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
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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