UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 027222
____________________
CFC INTERNATIONAL, INC.
(Exact name of Registrant as specified in its
charter)
Delaware 363434526
(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) 8913456
____________________
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 SK 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 10K or any amendment to this
Form 10K. 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 $26,519,465 at
March 20, 1998 (based on the closing sale price on the Nasdaq
National Market on March 20, 1998, as reported by The Wall
Street Journal). At March 20, 1998,
the registrant had issued and outstanding an aggregate of
4,027,129 shares of common stock and 518,169 shares of Class B
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 1998,
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 chemicallycomplex, 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 as
heat transfer printing approved by the FDA for pharmaceutical
products such as intravenous solution bags; security products
such as magnetic stripes and signature panels for credit cards
and intaglio printing for stocks, bonds and gift certificates;
and holographic products such as authentication seals. The
Company utilizes its patented computergenerated 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
Companys products, 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
readytoassemble (RTA) furniture, kitchen cabinets, manufactured
home interiors, valuepriced 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 38.0% of the Companys net sales
in 1997. 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, environmentallysafe
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 19.1% of the Companys net
sales in 1997. See Chemical Coatings Pharmaceutical 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
multicoercivity 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 Club International, to enhance the security and
processing speed of transaction cards. The Company also has
ability to manufacture intaglio printed documents such as stock
certificates, bonds, gift certificates and certificates of
authenticity. Sales of products in this market
represented approximately 16.0% of the Companys net sales in
1997. 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 microprocessor. Sales of products in this market
represented approximately 13.4% of the Companys net sales in
1997. 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 ultraviolet light
degradation. Sales of products in this market represented
approximately 13.5% of the Companys net sales in 1997. See Other
Pigmented and Simulated Products.
CFCs products are sold to more than 5,000 customers worldwide.
The Company generated approximately 30.7% of its 1997 revenues
from sales outside of the United States and has sales,
warehousing, and finishing operations in the United Kingdom 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 $8.0
million in improved equipment. 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 zerodefect 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) 8913456. 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.
LowCost Producer. The Company plans to maintain and enhance
its position as a lowcost 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 GainSharing 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. In 1997, the Company installed a
50 wide stateoftheart printing press, enabling it to more
efficiently produce rolls of printed coatings in sizes
needed by the Companys Engineered Board customers.
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 zerodefect
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 knowhow, 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, preconstructed
housing interiors, valuepriced 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 tamperevident signature panels and
highabrasion tipping foils for transaction cards, as well as
specialized multicoercivity magnetic stripe products applied to
both plastic transaction cards and disposable fibrous substrates,
such as drivers licenses, student identification cards, airline
tickets, masstransit tickets, and telephone debit cards. This
product line also includes intaglio printing used on documents such
as stock certificates, bonds, gift certificates and certificates of
authenticity.
Holographic Products include the Companys hightechnology
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 received the largest order in its history from
Coors for holographic packaging for one of Coors beverage lines.
The Company also has a patented, computergenerated dotmatrix
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 stateoftheart ultraviolet 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 1997 Features
Printed RTA furniture Sauder 38.0 Large
library
products (bedroom, Woodworking, of
(Engineered office, Hart Furniture, patterns
Board, entertainment Phillips Superior
lead
building centers), (Magnavox), times
products, promotional Charleswood, Scratch/mar
consumer furniture Cana, Inc., resistant
electronics, (hotel and MilfordAstor finishes
home office), (Australia), (Armorite
decorating, cabinets, Dallas Plus)
trophies/award manufactured Woodcrafters, Match to
any
s) home interiors, Ditta Manetti pattern
picture frames, (Italy), Bush or color
award plaques, Industries,
trophy bases Progressive
Furniture
Pharmaceutical Intravenous Baxter 19.1 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
Fresenius
Security Magnetic Visa, 16.0 Magnetic
Products stripes, MasterCard, stripe is
(transaction signature Diners Club, durable
cards, panels, and Discover Card, (exceeds
life
identification tipping foils Eurocard, of card)
cards) for credit American Reliable,
few
cards, debit Express errors
cards, ATM Signature
cards, access panels are
cards, drivers tamper
licenses, evident
passports, Intaglio
intaglio printed
stocks
printed and bonds
security
documents
Holographic Authentication Intel, Ivy 13.4 Fully
Products seals, Hill, 3M, JBL, integrated
(product trophies, point PepsiCo, Coors
authentication ofpurchase Brewing Co.,
manufacturing
, highend packaging, AquaFresh, process
decorative holography for Colgate
Authenticates
packaging) textiles products
Patented
dot matrix
Other Beverage cases, Rubbermaid, 13.5
Scratch/mar
Pigmented and industrial Delco, Monroe, resistant
Simulated safety signs, Johnson Chemical
Metal Products battery cases, Controls, resistant
(injection vent caps, Mattel, Revlon, Lowcost
molded and spark plugs, AC Rochester
alternative
extruded dashboard Variety
of
plastics) inserts, tail colors
lenses, toys, Nontoxic
cosmetic
containers
Chemical Coatings
The manufacture of the Companys chemical functional coatings is a
multistep 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,
ultraviolet 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, Cana,
Hart, and Sauder. These products represented approximately
34.8%, 39.3%,
and 38.0% of the Companys net sales in the three years ended
December 31, 1995, 1996, and 1997 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 postforming 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
multilocation process to a onestep 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 solventbased
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 nontoxic
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 threeyear 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 22.3%, 21.2%, and 19.1% of the Companys
net sales in the three years ended December 31, 1995,
1996, and 1997
respectively.
Security Products
Security Products are divided into four categories within CFCs
core product line. These are tamperevident signature panels,
multicoercivity magnetic stripe, highabrasion tipping foils,
and
intaglio printed documents.
Signature panels are formulated for credit and transaction cards
and are designed to accept ballpoint 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 American
Express, 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 tamperevident 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.
Multicoercivity 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.
Multicoercivity 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, masstransit
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 solventbased printing
inks. They are an attractive alternative for disposable
product
applications.
Highabrasion 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.
The Company acquired substantially all the assets and
assumed substantially all the liabilities of Northern Bank
Note Company (NBNC) on September 3, 1997. NBNC is now called
CFCNorthern Bank Note and is an intaglio printer of high security
documents such as stock certificates, bonds, gift certificates,
and certificates of authenticity. In the intaglio printing
process, ink is built onto the surface upon which the printing
is applied, and the ink is evident to the touch.
Security products represented approximately 9.9%, 10.3%, and
16.0%
of the Companys net sales in the three years ended December
31, 1995, 1996, and 1997 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 majorityowned 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 ability
to produce holographic art origination that involves a
patented, computergenerated 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 securitysensitive products for
authentication and anticounterfeiting purposes, and for
pointofpurchase 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
threedimensional 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 electro
magnetically 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 three
dimensional and to move as the viewing angle changes.
Holographic products represented approximately 13.7%, 11.6%,
and
13.4% of the Companys net sales in the three years ended December
31, 1995, 1996, and 1997 respectively.
Holograms and Security or Product Authentication
Holograms, which cannot be colorcopied 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
anticounterfeiting and security devices. Holograms are widely used
as a security device by computer software companies,
microprocessor manufacturers, and entertainment event marketers,
in addition to other industries. The Company supplies holograms
used to authenticate Intel Corp.s
Pentium
microprocessor.
CFC Applied Holographics patented holographic computergenerated
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 computerdeveloped overlapping
images so that these images appear
as the viewers angleofview changes. The
flexibility created by the dot matrix process provides the
Company
with stateoftheart holographic products that are both cost
effective 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 paperbased products and pointofpurchase
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 and Colgate.
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 teeshirt
manufacturers, bathing suit manufacturers and other
textile manufacturers who require a highquality, bright,
decorative element.
Holographic Autostereoscopic Process
CFC Applied Holographics has granted a license to American
Propylaea Corporation to use CFC Applied Holographics realtime
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 $150,000 in 1996 and $165,000 in
1997.
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 manufactures 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 ultraviolet 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 pointofpurchase 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 19.3%, 17.6%, and 13.5% of the Companys net sales
in the three years ended December 31, 1995, 1996, and 1997
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 the United Kingdom 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.
During the three years ended December 31, 1995, 1996, and 1997,
net sales to Europe, the Pacific Rim, and other customers outside
of the United States were $9,446,000, $12,014,000, and
$13,327,000, and represented approximately 27.6%, 32.3%, and
31.5% respectively, of the Companys net sales. See Note 6
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 knowhow,
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 customerspecific 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, 1995, 1996, and
1997, the Company spent approximately $1,109,000,
$1,304,000,
and
$1,344,000, respectively, on Research and Development, of
which $433,000, $502,000, and $462,000, 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 ongoing 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, 1997, the Company had 23 full time sales
people who serve over 5,000 existing customers. Sales personnel
include the Senior Vice President of Sales and Marketing,
three Product Managers, four Regional Managers and twelve Field
Sales Engineers who are compensated on a salary plus
commission basis. The
Companys four 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 three distributors who service
small accounts in the United States and thirtytwo
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 longterm 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 1997 were
Baxter Healthcare, Reynolds and Intel. Sales made to Baxter are
pursuant to a threeyear, exclusive provider contract which was
renewed in November 1994 and expired in January 1998 and is
currently in the process of being signed. 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 1995, 1996, and 1997 were $4,537,749,
$4,627,558, and $5,460,362 respectively. Sales made to
Reynolds for Aquafresh are on an individual purchase order basis.
Sales to Reynolds for each of 1995, 1996, and 1997 were
$150,000, $239,000, and $1,515,000, respectively. Sales to
Intel are also on an individual purchase order basis, which is
consistent with Intels policies. The Company does not have a
longterm supply or exclusive provider arrangement with Intel.
Sales to Intel for each of 1995, 1996 and 1997 were $86,622,
$1,477,016, and $1,745,515 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 1997 installation of a 50 wide stateoftheart
printing press will enable it to access a broader market and
provide enhanced service to woodgrain markets and the markets for
Engineered Board. The Company has also made investments in high
speed slitting equipment.
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 afterthefact.
This is evidenced in that the Quality Assurance function reports
directly to the Companys Chief Executive Officer.
Regularly scheduled
departmental
communications and brainstorming meetings are held to identify
improved methods for production and quality. Quality is a
never ending process. The Company is now beginning to implement
a total quality management process in connection with an arm
of Northern Illinois University.
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
justintime inventory, reducing customers inventory carrying
costs. The Company also successfully completed its third ISO
9001 surveillance audit in May 1997.
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 knowhow.
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 multinational 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
longterm procurement projections.
The transferable chemical coatings industry not only
requires specialized knowledge and technology, but is capital
intensive, requiring expensive difficulttoconstruct and
difficulttooperate 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,
lowcost 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 as recently as December 1997
by the Illinois EPA, resulted in a 100% capture and
99.6%
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, 1997, the Company had approximately 252
fulltime employees. These included 127 in manufacturing, 56
in support services, 39 in marketing and sales, 11 in research
and development, and
19 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 150,000 square foot building at 500 State
Street in Chicago Heights, Illinois which houses its corporate
headquarters and its primary manufacturing operations, and
which currently utilizes approximately 65% of the buildings
capacity. The
Companys other principal properties are leased and include
the following: a 28,000 square foot intaglio printing
facility in Countryside, Illinois; 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 FisherCalo Superfund Site in
Kingsbury, Indiana (the FisherCalo 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 thirdparty defendant in the litigation
relating to the cleanup of the FisherCalo 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 FisherCalo
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 cleanup
of the FisherCalo 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, 1997 and, although
the actual cost of remediation for the total FisherCalo 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, 1997. 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, 1997, the last reported sale price of the Common
Stock on the Nasdaq National Market was $11.75 per share. At
March 20, 1997, there were approximately 127 record holders of
the Common Stock. The table below sets forth the high and low
sales prices of shares of Common 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, 1996
1st Quarter 12.00 8.875
2nd Quarter 18.00 11.750
3rd Quarter 17.00 11.750
4th Quarter 13.75 10.00
Year Ended December 31, 1997
1st Quarter 16.00 11.25
2nd Quarter 14.25 9.75
3rd Quarter 12.50 8.25
4th Quarter 13.87 11.00
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 Operations
Liquidity 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 fiveyear period ended
December 31, 1997, have been audited by Price Waterhouse
LLP, independent accountants, whose report for the years ended
December 31, 1995, 1996, and 1997 appears elsewhere in this
report. The selected financial data at and for the fiscal year
ended December 31, 1993 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
CCorporation 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,
1993 1994 1995 1996 1997
(In thousands, except
per share data)
Income Statement Data:
Net sales $25,328$27,808 $34,177 $37,227$42,319
Cost of sales 14,940 16,469 20,103 22,985 26,063
Gross profit 10,388 11,339 14,074 14,242 16,256
Selling, general and administrative 6,537 7,152
7,243
7,863 8,846
Research and development 1,019 1,062 1,109 1,304
1,344
Operating income 2,832 3,125 5,722 5,075 6,066
Interest expense 572 669 705 229 413
Other (income) expense (5) (12)
17
(65)
Income before taxes and minority interest 2,260 2,461
5,029
4,829 5,718
Provision for income taxes (1) 155 162 1,669
1,831
2,207
Minority interest in net income (loss) of
CFC Applied Holographics (270) (214)
210
15 290
Income from continuing operations 2,375 2,513 3,150
2,983
3,221
Discontinued operations:
Loss from discontinued operations (758)
Loss on disposal of discontinued operations
(260)
Net income $ 1,357$ 2,513 $ 3,150 $ 2,983 $3,221
Pro forma net income from continuing
operations (1996 and 1997 actual) $ 1,425 $ 1,463$
3,252
$ 2,983 $ 3,221
Pro forma net income from continuing operations
per share (basic and diluted) (1996 and 1997
actual) (2) $ 0.43$ 0.44 $ 0.95 $
0.66 $ 0.71
Pro forma weighted average number of shares of
common stock outstanding (1996 and
1997 actual) 3,302 3,302 3,429 4,504
4,530 Pro forma weighted average number of shares of
common stock and equivalents outstanding
(1996 and 1997 actual) 3,302 3,302 3,432 4,517 4,612
Pro forma net income from continuing operations,
as adjusted (1996 and 1997 actual) (2) (3) $ 1,635$
1,694 $ 3,522 $ 2,983$ 3,221
Pro forma net income from continuing operations
per share, as adjusted (basic and diluted)
(1996 and 1997 actual) (2) (3) $ 0.36 $ 0.38$
0.78 $ 0.66 $ 0.71
Pro forma weighted average number of shares
of common stock outstanding, as adjusted
(1996 and 1997 actual) (3) (4) 4,502 4,502 4,499
4,504 4,530
Pro forma weighted average number of shares
of common stock and equivalents outstanding,
as adjusted (1996 and 1997 actual) (3) (4) 4,502 4,502
4,501 4,517 4,612
Other Data:
Capital expenditures $ 1,937$ 1,591 $ 1,092 $ 3,862$ 3,319
Depreciation and amortization 1,107 1,249 1,423 1,535
2,093
EBITDA (5) 2,831 4,379 7,157 6,578 7,934
Balance Sheet Data (at period end):
Working capital $ 4,455$ 5,973 $ 7,950$ 10,635$ 12,993
Total assets 17,718 19,937 23,269 28,206 35,498
Total debt (6) 8,793 9,252 2,110 5,932 8,585
Stockholders equity 4,152 5,785 11,953 15,078 18,567
________________
(1) The Company became an SCorporation for federal and certain
state income tax purposes as of June 1, 1992, and effective upon
the consummation of the IPO, became a CCorporation.
(2) Pro forma net income from continuing operations for the periods
1993 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 SCorporation. No tax benefit is reflected for losses of
the Companys holographics joint venture, which resulted in a
net operating loss carryforward which the Company started to use
as profits were generated beginning in 1995. The pro forma net
income from continuing operations in 1993 and 1994 would
have been $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 longterm portions of debt.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company formulates, manufactures, and sells
chemicallycomplex, transferable multilayer 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 from 25.3 million in 1993 to $42.3 million in 1997.
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 fouryear
period, increasing from $2.8 million, or 11.2% of net sales in
1993 to $6.1 million, or 14.3% of net sales in 1997. 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 1993 to 1997, printed products
sales rose from 22.9% to 38.0% of net sales. Pharmaceutical
products sales declined from 25.6% in 1993 to 19.1% of net sales
in 1997 due to the growth of other product lines. Actual
pharmaceutical product sales increased from $6.5 million in 1993
to $8.1 million in 1997, or an
increase of 24.9% over that fouryear period. Security
products sales increased from 6.7% in 1993 to 16.0% of net sales
in 1997. The Northern Bank Note Company acquisition represented
$2.1 million of that growth, or 41.0%. Holographic products
grew from 8.5% in
1993 to 13.4% of net sales in 1997, primarily due to
authentication sales and consumer products packaging.
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
technical personnel, related depreciation, and experimental
materials.
Results of Operations
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,
1995 1996 1997
Net sales 100.0% 100.0%
100.0%
Cost of sales 58.8 61.7 61.6
Gross profit 41.2 38.3 38.4
Selling, general and administrative 21.2 21.2 20.9
Research and development 3.3
3.5
3.2
Operating income 16.7 13.6 14.3
Interest expense and other
2.0
0.6 0.8
Income before taxes and minority interest
14.7
13.0 13.5
Provision for income taxes 4.9 4.9 5.2
Minority interest 0.6 0.1 0.7
Net income 9.2% 8.0%
7.6%
1997 Compared to 1996
Net sales for the year ended December 31, 1997 increased 13.7%
to $42.3 million from $37.2 million for the year ended December
31, 1996. Printed products sales increased 10.3% to $16.1 million
from $14.6 million primarily due to an increase in the growth
of the Companys customers. Pharmaceutical product sales
increased 2.5% to $8.1 million from $7.9 million. Security
products (magstripe, signature panels, and tipping products for
credit cards and intaglio printed security documents) sales
increased 78.9% to $6.8 million from $3.8 million. This
increase is primarily due to the Companys enhanced magstripe
products and $2.1 million of intaglio printed document sales
as a result of the Northern Bank Note Company acquisition
in September of 1997. Sales of other pigmented and simulated
metal products decreased 12.3% to $5.7 million from $6.5 million,
primarily due to the Company choosing not to produce low margin
products. Holographic product sales increased 32.6% to $5.7
million for the year ended December 31, 1997 compared to
$4.3 million for the year ended December 31, 1996, primarily due
to the increase in eyecatching packaging jobs for consumer
products.
Gross profit for the year ended December 31, 1997 increased 14.8%
to $16.3 million from $14.2 million for the year ended December
31, 1996. The increase in gross profit was attributable to the
growth in sales, partially offset by increased printed products
startup costs due to debugging the new printing press. The
gross profit margin for the year ended December 31, 1997
increased to 38.4% from 38.3% for the year ended December 31,
1996. This increase in margin is primarily due to growth
in sales, offset by increased manufacturing costs 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, 1997 increased 11.4% to $8.8 million from $7.9
million for the year ended December 31, 1996. This increase is
primarily due to the increase in selling, general and
administrative expenses in connection with the Northern Bank
Note Company acquisition. Selling, general and administrative
expenses for the year ended December 31, 1997 decreased as a
percentage of net sales to 20.9% from 21.1% for
the year ended December 31, 1996.
Research and development expenses for the year ended December
31, 1997 increased 3.1% to $1,344,000 from $1,304,000 for the year
ended December 31, 1996. Research and development expenses for
the year ended December 31, 1997 decreased as a percentage of
net sales to 3.2% from 3.5% for the year ended December
31, 1996. This
percentage decrease was primarily due to the increase in
sales volume.
Operating income for the year ended December 31, 1997
increased 19.6% to $6.1 million from $5.1 million for the year
ended December 31, 1996. Operating income for the year ended
December 31, 1997 increased as a percentage of net sales to
14.3% from 13.6% for the year ended December 31, 1996. The
increase was due to an increase in sales volume, partially
offset by increased manufacturing costs discussed above.
Interest expenses for the year ended December 31, 1997
increased
80.3% to $413,000 from $229,000 for the year ended December
31, 1996. The increase in interest expense resulted from an
additional six months of interest on funds outstanding under a
revenue bond originated in June 1996 to fund the purchase of a
roto gravure press for the Companys Printed Products line and
the funding of the Northern Bank Note acquisition.
Income taxes for the year ended December 31, 1997 increased 22.2%
to $2.2 million from $1.8 million for the year ended December 31,
1996. This was primarily the result of an increase in the
Companys operating income.
Net income for the year ended December 31, 1997 increased 6.7%
to
$3.2 million from $3.0 million for the year ended December 31,
1996. This increase was primarily due to an increase in sales
volume, offset by increased manufacturing costs.
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
0.9% 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 similarlysized 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 startup 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 startup 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
startup costs due to new technology introduced to the
manufactured housing industry in the third quarter and an
increase in expenses resulting primarily from a onetime
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 SCorporation 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, 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
proforma net income of $3.3 million assumes the Company had been
a CCorporation throughout 1995.
Quarterly Results of Operations
The following table presents unaudited financial results for each
of the eight quarters in the period ended December 31, 1997. 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 consolidated quarterly results when read in
conjunction with the audited consolidated 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
1996
1996 1996 1996 1997
1997
1997 1997
Net sales
$9,540$9,886$8,282$9,519$9,810$9,999$10,927$11
,583
Cost of sales 5,6345,7035,555 6,093 5,7816,237 6,7677,278
Gross profit 3,906 4,1832,727 3,426 4,0293,762 4,1604,305
Selling, general and administrative
expense 2,161 2,2392,644 2,123 2,2292,568 2,4922,901
Operating income 1,745 1,944 83 1,303 1,8001,194 1,6681,404
Interest expense 60 62 59 48 76 88 125 124
Other expense (income) 16 1
(73)
36 9 (37)
Income before taxes and minority
interest 1,669 1,881 24 1,255 1,7971,070 1,5341,317
Provision for income taxes 646 705 18 462
688393
601 524
Minority interest in income (loss) 69 (56)
2
78 10 102 101
Net income $1,023$1,107$ 62$ 791 $1,031$ 667$ 831
$
692
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 59.1 57.7 67.1 64.0 58.9 62.4 61.9
62
.8
Gross profit 40.9 42.3 32.9 36.0 41.1 37.6 38.1
37.2
Selling, general and administrative
expense 22.6 22.6 31.9 22.3 22.7 25.7
22.8
25.1
Operating income 18.3 19.7 1.0 13.7 18.4 11.9 15.3
12.1
Interest expense 0.6 0.7 0.7 0.5 0.8 1.2 1.3
1.1
Other expense (income) 0.2
(0.7)
(0.3)
Income before taxes and minority
interest 17.5 19.0 0.3 13.2 18.3 10.7 14.0
11.3
Provision for income taxes 6.8 7.1 0.3 4.9 7.0
3.9
5.5 4.5
Minority interest in income (loss) 0.7 (0.7)
0.8 0.1 0.9 0.8
Net income 10.7 11.2 0.7 8.3 10.5 6.7
7.6
6.0
The fourth quarter sales for 1996 and 1997 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 startup 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 onetime 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 reengineering of manufacturing functions. The selling,
general and administrative expenses increase in the fourth
quarter of 1997 represented an increase in expenses due to the
Northern Bank Note Company acquisition in September, 1997.
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 $5,193,000, $2,451,000 and $4,690,000 for the
years ended December 31, 1995, 1996 and 1997 respectively. This
is a $2,239,000 increase over 1996 and resulted in a $913,000
increase in cash for the year ended December 31, 1997. The cash
increase was primarily the result of four factors:
(1) depreciation and amortization expense
increased by $558,000 to $2,093,000 as a result of placing
the Companys new press in service during 1997; (2) trade
payables increased by $260,000 due to both better terms and cash
management; (3) accrued expenses, including amounts owed to the
minority partner in Applied Holographics and employee bonus
increased by $354,000; and (4) restricted cash used to fund
the new press decreased by $1,511,000. Offsetting these
increases to cash, the Company invested $1,758,000 in the
acquisition of Northern Bank Note Company and $3,319,000 in
new plant and equipment. Additionally,
inventories increased by $1,134,000 due in part to
managements decision to support key markets and customers with
higher inventory levels. Trade receivables were up by $277,000
solely as a result of the increased sales levels in 1997.
The Companys capital expenditures totaled approximately
$1,092,000, $3,862,000, and $3,319,000 for the years ended
December 31, 1995, 1996 and 1997 respectively, and included
the acquisition of high speed computerized slitting equipment
in 1995 and payments for the new 50 wide printing press in 1996
and 1997. To fund their income tax liabilities on the Companys
net income and the repayment of stockholder loans, the
Company previously made SCorporation
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
were 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, 1997,
the entire amount had been drawn upon. The Company incurred
$172,391 of costs associated with the issuance of the bonds,
which are being amortized over twelve years.
On September 3, 1997, the Company also issued to the seller
of Northern Bank Note Company, a nineyear, 6% Subordinated Note in
the principal amount of $3.0 million, which is convertible in
whole or in part, at the option of the holder beginning after
the first anniversary of the Note, into the Companys Common
Stock at a conversion price of $14.00 per share.
The Companys revolving credit agreement with a bank (the Credit
Facility) provides for borrowings under an unsecured
revolving credit loan, with total borrowings not to exceed
$4,500,000. The principal balance of the revolving credit loan
was zero at December 31, 1997. The revolving credit loan expires
April 1, 1998 and bears interest at the banks prime rate (8.50%
at December 31, 1997) or, at the Companys option, at LIBOR
(5.625% at December 31, 1997) plus 1.0%. A .25% fee is applied
for undrawn funds. The Credit Facility also provides for two term
loans. The outstanding principal balance of term loan A was
$1,655,000 as of December 31, 1997 and is due April 1, 1999.
Interest on term loan A accrues at the banks
prime rate plus 0.25%, but not to exceed 9.5%. The Credit
Facility contains covenants which limit aggregate annual lease
payments to $500,000 and prohibit the declaration of dividends
(other than SCorporation dividends and the 1995 $4.5
million SCorporation 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 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 Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 123 (SFAS), 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 stockbased compensation.
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share
(EPS). The statement replaces primary EPS with basic EPS, which
excludes dilution, and requires presentation of both basic
and diluted EPS on the face of the income statement. The
Company adopted this Statement in the fourth quarter of 1997
and has calculated and disclosed basic and diluted EPS for
all periods presented.
In June 1997, the FASB issued SFAS No. 130, Reporting
Comprehensive Income. The statement requires the addition of
comprehensive income and its components in the primary
financial statements. Comprehensive income includes
cumulative foreign currency translation which is not included
in income under current accounting principles. The statement is
effective for fiscal years beginning after December 15, 1997,
and requires comparative amounts in financial statements for
earlier periods presented.
In June 1997, the FASB issued SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. The
statement requires the Company to report financial and descriptive
information about its reportable segments, determined using
the management approach (i.e., internal management reporting), in
interim and year
end financial statements. The statement is effective for
fiscal years beginning after December 15, 1997.
The Company has not yet determined the impact that SFAS No. 130
and No. 131 will have on its financial statements.
Special Note on ForwardLooking Statements
The statements contained in this report that are not
historical facts are forwardlooking 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 forwardlooking
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.
Year 2000 Issue
All work necessary to upgrade the Companys computer systems
for Year 2000 compliance is expected to be completed in a timely
fashion and should not involve a significant amount of the
Companys resources. The Company is not able to determine,
however, whether any of its suppliers, lenders, or service
providers will need to make any software modifications or
replacements or whether the failure to make software
corrections will have an effect on the Companys operations or
financial condition.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Accountants 22
Consolidated Balance Sheets at December 31, 1997 and 1996 23
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995 24
Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996 and 1995 25
Consolidated Statements of Stockholders Equity for the years ended
December 31, 1997, 1996 and 1995 26
Notes to Consolidated Financial Statements at December 31, 1997
27
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, 1997 and 1996, and the results
of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, 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 6, 1998
CFC INTERNATIONAL, INC.
CONSOLIDATED BALANCE
SHEETS
December 31,
1997 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,841,070
$
927,703
Accounts receivable, less allowance for doubtful accounts of
$612,000 and
$565,000 respectively 6,631,516 5,996,657
Employee receivable 253,928 220,833
Inventories (Notes 1 and 4):
Raw materials 1,358,258 837,307
Work in process 1,825,356 1,086,308
Finished goods 5,447,990
5,142,558
8,631,604 7,066,173
Prepaid expenses and other current assets 644,578
392,593
Deferred income taxes 641,977 663
,520
Total current assets 18,644,673
15,267,479
Property, plant and equipment, net (Notes 1, 3, and 4)
15,095,897 10,866,717
Other assets 1,758,269 561,085
Restricted cash (Note 4)
1,510,827
Total assets $35,498,839
$28,206,108
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Current portion of longterm debt (Note 4) .....................
$ 716,079 $368,124
Accounts payable 3,122,580 2,558,486
Accrued environmental liability (Note 12) 244,937
244,937
Accrued bonus 76,065 200,290
Accrued vacation 304,730 236,422
Other accrued expenses and current liabilities 1,187,390
1,024,507
Total current liabilities 5,651,781 4,632,766
Deferred income taxes 1,974,942 1,785,740
Longterm debt (Note 4) 7,869,419 5,564,027
Minority interest in CFC Applied Holographics (Note 11)
1,435,371 1,145,240
Total liabilities 16,931,513
13,127,773
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;
4,218,226
and 4,175,650 shares issued at December 31, 1997 and 1996
respectively 42,182 41,757
Class B common stock, $.01 par value, 750,000 shares
authorized; 518,169 and 528,689 shares issued and
outstanding at December
31,
1997 and 1996 respectively 5,182 5,287
Additional paidin capital 10,464,985
10,139,248
Retained earnings 8,331,850 5,110,647
Cumulative foreign currency translation adjustment (86,160)
(27,891)
18,758,039
15,269,048
Less 193,837 treasury shares of common stock, at cost at
December 31, 1997 and 1996 respectively (190,713)
(190,713)
18,567,326 15,078,335
CONTINGENCIES (Note 12)
Total liabilities and stockholders equity $35,498,839
$ 28,206,108
The accompanying notes are an integral part of the consolidated
financial statements.
CFC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
December 31,
1997 1996 1995
Net sales $42,319,147 $
37,227,333 $ 34,177,344
Cost of goods sold 26,063,431 22,984,895
20,103,407
Gross profit 16,255,716 14,242,438
14,073,937
Marketing and selling expenses 4,813,880 4,082,588
3,746,807
General and administrative expenses 4,032,066 3,615,341
3,228,052
Research and development expenses 1,343,678 1,304,304
1,109,247
Patent litigation expenses 164,590 267,910
10,189,624 9,166,823
8,352,016 Operating income 6,066,092 5,075,615 5,721,921
Other expenses (income):
Interest 412,920 228,909 705,250
Miscellaneous (65,183) 16,962 (12,274)
347,737 245,871 692,976
Income before income taxes and minority interest 5,718,355 4,829,744
5,028,945
Provision for income taxes (Note 5) 2,207,021 1,831,141 1,668,874
3,511,334 2,998,603 3,360,071
Minority interest in income of CFC Applied Holographics (290,131)
(15,133)
(209,869)
Net income 3,221,203 $2,983,470 $ 3,150,202
Unaudited pro forma data (Note 5):
Income before income taxes and minority interest $5,028,945
Provision for income taxes 1,567,000
3,461,945
Minority interest in income of CFC Applied Holographics (209,869)
Pro forma net income $3,252,076
Basic earnings per share (Note 10):
Net Income and pro forma net income per share $0.71$0.66$0.95
Diluted earnings per share (Note 10):
Net Income and pro forma net income per share $0.71$0.66$0.95
Supplemental pro forma net income per share (Note 10):
Basic earnings per share $ $ $0.78
Diluted earnings per share $ $ $0.78
The accompanying notes are an integral part of the
consolidated financial statements.
CFC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31,
1997 1996
1995
Cash flow from operating activities:
Net income $3,221,203 $
2,983,470 $ 3,150,202
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,092,937 1,535,396 1,423,043
Deferred income taxes 210,745 (26,027) 1,148,247
Minority interest in CFC Applied Holographics 290,131 15,133 209,869
Changes in assets and liabilities:
Accounts receivable (277,186) (81,248) (1,681,651)
Inventories (1,134,997) (733,456) (325,623)
Employee receivable (33,095) (57,740) (163,093)
Prepaid expenses and other current assets (3,104) (35,336) (113,016)
Accounts payable 259,602 377,384 (64,483)
Accrued bonus (124,225) (523,710) 609,000
Accrued environmental liability (55,063)
Accrued expenses and other current liabilities 187,839 (947,795) 1,000,520
Net cash provided by operating activities 4,689,850 2,451,008 5,193,015
Cash flows from investing activities:
Additions to property, plant and equipment
(3,318,819) (3,861,876)
(1,091,993)
Restricted cash 1,510,827
(1,510,827)
Increase in other assets
(87,900)
Cash invested in acquired business
(1,758,327)
Net cash used in investing activities (3,566,319) ( 5,460,603)
(1,091,993)
Cash flows from financing activities:
Proceeds from revolving credit agreements 1,600,000 3,775,157
18,771,000
Repayments of revolving credit agreements (1,600,000) (3,775,157)
(23,486,004)
Repayment of term loans (111,504) (111,504) (2,551,964)
Borrowing under Illinois Revenue Bond, net
3,924,900 Repayment of IRB (200,250)
Repayment of capital lease (49,521) (71,139) (31,665)
Minority interest payments (62,845) (47,468)
Proceeds from issuance of common stock 147,556 111,713 9,728,931
Tax benefits from exercise of stock options
22,935
Distributions to stockholders (800,000) (5,755,197)
Net cash (used in) provided by financing activities (213,719) 2,991,125
(3,349,432)
Effect of exchange rate changes on cash and cash equivalents 3,555
29,693 (6,159)
Increase in cash and cash equivalents 913,367 11,223 745,431
Cash and cash equivalents:
Beginning of period 927,703 916,480 171,049
End of period $1,841,070 $ 927,703
$ 916,480
The accompanying notes are an integral part of the consolidated
financial statements.
CFC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Cumulative
foreign
Class BAdditional currency Total
Commoncommonpaidin Retainedtranslation Treasury
stockholders
stock stock capital earnings
adjustment
stock equity
Balance at December 31, 1994 $ 27,519$ 6,408 $ 239,515 $5,702,779 $
(51,425) $ (139,822) $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
SCorporation 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 SCorporation
earnings 170,260 (170,260)
Balance at December 31, 1995 $ 41,562$ 5,340 $ 10,027,677 $ 2,127,177 $
(57,584) $ (190,713) $ 11,953,459
Net income 2,983,470 2,983,470
Employee stock purchases 142 111,571
111,713
Reclassify shares 53 (53)
Foreign currency translation
adjustment 29,693 29,693
Balance at December 31, 1996 $ 41,757$ 5,287 $ 10,139,248 $ 5,110,647
$
(27,891) $ (190,713) $ 15,078,335
Net income 3,221,203 3,221,203
Foreign currency translation
adjustment (58,269) (58,269)
Employee stock purchases 147 144,691
144,838
Exercise of options 3 2,716
2,719
Reclassify shares 105 (105)
Shares issued (Note 2) 170 178,330
178,500
Balance at December 31, 1997 $ 42,182$ 5,182 $ 10,464,985 $ 8,331,850
$ (86,160) $ (190,713) $ 18,567,326
The accompanying notes are an integral part of the consolidated
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 13, 12, and
13 percent of net sales during 1997, 1996 and 1995, respectively.
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
11) and CFC International Sales, Inc. to the Companys
stockholders at net book value, and elected SCorporation status
for federal income tax purposes.
The financial statements include the accounts of the
Company and its subsidiaries as if they were whollyowned 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. Certain prior year amounts have been
reclassified to conform to current year presentation.
Cash and cash equivalents. The Company considers all highly
liquid investments with an original maturity of three months or
less which are readily convertible into cash to be cash
equivalents.
Inventories. Inventories are stated at the lower of cost
or market, cost being determined on the firstin, firstout
(FIFO) basis. Inventory cost includes cost of raw
material, labor and
overhead.
Property, plant and equipment. Property, plant and equipment
are recorded at cost. The straightline 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 expensed as incurred. If the carrying value of
an asset, including associated intangibles, exceeds the sum of
estimated undiscounted future cash flows, then an impairment
loss is recognized for the difference between the estimated
fair value and carrying value.
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 yearend 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. See Note 10 for computation of basic
and diluted earnings per share. Pro forma earnings per share
have been computed after giving retroactive effect to the
1.2565385for1 stock split and stock dividend (Note 8), and
assuming those shares necessary to be issued to reacquire the
21% interests in its subsidiary companies were outstanding
from the beginning of the period presented. 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 shares and common stock
equivalents used in the supplemental pro forma earnings
per share calculation assumes the retroactive effect of the
1.2565385for1 stock split, stock dividend, 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.
SFAS No. 123. Effective January 1, 1996, the Company adopted
the disclosure method provisions of Statement of Financial
Accounting Standards (SFAS No. 123) Accounting for StockBased
Compensation. As permitted by SFAS No. 123, the Company
continues to recognize stockbased compensation costs under
the intrinsic value base method prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations.
Fair value of financial instruments. As of December 31, 1997,
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, as well as the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
Intangibles. The excess of cost over the fair value of the
net
assets of businesses acquired was $1,758,269 and $561,085
at December 31, 1997 and 1996 respectively. Accumulated
amortization amounted to $210,000 and $87,000 at December 31,
1997 and 1996, respectively. Amortization expense was
$123,000, $57,000 and $49,000 in 1997, 1996, and 1995,
respectively. Intangibles are amortized on a straightline
basis over periods of up to 15 years. The increase in 1997 was
due to the acquisition of Northern Bank Note Company (NBNC).
Statement of cash flows.
SUPPLEMENTAL DISCLOSURES
For Year Ended December
31, 1997 1996
1995
Cash paid during the year for:
Interest paid $357,909 $209,063
$722,805
Income taxes paid 2,269,636 2,026,090
101,000
Noncash investing and financing activities:
Lease assets and obligations capitalized
156,116
Note 2. Acquisition
On September 3, 1997, the Company acquired substantially all of the
assets and assumed substantially all of the liabilities of
NBNC. NBNC is a financial security printer of stock
certificates and other intaglio printed documents. The Company
intends to operate NBNC substantially in its present form. In
consideration of this acquisition, the Company issued 17,000
shares of its common stock, par value $.01 per share (the
Common Stock); delivered a nineyear, 6% subordinated note in
the principal amount of $3,000,000 (the Note), convertible, in
whole or in part, at the option of the holder beginning after
the first anniversary of the Note, into Common Stock at a
conversion price of $14.00 per share; delivered a shortterm note
in the principal amount of $1,500,000 which was paid in full on
September 4, 1997; and paid $258,300 in cash. The Company has
agreed to register for resale under the Securities Act of 1933,
as amended, all shares of Common Stock to be issued upon
conversion of the Note. The Company also agreed to pay the
seller $25,000 for consulting services during the next
year. The acquisition was accounted for using the
purchase method of accounting. Approximately $1,500,000 of
the cash purchase price was obtained by the Company through
borrowings under the Companys revolving credit facility.
Note 3. Property, Plant and Equipment
Property, plant and equipment consist of the following:
Estimated December 31,
Useful
Life
1997 1996
Land $105,670 $105,670
Building 3,468,697 3,041,914 25
years
Machinery and manufacturing equipment 20,704,707
12,596,
064 10 years
Furniture and office equipment 1,768,051
1,612,736
10 years
Construction in process 2,498,849
26,047,125 19,855,233
Less Accumulated depreciation
(10,951,228)
(8,988,516)
$15,095,897 $
10,866,717
Note 4. LongTerm Debt
Longterm debt consists of the following:
December 31,
1997 1996
Illinois Revenue Bonds $3,804,750
$4,005,000
Term Loan A 1,655,304 1,741,648
Convertible Subordinated Note 3,000,000
Other 125,444 185,503
8,585,498 5,932,151
Less Amounts included in current liabilities
716,079
368,124
$7,869,419
$5,564,027
Illinois Industrial Development Revenue Bonds. The
Company
received $4,005,000 of proceeds from the issuance of the bonds
on June 20, 1996. The proceeds were 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.
At December 31, 1996, the Company had $1,510,827 of restricted
cash as a result of this issuance. The restriction on this cash
was released during 1997 to fund costs associated with the
printing press. Capitalized issuance costs of $172,391 are being
amortized over the life of the bonds utilizing the straightline
method.
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 was 3.65% at December 31,
1997 and December 31, 1996, respectively. Annual principle
payments of $200,250 began in 1997 and will continue 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 principal payment of $1,516,000 due
at maturity. Interest is payable monthly at a rate equal to
the banks prime rate plus 0.25%, with a maximum rate of 9.50%.
This term loan was renewed on March 3, 1997 and now matures on
April 1, 1999.
Convertible Subordinated Debt. On September 3, 1997, the
Company issued a nine year, 6% convertible subordinated
note in the principal amount of $3,000,000 with annual
principal payments commencing in 1998 of $333,333. The Note was
issued to the seller in the Companys acquisition of Northern
Bank Note Company (see Note 2). The Note is convertible, in
whole or in part, at the option of the holder beginning after
the first anniversary of the Note, into Common Stock of the
Company at a conversion price of $14.00 per share. The Note
is noncallable for three years from the date of issuance.
Thereafter, the Note is callable at premiums starting at 102% of
face value and declining in subsequent years. In addition, the
Note is callable by the Company ten days after the first
anniversary of the Note if the Companys stock price exceeds 110%
of the conversion price for twenty consecutive days. The Note
bears interest at 6% per year, which is payable quarterly,
and matures September 3, 2006.
The Note agreement contains covenants that include
certain
financial tests, including restrictions on indebtedness.
Revolving Credit Arrangements. The Company and its
subsidiaries have various revolving credit arrangements that
provide for maximum borrowings of approximately $5,830,000.
Under these revolving credit arrangements, interest is payable
at either the respective banks prime rate (8.50% and 8.25% at
December 31, 1997 and 1996) or 2% over the Bank of Englands
sterling base rate (7.25% and 6.0%
at December 31, 1997 and 1996). The revolving credit
arrangements expire at various dates in 1998. No amounts were
outstanding at December 31, 1997 and 1996. The Company is
required to pay a quarterly fee for the unused portion on one
of its facilities at an amount equal to .25% times the daily
average of the unused portion. Such payments in 1997, 1996 and
1995 were not significant.
The bank agreements contain covenants which, among other things,
restrict new indebtedness and dividend declarations, and prohibit
net losses. The borrowings are secured by substantially all of the
Companys assets.
Aggregate minimum principal payments for all longterm debt,
excluding capital lease obligations, as of December 31, 1997 are as
follows:
1998 $644,837
1999 2,051,973
2000 533,583
2001 533,581
2002 533,581
Thereafter 4,216,697
$8,514,252
Note 5. Income Taxes
The income tax provision (benefit) consists of the following:
For Year Ended December 31,
1997 1996 1995
Current Payable:
Federal $1,805,870 $
1,488,424 $ 241,644
State 337,215 340,784 103,125
Foreign (146,809) 27,960 175,858
Deferred 210,745 (26,027)
1,148,247
$2,207,021 $
1,831,141 $1,668,874
The Company elected, beginning June 1, 1992, to be treated as an S
Corporation for federal and certain state income tax purposes.
Coinciding with the Companys initial public offering in 1995, the
Company terminated its SCorporation 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 proforma basis
for the year ended December 31,1995 are as follows:
1995
Current:
Federal $1,369,000
State 330,000
Foreign 176,000
Deferred (308,000)
$1,567,000
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:
1997 1996 1995
Actual
Actual
Proforma
Statutory U.S. tax rates 34.0%
34.0%
34.0%
Decrease in rates resulting from:
State and local taxes 4.7% 4.7% 3.1%
Decrease in valuation allowance
(6.5%)
AMT credit (1.5%)
Other, net 2.0% 0.7%
0.6%
Effective tax rate 40.7% 37.9% 31.2%
Deferred tax liabilities (assets) are as follows:
December 31,
1997 1996
Depreciation $2,067,985 $1,785,740
Other, net (735,020) (663,520)
$1,332,965 $1,122,220
Note 6. 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:
1997 1996 1995
Assets $1,469,032 $
1,141,614 $ 1,018,271
Liabilities 255,975 70,726 141,804
Net Sales 6,673,591 4,819,567
4,280,554
Net Income 134,736 73,332 64,942
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:
1997 1996 1995
Assets $422,353 $636,896
$853,412
Liabilities 110,615 37,204 185,798
Net Sales 1,197,662 1,414,216
1,806,150
Net Income/(Loss) (222,254) (11,526) 110,296
Export sales from U.S. operations amounted to $5,455,923,
$5,780,161, and $3,358,892 in 1997, 1996 and 1995, respectively.
Note 7. 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 $86,000,
$81,000, and $69,000 of 401(K) matching expense during 1997,
1996 and 1995, respectively.
Note 8. 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 antidilution
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 reacquisition 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 consolidated financial statements have
been adjusted to give retroactive effect to the 1.2565385for1
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 $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 recapitalization
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 1997, 1996 and 1995, 10,520, 5,340 and
106,805 shares, respectively, of Class B common stock were
converted into an equal number of shares of common stock.
Note 9. Stock Plans
Stock Option Plan. The Companys stockholders approved a Stock
Option Plan (the Plan) in August 1995, which provides for the
grant of nonqualified 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 antidilution 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.
All options have terms of ten years, and employee options
generally vest over a period of four years. Options granted in
connection with the 1997 Executive Performance Plan (Performance
Plan) vest over a period of 9.5 years unless certain Company
performance criteria are achieved, in which case vesting of a
portion of the total options for each executive employee
under the Performance Plan is accelerated to a period of two
years, upon the election of each executive. Based on 1997
Company performance and executive elections, executives under
the Performance Plan will vest in 6,660 shares over the two
year period ending December 31, 1999. The
range of exercise prices for options under the Plan at December
31, 1997 is $10.88 to $15.25, with a weighted average
remaining contractual life of 8.8 years.
Stock option activity in 1997 and 1996 for the Plan is
summarized below:
1997 1996
Average Average
Shares Option PriceShares
Option
Price
Beginning balance 76,673 $10.78
Granted 99,610 $12.69 77,673 $10.78
Forfeited (1,250)$11.52 (1,000) $10.88
Exercised (250) $10.88
Ending Balance 174,783$11.86 76,673 $10.78
Options exercisable at year end 18,918 $10.77
Average fair value of options granted during
the year $ 6.07 $4.67
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 nonemployee
directors of the Company. A total of 50,000 shares of common
stock are reserved for issuance under the DSOP, subject to
antidilution and other adjustment provisions. An option to
purchase 10,000 shares of the Companys stock was granted to
each of the three nonemployee 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. The range of exercise prices for options under
the DSOP at December 31, 1997 is $8.75 to $9.50, with a
weighted average remaining contractual life of 8.3 years.
Stock option activity in 1997, 1996 and 1995 for the DSOP
is summarized below:
1997 1996 1995
Average Average Average
Shares Option Price Shares Option
Price Shares Option Price
Beginning balance 30,000 $9.50 30,000 $9.50
Granted 10,000 8.75 30,000 $9.50
Ending balance 40,000 $9.31 30,000 $9.50 30,000 $9.50
Options exercisable at year end 15,000 $9.50 7,500
$9.50
Average fair value of options
granted during the year $ 4.22 $
$ 3.68
All options granted under the Plan and the DSOP have had
exercise prices equal to the fair market value of the shares on
the date of grant.
The fair value of each option granted is estimated at the date
of the grant using the BlackScholes optionpricing model
utilizing expected volatility calculations based on
historical data of companies with similar structure and
volatility over a period commensurate to the expected term of
the options (25% to 40%) and 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 for
employee options and 9.5 years for options under the
Performance Plan (see above) and dividends are assumed to be
zero.
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 No. 123, the Companys net earnings
per share would have been reduced to the proforma amounts
indicated below:
1997 1996 1995
Proforma net income (dollars in thousands) $3,031
$2,928
$ 3,519
Proforma earnings per share (basic and diluted) $ 0.67
$
0.65 $ 0.78
The effects of applying SFAS 123 on the above proforma
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 fiveyear period commencing
January 1, 1996. During
1997 and 1996 respectively, 14,816 and 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 fulltime 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, whichever is less. 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 10. Earnings per Share
1997 1996
1995
Per Per
Per
Income SharesShareIncome SharesShare Income
SharesShare Basic Earnings per Share:
Income available to Common
Stockholders $3,221,2034,529,562 $0.71$2,983,4704,504,067 $0.66
$3,252,076
3,429,089 $0.95
Effect of Dilutive Securities:
Options exercisable 11,001 12,534 2,529
Convertible debt $36,00071,428
Diluted Earnings per Share $3,257,2034,611,991 $0.71$2,983,4704,516,601 $0.66
$3,252,0763,431,618 $0.95
1995
Per
Income Shares Share
Supplemental proforma net income per share:
Basic Earnings per Share:
Income available to Common
Stockholders $3,522,0004,498,654 $0.78
Effect of Dilutive Securities:
Options exercisable 2,529
Diluted Earnings per Share $3,522,0004,501,183
$0.78
Note 11. 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 $510,000 cost of the Companys increase in
ownership interest from 50.01% to 75% was recorded as goodwill.
Accumulated amortization of this goodwill approximated $159,000 and
$110,000 at December 31, 1997 and 1996, respectively.
Note 12. 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 0.7% (or .35% each) 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 cleanup 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 $50,000 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, 1997. The adequacy of this reserve is
reviewed periodically as more definitive information becomes
available.
Note 13. Selected quarterly financial data (unaudited), in
thousands, except per share data
Quarter Ended
Dec. 31 Sept. 30 June 30 Mar.
31 Dec. 31 Sept. 30 June 30 Mar. 31
1997 1997 1997
1997
1996 1996 1996 1996
Revenues
$11,584$10,927$9,999$9,810$9,519$8,282$9,886$9,540
Gross Profit 4,305 4,1603,762 4,029 3,4262,727 4,183 3,906
Operating Income 1,404 1,6681,194 1,800 1,303 83 1,944 1,745
Net Income 692 831 667 1,031 791 62 1,107 1,023
Basic earnings per share .15 .18 .15 .23 .18
.01 .24 .23
Diluted earnings per share .15 .18 .15 .23 .18
.01 .24 .23
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 1998 (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, 1997, 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 63 Chairman of the Board of
Directors,
Chief Executive
Officer, and President
Dennis W. Lakomy 53 Vice President, Chief
Financial
Officer, Secretary,
Treasurer and Director
David C. Beeching 58 Vice President of Sales &
Marketing
Holographics
Glenn L. Ford 53 Vice President of Manufacturing
Mark A. Lamb 46 Vice President and General
Manager
Security Printing
William A. Herring 51 Senior Vice President of
Operations
Robert E. Jurgens 56 Senior Vice President of Sales
&
Marketing
Craig D. Newswanger 44 Vice President of Research
&
Development
Holographics
David M. Plomin 33 Director of Research &
Development
Jeffrey E. Norby 42 Controller
Peter C. McGillivray 53 Managing Director United
Kingdom
Operations
Shigemitsu Takashima 63 Managing Director
Japan
Operations
Roger F. Hruby, Chairman of the Board, Chief Executive Officer,
and 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 startup 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.
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 cofounding 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.
Mark A. Lamb, Vice President and General Manager of
CFCNorthern Bank Note joined Northern Bank Note in 1977, and has
held various positions in production, sales and marketing
and executive
management before assuming the General Manager position
in
September, 1997. Mr. Lamb holds a B.S. Degree from
Northern Illinois University and graduated from the Printing
Industry of Americas Executive Development Program.
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.
Shigemitsu Takashima joined the Company in 1997. Prior to
joining the Company, Mr. Takashima served from 1973 in
successive
management positions with Nippon Bee Chemical Company and
was responsible for worldwide operations. Mr. Takashima had
been in the position as President since 1985. Mr. Takashima
earned his Industrial Chemist Degree from Ritsumeikan University
in Japan.
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 8K
(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.
10.2 Stock Option Plan of the Company
10.3 Director Stock Option Plan of the Company
10.4 Employee Stock Purchase Plan of the Company
(b) Reports on Form 8K
The Company did not file any reports on Form 8K during
the fourth quarter of 1997.
(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 S1, Registration No. 3396110).
3.2
Amended and Restated Bylaws of the Company
(incorporated by reference to Exhibit 3.2 to
the Companys registration statement on Form S1,
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
S1,
Registration No. 3396110).
10.1(a)
Amendment and Restated Credit Agreement, dated March
18, 1992, between the Company and LaSalle Northwest
National Bank, as amended (the Credit Agreement)
(incorporated by reference to Exhibit 10.1 to
the Companys Registration Statement on Form S1,
Registration No. 3396110.
10.1(b)
Tenth
Amendment to the Credit Agreement, dated as of June
1, 1996, and related documents.
10.1(c)
Eleventh Amendment to the Credit Agreement, dated as
of February 1, 1997, and related documents.
10.1(d)
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 S1, 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 S1,
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 S1,
Registration No. 3396110).
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 S1,
Registration No. 3396110). 10.6
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
S1,
Registration No. 3396110).
10.7
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 S1,
Registration No. 3396110).
10.8
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 S1,
Registration No. 3396110).
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
27.1 Financial Data Schedule
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, 1995 Allowance
for Doubtful Accounts $ 410 $ 681 $(743) $
348
Year Ended December 31, 1996 Allowance
for Doubtful Accounts $ 348 $1,244 $(1,027) $
565
Year Ended December 31, 1997 Allowance
for Doubtful Accounts $ 565 $1,275 $(1,228) $
612
_________________________
* 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 20, 1997.
CFC INTERNATIONAL, INC.
By: /s/ ROGER F. HRUBY
Roger F. Hruby
Chairman of the Board
of Directors,
Chief Executive
Officer, and President
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in
the capacities indicated on
March 20, 1998.
Signature Title
Principal Executive Officer:
/s/ ROGER F. HRUBY Chairman of the Board of
. Directors,
Roger F. Hruby Chief Executive Officer,
and
President
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 B. COVALT
Director
.
Robert B. Covalt
/s/ DENNIS W. LAKOMY
Director
.
Dennis W. Lakomy
/s/ RICHARD PIERCE
Director
.
Richard Pierce
/s/ DAVID D. WESSELINK
Director
.
David D. Wesselink
Exhibit 10.1(b)
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 yearend), 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:
_____________________________
__
Titl
e:
_______________________________
LASALLE NORTHWEST NATIONAL BANK
By:
_____________________________
__
Titl
e:
_______________________________
Exhibit 10.1(c)
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 10.1(d)
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 thencurrent
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 thencurrent 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 thencurrent
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 I1. Exhibits A and
I1 attached to and made a part of the Agreement are hereby
deleted in their entireties and Exhibits A and I1 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 I1 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:
___________________________________
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
________________________
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 360
day 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 onequarter 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 (91/2%) 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 11.1
CFC INTERNATIONAL, INC.
STATEMENT RE: COMPUTATION OF NET INCOME PER SHARE (UNAUDITED)
Year Ended
12/31/95
Pro forma net income per share from continuing operations:
Pro forma net income from continuing operations $ 3,252,076
Pro forma weighted average common shares outstanding:
Shares attributable to common stock outstanding 2,800,024
Shares attributable to Class B common stock outstanding 534,030
Shares attributable to common stock equivalents outstanding
62,828
Shares issued to reacquire 21% interest in subsidiary
companies 34,736
3,431,618
Pro forma net income per share from continuing operations
0.95
Supplemental pro forma net income per share from continuing
operations:
Pro forma net income from continuing operations $ 3,252,076
Interest paid on debt to be retired 450,523
Less tax effect (40%) (180,209)
$3,522,390
Supplemental pro forma weighted average common shares outstanding:
Shares attributable to common stock outstanding 2,667,929
Shares attributable to Class B common stock outstanding 534,030
Shares attributable to common stock equivalents outstanding
62,828
Shares issued to reacquire 21% interest in subsidiary
companies 34,736
Shares issued through the initial public offering 1,200,000
4,499,523
Supplemental pro forma net income per share from continuing
operations $ 0.78
Exhibit 21.1
CFC INTERNATIONAL, INC. SUBSIDIARIES
CFC Management, Inc.
CFC International, Ltd. (U.K.)
CFC Northern Bank Note Company, LLC
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Form S8 (No. 3332978 and 33332481) of
CFC International, Inc. of our report dated February 6, 1998
appearing on page 22 of this Form 10K. In addition, we hereby
consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S3 (No.
33347719) of CFC International, Inc. of our report dated February
6, 1998 appearing on page 22 of this Form 10K.
Price Waterhouse LLP
Chicago, Illinois
March 25, 1998
Exhibit 27.1
CFC INTERNATIONAL, INC.
FINANCIAL DATA SCHEDULE
Year Ended
12/31/97
Cash $1,841,070
Securities 0
Accounts receivable 7,243,516
Allowances (612,000)
Inventory 8,631,604
Current assets 18,644,673
Property plant and equipment 26,047,125
Accumulated depreciation (10,951,228)
Total Assets $35,498,839
Current liabilities $5,651,781
Bonds 0
Preferred mandatory 0
Preferred 0
Common 47,364
Other SE 18,519,962
Total liabilities and equity $35,498,839
Sales $42,319,147
Total revenues 42,319,147
Cost of goods sold 26,063,431
Total costs 26,063,431
Other expenses 0
Loss provision 1,275,000
Interest expense 412,920
Income pretax 5,428,224
Income taxes 2,207,021
Income continuing 3,221,203
Discontinued 0
Extra ordinary 0
Changes 0
Net income 3,221,203
Earnings per share basic 0.71
Earnings per share diluted 0.71
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000949859
<NAME> CFC INTERNATIONAL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1841070
<SECURITIES> 0
<RECEIVABLES> 7243516
<ALLOWANCES> (612000)
<INVENTORY> 8631604
<CURRENT-ASSETS> 18644673
<PP&E> 26047125
<DEPRECIATION> (10951228)
<TOTAL-ASSETS> 35498839
<CURRENT-LIABILITIES> 5651781
<BONDS> 0
0
0
<COMMON> 47364
<OTHER-SE> 18519962
<TOTAL-LIABILITY-AND-EQUITY> 35498839
<SALES> 42319147
<TOTAL-REVENUES> 42319147
<CGS> 26063431
<TOTAL-COSTS> 26063431
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1275000
<INTEREST-EXPENSE> 412920
<INCOME-PRETAX> 5428224
<INCOME-TAX> 2207021
<INCOME-CONTINUING> 3221203
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3221203
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.71
</TABLE>
