ufpt20210630

ufpt20210630_10q.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended JUNE 30, 2021

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

For the transition period from ____ to ____

Commission File Number: 001-12648

UFP Technologies, Inc.

(Exact name of registrant as specified in its charter)

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

100 Hale Street, Newburyport, MA 01950, USA

(Address of principal executive offices) (Zip Code)

(978) 352-2200

(Registrant's telephone number, including area code)

_________________________________________

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	UFPT	The NASDAQ Stock Market L.L.C.

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

Yes ☒ 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 ☒ No ☐

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

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☐
	Emerging growth company ☐

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

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

Yes ☐ No ☒

7,531,404 shares of registrant’s Common Stock, $0.01 par value, were outstanding as of July 30, 2021.

UFP Technologies, Inc.

Index

		Page

PART I - FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 (unaudited)		3
Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2021 and June 30, 2020 (unaudited)		4
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2021 and June 30, 2020 (unaudited)		5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and June 30, 2020 (unaudited)		6
Notes to Interim Condensed Consolidated Financial Statements		7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
PART II - OTHER INFORMATION		23
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 6.	Exhibits	24
Signatures		25

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

UFP Technologies, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share data)

(Unaudited)

	June 30, 2021			December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	30,273		$	24,234
Receivables, net		31,222			26,428
Inventories		21,160			18,642
Refundable income taxes		854			-
Prepaid expenses and other current assets		2,957			2,560
Total current assets		86,466			71,864
Property, plant and equipment		121,709			118,388
Less accumulated depreciation and amortization		(68,014	)		(64,633	)
Net property, plant and equipment		53,695			53,755
Goodwill		51,838			51,838
Intangible assets, net		19,090			19,718
Non-qualified deferred compensation plan		4,116			3,724
Finance lease right of use assets		92			100
Operating lease right of use assets		1,836			2,052
Other assets		153			153
Total assets	$	217,286		$	203,204

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	8,355		$	4,121
Accrued expenses		8,192			7,944
Deferred revenue		1,903			1,887
Finance lease liabilities		15			15
Operating lease liabilities		1,174			1,154
Income taxes payable		-			16
Total current liabilities		19,639			15,137
Deferred income taxes		5,440			5,057
Non-qualified deferred compensation plan		3,981			3,810
Finance lease liabilities		78			86
Operating lease liabilities		703			950
Other liabilities		1,131			1,271
Total liabilities		30,972			26,311
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized; no shares issued		-			-
Common stock, $.01 par value, 20,000,000 shares authorized; 7.560.963 and 7,531,404 shares issued and outstanding, respectively, at June 30, 2021; 7,529,625 and 7,500,066 shares issued and outstanding, respectively, at December 31, 2020		75			75
Additional paid-in capital		33,027			32,484
Retained earnings		153,799			144,921
Treasury stock at cost, 29,559 shares at June 30, 2021 and 29,559 shares at December 31, 2020		(587	)		(587	)
Total stockholders’ equity		186,314			176,893
Total liabilities and stockholders' equity	$	217,286		$	203,204

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

UFP Technologies, Inc.

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2021			2020		2021			2020
Net sales	$	50,655		$	42,644	$	99,254		$	90,921
Cost of sales		37,241			32,695		73,231			68,148
Gross profit		13,414			9,949		26,023			22,773
Selling, general & administrative expenses		7,228			6,665		14,538			14,417
(Gain) loss on sale of property, plant & equipment		(21	)		290		(21	)		286
Operating income		6,207			2,994		11,506			8,070
Interest (income) expense, net		(21	)		33		(5	)		49
Other expenses (income)		4			35		(7	)		362
Income before income tax expense		6,224			2,926		11,518			7,659
Income tax expense		1,509			608		2,640			1,450
Net income	$	4,715		$	2,318	$	8,878		$	6,209

Net income per share:
Basic	$	0.63		$	0.31	$	1.18		$	0.83
Diluted	$	0.62		$	0.31	$	1.17		$	0.82
Weighted average common shares outstanding:
Basic		7,527			7,487		7,517			7,472
Diluted		7,573			7,532		7,575			7,545

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

UFP TECHNOLOGIES, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)

Three and Six Month Periods Ended June 30, 2021
						Additional										Total
	Common Stock					Paid-in			Retained		Treasury Stock					Stockholders'
	Shares			Amount		Capital			Earnings		Shares		Amount			Equity
Balance at December 31, 2020		7,500		$	75	$	32,484		$	144,921		30	$	(587	)	$	176,893
Share-based compensation		34			-		501			-		-		-			501
Net share settlement of restricted stock units		(14	)		-		(738	)		-		-		-			(738	)
Net income		-			-		-			4,163		-		-			4,163
Balance at March 31, 2021		7,520		$	75	$	32,247		$	149,084		30	$	(587	)	$	180,819
Share-based compensation		4			-		620			-		-		-			620
Exercise of stock options		7			-		162			-		-		-			162
Net share settlement of restricted stock units		-			-		(2	)		-		-		-			(2	)
Net income		-			-		-			4,715		-		-			4,715
Balance at June 30, 2021		7,531		$	75	$	33,027		$	153,799		30	$	(587	)	$	186,314

Three and Six Month Periods Ended June 30, 2020
						Additional										Total
	Common Stock					Paid-in			Retained		Treasury Stock					Stockholders'
	Shares			Amount		Capital			Earnings		Shares		Amount			Equity
Balance at December 31, 2019		7,446		$	74	$	30,952		$	131,552		30	$	(587	)	$	161,991
Share-based compensation		28			-		537			-		-		-			537
Exercise of stock options		20			1		415			-		-		-			416
Net share settlement of restricted stock units		(11	)		-		(560	)		-		-		-			(560	)
Net income		-			-		-			3,891		-		-			3,891
Balance at March 31, 2020		7,483		$	75	$	31,344		$	135,443		30	$	(587	)	$	166,275
Share-based compensation		6			-		561			-		-		-			561
Exercise of stock options		6			-		59			-		-		-			59
Net share settlement of restricted stock units		-			-		(1	)		-		-		-			(1	)
Net income		-			-		-			2,318		-		-			2,318
Balance at June 30, 2020		7,495		$	75	$	31,963		$	137,761	$	30	$	(587	)	$	169,212

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

UFP Technologies, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Six Months Ended
	June 30
	2021			2020
Cash flows from operating activities:
Net income	$	8,878		$	6,209
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,172			4,150
(Gain) Loss on disposal of property, plant & equipment		(21	)		286
Share-based compensation		1,121			1,098
Interest expense on finance leases		1			-
Deferred income taxes		383			731
Changes in operating assets and liabilities:
Receivables, net		(4,794	)		1,377
Inventories		(2,518	)		(2,683	)
Prepaid expenses and other current assets		(397	)		(1,115	)
Refundable income taxes		(870	)		483
Other assets		(168	)		(5	)
Accounts payable		4,032			735
Accrued expenses		248			(1,370	)
Deferred revenue		16			74
Non-qualified deferred compensation plan and other liabilities		(196	)		766
Net cash provided by operating activities		9,887			10,736
Cash flows from investing activities:
Additions to property, plant, and equipment		(3,282	)		(2,151	)
Proceeds from sale of fixed assets		21			27
Net cash used in investing activities		(3,261	)		(2,124	)
Cash flows from financing activities:
Proceeds from advances on revolving line of credit		-			5,500
Payments on revolving line of credit		-			(5,500	)
Principal payments on finance lease obligation		(9	)		(3	)
Proceeds from exercise of stock options		162			475
Payment of statutory withholdings for restricted stock units vested		(740	)		(561	)
Net cash used in financing activities		(587	)		(89	)
Net increase in cash and cash equivalents		6,039			8,523
Cash and cash equivalents at beginning of period		24,234			3,743
Cash and cash equivalents at end of period	$	30,273		$	12,266

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

Notes to Interim Condensed Consolidated Financial Statements

(1)

Basis of Presentation

The interim condensed consolidated financial statements of UFP Technologies, Inc. (the “Company”) presented herein, have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include all the information and note disclosures required by accounting principles generally accepted in the United States of America. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2020, included in the Company's 2020 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission.

The condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020, the condensed consolidated statements of income for the three and six months ended June 30, 2021 and 2020, the condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2021 and 2020, and the condensed consolidated statements of cash flows for the six months ended June 30, 2021 and 2020 are unaudited but, in the opinion of management, include all adjustments (including normal, recurring adjustments) necessary for a fair presentation of results for these interim periods. The condensed consolidated balance sheet as of December 31, 2020 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 period ended June 30, 2021 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2021.

Recent Accounting Pronouncements

There are no newly issued accounting pronouncements that the Company expects to have a material effect on the financial statements.

(2)

Revenue Recognition

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

Disaggregated Revenue

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
Net sales of:	2021		2020		2021		2020
Products	$	49,466	$	40,753	$	96,789	$	87,782
Tooling and Machinery		332		646		744		1,323
Engineering services		857		1,245		1,721		1,816
Total net sales	$	50,655	$	42,644	$	99,254	$	90,921

Contract balances

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

The following table presents a roll-forward of contract liabilities activity for six-month periods ended June 30, 2021 and 2020 (in thousands):

	Contract Liabilities
	Six Months Ended June 30,
	2021			2020
Deferred revenue - beginning of period	$	1,887		$	2,574
Increases due to consideration received from customers		560			1,668
Revenue recognized		(544	)		(1,594	)
Deferred revenue - end of period	$	1,903		$	2,648

Revenue recognized during the six-month periods ended June 30, 2021 and 2020 from amounts included in deferred revenue at the beginning of the period were approximately $446 thousand and $771 thousand, respectively.

When invoicing occurs after revenue recognition, the Company has contract assets, included within “receivables” on the condensed consolidated balance sheet.

The following table presents a roll-forward of contract assets activity for the six-month periods ended June 30, 2021 and 2020 (in thousands):

	Contract Assets
	Six Months Ended June 30,
	2021			2020
Unbilled receivables - beginning of period	$	271		$	72
Increases due to revenue recognized, not invoiced to customers		935			1,488
Decreases due to customer invoicing		(1,008	)		(1,149	)
Unbilled receivables - end of period	$	198		$	411

(3)

Supplemental Cash Flow Information

	Six Months Ended
	June 30,
	2021		2020
	(in thousands)
Cash paid for:
Interest	$	26	$	40
Income taxes, net of refunds		3,112		235

Non-cash investing and financing activities:
Capital additions accrued but not yet paid	$	202	$	103

(4)

Receivables and Allowance for Credit Losses

Receivables consist of the following (in thousands):

	June 30,			December 31,
	2021			2020
Accounts receivable–trade	$	31,786		$	26,912
Less allowance for credit losses		(564	)		(484	)
Receivables, net	$	31,222		$	26,428

The Company is exposed to credit losses primarily through sales of products and services. The Company’s expected loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions, and a review of the current status of customers' trade accounts receivables. Due to the short-term nature of such receivables, the estimate of the amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers' financial condition and macroeconomic conditions. Balances are written-off when determined to be uncollectible. Estimates based on an assessment of anticipated payment and all other historical, current and future information that is reasonably available are used to determine the allowance.

The following table provides a roll-forward of the allowance for credit losses that is deducted from accounts receivable to present the net amount expected to be collected as of June 30, 2021 and 2020 (in thousands):

	Allowance for Credit Losses
	Six Months Ended June 30,
	2021			2020
Allowance - beginning of period	$	484		$	486
Provision for expected credit losses		88			167
Amounts written off against the allowance		(8	)		(10	)
Allowance - end of period	$	564		$	643

(5)

Fair Value of Financial Instruments

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

Level 1

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

Level 2

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

Level 3

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

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

Level 2	June 30, 2021			December 31, 2020
Liabilities:
Derivative financial instruments	$	(321	)	$	(465	)

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

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

(6)

Share-Based Compensation

Share-based compensation is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant).

The Company issues share-based awards through several plans that are described in detail in the notes to the consolidated financial statements for the year ended December 31, 2020. 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:	2021		2020		2021		2020
Common stock grants	$	100	$	100	$	200	$	200
Stock option grants		53		54		105		113
Restricted Stock Unit Awards ("RSUs")		467		408		816		785
Total share-based compensation	$	620	$	562	$	1,121	$	1,098

The total income tax benefit recognized in the condensed consolidated statements of income for share-based compensa‐tion arrangements was approximately $200 thousand and $205 thousand for the three-month periods ended June 30, 2021 and 2020, respectively, and approximately $441 thousand and $553 thousand for the six-month periods ended June 30, 2021 and 2020, respectively.

Common stock grants

The compensation expense for common stock grants during the six-month period ended June 30, 2021, was determined based on an approved fixed dollar amount with the number of shares to be determined on the date of issuance.

Stock Option grants

The following is a summary of stock option activity under all plans for the six-month period ended June 30, 2021:

	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, 2020		94,513		$	30.22
Granted		10,716			57.34
Exercised		(6,558	)		24.77
Outstanding at June 30, 2021		98,671		$	33.53		6.32	$	2,357
Exercisable at June 30, 2021		87,955		$	30.63		5.87	$	2,356
Vested and expected to vest at June 30, 2021		98,671		$	33.53	$	6.32	$	2,357

On June 9, 2021, the Company granted options to its directors for the purchase of 10,716 shares of common stock at that day’s closing price of $57.34. 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		33.7	%
Expected dividends	None
Risk-free interest rate		0.8	%
Exercise price	$	57.34
Expected term	6.2 years
Weighted-average grant date fair value		19.60

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 correspond‐ing with the expected term of the option. The expected term is estimated based on historical option exercise activity.

During the six-month periods ended June 30, 2021 and 2020, the total intrinsic value of all options exercised was approximately $164 thousand and $757 thousand, respectively, and the total amount of consideration received by the Company from the exercised options was approximately $162 thousand and $474 thousand, 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 both the six-month periods ended June 30, 2021 and 2020, no shares were surrendered for this purpose.

Restricted Stock Unit awards

The following table summarizes information about RSU activity during the six-month period ended June 30, 2021:

	Restricted Stock Units			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2020		93,187		$	35.03
Awarded		48,952			49.76
Shares vested		(33,892	)		32.88
Outstanding at June 30, 2021		108,247		$	40.35

At the Company’s discretion, upon vesting, RSU holders are given the option to net-share settle to cover the required minimum withholding tax and the remaining amount is converted into the equivalent number of common shares and issued to the RSU holder. During the six-month periods ended June 30, 2021 and 2020, 14,122 and 11,233 shares were surrendered at an average market price of $52.47 and $49.98, respectively.

As of June 30, 2021, the Company had approximately $3.7 million of unrecognized compensation expense that is expected to be recognized over a period of 2.75 years.

(7)

Inventories

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

	June 30,		December 31,
	2021		2020
Raw materials	$	11,853	$	12,229
Work in process		3,468		1,991
Finished goods		5,839		4,422
Total inventory	$	21,160	$	18,642

(8)

Leases

The Company has operating and finance leases for offices, manufacturing plants, vehicles and certain office and manufacturing equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company accounts for each separate lease component of a contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage, are not included in the right of use (“ROU”) assets or lease liabilities. These are expensed as incurred and recorded as variable lease expense. The Company determines if an arrangement is a lease at the inception of a contract. Operating and finance lease ROU assets and operating and finance lease liabilities are stated separately in the condensed consolidated balance sheet.

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

	Six Months Ended
	June 30,
	($ in thousands)
	2021		2020
Lease Cost:
Finance lease cost:
Amortization of right of use assets	$	8	$	3
Interest on lease liabilities		1		-
Operating lease cost		598		606
Variable lease cost		116		111
Short-term lease cost		17		14
Total lease cost	$	740	$	734

	Six Months Ended June 30,
	($ in thousand)
	2021			2020
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases	$	608		$	607
Financing cash flows from finance leases		9			3
ROU assets obtained in exchange for finance lease obligations		-			110

Weighted-average remaining lease term (years):
Finance		5.83			6.83
Operating		1.64			2.27
Weighted-average discount rate:
Finance		2.26	%		2.26	%
Operating		3.99	%		4.41	%

The aggregate future lease payments for leases as of June 30, 2021 are as follows (in thousands):

	Finance			Operating
Remainder of 2021	$	9		$	606
2022		17			1,054
2023		17			115
2024		17			73
2025		17			62
Thereafter		23			31
Total lease payments		100			1,941
Less: Interest		(7	)		(64	)
Present value of lease liabilities	$	93		$	1,877

(9)

Income Per Share

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

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Basic weighted average common shares outstanding		7,527		7,487		7,517		7,472
Weighted average common equivalent shares due to restricted stock, stock options and RSUs		46		45		58		73
Diluted weighted average common shares outstanding		7,573		7,532		7,575		7,545

The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options, when the average market price of the common stock is lower than the exercise price of the related options during the period. These outstanding stock awards are not included in the computation of diluted income per share because the effect would be antidilutive. For both the three- and six-month periods ended June 30, 2021, the number of stock awards excluded from the computation of diluted earnings per share for this reason was 10,716. For both the three- and six-month periods ended June 30, 2020, the number of stock awards excluded from the computation of diluted earnings per share for this reason was 14,892.

(10)

Segment Reporting

The Company consists of a single operating and reportable segment.

Revenues from customers outside of the United States are not material. No customer comprised more than 10% of the Company’s consolidated revenues for the three- and six-month periods ended June 30, 2021 and 2020. At June 30, 2021 and December 31, 2020, one customer represented approximately 14% and 13.3% of gross accounts receivable, respectively. 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, Aerospace & Defense, Automotive, Industrial, and Electronics markets. Net sales by market for the three- and six-month periods ended March 31, 2021 and 2020 are as follows (in thousands):

	Three Months Ended June 30,							Six Months Ended June 30,
	2021					2020(1)		2021		2020(1)
Market	Net Sales		%			Net Sales	%	Net Sales	%	Net Sales	%

Medical	$	32,606		64.4	%	$

SEC Form 10-Q filed by UFP Technologies, Inc.