Clarke American Announces Second Quarter 2006 Results and Conference Call Information.SAN ANTONIO San Antonio (săn ăntō`nēō, əntōn`), city (1990 pop. 935,933), seat of Bexar co., S central Tex., at the source of the San Antonio River; inc. 1837. -- Clarke Clarke , Arthur Charles Born 1917. British writer, scientist, and underwater explorer noted for his stories of space exploration. His works include 2001: A Space Odyssey (1968). American American, river, 30 mi (48 km) long, rising in N central Calif. in the Sierra Nevada and flowing SW into the Sacramento River at Sacramento. The discovery of gold at Sutter's Mill (see Sutter, John Augustus) along the river in 1848 led to the California gold rush of Corp. ("Clarke American") today reported results for the second quarter and six months ended June June: see month. 30, 2006 in its Quarterly Report filed on Form 10-Q Form 10-Q See 10-Q. with the SEC, and will hold a conference call to discuss these results on Wednesday Wednesday: see week. , August 16, 2006 at 9:30 a.m. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT (8:30 a.m. CDT CDT abbr. Central Daylight Time CDT Central Daylight Time CDT n abbr (US) (= Central Daylight Time) → hora de verano del centro; (BRIT ). Clarke American's financial results for the quarter are also included in the Quarterly Report filed on Form 10-Q with the SEC today by M & F Worldwide Corp. (NYSE NYSE See: New York Stock Exchange :MFW MFW Main Feedwater MFW Mid Florida Wrestling MFW Media Firewall MFW Medical Women's Federation MFW Mannell Flower Waples (Sydney, Australia. Grunge-Jazz band) ), which is the indirect parent company of Clarke American. For more information about the business of M & F Worldwide and Clarke American, please see their other filings with the SEC, including Clarke American's prospectus A document, notice, circular, advertisement, letter, or communication in written form or by radio or television that offers any security for sale, or confirms the sale of any security. filed on May 2, 2006 and M & F Worldwide's Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended December December: see month. 31, 2005. For the three months ended June 30, 2006, Clarke American's consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: revenues increased to $156.2 million, compared with $152.8 million in the second quarter of 2005. This improvement reflected a 3.3% increase in revenues per unit, partially offset by a 1.0% decrease in unit volume. Clarke American's net income(1) decreased to $3.9 million from $6.9 million in the 2005 period. The decrease in net income was primarily due to increased interest expense due to acquisition-related financing resulting from Clarke American being acquired by M & F Worldwide. Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become (2) increased 4.1% to $35.7 million, compared to $34.3 million in the 2005 period. Adjusted EBITDA is a non-GAAP measure that is defined in the footnotes to this release and which is reconciled rec·on·cile v. rec·on·ciled, rec·on·cil·ing, rec·on·ciles v.tr. 1. To reestablish a close relationship between. 2. To settle or resolve. 3. to net income, the most directly comparable GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). measure, in the accompanying ac·com·pa·ny v. ac·com·pa·nied, ac·com·pa·ny·ing, ac·com·pa·nies v.tr. 1. To be or go with as a companion. 2. financial tables. For the six months ended June 30, 2006, Clarke American's consolidated revenues increased to $319.1 million, compared with $307.2 million in the pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma 2005 period. The 3.9% increase in revenues for the six months ended June 30, 2006 was primarily attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to a 3.5% increase in revenues per unit and a 0.3% increase in unit volume. Net income decreased to $10.3 million from $17.9 million in the pro forma 2005 period. The decrease in net income was primarily due to increased interest expense due to acquisition-related financing and increases in non-cash expenses Noun 1. non-cash expense - an expense (such as depreciation) that is not paid for in cash disbursal, disbursement, expense - amounts paid for goods and services that may be currently tax deductible (as opposed to capital expenditures) that resulted from the purchase accounting adjustments (increases in depreciation and amortization) resulting from Clarke American being acquired by M & F Worldwide. Adjusted EBITDA increased 12.8% to $75.7 million, compared to $67.1 million in the pro forma 2005 period. Revenues from the Financial Institution division increased 2.2% to $131.9 million in the three months ended June 30, 2006, compared to $129.1 million in the 2005 period. This growth was driven by a 2.9% increase in revenues per unit, partially offset by a 0.7% decrease in unit volume. Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. increased 35.0% to $18.9 million, compared to $14.0 million in the 2005 period. The improvement to operating income is primarily attributable to a $4.2 million decrease in non-cash expenses related to fair value adjustments as a result of being acquired. Revenues from the Direct to Consumer division increased 2.5% to $24.3 million in the three months ended June 30, 2006, compared to $23.7 million in the 2005 period. This improvement was driven by a 7.1% increase in revenues per unit, partially offset by a 4.2% decline in unit volume. Operating income increased to $2.1 million, compared to a loss of $0.1 million in the 2005 period. The improvement to operating income is primarily attributable to a $1.8 million decrease in non-cash expenses related to fair value adjustments as a result of being acquired. For the six months ended June 30, 2006, revenues from the Financial Institution division increased 3.8% to $268.5 million, compared to $258.7 million in the pro forma 2005 period. Operating income increased to $41.0 million, compared to $34.7 million in the pro forma 2005 period. Revenues from the Direct to Consumer division increased 4.3% to $50.6 million in the period, compared to $48.5 million in the pro forma 2005 period. Operating income increased to $5.1 million, compared to $3.3 million in the pro forma 2005 period. Clarke American will hold a conference call to discuss its second quarter 2006 results on Wednesday, August 16, 2006 at 9:30 a.m. EDT (8:30 a.m. CDT). The conference call will be accessible by dialing 800-553-0329 or 651-291-0618 or via live webcast at www.clarkeamerican.com. To access the webcast, click on "Company Information" and then "Earnings Call." A copy of this press release will be available under the "Press Releases" section of the Clarke American website at www.clarkeamerican.com. For those unable to listen live, a replay of the call will be available by dialing 800-475-6701 (access code 838532) or 320-365-3844 (access code 838532) after 12:00 p.m. CDT, Wednesday, August 16th through Wednesday, August 23rd. About Clarke American Clarke American Corp. is one of the three leading providers of checks, related products and services in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. based on revenues, and is a leading provider of direct marketing services to financial institutions. Clarke American Corp. serves financial institutions through the Clarke American and Alcott Routon brands and serves consumers and businesses directly through the Checks In The Mail and B2Direct brands. Clarke American Corp. is an indirect wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. of M & F Worldwide Corp., a holding company that, in addition to Clarke American, wholly owns Mafco Worldwide Corporation, which is the world's largest producer of licorice licorice (lĭk`ərĭs, –rĭsh), name for a European plant (Glycyrrhiza glabra) of the family Leguminosae (pulse family) and for the sweet substance obtained from the root. extracts and related products. Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. This press release contains forward-looking statements that reflect management's current assumptions and estimates of future performance and economic conditions, which are forward-looking statements within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. These statements are subject to a number of risks and uncertainties, many of which are beyond Clarke American's control. All statements other than statements of historical facts included in this press release, including those regarding Clarke American's strategy, future operations, financial position, estimated revenues, projected costs, projections, prospects, plans and objectives of management, are forward-looking statements. When used in this press release, the words "believes," "anticipates," "plans," "expects," "intends," "estimates" or similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this press release. Although Clarke American believes that its plans, intentions and expectations reflected in or suggested by the forward-looking statements made in this press release are reasonable, such plans, intentions or expectations may not be achieved. The factors which may cause Clarke American's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied Inferred from circumstances; known indirectly. In its legal application, the term implied is used in contrast with express, where the intention regarding the subject matter is explicitly and directly indicated. by the forward-looking statements contained in this press release include: 1) Clarke American's substantial indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. ; 2) covenant covenant (kŭv`ənənt), agreement entered into voluntarily by two or more parties to do or refrain from doing certain acts. In the Bible and in theology the covenant is the agreement or engagement of God with man as revealed in the restrictions under Clarke American's indebtedness that may limit its ability to operate its business and react to market changes; 3) the maturity of the principal industry in which Clarke American operates and trends in the paper check industry, including a faster than anticipated decline in check usage due to increasing use of alternative payment methods and other factors; 4) consolidation among financial institutions; 5) adverse changes among the large financial institution clients on which Clarke American depends, resulting in decreased revenues; 6) intense competition in all areas of Clarke American's business; 7) Clarke American's costs as a stand-alone company stand-alone company An independent operating firm. For example, a large diversified firm may consider spinning off a subsidiary because, as a stand-alone company, the subsidiary would command a higher price-earnings ratio than the parent. ; and 8) interruptions or adverse changes in Clarke American's supplier relationships, technological capacity, intellectual property matters, and applicable laws. You should read carefully the factors described in Item 1A of the Annual Report (which is included as an exhibit to M & F Worldwide's Current Report on Form 8-K Form 8-K The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock. Form 8-K See 8-K. furnished fur·nish tr.v. fur·nished, fur·nish·ing, fur·nish·es 1. To equip with what is needed, especially to provide furniture for. 2. to the SEC on April 3, 2006 and the Clarke American's Prospectus filed with the SEC on May 2, 2006) for a description of risks that could, among other things, cause actual results to differ from these forward-looking statements. Non-GAAP Financial Measures In this release, Clarke American presents certain adjusted financial measures that are not calculated according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting in the United States ("GAAP"). These non-GAAP financial measures are designed to complement the GAAP financial information presented in this release because management believes they present information regarding Clarke American that management believes is useful to investors. The non-GAAP financial measures presented should not be considered in isolation from or as a substitute for the comparable GAAP financial measure. EBITDA represents net income before interest income and expense, income taxes, depreciation and amortization (other than amortization related to prepaid pre·pay tr.v. pre·paid, pre·pay·ing, pre·pays To pay or pay for beforehand. pre·pay  ment n. rebates). Clarke American presents EBITDA because it
believes it is an important measure of its performance and believes it
is frequently used by securities analysts, investors and other
interested parties in the evaluation of companies in Clarke
American's industry.Clarke American believes EBITDA provides useful information with respect to its ability to meet its future debt service, capital expenditures, working capital requirements Capital requirements Financing required for the operation of a business, composed of long-term and working capital plus fixed assets. and overall operating performance although EBITDA should not be considered as a measure of liquidity. In addition, Clarke American utilizes EBITDA when interpreting in·ter·pret v. in·ter·pret·ed, in·ter·pret·ing, in·ter·prets v.tr. 1. To explain the meaning of: interpreted the ambassador's remarks. See Synonyms at explain. operating trends and results of operations of its business. Clarke American also uses EBITDA for the following purposes: Clarke American's senior credit facilities credit facilities npl → facilidades fpl de crédito credit facilities npl → facilités fpl de paiement credit facilities use EBITDA (with additional adjustments) to measure compliance with covenants such as interest coverage and debt incurrence In`cur´rence n. 1. The act of incurring, bringing on, or subjecting one's self to (something troublesome or burdensome); as, the incurrence of guilt, debt, responsibility, etc. s> Noun 1. . Clarke American's executive compensation is based on EBITDA (with additional adjustments) performance measured against targets. EBITDA is also widely used by Clarke American and others in its industry to evaluate and price potential acquisition candidates. EBITDA has limitations as an analytical analytical, analytic pertaining to or emanating from analysis. analytical control control of confounding by analysis of the results of a trial or test. tool, and it should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. See below for a description of these limitations. Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to Clarke American to invest in the growth of its business. In addition, in evaluating EBITDA, you should be aware that in the future Clarke American may incur To become subject to and liable for; to have liabilities imposed by act or operation of law. Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. expenses such as those excluded in calculating it. Clarke American's presentation of this measure should not be construed as an inference (logic) inference - The logical process by which new facts are derived from known facts by the application of inference rules. See also symbolic inference, type inference. that its future results will be unaffected by unusual or nonrecurring Non`re`cur´ring a. 1. Nonrecurrent; as, the costs of a layoff are considered as a nonrecurring expense s>. items. EBITDA has limitations as an analytical tool, and it should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP. Some of these limitations are: --it does not reflect Clarke American's cash expenditures, future requirements for capital expenditures or contractual commitments; --it does not reflect changes in, or cash requirements for, Clarke American's working capital needs; --it does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on Clarke American's debt; --although depreciation and amortization are noncash charges Noncash charge A cost, such as depreciation, depletion, and amortization, that does not involve any cash outflow. That is, this is treated as an accounting expense -- not a real expense that demands cash. , the assets being depreciated Depreciated may refer to:
--it is not adjusted for all non-cash income or expense items that are reflected in Clarke American's statements of cash flows; and --other companies in Clarke American's industry may calculate EBITDA differently from Clarke American, limiting its usefulness as a comparative measure. Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of Clarke American's business or as a measure of cash that will be available to Clarke American to meet its obligations. You should compensate for these limitations by relying primarily on Clarke American's GAAP results and using EBITDA only supplementally. Clarke American presents Adjusted EBITDA as a further supplemental measure of its performance. Clarke American prepares Adjusted EBITDA by adjusting EBITDA to reflect the impact of a number of items it does not consider indicative indicative: see mood. of Clarke American's ongoing operating performance. Such items include restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). costs, certain non-operational items, stock-based compensation, group management fees charged by our former parents, certain stand-alone (jargon) stand-alone - Capable of operating without other programs, libraries, computers, hardware, networks, etc. Exactly what is absent is presumed to be obvious from context. "We only run Windows on stand-alone PCs because it's too dangerous to run it on networked ones." costs, an earnout Earnout A contractual provision stating that the seller of a business is to obtain additional future compensation based on the business achieving certain future financial goals. Notes: The financial goals are usually stated as a percentage of gross sales or earnings. related to our Alcott Routon acquisition and other non-cash adjustments. You are encouraged to evaluate each adjustment and the reasons Clarke American considers them appropriate for supplemental analysis. As an analytical tool, Adjusted EBITDA is subject to all of the limitations applicable to EBITDA. In addition, in evaluating Adjusted EBITDA, you should be aware that in the future, Clarke American may incur expenses, including cash expenses, similar to the adjustments in this presentation. Clarke American's presentation of Adjusted EBITDA should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items.
Notes
(1) Although Clarke American was not a separate stand-alone company
during the six months ended June 30, 2005, the accompanying
financial statements have been prepared as if Clarke American had
existed as a separate stand-alone company for such period. The
financial information presented may not reflect the combined
financial position, operating results and cash flows of Clarke
American had it been a separate stand-alone entity during the six
months ended June 30, 2005. As a result of the acquisition by M &
F Worldwide and the resulting change in ownership, Clarke
American's operating results for the six months ended June 30,
2006, the three months ended June 30, 2005 and the three months
ended March 31, 2005 are presented as "Successor," "Predecessor
(Honeywell)" and "Predecessor (Novar)" respectively:
Clarke American Corp. and Subsidiaries
Consolidated Statements of Income
(in millions)
(unaudited)
Predecessor
Successor (Honeywell)
------------- --------------
Three Months Three Months
Ended Ended
June 30, June 30,
2006 2005
------------ -------------
Net revenues $ 156.2 $ 152.8
Cost of revenues 96.7 102.6
------------ -------------
Gross profit 59.5 50.2
Selling, general and administrative
expenses 38.5 36.3
------------ -------------
Operating income 21.0 13.9
Interest income -- 0.2
Interest expense (14.6) (2.6)
------------ -------------
Income before income taxes 6.4 11.5
Provision for income taxes (2.5) (4.6)
------------ -------------
Net income $ 3.9 $ 6.9
============ =============
Predecessor Predecessor Predecessor
Successor (Combined) (Honeywell) (Novar)
----------- ----------- ----------- -----------
Six Months Six Months
Ended Ended April 1 - January 1 -
June 30, June 30, June 30, March 31,
2006 2005 2005 2005
---------- ---------- ---------- ----------
Net revenues $ 319.1 $ 307.2 $ 152.8 $ 154.4
Cost of revenues 197.4 193.7 102.6 91.1
---------- ---------- ---------- ----------
Gross profit 121.7 113.5 50.2 63.3
Selling, general and
administrative
expenses 75.6 75.5 36.3 39.2
---------- ---------- ---------- ----------
Operating income 46.1 38.0 13.9 24.1
Interest income -- 0.3 0.2 0.1
Interest expense (29.2) (8.3) (2.6) (5.7)
---------- ---------- ---------- ----------
Income before income
taxes 16.9 30.0 11.5 18.5
Provision for income
taxes (6.6) (12.1) (4.6) (7.5)
---------- ---------- ---------- ----------
Net income $ 10.3 $ 17.9 $ 6.9 $ 11.0
========== ========== ========== ==========
(2) The following tables are a reconciliation of net income to EBITDA
and EBITDA to Adjusted EBITDA for the periods indicated
(unaudited):
Predecessor
Successor (Honeywell)
------------- -------------
Three Months Three Months
Ended Ended
June 30, June 30,
2006 2005
------------ ------------
(unaudited, in millions)
Net income $ 3.9 $ 6.9
Interest expense, net 14.6 2.4
Provision for income taxes 2.5 4.6
Depreciation and amortization 13.6 14.7
------------ ------------
EBITDA $ 34.6 $ 28.6
Adjustments:
Restructuring (a) 0.9 0.4
Group management fees (b) -- 0.3
Stand-alone costs (c) -- (0.7)
Alcott Routon earnout (d) 0.2 0.9
Impact of purchase accounting
adjustments (f) -- 4.8
------------- ------------
Adjusted EBITDA $ 35.7 $ 34.3
Predecessor Predecessor Predecessor
Successor (Combined) (Honeywell) (Novar)
----------- ----------- ----------- -----------
Six Months Six Months
Ended Ended April 1 - January 1 -
June 30, June 30, June 30, March 31,
2006 2005 2005 2005
---------- ---------- ---------- ----------
(unaudited, in millions)
Net income $ 10.3 $ 17.9 $ 6.9 $ 11.0
Interest expense, net 29.2 8.0 2.4 5.6
Provision for income
taxes 6.6 12.1 4.6 7.5
Depreciation and
amortization 27.2 20.4 14.7 5.7
---------- ---------- ---------- ----------
EBITDA $ 73.3 $ 58.4 $ 28.6 $ 29.8
Adjustments:
Restructuring (a) 0.9 0.8 0.4 0.4
Group management
fees (b) -- 0.3 0.3 --
Stand-alone costs (c) -- (1.4) (0.7) (0.7)
Alcott Routon
earnout (d) 0.4 0.9 0.9 --
Amortization of
tenant finishout
allowances (e) -- (0.3) -- (0.3)
Impact of purchase
accounting
adjustments (f) 1.1 4.8 4.8 --
Non-operational
items (g) -- 0.2 -- 0.2
Stock-based
compensation (h) -- 3.4 -- 3.4
---------- ---------- ---------- ----------
Adjusted EBITDA $ 75.7 $ 67.1 $ 34.3 $ 32.8
(a) Reflects restructuring expenses, including adjustments, recorded
in accordance with GAAP, consisting primarily of severance,
post-closure facility expenses and other related expenses.
(b) Group management fees were charged for services rendered by
previous parent company.
(c) The adjustment to the three and six month periods ended June 30,
2005 reflects management estimates of additional costs as if
Clarke American had operated as a separate, stand-alone entity
during such period including costs to operate as a stand-alone
public entity, replace the legal, tax, risk management and other
services provided by Clarke American's former parent companies and
adjust the compensation of certain executives who, in connection
with the acquisition by M & F Worldwide, have entered into
employment agreements that became effective upon the completion of
such acquisition.
(d) Reflects charges incurred under an earnout arrangement recorded as
SG&A expense resulting from the 2004 purchase of Alcott Routon,
Inc. Approximately $1.9 million out of a maximum $3.0 million was
accrued but not paid in 2005. Management estimates the remainder
to be accrued in 2006 and 2007. The terms of the agreement call
for all earned amounts to be paid in 2007.
(e) Reflects the amortization of deferred liabilities resulting from
capitalized leasehold improvements paid for by landlords.
(f) Reflects the negative effect on net income primarily from the fair
value inventory adjustment related to purchase accounting.
(g) Reflects gain/loss on non-ordinary course sales of fixed assets
and sublease income related to facilities Clarke American has
closed.
(h) Reflects non-cash charges incurred due to the accelerated vesting
of stock options held by certain members of senior management
under a plan terminated in March 2005. No officer or director
currently owns any options or shares of Clarke American.
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