustments:                                
  Non-cash items:                                  
    Acquisition accounting adjustments 1          9,217        15,030                  -   -                  -                   -                  -                  -
    Non-cash interest expense 8          1,349             709                  -     -                   -                   -                  -                  -
    Other finance charges 4                   -          3,224                  -      -                  -                   -                  -                  -
    Amortization of intangible assets from acquisitions         27,631         19,182        11,060     10,914         11,292         10,597         10,706         10,395
    Gain on re-measurement of previously held equity interest 5                  -                  -                  -      (1,587)                  -                   -                  -                   -
    Fair value adjustment of derivative instruments 6            (138)         (4,759)         (1,203)       (107)            (542)            (445)              616         (1,645)
  Other items of note:                                
    Acquisition-related and other charges 3          3,842        13,126           5,764       1,028          6,558           3,265           4,378             737
Tax effect of above adjustments 9       (15,100)       (15,715)         (3,814)     (3,578)         (5,543)         (3,962)         (4,615)         (2,854)
  Loss (income) from discontinued operations, net of tax 7         (2,133)             704          8,786   10,695              529                  2              377             243
  Tax effect of  acquisitions 10                      -         (1,726)                  -             -                   -         (1,156)                  -                  -
Adjusted net income 2 $    42,036 $    36,708 $    34,202 $    23,107 $    26,005 $    27,906 $    32,349 $    21,810
Adjusted net income per share, basic 2, 12 $    0.5206 $    0.5245 $    0.5774 $    0.3901 $    0.4390 $    0.4711 $    0.5461 $    0.3682
Income from continuing operations per share, 11, 12                                
    Basic $    0.1887 $    0.1091 $    0.3781 $    0.2775 $    0.2404 $    0.3310 $    0.3590 $    0.2562
    Diluted $    0.1883 $    0.1089 $    0.3781 $    0.2775 $    0.2404 $    0.3310 $    0.3590 $    0.2562
Income (loss) from discontinued operations per share, 11, 12                                
    Basic $    0.0264 $    (0.0101) $    (0.1483) $    (0.1806) $    (0.0089) $            -   $    (0.0064) $    (0.0041)
    Diluted $    0.0264 $    (0.0100) $    (0.1483) $    (0.1806) $    (0.0089) $            -   $    (0.0064) $    (0.0041)
Net income per share,  11, 12                                
    Basic $    0.2151 $    0.0991 $    0.2298 $    0.0969 $    0.2315 $    0.3310 $    0.3526 $    0.2521
    Diluted $    0.2147 $    0.0989 $    0.2298 $    0.0969 $    0.2315 $    0.3310 $    0.3526 $    0.2521
1  Acquisition accounting adjustments consisted of fair value adjustments related to deferred revenues and deferred costs acquired in connection with the acquisition of HFS.
2 Adjusted Revenue, EBITDA, EBITDA Margin, Adjusted EBITDA, Adjusted EBITDA Margin, 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.
3 Acquisition-related and other charges for the fourth quarter of 2013 mainly consisted of business integration costs incurred in connection with the acquisition of HFS and certain retention and incentive costs in connection with the recent acquisitions.  Acquisition-related and other charges for the other periods included certain retention and incentive costs related to the acquisitions, expenses related to cost-realignment initiatives and corporate development expenses related to strategic acquisition initiatives.
4 Upon acquisition of HFS, the Credit Facility replaced the Previous Credit Facility entered into in 2011, resulting in a write-off of the unamortized deferred debt issuance costs related to the Previous Credit Facility.
5 Upon acquisition of the remaining interest in Compushare in January 2013, a non-cash gain related to re-measurement of the previously held equity interest was recognized in accordance with IFRS standards.
6 Gain in the third quarter of 2013 was mainly attributable to the fair value changes of the foreign exchange forward  contracts entered into by D+H to economically hedge the foreign exchange risk arising from the proceeds denominated in U.S. dollar to fund the acquisition of HFS.  Gains and losses in the other periods included 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.
7 On May 10, 2013, D+H completed the 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 now been classified as discontinued operations for all periods presented.
8 Non-cash interest expense charges relate to accretion of Debentures issued to partially fund the acquisition of HFS and amortization of deferred financing charges incurred in connection with the Company's financing arrangements.
9 The adjustments to net income are tax effected at their respective tax rates.
10 Adjustments for the third quarters of 2013 and 2012 included a non-cash tax recovery related to liabilities recognized in connection with the acquisition of Mortgagebot.  Adjustment for the third quarter of 2013 also includes a one-time income tax expense arising from the revaluation of the Company's deferred taxes to reflect the change in future US income tax rates resulting from the acquisition of HFS.
11 Diluted per share reflects the impacts of outstanding stock 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 for income from operating activities per share. Weighted average number of shares outstanding on a diluted basis during the fourth quarter of 2013 was 80,906,132 shares.
12 Weighted average number of shares outstanding during the fourth quarter of 2013 was 80,738,373 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 also been increased volatility in personal cheque order volumes. Measured on a sequential quarter-to-quarter basis, revenues can vary due to seasonality. Revenue for certain service offerings by D+H can also vary based on the timing of work performed. 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, Compushare on January 29, 2013 and HFS on August 16, 2013 increased revenues and expenses. EBITDA was impacted by acquisition-accounting adjustments related to fair value of deferred revenues and deferred costs, acquisition-related and other charges, 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 were not part of the normal course of operations. Adjusted EBITDA removes the impacts of these items as these are not indicative of underlying business performance and management believes that excluding these items is more reflective of ongoing operating results.

Net income is variable as it has been affected by non-cash items such as acquisition accounting adjustments related to fair value of deferred revenues and deferred costs, fair value adjustments of derivative instruments, amortization of intangible assets from acquisitions, gain on re-measurement of the equity-interest held in Compushare and other items such as acquisition-related and other charges, loss from discontinued operations, and changes in other non-cash interest and tax items.

Common Shares

As at December 31, 2013 and February 25, 2014, D+H had the following common shares and potential common shares outstanding:

  • 80,738,373 common shares issued and outstanding (as at December 31, 2012 - 59,233,373),
  • $230.0 million principal amount of Debentures outstanding (as at December 31, 2012 - nil). These Debentures are convertible at the option of the holder to common shares at a conversion price of $28.90 per common share, representing 34.6021 common shares per $1,000 principal amount of the Debenture, for a total of 7,958,483 shares. Please refer to note 17 of the Company's audited consolidated financial statements for the year ended December 31, 2013 for further details.
  • 916,028 stock options outstanding (as at December 31, 2012 - 726,821). Each stock option is exercisable into one common share of the Company. Please refer to note 20 of the Company's audited consolidated financial statements for the year ended December 31, 2013 for further details.

Normal Course Issuer Bid ("NCIB")
The NCIB program expired in 2013.  No shares were repurchased under the NCIB in 2013.

Hedging

The Company primarily manages its foreign currency risk by way of economic hedges. Due to the Company's debt structure, substantially all gains and losses on the Company's U.S. dollar denominated debt are recognized in other comprehensive income. Furthermore, the Company intends to pay down its U.S. dollar denominated debt using $USD earned in its U.S. businesses. Revenues earned and associated expenses incurred are also generally denominated in the same currency.

The Company also utilizes interest-rate swaps to hedge interest rate exposure and, from time to time, foreign exchange forward contracts to hedge foreign currency risk.

Interest-rate swaps

In respect of interest-rate swap contracts with its lenders, as of December 31, 2013, the Company's borrowing rates on 40.8% of outstanding long-term indebtedness under the Eighth Amended and Restated Credit Agreement ("Credit Facility") 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 2 $ 25,000 $ - $ 361 2.720%
  March 18, 2015 2   25,000   -   514 2.940%
  March 18, 2017 2   25,000   -    1,269 3.350%
  March 20, 2017 2    20,000   -   1,026 3.366%
  October 17, 2016 (US$25,000) 3   26,590   -   84 0.835%
  October 17, 2016 (US$25,000) 3   26,590   -   84 0.835%
  October 17, 2016 (US$25,000) 3   26,590   -   13 0.784%
  October 17, 2018 (US$25,000) 3    26,590   -   39 1.645%
  $ 201,360 $ - $ 3,390  
1 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 Facility agreement.  Based on the financial leverage
as at December 31, 2013, the Company's long-term bank indebtedness will be subject to bankers'
acceptance fees of 2.25% over the applicable BA rate and prime rate spreads of 1.25% over the
prime rate.
2 Not-designated as hedges for the purposes of hedge accounting. Fair value changes on these swaps
impact the Consolidated Statements of Income.
3 Designated as hedges for the purposes of hedge accounting. Fair value changes on these swaps impact
other comprehensive income.

During the year, the Company entered into four 3-month resetting interest-rate swaps totalling US$100.0 million (US$25.0 million each), which mature on October 17, 2016 or October 17, 2018, as detailed in the table above, to fix interest rates on its U.S. dollar denominated debt. These interest-rate swaps have been designated as cash flow hedges for hedge accounting purposes.

As at December 31, 2013, the Company would have to pay $3.4 million if it were to close out all of its interest-rate swap contracts as set out in the Consolidated Statements of Financial Position. It is not management's present intention to close out these contracts and the Company has historically held its derivative contracts to maturity.

Subsequent to December 31, 2013, the Company entered into a 3-month resetting interest-rate swap of US$25.0 million to fix interest rates on its U.S. dollar denominated debt. Reflecting this interest rate swap, the Company's borrowing rates would have been effectively fixed for approximately 46.1% of the outstanding long-term indebtedness of D+H under the Credit Facility agreement. This interest-rate swap has been designated as a cash flow hedge for hedge accounting purposes.

Foreign exchange contracts

The Company had no foreign exchange contracts in place at December 31, 2013.

CONTRACTUAL OBLIGATIONS

          Less than   1 - 3   4 - 5   After 5
(in thousands of Canadian dollars, unaudited)   Total   1 year   years   years   years
Long-term indebtedness $ 933,850 $ -   $ -   $ 574,030 $ 359,820
Debentures   230,000   -   -   230,000   -
Operating leases   57,332     13,939   20,685   14,222   8,486
Employee future benefits   3,384    211    423   423   2,327
Purchase obligations   14,490   8,673    5,150   667   -
 Obligations relating to deferred compensation program     8,542   3,946    4,596              -   -
Other obligations   20,913   12,140   6,559   2,214   -
Total contractual obligations $ 1,268,511 $   38,909 $ 37,413 $ 821,556 $ 370,633

Long-term indebtedness

(in thousands of Canadian dollars, unaudited)

        As at December 31,
  Reference Interest rate Maturity   2013   2012
               
Previous  Credit Facility (secured) 1 BA/LIBOR + 1.50% Apr 2017 $ - $ 172,306
Credit Facility (secured) 2            
  Revolver (US$25,000; C$42,000) 2a BA/LIBOR + 2.25% Aug 2018   68,590   -  
  Non-revolver I (US$400,000) 2b LIBOR + 2.25% Aug 2018   425,440   -  
Credit facilities         494,030   172,306
               
Bond (secured) 3a 6.99% Jun 2017   50,000   50,000
Bond (secured) 3a 6.17% Jun 2017   30,000   30,000
Bond (secured) (US$63,000) 3a 6.59% Apr 2021   67,007   62,679
Bond (secured) (US$16,500) 3a 4.94% Jun 2022   17,549   16,416
Bond (secured) (US$15,000) 3a 4.94% Jun 2022   15,954    14,923
Bond (secured) 3b 5.76% Aug 2023   20,000    -
Bond (secured) (US$100,000) 3b 5.51% Aug 2023   106,360   -
Bond (secured) (US$75,000) 3b 5.51% Aug 2023   79,770   -
Bond (secured) (US$50,000) 3b 5.51% Aug 2023   53,180    -
Bonds         439,820   174,018
          933,850   346,324
Deferred finance costs         (9,721)   (5,747)
        $ 924,129 $ 340,577

The Company has guaranteed all of the obligations under the Credit Facility and bonds, with such guarantees secured by a security interest over all the Company's assets.

The table below lists committed and uncommitted arrangements available to D+H. Uncommitted arrangements are subject to the prior approval of the relevant lenders with any fees, spreads and other additional terms to be negotiated at that time:

(in thousands of Canadian dollars, unaudited)

              As at December 31, 2013
      Committed   Uncommitted   Outstanding   Available
Revolver   $              355,000 $                 - $             68,590 $        286,410
Non-revolver I                   425,440                     -               425,440                      -
Uncommitted arrangements                              -          100,000                          -           100,000
Credit Facility                   780,440          100,000               494,030           386,410
Bonds                   439,820            93,816               439,820             93,816
    $           1,220,260 $       193,816 $           933,850 $        480,226

The Company partially financed the HFS acquisition through the Credit Facility. Subsequent to the HFS acquisition, the Company repaid US$244.0 million of the total amounts drawn under the Non-revolver II (further described below) from the proceeds of US$225.0 million and $20.0 million of issued bonds. The non-revolving, non-amortizing secured Credit Facility and bonds are noted in the table above and further described below.

1. Previous Credit Facility: Effective August 16, 2013, the Seventh Amended and Restated Credit Agreement ("Previous Credit Facility") was replaced with the Credit Facility.
2. Credit Facility: the Credit Facility provides for the following:
  2a. A revolving term credit facility in the amount of $355.0 million ("Revolver"),
  2b. A non-revolving, non-amortizing term credit facility in the amount of US$400.0 million (C$425.4 million) ("Non-revolver I").    

A non-revolving, non-amortizing term credit facility in the amount of US$244.0 million ("Non-revolver II") was also available at August 16, 2013.The Credit Facility matures on August 16, 2018, however Non-revolver I and Non-revolver II (collectively "Non-revolver I and II") are available as a single drawdown for the purposes of financing the HFS acquisition and following the drawdown, both facilities were permanently reduced to the amount drawn  ($425.4 million and US$244.0 million, respectively). On August 26, 2013, Non-revolver II was fully repaid with proceeds from the newly issued bonds (see 3b below) and does not provide for additional borrowings. Non-revolver I's borrowing capacity will be permanently reduced upon any payments by the Company on outstanding balances.

Drawings under the Credit Facility bear interest at the applicable floating rate plus a margin. The margin can vary based on leverage as determined by the Total Funded Debt/EBITDA ratio, as described below.

The replacement of the Previous Credit Facility with the Credit Facility resulted in a $3.2 million loss associated with the write-off of unamortized deferred debt issuance costs pertaining to the Previous Credit Facility. This loss was recognized in finance expenses - other finance charges in the Consolidated Statements of Income for the year ended December 31, 2013.

3. Bonds:

3a. During the year ended December 31, 2013, all of D+H's secured bonds that were outstanding as at December 31, 2012 had their coupon rates increased by 1% per annum on a temporary basis until the Company's Total Funded Debt/EBITDA Ratio (described below) is less than 3.00 for two consecutive fiscal quarters.

Effective January 1, 2014, the Company expects the coupon rates to be reduced by the additional 1% as the Company's Total Funded Debt/EBITDA Ratio has been less than 3.00 for the two previous fiscal quarters.

3b. On August 26, 2013, D+H issued in aggregate proceeds US$225.0 million and $20.0 million of senior secured bonds, the proceeds of which were used to refinance amounts drawn under the Non-revolver II.

As at December 31, 2013, the average effective interest rate on the Company's total indebtedness, including the Debentures, was 4.8%, compared to 4.5% at December 31, 2012.

Covenants

The Company's indebtedness is subject to a number of covenants and restrictions including the requirement to meet certain financial ratios and financial condition tests. One such ratio is the Total Funded Debt / EBITDA Ratio ("Debt to EBITDA ratio"). As at December 31, 2013, this ratio was calculated at 2.93 (December 31, 2012 - 1.76).

Debt to EBITDA ratio - foreign exchange impact

The Canadian dollar has experienced volatility in the latter part of 2013 and this trend is expected to continue in 2014. The Debt to EBITDA ratio is impacted by this volatility as the Company's U.S. dollar denominated borrowings are translated at the period-end exchange rate while EBITDA (as it pertains to this ratio), denominated in local currencies, is translated at average exchange rates for the period. The acquisition of HFS in the third quarter of 2013 significantly changed the Company's debt structure. As such, in order to assess management's capital management efforts post the HFS acquisition, management eliminates the impact of foreign exchange from this ratio by calculating it using the applicable rates for the period ended September 30, 2013. As such, the Debt to EBITDA ratio, after removing the impacts of foreign exchange fluctuations, was 2.87.

Total Funded Debt / EBITDA Ratio - calculation

Total Funded Debt includes all of the Company's outstanding indebtedness, amounts capitalized under finance leases, bankers' acceptances and letters of credit. Debentures are excluded from Total Funded Debt.

EBITDA, for the purposes of the Total Funded Debt / EBITDA Ratio, is calculated on a twelve-month trailing basis as Net income plus: interest expense, depreciation and amortization, income tax and capital tax expenses, other non-cash expenses and certain restructuring and transaction expenses, to the extent expensed in the Consolidated Statements of Income. Other add-backs to Net income include changes in the Company's deferred revenue balance and impacts of acquisition accounting adjustments affecting revenue with respect to the HFS acquisition.

For a complete definition of Total Funded Debt / EBITDA ratio, refer to the Credit Facility filed on www.sedar.com.

Debentures

On August 13, 2013, the Company issued $230.0 million principal amount of 6.00% convertible unsecured subordinated debentures ("Debentures") for net proceeds of $220.6 million. These Debentures pay interest semi-annually on March 31 and September 30, commencing with the initial interest payment on March 31, 2014 and have a maturity date of September 30, 2018. The Debentures are convertible at the option of the holder to common shares at a conversion price of $28.90 per common share. The Company has the option to redeem the Debentures on and after September 30, 2016 and at any time prior to September 30, 2017 at a redemption price equal to 100% of their principal amount plus accrued and unpaid interest provided that the current market price of the common shares is at least 125% of the conversion price of $28.90. On or after September 30, 2017 and prior to September 30, 2018, the Debentures may be redeemed in whole or in part at the option of the Company at a redemption price equal to their principal amount plus accrued and unpaid interest. On redemption or maturity the Company may elect to repay the principal and satisfy its interest obligations by issuing D+H common shares. 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.

Operating leases

D+H rents facilities, equipment and vehicles under various operating leases. At December 31, 2013, minimum payments under these lease obligations totalled $57.3 million.

Employee future benefits

Obligations relating to employee future benefits relate to the Company's non-pension post-retirement benefit plans. The latest actuarial valuation of the post-retirement benefit plans was performed as of December 31, 2013.

Purchase obligations

Purchase obligations consist of agreements to purchase goods and services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, price provisions and timing of the transaction.

Obligations relating to the deferred compensation program

The Company's deferred compensation program as at December 31, 2013 consisted of two components: (i) restricted share units plan ("RSUs") and (ii) performance share units plan ("PSUs"). Both components have a three-year vesting period and are cash-settled share-based compensation. The RSUs vest 1/3 on each of the first, second and third anniversaries of January 1 of the calendar year in which the award of RSUs is made whereas the PSUs vest on the third anniversary of January 1 of the calendar year in which the award of PSUs is made. The PSUs also have a performance target which is based on the annual three-year change in earnings per share during the vesting period as measured against a performance grid set for a specific period. The per share earnings is a derivative calculation of pre-incentive Adjusted net income before taxes, as well as certain other adjustments made from time to time as approved by the Human Resources Compensation Committee. The fair value amount payable is recognized as an expense with a corresponding increase in liabilities over the three-year vesting period. The liability is re-measured at each reporting date and at settlement date. Any changes in the fair value of the liability are recognized in profit or loss.

Other obligations

Other obligations include retention and incentive obligations related to the acquisitions along with certain lease related liabilities.

SELECTED ANNUAL INFORMATION

            Years ended December 31,
(in thousands of Canadian dollars except per share amounts,
unaudited)  
    2013   20123   20113
Revenues   $ 837,093 $ 695,456 $ 655,714
Income from continuing operations   $ 61,704 $ 70,288 $ 91,139
  Per share, basic 1   $ 0.9160 $ 1.1866 $ 1.5830
  Per share, diluted 1   $ 0.9149 $ 1.1866 $ 1.5830
Net income   $ 43,652 $ 69,137 $ 89,928
  Per share, basic 1   $ 0.6480 $ 1.1672 $ 1.5620
  Per share, diluted 1   $ 0.6472 $ 1.1672 $ 1.5620
Total assets   $ 2,913,817 $ 1,264,466 $ 1,246,978
Total non-current financial liabilities 2   $ 1,145,987 $ 351,379 $ 359,958
Total non-current liabilities   $ 1,534,891 $ 449,165 $ 430,453
Dividends paid per share   $ 1.2800 $ 1.2500 $ 1.2233
1 Weighted average number of shares outstanding during 2013 was 67,364,031 shares (2012 - 59,233,373 shares;
2011 - 57,573,099 shares). Weighted average number of shares outstanding during 2013, on a diluted basis, was
67,443,419 shares (2012 - 59,233,373 shares; 2011 - 57,573,099 shares).
2 Non-current financial liabilities include: derivative liabilities held for risk management, loans and borrowings,
Debentures and other long-term liabilities.
3 Balances restated to reflect discontinued operations. See 'Divestiture' section.

Revenue

Consolidated revenues for 2013 were $837.1 million, an increase of $141.6 million, compared to 2012.  The increase in revenues was primarily due to the inclusion of HFS and Compushare revenues and growth in certain other areas, as described above.

Consolidated revenues for 2012 were $695.5 million, an increase of $39.7 million, compared to 2011. The increase was primarily due to growth in Mortgagebot and the inclusion of Avista acquired on May 3, 2012, in the U.S. segment.

Income from continuing operations and Income from continuing operations per share, basic and diluted

Income from continuing operations for 2013 was $61.7 million compared to $70.3 million for 2012. The decrease was primarily attributable to acquisition-related and other charges as described earlier, higher amortization of intangible assets from acquisitions as a result of the HFS acquisition, higher interest expense on debt drawn to fund the HFS acquisition and the write-off of deferred finance fees related to the Previous Credit Facility, partially offset by a higher gain on fair value changes related to derivative instruments and a lower income tax expense compared to 2012. Income from continuing operations per share for 2013, both basic and diluted, were also impacted by additional common shares issued in connection with the acquisition of HFS.

Income from continuing operations for 2012 was $70.3 million, a decrease of $20.9 million compared to 2011. The decrease was primarily attributable to a higher income tax expense as income from continuing operations from 2011 benefitted from inclusion of non-cash tax recoveries of $20.8 million attributable to D+H's conversion to a corporation. Income from continuing operations per share in 2012, both basic and diluted, was also impacted by additional common shares issued in connection with the acquisition of Mortgagebot in April 2011.

Net income and Net income per share, basic and diluted

Net income of $43.7 million for 2013 was lower by $25.5 million, compared to $69.1 million for 2012, primarily due to transaction costs and acquisition related charges in connection with the acquisition of HFS, an increase in amortization of intangible assets from acquisitions, interest on incremental debt and acquisition-related charges incurred in connection with the acquisition of HFS, and loss from discontinued operations of $18.1 million, net of taxes. This decrease was partially offset by the benefits of fair value changes related to derivative instruments of $6.2 million and a gain on re-measurement of previously held equity interest in Compushare for 2013. Net income per share for 2013, both basic and diluted, was also impacted by additional common shares issued in connection with the acquisition of HFS.

Net income for 2012 was $69.1 million, a decrease of $20.8 million compared to 2011. The decrease was primarily attributable to an increased income tax expense as net income from 2011 benefited from inclusion of non-cash tax recoveries of $20.8 million attributable to D+H's conversion to a corporation. Net income per share for 2012, both basic and diluted, was also impacted by additional common shares issued in connection with the acquisition of Mortgagebot in April 2011.

Total assets

Total assets of $2.9 billion at December 31, 2013 increased by $1.6 billion compared to December 31, 2012. The increase mainly relates to $734.8 million of additional intangible assets and $817.8 million of additional goodwill resulting from the HFS, and to a lesser extent, the Compushare acquisitions. Other increases in cash and cash equivalents, accounts receivable, both current and non-current, prepayments and other current assets, property plant and equipment and other assets were also mainly due to the HFS acquisition.

Total assets of $1,264.5 million at December 31, 2012 increased by $17.5 million compared to December 31, 2011. The increase related to the acquisition of Avista, acquisition of a minority interest in Compushare by the Company and an increase in cash and accounts receivable balances as at December 31, 2012, compared to December 31, 2011. The increase in cash was attributable to timing of payments, and the increase in accounts receivable was related to higher revenues in 2012 than 2011. The increase was partially offset by amortization of acquisition intangible assets.

Total non-current financial liabilities

Total non-current financial liabilities at December 31, 2013 of $1.1 billion increased by $0.8 billion from total non-current financial liabilities at December 31, 2012. The increase was primarily driven by drawings from the Non-revolver I under the Credit Facility and issuance of bonds and Debentures, as further described above, in connection with the HFS acquisition.

Total non-current financial liabilities at December 31, 2012 of $351.4 million decreased by $8.6 million from total non-current financial liabilities at December 31, 2011. This decrease was primarily driven by a lower liability at December 31, 2012 associated with D+H's outstanding derivative instruments and debt repayments.

Total non-current liabilities

Total non-current liabilities at December 31, 2013 of $1.5 billion increased by $1.1 billion from total non-current liabilities at December 31, 2012. The increase was primarily driven by drawings from the Non-revolver I, issuance of bonds and Debentures, and a higher deferred tax liability, all resulting in connection with the HFS acquisition.

Total non-current liabilities at December 31, 2012 of $449.2 million increased by $18.7 million from total non-current liabilities at December 31, 2011. This increase was mainly due to an increase in deferred tax liabilities attributable to intangible assets related to acquisitions, temporary differences related to capitalized software development expenses and increased deferred partnership income.

Dividends per share

Cash dividends declared and paid in 2013 were $1.28 per share, compared to cash dividends declared and paid of $1.25 per share in 2012.

Cash dividends declared and paid in 2011 were $1.07 per share, in addition to a $0.15 per share distribution that was paid in January 2011 (declared on December 31, 2012 when D+H was an income trust). As such, total payments in 2011 to shareholders were $1.22 per share.

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 acquisition of HFS will: (i) strengthen our ability to deliver on our goal of being a leading FinTech provider to the financial services industry; (ii) provide enhanced revenue diversification; (iii) deliver strong and sustainable cash flows to fund future growth, dividends and deleveraging; and (iv) support our long-term strategy.

Going forward, we will focus on building an integrated operating model for our U.S. operations that will enable us to efficiently and effectively execute our organic growth initiatives including cross-selling our now larger suite of FinTech solutions inclusive of HFS.  This includes achieving effective integration of our HFS platform technologies and sales plans.  Simultaneously across all operations, we will continue 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 existing SaaS offerings and cloud-based offerings with those provided by the newly acquired HFS to both our now larger customer base and approximately 7,000 other U.S. financial institutions that could benefit from our technology portfolio; (ii) advancing our payments 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 strategy executed by D+H over the past number of years has evolved our FinTech leadership position within the North American market and has strengthened our operating model by diversifying revenue and reduced our risk profile by lowering our customer concentration and product dependency. 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 expect to reduce our Debt to EBITDA ratio to below 2.5 in 2015 while supporting our current dividend.

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

Canadian Segment

Within the Canadian Segment, the downward trend in cheque order volumes is expected to continue to be in the mid-single digits through 2014, with ongoing volatility in personal cheque order volumes coupled with comparatively minimal volatility in business cheque order volumes.

In the Canadian banking technology service area, Canadian housing markets analysts are expecting a softening in real estate activity, along with a softening in home sale pricing in 2014.  Furthermore, a potential rate increase by the Bank of Canada would likely further slowdown activity and moderate home prices.  In addition, the broker market will continue to experience competition from internal mobile sales force at lending institutions.  Revenues from Canadian banking technology service area may be impacted by pricing model adjustments, which may 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.

Revenues within the lending processing solutions is expected to benefit from: (i) growth in tuition rates and an increase in uptake rates in the student loans administration service area; and (ii) continuing recovery within the auto and auto lending markets, including increased repossessions.

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.  Within the auto and auto lending markets, growth in new and resold car sales is expected to continue in 2014, while increases in lender portfolio values should continue to drive recovery volume increases despite falling delinquency rates.

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.

U.S. Segment

In the U.S. Segment, we expect to benefit 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.  The recovering U.S. housing market will be offset by the impact that higher interest rates may have on refinancing activity which will negatively impact transaction-related volumes and revenues within our businesses that service the U.S. mortgage markets. We also anticipate revenue synergies from cross selling opportunities between our existing SaaS customers and product offerings. Additionally, community banks are expected to increase technology investment on new core systems over the next few years.  Overall, forecasts from IDC Financial Insights suggest that North American FinTech spending will grow between 4% and 6% in 2014 and 2015 among banks and credit unions that are primary users of our current technologies. Across banks and credit unions of all sizes, IDC projects that the FinTech market will be valued at over $61 billion by the end of 2015. There are currently over 13,000 financial institutions in the U.S., of which we currently serve over 6,000.  Our technology suite allows us to offer products to large and small financial institutions alike and we are reaching into the available markets to gain a foothold among the approximately 7,000 banks and credit unions who have not used D+H before. We believe we are well-positioned to capture our share of market expansion through our strategies.

Capital spend

For 2014, inclusive of HFS, we anticipate total capital spending of approximately $50 to $55 million, focusing more on new growth opportunities. Capital spending in 2014 may vary based on spending in support of new growth opportunities if and as they arise.

Cash taxes

The Corporation will pay its 2013 Canadian tax liability in early 2014 and will begin to make increased Canadian tax installment payments in 2014, in addition to its existing U.S. tax installment payments, which have increased due to the acquisition of HFS.

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.

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 in Canada 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; changes in the U.S. banking and financial services industry and demand for HFS's products and services; 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 MD&A 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)     December 31, 2013     December 31, 2012
ASSETS            
Cash and cash equivalents   $         32,398   $         5,719
Trade and other receivables            111,156           84,996
Prepayments and other current assets            25,370           14,104
Inventories            3,059            4,181
Total current assets         171,983       109,000
Non-current trade receivable            22,179                    -
Deferred tax assets               4,327            3,171
Property, plant and equipment             44,913          30,201
Investment in an associate                        -         10,145
Intangible assets           1,156,170        421,366
Goodwill           1,508,430       690,583
Other assets                 5,815                      -
Total non-current assets          2,741,834     1,155,466
Total assets   $    2,913,817   $   1,264,466
LIABILITIES            
Trade payables, accrued and other liabilities   $       129,728   $        99,910
Deferred revenue            86,885             12,586
Current tax liabilities          24,780                  697
Total current liabilities        241,393          113,193
Non-current deferred revenue          22,048          9,419
Derivative liabilities held for risk management          3,029            4,686
Loans and borrowings         924,129         340,577
Convertible debentures          209,647                       -
Deferred tax liabilities           366,856             88,367
Other long-term liabilities               9,182             6,116
Total non-current liabilities        1,534,891          449,165
Total liabilities         1,776,284        562,358
EQUITY            
Capital        1,117,785         672,853
Reserves              43,519               6,711
Retained earnings (deficit)           (23,771)             22,544
Total equity         1,137,533     702,108
Total liabilities and equity   $    2,913,817   $   1,264,466

Consolidated Statements of Income                      
                       
  Three months ended,   Twelve months ended,
(in thousands of Canadian dollars, except per share amounts,
unaudited)
  December
31, 2013
    December
31, 2012
    December
31, 2013
    December
31, 2012
Revenue $ 259,075   $       172,457   $ 837,093   $ 695,456
Employee compensation and benefits    83,511              44,414     242,877    178,806
Other expenses   107,365              86,668     394,753     335,044
Income from operating activities before depreciation                      
  and amortization   68,199            41,375     199,463     181,606
Depreciation of property, plant and equipment   4,075                2,198     11,173     8,554
Amortization of intangible assets   34,493             16,662     89,259     62,103
Income from operating activities   29,631              22,515      99,031      110,949
Finance expenses:                      
  Fair value adjustment of derivative instruments   (138)                (542)     (6,207)           (2,016)
  Interest expense   15,509                4,629      35,747            19,214
  Other finance charges   -                        -      3,224     -
Gain on remeasurement of previously held equity interest   -                        -     (1,587)      -
Income from investment in an associate, net of income tax   -                     23     (130)      (68)
Income from continuing operations before income tax   14,260               18,405      67,984      93,819
Income tax expense    (975)                 4,165     6,280     23,531
Income from continuing operations    15,235              14,240     61,704     70,288
Loss from discontinued operations, net of income tax    2,133                  (529)      (18,052)     (1,151)
Net income $ 17,368   $        13,711   $ 43,652   $ 69,137
Earnings per share                      
Income per share from continuing operations,                      
  Basic $ 0.1887   $        0.2404   $ 0.9160   $ 1.1866
  Diluted $ 0.1883   $        0.2404   $ 0.9149   $ 1.1866
Loss per share from discontinued operations,                      
  Basic $ 0.0264   $       (0.0089)   $ (0.2680)   $ (0.0194)
  Diluted $ 0.0264   $       (0.0089)   $ (0.2677)   $ (0.0194)
Net income per share                      
  Basic $ 0.2151   $        0.2315   $ 0.6480   $ 1.1672
  Diluted $ 0.2147   $        0.2315   $ 0.6472   $ 1.1672

Consolidated Statements of Comprehensive Income            
                         
      Three months ended       Twelve months ended
(in thousands of Canadian dollars, unaudited) December
31, 2013
  December
31,2012
  December
31, 2013
  December
31, 2012
Net income $        17,368   $       13,711   $            43,652   $             69,137
The following items may be reclassified
subsequently to profit or loss:
                     
                            
  Cash flow hedges:                      
    Effective portion of changes in fair value               (220)                      -                     (220)                      (126)
    Net amount transferred to profit or loss                      -                  533                           -                        366
  Foreign currency translation            25,116               1,819                  27,597                    (3,442)
Total comprehensive income $        42,264   $       16,063   $            71,029   $             65,935

Consolidated Statements of Changes in Equity            
(in thousands of Canadian dollars, unaudited)                        
                             
                Three months ended December 31, 2013
                                   Reserves        
    Share
capital
  Equity-settled
share based
compensation
  Equity
component
of
Convertible
debentures
  Foreign
currency
translation
reserve
  Hedging
reserve
  Retained
earnings
(deficit)
  Total
equity
Balance at September 30, 2013 $ 1,117,785 $          1,175 $          8,889 $       8,365 $              - $     (15,303) $ 1,120,911
Net income for the period                    -                   -                   -                  -                -         17,368       17,368
Foreign currency translation                    -                     -                     -         25,116             -                  -          25,116
Cash flow hedges                        (220)                 (220)
Share issuance                   -                   -                    -                  -            -                -                   -
Equity component of convertible                            
  debentures, net of tax                -                  -                    -                -         -             -                  -
Dividends                 -                   -                      -                -          -      (25,836)        (25,836)
Stock options                   -               194                     -               -           -                  -               194
Balance at December 31, 2013 $ 1,117,785 $          1,369 $          8,889 $      33,481 $         (220) $     (23,771) $ 1,137,533

        Three months ended December 31, 2012
        Reserves      
    Share
capital
  Equity-settled
share based
compensation
  Equity
component
of
Convertible
debentures
  Foreign
currency
translation
reserve
  Hedging
reserve
  Retained
earnings
  Total
equity
Balance at September 30, 2012 $     672,853 $ 838 $ - $ 4,065 $ (533) $ 27,789 $ 705,012
Net income for the period                    -                      -                      -                   -                   -          13,711          13,711
Cash flow hedges                    -                      -                      -                   -               533                   -               533
Foreign currency translation                    -                      -                      -            1,819                   -                   -            1,819
Dividends                    -                      -                      -                   -                   -         (18,956)         (18,956)
Stock options                    -                   (11)                      -                   -                   -                   -                (11)
Balance at December 31, 2012 $ 672,853 $ 827 $ - $ 5,884 $ - $ 22,544 $ 702,108

    Twelve months ended December 31, 2013
      Reserves        
    Share
capital
  Equity-settled
share based
compensation
  Equity
component
of
convertible
debentures
  Foreign
currency
translation
reserve
  Hedging
reserve
  Retained
earnings
(deficit)
  Total
equity
Balance at January 1, 2013 $     672,853 $ 827 $ - $ 5,884 $ - $ 22,544 $ 702,108
Impact of transition to                            
   IAS 19R                    -                      -                      -                   -                   -              (385)              (385)
Net income for the period                    -                      -                      -                   -                   -          43,652          43,652
Foreign currency translation                    -                      -                      -          27,597                   -                   -          27,597
Cash flow hedges                    -                      -                      -                   -              (220)                   -              (220)
Share issuance          444,932                      -                      -                   -                   -                   -         444,932
Equity component of convertible                            
   debentures, net of tax                    -                      -               8,889                   -                   -                   -            8,889
Dividends                    -                      -                      -                   -                   -         (89,582)         (89,582)
Stock options                    -                  542                      -                   -                   -                   -               542
Balance at December 31, 2013 $ 1,117,785 $ 1,369 $ 8,889 $ 33,481 $ (220) $ (23,771) $ 1,137,533

(in thousands of Canadian dollars, unaudited)     Twelve months ended December 31, 2012
      Reserves        
    Share
capital
  Equity-settled
share based
compensation
  Equity
component
of
convertible
debentures
  Foreign
currency
translation
reserve
  Hedging
reserve
  Retained
earnings
  Total
equity
Balance at January 1, 2012 $     672,853 $ 310 $ - $ 9,326 $ (240) $ 27,449 $ 709,698
Net income for the period                    -                      -                      -                   -                   -   69,137          69,137
Cash flow hedges                    -                      -                      -                   -               240                   -               240
Foreign currency translation                    -                      -                      -           (3,442)                   -                   -           (3,442)
Dividends                    -   -                      -                   -                   -   (74,042)         (74,042)
Stock options                    -                  517                      -                   -                   -                   -               517
Balance at December 31, 2012 $ 672,853 $ 827 $ - $ 5,884 $ - $ 22,544 $ 702,108

Consolidated Statements of Cash Flows            
                 
  Three months ended Twelve months ended
(in thousands of Canadian dollars, unaudited)   December 31, 2013   December 31, 2012   December 31, 2013   December 31, 2012
Cash and cash equivalents provided by (used in):                
OPERATING ACTIVITIES                
Income from continuing operations $ 15,235 $ 14,240 $              61,704 $ 70,288
Adjustments for:                
    Depreciation of property, plant  and equipment                   4,075                    2,198                   11,173                    8,554
    Amortization of intangible assets                  34,493                 16,662                   89,259                  62,103
    Fair value adjustment of derivative instruments   (138)   (542)   (6,207)   (2,016)
    Interest expense                 14,160                    4,278                   32,983                  17,891
    Amortization of deferred financing fees                     847                       351                     2,003                    1,323
    Interest accretion expense                     502                         -                        761                         -
    Other finance charges                         -                         -                     3,224                         -
    Income tax expense    (975)                    4,102                     6,280                  24,667
    Stock options                      194   (11)                        542                       517
    Income from investment in an associate, net of income tax                         -                        23   (130)   (68)
    Gain on remeasurement of previously held equity interest                         -                         -   (1,587)                         -
    Changes in non-cash working capital items                  29,374                  25,091                   38,134   (3,528)
    Changes in other operating assets and liabilities    (8,109)   (3,094)   (9,080)   (1,218)
    Cash flows from (used in) discontinued operations    (190)                       86   (11,147)                  1,791
Cash generated from operating activities                 89,468                  63,384                  217,912                180,304
    Interest paid   (8,674)   (4,248)   (23,081)   (17,118)
    Income taxes paid   (1,670)                         -   (4,966)                         -
Net cash from operating activities                 79,124                  59,136                  189,865   163,186
FINANCING ACTIVITIES                
Repayment of long-term indebtedness   (15,000)   (26,187)   (581,042)   (106,467)
Proceeds from long-term indebtedness                        -                         -               1,142,173                103,052
Payment of issuance costs of long-term indebtedness                             -   (8,521)   (902)
Proceeds from issuance of convertible debentures                         -                         -                  230,000                         -
Payment of issuance costs of convertible debentures                         -                         -   (9,357)                         -
Proceeds from issuance of shares                         -                         -                  460,207                         -
Payment of issuance costs of shares                        -                         -   (19,883)                         -
Dividends paid   (25,836)   (18,956)   (89,582)   (74,042)
Net cash from (used in) financing activities   (40,836)   (45,143)               1,123,995   (78,359)
INVESTING ACTIVITIES                
Acquisition of property, plant and equipment    (3,601)   (2,124)   (11,647)   (7,676)
Acquisition of intangible assets    (14,038)   (7,593)   (28,215)   (25,641)
Acquisition of subsidiaries                         -                         -   (1,256,450)   (37,946)
Acquisition of investment in an associate                         -                         -                          -   (10,058)
Proceeds from sale of property, plant and equipment                        -                         -                        631                         -
Sale of discontinued operations                         -                         -                     8,500                         -
Net cash used in investing activities   (17,639)   (9,717)   (1,287,181)   (81,321)
Increase in cash and cash equivalents for the period                 20,649                    4,276                   26,679                    3,506
Cash and cash equivalents, beginning of period                 11,749                    1,443                     5,719                    2,213
Cash and cash equivalents, end of period $ 32,398 $               5,719 $ 32,398 $ 5,719

About D+H

D+H is a leading North American provider of secure and reliable technology solutions to domestic and global 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. Today, approximately 7,000 banks, speciality lenders, community banks and credit unions rely on D+H to deliver solutions across three broad service areas: Banking Technology Solutions (Enterprise, Lending); Lending Processing Solutions; and Payments Solutions. 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. D+H is one of the world's top FinTech companies as measured on the FinTech 100 list and recognized on the Branham 300 ranking as one of the top ICT companies in Canada.

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

For further information:

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