10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended     MARCH 31, 2020    

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 001-12648

UFP Technologies, Inc.

(Exact name of registrant as specified in its charter)

Delaware	04-2314970
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

100 Hale Street, Newburyport, MA 01950, USA

(Address of principal executive offices) (Zip Code)

(978) 352-2200

(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 on which registered
Common Stock	UFPT	The NASDAQ Stock Market L.L.C.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  X ; No ____

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes  X ; No ____

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 ☐	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 ____; No  X

7,482,844 shares of registrant’s Common Stock, $0.01 par value, were outstanding as of May 1, 2020.

1

UFP Technologies, Inc.

Index

Page

PART I - FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 (unaudited)	3
Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2020 and March 31, 2019 (unaudited)	4
Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2020 and March 31, 2019 (unaudited)	5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and March 31, 2019 (unaudited)	6
Notes to Interim Condensed Consolidated Financial Statements	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 4. Controls and Procedures	22
PART II - OTHER INFORMATION	23
Item 1A. Risk Factors	23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 6. Exhibits	24
Signatures	25

2

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

UFP Technologies, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share data)

(Unaudited)

	March 31, 2020			December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	7,334		$	3,743
Receivables, less allowance of $541 at March 31, 2020 and $486 at December 31, 2019		29,449			28,648
Inventories		20,242			18,276
Prepaid expenses		2,750			2,304
Refundable income taxes		-			279
Total current assets		59,775			53,250
Property, plant and equipment		117,292			116,089
Less accumulated depreciation and amortization		(61,062	)		(59,350	)
Net property, plant and equipment		56,230			56,739
Goodwill		51,838			51,838
Intangible assets, net		20,661			20,975
Non-qualified deferred compensation plan		2,790			2,775
Operating lease right of use assets		2,771			3,034
Other assets		148			147
Total assets	$	194,213		$	188,758
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	7,535		$	4,577
Accrued expenses		6,350			8,483
Deferred revenue		2,432			2,574
Operating lease liabilities		1,140			1,150
Income taxes payable		5			-
Total current liabilities		17,462			16,784
Deferred income taxes		5,342			4,921
Non-qualified deferred compensation plan		2,817			2,788
Operating lease liabilities		1,687			1,940
Other liabilities		630			334
Total liabilities		27,938			26,767
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized; no shares issued		-			-
Common stock, $.01 par value, 20,000,000 shares authorized; 7,512,403 and 7,482,844 shares issued and outstanding, respectively at March 31, 2020;7,475,768 and 7,446,209 shares issued and outstanding, respectively at December 31, 2019		75			74
Additional paid-in capital		31,344			30,952
Retained earnings		135,443			131,552
Treasury stock at cost, 29,559 shares at March 31, 2020 and December 31, 2019		(587	)		(587	)
Total stockholders’ equity		166,275			161,991
Total liabilities and stockholders' equity	$	194,213		$	188,758

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

3

UFP Technologies, Inc.

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

	Three Months Ended
	March 31,
	2020			2019
Net sales	$	48,277		$	47,328
Cost of sales		35,454			34,831
Gross profit		12,823			12,497
Selling, general and administrative expenses		7,752			7,244
Gain on sale of fixed assets		(4	)		-
Operating income		5,075			5,253
Interest expense		16			231
Other expense		327			239
Income before income tax expense		4,732			4,783
Income tax expense		841			1,049
Net income	$	3,891		$	3,734
Net income per share:
Basic	$	0.52		$	0.50
Diluted	$	0.52		$	0.50
Weighted average common shares outstanding:
Basic		7,457			7,402
Diluted		7,538			7,466

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

4

UFP Technologies, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)

Three Months Ended March 31, 2020
						Additional										Total
	Common Stock					Paid-in			Retained		Treasury Stock					Stockholders'
	Shares			Amount		Capital			Earnings		Shares		Amount			Equity
Balance at December 31, 2019		7,446		$	74	$	30,952		$	131,552		30	$	(587	)	$	161,991
Share-based compensation		28			-		537			-		-		-			537
Exercise of stock options		20			1		415			-		-		-			416
Net share settlement of restricted stock units		(11	)		-		(560	)		-		-		-			(560	)
Net income		-			-		-			3,891		-		-			3,891
Balance at March 31, 2020		7,483		$	75	$	31,344		$	135,443		30	$	(587	)	$	166,275

Three Months Ended March 31, 2019
						Additional										Total
	Common Stock					Paid-in			Retained		Treasury Stock					Stockholders'
	Shares			Amount		Capital			Earnings		Shares		Amount			Equity
Balance at December 31, 2018		7,385		$	74	$	29,168		$	111,802		30	$	(587	)	$	140,457
Share-based compensation		20			-		294			-		-		-			294
Exercise of stock options		17			-		285			-		-		-			285
Net share settlement of restricted stock units		(8	)		-		(271	)		-		-		-			(271	)
Net income		-			-		-			3,734		-		-			3,734
Balance at March 31, 2019		7,414		$	74	$	29,476		$	115,536		30	$	(587	)	$	144,499

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

5

UFP Technologies, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2020			2019
Cash flows from operating activities:
Net income	$	3,891		$	3,734
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,066			2,022
Gain on sale of fixed assets		(4	)		-
Share-based compensation		537			294
Deferred income taxes		421			424
Changes in operating assets and liabilities:
Receivables, net		(801	)		(1,451	)
Inventories		(1,966	)		139
Prepaid expenses		(446	)		364
Refundable income taxes		284			781
Other assets		247			(338	)
Accounts payable		2,726			(907	)
Accrued expenses		(2,133	)		(2,506	)
Deferred revenue		(142	)		465
Non-qualified deferred compensation plan and other liabilities		62			608
Net cash provided by operating activities		4,742			3,629
Cash flows from investing activities:
Additions to property, plant, and equipment		(1,020	)		(1,388	)
Proceeds from sale of fixed assets		13			-
Net cash used in investing activities		(1,007	)		(1,388	)
Cash flows from financing activities:
Payments on revolving line of credit		-			(3,000	)
Proceeds from exercise of stock options		416			285
Payment of statutory withholdings for restricted stock units vested		(560	)		(271	)
Net cash used in financing activities		(144	)		(2,986	)
Net increase (decrease) in cash and cash equivalents		3,591			(745	)
Cash and cash equivalents at beginning of period		3,743			3,238
Cash and cash equivalents at end of period	$	7,334		$	2,493

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

6

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 March 31, 2020 and December 31, 2019, the condensed consolidated statements of income for the three-month periods ended March 31, 2020 and 2019, the condensed consolidated statements of stockholders’ equity for the three-month periods ended March 31, 2020 and 2019, and the condensed consolidated statements of cash flows for the three-month periods ended March 31, 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 audited 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-month period ended March 31, 2020 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2020.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Accounting Standards Codification (ASC) 326). The Company adopted ASC 326 on January 1, 2020. See Note 4 for further details.

In January 2017, the FASB issued ASU 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. The Company adopted ASC 350 on January 1, 2020 and it did not 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 $476 thousand and a decrease of long-term operating lease liabilities of $476 thousand. These revisions had no impact on previously reported earnings, net income or cash flows and are deemed immaterial to the previously issued financial statements.

7

(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 as the services are performed. The Company recognizes revenue from bill and hold transactions at the time the specified goods are complete and available to the customer. In the ordinary course of business, the Company accepts sales returns from customers for defective goods, such amounts being immaterial. Although only applicable to an insignificant number of transactions, the Company has elected to exclude sales taxes from the transaction price. The Company has elected to account for shipping and handling activities for which the Company is responsible under the terms and conditions of the sale not as performance obligations but rather as fulfillment costs. These activities are required to fulfill the Company’s promise to transfer the good and are expensed when revenue is recognized.

Disaggregated Revenue

The following table presents the Company’s revenue disaggregated by the major types of goods and services sold to our customers (in thousands):

	Three Months Ended
	March 31,
Net sales of:	2020		2019
Products	$	47,029	$	46,410
Tooling and Machinery		677		645
Engineering services		571		273
Total net sales	$	48,277	$	47,328

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 three months ended March 31, 2020 and 2019 (in thousands):

	Contract Liabilities
	Three Months Ended March 31,
	2020			2019
Deferred revenue - beginning of period	$	2,574		$	2,507
Increases due to consideration received from customers		525			991
Revenue recognized		(667	)		(526	)
Deferred revenue - end of period	$	2,432		$	2,972

Revenue recognized during the three months ended March 31, 2020 and 2019 from amounts included in deferred revenue at the beginning of the period was approximately $517 thousand and $497 thousand, respectively.

8

When invoicing occurs after revenue recognition, the Company has unbilled receivables (contract assets) included within “receivables” on the condensed consolidated balance sheet. The Company considered the guidance in ASC 326 upon adoption and in the current period and determined that an allowance for credit losses was not necessary on the unbilled receivables balance due to there being no history of credit losses. The following table presents opening and closing balances of contract assets for the three months ended March 31, 2020 and 2019 (in thousands):

	Contract Assets
	Three Months Ended March 31,
	2020			2019
Unbilled Receivables - beginning of period	$	72		$	65
Increases due to revenue recognized - not invoiced to customers		522			85
Decreases due to customer invoicing		(404	)		(106	)
Unbilled Receivables - end of period	$	190		$	44

(3) Supplemental Cash Flow Information

	Three Months Ended
	March 31,
	2020		2019
	(in thousands)
Cash paid for:
Interest	$	12	$	47
Income taxes, net of refunds	$	-	$	(156	)
Non-cash investing and financing activities:
Capital additions accrued but not yet paid	$	232	$	108
Recognition of lease asset and liability	$	-	$	3,831

(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 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.

9

The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected for the three months ended March 31, 2020 (in thousands):

	Allowance for Credit Losses
	Three Months Ended March 31, 2020
Allowance - beginning of period	$	486
Provision for expected credit losses		60
Amounts written off against the allowance		(5	)
Allowance - end of period	$	541

(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	March 31, 2020			March 31, 2019
Liabilities:
Derivative financial instruments	$	(624	)	$	(175	)

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.

10

(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
	March 31,
Share-based compensation related to:	2020		2019
Common stock grants	$	100	$	100
Stock option grants		60		7
Restricted Stock Unit Awards ("RSUs")		377		187
Total share-based compensation	$	537	$	294

The total income tax benefit recognized in the condensed consolidated statements of income for share-based compensation arrangements was approximately $348 thousand and $164 thousand for the three-month periods ended March 31, 2020 and 2019, respectively.

The following is a summary of stock option activity under all plans for the three-month period ended March 31, 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		105,614		$	25.34
Granted		-
Exercised		(19,586	)	$	21.20
Outstanding at March 31, 2020		86,028		$	26.28		5.70	$	1,025
Exercisable at March 31, 2020		65,742		$	23.04		5.00	$	989
Vested and expected to vest at March 31, 2020		86,028		$	26.28		5.70	$	1,025

During the three-month period ended March 31, 2020, 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 $530 thousand, and the total amount of consideration received by the Company from the exercised options was approximately $415 thousand. During the three-month period ended March 31, 2019, the total intrinsic value of all options exercised was approximately $274 thousand, and the total amount of consideration received by the Company from the exercised options was approximately $285 thousand. At its discretion, the Company allows option holders to surrender previously owned common stock in lieu of paying the exercise price and withholding taxes. During both the three-month periods ended March 31, 2020 and 2019, no shares were surrendered for this purpose.

On February 24, 2020, the Company’s Compensation Committee approved the award of $400 thousand, payable in shares of common stock to the Company’s Chairman, Chief Executive Officer, and President under the 2003 Incentive Plan. Subject to his continued employment and the terms of his employment agreement, the shares will be issued in December 2020.

11

The following table summarizes information about RSU activity during the three-month period ended March 31, 2020:

	Restricted Stock Units			Weighted Average Award Date Fair Value
Outstanding at December 31, 2019		113,866		$	28.36
Awarded		42,733			49.96
Shares vested		(28,244	)		27.02
Outstanding at March 31, 2020		128,355		$	31.58

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 three-month periods ended March 31, 2020 and 2019, 11,195 and 8,132 shares were surrendered at an average market price of $49.99 and $33.35, respectively.

As of March 31, 2020, the Company had approximately $4.0 million of unrecognized compensation expense that is expected to be recognized over a period of 4 years.

(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):

	March 31, 2020		December 31, 2019
Raw materials	$	11,471	$	10,540
Work in process		2,795		2,279
Finished goods		5,976		5,457
Total inventory	$	20,242	$	18,276

(8) Leases

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

ROU assets represent the Company's right to use an underlying asset during the lease term and operating lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at commencement date based on the net present value of fixed lease payments over the lease term. The Company's lease term includes options to extend or terminate the lease when it is reasonably certain that we will exercise that option. ROU assets will also be adjusted for any deferred or accrued rent. As the Company's operating leases do not typically provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Operating fixed lease expense is recognized on a straight-line basis over the lease term.

12

	Three Months Ended
	March 31, ($'s in thousands)
	2020			2019
Lease Cost:
Operating	$	305		$	307
Variable		57			57
Short-term		7			6
Total lease cost	$	369		$	370
Cash paid for amounts included in measurement of lease liabilities:
Operating	$	305		$	303
Weighted-average remaining lease term (years):
Operating		2.45			3.37
Weighted-average discount rate:
Operating		4.45	%		4.45	%

The aggregate future lease payments for operating leases as of March 31, 2020 were as follows (in thousands):

Remainder of 2020	$	874
2021		1,121
2022		959
2023		36
2024		-
Thereafter		-
Total lease payments		2,990
Less: Interest		(163	)
Present value of lease liabilities	$	2,827

(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
	March 31,
	2020		2019
Basic weighted average common shares outstanding		7,457		7,402
Weighted average common equivalent shares due to stock options and RSUs		81		64
Diluted weighted average common shares outstanding		7,538		7,466

13

The computation of diluted earnings per share excludes the effect of the potential exercise of 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-month periods ended March 31, 2020 and 2019, the number of stock awards excluded from the computation of diluted earnings per share for this reason was zero.

(10) Segment Reporting

The Company consists of a single operating and reportable segment.

Revenues from customers outside of the United States are not material. No customer comprised more than 10% of the Company’s consolidated revenues for both the three-month periods ended March 31, 2020 and 2019. All of the Company’s assets are located in the United States.

The Company’s products are primarily sold to customers within the Medical, Automotive, Consumer, Aerospace and Defense, Industrial, and Electronics markets. Net sales by market for the three-month periods ended March 31, 2020 and 2019 are as follows (in thousands):

	Three Months Ended March 31,
	2020					2019 (1)
Market	Net Sales		%			Net Sales		%
Medical	$	33,688		69.8	%	$	28,944		61.2	%
Automotive		4,602		9.5	%		5,738		12.1	%
Consumer		3,439		7.1	%		4,424		9.3	%
Aerospace & Defense		2,711		5.6	%		3,532		7.5	%
Industrial		1,917		4.0	%		2,485		5.3	%
Electronics		1,920		4.0	%		2,204		4.7	%
Net Sales	$	48,277		100.0	%	$	47,327		100.0	%

⁽¹⁾ Certain amounts for the three months ended March 31, 2019 were reclassified between markets to conform to the current period presentation.

(11) Other Intangible Assets

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

	Tradename & Brand			Non- Compete			Customer List			Total
Estimated useful life	10 years			5 years			20 years
Gross amount	$	367		$	462		$	22,555		$	23,384
Accumulated amortization		(80	)		(200	)		(2,443	)		(2,723	)
Net balance	$	287		$	262		$	20,112		$	20,661

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Amortization expense related to intangible assets was approximately $314 thousand for both the three-month periods ended March 31, 2020 and 2019. The estimated remaining amortization expense as of March 31, 2020 is as follows (in thousands):

Remainder of:
2020	$	943
2021		1,257
2022		1,257
2023		1,172
2024		1,164
Thereafter		14,868
Total	$	20,661

(12) Income Taxes

The income tax expense included in the accompanying unaudited condensed consolidated statements of income principally relates to the Company’s proportionate share of the pre-tax income of its wholly-owned subsidiaries. The determination of income tax expense for interim reporting purposes 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 tax expense of approximately 17.8% and 21.9% of income before income tax expense for the three-month periods ended March 31, 2020 and 2019, respectively.

(13) Indebtedness

On February 1, 2018, the Company, as the borrower, entered into an unsecured $70 million Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) with certain of the Company’s subsidiaries (the “Subsidiary Guarantors”) and Bank of America, N.A., in its capacity as the initial lender, Administrative Agent, Swingline Lender and L/C Issuer, and certain other lenders from time to time party thereto. The Amended and Restated Credit Agreement amends and restates the Company’s prior credit agreement.

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

The Amended and Restated Credit Agreement calls for interest of LIBOR plus a margin that ranges from 1.0% to 1.5% or, at the discretion of the Company, the bank’s prime rate less a margin that ranges from 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 March 31, 2020 there were no amounts outstanding under the Amended and Restated Credit Facilities other than $0.7 million in standby letters of credit outstanding drawable as a financial guarantee on worker’s compensation insurance policies. As of March 31, 2020, the applicable interest rate was approximately 1.99% and the Company was in compliance with all covenants under the Amended and Restated Credit Agreement.

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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. The Company does not speculate using derivative instruments. By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself 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 market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. 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 $13.6 million at March 31, 2020. The fair value of the swap as of March 31, 2020 and 2019 was approximately $(624) thousand and $(175) thousand, respectively and is included in other liabilities. Changes in the fair value of the swap are recorded in other expense and were approximately $300 thousand and $239 thousand during the three-months ended March 31, 2020 and 2019, respectively.

(14) Subsequent Events

The Company’s operations expose it to risks associated with the COVID-19 pandemic. Although the COVID-19 pandemic did not materially impact the Company’s first quarter results, it has since more significantly impacted the Company’s operations. While all of the Company’s factories are deemed essential, not all of its customers’ operations are essential and, therefore, demand for product, especially in the automotive and consumer markets, has been negatively impacted. Partially mitigating this are increased orders from certain customers in the medical market. The COVID-19 pandemic has also impacted the Company’s cost of manufacturing its goods, including higher labor costs, maintenance costs and manufacturing inefficiencies due to employee absenteeism and significantly enhanced cleaning and sterilization. With regard to the Company’s supply chain, there has thus far been minimal disruption in the availability of raw materials, as most of the Company’s major suppliers have also been deemed to be essential businesses. However, to mitigate risk, the Company has increased its purchases of raw materials to establish safety stock.

The Company has been notified by several customers that they would be extending payment terms. The Company anticipates that these extended payment terms will be short-term in nature, but they may continue for a longer duration. In the beginning of April, the Company drew down $5.5 million from its revolving credit facility to maintain cash reserves in the event it experiences a substantial shut down of operations, further or extended increase in manufacturing costs or significant exposure to its ability to timely collect its receivables.

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ITEM 2: 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 (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). 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 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 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 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.

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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 estimates and assumptions 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, 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 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 three-month period ended March 31, 2020 grew 2.0% to $48.3 million from $47.3 million in the same period last year due to strong growth in sales to the customers in the medical market. Streamlined manufacturing operations and a better mix of business enabled us to improve gross margins to 26.6% for the three-month period ended March 31, 2020, from 26.4% in the same period last year. Operating income for the three-month period ended March 31, 2020 decreased to $5.1 million from $5.3 million in the same period last year due primarily to higher selling, general and administrative expense, while net income for the three-month period ended March 31, 2020 increased to $3.9 million from $3.7 million in the same period last year.

Our current strategy includes further organic growth and growth through strategic acquisitions.

Recent Developments

COVID-19

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 product 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. However, to mitigate risk, we have increased purchases of raw materials to establish safety stock.

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 experience a substantial shut down of operations, further or extended increase in manufacturing costs or significant exposure to our ability to timely collect receivables.

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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, shelter in place 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, further increases in operating costs (whether as a result of changes to our supply chain or increases in employee or manufacturing costs). Any continued reduced demand for our products due, for example, to reduced need for packaging for consumer and electronic goods, reduced need for components for medical devices, such as those used in elective procedures, reduced need for automobile components, etc., 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, 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.

The COVID-19 pandemic and associated economic disruptions have had, and we believe will continue to have, negative effects on our operating results, cash flows and financial condition. While we began to experience these effects towards the end of March, we expect the effects on our financial results in the second and third fiscal quarters will be more significant. Our financial results may be materially adversely impacted by COVID-19 in future periods, as well. 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

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. 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 March 31, 2020 increased 2.0% to $48.3 million from $47.3 million in the same period in 2019. The increase in sales for the three-month period ended March 31, 2020 was primarily due to increased sales to the medical market of 16.4%, partially offset by decreases in sales to customers in the aerospace and defense, automotive and, collectively, consumer, industrial and electronics markets of 23.2%, 19.8% and 20.2%, respectively. The increased sales to the medical market was primarily due to continued growth in programs at Dielectrics. The decreased sales to customers in the aerospace and defense market was primarily due to the timing of orders pursuant to government contracts. The decline in sales to the automotive market was due, in part, to our customers’ forecasted decreased demand due to industry shutdowns associated with the COVID19 pandemic. The decline in sales to all other markets was primarily due to reduced demand for molded fiber protective packaging.

Gross Profit

Gross profit as a percentage of sales (“gross margins”) increased to 26.6% for the three-month period ended March 31, 2020 from 26.4% in the same period in 2019. As a percentage of sales, material and labor costs collectively decreased 0.5%, while overhead increased 0.3%. The decrease in collective material and labor costs as a percentage of sales is primarily due to gains in manufacturing efficiencies resulting from continuous improvement initiatives and an improvement in the overall book of business. The increase in overhead as a percentage of sales was primarily due to increased indirect labor to support anticipated long-term growth. We anticipate higher plant maintenance and supply expenses associated with keeping its manufacturing plants clean in light of the COVID19 pandemic.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) for the three-month period ended March 31, 2020 increased 7.0% to $7.8 million from $7.2 million in the same period in 2019. As a percentage of sales, SG&A for the three-month period ended March 31, 2020 increased to 16.1% from 15.3% in the same period in 2019. The increase in SG&A was largely attributable to an increase in stock-based equity awards of approximately $250 thousand and an increase in bad debt expense of approximately $130 thousand from the same period in 2019 due, in part, to the anticipated impact of the COVID19 pandemic on our customers.

Interest Income and Expense

We had net interest expense of approximately $16 thousand and $231 thousand for the three-month periods ended March 31, 2020 and 2019, respectively. The decrease in net interest expense is due to a reduction in the outstanding balance of debt.

Other Expense

We had other expense of approximately $327 thousand and $239 thousand for the three-month periods ended March 31, 2020 and 2019, respectively. This increase is due to an increase in the fair value of the swap liability which was caused by interest rate reductions enacted during the first quarter as well as lower anticipated future rate increases. 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

We recorded tax expense of approximately 17.8% and 21.9% of income before income tax expense for the three-month periods ended March 31, 2020 and 2019, respectively. The decrease in the effective tax rate was primarily due to higher anticipated research and development tax credits than those anticipated at this time last year.

Liquidity and Capital Resources

We generally fund our operating expenses, capital requirements, and growth plan through internally generated cash and bank credit facilities.

Cash Flows

Net cash provided by operations for the three-month period ended March 31, 2020 was approximately $4.7 million and was primarily a result of net income generated of approximately $3.9 million, depreciation and amortization of approximately $2.1 million, share-based compensation of approximately $0.5 million, an increase in deferred taxes of approximately $0.4 million, a decrease in refundable income taxes of approximately $0.3 million, a decrease in other assets of approximately $0.2 million, a net increase in accounts payable and accrued expenses of approximately $0.6 million, due to the timing of vendor payments and in the ordinary course of business, and an increase in other liabilities of approximately $0.1 million. These cash inflows and adjustments to income were partially offset by an increase in accounts receivable of approximately $0.8 million primarily due to increased sales in the last two months of the first quarter of 2020 over the same period of the fourth quarter of 2019, an increase in inventory of approximately $2.0 million due to restocking to historical levels and for expected safety stock needs, an increase in prepaid expenses of approximately $0.5 million, and a decrease in deferred revenue of approximately $0.1 million.

Net cash used in investing activities during the three-month period ended March 31, 2020 was approximately 1.0 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 three-month period ended March 31, 2020, resulting from payments for statutory withholding for stock options exercised and restricted stock units vested of approximately $0.5 million, partially offset by net proceeds received upon stock options exercises of approximately $0.4 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 our 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 our prior credit agreement.

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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.  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, we are 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 March 31, 2020 there were no amounts outstanding under the Amended and Restated Credit Facilities other than $0.7 million in standby letters of credit outstanding drawable as a financial guarantee on worker’s compensation insurance policies. As of March 31, 2020, the applicable interest rate was approximately 1.99%. The Company was in compliance with all covenants under the Amended and Restated Credit Agreement.

Derivative Financial Instruments

We use interest-rate-related derivative instruments to manage its exposure related to changes in interest rates on our variable-rate debt instruments. We do not enter into derivative instruments for any purpose other than cash flow hedging. We do not speculate using derivative instruments. By using derivative financial instruments to hedge exposures to changes in interest rates, we expose ourselves 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 us. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, we are not exposed to the counterparty’s credit risk. We minimize 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 market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. We assess 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. Our debt obligations expose us to variability in interest payments due to changes in interest rates. We believe that it is prudent to limit the variability of a portion of our interest payments. To meet this objective, in connection with the term loan under the Amended and Restated Credit Agreement, we entered into a $20 million, 5-year interest rate swap agreement under which we receive three-month LIBOR plus the applicable margin and pay a 2.7% fixed rate plus the applicable margin. The swap agreement was established to modify our 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 term loan was repaid in full, the swap agreement no longer serves this purpose and may be canceled by us prior to its expiration date if deemed advantageous. The notional amount was approximately $13.6 million at March 31, 2020. The fair value of the swap as of March 31, 2020 and 2019 was approximately $(624) thousand and $(175) thousand, respectively and is included in other liabilities. Changes in the fair value of the swap are recorded in other expense and were approximately $300 thousand and $239 thousand during the three-months ended March 31, 2020 and 2019, respectively.

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 $4.7 million from operations during the three months ended March 31, 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. On April 1, 2020 we drew down $5.5 million from our revolving credit facility. Our longer-term liquidity is contingent upon future operating performance and further draws on our revolving credit facility are possible.

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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, we announced that our Board of Directors authorized the repurchase of up to $10.0 million of our outstanding common stock. Under the program, we are authorized to repurchase shares through Rule 10b5-1 plans, open market purchases, privately negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934. The stock repurchase program will end upon the earlier of the date on which the plan is terminated by the Board or when all authorized repurchases are completed. The timing and amount of stock repurchases, if any, will be determined based upon our evaluation of market conditions and other factors. The stock repurchase program may be suspended, modified, or discontinued at any time, and we have 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 three months of 2020. Through March 31, 2020, we repurchased a total of 29,559 shares of our common stock under this program at a cost of approximately $587 thousand. At March 31, 2020, approximately $9.4 million was available for future repurchases of our 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, our off-balance-sheet arrangements include standby letters of credit which are included in our revolving credit facility. As of March 31, 2020, there was approximately $0.7 million in standby letters of credit drawable as a financial guarantee on worker’s compensation insurance policies.

ITEM 4: 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 SEC 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 Securities Exchange Act of 1934, as amended, 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.

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PART II: OTHER INFORMATION

ITEM 1A: RISK FACTORS

There have been no material changes from the risk factors previously disclosed in Part 1 - Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, other than as described 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 the novel strain of coronavirus disease 2019 ("COVID-19") has created significant volatility, uncertainty and economic disruption in the markets in which we participate, and 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 surgeries, 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.

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, shelter in place orders, and business shutdowns. As discussed above, 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). Any continued reduced demand for our products due, for example, to reduced need for packaging for consumer and electronic goods, reduced need for components for medical devices, such as those used in elective procedures, reduced need for automobile components, etc., 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, 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.

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 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 will continue to have, negative effects on our operating results, cash flows and financial condition. While we began to experience these effects towards the end of March, we expect the effects on our financial results in the second and third fiscal quarters will be more significant. Our financial results may be materially adversely impacted by COVID-19 in future periods, as well. 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.

23

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.

ITEM 2: 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 three months of 2020. Through March 31, 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 March 31, 2020, approximately $9.4 million was available for future repurchases of the Company's common stock under this authorization.

ITEM 6: EXHIBITS

Exhibit No.	Description
10.1	Form of 2020 CEO Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on February 28, 2020 (SEC File No. 001-12648)). #
10.2	Form of 2020 Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on February 28, 2020 (SEC File No. 001-12648)). #
31.1	Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.*
31.2	Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.*
32.1	Certifications pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
101.INS	XBRL Instance Document.*
101.SCH	XBRL Taxonomy Extension Schema Document.*
101.CAL	XBRL Taxonomy Calculation Linkbase Document.*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.*
101.LAB	XBRL Taxonomy Label Linkbase Document.*
101.PRE	XBRL Taxonomy Presentation Linkbase Document.*

__________________

* Filed herewith.

** Furnished herewith.

# Indicates management contract or compensatory plan or arrangement.

24

SIGNATURES

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: May 8, 2020	By:	/s/ R. Jeffrey Bailly
		R. Jeffrey Bailly
		Chairman, Chief Executive Officer, President, and Director (Principal Executive Officer)
Date: May 8, 2020	By:	/s/ Ronald J. Lataille
		Ronald J. Lataille Chief Financial Officer (Principal Financial Officer)

25

EX-31.1

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: May 8, 2020	/s/ R. Jeffrey Bailly
	R. Jeffrey Bailly
	Chairman, Chief Executive Officer, President and Director
	(Principal Executive Officer)

EX-31.2

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: May 8, 2020	/s/ Ronald J. Lataille
	Ronald J. Lataille
	Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

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 March 31, 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: May 8, 2020	/s/ R. Jeffrey Bailly
	R. Jeffrey Bailly
	Chairman, Chief Executive Officer, President, and Director
	(Principal Executive Officer)
Date: May 8, 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.

XML

Note 6 - Share-based Compensation - Restricted Stock Unit Activity (Details) - Restricted Stock Units (RSUs) [Member]	3 Months Ended
	Mar. 31, 2020 $ / shares shares
Outstanding, restricted stock units (in shares) | shares	113,866
Outstanding, weighted average award date fair value (in dollars per share) | $ / shares	$ 28.36
Awarded, restricted stock units (in shares) | shares	42,733
Awarded, weighted average award date fair value (in dollars per share) | $ / shares	$ 49.96
Shares vested, restricted stock units (in shares) | shares	(28,244)
Shares vested, weighted average award date fair value (in dollars per share) | $ / shares	$ 27.02
Outstanding, restricted stock units (in shares) | shares	128,355
Outstanding, weighted average award date fair value (in dollars per share) | $ / shares	$ 31.58

XML

Note 9 - Income Per Share - Weighted Average Number of Shares Used to Compute Net EPS (Details) - shares shares in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Basic (in shares)	7,457	7,402
Weighted average common equivalent shares due to stock options and RSUs (in shares)	81	64
Diluted weighted average common shares outstanding (in shares)	7,538	7,466

XML

Note 7 - Inventories (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	March 31, 2020		December 31, 2019
Raw materials	$	11,471	$	10,540
Work in process		2,795		2,279
Finished goods		5,976		5,457
Total inventory	$	20,242	$	18,276

XML

Note 3 - Supplemental Cash Flow Information (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Cash Flow, Supplemental Disclosures [Table Text Block]

	Three Months Ended
	March 31,
	2020		2019
	(in thousands)
Cash paid for:
Interest	$	12	$	47
Income taxes, net of refunds	$	-	$	(156	)
Non-cash investing and financing activities:
Capital additions accrued but not yet paid	$	232	$	108
Recognition of lease asset and liability	$	-	$	3,831

XML

Note 9 - Income Per Share

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Earnings Per Share [Text Block]

( 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
	March 31,
	2020		2019
Basic weighted average common shares outstanding		7,457		7,402
Weighted average common equivalent shares due to stock options and RSUs		81		64
Diluted weighted average common shares outstanding		7,538		7,466

The computation of diluted earnings per share excludes the effect of the potential exercise of 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

-month periods ended

March 

31,

2020

and

2019

, the number of stock awards excluded from the computation of diluted earnings per share for this reason was zero.

XML

Note 5 - Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Fair Value Disclosures [Text Block]

( 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	March 31, 2020			March 31, 2019
Liabilities:
Derivative financial instruments	$	(624	)	$	(175	)

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

.

XML

Note 13 - Indebtedness

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Debt Disclosure [Text Block]

( 13 ) Indebtedness

On

February 1, 2018,

the Company, as the borrower, entered into an unsecured

$70

million Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) with certain of the Company’s subsidiaries (the “Subsidiary Guarantors”) and Bank of America, N.A., in its capacity as the initial lender, Administrative Agent, Swingline Lender and L/C Issuer, and certain other lenders from time to time party thereto. The Amended and Restated Credit Agreement amends and restates the Company’s prior credit agreement.

The credit facilities under the Amended and Restated Credit Agreement (the “Amended and Restated Credit Facilities”) consist of a

$20

million unsecured term loan and an unsecured revolving credit facility, under which the Company

may

borrow up to

$50

million.  The Amended and Restated Credit Agreement matures on

February 1, 2023. 

The proceeds borrowed pursuant to the Amended and Restated Credit Agreement

may

be used for general corporate purposes, as well as permitted acquisitions. The Company’s obligations under the Amended and Restated Credit Agreement are guaranteed by the Subsidiary Guarantors.

The Amended and Restated Credit Agreement calls for interest of LIBOR plus a margin that ranges from

1.0%

to

1.5%

or, at the discretion of the Company, the bank’s prime rate less a margin that ranges from

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

March 31, 2020

there were

no

amounts outstanding under the Amended and Restated Credit Facilities other than

$0.7

million in standby letters of credit outstanding drawable as a financial guarantee on worker’s compensation insurance policies. As of

March 31, 2020,

the applicable interest rate was approximately

1.99%

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. The Company does

not

speculate using derivative instruments. By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself 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 market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that

may

be undertaken. 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

$13.6

million at

March 

31,

2020.

The fair value of the swap as of

March 31, 2020

and

2019

was approximately $(

624

) thousand and $(

175

) thousand, respectively and is included in other liabilities. Changes in the fair value of the swap are recorded in other expense and were approximately

$300

thousand and

$239

thousand during the

three

-months ended

March 31, 2020

and

2019,

respectively.

XML

Note 1 - Basis of Presentation (Details Textual) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Operating Lease, Liability, Current	$ 1,140	$ 1,150
Operating Lease, Liability, Noncurrent	$ 1,687	1,940
Revision of Prior Period, Adjustment [Member]
Operating Lease, Liability, Current		476
Operating Lease, Liability, Noncurrent		$ (476)

XML

Note 2 - Revenue Recognition

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

( 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 as the services are performed. The Company recognizes revenue from bill and hold transactions at the time the specified goods are complete and available to the customer. In the ordinary course of business, the Company accepts sales returns from customers for defective goods, such amounts being immaterial. Although only applicable to an insignificant number of transactions, the Company has elected to exclude sales taxes from the transaction price. The Company has elected to account for shipping and handling activities for which the Company is responsible under the terms and conditions of the sale

not

as performance obligations but rather as fulfillment costs. These activities are required to fulfill the Company’s

promise to transfer the good and are expensed when revenue is recognized.

Disaggregated Revenue

The following table presents the Company’s revenue disaggregated by the major types of goods and services sold to our customers (in thousands):

	Three Months Ended
	March 31,
Net sales of:	2020		2019
Products	$	47,029	$	46,410
Tooling and Machinery		677		645
Engineering services		571		273
Total net sales	$	48,277	$	47,328

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

three

months ended

March 31, 2020

and

2019

(in thousands):

	Contract Liabilities
	Three Months Ended March 31,
	2020			2019
Deferred revenue - beginning of period	$	2,574		$	2,507
Increases due to consideration received from customers		525			991
Revenue recognized		(667	)		(526	)
Deferred revenue - end of period	$	2,432		$	2,972

Revenue recognized during the

three

months ended

March 31, 2020

and

2019

from amounts included in deferred revenue at the beginning of the period was approximately

$517

thousand and

$497

thousand, respectively.

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

326

upon adoption and in the current period and determined that an allowance for credit losses was

not

necessary on the unbilled receivables balance due to there being

no

history of credit losses. The following table presents opening and closing balances of contract assets for the

three

months ended

March 31, 2020

and

2019

(in thousands):

	Contract Assets
	Three Months Ended March 31,
	2020			2019
Unbilled Receivables - beginning of period	$	72		$	65
Increases due to revenue recognized - not invoiced to customers		522			85
Decreases due to customer invoicing		(404	)		(106	)
Unbilled Receivables - end of period	$	190		$	44

XML

Note 3 - Supplemental Cash Flow Information - Schedule of Supplemental Cash Flow Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Cash paid for:
Interest	$ 12	$ 47
Income taxes, net of refunds		(156)
Non-cash investing and financing activities:
Capital additions accrued but not yet paid	232	108
Recognition of lease asset and liability		$ 3,831

XML

Condensed Consolidated Statements of Income (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Net sales	$ 48,277	$ 47,328
Cost of sales	35,454	34,831
Gross profit	12,823	12,497
Selling, general and administrative expenses	7,752	7,244
Gain on sale of fixed assets	(4)
Operating income	5,075	5,253
Interest expense	16	231
Other expense	327	239
Income before income tax expense	4,732	4,783
Income tax expense	841	1,049
Net income	$ 3,891	$ 3,734
Net income per share:
Basic (in dollars per share)	$ 0.52	$ 0.50
Diluted (in dollars per share)	$ 0.52	$ 0.50
Weighted average common shares outstanding:
Basic (in shares)	7,457	7,402
Diluted (in shares)	7,538	7,466

XML

Note 13 - Indebtedness (Details Textual) - USD ($) $ in Thousands		3 Months Ended
	Feb. 01, 2018	Mar. 31, 2020	Mar. 31, 2019
Interest Rate Swap [Member]
Derivative, Notional Amount	$ 20,000	$ 13,600
Derivative, Term of Contract (Year)	5 years
Derivative, Fixed Interest Rate	2.70%
Interest Rate Swap [Member] | Other Nonoperating Income (Expense) [Member]
Derivative, Gain (Loss) on Derivative, Net, Total		300	$ 239
Interest Rate Swap [Member] | Other Current Liabilities [Member]
Derivative, Fair Value, Net, Total		624	$ 175
Subsidiary Guarantors [Member] | Unsecured Revolving Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member] | Minimum [Member]
Debt Instrument, Basis Spread on Variable Rate	1.00%
Subsidiary Guarantors [Member] | Amended and Restated Credit Agreement [Member]
Debt Instrument, Face Amount	$ 70,000
Line of Credit, Current		0
Letters of Credit Outstanding, Amount		$ 700
Debt Instrument, Interest Rate, Effective Percentage		1.99%
Subsidiary Guarantors [Member] | Amended and Restated Credit Agreement [Member] | London Interbank Offered Rate (LIBOR) [Member] | Maximum [Member]
Debt Instrument, Basis Spread on Variable Rate	1.50%
Subsidiary Guarantors [Member] | Amended and Restated Credit Agreement [Member] | Prime Rate [Member] | Minimum [Member]
Debt Instrument, Basis Spread on Variable Rate	0.00%
Subsidiary Guarantors [Member] | Amended and Restated Credit Agreement [Member] | Prime Rate [Member] | Maximum [Member]
Debt Instrument, Basis Spread on Variable Rate	0.25%
Subsidiary Guarantors [Member] | Amended and Restated Credit Agreement [Member] | Unsecured Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 50,000
Subsidiary Guarantors [Member] | Amended and Restated Credit Agreement [Member] | Unsecured Term Loan [Member]
Debt Instrument, Face Amount	$ 20,000

XML

Note 12 - Income Taxes

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

( 12 ) Income Taxes

The income tax expense included in the accompanying unaudited condensed consolidated statements of income principally relates to the Company’s proportionate share of the pre-tax income of its wholly-owned subsidiaries. The determination of income tax expense for interim reporting purposes 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 tax expense of approximately

17.8%

and

21.9%

of income before income tax expense for the

three

-month periods ended

March 31, 2020

and

2019,

respectively.

XML

Note 8 - Leases

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

( 8 ) Leases

The Company has operating leases for offices, manufacturing plants, vehicles and certain office and manufacturing equipment. Leases with an initial term of

12

months or less are

not

recorded on the balance sheet. The Company has elected the practical expedient to account for each separate lease component of a contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized. The Company also elected the package of practical expedients permitted within the new standard, which among other things, allows the Company to carry forward historical lease classification. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage, are

not

included in the ROU assets or operating lease liabilities. These are expensed as incurred and recorded as variable lease expense. The Company determines if an arrangement is a lease at the inception of a contract. Operating lease ROU assets and operating lease liabilities are stated separately in the condensed consolidated balance sheet. 

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

not

typically provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Operating fixed lease expense is recognized on a straight-line basis over the lease term.

	Three Months Ended
	March 31, ($'s in thousands)
	2020			2019
Lease Cost:
Operating	$	305		$	307
Variable		57			57
Short-term		7			6
Total lease cost	$	369		$	370
Cash paid for amounts included in measurement of lease liabilities:
Operating	$	305		$	303
Weighted-average remaining lease term (years):
Operating		2.45			3.37
Weighted-average discount rate:
Operating		4.45	%		4.45	%

The aggregate future lease payments for operating leases as of

March 31, 2020

were as follows (in thousands):

Remainder of 2020	$	874
2021		1,121
2022		959
2023		36
2024		-
Thereafter		-
Total lease payments		2,990
Less: Interest		(163	)
Present value of lease liabilities	$	2,827

XML

Note 4 - Allowance for Credit Losses

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Allowance for Credit Losses [Text Block]

( 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 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 the amortized cost basis of accounts receivable to present the net amount expected to be collected for the

three

months ended

March 31, 2020 (

in thousands):

	Allowance for Credit Losses
	Three Months Ended March 31, 2020
Allowance - beginning of period	$	486
Provision for expected credit losses		60
Amounts written off against the allowance		(5	)
Allowance - end of period	$	541

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2020	May 01, 2020
Document Information [Line Items]
Entity Registrant Name	UFP TECHNOLOGIES INC
Entity Central Index Key	0000914156
Trading Symbol	ufpt
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Interactive Data Current	Yes
Entity Common Stock, Shares Outstanding (in shares)		7,482,844
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Mar. 31, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Amendment Flag	false
Title of 12(b) Security	Common Stock

XML

Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) shares in Thousands, $ in Thousands	Common Stock Outstanding [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Total
Balance (in shares) at Dec. 31, 2018	7,385			30
Balance at Dec. 31, 2018	$ 74	$ 29,168	$ 111,802	$ (587)	$ 140,457
Share-based compensation (in shares)	20
Share-based compensation		294			294
Exercise of stock options (in shares)	17
Exercise of stock options		285			285
Net share settlement of restricted stock units (in shares)	(8)
Net share settlement of restricted stock units		(271)			(271)
Net income			3,734		3,734
Balance (in shares) at Mar. 31, 2019	7,414			30
Balance at Mar. 31, 2019	$ 74	29,476	115,536	$ (587)	144,499
Balance (in shares) at Dec. 31, 2019	7,446			30
Balance at Dec. 31, 2019	$ 74	30,952	131,552	$ (587)	161,991
Share-based compensation (in shares)	28
Share-based compensation		537			537
Exercise of stock options (in shares)	20
Exercise of stock options	$ 1	415			416
Net share settlement of restricted stock units (in shares)	(11)
Net share settlement of restricted stock units		(560)			(560)
Net income			3,891		3,891
Balance (in shares) at Mar. 31, 2020	7,483			30
Balance at Mar. 31, 2020	$ 75	$ 31,344	$ 135,443	$ (587)	$ 166,275

XML

Note 2 - Revenue Recognition (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Contract with Customer, Liability, Revenue Recognized	$ 667	$ 526
Deferred Revenue [Member]
Contract with Customer, Liability, Revenue Recognized	$ 517	$ 497

XML

Note 3 - Supplemental Cash Flow Information

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Cash Flow, Supplemental Disclosures [Text Block]

( 3 ) Supplemental Cash Flow Information

	Three Months Ended
	March 31,
	2020		2019
	(in thousands)
Cash paid for:
Interest	$	12	$	47
Income taxes, net of refunds	$	-	$	(156	)
Non-cash investing and financing activities:
Capital additions accrued but not yet paid	$	232	$	108
Recognition of lease asset and liability	$	-	$	3,831

XML

Note 4 - Allowance for Credit Losses - Summary of Allowance for Doubtful Accounts (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2020 USD ($)
Allowance - beginning of period	$ 486
Provision for expected credit losses	60
Amounts written off against the allowance	(5)
Allowance - end of period	$ 541

XML

Note 12 - Income Taxes (Details Textual)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Effective Income Tax Rate Reconciliation, Percent, Total	17.80%	21.90%

XML

Note 7 - Inventories - Summary of Inventory (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Raw materials	$ 11,471	$ 10,540
Work in process	2,795	2,279
Finished goods	5,976	5,457
Total inventory	$ 20,242	$ 18,276

XML

Note 10 - Segment Data (Details Textual) xbrli-pure in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Customer Concentration Risk [Member] | Revenue Benchmark [Member]
Number of Major Customers	0	0

XML

Note 6 - Share-based Compensation (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Employee Service Share Based Compensation Allocation of Recognized Period Costs, By Award Type [Table Text Block]

	Three Months Ended
	March 31,
Share-based compensation related to:	2020		2019
Common stock grants	$	100	$	100
Stock option grants		60		7
Restricted Stock Unit Awards ("RSUs")		377		187
Total share-based compensation	$	537	$	294

Share-based Payment Arrangement, Option, Activity [Table Text Block]

	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		105,614		$	25.34
Granted		-
Exercised		(19,586	)	$	21.20
Outstanding at March 31, 2020		86,028		$	26.28		5.70	$	1,025
Exercisable at March 31, 2020		65,742		$	23.04		5.00	$	989
Vested and expected to vest at March 31, 2020		86,028		$	26.28		5.70	$	1,025

Share-based Payment Arrangement, Restricted Stock Unit, Activity [Table Text Block]

	Restricted Stock Units			Weighted Average Award Date Fair Value
Outstanding at December 31, 2019		113,866		$	28.36
Awarded		42,733			49.96
Shares vested		(28,244	)		27.02
Outstanding at March 31, 2020		128,355		$	31.58

XML

Note 2 - Revenue Recognition (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Disaggregation of Revenue [Table Text Block]

	Three Months Ended
	March 31,
Net sales of:	2020		2019
Products	$	47,029	$	46,410
Tooling and Machinery		677		645
Engineering services		571		273
Total net sales	$	48,277	$	47,328

Contract with Customer, Contract Asset, Contract Liability, and Receivable [Table Text Block]

	Contract Liabilities
	Three Months Ended March 31,
	2020			2019
Deferred revenue - beginning of period	$	2,574		$	2,507
Increases due to consideration received from customers		525			991
Revenue recognized		(667	)		(526	)
Deferred revenue - end of period	$	2,432		$	2,972

	Contract Assets
	Three Months Ended March 31,
	2020			2019
Unbilled Receivables - beginning of period	$	72		$	65
Increases due to revenue recognized - not invoiced to customers		522			85
Decreases due to customer invoicing		(404	)		(106	)
Unbilled Receivables - end of period	$	190		$	44

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Allowance for doubtful accounts	$ 541	$ 486
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	1,000,000	1,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	20,000,000	20,000,000
Common stock, shares issued (in shares)	7,512,403	7,475,768
Common stock, shares outstanding (in shares)	7,482,844	7,446,209
Treasury stock, shares (in shares)	29,559	29,559

XML

Note 6 - Share-based Compensation (Details Textual) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended
	Feb. 24, 2020	Mar. 31, 2020	Mar. 31, 2019
Shares Issued, Value, Share-based Payment Arrangement, after Forfeiture, Total		$ 537	$ 294
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total		$ 4,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)		4 years
The 2003 Incentive Plan [Member] | Chairman Chief Executive Officer and President [Member] | Common Stock [Member]
Shares Issued, Value, Share-based Payment Arrangement, after Forfeiture, Total	$ 400
Share-based Payment Arrangement [Member]
Adjustments to Additional Paid in Capital, Income Tax Benefit from Share-based Compensation		$ 348	164
Employee and Nonemployee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Intrinsic Value		530	274
Proceeds from Stock Options Exercised		$ 415	$ 285
Restricted Stock Units (RSUs) [Member]
Share-based Payment Arrangement, Shares Withheld for Tax Withholding Obligation (in shares)		11,195	8,132
Shares Paid for Tax Withholding for Share Based Compensation Market Price (in dollars per share)		$ 49.99	$ 33.35

XML

Note 1 - Basis of Presentation

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

( 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

March 31, 2020

and

December 31, 2019,

the condensed consolidated statements of income for the

three

-month periods ended

March 31, 2020

and

2019,

the condensed consolidated statements of stockholders’ equity for the

three

-month periods ended

March 31, 2020

and

2019,

and the condensed consolidated statements of cash flows for the

three

-month periods ended

March 

31,

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 audited 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

-month period ended

March 31, 2020

are

not

necessarily indicative of the results to be expected for the entire fiscal year ending

December 31, 2020.

Recent Accounting Pronouncements

In

June 2016,

the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)

2016

-

13,

Financial Instruments – Credit Losses (Accounting Standards Codification (ASC)

326

)

. The Company adopted ASC

326

on

January 1, 2020.

See Note

4

for further details

.

In

January 2017,

the FASB issued ASU 

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.

The Company adopted ASC

350

on

January 1, 2020

and it did

not

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

$476

thousand and a decrease of long-term operating lease liabilities of

$476

thousand. These revisions had

no

impact on previously reported earnings, net income or cash flows and are deemed immaterial to the previously issued financial statements.

XML

Note 11 - Other Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	Tradename & Brand			Non- Compete			Customer List			Total
Estimated useful life	10 years			5 years			20 years
Gross amount	$	367		$	462		$	22,555		$	23,384
Accumulated amortization		(80	)		(200	)		(2,443	)		(2,723	)
Net balance	$	287		$	262		$	20,112		$	20,661

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

Remainder of:
2020	$	943
2021		1,257
2022		1,257
2023		1,172
2024		1,164
Thereafter		14,868
Total	$	20,661

XML

Note 2 - Revenue Recognition - Contract Assets and Liabilities (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Deferred revenue	$ 2,574	$ 2,507
Increases due to consideration received from customers	525	991
Revenue recognized	(667)	(526)
Deferred revenue	2,432	2,972
Unbilled Receivables - beginning of period	72	65
Increases due to revenue recognized - not invoiced to customers	522	85
Decreases due to customer invoicing	(404)	(106)
Unbilled Receivables - end of period	$ 190	$ 44

XML

Note 10 - Segment Data

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

( 10 ) Segment Reporting

The Company consists of a single operating and reportable segment.

Revenues from customers outside of the United States are

not

material.

No

customer comprised more than

10%

of the Company’s consolidated revenues for both the

three

-month periods ended

March 31, 2020

and

2019.

All of the Company’s assets are located in the United States.

The Company’s products are primarily sold to customers within the Medical, Automotive, Consumer, Aerospace and Defense, Industrial, and Electronics markets. Net sales by market for the

three

-month periods ended

March 31, 2020

and

2019

are as follows (in thousands)

:

	Three Months Ended March 31,
	2020					2019 (1)
Market	Net Sales		%			Net Sales		%
Medical	$	33,688		69.8	%	$	28,944		61.2	%
Automotive		4,602		9.5	%		5,738		12.1	%
Consumer		3,439		7.1	%		4,424		9.3	%
Aerospace & Defense		2,711		5.6	%		3,532		7.5	%
Industrial		1,917		4.0	%		2,485		5.3	%
Electronics		1,920		4.0	%		2,204		4.7	%
Net Sales	$	48,277		100.0	%	$	47,327		100.0	%

( 1 ) Certain amounts for the three months ended March 31, 2019 were reclassified between markets to conform to the current period presentation.

XML

Note 6 - Share-based Compensation

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

( 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
	March 31,
Share-based compensation related to:	2020		2019
Common stock grants	$	100	$	100
Stock option grants		60		7
Restricted Stock Unit Awards ("RSUs")		377		187
Total share-based compensation	$	537	$	294

The total income tax benefit recognized in the condensed consolidated statements of income for share-based compensation arrangements was approximately

$348

thousand and

$164

thousand for the

three

-month periods ended

March 31, 2020

and

2019,

respectively.

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

three

-month period ended

March 31, 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		105,614		$	25.34
Granted		-
Exercised		(19,586	)	$	21.20
Outstanding at March 31, 2020		86,028		$	26.28		5.70	$	1,025
Exercisable at March 31, 2020		65,742		$	23.04		5.00	$	989
Vested and expected to vest at March 31, 2020		86,028		$	26.28		5.70	$	1,025

During the

three

-month period ended

March 31, 2020

, 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

$530

thousand, and the total amount of consideration received by the Company from the exercised options was approximately

$415

thousand. During the

three

-month period ended

March 31, 2019

, the total intrinsic value of all options exercised was approximately

$274

thousand, and the total amount of consideration received by the Company from the exercised options was approximately

$285

thousand. At its discretion, the Company allows option holders to surrender previously owned common stock in lieu of paying the exercise price and withholding taxes. During both the

three

-month periods ended

March 

31,

2020

and

2019,

no

shares were

surrendered for this purpose.

On

February 24, 2020

, the Company’s Compensation Committee approved the award of

$400

thousand, payable in shares of common stock to the Company’s Chairman, Chief Executive Officer, and President under the

2003

Incentive Plan. Subject to his continued employment and the terms of his employment agreement, the shares will be issued in

December 2020.

The following table summarizes information about RSU activity during the

three

-month period ended

March 31, 2020:

	Restricted Stock Units			Weighted Average Award Date Fair Value
Outstanding at December 31, 2019		113,866		$	28.36
Awarded		42,733			49.96
Shares vested		(28,244	)		27.02
Outstanding at March 31, 2020		128,355		$	31.58

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

three

-month periods ended

March 31, 2020

and

2019,

11,195

and

8,132

shares were surrendered at an average market price of

$49.99

and

$33.35,

respectively.

As of

March 31, 2020,

the Company had approximately

$4.0

million of unrecognized compensation expense that is expected to be recognized over a period of

4

years

.

XML

Note 14 - Subsequent Events (Details Textual) $ in Millions	1 Months Ended
	Apr. 30, 2020 USD ($)
Subsequent Event [Member] | Subsidiary Guarantors [Member] | Amended and Restated Credit Agreement [Member] | Revolving Credit Facility [Member]
Proceeds from Lines of Credit, Total	$ 5.5

XML

Note 11 - Other Intangible Assets - Definite-lived Intangible Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Gross amount	$ 23,384
Accumulated amortization	(2,723)
Net balance	20,661	$ 20,975
Trade Name and Brand [Member]
Gross amount	367
Accumulated amortization	(80)
Net balance	287
Noncompete Agreements [Member]
Gross amount	462
Accumulated amortization	(200)
Net balance	262
Customer Lists [Member]
Gross amount	22,555
Accumulated amortization	(2,443)
Net balance	$ 20,112

XML

Note 11 - Other Intangible Assets (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Amortization of Intangible Assets, Total	$ 314	$ 314

XML

Note 6 - Share-based Compensation - Summary of Stock Option Activity (Details) - Employee and Nonemployee Stock Option [Member] $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2020 USD ($) $ / shares shares
Outstanding, shares under options (in shares) | shares	105,614
Outstanding, weighted average exercise price (in dollars per share) | $ / shares	$ 25.34
Granted, shares under options (in shares) | shares
Granted, weighted average exercise price (in dollars per share) | $ / shares
Exercised, shares under options (in shares) | shares	(19,586)
Exercised, weighted average exercise price (in dollars per share) | $ / shares	$ 21.20
Outstanding, shares under options (in shares) | shares	86,028
Outstanding, weighted average exercise price (in dollars per share) | $ / shares	$ 26.28
Outstanding, weighted average remaining contractual life (Year)	5 years 255 days
Outstanding, aggregate intrinsic value | $	$ 1,025
Exercisable, shares under options (in shares) | shares	65,742
Exercisable, weighted average exercise price (in dollars per share) | $ / shares	$ 23.04
Exercisable, weighted average remaining contractual life (Year)	5 years
Exercisable, aggregate intrinsic value | $	$ 989
Vested and expected to vest, shares under options (in shares) | shares	86,028
Vested and expected to vest, weighted average exercise price (in dollars per share) | $ / shares	$ 26.28
Vested and expected to vest, weighted average remaining contractual life (Year)	5 years 255 days
Vested and expected to vest, aggregate intrinsic value | $	$ 1,025

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Note 8 - Leases - Aggregate Future Lease Payments (Details) $ in Thousands	Mar. 31, 2020 USD ($)
Remainder of 2020	$ 874
2021	1,121
2022	959
2023	36
2024
Thereafter
Total lease payments	2,990
Less: Interest	(163)
Present value of lease liabilities	$ 2,827

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Note 4 - Allowance for Credit Losses (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Accounts Receivable, Allowance for Credit Loss [Table Text Block]

	Allowance for Credit Losses
	Three Months Ended March 31, 2020
Allowance - beginning of period	$	486
Provision for expected credit losses		60
Amounts written off against the allowance		(5	)
Allowance - end of period	$	541

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Note 14 - Subsequent Events

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Subsequent Events [Text Block]

( 14 ) Subsequent Events

The Company’s operations expose it to risks associated with the COVID-

19

pandemic. Although the COVID-

19

pandemic did

not

materially impact the Company’s

first

quarter results, it has since more significantly impacted the Company’s operations. While all of the Company’s factories are deemed essential,

not

all of its customers’ operations are essential and, therefore, demand for product, especially in the automotive and consumer markets, has been negatively impacted. Partially mitigating this are increased orders from certain customers in the medical market. The COVID-

19

pandemic has also impacted the Company’s cost of manufacturing its goods, including higher labor costs, maintenance costs and manufacturing inefficiencies due to employee absenteeism and significantly enhanced cleaning and sterilization. With regard to the Company’s supply chain, there has thus far been minimal disruption in the availability of raw materials, as most of the Company’s major suppliers have also been deemed to be essential businesses.

However, to mitigate risk, the Company has increased its purchases of raw materials to establish safety stock.

The Company has been notified by several customers that they would be extending payment terms. The Company anticipates that these extended payment terms will be short-term in nature, but they

may

continue for a longer duration. In the beginning of

April,

the Company drew down

$5.5

million from its revolving credit facility to maintain cash reserves in the event it experiences a substantial shut down of operations, further or extended increase in manufacturing costs or significant exposure to its ability to timely collect its receivables.

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Note 8 - Leases (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Lease, Cost [Table Text Block]

	Three Months Ended
	March 31, ($'s in thousands)
	2020			2019
Lease Cost:
Operating	$	305		$	307
Variable		57			57
Short-term		7			6
Total lease cost	$	369		$	370
Cash paid for amounts included in measurement of lease liabilities:
Operating	$	305		$	303
Weighted-average remaining lease term (years):
Operating		2.45			3.37
Weighted-average discount rate:
Operating		4.45	%		4.45	%

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

Remainder of 2020	$	874
2021		1,121
2022		959
2023		36
2024		-
Thereafter		-
Total lease payments		2,990
Less: Interest		(163	)
Present value of lease liabilities	$	2,827

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Note 6 - Share-based Compensation - Compensation Cost (Details) - Selling, General and Administrative Expenses [Member] - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Allocated share based compensation	$ 537	$ 294
Common Stock [Member]
Allocated share based compensation	100	100
Employee and Nonemployee Stock Option [Member]
Allocated share based compensation	60	7
Restricted Stock Units (RSUs) [Member]
Allocated share based compensation	$ 377	$ 187

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Note 8 - Leases - Lease Cost (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Lease Cost:
Operating	$ 305	$ 307
Variable	57	57
Short-term	7	6
Total lease cost	369	370
Operating, cash paid for amounts included in measurement of lease liabilities	$ 305	$ 303
Operating, weighted average remaining lease term (Year)	2 years 164 days	3 years 135 days
Operating, weighted-average discount rate	4.45%	4.45%

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Note 10 - Segment Data - Net Sales by Market (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Net sales	$ 48,277	$ 47,328
Percentage of concentration risk	100.00%	100.00%	[1]
Medical [Member]
Net sales	$ 33,688	$ 28,944	[1]
Percentage of concentration risk	69.80%	61.20%	[1]
Automotive [Member]
Net sales	$ 4,602	$ 5,738	[1]
Percentage of concentration risk	9.50%	12.10%	[1]
Consumer [Member]
Net sales	$ 3,439	$ 4,424	[1]
Percentage of concentration risk	7.10%	9.30%	[1]
Aerospace & Defense [Member]
Net sales	$ 2,711	$ 3,532	[1]
Percentage of concentration risk	5.60%	7.50%	[1]
Industrial [Member]
Net sales	$ 1,917	$ 2,485	[1]
Percentage of concentration risk	4.00%	5.30%	[1]
Electronics [Member]
Net sales	$ 1,920	$ 2,204	[1]
Percentage of concentration risk	4.00%	4.70%	[1]

[1] Certain amounts for the three months ended March 31, 2019 were reclassified between markets to conform to the current period presentation.

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Note 9 - Income Per Share (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Weighted Average Number of Shares [Table Text Block]

	Three Months Ended
	March 31,
	2020		2019
Basic weighted average common shares outstanding		7,457		7,402
Weighted average common equivalent shares due to stock options and RSUs		81		64
Diluted weighted average common shares outstanding		7,538		7,466

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Note 5 - Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

Level 2	March 31, 2020			March 31, 2019
Liabilities:
Derivative financial instruments	$	(624	)	$	(175	)

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Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In

June 2016,

the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)

2016

-

13,

Financial Instruments – Credit Losses (Accounting Standards Codification (ASC)

326

)

. The Company adopted ASC

326

on

January 1, 2020.

See Note

4

for further details

.

In

January 2017,

the FASB issued ASU 

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.

The Company adopted ASC

350

on

January 1, 2020

and it did

not

have a material impact on its financial condition or results of operations.

Revisions Policy [Policy Text Block]

Revisions

Certain revisions have been made to the

December 31, 2019

Condensed Consolidated Balance Sheet to conform to the current year presentation relating to a reclassification of long-term operating lease liabilities to current operating lease liabilities. The reclassification resulted in an increase of current operating lease liabilities of

$476

thousand and a decrease of long-term operating lease liabilities of

$476

thousand. These revisions had

no

impact on previously reported earnings, net income or cash flows and are deemed immaterial to the previously issued financial statements.

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Note 10 - Segment Data (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Revenue by Major Customers by Reporting Segments [Table Text Block]

	Three Months Ended March 31,
	2020					2019 (1)
Market	Net Sales		%			Net Sales		%
Medical	$	33,688		69.8	%	$	28,944		61.2	%
Automotive		4,602		9.5	%		5,738		12.1	%
Consumer		3,439		7.1	%		4,424		9.3	%
Aerospace & Defense		2,711		5.6	%		3,532		7.5	%
Industrial		1,917		4.0	%		2,485		5.3	%
Electronics		1,920		4.0	%		2,204		4.7	%
Net Sales	$	48,277		100.0	%	$	47,327		100.0	%

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Note 2 - Revenue Recognition - Revenue Disaggregated by the Major Types of Goods and Services Sold (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Net sales	$ 48,277	$ 47,328
Product [Member]
Net sales	47,029	46,410
Tooling and Machinery [Member]
Net sales	677	645
Engineering and Development [Member]
Net sales	$ 571	$ 273

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Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Current assets:
Cash and cash equivalents	$ 7,334	$ 3,743
Receivables, less allowance of $541 at March 31, 2020 and $486 at December 31, 2019	29,449	28,648
Inventories	20,242	18,276
Prepaid expenses	2,750	2,304
Refundable income taxes		279
Total current assets	59,775	53,250
Property, plant and equipment	117,292	116,089
Less accumulated depreciation and amortization	(61,062)	(59,350)
Net property, plant and equipment	56,230	56,739
Goodwill	51,838	51,838
Intangible assets, net	20,661	20,975
Non-qualified deferred compensation plan	2,790	2,775
Operating lease right of use assets	2,771	3,034
Other assets	148	147
Total assets	194,213	188,758
Current liabilities:
Accounts payable	7,535	4,577
Accrued expenses	6,350	8,483
Deferred revenue	2,432	2,574
Operating lease liabilities	1,140	1,150
Income taxes payable	5
Total current liabilities	17,462	16,784
Deferred income taxes	5,342	4,921
Non-qualified deferred compensation plan	2,817	2,788
Operating Lease, Liability, Noncurrent	1,687	1,940
Other liabilities	630	334
Total liabilities	27,938	26,767
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized; no shares issued	0	0
Common stock, $.01 par value, 20,000,000 shares authorized; 7,512,403 and 7,482,844 shares issued and outstanding, respectively at March 31, 2020;7,475,768 and 7,446,209 shares issued and outstanding, respectively at December 31, 2019	75	74
Additional paid-in capital	31,344	30,952
Retained earnings	135,443	131,552
Treasury stock at cost, 29,559 shares at March 31, 2020 and December 31, 2019	(587)	(587)
Total stockholders’ equity	166,275	161,991
Total liabilities and stockholders' equity	$ 194,213	$ 188,758

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Note 5 - Fair Value of Financial Instruments - Financial Assets Measured at Fair Value on a Recurring Basis (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Mar. 31, 2019
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Derivative financial instruments	$ (624)	$ (175)

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Cash flows from operating activities:
Net income	$ 3,891	$ 3,734
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,066	2,022
Gain on sale of fixed assets	(4)
Share-based compensation	537	294
Deferred income taxes	421	424
Changes in operating assets and liabilities:
Receivables, net	(801)	(1,451)
Inventories	(1,966)	139
Prepaid expenses	(446)	364
Refundable income taxes	284	781
Other assets	247	(338)
Accounts payable	2,726	(907)
Accrued expenses	(2,133)	(2,506)
Deferred revenue	(142)	465
Non-qualified deferred compensation plan and other liabilities	62	608
Net cash provided by operating activities	4,742	3,629
Cash flows from investing activities:
Additions to property, plant, and equipment	(1,020)	(1,388)
Proceeds from sale of fixed assets	13
Net cash used in investing activities	(1,007)	(1,388)
Cash flows from financing activities:
Payments on revolving line of credit		(3,000)
Proceeds from exercise of stock options	416	285
Payment of statutory withholdings for restricted stock units vested	(560)	(271)
Net cash used in financing activities	(144)	(2,986)
Net increase (decrease) in cash and cash equivalents	3,591	(745)
Cash and cash equivalents at beginning of period	3,743	3,238
Cash and cash equivalents at end of period	$ 7,334	$ 2,493

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Note 11 - Other Intangible Assets

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Intangible Assets Disclosure [Text Block]

( 11 ) Other Intangible Assets

The carrying values of the Company’s definite lived intangible assets as of

March 31, 2020

are as follows (in thousands):

	Tradename & Brand			Non- Compete			Customer List			Total
Estimated useful life	10 years			5 years			20 years
Gross amount	$	367		$	462		$	22,555		$	23,384
Accumulated amortization		(80	)		(200	)		(2,443	)		(2,723	)
Net balance	$	287		$	262		$	20,112		$	20,661

Amortization expense related to intangible assets was approximately

$

314

thousand for both the

three

-month periods ended

March 31, 2020

and

2019.

The estimated remaining amortization expense as of

March 31, 2020

is as follows (in thousands):

Remainder of:
2020	$	943
2021		1,257
2022		1,257
2023		1,172
2024		1,164
Thereafter		14,868
Total	$	20,661

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Note 7 - Inventories

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Inventory Disclosure [Text Block]

( 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):

	March 31, 2020		December 31, 2019
Raw materials	$	11,471	$	10,540
Work in process		2,795		2,279
Finished goods		5,976		5,457
Total inventory	$	20,242	$	18,276

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Note 11 - Other Intangible Assets - Future Amortization of Intangible Assets (Details) $ in Thousands	Mar. 31, 2020 USD ($)
2020	$ 943
2021	1,257
2022	1,257
2023	1,172
2024	1,164
Thereafter	14,868
Total	$ 20,661