FORM 10-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended March 31, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission File No. 0-9600
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CPAC, INC.
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(Exact name of Registrant as Specified in its Charter)
New York 16-0961040
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(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
2364 Leicester Rd., Leicester, New York 14481
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(Address of Principal Executive Offices) (ZIP Code)
Registrant's telephone number, including area code: (716)-382-3223
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Securities registered under Sec. 12(g) of the Act:
$.01 Par Value Common Stock
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(Title of Class)
The Registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months, and has
been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
[ X ] Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained herein, and will not be contained, to the best of
Registrant's knowledge, in any definitive proxy statement incorporated
by reference in Part III of this Form 10-K, or any amendment thereto.
As of June 19, 1998, there were outstanding 6,915,055 shares of the Company's
Common Stock, $.01 Par Value. The aggregate market value of the 6,444,234
shares held by non-affiliates on that date was $65,852,016, based on the average
of high and low bid prices of $10.25 and $10.1875 respectively. Options for
801,557 shares of the Company's Common Stock are outstanding but have not yet
been exercised. Shares to cover the options will not be issued until they are
exercised.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Certain portions of Part III of this report are incorporated herein by reference
to portions of the Registrant's Proxy Statement dated June 24, 1998.
The Exhibit Index to this Report is found on page 46.
CPAC, INC.
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TABLE OF CONTENTS
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PART I
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Item 1 Business 4
Item 2 Properties 12
Item 3 Legal Proceedings 12
PART II
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Item 5 Market for the Registrant's Common Equity and
Related Security Holder Matters 13
Item 6 Selected Financial Data 14
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 8 Financial Statements and Supplementary Data 21
PART III
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Item 10 Directors and Executive Officers of the Registrant 40
Item 11 Executive Compensation 41
Item 12 Security Ownership of Certain Beneficial Owners
and Management 41
Item 13 Certain Relationships and Related Transactions 41
PART IV
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Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 42
SIGNATURES 45
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INDEX TO ITEMS
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INCORPORATED BY REFERENCE
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CAPTION IN PROXY
PART III STATEMENT
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Item 10 Directors and Executive Officers of Directors and Executive
the Registrant Officers
Item 11 Executive Compensation Executive Compensation
Item 12 Security Ownership of Certain Security Ownership of
Beneficial Owners and Management Certain Beneficial
Owners and Management
Item 13 Certain Relationships and Related Information About the
Transactions Board and Its Committees
PART I
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ITEM 1. BUSINESS
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HISTORY
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The Company was formed on March 27, 1969 as a New York Corporation under the
name of Computerized Pollution Abatement Corporation. Its name was shortened to
CPAC, Inc. (pronounced "seapack") by an amendment to its Certificate of
Incorporation filed March 29, 1976. The Certificate of Incorporation, as
amended, authorizes the issuance of 20,000,000 shares of Common Stock with a par
value of $0.01 per share.
Thomas N. Hendrickson left Eastman Kodak Company to become the founder,
President and Chief Executive Officer of CPAC, and has remained President and
Chief Executive Officer throughout the Company's history.
The basic premise underlying the formation of the Company was the founder's
belief that it would become necessary for photofinishers to remove pollutants
from photographic processing effluent in order to meet environmental standards,
and that most of the pollutants could be recovered in a cost effective manner.
Silver was the primary recoverable material initially addressed by the Company.
As a primary supplier of equipment for the recovery of silver from spent
photographic solutions, CPAC sought to expand its service to customers by
providing refining services for the recovered silver. On July 1, 1981, CPAC
entered into a joint venture agreement, forming a 50% owned subsidiary company
called Profit Recovery Systems, Inc. (later shortened to "PRS, Inc."). The
purpose of the joint venture was to provide silver refining services and to
exclusively market the products of CPAC, Inc. in the domestic marketplace,
acting as a commissioned sales agency. In June 1988, PRS, Inc. became a wholly-
owned subsidiary of CPAC, Inc.
In an effort to expand its product line beyond the sale of equipment, and to
enhance its strategy of providing consumable products to an established customer
base, CPAC acquired Trebla Chemical Company on October 1, 1984.
Trebla produces high quality photographic processing chemicals and has
successfully positioned itself as the "high quality, low cost producer." Many
of its products are unique formulations, optimized for use with CPAC desilvering
and chemical recycling equipment.
Continuing with its successful strategy of emphasizing the growth of its
consumable product lines and seeking expanded marketing avenues, on April 1,
1988, CPAC acquired Allied Photo Products Co., Inc. from Allied Products Co.,
Inc. In fiscal 1994 Allied Photo Products Co., Inc. changed its name to Allied
Diagnostic Imaging Resources, Inc.
Allied Diagnostic Imaging Resources, Inc. produces processing chemistries for
the medical, dental and industrial X-ray, microfilm, and graphic arts markets.
Allied has several well-known registered and trademarked product lines.
IMG Photo Products, acquired by CPAC, Inc. on March 31, 1989, was founded in
1978. A quality manufacturer of silver recovery equipment and chemical mixers
and blenders, IMG was purchased to boost Allied's chemical sales to the graphic
arts and medical X-ray industries. IMG's operations were consolidated at CPAC
Equipment Division, Leicester, New York, in 1990.
Pursuing a strategic plan to become a worldwide chemical manufacturer, CPAC
Europe, N.V. was formed in December, 1989, as a joint venture. A manufacturing
plant was constructed in Herentals, Belgium and opened in June, 1991.
Initially, Trebla chemicals were packaged to European standards and sold from
this location.
In July, 1991, CPAC, Inc. purchased the joint venture partner's interest in
CPAC Europe, N.V. to obtain 98% ownership of the company. This action was taken
to expedite the achievement of CPAC, Inc.'s international goals. During fiscal
1994, additional manufacturing equipment was added allowing on-site mixing
capabilities.
On June 8, 1992, the Company purchased substantially all of the operating
assets and assumed certain liabilities from Chimifoto Ornano S.p.A. in Milan,
Italy. The transaction was completed through a newly formed entity, CPAC
Italia, S.r.l. Now operating as a wholly-owned subsidiary under the name
Chimifoto Ornano, the company manufactures color and black-and-white chemicals
similar to those produced by the Company's domestic chemical subsidiaries.
CPAC's strategic goal is to become a world leader in the manufacture,
packaging, and distribution of niche market specialty chemicals. In 1994, CPAC
began its diversification strategy by acquiring The Fuller Brush Company of
Great Bend, Kansas. Fuller makes a wide variety of specialty chemicals and
cleaning products for the industrial and household consumer markets. In
January, 1995, CPAC signed an agreement to license the trademarks and formulas
of Stanley Home Products. Similar to the Fuller Brush line, Stanley also has a
wide range of personal care products.
On July 23, 1997, CPAC acquired the commercial cleaning chemicals business of
IVAX Industries and consolidated it with Fuller Brush's commercial cleaning
division to form Cleaning Technologies Group (CTG). CTG operates as a division
of Fuller and is positioned to become a major supplier to the janitorial
cleaning market through partnerships with distributors and private-label
manufacturing. The former IVAX manufacturing facility in Marion, Ohio, will
close during fiscal year 1999, and all production will be moved to the Fuller
Brush plant in Great Bend, Kansas.
CPAC, Inc. utilizes a profit center system to capitalize on its internal and
acquired management strengths and to assure the continued customer benefits
produced by its complementary product lines. CPAC, Inc. is now considered a
holding company for the operations of: Trebla Chemical Company; Allied
Diagnostic Imaging Resources, Inc.; CPAC Europe, N.V.; CPAC Equipment Division;
PRS, Inc. (a sales and marketing organization); CPAC Italia, S.r.l.; The Fuller
Brush Company, Inc.; Stanley Home Products; and Cleaning Technologies Group.
Each of the operations will be described separately in the following sections.
NATURE OF BUSINESS
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BUSINESS SEGMENTS
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Prior to the acquisition of Fuller, the Company classified its operations
into one industry segment -- the manufacture and sale of prepackaged chemical
formulations, supplies, and equipment systems to the imaging industry.
Following the acquisition of Fuller and the signing of the Stanley Home Products
license agreement, the Company has added a new segment and now operates in two
different business segments. In addition to the Imaging segment, the Company
also operates in the Cleaning and Personal Care Products segment which includes
specialty chemical cleaning products and related accessories (brushes, brooms,
mops) for industrial and consumer use, as well as personal products such as
soaps, shampoos, and skin care items. The products of each segment are
manufactured and marketed both in the U.S. and in other parts of the world. For
additional financial information on these two segments, refer to Footnote 9 of
Notes to Consolidated Financial Statements.
CLEANING AND PERSONAL CARE PRODUCTS SEGMENT
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THE FULLER BRUSH COMPANY, INC.
CPAC acquired the Fuller Brush Company as a major step toward diversification
into new specialty chemical markets. Fuller makes over 2,000 different
products, including household and commercial cleaning chemicals, brushes,
brooms, mops, and personal care products.
The business is divided into industrial and consumer divisions. In addition,
Fuller manufactures its products on a contract basis, and has a relationship
with roughly 400 O.E.M. companies. Fuller has more than 100 trademarks in the
U.S., Canada, and Puerto Rico, and sells products under a variety of names.
CLEANING TECHNOLOGIES GROUP (CTG)
Operating as a division of Fuller Brush, Cleaning Technologies Group is
comprised of the recently acquired assets of IVAX Industries and Fuller's
existing commercial cleaning business. Products are marketed under the
recognized trademarks of Franklin(R), Fuller Brush(R) Commercial, and Masury
ColumbiaTM through a combined network of 600 distributors. The new entity
represents approximately $33 million in yearly revenues.
STANLEY HOME PRODUCTS (SHP)
CPAC's license agreement to take over the domestic operations of Stanley Home
Products enhanced the Company's presence in the Cleaning and Personal Care
market by reinforcing the direct selling element of Fuller Brush. Stanley's
products include over 250 different cleaning and personal care items, sold
through a network of distributors via the "hostess" or "party plan". Stanley has
over 50 trademarks in the U.S., Canada and Puerto Rico. Products are marketed
under the brand names "Naturals" and "Selectives".
IMAGING SEGMENT
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TREBLA CHEMICAL COMPANY
Chemicals are used in the developing process of both photographic film and
paper. The exhausted chemicals must be replaced by fresh chemicals or
regenerated. Trebla manufactures a complete line of chemical replenishment and
chemical regeneration kits for the photographic industry, as well as chemicals
for any process that develops a silver halide image.
Trebla's Trecon(R) and Trelux(R) brand paper and film chemistries enhance the
recovery efficiencies of CPAC silver and chemical recovery systems, to reduce
chemical usage and minimize pollutant discharge. The company believes it is the
leading manufacturer of recyclable chemistries. Trebla pioneered the industry's
first line of developer regeneration kits, to allow photo labs to reuse color
developer without purchasing recycling equipment.
Trebla continues to develop and introduce chemical products specifically to
cut pollutant discharge, reduce chemistry costs, eliminate odors, and minimize
packaging waste. The company also does contract manufacturing for several major
manufacturers.
ALLIED DIAGNOSTIC IMAGING RESOURCES, INC.
Medical, dental and industrial X-rays, and graphic arts pre-press plates all
require processing of an exposed image in chemical solutions to produce an
image. Allied produces a complete line of high quality chemical solutions for
these purposes.
In Allied's primary market, medical X-ray, the company's Autex(R) processing
chemicals are widely recognized for their quality and versatility. Allied
pioneered the popular QuadraPak(R) and BiPak(R) packaging of chemistries. In
the dental X-ray industry, Allied's second largest market, its trademarked Redi-
Chem A & B(R) chemistry has the majority marketshare for automatic-type
processing chemicals. Allied also produces high quality microfilm and pre-press
chemicals for use in graphic arts applications. This represents the smallest
portion of Allied's business.
CPAC EUROPE, N.V.
CPAC Europe, N.V. manufactures Trebla chemicals and markets CPAC silver
recovery equipment for sale in western and eastern Europe, northern Africa, and
the Middle East. CPAC Europe also has begun distributing Allied chemistry, and
is pursuing new opportunities to supply photofinishers in Eastern Europe.
CPAC ITALIA, S.R.L. (CHIMIFOTO ORNANO S.P.A.)
Chimifoto was acquired to increase CPAC's market position in Europe, and to
establish an additional chemical manufacturing and distribution point for
further expansion of CPAC product lines within the European, Middle East, and
North African photographic markets. Chimifoto manufactures processing solutions
for photofinishing, medical, and graphic arts applications.
CPAC EQUIPMENT DIVISION
As photographic materials are processed, either the exhausted chemicals must
be replaced by fresh chemicals, or the solutions must be treated to extend their
useful lives. CPAC Equipment Division designs and manufactures systems to
achieve this by removing the silver from these solutions so that they can be
mixed with fresh chemicals and reused. These systems also reduce pollutant
discharge.
CPAC Equipment Division introduced two principal technologies for silver
recovery -- electrolytic and ion-exchange. Under the registered trademark
SilvPAC(R), the Equipment Division manufactures silver recovery systems for
image processing facilities using these technologies.
On April 1, 1998, CPAC Equipment Division acquired the PerfectView(R) line of
illuminators (light boxes) for the medical industry. These products are
marketed through an existing distributor network as well as through Allied's
distributor and national accounts channels.
The company also produces a broad line of IMG silver recovery systems and
chemical mixers and blenders, as well as units that recirculate fixer to help
customers save money by using less chemistry.
PRS, INC.
As the exclusive sales and marketing company for CPAC equipment, Trebla
chemistry, and silver refining services, PRS utilizes a direct field sales
force, mail order, and distributors to sell and service certain CPAC products in
the photographic industry. PRS expanded its marketing role on behalf of the
CPAC companies by assuming responsibility for international sales excluding
sales made by CPAC Europe, N.V. and CPAC Italia, S.r.l.
MARKETING AND SALES
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THE FULLER BRUSH COMPANY, INC.
INDUSTRIAL BUSINESS
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Fuller's industrial business is comprised of three major segments:
1) Commercial
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In the commercial area of the business, Cleaning Technologies Group
(Fuller Brush Commercial and acquired assets of IVAX Industries)
manufactures high quality, industrial strength cleaning and janitorial
products for use in restaurants, food service establishments, industrial
plants, schools, and other specialty cleaning markets. These products
are sold exclusively through janitorial supply, paper supply, and food
service distributors direct to end-users and through national accounts.
Cleaning Technologies Group (CTG) competes with six national players in
the chemical area -- the largest and most well-known of which is S.C.
Johnson. CTG holds approximately 80 trademarks on products for this
market.
2) Custom Products
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The custom products division produces high quality, engineered brushes
and chemical products for O.E.M. production processes and other uses.
Fuller currently has a relationship with approximately 400 national
O.E.M. companies. Including Fuller Brush, about eight national
companies compete for marketshare. Fuller's engineering and design
expertise in custom products manufacturing places the company in a
highly competitive position in this market.
3) Contract Manufacturing
----------------------
Fuller has the capability of manufacturing any of its products on a
private-label basis, and currently has contracts to supply other large
companies in the household and personal care industries, which include
direct marketing by national and regional organizations. Fuller's
contract manufacturing business is expected to become a major focus for
CPAC, Inc. to take advantage of underutilized manufacturing capacity and
equipment at its facility in Great Bend, Kansas.
CONSUMER DIVISION
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Fuller Brush markets its chemical and non-chemical products to consumers using
three sales methods:
1) Direct Sales
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Fuller Brush pioneered the direct selling industry and at one point,
earned almost all of its revenue from this "door-to-door" sales
approach. In contrast to this method, Stanley Home Products distributors
utilize the hostess or party plan sales method. In this scenario, a
hostess invites friends and family to her home to view a demonstration
of Stanley products by an SHP distributor. After the demonstration, the
distributor solicits orders from the guests. Combined, Fuller and
Stanley direct selling now account for approximately 38% of Fuller's
total sales.
2) Retail Outlet Stores
--------------------
Fuller's retail outlet stores feature discontinued inventory, surplus
products, and seconds merchandise, and provide the company with an
opportunity to meet its inventory control objectives. Fuller presently
has ten retail outlet stores nationwide that represent about 2% of
Fuller's total sales.
3) Mail Order/Catalog Sales
------------------------
In addition to the hundreds of thousands of catalogs Fuller prints for
use by the sales force and distributors, the company also advertises
select products in other specialized manufacturers' publications.
Fuller promotes its high quality product line through nationally
recognized catalogs.
STANLEY HOME PRODUCTS
Stanley Home Products distributors utilize the hostess or party plan sales
method, in which a hostess invites friends and family to her home to view a
demonstration of Stanley products by an SHP distributor. After the
demonstration, the distributor solicits orders from the guests. For sponsoring
the demonstration, the hostess may select a premium (gift) from a wide range of
home enhancement items, aromatics, holiday products, collectibles, and personal
accessories.
At the time of CPAC's license agreement, Stanley Home Products outsourced
its manufacturing to numerous major suppliers and smaller manufacturers.
Because the product lines of Fuller Brush and SHP are similar, CPAC has
converted all of SHP manufacturing to the Fuller Brush facility in Great Bend,
Kansas.
TREBLA CHEMICAL COMPANY
PRS also provides sales and marketing representation for Trebla Chemical
Company. Chemical products are primarily sold through the PRS field sales force
to dealers. In 1990, in order to increase sales penetration in the rapidly
growing minilab market segment, an extensive dealer organization was
established. At present, there are over 40 independent dealers marketing Trebla
products.
The major areas of sales concentration include amateur, school,
professional, commercial, and government photofinishers. Trebla chemical sales
have been predominantly in the U.S., although some sales have been made directly
to major photofinishers in Latin America, Australia, and the Pacific Rim. The
foreign market is highly competitive and only a few companies are owned by U.S.
interests -- the biggest being Eastman Kodak (Kodak). The foreign-owned
companies and Kodak are in competition for the world market.
ALLIED DIAGNOSTIC IMAGING RESOURCES, INC.
Allied markets its products through various channels. Since 1989, medical
X-ray products have been sold to dealers by Allied field sales personnel, as
well as through contract manufacturing. Through extensive marketing in recent
years, Allied gained a greater percentage of the medical market share. Dental
X-ray products are sold through an extensive dealer and commissioned sales
representative organization. A number of distributors also warehouse the Allied
product line. Certain dental X-ray processing chemicals are manufactured on a
private-label basis. The company believes it is the second largest supplier of
diagnostic imaging chemistry, behind Kodak, although no statistical data exists
to substantiate this belief. The Company's graphic arts chemical products are
also sold to dealers through Allied's sales staff and independent
representatives. Allied also uses the complementary products of CPAC, Inc.
companies to promote chemistry sales.
CPAC EQUIPMENT DIVISION
The Equipment Division markets its products domestically through PRS, Inc.
and Allied Diagnostic Imaging Resources, Inc., and through CPAC international
subsidiaries. Overall sales and marketing direction is managed within each
organization.
The Equipment Division ships products to foreign customers against sight
drafts, irrevocable letters of credit, or on open account. PRS acts as a
commissioned sales agency in its relationship with CPAC's Equipment Division,
and provides customer service activities, including minor product maintenance
and installation work. CPAC equipment is also sold directly, under private
label, to Allied for resale to its marketplace.
The Equipment Division markets IMG products as well as PerfectView
illuminators through dealer networks. The Company's silver recovery products
and chemical mixers and blenders are sold through X-ray and solution service
dealers in the United States, and graphic arts and equipment dealers serving the
newspaper and printing industries. Illuminators are sold to hospital radiology
departments and healthcare clinics.
PRS, INC.
PRS currently acts as a "commissioned sales agency" for Trebla Chemical and
CPAC Equipment Division, providing sales and customer service. PRS, in its
sales and marketing capacity, is free to draw upon the various technical
resources within the CPAC organization. PRS uses the family of complementary
products and services available to establish and maintain vendor relations with
its customers. In addition, PRS is paid a commission for silver refined by
Pioneer Refining Services, Inc., Salt Lake City, Utah.
PRS maintains a network of distributors who are authorized to sell selected
products on a non-exclusive regional basis. Internationally, there are a number
of exclusive and non-exclusive distributive arrangements in addition to the CPAC
Europe and CPAC Italia organizations. All PRS-appointed distributorships may be
canceled without cause upon ninety days written notice.
RESEARCH AND DEVELOPMENT
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The amount spent on Company-sponsored research and development totaled
$696,401, $690,063, and $630,424 for the years ended March 31, 1998, 1997, and
1996 respectively. All research and development for the Cleaning and Personal
Care Products segment is carried out at Fuller, in Great Bend. Primary research
and development for all CPAC chemical operations in the Imaging segment, is
carried out in St. Louis at the Trebla facilities.
SALES AND CUSTOMERS
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The Company's net sales for the fiscal years ended March 31, 1998, 1997, and
1996 were $106.1 million, $93.0 million, and $89.1 million, respectively, during
which periods total foreign sales were $11.5 million, $11.2 million, and $9.8
million , respectively.
Trebla Chemical Company; Allied Diagnostic Imaging Resources, Inc.; CPAC
Europe, N.V.; CPAC Italia, S.r.l.; and The Fuller Brush Company, Inc. generally
work without a backlog and usually ship any order within 24 hours of receipt.
Backlog for the Equipment Division is not material. Fuller has some commercial
business in contract manufacturing and production of custom products where
orders are generally placed for longer term delivery cycles. The majority of
such orders are filled within 60 to 90 days and the backlog is not material.
COMPETITION
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1) Cleaning and Personal Care Products
-----------------------------------
The total domestic market for cleaning and personal care products is
estimated at $40 billion. The personal care products market alone is
estimated at $21.5 billion annually. The size of the commercial
cleaning market is roughly $7 billion annually. Sales of consumer
(household) cleaning products are approximately $10 billion, and brushes
and brooms comprise roughly $.2 billion in sales.
Competition for Fuller Brush and Stanley Home Products is at two levels
-- for distributors and consumers. The key competitors in both areas
are Avon, Amway, followed by Mary Kay Cosmetics and Tupperware.
2) Imaging
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Eastman Kodak Company remains the photofinishing chemistry market leader
in the U.S. with Fuji-Hunt, Agfa, Russell, and Trebla all competing for
a share of the market. Trebla has positioned itself as a quality
manufacturer of specialized chemistries, and is in a good position to
take advantage of market opportunities.
The Company provides systems for use in the imaging industry, which
industry is dependent upon processing techniques developed by such major
industrial firms as Eastman Kodak, DuPont, Fuji Photo, Konica and Agfa.
Those firms are constantly changing and seeking to improve their
processing techniques.
EMPLOYEES
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At March 31, 1998, the Company employed 662 people with 475 working in the
Cleaning and Personal Care Products segment, 173 in the Imaging segment, and 14
assigned to the CPAC Corporate staff.
Effective May 1, 1986, the Company established a Profit Sharing and
Retirement Plan under Section 401(k) of the Internal Revenue Code. This plan
covers all eligible employees of CPAC, Inc. and its domestic subsidiaries.
Subject to certain qualifications (employees must be over 21 years of age and
have completed one year of service), the plan has the following features:
(a) Contributions to the plan may be made for each plan year out of
current or accumulated earnings to all eligible employees in
such amounts as the Board of Directors may, in its discretion,
determine. (To date, no discretionary payments have been made.)
(b) The Company will match each contribution made by a plan
participant for the plan year in an amount equal to $0.50 for
each $1.00 of participant contribution. While a participant may
contribute up to 15% of compensation to the plan each year, the
Company will limit matching contributions to 3% of compensation.
The Company has appointed Manning & Napier Advisors, Inc.,
Rochester, New York, as Investment Managers and Exeter Trust
Company, Portsmouth, New Hampshire, as Trustee of the plan.
ITEM 2. PROPERTIES
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CPAC, Inc. owns the land and building in Leicester, New York, where the
offices and manufacturing operations of the Equipment Division and corporate
staff are housed. This plant is located on 4.2 acres and consists of a number
of buildings, comprising a total of 30,330 square feet.
The 40,000 sq. ft. Trebla plant, located at 8417 Chapin Industrial Drive in
St. Louis, Missouri, was purchased on October 29, 1993. The Trebla offices,
laboratories, and major chemical manufacturing operations are housed in a one-
story, concrete-block building on three (3) acres of land. Trebla has direct
access to both truck and rail transportation for shipping purposes. A mortgage,
previously outstanding on this property, was paid off in 1997.
In May 1989, Trebla signed a 12-year lease for an additional 20,480 sq. ft.
of office and warehouse space in the same industrial complex as its existing
facility. In November, 1993 Trebla leased 14,800 sq. ft. of additional warehouse
space immediately adjacent to the current warehouse facilities.
CPAC Europe, N.V. owns approximately 5 acres of land in Industriepark
Herentals (near Antwerp), Belgium. The building, completed in fiscal 1992, is
15,500 sq. ft. There is a mortgage outstanding on the property.
Allied's main plant at its headquarters in Norcross, Georgia, is
approximately 84,000 sq. ft., under a lease expiring in August, 1999. In
November, 1997, CPAC announced that it would discontinue manufacturing
operations at the Irwindale, California, location. Production ceased at the end
of December, 1997. The plant will be used as a warehouse until June 1998, when
the lease expires.
CPAC Italia leases its office and industrial manufacturing space in Milan,
Italy under a six-year operating lease agreement with the former owners of
Chimifoto Ornano, expiring in 1998. The lease contains options for an
additional six-year renewal term.
The Fuller Brush Company, Inc.'s 450,000 square foot facility is located in
Great Bend, Kansas. The single story building contains manufacturing,
distribution, office facilities, and retail outlet store, and has access to both
truck and rail transportation for shipping purposes. The facility was financed
through an Industrial Revenue Bond which is outstanding until 2009. Fuller also
leases eight third party retail outlet stores with two stores located in
Missouri and one located in each of the following: Maine, New Hampshire, South
Carolina, Tennessee, Wisconsin, and West Virginia. There is also an outlet
store located at the CPAC, Inc. offices in New York.
In management's estimation, all facilities are adequate to allow the Company
to continue operations; however, management has announced plans to increase the
European facility space based on sales volume increases. In addition,
management is evaluating its space requirements in Italy and expects to
negotiate a lease for different facilities before the year 2000.
ITEM 3. LEGAL PROCEEDINGS
-----------------
No material litigation is pending to which the Registrant and/or its
subsidiary(ies) is a party or of which property of the Registrant and/or its
subsidiary(ies) is the subject.
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
-----------------------------------------------------
SECURITY HOLDER MATTERS
-----------------------
The principal market on which the Registrant's Common Stock is being traded
is the national Over-The-Counter (OTC) market in the NASDAQ National Market
System.
The range of high and low bid information for CPAC, Inc. Common Stock for
the first quarter of fiscal 1997 has been adjusted for the five for four common
stock split declared on April 17, 1996, and paid on May 15, 1996.
1998 1997
4th Q 3rd Q 2nd Q 1st Q 4th Q 3rd Q 2nd Q 1st Q
------------------------------ -----------------------------
Price per share:
High bid $11.313 $11.250 $12.750 $12.375 $15.00 $15.25 $12.00 $12.25
Low bid 10.000 9.750 10.625 10.375 10.00 11.00 9.25 9.25
The source of such quotations is The National Association of Securities
Dealers Daily Statistical Report. Such over-the-counter market quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
The approximate number of holders of record of the Common Stock of the
Registrant as of March 31, 1998 is 1,700. This number includes only holders of
record, and beneficial holders who have disclosed that they are recordholders.
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
----------------------------
1998 1997 1996(2)<F2> 1995(3)<F3> 1994
---- ---- ---- -- ---- -- ----
<S> <C> <C> <C> <C> <C>
Net sales $106,098,214 $92,966,152 $89,068,933 $58,630,025 $43,798,163
Operating income(1)<F1> 12,060,181 12,766,661 10,007,477 5,980,355 4,572,573
Income before income
tax expense 11,574,174 12,746,269 9,217,461 5,266,924 4,223,311
Net income 6,820,174 7,528,269 5,473,461 3,188,924 2,627,311
Earnings per share(4)<F4> 0.95 1.02 0.85 0.61 0.54
Total assets 78,621,159 69,016,132 66,172,468 48,994,461 27,020,670
Long-term debt(5)<F5> 10,016,830 6,878,147 8,345,890 15,297,723 5,024,346
Cash dividends declared 0 0 0 409,463 805,156
Cash dividends per share(6)<F6> 0 0 0 0.13 0.26
===================================================================================================================================
<FN>
<F1>
(1)Income before interest expense (income) net and income tax expense.
<F2>
(2)The 1996 financial data includes the operations of Stanley Home Products, under a license agreement effective on April 1, 1995
<F3>
(3)The 1995 financial data includes the acquisition of The Fuller Brush Company on October 13, 1994.
<F4>
(4)Represents net income per common share, on a diluted basis, as restated upon adoption of SFAS 128. Reflects restatement due to
the five for four common stock splits declared on April 17, 1996, payable on May 15, 1996, and the split declared on November
18, 1994, payable on January 12, 1995, and the 5% stock dividend declared April 21, 1993, for shareholders of record on May 21,
1993, payable June 11, 1993.
<F5>
(5)Includes current maturities.
<F6>
(6)On November 18, 1994, the Board of Directors announced that it had discontinued its cash dividend indefinitely. Prior to that,
dividends had been maintained on a quarterly basis at $0.065 per share since May 31, 1991, and at $0.06 per share since May 31,
1990.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
LIQUIDITY AND CAPITAL RESOURCES
--------------------------------
The Company uses a variety of measures of liquidity for internal management
purposes. These measures include working capital, asset turnover, profitability
and leverage ratios which are set forth below. Internally, review of these
ratios on a quarterly and annual basis allows management to set and measure
goals for performance by the various operations of the Company. These ratios,
on a consolidated basis, help to measure the Company's ability to meet its
short-term obligations and are a part of the loan covenants with our primary
lending institution.
WORKING CAPITAL RATIOS
- ----------------------
Working capital is the excess of current assets over current liabilities.
The working capital ratio is calculated by dividing current assets by current
liabilities.
For the Years Ended March 31,
----------------------------
1998 1997 1996
---- ---- ----
Working capital (in thousands) $33,491 $38,445 $33,293
Working capital ratio 3.76 to 1 4.95 to 1 4.0 to 1
During fiscal 1998, the Company's working capital decreased as a result of
the Company's July 23, 1997 acquisition of the Cleaning Technologies Group
(CTG). This acquisition used approximately $12 million of cash on hand and
required the borrowing of $6 million on the Company's domestic line of credit.
However, strong operating cash flows allowed the Company to reduce its borrowing
on the line to approximately $3.3 million at year end, and carry out the Board
authorized stock buy-back program, spending approximately $2.9 million to
repurchase and retire 273,293 shares of its common stock. At March 31, 1998,
the Company continued to maintain approximately $4.7 million in short-term
investments for operating needs.
During fiscal 1997, the Company's capital resources remained strong, due to
continued strong operating cash flows and remaining funds available from the
1995 private placement. These funds were invested in short-term investments,
improving working capital. In addition, the Company utilized a portion of these
funds to retire approximately $950,000 of domestic debt obligations prior to
their maturity, and further reduced foreign borrowings. During fiscal 1997, the
Company purchased all remaining Stanley Home Products consignment inventory,
pursuant to the license agreement signed in January, 1995, for approximately
$1,484,000.
During fiscal 1996, the Company completed the private placements of
1,500,000 shares (pre-split basis) of common stock resulting in proceeds of
approximately $15,300,000, net of placement costs. These funds allowed the
Company to retire approximately $5,416,000 of debt, much of which had been
incurred in fiscal 1995, in connection with the Company's acquisition of The
Fuller Brush Company.
The Company's current maximum borrowing capacity under its domestic line of
credit facility is $10 million. The line of credit facility matures in October
1999, and requires meeting certain financial covenants, with which the Company
was in compliance at March 31, 1998. Currently the Company is discussing
expanding its line availability, and reviewing other debt restructuring options.
During fiscal 1998, the Company negotiated a reduction in its borrowing rate to
the lower of prime or the 30 day LIBOR rate plus .75% (interest at 6.44% at
March 31, 1998). In June 1998, the Company negotiated an increase in the line
and now has $20 million available, with none in use.
The Company continues to maintain a line of credit facility with a major
Belgian bank, although it has not been utilized since fiscal 1996. The amount
available is 22.9 million Belgian francs (approximately $619,000 based on the
conversion rate for the Belgian franc).
Management believes that its 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 March 31, 1998. It is
expected that additional financing would be necessary to allow the Company to
pursue future acquisitions.
ASSET TURNOVER RATIOS
- ---------------------
For the Years Ended March 31,
----------------------------
1998 1997 1996
---- ---- ----
(1) Receivables-days outstanding 51.9 days 54.3 days 55.3 days
(2) Annual inventory turns 3.1 times 2.9 times 3.3 times
The improvement in days outstanding from March 31, 1997 to March 31, 1998 is
primarily due to the inclusion of CTG customer trade receivables, whose payment
terms are shorter then Imaging customer terms, and in line with Fuller's
customer payment terms. The improvement from 1996 to 1997 was also a function
of increasing amounts of Cleaning and Personal Care product segment sales, which
continued to have shorter payment terms than the Imaging segment businesses.
Inventory turns increased in 1998 versus 1997, as the Company reduced prior
year's planned inventory buildup to more closely mirror its present sales
volume. With the shift of CTG's manufacturing to Great Bend, Kansas during the
first and second quarters of fiscal 1999, it is possible that inventory turns
may slow slightly during those periods, but should improve again during the
remaining quarters of the fiscal year, as the CTG manufacturing is fully
absorbed into one facility. The inventory turn decrease experienced in 1997 as
compared to 1996, resulted from a planned buildup to support the Stanley Home
Products business as well as other contract manufacturing business.
PROFITABILITY RATIOS
- --------------------
Operating return on net sales is the result of dividing operating income by
net sales. Net income on net sales is calculated by dividing net income by net
sales. Net income to net worth is calculated by dividing net income by the
amount of ending shareholders' equity.
For the Years Ended March 31,
----------------------------
1998 1997 1996
---- ---- ----
Operating return on net sales 11% 14% 11%
Net income on net sales 6% 8% 6%
Net income to net worth 13% 15% 12%
The decrease in operating return on net sales and net income on net sales in
1998 as compared to 1997 is a function of lower earnings from CTG on its sales
since the July acquisition as the operations are absorbed into the Cleaning and
Personal Care segment, the negative effect of the UPS strike, and decreased
earnings from the overall Imaging group operations, due primarily from margin
pressures in the photographic and medical imaging markets. The decrease in net
income to net worth in 1998 is also a function of the CTG acquisition where net
operating assets acquired were only earning income for approximately eight
months.
The increase in the operating return on net sales and net income on net
sales in 1997 was a result of strong Cleaning and Personal Care segment business
performance, coupled with improved European operations in the Imaging segment.
The increase in net income to net worth ratio from 1996 to 1997 is partially a
result of the $2.7 million stock buyback executed by the Company.
LEVERAGE RATIOS
- ---------------
Debt to debt-plus-equity is calculated by dividing all liabilities by the
sum of all liabilities plus shareholders' equity. Total debt to equity is
calculated by dividing all liabilities by the amount of shareholders' equity.
These ratios measure the extent to which the Company has been financed by
debt and are an important measure to our lending institutions.
For the Years Ended March 31,
----------------------------
1998 1997 1996
---- ---- ----
Debt to debt-plus-equity 33% 28% 33%
Total debt to equity 0.49 to 1 0.39 to 1 0.5 to 1
The increase in both ratios in 1998 as compared to 1997, reflects the impact
of the CTG acquisition which necessitated borrowings to fund the asset purchase,
as well as the stock buy-back.
The change in these ratios at March 1997, versus March 1996, was primarily
the result of the reduction in outstanding debt, through use of the private
placement proceeds, offset by the repurchase of common shares, and internally
generated cash flows.
RESULTS OF OPERATIONS
---------------------
For purposes of financial reporting, the Company operates in two industry
segments: the Cleaning and Personal Care Products segment now known as the
"Fuller Brands" segment, which includes the manufacture and sale of specialty
chemical cleaning products and related accessories (brushes, brooms, mops) for
commercial, janitorial, and consumer use, as well as personal care 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.
NET SALES AND NET INCOME
- ------------------------
The Company's net sales increased from year end March 31, 1997 to year end
March 31, 1998 by 14.1% and increased from 1996 to 1997 by 4.4%.
For the Cleaning and Personal Care Products segment, 1998 sales increased
31.1% over 1997, due to the July 1997 acquisition of CTG. In 1997, sales
increased 5.3% versus 1996.
For the Imaging segment, sales in 1998 decreased 3.3% due to continuing
market pressures in the medical and photographic chemistry markets. In 1997,
sales increased 3.4% versus 1996, primarily as the result of increased sales
from the Company's foreign subsidiaries.
Net sales from our combined foreign operations in 1998 remained flat,
effected by negative foreign currency translation impacts in the second half of
the year. In 1997, combined foreign operations sales increased 13.6% over 1996.
Net income decreased 9.4% over 1997, due to the margin erosion experienced
by the domestic Imaging business, as well as a number of non-recurring events,
including expenses associated with the acquisition of CTG, and the impact of the
UPS strike on the Cleaning and Personal Care Products segment.
FOREIGN OPERATIONS
- ------------------
Sales in CPAC Europe, N.V. increased 32% on a local currency basis, and
14.4% on a translated U.S. dollar basis in 1998 versus 1997. Pretax profits on
a local currency basis increased 92.6% and 67.6% on a translated U.S. dollar
basis in 1998 compared with 1997. Expansion of sales efforts into Eastern
Europe and Middle Eastern markets helped contribute to the increase. At CPAC
Italia, S.r.l. sales and pretax profits increased 1% and 12.7% on a local
currency basis, respectively. However, due to the weakening of the Italian Lira
against the U.S. dollar, translated U.S. dollar sales actually decreased 8.4% in
1998 versus 1997, while pretax profits increased 2.2% on a translated U.S.
dollar basis in 1998 versus 1997.
Both CPAC Europe and CPAC Italia showed sales and profit increases for the
year ended March 31, 1997, as compared to the year ended March 31, 1996.
Due to the improvement in operating results, CPAC Europe has undertaken an
expansion of its manufacturing facility to handle the increased business. CPAC
Italia is also exploring expansion opportunities, as its lease on its current
manufacturing facility expires during 1999. Although European economic
conditions are often difficult to predict, management expects continued sales
growth in fiscal 1999.
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.
GROSS MARGINS
- -------------
Gross margins (net sales less cost of sales expressed as a percentage of net
sales), were 44%, 47%, and 46% for the years ended March 31, 1998, 1997, and
1996, respectively.
The impact of the commercial janitorial business of CTG on the Cleaning and
Personal Care segment is evidenced by the 47.4% margin earned in 1998 as
compared to margins of 53.7% in 1997 and 51.4% in 1996. The increase in
percentage of business now in the industrial and commercial janitorial line of
business reduces the relationship of the direct selling business and may
continue to drive the blended margin lower, as this business operates at lower
margins than the direct selling business. However, operating efficiencies
gained by combining all manufacturing in one facility may help to soften margin
decreases. Increased volume throughput in 1997 versus 1996 helped to increase
margins during that period.
Intense market competition in both the photographic and medical imaging
markets resulted in lower gross margins in 1998 of 38.6% in the Imaging segment
versus 41% and 40% in 1997 and 1996, respectively. It is expected that moderate
margin erosion may continue in the future, as the market continues to react to
competitive pricing pressures and market consolidation. The slight improvement
in margins experienced in 1997 versus 1996, was a result of operating
efficiencies obtained through equipment modernization investments.
The Company believes that its recent consolidation of manufacturing
operations in both segments leave it well equipped to pursue higher volume,
price competitive manufacturing opportunities in all lines of business.
SELLING, ADMINISTRATION, AND ENGINEERING EXPENSES
- -------------------------------------------------
This category amounted to 31.7%, 32.8%, and 33.6% of net sales in fiscal
years 1998, 1997, and 1996, respectively.
In 1998, the impact of CTG on the Cleaning and Personal Care segment is
reflected in a lower percentage of selling, administration and engineering
expenses of 34.6%, as compared to 36.7% in 1997. The decrease in 1997 over the
38.1% incurred in 1996 reflected a concerted effort to control operating
expenses based on sales levels achieved.
In 1998, the Imaging segment's selling, administration and engineering
expenses as a percentage of sales continued to decrease to 28.1% from 28.6% in
1997 and 29.4% in 1996 due to cost control measures put into place as a result
of decreased sales.
RESEARCH AND DEVELOPMENT EXPENSES
- ---------------------------------
Research and development expenses remained consistent in 1998 with 1997 and
1996 levels, as the Company continued its recent practice of focusing on
improving existing products or finding compatible products, based on customer
needs.
INTEREST EXPENSE
- ----------------
Net interest expense in 1998 increased significantly over 1997 amounts, due
primarily to the acquisition of CTG, which was financed through a combination of
debt and invested cash on hand. Interest incurred on borrowings was mitigated
somewhat by continued strong operating cash flows. The decrease in net interest
expense in 1997 over 1996 was a function of the fiscal 1996 private placement
funds invested for the entire year, supplemented by strong operating cash flows.
IMPACT OF INFLATION
- -------------------
Due to increased competitive sales pressure, the Company has not been able
to pass on all inflation related cost increases in the Imaging segment.
However, the adverse impacts of inflation have been partially offset through
productivity improvements and cost cutting efforts. Inflation has generally not
had an adverse impact on Cleaning and Personal Care Products.
ENVIRONMENTAL CONTINGENCY
- -------------------------
Remediation efforts related to certain environmental contamination issues at
the Fuller Brush Great Bend, Kansas facility, discovered during the Fuller
acquisition due diligence process, are now virtually complete. The former owner
of Fuller Brush, the Company, and the Department of Health and Environment of
the State of Kansas agreed on a comprehensive work plan for remediation, which
during the last several years, has been substantially funded by the former
owner. Management does not believe that further remediation work, if any, would
have a material impact on the results of operations.
YEAR 2000
- ---------
The Company has undertaken a formal evaluation of all of its date-sensitive
computer systems and other equipment utilized in its various administrative and
manufacturing operations to ensure it will not be adversely impacted by Year
2000 software failures. The Company is also communicating with vendors,
suppliers, and others with which it does business to understand their Year 2000
conversion efforts to ensure that they are Year 2000 compliant. The Company
does not believe that the costs of achieving Year 2000 compliance will
materially impact the results of its operations or financial position. However,
if the Company, its customers, or vendors are unable to resolve such processing
issues in a timely manner, it could result in a material financial risk. The
Company plans to devote the necessary resources to resolve significant Year 2000
issues in a timely manner.
FORWARD-LOOKING STATEMENTS
- --------------------------
This Management's Discussion and Analysis of Financial Condition and Results
of Operations and other sections of this Annual Report contain 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," "estimates," variations of such words, and similar
expressions are intended to identify such forward-looking statements. In
accordance with "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995, these statements are accompanied by cautionary language
identifying important factors, though not necessarily all such factors, that
could cause future outcomes to differ materially from those set forth in
forward-looking statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
----------------------------------
Board of Directors and Shareholders
CPAC, Inc. and Subsidiaries
We have audited the consolidated financial statements and the financial
statement schedule of CPAC, Inc. and Subsidiaries listed in Item 14 (a) of this
Form 10-K. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CPAC, Inc. and
Subsidiaries as of March 31, 1998 and 1997, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1998, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Rochester, New York
May 29, 1998
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
MARCH 31, 1998 AND 1997
-----------------------
ASSETS
------
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,226,128 $ 15,106,868
Accounts receivable (net of allowance for doubtful
accounts of $840,000 and $587,000 at March 31, 1998
and 1997, respectively) 16,391,436 13,776,933
Inventory 21,000,688 17,209,020
Prepaid expenses and other current assets 3,009,022 2,079,016
---------------- ----------------
Total current assets 45,627,274 48,171,837
Property, plant and equipment, net 17,622,680 16,627,595
Goodwill and intangible assets (net of amortization of
$1,954,712 and $1,594,118 at March 31, 1998 and 1997,
respectively) 13,775,411 2,426,854
Other assets 1,595,794 1,789,846
---------------- ----------------
$ 78,621,159 $ 69,016,132
================ ================
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 124,349 $ 137,612
Accounts payable 5,473,254 4,066,593
Accrued payroll and related expenses 2,287,638 1,877,859
Accrued income taxes payable 448,523 210,481
Other accrued expenses and liabilities 3,802,188 3,434,274
---------------- ----------------
Total current liabilities 12,135,952 9,726,819
Long-term debt, net of current portion 9,892,481 6,740,535
Other long-term liabilities 3,737,965 2,968,180
Shareholders' equity:
Common stock, par value $0.01 per share;
Authorized, 20,000,000 shares;
Issued 6,996,556 shares and 7,228,524 shares at
March 31, 1998 and 1997, respectively 69,966 72,286
Additional paid-in capital 24,057,178 26,598,238
Retained earnings 30,531,085 23,710,911
Foreign currency translation adjustment (1,213,280) (210,649)
---------------- ----------------
53,444,949 50,170,786
Less: Treasury stock, at cost, 85,307 shares
at March 31, 1998 and 1997, respectively (590,188) (590,188)
---------------- ----------------
Total shareholders' equity 52,854,761 49,580,598
---------------- ----------------
$ 78,621,159 $ 69,016,132
================ ================
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
-------------------------------------------------
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales $ 106,098,214 $ 92,966,152 $ 89,068,933
---------------- ---------------- ----------------
Costs and expenses:
Cost of sales 59,679,791 49,021,996 48,518,998
Selling, administrative and
engineering expenses 33,661,841 30,487,432 29,912,034
Research and development expense 696,401 690,063 630,424
Interest income (478,166) (689,824) (292,378)
Interest expense 964,173 710,216 1,082,394
---------------- ---------------- ----------------
94,524,040 80,219,883 79,851,472
---------------- ---------------- ----------------
Income before income tax expense 11,574,174 12,746,269 9,217,461
Provision for income tax expense 4,754,000 5,218,000 3,744,000
---------------- ---------------- ----------------
Net income $ 6,820,174 $ 7,528,269 $ 5,473,461
================ ================ ================
Net income per common share:
Basic $ 0.96 $ 1.05 $ 0.87
================ ================ ================
Diluted $ 0.95 $ 1.02 $ 0.85
================ ================ ================
Average common shares outstanding:
Basic $ 7,083,480 $ 7,192,519 $ 6,256,958
================ ================ ================
Diluted $ 7,148,028 $ 7,349,705 $ 6,408,892
================ ================ ================
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
----------------------------------------------------------
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
-------------------------------------------------
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY TREASURY
COMMON PAID-IN RETAINED TRANSLATION STOCK
STOCK CAPITAL EARNINGS ADJUSTMENT AT COST
------ ------ -------- ---------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1995 $ 43,799 $ 12,852,270 $ 10,711,534 $ (602,968) $ (355,963)
Issuance of 23,375 shares
of common stock upon exercise
of common stock options 234 149,232
Issuance of 1,500,000 shares
of common stock 15,000 15,351,504
Issuance of 3,250 shares
of restricted common stock, net 32 60,965
Issuance of 19,688 shares
of common stock upon exercise of
common stock options in exchange for
the surrender of 7,255 shares of
outstanding common stock 197 97,751 (97,948)
Five for four stock split 14,815 (14,663) (2,353) (152)
Net income for the year 5,473,461
Translation adjustments 405,177
--------------- ---------------- --------------- ---------------- ---------------
BALANCE, MARCH 31, 1996 74,077 28,497,059 16,182,642 (197,791) (454,063)
Issuance of 101,757 shares
of common stock upon exercise
of common stock options 1,018 559,645
Repurchase of 305,500 shares
of common stock (3,055) (2,685,345)
Issuance of 24,609 shares
of common stock upon exercise of
common stock options in exchange for
the surrender of 9,348 shares of
outstanding common stock 246 135,879 (136,125)
Restricted stock amortization 91,000
Net income for the year 7,528,269
Translation adjustments (12,858)
--------------- ---------------- --------------- ---------------- ---------------
BALANCE, MARCH 31, 1997 72,286 26,598,238 23,710,911 (210,649) (590,188)
Issuance of 41,325 shares
of common stock upon exercise
of common stock options 413 251,950
Repurchase of 273,293 shares
of common stock (2,733) (2,890,179)
Restricted stock amortization 97,169
Net income for the year 6,820,174
Translation adjustments (1,002,631)
--------------- ---------------- --------------- ---------------- ---------------
BALANCE, MARCH 31, 1998 $ 69,966 $ 24,057,178 $ 30,531,085 $ (1,213,280) $ (590,188)
=============== ================ =============== ================ ===============
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
CPAC, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
-------------------------------------------------
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,820,174 $ 7,528,269 $ 5,473,461
-------------- -------------- --------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,437,722 2,084,778 2,041,509
Amortization of intangible assets 453,586 299,251 276,930
Deferred income taxes 216,000 221,000 72,000
Minority interest in consolidated
foreign subsidiary 8,882 4,882 1,994
Change in assets and liabilities, net of effects of
business acquisitions:
Accounts receivable 254,213 (1,079,070) 480,304
Inventory 101,316 (964,287) (3,396,873)
Accounts payable 796,362 (1,714,462) 1,341,655
Accrued payroll and related expenses 128,738 176,226 526,167
Accrued income taxes payable 238,042 210,481 (298,803)
Other changes, net (1,170,661) 503,926 2,084,712
-------------- -------------- --------------
Total adjustments 3,464,200 (257,275) 3,129,595
-------------- -------------- --------------
Net cash provided by operating activities 10,284,374 7,270,994 8,603,056
-------------- -------------- --------------
Cash flows from investing activities:
Purchase of property, plant and equipment, net (2,381,461) (2,229,703) (3,295,720)
Business acquisition, net of cash acquired (18,218,532)
-------------- -------------- --------------
Net cash used in investing activities (20,599,993) (2,229,703) (3,295,720)
-------------- -------------- --------------
Cash flows from financing activities:
Exercise of stock options 252,363 560,663 149,466
Net proceeds from sale of common stock 15,366,504
Repurchase of common stock (2,892,912) (2,688,400)
Proceeds from long-term borrowings 6,000,000 61,264
Repayment of long-term borrowings (2,924,572) (1,473,910) (7,296,822)
Payment of cash dividends and other (2,353)
-------------- -------------- --------------
Net cash provided by (used in)
financing activities 434,879 (3,601,647) 8,278,059
-------------- -------------- --------------
Effect of exchange rate changes on cash (62)
-------------- -------------- --------------
Net increase (decrease) in cash
and cash equivalents (9,880,740) 1,439,582 13,585,395
Cash and cash equivalents - beginning of year 15,106,868 13,667,286 81,891
-------------- -------------- --------------
Cash and cash equivalents - end of year $ 5,226,128 $ 15,106,868 $ 13,667,286
============== ============== ==============
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
The Company
- -----------
CPAC, Inc., and Subsidiaries ("the Company"), manufactures, markets, and
distributes both in the U.S. and in other parts of the world cleaning and
personal care products for industrial and consumer use, as well as prepackaged
chemical formulations, supplies, and equipment systems to the imaging industry.
Basis of Consolidation
- ----------------------
The consolidated financial statements of the Company include the accounts of the
Company and its wholly-owned subsidiary companies and its 98% owned subsidiary
(CPAC Europe, N.V.). The Company's foreign subsidiaries are included in the
consolidated financial statements utilizing a December 31 fiscal year to
facilitate prompt reporting of financial results. All significant intercompany
accounts and transactions have been eliminated.
The minority interest in the earnings of the consolidated foreign subsidiary for
the years ended March 31, 1998, 1997, and 1996 was $8,882, $4,882, and $1,994,
respectively, and is included in selling, general, and engineering expenses.
Minority interest included in the Consolidated Balance Sheets at March 31, 1998
and 1997 was $47,122 and $38,240.
Inventory
- ---------
Inventory is stated at the lower of cost, on a first-in, first-out basis, or
market.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost and are depreciated over their
estimated useful lives on the straight-line and accelerated methods. Leasehold
improvements are amortized over the shorter of the lease period or the expected
useful lives of the improvements using the straight-line method. At the time of
retirement or other disposition of property, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is reflected in
income.
Impairment of Assets
- --------------------
The Company reviews the carrying value of long-lived assets and intangibles
whenever events or changes in circumstances indicate that the carrying value of
such items may not be recoverable from undiscounted net cash flows of the
related business or asset.
Research and Development
- ------------------------
The Company charges research and development expenditures to income as incurred.
Advertising
- -----------
The Company charges advertising expenditures to income as incurred and includes
the expenses in "selling, administrative, and engineering expenses."
Foreign Currency Translation
- ----------------------------
All assets and liabilities of the Company's wholly-owned and majority-owned
foreign subsidiaries are translated at year end exchange rates. Translation
gains and losses are not included in determining net income, but are accumulated
as a separate component of shareholders' equity. Foreign currency transaction
gains and losses are included in the determination of net income.
1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
---------------------------------------------------
Income Per Common Share
- -----------------------
In fiscal 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings per Share" which requires the disclosure of basic and
diluted earnings per share for each period in which a statement of operations is
presented. 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.
The table below summarizes the amounts used to calculate basic and dilutive
earnings per share:
1998 1997 1996
---- ---- ----
Basic weighted average
number of shares outstanding 7,083,480 7,192,519 6,256,959
========== =========== ==========
Effect of dilutive stock options 64,548 157,186 151,933
========== =========== ==========
Dilutive shares outstanding 7,148,028 7,349,705 6,408,892
========== =========== ==========
Unexercised stock options to purchase 579,630 and 312,500 shares of the
Company's common stock as of March 31, 1998 and 1996, respectively, 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
1998, are still outstanding at the end of the year.
Statements of Cash Flows
- ------------------------
For purposes of the statements of cash flows, the Company considers marketable
securities with a maturity of three months or less at the time of purchase to be
cash equivalents. The Company paid interest of $971,000, $736,000, and
$1,103,000, in fiscal 1998, 1997, and 1996, respectively. In addition, the
Company paid income taxes of $4,300,000, $4,679,000, and $4,064,000, in fiscal
1998, 1997, and 1996, respectively.
Amortization of Goodwill and Intangible Assets
- ----------------------------------------------
Goodwill and intangible assets are amortized on the straight-line method over
periods ranging from five to forty years. Cost and related amortization are
written off when fully amortized.
Business and Credit Concentrations
- ----------------------------------
Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of temporary cash investments and trade accounts
receivable. The Company places its temporary cash investments with high credit
quality financial institutions. The Company's customers are not concentrated in
any specific geographic region, but are broadly concentrated in the cleaning and
personal care products and imaging industries. Concentrations of credit risk
with respect to trade receivables are limited due to the large number of
domestic and foreign customers comprising the Company's customer base, and their
dispersion across several different business sectors participating in different
facets of the cleaning and personal care products and imaging industries.
1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
---------------------------------------------------
Fair Values of Financial Instruments
- ------------------------------------
The fair value of financial instruments classified as current assets or
liabilities including cash and cash equivalents, receivables, and accounts
payable approximates their carrying values due to the short-term maturity of the
instruments. The fair value of short-term and long-term debt approximates their
carrying value based on their effective interest rates compared to current
market rates.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities at year end and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Income Taxes
- ------------
Income tax expense is based on reported earnings before income tax expense.
Deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable in future years
to differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities.
New Accounting Standards
- ------------------------
In June, 1997 the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which requires that an enterprise report the
change in its net assets from non-owner sources by major components and as a
single total. The standard will become effective for the Company in fiscal 1999
and will require presentation of comparative financial statements for prior
years. The other comprehensive income in this statement will consist primarily
of foreign currency translation adjustments.
In June, 1997 the Financial Accounting Standards Board also issued SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information," which
establishes annual and interim reporting standards for an enterprise's operating
segments and related disclosures about its products, services, geographic areas,
and major customers. This standard will also become effective for the Company
in fiscal 1999.
Adoption of both of these standards will not impact the Company's consolidated
financial position, results of operations or cash flows, as any effect will be
limited to the form and content of its disclosures.
Reclassification
- ----------------
Certain 1997 and 1996 financial statement and related footnote amounts have been
reclassified to conform to the 1998 presentation.
2 - ACQUISITIONS
-------------
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 $629,000 for a total asset purchase price of
approximately $20,973,000. 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 and 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 11,861,000
-------------
Total assets acquired 20,973,000
Less: liabilities assumed (2,754,000)
-------------
$ 18,219,000
=============
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 year ended March 31,
1998.
On a pro forma (unaudited) basis, if the acquisition had occurred as of April 1,
1996, the consolidated results of operations for the years ended March 31, 1998
and 1997 would have been approximately:
YEAR-ENDED YEAR-ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
Net Sales $ 114,620,000 $ 118,654,000
Net income 7,064,000 7,410,000
Income per common share:
Basic $ 1.00 $ 1.03
Diluted 0.99 1.01
The pro forma information may not be indicative of actual or future results.
3 - INVENTORY
---------
Inventory as of March 31, 1998 and 1997 is summarized as follows:
1998 1997
---- ----
Raw materials and purchased parts $ 7,086,847 $ 7,791,672
Work-in-process 936,072 1,001,775
Finished goods 12,717,444 8,218,866
Promotional supplies 260,325 196,707
------------ ------------
$ 21,000,688 $ 17,209,020
============ ============
4 - PROPERTY, PLANT AND EQUIPMENT
------------------------------
Property, plant and equipment are comprised of the following at March 31:
1998 1997
---- ----
Land $ 550,510 $ 574,671
Buildings and improvements 8,530,957 8,471,480
Machinery and equipment 16,073,430 13,453,815
Furniture and fixtures 721,014 611,187
Leasehold improvements 1,513,077 1,235,047
Leased equipment 271,427 491,860
Construction-in-progress 808,946 465,347
----------- -----------
28,469,361 25,303,407
Less: Accumulated depreciation and amortization (10,846,681) (8,675,812)
----------- -----------
$17,622,680 $16,627,595
=========== ===========
<TABLE>
5 - DEBT
-----
At March 31, 1998 and 1997, debt consisted of the following:
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revolving credit agreement with a bank with interest payable monthly at the
lower of prime or the 30 day LIBOR rate plus 0.75%. Prime was 8.5%, and the
LIBOR rate was 5.69% at March 31, 1998. The maximum availability under this
agreement is $10,000,000 with all amounts outstanding due October 31, 1999.
The revolving credit agreement is collateralized by substantially all of the
assets of the Company, excluding CPAC Europe, N.V. $ 3,313,553 $ 0
Industrial Revenue Bonds, with interest payable monthly at a variable rate 5.70%
at March 31, 1998 and 1997, maturing in June 2009. The bonds are
collateralized by a standby Letter of Credit (LOC) issued by a bank, which
requires an annual fixed fee payment of 1.25% of the LOC value. 6,000,000 6,000,000
Term notes and revolving credit agreement with a foreign bank with interest
pegged to the U.S. prime rate. The floating interest rates at March 31, 1998,
ranged from 5.7 to 9.0% (4.65 to 9.75% in 1997). The revolving credit
agreement is collateralized by the net assets of CPAC Europe, N.V. 379,176 554,046
Other 324,101 324,101
---------------- ---------------
10,016,830 6,878,147
Less: Amounts due within one year 124,349 137,612
---------------- ---------------
$ 9,892,481 $ 6,740,535
================ ===============
</TABLE>
The Company's revolving credit agreement contains customary covenants, including
maintenance of specified working capital, debt to equity, and net worth ratios,
of which the Company was in compliance at March 31, 1998.
The Company also maintains a line of credit facility with a foreign bank, with
borrowing availability of 22.9 million Belgian francs (approximately $619,000
based on the year end conversion rate for the Belgian franc). The availability
is reduced annually in December by 5.7 million Belgian francs (approximately
$154,000), with annual payments also due in December until maturity. Interest
on the borrowings is at 7.0%. The line of credit agreement is collateralized by
the Company's stock in CPAC Europe, N.V. The Company had no borrowings against
the line of credit facility at March 31, 1998, or March 31, 1997.
5 - DEBT - CONTINUED
-----
Annual maturities of debt are as follows:
2000 $ 3,405,190
2001 68,595
2002 27,027
2003 27,027
2004 40,541
Thereafter 6,324,101
-----------
$ 9,892,481
===========
6 - SHAREHOLDERS' EQUITY
---------------------
Stock Transactions
- ------------------
During fiscal 1998, the Company repurchased 273,293 shares of its common stock,
at an average cost of $10.59 per share, for a total cost of approximately
$2,893,000 as part of a previously announced Board of Directors authorized stock
buy back plan. In fiscal 1997, the Company repurchased 305,500 shares of its
common stock from an unrelated investor for $2,688,400. During fiscal 1996, the
Company completed a private placement of 1,500,000 shares (pre-split basis) of
the Company's common stock at $11 a share.
On April 17, 1996, the Company's Board of Directors declared a five for four
stock split. Accordingly, since the par value of the common stock remained
unchanged, an amount equal to the par value of the additional shares issued was
charged to additional paid-in capital and credited to common stock on March 31,
1996. Earnings per share, basic, and diluted shares outstanding have been
restated to reflect the five for four stock splits. In addition, all references
in the financial statements to number of shares, per share amounts, stock option
data, and market prices on the Company's common stock have been restated, except
where noted.
Stock Options
- -------------
The Company maintains an Executive Long-Term Stock Investment Plan (the Plan)
for key employees, which allows issuance of incentive stock options,
nonqualified stock options, reload options, and restricted performance shares.
The Plan was amended in fiscal 1997 to increase the Company's common stock
reserved for issuance under the Plan to 950,000 shares from 350,000. Under the
Plan, shares of common stock are reserved for issuance to key employees. Upon
exercise, an employee granted an option under the Plan may pay for the Company's
stock either with cash or with Company stock already owned by the employee,
valued at the fair market value of the stock on the exercise date. The term of
the option is determined by the Executive Long-Term Stock Investment Committee.
In fiscal 1997, the Company's shareholders approved the adoption of the 1996
Non-Employee Directors Stock Option Plan. Pursuant to the Plan, each non-
employee director was granted an option to purchase 10,000 shares of the
Company's common stock, on a one time basis for past service rendered to the
Board of Directors, at the fair market value at the date of the grant. The term
of the option grants are for ten years. In addition, the Directors Plan calls
for an annual automatic grant for the purchase of 3,000 shares, per director, of
the Company's common stock, on the first Friday after the annual meeting of
Shareholders, at a price equal to the fair market value at that date. The term
of these grants is also ten years. During fiscal 1998 and 1997, 9,000 and
39,000 options respectively were granted pursuant to the Directors Plan.
6 - SHAREHOLDERS' EQUITY - CONTINUED
---------------------
In addition, the Company from time to time grants nonqualified options to non-
employees, at an option price equal to the fair market value at the date of the
grant.
As of March 31, 1998, total options outstanding are summarized as follows:
WEIGHTED AVERAGE
SHARES PRICE
------ -----
Options outstanding - March 31, 1995 320,881 $ 6.85
Exercised (43,063) 5.75
Expired (1,313) 6.29
Granted 381,875 11.54
Stock split 47,134 5.48
--------- --------
Options outstanding - March 31, 1996 705,514 $ 9.12
Exercised (126,366) 5.50
Expired
Granted 79,500 10.87
--------- --------
Options outstanding - March 31, 1997 658,648 $ 10.02
Exercised (41,325) 6.11
Expired (4,422) 9.18
Granted 167,000 11.65
--------- --------
Options outstanding - March 31, 1998 779,901 $ 10.47
========= ========
Options exercisable:
March 31, 1998 500,086 $ 9.83
========= ========
March 31, 1997 410,756 $ 9.26
========= ========
Effective April 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation," and
as permitted by this standard, will continue to apply the recognition and
measurement principles of Accounting Principal Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees" in accounting for employee stock
options. Had compensation cost been determined based on the fair value at the
grant dates for awards under the Company's stock plans in accordance with SFAS
No. 123, net income and diluted earnings per share would have been reduced by
$329,000 ($.05), $268,000 ($.04), and $42,000 ($.01) in 1998, 1997, and 1996,
respectively. The fair value of these options were estimated at grant date using
the Black-Scholes option pricing model with the following weighted-average
assumptions for 1998, 1997, and 1996:
1998 1997 1996
---- ---- ----
Expected life 3-4 years 3-4 years 4.8 years
Historical volatility 32% 32% 32%
Risk free rate of return 6.05-6.14% 6.21-6.59% 5.42%
Expected dividend yield 0% 0% 0%
Annual forfeiture rate 0% 0% 0%
There have been no charges to income in any of the three years in connection
with these options other than incidental expenses related to issuance of
options.
6 - SHAREHOLDERS' EQUITY - CONTINUED
---------------------
Employee Benefits
- -----------------
The Company has a deferred compensation agreement with an executive officer of
the Company pursuant to which 23,437 shares of the Company's common stock were
issued subject to certain conditions and restrictions. For the year ended March
31, 1995, 7,812 shares vested and were recognized as expense. The expense
relating to the remaining 15,625 shares is being recognized over a five year
period as it is earned, at which time the restrictions will lapse. Total
expense recognized for the years ended March 31, 1998, 1997, and 1996, and the
unearned balance, which has been grouped with additional paid-in capital, were
not material.
In connection with the issuance of incentive stock options, the Board of
Directors awarded 4,062 and 15,233 shares respectively of the Company's common
stock as "restricted performance shares" to certain employees pursuant to the
1994 Executive Long-Term Stock Investment Plan. Restrictions on these shares
will lapse over a five year period, if performance objectives have been met
during the period. Shares are forfeitable if their related incentive stock
options are exercised. Total expense recognized for the years ended March 31,
1998, 1997, and 1996, and the unearned balance, which has been grouped with
additional paid-in capital, were not material.
The Company maintains a contributory profit sharing plan [401(k)] for the
benefit of substantially all employees. Contributions to the plan may be made
for each plan year in such amounts as the Board of Directors may, at its
discretion, determine. In addition, the Company will also match to a maximum of
3% of the participant's compensation each contribution made by a plan
participant for the plan year in an amount equal to $.50 for each $1.00 of
participant contribution. A participant may contribute up to 15% of
compensation to the plan. The amount charged to expense in connection with this
plan was $419,000, $332,000, and $292,000, for the years ended March 31, 1998,
1997, and 1996, respectively.
7 - INCOME TAX EXPENSE
------------------
The provision for income taxes is summarized as follows:
1998 1997 1996
---- ---- ----
Current tax expense:
Federal $ 3,393,000 $ 3,869,000 $ 2,878,000
State 797,000 846,000 666,000
Foreign 348,000 282,000 128,000
------------ ------------ ------------
4,538,000 4,997,000 3,672,000
Deferred taxes:
Federal 205,000 210,000 62,000
State 11,000 11,000 10,000
------------ ------------ ------------
216,000 221,000 72,000
------------ ------------ ------------
$ 4,754,000 $ 5,218,000 $ 3,744,000
============ ============ ============
7 - INCOME TAX EXPENSE - CONTINUED
------------------
The differences between the provision for income taxes and income taxes computed
using the U.S. federal income tax rate are as follows:
1998 1997 1996
---- ---- ----
Income tax expense using statutory rates $4,051,000 $ 4,461,000 $3,134,000
State income tax effect 518,000 557,000 446,000
Other items, net 185,000 200,000 164,000
----------- ----------- -----------
$4,754,000 $ 5,218,000 $3,744,000
=========== =========== ===========
Temporary differences and carryforwards which give rise to deferred tax assets
and liabilities at March 31 are as follows:
1998 1997
---- ----
Deferred tax assets:
Current:
Accounts receivable $ 146,000 $ 156,000
Inventory 628,000 548,000
Compensation related accruals 469,000 230,000
Other 306,000 108,000
---------- ----------
1,549,000 1,042,000
Noncurrent:
Deferred compensation 103,000 117,000
Other 112,000 75,000
---------- ----------
215,000 192,000
---------- ----------
1,764,000 1,234,000
Deferred tax liabilities:
Noncurrent:
Intangibles (541,000)
Property, plant and equipment (928,000) (722,000)
Other (14,000) (15,000)
---------- ----------
(1,483,000) (737,000)
---------- ----------
Total $ 281,000 $ 497,000
========== ==========
The Company has not provided for U.S. taxes on the undistributed earnings of
foreign subsidiaries that are considered to be reinvested indefinitely.
Calculation of the unrecognized deferred tax liability for temporary differences
related to these earnings is not practicable.
8 - COMMITMENTS
------------
Environmental Contingency
- -------------------------
Remediation efforts related to certain environmental contamination issues at the
Fuller Brush facility in Great Bend, Kansas, discovered during the Fuller
acquisition due diligence process, are now virtually complete. The former owner
of Fuller Brush, the Company, and the Department of Health and Environment of
the State of Kansas agreed on a comprehensive work plan for remediation, which
during the last several years, has been substantially funded by the former
owner. Management does not believe that further remediation work, if any, would
have a material impact on the results of operations.
Royalty Agreement
- -----------------
The Company has a license agreement with an unrelated third party to manufacture
and distribute products through the use of the trademarks and formulas of
Stanley Home Products in the U.S., Puerto Rico, and Canada, over the life of the
agreement which expires, unless terminated earlier, on March 31, 2010. The
Company is required to pay royalties equal to a maximum of 3% of the net selling
price of products sold under the licensing agreement. Total royalties paid in
1998, 1997, 1996 (the first three years of the agreement) were not material.
The Company recorded a liability equal to the net present value of the estimated
minimum royalty payments, and capitalized the value of the license agreement,
which is being amortized over the contract period.
Lease Agreements
- ----------------
The Company leases certain facilities and equipment under operating leases which
expire at various dates through 2003. Some of the leases contain renewal
options. Rent expense for the years ended March 31, 1998, 1997, and 1996 was
$1,493,000, $1,394,000, and $1,291,000, respectively.
The above leases have been classified as operating leases in accordance with the
provisions of the Statement of Financial Accounting Standards No. 13. The
future minimum rental payments required under the leases for the fiscal years
ended subsequent to March 31, 1998 are as follows:
1999 $ 1,325,011
2000 815,712
2001 361,663
2002 221,053
2003 67,850
------------
$ 2,791,289
============
Legal Matters
- -------------
The Company and its subsidiaries are parties to various legal actions and
complaints arising in the ordinary course of business. No such pending matters
are expected to have a material adverse effect on the Company's financial
position, results of operations, or cash flows.
9 - SEGMENT INFORMATION
--------------------
Business Segments
- -----------------
For purposes of financial reporting, the Company operates in two industry
segments: the Cleaning and Personal Care Products segment, which is now known
as "Fuller Brands," includes the manufacture and sale of specialty chemical
cleaning products and related accessories (brushes, brooms, mops) for commercial
janitorial 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. Certain reclassifications of 1997 and
1996 segment information have been made to conform with the 1998 presentation.
Information concerning the Company's business segments for 1998, 1997 and 1996
is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales to customers:
Cleaning & Personal Care Products $ 61,796,024 $ 47,152,431 $ 44,761,622
Imaging 44,302,190 45,813,721 44,307,311
---------------- ----------------- ----------------
Total net sales to customers $ 106,098,214 $ 92,966,152 $ 89,068,933
================ ================= ================
Operating income:
Cleaning & Personal Care Products $ 7,477,931 $ 7,606,716 $ 5,616,528
Imaging 4,376,466 5,237,308 4,213,237
Corporate 205,784 (77,363) 177,712
---------------- ----------------- ----------------
Total operating income $ 12,060,181 $ 12,766,661 $ 10,007,477
================ ================= ================
Identifiable assets:
Cleaning & Personal Care Products $ 47,295,900 $ 27,593,603 $ 25,535,085
Imaging 26,611,655 26,896,558 28,377,580
Other corporate assets 4,713,604 14,525,971 12,259,803
---------------- ----------------- ----------------
Total identifiable assets $ 78,621,159 $ 69,016,132 $ 66,172,468
================ ================= ================
Depreciation & amortization:
Cleaning & Personal Care Products $ 1,729,914 $ 1,294,459 $ 1,134,069
Imaging 1,161,394 1,089,570 1,184,370
---------------- ----------------- ----------------
Total depreciation & amortization $ 2,891,308 $ 2,384,029 $ 2,318,439
================ ================= ================
Capital outlays:
Cleaning & Personal Care Products $ 1,304,859 $ 1,141,293 $ 2,121,243
Imaging 1,076,602 1,088,410 1,174,477
---------------- ----------------- ----------------
Total capital outlays $ 2,381,461 $ 2,229,703 $ 3,295,720
================ ================= ================
</TABLE>
Operating income represents net sales less operating expenses and excludes
interest expense (income) and income taxes.
Other corporate assets represents short-term investments held for future use.
9 - SEGMENT INFORMATION - CONTINUED
--------------------
Geographic Segments
- -------------------
Foreign operations are located in Belgium, Italy, and until December, 1995,
Venezuela. Included in consolidated net income are foreign currency transaction
gains (losses) of ($46,000), $49,000, and ($98,000), realized during fiscal
1998, 1997, and 1996, respectively. Information concerning the Company's foreign
operations after translation into U.S. dollars are summarized as follows for
fiscal years ended March 31:
1998 1997 1996
---- ---- ----
Net sales:
United States $ 97,768,069 $ 84,665,905 $ 81,760,101
Foreign 8,330,145 8,300,247 7,308,832
-------------- ------------ -------------
$ 106,098,214 $ 92,966,152 $ 89,068,933
============== ============ =============
Operating income (loss):
United States $ 11,036,527 $ 12,040,026 $ 10,060,160
Foreign 1,023,654 726,635 (52,683)
-------------- ------------ -------------
$ 12,060,181 $ 12,766,661 $ 10,007,477
============== ============ =============
Identifiable assets:
United States $ 72,363,538 $ 62,045,918 $ 58,786,587
Foreign 6,257,621 6,970,214 7,385,881
-------------- ------------ -------------
$ 78,621,159 $ 69,016,132 $ 66,172,468
============== ============ =============
Operating income excludes interest expense (income) and income tax expense.
Foreign interest expense for the years ended March 31, 1998, 1997 and 1996
amounted to $161,646, $113,557, and $151,281, respectively. Inter-area
transfers are not material.
In addition, the Company's U.S. operations had total export sales for the years
ended March 31, 1998, 1997 and 1996 of $3,147,246, $2,917,400, and $2,501,776,
respectively.
10 - QUARTERLY FINANCIAL DATA (UNAUDITED)
------------------------------------
The following table sets forth the unaudited quarterly results of operations for
each of the fiscal quarters in the years ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
PER SHARE PER SHARE
NET GROSS NET INCOME INCOME
SALES PROFIT INCOME BASIC DILUTED
------ ------ ------ ---- -------
1998 QUARTERS:
- -------------
<S> <C> <C> <C> <C> <C>
Fourth $ 27,184,360 $ 11,330,282 $ 1,251,049 $ 0.18 $ 0.18
Third 29,080,065 12,605,857 1,918,387 0.27 0.27
Second 27,810,071 12,192,194 1,973,537 0.28 0.27
First 22,023,718 10,290,090 1,677,201 0.23 0.23
-------------------- -------------------- -------------------- ------- ------
Total $ 106,098,214 $ 46,418,423 $ 6,820,174 $ 0.96 $ 0.95
==================== ==================== ==================== ======= =======
1997 QUARTERS:
- -------------
Fourth $ 22,332,222 $ 10,330,859 $ 1,486,125 $ 0.21 $ 0.20
Third 23,219,659 10,839,699 1,961,993 0.28 0.27
Second 24,892,713 11,918,145 2,262,386 0.31 0.31
First 22,521,558 10,855,453 1,817,765 0.25 0.24
-------------------- -------------------- -------------------- ------- -------
Total $ 92,966,152 $ 43,944,156 $ 7,528,269 $ 1.05 $ 1.02
==================== ==================== ==================== ======= =======
</TABLE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
Certain information concerning the directors and executive officers of the
Company is incorporated by reference to the caption "Directors and Executive
Officers" in the Proxy Statement of the Company, dated June 24, 1998 (the "1998
Proxy Statement").
In addition to the executive officers named in the Proxy Statement, the
Registrant employs the following key persons:
BRIAN C. BARBO, age 41, is Vice President and General Manager of Trebla
Chemical Company, and has served in that capacity since October 1988. He was
formerly Manager of Manufacturing for Trebla Chemical Co. Mr. Barbo, a chemical
engineer, has been with the Company since July 1979.
PEDRO P. BONILLA, age 46, was named President of the CPAC Imaging Group on
September 20, 1995. Prior to this, he was promoted to President of Trebla
Chemical Company on April 24, 1995, a position he held in addition to his
October, 1994 appointment to President of Allied Diagnostic Imaging Resources,
Inc. Mr. Bonilla joined Trebla in February, 1993 as Vice President, Latin
America/Caribbean. Prior to joining Trebla, Mr. Bonilla was previously General
Manager of Technolab in Santo Domingo.
J. ROBERT DUDIK, age 66, is President of Allied's Dental Division, a
position he assumed in January, 1990. He was formerly Vice President of the
Dental Division (1988-90), and, prior to that, National Sales Manager. Mr.
Dudik has been an employee of Allied since 1982 and serves on the Board of
Directors of Allied Diagnostic Imaging Resources, Inc.
LEWIS L. GRAY, age 47, is Vice President, Chemical and Technical Resources
for Fuller Brush. He started his career with the company in 1973 as a Q.C.
Chemist, and was promoted to Research Chemist, Laboratory Manager, and Chief
Chemist, until his current appointment in 1995. Mr. Gray has a B.S. degree in
chemistry from Kansas State University.
BRAD A. HENDRICKSON, President, of Allied Diagnostic Imaging Resources,
Inc., is 35 years old. He began his career with CPAC in 1986 and has held
several sales and marketing management positions including National Accounts
Manager and Vice President of National Sales for Allied. A graduate of the
University of Wisconsin with a Bachelor of Science in Economics, Mr. Hendrickson
recently received his MBA from Emory University in Atlanta.
JAVIER E. PAREDES, Vice President and General Manager of Stanley Home
Products, is 52 years old. He joined Stanhome, Inc. in 1985, and held several
management positions including General Manager of Stanley Home Productos Para
Lar Ltda, Stanhome's direct selling company in Brazil. He also worked closely
with Stanley's management team in developing new sales techniques, and has broad
experience in top-level sales and financial management.
JAMES W. PEMBROKE, age 39, joined CPAC in 1993 as Corporate Controller. He
has been a Certified Public Accountant since 1983, and received his B.S. degree
in accounting from Miami University (Ohio). Previously Mr. Pembroke was an
Audit Manager for the accounting firm of Coopers and Lybrand L.L.P.
EDWARD E. SCHILLER, 51, is Vice President and Technical Director for Trebla
Chemical Company, a position he has held since February, 1985. From May, 1982
to January, 1985, he was Operations Manager at Trebla Chemical Co. Mr. Schiller
is currently responsible for all research and development for CPAC, Inc. and its
subsidiaries; he is also responsible for the technical service representatives
at Trebla Chemical Company, and is the Registrant's Environmental Compliance
Officer.
NORBERT J. SCHNEIDER, age 45, was appointed President of Fuller Brush as of
April 1, 1996. He joined the company in 1976 as a Product Engineer, and was
later promoted to Vice President, Industrial Sales. In 1994 he was appointed
Executive Vice President and General Manager. Mr. Schneider has a B.S. degree
in Business Administration from Wichita State University.
STEPHEN R. TAFARO, President, of Cleaning Technologies Group, is 55 years
old. For the last twenty years has held various executive positions including
President of IVAX Industries Cleaning Products Group (a subsidiary of IVAX
Corporation), President of Bell Atlantic's Integration Systems Group, and
Director of Retail Industry Marketing for Oracle Corporation. He holds a B.A.
and M.A. in Education from Montclair State College.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Information regarding executive compensation is incorporated by reference to
the caption "Executive Compensation" in the 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
----------------------------------------------------
MANAGEMENT
----------
The stock ownership of each person known to CPAC to be the beneficial owner
of more than 5% of its Common Stock and the stock ownership of all directors and
officers of CPAC as a group are incorporated by reference to the caption
"Security Ownership of Certain Beneficial Owners and Management" in the 1998
Proxy Statement. The beneficial ownership of CPAC Common Stock of all directors
of the Company is incorporated by reference to the caption "Security Ownership
of Certain Beneficial Owners and Management" in the 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Information regarding certain relationships and related transactions is
incorporated by reference to the caption "Information About The Board and Its
Committees" in the 1998 Proxy Statement.
PART IV
------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
--------------------------------------------------------
FORM 8-K
--------
(a)The following financial statements of the Registrant are included as part of
the report:
1. FINANCIAL STATEMENTS:
--------------------
Report of Independent Accountants
Consolidated Balance Sheets as of March 31, 1998 and 1997
Consolidated Statements of Operations for the Years Ended March 31, 1998,
1997, and 1996
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended March 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows for the Years Ended March 31, 1998,
1997, and 1996
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES:
-----------------------------
Schedule II, Valuation and Qualifying Accounts and Reserves
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in
the financial statements or notes thereto.
(b) Reports on Form 8-K
-------------------
None
(c) Exhibits
--------
2.Plan of acquisition, reorganization, arrangement, liquidation, or
succession
3.Articles of Incorporation, By-Laws
3.1 Certificate of Incorporation, as amended September 11, 1996,
incorporated herein by reference to Form 10-Q, filed for the
period ended September 30, 1996
3.2 By-laws, as amended, incorporated herein 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 herein by reference to Form
10-K filed for the 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
9.Voting Trust Agreement
10. Material Contracts
10.1 Employment Agreement between Thomas N. Hendrickson and CPAC, Inc.
dated September 30, 1995, incorporated herein by reference to
Form 10-Q for the period ended September 30, 1995
10.2 CPAC, Inc. Executive Long-Term Stock Investment Plan, incorporated
herein by reference to Amendment No. 1 to Form S-8 Registration
Statement filed October 3, 1996
10.3 CPAC, Inc. 1996 Nonemployee Directors Stock Option Plan,
incorporated herein by reference to Form S-8 Registration
Statement filed October 3, 1996
11. Statement re: Computation of Per Share Earnings (Loss)
12. Statement re: Computation of Ratios
13. Annual Report to Security Holders
16. Letter re: Change of Certifying Accountant
18. Letter re: Change in Accounting Principles
21. Subsidiaries of the Registrant
21.1 Subsidiaries of the Registrant
22. Published report regarding matters submitted to vote of security
holders
23. Consent of Experts and Counsel
23.1 Consent of Coopers & Lybrand L.L.P.
24. Power of Attorney
27. Financial Data Schedule
27.1 Financial Data Schedule for the Year Ending March 31, 1998
27.2 Restated Financial Data Schedule for the periods ending
September 30, 1997 and December 31, 1997
27.3 Restated Financial Data Schedule for the periods ending June 30,
1996, September 30, 1996, December 31, 1996, March 31, 1997, and
March 31, 1996
99. Additional Exhibits
99.1 Forward-Looking Information
ITEM 14. FINANCIAL STATEMENT SCHEDULE SCHEDULE II
----------------------------
CPAC, INC.
----------
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
----------------------------------------------
FOR THE FISCAL YEARS ENDED MARCH 31, 1998, 1997 AND 1996
--------------------------------------------------------
BALANCE AT BALANCE
BEGINNING AT END OF
OF PERIOD ADDITIONS DEDUCTIONS PERIOD
--------- --------- ---------- ------
1998:
Allowance for doubtful
accounts $ 587,000 $ 336,000 $ (83,000) $ 840,000
Inventory reserve 937,000 1,095,000 (267,000) 1,765,000
Plant closure reserve 168,000 (168,000) 0
1997:
Allowance for doubtful
accounts $ 611,000 $ 168,000 $(192,000) $ 587,000
Inventory reserve 863,000 192,000 (118,000) 937,000
Plant closure reserve 168,000 0 0 168,000
1996:
Allowance for doubtful
accounts $ 601,000 $ 280,000 $(270,000) $ 611,000
Inventory reserve 764,000 352,000 (253,000) 863,000
Plant closure reserve 0 168,000 0 168,000
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CPAC, INC.
Date June 24, 1998 By /s/ Thomas N. Hendrickson
---------------------------- ------------------------------------
Thomas N. Hendrickson, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date June 24, 1998 By /s/ Thomas N. Hendrickson
---------------------------- ------------------------------------
Thomas N. Hendrickson, President,
Chief Executive Officer, Treasurer,
and Director
Date June 24, 1998 By /s/ Robert C. Isaacs
---------------------------- ------------------------------------
Robert C. Isaacs, Senior Vice
President and Director
Date June 24, 1998 By /s/ Robert Oppenheimer
---------------------------- ------------------------------------
Robert Oppenheimer, Secretary and
Director
Date June 24, 1998 By /s/ Seldon T. James, Jr.
---------------------------- ------------------------------------
Seldon T. James, Jr., Director
Date June 24, 1998 By /s/ John C. Burton
---------------------------- ------------------------------------
John C. Burton, Director
Date June 24, 1998 By /s/ Thomas J. Weldgen
---------------------------- ------------------------------------
Thomas J. Weldgen
Vice President, Finance and
Chief Financial Officer
Date June 24, 1998 By /s/ Wendy F. Clay
---------------------------- ------------------------------------
Wendy F. Clay
Vice President, Administration
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 herein by
reference to Form 10-Q, filed for the period
ended September 30, 1996 N/A
3.2 By-laws, as amended, incorporated herein 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 herein by reference to Form 10-K
filed for the 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
9. Voting Trust Agreement N/A
10. Material Contracts
10.1 Employment Agreement between Thomas N.
Hendrickson and CPAC, Inc. dated September 30,
1995, incorporated herein by reference to Form
10-Q for the period ended September 30, 1995 N/A
10.2 CPAC, Inc. Executive Long-Term Stock Investment
Plan, incorporated herein by reference to
Amendment No. 1 to Form S-8 Registration
Statement filed October 3, 1996 N/A
10.3 CPAC, Inc. 1996 Nonemployee Directors Stock
Option Plan, incorporated herein by reference to
Form S-8 Registration Statement filed October 3,
1996 N/A
11. Statement re: Computation of Per Share Earnings (Loss) N/A
12. Statement re: Computation of Ratios N/A
13. Annual Report to Security Holders N/A
16. Letter re: Change of Certifying Accountant N/A
18. Letter re: Change in Accounting Principles N/A
21. Subsidiaries of the Registrant
21.1 Subsidiaries of the Registrant 48
22. Published report regarding matters submitted to vote of
security holders N/A
23. Consent of Experts and Counsel
23.1 Consent of Coopers & Lybrand L.L.P. 49
24. Power of Attorney N/A
27. Financial Data Schedule
27.1 Financial Data Schedule for the Year Ending
March 31, 1998 50
27.2 Restated Financial Data Schedule for the periods
ending September 30, 1997 and December 31, 1997 51
27.3 Restated Financial Data Schedule for the periods
ending June 30, 1996, September 30, 1996,
December 31, 1996, March 31, 1997, and March 31,
1996 52
99. Additional Exhibits
99.1 Forward-Looking Information 53
EXHIBIT 21.1
------------
CPAC, INC.
----------
SUBSIDIARIES OF REGISTRANT
--------------------------
STATE/COUNTRY OF PERCENT
COMPANY NAME INCORPORATION OWNERSHIP
------------ ------------- ---------
PRS, Inc. New York 100
Allied Diagnostic Imaging Resources, Inc. Delaware 100
Trebla Chemical Company Delaware 100
CPAC Europe, N.V. Belgium 98
CPAC Italia, S.r.l. Italy 100
The Fuller Brush Company, Inc. New York 100
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the registration statement of
CPAC, Inc. on Form S-2 Post-Effective Amendment No. 1 (File No. 333-06987), in
the registration statements of CPAC, Inc. on Forms S-3 (File No.'s 33-52164 and
333-06965), in the registration statement of CPAC, Inc. on Form S-8
(File No. 333-39529) and in the registration statement of CPAC, Inc. on
Amendment No. 1 to Form S-8 (File No. 333-13365), of our report dated May 29,
1998, on our audits of the consolidated financial statements and the financial
statement schedule of CPAC, Inc. and Subsidiaries as of March 31, 1998 and 1997,
and for each of the three years in the period ended March 31, 1998, which report
is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Rochester, New York
June 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of CPAC, Inc. for the period ending March 31, 1998, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000351717
<NAME> CPAC, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,226,128
<SECURITIES> 0
<RECEIVABLES> 17,231,436
<ALLOWANCES> 840,000
<INVENTORY> 21,000,688
<CURRENT-ASSETS> 45,627,274
<PP&E> 28,469,361
<DEPRECIATION> 10,846,681
<TOTAL-ASSETS> 78,621,159
<CURRENT-LIABILITIES> 12,135,952
<BONDS> 10,016,830
0
0
<COMMON> 69,966
<OTHER-SE> 52,784,795
<TOTAL-LIABILITY-AND-EQUITY> 78,621,159
<SALES> 106,098,214
<TOTAL-REVENUES> 106,098,214
<CGS> 59,679,791
<TOTAL-COSTS> 59,679,791
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 964,173
<INCOME-PRETAX> 11,574,174
<INCOME-TAX> 4,754,000
<INCOME-CONTINUING> 6,820,174
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,820,174
<EPS-PRIMARY> 0.96
<EPS-DILUTED> 0.95
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of CPAC, Inc. for the periods ending September 30, 1997 and
December 31, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000351717
<NAME> CPAC, INC.
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1998
<PERIOD-END> SEP-30-1997 DEC-31-1997
<CASH> 5,450,732 4,950,576
<SECURITIES> 0 0
<RECEIVABLES> 19,542,395 19,596,490
<ALLOWANCES> 833,000 888,000
<INVENTORY> 19,727,513 20,217,047
<CURRENT-ASSETS> 46,312,145 47,038,365
<PP&E> 27,257,149 27,616,477
<DEPRECIATION> 9,729,212 10,318,582
<TOTAL-ASSETS> 79,208,050 79,826,202
<CURRENT-LIABILITIES> 12,963,688 13,034,339
<BONDS> 10,680,807 10,354,406
0 0
0 0
<COMMON> 72,296 70,932
<OTHER-SE> 52,584,401 52,901,167
<TOTAL-LIABILITY-AND-EQUITY> 79,208,050 79,826,202
<SALES> 49,833,789 78,913,854
<TOTAL-REVENUES> 49,833,789 78,913,854
<CGS> 27,351,505 43,825,713
<TOTAL-COSTS> 27,351,505 43,825,713
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 359,149 567,544
<INCOME-PRETAX> 6,230,738 9,480,125
<INCOME-TAX> 2,580,000 3,911,000
<INCOME-CONTINUING> 3,650,738 5,569,125
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,650,738 5,569,125
<EPS-PRIMARY> 0.51 0.78
<EPS-DILUTED> 0.50 0.77
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of CPAC, Inc. for the periods ending June 30, 1996,
September 30, 1996, December 31, 1996, March 31, 1997, and March 31, 1996 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000351717
<NAME> CPAC, INC.
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS YEAR YEAR
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1997 MAR-31-1997 MAR-31-1997 MAR-31-1996
<PERIOD-END> JUN-30-1996 SEP-30-1996 DEC-31-1996 MAR-31-1997 MAR-31-1996
<CASH> 13,636,838 13,231,724 14,177,963 15,106,868 13,667,286
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 13,721,950 14,179,559 13,856,297 14,363,933 13,310,485
<ALLOWANCES> 617,000 693,000 715,000 587,000 611,000
<INVENTORY> 17,777,791 16,236,562 17,437,450 17,209,020 16,246,212
<CURRENT-ASSETS> 46,359,812 44,894,152 46,921,921 48,171,837 44,528,970
<PP&E> 23,701,554 24,169,914 24,670,237 25,303,407 23,267,154
<DEPRECIATION> 7,248,412 7,756,645 8,257,784 8,675,812 6,782,699
<TOTAL-ASSETS> 67,772,996 65,988,699 67,645,082 69,016,132 66,172,468
<CURRENT-LIABILITIES> 10,963,716 9,763,633 9,113,332 9,726,819 11,236,303
<BONDS> 8,279,226 7,938,769 7,848,669 6,878,147 8,345,890
0 0 0 0 0
0 0 0 0 0
<COMMON> 74,200 71,145 71,982 72,286 74,077
<OTHER-SE> 45,892,255 45,512,446 47,841,949 49,508,312 44,027,847
<TOTAL-LIABILITY-AND-EQUITY> 67,772,996 65,988,699 67,645,082 69,016,132 66,172,468
<SALES> 22,521,558 47,414,271 70,633,930 92,966,152 89,068,933
<TOTAL-REVENUES> 22,521,558 47,414,271 70,633,930 92,966,152 89,068,933
<CGS> 11,666,105 24,640,673 37,020,633 49,021,996 48,518,998
<TOTAL-COSTS> 11,666,105 24,640,673 37,020,633 49,021,996 48,518,998
<OTHER-EXPENSES> 0 0 0 0 0
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 203,270 373,375 554,851 710,216 1,082,394
<INCOME-PRETAX> 3,063,765 6,926,151 10,211,144 12,746,269 9,217,461
<INCOME-TAX> 1,246,000 2,846,000 4,169,000 5,218,000 3,744,000
<INCOME-CONTINUING> 1,817,765 4,080,151 6,042,144 7,528,269 5,473,461
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 1,817,765 4,080,151 6,042,144 7,528,269 5,473,461
<EPS-PRIMARY> 0.25 0.57 0.84 1.05 0.87
<EPS-DILUTED> 0.24 0.55 0.82 1.02 0.85
</TABLE>
EXHIBIT 99.1
------------
FORWARD-LOOKING INFORMATION
---------------------------
This Annual Report 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.
