UFP Technologies, Inc. — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. This is an annual report, not a standalone quarterly filing; it includes unaudited fourth-quarter results. UFP Technologies custom-converts foam, plastics, composites, and natural-fiber materials for medical, automotive, aerospace and defense, and packaging markets.
Financial performance and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Net sales | $131.0 million | $127.2 million |
| Gross profit / margin | $38.2 million / 29.2% | $36.2 million / 28.5% |
| Operating income / margin | $16.7 million / 12.8% | $15.7 million / 12.3% |
| Net income attributable to UFP Technologies | $10.9 million | $10.3 million |
| Diluted earnings per share | $1.55 | $1.48 |
| Cash from operating activities | $16.2 million | $11.7 million |
- Sales increased 2.9%; operating income rose 6.0% and attributable net income rose 5.3%. Gross margin improved 0.7 percentage points, reflecting a more favorable mix, including medical and molded-fiber products.
- Fourth-quarter sales were $33.4 million versus $31.5 million; attributable net income was $3.2 million versus $3.0 million; diluted EPS was $0.45 versus $0.43.
- Component Products sales increased 4.2% to $88.2 million, with operating income of $13.6 million. Packaging sales were nearly flat at $42.8 million, while segment operating income rose 14.9% to $3.1 million.
- At year-end, cash and cash equivalents were $33.5 million, working capital $51.3 million, and total assets $98.6 million. Total debt was approximately $9.9 million, including current installments; the $17 million revolver had no borrowings and approximately $16.9 million of borrowing availability, subject to collateral limits.
- Capital expenditures were $12.0 million. Investing cash outflow totaled $15.5 million, including $3.6 million for the PAC acquisition. Cash increased by $3.6 million during the year.
Changes, outlook, and notable items
- Organic sales grew 2.9%, despite approximately $5 million of lost sales as a significant portion of an automotive program phased out. Medical-market sales rose 9%, and molded-fiber packaging sales increased 21%.
- UFP acquired substantially all assets of Packaging Alternatives Corporation (PAC) on December 31, 2012, for total consideration of approximately $5.7 million. PAC adds technical-foam expertise, West Coast presence, and medical-market exposure.
- Management reported that 2013 began slowly in automotive and military markets, citing reduced military spending and temporary shutdowns at two automotive customers. The company provided no quantified revenue or earnings guidance; it expects operating cash flow to fund expected operations over the next 12 months.
- The revolving credit facility matures November 30, 2013; management expected to negotiate an extension but cautioned that favorable or timely renewal was not assured. The company was compliant with its fixed-charge coverage covenant at year-end.
- A Ventura, California facility closure and consolidation plan resulted in approximately $400,000 of one-time pre-tax restructuring charges, paid in Q4, with about $150,000 of planned building improvements.
- Risks include raw-material and energy cost increases, dependence on a limited number of suppliers for certain foams, customer concentration, acquisition integration, macroeconomic weakness, and manufacturing moving offshore. The top ten customers represented about 27% of 2012 sales. Backlog was approximately $30.7 million in February 2013, down from $32.6 million a year earlier; orders may be canceled or rescheduled.
- Ordinary-course administrative proceedings were not expected by management to have a material adverse effect. The auditor issued unqualified opinions on the financial statements and internal controls; management also concluded controls were effective.
Important facts for investors to verify
- Whether the revolver was renewed before its November 2013 maturity and on what terms.
- Whether 2013 automotive and military softness, including the phased-out program, affected subsequent sales, margins, and backlog.
- PAC’s post-acquisition performance, customer retention, contingent note terms, and expected integration benefits.
- Execution and returns on the substantial molded-fiber equipment investment and the Ventura facility consolidation.
- Ability to manage input-cost increases and supply constraints while preserving the improved gross margin.