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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended  SEPTEMBER 30, 2014MARCH 31, 2015

OR

o         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)

172 East Main Street, Georgetown, Massachusetts 01833, 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 x;  No o

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 x;  No o

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):

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

7,056,5697,108,094 shares of registrant’s Common Stock, $0.01 par value, were outstanding as of November 3, 2014.May 4, 2015.

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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, 2013,2014, included in the Company’s 20132014 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission.

The condensed consolidated balance sheet as of September 30, 2014,March 31, 2015, the condensed consolidated statements of income for the three- and nine-monththree-month periods ended September 30,March 31, 2015 and 2014, and 2013, and the condensed consolidated statements of cash flows for the nine-monththree-month periods ended September 30,March 31, 2015 and 2014 and 2013 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 nine-month periodsthree-month period ended September 30, 2014,March 31, 2015 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2014.2015.

Revisions

Certain revisions have been made to the Condensed Consolidated Statement of Income for the three-month period ended March 31, 2014 to conform to the current year presentation. These revisions relate to the classification of certain restructuring, rent and indirect labor items.  The impact on the Condensed Consolidated Statement of Income for the three-month period ended March 31, 2014 was a decrease to costs of sales, an increase to selling, general and administrative expenses and an increase in restructuring costs in the amounts of $148,000, $58,000 and $90,000, respectively. These revisions had no impact on previously reported operating income, net income or cash flows and are deemed immaterial to the previously issued financial statements.

(2)                   Supplemental Cash Flow Information

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

During the nine-month periodsthree-month period ended September 30,March 31, 2014, and 2013, the Company permitted the exercise of stock options with exercise proceeds paid with the Company’s stock (“cashless” exercises) totaling approximately $372,000 and $225,000, respectively.$203,000. No cashless exercises occurred during the three-month period ended March 31, 2015.

(3)                   Fair Value Accounting

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 cost 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, 2013.2014.  The compensation cost charged against income for those plans is included in selling, general & administrative expenses as follows (in thousands):

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Table of approximately $310,000 and $165,000, respectively.Contents

On February 18, 2014,24, 2015, 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 or before December 31, 2014.  The2015.  During the three-month period ended March 31, 2015, the Company recorded compensation expense associated with the award of $100,000. The Company recorded compensation expense of $100,000 and $300,000, respectively, during bothfor the three- and nine-month periodsthree-month period ended September 30,March 31, 2014 and 2013.for a similar award.

The following table summarizes information about Restricted Stock Units (“RSUs”) activity during the nine-monththree-month period ended September 30, 2014:March 31, 2015:

During each of the three- and nine-monththree-month periods ended September 30,March 31, 2015 and 2014, the Company recorded compensation expense related to RSUs of approximately $71,000 and $207,000, respectively.  The Company recorded compensation expense of approximately $60,000 and $182,000, respectively, for the same periods of 2013.$66,000.

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 nine-monththree-month periods ended September 30,March 31, 2015 and 2014, 3,405 and 2013, 9,878 and 37,796 shares were surrendered at an average market price of $25.88$23.15 and $19.81,$25.88, respectively.

At September 30, 2014,As of March 31, 2015, the companyCompany had approximately $915,000$1.3 million of unrecognized compensation expense, which is expected to be recognized over a period of 3.754.0 years.

(5)                   Inventories

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

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

The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options, when the average market price of the common stock is lower than the exercise price of the related options during the period. These outstanding stock awards are not included in the computation of diluted income per share because the effect would be antidilutive.  For both the three- and nine-monththree-month periods ended September 30,March 31, 2015 and 2014, the number of stock awards excluded from the computation of diluted earnings per share for this reason was 53,651.  For the three-53,651 and nine-month periods ended September 30, 2013, the number of stock awards excluded from the computation of diluted earnings per share was 71,546 and 88,908,577, respectively.

(8)                   Segment Reporting

The Company has historically reported two segments, Component Products and Packaging. However, the Company has been undergoing a shift in the way the business is managed and the way information is used by the Chief Operating Decision Maker (the “CODM”), who is the Chief Executive Officer, to consider risks and opportunities and to make decisions and review performance as further described below. In late 2013 and into 2014 the Company committed to changes to the Company’s operations including plant consolidations, consolidation of the Company’s sales force, and other strategic initiatives, to coincide with the Company’s change in operating strategy to maximize capacity in each plant and enhance customer service across markets.  By the end of the third quarter of 2014, many of those initiatives were complete and the Company determined that the existing segment aggregation of Component Products and Packaging was no longer consistent with how the business is structured and reviewed by the CODM. This is primarily because the Company has numerous manufacturing processes that are duplicated through its plants allowing it to move workload based on available capacity and proximity to customers. The CODM evaluates consolidated financial information to manage the business.  As a result, the Company has determined that it 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- and nine-month periodsthree-month period ended September 30, 2014.March 31, 2015.  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, Industrial, Consumer, Aerospace and Defense, and Electronics, markets.  Net sales by market for the three-month periods ended March 31, 2015 and 2014 are as follows (in thousands):

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(9)                     Other Intangible Assets

The carrying values of the company’sCompany’s definite lived intangible assets as of September 30, 2014,March 31, 2015 and December 31, 2013,2014, are as follows (in thousands):

Amortization expense related to intangible assets was approximately $81,000$79,000 and $119,000 for the three-month periods ended September 30,March 31, 2015 and 2014, and 2013, respectively, and $313,000 and $358,000 for the nine-month periods ended September 30, 2014, and 2013.respectively.  The estimated remaining amortization expense as of September 30, 2014March 31, 2015 is as follows (in thousands):

(10)              Income Taxes

The income tax expense included in the accompanying unaudited 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 a tax expense of approximately 35.0%35% of income before income tax expense for both the three-month periods ended September 30, 2014,March 31, 2015 and 2013, respectively.  The Company recorded a tax expense of approximately 35.0% of income before income tax expense for the nine-month period ended September 30, 2014, compared to a tax expense of approximately 33.9% for the comparable nine-month period in 2013. The increase in the effective tax rate was a result of a retroactive application for a 2012 research and development credit which was recorded as a discrete event in the first quarter of 2013. Excluding this discrete event, the effective tax rate for the nine months ended September 30, 2013, was also approximately 35.0%.2014.

(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 facility and the recent purchase of the 137,000 square foot facility in Newburyport. The Company expects the activities related to this consolidation to be completed on or before October 31, 2015.

The Company expects to incur approximately $1.1 million in one-time expenses in connection with the consolidation. Included in this amount are approximately $360,000 of expenses the Company expects to incur relating to employee severance payments and training costs, approximately $600,000 in moving expenses and expenses associated with vacating the Raritan property, and approximately $100,000 in lease termination costs. Total cash charges are estimated at $1.0 million. The Company expects annual cost savings of approximately $400,000 as a result of the plant consolidation.

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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. This consolidation was complete at March 31, 2015.  Costs incurred during the three-month period ended March 31, 2015 totaled approximately $78,000 of which $60,000 was related to relocation costs and $18,000 was related to severance costs. The Company also incurred approximately $232,000 for the three-month period ended March 31, 2015, in related capital improvements at its California facility.

On January 7, 2014, the Company committed to move forward with a plan to cease operations at its Glendale Heights, Illinois plant and consolidate operations into its Grand Rapids, Michigan, facility. The Company’s decision was in response to a pending significant increase in lease cost, declining sales at the Illinois facility, and significant anticipated savings as a result of the consolidation. The Company expects annual cost savings of approximately $750,000 as a result of the Michigan plant consolidation. The consolidation into the Michigan

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As of September 30, 2014,March 31, 2015, 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 September 30, 2014,March 31, 2015, the outstanding balance of the term loan facility was approximately $3.1$2.6 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 generatedused cash of approximately $6.9$1.2 million in operations during the nine-monththree-month period ended September 30, 2014,March 31, 2015, and cannot guarantee that its operations will generate cash in future periods.  The Company’s longer-term liquidity is contingent upon future operating performance.

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 facility and the recent purchase of the 137,000 square foot facility in Newburyport. The Company expects the activities related to this consolidation to be completed on or before October 31, 2015.

The Company expects to incur approximately $1.1 million in one-time expenses in connection with the consolidation. Included in this amount are approximately $360,000 of expenses the Company expects to incur relating to employee severance payments and training costs, approximately $600,000 in moving expenses and expenses associated with vacating the Raritan property, and approximately $100,000 in lease termination costs. Total cash charges are estimated at $1.0 million. The Company expects annual cost savings of approximately $400,000 as a result of the plant consolidation.

Throughout fiscal 2014,2015, the Company plans to continue to add capacity to enhance operating efficiencies in its manufacturing plants.  The Company may consider additional acquisitions of companies, technologies, or products that are complementary to its business.  The Company believes that its existing resources, including its revolving credit facility, together with cash expected to be generated from operations 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.

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, 2013.

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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.

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, 2013.2014.

ITEM 6:                                   EXHIBITS

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