SEC Company Response from CFC INTERNATIONAL INC (CIK 0000949859) — May 6, 2005
CFC INTERNATIONAL INC (CIK 0000949859)
Date: May 6, 2005 · CIK: 0000949859 · Accession: 0000949859-05-000011
AI Filing Summary & Sentiment
Letter
VIA FEDERAL EXPRESS, FACSIMILE AND EDGAR ---------------------------------------- May 6, 2005 Mr. Rufus Decker Assistant Chief Accountant Division of Corporate Finance United States Securities and Exchange Commission Mail Stop 5-10 450 Fifth Street, N.W. 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 April 22, 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, 204. The Securities and Exchange Commission's comments and the Company's responses are provided below.
Comment 1. (Comment applicable to overall filing)
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)
You discuss the business reasons for changes between periods in your financial statement line items. However, in certain circumstances where there is more than one business reason for the change, you should quantify the incremental impact of each individual business reason discussed on the overall change in the line item if possible. Please quantify each business reason where practical. Refer to Item 303 (a)(3) of Regulation S-K and Financial Reporting Codification 501.04.
Response: We have included additional information which reflects the quantification of each business reason where practical. Below underlined are the added disclosures.
2004 Compared to 2003
Net sales for the year ended December 31, 2004 increased 31.5% to $82.6 from $62.8 million for the year ended December 31, 2003. The strength of the Euro accounted for $2.0 million of the increase in sales in 2004. Holographic product net sales increased 25.9% to $18.7 from $14.9 million for the year ended December 31, 2003, primarily due to gains in the packaging market, plus an increase in sales of security labels due to increased penetration and new security features. Printed products net sales for the year ended December 31, 2004 increased 73.4% to $29.7 from $17.1 million for the year ended December 31, 2003. This was primarily due to a major competitor exiting the market in February 2004. Security products (mag stripe, signature panels, tipping products for credit cards, intaglio printed documents and gift cards) net sales increased 29.4% to $10.8 from $8.4 million. This increase is due primarily to an increase in the volume of gift card business. Pharmaceutical product net sales increased 6.4% to $11.8 from $11.1 million, primarily as a result of sales to existing European customers in the first half of 2004. Net sales of specialty pigmented and simulated metal products increased 1.7% to $11.5 from $11.3 million, primarily due to the appreciation of the Euro, somewhat offset by a decrease in domestic sales due to the Company exiting lower margin business.
Cost of goods sold for the year ended December 31, 2004 increased 27.2% to $54.0 from $42.5 million for the year ended December 31, 2003 primarily due to the increase in sales. The cost of sales as a percentage of net sales for the year ended December 31, 2004 was 65.4% as compared to 67.6% for the year ended December 31, 2003. The decrease in cost of goods sold as a percentage of net sales was primarily the result of an increase in productivity which resulted in lower direct labor costs and better utilization of the Company's fixed manufacturing costs.
Selling, general and administrative expenses increased 11.5% to $15.2 in 2004 from $13.6 million in 2003. The increase in selling, general and administrative expenses is primarily due to the increase in incentive payments of approximately $1.0 million and to the strength of the Euro in the amount of approximately $321,000, as well as the addition of sales and marketing resources. Selling, general and administrative expenses for the year ended December 31, 2004 and 2003 as a percentage of net sales decreased to 18.4% from 21.7% as a percentage of net sales. This decrease was a result of increased sales.
Research and development expenses for the year ended December 31, 2004 increased 36.5% to $3.0 from $2.2 million for the year ended December 31, 2003. The increase in research and development expense was primarily due to incentive payments of $533,000 and cost of living adjustments. Research and development expenses for the year ended December 31, 2004 and December 31, 2003 as a percentage of net sales increased to 3.6 % from 3.5%, respectively. The increase in research and development as a percentage of net sales increased due to incentive payments and
Depreciation and amortization expense for the year ended December 31, 2004 increased 9.2% to $4.6 from $4.2 million for the year ended December 31, 2003. This increase was primarily due to the strength of the Euro. Depreciation and amortization expense as a percentage of net sales for the year ended December 31, 2004 decreased to 5.5% from 6.7% for the year ended December 31, 2003. The decrease in percentage was primarily due to the increase in sales.
Operating income for the year ended December 31, 2004 increased 1,614.6% to $5.8 from $0.3 million for the year ended December 31, 2003. Operating income for the year ended December 31, 2004, increased as a percentage of net sales to 7.0% from 0.5% for the year ended December 31, 2003 due to the reasons noted above with respect to changes in revenues and expenses.
Interest expense for the year ended December 31, 2004 remained constant at $1.1 million when compared to the year ended December 31, 2003.
Interest income for the year ended December 31, 2004 increased to $35,000 from $10,000 for the year ended December 31, 2003. This increase was primarily the result of the Company accumulating cash during the year and earnings on the cash.
Other income for the year ended December 31, 2004 increased to $108,000 from $25,000 for the year ended December 31, 2003. This increase represented rental income from the previous owner, now tenant, in the adjacent building west of the Company's Chicago Heights, Illinois facility purchased in February, 2004.
Gain on foreign currency exchange for the year ended December 31, 2004 decreased 7.4% to $939,000 from $1.0 million for the year ended December 31, 2003. This was a result of the strength of the Euro against the U.S. dollar.
The change in provision (benefit) for income taxes is principally related to the change in income (loss) before income taxes. Because of the amount of the loss generated in 2003, permanent tax items had a more significant effect on the taxable income and the tax provision recorded during the year.
Net income for the year ended December 31, 2004 increased to $4.0 million from $261,000 for the year ended December 31, 2003. The net income for the year was due to reasons discussed previously with respect to changes in revenues and expenses.
2003 Compared to 2002
Net sales for the year ended December 31, 2003 increased 1.5% to $62.8 from $61.9 million for the year ended December 31, 2002. The strength of the Euro accounted for $3.7 million of the increase in sales in 2003. Holographic product net sales increased 25.8% to $14.9 from $11.8 million for the year ended December 31, 2002, primarily due to gains in the packaging market plus an increase in sales of security labels due to increased penetration and new security features. Printed products net sales for the year ended December 31, 2003 decreased 3.0% to $17.1 million from $17.7 million for the year ended December 31, 2002. This was primarily due to a decrease in volume due to competition from low priced Asian imports. Security products (mag stripe, signature panels, tipping products for credit cards, intaglio printed documents and gift cards) net sales decreased 25.8% to $8.4 from $11.3 million. This decrease is due primarily to a decrease in volume of gift card business associated with a customer that was working off excess inventory it purchased in 2002. Pharmaceutical product net sales increased 4.0% to $11.1 from $10.6 million, primarily as a result of sales to existing European customers in the first half of 2003. Net sales of specialty pigmented and simulated metal products increased 8.4% to $11.3 from $10.5 million, primarily due to the appreciation of the Euro, somewhat offset by a decrease in domestic sales due to the Company exiting lower margin business.
Cost of goods sold for the year ended December 31, 2003 increased 10.3% to $42.5 from $38.5 million for the year ended December 31, 2002. Higher scrap domestically of $300,000, coupled with the strength of the Euro in converting European manufacturing costs into U.S. dollars of $2 million and a decrease in the gift card business sales volume described above, which has a lower percent cost (as the material is provided by the customer), resulted in the increased costs. In addition, the Company incurred costs necessary to retain trained production people in anticipation of an increase in its printed woodgrain patterned products because of a major competitor exiting the market. The Company also incurred costs in hiring and training new printed woodgrain patterns production personnel in the mid-fourth quarter 2003 of $230,000. Lastly, in 2002, the Company benefited from additional volume purchase discounts of $250,000 when compared to 2003. The cost of sales as a percentage of net sales for the year ended December 31, 2003 was 67.6% as compared to 62.2% for the year ended December 31, 2002. The increase in cost of goods sold as a percentage of net sales was due to the reasons noted above.
Selling, general and administrative expenses increased 4.4% in 2003 to $13.6 from $12.9 million in 2002. The increase in selling, general and administrative expenses is primarily due to the strength of the Euro, in the amount of approximately $800,000, and a $300,000 benefit related to a settlement of past sales tax liabilities with the State of Illinois in 2002 that did not repeat in 2003, offset by the time between terminations and investment in new hires in 2003 of $126,000, and a gain on the sale of land and building in Germany of $196,000. As a result, selling, general and administrative expenses for the year ended December 31, 2003 increased to 21.7% from 20.8% for the year ended December 31, 2002 as a percentage of net sales.
Research and development expenses for the year ended December 31, 2003 increased 6.1% to $2.2 from $2.0 million for the year ended December 31, 2002. The increase in research and development expense was primarily due to cost of living adjustments. Research and development expenses for the year ended December 31, 2003 and December 31, 2002 as a percentage of net sales were 3.5% and 3.3%, respectively.
Depreciation and amortization expense for the year ended December 31, 2003 increased 6.0% to $4.2 from $4.0 million for the year ended December 31, 2002. This increase was primarily due to the strength of the Euro. Depreciation and amortization expense as a percentage of net sales for the year ended December 31, 2003 increased to 6.6% from 6.4% for the year ended December 31, 2002.
Operating income for the year ended December 31, 2003 decreased 92.2% to $339,000 from $4.3 million for the year ended December 31, 2002. Operating income for the year ended December 31, 2003, decreased as a percentage of net sales to 0.5% from 7.0% for the year ended December 31, 2002 due to the reasons noted above with respect to changes in revenues and expenses.
Interest expense for the year ended December 31, 2003 decreased 10.6% to $1.1 from $1.2 million for the year ended December 31, 2002. The decrease in interest expense was a result of a decrease in the interest rate paid on outstanding debt.
Interest income for the year ended December 31, 2003 decreased to $0 from $29,000 for the year ended December 31, 2002. This decrease was primarily the result of the Company receiving interest on income tax refunds in the second and fourth quarters of
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VIA FEDERAL EXPRESS, FACSIMILE AND EDGAR
----------------------------------------
May 6, 2005
Mr. Rufus Decker
Assistant Chief Accountant
Division of Corporate Finance
United States Securities and Exchange Commission
Mail Stop 5-10
450 Fifth Street, N.W.
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 April 22, 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, 204. The Securities and
Exchange Commission's comments and the Company's responses are provided below.
Comment 1. (Comment applicable to overall filing)
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)
You discuss the business reasons for changes between periods in
your financial statement line items. However, in certain
circumstances where there is more than one business reason for
the change, you should quantify the incremental impact of each
individual business reason discussed on the overall change in the
line item if possible. Please quantify each business reason where
practical. Refer to Item 303 (a)(3) of Regulation S-K and
Financial Reporting Codification 501.04.
Response: We have included additional information which reflects the
quantification of each business reason where practical. Below
underlined are the added disclosures.
2004 Compared to 2003
Net sales for the year ended December 31, 2004 increased 31.5% to
$82.6 from $62.8 million for the year ended December 31, 2003.
The strength of the Euro accounted for $2.0 million of the
increase in sales in 2004. Holographic product net sales
increased 25.9% to $18.7 from $14.9 million for the year ended
December 31, 2003, primarily due to gains in the packaging
market, plus an increase in sales of security labels due to
increased penetration and new security features. Printed products
net sales for the year ended December 31, 2004 increased 73.4% to
$29.7 from $17.1 million for the year ended December 31, 2003.
This was primarily due to a major competitor exiting the market
in February 2004. Security products (mag stripe, signature
panels, tipping products for credit cards, intaglio printed
documents and gift cards) net sales increased 29.4% to $10.8 from
$8.4 million. This increase is due primarily to an increase in
the volume of gift card business. Pharmaceutical product net
sales increased 6.4% to $11.8 from $11.1 million, primarily as a
result of sales to existing European customers in the first half
of 2004. Net sales of specialty pigmented and simulated metal
products increased 1.7% to $11.5 from $11.3 million, primarily
due to the appreciation of the Euro, somewhat offset by a
decrease in domestic sales due to the Company exiting lower
margin business.
Cost of goods sold for the year ended December 31, 2004 increased
27.2% to $54.0 from $42.5 million for the year ended December 31,
2003 primarily due to the increase in sales. The cost of sales as
a percentage of net sales for the year ended December 31, 2004
was 65.4% as compared to 67.6% for the year ended December 31,
2003. The decrease in cost of goods sold as a percentage of net
sales was primarily the result of an increase in productivity
which resulted in lower direct labor costs and better utilization
of the Company's fixed manufacturing costs.
Selling, general and administrative expenses increased 11.5% to
$15.2 in 2004 from $13.6 million in 2003. The increase in
selling, general and administrative expenses is primarily due to
the increase in incentive payments of approximately $1.0 million
and to the strength of the Euro in the amount of approximately
$321,000, as well as the addition of sales and marketing
resources. Selling, general and administrative expenses for the
year ended December 31, 2004 and 2003 as a percentage of net
sales decreased to 18.4% from 21.7% as a percentage of net sales.
This decrease was a result of increased sales.
Research and development expenses for the year ended December 31,
2004 increased 36.5% to $3.0 from $2.2 million for the year ended
December 31, 2003. The increase in research and development
expense was primarily due to incentive payments of $533,000 and
cost of living adjustments. Research and development expenses for
the year ended December 31, 2004 and December 31, 2003 as a
percentage of net sales increased to 3.6 % from 3.5%,
respectively. The increase in research and development as a
percentage of net sales increased due to incentive payments and
Depreciation and amortization expense for the year ended December
31, 2004 increased 9.2% to $4.6 from $4.2 million for the year
ended December 31, 2003. This increase was primarily due to the
strength of the Euro. Depreciation and amortization expense as a
percentage of net sales for the year ended December 31, 2004
decreased to 5.5% from 6.7% for the year ended December 31, 2003.
The decrease in percentage was primarily due to the increase in
sales.
Operating income for the year ended December 31, 2004 increased
1,614.6% to $5.8 from $0.3 million for the year ended December
31, 2003. Operating income for the year ended December 31, 2004,
increased as a percentage of net sales to 7.0% from 0.5% for the
year ended December 31, 2003 due to the reasons noted above with
respect to changes in revenues and expenses.
Interest expense for the year ended December 31, 2004 remained
constant at $1.1 million when compared to the year ended December
31, 2003.
Interest income for the year ended December 31, 2004 increased to
$35,000 from $10,000 for the year ended December 31, 2003. This
increase was primarily the result of the Company accumulating
cash during the year and earnings on the cash.
Other income for the year ended December 31, 2004 increased to
$108,000 from $25,000 for the year ended December 31, 2003. This
increase represented rental income from the previous owner, now
tenant, in the adjacent building west of the Company's Chicago
Heights, Illinois facility purchased in February, 2004.
Gain on foreign currency exchange for the year ended December 31,
2004 decreased 7.4% to $939,000 from $1.0 million for the year
ended December 31, 2003. This was a result of the strength of the
Euro against the U.S. dollar.
The change in provision (benefit) for income taxes is principally
related to the change in income (loss) before income taxes.
Because of the amount of the loss generated in 2003, permanent
tax items had a more significant effect on the taxable income and
the tax provision recorded during the year.
Net income for the year ended December 31, 2004 increased to $4.0
million from $261,000 for the year ended December 31, 2003. The
net income for the year was due to reasons discussed previously
with respect to changes in revenues and expenses.
2003 Compared to 2002
Net sales for the year ended December 31, 2003 increased 1.5% to
$62.8 from $61.9 million for the year ended December 31, 2002.
The strength of the Euro accounted for $3.7 million of the
increase in sales in 2003. Holographic product net sales
increased 25.8% to $14.9 from $11.8 million for the year ended
December 31, 2002, primarily due to gains in the packaging market
plus an increase in sales of security labels due to increased
penetration and new security features. Printed products net sales
for the year ended December 31, 2003 decreased 3.0% to $17.1
million from $17.7 million for the year ended December 31, 2002.
This was primarily due to a decrease in volume due to competition
from low priced Asian imports. Security products (mag stripe,
signature panels, tipping products for credit cards, intaglio
printed documents and gift cards) net sales decreased 25.8% to
$8.4 from $11.3 million. This decrease is due primarily to a
decrease in volume of gift card business associated with a
customer that was working off excess inventory it purchased in
2002. Pharmaceutical product net sales increased 4.0% to $11.1
from $10.6 million, primarily as a result of sales to existing
European customers in the first half of 2003. Net sales of
specialty pigmented and simulated metal products increased 8.4%
to $11.3 from $10.5 million, primarily due to the appreciation of
the Euro, somewhat offset by a decrease in domestic sales due to
the Company exiting lower margin business.
Cost of goods sold for the year ended December 31, 2003 increased
10.3% to $42.5 from $38.5 million for the year ended December 31,
2002. Higher scrap domestically of $300,000, coupled with the
strength of the Euro in converting European manufacturing costs
into U.S. dollars of $2 million and a decrease in the gift card
business sales volume described above, which has a lower percent
cost (as the material is provided by the customer), resulted in
the increased costs. In addition, the Company incurred costs
necessary to retain trained production people in anticipation of
an increase in its printed woodgrain patterned products because
of a major competitor exiting the market. The Company also
incurred costs in hiring and training new printed woodgrain
patterns production personnel in the mid-fourth quarter 2003 of
$230,000. Lastly, in 2002, the Company benefited from additional
volume purchase discounts of $250,000 when compared to 2003. The
cost of sales as a percentage of net sales for the year ended
December 31, 2003 was 67.6% as compared to 62.2% for the year
ended December 31, 2002. The increase in cost of goods sold as a
percentage of net sales was due to the reasons noted above.
Selling, general and administrative expenses increased 4.4% in
2003 to $13.6 from $12.9 million in 2002. The increase in
selling, general and administrative expenses is primarily due to
the strength of the Euro, in the amount of approximately
$800,000, and a $300,000 benefit related to a settlement of past
sales tax liabilities with the State of Illinois in 2002 that did
not repeat in 2003, offset by the time between terminations and
investment in new hires in 2003 of $126,000, and a gain on the
sale of land and building in Germany of $196,000. As a result,
selling, general and administrative expenses for the year ended
December 31, 2003 increased to 21.7% from 20.8% for the year
ended December 31, 2002 as a percentage of net sales.
Research and development expenses for the year ended December 31,
2003 increased 6.1% to $2.2 from $2.0 million for the year ended
December 31, 2002. The increase in research and development
expense was primarily due to cost of living adjustments. Research
and development expenses for the year ended December 31, 2003 and
December 31, 2002 as a percentage of net sales were 3.5% and
3.3%, respectively.
Depreciation and amortization expense for the year ended December
31, 2003 increased 6.0% to $4.2 from $4.0 million for the year
ended December 31, 2002. This increase was primarily due to the
strength of the Euro. Depreciation and amortization expense as a
percentage of net sales for the year ended December 31, 2003
increased to 6.6% from 6.4% for the year ended December 31, 2002.
Operating income for the year ended December 31, 2003 decreased
92.2% to $339,000 from $4.3 million for the year ended December
31, 2002. Operating income for the year ended December 31, 2003,
decreased as a percentage of net sales to 0.5% from 7.0% for the
year ended December 31, 2002 due to the reasons noted above with
respect to changes in revenues and expenses.
Interest expense for the year ended December 31, 2003 decreased
10.6% to $1.1 from $1.2 million for the year ended December 31,
2002. The decrease in interest expense was a result of a decrease
in the interest rate paid on outstanding debt.
Interest income for the year ended December 31, 2003 decreased to
$0 from $29,000 for the year ended December 31, 2002. This
decrease was primarily the result of the Company receiving
interest on income tax refunds in the second and fourth quarters
of