UFP Technologies, Inc.
Annual Report 2012

2012 Annual Report

Engineered for Growth

2012 annual report

UFP Technologies, Inc. (Nasdaq: UFPT) is a  

producer of innovative custom-engineered  

components, products, and specialty packaging.

Using foams, plastics, composites, and natural fiber materials, we design 

and manufacture a vast range of solutions primarily for the medical, 

automotive, aerospace and defense, and packaging markets. Our team 

acts as an extension of customers’ in-house research, engineering, and 

manufacturing groups, working closely with them to solve their most 

complex product and packaging challenges. For our customers, 

innovation takes many shapes. But each solution is shaped by the 

design, materials, and process expertise that sets our company apart. 

Learn more about us at www.ufpt.com.

Contents

  2  CEO’s Letter

  8  Selected Financial Data

  10  Management’s Discussion  
and Analysis of Financial  
Condition and Results  
of Operations

  16  Financial Statements

 36  Stockholder Information

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In 2012, we increased net 
income by 5.3% – our third 
straight year of record results. 

Molded Fiber sales grew more 
than 20% for the second year in 
a row, while sales in the medical 
market increased 9%.

Dear Fellow Shareholder,

I am pleased to report that 

2012 was another strong year 

for UFP Technologies – our 

third consecutive year of 

record results, achieved despite 

some significant challenges. 

Looking ahead, I see many 

exciting opportunities for 

our company, and we’ll be 

accelerating our growth 

initiatives over the coming 

year. In this letter, I will describe the many encouraging 

developments that position our company well for both  

short-term and long-term success. 

50 years of shaping innovation 

First, I’d like to highlight an important milestone. It’s been  

50 years since our company, then known as United 

Packaging Corporation, began creating protective packaging 

solutions for a handful of electronics customers. Since then, 

we’ve grown in ways our founders never anticipated. It’s 

been a half-century of continuous innovation, in which we’ve 

pioneered a long list of processes and applications, secured a 

large portfolio of patents, expanded into many new markets, 

and created enduring partnerships with many customers  

and suppliers. 

In the process, we’ve gained a strong reputation for 

engineering excellence and for continually increasing the 

value we bring to our customers, who now number in 

the thousands. We’ve also built a solid financial platform, 

which has enabled us to acquire many of our competitors 

and consolidate our position of industry leadership. It’s 

a wonderful legacy to build on, and we’re working hard 

to do exactly that. In this 50th anniversary year, I hope all 

shareholders and employees take a moment to look back 

with pride on the many accomplishments of the dedicated 

UFP Technologies team – both past and present – while 

looking forward to even greater things to come. 

 
 
 
 
Another great year for Molded Fiber 

As I review our 2012 results, several accomplishments 

stand out. One is the continued dramatic growth of our 

molded fiber business. After a 25% sales increase in 2011, 

sales grew another 21% in 2012. Clearly, our eco-friendly 

packaging solutions made from recycled newsprint and 

water have captured customers’ attention like never before. 

With our proprietary manufacturing process and talented 

design engineers, we develop creative solutions that offer 

a unique combination of performance, cost-effectiveness, 

and environmental responsibility. And our innovative designs 

continue to expand market opportunities for these solutions. 

For example, we now can protect much heavier items than 

we could in the past, such as a 20-pound computer tower for 

one of our key customers. 

In short, molded fiber has become a great business for 

us, and we took some key steps in 2012 to extend our 

many advantages. To meet rising demand and improve 

manufacturing efficiency, we installed two new cutting-edge 

production lines in our Iowa facility. We expect this increased 

capacity will help us continue our strong sales growth in 

the coming years. We’re also thinking beyond our patented 

manufacturing process. One of the new lines uses a faster 

process, which allows us to compete aggressively for the less 

fragile, more straightforward and cost-sensitive applications 

many customers are asking for today.  

It’s an excellent example of how we’re building market share 

by expanding our product offering and broadening the 

addressable market for our solutions. Whether a customer 

needs a precision-engineered application for maximum 

protection, a visually striking retail package, or a relatively 

simple and cost-effective packaging insert, we can provide 

the ideal molded fiber solution. 

Medical market sales shine again 

Turning to specific market segments, our medical business 

continues to be an exciting market opportunity. We enjoyed 

healthy growth again in 2012, with sales up 9% for the 

year. This is very much by design. Not long ago, medical 

sales were a relatively small part of our overall mix. But we 

saw a strong fit between our skills and the market needs, 

and tremendous opportunity for growth. So we made the 

To meet increasing demand for 
our eco-friendly packaging, we 
installed two new state-of-the-art 
molded fiber production lines in 
our Iowa plant.

To expand our medical 
manufacturing capabilities, 
we opened new clean rooms 
in Texas and Illinois.

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To boost our already robust 
medical capabilities and 
increase our value to customers, 
we acquired Packaging 
Alternatives Corporation, a 
respected converter of technical 
polyurethane foam products.

We continued to add 
certifications at plants across 
the country; seven facilities 
now have ISO 13485:2003 
registration for manufacturing 
sensitive medical components. 

strategic decision to target medical and biotech customers 

very aggressively. We realized our materials expertise, 

engineering capabilities, and quality systems could add 

tremendous value in this industry. We also knew our financial 

strength allowed us to apply resources to this market that 

many potential competitors simply could not. We believed 

those high barriers to entry would help us grow market share 

quickly and lock in long-term customer relationships.  

Time has proven us right. Medical/biotech is now our  

largest market segment, and in 2012 we added new clean 

rooms in Illinois and Texas to increase production capacity. 

Today, our component solutions run the gamut from 

orthopedic implants and temperature control systems to 

wound care and infection prevention products. And our 

packaging solutions protect a broad range of sensitive 

devices, from endoscopes to implants. 

Over the past decade, we’ve continually improved our 

medical capabilities and added to our plant certifications. 

For example, we now have seven plants with ISO 13485:2003 

certification, which is required for the production of many 

medical components. We’ve also acquired several companies 

that expanded our product lines and contributed to earnings 

right away. In late 2012, we added another one: Packaging 

Alternatives Corporation of Costa Mesa, California, a 

specialty converter of technical polyurethane foam products 

principally for the medical market. In addition, we’ve 

expanded the list of branded products we offer in this space, 

which I will discuss in a moment. 

Challenges in the automotive and  
military markets

We generally delivered strong results in our other target 

markets as well. Automotive sales were slowed somewhat 

by the continued phase-out of the largest contract in our 

history, our long-running door panel program for certain 

Mercedes Benz vehicles. This lowered revenue by about $5 

million for the year. But there’s good news to report here. 

To utilize some of the capacity on equipment freed up from 

that program, we launched a similar program for Cadillac 

vehicles. Overall, with our ability to produce a broad range 

of precision components throughout the vehicle, we believe 

we are well positioned to take advantage of the continued 

revival of the American automotive industry. 

 
 
 
 
 
We expect that, after several excellent years, sales in the 

aerospace and defense market will decline in 2013 due 

to reduced military spending. However, we also expect 

that our strong pipeline of opportunities in other target 

markets – medical, automotive, electronics, industrial, and 

consumer – will more than compensate. This shows, yet 

again, why market diversity is such an important asset for 

UFP. In a constantly changing economy, we’ve often seen 

how growth in some markets can offset downturns in others. 

For example, when automotive sales plummeted during the 

worst of the recession, rising military sales helped to keep 

the company growing. Now, those roles will likely reverse. 

This diversity, and ability to quickly shift resources to where 

demand is highest, will continue to be central to our overall 

growth strategy.  

Here are some other recent developments across the 

company that make us bullish about our future. 

Improving Efficiencies. Our bottom line (net income) growth 
rate continues to outpace our rate of top line (sales) growth. 

This shows how our efforts to improve margins and overall 

efficiency are paying off. Last year, I told you about our 

goal to become more efficient by operating fewer, larger 

plants. In 2012, we took another step in this direction. We 

consolidated our Ventura, California, foam business into our 

nearby Rancho Dominguez facility, and moved the Ventura 

plant’s beauty business to our plant in El Paso, Texas. We 

also completed Phase 2 of our ongoing Enterprise Resource 

Planning (ERP) program, which will help us centralize many 

functions, reduce operating costs, and manage our business 

more efficiently. These types of initiatives will continue to 

have a strong positive impact on our bottom line. 

Expanding our Portfolio of Branded Products. In recent 
years, we’ve introduced a wide array of branded products, 

mostly in the medical and consumer markets. Now, we’ve 

added two more. 

In the medical and biotech space, we launched the 

FlexShieldTM medical device pouch for screws, rods, plates, 

and other instruments. Its innovative design improves 

puncture and abrasion resistance, and allows customers  

to safely ship medical instruments from the time of  

assembly all the way through to the operating room. 

FlexShield joins other branded medical products like our 

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In the medical space, we 
launched the innovative 
FlexShieldTM pouch to protect 
delicate instruments from 
assembly all the way to the 
operating room.  

FlexShield joins other 
branded medical products 
like our BioShell® line 
of insulated container 
systems, which protect 
biopharmaceutical bags 
throughout the supply chain.

 
 
 
 
 
 
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Our contract manufacturing 
business continues to expand, as 
more customers recognize the 
many benefits of outsourcing 
production to us.  

We’ve begun working with 
a high-speed molded fiber 
production process that  
allows us to compete 
aggressively for less fragile, 
more cost-sensitive applications. 

6

BioShell® line of insulated container systems; our T-Tubes® 

insulation system for clean room process lines and 

equipment; and our Tri-Covers™ high purity foam caps, 

also for clean room environments. 

In the consumer market, we introduced the Erasables Presto 

Clean Eraser, a highly effective sponge stain remover for 

use in homes, cars, and boats. This exciting new product 

was developed through our close partnership with BASF; 

we are one of the few companies in North America with 

direct access to their Basotect (melamine foam) material 

and its unique stain-removing properties. From the Bottoms 

Up® wine packaging system to our Pro-SticksTM nail file 

system, our branded products are helping to expand market 

opportunities for UFP, and it’s a direction we will continue  

to pursue. 

Increasing Contract Manufacturing Opportunities. With 
our efficient factories, technical expertise, and national 

plant footprint, it’s no surprise that more customers are 

contracting with us to be a manufacturing partner. In these 

arrangements, we work with their designs and typically 

execute every step from production to packaging to 

shipping. This business has grown substantially in recent 

years, as more companies have chosen to focus their efforts 

on product design and marketing, and outsource production  

to us. We expect it will continue to grow at a healthy  

clip, as more customers come to rely on us as a key  

production resource. 

Creating More Focused Sales and Service Teams. Our 
talented and dedicated people are clearly our most 

important asset. To maximize their effectiveness, we’ve 

made some changes in how we organize our customer-

facing teams. First, we segmented our sales team into two 

groups. Our Select team will handle our smaller accounts 

in an efficient, centralized manner; our Premier team, an 

outside sales force, will focus on a shorter list of key strategic 

accounts. We believe this will help us better serve all our 

customers. We also are organizing our engineering and 

customer service staffs into market-focused teams that 

will have a deeper understanding of each specific market’s 

needs. We will continue to add new talent, strengthen 

customer service functions, and strive to deliver truly 

outstanding customer experiences every day. I sincerely 

thank all our people for their hard work and commitment  

to excellence.  

 
 
 
 
 
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
ASSUMES INITIAL INVESTMENT OF $100
DECEMBER 2012

For the last five years, return 
on UFP Technologies stock 
has outperformed our industry 
peers, and the average return 
of all U.S. NASDAQ-listed 
companies, by a wide margin.

UFP Technologies, Inc.

GICS 15103020 Paper Packaging

SIC Codes 3080-3089
Miscellaneous Plastic Products

NASDAQ Stock Market 
(US Companies)

250

200

150

100

50

250

100

50

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COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
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ASSUMES INITIAL INVESTMENT OF $100
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1
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2
DECEMBER 2012

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In closing, it’s important to note that our balance sheet 

200

remains very strong. We currently have about $32 million 

in the bank to fund strategic acquisitions, new equipment, 

150

and other initiatives that can help strengthen our platform 

and enhance our growth potential. I’d also like to highlight 

two financial graphics on this page that illustrate the quality 

of your investment in UFP. One shows the large and rapid 

increase in shareholder equity over the past several years, 

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from about $25 million in 2007 to about $73 million today. 

The other shows the five-year return on our shares, as 

compared to our peers in the paper and plastics industries 

and all U.S. NASDAQ-listed companies. As you can see, 

we have outperformed them all by substantial margins. As 

UFP Technologies, Inc.

we begin our next 50 years, we will work hard to continue 

GICS 15103020 Paper Packaging

growing our business and your investment. Thank you for 

SIC Codes 3080-3089 Miscellaneous 
Plastic Products

your continued support of UFP Technologies. 

NASDAQ Stock Market (US Companies)

Sincerely, 

R. Jeffrey Bailly
Chairman and CEO

REVENUE

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NET INCOME

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SHAREHOLDERS EQUITY

Shareholder equity has 
increased from about  
$25 million in 2007 to  
about $73 million today.

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SeleCTeD FINANCIAl DATA

The following table summarizes our financial data for the periods presented. You should read the following financial information 
together with the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and 
our financial statements and the notes to those financial statements appearing elsewhere in this document. The selected statements 
of operations data for the fiscal years ended December 31, 2012, 2011, and 2010, and the selected balance sheet data as of December 
31, 2012, and 2011, are derived from the audited financial statements, which are included elsewhere in this document. The selected 
statements of operations data for the years ended December 31, 2009, and 2008, and the balance sheet data at December 31, 2010, 
2009, and 2008, are derived from our audited financial statements not included in this document. 

selected consolidated financial data

years ended december 31  
(in thousands, except per share data)

consolidated statement of operations data1 

2012 

2011 

2010 

Net sales 

Gross profit 

Operating income  

Net income attributable to UFP Technologies, Inc. 

Diluted earnings per share 

Weighted average number of diluted shares outstanding 

$ 

130,962  

127,244  

120,766  

38,185  

16,666  

10,895  

1.55  

7,028  

36,245  

15,716  

10,346  

1.48  

6,999  

34,616  

14,392  

9,247  

1.37  

6,749  

2009 

99,231  

26,719  

8,192  

5,929  

0.94  

6,294  

as of december 31  
(in thousands)

consolidated balance sheet data 

2012 

2011 

2010  

$ 

51,263  

48,575  

 38,267  

2009 

27,702  

Working capital 

Total assets 

Short-term debt and capital lease obligations 

1,550  

Long-term debt and capital lease obligations, excluding current portion 

8,314  

Total liabilities 

Stockholders’ equity 

1  See Note 19 to the consolidated financial statements for segment information. 

2  Amount includes restructuring charges of $1.3 million.

98,617  

79,721  

69,478  

57,855  

581  

5,639  

17,736  

654  

6,847  

19,251  

623  

7,502  

18,849  

25,357  

73,261  

61,985  

50,226  

39,005  

2008

110,032

28,563 

8,4252

5,116

0.82

6,263

2008 

18,688

47,133

1,419

4,852

16,289

31,890

market price

From July 8, 1996, until April 18, 2001, the Company’s common stock was listed on the NASDAQ National Market under the symbol 
“UFPT.” Since April 19, 2001, the Company’s common stock has been listed on the NASDAQ Capital Market. The following table sets 
forth the range of high and low quotations for the common stock as reported by NASDAQ for the quarterly periods from January 1, 
2011, to December 31, 2012:

fiscal year ended december 31, 2011 

First Quarter 

Second Quarter 

Third Quarter 

Fourth Quarter 

fiscal year ended december 31, 2012 

First Quarter 

Second Quarter 

Third Quarter 

Fourth Quarter 

high 

$21.59 

19.64 

19.68 

15.90 

high 

$19.96 

19.62 

18.50 

18.25 

low

$12.19

14.86

14.20

12.65

low

$13.94

15.30

15.87

15.27

8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
number of stockholders

As of February 26, 2013, there were 83 holders of record of the Company’s common stock.

Due to the fact that many of the shares are held by brokers and other institutions on behalf of stockholders, the Company is unable to 
estimate the total number of individual stockholders represented by these holders of record.

dividends

The Company did not pay any dividends in 2011 or 2012. The Company presently intends to retain all of its earnings to provide funds  
for the operation of its business, although it would consider paying cash dividends in the future. Any decision to pay dividends will 
be at the discretion of the Company’s board of directors and will depend upon the Company’s operating results, strategic plans, 
capital requirements, financial condition, provisions of the Company’s borrowing arrangements and other factors the Company’s 
board of directors considers relevant.

stock plans

The Company maintains two active stock incentive plans to provide long-term rewards and incentives to the Company’s key 
employees, officers, employee directors, non-employee directors, and advisors. The 2009 Non-Employee Director Stock Incentive 
Plan provides for the issuance of up to 975,000 shares of the Company’s common stock to non-employee directors. 

The Company also maintains the 2003 Incentive Plan, which provides the Company with the ability to offer up to 2,250,000  
shares of equity-based incentives to present and future executives, and other employees who are in a position to contribute to  
the long-term success and growth of the Company. Additional details of these plans are discussed in Note 12 to the consolidated 
financial statements.

Each of these plans and their amendments has been approved by the Company’s stockholders.

Summary plan information as of December 31, 2012, is as follows:

number of securities 

remaining available  

for future issuance  

number of securities to 

weighted-average 

under equity 

be issued upon exercise 

exercise price of 

compensation plans 

of outstanding options, 

outstanding options, 

(excluding securities 

warrants, and rights

warrants, and rights

reflected in column (a))

1993 Employee Plan1 

220,000 

$ 

2.77 

—

2009 Non-Employee Director Stock 

Incentive Plan 

total option plans 

2003 Incentive Plan Options 

2003 Incentive Plan RSU 

total 2003 incentive plan 

total all stock plans 

1  The plan expired on April 12, 2010.

243,888  

463,888  

30,000  

108,866 

138,866 

602,754  

7.13 

$  5.06 

$ 

11.73 

— 

— 

— 

$ 

209,784

209,784 

— 

1,068,241

1,068,2412

1,278,025 

2  Represents the total of both Options and RSUs available in the 2003 Incentive Plan.

MANAgeMeNT’S DISCUSSION AND ANAlySIS OF FINANCIAl 
CONDITION AND ReSUlTS OF OPeRATIONS

overview 

UFP Technologies is producer of innovative custom-engineered components, products and specialty packaging. The Company 
serves a myriad of markets, but specifically targets opportunities in the medical, automotive, aerospace and defense and packaging 
markets. It also produces a variety of standard products that are, in some cases, patented or trademarked.

9

 
 
 
 
In 2012 the Company experienced organic sales growth of 2.9%, reflecting increased demand for products from the medical market 
as well as for molded fiber packaging. This growth was achieved despite the loss of approximately $5 million in sales from the phase-
out of a significant portion of an automotive program in the southeast, and was largely driven by 9% growth in sales to the medical 
market and a 21% increase in sales of molded fiber packaging product. Excluding this loss of sales, the Company achieved organic 
sales growth of 6.9%. The Company’s ability to leverage this sales growth to improve gross margins generated another year of record 
profitability; operating income and net income for the year ended December 31, 2012 increased 6.0% and 5.3%, respectively.

In 2013, sales in the Company’s automotive and military markets started slowly due to reduced military spending and temporary plant 
shutdowns by two automotive customers.

The Company’s strategy includes further organic growth and growth through strategic acquisitions.

results of operations

Sales in the Company’s Component Products segment increased 4.2% to $88.2 million in 2012 from $84.7 million in 2011. Operating 
income increased 4.2% to $13.6 million in 2012 from $13.0 million in 2011, reflecting profits on the sales growth partially offset by 
decreased operating income in the Company’s automotive market.

Sales in the Company’s Packaging segment increased slightly to $42.8 million in 2012 from $42.6 million in 2011. Operating income 
increased 14.9% to $3.1 million in 2012 from $2.7 million in 2011. The relatively flat sales reflect a 21% increase in molded fiber packaging 
product partially offset by a sales decline in foam packaging sales. The increase in operating income largely reflects the sales growth 
in molded fiber as this is a high fixed-cost business. Additional details regarding the Company’s segment results of operations are 
described in Note 19 to the Consolidated Financial Statements included in Item 8 of this Form 10-K.

Additional details regarding the Company’s segment results of operations are described in Note 19 to the consolidated financial 
statements included in Item 8 of this Form 10-K.

The following table sets forth, for the years indicated, the percentage of revenues represented by the items as shown in the 
Company’s consolidated statements of operations:

Net sales 

Cost of sales 

Gross profit 

Selling, general, and administrative expenses 

Gain on sale of fixed assets 

operating income 

Total other expenses (income), net 

income before taxes 

Income tax expense 

net income attributable to consolidated operations 

Net income attributable to non-controlling interests 

net income attributable to ufp technologies, inc. 

2012 compared to 2011

2012 

2011 

2010

100.0% 

100.0% 

100.0%

70.8% 

29.2% 

16.4% 

0.0% 

12.8% 

0.1% 

12.7% 

4.4% 

8.3% 

0.0% 

8.3% 

71.5% 

28.5% 

16.8% 

-0.6% 

12.3% 

0.0% 

12.3% 

3.9% 

8.4% 

0.3% 

8.1% 

71.3%

28.7%

16.8%

0.0%

11.9%

0.0%

11.9%

4.1%

7.8%

0.1%

7.7%

Net sales increased 2.9% to $131.0 million for the year ended December 31, 2012, from net sales of $127.2 million in 2011. The 
$3.8 million increase in sales was largely attributable to increased sales into the medical market of approximately $3.1 million 
(Component Products segment) as well as a $2.7 million increase in sales of molded fiber packaging reflecting increased demand 
for environmentally friendly packaging solutions (Component Products segment). These sales increases were partially offset by a $5 
million reduction in sales from the phase-out of a significant portion of an automotive program in the Southeast.

Gross profit as a percentage of sales (“Gross Margin”) increased to 29.2% for the year ended December 31, 2012, from 28.5% in 2011. 
The increase in gross margin is primarily attributable to an improved book of business relating to the sales increases in the medical 
market and of molded fiber packaging (as a percentage of sales, material, and direct labor collectively decreased by 0.9% in 2012). 

Selling, General, and Administrative Expenses (“SG&A”) increased slightly to $21.5 million for the year ended December 31, 2012, from 
$21.4 million in 2011. As a percentage of sales, SG&A decreased to 16.4% for the year ended December 31, 2012 from 16.8% for the 
same period in 2011.  The slight increase in SG&A for the year ended December 31, 2012, is primarily due to increased compensation 
programs of approximately $100,000 (higher plant bonuses across both the Component Products and Packaging segments due to 
improved performance) and increased office and equipment depreciation expense of approximately $100,000 (due to ERP and other 
infrastructure computer hardware across both the Component Products and Packaging segments), partially offset by a reduction 
of approximately $100,000 in professional and consulting fees (prior year initiatives across both the Component Products and 
Packaging segments).  The reduction in SG&A as a percentage of sales is primarily due to relatively flat SG&A expenses measured 
against higher sales. 

10

 
 
 
 
 
 
 
 
Interest expense net of interest income increased to approximately $90,000 for the year ended December 31, 2012, from net interest 
expense of approximately $27,000 in 2011. The increase in interest expense is primarily attributable to lower interest earned on excess 
cash balances, as well as increased debt associated with financing molded fiber equipment.

The gain on sale of assets of approximately $839,000 in 2011 was derived primarily from the sale of real estate in Alabama by United 
Development Company Limited (“UDT”). Of this $839,000 gain, approximately $428,000 relates to non-controlling interests that 
have been deducted to determine net income attributable to UFP Technologies, Inc., and $250,000 represents a one-time fee paid to 
the Company for managing the transaction. 

The Company recorded income tax expense as a percentage of income before income tax expense, excluding net income attributable 
to non-controlling interests, of 34.3% and 31.3% for the years ended December 31, 2012, and 2011, respectively. The increase in the 
effective tax rate for the year ended December 31, 2012, is primarily attributable to the reversal in 2011 of approximately $385,000 
in reserves previously established for uncertain tax benefits due to a favorable outcome on a concluded Federal Internal Revenue 
Service audit and the statute of limitations expiring on certain other federal income tax filings as well as increased deductions 
associated with domestic manufacturing. The non-controlling interest previously held in UDT was not subject to corporate income 
tax, which also caused the effective tax rate to be lower in 2011 than 2012. The Company has deferred tax assets on its books 
associated with net operating losses generated in previous years. The Company has considered both positive and negative available 
evidence in its determination that the deferred tax assets are more likely than not to be realized, and has not recorded a tax valuation 
allowance at December 31, 2012. The Company will continue to assess whether the deferred tax assets will be realizable and, when 
appropriate, will record a valuation allowance against these assets. The amount of the net deferred tax asset considered realizable, 
however, could be reduced in the near term, if estimates of future taxable income during the carry-forward period  
are reduced. 

2011 compared to 2010

Net sales increased 5.4% to $127.2 million for the year ended December 31, 2011, from net sales of $120.8 million in the same period 
of 2010. The $6.4 million increase in sales was largely attributable to increased sales into the aerospace and defense industries of 
approximately $3.1 million fueled by a new contract for the US Marines to supply backpack components (Component Products 
segment) as well as demand for interior trim parts from the automotive industry of approximately $1.8 million (Component  
Products segment). 

Gross Margin decreased slightly to 28.5% for the year ended December 31, 2011, from 28.7% in 2010. The slight decrease in 
gross margin is primarily attributable to costs of approximately $350,000 incurred as a result of the closure of the Company’s 
manufacturing facility in Alabama as well as approximately $300,000 incurred in additional health insurance claims (overhead) 
partially offset by manufacturing efficiencies achieved in the Company’s plants (as a percentage of sales material and direct labor 
collectively decreased by 0.2% in 2011). 

SG&A increased 5.6% to $21.4 million for the year ended December 31, 2011, from $20.2 million in 2010. As a percentage of sales, 
SG&A was 16.8% for both the years ended December 31, 2011, and 2010. The $1.2 million increase in SG&A for the year ended 
December 31, 2011, is primarily due to an increase in professional fees of approximately $400,000 associated with the development 
of enhanced internal operating and information systems and a re-branding and marketing project, approximately $400,000 in 
additional administrative salaries, wages and benefits and approximately $200,000 in additional health insurance claims.

Interest expense net of interest income decreased to approximately $27,000 for the year ended December 31, 2011, from net interest 
expense of approximately $116,000 in 2010. The decrease in interest expense is primarily attributable to higher interest earned on 
excess cash balances, as well as lower interest paid on declining term debt balances.

The gain on sale of assets of approximately $839,000 in 2011 was derived primarily from the sale of real estate in Alabama by UDT. Of 
this $839,000 gain, approximately $428,000 relates to non-controlling interests that have been deducted to determine net income 
attributable to UFP Technologies, Inc., and $250,000 represents a one-time fee paid to the Company for managing the transaction. 

The Company recorded income tax expense as a percentage of income before income tax expense excluding net income attributable 
to non-controlling interests, of 31.3% and 34.8% for the years ended December 31, 2011, and 2010, respectively. The decrease in the 
effective tax rate for the year ended December 31, 2011, is primarily attributable to the reversal in 2011 of approximately $385,000 
in reserves previously established for uncertain tax benefits due to a favorable outcome on a concluded Federal Internal Revenue 
Service audit and the statute of limitations expiring on certain other federal income tax filings as well as increased deductions 
associated with domestic manufacturing. The non-controlling interest previously held in UDT was not subject to corporate income 
tax. The Company has deferred tax assets on its books associated with net operating losses generated in previous years. The 
Company has considered both positive and negative available evidence in its determination that the deferred tax assets are more 
likely than not to be realized, and has not recorded a tax valuation allowance at December 31, 2011. The Company will continue to 
assess whether the deferred tax assets will be realizable and, when appropriate, will record a valuation allowance against these assets. 
The amount of the net deferred tax asset considered realizable, however, could be reduced in the near term, if estimates of future 
taxable income during the carry-forward period are reduced. 

liquidity and capital resources

The Company funds its operating expenses, capital requirements, and growth plan through internally-generated cash. 

11

 
 
As of December 31, 2012, and 2011, working capital was approximately $51.2 and $48.6 million, respectively. The increase in working 
capital is primarily attributable to an increase in cash of approximately $3.6 million due to cash generated from operations; increased 
receivables of approximately $2.2 million due to the purchase of Packaging Alternatives Corporation; and increased refundable 
income taxes of approximately $1 million due to overpayments of federal income taxes partially offset by an increase in accrued 
expenses of approximately $2.1 million due largely to the Packaging Alternatives Corporation purchase holdback, compensation, 
and other accruals, and an increase in current installments of long-term debt of approximately $1 million due to new financing on the 
acquisition of new molded fiber equipment. 

Net cash provided by operating activities was approximately $16.2 million and primarily consisted of net income of approximately 
$10.9 million, plus depreciation and amortization of approximately $2.9 million, share-based compensation of approximately 
$860,000, and an increase in accrued expenses of approximately $2.1 million. Net cash used in investing activities in 2012 was 
approximately $15.5 million and included approximately $12.0 million in additions to property, plant and equipment and approximately 
$3.6 million in cash used to acquire the net assets of Packaging Alternatives Corporation. Net cash provided by financing activities 
was approximately $3.0 million and consisted of proceeds from long-term borrowings of approximately $4.4 million, excess tax 
benefits related to share-based compensation of approximately $832,000, partially offset by cash used for distributions to United 
Development Company partners of approximately $1.2 million, and cash used for principal repayments of long-term debt of 
approximately $740.000.   

On January 29, 2009, the Company amended and extended its credit facility with Bank of America, NA. The facility is comprised of: 
(i) a revolving credit facility of $17 million; (ii) a term loan of $2.1 million with a seven-year straight-line amortization; (iii) a mortgage 
loan of $1.8 million with a 20 year straight-line amortization; and (iv) a mortgage loan of $4.0 million with a 20-year straight-line 
amortization. Extensions of credit under the revolving credit facility are based in part upon accounts receivable and inventory levels. 
Therefore, the entire $17 million may not be available to the Company. As of December 31, 2012, the Company had no borrowings 
outstanding and availability of approximately $16.9 million based upon collateral levels in place as of that date. The credit facility calls 
for interest of LIBOR plus a margin that ranges from 1.0% to 1.5% or, at the discretion of the Company, the bank’s prime rate less a 
margin that ranges from 0.25% to zero. In both cases the applicable margin is dependent upon Company performance. The loans are 
collateralized by a first priority lien on all of the Company’s assets, including its real estate located in Georgetown, Massachusetts, 
and in Grand Rapids, Michigan. Under the credit facility, the Company is subject to a minimum fixed-charge coverage financial 
covenant, which the Company was in compliance with as of December 31, 2012. The Company’s $17 million revolving credit facility 
matures November 30, 2013. The Company anticipates negotiating an extension of this facility. The Company cannot assure that 
such extension will be completed on favorable terms or on a timely basis, if at all. The term loans are all due on January 29, 2016. At 
December 31, 2012, the interest rate on these facilities was 1.2%, and there were no borrowings outstanding on the line of credit.

On October 11, 2012, the Company entered into a loan agreement to finance the purchase of two new molded fiber machines. One of 
the machines is presently operational. The value of the loan is approximately $5 million. The annual interest rate is fixed at 1.83%. As 
of December 31, 2012, approximately $4.4 million had been advanced on the loan and the outstanding balance is approximately $4.2 
million. The loan will be repaid over a five-year term. The loan is secured by the related molded fiber machines.

commitments, contractual obliGations, and off-balance-sheet arranGements

The following table summarizes the Company’s contractual obligations at December 31, 2012:

payment due by period

total 

less than 
1 year 

 1-3 
years 

 3-5 
years 

more than
5 years

Term Loans 

Equipment Loans 

Grand Rapids Mortgage 

Massachusetts Mortgage 

 1,492,183  

 4,225,241  

 3,233,333  

 969,530  

 200,000  

 92,300  

 1,993,826  

 $ 48,062  

 1,261,885  

 400,003  

 2,633,330  

 184,600  

 1,215,283  

$ 913,142  

 $ 288,360  

 $ 576,720  

Operating Leases 

7,039,407  

 2,016,705  

 2,958,204  

 2,064,498  

Debt interest 

Supplemental Retirement 

 700,721  

 245,833  

 202,183  

 75,000  

 306,759  

 70,833  

 191,779  

 50,000  

$ -

 -

 -

 -

 -

 -

 50,000

total 

$ 17,849,860  

 $ 3,844,078  

 $ 6,490,945  

 $ 7,464,837  

 $ 50,000

The Company requires cash to pay its operating expenses, purchase capital equipment, and to service the obligations listed above. 
The Company’s principal sources of funds are its operations and its revolving credit facility. Although the Company generated cash 
from operations in the year ended December 31, 2012, it cannot guarantee that its operations will generate cash in future periods. 
Subject to the Risk Factors set forth in Part I, Item 1A of this Report and the general disclaimers set forth in our Special Note 
Regarding Forward-Looking Statements at the outset of this Report, we believe that cash flow from operations will provide us with 
sufficient funds in order to fund our expected operations over the next twelve months.

The Company does not believe inflation has had a material impact on its results of operations in the last three years.

The Company had no off-balance-sheet arrangements in 2012, other than operating leases.

12

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
critical accountinG policies

The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the 
reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. On an 
ongoing basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, intangible 
assets, income taxes, warranty obligations, restructuring charges, contingencies, and litigation. The Company bases its estimates 
on historical experience and on various other assumptions believed to be reasonable under the circumstances, including current 
and anticipated worldwide economic conditions, both in general and specifically in relation to the packaging industry, the results of 
which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other 
sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements included in Item 8 of 
this Form 10-K. The Company believes the following critical accounting policies necessitated that significant judgments and estimates 
be used in the preparation of its consolidated financial statements. 

The Company has reviewed these policies with its Audit Committee.

•	 Revenue	Recognition	The Company recognizes revenue at the time of shipment when title and risk of loss have passed 
to the customer, persuasive evidence of an arrangement exists, performance of its obligation is complete, its price to the 
buyer is fixed or determinable, and the Company is reasonably assured of collection. If a loss is anticipated on any contract, 
a provision for the entire loss is made immediately. Determination of these criteria, in some cases, requires management’s 
judgment. Should changes in conditions cause management to determine that these criteria are not met for certain future 
transactions, revenue for any reporting period could be adversely affected. 

•	 Goodwill	Goodwill is tested for impairment annually, and will be tested for impairment between annual tests if an event 
occurs or circumstances change that would indicate that the carrying amount may be impaired. Impairment testing for 
goodwill is done at a reporting unit level. Reporting units are one level below the business segment level, but can be 
combined when reporting units within the same segment have similar economic characteristics. The Company’s reporting 
units include its Component Products segment, Packaging segment (excluding its Molded Fiber operation), and its Molded 
Fiber operation. An impairment loss generally would be recognized when the carrying amount of the reporting unit’s net 
assets exceeds the estimated fair value of the reporting unit. The Company assessed qualitative factors as of December 
31, 2012, and determined that it was more likely than not that the fair value of both reporting units with goodwill exceeded 
their respective carrying amounts. Factors considered for each reporting unit included financial performance, forecasts 
and trends, market cap, regulatory and environmental issues, foreign currency, market analysis, recent transactions, 
macro-economic conditions, industry and market considerations, raw material costs, management stability, and the degree 
by which the fair value of each reporting unit exceeded its carrying value in 2010 when the Company last performed Step 
1 of the goodwill impairment test, which requires a comparison of each reporting unit’s fair value to its carrying value 
(approximately $37 million or 161% and $7 million or 190% for the Component Products and Molded Fiber reporting units, 
respectively). As a result of this assessment, Step 1 of the goodwill impairment test was not performed in 2012. 

•	 Accounts	Receivable The Company periodically reviews the collectability of its accounts receivable. Provisions are 

recorded for accounts that are potentially uncollectible. Determining adequate reserves for accounts receivable requires 
management’s judgment. Conditions impacting the realizability of the Company’s receivables could cause actual asset 
write-offs to be materially different than the reserved balances as of December 31, 2012.

•	

Inventories Inventories include material, labor, and manufacturing overhead and are valued at the lower of cost or market. 
Cost is determined using the first-in, first-out (FIFO) method.

The Company periodically reviews the realizability of its inventory for potential obsolescence. Determining the net 
realizable value of inventory requires management’s judgment. Conditions impacting the realizability of the Company’s 
inventory could cause actual asset write-offs to be materially different than the Company’s current estimates as of 
December 31, 2012.

QUANTITATIve AND QUAlITATIve DISClOSUReS  
ABOUT MARkeT RISk 

The following discussion of the Company’s market risk includes “forward-looking statements” that involve risk and uncertainties. 
Actual results could differ materially from those projected in the forward-looking statements.

Market risk represents the risk of changes in value of a financial instrument caused by fluctuations in interest rates, foreign exchange 
rates, and equity prices. At December 31, 2012, the Company’s cash and cash equivalents consisted of bank accounts in U.S. dollars, 
and their valuation would not be affected by market risk. The Company has four debt instruments where interest is based upon either 
the Prime rate or LIBOR and, therefore, future operations could be affected by interest rate changes; however, the Company believes 
the market risk of the debt is minimal.

13

 
RePORT OF INDePeNDeNT RegISTeReD  
PUBlIC ACCOUNTINg FIRM

to the board of directors and stockholders 
of ufp technologies, inc.

We have audited the accompanying consolidated balance sheets of UFP Technologies, 
Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2012 
and 2011, and the related consolidated statements of operations, changes in stockholders’ 
equity, and cash flows for each of the three years in the period ended December 31, 2012. 
Our audits of the basic consolidated financial statements included the financial statement 
schedule listed in the index appearing under Item 15(a)(2). These financial statements 
and financial statement schedule are the responsibility of the Company’s management. 
Our responsibility is to express an opinion on these financial statements and financial 
statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company 
Accounting Oversight Board (United States). Those standards require that we plan and 
perform the audit to obtain reasonable assurance about whether the financial statements 
are free of material misstatement. An audit includes examining, on a test basis, evidence 
supporting the amounts and disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by management, 
as well as evaluating the overall financial statement presentation. We believe that our 
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in 
all material respects, the financial position of UFP Technologies, Inc. and subsidiaries as 
of December 31, 2012 and 2011, and the results of their operations and their cash flows 
for each of the three years in the period ended December 31, 2012 in conformity with 
accounting principles generally accepted in the United States of America. Also in our 
opinion, the related financial statement schedule, when considered in relation to the basic 
consolidated financial statements taken as a whole, presents fairly, in all material respects, 
the information set forth therein.

We also have audited, in accordance with the standards of the Public Company 
Accounting Oversight Board (United States), the Company’s internal control over 
financial reporting as of December 31, 2012, based on criteria established in Internal 
Control—Integrated Framework issued by the Committee of Sponsoring Organizations 
of the Treadway Commission (COSO), and our report dated March 15, 2013 expressed an 
unqualified opinion.

Grant thornton llp  

boston, ma 

march 15, 2013

14

RePORT OF INDePeNDeNT RegISTeReD  
PUBlIC ACCOUNTINg FIRM

to the board of directors and stockholders 
of ufp technologies, inc.

We have audited the internal control over financial reporting of UFP Technologies, Inc. (a 
Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2012, based 
on criteria established in Internal Control—Integrated Framework issued by the Committee 
of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s 
management is responsible for maintaining effective internal control over financial 
reporting and for its assessment of the effectiveness of internal control over financial 
reporting, included in the accompanying Management’s Report on Internal Control Over 
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal 
control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company 
Accounting Oversight Board (United States). Those standards require that we plan 
and perform the audit to obtain reasonable assurance about whether effective internal 
control over financial reporting was maintained in all material respects. Our audit included 
obtaining an understanding of internal control over financial reporting, assessing the 
risk that a material weakness exists, testing and evaluating the design and operating 
effectiveness of internal control based on the assessed risk, and performing such other 
procedures as we considered necessary in the circumstances. We believe that our audit 
provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide 
reasonable assurance regarding the reliability of financial reporting and the preparation 
of financial statements for external purposes in accordance with generally accepted 
accounting principles. A company’s internal control over financial reporting includes those 
policies and procedures that (1) pertain to the maintenance of records that, in reasonable 
detail, accurately and fairly reflect the transactions and dispositions of the assets of the 
company; (2) provide reasonable assurance that transactions are recorded as necessary 
to permit preparation of financial statements in accordance with generally accepted 
accounting principles, and that receipts and expenditures of the company are being made 
only in accordance with authorizations of management and directors of the company; and 
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized 
acquisition, use, or disposition of the company’s assets that could have a material effect on 
the financial statements.

Because of its inherent limitations, internal control over financial reporting may not  
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to 
future periods are subject to the risk that controls may become inadequate because of 
changes in conditions, or that the degree of compliance with the policies or procedures 
may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control 
over financial reporting as of December 31, 2012, based on criteria established in Internal 
Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company 
Accounting Oversight Board (United States), the consolidated financial statements of the 
Company as of and for the year ended December 31, 2012, and our report dated March 15, 
2013 expressed an unqualified opinion on those financial statements.

Grant thornton llp  

boston, ma 

march 15, 2013

15

CONSOlIDATeD BAlANCe SheeTS 

assets 

Current assets:

december 31

2012 

2011

Cash and cash equivalents (UDT: $0 and $278,475, respectively) 

$ 

33,479,519 

$ 

29,848,798

Receivables, net 

Inventories 

Prepaid expenses 

Refundable income taxes 

Deferred income taxes 

total current assets 

Property, plant, and equipment (UDT: $0 and $2,099,960, respectively)  

Less accumulated depreciation and amortization  
(UDT: $0 and ($1,448,928), respectively) 

Net property, plant, and equipment 

Goodwill   

Intangible assets, net 

Other assets 

total assets 

liabilities and stockholders’ equity 

Current liabilities: 

Accounts payable  

Accrued expenses  
(UDT: $0 and $14,400, respectively)  

Current installments of long-term debt  

total current liabilities 

Long-term debt, excluding current installments  

Deferred income taxes 

Retirement and other liabilities 

total liabilities 

Commitments and contingencies (Note 15) 

Stockholders’ equity: 

Preferred stock, $.01 par value. Authorized 1,000,000 shares;  
no shares issued or outstanding 

Common stock, $.01 par value. Authorized 20,000,000 shares; issued  
and outstanding 6,749,913 shares in 2012 and 6,554,746 in 2011 

Additional paid-in capital 

Retained earnings 

 17,835,902  

 9,695,060  

 653,916  

 1,713,687  

 1,115,959  

 64,494,043  

 59,569,202  

 (36,250,906) 

 23,318,296  

7,038,631  

 2,083,941  

 1,682,529  

15,618,717

9,758,623 

558,875

1,086,632

1,168,749  

58,040,394

47,635,907

(34,289,450)

13,346,457

6,481,037 

398,499 

1,454,867 

$   98,617,440  

$  79,721,254

$ 

 4,088,003  

$ 

3,344,480

 7,592,842  

 1,550,190  

 13,231,035  

 8,313,709  

 1,589,654  

 2,222,238  

5,540,163  

580,661

9,465,304

5,638,658 

1,292,378 

1,340,131 

 25,356,636  

17,736,471

— 

—

 67,499  

 19,238,934  

 53,954,371  

65,547 

18,185,912

43,059,074

61,310,533 

674,250

total ufp technologies, inc. stockholders’ equity 

 73,260,804     

Non-controlling interests 

— 

total stockholders’ equity 

 73,260,804  

61,984,783

total liabilities and stockholders’ equity 

$  $98,617,440  

$  79,721,254 

The accompanying notes are an integral part of these consolidated financial statements.

16

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CONSOlIDATeD STATeMeNTS OF OPeRATIONS 

years ended december 31

2012 

2011 

2010

$ 

130,961,804 

$ 

127,243,846 

$ 

120,766,450 

Net sales   

Cost of sales  

Gross profit 

Selling, general, and administrative expenses 

Gain on sales of property, plant, and equipment 

operating income 

Other (expenses) income: 

Interest expense, net 

Other, net 

Total other (expense) income 

income before income tax provision 

Income tax expense 

92,776,623 

38,185,181 

21,531,197 

(12,046) 

16,666,030 

(90,169) 

(2,058) 

(92,227) 

16,573,803 

5,678,506 

net income from consolidated operations 

10,895,297 

Net income attributable to non-controlling interests 

— 

90,999,327 

36,244,519 

21,366,913 

(838,592) 

15,716,198 

(26,874) 

— 

(26,874) 

15,689,324 

4,905,708 

10,783,616 

(437,446) 

86,150,720 

34,615,730

20,235,540

(12,000)

14,392,190

(115,537) 

150,000

34,463

14,426,653

5,019,136 

9,407,517 

(160,425)

net income attributable to ufp technologies, inc.  $ 

10,895,297 

$ 

10,346,170 

$ 

9,247,092

Net income per share:

Basic 

Diluted  

Weighted average common shares:

Basic 

Diluted  

$ 

$ 

1.63 

1.55 

$ 

$ 

1.60 

1.48 

$ 

$ 

 1.50 

1.37 

6,679,412 

7,028,469 

6,475,540 

6,999,300 

6,157,310 

6,749,062

The accompanying notes are an integral part of these consolidated financial statements.

17

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CONSOlIDATeD STATeMeNTS OF STOCkhOlDeRS’ eQUITy

Years Ended December 31, 2012, 2011, and 2010

common stock 

additional 
paid-in 

shares 

amount 

capital 

retained 

earnings 

non- 
controlling 

total 
stockholders’

interests 

equity

balance at december 31, 2009 

5,945,357 

$  59,454 

$  15,009,613   $  23,465,812 

$  470,562  

$  39,005,441

Stock issued in lieu of compensation 

 10,291  

103 

79,145 

Share-based compensation 

108,421 

1,084 

962,626 

Exercise of stock options net of 
shares presented for exercise 

274,760 

2,747 

504,309 

Net share settlement of restricted stock 
units and stock option tax withholding 

Excess tax benefits on  
share-based compensation 

Net income 

Distribution to non-controlling interests 

— 

— 

— 

— 

— 

— 

— 

— 

(485,511) 

854,015 

— 

— 

— 

— 

— 

— 

— 

—  

— 

— 

— 

— 

79,248

963,710

507,056

(485,511)

854,015

9,247,092 

160,425 

9,407,517

— 

(105,000) 

(105,000)

balance at december 31, 2010 

6,338,829 

$  63,388 

$  16,924,197   $  32,712,904 

$  525,987 

$  50,226,476

Stock issued in lieu of compensation 

2,735  

Share-based compensation 

69,324 

27 

693 

54,973 

1,087,979 

Exercise of stock options net 
of shares presented for exercise 

143,858 

1,439 

249,099 

Net share settlement of restricted stock      
unit and stock option tax withholding 

Excess tax benefits on  
share-based compensation 

Net income 

Distribution to non-controlling interests 

— 

— 

 — 

— 

— 

— 

— 

— 

(829,995) 

699,659 

— 

— 

— 

— 

— 

— 

— 

—  

— 

— 

— 

— 

55,000

1,088,672

250,538

(829,995)

699,659

10,346,170 

437,446 

10,783,616

— 

(289,183) 

(289,183)

balance at december 31, 2011 

6,554,746 

$  65,547 

$  18,185,912  $  43,059,074 

$  674,250 

$  61,984,783

Share-based compensation 

 62,153  

622  

859,783  

Exercise of stock options net 
of shares presented for exercise 

 133,014  

1,330  

363,911  

Net share settlement of restricted stock 
unit and stock option tax withholding 

Excess tax benefits on  
share-based compensation 

Net income 

Distribution to non-controlling interests  

Investment in United Development  
Company Limited (Note 7) 

— 

— 

— 

— 

— 

—  

(672,284) 

— 

— 

— 

— 

831,584  

—  

— 

(329,972) 

— 

— 

— 

— 

 10,895,297  

— 

— 

— 

— 

860,405 

365,241 

—  

(672,284)

— 

— 

831,584 

10,895,297 

(674,250) 

(674,250)

—  

 (329,972) 

balance at december 31, 2012 

 6,749,913   $  67,499  

$  19,238,934   $  53,954,371  

$ 

— 

$  73,260,804 

The accompanying notes are an integral part of these consolidated financial statements.

18

 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
 
 
  
 
 
  
  
 
 
  
 
 
 
  
 
 
  
 
 
 
  
 
 
  
 
 
 
 
 
  
 
 
 
  
 
  
 
 
 
 
 
 
 
 
CONSOlIDATeD STATeMeNTS OF CASh FlOWS

Cash flows from operating activities:

Net income 

$   10,895,297  

 $ 

10,783,616  

 $ 

9,407,517 

years ended december 31

2012 

2011 

2010

Adjustments to reconcile net income to net cash 

provided by operating activities:

Depreciation and amortization 

Gain on sales of property, plant, and equipment 

Share-based compensation 

Stock issued in lieu of compensation 

Deferred income taxes 

Excess tax benefits on share-based compensation 

Changes in operating assets and liabilities, net of effects 

from acquisition:

Receivables, net 

Inventories 

Prepaid expenses 

Refundable income taxes 

Accounts payable 

Accrued expenses 

Retirement and other liabilities 

Other assets 

 2,928,185  

 (12,046) 

 860,405  

—  

 610,066  

 (831,584) 

 (842,332) 

 800,977  

 (64,798) 

 (695,055) 

 383,440  

 2,143,005  

 190,107  

 (203,482) 

   2,781,002  

(838,592) 

 1,088,672  

55,000  

451,702  

(699,659) 

(985,342) 

(1,714,287) 

476,426  

327,394  

507,018  

(439,559) 

(12,398) 

(65,492) 

3,152,193 

(12,000)

963,710 

79,248  

305,830  

(854,015)

(415,370)

(396,819) 

(558,920)

   (1,414,026)

160,922 

1,380,570 

234,332 

(205,445)

net cash provided by operating activities 

   16,162,185  

   11,715,501  

   11,827,727 

Cash flows from investing activities: 

Additions to property, plant, and equipment 

Acquisition of PAC Foam net of cash acquired 

   (11,993,750) 

   (3,596,575) 

Proceeds from sale of property, plant, and equipment 

85,963  

   (3,740,891) 

  (3,285,530)

—  

 1,222,494  

—

12,000 

net cash used in investing activities 

  (15,504,362) 

  (2,518,397) 

  (3,273,530)

Cash flows from financing activities:

Distribution to United Development Company Partners 

  (non-controlling interest) 

Excess tax benefits on share-based compensation 

 (1,196,223) 

 831,584  

Proceeds from the exercise of stock options net of attestations   

 365,241  

Principal repayment of long-term debt 

 (739,903) 

Payment of statutory withholdings for stock options exercised

  and restricted stock units vested 

Proceeds from long-term borrowings 

 (672,284) 

 4,384,483  

(289,183) 

699,659  

250,538  

(1,281,959) 

(829,995) 

— 

(105,000) 

854,015 

507,056 

(623,552)

(485,511)

— 

net cash provided by (used in) financing activities 

   2,972,898  

  (1,450,940) 

 147,008 

Net change in cash and cash equivalents 

 3,630,721  

7,746,164  

 8,701,205 

Cash and cash equivalents at beginning of year 

  29,848,798  

   22,102,634  

   13,401,429 

cash and cash equivalents at end of year 

$  33,479,519  

 $ 29,848,798  

 $ 22,102,634 

The accompanying notes are an integral part of these consolidated financial statements.

19

 
 
 
 
   
 
 
 
  
 
 
 
  
  
 
 
  
 
  
 
 
 
  
  
 
 
 
 
  
  
 
 
 
  
  
 
 
 
 
 
  
  
 
 
 
  
  
 
 
 
  
 
 
 
 
  
 
 
 
  
  
 
 
 
  
 
 
 
 
  
  
 
 
 
  
  
 
 
 
 
 
 
 
  
 
  
 
 
 
 
  
  
 
 
  
  
 
  
  
 
 
  
  
 
 
 
  
  
 
 
 
  
 
 
 
  
 
 
 
NOTeS TO CONSOlIDATeD FINANCIAl STATeMeNTS

December 31, 2012, and 2011

(1)  summary of significant accounting policies

UFP Technologies, Inc. (“the Company”) is an innovative designer and custom converter of foams, plastics, and natural fiber 
products principally serving the medical, automotive, aerospace and defense, computer and electronics, consumer, and 
industrial markets. The Company was incorporated in the State of Delaware in 1993.

(a)  principles of consolidation

The consolidated financial statements include the accounts and results of operations of UFP Technologies, Inc., its 
wholly-owned subsidiaries, Moulded Fibre Technology, Inc., Simco Industries, Inc. and its wholly-owned subsidiary Simco 
Automotive Trim, Inc., and Stephenson & Lawyer, Inc. and its wholly-owned subsidiary, Patterson Properties Corporation. All 
significant intercompany balances and transactions have been eliminated in consolidation. 

(b)  use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the 
United States of America requires management to make estimates and assumptions that affect the reported amounts of 
assets and liabilities, including allowance for doubtful accounts and the net realizable value of inventory, and disclosure of 
contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues 
and expenses during the reporting period. Actual results could differ from those estimates.

(c)  fair value measurement

The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an 
orderly transaction between market participants at the measurement date. When determining the fair value measurements 
for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most 
advantageous market in which the Company would transact and the market-based risk measurement or assumptions that 
market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit risk.

The Company has not elected fair value accounting for any financial instruments for which fair value accounting is optional.

(d)  fair value of financial instruments

Cash and cash equivalents, accounts receivable, accounts payable, and accrued taxes and other expenses are stated at 
carrying amounts that approximate fair value because of the short maturity of those instruments. The carrying amount of 
the Company’s long-term debt approximates fair value as the interest rate on the debt approximates the Company’s current 
incremental borrowing rate.

(e)  cash and cash equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. 
At December 31, 2012, and 2011, cash equivalents primarily consisted of money market accounts and certificates of deposit 
that are readily convertible into cash. 

The Company maintains its cash in bank deposit accounts, money market funds, and certificates of deposit that at times 
exceed federally insured limits. The Company periodically reviews the financial stability of institutions holding its accounts, 
and does not believe it is exposed to any significant custodial credit risk on cash. The Company’s main operating account 
with Bank of America exceeds federal depository insurance limit by approximately $28.7 million.

(f)  accounts receivable

The Company periodically reviews the collectability of its accounts receivable. Provisions are recorded for accounts that 
are potentially uncollectible. Determining adequate reserves for accounts receivable requires management’s judgment. 
Conditions impacting the realizability of the Company’s receivables could cause actual asset write-offs to be materially 
different than the reserved balances as of December 31, 2012.

(g)  inventories

Inventories include material, labor, and manufacturing overhead and are valued at the lower of cost or market. Cost is 
determined using the first-in, first-out (FIFO) method.

The Company periodically reviews the realizability of its inventory for potential obsolescence. Determining the net realizable 
value of inventory requires management’s judgment. Conditions impacting the realizability of the Company’s inventory 
could cause actual asset write-offs to be materially different than the Company’s current estimates as of December 31, 2012.

20

 
 
 
 
 
 
 
(h)  property, plant, and equipment

Property, plant, and equipment are stated at cost and are depreciated or amortized using the straight-line method over the 
estimated useful lives of the assets or the related lease term, if shorter. Certain manufacturing machines that are dedicated 
to a specific program – where total units to be produced over the life of the program are estimable – are depreciated using 
the modified units of production method for financial statement purposes. 

Estimated useful lives of property, plant, and equipment are as follows:

Leasehold improvements 
Buildings and improvements 
Equipment 
Furniture and fixtures 

Shorter of estimated useful life or remaining lease term 
31.5 years 
7-10 years 
3-7 years

Property, plant, and equipment amounts are reviewed for impairment whenever events or changes in circumstances 
indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the 
carrying amount of an asset exceeds the estimated undiscounted future cash flows expected to result from the use of the 
asset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess of the 
asset’s carrying value over its fair value. 

(i)  Goodwill

Goodwill is tested for impairment annually, and will be tested for impairment between annual tests if an event occurs or 
circumstances change that would indicate that the carrying amount may be impaired. Impairment testing for goodwill is 
done at a reporting unit level. Reporting units are one level below the business segment level, but can be combined when 
reporting units within the same segment have similar economic characteristics. The Company’s reporting units include 
its Component Products segment, Packaging segment (excluding its Molded Fiber operation), and its Molded Fiber 
operation. An impairment loss generally would be recognized when the carrying amount of the reporting unit’s net assets 
exceeds the estimated fair value of the reporting unit. The Company assessed qualitative factors as of December 31, 2012, 
and determined that it was more likely than not that the fair value of both reporting units with goodwill exceeded their 
respective carrying amounts. Factors considered for each reporting unit included financial performance, forecasts and 
trends, market cap, regulatory and environmental issues, foreign currency, market analysis, recent transactions, macro-
economic conditions, industry and market considerations, raw material costs, management stability, and the degree by 
which the fair value of each reporting unit exceeded its carrying value in 2010 when the Company last performed Step 
1 of the goodwill impairment test, which requires a comparison of each reporting unit’s fair value to its carrying value 
(approximately $37 million or 161% and $7 million or 190% for the Component Products and Molded Fiber reporting units, 
respectively). As a result of this assessment, Step 1 of the goodwill impairment test was not performed in 2012.

(j) 

intangible assets
Intangible assets with an indefinite life are not amortized. Intangible assets with a definite life are amortized on a straight-
line basis, with estimated useful lives ranging from 5 to 14 years. Indefinite-lived intangible assets are tested for impairment 
annually, and are tested for impairment between annual tests if an event occurs or circumstances change that would 
indicate that the carrying amount may be impaired. Intangible assets with a definite life are tested for impairment whenever 
events or circumstances indicate that their carrying values may not be recoverable. 

(k)  revenue recognition

The Company recognizes revenue at the time of shipment when title and risk of loss have passed to the customer, 
persuasive evidence of an arrangement exists, performance of its obligation is complete, its price to the buyer is fixed or 
determinable, and the Company is reasonably assured of collection. If a loss is anticipated on any contract, a provision for 
the entire loss is made immediately. Determination of these criteria, in some cases, requires management’s judgment. 

(l)  share-based compensation

When accounting for equity instruments exchanged for employee services, share-based compensation cost is measured 
at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s 
requisite service period (generally the vesting period of the equity grant). 

Share-based compensation cost that has been charged against income for stock compensation plans is as follows:

Selling, general, and administrative expenses 

$ 

860,405  

$ 

1,088,672  

$ 

963,710 

year ended december 31

2012 

2011 

2010

21

 
 
 
 
 
 
 
 
 
 
 
The compensation expense for stock options granted during the three-year period ended December 31, 2012, was 
determined as the intrinsic fair market value of the options using the Black Scholes valuation model. In prior years, the 
Company’s used a lattice-based option valuation model. The assumptions are noted as follows:

Expected volatility 

Expected dividends 

Risk-free interest rate 

Exercise price 

2012 

2011 

2010

year ended december 31

56.90% 

54.8% to 73.3% 

65.8% to 83.4%

None 

0.39% 

None 

None

0.9% to 2.9% 

2.0% to 3.2%

Closing price on  

date of grant 

Closing price on 

Closing price on 

date of grant 

date of grant

Expected term 

5 years 

4.6 to 7.7 years 

(output in lattice- 

based model) 

4.1 to 7.9 years  

(output in lattice 

 -based model)

The stock volatility for each grant is determined based on a review of the experience of the weighted average of historical 
daily price changes of the Company’s common stock over the expected option term, and the risk-free interest rate is based 
on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.

The weighted average grant date fair value of options granted during 2012, 2011, and 2010, was $7.72, $5.75, and  
$3.89, respectively.

The total income tax benefit recognized in the statement of operations for share-based compensation arrangements was 
approximately $270,000, $359,000, and $316,600, for the years ended December 31, 2012, 2011, and 2010, respectively.

(m)  deferred rent

The Company accounts for escalating rental payments on a straight-line basis over the term of the lease.

(n)  shipping and handling costs

Costs incurred related to shipping and handling are included in cost of sales. Amounts charged to customers pertaining to 
these costs are included in net sales.

(o)  research and development

On a routine basis, the Company incurs costs related to research and development activity. These costs are expensed as  
incurred. Approximately $1.3 million, $1.2 million, and $0.9 million, were expensed in the years ended December 31, 2012, 
2011, and 2010, respectively.

(p)  income taxes

The Company’s income taxes are accounted for under the asset and liability method. Under the asset and liability method, 
deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences 
between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and 
operating loss and tax credit carryforwards. Deferred tax expense (benefit) results from the net change during the year in 
deferred tax assets and liabilities. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in 
income in the period that includes the enactment date. 

The Company evaluates the need for a valuation allowance to reduce its deferred tax assets to the amount that is more 
likely than not to be realized. The Company has considered future taxable income and ongoing prudent and feasible tax 
planning strategies in assessing the need for a valuation allowance. Should the Company determine that it would not be 
able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets would be charged 
to income in the period such determination was made.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position 
will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits 
recognized in the consolidated financial statements from such positions are then measured based on the largest benefit 
that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes interest and penalties 
accrued related to unrecognized tax benefits in tax expense.

22

 
 
 
 
 
 
 
 
 
 
 
(q)  segments and related information

The Company follows the provisions of ASC 280, Segment Reporting, which establish standards for the way public business 
enterprises report information and operating segments in annual financial statements (see Note 19).

(2)  supplemental cash flow information

Cash paid for interest and income taxes is as follows:

year ended december 31

2012 

2011 

2010

Interest 
Income taxes, net of refunds 

$ 
57,669 
$  4,960,408 

$ 
126,999 
$  3,793,454 

$ 
127,378 
$  5,522,702

During the years ended December 31, 2012, 2011, and 2010, the Company permitted the exercise of stock options with exercise 
proceeds paid with the Company’s stock (“cashless” exercises) totaling $140,467, $93,879, and $343,750, respectively.

The purchase of substantially all of the assets of Packaging Alternatives Corporation in 2012 included consideration in the form 
of a holdback of $600,000 and a long-term note valued at $692,000.

(3)  receivables and net sales

Receivables consist of the following:

Accounts receivable—trade 
Less allowance for doubtful receivables 

$ 

 18,330,793  
 (494,891) 

2012 

december 31

2011

$ 

15,997,576  
(378,859) 

$ 

17,835,902  

$ 

15,618,717 

Receivables are written off against these reserves in the period they are determined to be uncollectible, and payments 
subsequently received on previously written-off receivables are recorded as a reversal of the bad debt provision. The Company 
performs credit evaluations on its customers and obtains credit insurance on a large percentage of its accounts, but does not 
generally require collateral. The Company recorded a provision for doubtful accounts of $112,917 and $55,209 for the years 
ended December 31, 2012, and 2011, respectively.

Sales to the top customer in the Company’s Component Products segment comprised 5.7% of that segment’s total sales  
and 3.8% of the Company’s total sales for the year ended December 31, 2012. Sales to the top customer in the Company’s 
Packaging segment comprised 8.8% of that segment’s total sales and 2.9% of the Company’s total sales for the year ended 
December 31, 2012.

(4)  inventories

Inventories consist of the following:

Raw materials 
Work in process 
Finished goods 

2012 

$  6,260,354  
675,228  
2,759,478  

december 31

 $ 

2011

5,425,773  
1,513,794  
2,819,056

$  9,695,060  

  $9,758,623

(5)  other intangible assets

The carrying values of the Company’s definite-lived intangible assets as of December 31, 2012, and 2011, are as follows: 

Estimated useful life 
Gross amount at December 31, 2012 
Accumulated amortization at December 31, 2012 

net balance at december 31, 2012 

Gross amount at December 31, 2011 
Accumulated amortization at December 31, 2011 

$ 

$ 

$ 

patents 

non-compete 

customer list 

total

14 years 
 428,806  
 (428,806) 

$ 

5 years 
512,000 
(156,500) 

5 years

$ 2,306,436  
(577,995) 

$  3,247,242 
(1,163,301)

—  

$  355,500  

$ 1,728,441  

$ 2,083,941

 428,806  
 (425,052) 

$  200,000  
(126,500) 

$  769,436  
(448,191) 

$  1,398,242 
(999,743)

net balance at december 31, 2011 

$ 

3,754  

$ 

73,500  

$  321,245  

$  398,499

23

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization expense related to intangible assets was $163,558, $195,330, and $223,908 for the years ended December 31, 

2012, 2011, and 2010, respectively. Future amortization for the years ending December 31 will be approximately:

2013 

2014 

2015 

2016 

2017 

total 

$  529,604

444,937

369,800

369,800

369,800

$ 2,083,941 

(6)  property, plant, and equipment

Property, plant, and equipment consist of the following:

december 31 

2012 

Land and improvements 
Buildings and improvements 
Leasehold improvements 
Equipment 
Furniture, computer equipment and software 
Construction in progress–equipment 

$ 

839,906  
8,772,943  
3,857,155  
  39,045,723  
 4,202,679  
2,850,796  

$ 

2011

839,906  
6,959,641  
3,071,096  
32,612,522  
2,540,055  
1,612,687

Depreciation and amortization expense for the years ended December 31, 2012, 2011, and 2010, was $2,764,627, 
$2,585,672, and $2,928,285, respectively.

$  59,569,202  

$  47,635,907

(7)  investment in and advances to affiliated partnership

In prior periods the Company had a 26.32% ownership interest in a realty limited partnership, United Development Company 
Limited (“UDT”). The Company had consolidated the financial statements of UDT for prior periods because it determined 
that UDT was a Variable Interest Entity (“VIE”) of which the Company was the primary beneficiary. On February 29, 2012, the 
Company purchased the manufacturing building that it leased from UDT for $1,350,000. Since this transaction took place among 
commonly controlled companies, the building was recorded by the Company at UDT’s carrying value. Subsequently, UDT was 
dissolved and its assets were distributed. Thus, in effect, the Company has acquired the remaining 73.68% ownership interest 
in UDT, eliminating the VIE. The non-controlling interests’ portion of the excess of the amount paid for the building over UDT’s 
carrying value, totaling $329,972, which is net of the tax effect of the difference in the Company’s book basis versus tax basis 
in the acquired building attributable to the non-controlling interest, has been recorded in stockholders’ equity as a reduction to 
additional paid-in capital. The transaction did not impact the consolidated results of operations.

Included in the consolidated balance sheet as of December 31, 2011, are the following amounts related to UDT:

december 31 

2012 

2011

Cash 
Net property, plant, and equipment 
Accrued expenses 
Current and long-term debt 

$ 

— 
— 
— 
— 

$ 

 $278,475  
 651,032  
 14,400  
— 

(8)  indebtedness

On January 29, 2009, the Company amended and extended its credit facility with Bank of America, NA. The facility is comprised 
of: (i) a revolving credit facility of $17 million; (ii) a term loan of $2.1 million with a seven-year straight-line amortization; (iii) a 
mortgage loan of $1.8 million with a 20 year straight-line amortization; and (iv) a mortgage loan of $4.0 million with a 20-year 
straight-line amortization. Extensions of credit under the revolving credit facility are based in part upon accounts receivable 
and inventory levels. Therefore, the entire $17 million may not be available to the Company. As of December 31, 2012, the 
Company had no borrowings outstanding and availability of approximately $16.9 million based upon collateral levels in place as 
of that date. The credit facility calls for interest of LIBOR plus a margin that ranges from 1.0% to 1.5% or, at the discretion of the 
Company, the bank’s prime rate less a margin that ranges from 0.25% to zero. In both cases the applicable margin is dependent 
upon Company performance. The loans are collateralized by a first priority lien on all of the Company’s assets, including its real 
estate located in Georgetown, Massachusetts, and in Grand Rapids, Michigan. Under the credit facility, the Company is subject to 
a minimum fixed-charge coverage financial covenant, which the Company was in compliance with as of December 31, 2012. The 
Company’s $17 million revolving credit facility matures November 30, 2013. The Company anticipates negotiating an extension 

24

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
of this facility. The Company cannot assure that such an extension will be completed on favorable terms or on a timely basis, if at 
all. The term loans are all due on January 29, 2016. At December 31, 2012, the interest rate on these facilities was 1.2%, and there 
were no borrowings outstanding on the line of credit.

On October 11, 2012, the Company entered into a loan agreement to finance the purchase of two new molded fiber machines. 
One of the machines is presently operational. The value of the loan is approximately $5 million. The annual interest rate is  
fixed at 1.83%. As of December 31, 2012, approximately $4.4 million had been advanced on the loan and the outstanding  
balance is approximately $4.2 million. The loan will be repaid over a five-year term. The loan is secured by the related molded 
fiber machines.

Long-term debt consists of the following:

Mortgage notes 

Note payable 

Equipment loan 

total long-term debt 

Current Installments 

december 31 

2012 

2011

$ 

4,725,516 

 $ 

5,017,817 

913,142 

4,225,241 

  9,863,899 

(1,550,190) 

1,201,502 

—

6,219,319 

(580,661) 

long-term debt, excluding current installments  $ 

8,313,709 

$ 

5,638,658

Aggregate maturities of long-term debt are as follows:

Year ending December 31:  
2013 
2014 
2015 
2016 
2017 

(9)  accrued expenses

Accrued expenses consist of the following:

Compensation 
Benefits/self-insurance reserve 
Paid time off 
Commissions payable 
Unrecognized tax benefits (See Note 10) 
PAC Foam purchase hold-back 
Other 

$ 

1,550,190 
1,568,334 
1,586,815 
4,921,605 
236,955

$  $9,863,899

$ 

2012 

2,890,040 
626,020 
869,020 
355,212 
290,000 
600,000 
1,962,550 

december 31 

$ 

2011

2,221,730 
621,931 
841,357 
393,028 
320,000 
— 
1,142,117

(10) income taxes

The Company’s income tax provision (benefit) for the years ended December 31, 2012, 2011, and 2010, consists of the following:

$ 

7,592,842 

$ 

5,540,163

Current:

Federal 
State 

Deferred:

Federal 
State 

years ended december 31

2012 

2011 

2010

$ 

4,301,000 
768,000 

$ 

3,752,000 
702,000 

$ 

4,259,000 
454,000

  5,069,000 

  4,454,000 

4,713,000

699,000 
(89,000) 

610,000 

396,000 
56,000 

452,000 

191,000 
115,000

306,000

total income tax provision 

$  $5,679,000 

$  4,906,000 

$ 

5,019,000

25

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2012, the Company had net operating loss carryforwards for federal income tax purposes of approximately $1.3 
million, which are available to offset future taxable income and expire during the federal tax years ending December 31, 2019, 
through 2024. The future benefit of the federal net operating loss carryforwards will be limited to approximately $300,000 per 
year in accordance with Section 382 of the Internal Revenue Code. 

The approximate tax effects of temporary differences that give rise to significant portions of the deferred tax assets and 
liabilities are as follows:

Current deferred tax assets:

Reserves 
Inventory capitalization 
Compensation programs 
Retirement liability 
Equity-based compensation 

december 31 

2012 

2011

$ 

383,000 
205,000 
245,000 
55,000 
228,000 

$ 

377,000 
230,000 
262,000 
72,000 
228,000

total current deferred tax assets: 

$ 

1,116,000 

  $1,169,000

Long-term deferred tax assets/(liabilities):

Excess of book over tax basis of fixed assets  $  (1,688,000) 
(751,000) 
Goodwill 
(69,000) 
Intangible assets 

$  (1,421,000) 
(691,000) 
(146,000)

total long-term deferred tax liabilities 

$ (2,508,000) 

$ (2,258,000)

Net operating loss carryforwards 
Deferred rent 
Compensation programs 

$  443,000 
67,000 
  408,000 

total long-term deferred tax assets 
net long-term deferred tax liabilities 

918,000  
$ (1,590,000) 

$ 

544,000 
64,000 
358,000 

966,000 
$  (1,292,000)

The amounts recorded as deferred tax assets as of December 31, 2012, and 2011, represent the amount of tax benefits of existing 
deductible temporary differences or carryforwards that are more likely than not to be realized through the generation of 
sufficient future taxable income within the carryforward period. The Company has total deferred tax assets of $2,034,000 at 
December 31, 2012, that it believes are more likely than not to be realized in the carryforward period. Management reviews the 
recoverability of deferred tax assets during each reporting period.

The actual tax provision for the years presented differs from the “expected” tax provision for those years, computed by applying 
the U.S. federal corporate rate of 34% to income before income tax expense as follows:

Computed “expected” tax rate 

Increase (decrease) in income taxes resulting from:
State taxes, net of federal tax benefit 
Meals and entertainment 
R&D credits 
Domestic production deduction 
Non-deductible ISO stock option expense 
Unrecognized tax benefits 
Income of non-controlling interests 
Other 

years ended december 31

2012 

34.0% 

2.7 
0.1 
(0.1) 
(2.5) 
0.1 
(0.2) 
- 
0.2 

2011 

34.0% 

3.4 
0.1 
(0.4) 
(2.8) 
0.1 
(2.4) 
(1.0) 
0.3 

2010 

34.0% 

2.0  
0.1 
(0.3) 
(1.8) 
0.1 
1.0 
(0.4) 
0.1

effective tax rate 

34.3% 

31.3% 

34.8% 

26

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company has not been 
audited by any state for income taxes with the exception of returns filed in Michigan which have been audited through 2004, and 
income tax returns filed in Massachusetts for 2005 and 2006, and Florida for 2007, 2008, and 2009 (which are currently being 
audited). The Company’s federal tax return for 2008 has been audited. Federal and state tax returns for the years 2009 through 
2011 remain open to examination by the IRS and various state jurisdictions.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (“UTB”) resulting from uncertain tax 
positions is as follows:

federal and state tax

2012 

2011

Gross UTB balance at beginning of fiscal year 
Increases for tax positions of prior years 
Reductions for tax positions of prior years 

$ 

320,000 
 — 
(30,000) 

 $  685,000 
40,000 
  (405,000)

Gross utb balance at december 31 

$ 

290,000 

$  320,000

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of December 31, 2012, 
and 2011, are $290,000 and $320,000, respectively, for each year.

At December 31, 2012, and 2011, there was no accrued interest or penalties on uncertain tax positions.

At December 31, 2012, approximately $265,000 of the unrecognized tax benefits relate to tax returns of a specific state 
jurisdiction that are currently under examination. Accordingly, the Company expects a reduction of this amount during 2013, 
since the Company expects to resolve this examination in 2013.

(11)  net income per share

Basic income per share is based upon the weighted average common shares outstanding during each year. Diluted income 
per share is based upon the weighted average of common shares and dilutive common stock equivalent shares outstanding 
during each year. The weighted average number of shares used to compute both basic and diluted income per share consisted  
of the following:

Basic weighted average common shares 
outstanding during the year 

Weighted average common equivalent  
shares due to stock options and 
restricted stock units 

diluted weighted average common  
shares outstanding during the year 

years ended december 31

2012 

2011 

2010

6,679,412  

6,475,540  

6,157,310

349,057  

523,760  

591,752

7,028,469  

6,999,300  

6,749,062 

The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock 
options, when the average market price of the common stock is lower than the exercise price of the related options during the 
period. These outstanding stock awards are not included in the computation of diluted earnings per share because the effect 
would have been antidilutive. For the years ended December 31, 2012, 2011, and 2010, the number of stock awards excluded from 
the computation was 17,770, 23,205, and 101,769, respectively. 

(12) stock option and equity incentive plans

employee stock option plan 
The Company’s 1993 Employee Stock Option Plan (“Employee Stock Option Plan”), which is stockholder approved, provides 
long-term rewards and incentives in the form of stock options to the Company’s key employees, officers, employee directors, 
consultants, and advisors. The plan provides for either non-qualified stock options or incentive stock options for the issuance of 

27

 
 
 
 
 
 
 
 
 
 
up to 1,550,000 shares of common stock. The exercise price of the incentive stock options may not be less than the fair market 
value of the common stock on the date of grant, and the exercise price for non-qualified stock options shall be determined by 
the Compensation Committee. These options expire over 5- to 10-year periods. 

Options granted under the plan generally become exercisable with respect to 25% of the total number of shares subject to such 
options at the end of each 12-month period following the grant of the options, except for options granted to officers, which may 
vest on a different schedule. At December 31, 2012, there were 220,000 options outstanding under the Employee Stock Option 
Plan. The plan expired on April 12, 2010.

incentive plan 
In June 2003, the Company formally adopted the 2003 Incentive Plan (the “Plan”). The Plan was originally intended to benefit 
the Company by offering equity-based incentives to certain of the Company’s executives and employees, thereby giving them 
a permanent stake in the growth and long-term success of the Company and encouraging the continuance of their involvement 
with the Company’s businesses. The Plan was amended effective June 4, 2008, to permit certain performance-based cash 
awards to be made under the Plan. The Plan was further amended on June 8, 2011, to increase the maximum number of shares 
of common stock in the aggregate to be issued to 2,250,000. The amendment also added appropriate language so as to 
enable grants of stock-based awards under the Plan to continue to be eligible for exclusion from the $1,000,000 limitation on 
deductibility under Section 162(m) of the Internal Revenue Code (the “Code”). 

Two types of equity awards may be granted to participants under the Plan: restricted shares or other stock awards. Restricted 
shares are shares of common stock awarded subject to restrictions and to possible forfeiture upon the occurrence of specified 
events. Other stock awards are awards that are denominated or payable in, valued in whole or in part by reference to, or 
otherwise based on or related to, shares of common stock. Such awards may include Restricted Stock Unit Awards (“RSUs”), 
unrestricted or restricted stock, incentive and non-qualified stock options, performance shares, or stock appreciation rights. The 
Company determines the form, terms, and conditions, if any, of any awards made under the Plan. 

Through December 31, 2012, 1,024,143 shares of common stock have been issued under the 2003 Incentive Plan, none of which 
have been restricted. An additional 108,866 shares are being reserved for outstanding grants of RSUs and other share-based 
compensation that are subject to various performance and time-vesting contingencies. The Company has also granted awards 
in the form of stock options under this Plan. Through December 31, 2012, 60,000 options have been granted and 30,000 options 
are outstanding. At December 31, 2012, 1,068,241 shares or options are available for future issuance in the 2003 Incentive Plan.

director plan 
Effective July 15, 1998, the Company adopted the 1998 Director Plan. The Plan was amended and renamed, on June 3, 2009,  
the 2009 Non-Employee Director Stock Incentive Plan. The Plan, as amended, provides for the issuance of stock options and 
other equity-based securities up to 975,000 shares. At December 31, 2012, there were 243,888 options outstanding, and 3,682 
shares of common stock were issued in the year ended December 31, 2012, 209,784 shares remained available to be issued  
under the Plan. 

The following is a summary of stock option activity under all plans:

shares 

weighted average 

aggregate 

under options 

exercise price 

intrinsic value

outstanding december 31, 2011 

Granted 

Exercised 

Cancelled or expired 

638,521 
7,770 

(141,153) 

(11,250) 

$  4.98 
16.32 

 3.58 

9.09 

— 
— 

— 

—

outstanding december 31, 2012 

493,888 

$ 

5.47 

$  6,149,167

exercisable at december 31, 2012 

461,388 

$ 

5.10 

$  5,913,492

vested and expected to vest at  

december 31, 2012 

493,888 

$ 

5.47 

$  6,149,167

During the years ended December 31, 2012, 2011, and 2010, the total intrinsic value of all options exercised (i.e., the difference 
between the market price and the price paid by the employees to exercise the options) was $2,039,642, $2,204,962, and 
$2,711,864, respectively, and the total amount of consideration received from the exercise of these options was $505,708, 
$344,417, and $850,806, respectively. At its discretion, the Company allows option holders to surrender previously owned 
common stock in lieu of paying the exercise price and withholding taxes. During the year ended December 31, 2012, 22,161 
shares were surrendered at a market price of $18.01. During the years ended December 31, 2011, and 2010, 20,492 shares were 
surrendered at a market price of $17.64 and 62,202 shares were surrendered at a market price of $10.42, respectively.

During the years ended December 31, 2012, 2011, and 2010, the Company recognized compensation expense related to stock 
options granted to directors and employees of $132,774, $141,499, and $213,716, respectively.

28

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
On February 17, 2012, the Company’s Compensation Committee approved an award of $300,000 payable in shares of the 
Company’s common stock to the Company’s Chairman, Chief Executive Officer, and President under the 2003 Equity Incentive 
Plan. The shares were issued on December 27, 2012. The Company has recorded compensation expense of $300,000 for 
the year ended December 31, 2012. Stock compensation expense of $423,250 and $192,500 were recorded in 2011 and 2010, 
respectively, for similar awards. 

On June 14, 2012, the Company issued 3,672 shares of unrestricted common stock to the non-employee members of the 
Company’s Board of Directors as part of their annual retainer for serving on the Board. Based upon the closing price of $16.32 on 
June 14, 2012, the Company recorded compensation expense of $60,000 associated with the stock issuance for the year ended 
December 31, 2012. The Company recorded compensation expense of $60,000 in 2011 for a similar award.

It has been the Company’s practice to allow executive officers to take a portion of their earned bonuses in the form of the 
Company’s common stock. The value of the stock received by executive officers, measured at the closing price of the stock on 
the date of grant, was $0, $55,000, and $79,248, respectively, for the years ended December 31, 2012, 2011, and 2010.

The Company grants RSUs to its executive officers. The stock unit awards are subject to various time-based vesting 
requirements, and certain portions of these awards are subject to performance criteria of the Company. Compensation expense 
on these awards is recorded based on the fair value of the award at the date of grant, which is equal to the Company’s closing 
stock price, and is charged to expense ratably during the service period. No compensation expense is taken on awards that do 
not become vested, and the amount of compensation expense recorded is adjusted based on management’s determination 
of the probability that these awards will become vested. The following table summarizes information about stock unit award 
activity during the year ended December 31, 2012:

restricted stock units 

award date fair value

weighted average  

outstanding at december 31, 2011 

Awarded 

Shares distributed 

Forfeited/Cancelled 

outstanding at december 31, 2012 

176,209 

13,553 

(80,896) 

— 

108,866 

$ 

6.98  
15.62  

5.96  

—

$ 

8.77

The Company recorded $367,631, $463,923, and $557,494, in compensation expense related to these RSUs during the years 
ended December 31, 2012, 2011, and 2010, respectively. 

At the Company’s discretion, RSU holders are given the option to net-share settle to cover the required minimum withholding 
tax, and the remaining amount is converted into the equivalent number of common shares. During the year ended December 31, 
2012, 25,684 shares were redeemed for this purpose at a market price of $16.10. During the years ended December 31, 2011, and 
2010, 30,920, and 19,579 shares were redeemed for this purpose at a market price of $18.19 and $9.25, respectively.

The following summarizes the future share-based compensation expense the Company will record as the equity securities 
granted through December 31, 2012, vest:

options 

common stock 

$ 

70,080 

43,892 

12,962 

— 

— 

— 

— 

— 

restricted  

stock units 

$ 

272,225 

129,380 

61,466 

6,818 

total

$ 

342,305 

173,272 

74,428 

6,818

$ 

 126,934  

$ 

— 

$ 

469,889  

$ 

596,823

2013 

2014 

2015 

2016 

total 

Tax benefits totaling $831,584, $699,659, and $854,015, were recognized as additional paid-in capital during the years ended 
December 31, 2012, 2011, and 2010, respectively, since the Company’s tax deductions exceeded the share-based compensation 
charge recognized for stock options exercised and RSUs vested. 

(13) preferred stock

On March 18, 2009, the Company declared a dividend of one preferred share purchase right (a “Right”) for each outstanding 
share of common stock, par value $0.01 per share on March 20, 2009, to the stockholders of record on that date. Each Right 
entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating 
Preferred Stock, par value $0.01 per share (the “Preferred Share”), of the Company, at a price of $25.00 per one one-
thousandth of a Preferred Share subject to adjustment and the terms of the Rights Agreement. The rights expire on March 
19, 2019.

29

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(14) supplemental retirement benefits

The Company provides discretionary supplemental retirement benefits for certain retired officers, which will provide an annual 
benefit to these individuals for various terms following separation from employment. The Company recorded an expense 
of approximately $32,000, $6,000, and $30,000 for the years ended December 31, 2012, 2011, and 2010, respectively. The 
present value of the supplemental retirement obligation has been calculated using an 8.5% discount rate, and is included in 
retirement and other liabilities. Total projected future cash payments for the years ending December 31, 2013 through 2017, are 
approximately $75,000, $45,833, $25,000, $25,000, and $25,000, respectively, and approximately $50,000 thereafter.

(15) commitments and contingencies

(a)  Leases – The Company has operating leases for certain facilities that expire through 2018. Certain of the leases contain 

escalation clauses that require payments of additional rent, as well as increases in related operating costs. 

Future minimum lease payments under non-cancelable operating leases as of December 31, 2012, are as follows:

years ending december 31 

operating leases

2013 

2014 

2015 

2016 

2017 and thereafter 

$ 

2,016,705 

1,758,358 

1,199,846 

1,188,238 

876,260 

total minimum lease payments 

$  $7,039,407

Rent expense amounted to approximately $2,354,000, $2,305,000, and $2,616,000 in 2012, 2011, and  
2010, respectively. 

(b)  Legal – The Company is a defendant in various administrative proceedings that are being handled in the ordinary 
course of business. In the opinion of management of the Company, these suits and claims should not result in final 
judgments or settlements that, in the aggregate, would have a material adverse effect on the Company’s financial 
condition or results of operations. 

(16) employee benefits plans

The Company maintains a profit sharing plan for eligible employees. Contributions to the Plan are made in the form of 
matching contributions to employee 401k deferrals, as well as discretionary amounts determined by the Board of Directors, 
and amounted to approximately $727,000, $715,000, and $785,000 in 2012, 2011, and 2010, respectively.

The Company has a partially self-insured health insurance program that covers all eligible participating employees. The 
maximum liability is limited by a stop loss of $150,000 per insured person, along with an aggregate stop loss determined by 
the number of participants.

The Company has an Executive, Non-qualified “Excess” Plan (“the Plan”), which is a deferred compensation plan available 
to certain executives. The Plan permits participants to defer receipt of part of their current compensation to a later date as 
part of their personal retirement or financial planning. Participants have an unsecured contractual commitment from the 
Company to pay amounts due under the Plan. There is currently no security mechanism to ensure that the Company will pay 
these obligations in the future.

The compensation withheld from Plan participants, together with gains or losses determined by the participants deferral 
elections is reflected as a deferred compensation obligation to participants, and is classified within retirement and other 
liabilities in the accompanying balance sheets. At December 31, 2012, and 2011, the balance of the deferred compensation 
liability totaled approximately $1.4 million and $1.1 million, respectively. The related assets, which are held in the form of a 
Company-owned, variable life insurance policy that names the Company as the beneficiary, are reported within other assets 
in the accompanying balance sheets, and are accounted for based on the underlying cash surrender values of the policies, 

and totaled approximately $1.4 million and $1.1 million as of December 31, 2012, and 2011, respectively.

30

 
 
 
 
 
 
 
(17) fair value of financial instruments

Financial instruments recorded at fair value in the balance sheets, or disclosed at fair value in the footnotes, are categorized 
based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels defined by 
ASC 820, Fair Value Measurements and Disclosures, and directly related to the amount of subjectivity associated with inputs 
to fair valuation of these assets and liabilities, are as follows: 

level 1 – Valued based on unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement 
date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient 
frequency and volume to provide pricing information on an ongoing basis.  

level 2 – Valued based on either directly or indirectly observable prices for the asset or liability through correlation with 
market data at the measurement date and for the duration of the instrument’s anticipated life. 

level 3 – Valued based on management’s best estimate of what market participants would use in pricing the asset or 
liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent 
in the inputs to the model. 

The Company has no assets and liabilities that are measured at fair value on a recurring basis.

(18) acquisitions

On December 31, 2012, the Company acquired substantially all of the assets of Packaging Alternatives Corporation (“PAC”), 
a Costa Mesa, California-based foam fabricator, for $5.7 million. PAC specialized in the fabrication of technical urethane 
foams primarily for the medical industry. This acquisition brings to the Company further access and expertise in fabricating 
technical urethane foams, a more significant presence on the west coast and a seasoned management team. The Company 
has leased the former PAC facility for a period of two years. 

The following table summarizes the consideration paid and the acquisition date fair value of the assets acquired and 
liabilities assumed relating to each transaction:

pac 

december 31, 2012

Consideration

Cash 

Purchase holdback 

Contingent note payable, at present value 

$   4,400,000 

600,000 

 692,000

fair value of total consideration transferred 

$  5,692,000

acquisition costs (professional fees)  

included in sG&a 

$ 

57,000

Recognized amounts of identifiable assets acquired: 

Cash 

Accounts receivable 

Inventory 

Other assets 

Fixed assets 

Non-compete 

Customer list 

Goodwill 

total identifiable net assets 

Accounts payable 

Accrued Expenses 

$ 

803,425 

1,374,853 

737,414 

54,422 

816,633 

312,000 

1,537,000 

557,594

6,193,341 

(312,207) 

(189,134)

net assets acquired 

$   5,692,000

With respect to the acquisition of selected assets of PAC, the Company acquired gross accounts receivable of $1,404,853, 
of which it deemed $30,000 to be uncollectible. It therefore recorded the accounts receivable at its fair market value of 
$1,374,853. With respect to the non-compete and customer list intangible assets acquired from PAC, the weighted average 
amortization period is five years. No residual balance is anticipated for any of the intangible assets.

31

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consideration for the net assets acquired includes a note payable to the Sellers in the amount of $800,000. The note is 
to be paid two years from the acquisition date, contingent upon the Company’s ability to retain PAC’s largest customer 
through this date. The note has been discounted to reflect imputed interest at 2% and a probability of payment of 90%.

The goodwill recorded of $533,000 will be reflected as goodwill in the Company’s Component Products segment. This 
amount approximates the amount of goodwill the Company expects to deduct for tax purposes. The goodwill reflects the 
excess of consideration to be paid over the fair value of the net assets acquired, and represents the value of the workforce 
as well as synergies expected to be realized.

The following table contains an unaudited pro forma condensed consolidated statement of operations for the years ended 
December 31, 2012, and 2011, as if the PAC acquisition had occurred at the beginning of 2011:

years ended december 31

2012 
(Unaudited) 

2011 
  (Unaudited)

$   141,273,675  

$  137,616,612 

 11,558,968  

 10,947,772  

$ 

 1.73  

 1.64  

$ 

1.69 

1.56

Sales 

Net Income 

Earnings per share: 
  Basic 

  Diluted 

The above unaudited pro forma information is presented for illustrative purposes only and may not be indicative of the 
results of operations that would have actually occurred had the PAC acquisition occurred as presented. In addition, future 

results may vary significantly from the results reflected in such pro forma information.

(19) segment data

The Company is organized based on the nature of the products and services that it offers. Under this structure, the 
Company produces products and our chief operating decision maker analyzes the Company within two distinct segments: 
Component Products and Packaging. Within the Packaging segment, the Company primarily uses polyethylene and 
polyurethane foams, sheet plastics, and pulp fiber to provide customers with cushion packaging for their products. Within 
the Component Products segment, the Company primarily uses cross-linked polyethylene foam to provide customers in the 
automotive, athletic, leisure, and health and beauty industries with engineered products for numerous purposes.

The accounting policies of the segments are the same as those described in Note 1. Income taxes and interest expense have 
been allocated based on operating results for each segment.

Inter-segment transactions are uncommon and not material. Therefore, they have not been separately reflected in the 
financial table below. The totals of the reportable segments’ revenues, net profits, and assets agree with the Company’s 
consolidated amounts contained in the audited financial statements. Revenues from customers outside of the United States 
are not material. 

Sales to the top customer in the Company’s Component Products segment comprises 5.7% of that segment’s total sales 
and 3.8% of the Company’s total sales for the year ended December 31, 2012. Sales to the top customer in the Company’s 
Packaging segment comprise 8.8% of that segment’s total sales and 2.9% of the Company’s total sales for the year ended 
December 31, 2012.

The results for the Packaging segment include the operations of United Development Company Limited for the years ended 
2011 and 2010.

The Company presents cash and cash equivalents as unallocated assets. 

32

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial statement information by reportable segment is as follows:

2012 

Sales 

Operating income 

Total assets 

Depreciation/Amortization 

Capital expenditures 

Interest expense, net 

Goodwill 

2011 

Sales 

Operating income 

Total assets 

Depreciation/Amortization 

Capital expenditures 

Interest expense, net 

Goodwill 

2010 

Sales 

Operating income 

Total assets 

Depreciation/Amortization 

Capital expenditures 

Interest expense, net 

Goodwill 

component products 

  packaging 

unallocated assets 

total

$  88,170,690 

$  $42,791,114 

 $ 

13,585,639 

3,080,391 

  — 

— 

$  130,961,804 

16,666,030 

34,502,008 

  30,635,913 

33,479,519 

  98,617,440 

1,347,945 

2,511,108 

(40,476) 

5,020,840 

1,580,240 

9,482,642 

(49,693) 

2,017,791 

 — 

— 

— 

— 

2,928,185 

11,993,750 

(90,169) 

7,038,631 

component products 

  packaging 

unallocated assets 

total

$  84,652,237 

$  42,591,609 

 $ 

13,036,101 

27,169,529 

1,544,377 

1,029,046 

(14,640) 

4,463,246 

2,680,097 

  22,702,927 

1,236,625 

2,711,845 

(12,234) 

2,017,791 

  — 

— 

29,848,798 

 — 

— 

— 

— 

$  127,243,846 

15,716,198 

79,721,254 

2,781,002 

3,740,891 

(26,874) 

6,481,037 

component products 

  packaging 

unallocated assets 

total

$  80,373,062 

$ 40,393,388 

 $ 

11,104,306 

3,287,884 

  — 

— 

$ 120,766,450 

14,392,190 

26,579,654 

  20,795,613 

22,102,634 

  69,477,901 

1,802,085 

1,814,874 

(61,668) 

4,463,246 

1,350,108 

1,470,656 

(53,869) 

2,017,791 

 — 

— 

— 

— 

3,152,193 

3,285,530 

(115,537) 

6,481,037

(20)building sale

 On January 13, 2011, United Development Company Limited (“UDT”) sold its Alabama facility (Packaging segment) for 
$1,250,000. The net book value of the asset at December 31, 2010, was approximately $384,000. Selling expenses of 
approximately $38,000 were incurred.

(21) quarterly financial information (unaudited)

year ended december 31, 2012 

q1 

q2 

q3 

q4

Net sales 

Gross profit   

Net income attributable 

to UFP Technologies, Inc. 

Basic net income per share 

Diluted net income per share 

year ended december 31, 2011 

Net sales 

Gross profit   

Net income attributable 

to UFP Technologies, Inc. 

Basic net income per share 

Diluted net income per share 

$  31,952,223 

$  33,672,605 

$  31,966,826 

$  33,370,150  

9,201,362 

9,690,555 

9,225,882 

10,067,382  

2,348,734 

2,747,066 

2,596,273 

3,203,224  

0.36 

0.33 

q1 

0.41 

0.39 

q2 

0.39 

0.37 

q3 

0.48  

0.45 

q4

$  31,503,588  

$  33,500,994 

$ 

 30,761,959  

$   31,477,305  

8,801,548 

10,003,484 

 8,484,298  

 8,955,189  

2,204,883 

2,701,792 

 2,435,188  

 3,004,307  

0.34 

0.32 

0.42 

0.39 

 0.37  

 0.35  

 0.46  

 0.43 

33

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(22) plant consolidation

On September 18, 2012, the Company committed to move forward with a plan to close its Ventura (California) facility 
and consolidate operations into its Rancho Dominguez (California) and El Paso (Texas) facilities. The Company incurred 
restructuring charges of approximately $400,000 in one-time, pre-tax expenses, all of which was paid in the  
fourth quarter of 2012, and committed to invest approximately $150,000 in building improvements.

34

special note regarding forward-looking statements
Some of the statements contained in this report are forward-looking statements within the meaning of Section 27A of the Securities 
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include, but are not limited to, 
statements about the Company’s prospects, anticipated advantages the Company expects to realize from its acquisition strategies, 
including reduced costs, the Company’s participation and growth in multiple markets, the Company’s business opportunities, the 
Company’s growth potential and strategies for growth, anticipated advantages the company expects to realize from its investments 
and capital expenditures, and any indication that the Company may be able to sustain or increase its sales and earnings, or its sales 
and earnings growth rates. Investors are cautioned that such forward-looking statements involve risks and uncertainties, including 
economic conditions that affect sales of the products of the Company’s customers, the ability of the Company to identify suitable 
acquisition candidates and successfully, efficiently execute acquisition transactions and integrate such acquisition candidates, actions 
by the Company’s competitors and the ability of the Company to respond to such actions, the ability of the Company to obtain new 
customers, the ability of the Company to fulfill its obligations on long-term contracts and to retain current customers, the public’s 
perception of environmental issues related to the Company’s business, the Company’s ability to adapt to changing market needs, 
the implementation of new production equipment in a timely, cost-effective manner and other factors. Accordingly, actual results 
may differ materially from those projected in the forward-looking statements as a result of changes in general economic conditions, 
interest rates, and the assumptions used in making such forward-looking statements. Readers are referred to the documents filed 
by the Company with the SEC, specifically the last reports on Forms 10-K and 10-Q. The forward-looking statements contained 
herein speak only of the Company’s expectations as of the date of this report. The Company expressly disclaims any obligation or 
undertaking to release publicly any updates or revisions to any such statement to reflect any change in the Company’s expectations 
or any change in events, conditions, or circumstances on which any such statement is based.

35

 
 
 
 
 
 
 
 
 
 
 
 
 
 
STOCkhOlDeR INFORMATION

transfer aGent and reGistrar
American Stock Transfer 

corporate headquarters
UFP Technologies, Inc. 

board of directors  

and eXecutive officers

and Trust Company 

172 East Main Street 

6201 15th Avenue, 3rd Floor 

Georgetown, MA 01833 USA 

R. Jeffrey Bailly 

do

Brooklyn, NY 11219

(978) 352-2200 phone 

(978) 352-5616 fax

annual meetinG
The annual meeting of stockholders 

will be held at 10:00 a.m., on June 12, 

plant locations
California, Colorado, Florida, Georgia, 

2013, at the Black Swan Country Club, 

Illinois, Iowa, Massachusetts, Michigan, 

258 Andover Street, Georgetown, MA 

New Jersey, Texas.

01833, USA.

independent reGistered public 

common stock listinG
UFP Technologies’ common stock  

accountants
Grant Thornton LLP 

is traded on NASDAQ under the 
symbol UFPT.

125 High Street, 21st Floor 
Boston, MA 02110

stockholder services
Stockholders whose shares are held in 

corporate counsels
Lynch Brewer Hoffman & Fink, LLP 

street names often experience delays 

75 Federal Street, 7th Floor 

in receiving company communications 

Boston, MA 02110

Chairman, CEO and President

Kenneth L. Gestal 

President & Managing Partner 

Decision Capital, LLC

David B. Gould 

President 

Westfield, Inc.

Marc Kozin 

Senior Advisor  

L.E.K. Consulting

Ronald J. Lataille 

Vice President, Treasurer,  

Secretary and  

Chief Financial Officer

Richard S. LeSavoy  

Vice President 

Manufacturing

Thomas Oberdorf 

Chief Financial Officer 

SIRVA, Inc

d

d

d

o

o

d

d

o

o

d

Brown Rudnick LLP 

1 Financial Center 

Boston, MA 02111

about this report
The objective of this report is to 

provide existing and prospective 

shareholders a tool to understand 

Robert W. Pierce, Jr. 

our financial results, what we do as a 

Chairman, CEO, 

company, and where we are headed. 

and Co-Owner 

We aim to achieve these goals with 

Pierce Aluminum Co.

clarity, simplicity, and efficiency.  

We welcome your comments and 

Mitchell C. Rock 

suggestions.

world wide web
In the interest of providing timely,  

cost-effective information to 

shareholders, press releases, SEC 

filings, and other investor-oriented 

Vice President 

Sales and Marketing

Daniel J. Shaw, Jr. 

Vice President 

Engineering

matters are available on the Company’s 

David K. Stevenson 

website at www.ufpt.com/investors/

filings.html.

Director, Trustee,  

and Consultant

d  directors 

o  officers

forwarded through brokerage firms or 

financial institutions.  Any shareholder 

or other interested party who wishes to 

receive information directly should call 

or write the Company.  Please specify 

regular or electronic mail:

UFP Technologies, Inc. 

Attn.: Shareholder Services 

172 East Main Street 

Georgetown, MA 01833 USA

phone: (978) 352-2200 

e-mail: investorinfo@ufpt.com 

web: www.ufpt.com

form 10-k report
A copy of the Annual Report on 

Form 10-K for the fiscal year ended 

December 31, 2012, as filed with the 

Securities and Exchange Commission, 

may be obtained without charge by 

writing to the Company, or on the 

Company’s website at www.ufpt.com/

investors/filings.html.

36

operating principles 

Customers
We believe the primary purpose of our company is to serve our customers.  
We seek to “wow” our customers with responsiveness and great products.

ethiCs
We will conduct our business at all times and in all places with absolute  
integrity with regard to employees, customers, suppliers, community,  
and the environment.

employees
We are dedicated to providing a positive, challenging, rewarding work  
environment for all of our employees.

Quality
We are dedicated to continuously improving our quality of service, quality  
of communications, quality of relationships, and quality of commitments.

simplifiCation
We seek to simplify our business process through the constant re-examination  
of our methods and elimination of all non-value-added activities.

entrepreneurship
We strive to create an environment that encourages autonomous  
decision-making and a sense of ownership at all levels of the company.

profit
Although profit is not the sole reason for our existence, it is the lifeblood  
that allows us to exist.

172 East Main Street  
Georgetown, MA 01833

800 372 3172
ufpt.com