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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 December 31, 2003
|
[ ] |
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
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 December 31, 2003 |
|
Common Stock, $.01 par value |
4,946,774 |
|
Options Outstanding & Not Exercised |
Shares to cover the options will not be issued until they are exercised. |
|
1,114,936 |
1
CPAC, INC. AND SUBSIDIARIES
|
|
|
Page No. |
|
PART I -- FINANCIAL INFORMATION |
||
|
Item 1. |
Financial Statements. |
|
|
CPAC, Inc. and Subsidiaries Consolidated Balance Sheets - December 31, 2003 (Unaudited), and March 31, 2003 |
3 |
|
|
CPAC, Inc. and Subsidiaries Consolidated Statements of Operations and Comprehensive Income (Loss) -- Nine Months Ended December 31, 2003, and December 31, 2002 (Unaudited) |
4 |
|
|
CPAC, Inc. and Subsidiaries Consolidated Statements of Operations and Comprehensive Income (Loss) -- Three Months Ended December 31, 2003, and December 31, 2002 (Unaudited) |
5 |
|
|
CPAC, Inc. and Subsidiaries Consolidated Statements of Cash Flows -- Nine Months Ended December 31, 2003, and December 31, 2002 (Unaudited) |
6 |
|
|
Notes to Consolidated Financial Statements |
7 |
|
|
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations. |
15 |
|
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk. |
20 |
|
Item 4. |
Controls and Procedures. |
20 |
|
PART II -- OTHER INFORMATION |
||
|
Item 1. |
Legal Proceedings. |
21 |
|
Item 2. |
Changes in Securities and Use of Proceeds. |
21 |
|
Item 3. |
Defaults Upon Senior Securities. |
21 |
|
Item 4. |
Submission of Matters to a Vote of Security Holders. |
21 |
|
Item 5. |
Other Information. |
21 |
|
Item 6. |
Exhibits and Reports on Form 8-K. |
21 |
|
SIGNATURE PAGE |
22 |
|
|
EXHIBIT INDEX |
23 |
2
PART I -- FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
CPAC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
December 31, 2003 (Unaudited) |
March 31, 2003 (Note) |
||||
|
ASSETS |
|||||
|
Current assets: |
|||||
|
Cash and cash equivalents |
$ 8,591,301 |
$ 9,866,539 |
|||
|
Accounts receivable (net of allowance for doubtful accounts of $1,753,000 and $1,527,000, respectively) |
9,880,750 |
11,721,979 |
|||
|
Inventory, net |
17,112,778 |
17,775,575 |
|||
|
Prepaid expenses and other current assets |
1,985,948 |
1,362,312 |
|||
|
Deferred tax assets, current |
1,156,790 |
957,790 |
|||
|
Total current assets |
38,727,567 |
41,684,195 |
|||
|
Property, plant and equipment, net |
16,424,117 |
17,010,568 |
|||
|
Goodwill |
192,426 |
192,426 |
|||
|
Other intangible assets (net of amortization of $1,442,849 and $1,314,973, respectively) |
968,410 |
1,073,967 |
|||
|
Deferred tax assets, long-term |
3,484,938 |
3,597,309 |
|||
|
Investment in affiliate |
2,898,651 |
1,741,727 |
|||
|
Other assets |
3,011,906 |
2,941,083 |
|||
|
Assets held for sale |
1,237,782 |
|
|||
|
$ 66,945,797 |
$ 68,241,275 |
||||
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|||||
|
Current liabilities: |
|||||
|
Current portion of long-term debt |
$ 299,357 |
$ 736,197 |
|||
|
Accounts payable |
4,643,839 |
5,016,870 |
|||
|
Accrued payroll and related expenses |
1,598,292 |
1,615,488 |
|||
|
Accrued income taxes payable |
84,189 |
||||
|
Other accrued expenses and liabilities |
2,506,195 |
2,277,772 |
|||
|
Total current liabilities |
9,047,683 |
9,730,516 |
|||
|
Long-term debt, net of current portion |
6,868,240 |
7,242,204 |
|||
|
Other long-term liabilities |
5,446,997 |
4,834,438 |
|||
|
Shareholders' equity: |
|||||
|
Common stock, par value $0.01 per share; |
50,321 |
50,305 |
|||
|
Additional paid-in capital |
9,613,906 |
9,605,984 |
|||
|
Retained earnings |
36,400,784 |
38,075,232 |
|||
|
Accumulated other comprehensive income |
108,054 |
(707,216 |
) |
||
|
46,173,065 |
47,024,305 |
||||
|
Less: Treasury stock, at cost, 85,307 shares |
(590,188 |
) |
(590,188 |
) |
|
|
Total shareholders' equity |
45,582,877 |
46,434,117 |
|||
|
$ 66,945,797 |
$ 68,241,275 |
||||
Note: The balance sheet at March 31, 2003 has been taken from the audited financial statements as of that date
and restated for the change in accounting for the investment in affiliate (see Note 3).
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 NINE MONTHS ENDED
DECEMBER 31, 2003 AND DECEMBER 31, 2002
UNAUDITED
|
2003 |
2002 |
|||||
|
Net sales |
$ 67,221,255 |
$ 72,093,980 |
||||
|
Costs and expenses: |
||||||
|
Cost of sales |
37,752,589 |
39,500,351 |
||||
|
Selling, administrative and engineering expenses |
27,978,498 |
28,894,392 |
||||
|
Research and development expense |
519,345 |
500,838 |
||||
|
Restructuring expenses |
1,130,997 |
|||||
|
Interest expense |
387,605 |
399,412 |
||||
|
67,769,034 |
69,294,993 |
|||||
|
Income (loss) before income tax, minority interests, equity in loss of |
(547,779 |
) |
2,798,987 |
|||
|
Provision (benefit) for income tax |
(279,000 |
) |
997,000 |
|||
|
Income (loss) before minority interests, equity in loss of affiliate, and |
(268,779 |
) |
1,801,987 |
|||
|
Minority interests |
(132,919 |
) |
(68,287 |
) |
||
|
Equity in loss of affiliate |
(233,931 |
) |
(123,115 |
) |
||
|
Income (loss) before cumulative effect of change in accounting |
(635,629 |
) |
1,610,585 |
|||
|
Cumulative effect of change in accounting principle |
|
(6,281,251 |
) |
|||
|
Net loss |
$ (635,629 |
) |
$ (4,670,666 |
) |
||
|
Net income (loss) per common share: |
||||||
|
Basic: |
||||||
|
Before cumulative effect of change in accounting principle |
$ (0.13 |
) |
$ 0.32 |
|||
|
Cumulative effect of change in accounting principle |
$ |
$ (1.23 |
) |
|||
|
Basic net loss per share |
$ (0.13 |
) |
$ (0.92 |
) |
||
|
Diluted: |
||||||
|
Before cumulative effect of change in accounting principle |
$ (0.13 |
) |
$ 0.32 |
|||
|
Cumulative effect of change in accounting principle |
$ |
$ (1.23 |
) |
|||
|
Diluted net loss per share |
$ (0.13 |
) |
$ (0.91 |
) |
||
|
Average common shares outstanding: |
||||||
|
Basic |
4,945,365 |
5,100,718 |
||||
|
Diluted |
4,970,657 |
5,111,726 |
||||
|
Comprehensive income (loss): |
||||||
|
Net loss |
$ (635,629 |
) |
$ (4,670,666 |
) |
||
|
Other comprehensive income |
815,270 |
583,523 |
||||
|
Comprehensive income (loss) |
$ 179,641 |
$ (4,087,143 |
) |
|||
The accompanying notes are an integral part of the financial statements.
4
CPAC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED
DECEMBER 31, 2003 AND DECEMBER 31, 2002
UNAUDITED
|
2003 |
2002 |
||||
|
Net sales |
$ 20,508,772 |
$ 23,685,856 |
|||
|
Costs and expenses: |
|||||
|
Cost of sales |
11,844,472 |
12,989,219 |
|||
|
Selling, administrative and engineering expenses |
8,886,482 |
9,608,650 |
|||
|
Research and development expense |
178,344 |
148,878 |
|||
|
Restructuring expenses |
533,968 |
||||
|
Interest expense |
128,157 |
138,628 |
|||
|
21,571,423 |
22,885,375 |
||||
|
Income (loss) before income tax, minority interests, equity in loss of |
(1,062,651 |
) |
800,481 |
||
|
Provision (benefit) for income tax |
(330,000 |
) |
262,000 |
||
|
Income (loss) before minority interests, equity in loss of affiliate, and |
(732,651 |
) |
538,481 |
||
|
Minority interests |
(34,893 |
) |
(38,210 |
) |
|
|
Equity in loss of affiliate |
(54,644 |
) |
(52,172 |
) |
|
|
Income (loss) before cumulative effect of change in accounting principle |
(822,188 |
) |
448,099 |
||
|
Cumulative effect of change in accounting principle |
|
|
|||
|
Net income (loss) |
$ (822,188 |
) |
$ 448,099 |
||
|
Net income (loss) per common share: |
|||||
|
Basic: |
|||||
|
Before cumulative effect of change in accounting principle |
$ (0.17 |
) |
$ 0.09 |
||
|
Cumulative effect of change in accounting principle |
$ |
$ |
|||
|
Basic net income (loss) per share |
$ (0.17 |
) |
$ 0.09 |
||
|
Diluted: |
|||||
|
Before cumulative effect of change in accounting principle |
$ (0.17 |
) |
$ 0.09 |
||
|
Cumulative effect of change in accounting principle |
$ |
$ |
|||
|
Diluted net income (loss) per share |
$ (0.17 |
) |
$ 0.09 |
||
|
Average common shares outstanding: |
|||||
|
Basic |
4,945,670 |
5,057,297 |
|||
|
Diluted |
4,980,747 |
5,059,045 |
|||
|
Comprehensive income (loss): |
|||||
|
Net income (loss) |
$ (822,188 |
) |
$ 448,099 |
||
|
Other comprehensive income (loss) |
276,693 |
(118,845 |
) |
||
|
Comprehensive income (loss) |
$ (545,495 |
) |
$ 329,254 |
||
The accompanying notes are an integral part of the financial statements.
5
CPAC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
DECEMBER 31, 2003 AND DECEMBER 31, 2002
UNAUDITED
|
2003 |
2002 |
||||
|
Cash flows from operating activities: |
|||||
|
Net loss |
$ (635,629 |
) |
$ (4,670,666 |
) |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|||||
|
Depreciation |
1,861,700 |
1,858,897 |
|||
|
Amortization of other intangible assets |
115,642 |
122,635 |
|||
|
Minority interests in consolidated foreign subsidiaries |
132,919 |
68,287 |
|||
|
Equity in loss of affiliate |
233,931 |
123,115 |
|||
|
Cumulative effect of accounting change |
6,281,251 |
||||
|
Changes in assets and liabilities net of effects of business acquisitions: |
|||||
|
Accounts receivable |
1,952,777 |
1,791,647 |
|||
|
Inventory |
855,991 |
(703,604 |
) |
||
|
Accounts payable |
(320,605 |
) |
(260,330 |
) |
|
|
Accrued expenses and liabilities |
(83,341 |
) |
(654,406 |
) |
|
|
Other changes, net |
(27,754 |
) |
(159,361 |
) |
|
|
Total adjustments |
4,721,260 |
8,468,131 |
|||
|
Net cash provided by operating activities |
4,085,631 |
3,797,465 |
|||
|
Cash flows from investing activities: |
|||||
|
Purchase of property, plant, and equipment, net |
(2,327,612 |
) |
(1,242,858 |
) |
|
|
Investment in affiliate |
(1,300,000 |
) |
|
||
|
Net cash used in investing activities |
(3,627,612 |
) |
(1,242,858 |
) |
|
|
Cash flows from financing activities: |
|||||
|
Common stock repurchase |
(677,326 |
) |
|||
|
Common stock issuance |
7,938 |
||||
|
Repayment of long-term borrowings |
(721,463 |
) |
(350,622 |
) |
|
|
Payment of cash dividends |
(1,038,819 |
) |
(1,076,259 |
) |
|
|
Net cash used in financing activities |
(1,752,344 |
) |
(2,104,207 |
) |
|
|
Effect of exchange rate changes on cash |
19,087 |
6,721 |
|||
|
Net increase (decrease) in cash and cash equivalents |
(1,275,238 |
) |
457,121 |
||
|
Cash and cash equivalents -- beginning of period |
9,866,539 |
7,991,834 |
|||
|
Cash and cash equivalents -- end of period |
$ 8,591,301 |
$ 8,448,955 |
|||
The accompanying notes are an integral part of the financial statements.
6
1 -- CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheets, the consolidated statements of operations and comprehensive income (loss), 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, 2003 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 net of reserves is summarized as follows:
|
December 31, 2003 |
March 31, 2003 |
||
|
Raw materials and purchased parts |
$ 6,602,050 |
|
$ 7,251,465 |
|
Work-in-process |
1,008,712 |
|
1,046,611 |
|
Finished goods |
9,502,016 |
|
9,477,499 |
|
|
$ 17,112,778 |
|
$ 17,775,575 |
3 -- INVESTMENT IN AFFILIATE
On April 8, 2003 the Company purchased an additional 21% ownership interest in TURA AG (TURA) of Duren, West Germany, for $1,300,000. Previously, the Company had purchased a 19% ownership interest for $1,890,742 in January 2002. Due to its cumulative ownership of 40%, the Company accounts for its investment under the equity method of accounting. Accounting Principles Board Opinion No. 18 requires use of the equity method of accounting, if the investment gives the Company the ability to exercise significant influence, but not control, over an investee. The Company records its equity in the income or losses of TURA on a three-month lag. The Company has recorded its equity investment on the consolidated balance sheets in "Investment in affiliate" and its share of the TURA earnings and losses as "Equity in loss of affiliate" on the consolidated statements of operations.
As a result of the additional equity ownership, the Company has treated this transaction as a change in reporting entity and has restated the prior period's financial statements, as if the equity method had been utilized at inception. In addition, the purchase price to acquire the cumulative 40% ownership share exceeded the Company's proportionate share of TURA's net assets and such excess has been allocated as follows:
|
|
Unaudited Nine Months Ended December 31, |
||||||||
|
|
2003 |
|
2002 |
|
|||||
|
CPAC, Inc.'s proportionate share of TURA net assets |
$ 681,911 |
|
$ 368,101 |
|
|||||
|
Property, plant and equipment |
355,000 |
|
185,000 |
|
|||||
|
Supply contracts |
281,250 |
|
406,250 |
|
|||||
|
Goodwill |
1,580,490 |
|
847,480 |
|
|||||
|
Net investment |
$ 2,898,651 |
|
$ 1,806,831 |
|
|||||
The difference between the purchase price for the Company's equity interests in TURA and the net investment balance shown above at December 31, 2003 and 2002 represents the Company's recognition of the proportionate share of TURA's net income (loss), amortization of the purchase price, and foreign currency translation adjustments.
7
Summarized, financial information for TURA for the three and nine months ended December 31, 2003 and 2002 is shown below:
|
Unaudited Three Months Ended |
Unaudited Nine Months Ended |
||||||||
|
December 31, 2003 |
December 31, 2002 |
December 31, 2003 |
December 31, 2002 |
||||||
|
Condensed Statement of Operations: |
|
|
|
|
|
|
|
|
|
|
Net revenue |
$ 4,958,000 |
|
$ 5,928,000 |
|
$ 13,341,000 |
|
$ 19,059,000 |
|
|
|
Cost of sales |
3,848,000 |
|
4,682,000 |
|
10,369,000 |
|
14,845,000 |
|
|
|
Operating expenses |
1,034,000 |
|
1,366,000 |
|
3,101,000 |
|
4,038,000 |
|
|
|
Operating income (loss) |
76,000 |
|
(120,000 |
) |
(129,000 |
) |
176,000 |
|
|
|
Interest expense |
108,000 |
|
42,000 |
|
284,000 |
|
221,000 |
|
|
|
Tax provision (benefit) |
|
|
(79,000 |
) |
|
|
30,000 |
|
|
|
Net income (loss) |
$ (32,000 |
) |
$ (83,000 |
) |
$ (413,000 |
) |
$ (75,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Balance Sheet: |
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
$ 8,348,000 |
|
$ 7,629,000 |
|
|
|
Non-current assets |
|
|
|
|
4,050,000 |
|
3,773,000 |
|
|
|
|
|
|
|
|
$ 12,398,000 |
|
$ 11,402,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
$ 9,112,000 |
|
$ 8,741,000 |
|
|
|
Non-current liabilities |
|
|
|
|
1,581,000 |
|
724,000 |
|
|
|
Shareholders' equity |
|
|
|
|
1,705,000 |
|
1,937,000 |
|
|
|
|
|
|
|
|
$ 12,398,000 |
|
$ 11,402,000 |
|
|
As required by APB No. 18, the change in accounting for the TURA investment requires restatement of prior period financial statements. Beginning in the Company's second quarter of fiscal 2004, the Company recognized 40% of the income or loss of TURA, as it records its equity in TURA earnings on a three-month lag, adjusted for the purchase price amortization of $41,250. The amounts included in previous quarters represented 19% of the affiliate's losses, adjusted for the purchase price amortization of $36,250 in each quarter presented. The following table presents the restated prior quarter earnings and earnings per share, as if the equity method of accounting had been applied for the three and nine months ended December 31, 2002:
|
Unaudited Three Months Ended |
Unaudited Nine Months Ended |
||||||||||
|
December 31, 2002 |
December 31, 2002 |
||||||||||
|
Reported CPAC, Inc. net income (loss) |
$ 500,271 |
$ (4,547,551 |
) |
||||||||
|
Equity in loss of TURA |
(52,172 |
) |
(123,115 |
) |
|||||||
|
Adjusted CPAC, Inc. net income (loss) |
$ 448,099 |
|
$ (4,670,666 |
) |
|||||||
|
|
|
|
|
|
|||||||
|
Basic earnings per share before change in reporting entity: |
|
|
|
|
|||||||
|
Reported CPAC, Inc. basic earnings per common share |
$ 0.10 |
|
$ (0.89 |
) |
|||||||
|
Equity in loss of TURA |
(0.01 |
) |
(0.02 |
) |
|||||||
|
Adjusted CPAC, Inc. basic earnings per common share |
$ 0.09 |
|
$ (0.92 |
) |
|||||||
|
|
|
|
|
|
|||||||
|
Diluted earnings per share before change in reporting entity: |
|
|
|
|
|||||||
|
Reported CPAC, Inc. diluted earnings per common share |
$ 0.10 |
|
$ (0.89 |
) |
|||||||
|
Equity in loss of TURA |
(0.01 |
) |
(0.02 |
) |
|||||||
|
Adjusted CPAC, Inc. diluted earnings per common share |
$ 0.09 |
|
$ (0.91 |
) |
|||||||
|
|
|
|
|
|
|||||||
|
Reported CPAC, Inc. comprehensive income (loss) |
$ 382,852 |
|
$ (4,003,231 |
) |
|||||||
|
Equity in loss of TURA |
(52,172 |
) |
(123,115 |
) |
|||||||
|
Other comprehensive income (loss) of TURA |
(1,426 |
) |
39,203 |
|
|||||||
|
Adjusted CPAC, Inc. comprehensive income (loss) |
$ 329,254 |
|
$ (4,087,143 |
) |
|||||||
8
The following table shows the restatement impact on the March 31, 2003 balance sheet for the change in the accounting for the TURA investment:
|
|
Unaudited March 31, 2003 |
||||
|
|
|
|
|||
|
Investment in affiliate, as reported |
$1,890,742 |
|
|||
|
Investment in affiliate, as adjusted |
1,741,727 |
|
|||
|
Total assets, as reported |
68,390,290 |
|
|||
|
Total assets, as adjusted |
68,241,275 |
|
|||
|
Retained earnings, as reported |
38,288,530 |
|
|||
|
Retained earnings, as adjusted |
38,075,232 |
|
|||
|
|
|
|
|||
|
Accumulated other comprehensive income (loss), as reported |
(771,499 |
) |
|||
|
Accumulated other comprehensive income (loss), as adjusted |
(707,216 |
||||