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 December 31, 1995
----------------------------------------------------------
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
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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 December 31, 1995, there were outstanding 5,845,614 shares of the
Company's Common Stock, $.01 Par Value. Options for 399,738 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 - December 31, 1995 (Unaudited),
and March 31, 1995 3
CPAC, Inc. and Subsidiaries Consolidated
Statements of Operations - Nine Months Ended
December 31, 1995, and December 31, 1994 (Unaudited) 4
CPAC, Inc. and Subsidiaries Consolidated
Statements of Operations - Three Months Ended
December 31, 1995, and December 31, 1994 (Unaudited) 5
CPAC, Inc. and Subsidiaries Consolidated
Statements of Cash Flows - Nine Months Ended
December 31, 1995, and December 31, 1994 (Unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE PAGE 15
EXHIBIT INDEX 16
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1995
----------------- --------------
(Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,579,684 $ 81,891
Accounts receivable (net of allowance for doubtful
accounts of $798,000 and $601,000, respectively) 12,578,476 13,091,450
Inventory 15,590,169 12,736,328
Prepaid expenses and other current assets 1,973,066 2,020,124
----------------- -----------------
Total current assets 42,721,395 27,929,793
Property, plant and equipment, net 15,492,407 15,115,576
Goodwill and intangible assets (net of amortization of
$1,164,612 and $921,255, respectively) 2,727,322 3,065,581
Other assets 2,813,082 2,883,511
----------------- -----------------
$ 63,754,206 $ 48,994,461
================= =================
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 196,901 $ 3,382,848
Accounts payable 5,721,515 4,479,173
Accrued payroll and related expenses 1,413,340 1,187,099
Accrued income taxes payable 118,755 298,803
Other accrued expenses and liabilities 3,115,173 2,507,785
----------------- -----------------
Total current liabilities 10,565,684 11,855,708
Long-term debt, net of current portion 7,823,931 11,914,875
Accrued deferred compensation 480,275 398,190
Accrued royalty 2,084,862 2,084,862
Other long-term liabilities 243,790 60,790
Minority interest in foreign subsidiary 33,106 31,364
Shareholders' equity:
Common stock, par value $.01 per share;
Authorized 10,000,000 shares;
Issued 5,906,381 shares and 4,379,943 shares,
respectively 59,064 43,799
Additional paid-in capital 28,369,820 12,852,270
Retained earnings 14,964,853 10,711,534
Foreign currency translation adjustment (417,268) (602,968)
----------------- -----------------
42,976,469 23,004,635
Less: Treasury stock, at cost, 60,767 and 53,512 shares (453,911) (355,963)
----------------- -----------------
Total shareholders' equity 42,522,558 22,648,672
----------------- -----------------
$ 63,754,206 $ 48,994,461
================= =================
<FN>
NOTE: The balance sheet at March 31, 1995, has been taken from the audited financial statements of that date.
</TABLE>
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE NINE MONTHS ENDED
-------------------------
DECEMBER 31, 1995, AND DECEMBER 31, 1994
----------------------------------------
UNAUDITED
---------
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net sales $ 66,606,152 $ 40,247,567
---------------- -----------------
Costs and expenses:
Cost of sales 36,065,846 23,493,091
Selling, administrative and
engineering expenses 22,230,036 12,217,747
Research and development expense 469,970 214,818
Minority interest in consolidated
foreign subsidiary 1,742 (195)
Interest expense, net 739,239 463,225
---------------- -----------------
59,506,833 36,388,686
---------------- -----------------
Income before income tax expense 7,099,319 3,858,881
Provision for income tax expense (2,846,000) (1,490,000)
---------------- -----------------
Net income $ 4,253,319 $ 2,368,881
================ =================
Income per common share
(Primary and Fully Diluted):
Net income $ 0.88 $ 0.58
================ =================
Common shares outstanding - fully diluted 4,856,374 4,103,920
================ =================
</TABLE>
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE THREE MONTHS ENDED
--------------------------
DECEMBER 31, 1995, AND DECEMBER 31, 1994
----------------------------------------
UNAUDITED
---------
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net sales $ 22,163,823 $ 17,226,843
---------------- -----------------
Costs and expenses:
Cost of sales 11,945,788 10,300,264
Selling, administrative and
engineering expenses 7,423,174 5,194,821
Research and development expense 158,695 70,776
Minority interest in consolidated
foreign subsidiary 1,091 799
Interest expense, net 108,243 277,695
---------------- -----------------
19,636,991 15,844,355
---------------- -----------------
Income before income tax expense 2,526,832 1,382,488
Provision for income tax expense (1,004,000) (479,000)
---------------- -----------------
Net income $ 1,522,832 $ 903,488
================ =================
Income per common share
(Primary and Fully Diluted):
Net income $ 0.27 $ 0.21
================ =================
Common shares outstanding - fully diluted 5,575,747 4,326,976
================ =================
</TABLE>
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE NINE MONTHS ENDED
-------------------------
DECEMBER 31, 1995, AND DECEMBER 31, 1994
----------------------------------------
UNAUDITED
---------
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,253,319 $ 2,368,881
-------------- --------------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,472,938 740,451
Amortization of intangible assets 267,977 260,390
Changes in assets and liabilities, net of effects of
business acquisitions:
Accounts receivable 505,327 (205,608)
Inventory (2,863,319) (609,459)
Accounts payable 1,238,864 (653,988)
Accrued expenses & liabilities 650,828 (139,589)
Accrued deferred compensation 81,793 49,900
Other changes, net 658,386 (1,151,933)
-------------- --------------
Total adjustments 2,012,794 (1,709,836)
-------------- --------------
Net cash provided by operating activities 6,266,113 659,045
-------------- --------------
Cash flows from investing activities:
Purchase of property, plant, and equipment, (net) (1,859,187) (1,510,151)
Business acquisition, net of cash acquired (2,042,131)
--------------- --------------
Net cash used in investing activities (1,859,187) (3,552,282)
-------------- --------------
Cash flows from financing activities:
Issuance of common stock, net 15,388,730 173,300
Proceeds from borrowings 3,710,176
Repayment of long-term borrowings (7,297,863) (538,395)
Payment of cash dividends (409,463)
--------------- --------------
Net cash provided by financing activities 8,090,867 2,935,618
-------------- --------------
Effect of exchange rate changes on cash (170)
--------------- --------------
Net increase in cash
and cash equivalents 12,497,793 42,211
Cash and cash equivalents - beginning of period 81,891 35,635
-------------- --------------
Cash and cash equivalents - end of period $ 12,579,684 $ 77,846
============== ==============
Supplemental Disclosure of Noncash Investing and Financing Activities: 375,000 shares of common stock with a market value of
$3,360,000 (as adjusted for the five for four stock split) were issued in connection with the acquisition of The Fuller Brush
Company during the quarter ended December 31, 1994.
</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 nine-month periods ended
December 31, 1995, and December 31, 1994, 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 December 31, 1995 (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, 1995, annual report to
shareholders. The results of operations for the nine months ended December 31,
1995, are not necessarily indicative of the operating results for the full year.
2 - SALE AND REPURCHASE OF COMMON STOCK
-----------------------------------
On October 5, 1995 the Company announced the completion of the placement of
1,500,000 shares of the Company's $.01 par common stock with private investors
at $11 a share. The issuances were comprised of 1,000,000 shares issued to CPAC
Investors, L.L.C., a limited liability company, on September 25, 1995, and
500,000 shares issued to unrelated accredited investors, completed on October
4, 1995.
In response to matters raised by the staff of the NASDAQ Stock Market
(NASDAQ) concerning the number of shares sold, the Company entered into an
Agreement of Rescission, Repurchase and Settlement with CPAC Investors, L.L.C.
on November 1, 1995, to rescind 632,000 previously issued shares of the
Company's $.01 par common stock at $11 a share. The Agreement indicated that
subsequent to the rescission, the Company would immediately begin soliciting
shareholder approval for the reissuance of 632,000 shares, at $11 a share, to
CPAC Investors, L.L.C. On December 28, 1995, the Registrant's shareholders
approved the sale of 632,000 shares of its $.01 par value common stock at $11.00
per share to CPAC Investors, L.L.C. The closing of this transaction took place
on the same date. As a result of the completion of the sale, the number of the
Registrant's issued and outstanding $.01 par value common stock increased from
5,213,614 common shares (the amount outstanding subsequent to the 632,000 share
rescission) to 5,845,614 common shares.
At December 31, 1995, the Company's Consolidated Balance Sheet reflected the
net cash proceeds received as well as the net increase in common shares
outstanding from the issuance of the 500,000 shares issued on October 3, 1995,
the rescission of the 632,000 shares on November 2, 1995, and the reissuance of
the 632,000 shares on December 28, 1995. The cash proceeds segregated and
disclosed at September 30, 1995, as `cash equivalents restricted for the share
repurchase''have been grouped with other cash and cash equivalents at December
31, 1995, without any restriction. For purposes of computing the primary and
fully diluted earnings per share, the share numbers shown in the Company's
Consolidated Statement of Operations as weighted average shares for the three
and nine months ended December 31, 1995, reflect the issuance of the 500,000
shares, the rescission of the 632,000, and the ultimate reissuance of the
632,000 shares on December 28, 1995.
3 - FOTOPROCESOS DE VENEZUELA C.A. (FOTUS) CLOSING
----------------------------------------------
As previously disclosed, the political and economic situation in Venezuela
has been very unstable. Management of CPAC, Inc. has evaluated all possible
options for the operations of Fotoprocesos de Venezuela (Fotus). During the
quarter ended December 31, 1995, the currency situation in Venezuela worsened,
resulting in another devaluation.
Based on the continued decline in value and poor economic performance,
management of CPAC, Inc. has announced the planned closing of the Fotus
operations. Accounting reserves have been established to cover employee
severance and other related costs associated with the shut down of Fotus and
ultimate planned sale of the land and building. The impact of these reserves is
a one time charge of $168,000 or $.03 per share taken against the earnings of
the December 31, 1995, quarter. The Company remains committed to its customer
base in Venezuela and Latin America and plans to continue to serve this market
directly from its domestic subsidiaries. Sales in Venezuela for the year ended
December 31, 1995, were approximately $467,000.
4 - INVENTORY
---------
Inventory is summarized as follows:
DECEMBER 31, 1995 MARCH 31, 1995
----------------- --------------
Raw materials and purchased parts $ 7,332,436 $6,036,693
Work-in-process 875,101 708,143
Finished goods 7,077,598 5,500,090
Promotional supplies 305,034 491,402
----------- ----------
$15,590,169 $12,736,328
=========== ===========
5 - STANLEY HOME PRODUCTS
---------------------
As described in the March 31, 1995, 10-K, 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 15 year agreement. Stanley Home
Products operates as a division of The Fuller Brush Company, Inc., and its sales
and related expenses have been included with the results of operations of the
Company beginning April 1, 1995.
The Company is required to pay Stanhome Inc. royalties equal to a 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, 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. The Company
expects to finalize the acquisition accounting during this fiscal year.
On a pro forma (unaudited) basis, if the license agreement with Stanhome
Inc. and the acquisition of The Fuller Brush Company had occurred as of April 1,
1994 (the beginning of the nine months ended December 31, 1994), the
consolidated results of operations of the Company including Stanley Home
Products and Fuller would have been approximately:
DECEMBER 31, 1994
-----------------
Net sales $ 80,299,000
Net income $ 2,272,000
Net income per share $ 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. Sales information for Stanley Home
Products during 1995 indicate that sales will be significantly lower than 1994
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. It appears that these factors will continue to impact
the Stanley Home Products operations during fiscal 1996, causing sales on a
quarterly and annual basis to be lower than those historically reported.
6 - SEGMENT REPORTING
-----------------
As described in the March 31, 1995, 10-K, following the acquisition of The
Fuller Brush Company, and the signing of the Stanley Home Products licensing
agreement, the Company now operates in the Imaging segment and the Cleaning and
Personal Care Products segment for financial reporting purposes. The Imaging
segment includes the manufacture and sale of prepackaged chemical formulations,
supplies, and equipment systems to the imaging industry. The Cleaning and
Personal Care Products segment 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.
7 - 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
-------------------------------
As described in Note 2, the Company completed the private placement of
1,500,000 shares of common stock resulting in proceeds of approximately
$15,300,000 net of placement costs. Of this amount, debt obligations totaling
approximately $5,416,000 were paid off. The remaining funds have been invested
in short term investments, and are expected to be used for potential
acquisitions, future capital expenditures and working capital needs, and further
debt reductions. The Company estimates that an additional $1,000,000 to
$2,000,000 may still be required as working capital in relation to the product
lines of Stanley Home Products. The Company continues to maintain a $4.5
million line of credit, interest at prime, which expires on 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 December 31, 1995, the Company had not accessed the line of credit.
The Company also has outstanding a Letter of Credit (LC), interest at 1.5%,
which backs $6,000,000 of bond financing in connection with The Fuller Brush
Company.
The Company continues to maintain a line of credit facility with a major
Belgian bank. The Company repaid this line of credit in November, 1995, and did
not access the line at December 31, 1995. In October, 1995, the Company
negotiated an amendment to this credit facility, increasing the total
availability to 40 million Belgian francs. Based on average monthly conversion
rates for the Belgian franc, approximately $1,340,000 is now available under the
amended credit facility.
The working capital ratios at December 31, 1995, March 31, 1995, and
December 31, 1994, were 4.04 to 1; 2.4 to 1; and 2.37 to 1, respectively. The
increase in the working capital ratio compared to March 31, 1995, and December
31, 1994, is primarily due to the net proceeds from the private placement and
the paydown of debt obligations, described above.
Management believes that the private placement funds, coupled with 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 December
31, 1995.
ASSET TURNOVER RATIOS
- ---------------------
DECEMBER 31, 1995 MARCH 31, 1995 DECEMBER 31, 1994
----------------- -------------- -----------------
(1) Receivables-days
outstanding 54.9 days 77.1 days 80.9 days
(2) Annual inventory
turns 2.5 times 3.3 times 3.0 times
The improvement in days outstanding results from the inclusion of The Fuller
Brush Company receivables which generally have short payment terms and the SHP
cash sales which began in April, 1995. The Imaging segment continues to
average 90 days due to extended payment terms for its dealers and foreign
operations.
Inventory turns decreased from the previous periods primarily due to the
buildup of inventory at Fuller in connection with production of items for
Stanley Home Products.
RESULTS OF OPERATIONS
---------------------
Sales for the quarter ended December 31, 1995, increased 28.7% over the
quarter ended December 31, 1994, and increased 65.5% for the nine months ended
December 31, 1995, versus December 31, 1994. The significant percentage
increases in operating results for the nine months ended December 31, 1995, are
primarily the result of the inclusion of The Fuller Brush Company and Stanley
Home Products' sales, which in 1994 included only The Fuller Brush Company's
sales since October 13, 1994, and did not include any Stanley Home Products'
sales in the period ended December 31, 1994.
For the Imaging segment, overall sales for the quarter ended December 31,
1995, decreased 1.9% over the quarter ended December 31, 1994, and 4% over the
nine months ended December 31, 1995 versus December 31, 1994. The decrease is
primarily the result of the increased competition in the medical and
photochemical chemistry markets, coupled with continued efforts to remove low
margin accounts, as disclosed in the first quarter of fiscal 1996.
Sales in the Cleaning and Personal Care Products' segment were approximately
$10,882,000 and $33,458,000 for the quarter and nine months ended December 31,
1995. Since the acquisition of The Fuller Brush Company did not occur until
into the third quarter of fiscal 1995, and the Stanley Home Products' license
agreement was not effective until April 1, 1995, no comparable quarter or nine
month financial information exists.
Net income for the quarter ended December 31, 1995, increased 68.6% over the
quarter ended December 31, 1994, due primarily to the inclusion of The Fuller
Brush Company, Inc. and Stanley Home Products.
Gross margins have increased to 46.1% for this quarter versus 41.2% for the
year ended March 31, 1995, and 40.2% for the same quarter last year. The
addition of The Fuller Brush Company and Stanley Home Products at 52% margin
levels has blended with the Imaging segment margins at 40%. Year to date gross
margins are 45.9% at December 31, 1995, versus 41.6% through December 31, 1994.
Selling, administrative, and engineering costs this quarter were 33.4% of
sales compared with 30.3% at March 31, 1995, and 30.2% in the same quarter of
last year. The increases for both the quarter and year to date December, 1995,
versus December, 1994 are the result of the inclusion of Fuller and Stanley Home
Products' expenses at 37.8%, as well as costs related to the closing of Fotus in
the imaging segment.
Net interest expense for the current quarter has decreased versus the
quarter ended December 31, 1994, primarily due to the paydown of certain debt
obligations with proceeds received from the private placement. Net interest
expense for the nine months ended December 31, 1995, versus the nine months
ended December 31, 1994, has increased primarily due to increased borrowings
related to the acquisition of The Fuller Brush Company.
The provision for income taxes as a percentage of consolidated pre-tax
earnings for the quarter ended December 31, 1995, was 39.7% versus 34.7% for the
quarter ended December 31, 1994, and 40.1% versus 38.6% for the corresponding
year-to-date. While the domestic effective tax rate has remained comparable
throughout the period, the consolidated rate in 1994 was reduced by foreign
earnings which were offset by utilization of foreign tax net operating loss
carryforwards, which were fully utilized at March 31, 1995. It is expected that
the consolidated tax rate will remain consistent in the fourth quarter.
EUROPEAN FOREIGN OPERATIONS
- ---------------------------
Combined European foreign operations earned a small profit for the quarter
ended December 31, 1995, which was slightly higher than the profit for the
quarter ended December 31, 1994. 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 show solid
improvement. Management expects both European operations to show continued
growth in the fourth quarter.
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.
FOTOPROCESOS DE VENEZUELA C.A. (FOTUS) CLOSING
- ----------------------------------------------
As previously disclosed, the political and economic situation in Venezuela
has been very unstable. Management of CPAC, Inc. has evaluated all possible
options for the operations of Fotoprocesos de Venezuela (Fotus). During the
quarter ended December 31, 1995, the currency situation in Venezuela worsened,
resulting in another devaluation.
Based on the continued decline in value and poor economic performance,
management of CPAC, Inc. has announced the planned closing of the Fotus
operations. Accounting reserves have been established to cover employee
severance and other related costs associated with the shut down of Fotus and
ultimate planned sale of the land and building. The impact of these reserves is
a one time charge of $168,000 or $.03 per share taken against the earnings of
the December 31, 1995, quarter. The Company remains committed to its customer
base in Venezuela and Latin America and plans to continue to serve this market
directly from its domestic subsidiaries. Sales in Venezuela for the year ended
December 31, 1995, were approximately $467,000.
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 work plan has been approved by the
Department without significant changes, and the Seller has begun the remediation
specified 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; of this amount $250,000 was provided by
the Seller, with the balance provided by the Company. Based on costs incurred
to date and estimates for completion, the Company's share of the cash escrow
account has been reduced to $50,000.
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. A Special Meeting of the Shareholders of the Registrant was held on
December 28, 1995. At such Special Meeting, the Registrant's
shareholders approved the sale of 632,000 shares of its $.01 par value
common stock at $11.00 per share to CPAC Investors, L.L.C., an
unrelated Delaware limited liability company, with votes cast as
follows:
FOR AGAINST ABSTAIN
--- ------- -------
3,526,023 584,777 16,683
The closing of this transaction took place on the same date. As a
result of the completion of the sale, the number of the Registrant's
issued and outstanding $.01 par value common stock increased from
5,213,614 common shares to 5,845,614 common shares.
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
2.2 Licensing Agreement with Stanhome Inc. incorporated by
reference to Form 8-K (Current Report) filed January 30, 1995
(3) Articles of Incorporation, By-Laws
3.1 Certificate of Incorporation, as amended
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
(9) Voting Trust Agreement
Not applicable
(10) Material Contracts
Not applicable
(11) Statement re: Computation of Per Share Earnings (Loss)
Not applicable
(12) Statement re: Computation of Ratios
Not applicable
(13) Annual Report to Security Holders
Not applicable
(16) Letter re: Change of Certifying Accountant
Not applicable
(18) Letter re: Change in Accounting Principles
Not applicable
(21) Subsidiaries of the Registrant
Not applicable
(22) Published report regarding matters submitted to vote of security
holders
Not applicable
(23) Consent of Experts and Counsel
Not applicable
(24) Power of Attorney
Not applicable
(27) Financial Data Schedule
(28) Information from reports furnished to state insurance regulatory
authorities
Not applicable
(99) Additional Exhibits
Not applicable
b. Reports Filed on 8-K
On October 5, 1995, the Company filed a Current Report (Form 8-K) with
respect to the October 3, 1995, announced completion of a private
placement of 1,500,000 shares of its $.01 par value common stock.
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 February 13, 1996 By /s/ Thomas N. Hendrickson
---------------------------- ------------------------------
Thomas N. Hendrickson,
President,
Chief Executive Officer,
Treasurer
Date February 13, 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
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 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 N/A
22. Published report regarding matters submitted to vote of
security holders N/A
23. Consent of Experts and Counsel N/A
24. Power of Attorney N/A
27. Financial Data Schedule 17
28. Information from reports furnished to state insurance
regulatory authorities N/A
99. Additional Exhibits N/A
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of CPAC, Inc. for the period ending December 31,
1995, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000351717
<NAME> CPAC, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1995
<CASH> 12,579,684
<SECURITIES> 0
<RECEIVABLES> 13,376,476
<ALLOWANCES> 798,000
<INVENTORY> 15,590,169
<CURRENT-ASSETS> 42,721,395
<PP&E> 21,716,435
<DEPRECIATION> 6,224,028
<TOTAL-ASSETS> 63,754,206
<CURRENT-LIABILITIES> 10,565,684
<BONDS> 8,020,832
0
0
<COMMON> 59,064
<OTHER-SE> 42,463,494
<TOTAL-LIABILITY-AND-EQUITY> 63,754,206
<SALES> 66,606,152
<TOTAL-REVENUES> 66,606,152
<CGS> 36,065,846
<TOTAL-COSTS> 36,065,846
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 870,082
<INCOME-PRETAX> 7,099,319
<INCOME-TAX> 2,846,000
<INCOME-CONTINUING> 4,253,319
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,253,319
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.88
</TABLE>
