10-Q

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     June 30, 2018    

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, MA 01950, USA

(Address of principal executive offices) (Zip Code)

(978) 352-2200

(Registrant's telephone number, including area code)

_________________________________________

(Former name, former address, and former fiscal year, if changed since last report)

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

Yes X ;    No ____

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

Yes X ;    No ____

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

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

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ___;    No  X 

7,359,571 shares of registrant’s Common Stock, $0.01 par value, were outstanding as of August 1, 2018.

UFP Technologies, Inc.

Index

		Page
PART I - FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
Condensed Consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017		3
Condensed Consolidated Statements of Income for the Three Months Ended June 30, 2018 and June 30, 2017 (unaudited)		4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2018 and June 30, 2017 (unaudited)		5
Notes to Interim Condensed Consolidated Financial Statements		6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21
Item 4.	Controls and Procedures	22
PART II - OTHER INFORMATION		22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 6.	Exhibits	23
Signatures		24

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

UFP Technologies, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share data)

	June 30, 2018			December 31, 2017
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	5,915		$	37,978
Receivables, less allowance for doubtful accounts of $761 at June 30, 2018 and $652 at December 31, 2017		30,179			21,381
Inventories		18,732			12,863
Prepaid expenses		2,106			1,835
Refundable income taxes		616			1,017
Total current assets		57,548			75,074
Property, plant and equipment		111,289			106,716
Less accumulated depreciation and amortization		(52,600	)		(53,064	)
Net property, plant and equipment		58,689			53,652
Goodwill		51,838			7,322
Intangible assets, net		22,860			-
Non-qualified deferred compensation plan		2,216			2,015
Other assets		191			144
Total assets	$	193,342		$	138,207
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	8,743		$	4,180
Accrued expenses		5,407			5,466
Deferred revenue		3,331			297
Current portion of long-term debt		2,857			-
Total current liabilities		20,338			9,943
Long-term debt, excluding current portion		36,714			-
Deferred income taxes		2,937			2,440
Non-qualified deferred compensation plan		2,215			2,030
Other liabilities		52			82
Total liabilities		62,256			14,495
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized; zero shares issued or outstanding		-			-
Common stock, $.01 par value, 20,000,000 shares authorized; 7,389,116 and 7,359,557 shares issued and outstanding, respectively at June 30, 2018; 7,309,909 and 7,280,350 shares issued and outstanding, respectively at December 31, 2017		73			73
Additional paid-in capital		28,341			26,664
Retained earnings		103,259			97,562
Treasury stock at cost, 29,559 shares at June 30, 2018 and December 31, 2017		(587	)		(587	)
Total stockholders’ equity		131,086			123,712
Total liabilities and stockholders' equity	$	193,342		$	138,207

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,
	2018			2017			2018			2017
Net sales	$	49,019		$	37,886		$	91,949		$	74,939
Cost of sales		36,033			27,945			68,779			55,482
Gross profit		12,986			9,941			23,170			19,457
Selling, general & administrative expenses		7,417			6,061			14,008			12,376
Acquisition-related costs		19			-			1,089			-
Restructuring costs		-			63			-			63
Material overcharge settlement		(104	)		(121	)		(104	)		(121	)
(Gain) Loss on sale of fixed assets		(15	)		8			(55	)		3
Operating income		5,669			3,930			8,232			7,136
Interest income		(7	)		(42	)		(32	)		(84	)
Interest expense		404			13			677			27
Other income		(3	)		-			(53	)		-
Income before income tax expense		5,275			3,959			7,640			7,193
Income tax expense		1,285			1,329			1,873			2,392
Net income	$	3,990		$	2,630		$	5,767		$	4,801
Net income per share:
Basic	$	0.54		$	0.36		$	0.79		$	0.66
Diluted	$	0.54		$	0.36		$	0.78		$	0.66
Weighted average common shares outstanding:
Basic		7,347			7,239			7,336			7,228
Diluted		7,413			7,323			7,408			7,312

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,
	2018			2017
Cash flows from operating activities:
Net income	$	5,767		$	4,801
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		3,874			2,796
(Gain) loss on sale of fixed assets		(55	)		3
Share-based compensation		691			636
Deferred income taxes		688			160
Changes in operating assets and liabilities:
Receivables, net		(4,414	)		(1,057	)
Inventories		(1,451	)		56
Prepaid expenses		(149	)		(174	)
Refundable income taxes		401			798
Other assets		(248	)		(63	)
Accounts payable		2,907			(103	)
Accrued expenses		(1,578	)		(136	)
Deferred revenue		859			67
Non-qualified deferred compensation plan and other liabilities		155			142
Net cash provided by operating activities		7,447			7,926
Cash flows from investing activities:
Additions to property, plant, and equipment		(2,991	)		(4,471	)
Acquisition of Dielectrics, net of cash acquired		(76,978	)		-
Proceeds from sale of fixed assets		68			6
Net cash used in investing activities		(79,901	)		(4,465	)
Cash flows from financing activities:
Proceeds from advances on revolving line of credit		36,000			-
Payments on revolving line of credit		(15,000	)		-
Proceeds from the issuance of long-term debt		20,000			-
Principal repayments of long-term debt		(1,429	)		(514	)
Proceeds from exercise of stock options, net of shares presented for exercise		964			315
Payment of statutory withholdings for stock options exercised and restricted stock units vested		(144	)		(107	)
Net cash provided by (used in) financing activities		40,391			(306	)
Net (decrease) increase in cash and cash equivalents		(32,063	)		3,155
Cash and cash equivalents at beginning of period		37,978			31,359
Cash and cash equivalents at end of period	$	5,915		$	34,514

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, 2017, included in the Company's 2017 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission.

The condensed consolidated balance sheet as of June 30, 2018, the condensed consolidated statements of income for the three- and six-month periods ended June 30, 2018 and 2017, and the condensed consolidated statements of cash flows for the six-month periods ended June 30, 2018 and 2017 are unaudited but, in the opinion of management, include all adjustments (consisting of normal, recurring adjustments) necessary for a fair presentation of results for these interim periods. The condensed consolidated balance sheet as of December 31, 2017 has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm, but does not include all of the information and footnotes required for complete annual financial statements.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The results of operations for the three- and six-month periods ended June 30, 2018, are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2018.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which was subsequently updated (“ASC 606”). The Company adopted ASC 606 on January 1, 2018. See Note 2 for further details.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for those leases previously classified as operating leases. The amendments in ASU No. 2016-02 are effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period with early adoption permitted. The Company is evaluating the impact of adopting this ASU on its consolidated financial position and results of operations.

Revisions

Certain revisions have been made to the December 31, 2017 Condensed Consolidated Balance Sheet to conform to the current year presentation relating to a reclassification of deferred revenue. The reclassification resulted in an increase in deferred revenue and a decrease in accrued expenses in the amount of approximately $297,000. In addition, certain revisions have been made to the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017, also due to a reclassification of deferred revenue. The reclassification resulted in an increase to the change in deferred revenue and a decrease in the change in accrued expenses in the amount of approximately $67,000. These revisions had no impact on previously reported net income and are deemed immaterial to the previously issued financial statements.

(2) Revenue Recognition

On January 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers, using the modified retrospective transition method. Under this method, the Company applied ASC 606 to contracts under which all performance obligations were not complete as of January 1, 2018 and recognized the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings. Results for reporting periods beginning after January 1, 2018 are presented in accordance with ASC 606. Prior period amounts are not adjusted and are reported in accordance with requirements in ASC 605, Revenue Recognition, which is also referred to herein as “legacy GAAP”.

6

The cumulative effect of the adoption on our condensed consolidated balance sheet, by applying the modified retrospective method as of January 1, 2018, is as follows (in thousands):

	As Reported						As Adjusted
	December 31, 2017			Cumulative Adjustments			January 1, 2018
Assets:
Property, plant and equipment	$	106,716		$	1,027		$	107,743
Accumulated depreciation and amortization		(53,064	)		(548	)		(53,612	)
Net property, plant and equipment		53,652			479			54,131
Liabilities:
Deferred revenue		297			574			871
Deferred income taxes		2,440			(25	)		2,415
Stockholders' equity:
Retained earnings		97,562			(70	)		97,492

The following reflects the Company’s condensed consolidated balance sheet and condensed consolidated statement of income on an as reported basis and as if we had continued to recognize revenue under legacy GAAP (in thousands):

	June 30, 2018
	As Reported			Balances without adoption of ASC 606			Difference
Assets:
Property, plant and equipment	$	111,289		$	110,150		$	1,139
Accumulated depreciation and amortization		(52,600	)		(51,808	)		(792	)
Net property, plant and equipment		58,689			58,342			347
Liabilities:
Deferred revenue		3,331			2,909			422
Deferred income taxes		2,937			2,962			(25	)
Stockholders' equity:
Retained earnings		103,259			103,309			(50	)

	For the Six Months Ended June 30, 2018
	As Reported		Balances without adoption of ASC 606		Difference
Net sales	$	91,949	$	91,797	$	152
Cost of sales		68,779		68,647		132
Gross profit		23,170		23,150		20

7

The following summarizes the significant changes under ASC 606 as compared to legacy GAAP:

• Under legacy GAAP, the Company recognized revenue for certain customer tooling at the time the tooling was complete and accepted by the customer. Under ASC 606, as “control” of this tooling does not transfer to the customer, the related purchase orders do not qualify as an “accounting contract” and as a result the consideration received is recorded as deferred revenue and recognized over the estimated time for which parts are produced on each respective tool (approximately two years). The related costs to produce the tooling are capitalized and depreciated over the estimated useful life of the tool (approximately two years).

• Under legacy GAAP, the Company recognized revenue on long-term agreements with variable pricing at the selling price that was in effect for the current period at the time of shipment. Under ASC 606, the Company will recognize revenue at the weighted average selling price for each part over the term of the agreement for any agreements where the Company estimates that we will not be able to achieve the corresponding cost changes necessary to maintain a consistent margin over the term of the agreement. The Company has a limited number of long-term agreements with variable pricing.

The Company recognizes revenue when a customer obtains control of a promised good or service. The amount of revenue recognized reflects the consideration that the Company expects to be entitled to in exchange for promised goods or services. The Company recognizes revenue in accordance with the core principles of ASC 606 which include (1) identifying the contract with a customer, (2) identifying separate performance obligations within the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations, and (5) recognizing revenue. The Company recognizes all but an immaterial portion of its product sales upon shipment. The Company recognizes revenue from the sale of tooling and machinery primarily upon customer acceptance, with the exception of certain tooling where control does not transfer to the customer, which results in revenue being recognized over the estimated time for which parts are produced on each respective tool. Although only applicable to an insignificant number of transactions, the Company has elected to exclude sales taxes from the transaction price. The Company has elected to account for shipping and handling activities for which the Company is responsible under the terms and conditions of the sale not as performance obligations but rather as fulfillment costs. These activities are required to fulfill the Company’s promise to transfer the good and are expensed when revenue is recognized.

Disaggregated Revenue

The following table presents the Company’s revenue disaggregated by the major types of goods and services sold to our customers (in thousands) (See Note 9 for further information regarding net sales by market):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Net sales of:
Products	$	47,102	$	37,321	$	89,246	$	73,895
Tooling and Machinery		1,107		477		1,598		873
Engineering services		810		88		1,105		171
Total net sales	$	49,019	$	37,886	$	91,949	$	74,939

Contract balances

The timing of revenue recognition may differ from the timing of invoicing to customers. When invoicing occurs prior to revenue recognition, the Company has deferred revenue (contract liabilities), included within “deferred revenue” on the condensed consolidated balance sheet.

8

The following table presents opening and closing balances of contract liabilities for the six- month period ended June 30, 2018 (in thousands):

	Contract Liabilities
Deferred revenue - January 1, 2018	$	871
Acquired in Dielectrics business combination		2,175
Increases due to consideration received from customers		1,855
Revenue recognized		(1,570	)
Deferred revenue - June 30, 2018	$	3,331

Revenue recognized during the six- month period ended June 30, 2018 from amounts included in deferred revenue at the beginning of the period was approximately $437,000.

When invoicing occurs after revenue recognition, the Company has unbilled receivables (contract assets) included within “receivables” on the condensed consolidated balance sheet. Unbilled receivables were approximately $236,000 at June 30, 2018.

(3) Supplemental Cash Flow Information

	Six Months Ended
	June 30,
	2018		2017
	(in thousands)
Cash paid for:
Interest	$	668	$	6
Income taxes, net of refunds		784		1,434
Non-cash investing and financing activities:
Capital additions accrued but not yet paid	$	331	$	495

(4) Fair Value of Financial Instruments

Financial instruments recorded at fair value in the consolidated balance sheets, or disclosed at fair value in the footnotes, are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels defined by ASC 820, Fair Value Measurements and Disclosures, and directly related to the amount of subjectivity associated with inputs to fair valuation of these assets and liabilities, are as follows:

Level 1

Valued based on unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2

Valued based on either directly or indirectly observable prices for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3

Valued based on management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

9

The following table presents the fair value and hierarchy levels, for financial assets that are measured at fair value on a recurring basis (in thousands):

Level 2	June 30, 2018
Assets:
Derivative financial instruments	$	53

Derivative financial instruments consist of an interest rate swap for which fair value is determined through the use of a pricing model that utilizes verifiable inputs such as market interest rates that are observable at commonly quoted intervals for the full term of the swap agreement.

The Company has financial instruments, such as accounts receivable, accounts payable, and accrued expenses, that are stated at carrying amounts that approximate fair value because of the short maturity of those instruments. The carrying amount of the Company’s long-term debt approximates fair value as the interest rate on the debt approximates the estimated borrowing rate currently available to the Company.

(5) 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, 2017. The compensation cost charged against income for those plans is included in selling, general & administrative expenses as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
Share-based compensation related to:	2018		2017		2018		2017
Common stock grants	$	205	$	205	$	305	$	305
Stock option grants		118		117		134		126
Restricted Stock Unit awards ("RSUs")		130		105		252		205
Total share-based compensation	$	453	$	427	$	691	$	636

The total income tax benefit recognized in the condensed consolidated statements of income for share-based compensation arrangements was approximately $155,000 and $199,000 for the three-month periods ended June 30, 2018 and 2017, respectively, and approximately $356,000 and $336,000 for the six-month periods ended June 30, 2018 and 2017, respectively.

The following is a summary of stock option activity under all plans for the six-month period ended June 30, 2018:

	Shares Under Options			Weighted Average Exercise Price (per share)		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2017		202,379		$	18.23
Granted		10,344			31.20
Exercised		(65,030	)		30.67
Outstanding at June 30, 2018		147,693		$	20.64		4.58	$	1,512
Exercisable at June 30, 2018		135,193		$	19.95		4.62	$	1,477
Vested and expected to vest at June 30, 2018		147,693		$	20.64		4.58	$	1,512

10

On June 6, 2018, the Company granted options to its directors for the purchase of 10,344 shares of common stock at that day’s closing price of $31.20. 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		27.7	%
Expected dividends		None
Risk-free interest rate		2.70	%
Exercise price	$	31.20
Expected term (in years)		6.0
Weighted-average grant date fair value	$	10.15

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

During the six-month period ended June 30, 2018 and 2017, 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 $1.0 million and $391,000, respectively, and the total amount of consideration received by the Company from the exercised options was approximately $965,000 and $487,000, 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-month period ended June 30, 2018, no shares were surrendered for this purpose. During the six-month period ended June 30, 2017, 6,511 shares were surrendered at an average market price of $26.45 for this purpose.

On February 21, 2018, 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 in December 2018.

The following table summarizes information about Restricted Stock Units (“RSUs”) activity during the six-month period ended June 30, 2018:

	Restricted Stock Units			Weighted Average Award Date Fair Value
Outstanding at December 31, 2017		57,395		$	21.03
Awarded		22,399			29.30
Shares vested		(16,050	)		23.55
Outstanding at June 30, 2018		63,744		$	22.72

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, 2018 and 2017, 5,238 and 4,377 shares were surrendered at an average market price of $27.60 and $24.50, respectively.

As of June 30, 2018, the Company had approximately $1.3 million of unrecognized compensation expense that is expected to be recognized over a period of 3.8 years.

(6) Inventories

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

	June 30, 2018		December 31, 2017
Raw materials	$	9,193	$	6,898
Work in process		3,710		1,207
Finished goods		5,829		4,758
Total inventory	$	18,732	$	12,863

11

(7) 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.

(8) 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,
	2018		2017		2018		2017
Basic weighted average common shares outstanding		7,347		7,239		7,336		7,228
Weighted average common equivalent shares due to stock options and RSUs		66		84		72		84
Diluted weighted average common shares outstanding		7,413		7,323		7,408		7,312

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, 2018, the number of antidilutive stock awards excluded from the computation of diluted earnings per share was 24,280 and 25,344, respectively. For the three- and six-month periods ended June 30, 2017, the number of antidilutive stock awards excluded from the computation of diluted earnings per share was 12,336 and 27,336, respectively.

(9) 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- and six-month periods ended June 30, 2018. All of the Company’s assets are located in the United States.

12

The Company’s products are primarily sold to customers within the Medical, Consumer, Automotive, Electronics, Industrial, and Aerospace and Defense markets. Net sales by market for the three- and six-month periods ended June 30, 2018 and 2017 are as follows (in thousands):

	Three Months Ended June 30,										Six Months Ended June 30,
	2018					2017					2018					2017
Market	Net Sales		%			Net Sales		%			Net Sales		%			Net Sales		%
Medical	$	29,229		59.6	%	$	18,707		49.4	%	$	53,367		58.0	%	$	36,188		48.3	%
Consumer		5,777		11.8	%		4,773		12.6	%		11,237		12.2	%		9,214		12.3	%
Automotive		5,065		10.3	%		6,125		16.2	%		10,421		11.3	%		12,844		17.1	%
Aerospace & Defense		3,080		6.3	%		2,556		6.7	%		5,567		6.1	%		5,599		7.5	%
Electronics		2,968		6.1	%		3,165		8.4	%		5,840		6.4	%		6,077		8.1	%
Industrial		2,900		5.9	%		2,560		6.8	%		5,517		6.0	%		5,017		6.7	%
Net Sales	$	49,019		100.0	%	$	37,886		100.0	%	$	91,949		100.0	%	$	74,939		100.0	%

Certain immaterial amounts for the three- and six-months ended June 30, 2017 were reclassified between markets to conform to the current period presentation.

(10) Other Intangible Assets

The carrying values of the Company’s definite lived intangible assets as of June 30, 2018, are as follows (in thousands):

	Tradename & Brand			Non- Compete			Customer List			Total
Estimated useful life	10 years			5 years			20 years
Gross amount	$	367		$	462		$	22,555		$	23,384
Accumulated amortization		(15	)		(39	)		(470	)	$	(524	)
Net balance	$	352		$	423		$	22,085		$	22,860

The weighted-average amortization period for all intangible assets is 19.6 years. Amortization expense related to intangible assets was approximately $314,000 and $79,000 for the three-month periods ended June 30, 2018 and 2017, respectively, and $524,000 and $159,000 for the six-month periods ended June 30, 2018 and 2017, respectively. The estimated remaining amortization expense as of June 30, 2018 is as follows (in thousands):

Remainder of:
2018	$	628
2019		1,257
2020		1,257
2021		1,257
2022		1,257
Thereafter		17,204
Total	$	22,860

(11) 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 24.4% and 33.6% of income before income tax expense, for each of the three-month periods ended June 30, 2018 and 2017, respectively. The decrease in the effective tax rate for the current period is largely due to a change in the statutory federal tax rate for 2018 and share-based payment related tax benefits recorded of approximately $86,000. The Company recorded tax expense of approximately 24.5% and 33.3% of income before income tax expense, for each of the six-month periods ended June 30, 2018 and 2017, respectively. The decrease in the effective tax rate for the current period is largely due to a change in the statutory federal tax rate for 2018 and share-based payment related tax benefits recorded of approximately $184,000. The Company notes the potential for volatility in its effective tax rate, as any windfall or shortfall tax benefits related to its share-based compensation plans will be recorded directly into income tax expense.

13

On December 22, 2017, the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act (the “2017 Tax Act”), resulting in significant modifications to existing law.  The Tax Act effected a reduction in the corporate tax rate from 35% to 21%, and changes to executive compensation limitations under IRC Section 162(m), among other changes. The Company made what it considers to be a reasonable estimate of the impact of the Tax Act in its financials for the year ended December 31, 2017. The Company has not recorded any changes to this estimate for the three-month period ended June 30, 2018.

Staff Accounting Bulletin (“SAB”) No. 118 issued by the Securities and Exchange Commission (“SEC”), provides for a measurement period of one year from the enactment date to finalize the accounting for effects of the 2017 Tax Act. In accordance with SEC guidance, provisional amounts may be refined as a result of additional guidance from and interpretations by, U.S. regulatory and standard-setting bodies, and changes in assumptions. In the subsequent period, provisional amounts will be adjusted for the effects, if any, of interpretative guidance issued after December 31, 2017, by the U.S. Department of the Treasury.

(12) Indebtedness

On December 2, 2013, the Company entered into an unsecured $40 million revolving credit facility with Bank of America, N.A. The credit facility called for interest of LIBOR plus a margin that ranged from 1.0% to 1.5% or, at the discretion of the Company, the bank’s prime rate less a margin that ranged from 0.25% to zero. In both cases the applicable margin was dependent upon Company performance. Under the credit facility, the Company was subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to EBITDA financial covenant. The credit facility was amended effective December 31, 2014, to modify the definition of “consolidated fixed-charge coverage ratio”. The Company’s $40 million credit facility was to mature on November 30, 2018.

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

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

The Amended and Restated Credit Agreement calls for interest of LIBOR plus a margin that ranges from 1.0% to 1.5% or, at the discretion of the Company, the bank’s prime rate less a margin that ranges from .25% to zero. In both cases the applicable margin is dependent upon Company performance.  Under the Amended and Restated Credit Agreement, the Company is subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to EBITDA financial covenant.  The Amended and Restated Credit Agreement contains other covenants customary for transactions of this type, including restrictions on certain payments, permitted indebtedness and permitted investments.  As of June 30, 2018, the applicable interest rate was approximately 3.34% and the Company was in compliance with all covenants under the Amended and Restated Credit Agreement.

Included in the Amended and Restated Credit Facilities were approximately $0.6 million in standby letters of credit drawable as a financial guarantee on worker’s compensation insurance policies.

14

Long-term debt consists of the following (in thousands):

	June 30, 2018
Revolving credit facility	$	21,000
Term loan		18,571
Total long-term debt		39,571
Current portion		(2,857	)
Long-term debt, excluding current portion	$	36,714

Derivative Financial Instruments

The Company uses interest-rate-related derivative instruments to manage its exposure related to changes in interest rates on certain of its variable-rate debt instruments. The Company does not enter into derivative instruments for any purpose other than cash flow hedging. The Company does not speculate using derivative instruments. By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, in these circumstances the Company is not exposed to the counterparty’s credit risk. The Company minimizes counterparty credit risk in derivative instruments by entering into transactions with carefully selected major financial institutions based upon their credit profile. Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.

The Company assesses interest rate risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company’s debt obligations expose the Company to variability in interest payments due to changes in interest rates. The Company believes that it is prudent to limit the variability of a portion of its interest payments. To meet this objective, in connection with the Amended and Restated Credit Agreement, the Company entered into a $20 million, 5-year interest rate swap agreement under which the Company receives three-month LIBOR plus the applicable margin and pays a 2.7% fixed rate plus the applicable margin. The swap modifies the Company’s interest rate exposure by converting the term loan from a variable rate to a fixed rate in order to hedge against the possibility of rising interest rates during the term of the loan. The notional amount was $18,571,428 at June 30, 2018. The fair value of the swap as of June 30, 2018 was approximately $53,000 and is included in other assets. Changes in the fair value of the swap are recorded in other income/expense and resulted in income of approximately $3,000 and $53,000 during the three- and six-month periods ended June 30, 2018, respectively.

(13) Acquisition

On February 1, 2018 the Company purchased 100% of the outstanding shares of common stock of Dielectrics Inc., pursuant to a stock purchase agreement and related agreements, for an aggregate purchase price of $80 million in cash. The purchase price was subject to adjustment based upon Dielectrics’ working capital at closing. An additional $250,000 of consideration was paid by the Company as a result of the final working capital adjustment. A portion of the purchase price is being held in escrow to indemnify the Company against certain claims, losses and liabilities. The Purchase Agreement contains customary representations, warranties and covenants customary for transactions of this type.

Founded in 1954 and based in Chicopee, Massachusetts, Dielectrics is a leader in the design, development, and manufacture of medical devices using thermoplastic materials. They primarily use radio frequency and impulse welding to design and manufacture solutions for the medical industry. In addition to the long-standing customer relationships, they bring to the Company a seasoned management team and a profitable book of business. The Company has leased the Chicopee location from a realty trust owned by the selling shareholder and affiliates. The lease is for five years with two five-year renewal options.

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The following table summarizes the preliminary allocation of consideration paid to the acquisition date fair value of the assets acquired and liabilities assumed based on management’s estimates of fair value. The final purchase price allocation may change based on final appraisals, valuations and analysis of the fair value of the acquired assets and assumed liabilities (in thousands):

Consideration Paid:
Cash paid at closing	$	80,000
Working capital adjustment		250
Cash from Dielectrics		(3,272	)
Total consideration	$	76,978
Purchase Price Allocation:
Accounts receivable	$	4,384
Inventory		4,418
Other current assets		122
Property, Plant and Equipment		4,600
Customer list		22,555
Non-compete		462
Trade name and brand		367
Goodwill		44,516
Total identifiable assets	$	81,424
Accounts payable		(1,325	)
Accrued expenses		(946	)
Deferred revenue		(2,175	)
Net Assets acquired	$	76,978

Acquisition costs associated with the transaction were approximately $1.1 million and were charged to expense in the six-month period ended June 30, 2018. These costs were primarily for investment banking and legal fees and are reflected on the face of the income statement.

The following table contains an unaudited pro forma condensed consolidated statement of operations for the three- and six month periods ended June 30, 2018 and 2017, as if the Dielectrics acquisition had occurred at the beginning of each of the respective periods (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Sales	$	49,019	$	49,630	$	95,004	$	97,058
Operating Income	$	5,669	$	5,136	$	8,084	$	8,309
Net Income	$	3,990	$	3,154	$	5,566	$	5,123
Earnings per share:
Basic	$	0.54	$	0.44	$	0.76	$	0.71
Diluted	$	0.54	$	0.43	$	0.75	$	0.70

The above unaudited pro forma information is presented for illustrative purposes only and may not be indicative of the results of operations that would have actually occurred had the Dielectrics acquisition occurred as presented. In addition, future results may vary significantly from the results reflected in such pro forma information.

The amount of revenue and net income of Dielectrics recognized since the acquisition date, which is included in the condensed consolidated statement of income for the six month period ended June 30, 2018, was approximately $15.6 million and $1.9 million, respectively.

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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”). Forward-looking statements include, but are not limited to, statements about the Company’s future operating results, prospects, anticipated trends in the different markets in which the Company competes, including the medical, consumer, automotive, electronics, industrial and aerospace and defense markets, statements regarding the Company's acquisition and integration of Dielectrics and synergies associated with the Dielectrics business, anticipated advantages the Company expects to realize from its investments and capital expenditures, statements about new product offerings and program launches and the expected timing thereof, statements regarding anticipated advantages relating to the Company’s decisions to consolidate its facilities and the expected cost savings and efficiencies associated therewith, statements regarding the end of the Company’s automotive door panel program with Mercedes Benz, the closure of the Company’s Georgia plant and the resulting impact to revenues, anticipated advantages and the timing associated with requalification of parts, anticipated advantages of maintaining fewer, larger plants, expectations regarding the manufacturing capacity and efficiencies of the Company, statements about the Company’s entry into new contracts, and the timing and anticipated advantages associated therewith, statements about the Company’s acquisition opportunities and strategies, the Company’s 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 that could cause actual results to differ materially from those anticipated. New product and program launches are often subject to lengthy manufacturing qualification processes, and the Company cannot assure that it will be able to launch new programs on a timely basis, if at all. New program launches may require significant start-up and other expenses prior to launch, as tooling and related manufacturing processes are developed, and the Company may experience manufacturing inefficiencies in connection with new program launches. As a result, new programs may not generate profits in accordance with anticipated timetables, or at all. Additional risks and uncertainties include, without limitation, risks and uncertainties associated with the Company's acquisition and integration of Dielectrics, risks associated with the effect of the acquisition of Dielectrics on the Company's earnings, risks and uncertainties associated with the identification of suitable acquisition candidates and the successful, efficient execution of acquisition transactions and integration of any acquisition candidates, risks and uncertainties associated with plant closures and consolidations, including the closure of the Company’s Georgia plant, and expected efficiencies from consolidating manufacturing, risks and uncertainties associated with the requalification and relocation of parts, 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, 2017, 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.

17

Overview

UFP Technologies is an innovative designer and custom converter of foams, plastics, composites, and natural fiber products, principally serving the medical, automotive, consumer, aerospace and defense, electronics and industrial markets. The Company consists of a single operating and reportable segment. As previously disclosed, on February 1, 2018, the Company acquired Dielectrics, Inc. pursuant to a stock purchase agreement and related agreements for an aggregate purchase price of $80 million in cash.

Sales for the Company for the six-month period ended June 30, 2018 grew 22.7% to $91.9 million from $74.9 million in the same period last year largely due to sales of approximately $15.6 million from Dielectrics. Although Dielectrics contributed significantly to earnings, the Company absorbed $1.1 million in transaction costs during the six-month period ended June 30, 2018 as well as approximately $760,000 in losses associated with the closure of its manufacturing plant in Georgia. Despite these costs, the Company generated increases of 15.4% and 20.1% in operating income and net income, respectively.

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

Results of Operations

Sales

Sales for the three-month period ended June 30, 2018 increased approximately 29.4% to $49.0 million from sales of $37.9 million for the same period in 2017. The increase in sales was primarily due to Dielectric’s sales of approximately $9.6 million, which were all in the medical market. On a market basis, sales to customers in the medical and consumer markets grew 56.2% and 21.0%, respectively, while sales to customers in the automotive market declined 17.3%. The increase in sales to customers in the medical market was primarily due to sales by Dielectrics as well as a 5.1% increase in demand from UFP medical customers. The increase in sales to customers in the consumer market was primarily due to sales of molded fiber protective packaging to a new customer. The decline in sales to customers in the automotive market was primarily due to the phase-out of the automotive door panel program for Mercedes-Benz.

Sales for the six-month period ended June 30, 2018 increased approximately 22.7% to $91.9 million from sales of $74.9 million for the same period in 2017. The increase in sales was primarily due to Dielectric’s sales of approximately $15.6 million, which were all in the medical market. On a market basis, sales to customers in the medical and consumer markets grew 47.5% and 22.0%, respectively, while sales to customers in the automotive market declined 18.9%. The increase in sales to customers in the medical market was primarily due to sales by Dielectrics as well as a 4.4% increase in demand from UFP medical customers. The increase in sales to customers in the consumer market was primarily due to sales of molded fiber protective packaging to a new customer. The decline in sales to customers in the automotive market was primarily due to the phase-out of the automotive door panel program for Mercedes-Benz.

Gross Profit

Gross profit as a percentage of sales (“gross margin”) increased to 26.5% for the three-month period ended June 30, 2018, from 26.2% for the same period in 2017. As a percentage of sales, material and labor costs collectively decreased 0.4%, while overhead increased slightly. The decrease in collective material and labor costs as a percentage of sales is primarily due to gains in manufacturing efficiencies resulting from continuous improvement initiatives, strategic price increases and an improvement in the overall book of business.

Gross margin decreased to 25.2% for the six-month period ended June 30, 2018, from 26.0% for the same period in 2017. As a percentage of sales, material and labor costs collectively increased slightly, while overhead increased 0.7%. The increase in overhead is primarily due to operating costs incurred in the first quarter associated with the closure of the Company’s manufacturing plant in Georgia.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses (“SG&A”) increased approximately 22.4% to $7.4 million for the three-month period ended June 30, 2018, from $6.1 million for the same period in 2017. As a percentage of sales, SG&A decreased to 15.1% for the three-month period ended June 30, 2018, from 16.0% for the same three-month period in 2017. The increase in SG&A for the three-month period ended June 30, 2018 is primarily due to approximately $1.0 million in SG&A expenses from Dielectrics and the decrease in SG&A as a percentage of sales is primarily due to lower SG&A as a percentage of sales at Dielectrics.

18

SG&A was approximately $14.0 million for the six-month period ended June 30, 2018, compared to of $12.3 million in the same period in 2017. As a percentage of sales, SG&A decreased to 15.2% for the six-month period ended June 30, 2018, from 16.5% for the same six-month period in 2017. The increase in SG&A for the six-month period ended June 30, 2018 is primarily due to approximately $1.7 million in SG&A expenses from Dielectrics. The decrease in SG&A as a percentage of sales is primarily due lower SG&A as a percentage of sales at Dielectrics.

Acquisition Costs

The Company incurred approximately $1.1 million in costs associated with the Dielectrics acquisition which were charged to expense in the six-month period ended June 30, 2018. These costs were primarily for investment banking and legal fees and are reflected on the face of the income statement.

Interest Income and Expense

The Company had net interest expense of approximately $397,000 and net interest income of $29,000 for the three-month periods ended June 30, 2018 and 2017, respectively. The increase in net interest expense is primarily due to interest paid on the debt incurred to finance the Dielectrics acquisition.

The Company had net interest expense of approximately $645,000 and net interest income of $57,000 for the three-month periods ended June 30, 2018 and 2017, respectively. The increase in net interest expense is primarily due to interest paid on the debt incurred to finance the Dielectrics acquisition.

Income Taxes

The Company recorded tax expense of approximately 24.4% and 33.6% of income before income tax expense, respectively, for each of the three-month periods ended June 30, 2018 and 2017. The decrease in the effective tax rate for the current period is largely due to a change in the statutory federal tax rate for 2018 and share-based payment related tax benefits recorded of approximately $86,000. The Company recorded tax expense of approximately 24.5% and 33.3% of income before income tax expense, respectively, for each of the six-month periods ended June 30, 2018 and 2017. The decrease in the effective tax rate for the current period is largely due to a change in the statutory federal tax rate for 2018 and share-based payment related tax benefits recorded of approximately $184,000.The Company notes the potential for volatility in its effective tax rate, as any windfall or shortfall tax benefits related to its share-based compensation plans will be recorded directly into income tax expense.

On December 22, 2017, the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act (the “2017 Tax Act”), resulting in significant modifications to existing law.  The Tax Act effected a reduction in the corporate tax rate from 35% to 21%, and changed executive compensation limitations under IRC Section 162(m), among other changes. The Company made what it considers to be a reasonable estimate of the impact of the Tax Act in its financials for the year ended December 31, 2017. The Company has not recorded any changes to this estimate for the three month period ended June 30, 2018.

Staff Accounting Bulletin (“SAB”) No. 118 issued by the Securities and Exchange Commission (“SEC”), provides for a measurement period of one year from the enactment date to finalize the accounting for effects of the 2017 Tax Act. In accordance with SEC guidance, provisional amounts may be refined as a result of additional guidance from and interpretations by, U.S. regulatory and standard-setting bodies, and changes in assumptions. In the subsequent period, provisional amounts will be adjusted for the effects, if any, of interpretative guidance issued after December 31, 2017, by the U.S. Department of the Treasury.

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, 2018 was approximately $7.4 million and was primarily a result of net income generated of $5.8 million, depreciation and amortization of approximately $3.9 million, share-based compensation of $0.7 million, an increase in deferred taxes of $0.7 million, an increase in refundable income taxes of approximately $0.4 million, an increase in accounts payable of $2.9 million due to the timing of vendor payments in the ordinary course of business, an increase in deferred revenue of approximately $0.9 million and an increase in other liabilities of approximately $0.1 million. These cash inflows and adjustments to income were offset by an increase in accounts receivable of approximately $4.4 million primarily due to increased sales in the last two months of the second quarter of 2018 over the same period of 2017 and the incremental receivables from the Dielectrics acquisition, an increase in inventory of approximately $1.5 million primarily due to in-process customer tooling, an increase in prepaid expenses of approximately $0.2 million, an increase in other assets of approximately $0.3 million, and a decrease in accrued expenses of approximately $1.6 million due to payments of year-end variable compensation.

19

Net cash used in investing activities during the six-month period ended June 30, 2018 was approximately $80.0 million and was primarily the result of the acquisition of Dielectrics and additions of manufacturing machinery and equipment and various building improvements across the Company.

Net cash provided by financing activities was approximately $40.4 million during the six-month period ended June 30, 2018, representing borrowings under our credit facility to fund the Dielectrics acquisition of $56.0 million and net proceeds received upon stock options exercises of approximately $1.0 million, partially offset by repayments on our credit facility and term loan of approximately $16.4 million, and payments of statutory withholding for stock options exercised and restricted stock units vested of approximately $0.2 million.

Outstanding and Available Debt

On December 2, 2013, the Company entered into an unsecured $40 million revolving credit facility with Bank of America, N.A. The credit facility called for interest of LIBOR plus a margin that ranged from 1.0% to 1.5% or, at the discretion of the Company, the bank’s prime rate less a margin that ranged from 0.25% to zero. In both cases the applicable margin was dependent upon Company performance. Under the credit facility, the Company was subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to EBITDA financial covenant. The credit facility was amended effective December 31, 2014, to modify the definition of “consolidated fixed-charge coverage ratio”. The Company’s $40 million credit facility was to mature on November 30, 2018.

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

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

The Amended and Restated Credit Facilities call for interest of LIBOR plus a margin that ranges from 1.0% to 1.5% or, at the discretion of the Company, the bank’s prime rate less a margin that ranges from .25% to zero. In both cases the applicable margin is dependent upon Company performance.  Under the Amended and Restated Credit Agreement, the Company is subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to EBITDA financial covenant.  The Amended and Restated Credit Agreement contains other covenants customary for transactions of this type, including restrictions on certain payments, permitted indebtedness and permitted investments. 

Included in the Amended and Restated Credit Facilities were approximately $0.6 million in standby letters of credit drawable as a financial guarantee on worker’s compensation insurance policies. As of June 30, 2018, the Company was in compliance with all covenants under the credit facility.

20

Long-term debt consists of the following (in thousands):

	June 30, 2018
Revolving credit facility	$	21,000
Term loan		18,571
Total long-term debt		39,571
Current portion		(2,857	)
Long-term debt, excluding current portion	$	36,714

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 amended and restated credit facility. The Company generated cash of approximately $7.4 million in operations during the six months ended June 30, 2018 and 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.

Throughout fiscal 2018, 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 plans to use available cash to pay down amounts outstanding under its credit facility in an expeditious manner. 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 2018. Through June 30, 2018, the Company repurchased a total of 29,559 shares of its common stock under this program at a cost of approximately $587,000. At June 30, 2018, 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, 2017.

Off-Balance-Sheet Arrangements

In addition to operating leases, the Company’s off-balance-sheet arrangements include standby letters of credit which are included in the Company’s revolving credit facility. As of June 30, 2018, there was approximately $0.6 million in standby letters of credit drawable as a financial guarantee on worker’s compensation insurance policies.

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, 2017.

21

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.

The Company closed the acquisition of Dielectrics on February 1, 2018, and Dielectrics’ total assets and revenues constituted 42.8% and 16.9%, respectively, of the Company’s consolidated total assets and revenues as shown on our consolidated financial statements as of and for the six- months ended June 30, 2018. As the acquisition occurred in the first quarter of fiscal 2018, the Company excluded Dielectrics’ internal control over financial reporting from the scope of the assessment of the effectiveness of the Company’s disclosure controls and procedures. This exclusion is in accordance with the general guidance issued by the Staff of the Securities and Exchange Commission that an assessment of a recently-acquired business may be omitted from the scope in the year of acquisition, if specified conditions are satisfied.

An evaluation was also performed under the supervision and with the participation of our management, including the Company’s Chief Executive Officer and Chief Financial Officer, of any change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Except as described above, that evaluation did not identify any change in the Company’s internal control over financial reporting that occurred during our latest fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The adoption of Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), did not require significant changes in our internal controls over financial reporting or disclosure controls and procedures. However, the Company made enhancements to existing controls and procedures to ensure compliance with the new guidance.

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, 2017.

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

Issuer’s Purchases of Equity Securities

On June 16, 2015, the Company issued a press release announcing that its Board of Directors authorized the repurchase of up to $10.0 million of the Company’s outstanding common stock. The Company did not repurchase any shares of its common stock under this program in the first six months of 2018. Through June 30, 2018, 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, 2018, approximately $9.4 million was available for future repurchases of the Company's common stock under this authorization.

22

ITEM 6: EXHIBITS

Exhibit No.	Description
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.

23

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, 2018	By:    /s/ R. Jeffrey Bailly
	R. Jeffrey Bailly Chairman, Chief Executive Officer, President, and Director (Principal Executive Officer)
Date: August 9, 2018	By:    /s/ Ronald J. Lataille
	Ronald J. Lataille Chief Financial Officer (Principal Financial Officer)

24

EX-31.1

EXHIBIT 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, R. Jeffrey Bailly, President and Chief Executive Officer of UFP Technologies, Inc. certify that:

1. I have reviewed this quarterly report on Form 10-Q of UFP Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2018	/s/ R. Jeffrey Bailly
	R. Jeffrey Bailly
	Chairman, Chief Executive Officer, President and Director
	(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Ronald J. Lataille, Chief Financial Officer of UFP Technologies, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of UFP Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2018	/s/ Ronald J. Lataille
	Ronald J. Lataille
	Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officers of UFP Technologies, Inc., a Delaware corporation (the “Company”) do hereby certify that, to the best of such officers’ knowledge and belief, that:

(1) The Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Form 10-Q fairly presents, in all materials respects, the financial condition and results of operations of the Company.

Date: August 9, 2018	/s/ R. Jeffrey Bailly
	R. Jeffrey Bailly
	Chairman, Chief Executive Officer, President, and Director
	(Principal Executive Officer)
Date: August 9, 2018	/s/ Ronald J. Lataille
	Ronald J. Lataille
	Chief Financial Officer
	(Principal Financial Officer)

A signed original of these written statements required by Section 906 has been provided to UFP Technologies, Inc. and will be retained by UFP Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2018	Aug. 01, 2018
Document Information [Line Items]
Entity Registrant Name	UFP TECHNOLOGIES INC
Entity Central Index Key	0000914156
Trading Symbol	ufpt
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		7,359,571
Document Type	10-Q
Document Period End Date	Jun. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 5,915	$ 37,978
Receivables, less allowance for doubtful accounts of $761 at June 30, 2018 and $652 at December 31, 2017	30,179	21,381
Inventories	18,732	12,863
Prepaid expenses	2,106	1,835
Refundable income taxes	616	1,017
Total current assets	57,548	75,074
Property, plant and equipment	111,289	106,716
Less accumulated depreciation and amortization	(52,600)	(53,064)
Net property, plant and equipment	58,689	53,652
Goodwill	51,838	7,322
Intangible assets, net	22,860
Non-qualified deferred compensation plan	2,216	2,015
Other assets	191	144
Total assets	193,342	138,207
Current liabilities:
Accounts payable	8,743	4,180
Accrued expenses	5,407	5,466
Deferred revenue	3,331	297
Current portion of long-term debt	2,857
Total current liabilities	20,338	9,943
Long-term debt, excluding current portion	36,714
Deferred income taxes	2,937	2,440
Non-qualified deferred compensation plan	2,215	2,030
Other liabilities	52	82
Total liabilities	62,256	14,495
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized; zero shares issued or outstanding
Common stock, $.01 par value, 20,000,000 shares authorized; 7,389,116 and 7,359,557 shares issued and outstanding, respectively at June 30, 2018; 7,309,909 and 7,280,350 shares issued and outstanding, respectively at December 31, 2017	73	73
Additional paid-in capital	28,341	26,664
Retained earnings	103,259	97,562
Treasury stock at cost, 29,559 shares at June 30, 2018 and December 31, 2017	(587)	(587)
Total stockholders’ equity	131,086	123,712
Total liabilities and stockholders' equity	$ 193,342	$ 138,207

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Receivables, allowance for doubtful accounts	$ 761	$ 652
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	1,000,000	1,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	20,000,000	20,000,000
Common stock, shares issued (in shares)	7,389,116	7,309,909
Common stock, shares outstanding (in shares)	7,359,557	7,280,350
Treasury stock, shares (in shares)	29,559	29,559

XML

Condensed Consolidated Statements of Income (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Net sales	$ 49,019	$ 37,886	$ 91,949	$ 74,939
Cost of sales	36,033	27,945	68,779	55,482
Gross profit	12,986	9,941	23,170	19,457
Selling, general & administrative expenses	7,417	6,061	14,008	12,376
Acquisition-related costs	19		1,089
Restructuring costs		63		63
Material overcharge settlement	(104)	(121)	(104)	(121)
(Gain) Loss on sale of fixed assets	(15)	8	(55)	3
Operating income	5,669	3,930	8,232	7,136
Interest income	(7)	(42)	(32)	(84)
Interest expense	404	13	677	27
Other income	(3)		(53)
Income before income tax expense	5,275	3,959	7,640	7,193
Income tax expense	1,285	1,329	1,873	2,392
Net income	$ 3,990	$ 2,630	$ 5,767	$ 4,801
Net income per share:
Basic (in dollars per share)	$ 0.54	$ 0.36	$ 0.79	$ 0.66
Diluted (in dollars per share)	$ 0.54	$ 0.36	$ 0.78	$ 0.66
Weighted average common shares outstanding:
Basic (in shares)	7,347	7,239	7,336	7,228
Diluted (in shares)	7,413	7,323	7,408	7,312

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Cash flows from operating activities:
Net income	$ 5,767	$ 4,801
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,874	2,796
(Gain) Loss on sale of fixed assets	(55)	3
Share-based compensation	691	636
Deferred income taxes	688	160
Changes in operating assets and liabilities:
Receivables, net	(4,414)	(1,057)
Inventories	(1,451)	56
Prepaid expenses	(149)	(174)
Refundable income taxes	401	798
Other assets	(248)	(63)
Accounts payable	2,907	(103)
Accrued expenses	(1,578)	(136)
Deferred revenue	859	67
Non-qualified deferred compensation plan and other liabilities	155	142
Net cash provided by operating activities	7,447	7,926
Cash flows from investing activities:
Additions to property, plant, and equipment	(2,991)	(4,471)
Acquisition of Dielectrics, net of cash acquired	(76,978)
Proceeds from sale of fixed assets	68	6
Net cash used in investing activities	(79,901)	(4,465)
Cash flows from financing activities:
Proceeds from advances on revolving line of credit	36,000
Payments on revolving line of credit	(15,000)
Proceeds from the issuance of long-term debt	20,000
Principal repayments of long-term debt	(1,429)	(514)
Proceeds from exercise of stock options, net of shares presented for exercise	964	315
Payment of statutory withholdings for stock options exercised and restricted stock units vested	(144)	(107)
Net cash provided by (used in) financing activities	40,391	(306)
Net (decrease) increase in cash and cash equivalents	(32,063)	3,155
Cash and cash equivalents at beginning of period	37,978	31,359
Cash and cash equivalents at end of period	$ 5,915	$ 34,514

XML

Note 1 - Basis of Presentation

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

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

( 1 ) Basis of Presentation

The interim condensed consolidated financial statements of UFP Technologies, Inc. (the “Company”) presented herein, have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 

10

-Q and do

not

include all the information and note disclosures required by accounting principles generally accepted in the United States of America. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended

December 31, 2017,

included in the Company's

2017

Annual Report on Form 

10

-K, as filed with the Securities and Exchange Commission.

The condensed consolidated balance sheet as of

June 30, 2018,

the condensed consolidated statements of income for the

three

- and

six

-month periods ended

June 30, 2018

and

2017,

and the condensed consolidated statements of cash flows for the

six

-month periods ended

June 30, 2018

and

2017

are unaudited but, in the opinion of management, include all adjustments (consisting of normal, recurring adjustments) necessary for a fair presentation of results for these interim periods. The condensed consolidated balance sheet as of

December 31, 2017

has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm, but does

not

include all of the information and footnotes required for complete annual financial statements.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The results of operations for the

three

- and

six

-month periods ended

June 30, 2018,

are

not

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

December 

31,

2018.

Recent Accounting Pronouncements

In

May 2014,

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

No.

2014

-

09,

Revenue from Contracts with Customers

, which was subsequently updated (“ASC

606”

). The Company adopted ASC

606

on

January 1, 2018.

See Note

2

for further details.

In

February 2016,

the FASB issued ASU

No.

 

2016

-

02,

Leases.

The guidance in this ASU supersedes the leasing guidance in Topic

840,

Leases

. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for those leases previously classified as operating leases. The amendments in ASU

No.

 

2016

-

02

are effective for annual reporting periods beginning after

December 

15,

2018,

including interim periods within that reporting period with early adoption permitted. The Company is evaluating the impact of adopting this ASU on its consolidated financial position and results of operations.

Revisions

Certain revisions have been made to the

December 31, 2017

Condensed Consolidated Balance Sheet to conform to the current year presentation relating to a reclassification of deferred revenue. The reclassification resulted in an increase in deferred revenue and a decrease in accrued expenses in the amount of approximately

$297,000.

In addition, certain revisions have been made to the Condensed Consolidated Statements of Cash Flows for the

six

months ended

June 30, 2017,

also due to a reclassification of deferred

revenue. The reclassification resulted in an increase to the change in deferred revenue and a decrease in the change in accrued expenses in the amount of approximately

$67,000.

These revisions had

no

impact on previously reported net income and are deemed immaterial to the previously issued financial statements.

XML

Note 2 - Revenue Recognition

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

( 2 ) Revenue Recognition

On

January 1, 2018,

the Company adopted ASC

606,

Revenue from Contracts with Customers

, using the modified retrospective transition method. Under this method, the Company applied ASC

606

to contracts under which all performance obligations were

not

complete as of

January 1, 2018

and recognized the cumulative effect of initially applying

the standard as an adjustment to the opening balance of retained earnings. Results for reporting periods beginning after

January 1, 2018

are presented in accordance with ASC

606.

Prior period amounts are

not

adjusted and are reported in accordance with requirements in ASC

605,

Revenue Recognition

,

which is also referred to herein as “legacy GAAP”.

The cumulative effect of the adoption on our condensed consolidated balance sheet, by applying the modified retrospective method as of

January 

1,

2018,

is as follows (in thousands):

	As Reported						As Adjusted
	December 31, 2017			Cumulative Adjustments			January 1, 2018
Assets:
Property, plant and equipment	$	106,716		$	1,027		$	107,743
Accumulated depreciation and amortization		(53,064	)		(548	)		(53,612	)
Net property, plant and equipment		53,652			479			54,131
Liabilities:
Deferred revenue		297			574			871
Deferred income taxes		2,440			(25	)		2,415
Stockholders' equity:
Retained earnings		97,562			(70	)		97,492

The following reflects the Company’s condensed consolidated balance sheet and condensed consolidated statement of income on an as reported basis and as if we had continued to recognize revenue under legacy GAAP (in thousands):

	June 30, 2018
	As Reported			Balances without adoption of ASC 606			Difference
Assets:
Property, plant and equipment	$	111,289		$	110,150		$	1,139
Accumulated depreciation and amortization		(52,600	)		(51,808	)		(792	)
Net property, plant and equipment		58,689			58,342			347
Liabilities:
Deferred revenue		3,331			2,909			422
Deferred income taxes		2,937			2,962			(25	)
Stockholders' equity:
Retained earnings		103,259			103,309			(50	)

	For the Six Months Ended June 30, 2018
	As Reported		Balances without adoption of ASC 606		Difference
Net sales	$	91,949	$	91,797	$	152
Cost of sales		68,779		68,647		132
Gross profit		23,170		23,150		20

The following summarizes the significant changes under ASC

606

as compared to legacy GAAP:

• Under legacy GAAP, the Company recognized revenue for certain customer tooling at the time the tooling was complete and accepted by the customer. Under ASC 606, as “control” of this tooling does not transfer to the customer, the related purchase orders do not qualify as an “accounting contract” and as a result the consideration received is recorded as deferred revenue and recognized over the estimated time for which parts are produced on each respective tool (approximately two years). The related costs to produce the tooling are capitalized and depreciated over the estimated useful life of the tool (approximately two years).

• Under legacy GAAP, the Company recognized revenue on long-term agreements with variable pricing at the selling price that was in effect for the current period at the time of shipment. Under ASC 606, the Company will recognize revenue at the weighted average selling price for each part over the term of the agreement for any agreements where the Company estimates that we will not be able to achieve the corresponding cost changes necessary to maintain a consistent margin over the term of the agreement. The Company has a limited number of long-term agreements with variable pricing.

The Company recognizes revenue when a customer obtains control of a promised good or service. The amount of revenue recognized reflects the consideration that the Company expects to be entitled to in exchange for promised goods or services. The Company recognizes revenue in accordance with the core principles of ASC

606

which include (

1

) identifying the contract with a customer, (

2

) identifying separate performance obligations within the contract, (

3

) determining the transaction price, (

4

) allocating the transaction price to the performance obligations, and (

5

) recognizing revenue. The Company recognizes all but an immaterial portion of its product sales upon shipment. The Company recognizes revenue from the sale of tooling and machinery primarily upon customer acceptance, with the exception of certain tooling where control does

not

transfer to the customer, which results in revenue being recognized

over the estimated time for which parts are produced on each respective tool. Although only applicable to an insignificant number of transactions,

the Company has elected to exclude sales taxes from the transaction price. The Company has elected to account for shipping and handling activities for which the Company is responsible under the terms and conditions of the sale

not

as performance obligations but rather as fulfillment costs. These activities are required to fulfill the Company’s promise to transfer the good and are expensed when revenue is recognized.

Disaggregated Revenue

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

9

for further information regarding net sales by market):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Net sales of:
Products	$	47,102	$	37,321	$	89,246	$	73,895
Tooling and Machinery		1,107		477		1,598		873
Engineering services		810		88		1,105		171
Total net sales	$	49,019	$	37,886	$	91,949	$	74,939

Contract balances

The timing of revenue recognition

may

differ from the timing of invoicing to customers. When invoicing occurs prior to revenue recognition, the Company has deferred revenue (contract liabilities), included within “deferred revenue” on the condensed consolidated balance sheet.

The following table presents opening and closing balances of contract liabilities for the

six

- month period ended

June 30, 2018 (

in thousands):

	Contract Liabilities
Deferred revenue - January 1, 2018	$	871
Acquired in Dielectrics business combination		2,175
Increases due to consideration received from customers		1,855
Revenue recognized		(1,570	)
Deferred revenue - June 30, 2018	$	3,331

Revenue recognized during the

six

- month period ended

June 30, 2018

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

$437,000.

When invoicing occurs after revenue recognition, the Company has unbilled receivables (contract assets) included within “receivables” on the condensed consolidated balance sheet. Unbilled receivables were approximately

$236,000

at

June 30, 2018.

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Note 3 - Supplemental Cash Flow Information

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Cash Flow, Supplemental Disclosures [Text Block]

( 3 ) Supplemental Cash Flow Information

	Six Months Ended
	June 30,
	2018		2017
	(in thousands)
Cash paid for:
Interest	$	668	$	6
Income taxes, net of refunds		784		1,434
Non-cash investing and financing activities:
Capital additions accrued but not yet paid	$	331	$	495

XML

Note 4 - Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Fair Value Disclosures [Text Block]

( 4 ) Fair Value of Financial Instruments

Financial instruments recorded at fair value in the consolidated balance sheets, or disclosed at fair value in the footnotes, are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels defined by ASC

820,

Fair Value Measurements and Disclosures

, and directly related to the amount of subjectivity associated with inputs to fair valuation of these assets and liabilities, are as follows:

Level

1

Valued based on unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level

2

Valued based on either directly or indirectly observable prices for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level

3

Valued based on management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

The following table presents the fair value and hierarchy levels, for financial assets that are measured at fair value on a recurring basis (in thousands):

Level 2	June 30, 2018
Assets:
Derivative financial instruments	$	53

Derivative financial instruments consist of an interest rate swap for which fair value is determined through the use of a pricing model that utilizes verifiable inputs such as market interest rates that are observable at commonly quoted intervals for the full term of the swap agreement.

The Company has financial instruments, such as accounts receivable, accounts payable, and accrued expenses, that are stated at carrying amounts that approximate fair value because of the short maturity of those instruments. The carrying amount of the Company’s long-term debt approximates fair value as the interest rate on the debt approximates the estimated borrowing rate currently available to the Company

.

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Note 5 - Share-based Compensation

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

( 5 ) 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, 2017.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
Share-based compensation related to:	2018		2017		2018		2017
Common stock grants	$	205	$	205	$	305	$	305
Stock option grants		118		117		134		126
Restricted Stock Unit awards ("RSUs")		130		105		252		205
Total share-based compensation	$	453	$	427	$	691	$	636

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

$155,000

and

$199,000

for the

three

-month periods ended

June 30, 2018

and

2017,

respectively, and approximately

$356,000

and

$336,000

for the

six

-month periods ended

June 

30,

2018

and

2017

, respectively.

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

six

-month period ended

June 

30,

2018

:

	Shares Under Options			Weighted Average Exercise Price (per share)		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2017		202,379		$	18.23
Granted		10,344			31.20
Exercised		(65,030	)		30.67
Outstanding at June 30, 2018		147,693		$	20.64		4.58	$	1,512
Exercisable at June 30, 2018		135,193		$	19.95		4.62	$	1,477
Vested and expected to vest at June 30, 2018		147,693		$	20.64		4.58	$	1,512

On

June 6, 2018,

the Company granted options to its directors for the purchase of

10,344

shares of common stock at that day’s closing price of

$31.20.

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		27.7	%
Expected dividends		None
Risk-free interest rate		2.70	%
Exercise price	$	31.20
Expected term (in years)		6.0
Weighted-average grant date fair value	$	10.15

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

During the

six

-month period ended

June 30, 2018

and

2017,

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

$1.0

million and

$391,000,

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

$965,000

and

$487,000,

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

-month period ended

June 30, 2018,

no

shares were surrendered for this purpose. During the

six

-month period ended

June 30, 2017,

6,511

shares were surrendered at an average market price of

$26.45

for this purpose.

On

February 21

,

2018,

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 in

December 2018.

The following table summarizes information about

Restricted Stock Units

(“RSUs”) activity during the

six

-month period ended

June 30, 2018:

	Restricted Stock Units			Weighted Average Award Date Fair Value
Outstanding at December 31, 2017		57,395		$	21.03
Awarded		22,399			29.30
Shares vested		(16,050	)		23.55
Outstanding at June 30, 2018		63,744		$	22.72

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, 2018

and

2017,

5,238

and

4,377

shares were surrendered at an average market price of

$27.60

and

$24.50,

respectively.

As of

June 30, 2018,

the Company had approximately

$1.3

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

3.8

years

.

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Note 6 - Inventories

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Inventory Disclosure [Text Block]

( 6 ) Inventories

Inventories are stated at the lower of cost (determined using the

first

-in,

first

-out method) or net realizable value, and consist of the following at the stated dates (in thousands):

	June 30, 2018		December 31, 2017
Raw materials	$	9,193	$	6,898
Work in process		3,710		1,207
Finished goods		5,829		4,758
Total inventory	$	18,732	$	12,863

XML

Note 7 - Preferred Stock

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

( 7 ) 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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Note 8 - Income Per Share

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Earnings Per Share [Text Block]

( 8 ) 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,
	2018		2017		2018		2017
Basic weighted average common shares outstanding		7,347		7,239		7,336		7,228
Weighted average common equivalent shares due to stock options and RSUs		66		84		72		84
Diluted weighted average common shares outstanding		7,413		7,323		7,408		7,312

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, 2018

, the number of antidilutive stock awards excluded from the computation of diluted earnings per share was

24,280

and

25,344,

respectively. For the

three

- and

six

-month periods ended

June 30, 2017

, the number of antidilutive stock awards excluded from the computation of diluted earnings per share was

12,336

and

27,336,

respectively.

XML

Note 9 - Segment Reporting

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

( 9 ) 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

- and

six

-month periods ended

June 30, 2018.

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

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

three

- and

six

-month periods ended

June 30, 2018

and

2017

are as follows (in thousands)

:

	Three Months Ended June 30,										Six Months Ended June 30,
	2018					2017					2018					2017
Market	Net Sales		%			Net Sales		%			Net Sales		%			Net Sales		%
Medical	$	29,229		59.6	%	$	18,707		49.4	%	$	53,367		58.0	%	$	36,188		48.3	%
Consumer		5,777		11.8	%		4,773		12.6	%		11,237		12.2	%		9,214		12.3	%
Automotive		5,065		10.3	%		6,125		16.2	%		10,421		11.3	%		12,844		17.1	%
Aerospace & Defense		3,080		6.3	%		2,556		6.7	%		5,567		6.1	%		5,599		7.5	%
Electronics		2,968		6.1	%		3,165		8.4	%		5,840		6.4	%		6,077		8.1	%
Industrial		2,900		5.9	%		2,560		6.8	%		5,517		6.0	%		5,017		6.7	%
Net Sales	$	49,019		100.0	%	$	37,886		100.0	%	$	91,949		100.0	%	$	74,939		100.0	%

Certain immaterial amounts for the

three

- and

six

-months ended

June 30, 2017

were reclassified between markets to conform to the current period presentation.

XML

Note 10 - Other Intangible Assets

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Intangible Assets Disclosure [Text Block]

( 10 ) Other Intangible Assets

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

June 30, 2018,

are as follows (in thousands):

	Tradename & Brand			Non- Compete			Customer List			Total
Estimated useful life	10 years			5 years			20 years
Gross amount	$	367		$	462		$	22,555		$	23,384
Accumulated amortization		(15	)		(39	)		(470	)	$	(524	)
Net balance	$	352		$	423		$	22,085		$	22,860

The weighted-average amortization period for all intangible assets is

19.6

years. Amortization expense related to intangible assets was approximately

$314,000

and

$79,000

for the

three

-month periods ended

June 30, 2018

and

2017,

respectively, and

$524,000

and

$159,000

for the

six

-month periods ended

June 30, 2018

and

2017,

respectively. The estimated remaining amortization expense as of

June 30, 2018

is as follows (in thousands):

Remainder of:
2018	$	628
2019		1,257
2020		1,257
2021		1,257
2022		1,257
Thereafter		17,204
Total	$	22,860

XML

Note 11 - Income Taxes

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

( 11 ) 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

24.4%

and

33.6%

of income before income tax expense, for each of the

three

-month periods ended

June 30, 2018

and

2017,

respectively. The decrease in the effective tax rate for the current period is largely due to a change in the statutory federal tax rate for

2018

and share-based payment related tax benefits recorded of approximately

$86,000.

The Company recorded tax expense of approximately

24.5%

and

33.3%

of income before income tax expense, for each of the

six

-month periods ended

June 30, 2018

and

2017,

respectively. The decrease in the effective tax rate for the current period is largely due to a change in the statutory federal tax rate for

2018

and share-based payment related tax benefits recorded of approximately

$184,000.

The Company notes the potential for volatility in its effective tax rate, as any windfall or shortfall tax benefits related to its share-based compensation plans will be recorded directly into income tax expense.

On

December 22, 2017,

the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act (the

“2017

Tax Act”), resulting in significant modifications to existing law.  The Tax Act effected a reduction in the corporate tax rate from

35%

to

21%,

and changes to executive compensation limitations under IRC Section

162

(m), among other changes. The Company made what it considers to be a reasonable estimate of the impact of the Tax Act in its financials for the year ended

December 31, 2017.

The Company has

not

recorded any changes to this estimate for the

three

-month period ended

June 30, 2018.

Staff Accounting Bulletin (“SAB”)

No.

118

issued by the Securities and Exchange Commission (“SEC”), provides for a measurement period of

one

year from the enactment date to finalize the accounting for effects of the

2017

Tax Act. In accordance with SEC guidance, provisional amounts

may

be refined as a result of additional guidance from and interpretations by, U.S. regulatory and standard-setting bodies, and changes in

assumptions. In the subsequent period, provisional amounts will be adjusted for the effects, if any, of interpretative guidance issued after

December 31, 2017,

by the U.S. Department of the Treasury.

XML

Note 12 - Indebtedness

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Debt Disclosure [Text Block]

( 12 ) Indebtedness

On

December 2, 2013,

the Company entered into an unsecured

$40

million revolving credit facility with Bank of America, N.A. The credit facility called for interest of LIBOR plus a margin that ranged from

1.0%

to

1.5%

or, at the discretion of the

Company, the bank’s prime rate less a margin that ranged from

0.25%

to zero. In both cases the applicable margin was dependent upon Company performance. Under the credit facility, the Company was subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to EBITDA financial covenant. The credit facility was amended effective

December 31, 2014,

to modify the definition of “consolidated fixed-charge coverage ratio”. The Company’s

$40

million credit facility was to mature on

November 30, 2018.

On

February 1, 2018,

the Company, as the borrower, entered into an unsecured

$70

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

The credit facilities under the Amended and Restated Credit Agreement consist of a

$20

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

may

borrow up to

$50

million. The Amended and Restated Credit Agreement matures on

February 1, 2023. 

The proceeds borrowed pursuant to the Amended and Restated Credit Agreement

may

be used for general corporate purposes, including funding the acquisition of Dielectrics Inc. (“Dielectrics”), as well as certain other permitted acquisitions. The Company’s obligations under the Amended and Restated Credit Agreement are guaranteed by the Subsidiary Guarantors.

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

1.0%

to

1.5%

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

.25%

to zero. In both cases the applicable margin is dependent upon Company performance.  Under the Amended and Restated Credit Agreement, the Company is subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to EBITDA financial covenant.  The Amended and Restated Credit Agreement contains other covenants customary for transactions of this type, including restrictions on certain payments, permitted indebtedness and permitted investments.  As of

June 30, 2018,

the applicable interest rate was approximately

3.34%

and the Company was in compliance with all covenants under the Amended and Restated Credit Agreement.

Included in the Amended and Restated Credit Facilities were approximately

$0.6

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

Long-term debt consists of the following (in thousands):

	June 30, 2018
Revolving credit facility	$	21,000
Term loan		18,571
Total long-term debt		39,571
Current portion		(2,857	)
Long-term debt, excluding current portion	$	36,714

Derivative Financial Instruments

The Company uses interest-rate-related derivative instruments to manage its exposure related to changes in interest rates on certain of its variable-rate debt instruments. The Company does

not

enter into derivative instruments for any purpose other than cash flow hedging. The Company does

not

speculate using derivative instruments. By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, in these circumstances the Company is

not

exposed to the counterparty’s credit risk. The Company minimizes counterparty credit risk in derivative instruments by entering into transactions with carefully selected major financial institutions based upon their credit profile. Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that

may

be undertaken.

The Company assesses interest rate risk by continually identifying and monitoring changes in interest rate exposures that

may

adversely impact expected future cash flows and by evaluating hedging opportunities. The Company’s debt obligations expose the Company to variability in interest payments due to changes in interest rates. The Company believes that it is prudent to limit the variability of a portion of its interest payments. To meet this objective,

in connection with the Amended and Restated Credit Agreement, the Company entered into a

$20

million,

5

-year interest rate swap agreement under which the Company receives

three

-month LIBOR plus the applicable margin and pays a

2.7%

fixed rate plus the applicable margin. The swap modifies the Company’s interest rate exposure by converting the term loan from a variable rate to a fixed rate in order to hedge against the possibility of rising interest rates during the term of the loan. The notional amount was

$18,571,428

at

June 30, 2018.

The fair value of the swap as of

June 30, 2018

was approximately

$53,000

and

is included in other assets. Changes in the fair value of the swap are recorded in other income/expense and resulted in income of approximately

$3,000

and

$53,000

during the

three

- and

six

-month periods ended

June 30, 2018,

respectively.

XML

Note 13 - Acquisition

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Business Combination Disclosure [Text Block]

( 13 ) Acquisition

On

February 1, 2018

the Company purchased

100%

of the outstanding shares of common stock of Dielectrics Inc., pursuant to a stock purchase agreement and related agreements, for an aggregate purchase price of

$80

 million in cash. The purchase price was subject to adjustment based upon Dielectrics’ working capital at closing. An additional

$250,000

of consideration was paid by the Company as a result of the final working capital adjustment. A portion of the purchase price is being held in escrow to indemnify the Company against certain claims, losses and liabilities. The Purchase Agreement contains customary representations, warranties and covenants customary for transactions of this type.

Founded in

1954

and based in Chicopee, Massachusetts, Dielectrics is a leader in the design, development, and manufacture of medical devices using thermoplastic materials. They primarily use radio frequency and impulse welding to design and manufacture solutions for the medical industry. In addition to the long-standing customer relationships, they bring to the Company a seasoned management team and a profitable book of business. The Company has leased the Chicopee location from a realty trust owned by the selling shareholder and affiliates. The lease is for

five

years with

two five

-year renewal options.

The following table summarizes the preliminary allocation of consideration paid to the acquisition date fair value of the assets acquired and liabilities assumed based on management’s estimates of fair value. The final purchase price allocation

may

change based on final appraisals, valuations and analysis of the fair value of the acquired assets and assumed liabilities (in thousands):

Consideration Paid:
Cash paid at closing	$	80,000
Working capital adjustment		250
Cash from Dielectrics		(3,272	)
Total consideration	$	76,978
Purchase Price Allocation:
Accounts receivable	$	4,384
Inventory		4,418
Other current assets		122
Property, Plant and Equipment		4,600
Customer list		22,555
Non-compete		462
Trade name and brand		367
Goodwill		44,516
Total identifiable assets	$	81,424
Accounts payable		(1,325	)
Accrued expenses		(946	)
Deferred revenue		(2,175	)
Net Assets acquired	$	76,978

Acquisition costs associated with the transaction were approximately

$1.1

million and were charged to expense in the

six

-month period ended

June 30, 2018.

These costs were primarily for investment banking and legal fees and are reflected on the face of the income statement.

The following table contains an unaudited pro forma condensed consolidated statement of operations for the

three

- and

six

month periods ended

June 30, 2018

and

2017,

as if the Dielectrics acquisition had occurred at the beginning of each of the respective periods (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Sales	$	49,019	$	49,630	$	95,004	$	97,058
Operating Income	$	5,669	$	5,136	$	8,084	$	8,309
Net Income	$	3,990	$	3,154	$	5,566	$	5,123
Earnings per share:
Basic	$	0.54	$	0.44	$	0.76	$	0.71
Diluted	$	0.54	$	0.43	$	0.75	$	0.70

The above unaudited pro forma information is presented for illustrative purposes only and

may

not

be indicative of the results of operations that would have actually occurred had the Dielectrics acquisition occurred as presented. In addition, future results

may

vary significantly from the results reflected in such pro forma information.

The amount of revenue and net income of Dielectrics recognized since the acquisition date, which is included in the condensed consolidated statement of income for the

six

month period ended

June 30, 2018,

was approximately

$15.6

million and

$1.9

million, respectively.

XML

Note 2 - Revenue Recognition (Tables)

6 Months Ended

Jun. 30, 2018

Notes Tables

Schedule of New Accounting Pronouncements and Changes in Accounting Principles [Table Text Block]

	As Reported						As Adjusted
	December 31, 2017			Cumulative Adjustments			January 1, 2018
Assets:
Property, plant and equipment	$	106,716		$	1,027		$	107,743
Accumulated depreciation and amortization		(53,064	)		(548	)		(53,612	)
Net property, plant and equipment		53,652			479			54,131
Liabilities:
Deferred revenue		297			574			871
Deferred income taxes		2,440			(25	)		2,415
Stockholders' equity:
Retained earnings		97,562			(70	)		97,492

	June 30, 2018
	As Reported			Balances without adoption of ASC 606			Difference
Assets:
Property, plant and equipment	$	111,289		$	110,150		$	1,139
Accumulated depreciation and amortization		(52,600	)		(51,808	)		(792	)
Net property, plant and equipment		58,689			58,342			347
Liabilities:
Deferred revenue		3,331			2,909			422
Deferred income taxes		2,937			2,962			(25	)
Stockholders' equity:
Retained earnings		103,259			103,309			(50	)

	For the Six Months Ended June 30, 2018
	As Reported		Balances without adoption of ASC 606		Difference
Net sales	$	91,949	$	91,797	$	152
Cost of sales		68,779		68,647		132
Gross profit		23,170		23,150		20

Disaggregation of Revenue [Table Text Block]

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Net sales of:
Products	$	47,102	$	37,321	$	89,246	$	73,895
Tooling and Machinery		1,107		477		1,598		873
Engineering services		810		88		1,105		171
Total net sales	$	49,019	$	37,886	$	91,949	$	74,939

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

	Contract Liabilities
Deferred revenue - January 1, 2018	$	871
Acquired in Dielectrics business combination		2,175
Increases due to consideration received from customers		1,855
Revenue recognized		(1,570	)
Deferred revenue - June 30, 2018	$	3,331

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Note 3 - Supplemental Cash Flow Information (Tables)

6 Months Ended

Jun. 30, 2018

Notes Tables

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

	Six Months Ended
	June 30,
	2018		2017
	(in thousands)
Cash paid for:
Interest	$	668	$	6
Income taxes, net of refunds		784		1,434
Non-cash investing and financing activities:
Capital additions accrued but not yet paid	$	331	$	495

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Note 4 - Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2018

Notes Tables

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

Level 2	June 30, 2018
Assets:
Derivative financial instruments	$	53

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Note 5 - Share-based Compensation (Tables)

6 Months Ended

Jun. 30, 2018

Notes Tables

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
Share-based compensation related to:	2018		2017		2018		2017
Common stock grants	$	205	$	205	$	305	$	305
Stock option grants		118		117		134		126
Restricted Stock Unit awards ("RSUs")		130		105		252		205
Total share-based compensation	$	453	$	427	$	691	$	636

Share-based Compensation, Stock Options, Activity [Table Text Block]

	Shares Under Options			Weighted Average Exercise Price (per share)		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2017		202,379		$	18.23
Granted		10,344			31.20
Exercised		(65,030	)		30.67
Outstanding at June 30, 2018		147,693		$	20.64		4.58	$	1,512
Exercisable at June 30, 2018		135,193		$	19.95		4.62	$	1,477
Vested and expected to vest at June 30, 2018		147,693		$	20.64		4.58	$	1,512

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

Expected volatility		27.7	%
Expected dividends		None
Risk-free interest rate		2.70	%
Exercise price	$	31.20
Expected term (in years)		6.0
Weighted-average grant date fair value	$	10.15

Schedule of Share-based Compensation, Restricted Stock Units Award Activity [Table Text Block]

	Restricted Stock Units			Weighted Average Award Date Fair Value
Outstanding at December 31, 2017		57,395		$	21.03
Awarded		22,399			29.30
Shares vested		(16,050	)		23.55
Outstanding at June 30, 2018		63,744		$	22.72

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Note 6 - Inventories (Tables)

6 Months Ended

Jun. 30, 2018

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	June 30, 2018		December 31, 2017
Raw materials	$	9,193	$	6,898
Work in process		3,710		1,207
Finished goods		5,829		4,758
Total inventory	$	18,732	$	12,863

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Note 8 - Income Per Share (Tables)

6 Months Ended

Jun. 30, 2018

Notes Tables

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Basic weighted average common shares outstanding		7,347		7,239		7,336		7,228
Weighted average common equivalent shares due to stock options and RSUs		66		84		72		84
Diluted weighted average common shares outstanding		7,413		7,323		7,408		7,312

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Note 9 - Segment Reporting (Tables)

6 Months Ended

Jun. 30, 2018

Notes Tables

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

	Three Months Ended June 30,										Six Months Ended June 30,
	2018					2017					2018					2017
Market	Net Sales		%			Net Sales		%			Net Sales		%			Net Sales		%
Medical	$	29,229		59.6	%	$	18,707		49.4	%	$	53,367		58.0	%	$	36,188		48.3	%
Consumer		5,777		11.8	%		4,773		12.6	%		11,237		12.2	%		9,214		12.3	%
Automotive		5,065		10.3	%		6,125		16.2	%		10,421		11.3	%		12,844		17.1	%
Aerospace & Defense		3,080		6.3	%		2,556		6.7	%		5,567		6.1	%		5,599		7.5	%
Electronics		2,968		6.1	%		3,165		8.4	%		5,840		6.4	%		6,077		8.1	%
Industrial		2,900		5.9	%		2,560		6.8	%		5,517		6.0	%		5,017		6.7	%
Net Sales	$	49,019		100.0	%	$	37,886		100.0	%	$	91,949		100.0	%	$	74,939		100.0	%

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Note 10 - Other Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2018

Notes Tables

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

	Tradename & Brand			Non- Compete			Customer List			Total
Estimated useful life	10 years			5 years			20 years
Gross amount	$	367		$	462		$	22,555		$	23,384
Accumulated amortization		(15	)		(39	)		(470	)	$	(524	)
Net balance	$	352		$	423		$	22,085		$	22,860

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

Remainder of:
2018	$	628
2019		1,257
2020		1,257
2021		1,257
2022		1,257
Thereafter		17,204
Total	$	22,860

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Note 12 - Indebtedness (Tables)

6 Months Ended

Jun. 30, 2018

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

	June 30, 2018
Revolving credit facility	$	21,000
Term loan		18,571
Total long-term debt		39,571
Current portion		(2,857	)
Long-term debt, excluding current portion	$	36,714

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Note 13 - Acquisition (Tables)

6 Months Ended

Jun. 30, 2018

Notes Tables

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]

Consideration Paid:
Cash paid at closing	$	80,000
Working capital adjustment		250
Cash from Dielectrics		(3,272	)
Total consideration	$	76,978
Purchase Price Allocation:
Accounts receivable	$	4,384
Inventory		4,418
Other current assets		122
Property, Plant and Equipment		4,600
Customer list		22,555
Non-compete		462
Trade name and brand		367
Goodwill		44,516
Total identifiable assets	$	81,424
Accounts payable		(1,325	)
Accrued expenses		(946	)
Deferred revenue		(2,175	)
Net Assets acquired	$	76,978

Business Acquisition, Pro Forma Information [Table Text Block]

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Sales	$	49,019	$	49,630	$	95,004	$	97,058
Operating Income	$	5,669	$	5,136	$	8,084	$	8,309
Net Income	$	3,990	$	3,154	$	5,566	$	5,123
Earnings per share:
Basic	$	0.54	$	0.44	$	0.76	$	0.71
Diluted	$	0.54	$	0.43	$	0.75	$	0.70

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Note 1 - Basis of Presentation (Details Textual) - Reclassification from Accrued Expenses to Customer Deposits [Member]	6 Months Ended
	Jun. 30, 2018 USD ($)
Year Ended December 31, 2017 [Member]
Prior Period Reclassification Adjustment	$ 297,000
Six Months Ended June 30, 2017 [Member]
Prior Period Reclassification Adjustment	$ 67,000

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Note 2 - Revenue Recognition (Details Textual)	6 Months Ended
	Jun. 30, 2018 USD ($)
Deferred Revenue, Revenue Recognized	$ 437,000
Receivables [Member]
Contract with Customer, Asset, Net, Current, Total	$ 236,000

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Note 2 - Revenue Recognition - Adoption of ASC 606 (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Jan. 01, 2018	Dec. 31, 2017
Property, plant and equipment	$ 111,289		$ 111,289		$ 107,743	$ 106,716
Less accumulated depreciation and amortization	(52,600)		(52,600)		(53,612)	(53,064)
Net property, plant and equipment	58,689		58,689		54,131	53,652
Deferred revenue	3,331		3,331		871	297
Deferred income taxes	2,937		2,937		2,415	2,440
Retained earnings	103,259		103,259		97,492	$ 97,562
Net sales	49,019	$ 37,886	91,949	$ 74,939
Cost of sales	36,033	27,945	68,779	55,482
Gross profit	12,986	$ 9,941	23,170	$ 19,457
Accounting Standards Update 2014-09 [Member]
Property, plant and equipment					1,027
Less accumulated depreciation and amortization					(548)
Net property, plant and equipment					479
Deferred revenue					574
Deferred income taxes					(25)
Retained earnings					$ (70)
Calculated under Revenue Guidance in Effect before Topic 606 [Member]
Property, plant and equipment	110,150		110,150
Less accumulated depreciation and amortization	(51,808)		(51,808)
Net property, plant and equipment	58,342		58,342
Deferred revenue	2,909		2,909
Deferred income taxes	2,962		2,962
Retained earnings	103,309		103,309
Net sales			91,797
Cost of sales			68,647
Gross profit			23,150
Difference between Revenue Guidance in Effect before and after Topic 606 [Member] | Accounting Standards Update 2014-09 [Member]
Property, plant and equipment	1,139		1,139
Less accumulated depreciation and amortization	(792)		(792)
Net property, plant and equipment	347		347
Deferred revenue	422		422
Deferred income taxes	(25)		(25)
Retained earnings	$ (50)		(50)
Net sales			152
Cost of sales			132
Gross profit			$ 20

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Note 2 - Revenue Recognition - Revenue Disaggregated by the Major Types of Good and Services Sold (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Net sales	$ 49,019	$ 37,886	$ 91,949	$ 74,939
Product [Member]
Net sales	47,102	37,321	89,246	73,895
Tooling and Machinery [Member]
Net sales	1,107	477	1,598	873
Engineering and Development [Member]
Net sales	$ 810	$ 88	$ 1,105	$ 171

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Note 2 - Revenue Recognition - Contract Liabilities (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2018 USD ($)
Deferred revenue - January 1, 2018	$ 871
Acquired in Dielectrics business combination	2,175
Increases due to consideration received from customers	1,855
Revenue recognized	(1,570)
Deferred revenue - June 30, 2018	$ 3,331

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Note 3 - Supplemental Cash Flow Information - Schedule of Supplemental Cash Flow Information (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Interest	$ 668	$ 6
Income taxes, net of refunds	784	1,434
Capital additions accrued but not yet paid	$ 331	$ 495

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Note 4 - Fair Value of Financial Instruments - Financial Assets Measured at Fair Value on a Recurring Basis (Details) $ in Thousands	Jun. 30, 2018 USD ($)
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Derivative financial instruments	$ 53

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Note 5 - Share-based Compensation (Details Textual) - USD ($)			3 Months Ended		6 Months Ended		18 Months Ended
	Jun. 06, 2018	Feb. 21, 2018	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018
Employee Service Share-based Compensation, Tax Benefit from Compensation Expense			$ 155,000	$ 199,000	$ 356,000	$ 336,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	10,344
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price	$ 31.20
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Intrinsic Value					1,000,000	391,000
Proceeds from Stock Options Exercised					$ 965,000	$ 487,000
Shares Paid for Exercise Price and Tax Withholding for Share Based Compensation					0	6,511
Shares Paid for Exercise Price and Tax Withholding for Share-based Compensation, Average Market Price						$ 26.45
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Total			$ 1,300,000		$ 1,300,000		$ 1,300,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition					3 years 292 days
Restricted Stock Units (RSUs) [Member]
Shares Paid for Tax Withholding for Share Based Compensation					5,238	4,377
Shares Paid for Tax Withholding for Share Based Compensation Market Price					$ 27.60		$ 24.50
The 2003 Incentive Plan [Member] | Chairman Chief Executive Officer and President [Member] | Common Stock [Member]
Stock Issued During Period, Value, Share-based Compensation, Net of Forfeitures, Total		$ 400,000

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Note 5 - Share-based Compensation - Compensation Cost (Details) - Selling, General and Administrative Expenses [Member] - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Share-based compensation	$ 453	$ 427	$ 691	$ 636
Common Stock [Member]
Share-based compensation	205	205	305	305
Employee and Nonemployee Stock Option [Member]
Share-based compensation	118	117	134	126
Restricted Stock Units (RSUs) [Member]
Share-based compensation	$ 130	$ 105	$ 252	$ 205

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Note 5 - Share-based Compensation - Summary of Stock Option Activity (Details) - USD ($) $ / shares in Units, $ in Thousands		6 Months Ended
	Jun. 06, 2018	Jun. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	10,344
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price	$ 31.20
Employee and Nonemployee Stock Option [Member]
Outstanding (in shares)		202,379
Outstanding, weighted average exercise price (in dollars per share)		$ 18.23
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross		10,344
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price		$ 31.20
Exercised (in shares)		(65,030)
Exercised, weighted average exercise price (in dollars per share)		$ 30.67
Outstanding (in shares)		147,693
Outstanding, weighted average exercise price (in dollars per share)		$ 20.64
Outstanding, weighted average remaining contractual life (Year)		4 years 211 days
Outstanding, aggregate intrinsic value		$ 1,512
Exercisable (in shares)		135,193
Exercisable, weighted average exercise price (in dollars per share)		$ 19.95
Exercisable, weighted average remaining contractual life (Year)		4 years 226 days
Exercisable, aggregate intrinsic value		$ 1,477
Vested and expected to vest (in shares)		147,693
Vested and expected to vest, weighted average exercise price (in dollars per share)		$ 20.64
Vested and expected to vest, weighted average remaining contractual life (Year)		4 years 211 days
Vested and expected to vest, aggregate intrinsic value		$ 1,512

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Note 5 - Share-based Compensation - Option Pricing Assumptions (Details)	Jun. 06, 2018 $ / shares
Weighted-average grant date fair value (in dollars per share)	$ 10.15
Employee Stock Option [Member]
Expected volatility	27.70%
Expected dividends
Risk-free interest rate	2.70%
Exercise price (in dollars per share)	$ 31.20
Expected term (Year)	6 years

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Note 5 - Share-based Compensation - Restricted Stock Unit Activity (Details) - Restricted Stock Units (RSUs) [Member]	6 Months Ended
	Jun. 30, 2018 $ / shares shares
Outstanding (in shares) | shares	57,395
Outstanding, weighted average award date fair value (in dollars per share) | $ / shares	$ 21.03
Awarded (in shares) | shares	22,399
Awarded, weighted average award date fair value (in dollars per share) | $ / shares	$ 29.30
Shares vested (in shares) | shares	(16,050)
Shares vested (in dollars per share) | $ / shares	$ 23.55
Outstanding (in shares) | shares	63,744
Outstanding, weighted average award date fair value (in dollars per share) | $ / shares	$ 22.72

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Note 6 - Inventories - Summary of Inventory (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Raw materials	$ 9,193	$ 6,898
Work in process	3,710	1,207
Finished goods	5,829	4,758
Total inventory	$ 18,732	$ 12,863

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Note 7 - Preferred Stock (Details Textual)	Mar. 18, 2009 $ / shares shares	Jun. 30, 2018 $ / shares	Dec. 31, 2017 $ / shares
Preferred Stock Dividends Number of Preferred Share Purchase Rights Distributed for each Share of Common Stock Outstanding	1
Common Stock, Par or Stated Value Per Share	$ 0.01	$ 0.01	$ 0.01
Preferred Stock, Par or Stated Value Per Share		$ 0.01	$ 0.01
Preferred Share Purchase Right [Member]
Class of Warrant or Right, Number of Securities Called by Each Warrant or Right | shares	0.001
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 25
Series A Junior Participating Preferred Stock [Member]
Class of Warrant or Right, Number of Securities Called by Each Warrant or Right | shares	101
Preferred Stock, Par or Stated Value Per Share	$ 0.01

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Note 8 - Income Per Share (Details Textual) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	24,280	12,336	25,344	27,336

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Note 8 - Income Per Share - Weighted Average Number of Shares Used to Compute Net EPS (Details) - shares shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Basic (in shares)	7,347	7,239	7,336	7,228
Weighted average common equivalent shares due to stock options and RSUs (in shares)	66	84	72	84
Diluted weighted average common shares outstanding (in shares)	7,413	7,323	7,408	7,312

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Note 9 - Segment Reporting (Details Textual)	6 Months Ended
	Jun. 30, 2018
Number of Reportable Segments	1
Number of Operating Segments	1

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Note 9 - Segment Reporting - Net Sales by Market (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Net sales	$ 49,019	$ 37,886	$ 91,949	$ 74,939
Percentage of concentration risk	100.00%	100.00%	100.00%	100.00%
Medical [Member]
Net sales	$ 29,229	$ 18,707	$ 53,367	$ 36,188
Percentage of concentration risk	59.60%	49.40%	58.00%	48.30%
Consumer [Member]
Net sales	$ 5,777	$ 4,773	$ 11,237	$ 9,214
Percentage of concentration risk	11.80%	12.60%	12.20%	12.30%
Automotive [Member]
Net sales	$ 5,065	$ 6,125	$ 10,421	$ 12,844
Percentage of concentration risk	10.30%	16.20%	11.30%	17.10%
Aerospace & Defense [Member]
Net sales	$ 3,080	$ 2,556	$ 5,567	$ 5,599
Percentage of concentration risk	6.30%	6.70%	6.10%	7.50%
Electronics [Member]
Net sales	$ 2,968	$ 3,165	$ 5,840	$ 6,077
Percentage of concentration risk	6.10%	8.40%	6.40%	8.10%
Industrial [Member]
Net sales	$ 2,900	$ 2,560	$ 5,517	$ 5,017
Percentage of concentration risk	5.90%	6.80%	6.00%	6.70%

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Note 10 - Other Intangible Assets (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life			19 years 219 days
Amortization of Intangible Assets, Total	$ 314,000	$ 79,000	$ 524,000	$ 159,000

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Note 10 - Other Intangible Assets - Definite-lived Intangible Assets (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Gross amount	$ 23,384
Accumulated amortization	(524)
Intangible assets, net	22,860
Trade Name and Brand [Member]
Gross amount	367
Accumulated amortization	(15)
Intangible assets, net	352
Noncompete Agreements [Member]
Gross amount	462
Accumulated amortization	(39)
Intangible assets, net	423
Customer Lists [Member]
Gross amount	22,555
Accumulated amortization	(470)
Intangible assets, net	$ 22,085

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Note 10 - Other Intangible Assets - Future Amortization of Intangible Assets (Details) $ in Thousands	Jun. 30, 2018 USD ($)
2018	$ 628
2019	1,257
2020	1,257
2021	1,257
2022	1,257
Thereafter	17,204
Total	$ 22,860

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Note 11 - Income Taxes (Details Textual) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2018	Dec. 31, 2017
Effective Income Tax Rate Reconciliation, Percent, Total	24.40%	33.60%	24.50%	33.30%
Effective Income Tax Rate Reconciliation, Change in Enacted Tax Rate, Amount	$ (86,000)		$ 184,000
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent						35.00%
Scenario, Forecast [Member]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent					21.00%

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Note 12 - Indebtedness (Details Textual) - USD ($)			3 Months Ended	6 Months Ended
	Feb. 01, 2018	Dec. 02, 2013	Jun. 30, 2018	Jun. 30, 2018
Interest Rate Swap [Member]
Derivative, Notional Amount	$ 20,000,000		$ 18,571,428	$ 18,571,428
Derivative, Term of Contract	5 years
Derivative, Fixed Interest Rate			2.70%	2.70%
Interest Rate Swap [Member] | Other Nonoperating Income (Expense) [Member]
Derivative, Gain on Derivative			$ 3,000	$ 53,000
Interest Rate Swap [Member] | Other Assets [Member]
Derivative Asset, Total			$ 53,000	$ 53,000
Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity		$ 40,000,000
Revolving Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member] | Minimum [Member]
Debt Instrument, Basis Spread on Variable Rate		1.00%
Revolving Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member] | Maximum [Member]
Debt Instrument, Basis Spread on Variable Rate		1.50%
Revolving Credit Facility [Member] | Prime Rate [Member] | Minimum [Member]
Debt Instrument, Basis Spread on Variable Rate		0.00%
Revolving Credit Facility [Member] | Prime Rate [Member] | Maximum [Member]
Debt Instrument, Basis Spread on Variable Rate		0.25%
Amended and Restated Credit Agreement [Member] | Subsidiary Guarantors [Member]
Debt Instrument, Face Amount	$ 70,000,000
Debt Instrument, Interest Rate, Effective Percentage			3.34%	3.34%
Amended and Restated Credit Agreement [Member] | Subsidiary Guarantors [Member] | Unsecured Term Loan [Member]
Debt Instrument, Face Amount	20,000,000
Amended and Restated Credit Agreement [Member] | Subsidiary Guarantors [Member] | Unsecured Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity	50,000,000
Amended and Restated Credit Agreement [Member] | Subsidiary Guarantors [Member] | Standby Letters of Credit [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 600,000
Amended and Restated Credit Agreement [Member] | Prime Rate [Member] | Minimum [Member] | Subsidiary Guarantors [Member]
Debt Instrument, Basis Spread on Variable Rate	0.00%
Amended and Restated Credit Agreement [Member] | Prime Rate [Member] | Maximum [Member] | Subsidiary Guarantors [Member]
Debt Instrument, Basis Spread on Variable Rate	0.25%
Unsecured Revolving Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member] | Minimum [Member] | Subsidiary Guarantors [Member]
Debt Instrument, Basis Spread on Variable Rate	1.00%
Unsecured Revolving Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member] | Maximum [Member] | Subsidiary Guarantors [Member]
Debt Instrument, Basis Spread on Variable Rate	1.50%

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Note 12 - Indebtedness - Long-term Debt (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Long-term debt	$ 39,571
Current portion	(2,857)
Long-term debt, excluding current portion	36,714
Term Loan [Member]
Long-term debt	18,571
Revolving Credit Facility [Member]
Long-term debt	$ 21,000

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Note 13 - Acquisition (Details Textual)		3 Months Ended		6 Months Ended
	Feb. 01, 2018 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)
Business Combination, Acquisition Related Costs		$ 19,000		$ 1,089,000
Revenue from Contract with Customer, Including Assessed Tax		49,019,000	37,886,000	91,949,000	74,939,000
Net Income (Loss) Attributable to Parent, Total		$ 3,990,000	$ 2,630,000	5,767,000	$ 4,801,000
Dielectrics [Member]
Lessee, Operating Lease, Term of Contract	5 years
Number of Lease Term Options	2
Dielectrics [Member]
Business Acquisition, Percentage of Voting Interests Acquired	100.00%
Payments to Acquire Businesses, Gross	$ 80,000,000
Business Combination, Consideration Transferred, Working Capital Adjustment	$ 250,000
Business Combination, Acquisition Related Costs				1,100,000
Revenue from Contract with Customer, Including Assessed Tax				15,600,000
Net Income (Loss) Attributable to Parent, Total				$ 1,900,000

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Note 13 - Acquisition - Assets Acquires and Liabilities Assumed (Details) - USD ($)	Feb. 01, 2018	Jun. 30, 2018	Dec. 31, 2017
Goodwill		$ 51,838,000	$ 7,322,000
Dielectrics [Member]
Cash paid at closing	$ 80,000,000
Working capital adjustment	250,000
Cash from Dielectrics	(3,272,000)
Total consideration	76,978,000
Accounts receivable	4,384,000
Inventory	4,418,000
Other current assets	122,000
Property, Plant and Equipment	4,600,000
Goodwill	44,516,000
Total identifiable assets	81,424,000
Accounts payable	(1,325,000)
Accrued expenses	(946,000)
Deferred revenue	(2,175,000)
Net Assets acquired	76,978,000
Dielectrics [Member] | Customer Lists [Member]
Intangible assets	22,555,000
Dielectrics [Member] | Noncompete Agreements [Member]
Intangible assets	462,000
Dielectrics [Member] | Trade Name and Brand [Member]
Intangible assets	$ 367,000

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Note 13 - Acquisition - Pro Forma Information (Unaudited) (Details) - Dielectrics [Member] - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Sales	$ 49,019	$ 49,630	$ 95,004	$ 97,058
Operating Income	5,669	5,136	8,084	8,309
Net Income	$ 3,990	$ 3,154	$ 5,566	$ 5,123
Basic (in dollars per share)	$ 0.54	$ 0.44	$ 0.76	$ 0.71
Diluted (in dollars per share)	$ 0.54	$ 0.43	$ 0.75	$ 0.70