UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| ☒ | Quarterly Report Pursuant to Section 13 | ||||
For the quarterly period ended June 30, 2020
or
| ☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||||
For the quarterly period ended September 29, 2019
Commission file number: 001-37480
UNIQUE FABRICATING, INC.
(Exact name of registrant as specified in its Charter)
 | ||||||||||||||
| Delaware | 46-1846791 | |||||||||||||
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |||||||||||||
800 Standard Parkway
Auburn Hills,, MI48326
(Address including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading | Name of each exchange on which registered | ||||||
| Common Stock, par value $.001 per share | UFAB | NYSE American | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | |||||||||
| Non-accelerated filer | Smaller reporting company | ☒ | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of NovemberAugust 7, 2019,2020, the registrant had 9,779,147 shares of common stock outstanding.
FORM 10-Q
TABLE OF CONTENTS
| Page | ||||||||||||||
1
UNIQUE FABRICATING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited – dollars in thousands)
| June 30, 2020 | December 29, 2019 | |||||||||||||
| Assets | ||||||||||||||
| Current assets | ||||||||||||||
| Cash and cash equivalents | $ | 4,737 | $ | 650 | ||||||||||
| Accounts receivable, net of reserves of approximately $0.7 million and $0.9 million at June 30, 2020 and December 29, 2019, respectively | 15,683 | 24,701 | ||||||||||||
| Inventory, net | 15,137 | 13,047 | ||||||||||||
| Prepaid expenses and other current assets: | ||||||||||||||
| Prepaid expenses and other | 3,654 | 2,108 | ||||||||||||
| Refundable taxes | 1,391 | 1,049 | ||||||||||||
| Assets held for sale | — | 1,003 | ||||||||||||
| Total current assets | 40,602 | 42,558 | ||||||||||||
| Property, plant, and equipment, net | 22,815 | 23,415 | ||||||||||||
| Goodwill | 22,111 | 22,111 | ||||||||||||
| Intangible assets | 9,625 | 11,625 | ||||||||||||
| Other assets | ||||||||||||||
| Operating leases | 10,965 | — | ||||||||||||
| Investments, at cost | 1,054 | 1,054 | ||||||||||||
| Deposits and other assets | 227 | 226 | ||||||||||||
| Deferred tax asset | 926 | 679 | ||||||||||||
| Total assets | $ | 108,325 | $ | 101,668 | ||||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | 7,784 | $ | 9,324 | ||||||||||
| Current maturities of long-term debt | 2,847 | 2,847 | ||||||||||||
| Accrued compensation | 993 | 1,225 | ||||||||||||
| Other accrued liabilities | 4,312 | 1,979 | ||||||||||||
| Total current liabilities | 15,936 | 15,375 | ||||||||||||
| Long-term debt, net of current maturities | 37,794 | 33,220 | ||||||||||||
| Line of credit | 9,874 | 11,418 | ||||||||||||
| Other long-term liabilities: | ||||||||||||||
| Deferred tax liability | — | 1,324 | ||||||||||||
| Other liabilities | 10,659 | 871 | ||||||||||||
| Total liabilities | 74,263 | 62,208 | ||||||||||||
| Stockholders’ equity: | ||||||||||||||
| Common stock, $0.001 par value: 15,000,000 shares authorized and 9,779,147 and 9,779,147 issued and outstanding at June 30, 2020 and December 29, 2019, respectively | 10 | 10 | ||||||||||||
| Additional paid-in-capital | 46,066 | 46,011 | ||||||||||||
| Accumulated deficit | (12,014) | (6,561) | ||||||||||||
| Total stockholders’ equity | 34,062 | 39,460 | ||||||||||||
| Total liabilities and stockholders’ equity | $ | 108,325 | $ | 101,668 | ||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Balance Sheets (Unaudited)Statements.
2
| September 29, 2019 | December 30, 2018 | ||||||
| Assets | |||||||
| Current assets | |||||||
| Cash and cash equivalents | $ | 1,527,065 | $ | 1,409,593 | |||
| Accounts receivable – net | 27,852,600 | 30,831,182 | |||||
| Inventory – net | 14,532,549 | 16,285,507 | |||||
| Prepaid expenses and other current assets: | |||||||
| Prepaid expenses and other | 2,606,478 | 2,511,486 | |||||
| Refundable taxes | 1,405,034 | 983,073 | |||||
| Total current assets | 47,923,726 | 52,020,841 | |||||
| Property, plant, and equipment – net | 24,991,472 | 25,077,745 | |||||
| Goodwill | 22,110,782 | 28,871,179 | |||||
| Intangible assets– net | 12,598,169 | 15,568,383 | |||||
| Other assets | |||||||
| Investments – at cost | 1,054,120 | 1,054,120 | |||||
| Deposits and other assets | 225,057 | 198,854 | |||||
| Deferred tax asset | 744,920 | 496,181 | |||||
| Total assets | $ | 109,648,246 | $ | 123,287,303 | |||
| Liabilities and Stockholders’ Equity | |||||||
| Current liabilities | |||||||
| Accounts payable | $ | 12,805,366 | $ | 11,465,222 | |||
| Current maturities of long-term debt | 2,947,498 | 3,350,000 | |||||
| Income taxes payable | — | 40,634 | |||||
| Accrued compensation | 2,329,549 | 2,848,282 | |||||
| Other accrued liabilities | 1,731,984 | 1,432,109 | |||||
| Total current liabilities | 19,814,397 | 19,136,247 | |||||
| Long-term debt – net of current portion | 33,432,062 | 34,667,768 | |||||
| Line of credit-net | 14,453,598 | 17,904,869 | |||||
| Other long-term liabilities | 1,037,994 | 395,154 | |||||
| Deferred tax liability | 1,470,413 | 2,295,105 | |||||
| Total liabilities | 70,208,464 | 74,399,143 | |||||
| Stockholders’ Equity | |||||||
| Common stock, $0.001 par value – 15,000,000 shares authorized and 9,779,147 and 9,779,147 issued and outstanding at September 29, 2019 and December 30, 2018, respectively | 9,780 | 9,780 | |||||
| Additional paid-in-capital | 45,998,996 | 45,881,848 | |||||
| Retained earnings | (6,568,994 | ) | 2,996,532 | ||||
| Total stockholders’ equity | 39,439,782 | 48,888,160 | |||||
| Total liabilities and stockholders’ equity | $ | 109,648,246 | $ | 123,287,303 | |||
UNIQUE FABRICATING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited – dollars in thousands, except per share amounts)
| 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 | $ | 14,759 | $ | 38,889 | $ | 49,736 | $ | 78,356 | |||||||||||||||||||||||||||
| Cost of sales | 13,019 | 30,677 | 40,921 | 61,844 | |||||||||||||||||||||||||||||||
| Gross profit | 1,740 | 8,212 | 8,815 | 16,512 | |||||||||||||||||||||||||||||||
| Selling, general, and administrative expenses | 6,281 | 7,424 | 12,146 | 14,696 | |||||||||||||||||||||||||||||||
| Impairment | — | 6,760 | — | 6,760 | |||||||||||||||||||||||||||||||
| Restructuring expenses | 273 | 734 | 1,193 | 825 | |||||||||||||||||||||||||||||||
| Operating loss | (4,814) | (6,706) | (4,524) | (5,769) | |||||||||||||||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||||||||||||||
| Other, net | 18 | 25 | (6) | 43 | |||||||||||||||||||||||||||||||
| Interest expense | (624) | (1,332) | (2,289) | (2,432) | |||||||||||||||||||||||||||||||
| Other expense, net | (606) | (1,307) | (2,295) | (2,389) | |||||||||||||||||||||||||||||||
| (Loss) before income tax (benefit) | (5,420) | (8,013) | (6,819) | (8,158) | |||||||||||||||||||||||||||||||
| Income tax (benefit) | (1,103) | (389) | (1,366) | (346) | |||||||||||||||||||||||||||||||
| Net loss | $ | (4,317) | $ | (7,624) | (5,453) | $ | (7,812) | ||||||||||||||||||||||||||||
| Net loss per share: | |||||||||||||||||||||||||||||||||||
| Basic | $ | (0.44) | $ | (0.78) | $ | (0.56) | $ | (0.80) | |||||||||||||||||||||||||||
| Diluted | $ | (0.44) | $ | (0.78) | $ | (0.56) | $ | (0.80) | |||||||||||||||||||||||||||
| Dividends declared per share | $ | — | $ | — | $ | — | $ | 0.05 | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated StatementsStatements.
3
| 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 | ||||||||||||
| Net sales | $ | 38,549,844 | $ | 42,051,968 | $ | 116,905,831 | $ | 135,098,491 | |||||||
| Cost of sales | 31,375,421 | 33,528,457 | 93,219,296 | 104,305,811 | |||||||||||
| Gross profit | 7,174,423 | 8,523,511 | 23,686,535 | 30,792,680 | |||||||||||
| Selling, general, and administrative expenses | 6,538,005 | 7,226,204 | 21,234,250 | 22,571,692 | |||||||||||
| Impairment of goodwill | — | — | 6,760,397 | — | |||||||||||
| Restructuring expenses | 990,649 | 175,526 | 1,815,188 | 1,155,910 | |||||||||||
| Operating (loss) income | (354,231 | ) | 1,121,781 | (6,123,300 | ) | 7,065,078 | |||||||||
| Non-operating (expense) income | |||||||||||||||
| Other (expense) income, net | (13,496 | ) | 21,166 | 29,303 | (43,167 | ) | |||||||||
| Interest expense | (1,148,700 | ) | (836,887 | ) | (3,580,434 | ) | (2,433,360 | ) | |||||||
| Total non-operating expense, net | (1,162,196 | ) | (815,721 | ) | (3,551,131 | ) | (2,476,527 | ) | |||||||
| (Loss) income – before income taxes | (1,516,427 | ) | 306,060 | (9,674,431 | ) | 4,588,551 | |||||||||
| Income tax (benefit) expense | (252,270 | ) | (320,763 | ) | (597,862 | ) | 698,830 | ||||||||
| Net (loss) income | $ | (1,264,157 | ) | $ | 626,823 | $ | (9,076,569 | ) | $ | 3,889,721 | |||||
| Net (loss) income per share | |||||||||||||||
| Basic | $ | (0.13 | ) | $ | 0.06 | $ | (0.93 | ) | $ | 0.40 | |||||
| Diluted | $ | (0.13 | ) | $ | 0.06 | $ | (0.93 | ) | $ | 0.39 | |||||
| Cash dividends declared per share | $ | — | $ | 0.15 | $ | 0.05 | $ | 0.45 | |||||||
UNIQUE FABRICATING, INC.
(Unaudited – dollars in thousands)
| Number of Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Total | ||||||||||||||
| Balance - December 31, 2017 | 9,757,563 | $ | 9,758 | $ | 45,712,568 | $ | 5,159,753 | $ | 50,882,079 | |||||||||
| Net income | — | — | — | 1,511,889 | 1,511,889 | |||||||||||||
| Stock option expense | — | — | 33,260 | — | 33,260 | |||||||||||||
| Exercise of warrants and options for common stock | 9,000 | 9 | 29,991 | — | 30,000 | |||||||||||||
| Cash dividends paid | — | — | — | (1,465,000 | ) | (1,465,000 | ) | |||||||||||
| Balance - April 1, 2018 | 9,766,563 | $ | 9,767 | $ | 45,775,819 | $ | 5,206,642 | $ | 50,992,228 | |||||||||
| Net income | — | — | — | 1,751,009 | 1,751,009 | |||||||||||||
| Stock option expense | — | — | 32,680 | — | 32,680 | |||||||||||||
| Exercise of warrants and options for common stock | 5,024 | 5 | 3,995 | — | 4,000 | |||||||||||||
| Cash dividends paid | — | — | — | (1,465,223 | ) | (1,465,223 | ) | |||||||||||
| Balance - July 1, 2018 | 9,771,587 | $ | 9,772 | $ | 45,812,494 | $ | 5,492,428 | $ | 51,314,694 | |||||||||
| Net income | — | — | — | 626,823 | 626,823 | |||||||||||||
| Stock option expense | — | — | 32,681 | — | 32,681 | |||||||||||||
| Exercise of warrants and options for common stock | — | — | — | — | — | |||||||||||||
| Cash dividends paid | — | — | (1,465,681 | ) | (1,465,681 | ) | ||||||||||||
| Balance - September 30, 2018 | 9,771,587 | $ | 9,772 | $ | 45,812,494 | $ | 5,492,428 | $ | 50,508,517 | |||||||||
| Number of Shares of Common Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Total | |||||||||||||||||||||||||
| Balance - December 30, 2018 | 9,779,147 | $ | 10 | $ | 45,882 | $ | 2,997 | $ | 48,888 | ||||||||||||||||||||
| Net loss | — | — | — | (189) | (189) | ||||||||||||||||||||||||
| Stock option expense | — | — | 33 | — | 33 | ||||||||||||||||||||||||
| Cash dividends paid | — | — | — | (489) | (489) | ||||||||||||||||||||||||
| Balance - March 31, 2019 | 9,779,147 | $ | 10 | $ | 45,915 | $ | 2,319 | $ | 48,243 | ||||||||||||||||||||
| Net loss | — | — | — | (7,624) | (7,624) | ||||||||||||||||||||||||
| Stock option expense | — | — | 65 | — | 65 | ||||||||||||||||||||||||
| Balance - June 30, 2019 | 9,779,147 | $ | 10 | 45,980 | (5,305) | 40,684 | |||||||||||||||||||||||
| Number of Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Total | ||||||||||||||
| Balance - December 30, 2018 | 9,779,147 | $ | 9,780 | $ | 45,881,848 | $ | 2,996,532 | $ | 48,888,160 | |||||||||
| Net loss | — | — | — | (189,117 | ) | (189,117 | ) | |||||||||||
| Stock option expense | — | — | 32,681 | — | 32,681 | |||||||||||||
| Cash dividends paid | — | — | — | (488,957 | ) | (488,957 | ) | |||||||||||
| Balance - April 1, 2019 | 9,779,147 | $ | 9,780 | $ | 45,914,529 | $ | 2,318,458 | $ | 48,242,767 | |||||||||
| Net (loss) income | — | — | — | (7,623,295 | ) | (7,623,295 | ) | |||||||||||
| Stock option expense | — | — | 65,681 | — | 65,681 | |||||||||||||
| Balance - June 30, 2019 | 9,779,147 | $ | 9,780 | $ | 45,980,210 | $ | (5,304,837 | ) | $ | 40,685,153 | ||||||||
| Net (loss) income | — | — | — | (1,264,157 | ) | (1,264,157 | ) | |||||||||||
| Stock option expense | — | — | 18,786 | — | 18,786 | |||||||||||||
| Balance - September 29, 2019 | 9,779,147 | $ | 9,780 | $ | 45,998,996 | $ | (6,568,994 | ) | $ | 39,439,782 | ||||||||
| Number of Shares of Common Stock | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total | |||||||||||||||||||||||||
| Balance - December 29, 2019 | 9,779,147 | $ | 10 | $ | 46,011 | $ | (6,561) | $ | 39,460 | ||||||||||||||||||||
| Net loss | — | — | — | (1,137) | (1,137) | ||||||||||||||||||||||||
| Stock option expense | — | — | 23 | — | 23 | ||||||||||||||||||||||||
| Balance - March 31, 2020 | 9,779,147 | $ | 10 | $ | 46,034 | $ | (7,697) | $ | 38,347 | ||||||||||||||||||||
| Net loss | — | — | — | (4,317) | (4,317) | ||||||||||||||||||||||||
| Stock option expense | — | — | 32 | — | 32 | ||||||||||||||||||||||||
| Balance - June 30, 2020 | 9,779,147 | $ | 10 | 46,066 | (12,014) | 34,062 | |||||||||||||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
UNIQUE FABRICATING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited – dollars in thousands)
| Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | ||||||||||
| Cash Flows from Operating Activities | |||||||||||
| Net loss | $ | (5,453) | $ | (7,812) | |||||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||
| Impairment of goodwill | — | 6,760 | |||||||||
| Depreciation and amortization | 3,458 | 3,404 | |||||||||
| Amortization of debt issuance costs | 74 | 89 | |||||||||
| Loss on sale of assets | 108 | 5 | |||||||||
| Bad debt adjustment | 554 | 122 | |||||||||
| Loss on derivative instrument | 598 | 665 | |||||||||
| Stock option expense | 55 | 98 | |||||||||
| Deferred income taxes | (1,571) | (728) | |||||||||
| Accounts receivable | 8,464 | 2,576 | |||||||||
| Inventory | (2,021) | 1,064 | |||||||||
| Prepaid expenses and other assets | (1,889) | (97) | |||||||||
| Accounts payable | (1,228) | (107) | |||||||||
| Accrued and other liabilities | (983) | (956) | |||||||||
| Other, net | 1,202 | — | |||||||||
| Net cash provided by operating activities | 1,368 | 5,084 | |||||||||
| Cash Flows from Investing Activities | |||||||||||
| Capital expenditures | (796) | (1,880) | |||||||||
| Proceeds from sale of property, plant and equipment | 884 | 41 | |||||||||
| Net cash provided by (used in) investing activities | 88 | (1,839) | |||||||||
| Cash Flows from Financing Activities | |||||||||||
| Net change in bank overdraft | (311) | 557 | |||||||||
| Payments on term loans | (1,474) | (2,638) | |||||||||
| Proceeds from capital expenditure line | — | 1,300 | |||||||||
| Payments on revolving credit facilities | (12,310) | (15,189) | |||||||||
| Proceeds from revolving credit facilities | 10,727 | 12,858 | |||||||||
| Distribution of cash dividends | — | (489) | |||||||||
| Proceeds from PPP loan | 5,999 | — | |||||||||
| Net cash provided by (used in) financing activities | 2,631 | (3,600) | |||||||||
| Cash and cash equivalents: | |||||||||||
| Net increase (decrease) in cash and cash equivalents | 4,087 | (355) | |||||||||
| Cash and cash equivalents at beginning of period | 650 | 1,410 | |||||||||
| Cash and cash equivalents at end of period | $ | 4,737 | $ | 1,055 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for interest | $ | 2,219 | $ | 1,909 | |||||||
| Cash paid for Income taxes | $ | 209 | $ | 292 | |||||||
The accompanying notes are an integral part of these Condensed Consolidated StatementsStatements.
5
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 | |||
UNIQUE FABRICATING, INC.
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
The Company is exposed to significant concentration risks as follows:
| 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.
6
UNIQUE FABRICATING, INC.
| 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.
7
UNIQUE FABRICATING, INC.
| 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.
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):
| 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 | % | |||
| 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 | — | % | — | % | — | % | — | % | |||
| 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 | % | |||
| 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.
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.
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 | |||||
| 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.
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 | |||||
| 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 | |||||
| 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 | |
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.
9
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
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.
10
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 | |||
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.
11
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
12
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.
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.
13
UNIQUE FABRICATING, INC.
| 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 | |
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.
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
14
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 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.
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 | |||||||||
| 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 | $ | — | $ | — | $ | — | ||||||
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.
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 | % | |||
UNIQUE FABRICATING, INC.
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.
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.
| 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.
16
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 | $ | — | ||||||
(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.
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.
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.
17
UNIQUE FABRICATING, INC.
Income tax (benefit) expense for the 13three and 39 weekssix months ended September 29, 2019June 30, 2020 was $(252,270)$(1.1) million and $(597,862),$(1.4) million, respectively, compared to $(320,763)$(0.4) million and $698,830$(0.3) million for the 13three and 39 weekssix months ended SeptemberJune 30, 2018,2019, respectively.
During the 13 weeksthree and six months ended September 29, 2019,June 30, 2020, the effective tax rates were 20% and 20%, respectively. The differences between the actual effective tax rate of 16.6%rates and the statutory rate of 21.0% waswere primarily due to benefit of tax credits in the U.S. partially offset by earnings generated in Mexico and Canada, which both have higher statutory income tax rates than the U.S., and U.S. taxation of foreign earnings under the Global Intangible Low-Taxed Income (GILTI) provisions of the Tax Cut and Jobs Act, partially offset by tax credits in the U.S.provisions.
The Company leases office space, production facilitiesrecords a right-of-use (“ROU”) asset and equipment under operating leases with various expiration dates through the year 2024. Thelease liability for substantially all leases for office space and production facilities requirewhich it is a lessee, in accordance with ASC 842. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company to pay taxes, insurance, utilities and maintenance costs. NaN of the leases for office space and production facilities provide for escalating rents over the life of the respective leases and rentrecognizes lease expense for these leases is recognizedon a straight-line basis over the lease term. The Company has no significant lease agreements in place for which the Company is a lessor. At inception of a contract, the Company considers all relevant facts and circumstances to assess whether or not the contract represents a lease by determining whether or not the contract conveys the right to control the use of an identified asset, either explicit or implicit, for a period of time in exchange for consideration.
The Company leases certain industrial spaces, office space, land, and equipment. Some leases include one or more options to renew, with renewal terms that can extend the lease term from generally one to 5 years. The exercise of lease renewal options is at the Company’s sole discretion, and are included in the lease term only to the extent such renewal options are reasonably certain of being exercised at lease commencement. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. New leased assets obtained in exchange for new operating lease liabilities during the three and six months ended June 30, 2020, were immaterial. As of June 30, 2020, leases that the Company has signed but have not yet commenced are immaterial.
Leased assets and liabilities included within the condensed consolidated balance sheets consist of the lease on a straight line basis, with the difference between lease payments and rent expense recorded as deferred rent in otherfollowing (in thousands):
| Classification | June 30, 2020 | |||||||||||||||||||||||||||||||
| Right-of-Use-Assets | ||||||||||||||||||||||||||||||||
| Operating | Operating leases | $ | 10,965 | |||||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||
| Current | ||||||||||||||||||||||||||||||||
| Operating | Other accrued liabilities | $ | 2,815 | |||||||||||||||||||||||||||||
| Non-current | ||||||||||||||||||||||||||||||||
| Operating | Non-current liabilities | 9,076 | ||||||||||||||||||||||||||||||
| Total lease liabilities | $ | 11,891 | ||||||||||||||||||||||||||||||
Lease costs included in the condensed consolidated balance sheets. Total rent expense charged tostatements of operations was approximately $762,193consist of the following (in thousands):
| Classification | June 30, 2020 | ||||||||||||||||||||||||||||||||||
| Lease cost | Cost of sales, selling expenses and general and administrative expense | $ | 1,605 | ||||||||||||||||||||||||||||||||
18
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Maturity of the Company’s lease liabilities as of June 30, 2020 is as follows (in thousands):
| 2020 (remainder) | $ | 1,516 | ||||||
| 2021 | 2,838 | |||||||
| 2022 | 1,979 | |||||||
| 2023 | 1,203 | |||||||
| 2024 | 1,116 | |||||||
| Thereafter | 6,458 | |||||||
| Total lease payments | 15,110 | |||||||
| Less: interest | 3,220 | |||||||
| Present value of lease payments | $ | 11,891 | ||||||
As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Remaining lease term and $1,748,611 fordiscount rates are as follows:
| June 30, 2020 | ||||||||||||||||||||||||||||||||||||||
| Weighted average remaining lease term (years) | 7.4 | |||||||||||||||||||||||||||||||||||||
| Weighted average discount rate | 6.4 | % | ||||||||||||||||||||||||||||||||||||
Lease costs included in the 13 and 39 weeks ended September 29, 2019 and $621,986 and $1,956,437 for the 13 and 39 weeks ended September 30, 2018.
| Six Months Ended June 30, 2020 | ||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||||||||
| Operating cash outflows from operating leases | $ | 1,602 | ||||||||||||
| 2019 | $ | 582,870 | |
| 2020 | 2,334,821 | ||
| 2021 | 2,212,300 | ||
| 2022 | 1,726,243 | ||
| 2023 | 1,175,351 | ||
| Thereafter | 7,587,350 | ||
| Total | $ | 15,618,935 | |
The Company maintains a defined contribution plan covering certain full time salaried employees. Employees can make elective contributions to the plan. The Company contributes a match on 100 percent of an employee’s contribution up to the first 3 percent of each employee’s total compensation and 50 percent for the next 2 percent of each employee’s total compensation. In addition, the Company, at the discretion of the board of directors, may make additional contributions to the plan on behalf of the plan participants. The Company contributed $118,315$0.1 million and $370,723, respectively,$0.2 million for the 13three and 39 weekssix months ended September 29, 2019June 30, 2020 and $125,870$0.1 million and $385,752, respectively,$0.3 million for the 13three and 39 weekssix months ended SeptemberJune 30, 2018.2019, respectively.
Effective March 18, 2013, the Company is undera party to a management agreement with a firm related to several stockholders. The agreement initially provided for annual management fees of $300,000$0.3 million and additional fees for assistance provided with acquisitions. Effective upon completion of the Company's initial public offering, the agreement was amended to reduce the annual management fee by an amount equal to the amount, if any, of annual cash retainers and equity awards received as compensation for service on the board of directors to any person who is a related person of Taglich Private Equity, LLC or Taglich Brothers, Inc. The Company incurred management fees of $56,250$0.1 million and $168,750, respectively,$0.1 million for the 13three and 39 weekssix months ended September 29,June 30, 2020, respectively and $0.1 million for and $0.1 million the three and six months ended June 30, 2019, and $56,250 and $168,750, respectively, for the 13 and 39 weeks ended September 30, 2018.respectively. The management agreement had an initial term of five years, expiring on March 18, 2018,2020, and renews automatically annually for additional one year terms. The current term expires on March 18, 2020.2021. The agreement also will terminate on the date that the Taglich Founding Investors or Taglich Equity Investors, each as defined, no longer also collectively own 50% of the equity securities owned by either of them on March 18, 2013.
In 2019, following the May 6, 2019 resignation of the Company’s Chief Executive Officer, the Company entered into a services agreement with 6th Avenue Group, which is a company owned by a Board member of the Company. The services performed have been related to providing assistance for long term strategic planning for the Company as well as aiding in helping the Company with CEO transition services. As previously mentioned in Note 8, the Company's CEO resigned on May 6, 2019. The Company incurred fees to the 6th Avenue Group of $62,500 and $138,319, respectively, for the 13 and 39 weeks ended September 29, 2019. The services provided by 6th Avenue Group are expected to endended in 2019. This On June 11, 2019, this
19
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Board member as discussed in Note 9, was also awarded stock options for 30,000 shares, which vested immediately and had an exercise price of $2.93 per share, for her services on June 11, 2019.services.
Financial instruments consist of cash equivalents, accounts receivable, accounts payable and debt. The carrying amount of all significant financial instruments approximates fair value due to either the short maturity or the existence of variable interest rates that approximate prevailing market rates.
Accounting standards require certain other items be reported at fair value in the financial statements and provides a framework for establishing that fair value. The framework for determining fair value is based on a hierarchy that prioritizes the valuation techniques and inputs used to measure fair value.
Fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. Level 2 inputs may include quoted prices for similar items in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related item. Level 3 fair value measurements are based primarily on management’s own estimates using inputs such as pricing models, discounted cash flow methodologies or similar techniques taking into account the characteristics of the item.
In instances whereby inputs used to measure fair value fall into different levels of the fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each item.
The Company measures its interest rate swaps at fair value on a recurring basis based primarily on Level 2 inputs using an income model based on disparity between variance and fixed interest rates, the scheduled balance of principal outstanding, yield curves and other information readily available in the market.
Basic earnings per share is computed by dividing the net income by the weighted-average number of shares outstanding during the period. Diluted earnings per share is computed giving effect to all potentially weighted average dilutive shares including stock options and warrants. The dilutive effect of outstanding awards, if any, is reflected in diluted earnings per share by application of the treasury stock method.
20
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table sets forth the reconciliation of the numerator and the denominator of basic and diluted loss per share for the three and six months ended June 30, 2020 and 2019 (dollars in thousands, except per share amounts):
| Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | |||||||||||||||||||||||
| Numerator: | ||||||||||||||||||||||||||
| Net (loss) | $ | (4,317) | $ | (7,624) | $ | (5,453) | $ | (7,812) | ||||||||||||||||||
| Denominator: | ||||||||||||||||||||||||||
| Weighted average shares outstanding, basic | 9,779,147 | 9,779,147 | 9,779,147 | 9,779,147 | ||||||||||||||||||||||
| Dilutive effect of stock-based awards | — | — | — | — | ||||||||||||||||||||||
| Weighted average share outstanding, diluted | 9,779,147 | 9,779,147 | 9,779,147 | 9,779,147 | ||||||||||||||||||||||
| Basic loss per share | $ | (0.44) | $ | (0.78) | $ | (0.56) | $ | (0.80) | ||||||||||||||||||
| Diluted loss per share | $ | (0.44) | $ | (0.78) | $ | (0.56) | $ | (0.80) | ||||||||||||||||||
The effect of certain common stock equivalents were excluded from the computation of weighted average diluted shares outstanding for the three and six months ended June 30, 2020 and 2019, as inclusion would have resulted in anti-dilution. A summary of these anti-dilutive common stock equivalents is provided in the table below:
| Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | |||||||||||||||||||||||||
| Number of options | 661,480 | 593,680 | ||||||||||||||||||||||||
| Exercise price of options | $2.36 - $12.58 | $7.65 - $12.58 | ||||||||||||||||||||||||
Warrants(1) | 142,185 | 142,185 | ||||||||||||||||||||||||
| Exercise price of warrants | $3.33 - $11.88 | $3.33 - $11.88 | ||||||||||||||||||||||||
(1) Includes warrants to purchase 141,000 shares of common stock issued to the underwriters of the Company's IPO in July 2015 with an exercise price of $11.88 per share of common stock and an expiration date of July 7, 2020.
16. Contingencies
The Company is engaged from time to time in legal matters and proceedings arising out of its normal course of business. The Company establishes a liability related to its legal proceedings and claims when it has determined that it is probable that the Company has incurred a liability and the related amount can be reasonably estimated. If the Company determines that an obligation is reasonably possible, the Company will, if material, disclose the nature of the loss contingency and the estimated range of possible loss, or include a statement that no estimate of loss can be made. While uncertainties are inherent in the final outcome of such matters, the Company believes that there are no pending proceedings in which the Company is currently involved that will have a material effect on its financial position, results of operations or cash flow.
| 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 | ||||||||||||
| Basic earnings per share calculation: | |||||||||||||||
| Net (loss) income | $ | (1,264,157 | ) | $ | 626,823 | $ | (9,076,569 | ) | $ | 3,889,721 | |||||
| Net (loss) income attributable to common stockholders | $ | (1,264,157 | ) | $ | 626,823 | $ | (9,076,569 | ) | $ | 3,889,721 | |||||
| Weighted average shares outstanding | 9,779,147 | 9,771,587 | 9,779,147 | 9,768,649 | |||||||||||
| Net (loss) income per share-basic | $ | (0.13 | ) | $ | 0.06 | $ | (0.93 | ) | $ | 0.40 | |||||
| Diluted earnings per share calculation: | |||||||||||||||
| Net (loss) income | $ | (1,264,157 | ) | $ | 626,823 | $ | (9,076,569 | ) | $ | 3,889,721 | |||||
| Weighted average shares outstanding | 9,779,147 | 9,771,587 | 9,779,147 | 9,768,649 | |||||||||||
| Effect of dilutive securities: | |||||||||||||||
Stock options(1)(2) | — | 146,322 | — | 146,642 | |||||||||||
Warrants(2) | — | 716 | — | 709 | |||||||||||
| Diluted weighted average shares outstanding | 9,779,147 | 9,918,625 | 9,779,147 | 9,916,000 | |||||||||||
| Net (loss) income per share-diluted | $ | (0.13 | ) | $ | 0.06 | $ | (0.93 | ) | $ | 0.39 | |||||
21
This Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operation is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes to unaudited condensed consolidated financial statements included elsewhere in this document as well as the consolidated financial statements and the related notes to consolidated financial statements for the year ended December 30, 201829, 2019 included in our Annual Report on Form 10-K10-K/A filed with the Securities and Exchange Commission (the "SEC"“SEC”). Our actual results and the timing of events could differ materially from those discussed in forward-looking statements contained herein. Factors that could cause or contribute to these differences include those discussed below as well as in our Annual Report on Form 10-K,10-K/A and in other filings by us with the SEC, particularly in “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” We make no guarantees regarding outcomes, and assume no obligation to update the forward-looking statements herein, except as may be required by law.
Forward-Looking Statements
The following discussion contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. These statements are based on management's beliefs and assumptions and on information currently available to us. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. When used in this document the words “anticipate,” “believe,” “continue,” “could,” “seek,” “might,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “approximately,” “project,” “should,” “will,” “would,” or the negative or plural of these words or similar expressions, as they relate to our company, business and management, are intended to identify forward-looking statements. In light of these risks and uncertainties, the future events and circumstances discussed may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements, including those discussed in our Annual Report on Form 10-K10-K/A and in particular the section entitled “Risk Factors” of the Annual Report on Form 10-K.
Forward-looking statements speak only as of the date of this Form 10-Q filing. Except as required by law, we assume no obligation to publicly update or revise any forward-looking statement to reflect actual results, changes in assumptions based on new information, future events or otherwise. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
Basis of Presentation
The Company’s operations are aggregated in one reportable business segment. Although we expanded the products that we manufacture and sell to include components used in the appliance, HVACconsumer and water heatermedical industries, products for these industries are manufactured at facilities that also manufacture or are capable of manufacturing products for the automotivetransportation industries. All of our manufacturing locations have similar capabilities, and most plants serve multiple markets. The manufacturing operations for our automotive,transportation, appliance, HVAC and water heaterother products share management and labor forces and use common personnel and strategies for new product development, marketing and the sourcing of raw materials.
Overview
Unique Fabricating, is engagedInc. (the “Company”) engineers and manufactures components for customers in the engineeringtransportation, appliance, medical, and manufactureconsumer 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 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 combines a long historyis headquartered in Auburn Hills, Michigan.
22
Unique Fabricating’s markets served areFabricating serves the North AmericaAmerican transportation market, which includes automotive and heavy duty truck,heavy-duty trucks, as well as the appliance, water heatermedical, and HVACconsumer markets. Sales are conducted directly withto major automotive and heavy dutyheavy-duty truck, appliance, water heater and HVAC manufacturers, referred throughout this report as OEMs, or indirectly through the Tier 1 suppliers of these OEMs. The Company has its principal executive offices in Auburn Hills, Michigan and has sales, engineering and production facilities in Auburn Hills, Michigan,Michigan; Concord, Michigan,Michigan; LaFayette, Georgia,Georgia; Louisville, Kentucky, Evansville, Indiana, Bryan, Ohio,Kentucky; Monterrey, Mexico,Mexico; Queretaro, MexicoMexico; and London, Ontario. The Company also has an independent client sales representative who maintains offices in Baldham, Germany.
Unique Fabricating derives the majoritymost of its net sales from the sales of foam, rubber plastic, and tape adhesive related automotive products. These products are produced fromby a variety of manufacturing processes including die cutting, compression molding, thermoforming, reaction injection molding and fusion molding. We believe the CompanyUnique Fabricating has a broader array of processes and materials utilized than any of its direct competitors, based on our product offerings. By sealing out air, noise and water intrusion, and by providing sound absorption and blocking, Unique Fabricating’s products improve the interior comfort of a vehicle, increasing perceived vehicle quality and the overall experience of its passengers. Unique’sUnique Fabricating’s products perform similar functions for appliances, water heaters and HVAC systems, improving thermal characteristics, reducing noise and prolonging equipment life. We primarily operate within the highly competitive and cyclical automotive parts industry. Through 2016, the industry experienced consistent growth as it recovered from the recession of 2009. However, the industry has been declining somewhat in the years since then.
Recent Developments
COVID-19 Pandemic
Bryan Facility Closure
On November 7, 2019, the Company made the decision to close its manufacturing facility in Bryan, Ohio. The Company currently expects to cease operations atclosure of the Bryan facility bywas completed during the endfirst quarter of January 2020, and estimates that approximately 43 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.
2020. The Company will move existing Bryanmoved production to its existing 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 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 incurincurred one-time severance costs as a result of this plant closure of approximately $0.5$0.3 million during the firstfourth quarter of 2020.2019. 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 Bryan to other facilities, will bewas approximately $0.8$0.6 million during the first quarterhalf of 2020.
Evansville Facility Closure
On July 16, 2019, the Company made the decision to close its manufacturing facility in Evansville, Indiana. The Company currently expects to ceaseceased operations at the Evansville facility by the end ofin December 2019, and estimates thatwhich resulted in the elimination of 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 movemoved existing Evansville production to its manufacturing facilities in LaFayette, GA,Georgia; Auburn Hills, MI,Michigan; and Louisville, KY. The Company will provide the affected employees severance pay, health benefits continuation, and job search assistance.Kentucky. 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 beingthat was moved to other facilities within the Company.
23
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, among other things increases the principal amount of US Term Loan borrowings to $26.0 million, creates 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 extends 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 the same as at September 30, 2018, approximately $12.0 million, and the same as it was under the previous Credit Agreement. The Amended and Restated Credit Agreement combined the previous US Term Loan and US Term Loan II (the “New US Term Loan”) into one term loan, and increases the aggregate principal amount to $26.0 million from $15.9 million. 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$0.3 million through September 30, 2020, $575,000$0.6 million thereafter through September 30, 2021, and $812,500$0.8 million thereafter though maturity. Finally, the agreement made certain changes to the Company's covenants and financial covenant ratios.
Covenant Compliance
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 are necessary taking into account the Borrowers currentthen existing and future financial condition.
On June 14, 2019, the Company entered into the 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 are necessary taking into account the Borrowers current and future financial condition.
On June 28, 2019, the Company entered into the 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 are 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 US 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 permitspermited distributions as long as the Borrower is in compliance with specified conditions including that the US Borrower's liquidity, as defined, is not less than $5 million after giving effect to the distributions,, 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 US Borrower is in compliance with financial 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"“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.
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 is 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
24
Agreement and Loan Documents. The CompanySeventh 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 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.
Comparison of Results of Operations for the Thirteen WeeksThree Months Ended September 29,June 30, 2020 and June 30, 2019 and the Thirteen Weeks Ended September 30, 2018
Net Sales
| Thirteen Weeks Ended September 29, 2019 | Thirteen Weeks Ended September 30, 2018 | ||||||
| (in thousands) | |||||||
| Net sales | $ | 38,550 | $ | 42,052 | |||
| Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | ||||||||||||||||
| (in thousands) | |||||||||||||||||
| Net sales | $ | 14,759 | $ | 38,889 | |||||||||||||
Net sales for the 13 weeksquarter ended September 29, 2019June 30, 2020 were approximately $38.55$14.8 million compared to $42.05$38.9 million for the 13 weeksquarter ended SeptemberJune 30, 2018.2019, representing a decrease of 62%. The decrease in net sales for the 13 weeksquarter ended September 29, 2019,June 30, 2020 was primarily driven by the endimpact of lifethe COVID-19 pandemic on the global automotive industry, which continued to idle our automotive customers’ facilities. This curtailment of certain vehicle platforms, business loss associated withautomotive shipments was partially offset by new personal protective equipment product sales for the on-going plant closure at Evansville, Indianahealthcare and the prior year plant closures of Ft. Smith, Arkansas, and Port Huron, Michigan, and the United Auto Workers (UAW) strike at a certain OEM.manufacturing sectors.
Cost of Sales
| Thirteen Weeks Ended September 29, 2019 | Thirteen Weeks Ended September 30, 2018 | ||||||
| (in thousands) | |||||||
| Materials | $ | 21,101 | $ | 21,439 | |||
| Direct labor and benefits | 5,595 | 6,910 | |||||
| Manufacturing overhead | 4,002 | 4,605 | |||||
| Sub-total | 30,698 | 32,954 | |||||
| Depreciation | 678 | 574 | |||||
| Cost of Sales | 31,376 | 33,528 | |||||
| Gross Profit | $ | 7,174 | $ | 8,524 | |||
The major components of cost of sales are raw materials purchased from third parties, direct labor and benefits, and manufacturing overhead, including facility costs, utilities, supplies, repairs and maintenance, insurance, freight costs of products shipped to customers and depreciation.
Cost of Sales as a percentsales consists of Net Salesthe following major components:
| Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | ||||||||||||||||||||||||||||||||||||||||
| Amount | As % of net sales | Amount | As % of net sales | ||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||
| Materials | $ | 6,926 | 46.9 | % | $ | 19,758 | 50.8 | % | |||||||||||||||||||||||||||||||||
| Direct labor and benefits | 2,433 | 16.5 | % | 6,150 | 15.8 | % | |||||||||||||||||||||||||||||||||||
| Manufacturing overhead | 3,029 | 20.5 | % | 4,112 | 10.6 | % | |||||||||||||||||||||||||||||||||||
| Sub-total | 12,388 | 83.9 | % | 30,020 | 77.2 | % | |||||||||||||||||||||||||||||||||||
| Depreciation | 631 | 4.3 | % | 657 | 1.7 | % | |||||||||||||||||||||||||||||||||||
| Cost of Sales | $ | 13,019 | 88.2 | % | $ | 30,677 | 78.9 | % | |||||||||||||||||||||||||||||||||
| Gross Profit | $ | 1,740 | 11.8 | % | $ | 8,212 | 21.1 | % | |||||||||||||||||||||||||||||||||
25
| Thirteen Weeks Ended September 29, 2019 | Thirteen Weeks Ended September 30, 2018 | ||||
| Materials | 54.7 | % | 51.0 | % | |
| Direct labor and benefits | 14.5 | % | 16.4 | % | |
| Manufacturing overhead | 10.4 | % | 10.9 | % | |
| Sub-total | 79.6 | % | 78.3 | % | |
| Depreciation | 1.8 | % | 1.4 | % | |
| Cost of Sales | 81.4 | % | 79.7 | % | |
| Gross Profit | 18.6 | % | 20.3 | % | |
Cost of sales as a percentage of net sales for the 13 weeksquarter ended September 29, 2019June 30, 2020 increased significantly as compared to 81.4% from 79.7% for the 13 weeksquarter ended SeptemberJune 30, 2018.2019. The increase in cost of sales as a percentage of net sales was primarily attributable to an increase to the inventory allowance of $1.74 million, 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. Materialcaused by fixed manufacturing costs increased to 54.7% ofwhich could not be reduced and were not offset by net sales for the 13 weeks ended September 29, 2019 from 51.0% for the 13 weeks ended September 30, 2018 as a result of an increase to the inventory allowance noted above. Direct labor and benefit costs as a percentage of net sales was 14.5% for the 13 weeks ended September 29, 2019 compared to 16.4% for the 13 weeks ended September 30, 2018 primarily due lower health insurance claims incurred under our self-insured health and welfare benefit plans. Manufacturing overhead costs as a percentage of net sales was 10.4% for the 13 weeks ended September 29, 2019 versus 10.9% for the 13 weeks ended September 30, 2018. Depreciation costs increased to 1.8% of net sales for the 13 weeks ended September 29, 2019 compared to 1.4% for the 13 weeks ended September 30, 2018, largely due to the decline in revenues from the third quarter of 2018, as well as the investment in new equipment we made during 2018 to increase our capacity at our manufacturing facilities.
Gross Profit
Selling, General and Administrative Expenses
| Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | ||||||||||||||||
| (dollars in thousands) | |||||||||||||||||
| Selling, general, and administrative expenses, excluding depreciation and amortization expenses | $ | 5,168 | $ | 6,379 | |||||||||||||
| Depreciation and amortization | 1,113 | 1,045 | |||||||||||||||
| Selling, general, and administrative expenses | $ | 6,281 | $ | 7,424 | |||||||||||||
| Selling, general, and administrative expenses as a percentage of net sales | 42.6 | % | 19.1 | % | |||||||||||||
| Thirteen Weeks Ended September 29, 2019 | Thirteen Weeks Ended September 30, 2018 | ||||||
(in thousands, except SG&A as a % of net sales) | |||||||
| SG&A, exclusive of depreciation and amortization | $ | 5,480 | $ | 6,139 | |||
| Depreciation and amortization | 1,058 | 1,087 | |||||
| SG&A | $ | 6,538 | $ | 7,226 | |||
| SG&A as a % of net sales | 16.9 | % | 17.2 | % | |||
Operating Income
Operating loss for the 13 weeksquarter ended September 29, 2019June 30, 2020 was $(0.35)$4.8 million, or (32.6)% of net sales, compared to operating incomeloss of $1.12$6.7 million, or (17.2)% of net sales, for the 13 weeksquarter ended SeptemberJune 30, 2018.
Non-Operating Expense
Non-operating expense for the 13 weeksquarter ended September 29, 2019June 30, 2020 was $1.16$0.6 million compared to $0.82$1.3 million for the 13 weeksquarter ended SeptemberJune 30, 2018.2019. The change in non-operating expense$0.7 million decrease was primarily driven by an increase inreduced debt levels, $0.3 million lower expenses related to our interest expense duerate swap compared to higherthe second quarter of 2019, and the composition of our debt compared to last year, as the PPP loan has a lower interest rates inrate compared to the 13 weeks ended September 29, 2019.Revolver.
As a result of the foregoing factors, (loss)our loss before income taxes for the 13 weeks ended September 29, 2019 was $(1.52)decreased $2.6 million compared to income before income taxes of $0.31$5.4 million for the 13 weeksquarter ended SeptemberJune 30, 2018.
Income Tax Provision
During the 13 weeksthree months ended September 29, 2019,June 30, 2020, income tax benefit was $(0.23)$1.1 million, and the effective income tax rate was 16.6%20%. The differences between the effective tax rate and the statutory rate of 21.0% are21% was primarily due to benefit of tax credits in the U.S. partially offset by earnings generated in Mexico and Canada, which both have higher statutory income tax rates than the U.S., and U.S. taxation of foreign earnings under the Global Intangible Low-Taxed Income (GILTI) provisionsprovisions.
Net Income
Net loss for the quarter ended June 30, 2020 was $4.3 million compared to a net loss of $7.6 million the Tax Cut and Jobs Act, partially offset by tax credits. These adjustments are explained furtherquarter ended June 30, 2019. The decrease in Note 10.
26
Comparison of Results of Operations for the Six Months Ended June 30, 2020 and June 30, 2019
Net (loss) incomeSales
| Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | ||||||||||||||||
| (in thousands) | |||||||||||||||||
| Net sales | $ | 49,736 | $ | 78,356 | |||||||||||||
| Thirty-Nine Weeks Ended September 29, 2019 | Thirty-Nine Weeks Ended September 30, 2018 | ||||||
| (in thousands) | |||||||
| Net sales | $ | 116,906 | $ | 135,098 | |||
Net sales for the 39 weekssix months ended September 29, 2019June 30, 2020 were approximately $116.9$49.7 million compared to $135.1$78.4 million for the 39 weekssix months ended SeptemberJune 30, 20182019, representing a decrease of (36.5)%. The decrease in net sales for the 39 weekssix months ended September 29, 2019, drivenJune 30, 2020, was primarily caused by the COVID-19 pandemic, which idled our automotive customers’ facilities beginning at the end of lifethe first quarter and continuing for the majority of certain vehicle platforms, business loss associated with the on-going plant closure at Evansville, Indianasecond quarter. This decrease was partially offset by new personal protective equipment products for the healthcare and the prior year plant closures of Ft. Smith, Arkansas, and Port Huron, Michigan, and the UAW strike at a certain OEM coupled with an overall decline in North American vehicle production of 1.3% as compared to the 39 weeks ended September 30, 2018.manufacturing sectors.
Cost of Sales
| Thirty-Nine Weeks Ended September 29, 2019 | Thirty-Nine Weeks Ended September 30, 2018 | ||||||
| (in thousands) | |||||||
| Materials | $ | 60,940 | $ | 68,122 | |||
| Direct labor and benefits | 17,868 | 21,068 | |||||
| Manufacturing overhead | 12,435 | 13,475 | |||||
| Sub-total | 91,243 | 102,665 | |||||
| Depreciation | 1,976 | 1,641 | |||||
| Cost of Sales | 93,219 | 104,306 | |||||
| Gross Profit | $ | 23,687 | $ | 30,793 | |||
The major components of cost of sales are raw materials purchased from third parties, direct labor and benefits, and manufacturing overhead, including facility costs, utilities, supplies, repairs and maintenance, insurance, freight costs of products shipped to customers and depreciation.
Cost of Sales as a percentsales consists of Net Salesthe following major components:
| Thirty-Nine Weeks Ended September 29, 2019 | Thirty-Nine Weeks Ended September 30, 2018 | ||||
| Materials | 52.1 | % | 50.4 | % | |
| Direct labor and benefits | 15.3 | % | 15.6 | % | |
| Manufacturing overhead | 10.6 | % | 10.0 | % | |
| Sub-total | 78.0 | % | 76.0 | % | |
| Depreciation | 1.7 | % | 1.2 | % | |
| Cost of Sales | 79.7 | % | 77.2 | % | |
| Gross Profit | 20.3 | % | 22.8 | % | |
| Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | ||||||||||||||||||||||||||||||||||||||||
| Amount | As % of net sales | Amount | As % of net sales | ||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||
| Materials | $ | 24,688 | 49.6 | % | $ | 39,840 | 50.8 | % | |||||||||||||||||||||||||||||||||
| Direct labor and benefits | 8,197 | 16.5 | % | 12,273 | 15.7 | % | |||||||||||||||||||||||||||||||||||
| Manufacturing overhead | 6,780 | 13.6 | % | 8,432 | 10.8 | % | |||||||||||||||||||||||||||||||||||
| Sub-total | 39,665 | 79.8 | % | 60,545 | 77.3 | % | |||||||||||||||||||||||||||||||||||
| Depreciation | 1,256 | 2.5 | % | 1,299 | 1.7 | % | |||||||||||||||||||||||||||||||||||
| Cost of Sales | $ | 40,921 | 82.3 | % | $ | 61,844 | 78.9 | % | |||||||||||||||||||||||||||||||||
| Gross Profit | $ | 8,815 | 17.7 | % | $ | 16,512 | 21.1 | % | |||||||||||||||||||||||||||||||||
Cost of sales as a percentage of net sales for the 39 weekssix months ended September 29, 2019June 30, 2020 increased to 79.7%82.3% from 77.2%78.9% for the 39 weekssix months ended SeptemberJune 30, 2018.2019. The increase in cost of sales as a percentage of net sales was primarily attributablecaused by fixed manufacturing costs which could not be reduced and were not offset by net sales.
Gross Profit
Gross profit for the six months ended June 30, 2020 decreased $7.7 million to an increase$8.8 million compared to $16.5 million for the inventory allowancesix months ended June 30, 2019. The decrease in gross profit is the result of $1.74 million,lower sales volumes due to the COVID-19 pandemic and the subsequent 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. Material costs increased to 52.1% of net sales for the 39 weeks ended September 29, 2019 from 50.4% for the 39 weeks ended September 30, 2018 as a result of an increase to the inventory allowance noted above. Direct labor and benefit costs as a percentage of net sales was 15.3% for the 39 weeks ended September 29, 2019 compared to 15.6% for the 39 weeks ended September 30, 2018. Manufacturing overhead costs as a percentage of net sales was 10.6% for the 39 weeks ended September 29, 2019 versus 10.0% for the 39 weeks ended September 30, 2018. The increase in manufacturing overhead costs as a percentage of net sales
Selling, General and Administrative Expenses
| Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | ||||||||||||||||
| (dollars in thousands) | |||||||||||||||||
| Selling, general, and administrative expenses, excluding depreciation and amortization expenses | $ | 9,944 | $ | 12,590 | |||||||||||||
| Depreciation and amortization | 2,202 | 2,106 | |||||||||||||||
| Selling, general, and administrative expenses | $ | 12,146 | $ | 14,696 | |||||||||||||
| Selling, general, and administrative expenses as a percentage of net sales | 24.4 | % | 18.8 | % | |||||||||||||
| Thirty-Nine Weeks Ended September 29, 2019 | Thirty-Nine Weeks Ended September 30, 2018 | ||||||
(in thousands, except SG&A as a % of net sales) | |||||||
| SG&A, exclusive of depreciation and amortization | $ | 18,070 | $ | 19,266 | |||
| Depreciation and amortization | 3,164 | 3,306 | |||||
| SG&A | $ | 21,234 | $ | 22,572 | |||
| SG&A as a % of net sales | 18.2 | % | 16.9 | % | |||
27
by a $6.8 million impairment charge to goodwill in 2019 despite athat did not recur in 2020, offset by the decline in the amount expensed, increased to 18.2% from 16.9% for the 39 weeks ended September 30, 2018. The increase is primarily related to the decline of overall net sales indriven by the 39 weeks ended September 29, 2019 compared to the 39 weeks ended September 30, 2018.
Non-Operating Expense
Non-operating expense for the 39 weekssix months ended September 29, 2019June 30, 2020 was $3.56$2.3 million compared to $2.48$2.4 million for the 39 weekssix months ended SeptemberJune 30, 2018. The change in non-operating expense was primarily driven by an increase in interest expense due to an unfavorable mark-to-market of $0.75 million on the interest rate swaps entered into during the fourth quarter of 2018, as required under the Amended and Restated Credit Agreement.2019.
As a result of the foregoing factors, theour loss before income taxes for the 39 weeks ended September 29, 2019 was $(9.67)decreased $1.3 million compared to income before income taxes of $4.59$6.8 million for the 39 weekssix months ended SeptemberJune 30, 2018.
Income Tax Provision
During the 39 weekssix months ended September 29, 2019 ,June 30, 2020, income tax benefit was $0.60$1.4 million, and the effective income tax rate was 6.8%20%. The differences between the effective tax rate and the statutory rate of 21.0% are21% was primarily due to to permanent differences between book and tax accounting on the impairmentbenefit of goodwill as well as earnings generated in Mexico and Canada, which both have higher statutory income tax rates than the U.S., and U.S, taxation of foreign earnings under the GILTI provisions of the Act, partially offset by tax credits in the U.S. These adjustments are explained further in Note 10.
Net (loss) incomeIncome
Non-GAAP Financial Measures
Adjusted EBITDA
We present Adjusted EBITDA (defined below), a measure that is not in accordance with generally accepted accounting principles in the United States of America (non-GAAP), in this document to provide investors with a supplemental measure of our operating performance. We believe that Adjusted EBITDA is a useful performance measure and it is used by us to facilitate a comparison of our operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business and measures under GAAP can provide alone. Our board and management also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis actual results against such expectations, and as a performance evaluation metric in determining achievement of certain compensation programs and plans for Company management. In addition, the financial covenants in our new credit facilityAmended and Restated Credit Agreement are based on Adjusted EBITDA subject to dollar limitations on certain adjustments.
We define “Adjusted EBITDA” as earnings before interest expense, income taxes, depreciation and amortization expense, non-cash stock awards, non-recurring integration expense, goodwill impairment, restructuring expenses, and one-time consulting and licensing ERP system implementation costs as we implement a new ERP system at all locations. We believe omitting these items provides a financial measure that facilitates comparisons of our results of operations with those of companies having different capital structures. Since the levels of indebtedness and tax structures that other companies have are different from ours, we omit these amounts to facilitate investors’ ability to make these comparisons. Similarly, we omit depreciation and amortization because other companies may employ a greater or lesser amount of property and intangible assets. We believe that investors, analysts and other interested parties view our ability to generate Adjusted EBITDA as an important measure of our operating performance and that of other companies in our industry. Adjusted EBITDA should not be considered as an alternative to net income (loss) for the periods indicated as a measure of our performance. Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
The use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this performance measure in isolation from, or as an alternative to, GAAP measures such as net income.income (loss). Adjusted EBITDA is not a measure of liquidity under GAAP or otherwise, and is not an alternative to cash flow from continuing operating activities. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from that term or by unusual or non-recurring items. The limitations of Adjusted EBITDA include that: (1) it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; (2) it does not reflect changes in, or cash requirements for, our working capital needs; (3) it does not reflect income tax payments we may be required to make; and (4) it does not reflect the cash requirements necessary to service interest or principal payments associated with indebtedness.
To properly and prudently evaluate our business, we encourage you to review our unaudited condensed consolidated financial statements included elsewhere in this document, our audited consolidated financial statements included in our Annual Report on
28
Form 10-K,10-K/A, and the reconciliation to Adjusted EBITDA from net income, the most directly comparable financial measure presented in accordance with GAAP, set forth in the following table. All of the items included in the reconciliation from net income (loss) to Adjusted EBITDA are either (1) non-cash items or (2) items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess our comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance. In the case of the other items that management does not consider in assessing our on-going operating performance, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact may not reflect on-going operating performance.
| 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 | ||||||||||||
| (in thousands) | |||||||||||||||
| Net income | $ | (1,264 | ) | $ | 627 | $ | (9,077 | ) | $ | 3,890 | |||||
| Plus: Interest expense, net | 1,149 | 837 | 3,580 | 2,433 | |||||||||||
| Plus: Income tax (benefit) expense | (252 | ) | (321 | ) | (598 | ) | 699 | ||||||||
| Plus: Depreciation and amortization | 1,735 | 1,662 | 5,140 | 4,947 | |||||||||||
| Plus: Non-cash stock award | 18 | 33 | 117 | 99 | |||||||||||
| Plus: Non-recurring expenses | 14 | 128 | 83 | 128 | |||||||||||
| Plus: Goodwill impairment | — | — | 6,760 | — | |||||||||||
| Plus: Restructuring expenses | 991 | 175 | 1,815 | 1,156 | |||||||||||
| Plus: Transaction fees | — | 27 | — | 27 | |||||||||||
| Plus: One-time consulting and licensing ERP system implementation costs | 255 | 202 | 650 | 522 | |||||||||||
| Adjusted EBITDA | $ | 2,646 | $ | 3,370 | $ | 8,470 | $ | 13,901 | |||||||
| Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | ||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||
| Net loss | $ | (4,317) | $ | (7,624) | $ | (5,453) | $ | (7,812) | |||||||||||||||||||||||||||||||||
| Plus: Interest expense, net | 624 | 1,332 | 2,289 | 2,432 | |||||||||||||||||||||||||||||||||||||
| Plus: Income tax (benefit) expense | (1,103) | (389) | (1,366) | (346) | |||||||||||||||||||||||||||||||||||||
| Plus: Depreciation and amortization | 1,765 | 1,702 | 3,458 | 3,404 | |||||||||||||||||||||||||||||||||||||
| Plus: Non-cash stock award | 32 | 66 | 55 | 98 | |||||||||||||||||||||||||||||||||||||
| Plus: Non-recurring expenses | — | 68 | — | 68 | |||||||||||||||||||||||||||||||||||||
| Plus: Goodwill impairment | — | 6,760 | — | 6,760 | |||||||||||||||||||||||||||||||||||||
| Plus: Restructuring expenses | 273 | 734 | 1,193 | 825 | |||||||||||||||||||||||||||||||||||||
| Plus: One-time consulting and licensing ERP system implementation costs | 184 | 221 | 459 | 395 | |||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | (2,542) | $ | 2,870 | $ | 635 | $ | 5,824 | |||||||||||||||||||||||||||||||||
Liquidity and Capital Resources
Our principal sources of liquidity are cash flowflows from operations and borrowings under our Credit Agreement from our senior lenders.
Our primary uses of cash are payment of vendors, payroll, operating costs, capital expenditures and debt service. As of SeptemberJune 30, 2020 and December 29, 2019, and December 30, 2018, we had a cash balance of $1.53$4.7 million and $1.41$0.7 million, respectively. Our excess cash balance is swept daily and applied to reduce borrowings under our revolving line of credit, which remains available for re-borrowing, as needed, subject to compliance with the terms of the facility. As of SeptemberJune 30, 2020 and December 29, 2019, and December 30, 2018, we had $10.4$0.7 million and $11.6$6.8 million, respectively, available to be borrowed under our revolving credit facility, subject to borrowing base restrictions and outstanding letters of credit.facility. At each such date,December 29, 2019, we were in compliance with all of our debt covenants as outlined inand our lenders agreed to amend the Waivercredit agreement so at June 30, 2020 the need to comply with such covenants was waived.
On April 24, 2020, due to the significant impact the COVID-19 pandemic was having on our business, our subsidiary, Unique Fabricating NA, Inc., entered into a Promissory Note for approximately $6.0 million (the “PPP Note”), pursuant to the U.S. Small Business Administration Paycheck Protection Program under Title I of the CARES Act passed by Congress and Fourthsigned into law on March 27, 2020. Prior to entering into the PPP Note, on April 23, 2020, we entered into the Seventh Amendment to the AmendedCredit Agreement and RestatedLoan Documents. Refer to Note 6 in Part I, Item 1 of this Quarterly Report on Form 10-Q for more discussion of the details related to the PPP Note and Seventh Amendment.The Seventh Amendment, among other things, provided us necessary liquidity by allowing us to take on the additional indebtedness from the PPP Note, deferring 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, and by releasing the lien on our Evansville, Indiana property and allowing for the net cash proceeds from its sale, which was completed in June 2020, to be applied against any outstanding balance on our Revolver, while not permanently reducing the Revolving Credit Agreement. WeAggregate Commitment. With the proceeds from the PPP Note and the relief provided in the Seventh Amendment, we believe that ourwe have sufficient sources of liquidity including cash flow from operations, existing cash and our revolving line of credit are sufficient to meet our projected cash requirements for at least the next fiftyfifty-two weeks.
On August 7, 2020, the Company entered into the Eighth Amendment. 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
29
fiscal quarter in 2021, and (iv) to the extent added in calculating Consolidated Net Income any portion of 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 weeks.
In 2019,2020, we plan to spend approximately $2.33$2.5 million in capital expenditures, of which $2.13$0.8 million was spent through September 29, 2019,June 30, 2020, primarily to add new production equipment as we expand our production capabilities, upgrade existing equipment, and improve our information technology software and hardware throughout our facilities.
While we believe we have sufficient liquidity and capital resources to meet our current operating requirements and planned capital expenditures, we may elect to pursue additional growth opportunities that could require additional debt or equity financing. If we are unable to secure additional financing at favorable terms in order to pursue such additional growth opportunities, our ability to pursue such opportunities would be materially adversely affected.
Dividends
The FourthEighth Amendment permits distributions only after December 31, 2021 as long as the Borrower is in compliance with specified conditions including that the Borrower's liquidity, as defined, iswas not less than $5 million after giving effect to the distributions, total leverage ratio iswas not more than 2.00 to 1.00, post distribution DSCR, as defined, iswas not greater than 1.10 to 1.00, and Borrower iswas in compliance with financial covenants, before and after giving effect to the distributions. The Company will not pay a dividend during the remainder
30
Cash Flow Data
The following table presents cash flow data for the periods indicated.presented:
| Thirty-Nine Weeks Ended September 29, 2019 | Thirty-Nine Weeks Ended September 30, 2018 | ||||||
| Cash flow data | (in thousands) | ||||||
| Cash flow provided by (used in): | |||||||
| Operating activities | $ | 6,914 | $ | 6,816 | |||
| Investing activities | (2,088 | ) | (4,663 | ) | |||
| Financing activities | (4,708 | ) | (2,601 | ) | |||
| Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | ||||||||||||||||
| (in thousands) | |||||||||||||||||
| Cash flows provided by (used in): | |||||||||||||||||
| Operating activities | $ | 1,368 | $ | 5,084 | |||||||||||||
| Investing activities | $ | 88 | $ | (1,839) | |||||||||||||
| Financing activities | $ | 2,631 | $ | (3,600) | |||||||||||||
Operating Activities
Cash provided by operating activities consists of: net income adjusted for non-cash items; including depreciation and amortization; gain or loss on sale of assets; inventory reserve; goodwill impairment; gain or loss on derivative instruments; bad debt adjustments; stock option expense; changes in deferred income taxes; accrued and other liabilities; prepaid expenses and other assets; and the effect of working capital changes. The primary factors affecting cash inflows and outflows are accounts receivable, inventory, prepaid expenses and other assets, and accounts payable and accrued interest.
During the 39 weekssix months ended September 29, 2019,June 30, 2020, net cash provided by operating activities was $6.91$1.4 million, compared to net cash provided by operating activities of $6.82$5.1 million for the 39 weekssix months ended SeptemberJune 30, 2018.
Investing Activities
Cash provided by or used in investing activities consists principally of purchasespurchase and sale of property, plant and equipment.
We plan to spend a total of approximately $2.33$2.5 million in capital expenditures during 2019,2020, including the $2.13$0.8 million spent through September 29, 2019.
Financing Activities
Cash flows provided by or used in financing activities consists primarily of borrowings and payments under our new and old senior credit facilities, debt issuance costs, proceeds from any exercise of stock options and warrants, and distribution of cash dividends.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, sales or expenses, results of operations, liquidity or capital expenditures, or capital resources that are material to an investment in our securities.
Indemnification Agreements
In the normal course of business, we provide customers with indemnification provisions of varying scope against claims of intellectual property infringement by third parties arising from the use of our products. Historically, costs related to these indemnification provisions have not been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations. In addition, we have entered into indemnification agreements with directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our consolidated balance sheets, consolidated statements of operations, consolidated statements of stockholders’ equity or consolidated cash flows.
31
Contractual Obligations and Commitments
The Company's contractual obligations and commitments outstanding as of September 29, 2019June 30, 2020 have not changed materially since the amounts as of December 30, 201829, 2019 as set forth in our Annual Report on Form 10-K.10-K/A. These obligations and commitments relate to operating leases, future debt payments, and a management services agreement.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect amounts reported in those statements. We have made our best estimates of certain amounts contained in our consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. However, application of our accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ materially from these estimates. Management believes that the estimates, assumptions, and judgments involved in the accounting policies that have the most significant impact on our consolidated financial statements are discussed in the Critical Accounting Policies section of Management's Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report on Form 10-K.10-K/A. There have been no material changes to our critical accounting policies or uses of estimates since the date of our Annual Report on Form 10-K.
Recently Issued Accounting Pronouncements
Refer to Note 12 to the condensed consolidated financial statements in Part I Item 1 of this Quarterly Report on Form 10-Q.
We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate and foreign exchange risks.
Interest Rate Fluctuation Risk
Our borrowings under our Credit Agreement bear interest at fluctuating rates. In order to mitigate, in part, the potential effects of the fluctuating rates, effective June 30, 2016, we entered into a interest rate swap with a notional amount initially of $16.68 million, which decreased by $0.32 million each quarter until June 30, 2017, and began decreasing by $0.43 million each quarter until June 29, 2018, when it began decreasing by $0.53 million per quarter until the swap terminated on June 28, 2019. The interest rate swap required the Company to pay a fixed rate of 1.055 percent per annum while receiving a variable rate per annum based upon the one month LIBOR rate for a net monthly settlement based on the notional amount in effect. This swap terminated an old swap that we entered into on January 17, 2014 under our old senior credit facility. See Note 7 of our consolidated financial statements for further information.
Effective October 2, 2017, as required under the Second Amendment to the Credit Agreement, as discussed in Note 7 of our consolidated financial statements, the Company entered into another interest rate swap that requires the Company to pay a fixed rate of 1.093% percent per annum while receiving a variable interest rate per annum based on one month LIBOR for a net monthly settlement based on the notional amount in effect. The notional amount at the effective date was $1.90 million which decreases by $0.10 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 per annum while receiving a variable interest rate per annum based on 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 increases by $378,125$0.04 million each quarter until June 29, 2018 when the notional amount increases to $17,540,625$17.5 million due to the interest rate swap from 2016 above expiring. The notional amount then decreases each quarter by $153,125$0.1 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.
We do not believe that an increase or decrease in interest rates of 100 basis points would have a material effect on our operating results or financial condition.
Evaluation of Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officers and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), as the end of the quarter covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, due to the material weakness in our internal control over financial reporting previously identified and described more fully under Item 9A in the Company’s Annual Report on Form 10-K/A for the year ended December 29, 2019, the Company’s disclosure controls and procedures were not effective as of June 30, 2020 to ensure information required to be disclosed by our Company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures. Our management establishes and maintains disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) to ensure that the information we disclose under the Exchange Act is properly and timely reported. We provide this information to our Chief Executive Officer and Interim Chief Financial Officer as appropriate to allow for timely decisions.
As previously identified and proceduresdescribed more fully under Item 9A in the Company’s Annual Report on Form 10-K/A for the year ended December 29, 2019, the Company identified a deficiency that constitutes a material weakness related to limited finance staffing levels that are based on assumptions. Additionally, even effective controls and procedures only provide reasonable assurance of achieving their objectives. Accordingly, we cannot guarantee that our controls and procedures will succeed or be adhered to in all circumstances.
Remediation Plan for Material Weakness in Internal Control over Financial Reporting
The Company continues to take action on the remediation plan more fully described under Item 9A in the Company’s Annual Report on Form 10-K/A for the year ended December 29, 2019. While the Company is moving forward with these remediation activities, additional work needs to be done in this area. Accordingly, we concluded that this material weakness had not yet been remediated as of June 30, 2020.
We will continue to monitor the effectiveness of these and other processes, procedures and controls and make any further changes management determines appropriate.
Changes in Internal Control over Financial Reporting
There were no material changes in the Company's internal controls over financial reporting during the thirty-nine weeksthree and six months ended September 29, 2019June 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting. As a result of the COVID-19 pandemic, in March 2020 certain employees of the Company began working and continue to work remotely. Management has taken measures to ensure that our internal controls over financial reporting were not materially affected by employees working remotely. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.
PART II
– OTHER INFORMATION
Not applicable
33
▪Disruptions or restrictions on our employees’ ability to work effectively due to illness, travel bans, quarantines, shelter-in-place orders or other limitations.
▪Temporary closures of our facilities or the consolidated financial statementsfacilities of our customers. Net sales to automotive customers, most of whom idled their manufacturing facilities as a result of the Company. If the stock price remains below the net book value per share, or other negative business factors exist, the Company may be required to perform another goodwill impairment analysis, which could result in an impairment of up to the entire balanceCOVID-19 pandemic, were approximately 86% of the Company’s goodwill.net sales during the fiscal year ended December 29, 2019. The closures of our customers’ operations had a substantial adverse effect on our results of operation and financial condition.
▪In an effort to increase the wider availability of needed medical and other supplies and products, we have elected and may further elect to, or governments may require us to, allocate manufacturing capacity in a way that could adversely affect our regular operations and that may adversely impact our customer and supplier relationships.
▪Costs incurred and revenues lost during and from the effects of the COVID-19 pandemic likely will not be recoverable.
▪The failure of third parties on which we rely, including our suppliers, customers, contractors, commercial banks and external business partners, to meet their respective obligations to the Company, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties.
▪The COVID-19 pandemic has significantly increased economic and demand uncertainty and has led to disruption and volatility in the global credit and financial markets, which increases the cost of capital and adversely impacts access to capital for both the Company and our customers and suppliers.
The extent to which the COVID-19 pandemic, or other outbreaks of disease or similar public health threats, materially and adversely impacts our business, financial condition and results of operations is highly uncertain and will depend on future developments. Such developments may include the geographic spread and duration of the virus, the severity of the disease and the actions that may be taken by various governmental authorities and other third parties in response to the outbreak. In addition, how quickly, and to what extent, normal economic and operating conditions can resume cannot be predicted, and the resumption of normal business operations may be delayed or constrained by lingering effects of the COVID-19 pandemic on our suppliers, third-party service providers, and/or customers.
Unregistered Sales of Equity Securities and Use of Proceeds
None
Not applicable.
Not applicable.
Exhibit Index
Exhibit No. | Description | |||||||
Certification of the Chief Executive Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||
31.2* | Certification of the Chief Financial Officer of the Company, | |||||||
32.1** | Certification of the Chief Executive Officer | |||||||
32.2** | ||||||||
| 101.INS+ | XBRL Instance Document | |||||||
| 101.SCH+ | XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL+ | XBRL Taxonomy Calculation Linkbase Document | |||||||
| 101.DEF+ | XBRL Taxonomy Definition Linkbase Document | |||||||
| 101.LAB+ | XBRL Taxonomy Label Linkbase Document | |||||||
| 101.PRE+ | XBRL Taxonomy Presentation Linkbase Document | |||||||
* Filed herewith.
** Pursuant to Item 601(b)(32)(ii) of Regulation S-K(17 C.F.R 229.601(b)(32)(ii)), this certification is deemed furnished, not filed, for purposes of section 18 of the Exchange Act, nor is it otherwise subject to liability under that section. It will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except if the registrant specifically incorporates it by reference.
+ Filed electronically with the report.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| UNIQUE FABRICATING, INC. | ||||||||||||||
| Date: | By: | /s/ | ||||||||||||
| Brian P. Loftus | ||||||||||||||
| Chief Financial Officer (Principal Financial and Accounting Officer) | ||||||||||||||
36