Filing summary
Entity identification: The request identifies YUNHONG GREEN CTI LTD., but the supplied filing is CTI Industries Corporation’s Form 10-K. The summary below reflects the filing provided, not a filing verified as belonging to Yunhong Green CTI.
Business context and reporting period
CTI Industries designs, manufactures and distributes foil and latex balloons, vacuum-sealing products, flexible packaging films and other products. It operates principally in the United States and Mexico, with sales and fulfillment operations in the United Kingdom and Germany. This is the annual report for the fiscal year ended December 31, 2015; comparisons are to fiscal 2014.
Key financial metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Net sales | $59.365 million | $57.828 million |
| Gross profit / gross margin | $16.351 million / 27.5% | $14.205 million / 24.6% |
| Operating income / margin | $2.817 million / 4.7% | $1.609 million / 2.8% |
| Income before taxes | $1.307 million | $0.539 million |
| Consolidated net income | $0.938 million | $0.349 million |
| Net income attributable to CTI | $1.047 million | $0.514 million |
| Cash from (used in) operating activities | $2.596 million | $(3.355) million |
| Cash and cash equivalents at year-end | $0.346 million | $0.150 million |
| Current assets / current liabilities | $32.437 million / $20.201 million | $32.474 million / $20.929 million |
| Stockholders’ equity | $12.787 million | $12.880 million |
Net income attributable to CTI exceeds consolidated net income because of the loss attributed to noncontrolling interests. The filing’s MD&A describes 2015 net income as $1.047 million; the financial statements identify that figure as income attributable to CTI, while consolidated net income is $0.938 million.
Working capital was $12.236 million at year-end. The company reported $1.456 million available under its revolving credit facility. The balance sheet shows a $10.953 million line of credit, including $0.484 million attributed to a consolidated variable interest entity; the filing separately reports $10.469 million outstanding on the BMO Harris revolver. Long-term debt, net of current portion, was $8.301 million; total long-term debt including current maturities was $8.852 million. The $5 million BMO Private Equity note bears 11.5% stated interest and matures in January 2018. Interest expense was $1.615 million, compared with $1.131 million in 2014.
Investing activities used $0.682 million in 2015; financing activities used $1.694 million. Raw materials represented approximately 41.5% of net revenue, versus 41.7% in 2014.
Material changes versus 2014
- Sales rose 2.7%. “Other” product sales increased from $3.408 million to $6.710 million, including sales by Clever Container and Candyloons/Candy Blossoms.
- Foil balloon sales increased 1%; vacuum-sealing sales increased 0.8%. Latex balloon sales fell 15.9%, and film sales fell 5.9%.
- Gross margin improved as cost of sales declined to 72.5% of revenue from 75.4%, which management attributed to a more favorable sales mix and lower factory overhead.
- Operating income increased to $2.817 million. Higher selling and marketing expenses partly offset lower general and administrative expense and improved gross profit.
- Operating cash flow improved to $2.596 million from cash usage of $3.355 million, primarily because inventory and receivables grew less than in 2014.
- Foreign currency translation reduced comprehensive income by $1.175 million, compared with a $0.648 million loss in 2014. Management estimated the Peso decline reduced 2015 net income by about $0.190 million.
Outlook, risks and unusual items
- Management expected available funds, internally generated cash and revolving-credit borrowing capacity to meet working-capital needs for the remainder of 2016, but said it was reviewing financing needs for a possible significant fourth-quarter 2016 vacuum-sealing product sale. The filing provides no quantified sales forecast.
- Management anticipated a significant increase in inventory and receivables in the third and fourth quarters of 2016. The temporary additional BMO overadvance of up to $1 million was available only through April 30, 2016.
- Customer concentration is substantial: the top 10 customers accounted for 65.6% of 2015 revenue. Dollar Tree represented 26.9% and Walmart 15.4%; customers generally were not required to purchase minimum amounts.
- CTI relies on its Mexico operation for latex balloon supply. Peso weakness affected reported sales, and raw-material prices—particularly natural latex—can be volatile. The company reported no long-term raw-material supply agreements and cited supplier availability, helium costs and availability, and competition as risks.
- The BMO credit arrangements impose financial and restrictive covenants, constrain certain activities including dividends, and mature in 2017; the $5 million subordinated note carries a high stated interest rate and matures in 2018. The company reported compliance with applicable financial covenants at December 31, 2015.
- The filing reports related-party financing and transactions, and consolidates Clever Container and other entities as variable interest entities. The company acquired an additional 28.5% interest in Clever Container on January 8, 2016.
- Management reported no material adverse effect expected from ordinary-course legal claims. The independent auditor issued an unqualified opinion on the consolidated financial statements, relying in part on another auditor’s report for Flexo Universal. The filing includes management’s internal-control assessment but no auditor attestation of internal control.
Most important facts to verify
- Confirm whether this CTI Industries 10-K is the intended filing; the supplied filing does not identify Yunhong Green CTI Ltd.
- Reconcile the $1.047 million MD&A net-income reference with the financial statements’ $0.938 million consolidated net income and $1.047 million CTI-attributable income.
- Verify the revolving-credit availability, borrowing-base limits, covenant headroom, and financing plan for the anticipated 2016 seasonal working-capital build.
- Assess customer concentration and whether the potential fourth-quarter vacuum-sealing order materialized, including its margin and cash-conversion effects.
- Review the impact of foreign exchange, raw-material costs and supply dependence on Mexico on future revenue, margins and production continuity.