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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 001-12648
UFP Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
100 Hale Street, Newburyport, MA – USA
(Address of principal executive offices)
04-2314970
(I.R.S. Employer
Identification No.)
01950-3504
(Zip Code)
(978) 352-2200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock
Trading Symbol(s)
UFPT
Name of each exchange on which registered
The NASDAQ Stock Market L.L.C.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No
☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes ☐ No
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ☒ No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Non-accelerated filer ☐
Emerging growth company ☐
Accelerated filer ☐
Smaller reporting company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
§240.10D-1(b). ☐
the
by
registrant’s
executive
recovery
pursuant
relevant
officers
during
period
any
the
of
to
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of the last business day of the
registrant’s most recently completed second fiscal quarter was approximately $1,383,892,824, based on the closing sales price of $193.85 per share of such
stock on the NASDAQ Capital Market on June 30, 2023.
As of February 23, 2024, there were 7,641,883 shares of common stock, $0.01 par value per share, of the registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document
Portions of the registrant’s Proxy Statement for the 2024 Annual Meeting of
Shareholders.
Parts of this Form 10-K Into Which Incorporated
Part III
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this Report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Management and representatives of UFP Technologies,
Inc. (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; 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;
statements about expectations regarding customer inventory levels; 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 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: financial condition and results of operations, including risks relating to 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 related to customer concentration; 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 associated with efforts to shift the Company’s
book of business to higher-margin, longer-run opportunities; risks associated with the Company’s entry into and growth in certain markets; risks and
uncertainties associated with seeking and implementing manufacturing efficiencies and implementing new production equipment; risks and uncertainties
associated with growth of the Company’s business and increases to sales, earnings and earnings per share; risks relating to our ability to achieve our
environmental, social and governance (“ESG”) objectives or otherwise meet the expectations of our stakeholders with respect to ESG matters; risks relating
to cybersecurity, including cyber-attacks on the Company’s information technology infrastructure, products, suppliers, customers and partners, and
cybersecurity-related regulations; 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 the forward-looking statements are qualified in their entirety by reference to the factors discussed above and under “Risk
Factors” set forth in Part I Item 1A of this Report, as well as the risks and uncertainties discussed elsewhere in this Report. We qualify all of our forward-
looking statements by these cautionary statements. 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.
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Unless the context requires otherwise, the terms “we”, “us”, “our”, or “the Company” refer to UFP Technologies, Inc. and its consolidated subsidiaries.
ITEM
1.
BUSINESS
The Company is a designer and custom manufacturer of comprehensive solutions for medical devices, sterile packaging, and other highly engineered
custom products. The Company believes it is an important link in the medical device supply chain and a valued outsource partner to many of the top
medical device manufacturers in the world. The Company’s single-use and single-patient devices and components are used in a wide range of medical
devices and packaging for minimally invasive surgery, infection prevention, surfaces and support, wound care, wearables, orthopedic soft goods, and
orthopedic implants.
The Company is diversified by also providing highly engineered products and components to customers in the automotive, aerospace and defense, and
industrial/other markets. Typical applications of its products include military uniform and gear components, automotive interior trim, air filtration, and
protective cases and inserts.
The Company was incorporated in the State of Delaware in 1993.
The consolidated financial statements of the Company include the accounts and results of operations of UFP Technologies, Inc. and its wholly owned
subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Available Information
The Company’s Internet website address is http://www.ufpt.com. Through its website, the Company makes available, free of charge, its annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after the
Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission (“SEC”). These SEC reports can be accessed
through the investor relations section of the Company’s website. The information found on the Company’s website is not incorporated by reference in this
or any other report filed with or furnished to the SEC. The SEC maintains an Internet website that contains reports, proxy and information statements, and
other information regarding the Company and other issuers that file electronically with the SEC. The SEC’s Internet website address is http://www.sec.gov.
Market Overview
The applications for the Company’s products are numerous and diverse. The Company sells its products into distinct markets with its primary focus on the
MedTech market:
● MedTech – The global medical market is large, growing, and varied but the Company targets and operates in specific segments where its design
and manufacturing expertise and access to highly specialized materials helps customers differentiate products, improve patient outcomes, and
increase their client’s speed to market. The product segments we target, and within which we operate, include minimally invasive surgery,
infection control, orthopedics, interventional & surgical, surfaces & support, therapeutics, diagnostics, wound care, and biopharma.
● Automotive – Automotive companies are challenged with creating quieter, safer and more efficient vehicles. The Company partners with OEMs,
Tier 1 suppliers, and its own material manufacturers to develop customized solutions designed to solve automakers’ biggest challenges.
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● Aerospace & Defense – With regard to the aerospace market, the Company primarily targets commercial aircraft manufacturers to address the
need for improved safety, better fuel economy, lower emissions, and overall passenger comfort. With regard to the defense market, as a long-time
supplier to military defense contractors and law enforcement, the Company provides highly innovative solutions to enhance soldier safety,
improve comfort, and protect mission critical equipment.
● Industrial/Other – The applications for the Company's industrial and other products are highly diverse. Examples include air and liquid filters,
thermal and acoustic insulation, seals and gaskets, and comfort gear for sports equipment.
Products
The Company’s custom products are targeted at macro market trends and create specific opportunities in niche segments where the Company’s access to
specialty materials, engineering know-how, and processing expertise can be leveraged to create value for its customers. Examples of its custom products
targeted to specific markets include:
● MedTech – Protective drapes for robotic surgery, single patient use surfaces, advanced wound care, infection prevention, disposables for surgical
and endoscopic procedures, packaging for medical devices, orthopedic implants, biopharma drug manufacturing, and dispenser coils for catheters.
In general, the Company’s solutions are all aimed at improving treatment outcomes while reducing risk and cost.
● Automotive – Molded components designed to make cars lighter (therefore more fuel efficient), quieter, and safer. Applications include acoustic
insulation, interior trim, load floors, sunshades, SUV cargo cover handles, driveshaft damping, engine & manifold covers, quarter panels and
wheel liners.
● Aerospace & Defense – With regard to the aerospace market, molded composites for commercial aviation make planes lighter and safer. With
regard to the defense market, molded composites for military gear improve the safety and comfort of soldiers. Applications include backpack
components, knee and elbow pads, eyewear, and helmets. In addition, the Company supplies reusable cases and custom inserts to quickly and
safely transport, store, and deploy mission-critical equipment. Applications include military ballistics panels, virtual training systems, drones,
communications equipment, and rugged portable computers.
Regulatory Climate and Environmental Considerations
The Company’s medical customers typically require FDA approval for their products and therefore sometimes require their suppliers to manufacture in
facilities that are FDA registered and comply with the ISO 13485 quality standard for medical devices. The Company has eleven manufacturing locations
that are ISO 13485 certified and eight that are FDA registered. The Company’s automotive customers sometimes require their suppliers to certify their
manufacturing locations to the IATF 16949 automotive quality standard. The Company’s Grand Rapids, MI facility meets this requirement. The Company
designs products to provide optimum performance with minimum material. In addition, the Company bales and disposes of certain of its urethane and
cross-linked foam scrap for use in various recycled products. The Company’s Newburyport, MA facility utilizes solar power to provide approximately 6%
of its electricity, with plans to increase capacity in the future. The Company is aware of public support for environmentally responsible packaging and
products. Future government action may impose restrictions affecting the industry in which the Company operates. There can be no assurance that any such
action will not adversely impact the Company’s products and business.
Marketing and Sales
The Company markets to the target industries it serves by promoting specific solutions, materials, and manufacturing capabilities and services. The
Company markets through websites, trade shows and expositions, social media, online advertising, emails, and press releases. Its relationships with key
material suppliers are also an important part of its marketing and sales efforts. The Company markets and sells its products principally through a direct
sales force. The Company’s commercial sales force, in conjunction with Company engineers, collaborate with customers and in-house design and
manufacturing experts to develop custom-engineered solutions on a cost-effective basis. For the year ended December 31, 2023, one customer’s sales were
approximately 28% of total sales; no other customer’s sales exceeded 10% of total sales. For additional information, see “Risk Factors— We depend on a
small number of customers for a large percentage of our revenues. The loss of any such customer, a reduction in sales to any such customer, or the decline
in the financial condition of any such customer could have a material adverse effect on our business, financial condition, and results of operations.”
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Seasonality is not a major factor in the Company’s sales. See the Company’s consolidated financial statements contained in Part IV, Item 15, of this Report
for net sales by market.
Manufacturing
The Company’s manufacturing operations consist primarily of cutting, routing, compression and injection, molding, vacuum-forming, laminating, radio
frequency and impulse welding and assembling. For medical custom-molded foam products and thermoplastic welded devices, the Company’s skilled
engineering personnel analyze specific customer requirements to design and build prototype products to determine product functionality. Upon customer
approval, prototypes are converted to final designs for commercial production runs. Molded cross-linked foam products are produced in a thermoforming
process using heat, pressure, and precision metal tooling. Thin films and other materials are sealed using radio frequency and impulse welding. Reticulated
polyurethane foam is also used for many high-performance medical products requiring precision fluid or air management. These products are typically
fabricated using high speed die-cutting or waterjet cutting. Laminated products for medical, military, and personal comfort and protection are produced
through a process whereby the foam medium is heated to the melting point and the heated foam is typically bonded to a non-foam material through the
application of mechanical pressure.
The Company also engineers components for automotive use as interior trim and structural applications. These components are produced using a
compression molding process to create highly functional composites consisting of various materials such as polypropylene/fiberglass panels, nonwovens,
and fabrics. Highly specialized polypropylene based nonwoven material is used for automotive interior noise reduction and is fabricated using a die cut
process. Foam for filtration, acoustical, and thermal insulation products that do not utilize cross-linked foam are fabricated by cutting shapes from blocks of
foam, using specialized cutting tools, routers, water jets, and hot wire equipment, and assembling these shapes into the final product using a variety of foam
welding or gluing techniques. Products can be used on a stand-alone basis or bonded to another foam product or other material such as a corrugated
medium.
The Company does not manufacture any of the raw materials used in its products. With the exception of certain grades of cross-linked foam and technical
polyurethane foams, these raw materials are available from multiple supply sources. Although the Company relies upon a limited number of suppliers for
cross-linked and technical polyurethane foams, the Company’s relationships with its suppliers are good, and the Company expects that these suppliers will
be able to meet its requirements for these foams. Any delay or interruption in the supply of raw materials could have a material adverse effect on the
Company’s business.
Research and Development
The Company’s engineering personnel continuously explore new design and manufacturing techniques, as well as new and innovative materials to meet the
unique demands and specifications of its customers. Research and development is an integral part of the Company’s ongoing cost structure.
Competition
The medical design and contract manufacturing industry is highly competitive as is the foam and plastics converting industry as a whole. While there are
several national companies that convert foam and plastics, the Company’s primary competition is from smaller independent regional manufacturing
companies. These companies generally market their products in specific geographic areas from neighboring facilities. The Company’s custom engineered
products face competition primarily from smaller companies that typically concentrate on production of products for specific industries. The Company
expects to compete effectively in the engineered products market due to its ability to address its customers' primary vendor selection criteria, including
inclusion on their preferred supplier lists, price, product performance, product reliability, and customer service, as well as its access to a wide variety of
materials, its engineering expertise, its ability to combine foams with other materials such as plastics and laminates, and its ability to manufacture products
in a clean room environment.
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Patents and Other Proprietary Rights
The Company relies upon trade secrets, patents, and trademarks to protect its technology and proprietary rights. The Company believes the improvement of
existing products, reliance upon trade secrets and unpatented proprietary know-how, and the development of new products are generally as important as
patent protection in establishing and maintaining a competitive advantage. Nevertheless, the Company has obtained patents and may continue to make
efforts to obtain patents, when available, although there can be no assurance that any patent obtained will provide substantial protection or be of
commercial benefit to the Company, or that its validity will be upheld if challenged. The Company has a total of 19 active patents relating to technologies
including foam, packaging, tool control technologies, radio frequency welding, automotive superforming processes and certain nail file technologies. The
Company also has patent applications in process. There can be no assurance that any patent or patent application will provide significant protection for the
Company’s products and technology or will not be challenged or circumvented by others. The expiration dates for the Company’s patents range from 2024
through 2040. FlexShield®, FirmaLite®, BioShell®, T-Tubes®, Tri-Covers®, Design Nail®, Pro-Sticks®, Cryoshell® Case Fit®, Alloshell®, Flash
Shiner®, Mambo®, and EZ Card® are the Company’s U.S. registered trademarks. Each trademark, trade name, or service mark of any other company
appearing in this Report belongs to its respective holder.
Human Capital Management
As of January 27, 2024, the Company had a total of 3,093 full-time employees (compared to 2,665 full-time employees as of January 28, 2023) and 200
temporary employees (compared to 303 temporary employees at January 28, 2023). The Company is not a party to any collective bargaining agreements.
The Company considers its employee relations to be good.
The Company strives to promote a workplace that is professional, provides opportunity for career growth and treats all workers with dignity and respect.
The Company will not tolerate unlawful discrimination and harassment in the workplace; it expressly prohibits any form of unlawful discrimination or
harassment based on race, color, religion, sex, sexual orientation, gender identity or expression, national origin, ethnicity, age, physical or mental disability,
genetic information, military or veteran status, pregnancy, childbirth or related medical conditions, or any other legally protected status under applicable
federal, state, or local law.
The Company’s employees are tasked with upholding our Code of Ethics and Business Conduct, which we view as an important component of our
operating strategy. This policy covers the conduct of the Company's employees in their work-related dealings with each other, as well as interactions with
our customers, vendors, and other business partners. The Company’s compliance hotline is maintained for the confidential reporting of any suspected
policy violations or unethical business conduct.
The Company’s commitment to its employees starts at the top with an executive-level officer – Senior Vice President of Human Resources (“SVP of HR”)
– reporting to the CEO, attending all board meetings, and having significant involvement with the board’s compensation committee. This commitment is
reflected in our efforts to attract, engage, and retain the best people possible.
Compensation and Benefits
The Company’s compensation and benefits offerings are supported by regular third-party benchmarking surveys. In addition to competitive compensation
practices, the Company offers annual stock award bonus programs to reward and retain executives and key employees. Access to company subsidized
health, life and disability insurance; a matching 401(k) plan; and paid time off for vacation, illness and personal reasons, are the highlights of the
Company’s benefits available to all eligible full-time employees. For those employees struggling with life’s challenges, the Company offers employee
assistance programs.
Growth and Development
The Company supports every employee’s opportunity for career growth. It offers tuition reimbursement for employees to further their industry-related
formal education; access to virtual training and education platforms; reimbursement to attend work-related seminars; and on-the-job training and cross-
training to improve job skills. Its talent management program provides feedback on performance, identifies employees with potential for advancement, and
allows for personalized career development plans. Its summer internship program provides the opportunity for college and technical school students to
demonstrate and develop the skills to become valuable members of our team.
7
The Company’s commitment to its employees has resulted in several national, regional, and local “Best in Class” awards.
Safety
As an essential manufacturing company, the Company takes its responsibility to our essential employees’ health and safety seriously. Its corporate safety
officer reports directly to the SVP of HR and works with dedicated safety officers at each of our plants to implement safety programs and training. Safety
audits are conducted regularly to ensure compliance.
ITEM
1A.
RISK FACTORS
The risks factors described below could materially impact our business, including our results of operations and financial results. These are the risks and
uncertainties we believe are most important for you to consider. Additional risks and uncertainties not presently known to us, which we currently deem
immaterial, or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations. If any of
the following risks or uncertainties occurs, our business, financial condition and operating results would likely suffer.
Risks Related to our Business
Our business, operating results, and cash flows have been affected and may continue to be adversely affected by inflation.
Inflationary pressures have increased due to general macroeconomic factors as well as the global supply chain disruptions and labor shortages. Although
inflation rates have somewhat normalized, rates could again rise in the foreseeable future. These inflationary pressures have affected our manufacturing
costs, operating expenses (including wages) and other expenses. We may not be able to pass these cost increases on to our customers in a timely manner,
which could have an impact on our gross margins and profitability. In addition, inflation has resulted in higher interest rates and could otherwise adversely
impact the macroeconomic environment, which in turn could adversely impact our customers and their ability or willingness to purchase our products. Our
inability to successfully manage the effects of inflation could have a material adverse effect on our business, results of operations and cash flows.
The ongoing conflict between Russia and Ukraine and the related implications could have a material adverse effect on our business and results of
operations.
As a result of the ongoing military conflict between Russia and Ukraine, the United States and other countries have imposed significant sanctions on Russia
and could impose even wider sanctions. The military conflict and related sanctions could damage or disrupt international commerce and the global
economy. We cannot predict the broader or longer-term consequences of the conflict or of the sanctions imposed to date or in the future, which could
include embargoes, regional instability, geopolitical shifts, exchange rate fluctuations, financial market disruptions and economic recession. Further, the
conflict could exacerbate supply chain challenges, lead to an increase in cyberattacks from Russia, affect the global price and availability of key
commodities, reduce our sales and earnings or otherwise have an adverse effect on our business and results of operations.
In addition, the conflict between Russia and Ukraine may have the effect of heightening other risks disclosed in this Form 10-K, any of which could
materially and adversely affect our business and results of operations. Such risks include but are not limited to interruptions in the transportation channels
for the manufacture and global distribution of our products, heightened inflation, depressed levels of consumer and commercial spending, adverse changes
in international trade policies and relations, and the inability to implement and execute our business strategy. We are currently unable to predict the extent,
nature or duration of any of these occurrences.
8
We depend on a small number of customers for a large percentage of our revenues. The loss of any such customer, a reduction in sales to any such
customer, or the decline in the financial condition of any such customer could have a material adverse effect on our business, financial condition,
and results of operations.
A limited number of customers typically represent a significant percentage of our revenues in any given year. Our top ten customers represented
approximately 59%, 47%, and 34% of our total revenues in 2023, 2022, and 2021, respectively. One customer comprised approximately 28% of our total
sales for the year ended December 31, 2023; that same customer comprised approximately 21% of our total sales for the year ended December 31, 2022.
No one customer’s sales exceeded 10% of total sales for the year ended December 31, 2021. The loss of a significant portion of our expected future sales to
any of our large customers would have a material adverse effect on our business, financial condition, and results of operations. Likewise, a material adverse
change in the financial condition of any of these customers could have a material adverse effect on our ability to collect accounts receivable from any such
customer. Two customers represented approximately 17% and 12%, respectively, of gross accounts receivable for the year ended December 31, 2023, and
one customer represented approximately 10% of gross accounts receivable for the year ended December 31, 2022.
Our business could be harmed if our products contain undetected errors or defects or do not meet applicable specifications.
Based on customer specifications, we are continuously developing new products and improving existing products. Our existing and newly introduced
products can contain undetected errors or defects. In addition, these products may not meet their performance specifications under all conditions or for all
applications. If, despite internal testing and testing by customers, any of our products contain errors or defects or fail to meet applicable specifications, then
we may be required to enhance or improve those products or technologies. We may not be able to do so on a timely basis, if at all, and may only be able to
do so at considerable expense. If a particular error or defect is repeated throughout our production process, the cost of repairing such defect may be highly
disproportionate to the original cost of the product or component. In addition, any significant errors, defects, or other performance failures could render our
existing and/or future products unreliable or ineffective and could lead to decreased confidence in our products, adverse customer reaction, negative
publicity, mandatory or voluntary recalls, or legal claims, the occurrence of any of which could have a material adverse effect upon our business, financial
condition, and results of operations.
Further, if our products are defectively designed, manufactured, or labeled, contain defective components or are misused, we may become subject to costly
litigation by our customers or be expected to fund product recalls. Product liability claims could divert management's attention from our core business, be
expensive to defend and result in sizable damage awards against us.
New technologies could result in the development of new products by our competitors and a decrease in demand for our products, which could
materially adversely affect our business, financial condition and results of operations.
Our failure to develop new technologies, or anticipate or react to changes in existing technologies, could result in a decrease in our sales and a loss of
market share to our competitors. Our financial performance depends on our ability to design, develop, and manufacture new products and product
enhancements on a timely and cost-effective basis. We may not be able to successfully identify new product opportunities or develop and bring new
products to market in a timely and cost-effective manner.
Products or technologies developed by other companies may render our products or technologies obsolete or noncompetitive. Our failure to identify or
capitalize on any fundamental shifts in technologies, relative to our competitors, could have a material adverse effect on our competitive position within our
industry and harm our relationships with our customers.
If we fail to comply with specific provisions of our customer contracts or Food and Drug Administration (FDA) regulations, our business could be
materially adversely affected.
Our customer contracts, particularly with respect to contracts for which the government is a direct or indirect customer, may include unique and specialized
requirements. This may also include contracts with customers that manufacture goods subject to FDA regulations. Failure to comply with the specific
provisions in our customer contracts, or any violation of government or FDA contracting regulations, could result in termination of the contracts, increased
costs to us, suspension of payments, imposition of fines, and suspension from future government contracting. Further, any negative publicity related to our
failure to comply with the provisions in our customer contracts could have a material adverse effect on our business, financial condition, or results of
operations.
9
Increased focus on our environmental, social, and governance ("ESG") responsibilities have and will likely continue to result in additional costs
and risks, and may adversely impact our reputation, employee retention, and willingness of customers and partners to do business with us.
Institutional, individual, and other investors, proxy advisory services, regulatory authorities, consumers and other stakeholders are increasingly focused on
ESG practices of companies. Some investors may use these non-financial performance factors to guide their investment strategies and, in some cases, may
choose not to invest in us if they believe our policies and actions relating to ESG are inadequate. Our disclosures on these matters, or a failure to meet
evolving stakeholder expectations for ESG practices and reporting, may potentially harm our reputation and customer relationships.
As ESG best practices and reporting standards continue to develop, we may incur increasing costs relating to ESG monitoring and reporting and complying
with ESG initiatives. The standards for tracking and reporting on ESG matters and disclosure frameworks are relatively new, have not been harmonized,
and continue to evolve. Ensuring there are systems and processes in place to comply with the various ESG tracking and reporting obligations may require
management time and expense. As we look to respond to evolving standards for identifying, measuring, and reporting ESG metrics, our efforts may result
in a significant increase in costs and may nonetheless not meet investor or other stakeholder expectations and evolving standards or regulatory
requirements, which may negatively impact our financial results, our reputation, our ability to attract or retain employees, our attractiveness as a supplier,
investment, or business partner, or expose us to government enforcement actions, private litigation, and actions by stockholders or stakeholders. In
addition, if our competitors’ ESG performance is perceived to be better than ours, potential or current investors may elect to invest with our competitors.
Increased focus and evolving views of lawmakers on climate change and other ESG issues could have a long-term impact on our business and
result of operations.
Increased public awareness and concern regarding global climate change and other ESG matters may result in more international, regional, and/or federal
regulatory or other stakeholder requirements or expectations that could mandate more restrictive or expansive standards, such as more prescriptive
reporting of ESG metrics, practices, and targets, or require such changes on a more accelerated time frame. There continues to be a lack of consistent
climate and other ESG legislation, which creates economic and regulatory uncertainty; however, there has been an increasing amount of legislative and
regulatory activity, particularly in the European Union, United Kingdom, and U.S. In addition, there is also an increasing number of state-level anti-ESG
initiatives in the U.S. that may conflict with other regulatory requirements, resulting in regulatory uncertainty. New or revised legal and regulatory
requirements could impose significant operational restrictions and compliance requirements upon the Company or its products, and could negatively impact
the Company’s business, capital expenditures, results of operations, financial condition, and competitive position.
Global climate change and related regulations and changes in customer demand could negatively affect our operations and our business.
The effects of climate change could create financial risks to our business. For example, the effects of physical impacts of climate change could disrupt our
operations by impacting the availability and cost of materials needed for manufacturing, exacerbate existing risks to our supply chain, disrupt our
operations, and increase insurance and other operating costs. These factors may impact our decisions to construct new facilities or maintain existing
facilities in areas more prone to physical climate risks. We could also face indirect financial risks passed through the supply chain and disruptions that
could result in increased prices for our products and the resources needed to produce them.
The growing focus on addressing global climate change has resulted in more regulations designed to reduce greenhouse gas emissions and more customer
demand for products and services that have a lower carbon footprint or that help businesses and consumers reduce carbon emissions throughout their value
chains. We may be required to further increase research and development and other capital expenditures in order to develop offerings that meet these new
regulations, standards, and customer demands. There can be no assurance that our new product development efforts will be successful, that our products
will be accepted by the market, or that economic returns will reflect our investments in new product development.
10
We may pursue acquisitions or other strategic relationships that involve inherent risks, any of which may cause us to not realize anticipated
benefits.
Our business strategy includes the acquisition of businesses and other business combinations that we expect will complement and expand our business. In
addition, we may also pursue other strategic relationships or opportunities. We may not be able to success‐fully identify suitable acquisition or other
strategic opportunities or complete any particular acquisition, combina‐tion, or other transaction on acceptable terms. Our identification of suitable
acquisition candidates and strategic opportunities involves risks inherent in assessing the values, strengths, weaknesses, risks, and profitability of these
opportunities including their effects on our business, diversion of our management’s attention and risks associated with unanticipated problems or
unforeseen liabilities. Our failure to identify suitable acquisition or other strategic opportunities may restrict our ability to grow our business. If we are
successful in pursuing future acquisitions or strategic opportunities, we may be required to expend significant funds, incur additional debt, or issue
additional securities, which may materially and adversely affect our results of operations and be dilutive to our stockholders. If we spend significant funds
or incur additional debt, our ability to obtain financing for working capital or other purposes could decline and we may be more vulnerable to economic
downturns and competitive pressures. In addition, we cannot guarantee that we will be able to finance additional acquisi‐tions or that we will realize any
anticipated benefits from acquisitions or other strategic opportunities that we complete. When and if we successfully acquire another business, the process
of successfully integrating the acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant
financial re‐sources that would otherwise be available for the ongoing development or expansion of our existing business. Decreases in customer loyalty or
product orders, failure to retain and develop the acquired workforce, failure to integrate financial reporting systems, failure to establish and maintain
appropriate controls or unknown or contingent liabilities could adversely affect our ability to realize the anticipated benefits of an acquisition. The
integration of an acquired business whether or not successful, requires significant efforts which may result in additional expenses and divert the attention of
our management and technical personnel from other projects. These transactions are inherently risky, and there can be no assurance that any past or future
transaction will be successful.
Failure to retain key personnel could impair our ability to execute our business strategy.
The continuing service of our executive officers and essential sales, engineering, technical and management personnel, together with our ability to attract
and retain such personnel, is an important factor in our continuing ability to execute our strategy. There is substantial competition to attract such employees,
and the loss of any such key employees could have a material adverse effect on our business and operating results. The same could be true if we were to
experience a high turnover rate among sales, engineering and technical personnel and we were unable to replace them.
We operate in highly competitive industries, and we may be unable to compete successfully, which could materially adversely affect our business,
financial condition and results of operations.
We face intense competition in all markets and in each area of our business, in some cases from our own customers bringing programs in-house. Our
current competitors may increase their participation in, or new competitors may enter into, the markets in which we compete. In addition, our suppliers may
acquire or develop the capability and desire to compete with us. If our suppliers choose to expand their own operations, through acquisitions or otherwise,
and begin manufacturing and selling products directly to our customers, it could reduce our pricing or sales volume and overall profitability. If we are
unable to compete successfully with new or existing competitors, it could have a material adverse effect on our business, financial condition, and results of
operations.
Further, technological innovation by any of our existing competitors, or new competitors entering any of the markets in which we do business, could put us
at a competitive disadvantage and could cause us to lose market share. Increased competition for the sales of our products could result in price reductions,
reduced margins, and loss of market share, which could materially adversely affect our prospects, business, financial condition and results of operations.
11
Security breaches, including cybersecurity incidents and other disruptions could compromise our information, expose us to liability and harm our
reputation and business.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, personal information, our proprietary business
information and that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees in our data
centers and on our networks. The secure maintenance and transmission of this information is critical to our operations and business strategy. We rely on
commercially available systems, software, tools and monitoring to provide security for processing, transmission, and storage of confidential information.
Computer hackers may attempt to penetrate our computer systems and, if successful, misappropriate personal or confidential business information. In
addition, an employee, contractor, or other third-party with whom we do business may attempt to circumvent our security measures in order to obtain such
information and may purposefully or inadvertently cause a breach involving such information. Despite the security measures we have in place and any
additional measures we may implement in the future to safeguard our systems and to mitigate potential security risks, our facilities and systems, and those
of our third-party service providers, could be vulnerable to security breaches. Any such compromise of our data security and access, public disclosure, or
loss of personal or confidential business information could result in legal claims or proceedings, liability under laws that protect the privacy of personal
information, regulatory penalties, disruption of our operations, damage to our reputation, loss of our customers’ willingness to transact business with us,
and subject us to additional costs and liabilities which could materially adversely affect our business. While we maintain insurance for cyber events, our
insurance may not be sufficient to cover us against all losses that could potentially result from a breach of our systems or loss of sensitive data.
Disruptions in the supply of components and raw materials we use in manufacturing our products could cause production delays or reductions in
the number of products we manufacture, which could materially adversely affect our business, financial condition, and results of operations.
Our business is subject to the risk of periodic shortages of raw materials. We purchase raw materials pursuant to purchase orders placed from time to time
in the ordinary course of business. Failure or delay by such suppliers in supplying us necessary raw materials could adversely affect our ability to
manufacture and deliver products on a timely and competitive basis.
While we believe that we may, in certain circumstances, secure alternative sources of these materials, we may incur substantial delays and significant
expense in doing so, the quality and reliability of alternative sources may not be the same and our operating results may be materially adversely affected.
Alternative suppliers might charge significantly higher prices for materials than we currently pay. Under such circumstances, the disruption to our business
could have a material adverse impact on our customer relationships, business, financial condition, and results of operations.
In addition, we are dependent on a relatively small number of suppliers for cross-linked foam, thermoformed plastic urethane and technical polyurethane
foams. While we believe that we have developed strong relationships with these suppliers, any failure or delay by such suppliers in supplying us these
necessary products could adversely affect our ability to manufacture and deliver products on a timely and competitive basis.
We may be unable to protect our proprietary technology from infringement.
We rely on a combination of patents, trademarks, and unpatented proprietary know-how and trade secrets to establish and protect our intellectual property
rights. We enter into confidentiality agreements with suppliers, customers, employees, consultants, and potential acquisition candidates as necessary to
protect our know-how, trade secrets and other proprietary information. However, these measures and our patents and trademarks may not afford complete
protection of our intellectual property, and it is possible that third parties may copy or otherwise obtain and use our proprietary information and technology
without authorization or otherwise infringe on our intellectual property rights. We cannot assure that our competitors will not independently develop
equivalent or superior know-how, trade secrets or production methods. Significant impairment of our intellectual property rights could harm our business or
our ability to compete. For example, if we are unable to maintain the proprietary nature of our technologies, our profit margins could be reduced as
competitors could more easily imitate our products, possibly resulting in lower prices or lost sales for certain products. In such a case, our business,
financial condition, and results of operations may be materially adversely affected.
12
Our products could infringe the intellectual property rights of others, which may lead to litigation that could itself be costly, result in the payment
of substantial damages or royalties, and prevent us from using technology that is essential to our products.
We cannot guarantee that our products, manufacturing processes or other methods do not infringe the patents or other intellectual property rights of third
parties. Infringement and other intellectual property claims and proceedings brought against us, whether successful or not, could result in substantial costs
and harm our reputation. Such claims and proceedings can also distract and divert our management and key personnel from other tasks important to the
success of our business. In addition, intellectual property litigation or claims could force us to do one or more of the following:
● Cease selling or using any of our products that incorporate the asserted intellectual property, which would adversely affect our revenues;
● Pay substantial damages for past use of the asserted intellectual property;
● Obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable terms, if at all; and/or
● Redesign or rename, in the case of trademark claims, our products to avoid infringing the intellectual property rights of third parties, which may be
costly and time-consuming, even if possible.
In the event of an adverse determination in an intellectual property suit or proceeding, or our failure to license essential technology, our sales could be
harmed, and our costs could increase, which could materially adversely affect our business, financial condition, and results of operations.
Reductions in the availability of energy supplies or an increase in energy costs may increase our operating costs.
We primarily use electricity and natural gas at our manufacturing facilities to operate our equipment. Over the past several years, prices for electricity and
natural gas have fluctuated significantly. An outbreak or escalation of hostilities between the United States and any foreign power, or between foreign
powers, or a natural disaster, could result in a real or perceived shortage of petroleum and/or natural gas, which could result in an increase in the cost of
electricity or energy generally as well as an increase in the cost of our raw materials, of which many are petroleum-based. In addition, increased energy
costs negatively impact our freight costs due to higher fuel prices. Future limitations on the availability or consumption of petroleum products and/or an
increase in energy costs, particularly electricity for plant operations, could have a material adverse effect upon our business, financial condition, and results
of operations.
Consolidation in the healthcare industry could result in greater competition and reduce our revenues and harm our business.
Many healthcare industry companies are consolidating to create new companies with greater market power. As the healthcare industry consolidates,
competition to provide products and services to industry participants will become more intense. These industry participants may try to use their market
power to negotiate price reductions for our products or may undertake additional vertical integration or supplier diversification initiatives. If we are forced
to reduce our prices, our revenues would decrease and our operating results would suffer.
Expansion of our operations into markets outside of the U.S. subjects us to political, economic, legal, operational, and other risks that could have a
material adverse effect on our business, results of operations, financial condition, cash flows and reputation.
We have recently added manufacturing facilities in the Dominican Republic, Ireland, Costa Rica, and Mexico. We may continue to expand our operations
by offering our services and entering new lines of business in other markets outside of the U.S. This expansion increases our exposure to the inherent risks
of doing business in international markets. Depending on the market, these risks include those relating to:
● Changes in the local economic environment including, among other things, labor cost increases and other general inflationary pressures;
13
● Political instability, armed conflicts, or terrorism;
● Public health crises, such as pandemics or epidemics;
● Social changes;
● Intellectual property legal protections and remedies;
● Trade regulations;
● Procedures and actions affecting approval, production, pricing, reimbursement and marketing of products and services;
● Foreign currency;
● Additional U.S. and foreign taxes;
● Export controls;
● Antitrust and competition laws and regulations;
● Lack of reliable legal systems which may affect our ability to enforce contractual rights;
● Changes in local laws or regulations, or interpretation or enforcement thereof;
● Potentially longer ramp-up times for starting up new operations, and for payment and collection cycles;
● Financial, operational and information technology systems integration;
● Failure to comply with U.S. laws, such as the foreign corrupt practices act, or local laws that prohibit us, our partners, or our partners’ or our
agents or intermediaries from making improper payments to foreign officials or any third party for the purpose of obtaining or retaining business;
and
● Data and privacy restrictions.
● Foreign currency fluctuations
Issues relating to the failure to comply with applicable non-U.S. laws, requirements or restrictions may also impact our domestic business and increase
scrutiny of our domestic practices.
Additionally, some factors that will be critical to the success of our international business and operations will be different than those affecting our domestic
business and operations. For example, conducting international operations requires us to devote significant management resources to implement our
controls and systems in new markets, to comply with local laws and regulations, including fulfilling financial reporting and records retention requirements,
and overcoming the numerous new challenges inherent in managing international operations, such as challenges based on differing languages and cultures,
as well as differing regulatory and compliance environments, and challenges related to the timely hiring, integration and retention of a sufficient number of
skilled personnel to carry out operations in an environment with which we are not familiar.
Any additional expansion of our international operations through acquisitions or through organic growth could increase these risks. Additionally, while we
may invest material amounts of capital and incur significant costs in connection with the growth and development of our international operations, including
the costs of starting up or acquiring new operations, we may not be able to operate them profitably on the anticipated timeline, or at all.
These risks could have a material adverse effect on our business, results of operations, financial condition, and cash flows, and could materially harm our
reputation.
Risks Related to our Share Ownership and our Capital Structure
Restrictions in our credit facilities may limit our business and financial activities, including our ability to obtain additional capital in the future.
In December 2021, we entered into a secured $130 million Second Amended and Restated Credit Agreement with Bank of America, N.A., which provided
for a $90 million revolving credit facility and a $40 million term loan facility. This Credit Agreement contains covenants imposing various restrictions on
our business and financial activities. These restrictions may affect our ability to operate our business and undertake certain financial activities and may
limit our ability to take advantage of potential business or financial opportunities as they arise. The restrictions these covenants place on us include
limitations on our ability to incur liens, incur indebtedness, make investments, dissolve or merge or consolidate with or into another entity, dispose of
certain property, and make restricted payments. The Credit Agreement also requires us to meet certain financial ratios, including a minimum fixed-charge
coverage ratio and a maximum total funded debt to EBITDA ratio. The breach of any of these covenants or restrictions could result in a default under the
Credit Agreement, which could have a material adverse impact to our business, financial condition, and results of operation.
14
We are also exposed to the risk of increasing interest rates as our revolving credit and term loan facilities are both at a variable interest rate. Any material
changes in interest rates could result in higher interest expense and related payments for us.
Provisions of our corporate charter documents and Delaware law, may dissuade potential acquirers, prevent the replacement or removal of our
current management, and may thereby affect the price of our common stock.
The board of directors has the authority to issue up to 1,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges, and
restrictions, including voting rights of those shares without any further vote or action by the stockholders. The rights of the holders of common stock will
be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred
stock, while providing flexibility in connection with possible financings, acquisitions, and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of our outstanding voting stock. We currently have no plans to issue shares of preferred stock.
Further, certain provisions of our certificate of incorporation, bylaws, and Delaware law could delay or make a merger, tender offer or proxy contest
involving us or, for a third party to acquire a majority of our outstanding voting common stock more difficult. These include provisions that limit the ability
of stockholders to take action by written consent, call special meetings, remove a director for cause, amend the bylaws, or approve a merger with another
company. In addition, our bylaws set forth advance notice procedures for stockholders to nominate candidates for election as directors or to bring matters
before an annual meeting of stockholders.
We are subject to the provisions of Section 203 of the Delaware General Corporation Law which prohibits a publicly-held Delaware corporation from
engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person
became an interested stock‐holder, unless the business combination is approved in a prescribed manner. For purposes of Section 203, a “business
combination” includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and an “interested stockholder”
is a person who, either alone or together with affiliates and associates, owns (or within the past three years did own) 15% or more of the corporation’s
voting stock.
Financial Risks
Our operating results may fluctuate, which may make it difficult to forecast our future performance and may result in volatility in our stock price.
Our operating results could fluctuate from quarter to quarter, making forecasting future performance difficult and resulting in volatility in our stock price.
These fluctuations are due to a variety of factors, including the following:
● timing of orders placed by our customers;
● our customers’ approach to inventory management;
● changes in the mix of our revenue represented by our various products and customers could result in reductions in our profits if the mix of our
revenue represented by lower margin products increases;
● a portion of our costs are fixed in nature, which results in our operations being particularly sensitive to fluctuations in production volumes;
● increased costs and decreased availability of raw materials or supplies; and
● our ability to effectively execute on operational initiatives to drive manufacturing efficiencies.
Our international sales and operations are subject to a variety of market and financial risks and costs that could affect our profitability and
operating results.
Our sales outside the U.S., which accounted for approximately 20.8% of sales for 2023, and our operations in Europe, Mexico, South America and the
Caribbean are and could be subject to a number of risks and potential costs, including:
● changes in foreign economic conditions or regulatory requirements;
● changes in foreign currency exchange rates;
● local product preferences and product requirements;
● difficulties in enforcing agreements through foreign legal systems;
● less protection of intellectual property in some countries outside of the U.S.;
15
● trade protection measures and import and export licensing requirements;
● work force instability;
● political and economic instability;
● transportation delays or interruptions; and
● complex tax and cash management issues.
These risks are also present in connection with our entry into new geographic markets.
Additionally, as a result of our international operations, we are subject to exposure from currency exchange rate fluctuations. Historically, foreign currency
exchange rate fluctuations have not had a material effect on our net financial results. However, fluctuations in foreign currency exchange rates could have a
significant impact on our financial results in the future.
We have a complex tax profile due to the global nature of our operations and may experience increases and variability in our quarterly and
annual effective tax rate due to several factors, including changes in the mix of pre-tax income and the jurisdictions to which it relates, business
acquisitions, settlements with taxing authorities, and changes in tax rates.
Our global operations encompass multiple taxing jurisdictions. Variability in the mix and profitability of domestic and international activities, identification
and resolution of various tax uncertainties, changes in tax laws and rates, and the extent to which we are able to realize deferred tax assets and avoid
potential adverse outcomes included in deferred tax liabilities, among other matters, may significantly affect our effective income tax rate in the future.
Our effective income tax rate is the result of the income tax rates in the various countries in which we do business. Our mix of income and losses in these
jurisdictions affects our effective tax rate. For example, relatively more income in higher tax rate jurisdictions would increase our effective tax rate and thus
lower our net income. Similarly, if we generate losses in tax jurisdictions for which no benefits are available, our effective income tax rate will increase.
Our effective income tax rate may also be impacted by the recognition of discrete income tax items, such as required adjustments to our liabilities for
uncertain tax positions or our deferred tax asset valuation allowance.
We have recorded deferred tax assets based on our assessment that we will be able to realize the benefits of our net operating losses and other favorable tax
attributes. Realization of deferred tax assets involve significant judgments and estimates which are subject to change and ultimately depends on generating
sufficient taxable income of the appropriate character during the appropriate periods. Changes in circumstances may affect the likelihood of such
realization, which in turn may trigger a write-down of our deferred tax assets, the amount of which would depend on a number of factors. A write-down
would reduce our reported net income, which may adversely impact our financial condition or results of operations or cash flows. In addition, we are
potentially subject to ongoing and periodic tax examinations and audits in various jurisdictions. An adjustment from a taxing authority, could result in
higher tax costs, penalties and interest, thereby adversely impacting our financial condition, results of operations or cash flows.
We may never realize the full value of our intangible assets, which represent a significant portion of our total assets.
At December 31, 2023, we had $177.4 million of goodwill and other intangible assets, representing approximately 44% of our total assets. These intangible
assets consist primarily of goodwill, trade names, customer lists and non-compete agreements arising from our acquisitions. Goodwill and other intangible
assets with indefinite lives are not amortized but are tested annually or upon the occurrence of certain events that indicate that the assets may be impaired.
Definite lived intangible assets are amortized over their estimated useful lives and are tested for impairment upon the occurrence of certain events that
indicate that the assets may not be recoverable. We may not receive the recorded value for our intangible assets if we sell or liquidate our business or assets.
In addition, our significant amount of intangible assets increases the risk of a large charge to earnings in the event that the recoverability of these intangible
assets is impaired. In the event of a significant charge to earnings, the market price of our common stock could be adversely affected. In addition, intangible
assets with definite lives, which represent $64.1 million of our net intangible assets at December 31, 2023, will continue to be amortized. These expenses
will continue to reduce our future earnings or increase our future losses. The accounting for intangible assets requires reliance on forward-looking estimates
of sales and/or earnings. Estimating the future performance of our business is extremely challenging and the range of deviation from internal estimates
could be more significant in this environment.
16
General Risks
We are subject to a variety of federal, state and local laws and regulations, including health and safety laws and regulations, and the cost of
complying, or our failure to comply, with such requirements could materially adversely affect our business, financial condition and results of
operations.
We are subject to a variety of federal, state and local laws and regulations, including health and safety laws and regulations. The risks of substantial costs
and liabilities related to compliance with these laws and regulations are an inherent part of our business. Despite our intention to comply with these laws
and regulations, we cannot guarantee that we will at all times comply with all such requirements. Compliance with health and safety legislation and other
regulatory requirements may prove to be more limiting and costly than we anticipate and may also increase substantially in future years. If we violate, or
fail to comply with these requirements, we could be fined or otherwise sanctioned by regulators. In addition, these requirements are complex, change
frequently and may become more stringent over time, which could materially adversely affect our business, financial condition and results of operations.
Our operations could be disrupted by natural or human causes beyond our control.
Our operations are subject to the risk of disruption by hurricanes, severe storms, floods and other forms of severe weather, earthquakes and other natural
disasters, accidents, fire, power shortages, geopolitical unrest, war and other military action, terrorist attacks and other hostile acts, public health issues,
epidemics or pandemics, and other events, such as raw material or supply scarcity, that are beyond our control and the control of the third parties on which
we depend. Any of these catastrophic events, whether in the United States or abroad, may have a strong negative impact on the global economy, our
employees, facilities, suppliers, or customers, and could decrease demand for our products or our customers’ products, create delays and inefficiencies in
our supply chain and make it difficult or impossible for us to deliver products to our customers in a timely manner. If there is a natural disaster or other
serious disruption at any of our facilities, we may experience plant shutdowns or periods of reduced production as a result of equipment failures, loss of
power, delays in delivery of raw materials or supplies, personnel absences, or extensive damage to any of our facilities, any of which could materially
adversely affect our business, financial condition, or results of operations. In addition, our insurance coverage may not adequately compensate us for losses
incurred as a direct or indirect result of natural or other disasters.
ITEM
1B.
None.
ITEM
1C.
UNRESOLVED STAFF COMMENTS
CYBERSECURITY
Risk management and strategy
The Company employs a multi-faceted approach to assess, identify, and manage material risks from cybersecurity threats. Components of our approach
include the following:
● The use of a cyber risk matrix that assesses the likelihood and impact of threats and risks identified in the Company’s hardware, software, and data
systems.
•
• Matrix is updated on a semi-annual basis and as new risks are identified.
Threats are ranked by potential severity and mitigation / remediation efforts are tracked.
● System penetration testing is performed by rotating third-party service providers at least every 18 months.
● System vulnerability testing is performed by the Company monthly.
● Network assessments are performed at least annually by qualified third-party service providers.
● Monitoring of Federal government alerts (CISA, FBI) and industry threat information is performed to stay current on the newest cybersecurity
threats bad actor tactics.
● Multifactor authentication is required for all authorized users to access network resources which adds a second layer of protection from
unauthorized entry to our systems.
● The cybersecurity practices and controls are derived from multiple recognized cybersecurity frameworks to meet the evolving needs of our
organizations.
17
The cybersecurity risk assessment process is part of the Company’s overall risk management process. As noted above, the Company utilizes third-party
consultants and services in our process of assessing and managing cybersecurity risk. To mitigate the risk of cybersecurity threats related to the use of third-
party service providers, the Company obtains and reviews System of Organization Controls (SOC) reports from third parties when available, to provide
assurance that the third-party has appropriate controls in place and has not identified any significant cyber issues. The Company does not believe that any
risks from cybersecurity threats have materially affected or are reasonably likely to affect our business strategy, results of operations, or financial condition.
See Item 1A “Risk Factors” for a summary of certain cybersecurity risks.
Governance
While general risk assessment and management oversight resides with the Company’s Audit Committee, oversight of risks from cybersecurity threats
resides with our Board of Directors. The Company’s Audit Committee is in charge of reviewing the Company’s information security disclosures and
incident reporting related to cybersecurity. The Company’s Board of Directors is in charge of reviewing the Company’s information security procedures
and evaluating management’s assessment of materiality for cyber incidents. The Board of Directors is formally updated on cybersecurity risks by the VP of
Information Technology no less than annually. Management is responsible for assessing and managing material risks from cybersecurity threats. This
responsibility primarily resides with the VP of Information Technology and his qualified team, including dedicated cyber security personnel. The
qualifications of the Information Technology team include a combination of formal education (e.g. degrees in Information Assurance, Computer
Information Systems, Computer Networking, and current enrollment in a Cyber Security degree program); current trainings and certifications in systems,
network and cybersecurity; and, over 100 years of combined Information Technology experience. Management’s process for monitoring prevention,
detection, mitigation, and remediation of cybersecurity incidents is summarized above in the Risk management and strategy section.
ITEM
2.
PROPERTIES
The following table presents certain information relating to each of the Company’s design and manufacturing properties:
Location
Newburyport, Massachusetts
Huntsville, Alabama
Grand Rapids, Michigan
Rancho Dominguez, California
Denver, Colorado
Denver, Colorado
Kissimmee, Florida
El Paso, Texas
Chicopee, Massachusetts
Providence, Rhode Island
Dominican Republic
Dominican Republic
Dominican Republic
Square
Feet
183,000
Lease
Expiration Date
Company Owned
9,000
255,260
56,000
18,270
28,383
49,400
127,730
103,792
79,535
16,557
12,630
51,970
6/30/2031
Company Owned
10/31/2027
Company Owned
Company Owned
Company Owned
Company Owned Warehousing, fabrication
Company Owned
9/30/2026
12/31/2024
12/31/2026
8/31/2025
Principal Use
Headquarters, fabrication, molding, tooling, test lab, clean room,
warehousing, and engineering
Engineering, design, and fabrication
Fabrication, molding, warehousing, and engineering
Fabrication, molding and engineering
Fabrication and molding
Fabrication, molding and engineering
Fabrication, molding, test lab and engineering
Fabrication, molding, clean room, warehousing, and engineering
Fabrication, molding, clean room, and warehousing
Fabrication, molding, clean room, and warehousing
Fabrication, molding, clean room, and warehousing
Fabrication, molding, clean room, and warehousing
18
Location
Tijuana, Mexico
Kennesaw, Georgia
Galway, Ireland
Galway, Ireland
La Aurora, Heredia, Costa Rica
Chicopee, Massachusetts
Dominican Republic
La Aurora, Heredia, Costa Rica
Dominican Republic
ITEM
3.
LEGAL PROCEEDINGS
Square
Feet
83,256
11,017
35,069
11,500
13,000
3,500
26,468
14,200
40,921
Lease
Expiration Date
2/28/2032
12/31/2027
Company Owned
12/31/2025
4/30/2028
11/30/2024
12/31/2025
4/30/2028
12/31/2028
Principal Use
Fabrication, molding, and warehousing
Warehousing
Fabrication, molding, clean room, and warehousing
Fabrication, molding, clean room, and warehousing
Fabrication, molding, clean room, and warehousing
Warehousing
Fabrication, molding, clean room, and warehousing
Fabrication, molding, clean room, and warehousing
Fabrication, molding, clean room, and warehousing
From time to time, the Company may be a party to various suits, claims and complaints arising in the ordinary course of business and is currently a party to
a single employee claim. In the opinion of management of the Company, this active claim 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.
ITEM
4.
MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM
5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market Price
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, 2022 to December 31, 2023:
Year Ended December 31, 2022
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended December 31, 2023
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
$
$
$
$
$
$
High
76.01 $
87.83 $
100.64 $
126.78 $
High
131.80 $
197.23 $
205.08 $
185.40 $
19
Low
56.10
65.00
74.00
85.04
Low
103.64
123.68
151.09
127.29
Number of Stockholders
As of February 23, 2024, there were 63 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.
Dividends
The Company did not pay any dividends in 2023 or 2022. 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 repur‐chase activity for the years ended December 31, 2023, 2022, and 2021. 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, 2023,
approximately $9.4 million was available for future repurchases of the Company's common stock under this authorization.
ITEM
6.
ITEM
7.
[Reserved]
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company is a designer and custom manufacturer of comprehensive solutions for medical devices, sterile packaging, and other highly engineered
custom products. The Company is an important link in the medical device supply chain and a valued outsource partner to many of the top medical device
manufacturers in the world. The Company’s single-use and single-patient devices and components are used in a wide range of medical devices and
packaging for minimally invasive surgery, infection prevention, surfaces and support, wound care, wearables, orthopedic soft goods, and orthopedic
implants.
The Company is diversified by also providing highly engineered products and components to customers in the automotive, aerospace and defense, and
industrial/other markets. Typical applications of its products include military uniform and gear components, automotive interior trim, air filtration, and
protective cases and inserts.
The Company’s current strategy includes further organic growth and growth through strategic acquisitions.
Net sales for the Company for the year ended December 31, 2023 increased 13.1% to $400.1 million from $353.8 million for the year ended December 31,
2022, primarily due to an increase in organic sales of approximately 15.7%. The organic growth was driven by strong MedTech sales led by the Company’s
robotic surgery products in response to increased surgical procedures. Gross profit as a percentage of sales (“gross margin”) for the year ended December
31, 2023 increased to 28.1% from 25.5% in the same period last year, largely due to improved operating efficiencies and strong organic sales growth
primarily attributable to the Company’s great progress strengthening its platform and further integrating its three most recent acquisitions. The Company
captured synergies by sharing best practices, moving business to best-fit manufacturing locations, and standardizing systems for information technology,
quality, and safety.
20
The Company experienced some softening in demand in the latter part of the year due to excess inventory held by some of our customers. The Company
believes this is short-term in nature and will soon return to normal levels.
Results of Operations
The following table sets forth, for the years indicated, the percentage of revenues represented by the items as shown in the Company’s Consolidated
Statements of Income:
Net sales
Cost of sales
Gross profit
Selling, general, and administrative expenses
Acquisition costs
Change in fair value of contingent consideration
Gain on sale of Molded Fiber business
Loss (gain) on sale of fixed assets
Operating income
Interest expense, net
Income before taxes
Income tax expense
Net income from consolidated operations
2023 Compared to 2022
Sales
2023
2022
2021
100.0%
71.9%
28.1%
12.7%
0.0%
0.9%
0.0%
0.1%
14.4%
0.9%
13.5%
2.3%
11.2%
100.0%
74.5%
25.5%
12.9%
0.3%
2.8%
-4.4%
-1.8%
15.7%
0.8%
14.9%
3.1%
11.8%
100.0%
75.2%
24.8%
14.3%
0.2%
0.0%
0.0%
0.0%
10.3%
0.0%
10.3%
2.6%
7.7%
Net sales increased 13.1% to $400.1 million for the year ended December 31, 2023, from net sales of $353.8 million in 2022. The increase in sales was
primarily due to increased sales to customers in the Medical market of 21.0%, primarily as a result of strong organic sales led by the Company’s robotic
surgery products in response to increased surgical procedures . Sales to customers in all other markets decreased 20.6%, largely due to the Company’s
disposition of its Molded Fiber business in July 2022.
Gross Profit
Gross profit as a percentage of sales (“Gross Margin”) increased to 28.1% for the year ended December 31, 2023, from 25.5% in 2022. As a percentage of
sales, material and labor costs collectively decreased 0.7%, while overhead decreased 1.9%. The increase in Gross Margin is primarily due to the leverage
of organic sales growth over the fixed portion of overhead, as well as improved operating efficiencies, as described above under “Overview.”
Selling, General and Administrative Expenses
Selling, General, and Administrative Expenses (“SG&A”) increased approximately 11.1% to $50.9 million for the year ended December 31, 2023, from
$45.8 million in 2022, largely due to increased performance based compensation, benefits and payroll tax expenses and the additional SG&A expenses
from the Advant acquisition (Refer to Note 2, “Acquisitions and Divestiture – Advant Medical,” in the accompanying notes to the consolidated financial
statements for a discussion of the acquisition of Advant Medical). As a percentage of sales, SG&A decreased to 12.7% in 2023 from 12.9% in 2022.
21
Change in fair value of contingent consideration
In connection with the acquisition of DAS Medical in 2021, the Company is required to make contingent payments, subject to the acquired entities
achieving certain financial performance thresholds. The contingent consideration payments for the DAS Medical acquisition are four, $5 million payments
for a total of up to $20 million. The Company paid $5 million during the second quarter of 2023. The fair value of the liability for the contingent
consideration payments recognized upon the acquisition as part of the purchase accounting opening balance sheets totaled approximately $9.7 million and
was estimated by discounting to present value the probability-weighted contingent payments expected to be made. Assumptions used in the initial
calculation were management’s financial forecasts, discount rate and various volatility factors. The ultimate settlement of contingent consideration could
deviate from current estimates based on the actual results of these financial measures. This liability is considered to be a Level 3 financial liability that is
re-measured each reporting period. The fair value of the liabilities for the contingent consideration payments recognized at December 31, 2023 totaled
approximately $13.1 million for the remaining $15 million of potential earnout. The change in fair value of contingent consideration for the DAS Medical
acquisition for the year ended December 31, 2023, resulted in an expense of approximately $3.5 million, and was included in change in fair value of
contingent consideration in the consolidated statements of comprehensive income.
Interest expense, net
The Company had net interest expense of approximately $3.6 million and $2.8 million for the years ended December 31, 2023 and 2022, respectively. The
increase in net interest expense for the year ended December 31, 2023 was primarily due to higher average interest rates in 2023. Interest income was
immaterial.
Other Expense (Income)
Other expense was approximately $117 thousand and other income was approximately $81 thousand for years ended December 31, 2023 and 2022,
respectively. The changes in other income/expense in both periods are primarily generated by foreign currency transaction gains/losses and, in 2022,
changes in the fair value of the swap liability.
Income Taxes
The Company recorded income tax expense, as a percentage of income before income tax expense, of 16.7% for the year ended December 31, 2023
compared to 20.7% for the same period in 2022. The decrease in the effective tax rate for the current period as compared to the prior period is largely due
to higher earnings in low-tax jurisdictions in 2023.
The effective tax rate for the year differs from the federal statutory rate of 21% due to favorable rates in foreign countries, federal deductions available for
certain exported goods and federal credits, offset by state income taxes and disallowed compensation under section 162M of the Internal Revenue Code.
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.
For more information about the Company’s results of operations of 2022 compared to 2021, see the section titled “Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Results of Operations — 2022 Compared to 2021” in the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2022, filed with the SEC on March 16, 2023.
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, 2023 was approximately $41.3 million and was primarily a result of net income
generated of approximately $44.9 million, depreciation and amortization of approximately $11.4 million, a loss on disposal of fixed assets of approximately
$0.2 million, share-based compensation of approximately $4.6 million, a change in the fair value of contingent consideration of approximately $3.5
million, a decrease in deferred taxes of approximately $0.8 million, an increase in deferred revenue of approximately $ 1.9 million primarily due to
increased customer deposits on tooling and machinery, an increase in accounts payable of approximately $1.6 million due to the building of inventory to
meet demand and the timing of vendor payments in the ordinary course of business, a decrease in other assets of approximately $1.6 million due primarily
to the current reclassification of a deposit receivable, and an increase in other long-term liabilities of approximately $0.4 million.
22
These cash inflows and adjustments to income were partially offset by an increase in inventory of approximately $16.6 million due to inventory build for
upcoming demand, an increase in accounts receivable of approximately $9.1 million due to higher sales in the last two months of the fourth quarter of 2023
as compared to the same period in the fourth quarter of 2022, an increase in refundable income taxes of approximately $3.0 million due to higher
anticipated tax credits in 2023 compared to 2022, and a decrease in accrued expenses of approximately $0.9 million.
Net cash used in investing activities during the year ended December 31, 2023 was approximately $10.5 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 $30.0 million during the year ended December 31, 2023 and was primarily the result of payments
on the revolving line of credit of approximately $28.0 million, payment of contingent consideration of approximately $5.0 million, principal payments of
long-term debt of approximately $4.0 million, and payments of statutory withholding for stock options exercised and restricted stock units vested of
approximately $2.7 million. These payments were partially offset by borrowings under our credit facility to fund acquisitions of approximately $9.0 million
and proceeds from the exercise of stock options of approximately $0.7 million.
Outstanding and Available Debt
On December 22, 2021, the Company, as the borrower, entered into a secured $130 million Second Amended and Restated Credit Agreement (the “Second
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
Second Amended and Restated Credit Agreement amends and restates the Company’s prior credit agreement, originally dated as of February 1, 2018.
The credit facilities under the Second Amended and Restated Credit Agreement consist of a $40 million secured term loan to the Company and a secured
revolving credit facility, under which the Company may borrow up to $90 million. The Second Amended and Restated Credit Agreement matures on
December 21, 2026. The secured term loan requires quarterly principal payments of $1 million that commenced on March 31, 2022. The proceeds of the
Second Amended and Restated Credit Agreement may be used for general corporate purposes, including funding the acquisition of DAS Medical, as well
as certain other permitted acquisitions. The Company’s obligations under the Second Amended and Restated Credit Agreement are guaranteed by the
Subsidiary Guarantors and secured by substantially all assets of the Company.
The Second Amended and Restated Credit Agreement calls for interest determined by the Bloomberg Short-Term Bank Yield Index rate (“BSBY”) plus a
margin that ranges from 1.25% to 2.0% or, at the discretion of the Company, the bank’s prime rate less a margin that ranges from 0.25% to zero. In both
cases the applicable margin is dependent upon Company performance. Under the Second Amended and Restated Credit Agreement, the Company is
subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to EBITDA financial covenant. The Second
Amended and Restated Credit Agreement contains other covenants customary for transactions of this type, including restrictions on certain payments,
permitted indebtedness, and permitted investments.
At December 31, 2023, the Company had approximately $32 million in borrowings outstanding under the Second Amended and Restated Credit
Agreement, which were used as partial consideration for the DAS Medical and Advant Medical acquisitions, and also had approximately $0.7 million in
standby letters of credit outstanding, drawable as a financial guarantee on worker’s compensation insurance policies. At December 31, 2023, the applicable
interest rate was approximately 6.7% and the Company was in compliance with all covenants under the Second Amended and Restated Credit Agreement.
23
Long-term debt consists of the following (in thousands):
Term loan
Total long-term debt
Current portion
Long-term debt, excluding current portion
Future maturities of long-term debt at December 31, 2023 are as follows (in thousands):
Year ended December 31,
2024
2025
2026
Future Liquidity
December 31,
2023
32,000
32,000
(4,000)
28,000
Term Loan
4,000
4,000
24,000
32,000
$
$
$
$
The Company requires cash to pay its operating expenses, purchase capital equipment, and to service its contractual obligations. The Company’s principal
sources of funds are its operations and its Second Amended and Restated Credit Agreement. The Company generated cash of approximately $41.3 million
from operations during the year ended December 31, 2023. 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 availability of draws on its revolving credit facility. Further, the
economic uncertainty resulting from events including inflation, bank failures, and other factors beyond the control of the Company 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.
The Company plans to continue to add capacity to enhance operating efficiencies in its manufacturing plants and accommodate anticipated growth in
demand. 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 twelve months.
The Company may also require additional capital in the future to fund capital expenditures, acquisitions, or other investments. These capital requirements
could be substantial. The Company anticipates that any future expansion of its business will be financed through existing resources, cash flow from
operations, the Company's revolving credit facility, or other new financing. The Company cannot guarantee that it will be able to meet existing financial
covenants or obtain other new financing on favorable terms, if at all.
Stock Repurchase Program
The Company accounts for treasury stock under the cost method, using the first-in, first-out cost 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, 2023,
2022, and 2021. At December 31, 2023, approximately $9.4 million was available for future repurchases of the Company’s common stock under this
authorization.
24
Critical 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 Item 8 of this Report. The
Company does not believe that any of the significant accounting policies required significant judgement and estimates in the preparation of its consolidated
financial statements.
ITEM
7A.
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, 2023, the Company’s cash and cash equivalents consisted primarily 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 BSBY plus a margin that ranges
from 1.25% to 2.00% 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, 2023, the applicable interest rate was approximately 6.7%.
ITEM
8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data of the company are listed under Part IV, Item 15, in this Report.
ITEM
9.
None.
ITEM
9A.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Exchange
Act Rule 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Report (the “Evaluation Date”). Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective to
ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is (i) recorded, processed,
summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.
25
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in
Exchange Act Rule 13a-15(f) and 15d-15(f). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems
determined to be effective can provide only reasonable assurance, as opposed to absolute assurance, of achieving their internal control objectives.
Management conducted an assessment of the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in
the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on
the assessment, management concluded that, as of December 31, 2023, the Company’s internal control over financial reporting is effective.
There was no change in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed fiscal quarter
that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by Grant Thornton LLP, an independent
registered public accounting firm, as stated in its report which is included under Part IV, Item 15, in this Report.
ITEM
9B.
OTHER INFORMATION
Insider Trading Arrangements and Policies
During the fourth quarter of 2023, none of our directors or executive officers adopted Rule 10b5-1 trading plans and none of our directors or executive
officers terminated a Rule 10b5-1 trading plan or adopted or terminated a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-
K).
ITEM
9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable
ITEM
10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
PART III
The information required by this Item 10 is hereby incorporated by reference to the Company’s definitive proxy statement to be filed by the Company
within 120 days after the close of its fiscal year.
ITEM
11.
EXECUTIVE COMPENSATION
The information required by this Item 11 is hereby incorporated by reference to the Company’s definitive proxy statement to be filed by the Company
within 120 days after the close of its fiscal year.
ITEM
12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information required by this Item 12 is hereby incorporated by reference to the Company’s definitive proxy statement to be filed by the Company
within 120 days after the close of its fiscal year.
26
ITEM
13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 13 is hereby incorporated by reference to the Company’s definitive proxy statement to be filed by the Company
within 120 days after the close of its fiscal year.
ITEM
14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item 14 is hereby incorporated by reference to the Company’s definitive proxy statement to be filed by the Company
within 120 days after the close of its fiscal year.
ITEM
15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) Financial Statements
PART IV
Index to Consolidated Financial Statements and Financial Statement Schedule
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022, and 2021
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023, 2022, and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedule
Schedule II – Valuation and Qualifying Accounts
Page
F-2
F-3
F-5
F-6
F-7
F-8
F-9
F-35
All other schedules have been omitted because they are not required, not applicable, or the required information is otherwise included.
(a) (3) Exhibits
NumberDescription of Exhibit
Exhibit Index
2.01
2.02
Securities Purchase Agreement, dated as of December 22, 2021, by and among Parallax Investments, LLC, a Georgia limited liability company and
its purchase price beneficiaries, DAS Medical Holdings, LLC, a Georgia corporation and the Company (incorporated by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K, filed with the SEC on December 23, 2021 (SEC File No. 001-12648)).
Agreement for the Purchase and Sale of Personal Goodwill, dated December 22, 2021, between and among the Company and Danny R. Lee,
Daniel Lee, Houston Lee, Armond Groves, Thomas Bonner and Bruce Grady (incorporated by reference to Exhibit 10.2 to the Company’s Current
Report on Form 8-K, filed with the SEC on December 23, 2021 (SEC File No. 001-12648)).
27
NumberDescription of Exhibit
2.03
3.01
3.02
3.03
3.04
3.05
3.06
3.07
4.01
Stock Purchase Agreement, dated as of October 21, 2021 by and among the Company, Contech Medical, Inc., Contech Medical, Inc.’s
shareholders, and Christopher M. Byrnes (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed with
the SEC on November 5, 2021 (SEC File No. 001-12648)).
Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.01 to the Company’s Quarterly Report on Form
10-Q for the quarter ended March 31, 2004, filed with the SEC on May 14, 2004 (SEC File No. 001-12648)).
Amended and Restated Certificate of Designation of Series A Junior Participating Preferred Stock of the Company (incorporated by reference to
Exhibit 3.02 to the Company’s Current Report on Form 8-K, filed with the SEC on March 24, 2009 (SEC File No. 001-12648)).
Certificate of Amendment to Certificate of Incorporation of UFP Technologies, Inc., dated June 10, 2020 (incorporated by reference to Exhibit 3.2
to the Company’s Current Report on Form 8-K, filed with the SEC on June 15, 2020 (SEC File No. 001-12648)).
Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K,
filed with the SEC on June 14, 2022 (SEC File No. 001-12648)).
Amended and Restated Certificate of Incorporation of UFP Technologies, Inc., dated June 7, 2023 (incorporated by reference to Exhibit 3.1 to the
Company’s Current Report on Form 8-K, filed with the SEC on June 13, 2023 (SEC File No. 001-12648)).
Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed
with the SEC on June 15, 2020 (SEC File No. 001-12648)).
Second Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K,
filed with the SEC on April 24, 2023 (SEC File No. 001-12648)).
Specimen Certificate for shares of the Company’s Common Stock (incorporated by reference to Exhibit 4.01 to the Company’s Registration
Statement on Form S-1, filed with the SEC on December 15, 1993) (filed in paper format).
4.02
Description of Company Securities *
10.01 Form of Indemnification Agreement for directors and officers of the Company (incorporated by reference to Exhibit 10.30 to the Company’s
Registration Statement on Form S-1, filed with the SEC on December 15, 1993) (filed in paper format). #
10.02 Executive Non-qualified Excess Plan (incorporated by reference to Exhibit 10.41 to the Company’s Quarterly Report on Form 10-Q for the three
months ended September 30, 2006, filed with the SEC on November 13, 2006 (SEC File No. 001-12648)). #
10.03 Employment Agreement with R. Jeffrey Bailly dated October 8, 2007 (incorporated by reference to Exhibit 10.28 to the Company’s Current Report
on Form 8-K, filed with the SEC on October 12, 2007 (SEC File No. 001-12648)). #
10.04
2009 Non-Employee Director Stock Incentive Plan (incorporated by reference to Exhibit 10.66 to the Company’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2013, filed with the SEC on May 10, 2013 (SEC File No. 001-12648)). #
10.05 Amendment No. 1 to Employment Agreement with R. Jeffrey Bailly (incorporated by reference to Exhibit 10.56 to the Company’s Current Report
on Form 8-K, filed with the SEC on March 8, 2011 (SEC File No. 001-12648)). #
10.06 Facility Lease between the Company and Susana Property Co. (incorporated by reference to Exhibit 10.61 to the Company’s Quarterly Report on
Form 10-Q for the period ended September 30, 2012, filed with the SEC on November 9, 2012 (SEC File No. 001-12648)).
28
NumberDescription of Exhibit
10.07 Amendment No. 2 to Employment Agreement with R. Jeffrey Bailly (incorporated by reference to Exhibit 10.62 to the Company’s Current Report
on Form 8-K, filed with SEC on February 22, 2013 (SEC File No. 001-12648)). #
10.08 Form of 2019 CEO Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed
with the SEC on February 25, 2019 (SEC File No. 001-12648)). #
10.09 Form of 2019 Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with
the SEC on February 25, 2019 (SEC File No. 001-12648)). #
10.10 Form of 2019 Non-Qualified Stock Option Agreement under the 2009 Non-Employee Director Stock Incentive Plan (incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2019, filed with the SEC on August 9, 2019 (SEC
File No. 001-12648)). #
10.11 Form of 2019 Stock Unit Award Agreement under the 2009 Non-Employee Director Stock Incentive Plan (incorporated by reference to Exhibit
10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2019, filed with the SEC on August 9, 2019 (SEC File No.
001-12648)). #
10.12 Form of 2020 Non-Qualified Stock Option Agreement under the 2009 Non-Employee Director Stock Incentive Plan (incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2020, filed with the SEC on August 7, 2020 (SEC
File No. 001-12648)). #
10.13 Form of 2020 Stock Unit Award Agreement under the 2009 Non-Employee Director Stock Incentive Plan (incorporated by reference to Exhibit
10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2020, filed with the SEC on August 7, 2020 (SEC File No.
001-12648)). #
10.14 First Amendment to Facility Lease between the Company and Susana Property Co. dated July 6, 2012 (incorporated by reference to Exhibit 10.1 to
the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2017, filed with the SEC on August 9, 2017 (SEC File No. 001-
12648)).
10.15 Stock Purchase Agreement, dated as of January 30, 2018, by and among the Company, the Sellers defined therein, Dielectrics and the
Sellers’ Representative (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the period ended December
31, 2017, filed with the SEC on March 16, 2018 (SEC File No. 001-12648)).
10.16 Agreement for the Purchase and Sale of Personal Goodwill, dated as of January 30, 2018, by and among the Company and Eric C. Stahl
(incorporated by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2017, filed with the
SEC on March 16, 2018 (SEC File No. 001-12648)).
10.17 Lease dated as of February 1, 2018, by and between Eric C. Stahl and the Company (incorporated by reference to Exhibit 10.22 to the Company’s
Annual Report on Form 10-K for the period ended December 31, 2017, filed with the SEC on March 16, 2018 (SEC File No. 001-12648)).
10.18 Amended and Restated 2003 Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the
period ended March 31, 2018, filed with the SEC on May 10, 2018 (SEC File No. 001-12648))#
10.19 Form of 2020 CEO Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed
with the SEC on February 28, 2020 (SEC File No. 001-12648)). #
29
NumberDescription of Exhibit
10.20 Form of 2020 Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with
the SEC on February 28, 2020 (SEC File No. 001-12648)). #
10.21 Form of 2021 CEO Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed
with the SEC on February 26, 2021 (SEC File No. 001-12648)). #
10.22 Form of 2021 Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with
the SEC on February 26, 2021 (SEC File No. 001-12648)). #
10.23 Lease, dated August 9, 2021, between and among Logistica Industrial De Tijuana Este, S.A. DE C.V., Co Production De Tijuana, S.A. DE C.V.,
and the Company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on August 13,
2021 (SEC File No. 001-126458)).
10.24 Second Amended and Restated Credit Agreement, dated December 22, 2021, between and among the Company, certain of its subsidiaries as
guarantors and Bank of America, N.A., in its capacity as the initial lender, Administrative Agent, Swingline Lender and L/C Issuer (incorporated
by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on December 23, 2021 (SEC File No. 001-12648)).
10.25 Form of 2022 CEO Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed
with the SEC on February 22, 2022 (SEC File No. 001-12648)). #
10.26 Form of 2022 Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with
the SEC on February 22, 2022 (SEC File No. 001-12648)). #
10.27 Form of 2023 CEO Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K,
filed with the SEC on February 21, 2023 (SEC File No. 001-12648)). #
10.28 Form of 2023 CEO Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form
8-K, filed with the SEC on February 21, 2023 (SEC File No. 001-12648)). #
10.29 Form of 2023 CEO Stock Unit Award Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed
with the SEC on February 21, 2023 (SEC File No. 001-12648)). #
10.30 Form of 2023 Stock Unit Award Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with
the SEC on February 21, 2023 (SEC File No. 001-12648)). #
10.31 Form of 2023 Stock Unit Award Agreement (Ireland) (incorporated by reference to Exhibit 10.31 to the Company’s Annual Report on Form 10-K
for the period ended December 31, 2022, filed with the SEC on March 16, 2023 (SEC File No. 001-12648)). #
10.32 Form of 2023 Stock Unit Award Agreement (Dominican Republic) #*
10.33 Form of 2024 CEO Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed
with the SEC on February 8, 2024 (SEC File No. 001-12648)). #
10.34 Form of 2024 Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with
the SEC on February 8, 2024 (SEC File No. 001-12648)). #
30
Number Description of Exhibit
10.35
Amended and Restated 2003 Incentive Plan (incorporated by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K for the
period ended December 31, 2022, filed with the SEC on March 16, 2023 (SEC File No. 001-12648)). #
21.01
Subsidiaries of the Company. *
23.01
Consent of Grant Thornton LLP. *
31.01
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.02
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32.01
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. **
97.1
Policy for the Recovery of Erroneously Awarded Compensation. *
101.INS Inline XBRL Instance Document. *
101.SCHInline XBRL Taxonomy Extension Schema Document. *
101.CALInline XBRL Taxonomy Calculation Linkbase Document. *
101.LABInline XBRL Taxonomy Label Linkbase Document. *
101.PRE Inline XBRL Taxonomy Presentation Linkbase Document. *
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. *
104
Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101)).*
* Filed herewith.
** Furnished herewith.
# Indicates management contract or compensatory plan or arrangement.
Form 10-K Summary
ITEM
16.
None.
31
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date:
February 29, 2024
By:
UFP TECHNOLOGIES, INC.
/s/ R. Jeffrey Bailly
R. Jeffrey Bailly, Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the date indicated.
SIGNATURE
TITLE
/s/ R. Jeffrey Bailly
R. Jeffrey Bailly
/s/ Ronald J. Lataille
Ronald J. Lataille
/s/ Daniel C. Croteau
Daniel C. Croteau
/s/ Cynthia Feldmann
Cynthia Feldmann
/s/ Marc Kozin
Marc Kozin
/s/ Thomas Oberdorf
Thomas Oberdorf
/s/ Joseph John Hassett
Joseph John Hassett
/s/ Symeria Hudson
Symeria Hudson
Chairman, Chief Executive Officer,
and Director
Chief Financial Officer, Senior Vice President,
Principal Financial and Accounting Officer
Director
Director
Director
Director
Director
Director
DATE
February 29, 2024
February 29, 2024
February 29, 2024
February 29, 2024
February 29, 2024
February 29, 2024
February 29, 2024
February 29, 2024
UFP TECHNOLOGIES, INC.
Consolidated Financial Statements
and Financial Statement Schedule
As of December 31, 2023 and 2022
And for the Years Ended December 31, 2023, 2022 and 2021
With Reports of Independent Registered Public Accounting Firm
Index to Consolidated Financial Statements and Financial Statement Schedule
UFP TECHNOLOGIES, INC.
Reports of Independent Registered Public Accounting Firm (PCAOB ID Number 248)
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts
Page
F-3
F-5
F-6
F-7
F-8
F-9
F-35
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
UFP Technologies, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of UFP Technologies, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as
of December 31, 2023 and 2022, the related consolidated statements of comprehensive income, changes in stockholders’ equity, and cash flows for each of
the three years in the period ended December 31, 2023, and the related notes and financial statement schedule included under Item 15(a) (collectively
referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December
31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s
internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 29, 2024 expressed an unqualified
opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding 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 judgements. We determined that there are no critical audit matters.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2005.
Boston, Massachusetts
February 29, 2024
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
UFP Technologies, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of UFP Technologies, Inc. Company (a Delaware corporation) and subsidiaries (the
“Company”) as of December 31, 2023, 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, 2023, 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, 2023, and our report dated February 29, 2024 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.
/s/ GRANT THORNTON LLP
Boston, Massachusetts
February 29, 2024
F-4
UFP TECHNOLOGIES, INC.
Consolidated Balance Sheets
(In thousands, except share data)
Assets
December 31,
2023
2022
Current assets:
Cash and cash equivalents
Receivables, net
Inventories
Prepaid expenses
Refundable income taxes
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Non-qualified deferred compensation plan
Right of use assets
Deferred income taxes
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses
Deferred revenue
Lease liabilities
Income taxes payable
Current portion of long-term debt
Total current liabilities
Long-term debt, less current portion
Deferred income taxes
Non-qualified deferred compensation plan
Lease liabilities
Other liabilities
Total liabilities
Commitments and contingencies (Note 16)
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; 7,669,339 and 7,639,780 shares issued and
outstanding, respectively at December 31, 2023; and 7,611,244 and 7,581,685 shares issued and
outstanding, respectively, at December 31, 2022
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Treasury stock at cost, 29,559 shares at December 31, 2023 and 2022
Total stockholders' equity
Total liabilities and stockholders' equity
The accompanying notes are an integral part of these consolidated financial statements.
F-5
$
$
$
$
5,263 $
64,449
70,191
3,433
1,297
144,633
62,137
113,263
64,116
5,323
13,588
607
469
404,136 $
22,286 $
22,085
6,616
3,222
-
4,000
58,209
28,000
428
5,412
10,815
15,181
118,045
4,451
55,117
53,536
3,242
-
116,346
58,072
113,028
68,361
4,148
13,153
1,448
3,636
378,192
19,961
23,122
4,679
2,517
1,682
4,000
55,961
51,000
448
4,167
10,851
18,220
140,647
-
-
76
38,814
247,520
268
(587)
286,091
404,136 $
76
36,070
202,596
(610)
(587)
237,545
378,192
UFP TECHNOLOGIES, INC.
Consolidated Statements of Comprehensive Income
(In thousands, except per share data)
Net sales
Cost of sales
Gross profit
Selling, general, and administrative expenses
Acquisition costs
Change in fair value of contingent consideration
Gain on sale of Molded Fiber business
Loss (gain) on disposal of property, plant and equipment
Operating income
Interest expense, net
Other expense (income)
Income before income tax provision
Income tax expense
Net income
Net income per common share outstanding:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Comprehensive Income
Net Income
Other comprehensive income (loss):
Foreign currency translation adjustment
Other comprehensive income (loss)
Comprehensive income
2023
Years Ended December 31,
2022
2021
400,072 $
287,847
112,225
50,889
-
3,527
-
145
57,664
3,645
117
53,902
8,978
44,924 $
5.89 $
5.83 $
7,624
7,701
353,792 $
263,532
90,260
45,796
1,027
9,837
(15,651)
(6,149)
55,400
2,763
(81)
52,718
10,929
41,789 $
5.52 $
5.45 $
7,564
7,663
44,924 $
41,789 $
878
878
45,802 $
(610)
(610)
41,179 $
206,320
155,206
51,114
29,480
430
-
-
(14)
21,218
39
(26)
21,205
5,319
15,886
2.11
2.09
7,524
7,615
15,886
-
-
15,886
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-6
UFP TECHNOLOGIES, INC.
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2023, 2022 and 2021
(In thousands)
Additional
Accumulated
Other
Common Stock
Shares
Amount Capital
Paid-in Retained Comprehensive
Earnings Income (Loss)
Treasury Stock
Shares
Amount
Total
Stockholders'
Equity
Balance at December 31,
2020
Share-based compensation
Exercise of stock options
Net share settlement of
RSU's
Net income
Balance at December 31,
2021
Share-based compensation
Exercise of stock options
Net share settlement of
RSU's
Other comprehensive loss
Net income
Balance at December 31,
2022
Share-based compensation
Exercise of stock options
Net share settlement of
RSU's
Issuance of Common Stock
Other comprehensive
income
Net income
Balance at December 31,
2023
7,500 $
45
7
(17)
-
7,535 $
53
17
(23)
-
-
7,582 $
55
25
(22)
-
-
-
75 $
-
-
-
-
75 $
1
-
-
-
-
32,484 $
2,428
162
144,921 $
-
-
(923)
-
-
15,886
34,151 $
3,207
390
160,807 $
-
-
(1,678)
-
-
-
-
41,789
76 $
-
-
36,070 $
4,641
680
202,596 $
-
-
-
-
-
-
(2,641)
64
-
-
-
-
-
44,924
-
-
-
-
-
-
-
-
-
(610)
-
(610)
-
-
-
-
878
-
30 $
-
-
-
-
30 $
-
-
-
-
-
30 $
-
-
-
-
-
-
(587) $
-
-
-
-
(587) $
-
-
-
-
-
(587) $
-
-
-
-
-
-
176,893
2,428
162
(923)
15,886
194,446
3,208
390
(1,678)
(610)
41,789
237,545
4,641
680
(2,641)
64
878
44,924
7,640 $
76 $
38,814 $
247,520 $
268
30 $
(587) $
286,091
The accompanying notes are an integral part of these consolidated financial statements.
F-7
UFP TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net income from consolidated operations
Adjustments to reconcile net income to net cash provided by operating activities:
$
Depreciation and amortization
Loss (gain) on sales of property, plant and equipment
Gain on sale of Molded Fiber business
Share-based compensation
Change in fair value of contingent consideration
Deferred income taxes
Changes in operating assets and liabilities:
Receivables, net
Inventories
Prepaid expenses
Income taxes
Other assets
Accounts payable
Accrued expenses
Deferred revenue
Other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Additions to property, plant and equipment
Acquisitions, net of cash acquired
Proceeds from sale of Molded Fiber
Proceeds from sale of property, plant and equipment
Net cash (used in) provided by 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
Payment of contingent consideration
Principal payments on finance lease obligations
Proceeds from the exercise of stock options
Payment of statutory withholding for restricted stock units vested
Net cash (used in) provided by financing activities
Effect of foreign currency exchange rates on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
$
The accompanying notes are an integral part of these consolidated financial statements.
F-8
2023
Years Ended December 31,
2022
2021
44,924 $
41,789 $
15,886
11,407
145
-
4,641
3,527
816
(9,124)
(16,565)
(21)
(2,982)
1,557
1,553
(888)
1,936
408
41,334
(10,490)
-
-
2
(10,488)
9,000
(28,000)
-
(4,000)
(5,000)
(63)
680
(2,641)
(30,024)
(10)
812
4,451
5,263 $
11,886
(6,149)
(15,651)
3,208
9,837
(4,710)
(16,864)
(19,605)
(692)
953
(3,545)
9,131
10,446
1,008
(3,298)
17,744
(13,780)
(20,653)
29,007
6,717
1,291
44,000
(60,000)
-
(4,000)
(4,543)
(63)
390
(1,678)
(25,894)
193
(6,666)
11,117
4,451 $
8,410
(14)
-
2,428
-
(1,794)
(7,754)
(4,496)
(557)
893
(681)
102
1,009
2,294
(1,433)
14,293
(5,395)
(96,178)
-
114
(101,459)
34,839
-
40,000
-
-
(29)
162
(923)
74,049
-
(13,117)
24,234
11,117
UFP TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
UFP Technologies, Inc. (“the Company”) is a design, engineering, and custom manufacturer of comprehensive solutions for medical devices,
sterile packaging, and other highly engineered custom products. The Company is an important link in the medical device supply chain and a
valued outsource partner to many of the top medical device manufacturers in the world. The Company’s single-use and single-patient devices and
components are used in a wide range of medical devices and packaging for minimally invasive surgery, infection prevention, wound care,
wearables, orthopedic soft goods, and orthopedic implants.
The Company is diversified by also providing highly engineered products and components to customers in the automotive, aerospace and defense,
consumer, electronics, and industrial markets. Typical applications of its products include military uniform and gear components, automotive
interior trim, athletic padding, air filtration, abrasive nail files, and protective cases and inserts.
(a) Principles of Consolidation
The consolidated financial statements of the Company include the accounts and results of operations of UFP Technologies, Inc. and its
wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company
consists of a single operating and reportable segment. 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 the fair value of intangible
assets, 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.
(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, 2023 and 2022, the Company did not have any cash equivalents.
F-9
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.
At December 31, 2023 and 2022, cash held by foreign subsidiaries was approximately $3.7 million and $3.2 million, respectively.
(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, 2023 and 2022.
(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, 2023 and 2022.
(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 (years)
Machinery and equipment (years)
Furniture, fixtures, computers & software (years)
Shorter of estimated useful life
or remaining lease term
20 – 30
7 – 10
3 – 7
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 years ended December 31, 2023, 2022 and 2021 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 characteris‐tics. 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 performed a qualitative assessment (“step 0”) as of October 1, 2023 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 2022 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.
F-10
The Company last performed “step 1” of the goodwill impairment test as of October 1, 2022. In performing the most recent “step 1”
evaluation of goodwill impairment, 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 valuation 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. 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.
(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, 2023, 2022 and 2021 that required
management to perform an impairment analysis.
(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. 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.
Standard payment terms are net 30 days unless contract terms state otherwise. When determining the transaction price of a contract, an
adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a
significant financing component. We do not assess whether a significant financing component exists if the period between when we
perform our obligations under the contract and when the customer pays is one year or less. 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 goods and are expensed when revenue is recognized. Variable consideration to be included in the transaction price is estimated using
either the expected value method or the most likely method based on facts and circumstances. Variable consideration is included in the
transaction price if it is probable that a significant future reversal of cumulative revenue under the contract will not occur. The Company
has elected to not disclose the aggregate amount of the transaction price allocated to unsatisfied performance obligations, as the
Company’s contracts have an original expected duration of one year or less, or revenue has been recognized at the amount for which the
Company has the right to invoice for engineering services performed.
F-11
(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.
(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.
(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 likely 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 19).
(p) Treasury Stock
The Company accounts for treasury stock under the cost method, using the first-in, first out cost 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, 2023, 2022 and 2021.
(q) Research and Development
On a routine basis, the Company incurs costs related to research and development activity. These costs are expensed as incurred and are
included in “Cost of Sales” on the Consolidated Statements of Comprehensive Income. Approximately $7.2 million, $9.3 million, and
$8.5 million were expensed in the years ended December 31, 2023, 2022 and 2021, respectively.
F-12
(r) Foreign Currency Translation
The Company translates all assets and liabilities of its foreign subsidiaries, where the U.S. dollar is not the functional currency, at the
period-end exchange rate and translates income and expenses at the average exchange rates in effect during the period. The net effect of
this translation is recorded in the consolidated financial statements as a component of Accumulated Other Comprehensive Income (Loss)
(AOCI).
Recent Accounting Pronouncements
There are no newly issued accounting pronouncements that the Company expects to have a material effect on the financial statements.
(2) Acquisitions and Divestiture
Molded Fiber
On July 26, 2022, pursuant to a share purchase agreement and related agreements, the Company sold its former wholly owned subsidiary Moulded
Fibre Technology, Inc. (“MFT”) and related real estate in Iowa to CKF USA INCORPORATED (“CKF”) (a Delaware Corporation) for
approximately $31.5 million. The net book value of the assets sold was approximately $15.4 million and the Company recorded a net gain on the
sale of approximately $15.7 million, which was recorded in the year ended December 31, 2022. $2.6 million of the purchase price was held in
escrow to indemnify CKF against certain claims, losses, and liabilities. The full escrow balance was released in January 2024. The Securities
Purchase Agreement contains customary representations, warranties, and covenants customary for transactions of this type. Proceeds from the sale
were used to pay down debt on the Company’s revolving credit facility, as well as income tax obligations on the related gain.
Advant Medical
On March 16, 2022, the Company purchased 100% of the outstanding shares of common stock of Advant Medical, Ltd., Advant Medical Inc., and
Advant Medical Costa Rica, Limitada, (together Advant), pursuant to a Stock Purchase Agreement and related agreements, for an aggregate
purchase price of €19.0 million in cash along with a working capital adjustment at closing. Total consideration in U.S. Dollars amounted to
approximately $21.2 million. The Stock Purchase Agreement contains customary representations, warranties, and covenants customary for
transactions of this type.
Founded in 1993, Advant is headquartered in Galway, Ireland, with operations in Costa Rica and partner manufacturing in Mexico. Advant is a
developer and contract manufacturer of medical devices and packaging, primarily for catheters and guide wires.
F-13
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):
Fair value of considerations transferred
Cash paid at closing
Other liability
Cash from Advant
Total consideration
Purchase price allocation
Accounts receivable
Inventory
Other current assets
Property, plant, and equipment
Customer contracts & relationships
Intellectual property
Non-compete agreement
Lease right of use assets
Other assets
Goodwill
Total identifiable assets
Accounts payable
Accrued expenses
Income taxes
Deferred taxes
Lease liabilities
Net assets acquired
$
$
$
$
$
23,608
395
(2,840)
21,163
2,299
2,410
213
5,704
2,925
2,127
259
289
41
7,140
23,407
(772)
(668)
(66)
(449)
(289)
21,163
Acquisition costs associated with the transaction were approximately $789 thousand, of which $759 thousand was charged to expense in the year
ended December 31, 2022, and $30 thousand was charged to expense in the year ended December 31, 2021. These costs were primarily for legal,
investment banking, and valuation services, as well as stamp duty filings and are reflected on the face of the income statement.
The amount of revenue and earnings of Advant recognized since the acquisition date, which is included in the condensed consolidated statement
of income for the year ended December 31, 2022, was approximately $20.0 million and $2.4 million, respectively.
None of the goodwill related to the Advant acquisition is expected to be deductible for tax purposes
F-14
Pro-forma statements
The following table contains an unaudited pro forma condensed consolidated statement of operations for the years ended December 31, 2022, and
2021, as if the Advant acquisition had occurred at the beginning of 2021 (in thousands):
Sales
Operating Income
Net income
Earnings per share:
Basic
Diluted
Year Ended December 31,
2022
(Unaudited)
2021
(Unaudited)
$
$
$
$
$
358,196 $
56,321 $
42,311 $
5.59 $
5.52 $
291,403
29,729
21,805
2.90
2.86
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 acquisition occurred as presented. In addition, future results may vary significantly from the results reflected in such
pro forma information.
DAS Medical
On December 22, 2021, the Company purchased 100% of the outstanding membership interests of DAS Medical Holdings, LLC, (DAS Medical)
pursuant to a Securities Purchase Agreement, for a net purchase price of $66.7 million in cash. The purchase price was subject to adjustment based
upon DAS Medical’s final working capital at closing, and the purchase price may be increased by up to $20.0 million in earn-out payments based
upon the achievement of certain EBITDA and/or revenue targets of DAS Medical for the years ended December 31, 2022, 2023, 2024 and 2025.
A portion of the purchase price is being held in escrow to indemnify the Company against certain claims, losses, and liabilities. The Securities
Purchase Agreement contains customary representations, warranties, and covenants customary for transactions of this type. As a result of the final
working capital adjustment, the total consideration was reduced by approximately $115 thousand.
In connection with its entry into the Purchase Agreement, the Company also entered into an Agreement for the Purchase and Sale of Personal
Goodwill (the “Goodwill Agreement”) with the purchase price beneficiaries. Pursuant to the terms of the Goodwill Agreement, on December 22,
2021, the Company purchased from the beneficiaries their personal goodwill, including business relationships, trade secrets and knowledge in
connection with DAS Medical’s business, for a purchase price of $20 million in cash.
The Company has also entered into Non-Competition Agreements with the beneficiaries and the Company has agreed to pay additional
consideration to the parties to the Non-Competition Agreements, including an aggregate of $10.0 million in payments over the ten years following
the closing of the DAS Medical acquisition for the 10-year noncompetition covenants of certain key owners.
Founded in 2010, DAS Medical is headquartered in Atlanta, Georgia, with manufacturing in the Dominican Republic. DAS Medical is a medical
device contract manufacturer specializing in the design, development and production of single-use surgical equipment covers, robotic draping
systems and fluid control pouches.
F-15
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):
Fair value of considerations transferred
Cash paid at closing
Contingent liability (Earn-out)
Non-compete agreements
Cash from DAS
Working capital adjustment
Total consideration
Purchase price allocation
Accounts receivable
Inventory
Other current assets
Property, plant, and equipment
Customer contracts & relationships
Intellectual property
Non-compete agreement
Lease right of use assets
Goodwill
Total identifiable assets
Accounts payable
Accrued expenses
Deferred revenue
Lease liabilities
Net assets acquired
$
$
$
$
$
95,000
5,188
8,855
(8,316)
(115)
100,612
2,351
7,570
68
3,314
36,730
2,380
4,697
1,221
51,742
110,073
(5,238)
(2,995)
(7)
(1,221)
100,612
Acquisition costs associated with the transaction were approximately $448 thousand, of which $155 thousand was charged to expense in the year
ended December 31, 2022, and $293 thousand was charged to expense in the year ended December 31, 2021. These costs were primarily for legal
and valuation services and are reflected on the face of the income statement.
The amount of revenue and net income of DAS Medical recognized since the acquisition date, which is included in the condensed consolidated
statement of income for the year ended December 31, 2021, was approximately $1.4 million and $0.1 million, respectively.
Contech Medical
On October 12, 2021, the Company purchased 100% of the outstanding shares of common stock of Contech Medical, Inc., pursuant to a stock
purchase agreement and related agreements, for an aggregate purchase price of $9.5 million in cash, the assumption of a contingent liability of
$0.5 million plus up to an additional $5 million based upon the achievement of certain EBITDA targets of Contech for the 12-month period ended
June 30, 2022. The purchase price was subject to adjustment based upon Contech’s working capital at closing. 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 1987, Contech is based in Providence, Rhode Island with partner manufacturing in Costa Rica. Contech is a global leader in the
design, development, and manufacture of Class III medical device packaging primarily for catheters and guide wires. The Company has leased the
Providence location from a realty trust owned by the selling shareholders and affiliates. The lease is for five years with one five-year renewal
option.
F-16
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):
Fair value of consideration transferred:
Cash paid at closing
Contingent liability (Earn-out)
Other liability
Cash from Contech
Total consideration
Purchase Price Allocation:
Accounts receivable
Inventory
Other current assets
Property, plant and equipment
Customer Contracts & Relationships
Intellectual Property
Non-Compete agreement
Lease right of use assets
Goodwill
Total identifiable assets
Accounts payable
Accrued expenses
Deferred revenue
Lease liabilities
Net assets acquired
$
$
$
$
$
9,766
4,543
500
(266)
14,543
2,851
2,320
37
1,170
3,043
2,247
86
1,523
4,278
17,555
(1,015)
(414)
(60)
(1,523)
14,543
Acquisition costs associated with the transaction were approximately $153 thousand, of which $113 thousand was charged to expense in the year
ended December 31, 2022, and $40 thousand was charged to expense in the year ended December 31, 2021. These costs were primarily for legal
and valuation services and are reflected on the face of the income statement.
The amount of revenue and net income of Contech recognized since the acquisition date, which is included in the condensed consolidated
statement of income for the year ended December 31, 2021, was approximately $4.5 million and $0.5 million, respectively.
100% of the goodwill related to the DAS Medical and Contech acquisitions is expected to be deductible for tax purposes.
Pro-forma statement
The following table contains an unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2021, as if
both acquisitions had occurred at the beginning of 2021 (in thousands):
Sales
Operating Income
Net Income
Earnings per share:
Basic
Diluted
F-17
Year Ended
December 31,
2021
(Unaudited)
$
$
$
$
$
269,932
25,878
20,562
2.73
2.70
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 both acquisitions occurred as presented. In addition, future results may vary significantly from the results reflected in
such pro forma information.
(3) 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 19 for further information regarding net sales by market):
Net sales of:
Products
Tooling and Machinery
Engineering services
Total net sales
Contract balances
2023
Years Ended December 31,
2022
2021
$
$
391,460 $
3,468
5,144
400,072 $
342,742 $
6,307
4,743
353,792 $
201,248
1,814
3,258
206,320
The 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, 2023, and 2022 (in thousands):
Deferred revenue - beginning of period
Increases due to consideration received from customers
Revenue recognized
Decrease due to sale of Molded Fiber
Deferred revenue - end of period
Contract Liabilities
Years Ended
December 31,
2023
2022
$
$
4,679 $
6,572
(4,635)
-
6,616 $
4,247
6,337
(5,330)
(575)
4,679
Revenue recognized during the years ended December 31, 2023 and 2022 from amounts included in deferred revenue at the beginning of the
period was approximately $2.7 million and $2.2 million, respectively.
F-18
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, 2023 and 2022 (in thousands):
Contract Assets
Years Ended
December 31,
2023
2022
Unbilled Receivables - beginning of period
Increases due to revenue recognized, not invoiced to customers
Decreases due to customer invoicing
Unbilled Receivables - end of period
$
$
270 $
3,545
(3,701)
114 $
74
3,653
(3,457)
270
(4) Supplemental Cash Flow Information
Cash paid for:
Interest
Income taxes, net of refunds
Non-cash investing and financing activities:
Capital additions accrued but not yet paid
Accrued contingent consideration
Present value of non-competition payments
(5) Receivables and Allowance for Credit Losses
Receivables consist of the following (in thousands):
Accounts receivable–trade
Less allowance for credit losses
Receivables, net
2023
Years Ended December 31,
2022
(in thousands)
2021
$
$
3,537 $
10,568
536 $
13,096
8,474
2,721 $
13,200
125 $
14,568
10,043
53
5,914
135
9,731
9,477
December 31,
2023
2022
$
$
65,176 $
(727)
64,449 $
55,850
(733)
55,117
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 the aging of the accounts receivable balances and the financial condition of customers.
Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of
default. The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of
customers' financial condition and macroeconomic 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.
F-19
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 31, 2023 and 2022 (in thousands):
Allowance - beginning of period
Provision for expected credit losses
Amounts written off against the allowance, net of recoveries
Recoveries
Decrease due to sale of Molded Fiber business
Allowance - end of period
(6) Inventories
Inventories consist of the following (in thousands):
Raw materials
Work in process
Finished goods
Total Inventory
(7) Goodwill and Other Intangible Assets
Allowance for Credit Losses
Year Ended December 31,
2022
2023
733 $
15
(31)
10
-
727 $
519
293
(55)
15
(39)
733
December 31,
2023
2022
53,539 $
7,821
8,831
70,191 $
42,475
4,183
6,878
53,536
$
$
$
$
The changes in the carrying amount of goodwill for the years ended December 31, 2023 and 2022 are as follows (in thousands):
Opening balance
Acquired in business combinations (See Note 2)
DAS working capital adjustment
DAS opening balance sheet reclassification
Sale of Molded Fiber
Foreign currency translation
Ending balance
F-20
2023
2022
$
$
113,028 $
-
-
-
-
235
113,263 $
107,905
7,140
196
(243)
(1,778)
(192)
113,028
The carrying values of the Company’s definite-lived intangible assets as of December 31, 2023 and 2022 are as follows (in thousands):
December 31, 2023
Weighted-average useful life
Gross amount
Accumulated amortization
Net balance
December 31, 2022
Weighted-average useful life
Gross amount
Accumulated amortization
Net balance
Intellectual
Property /
Tradename &
Brand
11.9 years
Customer
List
20 years
Non-
Compete
9.3 years
Total
65,270 $
(10,932)
54,338 $
7,134 $
(1,331)
5,803 $
5,505 $
(1,530) $
3,975 $
77,909
(13,793)
64,116
Intellectual
Property /
Tradename &
Brand
11.9 years
Customer
List
20 years
Non-
Compete
9.3 years
Total
65,174 $
(7,665)
57,509 $
7,064 $
(727)
6,337 $
5,497 $
(982) $
4,515 $
77,735
(9,374)
68,361
$
$
$
$
Amortization expense related to intangible assets was approximately $4.4 million, $4.4 million, and $1.3 million for the years ended December 31,
2023, 2022, and 2021, respectively. The estimated remaining amortization expense as of December 31, 2023 is as follows (in thousands):
2024
2025
2026
2027
2028
Thereafter
Total
$
$
4,401
4,401
4,399
4,397
4,350
42,168
64,116
(8) 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
Property, plant and equipment
Accumulated depreciation and amortization
Net property, plant and equipment
December 31,
2023
2022
4,849 $
34,735
8,226
58,343
6,324
6,845
119,322 $
(57,185)
62,137 $
4,811
34,446
5,503
52,233
6,401
7,272
110,666
(52,594)
58,072
$
$
$
Depreciation and amortization expense of Property, Plant and Equipment for the years ended December 31, 2023, 2022, and 2021 was
approximately $7.0 million, $7.5 million, and $7.1 million, respectively.
F-21
(9) Debt
On December 22, 2021, the Company, as the borrower, entered into a secured $130 million Second Amended and Restated Credit Agreement (the
“Second 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 Second Amended and Restated Credit Agreement amends and restates the Company’s prior credit agreement, originally
dated as of February 1, 2018.
The credit facilities under the Second Amended and Restated Credit Agreement consist of a $40 million secured term loan to the Company and a
secured revolving credit facility, under which the Company may borrow up to $90 million. The Second Amended and Restated Credit Agreement
matures on December 21, 2026. The secured term loan requires quarterly principal payments of $1 million that commenced on March 31, 2022.
The proceeds of the Second Amended and Restated Credit Agreement may be used for general corporate purposes, including funding the
acquisition of DAS Medical, as well as certain other permitted acquisitions. The Company’s obligations under the Second Amended and Restated
Credit Agreement are guaranteed by the Subsidiary Guarantors and secured by substantially all assets of the Company.
The Second Amended and Restated Credit Agreement calls for interest determined by the Bloomberg Short-Term Bank Yield Index rate
(“BSBY”) plus a margin that ranges from 1.25% to 2.0% or, at the discretion of the Company, the bank’s prime rate less a margin that ranges from
0.25% to zero. In both cases the applicable margin is dependent upon Company performance. Under the Second Amended and Restated Credit
Agreement, the Company is subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to EBITDA
financial covenant. The Second Amended and Restated Credit Agreement contains other covenants customary for transactions of this type,
including restrictions on certain payments, permitted indebtedness, and permitted investments.
At December 31, 2023, the Company had approximately $32 million in borrowings outstanding under the Second Amended and Restated Credit
Agreement, which were used as partial consideration for the DAS Medical and Advant acquisitions, and also had approximately $0.7 million in
standby letters of credit outstanding, drawable as a financial guarantee on worker’s compensation insurance policies. At December 31, 2023, the
applicable interest rate was approximately 6.7% and the Company was in compliance with all covenants under the Second Amended and Restated
Credit Agreement.
Long-term debt consists of the following (in thousands):
Term loan
Total long-term debt
Current portion
Long-term debt, excluding current portion
Future maturities of long-term debt at December 31, 2023 are as follows (in thousands):
Year ended December 31,
2024
2025
2026
(10) Accrued Expenses
Accrued expenses consist of the following (in thousands):
Compensation
Current portion of contingent consideration
Current portion of present value of non-competition payments
Accrued customer rebates
Other
F-22
December 31,
2023
32,000
32,000
(4,000)
28,000
Term Loan
4,000
4,000
24,000
32,000
$
$
$
$
December 31,
2023
2022
8,741 $
5,000
1,888
119
6,337
22,085 $
7,949
5,000
1,888
3,493
4,792
23,122
$
$
(11) Income Tax
The Company’s domestic and foreign net income before provision for income taxes for the years ended December 31, 2023, 2022, and 2021
consists of the following (in thousands):
Domestic
Foreign
Total
2023
Years Ended December 31,
2022
2021
$
$
26,545 $
27,357
53,902 $
34,654 $
18,064
52,718 $
21,205
-
21,205
The Company’s income tax provision for the years ended December 31, 2023, 2022, and 2021 consists of the following (in thousands):
Current
Federal
State
Foreign
Total Current
Deferred
Federal
State
Foreign
Total Deferred
2023
Years Ended December 31,
2022
2021
$
6,099 $
1,784
272
8,155
841
2
(20)
823
11,238 $
2,309
1,863
15,410
(3,856)
(624)
(1)
(4,481)
Total income tax provision
$
8,978 $
10,929 $
F-23
5,793
1,320
-
7,113
(1,399)
(395)
-
(1,794)
5,319
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
Deferred revenue
Other
Gross deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Excess of book over tax basis of fixed assets
Goodwill
Right of use asset
Inventory capitalization
Total deferred tax liabilities
Net long-term deferred tax assets (liabilities)
December 31,
2023
2022
$
$
603 $
-
2,040
685
3,596
1,774
963
21
9,682
-
9,682
(2,839)
(3,095)
(3,481)
(88)
(9,503)
179 $
450
305
2,120
690
3,298
1,132
1,115
362
9,472
-
9,472
(2,782)
(2,445)
(3,245)
-
(8,472)
1,000
The amounts recorded as deferred tax assets as of December 31, 2023 and 2022 represent the amount of tax benefits of existing deductible
temporary differences that are more likely than not to be realized through the generation of sufficient future taxable income. The Company had
gross deferred tax assets of approximately $9.7 million on December 31, 2023, that it believes are more likely than not to be realized.
Management reviews the recoverability of deferred tax assets during each reporting period.
F-24
The actual tax provision for the years presented differs from that derived from using a U.S federal statutory rate of 21% to income before income
tax expense as follows:
2023
Years Ended December 31,
2022
2021
U.S. federal statutory rate
Increase (decrease) in income taxes resulting from:
State taxes, net of federal tax benefit
Tax credits
Return to provision adjustments
Foreign rate differential
GILTI impact
FDII impact
Excess tax benefits on equity awards
162m limitations
Increases in uncertain tax positions
Other
Change in valuation allowance
Effective tax rate
21.0%
2.7
(0.1)
(3.2)
(9.3)
4.5
(0.7)
(1.9)
1.9
1.3
0.5
-
16.7%
21.0%
3.2
(0.7)
-
(3.7)
0.8
-
(0.6)
0.8
-
(0.1)
-
20.7%
21.0%
4.0
(1.7)
0.7
-
-
-
(0.2)
0.7
-
0.8
(0.2)
25.1%
The Company’s foreign subsidiary earnings are subject to current U.S. taxation under the Tax Cuts and Jobs Act of 2017, which also repealed U.S.
taxation on the subsequent repatriation of those earnings. The Company intends to repatriate substantially all of its future foreign subsidiary
earnings. The repatriation of earnings outside of the U.S. generally does not represent a material net tax impact to the Company. The withholding
taxes associated with the Company’s earnings in the Dominican Republic are generally fully creditable against the Company US tax liability and
therefore do not produce any incremental tax consequences. The earnings of the Company’s other foreign subsidiaries, and therefore the
withholding taxes associated with those earnings, are not material as of December 31, 2023.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions, as well as in Ireland and Costa Rica. It
currently does not have a local filing obligation with respect to its subsidiary in the Dominican Republic. 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 and is currently undergoing an audit for the years 2020 and 2021, 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, income tax returns
in Colorado which have been audited through 2017, income tax returns in Iowa which have been audited through 2019, and income tax returns in
Illinois which is currently undergoing an audit for the years 2020 and 2021. The Company’s federal tax return is currently being audited for the
years 2019 and 2020. Federal and state tax returns for the years 2019 through 2022 remain open to examination by the IRS and various state
jurisdictions. The Company’s non-US tax returns in Ireland and Costa Rica remain open for the years 2019 through 2022.
The Company applies the accounting guidance in ASC 740 to accounting for uncertainty in income taxes. The Company’s reserves related to taxes
are based on determination of whether, and how much of, a tax benefit taken by the Company in its tax filings or positions, is more likely than not
to be realized following resolution of any potential contingencies present related to the tax benefit. The following is a roll forward of the
Company’s unrecognized tax benefits (“UTB”) (in thousands):
Gross UTB balance at beginning of fiscal year
Gross increases - tax positions of prior years
Gross UTB balance at end of fiscal year
December 31,
2023
- $
670
670 $
2022
-
-
-
$
$
As a result of an ongoing IRS audit, the Company, for the year ended December 31, 2023, recorded an uncertain tax benefit of $670 thousand
related to disputed research credits taken in prior year’s federal tax returns. The Company did not have any uncertain tax benefits as of December
31, 2022.
F-25
(12) Net Income Per Share
Basic income per share is based upon the weighted average common shares outstanding during each year. Diluted income per share is based upon
the weighted average of common shares and dilutive common stock equivalent shares outstanding during each year. The weighted average number
of shares used to compute both basic and diluted income per share consisted of the following (in thousands):
Basic weighted average common shares outstanding during the year
Weighted average common equivalent shares due to stock options
and restricted stock units
Diluted weighted average common shares outstanding during the
year
2023
Years Ended December 31,
2022
2021
7,624
77
7,701
7,564
99
7,663
7,524
91
7,615
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, 2023, 2022, and 2021, the number of stock awards excluded from the computation was 4,218, 9,876, and
10,716, respectively.
(13) Share-Based Compensation
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”), incentive and non-qualified stock options, performance shares, or stock appreciation
rights. The Company determines the form, terms, and conditions, if any, of any awards made under the Plan.
Through December 31, 2023, 1,355,430 shares of common stock were issued under the 2003 Incentive Plan, none of which have been restricted.
An additional 93,905 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, 2023, 192,935 options were granted and 7,935 options are outstanding. At December 31, 2023, 707,011 shares or options are
available for future issuance in the 2003 Incentive Plan.
F-26
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 was amended on June 8, 2022, to increase the maximum number of shares issuable under the Director
Plan from 975,000 to 1,075,000. 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.
Through December 31, 2023, 405,022 options were granted, and 70,553 options are outstanding. For the year ended December 31, 2023, 1,788
RSUs are being reserved for outstanding grants of RSUs and 124,025 shares remain available to be issued under the Director Plan.
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):
Share-based compensation related to:
Common stock grants
Stock option grants
RSUs
Total share-based compensation
2023
Years Ended December 31,
2022
2021
$
$
400 $
432
3,809
4,641 $
400 $
263
2,545
3,208 $
400
210
1,818
2,428
The total income tax benefit recognized in the consolidated statements of income for share-based compensa‐tion arrangements was approximately
$2.2 million, $1.3 million, and $0.8 million for the years ended December 31, 2023, 2022, and 2021, respectively.
Common stock grants
The compensation expense for common stock granted during the three-year period ended December 31, 2023, 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 Decem‐ber 31, 2023, was determined as the fair value of
the options using the Black Scholes valuation model. The range of assumptions are noted as follows:
Expected volatility
Expected dividends
Risk-free interest rate
Exercise price
Expected term (years)
Weighted-average grant date fair value
2023
36.6% - 40.6%
None
3.6% - 3.9%
$111.54 - $167.98
6.2 - 6.8
$37.81 - $71.17
Years Ended December 31,
2022
34.7%
None
2.9%
$77.28
6.2
$30.37
2021
33.7%
None
0.8%
$57.34
6.2
$19.60
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.
F-27
The following is a summary of stock option activity for the year ended December 31, 2023:
Shares Under
Options
Weighted
Average
Exercise Price
(per share)
Weighted
Average
Remaining
Contractual
Life
(in years)
Aggregate
Intrinsic Value
(in thousands)
Outstanding December 31, 2022
Granted
Exercised
Outstanding December 31, 2023
Exercisable at December 31, 2023
Vested and expected to vest at December 31, 2023
92,075 $
12,153
(25,740)
78,488 $
66,335 $
78,488 $
39.98
131.13
30.67
57.14
43.59
57.14
5.56 $
5.48 $
5.56 $
9,018
8,521
9,018
During the years ended December 31, 2023, 2022, and 2021, 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 $3.0 million, $1.2 million, and $0.2 million,
respectively, and the total amount of consideration received from the exercise of these options was approximately $0.8 million, $0.4 million, and
$0.2 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, 2023 and 2022, 861 shares and 1,876 shares were redeemed for this
purpose at an average market price of $127.05 and $95.82, respectively. During the year ended December 31, 2021, no shares were redeemed for
this purpose.
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.
F-28
The following table summarizes informa‐tion about stock unit award activity during the year ended December 31, 2023:
Outstanding at December 31, 2022
Awarded
Shares vested
Forfeitures
Outstanding at December 31, 2023
Restricted Stock
Units
Weighted Average
Award Date Fair
Value
102,048 $
46,050
(52,126)
(279)
95,693 $
56.02
113.91
55.17
106.60
64.82
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, 2023, 20,457 shares were
redeemed for this purpose at an average market price of $117.95. During the years ended December 31, 2022 and 2021, 19,425 and 14,190 shares
were redeemed for this purpose at an average market price of $67.05 and $52.55, respectively.
The following summarizes the future share-based compensation expense the Company will record as the equity securities granted through
December 31, 2023, vest (in thousands):
2024
2025
2026
Total
(14) Leases
Options
Restricted
Stock Units
Total
$
$
280 $
19
-
299 $
3,048 $
1,787
206
5,041 $
3,328
1,806
206
5,340
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.
F-29
ROU assets and lease liabilities consist of the following (in thousands):
Operating lease ROU assets
Finance lease ROU assets
Total ROU assets
Operating lease liabilities - current
Finance lease liabilities - current
Total lease liabilities - current
Operating lease liabilities - long-term
Finance lease liabilities - long-term
Total lease liabilities - long-term
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
Total lease cost
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 operating lease obligations
Weighted-average remaining lease term (years):
Finance
Operating
Weighted-average discount rate:
Finance
Operating
F-30
December 31,
2023
2022
13,437 $
151
13,588 $
3,162 $
60
3,222 $
10,719 $
96
10,815 $
12,942
211
13,153
2,458
59
2,517
10,695
156
10,851
$
$
$
$
$
$
Year Ended
December 31,
($ in thousands)
2023
2022
$
$
$
60
4
3,132
324
68
3,588
$
$
$
2,979
63
2,492
2.54
4.42
2.11%
3.42%
60
5
2,621
304
57
3,047
2,452
63
329
3.54
5.34
2.10%
3.00%
The aggregate future lease payments for leases as of December 31, 2023 were as follows (in thousands):
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Less: Interest
Present value of lease liabilities
December 31, 2023
Operating (a)
Finance
$
$
2,813 $
3,137
2,764
2,519
1,190
2,828
15,251
(1,370)
13,881 $
63
63
28
6
-
-
160
(4)
156
(a) Future operating lease payments have not been reduced by minimum sublease rentals of approximately $1.8 million due in the future under
non-cancelable subleases.
Rent expense amounted to approximately $2.9 million, $2.6 million, and $1.4 million in 2023, 2022, and 2021, respectively.
(15) Other Long-Term Liabilities
Other long-term liabilities consist of the following (in thousands):
Accrued contingent consideration (earn-out)
Present value of non-competition payments
Other
(16) Commitments and Contingencies
December 31,
2023
2022
$
$
8,096 $
6,586
499
15,181 $
9,568
8,155
497
18,220
(a) 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 , 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.
(b) Contingent Consideration – In conjunction with both the Contech Medical and DAS Medical acquisitions in the fourth quarter of 2021, the
Company incurred liabilities for certain contingent consideration related to the valuation of earn-out payments based upon the performance of the
business. Also, in conjunction with the DAS Medical acquisition, the Company incurred a liability for contingent consideration related to the
present value of non-competition payments. We re-measure contingent liabilities each reporting period and record changes in the fair value
through a separate line item within our consolidated statements of operations. Increases or decreases in the fair value of the contingent
consideration liability can result from changes in discount rates, periods, timing and amount of projected revenue or timing or likelihood of
achieving regulatory, revenue or commercialization-based milestones. The use of alternative valuation assumptions, including estimated revenue
projections, growth rates, cash flows, discount rates, useful life, or probability of achieving clinical, regulatory, or revenue-based milestones could
result in different purchase price allocations and recognized amortization expense and contingent consideration expense or benefit in current and
future periods.
F-31
(17) Employee Benefit Plans
The Company maintains 401(k) and profit-sharing plans for eligible employees. Contributions to the Plans are made in the form of matching
contributions to employee 401(k) deferrals. Contributions to the Plan were approxi‐mately $1.3 million, $0.7 million, and $0.6 million for the
years 2023, 2022, and 2021, respectively.
The Company has a partially self-insured health insurance program that covers all eligible participating employees. The maximum liability is
limited by a stop loss of $225 thousand per insured person, along with an aggregate stop loss determined by the number of participants.
The Company has an Executive, Non-qualified “Excess” Plan (“the Plan”), which is a deferred compen‐sa‐tion 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. Partici‐pants 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, 2023 and 2022, the balance of the deferred compensation liability totaled approximately $5.4 million and $4.2 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 $5.3 million and $4.1 million as of December 31, 2023 and 2022, respectively.
(18) 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.
F-32
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 3
Purchase price contingent consideration (Note 2):
Accrued contingent consideration (earn-out)
Present value of non-competition payments
Total contingent consideration
December 31, 2023 December 31, 2022
$
$
13,096 $
8,474
21,570 $
14,568
10,043
24,611
The following table presents the changes in the estimated fair values of the Company’s liabilities for contingent consideration measured using
significant unobservable inputs (Level 3) (in thousands):
December 31, 2021
Advant acquisition - non-competition agreement
Fair value measurement adjustments
Payments
December 31, 2022
Fair value measurement adjustments
Payments
December 31, 2023
$
$
$
19,208
350
10,128
(5,075)
24,611
3,765
(6,806)
21,570
Significant unobservable inputs include revenue and EBITDA projections and risk-free discount rates.
In connection with the acquisition of DAS Medical in 2021, the Company is required to make contingent payments, subject to the entities
achieving certain financial performance thresholds. The contingent consideration payments for the DAS Medical acquisition are up to $20 million.
The Company paid $5 million during the second quarter of 2023. The fair value of the liability for the contingent consideration payments
recognized upon the acquisition as part of the purchase accounting opening balance sheets totaled approximately $9.7 million and was estimated
by discounting to present value the probability-weighted contingent payments expected to be made. Assumptions used in the initial calculation
were managements financial forecasts, discount rate and various volatility factors. The ultimate settlement of contingent consideration could
deviate from current estimates based on the actual results of these financial measures. This liability is considered to be a Level 3 financial liability
that is re-measured each reporting period. The fair value of the liability for the contingent consideration payments recognized at December 31,
2023 totaled approximately $13.1 million. The change in fair value of contingent consideration for the acquisition is included in change in fair
value of contingent consideration in the condensed consolidated statements of comprehensive income.
Also in connection with the DAS Medical and Advant Medical acquisitions, the Company has entered into Non-Competition Agreements with the
beneficiaries (certain previous owners of DAS and Advant) and the Company has agreed to pay additional consideration to the parties to the Non-
Competition Agreements, including an aggregate of $10.0 million in payments over the ten years following the closing of the DAS Medical
acquisition for the 10-year noncompetition covenants of certain key owners. The present value of the Non-Competition Agreements at December
31, 2023 totaled approximately $8.5 million. This liability is considered to be a Level 3 financial liability that is re-measured each reporting
period.
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.
F-33
(19) Segment Data
The Company consists of a single operating and reportable segment.
Revenues shipped to customers outside of the United States comprised approximately 20.8%, 17.5% and 13.9% of the Company’s consolidated
revenues for the years ended December 31, 2023, 2022 and 2021, respectively. One customer comprised approximately 28.1% and 21.5% of the
Company’s consolidated revenues for the years ended December 31, 2023 and 2022, respectively. No customer comprised more than 10% of the
Company’s consolidated revenues for the year ended December 31, 2021. On December 31, 2023, two customers represented approximately
16.5% and 12.2%, respectively, of gross accounts receivable. On December 31, 2022, one customer represented approximately 10% of gross
accounts receivable. Approximately 15.3% of all long-lived assets are located outside of the United States.
The Company’s products are primarily sold to customers within the Medical, Aerospace & Defense, Automotive, and Industrial/Other markets.
Sales by market for the years ended December 31, 2023, 2022, and 2021 are as follows (in thousands):
Market
Net Sales
%
Net Sales
%
Net Sales
%
2023
2022
2021
$
Medical
Aerospace & Defense
Automotive
Industrial/Other
Net Sales
$
346,355
16,990
16,700
20,027
400,072
86.6% $
4.2%
4.2%
5.0%
100.0% $
286,180
15,328
17,487
34,797
353,792
80.9% $
4.3%
4.9%
9.8%
100.0% $
132,505
16,380
15,596
41,839
206,320
67.2%
7.9%
7.6%
20.3%
100.0%
Certain amounts for the year ended December 31, 2022 and 2021 were reclassified between markets to conform to the current year presentation.
(20) Quarterly Financial Information (unaudited)
Summarized quarterly financial data is as follows (in thousands, except per share data):
2023
Q1
Q2
Q3
Q4
Net sales
Gross profit
Net income
Basic net income per share
Diluted net income per share
2022
Net sales
Gross profit
Net income
Basic net income per share
Diluted net income per share
$
$
97,753 $
28,701
9,739
1.28
1.27
100,037 $
29,645
11,883
1.56
1.55
100,784 $
27,750
11,694
1.53
1.52
101,498
26,129
11,607
1.52
1.51
Q1
Q2
Q3
Q4
71,242 $
17,134
4,858
0.64
0.64
94,343 $
24,324
8,929
1.18
1.17
96,970 $
25,523
19,540
2.58
2.56
91,237
23,279
8,462
1.12
1.10
F-34
Schedule II
UFP TECHNOLOGIES, INC.
Consolidated Financial Statement Schedule
Valuation and Qualifying Accounts
Years ended December 31, 2023, 2022, and 2021
Accounts receivable, allowance for credit losses:
Balance at beginning of year
Provision for bad debt
Write-offs, net of recoveries
Sale of Molded Fiber business
Balance at end of year
2023
2022
2021
733 $
15
(21)
-
727 $
519 $
293
(40)
(39)
733 $
484
179
(144)
-
519
$
$
F-35
DESCRIPTION OF COMPANY SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF
1934
This section summarizes certain information regarding the Common Stock, $0.01 par value per share (the “Common Stock”), of UFP Technologies, Inc., a
Delaware corporation (“we”, “us”, “our” or the “Company”), which constitutes the only class of the Company’s securities that is registered under Section
12 of the Securities Exchange Act of 1934, as amended. The following description is only a summary and does not purport to be complete and is qualified
by reference to our certificate of incorporation, as amended (our “Certificate of Incorporation”), and our amended and restated bylaws (our “Bylaws”), each
of which is incorporated by reference as exhibits to our annual report on Form 10-K. For additional information, please read our Certificate of
Incorporation, our Bylaws, and the applicable provisions of the General Corporation Law of Delaware (the “DGCL”).
Exhibit 4.02
Common Stock
General
As of June 7, 2023, we had 20,000,000 shares of Common Stock authorized for issuance. All of the issued and outstanding shares of our Common Stock
are fully paid and non-assessable. Each share of Common Stock entitles the holder of record thereof to one vote on all matters to be voted on by
stockholders. We do not have a classified Board of Directors. The full Board of Directors is subject to reelection at each annual meeting of our
stockholders. When a quorum is present at any meeting of stockholders, directors are elected by a plurality of the votes cast by stockholders entitled to vote
at the meeting. Our common stockholders do not have cumulative voting rights in the election of directors.
The Common Stock is entitled to receive dividends, if any, as declared by our board of directors from legally available funds. The terms of any outstanding
shares of Preferred Stock may provide that dividends may not be paid on Common Stock unless all accrued dividends on Preferred Stock, if any, have been
paid or declared and set aside. In the event of our liquidation, dissolution or winding up, the holders of our Common Stock are entitled to share ratably in
all assets available for distribution to the stockholders, subject to prior distribution rights of our Preferred Stock, if any, then outstanding. Our Common
Stock has no preemptive or other subscription rights, and there are no conversion rights or redemption or sinking fund provisions with respect to such
shares. Except as may be required by applicable law or the rules of any stock exchange or automated quotation system on which shares of our Common
Stock may be listed or traded, our Board of Directors has the authority to issue, without further stockholder approval, our authorized but unissued shares of
Common Stock. The authority of our Board of Directors to issue authorized but unissued shares of our Common Stock might be considered as having the
effect of discouraging an attempt by another person or entity to effect a takeover or otherwise gain control of us, since the issuance of additional shares of
our Common Stock would dilute the voting power of our Common Stock then outstanding.
Stockholder Meetings
Our Bylaws provide that special meetings of our stockholders may be called at any time only by the Company’s president, Chief Executive Officer or the
Board of Directors.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our Bylaws provide that stockholders seeking to nominate directors or bring business before an annual meeting of stockholders must provide timely notice
of their proposal in writing to the Secretary of the Company. To be timely, notice must be delivered to the Company’s Secretary at the Company’s principal
executive offices not less than 90 nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting. Our Bylaws also specify
requirements as to the substance and form of a stockholder’s notice. These provisions may impede stockholders’ ability to bring matters before an annual
meeting of stockholders or make nominations for directors.
1
Blank Check Preferred Stock
Our Board of Directors, without further stockholder approval (except as may be required by applicable law or the rules of any stock exchange or automated
quotation system on which our securities may be listed or traded) has the authority to issue up to 1,000,000 shares of Preferred Stock in one or more class
or series, and to fix the rights, preferences, privileges and restrictions thereof. If our Board of Directors elects to exercise its authority to issue shares of
such Preferred Stock, the rights and privileges of holders of shares of our Common Stock could be made subject to the rights and privileges of such class or
series of Preferred Stock. The issuance of such Preferred Stock or even the ability to issue Preferred Stock could also have the effect of delaying, deterring
or preventing a change of control or other corporate action.
Certificate of Incorporation
Various other provisions of our Certificate of Incorporation, which are summarized in the following paragraphs, may be deemed to have an anti-takeover
effect and may have the effect of delaying, deferring, discouraging or preventing a tender offer or takeover attempt that a stockholder might consider in its
best interest, including those attempts that might result in a premium over the market price for the shares held by stockholders.
Anti-Greenmail Provision
Our Certificate of Incorporation contains a so-called “anti-greenmail” provision. This provision is intended to discourage speculators who accumulate
beneficial ownership of a significant block of stock of a company and then, under the threat of making a tender offer or instigating a proxy contest or some
other corporate disruption, succeed in extracting from the company a premium price to repurchase the shares acquired by the speculator. This tactic is
known as greenmail. The anti-greenmail provision prohibits us from purchasing any shares of our Common Stock from a person, known by the Company
to be a related person, who has beneficially owned such Common Stock or right to purchase such Common Stock for less than two years prior to the date of
such purchase, at a per share price in excess of the fair market value at the time of the purchase unless the purchase is approved by the holders of two-thirds
of the then outstanding voting stock, excluding any votes cast by the related person. The term “voting stock” means the shares of the capital stock of the
Company entitled to vote generally in the election of directors. The term “related person” means any person (other than the Company or a subsidiary of the
Company or any individual who is a stockholder of the Company on the Merger Date (as defined in the Certificate of Incorporation), together with its
affiliates and associates, who acquires more than five percent of our Common Stock. Stockholder approval is not required for such purchases when the
offer is made available on the same terms to all holders of shares of our Common Stock or when the purchases are effected on the open market. The
affirmative vote of the holders of at least two-thirds of the outstanding shares of our voting stock, voting together as a single class, shall be required to alter,
change, amend, repeal or adopt any provision inconsistent with this anti-greenmail provision.
Supermajority Vote Required for Certain Actions not Approved by Continuing Directors
Our Certificate of Incorporation contains a provision that requires the affirmative vote of the holders of 80% of our outstanding Common Stock to approve
amendments to our Certificate of Incorporation or to approve extraordinary transactions that are required to be approved by stockholders under the DGCL,
including mergers, sales of substantially all of the Company’s assets and dissolution, if the actions are not approved by a majority of our continuing
directors. Our Certificate of Incorporation provides that the affirmative vote of the holders of only a majority of our outstanding Common Stock is required
to approve such matters if they have been approved by our continuing directors. The term “continuing director” is defined to mean (i) any member of our
Board of Directors who is unaffiliated with a related person and was a member of our Board of Directors prior to the time any such person became a related
person and (ii) any successor to such a continuing director who is not affiliated with any related person and is recommended to succeed a continuing
director by a majority of the continuing directors then on the Board of Directors. A majority of the continuing directors can designate a new director to be a
continuing director, even though such person is affiliated with a related person. The effect of this provision of our Certificate of Incorporation would be to
make it unlikely that any transaction requiring a stockholder vote would receive the requisite approval unless supported by our management.
2
Delaware Business Combination Statute
We are subject to the provisions of Section 203 of the DGCL. In general, Section 203 prohibits a publicly held Delaware corporation from engaging
in a “business combination” with an “interested stockholder” for a period of three years after the date the stockholder becomes an interested stockholder,
unless:
● before the stockholder becomes an interested stockholder, the corporation’s board of directors approves either the business combination or
the transaction which results in the stockholder becoming an interested stockholder;
● after the transaction which results in the stockholder becoming an interested stockholder, the interested stockholder owns at least 85% of
the corporation’s outstanding voting stock; or
● on or subsequent to such date, the business combination is approved by the corporation’s board of directors and authorized at an annual or
special meeting of the stockholders by the affirmative vote of at least 66 2/3% of the corporation’s outstanding voting stock that is not
owned by the interested stockholder.
An “interested stockholder” is a person or entity who directly or indirectly owns 15% or more of the corporation’s outstanding voting stock. A
“business combination” includes a merger, asset sale or other transaction which results in a financial benefit to the interested stockholder.
3
Exhibit F
STOCK UNIT AWARD AGREEMENT
(Dominican Republic Employees)
(Granted under the UFP Technologies, Inc. 2003 Incentive Plan)
Exhibit 10.23
This Stock Unit Award Agreement is entered into as of the 14th day of February, 2023 by and between UFP Technologies, Inc. (hereinafter the
“Company”) and _______________ (the “Awardee”). Capitalized terms used but not defined herein shall have the meanings assigned to them in the
Company’s 2003 Incentive Plan, as amended (the “Plan”). Stock Unit Awards (SUA’s represent the Company’s unfunded and unsecured promise to issue
shares of Common Stock at a future date, subject to the terms of this Award Agreement, including, without limitation, the performance objectives set forth
in Schedule A hereto, and the Plan. Awardee has no rights under the SUAs other than the rights of a general unsecured creditor of the Company.
1. Grant of Stock Unit Awards; Performance Objectives; Vesting.
(a) The Company, in the exercise of its sole discretion pursuant to the Plan, does hereby award to the Awardee the number of SUAs
set forth on Schedule A hereto upon the terms and subject to the conditions hereinafter contained. The SUA’s shall consist of a Threshold Award, a Target
Award and an Exceptional Award. The Target Award and the Exceptional Award are each awarded subject to attainment during the Performance Cycle
described on Schedule A of the Performance Objectives set forth on Schedule A .
(b) Subject to attainment of any applicable Performance Objectives, payment with respect to vested SUA’s shall be made entirely in
the form of shares of Common Stock of the Company on each respective vesting date as set forth on Schedule A.
(c) As soon as possible after the end of the Performance Cycle, the Committee will certify in writing whether and to what extent the
Performance Objectives have been met for the Performance Cycle. The date of the Committee’s certification pursuant to this subsection (c) shall hereinafter
be referred to as the “Certification Date”. The Company will notify the Awardee of the Committee’s certification following the Certification Date (such
notice, the “Determination Notice”). The Determination Notice shall specify (i) the Performance Objective, as derived from the Company’s audited
financial statements; and (ii) the extent, if any, to which the Performance Objectives were satisfied with respect to the Target Award and the Exceptional
Award.
2. Change in Control. Notwithstanding the vesting schedule set forth in Schedule A: if there is a Change in Control of the Company
(as defined in the Plan) following the end of the Performance Cycle, and the Awardee’s Continuous Status as an employee, as contemplated by Section 4
hereof, shall not have been terminated as of the date immediately prior to the effective date of such Change in Control, then subject to attainment during the
Performance Cycle described on Schedule A of any applicable Performance Objective set forth on Schedule A, and subject to the provisions of Section 21
of this Award Agreement, any SUA’s representing the Threshold, Target and the Exceptional Award, which are not already vested shall become vested in
full as of the effective date of such Change in Control.
3. Termination. Unless terminated earlier under Section 4, 5 or 6 below, an Awardee’s rights under this Award Agreement with respect to
the SUAs issued under this Award Agreement shall terminate at the time such SUAs are converted into shares of Common Stock.
4. Termination of Awardee’s Continuous Status as an Employee. Except as otherwise specified in Section 5 and 6 below, in the event of
termination of Awardee’s Continuous Status as an employee of the Company, Awardee’s rights under this Award Agreement in any unvested SUAs shall
terminate. For purposes of this Award Agreement, an Awardee’s Continuous Status as an employee shall mean the absence of any interruption or
termination of service as an employee. Continuous Status as an employee shall not be considered interrupted in the case of sick leave or leave of absence
for which Continuous Status is not considered interrupted as determined by the Company in its sole discretion.
5. Disability of Awardee. Notwithstanding the provisions of Section 4 above, in the event of termination of Awardee’s Continuous Status as
an employee as a result of disability (within the meaning of Section 409A of the Internal Revenue Code, and hereinafter referred to as “Disability”), the
SUAs which would have vested during the twelve (12) months following the date of such termination, set out in Schedule A, shall become vested as of the
date of such termination, subject, however, to the provisions of Section 21 of this Award Agreement. If Awardee’s Disability originally required him or her
to take a short-term disability leave which was later converted into long-term disability, then for the purposes of the preceding sentence the date on which
Awardee ceased performing services shall be deemed to be the date of commencement of the short-term disability leave. The Awardee’s rights in any
unvested SUAs that remain unvested after the application of this Section 5 shall terminate at the time Awardee ceases to be in Continuous Status as an
employee.
6. Death of Awardee. Notwithstanding the provisions of Section 4 above, in the event of the death of Awardee:
(a) If the Awardee was, at the time of death, in Continuous Status as an employee, the SUAs which would have vested during the
twelve (12) months following the date of death of Awardee, set out in Schedule A, shall become vested as of the date of death.
(b) The Awardee’s rights in any unvested SUAs that remain after the application of Section 6(a) shall terminate at the time of the
Awardee’s death.
7. Value of Unvested SUAs. In consideration of the award of these SUAs, Awardee agrees that upon and following termination of
Awardee’s Continuous Status as an employee for any reason (whether or not in breach of applicable laws), and regardless of whether Awardee is terminated
with or without cause, notice, or pre-termination procedure or whether Awardee asserts or prevails on a claim that Awardee’s employment was terminable
only for cause or only with notice or pre-termination procedure, any unvested SUAs under this Award Agreement shall be deemed to have a value of zero
dollars ($0.00).
2
8. Conversion of SUAs to shares of Common Stock; Responsibility for Taxes and Money Laundering regulation.
(a) Provided Awardee has satisfied the requirements of Section 8(b) below, and subject to the provisions of Section 21 below, on the
vesting of any SUAs, such vested SUAs shall be converted into an equivalent number of shares of Common Stock that will be distributed to Awardee or, in
the event of Awardee’s death, to Awardee’s legal representative, as soon as practicable. The distribution to the Awardee, or in the case of the Awardee’s
death, to the Awardee’s legal representative, of shares of Common Stock in respect of the vested SUAs shall be evidenced by a stock certificate, appropriate
entry on the books of the Company or of a duly authorized transfer agent of the Company, or other appropriate means as determined by the Company.
(b) Regardless of any action the Company takes with respect to any or all income tax (including federal, state and local taxes), social
security, payroll tax or other tax-related withholding (“Tax Related Items”), Awardee acknowledges that the ultimate liability for all Tax Related Items
legally due by Awardee is and remains Awardee’s responsibility and that the Company (i) makes no representations or undertakings regarding the treatment
of any Tax Related Items in connection with any aspect of the SUAs, including the grant of the SUAs, the vesting of SUAs, the conversion of the SUAs
into shares of Common Stock, the subsequent sale of any shares of Common Stock acquired at vesting and the receipt of any dividends; and (ii) does not
commit to structure the terms of the grant or any aspect of the SUAs to reduce or eliminate the Awardee’s liability for Tax Related Items. Prior to the
issuance of shares of Common Stock upon vesting of SUAs as provided in Section 8(a) above, Awardee shall pay, or make adequate arrangements
satisfactory to the Company, in its sole discretion, to satisfy all withholding obligations of the Company. In this regard, Awardee authorizes the Company to
withhold all applicable Tax Related Items legally payable by Awardee from Awardee’s wages or other cash compensation payable to Awardee by the
Company. Alternatively, or in addition, if permissible under applicable law, the Company may, in its sole discretion, (i) sell or arrange for the sale of shares
of Common Stock to be issued to satisfy the withholding obligation, and/or (ii) withhold in shares of Common Stock, provided that the Company shall
withhold only the amount of shares necessary to satisfy the minimum withholding amount. Awardee shall pay to the Company any amount of Tax Related
Items that the Company may be required to withhold as a result of Awardee’s receipt of SUAs, or the conversion of SUAs to shares of Common Stock that
cannot be satisfied by the means previously described. Except where applicable legal or regulatory provisions prohibit, the standard process for the
payment of an Awardee’s Tax Related Items shall be for the Company to withhold in shares of Common Stock only to the amount of shares necessary to
satisfy the minimum withholding amount. The Company may refuse to deliver shares of Common Stock to Awardee if Awardee fails to comply with
Awardee’s obligation in connection with the Tax Related Items as described herein.
(c) In lieu of issuing fractional shares of Common Stock, on the vesting of a fraction of a SUA, the Company shall round the shares
to the nearest whole share and any such share which represents a fraction of a SUA will be included in a subsequent vest date.
3
(d) Until the distribution to Awardee of the shares of Common Stock in respect to the vested SUAs is evidenced by a stock
certificate, appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company, or other appropriate means, Awardee
shall have no right to vote or receive dividends or any other rights as a shareholder with respect to such shares of Common Stock, notwithstanding the
vesting of SUAs. Subject to the provisions of Section 21 below, the Company shall cause such distribution to Awardee to occur promptly upon the vesting
of SUAs. No adjustment will be made for a dividend or other right for which the record date is prior to the date Awardee is recorded as the owner of the
shares of Common Stock, except as provided in Section 8 of the Plan.
(e) By accepting the Award of SUAs evidenced by this Award Agreement, Awardee agrees not to sell any of the shares of Common
Stock received on account of vested SUAs at a time when applicable laws or Company policies prohibit a sale. This restriction shall apply so long as
Awardee is an Employee, Consultant or outside director of the Company or a Subsidiary of the Company.
(f) Adjustments and other matters relating to stock dividends, stock splits, recapitalizations, reorganizations, Corporate Events and
the like shall be made and determined in accordance with Section 6 of the Plan, as in effect on the date of this Agreement.
(g) By accepting the Award of SUAs and the terms and conditions of this Award Agreement, Awardee acknowledges and agrees to
comply with all applicable Dominican laws and report any income and pay any and all applicable taxes and other mandatory contributions, as required by
Dominican laws and regulations, associated with the award and any sale of shares of Common Stock received under the Plan, and the receipt of any
dividends paid on such shares of Common Stock.
(h) By accepting the Award of SUAs evidenced by this Award Agreement the Awardee agrees to fulfill with any applicable report
obligation before the Dominican authorities pursuant to the applicable money laundering regulation(s) in the Dominican Republic. Likewise, in the event
that the Company is required to submit information regarding to the Plan and the Award Agreement related to money laundering information applicable in
Dominican Republic, Awardee agrees to collaborate and to provide any additional information required.
9. Non-Transferability of SUAs. Awardee’s right in the SUAs awarded under this Award Agreement and any interest therein may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner, other than by will or by the laws of descent or distribution, prior to the
distribution of the shares of Common Stock in respect of such SUAs. SUAs shall not be subject to execution, attachment or other process.
10. Acknowledgment of Nature of Plan and SUAs. In accepting the Award, Awardee acknowledges that:
(a) the Plan is established voluntarily by the Company, it is discretionary in nature and may be modified, amended, suspended or
terminated by the Company at any time, as provided in the Plan. Awardee´s participation in the Plan is voluntary, and he acknowledges and agrees that he
has not been induced to enter into this Award Agreement or acquire any shares of Common Stock by expectation of employment, engagement or
appointment or continued employment, engagement or appointment;
4
(b) the Award of SUAs is voluntary and occasional and does not create any contractual or other right to receive future awards of
SUAs, or benefits in lieu of SUAs even if SUAs have been awarded repeatedly in the past;
(c) all decisions with respect to future awards, if any, will be at the sole discretion of the Company;
(d) Awardee’s participation in the Plan is voluntary;
(e) the future value of the underlying shares of Common Stock is unknown and cannot be predicted with certainty;
(f) if Awardee receives shares of Common Stock, the value of such shares of Common Stock acquired on vesting of SUAs may
increase or decrease in value;
(g) notwithstanding any terms or conditions of the Plan to the contrary and consistent with Section 4 and Section 7 above, in the
event of involuntary termination of Awardee’s employment (whether or not in breach of applicable laws), Awardee’s right to receive SUAs and vest under
the Plan, if any, will terminate effective as of the date that Awardee is no longer actively employed and will not be extended by any notice period mandated
under applicable law; furthermore, in the event of involuntary termination of employment (whether or not in breach of applicable laws), Awardee’s right to
receive shares of Common Stock pursuant to the SUAs after termination of employment, if any, will be measured by the date of termination of Awardee’s
active employment and will not be extended by any notice period mandated under applicable law. The Committee shall have the exclusive discretion to
determine when Awardee is no longer actively employed for purposes of the award of SUAs; and
(h) Awardee acknowledges and agrees that, regardless of whether Awardee is terminated with or without cause, notice or pre-
termination procedure or whether Awardee asserts or prevails on a claim that Awardee’s employment was terminable only for cause or only with notice or
pre-termination procedure, Awardee has no right to, and will not bring any legal claim or action for, (a) any damages for any portion of the SUAs that have
been vested and converted into Common Shares, or (b) termination of any unvested SUAs under this Award Agreement.
11. No Employment Right. Awardee acknowledges that neither the fact of this Award of SUAs nor any provision of this Award Agreement
or the Plan or the policies adopted pursuant to the Plan shall confer upon Awardee any right with respect to employment or continuation of current
employment with the Company, or to employment that is not terminable at will. Awardee further acknowledges and agrees that neither the Plan nor this
Award of SUAs makes Awardee’s employment with the Company for any minimum or fixed period, and that such employment is subject to the mutual
consent of Awardee and the Company, and subject to any written employment agreement that may be in effect from time to time between the Company and
the Awardee, may be terminated by either Awardee or the Company at any time, for any reason or no reason, with or without cause or notice or any kind of
pre- or post-termination warning, discipline or procedure.
5
12. Administration. The authority to manage and control the operation and administration of this Award Agreement shall be vested in the
Committee (as such term is defined in Section 2 of the Plan), and the Committee shall have all powers and discretion with respect to this Award Agreement
as it has with respect to the Plan. Any interpretation of the Award Agreement by the Committee and any decision made by the Committee with respect to
the Award Agreement shall be final and binding on all parties.
13. Plan Governs. Notwithstanding anything in this Award Agreement to the contrary, the terms of this Award Agreement shall be subject
to the terms of the Plan, and this Award Agreement is subject to all interpretations, amendments, rules and regulations promulgated by the Committee from
time to time pursuant to the Plan.
14. Notices. Any written notices provided for in this Award Agreement which are sent by mail shall be deemed received three business days
after mailing, but not later than the date of actual receipt. Notices shall be directed, if to Awardee, at the Awardee’s address indicated by the Company’s
records and, if to the Company, at the Company’s principal executive office.
15. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to SUAs awarded under the Plan
or future SUAs that may be awarded under the Plan by electronic means or request Awardee’s consent to participate in the Plan by electronic means.
Awardee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system
established and maintained by the Company or another third party designated by the Company.
16. Acknowledgment. By Awardee’s acceptance as evidenced below, Awardee acknowledges that Awardee has received and has read,
understood and accepted all the terms, conditions and restrictions of this Award Agreement and the Plan. Awardee understands and agrees that this Award
Agreement is subject to all the terms, conditions, and restrictions stated in this Award Agreement and the Plan, as the latter may be amended from time to
time in the Company’s sole discretion. In addition, the Awardee acknowledges that the Award and rights granted to the Awardee hereunder shall be subject
to forfeiture to the Company in accordance with any policy that may hereafter be promulgated by the Company to comply with the requirements of
Section 10D(b)(2) of the Securities Exchange Act of 1934, as amended. Awardee
acknowledge that it is his express wish that the Award Agreement, as well as all documents, notices, and legal proceedings entered into, given or instituted
pursuant hereto or relating directly or indirectly hereto, be drawn up in English. Awardee confirms that has sufficient language capabilities to understand
these terms and conditions in full.
17. [Intentionally Omitted]
6
18. Governing Law. This Award Agreement shall be governed by the laws of the State of Delaware, without regard to Delaware laws that
might cause other law to govern under applicable principles of conflicts of law.
19. Severability. If one or more of the provisions of this Award Agreement shall be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or
unenforceable provisions shall be deemed null and void; however, to the extent permissible by law, any provisions which could be deemed null and void
shall first be construed, interpreted or revised retroactively to permit this Award Agreement to be construed so as to foster the intent of this Award
Agreement and the Plan.
20. Complete Award Agreement and Amendment. This Award Agreement and the Plan constitute the entire agreement between Awardee
and the Company regarding SUAs. Any prior agreements, commitments or negotiations concerning these SUAs are superseded. This Award Agreement
may be amended only by written agreement of Awardee and the Company, without consent of any other person. Awardee agrees not to rely on any oral
information regarding this Award of SUAs or any written materials not identified in this Section 20.
21. Section 409A. This Award Agreement is intended to be in compliance with the provisions of Section 409A of the Internal Revenue Code
to the extent applicable, and the Regulations issued thereunder. Anything in this Agreement to the contrary notwithstanding, if at the time of the Awardee’s
separation from service within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the
“Code”), the Company determines that the Awardee is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the
extent any payment or benefit that the Awardee becomes entitled to under this Agreement would be considered deferred compensation subject to the 20
percent additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such
payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (A) six months and one day after the Awardee’s
separation from service, or (B) the Awardee’s death. The determination of whether and when a separation from service has occurred shall be made in
accordance with the presumptions set forth in Treasury Regulation Section 1.409A-1(h). To the extent that any provision of this Agreement is ambiguous as
to its compliance with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with Section 409A of
the Code. The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may be necessary to fully comply with
Section 409A of the Code and all related rules and regulations in order to preserve the payments and benefits provided hereunder without additional cost to
either party. Solely for the purposes of Section 409A of the Code, the share increments issuable on each vesting date on Schedule A shall be considered a
separate payment. The Company makes no representation or warranty and shall have no liability to the Awardee or any other person if any provisions of
this Agreement are determined to constitute deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the
conditions of, such Section.
7
22. Registration or approval in the Dominican Republic. The Stock Unit Award is not intended to be a public offer in or from the Dominican
Republic. Because it is considered a private offering, it is not subject to securities registration before the Superintendence of Securities of the Dominican
Republic (Superintendencia del Mercado de Valores) (“SIMV”). Neither this document nor any other materials relating to the Plan (i) constitutes a public
offering in the terms defined by the Securities Law, Law No. 249-17, or the Public Offering Regulation issued on October 15, 2019, R-CNMV-20l9-24-
MV; (ii) may be offered to the public or publicly distributed nor otherwise made publicly available in the Dominican Republic or (iii) has been or will be
filed with, approved or supervised by any Dominican regulatory authority, including the SIMV or any regulatory body such as Superintendent of Banks
(Superintendencia de Bancos). Since the Company is not a regulated entity in the Dominican Republic, the Plan is not subject to any other type of
registration or approval within the Dominican Republic.
8
EXECUTED the day and year first above written.
UFP TECHNOLOGIES, INC.
By:
R. Jeffrey Bailly
Chief Executive Officer
AWARDEE’S ACCEPTANCE:
I have read and fully understood this Award Agreement and, as referenced in Section 16 above, I accept and agree to be bound by all of the terms,
conditions and restrictions contained in this Award Agreement and the other documents referenced in it.
_____________________________________________________
9
SCHEDULE A
The SUA’s issuable under this Agreement shall consist of a Threshold Award, a Target Performance Award and an Exceptional Performance Award, each in
the amounts set forth below, each such award issuable in one-third increments on the vesting dates set forth below, provided the respective performance
objective (if applicable) is satisfied.
The Performance Objective established by the Committee with respect to the Target Performance Award and Exceptional Performance Award is Adjusted
Operating Income** for 2023
Performance
Objective
Performance
Cycle
Number of
Shares of
Common Stock
Vesting Dates: March 1 of:
*/2025
*/2026
*/2024
a. Threshold
Award
[50% of total]
b. Target
Performance
Award
[25% of total]
c. Exceptional
Performance
Award
[25% of total]
_____
[1/3]
___
[1/3]
___
[1/3]
___
none
n/a
of Adjusted Operating
Income**
Calendar Year
2023
of Adjusted Operating
Income**
Calendar Year
2023
___
(in addition to (a)
above)
___
***
(in addition to (a) and
(b) above)
___
___
___
___
___
___
*Vesting is subject to the Compensation Committee’s determination of satisfaction of any applicable performance target for 2023 (for Target and
Exceptional Performance Awards), and subject to continued employment on each such vesting date (for all Awards).
** Adjusted Operating Income is defined herein as Operating Income on the Company’s 10-K, excluding the effect of (i) non-recurring restructuring
charges related to plant closings and consolidations; and (ii) the impact of acquired or disposed of operations during such year.
*** Between Adjusted Operating Income of $XXX and $XXX the number of shares of Common Stock issuable under the Exceptional Performance Award
(in addition to the shares issuable upon attainment of the Target Performance Award) would range from 0, representing the number of shares issuable upon
attainment of $XXX of Adjusted Operating Income, to the full number of shares otherwise issuable under the Exceptional award, based on straight line
interpolation rounded up or down to the nearest whole share (not to exceed $XXX of Adjusted Operating Income for purposes of this calculation).
UFP Technologies, Inc. wholly owns the following companies:
1. Advant Medical Limited, a private limited company incorporated under the laws of Ireland, its wholly-owned subsidiary:
a. Munlu Leighis Advant Teoranta, a private limited company incorporated under the laws of Ireland
2. Advant Costa Rica Limitada, incorporated under the laws of Costa Rica
Exhibit 21.01
3. Advant Medical Inc., a Delaware corporation
4.
Simco Industries, Inc., a Michigan company
5. Dielectrics, Inc., a Massachusetts company
6. Contech Medical, Inc., a Rhode Island company
7. DAS Medical Holdings, LLC, a Georgia limited liability company, and its wholly-owned subsidiaries:
Sterimed, LLC, a Georgia limited liability company
a.
b. One Degree Medical Holdings, LLC, a Georgia limited liability company
c. DAS Medical Corporation, a Delaware company, and its wholly-owned subsidiary:
i. DAS Medical International, S.R.L., a Dominican Republic company
8. UFP Realty LLC, a Massachusetts limited liability company, and its wholly-owned subsidiaries:
a. UFPT MA, LLC, a Massachusetts limited liability company
b. UFP CO, LLC, a Colorado limited liability company
c. UFP FL, LLC, a Florida limited liability company
d. UFP TX, LLC, a Texas limited liability company
e. UFP MI, LLC, a Michigan limited liability company
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated February 29, 2024, with respect to the consolidated financial statements and internal controls over financial reporting in
the Annual Report of UFP Technologies, Inc. on Form 10-K for the year ended December 31, 2023. We consent to the incorporation by reference of said
reports in the Registration Statements of UFP Technologies, Inc. on Forms S-8 (File No. 333- 265651, File No. 333-174907, File No. 333-151883, File No.
333-143673, File No. 333-116436, File No. 333-56741, File No. 333-91408, File No. 333-106390, File No. 333-39946, and File No. 333-76640).
Exhibit 23.01
/s/ GRANT THORNTON LLP
Boston, MA
February 29, 2024
Exhibit 31.01
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, R. Jeffrey Bailly, President and Chief Executive Officer of UFP Technologies, Inc., certify that:
1.
I have reviewed this Annual Report on Form 10-K of UFP Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, 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;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
February 29, 2024
Date
/s/ R. Jeffrey Bailly
R. Jeffrey Bailly
Chairman, Chief Executive Officer,
and Director
(Principal Executive Officer)
Exhibit 31.02
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Ronald J. Lataille, Chief Financial Officer of UFP Technologies, Inc., certify that:
1.
I have reviewed this Annual Report on Form 10-K of UFP Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, 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;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
February 29, 2024
Date
/s/ Ronald J. Lataille
Ronald J. Lataille
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Exhibit 32.01
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States
Code), the undersigned officers of UFP Technologies, Inc., a Delaware corporation (the “Company”), do hereby certify, to the best of such officers’
knowledge and belief, that:
(1) The Annual Report on Form 10-K for the year ended December 31, 2023, (the “Form 10-K”) of the Company fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Form 10-K fairly presents, in all materials respects, the financial condition and results of operations of the
Company.
February 29, 2024
Date
February 29, 2024
Date
/s/ R. Jeffrey Bailly
R. Jeffrey Bailly
Chairman, Chief Executive Officer,
and Director
(Principal Executive Officer)
/s/ Ronald J. Lataille
Ronald J. Lataille
Chief Financial Officer
(Principal Financial Officer)
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to UFP Technologies, Inc. and
will be retained by UFP Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
POLICY FOR THE RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION
TABLE OF CONTENTS
Exhibit 97.1
Policy GOV.03
Overview
Policy Statement
Disclosure Requirements
Prohibition of
Indemnification
Policy Definitions
2
2
2
3
3
- 1 -
OVERVIEW
In accordance with the applicable rules of the Nasdaq Stock Market, Section 10D and Rule 10D-1 of the Securities Exchange Act of 1934, as amended
(“the Exchange Act”), the Board of Directors (the “Board”) of UFP Technologies, Inc. (the “Company”) has adopted this Policy for the Recovery of
Erroneously Awarded Compensation (this “Policy”) to provide for the recovery of erroneously awarded incentive-based compensation from Executive
Officers.
Policy Statement: Recovery of Erroneously Awarded Compensation
1. In the event of an Accounting Restatement, the Company will reasonably promptly recover the Erroneously Awarded Compensation received in
accordance with this Policy, Nasdaq Rules, and Rule 10D-1 as follows:
a. After an Accounting Restatement, the Compensation Committee of the Board of Directors (the “Committee”) shall determine the amount of
any erroneously awarded Incentive-Based Compensation received by an Executive Officer and shall promptly notify such Executive Officer
with a written notice containing the amount of any Erroneously Awarded Compensation and a demand for repayment or return of such
Erroneously Awarded Compensation, as applicable.
i. For Incentive-Based Compensation based on the Company’s stock price or total shareholder return, where the amount of Erroneously
Awarded Compensation is not subject to mathematical recalculation directly from information in the applicable Accounting Restatement:
1. The amount to be repaid or returned shall be determined by the Committee based on a reasonable estimate of the effect of the
Accounting Restatement on the Company’s stock price or total shareholder return upon which the Incentive-Based Compensation was
received; and
2. The Company shall maintain documentation of the determination of such reasonable estimate and provide the documentation of such
determination to Nasdaq if required or requested by Nasdaq.
ii. The Committee shall have the discretion to determine the appropriate means for recovering Erroneously Awarded Compensation.
iii. To the extent that an Executive Officer fails to repay the Erroneously Awarded Compensation to the Company, the Company shall take
actions reasonable and appropriate to recover such compensation.
2. Notwithstanding anything herein to the contrary, the Company shall not be required to take the actions contemplated by Section 1.(a.) above if
the Committee determines that the recovery would be impracticable and any of the following conditions are met:
a. The Committee, after making a reasonable, documented attempt to recover such Erroneously Awarded Compensation and providing such
documentation to Nasdaq, has determined that the direct expenses paid to a third party to assist in enforcing the Policy would exceed the
amount to be recovered.
b. The recovery would violate home country law where the law was adopted prior to November 28, 2022, provided that, the Company has
obtained an opinion of home country counsel that is acceptable to Nasdaq which states that recovery would result in such violation and
provided such opinion to Nasdaq.
c. Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the
Company, to fail to meet the requirements of Section 401(a)(13) or Section 411(a) of the Internal Revenue Code of 1986, as amended, and
regulations thereunder.
Disclosure Requirements
3. The Company shall file all disclosures with respect to this Policy required by applicable U.S. Securities and Exchange Commission filings and
rules.
- 2 -
Prohibition of Indemnification
4. The Company shall not insure or indemnify any executive officer against (i) the loss of any erroneously awarded compensation that is repaid,
returned, or recovered pursuant to this Policy, or (ii) any claims relating to the Company’s enforcement of its rights under this Policy. Further,
the Company shall not enter into any agreement that exempts any incentive-based compensation that is granted, paid, or awarded to an executive
officer from application of this Policy.
Definitions
5. For purposes of this Policy, the following terms shall have the meanings set forth below.
a. Accounting Restatement means an accounting restatement due to the material noncompliance of the Company with any financial reporting
requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial
statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current
period.
b. Clawback Eligible Incentive Compensation means all Incentive-Based Compensation received by an Executive Officer (i) on or after the
effective date of the applicable Nasdaq rules, (ii) after beginning service as an Executive Officer, (iii) who served as an Executive Officer at
the time during the applicable performance period relating to any Incentive-Based Compensation (whether or not such Executive Officer is
serving at the time the Erroneously Awarded Compensation is required to be repaid to the Company), (iv) while the Company has a class of
securities listed on a national securities exchange or a national securities association, and (v) during the applicable Clawback Period.
c. Clawback Period means, with respect to any Accounting Restatement, the three completed fiscal years of the Company immediately
preceding the Restatement Date and any transition period, as described by Nasdaq Listing Rule 5608(b)(1)(i)(D).
d. Erroneously Awarded Compensation means, with respect to each Executive Officer in connection with an Accounting Restatement, the
amount of Clawback Eligible Incentive Compensation that exceeds the amount of Incentive-Based Compensation that otherwise would have
been received had it been calculated based on the data in the Accounting Restatement, and without regard to any taxes paid by the Executive
Officer.
e. Executive Officer means each individual who is currently or was previously designated as an “officer” of the Company as defined in Rule
16a-1(f) under the Exchange Act or in Nasdaq Listing Rule 5608(d). This includes the principal financial officer and principal accounting
officer (or the Controller if there is no principal accounting officer).
f. Financial Reporting Measure(s) means measures that are determined and presented in accordance with the accounting principles used in
preparing the Company's financial statements, and any measures that are derived wholly or in part from such measures, including stock price
and total shareholder return, and need not be presented within the Company's financial statements or included in a filing with the Securities
and Exchange Commission.
g. Incentive-Based Compensation means any compensation that is granted, earned, or vested based wholly or in part upon the attainment of a
Financial Reporting Measure.
h. Received means, with respect to any Incentive-Based Compensation, actual or deemed receipt, and Incentive-based Compensation shall be
deemed received in the Company’s fiscal period during which the Financial Reporting Measure specified in the Incentive-based
Compensation award is attained.
i. Restatement Date means the earlier to occur of (i) the date the Board or a Committee of the Board or officers of the Company authorized to
take such action concludes, or reasonably should have concluded, that the Company is required to prepare an Accounting Restatement, or (ii)
the date a court, regulator or other legally authorized body directs the Company to prepare an Accounting Restatement.
- 3 -