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Letter To Shareholders 

To Our Shareholders

This past year was a special one for Alpha Pro Tech, Ltd. for many reasons. First and foremost, 2014 marked Alpha Pro Tech’s 25th anniversary of bringing innovative products to market that protect people, products and environments. The Company has come a long way from those early days when we were known as BFD Industries, Inc. Over the years, we have introduced many exciting and highly innovative products in our Infection Control, Disposable Protective Apparel and Building Supply business segments, from our N-95 respirator mask to our REX™ SynFelt synthetic roof underlayment products. Today, we are more diversified across product lines, geographies and industries.

There is also no better way to celebrate a milestone anniversary year than by posting terrific financial results. When comparing the results from 2014 to those of 2013, we posted strong top line sales growth of 8.8% and had significant bottom line growth of 31.9%. This is something worthy of taking a moment to celebrate. We would like to thank all of our employees, distribution and manufacturing partners and our end customers for contributing to these results.

As in 2013, we finished 2014 on a strong note by delivering an increase in fourth quarter net income of 83.2% on an operating basis, excluding the investment gain on warrants recognized in 2013. Our goal is to achieve double-digit improvement on both top and bottom line results. Given the volatile markets and global economic sluggishness, we are proud to post high single-digit top line growth and strong double-digit bottom line increases.

One of the true bright spots this past year was that all three business segments contributed to our strong growth. The Building Supply segment delivered its seventh consecutive year of growth. This growth was mainly driven by sales of our REX™ SynFelt and TECHNOply™ synthetic roof underlayment products. Our Disposable Protective Apparel segment experienced significant growth in 2014 as we broadened our distribution network. And, our Infection Control segment benefited from strong orders resulting from the global fight against infectious diseases, including the deadly Ebola virus.

Our proven track record of managing the business in a prudent manner continues to deliver outstanding improvements. We continue to look for ways to drive top line sales to take full advantage of these improved operating efficiencies. In addition, we continue to innovate and launch new products. It also remains critical for us to drive brand recognition, maintain our reputation for quality and obtain industrial certifications that enhance market acceptance.

2014 Financial Performance

For the year, consolidated sales grew 8.8% to $47,649,000 from $43,806,000 in 2013. Growth in sales came from all three business segments. Building Supply segment sales increased $1,176,000; Disposable Protective Apparel segment sales increased $1,479,000; and the Infection Control segment sales increased $1,188,000.

Our Building Supply segment achieved sales growth of 4.5% in 2014, which resulted in the segment posting record sales of $27,549,000, up from $26,373,000 in 2013. We experienced solid 8.6% sales growth from our REX™ SynFelt synthetic roof underlayment products. This growth was partially offset by a slight 1.5% decline in sales of our REX™ Wrap housewrap. For the year, our synthetic roof underlayment sales represented 63% of this segment’s sales, with 33% coming from housewrap sales and 4% from woven material.

In 2014, sales from the Building Supply segment represented 58% of our sales, and we believe that this segment will continue on its growth path as the construction market continues to strengthen. Driving this segment’s results were sales of our synthetic roof underlayment products, REX™ SynFelt and TECHNOply™. TECHNOply™, which was introduced in 2012, experienced another strong year by posting sales for 2014 that were three and half times the sales for 2013. We launched this product in order to capture market share in the lower price-point portion of the market. Unfortunately, sales of our REX™ Wrap Fortis non-perforated breathable housewrap decreased slightly in 2014. We do expect to recapture momentum with this product as the housing market begins to improve. We expect the Building Supply segment to continue to experience strong growth and contribute significantly to the Company’s overall growth for many years.

Our Disposable Protective Apparel segment experienced strong double-digit sales gains, growing 11.2% to $14,670,000, in 2014 from $13,191,000 in 2013. The increase was primarily due to increases in sales of protective apparel to our regional and national distributors. This increase was partially offset by a decrease in sales to our major international supply chain partner. When taking into account that one end user customer went out of business in the fourth quarter of 2013, sales to this partner would have been relatively flat. We are continuing to put more emphasis on a broader and more diversified distribution strategy for our Critical Cover® protective apparel product line. We believe that this will allow us to gain market share and to continue to build upon the momentum in growth that we have established.

Our Infection Control segment posted a 28.0% increase in sales in 2014 to $5,430,000 from $4,242,000 in 2013. The increase was primarily driven by a 73.4% increase in shield sales to $2,189,000 from $1,256,000 in 2013. We also experienced growth in sales of masks of 8.6% to $3,241,000 from $2,986,000 in 2013. The increase in shield and mask sales was primarily due to sales increases during the fourth quarter related to the Ebola outbreak.

Gross profit increased by 7.5% to $17,452,000 in 2014 from $16,232,000 in 2013. Our gross profit margin for 2014 dipped slightly to 36.6% from 37.1% for the prior year, primarily due to pricing pressures in the marketplace. In addition, historically the Building Supply segment has carried lower margins, and we have been working on increasing margins in this segment.

The strong increases in sales and in gross profit had a significant positive impact on the Alpha Pro Tech’s bottom line. For the full year, Alpha Pro Tech posted a 31.9% increase in net income of $663,000 to $2,742,000, or $0.15 per diluted share, compared to $2,079,000, or $0.11 per diluted share, in 2013. This marks the Company’s sixteenth consecutive year of profitability.

Maintaining a strong balance sheet is a key component of our growth strategy. This provides us with the flexibility to invest in opportunities while remaining financially stable. In addition to our strong cash position, which stood at $5,495,000, at December 31, 2014 compared to $8,215,000 at December 31, 2013, our working capital of $33,209,000 increased 7.4% from $30,915,000 at December 31, 2013. The decrease in cash was a result of cash used in operating, investing and financing activities. Our current ratio, as of December 31, 2014 stood at a healthy level at 15:1. This is a reflection of management’s diligent approach and we believe represents our ability to fund future growth.

Current assets at December 31, 2014 increased to $35,503,000 from $32,640,000 at December 31, 2013. At year end 2014, in addition to our 76.8% increase in investments, our inventory levels increased 17.0%, or $2,404,000, to $16,544,000 from $14,140,000 at year end 2013. This was primarily due to increases in inventory for the Building Supply and Infection Control segments, with a decrease in inventory in the Disposable Protective Apparel segment. Inventory levels increased 50.0% in the Building Supply segment, increased 1.8% in the Infection Control segment and decreased 10.7% in the Disposable Protective Apparel segment.

Shareholders’ equity at December 31, 2014 increased 6.5% to $37,906,000 from $35,581,000 at December 31, 2013. In addition, our book value increased to $2.02 at December 31, 2014 from $1.85 per diluted share at December 31, 2013. During 2014, we repurchased 1,019,553 shares of common stock at a cost of $2,206,000. As of December 31, 2014, we have repurchased a total of 11,544,531 shares with a total cost of $16,132,000.

The Company remains debt free and has an unused $3.5 million line of credit.

Finishing the Year Strong

In this our 25th year, we delivered a strong performance on all fronts. As Alpha Pro Tech enters our 26th year, we believe the Company is well positioned to capture growth opportunities for many years to come. We achieved strong sales growth of 8.8% in 2014, but the real news for the year was our outstanding bottom line performance. In addition to the improvement in gross profits, we also were able to continue to manage expenses as a percentage of sales. Expenses as percentage of sales were 28.4% in 2014, down from 29.9% in 2013, which was down from 31.4% in 2012. The combination of our sales growth and management of expenses allowed us to drive more sales dollar down to the bottom line, where we delivered net income growth of 31.9% in 2014. Our ability to manage costs and drive more dollars to the bottom line demonstrates our commitment to delivering shareholder value.

As has been the case the past few years, we finished 2014 with a strong fourth quarter. While overall sales in 2014 increased 8.8% compared to 2013, they grew at nearly double that rate in the fourth quarter of 2014, during which we experienced a 16.4% increase compared to the 2013 fourth quarter. Our Disposable Protective Apparel segment delivered growth of 13.3% in the 2014 fourth quarter, and this is after posting a 19.3% increase in the 2013 fourth quarter. Infection Control segment sales in the 2014 fourth quarter more than doubled from the 2013 fourth quarter with a 107% increase in sales. This contributed to a sales increase of 28.0% for the 2014 year for the Infection Control segment. Sales for the Building Supply segment were up modestly, with the segment posting gains of 2.6% and 4.5% for the fourth quarter and full year of 2014, respectively. We are encouraged that this is the second year in a row in which we experienced growth across all three business segments. This allows us to really take advantage of our fixed infrastructure costs, generate more cash flow and drop more dollars to bottom line earnings.

In addition, we delivered particularly strong bottom line results in the fourth quarter of 2014 with an 83.2% increase in net income, after excluding the gain on investment in common stock warrants of $350,000 in the 2013 fourth quarter. Driving this significant improvement were increases of 13.1% and 7.5% in gross profit for the fourth quarter and full year of 2014, respectively. Gross profit increased to $4,400,000 for the quarter and $17,452,000 for the year. The increase in gross profits were driven by the higher sales volumes across all three business segments.

We expect the Building Supply segment to continue to gain sales momentum as the housing market recovery advances. The segment has grown every year since 2008. This past year, the driving force behind the Building Supply segments’ growth was an 8.6% increase in our synthetic roof underlayment sales. While our housewrap product line experienced a slight decrease in sales in 2014, we expect sales of these products to rebound in 2015. We believe that as the housing market continues to improve, we will be in a strong position to capture additional sales opportunities.

Our Disposable Protective Apparel segment demonstrated strong improvement in 2014 with 11.4% sales growth. This growth was driven by strong demand from our regional and national distributors. This was offset by flat demand from our main international distributor resulting from one of their larger customers ceasing operations in 2013. We remain optimistic about our continued sales growth opportunities, especially as our more diversified and broader distribution strategy takes hold and gains momentum.

Infection Control segment sales increased dramatically this past year, primarily during the fourth quarter. For the year, sales rose 28.0%, driven by a 107% increase in the fourth quarter. During the fourth quarter, this segment benefited from demand resulting from the fight against the spread of infectious diseases, including the Ebola virus. During the height of the crisis, we were able to react quickly and increase production capacity and output to meet the rising demand. Since the end of 2014, the demand from this crisis has waned. However, as with SARS and other global pandemics, we continue to gain experience and visibility as a provider of high quality protective gear in times when demand spikes. The Infection Control segment now represents about 11.4% of our overall consolidated sales.


While 25 years is a significant milestone and one worthy of stopping to recognize, it is our future prospects that truly excite us at Alpha Pro Tech. Our Infection Control segment continues to be recognized for our outstanding protective infection control products in times when the world faces a medical emergency outbreak. Our Disposable Protective Apparel distribution network continues to strengthen, and our Building Supply segment continues to deliver stellar performance in a sluggish construction market. We will continue to innovate, launch new products and further build our brands in all of our business segments. The management team is firmly committed to growing the Company and delivering value for our customers, employees and shareholders. We will continue to manage the business in a prudent manner in order to maintain our position of financial strength. We remain focused on what we do best - providing solutions that protect people, products and environments.

You do not get to stay in business for 25 years all by yourself, thus, on behalf of the Board of Directors and the entire management team, we would like to thank our customers, suppliers, distributors, employees and shareholders for your continued support. We would have never made it this far without all of you. So, during the coming year and the next 25 years, we look forward to sharing with you our new milestones and accomplishments as we lead the Company through its next stages of growth.


Sheldon Hoffman
Chief Executive Officer

Alexander W. Millar