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, 1997 ------------------ 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, 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 6, 1997, 4,666,354 shares of registrant's Common Stock, $.01 par value, were outstanding.
UFP TECHNOLOGIES, INC. AND SUBSIDIARY INDEX <TABLE> <CAPTION> Page PART I - FINANCIAL INFORMATION Item 1. Financial Statements <S> <C> Condensed Consolidated Balance Sheets September 30, 1997 and December 31, 1996.............. 1 Consolidated Statements of Operations Three Months and Nine Months Ended September 30, 1997 and 1996........................... 2 Consolidated Statements of Cash Flows Nine Months Ended September 30, 1997 and 1996......... 3 Notes to Consolidated Financial Statements............ 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 6 PART II - OTHER INFORMATION................................................ 8 SIGNATURES................................................................. 9 </TABLE>
PART I: FINANCIAL INFORMATION Item 1. Financial Statements UFP Technologies, Inc. and Subsidiary Condensed Consolidated Balance Sheets <TABLE> <CAPTION> 30-Sep-97 31-Dec-96 ASSETS Unaudited Audited ------------ ------------ Current assets <S> <C> <C> Cash and cash equivalents $ 432,177 143,531 Receivables, net 6,487,445 5,602,202 Inventories 3,657,820 2,585,560 Prepaid expenses and other current assets 418,188 604,093 ------------ ------------ Total current assets 10,995,630 8,935,386 Property, plant and equipment 19,101,230 17,201,709 Less accumulated depreciation and amortization (8,698,548) (7,486,126) ------------ ------------ Net property, plant and equipment 10,402,682 9,715,583 Goodwill, net 2,615,346 2,577,491 Other assets 1,645,835 1,671,418 ------------ ------------ Total assets $ 25,659,493 22,899,878 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 3,300,000 1,400,000 Current installments of long-term debt 357,701 394,825 Current installments of capital lease obligations 743,933 660,192 Accounts payable 2,026,843 2,215,030 Accrued expenses and payroll withholdings 2,343,792 1,776,926 ------------ ------------ Total current liabilities 8,772,269 6,446,973 Long-term debt, excluding current installments 660,482 764,256 Capital lease obligations, excluding current installments 1,993,031 2,459,261 Retirement liability 544,896 499,896 ------------ ------------ Total liabilities 11,970,678 10,170,386 ------------ ------------ Stockholders' equity Preferred stock 0 0 Common stock 46,664 46,369 Additional paid-in capital 9,499,019 9,404,902 Retained earnings 4,143,132 3,278,221 ------------ ------------ Total stockholders' equity 13,688,815 12,729,492 ------------ ------------ Total liabilities and stockholders' equity $ 25,659,493 22,899,878 ============ ============ </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements. 1
UFP Technologies, Inc. and Subsidiary Consolidated Income Statement (Unaudited) <TABLE> <CAPTION> Three Months Ended Nine Months Ended ----------------------------- ---------------------------- 30-Sep-97 30-Sep-96 30-Sep-97 30-Sep-96 ----------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Net sales $11,440,309 10,095,026 33,600,624 28,872,206 Cost of sales 8,266,699 7,458,925 24,662,526 21,712,658 ----------- ---------- ---------- ---------- Gross profit 3,173,610 2,636,101 8,938,098 7,159,548 Selling, general and administrative expenses 2,353,399 1,997,396 6,973,435 5,701,464 ----------- ---------- ---------- ---------- Operating income 820,211 638,705 1,964,663 1,458,084 ----------- ---------- ---------- ---------- Interest expense 171,064 135,984 481,752 356,519 ----------- ---------- ---------- ---------- Income before income taxes 649,147 502,721 1,482,911 1,101,565 ----------- ---------- ---------- ---------- Income taxes 268,000 201,000 618,000 428,000 ----------- ---------- ---------- ---------- Net income $ 381,147 301,721 864,911 673,565 =========== ========== ========== ========== Weighted average shares outstanding 4,838,372 4,961,728 4,871,519 4,958,043 Per share: Net income $ 0.08 0.06 0.18 0.14 </TABLE> 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> Nine Months Ended ------------------------------ 30-Sep-97 30-Sep-96 ---------- ---------- Cash flows from operating activities: <S> <C> <C> Net income $ 864,911 673,565 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,281,235 1,091,968 Equity in net income of unconsolidated affiliate and partnership 8,590 14,000 Stock issued in lieu of compensation 33,750 16,875 Changes in operating assets and liabilities: Receivables, net (209,531) (823,919) Inventories (777,259) (78,319) Prepaid expenses and other current assets 242,760 168,359 Accounts payable (299,305) 372,493 Accrued expenses and payroll withholdings 473,360 479,202 Retirement liability 45,000 45,000 ---------- ---------- Net cash provided by operating activities 1,663,511 1,959,224 ---------- ---------- Cash flows from investing activities: Additions to property, plant and equipment (1,186,311) (1,934,598) Acquisition of Foam Cutting Engineers, net of cash acquired (1,512,879) -- Decrease (increase) in other assets 33,646 (18,797) ---------- ---------- Net cash used in investing activities (2,665,544) (1,953,395) ---------- ---------- Cash flows from financing activities: Net borrowings under notes payable 1,900,000 (575,000) Principal repayments of long-term debt (140,898) (137,480) Principal repayments of capital lease obligations (529,085) (266,840) Proceeds from capital lease obligation 0 1,041,000 Net proceeds from sale of common stock 60,662 11,900 ---------- ---------- Net cash provided by financing activities 1,290,679 73,580 ---------- ---------- Net change in cash and cash equivalents 288,646 79,409 Cash and cash equivalents, at beginning of period 143,531 524,490 ---------- ---------- Cash and cash equivalents, at end of period $ 432,177 603,899 ========== ========== </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, 1996, included in the Company's 1996 Annual Report on Form 10-K as provided to the Securities and Exchange Commission. The condensed consolidated balance sheet as of September 30, 1997, the consolidated income statement for the three and nine months ended September 30, 1997 and 1996, and the consolidated statements of cash flows for the nine months ended September 30, 1997 and 1996, 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 nine months ended September 30, 1997, are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 1997. (2) Inventory Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following: <TABLE> <CAPTION> September 30, 1997 December 31, 1996 (unaudited) (audited) -------------------- --------------------- <S> <C> <C> Raw materials $ 2,344,019 $ 1,850,238 Work-in-process 424,837 190,553 Finished goods 888,964 544,769 -------------------- --------------------- Total Inventory $ 3,657,820 $ 2,585,560 ==================== ===================== </TABLE> (3) Common Stock At December 31, 1996, 695,250 options were outstanding under the Company's 1993 Stock Option Plan ("1993 Plan"). The purpose of these options is to provide long-term rewards and incentives to the Company's key employees, officers, employees, directors, consultants and advisors. There were 44,000 options issued and 17,500 options exercised in the first nine months of 1997 under the 1993 Plan, and 32,750 options expired. At September 30, 1997, 689,000 options were outstanding under the plan. At December 31, 1996, 37,500 options were outstanding under the Company's Non-Employee Director Plan. There were 12,500 options issued, and 5,000 options exercised in the first nine months of 1997 under the plan, and 2,500 options expired. At September 30, 1997, 42,500 options were outstanding. 4
(4) Earnings per share disclosure in 10-Qs In February, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 128, Earnings per Share (FASB No. 128). FASB No. 128 supersedes APB No. 15 and specifies the computation, presentation and disclosure requirements for earnings per share. FASB No. 128 is effective for financial statements for both interim and annual periods ending after December 15, 1997 and early application is not permitted. Accordingly, the Company will apply FASB No. 128 for the quarter and year ended December 31, 1997 and restate prior period information as required under the statement. The Company believes that if the FASB No. 128 had been applied for the three-month period ending September 30, 1997, and the nine-month period ending September 30, 1997, the impact on earnings per share as currently stated would have been immaterial. (5) Pro forma results of acquisition of Foam Cutting Engineers, Inc. (FCE) The following table outlines the pro forma financial results of UFP Technologies, Inc. for the nine month period ended September 30, 1996 as if FCE was purchased on January 1, 1996. Such pro forma financial information reflects adjustments for amortization of goodwill and interest. <TABLE> <CAPTION> Nine Month Period Ended September 30, 1996 ------------------------------ Historical Pro-forma (unaudited) (unaudited) ----------- ----------- <S> <C> <C> Net Sales $28,872,206 $31,718,433 Net income $ 673,565 $ 716,242 Weighted average shares outstanding 4,958,043 4,958,043 Net income per share $ 0.14 $ 0.14 </TABLE> 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three Months Ended September 30, 1997 and 1996 - ---------------------------------------------- The Company's net sales increased 13% to $11,440,309 in the 1997 period from $10,095,026 in the 1996 period. The increase was primarily attributable to an increase in sales volume of the Company's moulded fibre products and the addition of the Foam Cutting Engineers ("FCE") division which was acquired effective January 1, 1997. Cost of sales as a percentage of sales declined to 72.3% in the 1997 period from 73.9% in the 1996 period. The improvement in the cost of sales margin was primarily attributable to continued volume and manufacturing efficiency improvements associated with the Company's moulded fibre products. Selling, general and administrative expenses increased to $2,353,399 (20.6% of sales) in the 1997 period from $1,997,396 (19.8% of sales) in the 1996 period. The increase was primarily associated with additional selling expenses related to increased sales and general and administrative expenses associated with the addition of the FCE division. Interest expense increased 26% in the 1997 period to $171,064 from $135,984 in the 1996 period. The increase was primarily attributable to the additional borrowings associated with the acquisition of FCE and increases in capital lease obligations associated with the Company's purchase of additional moulded fibre equipment. Nine Months Ended September 30, 1997 and 1996 - --------------------------------------------- The Company's net sales increased 16.4% to $33,600,624 in the 1997 period from $28,872,206 in the 1996 period. The increase was primarily attributable to an increase in sales volume of the Company's moulded fibre products and the addition of the FCE division which was acquired effective January 1, 1997. Cost of sales as a percentage of sales improved to 73.4% in the 1997 period from 75.2% in the 1996 period. The improvements in the cost of sales margin was primarily attributable to continued volume and manufacturing efficiency improvements with the Company's moulded fibre products. Selling, general and administrative expenses increased to $6,973,435 (20.8% of sales) in the 1997 period, from $5,701,464 (19.7% of sales) in the 1996 period. The increase was primarily associated with additional selling expenses related to increased sales and general and administrative expenses associated with the addition of the FCE division. Interest expenses increased 35% in the 1997 period to $481,752 from $356,519 in the 1996 period. The increase was primarily attributable to the additional borrowings associated with the acquisition of FCE and the increase in capital lease obligations associated with the Company's purchase of additional moulded fibre equipment. 6
Liquidity and Capital Resources At September 30, 1997, the Company's working capital was approximately $2,223,000 including $432,000 of cash and cash equivalents. In addition, the Company had a $5,000,000 bank revolving loan facility, of which $3,300,000 was outstanding at September 30, 1997. On September 30, 1997, the company renewed its borrowing arrangement with BankBoston. Under the terms of the renewal, the revolving working capital facility limit was increased from $4.5 million to $5.0 million, and provides for a new $1.0 million four-year term loan. In addition, the bank agreed to extend the company an additional $2.0 million equipment line of credit. During the nine months ended September 30, 1997, operating activities of the Company provided approximately $1,664,000 in cash, primarily due to net income and depreciation and amortization which was offset by increases in accounts receivable and inventory and a decrease in accounts payable. The increases in accounts receivable and inventory were primarily due to the increase in sales volume and product demand. Cash used in investing of approximately $2,666,000 was attributable to the acquisition of FCE and to additions of property, plant and equipment. Net cash generated from financing activities totaled approximately $1,291,000 due to a $1,900,000 increase in short-term borrowings primarily associated with the purchase of FCE, which was partially offset by principal payments of capital lease obligations and long-term debt. At September 30, 1997, the Company had approximately $897,000 outstanding under two mortgage notes and approximately $122,000 outstanding under two equipment notes. At September 30, 1997, the current portions of these obligations, together with the Company's line of credit totaled $3,658,000. The Company believes it will continue to have capital expenditure needs related to the growth of its Moulded Fiber division, including increased inventory requirements, additional and enhanced manufacturing equipment and, possibly, establishing a new production site. Although the Company believes that it will be able to obtain the necessary financing for this expansion, there can be no assurance that such financing will be available on favorable terms, if at all. * * * 7
PART II - OTHER INFORMATION UFP TECHNOLOGIES, INC. AND SUBSIDIARY 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) BankBoston credit facility. (11) Statement Re: Computation of Earnings Per Share. (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. 8
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) November 14, 1997 /s/ R. Jeffrey Bailly - ----------------- --------------------- Date R. Jeffrey Bailly President, Chief Executive Officer and Director November 14, 1997 /s/ Ron Lataille - ----------------- --------------------- Date Ron Lataille Chief Financial Officer 9