CPAC, Inc.

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CPAC, Inc.

2364 Leicester Road
Leicester, New York 14481
U.S.A.
Telephone: (585) 382-32223
Toll Free: (800) 828-6011
Fax: (585) 382-3031
Web site: http://www.cpac-fuller.com

Public Company
Incorporated: 1969 as Computerized Pollution Abatement Corporation
Employees: 473
Sales: $87 million (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: CPAK
NAIC: 333298 All Other Industrial Machinery Manufacturing

CPAC, Inc., is a Leicester, New York-based company that does business in two segments: CPAC Imaging and Fuller Brands. The Imaging unit produces and sells branded and private label processing chemicals used in the production of photographic paper and film for the color photography market, the development of medical and dental X-rays, and for use with prepress film and plates used by printers. The company also sells equipment to help photo processors and printers recover silver and provide pollution control; light boxes for viewing X-ray film for the healthcare market; and dry-heat sterilizers and evacuators used by dentists. In addition to its Leicester facility, the CPAC unit maintains offices in Georgia and internationally in Belgium, Italy, South Africa, Thailand, and China. Contributing about 60 percent of the company’s revenues, Fuller Brands is the contemporary home of the venerable Fuller Brush Company as well as CPAC’s Cleaning Technologies Group and Stanley Home Products. Products include 2,700 cleaning products; “stick goods,” such as brushes, brooms, and mops; personal care products that include brushes, hair and skin care, and nutritional supplements; and commercial floor care chemicals. The current incarnation of Fuller Brush continues to use door-to-door salespeople, but also relies on “party plan” sales, catalog and Internet sales, television shopping outlets, and several factory outlet stores. Fuller Brush has also developed a line of consumer products available through grocery, hardware, and specialty retail channels. Fuller Brands and Cleaning Technologies also serve the commercial market with professional cleaning products and stick goods. The Stanley Home Products unit sells more than 200 household cleaning and personal care products through a direct-selling operation that relies mostly on home parties. Most of the products offered by Fuller Brands are manufactured in the company’s 600,000-square-foot plant in Great Bend, Kansas.

CPAC FORMED: 1969

CPAC was incorporated in 1969 by Thomas N. Hendrickson as the Computerized Pollution Abatement Corporation, setting up shop with half a dozen employees in the Rochester, New York, suburb of Leicester. Hendrickson quit his job at one of Rochester’s most famous corporations, Eastman Kodak Company. His idea was to build equipment to recover silver from waste streams produced by photo developers. Not only could the silver be sold, water pollution would be curbed, a growing concern in the 1960s as strict environmental laws came into effect. In 1970 the company installed its first silver-recovering system, and four years later was credited with developing the industry’s first electrolytic silver recovery equipment for bleach fix, a photochemical solution used in many color processes.

The company shortened its name to CPAC in 1976. It enjoyed steady growth, so that by the early 1980s it had installed more than 1,000 recovery systems in 80 countries. CPAC went public in March 1981, raising $2.67 million, just as silver prices began to drop. In a matter of six months the price of silver fell from $50 per ounce to less than $10 per ounce. As a result, there was less incentive for developers to recover silver, and the demand for CPAC’s systems plummeted. In fiscal 1982 (the year ending on March 31) the company lost $439,000 on sales of $2.8 million. A year later revenues dipped below $1.9 million and CPAC lost another $350,000.

To lessen its dependence on silver, CPAC looked to diversify. In 1984 it used stock to acquire Trebla Chemical Company, a St. Louis maker of color photographic chemicals, CPAC’s first involvement in the specialty chemicals field. Next, in 1988, CPAC expanded into other imaging markets by paying about $3.4 million for Chicago-based Allied Photo Products, maker of equipment and chemicals used to process medical and dental X-ray films. The company also served the graphic arts field. A year later, to bolster Allied’s chemical sales to the graphic arts and medical X-ray industries, CPAC acquired IMG Photo Products, a California company that manufactured silver recovery equipment and chemical mixers and blenders. The operations were then consolidated with CPAC’s Leicester operations.

Also in 1989 CPAC teamed up with N.V. Ampaco S.A. to form CPAC Europe and allow CPAC to become a global player. Two years later a manufacturing plant opened in Belgium, where Trembla chemicals were produced to European standards and sold. That same year, CPAC increased its interest in the venture from 50.5 percent to 98 percent. In 1992 the company added to its European presence by forming CPAC Italia to acquire Chimifoto Ornano, S.r.l., a Milan, Italy-based manufacturer of black-and-white and color chemicals. Another 1992 acquisition, that of Fotoprocesos de Venezuela C.A., began selling Trebla and Allied chemicals in Latin America but the venture did not fare well, folding three years later.

In 1994 a CPAC shareholder suggested that the company look into the Fuller Brush Company, a struggling business that had ventured into specialty chemicals and owned a massive underused plant in Great Bend, Kansas, which likely had space to lease. CPAC’s chief operating officer, Bob Isaacs, was dispatched to investigate the facility. After paying a visit, he telephoned Hendrickson. “Forget about leasing space,” he said, according to the Wall Street Journal. He explained, “We need to buy this company. This thing can be turned around.” Like many Americans, Isaacs had fond associations with Fuller Brush, still recalling the Fuller Brush salesman who gave him candy when he was growing up in St. Louis in the 1940s. “This thing was going down the tubes and needed to be saved,” he told the Wall Street Journal.

FULLER BRUSH GETS NEW LEASE ON LIFE: 1994

Fuller Brush was founded in 1906 as Capital Brush Company by Arthur C. Fuller, who as a teenager was fired from three jobs before catching on as a salesman for a Massachusetts brush company. At the age of 21 Fuller moved to Hartford, Connecticut, and with $375 in savings started his own brush company. In 1910 he advertised for salesmen and soon had hundreds of men crisscrossing the country to sell his wares. The business was incorporated in 1913 as Fuller Brush Company and in 1922 a Saturday Evening Post salesman coined the phrase, “Fuller Brush Man.” The door-to-door Fuller Brush Man became an American icon, inspiring the popular 1948 Red Skelton mystery-comedy film, The Fuller Brush Man —followed two years later by the equally popular The Fuller Brush Girl, starring Lucille Ball. Fuller’s son took over in the 1950s, and the company reached its peak in 1959 with $109 million.

COMPANY PERSPECTIVES

CPAC, Inc., is a global manufacturer and marketer of specialty chemicals, equipment and hard goods for two industry segments.

When mass merchandisers such as Kmart, Target, and Wal-Mart changed the retail landscape in the 1960s, Fuller Brush’s business declined. In 1968 its founder sold the company to Consolidated Foods Inc, which later took the name Sara Lee Corp. Fuller Brush moved out of its Hartford home into its sprawling Kansas City plant and tried to make a go of selling cosmetics, hoping to challenge the Avon Lady, only to find that in this field the Fuller Brush Man had met his match. The company lost money throughout the 1980s as it struggled to capture sales through retail stores and catalogs. A group of Great Ben investors bought the U.S. rights to Fuller Brush in 1989 and pursued a multilevel marketing approach similar to Amway’s, but the new concept failed to work and debt caught up with the company. With meager cash flow, the company was unable even to buy the stock necessary to meet the orders it had in hand. It was at this point that Isaacs came calling and was impressed by the 225 employees that still remained with the company and were proud of its heritage.

Not only did the Fuller Brush brand attract CPAC, Hendrickson and his team could see problems over the horizon in the photographic chemicals business. Digital photography was beginning to supplant film, and the major photography companies were beginning to hire people with electronics backgrounds rather than chemical. Moreover, the days of the large wholesale photofinishers were on their way out, eliminating much of CPAC’s business in the United States, although there would remain a strong demand for photo development chemicals in Latin America, Asia, and Africa.

The $17 million acquisition of Fuller Brush was the first step in diversifying into markets beyond those dependent on silver halide imaging. While Fuller Brush’s involvement in specialty chemicals through cleaning products provided some crossover value to CPAC, Fuller Brush also added a number of products totally unconnected to chemicals. CPAC would even begin to offer Fuller-brand cleaning and skin care products to photo and medical lab personnel. To take advantage of the Great Bend plant’s production capacity, in early 1995 CPAC secured a license for Stanley Home Products from Stanhome Inc., which had decided to abandon the business that was founded in 1931 by a pair of Fuller Brush employees, Frank Stanley Beveridge and Catherine O’Brien, in Westfield, Massachusetts. Like Fuller Brush, Stanley Home Products sold household cleaners, brushes, and mops, relying on a direct-sales approach. It also offered some janitorial supply brands.

To grow the division of the company now known as Fuller Brands, CPAC invested $10 million in new plant equipment to double the facility’s productivity. This extra capacity was soon put to use when the company forged an alliance with Publishers Clearing House, which began to offer deals on Fuller Brush products, a promotion that added new customers. The company also made inroads into the mail order channel, gaining entry into such catalogs as Home Trends, Vermont Country Store, and the Michigan Bulb Co. home and garden catalog. Less successful was an appearance on the QVC television shopping channel.

CPAC’s diversification began to pay off quickly. Net sales increased from $58.6 million in fiscal 1995 to nearly $95.5 million in fiscal 1997. Net income during this period more than doubled, from $3.2 million to more than $7.5 million, due in large measure to manufacturing efficiencies. CPAC Imaging, although outpaced by Fuller Brands, also enjoyed an increase in sales, mostly from international operations.

IVAX ACQUIRED: 1997

In July 1997 Fuller Brands added to its portfolio by acquiring IVAX Industries, Inc., an Ohio-based maker of commercial cleaning chemicals. As a result, Fuller expanded its presence in the commercial cleaning and janitorial services market, where the unit had been experiencing some strong growth. IVAX and Fuller’s commercial cleaning assets were combined to create CPAC’s Cleaning Technologies Group. On the imaging side of the business, CPAC acquired an 80 percent stake in RT Chem Corporation to serve as the foundation for CPAC Africa, which became the continent’s only photographic chemical packager. Then, in 1998, ground was broken on a new plant in Thailand, the home for CPAC Asia.

Imaging sales decreased in fiscal 1998, due to difficult conditions in the U.S. market, but the contribution of Fuller Brands more than made up the difference, enjoying an increase in sales from $47.1 million to $61.8. Overall, CPAC posted revenues of more than $108.7 million in fiscal 1998. Net income dipped slightly to $7.1 million. To address declining profits, the company closed an industrial cleaning products factory in Marion, Ohio, that it had picked up in the IVAX deal. The operations were shifted to the Great Bend plant.

KEY DATES

1969:: Company founded as Computerized Pollution Abatement Corporation.
1976:: Name shorted to CPAC, Inc.
1981:: Company taken public.
1984:: Trebla Chemical Company acquired.
1994:: Fuller Brush Company acquired.
1997:: Cleaning Technologies Group formed.
2006:: CPAC accepts buyout offer.

Due in large degree to difficult domestic conditions for the company’s Imaging segment, investors bid down the price of CPAC’s stock, but this was also a period when Wall Street was in love with all things Internet and many industries were neglected as a result. Hendrickson and his team were convinced that CPAC’s stock was undervalued, but until investors concurred, the company would be forced to pay cash to make further acquisitions. In 1998 the Imaging unit gained some diversity through the purchase of PerfectView, a manufacturer of medical X-ray illuminators. A year later CPAC added SteriDent, which made dry-heat sterilizers and evacuation systems for dentists.

Revenues totaled $115.4 million in fiscal 1999 but dipped to $112.1 million the following year, much of the decline due to bad publicity for sweepstakes, which adversely affected Publishers Clearing House. Net income also continued to slide, to $5.6 million in fiscal 2000, prompting management to hire an investment banking firm to take stock of the situation. This resulted in the restructuring of some business units. As the economy lapsed into recession, CPAC continued to see an erosion in its business. Sales fell below $98 million by fiscal 2002 and net income below $3 million.

CPAC took a number of steps in the early 2000s to rekindle growth. On the Fuller Brand side of the business, Stanley began importing the Arcancil line of French cosmetics, and Fuller Brush returned to the QVC studios in 2003 and enjoyed much greater success than it had in its earlier appearance on the television shopping channel. In 2004 Fuller Brush launched a line of consumer products, which began to be carried by Stop ’n’ Shop supermarkets and Wal-Mart. In the meantime, CPAC Imaging took a 40 percent stake in TURA AG, a German company that produced photographic paper, film emulsion products, and ink-jet printing products. In 2006 the Imaging unit opened a manufacturing and distribution facility in China to spur sales in Asia.

Fuller Brands was hit especially hard by rising oil prices, which drove up the cost of raw materials as well as freight. CPAC lost $3.4 million on sales of $90 million in fiscal 2004, and another $3.8 million in fiscal 2005 when revenues decreased to $87.2 million. CPAC essentially broke even in fiscal 2006, earning $465,000, when sales slipped to $87 million. Although, the company expressed hope that it had turned a corner, it also looked for ways to improve shareholder value. In the final week of 2006, CPAC announced that it had accepted a buyout offer of some $50 million from the New York investment group, Buckingham Capital Partners, to take the company private. Because CPAC was thinly traded, there was little advantage to being a public company. As a private company, it would at least be spared the expense of complying with stricter regulations that came from the Sarbanes-Oxley Act of 2002 that grew out of the Enron debacle and other corporate scandals.

Ed Dinger