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, 2001 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: 001-12648 --------- UFP TECHNOLOGIES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) <TABLE> <S> <C> DELAWARE 04-2314970 -------- ---------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) </TABLE> 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 filing requirements for the past 90 days. Yes X No ___ ----- 4,202,733 shares of registrant's Common Stock, $.01 par value, were outstanding as of April 25, 2001.
UFP TECHNOLOGIES, INC. INDEX <TABLE> <CAPTION> PAGE <S> <C> PART I - FINANCIAL INFORMATION.......................................................................................... 3 Item 1. Financial Statements...................................................................................... 3 Condensed Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000............................... 3 Consolidated Income Statements: Three Months Ended March 31, 2001 and 2000..................................... 4 Consolidated Statements of Cash Flows: Three Months Ended March 31, 2001 and 2000.............................. 5 Notes to Consolidated Financial Statements..................................................................... 6 Item 2. Management's Discussion & Analysis of Financial Condition & Results of Operations......................... 10 PART II - OTHER INFORMATION............................................................................................. 12 SIGNATURES.............................................................................................................. 13 </TABLE>
PART I: FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS UFP TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> 31-MAR-01 31-DEC-00 ----------------- ----------------- (Unaudited) (Audited) <S> <C> <C> ASSETS Current assets Cash and cash equivalents $ 63,940 $ 94,051 Accounts receivable 11,089,608 10,692,979 Inventories 6,605,108 6,779,950 Prepaid expenses and other current assets 1,333,933 945,998 ----------------- ----------------- Total current assets 19,092,589 18,512,978 Property, plant and equipment 26,741,560 25,917,992 Less accumulated depreciation and amortization (14,188,205) (13,464,427) ----------------- ----------------- Net property, plant and equipment 12,553,355 12,453,565 Goodwill, net 6,604,657 6,724,907 Other assets 2,614,410 2,660,954 ----------------- ----------------- Total assets $ 40,865,011 $ 40,352,404 ================= ================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 7,603,712 $ 4,736,754 Current installments of long-term debt 1,257,250 1,057,150 Current installments of capital lease obligations 421,674 290,554 Accounts payable 3,364,912 4,439,577 Accrued expenses and payroll withholdings 3,347,911 3,849,817 ----------------- ----------------- Total current liabilities 15,995,459 14,373,852 Long-term debt, excluding current installments 6,964,823 7,174,311 Capital lease obligations, excluding current installments 195,440 415,156 Retirement and other liabilities 896,786 861,645 ----------------- ----------------- Total liabilities 24,052,508 22,824,964 Stockholders' equity Common stock 42,027 43,884 Additional paid-in capital 8,129,736 8,474,533 Retained earnings 8,640,740 9,009,023 ----------------- ----------------- Total stockholders equity 16,812,503 17,527,440 ----------------- ----------------- Total liabilities and stockholders' equity $ 40,865,011 $ 40,352,404 ================= ================= </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements.
UFP TECHNOLOGIES, INC. CONSOLIDATED INCOME STATEMENTS (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED 31-MAR-01 31-MAR-00 ----------- ----------- <S> <C> <C> Net sales $ 16,966,482 $18,283,629 Cost of sales 13,568,576 13,980,647 ------------- ----------- Gross profit 3,397,906 4,302,982 Selling, general and administrative expenses 3,804,933 3,613,218 ------------- ----------- Operating income (loss) (407,027) 689,764 Interest expense 274,986 293,842 ------------- ----------- Income (loss) before income taxes (682,013) 395,922 Income taxes (313,726) 178,000 ------------- ----------- Net income (loss) $ (368,287) $ 217,922 ============= =========== Basic net income (loss) per share $ (0.08) $ 0.05 Diluted net income (loss) per share $ (0.08) $ 0.05 Weighted average number of shares used in computation of per share data: Basic 4,374,910 4,368,378 Diluted 4,374,910 4,389,569 </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements
UFP TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED 31-MAR-01 31-MAR-00 -------------- -------------- <S> <C> <C> Cash flows from operating activities: Net income (loss) $ (368,287) $ 217,922 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 795,528 725,666 Stock issued in lieu of compensation 141,123 171,062 Changes in operating assets and liabilities: Receivables (396,629) 556,665 Inventories 174,842 (174,258) Prepaid expenses and other current assets (387,935) (17,323) Accounts payable (1,074,665) (2,145,645) Accrued expenses and payroll withholdings (501,906) (807,818) Retirement and other liabilities 35,141 (32,315) Decrease in other assets 37,282 126,409 ------------- ---------- Net cash used by operating activities (1,545,506) (1,379,635) Cash flows from investing activities: Additions to property, plant and equipment (770,568) (452,633) Payments from affiliated company 4,762 23,075 Acquisition of Simco Industries - (6,252,123) ------------- ---------- Net cash used in investing activities (765,806) (6,681,681) Cash flows from financing activities: Net borrowings under notes payable 2,866,958 2,298,350 Principal repayments of long-term debt (9,388) (14,836) Principal repayments of capital lease obligations (88,596) (475,189) Proceeds from long-term borrowings - 6,120,001 Capital stock repurchase (525,000) - Net proceeds from sale of common stock 37,227 38,130 ------------- ---------- Net cash provided by financing activities 2,281,201 7,966,456 Net change in cash and cash equivalents (30,111) (94,860) ------------- ---------- Cash and cash equivalents, at beginning of period 94,051 348,729 ------------- ---------- Cash and cash equivalents, at end of period $ 63,940 $ 253,869 ============= ========== </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements.
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, 2000, included in the Company's 2000 Annual Report on Form 10-K as provided to the Securities and Exchange Commission. The condensed consolidated balance sheet as of March 31, 2001, the consolidated income statements for the three months ended March 31, 2001 and 2000, and the consolidated statements of cash flows for the three months ended March 31, 2001 and 2000, 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 three months ended March 31, 2001, are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2001. (2) New Accounting Pronouncements The Company adopted SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (as amended by SFAS Nos. 137 and 138), effective January 1, 2001. The statement requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. Adoption of the statement did not have a material effect on the Company's results of operations or financial position. The Securities and Exchange Commission released Staff Accounting Bulletin (SAB) No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS, on December 3, 1999. This SAB provided additional guidance on the accounting for revenue recognition, including both broad conceptual discussion as well as certain industry-specific guidance. The Company adopted the guidance effective January 1, 2000. Adoption of the new guidance did not have a material effect on its results of operations or financial position, and no restatement of its historical financial statements was required.
The Financial Accounting Standards Board issued Interpretation No. 44, ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION, in March 2000. The interpretation clarified how companies should apply APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Currently, there are no awards granted by the Company that would result in an adjustment as a result of the interpretation. (3) Inventory Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following: <TABLE> <CAPTION> 03/31/01 12/31/00 --------------- -------------- <S> <C> <C> Raw materials $ 3,952,520 $ 4,242,874 Work-in-process 806,283 785,848 Finished goods 1,846,305 1,751,228 --------------- -------------- Total inventory $ 6,605,108 $ 6,779,950 =============== ============== </TABLE> Work-in-process and finished goods inventories consist of materials, labor and manufacturing overhead. (4) Common Stock 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 either non-qualified stock options or incentive stock options for the issuance of up to 1,550,000 shares of common stock. 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 non-qualified stock options shall be determined by the Stock Option Committee. Options granted under the plan generally 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 options. At December 31, 2000, 731,944 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. Zero options were issued, no options were exercised, and 4,000 options expired in the first three months of 2001 under the 1993 Plan. At March 31, 2001, 727,944 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 March 31, 2001, 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. At March 31, 2001, 88,614 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 up to 10% of their base salaries withheld 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. On February 23, 2001, the Company purchased 300,000 shares of the Company's stock from Cramer, Berkowitz and Co. at $1.75 per share, for a total amount of $525,000. The purchase was funded by the Company's revolving line of credit. (5) 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. The weighted average number of shares used to compute diluted income per share consisted of the following: <TABLE> <CAPTION> THREE MONTHS ENDED ------------------------- 03/31/01 03/31/00 ---------- ---------- <S> <C> <C> Weighted average common shares outstanding - basic 4,374,910 4,368,378 Weighted average common equivalent shares due to stock options - 21,191 ---------- --------- Weighted average common shares oustanding - diluted 4,374,910 4,389,569 ========== ========= </TABLE>
Diluted weighted average shares outstanding for the three months ended March 31, 2000, exclude 504,335 options due to the fact that option prices were greater than the average market price of the common stock. The Company incurred a loss for the three months ended March 31, 2001. (6) 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, 2000, 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 and net income 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. <TABLE> <CAPTION> THREE MONTHS ENDED 3/31/01 THREE MONTHS ENDED 3/31/00 -------------------------------------------- ------------------------------------------- SPECIALTY PACKAGING TOTAL UFPT SPECIALTY PACKAGING TOTAL UFPT --------- --------- ---------- --------- --------- ---------- <S> <C> <C> <C> <C> <C> <C> Net sales $ 8,359,866 $ 8,606,616 $ 16,966,482 $ 10,054,142 $ 8,229,487 $ 18,283,629 Net (loss) income (222,052) (146,235) (368,287) 66,629 151,293 217,922 </TABLE> * * *
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SALES Net sales for the three-month period ended March 31, 2001, were $17.0 million or 7.1% below sales of $18.3 million in the same period last year. The overall decline in sales is primarily related to a decline in sales within the Company's specialty products group, which was negatively impacted by the loss of a large customer that developed an alternative in-house solution to the Company's products, as well as an automotive industry slowdown. GROSS PROFIT Gross profit as a percentage of sales (gross margin) decreased in the three-month period ended March 31, 2001, over the respective period last year. Gross margins for the three-month periods ended March 31, 2001 and 2000, were 20.0% and 23.5%, respectively. The decline in gross margin is primarily attributable to costs incurred during the quarter in consolidating and moving the Company's plants in Detroit and California, as well as the impact of declining sales in the Company's Detroit location. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, General and Administrative expenses ("SG&A") were $3.8 million, or 22.4% of sales, for the three-month period ended March 31, 2001, compared to $3.6 million, or 19.8% of sales, in the same period a year ago. The increase in SG&A as a percentage of sales is primarily attributable to the decline in sales. The increase in SG&A dollars is primarily attributable to additions made to the Company's management team. OTHER Interest expense for the three-month period ended March 31, 2001, decreased to $275,000 from $294,000 in the comparable period last year. The decrease is primarily due to lower interest rates. The Company's effective tax rate for the three months ended March 31, 2001, was approximately 46% compared to approximately 45% in the respective period 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. At March 31, 2001 and December 31, 2000, the Company's working capital was approximately $3.1 million and $4.1 million, respectively. The decrease in working capital is primarily a result of the first quarter stock repurchase of $525,000.
Net cash provided by financing activities for the three-month period ended March 31, 2001, was approximately $2.3 million compared to approximately $8.0 million in the same period last year. The primary reason for the decrease is the financing of the acquisition of Simco in the first quarter of 2000. 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 $8.0 million revolving bank loan facility, of which $7.6 million was outstanding on March 31, 2001. Borrowings through this credit facility are unsecured, and bear interest at LIBOR plus a variable spread that ranges from 1.25% to 2.0%, or prime. In addition the Company has a $10 million acquisition line of credit of which $7.8 million was outstanding at March 31, 2001. At March 31, 2001, the Company had capital lease obligations and other notes payable of approximately $0.6 million and $0.5 million, respectively. At March 31, 2001, the current portion of all debt, including the revolving bank loan, was approximately $9.3 million. 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. 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 March 31, 2001, 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.
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 Other Information None Item 5 Exhibits and Reports on Forms 8-K (a) Exhibits furnished: (10.45) Facility lease between Moulded Fibre Technology, Inc. and MidState 99 Distribution Building No.1, LLC. (b) Reports on Form 8-K: The Company did not file a Current Report on Form 8-K during the quarter ended March 31, 2001.
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/ May 11, 2001 /s/ R. Jeffrey Bailly - ---------------------------------- ---------------------------------------- Date R. Jeffrey Bailly President, Chief Executive Officer and Director /s/ May 11, 2001 /s/ Ronald J. Lataille - ---------------------------------- ---------------------------------------- Date Ronald J. Lataille Vice President, Chief Financial Officer & Treasurer