VIA FEDERAL EXPRESS DELIVERY, FACSIMILE AND EDGAR
June 14, 2005
Mr. Rufus Decker
Accounting Branch Chief
Division of Corporate Finance
United States Securities and Exchange Commission
450 Fifth Street, N.W., Mail Stop 5-10
Washington, DC 20549
RE: CFC International Inc.
Form 10-K for the Year Ended December 31, 2004
File No. 0-27222
Dear Mr. Decker:
This letter is in response to your May 31, 2005 letter addressed to Mr. Dennis
Lakomy, Executive Vice President and Chief Financial Officer, CFC International,
Inc. related to the Securities and Exchange Commission's review of the Company's
Form 10-K for the fiscal year ended December 31, 2004 and Form 10-Q/A for the
period ended March 31, 2005 File No. 0-27222. The Securities and Exchange
Commission's comments and the Company's responses are provided below.
Comment 1. (Comment applicable to overall filing)
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Where a comment below requests additional disclosures or other
revisions to be made, please show us in your supplemental
response what the revisions will look like. These revisions
should be included in your future filings.
Response: Included in our responses are the expected revisions or
disclosures to be considered and incorporated in future
quarterly and annual filings.
Comment 2. (Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations, page 23)
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We read you response to comment 2. However, we noted that only
the incentive payment under research and development for 2004
was quantified. Please confirm that this was the only
incremental change that was practical to quantify. Otherwise,
please quantify your increase in the gift card business under
net sales, lower direct labor costs under cost of goods sold
and your cost of living adjustments under research and
development expenses. Please quantify each business reason
where practical. Refer to Item 303 (a) (3) of Regulation S-K
and Financial Reporting Codification 501.04.
Response: In future filings the company will enhance its disclosures.
The increase in security products between 2004 and 2003
was $2.4 million dollars. The company disclosed that this
increase was attributable to an increase in the volume of
its gift card business. This increase was $2.2 million, or 92%
of the increase. Thus, the company will disclose that the
increase was attributable to a $2.2 million increase in gift
card business. With respect to changes in cost of goods sold,
the actual total labor costs in dollars increased between years,
however because revenues increased they declined as a percentage
of revenues. The company will provide disclosures in future
filings which quantify the dollar magnitude or the change in the
labor costs as a percentage of net revenues to better quantify
the change between periods. The $800,000 increase in research
and development expenses is attributable to $533,000 (67% of the
increase) of incentive payments and the remainder is cost of
living adjustments. Revised wording to say that the remainder
of the increase is due to cost of living expense will be
provided in future filings.
Comment 3. (Financial Statements, SFAS 123, page 45)
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We have read your response to comment 8. Please specifically
disclose the line item for the stock-based employee
compensation costs, net of related tax effects, included in
the determination of net income as reported. See paragraph
45.c (1) to (4) of SFAS 123, as amended by SFAS 148.
Response: The Company will provide the required disclosures in future
filings. Such amounts have been immaterial in past periods,
but to provide more clarity the disclosure will be revised
into a format as follows:
Net income as reported $
Add: Stock-based compensation expense
included in reported net income, net
of related tax effects
Less: Stock-based compensation expense for
option and share awards determined by
the fair-value based method, net of
related tax effects
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Pro forma net income $
Required proforma per share amounts will also continue to be
provided.
Comment 4. Form 10-Q/A for the period ended March 31, 2005
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Please address the above comments in your interim filings as
well.
Response: The Company will review its quarterly filing and make
appropriate revisions based upon the staff's comments.
Comment 5. Controls and Procedures
You indicated that under the supervision and with the
participation of your management, including the CEO and CFO,
you conducted an evaluation of the overall effectiveness of
your disclosure controls and procedures. However, it does not
appear that your certifying officers have reached a conclusion
that your disclosure controls and procedures are effective.
Please amend your Form 10-Q for the period ended March 31,
2005 to state in clear and unqualified language, the
conclusions reached by your CEO and CFO on the effectiveness
of your disclosure controls and procedures. Please also
indicate whether there were any significant changes in your
internal control over financial reporting for the quarter
ended March 31, 2005. See Items 307 and 308 of Regulation S-K.
In doing so, please re-file the entire Form 10-Q/A, along with
updated certifications.
Response: The language relating to the conclusions reached by our
certifying officers as to the effectiveness of our disclosure
controls and procedures was inadvertently left out of the
filing. The Company will amend its Form 10-Q/A for the period
ended March 31, 2005 to add the following two sentences to the
end of the first paragraph of item 4 of our Form 10-Q/A:
Based upon their evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that the Company's
disclosure controls and procedures were effective as of March
31, 2005. There were no changes in our internal controls or in
the other factors that could significantly affect these
controls in the first quarter of 2005.
We will re-file the entire Form 10-Q/A, as amended, along with
updated certifications.
Comment 6. Exhibits 31.1 and 31.2
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Please revise your certification to reference the Form 10-Q/A
for the quarter ended March 31, 2005.
Response The certifications included with the amended Form 10-Q/A will be
revised to reflect the proper period and will be dated as of a
current date.
Sincerely,
Dennis W. Lakomy
Executive Vice President &
Chief Financial Officer