Quarterlytics / Healthcare / Medical - Devices / UFP Technologies, Inc. / FY2020 Annual Report

UFP Technologies, Inc.
Annual Report 2020

UFPT · NASDAQ Healthcare
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Ticker UFPT
Exchange NASDAQ
Sector Healthcare
Industry Medical - Devices
Employees 4146
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FY2020 Annual Report · UFP Technologies, Inc.
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O P E R AT I N G   P R I N C I P L E S

C U S T O M E R S
We believe the primary purpose of our company is to serve our customers.  
We seek to “wow” our customers with responsiveness and great products.

E T H I C S
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.

E M P L O Y E E S
We are dedicated to providing a positive, challenging and rewarding work 
environment for all of our employees.

Q U A L I T Y
We are dedicated to the never-ending process of continuously improving our 
quality of products, service, communications, relationships and commitments.

S I M P L I F I C A T I O N
We seek to simplify our business process through the constant reexamination 
of our methods and elimination of all non-value-added activities.

E N T R E P R E N E U R S H I P
We strive to create an environment that encourages autonomous decision-
making and a sense of ownership at all levels of the company.

P R O F I T
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

DRIVEN. DISCIPLINED. DIFFERENTIATED.

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

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.

C O N T E N T S

2

CEO’s Letter

8

Selected Financial Data

9

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

18

Financial Statements

40

Stockholder Information

 
 
 
 
 
I believe our capabilities 

and experience are special, 

and no competitor can 

match all the ways we help 

customers succeed.

D E A R   F E L L O W   S H A R E H O L D E R ,

2020 was a challenging year, as a 
range of issues related to the COVID-19 
pandemic affected just about every 
aspect of our business. Although sales 
declined 9.6% compared to 2019, we 
ended the year solidly in the black with 
$13.4 million in net profit and increased 
our cash balance by more than $20 
million. We also improved our business 
in important ways and ended the year 
a leaner, more nimble, more resilient 
company.  

Our team did a great job responding 
to the pandemic. Priority one was 
keeping our associates and visitors 
safe. We quickly revised the layout 
of our factories, distancing workers 
and adding new safety protocols. We 
turned conference rooms into cafeterias, 
adopted strict cleaning and monitoring 
routines, and generally did whatever 
was needed to fill customer orders 
safely. This process showed the agility of 
our workforce, as team members from 
various departments shifted into new 
roles — including office staff making 
parts in the factories — when attendance 
challenges arose. I am deeply grateful 
to all our employees for their discipline, 
commitment and make-it-happen 
attitude. 

Supply chain issues were another big 
challenge. When the pandemic struck, we 
quickly increased our reserves of key raw 
materials. This proved to be a prescient 
move as supplies, including certain 
raw materials on allocation, became 
extremely limited as the year progressed. 
Thanks to our longstanding supplier 
partnerships and purchasing power, we 
worked through those issues to meet our 
customers’ critical needs. Partnerships 
and long-term supply agreements form 
a critical component of our customer 
and supplier strategies; they enable us 
and our partners to make long-term 
investments that further strengthen our 
competitive position. 

P R O D U C T   D E V E L O P M E N T 
R E V E N U E S   U P   6 3 %

Our product development group had a 
banner year. This business is important 
to us for a number of reasons. New 
development programs increase our 
technical skills, strengthen our customer 
relationships and provide future potential 
manufacturing revenue. Please see page 
7 to learn more. 

This group also stepped up with new 
pandemic-related offerings such as face 
shields and other Personal Protective 
Equipment. This PPE added roughly $3.5 

2

million in new revenue, another example 
of our ability to adapt to changing 
market needs. With these new offerings, 
we also ramped up our charitable giving 
to support the hospitals, nursing homes 
and first responders in our communities. 
Being a good corporate citizen has 
always been important to us; this year it 
felt more important than ever. 

L E A N E R   C O M P A N Y, 
H I G H E R   M A R G I N S

If the COVID-related sales decline 
had an upside, it’s that it forced us to 
review every process and department 
for opportunities to reduce costs and 
streamline operations.  We completed a 
series of cost-saving initiatives, including 
a difficult but necessary reduction of our 
workforce, which alone amounted to $5 
million in annualized savings. Through 
additional cost-cutting measures, we 
took millions more out of the business. 
These efficiency improvements led to 
steady gains in gross margins throughout 
the year, from 23.3% in Q2, to 24.3% in 
Q3, to 25.2% in Q4. I am confident that 
millions of dollars of savings from these 
initiatives will be permanent and, when 
sales volumes return to pre-pandemic 
levels, we will be a stronger, more 
profitable company. 

L O O K I N G   A H E A D   T O 
L O N G -T E R M   P R O F I TA B L E 
G R O W T H   

This complicated but successful year 
proved one thing: our unique skills, 
strong partnerships and dedication to 
our customers can help us meet just 
about any market challenge. As the 
economy rebounds, we will continue 
to shift our business mix to more 
medical opportunities. This is where our 
engineering and production skills add the 
most value, and where we therefore enjoy 
the highest margins. We will continue to 
invest in product development to build 
closer ties with our customers and fill 
our manufacturing pipeline. That means 
adding new talent and finding new ways 
to create more value leveraging off our 
unique capabilities. 

I believe our capabilities and experience 
are special, and no competitor can 
match all the ways we help customers 
succeed.  We remain very bullish about 
our differentiated competitive position, 
disciplined in our approach and driven to 
take UFP to new heights of success.

Sincerely,

R. Jeffrey Bailly
Chairman and CEO

3

 
U N I Q U E   S K I L L S ,   
P O W E R F U L   A D VA N TA G E S

Simply stated, there is no 
company quite like UFP. Our 
range of capabilities and 
experience with complex 
projects are unrivaled and 
will continue to separate us 
from our competitors. 

For us, everything starts with 
superior engineering. We 
believe we have the finest 
engineering team in the 
industry, and our talent base 
is getting stronger all the 
time. Our team’s ability to 
create effective solutions to 

very difficult customer challenges remains our strongest competitive advantage.  

Customers also place a high value on our materials expertise and production systems. 
With our vendor exclusivity agreements, they rely on us for access 

4

to critical materials and technologies. 
These agreements also help protect our 
product innovations and lock us in to 
the kinds of high-value programs that 
best fit our skills. And with our precision 
manufacturing capabilities, customers 
know their solutions will be of the 
absolute highest quality.  

We will continue to apply our resources 
where opportunities are greatest and 
move more of our business to the 
complex, high-value, long-running 
programs at which we excel. Superior 
engineering. Access to innovative 
materials. Precision manufacturing. It’s a 
powerful combination that our customers 
really appreciate. 

5

M A K I N G   M E D I C A L   P R O G R A M S   A N   E V E N 
B I G G E R   P A R T   O F   O U R   B U S I N E S S

For years, we’ve been moving more 
of our business to high-margin, long-
running medical programs, where 
our skills align best with customer 
needs. We now have multiple FDA-
approved plants and extensive clean 
room facilities with advanced systems 
to ensure quality. And our customers 
include most of the world’s leading 
medical device manufacturers, in areas 
like infection prevention, wound care, 
orthopedics and minimally invasive 
surgery. 

In 2020, orders increased for our 
infection prevention products and 
patient surfaces such as medical 
mattresses. However, as COVID 
rates rose throughout the country, 
orders related to elective surgeries 
slowed dramatically. Once the 
pandemic subsides, we expect 
revenue connected to elective surgeries to rebound strongly and demand for our highly 
specialized medical solutions to begin growing once again.       

6

A   S T R O N G   Y E A R   I N   
P R O D U C T   D E V E L O P M E N T

Our product development 
business was a definite 
bright spot in 2020, growing 
by 63%. This is especially 
noteworthy because many 
customers put new product 
work on hold during this 
challenging year. This strong 
increase in our development 
business bodes well for 
revenue growth in 2021 and 
beyond.

Customers collaborate with 
us to help develop their 
product ideas. This early 
engagement puts us in excellent position to be their ultimate manufacturing partner. In 
recent years, there are many examples of concepts that our development group brought 
to fruition and went on to become long-lasting, lucrative product lines in our factories. 
To meet the increasing demand, we expanded our Newburyport development lab and 
brought on new engineering talent.  Looking ahead, we will continue our efforts to grow 
our business organically through expanded product development work and by providing 
additional products and services to current customers. 

7

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, 2020, 2019 and 2018 and the selected balance 
sheet data as of December 31, 2020 and 2019, 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, 2017 and 2016  and the selected 
balance sheet data at December 31, 2018, 2017 and 2016 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 

2020 

2019 

2018 

2017 

2016

Net sales 

Gross profit   

Operating income 

Net income from consolidated operations 

Diluted earnings per common share 

Weighted average number of diluted common shares outstanding 

$  179,373  

$ 

198,381  

$  190,455  

$  147,843   

$ 

146,132  

$  44,684  

$  53,959   

$  48,308   

$  35,487  

$  34,650

$ 

$ 

$ 

16,732  

$  24,708  

13,369   

1.77   

7,568   

$ 

$ 

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  

Consolidated Balance Sheets data 

2020 

2019 

2018 

2017 

2016 

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

$  56,727  

$   36,466  

$   34,968   

$ 

 65,131  

$ 

 60,291 

$ 203,204   

$   188,758  

$   189,598   

$  138,207   

$   127,934  

$ 

$ 

$ 

- 

- 

$ 

$ 

- 

$ 

 2,857   

 -  

$ 

 22,286   

$ 

$ 

 -   

-  

26,311   

$ 

 26,767  

$ 

 49,141  

$   14,495   

$ 

$ 

$ 

 856  

 - 

 14,881 

$  176,893  

$ 

 161,991  

$   140,457  

$   123,712  

$   113,053 

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, 2019 to 

December 31, 2020:

Fiscal Year Ended December 31, 2019 

First Quarter 

Second Quarter 

Third Quarter 

Fourth Quarter 

Fiscal Year Ended December 31, 2020 

First Quarter 

Second Quarter 

Third Quarter 

Fourth Quarter 

High 

 $  37.58 

  42.87 

  46.42 

  50.00 

High 

 $  52.59 

  47.77 

  48.77 

  48.96 

Low

$  27.80

34.05

38.00

38.22

Low

$  30.80

34.06

37.39

36.69

NUMBER OF STOCKHOLDERS

As of March 4, 2021, there were 74 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 2020 or 2019. 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, 2020, 2019 and 2018.  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, 2020, 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. 

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

As further summarized below, the COVID-19 pandemic has had, and we believe it will continue to have, negative effects on our business 
and financial results. In particular, sales for the Company for the year ended December 31, 2020 decreased 9.6% to $179.4 million from 
$198.4 million for the year ended December 31, 2019, primarily due to the impact on demand for product as a result of the COVID-19 
pandemic. Gross margin decreased to 25.0% for the year ended December 31, 2020, from 27.2% in 2019. Operating income and net 
income for the year ended December 31, 2020 both decreased by 31.7%, respectively.

IMPACT OF COVID-19 ON OUR BUSINESS

Through much of 2020, COVID-19 spread across the country to areas in which our products are designed, manufactured, distributed or 
sold. The spread of COVID-19 and the response to it negatively impacted operating conditions for our business in 2020. Although we 
expect COVID-19 will continue to have negative impacts on our operating results in future periods, the magnitude and duration of the 
continuing impact are uncertain. 

To stall the spread of COVID-19, authorities in states in which we do business implemented numerous measures, including social 
distancing guidelines, travel bans and restrictions, quarantines, curfews, stay-at-home orders and business shutdowns. These measures 
have impacted and will likely further impact us, our customers, consumers, employees, suppliers and other third parties with whom we 
do business. It is uncertain how these and any future measures in response to the pandemic will impact our business, including whether 
and to what extent they will result in further changes in demand for our products or further increases in operating costs. The timing 
of distribution and the effectiveness of recently introduced vaccines are also uncertain.  Our top priorities continue to be ensuring the 
health and safety of our workforce and serving our various constituencies with as little disruption as possible.

Our operations expose us to risks associated with the COVID-19 pandemic.  The COVID-19 pandemic has impacted the cost of 
manufacturing our goods, including higher labor costs, maintenance costs and manufacturing inefficiencies due to employee 
absenteeism and significantly enhanced cleaning and sterilization.    Elective medical procedures and exams have been delayed or 
canceled, there has been a significant reduction in physician office visits, and hospitals have postponed or canceled capital purchases. 
We believe that these responses negatively impacted demand for the Company’s components for medical devices. Additionally, many 
of our customers in the automotive markets experienced closures of their businesses in connection with the pandemic. Such closures 
negatively impacted the demand for our automobile component products particularly in the second quarter. Any continued reduced 
demand for our products, including reduced need for components for medical devices as well as continued economic uncertainty, 
could adversely and materially affect our business, financial condition and results of operations, as well as those of our customers.   

To ensure the health and safety of our employees and to comply with governmental orders, since March 2020 we have required 
or enabled certain employees to work from home or remotely where practicable, and expanded IT and communication support to 
enhance their productivity; adjusted work spaces and shifted schedules to facilitate social distancing and sterilization for those who 
continue to work in our facilities; enhanced cleaning and disinfecting procedures at our facilities; required face coverings and worked to 
procure and distributed personal protective equipment; implemented health checks and visitor protocols and restricted travel.

9

In response to the economic uncertainties resulting from the COVID-19 pandemic, we initiated and at present are continuing certain 
cost-cutting measures, including restrictions on travel and labor cost reduction measures (including employee terminations). 

Although the impact of the pandemic on our business and financial results will depend on future developments that are highly 
uncertain and cannot be predicted, and which may vary by market, we have a strong liquidity position, solid balance sheet and access 

to capital which we expect will enable us to effectively manage through the COVID-19 pandemic. 

Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
The CARES Act was enacted on March 27, 2020, in the United States. The CARES Act and related notices include several significant 
provisions, including delaying certain payroll tax payments and estimated income tax payments that we expect to defer to future 
periods.  Accordingly, the Company has deferred Social Security payments of approximately $1.6 million as of December 31, 2020. We 
do not currently expect the CARES Act to have a material impact on our financial results, including on our annual estimated effective 
tax rate or on our liquidity.  We will continue to monitor and assess the impact the CARES Act may have on our business and financial 
results.

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 

Loss on sale of fixed assets 

Acquisition costs 

Operating income 

Total other expense 

Income before taxes 

Income tax expense 

Net income from consolidated operations 

2020  

2019 

2018

100.0%  

100.0% 

100.0%

75.1%  

24.9%  

15.3%  

0.3% 

0.0%  

9.3%  

0.2% 

9.1%  

1.6%  

7.5%  

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%

0.0%

0.6%

10.3%

0.7%

9.6%

2.1%

7.5%

2020 COMPARED TO 2019

Sales 
Net sales decreased 9.6% to $179.4 million for the year ended December 31, 2020, from net sales of $198.4 million in 2019. The decrease 
in sales was primarily due to the impact on demand for product as a result of the COVID-19 pandemic. We believe that the cancellation 
or delay of elective medical procedures in connection with the COVID-19 pandemic has had a negative impact on the demand for the 
Company’s components for medical devices. We refer you to “Impact of COVID-19 on our Business” above for additional discussion of 
product demand.

Gross Profit
Gross profit as a percentage of sales (“Gross Margin”) decreased to 24.9% for the year ended December 31, 2020, from 27.2% in 
2019.  As a percentage of sales, material and direct labor costs collectively decreased approximately 2.2%, while overhead increased 
approximately 4.4%. The decrease in collective material and labor costs as a percentage of sales was primarily due to gains in 
manufacturing efficiencies resulting from continuous improvement initiatives and an improvement in the overall book of business.  The 
increase in overhead as a percentage of sales was primarily due to fixed overhead costs measured against decreased sales. 

Selling, General and Administrative Expenses
Selling, General and Administrative Expenses (“SG&A”) decreased approximately 6.0% to $27.5 million for the year ended December 
31, 2020, from $29.3 million in 2019.  As a percentage of sales, SG&A increased to 15.3%, from 14.7% in 2019.  The decrease in SG&A 
was primarily due to decreases in compensation programs and company-wide travel and entertainment. The increase in SG&A as a 
percentage of sales was primarily due to relatively fixed SG&A expenses measured against lower sales. 

Interest Income and Expense
Net interest expense was approximately $83 thousand and $674 thousand for the years ended December 31, 2020 and 2019, respectively. 
The decrease in net interest expense was primarily due to lower debt levels. 

Other Expense
Other expense was approximately $366 thousand and $388 thousand for years ended December 31, 2020 and 2019, respectively. Other 
expense was primarily generated by changes in the fair value of the swap liability, which is driven by anticipated future interest rate changes 
as well as a declining notional amount.  

10

 
 
 
 
 
 
 
Income Taxes
The Company recorded income tax expense, as a percentage of income before income tax expense, of 17.9% for the year ended December 
31, 2020, compared to 16.5% for the same period in 2019.  The increase in the effective tax rate for the current period as compared to 
the prior period was largely due to a lower anticipated effective tax rate in 2019 due to credits available for increased research activities. 
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.  

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 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.

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, 2020, was approximately $25.0 million and was primarily a result of net 
income generated of approximately $13.4 million, depreciation and amortization of approximately $8.3 million, loss on sale of fixed assets 
of approximately $0.5 million, share-based compensation of approximately $1.8 million, an increase in deferred taxes of approximately 
$0.1 million, a decrease in accounts receivable of approximately $2.2 million primarily due to lower sales in the last two months of 2020 
as compared to 2019, a decrease in refundable income taxes of approximately $0.3 million and an increase in other long-term liabilities 
of approximately $1.1 million due primarily to the deferral of employer Social Security tax payments in connection with the CARES Act. 
These cash inflows and adjustments to income were partially offset by an increase in inventory of approximately $0.4 million, an increase 
in prepaid expenses of approximately $0.3 million, an increase in other assets of approximately $0.1 million, a decrease in accounts 
payable and accrued expenses of approximately $1.2 million due to the timing of vendor payments in the ordinary course of business and 
reductions in accrued compensation and a decrease in deferred revenue of approximately $0.7 million.

Net cash used in investing activities during the year ended December 31, 2020, was approximately $4.3 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 $0.3 million for the year ended December 31, 2020, resulting from payments of 
statutory withholding for stock options exercised and restricted stock units vested of approximately $0.8 million, partially offset by net 
proceeds received upon stock options exercises of approximately $0.5 million.

11

Outstanding and Available Debt
As of December 31, 2020, under the Company’s Restated Credit Agreement (as described below), the Company had (i) outstanding 
$0.7 million in standby letters of credit, drawable as a financial guarantee on worker’s compensation insurance policies and (ii) no other 
amounts outstanding. 

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 amended and restated the Company’s prior credit agreement.

On December 31, 2020, the Company, as the borrower, and Bank of America, N.A., as administrative agent and sole lender, entered into 
a First Amendment (the “First Amendment”) to the Company’s Amended and Restated Credit Agreement, dated February 1, 2018 (as 
amended, the “Restated Credit Agreement”).  

The First Amendment amended the Restated Credit Agreement by (i) extending the scheduled maturity date from February 1, 2023, 
to December 31, 2025, and (ii) creating procedures and guidelines for establishing a successor benchmark rate if LIBOR ceases to be 
available during the term of the revolving credit facility. The Restated Credit Agreement called 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. The 
First Amendment calls for interest of LIBOR plus a margin that ranges from 1.25% to 1.75% or, at the discretion of the Company, the 
bank’s prime rate plus a margin that ranges from zero to 0.25%. In both cases the applicable margin remains dependent upon Company 
performance. The First Amendment also added certain representations and covenants concerning compliance by the Company with legal 
requirements.

The credit facilities under the Restated Credit Agreement 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 proceeds of the Restated Credit Agreement may be 
used for general corporate purposes, as well as permitted acquisitions. The Company’s obligations under the Restated Credit Agreement 
are guaranteed by the Subsidiary Guarantors.

Under the 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 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, 2020, the applicable interest rate was approximately 1.15%, and the Company was in compliance with all covenants under the Restated 
Credit Agreement. 

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. 

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 $11,428,568 at December 31, 2020. The fair value of the swap as of December 31, 2020, was 
approximately $(465) thousand and is included in other liabilities. Changes in the fair value and net cash settlement amounts related to 
the swap are recorded in other expense and resulted in expense of approximately $366 thousand and $388 thousand during the years 
ended December 31, 2020 and 2019, respectively. 

As the Company has paid the remaining balance of the term loan in its entirety, 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, to purchase capital equipment and to service its contractual obligations. The 
Company’s principal sources of funds are its operations and its amended and restated credit facility. The Company generated cash of 
approximately $25.0 million in operations during the year ended December 31, 2020; 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 and 
draws on the revolving credit facility are possible. Further, the continued economic uncertainty resulting from the COVID-19 pandemic 
could affect the Company’s long-term ability to access the public markets and obtain necessary capital in order to properly capitalize and 
continue operations.

12

Throughout fiscal 2021, 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, will be sufficient to fund its cash flow requirements, including capital asset acquisitions, through the next 12 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, 2020, 2019, and 
2018. At December 31, 2020, approximately $9.4 million was available for future repurchases of the Company’s common stock under this 
authorization.

ACCOUNTING ESTIMATES

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. The Company evaluates 
its estimates, including those listed below, on an ongoing basis. 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 
beginning on page 18. The Company believes the following critical accounting policies necessitated that significant judgments and 
estimates be used in the preparation of its consolidated financial statements. 

The Company has reviewed these policies with its Audit Committee.

Revenue Recognition 
The Company recognizes revenue 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, 
which are primarily product development services, as the services are performed or as otherwise determined based on the substance 
of the agreement. 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.

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 

13

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, 2020 and 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.

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, 2020, 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 1.25% to 1.75% 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, 2020, the 
applicable interest rate was approximately 1.15%. 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 

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, 2020, 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 1.25% to 1.75% 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, 2020, the applicable interest rate was approximately 1.15%. 
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.

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.

Critical audit matters 

Critical audit matters are matters arising from the current period audit of the financial statements that 
were communicated or required to be communicated to the audit committee and that: (1) relate to 
accounts or disclosures that are material to the financial statements and (2) involved our especially 
challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

GRANT THORNTON LLP 

We have served as the Company’s auditor since 2005. 

Boston, Massachusetts 

March 12, 2021

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, 2020, 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, 2020, 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, 2020, and our 
report dated March 12, 2021 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 12, 2021

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 

Finance lease right of use assets 

Operating lease right of use assets 

Other assets 

Total assets 

LIABILITIES AND STOCKHOLDERS’ EQUITY 

Current liabilities: 

Accounts payable  

Accrued expenses  

Deferred revenue 

Finance lease liabilities 

Operating lease liabilities 

Income taxes payable   

Total current liabilities 

Deferred income taxes  

Non-qualified deferred compensation plan 

Finance lease liabilities 

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; 
  7,529,625 and 7,500,066 shares issued and outstanding, respectively  
  at December 31, 2020; and 7,475,768 and 7,446,209 shares issued   
  and outstanding, respectively, at December 31, 2019 

  Additional paid-in capital 

  Retained earnings 

  Treasury stock at cost, 29,559 shares at December 31, 2020  
  and 2019 

2020 

 24,234  

 26,428  

 18,642  

 2,560  

 -  

 71,864  

 118,388   

 (64,633) 

 53,755  

 51,838  

 19,718  

 3,724   

100 

 2,052   

 153  

2019

$          

 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  

$ 

 203,204  

$ 

    188,758 

$ 

        4,121   

$ 

     4,577   

 7,944  

 1,887  

15 

 1,154   

16 

 15,137  

 5,057   

 3,810   

86 

 950  

 1,271  

 8,483 

 2,574 

- 

 1,150 

- 

 16,784  

 4,921  

 2,788 

-

 1,940 

 334  

 26,311     

 26,767   

— 

—

 75  

 32,484  

 144,921  

 (587) 

 74  

 30,952   

 131,552 

 (587)  

Total stockholders’ equity 

 176,893  

 161,991   

Total liabilities and stockholders’ equity 

$ 

   203,204  

$ 

  188,758 

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

18

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF INCOME 
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Net sales   

Cost of sales  

Gross profit 

Selling, general and administrative expenses 

Acquisition costs 

Loss (gain) on disposal 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:

          Years Ended December 31

2020  

2019 

2018 

$     179,373  

$    198,381  

  $    190,455  

 134,689   

 44,684   

 27,493   

 -  

 459   

 16,732   

-  

 (83) 

 (366)  

 16,283  

 2,914  

 144,422  

 53,959  

 29,251  

- 

- 

 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  

  $    13,369   

$      19,750  

  $      14,311  

Basic 

Diluted  

$       1.79   

$        1.77   

$   

2.66  

$          2.63  

$         1.95  

$  

1.93  

Weighted average common shares outstanding:

Basic 

Diluted  

7,484  

7,568 

7,424 

7,516 

7,347 

7,430

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

19

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY 
(IN THOUSANDS)

Years Ended December 31, 2020, 2019 and 2018

                     Common Stock 

Additional 
Paid-in 

Retained                Treasury Stock 

Stockholders’

                          Total 

Shares   Amount 

Capital 

Earnings 

Shares 

  Amount             Equity

Balance at December 31, 2017 

 7,280   

$ 

 73  

$  26,664   

$ 

 97,562  

 30  

$       (587) 

$   123,712  

Share-based compensation 

Exercise of stock options 

Net share settlement of restricted  
stock units 

Excess tax benefits on share-based 
compensation - adjustment 

ASC 606 adjustments 

Net income 

  31   

  79   

 (5) 

- 

- 

- 

-  

1  

-  

- 

- 

- 

 1,212  

 1,269  

 (144) 

 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 share settlement of restricted  
stock units 

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  

Share-based compensation 

Exercise of stock options 

Net share settlement of restricted    
stock units 

Net income 

 43   

 26   

 (15) 

 - 

 1   

 1,806   

 474   

 (748) 

-  

-  

- 

-  

-  

-  

- 

- 

-  

- 

- 

- 

- 

- 

 1,807 

  474 

 (748)

 13,369 

- 

 13,369  

Balance at December 31, 2020 

  7,500   

  $       75   

 $    32,484       $    144,921  

    30       $         (587) 

$    176,893  

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 

$   13,369 

 $   19,750 

   $   14,311  

          Years Ended December 31

2020  

2019 

2018 

Adjustments to reconcile net income to net cash provided

 by operating activities:

Depreciation and amortization 

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

Share-based compensation 

Interest expense on finance leases 

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 

 8,268 

 459 

 1,807 

2 

 136 

 2,220 

 (366) 

 (256) 

 295 

 (73) 

 (681) 

 (539) 

 (687) 

Non-qualified deferred compensation plan and other liabilities 

 1,083  

 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)

Net cash provided by operating activities 

 25,037 

 31,229 

   21,320 

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 

Principal payments on finance lease obligations 

Proceeds from the exercise of stock options 

 (4,368) 

- 

 107 

 (4,261) 

 5,500 

 (5,500) 

- 

- 

 (11) 

474 

Payment of statutory withholding for restricted stock units vested 

 (748) 

 (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 

 (285) 

 (24,950) 

   26,269 

Net change in cash and cash equivalents 

Cash and cash equivalents at beginning of year 

 20,491 

 3,743 

 505 

 3,238 

   (34,740)

 37,978

Cash and cash equivalents at end of year 

   $  24,234  

 $  3,743  

  $  3,238 

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 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.

(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, 2020 and 2019, the Company did not have any cash equivalents. 

The Company maintains its cash in bank deposit accounts 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, 2020, exceed the federal depository insurance limit by approximately $26.1 million.

(f)  Accounts Receivable

The Company periodically reviews the collectability of its accounts receivable. Provisions are recorded for accounts that 
are potentially uncollectable. Determining adequate reserves for accounts receivable requires management’s judgment. 
Conditions impacting the realizability of the Company’s receivables could cause actual asset write-offs to be materially 
different than the reserved balances as of December 31, 2020.

(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, 2020.

22

 
 
 
 
 
 
 
(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.   

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, 
2020, 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 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 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, 2020 and 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 $48.3 million of goodwill is deductible or has been fully deducted 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, 
2020, that required management to perform an impairment analysis.

23

 
 
 
 
 
 
 
 
 
 
 
 
(k)  Revenue Recognition

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, which are primarily product 
development services, as the services are performed or as otherwise determined based on the substance of the agreement. 
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.

(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 below.

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. The maximum 
contractual term of options issued under this plan is five years.

Through December 31, 2020, 1,275,035 shares of common stock have been issued under the 2003 Incentive Plan, none of 
which have been restricted. An additional 88,412 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, 2020, 185,000 options have been granted, and 
10,000 options are outstanding.  At December 31, 2020, 800,834 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, 
as 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 to non-employee members of the Company’s board of directors. 
The maximum contractual term of options issued under this plan is 10 years.

Through December 31, 2020, 379,918 options have been granted, and 84,513 options are outstanding. For the year ended 
December 31, 2020, 4,776 RSUs are being reserved for outstanding grants of RSUs, and 59,980 shares remained available to 
be issued under the Director Plan. 

(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 carry forwards. 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 includes 
treasury stock as a component of stockholders’ equity.  The Company did not repurchase any shares of common stock during 
the years ended December 31, 2020, 2019 and 2018. 

(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 $8.2 million, $8.8 million and $10.5 million were expensed in the years ended December 31, 2020, 
2019 and 2018, respectively.

Recent Accounting Pronouncements
There are no newly issued accounting pronouncements that the Company expects to have a material effect on the financial 
statements.

Revisions 
Certain revisions have been made to the December 31, 2019 Condensed Consolidated Balance Sheet to conform to the current 
year presentation relating to a reclassification of long-term operating lease liabilities to current operating lease liabilities. The 
reclassification resulted in an increase of current operating lease liabilities of $476 thousand and a decrease of long-term operating 
lease liabilities of $476 thousand. These revisions had no impact on previously reported earnings, net income or cash flows 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

2020 

2019 

2018  

 $       172,299  
   2,787   
   4,287  

$        193,016 
  2,730 
 2,635 

 $      183,186 
 4,302 
 2,967

Total net sales 

$  

179,373  

$ 

 198,381 

$ 

 190,455 

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 (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, 2020 and 2019 
(in thousands):

Deferred revenue - beginning of period 
Increases due to consideration received from customers 
Revenue recognized 
Deferred revenue - end of period 

Contract Liabilities

Years Ended December 31 

2020 

 2,574 
 2,673 
 (3,360) 
 1,887  

$ 

$ 

2019 

 2,507  
 3,216 
 (3,149) 
 2,574 

$ 

$ 

Revenue recognized during the years ended December 31, 2020 and 2019, from amounts included in deferred revenue at the 
beginning of the period were approximately $1.7 million and $1.7 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, 2020 and 2019 (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 

2020 

 72 
 3,147 
 (2,948) 
 271 

$ 

$ 

2019 

 65  
 831 
 (824) 
 72

$ 

$ 

(3)  Supplemental Cash Flow Information

Cash paid for: 

Interest 
Income taxes, net of refunds 

Non-cash investing and financing activities:

Years Ended December 31

2020 

2019 

2018 

                        (in thousands)

$ 
$ 

 71 
 2,481 

$  
$ 

664 
 1,255 

$ 
$ 

 1,303 
 3,463

Capital additions accrued but not yet paid 

$ 

 225 

$ 

 213 

$ 

 218

26

 
 
 
 
 
 
 
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(4)  Receivables and Allowance for Credit Losses

Receivables consist of the following (in thousands):

Accounts receivable—trade 
Less allowance for doubtful receivables 

Receivables, net 

2020 

$   26,912 
 (484) 

$  26,428 

December 31

2019 

  $      29,134   
 (486) 

 $   28,648

Effective January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (ASC 326,) which is required 
to be applied by means of a cumulative-effect adjustment to the opening retained earnings balance as of the adoption date. 
This ASU replaces the incurred loss impairment model with an expected credit loss impairment model for financial instruments, 
including trade receivables and contract assets. The amendment requires entities to consider forward-looking information to 
estimate expected credit losses, resulting in earlier recognition of losses for receivables that are current or not yet due, which were 
not considered under the previous accounting guidance. There was no impact to the Company’s opening retained earnings or 
its consolidated balance sheet upon adoption and as a result, the balances presented for December 31, 2019, which were derived 
under the incurred loss model are comparable to December 31, 2020.

The Company is exposed to credit losses primarily through sales of products and services. The Company’s expected loss 
allowance methodology for accounts receivable is developed using historical collection experience, current and future economic 
and market conditions, and a review of the current status of customers’ trade accounts receivables. Due to the short-term nature 
of such receivables, the estimate of the amount of accounts receivable that may not be collected is based on aging of the accounts 
receivable balances. Additionally, specific allowance amounts are established to record the appropriate provision for customers 
that have a higher probability of default due, in part, to their financial condition. The Company’s monitoring activities include 
timely account reconciliation, dispute resolution, payment confirmation, consideration of customers’ financial condition and 
macro-economic conditions. Balances are written off when determined to be uncollectible. Estimates based on an assessment of 
anticipated payment and all other historical, current and future information that is reasonably available are used to determine the 
allowance. 

The following table provides a roll-forward of the allowance for credit losses that is deducted from accounts receivable to present 
the net amount expected to be collected for the years ended December 30, 2020 and 2019 (in thousands):

Allowance - beginning of period 
Provision for (reversal of) expected credit losses 
Amounts written off against the allowance, net of recoveries 

$ 

 486  
 13  
(15) 

$ 

 564   
 (52)
(26)

Allowance - end of period 

$ 

  484  

$ 

  486 

Allowance for Credit Losses

Years Ended December 31 

2020 

2019 

(5)  Inventories

Inventories consist of the following (in thousands):

Raw materials 
Work in process 
Finished goods 

Total Inventory 

2020 

$ $12,229 
 1,991 
 4,422 

December 31

2019 

  $     10,540  
 2,279   
 5,457

$   18,642   

$    18,276

27

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
(6)  Other Intangible Assets

The carrying values of the Company’s definite-lived intangible assets as of December 31, 2020 and 2019 are as follows (in thousands): 

December 31, 2020 

Trade Name & Brand 

Non-Compete 

Customer List 

Total 

Estimated useful life 
Gross amount 
Accumulated amortization 
Net balance 

10 years 
 367 
 (107) 
 260 

$ 

$ 

5 years 
 462 
 (270) 
 192 

$ 

$ 

20 years
 22,555 
 (3,289) 
 19,266 

$ 

$ 

$ 
$ 
$ 

 23,384 
(3,666) 
 19,718

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 

$ 

$ 

$ 
$ 
$ 

 23,384 
(2,409) 

 20,975

Amortization expense related to intangible assets was approximately $1.3 million, $1.3 million and $1.2 million for the years ended 
December 31, 2020, 2019 and 2018, respectively. The estimated remaining amortization expense as of December 31, 2020, is as follows 
(in thousands):

2021 
2022 
2023 
2024 
2025 
Thereafter 
Total 

$       1,257 
1,257 
 1,172  
 1,164  
1,164 
 13,704  
$   19,718 

(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 

2020 

  $        3,191  
 36,017 
 3,160 
 67,880 
 6,135 
 2,005 

December 31 

2019 

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

  $    118,388  

$   116,089 

Depreciation and amortization expense of Property, Plant and Equipment for the years ended December 31, 2020, 2019 and 2018, were 
approximately $7.0 million, $6.9 million and $6.6 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 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 amended and restated the Company’s prior credit agreement.

On December 31, 2020, the Company, as the borrower, and Bank of America, N.A., as administrative agent and sole 
lender, entered into a First Amendment (the “First Amendment”) to the Company’s Amended and Restated Credit 
Agreement, dated February 1, 2018 (as amended, the “Restated Credit Agreement”).  

The First Amendment amended the Restated Credit Agreement by (i) extending the scheduled maturity date from 
February 1, 2023, to December 31, 2025, and (ii) creating procedures and guidelines for establishing a successor 
benchmark rate if LIBOR ceases to be available during the term of the revolving credit facility. The Restated 
Credit Agreement called for interest of LIBOR plus a margin that ranges from 1.0% to 1.5% or, at the discretion of 

28

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
the Company, the bank’s prime rate less a margin that ranges from 0.25% to zero. The First Amendment calls for 
interest of LIBOR plus a margin that ranges from 1.25% to 1.75% or, at the discretion of the Company, the bank’s 
prime rate plus a margin that ranges from zero to 0.25%. In both cases the applicable margin remains dependent 
upon Company performance. The First Amendment also added certain representations and covenants concerning 
compliance by the Company with legal requirements.

The credit facilities under the Restated Credit Agreement 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 
proceeds of the Restated Credit Agreement may be used for general corporate purposes, as well as permitted 
acquisitions. The Company’s obligations under the Restated Credit Agreement are guaranteed by the Subsidiary 
Guarantors.

Under the 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 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, 2020, 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, 2020, there were no amounts outstanding, the applicable interest rate was approximately 1.15% and 
the Company was in compliance with all financial covenants under the Restated Credit Agreement. 

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. 

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 $11,428,568 at December 31, 2020. The 
fair value of the swap as of December 31, 2020, was approximately $(465) thousand and is included in other liabilities. Changes 
in the fair value and net cash settlement amounts related to the swap are recorded in other expense and resulted in expense 
of approximately $366 thousand and $388 thousand during the years ended December 31, 2020 and 2019, respectively. 

As the Company has paid the remaining balance of the term loan in its entirety, 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 
Short-term portion of deferred payroll tax 
Other 

    December 31 

$ 

2020 

 2,443 
 921 
 1,538 
810 
 2,232 

$ 

2019 

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

$ 

 7,944 

$ 

 8,483

29

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(10) Income Tax

The Company’s income tax provision for the years ended December 31, 2020, 2019 and 2018 consists of the following (in thousands):

Current:

Federal 
State 

Deferred:

Federal 
State 

Years Ended December 31

2020 

$   2,223 
 555 

 2,778 

 (28) 
 164 

 136 

2019 

$   2,920 
 184 

 3,104 

 485 
 307 

 792 

2018 

$    1,772 
 439 

 2,211

 1,917  
 (36) 

 1,881

Total income tax provision 

$  2,914 

 $  3,896 

$  4,092

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):

Deferred tax assets:

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

December 31 

2020 

$ 

$ 

351 
 550 
 802 
 524 
 567 
 - 
 123 
 2,917 
 (64) 

2019 

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

 Net deferred tax assets 

$ 

 2,853 

$ 

 2,745

Deferred tax liabilities:

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

Total deferred tax liabilities 
Net long-term deferred tax liabilities 

$ 

 (4,527) 
 (2,795) 
 (554) 
(34) 

 (7,910) 
 (5,057) 

$ 

$ 

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

   (7,666) 
 (4,921)

$ 

The amounts recorded as deferred tax assets as of December 31, 2020 and 2019, 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, 2020, 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 $64 thousand for deferred tax assets (net of federal tax benefit), primarily related to tax credits generated in its 
2019 and 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 $156 thousand of tax credit carryforwards related to one state jurisdiction that expire between 
2021 and 2034.

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:

30

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
Years Ended December 31

2020 

2019 

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 
Non-deductible ISO stock option expense 
Unrecognized tax benefits 
Excess tax benefits on equity awards 
Excess compensation 
Other 
Change in valuation allowance 

 4.2 
 0.1 
 (7.2) 

- 
- 

 (1.2) 
 0.8 
 0.2 
 - 

 1.8 
 0.2 
 (6.2) 

- 
 (0.7) 
 (0.7) 
 0.6 
 0.4 
 0.1  

2018   

21.0% 

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

 Effective tax rate 

17.9% 

16.5% 

22.2% 

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 2019, 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. Certain tax credits in Iowa are currently being audited for the year 
2018. 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 

2020 

$  

$ 

-  
- 
- 

December 31 

2019 

 $ 

$ 

150 
 (150) 

-

At December 31, 2018, all of the unrecognized tax benefits related to tax returns of a specific state jurisdiction that were under 
examination. In January, 2019 the Company came to an agreement with the state and in February, 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

2020 

2019 

2018 

Basic weighted average common shares 
outstanding during the year 

 7,484 

 7,424 

 7,347 

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

 84 

 92 

 83 

Diluted weighted average common  
shares outstanding during the year 

 7,568 

 7,516 

 7,430  

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, 2020, 2019 and 2018, the number of stock awards excluded from the computation was 14,892, 
16,536 and 10,344, respectively. 

31

 
 
 
 
 
 
 
 
 
 
  
(12) Share-Based Compensation

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). Share-based compensation is included in 
selling, general & administrative expenses as follows (in thousands):

Years Ended December 31

Share-based compensation related to: 

2020 

2019 

Common stock grants 

Stock option grants 

Restricted Stock Unit awards 

$ 

400  

$ 

 400 

$ 

 232 

 1,175 

 151 

 1,040 

2018 

505

 149

 558

Total share-based compensation 

$ 

 1,807  

$ 

 1,591 

$ 

 1,212 

The total income tax benefit recognized in the consolidated statements of income for share-based compensation arrangements 
was approximately $734 thousand, $653 thousand and $544 thousand for the years ended December 31, 2020, 2019 and 2018, 
respectively.

Common stock grants 
The compensation expense for common stock granted during the three-year period ended December 31, 2020, was determined 
based on the market price of the shares on the date of grant.

Stock option grants 
The compensation expense for stock options granted during the three-year period ended December 31, 2020, was determined as 
the fair value of the options using the Black Scholes valuation model. The assumptions are noted as follows:

Years Ended December 31

2020 

2019 

2018 

Expected volatility 

Expected dividends 

Risk-free interest rate 

Exercise price 

Expected term 

  32.8% 

  None 

  0.3% 

  $43.95 

 6.1 years 

Weighted-average grant date fair value 

$ 

14.10  

28.9% 

None 

2.3% 

$38.61 

27.7%

None

2.7%

$31.20

  6.0 years 

$ 

 12.70 

  6.0 years

$ 

 10.15

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 following is a summary of stock option activity for the year ended December 31, 2020:

Weighted Average 

Remaining 

Aggregate 

Shares 

Exercise Price 

Contractual Life 

Intrinsic Value 

Under Options 

(per share) 

(in years) 

(in thousands)

Weighted Average 

Outstanding December 31, 2019 

Granted 
Exercised 

 105,614 
 14,892 
 (25,993) 

$ 

 25.34 
 43.95 
 18.24 

Outstanding December 31, 2020 

 94,513 

$ 

 30.22 

Exercisable at December 31, 2020 

 79,621 

$ 

 27.66 

- 
- 
- 

 6.03 

 5.39 

- 
- 
-

$ 

 1,548

$ 

 1,508

Vested and expected to vest at  

December 31, 2020 

 94,513 

$ 

 30.22 

 6.03 

$ 

 1,548

During the years ended December 31, 2020, 2019 and 2018, the total intrinsic value of all options exercised (i.e., the difference 
between the market price and the price paid by the employees to exercise the options) was approximately $0.8 million, $1.0 million 
and $1.2 million, respectively, and the total amount of consideration received from the exercise of these options was approximately 

32

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$0.5 million, $0.7 million and $1.3 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, 2020, 2019 
and 2018, no shares were surrendered for this purpose.

Restricted Stock Unit awards (“RSUs”)
The Company grants RSUs to its directors, 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, 2020:

Restricted Stock Units 

Award Date Fair Value

Weighted Average  

Outstanding at December 31, 2019 

Awarded 

Shares vested 

        Forfeitures 

Outstanding at December 31, 2020 

 113,866 

 25,312 

 (34,485) 

 (11,506) 

 93,187 

$ 

 28.36  
 48.83 

 28.95 

 35.49 

$ 

 35.03

At the Company’s discretion, RSU holders are given the option to net-share settle to cover the required minimum withholding tax, 
and the remaining amount is converted into the equivalent number of common shares. During the year ended December 31, 2020, 
11,423 shares were redeemed for this purpose at an average market price of $49.91. During the years ended December 31, 2019 and 
2018, 8,341 and 5,238 shares were redeemed for this purpose at an average market price of $33.69 and $27.60, respectively.

The following summarizes the future share-based compensation expense the Company will record as the equity securities granted 
through December 31, 2020, vest (in thousands):

2021 

2022 

2023 

2024 

Total 

(13) Leases

Options 

Restricted  

Stock Units 

$ 

 93 

$ 

- 

- 

     - 

 983 

 588 

 262 

 23 

Total 

$ 

 1,076 

 588 

 262 

    23

$ 

 $93  

$ 

 1,856  

$ 

 1,949

The Company has operating and finance 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 accounts 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. 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 right of use (“ROU”) 
assets or 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 and finance lease ROU assets and operating and finance 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 lease liabilities represent 
the Company’s obligation to make lease payments arising from the lease.  ROU assets and 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 it will exercise that option.  ROU assets are also 
adjusted for any deferred or accrued rent.  As the Company’s 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.

33

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lease cost: 

Finance lease cost: 
  Amortization of right of use assets 

Interest on lease liabilities 

Operating lease cost 
Variable lease cost 
Short-term lease cost 

Year Ended December 31 

($ in thousands) 

2020 

2019 

$ 

 10 
 2  
1,207 
215 
28 

$ 

- 
- 
1,222 
219 
27 

Total lease cost 

$ 

 1,462 

$ 

1,468 

Cash paid for amounts included in 
measurement of lease liabilities: 

Operating cash flows from operating leases 
Financing cash flows from finance leases 

$ 

ROU assets obtained in exchange for finance lease obligations 

Weighted-average remaining lease term (years): 

Finance 
Operating 

Weighted-average discount rate: 

Finance 
Operating 

 1,212 
11 
110 

 6.33 
1.78 

$ 

1,208 
- 
- 

- 
2.69 

2.26% 
  4.37%  

- 
  4.45%

The aggregate future lease payments for leases as of December 31, 2020 and 2019, were as follows (in thousands)::

December 31, 2020 

December 31, 2019 

2021 

2022 

2023 

2024 

2025 

Thereafter 

Total lease payments 

Less: interest 

Finance 

$ 

 17  

17  

17 

17  

 17  

 23  

108  

(7)  

Operating 

$  

1,177  

Operating 

$ 

1,173 

973  

38 

- 

- 

- 

2,188  

(84)  

1,118 

957 

36 

- 

- 

3,284 

(194) 
$  3,090 

Present value of lease liabilities 

$ 

101  

$  2,104  

Rent expense amounted to approximately $1.3 million, $1.2 million and $1.2 million in 2020, 2019 and 2018, 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.

(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 $0.9 
million, $1.0 million and $1.1 million for the years 2020, 2019 and 2018, respectively.

34

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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, 2020 and 2019, the balance of the deferred compensation liability 
totaled approximately $3.8 million and $2.8 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 $3.7 million and $2.8 million as of December 31, 2020 and 2019, 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 

Liabilities: 

December 21, 2020 

December 31, 2019

Derivative financial instruments 

$ 

 465  

$ 

 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.

35

 
 
(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 years ended December 31, 2020, 2019 and 2018.  At December 31, 2020 and 2019, one customer 
represented approximately 13.3% and 13.9% of gross accounts receivable, respectively. A vast majority of the Company’s assets are 
located in the United States.  

The Company’s custom products are primarily sold to customers within the Medical, Consumer,  Automotive, Aerospace & 
Defense, Industrial and Electronics markets. Sales by market for the years ended December 31, 2020, 2019 and 2018, are as follows 
(in thousands):

Market 

Medical 

Consumer 

Automotive 

Aerospace & Defense 

Industrial 

Electronics 

2020 

2019 

2018

Net Sales 

% 

Net Sales 

% 

Net Sales 

% 

$ 

 120,206  

67.0%      

$ 

 128,915 

65.0% 

$ 

110,282  

57.9%

 18,263       10.2% 

 14,607        8.1% 

 12,624         7.0% 

 7,601        4.2% 

 6,072         3.4% 

 17,669      8.9% 

 24,989  

13.1% 

 20,004     

10.1% 

 20,022  

 10.5%

 13,778       6.9% 

 9,607        4.8% 

 8,408        4.2% 

 13,130  

 10,579  

 11,453  

6.9% 

5.6% 

6.0% 

Net Sales 

$ 

 179,373     100.0% 

$ 

 198,381    100.0% 

$   190,455  

100.0%

(18) Quarterly Financial Information (unaudited)

Summarized quarterly financial data is as follows (in thousands, except per share data):

2020 

Net sales 

Gross profit 

Net income 

Basic net income per share 

Diluted net income per share 

2019 

Net sales 

Gross profit 

Net income 

Basic net income per share 

Diluted net income per share 

 Q1 

Q2 

Q3 

Q4

$ 

 48,277  

$ 

 42,644  

$ 

 43,299  

$ 

 45,153  

 12,823  

 3,891  

 0.52  

 0.52  

 Q1 

 9,949  

 2,318  

 0.31  

 0.31  

Q2 

  10,528  

 2,988  

  0.40  

 0.40   

Q3 

 11,384  

  4,172  

 0.56  

 0.55 

Q4

$ 

 47,328   

$ 

 51,399  

$ 

 49,394  

$ 

 $50,260  

 12,497  

 3,734  

 0.50  

 0.50  

 14,371  

 4,598  

 0.62  

 0.62  

 13,321   

  5,641   

 0.76   

  0.75   

  13,770  

  5,777  

  0.78  

  0.77 

(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):

36

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consideration Paid:

Cash paid at closing 

Working capital adjustment 

Cash from Dielectrics 

Total consideration 

Purchase Price Allocation:
Accounts receivable 

Inventory 

Other current assets 

Property, plant and equipment 

Customer list 

Non-compete 

Trade name and brand 

Goodwill 

$ 

80,000 

250 

(3,272)

$ 

76,978

$ 

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 year ended December 31, 2018, as 
if the Dielectrics acquisition had occurred at the beginning of the period (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 

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, 2015, with the cumulative 
total return of the (1) NASDAQ Stock Market (US Companies), (2) SIC Code 3841 Surgical and Medical Instruments and Apparatus, 
(3) GICS 15103020 Paper Packaging and (4) 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 2021 
Annual Meeting of Stockholders. This graph assumes the investment of $100 on December 31, 2015, in our Common Stock, and for 
comparison the companies that comprise each of (1) the NASDAQ Stock Market, (2) SIC Code 3841 Surgical and Medical Instruments 
and Apparatus, (3) GICS 15103020 Paper Packaging and (4) 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.

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
ASSUMES INITIAL INVESTMENT OF $100
DECEMBER 2020

2015

2016

2017

2018

2019

2020

UFP Technologies, Inc.

NASDAQ Stock Market (US Companies)

SIC Code 3841

GICS 15103020 Paper Packaging

Peer Group

300

250

200

150

100

50

38

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. Management and representatives of the Company also 
may from time to time make forward-looking statements. 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 potential further impact the novel coronavirus (“COVID-19”) pandemic 
may have on the Company’s business, financial condition and results of operations, including with respect to the different markets in which the 
Company participates, the demand for its products, the well-being and availability of the Company’s employees, the continuing operation of the 
Company’s locations, delayed payments by the Company’s customers and the potential for reduced or canceled orders, the Company’s efforts 
to address the pandemic, including regarding the safety of its employees, the maintenance of its facilities and the sufficiency of the Company’s 
supply chain, inventory, liquidity and capital resources, including increased costs in connection with such efforts, the impact of the pandemic on 
the businesses of the Company’s suppliers and customers, and the overall impact the pandemic may have on the Company’s financial results in 
2021; statements about the Company’s acquisition strategies and opportunities and the Company’s growth potential and strategies for growth; 
expectations regarding customer demand; expectations regarding the Company’s liquidity and capital resources, including the sufficiency of 
its cash reserves and the availability of borrowing capacity to fund operations and/or potential future acquisitions; anticipated revenues and 
the timing of such revenues; expectations regarding the potential impact of the proposed phase out of LIBOR by the end of 2021; 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; statements regarding anticipated advantages the Company 
expects to realize from its investments and capital expenditures; statements regarding 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 participation and growth in 
multiple markets; statements about the Company’s business opportunities; 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 that could adversely affect the Company’s business 
and prospects, and otherwise cause actual results to differ materially from those anticipated by such forward-looking statements, or otherwise, 
including without limitation: the severity and duration of the COVID-19 pandemic and its impact on the markets in which the Company 
participates, including its impact on the Company’s customers, suppliers and employees, as well as the U.S. and worldwide economies; the 
timing, scope and effect of further governmental, regulatory, fiscal, monetary and public health responses to the COVID-19 pandemic; risks and 
uncertainties associated with the COVID-19 pandemic and its impact on the Company’s business, financial condition and results of operations, 
including risks relating to decreased, including substantially decreased, demand for the Company’s products; risks relating to the potential 
closure of any of the Company’s facilities or the unavailability of key personnel or other employees; risks that the Company’s inventory, cash 
reserves, liquidity or capital resources may be insufficient; risks relating to delayed payments by our customers and the potential for reduced 
or canceled orders; risks relating to the increased costs associated with the Company’s efforts to respond to the pandemic; 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 
related to our indebtedness and compliance with covenants contained in our financing arrangements, and whether any available financing may 
be sufficient to address our needs; risks related to the proposed phase out of LIBOR by the end of 2021; 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; 
and risks associated with new product and program launches. Accordingly, actual results may differ materially.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” 
“anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential,” and similar expressions intended to identify forward-looking statements. 
Our actual results could be different from the results described in or anticipated by our forward-looking statements due to the inherent 
uncertainty of estimates, forecasts, and projections, and may be materially better or worse than anticipated. Given these uncertainties, you 
should not place undue reliance on these forward-looking statements. Forward-looking statements represent our current beliefs, estimates and 
assumptions and are only as of the date of this Report. We expressly disclaim any duty to provide updates to forward-looking statements, and 
the estimates and assumptions associated with them, after the date of this Report, in order to reflect changes in circumstances or expectations, 
or the occurrence of unanticipated events, except to the extent required by applicable securities laws. All of our forward-looking statements 
are qualified by these cautionary statements and those set forth in our filings with the Securities and Exchange Commission, including those 
set forth under “Risk Factors” in Part I, Item 1A in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. 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

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  

Massachusetts, Michigan, Texas

June 9, 2021. Details will be posted to  

www.ufpt.com.

COMMON STOCK LISTING
UFP Technologies’ common stock is 

INDEPENDENT PUBLIC 

ACCOUNTANTS
Grant Thornton LLP 

traded on NASDAQ under the symbol 

Boston, MA 02110

UFPT.

125 High Street, 21st Floor 

KPMG LLP

Daniel C. Croteau 

Chief Executive Officer 

Corza Medical

Cynthia L. Feldmann 

Former Partner and 

National Chair 

Medical Device Industry 

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.

d

d

o

d

d

d

d

o

o

CORPORATE COUNSELS
Lynch Fink Harrington & Gray LLP 

6 Beacon Street, Suite 415 
Boston, MA 02108

Howard & Howard 

450 West Fourth Street 

Royal Oak, MI  48067-2557

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 

Board Consultant 

Genuity Science

Mitchell C. Rock 

Sr. Vice President 

and General Manager, Medical

Daniel J. Shaw, Jr. 

Vice President 

Research & Development

d  Directors 

o  Officers

STOCKHOLDER SERVICES
Stockholders whose shares are held in 
street names often experience delays 

in receiving company communications 

forwarded through brokerage firms or 

financial institutions.  Any shareholder 

or other interested party who wishes 

to receive information directly should 

call or write the Company.  Please 

specify your preference for 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, 2020, 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.

O P E R AT I N G   P R I N C I P L E S

C U S T O M E R S
We believe the primary purpose of our company is to serve our customers.  
We seek to “wow” our customers with responsiveness and great products.

E T H I C S
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.

E M P L O Y E E S
We are dedicated to providing a positive, challenging and rewarding work 
environment for all of our employees.

Q U A L I T Y
We are dedicated to the never-ending process of continuously improving our 
quality of products, service, communications, relationships and commitments.

S I M P L I F I C A T I O N
We seek to simplify our business process through the constant reexamination 
of our methods and elimination of all non-value-added activities.

E N T R E P R E N E U R S H I P
We strive to create an environment that encourages autonomous decision-
making and a sense of ownership at all levels of the company.

P R O F I T
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

DRIVEN. DISCIPLINED. DIFFERENTIATED.

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