-- Net sales decreased to $18.5 million for the second quarter of
2006, down 16.8% from $22.2 million for the second quarter of 2005.
Net sales for the first half of 2006 decreased 9.5% to $40.9
million, from $45.2 million for the same period last year. CHICAGO
HEIGHTS, Ill., Aug. 14 /PRNewswire-FirstCall/ -- Worldwide
holographic and specialty coated film manufacturer, CFC
International, Inc. (NASDAQ:CFCI), today reported results for the
second quarter of 2006. Net sales for the second quarter 2006
decreased 16.8% to $18.5 million, compared to $22.2 million in the
second quarter of 2005. This decrease in sales is primarily due to
lower sales volume in the Company's holographic products, security
products and printed products as compared to the same period last
year. In the second quarter of 2005, the Company experienced strong
sales growth in its holographic security products with the
introduction of a holographic magnetic stripe that it had been
providing to credit card manufacturers. As previously reported, in
March 2006, Visa issued a directive to its member financial
institutions and authorized credit card manufacturers to cease
producing and issuing Visa credit cards incorporating this
holographic magnetic stripe due to reported electro-static
discharge ("ESD") anomalies. As a result of this directive, sales
in the second quarter of 2006 for this security product were
approximately $46,000, compared to $1.7 million in the second
quarter of 2005. The Company, in conjunction with American Bank
Note Holographics, has recently developed a newer version of this
magnetic stripe, which the Company believes will significantly
reduce ESD. Operating income for the second quarter of 2006
decreased to a loss of $1.7 million, compared to income of $1.5
million for the second quarter of 2005. The operating loss of $1.7
million in the second quarter of 2006 includes $708,000 of
transaction costs associated with the Company's pending merger with
an affiliate of Illinois Tool Works Inc., $195,000 of legal fees
associated with the enforcement of employment agreements with
former employees and additional environmental settlement costs of
$75,000. The second quarter of fiscal 2005 included $434,000
related to transaction costs associated with a terminated agreement
for the sale of the Company. In this release, the term "operating
income (loss) excluding certain costs" refers to operating income
(loss) computed in accordance with U.S. generally accepted
accounting principles ("GAAP"), excluding the transaction costs,
legal fees and environmental settlement costs described above.
Management believes that this information is of interest to
investors and facilitates more useful period-to-period comparisons
of the Company's financial results. Operating loss excluding
certain costs in the second quarter of 2006 was $725,000, compared
to operating income excluding certain costs of $2.0 million for the
second quarter of fiscal 2005. Operating income (loss) excluding
certain costs is a non-GAAP financial measure. A reconciliation of
operating income (loss) excluding certain costs to GAAP operating
income (loss) is included in the tables following this press
release. Net income decreased to a loss of ($1.1) million, or
($0.25) cents per share on a fully diluted basis for the second
quarter of 2006, compared to net income of $498,000 or $0.11 cents
per share on a fully diluted basis, in the second quarter of 2005.
The change in net (loss) between net income in the second quarter
of 2006 and 2005 was attributable to unfavorable sales volume as
reported above, rising energy, freight and labor costs, and an
increase in costs incurred during the quarter, offset by a
favorable currency change of $417,000 (after taxes). "The second
quarter of 2006 proved to be a challenge as we faced a radical
downturn in the demand of our holographic security products due to
the Visa directive, as compared to the same period in 2005," said
Greg Jehlik, CFC's Chief Executive Officer and President. "As a
result, the Company continues to reduce costs and remains focused
on our initiatives to grow sales, and we are confident that we will
achieve positive financial results during the second half of 2006."
Sales for the first six months of 2006 totaled $40.9 million, a
decrease of 9.5%, compared to $45.2 million for the same period
last year. Sales for the first half of 2006 were adversely affected
by decreased sales of the Company's holographic and security
products as compared to the same period last year, offset by
$456,000 due to strengthening of the Euro compared to the U.S.
Dollar. Operating income for the first half of 2006 decreased 96.2%
to $163,000, compared to $4.3 million in the first half of 2005.
Operating income of $163,000 in the first half of 2006 includes
$1.2 million of merger transaction costs, $227,000 of legal fees
associated with the enforcement of employment agreements with
former employees and additional environmental settlement costs of
$75,000. The first half of fiscal 2005 included $434,000 related to
transaction costs associated with a terminated agreement for the
sale of the Company. Operating income (loss) excluding certain
costs, which excludes these costs as described above, was $1.6
million for the first half of 2006, compared to operating income
excluding certain costs of $4.7 million for the first half of
fiscal 2005. Net income for the first half of 2006 decreased to
$22,000, or $0.01 per share on a fully diluted basis, compared to
net income of $2.0 million or $0.43 per share on a fully diluted
basis for the first half of 2005. The change in net income for the
first half of 2006 compared to 2005 was attributable to reduced
sales volume, and an increase in costs incurred during the first
half as noted above, offset by a favorable currency change of
$686,000 (after taxes). "CFC's operating results for the first half
of the year were impacted by merger transaction expenses, legal
fees and settlement costs for an environmental liability, along
with the weakened demand of our holographic security products due
to the Visa directive, which adversely affected our holographic
sales, and lower volumes in security products as compared to the
same period of 2005," said Roger Hruby, CFC's Chairman. "That being
said, I am pleased to announce that CFC entered into an agreement
with American Bank Note Holographics on July 26, 2006, to produce a
'generation two' holographic magnetic stripe product, which we
believe significantly reduces electro-static discharge, and that we
have recently received orders for this newer version product."
Recent Developments As previously announced, on June 19, 2006, the
Company entered into a definitive agreement to be acquired by an
affiliate of Illinois Tool Works Inc. (NYSE:ITW) for $16.75 in cash
per share. The Company has filed with the Securities Exchange
Commission, and mailed to its stockholders, an Information
Statement describing the proposed transaction, and is working
towards completion of the transaction. Closing is currently
expected to occur in the third quarter of 2006. The Company will be
exhibiting at the International Woodworking Machinery &
Furniture Supply Fair 2006 Show (IWF) at the Georgia World Congress
Center in Atlanta, Georgia in Booth #3437 in Building A on August
23-26, 2006 where it will feature its printed patterned products.
About CFC International, Inc. 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 are attached. Statements made in this press release,
including those relating to expectations of future sales, net
income and operating costs reductions, the proposed merger with an
affiliate of Illinois Tool Works Inc. 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 (including fuel prices) 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 Six Months Ended June 30, June 30,
2006 2005 2006 2005 Net sales $18,487 $22,228 $40,906 $45,216 Cost
of goods (excluding depreciation and amortization shown below)
13,468 14,549 28,120 28,952 Operating expenses 4,796 4,550 9,051
9,176 Depreciation and amortization 1,218 1,169 2,411 2,344
Transaction fees 708 434 1,161 434 Operating (loss) income (1,703)
1,526 163 4,310 Operating (loss) income % 9% 7% 0.4% 9% Interest
expense 273 269 544 548 Interest income (63) (4) (102) (9) Interest
rate swap valuation provision (benefit) 1 34 (7) (32) Other Income
(rental income) (4) (35) (9) (68) Foreign currency exchange (gain)
loss (159) 488 (298) 765 (Loss) income before income taxes (1,751)
774 35 3,106 (Benefit) provision for income taxes (622) 276 13
1,108 Net (loss) income ($1,129) $498 $22 $1,998 Diluted weighted
average number of shares outstanding 4,616 4,634 4,627 4,629
Diluted (loss) earnings per share ($0.25) $0.11 $0.01 $0.43 SUMMARY
OF INTERNATIONAL SALES (In thousands, except international sales
Three Months Ended Six Months Ended percentage) June 30, June 30,
2006 2005 2006 2005 International sales ($) $10,608 $10,091 $20,713
$20,720 International sales (%) 57% 45% 51% 46% RECONCILIATION OF
OPERATING (LOSS) INCOME TO OPERATING (LOSS) INCOME EXCLUDING
CERTAIN ITEMS Three Months Ended Six Months Ended June 30, June 30,
(In thousands) 2006 2005 2006 2005 Operating (loss) income ($1,703)
$1,526 $163 $4,310 Transaction expenses 708 434 1,161 434
Environmental liability expenses 75 - 75 - Legal expenses -
enforcement of employment agreements 195 - 227 - Operating (loss)
income excluding the above items ($725) $1,960 $1,626 $4,744 CFC
INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS AT JUNE
30, 2006 AND DECEMBER 31, 2005 June 30, December 31, 2006 2005
ASSETS Cash and cash equivalents $4,521,758 $5,013,772 Restricted
cash 471,596 365,683 Accounts receivable, less allowance for
doubtful accounts 13,249,207 14,188,067 Inventories 17,358,347
17,319,347 Other current assets 2,374,011 2,014,790 Total current
assets 37,974,919 38,901,659 Property, plant and equipment, net
26,003,159 26,300,422 Deferred income taxes 2,456,870 2,129,417
Intangible assets, net 2,038,815 2,157,032 Other assets 214,194
214,194 Fair value of interest rate swap 118,104 110,950 Goodwill
1,029,462 1,029,462 Total assets $69,835,523 $70,843,136
LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of long-term
debt $6,412,224 $6,412,224 Accounts payable and accrued expenses
11,409,949 13,695,493 Total current liabilities 17,822,173
20,107,717 Deferred income taxes 2,532,675 2,558,294 Long-term debt
13,045,338 12,824,896 Total liabilities 33,400,186 35,490,907
Stockholders' equity 36,435,337 35,352,229 Total liabilities and
stockholders' equity $69,835,523 $70,843,136 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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