<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 JUNE 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 August 9, 1999, 4,844,687 shares of registrant's Common Stock, $.01 par
value, were outstanding.
<PAGE>
UFP TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets......................................1
June 30, 1999 and December 31, 1998
Consolidated Statements of Operations......................................2
Three Months and Six Months Ended
June 30, 1999 and 1998
Consolidated Statements of Cash Flows......................................3
Six Months Ended June 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 .......................12
PART II - OTHER INFORMATION....................................................................13
SIGNATURES.....................................................................................14
</TABLE>
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UFP TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
30-JUN-99 31-DEC-98
----------------- -----------------
ASSETS (Unaudited) (Audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 508,529 $ 512,356
Receivables, net 9,150,442 7,867,647
Inventories 4,852,452 4,091,770
Prepaid expenses and other current assets 598,239 688,191
----------------- -----------------
Total current assets 15,109,662 13,159,964
----------------- -----------------
Property, plant and equipment 21,173,594 20,025,618
Less accumulated depreciation and amortization (10,028,227) (9,086,763)
----------------- -----------------
Net property, plant and equipment 11,145,367 10,938,855
----------------- -----------------
Goodwill, net 4,572,013 4,711,463
Other assets 1,095,076 1,138,560
----------------- -----------------
Total assets $ 31,922,118 $ 29,948,842
----------------- -----------------
----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 6,300,000 $ 4,150,000
Current installments of long-term debt 61,802 59,411
Current installments of capital lease obligations 935,601 851,042
Accounts payable 2,576,577 2,589,492
Accrued expenses and payroll withholdings 2,819,485 3,410,929
----------------- -----------------
Total current liabilities 12,693,465 11,060,874
Long-term debt, excluding current installments 538,935 568,678
Capital lease obligations, excluding current installments 1,028,362 1,554,647
Retirement and other liabilities 864,867 869,218
----------------- -----------------
Total liabilities 15,125,629 14,053,417
----------------- -----------------
Stockholders' equity
Preferred stock. $.01 value. Authorized 1,000,000;
no shares issued or outstanding. 0 0
Common stock. $0.01 value. Authorized 20,000,000;
issued and outstanding 4,827,436 at June 30, 1999, and
4,707,354 at December 31, 1998. 48,447 47,074
Additional paid-in capital 9,781,359 9,613,859
Retained earnings 6,966,683 6,234,492
----------------- -----------------
Total stockholders equity 16,796,489 15,895,425
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 31,922,118 $ 29,948,842
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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UFP Technologies, Inc. Q2 1999 10-Q 1 of 14
<PAGE>
UFP TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
30-JUN-99 30-JUN-98 30-JUN-99 30-JUN-98
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 14,894,287 11,318,065 28,370,354 22,068,025
Cost of sales 11,200,181 8,169,212 21,250,013 16,074,464
---------------- ---------------- ---------------- ----------------
Gross profit 3,694,106 3,148,853 7,120,341 5,993,561
Selling, general and
administrative expenses 2,770,614 2,392,644 5,579,946 4,711,240
---------------- ---------------- ---------------- ----------------
Operating income 923,492 756,209 1,540,395 1,282,321
Interest expense 190,376 134,839 313,404 278,884
Other (income) - (2,494) - (35,914)
---------------- ---------------- ---------------- ----------------
Income before income taxes 733,116 623,864 1,226,991 1,039,351
Income taxes 291,800 256,000 494,800 430,000
---------------- ---------------- ---------------- ----------------
Net income $ 441,316 367,864 732,191 609,351
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
Basic net income per share $ 0.09 0.08 0.15 0.13
Diluted net income per share $ 0.09 0.08 0.15 0.13
Weighted average number of shares used in computation of per share data:
Basic 4,810,883 4,677,354 4,790,904 4,671,854
Diluted 5,007,285 4,888,265 4,967,843 4,857,922
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
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UFP Technologies, Inc. Q2 1999 10-Q 2 of 14
<PAGE>
UFP TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
30-JUN-99 30-JUN-98
--------------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 732,191 $ 609,351
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,088,144 907,292
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:
Receivables, net (1,282,795) 6,362
Inventories (760,682) (319,096)
Prepaid expenses and other current assets 89,628 64,502
Accounts payable (12,915) 266,409
Accrued expenses and payroll withholdings (591,444) 65,717
Retirement and other liabilities (4,351) 130,000
--------------------- ------------------
Net cash provided by operating activities (574,224) 1,757,076
Cash flows from investing activities:
Additions to property, plant and equipment (1,147,976) (653,567)
Payments from affiliated companies 17,314 -
Change in other assets 19,265 59,379
--------------------- ------------------
Net cash used in investing activities (1,111,397) (594,188)
Cash flows from financing activities:
Net borrowings under notes payable 2,150,000 -
Principal repayments of long-term debt (27,352) (82,770)
Principal repayments of capital lease obligations (441,726) (433,254)
Net proceeds from sale of common stock 872 -
--------------------- ------------------
Net cash provided by financing activities 1,681,794 (516,024)
--------------------- ------------------
Net change in cash and cash equivalents (3,827) 646,864
Cash and cash equivalents, at beginning of period 512,356 233,452
--------------------- ------------------
Cash and cash equivalents, at end of period 508,529 880,316
--------------------- ------------------
--------------------- ------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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UFP Technologies, Inc. Q2 1999 10-Q 3 of 14
<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 June 30, 1999, the
consolidated statements of operations for the three and six months ended
June 30, 1999 and 1998, and the consolidated statements of cash flows for
the six months ended June 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 six months ended June 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:
<TABLE>
<CAPTION>
30-JUN-99 31 DEC-98
--------- ---------
<S> <C> <C>
Raw materials $ 3,093,660 $ 2,634,482
Work-in-process 742,184 504,489
Finished goods 1,016,608 952,799
--------- ----------
Total inventory 4,852,452 4,091,770
--------- ----------
--------- ----------
</TABLE>
Work-in-process and finished goods inventories consist of materials,
labor and manufacturing overhead.
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UFP Technologies, Inc. Q2 1999 10-Q 4 of 14
<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 six months of 1999,
54,444 options were issued, 135,250 options were exercised, and 148,000
options expired under the 1993 Plan. At June 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 June 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 six
months of 1999, 23,400 options were issued. At June 30, 1999, 33,200
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.
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UFP Technologies, Inc. Q2 1999 10-Q 5 of 14
<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 Six Months Ended
30-Jun-99 30-Jun-98 30-Jun-99 30-Jun-98
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding 4,810,883 4,677,354 4,790,904 4,671,854
Weighted average common equivalent
shares due to stock oprtions 196,402 210,911 176,939 186,068
-------------- --------------- --------------- ---------------
5,007,285 4,888,265 4,967,843 4,857,922
-------------- --------------- --------------- ---------------
</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.
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UFP Technologies, Inc. Q2 1999 10-Q 6 of 14
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
Specialty Packaging Total UFPT
-------------------- ------------------- --------------------
<S> <C> <C> <C>
Net sales $ 6,035,232 $ 8,859,055 $ 14,894,287
Net income 37,458 403,858 441,316
Three Months Ended June 30, 1998
Specialty Packaging Total UFPT
-------------------- ------------------- --------------------
Net sales $ 3,244,544 $ 8,073,521 $ 11,318,065
Net income 89,657 278,207 367,864
Six Months Ended June 30, 1999
Specialty Packaging Total UFPT
-------------------- ------------------- --------------------
Net sales $ 11,958,176 $ 16,412,178 $ 28,370,354
Net income 140,990 591,201 732,191
Six Months Ended June 30, 1998
Specialty Packaging Total UFPT
-------------------- ------------------- --------------------
Net sales $ 6,488,781 $ 15,579,244 $ 22,068,025
Net income 174,886 434,465 609,351
</TABLE>
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UFP Technologies, Inc. Q2 1999 10-Q 7 of 14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES
Net sales for the three-month period ended June 30, 1999, were $14.9
million or 32% above sales of $11.3 million in the same period last year. Sales
for the six-month period ended June 30, 1999, were $28.4 million or 29% higher
than sales of $22.1 million in 1998. The sales increases primarily reflect the
contribution of Pacific Foam as well as internal growth fueled by targeted
markets within the Specialty Products group. The Company acquired Pacific Foam,
a manufacturer of specialty foam products for the health and beauty industry, in
November 1998.
GROSS PROFIT
Gross Profit as a percentage of sales declined in both the three- and
six-month periods ended June 30, 1999, from 27.8% and 27.2% to 24.8% and 25.1%,
respectively. The declines were caused by the cost of integrating Pacific Foam
as well as continued investments in long-term programs within the automotive
industry.
SELLING GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative expenses ("SG&A") for the three-month
period ended June 30, 1999, were $2,771,000 or 15.8% higher than SG&A of
$2,393,000 in the same period a year ago. SG&A for the six-month period ended
June 30, 1999, was $5,580,000 or 18.4% higher than SG&A of $4,711,000 last year.
Both increases are primarily attributable to the incremental SG&A of Pacific
Foam. SG&A expenses as a percentage of sales declined to 18.6% and 19.7% from
21.1% and 21.4% in the three- and six-month periods ended June 30, 1999 and June
30, 1998, respectively. The improvements are primarily attributable to the
economies of scale achieved as the result of the Company's sales growth.
OTHER
Interest expense for the three-month periods ended June 30, 1999 and 1998,
were $190,000 and $135,000, respectively. Interest for the six-month periods
ended June 30, 1999 and 1998, were $313,000 and $279,000, respectively. The
increase in both periods is primarily attributable to higher average borrowings
associated with the financing of the Pacific Foam acquisition.
The Company's effective tax rate for the three-month periods ended June
30, 1999 and 1998, was 39.8% and 41.0%, respectively. The effective tax rate for
the six-month period ended June 30, 1999 and 1998, was 40.3% and 41.4%,
respectively.
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UFP Technologies, Inc. Q2 1999 10-Q 8 of 14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its operating expenses, capital requirements and growth
plan through internally generated cash, bank credit facilities and long-term
capital leases.
At June 30, 1999 and December 31, 1998, the Company's working capital was
approximately $2,416,000 and $2,099,090, respectively. The increase in working
capital was primarily attributable to an increase in receivables of
approximately $1,283,000. During the six-month period ended June 30, 1999,
operating activities of the Company used approximately $574,000 in cash. During
the six-month period ended June 30, 1998, operating activities of the Company
provided approximately $1,757,000 in cash. The decrease was primarily
attributable to an increase in receivables as well as a larger pay-down of
accrued expenses and tax liabilities. Net cash used in investing activities
during the six-month periods ended June 30, 1999 and 1998, was approximately
$1,111,000 and $594,000, respectively. The primary use of funds for investing
activities in the current six-month period was to purchase machinery and
equipment used in the manufacturing process. Net cash provided by financing
activities for the six-month period ended June 30, 1999 was approximately
$1,682,000 compared to cash used by financing activities of approximately
$516,000 in 1998. The change reflects differences in net borrowing activity
between the two periods primarily as a result of working capital requirements in
the period ended June 30, 1999.
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 assurances
that such financing would be available on favorable terms, if at all.
The Company has a $7,500,000 revolving bank loan facility, of which
$6,300,000 was outstanding at June 30, 1999. This facility expires on August 31,
1999. Borrowings through this credit facility are unsecured, and bear interest
at LIBOR plus 1.75% or prime. The Company is in the process of obtaining a new
credit facility for a three-year term. In addition, at June 30, 1999, the
Company had capitalized equipment lease debt and other notes payable of
approximately $2,565,000. At June 30, 1999 the current portion of all debt
obligations was $7,297,000.
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 1999. However, there can be no assurances that such
financing will be available at favorable terms, if at all.
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UFP Technologies, Inc. Q2 1999 10-Q 9 of 14
<PAGE>
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.
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. A Year 2000
Project Coordinator has been appointed and a comprehensive corporate-wide Year
2000 Project plan has been developed.
The Committee has defined three categories of internal elements that are
subject to risk; computer hardware and software, manufacturing equipment and
facility 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. Facility equipment includes all
other devices that potentially have microprocessor 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 six phases; Inventory, Risk Assessment, Correction,
Validation, Implementation and Monitoring. In the Inventory phase the Company
identifies the items within each of the three previously defined elements. The
Company has completed a thorough inventory of computer hardware and software,
manufacturing equipment and facility systems and equipment at all plant
locations.
The Risk Assessment phase includes identifying which of the items in the
inventory are noncompliant and estimating the effects of noncompliant system,
program and equipment failure. The Company has completed a comprehensive risk
assessment for all plant locations, which identifies noncompliant and
potentially noncompliant computer hardware and software, manufacturing equipment
and facility systems and equipment. All noncompliant items have been categorized
as either business critical or non-business critical. Business critical systems
and equipment are being addressed first and non-business critical systems and
equipment will be addressed as resources are available.
In the Correction phase, the Company repairs or replaces those items that
are noncompliant. 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 and should result in substantial compliance within the
computer hardware and software element. At this time, the Company expects
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UFP Technologies, Inc. Q2 1999 10-Q 10 of 14
<PAGE>
the correction of business critical computer hardware and software to be
completed by October 31, 1999. The correction of business critical manufacturing
equipment and facility systems and equipment is expected to be completed by
September 30, 1999.
In the Validation phase, the Company confirms that corrections have
resulted in bringing specific systems, programs or equipment into Year 2000
compliance. The validation of specific components will occur as each component
is corrected.
In the Implementation phase, the Company integrates validated systems,
programs and equipment into the business environment. The implementation of
specific components will be conducted as each component is validated. The
Company expects that validation and implementation of business critical
manufacturing equipment and facility systems will be completed by October 31,
1999 and that validation and implementation of business critical computer
hardware and software will be completed by November 30, 1999.
In the Monitoring phase, the Company closely observes the performance of
corrected, validated and implemented systems, programs and equipment. The
monitoring phase begins at implementation and will continue beyond the New Year
and as long as is necessary to satisfy the Company that corrections have
effectively dealt with Year 2000 concerns.
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 surveying the compliance status of its key
customers and third party suppliers. However, the Company may not ever be able
to estimate the nature or extent of any potential adverse impact resulting from
the failure of third parties, such as its 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 included the cost of the New Software in its financial plan for
1999. The software and hardware costs have been and will continue to 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 Year 2000, but can
give no assurance as to its readiness or the readiness of its key material and
service providers. As a result, the Company expects to complete a Contingency
Plan (the "Plan") by August 31, 1999, that will address the operating issues in
the event that any of its material or service providers fail to perform as a
result of
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UFP Technologies, Inc. Q2 1999 10-Q 11 of 14
<PAGE>
the 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 noncompliant 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 general disruption in the United States or global
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 or 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 June 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. Q2 1999 10-Q 12 of 14
<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.
The Company held its Annual Meeting of Stockholders on June 9, 1999.
There were three proposals before the stockholders at the Annual
Meeting. First, the stockholders elected the members of the Board of
Directors of the Company. The votes for such matter were as follows:
<TABLE>
<CAPTION>
NOMINEE FOR WITHHELD
------- --- --------
<S> <C> <C>
R. Jeffrey Bailly 4,405,987 55,775
William H. Shaw 4,405,987 55,775
Richard L. Bailly 4,405,987 55,775
William C. Curry 4,405,987 55,775
Kenneth L. Gestal 4,405,987 55,775
Peter R. Worrell 4,405,987 55,775
Michael J. Ross 4,405,787 55,975
</TABLE>
There were no abstentions nor broker nonvotes in connection with the
election of Directors. Second, the stockholders approved the amendment
of the Company's Certificate of Incorporation to create a classified
Board of Directors and make certain related changes by a vote of
3,116,605 for and 395,258 against. There were 182,000 abstentions and
no broker nonvotes for the proposal. Third, the stockholders approved
the adoption of the Company's 1998 Director Stock Incentive Plan by a
vote of 4,096,826 for and 130,647 against. There were 234,289
abstentions and no broker nonvotes for the proposal.
Item 5 Other Information: None
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibits furnished:
(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. Q2 1999 10-Q 13 of 14
<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)
August 13, 1999 /s/ R. Jeffrey Bailly
--------------------------------------------------
Date R. Jeffrey Bailly
President, Chief Executive Officer
and Director
August 13, 1999 /s/ Ronald J. Lataille
--------------------------------------------------
Date Ronald J. Lataille
Vice President, Treasurer, and Chief Financial Officer
- --------------------------------------------------------------------------------
UFP Technologies, Inc. Q2 1999 10-Q 14 of 14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000914156
<NAME> H5CEU*PZ
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 508
<SECURITIES> 0
<RECEIVABLES> 9,150
<ALLOWANCES> 314
<INVENTORY> 4,852
<CURRENT-ASSETS> 15,110
<PP&E> 21,174
<DEPRECIATION> 10,028
<TOTAL-ASSETS> 31,922
<CURRENT-LIABILITIES> 12,693
<BONDS> 0
0
0
<COMMON> 48
<OTHER-SE> 16,748
<TOTAL-LIABILITY-AND-EQUITY> 31,922
<SALES> 28,370
<TOTAL-REVENUES> 28,370
<CGS> 21,250
<TOTAL-COSTS> 26,830
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 54
<INTEREST-EXPENSE> 313
<INCOME-PRETAX> 1,227
<INCOME-TAX> 495
<INCOME-CONTINUING> 732
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 732
<EPS-BASIC> 0.15
<EPS-DILUTED> 0.15
</TABLE>
