UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition from to
Commission File No. 027222
CFC INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 36-3434526
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 State Street, Chicago Heights, Illinois 60411
Registrant's telephone number, including
area code: (708) 891-3456
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (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 ( )
As of October 31, 1999, the Registrant had issued and outstanding 4,054,503
shares of Common Stock, par value $.01 per share, and 518,169 shares of
Class B Common Stock, par value $.01 per share.
<PAGE>
CFC INTERNATIONAL, INC.
INDEX TO FORM 10-Q
Page
----
Part I - Financial Information:
Item 1 - Financial Statements
Consolidated Balance Sheets - September 30, 1999
and December 31, 1998................................... 3
Consolidated Statements of Income for the three (3)
months and for the nine (9) months ended
September 30, 1999 and September 30, 1998............... 4
Consolidated Statements of Cash Flows for the nine (9)
months ended September 30, 1999 and September 30, 1998.. 5
Notes to Consolidated Financial Statements.............. 6-8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations........... 9-12
Item 3 - Quantitative and Qualitative Disclosures
about Market Risks........................................ 12
Part II - Other Information:
Signatures................................................ 13
<PAGE>
Part I
Item 1. Financial Statements
CFC INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET AT
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
September 30, December 31,
1999 1998
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................... $ 3,164,418 $ 5,434,595
Accounts receivable,
less allowance for
doubtful accounts of
$1,098,000 and
$625,000 at
September 30, 1999
and December 31, 1998
respectively................................... 11,439,651 7,767,135
Employee receivable.............................. 108,257 35,653
Inventories:
Raw materials.................................. 3,019,511 1,281,868
Work in process................................ 1,264,843 1,233,287
Finished goods................................. 6,546,954 4,919,531
----------- -----------
10,831,308 7,434,686
Prepaid expenses and other current assets........ 1,435,929 687,506
Deferred income taxes............................ 868,976 868,976
----------- -----------
Total current assets........................... 27,848,539 22,228,551
----------- -----------
Property, plant and equipment, net............... 26,469,302 15,323,705
Other assets..................................... 1,460,286 1,727,440
----------- -----------
Total assets................................... $55,778,127 $39,279,696
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt ............... $ 6,236,421 $ 1,347,693
Accounts payable................................. 3,470,614 2,187,784
Accrued environmental liability ................. 244,937 244,937
Accrued bonus.................................... 234,386 550,944
Accrued vacation................................. 585,021 559,357
Other accrued expenses and current liabilities... 4,115,022 2,031,484
----------- -----------
Total current liabilities...................... 14,886,401 6,922,199
----------- -----------
Deferred income taxes............................ 1,443,607 2,110,274
Long-term debt .................................. 15,354,010 9,276,587
----------- -----------
Total liabilities.............................. 31,684.018 18,309,060
----------- -----------
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; 4,383,676
and 4,226,469 shares issued at
September 30, 1999 and December 31, 1998,
respectively................................... 43,353 42,281
Class B common stock, $.01 par value,
750,000 shares authorized; 518,169
shares issued and outstanding at
September 30, 1999 and December 31, 1998....... 5,182 5,182
Additional paid-in capital....................... 11,557,117 10,551,354
Retained earnings................................ 14,093,665 11,979,842
Cumulative translation adjustment................ (214,037) (216,852)
----------- -----------
25,485,280 22,361,807
Less 331,346 treasury shares of
common stock, at cost at September 30, 1999
and December 31, 1998.......................... (1,391,171) (1,391,171)
----------- -----------
24,094,109 20,970,636
CONTINGENCIES
Total liabilities and stockholders' equity........ $55,778,127 $39,279,696
=========== ===========
The accompanying notes are an integral part of the financial statements.
<PAGE>
CFC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998, RESPECTIVELY
Three Months Ended 09/30, Nine Months Ended 09/30,
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited) (Unaudited)
Net sales ................$17,504,395 $12,463,874 $48,475,412 $38,236,121
Cost of goods sold ....... 11,486,294 7,825,132 31,909,254 24,034,559
----------- ----------- ----------- -----------
Gross profit ............. 6,018,101 4,638,742 16,566,158 14,201,562
----------- ----------- ----------- -----------
Marketing and selling
expenses ............... 1,836,674 1,313,603 5,070,444 3,978,979
General and administrative
expenses ............... 2,178,292 1,212,238 5,473,991 3,554,147
Research and
development expenses ... 614,438 433,221 1,401,813 1,195,611
----------- ----------- ----------- -----------
4,629,404 2,959,062 11,946,248 8,728,737
----------- ----------- ----------- -----------
Operating income ......... 1,388,697 1,679,680 4,619,910 5,472,825
Other (income) expenses:
Interest ............... 312,642 143,885 775,043 481,808
Miscellaneous .......... 151,051 114,401 325,115 39,200
----------- ----------- ----------- -----------
463,693 258,286 1,100,158 521,008
----------- ----------- ----------- -----------
Income before income
taxes and minority
interest ............... 925,004 1,421,394 3,519,752 4,951,817
Provision for income
taxes .................. 346,426 501,586 1,405,930 1,743,690
----------- ----------- ----------- -----------
578,578 919,808 2,113,822 3,208,127
Minority interest
expense of CFC
Applied Holographics... - 88,899 - 359,991
----------- ----------- ----------- -----------
Net income............... $ 578,578 $ 830,909 $ 2,113,822 $ 2,848,136
Basic earnings per
share.................. $ 0.13 $ 0.19 $ 0.46 $ 0.64
Diluted earnings
per share.............. $ 0.13 0.18 0.46 0.62
The accompanying notes are an integral part of the financial statements.
<PAGE>
CFC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 RESPECTIVELY
Nine Months Ended
September 30,
----------------------
1999 1998
---- ----
(Unaudited)
Cash flow from operating activities:
Net income ...................................... $2,113,823 $2,848,136
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............... 2,111,400 1,399,377
Minority interest in
CFC Applied Holographics................... - 90,794
Changes in assets and liabilities:
Accounts receivable....................... (394,905) (2,844,534)
Inventories............................... 1,371,956 320,863
Employee receivable....................... (72,604) -
Other current assets...................... (416,118) 803,815
Accounts payable.......................... (601,382) 312,265
Accrued vacation.......................... 25,664 (54,026)
Accrued bonus............................. (316,558) 566,766
Accrued expenses and other
current liabilities..................... 1,158,100 596,354
---------- ----------
Net cash provided by operating activities........ $4,979,376 $4,039,810
---------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment..... (1,946,480) (1,723,991)
Cash paid for acquired business................ (3,825,301) -
---------- ----------
Net cash used in investing activities............ (5,771,781) (1,723,991)
---------- ----------
Cash flows from financing activities:
Proceeds from term loan for acquired business.. 4,457,100 -
Repayments of term loan for acquired
business...................................... (7,055,000) -
Proceeds from revolver......................... 2,199,964 -
Repayment of term loans........................ (956,252) (221,108)
Repayment of capital lease..................... (181,172) (55,718)
Net proceeds/distribution of employee loans.... - (891)
Issuance of stock.............................. 54,774 65,465
Distributions to stockholders................ - (645,495)
---------- ----------
Net cash used in financing activities............ (1,480,586) (857,747)
---------- ----------
Effect of exchange rate changes on cash
and cash equivalents........................... 2,815 (28,018)
---------- ----------
Increase (decrease) in cash and
cash equivalents............................... (2,270,177) 1,430,054
Cash and cash equivalents:
Beginning of period.............................. 5,434,595 1,841,070
---------- ----------
End of Period.................................... $3,164,418 $3,271,124
========== ==========
The accompanying notes are an integral part of the financial statements.
CFC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(Unaudited)
Note 1. Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position of the Company
as of September 30, 1999 and December 31, 1998, the results of operations for
the three (3) months and nine (9) months ended September 30, 1999 and 1998, and
statements of cash flows for the nine (9) months ended September 30, 1999 and
1998.
The unaudited interim consolidated financial statements included herein have
been prepared pursuant to the rules and regulations for reporting on Form 10-Q.
Accordingly, certain information and footnote disclosures normally accompanying
the annual consolidated financial statements have been omitted. The interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
latest annual report on Form 10-K.
Results for an interim period are not necessarily indicative of results for the
entire year and such results are subject to year-end adjustments and an
independent audit.
Certain prior year amounts have been reclassified to conform to current year
presentation.
Note 2. Adoption of New Accounting Standard
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income." This statement requires that
all items recognized under accounting standards as components of comprehensive
income be reported in an annual financial statement that is displayed with the
same prominence as other annual financial statements. This Statement also
requires that an entity classify items of other comprehensive income by their
nature in an annual financial statement. For example, other comprehensive income
may include foreign currency translation adjustments, minimum pension liability
adjustments, and unrealized gains and losses on marketable securities classified
as available-for-sale. Annual financial statements for prior periods will be
reclassified, as required. The Company's total comprehensive income was as
follows:
Nine Months Ended Sept. 30,
---------------------------
1999 1998
---- ----
Net earnings................................. $2,113,823 $2,848,136
Foreign currency translation adjustment...... 2,815 (130,692)
---------- ----------
Total comprehensive income................... $2,116,638 $2,717,444
========== ==========
Note 3. Earnings Per Share
September 30, 1999 September 30, 1998
---------------------------- ----------------------------
Per Per
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
Basic Earnings
Per Share:
Income available
to Common
Stockholders......$2,113,823 4,567,983 $.46 $2,848,136 4,467,396 $.64
Effect of
Dilutive
Securities:
Options
exercisable...... 2,914 5,574
Convertible
debt............. 72,000 190,476 80,090 208,035
Diluted Earnings
per Share.........$2,185,823 4,761,379 $.46 $2,928,226 4,681,005 $.62
Note 4. Acquisition of Oeserwerk
On March 19, 1999, the Company acquired substantially all of the assets and
assumed substantially all of the liabilities of Oeserwerk KG for a total cost of
approximately $17 million. Oeserwerk is a manufacturer that applies coatings to
a plastic film from which its customers transfer the dry coating to their
products. The products include printed woodgrain patterns, simulated metal and
pigmented products for the graphics and bookbinding industries. The Oeserwerk
assets consisted principally of buildings and land valued at approximately $6.1
million, machinery and equipment valued at approximately $4.5 million, and trade
accounts receivables and inventory valued at approximately $8.3 million. The
Company financed the acquisition with $3.3 million cash and the issuance of
100,000 shares of restricted common stock. In addition, the Company assumed
approximately $12.3 million of Oeserwerk's debt, and refinanced this debt with
the Deutsche Bank and ABN-AMRO Deutschland. The Company also incurred
approximately $500,000 of fees associated with the acquisition. The results of
operations of Oeserwerk since the acquisition have been included in the
accompanying consolidated financial statements since March 19, 1999.
The following summarized unaudited pro forma financial information for the nine
months ended September 30, 1999 and 1998 assumes the acquisition had occurred on
January 1 of each year (in 000's).
1999 1998
---- ----
Net sales............................ $ 51,808 $57,756
Net income...................... 1,062 2,187
Earnings per share:
Basic....................... $.23 $.48
Diluted..................... $.23 $.47
The pro forma data does not purport to be indicative of the results that would
have been obtained had these events actually occurred at the beginning of the
periods presented, does not reflect any benefits for actions taken subsequent to
the acquisition and is not intended to be a projection of future results.
Note 5. Business Segments and International Operations
The Company has adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." The Company and its subsidiaries operate in
a single business segment, which is the formulating and manufacturing of
chemically-complex, multi-layered functional coatings. The Company produces five
primary types of coating products. Sales for each of these products (in
millions) for the nine months ended September 30, 1999 and 1998 are as follows:
1999 1998
---- ----
Printed Products $13.2 $13.5
Pharmaceutical Products 7.0 6.8
Security Products 6.4 7.7
Holographic Products 8.0 6.6
Simulated Metal and
Other Pigmented Products 13.8 3.6
----- -----
Total $48.4 $38.2
<PAGE>
The following is sales and long-lived asset information by geographic area as of
the nine months ended September 30, 1999 and 1998:
Sales (In Thousands) 1999 1998
---- ----
United States $25,974 $27,803
Germany 10,164 -
Foreign 12,337 10,433
------- -------
Total $48,475 $38,236
Net Fixed Assets
(In Thousands) 1999 1998
---- ----
United States $15,602 $15,135
Germany 10,631 -
Foreign 236 189
------- -------
Total $26,469 $15,324
Foreign revenue is based on the country in which the customer is domiciled.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
- --------
The Company formulates, manufactures and sells chemically-complex, transferable
multi-layer coatings for use in many diversified markets, such as furniture and
building products, pharmaceutical products, transaction cards (including credit
cards, debit cards, ATM cards and access cards), intaglio printing, and on
holographic packaging and authentication seals.
The Company's 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 Company's 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, related
depreciation, 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 Company's consolidated financial statements as a percentage of net sales for
such period.
Quarter ended Nine Months
September 30, September 30,
--------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited) (Unaudited)
Net sales ................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales ............................. 65.6 62.8 65.8 62.9
Gross profit .............................. 34.4 37.2 34.2 37.1
Selling, general and administrative ....... 22.9 20.2 21.8 19.7
Research and development .................. 3.6 3.5 2.9 3.1
Operating income .......................... 7.9 13.5 9.5 14.3
Interest expense and other ................ 2.6 2.1 2.3 1.4
Income before taxes and minority interest.. 5.3 11.4 7.2 12.9
Provision for income taxes ................ 2.0 4.0 2.8 4.6
Minority interest ......................... - 0.7 - 0.9
Net income ................................ 3.3% 6.7% 4.4% 7.4%
Quarter Ended September 30, 1999 Compared to Quarter Ended September 30, 1998
- -----------------------------------------------------------------------------
Net sales for the quarter ended September 30, 1999 increased 40.4% to $17.5
million, from $12.5 million for the quarter ended September 30, 1998. Printed
products sales were flat at $4.5 million, compared to the same quarter in the
prior year. Pharmaceutical products sales for these periods increased 10.4% to
$2.6 million, from $2.3 million, primarily due to increased penetration in the
European market. Security products (magstripe, signature panels, and tipping
products for credit cards and intaglio-printed products) sales for these periods
decreased 2.3% to $2.46 million from $2.52 million. This decrease comes
primarily from competition in the signature panel business. Sales of simulated
metal and other pigmented products for these periods increased 403.5% to $5.4
million, from $1.1 million, primarily due to the Oeserwerk acquisition, which
added $4.7 million to sales in this category during the third quarter
of 1999. Holographic products sales increased 28.3% to $2.6 million for the
quarter ended September 30, 1999, compared to $2.0 million for the quarter ended
September 30, 1998, primarily due to the increased demand for eye-catching
holographic packaging.
Gross profit for the quarter ended September 30, 1999 increased 29.7% to $6.0
million, from $4.6 million for the quarter ended September 30, 1998. The
increase in gross profit was attributable to the growth in sales noted above.
The gross profit margin for the quarter ended September 30, 1999 decreased to
34.4% from 37.2% for the quarter ended September 30, 1998. This decrease is
primarily attributable to the lower gross profit margins on products produced at
Oeserwerk, which were 25.2% for the third quarter of 1999.
Selling, general and administrative expenses for the quarter ended September 30,
1999 increased 59.0% to $4.0 million from $2.5 million for the quarter ended
September 30, 1998. This increase in expenses was primarily due to additional
expenses associated with Oeserwerk which was acquired in March 1999, and one
time hiring and relocation costs in the amount of $0.2 million. Selling, general
and administrative expenses for the quarter ended September 30, 1999 increased
as a percentage of net sales to 22.9% from 20.2% for the quarter ended September
30, 1998, also due to the Oeserwerk acquisition. This increase in expense was
primarily due to investments to integrate the operations of CFC Oeserwerk with
that of CFC.
Research and development expenses for the quarter ended September 30, 1999
increased 41.8% to $0.6 million from $0.4 million for the quarter ended
September 30, 1998. This increase in expense was primarily due to increases in
staff. Research and development expense for the quarter ended September 30, 1999
and 1998 remained the same at 3.5% as a percentage of net sales.
Operating income for the quarter ended September 30, 1999 decreased 17.3% to
$1.4 million from $1.7 million for the quarter ended September 30, 1998,
primarily due to the increase in operating expenses. Operating income for the
quarter ended September 30, 1999 decreased as a percentage of net sales to 7.9%
from 13.5% for the quarter ended September 30, 1998. This decrease is primarily
due to lower gross margins as a percentage of net sales and higher selling,
general and administrative expenses.
Interest expense for the quarter ended September 30, 1999 increased 117.3% to
$313,000, from $144,000 for the quarter ended September 30, 1998. This increase
was primarily due to the financing of the acquisition of CFC Oeserwerk.
Other expenses for the quarter ended September 30, 1999 increased to $151,000
from $114,000 for the quarter ended September 30, 1998. This increase was
primarily due to royalties paid to Applied Holographics PLC, a former
holographic joint venture partner.
Income taxes for the quarter ended September 30, 1999 decreased to $346,000 from
$502,000 for the quarter ended September 30, 1998. This was the result of the
decrease in taxable income. The effective tax rate of 37.4% is higher than the
comparable period due to the mix of U.S. and foreign income.
Nine months Ended September 30, 1999 Compared to Nine months
Ended September 30, 1998
- -------------------------------------------------------------
Net sales for the nine months ended September 30, 1999 increased 26.8% to $48.5
million, from $38.2 million for the nine months ended September 30, 1998.
Printed product sales for these periods decreased 2.2% to $13.2 million, from
$13.5 million primarily due to softness in the markets the Company serves.
Pharmaceutical product sales for these periods increased 2.9% to $7.0 million
from $6.8 million, primarily due to increased European sales. Security product
(magnetic stripe, signature panels and tipping products for transaction cards,
and intaglio-printed documents) sales for these periods decreased 16.8% to $6.4
million, from $7.7 million. This decrease comes primarily from a decrease in
intaglio printed municipal bonds in the amount of $900,000 due to the growing
use of the electronic form of record keeping, and a decrease in signature panel
sales. Sales of simulated metal and other pigmented products for these periods
increased 278.8% to $13.8 million, from $3.6 million, primarily due to the
Oeserwerk acquisition, which added $11.0 million in net sales in this category
during the third quarter of 1999. Holographic product sales increased 22.7% to
$8.0 million for the nine months ended September 30, 1999, compared to $6.6
million for the nine months ended September 30, 1998, primarily due to the
increased sales of eye-catching holographic packaging applications.
Gross profit for the nine months ended September 30, 1999 increased 16.7% to
$16.6 million, from $14.2 million for the nine months ended September 30, 1998.
The increase in gross profit was primarily due to the increase in sales. The
gross profit margin for the nine months ended September 30, 1999 decreased to
34.2% from 37.1% for the nine months ended September 30, 1998. This decrease in
gross profit as a percentage of net sales was primarily caused by lower gross
profit margins of products produced at Oeserwerk.
Selling, general and administrative expenses for the nine months ended September
30, 1999 increased 40.0% to $10.5 million from $7.5 million for the nine months
ended September 30, 1998. This increase in expense was primarily due to
additional expenses associated with Oeserwerk, which was acquired in March 1999,
and hiring and relocation costs in the amount of $0.3 million. Selling, general
and administrative expenses for the nine months ended September 30, 1999
increased as a percentage of net sales to 21.8% from 19.7% for the nine months
ended September 30, 1998, primarily due to the Oeserwerk acquisition.
Research and development expenses for the nine months ended September 30, 1999
increased 17.2% to $1.4 million from $1.2 million for the nine months ended
September 30, 1998. This increase in expenses was primarily due to increases in
staff. Research and development expense for the nine months ended September 30,
1999 decreased as a percentage of net sales, to 2.9% from 3.1% for the nine
months ended September 30, 1998.
Operating income for the nine months ended September 30, 1999 decreased 15.6% to
$4.6 million, from $5.5 million for the nine months ended September 30, 1998
primarily due to the increase in operating expenses. Operating income for the
nine months ended September 30, 1999 decreased as a percentage of net sales to
9.5% from 14.3% for the nine months ended September 30, 1998. This decrease is
primarily due to a decrease in gross profit as a percentage of sales and the
increase in selling, general and administrative expenses explained above.
Interest expense for the nine months ended September 30, 1999 increased 60.9% to
$0.8 million, from $0.5 million for the nine months ended September 30, 1998.
This increase was primarily due to the financing of the Oeserwerk acquisition.
Income taxes for the nine months ended September 30, 1999 decreased 19.4% to
$1.4 million from $1.7 million for the nine months ended September 30, 1998.
This was primarily the result of the decrease in taxable income. The effective
tax rate of 39.9% is higher than the comparable period due to the change in the
mix of U.S. and foreign income.
Liquidity and Capital Resources
- -------------------------------
Working capital, consisting predominately of inventories and receivables,
decreased from $15.3 million at December 31, 1998 to $13.1 million at September
30, 1999. This decrease was primarily due to an increase in short-term
borrowings and operating liabilities assumed as part of the acquisition of
Oeserwerk. Short-term borrowings and operating liabilities increased by $4.9
million and $4.4 million, respectively, as of those dates as a result of the
Oeserwerk acquisition. In addition, that acquisition increased the Company's
inventory and accounts receivable by $4.4 million and $3.7 million, respectively
as of those dates. Offsetting this increase, the Company's pre-acquisition
inventories and operating liabilities decreased by $1.2 million and $1.3
million, respectively. The decrease in inventories is due to an aggressive
inventory supplies management program instituted by the Company.
During the first nine months of 1999, the Company made no borrowings against the
revolving credit agreement maintained with the Company's primary bank. This
agreement, which expires April 1, 2001, provides for unsecured borrowings. The
Company believes that it has sufficient capital resources from funds generated
from operations as well as available borrowing facilities to support its future
capital needs.
Year 2000 Issue
- ---------------
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Based on its assessment,
management of the Company does not anticipate that any additional significant
modification or replacement of the Company's hardware or software will be
necessary for its computer systems to properly utilize dates beyond December 31,
1999 or that the Company will incur significant operating expenses to make any
such computer system improvements. The Company has undertaken an assessment as
to whether any of its significant customers, suppliers, lenders, or service
providers will need to make any such hardware or software modifications or
replacements. The Company has been informed by such persons that they do not
expect to have any significant problems from the Year 2000 Issue that would
impact the Company. There can be no assurance, however, that the failure of any
of such third parties to adequately address the Year 2000 Issue will not have a
material adverse effect on the Company's business, operations, or financial
condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company does not use derivative financial instruments to address interest
rate, currency, or commodity pricing risks. The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments held by the Company for which it is practicable to estimate that
value. The carrying amount of cash equivalents approximates their fair value
because of the short maturity of those instruments. The estimated fair value of
the Company's long-term debt approximated its carrying value at September 30,
1999 and December 31, 1998 based upon market prices for the same or similar type
of financial instrument.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned; thereunto duly authorized, on November 12, 1999.
CFC INTERNATIONAL, INC.
Dennis W. Lakomy
Vice President, Chief Financial Officer,
Secretary, and Treasurer
(Principal Financial Officer)
Jeffrey E. Norby
Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000949859
<NAME> CFC INTERNATIONAL, INC.
<MULTIPLIER> 1
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