Ufp Technologies Inc 10-Q for FY2020 Q2
Ufp Technologies Inc (UFPT)
About this 10-Q
Ufp Technologies Inc filed this 10-Q on August 7, 2020, covering the quarter ended June 30, 2020 (FY2020 Q2).
Headline figures
Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $42.64M
- down 17.0% from $51.4M a year earlier
- Net income
- $2.32M
- down 49.6% from net income of $4.6M a year earlier
- Diluted EPS
- $0.31
- down 50.0% from $0.62 a year earlier
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark one)
For the quarterly period ended
OR
For the transition period from ____ to ____
Commission File Number:
UFP Technologies, Inc.
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(
(Registrant's telephone number, including area code)
_________________________________________
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange |
| | | The |
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.
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐ | Smaller reporting company |
| Emerging growth 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
UFP Technologies, Inc.
Index
UFP Technologies, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
| June 30, | December 31, 2019 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Receivables, less allowance for doubtful accounts of $ at June 30, 2020 and $ at December 31, 2019 | ||||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| Refundable income taxes | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment | ||||||||
| Less accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Net property, plant and equipment | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Non-qualified deferred compensation plan | ||||||||
| Finance lease right of use assets | ||||||||
| Operating lease right of use assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Deferred revenue | ||||||||
| Finance lease liabilities | ||||||||
| Operating lease liabilities | ||||||||
| Income taxes payable | ||||||||
| Total current liabilities | ||||||||
| Deferred income taxes | ||||||||
| Non-qualified deferred compensation plan | ||||||||
| Finance lease liabilities | ||||||||
| Operating lease liabilities | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value, shares authorized; shares issued | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding, respectively, at June 30, 2020; and shares issued and outstanding, respectively at December 31, 2019 | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Treasury stock at cost, shares at June 30, 2020 and December 31, 2019 | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
UFP Technologies, Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| June 30 |
June 30 |
|||||||||||||||
| 2020 |
2019 |
2020 |
2019 |
|||||||||||||
| Net sales |
$ | $ | $ | $ | ||||||||||||
| Cost of sales |
||||||||||||||||
| Gross profit |
||||||||||||||||
| Selling, general & administrative expenses |
||||||||||||||||
| Loss on sale of fixed assets |
||||||||||||||||
| Operating income |
||||||||||||||||
| Interest expense |
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| Other expense |
||||||||||||||||
| Income before income tax expense |
||||||||||||||||
| Income tax expense |
||||||||||||||||
| Net income |
$ | $ | $ | $ | ||||||||||||
| Net income per share: |
||||||||||||||||
| Basic |
$ | $ | $ | $ | ||||||||||||
| Diluted |
$ | $ | $ | $ | ||||||||||||
| Weighted average common shares outstanding: |
||||||||||||||||
| Basic |
||||||||||||||||
| Diluted |
||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
UFP Technologies, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
| Three and Six-Month Periods Ended June 30, 2020 |
||||||||||||||||||||||||||||
| Additional |
Total |
|||||||||||||||||||||||||||
| Common Stock |
Paid-in |
Retained |
Treasury Stock |
Stockholders' |
||||||||||||||||||||||||
| Shares |
Amount |
Capital |
Earnings |
Shares |
Amount |
Equity |
||||||||||||||||||||||
| Balance at December 31, 2019 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Share-based compensation |
- | - | - | - | ||||||||||||||||||||||||
| Exercise of stock options |
- | - | - | |||||||||||||||||||||||||
| Net share settlement of restricted stock units |
( |
) | - | ( |
) | - | - | - | ( |
) | ||||||||||||||||||
| Net income |
- | - | - | - | - | |||||||||||||||||||||||
| Balance at March 31, 2020 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Share-based compensation |
- | - | - | - | ||||||||||||||||||||||||
| Exercise of stock options |
- | - | - | - | ||||||||||||||||||||||||
| Net share settlement of restricted stock units |
- | - | ( |
) | - | - | - | ( |
) | |||||||||||||||||||
| Net income |
- | - | ||||||||||||||||||||||||||
| Balance at June 30, 2020 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Three and Six-Month Period Ended June 30, 2019 |
||||||||||||||||||||||||||||
| Additional |
Total |
|||||||||||||||||||||||||||
| Common Stock |
Paid-in |
Retained |
Treasury Stock |
Stockholders' |
||||||||||||||||||||||||
| Shares |
Amount |
Capital |
Earnings |
Shares |
Amount |
Equity |
||||||||||||||||||||||
| Balance at December 31, 2018 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Share-based compensation |
- | - | - | - | ||||||||||||||||||||||||
| Exercise of stock options |
- | - | - | - | ||||||||||||||||||||||||
| Net share settlement of restricted stock units |
( |
) | - | ( |
) | - | - | - | ( |
) | ||||||||||||||||||
| Net income |
- | - | - | - | - | |||||||||||||||||||||||
| Balance at March 31, 2019 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Share-based compensation |
- | - | - | - | - | |||||||||||||||||||||||
| Exercise of stock options |
- | - | - | - | ||||||||||||||||||||||||
| Net share settlement of restricted stock units |
- | - | - | - | - | - | - | |||||||||||||||||||||
| Net income |
- | - | - | - | - | |||||||||||||||||||||||
| Balance at June 30, 2019 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
UFP Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Six Months Ended |
||||||||
| June 30 |
||||||||
| 2020 |
2019 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Loss on sale of fixed assets |
||||||||
| Share-based compensation |
||||||||
| Deferred income taxes |
||||||||
| Changes in operating assets and liabilities: |
||||||||
| Receivables, net |
( |
) | ||||||
| Inventories |
( |
) | ||||||
| Prepaid expenses |
( |
) | ( |
) | ||||
| Refundable income taxes |
||||||||
| Other assets |
( |
) | ( |
) | ||||
| Accounts payable |
( |
) | ||||||
| Accrued expenses |
( |
) | ||||||
| Deferred revenue |
||||||||
| Non-qualified deferred compensation plan and other liabilities |
( |
) | ||||||
| Net cash provided by operating activities |
||||||||
| Cash flows from investing activities: |
||||||||
| Additions to property, plant, and equipment |
( |
) | ( |
) | ||||
| Proceeds from sale of fixed assets |
||||||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from advances on revolving line of credit |
||||||||
| Payments on revolving line of credit |
( |
) | ( |
) | ||||
| Principal repayments of long-term debt |
( |
) | ||||||
| Principal payments on finance lease obligation |
( |
) | ||||||
| Proceeds from exercise of stock options |
||||||||
| Payment of statutory withholdings for restricted stock units vested |
( |
) | ( |
) | ||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| Net increase in cash and cash equivalents |
||||||||
| Cash and cash equivalents at beginning of period |
||||||||
| Cash and cash equivalents at end of period |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Notes to Interim Condensed Consolidated Financial Statements
(1) Basis of Presentation
The interim condensed consolidated financial statements of UFP Technologies, Inc. (the “Company”) presented herein, have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include all the information and note disclosures required by accounting principles generally accepted in the United States of America. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2019, included in the Company's 2019 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission.
The condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019, the condensed consolidated statements of income for the three and six months ended June 30, 2020 and 2019, the condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2020 and 2019, and the condensed consolidated statements of cash flows for the six months ended June 30, 2020 and 2019 are unaudited but, in the opinion of management, include all adjustments (consisting of normal, recurring adjustments) necessary for a fair presentation of results for these interim periods. The condensed consolidated balance sheet as of December 31, 2019 has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm but does not include all of the information and footnotes required for complete annual financial statements.
The preparation of 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
The results of operations for the three- and six-month periods ended June 30, 2020 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2020.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, “Leases (Accounting Standards Codification (ASC) 842),” and issued subsequent amendments to the initial guidance in January 2018 within ASU No. 2018-01 and in July 2018 within ASU Nos. 2018-10 and 2018-11. The Company adopted ASC 842 on January 1, 2019. See Note 8 for further details.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (ASC 350), Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test and eliminates the need to determine the fair value of individual assets and liabilities to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The guidance will be applied prospectively and is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for any impairment tests performed on testing dates after January 1, 2017. The Company does not believe adoption will have a material impact on its financial condition or results of operations.
Revisions
Certain revisions have been made to the December 31, 2019 Condensed Consolidated Balance Sheet to conform to the current year presentation relating to a reclassification of long-term operating lease liabilities to current operating lease liabilities. The reclassification resulted in an increase of current operating lease liabilities of $
(2) Revenue Recognition
The Company recognizes revenue when a customer obtains control of a promised good or service. The amount of revenue recognized reflects the consideration that the Company expects to be entitled to in exchange for promised goods or services. The Company recognizes revenue in accordance with the core principles of ASC 606 which include (1) identifying the contract with a customer, (2) identifying separate performance obligations within the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations, and (5) recognizing revenue. The Company recognizes all but an immaterial portion of its product sales upon shipment. The Company recognizes revenue from the sale of tooling and machinery primarily upon customer acceptance, with the exception of certain tooling where control does not transfer to the customer, resulting in revenue being recognized over the estimated time for which parts are produced with the use of each respective tool. The Company recognizes revenue from engineering services, which are primarily product development services, as the services are performed or as otherwise determined based on the substance of the agreement. The Company recognizes revenue from bill and hold transactions at the time the specified goods are complete and available to the customer. In the ordinary course of business, the Company accepts sales returns from customers for defective goods, such amounts being immaterial. Although only applicable to an insignificant number of transactions, the Company has elected to exclude sales taxes from the transaction price. The Company has elected to account for shipping and handling activities for which the Company is responsible under the terms and conditions of the sale not as performance obligations but rather as fulfillment costs. These activities are required to fulfill the Company’s promise to transfer the good and are expensed when revenue is recognized.
Disaggregated Revenue
The following table presents the Company’s revenue disaggregated by the major types of goods and services sold to the Company’s customers (in thousands):
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| June 30, |
June 30, |
|||||||||||||||
| Net sales of: |
2020 |
2019 |
2020 |
2019 |
||||||||||||
| Products |
$ | $ | $ | $ | ||||||||||||
| Tooling and Machinery |
||||||||||||||||
| Engineering services |
||||||||||||||||
| Total net sales |
$ | $ | $ | $ | ||||||||||||
Contract balances
Timing of revenue recognition may differ from the timing of invoicing to customers. When invoicing occurs prior to revenue recognition, the Company has deferred revenue, or contract liabilities, included within “deferred revenue” on the condensed consolidated balance sheet.
The following table presents opening and closing balances of contract liabilities for the six-month periods ended June 30, 2020 and 2019 (in thousands):
| Contract Liabilities |
||||||||
| Six Months Ended |
||||||||
| 2020 |
2019 |
|||||||
| Deferred revenue - beginning of period |
$ | $ | ||||||
| Increases due to consideration received from customers |
||||||||
| Revenue recognized |
( |
) | ( |
) | ||||
| Deferred revenue - end of period |
$ | $ | ||||||
Revenue recognized during the six-month periods ended June 30, 2020 and 2019 from amounts included in deferred revenue at the beginning of the period were approximately $
When invoicing occurs after revenue recognition, the Company has unbilled receivables, or contract assets, included within “receivables” on the condensed consolidated balance sheet.
The following table presents opening and closing balances of contract assets for the six-month periods ended June 30, 2020 and 2019 (in thousands):
| Contract Assets |
||||||||
| Six Months Ended |
||||||||
| 2020 |
2019 |
|||||||
| Unbilled Receivables - beginning of period |
$ | $ | ||||||
| Increases due to revenue recognized, not invoiced to customers |
||||||||
| Decreases due to customer invoicing |
( |
) | ( |
) | ||||
| Unbilled Receivables - end of period |
$ | $ | ||||||
(3) Supplemental Cash Flow Information
| Six Months Ended |
||||||||
| June 30, |
||||||||
| 2020 |
2019 |
|||||||
| (in thousands) |
||||||||
| Cash paid for: |
||||||||
| Interest |
$ | $ | ||||||
| Income taxes, net of refunds |
||||||||
| Non-cash investing and financing activities: |
||||||||
| Capital additions accrued but not yet paid |
$ | $ | ||||||
(4) Allowance for Credit Losses
Effective January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (ASC 326) which is required to be applied by means of a cumulative-effect adjustment to the opening retained earnings balance as of the adoption date. This ASU replaces the incurred loss impairment model with an expected credit loss impairment model for financial instruments, including trade receivables and contract assets. The amendment requires entities to consider forward-looking information to estimate expected credit losses, resulting in earlier recognition of losses for receivables that are current or not yet due, which were not considered under the previous accounting guidance. There was no impact to the Company’s opening retained earnings or its consolidated balance sheet upon adoption.
The Company is exposed to credit losses primarily through sales of products and services. The Company’s expected loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers' trade accounts receivables. Due to the short-term nature of such receivables, the estimate of the amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances 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. The Company considered the current and expected future economic and market conditions surrounding the novel coronavirus ("COVID-19") pandemic and included specific allowance amounts for any customer determined to have been significantly impacted. Estimates are used to determine the allowance. It is based on assessment of anticipated payment and all other historical, current and future information that is reasonably available.
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 six months ended June 30, 2020 (in thousands):
| Allowance for Credit Losses |
||||
| Six Months Ended June 30, 2020 |
||||
| Allowance - beginning of period |
$ | |||
| Provision for expected credit losses |
||||
| Amounts written off against the allowance |
( |
) | ||
| Allowance - end of period |
$ | |||
(5) Fair Value of Financial Instruments
Financial instruments recorded at fair value in the consolidated balance sheets, or disclosed at fair value in the footnotes, are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels defined by ASC 820, Fair Value Measurements and Disclosures, and directly related to the amount of subjectivity associated with inputs to fair valuation of these assets and liabilities, are as follows:
Level 1
Valued based on unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2
Valued based on either directly or indirectly observable prices for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3
Valued based on management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
The following table presents the fair value and hierarchy levels, for financial assets that are measured at fair value on a recurring basis (in thousands):
| Level 2 |
June 30, |
December 31, |
||||||
| (Liabilities) Assets: |
||||||||
| Derivative financial instruments |
$ | ( |
) | $ | ( |
) | ||
Derivative financial instruments consist of an interest rate swap for which fair value is determined through the use of a pricing model that utilizes verifiable inputs such as market interest rates that are observable at commonly quoted intervals for the full term of the swap agreement.
The Company has financial instruments, such as accounts receivable, accounts payable, and accrued expenses, that are stated at carrying amounts that approximate fair value because of the short maturity of those instruments. The carrying amount of the Company’s long-term debt approximates fair value as the interest rate on the debt approximates the estimated borrowing rate currently available to the Company.
(6) 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).
The Company issues share-based awards through several plans that are described in detail in the notes to the consolidated financial statements for the year ended December 31, 2019. The compensation cost charged against income for those plans is included in selling, general & administrative expenses as follows (in thousands):
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| June 30, |
June 30, |
|||||||||||||||
| Share-based compensation related to: |
2020 |
2019 |
2020 |
2019 |
||||||||||||
| Common stock grants |
$ | $ | $ | $ | ||||||||||||
| Stock option grants |
||||||||||||||||
| Restricted Stock Unit Awards ("RSUs") |
||||||||||||||||
| Total share-based compensation |
$ | $ | $ | $ | ||||||||||||
The total income tax benefit recognized in the condensed consolidated statements of income for share-based compensation arrangements was approximately $
The following is a summary of stock option activity under all plans for the six-month period ended June 30, 2020:
| Shares Under Options |
Weighted Average Exercise Price (per share) |
Weighted Average Remaining Contractual Life (in years) |
Aggregate Intrinsic Value (in thousands) |
|||||||||||||
| Outstanding at December 31, 2019 |
$ | |||||||||||||||
| Granted |
||||||||||||||||
| Exercised |
( |
) | ||||||||||||||
| Outstanding at June 30, 2020 |
$ | $ | ||||||||||||||
| Exercisable at June 30, 2020 |
$ | $ | ||||||||||||||
| Vested and expected to vest at June 30, 2020 |
$ | $ | ||||||||||||||
On June 10, 2020, the Company granted options to its directors for the purchase of
| Expected volatility |
|||
| Expected dividends |
|
||
| Risk-free interest rate |
|||
| Exercise price |
$ | ||
| Expected term (in years) |
|
||
| Weighted-average grant date fair value |
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.
During the six-month periods ended June 30, 2020 and 2019, the total intrinsic value of all options exercised (i.e., the difference between the market price on the exercise date and the price paid by the employees to exercise the options) was approximately $
On February 24, 2020, the Company’s Compensation Committee approved the award of $
The following table summarizes information about RSU activity during the six-month period ended June 30, 2020:
| Restricted Stock Units |
Weighted Average |
|||||||
| Outstanding at December 31, 2019 |
$ | |||||||
| Awarded |
||||||||
| Shares vested |
( |
) | ||||||
| Outstanding at June 30, 2020 |
$ | |||||||
At the Company’s discretion, upon vesting, 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 and issued to the RSU holder. During the six-month periods ended June 30, 2020 and 2019,
As of June 30, 2020, the Company had approximately $
(7) Inventories
Inventories are stated at the lower of cost (determined using the first-in, first-out method) or net realizable value, and consist of the following at the stated dates (in thousands):
| June 30, |
December 31, |
|||||||
| 2020 |
2019 |
|||||||
| Raw materials |
$ | $ | ||||||
| Work in process |
||||||||
| Finished goods |
||||||||
| Total inventory |
$ | $ | ||||||
(8) Leases
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 will also be 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.
| Six Months Ended | ||||||||
| June 30, | ||||||||
| ($ in thousands) | ||||||||
| 2020 | 2019 | |||||||
| Lease Cost: | ||||||||
| Finance lease cost: | ||||||||
| Amortization of right of use assets | $ | $ | ||||||
| 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 finance lease obligations | ||||||||
| Weighted-average remaining lease term (years): | ||||||||
| Finance | - | |||||||
| Operating | ||||||||
| Weighted-average discount rate: | ||||||||
| Finance | % | % | ||||||
| Operating | % | % | ||||||
The aggregate future lease payments for leases as of June 30, 2020 were as follows
(in thousands):
| Finance |
Operating |
|||||||
| Remainder of 2020 |
$ | $ | ||||||
| 2021 |
||||||||
| 2022 |
||||||||
| 2023 |
||||||||
| 2024 |
||||||||
| Thereafter |
||||||||
| Total lease payments |
||||||||
| Less: Interest |
( |
) | ( |
) | ||||
| Present value of lease liabilities |
$ | $ | ||||||
The aggregate future lease payments as of December 31, 2019 were as follows (in thousands):
| Operating |
||||
| 2020 |
$ | |||
| 2021 |
||||
| 2022 |
||||
| 2023 |
||||
| Total lease payments |
||||
| Less: Interest |
( |
) | ||
| Present value of lease liabilities |
$ | |||
(9) Income Per Share
Basic income per share is based on the weighted average number of shares of common stock outstanding. Diluted income per share is based upon the weighted average number of common shares outstanding and dilutive common stock equivalent shares outstanding during each period.
The weighted average number of shares used to compute basic and diluted net income per share consisted of the following (in thousands):
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Basic weighted average common shares outstanding | ||||||||||||||||
| Weighted average common equivalent shares due to restricted stock, stock options and RSUs | ||||||||||||||||
| Diluted weighted average common shares outstanding | ||||||||||||||||
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 income per share because the effect would be antidilutive. For both the three- and six-month periods ended June 30, 2020, the number of stock awards excluded from the computation of diluted earnings per share for this reason was
(10) Segment Reporting
The Company consists of a single operating and reportable segment.
Revenues from customers outside of the United States are not material.
The Company’s products are primarily sold to customers within the Medical, Consumer, Aerospace and Defense, Industrial, Automotive, and Electronics markets. Net sales by market for the three- and six-month periods ended June 30, 2020 and 2019 are as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||
| Market | Net Sales | % | Net Sales | % | Net Sales | % | Net Sales | % | ||||||||||||||||||||||||
| Medical | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| Consumer | % | % | % | % | ||||||||||||||||||||||||||||
| Aerospace & Defense | % | % | % | % | ||||||||||||||||||||||||||||
| Industrial | % | % | % | % | ||||||||||||||||||||||||||||
| Automotive | % | % | % | % | ||||||||||||||||||||||||||||
| Electronics | % | % | % | % | ||||||||||||||||||||||||||||
| Net Sales | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
(11) Other Intangible Assets
The carrying values of the Company’s definite lived intangible assets as of June 30, 2020 are as follows (in thousands):
| Tradename & Brand | Non- | Customer | Total | |||||||||||||
| Estimated useful life | 10 years | 5 years | 20 years | |||||||||||||
| Gross amount | $ | $ | $ | $ | ||||||||||||
| Accumulated amortization | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net balance | $ | $ | $ | $ | ||||||||||||
Amortization expense related to intangible assets was approximately $
| Remainder of 2020 | $ | |||
| 2021 | ||||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Thereafter | ||||
| Total | $ |
(12) Income Taxes
The determination of income tax expense in the accompanying unaudited condensed consolidated statements of income is based upon the estimated effective tax rate for the year, adjusted for the impact of any discrete items which are accounted for in the period in which they occur. The Company recorded income tax expense of approximately
(13) Indebtedness
On February 1, 2018, the Company, as the borrower, entered into an unsecured $
The credit facilities under the Amended and Restated Credit Agreement (the “Amended and Restated Credit Facilities”) consist of a $
The Amended and Restated Credit Agreement calls for interest of LIBOR plus a margin that ranges from
Derivative Financial Instruments
The Company uses interest-rate-related derivative instruments to manage its exposure related to changes in interest rates on its variable-rate debt instruments. The Company does not enter into derivative instruments for any purpose other than cash flow hedging. Derivative financial instruments expose the Company to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, the Company is not exposed to the counterparty’s credit risk. The Company minimizes counterparty credit risk in derivative instruments by entering into transactions with carefully selected major financial institutions based upon their credit profile. Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates. The Company assesses interest rate risk by identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company’s debt obligations expose the Company to variability in interest payments due to changes in interest rates. The Company believes that it is prudent to limit the variability of a portion of its interest payments. To meet this objective, in connection with the term loan under the Amended and Restated Credit Agreement, the Company entered into a $
LIBOR
The Financial Conduct Authority (the authority that regulates LIBOR) announced in 2017 that it intends to phase out LIBOR by the end of 2021. If changes are made to the method of calculating LIBOR or LIBOR ceases to exist, the Company may need to amend certain contracts, including the Amended and Restated Credit Agreement and related interest rate swap agreement, and the Company cannot guarantee what alternative rate or benchmark would be negotiated or the extent to which this would adversely affect its interest rate and the effectiveness of its interest rate hedging activity. The Company cannot assure that it will be able to amend any of these agreements in a timely manner or at all.
| MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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; statements about the potential impact the novel coronavirus ("COVID-19") pandemic may have on the Company’s business, financial condition and results of operations, including with respect to the different markets in which the Company participates, the demand for its products, the well-being and availability of the Company’s employees, the continuing operation of the Company’s locations, delayed payments by the Company’s customers and the potential for reduced or canceled orders, the Company’s efforts to address the pandemic, including regarding the safety of its employees, the maintenance of its facilities and the sufficiency of the Company’s supply chain, inventory, liquidity and capital resources, including increased costs in connection with such efforts, the impact of the pandemic on the businesses of the Company’s suppliers and customers, and the overall impact the pandemic may have on the Company’s financial results in 2020; statements about the Company’s acquisition strategies and opportunities and the Company’s growth potential and strategies for growth; expectations regarding customer demand; expectations regarding the Company’s liquidity and capital resources, including the sufficiency of its cash reserves and the availability of borrowing capacity to fund operations and/or potential future acquisitions; anticipated revenues and the timing of such revenues; expectations regarding the potential impact of the proposed phase out of LIBOR by the end of 2021; expectations about shifting the Company’s book of business to higher-margin, longer-run opportunities; anticipated trends and potential advantages in the different markets in which the Company competes, including the medical, aerospace and defense, automotive, consumer, electronics, and industrial markets, and the Company’s plans to expand in certain of its markets; anticipated advantages the Company expects to realize from its investments and capital expenditures; anticipated advantages to improvements and alterations at the Company’s existing plants; expectations regarding the Company’s manufacturing capacity, operating efficiencies, and new production equipment; statements about new product offerings and program launches; statements about the Company’s acquisition and integration of Dielectrics and the synergies and other benefits anticipated in connection with the Dielectrics business; the Company’s participation and growth in multiple markets; its business opportunities; and any indication that the Company may be able to sustain or increase its sales, earnings or earnings per share, or its sales, earnings or earnings per share growth rates.
Investors are cautioned that such forward-looking statements involve risks and uncertainties that could adversely affect the Company’s business and prospects, and otherwise cause actual results to differ materially from those anticipated by such forward-looking statements, or otherwise, including without limitation: the severity and duration of the COVID-19 pandemic and its impact on the markets in which the Company participates, including its impact on the Company’s customers, suppliers and employees, as well as the U.S. and worldwide economies; the timing, scope and effect of further governmental, regulatory, fiscal, monetary and public health responses to the COVID-19 pandemic; risks and uncertainties associated with the COVID-19 pandemic and its impact on the Company’s business, financial condition and results of operations, including risks relating to decreased, including substantially decreased, demand for the Company’s products; risks relating to the potential closure of any of the Company’s facilities or the unavailability of key personnel or other employees; risks that the Company’s inventory, cash reserves, liquidity or capital resources may be insufficient; risks relating to delayed payments by our customers and the potential for reduced or canceled orders; risks relating to the increased costs associated with the Company’s efforts to respond to the pandemic; risks relating to the Company’s acquisition and integration of Dielectrics; risks associated with the identification of suitable acquisition candidates and the successful, efficient execution of acquisition transactions, the integration of any such acquisition candidates, the value of those acquisitions to our customers and shareholders, and the financing of such acquisitions; risks related to our indebtedness and compliance with covenants contained in our financing arrangements, and whether any available financing may be sufficient to address our needs; risks related to the proposed phase out of LIBOR by the end of 2021; risks associated with efforts to shift the Company’s book of business to higher-margin, longer-run opportunities; risks associated with the Company’s entry into and growth in certain markets; risks and uncertainties associated with seeking and implementing manufacturing efficiencies and implementing new production equipment; risks and uncertainties associated with growth of the Company’s business and increases to sales, earnings and earnings per share; and risks associated with new product and program launches. Accordingly, actual results may differ materially.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential,” and similar expressions intended to identify forward-looking statements. Our actual results could be different from the results described in or anticipated by our forward-looking statements due to the inherent uncertainty of estimates, forecasts, and projections, and may be materially better or worse than anticipated. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements represent our current beliefs, estimates and assumptions and are only as of the date of this Report. We expressly disclaim any duty to provide updates to forward-looking statements, and the estimates and assumptions associated with them, after the date of this Report, in order to reflect changes in circumstances or expectations, or the occurrence of unanticipated events, except to the extent required by applicable securities laws. All 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and “Risk Factors” set forth in Part II, Item 1A of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, as well as the risks and uncertainties discussed elsewhere in this Report, including without limitation any risks and uncertainties included elsewhere in this “Management's Discussion and Analysis of Financial Condition and Results Of Operations” portion of this Report, or under “Risk Factors” in Part II Item 1A of 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.
Unless the context requires otherwise, the terms “we”, “us”, “our”, or “the Company” refer to UFP Technologies, Inc. and its consolidated subsidiaries.
Overview
UFP Technologies, Inc. (the “Company”) is an innovative designer and custom manufacturer of components, subassemblies, products and packaging primarily for the medical market. Utilizing highly specialized foams, films and plastics, the Company converts raw materials through laminating, molding, radio frequency welding and fabricating techniques. The Company is diversified by also providing highly engineered solutions to customers in the aerospace & defense, automotive, consumer, electronics and industrial markets. The Company consists of a single operating and reportable segment.
Sales for the Company for the six-month period ended June 30, 2020 decreased 7.9% to $90.9 million from $98.7 million in the same period last year largely due to the impact in demand for product as a result of the COVID-19 pandemic. Gross margins for the six-month period ended June 30, 2020 decreased to 25.0% from 27.2% in the same period last year. Operating income and net income decreased 31.7% and 25.5%, respectively.
The Company’s current strategy includes further organic growth and growth through strategic acquisitions.
Recent Developments
COVID-19
COVID-19 has spread across the country to areas in which our products are designed, manufactured, distributed or sold. Authorities in states in which we do business have implemented numerous measures to stall the spread of COVID-19, including travel bans and restrictions, quarantines, curfews, stay-at-home orders, and business shutdowns. These measures have impacted and will likely further impact us, our customers, consumers, employees, suppliers and other third parties with whom we do business. There is considerable uncertainty regarding how these and any future measures in response to the pandemic will impact our business, including whether and to what extent they will result in further changes in demand for our products or further increases in operating costs (whether as a result of changes to our supply chain or increases in employee or manufacturing costs).
Our operations expose us to risks associated with the COVID-19 pandemic. Although the COVID-19 pandemic did not materially impact our first quarter results, it has since more significantly impacted our operations. While all of our factories are deemed essential, not all of our customers’ operations are essential and, therefore, demand for our products and our customers’ products has been negatively impacted, especially in the automotive and consumer markets, where the impact has been substantial. Partially mitigating this are increased orders from certain customers in the medical market. The COVID-19 pandemic has also impacted the cost of manufacturing our goods, including higher labor costs, maintenance costs and manufacturing inefficiencies due to employee absenteeism and significantly enhanced cleaning and sterilization. With regard to our supply chain, there has thus far been minimal disruption in the availability of raw materials, as most of our major suppliers have also been deemed to be essential businesses. Due to similar concerns regarding supply and shipping challenges at the beginning of the COVID-19 pandemic, we understand that certain of our customers increased their purchasing requirements, as well. We believe this partially mitigated the sales decline for the second quarter of 2020. We anticipate that our customers’ increased supply levels may lead to decreased demand for our products.
In light of the COVID-19 pandemic, elective medical procedures and exams have been delayed or canceled, there has been a significant reduction in physician office visits, and hospitals have postponed or canceled capital purchases. We believe that these responses have had a negative impact on the demand for the Company’s components for medical devices. Additionally, many of our customers in the automotive markets have experienced closures of their businesses in connection with the pandemic. Such closures have negatively impacted the demand for our automobile component products. Any continued reduced demand for our products, including reduced need for components for medical devices, packaging for consumer and electronic goods, or reduced need for automobile components, as well as continued economic uncertainty, could adversely and materially affect our business, financial condition and results of operations, as well as those of our customers, potentially resulting in customers’ inability to pay for our products and reduced or canceled orders of our products. Such adverse changes in our customers’ financial condition may also result in our recording impairment charges for our inability to recover or collect any accounts receivable or owned or leased assets.
We have been notified by several customers that they would be extending payment terms. We anticipate that these extended payment terms will be short-term in nature, but they may continue for a longer duration. In the beginning of April, we drew down $5.5 million from our revolving credit facility to maintain cash reserves in the event we experienced a substantial shut down of operations, further or extended increase in manufacturing costs, or significant exposure to our ability to timely collect receivables. The Company repaid the $5.5 million in full prior to the end of June.
The COVID-19 pandemic and associated economic disruptions have had, and we believe they will continue to have, negative effects on our operating results, cash flows and financial condition. While we began to experience these negative effects towards the end of March, they increased markedly during the second quarter. We expect these negative effects on our financial results will continue in the third quarter, in particular due to continued decreased product demand. As of the date of this report, we anticipate that the negative effects of the pandemic on our business and financial results may start to wane during the fourth quarter of 2020, but the situation is highly dependent on facts unknown at this time, and therefore uncertain, so this may not be the case. In any event, the negative effects of the COVID-19 pandemic on our business and financial results are likely to continue to be significant through the end of 2020.
To ensure the health and safety of our employees and to comply with governmental orders, since March, 2020, we have required or enabled certain employees to work from home or remotely where practicable, and expanded IT and communication support to enhance their productivity; adjusted work spaces and shifted schedules to facilitate social distancing and sterilization for those who continue to work in our facilities; enhanced cleaning and disinfecting procedures at our facilities; required face coverings and worked to procure and distributed personal protective equipment; implemented health checks and visitor protocols and restricted travel.
Additionally, in response to the economic uncertainties resulting from the COVID-19 pandemic, we have initiated cost-cutting measures, including restrictions on travel and direct and indirect labor cost reduction measures, including employee terminations. Terminated employees were provided with severance pay and accordingly such terminations have not materially affected our results of operations for the second quarter of fiscal 2020. We expect that the impact of these cost-cutting measures will occur primarily starting in the third quarter of fiscal 2020, but they will not likely offset the negative impacts of the COVID-19 pandemic.
While we have developed and implemented and continue to develop and implement health and safety protocols, business continuity plans and crisis management protocols in an effort to try to mitigate the negative impact of COVID-19 on our employees and our business, we believe the extent of the impact of the pandemic on our business and financial results will depend on future developments that are highly uncertain and cannot be predicted, and which may vary by market, including the duration and scope of the pandemic, its severity, economic conditions during and after the pandemic, governmental actions that have or may be taken in response to the pandemic, changes in customer behavior in response to the pandemic, and how quickly and to what extent more predictable economic and operating conditions can resume. As a result, we anticipate that COVID-19 driven demand disruptions and related events will negatively affect our financial results in 2020.
Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
The CARES Act was enacted on March 27, 2020 in the United States. The CARES Act and related notices include several significant provisions, including delaying certain payroll tax payments and estimated income tax payments that we expect to defer to future periods. Accordingly, the Company has deferred social security payments in an amount of $443,000 as of June 30, 2020, which will continue to accrue thereafter. We do not currently expect the CARES Act to have a material impact on our financial results, including on our annual estimated effective tax rate, or on our liquidity. We will continue to monitor and assess the impact the CARES Act may have on our business and financial results.
Results of Operations
Sales
Sales for the three-month period ended June 30, 2020 decreased approximately 17.0% to $42.6 million from sales of $51.4 million for the same period in 2019. We attribute the decrease in sales primarily to the impact on demand for product as a result of the COVID-19 pandemic. We believe that the cancellation or delay of elective medical procedures in connection with the COVID-19 pandemic has had a negative impact on the demand for the Company’s components for medical devices. Additionally, many of our customers in the automotive markets have experienced closures of their businesses in connection with the pandemic. Such closures have negatively impacted the demand for our automobile component products.
Sales for the six-month period ended June 30, 2020 decreased approximately 7.9% to $90.9 million from sales of $98.7 million for the same period in 2019. We attribute the decrease in sales primarily to the impact on demand for product as a result of the COVID-19 pandemic, as described in the preceding paragraph. We refer you to “Recent Developments—Covid-19” above for additional discussion of product demand.
Gross Profit
Gross profit as a percentage of sales (“gross margin”) decreased to 23.3% for the three-month period ended June 30, 2020, from 28.0% for the same period in 2019. As a percentage of sales, material and labor costs collectively decreased 1.9%, while overhead increased 6.6% The decrease in collective material and labor costs as a percentage of sales was primarily due to gains in manufacturing efficiencies resulting from continuous improvement initiatives and an improvement in the overall book of business. The increase in overhead as a percentage of sales was primarily due to fixed overhead costs against decreased sales.
Gross margin decreased to 25.0% for the six-month period ended June 30, 2020, from 27.2% for the same period in 2019. As a percentage of sales, material and labor costs collectively decreased 1.2%, while overhead increased 3.4%. The decrease in collective material and labor costs as a percentage of sales was primarily due to gains in manufacturing efficiencies resulting from continuous improvement initiatives and an improvement in the overall book of business. The increase in overhead as a percentage of sales was primarily due to fixed overhead costs against decreased sales.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses (“SG&A”) decreased approximately 14.5% to $6.7 million for the three-month period ended June 30, 2020, from $7.8 million for the same period in 2019. As a percentage of sales, SG&A increased slightly to 15.6% for the three-month period ended June 30, 2020, from 15.2% for the same three-month period in 2019. The decrease in SG&A for the three-month period ended June 30, 2020 was primarily due to decreases in compensation-related reserves and company-wide travel and entertainment.
SG&A decreased approximately 4.2% to $14.4 million for the six-month period ended June 30, 2020, compared to $15.0 million in the same period in 2019. As a percentage of sales, SG&A increased to 15.9% from 15.2% for the same three-month period in 2019. The decrease in SG&A for the six-month period ended June 30, 2020 was primarily due to decreases in compensation-related reserves and company-wide travel and entertainment.
We refer you to “Recent Developments—Covid-19” above for additional discussion of cost-reduction measures.
Interest Income and Expense
Net interest expense was approximately $33 thousand for the three-month period ended June 30, 2020, compared to net interest expense of $194 thousand in the same period of 2019. The decrease in net interest expense was primarily due to lower debt levels.
Net interest expense was approximately $49 thousand for the six-month period ended June 30, 2020, compared to net interest expense of $425 thousand in the same period of 2019. The decrease in net interest expense was primarily due to lower debt levels.
Other Expense
Other expense was approximately $35 thousand and $198 thousand for the three-month periods ended June 30, 2020 and 2019, respectively and approximately $362 thousand and $437 thousand for the six-month periods ended June 30, 2020 and 2019, respectively. Other expense was primarily generated by changes in the fair value of the swap liability, which is driven by anticipated future interest rate changes. Should we choose to keep the swap for the full five-year term, the cumulative net impact to the income statement due to changes in fair value will be zero.
Income Taxes
The Company recorded tax expense of approximately 20.8% and 25.6% of income before income tax expense, respectively, for each of the three-month periods ended June 30, 2020 and 2019. The decrease in the effective tax rate for the current period was largely due to a lower anticipated effective tax rate due to credits available for increased research activities as well as share-based payment related tax benefits recorded in the current period. The Company recorded tax expense of approximately 18.9% and 24.0% of income before income tax expense, respectively, for each of the six-month periods ended June 30, 2020 and 2019. The decrease in the effective tax rate for the current period was largely due to a lower anticipated effective tax rate due to credits available for increased research activities as well as share-based payment related tax benefits recorded in the current period. The Company notes the potential for volatility in its effective tax rate, as any windfall or shortfall tax benefits related to its share-based compensation plans will be recorded directly into income tax expense.
Liquidity and Capital Resources
The Company generally funds its operating expenses, capital requirements, and growth plan through internally generated cash and bank credit facilities.
Cash Flows
Net cash provided by operations for the six-month period ended June 30, 2020 was approximately $10.7 million and was primarily a result of net income generated of approximately $6.2 million, depreciation and amortization of approximately $4.2 million, loss on sale of fixed assets of approximately $0.3 million, share-based compensation of approximately $1.1 million, an increase in deferred taxes of approximately $0.7 million, a decrease in accounts receivable of approximately $1.4 million due to reduced sales, a decrease in refundable income taxes of approximately $0.5 million, an increase in accounts payable of approximately $0.7 million, due to the timing of vendor payments in the ordinary course of business, and an increase of other long-term liabilities of approximately $0.8 million due primarily to an increase in the fair value of the interest rate swap and the deferral of employer social security tax payments in connection with the CARES Act. These cash inflows and adjustments to income were partially offset by an increase in inventory of approximately $2.7 million due to restocking to historical levels and for expected safety stock needs, an increase in prepaid expenses of approximately $1.1 million due primarily to insurance and progress payments on machinery, and a decrease in accrued expenses of approximately $1.4 million due to the payment of 2019 accrued compensation.
Net cash used in investing activities during the six-month period ended June 30, 2020 was approximately $2.1 million and was primarily the result of additions of manufacturing machinery and equipment across the Company.
Net cash used in financing activities was approximately $0.1 million during the six-month period ended June 30, 2020, resulting from borrowings and repayments on the Company’s credit facility of approximately $5.5 million and payments of statutory withholding for stock options exercised and restricted stock units vested of approximately $0.6 million, partially offset by net proceeds received upon stock options exercises of approximately $0.5 million.
Outstanding and Available Debt
On February 1, 2018, the Company, as the borrower, entered into an unsecured $70 million Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) with certain of the Company’s subsidiaries (the “Subsidiary Guarantors”) and Bank of America, N.A., in its capacity as the initial lender, Administrative Agent, Swingline Lender and L/C Issuer, and certain other lenders from time to time party thereto. The Amended and Restated Credit Agreement amends and restates the Company’s prior credit agreement.
The credit facilities under the Amended and Restated Credit Agreement (the “Amended and Restated Credit Facilities”) consist of a $20 million unsecured term loan to the Company and an unsecured revolving credit facility, under which we may borrow up to $50 million. In the beginning of April, we drew down $5.5 million from our revolving credit facility to maintain cash reserves in the event we experienced a substantial shut down of operations, further or extended increase in manufacturing costs or significant exposure to our ability to timely collect receivables. The Company repaid in full the $5.5 million of the outstanding principal amount, together with interest, under the revolving credit facility prior to the end of June. The Amended and Restated Credit Facilities mature on February 1, 2023. The proceeds of the Amended and Restated Credit Agreement may be used for general corporate purposes, as well as permitted acquisitions. Our obligations under the Amended and Restated Credit Agreement are guaranteed by the Subsidiary Guarantors.
The Amended and Restated Credit Facilities call for interest of LIBOR plus a margin that ranges from 1.0% to 1.5% or, at the discretion of the Company, the bank’s prime rate less a margin that ranges from 0.25% to zero. In both cases the applicable margin is dependent upon Company performance. Under the Amended and Restated Credit Agreement, the Company is subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to EBITDA financial covenant. The Amended and Restated Credit Agreement contains other covenants customary for transactions of this type, including restrictions on certain payments, permitted indebtedness and permitted investments. As of June 30, 2020, there were $0.7 million in standby letters of credit outstanding drawable as a financial guarantee on worker’s compensation insurance policies. As of June 30, 2020, the applicable interest rate was approximately 1.16% and the Company was in compliance with all covenants under the Amended and Restated Credit Agreement.
Derivative Financial Instruments
The Company uses interest-rate-related derivative instruments to manage its exposure related to changes in interest rates on its variable-rate debt instruments. The Company does not enter into derivative instruments for any purpose other than cash flow hedging. Derivative financial instruments expose the Company to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, the Company is not exposed to the counterparty’s credit risk in those circumstances. The Company minimizes counterparty credit risk in derivative instruments by entering into transactions with carefully selected major financial institutions based upon their credit profile. Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates. The Company assesses interest rate risk by identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company’s debt obligations expose the Company to variability in interest payments due to changes in interest rates. The Company believes that it is prudent to limit the variability of a portion of its interest payments. To meet this objective, in connection with the term loan under the Amended and Restated Credit Agreement, the Company entered into a $20 million, 5-year interest rate swap agreement under which the Company receives three-month LIBOR plus the applicable margin and pays a 2.7% fixed rate plus the applicable margin. The swap agreement was established to modify the Company’s interest rate exposure by converting interest on the term loan from a variable rate to a fixed rate to hedge against the possibility of rising interest rates during the term of the loan. Because the Company repaid its term loan in full, the swap agreement no longer serves this purpose and may be canceled by the Company prior to its expiration date. The notional amount was approximately $12.9 million at June 30, 2020. The fair value of the swap as of June 30, 2020 and December 31, 2019 was approximately $(616) thousand and $(325) thousand, respectively, and is included in other liabilities. Changes in the fair value of the swap are recorded in other expense on the condensed consolidated statements of income and resulted in income of $8 thousand and expense of $292 thousand during the three- and six-months ended June 30, 2020. In the same periods in 2019, change in the fair value of the swap resulted in expense of $198 thousand and $437 thousand, respectively.
The Financial Conduct Authority (the authority that regulates LIBOR) announced in 2017 that it intends to phase out LIBOR by the end of 2021. If changes are made to the method of calculating LIBOR or LIBOR ceases to exist, we may need to amend certain contracts, including our Amended and Restated Credit Agreement and related interest rate swap agreement, and we cannot guarantee what alternative rate or benchmark would be negotiated or the extent to which this would adversely affect our interest rate and the effectiveness of our interest rate hedging activity. We cannot assure that we will be able to amend any of these agreements in a timely manner or at all.
Future Liquidity
We require cash to pay our operating expenses, purchase capital equipment, and to service our contractual obligations. Our principal sources of funds are cash from operations and our $50 million revolving credit facility. We generated cash of approximately $10.7 million from operations during the six months ended June 30, 2020; however, we cannot guarantee that our operations will generate cash in future periods. As indicated above, we have been notified by several customers that they intend to extend payment terms due to COVID-19 and, therefore, we anticipate short-term lower operating cash and higher working capital needs. Our longer-term liquidity is contingent upon future operating performance and further draws on our revolving credit facility are possible. Further, the continued economic uncertainty resulting from the COVID-19 pandemic could affect our long-term ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.
Throughout fiscal 2020, we plan to continue to add capacity to enhance operating efficiencies in our manufacturing plants. We may consider additional acquisitions of companies, technologies, or products that are complementary to our business. We believe that our existing resources, including our revolving credit facility, together with cash expected to be generated from operations and funds expected to be available to us through any necessary equipment financings and additional bank borrowings, will be sufficient to fund our cash flow requirements, including capital asset acquisitions, through the next twelve months.
Stock Repurchase Program
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 Exchange Act. 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. We did not repurchase any shares of our common stock under this program in the first six months of 2020. Through June 30, 2020, the Company repurchased a total of 29,559 shares of its common stock under this program at a cost of approximately $587 thousand. At June 30, 2020, approximately $9.4 million was available for future repurchases of the Company’s common stock under this authorization.
Commitments and Contractual Obligations
There have been no material changes outside the ordinary course of business to our contractual obligations and commitments, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.
Off-Balance-Sheet Arrangements
In addition to operating leases, the Company’s off-balance-sheet arrangements include standby letters of credit which are included in the Company’s revolving credit facility. As of June 30, 2020, there was approximately $0.7 million in standby letters of credit drawable as a financial guarantee on worker’s compensation insurance policies.
| CONTROLS AND PROCEDURES |
As of the end of the period covered by this report (the “Evaluation Date”), the Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, performed an evaluation 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) or 15d-15(e)). 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 were effective to ensure that information required to be disclosed by the Company in the reports that it 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 the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
An evaluation was also performed under the supervision and with the participation of our management, including the Company’s Chief Executive Officer and Chief Financial Officer, of any change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. That evaluation did not identify any change in the Company’s internal control over financial reporting that occurred during our latest fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
| OTHER INFORMATION |
| LEGAL PROCEEDINGS. |
From time to time, the Company may be a party to various suits, claims and complaints arising in the ordinary course of business. In the opinion of management of the Company, these suits, claims and complaints should not result in final judgments or settlements that, in the aggregate, would have a material adverse effect on the Company’s financial condition or results of operations.
| RISK FACTORS |
The Company faces a number of uncertainties and risks that are difficult to predict and many of which are outside of the Company's control. For a detailed discussion of the risks that affect our business, please refer to Part I, Item IA, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in Part II - Item 1A of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report and prior Quarterly Report, except as set forth below.
Our business and operations have been adversely affected, and our business, financial condition and results of operations could in the future be materially adversely impacted by the COVID-19 pandemic and associated economic disruptions.
The pandemic caused by the spread of COVID-19 has created significant volatility, uncertainty and economic disruption in the markets in which we participate. COVID-19 has spread across the country to areas in which our products are designed, manufactured, distributed or sold. Authorities in states in which we do business have implemented numerous measures to stall the spread of COVID-19, including travel bans and restrictions, quarantines, curfews, stay-at-home orders, and business shutdowns. These measures have impacted and will likely further impact us, our customers, consumers, employees, suppliers and other third parties with whom we do business. There is considerable uncertainty regarding how these and any future measures in response to the pandemic will impact our business, including whether and to what extent they will result in further changes in demand for our products or further increases in operating costs (whether as a result of changes to our supply chain or increases in employee or manufacturing costs).
Our operations expose us to risks associated with the COVID-19 pandemic. Although the COVID-19 pandemic did not materially impact our first quarter results, since the end of the first quarter it has more significantly impacted our operations. Adverse impacts relating to the COVID-19 pandemic that we have already experienced include, among others: decreased demand for certain of our products in the medical market, such as orders for products related to elective medical procedures, and a dramatic decrease in demand for products that service our other markets, such as automotive and consumer, as many of our customers’ businesses are currently shut down; increased labor, supply and maintenance costs, as well as manufacturing inefficiencies, as a result of employee attendance issues and enhanced cleaning and other efforts to safeguard our employees and facilities; increased carrying costs associated with the accelerated purchasing of raw materials, to help secure adequate supplies; and extended payment terms imposed by customers. Although we have not yet experienced significant manufacturing or supply chain difficulties as a result of COVID-19, we may in the future. A reduction or interruption in any of our manufacturing processes, or the closure of any of our facilities, could have a material adverse effect on our business. Our insurance coverage may not adequately compensate us for losses incurred as a direct or indirect result of the COVID-19 pandemic.
Any continued reduced demand for our products including reduced need for components for medical devices, packaging for consumer and electronic goods, or reduced need for automobile components, as well as continued economic uncertainty, could adversely and materially affect our business, financial condition and results of operations, as well as those of our customers, potentially resulting in customers’ inability to pay for our products and reduced or canceled orders of our products. Such adverse changes in our customers’ financial condition may also result in our recording impairment charges for our inability to recover or collect any accounts receivable or owned or leased assets.
We have been notified by several customers that they would be extending payment terms. We anticipate that these extended payment terms will be short-term in nature, but they may continue for a longer duration. Additionally, due to concerns regarding supply and shipping challenges at the beginning of the COVID-19 pandemic, we understand that certain of our customers increased their purchasing requirements. We anticipate that our customers’ increased supply levels may lead to decreased demand for our products in the second half of the year. In the beginning of April, we drew down $5.5 million from our revolving credit facility to maintain sufficient cash reserves in the event we experience a substantial shut down of operations, further or extended increase in manufacturing costs or significant exposure to our ability to timely collect our receivables. The Company repaid the $5.5 million in full prior to the end of June. The terms of our Amended and Restated Credit Facilities contain covenants that restrict our ability to engage in certain transactions and, if not met, may impair our ability to respond to changing business and economic conditions. Our Amended and Restated Credit Facilities also require us to satisfy certain financial covenants. Should our future business and operations be significantly impaired by the continuing COVID-19 pandemic and associated economic disruptions or otherwise, we cannot assure that we will remain in compliance with our current financial covenants. In such event, the factors that adversely affect our business may also similarly adversely affect the capital markets, and we cannot assure that we would be able to negotiate alternative covenants or alternative financing on favorable terms, if at all. Our failure to comply with the covenants contained in our Amended and Restated Credit Facilities, including financial covenants, could result in an event of default, which could materially and adversely affect our results of operations and financial condition.
The COVID-19 pandemic and associated economic disruptions have had, and we believe they will continue to have, negative effects on our operating results, cash flows and financial condition. While we began to experience these negative effects towards the end of March, they increased markedly during the second quarter. We expect these negative effects on our financial results will continue in the third quarter, in particular due to continued decreased product demand. As of the date of this report, we anticipate that the negative effects of the pandemic on our business and financial results may start to wane during the fourth quarter of 2020. However, we believe the extent of the impact of the pandemic on our business and financial results will depend on future developments that are highly uncertain and cannot be predicted, and which may vary by market, including the duration and scope of the pandemic, its severity, economic conditions during and after the pandemic, governmental actions that have or may be taken in response to the pandemic, changes in customer behavior in response to the pandemic, and how quickly and to what extent more predictable economic and operating conditions can resume. As a result, the Company anticipates that COVID-19 driven demand disruptions and related events will negatively affect the Company's financial results in 2020.
We refer you to “Management’s Discussion and Analysis of Financial Position and Results of Operations” for additional discussion of the potential impact of the COVID-19 pandemic and associated economic disruptions.
The proposed discontinuation or replacement of LIBOR would require us to amend certain agreements and may otherwise adversely affect our business.
The Financial Conduct Authority announced in 2017 that it intends to phase out LIBOR by the end of 2021. Changes in the method of calculating LIBOR, or the replacement of LIBOR with an alternative rate or benchmark, may adversely affect interest rates and result in higher borrowing costs. This could materially and adversely affect our results of operations, cash flows and liquidity. If changes are made to the method of calculating LIBOR or LIBOR ceases to exist, we may need to amend certain contracts, including our Amended and Restated Credit Agreement and related interest rate swap agreement, and we cannot guarantee what alternative rate or benchmark would be negotiated. We cannot assure that we will be able to amend any of these agreements in a timely manner or at all. This may result in an increase to our interest expense.
| UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Issuer’s 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. The Company did not repurchase any shares of its common stock under this program in the first six months of 2020. Through June 30, 2020, the Company had repurchased a total of 29,559 shares of its common stock under this program at a cost of approximately $587 thousand. At June 30, 2020, approximately $9.4 million was available for future repurchases of the Company's common stock under this authorization.
| EXHIBITS |
| Exhibit No. |
Description |
| 10.2 | Form of 2020 Stock Unit Award Agreement #* |
| 31.1 | Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.* |
| Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.* |
|
| 101.INS |
XBRL Instance Document.* |
| 101.SCH |
XBRL Taxonomy Extension Schema Document.* |
| 101.CAL |
XBRL Taxonomy Calculation Linkbase Document.* |
| 101.LAB |
XBRL Taxonomy Label Linkbase Document.* |
| 101.PRE |
XBRL Taxonomy Presentation Linkbase Document.* |
| 101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document.* |
__________________
| * |
Filed herewith. |
| ** |
Furnished herewith. |
| # |
Indicates management contract or compensatory plan or arrangement. |
Pursuant to the requirements 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.
| UFP TECHNOLOGIES, INC. | |||
| Date: August 7, 2020 |
By: /s/ R. Jeffrey Bailly |
||
| R. Jeffrey Bailly Chairman, Chief Executive Officer, President, and Director (Principal Executive Officer) |
|||
| Date: August 7, 2020 |
By: /s/ Ronald J. Lataille |
||
| Ronald J. Lataille Chief Financial Officer (Principal Financial Officer)
|
|||
EXHIBIT 10.1
EXHIBIT B
NON-QUALIFIED STOCK OPTION AGREEMENT
OPTION AGREEMENT made as of the 10th day of June, 2020 between UFP TECHNOLOGIES, INC., a Delaware corporation (hereinafter called the “Corporation”), and , a non-employee director of the Corporation (hereinafter called the “Optionee”).
The Corporation desires, by affording the Optionee an opportunity to purchase shares of its Common Stock, $.01 par value (hereinafter called the “Common Stock”), as hereinafter provided, to carry out the purpose of the 2009 Non-Employee Director Stock Incentive Plan of the Corporation (the “Director Stock Plan”). Terms used herein and not defined shall have the meaning set forth in the Director Stock Plan or in Section 9 below.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties hereto have agreed, and do hereby agree as follows:
|
1. |
Grant of Option. The Corporation hereby irrevocably grants to the Optionee the right and option (hereinafter called the “Option”) to purchase all or any part of an aggregate of 2,482 shares of the Common Stock (such number being subject to adjustment as provided in paragraph 6 hereof) on the terms and conditions herein set forth. |
|
| 2. | Purchase Price. The exercise price of each of the shares of the Common Stock covered by the Option shall be $43.95, representing the fair market value as of the date hereof. | |
| 3. | Term of Option; Exercisability. The term of the Option shall be for a period of ten (10) years from the date hereof. Except as otherwise provided in paragraph 5 hereof, the Option shall become exercisable in full on May 31, 2021, provided however, that the Option shall immediately become exercisable in full immediately prior to a Change in Control consummated on or prior to May 31, 2021. The purchase price of the shares as to which the Option shall be exercised shall be paid at the time of exercise as provided in paragraph 7 hereof. |
The Corporation may, in its discretion, require as conditions to the right to exercise this Option that (a) a Registration Statement under the Securities Act of 1933, as amended, shall be in effect and current with respect to the shares issuable upon exercise of this Option, or (b) the Optionee has given to the Corporation prior to the purchase of any shares pursuant hereto, assurances satisfactory to it that such shares are being purchased for the purpose of investment and not with a view to or for sale in connection with any distribution thereof, including without limitation, a written agreement of the Optionee that the shares will not be transferred unless registered under the Securities Act of 1933, as amended, or unless counsel for the Corporation gives a written opinion that such transfer is permissible under Federal and State law without registration.
Nothing herein contained shall be deemed to require the Corporation to register, under Federal or any State law, this Option or any shares issuable hereunder.
|
4. |
Non-transferability. The Option shall not be transferable otherwise than by will or the laws of descent and distribution, or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code (the “Code”), or Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or the rules thereunder. Subject to the foregoing, and subject to the provisions of Section 5 below, during the lifetime of the Optionee, the Option shall be exercisable only by the Optionee. More particularly (but without limiting the generality of the foregoing), the Option may not be assigned, transferred (except as provided above), pledged, or hypothecated in any way, shall not be assignable by operation of law and shall not be subject to execution, attachment, or similar process. Any attempted assignment, transfer, pledge, hypothecation, or other disposition of the Option contrary to the provisions hereof, and the levy of any execution, attachment, or similar process upon the Option shall be null and void and without effect. |
|
5. |
Termination Prior to Vesting Date; Continued Exercisability; Exercise by Heirs, Legatees, Etc. In the event the Optionee ceases to be an employee, director or independent contractor of the Corporation or one or more of its subsidiaries (the “Business Relationship”) prior to May 31, 2021 other than on account of death or permanent disability (as such term is defined in Section 22(e)(3) of the Code), the Option shall thereupon terminate as of the date of termination of the Business relationship. In the event that the Business Relationship shall be terminated on account of the Optionee's death or permanent disability, the Option may be exercised by the Optionee or, by his heirs, legatees, or legal representatives, as the case may be, during its specified term, but in any event not later than ten (10) years from the date hereof, with respect to such number of shares as are exercisable from time to time pursuant to Section 3 above following the date of death or permanent disability. Subject to the foregoing provisions of this Section 5 and of Section 3, the continued exercisability of this Option shall not require the Optionee to continue in the service of the Board of Directors of the Corporation for any particular period beyond May 31, 2021, and the Option may be exercised by the Optionee or by his or her heirs, legatees, or legal representatives, as the case may be, during its specified term, but in any event not later than ten (10) years from the date hereof. |
|
| 6. | Changes in Capital Structure. The number of shares subject to the Option shall be adjusted as follows: (a) in the event that the number of outstanding shares of Common Stock of the Corporation is changed by any stock dividend, stock split or combination of shares, the number of shares then subject to the Option shall be proportionately adjusted; (b) in the event of any merger, consolidation or reorganization of the Corporation with any other corporation or corporations, there shall be substituted, on an equitable basis for each share of Common Stock then subject to the Option, the number and kind of shares of Stock or other securities to which the holders of shares of Common Stock of the Corporation will be entitled pursuant to the transaction; and (c) in the event of any other relevant change in the capitalization of the Corporation, the Board of Directors of the Corporation shall provide for an equitable adjustment in the number of shares of Common Stock then subject to the Option. In the event of any such adjustment, the purchase price per share shall be proportionately adjusted. |
|
7. |
Method of Exercising Option. Subject to the terms and conditions of this Option Agreement, the Option may be exercised by written notice to the Corporation at its principal business address attention of the Secretary. Such notice shall state the election to exercise the Option and the number of shares in respect of which it is being exercised, and shall be signed by the person or persons so exercising the Option. At that time, this Option Agreement shall be turned in to the Corporation for action by the Corporation to reduce the number of shares to which it applies. Such notice shall be accompanied by payment in cash, by check, by shares of the Common Stock of the Corporation, or, by a combination of these methods. Payment may also be made by delivery of a notice of “net exercise” to the Corporation, pursuant to which the Optionee shall receive the number of shares of Stock underlying the Option so exercised reduced by the number of shares of Stock equal to the aggregate exercise price of the Option divided by the Fair Market Value on the date of exercise of the Option. Payment may also be made, in the discretion of the Corporation, if in accordance with applicable law, by delivery (including delivery by facsimile transmission) to the Corporation or its designated agent of an executed irrevocable option exercise form together with irrevocable instructions to a broker-dealer to sell a sufficient portion of the shares and deliver the sale proceeds directly to the Corporation to pay for the exercise price or by any other means which the Compensation Committee of the Board of Directors of the Corporation, in its discretion, determines to be consistent with the Plan’s purpose and applicable law. In the event that payment is made in shares of the Common Stock, the per share value of the Common Stock shall be the Fair Market Value of such stock on the date of exercise. The certificate or certificates for the shares as to which the Option shall have been so exercised shall be registered in the name of the person or persons so exercising the Option, (or, if the Option shall be exercised by the Optionee and if the Optionee shall so request in the notice exercising the Option, the certificate or certificates shall be registered in the name of the Optionee and another person jointly, with the right of survivorship) and shall be delivered as provided above to or upon the written order of the person or persons exercising the Option. In the event the Option shall be exercised by any person or persons other than the Optionee (to the extent permitted under this Non-Qualified Stock Option Agreement), such notice shall be accompanied by appropriate proof of the right of such person or persons to exercise the Option. |
At the time of the exercise of the Option the Corporation may require, as a condition of the exercise of such Option, the Optionee to pay the Corporation an amount equal to the amount of tax the Corporation may be required to withhold to obtain a deduction for federal income tax purposes as a result of the exercise of the Option by the Optionee.
|
8. |
General. The Corporation shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Option Agreement, shall pay all original issue taxes with respect to the issue of shares pursuant hereto and all other fees and expenses necessarily incurred by the Corporation in connection therewith, and will from time to time use its best efforts to comply with all laws and regulations which, in the opinion of counsel for the Corporation, shall be applicable thereto. The Corporation makes no representation or warranty that this Option or shares issued pursuant hereto qualify under any Federal or State law for any special tax treatment. The terms of this Option Agreement shall be construed to conform with, and shall be governed by the provisions of the Director Stock Plan and in the event of any inconsistency between the provisions of this Option Agreement and such Plan the provisions of such Plan shall control. |
|
9. |
Definitions. |
“Business Combination” shall mean (i) the consummation of a reorganization, merger or consolidation or sale or disposition of all or substantially all of the assets of the Corporation.
“Change in Control” shall mean: (i) a Business Combination, unless, in each case following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners of the Common Stock of the Corporation immediately before the consummation of such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that as a result of the transaction owns the Corporation or all or substantially all of the assets of the Corporation either directly or indirectly through one or more subsidiaries); and (B) no person or group (as defined in Section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934) of the Corporation or the corporation resulting from the Business Combination) beneficially owns, directly or indirectly, more than 50% of the then outstanding shares of the common stock of the corporation resulting from the Business Combination; (ii) individuals who, as of the date hereof constitute the Board of Directors of the Corporation (the “Incumbent Board”) thereafter cease for any reason to constitute at least a majority of the Board of Directors of the Corporation, provided, however, that any individual's becoming a director after the date of grant represented hereby whose election, or nomination for election by the stockholders of the Corporation, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board will be considered as though the individual were a member of the Incumbent Board, but excluding, for this purpose, any individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) any person (as defined in Section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934) shall become at any time or in any manner the beneficial owner of capital stock of the Corporation representing more than 50% of the voting power of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Option Agreement to be duly executed by its officer thereunto duly authorized, and the Optionee has hereunto set his or her hand and seal all as of the day and year first above written.
| UFP TECHNOLOGIES, INC. | |
| By: | |
| R. Jeffrey Bailly | |
| [name of non-employee director] | |
| Address | |
EXHIBIT 10.2
EXHIBIT A
STOCK UNIT AWARD AGREEMENT
(Granted under the UFP Technologies, Inc. 2009 Director Stock Incentive Plan)
|
1. |
Award of Stock Unit Awards. UFP Technologies, Inc. (hereinafter the “Company”), in the exercise of its sole discretion pursuant to the UFP Technologies, Inc. 2009 Director Stock Incentive Plan (the “Plan”), does on June 10, 2020 (the “Award Date”) hereby award to (the “Awardee”) 796 Stock Unit Awards (“SUAs”) upon the terms and subject to the conditions hereinafter contained. SUAs 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 and the Plan. Awardee has no rights under the SUA s other than the rights of a general unsecured creditor of the Company. Terms used herein but not defined shall have the meanings set forth in Section 19 below or the meanings set forth in the Plan. |
|
| 2. | Vesting Schedule and Conversion of SUAs. |
|
(a) |
Subject to the terms of this Award Agreement and the Plan and provided that Awardee continues to serve as a director of the Company throughout the vesting period set out below, the SUAs shall vest and be converted into an equivalent number of shares of Common Stock that will be distributed to the Awardee as follows: |
|
Vesting Date |
Percentage of SUAs |
|
May 31, 2021 |
100% |
|
(b) |
Notwithstanding the vesting schedule set forth in subsection (a) above, if there is a Change in Control of the Company (as defined below), then so long as the Awardee shall have continued to serve as a director of the Company through the date which is one day prior to the actual closing date of the transaction giving rise to such Change in Control (the “Acceleration Date”), then all of the SUA’s that are unvested on the Acceleration Date shall immediately become vested in full on the Acceleration Date, subject, however, to the provisions of Section 18 of this Award Agreement. |
|
3. |
Termination of Awardee’s Status as a Director. Subject to the provisions of Sections 4 and 5 below, in the event of termination, for any reason, of Awardee’s status as a director of the Company, Awardee’s rights under this Award Agreement in any unvested SUAs shall terminate. |
|
4. |
Disability of Awardee. Notwithstanding the provisions of Section 3 above, in the event of termination of Awardee’s status as a director of the Company as a result of disability (within the meaning of Section 409A of the Internal Revenue Code, and hereinafter referred to as “Disability”) prior to May 31, 2021, the SUAs shall become vested in full at such time and in accordance with the provisions of Section 2 notwithstanding such termination, subject, however, to the provisions of Section 18 of this Award Agreement. |
|
5. |
Death of Awardee. Notwithstanding the provisions of Section 3 above, in the event of termination of Awardee’s status as a director of the Company as a result of the death of the Awardee prior to May 31, 2021, the SUAs shall become vested in full at such time and in accordance with the provisions of Section 2 notwithstanding such termination, subject, however, to the provisions of Section 18 of this Award Agreement. |
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| 6. | Conversion of SUAs to shares of Common Stock; Responsibility for Taxes. |
|
(a) |
Provided Awardee has satisfied the requirements of Section 6(b) below, and subject, however, to the provisions of Section 18 of this Award Agreement, 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. An Awardee’s rights with respect to the SUA’s issued under this Award Agreement shall terminate at the time such SUAs are converted into shares of Common Stock. 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) | Prior to the issuance of shares of Common Stock upon vesting of SUAs as provided in Section 6(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, to the extent applicable. | |
| (c) | 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 18 of this Award Agreement, the Company shall cause such distribution to Awardee to occur promptly upon the vesting of SUAs. | |
| (d) | 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. |
|
7. |
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. | |
| 8. | Agreement of Awardee. |
|
(a) |
By accepting the Award, Awardee agrees to continue to serve as a director of the Company during the term for which he or she was elected. 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 a director of the Company. |
|
(b) |
The Awardee understands that the Plan has been registered pursuant to Registration Statements on Form S-8. However, if at the time of the issuance to the Awardee or his or her beneficiary of shares of Common Stock upon the vesting of the Award, the Awardee is an affiliate of the Company for purposes of the Securities Act of 1933, as amended, the shares issued to Awardee hereunder will be considered to be “other securities” as such term is used in paragraph (b)(2) of Rule 144 under such Act, in which case, the Awardee understands resale of the shares should only be made in compliance with the applicable provisions of Rule 144. |
| 9. | 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; | |
| (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) | Awardee acknowledges and agrees that, in the event of termination of the Awardee’s service on the Company’s Board of Directors, regardless of the reasons for such termination, Awardee has no right to, and will not bring any legal claim or action for, (i) any damages for any portion of the SUAs that have been vested and converted into Common Shares, or (ii) termination of any unvested SUAs under this Award Agreement. |
| 10. | Administration. The authority to manage and control the operation and administration of this Award Agreement shall be vested in the Committee (as 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. |
| 11. | 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. | |
| 12. | 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. | |
| 13. | 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. | |
| 14. | Acknowledgment. By Awardee’s acceptance as evidenced below, Awardee further 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. | |
| 15. | 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. | |
| 16. | 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. | |
| 17. | 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 17. | |
| 18. | Section 409A. This Award Agreement is intended to be in compliance with the provisions of Section 409A of the Internal Revenue Code, as amended (the “Code”), and the regulations thereunder to the extent applicable. 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. 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. |
| 19. | Definitions. |
“Business Combination” shall mean (i) the consummation of a reorganization, merger or consolidation or sale or disposition of all or substantially all of the assets of the Company.
“Change in Control” shall mean: (i) a Business Combination, unless, in each case following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners of the Common Stock of the Company immediately before the consummation of such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that as a result of the transaction owns the Company or all or substantially all of the assets of the Company either directly or indirectly through one or more subsidiaries); and (B) no person or group (as defined in Section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934) of the Company or the corporation resulting from the Business Combination) beneficially owns, directly or indirectly, more than 50% of the then outstanding shares of the common stock of the corporation resulting from the Business Combination; (ii) individuals who, as of the date hereof constitute the Board of Directors of the Company (the “Incumbent Board”) thereafter cease for any reason to constitute at least a majority of the Board of Directors of the Company, provided, however, that any individual's becoming a director after the date of grant represented hereby whose election, or nomination for election by the stockholders of the Company, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board will be considered as though the individual were a member of the Incumbent Board, but excluding, for this purpose, any individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) any person (as defined in Section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934) shall become at any time or in any manner the beneficial owner of capital stock of the Company representing more than 50% of the voting power of the Company.
[remainder of this page intentionally left blank; signature page follows]
EXECUTED as of the day and year first above written.
| UFP TECHNOLOGIES, INC. | ||
| By: | ||
| R. Jeffrey Bailly | ||
| Chairman and Chief Executive Officer | ||
AWARDEE’S ACCEPTANCE:
I have read and fully understood this Award Agreement and 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.
[name of Awardee]
EXHIBIT 31.1
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 quarterly report on Form 10-Q 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. |
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 |
|
b. |
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. |
Date: August 7, 2020 /s/ R. Jeffrey Bailly
R. Jeffrey Bailly
Chairman, Chief Executive Officer, President and Director
(Principal Executive Officer)
EXHIBIT 31.2
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 quarterly report on Form 10-Q 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. |
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 |
|
b. |
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. |
Date: August 7, 2020 /s/ Ronald J. Lataille
Ronald J. Lataille
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT 32.1
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)
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 that, to the best of such officers’ knowledge and belief, that:
(1) The Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, (the “Form 10-Q”) 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-Q fairly presents, in all materials respects, the financial condition and results of operations of the Company.
Date: August 7, 2020 /s/ R. Jeffrey Bailly
R. Jeffrey Bailly
Chairman, Chief Executive Officer, President, and Director
(Principal Executive Officer)
Date: August 7, 2020 /s/ Ronald J. Lataille
Ronald J. Lataille
Chief Financial Officer
(Principal Financial Officer)
A signed original of these written statements required by Section 906 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.