UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE | ||
SECURITIES EXCHANGE ACT OF 1934 | |||
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| For the fiscal year ended December 31, 2009 |
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE | ||
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-12648
UFP Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 04-2314970 | |
(State or other jurisdiction of |
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incorporation or organization) |
| Identification No.) |
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172 East Main Street, Georgetown, | 01833-2107 | |
(Address of principal executive offices) |
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(978) 352-2200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Name of each exchange on which registered |
Common Stock, $0.01 par value per share |
| The NASDAQ Stock Market L.L.C. |
Preferred Share Purchase Rights |
| The NASDAQ Stock Market L.L.C. |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No x
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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a non-accelerated filer.smaller reporting company. See definitionthe definitions of “large accelerated filer,” “accelerated filerfiler” and large accelerated filer”“smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
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Non-accelerated filer o |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of June 30, 2006,2009, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $20,646,007,$16,673,553, based on the closing price of $6.01$4.17 on that date as reported on the Nasdaq Capital Market.
Indicate the number of shares outstanding of each of the issuer’sregistrant’s classes of common stock, as of the latest practicable date.
As of March 10, 2010, there were 6,085,821 shares of common stock, $0.01 par value per share, of the Registrant outstanding. |
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DOCUMENTS INCORPORATED BY REFERENCE
Document |
| Parts of this Form 10-K Into Which Incorporated |
Portions of the registrant’s Proxy Statement |
| Part III |
This report contains certain statements that are “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995 (the “Act”) and releases issued by the Securities and Exchange Commission. The words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements.
Examples of these risks, uncertainties, and other factors include, without limitation, the following: (i) economic conditions that affect sales of the products of the Company’s packaging customers, (ii) actions by the Company’s competitors and the ability of the Company to respond to such actions, (iii) the ability of UFP Technologies, Inc. (the “Company” or “UFPT”) to obtain new customers, and (iv) the ability of the Company to fulfill its obligations on long-term contracts, and (v) the ability of the Company to execute and integrate favorable acquisitions. In addition to the foregoing, the Company’s actual future results could differ materially from those projected in the forward-looking statements as a result of risk factors set forth elsewhere in this report and changes in general economic conditions, interest rates and the assumptions used in making such forward-looking statements. The Company’s forward-looking statements set forth in this report represent estimates and assumptions only as of the date that they are made. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
The Company’s principal executive offices are located at 172 East Main Street, Georgetown, Massachusetts 01833; telephone number 978-352-2200; corporate web sitewebsite www.ufpt.com. We make available through our website our annual report on Form 10-K, currentquarterly reports on Form 10-Q, andcurrent reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 as soon as practicable after we electronically file such material with, or furnish it to the Securities and Exchange Commission. The information found on our website is not part of this or any other report we file with or furnish to the SEC.
The Company designs and manufactures engineered packaging solutions utilizing molded fiber, vacuumformedand fabricated foams, vacuum-formed plastics, and molded and fabricated foam plastic products.fiber. The Company also designs and manufactures engineered component products using laminating, molding, and fabricating technologies. The Company serves a myriad of manufacturing sectors, but specifically targets opportunities in the medical and scientific, automotive, aerospace and defense, computer and electronics, medical, aerospace and defense, industrial, and consumer markets.
The Company’s high-performance cushion packaging productssolutions are made primarily from polyethylene and polyurethane foams, and a wide range of sheet plastics. These productssolutions are custom designed and fabricated or molded to provide protection for fragile and valuable items, and are sold primarily to original equipment and component manufacturers. Molded fiber products are made primarily from 100% recycled paper principally derived from waste newspaper. These products are custom designed, engineered and molded into shapes for
packaging high volume consumer goods, including computer components, medical devices, other light electronics, scented candles, and health and beauty products.
In addition to packaging products,solutions, the Company fabricates and molds component products made from cross-linked polyethylene foamfoams, reticulated polyurethane foams, and other specialty materials. The Company also laminates fabrics and other materials to cross-linked polyethylene foams, polyurethane foams and other substrates. The Company’s component products include automotive interior trim, athletic andpadding, industrial safety belts, medical device components, for medical diagnostic equipment,air filtration, high-temperature insulation, abrasive nail files and other beauty aids, anti-fatigue mats, and shock absorbing inserts used in athletic and leisure footwear.
Unless the context otherwise requires, the term “Company” or “UFPT” refers to UFP Technologies, Inc. and its wholly-owned subsidiaries:subsidiaries, Moulded Fibre Technology, Inc. (“MFT”), Simco Technologies, Inc. and Simco Automotive Trim, Inc. (collectively “Simco”) and Stephenson & Lawyer, Inc. (“S&L”), as well as Patterson Properties Corporation, S&L’s wholly-owned subsidiary, and United Development Company Limited (“UDT”), of which the Company owns 26.32%.
Wine Packs®, T-Tubes®, and Pro-Sticks® are our U.S. registered trademarks. Each trademark, trade name, or service mark of any other company appearing in this report belongs to its respective holder.
Market Overview
Packaging Products
The interior cushion packaging market is characterized by three primary sectors: (1) custom fabricated or molded products for low volume, high fragility products; (2) molded or die-cut products for high volume, industrial and consumer goods; and (3) loose fill and commodity packaging materials for products whichthat do not require custom-designed packaging. Packaging productssolutions are used to contain, display, and/or protect their contents during shipment, handling, storage, marketing, and use. The Company serves both the low volume, high fragility market and the high volume industrial and consumer market with a range of product offerings,materials and manufacturing capabilities, but does not materially serve the commodity packaging market.
The low volume, high fragility market is generally characterized by annual production volumes of less than 50,000 pieces. Typical goods in this market include precision instruments, medical devices, sensitive electronic components, and other high value industrial products that are very sensitive to shock, vibration, and other damage that may occur during shipment and distribution. The principal materials used to package these goods include polyethylene and polyurethane foams, foam-in-place polyurethane, and molded expanded polystyrene. Polyurethane foams and polyethylene foams have high shock absorbency, high resiliency, and vibration damping characteristics.
The higher volume consumer packaging market is generally characterized by annual production volumes in excess of 50,000 pieces. Typical goods in this market include toys, light electronics, computers and computer peripherals, stereo equipment, and small appliances. These goods generally do not require as high a level of shock and vibration protection as goods in the low volume, high fragility market. The principal materials used to package these goods include various molded, rigid and foamed plastics, such as expanded polystyrene foam (EPS), vacuum-formed polystyrene (PS) and polyvinyl chloride (PVC), and corrugated die-cut inserts whichthat generally are less protective and less expensive than resilient foams and molded fiber.
Component Products
Component Products applications of foam and other types of plastics are numerous and diverse. Examples include automotive interior components, medical devices, toys, gaskets, health and beauty products, and carrying cases. Cross-linked polyethylene foams have many of the same properties as traditional polyethylene foams, including light weight, durability, resiliency, and flexibility. Cross-linked foams have many advantages over traditional foams, including the ability to be thermoformed (molded), availability in vibrant colors, a fine cell structure providing improved esthetics and lower abrasiveness, and enhanced resistance to chemicals and ultraviolet light. Certain grades of cross-linked foams can be radiation sterilizedradiation-sterilized and have been approved by the U.S. Food and Drug Administration for open wound skin contact.
Cross-linked foam can be combined with other materials to increase product applications and market applications. For example, cross-linked foams can be laminated to fabrics to produce light weight, flexible and durable insoles for athletic and walking shoes, weight lifting and industrial safety belts, gun holsters, backpacks, and other products for the leisure, athletic and retail markets. The Company believes that, as a result of their many advantages, cross-linked foam and cross-linked foam laminated products are being used in a wide range of markets as substitutes for traditional rubber, leather, and other product material alternatives.
Reticulated polyurethane foam is a versatile material typically used to make component products that involve filtration, liquid absorption, noise control, wiping, and padding. These foams feature high tensile, elongation, and tear characteristics; they are used extensively in the medical industry as they are easy to clean, impervious to microbial organisms, and can be made with fungicidal and bactericidal additives for added safety.
Regulatory Climate
The packaging industry has been subject to user, industry, and legislative pressure to develop environmentally responsible packaging alternatives that reduce, reuse, and recycle packaging materials. Government authorities have enacted legislation relating to source reduction, specific product bans, recycled content, recyclability requirements, and “green marketing” restrictions.
In order to provide packaging that complies with all regulations regardless of a product’s destination, manufacturers seek packaging materials that meet both environmentally related demands and performance specifications. Some packaging manufacturers have responded by:by reducing product volume and ultimate waste product disposal through reengineering traditional packaging products;solutions; adopting new manufacturing processes; participating in recovery and reuse systems for resilient materials that are inherently reusable; creating programs to recycle packaging following its useful life; and developing materials that use a high percentage of recycled content in their manufacture. Wherever feasible, the Company employs one or more of these techniques to create environmentally responsible packaging solutions.
Products
The Company’s products include foam, plastic, and fiber packaging products,solutions, and component products.
Packaging ProductsSolutions
The Company designs, manufactures, and markets a broad range of packaging productssolutions primarily using polyethylene, polyurethane, and cross-linked polyethylene foams, and rigid plastics. These productssolutions are custom designedcustom-designed and fabricated or molded to provide protection for less durable, higher value items, and are primarily sold to original equipment and component manufacturers. Examples of the Company’s packaging productssolutions include end-cap packs for computers, corner blocks for telecommunications consoles, anti-static foam packs for printed circuit boards, die-cut
or routed inserts for attaché cases, molded foam enclosures for orthopedic products, and plastic trays for medical devices and components. Markets for these products are typically characterized by lower to moderate volumes where performance, such as shock absorbency and vibration damping, is valued.
The Company’s engineering personnel collaborate directly with customers to study and evaluate specific customer requirements. Based on the results of this evaluation, packaging productssolutions are engineered to customer specifications using various types and densities of materials with the goal of providing the desired protection for the lowest cost and with the lowest physical package volume. The Company believes that its engineering expertise, and breadth of productmaterial offerings, and manufacturing capabilities have enabled it to provide unique solutions to achieve these goals.
The markets for the Company’s molded fiber packaging and vacuum-formed trays are characterized by high volume production runs and require rapid manufacturing turnaround times. Raw materials used in the manufacture of molded fiber are primarily recycled newspaper, a variety of other grades of recycled paper and water. Raw materials used in vacuum-formed plastics include polystyrene (PS) and polyvinyl chloride (PVC). These products compete with expanded polystyrene (EPS) and manually assembled corrugated die-cut inserts.
The Company’s molded fiber products provide customers with packaging solutions that are more responsive to stringent environmental packaging regulations worldwide and meet the demands of environmentally-aware consumers while simultaneously meeting customer cost and performance objectives.
Component Products
The Company specializes in engineered products that use the Company’s close tolerance manufacturing capabilities, and its expertise in various foam materials and lamination techniques, and the Company’s ability to manufacture in clean room environments. The Company’s component products are sold primarily to customers in the automotive, sporting goods, medical, beauty, leisure, and footwear industries. These products include automotive interior trim, partsathletic and industrial safety belts, components for automobilesmedical equipment and medical diagnostic equipment,devices, cosmetic applicators, air conditioner filters, abrasive nail files and other beauty aids, anti-fatigue mats, and shock absorbing inserts used in athletic and leisure footwear.
The Company believes that it is one of the largest purchasers of cross-linked foam in the United States and as a result it has been able to establish important relationships with the relatively small number of suppliers of this product. Through its strong relationships with cross-linked foam suppliers, the Company believes that it is able to offer customers a wide range of cross-linked foam products.
The Company benefits from its ability to custom design its own proprietary manufacturing equipment in conjunction with its machinery suppliers. For example, the Company has custom designedcustom-designed its own lamination machines, allowing the Company to achieve adhesive bonds between cross-linked foam and fabric and other materials that do not easily combine. These specialty laminates typically command higher prices than traditional foam products.
The Company has developed a variety of standard products that are branded and, in some cases, trademarked and patented. These products include Wine Packs (wine shipping solutions made from molded fiber); T-Tubes (tube and pipe insulation for clean room environments); BioShell (pharmaceutical bag protection system); and Pro-Sticks (sanitary solution for nail care services).
Marketing and Sales
The Company goes to market through three major brands: United Foam, Simco Automotive, and Molded Fiber. Each brand represents specific materials, capabilities, and services the Company offers. The Company markets its brands through websites, online advertising and directories, press releases, and trade shows and expositions.
The Company markets and sells its packaging and specialtycomponent products in the United States principally through direct regional sales forces comprised of skilled engineers. The Company
also uses independent manufacturer representatives to sell its products. The Company’s sales engineers collaborate with customers and the Company’s design and manufacturing experts to develop custom engineered solutions on a cost-effective basis. The Company also markets its products through attendance by in-house market specialists at trade shows and expositions. The Company markets a line of products to the health and beauty industry, primarily through distributors. The Company believes that its sales are somewhat seasonal, with increased sales in the second and fourth quarters.
The top two customerscustomer in the Company’s Component Products segment, Recticel Interiors North America, and Inalfa Roof Systems, comprise 30% and 11%, respectively,comprised 13.0% of that segment’s total sales and 18% and 7%, respectively,8.0% of the Company’s total sales for the year ended December 31, 2006.2009. The top customer in the Packaging segment, Stephen Gould Corporation, comprised 10.6% of that segment’s total sales and 4.1% of the Company’s total sales for the year ended December 31, 2009. The loss of either Recticel or InalfaStephen Gould Corp. as a customer wouldcould have a material adverse effect on the Company. No one customer accounted for more than 10% of the Packaging segment sales for the year ended December 31, 2006.
The Company’s manufacturing operations consist primarily of cutting, molding, vacuum forming, laminating, and assembly.assembling. For custom molded foam products, the Company’s skilled engineering personnel analyze specific customer requirements to design and build prototype products to determine product functionality. Upon customer approval, prototypes are converted to final designs for commercial production runs.
Molded cross-linked foam products are produced in a thermoforming process using heat, pressure, and precision metal tooling.
Cushion foam packaging products that do not utilize cross-linked foam are fabricated by cutting shapes from blocks of foam using specialized cutting tools, routers, waterjets and hot wire equipment, and assembling these shapes into the final product using a variety of foam welding or gluing techniques. Products can be used on a stand-alone basis or bonded to another foam product or other material such as a corrugated medium.
Laminated products are produced through a process whereby the foam medium is heated to the melting point. The heated foam is then typically bonded to a non-foam material through the application of mechanical pressure.
Molded fiber products are manufactured by vacuum forming a pulp of recycled or virgin paper materials onto custom engineered molds. With the application of vacuum and air, the molded parts are pressed and transferred to an in-line conveyorized dryer from which they exit ready for packing or subsequent value addedvalue-added operations.
The Company does not manufacture any of the raw materials used in its products. With the exception of certain grades of cross-linked foam and technical polyurethane foams, these raw materials are available from multiple supply sources. Although the Company relies upon a limited number of suppliers for cross-linked foam, the Company’s relationships with such suppliers are good, and the Company expects that these suppliers will be able to meet the Company’s requirements for cross-linked foam. Any delay or interruption in the supply of raw materials could have a material adverse effect on the Company’s business.
The Company’s engineering personnel continuallycontinuously explore design and manufacturing techniques as well as new innovative materials to meet the unique demands and specifications of its customers. In addition, the Company regularly undertakes customer-initiated engineering feasibility studies for which the Company is generally compensated regardless of whether such projects result in commercial production contracts. Because the Company’s products tend to have relatively short life cycles, research and development is an integral part of the Company’s ongoing cost structure.
The packaging products industry is highly competitive. While there are several national companies that sell interior packaging, the Company’s primary competition to date for its packaging products has been from smaller independent regional manufacturing companies. These companies generally market their products in specific geographic areas from neighboring facilities. In addition, the Company’s foam and fiber packaging products compete against products made from alternative materials, including expanded polystyrene foams, die-cut corrugated, plastic peanuts, plastic bubbles, and foam-in-place urethane.
The component products industry is also highly competitive. The Company’s component products face competition primarily from smaller companies that typically concentrate on production of component products for specific industries. The Company expects that additional companies will enter the market as it expands. The Company believes that its access to a wide variety of materials, its engineering expertise, its ability to combine foams with other materials such as plastics and laminates, and its ability to manufacture products in a clean room environment will enable it to continue to compete effectively in the engineered component products market. The Company’s component products also compete with products made from a wide range of other materials, including rubber, leather and other foams.
The Company believes that its customers typically select vendors based on price, product performance, product reliability, and customer service. The Company believes that it is able to compete effectively with respect to these factors in each of its targeted markets.
The Company relies upon trade secret,secrets, patents, and trademarks to protect its technology and proprietary rights. The Company believes that the improvement of existing products, reliance upon trade secrets and unpatented proprietary know-how, and the development of new products are generally as important as patent protection in establishing and maintaining a competitive advantage. Nevertheless, the Company has obtained patents and may continue to make efforts to obtain patents, when available, although there can be no assurance that any patent obtained will provide substantial protection or be of commercial benefit to the Company, or that its validity will be upheld if challenged.
The Company has four U.S. patents relating to its molded fiber technology (including certain proprietary machine designs), and has patents with respect to such technology in certain foreign countries. The Company also has a total of twelvefourteen U.S. patents relating to technologies including foam and packaging, rubber mat, patterned nail file, and superforming process technologies.
There can be no assurance that any patent or patent application of the Company will provide significant protection for the Company’s products and technology, or will not be challenged or circumvented by others. The expiration dates for the Company’s US patents range from 20082010 through 2024.2023.
In addition to offering molded fiber packaging products made from recycled paper derived primarily from post-consumer newspaper waste, the Company actively promotes its philosophy of reducing product volume and resulting post-user product waste. The Company designs products to provide optimum performance with minimum material. In addition, the Company actively participates in a recovery and reuse program for certain of its plastic packaging products. The Company is aware of public support for environmentally responsible packaging and other products. Future government action may impose restrictions affecting the industry in which the Company operates. There can be no assurance that any such action will not adversely impact the Company’s products and business.
The Company’s backlog, as of February 16, 200715, 2010, and February 17, 2006,16, 2009, totaled approximately $7.1$10.1 million and $6.4$8.5 million, respectively, for the Packaging segment, and $25.3$15.5 million and $23.6$14.5 million, respectively, for the Component Products segment. The backlog consists of purchase orders for which a delivery schedule within the next twelve months has been specified by customers. Orders included in the backlog may be canceled or rescheduled by customers without significant penalty. The backlog as of any particular date should not be relied upon as indicative of the Company’s revenues for any period.
As of February 8, 2007,January 31, 2010, the Company had a total of 531603 full-time employees (as compared to 533586 full-time employees as of February 8, 2006)January 31, 2009), with 274359 full-time employees in the Component Products segment (13(30 in engineering, 219268 in manufacturing operations, 1628 in marketing, sales and support services, and 2633 in general and administration) and 257244 full-time employees in the Packaging segment (12(32 in engineering, 206176 in manufacturing, 21manufacturing, 17 in marketing, sales and support services, and 1819 in general and administration). The Company is not a party to any collective bargaining agreement. The Company considers its employee relations to be good.
You should carefully consider the risks described below and the other information in this report before deciding to invest in shares of our common stock. These are the risks and uncertainties we believe are most important for you to consider. Additional risks and uncertainties not presently known to us, which we currently deem immaterial or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations. If any of the following risks or uncertainties actually occurs, our business, financial condition and operating results would likely suffer. In that event, the market price of our common stock could decline and you could lose all or part of your investment.
We depend on a small number of customers for a large percentage of our revenues. The loss of any single customer, or a reduction in sales to any such customer, or the decline in the financial condition of any such customer could have a material adverse effect on our business, financial condition, and results of operations.
A limited number of customers typically represent a significant percentage of our revenues in any given year. Our top ten customers based on revenues represented, in the aggregate,represent approximately 44%32.1% and 46% in 2006 and 2005, respectively,40.0% of our total revenues. For example, during the fourth quarter of 2004, we launched our new $95 millionrevenues in 2009 and 2008, respectively. A single automotive program. This program accounted for approximately 30%13.0% and 26%31.0%, respectively, of our Component Products segment’ssegment sales and approximately 18%8.0% and 15%, respectively,18.0% of our total sales in 20062009 and 2005. Based on our current2008, respectively. The program is scheduled to phase out beginning in 2011. It is uncertain at this time whether the phase-out will occur according to this schedule. It is also uncertain whether the next generation of automobiles in this program will require the same design of parts and, if so, whether we will be selected as the supplier. We expect sales forecasts, we expectfrom this program to account for significant portions of our overall salesdecline over the next 5 to 6two years. However, we cannot guarantee that we will realize the full potential value of this program. The program relies upon a contract that is terminable by the customer for any reason, subject to a cancellation charge. If the customer’s needs decrease over the course of the contract, our estimated revenues from this contract may also decrease. Even if we generate revenue from the project, we cannot guarantee that the project will be profitable, particularly if revenues from the contract are less than expected. Moreover, automotive suppliers like this customer often take advantage of lower volume in the summer to shut down production to service machinery and tools, typically during a portion of the month of July. We expect this practice to continue. This could cause our quarterly operating results to fluctuate and have a material adverse effect on our business and financial results. Our revenues are directly dependent on the ability of our customers to develop, market, and sell their products in a timely, cost-effective manner. The loss of a significant portion of our expected future sales to any of our large customers would have a material adverse effect on our business, financial condition, and financial results. Likewise, a material adverse change in the financial condition of any of these customers could have a material adverse effect on our business, financial condition and financial results.
Fluctuations in the supply of components and raw materials we use in manufacturing our products could cause production delays or reductions in the number of products we manufacture, which could materially adversely affect our business, financial condition and results of operations.
Our business is subject to the risk of periodic shortages of raw materials. We purchase raw materials pursuant to purchase orders placed from time to time in the ordinary course of business. Failure or delay by such suppliers in supplying us necessary raw materials could adversely affect our ability to manufacture and deliver products on a timely and competitive basis.
While we believe that we may, in certain circumstances, secure alternative sources of these materials, we may incur substantial delays and significant expense in doing so, the quality and reliability of alternative sources may not be the same and our operating results may be materially adversely affected. Alternative suppliers might charge significantly higher prices for materials than we currently pay. Under such circumstances, the disruption to our business could have a material adverse impact on our customer relationships, business, financial condition and results of operations.
Reductions in the availability of energy supplies or an increase in energy costs may increase our operating costs.
We use electricity and natural gas at our manufacturing facilities and to operate our equipment. Over the past three years, prices for electricity and natural gas have fluctuated significantly. An outbreak or escalation of hostilities between the United States and any foreign power and, in particular, a prolonged armed conflict in the Middle East, or a natural disaster such as the recent hurricanes and related flooding in the oil producing region of the Gulf Coast of the United States, could result in a real or perceived shortage of petroleum and/or natural gas, which could result in an increase in the cost of electricity or energy generally as well as an increase in cost of our raw materials, of which many are petroleum based. In addition, increased energy costs negatively impact our freight costs due to higher fuel prices. Future limitations on the availability or consumption of petroleum products and/or an increase in energy costs, particularly electricity for plant operations, could have a material adverse effect upon our business and results of operations.
Our Packaging segment may lose business if our customers shift their manufacturing offshore.
Historically, geography has played a large factor in the packaging business. Manufacturing and other companies shipping products typically buy packagingcollect accounts receivable from companies that are relatively close to their manufacturing facilities to increase shipping efficiency and decrease costs. As many U.S. companies move their manufacturing operations overseas, particularly to the Far East, the associated packaging business often follows. We have in the past and may in the future lose customers as a result of customers moving their manufacturing facilities offshore and then hiring our competitors that operate packaging-production facilities that are perceived to be more territorially advantageous. As a result, our sales may suffer, which could have a materially adverse effect upon our business and results of operations.
Failure to retain key personnel could impair our ability to execute our business strategy.
The continuing service of our executive officers and essential engineering, technical and management personnel, together with our ability to attract and retain such personnel, is an important factor in our continuing ability to execute our strategy. There is substantial competition to attract such employees and the loss of any such key employees could have a material adverse effect on our business and operating results. The same could be true if we were to experience a high turnover rate among engineering and technical personnel and we were unable to replace them.customer.
Members of our board of directors and management who also are our stockholders exert significant influence over us.
Based on information made available to us, we believe that our executive officers, directors and their affiliates collectively beneficially own approximately 32% of our outstanding shares of common stock as of June 30, 2006. As a result, those stockholders may, if acting together, control or exert substantial influence over actions requiring stockholders’ approval, including elections of our directors, amendments to our certificate of incorporation, mergers, sales of assets or other business acquisitions or dispositions.
If we do not generate sufficient cash flow from operations, we may be unable to service our debt obligations.
We have established a credit facility with a commercial lender, under which approximately $5.3 million was outstanding as of December 31, 2006. If we are unable to generate sufficient cash flow from operations in the future, we may be unable to pay principal or interest on our borrowings when due and may be required to refinance all or a portion of our existing debt or to obtain additional financing. We cannot guarantee that we could obtain any additional financing on favorable terms, if at all.
We may pursue acquisitions or joint ventures that involve inherent risks, any of which may cause us to not to realize anticipated benefits.
Our business strategy includes the potential acquisition of businesses and entering into joint ventures and other business combinations that we expect will complement and expand our business. For example, during 2009 we acquired selected assets of Foamade Industries, Inc., E.N. Murray Co., and Advanced Materials, Inc., and during 2008 we acquired Stephenson & Lawyer, Inc., as discussed in Note 19 of the “Notes to Consolidated Financial Statements.” We may not be able to successfully identify suitable acquisition or joint venture opportunities or complete any particular acquisition, combination, joint venture or other transaction on acceptable terms. Our identification of suitable acquisition candidates and joint venture opportunities involves risks inherent in assessing the values, strengths, weaknesses, risks and profitability of these opportunities including their effects on our business, diversion of our management’s attention and risks associated with unanticipated problems or unforeseen liabilities. If we are successful in pursuing future acquisitions or joint ventures, we may be required to expend significant funds, incur additional debt, or issue additional securities, which may materially and adversely affect our results of operations and be dilutive to our stockholders. If we spend significant funds or incur additional debt, our ability to obtain financing
for working capital or other purposes could decline and we may be more vulnerable to economic downturns and competitive pressures. In addition, we cannot guarantee that we will be able to finance additional acquisitions or that we will realize any anticipated benefits from acquisitions or joint ventures that we complete. Should we successfully acquire another business, the process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant financial resources that would otherwise be available for the ongoing development or expansion of our existing business. Our failure to identify suitable acquisition or joint venture opportunities may restrict our ability to grow our business.
Fluctuations in the supply of components and raw materials we use in manufacturing our products could cause production delays or reductions in the number of products we manufacture, which could materially adversely affect our business, financial condition and results of operations.
Our business is subject to the risk of periodic shortages of raw materials. We purchase raw materials pursuant to purchase orders placed from time to time in the ordinary course of business. Failure or delay by such suppliers in supplying us necessary raw materials could adversely affect our ability to manufacture and deliver products on a timely and competitive basis.
While we believe that we may, in certain circumstances, secure alternative sources of these materials, we may incur substantial delays and significant expense in doing so, the quality and reliability of alternative sources may not be the same and our operating results may be materially adversely affected. Alternative suppliers might charge significantly higher prices for materials than we currently pay. Under such circumstances, the disruption to our business could have a material adverse impact on our customer relationships, business, financial condition, and results of operations.
The recent worldwide financial unrest and associated economic uncertainty may continue to harm our business and prospects.
The recent worldwide financial unrest and associated economic uncertainty has and may continue to adversely affect sales of our products. The resulting tightening of credit markets may make it difficult for our customers and potential customers to obtain financing on reasonable terms, if at all. Additionally, even if our customers (particularly those in the automotive industry) are able to obtain financing, there is no assurance that they will pay their obligations within agreed-upon terms, if at all. In addition, a slow-down or contraction of the United States’ economy may reduce needs for our products and, therefore, adversely affect sales of our products. These factors have and could continue to result in increased pressure on the pricing of our products.
Reductions in the availability of energy supplies or an increase in energy costs may increase our operating costs.
We use electricity and natural gas at our manufacturing facilities to operate our equipment. Over the past several years, prices for electricity and natural gas have fluctuated significantly. An outbreak or escalation of hostilities between the United States and any foreign power and, in particular, a prolonged armed conflict in the Middle East, or a natural disaster such as the recent hurricanes and related flooding in the oil producing region of the Gulf Coast of the United States, could result in a real or perceived shortage of petroleum and/or natural gas, which could result in an increase in the cost of electricity or energy generally as well as an increase in the cost of our raw materials, of
which many are petroleum-based. In addition, increased energy costs negatively impact our freight costs due to higher fuel prices. Future limitations on the availability or consumption of petroleum products and/or an increase in energy costs, particularly electricity for plant operations, could have a material adverse effect upon our business and results of operations.
Our Packaging segment may lose business if our customers shift their manufacturing offshore.
Historically, geography has played a large factor in the packaging business. Manufacturing and other companies shipping products typically buy packaging from companies that are relatively close to their manufacturing facilities to increase shipping efficiency and decrease costs. As many U.S. companies move their manufacturing operations overseas, particularly to the Far East, the associated packaging business often follows. We have lost customers in the past and may lose customers again in the future as a result of customers moving their manufacturing facilities offshore, then hiring our competitors that operate packaging-production facilities perceived to be more territorially advantageous. As a result, our sales may suffer, which could have a material adverse effect upon our business and results of operations.
Failure to retain key personnel could impair our ability to execute our business strategy.
The continuing service of our executive officers and essential engineering, technical and management personnel, together with our ability to attract and retain such personnel, is an important factor in our continuing ability to execute our strategy. There is substantial competition to attract such employees, and the loss of any such key employees could have a material adverse effect on our business and operating results. The same could be true if we were to experience a high turnover rate among engineering and technical personnel and we were unable to replace them.
Members of our board of directors and management who also are our stockholders exert significant influence over us.
Based on information made available to us, we believe that our executive officers, directors and their affiliates collectively owned approximately 19% of our outstanding shares of common stock as of March 10, 2010. As a result, those stockholders may, if acting together, control or exert substantial influence over actions requiring stockholders’ approval, including elections of our directors, amendments to our certificate of incorporation, mergers, sales of assets or other business acquisitions or dispositions.
As a public company, we need to comply with the reporting obligations of the Securities Exchange Act of 1934 and Section 404 of the Sarbanes-Oxley Act of 2002. If we fail to comply with the reporting obligations of the Exchange Act and Section 404 of the Sarbanes-Oxley Act, or if we fail to achieve and maintain adequate internal controls over financial reporting, our business, results of operations and financial condition, and investors’ confidence in us, could be materially and adversely affected.
As a public company, we are required to comply with the periodic reporting obligations of the Exchange Act, including preparing annual reports, quarterly reports and current reports. Our failure to prepare and disclose this information in a timely manner could subject us to penalties under federal securities laws, expose us to lawsuits, and restrict our ability to access financing. In addition, we will be required under applicable law and regulations to integrate our systems of internal controls over financial reporting. We plan to evaluate our existing internal controls with respect to the standards adopted by the Public Company Accounting Oversight Board. During the course of our evaluation, we may identify areas requiring improvement with respect to our internal control over financial reporting, and we may be required
to design enhanced processes and controls to address issues identified through this review.identified. This
could result in significant delays and cost to us and require us to divert substantial resources, including management time, from other activities. If we fail to achieve and maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controlscontrol over financial reporting in accordance with the Sarbanes-Oxley Act. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent fraud.
Provisions of our corporate charter documents, Delaware law, and our stockholder rights plan may dissuade potential acquirers, prevent the replacement or removal of our current management and may thereby affect the price of our common stock.
The board of directors has the authority to issue up to 1,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges, and restrictions, including voting rights of those shares without any further vote or action by the stockholders. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock, while providing flexibility in connection with possible financings, acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. We have no present plans to issue shares of preferred stock. Further, certain provisions of our certificate of incorporation, and bylaws, and of Delaware law could delay or make more difficult a merger, tender offer or proxy contest involving us.
We also have a stockholder rights plan which is designed to protect and maximizeenhance the value of our outstanding equity interests in the event of an unsolicited attempt to acquire us in a manner or on terms not approved by the board of directors and that would prevent stockholders from realizing the full value of their shares of our common stock. Its purposes are to deter those takeover attempts that the board believes are undesirable, to give the board more time to evaluate takeover proposals and consider alternatives, and to increase the board’s negotiating position to maximizeenhance value in the event of a takeover. The rights issued pursuant to the plan are not intended to prevent all takeovers of us.our Company. However, the rights may have the effect of rendering more difficult or discouraging our acquisition. The rights may cause substantial dilution to a person or group that attempts to acquire us on terms or in a manner not approved by the board of directors, except pursuant to an offer conditioned upon the negation, purchase, or redemption of the rights with respect to which the condition is satisfied.
Additional provisions of our certificate of incorporation and by-lawsbylaws could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting common stock. These include provisions that classify our board of directors, limit the ability of stockholders to take action by written consent, call special meetings, remove a director for cause, amend the by-lawsbylaws, or approve a merger with another company. In addition, our bylaws set forth advance notice procedures for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.
We are subject to the provisions of Section 203 of the Delaware General Corporation Law which prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. For purposes of Section 203, a “business combination” includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and an
“interested stockholder” is a person who, either alone or together with affiliates and associates, owns (or within the past three years did own) 15% or more of the corporation’s voting stock.
The following table presents certain information relating to each of the Company’s properties:
Location |
| Square |
| Lease |
| Principal Use |
Georgetown, |
| 57,600 |
| (owned |
| Headquarters, fabrication, molding, test lab, |
|
|
|
| |||
|
|
|
| |||
|
|
|
| |||
|
|
|
| |||
Haverhill, Massachusetts |
| 48,772 |
|
|
| Flame lamination for the Component Products segment |
|
|
|
|
|
| |
|
|
|
| |||
|
|
|
| |||
|
|
|
| Fabrication and engineering for | ||
Ventura, California |
| 48,300 |
| month-to-month |
| Fabrication and engineering for the Component Products segment |
|
|
|
|
|
| Fabrication and engineering for the Component Products segment |
|
|
|
|
|
| Fabrication and engineering for the Component Products segment |
Denver, Colorado | 18,270 | 07/07/2011 | Fabrication and engineering for the Component Products segment | |||
Denver, Colorado | 28,383 | 07/07/2011 | Fabrication and engineering for the Component Products segment | |||
Raritan, New Jersey | 67,125 | 02/28/2013 | Fabrication, molding, test lab, clean-room, and engineering for the Packaging segment | |||
Kissimmee, Florida(2) | 49,400 | 12/31/2011 | Fabrication, molding, test lab, and engineering for the Packaging segment | |||
El Paso, Texas |
|
|
|
|
| Warehousing and fabrication for the Packaging segment |
Decatur, Alabama(2) | 47,250 | 12/31/2011 | Fabrication and engineering for the Packaging segment | |||
Decatur, Alabama | 14,000 | month-to-month | Warehousing and fabrication for the Packaging segment | |||
Glendale Heights, Illinois | 78,913 | 07/31/2014 | Fabricating and engineering for the Packaging segment | |||
Clinton, Iowa | 60,000 | 12/31/2014 | Molded fiber operations for the Packaging segment | |||
Clinton, Iowa | 62,000 | 02/28/2015 | Molded fiber operations for the Packaging segment |
(1) Subject to mortgage (see Note 9 to the Consolidated Financial Statements).
(2)United Development Company Limited, a Florida limited partnership and an affiliate of the Company and certain officers, directors and stockholdersstockholders of the Company, is the lessor of these properties. United Development Company Limited was consolidated into the Company’s financial statements in 2003 (see Note 1 to the Consolidated Financial Statements).
(2) Subject to mortgage (see Note 8 to the Consolidated Financial Statements).
12
The Company is not a party to any material pending legal proceedings.
None.
From July 8, 1996, until April 18, 2001, the Company’s Common Stockcommon stock was listed on the NasdaqNASDAQ National Market under the symbol “UFPT.” Since April 19, 2001, the Company’s Common Stockcommon stock has been listed on the NasdaqNASDAQ Capital Market (formerly known as the Nasdaq Small Cap Market).Market. The following table sets forth the range of high and low quotations for the Common Stockcommon stock as reported by NasdaqNASDAQ for the quarterly periods from January 1, 20052008, to December 31, 2006:2009:
Fiscal Year Ended December 31, 2005 |
| High |
| Low |
| |||||||||
Fiscal Year Ended December 31, 2008 |
| High |
| Low |
| |||||||||
First Quarter |
| $ | 6.39 |
| $ | 3.11 |
|
| $ | 8.20 |
| $ | 5.20 |
|
Second Quarter |
| 5.88 |
| 2.94 |
|
| 14.63 |
| 7.36 |
| ||||
Third Quarter |
| 4.25 |
| 3.25 |
|
| 12.18 |
| 6.71 |
| ||||
Fourth Quarter |
| 3.65 |
| 2.17 |
|
| 7.09 |
| 3.92 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Fiscal Year Ended December 31, 2006 |
| High |
| Low |
| |||||||||
Fiscal Year Ended December 31, 2009 |
| High |
| Low |
| |||||||||
First Quarter |
| $ | 3.70 |
| $ | 2.22 |
|
| $ | 6.10 |
| $ | 3.47 |
|
Second Quarter |
| 7.69 |
| 3.08 |
|
| 5.20 |
| 4.03 |
| ||||
Third Quarter |
| 7.99 |
| 4.88 |
|
| 6.46 |
| 4.09 |
| ||||
Fourth Quarter |
| 5.76 |
| 4.15 |
|
| 7.10 |
| 5.91 |
| ||||
As of February 15, 2007,16, 2010, there were 10484 holders of record of the Company’s Common Stock.common stock.
Due to the fact that many of the shares are held by brokers and other institutions on behalf of stockholders, the Company is unable to estimate the total number of individual stockholders represented by these holders of record.
The Company did not pay any dividends in 2006, although prior to becoming a public company in December 1993, the Company had from time to time paid cash dividends on its capital stock.2008 or 2009. The Company presently intends to retain all of its earnings to provide funds for the operation of
its business, although it would consider paying cash dividends in the future. The Company’s ability to pay dividends is subject to approval by its principal lending institution.
The Company maintains threetwo active stock option plans to provide long-term rewards and incentives to the Company’s key employees, officers, employee directors, non-employee directors, and
advisors. The first plan (19931993 Employee Stock Option Plan)Plan provides for the issuance of up to 1,550,000 shares of the Company’s common stock. The second plan (19932009 Non-Employee Director Plan) provided for the issuance of 110,000 shares of the Company’s common stock to non-employee directors; this plan was frozen with the inception of the 1998 DirectorStock Incentive Plan which provides for the issuance of up to 725,000975,000 shares of the Company’s common stock to non-employee directors. Additional details of these plans are discussed in Note 13 to the Consolidated Financial Statements.consolidated financial statements.
The Company also maintains an Employee Stock Purchasethe 2003 Incentive Plan, which is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986.
The Company also maintains a Stock Plan (2003 Equity Incentive Plan) to provideprovides the Company with the ability to offer equity-based incentives to present and future executives and other employees who are in a position to contribute to the long-term success and growth of the Company.
Each of these plans and their amendments havehas been approved by the Company’s stockholders.
Summary plan information as of December 31, 20062009, is as follows:
|
| Number of shares of |
| Weighted |
| Number of shares of |
|
| Number of shares of UFPT common |
| Weighted average exercise price of outstanding options |
| Number of shares of UFPT common stock remaining available for future issuance |
| ||
1993 Employee Plan |
| 731,875 |
| $ | 2.18 |
| 315,043 |
|
| 605,000 |
| $ | 2.33 |
| 312,293 |
|
1993 Director Plan |
| 20,000 |
| 4.13 |
| 0 |
| |||||||||
1998 Director Plan |
| 404,184 |
| 2.71 |
| 168,652 |
|
| 391,609 |
| 4.12 |
| 282,089 |
| ||
Total Option Plans |
| 1,156,059 |
| $ | 2.40 |
| 483,695 |
|
| 996,609 |
| $ | 3.03 |
| 594,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
1998 Employee Stock Purchase Plan |
| 0 |
| 0 |
| 101,672 |
| |||||||||
2003 Equity Incentive Plan |
| 144,000 |
| 0 |
| 164,834 |
| |||||||||
2003 Incentive Plan |
| 276,124 |
| — |
| 297,918 |
| |||||||||
Total All Stock Plans |
| 1,300,059 |
| 0 |
| 750,201 |
|
| 1,272,733 |
| — |
| 892,300 |
| ||
(1) Will be issued upon exercise of outstanding options or vesting of stock unit awards.
The following selected financial data for the five years ended December 31, 2006,2009, is derived from the audited consolidated financial statements of the Company. The consolidated financial statements for fiscal years 2004, 2003, and 2002 were audited by PricewaterhouseCoopers LLP. The data should be read in conjunction with the consolidated financial statements and the related notes included in this report, and in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Selected Consolidated Financial Years Ended December 31 Consolidated statement of operations data:(1) 2006 2005 2004 2003 2002 (in thousands, except per share data) Net sales $ 93,749 83,962 68,624 60,902 61,189 Gross profit 19,237 14,601 13,971 10,724 12,105 Operating income (loss) 5,054 2,171 2,144 (1,508 ) 466 Net income (loss) 2,515 659 871 (1,516 ) (234 ) Diluted earnings (loss) per share $ 0.45 0.14 0.17 (0.34 ) (0.05 ) Weighted average number of diluted 5,571 5,261 4,995 4,490 4,343 Data
(2)
(2)
(2)
(3)(2)(4)
(5)(4)
shares outstanding
|
| Years Ended December 31 |
| |||||||||||
Consolidated balance sheet data:(1) |
|
|
| 2006(2) |
| 2005(2) |
| 2004(2) |
| 2003(2) |
| 2002 |
| |
|
| (in thousands) |
| |||||||||||
Working capital |
| $ | 8,236 |
| 3,321 |
| 1,431 |
| 1,209 |
| 1,540 |
| ||
Total assets |
| 39,037 |
| 44,000 |
| 39,632 |
| 36,749 |
| 35,383 |
| |||
Short-term debt and capital lease obligations |
| 1,767 |
| 9,716 |
| 9,484 |
| 8,173 |
| 7,169 |
| |||
Long-term debt and capital lease obligations, excluding current portion |
| 6,921 |
| 7,650 |
| 7,497 |
| 8,119 |
| 6,851 |
| |||
Total liabilities |
| 20,412 |
| 29,239 |
| 25,846 |
| 24,058 |
| 21,332 |
| |||
Stockholders’ equity |
| $ | 18,625 |
| 14,761 |
| 13,787 |
| 12,691 |
| 14,050 |
| ||
|
| Years Ended December 31 |
| |||||||||
|
| (in thousands, except per share data) |
| |||||||||
Consolidated statement of operations data(1) |
| 2009 |
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| |
Net sales |
| $ | 99,231 |
| 110,032 |
| 93,595 |
| 93,749 |
| 83,962 |
|
Gross profit |
| 26,719 |
| 28,563 |
| 22,810 |
| 19,237 |
| 14,601 |
| |
Operating income |
| 8,180 |
| 8,425 | (2) | 7,247 |
| 5,054 |
| 2,171 |
| |
Net income attributable to UFP Technologies, Inc. |
| 5,929 |
| 5,116 |
| 4,159 |
| 2,515 |
| 659 |
| |
Diluted earnings per share |
| 0.94 |
| 0.82 |
| 0.71 |
| 0.45 |
| 0.14 |
| |
Weighted average number of diluted shares outstanding |
| 6,294 |
| 6,263 |
| 5,861 |
| 5,571 |
| 5,261 |
| |
|
| As of December 31 |
| |||||||||
|
| (in thousands) |
| |||||||||
Consolidated balance sheet data |
| 2009 |
| 2008 |
| 2007 |
| 2006 |
| 2005 |
| |
Working capital |
| $ | 27,702 |
| 18,688 |
| 14,952 |
| 8,236 |
| 3,321 |
|
Total assets |
| 59,452 |
| 48,723 |
| 45,553 |
| 39,037 |
| 44,000 |
| |
Short-term debt and capital lease obligations |
| 623 |
| 1,419 |
| 1,419 |
| 1,767 |
| 9,716 |
| |
Long-term debt and capital lease obligations, excluding current portion |
| 7,502 |
| 4,852 |
| 6,271 |
| 6,921 |
| 7,650 |
| |
Total liabilities |
| 20,446 |
| 16,832 |
| 20,726 |
| 19,796 |
| 28,605 |
| |
Stockholders’ equity |
| 39,005 |
| 31,890 |
| 24,827 |
| 19,241 |
| 15,395 |
| |
(1) See Note 1821 to the Consolidated Financial Statementsconsolidated financial statements for segment information.
(2) Amounts include the consolidation of United Development Company Limited, a 26.32% owned real estate limited partnership. See Note 1 to the Consolidated Financial Statements.
(3) Amounts includeAmount includes restructuring charges of $1.4 million$1.3 million.
(4) In years where the Company reported a net loss, basic and diluted earnings per share and weighted average shares outstanding are the same.
(5) Amounts include results of operations of the business of Excel Acquisition Group (acquired in January 2002) for the periods subsequent to its acquisition.
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This report contains certain statements that are “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995 and releases issued by the Securities and Exchange Commission. The words “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate”“estimate,” and other expressions, which are predictions of or indicate future events and trends and whichthat do not relate to historical matters, identify forward-looking statements. The Company’s plans, described below, to execute a program which launched in the fourth quarter of 2004 for an automotive supplier that could be as large as $95 million is an example of a forward looking statement. Forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may cause the actual results, performance, or achievements of the Company to differ materially from anticipated future results, performance, or achievements expressed or implied by such forward-looking statements.
The $95 million revenue value of the automotive contract is an estimate, based on the automotive supplier’s projected needs. The Company cannot guarantee that it will fully benefit from this contract, which is terminable by the automotive supplier for any reason, subject to a cancellation charge that includes, among others, a provision whereby the customer will reimburse the Company for its total capital investment less any depreciation taken. The Company’s revenues from this contract are directly dependent on the ability of the automotive supplier to develop, market, and sell its products in a timely, cost-effective manner. If the automotive supplier’s needs decrease over the course of the contract, the Company’s estimated revenues from this contract may also decrease. Even if the Company generates revenue from the project, the Company cannot guarantee that the project will be profitable, particularly if revenues from the contract are less than expected. Other examples
Examples of these risks, uncertainties, and other factors include, without limitation, the following: (i) economic conditions that affect sales of the products of the Company’s packaging customers,customers; (ii) actions by the Company’s competitors and the ability of the Company to respond to such actions,actions; (iii) the ability of the Company to obtain new customerscustomers; and (iv) the ability of the Company to execute and
integrate favorable acquisitions. In addition to the foregoing, the Company’s actual future results could differ materially from those projected in the forward-looking statements as a result of the risk factors set forth elsewhere in this report and changes in general economic conditions, interest rates and the assumptions used in making such forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.
The Company has a 26.32% ownership interest in a realty limited partnership, United Development Company Limited (“UDT”). As a result of adopting the provisions of FIN 46(R), the Company has consolidated the financial statements of UDT as of December 31, 2003, because — when including related party ownership — the Company effectively owns greater than 50% of UDT. Prior to December 31, 2003, this investment was accounted for under the equity method at cost, plus the Company’s proportionate share of the limited partnership’s income, less any distributions received from the limited partnership.
The following table sets forth, for the years indicated, the percentage of revenues represented by the items as shown in the Company’s consolidated statements of operations:
|
| 2006 |
| 2005 |
| 2004 |
|
Net sales |
| 100.0 | % | 100.0 | % | 100.0 | % |
Cost of sales |
| 79.5 |
| 82.6 |
| 79.6 |
|
Gross profit |
| 20.5 |
| 17.4 |
| 20.4 |
|
Selling, general and administrative expenses |
| 15.1 |
| 14.8 |
| 17.7 |
|
Restructuring charge |
| 0 |
| 0 |
| (0.4 | ) |
Operating income (loss) |
| 5.4 |
| 2.6 |
| 3.1 |
|
Total other expenses, net |
| 1.1 |
| 1.6 |
| 1.1 |
|
Income (loss) before income taxes |
| 4.3 |
| 1.0 |
| 2.0 |
|
Expense (benefit) for income taxes |
| 1.6 |
| 0.2 |
| 0.7 |
|
Net income (loss) |
| 2.7 |
| 0.8 |
| 1.3 |
|
|
| 2009 |
| 2008 |
| 2007 |
|
Net sales |
| 100.0 | % | 100.0 | % | 100.0 | % |
Cost of sales |
| 73.1 | % | 74.0 | % | 75.6 | % |
Gross profit |
| 26.9 | % | 26.0 | % | 24.4 | % |
Selling, general, and administrative expenses |
| 18.7 | % | 17.1 | % | 16.7 | % |
Restructuring charge |
| 0.0 | % | 1.2 | % | 0.0 | % |
Operating income |
| 8.2 | % | 7.7 | % | 7.7 | % |
Total other expenses (income), net |
| -0.7 | % | 0.3 | % | 0.5 | % |
Income before taxes |
| 8.9 | % | 7.4 | % | 7.2 | % |
Income tax expense |
| 2.9 | % | 2.8 | % | 2.8 | % |
Net income attributable to UFP Technologies, Inc. |
| 6.0 | % | 4.6 | % | 4.4 | % |
UFP Technologies is an innovative designer and custom converter of foams, plastics, and fiber products. The Company serves a myriad of markets, but specifically targets opportunities in the automotive, computers and electronics, medical, aerospace and defense, industrial, and consumer markets.
During 2005
On March 9, 2009, the Company absorbed costs associated withacquired selected assets of the launchHillsdale, Michigan, operations of several new programs in its automotive operations in Michigan as well as in its large, estimated $95 million programFoamade Industries, Inc. (“Foamade”), a business specializing in the Southeast that caused significant losses infabrication of technical urethane foams for a myriad of industries. The Company transitioned the acquired assets to its automotive business unit. These costs wereGrand Rapids, Michigan, plant.
On July 7, 2009, the Company acquired substantially all of the assets of E.N. Murray Co. (“ENM”), a Denver, Colorado-based foam fabricator. ENM specialized in the formfabrication of higher than anticipated scrap rates and additional direct labor requirements that, combined, caused significant losses in this business unit. In 2006,technical urethane foams, primarily for the medical industry. This acquisition brings to the Company enjoyed materially better resultsfurther access and expertise in its automotive business unit. However,fabricating technical urethane foams and a seasoned management team.
On August 24, 2009, the automotive market remains very challenging with orders often belowCompany acquired selected assets of Advanced Materials, Inc. (“AMI”), a wholly-owned subsidiary of Advanced Materials Group, Inc. Located in Rancho Dominguez, California, AMI specialized in the fabrication of technical urethane foams, primarily for the medical industry.
On October 29, 2009, the Company’s largest customer, forecastsRecticel Interiors North America, filed for bankruptcy protection pursuant to Chapter 11 of the bankruptcy code. Sales to Recticel for the fiscal
years ended December 31, 2009, 2008, and pressure from customers to reduce prices.
During 2005,2007 were $8.0 million, $13.8 million, and $16.5 million, respectively. On October 29, 2009, the Company was faced with significant raw material price increasesowed $897,445 from Recticel, all of which was within contractual payment terms. The Company had not recorded a specific reserve against this receivable in its December 31, 2009, financial statements, as on December 31, 2009, the Company believed that full collection was probable. The entire $897,445 was paid on March 8, 2010. The Company also expects that the bankruptcy filing will have no impact on future orders from Recticel, and in some cases, shortages due to high oil and natural gas prices, Asianthat program volumes will fluctuate based upon consumer demand for the same raw materialsprogram vehicles.
The Company experienced significantly lower sales in the first half of fiscal 2009, largely due to the weak economy and materially reduced demand for cars in North America. However, sales improved in the third and fourth quarters as many of the Company’s customers increased forecasts (both business segments). Although sales for the fiscal year were down, the Company reported record earnings largely due to gains recorded from acquisitions, and the impact on gross margins and selling, general, and administrative expenses of Hurricanes Katrinacost-control efforts.
The Company’s current strategy includes organic growth and Rita on petrochemical plants along the Gulf coast. The majority of raw materials used by the Company—polyurethane and polyethylene foams—utilize petroleum based resins in their production. In 2006, prices have stabilized and, in some cases, were lower.growth through strategic acquisitions.
During 2006 demand remained strong from customers
2009 Compared to 2008
Net sales decreased 9.8% to $99.2 million in the aerospaceyear ended December 31, 2009, from $110.0 million in the same period of 2008. Without sales from its newly acquired Foamade, E.N. Murray Co., and defense and medical industries. Military effortsAMI operations (all within the Component Products segment), sales would have declined 19.5% for the year ended December 31, 2009. Sales in Iraq and elsewhere have created demand for molded uniform and gear componentsthe Component Products segment (including those from the Company’s Component Products division. The aging population needing more medical care has kept demand high for medical packaging products, medical device components, dental products and orthopedic components. The strong demandnewly acquired operations) increased slightly to $61.0 million in 2009, from customers$60.8 million in these markets, coupled with increased2008. Without sales from the large automotive contract, generated recordnewly acquired operations, Component Product sales for the Company in 2006.
The Company’s net sales increased 11.7 % to $93.7$50.4 million for the year ended December 31, 2006, from $84 million in 2005. Component Product sales increased 15.8% to $55.8 million in 2006 from $48.2 million in 2005. The increase2009. This decrease in sales is primarily due to increaseda decrease in sales from recently launchedto the automotive programs as well as strong demand from customersindustry of approximately $9.6 million. Sales in the medical and military markets. Packaging sales increased 6.4%segment decreased 22.2% to $38.0$38.2 million for the year ended December 31, 2009, from $49.2 million in 2006 from $35.7 million in 2005.the same period of 2008. The increasedecrease in sales is primarilylargely due to strongera decrease in sales of $3.9 million to a key electronics customer and overall reduced demand for electronics packaging because of the impact of the poor economy on demand for our customers’ products, andpartially offset by an increase in demand for environmentally friendly molded fiber packaging.packaging of approximately $700,000.
Gross profit as a percentage of sales (“Gross Margin”) increased to 20.5%26.9% in 20062009 from 17.4%26.0% in 2005.2008. The improvement in gross margin is primarily attributable to Companywide manufacturing efficiency and cost-cutting initiatives, as well as a favorable shift in product mix (lower auto sales); material cost as a percentage of sales is down 1.2%, partially offset by higher overhead as a percentage of sales due to the fixed portionfixed-cost components of labor and overhead measured against higher sales in both the Component Product and Packaging segments and the reduction in labor from 2005 when the Company incurred excess labor associated with the launch of several automotive programs. The material portion of cost-of-sales was slightly higher as a percent of sales in 2006 due primarily to the new automotive programs comprising a higher portion oflower sales.
Selling, General, and Administrative Expenses (“SG&A”) increased 14.1%decreased 1.5% to $14.2$18.5 million for the year ended December 31, 20062009, from $12.4$18.8 million in 2005.2008. As a percentage of sales, SG&A was 15.1%18.7% and 14.8%17.1% in the years ended December 31, 20062009, and 2005,2008, respectively. The increasedecline in SG&A spending is primarily attributable to equity based compensation resulting from the implementation of SFAS 123 (R) (Component Product and Packaging segments), increased corporate governance and compliance costs (Component Product and Packaging segments) and incremental SG&A within the automotive business unit (Component Product segment).
Interest expense decreased to $964,000 for the year ended December 31, 2006,2009, is primarily due to reduced administrative variable compensation of approximately $900,000 (both business segments) and reduced SG&A associated with the consolidation of the Company’s two Michigan facilities of approximately $550,000 (Component Products segment), partially offset by SG&A associated with newly acquired companies of approximately $1.3 million (Component Products segment). The increase in SG&A as
a percentage of sales is primarily a result of the fixed-cost components of SG&A being measured against lower sales.
The Company recorded a restructuring charge of approximately $1.3 million during the year ended December 31, 2008, associated with the consolidation of its Macomb Township, Michigan, automotive operations into its newly acquired plant in Grand Rapids, Michigan. The $1.3 million charge was for the costs associated with vacating the Macomb Township premises, severance, relocation, and stay-bonuses for its employees, equipment moving and hook-up costs, and training and other start-up costs. As of December 31, 2008, the move was completed and all significant costs had been incurred. The Company believes that cost savings exceeded $1.4 million as a result of the consolidation for the fiscal year ended December 31, 2009.
The Company recorded acquisition-related gains of approximately $840,000 for the year ended December 31, 2009. The acquisitions of Foamade, ENM, and AMI all resulted in bargain purchase gains as the consideration paid was less than the fair market value of the net assets acquired. The Company believes the net assets were acquired at a bargain purchase due to the overall weak economy.
Interest expense decreased to approximately $233,000 for the year ended December 31, 2009, from approximately $1,041,000$334,000 in 2005.2008. The decrease in interest expense is primarily attributable to lower average borrowings partially offset by the impact of higher interest rates.
The Company recorded income tax expense as a percentage of 37%pre-tax income of 32.0% and 24%36.9% for the years ended December 31, 20062009, and 2005,2008, respectively. The low effectiveprimary reason for the decrease in income tax rate for 2005 reflects research and development tax credits takenexpense as a percentage of pre-tax income is due to the non-taxable gains recorded on the Company’s tax returns.acquisitions of Foamade, ENM, and AMI. The Company has deferred tax assets on its books associated with net operating losses generated in previous years. The Company has considered both positive and negative available evidence in its determination that the deferred tax assets will be realized, and has not recorded a tax valuation allowance at December 31, 2006. The Company expects to utilize a significant amount of its federal NOLs when it prepares its 2006 tax returns.2009. The Company will continue to assess the realizability of deferred tax assets created by recording tax benefits on operating losses and, wherewhen appropriate, will record a valuation allowance against these assets. The amount of the net deferred tax asset considered realizable, however, could be reduced in the near term, if estimates of future taxable income during the carryforward period are reduced.
20052008 Compared to 20042007
The Company’s net
Net sales increased 22.4%17.6% to $84.0$110.0 million in the year ended December 31, 2008, from $93.6 million in the same period of 2007. Without its newly acquired plant in Grand Rapids, Michigan (Component Products segment), sales increased 4% for the year ended December 31, 2008. Sales in the Component Products segment increased 13.1% to $60.8 million for the year ended December 31, 2005,2008, from $68.6$53.8 million in 2004. Component Productthe same period of 2007. The increase is primarily due to sales of $12.7 million from the newly acquired plant in Grand Rapids, partially offset by a decrease in sales to the automotive industry of approximately $5.9 million. The Company believes that sales to the automotive industry will continue to weaken in 2009. Sales in the Engineered Packaging segment increased 33.4%23.5% to $48.2$49.2 million for the year ended December 31, 2008, from $39.8 million in 2005 from $36.1 million in 2004.the same period of 2007. The increase in sales is primarilylargely due to an increase in sales from recently launched automotive programsof $3.9 million to a key electronics customer, as well as strong demand from customers in the medical and
military markets. Packaging sales increased 10% to $35.7 million in 2005 from $32.5 million in 2004. The increase in sales is primarily due to growth in sales at the Company’s plant in El Paso, Texas, and stronger demand for case insert product. The Company continued to invest in the area of marketing and sales in 2005 and attributes a portion of the Company’s sales growth in 2005 to these investments.environmentally friendly molded fiber packaging.
Gross profit as a percentage of sales (“Gross Margin”) decreasedincreased to 17.4%26.0% in 20052008 from 20.4%24.4% in 2004.2007. The declineimprovement in gross margin is primarily attributable to the impactCompany-wide continued strategic pricing and manufacturing efficiency initiatives (material and labor as a percentage of high material scrap ratessales are down 1.2% and direct labor associated with new automotive contracts0.8%, respectively) partially offset by improvements fromlower gross margins in the fixed portion of labor and overhead measured against higher sales in both the Component Product and Packaging segments.Company’s automotive plants (Component Products segment).
Selling, General, and Administrative Expenses (“SG&A”) increased 2.7%20.9% to $12.4$18.8 million for the year ended December 31, 20052008, from $12.1$15.6 million in 2004.2007. As a percentage of sales, SG&A was 14.8%17.1% and 17.6%16.7% in the years ended December 31, 20052008, and 2004,2007, respectively. The increase in SG&A dollarsspending is primarily attributable to continued investments madeincreased SG&A from the newly acquired plant in the areasGrand Rapids of marketing and salesapproximately $2.2 million (Component ProductProducts segment) as well as increased equity-based compensation of approximately $600,000 (Component Products and Packaging segments), increased corporate governance.
The Company recorded a restructuring charge of approximately $1.3 million during the year ended December 31, 2008, associated with the consolidation of its Macomb Township, Michigan, automotive operations into its newly acquired plant in Grand Rapids, Michigan. The $1.3 million charge is for the costs associated with vacating the Macomb Township premises, severance, relocation, and compliancestay-bonuses for its employees, equipment moving and hook-up costs, (Component Product and Packaging segments)training and incremental SG&A withinother start-up costs. As of December 31, 2008, the automotive business unit (Component Product segment).move was completed and all significant costs had been incurred.
Interest expense increaseddecreased to $1,041,000approximately $334,000 for the year ended December 31, 2005,2008, from approximately $714,000$479,000 in 2004.2007. The increasedecrease in interest expense is primarily attributable to higherlower average interest rates as well as higher average debt balances in the Company’s revolving credit facility due to sales growth.borrowings.
The Company recorded income tax expense as a percentage of 24%pre-tax income of 36.9% and 35.9%38.3% for the years ended December 31, 20052008, and 2004,2007, respectively. The low effective tax rate for 2005 reflects research and development tax credits taken on the Company’s tax returns. The Company has deferred tax assets on its books associated with net operating losses generated in previous years. The Company has considered both positive and negative available evidence in its determination that the deferred tax assets will be realized, and has not recorded a tax valuation allowance at December 31, 2005.2008. The Company will continue to assess the realizability of deferred tax assets created by recording tax benefits on operating losses and, wherewhen appropriate, will record a valuation allowance against these assets. The amount of the net deferred tax asset considered realizable, however, could be reduced in the near term, if estimates of future taxable income during the carryforward period are reduced.
Amortization of Goodwill and certain indefinite lived intangible assets ceased with the adoption of SFAS No. 142, effective January 1, 2002.
The Company funds its operating expenses, capital requirements, and growth plan through internally generated cash and bank credit facilities and long-term capital leases.facilities.
As of December 31, 20062009, and 2005,2008, working capital was $8,236,000approximately $27,702,000 and $3,321,000,$18,688,000, respectively. The increase in working capital is primarily attributable to the lower amount
outstanding on the revolving credit facilityan increase in cash of approximately $8.0, lower accounts payable balances of approximately $1.4$8.3 million due to cash generated from operations and higher cash balances of approximately $750,000 partially offset by loweran increase in accounts receivable of approximately $3.7$1.5 million due mostly to strong collection efforts and increased accrued expensesDecember 2009 sales partially offset by an increase in accounts payable of approximately $1.3 million.$970,000 due to the timing of year-end cash disbursements. Cash provided from operations was $12.1approximately $10.7 million and $1.0$6.7 million in 20062009 and 2005,2008, respectively. The primary reason for the increase in cash generated from operations in 20062009 is stronger earnings andan increase in profits of approximately $821,000, a decrease in inventory, net of amounts acquired in business combinations, of approximately $1.9 million during the large reductionfiscal
year ended December 31, 2009, compared to an increase in inventory of approximately $435,000 during fiscal 2008 (due to inventory management efforts), an increase in accounts receivables.payable, net of amounts acquired in business combinations, of approximately $393,000 for the year ended December 31, 2009, compared to a decrease in accounts payable of approximately $2.8 million for the year ended December 31, 2008 (difference in the timing of check runs at the end of the respective years), partially offset by an increase in accounts receivable, net of accounts receivable acquired in business combinations, of approximately $342,000 for the year ended December 31, 2009, compared to a decrease in accounts receivable of approximately $777,000 for the year ended December 31, 2008 (due mostly to strong December 2009 sales). Net cash used in investing activities in 20062009 was approximately $1.8$4.3 million and was used primarily for the acquisitions of the selected assets of Foamade Industries, Inc, E.N. Murray Co., and Advanced Materials Group of approximately $2.4 million (net of cash acquired) and the acquisition of new manufacturing equipment. In 2006,equipment of approximately $1.9 million.
On January 29, 2009, the Company spent approximately $300,000 for the acquisition of significantly all of the assets of Stephen Packaging.
On February 28, 2003, the Company obtained aamended and extended its credit facility which has been amended effective March 24, 2004, June 28, 2004, and November 21, 2005, to reflect, among other things, changes to certain financial covenants.with Bank of America, NA. The amended facility is comprised of: (i) a revolving credit facility of $17 million that is collateralized by the Company’s accounts receivable and inventory;million; (ii) a term loan of $3.7$2.1 million with a 7-yearseven-year straight-line amortization that is collateralized by the Company’s property, plant and equipment (excluding UDT’s property, plant and equipment); andamortization; (iii) a term loan of $2.3$1.8 million with a 15-year20-year straight-line amortization that is collateralized byamortization; and (iv) a mortgage on the Company’s real estate located in Georgetown, Massachusetts.term loan of $4.0 million with a 20-year straight-line amortization. Extensions of credit under the revolving credit facility are subject to available collateral based in part upon accounts receivable and inventory levels. Therefore, the entire $17 million may not be available to the Company. For example, asAs of December 31, 2006, based upon no revolving credit facility borrowings outstanding and collateral levels,2009, the Company had availability of $12.3approximately $14.4 million based upon collateral levels in place as of credit under this facility.that date. The amount of availability can fluctuate significantly. The amended credit facility calls for interest of Prime or LIBOR plus a margin that ranges from 1.0% to 1.5%, depending or, at the discretion of the Company, the bank’s prime rate less a margin that ranges from 0.25% to zero. In both cases the applicable margin is dependent upon Company performance. All borrowings at December 31, 2006 had interest computed at Prime or LIBOR plus 1.0%.The loans are collateralized by a first priority lien on all of the Company’s assets, including its real estate located in Georgetown, Massachusetts, and in Grand Rapids, Michigan. Under the amended credit facility, the Company is subject to certaina minimum fixed-charge coverage financial covenants including maximum capital expenditures and minimum fixed charge coverage. As of December 31, 2006, the Company was in compliance with all of these covenants.covenant. The Company’s $17 million revolving credit facility as amended, ismatures November 30, 2013; the term loans are all due February 28, 2009; the $3.7 million term loan and the $2.3 million mortgage are due November 21, 2011.on January 29, 2016. At December 31, 2006,2009, the interest rate on these facilities ranged from 6.4% to 8.25%was 1.26%.
As a result of the consolidation of United Development Company Limited,
UDT has a mortgage note collateralized by the Alabama and Florida facilities,facility, dated September 4, 2002, originally for $470,313, is included within long-term debt in the consolidated financial statements. The note calls for fifty principal payments of $3,406 and one payment of $388,967 due on March 4,May 22, 2007. The note bears interest at LIBOR plus 2.75%, adjusted monthly. At December 31, 2006, the outstandinghad an original principal balance was $395,779. At December 31, 2006, theof $786,000 and calls for 180 monthly payments of $7,147. The interest rate wasis fixed at approximately 8.1%7.2%. Payments on this note are funded through rent payments that the Company makes on its Alabama and Florida facilities. The Company is not subject to any financial covenants under this mortgage note.
In addition to the above credit facilities, the Company has capital lease debt of $3,006,063 as of December 31, 2006. These loans are secured by specific manufacturing equipment used by the Company and have remaining lives ranging from one to six years and bear interest at rates ranging from 6.4% to 10%.
The Company has no significant capital commitments in 2007, but plans on adding capacity to enhance operating efficiencies in its manufacturing plants. The Company may consider the acquisition of companies, technologies or products in 2007, which are complementary to its business. The Company believes that its existing resources, including its revolving credit facility, together with cash generated from operations and funds expected to be available to it through any necessary equipment financing and additional bank borrowings, will be sufficient to fund its cash flow requirements through at least the end of 2007. However, there can be no assurances that such financing will be available at favorable terms, if at all.
The following table summarizes the Company’s contractual obligations at December 31, 2006, and the effect such obligations are expected to have on its cash flow in future periods:2009:
Payments |
| Operating |
| Capital |
| Term |
| Mortgage |
| UDT |
| Debt |
| Supplemental |
|
|
| ||||||||
due in: |
| Leases |
| Leases |
| Loans |
| Loan |
| Mortgage |
| Interest |
| Retirement |
| Total |
| ||||||||
2007 |
| 1,645,615 |
| 688,991 |
| 526,572 |
| 156,000 |
| 395,779 |
| 516,673 |
| 244,000 |
| $ | 4,173,630 |
| |||||||
2008 |
| 684,816 |
| 704,408 |
| 526,572 |
| 156,000 |
| — |
| 421,661 |
| 108,000 |
| $ | 2,601,457 |
| |||||||
2009 |
| 473,895 |
| 702,765 |
| 526,572 |
| 156,000 |
| — |
| 324,945 |
| 104,000 |
| $ | 2,288,177 |
| |||||||
2010 |
| 405,915 |
| 671,839 |
| 526,572 |
| 156,000 |
| — |
| 230,564 |
| 101,000 |
| $ | 2,091,890 |
| |||||||
2011 & thereafter |
| 1,220,334 |
| 238,060 |
| 1,009,260 |
| 1,547,000 |
| — |
| 543,781 |
| 381,000 |
| $ | 4,939,435 |
| |||||||
|
| $ | 4,430,575 |
| $ | 3,006,063 |
| $ | 3,115,548 |
| $ | 2,171,000 |
| $ | 395,779 |
| $ | 2,037,624 |
| $ | 938,000 |
| $ | 16,094,589 |
|
Payments due in: |
| Operating Leases |
| Grand |
| Equipment Loans |
| Term |
| Massa- |
| UDT |
| Debt |
| Supple- |
| Total |
| |||||||||
2010 |
| $ | 1,803,371 |
| $ | 200,000 |
| $ | 5,755 |
| $ | 288,360 |
| $ | 92,300 |
| $ | 36,592 |
| $ | 217,456 |
| $ | 96,250 |
| $ | 2,740,084 |
|
2011 |
| 1,338,139 |
| 200,000 |
| 35,095 |
| 288,360 |
| 92,300 |
| 39,120 |
| 209,361 |
| 75,000 |
| $ | 2,277,375 |
| ||||||||
2012 |
| 1,180,901 |
| 200,000 |
| — |
| 288,360 |
| 92,300 |
| 42,025 |
| 192,197 |
| 75,000 |
| $ | 2,070,783 |
| ||||||||
2013 |
| 779,534 |
| 200,000 |
| — |
| 288,360 |
| 92,300 |
| 45,147 |
| 174,265 |
| 75,000 |
| $ | 1,654,606 |
| ||||||||
2014 and thereafter |
| 588,853 |
| 3,033,332 |
| — |
| 624,784 |
| 1,399,883 |
| 540,457 |
| 624,918 |
| 170,833 |
| $ | 6,983,060 |
| ||||||||
|
| $ | 5,690,798 |
| $ | 3,833,332 |
| $ | 40,850 |
| $ | 1,778,224 |
| $ | 1,769,083 |
| $ | 703,341 |
| $ | 1,418,197 |
| $ | 492,083 |
| $ | 15,725,908 |
|
Payments on the United Development Company Limited note are funded through rent payments made by the Company on the Company’s Alabama and Florida facilities.
The Company requires cash to pay its operating expenses, purchase capital equipment, and to service the obligations listed above. The Company’s principal sources of funds are its operations and its revolving credit facility. Although the Company generated cash from operations in the year ended December 31, 2006,2009, it cannot guarantee that its operations will generate cash in future periods.
The Company does not believe that inflation has had a material impact on its results of operations in the last three years.
The Company had no off-balance sheet arrangements in 2009.
The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, intangible assets, income taxes, warranty obligations, restructuring andcharges, contingencies, and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, including current and anticipated worldwide economic conditions, both in general and specifically in relation to the packaging industry, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
21
The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements included in Item 8 of this Form 10-K. The Company believes the following critical accounting policies affect its morenecessitated that significant judgments and estimates be used in the preparation of its consolidated financial statements.
The Company has reviewed these policies with its Audit Committee.
Revenue Recognition
The Company recognizes revenue at the time of shipment when title and risk of loss have passed to the customer, persuasive evidence of an arrangement exists, performance of its obligation is complete, its price to the buyer is fixed or determinable, and the Company is reasonably assured of collecting.collection. If a loss is anticipated on any contract, a provision for the entire loss is made immediately. Determination of these criteria, in some cases, requires management’smanagement’s judgments. Should changes in conditions cause management to determine that these criteria are not met for certain future transactions, revenue for any reporting period could be adversely affected.
Long-Lived Assets and Intangible Assets
The Company reviews long-lived
Intangible assets include patents and allother intangible assets. Intangible assets with an indefinite life are not amortized. Intangible assets with a definite life are amortized on a straight-line basis, with estimated useful lives ranging from eight to 14 years. Indefinite-lived intangible assets are tested for impairment annually, and will be tested for impairment between annual tests if an event occurs or circumstances change that would indicate that the carrying amount may be impaired. Intangible
assets with a definite life are tested for impairment whenever events or changes in circumstances indicate that their value may be reduced.
Goodwill
Goodwill is tested for impairment annually, and will be tested for impairment between annual tests if an event occurs or circumstances change that would indicate that the carrying amount may be impaired. Impairment testing for goodwill is done at a reporting unit level. Reporting units are one level below the business segment level, but can be combined when reporting units within the same segment have similar economic characteristics. The Company’s reporting units include its Component Products segment, Packaging segment (excluding its Molded Fiber operation), and its Molded Fiber operation. An impairment loss generally would be recognized when the carrying amount of suchthe reporting unit’s net assets may not be recoverable. Goodwill is reviewed at least annually for impairment. Beginning in 2005,exceeds the estimated fair value of the reporting unit. The Company changedcompleted its annual goodwill impairment testing date fromtest as of December 31, 2009. Fair values of the second quarterreporting units were determined using a combination of several valuation methodologies, including income and market approaches, which include the use of Level 1 and Level 3 inputs (see Note 19 to the fourth quarter of its fiscal year. The Company believes this new accounting method is preferable, since more complete and accurate information to assess goodwill for impairment is available in the fourth quarter, including actual financial performance to date and information relative to the carrying value of assets. There is no financial impact as of the year ended December 31, 2006, or on any prior periods, as a result of this change in accounting method. Recoverability of long-lived assets and definite lived intangible assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate, to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then long-lived assets are written down to fair value. Fair value is determined based on discounted cash flows or appraised values, depending upon the nature of the assets. Recoverability of goodwill is determined under a two-step process as described in SFAS 142.Consolidated Financial Statements). The fair valuevalues of reporting units that have goodwill balances were estimated to be more than 100% greater than their respective carrying values and, therefore, it was determined under step one is also based on a discounted cash flow model. At December 31, 2006,that no impairment has been identified. Forecasted cash flows are based upon numerous assumptions used by management, such as revenue growth, margins and asset management. For purposes of this analysis, the Company reviews its internal forecasts and external data. The external data consist of data available from customer and competitor commentary, and industry forecasts of future revenue growth.goodwill was impaired.
The estimates of expected cash flows require the Company to make significant judgments regarding future periods that are subject to some factors outside of the Company’s control. Changes in these estimates can result in significant revisions to the carrying value of these assets and may result in material charges to the results of operations.
Accounts Receivable
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. These allowances for doubtful accounts are determined by reviewing specific accounts that the Company has deemed are at risk of being uncollectible and other credit risks associated with groups of customers. If the financial condition of the Company’s customers were to deteriorate or economic conditions were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required with a resulting charge to results of operations.
InventoryInventories
The Company provides reserves for estimated obsolescence or unmarketable inventory equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions. The Company fully reserves for inventories deemed obsolete. The Company performs periodic reviews of all inventory items to identify excess inventories on-handon hand by comparing on-hand balances to anticipated usage using recent historical activity, as well as anticipated or forecasted demand, based upon sales and marketing inputs through its planning systems. If estimates of demand diminish or actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required with a resulting charge to operations.
Deferred Income Taxes
The Company evaluates the need for a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. The Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. Should the Company determine that it would not be able to realize all or part of its net
deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The following discussion of the Company’s market risk includes “forward-looking statements” that involve risk and uncertainties. Actual results could differ materially from those projected in the forward-looking statements.
Market risk represents the risk of changes in value of a financial instrument caused by fluctuations in interest rates, foreign exchange rates, and equity prices. At December 31, 2006,2009, the Company’s cash and cash equivalents consisted of bank accounts in U.S. dollars, and their valuation would not be affected by market risk. The Company has four debt instruments where interest is based upon either the primePrime rate (and/or LIBOR)LIBOR and, therefore, future operations could be affected by interest rate changes; however, the Company believes that the market risk of the debt is minimal.
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The consolidated Financial Statements and Supplementary Data of the Company are listed under Part IV, Item 15, in this Report.
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
As previously disclosed on a Form 8-K filed byNone.
ITEM 9A(T). | CONTROLS AND PROCEDURES |
(a)The Company carried out an evaluation, under the Company on July 8, 2005,supervision and with the Audit Committeeparticipation of its management, including the Chief Executive Officer and Chief Financial Officer, of the Board of Directorseffectiveness of the Company, effective on July 5, 2005, dismissed PricewaterhouseCoopers, L.L.P. (“PwC”) as the Company’s independent registered public accounting firm. The reports issued by PwC on the Company’s financial statements as of December 31, 2003design and December 31, 2004, and for the years ended December 31, 2003 and December 31, 2004, did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principle. During the years ended December 31, 2003 and December 31, 2004, and through July 5, 2005: (i) there were no disagreements with PwC on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure which, if not resolved to PwC’s satisfaction, would have caused them to make reference thereto in their reportoperation of the Company’s financial statements for such years;“disclosure controls and (ii) there were no reportable events asprocedures” (as defined in Item 304(a)(1)(v) of Regulation S-K.
EffectiveExchange Act Rule 13a-15(e)) as of July 5, 2005 the Company engaged Carlin, Charron & Rosen LLP (“CCR”) to serve as the Company’s independent public accountants for the fiscal year ended December 31, 2005. During the years ended December 31, 2003 and December 31, 2004, and through July 5, 2005, the Company did not consult with CCR with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, or any other matters, including disagreements or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
As of the end of the period covered by this report,report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer performed an evaluation of the effectiveness ofconcluded that the Company’s disclosure controls and procedures (asare effective.
(b)The Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in SECExchange Act Rule 13a-15 or 15d-15), which have been designed to ensure that information required to be disclosed13a-15(f). Management conducted an assessment of the Company’s internal control over financial reporting as of December 31, 2009, based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework. Based on the assessment, management concluded that, as of December 31, 2009, the Company’s internal control over financial reporting is effective.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was
not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
(c)There was no change in the reportsCompany’s internal control over financial reporting that it filesoccurred during the Company’s most recently completed fiscal quarter that has materially affected, or submits underis reasonably likely to materially affect, the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and are operating in an effective manner. Based upon that evaluation, they concluded that the disclosure controls and procedures were effective.Company’s internal control over financial reporting.
ITEM 9B. | OTHER INFORMATION |
None.
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE |
The information required by this Item 10 is hereby incorporated by reference to the Company’s definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year.
ITEM 11. | EXECUTIVE COMPENSATION |
The information required by this Item 11 is hereby incorporated by reference to the Company’s definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required by this Item 12 is hereby incorporated by reference to the Company’s definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year.
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by this Item 13 is hereby incorporated by reference to the Company’s definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year.
The information required by this Item 14 is hereby incorporated by reference to the Company’s definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year.
Page | |||||||
(a) (1) | Financial Statements | ||||||
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| Index to Consolidated Financial Statements and Financial Statement Schedules | F-2 | |||||
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| Consolidated Balance Sheets as of December 31, | F-4 | |||
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(a) (2) | Financial Statement Schedule | ||||
F-32 | |||||
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(a) (3) | Exhibits |
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| Number |
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| Reference | |
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| 2.01 |
| Agreement and Plan of Reorganization among the Company, Moulded Fibre Technology, Inc. and UFP Acquisition, Inc. |
| A-2.01** | |
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| 2.02 |
| Agreement of Merger between Moulded Fibre Technology, Inc. and UFP Acquisition, Inc. |
| B-2.02** | |
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| 2.03 |
| Merger Agreement relating to the reincorporation of the Company in Delaware. |
| A-2.02** | |
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| 2.04 |
| Asset Purchase Agreement relating to the purchase of Foam Cutting Engineers, Inc. |
| C-2** | |
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| 2.05 |
| Asset Purchase Agreement relating to the purchase of the assets of Pacific Foam Technologies, Inc. |
| D-2.05** | |
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| 2.06 |
| Stock Purchase Agreement dated January 14, 2000, relating to the acquisition of the stock of Simco Industries, Inc. |
| E-2.01** | |
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| 3.01 |
| Certificate of Incorporation of the Company, as amended. |
| F-3.01** G-3.01** | |
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| 3.02 |
| Amended and Restated Certificate of Designation of Series A Junior Participating Preferred Stock, as filed with the Secretary of State of the State of Delaware on March 20, 2009. | II-3.02** |
3.03 | Amended and Restated Bylaws of the Company. |
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| 4.01 |
| Specimen Certificate for shares of the Company’s Common Stock. |
| A-4.01** | |
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| 4.02 |
| Description of Capital Stock (contained in the Certificate of Incorporation of the Company, filed as Exhibit 3.01). |
| F-3.01** | |
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| 4.03 |
| Rights Agreement, |
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| 10.01 |
| Agreement between the Company and William H. Shaw. |
| A-10.08*, ** |
| 10.02 |
| Agreement and Severance Agreement between the Company and Richard L. Bailly. |
| A-10.09*, ** | |
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| 10.03 |
| Employee Stock Purchase Plan. |
| A-10.18** | |
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| 10.04 |
| 1993 Combined Stock Option Plan, as amended. |
| I-10.19*, ** | |
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| 10.05 |
| 1993 Non-employee Director Stock Option Plan. |
| J-4.5** | |
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| 10.06 |
| Facility Lease between the Company and Raritan Associates. |
| A-10.22** | |
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| 10.07 |
| Facility Lease between the Company and Dana Evans d/b/a Evans Enterprises. |
| A-10.27** | |
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| 10.08 |
| Form of Indemnification Agreement for directors and officers of the Company. |
| A-10.30** | |
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| 10.09 |
| Facility Lease between the Company and Clinton Area Development Corporation. |
| K-10.37** | |
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| 10.10 |
| Employment Agreement with R. Jeffrey Bailly dated April 4, 1995. |
| L-10.37*, ** | |
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| 10.11 |
| Amended 1998 Employee Stock Purchase Plan. |
| M** | |
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| 10.12 |
| Facility Lease between the Company and Quadrate Development, LLC |
| N-10.43** | |
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| 10.13 |
| Amended 1998 Director Stock Option Incentive Plan, as amended |
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| 10.14 |
| Amended Facility Lease between the Company and United Development Company Limited. |
| O-10.27** | |
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| 10.15 |
| Amended Facility Lease between the Company and United Development Company Limited. |
| O-10.28** | |
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| 10.16 |
| Amended Facility Lease between the Company and Ward Hill Realty Associates, LLC, successors in interest to Evans Enterprises of South Beach |
| P-10.30** | |
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| 10.17 |
| Credit and Security Agreement between the Company and Fleet Capital Corporation |
| Q-10.31** | |
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| 10.18 |
| Facility Lease between Simco Automotive Trim, Inc. and Insite Atlanta, LLC |
| R-10.31** | |
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10.19 |
| Amended Credit and Security Agreement between the Company and Fleet Capital Corporation. |
| S-10.33** | ||
| 10.20 |
| Facility lease between the Company and Clinton Base Company LLC |
| G-10.34** | |
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| 10.21 |
| Second Amendment to the Credit Agreement between the Company and Fleet Capital Corporation |
| T-10.35** | |
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| 10.22 |
| Third Amendment to the Credit and Security Agreement between the Company and Bank of America |
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| 10.23 |
| 1998 Employee Stock Purchase Plan as amended |
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| 10.24 |
| Form of Stock Unit Award Agreement |
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| 10.27 | Promissory note of United Development Company Limited in favor of Bank of America, N.A. dated May 22, 2007 | Y-10.27 | |||
10.28 | Employment Agreement with R. Jeffrey Bailly dated October 8, 2007 | Z-10.28*,** | ||||
10.29 | Agreement and Plan of Merger dated as of January 14, 2008, among UFP Technologies, Inc., S&L Acquisition Corp., and Stephenson & Lawyer, Inc. | AA-10.29** | ||||
10.30 | Form of 2008 Stock Unit Award Agreement | CC-10.30*,** | ||||
10.42 | Amended facility lease between the Company and Rothbart Realty Co. | CC-10.42** | ||||
10.43 | Amended facility lease between the Company and Rothbart Realty Co. | CC-10.43** | ||||
10.44 | Amended facility lease between the Company and Quadrate Development, LLC | CC-10.44** | ||||
10.45 | Amended facility lease between the Company and Kessler Industries, Inc. | CC-10.45** | ||||
10.46 | Amended facility lease between the Company and Raritan Johnson Associates, LLC | CC-10.46** | ||||
10.47 | Amended facility lease between the Company and Ward Hill Realty Associates, LLC | CC-10.47** | ||||
10.48 | Form of Stock Unit Award Agreement by and between UFP Technologies, Inc. and R. Jeffrey Bailly. | FF-10.48*,** | ||||
10.49 | Third Amendment to Iowa facility lease, signed as of August 20, 2008, between Moulded Fibre Technology, Inc.(Tenant) and Clinton Base Company, LLC (Landlord). | GG-10.49** | ||||
10.50 | Form of 2009 Stock Unit Award Agreement. | HH-10.50*,** | ||||
10.51 | Amended and restated Credit and Security Agreement between the Company and Bank of America, N.A, dated January 27, 2009. | JJ-10.51** | ||||
10.52 | 2009 Non-Employee Director Stock Incentive Plan | KK-10.52*, ** | ||||
10.53 | Lease agreement dated July 29, 2009, between ProLogis and UFP Technologies, Inc. | LL-10.53** | ||||
10.54 | Form of 2010 Stock Unit Award Agreement | Filed herewith |
14.00 | Code of Ethics | BB** | ||||
21.01 | Subsidiaries of the Company. | Filed herewith | ||||
| 23.01 |
| Consent of |
| Filed herewith | |
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| 31.01 |
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| Filed herewith | |
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| 31.02 |
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| Filed herewith | |
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| 32.01 |
| Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| Filed herewith |
A. Incorporated by reference to the Company’s Registration Statement on Form S-1 (Registration No. 33-70912). The number set forth herein is the number of the Exhibit in said Registration Statement.
B. Incorporated by reference to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 1993. The number set forth herein is the number of the Exhibit in said Annual Report.
C. Incorporated by reference to the Company’s report on 8-K dated February 3, 1997. The number set forth herein is the number of the Exhibit in said report.
D. Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998. The number set forth herein is the number of the Exhibit in said Annual Report.
E. Incorporated by reference to the Company’s Report on Form 8-K dated January 31, 2000. The number set forth herein is the number of the Exhibit in said Report.
F. Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 1996. The number set forth herein is the number of the Exhibit in said Quarterly Report.
G. Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2004. The number set forth herein is the number of the exhibit in said Quarterly Report.
H Incorporated by reference to the Company’s report on Form 8-K dated January 13, 1999. The number set forth herein is the number of the Exhibit in said Report.
I. Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 1998. The number set forth herein is the number of the Exhibit in said Quarterly Report.
J. Incorporated by reference to the Company’s Registration Statement on Form S-8 (Registration No. 33-76440). The number set forth herein is the number of the Exhibit in said Registration Statement.
K. Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995. The number set forth herein is the number of the Exhibit in said Annual Report.
L. Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 1995. The number set forth herein is the number of the Exhibit in said Quarterly Report.
M. Incorporated by reference to the Company’s Proxy Statement relating to the Company’s Annual Meeting of Stockholders on June 5, 2002.
N. Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000. The number set forth herein is the number of the Exhibit in said Annual Report.
O. Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001. The number set forth herein is the number of the Exhibit in said Annual Report.
P. Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2002. The number set forth herein is the number of the Exhibit in said Quarterly Report.
Q. Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002. The number set forth is the number of the exhibit in said Annual Report.
R. Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 2003. The number set forth herein is the number of the Exhibit in said Annual Report.
S. Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003. The number set forth is the number of the exhibit in said Annual Report.
T. Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 2004. The number set forth herein is the number of the exhibit in said Quarterly Report.
U. Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005. The number set forth herein is the number of the exhibit in said annual report.
V. Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2006. The number set forth herein is the number of the exhibit in said quarterly report.
W. Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 2006. The number set forth herein is the number of the exhibit in said quarterly report.
X. Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2006. The number set forth herein is the number of the exhibit in said quarterly report.Quarterly Report.
Y.Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 2007. The number set forth herein is the number of the exhibit in said Quarterly Report.
Z.Incorporated by reference to the Company’s Current Report on Form 8-K filed October 12, 2007. The number set forth herein is the number of the Exhibit in said Report.
AA.Incorporated by reference to the Company’s Current Report on Form 8-K filed January 18, 2008. The number set forth herein is the number of the Exhibit in said Report.
BB.Incorporated by reference to Appendix C to the Company’s Proxy Statement relating to the Company’s Annual Meeting of Stockholders on June 6, 2007.
CC.Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007. The number set forth herein is the number of the exhibit in said Annual Report.
DD.Incorporated by reference to Appendix A to the Company’s Proxy Statement relating to the Company’s Annual Meeting of Stockholders on June 4, 2008.
EE.Incorporated by reference to Appendix B to the Company’s Proxy Statement relating to the Company’s Annual Meeting of Stockholders on June 4, 2008.
FF.Incorporated by reference to the Company’s Current Report on Form 8-K filed June 10, 2008. The number set forth herein is the number of the exhibit in said Report.
GGIncorporated by reference to the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2008. The number set forth herein is the number of the exhibit in said Quarterly Report.
HH.Incorporated by reference to the Company’s Current Report on Form 8-K filed March 2, 2009. The number set forth herein is the number of the Exhibit in said Report.
II.Incorporated by reference to the Company’s Current Report on Form 8-K filed March 24, 2009. The number set forth herein is the number of the Exhibit in said Report.
JJ.Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008. The number set forth herein is the number of the exhibit in said Annual Report.
KK.Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 2009. The number set forth herein is the number of the exhibit in said Quarterly Report.
LL.Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2009. The number set forth herein is the number of the exhibit in said Quarterly Report.
* Management contract or compensatory plan or arrangement.
** In accordance with Rule 12b-32 under the Securities Exchange Act of 1934, as amended, reference is made to the documents previously filed with the Securities and Exchange Commission, which documents are hereby incorporated by reference.
The SEC allows the Company to incorporate by reference certain information into this annual report on Form 10-K. This means that the Company can disclose important information by reference to other documents the Company has filed separately with the SEC. These documents contain important information about the Company and its financial condition. The Company has incorporated by reference into this annual report the information indicated above. This information is considered to be a part of this annual report, except for any information that is superseded by information that is filed at a later date.
You may read and copy any of the documents incorporated by reference in this annual report at the following locations of the SEC by using the Company’s file number, 001-12648:
Public Reference Room |
| Midwest Regional Office |
| Northeast Regional Office |
450 Fifth Street, NW |
| Citicorp Center |
| 233 Broadway |
Room 1024 |
| 500 West Madison Street, # 1400 |
| New York, NY 10279 |
Washington, DC 20549 |
| Chicago, IL 60661 |
|
|
You may also obtain copies of this information by mail from the Public Reference Room of the SEC, 450 Fifth Street, NW, Room 1024, Washington, DC 20549, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintains a World Wide Web site that contains reports, proxy statements and other information about issuers, including the Company, that file electronically with the SEC. The address of that site is http://www.sec.gov.
Documents incorporated by reference are also available from the Company without charge, excluding any exhibits to those documents unless the exhibit is specifically incorporated by reference in this annual report. You can obtain these documents by requesting them by telephone or in writing from the Company at 172 East Main Street, Georgetown, MA 01833, (978) 352-2200.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
UFP TECHNOLOGIES, INC.
Date: March 30, 2010 | | By: |
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| R. Jeffrey Bailly, President |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
SIGNATURE |
| TITLE |
| DATE | ||||||
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/s/ R. Jeffrey Bailly |
| Chairman, Chief Executive Officer, |
| March | ||||||
R. Jeffrey Bailly |
| President, and Director |
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/s/ Ronald J. Lataille |
| Chief Financial Officer, Vice President, |
| March | ||||||
Ronald J. Lataille |
| Principal Financial and Accounting Officer |
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/s/ Richard L. Bailly |
| Director |
| March | ||||||
Richard L. Bailly | ||||||||||
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/s/ Kenneth L. Gestal |
| Director |
| March | ||||||
Kenneth L. Gestal |
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/s/ David B. Gould |
| Director |
| March | ||||||
David B. Gould |
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/s/ Thomas |
| Director |
| March | ||||||
Thomas |
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/s/ Marc Kozin |
| Director |
| March | ||||||
Marc Kozin |
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31
UFP TECHNOLOGIES, INC.
Consolidated Financial Statements and Schedule
December 31, 2006 and 2005
With Reports of Independent Registered Public Accounting Firms
UFP TECHNOLOGIES, INC.
| Director | March 30, 2010 | ||
David K. Stevenson |
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/s/ Robert W. Pierce, Jr. | Director | March 30, 2010 | ||
Robert W. Pierce, Jr. |
UFP TECHNOLOGIES, INC.
Consolidated Financial Statements
and Financial Statement Schedule
As of December 31, 2009 and 2008
And for the Years Ended December 31, 2009, 2008, and 2007
With Report of Independent Registered Public Accounting Firm
UFP TECHNOLOGIES, INC.
Page | ||
Report of Independent Registered Public Accounting Firm, | ||
F-3 |
| |
Consolidated Balance Sheets as of December 31, | ||
F-4 |
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F-5 |
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F-6 |
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F-7 |
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F-8 |
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F-32 |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
UFP Technologies, Inc.
Georgetown, MA
We have audited the accompanying consolidated balance sheets of UFP Technologies, Inc. and subsidiaries as of December 31, 20062009 and 2005,2008, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years then ended.in the three year period ended December 31, 2009. Our auditaudits also included the financial statement schedule for each of the years in the three year period ended December 31, 2006 and 20052009 as listed in the index at Item 15(a)(2). These consolidated financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our auditaudits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of UFP Technologies, Inc. and subsidiaries as of December 31, 20062009 and 2005,2008, and the consolidated results of itstheir operations and itstheir cash flows for each of the years thenin the three year period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Carlin, Charron & Rosen,CCR LLP
Westborough, Massachusetts
March 22, 2007
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMF-3
To the Board of Directors and Shareholders of UFP Technologies, Inc.:
In our opinion, the consolidated statement of operations, of stockholders’ equity, and of cash flows for the year ended December 31, 2004 listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the results of operations and cash flows of UFP Technologies, Inc., and its subsidiaries for the year then ended, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the year ended December 31, 2004 listed in the index appearing under Item 15(a)(2), present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
|
| December 31 |
| ||||
Assets |
| 2006 |
| 2005 |
| ||
Current assets: |
|
|
|
|
| ||
Cash |
| $ | 1,017,122 |
| $ | 265,352 |
|
Receivables, net |
| 11,628,639 |
| 15,299,748 |
| ||
Inventories |
| 5,929,677 |
| 6,441,592 |
| ||
Prepaid expenses |
| 766,467 |
| 791,677 |
| ||
Deferred income taxes |
| 1,032,281 |
| 781,988 |
| ||
Total current assets |
| 20,374,186 |
| 23,580,357 |
| ||
Property, plant and equipment |
| 37,212,463 |
| 36,723,341 |
| ||
Less accumulated depreciation and amortization |
| (27,075,279 | ) | (25,750,620 | ) | ||
Net property, plant and equipment |
| 10,137,184 |
| 10,972,721 |
| ||
Cash surrender value of officers life insurance |
| 157,835 |
| 140,135 |
| ||
Deferred income taxes |
| 1,387,353 |
| 2,494,251 |
| ||
Goodwill |
| 6,481,037 |
| 6,481,037 |
| ||
Other assets |
| 499,417 |
| 331,515 |
| ||
Total assets |
| $ | 39,037,012 |
| $ | 44,000,016 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Notes payable |
| $ | — |
| $ | 7,990,521 |
|
Current installments of long-term debt |
| 1,078,350 |
| 1,087,030 |
| ||
Current installments of capital lease obligations |
| 688,991 |
| 638,875 |
| ||
Accounts payable |
| 4,620,399 |
| 6,062,841 |
| ||
Accrued taxes and other expenses |
| 5,749,949 |
| 4,480,239 |
| ||
Total current liabilities |
| 12,137,689 |
| 20,259,506 |
| ||
Long-term debt, excluding current installments |
| 4,603,977 |
| 5,286,548 |
| ||
Capital lease obligations, excluding current installments |
| 2,317,072 |
| 2,363,163 |
| ||
Minority interest (Note 7) |
| 616,157 |
| 633,853 |
| ||
Retirement and other liabilities |
| 737,581 |
| 695,780 |
| ||
Total liabilities |
| 20,412,476 |
| 29,238,850 |
| ||
Commitments and contingencies (Note 15) |
|
|
|
|
| ||
Stockholders’ equity: |
|
|
|
|
| ||
Preferred stock, $.01 par value. Authorized 1,000,000 shares; no shares issued or outstanding |
| — |
| — |
| ||
Common stock, $.01 par value. Authorized 20,000,000 shares; issued and outstanding 5,156,764 shares in 2006 and 4,828,079 shares in 2005 |
| 51,568 |
| 48,281 |
| ||
Additional paid-in capital |
| 10,311,682 |
| 8,966,472 |
| ||
Retained earnings |
| 8,261,286 |
| 5,746,413 |
| ||
Total stockholders’ equity |
| 18,624,536 |
| 14,761,166 |
| ||
Total liabilities and stockholders’ equity |
| $ | 39,037,012 |
| $ | 44,000,016 |
|
|
| December 31 |
| ||||
|
| 2009 |
| 2008 |
| ||
Assets |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 14,998,514 |
| $ | 6,729,370 |
|
Receivables, net |
| 14,218,005 |
| 12,754,875 |
| ||
Inventories, net |
| 7,647,517 |
| 8,152,746 |
| ||
Prepaid expenses |
| 476,381 |
| 516,388 |
| ||
Deferred income taxes |
| 1,410,780 |
| 1,488,575 |
| ||
Total current assets |
| 38,751,197 |
| 29,641,954 |
| ||
Property, plant, and equipment |
| 43,582,578 |
| 40,666,779 |
| ||
Less accumulated depreciation and amortization |
| (31,364,683 | ) | (28,912,455 | ) | ||
Net property, plant and equipment |
| 12,217,895 |
| 11,754,324 |
| ||
Goodwill |
| 6,481,037 |
| 6,481,037 |
| ||
Intangible assets |
| 817,737 |
| 175,841 |
| ||
Other assets |
| 1,183,930 |
| 669,505 |
| ||
Total assets |
| $ | 59,451,796 |
| $ | 48,722,661 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Accounts payable |
| $ | 4,273,625 |
| $ | 3,304,194 |
|
Accrued taxes and other expenses |
| 6,152,826 |
| 6,230,001 |
| ||
Current installments of long-term debt |
| 623,007 |
| 716,697 |
| ||
Current installments of capital lease obligations |
| — |
| 702,765 |
| ||
Total current liabilities |
| 11,049,458 |
| 10,953,657 |
| ||
Long-term debt, excluding current installments |
| 7,501,823 |
| 3,941,996 |
| ||
Capital lease obligations, excluding current installments |
| — |
| 909,900 |
| ||
Deferred income taxes |
| 776,877 |
| 113,073 |
| ||
Retirement and other liabilities |
| 1,118,197 |
| 913,644 |
| ||
Total liabilities |
| 20,446,355 |
| 16,832,270 |
| ||
Commitments and contingencies (Note 16) |
|
|
|
|
| ||
Stockholders’ equity: |
|
|
|
|
| ||
Preferred stock, $.01 par value. Authorized 1,000,000 shares; no shares issued or outstanding |
| — |
| — |
| ||
Common stock, $.01 par value. Authorized 20,000,000 shares; issued and outstanding 5,945,357 shares in 2009 and 5,666,703 shares in 2008 |
| 59,454 |
| 56,667 |
| ||
Additional paid-in capital |
| 15,009,613 |
| 13,774,334 |
| ||
Retained earnings |
| 23,465,812 |
| 17,536,387 |
| ||
Total UFP Technologies, Inc. stockholders’ equity |
| 38,534,879 |
| 31,367,388 |
| ||
Non-controlling interests |
| 470,562 |
| 523,003 |
| ||
Total stockholders’ equity |
| 39,005,441 |
| 31,890,391 |
| ||
Total liabilities and stockholders’ equity |
| $ | 59,451,796 |
| $ | 48,722,661 |
|
The accompanying notes are an integral part of these consolidated financial statements.
|
| Years ended December 31 |
|
| Years Ended December 31 |
| ||||||||||||||
|
| 2006 |
| 2005 |
| 2004 |
|
| 2009 |
| 2008 |
| 2007 |
| ||||||
Net sales |
| $ | 93,749,239 |
| $ | 83,962,457 |
| $ | 68,624,098 |
|
| $ | 99,231,334 |
| $ | 110,031,601 |
| $ | 93,595,140 |
|
Cost of sales |
| 74,511,940 |
| 69,361,157 |
| 54,652,677 |
|
| 72,511,919 |
| 81,468,539 |
| 70,784,986 |
| ||||||
Gross profit |
| 19,237,299 |
| 14,601,300 |
| 13,971,421 |
|
| 26,719,415 |
| 28,563,062 |
| 22,810,154 |
| ||||||
Selling, general and administrative expenses |
| 14,183,117 |
| 12,430,515 |
| 12,107,012 |
| |||||||||||||
Selling, general, and administrative expenses |
| 18,539,005 |
| 18,822,965 |
| 15,562,800 |
| |||||||||||||
Restructuring charge |
| — |
| — |
| (280,000 | ) |
| — |
| 1,315,366 |
| — |
| ||||||
Operating income |
| 5,054,182 |
| 2,170,785 |
| 2,144,409 |
|
| 8,180,410 |
| 8,424,731 |
| 7,247,354 |
| ||||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest expense |
| (963,982 | ) | (1,041,714 | ) | (713,651 | ) | |||||||||||||
Interest expense, net |
| (232,747 | ) | (334,293 | ) | (479,171 | ) | |||||||||||||
Equity in net income of unconsolidated partnership |
| 15,037 |
| 12,531 |
| 12,532 |
|
| — |
| 7,218 |
| 15,038 |
| ||||||
Minority interest earnings |
| (87,298 | ) | (305,037 | ) | (83,358 | ) | |||||||||||||
Other, net |
| (9,705 | ) | 30,734 |
| — |
|
| 11,206 |
| 57,457 |
| 32,500 |
| ||||||
Total other expense |
| (1,045,948 | ) | (1,303,486 | ) | (784,477 | ) | |||||||||||||
Gains on acquisitions |
| 839,690 |
| — |
| — |
| |||||||||||||
Total other (expense) income |
| 618,149 |
| (269,618 | ) | (431,633 | ) | |||||||||||||
Income before income tax provision |
| 4,008,234 |
| 867,299 |
| 1,359,932 |
|
| 8,798,559 |
| 8,155,113 |
| 6,815,721 |
| ||||||
Income tax expense |
| 1,493,361 |
| 208,208 |
| 488,671 |
|
| 2,816,575 |
| 2,994,648 |
| 2,584,250 |
| ||||||
Net income |
| $ | 2,514,873 |
| $ | 659,091 |
| $ | 871,261 |
| ||||||||||
Net income from consolidated operations |
| $ | 5,981,984 |
| $ | 5,160,465 |
| $ | 4,231,471 |
| ||||||||||
Net income attributable to non-controlling interests |
| (52,559 | ) | (44,465 | ) | (72,370 | ) | |||||||||||||
Net income attributable to UFP Technologies, Inc. |
| $ | 5,929,425 |
| $ | 5,116,000 |
| $ | 4,159,101 |
| ||||||||||
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic |
| $ | 0.50 |
| $ | 0.14 |
| $ | 0.19 |
|
| $ | 1.02 |
| $ | 0.92 |
| $ | 0.78 |
|
Diluted |
| $ | 0.45 |
| $ | 0.13 |
| $ | 0.17 |
|
| $ | 0.94 |
| $ | 0.82 |
| $ | 0.71 |
|
Weighted average common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic |
| 5,022,532 |
| 4,798,008 |
| 4,616,983 |
|
| 5,829,580 |
| 5,549,830 |
| 5,306,948 |
| ||||||
Diluted |
| 5,571,068 |
| 5,260,569 |
| 4,994,611 |
|
| 6,293,964 |
| 6,262,666 |
| 5,861,420 |
| ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Years endedEnded December 31, 2006, 2005,2009, 2008, and 20042007
|
|
|
|
|
| Additional |
|
|
| Total |
| ||||
|
| Common Stock |
| Paid-in |
| Retained |
| Stockholders’ |
| ||||||
|
| Shares |
| Amount |
| Capital |
| Earnings |
| Equity |
| ||||
Balance at December 31, 2003 |
| 4,519,666 |
| $ | 45,197 |
| $ | 8,429,937 |
| $ | 4,216,061 |
| $ | 12,691,195 |
|
Employee Stock Purchase Plan |
| 38,229 |
| 382 |
| 46,733 |
| — |
| 47,115 |
| ||||
Stock issued in lieu of compensation |
| 71,283 |
| 713 |
| 136,037 |
| — |
| 136,750 |
| ||||
Exercise of stock options, net of shares presented for exercise |
| 49,388 |
| 494 |
| 2,122 |
| — |
| 2,616 |
| ||||
Tax benefit relating to non-qualified stock option exercise |
| — |
| — |
| 37,659 |
| — |
| 37,659 |
| ||||
Net income |
| — |
| — |
| — |
| 871,261 |
| 871,261 |
| ||||
Balance at December 31, 2004 |
| 4,678,566 |
| $ | 46,786 |
| $ | 8,652,488 |
| $ | 5,087,322 |
| $ | 13,786,596 |
|
Employee Stock Purchase Plan |
| 16,931 |
| 169 |
| 48,416 |
| — |
| 48,585 |
| ||||
Stock issued in lieu of compensation |
| 65,472 |
| 655 |
| 239,795 |
| — |
| 240,450 |
| ||||
Exercise of stock options, net of shares presented for exercise |
| 67,110 |
| 671 |
| 25,773 |
| — |
| 26,444 |
| ||||
Net income |
| — |
| — |
| — |
| 659,091 |
| 659,091 |
| ||||
Balance at December 31, 2005 |
| 4,828,079 |
| 48,281 |
| 8,966,472 |
| 5,746,413 |
| 14,761,166 |
| ||||
Employee Stock Purchase Plan |
| 21,148 |
| 211 |
| 47,111 |
| — |
| 47,322 |
| ||||
Stock issued in lieu of compensation |
| 54,411 |
| 544 |
| 143,703 |
| — |
| 144,247 |
| ||||
Share-based compensation |
| — |
| — |
| 459,340 |
| — |
| 459,340 |
| ||||
Exercise of stock options, net of shares presented for exercise |
| 253,126 |
| 2,532 |
| 518,189 |
| — |
| 520,721 |
| ||||
Tax benefit relating to non-qualified stock option exercise |
| — |
| — |
| 176,867 |
| — |
| 176,867 |
| ||||
Net income |
| — |
| — |
| — |
| 2,514,873 |
| 2,514,873 |
| ||||
Balance at December 31, 2006 |
| 5,156,764 |
| $ | 51,568 |
| $ | 10,311,682 |
| $ | 8,261,286 |
| $ | 18,624,536 |
|
|
| Common Stock |
| Additional |
| Retained |
| Non-Controlling |
| Total |
| |||||||
|
| Shares |
| Amount |
| Capital |
| Earnings |
| Interests |
| Equity |
| |||||
Balance at December 31, 2006 |
| 5,156,764 |
| $ | 51,568 |
| $ | 10,311,682 |
| $ | 8,261,286 |
| $ | 616,157 |
| $ | 19,240,693 |
|
Stock issued under Employee Stock Purchase Plan |
| 4,721 |
| 47 |
| 23,848 |
| — |
| — |
| 23,895 |
| |||||
Stock issued in lieu of compensation |
| 55,189 |
| 552 |
| 255,524 |
| — |
| — |
| 256,076 |
| |||||
Share-based compensation |
| 41,000 |
| 410 |
| 691,614 |
| — |
| — |
| 692,024 |
| |||||
Exercise of stock options, net of shares presented for exercise |
| 117,707 |
| 1,177 |
| 271,037 |
| — |
| — |
| 272,214 |
| |||||
Excess tax benefits on share-based compensation |
| — |
| — |
| 215,094 |
| — |
| — |
| 215,094 |
| |||||
Net income |
| — |
| — |
| — |
| 4,159,101 |
| 72,370 |
| 4,231,471 |
| |||||
Distribution to non-controlling interests |
| — |
| — |
| — |
| — |
| (104,994 | ) | (104,994 | ) | |||||
Balance at December 31, 2007 |
| 5,375,381 |
| $ | 53,754 |
| $ | 11,768,799 |
| $ | 12,420,387 |
| $ | 583,533 |
| $ | 24,826,473 |
|
Stock issued under Employee Stock Purchase Plan |
| 2,817 |
| 28 |
| 20,535 |
| — |
| — |
| 20,563 |
| |||||
Stock issued in lieu of compensation |
| 55,644 |
| 556 |
| 343,324 |
| — |
| — |
| 343,880 |
| |||||
Share-based compensation |
| 93,680 |
| 937 |
| 1,304,852 |
| — |
| — |
| 1,305,789 |
| |||||
Exercise of stock options |
| 139,181 |
| 1,392 |
| 331,634 |
| — |
| — |
| 333,026 |
| |||||
Net share settlement of restricted stock units |
| — |
| — |
| (206,044 | ) | — |
| — |
| (206,044 | ) | |||||
Excess tax benefits on share-based compensation |
| — |
| — |
| 211,234 |
| — |
| — |
| 211,234 |
| |||||
Net income |
| — |
| — |
| — |
| 5,116,000 |
| 44,465 |
| 5,160,465 |
| |||||
Distribution to non-controlling interests |
| — |
| — |
| — |
| — |
| (104,995 | ) | (104,995 | ) | |||||
Balance at December 31, 2008 |
| 5,666,703 |
| $ | 56,667 |
| $ | 13,774,334 |
| $ | 17,536,387 |
| $ | 523,003 |
| $ | 31,890,391 |
|
Stock issued in lieu of compensation |
| 43,279 |
| 433 |
| 183,067 |
| — |
| — |
| 183,500 |
| |||||
Share-based compensation |
| 196,000 |
| 1,960 |
| 898,853 |
| — |
| — |
| 900,813 |
| |||||
Exercise of stock options |
| 39,375 |
| 394 |
| 129,938 |
| — |
| — |
| 130,332 |
| |||||
Excess tax benefits on share-based compensation |
| — |
| — |
| 23,421 |
| — |
| — |
| 23,421 |
| |||||
Net income |
| — |
| — |
| — |
| 5,929,425 |
| 52,559 |
| 5,981,984 |
| |||||
Distribution to non-controlling interests |
| — |
| — |
| — |
| — |
| (105,000 | ) | (105,000 | ) | |||||
Balance at December 31, 2009 |
| 5,945,357 |
| $ | 59,454 |
| $ | 15,009,613 |
| $ | 23,465,812 |
| $ | 470,562 |
| $ | 39,005,441 |
|
The accompanying notes are an integral part of these consolidated financial statements.
|
| Years ended December 31 |
|
| Years Ended December 31 |
| ||||||||||||||
|
| 2006 |
| 2005 |
| 2004 |
|
| 2009 |
| 2008 |
| 2007 |
| ||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
| $ | 2,514,873 |
| $ | 659,091 |
| $ | 871,261 |
|
| $ | 5,981,984 |
| $ | 5,160,465 |
| $ | 4,231,471 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation and amortization |
| 3,059,702 |
| 2,936,691 |
| 2,493,300 |
|
| 2,895,062 |
| 2,976,550 |
| 2,815,021 |
| ||||||
Restructuring charge—leasehold improvement write-off |
| — |
| 170,000 |
| — |
| |||||||||||||
Equity in net income of unconsolidated affiliate and partnership |
| (15,038 | ) | (12,531 | ) | (12,532 | ) |
| — |
| (7,218 | ) | (15,038 | ) | ||||||
Minority interest |
| 87,298 |
| 305,037 |
| 83,358 |
| |||||||||||||
Loss on disposal of property, plant, and equipment |
| 9,705 |
| — |
| — |
| |||||||||||||
Restructuring charges |
| — |
| — |
| (280,000 | ) | |||||||||||||
Gain on disposal of property, plant, and equipment |
| (11,206 | ) | (57,457 | ) | (32,500 | ) | |||||||||||||
Gain on acquisitions |
| (839,690 | ) | — |
| — |
| |||||||||||||
Share-based compensation |
| 459,340 |
|
|
|
|
|
| 900,813 |
| 1,305,789 |
| 692,024 |
| ||||||
Stock issued in lieu of compensation |
| 144,247 |
| 240,450 |
| 136,750 |
|
| 183,500 |
| 343,880 |
| 256,076 |
| ||||||
Deferred income taxes |
| 856,605 |
| (97,899 | ) | 266,438 |
|
| 226,950 |
| 16,469 |
| 1,209,664 |
| ||||||
Changes in operating assets and liabilities, net of effects from acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Receivables, net |
| 3,767,676 |
| (3,480,842 | ) | (2,679,592 | ) |
| (341,536 | ) | 777,392 |
| (166,829 | ) | ||||||
Inventories |
| 598,132 |
| (1,205,360 | ) | (823,626 | ) |
| 1,863,118 |
| (434,506 | ) | 53,051 |
| ||||||
Prepaid expenses |
| 25,210 |
| (80,983 | ) | (216,944 | ) |
| 72,715 |
| 350,013 |
| (54,783 | ) | ||||||
Refundable income tax |
| — |
| — |
| 419,658 |
| |||||||||||||
Accounts payable |
| (647,048 | ) | 1,335,525 |
| 733,176 |
|
| 392,641 |
| (2,776,715 | ) | 1,073,753 |
| ||||||
Accrued taxes and other expenses |
| 1,269,710 |
| 495,352 |
| 444,181 |
|
| (330,726 | ) | (937,577 | ) | 760,267 |
| ||||||
Retirement and other liabilities |
| 41,801 |
| (84,724 | ) | (76,188 | ) |
| 204,553 |
| (119,173 | ) | 94,560 |
| ||||||
Cash surrender value of officers’ life insurance |
| (17,700 | ) | (14,209 | ) | (8,056 | ) | |||||||||||||
Other assets |
| (61,105 | ) | 12,801 |
| 44,744 |
|
| (509,425 | ) | (98,161 | ) | (228,077 | ) | ||||||
Net cash provided by operating activities |
| 12,093,408 |
| 1,008,399 |
| 1,395,928 |
|
| 10,688,753 |
| 6,669,751 |
| 10,688,660 |
| ||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Additions to property, plant and equipment |
| (1,515,533 | ) | (1,109,995 | ) | (2,141,700 | ) | |||||||||||||
Additions to property, plant, and equipment |
| (1,856,837 | ) | (2,763,250 | ) | (2,100,584 | ) | |||||||||||||
Acquisition of Stephenson & Lawyer net of cash acquired |
| — |
| (5,181,066 | ) | — |
| |||||||||||||
Acquisition of Foamade Industries, Inc.’s assets |
| (375,000 | ) | — |
| — |
| |||||||||||||
Acquisition of E.N. Murray Co. net of cash acquired |
| (1,440,534 | ) | — |
| — |
| |||||||||||||
Acquisition of Advanced Materials Group assets |
| (620,000 | ) | — |
| — |
| |||||||||||||
Payments received on affiliated partnership |
| 15,038 |
| 12,531 |
| 12,532 |
|
| — |
| 7,218 |
| 15,038 |
| ||||||
Proceeds from sale of property, plant, and equipment |
| 30,000 |
| — |
| — |
|
| 13,364 |
| 101,020 |
| 32,500 |
| ||||||
Acquisition of assets of Stephen Packaging, Corp. |
| (309,229 | ) | — |
| — |
| |||||||||||||
Net cash used in investing activities |
| (1,779,724 | ) | (1,097,464 | ) | (2,129,168 | ) |
| (4,279,007 | ) | (7,836,078 | ) | (2,053,046 | ) | ||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net borrowings (payments) under notes payable |
| (7,990,521 | ) | 67,051 |
| 1,185,758 |
| |||||||||||||
Change in book overdrafts |
| (832,378 | ) | 1,061,594 |
| 300,049 |
| |||||||||||||
Proceeds from long-term borrowings |
| — |
| 731,388 |
| 768,612 |
|
| 4,000,000 |
| — |
| 786,000 |
| ||||||
Distribution to United Development Company Partners |
| (104,994 | ) | (104,993 | ) | (104,982 | ) | |||||||||||||
Tax benefit from exercise of non-qualified stock options |
| 176,867 |
| — |
| 37,659 |
| |||||||||||||
Distribution to United Development Company Partners (non-controlling interest) |
| (105,000 | ) | (104,995 | ) | (104,994 | ) | |||||||||||||
Excess tax benefits on share-based compensation |
| 23,421 |
| 211,234 |
| 215,094 |
| |||||||||||||
Proceeds from sale of common stock |
| 568,043 |
| 75,029 |
| 49,731 |
|
| — |
| 20,563 |
| 23,895 |
| ||||||
Proceeds from the exercise of stock options |
| 130,332 |
| 333,026 |
| 272,214 |
| |||||||||||||
Principal repayment of long-term debt |
| (691,251 | ) | (1,366,834 | ) | (1,030,682 | ) |
| (576,690 | ) | (714,027 | ) | (1,095,607 | ) | ||||||
Principal repayment of obligations under capital leases |
| (2,046,680 | ) | (426,769 | ) | (465,091 | ) |
| (1,612,665 | ) | (704,407 | ) | (688,991 | ) | ||||||
Proceeds from refinancing capital leases |
| 1,359,000 |
| — |
| — |
| |||||||||||||
Net cash provided by financing activities |
| (9,561,914 | ) | 36,466 |
| 741,054 |
| |||||||||||||
Cash settlements of restricted stock units |
| — |
| (206,044 | ) | — |
| |||||||||||||
Net cash provided by (used in) financing activities |
| 1,859,398 |
| (1,164,650 | ) | (592,389 | ) | |||||||||||||
Net change in cash |
| 751,770 |
| (52,599 | ) | 7,814 |
|
| 8,269,144 |
| (2,330,977 | ) | 8,043,225 |
| ||||||
Cash at beginning of year |
| 265,352 |
| 317,951 |
| 310,137 |
| |||||||||||||
Cash at end of year |
| $ | 1,017,122 |
| $ | 265,352 |
| $ | 317,951 |
| ||||||||||
Cash and cash equivalents at beginning of year |
| 6,729,370 |
| 9,060,347 |
| 1,017,122 |
| |||||||||||||
Cash and cash equivalents at end of year |
| $ | 14,998,514 |
| $ | 6,729,370 |
| $ | 9,060,347 |
| ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
December 31, 20062009 and 20052008
UFP Technologies, Inc. (“the Company”) is an innovative designer and custom converter of foams, plastics, and natural fiber products principally serving the automotive, computer and electronics, medical, aerospace and defense, consumer, and industrial markets. The Company was incorporated in the State of Delaware in 1993.
(a)Principles of Consolidation
The consolidated financial statements include the accounts and results of operations of UFP Technologies, Inc., its wholly ownedwholly-owned subsidiaries, Moulded Fibre Technology, Inc. (MFT), Simco Automotive Trim, Inc., Simco Technologies, Inc., and Simco Automotive Technology.Stephenson & Lawyer, Inc. and its wholly-owned subsidiary, Patterson Properties Corporation. The Company also consolidates United Development Company Limited, of which the Company owns 26.32% (see Note 7)8). All significant inter-company balances and transactions have been eliminated in consolidation.
(b)Codification
Effective July 1, 2009, the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) became the single official source of authoritative, nongovernmental generally accepted accounting principles (“GAAP”) in the United States. The historical GAAP hierarchy was eliminated and the ASC became the only level of authoritative GAAP, other than guidance issued by the Securities and Exchange Commission. The Company’s accounting policies were not affected by the conversion to ASC. However, references to specific accounting standards in the footnotes to the Company’s consolidated financial statements have been changed to refer to the appropriate section of ASC.
(c)Accounts Receivable
The Company periodically reviews the collectibilitycollectability of its accounts receivable. Provisions are establishedrecorded for accounts that are potentially uncollectible. Determining adequate reserves for accounts receivable requires management’s judgment. Conditions impacting the realizability of the Company’s receivables could cause actual asset write-offs to be materially different than the reserved balances as of December 31, 2006.2009.
(c)(d)Inventories
Inventories whichthat include material, labor, and manufacturing overhead are valued at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method.
The Company periodically reviews the realizability of its inventory. Provisions are establishedinventory for potential obsolescence. Determining adequate reserves for inventory obsolescence requires management’s judgment. Conditions impacting the realizability of the Company’s inventory could cause actual asset write-offs to be materially different than the reserve balances as of December 31, 2006.2009.
(d)(e)Property, Plant, and Equipment
Property, plant, and equipment are stated at cost and are depreciated andor amortized using the straight-line method over the estimated useful lives of the assets foror the related lease term, if shorter (for financial statement purposespurposes) and accelerated methods for(for income tax purposes.purposes). Certain manufacturing machines that are dedicated to a specific program—where total units to be produced over the life of the program are estimable—are depreciated using the modified units of production method for financial statement purposes.
Estimated useful lives of property, plant, and equipment are as follows:
Leasehold improvements |
|
| |
Buildings and improvements |
| 31.5 years | |
Equipment |
| 8-10 years | |
Furniture and fixtures |
|
|
Property, plant, and equipment amounts are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess of the asset’s carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis.
(e)(f)Income Taxes
The Company’s income taxes are accounted for under the asset and liability method of accounting.method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry-forwards.carryforwards. Deferred tax expense (benefit) results from the net change during the year in deferred tax assets and liabilities. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company evaluates the need for a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. The Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. Should the Company determine that it would not be able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense.
(f)(g)Revenue Recognition
The Company recognizes revenue at the time of shipment when title and risk of loss have passed to the customer, persuasive evidence of an arrangement exists, performance of its obligation is complete, its price to the buyer is fixed or determinable, and the Company is reasonably assured of collecting.collection. If a loss is anticipated on any contract, a provision for the entire loss is made immediately. Determination of these criteria, in some cases, require management’srequires management’s judgments. Should changes in conditions cause management to determine these criteria are not met for certain future transactions, revenue for any reporting period could be adversely affected.
(g)(h)Investments in Realty Partnership
The Company has invested in Lakeshore Estates Associates, a realty limited partnership. The Lakeshore Estates investment is stated at cost, plus or minus the Company’s proportionate share of the limited partnerships’partnership’s income or losses, less any distributions received from the limited partnership. The Company has recognized its share of Lakeshore Estates Associates’ losses only to the extent of its original investment in, and advances to, this partnership. The Company’s book value incarrying amount for this investment is zero at December 31, 20062009, and 2005,2008, respectively.
(h)(i) Impairment of Long-Lived AssetsGoodwill
The Company reviews long-lived assets and all intangible assets
Goodwill is tested for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Goodwill is reviewed at least annually, for impairment. Recoverability of long-lived assets and definite lived intangible assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate, to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then long-lived assets are written
down to fair value. Fair value is determined based on discounted cash flows or appraised values, depending upon the nature of the assets. Recoverability of goodwill is determined under a two-step process as described in SFAS 142. The fair value of reporting units determined under step one is also based on a discounted cash flow model. At December 31, 2006, no impairment has been identified. Forecasted cash flows are based upon numerous assumptions used by management, such as revenue growth, margins and asset management. For purposes of this analysis, the Company reviews its internal forecasts and external data. The external data consist of data available from customer and competitor commentary, and industry forecasts of future revenue growth.
The estimates of expected cash flows require the Company to make significant judgments regarding future periods that are subject to some factors outside of the Company’s control. Changes in these estimates can result in significant revisions to the carrying value of these assets and may result in material charges to the results of operations.
(i) Goodwill and Other Intangible Assets
Goodwill and indefinite-lived intangible assets are assessed for impairment on at least an annual basis. Beginning in 2005, the Company changed its annual goodwill impairment testing date from the second quarter to the fourth quarter of its fiscal year. The Company believes this new accounting method is preferable, since more complete and accurate information to assess goodwill for impairment is available in the fourth quarter, including actual financial performance to date and information relative to the carrying value of assets. There is no financial impact as of the year ended December 31, 2006, or on any prior periods, as a result of this change in accounting method. Goodwill of a reporting unit will also be tested for impairment between annual tests if a triggeringan event occurs as defined by SFAS No. 142,or circumstances change that could potentially reducewould indicate that the carrying amount may be impaired. Impairment testing for goodwill is done at a reporting unit level. Reporting units are one level below the business segment level, but can be combined when reporting units within the same segment have similar economic characteristics. The Company’s reporting units include its Component Products segment, Packaging segment (excluding its Molded Fiber operation), and its Molded Fiber operation. An impairment loss generally would be recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit belowunit. The Company completed its most recent annual goodwill impairment test as of December 31, 2009. Fair values of the reporting units were determined using several valuation methodologies, including a combination of income and market approaches, which include the use of Level 1 and Level 3 inputs (Note 19). The fair values of both reporting units that had goodwill balances were estimated to be more than 100% greater than their respective carrying value.values and, therefore, it was determined that there was no goodwill impairment in 2009. There also was no goodwill impairment in 2008 or 2007.
Definite-lived
(j)Intangible Assets
Intangible assets include patents and other intangible assets. Intangible assets such as patents,with an indefinite life are not amortized. Intangible assets with a definite life are amortized over theiron a straight-line basis, with estimated useful lives generally periods ranging from eight to fourteen14 years. The Company continually evaluatesIndefinite-lived intangible assets are tested for impairment annually, and will be tested for impairment between annual tests if an event occurs or circumstances change that would indicate that the reasonableness of the useful lives of these assets.carrying amount may be impaired. Intangible assets with a definite life are tested for impairment whenever events or circumstances indicate that their value may be reduced.
(j)(k)Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 2009, and 2008, cash equivalents primarily consisted of money market accounts and certificates of deposit that are readily converted into cash. The Company utilizes zero balance disbursementzero-balance disbursement accounts to manage its funds. These accounts reflect negative cash balances asAs such, outstanding checks clear the banking system. In accordance with accounting principles generally accepted in the United States of America, the negative cash book balances at the end of a periodyear are reclassified to accounts payable. At December 31, 20062009, and 2005,2008, the amountsamount reclassified werewas approximately $1.7 million$1.6 million.
The Company maintains its cash in bank deposit accounts, money market funds, and $2.5 million, respectively,certificates of deposit that at times exceed federally insured limits. The Company periodically reviews the financial stability of institutions holding its accounts, and does not believe it is exposed to any significant risk on cash.
(k)(l)Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(l)(m)Segments and Related Information
The Company has adopted the provisions of SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information,ASC 280, Segment Reporting, which established standards for the way that public business enterprises report information and operating segments in annual financial statements, and requires reporting of selected information in interim financial reports (see Note 18)21).
(m) Recent Accounting Pronouncements
In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” which is an interpretation of FASB Statement 109, ”Accounting for Income Taxes.” FIN 48 requires managements to perform a two-step evaluation of all tax positions, ensuring that these tax return positions meet the “more-likely than not” recognition threshold and can be measured with sufficient precision to determine the benefit recognized in the financial statements. These evaluations provide management with a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements certain tax positions that the Company has taken or expects to take on income tax returns. The Company does not believe this pronouncement will have a material impact on its financial position or results of operations. FIN 48 is effective for the Company’s interim period beginning January 1, 2007.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB 108). SAB 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB 108 requires companies to quantify misstatements using a balance sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is material, companies will record the effect as a cumulative effect adjustment to beginning of year retained earnings. The Company adopted SAB 108 during the fourth quarter of 2006. The adoption did not have a material impact on the Company’s financial position, cash flows or results of operations.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which clarifies the definition of fair value, establishes guidelines for measuring fair value, and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements and eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 will be effective for the Company on January 1, 2008. The Company is currently evaluating the impact of adopting SFAS 157 but does not believe that the adoption of SFAS 157 will have any material impact on its financial position, cash flows, or results of operations.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”) which permits entities to
choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 will be effective for the Company on January 1, 2008. The Company is currently evaluating the impact of adopting SFAS 159 on its financial position, cash flows, and results of operations.
(n)Share-Based Compensation
Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123R, (“SFAS 123R”) “Share-Based Payment,” which establishes
When accounting for equity instruments exchanged for employee services. Under the provisions of SFAS 123R,services, share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant). Prior to January 1, 2006, the Company accounted for share-based compensation to employees in accordance with Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The Company also followed the disclosure requirements of SFAS 123, “Accounting for Stock-Based Compensation”, as amended by SFAS 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”. The Company elected to adopt the modified prospective transition method as provided by SFAS 123R and, accordingly, financial statement amounts for the periods prior to January 1, 2006 presented in this Form 10-K have not been restated to reflect the fair value method of expensing share-based compensation. Under this application, the Company is required to record compensation cost for all share-based payments granted after the date of adoption based on the grant date fair value estimated in accordance with the provisions of SFAS 123R and for the unvested portion of all share-based payments previously granted that remain outstanding which were based on the grant date fair value estimated in accordance with the original provisions of SFAS 123. The Company expenses its share-based compensation on a straight line basis over the requisite service period for each award.
The provisions of SFAS 123R apply to share-based payments made through several plans, which are described below. The
Share-based compensation cost that has been charged against income for thosestock compensation plans is as follows:
|
| Year Ended December 31 |
| |||||||
|
| 2009 |
| 2008 |
| 2007 |
| |||
Selling, general, and administrative expense |
| $ | 900,813 |
| $ | 1,305,789 |
| $ | 692,024 |
|
| Year Ended |
| ||
|
| 31-Dec-06 |
| |
Cost of sales |
| $ | — |
|
Selling, general & administrative expense |
| 459,340 |
| |
Total share-based compensation expense |
| $ | 459,340 |
|
The Company has recorded compensation expense of $116,991 for the year ended December 31, 2006 forstock options granted during the period. The compensation expensethree-year period ended December 31, 2009, was determined as the intrinsic fair market value of the options, using a lattice-based option valuation model with the assumptions noted as follows:
Expected volatility: 92.7% to 96.7%
|
| Year Ended December 31 |
| ||||
|
| 2009 |
| 2008 |
| 2007 |
|
Expected volatility |
| 68.8% to 84.6% |
| 88.0% |
| 76.7% to 89.3% |
|
Expected dividends |
| None |
| None |
| None |
|
Risk-free interest rate |
| 3.6% |
| 4.0% |
| 3.4% to 5.0% |
|
Exercise price |
| Closing price on date of grant |
| Closing price on date of grant |
| Closing price on date of grant |
|
Imputed life |
| 4.1 to 7.9 years (output in lattice-based model) |
| 7.9 years (output in lattice-based model) |
| 4.1 to 7.9 years (output in lattice-based model) |
|
Expected dividends: None
Risk-free interest rate: 4.7% to 5.1%
Exercise price: Closing price on date of grant
Imputed life: 4.0 to 8.0 years (output in lattice-based model)
The Company did not recognize compensation expense for employee stockweighted average grant date fair value of options for the years ended December 31, 2005granted during 2009, 2008, and 2004, when the exercise price of the employee stock option equaled the market price of the underlying stock on the grant date.2007 was $1.83, $2.87, and $2.38, respectively.
The total income tax benefit recognized in the income statement of operations for share-based compensation arrangements was approximately $175,000 for the year ended December 31, 2006:
The following table illustrates the effects on net income$291,000, $458,000, and earnings per share$223,000, for the years ended December 31, 20052009, 2008, and 2004, respectively, as if the Company had applied the fair value recognition provisions of SFAS 123 to share-based employee awards:2007, respectively.
|
| Years Ended December 31 |
| ||||
|
| 2005 |
| 2004 |
| ||
Net income as reported |
| $ | 659,091 |
| $ | 871,261 |
|
Total stock based compensation expense determined under fair value based method for all awards net of tax related effects |
| (553,109 | ) | (519,084 | ) | ||
Pro forma net income |
| $ | 105,982 |
| $ | 352,177 |
|
Basic net income per share as reported |
| 0.14 |
| 0.19 |
| ||
Pro forma basic net income per share |
| 0.02 |
| 0.08 |
| ||
Diluted net income per share as reported |
| 0.13 |
| 0.17 |
| ||
Pro forma diluted net income per share |
| $ | 0.02 |
| $ | 0.07 |
|
The fair value of each option grant for options granted prior to January 1, 2006 is estimated on the date of grant, using the Black Scholes option pricing model with the following assumptions:
|
| Years Ended |
| ||
| December 31, 2005 |
| December 31, 2004 |
| |
Expected term |
| 6.8 years |
| 5.7 years |
|
Volatility |
| 84.4 | % | 102.8 | % |
Risk free interest rate |
| 4.08 | % | 3.72 | % |
Dividend yield |
| 0 | % | 0 | % |
The weighted average fair value of options granted during 2005 and 2004 was $2.39 and $2.34, respectively.
F-14
(o)Deferred Rent
The Company accounts for escalating rental payments on the straight linea straight-line basis over the term of the lease.
(p)Shipping and Handling Costs
Costs incurred related to shipping and handling are included in cost of sales. Amounts charged to customers pertaining to these costs are included as revenue.
(q)Research and Development
On a routine basis, the Company incurs costs related to research and development activity. These costs are expensed as incurred. Approximately $1.4 million, $1.4 million, and $1.3 million were expensed in the years ended December 31, 2009, 2008, and 2007, respectively.
(r)Fair Value of Financial Instruments
Cash and cash equivalents, accounts receivable, accounts payable, and accrued taxes and other expenses are stated at carrying amounts that approximate fair value because of the short maturity of those instruments. The carrying amount of the Company’s long-term debt approximates fair value as the interest rate on the debt approximates the Company’s current incremental borrowing rate.
(s)Fair Value Measurement
The Company has adopted ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes guidelines for measuring fair value, and expands disclosures regarding fair value measurements for all assets and liabilities that are measured at fair value on either a recurring or non-recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurement or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit risk.
The Company has not elected fair value accounting for any financial instruments for which fair value accounting is optional.
Non-Controlling Interests
The Company adopted updated guidance included in ASC 810, Consolidation, effective January 1, 2009. The updated guidance in ASC 810 requires (i) that non-controlling (minority) interests be reported as a component of stockholders’ equity; (ii) that net income attributable to the parent and the non-controlling interest be separately identified in the consolidated statements of operations; (iii) that changes in a parent’s ownership interest while the parent retains the controlling interest be accounted for as equity transactions; (iv) that any retained non-controlling equity investment upon the deconsolidation of a subsidiary be initially measured at fair value; and (v) that sufficient disclosures be provided that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. As a result of the adoption, the Company has reported its non-controlling interest in United Development Company Limited (“UDT”) as a component of stockholders’ equity in the consolidated balance sheets, and the net income attributable to its non-controlling interest in UDT has been separately identified in the consolidated statements of operations. The prior periods presented have also been reclassified to conform to the current classification required by ASC 810.
Business Combinations
The Company adopted updated guidance included in ASC 805, Business Combinations, effective January 1, 2009. ASC 805 now requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction, and establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed in a business combination. Certain provisions of this updated guidance will, among other things, impact the determination of acquisition date fair value of consideration paid in a business combination (including contingent consideration); exclude transaction costs from acquisition accounting; and change accounting practices for acquired contingencies, acquisition-related restructuring costs, in-process research and development, indemnification assets, and tax benefits. Implementation of this updated guidance resulted in the Company recognizing gains of approximately $81,000 related to its
acquisition of selected assets of Foamade Industries, Inc. (“Foamade”) in the first quarter of 2009, as well as gains of approximately $558,000 and $201,000 related to its acquisition of selected assets of E.N. Murray Co. (“ENM”) and Advanced Materials, Inc. (“AMI”), a wholly-owned subsidiary of Advanced Materials Group, Inc., respectively, in the third quarter of 2009 (Note 19). Cumulative acquisition-related costs of $90,000, that would otherwise have been included as part of the acquisition cost prior to the adoption of this updated guidance, were charged to expense as incurred.
Variable Interest Entities
In June 2009, the FASB issued guidance to change financial reporting of enterprises with variable interest entities (“VIEs”) to require an enterprise to qualitatively assess the determination of the primary beneficiary of a VIE based on whether the enterprise (1) has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (2) has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Also, the guidance requires an ongoing reconsideration of the primary beneficiary and amends the events that trigger a reassessment of whether an entity is a VIE. Enhanced disclosures are also required to provide information about an enterprise’s involvement in a VIE. This guidance shall be effective as of the beginning of the Company’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. The Company is currently evaluating the impact of this new guidance.
Cash paid for interest and income taxes is as follows:
|
| Years ended December 31 |
| |||||||
|
| 2006 |
| 2005 |
| 2004 |
| |||
Interest |
| $ | 1,001,382 |
| $ | 1,022,314 |
| $ | 697,651 |
|
Income taxes (refunds) — net |
| $ | 368,975 |
| $ | 81,019 |
| $ | (340,599 | ) |
Significant non-cash transactions:
|
| Years ended December 31 |
| |||||||
|
| 2006 |
| 2005 |
| 2004 |
| |||
Property and equipment acquired under capital lease |
| $ | 691,705 |
| $ | 1,380,615 |
| $ | 229,540 |
|
Tax benefit resulting from the exercise of non-qualified stock options |
| 176,867 |
| — |
| 37,659 |
| |||
Shares presented for stock option exercises |
| (15,500 | ) | (104,750 | ) | (239,747 | ) | |||
Total non-cash transactions |
| $ | 853,072 |
| $ | 1,275,865 |
| $ | 27,452 |
|
|
| Years Ended December 31 |
| |||||||
|
| 2009 |
| 2008 |
| 2007 |
| |||
Interest |
| $ | 205,828 |
| $ | 355,221 |
| $ | 486,826 |
|
Income taxes, net of refunds |
| $ | 1,648,764 |
| $ | 3,817,383 |
| $ | 322,824 |
|
Receivables consist of the following:
|
| December 31 |
| ||||
|
| 2006 |
| 2005 |
| ||
Accounts receivable - trade |
| $ | 11,969,616 |
| $ | 15,864,919 |
|
Less allowance for doubtful receivables |
| (340,977 | ) | (565,171 | ) | ||
|
| $ | 11,628,639 |
| $ | 15,299,748 |
|
|
| December 31 |
| ||||
|
| 2009 |
| 2008 |
| ||
Accounts receivable—trade |
| $ | 14,691,917 |
| $ | 13,141,912 |
|
Less allowance for doubtful receivables |
| (473,912 | ) | (387,037 | ) | ||
|
| $ | 14,218,005 |
| $ | 12,754,875 |
|
The Company’s accounts receivable balance is comprised of many accounts. The highest receivable account balance as of December 31, 2009, represented 6% of the total accounts receivable balance as of that date. The Company completedperforms credit evaluations on its annual impairment testcustomers and obtains credit insurance on a large percentage of goodwillits accounts.
The top customer in the fourth quarterCompany’s Component Products segment comprises 13% of 2006,that segment’s total sales and determined that no goodwill was impaired.
At December 31, 2006 and December 31, 2005, the carrying value8% of the Company’s patents was $157,603 and $192,055, respectively, net of accumulated amortization. Future patent amortizationstotal sales for yearsthe year ended December 31, will be approximately:2009. The top customer in the Company’s Packaging segment comprises 10.6% of that segment’s total sales and 4.1% of the Company’s total sales for the year ended December 31, 2009.
2007 |
| $ | 34,000 |
|
2008 |
| 34,000 |
| |
2009 |
| 34,000 |
| |
2010 |
| 34,000 |
| |
2011 |
| 21,603 |
| |
Thereafter |
| — |
| |
Total: |
| $ | 157,603 |
|
Inventories consist of the following:
|
| December 31 |
| ||||
|
| 2009 |
| 2008 |
| ||
Raw materials |
| $ | 4,924,228 |
| $ | 5,120,755 |
|
Work in process |
| 699,102 |
| 324,782 |
| ||
Finished goods |
| 2,574,813 |
| 3,012,984 |
| ||
Less reserve for obsolescence |
| (550,626 | ) | (305,775 | ) | ||
|
| $ | 7,647,517 |
| $ | 8,152,746 |
|
The carrying values of the Company’s definite-lived intangible assets as of December 31, 2009, and 2008 are as follows:
|
| Patents |
| Non- |
| Customer |
| Total |
| ||||
Gross amount at December 31, 2009 |
| $ | 448,306 |
| $ | 200,000 |
| $ | 769,436 |
| $ | 1,417,742 |
|
Accumulated amortization at December 31, 2009 |
| (385,933 | ) | (53,240 | ) | (160,832 | ) | $ | (600,005 | ) | |||
Net balance at December 31, 2009 |
| $ | 62,373 |
| $ | 146,760 |
| $ | 608,604 |
| $ | 817,737 |
|
|
|
|
|
|
|
|
|
|
| ||||
Gross amount at December 31, 2008 |
| 448,306 |
| 50,000 |
| 120,436 |
| $ | 618,742 |
| |||
Accumulated amortization at December 31, 2008 |
| (351,481 | ) | (26,720 | ) | (64,700 | ) | $ | (442,901 | ) | |||
Net balance at December 31, 2008 |
| $ | 96,825 |
| $ | 23,280 |
| $ | 55,736 |
| $ | 175,841 |
|
Amortization expense related to intangible assets was $157,104, $69,072, and $69,072 for the years ended December 31, 2009, 2008, and 2007, respectively. Future amortization for the years ending December 31 will be approximately:
2010 |
| $ | 228,872 |
|
2011 |
| 197,456 |
| |
2012 |
| 159,800 |
| |
2013 |
| 159,800 |
| |
2014 and thereafter |
| 71,809 |
| |
Total: |
| $ | 817,737 |
|
| December 31 |
| |||||
|
| 2006 |
| 2005 |
| ||
Raw materials |
| $ | 3,796,380 |
| $ | 4,487,659 |
|
Work in process |
| 293,580 |
| 370,106 |
| ||
Finished goods |
| 2,080,537 |
| 1,845,981 |
| ||
Reserve for obsolescense |
| (240,820 | ) | (262,154 | ) | ||
|
| $ | 5,929,677 |
| $ | 6,441,592 |
|
Property, plant, and equipment consist of the following:
|
| December 31 |
| ||||
|
| 2006 |
| 2005 |
| ||
Land |
| $ | 409,119 |
| $ | 409,119 |
|
Buildings and improvements |
| 4,537,484 |
| 4,079,714 |
| ||
Leasehold improvements |
| 1,821,944 |
| 1,946,122 |
| ||
Equipment |
| 28,121,833 |
| 27,389,836 |
| ||
Furniture and fixtures |
| 2,026,102 |
| 2,447,820 |
| ||
Construction in progress - equipment/buildings |
| 295,981 |
| 450,630 |
| ||
|
| $ | 37,212,463 |
| $ | 36,723,241 |
|
|
| December 31 |
| ||||
|
| 2009 |
| 2008 |
| ||
Land and improvements |
| $ | 589,906 |
| $ | 470,872 |
|
Buildings and improvements |
| 6,579,670 |
| 6,496,542 |
| ||
Leasehold improvements |
| 2,778,894 |
| 1,570,906 |
| ||
Equipment |
| 31,133,446 |
| 28,873,836 |
| ||
Furniture and fixtures |
| 2,480,510 |
| 2,288,428 |
| ||
Construction in progress—equipment/buildings |
| 20,152 |
| 966,195 |
| ||
|
| $ | 43,582,578 |
| $ | 40,666,779 |
|
Depreciation and amortization expense for the years ended December 31, 2006, 2005,2009, 2008, and 20042007 was $3,003,070, $2,902,329,$2,737,958, $2,907,478, and $2,460,048,$2,745,948, respectively.
The Company has a 26.32% ownership interest in a realty limited partnership, United Development Company Limited (“UDT”). In compliance with FIN 46(R), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,” theThe Company has consolidated the financial statements of UDT as offor all periods presented because it has determined that UDT is a VIE, and the Company is the primary beneficiary.
Included in the December 31 2003. Priorconsolidated balance sheets are the following amounts related to UDT:
December 31, 2003, this investment was accounted for under the equity method at cost, plus the Company’s proportionate share of the limited partnership’s income, less any distributions received from the limited partnership. As a result of consolidating UDT, both total assets and total liabilities of
|
| December 31 |
| ||||
|
| 2009 |
| 2008 |
| ||
Cash |
| $ | 166,940 |
| $ | 148,746 |
|
Net property, plant, and equipment |
| 1,187,966 |
| 1,311,273 |
| ||
Accrued expenses |
| 12,900 |
| 12,900 |
| ||
Current and long-term debt |
| 703,341 |
| 737,289 |
| ||
On January 29, 2009, the Company increased by $1,061,000 at December 31, 2006. There was no impact on net income.
As a component of consolidating UDT’s assets, the Company included $196,465 in cash at December 31, 2006. Although this cash balance is not legally restricted, the Company does not use this cash inamended and extended its operations.
On February 28, 2003, the Company obtained a credit facility which has been amended effective March 24, 2004, June 28, 2004, and November 21, 2005, to reflect, among other things, changes to certain financial covenants.with Bank of America, NA. The amended facility is comprised of: (i) a revolving credit facility of $17 million that is collateralized by the Company’s accounts receivable and inventory;million; (ii) a term loan of $3.7$2.1 million with a 7-yearseven-year straight-line amortization that is collateralized by the Company’s property, plant and equipment (excluding UDT’s property, plant and equipment); andamortization; (iii) a term loan of $2.3$1.8 million with a 15-year20-year straight-line amortization that is collateralized byamortization; and (iv) a mortgage on the Company’s real estate located in Georgetown, Massachusetts.term loan of $4.0 million with a 20-year straight-line amortization. Extensions of credit under the revolving credit facility are subject to available collateral based in part upon accounts receivable and inventory levels. Therefore, the entire $17 million may not be available to the Company. For example, asAs of December 31, 2006, based upon no revolving credit facility borrowings outstanding and collateral levels,2009, the Company had availability of $12.3approximately $14.4 million based upon collateral levels in place as of credit under this facility.that date. The amount of availability can fluctuate significantly. The amended credit facility calls for interest of Prime or LIBOR plus a margin that ranges from 1.0% to 1.5%, depending or, at the discretion of the Company, the bank’s prime rate less a margin that ranges from 0.25% to zero. In both cases the applicable margin is dependent upon Company operating performance. All borrowings at December 31, 2006 had interest computed at Prime or LIBOR plus 1.0%.The loans are collateralized by a first priority lien on all of the Company’s assets, including its real estate
located in Georgetown, Massachusetts, and in Grand Rapids, Michigan. Under the amended credit facility, the Company is subject to certaina minimum fixed-charge coverage financial covenants including maximum capital expenditures and minimum fixed charge coverage. As of December 31, 2006, the Company was in compliance with all of these covenants.covenant. The Company’s $17 million revolving credit facility as amended, ismatures November 30, 2013; the term loans are all due February 28, 2009; the $3.7 million term loan and the $2.3 million mortgage are due November 21, 2011.on January 29, 2016. At December 31, 2006,2009, the interest rate on these facilities ranged from 6.4% to 8.25%was 1.26%.
As a result of the consolidation of United Development Company Limited,
UDT has a mortgage note collateralized by the Alabama and Florida facilities,facility, dated September 4, 2002, originally for $470,313 is included within long-term debt in the Consolidated Financial Statements. The note calls for fifty principal payments of $3,406 and one payment of $388,967 due on March 4,May 22, 2007. The note bearshad an original principal balance of $786,000 and calls for 180 monthly payments of $7,147. The interest rate is fixed at LIBOR plus 2.75%, adjusted monthly. Atapproximately 7.2%.
The Company had capital lease debt of $1,612,665 as of December 31, 2006,2008, which was paid off in full with proceeds from the outstanding balance was $395,779. At December 31, 2006, the interest rate was approximately 8.1%. Payments on this note are funded through rent payments that the Company makes on its Alabama and Floridaabove credit facilities. The Company is not subject to any financial covenants under this mortgage note.
Long-term debt consists of the following:
|
| December 31 |
| ||||
|
| 2006 |
| 2005 |
| ||
Mortgage note |
| $ | 2,171,000 |
| $ | 2,327,000 |
|
Notes payable - term loans |
| 3,115,548 |
| 3,642,119 |
| ||
United Development Company mortgage |
| 395,779 |
| 404,459 |
| ||
|
|
|
|
|
| ||
Total long-term debt |
| 5,682,327 |
| 6,373,578 |
| ||
Less current installments |
| 1,078,350 |
| 1,087,030 |
| ||
|
|
|
|
|
| ||
Long-term debt, excluding current installments |
| $ | 4,603,977 |
| $ | 5,286,548 |
|
|
|
|
|
|
| ||
Aggregate maturities of long-term debt are as follows: |
|
|
|
|
| ||
Year ending December 31: |
|
|
|
|
| ||
2007 |
| $ | 1,078,350 |
|
|
| |
2008 |
| 682,571 |
|
|
| ||
2009 |
| 682,571 |
|
|
| ||
2010 |
| 682,571 |
|
|
| ||
2011 and thereafter |
| 2,556,264 |
|
|
| ||
|
| $ | 5,682,327 |
|
|
| |
|
| December 31 |
| ||||
|
| 2009 |
| 2008 |
| ||
Mortgage notes |
| $ | 5,602,415 |
| $ | 1,859,000 |
|
Note payable |
| 1,778,224 |
| 2,062,405 |
| ||
UDT mortgage |
| 703,341 |
| 737,288 |
| ||
Equipment loan |
| 40,850 |
| — |
| ||
Total long-term debt |
| 8,124,830 |
| 4,658,693 |
| ||
Current installments |
| (623,007 | ) | (716,697 | ) | ||
Long-term debt, excluding current installments |
| $ | 7,501,823 |
| $ | 3,941,996 |
|
Aggregate maturities of long-term debt are as follows: |
|
|
|
|
| ||
Year ending December 31: |
|
|
|
|
| ||
2010 |
| $ | 623,007 |
|
|
| |
2011 |
| 654,875 |
|
|
| ||
2012 |
| 622,685 |
|
|
| ||
2013 |
| 625,807 |
|
|
| ||
2014 and thereafter |
| 5,598,456 |
|
|
| ||
|
| $ | 8,124,830 |
|
|
| |
(9) (10)Accrued Taxes and Other Expenses
Accrued taxes and other expenses consist of the following:
| December 31 |
| |||||
|
| 2006 |
| 2005 |
| ||
Compensation |
| $ | 1,666,949 |
| $ | 1,179,024 |
|
Benefits |
| 1,464,198 |
| 846,091 |
| ||
Paid time off |
| 486,680 |
| 466,946 |
| ||
Other |
| 2,132,122 |
| 1,988,178 |
| ||
|
| $ | 5,749,949 |
| $ | 4,480,239 |
|
|
| December 31 |
| ||||
|
| 2009 |
| 2008 |
| ||
Compensation |
| $ | 2,116,597 |
| $ | 2,215,874 |
|
Benefits / self-insurance reserve |
| 648,791 |
| 901,580 |
| ||
Paid time off |
| 764,576 |
| 688,315 |
| ||
Commissions payable |
| 334,356 |
| 370,432 |
| ||
Plant consolidation |
| — |
| 316,000 |
| ||
Income taxes payable (overpayment) |
| 389,384 |
| (573,953 | ) | ||
Unrecognized tax benefits |
| 545,000 |
| 560,000 |
| ||
Other |
| 1,354,122 |
| 1,751,753 |
| ||
|
| $ | 6,152,826 |
| $ | 6,230,001 |
|
(10) (11)Income Taxes
The Company’s income tax provision (benefit) provision for the years ended December 31, 2006, 2005,2009, 2008, and 20042007 consists of approximately:the following:
|
| Years ended December 31 |
|
| Years Ended December 31 |
| ||||||||||||||
|
| 2006 |
| 2005 |
| 2004 |
|
| 2009 |
| 2008 |
| 2007 |
| ||||||
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Federal |
| $ | 160,000 |
| $ | — |
| $ | 76,000 |
|
| $ | 2,100,000 |
| $ | 2,270,000 |
| $ | 983,000 |
|
State |
| 300,000 |
| 122,000 |
| 108,000 |
|
| 490,000 |
| 709,000 |
| 391,000 |
| ||||||
|
| 460,000 |
| 122,000 |
| 184,000 |
|
| 2,590,000 |
| 2,979,000 |
| 1,374,000 |
| ||||||
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Federal |
| 1,061,000 |
| 131,000 |
| 174,000 |
|
| 263,000 |
| 41,000 |
| 1,147,000 |
| ||||||
State |
| (28,000 | ) | (45,000 | ) | 131,000 |
|
| (36,000 | ) | (25,000 | ) | 63,000 |
| ||||||
|
| 1,033,000 |
| 86,000 |
| 305,000 |
|
| 227,000 |
| 16,000 |
| 1,210,000 |
| ||||||
Total income tax provision |
| $ | 1,493,000 |
| $ | 208,000 |
| $ | 489,000 |
|
| $ | 2,817,000 |
| $ | 2,995,000 |
| $ | 2,584,000 |
|
At December 31, 2006,2009, the Company has net operating loss carry-forwardscarryforwards for federal income tax purposes of approximately $4,172,000$2,192,000 and for state income tax purposes of approximately $2,045,000,$1,545,000, which are available to offset future taxable income and expire during the federal tax years ending December 31, 2019 through 2024.
The future benefit of the federal net operating loss carry-forwards acquired from Simcocarryforwards will be limited to approximately $300,000 per year in accordance with Section 382 of the Internal Revenue Code. As of December 31, 2006, net operating loss carry-forwards acquired from Simco for federal income tax purposes totaled $3,365,000.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities(liabilities) are approximately as follows:
|
| December 31 |
| ||||
|
| 2006 |
| 2005 |
| ||
Deferred tax assets related to: |
|
|
|
|
| ||
Reserves |
| $ | — |
| $ | 27,000 |
|
Research and development credits |
| 650,000 |
| 544,000 |
| ||
Compensation programs |
| 195,000 |
| 124,000 |
| ||
Retirement liability |
| 263,000 |
| 263,000 |
| ||
Net operating loss carryforwards |
| 1,758,000 |
| 3,265,000 |
| ||
AMT tax |
| 123,000 |
| — |
| ||
Other |
| 62,000 |
| 73,000 |
| ||
Total deferred tax assets |
| 3,051,000 |
| 4,296,000 |
| ||
Deferred tax liabilities related to: |
|
|
|
|
| ||
Excess of book over tax basis of fixed assets |
| 617,000 |
| 925,000 |
| ||
Investee tax loss in excess of book losses |
| 7,000 |
| 89,000 |
| ||
Capital leases |
| — |
| 6,000 |
| ||
Reserves |
| 7,000 |
| — |
| ||
Total deferred tax liabilities |
| 631,000 |
| 1,020,000 |
| ||
Net deferred tax assets |
| $ | 2,420,000 |
| $ | 3,276,000 |
|
|
| December 31 |
| ||||
|
| 2009 |
| 2008 |
| ||
Equity-based compensation |
| $ | 401,000 |
| $ | 387,000 |
|
Compensation programs |
| 474,000 |
| 497,000 |
| ||
Retirement liability |
| 95,000 |
| 184,000 |
| ||
Net operating loss carryforwards |
| 806,000 |
| 866,000 |
| ||
Inventory capitalization |
| 230,000 |
| 246,000 |
| ||
Reserves |
| 489,000 |
| 412,000 |
| ||
Other |
| 49,000 |
| (5,000 | ) | ||
Excess of book over tax basis of fixed assets |
| (930,000 | ) | (417,000 | ) | ||
Goodwill |
| (563,000 | ) | (499,000 | ) | ||
Acquisition gains |
| (270,000 | ) | — |
| ||
Inventory method change |
| (147,000 | ) | (295,000 | ) | ||
Net deferred tax assets |
| $ | 634,000 |
| $ | 1,376,000 |
|
The amount recorded as net deferred tax assets as of December 31, 20062009, and 20052008 represents the amount of tax benefits of existing deductible temporary differences or carry-
forwardscarryforwards that are more likely than not to be realized through the generation of sufficient future taxable income within the carry-forwardcarryforward period. The Company believes that the net deferred tax asset of $2,420,000$634,000 at December 31, 20062009, is more likely than not to be realized in the carry-forwardcarryforward period. This balance includes the tax benefit associated with the acquisition of the common stock of Stephenson & Lawyer, Inc., as discussed in Note 19. Management reviews the recoverability of deferred tax assets during each reporting period.
The actual tax provision for the years presented differs from the “expected” tax provision for those years, computed by applying the U.S. federal corporate rate of 34% to income before income tax expense as follows:
|
| Years ended December 31 |
| ||||
|
| 2006 |
| 2005 |
| 2004 |
|
Computed “expected” tax rate |
| 34.0 | % | 34.0 | % | 34.0 | % |
Increase (decrease) in income taxes resulting from: |
|
|
|
|
|
|
|
State taxes, net of federal tax benefit |
| 4.6 |
| 5.9 |
| 10.4 |
|
Officers’ life insurance |
| 0.1 |
| 1.4 |
| 0.4 |
|
Meals and entertainment |
| 0.3 |
| 3.0 |
| 2.2 |
|
R&D credits |
| (2.7 | ) | (20.3 | ) | (9.9 | ) |
Non-deductible ISO stock option expense |
| 1.0 |
| 0.0 |
| 0.0 |
|
Other |
| 0.0 |
| 0.0 |
| (1.2 | ) |
Effective tax rate |
| 37.3 | % | 24.0 | % | 35.9 | % |
|
| Years Ended December 31 |
| ||||
|
| 2009 |
| 2008 |
| 2007 |
|
Computed “expected” tax rate |
| 34.00 | % | 34.00 | % | 34.00 | % |
Increase (decrease) in income taxes resulting from: |
|
|
|
|
|
|
|
State taxes, net of federal tax benefit |
| 3.40 |
| 5.60 |
| 4.50 |
|
Meals and entertainment |
| 0.20 |
| 0.20 |
| 0.30 |
|
R&D credits |
| (0.90 | ) | (1.20 | ) | (1.10 | ) |
Domestic production deduction |
| (1.70 | ) | (2.10 | ) | — |
|
Non-deductible ISO stock option expense |
| 0.20 |
| 0.40 |
| 0.50 |
|
Acquisition gains |
| (3.30 | ) | — |
| — |
|
Other |
| 0.10 |
| (0.20 | ) | (0.30 | ) |
Effective tax rate |
| 32.00 | % | 36.70 | % | 37.90 | % |
The impact onCompany files income tax returns in the Company’sU.S. federal jurisdiction and various state jurisdictions. The Company has not been audited by the Internal Revenue Service since 2001 or by any states in connection with income taxes, with the exception of returns filed in
Michigan (which have been audited through 2004) and income tax returns filed in Massachusetts for 2005 and 2006 (which are currently being audited). The tax returns for the years 2004 through 2006, and certain items carried forward from earlier years and utilized in those returns, remain open to examination by the IRS and various state jurisdictions.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (“UTB”) resulting from uncertain tax positions is as follows:
|
| Federal and State Tax |
| ||||
|
| 2009 |
| 2008 |
| ||
Gross UTB balance at beginning of fiscal year |
| $ | 560,000 |
| $ | 560,000 |
|
Reductions for tax positions of prior years |
| (15,000 | ) | — |
| ||
Gross UTB balance at December 31 |
| $ | 545,000 |
| $ | 560,000 |
|
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate from researchas of December 31, 2009, and development credits is higher than usual due to true-up adjustments.2008 are $545,000 and $560,000, respectively, for each year.
At December 31, 2009, and 2008, accrued interest and penalties on a gross basis, which are included above in the gross UTB balance, were $115,000 for each year.
(11) (12)Net Income Per Share
Basic income per share is based upon the weighted average common shares outstanding during each year. Diluted income per share is based upon the weighted average of common shares and dilutive common stock equivalent shares outstanding during each year. The weighted average number of shares used to compute both basic and diluted income per share consisted of the following:
|
| Years ended December 31 |
| ||||
|
| 2006 |
| 2005 |
| 2004 |
|
Basic weighted average common shares outstanding during the year |
| 5,022,532 |
| 4,798,008 |
| 4,616,983 |
|
Weighted average common equivalent shares due to stock options |
| 548,536 |
| 462,561 |
| 377,628 |
|
Diluted weighted average common shares outstanding during the year |
| 5,571,068 |
| 5,260,569 |
| 4,994,611 |
|
|
| Years Ended December 31 |
| ||||
|
| 2009 |
| 2008 |
| 2007 |
|
Basic weighted average common shares outstanding during the year |
| 5,829,580 |
| 5,549,830 |
| 5,306,948 |
|
Weighted average common equivalent shares due to stock options and restricted stock units |
| 464,384 |
| 712,836 |
| 554,472 |
|
Diluted weighted average common shares outstanding during the year |
| 6,293,964 |
| 6,262,666 |
| 5,861,420 |
|
The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options, when the average market price of the common stock is lower than the exercise price of the related options during the period. These outstanding stock awards are not included in the computation of diluted earnings per share because the effect would have been antidilutive. For the years ended December 31, 2009, 2008, and 2007, the number of stock awards excluded from the computation was 190,484, 41,769, and 29,877, respectively.
(12) (13)Stock Option and Equity Incentive Plans
The Company maintains a stock option plan to provideCompany’s 1993 Employee Stock Option Plan (“Employee Stock Option Plan”), which is stockholder approved, provides long-term rewards and incentives in the form of stock options to the Company’s key employees, officers, employee directors, consultants, and advisors. The
plan provides for either nonqualifiednon-qualified stock options or incentive stock options for the issuance of up to 1,550,000 shares of common stock. The exercise price of the incentive stock options may not be less than the fair market value of the common stock on the date of grant, and the exercise price for nonqualifiednon-qualified stock options shall be determined by the Stock OptionCompensation Committee. These options expire over five- to ten-year periods.
Options granted under the plan generally become exercisable with respect to 25% of the total number of shares subject to such options at the end of each 12-month period following the grant of the option.options, except for options granted to officers, which may vest on a different schedule. At December 31, 2006,2009, there were 731,875605,000 options outstanding under the plan. These options are not transferable except by will or domestic relations order.
Through July 15, 1998, the Company maintained a stock option plan covering non-employee directors (the “1993 Director Plan”). Effective July 15, 1998, with the formation of the 1998 DirectorEmployee Stock Option Plan.
Effective July 15, 1998, the Company adopted the 1998 Director Stock Option Incentive Plan (“1998 Director Plan”) for the benefit of non-employee directors of the Company. The 1998 Director Plan provided for options for the issuance of up to 425,000 shares of common stock. On June 2, 2004, the Company amended the plan to increase the allowable amount to 725,000 shares. These options become exercisable in full at the date of grant and expire ten years from the date of grant. In connection with the adoption of the 1998 Director Plan, the 1993 Director Plan was discontinued; however, the options outstanding under the 1993 Director Plan were not affected by the adoption of the new plan. At December 31, 2006, there were 404,184 options outstanding under the 1998 Director Plan.
On April 18, 1998, the Company adopted the 1998 Stock Purchase Plan which provides that all employees of the Company who work more than twenty hours per week and more than five months in any calendar year and who are employees on or before the applicable offering period are eligible to participate. The 1998 Stock Purchase Plan is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986. Under the Stock Purchase Plan, participants may have withheld up to 10% of their base salaries during the six month offering periods ending June 30 and December 31 for the purchase of the Company’s common stock at 95% of the market value of the common stock on the last day of the offering period. The 1998 Stock Purchase Plan provides for the issuance of up to 400,000 shares of common stock. To date 298,328 shares have been issued.
In June 2003, the Company formally adopted the 2003 Equity Incentive Plan (the “Plan”). The Plan iswas originally intended to benefit the Company by offering equity-based incentives to certain of the Company’s executives and employees, thereby giving them a permanent stake in the growth and long-term success of the Company and encouraging the continuance of their involvement with the Company’s businesses. The Plan was amended effective June 4, 2008, to permit certain performance-based cash awards to be made under the Plan. The amendment also added appropriate language so as to enable grants of stock-based awards under the Plan to continue to be eligible for exclusion from the $1,000,000 limitation on deductibility under Section 162(m) of the Internal Revenue Code (the “Code”).
F-21
Two types of equity awards may be granted to participants under the Plan: restricted shares or other stock awards. Restricted shares are shares of common stock awarded subject to restrictions and to possible forfeiture upon the occurrence of specified events. Other stock awards are awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, shares of common stock. Such awards may include without limitation,Restricted Stock Unit Awards (“RSUs”), unrestricted or restricted stock, nonqualified options, performance shares, or stock appreciation rights. The Company determines the form, terms, and conditions, if any, of any awards made under the Plan. The maximum number of shares of common stock, in the aggregate, that may be delivered in payment or in respect of stock issued under the Plan is 500,0001,250,000 shares. As of
Through December 31, 2006, 191,1662009, 675,958 shares of common stock have been issued.
On June 8, 2006,issued under the Company’s Board2003 Incentive Plan, none of Directors, upon the recommendation of the Compensation Committee, approved a grant, effective as of July 1, 2006, of restricted stock awards to certain executive officers. Thewhich have been restricted. An additional 276,124 shares are being reserved for outstanding grants of restricted stock awards were made underRSUs and pursuant to the Company’s 2003 Equity Incentive Plan.
|
|
| |||
|
|
| |||
|
|
| |||
|
|
The awards of restricted stock listed under “A” aboveother share-based compensation that are subject to a time-based vesting requirement. One third of these awards vest onvarious performance and time-vesting contingencies.
Effective July 1, 2007, one third of these awards vest on July 1, 2008, and one third of these awards vest on July 1, 2009, so long as the recipient remains continuously employed by15, 1998, the Company through each such vesting date.
adopted the 1998 Director Plan for the benefit of non-employee directors of the Company. The 1998 Director Plan provides for options for the issuance of up to 975,000 shares of restricted stock listed under “B”common stock. These options become exercisable in full at the date of grant and “C” above are subject to a different time-based vesting requirement and toexpire 10 years from the Company meeting certain financial performance requirements, described below. One thirddate of these awards vest on July 1, 2008, one third of these awards vest on July 1, 2009, and one third of these awards vest on July 1, 2010, so long as the recipient remains continuously employed by the Company through each such vesting date.
The financial performance requirement for the shares listed under “B” and “C” above is based on the Company’s earnings before interest and taxes (“EBIT”) for calendar year 2006 relative to an EBIT target established by the Compensation Committee. If the Company achieves the EBIT target, then all of the restricted shares listed under “B” above will be eligible to become vested, subject to the time-based vesting and continuous employment requirements described above. To the extent the Company achieves in excess of the EBIT target, restricted shares listed under “C” above (in addition to the restricted shares listed under “B” above) will be eligible to become vested, subject to the time-based vesting and continuous employment requirements described above, based on a straight-line interpolation of the EBIT target established by the Compensation Committee in increments of 20% of such shares, up to the maximum amount listed under “C”. All of the
performance requirements for B and C have been met for the year endedgrant. At December 31, 2006.2009, there were 391,609 options outstanding under the 1998 Director Plan. On June 3, 2009, the 1998 Director Plan was amended to permit the issuance of other equity-based securities and was renamed the 2009 Non-Employee Director Stock Incentive Plan.
Any unvested shares of restricted stock shall terminate upon the cessation of a recipient’s employment with the company. In the event of a change in control of the Company (as defined in the restricted stock agreement evidencing the award): (i) the shares of restricted stock listed under “A” above shall become fully vested immediately prior to the effective date of such change in control; (ii) on or prior to December 31, 2006, all shares of restricted stock listed under “B” and “C” above shall terminate; and (iii) on or after January 1, 2007, to the extent the EBIT target has been achieved or exceeded, the applicable number of shares of restricted stock listed under “B” and “C” above, to the extent not already vested, shall become fully vested immediately prior to the effective date of such change in control.
The following is a summary of stock option activity under all plans:
|
| Shares Under |
| Weighted Average |
| |
Outstanding December 31, 2003 |
| 1,136,170 |
| $ | 1.88 |
|
Granted |
| 214,167 |
| 2.74 |
| |
Exercised |
| (118,800 | ) | 2.04 |
| |
Cancelled or expired |
| (56,000 | ) | 3.08 |
| |
Outstanding December 31, 2004 |
| 1,175,537 |
| $ | 1.97 |
|
Granted |
| 305,759 |
| 3.08 |
| |
Exercised |
| (86,875 | ) | 1.51 |
| |
Cancelled or expired |
| (18,875 | ) | 3.20 |
| |
Outstanding December 31, 2005 |
| 1,375,546 |
| $ | 2.23 |
|
Granted |
| 64,877 |
| 5.86 |
| |
Exercised |
| (255,614 | ) | 2.10 |
| |
Cancelled or expired |
| (28,750 | ) | 4.45 |
| |
Outstanding December 31, 2006 |
| 1,156,059 |
| $ | 2.40 |
|
|
| Shares Under Options |
| Weighted Average |
| Aggregate Intrinsic Value |
| ||
Outstanding December 31, 2008 |
| 973,183 |
| $ | 2.97 |
|
|
| |
Granted |
| 69,301 |
| 4.17 |
|
|
| ||
Exercised |
| (39,375 | ) | 3.31 |
|
|
| ||
Cancelled or expired |
| (6,500 | ) | 3.65 |
|
|
| ||
Outstanding December 31, 2009 |
| 996,609 |
| $ | 3.03 |
| $ | 3,458,233 |
|
Exercisable at December 31, 2009 |
| 975,359 |
| $ | 2.99 |
| $ | 3,423,510 |
|
Vested and expected to vest at December 31, 2009 |
| 996,609 |
| $ | 3.03 |
| $ | 3,458,233 |
|
There were 1,061,809The following is a summary of information relating to stock options outstanding and exercisable optionsby price range as of December 31, 2006.2009:
|
| Options Outstanding |
| Options Exercisable |
| ||||||||
Range of exercise prices |
| Outstanding as of 12/31/09 |
| Weighted average remaining contractual life (years) |
| Weighted average exercise price |
| Exercisable as of 12/31/09 |
| Weighted average exercise price |
| ||
$0.00 - $0.99 |
| 50,000 |
| 2.1 |
| $ | 0.81 |
| 50,000 |
| $ | 0.81 |
|
$1.00 - $1.99 |
| 231,911 |
| 3.1 |
| 1.15 |
| 231,911 |
| 1.15 |
| ||
$2.00 - $2.99 |
| 333,148 |
| 3.2 |
| 2.49 |
| 333,148 |
| 2.49 |
| ||
$3.00 - $3.99 |
| 158,110 |
| 3.7 |
| 3.26 |
| 158,110 |
| 3.26 |
| ||
$4.00 - $4.99 |
| 74,301 |
| 8.3 |
| 4.22 |
| 63,051 |
| 4.22 |
| ||
$5.00 - $5.99 |
| 59,456 |
| 6.3 |
| 5.14 |
| 54,456 |
| 5.14 |
| ||
$6.00 - $6.99 |
| 47,914 |
| 5.7 |
| 6.18 |
| 42,914 |
| 6.14 |
| ||
$10.00 - $10.99 |
| 27,500 |
| 8.5 |
| 10.14 |
| 27,500 |
| 10.14 |
| ||
$12.00 - $12.99 |
| 14,269 |
| 8.4 |
| 12.37 |
| 14,269 |
| 12.37 |
| ||
|
| 996,609 |
| 4.1 |
| $ | 3.03 |
| 975,359 |
| $ | 2.99 |
|
During the twelve monthsyears ended December 31, 2006,2009, 2008, and 2007, the total intrinsic value of all options exercised (i.e., the difference between the market price and the price paid by the employees to exercise the options) was $883,417,$79,269, $929,281, and $357,426, respectively, and the
total amount of consideration received from the exercise of these options was $537,065.$130,332, $333,026, and $272,214, respectively.
The following is a summary of information relating
During the years ended December 31, 2009, 2008, and 2007, the Company recognized compensation expense related to stock options outstandinggranted to directors and exercisable by price range asemployees of $150,482, $221,324, and $211,050, respectively.
On February 24, 2009, the Company’s Compensation Committee approved the issuance of 25,000 shares of unrestricted common stock to the Company’s Chairman, Chief Executive Officer, and President under the 2003 Equity Incentive Plan. The shares were issued on December 31, 2006:2009. The Company has recorded compensation expense of $106,000 for the year ended December 31, 2009, based on the grant date price of $4.24 at February 24, 2009. Stock compensation expense of $154,500 and $115,997 was recorded in 2008 and 2007, respectively, for similar awards.
|
| Options Outstanding |
| Options Exercisable |
| ||||||||
|
| Outstanding |
| Weighted average |
| Weighted |
| Exercisable as |
| Weighted |
| ||
Range of |
| as of |
| remaining |
| exercise |
| of 12/31/06 |
| exercise |
| ||
$0.00 - $0.99 |
| 50,000 |
| 5.1 years |
| $ | 0.81 |
| 50,000 |
| $ | 0.81 |
|
$1.00 - $1.99 |
| 401,892 |
| 4.8 years |
| 1.25 |
| 391,892 |
| 1.25 |
| ||
$2.00 - $2.99 |
| 349,684 |
| 6.0 years |
| 2.50 |
| 349,684 |
| 2.50 |
| ||
$3.00 - $3.99 |
| 272,106 |
| 5.6 years |
| 3.33 |
| 202,856 |
| 3.32 |
| ||
$4.00 - $4.99 |
| 22,500 |
| 1.8 years |
| 4.35 |
| 17,500 |
| 4.18 |
| ||
$5.00 - $5.99 |
| 10,000 |
| 4.7 years |
| 5.31 |
| — |
| — |
| ||
$6.00 - $6.99 |
| 49,877 |
| 9.5 years |
| 6.07 |
| 49,877 |
| 6.07 |
| ||
|
| 1,156,059 |
| 5.5 years |
| $ | 2.40 |
| 1,061,809 |
| $ | 2.31 |
|
It has been the Company’s practice to allow executive officers to take a portion of their earned bonuses in the form of the Company’s common stock. The value of the stock received by executive officers, measured at the closing price of the stock on the date of grant, was $183,500, $343,880, and $256,076 for the years ended December 31, 2009, 2008, and 2007, respectively.
Beginning in 2006, RSUs have been granted under the 2003 Incentive Plan to the executive officers of the Company. The stock unit awards are subject to various time-based vesting requirements, and certain portions of these awards are subject to performance criteria of the Company. Compensation expense on these awards is recorded based on the fair value of the award at the date of grant, which is equal to the Company’s closing stock price, and is charged to expense ratably during the service period. Upon vesting, RSUs are, in some instances, net-share settled to cover the required withholding tax, and the remaining amount is converted into an equivalent number of common shares. No compensation expense is taken on awards that do not become vested, and the amount of compensation expense recorded is adjusted based on management’s determination of the probability that these awards will become vested. The following table summarizes information about stock unit award activity during the year ended December 31, 2009:
|
| Restricted Stock Units |
| Weighted Average Award Date Fair Value |
| |
Outstanding at December 31, 2008 |
| 352,000 |
| $ | 5.79 |
|
Awarded |
| 95,124 |
| 4.24 |
| |
Shares distributed |
| (171,000 | ) | 5.83 |
| |
Shares exchanged for cash |
| — |
| — |
| |
Forfeited / Cancelled |
| — |
| — |
| |
Outstanding at December 31, 2009 |
| 276,124 |
| $ | 5.19 |
|
The total grant date fair value of stock options that vestedCompany recorded $644,331, $929,965, and $364,977 in compensation expense related to these RSUs during the twelve monthsyears ended December 31, 2006 was approximately $702,000 with a weighted average remaining contractual term of approximately 6 years.2009, 2008, and 2007, respectively.
The following summarizes the future share-based compensation expense the Company will record as the equity securities granted through December 31, 20062009, vest:
|
| Options |
| Common |
| Restricted |
| Total |
| |||
2007 |
| $ | 104,432 |
| 0 |
| $ | 240,328 |
| $ | 344,760 |
|
2008 |
| $ | 87,932 |
| 0 |
| $ | 240,328 |
| $ | 328,260 |
|
2009 |
| $ | 29,643 |
| 0 |
| $ | 192,458 |
| $ | 222,101 |
|
2010 |
| $ | 9,922 |
| — |
| $ | 72,294 |
| $ | 82,216 |
|
|
| $ | 231,929 |
| 0 |
| $ | 745,408 |
| $ | 977,337 |
|
|
| Options |
| Common |
| Restricted |
| Total |
| ||||
2010 |
| $ | 27,904 |
| $ | — |
| $ | 431,451 |
| $ | 459,355 |
|
2011 |
| 16,394 |
| — |
| 265,509 |
| 281,903 |
| ||||
2012 |
| 5,312 |
| — |
| 118,715 |
| 124,027 |
| ||||
2013 |
| 2,646 |
| — |
| 16,805 |
| 19,451 |
| ||||
Total |
| $ | 52,256 |
| $ | — |
| $ | 832,480 |
| $ | 884,736 |
|
(13) (14)Preferred Stock
On January 13, 1999,March 18, 2009, the Company declared a dividend of one preferred share purchase right ( a(a “Right”) for each outstanding share of common stock, par value $0.01 per share on February 5, 1999March 20, 2009, to the stockholders of record on that date. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share (the “Preferred Share”), of the Company, at a price of $30.00$25.00 per one one-thousandth of a Preferred Share subject to adjustment and the terms of the Rights Agreement. The rights expire on March 19, 2019.
(14) (15)Supplemental Retirement PlanBenefits
The Company has aprovides discretionary supplemental retirement planbenefits for certain retired officers, which will provide an annual benefit to these individuals for various terms following separation from employment. The Company recorded an expense of approximately $111,000, $42,000,$35,000, $27,000, and $58,000$4,000 for the years ended December 31, 2006, 2005,2009, 2008, and 2004, respectively, in
accordance with this plan, which includes both current costs and prior service costs for these individuals.2007, respectively. The present value of the supplemental retirement obligation has been calculated using an 8.5% discount rate.rate, which is included in retirement and other liabilities. Total projected future cash payments for the years ending December 31, 20072010 through 20102013 are approximately $244,000, $108,000, $104,000,$96,250, $75,000, $75,000, and $101,000,$75,000, respectively, and approximately $381,000$170,833 thereafter.
(15) (16)Commitments and Contingencies
(a) Leases— The Company has non-cancelable operating leases for certain facilities that expire through 2011.2015. Certain of the leases contain escalation clauses whichthat require payments of additional rent, as well as increases in related operating costs. The Company also leases various equipment under capital leases which expire through 2011.
Included in property, plant, and equipment are the following amounts held under capital lease:
|
| December 31 |
| ||||
|
| 2006 |
| 2005 |
| ||
Equipment |
| $ | 4,539,977 |
| $ | 2,765,061 |
|
Less accumulated depreciation |
| (1,695,186 | ) | (680,831 | ) | ||
|
| $ | 2,844,791 |
| $ | 2,084,230 |
|
Future minimum lease payments under noncancelablenon-cancelable operating leases and the present value of future minimum lease payments under capital leases as of December 31, 2006,2009, are as follows:
Years ending December 31: |
|
|
| Capital |
| Operating Leases |
| ||
2007 |
| 891,704 |
| 1,645,615 |
| ||||
2008 |
| 852,894 |
| 684,816 |
| ||||
2009 |
| 798,979 |
| 473,895 |
| ||||
2010 |
| 717,916 |
| 405,915 |
| ||||
Thereafter |
| 244,250 |
| 1,220,334 |
| ||||
Total minimum lease payments |
| $ | 3,505,743 |
| $ | 4,430,575 |
| ||
Less amount representing interest |
| 499,680 |
|
|
| ||||
Present value of future minimum lease payments |
| 3,006,063 |
|
|
| ||||
Less current installments of obligations under capital leases |
| 688,991 |
|
|
| ||||
Obligations under capital lease, excluding current installments |
| $ | 2,317,072 |
|
|
| |||
Years Ending December 31: |
| Operating Leases |
| |
2010 |
| $ | 1,803,371 |
|
2011 |
| 1,338,139 |
| |
2012 |
| 1,180,901 |
| |
2013 |
| 779,534 |
| |
Thereafter |
| 588,853 |
| |
Total minimum lease payments |
| $ | 5,690,798 |
|
Rent expense amounted to approximately $2,375,000, $2,230,000,$2,442,000, $2,214,000, and $2,153,000$2,464,000, in 2006, 2005,2009, 2008, and 2004,2007, respectively. Approximately $244,000, $244,000, and $244,000 in 2006, 2005 and 2004, respectively, was paid to United Development Company Limited (“UDT”), a real estate company of which the Company owns
26.32%, that owns the Decatur, Alabama, and Kissimmee, Florida, facilities. The 2006 and 2005 rent expense incurred from “UDT” has been eliminated in consolidation.
In connection with the eight-year automotive program, the Company has purchased a new forming line for approximately $1.7 million in 2003, and a second similar forming line for approximately $1.9 million in 2004.
(b) Legal— The Company is a defendant in various administrative proceedings that are being handled in the ordinary course of business. In the opinion of management of the Company, these suits and claims should not result in final judgments or settlements that, in the aggregate, would have a material adverse effect on the Company’s financial condition or results of operations.
(16) (17)Employee Benefit Plans
The Company maintains a profit-sharing plan for eligible employees. Contributions to the Plan are made in the form of matching contributions to employee 401k deferrals, as well as discretionary amounts determined by the Board of Directors, and amounted to approximately $432,000, $451,000,$709,000, $703,000, and $459,000$646,000 in 2006, 2005,2009, 2008, and 2004,2007, respectively.
The Company has a partially self-insured health insurance program that covers all eligible participating employees. The maximum liability is limited by a stop loss of $75,000$100,000 per insured person, along with an aggregate stop loss determined by the number of participants.
During 2006, the Company established an Executive, Non-qualified “Excess” Plan (“the Plan”), which is a deferred compensation plan available to certain executives. The Plan permits participants to defer receipt of part of their current compensation to a later date as part of their personal retirement or financial planning. Participants have an unsecured contractual commitment by the Company to pay amounts due under the Plan. There is currently no security mechanism to ensure that the Company will pay these obligations will be paid in the future by the Companyfuture.
The compensation withheld from Plan participants, together with investment income on the Plan, is reflected as a deferred compensation obligation to participants, and is classified within accruedretirement and other liabilities in the accompanying balance sheet.sheets. At December 31, 2006,2009, the balance of the deferred compensation liability totaled approximately $35,000.$753,000. The related assets, which are held in the form of a company-owned,Company-owned, variable life insurance policy that names the Company as the beneficiary, are classifiedreported within other assets in the accompanying balance sheetsheets, and are reported ataccounted for based on the underlying cash surrender value, which wasvalues of the policies, and totaled approximately $34,000$749,000 as of December 31, 2006.2009.
StatementFinancial instruments recorded at fair value in the balance sheets, or disclosed at fair value in the footnotes, are categorized below based upon the level of Financial Accounting Standards No. 107,judgment associated with the inputs used to measure their fair value. Hierarchical levels defined by ASC 820, Disclosures About Fair Value Measurements and Disclosures, and directly related to the amount of Financial Instruments,subjectivity associated with inputs to fair valuation of these assets and liabilities, are as follows:
Level 1 defines
Valued based on unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2
Valued based on either directly or indirectly observable prices for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3
Valued based on management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
The Company’s assets and liabilities that are measured at fair value consist of money market funds and certificates of deposit, both considered cash equivalents, which are categorized by the levels discussed above and in the table below:
Cash Equivalents |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| ||||
Money market funds |
| $ | 100,000 |
| $ | — |
| $ | — |
| $ | 100,000 |
|
Certificates of deposit |
| $ | — |
| $ | 3,000,000 |
| $ | — |
| $ | 3,000,000 |
|
Total |
| $ | 100,000 |
| $ | 3,000,000 |
| $ | — |
| $ | 3,100,000 |
|
As of December 31, 2009, the Company does not have any significant non-recurring measurements of non-financial assets and non-financial liabilities. The Company may have additional disclosure requirements in the event an impairment of the Company’s non-financial assets occurs in a future period.
On March 9, 2009, the Company acquired selected assets of the Hillsdale, Michigan, operations of Foamade. The Hillsdale operations of Foamade specialized in the fabrication of technical urethane foams for a myriad of industries and bring to the Company further penetration into applications using this family of foams, as well as incremental sales to fold into its operations. The Company has transitioned the acquired assets to its Grand Rapids, Michigan, plant.
On July 7, 2009, the Company acquired substantially all of the assets of ENM, a Denver, Colorado-based foam fabricator, for $2,750,000. ENM specialized in the fabrication of technical urethane foams primarily for the medical industry. This acquisition brings to the Company further access and expertise in fabricating technical urethane foams and a seasoned management team. The Company has leased the former ENM Denver facilities for a period of two years.
On August 24, 2009, the Company acquired selected assets of AMI for $620,000. Located in Rancho Dominguez, California, AMI specialized in the fabrication of technical urethane foams primarily for the medical industry and brings to the Company further penetration into this market. The Company has assumed the lease of the 56,000-square-foot Rancho Dominguez location that is due to expire in November 2010.
The Company recorded gains of approximately $81,000, $558,000, and $201,000 on the acquisitions of selected assets of Foamade, ENM, and AMI, respectively, as it acquired the assets in bargain purchases. The Company believes that the bargain purchase gains resulted from opportunities created by the overall weak economy.
The following table summarizes the consideration paid and the acquisition date fair value of financial instrumentsthe assets acquired and liabilities assumed relating to each transaction:
|
| Foamade |
| ENM |
| AMI |
| |||
|
| 9-Mar-2009 |
| 7-Jul-2009 |
| 24-Aug-2009 |
| |||
Consideration |
|
|
|
|
|
|
| |||
Cash |
| $ | 375,000 |
| $ | 2,750,000 |
| $ | 620,000 |
|
Fair value of total consideration transferred |
| $ | 375,000 |
| $ | 2,750,000 |
| $ | 620,000 |
|
Acquisition costs (legal fees) included in SG&A |
| $ | 25,000 |
| $ | 30,000 |
| $ | 35,000 |
|
Recognized amounts of identifiable assets acquired: |
|
|
|
|
|
|
| |||
Cash |
| $ | — |
| $ | 1,309,466 |
| $ | — |
|
Accounts receivable |
| 0 |
| 832,054 |
| 289,540 |
| |||
Inventory |
| 182,864 |
| 922,497 |
| 252,528 |
| |||
Other assets |
| — |
| 37,708 |
| — |
| |||
Fixed assets |
| 189,100 |
| 812,000 |
| 345,750 |
| |||
Non-compete |
| 30,000 |
| 120,000 |
| — |
| |||
Customer list |
| 103,000 |
| 490,000 |
| 56,000 |
| |||
Total identifiable net assets |
| $ | 504,964 |
| $ | 4,523,725 |
| $ | 943,818 |
|
Payables and accrued expenses |
| $ | — |
| $ | (830,341 | ) | $ | — |
|
Equipment loan |
| — |
| (42,827 | ) | — |
| |||
Deferred tax liabilities |
| (49,386 | ) | (342,212 | ) | (123,051 | ) | |||
Net assets acquired |
| $ | 455,578 |
| $ | 3,308,345 |
| $ | 820,767 |
|
With respect to the acquisition of selected assets of ENM, the Company acquired gross accounts receivable of $873,919, of which it deemed $41,865 to be uncollectible. It therefore recorded the accounts receivable at its fair market value of $832,054. With respect to the acquisition of selected assets of AMI, the Company acquired gross accounts receivable of $324,540, of which it deemed $35,000 to be uncollectible. It therefore recorded the accounts receivable at its fair market value of $289,540. With respect to the noncompete and customer
list intangible assets acquired from Foamade, ENM, and AMI, the weighted average amortization period is five years. No residual balance is anticipated for any of the intangible assets.
The following table contains an unaudited pro forma condensed consolidated statement of operations for the years ended December 31, 2009, and 2008, as if the ENM acquisition had occurred at the beginning of the respective periods:
|
| Years Ended December 31 |
| ||||
|
| 2009 |
| 2008 |
| ||
Sales |
| $ | 105,228,869 |
| $ | 123,049,859 |
|
Net income |
| 6,070,518 |
| 5,615,326 |
| ||
Earnings Per Share: |
|
|
|
|
| ||
Basic |
| $ | 1.04 |
| $ | 1.01 |
|
Diluted |
| 0.96 |
| 0.90 |
| ||
It is impractical to determine the amount at whichof sales and earnings that would have been recorded, had the instrument couldFoamade and AMI acquisitions occurred on January 1, 2009, or January 1, 2008, as records for these time periods are unavailable since the Company only acquired selected assets and not the entire operations. The following table contains the 2009 sales and net income associated with ENM and AMI from the date of acquisition through December 31, 2009:
|
| ENM |
| AMI |
| ||
Sales |
| $ | 6,396,000 |
| $ | 1,149,000 |
|
Net income |
| 381,000 |
| (74,000 | ) | ||
The amount of revenue included in the Company’s condensed consolidated statements of operations for the year ended December 31, 2009, associated with the acquisition of Foamade is approximately $3,078,000. The Company is unable to break out the Foamade net income as these products have been merged into its Grand Rapids, Michigan, facility (Component Products) and have become part of that reporting unit.
The above unaudited pro forma information is presented for illustrative purposes only and may not be exchangedindicative of the results of operations that would have actually occurred had the ENM acquisition occurred as presented. In addition, future results may vary significantly from the results reflected in such pro forma information.
On August 5, 2008, the Company committed to move forward with a transaction between willing parties.
Cashplan to close its Macomb Township, Michigan, automotive plant and cash equivalents, accounts receivable, inventories, prepaid expenses, notes payable to bank, accounts payable, and accruedconsolidate operations into its newly acquired 250,000-square-foot building in Grand Rapids, Michigan. Through December 31, 2008, the Company recorded restructuring charges of approximately $1.3 million in one-time, pre-tax expenses and, payroll withholdings arethrough December 31, 2009, invested approximately $759,000 in building improvements in the Grand Rapids facility. The Company does not expect to incur additional costs.
stated at carrying amounts that approximate fair value because of
Through the short maturity of those instruments.year ended December 31, 2009, the Company has recorded the following activity:
Long-term debt and capital lease obligations are subject to interest rates currently offered to the Company; therefore, the historical carrying amount approximates fair value.
The Company has adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information.
The Company is organized based on the nature of the products and services that it offers. Under this structure, the Company produces products within two distinct segments;segments: Packaging and Component Products. Within the Packaging segment, the Company primarily uses polyethylene and polyurethane foams, sheet plastics, and pulp fiber to provide customers with cushion packaging for their products. Within the Component Products applications segment, the Company primarily uses cross-linked polyethylene foam to provide customers in the automotive, athletic, leisure, and health and beauty industries with engineered product for numerous purposes.
The accounting policies of the segments are the same as those described in Note 1. Income taxes and interest expense have been allocated based on operating results and total assets employed in each segment.
Inter-segment transactions are uncommon and not material. Therefore, they have not been separately reflected in the financial table below. The totals of the reportable segments’ revenues, net profits, and assets agree with the Company’s comparable amountconsolidated amounts contained in the audited financial statements. Revenues from customers outside of the United States are not material.
The top customer in the Company’s Component Products segment comprises 30%13% of that segment’s total sales and 18%8% of the Company’s total sales for the year ended December 31, 2006. No one2009. The top customer accounted for more than 10%in the Company’s Packaging segment comprises 10.6% of that segment’s total sales and 4.1% of the Packaging segmentCompany’s total sales for the year ended December 31, 2006.2009.
The results for the Packaging segment include the resultsoperations of United Development Company Limited.
Financial statement information by reportable segment is as follows:
2006 |
| Component |
| Packaging |
| Total |
| ||
Sales |
| $ | 55,757,985 |
| 37,991,254 |
| $ | 93,749,239 |
|
Operating income (loss) |
| 2,833,743 |
| 2,220,439 |
| 5,054,182 |
| ||
Total assets |
| 21,131,060 |
| 17,905,952 |
| 39,037,012 |
| ||
Depreciation / amortization |
| 1,933,949 |
| 1,125,753 |
| 3,059,702 |
| ||
Capital expenditures |
| 911,032 |
| 604,501 |
| 1,515,533 |
| ||
Interest expense |
| 493,534 |
| 470,448 |
| 963,982 |
| ||
Goodwill |
| 4,463,246 |
| 2,017,791 |
| 6,481,037 |
| ||
2005 |
| Component |
| Packaging |
| Total |
| ||||||||||||
2009 |
| Component |
| Packaging |
| Total |
| ||||||||||||
Sales |
| $ | 48,218,839 |
| 35,743,618 |
| $ | 83,962,457 |
|
| $ | 60,973,325 |
| $ | 38,258,009 |
| $ | 99,231,334 |
|
Operating income (loss) |
| (601,839 | ) | 2,772,624 |
| 2,170,785 |
| ||||||||||||
Operating income |
| 5,806,122 |
| 2,374,288 |
| 8,180,410 |
| ||||||||||||
Total assets |
| 25,460,467 |
| 18,539,549 |
| 44,000,016 |
|
| 25,409,608 |
| 34,042,188 |
| 59,451,796 |
| |||||
Depreciation / amortization |
| 1,645,010 |
| 1,291,681 |
| 2,936,691 |
| ||||||||||||
Depreciation / Amortization |
| 1,658,290 |
| 1,236,772 |
| 2,895,062 |
| ||||||||||||
Capital expenditures |
| 35,485 |
| 1,074,510 |
| 1,109,995 |
|
| 989,027 |
| 867,810 |
| 1,856,837 |
| |||||
Interest expense |
| 582,266 |
| 459,448 |
| 1,041,714 |
|
| 90,121 |
| 142,626 |
| 232,747 |
| |||||
Goodwill |
| 4,463,246 |
| 2,017,791 |
| 6,481,037 |
|
| 4,463,246 |
| 2,017,791 |
| 6,481,037 |
| |||||
2004 |
| Component |
| Packaging |
| Total |
| ||||||||||||
2008 |
| Component |
| Packaging |
| Total |
| ||||||||||||
Sales |
| $ | 36,135,175 |
| 32,488,923 |
| $ | 68,624,098 |
|
| $ | 60,847,533 |
| $ | 49,184,068 |
| $ | 110,031,601 |
|
Operating income |
| 967,616 |
| 1,176,793 |
| 2,144,409 |
|
| 3,076,360 |
| 5,348,371 |
| 8,424,731 |
| |||||
Total assets |
| 21,921,263 |
| 17,710,941 |
| 39,632,204 |
|
| 22,098,941 |
| 26,623,720 |
| 48,722,661 |
| |||||
Depreciation / amortization |
| 1,111,537 |
| 1,381,763 |
| 2,493,300 |
| ||||||||||||
Depreciation / Amortization |
| 1,820,239 |
| 1,156,311 |
| 2,976,550 |
| ||||||||||||
Capital expenditures |
| 1,343,254 |
| 828,446 |
| 2,171,700 |
|
| 1,053,622 |
| 1,709,628 |
| 2,763,250 |
| |||||
Interest expense |
| 375,822 |
| 337,829 |
| 713,651 |
|
| 139,586 |
| 194,707 |
| 334,293 |
| |||||
Goodwill |
| 4,463,246 |
| 2,017,791 |
| 6,481,037 |
|
| 4,463,246 |
| 2,017,791 |
| 6,481,037 |
| |||||
2007 |
| Component |
| Packaging |
| Total |
| |||
Sales |
| $ | 53,782,483 |
| $ | 39,812,657 |
| $ | 93,595,140 |
|
Operating income |
| 4,767,544 |
| 2,479,810 |
| 7,247,354 |
| |||
Total assets |
| 18,665,208 |
| 26,887,566 |
| 45,552,774 |
| |||
Depreciation / Amortization |
| 1,875,488 |
| 939,533 |
| 2,815,021 |
| |||
Capital expenditures |
| 309,600 |
| 1,790,984 |
| 2,100,584 |
| |||
Interest expense |
| 174,171 |
| 305,000 |
| 479,171 |
| |||
Goodwill |
| 4,463,246 |
| 2,017,791 |
| 6,481,037 |
| |||
|
| Q1 |
| Q2 |
| Q3 |
| Q4 |
| ||||
Year ended 12/31/2006 |
|
|
|
|
|
|
|
|
| ||||
Net sales |
| $ | 24,140,718 |
| $ | 24,533,970 |
| $ | 21,737,107 |
| $ | 23,337,444 |
|
Gross profit |
| 4,878,826 |
| 5,289,301 |
| 4,176,799 |
| 4,892,373 |
| ||||
Net income |
| 573,594 |
| 700,544 |
| 395,515 |
| 845,220 |
| ||||
Basic net income per share |
| 0.12 |
| 0.14 |
| 0.08 |
| 0.16 |
| ||||
Diluted net income per share |
| 0.11 |
| 0.13 |
| 0.07 |
| 0.15 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Year ended 12/31/2005 |
|
|
|
|
|
|
|
|
| ||||
Net sales |
| $ | 18,191,891 |
| $ | 20,917,802 |
| $ | 21,649,267 |
| $ | 23,203,497 |
|
Gross profit |
| 3,622,964 |
| 4,126,323 |
| 3,087,184 |
| 3,764,829 |
| ||||
Net income |
| 85,402 |
| 314,189 |
| (148,531 | ) | 408,031 |
| ||||
Basic net income per share |
| 0.02 |
| 0.07 |
| (0.03 | ) | 0.08 |
| ||||
Diluted net income per share |
| 0.02 |
| 0.06 |
| (0.03 | ) | 0.08 |
| ||||
|
| Q1 |
| Q2 |
| Q3 |
| Q4 |
| ||||
Year Ended December 31, 2009 |
|
|
|
|
|
|
|
|
| ||||
Net sales |
| $ | 21,607,763 |
| $ | 20,959,033 |
| $ | 27,620,250 |
| $ | 29,044,288 |
|
Gross profit |
| 4,942,788 |
| 5,370,964 |
| 7,454,276 |
| 8,951,387 |
| ||||
Net income attributable to UFP Technologies, Inc. |
| 344,961 |
| 566,198 |
| 2,112,742 |
| 2,905,524 |
| ||||
Basic net income per share |
| 0.06 |
| 0.10 |
| 0.36 |
| 0.49 |
| ||||
Diluted net income per share |
| 0.06 |
| 0.09 |
| 0.34 |
| 0.45 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Year Ended December 31, 2008 |
|
|
|
|
|
|
|
|
| ||||
Net sales |
| $ | 28,008,036 |
| $ | 28,456,090 |
| $ | 27,501,379 |
| $ | 26,066,096 |
|
Gross profit |
| 6,888,126 |
| 7,627,616 |
| 7,410,354 |
| 6,636,966 |
| ||||
Net income attributable to UFP Technologies, Inc. |
| 1,148,141 |
| 1,574,222 |
| 1,247,285 |
| 1,146,352 |
| ||||
Basic net income per share |
| 0.21 |
| 0.29 |
| 0.22 |
| 0.20 |
| ||||
Diluted net income per share |
| 0.19 |
| 0.25 |
| 0.20 |
| 0.19 |
| ||||
UFP TECHNOLOGIES, INC.
Consolidated Financial Statement Schedule
Valuation and Qualifying Accounts
Years ended December 31, 2006, 2005,2009, 2008, and 20042007
Accounts receivable, allowance for doubtful accounts:
|
| 2006 |
| 2005 |
| 2004 |
| |||
Balance at beginning of year |
| $ | 565,171 |
| $ | 543,317 |
| $ | 475,625 |
|
Provision / Recoveries charged to expense |
| (36,292 | ) | 85,140 |
| 165,284 |
| |||
Write-offs and recoveries |
| (187,902 | ) | (63,286 | ) | (97,592 | ) | |||
Balance at end of year |
| $ | 340,977 |
| $ | 565,171 |
| $ | 543,317 |
|
|
| 2009 |
| 2008 |
| 2007 |
| |||
Balance at beginning of year |
| $ | 387,037 |
| $ | 307,131 |
| $ | 340,977 |
|
Provision (Recoveries) credited to expense |
| 155,069 |
| 64,320 |
| 58,025 |
| |||
(Write-offs) and recoveries |
| (68,194 | ) | 15,586 |
| (91,871 | ) | |||
Balance at end of year |
| $ | 473,912 |
| $ | 387,037 |
| $ | 307,131 |
|
Inventory allowance for obsolescence:
|
| 2006 |
| 2005 |
| 2004 |
| |||
Balance at beginning of year |
| $ | 262,154 |
| $ | 304,273 |
| $ | 270,289 |
|
Provision |
| 300,673 |
| 177,440 |
| 175,929 |
| |||
Write-offs and recoveries |
| (322,007 | ) | (219,559 | ) | (141,945 | ) | |||
Balance at end of year |
| $ | 240,820 |
| $ | 262,154 |
| $ | 304,273 |
|
|
| 2009 |
| 2008 |
| 2007 |
| |||
Balance at beginning of year |
| $ | 305,775 |
| $ | 295,405 |
| $ | 240,820 |
|
Provision |
| 382,033 |
| 222,661 |
| 243,141 |
| |||
Write-offs |
| (137,182 | ) | (212,291 | ) | (188,556 | ) | |||
Balance at end of year |
| $ | 550,626 |
| $ | 305,775 |
| $ | 295,405 |
|
F-30