Quarterlytics / Healthcare / Medical - Devices / UFP Technologies, Inc. / FY2019 Annual Report

UFP Technologies, Inc.
Annual Report 2019

UFPT · NASDAQ Healthcare
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Ticker UFPT
Exchange NASDAQ
Sector Healthcare
Industry Medical - Devices
Employees 4146
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FY2019 Annual Report · UFP Technologies, Inc.
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BRINGING THE

FUTURE INTO
FOCUS 

2 0 1 9   A N N U A L   R E P O R T

2019
ANNUAL
REPORT

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

innovative designer and custom manufacturer 

of components, subassemblies, products and 

packaging primarily for the medical market.

Utilizing highly specialized foams, films and plastics, UFP 
converts raw materials through laminating, molding, radio 
frequency welding and fabricating techniques. The Company is 
diversified by also providing highly engineered solutions to 
customers in the aerospace & defense, automotive, consumer, 
electronics and industrial markets.

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

  40

Stockholder Information

1

 
 
 
 
 
We continue to shift our business 
toward higher-margin, longer-run 
opportunities, particularly in the 
medical market.

DEAR FELLOW SHAREHOLDER,

As I write this letter, we are in a fast-changing and 
unprecedented environment due to the coronavirus 
outbreak. We are working hard to keep our employees 
and communities safe, and to ensure the continuity of 
supply to our customers. 

We do important work that feeds our healthcare 
system with products and components that impact 
patient safety, comfort and well-being – and most 
crucially the outcome of their hospital stays and 
procedures. From preventing infections, to providing 
patient surfaces such as hospital bed mattresses, to 
producing home rehabilitation products that help 
patients advance their healing outside of the hospital, 
we view it as our duty to apply all our capabilities to 
help mitigate this crisis. In order to continue this vital 
work, keeping our factories clean and safe for our 
employees is absolutely essential.  

It is hard to know the overall impact COVID-19 will 
have on our business. In some cases, customers 
are asking us to double our output to keep up with 
increased demand. But I also know that some of our 
solutions are used in elective medical procedures that 
will likely be delayed until the pandemic has passed.

What I can share with you is that, as of this writing, 
we are working diligently with our suppliers (almost 
all of which are based in the U.S.) to meet the needs 
and requests of our customers and communities. We 
are here to serve in every way we possibly can, and 
determined to do our part to help bring this crisis 
under control.  

YEAR IN REVIEW AND  
FUTURE OUTLOOK   

Turning now to our 2019 results, I can report that it 
was another record year for UFP Technologies. Our 
revenues rose 4% to $198.4 million, while net income 
grew 38% to $19.75 million. Why was that bottom line 
growth percentage so much greater? The answer lies 
in how your Company has evolved – and how this 
evolution has clarified our vision for the future. 

A CONSTANTLY IMPROVING  
BOOK OF BUSINESS 

For years, we have been shifting our business toward 
higher-margin, longer-run opportunities, particularly 
in the medical market. After growing 16.9% in 2019, 
medical sales now account for 65% of our total. 

That’s because we bring a deep expertise in areas 
such as infection prevention, wound care, orthopedics 
and minimally invasive surgery. As I’ve said many 
times, this is where customer needs and our unique 
skills are perfectly aligned. Because innovative 
solutions, precision manufacturing and quality are 
paramount, our engineering talent, materials expertise 
and production systems are highly valued across this 
large and growing market. In fact, our customers now 
include most of the world’s largest medical device 
manufacturers. The margins are strong, and the 
programs typically last many years. 

2
222

DILUTED EARNINGS PER SHARE

2.63

1.93

1.26

1.05

1.10

2015

2016

2017

2018

2019

At the same time, we’ve been optimizing our 
overall book of business, shifting away from lower-
margin, smaller-volume jobs in some of our less 
strategic segments. We still see great opportunities 
in other areas such as aerospace & defense. And 
we will continue to produce valuable solutions 
for our automotive, consumer, electronics and 
industrial customers, who remain essential to our 
overall mix. But in many cases, these programs 
don’t require our full arsenal of capabilities. So our 
resources, such as engineering talent and capital, 
are disproportionately aimed at the faster-growing 
medical opportunities.

As a result, we’ve refocused our organizational 
structure into two groups. The Medical Technology 
group will work to continue building our thriving 
medical and biotech business. The Advanced 
Components group will focus on creating longer-
term, higher-margin solutions for non-medical 
markets. Each group will take an integrated 
approach, combining sales, engineering and 
operations teams to target new opportunities and 
grow existing ones. You can read more about it in 
the following pages.  

ALSO DRIVING PROFITS:  
GREATER OPERATING EFFICIENCY  

This has been another major point of emphasis 
in recent years. A series of lean manufacturing 
initiatives and automation investments have 
improved our efficiency and reduced direct labor 

costs as a percentage of sales – despite rising wages 
in a challenging labor market. As a result, we have 
increased gross margins from 24% of sales to 27.2% 
in the past two years alone. Long-term contracts 
and partnerships with both suppliers and customers 
have helped to justify these efficiency investments 
and create a win-win environment for all involved.  

SETTING UP OUR  
NEXT STAGE OF GROWTH    

There are some other important ways we’ve been 
moving our business forward. 

•  Adding experienced talent across the Company. 
We brought on a new chief operating officer for 
our Dielectrics team, who now leads operations 
at two of UFP’s most important medical facilities. 
And we added key talent to our program 
management, engineering, sales and quality 
groups. We will continue to strengthen the team 
and work to increase employee engagement. This 
will help us benefit from everyone’s great ideas, 
and ensure that all team members have a clear 
understanding of our strategy and how they fit 
into it. 

•  Ramping up product development. We are 

focused on growing our product development 
business, which brings several key benefits. It 
tightens our customer and vendor relationships 
as we collaborate on product design. It feeds our 
production pipeline and often translates into 

3
333

long-term, high-margin manufacturing revenue in 
the years ahead. It also increases our knowledge 
base and technical capabilities – and allows us to 
benefit from significant R&D tax incentives. 

•  Paying off debt and freeing up capital for 

acquisitions. We paid off the balance of the $56 
million we borrowed to purchase Dielectrics in 
2018, a testament to the quality of the acquisition 
and the value created by combining these two 
businesses. Now we again have ample borrowing 
capacity to finance future acquisitions aimed 
at increasing our value to customers with new 
capabilities, talent or locations. 

•  Improving metrics in several key areas. We made 
important strides to improve our quality systems, 
on-time delivery and critical safety metrics. We’re 
building our in-house expertise and utilizing third-
party experts to continue to improve these areas 
and provide additional employee training and 
support. 

•  Earning workplace recognition. UFP has 

recently been named among “The Best and 
Brightest Companies to Work For®” at our two 
largest locations in Massachusetts and Michigan. 
The measures include communication, work-
life balance, employee education, diversity, 
recognition, retention and more. Awards like 
this are a testament to our increasing employee 
engagement, and help us attract the dedicated 
talent we need to continue growing the business. 

MARKET-FOCUSED,  
CUSTOMER-DRIVEN    

While the past few years have brought 
unprecedented change and growth, our core values 
and strategic vision have not changed. We focus our 
resources on the best-fit market opportunities, then 
strive to continuously increase the value we bring 
to our customers. We do this with creative problem 
solving, cutting-edge processing and the kind of 
market insights and technical expertise for which 
UFP is known. Innovation is simply in our DNA. 

Still, our business has evolved in many important 
ways, and our vision for the future has become 
more focused. We know, better than ever, how to 
become even more valuable to our customers and 
shareholders, how to build profitable partnerships 
that endure, and where to direct our energy and 
resources. As we build on the momentum of recent 
years, we will pursue the best opportunities before 
us with passion and purpose. I believe the pieces are 
all in place for continued success, and I thank you 
very much for your support.

Sincerely,

R. Jeffrey Bailly
Chairman and CEO

4444

 
MEDICAL TECHNOLOGY GROUP 
Focused on continuing to build our  
fast-growing medical and biotech business 

SOLID PLATFORM,  
POWERFUL ADVANTAGES 

Since 2014, our medical business has delivered 
a compound annual growth rate of 20.8%. 
This is our sweet spot. So we’ve combined 
key members of our sales, engineering and 
operations groups into a unified Medical 
Technology team charged with making these 
programs an even larger part of our business. 

Our medical portfolio includes a broad range 
of critical offerings, from infection prevention 
systems and orthopedic implant packaging to 
medical device development and advanced 
wound care therapy. As solutions continue 
to grow more sophisticated, we are ideally 
positioned to meet customers’ changing needs 
and target new product categories that fit our 
skills. Our competitive advantages include: 

•  An engineering group with the proven ability 
to solve customers’ most critical medical 
device issues

•  Exclusive or semi-exclusive access to a 
range of key medical-grade materials

•  Multiple FDA-approved plants with extensive 

clean room facilities

•  Advanced systems to ensure quality

•  The ability to design and manufacture 
custom equipment, and much more 

555

STRONGER TOGETHER 

As expected, our 2018 Dielectrics acquisition 
has performed very well and quickly become an 
essential part of our medical platform. In 2019, 
we integrated this business further into UFP 
by launching a duplicate manufacturing line in 
a UFP medical facility for one of our fastest-
growing Dielectrics programs. This increased 
capacity enabled us to meet the rising demand, 
transfer know-how from Dielectrics to UFP, 
provide a backup manufacturing location for  
our customer and free up space for new 
programs at our Dielectrics facility.

This is an excellent example of how our 
combined medical resources are much more 
than the sum of their parts. And it illustrates how 
we will continue to tackle more of the high-value, 
long-term programs our customers are bringing 
to us.   

6
6

ADVANCED COMPONENTS GROUP 
Focused on creating longer-lasting, higher-margin solutions 

This group utilizes our platform of materials 
and capabilities to meet the needs of markets 
outside of medical, where our skills can add 
significant value and lead to long-term profitable 
programs. In 2019, non-medical markets 
combined for approximately $70 million in 
sales. Our new Advanced Components group is 
charged with optimizing the success of these 
programs – and pursuing new opportunities 
where we can add the most value and earn the 
highest returns. 

For example, we see strong potential in 
aerospace & defense, where our materials 
expertise, engineering talent and precision 
manufacturing provide a strong competitive 
edge. The same is true in automotive, where  
our precision components help to reduce weight 
and noise for many of the world’s leading 
brands. By bringing these and other non-medical 
segments under one umbrella, we will work to 
sharpen our focus on the best-fit opportunities, 
improve our efficiency and optimize the 
potential of this important part of our business. 

7
57

SELECTED FINANCIAL DATA

The following table summarizes the Company’s 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 the Company’s 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, 2019, 2018 and 2017, and the selected balance 
sheet data as of December 31, 2019 and 2018, 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, 2016 and 2015, and the selected 
balance sheet data at December 31, 2017, 2016 and 2015 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 Statements of Income data 

2019 

2018 

2017 

2016 

2015

Net sales 

Gross profit 

Operating income 

Net income from consolidated operations 

Diluted earnings per common share 

Weighted average number of diluted common shares outstanding 

$  198,381  

$  190,455 

$  147,843  

$  146,132  

$  138,850 

$  53,959  

$  48,308 

$  35,487  

$  34,650  

$  37,454 

$  24,708  

$ 

$ 

19,750  

2.63  

7,516  

$ 

$ 

$ 

19,612 

14,311 

1.93 

7,430 

$ 

$ 

$ 

11,693  

9,210  

1.26  

7,337  

$ 

$ 

$ 

12,237  

7,970  

1.10  

7,275  

$ 

$ 

$ 

11,714 

7,593 

1.05 

7,206 

Consolidated Balance Sheets data 

2019 

2018 

2017 

2016 

2015 

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

$  36,942 

$  34,968 

$ 

65,131  

$  60,291 

$  52,620

$  188,758  

$  189,598 

$  138,207  

$  127,934  

$ 

119,635 

$ 

$ 

- 

- 

$ 

2,857 

$  22,286 

$  26,767  

$ 

49,141 

$ 

161,991 

$  140,457 

$ 

$ 

$ 

$ 

-  

-  

14,495 

$ 

$ 

$ 

856  

-  

14,881  

$ 

$ 

$ 

1,011 

859

16,063

123,712 

$  113,053 

$  103,572

The Company’s common stock is listed on the NASDAQ Capital Market under the symbol “UFPT”. 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, 2018 to 

December 31, 2019:

Fiscal Year Ended December 31, 2018 

First Quarter 

Second Quarter 

Third Quarter 

Fourth Quarter 

Fiscal Year Ended December 31, 2019 

First Quarter 

Second Quarter 

Third Quarter 

Fourth Quarter 

High 

 $  31.30 

  34.00 

  37.25 

  39.98 

High 

 $  37.58 

  42.87 

  46.42 

  50.00 

Low

$  26.05

29.00

30.58

28.25

Low

$  27.80

34.05

38.00

38.22

NUMBER OF STOCKHOLDERS

As of March 5, 2020, there were 78 holders of record of the Company’s common stock.

Since 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 beneficial stockholders represented by these holders of record.

8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DIVIDENDS

The Company did not pay any dividends in 2019 or 2018. The Company presently intends to retain all 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, 2019, 2018 and 2017.  During the year ended December 31, 2015, the Company repurchased 29,559 shares of common stock at a 
cost of approximately $587 thousand.  At December 31, 2019, 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 

The Company is an innovative designer and custom manufacturer of components, subassemblies, products and packaging utilizing 
highly specialized foams, films, and plastics primarily for the medical market. The Company manufactures its products by converting 
raw materials using laminating, molding, radio frequency and impulse welding and fabricating manufacturing techniques. The 
Company is diversified by also providing highly engineered products and components to customers in the aerospace and defense, 
automotive, consumer, electronics and industrial markets. The Company consists of a single operating and reportable segment. 

Sales for the Company for the year ended December 31, 2019 grew 4.2% to $198.4 million from $190.5 million for the year ended 
December 31, 2018 largely due to strong growth in sales to customers in the medical market.  Streamlined manufacturing operations 
and a better mix of business enabled the Company to improve gross margins to 27.2% for the year ended December 31, 2019, from 
25.4% in 2018.  Operating income and net income for the year ended December 31, 2019 grew by 26.0% and 38.0%, respectively.

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

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 

Acquisition costs 

Restructuring costs 

Operating income 

Total other expense (income) 

Income before taxes 

Income tax expense 

Net income from consolidated operations 

2019  

2018 

2017

100.0%  

100.0% 

100.0%

72.8%  

27.2%  

14.7%  

0.0% 

0.0%  

12.5%  

0.5% 

12.0%  

2.0%  

10.0%  

74.6% 

25.4% 

14.5% 

0.6% 

0.0% 

10.3% 

0.7% 

9.6% 

2.1% 

7.5% 

76.0%

24.0%

16.0%

0.0%

0.0%

8.0%

-0.1%

8.1%

1.9%

6.2%

2019 COMPARED TO 2018

Sales 
Net sales increased 4.2% to $198.4 million for the year ended December 31, 2019 from net sales of $190.5 million in 2018. The increase 
in sales was primarily due to increased sales to customers in the medical, and aerospace and defense markets of 16.9%, and 5.0%, 
respectively. These increases were partially offset by a collective decline in sales to the consumer, electronics, and industrial markets 
of 24.1%. The increase in sales to customers in the medical market was primarily due to strong sales at Dielectrics (including one 

9

 
 
 
 
 
 
 
 
additional month of sales of $3.1 million) as well as increased demand from legacy UFP medical customers. The increased demand 
for sales to customers in the aerospace & defense market is due to increased government spending.  The collective decline in sales to 
customers in the consumer, electronics and industrial markets was primarily due to decreased demand for molded fiber packaging.

Gross Profit
Gross profit as a percentage of sales (“Gross Margin”) increased to 27.2% for the year ended December 31, 2019, from 25.4% in 2018. 
As a percentage of sales, material and direct labor costs collectively decreased approximately 0.5%, while overhead decreased 
approximately 1.3%. The decrease in collective material and labor costs as a percentage of sales is primarily due to gains in 
manufacturing efficiencies resulting from continuous improvement initiatives and an improvement in the overall book of business.  
The decline in overhead as a percentage of sales was primarily due to leveraging fixed overhead costs against increased sales as well 
as targeted cost cuts.

Selling, General and Administrative Expenses
Selling, General, and Administrative Expenses (“SG&A”) increased approximately 5.8% to $29.3 million for the year ended December 
31, 2019, from $27.7 million in 2018.  As a percentage of sales, SG&A increased to 14.7% in 2019, from 14.5% in 2018.  The increase 
in SG&A is primarily due to one extra month of operations at Dielectrics as well as compensation increases and new strategic 
management hires at the Company’s plants. 

Interest Income and Expense 
The Company had net interest expense of approximately $0.7 million and $1.3 million for the years ended December 31, 2019 and 
2018, respectively. The decrease in net interest expense was primarily due to lower debt levels.

Income Taxes 
The Company recorded income tax expense, as a percentage of income before income tax expense, of 16.5% for the year ended 
December 31, 2019 compared to 22.2% for the same period in 2018.  The decline in the Company’s effective tax rate for the year 
ended December 31, 2019, was largely due to a significant increase in the amount of business tax credits earned in its federal and 
state 2018 tax returns due, in part, to qualifying research expenses at Dielectrics.  

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 into income tax expense.

2018 COMPARED TO 2017

Sales 
Net sales increased 28.8% to $190.5 million for the year ended December 31, 2018, from net sales of $147.8 million in 2017. The 
increase in sales was primarily due to Dielectric’s sales of approximately $36.2 million, which were all in the medical market. On 
a market basis, sales to customers in the medical, aerospace and defense and consumer markets grew 57.3%, 14.0% and 17.2%, 
respectively, while sales to customers in the automotive market declined 13.4%. The increase in sales to customers in the medical 
market was primarily due to sales by Dielectrics as well as a 5.8% increase in demand from the Company’s legacy medical customers. 
The increase in sales to customers in the aerospace and defense market was largely due to a general uptick in government contract-
based orders. The increase in sales to customers in the consumer market was primarily due to sales of molded fiber protective 
packaging to a new customer. The decline in sales to customers in the automotive market was primarily due to the phase-out of the 
automotive door panel program for Mercedes-Benz.

Gross Profit
Gross profit as a percentage of sales (“Gross Margin”) increased to 25.4% for the year ended December 31, 2018, from 24.0% in 2017. 
As a percentage of sales, material and direct labor costs collectively decreased approximately 0.6%, while overhead decreased 
approximately 0.8%. The decrease in material and direct labor costs as a percentage of sales was primarily due to increased 
manufacturing efficiencies resulting from continuous improvement initiatives as well as strategic price increases. The decrease in 
overhead was primarily due to the increase in sales on fixed overhead costs partially offset by the impact on overhead of rising health 
care costs. 

Selling, General and Administrative Expenses
Selling, General and Administrative Expenses (“SG&A”) increased approximately 16.6% to $27.7 million for the year ended December 
31, 2018, from $23.7 million in 2017. As a percentage of sales, SG&A decreased to 14.5% in 2018 from 16.0% in 2017. The increase 
in SG&A for the year ended December 31, 2018 is due to approximately $2.6 million in SG&A expenses from Dielectrics as well as 
higher health care costs. The decrease in SG&A as a percentage of sales is primarily due to lower SG&A as a percentage of sales at 
Dielectrics as well as specific initiatives to reduce costs. 

Acquisition Costs
The Company incurred approximately $1.1 million in costs associated with the Dielectrics acquisition which were charged to expense 
for the year ended December 31, 2018. These costs were primarily for investment banking and legal fees and are reflected on the face 
of the income statement.

Interest Income and Expense
The Company had net interest expense of approximately $1.3 million and net interest income of approximately $0.2 million for the years 
ended December 31, 2018 and 2017, respectively. The increase in net interest expense is primarily due to interest paid on the debt incurred 
to finance the Dielectrics acquisition. 

10

 
Income Taxes

The Company recorded income tax expense, as a percentage of income before income tax expense, of 22.2% for the year ended 
December 31, 2018 compared to 22.3% for the same period in 2017.

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, 2019 was approximately $31.2 million and was primarily a result 
of net income generated of approximately $19.7 million, depreciation and amortization of approximately $8.2 million, share-based 
compensation of approximately $1.6 million, an increase in deferred taxes of approximately $0.8 million, a decrease in inventory of 
approximately $1.3 million, a decrease in refundable income taxes of approximately $2.0 million, and an increase in other long term 
liabilities of approximately $0.3 million due primarily to a change in the fair value of the interest rate swap. These cash inflows and 
adjustments to income were partially offset by an increase in accounts receivable of approximately $0.3 million and an increase in 
accounts payable and accrued expenses of approximately $2.4 million due to the timing of vendor payments in the ordinary course 
of business.

Net cash used in investing activities during the year ended December 31, 2019 was approximately $5.8 million and was primarily the 
result of additions of manufacturing machinery and equipment and various building improvements across the Company.

Net cash used for financing activities was approximately $25.0 million for the year ended December 31, 2019, resulting from 
repayments on the Company’s credit facility of approximately $25.2 million and payments of statutory withholding for stock options 
exercised and restricted stock units vested of approximately $0.5 million, offset by net proceeds received upon stock option 
exercises of approximately $0.7 million.

Outstanding and Available Debt
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.

The credit facilities under the Amended and Restated Credit Agreement (the “Amended and Restated Credit Facilities”) consist of a 
$20 million unsecured term loan to the Company 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, as well as permitted acquisitions.  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 0.25% 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 December 31, 2019, there were $0.7 million in standby letters of credit outstanding, 
drawable as a financial guarantee on worker’s compensation insurance policies. As of December 31, 2019, the applicable interest rate 
was approximately 2.8% and the Company was in compliance with all covenants under the Amended and Restated Credit Agreement. 

Long-term debt consists of the following (in thousands):

Revolving credit facility 
Term loan 

Total long-term debt 

Current portion 
Long-term debt, excluding current portion 

                  Years Ended December 31               

2019 

- 
- 
- 

- 
- 

$ 

$ 

2018 

8,000 
17,143
25,143

(2,857) 
22,286 

$ 

$ 

Derivative Financial Instruments
The Company used interest-rate-related derivative instruments to manage its exposure related to changes in interest rates on certain 
of its variable-rate debt instruments. The Company does not enter into derivative instruments for any purpose other than cash flow 
hedging. Derivative financial instruments expose the Company to credit risk and market risk. Credit risk is the failure of the counterparty 
to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes 
the Company, creating credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the 
counterparty and, therefore, in these circumstances the Company is not exposed to the counterparty’s credit risk. The Company 

11

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
minimizes counterparty credit risk in derivative instruments by entering into transactions with carefully selected major financial 
institutions based upon their credit profile. Market risk is the adverse effect on the value of a derivative instrument that results from a 
change in interest rates. 

The Company assesses interest rate risk by continually identifying and monitoring changes in interest rate exposures that may adversely 
impact expected future cash flows and by evaluating hedging opportunities. The Company’s debt obligations exposed the Company 
to variability in interest payments due to changes in interest rates. The Company believed that it was prudent to limit the variability 
of a portion of its interest payments. To meet this objective, 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 modified 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. The notional amount was $14,285,712 at December 31, 2019. The fair value of the swap as of December 31, 2019 was 
approximately $(325) thousand and is included in other liabilities. Changes in the fair value of the swap are recorded in other income/
expense and resulted in expense of approximately $388 thousand and income of $64 thousand during the years ended December 31, 
2019 and 2018, respectively.

During the fourth quarter of 2019, the Company paid the remaining balance of the term loan in its entirety. As a result, there is no 
longer underlying debt to hedge against with the swap. The changes in the fair value of the swap will continue to be accounted for as a 
financial instrument until the sooner of the time that the Company elects to cancel it or until its maturity.

Future Liquidity
The Company requires cash to pay its operating expenses, 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 $31.2 million in operations during the year ended December 31, 2019; 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 2020, 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 additional bank borrowings, will be sufficient to fund its cash flow requirements, including capital asset 
acquisitions, through the next twelve months.  

The Company may also require additional capital in the future to fund capital expenditures, acquisitions or other investments.  These 
capital requirements could be substantial.  The Company anticipates that any future expansion of its business will be financed through 
existing resources, cash flow from operations, the Company’s revolving credit facility, or other new financing. The Company cannot 
guarantee that it will be able to meet existing financial covenants or obtain other new financing on favorable terms, if at all. The 
Company’s liquidity will be impacted to the extent additional stock repurchases are made under the Company’s stock repurchase 
program.

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, 2019, 2018 and 2017. At December 31, 2019, approximately $9.4 million was available for future 
repurchases of the Company’s common stock under this authorization.

CONTRACTUAL OBLIGATIONS

The following table summarizes the Company’s contractual obligations at December 31, 2019:

    Payment Due By Period (in thousands) (1)

Total 

Less than 

1 Year 

 1-3 

Years 

 3-5 

Years 

More than

5 Years

Operating leases (2) 

$ 

3,284 

Total (3) 

$  3,284  

$ 

$ 

1,173 

$ 

2,075 

1,173  

$  2,075 

$ 

$ 

36 

36  

$ 

$ 

-

-

12

 
 
 
 
 
 
 
 
 
 
 
 
 
(1) 

The amounts set forth in the “Less than 1 Year” column represents amounts to be paid in 2020, the “1-3 Years” column represents amounts to be paid in 2021 
and 2022, the “3-5 Years” column represents amounts to be paid in 2023 and 2024 and the “More than 5 Years” column represents amounts to be paid after 
2024.

(2)  Represents scheduled payments for non-cancelable building lease commitments. See Note 15 to the accompanying Consolidated Financial Statements.

(3) 

In addition, the Company incurs various purchase obligations in the ordinary course of business which relate to commitments to purchase materials, supplies, 
machinery and tooling.

The Company requires cash to pay its operating expenses, purchase capital equipment, and to service the obligations listed above. 
The Company’s principal sources of funds are its operations and its revolving credit facility. Although the Company generated cash 
from operations in the year ended December 31, 2019, 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 Company’s Annual Report on form 10-K for the year ended December 31, 
2019 and the general disclaimers set forth in our Special Note Regarding Forward-Looking Statements contained in this Report, the 
Company believes that cash flow from operations will provide it with sufficient funds in order to fund its 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, 2019, there was approximately $0.7 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 this 
Report. 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 Beginning in 2018, the Company recognizes revenue when a customer obtains control of a 

promised good or service. The amount of revenue recognized reflects the consideration that the Company expects 
to be entitled to in exchange for promised goods or services. The Company recognizes revenue in accordance with 
the core principles of ASC 606 which 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. The Company recognizes all but an immaterial portion of its 
product sales upon shipment. The Company recognizes revenue from the sale of tooling and machinery primarily upon 
customer acceptance, with the exception of certain tooling where control does not transfer to the customer, resulting 
in revenue being recognized over the estimated time for which parts are produced with the use of each respective tool. 
The Company recognizes revenue from engineering services as the services are performed. The Company recognizes 
revenue from bill and hold transactions at the time the specified goods are complete and available to the customer. In the 
ordinary course of business, the Company accepts sales returns from customers for defective goods, such amounts being 
immaterial. Although only applicable to an insignificant number of transactions, the Company has elected to exclude sales 
taxes from the transaction price. The Company has elected to account for shipping and handling activities for which the 
Company is responsible under the terms and conditions of the sale not as performance obligations but rather as fulfillment 
costs. These activities are required to fulfill the Company’s promise to transfer the good and are expensed when revenue is 
recognized.

For the year 2017, prior to ASC 606, the Company recognized 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. 

•  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. 

13

 
 
The Company consists of a single reporting unit. The Company last performed “step 1” of the goodwill impairment test as of 
December 31, 2018. In testing goodwill for impairment at December 31, 2018, the Company primarily 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 in size and market capitalization to each other and to 
   the Company.

  As of December 31, 2018, based on our calculations under the above noted approach, the fair value of the reporting 

unit significantly exceeded the carrying value of the reporting unit. 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, 2019 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 2018 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.

 •  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, 2019.

• 

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, 2019.

•  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.

14

 
 
 
 
 
 
 
 
 
 
 
 
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, 2019, 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. calls for interest of 
LIBOR plus a margin that ranges from 1.0% to 1.5% or, at the discretion of the Company, the bank’s prime rate less a margin that ranges from 
0.25% to zero. Therefore, future operations could be affected by interest rate changes. As of December 31, 2019, the applicable interest rate 
was approximately 2.8%. The Company uses interest-rate-related derivative instruments to manage its exposure related to changes in interest 
rates. In connection with this credit facility, 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 modified 
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.

15

REPORT OF INDEPENDENT REGISTERED  
PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders 
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, 2019 and 2018, the related consolidated 
statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended 
December 31, 2019, and the related notes and financial statement schedule under Item 15(a) (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, 2019 and 2018, and the results 
of its operations and its cash flows for each of the three years in the period ended December 31, 2019, 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, 2019, 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 13, 2020 expressed an unqualified opinion.

Change in accounting principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method 
of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Codification 
(ASC) Topic 842, Leases.

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 13, 2020

16

REPORT OF INDEPENDENT REGISTERED  
PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders 
UFP Technologies, Inc.

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of UFP Technologies (a Delaware corporation) and subsidiaries 
(the “Company”) as of December 31, 2019, 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, 2019, 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, 2019, and our 
report dated March 13, 2020 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 (“Management’s Report”). 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 13, 2020

17

CONSOLIDATED BALANCE SHEETS 
(IN THOUSANDS, EXCEPT SHARE DATA) 

                                     DECEMBER 31

ASSETS 

Current assets:

Cash and cash equivalents 

$ 

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 

Operating lease right of use assets 

Other assets 

Total assets 

LIABILITIES AND STOCKHOLDERS’ EQUITY 

Current liabilities: 

Accounts payable  

Accrued expenses  

Deferred revenue 

Operating lease liabilities 

Current installments of long-term debt  

Total current liabilities 

Long-term debt, excluding current installments 

Deferred income taxes  

Non-qualified deferred compensation plan 

Operating lease liabilities 

Other liabilities 

Total liabilities 

Commitments and contingencies (Note 14) 

Stockholders’ equity: 

  Preferred stock, $.01 par value, 1,000,000 shares authorized; 
  no shares issued 

  Common stock, $.01 par value, 20,000,000 shares authorized; 
  7,475,768 and 7,446,209 shares issued and outstanding, respectively 
  at December 31, 2019; 7,415,002 and 7,385,443 shares issued
  and outstanding, respectively at December 31, 2018 

  Additional paid-in capital 

  Retained earnings 

  Treasury stock at cost, 29,559 shares at 
  December 31, 2019 and 2018 

Total stockholders’ equity 

2019  

2018

3,743 

28,648 

18,276 

2,304 

279 

53,250 

116,089  

(59,350) 

56,739 

51,838 

20,975 

2,775 

3,034 

147 

$          

3,238

28,321  

19,576

2,206

2,285

55,626

111,779

(54,112)

57,667

51,838

22,232

2,034 

-

201 

$ 

188,758 

$ 

   189,598

$ 

         4,577  

$ 

         6,836  

8,483 

2,574 

674 

- 

16,308 

-  

4,921  

2,788  

2,416 

334 

8,458

2,507

-

2,857  

20,658  

22,286 

4,129  

2,044

-

24 

26,767  

49,141  

— 

—

74 

30,952 

131,552 

 (587) 

161,991 

 74  

 29,168  

 111,802 

 (587)  

140,457  

Total liabilities and stockholders’ equity 

$ 

   188,758 

$ 

   189,598

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

2019  

2018 

2017 

$    198,381  

$   190,455 

  $   147,843 

Selling, general and administrative expenses 

29,251  

Net sales   

Cost of sales  

Gross profit 

Acquisition costs 

Restructuring costs 

(Gain) Loss on sales of property, plant and equipment 

Operating Income 

Interest income 

Interest expense 

Other (expense) income 

Income before income tax provision 

Income tax expense 

Net income 

Net income per common share outstanding:

144,422  

53,959  

— 

—  

—  

24,708  

—  

(674)  

(388)  

23,646 

3,896  

142,147 

48,308 

27,654 

1,089 

— 

(47) 

19,612 

47 

(1,320) 

64 

18,403 

4,092 

112,356

35,487 

23,724

—

63

7 

11,693 

216 

(50) 

— 

11,859 

2,649 

  $    19,750  

$      14,311 

  $      9,210 

Basic 

Diluted  

$        2.66  

$         2.63  

$          1.95 

$           1.93 

  $         1.27 

  $         1.26 

Weighted average common shares outstanding:

Basic 

Diluted  

7,424  

7,516  

7,347 

7,430 

7,248 

7,337

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

19

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY 
(IN THOUSANDS)

Years Ended December 31, 2019, 2018, and 2017

Common Stock 

Additional 
Paid-in 

Total 
Retained               Treasury Stock         Stockholders’

Shares 

Amount 

Capital 

Earnings 

Shares 

Amount 

Equity

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 

Share-based compensation 

 31  

—  

1,212  

Exercise of stock options net 
of shares presented for exercise 

 79  

1  

1,269  

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

(5) 

—  

(144) 

Excess tax benefits on share-based 
compensation - adjustment 

ASC 606 adjustments  

Net income 

— 

— 

— 

— 

— 

— 

167 

— 

—  

—  

—  

—  

—  

(71) 

14,311  

—  

—  

—  

—  

—  

—  

—    

1,212 

—    

1,270 

—    

(144)

— 

— 

167 

(71)

—    

14,311

Balance at December 31, 2018 

 7,385  

  $      74  

 $   29,168          $  111,802                     30       $       (587) 

$ 140,457 

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 

29  

45  

(13) 

 — 

—  

—  

—  

— 

1,591  

705  

(512) 

—  

—  

—  

— 

19,750  

— 

— 

—  

— 

— 

— 

— 

— 

 1,591

 705

(512)

19,750

Balance at December 31, 2019 

 7,446  

  $       74  

 $ 30,952           $  131,552  

    30       $         (587) 

$    161,991 

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 

$   19,750  

$   14,311 

  $   9,210 

          Years Ended December 31

2019  

2018 

2017 

Adjustments to reconcile net income to net cash 

provided by operating activities:

Depreciation and amortization 

(Gain) Loss on sales of property, plant and equipment 

Share-based compensation 

Deferred income taxes 

Changes in operating assets and liabilities:

Receivables, net 

Inventories 

Prepaid expenses 

Refundable income taxes 

Other assets 

Accounts payable 

Accrued expenses 

Deferred revenue 

Non-qualified deferred compensation plan and other liabilities 

8,172  

— 

1,591 

792  

(327) 

1,300 

(98) 

2,006 

110 

(2,472) 

25 

67 

313 

7,831 

(47) 

1,212 

1,881 

(2,556) 

(2,295) 

(249) 

(1,268) 

(76) 

1,113 

1,472 

35 

(44) 

5,635

7

1,068 

(1,019)

(132)

1,288

446 

(210)

(228) 

93

974

91

246

Net cash provided by operating activities 

31,229 

21,320 

17,469 

Cash flows from investing activities: 

Additions to property, plant and equipment 

Acquisition of Dielectrics, net of cash acquired 

Proceeds from sale of property, plant and equipment 

Net cash used in investing activities 

Cash flows from financing activities:

Proceeds from advances on revolving line of credit 

Payments on revolving line of credit 

Proceeds from the issuance of long-term debt 

Principal repayment of long-term debt 

Proceeds from the exercise of stock options, net of shares  
presented for exercise 

Payment of statutory withholding for stock options exercised 
and restricted stock units vested 

(5,778) 

— 

4 

(5,774) 

—  

(8,000) 

— 

(17,143) 

705 

(512) 

(5,428) 

(76,978) 

77 

(82,329) 

36,000 

(28,000) 

20,000 

(2,857) 

1,270 

(144) 

Net cash (used in)/provided by financing activities 

(24,950) 

26,269 

Net change in cash and cash equivalents 

Cash and cash equivalents at beginning of year 

505 

3,238 

(34,740) 

37,978 

  (10,382)

—

7

  (10,375)

—

—

—

(856)

677

(296)

(475) 

6,619

31,359

Cash and cash equivalents at end of year 

$  3,743  

$  3,238 

 $  37,978

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, aerospace and defense, consumer, electronics and industrial 
markets. The Company was incorporated in the State of Delaware in 1993.

(a)  Principles of Consolidation

The consolidated financial statements include the accounts and results of operations of UFP Technologies, Inc., its 
wholly-owned subsidiaries, Moulded Fibre Technology, Inc., Simco Industries, Inc. Dielectrics, Inc. and UFP Realty LLC, 
and its wholly-owned subsidiaries, UFP MA LLC, UFP CO LLC, UFP FL LLC, UFP TX LLC, UFP MI LLC, and UFP IA LLC. 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 the fair value 
of goodwill, 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, 2019 and 2018, the Company did not have any cash equivalents.

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 accounts at Bank of America and TD Bank at December 31, 2019, exceed the federal depository 
insurance limit by approximately $4.7 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, 2019.

(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, 2019.

(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. No events or changes in circumstances arose during the year ended December 31, 
2019 that required management to perform an impairment analysis.

(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. The Company last performed “step 1” of the goodwill impairment 
test as of December 31, 2018. In testing goodwill for impairment at December 31, 2018, the Company primarily 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 in size and market capitalization to each other and to the Company.

As of December 31, 2018, based on our calculations under the above noted approach, the fair value of the reporting unit 
significantly exceeded the carrying value of the reporting unit. In performing these calculations, management used its most 
reasonable estimates of the key assumptions discussed above. If the Company’s 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, 2019 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 was not required to proceed to a “step 1” impairment assessment.  Factors 
considered included the 2018 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.

Approximately $47.9 million of goodwill is deductible for tax purposes.

(j) 

Intangible Assets
Intangible assets with a definite life are amortized on a straight-line basis, with estimated useful lives ranging from 5 to 20 
years. Intangible assets with a definite life are tested for impairment whenever events or circumstances indicate that their 
carrying values may not be recoverable. No events or changes in circumstances arose during the year ended December 31, 
2019 that required management to perform an impairment analysis.

(k)  Revenue Recognition

Beginning in 2018, the Company recognizes revenue when a customer obtains control of a promised good or service. 
The amount of revenue recognized reflects the consideration that the Company expects to be entitled to in exchange 
for promised goods or services. The Company recognizes revenue in accordance with the core principles of ASC 606 
which include (1) identifying the contract with a customer, (2) identifying separate performance obligations within the 

23

 
 
 
 
 
 
 
contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations, and 
(5) recognizing revenue. The Company recognizes all but an immaterial portion of its product sales upon shipment. The 
Company recognizes revenue from the sale of tooling and machinery primarily upon customer acceptance, with the 
exception of certain tooling where control does not transfer to the customer, resulting in revenue being recognized over the 
estimated time for which parts are produced with the use of each respective tool. The Company recognizes revenue from 
engineering services as the services are performed. The Company recognizes revenue from bill and hold transactions at 
the time the specified goods are complete and available to the customer. In the ordinary course of business, the Company 
accepts sales returns from customers for defective goods, such amounts being immaterial. Although only applicable to 
an insignificant number of transactions, the Company has elected to exclude sales taxes from the transaction price. The 
Company has elected to account for shipping and handling activities for which the Company is responsible under the terms 
and conditions of the sale not as performance obligations but rather as fulfillment costs. These activities are required to 
fulfill the Company’s promise to transfer the good and are expensed when revenue is recognized.

For the year 2017, prior to ASC 606, the Company recognized 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). Forfeitures are expensed as they occur.

The Company issues share-based awards through several plans that are described in detail in Note 12.  The compensation 
cost charged against income for those plans is included in selling, general & administrative expenses as follows (in 
thousands):

Share-based compensation expense 

2019 

$  1,591  

2018 

$  1,212  

2017

$   1,068 

 Years Ended December 31

The compensation expense for stock options granted during the three-year period ended December 31, 2019, was 
determined as the fair value of the options using the Black Scholes valuation model.  The assumptions are noted as follows:

Expected volatility 

Expected dividends 

Risk-free interest rate 

Exercise price 

Expected term 

2019 

28.9%  

None 

2.3% 

$38.61  

Years Ended December 31

2018 

27.7% 

None 

2.7% 

2017

27.4%-29.1%

None

1.56%-1.84%

$31.20 

$27.05-$28.70

6.0 years 

6.0 years 

2.7 to 5.8 years

Weighted-average grant-date fair value 

$12.70 

$10.15 

$5.59-$8.51

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 $653 thousand, $544 thousand and $525 thousand for the years ended December 31, 
2019, 2018 and 2017, respectively.

(m)  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. 

24

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(n)  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 or 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.

(o)  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).

(p)  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, 2019, 2018 and 2017.

(q)  Research and Development

On a routine basis, the Company incurs costs related to research and development activity. These costs are expensed as 
incurred. Approximately $9.5 million, $10.5 million and $5.0 million were expensed in the years ended December 31, 2019, 
2018 and 2017, respectively.

Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, 
“Leases (Accounting Standards Codification (ASC) 842),” and issued subsequent amendments to the initial guidance in January 
2018 within ASU No. 2018-01 and in July 2018 within ASU Nos. 2018-10 and 2018-11. The Company adopted ASC 842 on January 
1, 2019. See Note 13 for further details.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (ASC 350), Simplifying the Test for 
Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test and eliminates the need to determine the 
fair value of individual assets and liabilities to measure goodwill impairment. A goodwill impairment will now be the amount 
by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Entities will 
continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The 
guidance will be applied prospectively and is effective for annual and interim goodwill impairment tests in fiscal years beginning 
after December 15, 2019. Early adoption is permitted for any impairment tests performed on testing dates after January 1, 2017. 
The Company does not believe adoption will have a material impact on its financial condition or results of operations.

In June 2016, the FASB issued accounting standard that requires companies to utilize an impairment model (current expected 
credit loss, or CECL) for most financial assets measured at amortized cost and certain other financial instruments, which include, 
but are not limited to, trade and other receivables. This accounting standard will replace the incurred loss model under current 
GAAP with a model that reflects expected credit losses and requires consideration of a broader range of reasonable and 
supportable information to estimate those losses. Effective January 1, 2020, the Company adopted this standard. The adoption 
of this standard is not expected to have a material impact on our Consolidated Financial Statements.

Revisions 
Certain revisions have been made to the December 31, 2018 and 2017 Consolidated Statements of Income to conform to the 
current year presentation relating to a reclassification of material overcharge settlement to selling, general and administrative 
expenses. The reclassification resulted in the removal of the material overcharge settlement line item and a decrease in selling, 
general and administrative expenses of $104 thousand and $121 thousand for the years ended December 31, 2018 and 2017, 
respectively. These revisions had no impact on previously reported operating or net income and are deemed immaterial to the 
previously issued financial statements.

25

 
 
 
 
(2)  Revenue Recognition 

Disaggregated Revenue 
The following table presents the Company’s revenue disaggregated by the major types of goods and services sold to our 
customers (in thousands) (See Note 17 for further information regarding net sales by market):

Net sales of:

Products 
Tooling and Machinery 
Engineering services 

Years Ended December 31

2019 

2018 

2017

  $       193,016   
  2,730   
       2,635   

$        183,186 
  4,302 
       2,967 

 $      146,275 
  1,181 
    387

Total net sales 

$ 

198,381 

$ 

190,455 

$ 

147,843

Contract balances 
Timing of revenue recognition may differ from the timing of invoicing to customers. When invoicing occurs prior to revenue 
recognition, the Company has deferred revenue, or contract liabilities, included within “deferred revenue” on the condensed 
consolidated balance sheet.

The following table presents opening and closing balances of contract liabilities for the years ended December 31, 2019 and 2018 
(in thousands):

Deferred revenue - beginning of period 
Acquired in Dielectrics business combination 
Increases due to consideration received from customers 
Revenue recognized 
Deferred revenue - end of period 

Contract Liabilities

Years Ended December 31 

2019 

2,507 
— 
3,216 
(3,149) 
2,574 

$ 

$ 

2018

871 
2,175 
4,188 
(4,727) 
2,507

$ 

$ 

Revenue recognized during the years ended December 31, 2019 and 2018 from amounts included in deferred revenue at the 
beginning of the period were approximately $1.7 million and $0.6 million, respectively. 

When invoicing occurs after revenue recognition, the Company has unbilled receivables (contract assets) included within 
“receivables” on the condensed consolidated balance sheet.

The following table presents opening and closing balances of contract assets for the years ended December 31, 2019 and 2018 
(in thousands):

Unbilled Receivables - beginning of period 
Increases due to revenue recognized - not invoiced to customers 
Decrease due to customer invoicing 
Unbilled Receivables - end of period 

Contract Assets   

Years Ended December 31 

2019 

65 
831 
(824) 
72 

$ 

$ 

2018

—  
301 
(236) 
65

$ 

$ 

(3)  Supplemental Cash Flow Information

Cash paid for: 

Interest 
Income taxes, net of refunds 

Non-cash investing and financing activities:

Capital additions accrued but not yet paid 

$ 
$ 

$ 

Years Ended December 31

2019 

2018 

                        (in thousands)

664  
1,255  

$ 
$ 

1,303 
3,463 

213  

$ 

218 

2017

47 
3,878

85

$ 
$ 

$ 

During the years ended December 31, 2019, 2018 and 2017, the Company permitted the exercise of stock options with exercise 
proceeds paid with the Company’s stock (“cashless” exercises) totaling approximately $0, $0 and $172 thousand, respectively.

26

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(4)  Receivables

Receivables consist of the following (in thousands):

Accounts receivable—trade 
Less allowance for doubtful receivables 

December 31

2019 

$   29,134  
 (486) 

2018

  $    28,885  
 (564) 

Receivables, net 

$  28,648  

  $     28,321 

Receivables are written off against these reserves in the period they are determined to be uncollectable, 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 net reversal of the provision for doubtful accounts of approximately $52 
thousand and $50 thousand the years ended December 31, 2019 and 2018, respectively.

(5)  Inventories

Inventories consist of the following (in thousands):

Raw materials 
Work in process 
Finished goods 

Total Inventory 

2019 

$ 10,540  
2,279 
5,457 

$  18,276  

December 31

2018

$      11,727 

2,521   
5,328

$    19,576

(6)  Other Intangible Assets

The carrying values of the Company’s definite-lived intangible assets as of December 31, 2019 and 2018, are as follows (in thousands): 

December 31, 2019 

Trade Name & Brand 

Non-Compete 

Customer List 

Total

Estimated useful life 
Gross amount 
Accumulated amortization 
Net balance 

10 years 
367  
 (70) 
297  

$ 

$ 

5 years 
462  
(177) 
285 

$ 

$ 

20 years

22,555  
(2,162) 
20,393 

$ 

$ 

December 31, 2018 

Trade Name & Brand 

Non-Compete 

Customer List 

Estimated useful life 
Gross amount 
Accumulated amortization 
Net balance 

10 years 
367  
$ 
 (33) 
334  

$ 

5 years 
462  
(85) 
377 

$ 

$ 

20 years

22,555  
(1,034) 
21,521 

$ 

$ 

$ 

$ 

$ 

$ 

23,384 
(2,409) 
20,975

Total

23,384 
(1,152) 

22,232

Amortization expense related to intangible assets was approximately $1.3 million, $1.2 million, and $0.3 million for the years ended 
December 31, 2019, 2018 and 2017, respectively. The estimated remaining amortization expense as of December 31, 2019 is as follows 
(in thousands):

2020 
2021 
2022 
2023 
2024 
Thereafter 
Total 

$       1,257 
1,257 
1,257 
1,172 
1,164 
14,868 
$   20,975

27

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(7)  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 

2019 

  $        3,191  
35,502 
3,022 
66,438 
 6,414 
1,522 

  $   116,089  

December 31 

2018

$       3,191  
35,187  
2,843  
62,440  
7,119  
999 

$   111,779 

Depreciation and amortization expense of Property, Plant and Equipment for the years ended December 31, 2019, 2018 and 2017, 
were approximately $6.9 million, $6.6 million, and $5.3 million, respectively.

(8)  Indebtedness

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 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.

The credit facilities under the Amended and Restated Credit Agreement (the “Amended and Restated Credit Facilities”) consist 
of a $20 million unsecured term loan and an unsecured revolving credit facility, under which the Company may borrow up to 
$50 million. The Amended and Restated Credit Agreement matures on February 1, 2023. The proceeds borrowed pursuant to 
the Amended and Restated Credit Agreement may be used for general corporate purposes, as well as permitted acquisitions. 
The Company’s obligations under the Amended and Restated Credit Agreement are guaranteed by the Subsidiary Guarantors.

The Amended and Restated Credit Agreement calls for interest of LIBOR plus a margin that ranges from 1.0% to 1.5% or, at the 
discretion of the Company, the bank’s prime rate less a margin that ranges from .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 December 31, 2019, the 
applicable interest rate was approximately 2.8% and the Company was in compliance with all covenants under the Amended and 
Restated Credit Agreement.

Included in the Amended and Restated Credit Facilities were approximately $0.7 million in standby letters of credit as a financial 
guarantee on worker’s compensation insurance policies.

Long-term debt consists of the following (in thousands):

Revolving credit facility 
Term loan 

Total long-term debt 

Current portion 

Long-term debt, excluding current portion 

December 31 

2019 

2018 

$ 

$ 

— 

— 
— 
— 

$ 

$ 

8,000
17,143
25,143 
(2,857) 
22,286

Derivative Financial Instruments
The Company used interest-rate-related derivative instruments to manage its exposure related to changes in interest 
rates on certain of its variable-rate debt instruments. The Company does not enter into derivative instruments for any 
purpose other than cash flow hedging. Derivative financial instruments expose the Company to credit risk and market risk. 
Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of 
a derivative contract is positive, the counterparty owes the Company, creating credit risk for the Company. When the fair 
value of a derivative contract is negative, the Company owes the counterparty and, therefore, in these circumstances the 
Company is not exposed to the counterparty’s credit risk. The Company minimizes counterparty credit risk in derivative 
instruments by entering into transactions with carefully selected major financial institutions based upon their credit profile. 
Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates. 

28

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Company assesses interest rate risk by continually identifying and monitoring changes in interest rate exposures that 
may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company’s debt obligations 
exposed the Company to variability in interest payments due to changes in interest rates. The Company believed that it was 
prudent to limit the variability of a portion of its interest payments. To meet this objective, 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 modified 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. The notional amount was $14,285,712 
at December 31, 2019. The fair value of the swap as of December 31, 2019 was approximately $(325) thousand and is included 
in other liabilities. Changes in the fair value of the swap are recorded in other income/expense and resulted in expense of 
approximately $388 thousand and income of $64 thousand during the years ended December 31, 2019 and 2018, respectively.

During the fourth quarter of 2019, the Company paid the remaining balance of the term loan in its entirety. As a result, there 
is no longer underlying debt to hedge against with the swap. The changes in the fair value of the swap will continue to be 
accounted for as a financial instrument until the sooner of the time that the Company elects to cancel it or until its maturity.

(9)  Accrued Expenses

Accrued expenses consist of the following (in thousands):

Compensation 
Benefits/self-insurance reserve 
Paid time off 
Other 

    December 31 

$ 

2019 

3,961  
1,033 
1,315 
2,174 

$ 

2018

3,542 
1,153 
1,131 
2,632

$  8,483  

$ 

8,458

(10) Income Tax

The Company’s income tax provision for the years ended December 31, 2019, 2018 and 2017 consists of the following (in thousands):

Current:

Federal 
State 

Deferred:

Federal 
State 

Years Ended December 31

2019 

$   2,920  
185 

3,105 

485 
306 

791 

2018 

$   1,772 
439 

2,211 

1,917 
(36) 

1,881 

2017 

$    3,117 
551 

3,668

(1,091) 
72  

(1,019)

Total income tax provision 

$  3,896  

$  4,092 

$  2,649

29

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 

2019 

Deferred tax assets:

Reserves 
Inventory capitalization 
Compensation programs 
Retirement liability 
Equity-based compensation 
Lease liability 
Intangible assets 
State tax credits, net of federal impact 
 Gross deferred tax assets 
 Valuation allowance 

$ 

362 
396 
578 
— 
  403 
795 
73 
274 
2,881 
(136) 

$ 

2018

367 
421 
447 
2 
  290 
11 
141 
257 
1,936 
— 

 Net deferred tax assets 

$ 

2,745 

$ 

1,936

Deferred tax liabilities:

Excess of book over tax basis of fixed assets 
Goodwill 
Right of use asset 

$ 

(4,877) 
(2,008) 
(781) 

Total deferred tax liabilities 
Net long-term deferred tax liabilities 

   (7,666) 
(4,921) 

$ 

$ 

(4,668) 
(1,397) 
— 

  (6,065) 
(4,129)

$ 

The amounts recorded as deferred tax assets as of December 31, 2019 and 2018, 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 gross deferred tax assets of approximately 
$2.9 million at December 31, 2019, 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 Company has provided a valuation allowance 
of approximately $136 thousand for deferred tax assets (net of federal tax benefit), primarily related to tax credits generated in 
its 2018 Massachusetts state income tax return that are being carried forward to future periods. The Company is uncertain as 
to whether it will have sufficient future taxable income in Massachusetts to utilize the credits prior to their expiration date. The 
valuation allowance against the Company’s deferred tax assets may require adjustments in the future based on changes in the 
mix of temporary difference, changes in tax laws, and operating performance.

The Company has approximately $348 thousand of tax credit carryforwards related to one state jurisdiction that expire between 
2020 and 2033.

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 21% to income before income tax expense as follows:

Years Ended December 31

2019 

2018 

Computed “expected” tax rate 

21.0%  

21.0%  

Increase (decrease) in income taxes resulting from:

State taxes, net of federal tax benefit 
Meals and entertainment 
Tax credits 
Domestic production deduction 
Non-deductible ISO stock option expense 
Unrecognized tax benefits 
Excess tax benefits on equity awards 
Excess compensation 
Impact on deferred taxes of new legislation 
Other 
Change in valuation allowance 

1.8 
0.2 
(6.2) 
— 
— 
(0.7) 
(0.7) 
0.6 
— 
0.4 
0.1 

2.8 
0.2 
(1.9) 
— 
0.1 
— 
(1.3) 
0.8 
— 
0.5 
— 

2017 

34.0% 

3.5 
0.3 
(0.6)
(2.6)
0.1
—
(1.4)
—
(11.1)
0.1 
—

 Effective tax rate 

16.5% 

22.2% 

22.3% 

30

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
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 2017. Federal and state tax returns for the years 2016 through 2019 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 

2019 

$ 

$ 

150 
(150) 
— 

December 31 

2018

 $ 

$ 

150 
—  
150

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of December 31, 2019 
and 2018 is $0 and $150 thousand, respectively.

In addition, the total amount of accrued interest and penalties on uncertain tax positions at December 31, 2019 and 2018 is $0 
and $153 thousand, respectively.

At December 31, 2018, all of the unrecognized tax benefits related to tax returns of a specific state jurisdiction that are currently 
under examination. On January 17, 2019 the Company came to an agreement with the state and on February 21, 2019 the 
Company received a check in the amount of $156,000 as settlement of the unrecognized tax benefits.

(11)  Net Income Per Share

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

Years Ended December 31

2019 

2018 

2017

Basic weighted average common shares 
outstanding during the year 

7,424 

7,347 

7,248 

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

92 

83 

89  

Diluted weighted average common  
shares outstanding during the year 

7,516 

7,430 

7,337  

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, 2019, 2018 and 2017, the number of stock awards excluded from the computation was 16,536, 
10,344 and 27,336, respectively. 

(12) 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):

31

 
 
 
 
 
 
 
  
 
Years Ended December 31

Share-based compensation related to: 

2019 

2018 

2017 

Common stock grants 

Stock option grants 

Restricted Stock Unit awards 

$ 

400  

$ 

151 

1,040  

505 

149 

558 

$ 

505

138

425

Total share-based compensation 

$ 

1,591  

$ 

1,212 

$ 

1,068 

Incentive Plan 
In June 2003, the Company formally adopted the 2003 Incentive Plan (the “Plan”). As amended and restated to date, the Plan 
is intended to benefit the Company by offering equity-based and other incentives to certain of the Company’s executives and 
employees who are in a position to contribute to the long-term success and growth of the Company, thereby encouraging the 
continuance of their involvement with the Company and/or its subsidiaries.

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, 2019, 1,252,613 shares of common stock have been issued under the 2003 Incentive Plan, none of 
which have been restricted. An additional 108,424 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, 2019, 185,000 options have been granted and 
10,000 options are outstanding.  At December 31, 2019, 803,244 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, 2019, 365,026 options have been granted and 95,614 options are outstanding.  For the year 
ended December 31, 2019, 5,442 RSUs are being reserved for outstanding grants of RSUs, and 79,648 shares remained available 
to be issued under the Director Plan. 

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

  Weighted Average 

Remaining 

Aggregate 

Shares 

Exercise Price 

Contractual Life 

Intrinsic Value 

Under Options 

(per share) 

(in years) 

(in thousands)

  Weighted Average 

Outstanding December 31, 2018 

Granted 
Exercised 

134,043 
16,536 
(44,965) 

$ 

20.46 
 38.61 
15.68 

— 
— 
— 

— 
— 
—

Outstanding December 31, 2019 

105,614 

$ 

25.34 

5.70 

$ 

2,563

Exercisable at December 31, 2019 

85,328 

$ 

22.62 

5.10 

$ 

2,303

Vested and expected to vest at  

December 31, 2019 

105,614 

$ 

25.34 

5.70 

$ 

2,563

During the years ended December 31, 2019, 2018 and 2017, 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 $1.0 million, $1.2 
million and $0.6 million, respectively, and the total amount of consideration received from the exercise of these options was 
approximately $0.7 million, $1.3 million and $0.8 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 years ended 
December 31, 2019 and 2018, no shares were surrendered for this purpose. During the year ended December 31, 2017, 6,511 
shares were surrendered to pay the exercise price at an average market price of $26.45. 

On February 19, 2019, the Company’s Compensation Committee approved the award of $400 thousand payable in shares of the 
Company’s common stock to the Company’s Chairman, Chief Executive Officer, and President under the 2003 Equity Incentive 

32

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plan. The shares were issued on December 12, 2019. 

On June 5, 2019 the Company issued 16,536 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 and employees. 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, 2019:

Restricted Stock Units 

Award Date Fair Value

Weighted Average  

Outstanding at December 31, 2018 

Awarded 

Shares vested 

        Forfeitures 

Outstanding at December 31, 2019 

72,996 

64,701 

(20,529) 

(3,302) 

113,866 

$ 

23.60  
33.55 

23.74  

33.31 

$ 

28.36

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, 2019, 
8,341 shares were redeemed for this purpose at an average market price of $33.69. During the years ended December 31, 2018 and 
2017, 5,238 and 4,377 shares were redeemed for this purpose at an average market price of $27.60 and $24.50, respectively.

The following summarizes the future share-based compensation expense the Company will record as the equity securities granted 
through December 31, 2019, vest (in thousands):

Options 

$ 

116 

— 

— 

     — 

Restricted  

Stock Units 

$ 

999 

746 

409 

48 

$ 

Total

1,115 

746 

409 

      48

$ 

116  

$ 

2,202  

$ 

2,318

2020 

2021 

2022 

2023 

Total 

(13) Leases

The Company adopted ASC 842 - Leases (“ASC 842”) as of January 1, 2019, using the transition method wherein entities could 
initially apply the new leases standard at adoption date and recognize a cumulative-effect adjustment to the opening balance of 
retained earnings in the period of adoption. Accordingly, all periods prior to January 1, 2019 were presented in accordance with 
the previous ASC Topic 840, Leases, and no retrospective adjustments were made to the comparative periods presented. The 
adoption of ASC 842 resulted in an increase to total assets due to the recording of operating lease right-of-use (“ROU”) assets 
and operating lease liabilities of approximately $4.0 million and $4.1 million, respectively, as of January 1, 2019.  The Company 
did not have any finance leases at the adoption date. The adoption did not materially impact the Company’s condensed 
consolidated statements of income or cash flows.

The Company has operating leases for offices, manufacturing plants, vehicles and certain office and manufacturing equipment. 
Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company has elected the practical 
expedient to account for each separate lease component of a contract and its associated non-lease components as a single 
lease component, thus causing all fixed payments to be capitalized. The Company also elected the package of practical 
expedients permitted within the new standard, which among other things, allows the Company to carry forward historical lease 
classification. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases 
in lease payments based on changes in index rates or usage, are not included in the ROU assets or operating lease liabilities. 
These are expensed as incurred and recorded as variable lease expense. The Company determines if an arrangement is a lease 
at the inception of a contract. Operating lease ROU assets and operating lease liabilities are stated separately in the condensed 
consolidated balance sheet.

ROU assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities 
represent the Company’s obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are 
recognized at commencement date based on the net present value of fixed lease payments over the lease term. The Company’s 
lease term includes options to extend or terminate the lease when it is reasonably certain that we will exercise that option. ROU 

33

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
assets will also be adjusted for any deferred or accrued rent. As the Company’s operating leases do not typically provide an 
implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in 
determining the present value of lease payments. The Company’s incremental borrowing rate is based on its borrowing rate 
under the Amended and Restated Credit Agreement, adjusted to reflect an estimated fixed rate for the term of the underlying 
lease.   Operating fixed lease expense is recognized on a straight-line basis over the lease term.

Lease cost: 
Operating 
Variable 
Short-term 
  Total lease cost 

Cash paid for amounts included in 
measurement of lease liabilities: 
  Operating 

Weighted-average remaining lease term (years): 
  Operating 

Weighted-average discount rate: 
  Operating 

Year Ended

 December 31, 2019 

($ in thousands) 

$ 

$ 

1,222 
219 
27 
1,468 

$ 

1,208 

2.69 

4.45%

The aggregate future lease payments for operating leases as of December 31, 2019 were as follows (in thousands):

2020 

2021 

2022 

2023 

2024 

Thereafter 

Total lease payments 

Less: interest 

Present value of lease liabilities 

$ 

1,173 

1,118 

957 

36 

— 

— 

3,284 

(194) 
$  3,090 

The aggregate future lease payments for operating leases as of December 31, 2018 were as follows (in thousands):

2019 

2020 

2021 

2022 

2023 

Total 

$ 

1,051 

1,070 

1,063 

975 

36

$  4,195

Rent expense amounted to approximately $1.2 million, $1.2 million, and $0.9 million, in 2019, 2018 and 2017, respectively.

(14) Commitments and Contingencies

(a)  Leases – The Company has operating leases for certain facilities that expire through 2023. Certain of the leases contain 

escalation clauses that require payments of additional rent as well as increases in related operating costs. See Note 13 for 
details on lease commitments.

(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.

34

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(15) Employee Benefit 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 to the Plan were approximately 
$1.0 million, $1.1 million and $0.8 million for the years 2019, 2018 and 2017, 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 thousand 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. 

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 the liabilities section 
in the accompanying balance sheets. At December 31, 2019 and 2018, the balance of the deferred compensation liability 
totaled approximately $2.8 million and $2.0 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 classified within the 
other assets section of the accompanying balance sheets and are accounted for based on the underlying cash surrender 
values of the policies and totaled approximately $2.8 million and $2.0 million as of December 31, 2019 and 2018, 
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 model. 

The following table presents the fair value and hierarchy levels for financial assets that are measured at fair value on a recurring 
basis (in thousands):

Level 2 

Assets: 

December 31, 2019

Derivative financial instruments 

$ 

(325) 

Derivative financial instruments consist of an interest rate swap for which fair value is determined through the use of a pricing 
model that utilizes verifiable inputs such as market interest rates that are observable at commonly quoted intervals for the full 
term of the swap agreement.

The Company has financial instruments, such as accounts receivable, accounts payable, and accrued expenses, that 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 estimated borrowing rate 
currently available to the Company. 

(17) Segment Data

The Company consists of a single operating and reportable segment.    

Revenues from customers outside of the United States are not material.  No customer comprised more than 10% of the 
Company’s consolidated revenues for the year ended December 31, 2019.  A vast majority of the Company’s assets are located 
in the United States.  

35

 
 
The Company’s custom products are primarily sold to customers within the Medical, Automotive, Consumer, Aerospace and 
Defense, Industrial, and Electronics markets. Sales by market for the years ended December 31, 2019, 2018 and 2017 are as 
follows (in thousands):

Market 

Medical 

Automotive 

Consumer 

Aerospace & Defense 

Industrial 

Electronics 

2019 

2018 

2017

Net Sales 

% 

Net Sales 

% 

Net Sales 

% 

$ 

128,915 

65.0%      

$ 

110,282 

57.9% 

$ 

70,090 

  20,004     

10.1% 

17,669       8.9% 

13,778      

 6.9% 

9,607        4.8% 

8,408        4.2% 

20,022    

10.5% 

24,989    

13.1% 

13,130      6.9% 

10,579        5.6% 

11,453        6.0% 

23,119 

21,328 

11,521 

9,826 

11,959 

47.4%

15.6% 

 14.4%

7.8% 

6.6% 

8.1% 

Net Sales 

$ 

198,381     100.0% 

$ 

190,455   100.0% 

$ 

147,843 

100.0% 

Certain amounts for the years ended December 31, 2018 and 2017 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):

2019 

Net sales 

Gross profit 

Net income 

Basic net income per share 

Diluted net income per share 

2018 

Net sales 

Gross profit 

Net income 

Basic net income per share 

Diluted net income per share 

 Q1 

Q2 

Q3 

Q4

$ 

47,328 

$ 

51,399 

$ 

49,394 

$ 

50,260 

12,497 

3,734 

0.50 

0.50 

 Q1 

14,371 

4,598 

0.62 

0.62 

Q2 

 13,321  

 5,641  

 0.76  

 0.75  

Q3 

$ 

42,931  

$ 

49,019 

$ 

47,808  

$ 

10,185 

1,777 

0.24 

0.24 

12,986 

3,990 

0.54 

0.54 

 12,431  

 4,134  

 0.56  

 0.56  

13,770 

 5,777 

 0.78 

 0.76

Q4

50,697 

 12,706 

 4,410 

 0.60 

 0.59

(19) Acquisition

On February 1, 2018 the Company purchased 100% of the outstanding shares of common stock of Dielectrics Inc., pursuant to a 
stock purchase agreement and related agreements, for an aggregate purchase price of $80 million in cash.  The purchase price 
was subject to adjustment based upon Dielectrics’ working capital at closing.  An additional $250 thousand of consideration 
was paid by the Company as a result of the final working capital adjustment.  A portion of the purchase price is being held in 
escrow to indemnify the Company against certain claims, losses and liabilities.  The Purchase Agreement contains customary 
representations, warranties and covenants customary for transactions of this type.

Founded in 1954 and based in Chicopee, Massachusetts, Dielectrics is a leader in the design, development, and manufacture 
of medical devices using thermoplastic materials.  They primarily use radio frequency and impulse welding to design and 
manufacture solutions for the medical industry. The Company has leased the Chicopee location from a realty trust owned by the 
selling shareholder and affiliates.  The lease is for five years with two five-year renewal options.

The following table summarizes the allocation of consideration paid to the acquisition date fair value of the assets acquired and 
liabilities assumed based on management’s estimates of fair value (in thousands):

Consideration Paid:

Cash paid at closing 

Working capital adjustment 

Cash from Dielectrics 

Total consideration 

$ 

80,000 

250 

(3,272)

$ 

76,978

36

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchase Price Allocation:
Accounts receivable 

Inventory 

Other current assets 

Property, plant and equipment 

Customer list 

Non-compete 

Trade name and brand 

Goodwill 

$ 

4,384 

4,418 

122 

4,600 

22,555 

462 

367 

44,516

Total identifiable assets 

$ 

81,424

Accounts payable 

Accrued expenses 

Deferred revenue 

(1,325) 

(946) 

(2,175) 

Net assets acquired 

$ 

76,978

Acquisition costs associated with the transaction were approximately $1.1 million and were charged to expense in the year ended December 
31, 2018.  These costs were primarily for investment banking and legal fees and are reflected on the face of the income statement.  

The following table contains an unaudited pro forma condensed consolidated statement of operations for the years ended December 31, 2018 
and 2017, as if the Dielectrics acquisition had occurred at the beginning of each of the respective periods (in thousands):

Sales 

Operating income 

Net income 

Earnings per share:

Basic 
Diluted 

Years Ended December 31

2018 
 (Unaudited) 

$ 

$ 

$ 

$ 
$ 

193,510 

19,464 

14,110 

1.92 
1.90 

2017
 (Unaudited) 

$ 

$ 

$ 

$ 
$ 

180,419 

18,990 

13,126 

1.81 
1.79

The above unaudited pro forma information is presented for illustrative purposes only and may not be indicative of the results of 
operations that would have occurred had the Dielectrics acquisition occurred as presented. In addition, future results may vary 
significantly from the results reflected in such pro forma information.

37

 
 
 
 
 
 
 
 
 
 
 
 
 
STOCK PERFORMANCE GRAPH 

The following graph compares cumulative total stockholder return on our Common Stock since December 31, 2014 with the 
cumulative total return of the (1) NASDAQ Stock Market (US Companies), (2) SIC Codes 3080-3089 Miscellaneous Plastic Products, 
(3) SIC Code 3841 Surgical and Medical Instruments and Apparatus, (4) GICS 15103020 Paper Packaging and (5) the Company’s 
peer group, as determined by Radford, a national compensation consulting company engaged by our Compensation Committee in 
2018 to perform a comprehensive comparative market study of the compensation programs offered to peer company executives 
and directors, as described in our Proxy Statement for our 2020 Annual Meeting of Stockholders. This graph assumes the investment 
of $100 on December 31, 2014 in our Common Stock, and for comparison the companies that comprise each of (1) the NASDAQ 
Stock Market, (2) SIC Codes 3080-3089 Miscellaneous Plastic Products, (3) SIC Code 3841 Surgical and Medical Instruments and 
Apparatus, (4) GICS 15103020 Paper Packaging and (5) the Company’s peer group, as described above, and that all dividends were 
reinvested. Measurement points are the last trading day of each respective fiscal year.  The Company’s change to SIC Code 3841 was 
approved by the SEC on December 4, 2019.

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
ASSUMES INITIAL INVESTMENT OF $100
DECEMBER 2019

300.00

250.00

200.00

150.00

100.00

50.00

0.00

2014

2015

2016

2017

2018

2019

UFP Technologies, Inc.

NASDAQ Stock Market (US Companies)

New SIC Code 3841

Old SIC Codes 3080-3089

GICS 15103020 Paper Packaging

Peer Group

38

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; statements about the impact the COVID-19 
pandemic may have on the Company’s business, including  the demand for its products, the Company’s efforts to address the pandemic, 
including regarding the safety of its employees, and the impact of the pandemic on the businesses of the Company’s suppliers and customers; 
statements about the Company’s acquisition strategies and opportunities and the Company’s growth potential and strategies for growth; 
statements about the Company’s reorganization efforts involving its Medical Technology Group and its Advanced Components Group, 
and the anticipated benefits of such reorganization; expectations about shifting the Company’s book of business to higher-margin, longer-
run opportunities; anticipated trends and potential advantages in the different markets in which the Company competes, including the 
medical, aerospace and defense, automotive, consumer, electronics, and industrial markets, and the Company’s plans to expand in certain 
of its markets; expectations regarding customer demand; anticipated advantages the Company expects to realize from its investments 
and capital expenditures; anticipated advantages to improvements and alterations at the Company’s existing plants; expectations 
regarding the Company’s manufacturing capacity, operating efficiencies, and new production equipment; statements about new product 
offerings and program launches; statements about the Company’s acquisition and integration of Dielectrics and the synergies and other 
benefits anticipated in connection with the Dielectrics business; the Company’s participation and growth in multiple markets; its business 
opportunities; expectations regarding the Company’s liquidity, including the availability of borrowing capacity to fund potential future 
acquisitions; anticipated revenues and the timing of such revenues; and any indication that the Company may be able to sustain or increase 
its sales, earnings or earnings per share, or its sales, earnings or earnings per share growth rates. Investors are cautioned that such forward-
looking statements involve risks and uncertainties, including without limitation risks and uncertainties associated with the COVID-19 pandemic 
and its impact on the Company, including demand for its products, the Company’s employees, and the Company’s suppliers and customers; 
the Company’s acquisition and integration of Dielectrics; risks associated with the identification of suitable acquisition candidates and the 
successful, efficient execution of acquisition transactions, the integration of any such acquisition candidates, the value of those acquisitions 
to our customers and shareholders, and the financing of such acquisitions; risks associated with corporate reorganizations and our creation 
of the Medical Technology and Advanced Components Groups; risks associated with efforts to shift the Company’s book of business to 
higher-margin, longer-run opportunities; risks associated with the Company’s entry into and growth in certain markets; risks and uncertainties 
associated with seeking and implementing manufacturing efficiencies and implementing new production equipment; risks and uncertainties 
associated with growth of the Company’s business and increases to sales, earnings and earnings per share; risks associated with new product 
and program launches, and risks related to our indebtedness and compliance with covenants contained in our financing arrangements . 
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 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, 2019. 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.

39

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 virtually at 10:00 a.m., on June 

Massachusetts, Michigan, Texas

10, 2020.

COMMON STOCK LISTING
UFP Technologies’ common stock  

ACCOUNTANTS
Grant Thornton LLP 

INDEPENDENT PUBLIC 

Daniel C. Croteau 

Chief Executive Officer 

Surgical Specialties Corporation

Cynthia L. Feldmann 

Former Partner and 

National Chair 

Medical Device Industry 

is traded on NASDAQ under the  

125 High Street, 21st Floor 

KPMG LLP

symbol UFPT.

Boston, MA 02110

STOCKHOLDER SERVICES
Stockholders whose shares are held in 

CORPORATE COUNSELS
Lynch Fink & Labelle LLP 

street names often experience delays 

6 Beacon Street, Suite 415 

in receiving company communications 

Boston, MA 02108

d

d

o

d

d

d

d

o

o

o

Ronald J. Lataille 

Sr. Vice President, Treasurer,  

and Chief Financial Officer

Christopher P. Litterio, Esq. 

o

General Counsel, Secretary  

& Sr. Vice President of 

Human Resources

Marc D. Kozin 

Professional Board Member

Thomas Oberdorf 

Chairman & 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 Co.

and efficiency.  We welcome your 

comments and suggestions.

COMPANY WEBSITE
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  

WuXi NextCode

Mitchell C. Rock 

Sr. Vice President 

and General Manager, Medical

Daniel J. Shaw, Jr. 

Vice President 

Research & Development

W. David Smith 

Sr. Vice President 

Operational Excellence 

& Shared Services

d  Directors 

o  Officers

forwarded through brokerage firms or 

financial institutions.  Any shareholder 

or other interested party who wishes to 

receive information directly should call 

or write the Company.  Please specify 

regular or electronic mail:

UFP Technologies, Inc. 

Attn: Shareholder Services 

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, 2019,  

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

40

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 the never-ending process of continuously improving our 
quality of products, service, communications, relationships and commitments.

SIMPLIFICATION
We seek to simplify our business process through the constant reexamination 
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