2 0 1 7 A N N U A L R E P O R T
ADVANCING
OUR STRATEGY
INCREASING
OUR VALUE
2017
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, electronics,
consumer and industrial markets. Our team acts as an extension
of our customers’ in-house research, engineering, and
manufacturing groups, working closely with them to solve their
most complex product and packaging challenges.
Learn more about us at www.ufpt.com.
CONTENTS
2
8
9
CEO’s Letter
Selected Financial Data
Management’s Discussion and
Analysis of Financial Condition
and Results of Operations
18
Financial Statements
36
Stockholder Information
1
Dear Fellow Shareholder,
2017 was a successful and productive year
for UFP Technologies. Earnings per share
increased 14.5%, while operating income
before restructuring costs and a one-time
material settlement rose 10.4%. We continued
to improve operations, reduce costs, and
make substantial progress in positioning your
Company for long-term profitable growth.
Throughout the year, we made meaningful
investments in new capabilities, talent,
and equipment. Then in February 2018 we
completed our largest and most significant
acquisition to date: Dielectrics, Inc. of
Chicopee, Massachusetts. Below, I will explain
why I believe these strategic additions will
enhance our business and increase our value
to customers and shareholders alike.
A highly complementary
acquisition
The Dielectrics acquisition is a major leap
forward for our medical business. In our
profile of an ideal acquisition candidate, this
company checks nearly every box. They have
a strong management team and an innovative
culture very similar to our own. They bring a
blue-chip medical customer base and high-
margin book of business that we expect will
add solidly to earnings right away.
We also have many customers in common.
In fact, around 60% of Dielectrics’ customers
are ours too. Because we each offer
complementary (not competing) lines of
highly engineered medical products, we see
many opportunities to create synergies and
move toward selling entire systems rather
than simply component parts. Over time, this
will enable us to expand into profitable new
areas and address customer needs in a more
comprehensive and cost-efficient way.
Separately, UFP and Dielectrics are known
for delivering medical solutions with the
very highest levels of precision, cleanliness
and safety. Together, I am confident we can
become even more valuable to customers.
Please see the following pages for more on
this key addition to the UFP family.
Medical momentum
remains strong
Our medical sales rose 8.1% in 2017, and we
are committed to continue growing this
critical component of our business. As I have
often said, the healthcare space is where
customer needs and our unique engineering
and problem-solving skills are most aligned.
Because of the precision required, margins
are typically higher. And because many
medical products must undergo a rigorous
FDA approval process, we can often count
on secure, long-running programs that
help maximize returns on our large upfront
investments.
2
2
“We continue to shift our
business mix toward higher-
margin opportunities and
position UFP for long-term
profitable growth.”
STOCKHOLDERS’ EQUITY
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2013
2014 2015 2016 2017
Going forward, macroeconomic trends like
the aging U.S. population should help ensure
strong demand for our medical solutions. In
addition, a series of mergers in the healthcare
space have created new opportunities for
us. As these new larger companies seek to
reduce their vendor base and realize potential
synergies, bigger and more diverse suppliers
like UFP have an edge over our smaller
competitors. In 2017, we expanded existing
clean rooms and added redundant medical
manufacturing at various locations. These
investments, combined with the Dielectrics
acquisition, put us in strong position to
accelerate our progress in this critical market.
Key internal growth initiatives
As we continue to shift our business mix
toward higher-margin, longer-running
opportunities, we are equally focused on
reducing costs and improving operating
efficiency. For example, after consolidating
several plants in recent years, we are seeing
solid productivity gains at major facilities
such as Massachusetts and Michigan. We also
added new automation in our Iowa molded
fiber plant. This will raise output capacity to
meet increasing demand, while improving
overall quality and efficiency. It also helps
us push back against low-cost competitors
that have recently entered the market due to
the growing trend toward environmentally
friendly solutions.
In another important initiative, we enhanced
our sales process by creating small integrated
teams that include sales, engineering, and
operations talent, all focused on converting
new opportunities. And we continued to
strengthen our vendor partnerships through
long-term agreements aimed at accelerating
growth and protecting our engineered
solutions. By providing access to the latest
material innovations, these close relationships
create a powerful competitive advantage.
In closing, I believe your Company is
dynamic, strong, and executing a focused
strategy to grow even stronger. We also
expect our cash flow will be improved by
the Dielectrics acquisition, further planned
efficiency improvements, and our new lower
corporate tax rate. As we look forward to
another exciting year, I wish to express my
appreciation to our dedicated associates,
welcome the new team from Dielectrics,
and thank you for your support of UFP
Technologies.
Sincerely,
R. Jeffrey Bailly
Chairman and CEO
3
3
Founded in 1954, Dielectrics is a highly
respected, solidly profitable medical
technology company. They specialize in
the design and manufacture of custom-
engineered complex assemblies, often
utilizing RF and impulse welded films. The
company generated $42 million in revenue
in 2017. With 285 employees, Dielectrics
operates a 100,000-square-foot facility in
Chicopee, Massachusetts, focused mostly
on clean room manufacturing.
The acquisition of Dielectrics should add to earnings
right away, expand our platform in important ways, and
strengthen our medical business for years to come.
The Dielectrics team is highly
skilled at designing and building the
specialized equipment needed to
manufacture and test their products.
These unique capabilities will help
us do more for our customers as
we continue to expand our medical
platform and grow the most
profitable parts of our business.
44
Dielectrics makes sophisticated precision-
medical products, many of which are
used inside the body during complex
surgical procedures. The addition of their
capabilities will help bring UFP into new
market areas with strong growth potential
and high barriers to entry. Dielectrics
and UFP both create highly engineered
medical solutions that, once approved by
the FDA, are very costly to switch out.
UFP and Dielectrics share many of the
same customers. In fact, we already
collaborate on some products, with
UFP performing several steps of the
manufacturing process, then shipping
directly to Dielectrics to execute the rest.
Working together in this way, we plan to
create systematic solutions that will make
us even more valuable to our medical
customers.
55
Our strong culture helps us
continue to attract and retain top
employees. In 2017, we added
experienced talent in areas such
as operations, quality, HR, and
engineering project management.
We also realigned our sales
teams and added dedicated
market specialists to identify and
capitalize on new opportunities.
We’re focused on delivering more value to
customers — building our team and enhancing our
capabilities to meet more of their critical challenges.
With medical customers
increasingly focused on cleanliness
and quality systems, we expanded
clean room capacity significantly
in 2017. This included adding
redundant clean room capabilities
at various UFP locations to help
reassure medical customers
concerned about managing the
risk of a single source of supply.
46
66
Our engineering expertise is a key
differentiator and major competitive
advantage. We love it when customers
bring us their most complex product
and packaging challenges. We apply
our materials expertise and precision
manufacturing to deliver solutions that
continue to raise the bar for performance,
protection and efficiency.
We completed the expansion of
our Newburyport, Massachusetts
facility, a key step in our program to
optimize our national plant footprint.
This creates more production space
for the most technical components
of our business with the best long-
term growth prospects. We also
added the AS9100 aerospace and
defense quality certification in this
location.
7
7
SELECTED FINANCIAL DATA
The following table summarizes our consolidated 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 consolidated financial statements and the notes to those financial statements appearing elsewhere in this report.
The selected statements of income data for the years ended December 31, 2017, 2016 and 2015, and the selected balance sheet data as
of December 31, 2017 and 2016, are derived from our audited consolidated financial statements, which are included elsewhere in this
report. The selected statements of income data for the years ended December 31, 2014 and 2013, and the selected balance sheet data
at December 31, 2015, 2014 and 2013 are derived from our audited consolidated financial statements not included in this report.
SELECTED CONSOLIDATED FINANCIAL DATA
Years Ended December 31
(in thousands, except per share data)
Consolidated statement of operations data
2017
2016
2015
2014
2013
Net sales
Gross profit
Operating income
Net income from consolidated operations
Diluted earnings per common share outstanding
Weighted average number of diluted common shares outstanding
$ 147,843
$ 146,132
$ 138,850
$ 139,307
$ 139,223
35,487
34,650
37,454
36,880
41,014
11,693
9,210
1.26
7,337
12,237
7,970
1.10
7,275
11,714
7,593
1.05
7,206
11,561
7,559
1.05
7,175
17,398
11,276
1.59
7,105
Consolidated balance sheet data
2017
2016
2015
2014
2013
As of December 31
(in thousands)
Working capital
Total assets
Current installments of long-term debt
Long-term debt, excluding current installments
Total liabilities
Total stockholders’ equity
MARKET PRICE
$ 65,131
$ 60,291
$ 52,620
$ 55,658
$ 56,398
138,207
127,934
119,635
112,548
104,908
-
-
856
-
1,011
859
993
1,873
14,495
14,881
16,063
17,556
976
2,867
19,318
123,712
113,053
103,572
94,992
85,590
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,
2016 to December 31, 2017:
Fiscal Year Ended December 31, 2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year Ended December 31, 2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
$ 24.40
25.49
27.35
27.50
High
$ 26.30
28.48
29.00
31.50
Low
$ 20.50
20.40
21.70
24.50
Low
$ 22.95
24.05
25.88
26.00
8
NUMBER OF STOCKHOLDERS
As of March 5, 2018, there were 68 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 2016 or 2017. The Company presently intends to retain all of its earnings to provide
funds for the operation of its business and strategic acquisitions, 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,
applicable law and other factors the Company’s board of directors considers relevant.
ISSUER PURCHASES OF EQUITY SECURITIES
On June 16, 2015, the Company issued a press release announcing that its Board of Directors authorized the repurchase of up to
$10.0 million of the Company’s outstanding common stock. There was no share repurchase activity for the years ended December 31,
2017 and December 31, 2016. During the year ended December 31, 2015, the Company repurchased 29,559 shares of common stock
at a cost of approximately $587,000. At December 31, 2017, approximately $9.4 million was available for future repurchases of the
Company’s common stock under this authorization.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
UFP Technologies is an innovative designer and custom converter of foams, plastics, composites and natural fiber materials,
providing solutions to customers primarily within the medical, automotive, consumer, electronics, industrial and aerospace and
defense markets. The Company consists of a single operating and reportable segment.
The Company grew sales by 1.2% for its fiscal year ended December 31, 2017, largely due to sales increases to customers in the
medical and consumer markets, which were partially offset by a large decrease in sales to customers in the automotive market.
Improvements in both gross profit and selling, general and administrative expenses as a percentage of sales, plus a favorable income
tax rate, helped generate a 14.5% increase in earnings per diluted share outstanding.
The Company’s current strategy includes further organic growth and growth through strategic acquisitions.
Dielectrics Acquisition
As previously disclosed, on February 1, 2018, the Company acquired Dielectrics, Inc. pursuant to a stock purchase agreement and
related agreements for an aggregate purchase price of $80 million in cash. In connection with its acquisition of Dielectrics, the
Company expects to expense approximately $1.1 million in transaction costs in the first quarter of 2018.
RESULTS OF OPERATIONS
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 Income:
Net sales
Cost of sales
Gross profit
Selling, general, and administrative expenses
Restructuring costs
Material overcharge settlement
Operating income
Total other income
Income before taxes
Income tax expense
Net income from consolidated operations
2017
2016
2015
100.0%
100.0%
100.0%
76.0%
24.0%
16.1%
0.0%
-0.1%
8.0%
-0.1%
8.1%
1.9%
6.2%
76.3%
23.7%
16.5%
0.3%
-1.4%
8.3%
-0.1%
8.4%
2.9%
5.5%
73.0%
27.0%
17.3%
1.3%
0.0%
8.4%
-0.1%
8.5%
3.0%
5.5%
9
2017 COMPARED TO 2016
Sales
Net sales increased 1.2% to $147.8 million for the year ended December 31, 2017 from net sales of $146.1 million in 2016, primarily due to
increases in sales to customers in the medical, aerospace and defense and consumer markets of approximately 8.1%, 5.2% and 4.4%,
respectively, partially offset by decreases in sales to customers in the automotive and industrial markets of approximately 15.1% and
7.4%, respectively. The increase in sales to customers in the medical market was largely due to general growth in demand for products
of our medical customers. The increase in sales to customers in the aerospace and defense market was largely due to increased
government spending on defense. The increase in sales to customers in the consumer market was largely due to increased demand for
molded fiber protective packaging for consumer products. The decrease in sales to customers in the automotive market was largely
due to the phase-out of the Company’s automotive door panel program for Mercedes-Benz, which began in 2004, as well as reductions
in demand on certain legacy programs. Sales for the Company’s Mercedes Benz program were approximately $3.0 million in 2017 and
are expected to be modest in 2018, as the program ends in the first quarter of 2018. Following the cessation of the Mercedes-Benz
program, the Company plans to cease operations and vacate its Georgia facility when that lease expires in April of 2018.
Gross Profit
Gross profit as a percentage of sales (“Gross Margin”) increased to 24.0% for the year ended December 31, 2017, from 23.7% in
2016. As a percentage of sales, material and direct labor costs collectively decreased approximately 1.2%, while overhead increased
approximately 1.0%. The decrease in material and direct labor costs was primarily due to manufacturing efficiencies realized as a
result of initiatives began in the second half of 2017. The increase in overhead was primarily due to higher indirect labor and benefits
associated with hires made in the second half of 2017.
Selling, General, and Administrative Expenses
Selling, General, and Administrative Expenses (“SG&A”) decreased 1.1% to $23.8 million for the year ended December 31, 2017, from
$24.1 million in 2016. As a percentage of sales, SG&A decreased to 16.1% in 2017 from 16.5% in 2016. The decrease in SG&A for the
year ended December 31, 2017, is primarily due to general cost containment efforts. In connection with its acquisition of Dielectrics,
the Company expects to expense approximately $1.1 million in transaction costs in the first quarter of 2018.
Restructuring Costs
On March 18, 2015, the Company committed to move forward with a plan to cease operations at its Raritan, New Jersey plant and
consolidate operations into its Newburyport, Massachusetts facility and other UFP facilities. The Company’s decision was in response
to a continued decline in business at the Raritan facility and the purchase of the facility in Newburyport. The activities related to this
consolidation are complete.
The Company also relocated all operations in its Haverhill, Massachusetts and Byfield, Massachusetts facilities and certain operations
in its Georgetown, Massachusetts facility to Newburyport. The Haverhill and Byfield relocations were complete at December 31, 2015
and the partial Georgetown relocation was complete at June 30, 2017.
The Company has incurred approximately $2.1 million in one-time expenses in connection with the Massachusetts consolidations.
Included in this amount are approximately $180,000 relating to employee severance payments and relocation costs, approximately
$1.6 million in moving expenses and expenses associated with vacating the Raritan, Haverhill and Byfield properties, and
approximately $360,000 in lease termination costs. Total cash charges were approximately $2.0 million.
The Company recorded the following restructuring costs associated with the Massachusetts consolidations discussed above for the
years ended December 31, 2017 and 2016 (in thousands):
Restructuring Costs
Relocation
Total restructuring costs
2017
63
63
2016
420
420
The 2017 and 2016 costs were reclassified in the Consolidated Statement of Income as “Restructuring Costs” from Cost of Sales.
Material Overcharge Settlement
The Company was a participant in a class action lawsuit against a number of polyurethane foam suppliers (“Defendants”) that was
settled during the second quarter of 2016. The suit was filed to recover damages and obtain injunctive relief for Defendants’ alleged
violations of the federal antitrust laws with respect to the fixing of prices of polyurethane foam sold from January 1, 1999 through
August 2010. For the years ended December 31, 2017 and 2016, the Company recorded gains of approximately $0.1 million and $2.1
million, respectively. The settlement amounts are recorded as “Material overcharge settlement” in the operating income section of
the Consolidated Statements of Income.
Interest Income and Expense
The Company had net interest income of approximately $166,000 for the year ended December 31, 2017, compared to net interest income
of approximately $80,000 for the year ended December 31, 2016. The increase in net interest income is due primarily to an increase in
interest earned on money market accounts and certificates of deposit and decreasing interest costs on the Company’s term loans.
10
Income Taxes
The Company recorded income tax expense, as a percentage of income before income tax expense, of 22.3% for the year ended
December 31, 2017 compared to 35.3% for the same period in 2016. The decrease in the effective tax rate was primarily due to a tax
benefit of approximately $173,000 recorded as a result of the adoption of ASU No. 2016-09 on January 1, 2017 (See Note 1 to the
consolidated financial statements) and a deferred tax benefit of approximately $1.5 million recorded as a result of a change in the
statutory federal tax rate for 2018 and beyond.
2016 COMPARED TO 2015
Sales
Net sales increased 5.2% to $146.1 million for the year ended December 31, 2016, from net sales of $138.9 million in 2015, primarily
due to increases in sales to customers in the medical and consumer markets of approximately 12.6% and 24.0%, respectively, partially
offset by decreases in sales to customers in the aerospace and defense and electronics markets of approximately 20.2% and 12.4%,
respectively. The increase in sales to customers in the medical market was largely due to a new five-year contract with one of the
Company’s larger customers in this market as well as an overall increase in demand from other medical customers. The increase in
sales to customers in the consumer market was largely due to increased demand for molded fiber protective packaging for consumer
products. The reduction in sales to customers in the aerospace and defense market was largely due to continued cuts in government
spending. The decrease in sales to customers in the electronics market in 2016 was primarily due to a temporary spike in demand for
packaging at one of our larger customers in 2015.
Gross Profit
Gross profit as a percentage of sales (“Gross Margin”) decreased to 23.7% for the year ended December 31, 2016, from 27.0%
in 2015. As a percentage of sales, material and direct labor costs collectively increased approximately 2.6%, while overhead
increased approximately 0.4%. The increase in material and direct labor costs was primarily due to manufacturing inefficiencies
of approximately $3.6 million resulting from recent plant consolidations and the resulting need to requalify parts with many of the
Company’s customers in the medical market.
Selling, General, and Administrative Expenses
Selling, General, and Administrative Expenses (“SG&A”) increased 0.4% to $24.1 million for the year ended December 31, 2016, from
$24.0 million in 2015. The slight increase in SG&A for the year ended December 31, 2016, is primarily due to increased recruiting
and other professional fees of approximately $500,000 partially offset by decreased compensation and benefit expenses of
approximately $350,000.
Restructuring Costs
On March 18, 2015, the Company committed to move forward with a plan to cease operations at its Raritan, New Jersey plant and
consolidate operations into its Newburyport, Massachusetts facility and other UFP facilities. The Company’s decision was in response
to a continued decline in business at the Raritan facility and the recent purchase of the facility in Newburyport. The activities related
to this consolidation are complete.
The Company also relocated all operations in its Haverhill, Massachusetts and Byfield, Massachusetts facilities and certain operations
in its Georgetown, Massachusetts facility to Newburyport. The Haverhill and Byfield relocations were complete at December 31, 2015
and the Georgetown relocation was complete at June 30, 2017.
The Company has incurred approximately $2.1 million in one-time expenses in connection with the Massachusetts consolidations.
Included in this amount are approximately $180,000 relating to employee severance payments and relocation costs, approximately
$1.6 million in moving expenses and expenses associated with vacating the Raritan, Haverhill and Byfield properties, and
approximately $360,000 in lease termination costs. Total cash charges were approximately $2.0 million.
On July 16, 2014, the Company committed to move forward with a plan to cease operations at its Costa Mesa, California plant
and consolidate operations into its Rancho Dominguez, California facility and other UFP facilities. The Company’s decision was
in response to the December 31, 2014, expiration of the lease on the Costa Mesa facility as well as the close proximity of the two
properties. The California consolidation was complete at December 31, 2015.
The Company recorded the following restructuring costs associated with the consolidations discussed above for the years ended
December 31, 2016 and 2015 (in thousands):
2016
2015
Restructuring Costs
Massachusetts
Total
Massachusetts California Total
Employee severance
Relocation
Lease termination
$ -
$ -
420
420
-
-
$ 178
$ 18
$ 196
1,138
356
66
1,204
-
356
Total restructuring costs
$ 420
$ 420
$ 1,672
$ 84
$ 1,756
11
The 2016 costs were reclassified in the Consolidated Statement of Income as “Restructuring Costs” from Cost of Sales. The 2015
costs were reclassified in the Consolidated Statement of Income as “Restructuring Costs” as follows: $1,669,000 from Cost of Sales,
$36,000 from Selling, General and Administrative expenses and $51,000 from Gain on sales of property, plant and equipment.
Material Overcharge Settlement
The Company was a participant in a class action lawsuit against a number of polyurethane foam suppliers (“Defendants”) that
recently reached settlement. The suit was filed to recover damages and obtain injunctive relief for Defendants’ alleged violations of
the federal antitrust laws with respect to the fixing of prices of polyurethane foam sold from January 1, 1999 through August 2010.
The Company recorded a gain of approximately $2.1 million during the year ended December 31, 2016. The settlement amount is
recorded as “Material overcharge settlement” in the operating income section of the Consolidated Statements of Income.
Interest Income and Expense
The Company had net interest income of approximately $80,000 for the year ended December 31, 2016, compared to net interest income
of approximately $27,000 for the year ended December 31, 2015. The increase in net interest income is due primarily to an increase in
interest earned on money market accounts and certificates of deposit and decreasing interest costs on the Company’s term loans.
Income Taxes
The Company recorded income tax expense as a percentage of income before income tax expense, of 35.3% for each of the
years ended December 31, 2016 and 2015. 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, 2016.
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 generally funds its operating expenses, capital requirements, and growth plan through internally generated cash and
bank credit facilities.
Cash Flows
Net cash provided by operations for the year ended December 31, 2017 was approximately $17.5 million and was primarily a result
of net income generated of approximately $9.2 million, depreciation and amortization of approximately $5.6 million, share-based
compensation of approximately $1.1 million, a decrease in inventory of approximately $1.3 million primarily due to management
initiatives, a decrease in prepaid expenses of approximately $0.4 million due to reduced equipment prepayments, and an increase
in accounts payable and accrued expenses of approximately $1.1 million due to the timing of vendor payments in the ordinary
course of business. These cash inflows and adjustments to income were partially offset by a decrease in deferred income taxes
of approximately $1.0 million due primarily to the result of a change in the statutory federal tax rate for 2018 and beyond and an
increase in refundable income taxes of approximately $0.2 million.
Net cash used in investing activities during the year ended December 31, 2017 was approximately $10.4 million of which approximately
$4.7 million was the result of an expansion to our manufacturing facility in Newburyport, Massachusetts and approximately $5.7 million
as the result of other additions of technology, manufacturing machinery, and equipment across the Company.
Net cash used in financing activities was approximately $0.5 million for the year ended December 31, 2017, representing cash used
to service term debt of approximately $0.9 million and to pay statutory withholding for stock options exercised and restricted stock units
vested of approximately $0.3 million, partially offset by net proceeds received upon stock option exercises of approximately $0.7 million.
Outstanding and Available Debt
As of December 31, 2017, the Company had an unsecured $40 million revolving credit facility with Bank of America, N.A. pursuant
to the Credit Agreement dated December 2, 2013, as amended. The credit facility called for interest of LIBOR plus a margin that
ranged 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 was dependent upon Company performance. Under the credit facility, the Company was subject
to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to EBITDA financial covenant. The
Company’s $40 million credit facility was to mature on November 30, 2018.
As of December 31, 2017, the Company had no borrowings outstanding under the credit facility. Included in the credit facility were
approximately $0.6 million in standby letters of credit drawable as a financial guarantee on worker’s compensation insurance policies.
As of December 31, 2017, the Company was in compliance with all covenants under the credit facility.
Subsequent Events
Dielectrics Acquisition
As previously disclosed, on February 1, 2018, the Company acquired Dielectrics, Inc. pursuant to a stock purchase agreement and related
agreements for an aggregate purchase price of $80 million in cash. In connection with its acquisition of Dielectrics, the Company expects to
expense approximately $1.1 million in transaction costs in the first quarter of 2018. For more information, see Item 1A of the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2017 (“the 10-K”) Risk Factors—“We may pursue acquisitions or other strategic
relationships that involve inherent risks, any of which may cause us to not realize anticipated benefits.”
12
Amended and Restated Credit Agreement
On February 1, 2018, the Company, as the borrower, entered into an unsecured $70 million Amended and Restated Credit Agreement
(the “Amended and Restated Credit Agreement”) with certain of the Company’s subsidiaries (the “Subsidiary Guarantors”) and Bank of
America, N.A., in its capacity as the initial lender, Administrative Agent, Swingline Lender and L/C Issuer, and certain other lenders from
time to time party thereto. The Amended and Restated Credit Agreement amends and restates the Company’s prior credit agreement,
originally dated as of December 2, 2013.
The credit facilities under the Amended and Restated Credit Agreement consist of a $20 million unsecured term loan to UFP and
an unsecured revolving credit facility, under which the Company may borrow up to $50 million. The Amended and Restated Credit
Facilities mature on February 1, 2023. The proceeds of the Amended and Restated Credit Agreement may be used for general
corporate purposes, including funding the acquisition of Dielectrics, as well as certain other permitted acquisitions. Included in the
Amended and Restated Credit Facilities is approximately $0.6 million in standby letters of credit drawable as a financial guarantee
on worker’s compensation insurance policies. The Company’s obligations under the Amended and Restated Credit Agreement are
guaranteed by the Subsidiary Guarantors.
The Amended and Restated Credit Facilities call 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 .25% to zero. In both cases the applicable margin is dependent upon
Company performance. Under the Amended and Restated Credit Agreement, the Company is subject to a minimum fixed-charge
coverage financial covenant as well as a maximum total funded debt to EBITDA financial covenant. The Amended and Restated Credit
Agreement contains other covenants customary for transactions of this type, including restrictions on certain payments, permitted
indebtedness and permitted investments. As of the date of this report, the Company had approximately $56 million in borrowings
outstanding under the Amended and Restated Credit Facilities, which were used as partial consideration for the Dielectrics acquisition.
In connection with the Amended and Restated Credit Agreement, the Company entered into a $20 million, 5-year interest rate swap
agreement under which the Company receives three-month LIBOR plus the applicable margin and pays a 2.7% fixed rate plus the
applicable margin. The swap modifies the Company’s interest rate exposure by converting the term loan from a variable rate to a
fixed rate in order to hedge against the possibility of rising interest rates during the term of the loan.
Future Liquidity
The Company requires cash to pay its operating expenses, to purchase capital equipment, and to service its contractual obligations.
The Company’s principal sources of funds are its operations and its amended and restated credit facility. The Company generated cash
of approximately $17.5 million in operations during the year ended December 31, 2017; however, the Company cannot guarantee that its
operations will generate cash in future periods. The Company’s longer-term liquidity is contingent upon future operating performance.
Throughout fiscal 2018, the Company plans to continue to add capacity to enhance operating efficiencies in its manufacturing plants.
The Company may consider additional acquisitions of companies, technologies, or products that are complementary to its business.
The Company believes that its existing resources, including its revolving credit facility, together with cash expected to be generated
from operations and funds expected to be available to it through any necessary equipment financings and additional bank borrowings,
will be sufficient to fund its cash flow requirements, including capital asset acquisitions, through the next twelve months.
Stock Repurchase Program
The Company accounts for treasury stock under the cost method, using the first-in, first out flow assumption, and includes treasury
stock as a component of stockholders’ equity. On June 16, 2015, the Company announced that its Board of Directors authorized
the repurchase of up to $10.0 million of the Company’s outstanding common stock. Under the program, the Company is authorized
to repurchase shares through Rule 10b5-1 plans, open market purchases, privately negotiated transactions, block purchases or
otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934. The
stock repurchase program will end upon the earlier of the date on which the plan is terminated by the Board or when all authorized
repurchases are completed. The timing and amount of stock repurchases, if any, will be determined based upon our evaluation of
market conditions and other factors. The stock repurchase program may be suspended, modified or discontinued at any time, and
the Company has no obligation to repurchase any amount of its common stock under the program. There were no share repurchases
during the years ended December 31, 2017 and December 31, 2016. During the year ended December 31, 2015, the Company
repurchased 29,559 shares of common stock at a cost of approximately $587,000. At December 31, 2017, approximately $9.4 million
was available for future repurchases of the Company’s common stock under this authorization.
COMMITMENTS AND CONTRACTUAL OBLIGATIONS
The following table summarizes the Company’s contractual obligations at December 31, 2017 (in thousands):
Payment Due By Period
Total
3,106
50
Less than
1 Year
651
25
1-3
Years
1,269
25
3-5
Years
1,186
-
More than
5 Years
-
-
Operating leases
Supplemental retirement
Total
$ 3,156
$ 676
$ 1,294
$ 1,186
$ -
13
The Company requires cash to pay its operating expenses, to 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, 2017, 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 the 10-K and the general disclaimers set forth in our Special Note Regarding
Forward-Looking Statements at the end 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.
OFF-BALANCE-SHEET ARRANGEMENTS
In addition to operating leases, the Company’s off-balance-sheet arrangements include standby letters of credit which are included
in the Company’s revolving credit facility. As of December 31, 2017, there was approximately $0.6 million in standby letters of credit
drawable as a financial guarantee on worker’s compensation insurance policies.
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 and component product
industries, 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
the 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. 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. 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 consists of a single reporting unit. We last performed “step 1” of the goodwill impairment test as of September
30, 2014. We utilized the guideline public company (“GPC”) method under the market approach and the discounted cash
flows method (“DCF”) under the income approach to determine the fair value of the reporting unit for purposes of testing the
reporting unit’s carrying value of goodwill for impairment. The GPC method derives a value by generating a multiple of EBITDA
through the comparison of the Company to similar publicly traded companies. The DCF approach derives a value based on the
present value of a series of estimated future cash flows at the valuation date by the application of a discount rate, one that
a prudent investor would require before making an investment in our equity securities. The key assumptions used in our
approach included:
• The reporting unit’s estimated financials and five-year projections of financial results, which were based on
our strategic plans and long-range forecasts. Sales growth rates represent estimates based on current and
forecasted sales mix and market conditions. The profit margins were projected based on historical margins,
projected sales mix, current expense structure and anticipated expense modifications.
• The projected terminal value which reflects the total present value of projected cash flows beyond the last
period in the DCF. This value reflects a growth rate for the reporting unit, which is approximately the same
growth rate of expected inflation into perpetuity.
• The discount rate determined using a Weighted Average Cost of Capital method (“WACC”), which considered
market and industry data as well as Company-specific risk factors.
• Selection of guideline public companies which are similar to each other and to the Company.
As of September 30, 2014, based on our calculations under the above noted approach, the fair value of the reporting unit
exceeded its carrying value by approximately $69 million or 74%. In performing these calculations, management used
its most reasonable estimates of the key assumptions discussed above. If our actual operating results and/or the key
assumptions utilized in management’s calculations differ from our expectations, it is possible that a future impairment
charge may be necessary.
14
The Company’s annual impairment testing date is December 31. The Company performed a qualitative assessment (“step 0”) as of
December 31, 2017, and determined that it was more likely than not that the fair value of its reporting unit exceeded its carrying amount.
As a result, the Company is not required to proceed to a “step 1” impairment assessment. Factors considered included the 2014 step 1
analysis and the calculated excess fair value over carrying amount, financial performance, forecasts and trends, market cap, regulatory and
environmental issues, macroeconomic conditions, industry and market considerations, raw material costs and management stability.
• Accounts Receivable The Company periodically reviews the collectability of its accounts receivable. Provisions are recorded
for accounts that are potentially uncollectable. 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, 2017.
•
Inventories Inventories include material, labor, and manufacturing overhead and are valued at the lower of cost or net realizable
value. Cost is determined using the first-in, first-out (FIFO) method.
The Company periodically reviews the realizability of its inventory for potential excess or 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, 2017.
• Recent Accounting Pronouncements Refer to Note 1, “Summary of Significant Accounting Policies,” in the accompanying notes to
the consolidated financial statements for a discussion of recent accounting pronouncements.
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, 2017, 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. Interest under the Company’s credit facility with Bank of America, N.A. is based upon either the Prime rate
or LIBOR and, therefore, future operations could be affected by interest rate changes. However, as of December 31, 2017, the Company had no
borrowings outstanding under the revolving credit facility, and the Company believes the market risk associated with the facility is minimal.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
ASSUMES INITIAL INVESTMENT OF $100
DECEMBER 2017
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
ASSUMES INITIAL INVESTMENT OF $100
DECEMBER 2017
UFP Technologies, Inc.
SIC Codes 3080-3089 Miscellaneous Plastic Products
NASDAQ Stock Market (US Companies)
GICS 15103020 Paper Packaging
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
300
250
200
150
100
50
15
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
of UFP Technologies, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of UFP Technologies, Inc. (a Delaware
corporation) and subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated
statements of income, changes in stockholders’ equity, and cash flows for each of the three years in
the period ended December 31, 2017, and the related notes and schedule (collectively referred to as the
“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2017 and 2016, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with
accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of
December 31, 2017, based on criteria established in the 2013 Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our
report dated March 16, 2018 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on the Company’s financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
GRANT THORNTON LLP
We have served as the Company’s auditor since 2005.
Boston, Massachusetts
March 16, 2018
16
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
of UFP Technologies, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of UFP Technologies, Inc. (a Delaware
corporation) and subsidiaries (the “Company”) as of December 31, 2017, based on criteria established in
the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2017, based on criteria established in
the 2013 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) (“PCAOB”), the consolidated financial statements of the Company as of and for the
year ended December 31, 2017, and our report dated March 16, 2018 expressed an unqualified opinion on
those financial statements.
Basis for opinion
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 are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and limitations of internal control over financial reporting
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.
GRANT THORNTON LLP
Boston, Massachusetts
March 16, 2018
17
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
Current assets:
DECEMBER 31
2017
2016
Cash and cash equivalents
$ 37,978
$ 31,359
Receivables, net
Inventories
Prepaid expenses
Refundable income taxes
Total current assets
Property, plant, and equipment
Less accumulated depreciation and amortization
Net property, plant, and equipment
Goodwill
Intangible assets, net
Non-qualified deferred compensation plan
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Current installments of long-term debt
Total current liabilities
Deferred income taxes
Non-qualified deferred compensation plan
Other liabilities
Total liabilities
Commitments and contingencies (Note 14)
Stockholders’ equity:
21,381
12,863
1,835
1,017
75,074
106,716
(53,064)
53,652
7,322
—
2,015
144
21,249
14,151
2,281
807
69,847
96,806
(48,290)
48,516
7,322
318
1,778
153
$ 138,207
$ 127,934
$ 4,180
$ 4,002
5,763
—
9,943
2,440
2,030
82
14,495
4,698
856
9,556
3,459
1,682
184
14,881
Preferred stock, $.01 par value, 1,000,000 shares authorized;
no shares issued
Common stock, $.01 par value, 20,000,000 shares authorized;
7,309,909 and 7,280,350 shares issued and outstanding, respectively
at December 31, 2017; 7,242,023 and 7,212,464 shares issued
and outstanding, respectively at December 31, 2016
Additional paid-in capital
Retained earnings
Treasury stock at cost, 29,559 shares at December 31, 2017
and 2016 respectively
Total stockholders’ equity
—
—
73
26,664
97,562
(587)
123,712
72
25,216
88,352
(587)
113,053
Total liabilities and stockholders’ equity
$ 138,207
$ 127,934
The accompanying notes are an integral part of these consolidated financial statements.
18
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended December 31
Net sales
Cost of sales
Gross profit
2017
$ 147,843
112,356
35,487
Selling, general, and administrative expenses
23,845
Restructuring costs
Material overcharge settlement
Loss (gain) on sales of property, plant, and equipment
Operating Income
Other (income) expenses:
Interest income
Interest expense
Total other (income) expense
Income before income tax provision
Income tax expense
63
(121)
7
11,693
(216)
50
(166)
11,859
2,649
2016
$ 146,132
111,482
34,650
24,105
420
(2,114)
2
12,237
(149)
69
(80)
12,317
4,347
2015
$ 138,850
101,396
37,454
24,008
1,756
—
(24)
11,714
(114)
87
(27)
11,741
4,148
Net income from consolidated operations
$ 9,210
$ 7,970
$ 7,593
Net income per common share outstanding:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
$ 1.27
$ 1.26
7,248
7,337
$ 1.11
$ 1.10
7,190
7,275
$ 1.07
$ 1.05
7,102
7,206
The accompanying notes are an integral part of these consolidated financial statements.
19
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(IN THOUSANDS)
Years Ended December 31, 2017, 2016 and 2015
Common Stock
Additional
Paid-in
Shares
Amount
Capital
Retained
Earnings
Treasury Stock
Shares Amount
Total
Stockholders’
Equity
Balance at December 31, 2014
7,069
$ 71
$ 22,132
$ 72,789
—
$ —
$ 94,992
Share-based compensation
Exercise of stock options net
of shares presented for exercise
Net share settlement of restricted stock
units and stock option tax withholding
Excess tax benefits on
share-based compensation
Repurchase of common stock
Net income
24
77
—
—
(30)
—
—
1
—
—
—
—
1,069
357
—
—
(209)
—
356
—
—
—
—
7,593
—
—
—
—
30
—
—
—
—
—
(587)
—
1,069
358
(209)
356
(587)
7,593
Balance at December 31, 2015
7,140
$ 72
$ 23,705
$ 80,382
30
$ (587)
$ 103,572
Share-based compensation
Exercise of stock options net
of shares presented for exercise
Net share settlement of restricted stock
units and stock option tax withholding
Excess tax benefits on
share-based compensation
Net income
33
48
(9)
—
—
—
—
—
—
—
1,056
529
(219)
145
—
—
—
—
—
7,970
—
—
—
—
—
—
—
—
—
—
1,056
529
(219)
145
7,970
Balance at December 31, 2016
7,212
$ 72
$ 25,216
$ 88,352
30
$ (587)
$ 113,053
Share-based compensation
Exercise of stock options net
of shares presented for exercise
Net share settlement of restricted stock
units and stock option tax withholding
Net income
32
47
(11)
—
1
1
(1)
—
1,067
676
(295)
—
—
—
—
9,210
—
—
—
—
—
—
—
—
1,068
677
(296)
9,210
Balance at December 31, 2017
7,280
$ 73
$ 26,664
$ 97,562
30
$ (587)
$ 123,712
The accompanying notes are an integral part of these consolidated financial statements.
20
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Cash flows from operating activities:
Net income from consolidated operations
$ 9,210
$ 7,970
$ 7,593
Years Ended December 31
2017
2016
2015
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Loss on sales of property, plant, and equipment
Share-based compensation
Deferred income taxes
Excess tax benefits on share-based compensation
Changes in operating assets and liabilities:
Receivables, net
Inventories
Prepaid expenses
Refundable income taxes
Accounts payable
Accrued expenses
Other liabilities
Other assets
5,635
7
1,068
(1,019)
—
(132)
1,288
446
(210)
93
1,065
246
(228)
Net cash provided by operating activities
17,469
Cash flows from investing activities:
Additions to property, plant, and equipment
Proceeds from sale of property, plant, and equipment
Net cash used in investing activities
Cash flows from financing activities:
Excess tax benefits on share-based compensation
Proceeds from the exercise of stock options, net of shares
presented for exercise
Principal repayment of long-term debt
Payment of statutory withholding for stock options exercised
and restricted stock units vested
Repurchases of common stock
Net cash used in financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
(10,382)
7
(10,375)
—
677
(856)
(296)
—
(475)
6,619
31,359
5,634
2
1,056
576
(145)
(3,768)
51
(1,351)
209
(683)
(361)
213
(97)
9,306
(7,206)
14
(7,192)
145
529
(1,014)
(219)
—
(559)
4,846
27
1,069
437
(356)
(1,011)
(1,309)
(266)
2,677
(1,379)
(163)
29
325
12,519
(15,742)
53
(15,689)
356
358
(996)
(209)
(587)
(1,078)
1,555
29,804
(4,248)
34,052
Cash and cash equivalents at end of year
$ 37,978
$ 31,359
$ 29,804
The accompanying notes are an integral part of these consolidated financial statements.
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
UFP Technologies, Inc. (“the Company”) is an innovative designer and custom converter of foams, plastics, composites and
natural fiber products principally serving the medical, automotive, consumer, electronics, industrial and aerospace and defense
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 Stephenson & Lawyer, Inc. and its wholly-
owned subsidiary, Patterson Properties Corporation. All significant intercompany balances and transactions have been
eliminated in consolidation. The Company has evaluated all subsequent events through the date of this filing.
(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 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, accrued expenses and other liabilities 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, 2017 and 2016, 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 amounts contained within the
Company’s main operating account with Bank of America at December 31, 2017, exceed the federal depository insurance
limit by approximately $24.1 million.
(f) Accounts Receivable
The Company periodically reviews the collectability of its accounts receivable. Provisions are recorded for accounts that
are potentially uncollectable. 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, 2017.
(g) Inventories
Inventories include material, labor, and manufacturing overhead and are valued at the lower of cost or net realizable value.
Cost is determined using the first-in, first-out (“FIFO”) method.
The Company periodically reviews the realizability of its inventory for potential excess or 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, 2017.
(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.
22
Estimated useful lives of property, plant, and equipment are as follows:
Leasehold improvements
Buildings and improvements
Machinery & Equipment
Furniture, fixtures, computers, & software
Shorter of estimated useful life or remaining lease term
20-40 years
7-15 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. 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 consists of a single reporting unit. We last performed “step 1” of the goodwill impairment test as of
September 30, 2014. We utilized the guideline public company (“GPC”) method under the market approach and the
discounted cash flows method (“DCF”) under the income approach to determine the fair value of the reporting unit for
purposes of testing the reporting unit’s carrying value of goodwill for impairment. The GPC method derives a value by
generating a multiple of EBITDA through the comparison of the Company to similar publicly traded companies. The DCF
approach derives a value based on the present value of a series of estimated future cash flows at the valuation date by
the application of a discount rate, one that a prudent investor would require before making an investment in our equity
securities. The key assumptions used in our approach included:
• The reporting unit’s estimated financials and five-year projections of financial results, which were based on
our strategic plans and long-range forecasts. Sales growth rates represent estimates based on current and
forecasted sales mix and market conditions. The profit margins were projected based on historical margins,
projected sales mix, current expense structure, and anticipated expense modifications.
• The projected terminal value, which reflects the total present value of projected cash flows beyond the last
period in the DCF. This value reflects a growth rate for the reporting unit, which is approximately the same
growth rate of expected inflation into perpetuity.
• The discount rate determined using a Weighted Average Cost of Capital method (“WACC”), which considered
market and industry data as well as Company-specific risk factors.
• Selection of guideline public companies, which are similar to each other and to the Company.
As of September 30, 2014, based on our calculations under the above noted approach, the fair value of the reporting unit
exceeded its carrying value by approximately $69 million or 74%. In performing these calculations, management used
its most reasonable estimates of the key assumptions discussed above. If our actual operating results and/or the key
assumptions utilized in management’s calculations differ from our expectations, it is possible that a future impairment
charge may be necessary.
The Company’s annual impairment testing date is December 31. The Company performed a qualitative assessment
(“step 0”) as of December 31, 2017, and determined that it was more likely than not that the fair value of its reporting unit
exceeded its carrying amount. As a result, the Company is not required to proceed to a “step 1” impairment assessment.
Factors considered included the 2014 step 1 analysis and the calculated excess fair value over carrying amount, financial
performance, forecasts and trends, market cap, regulatory and environmental issues, macro-economic conditions, industry
and market considerations, raw material costs and management stability.
(j)
Intangible Assets
Intangible assets with a definite life are amortized on a straight-line basis, with estimated useful lives ranging from 5 to 14
years. 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. 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).
23
The Company issues share-based awards through several plans that are described in detail in Note 11. The compensation cost
charged against income for those plans is included in selling, general & administrative expenses as follows (in thousands):
Share-based compensation expense
$ 1,068
$ 1,056
Year Ended December 31
2017
2016
2015
$ 1,069
The compensation expense for stock options granted during the three-year period ended December 31, 2017, was
determined as the fair value of the options using the Black Scholes valuation model. The assumptions are noted as follows:
2017
Expected volatility
27.4% to 29.1%
Expected dividends
None
Risk-free interest rate
1.56% to 1.84%
Year Ended December 31
2016
29.7%
None
0.9%
2015
31.5% to 32.3%
None
1.0% to 1.2%
Exercise price
Expected term
Weighted-average grant-date fair value
$ 5.59 to $ 8.51
2.7 to 5.8 years
5.0 years
$ 6.11
5.0 years
$ 6.04
$27.05-$28.70
$22.02
$19.97-$22.36
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 term of the
option. The expected term is estimated based on historical option exercise activity.
The total income tax benefit recognized in the consolidated statements of income for share-based compensation arrangements
was approximately $525,000, $318,000 and $312,000 for the years ended December 31, 2017, 2016 and 2015, 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 $1.1 million, $1.3 million and $1.3 million were expensed in the years ended December 31, 2017, 2016
and 2015, 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.
24
(q) Segments and Related Information
The Company follows the provisions of Accounting Standards Codification (ASC) 280, Segment Reporting, which establish
standards for the way public business enterprises report information and operating segments in annual financial statements
(see Note 17).
(r) Treasury Stock
The Company accounts for treasury stock under the cost method, using the first-in, first out flow assumption, and we
include treasury stock as a component of stockholders’ equity. The Company did not repurchase any shares of common
stock during the years ended December 31, 2017 and 2016.
Recent Accounting Pronouncements
ASC 606, Revenue from Contracts with Customers, requires an entity to recognize the amount of revenue to which it expects to
be entitled for the transfer of promised goods or services to customers. This standard replaces most existing revenue recognition
guidance. The concept guiding this new model is that revenue recognition will depict transfer of control to the customer in an
amount that reflects consideration to which an entity expects to be entitled. The core principles supporting this framework include
(1) identifying the contract with a customer, (2) identifying separate performance obligations within the contract, (3) determining
the transaction price, (4) allocating the transaction price to the performance obligations, and (5) recognizing revenue. This new
framework will require entities to apply significantly more judgment. This increase in management judgment will require expanded
disclosure on estimation methods, inputs, and assumptions for revenue recognition. The standard permits the use of either the full
retrospective or modified retrospective transition methods.
The Company will adopt the standard in the first quarter of 2018 using the modified retrospective transition method. The Company
has identified its primary revenue streams, completed a review of a representative sample of contracts with its customers and
has evaluated the impact of this ASU on its revenue streams and accounting policies. Based on the procedures completed, for a
significant portion of the business, the recognition of revenue under the updated standard will occur at a point in time, which is
consistent with current practice. The Company has identified certain revenue streams for which the recognition of revenue will be
deferred and recognized over time, which is a change from current practice. These revenue streams include certain tooling sales
and certain long-term agreements with variable pricing. The Company has determined the required adjustments under the modified
retrospective transition method as of January 1, 2018 will result in (in thousands) an increase in deferred revenue (primarily related
to a contract liability included in accrued expenses for the payment received on tooling sales) of $574, an increase in property, plant
and equipment for capitalized costs of tooling to fulfill the contracts of $479 and a decrease in retained earnings of $95.
Also, in preparation for adoption of the standard, the Company has implemented internal controls and accounting processes to
enable the preparation of financial information and has reached conclusions on key accounting assessments related to the standard.
The Company continues to assess the impact the adoption of this guidance will have on its disclosures and on the revenue streams of
its recent acquisition, Dielectrics, Inc.
In February 2016, the FASB issued ASU No. 2016-02, Leases. The guidance in this ASU supersedes the leasing guidance in Topic
840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for
those leases previously classified as operating leases. The amendments in ASU No. 2016-02 are effective for annual reporting
periods beginning after December 15, 2018, including interim periods within that reporting period with early adoption permitted. The
Company is evaluating the impact of adopting this ASU on its consolidated financial position and results of operations.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share Based Payment Accounting. This ASU simplifies
several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of
awards, forfeitures and classification on the statement of cash flows. The Company adopted this ASU on January 1, 2017. As the
Company has not had a significant amount of forfeitures historically, under the provisions of this ASU the Company has elected
to account for forfeitures as they occur, rather than estimate expected forfeitures. The impact of adopting this update to the
Company’s Consolidated Financial Statements will depend on market factors and the timing and intrinsic value of future share-based
compensation award vests and exercises. Subsequent to adoption, the Company notes the potential for volatility in its effective tax
rate as any windfall or shortfall tax benefits related to its share-based compensation plans will be recorded directly to income tax
expense in the Condensed Consolidated Statement of Income.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment. This
ASU applies to all reporting entities that have goodwill reported in their financial statements. The amendments in this ASU eliminate
Step 2 from the goodwill impairment test reducing the cost and complexity of evaluating goodwill for impairment. In computing the
implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment date of
its assets and liabilities as would be required in a business combination. Instead, under the amendments in this ASU, an entity should
perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an
impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. For public companies, the
amendments in ASU 2017-04 are effective for the annual or any interim goodwill impairment tests for reporting periods beginning
after December 15, 2019. This ASU should be applied prospectively and an entity is required to disclose the nature of and reason
for the change in accounting principle upon transition. Early adoption is permitted for interim or annual goodwill impairment tests
performed on testing dates after January 1, 2017. Management does not expect ASU 2017-04 to have a material impact on the
Company’s financial statements and disclosures.
Revisions
Certain revisions have been made to the 2016 and 2015 Condensed Consolidated Statements of Cash Flows to conform to the current
year presentation relating to a change in presentation of capital expenditures. This revision resulted in an increase of $87,000 and a
25
decrease of $579,000, for the years ended December 31, 2016 and 2015, respectively, in both the change in accounts payable and in
additions to property, plant and equipment, net. These revisions had no impact on previously reported net income and are deemed
immaterial to the previously issued financial statements.
(2) Supplemental Cash Flow Information
Cash paid for interest and income taxes is as follows (in thousands):
Cash paid for:
Interest
Income taxes, net of refunds
Non-cash investing and financial activities:
Year Ended December 31
2017
2016
2015
$ 47
$ 3,878
$ 66
$ 3,562
$ 86
$ 1,459
Capital additions accrued but not yet paid
$ 85
$ 87
$ 579
During the years ended December 31, 2017, 2016 and 2015, the Company permitted the exercise of stock options with exercise
proceeds paid with the Company’s stock (“cashless” exercises) totaling approximately $172,000, $166,000 and $36,000, respectively.
(3) Receivables
Receivables consist of the following (in thousands):
Accounts receivable—trade
Less allowance for doubtful receivables
Receivables, net
2017
$ 22,033
(652)
$ 21,381
December 31
2016
$ 21,816
(567)
$ 21,249
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 approximately $116,000 and $126,000
for the years ended December 31, 2017 and 2016, respectively.
(4) Inventories
Inventories consist of the following (in thousands):
Raw materials
Work in process
Finished goods
Total Inventory
2017
$ 6,898
1,207
4,758
$ 12,863
December 31
2016
$ 7,111
1,354
5,686
$ 14,151
(5) Other Intangible Assets
The carrying values of the Company’s definite-lived intangible assets as of December 31, 2017 and 2016 are as follows (in thousands):
Estimated useful life
Gross amount at December 31, 2017
Accumulated amortization at December 31, 2017
14 years
$ 429
(429)
5 years
$ 512
(512)
5 years
$ 2,046
(2,046)
$ 2,987
(2,987)
Patents
Non-Compete
Customer List
Total
Net balance at December 31, 2017
$ —
$ —
$ —
$ —
Gross amount at December 31, 2016
Accumulated amortization at December 31, 2016
$ 429
(429)
$ 512
(449)
$ 2,046
(1,791)
$ 2,987
(2,669)
Net balance at December 31, 2016
$ —
$ 63
$ 255
$ 318
26
Amortization expense related to intangible assets was approximately $318,000 for each of the years ended December 31, 2017, 2016 and
2015, respectively.
(6) Property, Plant, and Equipment
Property, plant, and equipment consist of the following (in thousands):
Land and improvements
Buildings and improvements
Leasehold improvements
Machinery & Equipment
Furniture, fixtures, computers, & software
Construction in progress
2017
$ 3,191
28,939
2,553
58,602
6,820
6,611
$ 106,716
December 31
2016
$ 3,191
28,241
2,759
54,633
6,419
1,563
$ 96,806
Depreciation and amortization expenses for the years ended December 31, 2017, 2016 and 2015, were approximately $5.3 million, $5.3
million and $4.5 million, respectively.
(7) Indebtedness
On December 2, 2013, the Company entered into an unsecured $40 million revolving credit facility with Bank of
America, N.A. The credit facility called for interest of LIBOR plus a margin that ranged from 1.0% to 1.5% or, at the
discretion of the Company, the bank’s prime rate less a margin that ranged from 0.25% to zero. In both cases the
applicable margin was dependent upon Company performance. Under the credit facility, the Company was subject
to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to EBITDA financial
covenant. The credit facility was amended effective December 31, 2014, to modify the definition of “consolidated
fixed-charge coverage ratio.” The Company’s $40 million credit facility was to mature on November 30, 2018.
As of December 31, 2017, the Company had no borrowings outstanding under the credit facility. Included in the credit
facility were approximately $0.6 million in standby letters of credit drawable as a financial guarantee on worker’s compensation
insurance policies. As of December 31, 2017, the Company was in compliance with all covenants under the credit facility.
On February 1, 2018, the Company amended and restated the credit facility (see Note 22).
Long-term debt consists of the following (in thousands):
Equipment loans
Total long-term debt
Current Installments
December 31
2017
$ —
$ —
$ —
Long-term debt, excluding current installments
$ —
(8) Accrued Expenses
Accrued expenses consist of the following (in thousands):
Compensation
Benefits/self-insurance reserve
Paid time off
Commissions payable
Other
December 31
2017
$ 2,536
334
990
309
1,594
$ 5,763
2016
$ 856
856
(856)
$ —
2016
$ 2,144
180
990
260
1,124
$ 4,698
27
(9) Income Taxes
The Company’s income tax provision for the years ended December 31, 2017, 2016 and 2015 consists of the following (in thousands):
Current:
Federal
State
Deferred:
Federal
State
Years Ended December 31
2017
$ 3,117
551
3,668
(1,091)
72
(1,019)
2016
$ 3,120
651
3,771
546
30
576
2015
$ 3,131
580
3,711
508
(71)
437
Total income tax provision
$ 2,649
$ 4,347
$ 4,148
The approximate tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
liabilities are as follows (in thousands):
December 31
2017
2016
Deferred tax assets:
Reserves
Inventory capitalization
Compensation programs
Retirement liability
Equity-based compensation
Net operating loss carryforwards
Deferred rent
Intangible assets
$ 398
228
394
7
158
—
6
274
$ 531
427
578
19
257
40
7
340
Total deferred tax assets:
$ 1,465
$ 2,199
Deferred tax liabilities:
Excess of book over tax basis of fixed assets
Goodwill
$ (3,305)
(600)
Total deferred tax liabilities
Net long-term deferred tax liabilities
$ (3,905)
$ (2,440)
$ (4,767)
(891)
$ (5,658)
$ (3,459)
The amounts recorded as deferred tax assets as of December 31, 2017 and 2016, 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 $1.5 million at
December 31, 2017, 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 34.0% 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
Years Ended December 31
2017
34.0%
3.5
0.3
(0.6)
(2.6)
0.1
2016
34.0%
3.7
0.2
(0.6)
(2.5)
0.3
2015
34.0%
2.3
0.3
(0.8)
(2.5)
0.4
28
Unrecognized tax benefits
Excised tax benefits on equity awards
Impact on deferred taxes of new legislation
Other
—
(1.4)
(11.1)
0.1
(0.1)
—
—
0.3
—
—
—
1.6
Effective tax rate
22.3%
35.3%
35.3%
On December 22, 2017, the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act (the
“2017 Tax Act”), resulting in significant modifications to existing law. Our financial statements for the year ended December
31, 2017, reflect certain effects of the 2017 Tax Act in the fourth quarter of 2017, the period in which the legislation was enacted,
which includes a reduction in the corporate tax rate from 35% to 21%. The interpretations of many provisions of the 2017 Tax
Act are still unclear. We cannot predict when or to what extent any U.S. federal tax laws, regulations, interpretations, or rulings
clarifying the 2017 Tax Act will be issued or the impact of any such guidance on us. It is also unclear how many U.S. states, if
any, will incorporate these federal law changes, or portions thereof, into their tax codes. Any subsequent changes to state tax
laws may impact our financial condition. Consistent with Staff Accounting Bulletin (“SAB”) No. 118 issued by the Securities
and Exchange Commission (“SEC”), which provides for a measurement period of one year from the enactment date to finalize
the accounting for effects of the 2017 Tax Act, the Company provisionally recorded an income tax benefit of $1.5 million
related to the 2017 Tax Act, including remeasurement of its deferred tax assets and liabilities, and executive compensation
limitations under Internal Revenue Code Section 162(m), among others. The Internal Revenue Service is expected to issue
additional guidance clarifying provisions of the Act. As additional guidance is issued, one or more of the provisional amounts
may change. In accordance with SEC guidance, provisional amounts may be refined as a result of additional guidance from,
and interpretations by, U.S. regulatory and standard-setting bodies, and changes in assumptions. In the subsequent period,
provisional amounts will be adjusted for the effects, if any, of interpretative guidance issued after December 31, 2017, by the U.S.
Department of the Treasury.
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,
income tax returns filed in Massachusetts which have been audited through 2007, income tax returns filed in Florida which
have been audited through 2009, income tax returns filed in New Jersey which have been audited through 2012, and income
tax returns in Colorado which have been audited through 2013. Federal and state tax returns for the years 2014 through 2017
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 (in thousands):
Gross UTB balance at beginning of fiscal year
Reductions for tax positions of prior years
Gross UTB balance at end of fiscal year
2017
$ 150
—
$ 150
December 31
2016
$ 162
(12)
$ 150
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of December 31, 2017
and 2016 is $150,000 and $150,000, respectively.
In addition, the total amount of accrued interest and penalties on uncertain tax positions at December 31, 2017 and 2016 is
$153,000 and $153,000, respectively.
At December 31, 2017, all 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 in 2018, as the examination is expected to
close within the next twelve months.
(10) 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 (in thousands):
Basic weighted average common shares
outstanding during the year
7,248
7,190
Years Ended December 31
2017
2016
2015
7,102
29
Weighted average common equivalent shares due to
stock options and restricted stock units
89
85
104
Diluted weighted average common
shares outstanding during the year
7,337
7,275
7,206
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, 2017, 2016 and 2015, the number of stock awards excluded from
the computation was 27,336, 52,377 and 72,495, respectively.
(11) Stock Option and Equity Incentive Plans
Share-based compensation is measured at the grant date based on the fair value of the award and is recognized as an expense
over the requisite service period (generally the vesting period of the equity grant).
The Company issues share-based awards through several plans that are described below. The compensation cost charged
against income for those plans is included in selling, general & administrative expenses as follows (in thousands):
Share-based compensation related to:
2017
2016
Years Ended December 31
Common stock grants
Stock option grants
Restricted stock unit awards
Total share-based compensation
$ 505
138
425
$ 1,068
$ 505
237
314
$ 1,056
2015
$ 513
282
274
$ 1,069
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”). The Plan was further amended on March 7, 2013,
to (i) prohibit the repricing of stock options or other equity awards without the consent of the Company’s shareholders, and (ii)
prohibit the Company from buying out underwater stock options.
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, 2017, 1,213,764 shares of common stock have been issued under the 2003 Incentive Plan, none of which
have been restricted. An additional 56,902 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, 2017, 185,000 options have been granted and 94,375 options
are outstanding. At December 31, 2017, 893,615 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, which was amended and renamed, on June 3, 2009, the
2009 Non-Employee Director Stock Incentive Plan (the “Director Plan”). The Director Plan was amended on March 7, 2013, to
(i) prohibit the repricing of stock options or other equity awards without the consent of the Company’s shareholders, and (ii)
prohibit the Company from buying out underwater stock options. The Director Plan, as amended, provides for the issuance of
stock options and other equity-based securities of up to 975,000 shares to non-employee members of the Company’s board of
directors. Through December 31, 2017, 338,146 options have been granted and 129,879 options are outstanding. For the year
ended December 31, 2017, 3,882 shares of common stock were issued and 115,336 shares remained available to be issued under
the Director Plan.
The following is a summary of stock option activity under all plans:
30
Weighted Average
Remaining
Aggregate
Shares
Exercise Price
Contractual Life
Intrinsic Value
Under Options
(per share)
(in years)
(in thousands)
Weighted Average
Outstanding December 31, 2016
Granted
Exercised
Cancelled or expired
232,578
27,336
(53,785)
(3,750)
Outstanding December 31, 2017
202,379
Exercisable at December 31, 2017
186,129
Vested and expected to vest at
$ 16.53
27.96
27.09
18.85
$ 18.23
$ 17.43
—
—
—
—
3.46
3.42
—
—
—
—
$ 1,950
$ 1,933
December 31, 2017
202,379
$ 18.23
3.46
$ 1,950
During the years ended December 31, 2017, 2016 and 2015, 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 approximately $0.6 million, $0.7
million and $1.3 million, respectively, and the total amount of consideration received from the exercise of these options was
approximately $0.8 million, $0.7 million and $0.4 million, 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, 2017, 6,511 shares (6,511 for options and zero for taxes) were surrendered at an average market price of $26.45.
During the year ended December 31, 2016, 6,514 shares (6,514 for options and zero for taxes) were surrendered at an average
market price of $25.50. During the year ended December 31, 2015, 1,632 shares (1,632 for options and zero for taxes) were
surrendered at an average market price of $21.97.
On February 21, 2017, the Company’s Compensation Committee approved the award of $400,000 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 19, 2017.
On June 6, 2017, the Company issued 12,336 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.
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, 2017:
Restricted Stock Units
Award Date Fair Value
Weighted Average
Outstanding at December 31, 2016
Awarded
Shares vested
Outstanding at December 31, 2017
46,558
24,256
(13,419)
57,395
$ 20.05
24.87
23.54
$ 21.03
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, 2017, 4,377 shares were redeemed for this purpose at an average market price of $24.50. During the years ended December
31, 2016 and 2015, 3,389 and 3,405 shares were redeemed for this purpose at an average market price of $22.82 and $23.15,
respectively.
The following summarizes the future share-based compensation expense the Company will record as the equity securities
granted through December 31, 2017, vest (in thousands):
Options
Common Stock
2018
2019
$ 44
28
$ —
—
Restricted
Stock Units
$ 370
274
Total
$ 414
302
31
2020
2021
Total
28
—
—
—
187
21
215
21
$ 100
$ —
$ 852
$ 952
Tax benefits totaling approximately $0, $145,000, and $356,000 were recognized as additional paid-in capital during the
years ended December 31, 2017, 2016 and 2015, respectively, since the Company’s tax deductions exceeded the share-based
compensation charge recognized for stock options exercised and RSUs vested.
(12) 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.
(13) 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
$3,000, $4,000 and $4,000 for the years ended December 31, 2017, 2016 and 2015, respectively. The present value of the
supplemental retirement obligation has been calculated using a 3.5% discount rate and is included in other liabilities. Total projected
future cash payments for the years ending December 31, 2018 and 2019 are approximately $25,000 for each year.
(14) Commitments and Contingencies
(a) Leases – The Company has operating leases for certain facilities that expire through 2022. 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, 2017, are as follows (in thousands):
Years Ending December 31
Operating Leases
2018
2019
2020
2021
2022
652
625
644
637
549
Total minimum lease payments
$ 3,107
Rent expense amounted to approximately $0.9 million, $0.8 million and $1.2 million in 2017, 2016 and 2015, respectively.
(b) Legal – From time to time, the Company may be a party to various suits, claims and complaints arising in the ordinary
course of business. In the opinion of management of the Company, these suits, claims and complaints 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.
(15) 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 401(k) deferrals, as well as discretionary profit sharing amounts determined by the Board of Directors
to be funded by March 15 following each fiscal year. Contributions were approximately $770,000, $740,000 and $750,000 in
2017, 2016 and 2015, 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 $225,000 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 other liabilities in the
accompanying balance sheets. At December 31, 2017 and 2016, the balance of the deferred compensation liability totaled
32
approximately $2.0 and $1.7 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 $2.0 and
$1.8 million as of December 31, 2017 and 2016, respectively.
(16) Fair Value of Financial Instruments
Financial instruments recorded at fair value in the consolidated 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 mode.
The Company has no assets and liabilities that are measured at fair value on a recurring basis.
(17) Segment Data
The Company consists of a single operating and reportable segment.
Revenues from customers outside the United States are not material. No customer comprised more than 10% of the
Company’s consolidated revenues for the year ended December 31, 2017. A vast majority of the Company’s assets are located in
the United States.
The Company’s custom products are primarily sold to customers within the Medical, Automotive, Consumer, Aerospace and
Defense, Electronics and Industrial markets. Sales by market for the years ended December 31, 2017, 2016 and 2015 are as follows (in
thousands):
Market
2017 Net Sales %
2016 Net Sales %
2015 Net Sales %
Medical
Automotive
Consumer
Aerospace & Defense
Electronics
Industrial
$ 69,910
47.3%
$ 64,687
44.3%
$ 57,297
41.3%
23,118
15.7%
22,486 15.2%
11,536
7.8%
10,842 7.3%
9,951 6.7%
27,217
18.6%
21,541
14.7%
10,967 7.5%
10,979 7.5%
10,741 7.4%
26,879
19.4%
17,274
12.4%
13,154
13,218
11,028
9.5%
9.5%
7.9%
Net Sales
$ 147,843 100.0%
$ 146,132 100.0%
$ 138,850 100.0%
Certain amounts for the year ended December 31, 2016 were reclassified between markets to conform to the current year
presentation.
(18) Quarterly Financial Information (unaudited)
Summarized quarterly financial data is as follows (in thousands, except per share data):
2017
Net sales
Gross profit
Net income
Basic net income per share
Diluted net income per share
Q1
Q2
Q3
Q4
$ 37,053
$ 37,886
$ 35,684
$ 37,220
9,516
2,171
0.30
0.30
9,941
2,630
0.36
0.36
8,193
1,695
0.23
0.23
7,837
2,714
0.38
0.37
33
2016
Net sales
Gross profit
Net income
Basic net income per share
Diluted net income per share
Q1
Q2
Q3
Q4
$ 34,503
$ 37,902
$ 37,220
$ 36,507
7,727
1,075
0.15
0.15
10,295
2,735
0.38
0.38
8,452
2,669
0.37
0.37
8,176
1,491
0.21
0.20
(19) Plant Consolidation
On March 18, 2015, the Company committed to move forward with a plan to cease operations at its Raritan, New Jersey plant
and consolidate operations into its Newburyport, Massachusetts facility and other UFP facilities. The Company’s decision was in
response to a continued decline in business at the Raritan facility and the purchase of the facility in Newburyport. The activities
related to this consolidation are complete.
The Company also relocated all operations in its Haverhill, Massachusetts and Byfield, Massachusetts facilities and certain
operations in its Georgetown, Massachusetts facility to Newburyport. The Haverhill and Byfield relocations were complete at
December 31, 2015 and the partial Georgetown relocation was complete at June 30, 2017.
The Company has incurred approximately $2.1 million in one-time expenses in connection with the Massachusetts
consolidations. Included in this amount are approximately $180,000 relating to employee severance payments and relocation
costs, approximately $1.6 million in moving expenses and expenses associated with vacating the Raritan, Haverhill and Byfield
properties, and approximately $360,000 in lease termination costs. Total cash charges were approximately $2.0 million.
On July 16, 2014, the Company committed to move forward with a plan to cease operations at its Costa Mesa, California plant
and consolidate operations into its Rancho Dominguez, California facility and other UFP facilities. The Company’s decision was
in response to the December 31, 2014, expiration of the lease on the Costa Mesa facility as well as the close proximity of the two
properties. The California consolidation was complete at December 31, 2015.
The Company has recorded the following restructuring costs associated with the consolidations discussed above for the years
ended December 31, 2017, 2016 and 2015 (in thousands):
2017
2016
2015
Restructuring Costs
Massachusetts
Massachusetts
Massachusetts California Total
Employee severance
$ -
Relocation
Lease termination
63
-
$ -
420
-
$ 178
$ 18 $ 196
1,138
356
66
1,204
-
365
Total restructuring costs
$ 63
$ 420
$ 1,672
$ 84 $ 1,756
The 2017 and 2016 costs were reclassified in the Consolidated Statement of Income as “Restructuring Costs” from Cost of Sales.
The 2015 costs were reclassified in the Consolidated Statement of Income as “Restructuring Costs” as follows: $1,669,000 from
Cost of Sales, $36,000 from Selling, General and Administrative expenses and $51,000 from Gain on sales of property, plant and
equipment.
(20) Related Party Transactions
Daniel Croteau, who has been a member of the Company’s board of directors since December 16, 2015, was the Chief Executive
Officer (through March 2017) of Vention Medical, Inc. (“Vention”), a customer of the Company. Sales to Vention for the three-
months ended March 31, 2017 were approximately $148,000. As a result of the sale of Vention, Mr. Croteau’s employment ended in
March 2017 and sales to Vention are no longer considered related party transactions.
(21) Material Overcharge Settlement
The Company was a participant in a class action lawsuit against a number of polyurethane foam suppliers (“Defendants”) that
was settled during the second quarter of 2016. The suit was filed to recover damages and obtain injunctive relief for Defendants’
alleged violations of the federal antitrust laws with respect to the fixing of prices of polyurethane foam sold from January 1,
1999 through August 2010. During the years ended December 31, 2017 and 2016, the Company received settlement amounts of
approximately $0.1 million and $2.1 million, respectively. The settlement amounts for the years ended December 31, 2017 and 2016
are recorded as “Material overcharge settlement” in the operating income section of the Consolidated Statements of Income.
(22) Subsequent Events
Dielectrics Acquisition
As previously disclosed, on February 1, 2018, the Company acquired Dielectrics, Inc. pursuant to a stock purchase agreement
and related agreements for an aggregate purchase price of $80 million in cash. In connection with its acquisition of Dielectrics, the
Company expects to expense approximately $1.1 million in transaction costs in the first quarter of 2018.
34
Amended and Restated Credit Agreement
On February 1, 2018, the Company, as the borrower, entered into an unsecured $70 million Amended and Restated Credit
Agreement (the “Amended and Restated Credit Agreement”) with certain of the Company’s subsidiaries (the “Subsidiary
Guarantors”) and Bank of America, N.A., in its capacity as the initial lender, Administrative Agent, Swingline Lender and L/C Issuer,
and certain other lenders from time to time party thereto. The Amended and Restated Credit Agreement amends and restates the
Company’s prior credit agreement, originally dated as of December 2, 2013.
The credit facilities under the Amended and Restated Credit Agreement consist of a $20 million unsecured term loan to UFP and
an unsecured revolving credit facility, under which the Company may borrow up to $50 million. The Amended and Restated Credit
Facilities mature on February 1, 2023. The proceeds of the Amended and Restated Credit Agreement may be used for general
corporate purposes, including funding the acquisition of Dielectrics, as well as certain other permitted acquisitions. Included in the
Amended and Restated Credit Facilities is approximately $0.6 million in standby letters of credit drawable as a financial guarantee
on worker’s compensation insurance policies. The Company’s obligations under the Amended and Restated Credit Agreement are
guaranteed by the Subsidiary Guarantors.
The Amended and Restated Credit Facilities call 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 .25% to zero. In both cases the applicable margin
is dependent upon Company performance. Under the Amended and Restated Credit Agreement, the Company is subject to a
minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to EBITDA financial covenant. The
Amended and Restated Credit Agreement contains other covenants customary for transactions of this type, including restrictions
on certain payments, permitted indebtedness and permitted investments. As of March 16, 2018, the Company had approximately
$56 million in borrowings outstanding under the Amended and Restated Credit Facilities, which were used as partial consideration
for the Dielectrics acquisition.
In connection with the Amended and Restated Credit Agreement, the Company entered into a $20 million, 5-year interest rate
swap agreement under which the Company receives three-month LIBOR plus the applicable margin and pays a 2.7% fixed rate plus
the applicable margin. The swap modifies the Company’s interest rate exposure by converting the term loan from a variable rate to
a fixed rate in order to hedge against the possibility of rising interest rates during the term of the loan.
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, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are subject to known and unknown
risks, uncertainties, and other factors, which may cause our or our industry’s actual results, performance, or achievements to be materially
different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking
statements include, but are not limited to, statements about the Company’s prospects, anticipated trends and potential advantages in the
different markets in which the Company competes, including the medical, automotive, consumer, electronics, industrial, and aerospace
and defense markets, statements regarding macroeconomic trends and their results on our business, statements regarding anticipated
new customer and vendor contracts, anticipated advantages relating to the Company’s decisions to consolidate its Midwest, California and
Northeast facilities and the expected cost savings and efficiencies associated therewith, statements regarding the end of the Company’s
automotive door panel program with Mercedes-Benz, the closure of the Company’s Georgia plant and the resulting impact to revenues,
anticipated advantages and the timing associated with requalification of parts, anticipated advantages of maintaining fewer, larger plants,
anticipated advantages to improvements and alterations at the Company’s existing plants, expected improvements to the Company’s cash
flow, anticipated advantages the Company expects to realize from its investments and capital expenditures, including the development of
and investments in its molded fiber product lines, expectations regarding the manufacturing capacity and efficiencies of the Company’s
new production equipment, statements about the Company’s acquisition opportunities and strategies, statements about the Company’s
acquisition of Dielectrics and the integration of the Dielectrics business, the effect of the acquisition of Dielectrics on the Company’s
earnings, and the timing associated therewith, the Company’s participation and growth in multiple markets, including the medical market,
its business opportunities, the Company’s growth potential and strategies for growth, anticipated revenues and the timing of such revenues,
and any indication that the Company may be able to sustain or increase its sales or earnings or sales and earnings growth rates. Investors
are cautioned that such forward-looking statements involve risks and uncertainties, including without limitation risks and uncertainties
associated with the Company’s acquisition and integration of Dielectrics, risks associated with the effect of the acquisition of Dielectrics on
the Company’s earnings, risks associated with plant closures and consolidations, including the closure of our Georgia plant, and expected
efficiencies from consolidating manufacturing, risks associated with the Company’s entry into and growth in certain markets, risks and
uncertainties associated with the requalification of parts, the risk that the Company may not be able to finalize anticipated new and long-term
customer and vendor contracts, risks associated with the implementation of new production equipment and requalification or recertification
of transferred equipment in a timely, cost-efficient manner, risks that any benefits from such new equipment may be delayed or not fully
realized, or that the Company may be unable to fully utilize its expected production capacity, and risks and uncertainties associated with the
identification of suitable acquisition candidates and the successful, efficient execution of acquisition transactions, integration of any such
acquisition candidates and the value of those acquisitions to our customers and shareholders. Accordingly, actual results may differ materially.
The forward-looking statements contained herein speak only of the Company’s expectations as of the date of this Report. Except as
otherwise required by law, 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. We qualify all of our forward-looking statements by these cautionary statements and those set forth in our other filings
with the Securities and Exchange Commission, including those set forth under Part I, Item 1A in the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2017. We caution you that these risks are not exhaustive. We operate in a continually changing business
environment, and new risks emerge from time to time.
35
STOCKHOLDER INFORMATION
TRANSFER AGENT AND REGISTRAR
American Stock Transfer
CORPORATE HEADQUARTERS
UFP Technologies, Inc.
BOARD OF DIRECTORS
AND EXECUTIVE OFFICERS
and Trust Company, LLC
100 Hale Street
6201 15th Avenue, 3rd Floor
Newburyport, MA 01950 USA
R. Jeffrey Bailly
do
Brooklyn, NY 11219
(978) 352-2200 phone
Chairman, CEO and President
ANNUAL MEETING
The annual meeting of stockholders will
PLANT LOCATIONS
California, Colorado, Florida, Iowa,
be held at 10:00 a.m., on June 6, 2018, at
Massachusetts, Michigan, Texas
UFP Technologies, Inc., 100 Hale Street,
Newburyport, MA 01950.
INDEPENDENT REGISTERED PUBLIC
Retired Partner
COMMON STOCK LISTING
UFP Technologies’ common stock
ACCOUNTANTS
Grant Thornton LLP
125 High Street, 21st Floor
is traded on Nasdaq under the
Boston, MA 02110
symbol UFPT.
STOCKHOLDER SERVICES
Stockholders whose shares are held in
CORPORATE COUNSELS
Lynch Fink & Labelle LLP
6 Beacon Street, Suite 415
street names often experience delays
Boston, MA 02108
Daniel C. Croteau
Chief Executive Officer
Surgical Specialties Corporation
Cynthia L. Feldmann
KPMG LLP
Ronald J. Lataille
Sr. Vice President, Treasurer,
Secretary and
Chief Financial Officer
Christopher P. Litterio, Esq.
o
General Counsel &
Sr. Vice President
Human Resources
Marc D. Kozin
Senior Advisor
LEK Consulting, LLC
Thomas Oberdorf
President & CEO
SIRVA, Inc.
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
our financial results, what we do as a
Robert W. Pierce, Jr.
company, and where we are headed
in the future. We aim to achieve
Chairman, CEO,
and Co-Owner
these goals with clarity, simplicity,
Pierce Aluminum Company, Inc.
and efficiency. We welcome your
comments and suggestions.
WORLD WIDE WEB
In the interest of providing timely, cost-
effective information to shareholders,
press releases, SEC filings, and other
investor-oriented matters are available
on the Company’s website at
www.ufpt.com/investors/filings.html.
Lucia Luce Quinn
Chief People Officer
Forrester Research, Inc.
Mitchell C. Rock
Sr. Vice President
Sales and Marketing
Daniel J. Shaw, Jr.
Vice President
Research & Development
W. David Smith
Sr. Vice President
Operations
d Directors
o Officers
in receiving company communications
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
100 Hale Street
Newburyport, MA 01950 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, 2017,
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
d
d
o
d
d
d
d
o
o
o
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 and 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.
100 Hale Street, Newburyport, MA 01950
978 352 2200 | ufpt.com