Alpha Pro Tech, Ltd. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; comparisons are with FY2014. The company develops and sells construction weatherization products, disposable protective apparel, and infection-control products. Sales are predominantly in the United States.
Financial performance
| Metric | FY2015 | FY2014 | Change |
|---|---|---|---|
| Net sales | $44.955 million | $47.649 million | Down 5.7% |
| Gross profit / margin | $15.972 million / 35.5% | $17.452 million / 36.6% | Down $1.480 million; margin down 1.1 points |
| Operating income / margin | $1.475 million / 3.3% | $3.218 million / 6.8% | Down 54.2% |
| Income before taxes | $1.521 million | $3.943 million | Down 61.4% |
| Net income | $1.041 million | $2.742 million | Down 62.0% |
| Basic and diluted EPS | $0.06 | $0.15 | Down $0.09 |
| Operating cash flow | $5.971 million | $(0.879) million | Improved $6.850 million |
Net income was approximately 2.3% of sales based on the financial statements; one MD&A passage gives 2.5%, so the filing is inconsistent on this percentage. FY2015 comprehensive loss was $0.482 million, including a $1.523 million after-tax unrealized loss on marketable securities.
Segments and material year-over-year changes
- Building Supply: Sales were $25.800 million, down 6.3%. Housewrap and synthetic underlayment sales declined, while the TECHNO product family grew 32.0%.
- Disposable Protective Apparel: Sales were $14.661 million, essentially flat. Management cited lower sales to national and regional distributors, largely offset by higher sales to an international supply-chain partner.
- Infection Control: Sales were $4.494 million, down 17.2%. Eye-shield sales fell 43.9%; mask sales rose 0.7%. Management attributed the segment decline mainly to Ebola-related sales in Q4 2014 that did not recur.
- Gross margin benefited by 1.5 percentage points from a retroactive U.S. customs duty refund. Competitive pricing, increased rebates, and higher manufacturing costs—especially in apparel—more than offset that benefit.
- Other income fell to $46,000 from $725,000, in part because FY2014 included $409,000 of gains on securities and warrants and $300,000 of affiliate income, versus $32,000 of affiliate income in FY2015.
Liquidity, cash flow, and capital
- Cash at year-end was $9.681 million, up 76.2%; working capital was $30.926 million, down 6.7%. The reported current ratio was 15:1, compared with 16:1.
- Operating cash generation included reductions in receivables and prepaid expenses. Receivables were $2.770 million at year-end, down substantially; inventory was $16.398 million, nearly flat overall, with apparel inventory up 26.5%.
- Investing cash use was $0.449 million, including $0.274 million of property and equipment purchases. Financing cash use was $1.336 million, including $2.110 million for share repurchases, partly offset by option exercises.
- The company reported no debt or credit-facility borrowings. It had a $3.5 million asset-based line at prime plus 0.5%, expiring in May 2016, with the full borrowing capacity available at year-end. Management said cash and available credit should cover foreseeable working-capital and planned capital needs.
- FY2015 repurchases totaled 973,100 shares for $2.110 million; $1.278 million remained authorized at year-end. No dividends have been paid, and management stated no foreseeable plans to pay them.
Outlook, risks, and notable items
- No specific revenue or earnings guidance was provided. Management expected the effective tax rate to remain in the low-to-mid-30% range.
- The company received a $601,000 severance obligation following the former CEO’s retirement in Q3 2015; $452,000 remained accrued at year-end. The former CEO did not enter a consulting arrangement.
- Key disclosed risks include intense competition and pricing pressure, reliance on large customers and a limited number of suppliers/contractors, international manufacturing and intellectual-property risks, customer order variability, and potential IT security disruptions. One customer represented 18% of FY2015 sales and another 23% of year-end receivables.
- The company purchased $14.272 million of inventory from Harmony Plastics, its 41.66%-owned Indian joint venture, in FY2015. It also holds marketable securities in one publicly traded entity, exposing it to that investment’s share-price volatility.
- Future minimum operating lease payments were $4.217 million, including $0.919 million due in 2016. Certain facility leases were due to expire in 2016.
- Management concluded internal control over financial reporting and disclosure controls were effective at year-end. The independent auditor gave an unqualified opinion on the financial statements; it did not attest to internal-control effectiveness.
Investor facts to verify
- Reconcile the filing’s 2.3% versus 2.5% FY2015 net-income margin disclosures.
- Review whether the May 2016 credit facility was renewed and whether borrowing availability remained sufficient.
- Track recovery in Building Supply and Infection Control sales, apparel manufacturing costs, and the sustainability of the GSP duty benefit.
- Assess customer concentration, Harmony-related sourcing exposure, and the single-issuer marketable-securities investment.
- Confirm the cash timing and remaining balance of CEO severance, share repurchases, and upcoming lease commitments.