10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended June 30, 2016

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)	(IRS Employer Identification No.)

100 Hale Street, Newburyport, Massachusetts 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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒;  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes ☒;  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐	Accelerated filer ☒
Non—accelerated filer ☐	Smaller reporting company ☐
[Do not check if a smaller reporting company]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐ ;  No  ☒

7,223,048 shares of registrant’s Common Stock, $0.01 par value, were outstanding as of August 2, 2016.

UFP Technologies, Inc.

Index

		Page
PART I - FINANCIAL INFORMATION		3
Item 1. Financial Statements		3
Condensed Consolidated Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015		3
Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2016 and June 30, 2015 (unaudited)		4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and June 30, 2015 (unaudited)		5
Notes to Interim Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3. Quantitative and Qualitative Disclosures about Market Risk		17
Item 4. Controls and Procedures		17
PART II - OTHER INFORMATION		18
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 6.	Exhibits	18
Signatures		19
Exhibit Index		20

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PART I:FINANCIAL INFORMATION

ITEM 1:FINANCIAL STATEMENTS

UFP Technologies, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share data)

	June 30,		December 31,
	2016		2015
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	27,007	$	29,804
Receivables, less allowance for doubtful accounts of $611 at June 30, 2016 and $499 at December 31, 2015		23,020		17,481
Inventories		13,884		14,202
Prepaid expenses		2,595		930
Refundable income taxes		480		1,186
Total current assets		66,986		63,603
Property, plant and equipment		94,673		90,564
Less accumulated depreciation and amortization		(46,348)		(44,009)
Net property, plant and equipment		48,325		46,555
Goodwill		7,322		7,322
Intangible assets, net		477		636
Other assets		1,869		1,834
Total assets	$	124,979	$	119,950
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	5,463	$	4,598
Accrued expenses		4,769		5,374
Current installments of long-term debt		1,020		1,011
Total current liabilities		11,252		10,983
Long-term debt, excluding current installments		345		859
Deferred income taxes		3,107		2,883
Other liabilities		1,765		1,653
Total liabilities		16,469		16,378
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value. Authorized 1,000,000 shares; zero shares issued or outstanding		—		—
Common stock, $.01 par value. Authorized 20,000,000 shares; issued and outstanding 7,223,048 at June 30, 2016 and 7,170,377 shares at December 31, 2015		72		72
Additional paid-in capital		24,833		23,705
Retained earnings		84,192		80,382
Treasury stock at cost - 29,559 shares at June 30, 2016 and December 31, 2015		(587)		(587)
Total stockholders’ equity		108,510		103,572
Total liabilities and stockholders’ equity	$	124,979	$	119,950

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				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Net sales	$	37,902	$	36,499	$	72,406	$	70,476
Cost of sales		27,607		26,206		54,384		51,544
Gross profit		10,295		10,293		18,022		18,932
Selling, general, and administrative expenses		6,470		6,776		12,374		12,800
Restructuring costs		55		30		178		108
Material overcharge settlement		(423)		—		(423)		—
Gain on sale of fixed assets		—		—		(4)		(31)
Operating income		4,193		3,487		5,897		6,055
Interest income (expense), net		15		8		26		(15)
Income before income tax expense		4,208		3,495		5,923		6,040
Income tax expense		1,473		1,223		2,113		2,114
Net income		2,735		2,272		3,810		3,926
Net income per share:
Basic	$	0.38	$	0.32	$	0.53	$	0.55
Diluted	$	0.38	$	0.32	$	0.53	$	0.55
Weighted average common shares outstanding:
Basic		7,196		7,116		7,185		7,096
Diluted		7,271		7,210		7,263		7,203

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

4

UFP Technologies, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Six Months Ended
	June 30,
	2016		2015
Cash flows from operating activities:
Net income	$	3,810	$	3,926
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,749		2,341
Gain on sale of fixed assets		(4)		(31)
Share-based compensation		642		647
Excess tax benefit on share-based compensation		(126)		(219)
Deferred income taxes		224		194
Changes in operating assets and liabilities:
Receivables, net		(5,539)		(3,048)
Inventories		318		61
Prepaid expenses		(1,665)		(1,000)
Refundable income taxes		832		2,932
Other assets		(35)		(44)
Accounts payable		865		(925)
Accrued expenses		(605)		924
Other liabilities		112		(71)
Net cash provided by operating activities		1,578		5,687
Cash flows from investing activities:
Additions to property, plant, and equipment		(4,360)		(10,461)
Proceeds from sale of fixed assets		4		31
Net cash used in investing activities		(4,356)		(10,430)
Cash flows from financing activities:
Principal repayments of long-term debt		(505)		(496)
Proceeds from exercise of stock options, net of attestation		449		220
Excess tax benefit on share-based compensation		126		219
Payment of statutory withholdings for stock options exercised and restricted stock units vested		(89)		(79)
Net cash used in financing activities		(19)		(136)
Net decrease in cash and cash equivalents		(2,797)		(4,879)
Cash and cash equivalents at beginning of period		29,804		34,052
Cash and cash equivalents at end of period	$	27,007	$	29,173

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

5

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, 2015, included in the Company's 2015 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission.

The condensed consolidated balance sheet as of June 30, 2016, the condensed consolidated statements of income for the three- and six- month periods ended June 30, 2016 and 2015, and the condensed consolidated statements of cash flows for the six- month periods ended June 30, 2016 and 2015 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 preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The results of operations for the three- and six- month periods ended June 30, 2016 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2016.

Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09, Improvements to Employee Share Based Payment Accounting. This ASU simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards and classification on the statement of cash flows. The provisions of this ASU are effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. This amendment is applicable to us beginning in the first quarter of 2017. The Company is evaluating the impact of adopting this ASU on its consolidated financial position and results of operations.

(2)      Supplemental Cash Flow Information

Cash paid (received) for interest and income taxes is as follows (in thousands):

	Six months ended
	June 30,
	2016		2015
Interest, net	$	(27)	$	15
Income taxes, net of refunds	$	728	$	(1,013)

(3)Fair Value of Financial Instruments

The Company has financial instruments, such as accounts receivable, accounts payable, and accrued expenses, which 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.

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(4)      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, 2015.  The compensation cost charged against income for those plans is included in selling, general & administrative expenses as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Total Share-based compensation expense	$	441	$	436	$	642	$	647

Share-based compensation for the three and six-month periods ended June 30, 2016 and 2015 includes approximately $105,000 in each period, respectively, representing the fair value of the Company’s common stock granted during the periods to the Board of Directors.

The total income tax benefit recognized in the condensed consolidated statements of income for share-based compensation arrangements was approximately $103,000 and $135,000, respectively, for the three-month periods ended June 30, 2016 and 2015, and approximately $161,000 and $193,000, respectively, for the six-month periods ended June 30, 2016 and 2015

The following is a summary of stock option activity under all plans for the three- month period ended June 30, 2016:

				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic
	Shares Under	Price		Life	Value
	Options	(per share)		(in years)	(in thousands)
Outstanding December 31, 2015	270,205	$	15.40
Granted	17,184		22.02
Exercised	(39,887)		11.26
Outstanding June 30, 2016	247,502	$	16.53	4.15	$	1,563
Exercisable at June 30, 2016	216,253	$	15.82	4.42	$	1,510
Vested and expected to vest at June 30, 2016	247,502	$	16.53	4.15	$	1,563

On June 9, 2016, the Company granted options to its directors for the purchase of 17,184 shares of common stock at that day’s closing price of $22.02. The compensation expense related to these grants was determined as the fair value of the options using the Black Scholes option pricing model based on the following assumptions:

Expected volatility		29.7%
Expected dividends		None
Risk-free interest rate		0.9%
Exercise price	$	22.02
Expected term		5.0 years
Weighted-average grant-date fair value	$	6.11

The stock volatility for each grant is determined based on a review of the experience of the weighted average of historical daily price changes of the Company’s common stock over the expected option term, and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected term of the option. The expected term is calculated based on the simplified method.

7

During the six-month periods ended June 30, 2016 and 2015, 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 $518,000 and $696,000, respectively, and the total amount of consideration received by the Company from the exercised options was approximately $449,000 and $223,000, respectively. At its discretion, the Company allows option holders to surrender previously owned common stock in lieu of paying the exercise price and withholding taxes. During the six months ended June 30, 2016 and 2015, there were no shares surrendered for this purpose.

During each of the three-month periods ended June 30, 2016 and 2015, the Company recognized compensation expense related to stock options granted to directors and employees of approximately $141,000 and $149,000, respectively. During each of the six-month periods ended June 30, 2016 and 2015, the Company recognized compensation expense related to stock options granted to directors and employees of approximately $177,000 and $193,000, respectively.

On February 22, 2016, the Company’s Compensation Committee approved the award of $400,000,  payable in shares of common stock to the Company’s Chairman, Chief Executive Officer, and President under the 2003 Incentive Plan.  The shares will be issued on December 22, 2016.  The Company recorded compensation expense associated with the award of $100,000 and $200,000, respectively, during the three- and six-month periods ended June 30, 2016. The Company recorded compensation expense associated with a similar award of $100,000 and $200,000, respectively, during the three- and six-month periods ended June 30, 2015.

The following table summarizes information about Restricted Stock Units (“RSUs”) activity during the six-month period ended June 30, 2016:

		Weighted
	Restricted	Average Award
	Stock Units	Date Fair Value
Unvested at December 31, 2015	40,645	$	19.67
Awarded	17,822		21.66
Shares vested	(11,909)		20.94
Unvested at June 30, 2016	46,558	$	20.00

During each of the three- and six-month periods ended June 30, 2016, the Company recorded compensation expense related to RSUs of approximately $95,000 and $160,000, respectively. The Company recorded compensation expense related to RSUs of approximately $82,000 and $149,000, respectively, for the same periods in 2015.

At the Company’s discretion, RSU holders are given the option to net-share settle to cover the required minimum withholding tax, and the remaining amount is converted into the equivalent number of common shares.  During the six-month periods ended June 30, 2016 and 2015, 3,889 and 3,405 shares were surrendered at an average market price of $22.82 and $23.15, respectively.

As of June 30, 2016, the Company had approximately $1.1 million of unrecognized compensation expense, which is expected to be recognized over a period of 3.75 years.

(5)      Inventories

Inventories are stated at the lower of cost (first-in, first-out) or net realizable value, and consist of the following at the stated dates (in thousands):

	June 30, 2016		December 31, 2015
Raw materials	$	7,560	$	7,506
Work in process		1,214		1,192
Finished goods		5,110		5,504
Total inventory	$	13,884	$	14,202

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(6)      Preferred Stock

On March 18, 2009, the Company declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of common stock, par value $0.01 per share, to the stockholders of record on March 20, 2009.  Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share (the “Preferred Share”) of the Company, at a price of $25 per one one-thousandth of a Preferred Share subject to adjustment and the terms of the Rights Agreement.  The Rights expire on March 19, 2019.

(7)      Income Per Share

Basic income per share is based on the weighted average number of shares of common stock outstanding.  Diluted income per share is based upon the weighted average number of common shares outstanding and dilutive common stock equivalent shares outstanding during each period.

The weighted average number of shares used to compute basic and diluted net income per share consisted of the following (in thousands):

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2016	2015	2016	2015
Weighted average common shares outstanding, basic	7,196	7,116	7,185	7,096
Weighted average common equivalent shares due to stock options and RSUs	75	94	78	107
Weighted average common shares outstanding, diluted	7,271	7,210	7,263	7,203

The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options, when the average market price of the common stock is lower than the exercise price of the related options during the period. These outstanding stock awards are not included in the computation of diluted income per share because the effect would be antidilutive.  For the three- and six-month periods ended June 30, 2016, the number of stock awards excluded from the computation of diluted earnings per share for this reason was 52,377 and 53,695, respectively. For both the three- and six-month periods ended June 30, 2016, the number of stock awards excluded from the computation of diluted earnings per share for this reason was 82,719.

(8)      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 the three-month period ended June 30, 2016.  All of the Company’s assets are located in the United States.

9

The Company’s products are primarily sold to customers within the Medical, Automotive, Consumer, Electronics, Industrial and Aerospace and Defense markets.  Net sales by market for the three- and six-month periods ended June 30, 2016 and 2015 are as follows (in thousands):

	Three Months Ended June 30,								Six Months Ended June 30,
	2016				2015				2016				2015
Market	Net Sales		%		Net Sales		%		Net Sales		%		Net Sales		%
Medical	$	16,778	44.3	%	$	14,962	41.0	%	$	32,435	44.8	%	$	28,786	40.8	%
Automotive		7,671	20.2	%		7,528	20.6	%		13,774	19.0	%		14,935	21.2	%
Consumer		5,015	13.2	%		4,020	11.0	%		9,591	13.2	%		7,673	10.9	%
Electronics		3,004	7.9	%		3,778	10.4	%		6,035	8.3	%		7,096	10.1	%
Industrial		2,908	7.7	%		2,524	6.9	%		5,511	7.6	%		5,281	7.5	%
Aerospace & Defense		2,526	6.7	%		3,687	10.1	%		5,060	7.0	%		6,705	9.5	%
Net Sales	$	37,902	100.0	%	$	36,499	100.0	%	$	72,406	100.0	%	$	70,476	100.0	%

(9)Other Intangible Assets

The carrying values of the Company’s definite lived intangible assets as of June 30, 2016 and December 31, 2015, are as follows (in thousands):

			Non-		Customer
	Patents		Compete		List		Total
Estimated useful life		14 years		5 years		5 years
Gross amount at June 30, 2016	$	429	$	512	$	2,046	$	2,987
Accumulated amortization at June 30, 2016		(429)		(418)		(1,663)		(2,510)
Net balance at June 30, 2016	$	—	$	94	$	383	$	477
Gross amount at December 31, 2015	$	429	$	512	$	2,046	$	2,987
Accumulated amortization at December 31, 2015		(429)		(387)		(1,535)		(2,351)
Net balance at December 31, 2015	$	—	$	125	$	511	$	636

Amortization expense related to intangible assets was approximately $79,000 for each of the three- month periods ended June 30, 2016 and 2015, and was approximately $159,000 for each the six- month periods ended June 30, 2016 and 2015. The estimated remaining amortization expense as of June 30, 2016 is as follows (in thousands):

Remainder of:
2016		159
2017		318
Total	$	477

(10)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 35.0% of income before income tax expense for the each of three-month periods ended June 30, 2016 and 2015. The Company recorded tax expense of approximately 35.7% and 35.0% of income before income tax expense for the six-month periods ended June 30, 2016 and 2015, respectively. The increase in the effective tax rate for the six-month period ended June 30, 2016 is due to a tax assessment of approximately $40,000 from one jurisdiction recorded in the first quarter of 2016.

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(11)Plant Consolidations

Restructuring Costs

On March 18, 2015, the Company committed to move forward with a plan to cease operations at its Raritan, New Jersey, plant and consolidate operations into its Newburyport, Massachusetts, facility and other UFP facilities. The Company’s decision was in response to a continued decline in business at the Raritan facility and the recent purchase of the 137,000-square-foot facility in Newburyport. The activities related to this consolidation were substantially complete at December 31, 2015.

The Company also relocated all operations in its Haverhill, Massachusetts, and Byfield, Massachusetts facilities and plans to relocate certain operations in its Georgetown, Massachusetts facility to Newburyport.  The Haverhill and Byfield relocations were complete at December 31, 2015 and the Georgetown relocation is expected to be complete by September 30, 2016.

The Company expects to incur approximately $2.1 million in one-time expenses in connection with the Massachusetts consolidations. Included in this amount are approximately $180,000 relating to employee severance payments and relocation costs, approximately $1.5 million in moving expenses and expenses associated with vacating the Raritan, Haverhill and Byfield properties, and approximately $360,000 in lease termination costs. Total cash charges are estimated at $2.0 million. The Company expects annual cost savings of approximately $1.0 million as a result of these consolidations. Through June 30, 2016, the Company had incurred approximately $1.9 million of the costs for this restructuring plan.

The company recorded the following restructuring costs associated with the Massachusetts consolidations for the three- and six-month periods ended June 30, 2016 and 2015 (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
Restructuring Costs - Massachusetts	2016		2015		2016		2015
Relocation	$	55	$	24	$	178	$	24
Total	$	55	$	24	$	178	$	24

On July 16, 2014, the Company committed to move forward with a plan to cease operations at its Costa Mesa, California, plant and consolidate operations into its Rancho Dominguez, California, facility and other UFP facilities. The Company’s decision was in response to the December 31, 2014, expiration of the lease on the Costa Mesa facility as well as the close proximity of the two properties. The California consolidation is complete.

The company recorded the following restructuring costs associated with the California consolidation for the three- and six-month periods ended June 30, 2016 and 2015 (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
Restructuring Costs - California	2016		2015		2016		2015
Employee severance	$	—	$	—	$	—	$	18
Relocation		—		6		—		66
Total	$	—	$	6	$	—	$	84

Costs for 2016 were reclassified in the Condensed Consolidated Statement of Income as “Restructuring Costs” from Cost of Sales.  Costs for the three-months ended June 30, 2015 were reclassified in the Condensed Consolidated Statement of Income as “Restructuring Costs” from Cost of Sales.  Costs for the six-months ended June 30, 2015 were reclassified in the Condensed Consolidated Statement of Income as “Restructuring Costs” as follows: $90,000 from Cost of Sales and $18,000 from General and Administrative expenses. 

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(12) Related Party Transactions

Daniel Croteau, who has been a member of the Company’s board of directors since December 16, 2015, is the Chief Executive Officer of Vention Medical, Inc., a customer of the Company.  Sales to Vention for the six-months ended June 30, 2016 were approximately $248,000.  Open accounts receivable from Vention were approximately $49,000 at June 30, 2016.

13) Material Overcharge Settlement

The Company was a participant in a class action lawsuit against a number of polyurethane foam suppliers (“Defendants”) that recently reached settlement.   The suit was filed to recover damages and obtain injunctive relief for Defendants’ alleged violations of the federal antitrust laws with respect to the fixing of prices of polyurethane foam sold from January 1, 1999 through August, 2010.  The Company received a settlement amount of approximately $432,000 during the three-month period ended June 30, 2016.  The Company received an additional settlement amount of approximately $1.7 million in July, 2016, which will be recorded in the three-month period ending September 30, 2016, and which is the final payment the Company will receive for this settlement. The settlement amount for the current quarter is recorded as “Material overcharge settlement” in the operating income section of the Condensed Consolidated Statements of Income.

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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, anticipated trends in the different markets in which the Company competes, including the medical, automotive, consumer, electronics, industrial and aerospace and defense markets, anticipated new customer contracts, statements regarding anticipated advantages relating to the Company’s decisions to consolidate its facilities and the expected cost savings and efficiencies associated therewith, anticipated advantages of maintaining fewer, larger plants, anticipated advantages the Company expects to realize from its investments and capital expenditures, including the development of and investments in its molded fiber product lines, expectations regarding the manufacturing capacity and efficiencies of the Company and the expected timing associated therewith, statements about the Company’s acquisition opportunities and strategies, its participation and growth in multiple markets, its business opportunities, the Company’s growth potential and strategies for growth, anticipated revenues and the timing of such revenues, and any indication that the Company may be able to sustain or increase its sales and earnings or sales and earnings growth rates. Investors are cautioned that such forward-looking statements involve risks and uncertainties, including without limitation risks and uncertainties associated with the identification of suitable acquisition candidates and the successful, efficient execution of acquisition transactions and integration of any such acquisition candidates, risks and uncertainties associated with plant closures and expected efficiencies from consolidating manufacturing, the risk that we may not be able to finalize anticipated new customer contracts, risks associated with the implementation of new production equipment and requalification or recertification of transferred equipment in a timely, cost-efficient manner, and risks that any benefits from such new equipment may be delayed or not fully realized, or that the Company may be unable to fully utilize its expected production capacity.  Accordingly, actual results may differ materially.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential,” and similar expressions intended to identify forward-looking statements. Our actual results could be different from the results described in or anticipated by our forward-looking statements due to the inherent uncertainty of estimates, forecasts, and projections, and may be materially better or worse than anticipated. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements represent our 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 of the forward-looking statements are qualified in their entirety by reference to the factors discussed above and under “Risk Factors” set forth in Part I Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as well as the risks and uncertainties discussed elsewhere in this Report. We qualify all of our forward-looking statements by these cautionary statements. We caution you that these risks are not exhaustive. We operate in a continually changing business environment and new risks emerge from time to time.

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 converter of foams, plastics, composites and natural fiber products, principally serving the medical, automotive, consumer, electronics, industrial and aerospace and defense markets. The Company consists of a single operating and reportable segment.

13

The Company generated improved operating results in its second quarter ended June 30, 2016 over the same quarter last year, as the manufacturing inefficiencies and extra labor required for plant moves and re-qualifications began to give way to synergies.  The Company expects continued, gradual improvements in manufacturing efficiency as it completes its Northeast consolidation.

Strong second quarter growth in sales to customers in the medical and consumer markets were partially offset by weakness in demand from customers in the military and electronics markets.  The Company anticipates continued growth in sales to customers in the medical market.

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

Results of Operations

Sales

Sales for the three-month period ended June 30, 2016 increased approximately 3.8% to $37.9 million from sales of $36.5 million for the same period in 2015. The increase in sales for the three-month period ended June 30, 2016 was primarily a result of increases in sales to customers in the medical and consumer markets of approximately 12.1% and 24.7%, respectively, partially offset by decreases in sales to customers in the aerospace & defense market of approximately 31.5% due to continued cuts in government spending and decreases in sales to customers in the electronics markets of approximately 20.5%.  The increase in sales to customers in the medical market was largely due to a new five-year contract with one of the Company’s larger customers in this market.  The increase in sales to customers in the consumer market was largely due to increased demand for molded fiber protective packaging.  The decrease in sales to customers in the electronics market was primarily due to a temporary spike in demand for packaging at one of our larger customers in 2015.

Sales for the six-month period ended June 30, 2016 increased approximately 2.7% to $72.4 million from sales of $70.5 million for the same period in 2015. The increase in sales for the six-month period ended June 30, 2016 was primarily a result of increases in sales to customers in the medical and consumer markets of approximately 12.7% and 25.0%, respectively, partially offset by decreases in sales to customers in the aerospace & defense market of approximately 24.5% due to continued cuts in government spending and decreases in sales to customers in the electronics markets of approximately 15.0%.  The increase in sales to customers in the medical market was largely due to a new five-year contract with one of the Company’s larger customers in this market.  The increase in sales to customers in the consumer market was largely due to increased demand for molded fiber protective packaging.  The decrease in sales to customers in the electronics market was primarily due to general softness in demand for protective packaging.

Gross Profit

Gross profit as a percentage of sales (“gross margin”) decreased to 27.1% for the three-month period ended June 30, 2016, from 28.2% for the same period in 2015.  As a percentage of sales, material and labor costs collectively increased 0.9%, while overhead increased 0.2%.  The increase in collective material and labor costs as a percentage of sales is primarily due to manufacturing inefficiencies resulting from recent plant consolidations, as well as the one-time write-off of approximately $288,000 in obsolete tooling and inventory. 

Gross profit as a percentage of sales decreased to 24.9% for the six-month period ended June 30, 2016, from 26.9% for the same period in 2015.  As a percentage of sales, material and labor costs collectively increased 2.2%, while overhead decreased 0.2%.  The increase in collective material and labor costs as a percentage of sales is primarily due to manufacturing inefficiencies resulting from recent plant consolidations, as well as the one-time write-off of approximately $288,000 in obsolete tooling and inventory.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses (“SG&A”) decreased approximately 4.5% to $6.5 million for the three-month period ended June 30, 2016, from $6.8 million for the same period in 2015. As a percentage of sales, SG&A

14

decreased to 17.1% for the three-month period ended June 30, 2016, from 18.6% for the same three-month period in 2015. The decrease in SG&A and SG&A as a percentage of sales for the three-month period ended June 30, 2016, is primarily due to lower salaries, benefits and commissions expense resulting largely from recent plant consolidations.

Selling, general, and administrative expenses (“SG&A”) decreased approximately 3.3% to $12.4 million for the six-month period ended June 30, 2016, from $12.8 million for the same period in 2015. As a percentage of sales, SG&A decreased to 17.1% for the six-month period ended June 30, 2016, from 18.2% for the same six-month period in 2015. The decrease in SG&A and SG&A as a percentage of sales for the six-month period ended June 30, 2016, is primarily due to lower salaries, benefits and commissions expense resulting largely from recent plant consolidations.

Restructuring Costs

For the three- month period ended June 30, 2016, the Company incurred restructuring costs of approximately $55,000, compared to approximately $30,000 for the same period in 2015.

For the six-month period ended June 30, 2016, the Company incurred restructuring costs of approximately $178,000, compared to approximately $108,000 for the same period in 2015.

Additional information regarding restructuring costs can be found in Note 11 of the Notes to Interim Condensed Consolidated Financial Statements.

Material Overcharge Settlement

The Company was a participant in a class action lawsuit against a number of polyurethane foam suppliers (“Defendants”) that recently reached settlement.   The suit was filed to recover damages and obtain injunctive relief for Defendants’ alleged violations of the federal antitrust laws with respect to the fixing of prices of polyurethane foam sold from January 1, 1999 through August, 2010.  The Company received a settlement amount of approximately $432,000 during the three-month period ended June 30, 2016.  The Company received an additional settlement amount of approximately $1.7 million in July, 2016, which will be recorded in the three-month period ending September 30, 2016, and which is the final payment the Company will receive for this settlement. The settlement amount for the current quarter is recorded as “Material overcharge settlement” in the operating income section of the Condensed Consolidated Statements of Income.

Interest Income and Expense

The Company had net interest income of approximately $15,000 and $8,000 for the three-month periods ended June 30, 2016 and 2015, respectively. The Company had net interest income of approximately $26,000 and net interest expense of approximately $15,000 for the six-month periods ended June 30, 2016 and 2015, respectively. The increase in net interest income is primarily due to an increase in interest earned on money market accounts and certificates of deposit and decreasing interest costs on our term loans.

Income Taxes

The Company’s effective tax rate was approximately 35.0%, for each of the three-month periods ended June 30, 2016 and 2015.  The Company’s effective tax rate was approximately 35.7% and 35.0%, for the six-month periods ended June 30, 2016 and 2015, respectively. The increase in the effective tax rate for the six-month period ended June 30, 2016 is due to a tax assessment of approximately $40,000 from one jurisdiction recorded in the first quarter of 2016. The Company has deferred tax assets on its books associated with net operating losses generated in previous years. The Company has considered both positive and negative available evidence in its determination that the deferred tax assets are more likely than not to be realized, and has not recorded a tax valuation allowance at June 30, 2016. The Company will continue to assess whether the deferred tax assets will be realizable and, when appropriate, will record a valuation allowance against these assets. The amount of the net deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry-forward period are reduced.

15

Liquidity and Capital Resources

The Company generally funds its operating expenses, capital requirements, and growth plan through internally generated cash and bank credit facilities.

Cash Flows

Net cash provided by operations for the six-month period ended June 30, 2016 was approximately $1.6 million and was primarily a result of net income generated of $3.8 million, depreciation and amortization of approximately $2.7 million, share-based compensation of $0.6 million, an increase in deferred taxes of $0.2 million, an increase in accounts payable of approximately $0.9 million due to the timing of vendor payments in the ordinary course of business, a decrease in inventories of approximately $0.3 million and a decrease in refundable income taxes of approximately $0.8 million. These cash inflows and adjustments to income were offset by an increase in accounts receivable of approximately $5.5 million due in part to strong June sales, an increase in prepaid expenses of approximately $1.6 million due to upfront insurance premium payments and a decrease in accrued expenses of approximately $0.6 million primarily due to the payment of year-end commissions, profit sharing and employee bonuses.

Net cash used in investing activities during the six-month period ended June 30, 2016 was approximately $4.4 million and was primarily the result of additions of manufacturing machinery and equipment and the renovations of the new manufacturing and headquarters building in Massachusetts.

Net cash used in financing activities was approximately $19,000 during the six-month period ended June 30, 2016, representing cash used to service term debt of approximately $505,000 and to pay statutory withholding for stock options exercised and restricted stock units vested of approximately $89,000, largely offset by excess tax benefits on share-based compensation of approximately $126,000 and net proceeds received upon stock options exercises of approximately $449,000.

Outstanding and Available Debt

The Company maintains an unsecured $40 million revolving credit facility with Bank of America, N.A. The credit facility 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 credit facility, 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 Company’s $40 million credit facility matures on November 30, 2018.

As of June 30, 2016, the Company had no borrowings outstanding under the credit facility and the Company was in compliance with all covenants under the credit facility.

In 2012, the Company financed the purchase of two molded fiber machines through five-year term loans that mature in September 2017.  The annual interest rate is fixed at 1.83% and the loans are secured by the related molded fiber machines.  As of June 30, 2016, the outstanding balance of the term loan facility was approximately $1.4 million.

Future Liquidity

The Company requires cash to pay its operating expenses, purchase capital equipment, and to service its contractual obligations.  The Company’s principal sources of funds are its operations and its revolving credit facility.  The Company generated cash of approximately $1.6 million from operations during the six-month period ended June 30, 2016, however, the Company cannot guarantee that its operations will generate cash in future periods.  The Company’s longer-term liquidity is contingent upon future operating performance.

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Throughout fiscal 2016, the Company plans to continue to add capacity to enhance operating efficiencies in its manufacturing plants.  The Company may also further expand its Newburyport, Massachusetts manufacturing plant. The Company may consider additional acquisitions of companies, technologies, or products that are complementary to its business.  The Company believes that its existing resources, including its revolving credit facility, together with cash expected to be generated from operations and funds expected to be available to it through any necessary equipment financings and additional bank borrowings, will be sufficient to fund its cash flow requirements, including capital asset acquisitions, through the next twelve months.

Stock Repurchase Program

On June 16, 2015, the Company announced that its Board of Directors authorized the repurchase of up to $10.0 million of the Company’s outstanding common stock. Under the program, the Company is authorized to repurchase shares through Rule 10b5-1 plans, open market purchases, privately negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934. The stock repurchase program will end upon the earlier of the date on which the plan is terminated by the Board or when all authorized repurchases are completed. The timing and amount of stock repurchases, if any, will be determined based upon our evaluation of market conditions and other factors. The stock repurchase program may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the program. The Company did not repurchase any shares of its common stock under this program in the first six months of 2016. Through June 30, 2016, the Company had repurchased a total of 29,559 shares of its common stock under this program at a cost of approximately $587,000.  At June 30, 2016, approximately $9.4 million was available for future repurchases of the Company’s common stock under this authorization.

Commitments and Contractual Obligations

There have been no material changes outside the ordinary course of business to our contractual obligations and commitments, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

Off-Balance-Sheet Arrangements

The Company had no off-balance-sheet arrangements during the six-month period ended June 30, 2016, other than operating leases.

ITEM 3:QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risks as previously disclosed in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2015.

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.

There has been no change in the Company’s internal control over financial reporting during the most recent 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, 2015.

ITEM 2:UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

On June 16, 2015, the Company issued a press release announcing that its Board of Directors authorized the repurchase of up to $10.0 million of the Company’s outstanding common stock. The Company did not repurchase any shares of its common stock under this program in the first six-months of June 30, 2016. Through June 30, 2016, the Company had repurchased a total of 29,559 shares of its common stock under this program at a cost of approximately $587,000.  At June 30, 2016, 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	2003 Incentive Plan, as Amended and Restated (incorporated by reference to Appendix A to the Company’s Proxy Statement on Schedule 14A, filed with the Securities and Exchange Commission on April 29, 2016 (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.LAB	XBRL Taxonomy Label Linkbase Document.*
101.PRE	XBRL Taxonomy Presentation Linkbase Document.*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.*

*     Filed herewith.

**   Furnished herewith. 

#Indicates management contract or compensatory plan or arrangement.

18

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: August 9, 2016	By:	/s/ R. Jeffrey Bailly
	R. Jeffrey Bailly
	Chairman, Chief Executive Officer, President, and Director (Principal Executive Officer)
Date: August 9, 2016	By:	/s/ Ronald J. Lataille
	Ronald J. Lataille Chief Financial Officer (Principal Financial Officer)

19

EXHIBIT INDEX

Exhibit No.	Description
10.1	2003 Incentive Plan, as Amended and Restated (incorporated by reference to Appendix A to the Company’s Proxy Statement on Schedule 14A, filed with the Securities and Exchange Commission on April 29, 2016 (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.LAB	XBRL Taxonomy Label Linkbase Document.*
101.PRE	XBRL Taxonomy Presentation Linkbase Document.*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.*

*     Filed herewith.

**   Furnished herewith.

#Indicates management contract or compensatory plan or arrangement.

20

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 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 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.

August 9, 2016	/s/ R. Jeffrey Bailly
Date	R. Jeffrey Bailly
	Chairman, Chief Executive Officer,
	President, and Director
	(Principal Executive Officer)

1

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 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 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.

August 9, 2016	/s/ Ronald J. Lataille
Date	Ronald J. Lataille
	Chief Financial Officer
	(Principal Financial Officer)

1

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, to the best of such officers’ knowledge and belief, that:

(1)    The Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, (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.

August 9, 2016	/s/ R. Jeffrey Bailly
Date	R. Jeffrey Bailly
	Chairman, Chief Executive Officer,
	President, and Director
	(Principal Executive Officer)

August 9, 2016	/s/ Ronald J. Lataille
Date	Ronald J. Lataille
	Chief Financial Officer
	(Principal Financial Officer)

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to UFP Technologies, Inc. and will be retained by UFP Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

1

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Aug. 02, 2016
Document and Entity Information
Entity Registrant Name	UFP TECHNOLOGIES INC
Entity Central Index Key	0000914156
Document Type	10-Q
Document Period End Date	Jun. 30, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		7,223,048
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 27,007	$ 29,804
Receivables, less allowance for doubtful accounts of $611 at June 30, 2016 and $499 at December 31, 2015	23,020	17,481
Inventories	13,884	14,202
Prepaid expenses	2,595	930
Refundable income taxes	480	1,186
Total current assets	66,986	63,603
Property, plant and equipment	94,673	90,564
Less accumulated depreciation and amortization	(46,348)	(44,009)
Net property, plant and equipment	48,325	46,555
Goodwill	7,322	7,322
Intangible assets, net	477	636
Other assets	1,869	1,834
Total assets	124,979	119,950
Current liabilities:
Accounts payable	5,463	4,598
Accrued expenses	4,769	5,374
Current installments of long-term debt	1,020	1,011
Total current liabilities	11,252	10,983
Long-term debt, excluding current installments	345	859
Deferred income taxes	3,107	2,883
Other liabilities	1,765	1,653
Total liabilities	16,469	16,378
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 1,000,000 shares; zero shares issued or outstanding
Common stock, $.01 par value. Authorized 20,000,000 shares; issued and outstanding 7,223,048 at June 30, 2016 and 7,170,377 shares at December 31, 2015	72	72
Additional paid-in capital	24,833	23,705
Retained earnings	84,192	80,382
Treasury stock at cost - 29,559 shares at June 30, 2016 and December 31, 2015	(587)	(587)
Total stockholders' equity	108,510	103,572
Total liabilities and stockholders' equity	$ 124,979	$ 119,950

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Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Consolidated Balance Sheets
Allowance for doubtful accounts receivable (in dollars)	$ 611	$ 499
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, Authorized shares	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, Authorized shares	20,000,000	20,000,000
Common stock, issued shares	7,223,048	7,170,377
Common stock, outstanding shares	7,223,048	7,170,377
Treasury Stock, shares	29,559	29,559

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Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Consolidated Statements of Income
Net sales	$ 37,902	$ 36,499	$ 72,406	$ 70,476
Cost of sales	27,607	26,206	54,384	51,544
Gross profit	10,295	10,293	18,022	18,932
Selling, general, and administrative expenses	6,470	6,776	12,374	12,800
Restructuring costs	55	30	178	108
Material overcharge settlement	(423)		(423)
Gain on sale fixed assets			(4)	(31)
Operating income	4,193	3,487	5,897	6,055
Other expenses:
Interest (income) expense, net	(15)	(8)	(26)	15
Income before income tax provision	4,208	3,495	5,923	6,040
Income tax expense	1,473	1,223	2,113	2,114
Net income	$ 2,735	$ 2,272	$ 3,810	$ 3,926
Net income per share:
Basic (in dollars per share)	$ 0.38	$ 0.32	$ 0.53	$ 0.55
Diluted (in dollars per share)	$ 0.38	$ 0.32	$ 0.53	$ 0.55
Weighted average common shares outstanding:
Basic (in shares)	7,196	7,116	7,185	7,096
Diluted (in shares)	7,271	7,210	7,263	7,203

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Cash flows from operating activities:
Net income	$ 3,810	$ 3,926
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,749	2,341
Gain on sale of fixed assets	(4)	(31)
Share-based compensation	642	647
Excess tax benefits on share-based compensation	(126)	(219)
Deferred income taxes	224	194
Changes in operating assets and liabilities:
Receivables, net	(5,539)	(3,048)
Inventories	318	61
Prepaid expenses	(1,665)	(1,000)
Refundable income taxes	832	2,932
Other assets	(35)	(44)
Accounts payable	865	(925)
Accrued expenses	(605)	924
Other liabilities	112	(71)
Net cash used in operating activities	1,578	5,687
Cash flows from investing activities:
Additions to property, plant and equipment	(4,360)	(10,461)
Proceeds from sale of fixed assets	4	31
Net cash used in investing activities	(4,356)	(10,430)
Cash flows from financing activities:
Principal repayments of long-term debt	(505)	(496)
Proceeds from the exercise of stock options, net of attestation	449	220
Excess tax benefit on share-based compensation	126	219
Payment of statutory withholdings for stock options exercised and restricted stock units vested	(89)	(79)
Net cash used in financing activities	(19)	(136)
Net decrease in cash and cash equivalents	(2,797)	(4,879)
Cash and cash equivalents at beginning of period	29,804	34,052
Cash and cash equivalents at end of period	$ 27,007	$ 29,173

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Basis of Presentation

6 Months Ended

Jun. 30, 2016

Basis of Presentation

Basis of Presentation

(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, 2015, included in the Company's 2015 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission.

The condensed consolidated balance sheet as of June 30, 2016, the condensed consolidated statements of income for the three- and six- month periods ended June 30, 2016 and 2015, and the condensed consolidated statements of cash flows for the six- month periods ended June 30, 2016 and 2015 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 preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The results of operations for the three- and six- month periods ended June 30, 2016 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2016.

Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09, Improvements to Employee Share Based Payment Accounting. This ASU simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards and classification on the statement of cash flows. The provisions of this ASU are effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. This amendment is applicable to us beginning in the first quarter of 2017. The Company is evaluating the impact of adopting this ASU on its consolidated financial position and results of operations.

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Supplemental Cash Flow Information

6 Months Ended

Jun. 30, 2016

Supplemental Cash Flow Information

Supplemental Cash Flow Information

(2)      Supplemental Cash Flow Information

Cash paid (received) for interest and income taxes is as follows (in thousands):

	Six months ended
	June 30,
	2016		2015
Interest, net	$	(27)	$	15
Income taxes, net of refunds	$	728	$	(1,013)

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Fair Value Accounting

6 Months Ended

Jun. 30, 2016

Fair Value Accounting

Fair Value Accounting

(3)Fair Value of Financial Instruments

The Company has financial instruments, such as accounts receivable, accounts payable, and accrued expenses, which 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.

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Share-Based Compensation

6 Months Ended

Jun. 30, 2016

Share-Based Compensation

Share-Based Compensation

(4)      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, 2015.  The compensation cost charged against income for those plans is included in selling, general & administrative expenses as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Total Share-based compensation expense	$	441	$	436	$	642	$	647

Share-based compensation for the three and six-month periods ended June 30, 2016 and 2015 includes approximately $105,000 in each period, respectively, representing the fair value of the Company’s common stock granted during the periods to the Board of Directors.

The total income tax benefit recognized in the condensed consolidated statements of income for share-based compensation arrangements was approximately $103,000 and $135,000, respectively, for the three-month periods ended June 30, 2016 and 2015, and approximately $161,000 and $193,000, respectively, for the six-month periods ended June 30, 2016 and 2015

The following is a summary of stock option activity under all plans for the three- month period ended June 30, 2016:

				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic
	Shares Under	Price		Life	Value
	Options	(per share)		(in years)	(in thousands)
Outstanding December 31, 2015	270,205	$	15.40
Granted	17,184		22.02
Exercised	(39,887)		11.26
Outstanding June 30, 2016	247,502	$	16.53	4.15	$	1,563
Exercisable at June 30, 2016	216,253	$	15.82	4.42	$	1,510
Vested and expected to vest at June 30, 2016	247,502	$	16.53	4.15	$	1,563

On June 9, 2016, the Company granted options to its directors for the purchase of 17,184 shares of common stock at that day’s closing price of $22.02. The compensation expense related to these grants was determined as the fair value of the options using the Black Scholes option pricing model based on the following assumptions:

Expected volatility		29.7%
Expected dividends		None
Risk-free interest rate		0.9%
Exercise price	$	22.02
Expected term		5.0years
Weighted-average grant-date fair value	$	6.11

The stock volatility for each grant is determined based on a review of the experience of the weighted average of historical daily price changes of the Company’s common stock over the expected option term, and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected term of the option. The expected term is calculated based on the simplified method.

During the six-month periods ended June 30, 2016 and 2015, 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 $518,000 and $696,000, respectively, and the total amount of consideration received by the Company from the exercised options was approximately $449,000 and $223,000, respectively. At its discretion, the Company allows option holders to surrender previously owned common stock in lieu of paying the exercise price and withholding taxes. During the six months ended June 30, 2016 and 2015, there were no shares surrendered for this purpose.

During each of the three-month periods ended June 30, 2016 and 2015, the Company recognized compensation expense related to stock options granted to directors and employees of approximately $141,000 and $149,000, respectively. During each of the six-month periods ended June 30, 2016 and 2015, the Company recognized compensation expense related to stock options granted to directors and employees of approximately $177,000 and $193,000, respectively.

On February 22, 2016, the Company’s Compensation Committee approved the award of $400,000,  payable in shares of common stock to the Company’s Chairman, Chief Executive Officer, and President under the 2003 Incentive Plan.  The shares will be issued on December 22, 2016.  The Company recorded compensation expense associated with the award of $100,000 and $200,000, respectively, during the three- and six-month periods ended June 30, 2016. The Company recorded compensation expense associated with a similar award of $100,000 and $200,000, respectively, during the three- and six-month periods ended June 30, 2015.

The following table summarizes information about Restricted Stock Units (“RSUs”) activity during the six-month period ended June 30, 2016:

		Weighted
	Restricted	Average Award
	Stock Units	Date Fair Value
Unvested at December 31, 2015	40,645	$	19.67
Awarded	17,822		21.66
Shares vested	(11,909)		20.94
Unvested at June 30, 2016	46,558	$	20.00

During each of the three- and six-month periods ended June 30, 2016, the Company recorded compensation expense related to RSUs of approximately $95,000 and $160,000, respectively. The Company recorded compensation expense related to RSUs of approximately $82,000 and $149,000, respectively, for the same periods in 2015.

At the Company’s discretion, RSU holders are given the option to net-share settle to cover the required minimum withholding tax, and the remaining amount is converted into the equivalent number of common shares.  During the six-month periods ended June 30, 2016 and 2015, 3,889 and 3,405 shares were surrendered at an average market price of $22.82 and $23.15, respectively.

As of June 30, 2016, the Company had approximately $1.1 million of unrecognized compensation expense, which is expected to be recognized over a period of 3.75 years.

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Inventories

6 Months Ended

Jun. 30, 2016

Inventories

Inventories

(5)      Inventories

Inventories are stated at the lower of cost (first-in, first-out) or net realizable value, and consist of the following at the stated dates (in thousands):

	June 30, 2016		December 31, 2015
Raw materials	$	7,560	$	7,506
Work in process		1,214		1,192
Finished goods		5,110		5,504
Total inventory	$	13,884	$	14,202

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Preferred Stock

6 Months Ended

Jun. 30, 2016

Preferred Stock

Preferred Stock

(6)      Preferred Stock

On March 18, 2009, the Company declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of common stock, par value $0.01 per share, to the stockholders of record on March 20, 2009.  Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share (the “Preferred Share”) of the Company, at a price of $25 per one one-thousandth of a Preferred Share subject to adjustment and the terms of the Rights Agreement.  The Rights expire on March 19, 2019.

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Income Per Share

6 Months Ended

Jun. 30, 2016

Income Per Share

Income Per Share

(7)      Income Per Share

Basic income per share is based on the weighted average number of shares of common stock outstanding.  Diluted income per share is based upon the weighted average number of common shares outstanding and dilutive common stock equivalent shares outstanding during each period.

The weighted average number of shares used to compute basic and diluted net income per share consisted of the following (in thousands):

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2016	2015	2016	2015
Weighted average common shares outstanding, basic	7,196	7,116	7,185	7,096
Weighted average common equivalent shares due to stock options and RSUs	75	94	78	107
Weighted average common shares outstanding, diluted	7,271	7,210	7,263	7,203

The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options, when the average market price of the common stock is lower than the exercise price of the related options during the period. These outstanding stock awards are not included in the computation of diluted income per share because the effect would be antidilutive.  For the three- and six-month periods ended June 30, 2016, the number of stock awards excluded from the computation of diluted earnings per share for this reason was 52,377 and 53,695, respectively. For both the three- and six-month periods ended June 30, 2016, the number of stock awards excluded from the computation of diluted earnings per share for this reason was 82,719.

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Segment Reporting

6 Months Ended

Jun. 30, 2016

Segment Reporting

Segment Reporting

(8)      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 the three-month period ended June 30, 2016.  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, Electronics, Industrial and Aerospace and Defense markets.  Net sales by market for the three- and six-month periods ended June 30, 2016 and 2015 are as follows (in thousands):

	Three Months Ended June 30,								Six Months Ended June 30,
	2016				2015				2016				2015
Market	Net Sales		%		Net Sales		%		Net Sales		%		Net Sales		%
Medical	$	16,778	44.3	%	$	14,962	41.0	%	$	32,435	44.8	%	$	28,786	40.8	%
Automotive		7,671	20.2	%		7,528	20.6	%		13,774	19.0	%		14,935	21.2	%
Consumer		5,015	13.2	%		4,020	11.0	%		9,591	13.2	%		7,673	10.9	%
Electronics		3,004	7.9	%		3,778	10.4	%		6,035	8.3	%		7,096	10.1	%
Industrial		2,908	7.7	%		2,524	6.9	%		5,511	7.6	%		5,281	7.5	%
Aerospace & Defense		2,526	6.7	%		3,687	10.1	%		5,060	7.0	%		6,705	9.5	%
Net Sales	$	37,902	100.0	%	$	36,499	100.0	%	$	72,406	100.0	%	$	70,476	100.0	%

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Other Intangible Assets

6 Months Ended

Jun. 30, 2016

Other Intangible Assets

Other Intangible Assets

(9)Other Intangible Assets

The carrying values of the Company’s definite lived intangible assets as of June 30, 2016 and December 31, 2015, are as follows (in thousands):

			Non-		Customer
	Patents		Compete		List		Total
Estimated useful life		14 years		5 years		5 years
Gross amount at June 30, 2016	$	429	$	512	$	2,046	$	2,987
Accumulated amortization at June 30, 2016		(429)		(418)		(1,663)		(2,510)
Net balance at June 30, 2016	$	—	$	94	$	383	$	477
Gross amount at December 31, 2015	$	429	$	512	$	2,046	$	2,987
Accumulated amortization at December 31, 2015		(429)		(387)		(1,535)		(2,351)
Net balance at December 31, 2015	$	—	$	125	$	511	$	636

Amortization expense related to intangible assets was approximately$79,000 for each of the three- month periods ended June 30, 2016 and 2015, and was approximately $159,000 for each the six- month periods ended June 30, 2016 and 2015. The estimated remaining amortization expense as of June 30, 2016 is as follows (in thousands):

Remainder of:
2016		159
2017		318
Total	$	477

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Income Taxes

6 Months Ended

Jun. 30, 2016

Income Taxes

Income Taxes

(10)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 35.0% of income before income tax expense for the each of three-month periods ended June 30, 2016 and 2015. The Company recorded tax expense of approximately 35.7% and 35.0% of income before income tax expense for the six-month periods ended June 30, 2016 and 2015, respectively. The increase in the effective tax rate for the six-month period ended June 30, 2016 is due to a tax assessment of approximately $40,000 from one jurisdiction recorded in the first quarter of 2016.

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Plant Consolidations

6 Months Ended

Jun. 30, 2016

Plant Consolidations

Plant Consolidations

(11)Plant Consolidations

Restructuring Costs

On March 18, 2015, the Company committed to move forward with a plan to cease operations at its Raritan, New Jersey, plant and consolidate operations into its Newburyport, Massachusetts, facility and other UFP facilities. The Company’s decision was in response to a continued decline in business at the Raritan facility and the recent purchase of the 137,000-square-foot facility in Newburyport. The activities related to this consolidation were substantially complete at December 31, 2015.

The Company also relocated all operations in its Haverhill, Massachusetts, and Byfield, Massachusetts facilities and plans to relocate certain operations in its Georgetown, Massachusetts facility to Newburyport.  The Haverhill and Byfield relocations were complete at December 31, 2015 and the Georgetown relocation is expected to be complete by September 30, 2016.

The Company expects to incur approximately $2.1 million in one-time expenses in connection with the Massachusetts consolidations. Included in this amount are approximately $180,000 relating to employee severance payments and relocation costs, approximately $1.5 million in moving expenses and expenses associated with vacating the Raritan, Haverhill and Byfield properties, and approximately $360,000 in lease termination costs. Total cash charges are estimated at $2.0 million. The Company expects annual cost savings of approximately $1.0 million as a result of these consolidations. Through June 30, 2016, the Company had incurred approximately $1.9 million of the costs for this restructuring plan.

The company recorded the following restructuring costs associated with the Massachusetts consolidations for the three- and six-month periods ended June 30, 2016 and 2015 (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
Restructuring Costs - Massachusetts	2016		2015		2016		2015
Relocation	$	55	$	24	$	178	$	24
Total	$	55	$	24	$	178	$	24

On July 16, 2014, the Company committed to move forward with a plan to cease operations at its Costa Mesa, California, plant and consolidate operations into its Rancho Dominguez, California, facility and other UFP facilities. The Company’s decision was in response to the December 31, 2014, expiration of the lease on the Costa Mesa facility as well as the close proximity of the two properties. The California consolidation is complete.

The company recorded the following restructuring costs associated with the California consolidation for the three- and six-month periods ended June 30, 2016 and 2015 (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
Restructuring Costs - California	2016		2015		2016		2015
Employee severance	$	—	$	—	$	—	$	18
Relocation		—		6		—		66
Total	$	—	$	6	$	—	$	84

Costs for 2016 were reclassified in the Condensed Consolidated Statement of Income as “Restructuring Costs” from Cost of Sales.  Costs for the three-months ended June 30, 2015 were reclassified in the Condensed Consolidated Statement of Income as “Restructuring Costs” from Cost of Sales.  Costs for the six-months ended June 30, 2015 were reclassified in the Condensed Consolidated Statement of Income as “Restructuring Costs” as follows: $90,000 from Cost of Sales and $18,000 from General and Administrative expenses. 

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Related Party Transactions

6 Months Ended

Jun. 30, 2016

Related Party Transactions

Related Party Transactions

(12) Related Party Transactions

Daniel Croteau, who has been a member of the Company’s board of directors since December 16, 2015, is the Chief Executive Officer of Vention Medical, Inc., a customer of the Company.  Sales to Vention for the six-months ended June 30, 2016 were approximately $248,000.  Open accounts receivable from Vention were approximately $49,000 at June 30, 2016.

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Material Overcharge Settlement

6 Months Ended

Jun. 30, 2016

Material Overcharge Settlement

Material Overcharge Settlement

13) Material Overcharge Settlement

The Company was a participant in a class action lawsuit against a number of polyurethane foam suppliers (“Defendants”) that recently reached settlement.   The suit was filed to recover damages and obtain injunctive relief for Defendants’ alleged violations of the federal antitrust laws with respect to the fixing of prices of polyurethane foam sold from January 1, 1999 through August, 2010.  The Company received a settlement amount of approximately $432,000 during the three-month period ended June 30, 2016.  The Company received an additional settlement amount of approximately $1.7 million in July, 2016, which will be recorded in the three-month period ending September 30, 2016, and which is the final payment the Company will receive for this settlement. The settlement amount for the current quarter is recorded as “Material overcharge settlement” in the operating income section of the Condensed Consolidated Statements of Income.

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Supplemental Cash Flow Information (Tables)

6 Months Ended

Jun. 30, 2016

Supplemental Cash Flow Information

Schedule of cash paid for interest and income taxes

Cash paid (received) for interest and income taxes is as follows (in thousands):

	Six months ended
	June 30,
	2016		2015
Interest, net	$	(27)	$	15
Income taxes, net of refunds	$	728	$	(1,013)

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Share-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2016

Share-Based Compensation

Schedule of the compensation cost charged against income for plans included in selling, general & administrative expenses

The compensation cost charged against income for those plans is included in selling, general & administrative expenses as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Total Share-based compensation expense	$	441	$	436	$	642	$	647

Schedule of stock option activity under all plans

				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic
	Shares Under	Price		Life	Value
	Options	(per share)		(in years)	(in thousands)
Outstanding December 31, 2015	270,205	$	15.40
Granted	17,184		22.02
Exercised	(39,887)		11.26
Outstanding June 30, 2016	247,502	$	16.53	4.15	$	1,563
Exercisable at June 30, 2016	216,253	$	15.82	4.42	$	1,510
Vested and expected to vest at June 30, 2016	247,502	$	16.53	4.15	$	1,563

Schedule of assumptions used to determine the fair value of options using Black Scholes option pricing model

Expected volatility		29.7%
Expected dividends		None
Risk-free interest rate		0.9%
Exercise price	$	22.02
Expected term		5.0years
Weighted-average grant-date fair value	$	6.11

Summary of Restricted Stock Units ( RSUs ) activity

		Weighted
	Restricted	Average Award
	Stock Units	Date Fair Value
Unvested at December 31, 2015	40,645	$	19.67
Awarded	17,822		21.66
Shares vested	(11,909)		20.94
Unvested at June 30, 2016	46,558	$	20.00

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Inventories (Tables)

6 Months Ended

Jun. 30, 2016

Inventories

Schedule of inventories

Inventories are stated at the lower of cost (first-in, first-out) or net realizable value, and consist of the following at the stated dates (in thousands):

	June 30, 2016		December 31, 2015
Raw materials	$	7,560	$	7,506
Work in process		1,214		1,192
Finished goods		5,110		5,504
Total inventory	$	13,884	$	14,202

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Income Per Share (Tables)

6 Months Ended

Jun. 30, 2016

Income Per Share

Schedule of the weighted average number of shares used to compute basic and diluted net income per share

The weighted average number of shares used to compute basic and diluted net income per share consisted of the following (in thousands):

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2016	2015	2016	2015
Weighted average common shares outstanding, basic	7,196	7,116	7,185	7,096
Weighted average common equivalent shares due to stock options and RSUs	75	94	78	107
Weighted average common shares outstanding, diluted	7,271	7,210	7,263	7,203

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Segment Reporting (Tables)

6 Months Ended

Jun. 30, 2016

Segment Reporting

Schedule of sales by market

Net sales by market for the three- and six-month periods ended June 30, 2016 and 2015 are as follows (in thousands):

	Three Months Ended June 30,								Six Months Ended June 30,
	2016				2015				2016				2015
Market	Net Sales		%		Net Sales		%		Net Sales		%		Net Sales		%
Medical	$	16,778	44.3	%	$	14,962	41.0	%	$	32,435	44.8	%	$	28,786	40.8	%
Automotive		7,671	20.2	%		7,528	20.6	%		13,774	19.0	%		14,935	21.2	%
Consumer		5,015	13.2	%		4,020	11.0	%		9,591	13.2	%		7,673	10.9	%
Electronics		3,004	7.9	%		3,778	10.4	%		6,035	8.3	%		7,096	10.1	%
Industrial		2,908	7.7	%		2,524	6.9	%		5,511	7.6	%		5,281	7.5	%
Aerospace & Defense		2,526	6.7	%		3,687	10.1	%		5,060	7.0	%		6,705	9.5	%
Net Sales	$	37,902	100.0	%	$	36,499	100.0	%	$	72,406	100.0	%	$	70,476	100.0	%

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Other Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2016

Other Intangible Assets

Schedule of carrying values of definite-lived intangible assets

The carrying values of the Company’s definite lived intangible assets as of June 30, 2016 and December 31, 2015, are as follows (in thousands):

			Non-		Customer
	Patents		Compete		List		Total
Estimated useful life		14 years		5 years		5 years
Gross amount at June 30, 2016	$	429	$	512	$	2,046	$	2,987
Accumulated amortization at June 30, 2016		(429)		(418)		(1,663)		(2,510)
Net balance at June 30, 2016	$	—	$	94	$	383	$	477
Gross amount at December 31, 2015	$	429	$	512	$	2,046	$	2,987
Accumulated amortization at December 31, 2015		(429)		(387)		(1,535)		(2,351)
Net balance at December 31, 2015	$	—	$	125	$	511	$	636

Schedule of future amortization expense related to intangible assets

The estimated remaining amortization expense as of June 30, 2016 is as follows (in thousands):

Remainder of:
2016		159
2017		318
Total	$	477

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Plant Consolidations (Tables)

6 Months Ended

Jun. 30, 2016

Newburyport, Massachusetts Facility

Schedule of restructuring costs associated with the plant consolidation

The company recorded the following restructuring costs associated with the Massachusetts consolidations for the three- and six-month periods ended June 30, 2016 and 2015 (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
Restructuring Costs - Massachusetts	2016		2015		2016		2015
Relocation	$	55	$	24	$	178	$	24
Total	$	55	$	24	$	178	$	24

Costa Mesa, California Facility

Schedule of restructuring costs associated with the plant consolidation

The company recorded the following restructuring costs associated with the California consolidation for the three- and six-month periods ended June 30, 2016 and 2015 (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
Restructuring Costs - California	2016		2015		2016		2015
Employee severance	$	—	$	—	$	—	$	18
Relocation		—		6		—		66
Total	$	—	$	6	$	—	$	84

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Supplemental Cash Flow Information (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Supplemental Cash Flow Information
Interest, net	$ (27)	$ 15
Income taxes, net of refunds	$ 728	$ (1,013)

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Share-Based Compensation - Total Share-Based Compensation Expense (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Share-Based Compensation
Share-based compensation expense	$ 441,000	$ 436,000	$ 642,000	$ 647,000
Fair value of stock granted to a member of the Board of Directors as a part of annual retainer	105,000	105,000	105,000	105,000
Total income tax benefit recognized	$ 103,000	$ 135,000	$ 161,000	$ 193,000

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Share-Based Compensation - Stock Option Activity (Details) - USD ($) $ / shares in Units, $ in Thousands		6 Months Ended
	Jun. 09, 2016	Jun. 30, 2016
Shares Under Options
Granted (in shares)	17,184
Weighted Average Exercise Price
Granted (in dollars per share)	$ 22.02
Options
Shares Under Options
Outstanding at the beginning of the period (in shares)		270,205
Granted (in shares)		17,184
Exercised (in shares)		(39,887)
Outstanding at the end of the period (in shares)		247,502
Exercisable at the end of the period (in shares)		216,253
Vested and expected to vest at the end of the period (in shares)		247,502
Weighted Average Exercise Price
Outstanding at the beginning of the period (in dollars per share)		$ 15.40
Granted (in dollars per share)		22.02
Exercised (in dollars per share)		11.26
Outstanding at the end of the period (in dollars per share)		16.53
Exercisable at the end of the period (in dollars per share)		15.82
Vested and expected to vest at the end of the period (in dollars per share)		$ 16.53
Weighted Average Remaining Contractual Life
Outstanding at the end of the period		4 years 1 month 24 days
Exercisable at the end of the period		4 years 5 months 1 day
Vested and expected to vest at the end of the period		4 years 1 month 24 days
Aggregate Intrinsic Value
Outstanding at the end of the period		$ 1,563
Exercisable at the end of the period		1,510
Vested and expected to vest at the end of the period		$ 1,563

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Share-Based Compensation - Option Pricing Assumptions (Details) - $ / shares		6 Months Ended
	Jun. 09, 2016	Jun. 30, 2016
Assumptions used to determine the intrinsic fair market value of options using Black Scholes option pricing model
Expected volatility (as a percent)	29.70%
Risk free interest rate (as a percent)	0.90%
Exercise price (in dollars per share)	$ 22.02
Expected term		5 years
Weighted-average grant-date fair value	$ 6.11

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Share-Based Compensation - Restricted Stock Unit's Activity (Details) - USD ($)			3 Months Ended		6 Months Ended
	Jun. 09, 2016	Feb. 22, 2016	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Additional share-based compensation disclosures
Weighted-average grant-date fair value	$ 6.11
Compensation expense			$ 441,000	$ 436,000	$ 642,000	$ 647,000
Options
Additional share-based compensation disclosures
The total intrinsic value of all options exercised					518,000	696,000
Total amount of consideration received from the exercised options					$ 449,000	$ 223,000
Shares surrendered in lieu of payment of exercise price and withholding taxes					0	0
Restricted Stock Units
Restricted Stock Units
Unvested at the beginning of the period (in shares)					40,645
Awarded (in shares)					17,822
Shares vested (in shares)					(11,909)
Unvested at the end of the period (in shares)			46,558		46,558
Weighted Average Award Date Fair Value
Unvested at the beginning of the period (in dollars per share)					$ 19.67
Awarded (in dollars per share)					21.66
Shares vested (in dollars per share)					20.94
Unvested at the end of the period (in dollars per share)			$ 20.00		$ 20.00
Additional share-based compensation disclosures
Compensation expense			$ 95,000	82,000	$ 160,000	$ 149,000
Net-share settlement (in shares)					3,889	3,405
Net-share settlement, market price per share					$ 22.82	$ 23.15
Unrecognized compensation expense			1,100,000		$ 1,100,000
Weighted average period of recognition of unrecognized compensation expense					3 years 9 months
Director and employees | Options
Additional share-based compensation disclosures
Compensation expense			141,000	149,000	$ 177,000	$ 193,000
Incentive Plan | Chief Executive Officer | Common Stock
Restricted Stock Units
Awards		$ 400,000
Additional share-based compensation disclosures
Compensation expense			$ 100,000	$ 100,000	$ 200,000	$ 200,000
Awards		$ 400,000

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Inventories (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Inventories
Raw materials	$ 7,560	$ 7,506
Work in process	1,214	1,192
Finished goods	5,110	5,504
Total inventory	$ 13,884	$ 14,202

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Preferred Stock (Details)	Mar. 18, 2009 item $ / shares shares	Jun. 30, 2016 $ / shares	Dec. 31, 2015 $ / shares
Preferred Stock
Number of preferred share purchase rights declared as dividend for each outstanding share of common stock | item	1
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01	$ 0.01
Number of shares of Series A Junior Participating Preferred Stock that each right entitles the registered holder to purchase | shares	0.001
Par value of Series A Junior Participating Preferred Stock (in dollars per share)	$ 0.01	$ 0.01	$ 0.01
Purchase price of Series A Junior Participating Preferred Stock (in dollars per one one-thousandth of a share)	$ 25

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Income Per Share (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Income Per Share
Weighted average common shares outstanding, basic	7,196,000	7,116,000	7,185,000	7,096,000
Weighted average common equivalent shares due to stock options and RSUs	75,000	94,000	78,000	107,000
Weighted average common shares outstanding, diluted	7,271,000	7,210,000	7,263,000	7,203,000
Number of stock awards excluded from the computation of diluted income per share	52,377	82,719	53,695	82,719

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Segment Reporting (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016 USD ($)	Jun. 30, 2015 USD ($)	Jun. 30, 2016 USD ($) segment	Jun. 30, 2015 USD ($)
Segment Reporting
Number of segments historically reported | segment			1
Net sales	$ 37,902	$ 36,499	$ 72,406	$ 70,476
Percentage of concentration risk	100.00%	100.00%	100.00%	100.00%
Medical
Segment Reporting
Net sales	$ 16,778	$ 14,962	$ 32,435	$ 28,786
Percentage of concentration risk	44.30%	41.00%	44.80%	40.80%
Automotive
Segment Reporting
Net sales	$ 7,671	$ 7,528	$ 13,774	$ 14,935
Percentage of concentration risk	20.20%	20.60%	19.00%	21.20%
Consumer
Segment Reporting
Net sales	$ 5,015	$ 4,020	$ 9,591	$ 7,673
Percentage of concentration risk	13.20%	11.00%	13.20%	10.90%
Electronics
Segment Reporting
Net sales	$ 3,004	$ 3,778	$ 6,035	$ 7,096
Percentage of concentration risk	7.90%	10.40%	8.30%	10.10%
Industrial
Segment Reporting
Net sales	$ 2,526	$ 3,687	$ 5,060	$ 6,705
Percentage of concentration risk	6.70%	10.10%	7.00%	9.50%
Aerospace & Defense
Segment Reporting
Net sales	$ 2,908	$ 2,524	$ 5,511	$ 5,281
Percentage of concentration risk	7.70%	6.90%	7.60%	7.50%

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Other Intangible Assets (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Other Intangible Assets
Gross amount	$ 2,987,000		$ 2,987,000		$ 2,987,000
Accumulated amortization	(2,510,000)		(2,510,000)		(2,351,000)
Net balance	477,000		477,000		636,000
Amortization expense related to intangible assets	79,000	$ 79,000	159,000	$ 159,000
Future amortization
2016	159,000		159,000
2017	318,000		318,000
Total	477,000		$ 477,000
Patents
Other Intangible Assets
Estimated useful life			14 years
Gross amount	429,000		$ 429,000		429,000
Accumulated amortization	(429,000)		$ (429,000)		(429,000)
Non-compete
Other Intangible Assets
Estimated useful life			5 years
Gross amount	512,000		$ 512,000		512,000
Accumulated amortization	(418,000)		(418,000)		(387,000)
Net balance	94,000		$ 94,000		125,000
Customer list
Other Intangible Assets
Estimated useful life			5 years
Gross amount	2,046,000		$ 2,046,000		2,046,000
Accumulated amortization	(1,663,000)		(1,663,000)		(1,535,000)
Net balance	$ 383,000		$ 383,000		$ 511,000

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Income Taxes (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2016 item	Jun. 30, 2015	Jun. 30, 2016 USD ($) item	Jun. 30, 2015
Income Taxes
Effective tax rate (as a percent)	35.00%	35.00%	35.70%	35.00%
Change in the effective tax rate for current period | $			$ 40,000
Number of specific tax jurisdictions | item	1		1

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Plant Consolidations (Details)		3 Months Ended		6 Months Ended
	Mar. 18, 2015 USD ($) ft²	Jun. 30, 2016 USD ($)	Jun. 30, 2015 USD ($)	Jun. 30, 2016 USD ($) property	Jun. 30, 2015 USD ($)
Restructuring Costs
Restructuring costs		$ 55,000	$ 30,000	$ 178,000	$ 108,000
Total restructuring costs				$ 1,900,000
Number of properties in close proximity to other California operations | property				2
Selling, general, and administrative expenses		6,470,000	6,776,000	$ 12,374,000	12,800,000
Gain on sale fixed assets				(4,000)	(31,000)
Restructuring Charges
Restructuring Costs
Restructuring costs					90,000
Selling, general, and administrative expenses					18,000
Rancho Dominguez, California Facility
Restructuring Costs
Relocation costs			6,000		66,000
Employee severance payments					18,000
Total restructuring costs			6,000		84,000
Newburyport, Massachusetts Facility
Plant Consolidation
Cash charges	$ 2,000,000
Annual cost savings	$ 1,000,000
Restructuring Costs
Acquired commercial building, square foot | ft²	137,000
Restructuring costs	$ 2,100,000
Relocation costs		55,000	24,000	178,000	24,000
Total restructuring costs		$ 55,000	$ 24,000	$ 178,000	$ 24,000
Employee severance payments | Newburyport, Massachusetts Facility
Plant Consolidation
Restructuring charges	180,000
Moving and vacating expenses | Newburyport, Massachusetts Facility
Plant Consolidation
Restructuring charges	1,500,000
Lease Termination | Newburyport, Massachusetts Facility
Plant Consolidation
Restructuring charges	$ 360,000

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Related Party Transactions (Details)	6 Months Ended
	Jun. 30, 2016 USD ($)
Related Party Transactions
Accounts receivable	$ 49,000
Non-employee members of Board of Directors | Vention Medical, Inc.
Related Party Transactions
Sales	$ 248,000

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Material Overcharge Settlement (Details) - USD ($)	1 Months Ended	3 Months Ended	6 Months Ended
	Jul. 31, 2016	Jun. 30, 2016	Jun. 30, 2016
Loss Contingencies [Line Items]
Litigation Settlement, Amount		$ 423,000	$ 423,000
Defendants | Subsequent events
Loss Contingencies [Line Items]
Additional settlement amount	$ 1,700,000
Defendants | Operating income
Loss Contingencies [Line Items]
Litigation Settlement, Amount		$ 432,000