SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For fiscal year ended December 31, 1996 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 Company as Specified in Its Charter)
Delaware 04-2314970
(State or Other Jurisdiction of Employer (I.R.S Identification No.)
Incorporation or Organization)
172 East Main Street, Georgetown, Massachusetts 01833-2107
(Address of Principal Executive Offices) (Zip Code)
(508) 352-2200
(Company'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
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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
Indicate by check mark if disclosure of delinquent filers pursuant to Rule
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 the
Form 10-K. [ ]
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The aggregate market value of the registrant's Common Stock, $.01 par
value, held by non-affiliates of the registrant as of March 24, 1997 was
$7,658,986 based on the closing price of $4-5/8 on that date on the Nasdaq
National Market. As of March 24, 1997, 4,647,604 shares of the registrant's
Common Stock, $.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement involving the election of
directors, which is expected to be filed within 120 days after the end of the
registrant's fiscal year, are incorporated by reference in Part III of this
Report.
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PART I
Except for the historical information contained herein, the discussion in
this report contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this report
should be read as being applicable to all forward-looking statements wherever
they appear in this report. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include those discussed in Item 7 below, as well as those discussed
elsewhere herein.
ITEM 1. BUSINESS
UFP Technologies, Inc. (the "Company" or "UFP") designs and manufactures a
broad range of high-performance cushion packaging and specialty foam products,
and 100% recycled molded fiber packaging products for a variety of industrial
and consumer markets. The Company is a leading U.S. manufacturer of
custom-designed cushion foam packaging products and highly engineered specialty
foam and laminated products. Its Moulded Fibre Technology subsidiary's ("MFT")
products offer a functional and environmentally responsible alternative to
plastic-based packaging products in the high volume consumer packaging market.
The Company believes that MFT is the North American market leader in specialty,
interior protective packaging applications of molded fiber.
The Company's high-performance cushion packaging products are made
primarily from polyethylene and polyurethane foams, and a wide range of sheet
plastics. These products 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 in the computer, electronics,
telecommunications, industrial, medical and pharmaceutical markets.
The Company's 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 and other light
electronics.
In addition to packaging products, the Company fabricates and molds
specialty products made from cross-linked polyethylene foam and other materials.
The Company also laminates fabrics and other materials to cross-linked
polyethylene foams, polyurethane foams and other substrates. The Company's
specialty products include athletic and industrial safety belts, components for
medical diagnostic equipment and shock absorbing inserts used in athletic and
leisure footwear.
The Company was incorporated in Massachusetts under the name United
Packaging Corporation in 1963. The Company changed its name to United Foam
Plastics Corporation in 1973 and to UFP Technologies, Inc. in October 1993. In
November 1993, the Company reincorporated in Delaware. In December 1993, the
Company completed an initial public offering of its Common Stock and acquired
MFT. Unless the context otherwise requires, the term "Company" or "UFP" reflects
the reincorporation of UFP Technologies, Inc. and refers to UFP Technologies,
Inc. and its subsidiary, including MFT. The Company's principal offices are
located at 172 East Main Street, Georgetown, Massachusetts 01833, and its
telephone number is (508) 352-2200.
Recent Developments
Expanded Molded Fiber Manufacturing Capacity. In order to accommodate
growing demand for its molded fiber packaging products, during fiscal 1996, the
Company substantially expanded its manufacturing capacity and geographic reach
by doubling the capacity at its Gilroy, California facility, opening a new
facility in Iowa to better serve its Midwestern based customers, and doubling
the capacity at that facility during the year. The new equipment installed in
these facilities represented fourth generation technology, resulting in
significantly more cost effective and efficient manufacturing capabilities.
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Acquisition of Foam Cutting Engineers, Inc. ("FCE"). Effective January 1,
1997, the Company acquired substantially all of the properties and assets of
Foam Cutting Engineers, Inc ("FCE"). FCE is engaged in the business of designing
and manufacturing engineered foam plastics for packaging and specialty
applications and is based in the Chicago suburb of Addison, Illinois. This
acquisition expands the Company's geographic reach of its foam plastics business
to the strategically important region of the Midwest.
Expanded Molded Fiber Licensing Activity. In January 1997, the Company
entered into a foreign licensing agreement with United Kingdom based Rexam PLC,
one of Europe's largest packaging companies. The license expands the geographic
reach of the Company's technology to the United Kingdom and Ireland. In the Far
East, its China based licensee, Starlight Holdings, completed the installation
of the Company's equipment and commenced operations in January, 1997.
Market Overview
Packaging. The interior cushion packaging market is characterized by three
primary segments: (1) custom fabricated or molded products for low volume, high
fragility products; (2) molded or die cut products for high volume, consumer
goods; and (3) loose fill and commodity packaging materials for products which
do not require custom-designed packaging. Packaging products 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 but does not serve the lower-end loose fill and 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 shipping 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, which generally are less protective and less
expensive than resilient foams. The Company believes that molded fiber is
increasingly being used as an alternative medium to these materials.
Engineered Specialty Products. Specialty applications of foam and other
types of plastics are numerous and diverse. Examples of uses of specialty foam
products include medical devices, toys, gaskets 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 also 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 are able to be radiation sterilized and have been approved by the U.S.
Food and Drug Administration for open wound skin contact.
Cross-linked foam can also be combined with other materials to increase
product usages 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 its many advantages,
cross-linked foam and cross-linked foam laminated products are increasingly
being used in a wide range of markets as substitutes for traditional rubber,
leather and other product material alternatives.
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Regulatory Climate. The packaging industry has been subject to increasing
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 have begun to seek
packaging materials that meet both environmentally related demands and
performance specifications. Some packaging manufacturers have responded by:
reducing product volume and ultimate waste product disposal through
reengineering traditional packaging products; 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. The Company believes that environmental
sensitivity in the packaging industry will continue to increase, and that a
growing market exists for packaging products that address environmental
concerns.
Products
The Company's products include foam and plastic packaging products, molded
fiber packaging products and specialty foam products.
Foam and Plastic Packaging Products. The Company designs, manufactures and
markets a broad range of packaging products primarily using polyethylene,
polyurethane and cross-linked polyethylene foams and rigid plastics. These
products are custom designed and fabricated or molded to provide optimum
protection for less durable, higher value items, and are primarily sold to
original equipment and component manufacturers in the computer, electronics,
telecommunications, industrial, medical and pharmaceutical markets. Examples of
the Company's packaging products include end cap packs for computers, corner
blocks for telecommunications consoles, anti-static foam packs for printed
circuit boards, die-cut inserts for attache cases 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, are 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 products 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 lowest package volume. The Company
believes that its engineering expertise and breadth of product and manufacturing
capabilities have enabled it to provide unique solutions to achieve these goals.
Molded Fiber Packaging Products. The Company's molded fiber products
provide customers with packaging solutions that are more responsive to
increasingly stringent environmental packaging regulations worldwide and meet
the rising demands of environmentally-aware consumers, while simultaneously
meeting customer cost and performance objectives.
Molded fiber packaging products serve markets traditionally served by
expanded polystyrene (EPS), vacuum formed polystyrene (PS) and polyvinyl
chloride (PVC), and manually assembled corrugated die cut inserts. The Company
believes that molded fiber is currently one of the few environmentally
responsible alternatives to these materials in the high volume interior
packaging market.
The markets for the Company's molded fiber packaging 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.
The unique characteristics of molded fiber packaging can result in cost,
space, shipping, labor and inventory savings to the customer. The Company's
molded fiber products can be nested and, accordingly, provide significant
storage volume reductions over competing foam products, resulting in shipping
and inventory savings to the end user. Molded fiber has also experienced
increasing demand as a replacement for manually assembled corrugated die cut
inserts, which are in disfavor due to ergonomic and worker safety concerns
caused by repetitive motion assembly operations. In addition, simplification of
packaging assembly lines, previously using corrugated
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die cut inserts, through the use of molded fiber packaging can result in
significant labor savings to manufacturers. Sales of the Company's molded fiber
products have been to the computer, consumer electronics and medical industries.
Specialty Foam Products. The Company specializes in highly engineered
products that use the Company's close tolerance manufacturing capabilities and
its expertise in various foam materials and lamination techniques, as well as
the Company's ability to manufacture in clean room environments. The Company's
specialty products are sold primarily to customers in the sporting goods,
medical, leisure and footwear industries. These products include components for
medical diagnostic equipment 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 U.S. 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 also benefits from its ability to custom design its own
proprietary manufacturing equipment in conjunction with its machinery suppliers.
For example, the Company has custom designed its own flame lamination
manufacturing machines allowing the Company to achieve aggressive 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.
Marketing and Sales
The Company markets and sells its packaging and specialty products in the
United States principally through direct regional sales forces comprised of
skilled engineers. The Company also uses independent manufacturers
representatives on a limited basis to sell its products in regions where it does
not have coverage. 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 has been experiencing growing sales of its molded fiber
packaging products for computer peripherals and other consumer products. As a
result, the Company believes that its sales are somewhat seasonal, with
increased sales in the second half of the year.
Internationally, the Company is seeking to establish exclusive licensing
arrangements for the manufacture and distribution of its molded fiber product
line with foreign companies for designated territories. The Company has entered
into a license agreement with Hong Kong -based Starlight Holdings, covering
Guandong Province, Peoples Republic of China and Hong Kong and United
Kingdom-based Rexam PLC covering the United Kingdom and Ireland. Under these
arrangements the manufacturer must pay the Company a lump sum royalty in
exchange for the requisite equipment for production of molded fiber products
and, thereafter, a continuing royalty for the right to manufacture and
distribute molded fiber products in their respective territories. Starlight
completed installation of the Company's equipment and commenced operations in
January 1997. Rexam entered into its license agreement with the Company and
began production under that license in January 1997.
Manufacturing
The Company's manufacturing operations consist primarily of cutting,
molding, vacuum forming, laminating and assembly. 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.
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Cushion foam packaging products that are not cross-linked are fabricated
by cutting shapes from blocks of foam using specialized cutting tools, router,
hot wire equipment and assembling these shapes into the final product using a
variety of form 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
nonfoam 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 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, 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.
Research and Development
The Company's engineering personnel continually explore design and
manufacturing techniques 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 compensated regardless
of whether such projects result in commercial production contracts. Because the
Company's products tend to have short life cycles, research and development is
an integral part of the Company's ongoing cost structure and such expenses are
reflected in the Company's cost of sales and in general and administrative
expenses.
Competition
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 custom-designed cushion foam 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 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.
MFT has been instrumental in developing the molded fiber cushion packaging
market. However, the Company believes that its competitors, some of whom have
substantially greater resources than the Company, are developing and selling
competing molded fiber packaging products. Moreover, the Company's molded fiber
products face intense competition from other products, particularly those made
from molded plastic and corrugated mediums, that currently dominate the consumer
cushion packaging market and are manufactured by a wide range of companies.
Competition in the engineered specialty foam products industry is also
highly competitive. The Company's specialty foam products face competition
primarily from smaller companies that typically concentrate on production of
specialty products for specific industries. The Company expects that additional
companies will enter the market for engineered specialty foam products as the
market expands. The Company believes that 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 specialty foam products
market. The Company's specialty products also compete with products made from a
wide range of other materials, including rubber, leather and other foams.
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The Company believes that its customers typically select vendors based
primarily 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.
Patents and Other Proprietary Rights
The Company relies upon trade secret and patent protection to protect its
technology. 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 will 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 one U.S. patent and one U.S. patent application pending
relating to its molded fiber technology (including certain proprietary machine
designs) and has preserved foreign patent rights with respect to this patent and
patent application in certain foreign countries. The Company also has obtained
ten U.S. patents and has one U.S. patent application pending relating to its
foam and packaging technologies. There can be no assurance that any of the
Company's patent applications will be granted or that any patent or patent
application of the Company will provide significant protection for the Company's
products and technology.
The Company has expanded the geographic reach of its molded fiber products
by licensing its molded fiber patents and technology on an exclusive basis to
Rexam in the United Kingdom and Starlight in China, covering the manufacture and
sale of molded fiber products in the United Kingdom, Ireland, China and certain
other Asian countries. See "Marketing and Sales."
Environmental Considerations
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 opposition to environmentally
incompatible packaging and other products and that 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.
Backlog
The Company's backlog as of March 1, 1997, and March 1, 1996 totaled
approximately $8.3 million and $8.0 million, respectively. Backlog consists of
purchase orders for which a delivery schedule within the next twelve months has
been specified by customers. Orders included in backlog may be canceled or
rescheduled by customers without significant penalty. Backlog as of any
particular date should not be relied upon as indicative of the Company's
revenues for any period.
Employees
As of March 1, 1997, the Company had 370 full time employees, including 20
in engineering, 290 in manufacturing operations, 33 in marketing, sales and
support services, and 27 in general and administration. The Company is not a
party to any collective bargaining agreement. The Company considers its employee
relations to be good.
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ITEM 2. PROPERTIES
The following table presents certain information relating to each of the
Company's properties:
<TABLE>
<CAPTION>
Location Square Feet Lease Expiration Date Principal Use
- -------- ----------- ---------------------- -----------------------------------------
<S> <C> <C> <C>
Georgetown, Massachusetts 54,000 (owned by the Headquarters, fabrication, moldings, test
Company) lab, clean room and engineering
Decatur, Alabama(1) 36,000 12/31/98 Fabrication and engineering
Pawcatuck, Connecticut 39,000 12/31/99 Fabrication and engineering
Kissimmee, Florida(1) 37,400 7/31/99 Fabrication, molding, test lab and engineering
Atlanta, Georgia(2) 55,530 10/31/99 Fabrication, molding and engineering
Haverhill, Massachusetts(2) 38,372 2/28/98 Flame lamination
Raritan, New Jersey(2) 67,125 2/28/98 Fabrication, molding, test lab, clean room
and engineering
Gilroy, California(2) 35,850 5/1/99 Molded fiber operations and engineering
Scarborough, Maine 24,625 5/31/01 MFT headquarters, molded fiber operations and
engineering
Clinton, Iowa 30,000 7/1/01 Molded fiber operations
Addison, Illinois(3) 30,000 2/28/00 Fabrication and engineering
West Chicago, Illinois 2.76 acres (owned by the Undeveloped land
Company)
</TABLE>
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(1) United Development Company Limited, a Florida limited partnership and an
affiliate of certain officers, directors and stockholders of the Company,
is the lessor of these properties. United Development and the Company
have agreed in principle to extend the Kissimmee, Florida lease to July
31, 1999 but no written agreements to that effect have been made as of
March 24, 1997.
(2) The Company has an option to extend the term of this lease for a period
of five years.
(3) The Company has two options to extend the term of this lease for periods
of two years.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE TO SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Price
The Company's Common Stock, $.01 par value (the "Common Stock"), was
listed on the Nasdaq Small Cap Market under the symbol "UFPT" and on the Boston
Stock Exchange under the symbol "UFP" from December 17, 1993 to July 8, 1996.
Thereafter, the Company's Common Stock has been listed on the Nasdaq National
Market. The following table sets forth the range of high and low, bid and asked
quotations for the Common Stock as reported by Nasdaq for the quarterly periods
from January 1, 1995 to December 31, 1996.
<TABLE>
<CAPTION>
Bid Asked
--------------------- ------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
Fiscal Year Ended December 31, 1995
First Quarter ............................................4 1-7/8 4-3/8 2-1/4
Second Quarter............................................3-7/8 2-5/8 4 2-7/8
Third Quarter 3-7/8 2-1/2 4 2-3/4
Fourth Quarter............................................4 2-5/8 4 2-5/8
Fiscal Year Ended December 31, 1996
First Quarter ............................................4-1/4 2-7/8 4-1/2 3
Second Quarter............................................5-7/8 3-1/8 6-3/4 3-1/2
Third Quarter 5-7/8 4 6-1/8 4-3/4
Fourth Quarter............................................6 4-1/2 6-1/4 4-3/4
</TABLE>
Number of Stockholders
As of March 1, 1997, there were approximately 140 holders of record of the
Company's Common Stock.
Dividends
The Company did not pay any dividends in 1996. Although prior to becoming
a public company in December 1993, the Company had from time to time paid cash
dividends on its capital stock, the Company presently intends to retain all of
its earnings to provide funds for the operation and expansion of its business
and does not anticipate paying any cash dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------------------------
1992 1993 1994 1995 1996
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations
Data:
Net sales...................... 29,205 30,503 31,907 34,096 39,359
Cost of Sales.................. 22,748 23,634 25,347 26,022 29,447
------ ------ ------ ------ ------
Gross profit.............. 6,457 6,969 6,560 8,074 9,912
Selling, general and administration
expenses.................. 5,416 6,008 7,855 6,979 7,818
------ ------ ------ ------ ------
Operating income (loss)... 1,041 861 (1,295) 1,095 2,094
Other deductions
Interest expense 292 316 339 438 485
Equity in net (income) loss of
unconsolidated affiliates and 58 (22) (18) (18) (20)
partnership
Other, net 338 168 853 19 (39)
------ ------ ------ ------ ------
Total other deductions 688 462 1,174 439 426
Income (loss) before income
taxes and discontinued 353 399 (2,469) 656 1,668
operations
Income tax benefit (expense)... (141) (300) (45) 232 (406)
------ ------ ------ ------ ------
Income (loss) from continuing 212 99 (2,514) 888 1,262
------ ------ ------ ------ ------
operations
Loss from discontinued operations(1) 160 298 - - -
------ ------ ------ ------ ------
Net income (loss)......... 52 (199) (2,514) 888 1,262
====== ====== ====== ====== ======
Earnings (loss) per share
Continuing operations. 0.09 0.04 (0.55) 0.19 0.26
Discontinued operations (0.07) (0.11) - - -
------ ------ ------ ------ ------
Net income (loss) per share 0.02 (0.07) (0.55) 0.19 0.26
====== ====== ====== ====== ======
Weighted average number of
shares outstanding.... 2,421 2,670 4,598 4,737 4,874
</TABLE>
<TABLE>
<CAPTION>
December 31
----------------------------------------------------------------
1992 1993(2) 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Working Capital 1,433 3,095 1,444 1,952 2,488
Total assets 11,366 20,247 19,142 20,795 22,900
Short-term debt 2,174 857 2,766 3,257 2,455
Long-term debt, excluding current 1,751 1,913 1,603 2,414 3,223
portion
Stockholders' equity 3,947 12,223 10,534 11,438 12,729
</TABLE>
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(1) Loss from discontinued operations is attributable to losses from the
operations of Re-Source America, Inc., in which the Company held a 45%
interest. On September 30, 1993 this investment was written down to zero
and its interest was distributed as a dividend to the Company's
Stockholders.
(2) Reflects the completion of the Company's initial public offering and the
acquisition of MFT. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Company designs, manufactures and sells a broad range of engineered
foam, plastic and molded fiber cushion packaging products, and specialty foam
products for a variety of industrial and consumer markets. The Company's results
of operations over the past three years have been significantly affected by
start-up costs associated with the Company's acquisition in December 1993 of the
molded fiber cushion packaging product line of MFT, made primarily from 100%
recycled paper, and the growth of that business during 1994, 1995 and 1996.
Primarily as a result of the successful integration of MFT and improvements in
MFT technology, the Company's net sales increased to $39.4 million in 1996 from
$34.1 million in 1995 and $31.9 million in 1994, and the Company's net income
increased to $1.3 million in 1996 as compared to $888,000 in 1995 and a net loss
of $2.5 million in 1994. The Company expects that its molded fiber packaging
business will continue to grow in 1997 and plans to increase its manufacturing
capacity to support this growth. However, there can be no assurance that the
Company's molded fiber business will continue to grow as anticipated. A
significant portion of the Company's sales of molded fiber products are sold to
manufacturers of computer peripherals and other consumer products. As a result,
the Company believes that its sales are somewhat seasonal, with increased sales
in the second half of the year.
Results of Operations
The following table sets forth, for the periods indicated, the
percentage of revenues represented by the items as shown in the Company's
consolidated statements of operations.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales........................................ 100.0 100.0 100.0
Cost of sales.................................... 74.8 76.3 79.4
Gross profit................................ 25.2 23.7 20.6
Selling general and administrative expenses...... 19.9 20.5 24.6
Operating income (loss)..................... 5.3 3.2 (4.0)
Total other deductions........................... 1.1 1.3 3.7
Income (loss) before income taxes................ 4.2 1.9 (7.7)
(Provision) benefit for income taxes............. (1.0) 0.7 (0.1)
Net income (loss) from continuing operations..... 3.2 2.6 (7.8)
</TABLE>
1996 Compared with 1995.
The Company's net sales increased 15.4% to $39.4 million in 1996 from
$34.1 million in 1995. The increase in net sales was primarily attributable to
increased sales volume of the Company's molded fiber packaging products.
Cost of sales as a percentage of net sales decreased to 74.8% in 1996
from 76.3% in 1995. The improvement in the cost of sales margin was primarily
attributable to increased sales of molded fiber products as a percentage of
total net sales and manufacturing efficiency improvements associated with the
Company's molded fiber products.
Selling, general and administrative dollar expenses increased $0.8
million or 11.4% from the prior year to $7.8 million but decreased as a
percentage of net sales to 19.9% in 1996 from 20.5% of net sales in 1995. The
dollar increase was primarily attributable to increased commissions associated
with higher sales levels.
-12-
<PAGE>
Interest expense increased 10.7% to $485,000 (1.2% of net sales) in
1996 from $438,000 (1.3% of net sales) in 1995. The increase was primarily
attributable to an increase in the Company's long term capital lease
obligations.
The income tax expense was $406,000 in 1996 compared to a benefit of
$232,000 in 1995. Both of these periods were positively effected by the
realization of net operating loss carryforwards and the reduction of the
Company's valuation allowance for deferred income taxes associated with the
unrestricted remaining loss carryforwards. This reduction in the valuation
allowance reflected the Company's improved operating performance, which has
resulted in the likelihood that the Company will be able to benefit from its
deferred income taxes. See Note 9 to the Company's Consolidated Financial
Statements.
1995 Compared with 1994. The Company's net sales increased 6.9% to
$34.1 million in 1995 from $31.9 million in 1994. The increase in net sales was
primarily attributable to increased sales volume of the Company's molded fiber
packaging products, which was partially offset by a slight decrease in sales
volume in the Company's foam and plastic business.
Costs of sales as a percentage of net sales decreased to 76.3% in 1995
from 79.4% in 1994. The improvement in the cost of sales margin was primarily
attributable to volume and manufacturing efficiency improvements associated with
the Company's molded fiber products.
Selling, general and administrative expenses decreased 11.2 % to $7.0
million (20.5% of net sales) in 1995 from $7.9 million (24.6% of net sales) in
1994. The 1994 expenses included costs associated with the integration of the
Company's MFT operations, the start-up of MFT's molded fiber facility in
California and approximately $339,000 of expenses associated with severance,
plant relocation and foreign licensing set-up costs. The reduction of selling,
general and administrative expenses also reflects lower payroll costs associated
with the Company's realignment of its management structure.
Interest expense increased 29.2% to $438,000 (1.3% of net sales) in
1995 from $339,000 (1.1% of net sales) in 1994. The increase was primarily
attributable to an increase in the Company's average short term borrowings under
its bank line of credit.
Other expense decreased to $19,000 in 1995 from $853,000 in 1994. The
1994 expense was primarily attributable to a write down and disposal of the
Company's first generation molded fiber equipment at its Maine facility. The
Company replaced that equipment with new equipment during 1995.
The Company had an income tax benefit of $232,000 in 1995 as compared
to an income tax expense of $45,000 in 1994. The Company's income tax benefit in
1995 was primarily attributable to the offset of the Company's taxable income by
the Company's net operating loss carryforwards and the reduction of the
Company's valuation allowance for deferred income taxes associated with the
unrestricted remaining loss carryforwards. This reduction in the valuation
allowance reflected the Company's improved operating performance, which has
resulted in the increased likelihood that the Company will be able to benefit
from its deferred income taxes. See Note 9 to the Company's Consolidated
Financial Statements.
Liquidity and Capital Resources
For the last three years, the Company has funded its operations through
internally generated cash flow, long-term debt, a commercial bank revolving loan
facility and sales of common stock. In December 1993, and January 1994, the
Company received net proceeds of $6,300,000 and $807,000, respectively, from the
initial public offering of its common stock.
At December 31, 1996 the Company had net working capital of $2,488,000,
including $144,000 of cash and cash equivalents. In addition, the Company has a
$4,500,000 revolving bank line of credit that is due on demand, of which
$1,400,000 was outstanding at December 31, 1996. The Company drew down an
additional
-13-
<PAGE>
$1,500,000 from this facility in January 1997 to finance the acquisition of Foam
Cutting Engineers, Inc. ("FCE"). See Note 17 to the Company's Consolidated
Financial Statements.
During 1996 the Company's net change in cash and cash equivalents was
$381,000, including net cash provided from operations of $3.0 million and net
cash used in investing activities of $3.4 million.
Net cash provided by operating activities was primarily attributable to
the Company's net income and depreciation and amortization expenses. Net cash
used in investing activities included $3.4 million of capital expenditures,
primarily to purchase additional equipment to support the growth of the
Company's molded fiber packaging operations. Net cash provided from financing
activities included net borrowings of $1.4 million which was primarily
attributable to two capital lease obligations. At December 31, 1996, the Company
had $946,000 outstanding under two mortgage notes, $175,000 outstanding under an
equipment note, $38,000 outstanding under a leasehold improvement loan and $3.1
million outstanding under seven capital leases. At December 31, 1996, the
current portion of these obligations was $1,055,000.
While the Company has no significant capital commitments, the Company
plans to add molded fiber packaging manufacturing capacity in 1997 and
anticipates that it will incur capital expenditures of at least $2.0 million for
equipment improvements. The Company expects to finance this expansion from cash
flow from operations, its revolving line of credit, and, if necessary, an
increase in its equipment financing and additional bank borrowings. 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. The Company also may consider the acquisition of
corporations, technologies or products in 1997 which are complementary to its
business. 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 1997.
Factors That May Affect Future Results
From time to time, information provided by the Company or statements
made by its employees may contain "forward-looking information" which involve
risks and uncertainties. In particular, statements contained in this report and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations which are not historical facts (including, but not limited to,
statements concerning the anticipated growth of the molded fiber packaging
business, the expectation that an increase in equipment financing and additional
bank borrowings will be available to the Company and the availability of funds
to meet cash requirements) may be "forward-looking" statements. The Company's
actual results may differ significantly from those stated in any forward-looking
statements. Factors that may cause such differences include, but are not limited
to, risks associated with the development of the market for molded fiber
packaging, the successful integration of FCE or any future acquisition, if any,
competition and general economic factors.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated Financial Statements and Supplementary Data of the
Company are listed under Part IV, Item 14, in this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements on accounting principles or practices or
financial statement disclosure between the Company and its accountants during
the fiscal year ended December 31, 1996.
-14-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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
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
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.
-15-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) (1) FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Index to Consolidated Financial Statements and Financial
Statement Schedules ........................................................................ F-1
Independent Auditors' Report.................................................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995.................................. F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995, and 1994........................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994............................................................ F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995, and 1994........................................................... F-6
Notes to Consolidated Financial Statements.................................................... F-7
(A) (2) FINANCIAL STATEMENT SCHEDULES
Independent Auditors Report on Supplementary Information...................................... F-19
Schedule II - Valuation and Qualifying Accounts............................................. F-20
</TABLE>
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in the
financial statements or notes thereto.
<PAGE>
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
Index to Consolidated Financial Statements and Financial Statement Schedule
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the Years Ended December 31, 1996,
1995 and 1994 F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
Schedule
Independent Auditors' Report on Supplementary Information F-19
Schedule II - Valuation and Qualifying Accounts F-20
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
UFP Technologies, Inc.:
We have audited the consolidated balance sheets of UFP Technologies, Inc. and
subsidiary as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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. An audit also includes
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 financial position of UFP Technologies,
Inc. and subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
[SIGNATURE KPMG Peat Marwick LLP]
Boston, Massachusetts
February 7, 1997
F-2
<PAGE>
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
------------------------------
Assets (note 7) 1996 1995
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 143,531 524,490
Receivables, net (note 3) 5,602,202 4,944,541
Inventories (note 4) 2,585,560 2,432,686
Prepaid expenses 239,093 322,627
Deferred income taxes (note 9) 365,000 228,900
----------- ----------
Total current assets 8,935,386 8,453,244
----------- ----------
Property, plant and equipment (notes 5 and 13) 17,201,709 13,825,563
Less accumulated depreciation and amortization (7,486,126) (6,203,543)
----------- ----------
Net property, plant and equipment 9,715,583 7,622,020
----------- ----------
Cash surrender value of officers' life insurance, net of loans
of $13,595 in 1996 and 1995 325,161 343,990
Investment in and advances to affiliated partnership (note 6) 226,887 227,950
Deferred income taxes (note 9) 801,000 113,110
Goodwill, net (note 1) 2,577,491 3,740,321
Other assets 318,370 293,888
----------- ----------
Total assets $22,899,878 20,794,523
=========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Notes payable (note 7) $1,400,000 2,775,000
Current installments of long-term debt (note 7) 394,825 183,919
Current capital lease obligations (note 13) 660,192 297,536
Accounts payable 2,215,030 1,814,807
Accrued expenses and payroll withholdings (note 8) 1,776,926 1,430,396
----------- ----------
Total current liabilities 6,446,973 6,501,658
Long-term debt, excluding current installments (note 7) 764,256 1,161,369
Capital lease obligations, excluding current installments (note 13) 2,459,261 1,253,340
Retirement liability (note 12) 499,896 439,896
----------- ----------
Total liabilities 10,170,386 9,356,263
----------- ----------
Commitments and contingencies (note 13)
Stockholders' equity (notes 10 and 11):
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 and 10,000,000
shares in 1996 and 1995, respectively; issued and outstanding 4,636,854
shares in
1996 and 4,626,854 shares in 1995 46,369 46,269
Additional paid-in capital 9,404,902 9,376,227
Retained earnings 3,278,221 2,015,764
----------- ----------
Total stockholders' equity 12,729,492 11,438,260
----------- ----------
Total liabilities and stockholders' equity $22,899,878 20,794,523
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $39,359,066 34,096,235 31,906,856
Cost of sales 29,446,979 26,022,457 25,346,401
----------- ---------- ----------
Gross profit 9,912,087 8,073,778 6,560,455
Selling, general and administrative expenses 7,818,451 6,979,165 7,855,403
----------- ---------- ----------
Operating income (loss) 2,093,636 1,094,613 (1,294,948)
----------- ---------- ----------
Other income (deductions):
Interest expense (484,958) (437,978) (338,875)
Equity in net income of unconsolidated affiliate and partnership 19,937 17,541 17,949
Other, net (note 15) 39,842 (18,719) (852,674)
----------- ---------- ----------
Total other deductions (425,179) (439,156) (1,173,600)
----------- ---------- ----------
Income (loss) before income tax benefit (expense) 1,668,457 655,457 (2,468,548)
Income tax benefit (expense) (note 9) (406,000) 232,244 (45,000)
----------- ---------- ----------
Net income (loss) $ 1,262,457 887,701 (2,513,548
=========== ========== ==========
Weighted average common shares outstanding 4,874,125 4,734,247 4,598,076
=========== ========== ==========
Per share data:
Net income (loss) $ 0.26 0.19 (0.55)
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common stock Additional Total
------------------- paid-in Retained stockholders'
Shares Amount capital earnings equity
------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 4,451,133 $ 44,511 $ 8,536,471 $ 3,641,611 $ 12,222,593
Sale of common stock through
incentive stock option plan 4,168 42 7,377 - 7,419
Sale of common stock 160,301 1,603 805,114 - 806,717
Stock issued in lieu of compensation 6,252 63 11,065 - 11,128
Net loss - - - (2,513,548) (2,513,548)
--------- ----------- -------------- --------------- --------------
Balance at December 31, 1994 4,621,854 46,219 9,360,027 1,128,063 10,534,309
Stock issued in lieu of compensation 5,000 50 16,200 - 16,250
Net income - - - 887,701 887,701
--------- ----------- -------------- --------------- --------------
Balance at December 31, 1995 4,626,854 46,269 9,376,227 2,015,764 11,438,260
Sale of common stock through
incentive stock option plan 5,000 50 11,850 - 11,900
Stock issued in lieu of compensation 5,000 50 16,825 - 16,875
Net income - - - 1,262,457 1,262,457
--------- ----------- -------------- --------------- --------------
Balance at December 31, 1996 4,636,854 $ 46,369 $ 9,404,902 $ 3,278,221 $ 12,729,492
========= =========== ============== =============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,262,457 887,701 (2,513,548)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 1,498,123 1,241,550 1,191,980
Equity in net income of unconsolidated
affiliate and partnership (19,937) (17,541) (17,949)
Loss on disposal of property, plant and equipment - 1,304 852,803
Stock issued in lieu of compensation 16,875 16,250 11,128
Deferred income taxes 131,000 (291,600) (94,611)
Changes in operating assets and liabilities:
Receivables, net (657,661) (372,745) 110,406
Inventories (152,874) 11,084 (367,893)
Prepaid expenses 83,534 (43,874) 15,991
Refundable income taxes - - 21,224
Accounts payable 400,223 (435,621) (1,147,299)
Accrued expenses and payroll withholdings 346,530 19,061 155,460
Retirement liability 60,000 60,000 60,000
----------- ---------- ----------
Net cash provided by (used in) operating activities 2,968,270 1,075,569 (1,722,308)
----------- ---------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment (3,376,146) (2,415,334) (1,598,491)
Decrease (increase) in cash surrender value of officers' life insurance 18,829 218,453 (91,686)
(Increase) decrease in other assets (32,182) (83,153) 12,818
Payments received on advances to affiliated company 21,000 21,000 22,750
----------- ---------- ----------
Net cash used in investing activities (3,368,499) (2,259,034) (1,654,609)
----------- ---------- ----------
Cash flows from financing activities:
Net borrowings (repayments) under notes payable (1,375,000) 210,600 2,364,400
Principal repayments of long-term debt (186,207) (119,422) (640,319)
Principal repayments of obligations under capital leases (372,423) (189,448) (124,066)
Proceeds from long-term borrowings - 400,000 -
Proceeds from long-term capital leases 1,941,000 1,000,000 -
Proceeds from sale of common stock 11,900 - 814,136
----------- ---------- ----------
Net cash provided by financing activities 19,270 1,301,730 2,414,151
----------- ---------- ----------
Net change in cash and cash equivalents (380,959) 118,265 (962,766)
Cash and cash equivalents, beginning of year 524,490 406,225 1,368,991
----------- ---------- ----------
Cash and cash equivalents, end of year $ 143,531 524,490 406,225
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts and results of
operations of UFP Technologies, Inc. and its wholly owned subsidiary
Moulded Fibre Technology, Inc. (MFT). All significant intercompany
balances and transactions have been eliminated in consolidation.
(b) Nature of Operations
UFP Technologies, Inc. designs and manufactures a broad range of
packaging and specialty foam products for a variety of industrial and
consumer markets.
(c) Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated and
amortized using the straight-line method over the estimated useful
lives of the assets for financial statement purposes and accelerated
methods for income tax purposes.
Estimated useful lives of property, plant and equipment are as follows:
Leasehold improvements Life of the lease
Buildings and improvements 31.5 years
Equipment 8-10 years
Furniture and fixtures 5 - 7 years
(e) Income Taxes
The Company follows the asset and liability method of accounting for
income taxes whereby 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 bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be
recovered or settled. 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.
(f) Investments in Realty Partnerships
The Company has invested in two realty limited partnerships, Lakeshore
Estates Associates and United Development Company Limited. These
investments are stated at cost, plus or minus the Company's
proportionate share of the limited partnerships' income or losses
less any distributions received from the limited partnerships. 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.
F-7
<PAGE>
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(g) Goodwill
The goodwill recorded in connection with the acquisition of MFT is being
amortized on a straight-line basis over a 20 year period. Accumulated
amortization was $636,364 and $428,524 as of December 31, 1996 and
1995, respectively. In 1996 and 1995, a charge in lieu of taxes of
$954,990 and $75,400, respectively, was allocated to reduce goodwill.
The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the balance over its
remaining life can be recovered through projected future results.
Goodwill impairment is measured based on projected undiscounted cash
flows over the asset's remaining life.
(h) Income (Loss) Per Share
Income (loss) per share is computed based on the weighted average number
of common and common equivalent shares outstanding during each
period. Common equivalent shares, using the treasury stock method,
are included in the per share calculations only when the effect of
their inclusion would be dilutive. Common stock equivalent shares
consist of stock options.
(i) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
(j) Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
(k) Accounting for Stock Based Compensation
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, Accounting for Stock-Based Compensation ("SFAS
123") which established a fair-value based method of accounting for
stock-based compensation plans. Prior to its adoption of SFAS 123,
the Company accounted for employee stock options under APB Opinion
No. 25, Accounting for Stock Issued to Employees, which required the
use of an intrinsic-value method of accounting for stock options.
SFAS 123 allows the continued use of the intrinsic-value method of
accounting prescribed by APB Opinion No. 25 as long as pro forma
disclosures of net income and net income per share, as if the
fair-value method of accounting for stock options was, applied are
presented.
The Company adopted SFAS 123 effective January 1, 1996 and has elected to
continue to account for stock options using the methodology
prescribed by APB Opinion No. 25. Accordingly, pro forma disclosures
of net income and net income per share as if the fair-value method of
accounting for stock options was applied are presented in note 10.
The effects of applying SFAS 123 for disclosure of compensation costs
for options granted in 1996 and 1995 may not be representative of the
effects on pro forma net income disclosed for future years.
F-8
<PAGE>
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(l) Long-Lived Assets
In 1996 the Company adopted Financial Accounting Standards Board
Statement No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of ("SFAS 121"). SFAS 121
establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to (1)
those assets to be held and used in the business, and (2) for assets
to be disposed of. The adoption of SFAS 121 had no effect on the
Company's consolidated financial statements.
(m) Reclassifications
Certain items in the prior year consolidated financial statements have
been reclassified to be consistent with current year reporting.
(2) Supplemental Cash Flow Information
Cash paid for interest and income taxes is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest $ 484,958 439,508 337,273
========= ======= =======
Income taxes $ 82,662 49,432 153,774
========= ======= =======
</TABLE>
(3) Receivables
Receivables consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
---- ----
<S> <C> <C>
Accounts receivable - trade $ 5,766,299 5,113,531
Employee advances 255 31,946
----------- ----------
5,766,554 5,145,477
Less allowance for doubtful receivables 164,352 200,936
----------- ----------
$ 5,602,202 4,944,541
=========== ==========
</TABLE>
F-9
<PAGE>
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(4) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
---- ----
<S> <C> <C>
Raw materials $ 1,850,238 1,724,537
Work in process 190,553 193,185
Finished goods 544,769 383,449
Contract-in-process - 131,515
----------- ----------
$ 2,585,560 2,432,686
=========== ==========
</TABLE>
(5) Property, Plant and Equipment
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
---- ----
<S> <C> <C>
Land $ 85,319 85,319
Leasehold improvements 943,162 768,846
Buildings and improvements 2,933,949 2,915,424
Equipment 10,814,648 9,084,800
Furniture and fixtures 1,045,493 909,204
Construction in progress - equipment 1,379,138 61,970
----------- ----------
$17,201,709 13,825,563
=========== ==========
</TABLE>
(6) Investment in and Advances to Affiliated Partnership
The Company has an ownership interest in a realty limited partnership,
United Development Company Limited. This investment is stated at
cost, plus the Company's proportionate share of the limited
partnership's income, less any distributions received from the
limited partnership.
On September 30, 1993, United Development Company Limited executed and
delivered to the Company a term note in the amount of $210,000 to
evidence advances received from the Company. This note is payable on
or before September 30, 1998, with interest at the prime rate of The
First National Bank of Boston plus 2% (10.25% at December 31, 1996).
The note is repayable in monthly installments of $1,750 plus
interest.
(7) Indebtedness
At December 31, 1996, the Company may borrow up to $4,500,000 under a
revolving line of credit at the bank's prime lending rate (8.25% at
December 31, 1996). The amounts borrowed under this arrangement are
due on demand and are secured by the assets of the Company.
Borrowings under this arrangement at December 31, 1996 and 1995,
respectively, were $1,400,000 and $2,775,000.
F-10
<PAGE>
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
---- ----
<S> <C> <C>
8.2% mortgage note payable in monthly installments
of $8,759 including interest, maturing in 2007;
secured by real estate $ 723,736 765,301
Mortgage note payable in monthly installments of
$1,695 plus interest at the bank's base lending rate plus 1%
(9.25% at December 31, 1996), maturing
in 1997; secured by real estate 222,030 242,370
Note payable in monthly installments of $9,722 plus
interest at the bank's prime lending rate (8.25% at
December 31, 1996), maturing in 1998; secured by
equipment 175,000 291,667
Note payable in monthly installments of $1,062 including
interest at 12%, maturing in 2000 38,315 45,950
---------- ---------
Total long-term debt 1,159,081 1,345,288
Less current installments 394,825 183,919
---------- ---------
Long-term debt, excluding current installments $ 764,256 1,161,369
========== =========
</TABLE>
Aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1997 $ 394,825
1998 119,598
1999 66,886
2000 69,821
2001 65,899
Thereafter 442,052
----------
$1,159,081
==========
</TABLE>
(8) Accrued Expenses and Payroll Withholdings
Accrued expenses and payroll withholdings consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Compensation $ 704,412 548,506
Benefits 568,856 612,145
Other 503,658 269,745
---------- ---------
$1,776,926 1,430,396
========== =========
</TABLE>
F-11
<PAGE>
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(9) Income Tax Benefit (Expense)
Total income taxes benefit (expense) for the years ended December 31,
1996, 1995 and 1994 were allocated as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income (loss) from operations $(406,000) 232,244 (45,000)
========= ======= =======
Goodwill, for initial recognition of acquired tax benefits
that previously were included in the valuation
allowance $ 954,990 75,400 -
========= ======= =======
</TABLE>
Income tax benefit (expense) consists of:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $(170,000) (18,556) (68,242)
State (105,000) (40,800) (71,369)
--------- ------- --------
(275,000) (59,356) (139,611)
--------- ------- --------
Deferred:
Federal (136,000) 291,600 75,696
State 5,000 - 18,915
--------- ------- --------
(131,000) 291,600 94,611
--------- ------- --------
$(406,000) 232,244 (45,000)
========= ======= ========
</TABLE>
At December 31, 1996, the Company has net operating loss carryforwards
for income tax purposes of approximately $3,000,000 which are
available to offset future taxable income, if any, and which expire
during the years ending December 31, 2006 through 2009. The Company
also has alternative minimum tax credit carryforwards of
approximately $114,000 which are available to offset future taxes.
The future benefit of the net operating loss carryforwards are limited to
an annual limitation of $302,000 under the provisions of the Tax
Reform Act of 1986, which imposes an annual limitation on the amount
that can offset taxable income due to the change in ownership of MFT.
F-12
<PAGE>
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets related to:
Receivables $ 65,741 79,406
Inventories 62,805 68,338
Compensation programs 20,030 28,843
Capital leases 123,749 44,781
Retirement liability 199,958 173,838
Net operating loss carryforwards 1,022,206 1,845,746
Alternative minimum tax credits 114,000 -
Capital loss carryforward 8,500 9,880
---------- ----------
1,616,989 2,250,832
Less valuation allowance - (1,529,508)
---------- ----------
1,616,989 721,324
Deferred tax liabilities related to:
Excess of book over tax basis of fixed assets 326,947 256,768
Investee tax loss in excess of book losses 124,042 122,546
---------- ----------
450,989 379,314
---------- ----------
Net deferred tax assets $1,166,000 342,010
========== ==========
</TABLE>
The net change in the total valuation allowance for the years ended
December 31, 1996 and 1995 was a decrease of $1,529,508 and
$612,535, respectively.
The amount recorded as net deferred tax assets as of December 31, 1996
and 1995 represent the amount of tax benefits of existing deductible
temporary differences or carryforwards that are more likely than not
to be realized through the generation of sufficient future taxable
income within the carryforward period. The Company believes that the
net deferred tax asset of $1,166,000 at December 31, 1996 will more
likely than not be realized in the carryforward period. The Company's
U.S. taxable income (loss) before application of net operating loss
carryforwards was approximately $1,859,000, $609,000 and $(1,353,000)
for the years ended December 31, 1996, 1995 and 1994, respectively.
Management reviews the recoverability of deferred tax assets each
reporting period.
F-13
<PAGE>
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
Actual tax benefit (expense) for periods presented differs from "expected"
tax benefit (expense) for those years, computed by applying the U.S.
federal corporate rate of 34% to earnings (loss) before income tax
benefit (expense) as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax rate (34.0)% (34.0)% 34.0%
(Increase) decrease in income
taxes resulting from:
State taxes, net of federal tax benefit (4.0) (4.2) (1.9)
Officers' life insurance (.5) (2.0) (1.3)
Amortization of goodwill (4.2) (11.4) (3.0)
Change in the beginning of the year balance of the federal
valuation allowance for deferred tax assets, net of
$954,990 and $75,400 allocated to goodwill in 1996 and
1995,
respectively 18.4 88.2 (29.7)
Other - (1.2) .1
----- ----- -----
(24.3)% 35.4% (1.8)%
===== ===== =====
</TABLE>
(10) Employee Stock Option Plans
The Company maintains a stock option plan to provide long-term rewards
and incentives to the Company's key employees, officers, employee
directors, consultants and advisors. The plan provides for options
for the issuance of up to 1,050,000 shares of common stock in the
form of either nonqualified stock options or incentive stock options.
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 nonqualified stock options shall be
determined by the Stock Option Committee. All options granted under
the plan 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. At December 31, 1996, 695,250
options were outstanding under the plan.
The Company also maintains a stock option plan (the "Director Plan")
covering only nonemployee directors. The Director Plan provides for
options for the issuance of up to 110,000 shares of common stock. On
July 1 of each year, each individual who at the time is serving as a
nonemployee director of the Company will receive an automatic grant
of options to purchase 2,500 shares of common stock. These options
become exercisable in full six months after the date of grant and
expire ten years from the date of grant. The exercise price is the
fair market value of the common stock on the date of grant. At
December 31, 1996, 37,500 options were outstanding under the Director
Plan.
F-14
<PAGE>
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plans. Accordingly, no compensation
cost has been recognized in connection with these plans. Had
compensation cost for the Company's stock option plans been
determined consistent with SFAS 123, the Company's net income and
income per share would have been reduced to the following pro forma
amounts.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net income as reported $1,262,457 887,701
========== =======
Pro forma net income $1,120,964 779,217
========== =======
Net income per share as reported $ 0.26 0.19
========== =======
Pro forma net income per share $ 0.23 0.17
========== =======
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants issued in 1996 and 1995,
respectively: no dividend yield for both years; expected volatility
of 62% and 68%; risk-free interest rates of 6.13% and 5.38%; and
expected lives between 4.5 and 4.95 years for grants issued in 1996
and between 4.5 and 9.54 years for grants issued in 1995.
The following is a summary of stock option activity under both plans:
<TABLE>
<CAPTION>
Shares Weighted Average
Under Options Exercise Price
------------- --------------
<S> <C> <C>
Outstanding at December 31, 1993 27,092 $ 1.78
Granted 542,000 4.00
Exercised (4,168) 1.78
Canceled or expired (66,924) 4.23
-------
Outstanding at December 31, 1994 498,000 3.86
Granted 230,000 2.83
Exercised - -
Canceled or expired (37,000) 5.35
-------
Outstanding at December 31, 1995 691,000 3.44
Granted 68,000 3.82
Exercised (5,000) 2.38
Canceled or expired (21,250) 5.35
-------
Outstanding at December 31, 1996 732,750 3.43
=======
</TABLE>
The weighted-average fair value of options granted during 1996 and 1995
was $2.16 and $1.93, respectively. As of December 31, 1996, 475,500
of the outstanding options were exercisable.
F-15
<PAGE>
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
The following is a summary of information relating to stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ -------------------------
Number Weighted- Number Weighted-
Outstanding Weighted- Average Exercisable Average
Range of at December Average Remaining Exercise at December Exercise
Exercise Prices 31, 1996 Contractual Life Price 31, 1996 Price
--------------- ----------- ----------------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$2.00 - 3.00 331,750 4.40 years $ 2.20 223,375 $ 2.20
3.01 - 4.50 193,500 6.69 3.26 93,500 3.32
4.51 - 6.13 207,500 2.38 5.54 158,625 5.56
------- -------
732,750 475,500
======= =======
</TABLE>
(11) Stockholders' Equity
In connection with the acquisition of MFT, the Company issued warrants
to purchase up to 165,904 shares of the Company's common stock. The
warrants are exercisable at a price of $6.60 per share and expire on
December 16, 1998.
On January 31, 1994, the Company issued 160,301 shares of common stock
under the over-allotment option associated with the Company's initial
public stock offering in December, 1993. Net proceeds received by the
Company were $806,717.
(12) Supplemental Retirement Plan
The Company has a supplemental retirement plan for two of its key
officers which will provide an annual benefit to these individuals
over a 12-year period following separation from employment. The
Company recorded an expense of $60,000 in 1996, 1995 and 1994, in
accordance with that plan, which includes both current costs and
prior service costs for these individuals. The present value of the
supplemental retirement obligation has been calculated using an 8%
discount rate.
(13) Leases
The Company acquired a facility in 1988 under a capital lease
arrangement. Lease payments are made to a limited partnership in
which the Company and two of its officers are shareholders. The lease
term extends to the year 2000. This lease is accounted for in
property, plant and equipment, and depreciated over the life of the
lease.
The Company has noncancelable operating leases for its other facilities
that expire over the next five years. Certain of the leases contain
escalation clauses which require payments of additional rent to the
extent of increases in related operating costs. The Company also
leases various equipment under capital leases which expire through
the year 2000.
F-16
<PAGE>
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
Included in property, plant and equipment are the following amounts held
under capital lease:
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Buildings and improvements $1,026,850 1,026,850
Equipment 2,646,800 1,055,800
Furniture 29,680 29,680
---------- ---------
3,703,330 2,112,330
Less accumulated amortization (866,912) (635,359)
---------- ---------
$2,836,418 1,476,971
========== =========
</TABLE>
Future minimum lease payments under noncancelable operating leases and
the present value of future minimum lease payments under capital
leases as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Lease
------- ---------
<S> <C> <C>
Year ending December 31:
1997 $ 898,561 871,312
1998 886,706 638,463
1999 1,066,209 483,516
2000 866,505 290,760
2001 - 87,489
---------- ---------
Total minimum lease payments 3,717,981 2,371,540
=========
Less amount representing interest 598,528
----------
Present value of future minimum lease payments 3,119,453
Less current installments of obligations under capital leases 660,19
----------
Obligations under capital lease, excluding
current installments $2,459,261
==========
</TABLE>
Rent expense amounted to approximately $956,000, $813,000 and $682,000
in 1996, 1995 and 1994, respectively. Approximately $90,000 of total
rent expense was paid in 1996, 1995 and 1994 to a limited partnership
which owns the Decatur, Alabama, facility. The Company has guaranteed
a mortgage loan on this property. The amount outstanding on this loan
was approximately $134,000 at December 31, 1996. The Company and two
of its officers have interests in this limited partnership.
(14) Profit-Sharing Plan
The Company maintains a noncontributory profit-sharing plan for eligible
employees. Contributions to the Plan are made at the discretion of
the board of directors and amounted to $350,000, $255,000 and
$190,000 in 1996, 1995 and 1994, respectively.
F-17
<PAGE>
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(15) Other Deductions
Other deductions for the year ended December 31, 1994 included
approximately $712,000 related to the write-down and partial disposal
of two first generation molded fiber machines.
(16) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures About
Fair Value of Financial Instruments, defines the fair value of
financial instruments as the amount at which the instrument could be
exchanged in a transaction between willing parties.
Cashand cash equivalents, accounts receivable, inventories, prepaid
expenses, notes payable to bank, accounts payable, and accrued
expenses are stated at carrying amounts that approximate fair value
because of the short maturity of those instruments.
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.
(17) Subsequent Event
After December 31, 1996, the Company acquired all of the assets, net of
cash, and certain liabilities of Form Cutting Engineers, Inc. ("FCE")
for approximately $1,500,000. FCE is a designer and manufacturer of
engineered foam plastics for packaging and specialty applications.
The acquisition will be accounted for under purchase accounting rules
and was financed through the Company's revolving line of credit.
F-18
<PAGE>
Independent Auditors' Report on Supplementary Information
The Board of Directors and Stockholders
UFP Technologies, Inc.:
We have audited and reported separately herein on the consolidated financial
statements of UFP Technologies, Inc. and subsidiary as of December 31, 1996 and
1995 and for each of the years in the three-year period ended December 31, 1996.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements of UFP Technologies, Inc. and subsidiary
taken as a whole. The supplementary information included in Schedule II is
presented for purposes of additional analysis and is not a required part of the
basic consolidated financial statements. Such information has been subjected to
the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic consolidated financial statements taken as
a whole.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG Peat Marwick LLP
Boston, Massachusetts
February 7, 1997
F-19
<PAGE>
Schedule II
UFP TECHNOLOGIES, INC. AND SUBSIDIARY
Valuation and Qualifying Accounts
Years ended December 31, 1996, 1995 and 1994
Accounts receivable, allowance for doubtful accounts
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 200,936 256,194 189,921
========= ======= =======
Provision charged to expense (27,605) 49,500 252,097
Deductions - write-offs (8,979) (104,758) (185,824)
--------- -------- --------
Balance at end of year $ 164,352 200,936 256,194
========= ======= =======
</TABLE>
F-20
<PAGE>
(A) (3) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Reference
<S> <C>
2.01 Agreement and Plan of Reorganization among the A-2.01**
Company, Moulded Fibre Technology, Inc. and UFP
Acquisition, Inc.
2.02 Agreement of Merger between Moulded Fibre C-2.02**
Technology, Inc. and UFP Acquisition, Inc.
2.03 Merger Agreement relating to the reincorporation of A-2.02**
the Company in Delaware.
2.04 Asset Purchase Agreement relating to the purchase of FCE. I-2**
3.01 Certificate of Incorporation of the Company, as amended. F-3.01**
3.02 Bylaws of the Company. A-3.02**
4.01 Specimen Certificate for shares of the Company's A-4.01**
Common Stock.
4.02 Description of Capital Stock (contained in the A-4.02**
Certificate of Incorporation of the Company,
-16-
<PAGE>
filed as Exhibit 3.01).
4.03 Form of Common Stock Purchase Warrant issued A-1.02**
to the underwriters in connection with the initial public
offering of the Company.
10.01 $300,000 Construction Mortgage Loan Agreement A-10.01**
between the Company and Gloucester Bank & Trust Company.
10.02 $1,000,000 Mortgage and Promissory Note issued by A-10.02**
the Company in favor of Gloucester Bank & Trust Company.
10.03 Loan and Security Agreement between the D-10.03**
Company and The First National Bank of Boston.
10.03A Extension of Loan and Security Agreement between A-10.03A**
the Company and The First National Bank of Boston.
10.04 Loan Agreement, Mortgage and Security Agreement A-10.04**
between United Development Company Limited and
Osceola County Industrial Development Authority.
10.05 Guaranty and Indemnification Agreement of Richard A-10.05**
L. Bailly, William H. Shaw and the Company in favor
of Barnett Bank & Trust Company, N.A. for the benefit
of United Development Company Limited.
10.06 Alabama Leasehold Mortgage of United Development A-10.06**
Company Limited to First American Bank.
10.07 Guaranty of the Company in favor of First A-10.07**
American Bank for the benefit of United Development
Company Limited.
*10.08 Agreement between the Company and William H. A-10.08**
Shaw.
*10.09 Agreement and Severance Agreement between the A-10.09**
Company and Richard L. Bailly.
*10.12 Noncompetition Agreement between the Company and A-10.12**
David L. Friedman (contained in Exhibit 2.01).
10.13 Noncompetition Agreement between the Company and A-10.13**
Roger J. Baker.
10.16 Form of Warrant to Purchase Common Stock issued to A-10.16**
former stockholders of Moulded Fibre Technology, Inc.
(contained in Exhibit 2.01).
*10.17 1982 Incentive Stock Option Plan. A-10.17**
*10.18 Employee Stock Purchase Plan. A-10.18**
-17-
<PAGE>
*10.19 1993 Combined Stock Option Plan, as amended. E-4.4**
*10.20 1993 Nonemployee Director Stock Option Plan. B-4.5**
10.21 Facility Lease between the Company and United A-10.21**
Development Company Limited.
10.22 Facility Lease between the Company and Raritan A-10.22**
Associates.
10.23 Facility Sublease between the Company and United A-10.23**
Development Company Limited.
10.25 Facility lease between the Company and Flanders A-10.25**
Properties.
10.26 Amendment to facility lease between the Company A-10.26**
and Flanders Properties.
10.27 Facility Lease between the Company and Dana A-10.27**
Evans d/b/a Evans Enterprises.
10.28 Facility Lease between Moulded Fibre Technology, A-10.28**
Inc. and J.B. Brown & Sons.
10.29 Facility Lease between the Company and Cole Taylor Bank, as Trustee G-10.29**
10.30 Form of Indemnification Agreement for directors and A-10.30**
officers of the Company.
10.32 Promissory Note of United Development Company A-10.32**
Limited in favor of the Company.
10.33 Form of Representative's Warrant Agreement. A-10.33**
10.34 Facility Lease between Moulded Fibre Technology, C-10.34**
Inc. and Lincoln Gilroy II and Patrician
Associates, Inc.
10.35 Facility Lease between the Company and D-10.35**
M.D. Hodges Enterprises, Inc.
10.36 Facility Lease between Moulded Fibre Technology, D-10.36**
Inc. and Dead River Properties.
10.37 Facility Lease between the Company and Clinton Area G-10.37**
Development Corporation
10.38.7 First Amendment to Credit Agreement, dated May 31, 1995, F-10.38.7**
between the Company and BayBank.
10.38.8 Amended and Restated Revolving Credit Note, dated F-10.38.8**
May 31, 1996, between the Company and BayBank.
-18-
<PAGE>
10.38.9 Amended and Restated Equipment Note, dated May 31, 1996, F-10.38.9**
between the Company and BayBank.
*10.39 Employment Agreement with R. Jeffrey Bailly dated April 4, H-10.37**
1995
11.01 Statement re: Computation of Per Share Earnings. Filed
herewith
21.01 Subsidiaries of the Company. C-21.01**
23.01 Consent of KPMG Peat Marwick LLP. Filed
herewith
27.01 Financial Data Schedule Filed
herewith
</TABLE>
- --------------------
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 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.
C 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.
D Incorporated by reference to the Company's Annual Report on Form 10-K for
its fiscal year ended December 31, 1994. The number set forth herein is
the number of the Exhibit in said annual report.
E Incorporated by reference to the Company's Registration Statement on Form
S-8 (Registration No. 33-32248). The number set forth herein is the
number of the Exhibit in said Registration Statement.
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 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.
H 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.
I 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.
* 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.
- -------------------
(B) REPORTS ON FORM 8-K
The Company did not file any current reports on Form 8-K during the
quarter ended December 31, 1996.
-19-
<PAGE>
SIGNATURES
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 27, 1997 By: /s/ R. Jeffrey Bailly
--------------------------------
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ R. JEFFREY BAILLY President, Chief Executive March 27, 1997
- ------------------------------- Officer and Director
R. Jeffrey Bailly
/s/ WILLIAM H. SHAW Chairman of the Board March 27, 1997
- ------------------------------- of Directors
William H. Shaw
/s/ PAUL J. GREENLER Chief Financial Officer March 27, 1997
- ------------------------------- and Principal Accounting
Paul J. Greenler Officer
/s/ RICHARD L. BAILLY Director March 27, 1997
- -------------------------------
Richard L. Bailly
/s/ WILLIAM C. CURRY Director March 27, 1997
- -------------------------------
William C. Curry
/s/ DAVID L. FRIEDMAN Director March 27, 1997
- -------------------------------
David L. Friedman
/s/ T. GORDON RODDICK Director March 27, 1997
- -------------------------------
T. Gordon Roddick
/s/ ELIOT H. SHERMAN Director March 27, 1997
- -------------------------------
Eliot H. Sherman
</TABLE>
-20-
Exhibit 11.01
UFP Technologies, Inc.
Statement of Computation of Per Share Earnings
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net income $(2,513,548) 887,701 1,262,457
Primary earnings per share:
Weighted average common shares
outstanding
4,598,076 4,625,151 4,634,098
Dilutive stock options and warrants
- 109,096 240,027
----------- --------- ---------
4,598,076 4,734,247 4,874,125
=========== ========= =========
Income per share $ (0.55) 0.19 0.26
=========== ========= =========
Fully diluted earnings per share:
Weighted average common shares
outstanding
4,598,076 4,625,151 4,634,098
Dilutive stock options and warrants
- 109,096 254,617
----------- --------- ---------
4,598,076 4,734,247 4,888,715
=========== ========= =========
Income per share $ (0.55) 0.19 0.26
=========== ========= =========
</TABLE>
Exhibit 23.01
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
UFP Technologies, Inc.:
We consent to incorporation by reference in the registration statements (No.
333-2248 and No. 33-76440) on Form S-8 of UFP Technologies, Inc. of our report
dated February 7, 1997, relating to the consolidated balance sheets of UFP
Technologies, Inc. and subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows and the related schedule for each of the years in the three-year period
ended December 31, 1996, which report appears in the December 31, 1996 annual
report on Form 10-K of UFP Technologies, Inc.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG Peat Marwick LLP
Boston, Massachusetts
February 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 144
<SECURITIES> 0
<RECEIVABLES> 5,602
<ALLOWANCES> 0
<INVENTORY> 2,586
<CURRENT-ASSETS> 8,935
<PP&E> 17,202
<DEPRECIATION> 7,486
<TOTAL-ASSETS> 22,900
<CURRENT-LIABILITIES> 6,447
<BONDS> 0
0
0
<COMMON> 46
<OTHER-SE> 12,682
<TOTAL-LIABILITY-AND-EQUITY> 22,900
<SALES> 39,359
<TOTAL-REVENUES> 39,359
<CGS> 29,447
<TOTAL-COSTS> 29,447
<OTHER-EXPENSES> 7,818
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 485
<INCOME-PRETAX> 1,668
<INCOME-TAX> 406
<INCOME-CONTINUING> 1,262
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,262
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
