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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For fiscal year ended DECEMBER 31, 2000 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 Company as Specified in Its Charter)
DELAWARE 04-2314970
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
172 EAST MAIN STREET, GEORGETOWN, MASSACHUSETTS - USA 01833-2107
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(Address of Principal Executive Offices) (Zip Code)
(978) 352-2200
(Company's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Preferred Share Purchase Rights
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____
Indicate by check mark if disclosure of delinquent filers pursuant to
Rule 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock, $.01 par
value, held by non-affiliates of the registrant as of March 19, 2001, was
$3,984,225 based on the closing price of $1.75 on that date on the Nasdaq
National Market. As of March 19, 2001, 4,192,733 shares of the registrant's
Common Stock, $.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement involving the election of
directors at the registrant's 2001 annual meeting of stockholders, which is
expected to be filed within 120 days after the end of the registrant's fiscal
year, are incorporated by reference in Part III of this report.
PART I
This report contains certain statements that are "forward-looking statements" as
that term is defined under the Private Securities Litigation Reform Act of 1995
(the "Act") and releases issued by the Securities and Exchange Commission. The
words "believe," "expect," "anticipate," "intend", "estimate" and other
expressions which are predictions of or indicate future events and trends and
which do not relate to historical matters identify forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause the actual results, performance or achievements
of the Company to differ materially from anticipated future results, performance
or achievements expressed or implied by such forward-looking statements.
Examples of these risks, uncertainties, and other factors include, without
limitation, the following: (i) economic conditions that affect sales of the
products of the Company's packaging customers, (ii) actions by the Company's
competitors and the ability of the Company to respond to such actions, (iii) the
ability of UFP Technologies, Inc. (the "Company" or "UFPT") to obtain new
customers and (iv) the ability of the Company to execute favorable acquisitions.
In addition to the foregoing, the Company's actual future results could differ
materially from those projected in the forward-looking statements as a result of
risk factors set forth elsewhere in this report and changes in general economic
conditions, interest rates and the assumptions used in making such
forward-looking statements. The Company undertakes no obligation to publicly
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.
ITEM 1. BUSINESS
The Company designs and manufactures a broad range of high-performance
cushion packaging, including 100% recycled molded fiber packaging products for a
variety of industrial and consumer markets. The Company also designs and
manufactures specialty foam products. The Company is a leading U.S. manufacturer
of custom-designed cushion foam packaging products and engineered specialty foam
and laminated products.
Effective January 14, 2000, the Company purchased all of the outstanding
common stock of Simco Industries, Inc. ("Simco"), located in Roseville,
Michigan. Simco is a full-service supplier of automotive trim components using
its patented Superformed(R) process. This acquisition provides the Company with
a key QS 9000 Detroit area location to service its automotive customers as well
as advanced molding capabilities.
Effective November 30, 1998, the Company purchased substantially all of
the assets of Pacific Foam Technologies, Inc. ("Pacific Foam"), based in
Ventura, California. Pacific Foam designs and manufactures a line of specialty
foam products for the health and beauty industry. This acquisition provides the
Company with a strategic west coast presence as well as an attractive niche
market.
Effective January 1, 1997, the Company acquired substantially all of the
properties and net assets of Foam Cutting Engineers, Inc. ("FCE"). FCE is
engaged in the business of designing and manufacturing engineered foam plastics
for packaging and specialty applications, and is based in
the Chicago suburb of Addison, Illinois. This acquisition expands the Company's
geographic reach of its foam plastics business to the strategically important
region of the Midwest.
The Company's high-performance cushion packaging products are made
primarily from polyethylene and polyurethane foams, and a wide range of sheet
plastics. These products are custom designed and fabricated or molded to provide
protection for fragile and valuable items, and are sold primarily to original
equipment and component manufacturers in the computer, electronics,
telecommunications, industrial, medical and pharmaceutical markets. Molded fiber
products are made primarily from 100% recycled paper, principally derived from
waste newspaper. These products are custom designed, engineered and molded into
shapes for packaging high volume consumer goods, including computer components,
medical devices and other light electronics.
In addition to packaging products, the Company fabricates and molds
specialty products made from cross-linked polyethylene foam and other materials.
The Company also laminates fabrics and other materials to cross-linked
polyethylene foams, polyurethane foams and other substrates. The Company's
specialty products include door panels and other interior automotive components,
athletic and industrial safety belts, components for medical diagnostic
equipment, nail files and other beauty aids, and shock absorbing inserts used in
athletic and leisure footwear.
The Company was incorporated in Massachusetts under the name United
Packaging Corporation in 1963. The Company changed its name to United Foam
Plastics Corporation in 1973 and to UFP Technologies, Inc. in October 1993. In
November 1993, the Company reincorporated in Delaware. In December 1993, the
Company completed an initial public offering of its Common Stock and acquired
Moulded Fibre Technology, Inc. ("MFT"). Unless the context otherwise requires,
the term "Company" or "UFPT" reflects the re-incorporation of UFP Technologies,
Inc. and refers to UFP Technologies, Inc. and its subsidiaries, MFT and Simco.
The Company's principal offices are located at 172 East Main Street, Georgetown,
Massachusetts 01833, and its telephone number is (978) 352-2200.
MARKET OVERVIEW
PACKAGING PRODUCTS. The interior cushion packaging market is
characterized by three primary sectors: (1) custom fabricated or molded products
for low volume, high fragility products; (2) molded or die-cut products for high
volume, industrial and consumer goods; and (3) loose fill and commodity
packaging materials for products which do not require custom-designed packaging.
Packaging products are used to contain, display and/or protect their contents
during shipment, handling, storage, marketing and use. The Company serves both
the low volume, high fragility market and the high volume industrial and
consumer market with a range of product offerings but does not serve the loose
fill and commodity packaging market.
The low volume, high fragility market is generally characterized by
annual production volumes of less than 50,000 pieces. Typical goods in this
market include precision instruments, medical devices, sensitive electronic
components and other high value industrial products that are very sensitive to
shock, vibration and other damage that may occur during shipping and
distribution. The principal materials used to package these goods include
polyethylene and polyurethane foams, foam-in-place polyurethane and molded
expanded polystyrene. Polyurethane
foams and polyethylene foams have high shock absorbency, high resiliency and
vibration damping characteristics.
The higher volume consumer packaging market is generally characterized by
annual production volumes in excess of 50,000 pieces. Typical goods in this
market include toys, light electronics, computers and computer peripherals,
stereo equipment and small appliances. These goods generally do not require as
high a level of shock and vibration protection as goods in the low volume, high
fragility market. The principal materials used to package these goods include
various molded, rigid and foamed plastics, such as expanded polystyrene foam
(EPS), vacuum-formed polystyrene (PS) and polyvinyl chloride (PVC), and
corrugated die-cut inserts, which generally are less protective and less
expensive than resilient foams and molded fiber. The Company believes that
molded fiber is increasingly being used as an alternative medium to these
materials.
SPECIALTY PRODUCTS. Specialty applications of foam and other types of
plastics are numerous and diverse. Examples of uses of specialty foam products
include automotive interior components, medical devices, toys, gaskets and
carrying cases. Cross-linked polyethylene foams have many of the same properties
as traditional polyethylene foams, including light weight, durability,
resiliency and flexibility. Cross-linked foams also have many advantages over
traditional foams, including the ability to be thermoformed (molded),
availability in vibrant colors, a fine cell structure providing improved
esthetics and lower abrasiveness, and enhanced resistance to chemicals and
ultraviolet light. Certain grades of cross-linked foams can be radiation
sterilized and have been approved by the U.S. Food and Drug Administration for
open wound skin contact.
Cross-linked foam can also be combined with other materials to increase
product usages and market applications. For example, cross-linked foams can be
laminated to fabrics to produce light weight, flexible and durable insoles for
athletic and walking shoes, weight lifting and industrial safety belts, gun
holsters, backpacks, and other products for the leisure, athletic and retail
markets. The Company believes that, as a result of their many advantages,
cross-linked foam and cross-linked foam laminated products are being used in a
wide range of markets as substitutes for traditional rubber, leather and other
product material alternatives.
REGULATORY CLIMATE
The packaging industry has been subject to user, industry, and
legislative pressure to develop environmentally responsible packaging
alternatives that reduce, reuse and recycle packaging materials. Government
authorities have enacted legislation relating to source reduction, specific
product bans, recycled content, recyclability requirements and "green marketing"
restrictions.
In order to provide packaging that complies with all regulations
regardless of a product's destination, manufacturers seek packaging materials
that meet both environmentally related demands and performance specifications.
Some packaging manufacturers have responded by: reducing product volume and
ultimate waste product disposal through reengineering traditional packaging
products; adopting new manufacturing processes; participating in recovery and
reuse systems for resilient materials that are inherently reusable; creating
programs to recycle packaging
following its useful life; and developing materials that use a high percentage
of recycled content in their manufacture.
PRODUCTS
The Company's products include foam, plastic, and fiber packaging
products, and specialty foam products.
PACKAGING PRODUCTS
The Company designs, manufactures and markets a broad range of packaging
products primarily using polyethylene, polyurethane and cross-linked
polyethylene foams and rigid plastics. These products are custom designed and
fabricated or molded to provide protection for less durable, higher value items,
and are primarily sold to original equipment and component manufacturers in the
computer, electronics, telecommunications, industrial, medical and
pharmaceutical markets. Examples of the Company's packaging products include
end-cap packs for computers, corner blocks for telecommunications consoles,
anti-static foam packs for printed circuit boards, die-cut inserts for attache
cases and plastic trays for medical devices and components. Markets for these
products are typically characterized by lower to moderate volumes where
performance, such as shock absorbency and vibration damping, is valued.
The Company's engineering personnel collaborate directly with customers
to study and evaluate specific customer requirements. Based on the results of
this evaluation, packaging products are engineered to customer specifications
using various types and densities of materials with the goal of providing the
desired protection for the lowest cost and with the lowest package volume. The
Company believes that its engineering expertise and breadth of product and
manufacturing capabilities have enabled it to provide unique solutions to
achieve these goals.
The markets for the Company's molded fiber packaging and vacuum-formed
trays are characterized by high volume production runs and require rapid
manufacturing turnaround times. Raw materials used in the manufacture of molded
fiber are primarily recycled newspaper, a variety of other grades of recycled
paper and water. Raw materials used in vacuum-formed plastics include
polystyrene (PS) and polyvinyl chloride (PVC). These products compete with
expanded polystyrene (EPS) and manually assembled corrugated die-cut inserts.
Sales of these products have been to the computer, consumer electronics and
medical industries.
The Company's molded fiber products provide customers with packaging
solutions that are more responsive to stringent environmental packaging
regulations worldwide and meet the rising demands of environmentally-aware
consumers, while simultaneously meeting customer cost and performance
objectives.
SPECIALTY FOAM PRODUCTS
The Company specializes in engineered products that use the Company's
close tolerance manufacturing capabilities and its expertise in various foam
materials and lamination techniques, as well as the Company's ability to
manufacture in clean room environments. The Company's
specialty products are sold primarily to customers in the automotive, sporting
goods, medical, beauty, leisure and footwear industries. These products include
components for automobiles and medical diagnostic equipment, abrasive nail files
and anti-fatigue mats, and shock absorbing inserts used in athletic and leisure
footwear.
The Company believes that it is one of the largest purchasers of
cross-linked foam in the United States and as a result it has been able to
establish important relationships with the relatively small number of suppliers
of this product. Through its strong relationships with cross-linked foam
suppliers, the Company believes that it is able to offer customers a wide range
of cross-linked foam products.
The Company also benefits from its ability to custom design its own
proprietary manufacturing equipment in conjunction with its machinery suppliers.
For example, the Company has custom designed its own flame lamination
manufacturing machines allowing the Company to achieve adhesive bonds between
cross-linked foam and fabric and other materials that do not easily combine.
These specialty laminates typically command higher prices than traditional foam
products.
MARKETING AND SALES
The Company markets and sells its packaging and specialty products in the
United States principally through direct regional sales forces comprised of
skilled engineers. The Company also uses independent manufacturer
representatives on a limited basis to sell its products in regions where it does
not have coverage. The Company's sales engineers collaborate with customers and
the Company's design and manufacturing experts to develop custom engineered
solutions on a cost-effective basis. The Company also markets its products
through attendance by in-house market specialists at trade shows and
expositions. The Company believes that its sales are somewhat seasonal, with
increased sales in the second half of the year.
With the addition of Pacific Foam, the Company now markets a line of
products to the health and beauty industry. These products are sold primarily
through distributors.
Internationally, the Company is seeking to establish exclusive licensing
arrangements for the manufacture and distribution of its molded fiber product
line with foreign companies for designated territories. The Company has entered
into a license agreement with Hong Kong-based Starlite Holdings, covering
Guandong Province, mainland China and Hong Kong, and United Kingdom-based Rexam
PLC covering the United Kingdom and Ireland. Under these arrangements the
manufacturer must pay the Company a lump sum royalty in exchange for the
requisite equipment for production of molded fiber products and, thereafter, a
continuing royalty for the right to manufacture and distribute molded fiber
products in their respective territories. Starlite completed installation of the
Company's equipment and commenced operations in January 1997. Rexam entered into
its license agreement with the Company and began production under that license
in January 1997.
MANUFACTURING
The Company's manufacturing operations consist primarily of cutting,
molding, vacuum forming, laminating and assembly. For custom molded foam
products, the Company's skilled engineering personnel analyze specific customer
requirements to design and build prototype products to determine product
functionality. Upon customer approval, prototypes are converted to final designs
for commercial production runs.
Molded cross-linked foam products are produced in a thermoforming process
using heat, pressure, and precision metal tooling.
Cushion foam packaging products that are not cross-linked are fabricated
by cutting shapes from blocks of foam using specialized cutting tools, routers
and hot wire equipment and assembling these shapes into the final product using
a variety of foam welding or gluing techniques. Products can be used on a
stand-alone basis or bonded to another foam product or other material such as a
corrugated medium.
Laminated products are produced through a process whereby the foam medium
is heated to the melting point. The heated foam is then typically bonded to a
non-foam material through the application of mechanical pressure.
Molded fiber products are manufactured by vacuum forming a pulp of
recycled or virgin paper materials onto custom engineered molds. With the
application of vacuum and air, the molded parts are pressed and transferred to
an in-line conveyorized dryer, from which they exit ready for packing or
subsequent value added operations.
The Company does not manufacture any of the raw materials used in its
products. With the exception of certain grades of cross-linked foam, these raw
materials are available from multiple supply sources. Although the Company
relies upon a limited number of suppliers for cross-linked foam, the Company's
relationships with such suppliers are good, and the Company expects that these
suppliers will be able to meet the Company's requirements for cross-linked foam.
Any delay or interruption in the supply of raw materials could have a material
adverse effect on the Company's business.
RESEARCH AND DEVELOPMENT
The Company's engineering personnel continually explore design and
manufacturing techniques to meet the unique demands and specifications of its
customers. In addition, the Company regularly undertakes customer-initiated
engineering feasibility studies for which the Company is compensated regardless
of whether such projects result in commercial production contracts. Because the
Company's products tend to have short life cycles, research and development is
an integral part of the Company's ongoing cost structure.
COMPETITION
The packaging products industry is highly competitive. While there are
several national companies that sell interior packaging, the Company's primary
competition to date for its packaging products has been from smaller independent
regional manufacturing companies. These companies generally market their
products in specific geographic areas from neighboring facilities. In addition,
the Company's foam and fiber packaging products compete against products made
from alternative materials, including expanded polystyrene foams, die-cut
corrugated, plastic peanuts, plastic bubbles and foam-in-place urethane.
Competition in the engineered specialty foam products industry is also
intense. The Company's specialty foam products face competition primarily from
smaller companies that typically concentrate on production of specialty products
for specific industries. The Company expects that additional companies will
enter the market for engineered specialty foam products as the market expands.
The Company believes that its engineering expertise, its ability to combine
foams with other materials such as plastics and laminates, and its ability to
manufacture products in a clean room environment will enable it to continue to
compete effectively in the engineered specialty foam products market. The
Company's specialty products also compete with products made from a wide range
of other materials, including rubber, leather and other foams.
The Company believes that its customers typically select vendors based
primarily on price, product performance, product reliability and customer
service. The Company believes that it is able to compete effectively with
respect to these factors in each of its targeted markets.
PATENTS AND OTHER PROPRIETARY RIGHTS
The Company relies upon trade secret and patent protection to protect its
technology. The Company believes that the improvement of existing products,
reliance upon trade secrets, unpatented proprietary know-how and the development
of new products are generally as important as patent protection in establishing
and maintaining a competitive advantage. Nevertheless, the Company has obtained
patents and may continue to make efforts to obtain patents, when available,
although there can be no assurance that any patent obtained will provide
substantial protection or be of commercial benefit to the Company, or that its
validity will be upheld if challenged.
The Company has two U.S. patents relating to its molded fiber technology
(including certain proprietary machine designs) and has patent applications
pending with respect to such technology in certain foreign countries and
international patent offices. The Company also has U.S. patents relating to its
foam and packaging technologies (four), rubber mat technologies, patterned nail
file technologies, and superforming processes (two). There can be no assurance
that any of the Company's patent applications will be granted, or that any
patent or patent application of the Company will provide significant protection
for the Company's products and technology, or will not be challenged or
circumvented by others. The expiration dates for the Company's patents range
from February 2003 through October 2017.
The Company has licensed its molded fiber patents and technology on an
exclusive basis to Rexam in the United Kingdom and Starlite in China, covering
the manufacture and sale of molded
fiber products in the United Kingdom, Ireland, China and certain other Asian
countries. See "Marketing and Sales."
ENVIRONMENTAL CONSIDERATIONS
In addition to offering molded fiber packaging products made from
recycled paper derived primarily from post-consumer newspaper waste, the Company
actively promotes its philosophy of reducing product volume and resulting
post-user product waste. The Company designs products to provide optimum
performance with minimum material. In addition, the Company actively
participates in a recovery and reuse program for certain of its plastic
packaging products. The Company is aware of public opposition to environmentally
incompatible packaging, and other products and that future government action may
impose restrictions affecting the industry in which the Company operates. There
can be no assurance that any such action will not adversely impact the Company's
products and business.
BACKLOG
The Company's backlog as of February 16, 2001, and February 16, 2000
totaled approximately $7.4 million and $8.7 million, respectively, for the
Packaging segment, and $5.9 million and $4.5 million respectively for the
Specialty segment. The backlog consists of purchase orders for which a delivery
schedule within the next twelve months has been specified by customers. Orders
included in the backlog may be canceled or rescheduled by customers without
significant penalty. The backlog as of any particular date should not be relied
upon as indicative of the Company's revenues for any period.
EMPLOYEES
As of February 23, 2001, the Company had a total of 609 full-time
employees in both the Specialty segment (18 in engineering, 229 in manufacturing
operations, 19 in marketing, sales and support services, and 30 in general and
administration) and in the Packaging segment (23 in engineering, 235 in
manufacturing, 26 in marketing, sales and support services, and 29 in general
and administration). The Company is not a party to any collective bargaining
agreement. The Company considers its employee relations to be good.
ITEM 2. PROPERTIES
The following table presents certain information relating to each of the
Company's properties:
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LEASE
SQUARE EXPIRATION
LOCATION FEET DATE PRINCIPAL USE
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Georgetown, Massachusetts(5) 54,000 (owned Headquarters, fabrication, molding, test lab, clean-room,
by the and engineering for Specialty segment
Company)
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Memphis, Tennessee 11,225 8/1/03 Warehousing for Packaging segment
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Decatur, Alabama(1 + 4) 47,250 12/31/01 Fabrication and engineering for Packaging segment
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Pawcatuck, Connecticut 39,000 12/31/01 Fabrication and engineering for Packaging segment
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Kissimmee, Florida(1 + 4) 49,400 12/31/01 Fabrication, molding, test lab, and engineering for
Packaging segment
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Atlanta, Georgia 55,530 10/31/04 Fabrication, molding and engineering for Specialty segment
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Haverhill, Massachusetts 48,772 2/28/03 Flame lamination for Specialty segment
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Raritan, New Jersey 72,125 2/28/03 Fabrication, molding, test lab, clean-room, and engineering
for Packaging segment
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Visalia, California 37,632 1/1/07 Molded fiber operations and engineering for Packaging segment
- ---------------------------------------------------------------------------------------------------------------------------
Scarborough, Maine 29,768 5/31/01 Molded fiber operations and engineering for Packaging segment
- ---------------------------------------------------------------------------------------------------------------------------
Clinton, Iowa(2) 62,000 9/1/06 Molded fiber operations for Packaging segment
- ---------------------------------------------------------------------------------------------------------------------------
Addison, Illinois(3) 45,000 07/31/02 Fabrication and engineering for Packaging segment
- ---------------------------------------------------------------------------------------------------------------------------
Ventura, California 32,546 10/31/01 Fabrication and engineering for Specialty segment
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Macomb Township, Michigan(4) 70,703 12/31/07 Fabrication and engineering for Specialty segment
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1 United Development Company Limited, a Florida limited partnership and an
affiliate of certain officers, directors and stockholders of the Company,
is the lessor of these properties.
2 The Company has an option to extend the term of this lease for a period
of five years.
3 The Company has two options to extend the term of this lease for periods
of two years.
4 The Company has an option to extend the term of this lease for a period
of three years.
5 Subject to mortgage (see Note 7 of the Notes to the Consolidated
Financial Statements).
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE TO SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE
The Company's Common Stock, $.01 par value (the "Common Stock"), was
listed on the Nasdaq Small Cap Market under the symbol "UFPT" and on the Boston
Stock Exchange under the symbol "UFP" from December 17, 1993 to July 8, 1996.
Thereafter, the Company's Common Stock has been listed on the Nasdaq National
Market. The following table sets forth the range of high and low quotations for
the Common Stock as reported by Nasdaq for the quarterly periods from January 1,
1999 to December 31, 2000:
HIGH LOW
---- ----
FISCAL YEAR ENDED DECEMBER 31, 1999
First Quarter $ 4-1/2 $ 3
Second Quarter 4-1/2 3-3/8
Third Quarter 3-15/16 3-3/16
Fourth Quarter 3-1/2 2-1/4
FISCAL YEAR ENDED DECEMBER 31, 2000
First Quarter $ 3-5/8 $ 2-1/4
Second Quarter 3-1/2 2-3/8
Third Quarter 3 1-3/4
Fourth Quarter 2-1/4 1-1/4
NUMBER OF STOCKHOLDERS
As of February 23, 2001, there were 127 holders of record of the
Company's Common Stock.
DIVIDENDS
The Company did not pay any dividends in 2000. Although prior to becoming
a public company in December 1993, the Company had from time to time paid cash
dividends on its capital stock, the Company presently intends to retain all of
its earnings to provide funds for the operation of its business and does not
anticipate paying any cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
YEAR ENDED DECEMBER 31
----------------------
(in thousands, except per share data)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:(1) 2000 1999 1998 1997 1996
------ ---- ---- ---- ----
Net sales $ 74,492 58,801 47,220 45,452 39,359
Gross profit 17,621 14,862 13,080 12,252 9,912
Operating income 3,385 3,279 3,174 2,934 2,094
Net income 1,081 1,693 1,647 1,309 1,262
Diluted earnings per share $ 0.25 0.35 0.34 0.27 0.26
Weighted average number of diluted shares 4,386 4,896 4,830 4,863 4,874
outstanding
DECEMBER 31
-----------
CONSOLIDATED BALANCE SHEET DATA:(1) 2000 1999 1998 1997 1996
------ ---- ---- ---- ----
Working capital $ 4,139 3,549 2,099 2,579 2,488
Total assets 40,352 31,867 29,949 25,195 22,900
Short-term debt and capital lease 6,084 6,011 5,060 3,525 2,455
obligations
Long-term debt and capital lease obligations, 7,589 2,706 2,123 3,233 3,223
excluding current portion
Total liabilities 22,825 15,659 14,053 11,062 10,170
Stockholders' equity $ 17,527 16,208 15,895 14,133 12,729
(1) See Note 17 of Notes to Consolidated Financial Statements for segment
information
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report contains certain statements that are "forward-looking
statements" as that term is defined under the Act and releases issued by the
Securities and Exchange Commission. The words "believe," "expect," "anticipate,"
"intend", "estimate" and other expressions which are predictions of or indicate
future events and trends and which do not relate to historical matters identify
forward-looking statements. Forward-looking statements involve known and unknown
risks, uncertainties and other factors, which may cause the actual results,
performance or achievements of the Company to differ materially from anticipated
future results, performance or achievements expressed or implied by such
forward-looking statements.
Examples of these risks, uncertainties, and other factors include,
without limitation, the following: (i) economic conditions that affect sales of
the products of the Company's packaging
customers, (ii) actions by the Company's competitors and the ability of the
Company to respond to such actions, (iii) the ability of the Company to obtain
new customers and (iv) the ability of the Company to execute favorable
acquisitions. In addition to the foregoing, the Company's actual future results
could differ materially from those projected in the forward-looking statements
as a result of the risk factors set forth elsewhere in this report and changes
in general economic conditions, interest rates and the assumptions used in
making such forward-looking statements. The Company undertakes no obligation to
publicly update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise.
For example, the Company's largest customer in the specialty foam
products segment informed the Company that it no longer required the Company's
products because the customer could satisfy its need internally. This customer
accounts for approximately $5.5 million in annual revenues. The Company cannot
guarantee that it will find alternative sources for that lost revenue in fiscal
2001. In planning for expected reduced demand in this segment during 2001, the
Company has taken steps to reduce its expense levels. Despite these efforts, the
Company believes its net income will be adversely affected.
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, the percentage
of revenues represented by the items as shown in the Company's consolidated
statements of operations:
YEARS ENDED DECEMBER 31
-----------------------
2000 1999 1998
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of sales 76.3 74.7 72.3
----- ----- -----
Gross margin 23.7 25.3 27.7
Selling, general and administrative expenses 19.1 19.7 21.0
----- ----- -----
Operating income 4.6 5.6 6.7
Total other expenses, net 1.9 0.8 0.8
----- ----- -----
Income before income taxes 2.7 4.8 5.9
Provision for income taxes 1.2 1.9 2.4
----- ----- -----
Net income 1.5 2.9 3.5
===== ===== =====
2000 COMPARED TO 1999:
The Company's net sales increased 26.7% to $74.5 million for the year
ended December 31, 2000. Specialty segment sales increased 54.4% to $39.3
million, primarily due to the acquisition of Simco in January 2000. Packaging
segment sales increased 5.5% to $35.2 million, primarily due to growth in
plastic thermoformed packaging as well as tool control programs.
Gross profit as a percentage of sales decreased to 23.7% for the year
ended December 31, 2000, from 25.3% in 1999. The decrease is due in part to
lower gross margins at Simco. Simco's gross margins were dilutive mainly because
of a large unprofitable job that was phased out in the third quarter of 2000.
Selling, General and Administrative Expenses ("SG&A") increased 22.4% to
$14.2 million in the year ended December 31, 2000, from $11.6 million in 1999.
As a percentage of sales, SG&A decreased to 19.1% in 2000 from 19.7% in 1999.
The increase in SG&A dollars is primarily attributable to SG&A at Simco. The
decrease in SG&A as a percentage of sales reflects the economies of scale
accompanying operations growth.
Interest increased to $1,221,000 in 2000, from $641,000 in 1999, as a
result of higher average borrowings due to the financing of the acquisition of
Simco as well as rising interest rates.
The Company's effective tax rate increased to 46.0% in 2000, from 40.2%
in 1999, primarily as a result of non-deductible goodwill amortization at Simco.
1999 COMPARED TO 1998:
The Company's net sales increased 24.5% to $58.8 million for the year
ended December 31, 1999 from $47.2 million in the same period last year. The
increase in sales is primarily attributable to the acquisition of Pacific Foam
on November 30, 1998. In addition, a smaller component of the increase is
attributable to the commencement of the Woodbridge automotive project in the
fourth quarter of 1999.
Gross profit as a percentage of sales decreased to 25.3% in the year
ended December 31, 1999, from 27.7% in 1998. The decrease is primarily
attributable to lower gross margins at Pacific Foam, as well as automotive
program start-up costs.
Selling, General & Administrative Expenses ("SG&A") increased 16.9% to
$11.6 million in 1999, from $9.9 million in 1998. As a percentage of sales, SG&A
decreased to 19.7% in 1999, from 21.0% in 1998. The increase in SG&A dollars is
primarily attributable to the impact of Pacific Foam. The decrease in SG&A as a
percentage of sales reflects the economies of scale accompanying operations
growth.
Interest expense increased approximately $194,000 to $641,000 in 1999,
from $447,000 in 1998 as a result of higher average borrowings primarily due to
financing of the Pacific Foam acquisition. In addition, interest expense
increased due to higher interest rates in 1999.
The Company's effective tax rate was 40.2% and 40.9% in 1999 and 1998
respectively.
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.
As of December 31, 2000 and 1999, working capital was $4,139,000 and
$3,549,000, respectively. The increase in working capital is primarily
attributable to increases in accounts receivable. Cash provided from operations
was $3,554,000 and $1,258,000 for 2000 and 1999,
respectively. Net cash used in investing activities in 2000 was $8,172,000 and
was used primarily for the acquisition of Simco of $5,802,000 and capital
expenditures of $2,437,000.
Including amounts due under the revolving credit facility and capital
lease obligations, the Company had total debt outstanding of $13,674,000 and
$8,718,000 at December 31, 2000 and 1999, respectively. The increase was
primarily attributable to the acquisition of Simco. The Company has a $8,000,000
revolving bank line, of which $4,737,000 was outstanding at December 31, 2000.
Borrowings through the credit facility are unsecured and bear interest at prime
or LIBOR Plus, a margin that can vary from 1.25% to 2.0%. In addition, the
Company has a $10,000,000 acquisition line of credit, of which $7,723,000 was
outstanding as of December 31, 2000. At December 31, 2000, the Company had
capital lease obligations and other notes payable of approximately $706,000 and
$508,000, respectively. At December 31, 2000, the current portion of all debt,
including the revolving bank loan, was approximately $5,794,000. See Note 7 of
Notes to the Consolidated Financial Statements for further discussion of debt.
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.
The Company has no additional significant capital commitments in 2001,
but plans on adding additional machinery to increase capacity or to enhance
operating efficiencies in its manufacturing plants. Additionally, the Company
may consider the acquisition of companies, technologies or products in 2001,
which are complementary to its business. 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 2001. However, there can
be no assurances that such financing will be available at favorable terms, if at
all.
OTHER
A significant portion of the Company's Packaging sales of molded fiber
products are to manufacturers of computer peripherals and other consumer
products. As a result, the Company believes that its sales are somewhat
seasonal, with increased sales in the second half of the year. The Company does
not believe that inflation has had a material impact on its results of
operations in the last three years.
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 December 31, 2000, 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 two debt
instruments where interest is based upon the prime rate (and/or LIBOR) and,
therefore, future operations could be affected by interest rate changes;
however, the Company believes that the market risk of the debt is minimal.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated Financial Statements and Supplementary Data of the
Company are listed under Part IV, Item 14, in this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Board of Directors has appointed Arthur Andersen LLP, independent
accountants, to audit the consolidated financial statements of the Company for
the year ending December 31, 2001. The Company is advised that no member of
Arthur Andersen LLP has any direct financial interest or material indirect
financial interest in the Company since the date of its engagement, May 21,
1999, or has had any connection with the Company in the capacity of promoter,
underwriter, voting trustee, director, officer or employee since such date.
KPMG Peat Marwick LLP ("KPMG") served as the independent auditors of the
Company for the fiscal year ended December 31, 1998. During the past fiscal year
and through and including March 31, 1999, there have been no disagreements
between the Company and KPMG on any matters of accounting principles or
practices, financial statement disclosure or auditing scope or procedures, which
disagreements, if not resolved to the satisfaction of KPMG, would have caused it
to make reference to the subject matter of the disagreements in connection with
its report. Further, the audit reports of KPMG on the financial statements as of
and for the years ended December 31, 1998, did not contain any adverse opinion
or disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles.
The Company requested that KPMG furnish a letter addressed to the SEC
stating that it agreed with the above statements relating to KPMG. A copy of
such letter dated May 27, 1999, was filed as Exhibit 16 to the Company's Report
on Form 8-K, dated May 27, 1999.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is hereby incorporated by
reference to the Company's definitive proxy statement to be filed by the Company
within 120 days after the close of its fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is hereby incorporated by
reference to the Company's definitive proxy statement to be filed by the Company
within 120 days after the close of its fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is hereby incorporated by
reference to the Company's definitive proxy statement to be filed by the Company
within 120 days after the close of its fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is hereby incorporated by
reference to the Company's definitive proxy statement to be filed by the Company
within 120 days after the close of its fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PAGE
----
(A) (1) FINANCIAL STATEMENTS
Index to Consolidated Financial Statements and Financial Statement
Schedules..........................................................................................F2
Independent Auditors' Report - 2000 and 1999.......................................................F3
Independent Auditors' Report - 1998................................................................F4
Consolidated Balance Sheets as of December 31, 2000 and 1999.......................................F5
Consolidated Statements of Income for the years ended December 31,
2000, 1999, and 1998...............................................................................F6
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2000, 1999, and 1998..................................................................F7
Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999, and 1998...............................................................................F8
Notes to Consolidated Financial Statements...................................................F9 - F24
(A) (2) FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts...................................................F25
(A) (3) EXHIBITS
NUMBER REFERENCE
------ ---------
2.01 Agreement and Plan of Reorganization among the Company, Moulded Fibre A-2.01**
Technology, Inc. and UFP Acquisition, Inc.
2.02 Agreement of Merger between Moulded Fibre Technology, Inc. and UFP C-2.02**
Acquisition, Inc.
2.03 Merger Agreement relating to the reincorporation of the Company in A-2.02
Delaware.
2.04 Asset Purchase Agreement relating to the purchase of FCE. I-2**
2.05 Asset Purchase Agreement relating to the purchase of the assets of O-2.05
Pacific Foam Technologies, Inc.
2.06 Stock Purchase Agreement dated January 14, 2000, relating to the P-2.01**
acquisition of the stock of Simco Industries, Inc. by the Company.
3.01 Certificate of Incorporation of the Company, as amended. F-3.01**
3.02 Bylaws of the Company. A-3.02**
4.01 Specimen Certificate for shares of the Company's Common Stock. A-4.01**
NUMBER REFERENCE
------ ---------
4.02 Description of Capital Stock (contained in the Certificate of A-4.02**
Incorporation of the Company, filed as Exhibit 3.01).
4.04 Rights Agreement (including the Certificate of
Designation and form of Rights Certificate J-4**
attached as Exhibits A and B, respectively,
thereto) between the Registrant and American Stock
Transfer & Trust Company, as Rights Agent, dated as
of January 13, 1999.
10.02 $1,000,000 Mortgage and Promissory Note issued by the Company in favor A-10.02**
of Gloucester Bank & Trust Company.
10.06 Alabama Leasehold Mortgage of United Development Company Limited to A-10.06**
First American Bank.
10.07 Guaranty of the Company in favor of First American Bank for the benefit A-10.07**
of United Development Company Limited.
10.08 Agreement between the Company and William H. Shaw. A-10.08**
10.09 Agreement and Severance Agreement between the Company and Richard L. A-10.09**
Bailly.
10.18 Employee Stock Purchase Plan. A-10.18**
10.19 1993 Combined Stock Option Plan, as amended. K-4.5* **
10.20 1993 Nonemployee Director Stock Option Plan. B-4.5**
10.21 Facility Lease between the Company and United Development Company A-10.21**
Limited.
10.22 Facility Lease between the Company and Raritan Associates. A-10.22**
10.23 Facility Sublease between the Company and United Development Company A-10.23**
Limited.
10.25 Facility lease between the Company and Flanders Properties. A-10.25**
10.26 Amendment to facility lease between the Company and Flanders Properties. A-10.26**
10.27 Facility Lease between the Company and Dana Evans d/b/a Evans A-10.27**
Enterprises.
10.28 Facility Lease between Moulded Fibre Technology, Inc. and J.B. Brown & A-10.28**
Sons.
10.29 Facility Lease between the Company and Cole Taylor Bank, as G-10.29**
Trustee
10.30 Form of Indemnification Agreement for directors and officers of the A-10.30**
Company.
10.32 Promissory Note of United Development Company Limited in favor of the A-10.32**
Company.
10.33 Form of Representative's Warrant Agreement. A-10.33**
NUMBER REFERENCE
------ ---------
10.34 Facility Lease between Moulded Fibre Technology, Inc. and Lincoln C-10.34**
Gilroy II and Patrician Associates, Inc.
10.35 Facility Lease between the Company and M.D. Hodges Enterprises, Inc. D-10.35**
10.36 Facility Lease between Moulded Fibre Technology, Inc. and Dead River D-10.36**
Properties.
10.37 Facility Lease between the Company and Clinton Area Development G-10.37**
Corporation.
10.38.7 First Amendment to Credit Agreement, dated May 31, 1995, between the F-10.38.7**
Company and BayBank.
10.38.8 Amended and Restated Revolving Credit Note, dated May 31, 1996, between F-10.38.8**
the Company and BayBank.
10.38.9 Amended and Restated Equipment Note, dated May 31, 1996, between the F-10.38.9**
Company and BayBank.
10.38.10 Third Amendment, dated July 6, 1998, to Credit Agreement, dated O-10.38.10
May 31, 1995, between the Company and BankBoston.
10.38.20 Loan Agreement, dated August 13, 1999, between the Company and Citizens Q-1038.20
Bank of Massachusetts
10.38.30 Supply Agreement, dated January 1, 1999, between the Company and Q-1038.30
Woodbridge Foam Corporation
10.39 Employment Agreement with R. Jeffrey Bailly dated April 4, 1995. H-10.37**
10.40 1998 Director Stock Option Incentive Plan L**
10.41 1998 Employee Stock Purchase Plan. M**
10.42 Stock Repurchase Agreement, dated December 17, 1999 Q-10.42
10.43 Facility Lease between the Company and Quadrate Development, LLC Filed herewith
10.44 Stock Repurchase Agreement dated February 20, 2001 Filed herewith
21.01 Subsidiaries of the Company. N-21.01**
23.01 Consent of Arthur Andersen LLP Filed herewith
23.02 Consent of KPMG LLP Filed herewith
A Incorporated by reference to the Company's registration statement on Form
S-1 (Registration No. 33-70912). The number set forth herein is the
number of the Exhibit in said registration statement.
B Incorporated by reference to the Company's Registration Statement on Form
S-8 (Registration No. 33-76440). The number set forth herein is the
number of the Exhibit in said registration statement.
C Incorporated by reference to the Company's Annual Report on Form 10-K for
its fiscal year ended December 31, 1993. The number set forth herein is
the number of the Exhibit in said annual report.
D Incorporated by reference to the Company's Annual Report on Form 10-K for
its fiscal year ended December 31, 1994. The number set forth herein is
the number of the Exhibit in said annual report.
E Incorporated by reference to the Company's Registration Statement on Form
S-8 (Registration No. 33-32248). The number set forth herein is the
number of the Exhibit in said Registration Statement.
F Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the three months ended June 30, 1996. The number set forth herein is
the number of the Exhibit in said quarterly report.
G Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995. The number set forth herein is
the number of the Exhibit in said annual report.
H Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the three months ended June 30, 1995. The number set forth herein is
the number of the Exhibit in said quarterly report.
I Incorporated by reference to the Company's report on 8-K dated February
3, 1997. The number set forth herein is the number of the Exhibit in said
report.
J. Incorporated by reference to the Company's report on Form 8-K dated
January 28, 1999. The number set forth herein is the number of the
exhibit in said report.
K. Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the three months ended June 30, 1998. The number set forth herein is
the number of the exhibit in said Quarterly Report.
L. Incorporated by reference to the Company's registration statement on Form
S-8 (registration No. 333-56741).
M. Incorporated by reference to the Company's Proxy Statement relating to
the Company's Annual Meeting of Stockholders on June 5, 1998.
N. Incorporated by reference by the Company's Annual Report 10-K for the
fiscal year ended December 31, 1996. The number set forth herein is the
number of the exhibit in said Annual Report.
O. Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998. The number set forth herein is
the number of the Exhibit in said annual report.
P. Incorporated by reference to the Company's report on Form 8-K dated
January 31, 2000. The number set forth herein is the number of the
Exhibit in said report.
Q. Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999. The number set forth herein is
the number of the Exhibit in said annual report.
* Management contract or compensatory plan or arrangement.
** In accordance with Rule 12b-32 under the Securities Exchange Act of 1934,
as amended, reference is made to the documents previously filed with the
Securities and Exchange Commission, which documents are hereby
incorporated by reference.
(B) REPORTS ON FORM 8-K
The Company did not file any current reports on Form 8-K during the
quarter ended December 31, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: MARCH 26, 2001 by: /s/ R. JEFFREY BAILLY
-------------- --------------------------------
R. Jeffrey Bailly, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ R. Jeffrey Bailly President, Chief Executive, March 26, 2001
- ------------------------------------------ Officer and Director --------------
R. Jeffrey Bailly
/s/ William H. Shaw Chairman of the Board of Directors March 26, 2001
- ------------------------------------------ --------------
William H. Shaw
/s/ Ronald J. Lataille Chief Financial Officer, Vice President, March 26, 2001
- ------------------------------------------ Principal Accounting Officer --------------
Ronald J. Lataille
/s/ Richard L. Bailly Director March 26, 2001
- ------------------------------------------ --------------
Richard L. Bailly
/s/ William C. Curry Director March 26, 2001
- ------------------------------------------ --------------
William C. Curry
/s/ Michael J. Ross Director March 26, 2001
- ------------------------------------------ --------------
Michael J. Ross
/s/ Kenneth L. Gestal Director March 26, 2001
- ------------------------------------------ --------------
Kenneth L. Gestal
/s/ Peter R. Worrell Director March 26, 2001
- ------------------------------------------ --------------
Peter R. Worrell
UFP TECHNOLOGIES, INC.
Consolidated Financial Statements and Schedule
December 31, 2000 and 1999
With Independent Auditors' Report Thereon
F-1
UFP TECHNOLOGIES, INC.
Index to Consolidated Financial Statements and Financial Statement Schedule
PAGE
----
Independent Auditors' Reports F3 - F4
Consolidated Balance Sheets as of December 31, 2000 and 1999 F5
Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998 F6
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000, 1999, and 1998 F7
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999, and 1998 F8
Notes to Consolidated Financial Statements F9 - F24
SCHEDULE
Schedule II - Valuation and Qualifying Accounts F25
F-2
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
UFP Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of UFP
Technologies, Inc., a Delaware corporation, and subsidiaries as of December 31,
2000 and 1999, and the related consolidated statements of income, stockholders'
equity and cash flows for the years ended December 31, 2000 and 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
UFP Technologies, Inc. and subsidiaries as of December 31, 2000 and 1999, and
the results of its operations and its cash flows for the years ended December
31, 2000 and 1999, in conformity with accounting principles generally accepted
in the United States.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in Item
14(a)(2) is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. The schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
consolidated financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
February 9, 2001
F-3
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
UFP Technologies, Inc.:
We have audited the accompanying consolidated statements of income,
stockholders' equity, and cash flows of UFP Technologies, Inc. and subsidiary
for the year ended December 31, 1998. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of UFP Technologies, Inc and subsidiary for the year ended December 31, 1998, in
conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the 1998
consolidated financial statements taken as a whole. The schedule listed in Item
14(a)(2) is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. The schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our opinion,
the information with respect to the year ended December 31, 1998 is fairly
stated in all material respects in relation to the basic 1998 consolidated
financial statements taken as a whole.
KPMG LLP
Boston, Massachusetts
February 25, 1999
F-4
UFP TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
-----------------------------
2000 1999
ASSETS
Current assets:
Cash and cash equivalents $ 94,051 348,729
Receivables, net 10,692,979 9,676,900
Inventories 6,779,950 5,191,890
Prepaid expenses 371,998 317,266
Deferred income taxes 574,000 220,676
------------ ----------
Total current assets 18,512,978 15,755,461
------------ ----------
Property, plant and equipment 25,917,992 21,650,486
Less accumulated depreciation and amortization (13,464,427) (11,084,036)
------------ ----------
Net property, plant and equipment 12,453,565 10,566,450
------------ ----------
Cash surrender value of officers' life insurance 191,819 293,579
Investment in and advances to affiliated partnership 200,194 214,745
Deferred income taxes 1,635,219 48,416
Goodwill, net 6,724,907 4,524,285
Other assets 633,722 464,427
------------ ----------
Total assets $ 40,352,404 31,867,363
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 4,736,754 5,000,000
Current installments of long-term debt 1,057,150 63,916
Current installments of capital lease obligations 290,554 947,429
Accounts payable 4,439,577 2,438,045
Accrued taxes and other expenses 3,849,817 3,757,412
------------ ----------
Total current liabilities 14,373,852 12,206,802
------------ ----------
Long-term debt, excluding current installments 7,174,311 2,111,076
Capital lease obligations, excluding current installments 415,156 595,232
Retirement and other liabilities 861,645 745,840
------------ ----------
Total liabilities 22,824,964 15,658,950
------------ ----------
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 value. Authorized 1,000,000 shares;
no shares issued or outstanding -- --
Common stock, $.01 value. Authorized 20,000,000; issued and
outstanding 4,388,370 shares in 2000 and 4,294,632 shares in 1999 43,884 42,946
Additional paid-in capital 8,474,533 8,237,558
Retained earnings 9,009,023 7,927,909
------------ ----------
Total stockholders' equity 17,527,440 16,208,413
------------ ----------
Total liabilities and stockholders' equity $ 40,352,404 31,867,363
============ ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
UFP TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31
--------------------------------------------
2000 1999 1998
Net sales $ 74,491,669 58,801,063 47,220,174
Cost of sales 56,870,392 43,939,268 34,140,005
------------ ---------- ----------
Gross profit 17,621,277 14,861,795 13,080,169
Selling, general and administrative expenses 14,236,234 11,582,430 9,905,996
------------ ---------- ----------
Operating income 3,385,043 3,279,365 3,174,173
------------ ---------- ----------
Other income (expense):
Interest expense (1,220,697) (640,763) (447,282)
Equity in net income of unconsolidated partnerships 29,518 22,013 20,904
Other, net (191,799) 169,130 40,170
------------ ---------- ----------
Total other expense (1,382,978) (449,620) (386,208)
------------ ---------- ----------
Income before income tax provision 2,002,065 2,829,745 2,787,965
Income tax provision 920,951 1,136,328 1,141,000
------------ ---------- ----------
Net income $ 1,081,114 1,693,417 1,646,965
============ ========== ==========
Net income per share:
Basic $ 0.25 0.35 0.35
============ ========== ==========
Diluted $ 0.25 0.35 0.34
============ ========== ==========
Weighted average common shares:
Basic 4,374,271 4,808,640 4,682,210
============ ========== ==========
Diluted 4,386,441 4,895,935 4,830,236
============ ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
UFP TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
COMMON STOCK ADDITIONAL TOTAL
------------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------------ ------------ ------------ --------------
Balance at December 31, 1997 4,666,354 $ 46,664 $ 9,499,019 $ 4,587,527 $ 14,133,210
Sale of common stock through incentive
stock option plan 30,000 300 70,950 -- 71,250
Stock issued in lieu of compensation 11,000 110 43,890 -- 44,000
Net income -- -- -- 1,646,965 1,646,965
--------- ------------ ------------ ------------ ------------
Balance at December 31, 1998 4,707,354 $ 47,074 $ 9,613,859 $ 6,234,492 $ 15,895,425
--------- ------------ ------------ ------------ ------------
Sale of common stock through incentive
stock option plan 85,345 853 34,846 -- 35,699
Employee Stock Purchase Plan 28,985 290 78,151 -- 78,441
Stock retirement (18,052) (181) (77,387) -- (77,568)
Stock issued in lieu of compensation 61,000 610 185,514 -- 186,124
Stock repurchased (570,000) (5,700) (1,597,425) -- (1,603,125)
Net income -- -- -- 1,693,417 1,693,417
--------- ------------ ------------ ------------ ------------
Balance at December 31, 1999 4,294,632 $ 42,946 $ 8,237,558 $ 7,927,909 $ 16,208,413
========= ============ ============ ============ ============
Employee Stock Purchase Plan 33,288 333 66,518 -- 66,851
Stock issued in lieu of compensation 60,500 605 170,457 -- 171,062
Net income -- -- -- 1,081,114 1,081,114
--------- ------------ ------------ ------------ ------------
Balance at December 31, 2000 4,388,420 $ 43,884 $ 8,474,533 $ 9,009,023 $ 17,527,440
========= ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
UFP TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
-----------------------
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income $ 1,081,114 1,693,417 1,646,965
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,080,927 2,299,673 1,899,915
Equity in net income of unconsolidated
affiliate and partnership (29,518) (22,013) (20,904)
(Gain) loss on disposal of property, plant
and equipment 191,799 (169,130) (40,170)
Stock issued in lieu of compensation 171,062 186,124 44,000
Deferred income taxes -- 330,908 156,000
Changes in operating assets and liabilities,
net of effects from acquisition:
Receivables, net 2,064,391 (1,809,253) (584,334)
Inventories 47,302 (1,100,120) (60,601)
Prepaid expenses 4,727 1,925 (196,339)
Accounts payable (1,606,556) (151,447) 308,615
Accrued taxes and other expenses (1,507,621) 346,483 976,495
Retirement and other liabilities 8,850 (164,498) 165,172
Cash surrender value of officers'
life insurance 127,565 (75,552) 134,550
Increase in other assets (80,259) (108,640) (168,618)
---------- ---------- ----------
Net cash provided by operating activities 3,553,783 1,257,877 4,260,746
---------- ---------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment (2,436,927) (1,948,968) (1,562,135)
Acquisition of operating assets, less cash
acquired (5,802,123) -- (2,293,506)
Payments received on advances to
affiliated partnership 44,069 25,792 42,744
Proceeds from disposal of property,
plant and equipment 23,000 534,350 290,170
---------- ---------- ----------
Net cash used in investing activities (8,171,981) (1,388,826) (3,522,727)
---------- ---------- ----------
Cash flows from financing activities:
Net borrowings under notes payable (263,246) 850,000 713,413
Proceeds from long-term borrowings 6,120,000 1,603,125 --
Capital stock repurchase -- (1,603,125) --
Proceeds from sale of common stock 66,851 36,572 71,250
Principal repayment of long-term debt (63,531) (56,222) (359,077)
Principal repayment of obligations under
capital leases (1,496,554) (863,028) (884,701)
----------- ---------- ----------
Net cash (used in) provided by financing
activities 4,363,520 (32,678) (459,115)
----------- ---------- ----------
Net change in cash and cash equivalents (254,678) (163,627) 278,904
Cash and cash equivalents at beginning of year 348,729 512,356 233,452
----------- ---------- ----------
Cash and cash equivalents at end of year $ 94,051 348,729 512,356
=========== ========== ==========
See accompanying notes to consolidated financial statements.
F-8
UFP TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UFP Technologies, Inc. designs and manufactures a broad range of
packaging and specialty foam products for a variety of industrial and
consumer markets.
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts and
results of operations of UFP Technologies, Inc. and its wholly owned
subsidiaries, Moulded Fibre Technology, Inc. (MFT), Simco Automotive
Trim, and Simco Automotive Technology. All significant intercompany
balances and transactions have been eliminated in consolidation.
(b) INVENTORIES
Inventories which include material, labor, and manufacturing
overhead are valued at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
(c) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and depreciated and
amortized using the straight-line method over the estimated useful
lives of the assets for financial statement purposes and accelerated
methods for income tax purposes.
Estimated useful lives of property, plant and equipment are as
follows:
Leasehold improvements Estimated useful life or
remaining lease term,
whichever is shorter
Buildings and improvements 31.5 years
Equipment 8-10 years
Furniture and fixtures 5 - 7 years
(d) INCOME TAXES
The Company's income taxes are accounted for under the asset and
liability method of accounting. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis and operating loss
and tax credit carryforwards. Deferred tax expense (benefit) results
from the net change during the year in deferred tax assets
F-9
and liabilities. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date.
(e) SALES
Product sales are recorded at the time of shipment and when
persuasive evidence of an arrangement exists, performance of
seller's obligation is complete, seller's price to the buyer is
fixed or determinable, and collectabillity is reasonably assured. If
a loss is anticipated on any contract, a provision for the entire
loss is made immediately. The Securities and Exchange Commission
released Staff Accounting Bulletin (SAB) No. 101, REVENUE
RECOGNITION IN FINANCIAL STATEMENTS, on December 3, 1999. This SAB
provides additional guidance on the accounting for revenue
recognition, including both broad conceptual discussions as well as
certain industry-specific guidance. The guidance is effective for
the first quarter of fiscal 2000, and is required to be adopted by
recording the effect of any prior revenue transaction affected as a
"cumulative effect of a change in accounting principle" as of
January 1, 2000. This new guidance did not have a material effect on
the Company's results of operations or financial position for Fiscal
2000.
(f) INVESTMENTS IN REALTY PARTNERSHIPS
The Company has invested in two realty limited partnerships,
Lakeshore Estates Associates and United Development Company Limited.
These investments are stated at cost, plus or minus the Company's
proportionate share of the limited partnerships' income or losses,
less any distributions received from the limited partnerships. The
Company has recognized its share of Lakeshore Estates Associates'
losses only to the extent of its original investment in, and
advances to, this partnership.
(g) INTANGIBLE ASSETS
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, and APB Opinion No. 17,
INTANGIBLE ASSETS, the Company reviews long-lived assets and all
intangible assets (including goodwill) for impairment whenever
events or changes in circumstances indicate the carrying amount of
such assets may not be recoverable. Recoverability of these assets
is determined by comparing the forecasted undiscounted net cash
flows of the operation to which the assets relate, to the carrying
amount including associated intangible assets of such operation. If
the operation is determined to be unable to recover the carrying
amount of its assets, then intangible assets are written down first,
followed by the other long-lived assets of the operation, to fair
value. Fair value is determined based on discounted cash flows or
appraised values, depending upon the nature of the assets. At
December 31, 2000, no impairment has been identified.
F-10
Goodwill is being amortized on a straight-line basis over a 20-year
period. Accumulated amortization was $1,809,409 and $1,258,699 as of
December 31, 2000 and 1999, respectively.
(h) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
(i) COMPREHENSIVE INCOME
The Company has adopted the provisions of SFAS No. 130, REPORTING
COMPREHENSIVE INCOME, which established standards for reporting and
display of comprehensive income and its components. Comprehensive
income is the total of net income and all other non-owner changes in
stockholders' equity. Comprehensive income equaled net income for
all periods presented.
(j) USE OF ESTIMATES
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect assets and liabilities
and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(k) SEGMENTS AND RELATED INFORMATION
The Company has adopted the provisions of SFAS No. 131, DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which
established standards for the way that public business enterprises
report information and operating segments in annual financial
statements and requires reporting of selected information in interim
financial reports.
(l) RECENT ACCOUNT PRONOUNCEMENTS
SFAS No. 133, as amended by SFAS No. 137 and No. 138, is now
effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000, with earlier adoption allowed. The statement
requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Accounting for gains
or losses resulting from changes in the values of a derivative
depends on whether it qualifies for hedge accounting. The effect of
the adoption of SFAS No. 133 as of January 1, 2001, will not be
material.
F-11
(m) RECLASSIFICATIONS
Certain prior year account balances have been reclassified to
conform to the 2000 presentation.
(2) SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes is as follows:
YEARS ENDED DECEMBER 31
-----------------------
2000 1999 1998
---- ---- ----
Interest $ 1,267,282 623,855 512,190
=========== ========== ==========
Income taxes $ 926,759 964,985 643,261
=========== ========== ==========
During 1998, the Company renegotiated the terms of a facility lease which
was leased from a limited partnership in which the Company and one of its
officers are partners. This lease was previously treated as a capital
lease. Based on the terms of the new lease agreement, the lease is no
longer a capital lease. Consequently, the Company wrote off the related
building and improvements and associated capital lease obligation of
$247,834 (see Note 14).
(3) RECEIVABLES
Receivables consist of the following:
DECEMBER 31
------------------------------
2000 1999
---- ----
Accounts receivable - trade $ 11,086,155 9,615,088
Employee advances and other receivables 19,275 427,620
------------ ----------
11,105,430 10,042,708
Less allowance for doubtful receivables (412,451) (365,808)
------------ ----------
$ 10,692,979 9,676,900
============ ==========
(4) INVENTORIES
Inventories consist of the following:
DECEMBER 31
------------------------------
2000 1999
---- ----
Raw materials $ 4,242,874 3,296,702
Work in process 785,848 469,875
Finished goods 1,751,228 1,425,313
------------ ----------
$ 6,779,950 5,191,890
============ ==========
F-12
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
DECEMBER 31
------------------------------
2000 1999
---- ----
Land $ 85,319 85,319
Buildings and improvements 1,951,262 1,920,842
Leasehold improvements 1,889,922 1,451,999
Equipment 19,522,054 16,283,270
Furniture and fixtures 2,047,986 1,606,314
Construction in progress - equipment 421,449 302,742
------------ ----------
$25,917,992 21,650,486
============ ==========
(6) INVESTMENT IN AND ADVANCES TO AFFILIATED PARTNERSHIP
The Company has an ownership interest in a realty limited partnership,
United Development Company Limited. This investment is accounted for
under the equity method at cost, plus the Company's proportionate share
of the limited partnership's income, less any distributions received from
the limited partnership. The Company's proportionate share of the limited
partnership's net income was $22,000, $22,013, and $18,410 in 2000, 1999,
and 1998, respectively.
On December 31, 1998, United Development Company Limited executed and
delivered to the Company a term note in the amount of $99,750 to evidence
advances received from the Company. This note accrues interest at 9.75%
and is repayable in monthly installments of $2,107.
(7) INDEBTEDNESS
On August 13, 1999, the Company entered into a new banking arrangement.
At December 31, 2000, the Company may borrow up to $8,000,000 under a
revolving line of credit at the bank's prime lending rate (9.5% at
December 31, 2000) or LIBOR plus 1.5%. Amounts borrowed under this
arrangement are due on demand and are unsecured. At December 31, 2000 and
1999, borrowings under this arrangement were $4,736,754 and $5,000,000,
respectively. The Company also may borrow up to $10,000,000 under an
"Acquisition" line of credit, with interest based on the bank's prime
lending rate of 9.5% or LIBOR plus 1.5%. Amounts under this arrangement
are payable over five to seven years, and are unsecured. At December 31,
2000, the Company had borrowings under this arrangement of $7,723,125.
Under the terms of the new banking agreement, the Company is required to
comply with a number of affirmative and negative covenants. Among other
things, the Company must satisfy certain financial covenants and ratios,
including debt service and leverage ratios. As of December 31, 2000, the
Company is in compliance with these covenants.
F-13
Long-term debt consists of the following:
DECEMBER 31
------------------------------
2000 1999
---- ----
9.32% mortgage note payable in monthly
installments of $9,133 including interest,
maturing in 2007; secured by real estate $ 508,336 571,867
Note payable - acquisition 7,723,125 1,603,125
------------ ----------
Total long-term debt 8,231,461 2,174,992
Less current installments 1,057,150 63,916
------------ ----------
Long-term debt, excluding current
installments $ 7,174,311 2,111,076
============ ==========
Aggregate maturities of long-term debt are as follows:
Year ending December 31:
2001 $ 1,057,150
2002 1,263,400
2003 1,269,400
2004 1,276,000
Thereafter 3,365,511
------------
$ 8,231,461
============
(8) ACCRUED TAXES AND OTHER EXPENSES
Accrued taxes and other expenses consist of the following:
DECEMBER 31
------------------------------
2000 1999
---- ----
Compensation $ 954,017 877,028
Benefits 710,175 612,949
Federal and state income tax 5,537 351,458
Paid time off 401,289 347,290
Workers Compensation 146,047 146,047
Other 1,632,752 1,422,640
----------- ----------
$ 3,849,817 3,757,412
=========== ==========
F-14
(9) INCOME TAXES
The Company's income tax provision for the years ended December 31, 2000,
1999, and 1998 consists of:
YEARS ENDED DECEMBER 31
2000 1999 1998
---- ---- ----
Current:
Federal $ 394,000 587,000 830,000
State 160,000 218,000 155,000
--------- --------- ---------
554,000 805,000 985,000
--------- --------- ---------
Deferred:
Federal 362,000 327,000 145,000
State 5,000 4,000 11,000
--------- --------- ---------
367,000 331,000 156,000
--------- --------- ---------
Total income tax provision $ 921,000 1,136,000 1,141,000
--------- --------- ---------
At December 31, 2000, the Company has net operating loss carryforwards
for income tax purposes of approximately $6,884,000, which are available
to offset future taxable income and expire during the years ending
December 31, 2006 through 2019.
The future benefit of the net operating loss carryforwards in any year is
limited to $600,000 under the provisions of the Tax Reform Act of 1986,
which imposes an annual limitation on the amount that can offset taxable
income due to the change in ownership of MFT and Simco.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
DECEMBER 31
2000 1999
---- ----
Deferred tax assets related to:
Reserves not currently deductible 430,000 212,000
Compensation programs 144,000 9,000
Retirement liability 307,000 262,000
Net operating loss carryforwards 2,341,000 695,000
Other 222,000 58,000
---------- ----------
3,444,000 1,236,000
---------- ----------
Deferred tax liabilities related to:
Excess of book over tax basis of fixed assets 631,000 543,000
Investee tax loss in excess of book losses 105,000 121,000
Capital leases 499,000 303,000
---------- ----------
1,235,000 967,000
---------- ----------
Net deferred tax assets $2,209,000 $ 269,000
========== ==========
F-15
The amount recorded as net deferred tax assets as of December 31, 2000
and 1999 represents the amount of tax benefits of existing deductible
temporary differences or carryforwards that are more likely than not to
be realized through the generation of sufficient future taxable income
within the carryforward period. The Company believes that the net
deferred tax asset of $2,209,000 at December 31, 2000, is more likely
than not to be realized in the carryforward period. The Company's U.S.
taxable income before application of net operating loss carryforwards was
approximately $1,850,000, $2,334,000, and $2,710,000 for the years ended
December 31, 2000, 1999, and 1998, respectively. Management reviews the
recoverability of deferred tax assets during each reporting period.
Actual tax provision for the years presented differs from "expected" tax
provision for those years, computed by applying the U.S. federal
corporate rate of 34% to income before income tax expense as follows:
YEARS ENDED DECEMBER 31
------------------------
2000 1999 1998
---- ---- ----
Computed "expected" tax rate 34.0% 34.0% 34.0%
Increase (decrease) in income taxes
resulting from:
State taxes, net of federal tax benefit 5.4 5.2 3.9
Officers' life insurance 0.2 0.5 0.5
Amortization of goodwill 7.1 1.9 1.9
Other (0.7) (1.4) 0.6
---- ---- ----
Effective tax rate 46.0% 40.2% 40.9%
==== ==== ====
(10) NET INCOME PER SHARE
Basic income per share is based upon the weighted average common shares
outstanding during each year. Diluted income per share is based upon the
weighted average of common shares and dilutive common stock equivalent
shares outstanding during each year. The weighted average number of
shares used to compute diluted income per share consisted of the
following:
YEARS ENDED DECEMBER 31
-----------------------
2000 1999 1998
---- ---- ----
Weighted average common shares
outstanding during the year 4,374,271 4,808,640 4,682,210
Weighted average common equivalent
shares due to stock options 12,170 87,295 148,026
--------- --------- ---------
4,386,441 4,895,935 4,830,236
========= ========= =========
F-16
Diluted weighted average shares outstanding for 2000, 1999, and 1998,
exclude 595,082, 316,517, and 490,820, respectively, due to the fact that
the option prices were greater than the average market price of the
common stock.
(11) STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
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
nonqualified 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
nonqualified 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 option. At
December 31, 2000, 621,944 options were outstanding under the plan.
Through July 15, 1998, the Company maintained a stock option plan
covering nonemployee 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 nonemployee 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 December 31, 2000, 55,000 options were outstanding under the 1993
Director Plan.
Effective July 15, 1998, subject to shareholder approval, 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 December 31, 2000, 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
withheld up to 10% of their base salaries during the six month offering
periods ending June 30 and December 31 for the
F-17
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.
The Company applies Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related
Interpretations in accounting for its stock option and employee stock
purchase plans. As a result, no compensation cost has been recognized in
connection with these plans.
Since the Company accounts for its stock option plans under APB 25,
certain pro forma information regarding net income and net income per
share is required by Financial Accounting Standards Board Statement No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS 123"), as if the
Company had accounted for its stock option plans under the fair value
approach of SFAS 123. For purposes of the pro forma disclosures, the
estimated fair value of the stock plans is amortized to expense over the
related vesting period of the options.
The Company's pro forma information is as follows:
YEARS ENDED DECEMBER 31
-------------------------------------------
2000 1999 1998
---- ---- ----
Net income as reported $ 1,081,114 $ 1,693,417 $ 1,646,965
Pro forma net income 767,047 1,338,621 1,322,286
Basic net income per share as reported 0.25 0.35 0.35
Pro forma basic net income per share 0.18 0.28 0.28
Diluted net income per share as reported 0.25 0.35 0.34
Pro forma diluted net income per share 0.17 0.27 0.27
The effect of applying SFAS 123 as shown above in the pro forma
disclosures is not representative of the pro forma effect on net income
in future years because it does not take into consideration pro forma
compensation expenses related to stock options granted prior to 1995.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants issued in 2000, 1999, and
1998, respectively: no dividend yield for each year; expected volatility
of 92%, 86%, and 86%; risk-free interest rates of 5.1%, 6.7%, and 4.7%;
and expected lives of 5.44, 5.28, and 5.59 years.
F-18
The following is a summary of stock option activity under all plans:
SHARES WEIGHTED AVERAGE
UNDER OPTIONS EXERCISE PRICE
Outstanding at December 31, 1997 737,500 $ 3.52
Granted 157,300 3.74
Exercised (30,000) 2.38
Canceled or expired (25,000) 4.28
Outstanding at December 31, 1998 839,800 $ 3.52
Granted 182,844 3.69
Exercised (150,250) 2.16
Canceled or expired (220,000) 4.74
Outstanding at December 31, 1999 652,394 $ 3.45
Granted 152,914 2.62
Exercised 0 0
Canceled or expired (39,750) 3.25
Outstanding at December 31, 2000 765,558 $ 3.30
The weighted-average fair value of options granted during 2000, 1999, and
1998 was $1.99, $2.72, and $2.70, respectively. As of December 31, 2000,
507,836 of the outstanding options were exercisable.
The following is a summary of information relating to stock options
outstanding at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------ -------------------------------------
RANGE OF WEIGHTED AVERAGE NUMBER
EXERCISE NUMBER OUTSTANDING REMAINING WEIGHTED AVERAGE EXERCISABLE AT WEIGHTED AVERAGE
PRICES AT DECEMBER 31, 2000 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 2000 EXERCISE PRICE
--------- -------------------- ----------------- ---------------- ----------------- ----------------
$ 2-3 220,914 5.3 years $ 2.36 120,914 $ 2.26
3-4 406,700 4.1 years $ 3.38 281,700 $ 3.38
4-5 125,444 5.0 years $ 4.39 92,722 $ 4.35
6-7 12,500 5.5 years $ 6.13 12,500 $ 6.13
------- -------
765,558 4.6 years $ 3.30 507,836 $ 3.36
======= =======
F-19
(12) STOCKHOLDERS' EQUITY
On January 13, 1999, the Company declared a dividend of one preferred
share purchase right ( a "Right") for each outstanding share of common
stock, par value $0.01 per share on February 5, 1999 to the stockholders
of record on that date. Each Right entitles the registered holder to
purchase from the Company one one-thousandth of a share of Series A
Junior Participating Preferred Stock, par value $0.01 per share (the
"Preferred Share"), of the Company, at a price of $30.00 per one
one-thousandth of a Preferred Share subject to adjustment and the terms
of the Rights Agreement.
On December 16, 1998, the Company's Board of Directors authorized the
Company to repurchase up to 1,000,000 shares of its common stock at
management's discretion either in the open market or in privately
negotiated transactions. The repurchased stock is expected to be used for
general corporate purposes, including the issuance of shares in
connection with employee benefit plans. During 1999, 570,000 shares were
repurchased for $1,603,125 and retired.
(13) SUPPLEMENTAL RETIREMENT PLAN
The Company has a supplemental retirement plan for one of its key
officers and a retired officer which will provide an annual benefit to
these individuals over a 12-year period following separation from
employment. The Company recorded an expense of $60,000 in 1999 and 1998
in accordance with this plan, which includes both current costs and prior
service costs for these individuals. No expense was recorded in 2000. The
present value of the supplemental retirement obligation has been
calculated using an 8.5% discount rate.
(14) LEASES
During 1998, the Company renegotiated the terms of a facility lease which
was leased from a limited partnership in which the Company and one of its
officers are shareholders. This lease was previously treated as a capital
lease. Based on the terms of the new lease agreement, the lease is no
longer a capital lease. Consequently, the Company wrote off the related
building and improvements and associated capital lease obligation of
$247,834.
The Company has noncancelable operating leases for its other facilities
that expire through 2004. Certain of the leases contain escalation
clauses which require payments of additional rent to the extent of
increases in related operating costs. The Company also leases various
equipment under capital leases which expire through 2002
F-20
Included in property, plant and equipment are the following amounts held
under capital lease:
DECEMBER 31
-----------------------
2000 1999
---- ----
Buildings and improvements $ -- --
Equipment 778,558 3,726,320
----------- ---------
778,558 3,726,320
Less accumulated amortization (169,632) (1,133,010)
----------- ---------
$ 608,926 2,593,310
=========== =========
Future minimum lease payments under noncancelable operating leases and
the present value of future minimum lease payments under capital leases
as of December 31, 2000, are as follows:
CAPITAL OPERATING
YEAR ENDING DECEMBER 31: LEASES LEASES
------- ---------
2001 328,167 2,037,957
2002 279,856 1,505,759
2003 86,456 1,034,083
2004 72,046 920,260
Beyond -- 1,922,123
---------
Total minimum lease payments 766,525 7,420,182
=========
Less amount representing interest 60,815
---------
Present value of future minimum lease payments 705,710
Less current installments of obligations
under capital leases (290,554)
---------
Obligations under capital lease, excluding
current installments $ 415,156
=========
Rent expense amounted to approximately $2,069,000, $1,604,000, and
$1,270,000 in 2000, 1999, and 1998, respectively. Approximately $270,000
of total rent expense was paid in 2000, and $250,000 and $220,000 in 1999
and 1998, respectively, to a limited partnership that owns the Decatur,
Alabama, and Kissimmee, Florida, facilities. The Company and one of its
officers have interests in this limited partnership.
(15) PROFIT SHARING PLAN
The Company maintains a noncontributory profit-sharing plan for eligible
employees. Contributions to the Plan are made at the discretion of the
board of directors and amounted to approximately $650,000, $550,000, and
$500,000 in 2000, 1999, and 1998, respectively.
F-21
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS, defines the fair value of financial
instruments as the amount at which the instrument could be exchanged in a
transaction between willing parties.
Cash and cash equivalents, accounts receivable, inventories, prepaid
expenses, notes payable to bank, accounts payable, and accrued expenses
and payroll withholdings are stated at carrying amounts that approximate
fair value because of the short maturity of those instruments.
Long-term debt and capital lease obligations are subject to interest
rates currently offered to the Company; therefore, the historical
carrying amount approximates fair value.
(17) SEGMENT DATA
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. Income taxes and interest expense have been allocated based on
operating results and total assets employed in each segment.
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.
F-22
Financial statement information by reportable segment is as follows:
2000
-------------------------------------------
SPECIALTY PACKAGING TOTAL
--------- --------- -----
Sales $39,304,097 35,187,572 74,491,669
Operating income 987,222 2,397,821 3,385,043
Total assets 19,690,414 20,661,990 40,352,404
Depreciation / amortization 1,242,050 1,838,877 3,080,927
Capital expenditures 1,376,203 1,060,724 2,436,927
1999
-------------------------------------------
SPECIALTY PACKAGING TOTAL
--------- --------- -----
Sales $24,990,324 33,810,829 58,801,153
Operating income 251,015 3,028,350 3,279,365
Total assets 12,504,282 19,363,081 31,867,363
Depreciation / amortization 565,634 1,734,039 2,299,673
Capital expenditures 1,123,477 824,991 1,948,468
1998
-------------------------------------------
SPECIALTY PACKAGING TOTAL
--------- --------- -----
Sales $14,218,460 33,001,714 47,220,174
Operating income 643,557 2,530,616 3,174,173
Total assets 10,415,991 19,532,851 29,948,842
Depreciation / amortization 304,482 1,595,433 1,899,915
Capital expenditures 251,395 1,310,740 1,562,135
F-23
(18) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Q1 Q2 Q3 Q4
------------ ----------- ----------- -----------
Year ended 12/31/99
Net sales $13,476,067 $14,897,287 $14,439,589 $15,991,120
Gross profit 3,426,235 3,694,106 3,519,537 4,221,919
Net income 290,875 441,316 300,461 660,765
Basic net income per share 0.06 0.09 0.06 0.14
Diluted net income per share 0.06 0.09 0.06 0.14
Year ended 12/31/2000
Net sales $18,283,629 $19,415,865 $18,898,192 $17,893,983
Gross profit 4,302,982 4,592,804 4,419,804 4,305,712
Net income 217,922 287,775 220,136 355,308
Basic net income per share 0.05 0.07 0.05 0.08
Diluted net income per share 0.05 0.07 0.05 0.08
(19) ACQUISITION
On January 14, 2000, the Company acquired all of the outstanding common
stock of Simco Industries Inc. for approximately $5.8 million. Simco
Industries Inc. is a full service supplier of automotive trim components.
In addition, they operate a tool manufacturing facility. The results of
Simco Industries Inc. have been included in the Company's consolidated
financial statements since the acquisition on January 14, 2000. The cost
of the acquisition was allocated based on the estimated fair market value
of the assets acquired and the liabilities assumed. This allocation
resulted in a goodwill valuation of approximately $2,750,000, which is
being amortized on a straight line basis over twenty years.
On November 30, 1998, the Company acquired substantially all of the
assets and certain liabilities of Pacific Foam, Inc. for approximately
$3,500,000. Pacific Foam, Inc. is a designer and manufacturer of
specialty foam products for the health and beauty industry. The
acquisition was accounted for as a purchase and was financed through the
Company's revolving line of credit. The results of Pacific Foam, Inc.
have been included in the Company's consolidated financial statements for
the month of December of 1998. The cost of the acquisition was allocated
based on the estimated fair market value of the assets acquired and the
liabilities assumed. The allocation resulted in a goodwill valuation of
approximately $2,300,000, which is being amortized on a straight line
basis over 20 years.
Pro forma amounts for the Simco acquisition are not included, as the
effect is not material to the Company's consolidated financial
statements.
F-24
Schedule II
UFP TECHNOLOGIES, INC.
Valuation and Qualifying Accounts
Years ended December 31, 2000, 1999, and 1998
Accounts receivable, allowance for doubtful accounts:
2000 1999 1998
---- ---- ----
Balance at beginning of year $ 365,808 $ 257,865 $ 196,336
Simco Automotive acquisition 240,000 0 0
Provision charged to expense 102,203 135,522 119,574
Deductions - write-offs (295,560) (27,579) (58,045)
--------- --------- ---------
Balance at end of year 412,451 365,808 257,865
========= ========= =========
* * * *
F-25