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, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ Commission File Number: 1-12648 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 ----------------------------------------------------- (Address of principal executive offices) (Zip Code) (508) 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 10, 1996, 4,636,854 shares of registrant's Common Stock, $.01 par value, were outstanding.
UFP TECHNOLOGIES, INC. AND SUBSIDIARY INDEX PART I - FINANCIAL INFORMATION Page Item 1. Financial Statements Consolidated Balance sheets June 30, 1996 and December 31, 1995................... 1 Consolidated Statements of Operations Three months ended and Six months ended June 30, 1996 and 1995................................ 2 Consolidated Statements of Cash Flows Six months June 30, 1996 and 1995..................... 3 Notes to Consolidated Financial Statements............ 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................... 5 PART II - OTHER INFORMATION............................................ 8 SIGNATURES ............................................................ 11
PART I: FINANCIAL INFORMATION Item 1. Financial Statements UFP Technologies, Inc. and Subsidiary Consolidated Balance Sheets June 30, December 31, 1996 1995 (Unaudited) (Audited) Assets: Current Assets Cash and cash equivalents $ 446,024 524,490 Receivables, net 5,261,358 4,944,541 Inventories 2,655,697 2,432,686 Prepaid expenses 236,791 322,627 Deferred income tax 228,900 228,900 ------------ ----------- Total current assets 8,828,770 8,453,244 Property, plant and equipment 15,175,256 13,825,563 less accumulated depreciation and amortization (6,794,027) (6,203,543) ------------ ----------- Net property, plant and equipment 8,381,229 7,622,020 Cash surrender value of officers life insurance, net 343,990 343,990 Investments in and advances to affiliated partnership 219,200 227,950 Deferred income taxes 113,110 113,110 Goodwill, net 3,636,401 3,740,321 Other assets 315,245 293,888 ------------ ----------- Total assets $ 21,837,945 20,794,523 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 2,500,000 2,775,000 Current installments of long term debt 186,415 183,919 Current capital lease obligations 481,317 297,536 Accounts payable 2,198,857 1,814,807 Accrued expenses and payroll withholdings 1,231,247 1,430,396 ------------ ----------- Total current liabilities 6,597,836 6,501,658 Long term debt, excluding current installments 1,067,521 1,161,369 Capital lease obligations, excluding current installments 1,863,813 1,253,340 Retirement liability 469,896 439,896 ------------ ----------- Total liabilities 9,999,066 9,356,263 Stockholders' Equity Preferred stock, $.01 par value. Authorized 1,000,000 shares; no shares issued 0 0 Common stock, $.01 par value. Authorized 20,000,000 shares; issued and outstanding 4,636,854 shares at June 30, 1996 and 4,626,854 shares at December 31, 1995 46,369 46,269 Additional paid-in capital 9,404,902 9,376,227 Retained earnings 2,387,608 2,015,764 ------------ ----------- Total stockholders' equity 11,838,879 11,438,260 ------------ ----------- Total liabilities and stockholders' equity $ 21,837,945 20,794,523 ============ =========== The accompanying notes are an integral part of these consolidated financial statements 1
UFP Technologies, Inc. and Subsidiary Consolidated Statements of Operations (Unaudited) Three months ended Six months ended ------------------------- ------------------------- June 30, June 30, June 30, June 30, 1996 1995 1996 1995 ---------- ---------- ---------- ---------- Net sales $ 10,083,871 8,263,547 18,777,180 16,850,756 Cost of sales 7,605,057 6,388,220 14,253,733 13,065,014 ------------ --------- ---------- ---------- Gross profit 2,478,814 1,875,327 4,523,447 3,785,742 Selling, general and administrative expenses 1,985,619 1,695,405 3,704,068 3,471,806 ------------ --------- ---------- ---------- Operating income 493,195 179,922 819,379 313,936 Other deductions: Interest expense 106,299 104,846 220,535 212,017 ------------ --------- ---------- ---------- Income before income taxes 386,896 75,076 598,844 101,919 Incomes taxes 152,000 227,000 20,000 ------------ --------- ---------- ---------- 0 Net income $ 234,896 75,076 371,844 81,919 ============ ========= ========== ========== Weighted average shares outstanding 4,938,842 4,740,427 4,934,370 4,730,440 Per share: Net income $ 0.05 0.02 0.08 0.02 The accompanying notes are an integral part of these consolidated financial statements 2
UFP Technologies, Inc. and Subsidiary Consolidated Statements of Cash Flows (Unaudited) <TABLE> <CAPTION> Six months ended ------------------------ June 30, June 30, 1996 1995 -------- -------- <S> <C> <C> Cash flows from operating activities: Net income $ 371,844 81,919 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 694,404 640,482 Net loss in affiliated partnership 8,750 10,500 Stock issued in lieu of compensation 16,875 16,250 Changes in operating assets and liabilities: Receivables, net (316,817) 180,738 Inventories (223,011) (245,880) Prepaid expenses 85,836 15,436 Accounts payable 384,050 (504,207) Accrued expenses and payroll withholdings (199,149) (77,000) Retirement liability 30,000 30,000 -------------- ------------ Net cash provided by operating activities 852,782 148,238 Cash flows from investing activities: Additions to property, plant and equipment (1,349,693) (610,916) Decrease in cash surrender value of officers life -- 206,281 insurance Increase other assets (21,357) (25,545) -------------- ------------ Net cash used in investing activities (1,371,050) (430,180) Cash flows from financing activities: Net borrowings (repayment) under notes payable (275,000) 79,132 Principal repayments of long-term debt (91,352) (29,890) Principal repayments of capital leases (146,746) (70,918) Proceeds from long term debt borrowings 0 350,000 Proceeds from capital lease obligation 941,000 0 Proceeds from sale of common stock 11,900 0 -------------- ------------ Net cash provided (used) by financing activities 439,802 328,324 -------------- ------------ Net change in cash and cash equivalents (78,466) 46,382 Cash and cash equivalents, at beginning of period 524,490 406,225 -------------- ------------ Cash and cash equivalents, at end of period $ 446,024 452,607 -------------- ------------ </TABLE> The accompanying notes are an integral part of these consolidated financial statements 3
UFP TECHNOLOGIES, INC. AND SUBSIDIARY 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, 1995, included in the Company's 1995 Annual Report to Stockholders as provided to the Securities and Exchange Commission on May 2, 1996. The consolidated balance sheet as of June 30, 1996, the consolidated statements of operations for the three months ended and six months ended June 30, 1996 and 1995 and the consolidated statements of cash flows for the three months ended and six months ended June 30, 1996 and 1995, are unaudited but, in the opinion of management, include all adjustments (consisting of normal, recurring adjustments) necessary for fair presentation of results for these interim periods. The results of operations for the three months ended and six months ended June 30, 1996, are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 1996. (2) Inventory Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following: June 30, December 31, 1996 1995 (unaudited) (audited) ----------- --------- Raw materials .............................. $1,827,713 1,724,537 Work-in-process ............................ 311,904 193,185 Finished goods ............................. 495,591 383,449 Contract-in-process ........................ 20,489 131,515 ---------- ---------- Total Inventory ....................... $2,655,697 2,432,686 ========== ========== Work-in-process and finished goods inventories consists of materials, labor and manufacturing overhead. (3) Common Stock At December 31, 1995, 668,500 options were outstanding under the Company's 1993 Stock Option Plan ("1993 Plan"). The purpose of these options are to provide long-term rewards and incentives to the Company's key employees, officers, employee directors, consultants and advisors. There were 51,500 options issued and 5,000 were exercised in the first six months of 1996 under the 1993 Plan, and 13,500 options expired. At June 30, 1996, 701,500 options were outstanding under the plan. 4
At December 31, 1995, 22,500 options were outstanding under the Company's Non-Employee Director Plan. No options were issued, exercised or expired in the first six months of 1996 under the Director Plan. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three months ended June 30, 1996 and 1995 The Company's net sales increased 22.0% to $10,084,000 in the 1996 period from $8,264,000 in the 1995 period. The increase was primarily attributable to an increase in sales volume of the Company's molded fiber products and specialty foam plastic products. Costs of sales as a percentage of sales improved to 75.4% in the 1996 period from 77.3% in the 1995 period. The improvement in the cost of sales margin was primarily attributable to continued volume and manufacturing efficiency improvements associated with the Company's molded fiber products. Selling, general and administrative expenses as a percentage of sales improved to 19.7% in the 1996 period from 20.5% in the 1995 period. Interest expense increased slightly during these respective periods primarily due to capital lease obligations associated with the Company's purchase of additional molded fiber equipment. Six months ended June 30, 1996 and 1995 The Company's net sales increased 11.4% to $18,777,000 in the 1996 period from $16,851,000 in the 1995 period. The increase was primarily attributable to an increase in sales volume of the Company's molded fiber products and specialty foam plastic products. Sales in the 1996 period were impacted by a two-week planned shut down of the California molded fiber plant for installation of additional capacity, by increased seasonality associated with sales of molded fiber products for computer peripherals and other consumer products, and by adverse weather conditions, particularly in January 1996. Costs of sales as a percentage of sales improved to 75.9% in the 1996 period from 77.5% in the 1995 period. The improvement in the cost of sales margin was primarily attributable to continued volume and manufacturing efficiency improvements associated with the Company's molded fiber products. Selling, general and administrative expenses as a percentage of net sales improved to 19.7% in the 1996 period from 20.6% in the 1995 period. Interest expense increased slightly during these respective periods primarily due to capital lease obligations associated with the Company's purchase of additional molded fiber equipment. 5
Liquidity and Capital Resources At June 30, 1996 the Company's working capital was approximately $2,231,000, including $446,000 of cash and cash equivalents. In addition, the Company had a $3,500,000 bank revolving loan facility, of which $2,500,000 was outstanding at June 30, 1996. This facility was renewed on June 30, 1996 and the facility availability was increased to $4,500,000. During the six months ended June 31, 1996, operating activities provided the Company with approximately $853,000 of cash, primarily due to the quarterly profit, depreciation and amortization and an increase in accounts payables, which were partially offset by an increase in accounts receivables and inventory and a decrease in accrued expenses. The increases in accounts receivables, accounts payables and inventory was primarily due to the increase in product demand and sales. Cash used in investing activities of approximately $1,371,000 which was attributable to additions of property, plant and equipment. This amount was primarily attributable to the purchase of molded fiber manufacturing equipment which was installed late in the second quarter of 1996 at the Company's new Iowa facility. Net cash generated from financing activities totaled approximately $440,000, primarily due to an increase in long term capital lease obligations related to the new molded fiber manufacturing equipment which was partially offset by principal repayments of long term debt and capital lease obligations. In the first six months of 1996, the Company borrowed $941,000 under a 48 month capital lease arrangement. At June 30, 1996 the Company had approximately $978,000 outstanding under two mortgage notes and $275,000 outstanding under two equipment notes. At June 30, 1996 the current portion of these obligations, together with the Company's line of credit, totaled $2,686,000. On June 30, 1996 the Company renewed its lending arrangement with BayBank of Boston. Under the terms of the renewal the revolving loan facility limit was increased from $3,500,000 to $4,500,000. And BayBank agreed to extend the Company an additional $2,000,000 equipment line of credit. The term of the agreement expires on June 30, 1997. On July 8, 1996 the Company announced that it will increase the manufacturing capacity of its Iowa Moulded Fibre Technology plant by 50% by purchasing a second molded pulp packaging machine for the facility. The Company anticipates financing this obligation through an equipment note or a capital lease obligation provided by its primary lending institution. Although at some point in the future the Company may seek additional debt or equity financing to fund its growth needs, management believes that cash generated from operations together with its existing resources, including its revolving loan facility and its new $2,000,000 equipment line, will be sufficient to fund its cash flow requirements through at least the next 12 months. 6
Additionally on July 8, 1996 the Company announced that it had been approved for listing on the Nasdaq National Market, and its stock began trading there effective July 8th. 7
PART II - OTHER INFORMATION UFP TECHNOLOGIES, INC. AND SUBSIDIARY Item 1 Legal Proceedings. No Material Litigation Item 2 Changes in Securities. On June 28, 1996, the Company amended its Certificate of Incorporation to increase the number of its authorized shares of Common Stock, $.01 par value, from 10,000,000 to 20,000,000. The additional shares of Common Stock are part of the Company's existing class of Common Stock and, if and when issued, would have the same rights and privileges as the shares of Common Stock presently outstanding. Pursuant to Delaware corporate law, the board of directors is authorized to issue from time to time any and all authorized and unissued shares of Common Stock for any proper corporate purposes without prior stockholder approval, except as may be required for a particular transaction by the Company's Certificate of Incorporation, or by the rules of the Nasdaq Stock Market, or any other stock exchange on which the Company's securities may then be listed. The proposed increase in the number of authorized shares of Common Stock will give the Company greater flexibility by allowing shares of common stock to be issued by the board of directors without the delay and expense of a special meeting of stockholders. For example, the board of directors may deem it appropriate to make a private or public offering of the Common Stock in order to raise funds for working capital or other purposes, or the Common Stock may be issued to finance possible future acquisitions, or for distribution pursuant to employee benefit plans. The authority of the board of directors to issue the newly-authorized but unissued shares of Common Stock might be considered as having the effect of discouraging an attempt by another person or entity to effect a takeover or otherwise gain control of the Company, since the issuance of additional shares of Common Stock would dilute the voting power of the Common Stock then outstanding. The Company is not aware of any efforts to accumulate the Company's securities or to obtain control of the Company, and the Company has no present intention or agreement to issue any additional shares of Common Stock, other than pursuant to outstanding options. Furthermore, the increase in the number of authorized shares of Common Stock is not part of any plan by the Company to adopt a series of antitakeover measures, and the Company has no present intention of soliciting a stockholder vote on any such measures or series of measures. 8
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 6, 1996. At the meeting the stockholders elected the members of the Board of Directors of the Company. The votes for such matter were as follows: Nominee For Withheld Abstained ------- --- -------- --------- William H. Shaw 3,449,551 17,815 0 Richard L. Bailly 3,449,651 17,715 0 R. Jeffrey Bailly 3,449,651 17,715 0 William C. Curry 3,449,651 17,715 0 Eliot H. Sherman 3,449,651 17,715 0 David L. Friedman 3,409,795 57,571 0 T. Gordon Roddick 3,449,651 17,715 0 Kenneth L. Gestal 3,449,651 17,715 0 There were no broker non-votes in connection with the election of Directors. In addition the stockholders voted to increase the number of shares of $.01 par value Common Stock which the Corporation shall have the authority to issue from 10,000,000 shares to 20,000,000 shares. 3.422,320 votes were cast in favor of this amendment, 35,236 vote were cast against this amendment, 9,810 votes abstained and there were no broker non-votes regarding this amendment. Item 5 Other Information. None Item 6 Exhibits and Reports on Form 8-K. (a) Exhibits furnished: (3.01) Certificate of Amendment of Incorporation, as amended. (10.38.7) First Amendment to Credit Agreement, dated May 31, 1995, between the Company and BayBank. (10.38.8) Amended and Restated Revolving Credit Note, dated May 31, 1996, between the Company and BayBank. (10.38.9) Amended and Restated Equipment Note, dated May 31, 1996, between the Company and BayBank. (11) Statement Re: Computation of Earnings Per Share. 9
(27) Financial Data Schedule (b) Reports on Form 8-K: No reports on Form 8-K were filed by the Company during the quarter ended June 30, 1996. 10 UFP TECHNOLOGIES, INC. AND SUBSIDIARY 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 10, 1996 /s/ R. Jeffrey Bailly - --------------- -------------------------------------- Date R. Jeffrey Bailly President, Chief Executive Officer and Director August 10, 1996 /s/ Paul J. Greenler - --------------- -------------------------------------- Date Paul J. Greenler Chief Financial Officer 11