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, 1997
-----------------------------------------------------------
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, 1997, there were outstanding 7,144,251 shares of the
Company's Common Stock, $.01 Par Value. Options for 810,980 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, 1997 (Unaudited),
and March 31, 1997 3
CPAC, Inc. and Subsidiaries Consolidated
Statements of Operations - Six Months Ended
September 30, 1997, and September 30, 1996 (Unaudited) 4
CPAC, Inc. and Subsidiaries Consolidated
Statements of Operations - Three Months Ended
September 30, 1997, and September 30, 1996 (Unaudited) 5
CPAC, Inc. and Subsidiaries Consolidated
Statements of Cash Flows - Six Months Ended
September 30, 1997, and September 30, 1996 (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 14
SIGNATURE PAGE 16
EXHIBIT INDEX 17
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<CAPTION>
SEPTEMBER 30, 1997 MARCH 31, 1997
------------------ --------------
(Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,450,732 $ 15,106,868
Accounts receivable (net of allowance for doubtful
accounts of $833,000 and $587,000, respectively) 18,709,395 13,776,933
Inventory 19,727,513 17,209,020
Prepaid expenses and other current assets 2,424,505 2,079,016
---------------- ----------------
Total current assets 46,312,145 48,171,837
Property, plant and equipment, net 17,527,937 16,627,595
Goodwill and intangible assets (net of amortization of
$1,709,518 and $1,594,118, respectively) 13,712,530 2,426,854
Other assets 1,655,438 1,789,846
---------------- ----------------
$ 79,208,050 $ 69,016,132
================ ================
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 118,200 $ 137,612
Accounts payable 5,556,110 4,066,593
Accrued payroll and related expenses 1,926,280 1,877,859
Accrued income taxes payable 536,433 210,481
Other accrued expenses and liabilities 4,826,665 3,434,274
---------------- ----------------
Total current liabilities 12,963,688 9,726,819
Long-term debt, net of current portion 10,562,607 6,740,535
Accrued deferred compensation 560,736 566,047
Accrued royalty 1,627,103 1,627,103
Other long-term liabilities 792,790 736,790
Minority interest in foreign subsidiary 44,429 38,240
Shareholders' equity:
Common stock, par value $0.01 per share;
Authorized 20,000,000 shares;
Issued 7,229,558 shares and 7,228,524 shares,
respectively 72,296 72,286
Additional paid-in capital 26,583,790 26,598,238
Retained earnings 27,361,649 23,710,911
Foreign currency translation adjustment (770,850) (210,649)
---------------- ----------------
53,246,885 50,170,786
Less: Treasury stock, at cost, 85,307 shares (590,188) (590,188)
---------------- ----------------
Total shareholders' equity 52,656,697 49,580,598
---------------- ----------------
$ 79,208,050 $ 69,016,132
================ ================
<FN>
Note: The balance sheet at March 31, 1997 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, 1997 AND SEPTEMBER 30, 1996
----------------------------------------
UNAUDITED
---------
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net sales $ 49,833,789 $ 47,414,271
----------------- ----------------
Costs and expenses:
Cost of sales 27,351,505 24,640,673
Selling, administrative and
engineering expenses 15,827,199 15,466,677
Research and development expense 375,437 329,922
Minority interest in consolidated
foreign subsidiary 6,189 3,686
Interest expense, net 42,721 47,162
----------------- ----------------
43,603,051 40,488,120
----------------- ----------------
Income before income tax expense 6,230,738 6,926,151
Provision for income tax expense 2,580,000 2,846,000
----------------- ----------------
Net income $ 3,650,738 $ 4,080,151
================= ================
Income per common share
(Primary and Fully Diluted):
Net income $ 0.50 $ 0.55
================= ================
Common shares outstanding - fully diluted 7,253,123 7,425,900
================= ================
</TABLE>
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE THREE MONTHS ENDED
--------------------------
SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
----------------------------------------
UNAUDITED
---------
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net sales $ 27,810,071 $ 24,892,713
----------------- ----------------
Costs and expenses:
Cost of sales 15,617,877 12,974,568
Selling, administrative and
engineering expenses 8,458,910 7,879,479
Research and development expense 210,267 168,037
Minority interest in consolidated
foreign subsidiary 3,887 2,955
Interest expense, net 110,593 5,288
----------------- ----------------
24,401,534 21,030,327
----------------- ----------------
Income before income tax expense 3,408,537 3,862,386
Provision for income tax expense 1,435,000 1,600,000
----------------- ----------------
Net income $ 1,973,537 $ 2,262,386
================= ================
Income per common share
(Primary and Fully Diluted):
Net income $ 0.27 $ 0.31
================= ================
Common shares outstanding - fully diluted 7,240,772 7,375,989
================= ================
</TABLE>
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE SIX MONTHS ENDED
------------------------
SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
----------------------------------------
UNAUDITED
---------
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,650,738 $ 4,080,151
-------------- --------------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,163,115 1,015,627
Amortization of intangible assets 283,579 157,941
Changes in assets and liabilities, net of effects of
business acquisitions:
Accounts receivable (1,935,913) (792,318)
Inventory 1,621,261 3,216
Accounts payable 943,892 (1,681,382)
Accrued expenses & liabilities (580,424) 174,030
Accrued deferred compensation (9,606) 51,475
Other changes, net (70,001) 560,624
--------------- --------------
Total adjustments 1,415,903 (510,787)
-------------- --------------
Net cash provided by operating activities 5,066,641 3,569,364
-------------- --------------
Cash flows from investing activities:
Purchase of property, plant, and equipment, net (887,769) (950,946)
Business acquisition, net of cash acquired (17,549,000)
-------------- --------------
Net cash used in investing activities (18,436,769) (950,946)
-------------- --------------
Cash flows from financing activities:
Common stock repurchase (160,388) (2,688,400)
Issuance of common stock, net 145,950 54,562
Proceeds from long-term borrowings 6,000,000
Repayment of long-term borrowings (2,266,257) (420,142)
-------------- --------------
Net cash provided (used) in financing activities 3,719,305 (3,053,980)
-------------- --------------
Effect of exchange rate changes on cash (5,313)
-------------- --------------
Net decrease in cash and cash equivalents (9,656,136) (435,562)
Cash and cash equivalents - beginning of period 15,106,868 13,667,286
-------------- --------------
Cash and cash equivalents - end of period $ 5,450,732 $ 13,231,724
============== ==============
</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, 1997 and September 30, 1996 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, 1997 (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, 1997, annual report to
shareholders. The results of operations for the six months ended September 30,
1997, are not necessarily indicative of the operating results for the full year.
2 - INVENTORY
---------
Inventory is summarized as follows:
SEPTEMBER 30, 1997 MARCH 31, 1997
------------------ -------------
Raw materials and purchased parts $8,588,902 $7,791,672
Work-in-process 1,045,434 1,001,775
Finished goods 9,821,320 8,218,866
Promotional supplies 271,859 196,707
---------- -----------
$19,727,513 $17,209,020
=========== ===========
3 - ACQUISITION
------------
On July 23, 1997, the Company purchased certain assets of the commercial
cleaning chemicals business of IVAX Industries, Inc., a wholly-owned subsidiary
of IVAX Corporation, for $17,000,000 in cash, assumption of certain liabilities,
and acquisition related costs of $549,000 for a total asset purchase price of
approximately $20,369,000. The purchase price is subject to adjustment upon
completion of a closing date audited balance sheet of the assets purchased and
liabilities assumed. The acquired operation, which will operate as the Cleaning
Technologies Group, manufactures and distributes 177 chemical products for
commercial and janitorial cleaning, including floor and carpet care, germicidal
cleaners, air deodorizers, industrial degreasers and hand soaps.
The acquisition has been accounted for as a purchase transaction, and the
purchase price has been preliminarily allocated as follows:
Accounts Receivable $ 3,116,000
Inventory 4,258,000
Other current assets 179,000
Machinery and equipment 1,300,000
Intangible assets 11,516,000
------------
Total assets acquired 20,369,000
Less: Liabilities assumed (2,820,000)
------------
$ 17,549,000
============
The Cleaning Technologies Group operates as a division of The Fuller Brush
Company, Inc. and its results of operations from the July 23, 1997 acquisition
date were consolidated into the financial results for the quarter and six months
ended, September 30, 1997.
On a pro forma (unaudited) basis, if the acquisition had occurred as of
April 1, 1996, the consolidated results of operations for the six months ended
September 30, 1997 and 1996 of the Company would have been approximately:
PERIOD-ENDED PERIOD-ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
(UNAUDITED) (UNAUDITED)
Net sales $ 58,356,000 $ 61,701,000
Net income 3,895,000 3,998,000
Net income per share
(both primary and fully diluted) $ 0.54 $ 0.55
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.
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 acquisition of the Cleaning and Technologies Group (CTG)
utilized $11 million of the Company's cash on hand, and required borrowing of $6
million on its domestic line of credit facility. Although the Company's maximum
borrowing capacity under this facility is $10 million, discussions with the
Company's main US bank are currently underway to restructure a portion of the
acquisition borrowing into a term loan, and also increase the maximum available
borrowing under the existing facility. The Company did negotiate an amendment
to the loan agreement with regards to its borrowing rate, which lowered the
Company's rate to the lower of prime or the 30 day LIBOR rate plus .75%.
(Interest at 7.17% at September 30, 1997). At September 30, 1997, there was
$3,847,302 outstanding under this line of credit. Currently, the line of credit
facility matures in October, 1999, and requires meeting certain financial
covenants, with which the Company was in compliance at September 30, 1997.
Despite the significant use of funds to finance the CTG acquisition, the
Company has been able to reduce its borrowings on its line of credit due to
continued strong operating cash flows. In addition, the Company has maintained
over $4.5 million in short-term investments which it can use to reduce
borrowings further, or for other working capital needs.
The Company also maintains a line of credit facility with a major Belgian
bank, which was not accessed at September 30, 1997. The amount available is
34.3 million Belgian francs (approximately $953,000 based on the June conversion
rate for the Belgian franc).
The working capital ratios at September 30, 1997, March 31, 1997, and
September 30, 1996 were, 3.57 to 1, 4.95 to 1, and 4.6 to 1, respectively. The
decrease in the working capital at September 30, 1997, as compared to March 31,
1997, and September 30, 1996, is the result of the acquisition of the Cleaning
Technologies Group.
Management believes that the remaining invested 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, 1997.
It is expected that additional financing may be necessary to allow the Company
to pursue future acquisitions.
ASSET TURNOVER RATIOS
- ---------------------
SEPTEMBER 30, 1997 MARCH 31, 1997 SEPTEMBER 30, 1996
----------------- ------------- ------------------
(1) Receivables-days
outstanding 59.7 days 54.3 days 52.2 days
(2) Annual inventory
turns 3.0 times 2.9 times 3.0 times
At September 30, 1997, the increase in days outstanding is due to a
lengthening in some Imaging customer receivable terms over the previous quarter.
Imaging customers typically average 90 days outstanding, versus Cleaning and
Personal Care Products segment customers which, due to Stanley's predominantly
cash sales, generally have shorter payment terms.
Inventory turns have remained fairly stable compared to the year ended
March 31, 1997 and quarter ended September 30, 1996.
RESULTS OF OPERATIONS
---------------------
The Company operates in two industry segments: the Cleaning and Personal
Care Products segment which includes the manufacture and sale of 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 items, and the Imaging segment which includes the
manufacture and sale of prepackaged chemical formulations, supplies, and
equipment systems to the imaging industry. 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, 1997 increased 11.7% over the
quarter ended September 30, 1996, and increased 5.1% for the six months ended
September 30, 1997, over the six months ended September 30, 1996. Sales for the
quarter in the Cleaning and Personal Care Products segment have increased 31.6%
compared with the quarter ended September 30, 1996, and increased 13.5% for the
six months ended September 30, 1997, over the six months ended September 30,
1996. The increase for the quarter and six months is a result of the
acquisition of the Cleaning Technologies Group, net of decreases in the Stanley
Home Products and Fuller Brush direct selling businesses which were impacted by
the UPS strike. For the Imaging segment, overall sales for the quarter ended
September 30, 1997, decreased 8.2% over the quarter ended September 30, 1996,
and decreased 3.8% for the six months ended September 30, 1997, over the six
months ended September 30, 1996. The decrease for the quarter and six months in
the Imaging segment is primarily the result of decreased chemical sales in the
domestic Medical Imaging business, as well as a slowdown in sales in the U.S.
color photochemical market.
Gross Margins have decreased to 43.8% for this quarter versus 47.0% for the
year ended March 31, 1997, and 47.9% for the same quarter last year. Gross
Margins in the Cleaning and Personal Care Products segment have decreased to
46.4% from 53.7% for the year ended March 31, 1997, and 54.2% for the same
quarter last year, partly as a result of the inclusion of the Cleaning
Technologies Group's business, which historically has operated at a lower margin
than Fuller and Stanley's operations. Also, lower Fuller and Stanley direct
sales as a result of the UPS strike, lowered the blended gross margin for the
segment. Gross Margins in the Imaging segment have decreased to 40.1% from
41.0% for the year ended March 31, 1997, and 41.5% for the same quarter last
year. The decrease is largely attributable to continued competitive pricing
pressures in the photochemical and medical imaging industries. The Company does
not expect substantial margin improvement as it is anticipated that newer
contracts obtained will be at reduced margins in both the Cleaning and Personal
Care Products and Imaging segments.
Selling, administrative, and engineering costs this quarter were 30.4%,
versus 32.8% for the year ended March 31, 1997, versus 31.7% for the same
quarter last year. In the Cleaning and Personal Care Products segment, selling,
administrative, and engineering costs for this quarter decreased to 34.0% from
36.7% for the year ended March 31, 1997, and 36.3% for the same quarter last
year. This decrease is partly attributable to the Cleaning Technologies Group
business, whose selling, administrative, and engineering costs as a percentage
of sales, are less than the Direct selling business of Fuller and Stanley.
In the Imaging segment, selling, administrative, and engineering costs for this
quarter decreased to 27.4% from 28.6% for the year ended March 31, 1997, but
increased from the 26.8% incurred in the same quarter last year. The quarter to
quarter increase is directly attributable to the shortfall of sales, while the
decrease from year end is a result of cost savings measures put into place, due
to slow sales.
Net interest expense increased significantly for the quarter ended September
30, 1997 versus the quarter ended September 30, 1996, due to the borrowings and
use of invested funds for the acquisition of the Cleaning Technologies Group in
July, 1997. Net interest expense was slightly lower for the six months ended
September 30, 1997 versus September 30, 1996, due to invested funds and strong
cash flows for much of the period prior to the acquisition.
The Provision for income taxes as a percentage of pretax income for the
quarter was 42.1% versus 41.4% for the quarter ended September 30, 1996, and for
the six months ended September 30, 1997 was 41.4% versus 41.1% for the six
months ended September 30, 1996. The increases are partially attributable to
increased state income taxes as a result of the Cleaning Technologies Group
acquisition.
Net income for the quarter ended September 30, 1997, decreased 12.8% over
the quarter ended September 30, 1996, due primarily to the shortfall in the
Imaging segment's sales as well as the impact of the UPS strike on the Cleaning
and Personal Care Products operations. Net income for the six months ended
September 30, 1997 decreased 10.5 % over the six months ended September 30,
1996, again due to shortfall in both segment's sales (exclusive of the Cleaning
Technologies Group sales).
FOREIGN OPERATIONS
- ------------------
Combined foreign operations showed improved operating results as both CPAC
Europe and CPAC Italia's net income for the quarter were substantially higher
than the same quarter last year. While the economies of Italy and Belgium have
been suffering from economic slowdowns, sales volumes and market share of CPAC
subsidiaries in these countries have continued to improve. Currency translation
rates for both Belgium and Italy have recently moved significant higher which
will offset a portion of the strong sales gains from these operations in the
third 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. 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.
FORWARD-LOOKING INFORMATION
- ---------------------------
This Form 10-Q contains forward-looking statements that are based on current
expectations, estimates and projections about the industries in which the
Company operates, as well as management's beliefs and assumptions. Words such
as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees
of future performance and involve certain risks, uncertainties and assumptions
("Future Factors") which are difficult to predict. Therefore, actual outcomes
and results may differ materially from what is expressed or forecasted in such
forward-looking statements. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.
The Future Factors that may affect the operations, performance and results
of the Company's business include the following:
a. general economic and competitive conditions in the markets and
countries in which the Company operates, and the risks inherent in
international operations;
b. the Company's ability to continue to control and reduce its costs of
production;
c. the level of demand for the Company's Imaging products and impact of
digital imaging;
d. the level of competition and consolidation within the imaging
industry;
e. the effect of changes in the distribution channels for the Company's
Cleaning and Personal Care Products;
f. the level of demand for contract manufactured Cleaning and Personal
Care Products; and
g. the strength of the U.S. dollar against currencies of other countries
where the Company operates, as well as cross-currencies between the
Company's operations outside of the U.S. and other countries with whom
they transact business.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described in the forward-looking statements. The Company does not intend
to update forward-looking statements.
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 6, 1997. 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 6,117,166 15,384
Robert C. Isaacs 6,117,166 15,384
Robert Oppenheimer 6,116,539 16,011
Seldon T. James, Jr. 6,116,639 15,911
John C. Burton 6,116,966 15,584
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, 1998, with votes cast as follows:
For Against Abstain
-- ------ ------
6,124,772 3,835 3,943
(b) approved the amendment of the Company's Long-Term Stock Investment
Plan to permit use of Company stock acquired under any of the Company's
employee stock option plans as payment for exercise of options under the
Plan with votes cast as follows:
For Against Abstain
-- ------ ------
5,224,859 507,924 22,327
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 amended by Letter of
extension and increase dated October 29, 1996, filed as Exhibit
99.1 to Form 10-Q for the quarter ended September 30, 1996, and
further amended by First Amendment to Second Amended and Restated
Loan Agreement dated October 31, 1996, filed as Exhibit 4.1 to
Form 10-Q for the quarter ended December 31, 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 Amendment Agreement dated September 12, 1997 with NationsBank,
N.A., adjusting the applicable margin rate on borrowings.
b. Reports Filed on 8-K
On August 5, 1997, the Company filed a Current Report (Form 8-K) with
respect to the July 23, 1997 acquisition by the Fuller Brush Company,
Inc. (a wholly-owned subsidiary of the Company), of certain assets of the
commercial cleaning chemicals business of IVAX Industries, Inc., a
wholly-owned subsidiary of IVAX Corporation.
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 October 29, 1997 By /s/ Thomas N. Hendrickson
---------------------------- -------------------------------
Thomas N. Hendrickson,
President,
Chief Executive Officer,
Treasurer
Date October 29, 1997 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 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, and amended by Letter of extension
and increase dated October 29, 1996, filed as Exhibit
99.1 to Form 10-Q for the quarter ended September 30,
1996, and further amended by First Amendment to Second
Amended and Restated Loan Agreement dated October 31,
1996, filed as Exhibit 4.1 to Form 10-Q for the quarter
ended December 31, 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 18
99. Additional exhibits
99.1 Amendment Agreement dated September 12, 1997 with
NationsBank, N.A., adjusting the applicable margin rate
on borrowings. 19
<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, 1997 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-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 5,450,732
<SECURITIES> 0
<RECEIVABLES> 19,542,395
<ALLOWANCES> 833,000
<INVENTORY> 19,727,513
<CURRENT-ASSETS> 46,312,145
<PP&E> 27,257,149
<DEPRECIATION> 9,729,212
<TOTAL-ASSETS> 79,208,050
<CURRENT-LIABILITIES> 12,963,688
<BONDS> 10,680,807
0
0
<COMMON> 72,296
<OTHER-SE> 52,584,401
<TOTAL-LIABILITY-AND-EQUITY> 79,208,050
<SALES> 49,833,789
<TOTAL-REVENUES> 49,833,789
<CGS> 27,351,505
<TOTAL-COSTS> 27,351,505
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 359,149
<INCOME-PRETAX> 6,230,738
<INCOME-TAX> 2,580,000
<INCOME-CONTINUING> 3,650,738
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,650,738
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
</TABLE>
EXHIBIT 99.1
------------
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT dated as of September 12, 1997, between CPAC,
Inc., a New York corporation (the "Borrower") and NationsBank, N.A., successor
by merger to NationsBank, N.A. (South) (the "Lender").
RECITALS
The Borrower and the Lender have entered into a Second Amended and
Restated Loan Agreement dated as of October 13, 1994 (the "Agreement"), as
amended by that certain First Amendment to Second Amended and Restated Loan
Agreement, dated October 31, 1996 pursuant to which the Lender made a loan to
the Borrower in the amount of $10,000,000.00 (the "Loan").
The obligation of the Borrower to repay the Loan is evidenced by an
Amended and Restated Promissory Note dated October 31, 1996 in the principal
amount of $10,000,000.00 executed by the Borrower in favor of Lender
(the "Note").
The Borrower and the Lender wish to further amend certain terms of the
Agreement and the Note as herein provided.
NOW THEREFORE, in consideration of the mutual agreements contained herein
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
Section 1. Definitions. Unless otherwise defined herein, terms defined in
the Agreement shall have the same meanings when used herein.
Section 2. Amendments. Effective as provided in Section 3 hereof and
subject to the provisions of Section 3 hereof, the Agreement and the Note
are hereby amended as follows:
AMENDMENT TO AGREEMENT
- ----------------------
Section 5.1 of Article V, General Covenants, is hereby amended by deleting the
-----------------
existing Section 5.1 in its entirety and by substituting the following in lieu
thereof:
"5.1 The Borrower agrees to pay the Lender an unused fee on the
aggregate unborrowed balance of the Revolving Loan, for each
date from December 1, 1996 until September 30, 1997, at rate of
one-quarter of one percent (1/4%) per annum. Commencing October
1, 1997 until the Revolving Loan maturity date, the amount of
the unused fee shall be one-eighth of one percent (1/8%) per
annum. Such unused fee shall be computed on the basis of a year
of 365/366 days for the actual number of days elapsed, shall be
billed quarterly in arrears on the last day of each calendar
quarter, commencing on December 31, 1996, shall be fully earned
when due, and shall be non-refundable when paid. A final
payment of any unused fee then payable shall also be due and
payable on the Revolving Loan maturity date."
AMENDMENT TO NOTE
- -----------------
The Note shall be amended by deleting the paragraph entitled "Applicable Margin"
in its entirety and by substituting the following in lieu thereof:
"Applicable Margin. The Applicable Margin, expressed as a per annum
rate of interest, shall be calculated as follows:
(i) Three-quarters of one percent (.75%) whenever the Funded Debt to
Cash Flow Ratio is less than one (1.0); (ii) one percent (1.0%)
whenever the Funded Debt to Cash Flow Ratio is greater than one
(1.0), but less than one and one-half (1.5); (iii) one and one
quarter percent (1.25%) whenever the Funded Debt to Cash Flow Ratio
is greater than one and one-half (1.5), but less than two (2.0); (iv)
one and one half percent (1.50%) whenever the Funded Debt to Cash
Flow Ratio is greater than two (2.0), but less than two and one-
quarter (2.25); and (v) two percent (2.0%) whenever the Funded Debt
to Cash Flow Ratio is greater than two and one-quarter (2.25), but
less than three (3.0)."
Section 3. Effective Date. The amendments to the Agreement and the Note
set forth in Section 2 hereof shall be effective and binding on all the parties
on and as of September 30, 1997 (or such later date as all the parties hereto
may agree) (the "Effective Date"), provided that all the following conditions
precedent have been satisfied on such date:
(a) The Lender shall have received one or more counterparts of this
Amendment Agreement executed by each of the parties hereto.
(b) All legal matters incident to this Amendment Agreement shall be
satisfactory to counsel for the Lender.
(c) No Event of Default shall have occurred and be continuing and no
status or condition exists which with the giving of notice or the passage of
time or both would constitute an Event of Default, and the representations of
the Borrower in Section 4 hereof shall be true on and as of the Effective Date
with the same force and effect as if made on and as of the Effective Date; and
no lawsuit or proceeding shall be pending (or, to the knowledge of the Borrower,
threatened) against the Borrower or any of its Consolidated Subsidiaries which
is likely to have a material adverse effect upon the consolidated financial
condition of the Borrower and its Consolidated Subsidiaries or upon the ability
of the Borrower to carry out the transactions contemplated by this Amendment
Agreement and the Agreement and the Note as amended hereby.
Section 4. Representations, Etc. The Borrower represents covenants and
warrants to the Lender that: (i) as of the date hereof no Event of Default has
occurred and is continuing and no status or condition exists which with the
giving of notice or the passage of time or both would constitute an Event of
Default; and (ii) the representations and warranties contained in Article II of
----------
the Agreement as amended hereby, with each reference in such Article II to "this
----------
Agreement", "hereto", "hereof" and terms of similar import taken as a reference
to the Agreement as amended hereby and each reference in such Article II to the
----------
"Note" taken as a reference to the Note as amended hereby are true and correct
on and as of the date hereof as if set forth in full herein as so amended.
Section 5. Agreement.
(a) Except as specifically amended hereby, the Agreement and the Note
shall remain unchanged and continue in full force and effect in accordance with
the provisions thereof as in existence on the date hereof. From and after the
Effective Date, (i) each reference in the Agreement (including all Exhibits and
Schedules thereto) to "this Agreement," "hereto," "hereof" and terms of similar
import taken as a reference to the Agreement and all references to the Agreement
in any documents, instruments, certificates, notes, bonds or other agreements
executed in connection therewith (including, but not limited to, the Note)
shall be deemed to refer to the Agreement as amended hereby and (ii) each
reference in the Note to "this Note," "hereto," "hereof" and terms of similar
import taken as a reference to the Note and all references to the Note in any
documents, instruments, certificates, notes, bonds or other agreements executed
in connection therewith (including, but not limited to, the Agreement) shall be
deemed to refer to the Note as amended hereby.
(b) The Borrower agrees that all collateral given as security for the
Agreement and the Note secures, and shall continue to secure, the Agreement and
the Note, as amended hereby.
(c) The Borrower waives and releases the Lender from any and all claims
and defenses with respect to the Agreement, the Note and any and all documents,
instruments, certificates, notes, bonds or other agreements executed in
connection therewith.
(d) This Amendment Agreement (i) is limited precisely as specified herein
and does not constitute nor shall be deemed to constitute a modification,
acceptance or waiver of any other provision of the Agreement, the Note or any
documents, instruments, certificate, notes, bonds or agreements delivered in
connection therewith and (ii) shall not prejudice or be deemed to prejudice any
right(s) the Lender may now have or may in the future have under or in
connection with the Agreement, the Note or any documents, instruments,
certificates, notes, bonds or agreements executed in connection therewith.
Section 6. Applicable Law. This Amendment Agreement shall be governed by
and construed in accordance with the laws of the State of Georgia.
Section 7. Expenses. The Borrower will pay: (i) all out-of-pocket
expenses of the Lender in connection with the preparation, execution and
delivery of this Amendment Agreement; (ii) the reasonable fees of counsel to the
Lender, including the allocated cost of in- house counsel; and (iii) all taxes,
if any, upon any documents or transactions pursuant to this Amendment Agreement.
Section 8. Counterparts. This Amendment Agreement may be executed in any
number of counterparts, all of which taken together will constitute one
agreement, and any of the parties hereto may execute this Amendment Agreement by
signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be duly executed as of the day and year first above written.
CPAC, Inc.
By: /s/ Thomas J. Weldgen
-----------------------------
Name: Thomas J. Weldgen
Title: Chief Financial Officer
Attest:
By: /s/ James W. Pembroke
-----------------------------
Name: James W. Pembroke
Title: Corporate Controller
[CORPORATE SEAL]
NationsBank, N.A., successor to
NationsBank, N.A. (South)
/s/ Richard H. Schuller
----------------------------------
By: Richard H. Schuller
Title: Senior Vice President
