10
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 March 31, 1997
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
Registrants telephone number, including
area code: (708) 891-3456
Indicated 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 April 30, 1997, the Registrant had issued and
outstanding shares of Common Stock, par value $.01 per
share, and 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 - March 31, 1997 and
December 31, 1996
3
Consolidated Statements of Income for the three (3)
months ended March 31, 1997 and March 31, 1996 4
Consolidated Statements of Cash Flows for the three (3)
months
ended March 31, 1997 and March 31, 1996 5
Notes to Consolidated Financial Statements 6
Item 2 - Managements Discussion and Analysis of Financial
Conditions and
Results of Operations 7-9
Part II - Other Information:
Item 5 - Other Information 10
Item 6 - Exhibits and Reports on Form 8-K 10
Signatures 11
Part I
Item 1. Financial Statements
CFC INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET AT
MARCH 31, 1997 AND DECEMBER 31, 1996
March
31, December 31,
1997
1996
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,892,952 $927,703
Accounts receivable, less allowance for doubtful accounts of
$618,000 and
$565,000 respectively 6,414,437 5,996,657
Employee receivable 241,630 220,833
Inventories:
Raw materials 1,293,273 837,307
Work in process 1,243,384 1,086,308
Finished goods 4,670,774 5,142,558
7,207,431 7,066,173
Prepaid expenses and other current assets 429,155
392,593
Deferred income taxes 663,520 663,520
Total current assets 16,849,125 15,267,479
PROPERTY, PLANT AND
EQUIPMENT, NET 10,748,804 10,866,717
Other assets 537,626 5
61,085
Restricted Cash 998,690
1,510,827
Total assets 29,134,245
28,206,108
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt ..................... $368,124
$
368,124
Accounts payable 2,157,487 2,558,486
Accrued environmental liability 244,937 244,937
Accrued bonus 222,900
200,290
Accrued vacation 266,591
236,422
Accrued corporate income taxes 920,857
263,251
Other accrued expenses and current liabilities 367,488
761,256
Total current liabilities 4,548,384 4,632,766
DEFERRED INCOME TAXES 1,785,740 1,785,740
LONG-TERM DEBT 5,543,719 5,564,027
MINORITY INTEREST IN CFC APPLIED HOLOGRAPHICS 1,223,179
1,145,240
Total liabilities 13,101,022 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
4,138,019
and 4,132,605 shares issued at March 31, 1997 and December 31,
1996 41,379 41,326
Class B common stock, $.01 par value, 750,000 shares
authorized, 534,030
shares issued and outstanding at March 31, 1997 and December
31, 1996 5,340 5,340
Additional paid-in capital 10,183,535
10,139,248
Retained earnings 6,142,075
5,110,647
Cumulative translation adjustment (148,771) (27,891)
16,223,558
15,268,670
Less 156,142 treasury shares of common stock, at cost at March
31, 1997 and
December 31, 1996 (190,335)
(190,335)
16,033,223
15,078,335
CONTINGENCIES
Total liabilities and stockholders equity $29,134
,245 $ 28,206,108
The accompanying notes are an integral part of the financial
statements.
CFC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
RESPECTIVELY
Three Months Ended
March 31,
1997 1996
(Unaudited)
Net sales $9,810,048 $
9,540,497
Cost of goods sold 5,780,563
5,634,729
Gross profit 4,029,485
3,90
5,768
Marketing and selling expenses 1,066,083
943,420
General and administrative expenses 852,662
882,2
44
Research and development expenses 310,110
318,5
91
Patent litigation expenses 0
36,889
2,228,855
2,181,144
Operating income 1,800,630
1,724,624
Other (income) expenses:
Interest 76,442
60,438
Miscellaneous (73,275)
(4,543)
3,167
55,895 Income before income taxes and minority interest
1,797,463 1,668,729
Provision for income taxes 688,096
645,9
40
1,109,367
1,022,789
Minority interest in loss (income) of CFC Applied
Holographics (77,939)
_
Net Income $1,031,428
$
1,022,789
Net income per share $ 0.23 $
0.23
Weighted average number of common stock and common stock
equivalents used in the net income per share calculation
4,517,435 4,526,379
The accompanying notes are an integral part of the
financial statements.
CFC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
RESPECTIVELY
Three Months
Ended March 31,
1997
1996
(Unaudited)
Cash flow from operating activities:
Net income $1,031,428 $
1,022,789
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 521,740
380,518
Minority interest in CFC Applied Holographics
77,939 0
Changes in assets and liabilities:
Accounts receivable (471,779)
(303,665)
Inventories (186,848)
(1,09
1,010)
Employee receivable (20,797)
(57,988)
Prepaid expenses and other current assets
(90,503) (94,532)
Accounts payable (376,901) 1,39
2,989
Accrued income taxes
628,810 577,047
Accrued vacation 30,169
10,978
Accrued bonus 22,610
(639,906)
Accrued expenses and other current liabilities
(337,705) (995,857)
Net cash provided by operating activities
828,163
201,363
Cash flows from investing activities:
Additions to property, plant and equipment
(387,047)
(646,407)
Decrease in restricted cash investment 512,137
0
Net cash used in investing activities 125,090
(646,407)
Cash flows from financing activities:
Proceeds from revolving credit agreements 0
1,720,000
Repayments of revolving credit agreements 0
(1,286,496)
Repayment of term loans (2,735) (27,876)
Repayment of capital lease (17,573)
(17,573)
Proceeds from purchase of stock 44,340
Distributions to stockholders 0 (800
,000)
Net cash used in financing activities 24,032
(411,945)
Effect of exchange rate changes on cash and cash equivalents
(12,036) (38,040)
Increase (decrease) in cash and cash eqivalents
965,249
(895,029)
Cash and cash equivalents:
Beginning of period 927,703 916,480
End of Period $1,892,952 $
21,451
The accompanying notes are an integral part of the financial
statements.
CFC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS MARCH 31,
1997 AND 1996
(Unaudited)
1. 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
March 31, 1997 and December 31, 1996, the results of operations
for the three (3) months ended March 31, 1997 and 1996, and
statements of cash flows for the three (3) months ended March
31, 1997 and 1996.
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 independent audit.
2.Certain comparative prior year amounts in the consolidated
financial statements and notes have been reclassified to
conform with current year presentation.
3.In February, 1997 the Financial Accounting Standards Board
(FASB) issued Statement No. 128, Earnings Per Share, which is
effective for periods ending after December 15, 1997.
Adoption of FASB No. 128 is not expected to have a material
impact on the Companys results of operations.
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Overview
The Company formulates, manufactures, and sells chemically
complex, transferable multi-layer coatings for use in many
diversified markets such as furniture and building products,
pharmaceutical products, transaction cards (including credit
cards, debit cards, ATM cards, and access cards), and on
holographic authentication seals. The Companys net sales
increased 66.1% from $22.4 million in 1992 to $37.2 million in
1996. During that period, the Company realized sales dollar
growth in all of its major product lines. The Companys
operating income more than doubled over this four-year period,
increasing from $1.8 million, or 8.0% of net sales in 1992 to
$5.1 million, or 13.6% of net sales in 1996.
The Company has experienced, and expects to continue
experiencing, shifts in the relative sales and growth of its
various products over time. The Company believes that such
shifts are in the ordinary course of business and are
indicative of its focus on specific niche markets. During the
period from 1992 to 1996, printed products sales rose from
19.6% to 39.3% of net sales. Pharmaceutical products sales
declined from 26.2% in 1992 to 21.2% of net sales in 1996 due
to the growth of other product lines. Actual pharmaceutical
product sales increased from $5.9 million in 1992 to $7.9
million in 1996, or an increase of 35.5% over that four-year
period. Security products sales increased from 6.9% in 1992
to 10.3% of net sales in 1996. Holographic products grew
from 3.5% in 1992 to 11.6% of net sales in 1996.
The Companys gross profit reflects all direct product costs and
direct labor, quality control, shipping and receiving,
maintenance, process engineering, plant management, and a
substantial portion of the Companys depreciation expense.
Selling, general and administrative expenses are primarily
composed of sales representatives salaries and related
expenses, commissions to sales representatives,
advertising costs, management compensation and corporate
audit and legal expense. Research and development expenses
include salaries of technical personnel, related depreciation,
and experimental materials.
Results of Operation
The following table sets forth, for the periods indicated,
certain items from the Companys consolidated and combined
financial statements as a percentage of net sales for such
period.
Quarter Ended March 31,
1997 1996
Net sales 100.0% 100.0%
Cost of sales 58.9 59.1
Gross profit 41.1 40.9
Selling, general and administrative 19.5
19.5
Research and development 3.2
3.3
Operating income 18.4 18.1
Interest expense and other .1 .6
Income before taxes and minority interest
18.3
17.5
Provision for income taxes 7.0
6.8
Minority interest .8 _
Net income 10.5%
10.7%
Quarter Ended March 31, 1997 Compared to Quarter Ended March
31, 1996
Net sales for the quarter ended March 31, 1997 increased 2.8%
to $9.8 million, from $9.5 million for the quarter ended March
31, 1996. Printed product sales increased 12.8% to $3.9
million, from $3.4 million primarily due to an increase in the
Companys
market share. Pharmaceutical product sales decreased 6.7% to
$2.1 million, from $2.2 million, primarily due to stagnation in
the domestic market. Security product (magstripe, signature
panels, and tipping products for credit cards) sales increased
17.8% to $999,000, from $848,000. This increase comes
primarily from strong sales of the Companys magstripe product
line. Sales of simulated metal and other pigmented products
decreased 14.0%
to $1.5 million, from $1.7 million, as CFC exited markets in
which it could not derive its historic margins. Holographic
product sales increased 5.0% to $1.4 million for the quarter
ended March 31, 1997, compared to $1.3 million for the quarter
ended March 31, 1996, primarily due to the increased sales to
SmithKline Beecham for holographic packaging for its Aquafresh
whitening formula toothpaste.
Gross profit for the quarter ended March 31, 1997 increased
3.2% to $4.0 million, from $3.9 million for the quarter ended
March 31, 1996. The increase in gross profit was attributable
to the growth in sales and a decrease in raw material costs.
The gross profit margin for the quarter ended March 31, 1997
increased to 41.1% from 40.9% for the quarter ended March 31,
1996. 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 quarter
ended March 31, 1997 increased 3.0% to $1,919,000 from
$1,863,000 for the quarter ended March 31, 1996. Selling,
general, and administrative expenses for the quarter ended
March 31, 1997 increased as a percentage of net sales to
19.6% from 19.5% for the quarter ended March 31, 1996. This
increase in percentage was primarily due to the additional
investment in resources in the Pacific Rim.
Research and development expenses for the quarter ended March
31, 1997 decreased 2.7% to $310,110 from $318,591 for the
quarter ended March 31, 1996. Research and development expense
for the quarter ended March 31, 1997 decreased as a percentage
of net sales, to 3.2% from 3.3% for the quarter ended March
31, 1996. This decrease in percentage was primarily due to the
increase in net sales and a decrease in R & D operating
expenses.
Operating income for the quarter ended March 31, 1997 increased
4.4% to $1.8 million, from $1.7 million for the quarter ended
March 31, 1996. Operating income for the quarters ended March
31, 1997 increased as a percentage of net sales to 18.4% from
18.1% for the quarter ended March 31, 1996. This increase is
primarily due to an increase in gross profit.
Interest expense for the quarter ended March 31, 1997 increased
26.5% to $76,442, from $60,438 for the quarter ended March 31,
1996. This increase was primarily due to the financing of the
new eight station Roto Gravure printing press to service the
printed products market.
Income taxes for the quarter ended March 31, 1997 increased to
$688,000 from $646,000 for the quarter ended March 31, 1996.
This was primarily the result of the increase in operating
income and the holographic business income being fully taxed.
During the first quarter of 1996, the holographic business
utilized a tax loss carry forward to offset its tax liability.
Net income for the quarter ended March 31, 1997 increased .8%
to $1,031,428, from $1,022,789 for the quarter ended March 31,
1996. This increase in net income is primarily due to the
increase in operating income.
Liquidity and Capital Resources
Working capital, consisting predominately of inventories and
receivables, increased from $10.6 million at December 31, 1996
to $12.3 million at March 31, 1997. This increase was
primarily caused by a $467,000 increase in trade receivables
due to growth in the Companys export business, which is
typically sold with longer terms and an increase in inventory
of $184,000 primarily to support printed products. Cash
increased from $927,703 at December 31, 1996 to $1,892,952 at
March 31, 1997, primarily due to the use of the IRB to fund
the Companys major capital expenditure in 1997, while 1996
capital expenditures were financed by cash from operations.
During the first quarter of 1997, the Company made no
borrowings against the revolving credit agreement maintained
with the Companys primary bank. This agreement, which expires
April 1, 1998, provides for borrowings of specified
percentages of eligible accounts receivable and inventories,
with the total not to exceed $4,500,000. Accordingly, the
borrowings would be classified as current liabilities.
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 May 1, 1997.
CFC INTERNATIONAL, INC.
Dennis W. Lakomy
Vice President, Chief
Financial Officer,
Secretary, and Treasurer
(Principal Financial Officer)
/s/
Jeffrey E. Norby
Controller
(Principal Accounting
Officer)