UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE
SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-27222
____________________
CFC INTERNATIONAL, INC.
(Exact name of Registrant as specified in
its charter)
Delaware 36-3434526
(State or other jurisdiction of
(I.R.S. Employer Identification
incorporation or organization)
Number)
500 STATE STREET, CHICAGO HEIGHTS, ILLINOIS 60411
(Address of Principal Executive Offices)
(Zip Code)
Registrants telephone number, including area code:
(708) 891-3456
____________________
Securities registered pursuant to Section 12(b) of the Act:
None Securities registered pursuant to Section 12(g) of
the Act
Title of Each Class
Common Stock, par value $.01 per share
____________________
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 of
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2)
has been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate by check mark if 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 registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. x
The aggregate market value of the voting stock of the
registrant held by stockholders who were not affiliates
(as defined by regulations of the Securities and
Exchange Commission) of the registrant was approximately
$17,429,263 at March 21, 1997 (based on the closing sale
price on the Nasdaq National Market on March 22, 1997, as
reported by The Wall Street Journal). At March 21, 1997,
the registrant had issued and outstanding an aggregate of
3,987,217 shares of common stock.
Documents Incorporated by Reference
Those sections or portions of the registrants proxy statement
for the Annual Meeting of Stockholders to be held in 1997,
described in Part III hereof, are incorporated by reference
in this report.
PART I
ITEM 1. BUSINESS
General
CFC International, Inc. (CFC or the Company)
formulates, manufactures, and sells chemically-complex,
multilayered functional coatings which provide superior
performance under a wide range of operating conditions. The
Company applies its proprietary coatings to rolls of
plastic film from which its customers transfer the coatings
to their products for protective and informative purposes. The
Company produces five primary types of coating products:
printed coatings such as simulated wood grains for
furniture; pharmaceutical pigmented coatings used on
pharmaceutical products such as intravenous solution bags;
security products such as magnetic stripes and signature
panels for credit cards;
holographic products such as authentication seals. The
Company utilizes its patented computer-generated dot matrix
process to create unique and costeffective holographic art
origination and to produce holograms used principally to
certify and protect the authenticity of
proprietary products and documents susceptible to
counterfeiting or tampering. The fifth product line is other
pigmented and simulated metal coatings used on products
such as beverage cases and
cosmetics. CFC is a leading supplier in many of the
worldwide markets it serves.
The Companys coatings are produced by milling pigments,
solvents, and resins into proprietary formulations which
combine multiple layers of custom inks designed to react with
each other to create a composite solid coating that is
applied to customers products. The coatings are produced
with a wide range of physical and chemical characteristics
and in a broad array of colors, patterns, and surface
finishes which are designed to meet specific customer
functional requirements. The Companys research and
development capabilities enable it to create products
specifically tailored to meet customers requirements,
such as resistance to specific chemicals or abrasion, and
to satisfy exacting design criteria, such as sophisticated
overt and covert (conspicuous and hidden) holograms and
simulated woodgrain and other patterns. By using the use of
the Companys products, its customers also are able to address
many of the problems manufacturers confront in complying
with increasingly restrictive environmental laws and
regulations because they avoid the use of liquid solvents
and adhesives otherwise needed to apply coatings to their
products.
A principal market which the Company serves is printed
coatings
for engineered wood products (Engineered Board) used to
produce readyto-assemble (RTA) furniture, kitchen
cabinets, mobile home interiors, value- priced furniture,
and picture frames. The
Companys coatings are designed to match or improve on
the
appearance, texture, durability, and scratch, moisture, and
stain resistance of natural or painted wood. The Company is
one of only two significant suppliers of printed coatings
for the Engineered Board market. This market is growing
rapidly throughout the world as the environmental problems
associated with paints and stains and the cost and
environmental consequences of using solid wood are
becoming more significant. Sales of products in this
market represented approximately 39.3% of the Companys net
sales
in 1996. See Chemical Coatings Printed Products.
Another significant market for the Companys products is
heat transfer printing for intravenous solution bags and
other medical supplies.
The
Companys products provide the pharmaceutical
industry with a reliable, environmentally-safe method of
conveying crucial medical information on surfaces on
which printing is difficult. The Companys coatings for this
market are used on FDAapproved products and are able to
survive the sterilization process without degradation. The
Company is one of the most significant suppliers to this
stable and growing market and is the sole supplier to Baxter
Healthcare Corporation for these products.
Sales of products in this
market represented approximately 21.2% of the Companys net
sales in 1996. See Chemical Coatings Pigmented Products.
The Company is also focusing its efforts on the market for
security products for transaction cards, which include
credit cards, debit cards, identification cards and ATM
cards. The Company manufactures chemically reactive
signature panels and multi-coercivity magnetic stripes for
transaction cards and other documents and abrasion
resistant tipping foils used to highlight the embossed
lettering of transaction cards. The Companys products are
used by customers such as MasterCard, VISA and Diners
Card, to enhance the security and processing speed of
transaction cards. Sales of products in this market
represented approximately 10.3% of the Companys net sales in
1996. See Chemical Coatings Security Products.
The Company is one of the leading designers and
producers of holograms, which are used to protect and
authenticate brand name software and merchandise,
transportation and event tickets, and other similar
applications requiring protection against unauthorized copying
or counterfeiting. CFC, together with its joint venture
partner, is one of only a few companies worldwide with the
ability to serve all stages of the holographic production
process, from design to manufacturing,
and is the sole supplier to Intel Corporation (Intel)
of
holograms used to authenticate all Intel products, including
the Pentium miscroprocessor. Sales of products in this
market represented approximately 11.6% of the Companys net
sales in 1996. See Holographic Products.
The Company also serves a variety of other consumer and
industrial markets which take advantage of the special
functional capabilities of the Companys coatings. These
markets include the automobile battery and cosmetics
markets, which require acid and solvent resistant
markings, and the consumer electronics and appliances
markets which require special surface durability and
resistance to ultra-
violet light degradation.
CFCs products are sold to more than 5,000 customers worldwide.
The Company generated approximately 32.3% of its 1996
revenues from sales outside of the United States and has
sales, warehousing, and finishing operations in England and
Japan. The Companys margins and operating income result
from the Companys proprietary technologies and from the
Companys focus on quality, which is exemplified by the
Companys investment during the past three years of more
than $7.0 million in improved equipment and employee
training.
The Company received the International Standards
Organization (ISO) 9001 registration in June 1995, which
provides assurance to the Companys customers that the
Companys quality systems are consistently capable of
providing products that meet the customers
requirements. The Company has
demonstrated its
commitment to quality by providing zero-defect products
to its largest single customer, Baxter Healthcare Corporation
(Baxter),
since successful institution by the Company in 1989 of the
Phillip Crosby Total Quality Management (TQM) Program. See
Manufacturing and Production.
The Companys executive offices are located at 500 State
Street, Chicago Heights, Illinois 60411 and its telephone
number is (708) 891-3456. References in this report to the
Company mean the Company and its consolidated subsidiaries,
unless the context requires otherwise.
Business Strategy
The Company plans to continue its Growth Performance Program.
The objectives of this program are to obtain a leading
worldwide share in its markets, to be the lowest cost
producer, to continually improve efficiencies and quality,
and to deliver products that meet customers requirements.
The Company seeks to attain these goals and to increase
its worldwide sales and profitability through a strategy
based on the following key elements:
Globalization. Because the Companys existing and
potential customers have expanded the geographic markets
in which they manufacture and sell their products,
management of the Company is increasing its focus on the
international demand for the Companys products.
Accordingly, the Company intends to increase
its
worldwide sales distribution and manufacturing
capabilities, including
through alliances with foreign manufacturing
organizations, in order to benefit from the increasing
globalization of the markets for the Companys products.
Low-Cost Producer. The Company plans to maintain and
enhance its position as a low-cost producer of transferable
coatings by reducing and limiting its manufacturing costs
and by increasing
the efficiency of the Companys operations. In this regard,
the Company has an Employee Gain-Sharing Program whereby
employee units are paid a portion of the annual cost savings
that the Company realizes with respect to that employee
unit. The Company also continually modifies its
manufacturing processes and equipment to utilize more
efficiently the Companys production facilities and limit
waste. For example, in 1996
the Company reworked its metalizer so that it more
accurately applied a wider layer of metal to the plastic film
carrier.
As a result, the metalizer produces a more consistent
product with
less waste. In 1996, the Company purchased a 50 wide state-
of the-art printing press, enabling it to produce more rolls
of printed coatings in sizes needed by the Companys
Engineered Board customers. This printing press was delivered
in January, 1997 and is expected to be operational by the
beginning of the third quarter of 1997.
Quality Products. One of the Companys goals is to
become a preferred supplier for all of its customers, and
management
of
the Company believes that maintaining the highest levels in
product and service quality are integral to the achievement
of that goal.
The Company strives to provide its customers with zero-defect
products. In addition, the Company has obtained ISO 9001
registration from an approved ISO 9001 accreditation firm
which permits the Company to offer certification programs
to its customers, thereby eliminating the need for the
customers to make incoming inspections of the Companys
products.
Development of New Technology. Management of the Company
believes that a major factor contributing to the Companys
growth has been continued investment in research and
development. Continued development of new products and
processes will be critical to keep abreast of the
technologydriven changes in the needs of the
Companys customers and to maintain a competitive advantage over
the Companys competitors. The Companys Research and
Development department has contributed to the development
of formulae, proprietary know-how, modifications to
existing equipment, and specifications for both new
equipment and new raw materials. Tangible results have
included improved ease of coating application, abrasion
resistance, functionality and the expansion of the market for
the Companys holographic products.
Overview of Products
The Companys principal product types include the following:
Printed Products include specialized functional coatings
used primarily as an alternative to painting or using liquid
laminates on wood substitutes and plastics. The most
important markets for these products include Engineered Board
products used in the RTA furniture market, kitchen and
bath cabinets, pre-constructed housing interiors, value-
priced furniture, window trim and moldings, picture frames,
and the consumer electronics, automotive and appliance
markets.
Pharmaceutical Products consist of specialized
functional coatings for heat transfer printing on
pharmaceutical products, such as intravenous solution bags,
syringes, and other uses requiring nontoxic ingredients,
adhesion during the sterilization process, and FDA approval.
Security Products include tamper-evident signature panels
and high-abrasion tipping foils for transaction cards, as
well as specialized multi-coercivity magnetic stripe products
applied to both plastic transaction cards and disposable
fibrous substrates, such as drivers licenses, student
identification cards, airline tickets, mass-transit tickets,
and telephone debit cards.
Holographic Products include the Companys high-
technology
holograms used as security markings on products such as
software packages and merchandise, transportation and event
tickets, and other products susceptible to counterfeiting or
tampering as well as holographic images for packaging and
other visual markets. The Company has recently launched a
product called HoloText. This product allows textile
manufacturers to place holography on
textiles without image degradation from washing and drying.
The Company also has a patented, computer-generated dot-matrix
process which produces minute juxtaposed holographic gratings
resulting in a composite image with up to 60,000 individual
holograms per square inch and which can include overt and covert
data.
Other Pigmented and Simulated Metal Products. Other
Pigmented Products include automobile batteries, cosmetics
containers, industrial signage, and other markets requiring
a particularly durable specialized functional coating.
Simulated Metal Products include bright simulated metal and
reflective
coatings used in the appliance, automotive, and cosmetic markets.
Most of these coatings are produced with the state-of-the-art
ultra-violet curing process, which results in higher abrasion and
chemical resistance.
Markets
The following table summarizes the Companys principal markets
and product applications:
% of
CFC
Market Application Selected Sales Key
Product
Customers 1996
Features
Printed RTA furniture Sauder 39.3% Large
library
products (bedroom, Woodworking, of
(Engineered office, Harden Mfg.,
patterns
Board, entertainment Phillips
Superior
lead
building centers), (Magnavox), times
products, promotional Charleswood, GE
Scratch/mar
consumer furniture Electronics,
resistant
electronics, (hotel and Milford-Astor
finishes
home office), (Australia),
(Armorite
decorating, cabinets, Dallas Plus)
trophies/award mobile home Woodcrafters, Match
to
any
s) interiors, Ditta Manetti pattern
picture frames, (Italy), or
color
award plaques, Regency Supply,
trophy bases Impact
Furniture,
Progressive
Furniture
Pharmaceutical Intravenous Baxter 21.2% Used on
FDA
Products solution bags, Healthcare,
approved
drainage bags, Abbott Labs, products
syringes, Sherwood Passes
pipettes, Medical, McGaw
stringent
tubing Labs, C.R.
Bard, Sterling
sterilization
Pharmaceutical process
Security Magnetic Visa, 10.3%
Magnetic
Products stripes, MasterCard, stripe
is
(transaction signature Diners Club,
durable
cards, panels, and Discover Card, (exceeds
life
identification tipping foils Eurocard of
cards) for credit card)
cards, debit
Reliable,
few
cards, ATM errors
cards, access
Signature
cards, drivers panels
are
licenses,
tamper
passports evident
Holographic Authentication Intel, 11.6% Fully
Products seals, Microsoft, Ivy
integrated
(product trophies, point- Hill, 3M, JBL, manu-
authentication of-purchase Ingersol Rand,
facturing
, high-end packaging, PepsiCo, Coors process
decorative holography for Brewing Co.
Authenticates
packaging) textiles products
Patented
dot
matrix
Other Beverage cases, Rubbermaid, 17.6%
Scratch/mar
Pigmented and industrial Delco, Monroe,
resistant
Simulated safety signs, Johnson
Chemical
Metal Products battery cases, Controls,
resistant
(injection vent caps, Fisher-Price, Low-
cost
molded and spark plugs, Revlon, Hancor,
alternative
extruded dashboard AC Rochester Variety
of
plastics) inserts, tail colors
lenses, toys, Non-
toxic cosmetic
containers
Chemical Coatings
The manufacture of the Companys chemical functional coatings is
a multi-step process that involves pigments, solvents, and
resins which are blended into one of more than 2,500
proprietary formulations. The first step in production is the
application of a release agent to a roll of plastic film
carrier. The release agent allows the coating to separate from
the plastic film carrier during the application of the coating
by the customer to the customers product. The plastic film
carrier is then deposited with either pigments or dyes to
achieve the desired color, pattern, and physical
characteristics. These characteristics include resistance
to general abrasion, ultra-violet light exposure, contact with
alcohol, exposure to solvents and reactive household chemicals,
contact with acids, size of area to which the coating is
applied, overstamping and adhesion characteristics, and the
surface to which the specialty coating is applied. The
number and type of coatings required are determined by the
functional and visual requirements of the product. Woodgrain
products undergo a more extensive manufacturing process
because of the intricacies involved in aligning the patterns
during the coating process. Plated and simulated metal
coatings require additional treatment in a vacuum deposition
chamber, in which a microscopically thin coating of aluminum
is deposited on the coating to give it its reflective and
bright metallic appearance.
Printed Products
The Companys printed coatings are featured on numerous
consumer products manufactured by companies such as Ashley,
Bush, Harden, Hart, Regency, and Sauder. These products
represented approximately 28.1%, 34.8% and 39.3% of the
Companys net sales in the three years ended December 31,
1994, 1995, and 1996 respectively. Printed Products
include Engineered Board coatings for RTA and promotional
furniture, picture frames, manufactured housing and
window treatments. Engineered Board Coatings. Engineered Board
coatings are functional and simulated patterned coatings
including woodgrains, marbles, and granites used to coat
particle board and medium density fiberboard. A broad range of
global consumer markets utilize engineered wood for RTA
furniture and other products like trophies, awards and plaques.
RTA furniture is designed to provide an inexpensive
alternative to traditional furniture and is a market which
has experienced especially strong growth in recent years. It
is shipped unassembled from the factory to the store and is
either assembled at the store before purchase or later by the
consumer. RTA furniture products include home entertainment
centers, home theater systems, TV and VCR stands, bookcases,
and furniture designed to hold homeoffice equipment.
The Companys proprietary product Armorite Plus is an
innovative coating technology used in certain of the Companys
printed products that provides exceptional scratch and mar
resistance while allowing the customer greater
manufacturing efficiency by increasing application speeds.
In addition, Armorite Plus has provided customers with
cost savings due to a reduction in shipping damage to their
products. Plastic Substrate Coatings. Plastic substrate
coatings manufactured by the Company are used for similar
visual and functional purposes as its Engineered Board
coatings on appliances, windows, doors,
vinyl sidings, and specialty window coatings.
The fastest growing market for plastic substrate coatings is
the plastic building products market, which uses plastics for
windows, doors, and vinyl siding. Plastics can be more cost
effective than wood, especially in Asia and Europe, and
plastic exterior building products do not shrink or warp to
the degree that wood does and they are not susceptible to
insect damage. The two principle challenges facing coatings for
the plastic building products industry are fade resistance and
adequate adhesion. CFC utilizes an erosion resistant
polyvinylidene fluoride polymer (PVFP) system to produce one
of the most fade resistant coatings used in the industry.
The PVFP system also produces flexible coatings, which allows
for vacuum forming on plastics or post-forming on metal
treated surfaces without visible cracking of the coating.
CFC has also developed unique adhesion characteristics which
have improved acceptance of this coating in the marketplace.
Argents are a substitute for paint that is most recognizable as
the metallic black coating on many consumer electronics and
the grill work on automobiles. Although this market is
expanding worldwide, many of the Companys customers have
moved their manufacturing operations of these products
offshore. The Company intends to take advantage of this trend
by distributing these products globally.
Specialty window treatment coatings simulate the
appearance of fabric rather than wood or plastic. CFC offers
a wide variety of solid pigmented coatings and printed
patterns used by manufacturers of window treatments. Use of
the Companys products allows the application of the specialty
coating to be made at the site of the plastic extrusion
process, thereby reducing the manufacture of specialty
blinds from a multi location process to a one-step
process. Use of the Companys coatings also allows
the manufacturers of window treatments to run their production
equipment at higher speeds and without the use of solvent-based
paints.
Pharmaceutical Products
A significant portion of the Companys pigmented coatings
are designed for use on pharmaceutical products. Pigmented
coatings used in the pharmaceutical industry must meet
rigid quality specifications, including use of non-toxic
ingredients, adhesion during the sterilization process, and
FDA approval. The Companys attention to exacting standards,
technology, industry expertise, dedication to research and
development and quality assurance commitment has ensured
its position as the market leader of transferable
pharmaceutical coatings.
Typical applications for pharmaceutical coatings include
intravenous solution bags, blood bags, renal bags, drainage
bags, tubing and disposable syringes. CFC currently
has highly detailed
certification programs in place with large pharmaceutical
companies which provide the Company with their specific
substrates and their exact usage requirements. CFC
establishes quality control testing procedures to meet or
exceed the customers incoming quality control requirements,
and, therefore, saves its pharmaceutical customers
considerable time and labor costs on incoming inspections.
CFC is a preferred supplier to Baxter Healthcare
Corporation worldwide. This classification means that CFC
is one of only fifteen of Baxters suppliers (out of 750
approved suppliers) that meets Baxters standards for such
designation. In order to attain preferred supplier status with
Baxter, the Company was required to deliver products to
Baxter for a three year period free of any defects in
product quality, delivery procedures, and paperwork. The
Company has an exclusive suppliers contract with Baxter, and
Baxter
has a majority market share of the intravenous solution bags
sold worldwide. It is one of the goals of CFC to achieve
a similar supplier relationship with other pharmaceutical
companies that require transferable coatings. In this
regard, the Company was named a certified supplier to
Abbott Laboratories Hospital Products Division (Abbott) in
1994, and has maintained that distinction. Other
manufacturers of intravenous solution bags, blood bags,
drainage bags, tubing, and disposable syringes that the
Company
currently supplies include C.R. Bard, Inc., McGaw
Laboratories, Sherwood Medical and Sterling Pharmaceutical.
Pigmented coatings used on pharmaceutical products
represented approximately 23.0%, 22.3% and 21.2% of the
Companys net sales in the three years ended December 31,
1994, 1995 and
1996 respectively.
Security Products
Security Products are divided into three categories within
CFCs core product line. These are tamper-evident signature
panels, multicoercivity magnetic stripe, and high-abrasion
tipping foils.
Signature panels are formulated for credit and transaction
cards and are designed to accept ball-point ink directly on
the signature panel. If
tampering with the signature occurs,
either through erasure or chemical treatment, the coating will
discolor. This is a security feature requested by companies
such as Diners Club, Eurocard, MasterCard, VISA and Discover
Card.
The market for these products is strong and is expected to
continue to experience growth. The increasing use of
promotional cards by VISA and MasterCard, including airline
mileage cards, automobile discount cards, and other
branded cards, is contributing to continued growth in the
industry. The Company has been a major producer of tamper-
evident signature panels since this market first emerged and
has developed and maintains its own library of print
cylinders for the signature panels for several companies. CFC
is a specified supplier for VISA, MasterCard, Discover Card,
Diners Club and other leading sponsors of transaction cards.
Multi-coercivity magnetic stripe products are applied to
plastic transaction cards, either by the conventional heat
transfer process, or by a laminating process. The Companys
magnetic stripe product offers improved ease of application and
multicoercivity (the amount of energy needed to encode
information onto the stripe). The coercivity of a
magnetic stripe determines the resistance of the stripe to
extraneous energy sources. While 300 oersteds is the
current market standard, the Companys magnetic stripe product
has a capacity of 2,750 oersteds; thereby greatly enhancing
security of the stripe and also expanding potential
applications for the product, such as entry cards. Multi-
coercivity magnetic stripes with higher oersted capacity may
result in magnetic stripe cards having similar security
features as the socalled smart chip cards, and would not
require a costly changeover in reading device technology by
users. Magnetic stripes may also be used in combination
with smart chips to further enhance card security.
Magnetic stripes are increasingly being used in new
applications that require both the conveyance of
information and speed of processing, such as airline tickets,
mass-transit tickets, building access cards, passports,
drivers licenses, and telephone debit cards. Because
magnetic stripes are relatively inexpensive, they can be
applied to paper products and do not present the
environmental issues associated with solvent-based printing
inks. They are an
attractive alternative for disposable product
applications.
High-abrasion tipping foils are used to provide contrast
between the embossed letters and the surface on plastic cards.
They are offered in both pigmented and metallized colors and
enhance the readability and general aesthetics of the card.
Security products represented approximately 8.5%, 9.9% and
10.3% of the Companys net sales in the three years ended
December 31,
1994, 1995 and 1996 respectively.
Holographic Products
In early 1992, the Company entered into a joint venture
partnership with Applied Holographics PLC called CFC Applied
Holographics, of which the Company now owns 75.0%, to
manufacture and market holographic products to customers
based in North America and such other regions as Applied
Holographics PLC and the Company shall agree. Pursuant to
the CFC Applied Holographics joint venture and partnership
agreements, Applied Holographics PLC contributed to the joint
venture all of its U.S. holographic operations and licensed to
the joint venture its U.S. holographic proprietary rights and
CFC contributed cash and agreed to fund and manage the
operations of the joint venture. A majority-owned subsidiary
of the Company is the managing
partner of the partnership. CFC Applied Holographics
allocates to the Company all of its net losses and all of
its profits to the extent of previously allocated cumulative
losses. Thereafter, 75% of its net income is allocated to the
Company.
CFC Applied Holographics has given the Company the unique
capability of being able to produce holographic art origination
that involves a patented, computer-generated dot matrix
technology. In addition, CFC Applied Holographics has
provided the Company with
the
capability to develop and compete in a growing market
for
holographic coatings, which is a specialized type of
transferable coating embossed with a holographic image.
These holographic products are used primarily for security
sensitive products for authentication and anti-counterfeiting
purposes, and for point-ofpurchase displays and packaging.
The Company originates its holograms at its holographic
laboratory in Oxnard, California, by creating a master image
through a process utilizing laser beams, mirrors, and
lenses. To produce a holographic master image, the subject
of the hologram, which can be either a live image, a three
dimensional model, or flat artwork, is photographed using
light from a laser beam that is split and refracted at
differing angles and reunited in an interference pattern
on a photographic plate. The Company then uses this
photographic plate to create a metal plate or shim that is
electromagnetically grown from the master image. These metal
plates are used to replicate the hologram by embossing the
holographic image on specially formulated transferable
coatings manufactured by the Company.
When a hologram is viewed from different angles, features of
the depicted object can be seen that would not be
visible in a photograph. Depending on the model and technique
used to make the master image, the holographic image can be
made to appear threedimensional and to move as the viewing
angle changes.
Holographic products represented approximately 8.2%, 13.7% and
11.6%
of the Companys net sales in the three years ended December
31, 1994, 1995 and 1996.
Holograms and Security or Product Authentication
Holograms, which cannot be color-copied and are not readily
made except by a properly equipped holographic house, have
established themselves as a premier technology for
defending against
unauthorized copying or counterfeiting of products.
Identification of an authentic hologram, when used as a
security device, is convenient and inexpensive and can be
done by sight without any special machinery. The Company
is able to produce holograms that contain covert images
that are visible only with the aid of special devices and
which are more difficult to reproduce. The high degree of
technical skill and capital investment required to
replicate holograms acts as
an obstacle to unauthorized duplication, thereby making
holograms useful as anti-counterfeiting and security devices.
Holograms are widely used as a security device by computer
software companies, micro-processor manufacturers, and
entertainment event marketers, in addition to other
industries. The Company supplied all holograms for
Microsofts Windows `95, used
to prevent
unauthorized sales of this product. The Company also
supplies holograms
used to authenticate Intel Corp.s
Pentium
microprocessor.
CFC Applied Holographics patented holographic computer
generated dot matrix origination process is capable of
producing tiny dot holograms at a coverage rate of up to
60,000 dots per square inch. Each individual dot hologram
can be oriented at any one of 256 different angles, thus
creating juxtaposed holographic cells that change when the
viewing angle changes. The Company has discovered how to
produce computer-developed overlapping images so that these
images appear at different viewpoints and rotate angles.
The flexibility created by the dot matrix process provides
the Company with state-of-the-art holographic products that
are both costeffective and extremely intricate and, as a
result, difficult for competitors to generate products of
comparable quality and security orientation.
Holographic Packaging Products
The visual appeal and uniqueness of holograms make them
ideal for applications on paper-based products and point-of-
purchase displays. These include ribbons and paper for gift
packaging, and paper and plastic wrapping for packaging of
food and other products. The
Companys dot matrix technology results in holograms with a
brighter appearance and an enhanced depth of image. In
addition, the Companys 60 wide coating and embossing
capabilities give the Company a lower cost structure,
making holograms economically practical for these and
additional applications, and give the Company a broader
market for holographic products. An example of this type
of product application is the Companys development of
holographic promotional packaging for PepsiCo, Coors Brewing
Co. and, on a continuing basis, Aquafresh Whitening
Toothpaste.
HoloText
CFC has invented a holographic product that can be
applied
to textiles, providing a distinct decorative appearance. The
product is unique in that it has functional properties which
prevent image and brightness degradation caused by wear,
washing, and drying. A number of textile manufacturers
have expressed interest in this product,
especially promotional and name brand tee-shirt
manufacturers, bathing suit manufacturers and other
textile
manufacturers who require a high-quality, bright,
decorative
element.
Holographic Autostereoscopic Process
CFC Applied Holographics has granted a license to American
Propylaea Corporation to use CFC Applied Holographics real-
time holographic autostereoscopic displays patent. American
Propylaea is currently developing a process which will
allow automobile manufacturers to design vehicles using a
threedimensional holographic suspended image.
This may eliminate the need for costly clay models and
revolutionize the design process, resulting in reduced design
time and cost. Management of the Company believes that this
technology may also provide market opportunities in other
industries where costly physical models are used to
create and design heavily manufactured commercial and
industrial products. The Company has not received any
income from this license and cannot predict when, if ever, it
will receive any such income.
CFC Applied Holographics also licensed certain of its
proprietary holographic designs to Van Leer Metalized Products
(U.S.A.) Ltd. in January, 1994, for use by Van Leer in the
holographic paper market. CFC Applied Holographics receives a
5.0% royalty on gross sales by Van Leer of products
incorporating such licensed materials, which resulted in
revenue for CFC Applied Holographics of $138,000 in 1995 and
$150,000 in 1996.
Other Pigmented and Simulated Metal Products
A significant factor distinguishing the Company from
other manufacturers of pigmented coatings and
contributing to the
Companys position as a leader in this market is that the
Company makes most of its own ink dispersions, which allows
the Company to adjust a particular coating to suit a specific
customers needs with greater accuracy and reduced expense.
In addition, CFC
has
developed a proprietary technology in acid resistance which
allows an automobile battery container to be submerged at
the time the container is filled with acid without
deteriorating the appearance of the coating.
The Company manufacturers simulated metal coatings which are
used primarily on plastic substrates. They are produced in a
wide array of bright metallic and reflective colors such
as gold, silver, chrome, bronze, copper, green and other
colors. The production of simulated metal coatings for
plastics is a specialty niche business because these
coatings require enhanced abrasion and chemical resistance
characteristics. CFC has developed an ultra-violet curing
process for simulated metal coatings that has demonstrably
improved abrasion and chemical resistance. The Company
has
developed this process to meet the increasing demand for
higher abrasion and chemical resistant simulated metal
applications.
Key markets for the Companys simulated metal coatings
include appliances, automotive, cosmetics, specialty
advertising, and for use in improving point-of-purchase
sales. These coatings are highly specialized and must be
specifically developed for the product or container on which
they are to be used. For example, a coating used on a
lipstick container may not be usable on a perfume bottle.
Product applications that utilize the Companys pigmented
coatings include credit cards, blow molded bottles,
automobile batteries, automotive gauges, copier panels,
garbage cans, industrial signage, golfing accessories,
housewares, lipstick tubes, mud flaps, pens, personal care
products, recycle bins, squeeze tubes and toys.
Other pigmented and simulated products represented
approximately 20.4%,
19.3% and 17.6% of the Companys net sales in the three years
ended December 31, 1994, 1995 and 1996 respectively. The
market for simulated metal coatings, particularly for use
in graphics, is
highly competitive and has been experiencing generally
declining gross margins. Accordingly, the Company does not
actively pursue low margin graphics business in this market.
International Sales
The Company maintains offices, warehouse space, and
finishing operations in England and Japan. In addition to
sales made directly to international customers by the
Companys Regional Managers covering Europe, Japan, Latin
America and Asia, the Company makes sales to customers
around the world through a network of thirty distributors.
The Companys markets have seen a new globalization, and the
Company plans to continue its emphasis on the worldwide
requirements of its customers and expanding overseas demand.
In 1996, CFC invested in an extensive market research study
in the Pacific Rim to hone its strategy. The Company also
has added an experienced Sales and Marketing Manager to
oversee that region.
During the three years ended December 31, 1994, 1995 and
1996, net sales to Europe, the Pacific Rim, and other
customers outside of the United States were $7,600,000,
$9,446,000 and $12,014,000, and represented approximately
27.3%, 27.6% and 32.3% respectively, of the Companys net
sales. See Note 5 of the Notes to the Consolidated
Financial Statements.
Research And Development
Management believes that a major factor contributing to its
growth has been continued investment in research and
development. The
Companys Research and Development department has contributed
to the development of formulae, proprietary know-how,
modifications to existing equipment, and specifications for
both new equipment and new raw materials. Tangible results
have included improved ease of coating application, abrasion
resistance, and functionality and the expansion of the market
for the Companys holographic products. The Company also
develops original patterns, woodgrains, and finishes that are
engineered to meet customer-specific requirements.
The Company maintains a group of personnel that is dedicated
to
the creation of new patterns, designs, colors, shades, and
textures, including holographic designs. This includes an
engineering and chemistry laboratory in Chicago Heights that
employs nine people. In addition, the Company maintains
an art origination studio in Oxnard, California, that is
dedicated to holographics and which employs three
persons who perform holographic
research and
development. In the years ended December 31, 1994, 1995 and
1996, the Company spent approximately $1,062,000,
$1,109,000 and
$1,304,000 respectively on Research and Development, of
which $401,000, $433,000 and $502,000 respectively was for
holographic research.
All of the customers in the markets served by CFC are in the
midst of their own search for technological breakthroughs
that will contribute to low cost production and expanded
markets through new products and at the same time meet
environmental standards. The
Company is making substantial on-going investments in
research and development in an effort to be a partner with its
customers in the development of new technology and
products. Examples of these partnerships include a joint
research project for the development of thermal transfer by
photocopy for magnetic ink character recognition on toner
for transaction documents, such as checks and security
documents, and the joint development of new woodgrain
design cylinders for many of the major furniture companies.
Marketing And Sales
As of December 31, 1996, the Company had 19 full time sales
people who serve over 5,000 existing customers. Sales
personnel include the Senior Vice President of Sales and
Marketing, one Product Manger, five Regional Managers and
twelve Field Sales Engineers who are compensated on a salary
plus commission basis. The Companys five Regional Managers
are responsible for the following geographic territories:
United States; European Union, Middle East, and Africa;
Japan; Pacific Rim (except Japan); and Latin America.
The majority of CFCs products are sold directly to original
equipment manufacturers who incorporate the Companys products
into their own products. In addition, limited use is made
of a network of four distributors who service small
accounts in the United states and thirty-five distributors
who service international markets.
The Company markets a combination of standard products and
specialty items on a minimum order basis, and most of the
Companys sales are not pursuant to long-term sales
contracts. Because most customers require prompt turnaround
from order to delivery, the Company does not have a
material amount of backlog and backlog comparisons are not
indicative of sales trends at any given time.
The Companys three largest customers in 1996 were
Baxter Healthcare, Graphic Packaging and Intel. Sales made to
Baxter are pursuant to a three-year, exclusive provider
contract which was renewed in November 1994 and expires in
January 1998. The agreement requires the
Company to supply all of Baxters needs for
transferable coatings at specified prices, which may be
adjusted to reflect changes in certain of the Companys costs.
Sales to Baxter for each of 1994, 1995 and 1996 were
$4,088,188, $4,537,749 and $4,627,558 respectively. Sales
made to Graphic Packaging are on an individual purchase
order basis. In
1996, CFC sales to Graphic Packaging for a one-time
promotion for Coors Brewing, aggregated $1,481,470. Sales to
Intel are also on an individual purchase order basis, which is
consistent with Intels policies. The Company does not have
a long-term supply or exclusive provider arrangement with
Intel. Sales to Intel for each of 1994, 1995 and 1996 were
$0, $86,622, and $1,477,016 respectively.
Manufacturing And Production
Much of the Companys machinery and equipment was engineered
and developed by the Company. Technical manufacturing
efficiencies allow the Company to maintain high quality
standards while producing products efficiently. The Companys
introduction of a 60 wide holographic embosser has given
the Company a competitive advantage over the industry norm
of 6 to 30 wide capabilities. Management of the Company
believes this significantly increases the potential
applications for holographic coating. In addition, the
Companys 1996 order of a 50 wide state-of-the-art printing
press will enable it to access a broader market and provide
enhanced service to woodgrain markets and the markets
for Engineered Board. This machine was received in January
1997 and should be fully operational by the beginning of the
third quarter of 1997. The Company has also made investments
in specially made high-speed computerized slitting equipment,
horizontal mills and a solvent recovery system.
In recent years, the Company implemented the Phillip Crosby
Total Quality Management Process throughout its operations.
The Companys top managers have all attended Quality College
and all employees attend intensive, formal quality classes
taught by Quality College graduates. The Company strives to
incorporate a focus on quality throughout the entire
manufacturing process and not simply inspect
the quality of products after-the-fact. This is evidenced in
that the Quality Assurance function reports directly to the
Companys Chief Operating Officer. Regularly scheduled
departmental communications and brainstorming meetings are
held to identify improved methods for production and quality.
The Company obtained ISO 9001 registration from an approved
ISO 9001 accreditation firm in June 1995, which permits the
Company to offer certification programs to its customers,
thereby eliminating the need for the customers to make
incoming inspections of the Companys products
and also providing just-in-time inventory,
reducing
customers inventory carrying costs. The Company also
successfully completed its first ISO 9001 surveillance audit
in May 1996.
ISO 9001 registration requires continuing compliance with a
series of generic standards that provide quality management
direction as well as quality assurance requirements and
guidelines. These standards were originally published in
1987 by the International Standards Organization. The same
standards apply to all service and manufacturing companies.
To maintain ISO 9001 registration, a company must not only
meet the registration standards at the time of initial
registration, but also must meet them on an ongoing basis
during annual inspections. Registration to the standards
provides assurance to customers that a companys quality
systems are consistently capable of providing products that
meet the customers requirements. Management of the Company
believes that registration to one of the ISO 9001 standards
will be required in the future to sell products in the
European Union. In addition, many United States
customers, including the Companys largest client, Baxter
Healthcare Corporation, have acknowledged the value of
registration.
Product Protection
The Companys success is heavily dependent upon its
proprietary formulae and scientific and manufacturing know
how. Accordingly, the Company relies upon trade secrets
and other unpatented proprietary information in its
product development. All employees are parties to an
employment agreement providing for confidentiality and the
assignment of invention rights to innovations developed by
them while employed by the Company. There can be no
assurance that these types of agreements will effectively
prevent disclosure of the Companys confidential information.
In addition, CFC Applied Holographics owns a U.S.
patent on its holographic
computergenerated dot matrix origination process which was
issued on March 1, 1994, and a U.S. patent on its
autostereoscopic hologram production process which was
issued on January 24, 1989.
Competition
CFC competes with a number of companies in the transferable
chemical coatings industry. The Company is aware of only
one competitor which competes with the Company in most of
the Companys markets. Customer criteria for purchase of
products include product quality, innovation and
engineering capability, price, availability, and service.
The Company believes that it competes favorably on these
factors.
Competitors range from small enterprises to
divisions
or subsidiaries of large multi-national conglomerates
with greater financial and management resources than the
Company. CFC uses a partnership approach in its relations
with its major customers. This gives partner customers
preferential scheduling, priority research
and
development, and personalized customer
service.
Partner customers agree to purchase not less than 80% of
their
requirements from CFC and to furnish CFC with continuing
long term procurement projections.
The transferable chemical coatings industry not only
requires specialized knowledge and technology, but is
capital intensive, requiring expensive difficult-to-
construct and difficult-to-operate machinery and equipment.
A
production facility must also comply with stringent
federal, state and local environmental laws and
regulations.
The Company competes with three significant producers of
holographic products in the United States, two of which
have greater financial and management resources than the
Company. The Company believes that the principal factors
affecting competition are the basic design of the
holograms, quick turnaround on art origination,
consistency of embossing, low cost manufacturing, the
quality and brightness of the image, and competitive
pricing.
The Company
believes that it competes favorably on these factors.
Raw Materials And Supplies
The Company is not dependent on any one supplier for any
single raw material.
The Companys suppliers fall into three general groups:
suppliers of plastic film that serve as the carrier
for the Companys specialty coatings; suppliers of chemicals;
and suppliers of packaging materials.
The Company purchases from suppliers on a purchase order
basis, and consequently, has no long term supply contracts.
The Company has not been materially affected by increases
in raw material prices. Management believes that there are
sufficient suppliers of plastic films, chemicals, and
packaging materials in the market to meet its requirements.
Governmental Regulation
The Companys operations are subject to federal, state and
local environmental laws and regulations that impose
limitations on the discharge of pollutants into the air
and water and establish standards for the treatment,
storage and disposal of solid and hazardous
wastes. The Company has installed equipment and
procedures which the Company believes result in
controls substantially in excess of those required for full
compliance with applicable state and federal environmental
requirements. To better control airborne environmental
emissions, the Company installed a stack and afterburner
in 1992, at a cost of $1,014,000, which is currently
designated by EPA standards as Maximum Achievable Control
Technology and which, in tests observed by the Illinois
EPA, resulted in a 100% capture and 99.2% destruction
rate of the airborne pollutants generated by the
Companys manufacturing processes, greatly exceeding the
81.0% EPA standard. Because both technology and applicable
laws and regulations are evolutionary and subject to change,
the Company cannot predict with any certainty the investments
and expenditures which it will be required to make to
comply with these changing laws and regulations.
Employees
As of December 31, 1996, the Company had approximately 183
full time employees. These included 87 in manufacturing,
33 in support
services, 30 in marketing and sales, 17 in research and
development, and
16 in administration and management. None of the Companys
employees is covered by collective bargaining
agreements. The
Company has never experienced a significant work
stoppage and considers its employee relations to be good.
ITEM 2. PROPERTIES
The Company owns a 134,000 square foot building at 500 State
Street in Chicago Heights, Illinois which houses its
corporate headquarters and its primary manufacturing
operations, which
currently utilizes approximately 55% of the buildings
capacity. In the Fall of 1996, the Company completed a
15,000 square foot addition to house its new state-of-the-art
50 wide printing press. The Companys other principal
properties are leased and include the following: a 10,000
square foot warehouse in Chicago Heights; the Companys
14,000 square foot plant, office, finishing and warehouse
facility in Oxnard, California; a 10,000 square foot
warehouse, finishing, and office facility in a suburb of
London, England; and a 2,500 square foot warehouse, finishing
and office facility in Tokyo, Japan.
The
Company considers its properties to be adequate to
conduct its business for the foreseeable future and believes
that it will be able to acquire or lease additional
property, when needed, on terms acceptable to the Company.
ITEM 3. LEGAL PROCEEDINGS
The Companys former parent corporation, Morton
International, Inc. (Morton), has been named by government
environmental agencies as a potentially responsible party
with respect to environmental liabilities at the Fisher-
Calo Superfund Site in Kingsbury, Indiana (the Fisher-Calo
Site). Morton and other potentially responsible parties
entered into a consent agreement in 1991 with such agencies
that provides for the remediation of the site, currently
estimated to cost approximately $40 million, and which
allocates approximately 0.7% of the remediation costs to
Morton. While the Company has been named a potentially
responsible party and a third-party defendant in the
litigation relating to the clean-up of the Fisher-Calo Site,
U.S. v. David B. Fisher, et al, which is pending in the
U.S. District Court for the Northern District of Indiana,
Morton and the Company have reached an agreement whereby
Morton and the Company will share equally in the
remediation cost that is ultimately determined to be
attributable to waste produced by the Companys predecessor.
Based upon such agreement, the Company estimates that its
portion of the remediation costs will be approximately 0.3%
of the
total cost of remediation at the Fisher-Calo Site.
Additionally, the Company and nineteen other parties were
defendants in a law suit which was also pending in the U. S.
District Court for the Northern District of Indiana, Akzo
Coatings et al v. Aigner Corp. et al, pursuant to
which the plaintiffs were seeking reimbursement for some
portion of the $1 million spent for clean-up of the Fisher-
Calo Site outside of the aforementioned settlement. The
Company paid $4,000 in full settlement of this suit in
1995. The Company has an accrued liability of $245,000
related to these matters at December 31, 1996 and,
although the actual cost of remediation for the Fisher-
Calo Site may prove to be more or less than $40 million,
it is managements opinion, based upon investigation of
the quantities and types of waste
and the other parties involved, that the Companys share of
any liability will not substantially exceed the amount
accrued at December 31, 1996. The
adequacy of this reserve is reviewed periodically as more
definitive information becomes available.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Companys common stock, par value $.01 per share
(Common Stock), is traded in the Nasdaq National Market tier
of The Nasdaq Stock Market (Nasdaq), under the symbol CFCI.
The Common Stock began trading on Nasdaq on November 17, 1995
in connection with the Companys initial public offering
(IPO) of the Common Stock. On
December 31, 1996, the last reported sale price of the Common
Stock on the Nasdaq National Market was $11.25 per share.
At March 21, 1996, there were approximately 1,312 record
holders of the Common Stock. The table below sets for
the high and low sales prices of
shares of Commons Stock on the Nasdaq National Market as
reported
by Nasdaq for the periods indicated.
Market Information
Price per Share
of Common
Stock
High
Low Year Ended December 31, 1995
4th Quarter (1) 10.25
8.625
Year Ended December 31, 1996
1st Quarter 12.00
8.875
2nd Quarter 18.00
11.750
3rd Quarter 17.00
11.750
4th Quarter 13.75
10.000
____________________
(1) The price range of Common Stock for this period
begins on November 17, 1995.
The Company has not paid any dividends other than (i)
dividends on its Common Stock to permit stockholders to
pay taxes on their proportional share of the Companys
income during the period the Company was an S-Corporation
for federal and state income tax purposes; (ii) a dividend
to permit repayment of loans made by the Company to its
stockholders in connection with their purchase of minority
interests in three of the Companys subsidiaries; and (iii) an
S-Corporation dividend to its then existing stockholders of
an aggregate amount of $4,500,000 (the S-Corporation Dividend)
which SCorporation Dividend was paid immediately following the
closing of the IPO using a portion of the net proceeds
of the IPO.
The
aggregate amount of the S-Corporation Dividend
represented the estimated undistributed earnings of the
Company through the closing date of the IPO. The Company
intends to retain its earnings to finance its growth and for
general corporate purposes and therefore does not anticipate
paying any cash dividends in the foreseeable future. The
declaration and payment of any future dividends will be
subject to the
discretion
of the Board of Directors of the Company. In addition,
the Companys bank credit facility prohibits the payment
of cash dividends. See Item 7. Managements Discussion
and Analysis of Financial Condition and
Results
of
OperationsLiquidity and Capital Resources. Any
determination as to the payment of dividends in the future
will depend upon results of operations, capital
requirements, restrictions in loan agreements, if any, and
such other factors as the Board of Directors may deem
relevant at the time.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below has been
derived from the financial statements of the Company. The
financial statements for each of the years in the five-
year period ended December 31, 1996,
have been audited by
Price Waterhouse LLP, independent
accountants, whose report for the years ended December 31,
1994, 1995 and 1996 appears elsewhere in this report.
The selected financial data at and for the fiscal year ended
December 31, 1992 are derived from unaudited financial
statements which, in the opinion of management, include all
adjustments necessary to present fairly the data for such
periods. The unaudited pro forma data have been derived
from the financial statements of the Company and adjusted
to reflect a provision for income taxes as if the Company had
been a C-Corporation since inception and further adjusted
to reflect the sale by the
Company of Common Stock in the IPO. This selected
financial
data should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results
of Operations and the financial statements and related
notes thereto appearing elsewhere in this report.
Year Ended December
31, 1992 1993 1994 1995
1996
(In thousands,
except per
share data)
Income Statement Data:
Net sales $22,394$25,328 $27,808
$34,177$37,227 Cost of sales 13,410 14,940
16,469 20,103 22,985 Gross profit 8,984
10,388 11,339 14,074 14,242 Selling, general and
administrative 6,478 6,537
7,152
7,243 7,863
Research and development 707 1,019 1,062 1,109
1,304
Operating income 1,799 2,832 3,125 5,722
5,075 Interest expense 575 572 669 705
229
Other (income) expense - - (5)
(12)
17
Income before taxes and minority interest 1,224
2,260 2,461
5,029 4,829
Provision (benefit) for income taxes (1) (491)
155 162
1,669 1,831
Minority interest in net income (loss) (195) (270)
(214)
210 15
Income from continuing operations 1,910 2,375 2,513
3,150
2,983
Discontinued operations:
Loss from discontinued operations -
(758)
- - - -
Loss on disposal of discontinued operations
- -
(260) - - -
Net income $ 1,910$ 1,357 $ 2,513 $ 3,150$
2,983
Pro forma net income from continuing
operations (1996 actual) $ 785$ 1,425 $ 1,463$
3,252
$ 2,983
Pro forma net income from continuing
operations per share (1996 actual) (2) - -$
0.44
$
0.95 $ 0.66
Year Ended December
31, 1992 1993 1994 1995
1996
(In thousands, except
per share data)
Pro forma weighted average number of shares
of common stock and equivalents outstanding
(1996 actual) - - 3,302 3,432
4,517
Pro forma net income from continuing
operations, as adjusted (1996 actual) (2) (3)
- - $ 1,694$ 3,522$ 2,983
Pro forma net income from continuing operations
per share, as adjusted (1996 actual) (2) (3) -
$ 0.38 $ 0.78 $ 0.66
Pro forma weighted average number of shares
of common stock and equivalents outstanding,
as adjusted (1996 actual) (3) (4) - -
4,502 4,501 4,517
Other Data:
Capital expenditures $ 1,900$ 1,937 $ 1,591 $ 1,092$
3,862 Depreciation and amortization 869 1,107 1,249
1,423 1,535
EBITDA (5) 2,668 2,831 4,379 7,157
6,593
Balance Sheet Data (at period end):
Working capital $ 3,276$ 4,455 $ 5,973 $ 7,950$
10,635 Total assets 16,112 17,718 19,937
23,269 28,206 Total debt (6) 7,985 8,793 9,252
2,110 5,932 Stockholders equity 3,714 4,152 5,785
11,953 15,078 ________________
(1) The Company became an S-Corporation for federal and
certain
state income tax purposes as of June 1, 1992, and effective upon
the consummation of the IPO, became a C-Corporation.
(2) Pro forma net income from continuing operations for the
periods 1992 through 1995, reflects an adjustment to show
assumed federal and state income taxes based on statutory
(federal and state) tax rates for the periods during which the
Company was treated as an S Corporation. No tax benefit is
reflected for losses of the Companys holographics joint
venture, which resulted in a net operating loss carry-
forward which the Company started to use as profits were
generated beginning in 1995. The pro forma net income from
continuing operations in 1992, 1993, and 1994 would have been
$822,000, $1,554,000 and $1,625,000 if the tax benefits of
these losses were reflected at the assumed tax rates.
(3) Adjusted to give effect to the sale by the Company of
Common
Stock in the IPO as of the beginning of the period and the use
of the proceeds therefrom.
(4) Adjusted to give effect to the issuance of 34,736 shares of
Common Stock in exchange for the minority interest in the
Companys subsidiaries.
(5) EBITDA as used herein means earnings before interest
expense, interest income, taxes, depreciation, and amortization
and excludes minority interests.
(6) Includes current and long-term portions of debt.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company formulates, manufactures, and sells chemically
complex, transferable multi-layer coatings for use in many
diversified markets such as furniture and building products,
pharmaceutical products, transaction cards (including credit
cards, debit cards, ATM cards, and access cards), and on
holographic authentication seals. The Companys net sales
increased 66.1% from $22.4 million in 1992 to $37.2 million
in 1996. During that period, the Company realized sales dollar
growth in all of its major product lines. The Companys
operating income more than doubled over this four-year period,
increased from $1.8 million, or 8.0%
of net sales in 1992 to
$5.1 million, or 13.6% of net sales in 1996.
The Company has experienced, and expects to continue
experiencing, shifts in the relative sales and growth of its
various products over time. The Company believes that such
shifts are in the ordinary course of business and are
indicative of its focus on specific niche markets. During the
period from 1992 to 1996, printed products sales rose from
19.6% to 39.3% of net sales.
Pharmaceutical products sales
declined from 26.2% in 1992 to 21.2% of net sales in
1996 due to the growth of other product lines.
Actual pharmaceutical product sales increased from $5.9 million
in 1992 to $7.9 million in 1996, or an increase of 35.5% over
that four-year period. Security products sales increased from
6.9% in 1992 to 10.3% of net sales in 1996. Holographic
products grew from 3.5% in 1992 to 11.6% of net sales in 1996.
The Companys gross profit reflects all direct product costs
and direct labor, quality control, shipping and receiving,
maintenance, process engineering, plant management, and a
substantial portion of the Companys depreciation expense.
Selling, general and administrative expenses are
primarily composed of sales representatives salaries and
related expenses, commissions to sales representatives,
advertising costs, management compensation and corporate
audit and legal expense. Research and development
expenses include salaries of technicalpersonnel, related
depreciation, and experimental materials.
Results of Operation
The following table sets forth, for the periods indicated,
certain items from the Companys financial statements as a
percentage of net sales for such periods:
December 31,
1994 1995
1996
Net sales 100.0% 100.0%
100.0%
Cost of sales 59.2 58.8
61.7
Gross profit 40.8 41.2
38.3
Selling, general and administrative 25.8 21.2
21.2
Research and development 3.8
3.3
3.5
Operating income 11.2 16.7
13.6
Interest expense and other
2.4
2.0 0.6
Income before taxes and minority interest
8.8
14.7 13.0
Provision for income taxes 0.6 4.9
4.9
Minority interest (0.8) 0.6
0.1
Discontinued operations - -
- -
Net income 9.0% 9.2%
8.0%
1996 Compared to 1995
Net sales for the year ended December 31, 1996 increased
8.9% to $37.2 million from $34.2 million for the year ended
December 31, 1995. Printed products sales increased 23.0% to
$14.6 million from $11.9 million primarily due to an increase
in the Companys market share. Pharmaceutical product sales
increased 3.8% to
$7.9 million from $7.6 million. Security products
(magstripe, signature panels,
and tipping products for credit cards) sales increased 13.7%
to $3.8 million from $3.4 million. This increase is
primarily due to the Companys enhanced magstripe products.
Sales of other pigmented and simulated metal products
decreased .9% to $6.5 million from $6.6 million, primarily
due to the Company choosing not to produce low margin
products. Holographic product sales decreased 8.0% to $4.3
million for the year ended December 31, 1996 compared to
$4.7 million for the year ended December 31, 1995,
primarily due
to
Microsofts Windows `95 being delivered to the marketplace in
1995 with no similarly-sized sales during 1996.
Gross profit for the year ended December 31, 1996 increased
1.2% to
$14.2 million from $14.1 million for the year ended
December 31, 1995. The increase in gross profit was
attributable to the growth in sales, offset by increased
product start-up costs due to new technology relating to the
introduction by the Company of a new product for the
manufactured housing industry in the third quarter. The gross
profit margin for
the year ended December 31, 1996 decreased to 38.3% from
41.2% for the year ended December 31, 1995. This decrease
in margin is primarily due to the product start-up costs in
the third quarter of 1996 discussed above. Although the
Company does not fully allocate all costs on a product line
basis, the Company believes that its gross profit margin
typically is not substantially different for any of its major
product categories. Selling, general and administrative
expenses for the year ended December 31, 1996 increased to
$7.9 million from $7.2 million for the year ended December
31, 1995. This increase is primarily due to the onetime
investment by the Company to engage the services of a
consulting firm to develop a marketing strategy for the
Pacific Rim and also due to the addition of sales and
marketing resources for the Pacific Rim. Selling, general
and administrative expenses for the year ended December 31,
1996 did not change as a percentage
of
net sales at 21.1%.
Research and development expenses for the year ended
December 31, 1996 increased
17.6% to $1,304,000 from $1,109,000 for the year
ended December 31, 1995. Research and development expenses
for the year ended December 31, 1996 increased as a
percentage of net sales to 3.5% from 3.3% for the
year ended December 31, 1995.
This
percentage increase was primarily due to the increase in
holographic research and development.
Operating income for the year ended December 31, 1996
decreased 11.3% to $5.1 million from $5.7 million for the
year ended December 31, 1995. Operating income for the year
ended December 31, 1996 decreased as a percentage of net
sales to 13.6% from 16.7% for the year ended December 31,
1995. The decrease was primarily a result of an increase
in product start-up costs due to new technology introduced
to the manufactured housing industry in the third quarter and
an increase in expenses resulting primarily from a one-time
investment whereby the Company engaged the services of a
consulting firm to develop the Companys marketing strategy for
the Pacific Rim and the addition of sales and marketing
resources for that area
of
the world.
Interest expenses for the year ended December 31, 1996
decreased 67.5% to $229,000 from $705,000 for the year
ended December 31, 1995. The decrease in interest expense
resulted from the Company paying off its revolving loan in
the amount of $3.6 million and a machinery and equipment
loan of $1.6 million on November 22, 1995 with the proceeds
of the IPO.
Income taxes for the year ended December 31, 1996 increased
9.7% to
$1,831,000 from $1,669,000 for the year ended December 31,
1995. This increase was primarily the result of the Company
no longer being treated as an S-Corporation for federal and
certain state
income tax purposes following the IPO. The termination
of the Companys S-Corporation status on November 22, 1995
required the Company to establish a provision of
$1,148,247 for cumulative deferred taxes.
Net income for the year ended December 31, 1996 decreased
5.3% to
$3.0 million from $3.2 million for the year ended December 31,
1995. This decrease was primarily due to increased product
startup costs related to new technology introduced to the
manufacturing housing industry in the third quarter of 1996
and an increase in selling, general and administrative
expenses which were the result of a onetime investment
whereby the Company engaged a consulting firm
to develop a marketing strategy for the Pacific Rim and the
addition of sales and marketing resources for that region.
Net income for the year ended December 31, 1996 decreased 8.3%
to $3.0 million from pro forma $3.3 million for the year
ended December 31, 1995, due primarily to the product
startup costs and costs incurred to develop a marketing
strategy for the Pacific Rim as discussed above.
The pro-forma net income of $3.3 million assumes the Company
had been a C-Corporation throughout 1995.
1995 Compared to 1994
Net sales for the year ended December 31, 1995 increased
22.9% to
$34.2 million from $27.8 million for the year ended
December 31, 1994. Printed product sales increased 52.0% to
$11.9 million
from $7.8 million primarily due to an increase in the
Companys market share. Pharmaceutical product sales increased
18.9% to $7.6 million from $6.4 million, primarily due to
increased international demand by Baxter. Security
product (magstripe, signature panels, and tipping products
for credit cards) sales increased 43.3% to $3.4
million from $2.4 million. This increase is primarily a
one time increase due to enhanced product features
including covert and additional security features required
for MasterCard signature panels.
MasterCard changed its specifications in order to permit
credit cards with three-year expiration dates as compared
to the previous card format with two-year expiration dates.
Sales of other pigmented and simulated metal products
decreased 26.3% to $6.6
million from $9.0 million, primarily due to the gross
margin for certain products declining below a level at which
the Company wants to compete. Holographic product sales
increased 107.7% to $4.7
million for the year ended December 31, 1995 compared to
$2.3 million for the year ended December 31, 1994, primarily
due to the start up of Microsofts Windows `95 being
delivered to the
marketplace in August, 1995.
Gross profit for the year ended December 31, 1995 increased
24.1% to $14.1 million from $11.3 million for the year ended
December 31, 1994. The increase in gross profit was
attributable to the
growth in sales and reduced costs. The gross profit margin
for the year ended December 31, 1995 increased to 41.2% from
40.8%
for the year ended December 31, 1994. Although the
Company does not fully allocate all costs on a product
line basis, the Company believes thatits gross profit
margin typically is not substantially
different for any of its major product categories.
Selling, general and administrative expenses for the year
ended December 31, 1995 increased 1.3% to $7.3 million from
$7.2 million for the year ended December 31, 1994.
Selling, general and administrative expenses for the year
ended December 31, 1995 decreased as a percentage of net
sales
to 21.2% from 25.7% for the
year ended December 31, 1994. This percentage decrease
was
primarily due to the increase in net sales.
Research and development expenses for the year ended
December 31, 1995 increased 4.5% to $1,109,000 from $1,062,000
for the year ended
December 31, 1994. Research and development expenses for the
year ended December 31, 1995 decreased as a percentage of net
sales to 3.3% from 3.8% for the year ended December
31, 1994. This
percentage decrease was primarily due to the increase in net
sales.
Operating income for the year ended December 31, 1995
increased 83.1% to $5.7 million from $3.1 million for the
year ended December 31, 1994. Operating income for the year
ended December 31, 1995 increased as a percentage of net
sales to 16.7% from 11.2% for the year ended December 31,
1994. The increase was primarily a result of lower costs and
economies of scale.
Interest expense for the year ended December 31, 1995
increased 5.4% to $705,000 from $669,000 for the year ended
December 31, 1994. This increase was due to the average prime
rate increasing to 8.75%
during the period from 6.75% in the prior year period.
However, a 6.95% swap on $2,000,000 of revolving debt which
expired in October, 1995 reduced interest expense
approximately $30,000 during the year ended December 31,
1995. Interest expense also increased due to increased
average borrowings to support additional working capital of
$1.3 million. This increase was used to support an increase
in inventory for European sales. The Company used the
proceeds of the IPO to pay off its revolving loan in the
amount of $3.9 million and the machinery and equipment loan of
$1.6 million.
Income taxes for the year ended December 31, 1995
increased to $1,669,000 from $162,000 for the year ended
December 31, 1994. This increase was primarily the result of
the Company no longer being treated as an S-Corporation for
federal and certain state income tax purposes following the
IPO. The termination of the Companys SCorporation status
on November 22, 1995 required the Company to establish a
provision of $1,148,247 for cumulative deferred taxes.
Net income for the year ended December 31, 1995 increased
25.4% to $3.2 million from $2.5 million for the year ended
December 31, 1994. The increase was primarily a result of
higher net sales and controlling costs. On a pro forma
basis as if the Company had always been a C-Corporation
for income tax purpose, net income increased 122.3% to $3.3
million in 1995 from $1.5 million in 1994.
Quarterly Results of Operations
The following table presents unaudited financial results for
each of the eight quarters in the period ended December 31,
1996. This
data has been prepared on a basis consistent with the
audited financial statements appearing elsewhere in this
report, and in the opinion of management, includes all
necessary adjustments (consisting only of normal recurring
adjustments) required to present fairly the unaudited
combined quarterly results when read in conjunction with the
audited combined financial statements of the Company and
notes thereto appearing
elsewhere in this report. The results of operations for
any quarter are not necessarily indicative of results to be
expected for any future period.
Quarter Ended
Mar. 31 June 30 Sept. 30
Dec.
31 Mar. 31 June 30 Sept. 30 Dec. 31
1995
1995 1995 1995 1996
1996
1996 1996
Net sales
$7,758$8,233$9,027$9,160$9,540$9,886$8,282$9,519
Cost of sales 4,3844,8255,265 5,630 5,6345,703 5,555
6,093
Gross profit 3,374 3,4083,762 3,530 3,9064,183
2,7273,426
Selling, general and administrative
expense 1,953 2,0352,150 2,214 2,1612,239
2,6442,123 Operating income 1,421 1,3731,612 1,316
1,7451,944 831,303
Interest expense 187 201 177 141 60 62 59
48
Other (income) and expense - (8) -
(4)
16 1 - -
Income before taxes and minority
interest 1,234 1,1801,435 1,179 1,6691,881
241,255
Provision for income taxes 73 50 451,500
646705
18 462
Minority interest - 70 129 11 -
69
(56) 2
Net income (loss) $1,161$1,060$1,261$
(332)$1,023$1,107$ 62
$
791
Percentage of Net Sales
Net sales
100.0%100.0%100.0%100.0%100.0%100.0%100.0%100.0% Cost of sales
56.5 58.6 58.3 61.5 59.1 57.767.1 64.0
Gross profit 43.5 41.4 41.7 38.5 40.9 42.3 32.9
36.0
Selling, general and administrative
Expense 25.2 24.7 23.8 24.2 22.6 22.6
31.9
22.3
Operating income 18.3 16.7 17.9 14.4 18.3 19.7 1.0
13.7
Interest expense 2.4 2.4 2.0 1.5 0.6 0.7 0.7
0.5
Other (income) and expense - (.1) - (.0) 0.2
- -
- - -
Income before taxes and minority
interest 15.9 14.3 15.9 12.9 17.5 19.0 .3
13.2
Provision for income taxes 0.9 0.6 0.5 16.4 6.8
7.1
.3 4.9
Minority interest - 0.9 1.4 0.1 - 0.7
(.7)
- -
Net income (loss) 15.0 12.9 14.0 (3.6) 10.7 11.2
.7
8.3
The fourth quarter sales for 1995 and 1996 have been stronger
than
the third quarter sales, primarily due to the growth in
printed
coating products. Offsetting this increase, however, is a
seasonal decrease in pharmaceutical product sales, as people
typically defer elective surgeries between Thanksgiving
and New Years. In
addition, many of the Companys customers attempt to reduce
their inventories prior to the calendar year end.
Consequently, first quarter sales are typically stronger
than the preceding fourth quarter. The gross profit in the
third quarter of 1996 was lower due to unusually
high
start-up costs due to new technology relating
to the introduction by the Company of a new product
for the manufactured housing industry and lower sales
volume
(spreading fixed costs over fewer units). Selling, general
and administrative expense increased as a result of a one-
time investment whereby the Company engaged the services of
a consulting firm to develop a marketing strategy for the
Pacific Rim and approximately $100,000 of service costs due
to the re-engineering of manufacturing functions. The
net loss in the fourth quarter of 1995 was due to the
termination of the Companys S-Corporation tax status and
the resultant recording of deferred taxes of $1,148,247.
Liquidity and Capital Resources
The Companys primary sources of working capital have been net
cash
provided by operating activities and net borrowings under
various loan agreements. Net cash provided by operating
activities was $1,716,000, $5,193,000 and $2,451,000 for the
years ended December 31, 1994, 1995 and
1996 respectively. The decline in net cash
provided by operating activities in 1996 was largely
attributable to the increase in working capital from $7.9
million at December 31,
1995 to $10.6 million at December 31, 1996. This
increase
is
primarily due to managements decision to increase inventory
levels
by approximately $734,000 to support anticipated demand from
certain key customers and product lines. Other
components of working capital increased due primarily to a
net reduction in the current liabilities relating to: the
payment of a dividend of approximately $800,000 to the pre-
IPO shareholders in 1996 for their share of taxes on the
Companys SCorporation income and a $523,000 reduction in
accrued bonus and gain share obligations pursuant to the
Companys employee bonus plan and gain share plan.
The Companys capital expenditures totaled approximately
$1,591,000, $1,092,000, and $3,862,000 for the years ended
December 31, 1994, 1995 and 1996 respectively, and
included the following: the
acquisition of the 60 wide embosser for holographic
coatings in 1994; the acquisition of high speed computerized
slitting equipment in 1995; and, progress payments for the
new 50 wide printing press in 1996. To fund their income tax
liabilities on the Companys net income and
the
repayment of stockholder loans, the Company previously
made S-Corporation dividends to its existing stockholders of
$5,775,000 and $800,000 in the years ended
December 31, 1995 and 1996, respectively, which included a
special $4.5 million SCorporation dividend paid
immediately prior to the closing of the IPO in 1995.
In June 1996, the Company received proceeds of
approximately $4,005,000 pursuant to an Illinois Revenue
Bond financing, which matures in 2008. These proceeds
are being
used to finance the acquisition of the new 50 wide
printing press and related plant additions to ensure
capacity for the continued growth of the Companys printed
products line. At December 31, 1996, $1.5 million of this
borrowing had not been used. This unused portion of the
borrowings was classified as restricted cash and was
invested in short-term investments. The Company incurred
$168,000 of costs associated with the issuance of the
bonds, which will be amortized over twelve years.
The Companys revolving credit agreement with a bank (the
Credit Facility) provides for borrowings under a revolving
credit loan of specified percentages of eligible accounts
receivable and inventory, with total borrowings not to
exceed $5,500,000. The principal balance of the revolving
credit loan was zero at December 31, 1996. The revolving
credit loan expired February 1, 1997 and bore interest at the
banks prime rate (8.25% at December 31, 1996) or, at the
Companys option, at LIBOR (5 17/32% at December 31, 1996)
plus 2.5%. The Credit Facility was renewed as an unsecured
facility with total borrowings not to exceed $4,500,000,
expiring April 1, 1998, and bears interest at the banks prime
rate or, at the Companys option, at LIBOR plus 1%. A .25%
fee applies for undrawn funds. The Credit Facility also
provides for two term loans. The
outstanding principal balance of term loan A was $1,742,000 as
of December 31, 1996 and was due April 1, 1997. Term loan
A was extended until February 1, 1999. Interest on term loan
A accrues at the banks prime rate plus 0.25%, but not to
exceed 9.5%. All
amounts outstanding on the Companys term loan B were repaid
in 1995. The Credit Facility contains covenants which limit
aggregate annual lease payments to $500,000 and capital
expenditures to $2.5 million and prohibit the declaration
of dividends (other than SCorporation dividends and the
1995 $4.5 million S-Corporation Dividend) and transactions
between the Company and its affiliates. It is also an
event of default under the Credit Facility if the Company
incurs any net losses for any fiscal period.
The bank
waived the capital expenditure covenant for the
purposes of
acquisition of the new 50 press and related property
developments in 1996.
The Company believes that the net cash provided by
operating activities and amounts available under the
Credit Facility are
sufficient to finance the Companys growth.
Seasonality and Impact of Inflation
Historically, the Company has experienced lower net sales
levels during the fourth quarter and increased net sales
levels during the following first quarter. This is due to
typical yearend depletion of inventories by the Companys
customers. It is
also due in large part to the holidays at the end of the
year, as the Companys customers have an increased number
of holiday plant closings.
In
addition, fourth quarter pharmaceutical
product sales generally are lower as a result of the
postponement of elective surgeries during holiday periods.
However, due to the strong growth of printed
products, the fourth quarter sales have been greater than the
third quarter sales in each of the last two years.
Inflation has not had a material impact on the Companys net
sales or income to date. However, there can be no
assurance that the Companys business will not be affected by
inflation in the future.
Recently Issued Accounting Standards
The FASB has issued Statement of Financial Account Standard
No. 123, Accounting for Stock Based Compensation, which became
effective in 1996. This Statement establishes an
alternative to the Companys current method of accounting for
compensation associated with stock issued to employees.
Management did not adopt the alternative method allowed by
SFAS No. 123. Accordingly, adoption of this Statement
required additional financial statement footnote
disclosures to describe the Companys stock-based compensation.
Special Note on Forward-Looking Statements
The statements contained in this report that are not
historical facts are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of
1995. A number of important factors could cause the
Companys actual results for future periods to differ
materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company. These
factors include, among other things: continuation of market
growth trends; reliance on a single manufacturing facility;
reliance on key personnel; control by the principal
shareholder; the Companys reliance on significant customers;
the Companys ability to develop new products and protect the
proprietary formulae and technology related to its
products; the Companys ability to be competitive with other
producers of specialty transferable coatings and alternative
products; fluctuations in foreign currency exchange rates and
their impact on the level and profitability of foreign
sales; and general economic conditions as they may impact
the Companys customers.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page Report of Independent Accountants
23
Consolidated Balance Sheets at December 31, 1996 and 1995
24
Consolidated Statements of Income for the years ended December
31, 1996, 1995 and 1994
25
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
26
Consolidated Statements of Stockholders Equity for the
years ended December 31, 1996, 1995 and 1994
27
Notes to Consolidated Financial Statements at December 31,
1996 28
Financial Statement Schedules
Schedule II --- Valuation and Qualifying Accounts
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission have been omitted because they are
not required under the related instructions, are not
applicable, or the information has been provided in the
Financial Statements or the notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
CFC International, Inc.
In our opinion, the consolidated financial statements listed
in the accompanying index present fairly, in all material
respects, the financial position of CFC International, Inc.,
and its subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
These financial statements are the responsibility of the
Companys management; our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits of these statements in
accordance with
generally accepted auditing standards which 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, assessing the
accounting principles used and significant estimates
made by management, and evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Chicago, Illinois
February 7, 1997
CFC INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
December
31, 1996
1995
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $927,703 $
916,480
Accounts receivable, less allowance for doubtful accounts of
$565,000 and $348,000 respectively 5,996,657
5,915,409
Employee receivable 220,833
163,093
Inventories (Notes 1 and 3):
Raw materials 837,307
1,159,340
Work in process 1,086,308
919,268
Finished goods 5,142,558
4,254,109
7,066,173
6,332,717
Prepaid expenses and other current assets 392,593
357,257
Deferred income taxes 663,520
651
,141
Total current assets 15,267,479
14,336,097
Property, plant and equipment, net (Notes 1, 3 and 4)
10,866,717 8,479,597
Other assets 561,085
453,725
Restricted cash (Note 3) 1,510,827
- -
Total assets $28,206,108
$23,269,419
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 3)
.....................
$ 368,124 $172,655
Accounts payable 2,558,486
2,181,102
Accrued environmental liability (Note 10)
244,937
300,000
Dividend payable 0
800,000
Accrued bonus 200,290
724,000
Accrued vacation 236,422
244,212
Other accrued expenses and current liabilities
1,024,507
1,964,512
Total current liabilities
4,632,766
6,386,481
Deferred income taxes
1,785,740
1,799,388
Long-term debt (Note 3) 5,564,027
1,937,139
Minority interest in CFC Applied Holographics (Note
9) 1,145,240
1,192,952
Total liabilities
13,127,773
11,315,960
STOCKHOLDERS EQUITY:
Voting Preferred Stock, par value $.01 per share, 750 shares
authorized,
no shares issued and outstanding -
- -
Common stock, $.01 par value, 10,000,000 shares authorized;
4,132,605
and 4,118,491 shares issued at December 31, 1996 and
1995 respectively 41,326
41,184
Class B common stock, $.01 par value, 750,000 shares
authorized; 534,030 and 534,030 shares issued and
outstanding at December
31,
1996 and 1995 respectively 5,340
5,340
Additional paid-in capital 10,139,248
10,027,677
Retained earnings 5,110,647
2,127,177
Cumulative translation adjustment (27,891)
(57,584)
15,268,670 12,143,794
Less 156,142 treasury shares of common stock, at cost at December 31,
1996 and 1995 respectively (190,335)
(190,335)
15,078,335 11,953,459
CONTINGENCIES (Note 10)
Total liabilities and stockholders equity $28,206,108 $
23,269,419
The accompanying notes are an integral part of the financial
statements.
CFC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
December 31,
1996 1995 1994 Net
sales $37,227,333 $
34,177,344 $ 27,808,314
Cost of goods sold 22,984,895 20,103,407
16,469,036
Gross profit 14,242,438 14,073,937
11,339,278
Marketing and selling expenses 4,082,588 3,746,807 3,270,938
General and administrative expenses 3,615,341 3,228,052 3,553,546
Research and development expenses 1,304,304 1,109,247 1,061,697
Patent litigation expenses 164,590 267,910 328,000
9,166,823 8,352,016 8,214,181
Operating income 5,075,615 5,721,921 3,125,097
Other (income) expenses:
Interest 228,909 705,250 669,018
Miscellaneous 16,962 (12,274) (4,485)
245,871 692,976 664,533
Income before income taxes and minority interest 4,829,744
5,028,945 2,460,564
Provision for income taxes (Note 2) 1,831,141 1,668,874 162,000
2,998,603 3,360,071 2,298,564
Minority interest in (income) loss of CFC Applied Holographics
(15,133) (209,869) 214,457
Net income $2,983,470 $3,150,202$
2,513,021
Unaudited pro forma data (Note 2):
Income before income taxes and minority interest $
5,028,945 $
2,460,564
Provision for income taxes 1,567,000 1,212,000
3,461,945 1,248,564
Minority interest in loss (income) of CFC Applied
Holographics (209,869) 214,457
Pro forma net income $3,252,076
$
1,463,021
Net Income and pro forma net income per share $ 0.66
$
0.95 $ 0.44
Weighted average number of common stock and common stock
equivalents used in the net income and pro forma net
income
per share calculation 4,516,601
3,431,618
3,301,736
Supplemental pro forma net income per share $
0.78$0.38
Weighted average number of common stock and common stock
equivalents used in the supplemental pro forma net
income per share calculation
4,501,183
4,501,736
The accompanying notes are an integral part of the
financial statements.
CFC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31,
1996
1995
1994
Cash flow from operating activities:
Net income $2,983,470
$
3,150,202 $ 2,513,021
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
1,535,396 1,423,043 1,249,087
Deferred income taxes (26,027) 1,148,247
- -
Minority interest in CFC Applied Holographics
15,133
209,869 (214,457)
Changes in assets and liabilities:
Accounts receivable (81,248) (1,681,651)
(635,988)
Inventories (733,456) (325,623) (1,170,871)
Employee receivable (57,740) (163,093)
- -
Prepaid expenses and other current assets
(35,336)
(113,016) 405,173
Accounts payable 377,384 (64,483)
(398,687)
Accrued bonus (523,710) 609,000
83,000
Accrued environmental liability (55,063) -
- -
Accrued expenses and other current
liabilities (947,795) 1,000,520
(114,728)
Net cash provided by operating
activities 2,451,008
5,193,015 1,715,550
Cash flows from investing activities:
Additions to property, plant and equipment
(3,861,876) (1,091,993)
(1,590,720)
Restricted cash (1,510,827) -
- -
Increase in other assets (87,900) -
(180,025)
Net cash used in investing activities ( 5,460,603)
(1,091,993)
(1,770,745)
Cash flows from financing activities:
Proceeds from revolving credit agreements 3,775,157
18,771,000
21,679,000
Repayments of revolving credit agreements (3,775,157)
(23,486,004)
(20,521,695)
Borrowings under term loans - -
110,000
Repayment of term loans (111,504) (2,551,964)
(771,044)
Borrowing under Illinois Revenue Bond, net
3,924,900 - -
Repayment of capital lease (71,139) (31,665)
(48,237)
Other borrowings - -
10,985
Minority interest contribution (payments) (62,845) (47,468)
311,771
Proceeds from issuance of common stock 111,713 9,728,931 -
Tax benefits from exercise of stock options -
22,935
- -
Distributions to stockholders (800,000) (5,755,197)
(971,200)
Net cash (used in) provided by financing activities 2,991,125
(3,349,432)
(200,420)
Effect of exchange rate changes on cash and cash equivalents
29,693
(6,159) 90,837
Increase (decrease) in cash and cash equivalents 11,223
745,431 (164,778)
Cash and cash equivalents:
Beginning of period 916,480 171,049 335,827
End of period $927,703 $916,480
$171,049
The accompanying notes are an integral part of the financial
statements.
CFC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Class BAdditional Cumulative
Total
Commoncommonpaid-in Retainedtranslation
Treasury
stockholders
stock stock capital earnings
adjustment
stock equity
Balance at December 31, 1993 $ 27,141$ 6,408 $ 239,515 $4,160,958
$ (142,262) $ (139,444) $4,152,316
Net income 2,513,021
2,513,021
Distributions to stockholders
(971,200) (971,200)
Foreign currency translation
adjustment 90,837 90,837
Balance at December 31, 1994 $ 27,141$ 6,408 $ 239,515 $5,702,779
$ (51,425) $ (139,444) $5,784,974
Net income 3,150,202
3,150,202
Distributions to stockholders (2,055,197)
(2,055,197)
Exercise of options, including
tax benefit 628 124,089 (50,891)
73,826
Net proceeds from initial public
offering 12,000 9,493,813
9,505,813
S-Corporation dividend (4,500,000)
(4,500,000)
Repurchase of 21% interest
in subsidiaries 347 (347)
- -
Foreign currency translation
adjustment (6,159) (6,159)
Conversion of Class B common
stock to common stock 1,068 (1,068)
- -
Undistributed S-Corporation
earnings 170,260 (170,260)
- -
Balance at December 31, 1995 $ 41,184$ 5,340 $ 10,027,677 $
2,127,177
$ (57,584) $ (190,335) $ 11,953,459
Net income 2,983,470
2,983,470
Employee Stock Purchases 142 111,571
111,713
Foreign currency translation
adjustment 29,693 29,693
Balance at December 31, 1996 $ 41,326$ 5,340 $ 10,139,248
$ 5,110,647
$ (27,891) $ (190,335) $ 15,078,335
The accompanying notes are an integral part of the financial
statements.
CFC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business and principles of consolidation.
CFC
International, Inc. (the Company) manufactures and sells
coated film products and holograms. Its customers are
primarily companies in the consumer products and medical
supply industries. One
pharmaceutical customer accounted for approximately 12, 13,
and 15 percent of net sales during 1996, 1995 and 1994,
respectively. Additionally, a second customer in the
packaging business accounted for approximately 4 percent of
net sales during 1996. The Company has no significant
concentrations of credit risk.
During 1992, the Company sold 21% interests in its
subsidiaries CFC International, Ltd. (U.K.), CFC Management,
Inc. (see Note 9) and CFC International Sales, Inc. to the
Companys stockholders at net book value, and elected S-
Corporation
status for federal income tax purposes.
The financial statements include the accounts of the
Company and its subsidiaries as if they were wholly-owned for
all periods presented because of the common ownership of
the Company and its subsidiaries. The Company reacquired the
21% interests in its subsidiaries prior to the closing
of the initial public offering of 1,200,000 shares of its
common stock at $9.50 per share in November 1995. All
significant intercompany transactions have been eliminated.
For purposes of description, all financial statements are
referred to as consolidated.
Inventories. Inventories are stated at the lower of
cost or market, cost being determined on the first-in,
first-out (FIFO) basis.
Property, plant and equipment. Property, plant and
equipment are recorded at cost. The straight-line method
is used to compute depreciation for financial reporting
purposes. Major improvements and betterments are
capitalized while maintenance and repairs that do not extend
the useful life of the applicable assets are charged to
income as incurred.
Research and development costs. All research and development
costs are expensed as incurred.
Revenue recognition. Revenue is recognized when
products are shipped.
Foreign currency translation. The functional currencies
of CFC International, Ltd. (U.K.) and the Companys division
located in Japan are their local currencies. The balance
sheets of these entities are translated at year-end rates
of exchange and their results of operations at weighted
average rates of exchange for the year. Translation
adjustments resulting from this process are recorded
directly in stockholders equity and will be included in the
determination of net income only upon sale or liquidation
of the entities, which is not contemplated at this time.
Earnings per share. Earnings per share are computed by
dividing net income by the weighted average of common stock
and common stock equivalents outstanding during the period,
using the
treasury stock method. Pro forma earnings per share
have been computed by dividing pro forma net income by
the weighted average of common stock and common stock
equivalents outstanding during the period. The computation
was performed after giving retroactive effect to the
1.2565385-for-1 stock split and stock dividend (Note 7),
and assuming those shares necessary to be issued to re-
acquire the 21% interests in its subsidiary companies were
outstanding from the beginning of the period presented.
Common stock equivalents include stock options to certain
officers aggregating 62,828. Supplemental pro forma net
income assumes the repayment of certain of the Companys debt
at the beginning of the period presented and the resulting
reduction in interest expense net of tax benefits. Weighted
average number of common and common stock equivalents used in
the supplemental pro forma earnings per share calculation
assumes the retroactive effect of the 1.2565385-for-1 stock
split, stock dividend (Note 7), the 34,736 shares issued to
reacquire the 21% interests in the subsidiary companies and
the 1,200,000 shares of the Companys common stock issued
in the initial public offering, were outstanding during the
entire period.
FAS 123. Effective January 1, 1996, the Company
adopted the disclosure method provisions of Statement of
Financial
Accounting Standards (SFAS 123) Accounting for Stock-Based
Compensation. As permitted by SFAS 123, the Company
continues to recognize stockbased compensation costs under
the intrinsic value base method of accounting prescribed by
Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees.
Cash and cash equivalents. The Company considers all highly
liquid investments readily convertible into cash to be cash
equivalents. Cash equivalents at December 31, 1996 and 1995
included a $800,000 and $400,000 certificate of deposit with
an original maturity of less than three months.
Fair value of financial instruments. As of December 31,
1996 and 1995, the carrying amount of the Companys
financial instruments approximates their estimated fair
value based upon market prices for the same or similar type
of financial instrument.
Pervasiveness 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 and disclosure of contingent assets and
liabilities as of the date of the financial statements,
and affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ
from these estimates.
Statement of cash flows.
SUPPLEMENTAL DISCLOSURES
For Year Ended
December 31, 1996
1995 1994
Cash paid during the year for:
Interest paid $209,063 $722,805
$680,000
Income taxes paid 2,026,090 101,000
150,000
Non-cash investing and financing activities:
Lease assets and obligations capitalized -
156,116 -
Note 2. Income Taxes
The income tax (benefit) provision consists of the following:
For Year Ended
December 31, 1996
1995 1994
Current Payable:
Federal $1,488,424 $
241,644
$ -
State 340,784 103,125
25,000
Foreign 27,960 175,858
137,000
Deferred (26,027) 1,148,247
- -
$1,831,141
$
1,668,874 $162,000
The Company elected, beginning June 1, 1992, to be treated as
an SCorporation for federal and certain state income tax
purposes. Coinciding with the Companys initial public offering
in 1995, the Company terminated its S-Corporation status for
federal and state income taxes on November 22, 1995.
Accordingly, at that time deferred taxes were provided for
temporary differences between the financial reporting basis
and the tax basis of the Companys assets and liabilities, in
accordance with Statement of
Financial
Accounting Standards (SFAS) No. 109 Accounting for Income
Taxes. All income that was earned during the subsequent
CCorporation time period was taxable at the current federal and
state tax rates. In order to present amounts in a comparable
format, the statements of income for 1995 and 1994
include a pro forma adjustment for additional income taxes
which would have been recorded if the Company had been a
CCorporation for all periods presented, based on the tax
laws in effect during those periods. The Companys interests
in the net operating losses of CFC Management, Inc. have not
been utilized in the period in which they arose to offset
taxable income in the pro forma provisions because their use
is limited by the taxable income of CFC Management, Inc.
This net operating loss carryforward was fully utilized in
1996.
Income tax provisions (benefits), calculated on a pro-forma
basis for 1995 and 1994, are as follows:
For Year Ended
December 31,
1995 1994
Current:
Federal $1,369,000
$837,000
State 330,000
206,000
Foreign 176,000
137,000
Deferred (308,000)
32,000
$1,567,000
$1,212,000
The provisions for income taxes differ from the amount of
income tax determined by applying the applicable U.S. statutory
federal income tax rate to income from continuing
operations before income
taxes and minority interest as a result of the
following differences:
1996 1995 1994
Actual Proforma
Statutory U.S. tax rates 34.0%
34.0%
34.0%
Increase (decrease) in rates resulting from:
State and local taxes 4.7% 3.1%
5.7%
Increase (decrease) in valuation allowance
- -
(6.5%) 5.6%
Minority interest in operating loss (income) of
CFC Management, Inc. (0.1%) (1.4%)
3.0%
AMT credit (1.5%) - -
Other, net 0.8% 2.0%
0.9%
Effective tax rate 37.9%
31.2%
49.2%
Deferred tax liabilities (assets) are as follows:
For Year Ended December
31, 1996 1995
1994
Actual
Proforma
Depreciation $1,785,740
$
1,799,388 $ 1,587,000
Net operating loss carry-forwards - (65,095)
(328,000)
Valuation reserves - -
328,000
Other, net (663,520) (586,046)
(230,000)
$1,122,220
$ 1,148,247 $1,357,000
Note 3. Long-Term Debt
Long-term debt consists of the following:
December 31,
1996 1995
Illinois Revenue Bonds $4,005,000 $ -
Revolving Credit Agreement - -
Term Loan A 1,741,648
1,853,152
Other 185,503 256,642
5,932,151
2,109,794 Less - Amounts included in current liabilities
368,124
172,655
$5,564,027
$1,937,139
Illinois Industrial Development Revenue Bonds (IRB). The
Company received $4,005,000 of proceeds from the issuance of
the IRB in June 1996. At December 31, 1996, the Company
had $1,510,827 of restricted cash as a result of $4,005,000 of
proceeds received from the issuance of Illinois Revenue Bonds
on June 20, 1996. The bonds
mature on June 1, 2008. Issuance cost of $168,000 were
capitalized and are being amortized over the life of the
bonds utilizing the straight line method. The remaining
proceeds are currently invested in short term cash
equivalents and will be used to fund the Companys 15,000
square foot addition to its primary production facility and
the purchase of a new printing press for printed products.
The bonds bear interest at rates which are determined by the
market and are reset weekly by the Remarketing Agent for the
bonds. The maximum annual rate of interest that the bonds
will bear is 12%. The annual rate of interest at December
31, 1996 was 3.65%.
The Company will make annual principal payments of $200,250
during 1997 through 2007. The balance of $1,802,250 is due
and payable when the bonds mature on June 1, 2008.
Term Loan. Term Loan A is payable in monthly installments
of $9,292 with a final payment of $1,713,722 due April,
1997. Interest is payable quarterly at prime plus 0.25%, with
a maximum rate of 9.50%. This term loan was renewed in March,
1997 for two years and is now due in April,
1999. Revolving Credit Arrangements. The Company and its
subsidiaries have various revolving credit arrangements that
provide for maximum borrowings of approximately $7,228,000.
Any outstanding borrowings bear interest at various rates
averaging the respective banks prime rate (8.25% and 8.5%
at December 31, 1996 and 1995) plus 2.5%. All of the
revolving
credit arrangements were renewed on March 3, 1997 and
expire on April 1, 1998. No amounts were outstanding at
December 31, 1996. Charges on undrawn balances on certain
arrangements is .25% per annum.
The bank agreements contain covenants which, among other
things, restrict new indebtedness, limit capital asset
additions, restrict dividend declarations, and prohibit net
losses. The borrowings are secured by substantially all of
the Companys assets. For 1996 and 1995, the bank has
waived the covenant that limits capital asset additions, in
order to enable the Company to exceed the limits in these
periods. Aggregate minimum principal payments for all long-
term debt as of December 31, 1996 are as follows:
1997
$368,124
1998
440,387
1999
1,718,640
2000
200,250
2001
200,250
Thereafter
3,004,500
$5,932,151 Note 4. Property, Plant and Equipment
Property, plant and equipment consist of the following:
Estimated December
31, Useful
Life
1996 1995
Land $105,670 $105,670
Building 3,041,914 2,643,714
30
years
Machinery and Equipment 12,596,064
11,748,946
20
years
Furniture and Equipment 1,612,736 1,495,026
10
years
Construction in Process 2,498,849 -
19,855,233
15,993,356 Less - Accumulated Depreciation
(8,988,516) (7,513,759)
$10,866,717 $
8,479,597
Note 5. International Operations and Export Sales
CFC International, Ltd. (U.K.) is engaged in selling
the
Companys products throughout the United Kingdom and Europe.
The following data in U.S. dollars, relative to the
subsidiary, is included in the accompanying financial
statements as of and for the year ended
December 31:
1996 1995 1994
Assets $1,141,614
$
1,018,271 $ 1,186,642 Liabilities
70,726 141,804 377,273
Net Sales 4,819,567 4,280,554
3,386,148
Net Income 73,332 64,942
102,105
The Company has a division engaged in selling the
Companys products throughout Japan and the Pacific Rim. The
following data in U.S. dollars, relative to the division,
is included in the accompanying financial statements as of
and for the year ended December 31:
1996 1995
1994
Assets $636,896 $853,412
$838,646
Liabilities 37,204 185,798
257,712
Net Sales 1,414,216 1,806,150
1,544,648
Net Income/(Loss) (11,526) 110,296
69,856
Export sales from U.S. operations amounted to
$5,780,161,
$3,358,892, and $2,670,000 in 1996, 1995 and 1994,
respectively.
Note 6. Profit Sharing Plan
The Company maintains a profit sharing/401(K) plan for the
benefit of all eligible employees, as defined under the
plan agreement. Annual profit sharing contributions are
discretionary as determined by the Board of Directors and
are funded as accrued. Eligible employees may also
contribute up to 18% of their compensation to the plan
subject to the maximum deferral limitations established by
the IRS. Employee contributions are matched by the Company
at the rate of 50% on the first 4% of the employees
compensation. The Company had no discretionary profit
sharing expense for the three years presented. The
Company incurred approximately $81,000, $69,000, and
$65,000 of 401(K) matching expense during 1996, 1995 and
1994, respectively.
Note 7. Stockholders Equity
The Company has authorized 750 shares of Voting Preferred
Stock, par value $.01 per share, which has no preemptive,
conversion, redemption, or exchange
rights. Dividends and liquidation
preference shall be applied to the purchase price per share.
The Companys principal stockholder holds an option to
purchase 534 shares of voting
preferred stock, subject to anti-dilution
adjustments, par value $.01 per share, which voting preferred
stock is entitled to 1,000 votes per share, quarterly
dividends at an annual rate equal to the prime rate in
effect as of the prior December 31 applied to the $500
per share exercise price and a liquidation preference of
$500 per share plus any accumulated and unpaid dividends.
The option is currently exercisable, and is not
transferable.
The re-acquisition of the 21% interest in the Companys
subsidiary companies held by minority stockholders was
effected immediately prior to the closing of the initial
public offering in 1995. This transaction was executed
through an exchange of 34,736 shares of the Companys
common stock for the shares held by the minority
stockholders in the Companys subsidiaries. The fair market
value of these shares was $330,000 (which the Board of
Directors determined was the fair market value of the
minority interest in the Companys subsidiaries).
All common stock and Class B common stock and per share
amounts in the accompanying combined financial statements
have been adjusted to give retroactive effect to the
1.2565385-for-1 stock split (which was authorized and
effected in August, 1995) for all periods presented. In
1995, the Board of Directors declared and paid a cash
dividend of up to $4,500,000 representing the estimated
undistributed taxable income during the period in which it
was an SCorporation to those stockholders who held shares of
the Companys stock immediately prior to the re-
capitalization and the closing of the initial public
offering. The distribution was funded with the net proceeds
received by the Company from the Companys initial public
offering. Additionally on November 15, 1995, the Board of
Directors declared a cash distribution of $800,000
to the
stockholders to permit payment of federal and state income
taxes on the Companys income through the date of
termination of SCorporation status. This dividend was paid
in January1996. Common stock and Class B common stock have
identical rights and privileges except for voting and
conversion rights. Class B common stock is nonvoting, and
is convertible at any time into an equal number of shares
of common stock except that the conversion option is not
available to any Class B common stockholder affiliated with
the Companys principal common stockholder. During 1995,
106,805 shares of Class B common stock were converted into
an equal number of shares of common stock.
Note 8. Stock Options
Stock Option Plan. The Companys stockholders approved a
Stock Option Plan (the Plan) in August 1995, which provides
for the grant of non-qualified stock options to employees
and directors of the Company and its subsidiaries. A
total of 250,000 shares of common stock are reserved for
issuance under the Plan, subject to anti-dilution and
adjustment provisions. No options may be granted under the
Plan after August 15, 2005. If
an option expires or is terminated or canceled
unexercised, the shares related to such options are
returned to the total shares reserved for issuance. The
Plan is administered by a committee appointed by the board
of directors, which determines the term of each option,
option price, and number of shares for which each option is
granted. At December 31, 1996 and 1995, options (with an
exercise price equal to the fair market value at the date
the option was granted), had been granted under the Plan as
follows:
Shares Outstanding at December 31, 1995
- -
Granted
77,673
Outstanding at December 31, 1996
77,673
Options generally vest over a period of four years. At
December 31, 1996, 4,973 options were exercisable. The
range of exercise prices for options granted in 1996
pursuant to the Plan, is $10.88 to $15.25, with a weighted
average remaining contractual
life of 9.2 years at December 31, 1996. At December 31,
1996, 172,327 options, respectively, were available for grant
under the plan.
Director Stock Option Plan. In August 1995, the
Companys stockholders approved a Director Stock Option Plan
(the DSOP), which is administered by the board of
directors. Options may be granted under the DSOP only
to non-employee directors of the Company. A total of
50,000 shares of common stock are reserved for issuance
under the DSOP, subject to anti-dilution and other
adjustment provisions. An option to purchase 10,000 shares
of the Companys stock was granted to each of the three
non-employee directors of the Company effective upon the
closing of the initial
public offering at an exercise price equal to the initial
public offering price of $9.50 per share. Each additional
nonemployee director elected to the Companys board of
directors will be granted an option to purchase 10,000
shares of common stock upon election, at the fair market
value at the date of such grant. The
term of each option is ten years subject to earlier
termination if the optionees service as a director
terminates. Each option becomes exercisable with respect
to 25% of the shares upon expiration of each successive
twelve month period after the date of grant. At December 31,
1996, 7,500 options were exercisable under the DSOP at a
weighted average exercise price of $9.50 per share.
The following data related to stock option grants
under the Director and Employee Stock Option Plans:
1996
1995 1995 Director Stock Option Plan -
30,000
1995 Employee Stock Option Plan 77,673
The fair value of each option granted is estimated at the
date of the grant using the Black-Scholes option-pricing
model utilizing expected volatility calculations based on
historical data of companies with similar structure and
volatility from December 1991 (26% to 25%); risk free rated
based on U.S. government strip bonds on the date of the
grant with maturities equal to the expected option term
(5.56% to 6.68%). The expected lives were determined to be
six years and no dividends are assumed.
The Company applies APB 25 and related
interpretations in
accounting for the aforementioned stock plans.
Accordingly, no compensation cost has been recognized for
its stock option plans. Had compensation cost for the
Companys fixed stock option plans been determined based
upon the fair value based method, as defined in SFAS 123,
the Companys net earnings per share would have been reduced
to the pro-forma amounts indicated below:
1996
1995
Proforma net income $2,927,986
$3,249,996 Proforma earnings per share $.65
$.95
The affects of applying SFAS 123 on the above pro-forma
information are not indicative of future amounts, as such
amounts are likely to be affected by the number of grants
awarded.
Employee Stock Purchase Plan. In August 1995, the
Companys stockholders approved an Employee Stock Purchase
Plan (the Stock Purchase Plan) which is administered by a
committee appointed by the board of directors. Pursuant
to
the Stock Purchase Plan, 100,000 shares of common stock
are reserved for issuance, which may be offered for sale
to employees through annual options to be granted in the
five year period commencing January 1, 1996. During 1996,
14,114 shares of common stock were issued pursuant to the
Stock Purchase Plan. The Stock Purchase Plan is
intended to qualify as an employee stock purchase plan under
Section 423 of the Internal Revenue Code. Generally, all
persons who have been employed by the Company on a full-
time basis for at least six months, except holders of more
than 5% of the
Companys common stock are eligible to participate in the
Stock Purchase Plan. The
Stock Purchase Plan permits eligible employees to purchase
common stock (which may not exceed the lesser of $10,000 or
10% of an employees compensation), at 95% of the fair
market value of the common stock at the grant date or
exercise date. The shares are purchased automatically at
the end of the quarter for such number as may be purchased
with the accumulated payroll deductions of the employee on
that date. Employees may terminate their participation
in the Stock Purchase Plan at any time and
participation
automatically ends upon termination of employment with the
Company. The Stock Purchase Plan will terminate at any
time upon the discretion of the board of directors or
when the participating employees become entitled to purchase
a number of shares equal to the number of shares remaining.
Note 9. CFC Applied Holographics
Effective October 1, 1994, CFC Management, Inc. holds
a 75% ownership interest in CFC Applied Holographics, a
partnership formed to manufacture and market holograms. CFC
Management, Inc. had agreed to guarantee loans, leases,
or other contractual commitments as may be required by the
partnership, and is required to finance all working capital
requirements. All losses have been allocated to CFC
Management, Inc., and the partners share in profits in
proportion to their respective ownership interests, except
that CFC Management, Inc. has allocated all profits to the
extent of previously allocated cumulative losses.
Prior to
October 1, 1994, CFC Management, Inc.s share of profits and
losses was 50.01%. The $460,000 cost of the Companys
increase in ownership interest from 50.01% to 75% was
recorded as goodwill. Accumulated amortization of this
goodwill approximated $102,000 and $58,000 at December 31,
1996 and 1995, respectively.
Note 10. Contingencies
The Companys former parent has been named by
government environmental agencies as a potentially
responsible party with respect to a waste disposal site.
The former parent and other potentially responsible
parties have entered into a settlement agreement with such
agencies that provides for the remediation of the site,
estimated to cost approximately $40 million, based upon
currently available facts. While the Company has been
named a potentially responsible party, the former parent and
the Company have reached an agreement whereby the former
parent and the Company will share equally in the 0.7% of
the total cost of remediation that is ultimately determined
to be attributed to waste produced by the Companys former
parent. Additionally, the Company and
nineteen other parties were defendants in litigation
filed by another party at the same site seeking
reimbursement for some portion of the $1 million spent
for clean-up outside of the aforementioned settlement.
The Company paid $4,000 in full settlement of this suit
in 1995. In 1992, the Company recorded a liability of
$300,000 related to these matters, of which
approximately $55,000 was paid in 1996. It is
managements opinion, based upon investigation of the
quantities and types of waste and the other parties
involved, that the Companys share of any liability will
not substantially exceed the accrual of $245,000 at
December 31, 1996. The adequacy of this reserve is reviewed
periodically as more definitive information becomes
available.
Note 11. Selected quarterly financial data
(unaudited), in
thousands
Quarter Ended
Dec. 31 Sept. 30 June 30
Mar. 31
Dec. 31 Sept. 30 June 30 Mar. 31
1996 1996 1996
1996
1995 1995 1995 1995
Revenues
$9,519$8,282$9,886$9,540$9,160$9,027$8,233$7,758
Gross Profit 3,426 2,7274,183 3,906 3,5303,762
3,408
3,374
Operating Income 1,303 831,944 1,745 1,3161,612
1,373 1,421
Net Income (Loss) 791 621,107 1,023 (332)*1,261
1,060
1,161
_________________________
* Includes C-Corporation tax provision incorporating
provision of $1,148 for cumulative deferred taxes.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The information appearing under the captions Election
of Directors and Section 16(a) Beneficial Ownership
Reporting Compliance in the Companys Proxy Statement for the
Annual Meeting of Stockholders to be held in 1997 (the
Proxy Statement), is incorporated herein by reference.
Executive Officers
Set forth below are the names of the executive officers of
the Company and its subsidiaries, their ages at December 31,
1996, the positions they hold with the Company or its
subsidiaries, and summaries of their business experience.
Executive officers of the Company are elected by and serve at
the discretion of the Board of Directors of the Company.
Name Age Position
Roger F. Hruby 61 Chairman of the Board of
Directors and Chief Executive
Officer
Robert J. DuPriest 55 President, Chief Operating
Officer and Director
Dennis W. Lakomy 51 Vice President, Chief
Financial
Officer, Secretary,
Treasurer and Director
David C. Beeching 56 Vice President of Sales &
Marketing
- - Holographics
Glenn L. Ford 51 Vice President of
Manufacturing
William A. Herring 49 Senior Vice President of
Operations
Robert E. Jurgens 54 Senior Vice President of
Sales
& Marketing
Craig D. Newswanger 42 Vice President of
Research
&
Development -
Holographics
David M. Plomin 31 Director of Research &
Development
Jeffrey E. Norby 40 Controller
Peter C. McGillivray 51 Managing Director - United
Kingdom Operations
Masayoshi Yozu 54 Managing Director
Japan
Operations
Roger F. Hruby, Chairman of the Board and Chief Executive
Officer, was the President and Chief Operating Officer of
the Companys predecessor, Bee Chemical, from 1977 until the
sale of that company to Morton Thiokol, Inc., in 1985, at
which time Mr. Hruby also became its Chief Executive
Officer. Mr. Hruby also organized the formation of Bee
Chemicals Japanese joint venture in 1970 and supervised
its growth from a start-up venture to a significant
manufacturing company with sales in excess of $40 million.
In 1986, Mr. Hruby formed the Company, which purchased Bee
Chemicals specialty transferable solid coatings division from
Morton Thiokol and has been Chairman of the Board, Chief
Executive Officer, and until June, 1995, President of the
Company since the date of its incorporation. Mr. Hruby
has been involved in the specialty chemical industry since
1958. Mr. Hruby earned a bachelors degree in chemistry from
North Central College and a Masters of Business
Administration from the University of Chicago.
Robert J. DuPriest, President, Chief Operating Officer
and a director of the Company, joined the Company in
1990 as Vice President and Chief Operating Officer, was named
President in June, 1995, and was elected a director of the
Company in August, 1995. Prior to joining the Company, Mr.
DuPriest served from 1985 in successive management
positions with Rank Video Services of America, where he
was responsible for worldwide operations and joint
ventures. Mr. DuPriest earned a bachelors degree from
American University.
Dennis W. Lakomy, Vice President, Chief Financial
Officer,
Secretary, Treasurer and a director of the Company, joined
Bee Chemical in 1975 and served as Vice President and
Controller of that company from 1982 until co-founding CFC
with Mr. Hruby in 1986. Mr. Lakomy was elected a director
of the Company in August, 1995. Mr. Lakomy earned a
bachelors degree in accounting from Loyola University of
Chicago and a Masters of
Business Administration from the University of Chicago.
William A. Herring, Senior Vice President of Operations of
the Company, joined the Company in June, 1996. Prior to
joining the Company, Mr. Herring served from 1992 as
Vice President Manufacturing and Technology with Central
Products
Company, where he was responsible for three manufacturing
locations and five distribution centers. Mr. Herring earned
a bachelors and a masters degree from the University of
Missouri in Chemical Engineering.
Robert E. Jurgens, Senior Vice President of Sales and
Marketing, joined the Company in June, 1987. Prior to
joining the Company, Mr. Jurgens served in successive senior
management positions with White Graphic Systems. Mr.
Jurgens began his career with White Graphics Systems in 1966
in sales and design. Mr. Jurgens earned a bachelors degree
from Indiana University.
Glenn L. Ford, Vice President, joined the Company in
1990 as Director of Operations and since 1992 has served as
Vice President of Operations. Prior to that time, Mr. Ford
had various positions in manufacturing with Tandy Magnetics,
serving as General Manager
of Tandy Magnetics from 1987 to 1990. Mr. Ford earned a
B.S. in Management from San Jose State University.
David C. Beeching joined CFC Applied Holographics as Vice
President of Sales and Marketing in 1992. Prior
thereto, he served a Director of Marketing and Vice
President of The Rank Organization PLC.
Craig D. Newswanger formed Advanced Dimensional Displays in
1984, which was merged into Applied Holographics PLC in
1989. In 1992, following the formation of CFC Applied
Holographics, he was named Vice President, Research and
Development Holographics, of the Company.
David M. Plomin joined the Company in 1988 and has held
several managerial positions, including manager of
technical services, quality assurance, production, and
embossing, and in 1995 was promoted to Director of
Research and Development. Mr. Plomin earned a bachelors
degree from Knox College and a Masters of Business
Administration from Governors State University.
Jeffrey E. Norby joined the Company in 1995 as Controller.
Prior to that time he held several managerial positions in
administration and accounting with Newell, Inc. and Chicago
Bullet Proof Company. He is a Certified Public Accountant
and earned a Masters of Business Administration from the
University of Illinois.
Peter C. McGillivray has been Managing Director of CFCs
United Kingdom Operations since 1988. Prior thereto, Mr.
McGillivray served as a sales representative for British
Cellulose Lacquers, which was acquired by Bee Chemical
Company and later included as part of the ongoing business
purchased by the Company.
Masayoshi Yozu joined Admiral Coated Products in Japan in
1968 to set up their branch office. In 1988 Admiral Coated
Products was acquired by the Company and Mr. Yozu became
Managing Director of CFCs Japanese Operations. Mr. Yozu
earned a business degree from Ritsumeikan University.
ITEM 11. EXECUTIVE COMPENSATION
Information appearing under the caption Management
Compensation in the Proxy Statement is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Information appearing under the caption Principal
Stockholders in the Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information appearing under the caption Certain Transactions
in the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) (1) Financial Statements
Reference is made to the information set forth in
Part II, Item 8 of this Report, which information
is incorporated herein by reference.
(a) (2) Financial Statement Schedules
Reference is made to the information set forth in
Part II, Item 8 of this Report, which information
is incorporated herein by reference.
(a) (3) Exhibits
The exhibits to this report are listed in the Exhibit
Index included elsewhere herein. Included in the
exhibits listed therein are the following exhibits
which constitute management contracts or compensatory
plans or arrangements.
10.7 Stock Option Plan of the Company
10.8 Director Stock Option Plan of the Company
10.9 Employee Stock Purchase Plan of the Company
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K
during the fourth quarter of 1996.
(c) Exhibits
Exhibit
Number Description of Exhibit
3.1
Restated Certificate of Incorporation of
the Company (incorporated by reference to
Exhibit 3.1 to the
Companys registration statement on Form
S 1,
Registration No. 33-96110).
3.2
Amended and Restated Bylaws of the Company
(incorporated by reference to Exhibit 3.2
to the Companys registration statement on Form S-
1, Registration No. 3396110).
4.1
Specimen Certificate Representing Shares of Common
Stock (incorporated by reference to Exhibit
4.1 to the
Companys registration statement on Form
S 1,
Registration No. 33-96110).
10.1a
Amended and Restated Credit Agreement, dated
March 31, 1992, between the Company and LaSalle
Northwest National Bank, as amended, (the
Credit Agreement)
including related documents (incorporated by reference to
Exhibit 10.1 to the Companys registration statement on Form
S1, Registration No. 33-96110).
10.1b
Amended and Restated Credit Agreement, dated
February 1, 1997, between the Company and LaSalle
Northwest National Bank, as amended (the Credit
Agreement).
10.1c
Tenth
Amendment to the Credit Agreement, dated as of June 1, 1996,
and related documents
10.1d
Eleventh Amendment to the Credit Agreement, dated
as of February 1, 1997, and related documents
10.1e
Twelfth Amendment to the Credit Agreement, dated
as of March 3, 1997, and related documents
10.2
Stock Option Plan of the Company
(incorporated by reference to Exhibit 10.7 to the
Companys
registration statement on Form S-1, Registration
No. 3396110).
10.3
Director Stock Option Plan of the Company
(incorporated by reference to Exhibit 10.8
to
the Companys registration statement on Form S-1,
Registration No. 3396110).
10.4
Employee Stock Purchase Plan of the
Company
(incorporated by reference to Exhibit 10.9
to the Companys registration statement on
Form S-1,
Registration No. 33-96110).
10.5
Stock
Option Agreement, dated August 18, 1995,
between the Company and Roger F. Hruby, as
amended (incorporated by reference to Exhibit
10.10 to the Companys registration statement on
Form S-1,
Registration No. 33-96110). 10.6
Stock
Option Agreement, dated August 30, 1993,
between the Company andRobert J. DuPriest
(incorporated by reference to Exhibit 10.11 to
the Companys registration statement on Form S-1,
Registration No. 33-96110). 10.7
Stock
Option Agreement, dated August 30, 1993,
between the Company and Robert E. Jurgens
(incorporated by reference to Exhibit 10.12 to the
Companys registration statement on Form S-1, Registration
No. 33-96110).
10.8
CFC
Applied Holographics Joint Venture Agreement
dated April 1, 1992, among the Company, CFC
Management, Inc., Applied Holographics PLC,
and Applied Holographics, Inc., as amended,
and related Partnership Agreement,
Representation Agreement, and License
Agreement (incorporated by reference to
Exhibit 10.13 to
the
Companys registration statement on Form
S-
1,
Registration No. 33-96110).
10.9
Purchase Agreement, dated November 18, 1994,
between the Company and Baxter Healthcare
Corporation (incorporated by reference to
Exhibit 10.14
to the Companys registration statement on Form S
1, Registration No. 3396110).
10.10
Form
of Indemnification Agreement between the
Company and each of its Officers and Directors
(incorporated by reference to Exhibit 10.15 to
the Companys registration statement on Form S-1,
Registration No. 33-96110).
11.1 Statement re Computation of Net Income Per
Share (unaudited)
21.1 List of Subsidiaries of the Company
23.1 Consent of Experts and Counsel
CFC INTERNATIONAL, INC.
FINANCIAL STATEMENT SCHEDULES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged To
Balance
Beginning Costs and
at end
Description Of Year Expenses
Deductions*
Of Year
(in thousands)
Year Ended December 31, 1994 Allowance
for Doubtful Accounts $ 281 $1,010 $(881)
$
410
Year Ended December 31, 1995 Allowance
for Doubtful Accounts $ 410 $ 681 $(743)
$
348
Year Ended December 31, 1996 Allowance
for Doubtful Accounts $ 348 $1,244 $(1,027)
$
565
_________________________
* Deductions represent amounts written off.
SIGNATURES
Pursuant to the requirements 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, on March 1997.
CFC INTERNATIONAL, INC.
By: /s/ ROGER F.
HRUBY
Roger F. Hruby
Chairman of the
Board
of Directors
and Chief
Executive Officer
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 indicated on March 1997.
Signature Title
Principal Executive Officer:
/s/ ROGER F. HRUBY Chairman of the
Board of
. Directors and
Roger F. Hruby Chief Executive
Officer
Principal Financial Officer:
/s/ DENNIS W. LAKOMY Vice President, Chief
Financial .
Officer,
Secretary
Dennis W. Lakomy Treasurer, and
Director
Principal Accounting Officer:
/s/ JEFFREY E. NORBY
Controller .
Jeffrey E. Norby
Signature Title
A Majority of the Directors:
/s/ ROGER F. HRUBY Director
.
Roger F. Hruby
/s/ WILLIAM G. BROWN
Director .
William G. Brown
/s/ ROBERT J. DU PRIEST
Director .
Robert J. Du Priest
/s/ DENNIS W. LAKOMY
Director .
Dennis W. Lakomy
/s/ RICHARD PIERCE
Director .
Richard Pierce
/s/ DAVID D. WESSELINK
Director .
David D. Wesselink
Exhibit 10.1a
REPLACEMENT REVOLVING
NOTE
$4,500,000 Dated as of March 3,
1997
Due: April 1,
1998
CFC INTERNATIONAL, INC., a Delaware corporation
(the
Maker), for value received, hereby promises to pay to the
order of LASALLE NORTHWEST NATIONAL BANK, a national banking
association (the Bank), on April 1, 1998, the principal sum
of FOUR MILLION FIVE HUNDRED THOUSAND DOLLARS
($4,500,000), or the aggregate principal amount of all
then outstanding advances made by the Bank to the Maker
hereof pursuant to Section 1.A of the Loan Agreement (as
herein defined), if less than said principal sum together
with interest at the rates and payable as provided in
the Loan Agreement referred to below. In no event shall
the interest payable hereunder exceed the highest rate
permitted by law.
All payments hereunder shall be applied first to
interest on the unpaid balance at the rate herein
specified and then to principal. All
payments of
principal and interest on this Note
shall be payable in lawful money of the United States of
America.
Principal and interest shall be paid to the Bank at its
office at 4747 Irving Park Road, Chicago, Illinois 60641,
or at such other place as the holder
of this Note may designate in
writing to the
undersigned. This Note may be prepaid only as provided in
said Loan Agreement and must be prepaid in the amounts and
at the times set forth in said Loan Agreement.
This Note is the Revolving Note referred to in, and
evidences certain indebtedness incurred under, the
Amended and Restated Credit Agreement, between the Maker
and the Bank, dated March 31, 1992
(together
with any and all amendments, modifications,
extensions, renewals and restatements thereof or
therefor, the Loan Agreement), to which reference is
hereby made for a
statement of the terms and conditions under which the due
date of this Note or any payment thereon may be
accelerated or is
automatically accelerated. The holder of this Note is
entitled to all of the benefits and security provided in
said Loan Agreement and the Loan Supporting Documents
referred to therein. The Maker agrees to pay all costs
of collection and all reasonable attorneys fees paid or
incurred in enforcing any of the Banks rights hereunder
promptly on
demand of the Bank.
The principal amount of this Note evidences the
maximum amount of Revolving Credit Loans available to the
Maker by the Bank pursuant to Section 1.A of
the Loan Agreement.
Notwithstanding the stated principal amount of this
Note, the Makers liability hereunder at any time hereafter
shall be limited to the then unpaid principal amount of all
Revolving Credit Loans made by the Bank to or for the
account of the Maker pursuant to Section 1.A of the Loan
Agreement, together with accrued interest thereon, and all
other costs and expenses as provided in the Loan Agreement.
In determining the Makers liability to the Bank
hereunder, the books and records of the Bank shall be
controlling.
This Note is a substitute and replacement for, but
not a repayment of, that certain $5,500,000 Amended
and Restated Revolving Note of the Borrower payable to
LaSalle Northwest National Bank dated February 1, 1997 and
does not and shall not be deemed to constitute a novation
therefor.
CFC INTERNATIONAL, INC.
By:
________________________
Its
________________________
Exhibit 10.1a
REPLACEMENT A TERM NOTE
$1,748,224 Dated March
3,
1997
Due: April
1,
1999
CFC INTERNATIONAL, INC., a Delaware corporation
(the Maker), for value received, hereby promises to pay to
the order of LaSalle Northwest National Bank, a national
banking association (the Bank), the principal sum of ONE
MILLION SEVEN HUNDRED FORTY EIGHT THOUSAND TWO HUNDRED
TWENTY FOUR
AND 00/100 DOLLARS ($1,748,224), payable in consecutive
monthly installments of $9,292 each on a monthly basis,
commencing April 1, 1997 and continuing on the first
day of each and every month thereafter, with a final
installment of the then unpaid principal balance
outstanding hereunder on April 1, 1999. Said
principal indebtedness shall bear interest (computed on the
basis of a 360day year) on any and all unpaid principal
amounts hereof until maturity, which interest shall be
payable monthly on the principal payment dates provided
above, at an interest rate equal at all times to one-
quarter of one percent (1/4%) above the fluctuating Prime
Rate of the Bank from time to time; provided, however, that
such fluctuating interest rate shall not exceed nine and
onehalf of one percent (9-1/2%) per annum, except that
any amount of interest or principal hereof which is not
paid when due, whether at stated maturity, by
acceleration or otherwise, shall bear interest payable on
demand at an interest rate equal at all times to three
percent (3%) per annum above the then applicable interest
rate hereunder. In no event shall the interest payable
hereunder exceed the highest rate permitted by law.
For purposes hereof, Prime Rate shall mean the
interest rate referred to by the Bank from time to time as
its prime rate as fixed by the management of the Bank for
the guidance of its loan officers, whether such rate is
otherwise published, with each change in such Prime Rate
to take effect on the same day such change is
made by the Bank. The use
of the term Prime Rate herein is not intended nor does
it imply that said rate of interest is a preferred rate
of interest or one which is offered by the Bank to its most
creditworthy customers.
All payments hereunder shall be applied first to
interest on the unpaid balance at the rate herein
specified and then to installments of principal in the
inverse order of the maturity thereof. All payments of
principal and interest
on this A Term Note shall be payable in lawful money of
the United States of America. Principal and interest
shall be paid to the Bank at its office at 4747 Irving Park
Road, Chicago, Illinois 60641, or at such other place
as the holder of this Note may designate in writing to
the undersigned. This A Term Note may be prepaid in the
amounts and at the times set forth in the Amended and
Restated Credit Agreement between the Maker and the Bank,
dated March 31, 1992 (together with any and all
amendments, modifications,
extensions, renewals and restatements thereof or therefor
Loan Agreement).
This A Term Note is secured by the Mortgage referred
to in the Loan Agreement, to which agreements references are
hereby made for a statement of the terms and conditions
under which the due date of this Term Note or any payment
hereon may be accelerated or is automatically accelerated.
The holder of this Note is entitled to all of the
benefits provided in said agreements. The Maker agrees
to pay all costs of
collection and all reasonable attorneys fees paid or
incurred in enforcing any of the Banks rights hereunder
promptly on demand of the Bank.
This A Term Note is a replacement and substitute for, but
not a repayment of, that certain $2,230,000 Amended and
Restated A Term Note dated on or about August 30, 1992 of
the Maker payable to the order of the Bank and does not
and shall not be deemed to constitute a novation therefor.
CFC INTERNATIONAL, INC.
By:
Its:
Exhibit 10.1b
REVOLVING CREDIT NOTE
$1,000,000.00 Dated: February 1,
1997
For value received, the undersigned (the Maker)
promises to pay to the order of LASALLE NORTHWEST NATIONAL
BANK (the Bank) Chicago, Illinois, the lesser of principal
sum of One Million and 00/100 Dollars ($1,000,000.00) or
the aggregate unpaid principal amount outstanding under
the Loan Agreement (as defined below) made available to
the Maker at the maturity or maturities and in the amount
or amounts as stated on the records of the Bank,
together with interest on the principal amounts
outstanding hereunder from time to
time from the date hereof until maturity. Interest shall be
payable at the rate of interest and at the times set forth
in the Revolving Credit and Term Loan Agreement dated
September 30, 1992 (as from time to time amended, the
Loan Agreement). In no event shall any principal
amount have a maturity later than March 3, 1997.
This Revolving Credit Note (the Note) shall be
available for direct advances.
Principal and interest shall be paid to the Bank
at its office at 4747 W. Irving Park Road, Chicago,
Illinois or at such other place as the holder of this Note
may designate in writing to the Maker. This Note may be
prepaid in whole or in part as provided in the Loan
Agreement.
This Note evidences indebtedness incurred under the
Loan Agreement, to which reference is hereby made for a
statement of the terms and conditions under which the due
date of the Note or any payment thereon may be
accelerated. The holder of this Note is entitled to all of
the benefits and security provided for in the Loan
Agreement.
The Maker irrevocably authorizes any attorney of any
court of record to appear for it in term time or vacation,
at any time and
from time to time after payment is due hereon,
whether
by acceleration or otherwise, and confess judgment, without
process, in favor of the holder hereof, for such sum as may
appear to be due and unpaid thereon, together with
interest, costs, and reasonable attorneys fees, and to
waive and release all errors which may intervene in such
proceeding and consents to immediate execution upon such
judgment, hereby ratifying and confirming all that said
attorney may do by virtue hereof.
This Note is in substitution for and not in repayment
of
that certain Revolving Credit Note dated February 1, 1996
in the amount of $1,000,000.00 from Maker in favor of
Bank.
The Maker agrees that in any action or proceeding
instituted to collect or enforce collection of this Note,
the amount endorsed by the Bank on the reverse side of
this Note or otherwise in the records of the Bank shall
be prima facie evidence of the unpaid principal balance of
this Note
CFC APPLIED
HOLOGRAPHICS, an
Illinois general partnership
CFC International,
Inc., General Partner
By:
_________________________
Its:
_________________________
Applied Holographics,
PLC, General Partner
By:
_________________________
Its:
_________________________
Exhibit 10.1c
TENTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
This Tenth Amendment dated as of June 1,
1996, is entered into between CFC INTERNATIONAL, INC.,
a Delaware
corporation (the Company) and LASALLE NORTHWEST NATIONAL
BANK, a national banking association (the Bank).
WHEREAS, the Company and the Bank entered
into an Amended and Restated Credit Agreement dated March
31, 1992, as amended (as heretofore amended, the
Agreement, with terms defined therein being used herein
as therein defined) providing for borrowings by the Company
from the Bank; and
WHEREAS, the Company and the Bank desire to
modify certain covenants of the Agreement.
NOW, THEREFORE, in consideration of the premises,
and of the mutual agreements hereinafter set forth, it is
agreed by the parties hereto as follows:
Section 6.A. is hereby amended to delete the
word and immediately preceding (iv) and to add the
following immediately following the dollar figure
$750,000 where it appears therein:
; and (v) indebtedness to the Illinois
Development Finance Authority (IDFA) in connection with the
bonds issued by IDFA secured by a Loan Agreement dated as
of June 1, 1996 between Company and IDFA.
Section 6.H. is hereby deleted in its
entirety and the following is hereby substituted therefor:
6.H. [This Section is left
intentionally blank.]
A new Section 7.K. is added to read as
follows;
As of the end of each fiscal year of the
Company (beginning with the 1995 fiscal year-end), the
Company shall maintain a Tangible Net Worth of not less
than $8,000,000. As used herein, Tangible Net Worth
means the Net Worth of the Company (defined as the total
of all assets which, under generally accepted accounting
principles in the United States (GAAP), would appear as
assets on the balance sheet of the Company, less the total
of all liabilities, which, under GAAP, would appear as
liabilities on the balance sheet of the Company) LESS all
of the following of the Company: (i) all prepaid expenses,
(ii) the book value of all assets which would be treated as
general intangibles under GAAP, including, without
limitation, goodwill, trademarks, tradenames, brands,
copyrights, patents, licenses, deferred charges and
covenants not to compete, (iii) all deposits and (iv)
accounts, notes and other receivables and amounts due
from shareholders, Affiliates and/or employees of the
Company.
Except as specifically amended hereby,
all
provisions of the Agreement and the Loan Supporting
Documents shall remain in full force and effect. Any
reference to the Agreement shall refer to the Agreement
as amended by this Tenth Amendment.
To induce the Bank to amend the
Agreement, the Company represents and warrants to the Bank
that:
a. On the date hereof, the
Company is in compliance with all of
the terms and provisions set forth in
the Agreement (as modified by this
Tenth Amendment) on its part to be
observed or performed, and no event of
default specified in Section 8 of
the
Agreement, nor any event which, upon
notice
or lapse of time, or both, would
constitute such an event of default,
has occurred.
b. On the date
hereof, the representations and
warranties set forth in Section 5
of the Agreement (as modified by this
Tenth Amendment) are true and
correct with the same effect as
if
such
representations and warranties had
been made on the date hereof,
except
such
representations and warranties which
expressly relate to an earlier date.
c. On the date hereof, the
Company has complied with and kept
all of the
covenants (as modified by this
Tenth Amendment) set forth in Section 6
and 7 of the Agreement.
The Company hereby affirms that all
of its obligations to Bank under the Reimbursement
Agreement dated as of June 1, 1996 between Bank and the
Company are secured by Banks lien on the Collateral.
The Tenth Amendment shall be
construed
in
accordance with and governed by the laws, but not the
conflict of laws rules, of the State of Illinois.
The Company will deliver to the Bank
certified copies of Resolutions of its Board of Directors
authorizing the Company to enter into this Tenth Amendment
and make the additional borrowings referred to herein.
The Company agrees to pay on demand all
costs and expenses of the Bank, excluding its reasonable
attorneys fees, in connection with the execution and
delivery of this Amendment.
IN WITNESS WHEREOF, the parties have executed this
Tenth Amendment as of the date set forth above.
CFC INTERNATIONAL, INC.
By:
_________________________
__ __ __
T
i
t
l
e
:
______________________________
LASALLE NORTHWEST NATIONAL
BANK
By:
_________________________
__ __ __
T
i
t
l
e
:
______________________________
Exhibit 10.1d
ELEVENTH AMENDMENT TO
AMENDED AND RESTATED CREDIT
AGREEMENT
This Eleventh Amendment dated as of February 1,
1997, is entered into between CFC INTERNATIONAL, INC.,
a
Delaware
corporation (the Company) and LASALLE NORTHWEST NATIONAL
BANK, a national banking association (the Bank).
WHEREAS, the Company and the Bank entered into an
Amended and Restated Credit Agreement dated March 31, 1992,
as amended from time to time (as heretofore amended, the
Agreement, with terms defined therein being used herein as
therein defined) providing for borrowings by the Company
from the Bank; and
WHEREAS, the Company and the Bank desire to extend
the maturity of the Revolving Note and to otherwise
modify the Agreement.
NOW, THEREFORE, in consideration of the premises, and
of the mutual agreements hereinafter set forth, it is
agreed by the parties hereto as follows:
1. The date, February 1, 1997, set forth in the
third line of the first sentence of Section 1.A. of the
Agreement is deleted and the date March 3, 1997 shall be
inserted in lieu thereof.
2. The promissory note which is Exhibit A to the
Agreement is hereby amended and restated in its entirety to
read as Exhibit A attached hereto.
3. All references in the Agreement and the Loan
Supporting Documents to the Revolving Note and the
Revolving Credit Loan shall be deemed to be references
to, respectively, the Revolving Credit Note executed and
delivered by the Company pursuant to this Eleventh
Amendment, and the Revolving Credit Loan evidenced
thereby.
4. Except as specifically amended hereby, all
provisions
of
the Agreement and the Loan Supporting Documents shall
remain in full force and effect. Any reference to the
Agreement shall refer to the Agreement as amended by this
Eleventh Amendment.
5. To induce the Bank to amend the Agreement, the
Company represents and warrants to the Bank that:
a. On the date hereof, the Company is in
compliance with all of the terms and provisions
set forth in the Agreement (as modified by
this Eleventh Amendment) on its part to be
observed or performed, and no event of default
specified in Section 8 of the Agreement, nor any
event which, upon notice or lapse of time, or
both, would constitute such an event of default,
has occurred. b. On the date hereof, the
representations and warranties set forth in
Section 5 of the Agreement (as modified by this
Eleventh Amendment) are true and correct with
the same
effect as if such representations and warranties had been
made on the date hereof, except such representations and
warranties which expressly relate to an earlier date.
c. On the date hereof, the Company has
complied with and kept all of the covenants
set forth in Sections 6 and 7 of the Agreement.
6. The Eleventh Amendment shall be construed in
accordance with and governed by the laws of the State of
Illinois.
7. The Company will deliver to the Bank certified
copies
of
Resolutions of its Board of Directors authorizing the
Company to enter into this Amendment and make the
additional borrowings referred to herein.
8. The Company agrees to pay on demand all
costs
and expenses of the Bank, including its reasonable
attorneys fees, in connection with the execution and
delivery of this Amendment.
CFC INTERNATIONAL, INC.
By:
__________________________
Title:
_____________________
LASALLE NORTHWEST NATIONAL
BANK
By:
__________________________
Title:
_____________________
Exhibit 10.1e
TWELFTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS TWELFTH AMENDMENT TO AMENDED AND RESTATED
CREDIT AGREEMENT dated as of March 3, 1997, is between CFC
INTERNATIONAL, INC., a Delaware corporation (the Company) and
LASALLE NORTHWEST NATIONAL BANK, a national banking
association (the Bank).
WHEREAS, the Company and the Bank entered into an Amended
and Restated Credit Agreement dated March 31, 1992 (as
amended
from time to time, the Agreement); and
WHEREAS, the Company and the Bank have agreed to amend
the Agreement as more particularly set forth herein,
NOW, THEREFORE, in consideration of the premises, and of
the mutual agreements hereinafter set forth, the parties
hereto agree as follows:
1. DEFINITIONS. Capitalized terms used herein
without
definition shall have the respective meanings given thereto in
the Agreement;
2. AMENDMENTS TO THE AGREEMENT.
2.1 Amendment to Section 1.A. Section 1.A of
the
Agreement is hereby amended and restated in its entirety
as follows:
Revolving Credit Loans. Subject to the terms
and conditions of this Agreement, the Bank agrees to
make such revolving
loans (each a Revolving Credit Loan and,
collectively, the Revolving Credit Loans) and to
issue Letters of Credit (hereinafter defined) at such
times as the Company may from time to time request
until but not including April 1, 1998 in such amounts
as the Company may from time to time request,
provided that the aggregate outstanding principal
amount of such Revolving Credit Loans shall not exceed
$4,500,000 less the undrawn face amount of Letter(s) of
Credit. Each Revolving Credit Loan after the initial
Revolving Credit Loan shall equal at least $10,000 or
multiples of $1,000 in excess thereof. Revolving
Credit Loans may be repaid and, subject to the terms and
conditions hereof, reborrowed unless the Revolving
Credit Loans are otherwise terminated or extended as
provided in this Agreement. The Company shall pay
to the Bank quarterly in arrears a fee equal to one
quarter of one percent (1/4%) times the daily average
of the unused portion of the Banks commitment hereunder
to make Revolving Credit Loans. Revolving Credit
Loans shall be used by the Company for the purpose of
working capital. Revolving Credit Loans and the Term
Loan(s) hereinafter referred to are collectively called
Loans and each a Loan.
2.2 Deletion of Section 1.D. Section 1.D of
the
Agreement is hereby deleted in its entirety. The Tokyo Letter
of Credit therein defined shall hereafter be deemed to be a
Letter of Credit for all purposes under the Agreement.
2.3 Amendments to Section 3.A. (a) The first
paragraph of Section 3.A of the Agreement is hereby amended
and restated in its entirety as follows:
Revolving Note. All Revolving Credit Loans
and Letters of Credit shall be evidenced by a single
promissory note (the Revolving Note and, together with
the Term Notes hereinabove referred to, the Notes and
each a Note) in the form of Exhibit A attached hereto,
duly executed by the Company, as said Exhibit A may be
amended or replaced from time to time. At the time of
the initial disbursement of a Revolving
Credit Loan and at each time an additional
Revolving Credit Loan shall be requested hereunder or
a repayment made in whole or in part thereon, an
appropriate notation thereof shall be made on the books
and records of the Bank. All amounts recorded shall
be,
absent demonstrable error, conclusive and binding evidence of
(i) the principal amount of the Revolving Credit Loans
advanced hereunder and the amount of all Letters of Credit,
(ii) any unpaid interest owing on the Revolving Credit
Loans, and (iii) all amounts repaid on the Revolving Credit
Loans and the Letters of Credit. The Banks failure to
record any such amount or any error in recording such amounts
shall not, however, limit or otherwise affect the obligations
of the Company hereunder or under the Note to repay the
principal amount of the Revolving Credit Loans, together with
all interest accruing thereon.
(b) The second paragraph of Section 3.A is
hereby amended by deleting from the first sentence therein
the phrase
and shall deliver to the Bank a Borrowing Base Certificate in
the form attached hereto as Exhibit E,.
2.4 Amendments to Section 3.B. Section 3.B of
the
Agreement is hereby amended by deleting the first
paragraph thereof in its entirety.
2.5 Amendment to Sections 3.C and 3.D. Sections
3.C
and 3.D are hereby amended and restated in their entireties
as
follows:
3.C. Interest Rates. The outstanding
principal amount of the Loans shall bear interest, at
the Companys option, at the Prime Rate or at Adjusted
LIBOR (as such terms are hereinafter defined).
3.C.1. Prime Rate means the rate in
effect from time to time as set by the Bank and called
its Prime Rate. The effective date of any change in
the Prime Rate shall for purposes hereof be the date the
rate is changed by
the Bank. The Bank shall not be obligated to give notice
of
any change in the Prime Rate. Interest shall be
calculated on the basis of a year consisting of 360
days and shall be
paid for the actual number of days elapsed. Interest on
the portion of the unpaid principal balance bearing
interest at
the Prime Rate shall be payable monthly on the first
business day of each month and at maturity. Any amount
of principal or interest on advances bearing interest at
the Prime Rate which is not paid
when
due, whether at the stated maturity,
by acceleration or otherwise, shall bear interest
payable on demand at a fluctuating interest rate per
annum equal at all times to the Prime
Rate plus three percent (the Default
Rate). Loans bearing interest at the Prime Rate
are
referred to herein as Prime Rate Loans.
3.C.2. At any time and from time to time
the Company may identify one or more portions of the
outstanding principal balance of
the
Loans (each, a LIBOR Loan) which
will bear interest at Adjusted LIBOR (hereinafter
defined). Each LIBOR Loan must equal $500,000 or
multiples of $50,000 in excess thereof. Adjusted LIBOR
means a rate of interest equal to one per cent
(1%) per annum in excess of the per
annum rate of interest at which U.S. dollar deposits in
an
amount comparable to the amount of the relevant LIBOR
Loan and for a period equal to the relevant Interest
Period (hereinafter defined) are offered generally to
the Bank (rounded upward if necessary, to the nearest
1/16 of 1.00%) in the London Interbank Eurodollar
market at 11:00 a.m. (London time) two banking days
prior to the commencement of
each Interest Period, such rate to remain fixed for
such Interest Period. Interest Period shall mean
successive one, two or three month periods as selected
from time to time by the Company by notice given to the
Bank not less than two banking days prior to the
first day of each respective Interest Period; provided
that: (i) each such one, two or
three month period occurring after such initial period
shall commence on the day on which the next
preceding period expires; (ii) the final Interest Period
shall be such that its expiration occurs on or before
the stated maturity date set forth in Section 1.A; and
(iii) if for any reason the Company shall fail to
select timely a period, then it shall be deemed to have
selected a Prime Rate Loan; provided that, at any time
any Interest Period expires less than one month before
the stated maturity date, then, for the period
commencing on such expiration date and ending on the
maturity date such LIBOR Loan shall convert to a Prime
Rate Loan.
Interest on each LIBOR Loan shall be payable on the last
banking day of each Interest Period with respect thereto,
commencing on the first such date to occur after the date
hereof, at maturity, after maturity on demand, and on the
date of any payment hereon on the amount paid. The Company
hereby further promises to pay to the order of the Bank, on
demand, interest on the unpaid principal amount hereof after
maturity (whether by acceleration or otherwise) at the
Default Rate.
3.D. Provisions Applicable to All LIBOR Loans.
3.D.1. The Banks determination of Adjusted
LIBOR as provided above shall be conclusive, absent manifest
error. Furthermore, if the Bank determines, in good faith
(which determination shall be conclusive, absent manifest
error), prior to the commencement of any Interest Period that
(a) U.S. dollar deposits of sufficient amount and maturity
for funding any LIBOR Loan are not available to the Bank in
the London Interbank Eurodollar market in the ordinary course
of business, or (b) by reason of circumstances affecting the
London Interbank Eurodollar market, adequate and fair means
do not exist for ascertaining the rate of interest to be
applicable to the relevant LIBOR Loan, the Bank shall
promptly notify the Company and such LIBOR Loan shall
automatically convert on the last day of its then-current
Interest Period to a Prime Rate Loan.
3.D.2. If, after the date hereof, the
introduction of, or any change in any applicable law, treaty,
rule, regulation or guideline or in the interpretation or
administration thereof by any governmental authority or any
central bank or other fiscal, monetary or other authority
having jurisdiction over the Bank or its lending office (a
Regulatory Change), shall, in the opinion of counsel to the
Bank, makes it unlawful for the Bank to make or maintain any
LIBOR Loan evidenced hereby, then the Bank shall promptly
notify the Company and such LIBOR Loan shall automatically
convert on the last day of its then-current Interest Period
to a Prime Rate Loan.
3.D.3. If, for any reason, any LIBOR Loan is
paid prior to the last banking day of its then-current
Interest Period, the Company agrees to indemnify the Bank
against any loss (including any loss on redeployment of the
funds repaid), cost or expense incurred by the Bank as a
result of such prepayment.
3.D.4. If any Regulatory Change (whether or
not having the force of law) shall (a) impose, modify or deem
applicable any assessment, reserve, special deposit or
similar requirement against assets held by, or deposits in or
for the account of or loans by, or any other acquisition of
funds or disbursements by, the Bank; (b) subject the Bank or
any LIBOR Loan to any tax, duty, charge, stamp tax or fee or
change the basis of taxation of payments to the Bank of
principal or interest due from the Company to the Bank
hereunder (other than a change in the taxation of the overall
net income of the Bank); or (c) impose on the Bank any other
condition regarding such LIBOR Loan or the Banks funding
thereof, and the Bank shall determine (which determination
shall be conclusive, absent manifest error) that the result
of the foregoing is to increase the cost to the Bank of
making or maintaining such LIBOR Loan or to reduce the amount
of principal or interest received by the Bank hereunder, then
the Company shall pay to the Bank, on demand, such additional
amounts as the Bank shall, from time to time, determine are
sufficient to compensate and indemnify the Bank for
such
increased cost or reduced amount.
2.6 Amendments to Section 7.A. Section 7.A of
the
Agreement is hereby amended (i) by deleting from the fourth
line in paragraph (i) therein the word Company and
substituting therefor the phrase Company and its
consolidated subsidiaries, (ii) by deleting from paragraph (i)
therein clause (z) at the end thereof, and (iii) by deleting
from the fourth line in paragraph (ii) therein the word
Company and substituting therefor the phrase Company and its
consolidated subsidiaries.
2.7 Additions to Section 7. The following new
Sections 7.L and 7.M are hereby added to the Agreement:
7.L At lease once prior to the expiration of
the Banks commitment to make Revolving Credit Loans
hereunder, reduce for a period of at least thirty
(30) days the aggregate outstanding principal amount
of
Revolving Credit Loans to zero.
7.M At all times, maintain a ratio of
Liabilities to Tangible Net Worth for the Company and
its consolidated subsidiaries which shall not exceed
2.0 to
1.0.
2.8 Deletion of Section 8.M. Section 8.M of
the
Agreement is hereby deleted in its entirety, and the
phrase Intentionally deleted is hereby substituted therefor.
2.9 Amendment to Section 9. The introductory
statement in Section 9.A
of the Agreement is hereby amended and restated in
its entirety as follows:
To secure its obligations in connection with
any Letter of
Credit issued pursuant hereto, including without
limitation, any applicable therefor:
2.10 Deletion of Sections 11.A.2 and 11.M.
Sections
11.A.2 and 11.M of the Agreement are hereby deleted in
their
entireties.
2.11 Replacement of Exhibits A and I-1. Exhibits A
and
I-1 attached to and made a part of the Agreement are
hereby deleted in their entireties and Exhibits A and I-1
attached hereto are hereby substituted therefor.
3. WARRANTIES. To induce the Bank to enter into
this
Amendment, the Company warrants that:
3.1 No Default. As of the date hereof, no Event
of
Default under Section 8 of the Agreement, as amended by
this Amendment, or event or condition which, with the giving
of notice or the passage of time, shall constitute an Event
of Default, has occurred or is continuing.
3.2 Warranties. As of the date hereof,
the
representations and warranties in Section 5 of the Agreement
are true and correct as though made on such date, except
for such changes as are specifically permitted under the
Agreement.
4. CONDITIONS PRECEDENT. This Amendment shall
become
effective as of the date above first written after receipt by
the Bank of the following documents:
(a) This Amendment duly executed by
the Company;
(b) Replacement Revolving Note in the
form of Exhibit A attached hereto duly
executed by the Company;
(c) Replacement A Term Note in the form
of Exhibit I-1 attached hereto duly executed
by the Company; and
(d) such other documents as the
Bank reasonably may request.
5. GENERAL.
5.1 Law. This Amendment shall be construed in
accor
dance with and governed by the laws of the State of Illinois.
5.2 Successors. This Amendment shall be binding
upon
the Company and the Bank and their respective successors
and assigns, and shall inure to the benefit of the Company
and the Bank and their respective successors and assigns.
5.3 Confirmation of the Agreement. Except as
amended
hereby, the Agreement shall remain in full force and effect
and is hereby ratified and confirmed in all respects.
CFC INTERNATIONAL, INC. LASALLE NORTHWEST
NATIONAL BANK
By: __________________________
By:
__________________________
Its: __________________________
Its:
__________________________
Exhibit 11.1
CFC INTERNATIONAL, INC.
STATEMENT RE: COMPUTATION OF NET INCOME PER SHARE (UNAUDITED)
Year Ended
12/31/94 12/31/95
12/31/96
(Actual) Pro forma net income per share from continuing
operations:
Pro forma net income from continuing operations
1,463,021 3,252,076
2,983,470
Pro forma weighted average common shares outstanding:
Shares attributable to common stock outstanding 2,563,338
2,800,024
3,885,007
Shares attributable to Class B common stock outstanding 640,834
534,030 534,030
Shares attributable to common stock equivalents outstanding 62,828
62,828 62,828
Shares issued to reacquire 21% interest in subsidiary companies
34,736 34,736 34,736
3,301,736 3,431,618 4,516,601
Pro forma net income per share from continuing operations
0.44 0.95 0.66
Supplemental pro forma net income per share from continuing
operations:
Pro forma net income from continuing operations
1,463,021 3,252,076
Interest paid on debt to be retired 385,140
450,523
Less tax effect (40%) (154,056)
(180,209)
1,694,105
3,522,390
Supplemental pro forma weighted average common shares outstanding:
Shares attributable to common stock outstanding
2,563,338
2,667,929
Shares attributable to Class B common stock outstanding 640,834
534,030 Shares attributable to common stock equivalents outstanding
62,828 62,828
Shares issued to reacquire 21% interest in subsidiary companies
34,736 34,736
Shares issued through the initial public offering 1,200,000
1,200,000 4,501,736 4,499,523
Supplemental pro forma net income per share from continuing
operations
0.38
0.78
Exhibit 21.1
CFC INTERNATIONAL, INC.
SUBSIDIARIES
CFC Management, Inc.
CFC International, Ltd. (U.K.)
Exhibit 23.1
CONSENT OF INDEPENDENT
ACCOUNTANTS
We hereby consent to the
incorporation by reference in the
Registration Statement on Form S-8
(No. 333-2978) of CFC
International, Inc. of our report
dated February 7, 1997 appearing on
page 23 of the CFC International, Inc.
Annual Report on Form 10K for the year
ended December 31, 1996.
Price Waterhouse LLP
Chicago, Illinois
March 24, 1997
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