FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JUNE 30, 1997
-------------
OR
[_] 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: 0-20967
-------
UFP Technologies, Inc.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2314970
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
172 East Main Street, Georgetown, Massachusetts 01833
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(508) 352-2200
--------------
(Registrant's telephone number, including area code)
_________________________________________
(Former name, former address and former
fiscal year, if changed since last report)
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 filings
requirements for the past 90 days.
Yes X No
----- -----
As of August 8, 1997, 4,669,104 shares of registrant's Common Stock, $.01 par
value, were outstanding.
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1997 and December 31, 1996............... 1
Consolidated Statements of Operations
Three Months and Six Months
Ended June 30, 1997 and 1996...................... 2
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996........... 3
Notes to Consolidated Financial Statements........ 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 5
PART II - OTHER INFORMATION...................................... 7
SIGNATURES....................................................... 8
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
UFP Technologies, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
June 30, 1997 December 31, 1996
Unaudited Audited
--------- -------
ASSETS
Current assets
Cash and cash equivalents $ 461,430 143,531
Receivables, net 6,348,874 5,602,202
Inventories 3,477,143 2,585,560
Prepaid expenses and other current assets 530,732 604,093
---------- ----------
Total current assets 10,818,179 8,935,386
Property, plant and equipment 18,456,469 17,201,709
Less accumulated depreciation and amortization (8,282,980) (7,486,126)
---------- ----------
Net property, plant and equipment 10,173,489 9,715,583
Goodwill, net 2,641,558 2,577,491
Other assets 1,676,320 1,671,418
---------- ----------
Total assets $ 25,309,546 22,899,878
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 3,400,000 1,400,000
Current installments of long-term debt 392,075 394,825
Current installments of capital lease obligations 729,863 660,192
Accounts payable 2,191,652 2,215,030
Accrued expenses and payroll withholdings 1,922,514 1,776,926
---------- ----------
Total current liabilities 8,636,104 6,446,973
Long-term debt, excluding current installments 675,960 764,256
Capital lease obligations, excluding current installments 2,181,168 2,459,261
Retirement liability 529,896 499,896
---------- ----------
Total liabilities 12,023,128 10,170,386
Stockholders equity
Preferred stock 0 0
Common stock 46,601 46,369
Additional paid-in capital 9,477,832 9,404,902
Retained earnings 3,761,985 3,278,221
---------- ----------
Total stockholders equity 13,286,418 12,729,492
---------- ----------
Total liabilities and stockholders' equity $ 25,309,546 22,899,878
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements
1
UFP Technologies, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
Net Sales $ 11,208,766 10,083,871 22,106,315 18,777,180
Cost of Sales 8,170,061 7,605,057 16,395,827 14,253,733
--------- --------- ---------- ----------
Gross profit 3,038,705 2,478,814 5,764,488 4,523,447
Selling, general and administrative
expenses 2,350,229 1,985,619 4,620,036 3,704,068
--------- --------- ---------- ----------
Operating Income 688,476 493,195 1,144,452 819,379
Interest expense 174,154 106,299 310,688 220,535
--------- --------- ---------- ----------
Income before income taxes 514,322 386,896 833,764 598,844
Income taxes 216,000 152,000 350,000 227,000
--------- --------- ---------- ----------
Net Income $ 298,322 234,896 483,764 371,844
========= ========= ========== ==========
Weighted average shares
outstanding 4,844,715 4,938,842 4,882,947 4,934,370
Per share:
Net Income $ 0.06 0.05 0.10 0.08
The accompanying notes are an integral part of these consolidated financial
statements.
2
UFP Technologies, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
------------------------------
June 30, 1997 June 30, 1996
------------- -------------
Cash flows from operating activities:
Net income $ 483,764 371,844
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 839,455 694,404
Equity in net income of unconsolidated affiliate and
partnership 8,590 8,750
Stock issued in lieu of compensation 33,750 16,875
Changes in operating assets and liabilities:
Receivables, net (70,960) (316,817)
Inventories (596,582) (223,011)
Prepaid expenses and other current assets 130,216 85,836
Accounts payable (134,496) 384,050
Accrued expenses and payroll withholdings 52,082 (199,149)
Retirement liability 30,000 30,000
---------- ----------
Net cash provided by operating activities 775,819 852,782
Cash flows from investing activities:
Additions to property, plant and equipment (541,550) (1,349,693)
Acquisition of Foam Cutting Engineers, net of cash acquired (1,512,879) 0
Increase in other assets 3,161 (21,357)
---------- ----------
Net cash used in investing activities (2,051,268) (1,371,050)
Cash flows from financing activities:
Net borrowings under notes payable 2,000,000 (275,000)
Principal repayments of long-term debt (91,046) (91,352)
Principal repayments of capital lease obligations (355,018) (146,746)
Proceeds from capital lease obligation 0 941,000
Net proceeds from sale of common stock 39,412 11,900
---------- ----------
Net cash provided by financing activities 1,593,348 439,802
---------- ----------
Net change in cash and cash equivalents 317,899 (78,466)
Cash and cash equivalents, at beginning of period 143,531 524,490
---------- ----------
Cash and cash equivalents, at end of period 461,430 446,024
---------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
3
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The interim consolidated financial statements of UFP Technologies,
Inc. (the Company) presented herein, without audit, have been prepared
pursuant to the rules of the Securities and Exchange Commission for
quarterly reports on Form 10-Q and do not include all the information and
note disclosures required by generally accepted accounting principles.
These statements should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended December 31,
1996, included in the Company's 1996 Annual Report on Form 10-K as provided
to the Securities and Exchange Commission.
The condensed consolidated balance sheet as of June 30, 1997, the
consolidated statements of operations for the three and six months ended
June 30, 1997 and 1996, and the consolidated statements of cash flows for
the six months ended June 30, 1997 and 1996, are unaudited but, in the
opinion of management, include all adjustments (consisting of normal,
recurring adjustments) necessary for fair presentation of results for these
interim periods.
The results of operations for the six months ended June 30, 1997, are
not necessarily indicative of the results to be expected for the entire
fiscal year ending December 31, 1997.
(2) Inventory
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
June 30, 1997 December 31, 1996
(unaudited) (audited)
-------------- -------------------
Raw materials $ 2,286,082 $ 1,850,238
Work-in-process 444,801 190,553
Finished goods 746,260 544,769
-------------- -------------------
Total Inventory 3,477,143 2,585,560
============== ===================
Work-in-process and finished goods inventories consist of materials,
labor and manufacturing overhead.
(3) Common Stock
At December 31, 1996, 695,250 options were outstanding under the
Company's 1993 Stock Option Plan ("1993 Plan"). The purpose of these
options is to provide long-term rewards and incentives to the Company's key
employees, officers, employees, directors, consultants and advisors. There
were 44,000 options issued and 16,250 options exercised in the first six
months of 1997 under the 1993 Plan, and 16,500 options expired. At June 30,
1997, 706,500 options were outstanding under the plan.
4
At December 31, 1996, 37,500 options were outstanding under the
Company's Non-Employee Director Plan. No options were issued, exercised or
expired in the first six months of 1997 under the Director Plan.
(4) Earnings per share disclosure in 10-Qs
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, Earnings per Share
(FASB No. 128). FASB No. 128 supersedes APB No. 15 and specifies the
computation, presentation and disclosure requirements for earnings per
share. FASB No. 128 is effective for financial statements for both interim
and annual periods ending after December 15, 1997 and early application is
not permitted. Accordingly, the Company will apply FASB No. 128 for the
quarter and year ended December 31, 1997 and restate prior period
information as required under the statement. The Company believes that if
the FASB No. 128 had been applied for the first quarter ending March 31 and
the second quarter ending June 30, 1997 the impact on earnings per share as
currently stated would have been immaterial.
(5) Pro forma results of acquisition of Foam Cutting Engineers, Inc. (FCE)
The following table outlines the pro forma financial results of UFP
Technologies, Inc. for the six month period ended June 30, 1996 as if FCE
was purchased on January 1, 1996. Such pro forma financial information
reflects adjustments for amortization of goodwill and interest.
Six Month Period Ended
June 30, 1996
----------------------------
Historical Pro-forma
(unaudited) (unaudited)
------------ ------------
Net Sales $ 18,777,180 $ 20,625,737
Net income $ 371,844 $ 389,256
Weighted average shares outstanding 4,934,370 4,934,370
Net income per share $ 0.08 $ 0.08
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three Months Ended June 30, 1997 and 1996
- -----------------------------------------
The Company's net sales increased 11% to $11,209,000 in the 1997 period
from $10,084,000 in the 1996 period. The increase was primarily attributable to
an increase in sales volume of the Company's moulded fibre products and the
addition of the Foam Cutting Engineers ("FCE") division which was acquired
effective January 1, 1997.
Cost of sales as a percentage of sales improved to 72.9% in the 1997 period
from 75.4% in the 1996 period. The improvements in the cost of sales margin was
primarily attributable to continued
5
volume and manufacturing efficiency improvements associated with the Company's
moulded fibre products.
Selling, general and administrative expenses increased to $2,350,000 (21%
of sales) in the 1997 period from $1,986,000 (19.7% of sales) in the 1996
period. The increase was primarily associated with additional selling, general
and administrative expenses related to increased sales and the addition of the
FCE division.
Interest expense increased 64% in the 1997 period to $174,000 from $106,000
in the 1996 period. The increase was primarily attributable to the additional
borrowings associated with the acquisition of FCE and increases in capital lease
obligations associated with the Company's purchase of additional moulded fibre
equipment.
Six Months Ended June 30, 1997 and 1996
- ---------------------------------------
The Company's net sales increased 18% to $22,160,000 in the 1997 period
from $18,777,000 in the 1996 period. The increase was primarily attributable to
an increase in sales volume of the Company's moulded fibre products and the
addition of the FCE division which was acquired effective January 1, 1997.
Cost of sales as a percentage of sales improved to 74.0% in the 1997 period
from 75.9% in the 1996 period. The improvements in the cost of sales margin was
primarily attributable to continued volume and manufacturing efficiency
improvements with the Company's moulded fibre products.
Selling, general and administrative expenses increased to $4,620,000 (20.8%
of sales) in the 1997 period, from $3,704,000 (19.7% of sales) in the 1996
period. The increase was primarily associated with selling, general and
administrative expenses related to increased sales and the addition of the FCE
division.
Interest expenses increased 40.7% in the 1997 period to $311,000 from
$221,000 in the 1996 period. The increase was primarily attributable to the
additional borrowings associated with the acquisition of FCE and the increase
in capital lease obligations associated with the Company's purchase of
additional moulded fibre equipment.
Liquidity and Capital Resources
At June 30, 1997, the Company's working capital was approximately
$2,182,000 including $461,000 of cash and cash equivalents. In addition, the
Company had a $4,500,000 bank revolving loan facility, of which $3,400,000 was
outstanding at June 30, 1997.
During the six months ended June 30, 1997, operating activities of the
Company provided approximately $776,000 in cash, primarily due to the six months
profit, depreciation and amortization offset by increases in accounts receivable
and inventory and a decrease in accounts payable. The increases in accounts
receivable and inventory were primarily due to the increase in sales volume and
product demand.
6
Cash used in investing of approximately $2,051,000 was attributable to the
acquisition of FCE and to additions of property, plant and equipment.
Net cash generated from financing activities totaled approximately
$1,593,000 due to a $2 million increase in short-term borrowings primarily
associated with the purchase of FCE, which was partially offset by principal
payments of long-term debt and capital lease obligations.
At June 30, 1997, the Company had approximately $913,000 outstanding under
two mortgage notes and $155,000 outstanding under two equipment notes. At June
30, 1997, the current portions of these obligations, together with the Company's
line of credit totaled $3,792,000.
The Company's revolving loan expires on September 30, 1997. The Company
believes that it will be able to renew this current obligation or obtain
alternative financing, and that such financing will be available on terms no
less favorable than the Company's current arrangements. However, there can be
no assurance that such financing will be available on favorable terms, if at
all.
The Company believes it will continue to have capital expenditure needs
related to the growth of its Moulded Fiber division, including increased
inventory requirements, additional and enhanced manufacturing equipment and,
possibly, establishing a new production site. Although the Company believes
that it will be able to obtain the necessary financing for this expansion, there
can be no assurance that such financing will be available on favorable terms, if
at all.
* * *
7
PART II - OTHER INFORMATION
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
Item 1 Legal Proceedings.
No material litigation.
Item 2 Changes in Securities.
None
Item 3 Defaults Upon Senior Securities.
None
Item 4 Submission of Matters to a Vote of Security Holders.
The Company held its Annual Meeting of Stockholders on June 6th, 1997.
At the meeting the stockholders elected the members of the Board of
Directors of the Company. The votes for such matter were as follows:
Nominee For Withheld Abstained
------- --- -------- ---------
William H. Shaw 3,720,172 24,666 -
Richard L. Bailly 3,720,172 24,666 -
R. Jeffrey Bailly 3,720,172 24,666 -
William C. Curry 3,720,172 24,666 -
David L. Friedman 3,720,172 24,666 -
T. Gordon Roddick 3,720,172 24,666 -
Kenneth L. Gestel 3,720,172 24,666 -
There were no broker non-votes in connection with the election of
Directors.
Item 5 Other Information.
None
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibits furnished:
(11) Statement Re: Computation of Earnings Per Share.
(27) Financial Data Schedule
(b) Reports on Form 8-K:
The Company did not file a report on Form 8-K for the
reporting period.
8
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements 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.
(Registrant)
August 14, 1997 /s/ R. Jeffrey Bailly
- --------------- -------------------------
Date R. Jeffrey Bailly
President, Chief Executive
Officer and Director
August 14, 1997 /s/ Paul J. Greenler
- --------------- -------------------------
Date Paul J. Greenler
Chief Financial Officer
9