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, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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, 1997, there were outstanding 7,007,889 shares of the
Company's Common Stock, $.01 Par Value. Options for 787,542 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
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PART I FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Financial Statements
CPAC, Inc. and Subsidiaries Consolidated
Balance Sheets - December 31, 1997 (Unaudited),
and March 31, 1997 3
CPAC, Inc. and Subsidiaries Consolidated
Statements of Operations - Nine Months Ended
December 31, 1997, and December 31, 1996 (Unaudited) 4
CPAC, Inc. and Subsidiaries Consolidated
Statements of Operations - Three Months Ended
December 31, 1997, and December 31, 1996 (Unaudited) 5
CPAC, Inc. and Subsidiaries Consolidated
Statements of Cash Flows - Nine Months Ended
December 31, 1997, and December 31, 1996 (Unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of
Security Holders 14
Item 5. Other Information 14
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>
DECEMBER 31, 1997 MARCH 31, 1997
---------------- --------------
(Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,950,576 $ 15,106,868
Accounts receivable (net of allowance for doubtful
accounts of $888,000 and $587,000, respectively) 18,708,490 13,776,933
Inventory 20,217,047 17,209,020
Prepaid expenses and other current assets 3,162,252 2,079,016
---------------- ----------------
Total current assets 47,038,365 48,171,837
Property, plant and equipment, net 17,297,895 16,627,595
Goodwill and intangible assets (net of amortization of
$1,839,457 and $1,594,118, respectively) 13,895,918 2,426,854
Other assets 1,594,024 1,789,846
---------------- ----------------
$ 79,826,202 $ 69,016,132
================ ================
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 118,201 $ 137,612
Accounts payable 6,305,427 4,066,593
Accrued payroll and related expenses 1,954,044 1,877,859
Accrued income taxes payable 603,382 210,481
Other accrued expenses and liabilities 4,053,285 3,434,274
---------------- ----------------
Total current liabilities 13,034,339 9,726,819
Long-term debt, net of current portion 10,236,205 6,740,535
Accrued deferred compensation 585,138 566,047
Accrued royalty 1,627,103 1,627,103
Other long-term liabilities 1,320,790 736,790
Minority interest in foreign subsidiary 50,528 38,240
Shareholders' equity:
Common stock, par value $0.01 per share;
Authorized 20,000,000 shares;
Issued 7,093,196 shares and 7,228,524 shares,
respectively 70,932 72,286
Additional paid-in capital 25,111,548 26,598,238
Retained earnings 29,280,036 23,710,911
Foreign currency translation adjustment (900,229) (210,649)
---------------- ----------------
53,562,287 50,170,786
Less: Treasury stock, at cost, 85,307 shares (590,188) (590,188)
---------------- ----------------
Total shareholders' equity 52,972,099 49,580,598
---------------- ----------------
$ 79,826,202 $ 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
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CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE NINE MONTHS ENDED
-------------------------
DECEMBER 31, 1997 AND DECEMBER 31, 1996
--------------------------------------
UNAUDITED
---------
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net sales $ 78,913,854 $ 70,633,930
----------------- ----------------
Costs and expenses:
Cost of sales 43,825,713 37,020,633
Selling, administrative and
engineering expenses 24,907,300 22,835,541
Research and development expense 499,195 506,956
Minority interest in consolidated
foreign subsidiary 12,288 9,149
Interest expense, net 189,233 50,507
----------------- ----------------
69,433,729 60,422,786
----------------- ----------------
Income before income tax expense 9,480,125 10,211,144
Provision for income tax expense 3,911,000 4,169,000
----------------- ----------------
Net income $ 5,569,125 $ 6,042,144
================= ================
Income per common share:
Basic $ 0.78 $ 0.84
================= ================
Diluted $ 0.77 $ 0.82
================= ================
Average common shares outstanding:
Basic 7,128,137 7,213,842
================= ================
Diluted 7,187,925 7,365,406
================= ================
</TABLE>
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE THREE MONTHS ENDED
--------------------------
DECEMBER 31, 1997 AND DECEMBER 31, 1996
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UNAUDITED
---------
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net sales $ 29,080,065 $ 23,219,659
----------------- ----------------
Costs and expenses:
Cost of sales 16,474,208 12,379,960
Selling, administrative and
engineering expenses 9,080,101 7,368,864
Research and development expense 123,758 177,034
Minority interest in consolidated
foreign subsidiary 6,099 5,463
Interest expense, net 146,512 3,345
----------------- ----------------
25,830,678 19,934,666
----------------- ----------------
Income before income tax expense 3,249,387 3,284,993
Provision for income tax expense 1,331,000 1,323,000
----------------- ----------------
Net income $ 1,918,387 $ 1,961,993
================= ================
Income per common share:
Basic $ 0.27 $ 0.28
================= ================
Diluted $ 0.27 $ 0.27
================= ================
Average common shares outstanding:
Basic 7,083,647 7,078,900
================= ================
Diluted 7,100,120 7,270,450
================= ================
</TABLE>
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE NINE MONTHS ENDED
-------------------------
DECEMBER 31, 1997 AND DECEMBER 31, 1996
--------------------------------------
UNAUDITED
---------
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,569,125 $ 6,042,144
-------------- --------------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,749,460 1,545,640
Amortization of intangible assets 364,934 229,222
Changes in assets and liabilities, net of effects of
business acquisitions:
Accounts receivable (2,015,646) (442,185)
Inventory 981,658 (1,191,733)
Accounts payable 1,646,301 (1,844,109)
Accrued expenses & liabilities (1,593,806) 164,388
Accrued deferred compensation 13,264 95,962
Other changes, net 676,146 218,077
-------------- --------------
Total adjustments 1,822,311 (1,224,738)
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Net cash provided by operating activities 7,391,436 4,817,406
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Cash flows from investing activities:
Purchase of property, plant, and equipment, net (1,279,069) (1,474,104)
Business acquisition, net of cash acquired (18,201,000)
-------------- --------------
Net cash used in investing activities (19,480,069) (1,474,104)
-------------- --------------
Cash flows from financing activities:
Common stock repurchase (1,834,994) (2,688,400)
Issuance of common stock, net 346,950 398,348
Proceeds from long-term borrowings 6,000,000
Repayment of long-term borrowings (2,577,689) (542,573)
-------------- --------------
Net cash provided (used) in financing activities 1,934,267 (2,832,625)
-------------- --------------
Effect of exchange rate changes on cash (1,926)
-------------- --------------
Net increase (decrease) in cash and cash equivalents (10,156,292) 510,677
Cash and cash equivalents - beginning of period 15,106,868 13,667,286
-------------- --------------
Cash and cash equivalents - end of period $ 4,950,576 $ 14,177,963
============== ==============
</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, 1997 and December 31, 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 December 31, 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 nine months ended December 31,
1997, are not necessarily indicative of the operating results for the full year.
2 - INVENTORY
---------
Inventory is summarized as follows:
DECEMBER 31, 1997 MARCH 31, 1997
---------------- --------------
Raw materials and purchased parts $8,354,631 $ 7,791,672
Work-in-process 1,059,273 1,001,775
Finished goods 10,548,372 8,218,866
Promotional supplies 254,771 196,707
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$20,217,047 $17,209,020
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3 - EARNINGS PER SHARE
------------------
The Company has adopted Statement of Financial Accounting Standards
(SFAS)No. 128, "Earnings per Share", which was issued by the Financial
Accounting Standards Board in February, 1997. SFAS No. 128 requires dual
presentation of basic earnings per share (EPS) and diluted EPS on the face of
all statements of earnings for periods ending after December 15, 1997. Basic
EPS is computed as net earnings divided by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur from common shares issuable through stock-based compensation
including stock options. Reported earnings per share in prior periods have been
restated to conform with the provisions of SFAS 128.
THREE MONTHS NINE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
1997 1996 1997 1996
------------------- -------------------
BASIC EARNINGS PER SHARE
Basic Shares Outstanding:
Weighted average number of
shares outstanding 7,083,647 7,078,900 7,128,137 7,213,842
Net income 1,918,387 1,961,993 5,569,125 6,042,144
Basic EPS 0.27 0.28 0.78 0.84
DILUTED EARNINGS PER SHARE
Diluted Shares Outstanding:
Weighted average number of
shares outstanding 7,083,647 7,078,900 7,128,137 7,213,842
Effect of dilutive
stock options 16,473 191,550 59,788 151,564
---------- ---------- ---------- ----------
Dilutive shares
outstanding 7,100,120 7,270,450 7,187,925 7,365,406
Net income 1,918,387 1,961,993 5,569,125 6,042,144
Diluted EPS 0.27 0.27 0.77 0.82
Unexercised stock options to purchase 417,380 shares of the Company's common
stock as of December 31, 1997, were not included in the computations of diluted
EPS because the options' exercise prices were greater than the average market
price of the Company's common stock during the respective periods. These
options, issued at various dates from 1995 to 1997, are still outstanding at the
end of the period.
4 - 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 $17,590,000 in cash, assumption of certain liabilities,
and acquisition related costs of $611,000 for a total asset purchase price of
approximately $20,955,000. The acquired operation, which will operate as the
Cleaning Technologies Group (CTG), 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. The
Company has made a preliminary allocation of the purchase price of CTG based on
the estimated respective fair values of the acquired assets and liabilities, and
expects to finalize the acquisition accounting by the end of its fiscal year.
The final allocation is not expected to have a significant impact upon the
results of operations as previously reported. The preliminary purchase price
has been allocated as follows:
Accounts Receivable $ 3,072,000
Inventory 4,150,000
Other current assets 590,000
Machinery and equipment 1,300,000
Intangible assets 11,843,000
------------
Total assets acquired 20,955,000
Less: Liabilities assumed (2,754,000)
------------
$ 18,201,000
============
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 nine
months ended, December 31, 1997.
On a pro forma (unaudited) basis, if the acquisition had occurred as of
April 1, 1996, the consolidated results of operations for the nine months ended
December 31, 1997 and 1996 of the Company would have been approximately:
PERIOD-ENDED PERIOD-ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------- ----------------
(UNAUDITED) (UNAUDITED)
Net sales $ 87,436,000 $ 91,162,000
Net income 5,814,000 5,973,000
Income per common share:
Basic $ 0.82 $ 0.83
============= ============
Diluted $ 0.81 $ 0.81
============= ============
Average common shares outstanding:
Basic 7,128,137 7,213,842
============ ============
Diluted 7,187,925 7,365,406
============ ============
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.
5 - 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) on
July 23, 1997 necessitated accessing the Company's domestic line of credit for
$6 million and utilizing $11 million of cash on hand. However, strong operating
cash flows experienced to date, have allowed the Company to reduce the borrowing
on the line to a balance at December 31, 1997 of $3,631,536. Strong cash flows
have also allowed the Company to continue their stock buy-back program announced
earlier in the year, with the Company spending approximately $1,835,000 through
December 31, 1997 to acquire over 173,000 shares of the Company's $.01 par
common stock. Although the Company's maximum borrowing capacity under this
facility is $10 million, the Company continues to discuss restructuring a
portion of its outstanding line into a term note facility, as well as expanding
its line availability above the $10 million cap. As disclosed in the September
30, 1997 Form 10-Q, the Company negotiated a reduction in its borrowing rate to
the lower of prime or the 30 day LIBOR rate plus .75% (interest at 7.17% at
December 31, 1997). Currently, the line of credit facility matures in October,
1999, and requires meeting certain financial covenants, with which the Company
was in compliance at December 31, 1997.
The Company continues to maintain over $4.7 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 utilized at December 31, 1997. The amount available is 34.3
million Belgian francs (approximately $935,000 based on the December conversion
rate for the Belgian franc).
The working capital ratios at December 31, 1997, March 31, 1997, and
December 30, 1996 were, 3.61 to 1, 4.95 to 1, and 5.15 to 1, respectively. The
decrease in the working capital at December 31, 1997, as compared to March 31,
1997, and December 31, 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 December 31, 1997.
It is expected that additional financing may be necessary to allow the Company
to pursue future acquisitions.
ASSET TURNOVER RATIOS
- ---------------------
DECEMBER 31, 1997 MARCH 31, 1997 DECEMBER 31, 1996
---------------- -------------- -----------------
(1) Receivables-days
outstanding 56.6 days 54.3 days 51.92 days
(2) Annual inventory
turns 3.1 times 2.9 times 2.9 times
At December 31, 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.
The increase in inventory turns for the quarter ended December 31, 1997
compared to the year ended March 31, 1997 and quarter ended December 31, 1996,
are a function of the planned reduction of levels of Cleaning and Personal Care
inventory (exclusive of CTG), as well as concerted efforts to more closely match
inventory levels with current sales conditions.
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 December 31, 1997 increased 25.2% over the
quarter ended December 31, 1996, and increased 11.7% for the nine months ended
December 31, 1997, over the nine months ended December 31, 1996. Sales for the
quarter in the Cleaning and Personal Care Products segment have increased 48.9%
compared with the quarter ended December 31, 1996, and increased 25.0% for the
nine months ended December 31, 1997, over the nine months ended December 31,
1996. The increase for the quarter and nine 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 in the second
quarter, were impacted by the UPS strike. For the Imaging segment, overall
sales for the quarter ended December 31, 1997, increased 1.0% over the quarter
ended December 31, 1996, and decreased 2.2% for the nine months ended
December 31, 1997, compared to the nine months ended December 31, 1996.
Although sales for the quarter as compared to last year were essentially flat,
the decrease for the nine 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 43.3% for this quarter versus 47.0% for the
year ended March 31, 1997, and 46.7% for the same quarter last year. Gross
Margins in the Cleaning and Personal Care Products segment have decreased to
44.9% from 53.7% for the year ended March 31, 1997, and 50.8% 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, continued lower Fuller and Stanley
direct sales lowered the blended gross margin for the segment. Gross Margins in
the Imaging segment have remained at 41.0% as compared to the year ended
March 31, 1997, and decreased from 42.4% 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 31.2%,
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 33.9% from
36.7% for the year ended March 31, 1997, and 34.5% 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 27.9% from 28.6% for the year ended March 31, 1997,
and 28.7% incurred in the same quarter last year. The decrease is a result of
cost savings measures put into place.
Net interest expense increased significantly for the quarter ended
December 31, 1997 versus the quarter ended December 31, 1996, and for the nine
months ended December 31, 1997 versus December 31, 1996, due to the borrowings
and use of invested funds for the acquisition of the Cleaning Technologies Group
in July, 1997.
The Provision for income taxes as a percentage of pretax income for the
quarter was 41.0% versus 40.3% for the quarter ended December 31, 1996, and for
the nine months ended December 31, 1997 was 41.3% versus 40.8% for the nine
months ended December 31, 1996. The increases are partially attributable to
increased state income taxes as a result of the Cleaning Technologies Group
acquisition, and increased foreign taxes, due to higher profits from the
Company's foreign operations.
Net income for the quarter ended December 31, 1997, decreased 2.2% over the
quarter ended December 31, 1996, due primarily to the shortfall in the domestic
Imaging operation's profits as well as the sales shortfall in the Cleaning and
Personal Care Products' Direct Selling operations. Net income for the nine
months ended December 31, 1997 decreased 7.8% over the nine months ended
December 31, 1996, again due to shortfall in both segment's sales (exclusive of
the Cleaning Technologies Group sales).
FOREIGN OPERATIONS
- ------------------
Foreign operations in Belgium and Italy continued to show strong operating
profits for the quarter and year to date as compared to the same quarter in
fiscal 1997 and for the nine months then ended. Sales in Europe on a local
currency basis (Belgian Franc) increased 26.2% for the quarter, and 22.6% year
to date as compared to the similar periods in fiscal 1997. Sales in Italy on a
local currency basis (Lira) were down 2.5% for the quarter, but up 2.3% year to
date as compared to similar periods in fiscal 1997. However, currency impacts
from a stronger US dollar, negatively effected sales and profits after
translation for both operations.
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
---------------------------------------------------
None
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,
incorporated by reference to Form 10-Q, filed for the period
ended September 30, 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, and further amended by
Agreement dated September 12, 1997 filed as Exhibit 99.1 to
Form 10-Q for the quarter ended September 30, 1997
(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
Not applicable
b. Reports Filed on 8-K
On October 3, 1997, the Company filed a Current Report (Form 8-K/A) 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 February 6, 1998 By /s/ Thomas N. Hendrickson
---------------------------- --------------------------------
Thomas N. Hendrickson,
President,
Chief Executive Officer,
Treasurer
Date February 6, 1998 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, incorporated by reference to Form 10-Q, filed
for the period ended September 30, 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, and further amended by
Agreement dated September 12, 1997 filed as
Exhibit 99.1 to Form 10-Q for the quarter ended
September 30, 1997 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 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, 1997 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-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 4,950,576
<SECURITIES> 0
<RECEIVABLES> 19,596,490
<ALLOWANCES> 888,000
<INVENTORY> 20,217,047
<CURRENT-ASSETS> 47,038,365
<PP&E> 27,616,477
<DEPRECIATION> 10,318,582
<TOTAL-ASSETS> 79,826,202
<CURRENT-LIABILITIES> 13,034,339
<BONDS> 6,423,628
0
0
<COMMON> 70,932
<OTHER-SE> 52,901,167
<TOTAL-LIABILITY-AND-EQUITY> 79,826,202
<SALES> 78,913,854
<TOTAL-REVENUES> 78,913,854
<CGS> 43,825,713
<TOTAL-COSTS> 43,825,713
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 567,544
<INCOME-PRETAX> 9,480,125
<INCOME-TAX> 3,911,000
<INCOME-CONTINUING> 5,569,125
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,569,125
<EPS-PRIMARY> 0.78<F1>
<EPS-DILUTED> 0.77
<FN>
<F1>As of December 15, 1997 EPS Primary has been changed to EPS Basic; and we
have calculated this figure with the formula for EPS Basic.
</FN>
</TABLE>
