UFP Technologies, Inc. — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing also reports unaudited fourth-quarter results. UFP designs and manufactures engineered foam, plastic, and molded-fiber packaging and components, serving medical, automotive, aerospace and defense, electronics, industrial, and consumer markets.
Key financial results
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Net sales | $127.2 million | $120.8 million | +5.4% |
| Gross profit / margin | $36.2 million / 28.5% | $34.6 million / 28.7% | Profit +4.7%; margin down 0.2 points |
| Operating income | $15.7 million | $14.4 million | +9.2% |
| Net income attributable to UFP | $10.3 million | $9.2 million | +11.9% |
| Diluted earnings per share | $1.48 | $1.37 | +8.0% |
| Cash provided by operations | $11.7 million | $11.8 million | Down slightly |
Revenue growth was led by aerospace and defense sales, up approximately $3.1 million, including a new U.S. Marines backpack-components contract, and automotive interior-trim sales, up approximately $1.8 million. Component Products sales were $84.7 million, versus $80.4 million; Packaging sales were $42.6 million, versus $40.4 million. Component Products operating income rose to $13.0 million from $11.1 million, while Packaging operating income fell to $2.7 million from $3.3 million.
Fourth-quarter 2011 sales were $31.5 million, compared with $31.6 million in fourth-quarter 2010. Gross profit was $9.0 million versus $9.2 million; net income attributable to UFP was $3.0 million versus $3.1 million. Diluted EPS was $0.43 versus $0.45.
Liquidity, debt, and capital
- At year-end, cash and cash equivalents were $29.8 million, working capital was $48.6 million, total assets were $79.7 million, and stockholders’ equity was $62.0 million.
- Total debt was approximately $6.2 million, down from $7.5 million; there were no borrowings on the $17 million revolving facility, with approximately $16.9 million available subject to collateral. The facility matures in November 2013; term loans mature in January 2016. The company was in compliance with its fixed-charge coverage covenant.
- Capital expenditures were $3.7 million. Cash provided by operations less capital expenditures was approximately $8.0 million, calculated from reported figures. The company reported no dividends in 2011 or 2010.
Material changes, outlook, and risks
- Operating income included an $839,000 gain primarily related to the sale of UDT’s Alabama facility. The property sold for approximately $1.25 million; the gain included a one-time $250,000 management fee. The Alabama facility closure also contributed approximately $350,000 of costs.
- A large automotive door-panel program for a redesigned vehicle model ended on June 30, 2011. Management expected sales from that program to decline in 2012 and beyond, although UFP continued supplying other vehicle models.
- Backlog as of February 11, 2012, was $8.8 million in Packaging, down from $9.6 million a year earlier, and $23.8 million in Component Products, up from $17.7 million. The filing cautions that orders may be canceled or rescheduled and backlog is not a reliable revenue forecast.
- Management stated that operating cash flow was expected to fund operations over the next 12 months, subject to the disclosed risks. No specific revenue or earnings guidance was provided.
- Key risks include customer concentration (top ten customers represented approximately 28% of 2011 revenue), the expected decline in the automotive program, raw-material and energy cost volatility, dependence on limited sources for certain foams, and the possibility of customer manufacturing moving offshore. Recticel represented 7.2% of total 2011 sales. Ordinary-course legal proceedings were not expected by management to have a material adverse effect.
- Management reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- How quickly sales and earnings replace revenue from the discontinued automotive model program, and the timing and margins of the Marines contract.
- Whether Packaging’s lower operating income persists, and how much reported operating-income growth depended on the Alabama property-sale gain.
- Whether inventory built for the military program converts to shipments and cash, given the 2011 inventory increase of approximately $1.7 million.
- Current customer concentration, raw-material pass-through effectiveness, and availability and pricing of limited-source foam supplies.
- Subsequent results and obligations following UFP’s February 2012 purchase of the building it leased from UDT for $1.35 million and the planned dissolution of UDT.