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 June 30, 2001
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
----
For the transition from to
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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 August 06, 2001, the Registrant had issued and outstanding 4,009,877
shares of Common Stock, par value $.01 per share, and 512,989 shares of Class B
Common Stock, par value $.01 per share.
CFC INTERNATIONAL, INC.
INDEX TO FORM 10-Q
Page
----
Part I - Financial Information:
Item 1 - Financial Statements
Consolidated Balance Sheets - June 30, 2001
and December 31, 2000.................................... 5
Consolidated Statements of Income for the
three (3) months and for the six (6)
months ended June 30, 2001 and June 30, 2000............. 6
Consolidated Statements of Cash Flows for the
six (6) months ended June 30, 2001 and
June 30, 2000............................................ 7
Notes to Consolidated Financial Statements................. 8 - 9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations..............10 - 13
Item 3. - Quantitative and Qualitative Disclosures
About Market Risks......................................... 14
Part II - Other Information:
Item 4 - Submission of Matters to a Vote of
Security Holders.......................................... 15
Item 6 - Exhibits and Reports on Form 8-K................... 15
Signatures.................................................. 16
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
The Company believes that certain statements contained in this report and in the
future filings by the Company with the Securities and Exchange Commission and in
the Company's written and oral statements made by or with the approval of an
authorized executive officer that are not historical facts constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and the
Company intends that such forward-looking statements be subject to the safe
harbors created thereby.
The words and phrases "looking ahead," "is confident," "should be," "will,"
"predicted," "believe," "plan," "intend," "estimates," "likely," "expect" and
"anticipate" and similar expressions identify forward-looking statements.
These forward-looking statements reflect the Company's current views with
respect to future events and financial performance, but are subject to many
uncertainties and factors relating to the Company's operations and business
environment which may affect the accuracy of forward-looking statements and
cause the actual results of the Company to be materially different from any
future results expressed or implied by such forward-looking statements. As a
result, in some future quarter the Company's operating results may fall below
the expectations of securities analysts and investors. In such an event, the
trading price of the Company's common stock would likely be materially and
adversely affected. Many of the factors that will determine results of
operations are beyond the Company's ability to control or predict.
Some of the factors that could cause or contribute to such differences include:
o Changes in economic and market conditions that impact market growth trends
or otherwise impact the demand for the Company's products and services;
o Risks inherent in international operations, including possible economic,
political or monetary instability and its impact on the level and
profitability of foreign sales;
o Uncertainties relating to the Company's ability to consummate its business
strategy, including the unavailability of suitable acquisition candidates,
or the Company's inability to finance future acquisitions or successfully
realize synergies and cost savings from the integration of acquired
businesses;
o Changes in raw material costs and the Company's ability to adjust selling
prices;
o The Company's reliance on existing senior management and the impact of the
loss of any of those persons or its inability to continue to identify, hire
and retain qualified management personnel;
o Uncertainties relating to the Company's ability to develop and distribute
new proprietary products to respond to market needs in a timely manner and
the Company's ability to continue to protect its proprietary product
information and technology;
o The Company's reliance on a small number of significant customers;
o Uncertainties relating to the Company's ability to continue to compete
effectively with other producers of specialty transferable coatings and
producers of alternative products with greater financial and management
resources; and
o Control of the Company by a principal stockholder.
The risks included here are not exhaustive. We operate in a very competitive and
rapidly changing environment. New risk factors emerge from time to time and it
is not possible for us to predict all such risk factors, nor can we assess the
impacts of all such risk factors on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results. We have no obligation to revise or
update these forward-looking statements to reflect events or circumstances that
arise after August 6, 2001 or to reflect the occurrence of anticipated events.
Investors should also be aware that while we do, from time to time, communicate
with securities analysts, it is against our policy to disclose to them any
material non-public information or other confidential commercial information.
Accordingly, investors should not assume that we agree with any statement or
report issued by any analyst irrespective of the content of the statement or
report. Thus, to the extent that reports issued by securities analysts contain
any projections, forecasts or opinions, such reports are not our responsibility.
Part I
Item 1. Financial Statements
CFC INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS AT
JUNE 30, 2001 AND DECEMBER 31, 2000
June 30 December 31,
2001 2000
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................... $ 1,097,394 $ 298,871
Accounts receivable, less
allowance for doubtful
accounts of $791,000 and
$537,000 at June 30, 2001
and December 31, 2000 respectively ......... 10,648,408 10,522,503
Inventories:
Raw materials .............................. 3,343,601 3,379,534
Work in process ............................ 1,768,385 1,442,497
Finished goods ............................. 5,798,363 6,251,791
----------- -----------
10,910,349 11,073,822
Prepaid expenses and
other current assets ....................... 534,133 313,871
Deferred income taxes ........................ 2,677,990 2,806,060
----------- -----------
Total current assets ....................... 25,868,274 25,015,127
----------- -----------
Property, plant and equipment, net ........... 24,437,226 26,402,365
Other assets ................................. 4,580,634 4,983,729
----------- -----------
Total assets ................................. $54,886,134 $ 56,401,221
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt .............. $ 4,541,007 $ 3,384,173
Accounts payable ............................... 3,867,250 2,563,536
Accrued environmental liability ................ 140,011 140,011
Accrued compensation and benefits .............. 1,370,913 1,240,811
Other accrued expenses and
current liabilities .......................... 2,648,638 2,746,260
------------ ------------
Total current liabilities .................... 12,567,819 10,074,791
------------ ------------
Deferred income taxes .......................... 1,963,346 2,197,160
Long-term debt ................................. 18,159,090 21,033,717
------------ ------------
Total liabilities ............................ 32,690,255 33,305,668
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value,
10,000,000 shares authorized;
4,433,036 and 4,423,595 shares
issued at June 30, 2001 and
December 31, 2000 respectively ............... 44,330 44,236
Class B common stock, $.01 par value,
750,000 shares authorized;
512,989 shares issued and outstanding
5,130 5,130
Additional paid-in capital ..................... 11,880,272 11,784,084
Retained earnings .............................. 14,557,773 14,547,001
Accumulated other comprehensive income.......... (2,481,236) (1,513,407)
------------ ------------
24,006,269 24,867,044
Less 382,431 and 374,746 treasury shares
of common stock, at cost, at
June 30, 2001 and December 31, 2000
respectively ................................. (1,810,390) (1,771,491)
------------ ------------
22,195,879 23,095,553
------------ ------------
Total liabilities and stockholders' equity ... $ 54,886,134 $ 56,401,221
============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
CFC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED
JUNE 30, 2001 AND 2000
Three Months Ended June 30, Six Months Ended June 30,
2001 2000 2001 2000
---- ---- ---- ----
(Unaudited) (Unaudited)
Net sales .............. $14,614,129 $17,800,939 $30,923,971 $36,059,374
Cost of goods sold ..... 9,539,788 10,633,653 20,087,449 21,415,719
Selling, general and
administrative
expenses ............. 3,318,462 4,282,520 6,680,484 8,460,828
Research and
development
expenses ............. 540,042 668,440 1,169,648 1,409,704
Depreciation and
amortization ......... 932,337 775,443 2,004,020 1,622,576
----------- ----------- ----------- -----------
Total operating
expenses ............. 14,330,629 16,360,056 29,941,601 32,908,827
----------- ----------- ----------- -----------
Operating income ....... 283,500 1,440,883 982,370 3,150,547
Other expenses:
Interest ............. 408,018 242,644 810,064 537,079
Miscellaneous ........ 113,182 126,306 154,903 295,308
----------- ----------- ----------- -----------
521,200 368,950 964,967 832,387
----------- ----------- ----------- -----------
Income (loss) before
income taxes.......... (237,700) 1,071,933 17,403 2,318,160
Provision (benefit)
for income taxes...... (90,773) 340,514 6,631 775,829
----------- ----------- ----------- -----------
Net income (loss)....... ($146,927) $ 731,419 $ 10,772 $ 1,542,331
============ =========== =========== ===========
Basic earnings (loss)
per share............. ($ 0.03) $ 0.16 $ 0.00 $ 0.34
Diluted earnings
(loss) per share...... ($ 0.03) $ 0.15 $ 0.00 $ 0.33
The accompanying notes are an integral part of the
consolidated financial statements.
CFC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
Six Months Ended June 30,
----------------------------
2001 2000
---- ----
(Unaudited) (Unaudited)
Cash flow from operating activities:
Net income ..................................... $ 10,772 $ 1,542,331
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ............. 2,004,020 1,622,576
Deferred income taxes ..................... (259,447) --
Changes in assets and liabilities:
Accounts receivable ..................... (393,439) (1,911,908)
Inventories ............................. (787,063) (2,848,406)
Other current assets .................... 175,276 (351,968)
Accounts payable ........................ 1,426,351 2,516,831
Accrued compensation and benefits ....... 73,559 387,905
Accrued expenses and other
current liabilities .................... 124,103 84,365
----------- -----------
Net cash provided by operating activities ........ $ 2,374,132 $ 1,041,726
----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment ..... (825,960) (1,138,611)
Cash paid to acquire business rights ........... -- (356,206)
----------- -----------
----------- -----------
Net cash used in investing activities ............ (825,960) (1,494,817)
----------- -----------
Cash flows from financing activities:
Proceeds from term loans ....................... 3,313,003 --
Repayment of revolver .......................... (3,570,936) --
Proceeds from revolver ......................... 2,510,863 --
Repayments of term loans ....................... (3,016,987) (710,387)
Repayment of capital lease ..................... (9,796) (226,944)
Repurchase of shares ........................... (38,899) (39,784)
Proceeds from issuance of stock ................ 40,289 31,563
----------- -----------
Net cash used in financing activities ............ (772,463) (945,552)
----------- -----------
Effect of exchange rate changes
on cash and cash equivalents ................... 22,814 804,622
----------- -----------
Increase (decrease) in cash
and cash equivalents ............................ 798,523 (594,021)
Cash and cash equivalents:
Beginning of period .............................. 298,871 1,908,989
----------- -----------
End of period .................................... $ 1,097,394 $ 1,314,968
=========== ===========
Non-cash financing investing activities:
Issuance of installment note payable
for acquisition of business rights............ $ -- $ 3,240,000
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
CFC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
(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 consolidated financial position of
the company as of June 30, 2001 and December 31, 2000, the consolidated results
of operations for the three (3) months and six (6) months ended June 30, 2001
and 2000 respectively, and consolidated statements of cash flows for the six (6)
months ended June 30, 2001 and 2000.
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. Comprehensive Income
The company's total comprehensive income was as follows:
Six Months Ended June 30,
-------------------------
2001 2000
---- ----
Net earnings...................................... $10,772 $1,542,331
Less: foreign currency translation adjustment.... (967,829) (602,530)
-------- --------
Total comprehensive income (loss).................$(957,057) $ 939,801
Note 3. Earnings Per Share
Six Months Ended Six Months Ended
June 30, 2001 June 30, 2000
------------------------ -------------------------
Per Per
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
Basic Earnings
Per Share:
Income available
to Common
Stockholders........... $10,772 4,563,143 $.00 $1,542,331 4,572,007 $.34
Effect of Dilutive
Securities:
Options exercisable... 1,029 4,910
Convertible debt...... 42,000 166,667
Diluted Earnings
per Share.............. $10,772 4,564,172 $.00 $1,584,331 4,743,584 $.33
Note 4. Purchase of Worldwide Holographic Technology Rights
On January 3, 2000, the company exercised its option to purchase the worldwide
rights to the holographic technology of Applied Holographics PLC for $3.6
million. The acquisition of these rights was financed by a nine-month,
non-interest bearing installment note for $3.2 million issued by the company and
$0.4 million in cash.
Note 5. Business Segments and International Operations
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 three months
ended June 30, 2001 and 2000, and the six months ended June 30, 2001 and 2000
are as follows:
Three months Six months
ended ended
June 30, June 30,
------------ --------------
2001 2000 2001 2000
---- ---- ---- ----
Holographic Products ................... $ 1.9 $ 3.7 $ 4.7 $ 6.9
Printed Products ....................... 4.5 4.5 9.1 9.4
Pharmaceutical Products ................ 2.5 2.4 5.4 4.6
Security Products ...................... 2.0 1.7 3.7 3.3
Specialty Pigmented and Other
Simulated Metal Products ............. 3.7 5.5 8.0 11.9
----- ----- ----- -----
Total .................................. $14.6 $17.8 $ 30.9 $ 36.1
===== ===== ===== =====
The following is sales by geographic area for the three months and six months
ended June 30, 2001 and 2000 and long-lived asset information as of June 30,
2001 and December 31, 2000:
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
Net Sales (In Thousands) 2001 2000 2001 2000
---- ---- ---- ----
United States .......... $ 7,012 $ 8,545 $14,422 $17,757
Germany ................ 3,851 3,960 8,717 8,429
Foreign ................ 3,751 5,296 7,785 9,873
------- ------- ------- -------
Total .................. $14,614 $17,801 $30,924 $36,059
======= ======= ======= =======
Net Fixed Assets (In Thousands) 06/30/01 12/31/00
-------- --------
United States .......................... $15,463 $16,210
Germany ................................ 8,864 10,016
Foreign ................................ 110 176
------- -------
Total .................................. $24,437 $26,402
======= =======
Foreign revenue is based on the country in which the customer is domiciled.
Note 6. Contingencies
From time to time, the company is subject to legal proceedings and claims that
arise in normal course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not have a material
adverse effect on the company's consolidated financial condition, results of
operations or cash flows.
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 holographic
packaging and authentication seals, furniture and building products,
pharmaceutical products and transaction cards (including credit cards, debit
cards, ATM cards and access cards) and intaglio printing.
The company's costs of goods sold reflects the application of 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.
Three Months Ended Six Months Ended
June 30, June 30,
-------------- -----------
2001 2000 2001 2000
---- ---- ---- ----
(Unaudited) (Unaudited)
Net sales ................................. 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold ........................ 65.3 59.7 65.0 59.3
Selling, general and administrative ....... 22.7 24.1 21.6 23.4
Research and development .................. 3.7 3.8 3.8 3.9
Depreciation and amortization ............. 6.4 4.4 6.5 4.6
Operating income .......................... 1.9 8.0 3.2 8.8
Interest expense and other ................ 3.6 2.0 3.1 2.3
Income (loss) before taxes ................ (1.6) 6.0 0.1 6.5
Provision (benefit) for income taxes ...... (0.6) 1.9 0.0 2.2
Net income (loss) ......................... (1.0) % 4.1 % 0.0 % 4.3 %
Quarter Ended June 30, 2001 Compared to Quarter Ended June 30, 2000
- -------------------------------------------------------------------
Net sales for the quarter ended June 30, 2001, decreased 17.9 percent to $14.6
million, down from $17.8 million for the quarter ended June 30, 2000.
Holographic products sales decreased 49.1 percent to $1.9 million for the
quarter ended June 30, 2001, compared to $3.7 million for the quarter ended June
30, 2000. This decrease was primarily due one of the company's largest
holographic packaging customers working off excess inventory from last year, and
the quarter ended June 30, 2000 included this customer building up inventory for
a major product launch. Printed products sales for these periods decreased 1.5
percent to $4,459,000, down from $4,527,000, primarily due to the manufactured
housing market experiencing negative growth. Pharmaceutical product sales for
these periods increased 5.1 percent to $2.5 million, from $2.4 million,
primarily due to strong European sales. Security products (magnetic stripes,
signature panels and tipping products for credit cards, and intaglio-printed
products) sales increased 22.8 percent to $2.0 million, from $1.7 million. This
increase was primarily a result of sales of intaglio-printed birth certificates
for a foreign government. Sales of simulated metal and other pigmented products
decreased 32.5 percent to $3.7 million for the quarter ended June 30, 2001, down
from $5.5 million for the quarter ended June 30, 2000 primarily due to the
company de-emphasizing sales in this product area and the negative impact of
weak European currencies in 2001.
Cost of goods sold for the quarter ended June 30, 2001, decreased 10.3 percent
to $9.5 million, down from $10.6 million for the quarter ended June 30, 2000.
This decrease was primarily due to the impact of lower sales volumes due to the
general slowdown in the U.S. economy. Cost of goods sold for the quarter ended
June 30, 2001 increased as a percentage of net sales to 65.3 percent, up from
59.7 percent for the quarter ended June 30, 2000. This increase was primarily a
result of higher scrap rates at the U.S. and European production facilities in
2001.
Selling, general, and administrative expenses for the quarter ended June 30,
2001, decreased 22.5 percent to $3.3 million, down from $4.3 million for the
quarter ended June 30, 2000. This decrease was primarily due to the impact of
reductions in personnel announced in the third quarter of 2000. Selling,
general, and administrative expenses for the quarter ended June 30, 2001
decreased as a percentage of net sales to 22.7 percent, down from 24.1 percent
for the quarter ended June 30, 2000 for similar reasons.
Research and development expenses for the quarter ended June 30, 2001, decreased
19.2 percent to $540,000 from $668,000 for the quarter ended June 30, 2000.
Research and development expenses for the quarter ended June 30, 2001, decreased
as a percentage of net sales to 3.7 percent from 3.8 percent for the quarter
ended June 30, 2000. This decrease in expense was primarily due to the impact of
reductions in personnel announced in the third quarter of 2000.
Depreciation and amortization expenses for the quarter ended June 30, 2001,
increased 20.2 percent to $932,000 from $775,000 for the quarter ended June 30,
2000. This increase was primarily a result of expanding the company's German
manufacturing facility and adding machinery and equipment in the company's
Chicago Heights location during the second half of fiscal 2000. Depreciation and
amortization expenses for the quarter ended June 30, 2001, increased as a
percentage of net sales to 6.4 percent from 4.4 percent for the quarter ended
June 30, 2000 for similar reasons.
Operating income for the quarter ended June 30, 2001, decreased 80.3 percent to
$0.3 million, down from $1.4 million for the quarter ended June 30, 2000. The
decrease in operating income is primarily a result of the above explanations.
Operating income for the quarter ended June 30, 2001, decreased as a percentage
of net sales to 1.9 percent, down from 8.0 percent for the quarter ended June
30, 2000. This decrease is a result of the above explanations.
Interest expense and other expenses for the quarter ended June 30, 2001,
increased 41.3 percent to $521,000, from $369,000 for the quarter ended June 30,
2000. This increase primarily resulted from additional borrowings on the
company's lines of credit to fund operations.
Net income decreased 120.1 percent to a loss of $147,000 in the quarter ended
June 30, 2001, from a net income of $731,000 for the quarter ended June 30,
2000. This decrease in net income is primarily due to the decrease in operating
income explained previously.
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000
- -------------------------------------------------------------------------
Net sales for the six months ended June 30, 2001, decreased 14.2 percent to
$30.9 million, down from $36.1 million for the six months ended June 30, 2000.
Holographic product sales decreased 31.6 percent to $4.7 million for the six
months ended June 30, 2001, compared to $6.9 million for the six months ended
June 30, 2000. This decrease was due to the weakening of the U.S. economy in
2001, a major customer's inventory overstock position at the end of 2000, and
also that the June 30, 2000 results included the impact of a large customer
building inventory levels for a major product launch, which was not duplicated
this year. Printed product sales for these periods decreased 3.1 percent to $9.1
million, from $9.4 million, primarily due to the continued softness in the
manufactured housing industry. Pharmaceutical product sales for these periods
increased 17.0 percent to $5.4 million, up from $4.6 million. These increases
are primarily the result of increased sales in Europe. Security products
(magnetic stripe, signature panels and tipping products for credit cards, and
intaglio-printed products) sales increased 13.2 percent to $3.7 million, up from
$3.3 million in the first half of 2000. This increase was primarily due to
intaglio-printed birth certificates for a foreign government. Sales of simulated
metal and other pigmented products decreased 32.7 percent to $8.0 million for
the six months ended June 30, 2001, from $11.9 million in the first six months
of 2000. This decrease is primarily due to the impact of weak European
currencies in 2001 and the company de-emphasizing sales in this area.
Cost of goods sold for the six months ended June 30, 2001, decreased 6.2 percent
to $20.1 million from $21.4 million for the six months ended June 30, 2000. This
decrease was primarily due to lower sales volume, higher material costs and
scrap rates in the U.S. and Europe. Cost of goods sold for the six months ended
June 30, 2001, increased as a percent of net sales to 65.0 percent, from 59.3
percent for the six months ended June 30, 2000. This increase in percentage was
primarily due to the reasons described above.
Selling, general, and administrative expenses for the six months ended June 30,
2001, decreased 21.0 percent to $6.7 million from $8.5 million for the six
months ended June 30, 2000. This decrease was primarily due to the impact of the
personnel reductions, and cost cutting initiatives that were announced in the
third quarter of 2000. Selling, general, and administrative expenses for the six
months ended June 30, 2001, decreased as a percent of net sales to 21.6 percent,
from 23.4 percent for the six months ended June 30, 2000. This decrease in
percentage was primarily due to the reasons described above.
Research and development expenses for the six months ended June 30, 2001,
decreased 17.0 percent to $1.2 million from $1.4 million for the six months
ended June 30, 2000 primarily due to the impact of personnel reductions which
were announced in the third quarter of 2000. Research and development expense
for the six months ended June 30, 2001, decreased as a percentage of net sales,
to 3.8 percent from 3.9 percent for the six months ended June 30, 2000. This
decrease as a percentage of net sales was due to the reasons described above.
Depreciation and amortization expenses for the six months ended June 30, 2001,
increased 23.5 percent to $2.0 million from $1.7 million for the six months
ended June 30, 2000, primarily due to investment in manufacturing equipment.
Depreciation and amortization expense for the six months ended June 30, 2001,
increased as a percentage of net sales, to 6.5 percent from 4.6 percent for the
six months ended June 30, 2000.
Operating income for the six months ended June 30, 2001, decreased 68.8 percent
to $1.0 million, down from $3.1 million for the six months ended June 30, 2000.
The decrease in operating income is primarily due to lower sales volume and
higher material costs in 2001. Operating income for the six months ended June
30, 2001 decreased as a percentage of net sales to 3.2 percent from 8.8 percent
for the six months ended June 30, 2000. This decrease is primarily due to the
reasons described above.
Interest and other expenses for the six months ended June 30, 2001, increased
15.9 percent to $965,000, down from $832,000 for the six months ended June 30,
2000. This increase was primarily related to additional borrowings to fund
operations, which was offset by a decrease in non-operating expenses in Europe.
Income taxes for the six months ended June 30, 2001, decreased 99.1 percent to
$7,000, down from $776,000 for the six months ended June 30, 2000. The decrease
in income taxes were primarily caused by the decrease in taxable income due to
the reasons described above.
Net income for the six months ended June 30, 2001, decreased 99.3 percent to
$11,000, down from $1.5 million for the six months ended June 30, 2000. This
decrease in net income is primarily due to the reasons described above.
Liquidity and Capital Resources
- -------------------------------
Working capital, consisting predominately of inventories and receivables,
decreased from $14.9 million at December 31, 2000, to $13.3 million at June 30,
2001. This decrease was primarily due to an increase in short-term borrowings of
$1.2 million related to funding operations, and an increase in operating
liabilities of $1.3 million, which offset increases (decreases) in the company's
inventory and accounts receivable of ($0.2) million and $0.1 million,
respectively as of those dates.
During the first six months of 2001, the company made $1.1 million in net
payments on the revolving credit agreement maintained with the company's primary
bank. This agreement, which expires April 1, 2003, is secured by the company's
assets, and provides for borrowings up to $5.5 million. The company believes
that the net cash provided by operating activities and amounts available under
the revolving credit agreement are sufficient to finance the company's
operations and growth.
Recent Accounting Pronouncements
- --------------------------------
In June 2001 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142 (SFAS 142) "Goodwill and Other Intangible
Assets". The statement addresses accounting and reporting for (i) intangible
assets at acquisition and (ii) for intangible assets and goodwill subsequent to
their acquisition. As it relates to the Company's goodwill and intangible assets
in existence at June 30, 2001, the statement requires that management reassess
the useful lives and amortization period of such assets. For those with an
indefinite useful life, periodic amortization is to be discontinued and an
annual impairment test, beginning January 1, 2002, is to be established. The
Company's Management does not feel as if this pronouncement will have material
impact on its statement of financial condition or cash flows at the effective
date and is currently assessing the impact that the pronouncement may have on
its results of operations in fiscal 2002 and thereafter.
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 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 June 30, 2001, and
December 31, 2000, based upon market prices for the same or similar type of
financial instrument.
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The following summarizes the votes of the Annual Meeting of the company's
stockholders held on April 20, 2001:
Matter For Withheld
- ------ --- --------
Election of Directors:
- ----------------------
Roger F. Hruby ........................... 3,639,941 259,767
William G. Brown ......................... 3,897,241 2,467
Robert B. Covalt ......................... 3,897,241 2,467
Richard L. Garthwaite .................... 3,896,941 2,767
Dennis W. Lakomy ......................... 3,892,041 7,667
Richard Pierce ........................... 3,896,954 2,754
David D. Wesselink ....................... 3,897,241 2,467
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
------ ----------------------
10.1(a) Amended and Restated Loan and Security Agreement dated
May 17, 2001 between the Company and LaSalle Bank National
Association, and related documents.
10.1(b) Amendment to Reimbursement Agreement dated May 17, 2001
between the CFC Europe GmbH (f/k/a Sesvenna 20.
Vermogensverwaltungs GmbH), and LaSalle Bank National Association,
and related documents.
99.1 Stock Repurchase Agreement dated as of June 25, 2001, between
Royce & Associates, Inc. and the Company.
(b) Report on Form 8-K
Change in principal shareholders report was filed July 24, 2001.
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 August 6, 2001.
CFC INTERNATIONAL, INC.
Dennis W. Lakomy
Executive Vice President,
Chief Financial Officer,
Secretary, and Treasurer
(Principal Financial Officer)
Jeffrey E. Norby
Vice President, Controller
(Principal Accounting Officer)