<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 SEPTEMBER 30, 1999
------------------
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
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UFP TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2314970
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
172 EAST MAIN STREET, GEORGETOWN, MASSACHUSETTS 01833 -- USA
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(978) 352-2200
--------------
(Registrant's telephone number, including area code)
-----------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filings requirements for the past 90 days.
Yes X No
--- ---
As of November 8, 1999, 4,859,632 shares of registrant's Common Stock, $.01
par value, were outstanding.
<PAGE>
UFP TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets......................................1
September 30, 1999 and December 31, 1998
Consolidated Statements of Operations......................................2
Three Months and Nine Months Ended
September 30, 1999 and 1998
Consolidated Statements of Cash Flows......................................3
Nine Months Ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements.................................4
Item 2. Management's Discussion and Analysis of Financial ...............................8
Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosure about Market Risk ......................11
PART II - OTHER INFORMATION....................................................................12
SIGNATURES ....................................................................................13
</TABLE>
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UFP TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
30-SEP-99 31-DEC-98
------------------- -----------------
ASSETS (Unaudited) (Audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 321,864 $ 512,356
Accounts receivable 9,200,597 7,867,647
Inventories 5,248,533 4,091,770
Prepaid expenses and other current assets 630,155 688,191
------------------- -----------------
Total current assets 15,401,149 13,159,964
------------------- -----------------
Property, plant and equipment 21,751,372 20,025,618
Less accumulated depreciation and amortization (10,493,777) (9,086,763)
------------------- -----------------
Net property, plant and equipment 11,257,595 10,938,855
------------------- -----------------
Goodwill, net 4,500,539 4,711,463
Other assets 1,087,359 1,138,560
------------------- -----------------
Total assets $ 32,246,642 $ 29,948,842
=================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 6,319,548 $ 4,150,000
Current installments of long-term debt 62,959 59,411
Current installments of capital lease obligations 1,036,324 851,042
Accounts payable 2,181,725 2,589,492
Accrued expenses and payroll withholdings 3,543,905 3,410,929
------------------- -----------------
Total current liabilities 13,144,461 11,060,874
Long-term debt, excluding current installments 523,601 568,678
Capital lease obligations, excluding current installments 716,121 1,554,647
Retirement and other liabilities 765,509 869,218
------------------- -----------------
Total liabilities 15,149,692 14,053,417
------------------- -----------------
Stockholders' equity
Preferred stock. $.01 value. Authorized 1,000,000;
no shares issued or outstanding.
Common stock. $0.01 value. Authorized 20,000,000; issued and
outstanding 4,844,632 at September 30, 1999, and 4,707,354 at
December 31, 1998. 48,447 47,074
Additional paid-in capital 9,781,358 9,613,859
Retained earnings 7,267,145 6,234,492
------------------- -----------------
Total stockholders equity 17,096,950 15,895,425
------------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 32,246,642 $ 29,948,842
=================== =================
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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UFP Technologies, Inc. Q3 1999 10-Q 1 of 13
<PAGE>
UFP TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
30-SEP-99 30-SEP-98 30-SEP-99 30-SEP-98
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 14,439,589 12,661,734 42,809,943 34,729,759
Cost of sales 10,920,052 9,143,693 32,170,066 25,218,157
---------------- ---------------- ---------------- ---------------
Gross profit 3,519,537 3,518,041 10,639,877 9,511,602
Selling, general and
administrative expenses 2,856,526 2,572,460 8,436,471 7,283,700
---------------- ---------------- ---------------- ---------------
Operating income 663,011 945,581 2,203,406 2,227,902
Interest expense 162,967 125,106 476,371 403,990
Other income (840) (6,751) (840) (42,665)
---------------- ---------------- ---------------- ---------------
Income before income taxes 500,884 827,226 1,727,875 1,866,577
Income taxes 200,423 335,000 695,223 765,000
---------------- ---------------- ---------------- ---------------
Net income $ 300,461 492,226 1,032,652 1,101,577
================ ================ ================ ===============
Basic net income per share $ 0.06 0.10 0.21 0.24
Diluted net income per share $ 0.06 0.10 0.21 0.23
Weighted average number of shares used in computation of per share data:
Basic 4,844,632 4,688,441 4,808,871 4,675,590
Diluted 4,904,751 4,786,905 4,918,295 4,832,057
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
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UFP Technologies, Inc. Q3 1999 10-Q 2 of 13
<PAGE>
TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
30-SEP-99 30-SEP-98
--------------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,032,652 $ 1,101,577
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,628,738 1,361,881
Equity in net income (loss) of unconsolidated affiliate
and partnership - (17,984)
Deferred income taxes - 523
Stock issued in lieu of compensation 168,000 44,000
Changes in operating assets and liabilities:
Accounts receivable (1,332,950) (942,758)
Inventories (1,156,763) (178,367)
Prepaid expenses and other current assets 57,712 67,493
Accounts payable (407,767) 366,612
Accrued expenses and payroll withholdings 132,976 797,574
Retirement and other liabilities (103,801) 145,000
--------------------- ------------------
Net cash provided by operating activities 18,797 2,745,551
Cash flows from investing activities:
Additions to property, plant and equipment (1,725,754) (950,160)
Payments from affiliates 21,430 -
Change in other assets 19,388 108,689
--------------------- ------------------
Net cash used in investing activities (1,684,936) (841,471)
Cash flows from financing activities:
Net borrowings (repayments) under notes payable 2,169,548 (900,000)
Principal repayments of long-term debt (41,529) (95,393)
Principal repayments of capital lease obligations (653,244) (653,575)
Net proceeds from sale of common stock 872 71,249
--------------------- ------------------
Net cash provided by (used in) financing activities 1,475,647 (1,577,719)
--------------------- ------------------
Net change in cash and cash equivalents (190,492) 326,361
Cash and cash equivalents, at beginning of period 512,356 233,452
--------------------- ------------------
Cash and cash equivalents, at end of period 321,864 559,813
===================== ==================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
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UFP Technologies, Inc. Q3 1999 10-Q 3 of 13
<PAGE>
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,
1998, included in the Company's 1998 Annual Report on Form 10-K as
provided to the Securities and Exchange Commission.
The condensed consolidated balance sheet as of September 30, 1999,
the consolidated statements of operations for the three and nine months
ended September 30, 1999 and 1998, and the consolidated statements of
cash flows for the nine months ended September 30, 1999 and 1998, 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 preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period.
The results of operations for the nine months ended September 30,
1999, are not necessarily indicative of the results to be expected for
the entire fiscal year ending December 31, 1999.
(2) Inventory
Inventories are stated at the lower of cost (first-in, first-out)
or market and consist of the following:
30-SEP-99 31-DEC-98
--------- ---------
Raw materials $ 3,222,099 $ 2,634,482
Work-in-process 759,854 504,489
Finished goods 1,266,580 952,799
--------- ----------
Total inventory 5,248,533 4,091,770
========= ==========
Work-in-process and finished goods inventories consist of materials,
labor and manufacturing overhead.
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UFP Technologies, Inc. Q3 1999 10-Q 4 of 13
<PAGE>
(3) Common Stock
At December 31, 1998, 775,000 options were outstanding under the
Company's 1993 Employee Stock Option Plan ("1993 Plan"). The purpose of
these options is to provide long-term rewards and incentives to the
Company's key employees and officers. In the first nine months of 1999,
54,444 options were issued, 135,250 options were exercised, and 148,000
options expired under the 1993 Plan. At September 30, 1999, 546,194
options were outstanding under the plan.
Through July 15, 1998, the Company maintained a stock option plan
covering non-employee directors (the "1993 Director Plan"). Effective
July 15, 1998, with the formation of the 1998 Director Stock Option
Incentive Plan ("1998 Director Plan"), the 1993 Director Plan was frozen.
The 1993 Director Plan provided 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 was serving as a non-employee director of the Company
received an automatic grant of options to purchase 2,500 shares of common
stock. These options became exercisable in full six months after the date
of grant and will expire ten years from the date of grant. The exercise
price was the fair market value of the common stock on the date of grant.
At September 30, 1999, 55,000 options were outstanding under the 1993
Director Plan.
Effective July 15, 1998, the Company adopted the 1998 Director Stock
Option Incentive Plan ("1998 Director Plan") for the benefit of
non-employee directors of the Company. The 1998 Director Plan provides
for options for the issuance of up to 300,000 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. In connection with the
adoption of the 1998 Director Plan, the 1993 Director Plan was
discontinued; however, the options outstanding under the 1993 Director
Plan were not affected by the adoption of the new plan. In the first nine
months of 1999, 38,400 options were issued. At September 30, 1999, 48,200
options were outstanding under the 1998 Director Plan.
On April 18, 1998, the Company adopted the 1998 Stock Purchase Plan
which provides that all employees of the Company who work more than
twenty hours per week and more than five months in any calendar year and
who are employees on or before the applicable offering period are
eligible to participate. The Stock Purchase Plan is intended to qualify
as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code of 1986. Under the Stock Purchase Plan participants may have
withheld up to 10% of their base salaries during the six month offering
periods ending June 30 and December 31 for the purchase of the Company's
common stock at 85% of the lower of the market value of the common stock
on the first or last day of the offering period. The Stock Purchase Plan
provides for the issuance of up to 150,000 shares of common stock.
- -------------------------------------------------------------------------------
UFP Technologies, Inc. Q3 1999 10-Q 5 of 13
<PAGE>
(4) Earnings per share
The Company has adopted the provisions of the Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings Per Share." Basic earnings
per share is computed based on the weighted average number of shares of
common stock outstanding. Diluted earnings per share is based upon the
weighted average of common shares and dilutive common stock equivalent
shares outstanding during each period. The weighted average number of
shares used to compute diluted income per share consisted of the
following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
30-Sep-99 30-Sep-98 30-Sep-99 30-Sep-98
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding 4,844,632 4,688,441 4,808,871 4,675,590
Weighted average common equivalent
shares due to stock options 60,119 98,464 109,424 156,467
-------------- --------------- --------------- ---------------
4,904,751 4,786,905 4,918,295 4,832,057
============== =============== =============== ===============
</TABLE>
5) Segment Reporting
The Company has adopted Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information.
The Company is organized based on the nature of the products and
services that it offers. Under this structure, the Company produces
products within two distinct segments: Protective Packaging and Specialty
Applications. Within the Protective Packaging segment, the Company
primarily uses polyethylene and polyurethane foams, sheet plastics and
pulp fiber to provide customers with cushion packaging for their
products. Within the Specialty Applications segment, the Company
primarily uses cross-linked polyethylene foam to provide customers in the
automotive, athletic, leisure and health and beauty industries with
engineered product for numerous purposes.
The accounting policies of the segments are the same as those
described in Note 1 of the Company's annual report on Form 10-K for the
year ended December 31, 1998, as filed with the Securities and Exchange
Commission. The Company evaluates the performance of its operating
segment based on net income.
Inter-segment transactions are uncommon and not material. Therefore,
they have not been separately reflected in the financial table below. The
totals of the reportable segments' revenues, net profits and assets agree
with the Company's comparable amount contained in the audited financial
statements. Revenues from customers outside of the United States are not
material. No one customer accounts for more than 10% of the Company's
consolidated revenues.
- -------------------------------------------------------------------------------
UFP Technologies, Inc. Q3 1999 10-Q 6 of 13
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------------------------------------
Specialty Packaging Total UFPT
-------------------- ------------------- --------------------
<S> <C> <C> <C>
Net sales $ 6,241,608 $ 8,197,981 $ 14,439,589
Net income (42,236) 342,697 300,461
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1998
-------------------------------------------------------------------
Specialty Packaging Total UFPT
-------------------- ------------------- --------------------
<S> <C> <C> <C>
Net sales $ 3,610,302 $ 9,051,432 $ 12,661,734
Net income 89,442 402,784 492,226
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------------------------------------
Specialty Packaging Total UFPT
-------------------- ------------------- --------------------
<S> <C> <C> <C>
Net sales $ 18,199,784 $ 24,610,159 $ 42,809,943
Net income 98,754 933,898 1,032,652
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30, 1998
-------------------------------------------------------------------
Specialty Packaging Total UFPT
-------------------- ------------------- --------------------
<S> <C> <C> <C>
Net sales $ 10,099,083 $ 24,630,676 $ 34,729,759
Net income 264,328 837,249 1,101,577
</TABLE>
- -------------------------------------------------------------------------------
UFP Technologies, Inc. Q3 1999 10-Q 7 of 13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Sales
Net sales for the three-month period ended September 30, 1999, were
$14.4 million or 14.0% above sales of $12.7 million in the same period last
year. Sales for the nine-month period ended September 30, 1999, increased
23.3% to $42.8 million from $34.7 million last year. The increases in sales
are attributable to sales growth within the company's specialty segment
primarily due to the acquisition of Pacific Foam in December 1998, partially
offset by reductions in sales within the company's packaging segment
primarily as a result of the completion of a large program from one of the
company's customers.
Gross Profit
Gross profit as a percentage of sales (gross margin) decreased in both
the three- and nine-month periods ended September 30, 1999, over the respective
periods last year. Gross margins for the three-month periods ended September 30,
1999 and 1998, were 24.4% and 27.8%, respectively. Gross margins were 24.9% and
27.4% for the respective nine-month periods. The decreases in gross margin are
attributable to the Company's continued investment in programs within the
specialty products segment.
Selling, General and Administrative Expenses
Selling, General and Administrative expenses ("SG&A") were $2.9 million,
or 19.8% of sales, for the three-month period ended September 30, 1999, compared
to $2.6 million, or 20.3% of sales, in the same period a year ago. For the
nine-month period ended September 30, 1999, SG&A expenses were $8.4 million, or
19.7% of sales, compared to $7.3 million, or 21.0% of sales, in the same period
a year ago. The increases in SG&A primarily result from SG&A of Pacific Foam.
The decreases in SG&A as a percentage of sales result from economies of scale
achieved with sales growth.
Other
Interest expense for the three-month period ended September 30, 1999,
increased to $163,000 from $125,000 in the comparable last year period. For the
nine-month period ended September 30, 1999, interest expense increased to
$476,000 from $404,000 for the same period last year. The increase in both
periods is primarily due to higher average borrowings due to the financing of
the acquisition of Pacific Foam.
The Company's effective tax rates for the three and nine-month periods
ended September 30, 1999, were 40.0% and 40.2% compared to 40.5% and 41.0% for
the respective periods last year.
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.
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UFP Technologies, Inc. Q3 1999 10-Q 8 of 13
<PAGE>
At September 30, 1999 and December 31, 1998, the Company's working
capital was approximately $2,257,000 and $2,099,000 respectively. During the
nine-month period ended September 30, 1999, operations provided cash of $19,000
compared to $2,746,000 in the same period last year. The decrease in cash is
primarily a result of higher inventory levels as well as a decrease in accounts
payable during the current period compared to an increase in accounts payable in
the same period last year. Cash used for investing activities of $1,684,000
primarily reflect purchases of machinery and equipment for production purposes
as well as a continued investment in new computer equipment and systems.
Net cash provided by financing activities for the nine-month period ended
September 30, 1999, was approximately $1,476,000 compared to cash used in
financing activities of approximately $1,578,000 in the same period last year.
The change is due to the financing of working capital requirements as well as
higher capital expenditures.
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.
The Company has an $8,000,000 revolving bank loan facility, of which
$6,320,000 was outstanding on September 30, 1999. Borrowings through this
credit facility are unsecured, and bear interest at LIBOR plus 1.25% or
prime. In addition the Company has a $10,000,000 acquisition line of credit
of which no amounts were outstanding at September 30, 1999. At September 30,
1999, the Company had capital lease obligations and other notes payable of
approximately $1,752,000 and $587,000, respectively. At September 30, 1999,
the current portion of all debt, including the revolving bank loan, was
approximately $7,419,000.
The Company believes that its existing resources, including its revolving
loan facility and acquisition line of credit, 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 next twelve months. However,
there can be no assurances that such financing will be available at favorable
terms, if at all.
Year 2000 Readiness Disclosure
The Year 2000 issue is the potential for system and processing failure of
date-related data and the result of computer-controlled systems using two digits
rather than four to define the applicable year. For example, computer programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
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UFP Technologies, Inc. Q3 1999 10-Q 9 of 13
<PAGE>
The Company has established a Year 2000 Compliance Committee (the
"Committee) which is comprised of members of senior management, finance, MIS,
operations and engineering. The committee's mandate is to design and implement a
Compliance Plan that minimizes the risk of material adverse impact to the
Company resulting from events triggered by the turn of the century.
The Committee has defined three categories of internal elements that are
subject to risk; computer hardware and software, manufacturing equipment and
building equipment. Computer hardware and software includes networking,
operating and application software currently being used by the Company as well
as those that are planned to be installed prior to the year 2000, and the
hardware platforms upon which they operate. Manufacturing equipment includes
machinery and equipment, owned or leased, that is used by the Company in the
process of manufacturing inventory for resale. Building equipment includes all
other devices that potentially have microprocessing chips that were not included
in computer hardware and software and manufacturing equipment, including, but
not limited to, fax machines, security systems, heating/air conditioning,
telephone and other communication systems, copiers, sprinklers and elevators.
The approach for minimizing risk of noncompliance within each of these
elements includes four distinct phases: Inventory, Assessment, Conversion and
Implementation. In the Inventory phase the Company identifies the items within
each of the three previously defined elements. The Company has substantially
completed this phase. The Assessment phase includes identifying which of the
items in the inventory are non-compliant. The items in Inventory are assessed in
an order of priority based upon the Committee's opinion of their relative
importance to the Company's operations. The Company has completed the assessment
phase for many of the items in the computer hardware and software and the
manufacturing equipment elements. The Company is still in the process of
assessing the compliance status of some of its building equipment.
In the Conversion phase the Company repairs or replaces those items that
are non-compliant. The Company is in the process of implementing new financial
and manufacturing software ("New Software") throughout all of its plants that is
Year 2000 compliant which should result in substantial compliance within the
computer hardware and software element. The Company has not yet identified a
manufacturing machine that is not Year 2000 compliant. In the Implementation
phase, the Company plans to put into operation repaired or new devices that are
Year 2000 compliant. At this time, the Company expects the implementation of the
new software systems and their related hardware platforms as well as upgrades to
existing systems and platforms to extend into the fourth quarter of 1999. The
company cannot assure that it will fully complete the implementation phase by
the beginning of the year 2000, which could materially adversely affect the
company's business and financial condition.
Independent of its own internal elements, the Company is dependent
upon the customers who order its products and upon numerous third parties who
supply various items including materials, supplies, services, utilities and
other items the Company uses in the ordinary course of business. Included
within these third parties is a group of several key foam raw material
suppliers that collectively supply a significant portion of the Company's
foam used in production. The Company is in the process of evaluating the
compliance status of its customers and third party suppliers. However, the
Company may not ever be able to estimate the nature or extent of any
potential adverse impact
- -------------------------------------------------------------------------------
UFP Technologies, Inc. Q3 1999 10-Q 10 of 13
<PAGE>
resulting from the failure of third parties, such as its suppliers, service
providers and customers, to achieve Year 2000 compliance. Moreover, such
third parties, even if Year 2000 compliant, could experience difficulties
resulting from Year 2000 issues relating to their suppliers, service
providers and customers. As a result, although the Company does not currently
anticipate that it will experience any significant shipment delays from its
major suppliers or any major sales delays from its major customers due to
Year 2000 issues, the Company cannot provide any assurance that these third
parties will not experience Year 2000 problems or that any may have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company has included the cost of the new software in its financial
plan for 1999 and 2000. The software and hardware costs will be capitalized and
depreciated in compliance with the Company's capitalization policy. Although the
decision to implement the New Software potentially resolves the Year 2000
problem for the majority of the Company's computer applications, it was made for
operating reasons and is considered normal capital expenditures. As a result,
the Company does not expect to incur material costs above and beyond the cost of
implementing the New Software.
The Company expects to be substantially compliant by the Year 2000, but
can give no assurance as to the readiness of its key material and service
providers. As a result, the Company expects to complete a Contingency Plan (the
"Plan") that will address the operating issues in the event that any of its
material or service providers fail to perform as a result of a Year 2000
problem. In addition, the Plan will address operating considerations in the
event that any of the Company's internal elements fail to perform as expected.
The Company can give no assurance that the Plan will be effective.
To the extent that the Company does not identify or properly address any
material non-compliant systems or equipment operated by the Company or by third
parties, such as the Company's suppliers, service providers and customers, the
most reasonably likely worst case Year 2000 scenario is a systemic failure
beyond the control of the Company, such as a prolonged telecommunications or
electrical failure, or a general disruption in the United States or global
business activities that could result in a significant economic downturn. The
Company believes that the primary business risks, in the event of such failure
or other disruption, would include but not be limited to, loss of customers or
orders, increased operating costs, inability to obtain inventory on a timely
basis, disruptions in product shipments, or other business interruptions of a
material nature, as well as claims of mismanagement, misrepresentation, or
breach of contract, any of which could have a material adverse effect on the
Company's business, results of operations and financial condition.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The following discussion of the Company's market risk includes
"forward-looking statements" that involve risk and uncertainties. Actual
results could differ materially from those projected in the forward-looking
statements. Market risk represents the risk of changes in value of a
financial instrument caused by fluctuations in interest rates, foreign
exchange rates, and equity prices. At September 30, 1999, the Company's cash
and cash equivalents consisted of bank accounts in U.S. dollars, and their
valuation would not be affected by market risk. The Company has debt
instruments where interest is based upon the prime rate and, therefore,
future operations could be affected by interest rate changes; however, the
Company believes that the market risk of the debt is minimal.
- -------------------------------------------------------------------------------
UFP Technologies, Inc. Q3 1999 10-Q 11 of 13
<PAGE>
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:
10.42 Loan agreement between Registrant and Citizens
Bank of Massachusetts
(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.
- -------------------------------------------------------------------------------
UFP Technologies, Inc. Q3 1999 10-Q 12 of 13
<PAGE>
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)
November 15, 1999 /s/ R. Jeffrey Bailly
Date ------------------------------------------------------
R. Jeffrey Bailly
President, Chief Executive Officer
and Director
November 15, 1999 /s/ Ronald J. Lataille
Date ------------------------------------------------------
Ronald J. Lataille
Vice President, Treasurer, and Chief Financial Officer
- -------------------------------------------------------------------------------
UFP Technologies, Inc. Q3 1999 10-Q 13 of 13
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<PAGE>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
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0
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