<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
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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: _________________
UFP TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-2314970
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
172 EAST MAIN STREET, GEORGETOWN, MASSACHUSETTS 01833, USA
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(Address of principal executive offices) (Zip Code)
(978) 352-2200
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(Registrant's telephone number, including area code)
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(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of April 21, 1998, 4,677,354 shares of registrant's Common Stock, $.01 par
value, were outstanding.
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UFP TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997........................ 1
Consolidated Income Statements
Three Months Ended March 31, 1998 and 1997.................. 2
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997.................. 3
Notes to Consolidated Financial Statements.................. 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 5
PART II - OTHER INFORMATION............................................ 7
SIGNATURES............................................................. 8
</TABLE>
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PART I: FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
UFP TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
31-MAR-98 31-DEC-97
ASSETS UNAUDITED AUDITED
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<S> <C> <C>
Current assets
Cash and cash equivalents $ 409,706 $ 233,452
Receivables, net 6,535,572 6,413,251
Inventories 3,204,761 3,053,299
Prepaid expenses and other current assets 120,601 146,800
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Total current assets 10,270,640 9,846,802
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Property, plant and equipment 20,434,181 20,110,727
Less accumulated depreciation and amortization (9,332,266) (8,920,621)
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Net property, plant and equipment 11,101,915 11,190,106
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Goodwill, net 2,497,367 2,539,367
Other assets 1,581,270 1,618,492
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Total assets $ 25,451,192 25,194,767
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 3,000,000 2,500,000
Current installments of long-term debt 81,802 111,888
Current installments of capital lease
obligations 949,637 913,170
Accounts payable 1,641,285 1,540,377
Accrued expenses and payroll withholdings 1,850,618 2,202,817
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Total current liabilities 7,523,342 7,268,252
Long-term debt, excluding current installments 613,715 624,641
Capital lease obligations, excluding current
installments 2,364,541 2,608,768
Retirement liability 574,896 559,896
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Total liabilities 11,076,494 11,061,557
Stockholders' equity
Common stock 46,664 46,664
Additional paid-in capital 9,499,019 9,499,019
Retained earnings 4,829,015 4,587,527
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Total stockholders' equity 14,374,698 14,133,210
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Total liabilities and stockholders' equity $ 25,451,192 $25,194,767
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</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
1
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UFP TECHNOLOGIES, INC.
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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31-MAR-98 31-MAR-97
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<S> <C> <C>
Cash flows from operating activities:
Net income $241,487 $ 185,440
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 453,645 428,753
Equity in net income of unconsolidated affiliate
and partnership 0 8,590
Gain on sales of fixed assets (33,420) 0
Stock issued in lieu of compensation 0 10,000
Changes in operating assets and liabilities:
Receivables, net (122,321) (365,038)
Inventories (151,463) (240,935)
Prepaid expenses and other current assets 26,199 34,947
Accounts payable 100,908 29,729
Accrued expenses and payroll withholdings (352,198) (120,896)
Retirement liability 15,000 15,000
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Net cash provided by (used in) operating activities 177,837 (14,410)
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Cash flows from investing activities:
Additions to property, plant and equipment (553,453) (254,016)
Proceeds from sale of PP&E 263,420 0
Acquisition of Foam Cutting Engineers, net of
cash acquired 0 (1,512,879)
Decrease in other assets 37,222 937
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Net cash used in investing activities (252,811) (1,765,958)
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Cash flows from financing activities:
Net borrowings under notes payable 500,000 2,300,000
Principal repayments of long-term debt (41,012) (47,804)
Principal repayments of capital lease obligations (207,760) (183,569)
Net proceeds from sale of common stock 0 21,563
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Net cash provided by financing activities 251,228 2,090,190
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Net change in cash and cash equivalents 176,254 309,822
Cash and cash equivalents, at beginning of period 233,452 143,531
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Cash and cash equivalents, at end of period $409,706 $ 453,353
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</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
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UFP TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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31-MAR-98 31-MAR-97
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<S> <C> <C>
Net sales $ 10,749,960 $ 10,951,549
Cost of sales 7,905,252 8,225,769
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Gross profit 2,844,708 2,725,780
Selling, general and administrative expenses 2,318,596 2,269,803
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Operating income 526,112 455,977
Other income (deductions):
Interest expense (144,045) (136,537)
Other income 33,420 0
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Total other (deductions) (110,625) (136,537)
Income before income taxes 415,487 319,440
Income tax expense 174,000 134,000
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Net income $ 241,487 185,440
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Basic net income per share $ 0.05 $ 0.04
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Diluted net income per share $ 0.05 $ 0.04
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Weighted average number of shares used in
computation of per share data:
Basic 4,666,354 4,640,437
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Diluted 4,827,060 4,901,695
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</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
3
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UFP TECHNOLOGIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The interim consolidated financial statements of UFP Technologies,
Inc. (the Company) presented herein, without audit, have been prepared
pursuant to the rules of the Securities and Exchange Commission for
quarterly reports on Form 10-Q and do not include all the information and
note disclosures required by generally accepted accounting principles.
These statements should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended December 31,
1997, included in the Company's 1997 Annual Report on Form 10-K as
provided to the Securities and Exchange Commission.
The consolidated balance sheet as of March 31, 1998, the consolidated
income statements for the three months ended March 31, 1998 and 1997, and
the consolidated statements of cash flows for the three months ended
March 31, 1998 and 1997, are unaudited but, in the opinion of management,
include all adjustments (consisting of normal, recurring adjustments)
necessary for fair presentation of results for these interim periods.
The results of operations for the three months ended March 31, 1998,
are not necessarily indicative of the results to be expected for the
entire fiscal year ending December 31, 1998.
(2) Inventory
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
<TABLE>
<CAPTION>
3/31/98 12/31/97
(unaudited) (audited)
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<S> <C> <C>
Raw materials $1,924,332 $1,933,740
Work-in-process 400,605 395,592
Finished goods 879,824 723,967
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Total Inventory $3,204,761 $3,053,299
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</TABLE>
(3) Common Stock
At December 31, 1997, 697,500 options were outstanding under the
Company's 1993 Stock Option Plan ("1993 Plan"). The purpose of these
options is to provide long-term rewards and incentives to the Company's
key employees, officers, employees, directors, consultants and advisors.
There were 95,000 options issued and zero options exercised in the first
three months of 1998 under the 1993 Plan, and zero options expired. At
March 31, 1998, 792,500 options were outstanding under the plan.
At December 31, 1997, 40,000 options were outstanding under the
Company's Non-Employee Director Plan. There were 2,500 options issued,
and zero options exercised in the first three months of 1998 under the
plan, and zero options expired. At March 31, 1998, 42,500 options were
outstanding.
4
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(4) Earnings Per Share
The Company has adopted the provisions of the Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings Per Share." SFAS No. 128
replaced the calculation of primary and fully diluted earnings per share
with a calculation of basic and diluted earnings per share. Basic
earnings per share computations are based on the weighted average number
of shares of common stock outstanding. Diluted earnings per share is
based upon the weighted average of common shares and dilutive common
stock equivalent shares outstanding during each period. All earnings per
share amounts for all periods have been restated to conform to SFAS No.
128 requirements. The weighted average number of shares used to compute
diluted income per share consisted of the following:
<TABLE>
<CAPTION>
Three Months Ended
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3/31/98 3/31/97
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<S> <C> <C>
Weighted average common shares
outstanding 4,666,354 4,640,437
Weighted average common equivalent
shares due to stock options 160,706 261,258
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4,827,060 4,901,695
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</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
The Company's net sales decreased 1.8% to $10,750,000 for the three-month
period ended March 31, 1998, from $10,952,000 in the same period a year ago. The
slight decrease in sales is attributable to volume slowdowns at two electronics
customers affected by the Asian crisis and to a single non-recurring order that
occurred in the first quarter of 1997.
Cost of sales as a percentage of sales improved to 73.5% in the
three-month period ended March 31, 1998, from 75.1 % in the 1997 period. The
improvement in the cost of sales margin was primarily attributable to continued
manufacturing efficiency improvements associated with the Company's molded fiber
products and a more favorable mix of products in the Company's foam and plastics
packaging products.
Selling, general and administrative expenses increased 2.1% to $2,319,000
in the first quarter of 1998, from $2,270,000 in the same period a year ago. The
slight increase is primarily attributable to additions to the management team as
well as to the implementation of new information software systems.
5
<PAGE>
Interest expense increased 5.5% to $144,000 for the first quarter of 1998,
from $137,000 in the same period a year ago. The increase was primarily
attributable to an increase in capital lease obligations associated with the
Company's purchase of additional molded fiber equipment in the second half of
1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its operating expenses, capital requirements and growth
plan through internally generated cash, bank credit facilities and long-term
capital leases.
At March 31, 1998 the Company's working capital was approximately
$2,747,000, including $410,000 of cash and equivalents. During the quarter
ended March 31,1998, the operating activities of the Company provided
approximately $178,000 in cash, primarily due to profits, plus depreciation
and amortization, offset by increases in inventories and accounts receivable
and a decrease in accrued expenses. The increase in inventories and accounts
receivables was caused by increased sales and product demand in the later
part of the quarter. Net cash used in investing activities of $253,000 was
primarily caused by additions to capital equipment, offset by the sale of
land acquired with the purchase of Foam Cutting Engineers in January 1997.
Net cash generated from financing activities totaled approximately $251,000
due to an increase in short-term borrowings offset by principal payments of
long-term debt and capital lease obligations.
While the Company does not have any significant capital commitments, it
intends to continue to invest in capital equipment to support its operations.
The Company is also engaged in discussions with certain parties regarding
potential strategic acquisitions, but presently does not have any agreements
to enter into any such acquisitions. The Company intends to fund any such
acquisitions with working capital and bank financing. There can be no
assurance that such financing would be available on favorable terms, if at
all.
The Company has a $5,000,000 revolving bank loan facility, of which
$3,000,000 was outstanding on March 31,1998. This facility expires on June
30, 1998. Borrowings through the credit facility are unsecured, and bear
interest at prime or LIBOR Plus 1.75%. In addition, at March 31, 1998, the
Company had approximately $666,000 outstanding under a mortgage note and
$29,000 outstanding under an equipment note. At March 31,1998, the current
portion of these obligations, together with the Company's line of credit
totaled $3,082,000.
The Company believes that its existing resources, including its
revolving loan facility, together with cash generated from operations and
funds expected to be available to it through any necessary equipment
financing and additional bank borrowings, will be sufficient to fund its cash
flow requirements through at least the end of 1998. However, there can be no
assurances that such financing will be available at favorable terms, if at
all.
YEAR 2000 DATA CONVERSION
The Company is in the process of implementing comprehensive computer
systems which are prepared for the year 2000. The implementation schedule
anticipates a complete conversion prior to January 1, 2000. The Company
presently believes that, with the conversion to new software, the year 2000
problem will not pose a significant operational problem to the Company.
However, there can be
6
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no assurance that the systems of other parties upon which the Company's
businesses also rely, including but not limited to the Company's customers
and suppliers, will be converted on a timely basis. The Company's business,
financial condition, or results of operations could be materially adversely
affected by the failure of its systems or those of other parties to operate
or properly manage dates beyond 1999.
* * *
PART II - OTHER INFORMATION
UFP TECHNOLOGIES, INC.
Item 1 Legal Proceedings
No material litigation
Item 2 Changes in Securities
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits furnished:
(27) Financial Data Schedule
(b) Reports on Form 8-K:
The Company did not file a report on Form 8-K for the reporting
period.
7
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UFP TECHNOLOGIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UFP TECHNOLOGIES, INC.
(Registrant)
/s/ R. Jeffrey Bailly
- ---------------- ----------------------
Date R. Jeffrey Bailly
President, Chief Executive
Officer and Director
/s/ Ronald J. Lataille
- ---------------- -----------------------
Date Ronald J. Lataille
Vice President and
Chief Financial Officer
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 410
<SECURITIES> 0
<RECEIVABLES> 6,747
<ALLOWANCES> 211
<INVENTORY> 3,205
<CURRENT-ASSETS> 10,271
<PP&E> 20,434
<DEPRECIATION> (9,332)
<TOTAL-ASSETS> 25,451
<CURRENT-LIABILITIES> 7,523
<BONDS> 0
0
0
<COMMON> 47
<OTHER-SE> 14,328
<TOTAL-LIABILITY-AND-EQUITY> 25,451
<SALES> 10,750
<TOTAL-REVENUES> 10,750
<CGS> 7,905
<TOTAL-COSTS> 10,224
<OTHER-EXPENSES> (33)
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 144
<INCOME-PRETAX> 415
<INCOME-TAX> 174
<INCOME-CONTINUING> 241
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 241
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
