FORM 10-Q
---------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1996
-----------------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------- ---------------------------
Commission File No. 0-9600
-------------------------------------------------------------
CPAC, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
New York 16-0961040
- ---------------------------------------- ------------------------------------
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
2364 Leicester Rd., Leicester, New York 14481
- ---------------------------------------- ---------------------------------
(Address of Principal Executive Offices) (ZIP Code)
Registrant's telephone number, including area code: (716) 382-3223
-----------------------------
Securities registered under Sec. 12(g) of the Act:
$.01 Par Value Common Stock
- --------------------------------------------------------------------------------
(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 [ ]
As of September 30, 1996, there were outstanding 7,038,503 shares of the
Company's Common Stock, $.01 Par Value. Options for 792,006 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.
CPAC, INC. AND SUBSIDIARIES
--------------------------
INDEX
-----
PART I FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Financial Statements
CPAC, Inc. and Subsidiaries Consolidated
Balance Sheets - September 30, 1996 (Unaudited),
and March 31, 1996 3
CPAC, Inc. and Subsidiaries Consolidated
Statements of Operations - Six Months Ended
September 30, 1996, and September 30, 1995 (Unaudited) 4
CPAC, Inc. and Subsidiaries Consolidated
Statements of Operations - Three Months Ended
September 30, 1996, and September 30, 1995 (Unaudited) 5
CPAC, Inc. and Subsidiaries Consolidated
Statements of Cash Flows - Six Months Ended
September 30, 1996, and September 30, 1995 (Unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE PAGE 13
EXHIBIT INDEX 14
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<CAPTION>
SEPTEMBER 30, 1996 MARCH 31, 1996
------------------ --------------
(Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,231,724 $ 13,667,286
Accounts receivable (net of allowance for doubtful
accounts of $693,000 and $611,000, respectively) 13,486,559 12,699,485
Inventory 16,236,562 16,246,212
Prepaid expenses and other current assets 1,939,307 1,915,987
---------------- ----------------
Total current assets 44,894,152 44,528,970
Property, plant and equipment, net 16,413,269 16,484,455
Goodwill and intangible assets (net of amortization of
$1,448,909 and $1,366,534, respectively) 2,544,435 2,688,806
Other assets 2,136,843 2,470,237
---------------- ----------------
$ 65,988,699 $ 66,172,468
================ ================
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 236,498 $ 307,481
Accounts payable 4,100,861 5,780,618
Accrued payroll and related expenses 1,701,705 1,701,431
Accrued income taxes payable 174,430
Other accrued expenses and liabilities 3,550,139 3,446,773
---------------- ----------------
Total current liabilities 9,763,633 11,236,303
Long-term debt, net of current portion 7,702,271 8,038,409
Accrued deferred compensation 531,894 480,208
Accrued royalty 1,852,476 1,852,476
Other long-term liabilities 517,790 429,790
Minority interest in foreign subsidiary 37,044 33,358
Shareholders' equity:
Common stock, par value $0.01 per share;
Authorized 20,000,000 shares;
Issued 7,114,462 shares and 7,419,962 shares,
respectively 71,145 74,077
Additional paid-in capital 25,939,253 28,497,059
Retained earnings 20,262,793 16,182,642
Foreign currency translation adjustment (235,537) (197,791)
---------------- ----------------
46,037,654 44,555,987
Less: Treasury stock, at cost, 75,959 shares (454,063) (454,063)
---------------- ----------------
Total shareholders' equity 45,583,591 44,101,924
---------------- ----------------
$ 65,988,699 $ 66,172,468
================ ================
<FN>
Note: The balance sheet at March 31, 1996, has been taken from the audited financial statements of that date.
</TABLE>
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE SIX MONTHS ENDED
------------------------
SEPTEMBER 30, 1996, AND SEPTEMBER 30, 1995
------------------------------------------
UNAUDITED
---------
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net sales $ 47,414,271 $ 44,442,329
----------------- ----------------
Costs and expenses:
Cost of sales 24,640,673 24,120,058
Selling, administrative and
engineering expenses 15,466,677 14,806,862
Research and development expense 329,922 311,275
Minority interest in consolidated
foreign subsidiary 3,686 651
Interest expense, net 47,162 630,996
----------------- ----------------
40,488,120 39,869,842
----------------- ----------------
Income before income tax expense 6,926,151 4,572,487
Provision for income tax expense 2,846,000 1,842,000
----------------- ----------------
Net income $ 4,080,151 $ 2,730,487
================= ================
Income per common share
(Primary and Fully Diluted):
Net income $ 0.55 $ 0.48
================= ================
Common shares outstanding - fully diluted 7,425,900 5,620,860
================= ================
</TABLE>
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE THREE MONTHS ENDED
--------------------------
SEPTEMBER 30, 1996, AND SEPTEMBER 30, 1995
------------------------------------------
UNAUDITED
---------
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net sales $ 24,892,713 $ 22,970,212
----------------- ----------------
Costs and expenses:
Cost of sales 12,974,568 12,531,300
Selling, administrative and
engineering expenses 7,879,479 7,315,936
Research and development expense 168,037 152,479
Minority interest in consolidated
foreign subsidiary 2,955 860
Interest expense, net 5,288 307,214
----------------- ----------------
21,030,327 20,307,789
----------------- ----------------
Income before income tax expense 3,862,386 2,662,423
Provision for income tax expense 1,600,000 1,074,000
----------------- ----------------
Net income $ 2,262,386 $ 1,588,423
================= ================
Income per common share
(Primary and Fully Diluted):
Net income $ 0.31 $ 0.28
================= ================
Common shares outstanding - fully diluted 7,375,989 5,670,635
================= ================
</TABLE>
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE SIX MONTHS ENDED
------------------------
SEPTEMBER 30, 1996, AND SEPTEMBER 30, 1995
------------------------------------------
UNAUDITED
---------
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,080,151 $ 2,730,487
-------------- --------------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,015,627 918,662
Amortization of intangible assets 157,941 214,888
Changes in assets and liabilities, net of effects of
business acquisitions:
Accounts receivable (792,318) (110,130)
Inventory 3,216 (415,529)
Accounts payable (1,681,382) (275,079)
Accrued expenses & liabilities 174,030 1,834,760
Accrued deferred compensation 51,475 34,075
Other changes, net 560,624 604,294
-------------- --------------
Total adjustments (510,787) 2,805,941
-------------- --------------
Net cash provided by operating activities 3,569,364 5,536,428
-------------- --------------
Cash flows from investing activities:
Purchase of property, plant, and equipment, net (950,946) (1,432,419)
-------------- --------------
Net cash used in investing activities (950,946) (1,432,419)
-------------- --------------
Cash flows from financing activities:
Common stock repurchase (2,688,400)
Issuance of common stock, net 54,562 3,402,288
Repayment of long-term borrowings (420,142) (5,082,086)
-------------- --------------
Net cash used in financing activities (3,053,980) (1,679,798)
-------------- --------------
Effect of exchange rate changes on cash (16)
-------------- --------------
Net increase (decrease) in cash
and cash equivalents (435,562) 2,424,195
Cash and cash equivalents - beginning of period 13,667,286 81,891
-------------- --------------
Cash and cash equivalents - end of period $ 13,231,724 $ 2,506,086
============== ==============
</TABLE>
CPAC, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
UNAUDITED
--------
1. - CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
The consolidated balance sheets, the consolidated statements of operations
and the consolidated statements of cash flows for the six-month periods ended
September 30, 1996, and September 30, 1995, have been prepared by the Company
without audit. In the opinion of management, all adjustments necessary to
present fairly the financial position, results of operations, and changes in
cash flows at September 30, 1996 (which include only normal recurring
adjustments), have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's March 31, 1996, annual report to
shareholders. The results of operations for the six months ended September 30,
1996, are not necessarily indicative of the operating results for the full year.
2 - INVENTORY
---------
Inventory is summarized as follows:
SEPTEMBER 30, 1996 MARCH 31, 1996
------------------ --------------
Raw materials and purchased parts $ 6,864,918 $ 7,565,059
Work-in-process 993,037 750,069
Finished goods 8,174,973 7,678,170
Promotional supplies 203,634 252,914
----------- -----------
$ 16,236,562 $16,246,212
=========== ===========
3 - SHARE REPURCHASE
-----------------
On August 27, 1996, the Company purchased 305,500 shares from a private
investor, at a negotiated price of $2,688,400. These shares were canceled.
4 - LITIGATION
----------
No material litigation is pending to which the Company and/or its
subsidiaries are a party, or which property of the Company and/or its
subsidiaries is the subject.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
LIQUIDITY AND CAPITAL RESOURCES
--------------------------------
The Company's capital resources remained strong during the quarter ended
September 30, 1996, due to continued strong operating cash flows and remaining
funds available from the 1995 private placement. These funds are invested in
short-term investments.
The Company has negotiated a three year extension to October 31, 1999, on
its line of credit with a domestic bank, increasing the amount available for use
to $10 million. The line was not accessed at September 30, 1996. The agreement
contains a variety of covenants, including specific working capital and net
worth covenants, which are customary in such a credit facility.
The Company also maintains a line of credit facility with a major Belgian
bank, which was not accessed at September 30, 1996. The amount available is
34.3 million Belgian francs (approximately $1,106,000 based on the September
conversion rate for the Belgian franc).
During the quarter ended September 30, 1996, the Company used a portion of
its available working capital to purchase 305,500 shares of its $.01 par value
common stock from a private investor for $2,688,400. The Company does not
anticipate any additional share buyback transactions for the remainder of the
year.
The working capital ratios at September 30, 1996, March 31, 1996, and
September 30, 1995, were, 4.6 to 1, 4.0 to 1, and 2.7 to 1, respectively. The
increase in the working capital at September 30, 1996, as compared to March 31,
1996, is primarily the result of increased operating cash flows, which have
enabled the Company to continue to maintain its short-term investments. The
increase as compared to September 30, 1995, reflects the reduction in debt and
cash invested as a result of the private placement.
Management believes that the remaining private placement funds, coupled with
existing available lines of credit, and cash flows from operations should be
adequate to meet normal working capital needs, based on operations as of
September 30, 1996, as well as allow the Company to pursue future acquisitions.
ASSET TURNOVER RATIOS
- ---------------------
SEPTEMBER 30, 1996 MARCH 31, 1996 SEPTEMBER 30, 1995
------------------ -------------- ------------------
(1) Receivables-days
outstanding 52.2 days 55.3 days 56.0 days
(2) Annual inventory
turns 3.0 times 3.3 times 3.7 times
At September 30, 1996, the improvement in days outstanding continues to
reflect the impact of Stanley's cash sales business, as well as the inclusion of
The Fuller Brush Company receivables which generally have short payment terms.
The Imaging segment continues to average 90 days due to extended payment terms
for its dealers and foreign operations.
Decrease in inventory turns reflect the planned buildup of Stanley Home
Products' inventory, which in addition to the purchased consignment inventory,
is now primarily being manufactured in-house.
RESULTS OF OPERATIONS
---------------------
The Company operates in two industry segments: the Imaging segment which
includes the manufacture and sale of prepackaged chemical formulations,
supplies, and equipment systems to the imaging industry, and 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.
Sales for the quarter ended September 30, 1996, increased 8.4% over the
quarter ended September 30, 1995, and increased 6.7% for the six months ended
September 30, 1996, versus September 30, 1995. For the Imaging segment, overall
sales for the quarter ended September 30, 1996, increased 4.8% over the quarter
ended September 30, 1995, and increased 5.4% for the six months ended September
30, 1996, versus September 30, 1995. The increase for the quarter and year to
date in the Imaging segment is primarily the result of increased sales from the
Company's foreign subsidiaries. Sales for the quarter in the Cleaning and
Personal Care Products segment have increased 12.2% compared with the quarter
ended September 30, 1995, and 8% for the six months ended September 30, 1996,
versus September 30, 1995. The increase for the quarter and six months year to
date is a result of an increase in Fuller consumer contract sales business.
Net income for the quarter ended September 30, 1996, increased 42% over the
quarter ended September 30, 1995, and increased 49% for the six months ended
September 30, 1996, versus September 30, 1995, due to improved operating results
from both segments.
Gross margins have increased to 47.9% for this quarter versus 46% for the
year ended March 31, 1996, and 45.4% for the same quarter last year. Increased
volume through-put in the Cleaning and Personal Care segment's manufacturing
facility has helped to lower fixed manufacturing costs and increase margins.
Gross margins in the Imaging segment have increased to 41.5% from 40% at
March 31, 1996, and the quarter ended September 30, 1995, due to operating
efficiencies achieved from equipment modernization investments. These
improvements will allow us to pursue higher volume, price competitive contract
manufacturing opportunities at Fuller Brush and in Imaging. Thus, we do not
expect margin improvements to continue as these will be offset by lower margin
contracts.
Selling, administrative, and engineering costs this quarter were 31.7% of
sales compared with 33.6% at March 31, 1996, and 31.9% in the same quarter of
last year. The decrease from year end reflects lower expenses related to the
Imaging segment.
Net interest expense for the current quarter has decreased versus the
quarter ended September 30, 1995, primarily due to decreased borrowings, as a
result of the debt paydown from the private placement funds that took place in
the third quarter of fiscal 1996, supplemented with interest earned on the
invested funds.
The provision for income taxes as a percentage of consolidated pre-tax
earnings for the quarter ended September 30, 1996, was 41.4% versus 40.3% for
the quarter ended September 30, 1995, and 41.1% versus 40.3% for the six months
ended September 30, 1996. The rate increase is partially due to increased state
taxes, as well as taxes on foreign earnings, whose statutory tax rates are
higher than U.S. domestic tax rates.
FOREIGN OPERATIONS
- ------------------
Combined foreign operations showed improved operating results as both CPAC
Europe and CPAC Italia's net income for the quarter and six months ended
September 30, 1996, were substantially higher than the quarter and six months
ended September 30, 1995. While the economies of Italy and Belgium have been
suffering from serious general economic slowdowns, sales volumes and market
share of CPAC subsidiaries in these countries have continued to improve.
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. On a consolidated
basis, foreign currency exchange losses are not material to the results of
operations.
ENVIRONMENTAL CONTINGENCY
- -------------------------
As previously disclosed, 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. 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. The work plan has been
approved by the Department without significant changes, and the Seller continues
the remediation specified in the work plan.
PRIVATE PLACEMENT SHARE TRANSACTIONS
- ------------------------------------
During the first quarter, the Company filed a Registration Statement on Form
S-3 to register 1,875,000 shares of stock in connection with private placements
completed in December of 1995, and also filed a Registration Statement on Form
S-2 to register 142,190 shares of stock to be issued under non-qualified stock
options previously granted to several individuals in connection with financial
services provided to the Company. On July 29, the Securities & Exchange
Commission informed the Company that both Registrations were effective. The
shares of stock covered by the respective Registrations are now allowed to trade
in open market transactions in the NASDAQ stock market.
Subsequent to the Registrations becoming effective, the Company was advised
that CPAC Investors, L.L.C., its major shareholder, negotiated the placement of
its entire holdings of 1,250,000 shares of CPAC, Inc. common stock to a number
of institutional and private shareholders. The transaction closed on August 29,
1996.
PART II
------
OTHER INFORMATION
------------------
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
--------------------
None
Item 3. Defaults Upon Senior Securities
------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
1. The Annual Meeting of the Shareholders of the Registrant was held on
August 7, 1996. At such Annual Meeting, the following individuals were
elected as Directors of the Registrant, to serve until the next Annual
Meeting of Shareholders and until their successors are duly elected and
qualified:
Number of Votes:
----------------
For Withheld
-- --------
Thomas N. Hendrickson 6,211,821 122,833
Robert C. Isaacs 6,211,658 122,996
Robert Oppenheimer 4,648,994 1,685,660
Seldon T. James, Jr. 4,648,667 1,685,987
John C. Burton 4,649,321 1,685,333
2. In addition, at such Annual Meeting, the Shareholders:
(a) ratified the appointment of Coopers & Lybrand L.L.P. by the Board
of Directors, as independent auditors of the Registrant for the
fiscal year ending March 31, 1997, with votes cast as follows:
For Against Abstain
-- ------ ------
6,325,602 8,357 695
(b) approved an amendment to the Registrant's Certificate of
Incorporation to increase the number of authorized $.01 par value
common shares from 10,000,000 to 20,000,000 authorized $.01 par
value common shares as follows:
For Against Abstain
-- ------ ------
4,624,348 1,665,795 10,761
(c) approved the increase in the aggregate number of shares of the
Company's $.01 par value common stock reserved for issuance under
the Company's Executive Long-Term Stock Investment Plan from
350,000 shares to 950,000 shares as follows:
For Against Abstain
-- ------ ------
3,107,731 2,396,836 15,856
(d) approved the adoption by the Board of Directors of the 1996 Non-
Employee Directors Plan as follows:
For Against Abstain
-- ------ ------
3,323,467 2,212,369 56,782
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
The following Exhibits, as applicable, are attached to this Quarterly
Report (Form 10-Q). The Exhibit Index is found on the page immediately
succeeding the signature page and the Exhibits follow on the pages
immediately succeeding the Exhibit Index.
(2) Plan of acquisition, reorganization, arrangement, liquidation, or
succession
Not applicable
(3) Articles of incorporation, By-laws
3.1 Certificate of Incorporation, as amended September 11, 1996
3.2 By-laws, as amended, incorporated by reference to Form 10-K,
filed for period ended March 31, 1989
(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, and
further amended by Letter of extension and increase dated
October 29, 1996, filed as Exhibit 99.1 to this Form 10-Q for
the quarter ended September 30, 1996
(10) Material contracts
Not applicable
(11) Statement re computation of per share earnings (loss)
Not applicable
(15) Letter re unaudited interim financial information
Not applicable
(18) Letter re change in accounting principles
Not applicable
(19) Report furnished to security holders
Not applicable
(22) Published report regarding matters submitted to vote of security
holders
Not applicable
(23) Consents of experts and counsel
Not applicable
(24) Power of attorney
Not applicable
(27) Financial data schedule
(99) Additional exhibits
99.1 Letter of terms and conditions for the extension and increase
of Revolving Credit Loan
b. Reports Filed on 8-K
None
SIGNATURES
----------
Pursuant to the requirements 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 November 5, 1996 By /s/ Thomas N. Hendrickson
---------------------------- ------------------------------
Thomas N. Hendrickson,
President,
Chief Executive Officer,
Treasurer
Date November 5, 1996 By /s/ Thomas J. Weldgen
---------------------------- ------------------------------
Thomas J. Weldgen
Chief Financial Officer
EXHIBIT INDEX
-------------
EXHIBIT PAGE
- ------- ----
2. Plan of acquisition, reorganization, arrangement,
liquidation, or succession N/A
3. Articles of incorporation, By-Laws
3.1 Certificate of Incorporation, as amended September 11,
1996 15
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, and further amended by Letter of
extension and increase dated October 29, 1996, filed as
Exhibit 99.1 to this Form 10-Q for the quarter ended
September 30, 1996 N/A
10. Material contracts N/A
11. Statement re computation of per share earnings (loss) N/A
15. Letter re unaudited interim financial information N/A
18. Letter re change in accounting principles N/A
19. Report furnished to security holders N/A
22. Published report regarding matters submitted to vote of
security holders N/A
23. Consents of experts and counsel N/A
24. Power of attorney N/A
27. Financial data schedule 17
99. Additional Exhibits
99.1 Letter of terms and conditions for the extension and
increase of Revolving Credit Loan 18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of CPAC, Inc. for the period ending September 30, 1996, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000351717
<NAME> CPAC, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 13,231,724
<SECURITIES> 0
<RECEIVABLES> 14,179,559
<ALLOWANCES> 693,000
<INVENTORY> 16,236,562
<CURRENT-ASSETS> 44,894,152
<PP&E> 24,169,914
<DEPRECIATION> 7,756,645
<TOTAL-ASSETS> 65,988,699
<CURRENT-LIABILITIES> 9,763,633
<BONDS> 7,938,769
0
0
<COMMON> 71,145
<OTHER-SE> 45,512,446
<TOTAL-LIABILITY-AND-EQUITY> 65,988,699
<SALES> 47,414,271
<TOTAL-REVENUES> 47,414,271
<CGS> 24,640,673
<TOTAL-COSTS> 24,640,673
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 373,375
<INCOME-PRETAX> 6,926,151
<INCOME-TAX> 2,846,000
<INCOME-CONTINUING> 4,080,151
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,080,151
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
</TABLE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION OF
CPAC, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
The undersigned being the President and Secretary of CPAC, Inc., do hereby
certify and set forth:
1. The name of the Corporation is CPAC, Inc. The name under which the
Corporation was originally formed is Computerized Pollution Abatement
Corporation.
2. The Certificate of Incorporation of the Corporation was filed by the
Department of State on March 27, 1969.
3. The Certificate of Incorporation is hereby amended to effect an
increase in the aggregate number of shares the Corporation has the authority to
issue. Article 7 of the Certificate of Incorporation is hereby amended to add
an additional ten million (10,000,000) shares of common stock at $.01 par value
to the existing ten million (10,000,000) shares of common stock at $.01 par
value.
To effect these changes, Article 7 of the Corporation's Certificate of
Incorporation is hereby amended to read as follows:
"7. The aggregate number of shares which this Corporation shall have
authority to issue is twenty million (20,000,000) common shares, $.01
par value."
4. This amendment to the Certificate of Incorporation was authorized by
the unanimous vote of the Board of Directors followed by the
affirmative vote of the holders of a majority of all issued and
outstanding shares entitled to vote thereon at the Annual Meeting of
Shareholders duly called and held on August 7, 1996, a quorum being
present.
IN WITNESS WHEREOF, the undersigned have executed this Certificate this
11th day of September, 1996 and affirm under penalties of perjury that the
foregoing statements are true and complete.
/s/ Thomas N. Hendrickson
---------------------------------
Thomas N. Hendrickson, President
/s/ Robert Oppenheimer
---------------------------------
Robert Oppenheimer, Secretary
EXHIBIT 99.1
Financial Strategies Group
600 Peachtree Street, N.E. - 19th Floor
Suite 1900
Atlanta, GA 30308
Fax 404 607-6343
NationsBank
October 25, 1996
Mr. Thomas Weldgen
Chief Financial Officer
CPAC, Inc.
2364 Leicester Road
Leicester, NY 14481
Dear Tom:
NationsBank N.A. (South) (hereafter the "Bank") is pleased to offer you the
following terms and conditions for the extension and increase of your current
Revolving Credit Loan (hereafter "Revolver").
Borrower: CPAC, Inc.
Amount: Ten Million Dollars ($10,000,000)
Purpose: Working Capital or Business Acquisition
Maturity: October 31, 1999
Pricing: At Borrowers option on the first business day of
each month, the Prime Rate ("Prime") plus 0% or the
30 day London Interbank Offering Rate ("LIBOR") plus
the Applicable Margin described below. The terms
Prime and LIBOR remain as defined in the loan
agreement currently in force.
Applicable Margin: Under the LIBOR option, the following interest rate
will be added to the LIBOR rate under the following
parameters:
===============================================================================
1.90% If the ratio of Total Funded Debt to EBITDA is
greater than 1.5:1 or if the ratio of Total
Liabilities to Tangible Net Worth exceeds 1.0:1.
1.50% If the ratio of Total Funded Debt to EBITDA is less
than 1.5:1 and if the ratio of Total Liabilities to
Tangible Net Worth is less than 1.0:1.
===============================================================================
Fee: An Unused Fee of 1/4 of 1% per annum, calculated in
arrears on a quarterly basis on the average portion
of the Revolver not used for each three month
period.
Financial Covenants: The following Financial Covenants will be in affect
for the Revolver, measured quarterly, and will
replace those Financial Covenants in affect for the
current Revolving Credit Loan.
===============================================================================
Liquidity: Current Assets/Current Liabilities shall be Greater
than 2.0 times
Leverage: Total Liabilities/Tangible Net Worth shall be less
than 1.25:1
Minimum Net Worth: Net Worth shall be greater than $40,000,000 plus 75%
of the Net Income for each fiscal quarter after
3/31/96. If the Borrower institutes a monetary
dividend payment on its Common Stock, the Net Worth
shall be greater than $40,000,000 plus 65% of the
Net Income for each fiscal quarter after 3/31/96
that the dividend is in affect.
Capital Expenditure Limit: Capital Expenditures shall not exceed $4,000,000 per
Fiscal year without the prior written consent of the
Bank.
Debt Service Capacity: The Ratio of Funded Debt (the outstanding portion of
all Interest Bearing Debt) divided by the rolling
Four Fiscal Quarters cumulative measure of Net
Income plus Interest Expense (net of any interest
income) plus Income Tax Expense plus Depreciation
and Amortization Expense (a/k/a "EBITDA") shall not
exceed 2.25:1.
===============================================================================
These Terms and Conditions shall be reflected in an Amended and Restated Loan
Agreement.
If the foregoing proposal is satisfactory to you, please indicate your
acceptance below no later than October 31, 1996. Once accepted, should the
facility not be closed by November 30, 1996, the Bank shall have no further
obligation to extend credit hereunder. The Borrower will pay all costs and
expenses incurred by the Bank in connection with the closing of this Revolver,
including attorney's fees.
Sincerely,
/s/ John D. Rhea
John D. Rhea
Senior Vice President
The terms and conditions set forth above are accepted this 29th day of October,
1996.
CPAC, Inc.
By: /s/ Thomas J. Weldgen
--------------------------
Title: Chief Financial Officer
--------------------------
