CFCI Cfc

-- Record year end sales of $90.4 million, up 10 percent over $82.6 million in 2004. CHICAGO HEIGHTS, Ill., April 17 /PRNewswire-FirstCall/ -- Worldwide holographic and specialty coated film manufacturer, CFC International, Inc. (NASDAQ:CFCI) today reported record sales for the fourth quarter and year end of 2005. Sales in the fourth quarter of 2005 increased 7 percent to $22.0 million compared to $20.7 million in the fourth quarter of 2004. The fourth quarter 2005 increase in sales was primarily due to an increase in printed pattern products sales, offset by an unfavorable currency exchange loss of $510,000. Fourth quarter 2005 net income decreased to a loss of ($455,000), or ($0.10) cents per share on a fully diluted basis, compared to net income for the fourth quarter of 2004 of $858,000 or $0.19 cents per share on a fully diluted basis. The 2005 fourth quarter decrease in net income was primarily due to transaction expenses in the amount of $327,000 (after taxes) associated with the terminated merger agreement, and $484,000 of additional income taxes to adjust our effective tax rate and provide for U.S. income tax on foreign income. The fourth quarter 2005 also included a provision of $351,000 (after tax) as a result of the Visa announcement described below, and accounts receivable reserves of $252,000 (after tax). Excluding the effects of the above, the fourth quarter of 2005 net income would have increased 12 percent to $959,000, or $0.21 earnings per share on a fully diluted basis, compared to net income of $858,000, or $0.19 for the fourth quarter of 2004. "CFC delivered another solid quarter with sales increasing 7 percent over the same period last year," said Greg Jehlik, CFC's President and Chief Executive Officer. "This is a direct result of the dedicated and talented employees we have around the world whose efforts continue to drive growth in the markets that we serve, and stay focused on our long-term strategic initiatives." Operating income before depreciation and amortization of intangibles was $1.6 million in the fourth quarter of 2005, a decrease of 13 percent compared with $1.8 million in the fourth quarter of 2004. This decrease was primarily due to the benefits of higher sales, offset by higher material costs and scrap during the fourth quarter of 2005, as well as transaction expenses associated with the terminated merger agreement and provisions as a result of the VISA announcement. Sales for the year of 2005 totaled $90.4 million, an increase of 10 percent from $82.6 million for the same period last year. The 2005 sales increase was a result of higher sales volume in most of the Company's core product groups. In particular, the Company had strong sales in its printed patterned products, security products, pharmaceutical products and holographics, in packaging, security and authenticity. Net income for the year decreased to $3.0 million, or $0.65 per share on a fully diluted basis in 2005, from net income of $4.0 million or $0.90 per share on a fully diluted basis for the same period last year. Net income for the year end 2005 was adversely affected by transaction expenses of $654,000 (after taxes) associated with the terminated merger agreement, $484,000 of additional income taxes to adjust our effective tax rate and provide for the U.S. income tax on foreign income, a provision of $351,000 (after tax) as a result of the Visa announcement, and accounts receivable reserves of $252,000 (after tax). Excluding the effect of these items, net income for the year would have increased 18 percent to $4.7 million, or $1.03 earnings per share on a fully diluted basis, compared to net income of $4.0 million, or $0.90 earnings per share on a fully diluted basis for the year end 2004. Operating income before depreciation and amortization of intangibles for the year increased 14 percent to $11.8 million in 2005, from $10.4 million in 2004 for the reasons described above. "We are pleased to report that CFC produced record sales in 2005," said Roger Hruby, CFC's Chairman. "Looking at the year as a whole, we achieved growth in most of our core businesses, both domestically and internationally, while meeting the challenges of rising raw material and energy costs. In addition, excluding the effects of the transaction expenses associated with the terminated merger, income taxes to adjust the Company's effective tax rate, and the recording of additional reserves, net income would have increased 18 percent for the year ended 2005 over the same period last year. Hruby further added, "Although fiscal year 2006 looks to be somewhat challenging, particularly as we resolve the issues raised by Visa International, we remain focused on our goal of providing our customers with value-added, quality products and superior service. We are a results-oriented organization and we expect to continue to achieve further long-term growth and profitability." The Company had been working to complete its merger with an affiliate of Quad-C Management, Inc. pursuant to an agreement and plan of merger executed January 9, 2006 and expected to complete the merger in the first quarter, subject to Quad-C's receipt of financing which was a condition of the obligation of the Quad-C affiliate to complete the merger. However, as a result of the Visa directive described below, Quad-C's financing source requested (and the Company provided) additional information concerning the ESD problems identified by Visa. After considering the Company's proposed response to the identified ESD problems and the effects on the Company's results of operations, as well as other financial information provided by the Company, Quad-C notified the Company after the close of business on March 29, 2006 that Quad-C's financing source was unable to address its concerns and as a result the financing condition to Quad-C's obligation to complete the merger would not be satisfied. As a result, the parties determined that the merger could not occur under the terms of the merger agreement and terminated that agreement on March 30, 2006. The Company filed a Form 8-K with respect to the termination on April 3, 2006. On March 14, 2006, Visa International announced that it had directed its member financial institutions and authorized card manufacturers to cease producing and issuing Visa cards incorporating a certain holographic magnetic stripe that is provided to Visa by American Bank Note Holographics, Inc. ("ABNH"). This directive came as a result of a small number of incidents (approximately 2 errors per 1,000,000 reads) in which Visa believes card terminals had been affected by electro-static discharge ("ESD") from static electricity when using cards incorporating this holographic magnetic stripe. ABNH purchases the holographic magnetic stripe its sells to its customers, including Visa, from the Company. The Company has been attempting to obtain and analyze all relevant information relating to the Visa directive, and assess its impact on the Company and its operations. The Company has spoken with ABNH and Visa representatives, and has conducted its own product tests in order to assess the ESD issues identified in the Visa directive. The Company and ABNH have developed a second generation of the holographic magnetic stripe which they believe will address the ESD problem. Product testing and refinement continues, but the second generation of the holographic magnetic stripe has not yet been submitted to Visa for its review and approval. There can be no assurance that the second generation of the holographic magnetic stripe can be successfully developed or that, if developed, that it will meet the requirements of Visa and other card providers. If the Company and ABNH are unable to meet the requirements of Visa and other card providers for the holographic magnetic stripe, the loss of sales associated with this holographic magnetic stripe could have a material adverse effect on the Company's results of operations and financial condition. Sales of the subject holographic magnetic stripe by the Company to ABNH in fiscal 2005 represented 5% of the Company's net sales. Other credit card companies including MasterCard, American Express and Diner's Club continue to utilize the holographic magnetic stripe on their credit cards. The Company had anticipated completing the merger and de-registering under the Exchange Act prior to March 31, 2006, and consequently would not have been required to file its Annual Report on Form 10-K for the year ended December 31, 2005 ("2005 Form 10-K"). As a result of the termination of the merger the Company will file its 2005 Form 10-K, however, the Company is filed a Form 12b-25 on March 31, 2006 to extend the filing date of the Company's 2005 Form 10-K . The Company expects to file its Form 10-K on April 17, 2006. Based upon the Company's results and factoring in the current economic outlook, the Company anticipates earning net income of $0.90 to $1.00 cents per share on a fully diluted basis for 2006 utilizing a 35.5% tax rate. Recent Developments The Company will be exhibiting at the upcoming CardTech/SecurTech (CTST) 2006 show at the Moscone Center in San Francisco, California, May 2-4, 2006 in Booth #829, where it will feature its card products, such as HoloLam Plus, magnetic stripe, signature panel, security holograms, scratch-off foils and tipping foils for transaction cards. Headquartered in Chicago Heights, Illinois, CFC International is a market leader in the design, manufacture and marketing of holographics and specialty functional coatings that add value to a wide variety of industrial and consumer products. The Company operates facilities in Chicago Heights and Countryside, Illinois; London, England; and Goppingen, Germany. A condensed consolidated balance sheet and statement of operations is attached. Statements made in this press release, including those relating to expectations of future sales, net income and operating costs reductions, estimated availability of additional equipment, estimations of the market size for certain of the company's products or the company's share of those markets and expectations of increased sales attributable to various product lines, are forward looking and are made pursuant to the safe harbor provisions of the Securities Reform Act of 1995. Such statements involve risks and uncertainties which may cause results to differ materially from those set forth in those statements. Among other things, continued unfavorable economic conditions may impact market growth trends or otherwise impact the demand for the company's products and services; competition from existing and new competitors and producers of alternative products will impact the company's ability to penetrate or expand its presence in new or growing markets; uncertainties relating to the company's ability to develop and distribute new proprietary products to respond to market needs in a timely manner may impact the company's ability to exploit new or growing markets; the Company's ability to successfully identify and implement productivity improvements and cost reduction initiatives may impact profitability; and risks inherent in international operations, including possible economic, political or monetary instability, may impact the level and profitability of the company's foreign sales. In addition to the factors set forth in this release, the economic, competitive, governmental, technological and other factors identified in the company's filings with the Securities and Exchange Commission, could affect the forward looking statements contained in this press release. We have no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this press release or to reflect the occurrence of anticipated events. You may access additional information, including our filings with the Securities and Exchange Commission and previous press releases by visiting CFC International's Internet homepage at http://www.cfcintl.com/ . CFC INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Earnings Per Share and Operating Income Percentage) Three Months Ended Year Ended December 31, December 31, 2005 2004 2005 2004 Net Sales $22,043 $20,659 $90,384 $82,557 Cost of Goods (Excluding Depreciation and Amortization Shown Below) 15,795 14,075 59,903 54,004 Operating Expenses 4,185 4,792 17,651 18,157 Depreciation and Amortization 1,211 984 4,717 4,577 Transaction Expenses 507 - 1,015 - Operating Income 345 808 7,098 5,819 Operating Income % 1.6% 3.9% 7.9% 7.0% Interest Expense 347 238 1,171 1,132 Interest Income (52) (35) (89) (35) Interest Rate Swap Valuation Benefit (5) (40) (71) (87) Rental Income / Other Expense 30 10 (84) (108) Foreign Currency Exchange (Gain)/Loss (18) (650) 756 (940) Income Before Income Taxes 43 1,285 5,415 5,857 Provision for Income Taxes 498 427 2,406 1,847 Net (Loss) Income ($455) $858 $3,009 $4,010 Diluted Weighted Average Number of Shares Outstanding 4,512 4,537 4,621 4,509 Diluted (Loss) Earnings Per Share ($0.10) $0.19 $0.65 $0.90 Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Note 1) $2,063 $1,792 $12,830 $10,396 SUMMARY OF INTERNATIONAL SALES (In Thousands, Except International Sales Percentage) Three Months Ended Year Ended December 31, December 31, 2005 2004 2005 2004 International Sales ($) $9,446 $9,159 $40,230 $38,453 International Sales (%) 42.9% 44.3% 44.5% 46.6% NOTE 1: The Company believes earnings before interest, taxes, depreciation and amortization, rental income, foreign currency exchange (gain)/loss and transaction expenses (adjusted EBITDA) is an appropriate measurement for its business because its enterprise value is more closely aligned with this measurement and because of the continual investment the company makes in long-lived assets. Adjusted EBITDA should not necessarily be considered as an alternative to net income or cash flows from operating activities which are determined in accordance with Generally Accepted Accounting Principles as an indicator of operating performance or as a measure of liquidity. The table that follows reconciles net income to adjusted EBITDA as defined: Three Months Ended Year Ended December 31, December 31, (In Thousands) 2005 2004 2005 2004 Net (loss) income ($455) $858 $3,009 $4,010 Add back (subtract): Income taxes 498 427 2,406 1,847 Interest expense 347 238 1,171 1,132 Interest rate swap valuation (benefit) (5) (40) (71) (87) Rental income 30 10 (84) (108) Interest income (52) (35) (89) (35) Depreciation and amortization 1,211 984 4,717 4,577 Foreign currency exchange (gain)/loss (18) (650) 756 (940) Transaction expenses 507 - 1,015 - Adjusted EBITDA $2,063 $1,792 $12,830 $10,396 CFC INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2005 AND DECEMBER 31, 2004 December 31, December 31, 2005 2004 ASSETS Cash and cash equivalents $5,013,772 $4,554,699 Restricted cash 365,683 306,271 Accounts receivable, less allowance for doubtful accounts 14,188,067 12,547,380 Inventories 17,319,347 17,709,138 Other current assets 2,014,790 1,389,790 Total current assets 38,901,659 36,507,278 Property, plant and equipment, net 26,300,422 28,602,311 Deferred income taxes 2,129,417 3,528,686 Intangible assets, net 3,186,494 3,422,928 Other assets 214,194 266,806 Fair value of interest rate swap 110,950 39,553 Total assets $ 70,843,136 $ 72,367,562 LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of long-term debt $ 6,412,224 $ 5,625,085 Accounts payable and accrued expenses 13,695,493 15,314,782 Total current liabilities 20,107,717 20,939,867 Deferred income taxes 2,558,294 3,229,584 Long-term debt 12,824,896 15,698,791 Total liabilities 35,490,907 39,868,242 Stockholders' equity 35,352,229 32,499,320 Total liabilities and stockholders' equity $ 70,843,136 $ 72,367,562 DATASOURCE: CFC International, Inc. CONTACT: Dennis Lakomy, Chief Financial Officer of CFC International, Inc., +1-708-757-2803 Web site: http://www.cfcintl.com/ Company News On-Call: http://www.prnewswire.com/comp/110663.html

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