Clarke American Corp. provided its annual report, containing its
financial results for the three years ended December 31, 2005, to
its creditors as required by its financing arrangements. That
annual report has been furnished to the SEC as an exhibit to a
current report on Form 8-K of M & F Worldwide Corp. (NYSE:MFW)
on April 3, 2006. The 2005 consolidated results discussed below are
pro forma results, giving effect to the acquisition of Clarke
American by M & F Worldwide as if it had occurred on January 1,
2005(1). The 2005 results discussed below represent the arithmetic
combination of all historical periods in the year ended December
31, 2005. Clarke American provides checks, check-related products
and marketing services to financial institutions and individual
customers. On December 15, 2005, M & F Worldwide Corp.
completed the acquisition of Clarke American from Honeywell
International Inc. For more information about the business of M
& F Worldwide, please see its filings with the SEC, including
its annual report on Form 10-K for the year ended December 31,
2005. For the pro forma year ended December 31, 2005, which
includes the periods prior to its acquisition by M & F
Worldwide, Clarke American's consolidated revenues increased to
$618.4 million, compared with $607.6 million for 2004. Clarke
American's net income decreased from $64.4 million in 2004 to $11.8
million in pro forma 2005. The decrease in net income was primarily
due to an increase in cost of sales that resulted from purchase
accounting adjustments (and resulting increases in depreciation and
amortization) related to Clarke American being acquired by M &
F Worldwide and increased interest expense due to
acquisition-related financing. Adjusted EBITDA(2) increased to
$139.5 million in pro forma 2005, compared to $134.9 million in
2004. Adjusted EBITDA is a non-GAAP measure that is defined in the
footnotes to this release and which is reconciled to net income,
the most directly comparable GAAP measure, in the accompanying
financial tables. "Clarke American exceeded expectations in 2005
and successfully completed the process of selling the business,"
said Charles Dawson, President and CEO of Clarke American. "We at
Clarke American look forward to working with our new parent company
well into the future. We believe that working with the support of M
& F Worldwide's management has already enhanced and will
continue to improve our ability to provide the highest quality
product and service offerings to our financial institution partners
and customers." Clarke American will hold a conference call today
at 9:30 a.m. EDT (8:30 a.m. CDT) which will be webcast live at
www.clarkeamerican.com. To access the call, click on "Company
Information" and then "Earnings Call." A copy of the press release
will be available under the "Press Release" section of the Clarke
American website. An archive of the webcast will also be available
at www.clarkeamerican.com from Wednesday, April 12th through
Wednesday, April 19th. About Clarke American Clarke American Corp.
is a leading provider of checks, related products and services, and
marketing services. 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 a wholly
owned subsidiary 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
extracts and related products. Forward-Looking Statements 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 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 by the forward-looking statements contained in this press
release include: 1) Clarke American's substantial indebtedness; 2)
covenant 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; 8) the fact that pro
forma financial results may not be indicative of the future actual
operating results of Clarke American; and 9) 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 furnished as an exhibit to M & F
Worldwide's current report on Form 8-K dated March 31, 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 generally accepted accounting principles 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 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 and overall operating
performance although EBITDA should not be considered as a measure
of liquidity. In addition, Clarke American utilizes EBITDA when
interpreting operating trends and results of operations of its
business. Clarke American also uses EBITDA for the following
purposes: Clarke American's senior credit facilities use EBITDA
(with additional adjustments) to measure compliance with covenants
such as interest coverage and debt incurrence. 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 tool, and you should not consider it
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 expenses such as those excluded in calculating
it. Clarke American's presentation of this measure should not be
construed as an inference that its future results will be
unaffected by unusual or nonrecurring items. EBITDA has limitations
as an analytical tool, and you should not consider it 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, the assets being
depreciated and amortized will often have to be replaced in the
future, and EBITDA does not reflect any cash requirements for such
replacements; -- 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 of Clarke American's ongoing operating
performance. Such items include restructuring costs, certain
non-operational items, stock-based compensation, group management
fees charged by our former parents, certain stand-alone costs, an
earnout 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. -0- *T Notes (1) As a result of the
acquisitions by Honeywell and M & F Worldwide and the resulting
changes in ownership, under GAAP, Clarke American is required to
present separately its operating results for the two predecessor
periods and the successor period in the year ended December 31,
2005. The period during which Clarke American was owned by
Honeywell (April 1, 2005 through December 14, 2005) is presented as
"Predecessor (Honeywell)." The periods prior to Clarke American's
acquisition by Honeywell (the three months ended March 31, 2005 and
the 2004 fiscal year) are presented as "Predecessor (Novar)". The
following table presents Net (Loss) Income on a pro forma basis for
the periods constituting the 2005 annual period: Predecessor
Predecessor Successor (Honeywell) (Novar) --------------
------------ ------------ Period from Three Months Period from
April 1 to Ended December 15 December 14, March 31, to 31, 2005
2005 2005 -------------- ------------ ------------ (dollars in
millions) Consolidated Statements of Income Data
---------------------------- Revenues $24.1 $439.9 $154.4 Operating
Expenses Cost of Revenues 17.4 285.6 91.1 Selling, General and
Administrative Expenses 6.0 100.8 39.2 -------------- ------------
------------ Total Operating Expenses 23.4 386.4 130.3
-------------- ------------ ------------ Operating Income 0.7 53.5
24.1 Interest Expense, net (2.8) (2.4) (5.6) --------------
------------ ------------ (Loss) Income Before Income Taxes (2.1)
51.1 18.5 Benefit (Provision) for Income Taxes 0.8 (20.1) (7.5)
-------------- ------------ ------------ Net (Loss) Income $(1.3)
$31.0 $11.0 ============== ============ ============ Unaudited
Combined Predecessor Unaudited Predecessor and Successor Pro forma
(Novar) -------------- ------------ ------------- Year Ended Year
Ended Year Ended December 31, December 31, December 31, 2005 2005
2004 -------------- ------------ ------------- (dollars in
millions) Consolidated Statements of Income Data
---------------------------- Revenues $618.4 $618.4 $607.6
Operating Expenses Cost of Revenues 394.1 393.5 353.1 Selling,
General and Administrative Expenses 146.0 146.9 147.5
-------------- ------------ ------------- Total Operating Expenses
540.1 540.4 500.6 -------------- ------------ -------------
Operating Income 78.3 78.0 107.0 Interest Expense, net (10.8)
(57.8) (19.1) -------------- ------------ ------------- (Loss)
Income Before Income Taxes 67.5 20.2 87.9 Benefit (Provision) for
Income Taxes (26.8) (8.4) (23.5) -------------- ------------
------------- Net (Loss) Income $40.7 $11.8 $64.4 ==============
============ ============= (2) The following table is a
reconciliation of net (loss) income to EBITDA and EBITDA to
Adjusted EBITDA for the periods indicated (unaudited): Predecessor
Predecessor Successor (Honeywell) (Novar) --------------
------------ ------------ Period from Three Months Period from
April 1 to Ended December 15 December 14, March 31, to 31, 2005
2005 2005 -------------- ------------ ------------ (unaudited,
dollars in millions) Net (Loss) Income $(1.3) $31.0 $11.0 Interest
Expense, net 2.8 2.4 5.6 (Benefit) Provision for Income Taxes (0.8)
20.1 7.5 Depreciation and Amortization 2.2 42.7 5.7 --------------
------------ ------------ EBITDA 2.9 96.2 29.8 Adjustments:
Restructuring Costs(a) -- 1.8 0.4 Non-Operational Items(b) -- (0.1)
0.2 Stock-based Compensation(c) -- -- 3.4 Group Management Fees(d)
-- 0.8 -- Stand-Alone Costs(e) (0.1) (1.9) (0.7) Alcott Routon
Earnout(f) -- 1.9 -- Other Non-Cash Adjustments(g) 1.8 3.1 (0.3)
-------------- ------------ ------------ Adjusted EBITDA $4.6
$101.8 $32.8 ============== ============ ============ Combined
Predecessor Predecessor and Successor Pro Forma (Novar)
-------------- ------------ ------------- Year Ended Year Ended
Year Ended December 31, December 31, December 31, 2005 2005 2004
-------------- ------------ ------------- (unaudited, dollars in
millions) Net (Loss) Income $40.7 $11.8 $64.4 Interest Expense, net
10.8 57.8 19.1 (Benefit) Provision for Income Taxes 26.8 8.4 23.5
Depreciation and Amortization 50.6 54.6 23.3 --------------
------------ ------------- EBITDA 128.9 132.6 130.3 Adjustments:
Restructuring Costs(a) 2.2 2.2 0.7 Non-Operational Items(b) 0.1 0.1
-- Stock-based Compensation(c) 3.4 3.4 5.8 Group Management Fees(d)
0.8 -- 1.7 Stand-Alone Costs(e) (2.7) (0.7) (2.7) Alcott Routon
Earnout(f) 1.9 1.9 -- Other Non-Cash Adjustments(g) 4.6 -- (0.9)
-------------- ------------ ------------- Adjusted EBITDA $139.2
$139.5 $134.9 ============== ============ ============= (a)
Reflects restructuring expenses, including adjustments, recorded in
accordance with GAAP, consisting primarily of severance,
post-closure facility expenses and other related expenses,
associated with: -- a workforce reduction in our Direct to Consumer
division in 2004; and -- the closure of two facilities and a
realignment of our sales force in 2005. (b) Reflects gain/loss on
non-ordinary course sales of fixed assets and sublease income
related to facilities Clarke American has closed. (c) 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. (d) Reflects management fees
paid to Clarke American's prior parent companies (Novar plc and
Honeywell) for services such as legal, tax, accounting and risk
management. Clarke American does not currently have a management
services agreement. (e) Reflects management's estimate of
additional 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. The adjustments to the historical periods reflect
management estimates of all of these costs. Net income for the pro
forma year ended December 31, 2005 already gives effect to $2.0
million of these costs, which represent management's estimate of
additional costs to replace the legal, tax, risk management and
other services provided by Clarke American's former parent
companies and agreed compensation expenses incurred in connection
with the acquisition by M & F Worldwide. Management estimates
that a further $0.7 million of other stand-alone costs will be
incurred annually. However, Clarke American's actual costs may
differ from these estimates. (f) Reflects charges incurred under an
earnout arrangement recorded as SG&A expense in the period from
April 1, 2005 to December 14, 2005 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. (g)
Reflects additional non-cash adjustments which management believes
better reflect the ongoing operations of the business as follows:
Predecessor Predecessor Successor (Honeywell) (Novar)
-------------- ------------ ------------- Period from Three Months
Period from April 1 to Ended December 15 December 14, March 31, to
31, 2005 2005 2005 -------------- ------------ -------------
(unaudited, dollars in millions) Amortization of Tenant Finishout
Allowances(i) -- -- $(0.3) Impact of Fair Value Inventory
Adjustment Related to Purchase Accounting(ii) 1.8 3.1 -- --
-------------- ------------ ------------- Total Other Non-Cash
Adjustments $1.8 $3.1 $(0.3) ============== ============
============= Combined Predecessor Predecessor and Successor Pro
Forma (Novar) -------------- ------------ ------------- Year Ended
Year Ended Year Ended December 31, December 31, December 31, 2005
2005 2004 -------------- ------------ ------------- (unaudited,
dollars in millions) Amortization of Tenant Finishout Allowances(i)
$(0. 3) -- $(0.9) Impact of Fair Value Inventory Adjustment Related
to Purchase Accounting(ii) 4.9 -- -- -------------- ------------
------------- Total Other Non-Cash Adjustments $4.6 -- $(0.9)
============== ============ ============= (i) Reflects the
amortization of deferred liabilities resulting from capitalized
leasehold improvements paid for by landlords. (ii) Reflects the
negative effect on net income of the fair value inventory
adjustment related to purchase accounting resulting from completion
of the Honeywell acquisition and the M & F Worldwide
acquisition effective April 1 and December 15, 2005, respectively.
*T
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