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Press release from CNW Group

D+H Reports Second Quarter 2011 Results

Tuesday, August 09, 2011

D+H Reports Second Quarter 2011 Results17:07 EDT Tuesday, August 09, 2011Stock Exchange Symbol: DHWebsite: www.dhltd.comTORONTO, Aug. 9, 2011 /CNW/ - Davis + Henderson Corporation ("D+H" or the "Business" or the "Company" or the "Corporation" or "Davis+Henderson") today reported solid financial results for the three and six months ended June 30, 2011 that were consistent with expectations and we are satisfied with theseresults given market conditions and in the context of activities undertaken related to our strategic agenda.  On January 18, 2011 and April 12, 2011 respectively, Davis + Henderson completed the acquisitions of ASSET Inc. ("ASSET") and Mortgagebot LLC ("Mortgagebot") and accordingly, the results of the acquired businesses have been included in the consolidated results since those dates.Second Quarter Highlights Revenue was $185.1 million, an increase of $18.0 million, or 10.8%, compared to the same quarter in 2010.EBITDA1 was   $48.1 million, an increase of $4.3 million, or 9.9%, compared to $43.8 million for the same quarter in 2010. EBITDA for the second quarter of 2011 included acquisition related costs of $0.7 million.Adjusted net income1 was $29.1 million ( $0.4974 per share) for the second quarter of 2011.  There is no comparable measure for the same period in 2010.Net income was $23.5 million ($0.4010 per share), a year-over-year decrease of $1.8 million, or 7.0%, compared to $25.2 million ($0.4741 per unit) for the same quarter in 2010. The decrease reflects non-cash expenses including amortization of intangible assets related to the ASSET and Mortgagebot acquisitions and the tax expense related to the change in structure from an income trust to a corporation.  Net income per share for both the quarter ended June 30, 2011 and the first six months of 2011 was also impacted by the issuance of 6 million shares in April 2011 to partially fund the Mortgagebot acquisition.During the second quarter of 2011, the Company paid a dividend of $0.30 per share on June 30, 2011 to its shareholders of record on May 31, 2011.On August 9, 2011, D+H announced an increase in its target annual dividend by 4 cents per share (approximately 3%) from $1.20 per share to $1.24 per share annualized. Six-Month Highlights Revenue was $354.7 million, an increase of $31.7 million, or 9.8%, compared to the same six-month period in 2010.EBITDA was $85.6 million, an increase of $4.1 million, or 5.1%, compared to the same period in 2010. EBITDA for the first six months of 2011 included acquisition related costs of $2.5 million.Adjusted net income was $57.6 million for the first six months of 2011, and there is no comparable measure for the same period in 2010.Net income was $59.4 million ($1.0626 per share), a year-over-year increase of $11.4 million, or  23.8%, compared to $48.1 million ($0.9029 per unit) for the same period in 2010. The increase reflects the inclusion from the first quarter of 2011 of non-cash tax recovery primarily related to D+H's conversion to a corporation and IFRS adjustments.During the first six months of 2011, $0.6033 per share was paid to the shareholders of D+H.__________________________________ 1 D+H financial results are prepared in accordance with IFRS. D+H reports several non-IFRS financial measures, including EBITDA and Adjusted net income used above. Adjusted net income is calculated as net income, adjusted to remove certain non-cash charges and certain items of note such as acquisition-related expenses and discontinued operations. These items are excluded in calculating adjusted net income as they are not considered indicative of the financial performance of the Business for the period being reviewed. Any non-IFRS financial measures should be considered in context with the IFRS financial presentation and should not be considered in isolation or as a substitute for IFRS net income or cash flow. Further, D+H's measures may be calculated differently from similarly titled measures of other companies. See Non-IFRS Financial Measures for a more complete description of these terms.D+H's unaudited consolidated financial statements for the three and six months ended June 30, 2011 and accompanying notes to the financial statements and management's discussion & analysis (MD&A) along with the supplementary financial information will be available tomorrow on www.sedar.com.For a more detailed discussion of the results and management's outlook, please see Management's Discussion and Analysis below.Caution Concerning Forward-Looking StatementsThis news release contains certain statements that constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Statements concerning D+H's objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and the business, operations, financial performance and condition of D+H are forward-looking statements.  The words "believe", "expect", "anticipate", "estimate", "intend", "may", "will", "would" and similar expressions and the negative of such expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.  These forward-looking statements are subject to important assumptions, including the following specific assumptions: the ability of D+H to meet its revenue and EBITDA targets; general industry and economic conditions; changes in D+H's relationship with its customers and suppliers; pricing pressures and other competitive factors; the anticipated effect of the acquisition of Mortgagebot on the financial performance of D+H; and the expected benefits arising as a result of the acquisition of Mortgagebot. 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 the actual results, performance or achievements of the Business, or developments in D+H's 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 cheques by consumers; the Company's dependence on a limited number of large financial institution customers and dependence on their acceptance of new programs; strategic initiatives being undertaken to meet the Company's financial objective; stability and growth in the real estate, mortgage and lending markets; 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 news release and the documents incorporated by reference herein are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company.Conference Call Davis + Henderson will discuss its financial results for the three and six months ended June 30, 2011 via conference call at 10:00 a.m. EST (Toronto time) on Wednesday, August 10, 2011. The number to use for this call is 647-427-7450 for Local / International callers or 1-888-231-8191 for US / Canada callers. The conference call will be hosted by Bob Cronin, Chief Executive Officer and by Brian Kyle, Chief Financial Officer. The conference call will also be available on the web by accessing CNW Group's website www.newswire.ca/webcast/. For anyone unable to listen to the scheduled call, the rebroadcast number will be: 416-849-0833for Toronto area callers, or 1-800-642-1687 for all other callers, with Encore Password 81347256. The rebroadcast will be available until Wednesday, August 24, 2011.  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 INFORMATIONAdditional information relating to the Company, including the Company's most recently filed Annual Information Form, is available on SEDAR at www.sedar.com.MANAGEMENT'SDISCUSSION AND ANALYSISManagement's Discussion and Analysis ("MD&A") for the second quarter of 2011 for Davis + Henderson Corporation (the "Company" or the "Corporation" or the "Business" or "Davis + Henderson" or "D+H" or "we" or "our"), which was formerly known as Davis + Henderson Income Fund, or the ("Fund"), has been prepared with an effective date of August 9, 2011 and should be read in conjunction with the MD&A in the Annual Report for the year ended December 31, 2010, dated March 8, 2011, and the attached interim unaudited consolidated financial statements for the three and six months ended June 30, 2011. External economic and industry factors remain substantially unchanged from those described in the annual MD&A and the Corporation's most recently filed Annual Information Form, except as described herein.Adoption of IFRSFor fiscal years beginning on or after January 1, 2011, Canadian public companies are required to prepare their financial statements in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB"). Due to the requirement to present comparative financial information, the effective transition date was January 1, 2010. Effective January 1, 2011, the Company's financial statements have been prepared in accordance with IFRS, with 2010 comparative figures restated to conform to IFRS.Conversion from an Income Trust to a CorporationEffective January 1, 2011, pursuant to a plan of arrangement ("the Arrangement"), the Fund's income trust structure was converted to a corporate structure and the publicly traded corporation is now named Davis + Henderson Corporation.  Under the Arrangement, unitholders of the Fund received, on a tax deferred, roll-over basis, one common share of the Corporation, for each unit of the Fund held. Common shares of Davis + Henderson Corporation commenced trading on the Toronto Stock Exchange on January 4, 2011, under the symbol DH.In conjunction with the conversion, the Company also undertook an internal reorganization to simplify its business operations by consolidating the various businesses it had previously operated as separate legal entities.  The combined business now primarily operates within D+H Limited Partnership.  The conversion was treated as a change in business form and was accounted for as a continuity of interests. As such, the carrying amounts of assets, liabilities and unitholders' equity in the consolidated financial statements of the Fund immediately before the conversion remained the same as the carrying values of Davis + Henderson Corporation immediately after the conversion.  Effective January 1, 2011, the share capital of Davis + Henderson Corporation in respect of the common shares was reduced by the deficit balance of the Fund as at December 31, 2010.Notwithstanding the structural and distribution changes described herein, the strategies and objectives of the Business remain unchanged.STRATEGYD+H is a leading solutions provider to the financial services marketplace. We have several market-leading service offerings within Canada, including our cheque supply program, the servicing of student loans, the provision of registration, recovery and related services for secured loan products and the delivery of lending technology solutions within the mortgage market. Additionally, with the recent acquisition of Mortgagebot, D+H is a market-leading provider of web-based, point-of-sale solutions in the United States and provides a wide range of consumer direct, loan officer and branch and call centre mortgage origination solutions for over 1,000 banks and credit unions. We also offer broader technology solutions in the commercial lending, small business lending and leasing area, as well as servicing solutions within the credit card market and other outsourced services in a number of specialty areas.D+H's strategy is to establish market-leading positions within well defined and growing service areas in the financial services marketplace and to further expand our service offerings by enhancing the activities that we perform on behalf of our customers. We expect to advance this strategy through internal (or organic) initiatives, as well as by partnering with third parties and by way of selective acquisitions. 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. The Business has three primary strategies to meet its objectives. These are to: (i) evolve and enhance the value of our programs to the chequing and credit card accounts; (ii) extend our technology supported services related to personal, student and commercial lending and leasing markets; and (iii) pursue opportunities in other areas within the financial services marketplace.Over the past several years, D+H has executed this strategy by evolving our programs to the chequing account, completing several acquisitions, including Resolve Business Outsourcing Income Fund ("Resolve") in 2009, ASSET Inc. ("ASSET") in January 2011, and Mortgagebot LLC ("Mortgagebot") in April 2011, and by further enhancing our services and capabilities. As a result, we offer a diverse range of market-leading services.For a detailed discussion of the second quarter 2011 results, management's outlook, risk factors and caution concerning forward-looking statements, please see below.ACCOUNTING PRINCIPLES AND FINANCIAL INFORMATION PRESENTATIONAll financial information presented in this MD&A is determined and presented in accordance with IFRS, as issued by the IASB, unless otherwise noted.  All information relating to 2010 reporting periods presented as comparatives have been reclassified to reflect the IFRS presentation, unless otherwise noted.  All amounts are in Canadian dollars, unless otherwise specified.Effective January 1, 2011, the Corporation commenced preparing its consolidated financial statements in accordance with IFRS.  Prior to January 1, 2011, the consolidated financial statements were prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"), and therefore, comparative periods for 2010 have been restated to be in accordance with IFRS. Comparative periods presented in this MD&A that are prior to January 1, 2010, have not been restated and have been presented in accordance with Canadian GAAP.Comparative information presented for periods prior to January 1, 2011 relate to those of the Fund, and the results for the periods subsequent to January 1, 2011 are those of the Corporation. Consequently, throughout this MD&A, any references to distributions, unitholders, and per unit amounts relate to periods prior to January 1, 2011, and any references to dividends, shareholders and per share amounts relate to periods subsequent to January 1, 2011.Note 24 of the Corporation's financial statements for the three and six months ended June 30, 2011 contain reconciliations and descriptions of the effect of the transition from Canadian GAAP to IFRS on equity, earnings and comprehensive income, including line-by-line reconciliations of the statement of financial position as at June 30, 2010 as well as the statement of income for the three and six months ended June 30, 2010. The Company previously described the adjustments that were anticipated in converting from Canadian GAAP to IFRS; with the completion of the IFRS implementation project, the final adjustments have been determined, revised where appropriate, and are reported in Note 24.OPERATING RESULTS FOR THE SECOND QUARTER - CONSOLIDATEDThe following table is derived from, and should be read in conjunction with, the Consolidated Statements of Income and includes non-IFRS financial measures. Management believes this supplementary disclosure provides useful additional information. See Non-IFRS Financial Measures section for a description of non-IFRS terms used.The consolidated results include those of ASSET effective January 18, 2011 and Mortgagebot effective April 12, 2011.Operating and Financial Results1(in thousands of Canadian dollars, except per share amounts, unaudited)          Quarter ended June 30,  Six months  ended June 30,        20112010 20112010Revenue      $ 185,120 $ 167,093  $ 354,668 $ 322,922Expenses 2     137,023123,319 269,068241,439EBITDA 2, 3     48,09743,774 85,60081,483              Amortization of capital assets and non-acquisition intangibles     5,8274,962 11,3319,631Amortization of intangibles from acquisitions     10,5907,158 18,68214,255Interest expense     5,2723,692 9,2617,066Amortization and fair value adjustment of derivative instruments4   1,2271,797 (460)427Income tax expense (recovery) 6     1,717395 (12,573)1,299Income from continuing operations     23,46425,770 59,35948,805Income (loss) from discontinued operations, net of tax5    -(531) 140(741)            Net income   23,46425,239 59,49948,064             Adjustments:          Non-cash items:            Amortization of intangibles from acquisitions   10,590  18,682     Amortization and fair value adjustment of derivative instruments4   1,227  (460)   Other items of note:            Acquisition-related items2   707  2,506     Discontinued operations, net of tax5   -  (140)   Tax effect of above adjustments (excluding discontinued operations)   (3,256)  (5,389)   Tax effect of corporate conversion, acquisitions and IFRS adjustments 6   (3,628)  (17,137) Adjusted net income3    $ 29,104   $ 57,561                   Adjusted net income per share, basic and diluted 3, 7, 8    $ 0.4974 n/m  $ 1.0300 n/mNet income per share, basic and diluted 7,8    $ 0.4010 $ 0.4741  $ 1.0647 $ 0.9029             Quarter ended June 30,  Six months ended June 30,     2011 vs. 2010 2011 vs. 2010     % change  % change        Revenue    10.8% 9.8%EBITDA 2, 3    9.9% 5.1%Adjusted net income per share 3, 7, 8     n/m  n/mn/m = not measurable1 The results for both the quarter and six months ended June 30, 2011 include those of ASSET and Mortgagebot, effective from the dates of acquisition of January 18, 2011 and April 12, 2011 respectively.2 Acquisition-related items consist of transaction costs and other payments, such as certain retention and incentive payments related to the Mortgagebot acquisition.3 EBITDA and Adjusted net income are non-IFRS terms.    See Non-IFRS Financial Measures for a more complete description of these terms.  Periods prior to January 1, 2011, do not have a comparable measure for Adjusted net income due to the differences in taxation for D+H as an income trust prior to January 1, 2011 and as a corporation subsequent to that date.4 Includes (i) amortization of mark-to-market adjustment of interest-rate swaps relating to amortization of cumulative net gains and losses that were deferred prior to January 1, 2007 when hedge accounting was used by the Company and (ii) mark-to-market adjustments of interest-rate swaps that existed as at June 30, 2011 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 income.5 The Business sold a non-strategic component of its contact centre business in October 2010 and entered into a transition agreement with the buyer which ended on April 1, 2011.  The results of these operations are presented as discontinued operations. 6 During the second quarter of 2011, in connection with the acquisition of Mortgagebot, the Business recorded a non-cash income tax recovery related to losses within certain US subsidiaries that had not been previously recognized. Adjustments for the first six months of 2011, also included non-cash income tax recoveries recorded in the first quarter of 2011, in connection with the conversion to a corporation and implementation of IFRS, among other items.  On a normalized basis, the Company expects a tax rate in the 26% range.7 Diluted Net income per share and Diluted Adjusted net income per share (non-IFRS term) reflect impacts of outstanding options.  If the option price is below the average market price during the period, then the options are not included in the dilution calculation.8  Weighted average number of shares outstanding during the three months ended June 30, 2011 was 58.5 million shares and during the six months ended June 30, 2011 was 55.9 million shares.OverviewD+H had solid operating performance in the second quarter of 2011 that was consistent with our expectations and we are satisfied with these results given market conditions and in the context of activities undertaken related to our strategic agenda. Overall, in the first six months of 2011, the Business had growth in revenues and EBITDA, compared to the same period in 2010, due to the inclusion of ASSET and Mortgagebot.  For a more detailed description on revenues and expenses, see the comments below.On April 12, 2011, D+H announced the completion of the acquisition of Mortgagebot for a purchase price of US $232.7 million, excluding transaction costs. The acquisition was funded through the issuance of approximately $121.8 million of new equity (6 million common shares at $20.30 per share) and the balance from borrowings.   Mortgagebot is a leading provider of web-based mortgage point-of-sale solutions in the United States and provides a wide range of consumer direct, loan officer and branch and call centre mortgage origination solutions for over 1,000 banks and credit unions.Revenue - Second Quarter and Year-to-DateConsolidated revenue for the second quarter of 2011 was $185.1 million, an increase of $18.0 million, or 10.8%, compared to the same quarter in 2010. For the first six months of 2011, consolidated revenue was $354.7 million, an increase of $31.7 million, or 9.8%, compared to the same period in 2010.  The increases were primarily due to the inclusion of ASSET acquired January 18, 2011 and Mortgagebot, acquired April 12, 2011, with both increases and decreases in other service areas as described below.Services delivered by the Business are subject to seasonality, including fees earned in connection with mortgage origination services and automobile loan registration services, which are typically stronger in the second and third quarters than in the first and fourth quarters.(in thousands of Canadian dollars, unaudited)        Quarter ended June 30,  Six months ended June 30,      20112010 20112010Revenue            Programs to the chequing account      $ 74,258  $ 74,660  $ 148,469  $ 147,825 Loan registration and recovery services     43,041 31,112 79,415 56,090 Loan servicing      32,073 30,365 65,345 60,034 Lending technology services     26,358 20,852 41,857 37,942 Other1     9,390 10,104 19,582 21,031                  $ 185,120  $ 167,093  $ 354,668  $ 322,9221 Excluded from the amounts reported are discontinued operationsRevenue for the second quarter of 2011 from programs to the chequing account was $74.3 million, a decrease of $0.4 million, or 0.5%, compared to the same quarter in 2010. Revenue from this service area for the first six months of 2011 was $148.5 million, an increase of $0.6 million, or 0.4%, compared to the same period in 2010.  The Company believes that the postal strike, which occurred in the later part of the quarter, negatively impacted order volumes and revenues. The decrease in order volumes was largely offset by the continued positive impact of higher average order values.  The modest increase in the first six months was primarily attributable to program changes and product and service enhancements that provided increased average order values partially offset by cheque order volume reductions.  Management believes that the long-term historical trend related to current cheque order decline is relatively unchanged and continues to be in the low single digit range, however, there has been more volatility in order volumes in recent periods.Loan registration and recovery services revenue for the second quarter of 2011 was $43.0 million, an increase of $11.9 million, or 38.3%, compared to the same quarter in 2010. Revenue for the six months ended June 30, 2011 was  $79.4 million, an increase of  $23.3 million, or 41.6%, compared to the same period in 2010. In both periods, this increase is due to the inclusion of ASSET, acquired on January 18, 2011.  Overall, services in this area are directed toward supporting personal and commercial lending activity within Canada.  Volumes in this area can be variable due to changes in the economy, changes in the auto and auto lending market and seasonality. As a somewhat counter-cyclical business, the recovery fees related to ASSET have been as expected. Typically, this service area experiences stronger volumes during the second and third quarters as compared to the first and fourth quarters as consumers more frequently purchase and finance cars in the spring and summer.Revenue for the second quarter from loan servicing, which includes student loan administration services and credit card servicing was $32.1 million, an increase of $1.7 million, or 5.6%, compared to the same quarter in 2010. For the first six months of 2011, revenue was $65.3 million, an increase of $5.3 million, or  8.8% compared to the same period in 2010.  Transaction revenue from student loan administrative services, which comprise the largest portion of revenues within this service area, was relatively unchanged for both periods as compared to 2010.  Revenues in this area are expected to be relatively stable over the short-term with modestly growing volumes, new program initiatives and cost management activities being offset by reduced pricing related to particular customers. The majority of the revenue increase in this service area is attributed to the credit card servicing area, and in turn, primarily related to specific customer initiatives that increased both revenues and expenses with minimal impact on profitability.Revenue for the second quarter of 2011 from lending technology services, which includes services to the mortgage market and other credit markets was $26.4 million, an increase of $5.5 million, or 26.4%, compared to the same quarter in 2010. For the first six months of 2011, revenue from this service area was  $41.9 million, an increase of $3.9 million, or 10.3% compared to the same period in 2010.  The increase during the second quarter of 2011 was largely due to the inclusion of Mortgagebot partially offset by reduced fees related to Canadian mortgage origination.  In the second quarter of 2010 we benefited from strong origination fees due to the housing and mortgage market recovery following earlier contractions. While fees were lower in the second quarter of 2011 as compared to the same period in 2010, they were stronger than expected.  Fees related to origination volumes also reduced during the quarter as a result of a customer repatriating certain of the services we perform for them.  For the year-to-date period, the net revenue increase was due to the inclusion of Mortgagebot, offset by reduction in several other areas.  In general, industry analysts expect the housing and mortgage markets to further settle in the second half of 2011.Other revenue for the second quarter of 2011 was $9.4 million, as compared to $10.1 million for the same period in 2010, and was comprised of a number of smaller service offerings.  Other revenue for the first six months of 2011 was $19.6 million, as compared to $21.0 million for the same period in 2010.  In general, we have recently experienced and expect to continue to experience some reductions in this area as certain customers repatriate currently outsourced activities.  On October 7, 2010, the Business sold a non-strategic component of its contact centre business and entered into a transition agreement with the buyer, which expired on April 1, 2011.The following table reflects the current relative size of each of the major service areas as a percentage of total revenue on an annualized basis:Allocation of Revenue by Service Area1          % RevenueRevenue             Programs to the chequing account          43% Loan registration and recovery services          20% Loan servicing          19% Lending technology services          12% Other          6%                       100%1 Allocation is based on 12-month rolling revenue from Q3 2010 to Q2 2011.Expenses1On a consolidated basis, expenses for the second quarter of 2011 of $137.0 million increased by $13.7 million, or 11.1%, compared to the same quarter in 2010.  For the first six months of 2011, consolidated expenses were $269.1 million, an increase of $27.6 million, or 11.4% compared to the same period in 2010. The increase primarily reflects the inclusion of ASSET and Mortgagebot expenses, acquisition-related expenses, higher costs in support of service areas with higher revenues, and the ongoing costs associated with the transformation and integration activities, reduced by cost management and other net savings.          Quarter ended June 30,  Six months ended June 30,(in thousands of Canadian dollars, unaudited)        20112010 20112010                 Employee compensation and benefits 2       $ 55,128 $ 47,208  $ 107,247 $ 95,336Non-compensation direct expenses 3         59,57652,622 115,515101,532Other operating expenses 4         17,48819,202 36,77135,749Occupancy costs         4,8314,287 9,5358,822                          $ 137,023 $ 123,319 $ 269,068 $ 241,4391 Excluded from the reported amounts are the discontinued operations.2 Employee compensation and benefits are net of certain employee related tax benefits and amounts capitalized related to software product development. Certain comparative figures have been reclassified and adjusted to conform to current period's presentation. There was no change in total expenses related to this reclassification.3 Non-compensation direct expenses include materials, shipping, selling expenses and third party direct disbursements. Certain comparative figures have been reclassified and adjusted to conform to current period's presentation.  There was no change in total expenses related to this reclassification.4Other operating expenses include communication costs, licensing fees, professional fees, contractor fees and expenses not included in other categories. Certain comparative figures have been reclassified and adjusted to conform to current period's presentation. There was no change in total expenses related to this reclassification.Employee compensation and benefits costs of $55.1 million for the second quarter of 2011 increased by $7.9 million, or 16.8%, compared to the same quarter in 2010.  For the first six months of 2011, employee compensation and benefits costs were $107.2 million, an increase of $11.9 million, or 12.5%, compared to the same period in 2010. The increase was primarily related to the inclusion of ASSET and Mortgagebot expenses and a general increase in compensation levels, partially offset by apprenticeship program benefits and integration savings.  Additionally, we have been replacing contract labour (recorded as other operating expenses) with full-time staff as the nature and certainty of work within certain service areas mature.Non-compensation direct expenses were $59.6 million for the second quarter of 2011, an increase of $7.0 million, or 13.2%, compared to the same quarter in 2010. For the first six months of 2011, non-compensation direct expenses of $115.5 million, increased by $14.0 million, or 13.8%, compared to the same period in 2010. The increase is primarily attributable to the third party direct disbursements relating to the ASSET business.  In general, these expenses directionally change with revenue changes.Other operating expenses for the second quarter of 2011 of $17.5 million, decreased by $1.7 million, or  8.9% compared to the same quarter in 2010 and for the first six months of 2011, increased by $1.0 million, or 2.9%, to $36.8 million, compared to the same period in 2010.  The decrease in other operating expenses during the second quarter of 2011 reflected decreases in several cost areas, including decreases related to transformation and integration project initiatives.Occupancy costs for the second quarter of 2011 were $4.8 million, an increase of $0.5 million, or 12.7% , compared to the same quarter in 2010. For the first six months of 2011, occupancy costs of $9.5 million, increased by $0.7 million, or 8.1% compared to the same period last year.  Both increases were primarily due to the inclusion of ASSET and Mortgagebot facilities.EBITDAEBITDA during the second quarter of 2011 was $48.1 million, an increase of $4.3 million, or 9.9%, compared to the same quarter in 2010, relatively consistent with the increase in revenue. EBITDA for the first six months of 2011 was $85.6 million, an increase of $4.1 million, or 5.1% compared to the same period of 2010.  EBITDA for both the second quarter of 2011 and the first six months of 2011 was reduced by acquisition-related costs of $0.7 million and $2.5 million, respectively.Amortization of Capital and Non-acquisition IntangiblesAmortization of capital and non-acquisition intangible assets during the second quarter of 2011 increased by   $0.9 million, or 17.4% compared to the second quarter of 2010 and for the first six months of 2011, increased by $1.7 million, or 17.7% compared to the first six months of 2010.  These increases were primarily related to capital additions during the latter part of 2010 and the inclusion of the ASSET and Mortgagebot businesses.Amortization of Intangibles from AcquisitionsAmortization of acquisition related intangibles for the second quarter of 2011 increased by $3.4 million, and for the first six months of 2011 increased by $4.4 million as compared to the same periods in 2010 mainly due to the addition of intangibles related to the acquisitions of ASSET and Mortgagebot.Interest ExpenseInterest expense for the second quarter of 2011 increased by $1.6 million compared to the same quarter in 2010, and for the six months ended June 30, 2011, increased by $2.2 million, compared to the first six months of 2010, due to increased borrowings in relation to the acquisitions of ASSET and Mortgagebot.Amortization and Fair Value Adjustment of Derivative InstrumentsA net unrealized loss of $1.2 million on interest-rate swaps was recognized in the second quarter of 2011 (Q2 2010 - net unrealized loss of $1.8 million) reflecting mark-to-market adjustments related to changes in market interest rates at June 30, 2011 compared to March 31, 2011. Also included in these unrealized losses is the amortization related to the cumulative gains and losses that were deferred prior to January 1, 2007 when hedge accounting was used by D+H.These unrealized gains and losses are recognized in income because these swaps are not designated as hedges for accounting purposes. In general, a loss on interest-rate swaps is recorded when rates decrease as compared to previous periods and a gain is recorded when 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 income as the related swaps mature.  The Company has historically held its derivative contracts to maturity.Effective January 1, 2011, the Company's policy is to adopt hedge accounting prospectively on any new interest-rate swaps entered into subsequent to January 1, 2011.  As of June 30, 2011, the Company had not entered into any new interest-rate swaps and the fair value adjustments of the existing interest-rate swaps continue to be recognized in the Consolidated Statement of Income.Income Tax Expense (Recovery)In the second quarter of 2011, a non-cash income tax expense of $1.7 million was recorded (Q2 2010 -  $0.4 million expense). This deferred tax expense was related to current income deferred for income tax purposes and was partially offset by a recovery related to the recognition of a deferred tax asset attributable to losses of certain US subsidiaries that were not previously recognized.  The recovery was realized as a consequence of the acquisition of Mortgagebot in the quarter.Income (loss) from Discontinued OperationsOn October 7, 2010, D+H sold the non-strategic portion of its contact centre business, which primarily served non-core markets of D+H and entered into a transition agreement with the buyer, which expired on April 1, 2011.  Consequently, the results of operations related to this part of the Business have been classified as discontinued operations.Net Income Net income of $23.5 million for the second quarter of 2011 decreased by  $1.8 million, or 7.0%, compared to the same period in 2010.  For the first six months of 2011, net income of $59.5 million increased by $11.4 million, or 23.8% compared to the same period in 2010.  The decrease in the second quarter of 2011 was primarily attributable to the amortization of acquisition intangibles and incremental interest expense related to the ASSET and Mortgagebot acquisitions, partially offset by the contribution from these acquired businesses. Additionally, the tax expense of the Business has changed as a result of the conversion from an income trust to a corporation. For the six-month period, net income increased primarily due to a non-cash deferred income tax recovery recorded in the first quarter of 2011.Adjusted Net Income Effective January 1, 2011, as a result of the conversion from an income trust structure to a corporate structure, the Business commenced using Adjusted net income as a measure for evaluating its financial results.  Adjusted net income is a non-IFRS financial measure.  See Non-IFRS Financial Measures section for a more complete description of this term.  Periods prior to January 1, 2011, do not have a comparable measure for Adjusted net income.Adjusted net income excludes both (i) non-cash impacts of items such as mark-to-market gains and losses on derivative instruments, amortization of intangibles from acquisitions, income tax recovery during the quarter related to the recognition of a deferred tax asset attributable to losses of certain US subsidiaries that were not previously recognized (and for the first six months of 2011, tax recoveries related to the corporate conversion and IFRS adjustments) and (ii) other items of note such as discontinued operations and acquisition-related costs referred to below.  Adjusted net income was $29.1 million for the second quarter of 2011 and $57.6 million for the first six months of 2011.  Net income is also adjusted for the tax impact of these adjustments to arrive at Adjusted net income.Acquisition-related CostsDuring the second quarter of 2011, the Corporation recorded acquisition-related costs of $0.7 million, which included transaction costs and other payments, such as certain retention and incentive payments related to the Mortgagebot acquisition.  For the first six months of 2011, acquisition-related costs were $2.5 million.EIGHT QUARTER CONSOLIDATED STATEMENT OF INCOME - SUMMARY 1, 8(in thousands of Canadian dollars, except per share amounts, unaudited)                     IFRS Canadian GAAP          2011   2010        2009         Q2 Q1 Q4 Q3 Q2 Q1  Q4  Q3                 Revenue   $ 185,120 $ 169,548 $ 162,474 $ 164,319 $ 167,093 $ 155,829  $ 151,521 $ 139,245Expenses2  137,023132,045133,018128,147123,319118,120 114,467101,696EBITDA 2, 3  48,09737,50329,45636,17243,77437,709 37,05437,549                Amortization of capital assets and non-acquisition intangibles  5,8275,5045,6435,0304,9624,669 4,5144,505Amortization of intangibles from acquisitions  10,5908,0927,1086,9257,1587,097 7,3305,942Interest expense   5,2723,9893,4053,5173,6923,374 3,3262,681Amortization and fair value adjustment of derivative instruments4  1,227(1,687)(2,796)1,5661,797(1,370) (1,517)(1,544)Income tax expense (recovery)  1,717(14,290)3,448(1,447)395904 (2,605)1,015Income from continuing operations  23,46435,89512,64820,58125,77023,035 26,00624,950Income (loss) from discontinued operations, net of tax 5  -140(620)(1,886)(531)(210) (405)7Net income  23,464 $ 36,035 $ 12,028 $ 18,695 $ 25,239 $ 22,825 $ 25,601 $ 24,957Adjustments:              Non-cash items:               Amortization of intangibles from acquisitions  10,5908,092         Amortization and fair value adjustment of derivative instruments4  1,227(1,687)        Other items of note:               Acquisition-related items2  7071,799         Discontinued operations, net of tax5  -(140)        Tax effect of above adjustments (excluding discontinued operations)    (3,256)(2,133)          Tax effect of corporate conversion, acquisitions and IFRS adjustments6  (3,628)(13,509)         Adjusted net income3     $ 29,104 $ 28,457                         Adjusted net income per share, basic and diluted 3, 7   $ 0.4974 $ 0.5346 n/m n/m n/m n/m  n/m n/mNet income per share, basic and diluted 7       $ 0.4010 $ 0.6769 $ 0.2260 $ 0.3512 $ 0.4741 $ 0.4288  $ 0.4809 $ 0.4931n/m = not measurable1 The 2011 results include those of ASSET, effective from the date of acquisition of January 18, 2011 and those of Mortgagebot effective from the date of acquisition of April 12, 2011.  Certain comparative figures have been reclassified and adjusted to conform to the current period's presentation.2 Acquisition-related items include transaction costs and other payments, such as certain retention and incentive payments related to the Mortagebot acquisition.3 EBITDA and Adjusted net income are non-IFRS terms. See Non-IFRS Financial Measures section for a more complete description of these terms.  Periods prior to January 1, 2011, do not have a comparable measure for Adjusted net income due to the differences in taxation for D+H as an income trust prior to January 1, 2011 and as a corporation subsequent to that date.4 Includes (i) amortization of mark-to-market adjustment of interest-rate swaps relating to the amortization of cumulative net gains and losses that were deferred prior to January 1, 2007 when hedge accounting was used by the Company and (ii) mark-to-market adjustments of interest-rate swaps that existed as at June 30, 2011 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 income.5 The Business sold a non-strategic component of its contact centre business in October 2010 and entered into a transition agreement with the buyer, which expired on April 1, 2011.  The results of these operations are presented as discontinued operations.6 During the second quarter of 2011, the Business recorded a non-cash income tax recovery related to losses within certain US subsidiaries that had not been previously recognized. Adjustments for the first quarter of 2011 included non-cash income tax recoveries recorded in connection with the conversion to a corporation and implementation of IFRS, among other items.  On a normalized basis, the Company expects a tax rate in the 26% range.7 Diluted Net income per share and Diluted Adjusted net income per share (non-IFRS term) reflect impacts of outstanding options.  If the option price is below the average market price during the period, then the options are not included in the dilution calculation.8 With the adoption of IFRS, 2010 comparative figures have been restated.  The reconciliations from Canadian GAAP to IFRS for all four quarters of 2010 have been provided below:                  Q1 2010  Q2 2010  Q3 2010  Q4 2010        Cdn GAAPEffect ofTransitionto IFRS  IFRS  Cdn GAAPEffect ofTransitionto IFRS  IFRS  Cdn GAAPEffect ofTransitionto IFRS  IFRS  Cdn GAAPEffect ofTransitionto IFRS  IFRS               Revenue 1   $ 153,698 $ 2,131 $ 155,829 $ 164,319 $ 2,774 $ 167,093 $ 161,900 $ 2,419 $ 164,319 $ 160,457 $ 2,017 $ 162,474Expenses 1  115,9892,131118,120120,5452,774123,319121,3116,836128,147124,7338,285133,018Restructuring Charges 2  ------2,160(2,160)-6,268(6,268)-EBITDA 5  37,709-37,70943,774-43,77438,429(2,257)36,17229,456-29,456               Amortization of capital assets and non-acquisition intangibles   4,669 - 4,669 4,962 - 4,962 5,030 - 5,030 5,643 - 5,643Amortization of intangibles from acquisitions  7,097-7,0977,158-7,1586,925-6,9257,108-7,108Interest expense   3,374-3,3743,692-3,6923,517-3,5173,405-3,405Amortization and fair value adjustmentof derivative instruments   (1,370) - (1,370) 1,797 - 1,797 1,566 - 1,566 (2,796) - (2,796)Income tax expense (recovery) 3  661243904603(208)395(645)(802)(1,447)2,6208283,448               Income from continuing operations  23,278(243)23,03525,56220825,77022,036(1,455)20,58113,476(828)12,648Income (loss) from discontinued operations,net of tax 4  (210)-(210)(531)-(531)(465)(1,421)(1,886)(620)-(620)Net income   $ 23,068 $ (243) $ 22,825 $ 25,031 $ 208 $ 25,239 $ 21,571 $ (2,876) $ 18,695 $ 12,856 $ (828) $ 12,028Net income per unit, basic and diluted   $ 0.4333$ (0.0046) $ 0.4288 $ 0.4702 $ 0.0039 $ 0.4741 $ 0.4052$ (0.0540) $ 0.3512 $ 0.2415$ (0.0156) $ 0.22601 IFRS requires that uniform policies be used for like transactions and events throughout the Company.  The Company determined that revenue transactions related to loan registration and recovery services should be presented on the basis of gross amount billed to customers.  A subsidiary previously accounted for these transactions on a net basis.  With the conversion to IFRS, the subsidiary has aligned its treatment of these transactions with that of the Company and the effect is to increase revenue and expenses with no impact on net income.2 Under IFRS, non-recurring items are not classified as separate line items.  The effect in the third and fourth quarters of 2010 was to reclassify the restructuring charges as expenses within relevant categories with no impact on net income.3 The effect of transition to IFRS on income tax expense (recovery) relates to the tax rates used to calculate deferred tax assets and liabilities under Canadian GAAP vs. IFRS.4 During the third quarter of 2010, the purchase accounting for Resolve acquisition was finalized under Canadian GAAP. Under IFRS, certain costs did not qualify for the equivalent recognition.  Such costs amounted to $4,177 of which $2,257 was recorded as part of the continuing operations and $1,421 was recorded as part of the discontinued operations ($1,920 before taxes) for IFRS purposes.5 EBITDA is a non-IFRS term.  See Non-IFRS Financial Measures section for a more complete description of this term.The Business has generally reported quarterly revenues that are relatively stable and growing when measured on a year-over-year basis, however more recent changes generally in the economic environment, the housing and mortgage markets and the auto lending markets specifically, have increased volatility. Measured on a sequential quarter-to-quarter basis, revenues can also vary due to seasonality and are generally stronger in the second and third quarters. The acquisition of the Resolve business resulted in a substantial increase in all reported balances since the acquisition on July 27, 2009, except per share amounts, which were additionally impacted by the issuance of 9,286,581 additional units of Davis + Henderson Income Fund in the third quarter of 2009 to fund the Resolve acquisition. Additionally, the acquisition of ASSET on January 18, 2011 and the acquisition of Mortgagebot on April 12, 2011 increased revenues and expenses. Per share amounts were also impacted by the issuance of 6,000,000 additional shares of Davis + Henderson Corporation in April 2011 to partially fund the acquisition of Mortgagebot.Effective January 1, 2011, as a result of the conversion from an income trust structure to a corporate structure, the Business commenced using Adjusted net income as a measure for evaluating its results.  Adjusted net income is a non-IFRS financial measure.  See Non-IFRS Financial Measures section for a more complete description of this term.  Periods prior to January 1, 2011, do not have a comparable measure for Adjusted net income.Net income has been more variable as it has been affected by the variability in non-cash items such as mark-to-market adjustments on interest-rate swaps, amortization of intangibles from acquisitions and changes in other non-cash tax items.CASH FLOW AND LIQUIDITYThe following table is derived from, and should be read in conjunction with, the Consolidated Statements of Cash Flows. Management believes this supplementary disclosure provides useful additional information related to the cash flows of the Corporation, repayment of debt and other investing activities.Summary of Cash Flows   (in thousands of Canadian dollars, unaudited)         Quarter ended June 30,  Six months ended June 30,      20112010 20112010           Cash and cash equivalents provided by (used in):                      OPERATING ACTIVITIES           Net income from continuing operations       $ 23,464 $ 25,770  $ 59,359 $ 48,805Depreciation and amortization of assets      16,41712,120 30,01323,886Amortization and fair value adjustment of derivative instruments      1,2271,797 (460)427Difference in interest expense and cash interest paid      9291,355 7331,661Non-cash expenses      1,766395 (12,524)1,299        43,80341,437 77,12176,078Increase in non-cash working capital items      (15,129)(5,517) (30,803)(19,917)Changes in other operating assets and liabilities and discontinuedoperations      1,233693 1,3371,433Net cash from operating activities      29,90736,613  $ 47,655 $ 57,594           FINANCING ACTIVITIES           Net change in long-term indebtedness      103,505(5,000) 184,505-Issuance costs, equity and debt      (8,492)(2,564) (9,797)(2,564)Proceeds from issuance of shares      121,800- 121,800-Distributions and dividends paid during the period      (17,770)(24,482) (33,916)(48,964)Net cash from (used in) financing activities      199,043(32,046) 262,592(51,528)           INVESTING ACTIVITIES           Capital expenditures     (7,930)(5,293) (17,651)(9,269)Acquisitions     (222,259)- (292,993)-Net cash used in investing activities     (230,189)(5,293) (310,644)(9,269)           Increase (decrease) in cash and cash equivalents for the period      (1,239)(726) (397)(3,203)Cash and cash equivalents, beginning of period      1,9861,401 1,1443,878Cash and cash equivalents, end of period       $ 747 $ 675  $ 747 $ 675Capital ExpendituresCompared to the same period in 2010, total capital expenditures increased by $2.6 million to $7.9 million in the second quarter of 2011 and increased by $8.4 million to $17.7 million in the first six months of 2011. Capital expenditures also include certain contract payments which relate to payment obligations under customer and partner contracts including fixed contract or program initiation payments and annual payments payable over the life of the contract.  These contract payments reflect, among other things, the high degree of integration and sharing between D+H and its customers and partners of the many activities related to ordering, data handling, customer service, customer access and other activities.The increase in capital expenditures over the same period in 2010 primarily reflected increased integration and upgrade activities, consistent with the higher capital spend commencing in the latter part of 2010, and investing in the building of technology products.The Business' capital program provides for continued expenditures to be funded by cash flows from operations.DividendsCommencing in 2011, as a corporation, the Business is subject to corporate taxes. Consistent with the announcement in 2010 of our intention to pay quarterly dividends commencing in 2011 at an initial annualized rate of $1.20 per share, D+H paid approximately $0.30 per share during each of the first and second quarters of 2011. For the second quarter of 2010, both cash distributions declared and paid were $0.4599 per unit ($24.5 million) and for the first six months of 2010, both cash distributions declared and paid were $0.9198 per unit ($49.0 million).D+H increased its target annualized dividend amount by 4 cents to $1.24 per share from $1.20 per share, effective for shareholders of record as of August 31, 2011, to be paid on September 30, 2011.Dividends payable by D+H to its shareholders are recorded when declared.  Actual dividends declared will be subject to the discretion of the D+H Board of Directors and may vary from the intentions stated.  Among other items, in determining actual dividends declared, the Board of Directors will consider the financial performance, capital plans, acquisition plans, expectations of future economic conditions and other factors.As at June 30, 2011, and August 9, 2011, 59,233,373 common shares were outstanding, reflecting the additional 6 million common shares issued in April 2011 to fund the Mortgagebot acquisition (as at June 30, 2010 - 53,233,373 trust units).Changes in Non-Cash Working Capital and Other Items(in thousands of Canadian dollars, unaudited)       Quarter ended June 30,   Six months ended June 30,     2011201020112010          Increase in non-cash working capital items    $ (15,129)$ (5,517)$ (30,803)$ (19,917)Decrease in other operating assets and liabilitiesand discontinued operations    1,2336931,3371,433          increase  in non-cash working capital and other items    $ (13,896)$ (4,824)$ (29,466)$ (18,484)The net increase in non-cash working capital items for the second quarter of 2011 was attributable to several items, including an increase in trade receivables, which were impacted by deferred collections due to the postal strike, a decrease in payables relating to fees paid in connection with the ASSET and Mortgagebot acquisitions and a decrease in the balance sheet provision related to restructuring payments, partially offset by increase in trade payables.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 recently acquired.AcquisitionsOn April 12, 2011, D+H announced the completion of the acquisition of Mortgagebot for a purchase price of US $232.7 million, excluding transaction costs. The acquisition was funded through the issuance of $121.8 million new equity (6 million common shares at $20.30 per share) and the balance from borrowings.   Mortgagebot is a leading provider of web-based mortgage point-of-sale solutions in the United States and provides a wide range of consumer direct, loan officer and branch and call centre mortgage origination solutions for over 1,000 banks and credit unions.On January 18, 2011, D+H acquired the assets and operations of ASSET for $74.9 million, excluding transaction costs. This acquisition was funded through utilizing an extension of the Company's secured credit facilities.  ASSET is Canada's largest provider of technology based asset recovery and insolvency management solutions to the Canadian financial services industry.For additional information on the acquisitions, refer to Note 8 of the consolidated financial statements of the Company for the three and six months ended June 30, 2011.Management has not yet completed its assessment and valuation of the assets acquired and liabilities assumed for these acquisitions, and as a result, the presented purchase information may change.Cash Balances and Long-Term IndebtednessAt June 30, 2011, cash and cash equivalents totalled $0.7 million, compared to $1.1 million at December 31, 2010.The long-term indebtedness is recorded on the Consolidated Statement of Financial Position, net of unamortized deferred financing fees of $6.6 million as at June 30, 2011. The long-term indebtedness as at June 30, 2011, before deducting unamortized deferred finance fees, was $383.8 million compared to $199.0 million at December 31, 2010. Subsequent to the second quarter of 2011, the Business made a repayment of $5.0 million on its credit facilities.The long-term indebtedness includes drawings under a Seventh Amended and Restated Credit Agreement ("Credit Agreement") dated April 12, 2011 of $243.0 million.  Total committed senior secured credit facilities under this Credit Agreement at June 30, 2011 were $355.0 million, consisting of a revolving credit facility that matures on April 12, 2016. The Business is permitted to draw on the revolving facility's available balance of $112.0 million to fund capital expenditures or for other general purposes.  The Credit Agreement contains a number of covenants and restrictions, including the requirement to meet certain financial ratios and financial condition tests. The financial covenants include a leverage test, a fixed charge coverage ratio test and a limit on the maximum amount of income and capital that may be distributed by Davis + Henderson Corporation to its shareholders during each rolling four-quarter period.  The Company was in compliance with all of its financial covenants and financial condition tests as of the end of its latest quarterly period.  A copy of the Credit Agreement is available at www.sedar.com.As at June 30, 2011, and August 9, 2011, long-term indebtedness also consists of fixed-rate Bonds of $80.0 million issued under an Amended and Restated Note Purchase and Private Shelf Agreement dated January 1, 2011 ("Note Purchase Agreement"), which includes $50.0 million issued under the senior secured Note Purchase Agreement at a fixed-interest rate of 5.99% and $30.0 million at 5.17%, both maturing on June 30, 2017.  The Business also entered into a Note Purchase and Private Shelf Agreement pursuant to which the Company issued US$ 63 million (C$ 60.8 million) of senior secured guaranteed notes at 5.59% to partially fund the acquisition of Mortgagebot.The Bonds rank equally in all respects with amounts outstanding under the Credit Agreement, any related hedging contracts and cash management facilities and benefit from the same financial covenants that exist under the Credit Agreement described above.  The Note Purchase Agreements are available at www.sedar.com.To reduce liquidity risk, management has historically renewed the terms of the Company's long-term indebtedness in advance of its maturity dates and the Company has maintained financial ratios that are conservative compared to financial covenants applicable to the financing arrangements.  To enhance its liquidity position, in prior years the Company has made numerous voluntary payments on its outstanding long-term indebtedness and a portion of its committed credit facilities remain undrawn.As at June 30, 2011, and as at August 9, 2011, the Credit Agreement provides for additional uncommitted credit arrangements of up to $150.0 million and the Note Purchase Agreements provide for an additional uncommitted arrangements of up to US$ 37 million with the use of these arrangements subject to the prior approval of the relevant lenders with any fees, spreads and other additional terms to be negotiated at that time.The Company has historically hedged against increases in market interest rates on certain of its debt by utilizing interest-rate swaps and more recently by issuing fixed rate long-term bonds. In respect of interest-rate swap hedge contracts with its lenders, as of June 30, 2011, the Company's borrowing rates on 39.1% of outstanding long-term indebtedness under the Credit Agreement are effectively fixed at the interest rates and for the time periods ending as outlined in the following table:(in thousands of Canadian dollars, unaudited)                              Fair value of interest-rate swaps  Maturity Date           Notional Amount AssetLiability Interest Rate ¹ December 18, 2014          $25,000 $-$479 2.720% March 18, 2015          25,000 -655 2.940% March 18, 2017          25,000 -948 3.350% March 20, 2017          20,000 -775 3.366%            $ 95,000  $ - $ 2,857  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 as compared to certain levels specified in the Credit Agreement.  As at June 30, 2011, the Company's long-term bank indebtedness was subject to bankers' acceptance fees of 2.25% over the applicable BA rate and prime rate spreads of 1.25% over the prime rate.As at June 30, 2011, the Company would have to pay the fair value of $2.9 million if it were to close out all of the interest-rate swap contracts as set out in the Consolidated Statement of Financial Position.  It is not the present intention of management to close out these contracts and the Company has historically held its derivative contracts to maturity.As at June 30, 2011, the average effective interest rate on the Corporation's total indebtedness was approximately 4.7%.Cash flows from operations, together with cash balances on hand and unutilized term credit facilities are expected to be sufficient to fund the Business' operating requirements, asset expenditures, contractual obligations and anticipated dividends.NON-IFRS FINANCIAL MEASURESThe information presented within the tables in this MD&A include certain adjusted financial measures such as "EBITDA" (Earnings before interest, taxes, depreciation and amortization), "Adjusted net income" (net income before certain non-cash charges and certain items of note such as acquisition-related expenses and discontinued operations), and "Adjusted net income per share", all of which are not defined terms under IFRS. These non-IFRS financial measures are derived from, and should be read in conjunction with, the Consolidated Statements of Income. See the reconciliation of EBITDA and Adjusted net income to the most directly comparable IFRS measure in the "Operating Results" section of this MD&A.Management believes these supplementary disclosures provide useful additional information related to the operating results of the Corporation. Management uses these subtotals as measures of financial performance and as a supplement to the Consolidated Statements of Income.  Investors are cautioned that these measures should not be construed as an alternative to using net income as a measure of profitability or as an alternative to the IFRS Consolidated Statements of Income or other IFRS statements. Further, D+H's method of calculating each balance may not be comparable to calculations used by other companies bearing the same description.EBITDAIn addition to its use by management as an internal measure of financial performance, EBITDA is used to measure (with adjustments) compliance with certain financial covenants under the Company's credit facility. EBITDA is also widely used by D+H and others in assessing performance and 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 Net Income and Adjusted Net Income per ShareEffective January 1, 2011, as a result of the conversion from an income trust structure to a corporate structure, the Business commenced using Adjusted net income and Adjusted net income per share as a measure for evaluating its results.  Periods prior to January 1, 2011, do not have a comparable measure.Adjusted net income is used as a measure of internal performance similar to net income, but is calculated after removing the impacts of certain items that are non-regularly recurring such as acquisition-related expenses, discontinued operations and certain non-cash items such as amortization of intangibles from acquisitions and mark-to-market adjustments of derivative instruments. These items are excluded in calculating Adjusted net income as they are not considered indicative of the financial performance of the Business for the period being reviewed.CHANGES IN ACCOUNTING POLICIESThe Company actively monitors developments in standards as issued by the IASB and the Canadian Accounting Standards Board ("AcSB"), as well as regulatory developments as issued by the Canadian Securities Administrators ("CSA").Adoption of IFRSCommencing January 1, 2011, the Corporation's financial statements have been prepared in accordance with IFRS, with 2010 comparative figures restated to conform to IFRS.IFRS implementation planThe Company has completed the final phase of its IFRS implementation plan.  The implementation project consisted of three primary phases: (1) Scoping and Diagnostic Phase, (2) Impact Analysis and Design Phase, and (3) Implementation and Review Phase.  As part of this transition plan, the Company completed the following:Performed a detailed analysis of the current accounting policies and practices with all relevant IFRS standards and applicable interpretations;Made accounting policy choices, including those under IFRS 1, First-Time Adoption of International Financial Reporting Standards ("IFRS 1");Identified and implemented changes required to existing accounting policies, data systems, business processes, internal controls over financial reporting and disclosure controls;These changes were adequately tested prior to reporting for the first quarter of 2011.We have completed the design, implementation and documentation of the internal controls over the IFRS changeover process by applying our existing control framework.  All accounting policy selections and changes and transitional impacts to the financial statements were subject to review by senior management and the Audit Committee of the Board of Directors.Some of the key differences identified that were applicable to the Company between Canadian GAAP and IFRS for the opening Consolidated Statement of Financial Position include accounting for business combinations, change in tax rates used to calculate deferred income tax assets and liabilities and recognition of vested past service costs. The differences identified did not have significant effects on the business functions of the Company.IFRS 1 Exemptions  Upon evaluation of the options under IFRS 1, D+H has elected to use the following exemptions:Business CombinationsA first-time adopter of IFRS may elect not to apply IFRS 3 retrospectively to business combinations that occurred before the date of transition to IFRSs.  The retrospective basis would require restatement of all business combinations that occurred prior to the transition date.  The Company has elected not to apply IFRS 3 retrospectively to business combinations that occurred prior to the transition date and such business combinations will not be restated.  As a result of applying these exemptions, except as required under IFRS 1, any goodwill arising on such business combinations before the transition date was not adjusted from the carrying value previously determined under Canadian GAAP.Fair value as deemed costIFRS 1 permits measuring, at the date of transition, an item of property, plant and equipment or intangible assets that meet the criteria specified in IAS 38 at either its fair value and using those amounts as deemed cost, or using the historical valuation under previous GAAP.  The Company continues to apply the cost model to property, plant and equipment and intangible assets and did not restate to fair value under IFRS.  The Company continues to use the historical basis under Canadian GAAP as deemed cost under IFRS at transition date.Employee Future BenefitsA first-time adopter of IFRS may elect to recognize all cumulative actuarial gains and losses at the date of transition to IFRS, even if it uses the corridor approach for later actuarial gains and losses.  The Company elected to apply the exemption at transition date.Key Differences Identified Between Canadian GAAP and IFRSThe key differences identified by the Company compared to the accounting policies under Canadian GAAP are as follows (Refer to Note 24 of the Corporation's financial statements for the three and six months ended June 30, 2011 which contains reconciliations and descriptions of the effect of the transition from Canadian GAAP to IFRS on equity, earnings and comprehensive income including line-by-line reconciliations of the statement of financial position as at June 30, 2010 as well as statement of income for the three and six months ended June 30, 2010):Business CombinationsAs described above, the Company has elected under IFRS 1 not to apply IFRS 3 Business Combinations retrospectively to business combinations that occurred prior to the transition date of January 1, 2010.Employee Future BenefitsCumulative gains and losses: The Company has elected under IFRS 1 to recognize all cumulative gains and losses related to employee benefits deferred under Canadian GAAP in opening retained earnings at the transition date.Past service costs:  Under IFRS, if past service cost entitlements are not conditional on future service and thus vest immediately, then the expense and the change in the obligation are recognized in full immediately.  Under Canadian GAAP, liabilities and expenses for both vested and unvested past service cost are amortized on a straight-line basis over the remaining service period of the employees.Income TaxesFor the periods prior to January 1, 2011, prior to the conversion of the income trust to a corporate structure, IAS 12 requires that current and deferred tax assets and liabilities are measured at the tax rate applicable to undistributed profits until such time that the distribution becomes payable.  Canadian GAAP allows an entity to anticipate future distributions, provided certain conditions are met, and therefore uses the tax rate applicable to distributed profits.  Under the tax rules applicable to income trusts, distributions from a unit trust are taxed at corporate tax rates whereas undistributed income is taxed at the top marginal individual income tax rate.  As such, the net deferred tax liability of the flow-through entities must be recorded under IFRS at the top marginal tax rate for individuals in Ontario, which is approximately 46.4%, as opposed to the corporate tax rate, which is scheduled to be less than 30%.Impact on internal controls over financial reporting and disclosure controlsThe Company completed the assessment of the impact of the conversion to IFRS on internal controls over financial reporting and disclosure controls and determined that its current information technology infrastructure, data systems and reporting capabilities are sufficient to support the Company during and after transition to IFRS.The Company will continue to monitor changes to IFRS in the upcoming periods. The IFRS standard-setting bodies have significant ongoing projects that could impact the IFRS accounting policies that D+H has selected. In particular, there may be additional new or revised standards in relation to revenue recognition, consolidation, financial instruments, hedge accounting, discontinued operations, leases and employee benefits. We have implemented processes to ensure that potential changes to the IFRS are monitored and evaluated in a timely manner.Other Changes in Accounting PolicyAs previously described, effective January 1, 2011, the Company's policy is to adopt hedge accounting prospectively on any new interest-rate swaps entered into subsequent to January 1, 2011.  As of June 30, 2011, the Company had not entered into any new interest-rate swaps and the mark-to-market adjustments of the existing interest-rate swaps continue to be recognized in the Consolidated Statement of Income.BUSINESS RISKSFor a comprehensive discussion of the business risks, refer to the Company's most recently filed Annual Information Form available on SEDAR at www.sedar.com. Other than the changes described below, risks and uncertainties related to the Corporation have not changed since the filing of the 2010 Annual MD&A and the Annual Information Form.Risks Relating to the Mortgagebot BusinessIn connection with the acquisition of Mortgagebot, for a comprehensive discussion of the business and business risks refer to the Company's Prospectus dated April 6, 2011 available on SEDAR at www.sedar.com.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. In January and April 2011, respectively, the Company completed the acquisitions of ASSET and Mortgagebot and these acquisitions will increase revenues and expenses of future periods as compared to previous periods. The acquisitions also provide further revenue diversification and support our long-term strategy.Additionally, in the immediate future, we will focus on executing our organic growth initiatives, integrating the Business and continuing to diligently manage costs through our transformational and integration initiatives.  Beyond the immediate term, 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 our Business through a combination of organic initiatives, partnering with third parties and by way of selective acquisitions. Our organic initiatives are many and include: (i) the ongoing enhancement and evolution of programs to the chequing and credit card accounts through the addition of value-added service enhancements (ii) the expansion of our current services within the student lending, commercial and personal lending areas (including the mortgage, credit card and personal property markets), (iii) selling and delivering our lending technology services to new customers and (iv) combining the capabilities of D+H together with those of the recently acquired businesses to develop new service offerings for our financial institution customers. Our acquisition strategy focuses on acquiring companies that extend or add to the services that we provide within the financial services marketplace.  Our acquisition plans may continue to involve extending beyond the Canadian market consistent with the expansion strategies of our major Canadian customers.With the inclusion of several new service areas over the last several years, we expect to continue to experience some level of increase in variability in year-over-year quarterly revenues, earnings and cash flows, due to, among other items: (i) volume variances within the lien registration and mortgage origination service areas; (ii) variability in professional services work; and (iii) fees and expenses incurred in connection with acquisitions and related business integration activities.  The Company believes that, in general, revenues in early 2010 benefited from stronger volumes as housing and mortgage markets, and auto and personal lending markets increased following earlier contractions. During the first half of 2011 and for the next several quarters, our results will compare to these earlier periods that featured strong activity in real estate, mortgage and other lending markets where activity is now expected to moderate. For 2011, we anticipate that our capital spending will be in the range of $32.0 million - $35.0 million including the capital requirements for ASSET and Mortgagebot. This range represents an increase over previous estimates due to continuing investment in services, products and infrastructure.Caution Concerning Forward-Looking StatementsThis MD&A contains certain statements that constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Statements concerning D+H's objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and the business, operations, financial performance and condition of D+H are forward-looking statements.  The words "believe", "expect", "anticipate", "estimate", "intend", "may", "will", "would" and similar expressions and the negative of such expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are subject to important assumptions, including the following specific assumptions: the ability of D+H to meet its revenue and EBITDA targets; general industry and economic conditions; changes in D+H's relationship with its customers and suppliers; pricing pressures and other competitive factors; the anticipated effect of the acquisition of Mortgagebot on the financial performance of D+H; and the expected benefits arising as a result of the acquisition of Mortgagebot. 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 the actual results, performance or achievements of the Business, or developments in D+H's 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 cheques by consumers; the Company's dependence on a limited number of large financial institution customers and dependence on their acceptance of new programs; strategic initiatives being undertaken to meet the Company's financial objective; stability and growth in the real estate, mortgage and lending markets; 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 and the documents incorporated by reference herein are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company.ADDITIONAL INFORMATIONAdditional information relating to the Company, including the Company's most recently filed Annual Information Form, is available on SEDAR at www.sedar.com.CONSOLIDATED STATEMENTS OF FINANCIAL POSITION(in thousands of Canadian dollars, unaudited)                            June 30, 2011  December 31, 2010            ASSETS          Cash and cash equivalents     $ 747 $ 1,144Trade and other receivables      87,960  63,902Inventories       5,646  6,006Prepayments      9,196  7,552Total current assets      103,549  78,604Deferred tax assets     45,592  31,079Property, plant and equipment     33,485  32,289Intangible assets     456,165  266,837Goodwill     656,110  524,228Total non-current assets      1,191,352  854,433Total assets     $ 1,294,901 $ 933,037          LIABILITIES          Trade payable and accrued liabilities    $ 88,424 $ 79,569Dividend (distribution) payable      -  8,161Provisions     6,032  12,358Deferred revenue     6,840  6,338Total current liabilities      101,296  106,426            Loans and borrowings       377,178  196,215Derivative liabilities held for risk management     2,857  3,403Deferred revenue      9,476  9,226Other long-term liabilities     7,903  7,290Deferred tax liabilities     88,878  55,327Total non-current liabilities      486,292  271,461Total liabilities      587,588  377,887          EQUITY          Capital     672,902  - Trust units     -  595,859Retained earnings (deficit)      33,744  (40,623)Accumulated other comprehensive income (loss)      667  (86)Total equity     707,313  555,150            Total liabilities and equity     $ 1,294,901 $ 933,037 CONSOLIDATED STATEMENTS OF INCOME        (in thousands of Canadian dollars, except per share amounts, unaudited)                            Three months ended  Six months ended   June 30, 2011 June 30, 2010 June 30, 2011 June 30, 2010Revenue$185,120   $167,093 $354,668  $322,922Employee compensation and benefits 55,128  47,208 107,247  95,336Non-compensation direct expenses 59,576  52,622 115,515  101,532Other operating expenses 17,488  19,202 36,771  35,749Occupancy costs  4,831  4,287 9,535  8,822  48,097  43,774 85,600  81,483         Depreciation of property, plant and equipment 2,595  2,188 4,934  4,360Amortization of intangible assets 13,822  9,932 25,079  19,526Results from operating activities  31,680  31,654 55,587  57,597         Finance expenses:         Amortization and fair value adjustment of derivative instruments  1,227  1,797 (460) 427Interest expense  5,272  3,692 9,261  7,066Income from continuing operations before income tax  25,181  26,165 46,786  50,104         Income tax expense (recovery)   1,717  395 (12,573) 1,299Income from continuing operations  23,464  25,770 59,359  48,805         Income (loss) from discontinued operations, net of taxes -  (531) 140  (741)Net income $  23,464  $25,239 $59,499 $48,064         Net income per share (unit) from continuing operations, basic and diluted $  0.4010  $0.4841 $1.0622  $0.9168Net income (loss) per share (unit) from discontinued operations, basic and diluted  $  -  $(0.0100) $0.0025  $(0.0139)Net income per share (unit), basic and diluted $  0.4010  $0.4741 $1.0647  $0.9029                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME         (in thousands of Canadian dollars, unaudited)           Three months ended  Six months ended    June 30, 2011 June 30, 2010 June 30, 2011 June 30, 2010           Net income  $23,464  $25,239 $59,499  $48,064           Other comprehensive income:         Amortization of mark-to-market adjustment          of derivative instruments  34  103 86  292Translation gain  667  - 667  -Total comprehensive income  $24,165  $25,342 $60,252  $48,356           CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY           (in thousands of Canadian dollars, unaudited)                                  Three months ended June 30, 2011  Capital Translationreserve Unrealized gains/(loss) on cash flow hedges Retained earnings(deficit) Total equity           Balance at April 1, 2011$  555,236$  -$    (34)$    28,050$583,252Net Income for the period - - - 23,464 23,464Translation gain - 667 - - 667Amortization of mark-to-market adjustment of derivative instruments - - 34 - 34Share issuance 117,617 - - - 117,617Dividends - - - (17,770) (17,770)Options 49 - - - 49Balance at June 30, 2011$  672,902$  667$    -$    33,744$707,313                       Three months ended June 30, 2010  Capital Translationreserve Unrealizedgain/(loss) oncash flow hedges Retained earnings(deficit) Total equity           Balance at April 1, 2010$  595,859$  -$    (293)$    (23,139)$572,427Net Income for the period  - - -  25,239 25,239Amortization of mark-to-market adjustment of derivative instruments - - 103 - 103Distributions - - - (24,482) (24,482)Balance at June 30, 2010$  595,859$  -$  (190)$  (22,382)$573,287                       Six monthsended June 30, 2011  Capital Translationreserve Unrealized gains/(loss) on cash flow hedges Retained earnings(deficit) Total equity           Balance at January 1, 2011$  595,859$ -$  (86)$  (40,623)$555,150Net Income for the period - - - 59,499 59,499Translation gain  - 667  -  - 667Amortization of mark-to-market adjustment of derivative instruments - - 86 - 86Capital reduction pursuant to the Arrangement (40,623) - - 40,623 -Share issuance 117,617 - - - 117,617Dividends - - - (25,755) (25,755)Options 49 - - - 49Balance at June 30, 2011$672,902$667$-$33,744$707,313                       Six months ended June 30, 2010  Capital Translationreserve Unrealizedgains/(loss) oncash flow hedges Retained earnings(deficit) Total equity           Balance at January 1, 2010$  595,859$  -$  (482)$  (21,482)$573,895Net Income for the period - - - 48,064 48,064Amortization of mark-to-market adjustment of derivative instruments - - 292 - 292Distributions - - - (48,964) (48,964)Balance at June 30, 2010$  595,859$  -$  (190)$  (22,382)$573,287                       CONSOLIDATED STATEMENTS OF CASH FLOWS          (in thousands of Canadian dollars, unaudited)                          Three months ended  Six months ended    June 30, 2011 June 30, 2010  June 30, 2011 June 30, 2010           Cash and cash equivalents provided by (used in):                     OPERATING ACTIVITIES          Net income from continuing operations  $23,464 $25,770  $59,359 $48,805Adjustments for:           Depreciation of property, plant and equipment  2,595 2,188  4,934 4,360 Amortization of intangible assets  13,822 9,932  25,079 19,526 Amortization of mark-to-market adjustment of derivative instruments 34 103  86 292 Fair value adjustment of derivative instruments  1,193 1,694  (546) 135 Finance costs  5,272 3,692  9,261 7,066 Cash interest paid  (4,343) (2,337)  (8,528) (5,405) Non-cash income tax expense (recovery)  1,717 395  (12,573) 1,299 Options expense  49 -  49 -   43,803 41,437  77,121 76,078           Increase in non-cash working capital items  (15,129) (5,517)  (30,803) (19,917)Changes in other operating assets and liabilities  1,233 1,370  1,148 2,357Cash flows from (to) discontinued operations  - (677)  189 (924)Net cash from operating activities  29,907 36,613  47,655 57,594           FINANCING ACTIVITIES          Repayment of long-term indebtedness  (136,000) (70,000)  (217,000) (72,900)Proceeds from long-term indebtedness  239,505 65,000  401,505 72,900Issuance costs of long-term indebtedness  (3,031) (2,564)  (4,336) (2,564)Issuance of shares  121,800 -  121,800 -Issuance costs of shares  (5,461) -  (5,461) -Dividends (distributions) paid  (17,770) (24,482)  (33,916) (48,964)Net cash from (used in) financing activities  199,043 (32,046)  262,592 (51,528)           INVESTING ACTIVITIES          Expenditures on property, plant and equipment  (1,137) (1,067)  (3,947) (1,941)Expenditures on intangible assets  (6,793) (4,226)  (13,704) (7,328)Acquisition of subsidiaries and acquisition adjustments  (222,259) -  (292,993) -Net cash used in investing activities  (230,189) (5,293)  (310,644) (9,269)           Decrease in cash and cash equivalents          for the period  (1,239) (726)  (397) (3,203)Cash and cash equivalents, beginning of period  1,986 1,401  1,144 3,878Cash and cash equivalents, end of period  $747 $675  $ 747 $675                   About Davis + HendersonDavis + Henderson is a leading solutions provider to the financial services marketplace. Founded in 1875, the company today provides innovative programs, technology products and technology based business services to customers who offer chequing accounts, credit card accounts and personal, commercial, and other lending and leasing products. Davis + Henderson Corporation is listed on the Toronto Stock Exchange under the symbol DH. Further information can be found in the disclosure documents filed by Davis + Henderson Corporation with the securities regulatory authorities, available at www.sedar.com.       For further information: Brian Kyle, Chief Financial Officer, Davis + Henderson Corporation, (416) 696-7700, extension 5690, brian.kyle@dhltd.com