FORM 10-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended March 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission File No. 0-9600
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CPAC, INC.
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(Exact name of Registrant as Specified in its Charter)
New York 16-0961040
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(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
2364 Leicester Rd., Leicester, New York 14481
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(Address of Principal Executive Offices) (ZIP Code)
Registrant's telephone number, including area code: (716)-382-3223
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Securities registered under Sec. 12(g) of the Act:
$.01 Par Value Common Stock
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(Title of Class)
The Registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months, and has
been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
[ X ] Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained herein, and will not be contained, to the best of
Registrant's knowledge, in any definitive proxy statement incorporated
by reference in Part III of this Form 10-K, or any amendment thereto.
As of June 23, 1995, there were outstanding 4,326,431 shares of the Company's
Common Stock, $.01 Par Value. The aggregate market value of the 3,910,148
shares held by non-affiliates on that date was $46,433,007, based on the average
of high and low bid prices of $12.25 and $11.50 respectively. Options for
316,175 shares of the Company's Common Stock are outstanding but have not yet
been exercised. Shares to cover the options will not be issued until they are
exercised.
DOCUMENTS INCORPORATED BY REFERENCE
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Certain portions of Part III of this report are incorporated herein by reference
to portions of the Registrant's Proxy Statement dated June 23, 1995.
The Exhibit Index to this Report is found on page 41.
CPAC, INC.
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TABLE OF CONTENTS
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PART I
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Item 1 Business 4
Item 2 Properties 11
Item 3 Legal Proceedings 12
PART II
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Item 5 Market for the Registrant's Common Equity and
Related Security Holder Matters 13
Item 6 Selected Financial Data 14
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 8 Financial Statements and Supplementary Data 20
PART III
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Item 10 Directors and Executive Officers of the Registrant 37
Item 11 Executive Compensation 38
Item 12 Security Ownership of Certain Beneficial Owners
and Management 38
Item 13 Certain Relationships and Related Transactions 38
PART IV
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Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 39
SIGNATURES 43
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INDEX TO ITEMS
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INCORPORATED BY REFERENCE
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CAPTION IN PROXY
PART III STATEMENT
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Item 10 Directors and Executive Officers of Directors and Executive
the Registrant Officers
Item 11 Executive Compensation Executive Compensation
Item 12 Security Ownership of Certain Security Ownership of
Beneficial Owners Certain Beneficial
and Management Owners and Management
Item 13 Certain Relationships and Related Information About the
Transactions Board and Its Committees
PART I
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ITEM 1. BUSINESS
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HISTORY
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The Company was formed on March 27, 1969 as a New York Corporation under the
name of Computerized Pollution Abatement Corporation. Its name was shortened to
CPAC, Inc. (pronounced "seapack") by an amendment to its Certificate of
Incorporation filed March 29, 1976. The Certificate of Incorporation, as
amended, authorizes the issuance of 5,000,000 shares of Common Stock with a par
value of $0.01 per share.
Thomas N. Hendrickson left Eastman Kodak Company to become the founder,
President and Chief Executive Officer of CPAC, and has remained President and
Chief Executive Officer throughout the Company's history.
The basic premise underlying the formation of the Company was the founder's
belief that it would become necessary for photofinishers to remove pollutants
from photographic processing effluent in order to meet environmental standards,
and that most of the pollutants could be recovered in a cost effective manner.
Silver was the primary recoverable material initially addressed by the Company.
As a primary supplier of equipment for the recovery of silver from spent
photographic solutions, CPAC sought to expand its service to customers by
providing refining services for the recovered silver. On July 1, 1981, CPAC
entered into a joint venture agreement, forming a 50% owned subsidiary company
called Profit Recovery Systems, Inc. (later shortened to "PRS, Inc."). The
purpose of the joint venture was to provide silver refining services and to
exclusively market the products of CPAC, Inc. in the domestic marketplace,
acting as a commissioned sales agency. In June 1988, PRS, Inc. became a wholly-
owned subsidiary of CPAC, Inc.
In an effort to expand its product line beyond the sale of equipment, and to
enhance its strategy of providing consumable products to an established customer
base, CPAC acquired Trebla Chemical Company on October 1, 1984. Trebla was
founded in 1982 as a wholly-owned subsidiary of Fotomat Corporation, St.
Petersburg, Florida, and was subsequently sold to four private investors in
early 1984.
Trebla produces high quality photographic processing chemicals and has
successfully positioned itself as the "high quality, low cost producer." Many
of its products are unique formulations, optimized for use with CPAC desilvering
and chemical recycling equipment.
Continuing with its successful strategy of emphasizing the growth of its
consumable product lines and seeking expanded marketing avenues, in April, 1988,
CPAC acquired Allied Photo Products Co., Inc. from Allied Products Co., Inc. In
fiscal 1994 Allied Photo Products Co., Inc. changed its name to Allied
Diagnostic Imaging Resources, Inc.
Allied Diagnostic Imaging Resources, Inc. produces processing chemistries for
the medical, dental and industrial X-ray, microfilm, and graphic arts markets.
Allied operates two strategically located plants and has several well-known
registered and trademarked product lines.
IMG Photo Products, acquired by CPAC, Inc. on March 31, 1989, was founded in
1978. A quality manufacturer of silver recovery equipment and chemical mixers
and blenders, IMG was purchased to boost Allied's chemical sales to the graphic
arts and medical X-ray industries. IMG's operations were consolidated at CPAC
Equipment Division, Leicester, New York, in 1990.
Pursuing a strategic plan to become a worldwide chemical manufacturer, CPAC
Europe, N.V. was formed in late December, 1989, as a joint venture. A
manufacturing plant was constructed in Herentals, Belgium and opened in June,
1991. Initially, Trebla chemicals were packaged to European standards and sold
from this location.
In July, 1991, CPAC, Inc. purchased the joint venture partner's interest in
CPAC Europe, N.V. to obtain 98% ownership of the company. This action was taken
to expedite the achievement of CPAC, Inc.'s international goals. During fiscal
1994, additional manufacturing equipment was added allowing on-site mixing
capabilities.
On January 21, 1992, CPAC, Inc. announced the acquisition of Fotoprocesos de
Venezuela C.A. (Fotus) in Caracas, Venezuela. Prior to the acquisition, CPAC
worked under a royalty agreement with Fotus which allowed them to manufacture
black-and-white chemicals using CPAC's formulations. As a wholly-owned
subsidiary, Fotus also re-sells various Trebla and Allied chemicals. CPAC's
long range plan is to expand the distribution of its full product line in Latin
American countries.
On June 8, 1992, the Company purchased substantially all of the operating
assets and assumed certain liabilities from Chimifoto Ornano S.p.A. in Milan,
Italy. The transaction was completed through a newly formed entity, CPAC
Italia, S.r.l. Now operating as a wholly-owned subsidiary under the name
Chimifoto Ornano, the new company continues to manufacture color and black-and-
white chemicals similar to those produced by the Company's domestic chemical
subsidiaries.
CPAC's strategic goal is to become a world leader in the manufacture,
packaging, and distribution of specialty chemicals. In 1994, CPAC began its
diversification strategy by acquiring The Fuller Brush Company of Great Bend,
Kansas. Fuller makes a wide variety of specialty chemicals and cleaning
products for the industrial and household consumer markets. In January 1995,
CPAC signed an agreement to license the trademarks and formulas of Stanley Home
Products. Similar to the Fuller Brush line, Stanley also has expanded personal
care products.
CPAC, Inc. utilizes a profit center system to capitalize on its internal and
acquired management strengths and to assure the continued customer benefits
produced by its complementary product lines. CPAC, Inc. is now considered a
holding company for the operations of: Trebla Chemical Company; Allied
Diagnostic Imaging Resources, Inc.; CPAC Europe, N.V.; CPAC Equipment Division;
PRS, Inc. (a sales and marketing organization); Fotoprocesos de Venezuela C.A.;
CPAC Italia, S.r.l.; The Fuller Brush Company, Inc.; and Stanley Home Products.
Each of the operations will be described separately in the following sections.
NATURE OF BUSINESS
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BUSINESS SEGMENTS
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Prior to the acquisition of Fuller, the Company classified its operations
into one industry segment -- the manufacture and sale of prepackaged chemical
formulations, supplies, and equipment systems to the imaging industry.
Following the acquisition of Fuller and the signing of the Stanley Home Products
license agreement, the Company has added a new segment for financial reporting
purposes. In addition to the Imaging segment, the Company also operates in the
Cleaning and Personal Care Products segment which includes specialty chemical
cleaning products and related accessories (brushes, brooms, mops) for industrial
and consumer use, as well as personal products such as soaps, shampoos, and skin
care. The products of each segment are manufactured and marketed both in the
U.S. and in other parts of the world. For additional financial information on
these two segments, refer to Footnote 9 of Notes to Consolidated Financial
Statements.
CPAC EQUIPMENT DIVISION
As photographic materials are processed, either the exhausted chemicals must
be replaced by fresh chemicals, or the solutions must be treated to extend their
useful lives. CPAC Equipment Division designs and manufactures systems to
accomplish this by removing the silver from these solutions so that they can be
mixed with fresh chemicals and reused. These systems also reduce pollutant
discharge.
CPAC Equipment Division innovated two principal technologies for silver
recovery -- electrolytic and ion exchange. Under the registered trademark
SilvPAC(R), the Equipment Division manufactures silver recovery systems for
image processing facilities using these technologies.
The company also produces a broad line of IMG silver recovery systems and
chemical mixers and blenders, as well as units that recirculate fixer to help
customers save on chemistry usage and expense.
TREBLA CHEMICAL COMPANY
Chemicals are used in the developing process of both photographic film and
paper. The exhausted chemicals must be replaced by fresh chemicals or
regenerated. Trebla manufactures a complete line of chemical replenishment and
chemical regeneration kits for the photographic industry, as well as chemicals
for any process that develops a silver halide emulsion.
Trebla's Trecon(R) and Trelux(R) brand paper and film chemistries enhance the
recovery efficiencies of CPAC silver and chemical recovery systems, to reduce
chemical usage and minimize pollutant discharge. The company believes it is the
leading manufacturer of recyclable chemistries. Trebla pioneered the industry's
first line of developer regeneration kits, to allow photo labs to reuse color
developer without purchasing recycling equipment.
Trebla continues to develop and introduce chemical products specifically to
cut pollutant discharge, reduce chemistry costs, and eliminate odors. The
company also does contract manufacturing for several major manufacturers.
ALLIED DIAGNOSTIC IMAGING RESOURCES, INC.
Medical, dental and industrial X-rays, and graphic arts pre-press plates all
require processing of an exposed image in chemical solutions to produce an
image. Allied produces a complete line of high quality chemical solutions for
these purposes.
In Allied's primary market, medical X-ray, the company's Autex(R) processing
chemicals are widely recognized for their quality and versatility. Allied
pioneered the popular Quadrapak(R) and BiPak(R) packaging of chemistries.
In the dental X-ray industry, Allied's second largest market, its trademarked
Redi-Chem A & B(R) chemistry has the majority marketshare for automatic-type
processing chemicals.
Allied also produces high quality microfilm and pre-press chemicals for use
in graphic arts applications. This represents the smallest portion of Allied's
business.
As in photofinishing, X-ray and graphic arts processing produces silver in
its effluent. Increasingly, operations employing such processes are undergoing
closer environmental scrutiny. It is anticipated that the customer base within
Allied will continue to yield new business for CPAC Equipment Division's
pollution control systems.
CPAC EUROPE, N.V.
CPAC Europe, N.V. manufactures Trebla chemicals and markets CPAC silver
recovery equipment for sale in Europe, northern Africa, and the Middle East.
CPAC Europe also has begun distributing Allied chemistry, and is pursuing new
opportunities to supply photofinishers in Eastern Europe. Recently CPAC Europe
introduced a line of competitively priced photofinishing chemistry for the Latin
America market.
FOTOPROCESOS DE VENEZUELA C.A. (FOTUS)
Fotus was acquired to position CPAC for market opportunities in Latin
America, and to establish a chemical manufacturing and distribution point for
further market expansion of CPAC, Inc. product lines. Due to political and
economic instability, Fotus currently is operating only as a distribution
center.
CPAC ITALIA, S.R.L. (CHIMIFOTO ORNANO S.P.A.)
Chimifoto was acquired to increase CPAC's market position in Europe, and to
establish an additional chemical manufacturing and distribution point for
further expansion of CPAC product lines within the European, Middle East, and
North African photographic markets. Chimifoto manufactures processing solutions
for photofinishing, medical, and graphic arts applications.
PRS, INC.
As the exclusive sales and marketing company for CPAC equipment, Trebla
chemistry, and silver refining services, PRS utilizes a direct field sales
force, mail order, dealers, and distributors to sell and service certain CPAC
products in the photographic industry.
PRS has expanded its marketing role on behalf of the CPAC companies by
assuming responsibility for international sales excluding sales made by CPAC
Europe, N.V.; Fotoprocesos de Venezuela C.A.; and CPAC Italia, S.r.l.
THE FULLER BRUSH COMPANY, INC.
CPAC acquired The Fuller Brush Company as a major step toward diversification
into new specialty chemicals. Fuller makes over 425 different products,
including household and commercial cleaning chemicals, brushes, brooms, mops,
and personal care products.
The business is divided into industrial and consumer divisions. In addition,
Fuller manufactures its products on a contract basis, and has a relationship
with roughly 400 O.E.M. companies. Fuller has more than 100 trademarks in the
U.S., Canada, and Puerto Rico, and sells products under the brand names ``Fuller
Life'' and ``Oceanesce.''
STANLEY HOME PRODUCTS
CPAC's license agreement to take over the domestic operations of Stanley Home
Products was the Company's second step toward diversification into new specialty
chemical products. The move was designed to reinforce the direct selling
element of Fuller Brush, as well as to promote and economize manufacturing in
the Great Bend plant.
Stanley's products include 250 different cleaning and personal care items,
sold through a network of 16,000 distributors via the ``hostess'' or ``party
plan.'' Stanley has over 50 trademarks in the U.S., Canada, and Puerto Rico.
Roughly 75% of Stanley's sales are in chemicals and 25% in hard goods. Products
are marketed under the brand names ``Naturals,'' ``Selectives,'' and
``Creations.''
MARKETING AND SALES
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PRS, INC. (Sales and Marketing Organization)
PRS currently acts as a ``commissioned sales agency'' for Trebla Chemical
and the CPAC Equipment Division, providing sales and customer service. PRS, in
its sales and marketing capacity, is free to draw upon the various technical
resources within the CPAC organization. PRS uses the family of complementary
products and services available to establish and maintain vendor relations with
its customers. In addition, PRS obtains a commission for silver refined by
Pioneer Refining Services, Inc., Salt Lake City, Utah.
PRS maintains a network of distributors who are authorized to sell selected
products on a non-exclusive regional basis. Internationally, there are a number
of exclusive and non-exclusive distributive arrangements in addition to the CPAC
Europe, Fotus, and CPAC Italia organizations. All PRS-appointed
distributorships may be canceled without cause upon ninety days written notice.
CPAC EQUIPMENT DIVISION
The Equipment Division markets its products domestically through both PRS,
Inc. and Allied Diagnostic Imaging Resources, Inc., and through CPAC
international subsidiaries. Overall sales and marketing direction is managed
within each organization.
The Equipment Division ships products to these foreign customers against
sight drafts, irrevocable letters of credit, or on open account.
PRS acts as a commissioned sales agency in its relationship with CPAC's
Equipment Division, and provides customer service activities, including minor
product maintenance and installation work.
CPAC equipment is sold directly, under private label, to Allied for resale
to its marketplace.
The Equipment Division markets IMG products through a network of dealers.
The Company's silver recovery products and chemical mixers and blenders are sold
through approximately 300 X-ray and solution service dealers in the United
States, and through approximately 190 graphic arts and equipment dealers serving
the newspaper and printing industries. Some IMG products are sold on a private
label basis.
TREBLA CHEMICAL COMPANY
PRS also provides sales and marketing representation for Trebla Chemical
Company. Chemical products are primarily sold through the PRS field sales
force. In 1990, in order to increase sales penetration in the rapidly growing
minilab market segment, an extensive dealer organization was established. At
present, there are over 45 independent dealers marketing Trebla products,
accounting for over 26% of Trebla's sales in fiscal year 1995.
The major areas of sales concentration include amateur, school,
professional, commercial, and government photofinishers. Trebla chemical sales
have been predominantly in the U.S., although some sales have been made directly
to major photofinishers in Latin America, Australia, and the Far East. The
foreign market is highly competitive and only a few companies are owned by U.S.
interests -- the biggest being Eastman Kodak. The foreign-owned companies and
Kodak are in contention for the world market. (See also CPAC Europe, N.V. on
page 6 and CPAC Italia, S.r.l. on page 7.)
ALLIED DIAGNOSTIC IMAGING RESOURCES, INC.
Allied markets its products through various channels. Since 1989, medical
X-ray products have been sold to dealers by Allied field sales personnel, as
well as through contract manufacturing. Through extensive marketing in recent
years, Allied gained a greater percentage of the medical market share. The
company believes it is the third largest supplier of medical X-ray chemistry,
behind Kodak and DuPont, although no statistical data exists to substantiate
this belief. Allied also uses the complementary products of CPAC, Inc.
companies to promote chemistry sales.
Dental X-ray products are sold through an extensive dealer and commissioned
sales representative organization. A number of distributors also warehouse the
Allied product line. Certain dental X-ray processing chemicals are manufactured
on a private label basis.
The company's graphic arts chemical products are sold to dealers through
Allied's sales staff and independent representatives.
THE FULLER BRUSH COMPANY, INC.
Fuller Brush uses three sales methods to market its chemical and hard goods
products to consumers:
1) Direct Sales
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Fuller Brush pioneered the direct selling industry and at one point,
earned almost all of its revenue from this sales method. Now, the
10,000 independent Fuller Brush salespeople nationwide are responsible
for about 20% of Fuller's total sales.
2) Mail Order/Catalog Sales
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In addition to the hundreds of thousands of catalogs Fuller prints for
use by the sales force and distributors, the company also advertises
select products in other specialized manufacturers' publications.
Promoting its high quality product line through nationally recognized
catalogs has helped this part of the business grow to represent
approximately 5% of total sales.
3) Retail Outlet Stores
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Fuller's retail outlet stores feature discontinued inventory, surplus
products, and seconds merchandise, and provide the company with an
opportunity to meet its inventory control objectives. Fuller presently
has seven retail outlet stores nationwide. Currently, the retail
business represents about 3% of Fuller's total sales.
Fuller's industrial business is comprised of:
1) Commercial
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In the commercial area of the business, Fuller manufactures high
quality, industrial strength cleaning and janitorial products for use in
restaurant and food service establishments, restroom sanitation, and
other specialty cleaning applications. These products are sold
exclusively through janitorial supply, paper supply, and food
distributors. It is estimated that Fuller has less than 1% of the
commercial cleaning market and competes with six national players in the
chemical area -- the largest and most well-known of which is S.C.
Johnson. Fuller holds approximately 30 trademarks on products for this
market.
2) Custom Brush
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The custom brush division produces high quality, engineered brushes for
O.E.M. production processes and other uses. Fuller currently has a
relationship with approximately 400 national O.E.M. companies.
Including Fuller Brush, about eight companies compete for marketshare.
Fuller's engineering and design expertise in custom brush manufacturing
places the company in a highly competitive position in this market.
3) Contract Manufacturing
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Fuller has the capability of manufacturing any of its products on a
private label basis, and currently has contracts to supply other large
companies in the household and personal care industries. Fuller's
contract manufacturing business will be a major focus for CPAC, Inc. to
take advantage of underutilized manufacturing capacity and equipment in
Great Bend.
STANLEY HOME PRODUCTS
Stanley Home Products' distributors utilize the hostess or party plan sales
method, in which a hostess invites friends and family to her home to view a
demonstration of Stanley products by an SHP distributor. After the
demonstration, the distributor solicits orders from the guests. For sponsoring
the demonstration, the hostess may select a premium (gift) from a wide range of
home enhancement items, aromatics, holiday products, collectibles, and personal
accessories. Premiums represent roughly 10% of SHP's sales.
In April, 1995, Fuller Brush opened a marketing office for Stanley Home
Products in Easthampton, Massachusetts.
At the time of CPAC's license agreement, Stanley Home Products outsourced
its manufacturing to numerous major suppliers and smaller manufacturers.
Because the product lines of Fuller Brush and SHP are similar, Fuller began
absorbing some of the manufacturing for Stanley products in May, 1995. By
January, 1996, CPAC expects to convert most of SHP manufacturing to the Fuller
Brush facility in Great Bend. Stanley Home Products also operated four
distribution centers in the U.S. Recently, all centers were closed and totally
consolidated at Fuller Brush.
RESEARCH AND DEVELOPMENT
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The amount spent on Company-sponsored research and development totaled
$412,269, $269,563, and $239,324 for the years ended March 31, 1995, 1994, and
1993 respectively. Primary research and development for all CPAC chemical
operations in the Imaging segment, is carried out in St. Louis at the Trebla
facilities. All research and development for the Cleaning and Personal Care
Products is carried out at Fuller, in Great Bend.
SALES AND CUSTOMERS
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The Company's net sales for the fiscal years ended March 31, 1995, 1994, and
1993 were $58.6 million, $43.8 million, and $39.9 million, respectively during
which periods total foreign sales were $9,187,215, $8,311,687, and $7,288,821,
respectively.
Trebla Chemical Company; Allied Diagnostic Imaging Resources, Inc.; CPAC
Europe, N.V.; Fotoprocesos de Venezuela C.A.; CPAC Italia, S.r.l.; The Fuller
Brush Company, Inc.; and Stanley Home Products generally work without a backlog
and usually ship any order within 24 hours of receipt. Backlog for the
Equipment Division is not material. Fuller has some commercial business in
contract manufacturing and production of custom brushes where orders are
generally placed for longer term delivery cycles. The majority of such orders
are filled within 60 to 90 days and backlog is not material.
COMPETITION
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1) Imaging
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Eastman Kodak Company remains the photofinishing chemistry market leader
in the U.S. with Fuji-Hunt, Agfa, Russell, and Trebla all competing for
a share of the market. Trebla has positioned itself as a quality
manufacturer of specialized chemistries, and is in a good position to
take advantage of market opportunities.
The Company provides systems for use in the imaging industry, which
industry is dependent upon processing techniques developed by such major
industrial firms as Eastman Kodak, DuPont, Fuji Photo, Konica and Agfa.
Those firms are constantly changing and seeking to improve their
processing techniques.
2) Cleaning and Personal Care Products
-----------------------------------
The total domestic market for cleaning and personal care products is
estimated at $37 billion. The personal care products market alone is
estimated at $21.5 billion annually. The size of the commercial
cleaning market is roughly $6 billion annually. Sales of consumer
(household) cleaning products are approximately $10 billion, and brushes
and brooms comprise roughly $.2 billion in sales.
Competition for Fuller Brush and Stanley Home Products is at two levels
-- for distributors and consumers. The key competitors in both areas
are Avon and Amway, whose combined worldwide volume is $3.9 billion and
$3.2 billion respectively, followed by Tupperware at $1.2 billion, and
Mary Kay at $600 million.
EMPLOYEES
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The Company currently employs 553 people (March 31, 1995). CPAC Equipment
Division has 38 employees; PRS employs 5; Trebla Chemical Company employs 42;
Allied Diagnostic Imaging Resources, Inc. employs 85; CPAC Europe employs 8;
Fotus employs 13; CPAC Italia employs 28; The Fuller Brush Company employs 322;
and 12 persons are assigned to the CPAC Corporate staff.
Effective May 1, 1986, the Company established a Profit Sharing and
Retirement Plan under Provision 401(k) of the Internal Revenue Code. This plan
covers all eligible employees of CPAC, Inc. and its domestic subsidiaries.
Subject to certain qualifications (employees must be over 21 years of age and
have completed one year of service), the plan has the following features:
(a)Contributions to the plan may be made for each plan year out of
current or accumulated earnings to all eligible employees in such
amounts as the Board of Directors may, in its discretion,
determine. (To date, no discretionary payments have been made.)
(b)The Company will match each contribution made by a plan
participant for the plan year in an amount equal to $0.50 for
each $1.00 of participant contribution. While a participant may
contribute up to 15% of compensation to the plan each year, the
Company will limit matching contributions to 3% of compensation.
The Company has appointed Manning & Napier Advisors, Inc.,
Rochester, New York, as Investment Managers and Exeter Trust
Company, Portsmouth, New Hampshire, as Trustee of the plan.
ITEM 2. PROPERTIES
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CPAC, Inc. owns the land and building located on Route 20A, immediately west
of the Village of Leicester and approximately 20 miles from Rochester, New York,
where the offices and manufacturing operations of the Equipment Division,
corporate staff, telemarketing and international employees are housed. This
plant is located on 4.2 acres and consists of a two-story basement building and
other secondary buildings, comprising a total of 30,330 square feet.
The 40,000 sq. ft. Trebla plant, located at 8417 Chapin Industrial Drive in
St. Louis, Missouri, was purchased on October 29, 1993. The Trebla offices,
laboratories, and major chemical manufacturing operations are housed in a one-
story, concrete-block building on three (3) acres of land. Trebla has direct
access to both truck and rail transportation for shipping purposes. There is a
mortgage outstanding on this property.
In May 1989, Trebla signed a 12-year lease for an additional 20,480 sq. ft.
of office and warehouse space in the same industrial complex as its existing
facility. In November, 1993 Trebla leased 14,800 sq. ft. of additional warehouse
space immediately adjacent to the current warehouse facilities.
CPAC Europe, N.V. owns approximately 5 acres of land in Industriepark
Herentals (near Antwerp), Belgium. The first phase of the building
construction, completed during fiscal 1992, was 15,500 sq. ft. with expansion
capability to approximately 50,000 sq. ft. There is a mortgage outstanding on
the property.
Allied Diagnostic Imaging Resources, Inc. leases its two strategically
located plants in Irwindale, California and Atlanta, Georgia. The east and west
geographic locations enable Allied to control shipping costs while delivering
fresh products in a timely manner. In fiscal year 1989, Allied signed a 10-year
lease and relocated its Los Angeles operation to a 28,000 sq. ft. plant in
Irwindale, California (a suburb of Los Angeles). Allied's main plant at its
headquarters in Atlanta, Georgia, is approximately 84,000 sq. ft. The lease on
the Atlanta facilities expires September 30, 1996.
The Fotus plant is situated on 35,920 square feet of industrially zoned
property, with access to all major transportation. CPAC, Inc. owns the land and
the 20,930 sq. ft. facility near Caracas, Venezuela. At March 31, 1995, there
is a mortgage outstanding on the property.
CPAC Italia leases its office and industrial manufacturing space in Milan,
Italy under a six-year operating lease agreement with the former owners of
Chimifoto Ornano, expiring in 1998. The lease contains options for an
additional six-year renewal term.
The Fuller Brush Company, Inc.'s 450,000 square foot facility is located in
Great Bend, Kansas. The single story building contains manufacturing,
distribution, and office facilities, and has access to both truck and rail
transportation for shipping purposes. The facility was financed through an
Industrial Revenue Bond which is outstanding until 2009. Fuller also leases
seven retail outlet stores located in Kansas, Maine, New York, Tennessee,
Wisconsin, and West Virginia.
In February, 1995, the Company signed a lease for office space in
Easthampton, Massachusetts, for the Stanley Home Products' sales and marketing
headquarters.
In management's estimation, all facilities are adequate to allow the Company
to continue operations.
ITEM 3. LEGAL PROCEEDINGS
-----------------
No material litigation is pending to which the Registrant and/or its
subsidiary(ies) is a party or of which property of the Registrant and/or its
subsidiary(ies) is the subject.
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
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MATTERS
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The principal market on which the Registrant's Common Stock is being traded
is the national Over-The-Counter (OTC) market in the NASDAQ National Market
System.
The range of high and low bid information for CPAC, Inc. Common Stock by
quarters for the past two fiscal years has been adjusted for the five for four
common stock split declared on November 18, 1994, and paid on January 12, 1995,
and the 5% stock dividend distributed in June, 1993.
1995 1994
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4th Q 3rd Q 2nd Q 1st Q 4th Q 3rd Q 2nd Q 1st Q
----- ----- ----- ----- ----- ----- ----- -----
Price per share:
High bid $13.50 $13.00 $11.40 $8.80 $8.80 $7.40 $7.40 $7.80
Low bid 10.25 10.20 7.60 6.80 6.20 5.40 5.80 5.80
The source of such quotations is The National Association of Securities
Dealers Daily Statistical Report. Such over-the-counter market quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
The approximate number of holders of record of the Common Stock of the
Registrant as of March 31, 1995 is 850. This number includes only holders of
record, and beneficial holders who have disclosed that they are recordholders.
On November 18, 1994, the Board of Directors announced that it had
discontinued its cash dividend indefinitely. Prior to that, dividends had been
maintained on a quarterly basis at $0.065 per share since May 31, 1991, and at
$0.06 per share since May 31, 1990.
<TABLE>
ITEM 6: SELECTED FINANCIAL DATA
-----------------------
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
-----------------------------
1995(2)<F2> 1994 1993(3)<F3> 1992(4)<F4> 1991
----------- ---- ----------- ----------- ----
<S> <C> <C> <C> <C> <C>
Net sales $58,630,025 $43,798,163 $39,871,200 $32,328,862 $28,885,064
Operating income(1)<F1> 5,980,793 4,573,388 4,442,232 3,022,022 2,735,952
Income before income
tax expense 5,266,924 4,223,311 4,167,857 2,888,457 2,649,459
Net income 3,188,924 2,627,311 2,529,857 1,773,457 1,594,459
Earnings per share(5)<F5> 0.76 0.67 0.65 0.56 0.53
Total assets 48,994,461 27,020,670 23,027,668 19,554,910 15,417,296
Long-term debt(6)<F6> 15,297,723 5,024,346 3,676,314 2,985,626 2,938,487
Cash dividends declared 409,463 805,156 763,015 633,900 544,108
Cash dividends per share(7)<F7> 0.13 0.26 0.26 0.26 0.24
=========================================================================================================================
<FN>
<F1>
(1)Income before minority interest in consolidated foreign subsidiary, interest expense (income) net, and income tax expense.
<F2>
(2)The 1995 financial data includes the acquisition of The Fuller Brush Company on October 13, 1994.
<F3>
(3)The 1993 financial data includes the acquisition of Chimifoto Ornano S.p.A. on June 8, 1992.
<F4>
(4)The 1992 financial data includes the acquisition of Fotoprocesos de Venezuela C.A. on January 21, 1992.
<F5>
(5)Reflects restatement due to the five for four common stock split declared on November 18, 1994, payable on January 12, 1995, and
the 5% stock dividend declared April 21, 1993, for shareholders of record on May 21, 1993, payable June 11, 1993.
<F6>
(6)Includes current maturities.
<F7>
(7)On November 18, 1994, the Board of Directors announced that it had discontinued its cash dividend indefinitely. Prior to that,
dividends had been maintained on a quarterly basis at $0.065 per share since May 31, 1991, and at $0.06 per share since May 31,
1990.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company uses a variety of measures of liquidity for internal management
purposes. These measures include working capital, asset turnover, profitability
and leverage ratios which are set forth below. Internally, review of these
ratios on a quarterly and annual basis allows management to set and measure
goals for performance by the various operations of the Company. These ratios,
on a consolidated basis, help to measure the Company's ability to meet its
short-term obligations and are a part of the loan covenants with our primary
lending institution.
WORKING CAPITAL RATIOS
- ----------------------
Working capital is the excess of current assets over current liabilities.
The working capital ratio is calculated by dividing current assets by current
liabilities.
For the Years Ended March 31,
-----------------------------
1995 1994 1993
---- ---- ----
Working capital (in thousands) $16,074.1 $13,296.8 $12,589.7
Working capital ratio 2.4 to 1 3.2 to 1 3.5 to 1
The Company's acquisition of The Fuller Brush Company (Fuller) was financed
in part under a new $2.5 million term loan agreement which calls for 50 fixed
monthly payments including principal and interest at 9.65% per year. At the
same time, added working capital financing was made available through an
amendment and modification to the existing promissory note agreement for the
revolving line of credit facility. This amendment increased the available line
of credit from $3 million to $4.5 million with interest at prime plus one-
quarter of one percent (0.025%). The maturity date of this agreement was
extended from August 31, 1995, to October 31, 1996. The agreement contains a
variety of covenants, including specific working capital and net worth
covenants, which are customary in such a credit facility. At March 31, 1995,
there was $1,516,155 outstanding under this line of credit and the Company was
in compliance with the covenants or appropriate waivers were obtained.
Additional financing for the Fuller acquisition was obtained through an
unsecured loan of $1 million from a private individual, requiring repayment on
the first anniversary. This new short-term debt, coupled with the current
portion of the new-term debt, is primarily responsible for the decline in the
working capital ratio at March 31, 1995.
In addition, the Company has a line of credit facility with a major Belgian
bank. As of March 31, 1995, the Company has the full available amount
(approximately $886,000) outstanding against this line, to finance the Company's
investment in CPAC Europe.
Management believes that the existing available lines of credit and cash
flows from operations should be adequate to meet normal working capital needs
based on operations as of March 31, 1995. The addition of Stanley Home Products
(SHP) sales as of April 1, 1995, coupled with plans to take on production of
various SHP items during the 1996 fiscal year, may result in the need for
additional equipment to be installed in Great Bend and may result in the need
for additional working capital. Management will continue to evaluate the need
for new or increased financing during the 1996 fiscal year.
ASSET TURNOVER RATIOS
- ---------------------
For the Years Ended March 31,
-----------------------------
1995 1994 1993
---- ---- ----
(1) Receivables-days outstanding 77.1 days 81.6 days 64.1 days
(2) Annual inventory turns 3.3 times 3.3 times 3.3 times
The number of days outstanding can be attributed to:
a. the continued expanded use of dealers with extended payment terms;
b. the general economic and competitive domestic sales environment,
particularly in the medical chemistry market of the Imaging
segment; and
c. the increasing volume of foreign sales in the Imaging segment
which generally have payment terms of 60 to 90 days.
At March 31, 1995, the decline in days outstanding results from the
inclusion of The Fuller Brush Company receivables since October 13, 1994, which
generally have short-term payment terms. On a consolidated basis, days
outstanding should continue to improve as Fuller sales increase and SHP cash
sales enter the formula in fiscal 1996.
Inventory turns remained stable for the periods presented.
PROFITABILITY RATIOS
- --------------------
Return on net sales is the result of dividing operating income by net sales.
Net income on net sales is calculated by dividing net income by net sales. Net
income to net worth is calculated by dividing net income by the amount of
shareholders' equity.
For the Years Ended March 31,
-----------------------------
1995 1994 1993
---- ---- ----
Return on net sales 10% 10% 11%
Net income on net sales 5% 6% 6%
Net income to net worth 14% 16% 17%
The decrease in these ratios from 1995 versus 1994 is primarily the result
of the addition of $3,360,000 of equity issued in connection with the
acquisition of The Fuller Brush Company. Also, continuing pressure on pricing
and margins at Allied in the medical chemistry industry negatively impacted the
ratio of net income on net sales. Management has invested almost $800,000 in
new manufacturing equipment at Allied to help improve operating and production
efficiency and hold these margins in the next fiscal year.
The decrease in these ratios in 1994 versus 1993 was primarily the result of
the sudden bankruptcy of a major dental customer, as previously reported to
Shareholders.
LEVERAGE RATIOS
- ---------------
Debt to debt-plus-equity is calculated by dividing all liabilities by the
sum of all liabilities plus shareholders' equity. Total debt to equity is
calculated by dividing all liabilities by the amount of shareholders' equity.
These ratios measure the extent to which the Company has been financed by
debt and are an important measure to our lending institution.
For the Years Ended March 31,
-----------------------------
1995 1994 1993
---- ---- ----
Debt to debt-plus-equity 54% 40% 37%
Total debt to equity 1.16 to 1 0.7 to 1 0.6 to 1
The increase in these ratios at March 1995 versus 1994 is primarily the
result of the acquisition of The Fuller Brush Company and the related debt
necessary to finance this acquisition coupled with the addition of $3,360,000 of
equity, as previously disclosed.
The change in these ratios at March 31, 1994, versus 1993 was primarily the
result of the new mortgage in connection with the purchase of the Trebla
building in October 1993, and increased borrowings on the domestic line of
credit.
RESULTS OF OPERATIONS
---------------------
Prior to the acquisition of The Fuller Brush Company, the Company classified
its operations into one industry segment -- the manufacture and sale of
prepackaged chemical formulations, supplies, and equipment systems to the
imaging industry. Following the acquisition of Fuller and the signing of the
Stanley Home Products license agreement, the Company has added a new segment for
financial reporting purposes. In addition to the Imaging segment, the Company
also operates in the Cleaning and Personal Care Products segment which includes
specialty chemical cleaning products and related accessories (brushes, brooms,
mops) for industrial and consumer use, as well as personal products such as
soaps, shampoos, and skin care. The products of each segment are manufactured
and marketed both in the U.S. and in other parts of the world. Sales between
segments are not material.
NET SALES AND NET INCOME
- ------------------------
The Company's net sales increased from fiscal year end March 31, 1994, to
fiscal year end March 31, 1995, by 34%; March 31, 1993, to fiscal year end March
31, 1994, by 10%; and March 31, 1992, to fiscal year end March 31, 1993, by 23%.
Sales increased by 6% for the Imaging segment overall, and the remaining
sales increase is a result of the addition of $12 million of sales from Fuller
in Cleaning and Personal Care Products since October 13, 1994.
Trebla Chemical has continued to expand market penetration despite extreme
pressure on prices. Successful expansion of the domestic independent dealer
network and increased foreign sales helped to achieve an increase in sales of 8%
in 1995. The rate of sales growth at Allied Diagnostic has been reduced as a
result of very competitive pricing pressure, as well as the consolidation taking
place within the medical industry.
Net sales from our combined foreign operations have grown at approximately
4% for the fiscal year 1995.
The impact of acquisitions and growth in sales volume for the three years
since 1992, coupled with an emphasis on controlling expenses, has increased net
income by 80%, from $1,773,457 in fiscal 1992, to $3,188,924 in fiscal 1995.
FOREIGN OPERATIONS
- ------------------
While the economies of Italy and Belgium have been suffering from serious
general economic slowdowns, sales volumes of CPAC subsidiaries in these
countries have improved and market share is increasing.
The political situation in Venezuela and Italy continues to be very
unstable, and management therefore continues to be concerned about the short-
term operating results. It is difficult to predict the economic situation at
these foreign locations, but at the present time, management expects the
combined foreign operations to show continued modest growth for the 1996 fiscal
year.
The Company has exposure to currency fluctuations and has utilized
conservative hedging programs (primarily forward foreign currency exchange
contracts), to help minimize the impact of these fluctuations on results of
operations. The Company does not hold or issue derivatives for trading purposes
and is not a party to leveraged derivatives transactions. The acquisition of
Chimifoto increased the potential financial statement exposure to currency
fluctuations. Although the Italian lira has been erratic, it has settled into a
more stable range over the past fiscal year. On a consolidated basis, foreign
currency exchange losses are not material to the results of operations.
GROSS MARGINS
- -------------
Gross margins (net sales less cost of sales expressed as a percentage of net
sales), were 41%, 40%, and 40% for the years ended March 31, 1995, 1994, and
1993, respectively.
Consolidated gross margins continued relatively stable from 1993 to 1995.
Improvements in margins at Trebla, CPAC Europe, and Chimifoto were offset by
lower margins at Allied as a result of the continuing market competition in
medical chemistry. The addition of Fuller has also contributed to consolidated
margin improvement.
SELLING, ADMINISTRATION AND ENGINEERING EXPENSES
- ------------------------------------------------
This category amounted to 30.3%, 29.4%, and 28.5% of net sales in fiscal
years 1995, 1994, and 1993, respectively.
The increase in 1995 versus 1994 is primarily the result of increased
marketing expenditures related to the medical chemistry market, as well as the
inclusion of Fuller's expenses since the acquisition date.
The increase in 1994 versus 1993 was primarily attributable to the $317,000
charge to bad debts arising from the sudden bankruptcy of a major dental
customer, as previously reported.
RESEARCH AND DEVELOPMENT EXPENSES
- ---------------------------------
From inception, the Company has engaged in research and development
activities in the Imaging segment with the primary goal of improving existing
products. In addition, the Company has engaged in research of new compatible
products and responds to customer needs as necessary. There were no significant
changes in this area during fiscal 1995 with expense increasing approximately
4%. Research and development in Cleaning and Personal Care Products since
October, 1994, accounts for the majority of the increased expenses in 1995
versus 1994.
INTEREST EXPENSE
- ----------------
The increase in interest expense at March 31, 1995, versus 1994 is primarily
the result of increased borrowings on the NationsBank line of credit, the new
term loan, Industrial Revenue Bonds, and other debt assumed in connection with
the Fuller acquisition, coupled with higher interest rates.
The increase in interest expense at March 31, 1994, versus 1993 is primarily
the result of increased borrowings on the NationsBank line of credit and the new
mortgage on the Trebla manufacturing facility.
As a result of the issuance of 616,000 shares of treasury stock in a private
placement during February 1992, the Company raised approximately $3,600,000 of
net additional capital. This capital increase provided the Company with
additional funds to finalize the acquisitions of Fotoprocesos de Venezuela C.A.
(Fotus) and Chimifoto Ornano S.p.A. In addition, the funds provided additional
working capital for operations while helping to control interest expense in 1993
versus 1992 by minimizing the need for borrowings against the NationsBank line
of credit. Subsequent to the acquisition of Fotus, the Company re-negotiated a
significant portion of the short and long-term bank financing in South America
and was also able to reduce Fotus' interest expenses during fiscal 1993.
IMPACT OF INFLATION
- -------------------
Due to increased competitive sales pressure, the Company has not been able
to pass on all inflation related cost increases in the Imaging segment.
However, the adverse impacts of inflation have been partially offset through
productivity improvements and cost cutting efforts. Inflation has generally not
had an adverse impact on Cleaning and Personal Care Products.
ENVIRONMENTAL CONTINGENCY
- -------------------------
In connection with the Fuller Brush acquisition, certain environmental
contamination issues were discovered at the Great Bend, Kansas facility during
the due diligence process. As a result of findings generated by environmental
assessments of the facility, the Seller and the Department of Health and
Environment of the State of Kansas entered into a Consent Order pursuant to
which the Seller developed and submitted for the Department's approval, a
comprehensive work plan for remediation of the environmental problems at the
site. Upon the approval of its work plan by the Department, the Seller will
undertake the remediation called for in the work plan.
The Consent Order does not apply, by its terms, to The Fuller Brush Company,
Inc. as the new purchaser of the assets of the Seller as long as the Seller is
performing its obligations under the Consent Order. Estimates of the costs of
the remediation as set forth in the work plan submitted by the Seller range from
$150,000 to $200,000. In order to secure the performance of such obligations by
the Seller and to provide a fund from which the costs of the required
remediation are to be paid, the Company and the Seller established a cash escrow
account in the total amount of $700,000, the first $250,000 of which was
provided by the Seller, with the balance provided by the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
Board of Directors and Shareholders
CPAC, Inc. and Subsidiaries
We have audited the consolidated financial statements and the financial
statement schedule of CPAC, Inc. and Subsidiaries listed in Item 14 (a) of this
Form 10-K. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CPAC, Inc. and
Subsidiaries as of March 31, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1995, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Rochester, New York
June 2, 1995
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
MARCH 31, 1995 AND 1994
-----------------------
ASSETS
------
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 81,891 $ 35,635
Accounts receivable (net of allowance for doubtful
accounts of $601,000 and $509,000 at March 31, 1995
and 1994, respectively) 13,091,450 10,557,603
Inventory 12,736,328 8,097,553
Prepaid expenses and other current assets 2,020,124 757,688
----------------- -----------------
Total current assets 27,929,793 19,448,479
Property, plant and equipment, net 15,115,576 4,752,579
Goodwill and intangible assets (net of amortization of
$921,255 and $519,469 at March 31, 1995 and 1994,
respectively) 3,065,581 1,009,684
Other assets 2,883,511 1,809,928
----------------- -----------------
$ 48,994,461 $ 27,020,670
================= =================
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 3,382,848 $ 756,271
Accounts payable 4,479,173 3,460,237
Accrued payroll and related expenses 1,187,099 589,318
Accrued income taxes payable 298,803 138,629
Dividends payable 202,410
Other accrued expenses and liabilities 2,507,785 1,004,833
----------------- -----------------
Total current liabilities 11,855,708 6,151,698
Long-term debt, net of current portion 11,914,875 4,268,075
Accrued deferred compensation 398,190 369,450
Accrued royalty 2,084,862
Other long-term liabilities 60,790
Minority interest in foreign subsidiary 31,364 30,926
Shareholders' equity:
Common stock, par value $0.01 per share;
Authorized, 5,000,000 shares;
Issued 4,379,943 shares and 3,156,775 shares at
March 31, 1995 and 1994, respectively 43,799 31,568
Additional paid-in capital 12,852,270 9,234,308
Retained earnings 10,711,534 7,932,073
Foreign currency translation adjustment (602,968) (641,572)
----------------- -----------------
23,004,635 16,556,377
Less: Treasury stock, at cost, 53,512 and 42,810 shares
at March 31, 1995 and 1994, respectively (355,963) (355,856)
----------------- -----------------
Total shareholders' equity 22,648,672 16,200,521
----------------- -----------------
$ 48,994,461 $ 27,020,670
================= =================
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
-------------------------------------------------
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales $ 58,630,025 $ 43,798,163 $ 39,871,200
---------------- ----------------- -----------------
Costs and expenses:
Cost of sales 34,471,050 26,066,778 23,815,966
Selling, administrative and
engineering expenses 17,765,913 12,888,434 11,373,678
Research and development expense 412,269 269,563 239,324
Minority interest in consolidated
foreign subsidiary 438 815 3,319
Interest income (28,906) (25,634) (76,164)
Interest expense 742,337 374,896 347,220
---------------- ----------------- -----------------
53,363,101 39,574,852 35,703,343
---------------- ----------------- -----------------
Income before income tax expense 5,266,924 4,223,311 4,167,857
Provision for income tax expense (2,078,000) (1,596,000) (1,638,000)
---------------- ----------------- -----------------
Net income $ 3,188,924 $ 2,627,311 $ 2,529,857
================ ================= =================
Net income per common share
(Primary and Fully Diluted) $ 0.76 $ 0.67 $ 0.65
================ ================= =================
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
----------------------------------------------------------
FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
-------------------------------------------------
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY TREASURY
COMMON PAID-IN RETAINED TRANSLATION STOCK
STOCK CAPITAL EARNINGS ADJUSTMENT AT COST
----- ------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1992 $ 29,329 $ 7,501,651 $ 5,603,294 $ (15,427) $ (1,138)
Issuance of 7,000 shares
of common stock upon exercise
of common stock options 70 35,681
Stock dividend of 5%
declared in April 1993 1,470 1,258,748 (1,260,218)
Retirement of 980 shares
of treasury stock (10) (1,128) 1,138
Cash dividends declared (763,015)
Net income for the year 2,529,857
Translation adjustments (336,691)
---------------- --------------- ---------------- --------------- ----------------
BALANCE, MARCH 31, 1993 30,859 8,794,952 6,109,918 (352,118) -0-
Issuance of 13,055 shares
of common stock upon exercise
of common stock options 131 84,078
Issuance of 57,750 shares
of common stock upon exercise
of common stock options in
exchange for the surrender of
42,810 shares of outstanding
common stock 578 355,278 (355,856)
Cash dividends declared (805,156)
Net income for the year 2,627,311
Translation adjustments (289,454)
---------------- --------------- ---------------- --------------- ----------------
BALANCE, MARCH 31, 1994 31,568 9,234,308 7,932,073 (641,572) (355,856)
Issuance of 25,140 shares
of common stock upon exercise
of common stock options 252 181,285
Issuance of 300,000 shares
of common stock 3,000 3,357,000
Issuance of 24,750 shares
of restricted common stock, net 247 88,302
Five for four stock split 8,732 (8,625) (107)
Cash dividends declared (409,463)
Net income for the year 3,188,924
Translation adjustments 38,604
---------------- --------------- ---------------- --------------- ----------------
BALANCE, MARCH 31, 1995 $ 43,799 $ 12,852,270 $ 10,711,534 $ (602,968) $ (355,963)
================ =============== ================ =============== ================
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
-------------------------------------------------
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,188,924 $ 2,627,311 $ 2,529,857
-------------- -------------- --------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,046,988 612,565 638,524
Amortization of intangible assets 268,345 256,954 190,371
Minority interest in consolidated
foreign subsidiary 438 815 3,319
Change in assets and liabilities, net of effects of
business acquisitions:
Accounts receivable (598,037) (2,718,519) (1,386,399)
Inventory (1,059,478) (316,213) (690,581)
Accounts payable (669,080) 1,040,459 (542,548)
Accrued payroll and related expenses (46,823) (2,848) 238,962
Accrued income taxes payable 160,174 82,942 55,687
Accrued deferred compensation 28,316 1,792 72,865
Other changes, net (1,385,036) (1,239,630) (170,149)
-------------- -------------- --------------
Total adjustments (2,254,193) (2,281,683) (1,589,949)
-------------- -------------- --------------
Net cash provided by operating
activities 934,731 345,628 939,908
-------------- -------------- --------------
Cash flows from investing activities:
Purchase of property, plant and equipment, net (2,292,241) (2,307,037) (286,153)
Business acquisition, net of cash acquired (2,165,524) (818,257)
Purchase of marketable investments (250,000)
-------------- -------------- --------------
Net cash used in investing activities (4,457,765) (2,307,037) (1,354,410)
-------------- -------------- --------------
Cash flows from financing activities:
Issuance of common stock 181,537 84,209 35,751
Minority interest investment in foreign subsidiary 6,452
Proceeds from long-term borrowings 4,518,187 2,181,423 1,222,978
Repayment of long-term borrowings (720,884) (679,668) (1,309,528)
Payment of cash dividends (409,463) (793,776) (762,560)
-------------- -------------- --------------
Net cash provided by (used in)
financing activities 3,569,377 792,188 (806,907)
-------------- -------------- --------------
Effect of exchange rate changes on cash (87) (487) (9,249)
-------------- -------------- --------------
Net increase (decrease) in cash
and cash equivalents 46,256 (1,169,708) (1,230,658)
Cash and cash equivalents - beginning of year 35,635 1,205,343 2,436,001
-------------- -------------- --------------
Cash and cash equivalents - end of year $ 81,891 $ 35,635 $ 1,205,343
============== ============== ==============
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Basis of Consolidation
- ----------------------
The consolidated financial statements of CPAC, Inc., and Subsidiaries ("the
Company") include the accounts of the Company and its wholly-owned subsidiary
companies and its 98% owned subsidiary, (CPAC Europe, N.V.). The Company's
foreign subsidiaries are included in the consolidated financial statements
utilizing a December 31 fiscal year to facilitate prompt reporting of financial
results. All significant intercompany accounts and transactions have been
eliminated.
Inventory
- ---------
Inventory is stated at the lower of cost, on a first-in, first-out basis, or
market.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost and are depreciated over their
estimated useful lives on the straight-line and accelerated methods. Leasehold
improvements are amortized over the shorter of the lease period or the expected
useful lives of the improvements using the straight-line method. At the time of
retirement or other disposition of property, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is reflected in
income.
Research and Development
- ------------------------
The Company charges research and development expenditures to income as incurred.
Foreign Currency Translation
- ----------------------------
All assets and liabilities of the Company's wholly-owned and majority-owned
foreign subsidiaries are translated at year end exchange rates. Translation
gains and losses are not included in determining net income, but are accumulated
as a separate component of shareholders' equity. Foreign currency transaction
gains and losses are included in the determination of net income.
Income Per Common Share
- -----------------------
Primary and fully diluted income per common share are computed based on the
weighted average number of common shares outstanding, including the shares
issuable upon the exercise of the common stock options as required by the
"treasury stock" method. Weighted average shares outstanding as of March 31,
1995, 1994 and 1993 have been restated to reflect the five for four common stock
split declared on November 18, 1994 (See Note 6). The weighted average number
of common shares outstanding is:
1995 1994 1993
---- ---- ----
Primary 4,189,990 3,896,755 3,892,763
========= ========= =========
Fully diluted 4,197,166 3,908,089 3,896,595
========= ========= =========
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
------------------------------------------
Statements of Cash Flows
- ------------------------
For purposes of the statements of cash flows, the Company considers marketable
securities with a maturity of three months or less at the time of purchase to be
cash equivalents. The Company paid interest of $679,000, $382,000, and $338,000
in fiscal 1995, 1994 and 1993, respectively. In addition, the Company paid
income taxes of $2,283,000, $1,546,000, and $1,573,000 in fiscal 1995, 1994 and
1993, respectively.
Amortization of Goodwill and Intangible Assets
- ----------------------------------------------
Goodwill and intangible assets are amortized on the straight-line method over
periods ranging from five to fifteen years. Cost and related amortization are
written off when fully amortized.
Business and Credit Concentrations
- ----------------------------------
The Company is required by SFAS No. 105, "Disclosure of Information about
Financial Instruments with Off Balance Sheet Risk and Financial Instruments with
Concentrations of Credit Risk," to disclose significant off balance sheet and
credit risk concentrations regardless of the degree of such risk.
Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of temporary cash investments and trade accounts
receivable. The Company places its temporary cash investments with high credit
quality financial institutions. The Company's customers are not concentrated in
any specific geographic region, but are broadly concentrated in the imaging and
cleaning and personal care products industries. In 1995 and 1994, sales to one
customer in the Imaging segment amounted to $6,594,000 and $5,099,000,
respectively. No single customer accounted for a significant amount of the
Company's business during 1993. Concentrations of credit risk with respect to
trade receivables are limited due to the large number of domestic and foreign
customers comprising the Company's customer base, and their dispersion across
several different business sectors participating in different facets of the
imaging and cleaning and personal care products industries.
Income Taxes
- ------------
On April 1, 1993, the Company changed its method of accounting for income taxes
to comply with the provisions of Statement of Financial Accounting Standards No.
109 - "Accounting for Income Taxes," issued in February, 1992, (SFAS No. 109).
The cumulative effect of this change was not material. Therefore, the
cumulative effect adjustment has not been separately disclosed in the Statements
of Operations for the year ended March 31, 1994. Prior year financial
statements were not restated to apply the provisions of SFAS No. 109.
Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable in future years to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities. It also
allows recognition of future tax benefits of net operating loss carryforwards to
the extent that realization of such benefits is more likely than not.
2 - ACQUISITIONS
------------
On January 16, 1995, the Company signed an agreement with Stanhome Inc. to
license the domestic operations of Stanhome Inc.'s Worldwide Direct Selling
Group, known as Stanley Home Products. The agreement allows the Company to
manufacture and distribute products through the use of the trademarks and
formulas of Stanley Home Products in the U.S., Puerto Rico, and Canada, over the
life of the agreement, commencing April 1, 1995; the agreement expires, unless
terminated earlier under the terms of the agreement, on March 31, 2010, subject
to any extension which may be negotiated between the parties. The agreement
also allowed the Company to purchase inventory on a consignment basis through
September 30, 1996, and copies of historical business files, current customer
and supplier lists, and corresponding databases were obtained. The Company also
had the option of purchasing various machinery and equipment at book value, as
well as offering employment to various Stanhome Inc. employees. The Company is
required to pay Stanhome Inc., royalties equal to an increasing percentage
(ranging from 1% in the first year to 7.5% in the last six years) of the net
selling price of products sold under the licensing agreement. Based on these
terms, at March 31, 1995, the Company has made a preliminary allocation of the
purchase price and has recorded a liability equal to the net present value of
the estimated minimum royalty payments. In addition, the Company has
capitalized the value of the license agreement and will amortize it over the
contract period. For purposes of the Statement of Cash Flows, this transaction
has been treated as a non-cash transaction. Stanley Home Products will operate
as a division of The Fuller Brush Company, Inc. (Fuller), and its sales and
related expenses will be included with the results of operations of the Company
beginning April, 1, 1995.
On October 13, 1994, the Company acquired substantially all of the assets of The
Fuller Brush Company, a Kansas corporation, in exchange for payment of
$1,719,000 in cash, 300,000 restricted shares of the Company's $.01 par value
common stock with a fair market value of $3,360,000, the assumption of certain
of Seller's liabilities, and acquisition related costs of $747,000 for a total
asset purchase price of approximately $15,883,000. For purposes of the
Statement of Cash Flows, the issuance of 300,000 restricted shares has been
treated as a non-cash transaction.
The acquisition has been accounted for as a purchase transaction. Fuller's
results of operations from the October 13, 1994, acquisition date have been
consolidated into the financial results for the year ended March 31, 1995.
The Company has made a preliminary allocation of purchase price of Fuller based
on the estimated respective fair values of the acquired assets and liabilities,
and expects to finalize the acquisition accounting during the next fiscal year.
The final allocation is not expected to have a significant impact upon the
results of operations as previously reported. The preliminary purchase price
has been allocated as follows:
Accounts receivable $ 1,950,000
Inventory 3,593,000
Other current assets 830,000
Property, plant and equipment 9,134,000
Patents and trademarks 25,000
Other long-term assets 351,000
-----------
Total assets acquired 15,883,000
Less: Liabilities assumed 10,057,000
-----------
$ 5,826,000
===========
2 - ACQUISITIONS - CONTINUED
------------
On a pro forma (unaudited) basis, if the license agreement with Stanhome Inc.
and the acquisition of Fuller had occurred as of April 1, 1993, the consolidated
results of operations of the Company including Stanley Home Products and Fuller
would have been approximately:
Year-Ended Year-Ended
March 31, 1995 March 31, 1994
-------------- --------------
(unaudited) (unaudited)
Net sales $107,403,000 $103,103,000
Net income $ 3,247,000 $ 2,235,000
Net income per share $ 0.74 $ 0.52
(both primary and fully diluted)
The pro forma information has been prepared on the basis of preliminary
assumptions and estimates which are subject to adjustment and may not be
indicative of actual or future results. Preliminary, unaudited net sales
information for Stanley Home Products during 1995 indicate that sales may be
significantly lower than historical levels. The reduction is partially
attributable to the peso devaluation which has significantly impacted sales at
the United States/Mexican border, as well as the elimination of credit sales and
implementation of an `all cash'' sales term policy. While it is unknown
whether these factors will continue to impact the Stanley Home Products'
operations during the Company's fiscal 1996 year, it is probable that the
proforma sales presented will be reduced.
3 - INVENTORY
---------
Inventory as of March 31,1995 and 1994 is summarized as follows:
1995 1994
---- ----
Raw materials and purchased parts $ 6,036,693 $3,682,467
Work-in-process 708,143 225,272
Finished goods 5,500,090 3,498,509
Promotional supplies 491,402 691,305
----------- ----------
$12,736,328 $8,097,553
=========== ==========
4 - PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment are comprised of the following at March 31:
1995 1994
---- ----
Land $ 625,442 $ 463,871
Buildings and improvements 8,163,036 3,176,069
Machinery and equipment 9,586,115 3,634,351
Furniture and fixtures 424,829 254,874
Leasehold improvements 1,065,169 1,009,016
Leased equipment 241,264 56,660
----------- -----------
20,105,855 8,594,841
Less: Accumulated depreciation and amortization 4,990,279 3,842,262
----------- -----------
$15,115,576 $ 4,752,579
=========== ===========
<TABLE>
5 - DEBT
----
At March 31, 1995 and 1994, debt consisted of the following:
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revolving credit agreement with a bank with interest payable monthly at prime
plus .25%. Prime was 9.0% at March 31, 1995. The maximum availability under
this agreement is $4,500,000 with all amounts outstanding due October 31,
1996. The revolving credit agreement is collateralized by substantially all
the assets of the Company, excluding CPAC Europe, N.V. $ 1,516,155 $ 801,432
Term loan payable to a bank in 50 monthly payments of $59,951 including
principal plus interest at 9.65%. The term loan is collateralized by
substantially all the assets of the Company, excluding CPAC Europe, N.V. 2,351,770
Term loan payable to a bank in 60 monthly installments of $14,850 with interest
at 7.25%. The term loan agreement is collateralized by certain machinery and
equipment. 465,630 603,987
Industrial Revenue Bonds, with interest payable monthly at a variable rate
(6.35% at March 31, 1995), maturing in June 2009. The bonds are
collateralized by a standby Letter of Credit (LOC) issued by a Bank, which
requires an annual fixed fee payment of 2% of the LOC value. The obligation
requires minimum principal payments of $840,000 prior to October 31, 1995. 6,000,000
Revolving credit agreement with a foreign bank with interest at 7.37% (4.75% in
1994). The maximum availability under this agreement is $886,000. The
availability is reduced annually in December by $65,000. Annual payments are
required in December until maturity. The revolving credit agreement is
collateralized by the Company's stock in CPAC Europe, N.V. 886,000 898,000
Term notes and revolving credit agreement with a foreign bank with interest
pegged to the U.S. prime rate. The floating interest rate at March 31, 1995
was 9.75% (5.75% in 1994). The revolving credit agreement is collateralized by
the net assets of CPAC Europe, N.V. 863,306 580,020
Mortgage note payable to a bank in monthly installments of $10,234 including
interest at 7.92% through October 31, 2008. Collateral consists of a mortgage
on specific real property. 1,020,359 1,060,087
Note payable, with principal and interest due October 12, 1995. Interest
accrues at 8% through March 31, 1995, and at 9% until maturity. The note is
unsecured. 1,000,000
Other 1,194,503 1,080,820
-------------- --------------
15,297,723 5,024,346
Less: Amounts due within one year 3,382,848 756,271
-------------- --------------
$ 11,914,875 $ 4,268,075
============== ==============
</TABLE>
5 - DEBT - CONTINUED
----
The revolving credit and term loan agreements contain restrictive covenants, the
more significant of which relate to indebtedness, net worth, working capital,
financial ratios, and cash flow. At March 31, 1995, the Company was in
compliance with the covenants or appropriate waivers were obtained.
Annual maturities of debt are as follows:
1997 $2,456,955
1998 1,727,569
1999 787,157
2000 162,407
2001 129,617
Thereafter 6,651,170
----------
$11,914,875
===========
6 - SHAREHOLDERS' EQUITY
--------------------
Stock Split and Dividend
- ------------------------
On November 18, 1994, the Board of Directors declared a stock split of five
shares of CPAC, Inc. common stock for each four shares of stock held by
shareholders of record on December 22, 1994, payable on January 12, 1995.
Accordingly, since the par value of the common stock remains unchanged, an
amount equal to the par value of the additional shares issued has been charged
to additional paid-in capital and credited to common stock at March 31, 1995.
All earnings per share and weighted average, primary and fully diluted shares
outstanding for each of the quarters in the years ended March 31, 1995 and 1994,
have been restated to reflect the five for four stock split. Earnings per share
for the years ended March 31, 1995, 1994, and 1993 would have been $0.95, $0.84,
and $0.81, respectively, without the impact of this five for four stock split.
On November 18, 1994, the Company also announced that it had discontinued its
cash dividend indefinitely.
On April 21, 1993, the Board of Directors declared a 5% stock dividend on the
Company's common stock payable June 11, 1993, to shareholders of record as of
May 21, 1993. Shareholders received one additional share of stock for each 20
shares held. Accordingly, amounts equal to the fair market value (based on
quoted market price, as adjusted) of the additional shares issued, have been
charged to retained earnings and credited to common stock and additional paid-in
capital at March 31, 1993. Earnings per share and weighted average shares
outstanding as of March 31, 1993, were restated to reflect this 5% stock
dividend.
Stock Options
- -------------
In fiscal 1995, shareholders of the Company approved an Executive Long-Term
Stock Investment Plan (the Plan) for key employees, which allows issuance of
incentive stock options, nonqualified stock options, reload options, and
restricted performance shares. As part of the Plan, 350,000 shares of the
Company's $.01 par value common stock have been reserved for issuance. Under
the Plan, shares of common stock are reserved for issuance to key employees.
Upon exercise, an employee granted an option under the Plan may pay for the
Company's stock either with cash or with Company stock already owned by the
employees, valued at the fair market value of the stock on the exercise date.
The term of each option is determined by the Stock Option Committee. On
November 18, 1994, the Company issued 48,750 incentive stock options (as
adjusted for the five for four stock split), pursuant to the Plan.
6 - SHAREHOLDERS' EQUITY - CONTINUED
--------------------
Because `incentive stock options'' constitute a feature of the Plan, the 1991
Employees' Incentive Stock Option Plan was terminated as to the grant of future
options thereunder. The termination of the 1991 plan did not have any effect on
the remaining options outstanding under this plan. As of March 31, 1995,
options outstanding under all plans are summarized as follows:
OPTION PRICE
SHARES PER SHARE
------ ---------
Options outstanding - March 31, 1992 104,395 $ 0.833 to 6.905
Exercised (7,000) 0.833 to 6.905
Expired
Granted 66,150 7.857 to 8.750
---------- -----------------
Options outstanding - March 31, 1993 163,545 0.833 to 8.750
Exercised (70,805) 0.833 to 7.857
Expired (8,925) 5.238 to 7.857
Granted 97,125 7.938 to 9.000
---------- -----------------
Options outstanding - March 31, 1994 180,940 $ 2.738 to 9.000
Exercised (25,140) 6.350 to 7.938
Expired
Granted 48,750 11.00
Stock split 40,625 2.190 to 7.200
---------- -----------------
Options outstanding - March 31, 1995 245,175 $ 2.190 to 11.00
========== =================
Options exercisable:
March 31, 1995 104,872 $ 2.190 to 7.200
========== =================
March 31, 1994 64,753 $ 2.738 to 9.000
========== =================
On October 12, 1994, 18,750 shares of common stock of the Company were reserved
for sale to a private individual as consideration for a loan obtained in
connection with the acquisition of The Fuller Brush Company. This option was
granted at an option price of $8.80 (as adjusted for the five for four stock
split). This option is exercisable at any time through October 12, 1997, on
which date the option expires.
On October 12, 1994, 18,750 shares of common stock of the Company were reserved
for sale to J. E. Sheehan & Company, Inc. under a stock option, granted at an
option price of $8.80 (as adjusted for the five for four stock split),
exercisable at any time through October 12, 1997, at which time the option
expires. The Company continues to reserve 26,251 common stock shares under a
June, 1990, stock option, at an option price of $6.048 per share (as adjusted
for the five for four stock split and the 5% June, 1993, stock dividend) which
is exercisable at any time through June 13, 1997, on which date the option
expires.
On June 13, 1991, 6,563 shares of common stock of the Company were reserved for
sale to an outside director of the Company under a stock option. This option
was granted at an option price of $5.428 per share, (the fair market value as of
the date the option was granted, as adjusted for the five for four stock split
and the 5% stock dividend). This option is exercisable at any time through June
13, 1996, on which date the option expires.
6 - SHAREHOLDERS' EQUITY - CONTINUED
--------------------
There have been no charges to income in any of the three years in connection
with these options other than incidental expenses related to issuance of
options.
Employee Benefits
- -----------------
On April 13, 1994, the Company entered into a deferred compensation agreement
with an executive officer of the Company pursuant to which 18,750 shares (post-
split) of the Company's $.01 par value common stock were issued subject to
certain conditions and restrictions. For the year ended March 31, 1995, 6,250
shares vested and were recognized as expense. The expense relating to the
remaining 12,500 shares will be recognized over a five year period as it is
earned, at which time the restrictions will lapse. Total expense recognized for
the year ended March 31, 1995, was $81,875. The unearned balance, which has
been grouped with additional paid-in capital, amounted to $112,500.
On November 18, 1994, in connection with the issuance of incentive stock
options, the Board of Directors awarded 12,187 shares (post-split) of the
Company's $.01 par value common stock as `restricted performance shares'' to
certain employees pursuant to the 1994 Executive Long-Term Stock Investment
Plan. Restrictions on these shares will lapse over a five year period, if
performance objectives have been met during the period. Shares may be forfeited
if their related incentive stock options are exercised. At March 31, 1995, the
unearned balance, which has been grouped with additional paid-in capital,
amounted to $127,388. The expense recognized for the year ended March 31, 1995,
was not significant.
The Company maintains a contributory profit sharing plan [401(k)] for the
benefit of substantially all employees. Contributions to the plan may be made
for each plan year in such amounts as the Board of Directors may, at its
discretion, determine. In addition, the Company will also match to a maximum of
3% of the participant's compensation each contribution made by a plan
participant for the plan year in an amount equal to $.50 for each $1.00 of
participant contribution. A participant may contribute up to 15% of
compensation to the plan. The amount charged to expense in connection with this
plan was $125,000, $113,000, and $121,000 for the years ended March 31, 1995,
1994 and 1993, respectively.
7 - PROVISION FOR INCOME TAX EXPENSE
--------------------------------
The provision for income taxes is summarized as follows:
1995 1994 1993
---- ---- ----
Current tax expense:
Federal $ 2,000,000 $ 1,427,000 $ 1,513,000
State 443,000 221,000 217,000
------------ ------------ ------------
2,443,000 1,648,000 1,730,000
Deferred taxes (benefit):
Federal (318,000) (45,000) (92,000)
State (47,000) (7,000)
------------ ------------ ------------
(365,000) (52,000) (92,000)
$ 2,078,000 $ 1,596,000 $ 1,638,000
============ ============ ============
7 - PROVISION FOR INCOME TAX EXPENSE - CONTINUED
--------------------------------
The differences between the provision for income taxes and income taxes computed
using the U.S. federal income tax rate are as follows:
1995 1994 1993
---- ---- ----
Income tax expense using statutory rates $1,791,000 $1,436,000 $1,417,000
State income tax effect 261,000 141,000 143,000
Other items, net 26,000 19,000 78,000
---------- ---------- ----------
$2,078,000 $1,596,000 $1,638,000
========== ========== ==========
Temporary differences and carryforwards which give rise to a significant portion
of deferred tax assets and liabilities at March 31, 1995 and 1994 are as
follows:
March 31, 1995 March 31, 1994
-------------- --------------
Deferred tax assets:
Current:
Accounts receivable $ 188,000 $ 172,000
Inventory 352,000 109,000
Other 190,000 37,000
---------- ----------
730,000 318,000
Noncurrent:
Property, plant and equipment 1,000
Other 15,000
Deferred compensation 106,000 106,000
Net operating loss carryforwards 120,000
---------- ----------
121,000 227,000
Valuation allowance (120,000)
---------- ----------
851,000 425,000
Deferred tax liabilities:
Noncurrent:
Property, plant and equipment (44,000)
Other (17,000)
---------- ----------
(61,000)
---------- ----------
Total $ 790,000 $ 425,000
========== ==========
During the year ended March 31, 1995, the Company utilized its remaining net
operating loss carryforwards related to its foreign subsidiaries to offset the
taxable income of the applicable foreign subsidiary.
The Company has not provided for U.S. taxes on the undistributed earnings of
foreign subsidiaries that are considered to be reinvested indefinitely.
Calculation of the unrecognized deferred tax liability for temporary differences
related to these earnings is not practicable.
8 - COMMITMENTS
-----------
Environmental Contingency
- -------------------------
In connection with the Fuller Brush acquisition, certain environmental
contamination issues were discovered at the Great Bend, Kansas facility during
the due diligence process. As a result of findings generated by environmental
assessments of the facility, the Seller and the Department of Health and
Environment of the State of Kansas entered into a Consent Order pursuant to
which the Seller developed and submitted for the Department's approval, a
comprehensive work plan for remediation of the environmental problems at the
site. Upon the approval of its work plan by the Department, the Seller will
undertake the remediation called for in the work plan.
The Consent Order does not apply, by its terms, to The Fuller Brush Company,
Inc. as the new purchaser of the assets of the Seller as long as the Seller is
performing its obligations under the Consent Order. Estimates of the costs of
the remediation as set forth in the work plan submitted by the Seller range from
$150,000 to $200,000. In order to secure the performance of such obligations by
the Seller and to provide a fund from which the costs of the required
remediation are to be paid, the Company and the Seller established a cash escrow
account in the total amount of $700,000, the first $250,000 of which was
provided by the Seller, with the balance provided by the Company.
Lease Agreements
- ----------------
The Company leases certain facilities under operating leases which expire at
various dates through 2001. Some of the leases contain renewal options. Rent
expense for the years ended March 31, 1995, 1994 and 1993 was $1,103,000,
$855,000, and $943,000, respectively.
The above leases have been classified as operating leases in accordance with the
provisions of the Statement of Financial Accounting Standards No. 13. The
future minimum rental payments required under the leases for the fiscal years
ended subsequent to March 31, 1995 are as follows:
1996 $ 1,334,176
1997 1,027,012
1998 810,118
1999 398,292
2000 184,773
Thereafter 162,912
------------
$ 3,917,283
============
9 - SEGMENT INFORMATION
-------------------
Business Segments
- -----------------
Prior to the acquisition of Fuller, the Company classified its operations into
one industry segment -- the manufacture and sale of prepackaged chemical
formulations, supplies, and equipment systems to the imaging industry.
Following the acquisition of Fuller and the signing of the Stanley Home Products
license agreement, the Company has added a new segment for financial reporting
purposes. In addition to the Imaging segment, the Company also operates in the
Cleaning and Personal Care Products segment which includes specialty chemical
cleaning products and related accessories (brushes, brooms, mops) for industrial
and consumer use, as well as personal products such as soaps, shampoos, and skin
care. The products of each segment are manufactured and marketed both in the
U.S. and in other parts
9 - SEGMENT INFORMATION - CONTINUED
-------------------
of the world. Sales between segments are not material. Information concerning
the Company's business segments for 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales to customers:
Imaging $ 46,571,306 $ 43,798,163 $ 39,871,200
Cleaning & Personal Care Products 12,058,719
----------------- ------------------ -----------------
Total net sales to customers $ 58,630,025 $ 43,798,163 $ 39,871,200
================= ================== =================
Operating income:
Imaging $ 4,553,740 $ 4,573,388 $ 4,442,232
Cleaning & Personal Care Products 1,427,053
----------------- ------------------ -----------------
Total operating income $ 5,980,793 $ 4,573,388 $ 4,442,232
================= ================== =================
Identifiable assets:
Imaging $ 32,833,042 $ 27,020,670 $ 23,027,668
Cleaning & Personal Care Products 16,161,419
----------------- ------------------ -----------------
Total identifiable assets $ 48,994,461 $ 27,020,670 $ 23,027,668
================= ================== =================
Depreciation & amortization:
Imaging $ 909,772 $ 869,519 $ 828,895
Cleaning & Personal Care Products 405,561
----------------- ------------------ -----------------
Total depreciation & amortization $ 1,315,333 $ 869,519 $ 828,895
================= ================== =================
Capital outlays:
Imaging $ 1,633,727 $ 2,307,037 $ 286,153
Cleaning & Personal Care Products 658,514
----------------- ------------------ -----------------
Total capital outlays $ 2,292,241 $ 2,307,037 $ 286,153
================= ================== =================
</TABLE>
Operating income represents net sales less operating expenses and excludes
minority interest, interest expense, and income taxes.
Geographic Segment
- ------------------
Foreign operations are located in Belgium, Italy, and Venezuela. Included in
consolidated net income are foreign currency transaction losses of $41,000,
$125,000, and $43,000, realized during fiscal 1995, 1994, and 1993,
respectively. Information concerning the Company's foreign operations after
translation into U.S. dollars are summarized as follows for fiscal years ended
March 31:
1995 1994 1993
---- ---- ----
Net sales:
United States $ 52,345,205 $ 37,731,242 $ 34,474,232
Foreign 6,284,820 6,066,921 5,396,968
------------- ------------ ------------
$ 58,630,025 $ 43,798,163 $ 39,871,200
============= ============ ============
Operating income (loss):
United States $ 5,801,070 $ 4,299,998 $ 4,608,354
Foreign 179,723 273,390 (166,122)
------------- ------------ ------------
$ 5,980,793 $ 4,573,388 $ 4,442,232
============= ============ ============
Identifiable assets:
United States $ 43,069,211 $ 21,077,713 $ 16,962,232
Foreign 5,925,250 5,942,957 6,065,436
------------- ------------ ------------
$ 48,994,461 $ 27,020,670 $ 23,027,668
============= ============ ============
9 - SEGMENT INFORMATION - CONTINUED
-------------------
Operating income excludes minority interest in consolidated foreign subsidiary,
interest expense (income) net, and income tax expense. Foreign interest expense
for the years ended March 31, 1995, 1994 and 1993 amounted to $125,877,
$156,259, and $188,687, respectively. Identifiable assets are those assets
employed in an area's operations, including an allocated value to each area of
cost in excess of net assets acquired. Inter-area transfers are not material.
In addition, the Company's U.S. operations had total export sales for the years
ended March 31, 1995, 1994 and 1993 of $2,902,395, $2,244,766, and $1,891,853,
respectively.
10 - QUARTERLY FINANCIAL DATA (UNAUDITED)
------------------------------------
The following table sets forth the unaudited quarterly results of operations for
each of the fiscal quarters in the years ended March 31, 1995 and 1994:
<TABLE>
<CAPTION>
PER SHARE
PER SHARE INCOME
INCOME PRIMARY AND
PRIMARY AND FULLY DILUTED
NET GROSS NET FULLY DILUTED (PRIOR TO
SALES PROFIT INCOME (AS RESTATED) RESTATEMENT)
----- ------ ------ ------------- ------------
1995 QUARTERS:
- -------------
<S> <C> <C> <C> <C> <C>
Fourth $ 18,382,458 $ 7,404,499 $ 820,043 $ 0.18 $ 0.23
Third 17,226,843 6,926,579 903,488 0.21 0.26
Second 11,912,160 5,024,346 794,016 0.20 0.25
First 11,108,564 4,803,551 671,377 0.17 0.21
---------------- ---------------- ----------------- -------- -------
Total $ 58,630,025 $ 24,158,975 $ 3,188,924 $ 0.76 $ 0.95
================ ================ ================= ======== =======
1994 QUARTERS:
- -------------
Fourth $ 11,838,443 $ 4,669,093 $ 629,269 $ 0.16 $ 0.20
Third 11,188,590 4,540,611 839,447 $ 0.22 0.27
Second 10,958,547 4,613,390 749,507 $ 0.19 0.24
First 9,812,583 3,908,291 409,088 $ 0.10 0.13
---------------- ---------------- ----------------- -------- -------
Total $ 43,798,163 $ 17,731,385 $ 2,627,311 $ 0.67 $ 0.84
================ ================ ================= ======== =======
</TABLE>
As described in Note 6, per share income for each of the quarters has been
restated to reflect the five for four common stock split. Amounts above reflect
what per share income, primary, and fully diluted would have been with and
without the impact of this stock split.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
Certain information concerning the directors and executive officers of the
Company is incorporated by reference to the caption "Directors and Executive
Officers" in the Proxy Statement of the Company, dated June 23, 1995, (the "1995
Proxy Statement").
In addition to the executive officers named in the Proxy Statement, the
Registrant employs the following key persons:
BRIAN C. BARBO, age 38, is Vice President and General Manager of Trebla
Chemical Company, and has served in that capacity since October 1988. He was
formerly Manager of Manufacturing for Trebla Chemical Co. Mr. Barbo, a chemical
engineer, has been with the Company since July 1979.
PEDRO P. BONILLA, age 43, was named President of Trebla Chemical Company on
April 24, 1995, and has also served as acting President of Allied Diagnostic
Imaging Resources, Inc. since October 1994. Mr. Bonilla joined Trebla in
February, 1993 as Vice President, Latin America/Caribbean. Prior to joining
Trebla, Mr. Bonilla was previously General Manager of Technolab in Santo
Domingo, and more recently as an independent consultant in Florida and the
Caribbean. In this capacity, he also represented Trebla as an independent
representative to these territories.
J. ROBERT DUDIK, age 63, is President of Allied's Dental Division, a
position he assumed in January, 1990. He was formerly Vice President of the
Dental Division (1988-90), and, prior to that, National Sales Manager. Mr.
Dudik has been an employee of Allied since 1982 and serves on the Board of
Directors of Allied Diagnostic Imaging Resources, Inc.
FRANK J. MANFRE, age 38, is currently Vice President of Sales and Marketing
for Allied Diagnostic Imaging Resources, Inc., a position he has held since May
1993. Mr. Manfre has been with CPAC, Inc. since 1984, formerly serving as
Operations Manager, then General Manager, for the Equipment Group, Director of
Marketing Communications for PRS, and PRS Northeast Regional Sales Manager.
THOMAS F. RIORDEN, President, PRS, Inc., is 51 years old and has served in
that position since May 1988. Prior to that he served as PRS Vice President,
Chemical Sales. Mr. Riorden also serves on the Board of Directors for both the
CPAC Equipment Group and PRS, Inc. As President of PRS, Mr. Riorden is
responsible for the coordination of nationwide sales activities for all
products, exclusive of dental, medical and graphics chemistry, presently being
marketed by the Company. He has been with CPAC since 1979.
EDWARD E. SCHILLER, 48, is Vice President and Technical Director for Trebla
Chemical Company, a position he has held since February, 1985. From May, 1982
to January, 1985, he was Operations Manager at Trebla Chemical Co. Mr. Schiller
is currently responsible for all research and development for CPAC, Inc. and its
subsidiaries; he is also responsible for the technical service representatives
at Trebla Chemical Company, and is the Registrant's Environmental Compliance
Officer.
ERNEST E. THOMPSON III, age 43, joined the Company in 1974. He was named
Vice President of Sales and Marketing for CPAC Equipment Division in March,
1994. Formerly, he served as International Sales Manager for PRS, Inc., and
Service Manager for the CPAC Equipment Division. Mr. Thompson started his
career with CPAC as an R & D Chemist.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Information regarding executive compensation is incorporated by reference to
the caption "Executive Compensation" in the 1995 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The stock ownership of each person known to CPAC to be the beneficial owner
of more than 5% of its Common Stock and the stock ownership of all directors and
officers of CPAC as a group are incorporated by reference to the caption
"Security Ownership of Certain Beneficial Owners and Management" in the 1995
Proxy Statement. The beneficial ownership of CPAC Common Stock of all directors
of the Company is incorporated by reference to the caption "Security Ownership
of Certain Beneficial Owners and Management" in the 1995 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Information regarding certain relationships and related transactions is
incorporated by reference to the caption "Information About The Board and Its
Committees" in the 1995 Proxy Statement.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a)The following financial statements of the Registrant are included as part of
the report:
1.FINANCIAL STATEMENTS:
--------------------
Report of Independent Accountants
Consolidated Balance Sheets as of March 31, 1995 and 1994
Consolidated Statements of Operations for the Years Ended March 31, 1995,
1994, and 1993
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended March 31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows for the Years Ended March 31, 1995,
1994, and 1993
Notes to Consolidated Financial Statements
2.FINANCIAL STATEMENT SCHEDULES:
-----------------------------
Schedule II, Valuation and Qualifying Accounts and Reserves
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in
the financial statements or notes thereto.
(b) Reports on Form 8-K
-------------------
1.On January 30, 1995, the Company filed a Current Report (Form 8-K)
reporting the signing of a Licensing Agreement with Stanhome Inc. of
Westfield, Massachusetts, pursuant to which the Company acquired the
exclusive right to manufacture, sell, advertise, and distribute the home
care and personal care products of Stanhome's U.S. Direct Selling
Division, known as ``Stanley Home Products.''
2.On March 31, 1995, the Company filed Amendment No. 1 to its January 30,
1995, Current Report on Form 8-K(A) to provide certain financial
statements as required by Form 8-K, Items 7(A) and 7 (B) with respect to
the Stanhome Licensing Agreement.
ITEM 14. FINANCIAL STATEMENT SCHEDULE SCHEDULE II
----------------------------
CPAC, INC.
----------
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
----------------------------------------------
FOR THE FISCAL YEARS ENDED MARCH 31, 1995, 1994 AND 1993
--------------------------------------------------------
BALANCE AT BALANCE
BEGINNING AT END OF
OF PERIOD ADDITIONS DEDUCTIONS PERIOD
--------- --------- ---------- ------
1995:
Allowance for doubtful
accounts $ 509,000 $ 454,000 $ (362,000) $ 601,000
Inventory reserve 252,000 608,000 (96,000) 764,000
1994:
Allowance for doubtful
accounts $ 528,000 $ 396,000 $ (415,000) $ 509,000
Inventory reserve 152,000 110,000 (10,000) 252,000
1993:
Allowance for doubtful
accounts $ 251,000 $ 328,000 $ (51,000) $ 528,000
Inventory reserve 171,000 77,000 (96,000) 152,000
EXHIBIT INDEX
-------------
Exhibit Page
- ------- ----
2. Plan of acquisition, reorganization, arrangement,
liquidation, or succession
2.2 Licensing Agreement with Stanhome Inc.
incorporated by reference to Form 8-K (Current
Report) filed January 30, 1995 N/A
3. Articles of Incorporation, By-Laws
3.1 Certificate of Incorporation, as amended,
incorporated by reference to Form 10-K, filed
for period ended March 31, 1989 N/A
3.2 By-laws, as amended, incorporated by reference
to Form 10-K, filed for period ended March 31,
1989 N/A
4. Instruments defining the rights of security
holders, including indentures
4.1 Loan Agreement dated February 9, 1994, and
Letter of Commitment dated December 16, 1993,
incorporated by reference to Form 10-K filed
for period ended March 31, 1994, as amended by
Exhibits 99.1 to 99.3 filed as Exhibits to the
Form 10-Q for the quarter ended December 31,
1994. N/A
9. Voting Trust Agreement N/A
10. Material Contracts N/A
11. Statement re: Computation of Per Share Earnings
(Loss) N/A
12. Statement re: Computation of Ratios N/A
13. Annual Report to Security Holders N/A
16. Letter re: Change of Certifying Accountant N/A
18. Letter re: Change in Accounting Principles N/A
21. Subsidiaries of the Registrant
21.1 Subsidiaries of the Registrant 44
22. Published report regarding matters submitted to
vote of security holders N/A
23. Consent of Experts and Counsel
23.1 Consent of Coopers & Lybrand L.L.P. 45
24. Power of Attorney N/A
27. Financial Data Schedule 46
28. Information from reports furnished to state
insurance regulatory authorities N/A
99. Additional Exhibits N/A
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CPAC, INC.
Date June 27, 1995 By /s/ Thomas N. Hendrickson
---------------------------- ------------------------------
Thomas N. Hendrickson,
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date June 27, 1995 By /s/ Thomas N. Hendrickson
---------------------------- ------------------------------
Thomas N. Hendrickson,
President, Chief Executive
Officer, Treasurer,
and Director
Date June 27, 1995 By /s/ Robert Oppenheimer
---------------------------- ------------------------------
Robert Oppenheimer, Secretary
and Director
Date June 27, 1995 By /s/ Robert C. Isaacs
---------------------------- ------------------------------
Robert C. Isaacs, Senior Vice
President and Director
Date June 27, 1995 By /s/ Seldon T. James, Jr.
---------------------------- ------------------------------
Seldon T. James, Jr., Director
Date June 27, 1995 By /s/ John C. Burton
---------------------------- ------------------------------
John C. Burton, Director
Date June 27, 1995 By /s/ Thomas J. Weldgen
---------------------------- ------------------------------
Thomas J. Weldgen
Chief Financial Officer
Date June 27, 1995 By /s/ Wendy F. Clay
---------------------------- ------------------------------
Wendy F. Clay
Vice President, Administration
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of CPAC, Inc. for the period ending March 31, 1995, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000351717
<NAME> CPAC, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 81,891
<SECURITIES> 0
<RECEIVABLES> 13,692,450
<ALLOWANCES> 601,000
<INVENTORY> 12,736,328
<CURRENT-ASSETS> 27,929,793
<PP&E> 20,105,855
<DEPRECIATION> 4,990,279
<TOTAL-ASSETS> 48,994,461
<CURRENT-LIABILITIES> 11,855,708
<BONDS> 15,297,723
<COMMON> 43,799
0
0
<OTHER-SE> 22,604,873
<TOTAL-LIABILITY-AND-EQUITY> 48,994,461
<SALES> 58,630,025
<TOTAL-REVENUES> 58,630,025
<CGS> 34,471,050
<TOTAL-COSTS> 34,471,050
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 742,337
<INCOME-PRETAX> 5,266,924
<INCOME-TAX> 2,078,000
<INCOME-CONTINUING> 3,188,924
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,188,924
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.76
</TABLE>
EXHIBIT 21.1
------------
CPAC, INC.
----------
SUBSIDIARIES OF REGISTRANT
--------------------------
STATE/COUNTRY OF PERCENT
COMPANY NAME INCORPORATION OWNERSHIP
------------ ------------- ---------
PRS, Inc. New York 100
Allied Diagnostic Imaging Resources, Inc. Delaware 100
Trebla Chemical Company Delaware 100
CPAC Europe, N.V. Belgium 98
Fotoprocesos de Venezuela C.A. Venezuela 100
CPAC Italia, S.r.l. Italy 100
The Fuller Brush Company, Inc. New York 100
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the registration statement of
CPAC, Inc. on Form S-3 (File No. 33-52164) and in the registration statement of
CPAC, Inc. on Form S-8 (File No. 0-9600) of our report dated June 2, 1995, on
our audits of the consolidated financial statements and the financial statement
schedule of CPAC, Inc. and Subsidiaries as of March 31, 1995, and 1994, and for
each of the three years in the period ended March 31, 1995, which report is
included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Rochester, New York
June 27, 1995
