UFP Technologies, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. UFP Technologies makes custom-engineered components, products, and specialty packaging, reported in Engineered Packaging and Component Products segments. Financial statements are unaudited.
Financial results and liquidity
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Net sales | $31.95 million | $31.50 million |
| Gross profit / margin | $9.20 million / 28.8% | $8.80 million / 27.9% |
| Operating income | $3.69 million | $3.91 million |
| Net income attributable to UFP Technologies | $2.35 million | $2.20 million |
| Diluted EPS | $0.33 | $0.32 |
| Operating cash flow | $1.66 million | $0.63 million |
| Capital expenditures | $2.31 million | $0.25 million |
Gross margin improved 0.9 percentage point, which management attributed principally to a better business mix. SG&A declined 3.6% to $5.52 million, and was 17.3% of sales versus 18.2%. Operating income fell despite higher gross profit, primarily because Q1 2011 included an approximately $834,000 gain on sale of fixed assets. Q1 2012 income before tax was $3.67 million; tax expense was $1.32 million, or approximately 36% of pretax income.
Cash and equivalents were $27.62 million at March 31, down $2.23 million from year-end. Working capital was approximately $47.6 million, versus $48.6 million at December 31. Total debt was approximately $6.07 million, including $0.58 million current and $5.49 million long-term. The company had approximately $16.9 million available under its $17 million revolving facility; the facility’s interest rate was approximately 1.24%. It was in compliance with its fixed-charge coverage covenant.
Changes versus the prior period
- Sales grew 1.4% overall; excluding sales from the discontinued automotive door-panel model, management reported 8% growth.
- Medical sales increased approximately $485,000 and molded-fiber packaging sales increased approximately $1 million, largely offset by a roughly $1.1 million decline in automotive sales.
- Engineered Packaging sales were $9.62 million, down from $9.88 million; segment operating income fell to $0.45 million from $0.92 million. Component Products sales rose to $22.33 million from $21.63 million, and operating income increased to $3.23 million from $2.99 million.
- Net income attributable to the company rose to $2.35 million from $2.20 million, although consolidated net income declined to $2.35 million from $2.63 million. The prior-period result included income attributable to UDT non-controlling interests.
Outlook, risks, and unusual items
- Management planned additional manufacturing capacity and efficiency investments in 2012, including a next-generation molded-fiber production line, and said it may pursue complementary acquisitions. It believed cash, operating cash generation, and available borrowing resources would cover requirements, including capital purchases, for the next 12 months; this is not a guarantee of future operating cash flow.
- A substantial portion of a large automotive door-panel program ended in June 2011 after a vehicle redesign. Sales for the discontinued model were approximately $1.8 million in Q1 2011. Management cited customer demand, competition, order cancellations or deferrals, new-product execution, equipment implementation, acquisitions, and general economic conditions among relevant risks.
- In February 2012, the company purchased the manufacturing building leased from United Development Company Limited (UDT) for $1.35 million; UDT was subsequently dissolved and its assets distributed. The transaction eliminated the non-controlling interest and did not affect consolidated operating results. A $535,481 reduction to additional paid-in capital was recorded. A related distribution to non-controlling interests was approximately $1.21 million.
- Q1 2012 investing cash use was $2.17 million, mainly reflecting capital spending; financing cash use was $1.72 million, including the UDT distribution. Contractual obligations totaled approximately $14.55 million, including a $3.70 million commitment for new molded-fiber equipment. The filing reported no material change to previously disclosed risk factors and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether non-automotive growth and improved gross margin can offset the continuing automotive program wind-down.
- Timing, cost, and expected efficiency benefits of the molded-fiber equipment investment and other planned capacity additions.
- Revolver availability, covenant compliance, debt maturities, and the company’s ability to generate operating cash while funding capital expenditures.
- Whether UDT’s dissolution and building purchase have any continuing cash, tax, or operational effects beyond those described in the filing.
- Management’s forward-looking statements are subject to risks, and Q1 results are not necessarily indicative of full-year results.