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 30,1998
or:
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number: 0-20967
UFP TECHNOLOGIES, INC.
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(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
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(Address of principal executive offices) (Zip Code)
(978) 352-2200
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(Registrant's telephone number, including area code)
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(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 July 23, 1998, 4,677,354 shares of registrant's Common Stock, $.01 par
value, were outstanding.
UFP TECHNOLOGIES, INC.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997............................... 1
Consolidated Statements of Operations
Three Months and Six Months Ended
June 30, 1998 and 1997............................................ 2
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997........................... 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............................................................ 8
SIGNATURES............................................................................. 9
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
UFP TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
30-Jun-98 31-Dec-97
---------------- ----------------
ASSETS (Unaudited)
Current assets
Cash and cash equivalents $ 880,316 $ 233,452
Receivables, net 6,406,889 6,413,251
Inventories 3,372,395 3,053,299
Prepaid expenses and other current assets 82,298 146,800
---------------- ----------------
Total current assets 10,741,898 9,846,802
---------------- ----------------
Property, plant and equipment 20,764,294 20,110,727
Less accumulated depreciation and amortization (9,743,911) (8,920,621)
---------------- ----------------
Net property, plant and equipment 11,020,383 11,190,106
---------------- ----------------
Goodwill, net 2,455,366 2,539,367
Other assets 1,576,574 1,618,492
---------------- ----------------
Total assets $ 25,794,221 $ 25,194,767
----------------- -----------------
----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 2,500,000 $ 2,500,000
Current installments of long-term debt 53,721 111,888
Current installments of capital lease obligations 943,692 913,170
Accounts payable 1,806,786 1,540,377
Accrued expenses and payroll withholdings 2,268,534 2,202,817
---------------- ----------------
Total current liabilities 7,572,733 7,268,252
Long-term debt, excluding current installments 600,038 624,641
Capital lease obligations, excluding current installments 2,144,992 2,608,768
Retirement liability 689,896 559,896
---------------- ----------------
---------------- ----------------
Total liabilities 11,007,659 11,061,557
---------------- ----------------
Stockholders equity
Preferred stock 0 0
Common stock 57,664 46,664
Additional paid-in capital 9,532,019 9,499,019
Retained earnings 5,196,879 4,587,527
---------------- ----------------
Total stockholders equity 14,786,562 14,133,210
---------------- ----------------
Total liabilities and stockholders' equity $ 25,794,221 $ 25,194,767
----------------- -----------------
----------------- -----------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
UFP TECHNOLOGIES, INC.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
30-Jun-98 30-Jun-97 30-Jun-98 30-Jun-97
------------ ----------- ----------- -----------
Net sales $ 11,318,065 11,208,766 22,068,025 22,160,315
Cost of sales 8,169,212 8,170,061 16,074,464 16,395,827
------------ ----------- ----------- -----------
Gross profit 3,148,853 3,038,705 5,993,561 5,764,488
Selling, general and administrative expenses 2,392,644 2,350,229 4,711,240 4,620,036
------------ ----------- ----------- -----------
Operating income 756,209 688,476 1,282,321 1,144,452
Interest expense 134,839 174,154 278,884 310,688
Other (income) (2,494) 0 (35,914) 0
------------ ----------- ----------- -----------
Income before income taxes 623,864 514,322 1,039,351 833,764
Income taxes 256,000 216,000 430,000 350,000
------------ ----------- ----------- -----------
Net income $ 367,864 298,322 609,351 483,764
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Basic net income per share $ 0.08 0.06 0.13 0.10
Diluted net income per share $ 0.08 0.06 0.13 0.10
Weighted average number of shares used in computation of per share data:
Basic 4,677,354 4,653,024 4,671,854 4,641,359
Diluted 4,888,265 4,844,715 4,857,922 4,882,947
The accompanying notes are an integral part of these consolidated financial
statements
2
UFP TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
30-Jun-98 30-Jun-97
----------- -----------
Cash flows from operating activities:
Net income $ 609,351 $ 483,764
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 907,292 839,455
Equity in net income (loss) of unconsolidated affiliate and partnership (17,984) 8,590
Deferred income taxes 523 0
Stock issued in lieu of compensation 44,000 33,750
Changes in operating assets and liabilities:
Receivables, net 6,362 (70,960)
Inventories (319,096) (596,582)
Prepaid expenses and other current assets 64,502 130,216
Accounts payable 266,409 (134,496)
Accrued expenses and payroll withholdings 65,717 52,082
Retirement liability 130,000 30,000
----------- -----------
Net cash provided by operating activities 1,757,076 775,819
Cash flows from investing activities:
Additions to property, plant and equipment (653,567) (541,550)
Acquisition of Foam Cutting Engineers, net of cash acquired 0 (1,512,879)
Change in other assets 59,379 3,161
----------- -----------
Net cash used in investing activities (594,188) (2,051,268)
Cash flows from financing activities:
Net borrowings under notes payable 0 2,000,000
Principal repayments of long-term debt (82,770) (91,046)
Principal repayments of capital lease obligations (433,254) (355,018)
Net proceeds from sale of common stock 0 39,412
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Net cash provided by financing activities (516,024) 1,593,348
----------- -----------
Net change in cash and cash equivalents 646,864 317,899
Cash and cash equivalents, at beginning of period 233,452 143,531
----------- -----------
Cash and cash equivalents, at end of period 880,316 461,430
----------- -----------
----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
3
UFP TECHNOLOGIES, INC.
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,
1997, included in the Company's 1997 Annual Report on Form 10-K as
provided to the Securities and Exchange Commission.
The condensed consolidated balance sheet as of June 30, 1998, the
consolidated statements of operations for the three and six months ended
June 30, 1998 and 1997, and the consolidated statements of cash flows for
the six months ended June 30, 1998 and 1997, 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, 1998, are
not necessarily indicative of the results to be expected for the entire
fiscal year ending December 31, 1998.
(2) Inventory
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
30-Jun-98 31-Dec-97
----------- -----------
Raw materials $ 2,137,666 $ 1,933,740
Work-in-process 448,460 395,592
Finished goods 786,269 723,967
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Total Inventory 3,372,395 3,053,299
----------- -----------
----------- -----------
Work-in-process and finished goods inventories consist of materials,
labor and manufacturing overhead.
(3) Common Stock
At December 31, 1997, 697,500 options were outstanding under the
Company's 1993 Employee 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 95,000 options issued and zero options exercised in
the first six months of 1998 under the 1993 Plan, and zero options
expired. At June 30, 1998, 792,500 options were outstanding under the
plan.
4
At December 31, 1997, 40,000 options were outstanding under the
Company's 1993 Non-Employee Director Plan ("1993 Director's Plan"). There
were 2,500 options issued and no options were exercised or expired in the
first six months of 1998. At June 30, 1998, 42,500 options were
outstanding under the 1993 Director's Plan.
(4) Earnings per share
The Company has adopted the provisions of the Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings Per Share." SFAS No. 128
replaced the calculation of primary and fully diluted earnings per share
with a calculation of basic and diluted earnings per share. Basic
earnings per share is computed based on the weighted average number of
shares of common stock outstanding. Diluted earnings per share is based
upon the weighted average of common shares and dilutive common stock
equivalent shares outstanding during each period. All earnings per share
amounts for all periods have been restated to conform to SFAS No. 128
requirements. The weighted average number of shares used to compute
diluted income per share consisted of the following:
Three Months Ended Six Months Ended
30-Jun-98 30-Jun-97 30-Jun-98 30-Jun-97
--------- --------- --------- ---------
Weighted average common shares outstanding 4,677,354 4,653,024 4,671,854 4,641,359
Weighted average common equivalent shares due
to stock options 210,911 191,691 186,068 241,588
--------- --------- --------- ---------
4,888,265 4,844,715 4,857,922 4,882,947
--------- --------- --------- ---------
--------- --------- --------- ---------
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Sales
Net sales for the three month period ended June 30, 1998 were $11.3 million or
1% above sales of $11.2 million in the same period last year. Sales for the six
month period ended June 30, 1998 decreased slightly from $22.2 million a year
ago to $22.1 million. Both sales patterns primarily reflect general volume
increases offset by volume slowdowns at two large electronics customers affected
by the Asian crisis.
Gross Profit
Gross Profit as a percentage of sales improved in both the three and six month
periods ended June 30, 1998 from 27.1% and 26.0% to 27.8% and 27.2%,
respectively. The improvements are primarily
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attributable to continued business mix improvements and favorable overhead
absorption in certain plants.
Selling General and Administrative Expenses
Selling, General and Administrative expenses ("SG&A") for the three month period
ended June 30, 1998 were $2,393,000 or 1.8% higher than SG&A of $2,350,000 in
the same period a year ago. SG&A for the six month period was $4,711,000 or 2.0%
higher than SG&A of $4,620,000 last year. Both increases are primarily
attributable to additions to the management team as well as to the
implementation of new information software systems.
Other
Interest expense for the three month periods ended June 30, 1998 and 1997 were
$135,000 and $174,000, respectively. Interest for the six month periods ended
June 30, 1998 and 1997 were $279,000 and $311,000, respectively. The decline in
both periods is primarily attributable to lower average borrowings.
The Company's effective tax rate for the three and six month periods ended June
30, 1998 was 41% and 41.4% respectively, compared to 42% in both periods a year
ago.
Liquidity and Capital Resources
The Company funds its operating expenses, capital requirements and growth plan
through internally generated cash, bank credit facilities and long-term capital
leases.
At June 30, 1998 and December 31, 1997 the Company's working capital was
approximately $3,402,000 and $2,579,000, respectively. The increase in working
capital was primarily attributable to an increase in cash and inventory of
approximately $647,000 and $319,000, respectively. During the six month periods
ended June 30, 1998 and 1997, operating activities of the Company provided
approximately $1,757,000 and $776,000 in cash, respectively. The increase was
primarily attributable to improved profits of $126,000, a smaller increase in
inventory of approximately $277,000 and a change in accounts payable deviation
of approximately $401,000. Net cash used in investing activities during the six
month periods ending June 30, 1998 and 1997, was approximately $594,000 and
$2,051,000, respectively. The primary use of funds for investing activities in
the current six month period was to purchase fixed assets. The decline in usage
of cash for investing activities from 1997 to 1998 primarily reflects the impact
in 1997 of the acquisition of Foam Cutting Engineers, Inc. Net cash used in
financing activities for the six month period ended June 30, 1998 was
approximately $516,000 compared to cash provided by financing activities of
approximately $1,593,000 in 1997. The change reflects differences in net
borrowing activity between the two periods primarily as a result of the prior
year acquisition of Foam Cutting Engineers, Inc.
While the Company does not have any significant capital commitments, it intends
to continue to invest in capital equipment to support its operations. The
Company is also engaged in discussions with certain parties regarding potential
strategic acquisitions, but presently does not have any
6
agreements to enter into any such acquisitions. The Company intends to fund any
such acquisitions with working capital and bank financing. There can be no
assurances that such financing would be available on favorable terms, if at all.
The Company has a $7,500,000 revolving bank loan facility, of which $2,500,000
was outstanding at June 30, 1998. This facility expires on June 30, 1999.
Borrowings through this credit facility are unsecured, and bear interest at
LIBOR plus 1.75% or prime. In addition, at June 30, 1998, the Company had
capitalized equipment lease debt and other notes payable of approximately
$3,089,000 and $654,000, respectively. At June 30, 1998 the current portion of
all debt obligations was $3,264,000.
The Company believes that its existing resources, including its revolving loan
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 1998. However, there can be no assurances that such financing
will be available at favorable terms, if at all.
Year 2000 Data Conversion
The Company is in the process of implementing comprehensive computer systems
which are prepared for the year 2000. The implementation schedule anticipates a
complete conversion prior to January 1, 2000. The Company presently believes
that, with the conversion to new software, the year 2000 problem will not pose a
significant operational problem to the Company. However, there can be no
assurance that the systems of other parties upon which the Company's businesses
also rely, including but not limited to the Company's customers and suppliers,
will be converted on a timely basis. The Company's business, financial
condition, or results of operations could be materially adversely affected by
the failure of its systems or those of other parties to operate or properly
manage dates beyond 1999.
* * * * *
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PART II - OTHER INFORMATION
UFP TECHNOLOGIES, INC.
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 3,
1998. There were two proposals before the stockholders at the
Annual Meeting. First, the stockholders elected the members of the
Board of Directors of the Company. The votes for such matter were
as follows:
Nominee For Withheld
------- --- --------
William H. Shaw 3,739,855 3,500
Richard L. Bailly 3,739,855 3,500
R. Jeffrey Bailly 3,739,810 3,545
William C. Curry 3,739,855 3,500
T. Gordon Roddick 3,739,855 3,500
Kenneth L. Gestal 3,739,855 3,500
Peter R. Worrell 3,739,855 3,500
There were no abstentions nor broker nonvotes in connection with
the election of Directors.
Second, the stockholders approved the adoption of the Company's
1998 Employee Stock Purchase Plan by a vote of 3,718,368 for and
16,545 against. There were 8,442 abstentions and no broker
nonvotes for the proposal.
Item 5 Other Information: None
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibits furnished:
(4.5) 1998 Director Stock Option Incentive Plan
(incorporated herein by reference to the
Company's Registration Statement of Form S-8
Registration No. 333-56741)
(10.19) 1993 Combined Stock Option Plan, as amended.
(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 10, 1998 /s/ R. Jeffrey Bailly
- --------------- ------------------------------------------------
Date R. Jeffrey Bailly
President, Chief Executive Officer
and Director
August 10, 1998 /s/ Ronald J Lataille
- --------------- ------------------------------------------------
Date Ronald J. Lataille
Vice President, Chief Financial Officer
9