UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 2002
|
[ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
|
New York (State or other jurisdiction of incorporation or organization) |
16-0961040 (I.R.S. Employer Identification No.) |
2364 Leicester Road
Leicester, New York 14481
(585) 382-3223
Not Applicable
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
|
Class |
Number of Shares Outstanding at September 30, 2002 |
|
Common Stock, $.01 par value |
5,088,999 |
|
Options Outstanding & Not Exercised |
Shares to cover the options will not be issued until they are exercised. |
|
1,004,213 |
1
CPAC, INC. AND SUBSIDIARIES
|
|
|
Page No. |
|
PART I -- FINANCIAL INFORMATION |
||
|
Item 1. |
Financial Statements. |
|
|
CPAC, Inc. and Subsidiaries Consolidated Balance Sheets -- September 30, 2002 (Unaudited), and March 31, 2002 |
3 |
|
|
CPAC, Inc. and Subsidiaries Consolidated Statements of Operations and Comprehensive Income -- Six Months Ended September 30, 2002, and September 30, 2001 (Unaudited) |
4 |
|
|
CPAC, Inc. and Subsidiaries Consolidated Statements of Operations and Comprehensive Income -- Three Months Ended September 30, 2002, and September 30, 2001 (Unaudited) |
5 |
|
|
CPAC, Inc. and Subsidiaries Consolidated Statements of Cash Flows -- Six Months Ended September 30, 2002, and September 30, 2001 (Unaudited) |
6 |
|
|
Notes to Consolidated Financial Statements |
7 |
|
|
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations. |
11 |
|
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk. |
14 |
|
Item 4. |
Controls and Procedures. |
14 |
|
PART II -- OTHER INFORMATION |
||
|
Item 1. |
Legal Proceedings. |
15 |
|
Item 2. |
Changes in Securities and Use of Proceeds. |
15 |
|
Item 3. |
Defaults Upon Senior Securities. |
15 |
|
Item 4. |
Submission of Matters to a Vote of Security Holders. |
15 |
|
Item 5. |
Other Information. |
15 |
|
Item 6. |
Exhibits and Reports on Form 8-K. |
15 |
|
SIGNATURE PAGE |
17 |
|
|
CERTIFICATIONS |
18 |
|
|
EXHIBIT INDEX |
20 |
2
PART I -- FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
CPAC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
September 30, 2002 (Unaudited) |
March 31, 2002 (Note) |
||||
|
ASSETS |
|||||
|
Current assets: |
|||||
|
Cash and cash equivalents |
$ 7,808,434 |
$ 7,991,834 |
|||
|
Accounts receivable (net of allowance for doubtful accounts of $1,235,000 and $868,000, respectively) |
13,501,340 |
13,217,923 |
|||
|
Inventory, net |
18,309,129 |
17,555,303 |
|||
|
Prepaid expenses and other current assets |
1,470,454 |
1,208,274 |
|||
|
Deferred tax assets, current |
1,267,790 |
1,251,000 |
|||
|
Total current assets |
42,357,147 |
41,224,334 |
|||
|
Property, plant and equipment, net |
17,565,974 |
17,690,540 |
|||
|
Goodwill |
192,426 |
10,661,677 |
|||
|
Other intangible assets (net of amortization of $1,277,379 and $1,299,166, respectively) |
1,176,413 |
1,436,943 |
|||
|
Deferred tax assets, long-term |
2,191,387 |
190,000 |
|||
|
Other assets |
4,731,549 |
4,931,782 |
|||
|
$ 68,214,896 |
$ 76,135,276 |
||||
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|||||
|
Current liabilities: |
|||||
|
Current portion of long-term debt |
$ 733,806 |
$ 1,061,175 |
|||
|
Accounts payable |
5,433,750 |
4,758,153 |
|||
|
Accrued payroll and related expenses |
1,668,168 |
1,679,952 |
|||
|
Accrued income taxes payable |
245,472 |
621,575 |
|||
|
Other accrued expenses and liabilities |
2,667,679 |
2,701,767 |
|||
|
Total current liabilities |
10,748,875 |
10,822,622 |
|||
|
Long-term debt, net of current portion |
7,428,229 |
7,404,721 |
|||
|
Other long-term liabilities |
3,305,813 |
5,875,703 |
|||
|
Shareholders' equity: |
|||||
|
Common stock, par value $0.01 per share; |
51,743 |
52,088 |
|||
|
Additional paid-in capital |
10,342,506 |
10,538,823 |
|||
|
Retained earnings |
38,009,514 |
43,774,842 |
|||
|
Accumulated other comprehensive income |
(1,081,596 |
) |
(1,743,335 |
) |
|
|
47,322,167 |
52,622,418 |
||||
|
Less: Treasury stock, at cost, 85,307 shares |
(590,188 |
) |
(590,188 |
) |
|
|
Total shareholders' equity |
46,731,979 |
52,032,230 |
|||
|
$ 68,214,896 |
$ 76,135,276 |
||||
Note: The balance sheet at March 31, 2002 has been taken from the audited financial statements as of that date.
The accompanying notes are an integral part of the financial statements.
3
CPAC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
UNAUDITED
|
2002 |
2001 |
||||
|
Net sales |
$ 48,408,124 |
$ 50,536,067 |
|||
|
Costs and expenses: |
|||||
|
Cost of sales |
26,511,132 |
28,134,082 |
|||
|
Selling, administrative and engineering expenses |
19,315,819 |
19,006,319 |
|||
|
Research and development expense |
351,960 |
305,916 |
|||
|
Interest expense, net |
260,784 |
279,610 |
|||
|
46,439,695 |
47,725,927 |
||||
|
Income before income taxes and cumulative effect of change in |
1,968,429 |
2,810,140 |
|||
|
Provision for income tax expense |
735,000 |
1,025,000 |
|||
|
Income before cumulative effect of change in accounting principle |
1,233,429 |
1,785,140 |
|||
|
Cumulative effect of change in accounting principle, net |
(6,281,251 |
) |
|
||
|
Net income (loss) |
$ (5,047,822 |
) |
$ 1,785,140 |
||
|
Net income (loss) per common share: |
|||||
|
Basic: |
|||||
|
Before cumulative effect of change in accounting principle |
$ 0.24 |
$ 0.34 |
|||
|
Cumulative effect of change in accounting principle, net |
$ (1.23 |
) |
$ |
||
|
Basic net income (loss) per share |
$ (0.99 |
) |
$ 0.34 |
||
|
Diluted: |
|||||
|
Before cumulative effect of change in accounting principle |
$ 0.24 |
$ 0.34 |
|||
|
Cumulative effect of change in accounting principle, net |
$ (1.22 |
) |
$ |
||
|
Diluted net income (loss) per share |
$ (0.98 |
) |
$ 0.34 |
||
|
Average common shares outstanding: |
|||||
|
Basic |
5,122,429 |
5,269,481 |
|||
|
Diluted |
5,138,067 |
5,281,952 |
|||
|
Comprehensive income (loss): |
|||||
|
Net income (loss) |
$ (5,047,822 |
) |
$ 1,785,140 |
||
|
Other comprehensive income (loss) |
661,739 |
(624,911 |
) |
||
|
Comprehensive income (loss) |
$ (4,386,083 |
) |
$ 1,160,229 |
||
The accompanying notes are an integral part of the financial statements.
4
CPAC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS
|
2002 |
2001 |
||||
|
Net sales |
$ 23,786,446 |
$ 26,254,944 |
|||
|
Costs and expenses: |
|||||
|
Cost of sales |
13,140,487 |
14,868,432 |
|||
|
Selling, administrative and engineering expenses |
9,440,089 |
9,406,464 |
|||
|
Research and development expense |
186,982 |
151,742 |
|||
|
Interest expense, net |
135,186 |
143,105 |
|||
|
22,902,744 |
24,569,743 |
||||
|
Income before income taxes and cumulative effect of change in |
883,702 |
1,685,201 |
|||
|
Provision for income tax expense |
361,000 |
608,000 |
|||
|
Income before cumulative effect of change in accounting principle |
522,702 |
1,077,201 |
|||
|
Cumulative effect of change in accounting principle, net |
|
|
|||
|
Net income |
$ 522,702 |
$ 1,077,201 |
|||
|
Net income (loss) per common share: |
|||||
|
Basic: |
|||||
|
Before cumulative effect of change in accounting principle |
$ 0.10 |
$ 0.21 |
|||
|
Cumulative effect of change in accounting principle, net |
$ |
$ |
|||
|
Basic net income per share |
$ 0.10 |
$ 0.21 |
|||
|
Diluted: |
|||||
|
Before cumulative effect of change in accounting principle |
$ 0.10 |
$ 0.21 |
|||
|
Cumulative effect of change in accounting principle, net |
$ |
$ |
|||
|
Diluted net income per share |
$ 0.10 |
$ 0.21 |
|||
|
Average common shares outstanding: |
|||||
|
Basic |
5,121,359 |
5,216,651 |
|||
|
Diluted |
5,132,626 |
5,230,298 |
|||
|
Comprehensive income (loss): |
|||||
|
Net income |
$ 522,702 |
$ 1,077,201 |
|||
|
Other comprehensive income (loss) |
559,496 |
(227,176 |
) |
||
|
Comprehensive income (loss) |
$ 1,082,198 |
$ 850,025 |
|||
The accompanying notes are an integral part of the financial statements.
5
CPAC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
UNAUDITED
|
2002 |
2001 |
||||
|
Cash flows from operating activities: |
|||||
|
Net income (loss) |
$ (5,047,822 |
) |
$ 1,785,140 |
||
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|||||
|
Depreciation |
1,254,681 |
1,513,762 |
|||
|
Amortization of intangible assets |
82,838 |
357,573 |
|||
|
Cumulative effect of accounting change |
6,281,251 |
||||
|
Changes in assets and liabilities: |
|||||
|
Accounts receivable |
(183,602 |
) |
(352,654 |
) |
|
|
Inventory |
(618,467 |
) |
(636,306 |
) |
|
|
Accounts payable |
715,768 |
(49,118 |
) |
||
|
Accrued expenses and liabilities |
(375,554 |
) |
677,989 |
||
|
Other changes, net |
(244,141 |
) |
(655,089 |
) |
|
|
Total adjustments |
6,912,774 |
856,157 |
|||
|
Net cash provided by (used in) operating activities |
1,864,952 |
2,641,297 |
|||
|
Cash flows from investing activities: |
|||||
|
Purchase of property, plant, and equipment, net |
(1,000,250 |
) |
(589,488 |
) |
|
|
Net cash used in investing activities |
(1,000,250 |
) |
(589,488 |
) |
|
|
Cash flows from financing activities: |
|||||
|
Common stock repurchase |
(196,662 |
) |
(1,638,578 |
) |
|
|
Repayment of long-term borrowings |
(139,520 |
) |
(534,322 |
) |
|
|
Payment of cash dividends |
(717,506 |
) |
(735,844 |
) |
|
|
Net cash used in financing activities |
(1,053,688 |
) |
(2,908,744 |
) |
|
|
Effect of exchange rate changes on cash |
5,586 |
(2,916 |
) |
||
|
Net decrease in cash and cash equivalents |
(183,400 |
) |
(859,851 |
) |
|
|
Cash and cash equivalents -- beginning of period |
7,991,834 |
8,859,885 |
|||
|
Cash and cash equivalents -- end of period |
$ 7,808,434 |
$ 8,000,034 |
|||
The accompanying notes are an integral part of the financial statements.
6
CPAC, Inc. And Subsidiaries
Notes to Consolidated Financial Statements
Unaudited
1 -- CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheets, the consolidated statements of operations and comprehensive income, and the consolidated statements of cash flows for the interim periods presented have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations, and changes in cash flows for the interim periods presented (which include only normal recurring adjustments), have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's March 31, 2002, Annual Report to Shareholders. The results of operations for the interim periods presented are not necessarily indicative of the operating results for the full year.
2 -- INVENTORY
Inventory is summarized as follows:
|
September 30, 2002 |
March 31, 2002 |
||
|
Raw materials and purchased parts |
$ 7,269,752 |
|
$ 7,012,149 |
|
Work-in-process |
1,185,235 |
|
905,305 |
|
Finished goods |
9,854,142 |
|
9,637,849 |
|
|
$ 18,309,129 |
|
$ 17,555,303 |
3 -- EARNINGS PER SHARE
Basic earnings per share are based upon the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average common shares outstanding during the period plus the dilutive effect of shares issuable through stock options and warrants. The shares used in calculating basic and diluted earnings per share are reconciled as follows:
|
|
Three Months |
|
Six Months |
|
|||||||||||
|
|
2002 |
|
2001 |
|
2002 |
|
2001 |
|
|||||||
|
Basic weighted average number |
5,121,359 |
|
5,216,651 |
|
5,122,429 |
|
5,269,481 |
|
|||||||
|
Effect of dilutive stock options |
11,267 |
|
13,647 |
|
15,638 |
|
12,471 |
|
|||||||
|
Dilutive shares outstanding |
5,132,626 |
|
5,230,298 |
|
5,138,067 |
|
5,281,952 |
|
|||||||
Unexercised stock options to purchase 903,686 and 1,005,311 shares of the Company's common stock as of September 30, 2002 and 2001, respectively, were not included in the computations of diluted earnings per share because the options' exercise prices were greater than the average market price of the Company's common stock during the respective periods. These options, issued at various dates from 1995 to 2002, are still outstanding at the end of the period.
4 -- COMPREHENSIVE INCOME
Other comprehensive income (loss) includes foreign currency translation adjustments.
7
5 -- SEGMENT INFORMATION
The Company operates in two industry segments: the Fuller Brands segment and the CPAC Global Imaging Group (Imaging) segment. Information concerning the Company's business segments' net sales and income before income taxes and cumulative effect of change in accounting principle for the quarters and six months ended September 30, 2002 and 2001 are as follows:
|
|
Three Months |
|
Six Months |
|
||||
|
2002 |
2001 |
2002 |
2001 |
|||||
|
Net sales to customers: |
|
|
|
|
|
|
|
|
|
Fuller Brands |
$ 14,290,560 |
$ 15,409,465 |
$ 29,317,213 |
$ 30,194,556 |
||||
|
Imaging |
9,495,886 |
|
10,845,479 |
|
19,090,911 |
|
20,341,511 |
|
|
Total net sales to customers |
$ 23,786,446 |
|
$ 26,254,944 |
|
$ 48,408,124 |
|
$ 50,536,067 |
|
|
Operating income: |
|
|
|
|
|
|
|
|
|
Fuller Brands |
$ 996,503 |
|
$ 909,493 |
|
$ 1,916,267 |
|
$ 1,904,403 |
|
|
Imaging |
121,942 |
|
907,578 |
|
440,193 |
|
1,237,297 |
|
|
|
1,118,445 |
|
1,817,071 |
|
2,356,460 |
|
3,141,700 |
|
|
Corporate income (loss) |
(99,557 |
) |
11,235 |
|
(127,247 |
) |
(51,950 |
) |
|
Interest expense, net |
(135,186 |
) |
(143,105 |
) |
(260,784 |
) |
(279,610 |
) |
|
Income before income taxes and cumulative effect of |
$ 883,702 |
|
$ 1,685,201 |
|
$ 1,968,429 |
|
$ 2,810,140 |
|
Sales between segments are not material.
Information concerning the Company's business segments' identifiable assets at September 30, 2002 and March 31, 2002 are as follows:
|
|
September 30, 2002 |
|
March 31, 2002 |
|
|
Identifiable assets: |
|
|
|
|
|
Fuller Brands |
$ 40,491,432 |
$ 49,071,973 |
||
|
Imaging |
16,947,652 |
|
18,356,404 |
|
|
Total identifiable assets of the segment |
57,439,084 |
|
67,428,377 |
|
|
General Corporate assets |
10,775,812 |
|
8,706,899 |
|
|
|
$ 68,214,896 |
|
$ 76,135,276 |
|
General Corporate assets include short-term investments held for future use amounting to $5,372,487 and $4,974,251 at September 30, 2002 and March 31, 2002, respectively.
6 -- ADOPTION OF SFAS NO. 142
On April 1, 2002, the Company adopted the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets." The pronouncement required an annual impairment test (comparison of estimated fair value to carrying value) in lieu of monthly amortization for goodwill. In connection with adoption of SFAS No. 142, the Company completed in the first quarter of fiscal 2003 the impairment test for goodwill. To determine potential impairment, fair value of the applicable business units was determined by computing the present value of expected future cash flows. The effect was to reduce the carrying value of goodwill by approximately $6.3 million, net of income tax benefit of $4.2 million, or $1.22 per diluted share. The impairment adjustment was related to the Fuller Brand's Cleaning Technologies Group (CTG) operation, acquired in fiscal 1998, and was a result of a combination of factors, including operating performance, as well as new measurement techniques and methodologies as prescribed by SFAS No. 142. The adjustment is shown as a cumulative effect of change in accounting principle in the consolidated statements of operations and comprehensive income for the six months ended September 30, 2002.
8
7 -- GOODWILL AND AMORTIZABLE INTANGIBLES
A summary of changes in the Company's goodwill during the six months ended September 30, 2002, by segment is as follows (in thousands):
|
|
March 31, 2002 |
|
Impairment |
|
September 30, 2002 |
|
Fuller Brands |
$ 10,469 |
|
$ (10,469 |
) (a) |
$ |
|
Imaging |
193 |
|
|
|
193 |
|
Total |
$ 10,662 |
|
$ (10,469 |
) |
$ 193 |
|
(a) Actual impairment charge recorded was $6,281, net of tax benefit of $4,188. |
|||||
The following table presents prior year earnings and earnings per share as if the non-amortization provisions of SFAS No. 142 had been applied in the prior year:
|
|
Three Months Ended |
|
Six Months Ended |
||||
|
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
|
Reported net income |
$ 522,702 |
|
$ 1,077,201 |
|
$ (5,047,822 |
) |
$ 1,785,140 |
|
Addback goodwill amortization, net of tax |
|
|
70,000 |
|
|
|
129,000 |
|
Addback cumulative effect of change in accounting |
|
|
|
|
6,281,251 |
|
|
|
Adjusted net income |
$ 522,702 |
|
$ 1,147,201 |
|
$ 1,233,429 |
|
$ 1,914,140 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share before cumulative |
|
|
|
|
|
|
|
|
Reported basic earnings per common share |
$ 0.10 |
|
$ 0.21 |
|
$ (0.99 |
) |
$ 0.34 |
|
Addback goodwill amortization, net of tax |
|
|
0.01 |
|
|
|
0.02 |
|
Addback cumulative effect of change in accounting |
|
|
|
|
1.23 |
|
|
|
Adjusted basic earnings per common share |
$ 0.10 |
|
$ 0.22 |
|
$ 0.24 |
|
$ 0.36 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share before cumulative |
|
|
|
|
|
|
|
|
Reported diluted earnings per common share |
$ 0.10 |
|
$ 0.21 |
|
$ (0.98 |
) |
$ 0.34 |
|
Addback goodwill amortization, net of tax |
|
|
0.01 |
|
|
|
0.02 |
|
Addback cumulative effect of change in accounting |
|
|
|
|
1.22 |
|
|
|
Adjusted diluted earnings per common share |
$ 0.10 |
|
$ 0.22 |
|
$ 0.24 |
|
$ 0.36 |
|
|
|
|
|
|
|
|
|
|
Reported comprehensive income (loss) |
$ 1,082,198 |
|
$ 850,025 |
|
$ (4,386,083 |
) |
$ 1,160,229 |
|
Addback goodwill amortization, net of tax |
|
|
70,000 |
|
|
|
129,000 |
|
Addback cumulative effect of change in accounting |
|
|
|
|
6,281,251 |
|
|
|
Adjusted comprehensive income (loss) |
$ 1,082,198 |
$ 920,025 |
$ 1,895,168 |
$ 1,289,229 |
|||
At September 30, 2002 and March 31, 2002, amortizable intangibles consisted primarily of a contractual license agreement allowing the Company to manufacture and distribute products through the use of the trademarks and formulas of Stanley Home Products. The license is being amortized over the contract period, which expires on March 31, 2010. The cost pertaining to this intangible at September 30, 2002 and March 31, 2002 was $2,250,000, while accumulated amortization at September 30, 2002 and March 31, 2002 were $1,125,000 and 1,050,000, respectively.
9
8 -- ACCOUNTING PRONOUNCEMENTS
On April 1, 2002, SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" was effective for the Company. The adoption of this pronouncement did not have any effect on the Company's financial position, results of operations, or cash flows.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, amendment of FASB Statement No. 13, and Technical Corrections," was issued. SFAS No. 145 rescinds SFAS No. 4 and SFAS No. 64 related to classification of gains and losses on debt extinguishment and amends SFAS No. 13 with respect to sales-leaseback transactions. The pronouncement was effective for the Com