UNIQUE FABRICATING, INC.
UNIQUE FABRICATING, INC.
Table of Cash Flows (Unaudited)Contents |
| | | | | | | |
| Thirty-Nine Weeks Ended September 29, 2019 | | Thirty-Nine Weeks Ended September 30, 2018 |
Cash flows from operating activities | |
| | |
|
Net (loss) income | $ | (9,076,569 | ) | | $ | 3,889,721 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
|
Impairment of goodwill | 6,760,397 |
| | — |
|
Inventory allowance | 1,741,924 |
| | — |
|
Depreciation and amortization | 5,139,638 |
| | 4,947,495 |
|
Amortization of debt issuance costs | 133,112 |
| | 106,609 |
|
Loss on sale of assets | 4,959 |
| | 5,179 |
|
Bad debt adjustment | 191,363 |
| | (52,483 | ) |
Loss (gain) on derivative instrument | 745,803 |
| | (5,645 | ) |
Stock option expense | 117,148 |
| | 98,621 |
|
Deferred income taxes | (1,073,431 | ) | | 27,797 |
|
Changes in operating assets and liabilities that provided (used) cash: | |
| | |
|
Accounts receivable | 2,787,219 |
| | (3,902,083 | ) |
Inventory | 11,034 |
| | (1,176,587 | ) |
Prepaid expenses and other assets | (646,119 | ) | | (445,198 | ) |
Accounts payable | 336,821 |
| | 2,708,213 |
|
Accrued and other liabilities | (259,492 | ) | | 614,747 |
|
Net cash provided by operating activities | 6,913,807 |
| | 6,816,386 |
|
Cash flows from investing activities | |
| | |
|
Purchases of property and equipment | (2,129,658 | ) | | (4,691,424 | ) |
Proceeds from sale of property and equipment | 41,548 |
| | 28,205 |
|
Net cash used in investing activities | (2,088,110 | ) | | (4,663,219 | ) |
Cash flows from financing activities | |
| | |
|
Net change in bank overdraft | 1,003,323 |
| | (364,849 | ) |
Payments on term loans and note payable | (3,012,500 | ) | | (2,962,477 | ) |
Proceeds from capital expenditure line | 1,300,000 |
| | — |
|
(Repayment) proceeds from revolving credit facilities, net | (3,510,091 | ) | | 5,088,039 |
|
Proceeds from exercise of stock options and warrants | — |
| | 34,000 |
|
Distribution of cash dividends | (488,957 | ) | | (4,395,904 | ) |
Net cash used in financing activities | (4,708,225 | ) | | (2,601,191 | ) |
Net increase (decrease) in cash and cash equivalents | 117,472 |
| | (448,024 | ) |
Cash and cash equivalents – beginning of period | 1,409,593 |
| | 1,430,937 |
|
Cash and cash equivalents – end of period | $ | 1,527,065 |
| | $ | 982,913 |
|
Supplemental disclosure of cash flow Information – cash paid for
| |
| | |
|
Interest | $ | 3,442,309 |
| | $ | 2,304,312 |
|
Income taxes | $ | 356,964 |
| | $ | 1,178,482 |
|
See Notes to Condensed Consolidated Financial Statements.
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 —1. Nature of Business and Significant Accounting PoliciesBasis of Presentation
Nature of Business — UFI Acquisition, Inc. (“UFI”), a Delaware corporation, was formed on January 14, 2013, for the purpose of acquiring
Unique Fabricating, Inc. (the “Company”) engineers and its subsidiaries (“manufactures components for customers in the transportation, appliance, medical, and consumer markets. The Company’s solutions are comprised of multi-material foam, rubber, and plastic components and utilized in noise, vibration and harshness (NVH) management, acoustical management, water and air sealing, decorative and other functional applications. Unique Fabricating”) (collectively, the “Company” or “Unique”) on March 18, 2013.leverages proprietary manufacturing processes, including die cutting, thermoforming, compression molding, fusion molding, and reaction injection molding to manufacture a wide range of products including air management products, heating ventilating and air conditioning (HVAC), seals, fender stuffers, air ducts, acoustical insulation, door water shields, gas tank pads, light gaskets, topper pads, mirror gaskets, glove box liners personal protection equipment, and packaging. The Company operates as 1 operating and reportable segment to fabricate and broker foam and rubber products, which are primarily sold to original equipment manufacturers (“OEMs”) and tiered suppliersis headquartered in the automotive, appliance, water heater and heating, ventilation and air conditioning (HVAC) industries. In September 2014, UFI changed its name to Unique Fabricating, Inc. which is now the parent company of the consolidated group. As a result of the name change, the subsidiary previously named Unique Fabricating, Inc. became Unique Fabricating NA, Inc.Auburn Hills, Michigan.
Basis of Presentation —
The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying condensed consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). TheCertain information furnishedand footnote disclosures normally included in the consolidated financial statements includes normal recurring adjustmentsprepared in accordance with generally accepted accounting principals have been condensed or omitted pursuant to such rules and reflects all adjustments which are, inregulations. In the opinion of management, the accompanying condensed consolidated financial statements contain all material adjustments (consisting only of normal recurring adjustments) necessary forto present fairly the fair presentationconsolidated financial position of such financial statements.the Company, its results of operations, and its cash flows. The interim results for the periods presented may not be indicative of the Company's actual annual results. TheseThe Company’s Statement of Cash Flows, presented above, has been recast to show the gross movements of payments on and proceeds from our revolving credit facility. The Company’s management believes this presentation provides a more transparent view of the activity, as such prior periods have been recast for comparability. The condensed consolidated financial statements included herein should be read in conjunction with the notes to the condensed consolidated financial statements as of and the notes thereto included in the Company’s Annual Report on Form 10-K/A for the year ended December 30, 2018 included29, 2019.
Change in the Companys’s annual report on Form 10-K for such period.Quarter and Year-End
Principles of Consolidation — The condensed consolidated financial statements includeHistorically, the accounts of the Company and all subsidiaries over which the Company exercises control. All intercompany transactions and balances have been eliminated upon consolidation.
Fiscal Years — The Company’s quarterly periods endended on the Sunday closest to the end of the calendar quarterly period. For 2019, the quarterquarters and year to date period, which were 13 and 39 weeks, respectively, ended on March 31, June 30, September 29, 2019, and for 2018,December 29, 2019. On March 13, 2020, the Company’s board of directors approved changing our quarterly periods to match calendar quarterly periods. The Company expects the impact of this change on our 2020 result of operations to be immaterial. All year, quarter, and three month references prior to 2020 relate to the Company’s fiscal year and fiscal quarters, unless otherwise stated. For ease of presentation, three and six months ended is used throughout this Quarterly Report on Form 10-Q to date period, which were 13represent both the current year calendar quarterly periods and 39 weeks, respectively, ended on September 30, 2018. Fiscalthe prior year 2018 ended on Sunday, December 30, 2018.fiscal year periods.
Concentration Risks
The Company is exposed to significant concentration risks as follows:
CashCustomer and Cash EquivalentsCredit — During the three and six months ended June 30, 2020 and three and six months ended June 30, 2019, the Company’s net sales were derived from customers principally engaged in the North American automotive industry. The following table presents the Company's sales directly and indirectly to General Motors Company considers all highly liquid investments with an original maturity(GM), Fiat Chrysler Automobiles (FCA), and Ford Motor Company (Ford) as a percentage of three months or less to be cash and cash equivalents.total net sales:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2020 | | Six Months Ended June 30, 2019 |
General Motors Company | 16 | % | | 17 | % | | 16 | % | | 18 | % |
Fiat Chrysler Automobiles | 11 | % | | 16 | % | | 15 | % | | 15 | % |
Ford Motor Company | 12 | % | | 12 | % | | 14 | % | | 11 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
No customer represented more than 10 percent of direct Company sales for the three and six months ended June 30, 2020. GM accounted for 7 percent of direct Company sales for the three and six months ended June 30, 2020.
Accounts ReceivableLabor Markets — Accounts receivable are stated at the invoiced amount and do not bear interest. The allowance for doubtful accounts is management’s best estimateAt June 30, 2020, of the amount of probable credit lossesCompany’s hourly plant employees working in the existing accounts receivable. Management determines the allowance based on historical write-off experience and an understanding of individual customer payment history and financial condition. Management reviews the allowance for doubtful accounts at regular intervals. Account balances are charged off against the allowance when management determines it is probable the receivable will not be recovered. The allowance for doubtful accounts was $849,423 and $684,996 at September 29, 2019 and December 30, 2018, respectively.
Inventory — Inventory is stated at the lower of cost or market, with cost determined on the firstUnited States manufacturing facilities, 38 percent were covered under a collective bargaining agreement which expires in first out method (FIFO). Inventory acquired as part ofAugust 2022 while another 6 percent were covered under a business combination is recorded at its estimated fair value at the time of the business combination. The Company periodically evaluates inventory for obsolescence, excess quantities, slow moving goods and other impairments of value and establishes reserves for any identified impairments.
Valuation of Long-Lived Assets — The carrying value of long-lived assets held for use is periodically evaluated when events or circumstances warrant such a review. The carrying value of a long-lived asset held for use is considered impaired when the anticipated separately identifiable undiscounted cash flows from the asset are less than the carrying value of the asset. Inseparate collective bargaining agreement that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. The Company determined that no impairment indicators were present and all originally assigned useful lives remained appropriate during the 13 and 39 weeks ended September 29, 2019 and 13 and 39 weeks ended September 30, 2018, respectively.
Property, Plant, and Equipment — Property, plant, and equipment purchases are recorded at cost. Property, plant, and equipment acquired as part of a business combination are recorded at estimated fair value at the time of the business combination. Depreciation is calculated using the straight line method over the estimated useful life of each asset. Leaseholdexpires in February 2023.
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Notes to Condensed Consolidated Financial Statements (Unaudited)
improvements are depreciated over the shorter of the estimated useful life of the asset or the period of the related leases. Upon retirement or disposal, the initial cost or valuation and accumulated depreciation are removed from the accounts, and any gain or loss is included in net income. Repair and maintenance costs are expensed as incurred.
Intangible AssetsInternational Operations — The Company does not hold any intangiblemanufactures and sells products outside of the United States primarily in Mexico and Canada. Foreign operations are subject to various political, economic and other risks and uncertainties inherent in foreign countries. Among other risks, the Company’s operations may be subject to the risks of: restrictions on transfers of funds; export duties, quotas, and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; political conditions; and governmental regulations. The following table presents the percentage of the Company's total production in Mexico, Canada, and other foreign markets:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2020 | | Six Months Ended June 30, 2019 |
Mexico | 20 | % | | 19 | % | | 22 | % | | 19 | % |
Canada | 12 | % | | 8 | % | | 9 | % | | 7 | % |
Other | — | % | | 1 | % | | — | % | | — | % |
The following table presents the percentage of the Company's total net sales represented by net sales from customers located in Mexico, Canada, and other foreign countries:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2020 | | Six Months Ended June 30, 2019 |
Mexico | 17 | % | | 17 | % | | 21 | % | | 18 | % |
Canada | 9 | % | | 10 | % | | 8 | % | | 10 | % |
Other | — | % | | 1 | % | | — | % | | 1 | % |
2. New Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses,” which introduced new guidance for an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with indefinite lives. Identifiable intangible assets recognizedcredit deterioration since their origination. Instruments in scope include loans, held-to-maturity debt securities, and net investments in leases as part of a business combinationwell as reinsurance and trade receivables. In November 2018, the FASB issued ASU 2018-19, which clarifies that operating lease receivables are recorded at their estimated fair value atoutside the timescope of the business combination. Acquired intangiblenew standard. In November 2019, the FASB issued ASU 2019-10, which established the effective date of the new standard for smaller reporting companies as fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is evaluating the impact, if any the adoption of the new credit losses model will have on its financial statements.
In February 2016, the FASB issued ASU 2016-2, Leases (Topic 842). This update requires lessees to recognize, on the balance sheet, assets subject to amortization are amortized on a straight line basis, which approximatesand liabilities for the rights and obligations created by leases of greater than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. We have identified our existing lease contracts and calculated the right of use assets, which are reflected in Other Assets on the economic benefitCondensed Consolidated Balance Sheets, and lease liabilities, which are reflected in the Other Accrued Liabilities on the Condensed Consolidated Balance Sheets. This guidance was effective for the Company as of January 1, 2020. Adoption of the respective intangible is realized, over their respective estimated useful lives. Amortizable intangiblenew standard resulted in the recording of right-of-use assets are reviewed for impairment whenever events or circumstances indicate that theand liabilities of $12.1 million and $12.8 million as of January 1, 2020. The FASB has issued further ASUs related carrying amount may be impaired. The remaining useful lives of intangible assets are reviewed to determine whether events and circumstances warrant a revision to the remaining period of amortization.standard providing an optional transition method allowing entities to not recast comparative periods. The Company determinedelected the practical expedients upon transition that no impairment indicators were presentretained the lease classification and all originally assigned useful lives remained appropriate during the 13 and 39 weeks ended September 29, 2019 and 13 and 39 weeks ended September 30, 2018, respectively.
Goodwill — Goodwill represents the excessinitial direct costs for any leases that exist prior to adoption of the acquisition cost of consideration transferred over the fair value of the identifiable assets acquired and liabilities assumed from business combinations at the date of acquisition. Goodwill is not amortized, but rather is assessed at least on an annual basis for impairment. If it is determined that it is more likely than not that the fair value is greater than the carrying value of a reporting unit then a qualitative assessment may be used for the annual impairment test. Otherwise, a one-step process is used which requires estimating the fair value of each reporting unit compared to its carrying value. If the carrying value exceeds the estimated fair value, goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.standard. The Company has 1 reporting unit and operating segment for goodwill testing purposes.
During the second quarterapproximately $11.9 million of 2019, the Company experienced a decline in market capitalization, which is a potential indicator of impairment. As a result, the Company performed an interim quantitative assessmentnon-cancelable future rental obligations as of June 30, 2019, utilizing a combination of the income and market approaches, which were weighted evenly. The results of the quantitative analysis performed indicated the carrying value of the reporting unit exceeded the fair value of the reporting unit2020, as of June 30, 2019. A goodwill impairment charge of $6,760,397 was recognized during the 39 weeks ended September 29, 2019 and 0 impairment charges recognized during the 13 weeks ended September 29, 2019 and 13 and 39 weeks ended September 30, 2018, respectively. Key assumptions used in the analysis were a discount rate of 12.5%, EBITDA margin and a terminal growth rate of 2.0%. No such indicators of impairment were identified during the 13 weeks ended September 29, 2019.
Debt Issuance Costs — Debt issuance costs represent legal, consulting, and other financial costs associated with debt financing and are reported netted against the related debt instrument. Amounts paid to or on behalf of lenders are presented as a debt discount and are also shown as a reduction of the associated debt instrument. Debt issuance costs on term debt are amortized using the straight line basis over the term of the related debt (which is immaterially different from the required effective interest method) while those related to revolving debt are amortized using a straight line basis over the term of the related debt.
At September 29, 2019 and December 30, 2018, debt issuance costs were $322,973 and $381,793, respectively, while amounts paid to or on behalf of lenders presented as debt discounts were $407,938 and $482,232, respectively. On November 8, 2018, the Company amended its current Credit Agreement (the “Amended and Restated Credit Agreement”), which increased the Company's term loan debt and is further described in Note 6. The Company reviewed this amendment for extinguishment accounting and concluded that as of the date of the amendment $59,110 of the remaining $172,600 debt issuance costs not amortized on the revolving debt facility qualified for extinguishment accounting and were recognized as a loss on extinguishment immediately. The remaining unamortized debt issuance costs not extinguished on the old revolving debt facility and all of the of remaining unamortized debt issuance costs on the term loans did not meet extinguishment accounting and therefore were carried forward to the new revolving debt facility and term loans.
Amortization expense of both debt issuance costs and debt discounts has been recognized as a component of interest expense in the amounts of $44,369 and $133,112 for the 13 and 39 weeks ended September 29, 2019, and $35,536 and $106,609 for the 13 and 39 weeks ended September 30, 2018, respectively.
11.
Investments — Investments in entities in which the Company has less than a 20 percent interest or is not able to exercise significant influence are carried at cost, as there is not a readily determined fair value for these investments. Dividends received are included in income, except for those dividends received in excess of the Company’s proportionate share of accumulated
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Notes to Condensed Consolidated Financial Statements (Unaudited)
3. Revenues
earnings, which are applied as a reduction of the cost of the investment. Impairment losses due to a decline in the value of the investment that is other than temporary are recognized when incurred. NaN dividend income or impairment loss was recognized for the 13 and 39 weeks ended September 29, 2019 and 13 and 39 weeks ended September 30, 2018, respectively.
Accounts Payable — Under the Company’s cash management system, checks issued but not yet presented to the Company’s bank frequently result in overdraft balances for accounting purposes and are classified as accounts payable on the consolidated balance sheets. Accounts payable included $2,639,254 and $1,802,712 of checks issued in excess of available cash balances at September 29, 2019 and December 30, 2018, respectively.
Stock Based Compensation — The Company accounts for its stock based compensation using the fair value of the award estimated at the grant date of the award. The Company estimates the fair value of awards, consisting of stock options, using the Black Scholes option pricing model. Compensation expense is recognized in earnings using the straight line method over the vesting period, which represents the requisite service period.
Revenue Recognition — The following table presents the Company's net sales disaggregated by major sales channel for the 13three and 39 weekssix months ended September 29, 2019:June 30, 2020 and 2019 (in thousands):
|
| | | | | | | |
| Thirteen Weeks Ended September 29, 2019 | | Thirty-Nine Weeks Ended September 29, 2019 |
Net Sales |
| |
|
Automotive | $ | 33,432,013 |
| | $ | 100,964,000 |
|
HVAC, water heater, and appliances | 3,096,874 |
| | 10,354,874 |
|
Other | 2,020,957 |
| | 5,586,957 |
|
Total | $ | 38,549,844 |
| | $ | 116,905,831 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2020 | | Six Months Ended June 30, 2019 |
Net Sales | | | | | | | |
Transportation | $ | 11,074 | | | $ | 33,517 | | | $ | 43,086 | | | $ | 67,532 | |
Appliance | 2,132 | | | 3,504 | | | 4,912 | | | 7,258 | |
Other | 1,553 | | | 1,868 | | | 1,738 | | | 3,566 | |
Total | $ | 14,759 | | | $ | 38,889 | | | $ | 49,736 | | | $ | 78,356 | |
General Recognition Policy
Revenue is recognized by the Company once all performance obligations under the terms of a contract with the Company's customers are satisfied. Generally this occurs with the transfer of control to a customer of its automotive, HVAC,transportation, appliance, and other products. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring its products. The Company’s payment terms vary by the type and location of its customers and the products offered. The term between invoicing and when payment is due is not significant.
In general for sales arrangements, the Company deems control to transfer at a single point in time and recognizes revenue when it ships products from its manufacturing facilities to its customers. Once a product has shipped, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from, the asset. The Company considers control to transfer upon shipment because the Company has a present right to payment at that time, the customer has legal title to the asset, and the customer has significant risks and rewards of ownership of the asset. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.
Contract Balances
The timing of revenue recognition, billings and cash collections and payments results in billed accounts receivable. The Company does not have deferred revenue. Additionally, as noted above in the Accounts Receivable section, management reviews the allowance for doubtful accounts at regular intervals. Account balances are charged off against the allowance when management determines it is probable the receivable will not be recovered. The allowance for doubtful account balances are noted above in the Accounts Receivable section.
UNIQUE FABRICATING, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Practical Expedients
The Company elects the practical expedient to expense costs incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. These costs include sales commissions as the Company has determined annual compensation is commensurate with annual sales activities.
The Company elects the practical expedient that does not require the Company to adjust consideration for the effects of a significant financing component when the period between shipment of its products and customer’s payment is one year or less.
Shipping and Handling — Shipping and handling costs are included in costs of sales as they are incurred.
Income Taxes — A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the period. Deferred tax liabilities or assets are recognized for the estimated future tax effects of temporary differences between financial reporting and tax accounting measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company also evaluates the need for valuation allowances to reduce the deferred tax assets to realizable amounts. Management evaluates all positive and negative evidence and uses judgment regarding past and future events, including operating results, to help determine when it is more likely than not that all or some portion4. Inventory
Inventories consist of the deferred tax assets may not be realized. When appropriate, a valuation allowance is recorded against deferred tax assets to reserve for future tax benefits that may not be realized.following (in thousands):
The Company recognizes the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon settlement with the relevant tax authority. The Company assesses all tax positions for which the statute of limitations remain open. The Company had 0 unrecognized tax benefits as of September 29, 2019 and September 30, 2018. The Company recognizes any penalties and interest when necessary as income tax expense. There were 0 penalties or interest recorded during the 13 and 39 weeks ended September 29, 2019 or September 30, 2018, respectively.
Foreign Currency Adjustments — The Company’s functional currency for all operations worldwide is the United States dollar. Nonmonetary assets and liabilities of foreign operations are remeasured at historical rates and monetary assets and liabilities are remeasured at exchange rates in effect at the end of each reporting period. Income statement accounts are remeasured at average exchange rates for the year. Gains and losses from translation of foreign currency financial statements into United States dollars are classified in other income in the consolidated statements of operations.
Concentration Risks — The Company is exposed to various significant concentration risks as follows:
Customer and Credit — During the 13 and 39 weeks ended September 29, 2019 and 13 and 39 weeks ended September 30, 2018, the Company’s net sales were derived from customers principally engaged in the North American automotive industry. The following table presents the Company's sales directly and indirectly to General Motors Company (GM), Fiat Chrysler Automobiles (FCA), and Ford Motor Company (Ford) as a percentage of total net sales:
|
| | | | | | | | | | | |
| Thirteen Weeks Ended September 29, 2019 | | Thirteen Weeks Ended September 30, 2018 | | Thirty-Nine Weeks Ended September 29, 2019 | | Thirty-Nine Weeks Ended September 30, 2018 |
General Motors Company (GM) | 17 | % | | 15 | % | | 18 | % | | 14 | % |
Fiat Chrysler Automobiles (FCA) | 15 | % | | 16 | % | | 15 | % | | 16 | % |
Ford Motor Company (Ford) | 14 | % | | 10 | % | | 12 | % | | 11 | % |
No customer represented more than 10 percent of direct Company sales for the 13 weeks ended September 29, 2019. GM accounted for 10 percent of direct Company sales for the 39 weeks ended September 29, 2019. No customer represented more than 10 percent of direct Company sales for the 13 and 39 weeks ended September 30, 2018.
GM accounted for more than 8 percent of direct accounts receivable as of September 29, 2019. GM accounted for 14 percent of direct accounts receivable as of December 30, 2018.
UNIQUE FABRICATING, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Labor Markets — At September 29, 2019, of the Company’s hourly plant employees working in the United States manufacturing facilities, 32 percent were covered under a collective bargaining agreement which expires in August 2022 while another 6 percent were covered under a separate collective bargaining agreement that expires in February 2023. On October 18, 2019, subsequent to the end of the third quarter, the Company's hourly plant employees in Bryan, Ohio voted to unionize with a contract to be negotiated during the fourth quarter of 2019.
Foreign Currency Exchange — The expression of assets and liabilities in a currency other than the Company's functional currency, which is the United States dollar, gives rise to exchange gains and losses when such assets and obligations are paid in another currency. Foreign currency exchange rate adjustments (i.e., differences between amounts recorded and actual amounts owed or paid) are reported in the consolidated statements of operations as the foreign currency fluctuations occur. Foreign currency exchange rate adjustments are reported in the consolidated statements of cash flows using the exchange rates in effect at the time of the cash flows. At September 29, 2019, the Company’s exposure to assets and liabilities denominated in another currency was not significant. To the extent there is a fluctuation in the exchange rates, the amount of local currency to be paid or received to satisfy foreign currency obligations in 2019 may increase or decrease.
International Operations — The Company manufactures and sells products outside of the United States primarily in Mexico and Canada. Foreign operations are subject to various political, economic and other risks and uncertainties inherent in foreign countries. Among other risks, the Company’s operations may be subject to the risks of: restrictions on transfers of funds; export duties, quotas, and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; political conditions; and governmental regulations. The following table presents the Company's production in Mexico, Canada, and other foreign markets:
|
| | | | | | | | | | | |
| Thirteen Weeks Ended September 29, 2019 | | Thirteen Weeks Ended September 30, 2018 | | Thirty-Nine Weeks Ended September 29, 2019 | | Thirty-Nine Weeks Ended September 30, 2018 |
Mexico | 19 | % | | 17 | % | | 19 | % | | 18 | % |
Canada | 7 | % | | 10 | % | | 7 | % | | 10 | % |
Other | — | % | | — | % | | — | % | | — | % |
The following table presents the Company's sales derived from customers located in Mexico, Canada, and other foreign countries:
|
| | | | | | | | | | | |
| Thirteen Weeks Ended September 29, 2019 | | Thirteen Weeks Ended September 30, 2018 | | Thirty-Nine Weeks Ended September 29, 2019 | | Thirty-Nine Weeks Ended September 30, 2018 |
Mexico | 19 | % | | 18 | % | | 18 | % | | 17 | % |
Canada | 7 | % | | 9 | % | | 9 | % | | 10 | % |
Other | 1 | % | | 2 | % | | 1 | % | | 2 | % |
Derivative Financial Instruments — All derivative instruments are required to be reported on the consolidated balance sheets at fair value unless the transactions qualify and are designated as normal purchases or sales. Changes in fair value are reported currently through earnings unless they meet hedge accounting criteria. See Note 7 for further information regarding the Company's derivative instrument makeup.
Use of Estimates — The preparation of the consolidated financial statements in conformity with U.S. GAAP 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements —
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, Topic 606. This ASU superseded most of the existing guidance on revenue recognition in ASC Topic 605, Revenue Recognition, and established a broad principle that would require an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
UNIQUE FABRICATING, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
services. The Company adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments to all contracts using the modified retrospective method in its first quarter of 2019. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company does not expect the adoption of Topic 606 to have a material impact to its net income on an ongoing basis. The Company did not record a cumulative adjustment related to the adoption of ASU 2014-09, and the effects of adoption were not significant.
In January 2016, the FASB issued guidance, together with related, subsequently issued guidance, that addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Among other provisions, the guidance requires certain equity securities to be measured at fair value, with changes in fair value recognized in earnings. For equity securities without readily determinable fair values, entities may elect to measure these securities at cost minus impairment, if any, adjusted for changes in observable prices. The guidance should be applied through a cumulative-effect adjustment to the balance sheet as of the beginning of the year of adoption, except for equity securities without readily determinable fair values, to which the guidance should be applied prospectively. The Company adopted this guidance on January 1, 2018 and concluded this did not have a material effect on its consolidated financial statements. The Company does have a cost method investment in its consolidated financial statements, and there is not a readily determinable value for this investment.
In February 2016, the FASB issued ASU 2016-02, Leases, which will supersede the current lease requirements in Topic 840. The ASU requires lessees to recognize a right of use asset and related lease liability for all leases, with a limited exception for short-term leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement of operations. Currently, leases are classified as either capital or operating, with only capital leases recognized on the balance sheet. The reporting of lease related expenses in the consolidated statements of operations and cash flows will be generally consistent with current guidance. The ASU is effective for the Company for financial statements issued for fiscal years beginning after December 15, 2019. The Company believes the impact that the adoption of this guidance will have on its consolidated financial statements will be to materially increase assets and liabilities on the consolidated balance sheet, but it is not expected to materially impact the consolidated statements of operations.
Note 2 — Business Combinations
The Company intends to continue to selectively pursue opportunistic acquisitions that provide additional products and processes, as well as entrance into new growth markets. There were 0 new acquisitions for the 13 and 39 weeks ended September 29, 2019 or for the 13 and 39 weeks ended September 30, 2018.
Note 3 — Inventory
Inventory consists of the following:
|
| | | | | | | |
| September 29, 2019 | | December 30, 2018 |
Raw materials | $ | 8,375,838 |
| | $ | 9,562,962 |
|
Work in progress | 534,472 |
| | 547,729 |
|
Finished goods | 5,622,239 |
| | 6,174,816 |
|
Total inventory | $ | 14,532,549 |
| | $ | 16,285,507 |
|
| | | | | | | | | | | |
| June 30, 2020 | | December 29, 2019 |
Raw materials | $ | 9,170 | | | $ | 7,963 | |
Work in progress | 431 | | | 129 | |
Finished goods | 5,536 | | | 4,955 | |
Total inventory | $ | 15,137 | | | $ | 13,047 | |
The Company periodically evaluates inventory for obsolescence, excess quantities, slow moving goods and other impairments of value and establishes reserves for any identified impairments. The allowance for obsolete inventory was $2,350,600$0.9 million and $557,066$1.0 million at SeptemberJune 30, 2020 and December 29, 2019, and December 30, 2018, respectively. During the third quarter of 2019, the Company increased the inventory allowance by $1,741,924 which is included in cost of sales in the condensed consolidated statement of operations. This was due to the loss of business from the end of life of certain programs coupled with the on-going implementation of the Company's new Enterprise Resource Planning (ERP) system providing more detailed information that led the Company to review estimated future demand in the next twelve months. No similar increase to the inventory allowance occurred during the 13 and 39 weeks ended September 30, 2018.
UNIQUE FABRICATING, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Included in inventory are assets located in Mexico with a carrying amount of $3,148,569$3.9 million at September 29, 2019June 30, 2020 and $3,340,748$3.6 million at December 30, 2018,29, 2019, and assets located in Canada with a carrying amount of $1,045,303$1.1 million at September 29, 2019June 30, 2020 and $1,177,256$1.0 million at December 30, 2018.29, 2019.
Note 4 —
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Property, Plant, and Equipment, Net
Property, plant, and equipment, net consists of the following: |
| | | | | | | | | |
| September 29, 2019 | | December 30, 2018 | | Depreciable Life – Years |
Land | $ | 1,663,153 |
| | $ | 1,663,153 |
| | |
Buildings | 6,898,455 |
| | 6,898,455 |
| | 23 – 40 |
Shop equipment | 23,121,164 |
| | 21,165,566 |
| | 7 – 10 |
Leasehold improvements | 1,211,680 |
| | 1,130,507 |
| | 3 – 10 |
Office equipment | 1,671,924 |
| | 1,650,626 |
| | 3 – 7 |
Mobile equipment | 189,575 |
| | 282,805 |
| | 3 |
Construction in progress | 1,520,040 |
| | 1,514,082 |
| | |
Total cost | 36,275,991 |
| | 34,305,194 |
| | |
Accumulated depreciation | 11,284,519 |
| | 9,227,449 |
| | |
Net property, plant, and equipment | $ | 24,991,472 |
| | $ | 25,077,745 |
| | |
following (in thousands):
| | | | | | | | | | | | | | | | | |
| June 30, 2020 | | December 29, 2019 | | Depreciable Life – Years |
Land | $ | 1,663 | | | $ | 1,663 | | | |
Buildings | 5,798 | | | 5,934 | | | 23 – 40 |
Shop equipment | 23,037 | | | 22,982 | | | 7 – 10 |
Leasehold improvements | 1,248 | | | 1,234 | | | 3 – 10 |
Office equipment | 1,829 | | | 1,866 | | | 3 – 7 |
Mobile equipment | 153 | | | 190 | | | 3 |
Construction in progress | 2,338 | | | 1,543 | | | |
Total cost | 36,066 | | | 35,412 | | | |
Less: Accumulated depreciation | 13,250 | | | 11,997 | | | |
Net property, plant, and equipment, net | $ | 22,815 | | | $ | 23,415 | | | |
Depreciation expense was $738,632$0.7 million and $2,169,422$1.4 million for the 13three and 39 weekssix months ended September 29, 2019,June 30, 2020, respectively, and $647,541$0.7 million and $1,872,531$1.4 million for the 13three and 39 weekssix months ended SeptemberJune 30, 2018,2019 respectively.
Included in property, plant, and equipment are assets located in Mexico with a carrying amount of $3,991,934$4.0 million and $3,209,973$4.1 million at September 29, 2019June 30, 2020 and December 30, 2018,29, 2019, respectively, and assets located in Canada with a carrying amount of $599,553$0.6 million and $656,183$0.6 million at SeptemberJune 30, 2020 and December 29, 2019, and December 30, 2018, respectively.
Note 5 — Intangible Assets
Intangible assets of the Company consist of the following at September 29, 2019:
|
| | | | | | | | | |
| Gross Carrying Amount | | Accumulated Amortization | | Weighted Average Life – Years |
Customer contracts | $ | 26,523,065 |
| | $ | 17,467,982 |
| | 8.16 |
Trade names | 4,673,044 |
| | 1,642,500 |
| | 16.43 |
Non-compete agreements | 1,161,790 |
| | 1,136,175 |
| | 2.53 |
Unpatented technology | $ | 1,534,787 |
| | $ | 1,047,860 |
| | 5.00 |
Total | $ | 33,892,686 |
| | $ | 21,294,517 |
| | |
Intangible assets of the Company consist of the following at December 30, 2018:
|
| | | | | | | | | |
| Gross Carrying Amount | | Accumulated Amortization | | Weighted Average Life – Years |
Customer contracts | $ | 26,523,065 |
| | $ | 14,936,128 |
| | 8.16 |
Trade names | 4,673,044 |
| | 1,452,276 |
| | 16.43 |
Non-compete agreements | 1,161,790 |
| | 1,117,626 |
| | 2.53 |
Unpatented technology | 1,534,787 |
| | $ | 818,273 |
| | 5.00 |
Total | $ | 33,892,686 |
| | $ | 18,324,303 |
| | |
The weighted average amortization period for all intangible assets is 8.96 years. Amortization expense for intangible assets totaled $996,729 and $2,970,216 for the 13 and 39 weeks ended September 29, 2019, respectively, and $1,014,136 and $3,074,964 for the 13 and 39 weeks ended September 30, 2018, respectively.
UNIQUE FABRICATING, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Estimated amortization expense is as follows for the remainder of the current fiscal year and future fiscal years are as follows:
|
| | | |
2019 | $ | 985,888 |
|
2020 | 3,913,627 |
|
2021 | 2,455,712 |
|
2022 | 1,305,314 |
|
2023 | 978,787 |
|
Thereafter | 2,958,841 |
|
Total | $ | 12,598,169 |
|
Note 6 —6. Long-term Debt
Credit Agreement
On April 29, 2016, Unique Fabricating NA, Inc. (the “US Borrower”) and Unique-Intasco Canada, Inc. (the “CA Borrower”) and Citizens Bank, National Association (“Citizens”), acting as lender and Administrative Agent, and other lenders, entered into a credit agreement (the “Credit Agreement”) providing for borrowings of up to the aggregate principal amount of $62.0 million. The Credit Agreement was a senior secured credit facility and consisted of a revolving line of credit of up to $30.0 million (the “Revolver”) to the US Borrower, a $17.0 million principal amount term loan (the “US Term Loan”) to the US Borrower, and a $15.0 million principal amount term loan (the “CA Term Loan”) to the CA Borrower. At Closing, the US Term Loan and the CA Term Loan were fully funded and the US Borrower borrowed approximately $22.9 million under the Revolver.
On August 18, 2017, the US Borrower and the CA Borrower entered into the Second Amendment (the “Amendment”) to the Credit Agreement, with Citizens, acting as Administrative Agent, and other lenders. The Amendment converted $4.0 million of outstanding borrowings under the Revolver into an additional $4.0 million term loan to the US Borrower (the “US Term Loan II”). The conversion of a portion of the outstanding borrowings under the Revolver did not reduce the aggregate amount available to be borrowed under it.
On August 8, 2018, the US Borrower and the CA Borrower entered into the Fourth Amendment (the “Fourth Amendment”) to the Credit Agreement, with Citizens, acting as Administrative Agent, and other lenders. The Fourth Amendment required the Company to use the net proceeds from the sale of the Ft. Smith, Arkansas building to reduce the outstanding borrowings under the Revolver. The application of the net proceeds did not permanently reduce the amounts that could be borrowed under the Revolver. The Fourth Amendment also eased, for the fiscal quarter ended September 30, 2018, the financial covenant ratio which determined the Company's ability to pay dividends.
On September 20, 2018, the US Borrower and the CA Borrower entered into the Fifth Amendment (the “Fifth Amendment”) to the Credit Agreement.Agreement, with Citizens, acting as Administrative Agent, and other lenders. The Fifth Amendment temporarily increased the maximum amount that could be borrowed under the Revolver to $32.5 million from its then maximum of $30.0 million. This increase implemented by the Fifth Amendment was effective until October 31, 2018, at which point the maximum amount that could be borrowed under the Revolver reverted back to $30.0 million and was replaced by the Amended and Restated Credit Agreement described below.
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Amended and Restated Credit Agreement
On November 8, 2018, the US Borrower and the CA Borrower entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”), which amended and restated the existing Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders. The Amended and Restated Credit Agreement which is a five year agreement, among other things, increased the principal amount of US Term Loan borrowings to $26.0 million, created a two year line to fund capital expenditures of up to $2.5 million through November 8, 2019 and $5.0 million thereafter through November 8, 2020, and extended the maturity dates of all borrowings from April 28, 2021 to November 7, 2023. The Amended and Restated Credit Agreement provides for borrowings of up to $30.0 million under the Revolver, subject to availability under the terms of the Amended and Restated Credit Agreement, and left the principal amount on the CA Term Loan at approximately $12.0 million, the same as it was under the previous Credit Agreement. The Amended and Restated Credit Agreement combined
UNIQUE FABRICATING, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
the previous US Term Loan and US Term Loan II (the “New US Term Loan”), and increased the aggregate principal amount to $26.0 million from $15.9 million, in total, fromfor the previous US Term Loan and Term Loan II. The increase in the principal amount effected by the New U.S. Term Loan replaced and termed-out outstanding borrowings under the Revolver. The Amended and Restated Credit Agreement changes the quarterly principal payments of the New US Term Loan to $337,500$337.5 thousand through September 30, 2020, $575,000$575.0 thousand thereafter through September 30, 2021, and $812,500$812.5 thousand thereafter with a lump sum due at maturity. Finally, the agreement made certain changes to the Company's covenants and financial covenant ratios.
The Revolver, New US Term Loan, and CA Term Loan all mature on November 7, 2023 and bear interest at the Company's election of either (i) the greater of the Prime Rate or the Federal Funds Effective Rate (the “Base Rate”) or (ii) the LIBOR rate, plus an applicable margin ranging from 1.75% to 3.25% per annum in the case of the Base Rate and 2.75% to 4.25% per annum in the case of the LIBOR rate, in each case, based on senior leverage ratio thresholds, measured quarterly, as increased by the Waiver and Fourth Amendment to the Amended and Restated Credit Agreement which is further described below. The fair value of debt at June 30, 2020 under the Revolver, New US Term Loan and CA Term Loan approximates book value based on the variable terms.
In addition, the Amended and Restated Credit Agreement allows for increases in the principal amount of the Revolver and the New US and CA Term Loans not to exceed a $10.0 million principal amount, in the aggregate, provided that before and after giving effect to the proposed increase (and any transactions to be consummated using proceeds of the increase), the total leverage and debt service coverage ratios do not exceed specified amounts. The Amended and Restated Credit Agreement also provides for the issuance of letters of credit with a face amount of up to a $2.0 million, in the aggregate, provided that any letter of credit that is issued will reduce availability under the Revolver.
As of September 29, 2019, $14,776,571June 30, 2020, $10.1 million was outstanding under the Revolver. This amount is gross of debt issuance costs which are further described in Note 1.the next section. The Revolver had an effective interest rate of 6.362%5.00% percent per annum at September 29, 2019,June 30, 2020, and is secured by substantially all of the Company’s assets. At September 29, 2019,June 30, 2020, the maximum additional available borrowings under the Revolver was $10,001,372,$13.5 million which includes a reduction for a $100,000$0.1 million letter of credit issued for the benefit of the landlord of one of the Company’s leased facilities, and a reduction of the borrowing base capacityfacilities. The maximum amount available was further subject to $24,877,944 under the borrowing base restrictions, resulting in a net availability of the Amended and Restated Credit Agreement.
$0.7 million.
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Long term debt consists of the
following:following (in thousands): |
| | | | | | | |
| September 29, 2019 | | December 30, 2018 |
New US Term Loan, payable to lenders in quarterly installments of $337,500 through September 30, 2020, $575,000 through September 30, 2021, and $812,500 through November 7, 2023 with a lump sum due at maturity. The effective interest rate was 6.362% per annum at September 29, 2019. At September 29, 2019, the balance of the New US Term Loan is presented net of a debt discount of $283,743 from costs paid to or on behalf of the lenders. | $ | 24,703,756 |
| | $ | 25,664,582 |
|
CA Term Loan, payable to lenders in quarterly installments of $375,000 through November 7, 2023, with a lump sum due at maturity. The effective interest rate was 6.362% per annum at September 29, 2019. At September 29, 2019, the balance of the CA Term Loan is presented net of a debt discount of $124,195 from costs paid to or on behalf of the lenders. | 10,375,804 |
| | $ | 11,853,186 |
|
| | | | | | | | | | | |
| June 30, 2020 | | December 29, 2019 |
U.S. Small Business Administration Paycheck Protection Program loan (PPP Note), payable in equal monthly installments on the first day after the deferment period. The PPP Note is unsecured and bears interest at 1% per annum. The PPP Note may be forgiven subject to the terms of the Paycheck Protection Program. | $ | 5,999 | | | $ | — | |
New US Term Loan, payable to lenders in quarterly installments of $0.3 million through September 30, 2020, $0.6 million through September 30, 2021, and $0.8 million through November 7, 2023 with a lump sum due at maturity. The effective interest rate was 5% per annum at June 30, 2020. At June 30, 2020, the balance of the New US Term Loan is presented net of a debt discount of $0.3 million from costs paid to or on behalf of the lenders. | $ | 23,743 | | | $ | 24,383 | |
CA Term Loan, payable to lenders in quarterly installments of $0.4 million through November 7, 2023, with a lump sum due at maturity. The effective interest rate was 5% per annum at June 30, 2020. At June 30, 2020, the balance of the CA Term Loan is presented net of a debt discount of $0.1 million from costs paid to or on behalf of the lenders. | $ | 9,648 | | | $ | 10,384 | |
Capital expenditure line payable to lenders in quarterly installments of 7.5% per annum of the outstanding principal balance commencing December 31, 2019 through September 30, 2020, 10% per annum through September 30, 2021, and 12.5% per annum through November 7, 2023 with a lump sum due at maturity. The effective interest rate was 5% per annum at June 30, 2020. | 1,251 | | | 1,300 | |
Total debt excluding Revolver | 40,641 | | | 36,067 | |
Less current maturities | 2,847 | | | 2,847 | |
Long-term debt – Less current maturities | $ | 37,794 | | | $ | 33,220 | |
|
| | | | | | | |
Note payable to the seller of former owner of business Unique acquired in 2014 which is unsecured and subordinated to the Credit Agreement. Interest accrued monthly at an annual rate of 6.00%. The note payable was paid in full on February 6, 2019. | — |
| | 500,000 |
|
Capital expenditure line payable to lenders in quarterly installments of 7.5% per annum of the outstanding principal balance commencing December 31, 2019 through September 30, 2020, 10% per annum through September 30, 2021, and 12.5% per annum through November 7, 2023 with a lump sum due at maturity. The effective interest rate was 6.362% per annum at September 29, 2019. | 1,300,000 |
| | — |
|
Total debt excluding Revolver | 36,379,560 |
| | 38,017,768 |
|
Less current maturities | 2,947,498 |
| | 3,350,000 |
|
Long-term debt – Less current maturities | $ | 33,432,062 |
| | $ | 34,667,768 |
|
UNIQUE FABRICATING, INC.Debt Issuance Costs
Debt issuance costs represent legal, consulting, and other financial costs associated with debt financing and are reported netted against the related debt instrument. Amounts paid to or on behalf of lenders are presented as a debt discount and are also shown as a reduction of the associated debt instrument. Debt issuance costs on term debt are amortized using the straight line basis over the term of the related debt (which is immaterially different from the required effective interest method) while those related to revolving debt are amortized using a straight line basis over the term of the related debt.
NotesAt June 30, 2020 and December 29, 2019, debt issuance costs were $0.3 million and $0.3 million, respectively, while amounts paid to Condensed Consolidated Financial Statements (Unaudited)
or on behalf of lenders presented as debt discounts were $0.3 million and $0.4 million, respectively. On November 8, 2018, the Company amended its Credit Agreement, to increase the Company's term loan debt. The Company reviewed this amendment for extinguishment accounting and concluded that there were 0 remaining debt issuance costs not amortized on the revolving debt facility qualified for extinguishment accounting and recognized a loss on extinguishment immediately. The remaining unamortized debt issuance costs not extinguished on the old revolving debt facility and all of the of remaining unamortized debt issuance costs on the term loans did not meet extinguishment accounting and therefore were carried forward to the new revolving debt facility and term loans.
Amortization expense of both debt issuance costs and debt discounts has been recognized as a component of interest expense in the amounts of $0.04 million and $0.1 million for the three and six months ended June 30, 2020, respectively, and $0.04 million and $0.1 million for the three and six months ended June 30, 2019, respectively.
Covenant Compliance
The Amended and Restated Credit Agreement contains customary negative covenants and requires that the Company comply with various financial covenants, including a total leverage ratio and debt service coverage ratio, as defined in the Amended and Restated Credit Agreement. As of DecemberJune 30, 2018,2020, the Company was in compliance with these financial covenants. Additionally, the New US Term Loan and CA Term Loan each contains a clause, effective December 30, 2018, that requires an excess cash flow payment to be made to the lenders to reduce the New US Term Loan and CA Term Loan if the Company’s cash flow exceeds certain thresholds as defined by the Amended and Restated Credit Agreement. No payments were required to be made in the 13three and 39 weekssix months ended September 29, 2019.June 30, 2020.
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of March 31, 2019, the Company was not in compliance with the total leverage ratio financial covenant. As a result of this non-compliance, on May 7, 2019, the US Borrower and the CA Borrower entered into the Waiver and First Amendment (the “First Amendment”) to the Amended and Restated Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders. The First Amendment temporarily waived the default on the March 31, 2019 covenant violation until the earlier of June 15, 2019 and the execution and delivery of a further amendment revising the calculation of the total leverage ratio and such other financial covenants as necessary taking into account the Borrowers current and future financial condition. As a result of this waiver, the lenders did not accelerate the maturity of the debt.
On June 14, 2019, the Company entered into the Waiver and Second Amendment (the “Second Amendment”) to the Amended and Restated Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders. The Second Amendment revised the waiver period as defined with respect to the March 31, 2019 covenant violation and resulting default until the earlier of June 30, 2019 (which was June 15, 2019 under the First Amendment to the Amended and Restated Credit Agreement) and the execution and delivery of a further amendment revising the calculation of the total leverage ratio and such other financial covenants as necessary taking into account the Borrowers current and future financial condition.
On June 28, 2019, the Company entered into the Waiver and Third Amendment (the “Third Amendment”) to the Amended and Restated Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders. The Third Amendment revised the waiver period as defined with respect to the March 31, 2019 covenant violation and resulting default until the earlier of July 22, 2019 (which was June 30, 2019 under the Second Amendment to the Amended and Restated Credit Agreement) and the execution and delivery of a further amendment revising the calculation of the total leverage ratio and such other financial covenants as necessary taking into account the Borrowers current and future financial condition.
On July 16, 2019, the Company entered into the Waiver and Fourth Amendment (the “Fourth Amendment”) to the Amended and Restated Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders. The Fourth Amendment provided a permanent waiver by the Lenders and Agent with respect to the Borrower's non-compliance with the total leverage ratio financial covenant, as defined as of March 31, 2019. The Fourth Amendment also revised the definition of consolidated EBITDA and certain financial covenants, including the maximum total leverage ratio and the minimum debt service coverage ratio, as well as adding the requirement that the Company maintain minimum liquidity and minimum unadjusted consolidated EBITDA, each as defined. The Fourth Amendment permits distributions as long as the Borrower is in compliance with specified conditions including that the Borrower's liquidity, as defined, is not less than $5 million after giving effect to the distribution, total leverage ratio is not more than 2.00 to 1.00, post distribution, debt service coverage ratio ("DSCR"), as defined, is not greater than 1.10 to 1.00, and Borrower is in compliance with financial convenants,covenants, before and after giving effect to the distributions. The Company is compliant with the covenants set forth in the Waiver and Fourth Amendment as of September 29, 2019.
On August 7, 2019, the Company entered into the Fifth Amendment to the Credit Agreement and Loan Documents (The "Fifth Amendment"(the “Fifth Amendment”). The Fifth Amendment amended the definition of unadjusted consolidated EBITDA to include consolidated net income plus the sum of interest expense, tax expense, depreciation and amortization expense, and non-cash impairment charges of goodwill.
The Company is compliant with the covenants set forth in the Fifth Amendment as of June 30, 2020.
On April 3, 2020, the Company entered into the Sixth Amendment to the Credit Agreement and Loan Documents (the “Sixth Amendment”). The Sixth Amendment, amended the definition of consolidated EBITDA to include, as an addition to consolidated net income, an amount equal to $0.6 million resulting from a non-cash inventory write-off taken during the third fiscal quarter in fiscal 2019, amended the definition of “fiscal year” to reflect that we changed our fiscal year to end on December 31, commencing with the 2020 fiscal year, eliminated the requirement for a monthly Covenant Compliance Report and provided for payment of the Capex Loan principal installment that was due December 31, 2019, but was not paid due to an internal system miscalculation by the Agent.
As of March 31, 2020, the Company was in compliance with its financial covenants. However, due to the impact of the COVID-19 pandemic on the Company and the global automotive industry, the Company anticipated that it was likely that the Bank EBITDA for the twelve months ended June 30, 2020 was likely to result in the Company not being in compliance with its financial covenants. In response to the anticipated impact of COVID-19, on April 23, 2020, the US Borrower and the CA Borrower (together the “Borrowers”) entered into the Seventh Amendment (the “Seventh Amendment”) to the Credit Agreement and Loan Documents. The Seventh Amendment, among other things, (i) permits additional indebtedness in the form of unsecured loans authorized pursuant to and in compliance with the CARES Act under the Paycheck Protection Program of the U.S. Small Business Administration, in an aggregate amount not to exceed $6.0 million; (ii) defers the June 30, 2020 principal payments on the US Term Loan, CA Term Loan, and CAPEX Loan, with the deferred principal amounts payable at the existing maturity dates; (iii) waives the requirement to test Maximum Total Leverage Ratio, Minimum Debt Service Coverage Ratio and Minimum Unadjusted Consolidated EBITDA for the fiscal quarter ending June 30, 2020; (iv) allows the release of the lien on the Evansville, Indiana property and for the net cash proceeds from its sale to be applied against any
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
outstanding balance on the Revolver, which will not paypermanently reduce the Revolving Credit Aggregate Commitment; (v) adds a dividendweekly requirement for the Borrowers to deliver a 13-week cash flow forecast until September 30, 2020; and (vi) adds a 1.0% LIBOR Floor and 2.0% Base Rate Floor.
On August 7, 2020, the Company entered into the Eighth Amendment (the “Eighth Amendment”) to the Credit Agreement and Loan Documents, as amended. The Eighth Amendment to the Credit Agreement and Loan Documents, among other things, amended the definition of Consolidated EBITDA and made changes to the calculations of financial covenants. The definition of Consolidated EBITDA has been amended to include as an addition to Consolidated Net Income (i) costs and expenses incurred in connection with the Eighth Amendment not to exceed $175,000, (ii) restructuring expenses not to exceed $500,000 in any 12 month period, (iii) costs incurred with respect to the purchase and implementation of the ERP system not to exceed (A) $200,000 during each fiscal quarter in 2020 and (B) $100,000 during each fiscal quarter in 2021, and (iv) to the remainderextent added in calculating Consolidated Net Income any portion of 2019.
the PPP loan that has been forgiven and cancelled. The Eighth Amendment also amended the calculation of certain financial covenants based upon 12 month results to effectively exclude results of the quarter ended June 30, 2020. The calculation of Maximum Total Leverage Ratio has been amended, commencing with the quarter ending September 30, 2020 and through and including the quarter ending March 31, 2021, to annualize Consolidated EBITDA for the periods beginning July 1, 2020 through the date of calculation. The calculation of Minimum Debt Service Coverage Ratio for the quarters ended September 30, 2020, December 31, 2020 and March 31, 2021 are based upon results for one, two and three quarters, respectively. The Eighth Amendment further adds a Minimum Liquidity requirement to be calculated monthly through June 30, 2021 and Minimum Consolidated EBITDA for each measurement period, as defined, through June 30, 2021. The Eighth Amendment permits distributions by US Borrower to the Parent to be declared and made only after December 31, 2021 provided certain conditions are satisfied.
Maturities on the Company’s Amended and Restated Credit Agreement and other long term debt obligations for the remainder of the current fiscal year and future fiscal years are as follows:follows (in thousands):
| | | | | |
2020 | $ | 1,782 | |
2021 | 5,375 | |
2022 | 6,112 | |
2023 | 35,744 | |
2024 | 1,200 | |
Thereafter | 900 | |
Total | 51,113 | |
Discounts | (334) | |
Debt issuance costs | (264) | |
Total debt, net | $ | 50,515 | |
Paycheck Protection Program Loan
On April 24, 2020, the Company entered into a Promissory Note (“PPP Note”) for $6.0 million with Citizens Bank, National Association, (“PPP Lender”) pursuant to the U.S. Small Business Administration (“SBA”) Paycheck Protection Program under Title I of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act passed by Congress and signed into law on March 27, 2020. On June 3, 2020, Congress passed the Paycheck Protection Program Flexibility Act of 2020 (the “PPP Flexibility Act”) and on June 5, 2020 it was signed into law. The PPP Flexibility Act modified certain provisions of the CARES Act. The PPP Note is unsecured, bears interest at 1.00% per annum, with principal and interest payments deferred until the earlier of (i) the PPP Lender receiving the forgiveness amount from the SBA or (ii) August 12, 2021. The PPP Note matures on April 24, 2022. The principal is payable in equal monthly installments, with interest, beginning on the first business day after the end of the deferment period. The PPP Note may be forgiven subject to the terms of the Paycheck Protection Program and PPP Flexibility Act.
Additionally, certain acts of the Company, including but not limited to: (i) the failure to pay any taxes when due, (ii) becoming the subject of a proceeding under any bankruptcy or insolvency law, (iii) making an assignment for the benefit of creditors, or (iv) reorganizing, merging, consolidating or otherwise changing ownership or business structure without PPP Lender’s prior written consent, are considered events of default which grant Lender the right to seek immediate payment of all amounts owing under the PPP Note. As of June 30, 2020, none of the circumstances listed above exist at the Company.
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
| | | |
2019 | $ | 337,500 |
|
2020 | 3,193,125 |
|
2021 | 4,175,625 |
|
2022 | 4,912,500 |
|
2023 | 38,945,319 |
|
Thereafter | — |
|
Total | 51,564,069 |
|
Discounts | (407,938 | ) |
Debt issuance costs | (322,973 | ) |
Total debt – Net | $ | 50,833,158 |
|
Note 7 —7. Derivative Financial Instruments
Interest Rate Swap
The Company holds a derivative financial instruments,instrument, in the form of an interest rate swap, as required by its Credit Agreement and Amended and Restated Credit Agreement, for the purpose of hedging certain identifiable transactions in order to mitigate risks relating to the variability of future earnings and cash flows caused by interest rate fluctuations. The Company has elected not to apply hedge accounting for financial reporting purposes. The interest rate swap is recognized in the accompanying condensed consolidated balance sheets at its fair value. Monthly settlement payments due on the interest rate swap and changes in its fair value are recognized currently in net income as interest expense in the accompanying condensed consolidated statements of operations.
Effective June 30, 2016, as required under the Credit Agreement entered into during April 2016, the Company entered into an interest rate swap which requires the Company to pay a fixed rate of 1.055 percent per annum while receiving a variable rate per annum based on the one month LIBOR for a net monthly settlement based on the notional amount. The notional amount at the effective date was $16,681,250$16.7 million which decreased by $318,750$0.3 million each quarter until June 30, 2017, and thereafter decreased by $425,000$0.4 million each quarter until June 29, 2018, when it began decreasing by $531,250$0.5 million per quarter until it expired on June 28, 2019.
Effective October 2, 2017, as required under the Second Amendment to the Credit Agreement, the Company entered into another interest rate swap withwhich requires the Company to pay a fixed rate of 1.093 percent per annum while receiving a variable interest rate per annum based on the one month LIBOR, for a net monthly settlement based on the notional amount in effect. The notional amount at the effective date was $1,900,000$1.9 million which decreases by $100,000$0.1 million each quarter until it expires on September 30, 2020.
Effective November 30, 2018, as required under the Amended and Restated Credit Agreement, the Company entered into another interest rate swap that requires the Company to pay a fixed rate of 3.075 percent per annum while receiving a variable interest rate per annum based on the one month LIBOR for a net monthly settlement based on the notional amount in effect. The notional amount at the effective date was $5,037,500$5.0 million which increased by $378,125$0.4 million each quarter until June 28, 2019 when the notional amount increased to $17,540,625$17.5 million due to the interest rate swap from 2016 described above expiring. TheSince June 28, 2019, the notional amount then decreasesdecreased each quarter by $153,125$0.2 million until September 30, 2020 when the notional amount increases to $17,475,000$17.5 million due to the interest rate swap from 2017 above expiring. The notional amount then decreases each quarter by $431,250$0.4 million until December 31, 2021, then decreases each subsequent quarter by $609,375$0.6 million until it expires on November 8, 2023
At September 29, 2019,June 30, 2020, the fair value of all swaps was in a net liability position of $1,037,994$1.5 million and is included in other accrued liabilities and other long term liabilities in the condensed consolidated balance sheet.sheets. The Company paid $22,279$0.2 million and received $63,761 in the aggregate,$1.0 million in net monthly settlements with respect to the interest rate swaps for the 13three and 39 weekssix months ended September 29, 2019,June 30, 2020, respectively. At SeptemberJune 30, 2018,2019, the fair value of the swaps was $164,965, anda net liability of $1.0 million, which was included in other long-term assetslong term liabilities in the condensed consolidated balance sheets.sheet. The Company received $35,659$0.04 million and $84,554 with$0.09 million in net monthly settlements in respect to the interest rate swaps for the 13three and 39 weekssix months ended SeptemberJune 30, 2018, respectively.2019. Both the change in fair value and the net monthly settlements were included in interest expense in the condensed consolidated statements of operations.
Note 8 —8. Restructuring
UNIQUE FABRICATING, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The Company's restructuring activities are undertaken as necessary to implement management's strategy and improve profitability.operating results. The restructuring activities generally relate to realignment of existing manufacturing capacity and closure of facilities and other exit or disposal activities, either in the normal course of business or pursuant to specific restructuring programs.
2019 Restructurings
Bryan Restructuring
On November 7, 2019, the Company made the decision to close its manufacturing facility in Bryan, Ohio. The Company currently expects to cease operations at the Bryan facility by the end of January 2020, and estimates that approximatelyApproximately 43 positions will bewere eliminated as a result of the closure. The Company's decision resulted from its desire to streamline operations and to utilize some of the available excess capacity in other of our facilities.
The Company will movehas moved existing Bryan production to its manufacturing facilities in Queretaro, Mexico and LaFayette, GA. The Company will provide the affected employees severance pay, health benefits continuation, and job search assistance. The
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Company evaluated whether or not this closing met the criteria for discontinued operations and concluded that the closing did not meet the definition as it did not represent a strategic shift in the Company's operations and the Company will have continuing cash flows from the production being moved to other facilities within the Company.
The Company incurred one-time severance costs as a result of this plant closure of approximately $0.3 million during the fourth quarter of 2019. The amount of other costs incurred associated with this plant closure, which primarily consist of preparing and moving existing production equipment and inventory at Bryan to other facilities and accelerated depreciation of the building right-of-use lease asset, was approximately $0.6 million during the six months ended June 30, 2020.
Evansville Restructuring
On July 16, 2019, the Company made the decision to close its manufacturing facility in Evansville, Indiana. The Company ceased operations at the Evansville facility during the fourth quarter of 2019, and approximately 47 positions were eliminated as a result of the closure. The Company's decision resulted from its desire to streamline operations and to utilize some of the available excess capacity in other of our facilities.
The Company moved existing Evansville production to its manufacturing facilities in LaFayette, GA, Auburn Hills, MI, and Louisville, KY. The Company provided the affected employees severance pay, health benefits continuation, and job search assistance. The Company evaluated whether or not this closing met the criteria for discontinued operations and concluded that the closing did not meet the definition as it did not represent a strategic shift in the Company's operations and the Company will have continuing cash flows from the production being moved to other facilities within the Company.
The Company expects to incur one-time severance costs as a resultCosts incurred in the six months ended June 30, 2020, which consisted primarily of this plant closuretransportation and installation of approximately $0.5 million duringequipment and the fourth quarterdisposal of 2019. The amount of other costs incurred associated with this plant closure, which will primarily consist of preparing and moving existing production equipment and inventory at Bryanwas $0.5 million. Also included in this amount is a non-cash loss related to other facilities, will be approximately $0.8 million during the first quarterloss on the sale of 2020.
Evansville Restructuring
On July 16, 2019, the Company made the decision to close its manufacturing facility in Evansville, Indiana. The Company currently expects to cease operations at the Evansville facility by the end of December 2019, and estimates that approximately 47 positions will be eliminated as a result of the closure. The Company's decision resulted from its desire to streamline operations and to utilize some of the available excess capacity in other of our facilities.
The Company will move existing Evansville production to its manufacturing facilities in LaFayette, GA, Auburn Hills, MI, and Louisville, KY. The Company will provide the affected employees severance pay, health benefits continuation, and job search assistance. The Company evaluated whether or not this closing met the criteria for discontinued operations and concluded that the closing did not meet the definition as it did not represent a strategic shift in the Company's operations and the Company will have continuing cash flows from the production being moved to other facilities within the Company.
The Company incurred one-time severance costs as a result of this plant closure of $331,416 and $331,416 in the 13 and 39 weeks ended September 29, 2019, respectively. The amount of other costs incurred associated with this plant closure, which primarily consisted of preparing and moving existing production equipment and inventory at Evansville to other facilities was $518,493 and $518,493 in the 13 and 39 weeks ended September 29, 2019.building. All of these costs were recorded to the restructuring expense line in continuing operations in the Company's condensed consolidated statementstatements of operations.
The Company will incur totalhad $0.9 million and $1.2 million of remaining lease payments for a warehouse near the remaining termEvansville, Indiana facility as of an existing warehouse lease of $1.2 million which will be accrued upon the cease use of the facility in the fourth quarter of 2019.June 30, 2020 and December 29, 2019, respectively. The Company ishas actively pursuingsecured a sublease of the facility.
Departures
On September 30, 2019, subsequent to the endroughly 15% of the third quarter, our Chief Financial Officer (CFO) announced his resignation, effective October 11, 2019. The Company's new President and Chief Executive Officer (CEO) will serve as the Interim CFO until such time that a permanent CFO is named. The Company did not incur any restructuring costs in connection with this resignation.
On September 17, 2019, the Company named a new President and Chief Executive Officer of the Company, who began employment with the Company on September 30, 2019, subsequent to the end of the third quarter. The Company did not incur any restructuring costs in connection with this appointment.
UNIQUE FABRICATING, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
On July 30, 2019, our former President and Chief Executive Officer of the Company (CEO), resigned as from the board of directors. The Company did not incur any additional restructuring costs in connection with his resignation from the board of directors.
On May 6, 2019, the former President and CEO of the Company resigned by mutual agreement of both parties. The Company incurred one-time restructuring costs of $140,740 and $720,712 during the 13 and 39 weeks ended September 29, 2019, respectively, in connection with his resignation. Further charges expected to be incurred subsequent to September 29, 2019 are expected to be immaterial.
Salaried Restructuring
On May 15, 2019 and February 1, 2019, the Company announced that in order to reduce fixed costs it would be eliminating a number of salaried positions throughout the Company. The Company provided the affected employees severance pay, health benefits continuation and job search assistance. This reduction took place and the Company incurred restructuring costs of $0 and $244,567 in the 13 and 39 weeks ended September 29, 2019, respectively.
facility.
The table below summarizes the activity in the restructuring liability for the 39 weekssix months ended September 29, 2019.June 30, 2020 (in thousands).
| | | | | | | | | | | | | | | | | | | | |
| | Employee Termination Benefits Liability | | Other Exit Costs Liability | | Total |
Accrual balance at December 29, 2019 | | $ | 438 | | | $ | 116 | | | $ | 554 | |
Provision for estimated expenses to be incurred | | — | | | 1,193 | | | 1,193 | |
Payments made during the year and asset write offs | | 400 | | | 838 | | | 1,238 | |
Accrual balance at June 30, 2020 | | $ | 38 | | | $ | 470 | | | $ | 508 | |
|
| | | | | | | | | | | | |
| | Employee Termination Benefits Liability | | Other Exit Costs Liability | | Total |
Accrual balance at December 31, 2018 | | $ | — |
| | $ | — |
| | $ | — |
|
Provision for estimated expenses to be incurred | | 1,296,695 |
| | 518,493 |
| | 1,815,188 |
|
Payments made during the period | | 729,685 |
| | 384,243 |
| | 1,113,928 |
|
Accrual balance at September 29, 2019 | | 567,010 |
| | 134,250 |
| | 701,260 |
|
2018 Restructuring
Fort Smith Restructuring
On February 13, 2018, the Company made the decision to close its manufacturing facility in Fort Smith, Arkansas. The Company ceased operations at the Fort Smith facility in July of 2018, and approximately 20 positions were eliminated as a result of the closure. The Company's decision resulted from its desire to streamline operations and to utilize some of the available excess capacity in other of our facilities. The Company moved existing Fort Smith production to its manufacturing facilities in Evansville, Indiana and Monterrey, Mexico. The Company provided the affected employees severance pay, health benefits continuation and job search assistance. The Company evaluated whether or not this closing met the criteria for discontinued operations and concluded that the closing did not meet the definition as it did not represent a strategic shift in the Company's operations and the Company has continuing cash flows from the production being moved to other of its facilities.
In October 2018, the Company sold the building it owned in Fort Smith, which had a net book value of $733,059, for cash proceeds of $876,032 resulting in a gain on the sale of $142,973. The Company did not incur any restructuring costs associated with this closure in the 13 and 39 weeks ended September 29, 2019.
The Company incurred one-time severance costs as a result of this plant closure of $60,423 and $233,782 in the 13 and 39 weeks ended September 30, 2018, respectively. The amount of other costs incurred associated with this plant closure, which primarily consisted of preparing and moving existing production equipment and inventory at Fort Smith to other facilities was $115,103 and $559,461 in the 13 and 39 weeks ended September 30, 2018. All of these costs were recorded to the restructuring expense line in continuing operations in the Company's consolidated statement of operations.
Port Huron Restructuring
On February 1, 2018, the Company made the decision to close its manufacturing facility in Port Huron, Michigan. The Company ceased operations at the Port Huron facility in June of 2018 and 7 positions were eliminated as a result of the closure. The Company's decision resulted from its desire to streamline operations and to utilize some of the available excess capacity in other of its facilities. As such, the Company moved existing Port Huron production to our manufacturing facilities in London, Ontario, Auburn Hills, Michigan, and Louisville, Kentucky. The Company provided the affected employees severance pay, health benefits continuation and job search assistance. The Company evaluated whether or not this closing met the criteria for
UNIQUE FABRICATING, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
discontinued operations and concluded that the closing did not meet the definition as it did not represent a strategic shift in the Company's operations, and the Company has continuing cash flows from the production being moved to other of its facilities. The Company did not incur any restructuring costs associated with this closure in the 13 and 39 weeks ended September 29, 2019.
The Company incurred one-time severance costs as a result of this plant closure of $0 and $64,768 in the 13 and 39 weeks ended September 30, 2018. The amount of other costs incurred associated with this plant closure, which primarily consisted of preparing and moving existing production equipment and inventory at Port Huron to other facilities was $0 and $297,899 in the 13 and 39 weeks ended September 30, 2018. All of these costs were recorded to the restructuring expense line in continuing operations in the Company's consolidated statement of operations.
The table below summarizes the activity in the restructuring liability for the 13 and 39 ended September 30, 2018.
|
| | | | | | | | | | | | |
| | Employee Termination Benefits Liability | | Other Exit Costs Liability | | Total |
Accrual balance at January 1, 2018 | | $ | — |
| | $ | — |
| | $ | — |
|
Provision for estimated expenses incurred during the year | | 298,551 |
| | 857,359 |
| | 1,155,910 |
|
Payments made during the period | | 298,551 |
| | 857,359 |
| | 1,155,910 |
|
Accrual balance at September 30, 2018 | | $ | — |
| | $ | — |
| | $ | — |
|
Note 9 —9. Stock Incentive Plans
2013 Stock Incentive Plan
The Company’s board of directors approved a stock incentive plan (the “Plan”) in 2013. The Plan permits the Company to grant 495,000 non statutory or incentive stock options to the employees, directors and consultants of the Company. 495,000 shares of unissued common stock are reserved for the Plan. The board of directors has the authority to determine the participants to whom stock options shall be awarded as well as any restrictions to be placed upon the awards. The exercise price cannot be less than the fair value of the underlying shares at the time the stock options are issued and the maximum length of an award is ten years.
On July 17, 2013 and January 1, 2014, the board of directors approved the issuance of 375,000 and 120,000 non statutory stock option awards, respectively, to employees of the Company with an exercise price of $3.33 per share with a weighted average grant date fair value of $0.23 and $0.35 per share, respectively. On April 29, 2016, the Company issued 7,200 non statutory stock option awards to employees of the Company with an exercise price of $12.58 and with a weighted average grant date fair value of $2.80 per share. On September 15, 2017, the Company issued 5,000 non statutory stock option awards to employees of the Company with an exercise price of $7.65 per share and with a weighted average grant date fair value of $1.41 per share. All 4 grants of the awards vest 20 percent on the grant date and an additional 20 percent on each of the first, second, third and fourth anniversaries thereafter. Vested awards can only be exercised while the participants are employed by the Company.
The fair value of each option award is estimated on the grant date using a Black Scholes option pricing model that uses the weighted average assumptions noted in the following table.tables. The expected volatility is based on the historical volatility of the stock of comparable companies. The expected term of the awards was estimated based on findings from academic studies investigating the average holding period for options adjusted for the Company’s size and risk factors. The risk free rate for periods within the contractual life of the option is based on the United States Treasury yield curve in effect at the time of grant.
|
| | | | | | | | | | | |
| September 15, 2017 | | April 29, 2016 | | January 1, 2014 | | July 17, 2013 |
Expected volatility | 40.00 | % | | 40.00 | % | | 34.00 | % | | 34.00 | % |
Dividend yield | 7.00 | % | | 5.00 | % | | — | % | | — | % |
Expected term (in years) | 5 |
| | 5 |
| | 4 |
| | 4 |
|
Risk-free rate | 1.81 | % | | 1.28 | % | | 1.27 | % | | 0.96 | % |
15
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Notes to Condensed Consolidated Financial Statements (Unaudited)
On September 30, 2019, subsequent to the end of the third quarter,February 25, 2020, the compensation committee of the board of directors approved the issuance of 72,5007,500 non statutory stock option awards respectively,to employees of the Company. All of the awards have an exercise price of $3.32 per share with a weighted average grant date fair value of $1.64 per share. These options vest 40% on February 25, 2021 and 20% on each of February 25, 2022, 2023, and 2024.
| | | | | | | | |
| | February 25, 2020 |
Expected volatility | | 52.00 | % |
Dividend yield | | — | % |
Expected term (in years) | | 6 |
Risk-free rate | | 1.21 | % |
On April 6, 2020, the compensation committee of the board of directors approved the issuance of 12,500 non statutory stock option awards to the Company’s new CEO of the CompanyChief Financial Officer (“CFO”) with an exercise price of $2.89$2.36 per share. These awards vest 50 percent once the closing price of the Company's common stock is in excess of $7.50 per share for 10 out of 20 consecutive trading days and an additional 50 percent once the closing price of the Company's common stock is in excess of $12.50 per share for 10 out of 20 consecutive trading days. Vested awards can only be exercised while the participant is employed by the Company.
| | | | | | | | |
| | April 6, 2020 |
Expected volatility | | 76.00 | % |
Dividend yield | | — | % |
Expected term (in years) | | 6 |
Risk-free rate | | 0.51 | % |
2014 Omnibus Performance Award Plan
In 2014, the board of directors and stockholders adopted the Unique Fabricating, Inc. 2014 Omnibus Performance Award Plan, or the 2014 Plan. The 2014 Plan provides for the grant of cash awards, stock options, stock appreciation rights, or SARs, shares of restricted stock and restricted stock units, or RSUs, performance shares and performance units. The 2014 Plan originally authorized the grant of awards relating to 250,000 shares of our common stock. In the event of any transaction that causes a change in capitalization, the Compensation Committee, such other committee administering the 2014 Plan or the board of directors will make such adjustments to the number of shares of common stock delivered, and the number and/or price of shares of common stock subject to outstanding awards granted under the 2014 Plan, as it deems appropriate and equitable to prevent dilution or enlargement of participants’ rights. An amendment approved in March of 2016 by our board of directors which was approved by our stockholders at our annual meeting of stockholders in June 2016, increased the number of shares authorized for grant of awards under the 2014 Plan to a total of 450,000 shares of our common stock.
On August 17, 2015, In July 2020, an additional amendment was approved at our annual meeting of stockholders, which increased the boardnumber of directors approvedshares authorized for grant of awards under the issuance2014 Plan to a total of stock option awards for 230,000700,000 shares of which 45,000 shares subject to non statutory awards were granted to the board of directors and 185,000 incentive stock options were granted to employees of the Company. All of the awards had an exercise price of $12.50 per share with a weighted average grant date fair value of $2.72 per share. These awards vest 20 percent on the grant date and an additional 20 percent on each of the first, second, third and fourth anniversaries of the grant date thereafter. Vested awards can only be exercised while the participants are employed by the Company.
On November 20, 2015, the board of directors approved the issuance of incentive stock option awards for 15,000 shares to employees of the Company. All of the awards had an exercise price of $11.50 per share with a weighted average grant date fair value of $2.23 per share. The vesting schedule, vesting percentage, and capability of the employees to exercise these options are the same as these for the August 17, 2015 grants discussed above.
On April 29, 2016, the board of directors approved the issuance of stock option awards for 5,000 shares to employees of the Company. All of the awards had an exercise price of $12.58 per share with a weighted average grant date fair value of $2.80 per share. The vesting schedule, vesting percentage, and ability of the employees to exercise these options are the same as these for the November 20 and August 17, 2015 grants described above.
On September 15, 2017, the board of directors approved the issuance of stock option awards for 15,000 shares to employees of the Company. All of the awards had an exercise price of $7.65 per share with a weighted average grant date fair value of $1.41 per share. The vesting schedule, vesting percentage, and ability of the employees to exercise these options are the same as these for the November 20, August 17, 2015, and April 29, 2016 grants discussed above.
On June 11, 2019, the compensation committee of the board of directors approved the issuance of stock option awards for 30,000 shares to 1 member of the board. The award had an exercise price of $2.93 per share with a weighted average grant date fair value of $1.10 per share. These options vested immediately on the date of grant as the service conditions required for this award had already been met on the day of the award.
our common stock.
The fair value of each of the option awards described abovebelow is estimated on the grant date using a Black Scholes option pricing model that uses the weighted average assumptions noted in the following table.tables. The expected volatility is based on the historical volatility of the stock of comparable companies. The expected term of the awards was estimated based on findings from academic studies investigating the average holding period for options for adjusted for the Company’s size and risk factors. The risk free rate for periods within the contractual life of the option is based on the United States Treasury yield curve in effect at the time of grant.
UNIQUE FABRICATING, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | |
| June 11, 2019 | | September 15, 2017 | | April 29, 2016 | | November 20, 2015 | | August 17, 2015 |
Expected volatility | 40.00 | % | | 40.00 | % | | 40.00 | % | | 35.00 | % | | 38.00 | % |
Dividend yield | — | % | | 7.00 | % | | 5.00 | % | | 5.00 | % | | 4.80 | % |
Expected term (in years) | 5 |
| | 5 |
| | 5 |
| | 5 |
| | 5 |
|
Risk-free rate | 1.85 | % | | 1.81 | % | | 1.28 | % | | 1.70 | % | | 1.58 | % |
On September 30, 2019, subsequent to the end of the third quarter,February 25, 2020, the compensation committee of the board of directors approved the issuance of 140,000 non statutory15,000 incentive stock option awards to the new CEOemployees of the Company with an exercise price of $2.89 per share. These awards vest 40 percent on September 30, 2020 and an additional 20 percent on each of September 30, 2021, 2022, and 2023 thereafter. Vested awards can only be exercised while the participant is employed by the Company. On September 30, 2019, subsequent to the end of the third quarter, the compensation committee of the board of directors approved the issuance of 72,500 incentive stock option awards to the new CEO of the Company with an exercise price of $2.89$3.32 per share. These awards vest 50 percent once the closing price of the Company's common stock is in excess of $7.50 per share for 10 out of 20 consecutive trading days and an additional 50 percent once the closing price of the Company's common stock is in excess of $12.50 per share for 10 out of 20 consecutive trading days. VestedThe Company estimated the grant-date fair value of the awards can only be exercised whilesubject to these market conditions using a Monte Carlo simulation model, using the participantfollowing assumptions: risk free interest rate of 1.21% and annualized volatility of 52.0%. Also on February 25, 2020, the compensation committee of the board of directors approved the issuance of 7,500 non statutory stock option awards to employees of the Company. All of the awards have an exercise price of $3.32 per share with a weighted average grant date fair value of $1.64 per share. These options vest 40% on February 25, 2021 and 20% on each of February 25, 2022, 2023, and 2024.
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| | | | | | | | |
| | February 25, 2020 |
Expected volatility | | 52.00 | % |
Dividend yield | | — | % |
Expected term (in years) | | 6 |
Risk-free rate | | 1.21 | % |
On April 6, 2020, the compensation committee of the board of directors approved the issuance of 25,000 non statutory stock option awards to the Company’s new CFO with an exercise price of $2.36 per share. These awards vest 40 percent on April 6, 2021 and an additional 20 percent on each of April 6, 2022, 2023, and 2024. On April 6, 2020, the compensation committee of the board of directors approved the issuance of 12,500 incentive stock option awards to the Company’s new CFO with an exercise price of $2.36 per share. These awards vest 50 percent once the closing price of the Company's common stock is employed byin excess of $7.50 per share for 10 out of 20 consecutive trading days and an additional 50 percent once the Company.closing price of the Company's common stock is in excess of $12.50 per share for 10 out of 20 consecutive trading days.
| | | | | | | | |
| | April 6, 2020 |
Expected volatility | | 76.00 | % |
Dividend yield | | 0.00 | % |
Expected term (in years) | | 6 |
Risk-free rate | | 0.51 | % |
A summary of option activity under both plans is presented below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (in years) | | Aggregate Intrinsic Value(1) |
| (dollars in thousands, except share data and exercise price) | | | | | | |
Outstanding at December 29, 2019 | 676,480 | | | $ | 5.48 | | | 7.1 | | $ | 471,000 | |
Granted | 80,000 | | | $ | 2.72 | | | 9.7 | | |
Exercised | — | | | $ | — | | | 0.0 | | |
Forfeited or expired(2) | 95,000 | | | $ | 6.91 | | | 0.0 | | |
Outstanding at June 30, 2020 | 661,480 | | | $ | 4.94 | | | 7.3 | | $ | — | |
Vested and exercisable at June 30, 2020 | 296,480 | | | $ | 7.43 | | | 4.6 | | $ | — | |
|
| | | | | | | | | | | | |
| Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (in years) | | Aggregate Intrinsic Value(1) |
Outstanding at December 30, 2018 | 563,680 |
| | $ | 7.25 |
| | 5.61 | | |
|
Granted | 30,000 |
| | $ | 2.93 |
| | 10 | | |
|
Exercised | — |
| | $ | — |
| | 0 | | |
|
Forfeited or expired(2) | 192,200 |
| | $ | — |
| | 0 | | |
Outstanding at September 29, 2019 | 401,480 |
| | $ | 5.46 |
| | 5.73 | | $ | — |
|
Vested and exercisable at September 29, 2019 | 343,040 |
| | $ | 5.50 |
| | 5.10 | | $ | — |
|
————————————
(1) The aggregate intrinsic value above is obtained by subtracting the weighted average exercise price from the estimated fair value of the underlying shares and multiplying this result by the related number of options outstanding and exercisable as of the period end date. As of June 30, 2020, there is no intrinsic value as the exercise prices are greater than the fair value. The estimated fair value of the shares is based on the closing price of the stock of $3.19 as of June 30, 2020 and $4.01 as of December 29, 2019.
| |
(1) | The aggregate intrinsic value above is obtained by subtracting the weighted average exercise price from the estimated fair value of the underlying shares as of September 29, 2019 and multiplying this result by the related number of options outstanding and exercisable at September 29, 2019. The estimated fair value of the shares is based on the closing price of the stock of $2.85 as of September 29, 2019. As of September 29, 2019 there is no intrinsic value as the exercise prices are greater than the estimated fair value. |
| |
(2) | Represents shares forfeited by the former CEO in May 2019(2) Includes the 65,000 shares forfeited by the Company’s former Chief Financial Officer as a result of his October 2019 departure. |
The Company recorded compensation expense of $18,786$31.8 thousand and $117,147$54.6 thousand for the 13three and 39 weekssix months ended September 29, 2019, respectively,June 30, 2020, and $32,681$65.7 thousand and $98,621$98.4 thousand for the 13three and 39 weekssix months ended SeptemberJune 30, 2018, respectively,2019, in its condensed consolidated statements of operations, as a component of sales, general and administrative expenses. The income tax (expense) benefit related to share based compensation expense was $3,126 and $24,039immaterial for the 13 and 39 weeks ended September 29, 2019 and $(680) and $15,020 for the 13 and 39 weeks ended September 30, 2018.
all periods presented.
As of September 29, 2019,June 30, 2020, there was $46,355$332.5 thousand of total unrecognized compensation cost related to non-vested stock option awards under the plans. That cost is expected to be recognized over a weighted average period of 0.425.3 years.
Note 10 —10. Income Taxes
For interim tax reporting we estimate our annual effective tax rate and apply it to our year to date income before income taxes. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances and the effect of changes in tax laws or rates, are reported in the interim period in which they occur, if applicable.