CTI Industries Corporation — FY2013 Form 10-K
Period and issuer: Fiscal year ended December 31, 2013, compared with FY2012. The filing is for CTI Industries Corporation (ticker CTIB), not YUNHONG GREEN CTI LTD.; verify that this is the intended issuer before relying on the figures. This is an annual report, not a standalone fourth-quarter report.
Business context
CTI develops, manufactures, and sells novelty products—principally foil and latex balloons—flexible containers and vacuum-sealing products, and packaging films. FY2013 revenue mix was 69% novelty products, 22% flexible containers/devices, and 9% film products. Sales to the United States were $41.956 million; Mexico, $11.070 million; the United Kingdom, $2.032 million; and other Europe, $1.001 million.
Financial performance and changes
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net sales | $56.059 million | $49.543 million |
| Gross profit / margin | $12.613 million / 22.5% | $10.907 million / 22.0% |
| Operating income / margin | $2.090 million / 3.7% | $1.059 million / 2.1% |
| Net income attributable to CTI | $376,000; $0.12 basic EPS | $102,000; $0.03 basic EPS |
| Cash from operations | $170,000 | $(2.100) million |
| Cash used in investing | $(1.948) million | $(1.212) million |
| Cash from financing | $2.099 million | $3.305 million |
Revenue grew 13.2%. Pouch sales rose 32.4% to $12.543 million, mainly from vacuum-sealing systems, whose sales increased to $9.835 million from $5.576 million. Latex-balloon sales grew 10.0%; foil-balloon and film-product sales each rose 3.3%. Cost of sales improved to 77.5% of revenue from 78.0%, while selling expense increased to $2.225 million from $1.721 million. Interest expense increased to $1.462 million from $1.013 million, limiting the benefit of higher operating income. The statements report consolidated net income of $408,000, of which $33,000 was attributable to noncontrolling interest; the $376,000 figure is attributable to CTI shareholders.
Liquidity, debt, and capital
At year-end, current assets were $28.171 million and current liabilities $16.433 million, yielding working capital of $11.738 million. Cash was $667,000. The BMO Harris revolving balance was $8.384 million, with $1.391 million available; the Mexican subsidiary also had $165,000 outstanding on its line. The balance sheet reports total current line-of-credit debt of $8.769 million, including VIE amounts. Long-term debt was $9.058 million net of current portion and debt discount; the $5.0 million BMO Private Equity note bears 11.5% stated interest (15.56% effective rate) and is due in 2018. Total stockholders’ equity was $12.656 million. Management said available funds and expected internally generated cash and borrowing capacity should meet working-capital needs for at least 12 months. The company reported compliance with debt covenants at December 31, 2013; amendments in April 2013 waived specified prior covenant defaults and revised thresholds.
Outlook, risks, and unusual items
- Management expected 2014 investing cash use to be lower than 2013 and said first-quarter 2014 printing-equipment purchases would nearly double foil-balloon printing capacity. These are expectations, not reported results.
- Customer concentration is material: Dollar Tree was 27.6% of revenue and Wal-Mart 12.5%; the top 10 customers represented 68.9%. Customer purchases generally are not subject to minimum-volume commitments.
- Raw materials represented about 45.3% of revenue, and the company lacks long-term supply agreements for most inputs. Latex prices, helium cost and availability, and dependence on Mexican balloon production could affect margins or supply.
- The Ziploc Vacuum Sealer System trademark license was scheduled to expire December 31, 2014. The filing does not establish whether it was renewed.
- Clever Container, a company 50%-owned by two CTI officers, was consolidated as a variable interest entity beginning October 1, 2013. Its inclusion affected the reported fourth-quarter consolidated results; review the related-party and consolidation disclosures.
- Other notable items include the BMO warrant liability, remeasured at fair value and reported as a liability; related-party transactions and officer loans; and a $738,000 inventory-obsolescence reserve, up from $636,000.
- Management reported effective internal control over financial reporting, but the auditor did not attest to that assessment. The auditor relied on another auditor for Flexo Universal, representing 21% of consolidated assets and 22% of revenue.
- Routine legal claims were disclosed; management did not expect pending matters to have a material adverse effect. The company anticipated new conflict-minerals compliance costs but could not quantify them.
Key facts for investors to verify
- Confirm issuer identity: CTI Industries Corporation (CTIB) versus the requested YUNHONG GREEN CTI LTD.
- Check subsequent disclosures on renewal or termination of the Ziploc license, customer sales, and the commercial performance of vacuum-sealing products.
- Review the debt agreements, covenant calculations, available revolver capacity, and scheduled principal payments—especially the 2018 BMO Private Equity maturity.
- Assess customer and supplier concentration, helium availability, latex/material cost exposure, and reliance on Mexican production.
- Examine Clever Container consolidation, related-party dealings, warrant valuation, and the composition and recoverability of deferred tax assets.