SOURCE: CPAC, Inc

November 14, 2005 16:21 ET

CPAC, Inc. Announces Second Quarter and Six-Month Results; Declares Quarterly Cash Dividend of $0.07

LEICESTER, NY -- (MARKET WIRE) -- November 14, 2005 -- CPAC, Inc. (NASDAQ: CPAK), a manufacturer and marketer with holdings in the Cleaning & Personal Care and Imaging industries, today reported second quarter and six-month results for the fiscal period ended September 30, 2005.

CPAC's Board of Directors today declared a quarterly cash dividend in the amount of $0.07 per share, payable on December 19, 2005 to shareholders of record at the close of business on November 28, 2005.

Consolidated Results

Net sales for the second quarter were $21.5 million compared to $22.3 million for the same quarter last year, a decline of 3.8% (4.3% excluding the impact of foreign currency exchange.) Net loss for the quarter was $(213,000) or $(0.04) per diluted share versus net income of $172,000 or $0.03 per diluted share for the quarter ended September 30, 2004.

For the six months ended September 30, 2005 net sales were $43.9 million versus $44.4 million for the same period last year, a drop of 1.1% (1.7% excluding the impact of foreign currency exchange). Six-month net loss was $(352,000) or $(0.07) per diluted share as compared to net income of $243,000 or $0.05 per diluted share for the same period ended September 30, 2004.

Results and Highlights by Segment

Fuller Brands Segment

Second quarter net sales in the Fuller Brands segment were $12.7 million, compared to $13.6 million in last year's comparable period. The segment recorded an operating loss of $(31,000) versus operating income of $651,000 for the second quarter of fiscal 2005. For the six-month period ended September 30, 2005 segment net sales were $27.2 million compared to $27.6 million in the corresponding period last year. Operating income was $325,000 versus $1.5 million in the previous year's six-month period.

--  Fuller Brush sales for the quarter were off by 11.3% compared to the same
    three-month period last year, as a result of both inventory balancing and
    holiday programming changes at QVC, its cable television home shopping
    channel partner. For the six-month period, Fuller Brush sales were down
    4.6% versus the same period last year.  Television sales over the six-month
    period were up 8% versus prior year.  In September 2005, Fuller Brush was
    nominated from among 3,500 vendors as a top-three finalist in the Customer
    Focus category of QVC's annual QStar Awards.
    
--  The Fuller Brush Company has formed an alliance with Dometic Corporation,
    a leading international supplier of specialty products and refrigeration
    systems for the leisure, hotel, and medical markets. Under the agreement,
    Fuller will manufacture existing Dometic sanitation products under the
    SeaLand® brand, and expand Dometic's line of premium RV cleaning products
    to include 13 new cleaning products slated for introduction in early 2006.
    
--  The Fuller Brush Company expanded its factory outlet channel through a
    partnership with Vanity Fair, resulting in a 19% sales increase in this
    channel for the six month period versus prior year. Two additional
    locations will be added in the third quarter, bringing the total number of
    Fuller Brush Factory Outlet locations to eleven.
    
--  Stanley Home Products' sales for the quarter were down 15.7% versus the
    comparable quarter last year, due in part to a concentration of direct
    sellers in areas impacted by Hurricane Katrina, in addition to recruiting
    shortfalls. Stanley's net sales for the six-month period were down 9.2%.
    The company is addressing the recruiting challenges through new incentive
    programs, and expansion of new and existing product categories. In
    addition, Stanley is implementing its new compensation system, which is
    designed to reward business-building, in a second geographic area.
    
--  Cleaning Technologies Group sales for the quarter and six-month periods
    increased 5.2% and 6.6% respectively compared to similar periods last year.
    Strong distribution business and national accounts opportunities are
    expected to continue in the third and fourth quarters.  Higher raw material
    costs have significantly affected income, but CTG is now able to pass those
    on to its contracted customer base with scheduled price increases.
    
Fuller Brands President Robert Gey commented, "Although we were disappointed with Fuller Brush's sales dip in the second quarter, we anticipate that television sales will return to normal after the holiday season. Retail sales were slower than expected for the first half of year, but we remain committed to this channel and have engaged expert retail consulting advice to help advance our market penetration. The up-tick in sales of CTG's commercial cleaning products is a reflection of expanded distribution coverage through manufacturer's rep groups, and market acceptance of a new line of environmentally friendly products. Throughout the Fuller Brands segment, we expect to see improved sales and gross margins from pricing actions and cost reductions, offsetting the impact of rising raw material and freight costs."

Imaging Segment

Second quarter Imaging segment sales were even with last year's Q2 sales of $8.7 million (decreased 0.7% excluding the impact of foreign currency exchange.) Operating income for the second quarter was $38,000, compared to an operating loss of $(87,000) in last year's second quarter. For the six-month period, Imaging segment sales were essentially flat at $16.7 million versus $16.8 million in the prior year (decreased 2.2% excluding the impact of foreign currency exchange.) Operating loss for the six-month period narrowed to $(204,000) compared to $(532,000) for the prior year's six-month period.

--  Domestic Imaging sales were flat for both the quarter and six-month
    periods versus prior year. Continued aggressive cost cutting initiatives
    resulted in lower selling, administrative and engineering expenses and,
    consequently, to improvements in consolidated segment operating income.
    
--  CPAC Imaging's facility in China has been incorporated as a wholly owned
    subsidiary of CPAC Asia. Shipments from that plant started in early
    November, 2005.
    
Steven E. Baune, President of CPAC's Imaging segment, stated, "The start-up in China will not have a significant impact on current fiscal year results. We believe that establishing a physical presence in the region expands our access to Imaging business in the Chinese marketplace, and positions us well to grow organically, as well as become a strategic supplier for other Imaging companies in this market."

Baune continued, "All our chemical operations have reported an increase in demand for products manufactured by a number of Imaging companies re-deploying their assets from the traditional to the digital imaging market. We are optimistic that our strategy to be the industry consolidator and private label supplier to this market will have a positive impact on Imaging sales over the coming years."

Other Financial Information

As of September 30, 2005, the Company was in violation of certain bank covenants under the Credit Agreement with its primary bank. The Company has no borrowings against the $3.0 million line of credit under this Agreement and has not borrowed under the line in the past five years. The Agreement also covers the outstanding Letter of Credit for $6.0 million that backs the Fuller Brush Company's Bond debt. The Bonds are not payable until 2009 and the Letter of Credit does not expire until October 31, 2007. The bank has not issued a default demand relating to the bonds. It has, however, issued a letter acknowledging that events of default occurred under the Agreement, but it has not provided waivers for the covenant violations at this time. The bank has reiterated that the line of credit is still in place, but is currently not available for use by the Company, and the Letter of Credit is also still in place for the Bonds. Any requests by the Company for advances under the line shall be evaluated on a case-by-case basis with the bank, and made at the bank's sole discretion. The bank has not exercised any rights and remedies under the Agreement at this time. The Company is adopting price increases and cost cutting measures, which include work force reductions, to improve cash flow as it seeks to reach a new agreement with the bank, or to develop new financing sources, if needed. Because the covenant violations have not been waived, the Company has reclassified the Fuller Bond debt from long term to current in the balance sheet, and will continue to classify these Bonds as current debt until such time as the violations have been cured.

Since beginning the fiscal year on April 1, 2005 with approximately $7.7 million in cash, the Company has expended $155,000 on new property and equipment and had a net reduction of debt in the amount of $192,000. Net cash provided by operating activities was $47,000 versus net cash used in operating activities of $1.0 million at September 30, 2004. In addition, shareholder dividends of $693,000 were distributed. At September 30, 2005, the Company had $6.7 million in cash, compared to $6.2 million at September 30, 2004, and working capital in excess of $23.0 million.

Thomas J. Weldgen, CPAC's Chief Financial Officer, said, "While we have not attained the financial performance that we expected for reasons described in this release, the Company remains committed to the retail market expansion programs in the Fuller Brands segment, the market consolidation strategy in the Imaging segment, and worldwide cost cutting and efficiency programs in both business segments. Every effort is being taken to improve the overall financial performance of the Company."

About CPAC, Inc.

Established in 1969, CPAC, Inc. (cpac.com) manages holdings in two industries. The Fuller Brands segment manufactures commercial, industrial, and household cleaning products, as well as custom brushes and personal care lines. The CPAC Imaging segment develops and markets innovative Imaging chemicals, equipment, and supplies at seven operations worldwide. Products are sold under more than 350 registered trademarks. Stock is traded under the symbol: CPAK.

Except for the historical matters contained herein, statements in this press release are forward-looking and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements involve risks and uncertainties that may affect CPAC's business and prospects, including economic, competitive, governmental, technological, and other factors discussed in CPAC's filings with the Securities and Exchange Commission.


                             CPAC, Inc.
                   RESULTS OF OPERATIONS DATA
           SEPTEMBER 30, 2005 and SEPTEMBER 30, 2004
                            (UNAUDITED)


                                          Three months ended
                                         --------------------
                                         2005            2004    % change
                                        ------          ------   --------
Net sales:
Fuller Brands                       $ 12,738,441    $ 13,644,339    (6.6)
Imaging                                8,718,838       8,652,531     0.8
                                    ------------    ------------
Total net sales:                    $ 21,457,279    $ 22,296,870    (3.8)
                                    ============    ============

  Net income (loss)                 $   (213,151)   $    172,001      NM
                                    ============    ============
  Diluted net income (loss)
   per share                        $      (0.04)   $       0.03
                                    ============    ============

Diluted Shares Outstanding             4,946,774       4,949,647      NM


                                           Six months ended
                                         --------------------
                                         2005            2004    % change
                                        ------          ------   --------
Net sales:
Fuller Brands                       $ 27,232,596    $ 27,617,563    (1.4)
Imaging                               16,648,250      16,764,962    (0.7)
                                    ------------    ------------
Total net sales:                    $ 43,880,846    $ 44,382,525    (1.1)
                                    ============    ============

  Net income (loss)                 $   (352,221)   $    242,594      NM
                                    ============    ============
  Diluted net income (loss)
   per share                        $      (0.07)   $       0.05      NM
                                    ============    ============

Diluted Shares Outstanding             4,946,774       4,954,239      NM


                        SUPPLEMENTAL SEGMENT DATA
                SEPTEMBER 30, 2005 and SEPTEMBER 30, 2004
                                (UNAUDITED)

Three months ended September, 2005
                          FULLER BRANDS       IMAGING          COMBINED
Net sales                  $12,738,441      $ 8,718,838      $21,457,279
Cost of sales                6,906,999        5,894,204       12,801,203
                           -----------      -----------      -----------
   Gross profits             5,831,442        2,824,634        8,656,076
Selling, administrative
 and engineering expenses    5,719,966        2,725,463        8,445,429
Research and development
 expense                       142,894           61,411          204,305
                           -----------      -----------      -----------
Operating income (loss)    $   (31,418)     $    37,760            6,342
                           ===========      ===========
Corporate expense                                                (64,843)
Interest expense, net                                           (124,145)
                                                             -----------
Loss before non-operating
 expenses and income taxes                                      (182,646)
Non-operating expenses:
   Minority interests                                             (9,505)
   Equity in loss of
    affiliate                                                          0
                                                             -----------
                                                                  (9,505)

Loss before income taxes                                        (192,151)
Provision for income taxes                                        21,000
                                                             -----------
Net loss                                                     $  (213,151)
                                                             ===========

Three months ended September, 2004
                          FULLER BRANDS       IMAGING          COMBINED
Net sales                  $13,644,339      $ 8,652,531      $22,296,870
Cost of sales                6,912,517        5,685,608       12,598,125
                           -----------      -----------      -----------
   Gross profits             6,731,822        2,966,923        9,698,745
Selling, administrative
 and engineering expenses    5,945,391        2,959,494        8,904,885
Research and development
 expense                       135,690           94,458          230,148
                           -----------      -----------      -----------
Operating income (loss)    $   650,741      $   (87,029)     $   563,712
                           ===========      ===========
Corporate expense                                                (26,320)
Interest expense, net                                            (84,707)
                                                             -----------
Income before non-operating
 expenses and income taxes                                       452,685
Non-operating expenses:
   Minority interests                                            (63,149)
   Equity in loss of
    affiliate                                                   (122,535)
                                                             -----------
                                                                (185,684)
                                                             -----------

Income before income taxes                                       267,001
Provision for income taxes                                        95,000
                                                             -----------
Net income                                                   $   172,001
                                                             ===========


                        SUPPLEMENTAL SEGMENT DATA
                SEPTEMBER 30, 2005 and SEPTEMBER 30, 2004
                                (UNAUDITED)

Six months ended September, 2005
                          FULLER BRANDS       IMAGING          COMBINED
Net sales                  $27,232,596      $16,648,250      $43,880,846
Cost of sales               14,496,298       11,210,044       25,706,342
                           -----------      -----------      -----------
   Gross profits            12,736,298        5,438,206       18,174,504
Selling, administrative
 and engineering expenses   12,098,603        5,517,150       17,615,753
Research and development
 expense                       312,299          124,758          437,057
                           -----------      -----------      -----------
Operating income (loss)    $   325,396      $  (203,702)         121,694
                           ===========      ===========
Corporate expense                                               (148,669)
Interest expense, net                                           (223,258)
                                                             -----------
Loss before non-operating
 expenses and income taxes                                      (250,233)
Non-operating expenses:
   Minority interests                                            (13,988)
   Equity in loss of
    affiliate                                                          0
                                                             -----------
                                                                 (13,988)

Loss before income taxes                                        (264,221)
Provision for income taxes                                        88,000
                                                             -----------
Net loss                                                     $  (352,221)
                                                             ===========

Six months ended September, 2004
                          FULLER BRANDS       IMAGING          COMBINED
Net sales                  $27,617,563      $16,764,962      $44,382,525
Cost of sales               13,818,703       11,232,297       25,051,000
                           -----------      -----------      -----------
   Gross profits            13,798,860        5,532,665       19,331,525
Selling, administrative
 and engineering expenses   11,978,688        5,923,258       17,901,946
Research and development
 expense                       279,036          141,010          420,046
                           -----------      -----------      -----------
Operating income (loss)    $ 1,541,136      $  (531,603)     $ 1,009,533
                           ===========      ===========
Corporate expense                                                (53,272)
Interest expense, net                                           (185,245)
                                                             -----------
Income before non-operating
 expenses and income taxes                                       771,016
Non-operating expenses:
   Minority interests                                           (115,986)
   Equity in loss of
    affiliate                                                   (250,436)
                                                             -----------
                                                                (366,422)
                                                             -----------

Income before income taxes                                       404,594
Provision for income taxes                                       162,000
                                                             -----------
Net income                                                   $   242,594
                                                             ===========

Contact Information

  • COMPANY CONTACTS:
    Karen Ash
    Mgr. Corp Comm
    Wendy F. Clay
    VP, Admin
    585-382-3223