See Note 2 for noncash transactions and supplemental
disclosure of cash flow information.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30,
2018 and December 31, 2017
|
NOTE 1 - Summary of Significant Accounting Policies
|
Description of the Business
Uniroyal Global Engineered Products, Inc. (the “Company”)
is primarily engaged in the development, manufacturing and distribution of vinyl coated fabrics primarily for use in transportation,
residential, hospitality, health care, office furniture and automotive applications. The Company’s customers are located
primarily throughout North America and Europe.
On April 29, 2015, the Board of Directors adopted an amendment
to the Articles of Incorporation to change the Company’s name from Invisa, Inc. to Uniroyal Global Engineered Products, Inc.
On June 25, 2015, the stockholders approved the amendment. The amended and restated Articles of Incorporation were filed with the
Nevada Secretary of State and became effective on July 15, 2015.
On November 10, 2014, the Company acquired all of the ownership
interests in Uniroyal Engineered Products, LLC (“Uniroyal”), a U.S. manufacturer of textured coatings, and all of the
ordinary common stock of Engineered Products Acquisition Limited (“EPAL”), the holding company for Wardle Storeys (Earby)
Limited (“Wardle Storeys”), a European manufacturer of textured coatings and polymer films.
The Company made the acquisition of Uniroyal through its newly
formed subsidiary, UEP Holdings, LLC (“UEPH”). The aggregate purchase consideration paid for 100% of the outstanding
equity of Uniroyal was preferred ownership interests issued by UEPH having a liquidation preference of $35 million. See Note 13
for a description of the preferred units issued.
In a separate transaction, the Company purchased EPAL for 100
shares of the Company’s Common Stock and the Company’s guaranty of outstanding EPAL preferred stock retained by the
seller, having a liquidation preference of £12,518,240 (approximately $20 million at closing).
These
preferred shares were entitled to a fixed cumulative preferential dividend of £625,912 per annum payable quarterly (approximately
$1,000,000 at the date of the transaction). On November 24, 2015, the liquidation preference was changed from £12,518,240
to €17,699,314 (approximately $18,851,539) and the payment of the quarterly dividend from £156,478 to €221,241
(approximately $235,644). These conversions were based on the exchange rates on November 24, 2015.
As a result of beneficial ownership between the principal owner
of the Company and the seller of Uniroyal and EPAL, the seller controls in excess of 80% of the Company’s voting rights in
all matters to come before the Company’s shareholders. As a result of this common ownership, the November 10, 2014 transaction
was treated as a combination between entities under common control and was accounted for in a manner similar to the pooling-of-interest
method. The recognized assets and liabilities were transferred at their carrying amounts at the date of the transaction. Further,
the companies were also combined retrospectively for prior year comparative information to the extent permitted.
In December 2016, the Company changed the name of EPAL to Uniroyal
Global (Europe) Limited (“UGEL”) and the name of Wardle Storeys to Uniroyal Global Limited (“UGL”).
The Company and its subsidiaries have adopted a 52/53-week fiscal
year ending on the Sunday nearest to December 31. The years ended December 30, 2018 and December 31, 2017 were both 52-week years.
Basis of Presentation
The consolidated financial statements include the accounts of
the Company and its subsidiaries and are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP). All
intercompany balances have been eliminated. The Company manages its operations on a consolidated, integrated basis in order to
optimize its equipment and facilities and to effectively service its global customer base, and concludes that it operates in a
single business segment.
UNIROYAL GLOBAL ENGINEERED PRODUCTS,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30,
2018 and December 31, 2017
Cash and Cash Equivalents
The Company defines cash and cash equivalents as highly liquid,
short-term investments with a maturity at the date of acquisition of three months or less.
The Company maintains cash in bank accounts which, at times,
exceeds federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to
any significant credit risks.
Accounts Receivable
Accounts receivable are recorded net of an allowance for doubtful
accounts, returns and discounts of $283,560 and $282,289 as of December 30, 2018 and December 31, 2017, respectively. Accounts
receivable are recorded when obligations under the terms of a contract with a customer are satisfied, which includes the control
of products transferring to the customer. See Note 23 for further discussion.
On an ongoing basis, the Company evaluates its accounts receivable
based on individual customer circumstances, historical write-offs and collections, and current industry and customer credit conditions,
and adjusts its allowance for doubtful accounts accordingly. The Company’s policy regarding write-offs and collection efforts
varies based on individual customer circumstances. Past due accounts receivable are determined based on individual customer credit
terms.
Customer Rebates
The Company records customer rebates as a reduction of net sales.
Accounts receivable are recorded net of an allowance for customer rebates of $90,288 and $96,044 as of December 30, 2018 and December
31, 2017, respectively.
Inventories
Inventories are valued at the lower of cost using the first-in,
first-out (FIFO) method, or market. The Company and its subsidiaries have policies which are consistently applied to maintain reserves
for obsolescence based on specific identification or a percentage of the amount on hand based on inventory aging.
Property and Equipment
Property and equipment are stated at cost. Major expenditures
for property and equipment are capitalized. Maintenance, repairs, and minor refurbishments are expensed as incurred. When assets
are retired or otherwise disposed of, their costs and related accumulated depreciation are removed from the accounts and resulting
gains or losses are included in income.
Property and equipment are depreciated using the straight-line
method over their estimated useful lives. For income tax reporting purposes, depreciation is calculated using both applicable straight-line
methods and accelerated methods or capital allowances based on the various taxing jurisdictions’ approved methods.
Cash Surrender Value of Insurance Policies
Cash surrender value of insurance policies is valued at the
cash surrender value of the contract as determined by the life insurance company. The cash value of the insurance policies totaled
$420,404 and $864,320 as of December 30, 2018 and December 31, 2017, respectively.
During the fourth
quarter of 2017, the Company obtained loans against the cash value of certain of these insurance policies. At December 30, 2018
and December 31, 2017, these insurance policy loans totaled $211,790 and $661,880, respectively, and had a weighted average interest
rate of 3.59% and 3.87%, respectively. Interest is accrued and paid quarterly. Each loan (and applicable accrued interest) can
be repaid at any time. Any loan (or interest) outstanding at the time of settlement will reduce the proceeds payable under the
policies.
The cash value of the insurance policies, net of policy loans, is included in other long-term assets in the accompanying
Consolidated Balance Sheets.
UNIROYAL GLOBAL ENGINEERED PRODUCTS,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30,
2018 and December 31, 2017
On April 1, 2018, the Company’s majority
shareholder purchased the company owned life insurance policy on his life. The policy had a net value of $128,399 based on the
cash surrender value of $578,490 and a policy loan outstanding in the amount of $450,091. After his assumption of a related party
demand note payable in the amount of $125,000, the balance due of $3,399 was paid on April 17, 2018.
Impairment of Finite-Lived Long-Lived
Assets
The Company reviews long-lived assets, including property, equipment,
and intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of
an asset may not be fully recoverable. An impairment loss would be recognized when the estimated future cash flows from the use
of the asset are less than the carrying amount of that asset. During the fourth quarter of 2018, the Company recorded a $510,230
impairment charge for assets used in the calender operations at the Company’s U.K. subsidiary. The Company decided that it
would de-commission the equipment and no longer offer the calendered product after determining that these operations could not
be economically modernized.
Goodwill and Intangible Indefinite-Lived
Assets
Goodwill represents the excess of the purchase price over the
estimated fair value of identifiable net assets acquired. Trademarks are recorded at estimated fair value at the date they were
acquired in certain business acquisitions. To the extent it has been determined that the carrying value of goodwill or trademarks
is not recoverable and is in excess of its fair value, an impairment loss is recognized. Impairment is reviewed annually. No impairment
loss was deemed necessary as of December 30, 2018 or December 31, 2017.
Income Taxes
The Company follows ASC 740 Income Taxes for recording the provision
for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and
income tax bases of assets and liabilities (temporary differences) using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in
the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of
the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount
that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred
income taxes in the period of change.
The tax effects from an uncertain tax position are recognized
in the financial statements only if the position is more likely than not to be sustained on audit, based on the technical merits
of the position. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant
tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than
not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood
of being realized upon ultimate settlement with the relevant tax authority. The Company does not believe there is any uncertainty
with respect to its tax positions which would result in a material change to the financial statements.
The Company files income tax returns in the United States as
a C-Corporation, and in several state jurisdictions and in the United Kingdom. The Company’s subsidiary, Uniroyal, is a limited
liability company (LLC) for federal and state income tax purposes and as such, its income, losses, and credits are allocated to
its members. Uniroyal’s taxable income is allocated entirely to UEPH, a limited liability corporation, as its sole member.
As the sole member of UEPH, the Company then receives this income allocation less the dividends paid on the preferred ownership
interests held by the former owners of Uniroyal.
The Company's tax returns for tax years 2015 and thereafter
are subject to examination by taxing authorities. The Company records interest and penalties associated with uncertain tax positions
related to these tax filings as interest expense. For the years ended December 30, 2018 and December 31, 2017, the Company has
recorded no expense for interest or penalties.
UNIROYAL GLOBAL ENGINEERED PRODUCTS,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30,
2018 and December 31, 2017
Derivatives
The Company recognizes all of its derivative instruments as
either assets or liabilities in the balance sheet at fair value. The accounting for changes in the fair value of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging relationship and further, as to whether the hedge
is a cash flow hedge or a fair value hedge.
The Company incurs foreign currency risk on sales and purchases
denominated in other currencies, primarily the British Pound Sterling and the Euro. Foreign currency exchange contracts are used
by the Company principally to limit the exchange rate fluctuations of the Euro. The Euro risk is partially limited due to natural
cash flow offsets. Currency exchange contracts are purchased for approximately 25% of the net risk. These contracts are not designated
as cash flow hedges for accounting purposes. Changes in fair value of these contracts are reported in Other Expense in the accompanying
Consolidated Statements of Operations.
Fair Value of Financial Instruments
The Company’s short-term financial instruments consist
of cash and cash equivalents, accounts receivable, accounts payable and lines of credit. The Company adjusts the carrying value
of financial assets denominated in other currencies such as cash, accounts receivable, accounts payable and lines of credit using
the appropriate exchange rates at the balance sheet date. The Company believes that the carrying values of these short-term financial
instruments approximate their estimated fair values.
The fair value of the Company’s long-term debt is estimated
based on current rates for similar instruments with the same remaining maturities. In determining the current interest rates for
similar instruments, the Company takes into account its risk of nonperformance. The Company believes that the carrying value of
its long-term debt approximates its estimated fair value.
The Company uses foreign currency exchange contracts which are
recorded at their estimated fair values in the accompanying Consolidated Balance Sheets. The fair values of the contracts at December
30, 2018 and December 31, 2017 were a net liability of $26,814 included in other current liabilities and a net asset of $13,292
included in other current assets, respectively. The fair values of the currency exchange contracts are based upon observable market
transactions of spot and forward rates.
For the fiscal year ended December 30, 2018, there have been
no changes in the application of valuation methods applied to similar assets and liabilities.
The Company follows accounting principles generally accepted
in the United States of America for measuring, reporting, and disclosing fair value. These standards apply to all assets and liabilities
that are measured, reported, and/or disclosed on a fair value basis.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy
ranks the quality and reliability of the information used to determine fair values. Assets and liabilities measured, reported and/or
disclosed at fair value will be classified and disclosed in one of the following three categories:
|
|
Level 1 -
|
Inputs to the valuation methodology are unadjusted quoted market prices for identical assets in
active markets that the Company has the ability to access.
|
|
|
Level 2 -
|
Observable
market based inputs or unobservable inputs that are corroborated by market data. Inputs to the valuation methodology include:
|
UNIROYAL GLOBAL ENGINEERED PRODUCTS,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30,
2018 and December 31, 2017
|
|
>
|
quoted prices for similar assets or liabilities in active markets;
|
|
|
>
|
quoted prices for identical or similar assets or liabilities in inactive markets;
|
|
|
>
|
inputs other than quoted prices that are observable for the asset or liability;
|
|
|
>
|
inputs that are derived principally from or corroborated by observable market data by correlation
or other means.
|
|
|
Level 3 -
|
Unobservable inputs that are unobservable and not corroborated by market data.
|
The asset’s or liability’s fair value measurement
level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Foreign Currency Translation
The financial position and results of operations of the Company’s
foreign subsidiaries are measured using the local currency as the functional currency. Assets and liabilities of operations denominated
in foreign currencies are translated into U.S. dollars at exchange rates in effect at the balance sheet date, while the capital
accounts are translated at the historical rate for the date they were recognized. Revenues and expenses are translated at the weighted
average exchange rates during the year. The resulting translation gains and losses on assets and liabilities are recorded in accumulated
other comprehensive loss, and are excluded from net income until realized through a sale or liquidation of the investment. Transaction
gains and losses generated from the remeasurement of assets and liabilities denominated in currencies other than the functional
currency of our foreign operations are included in Other Expense in the accompanying Consolidated Statements of Operations.
Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
Revenue is recognized when obligations under the terms of a
contract with a customer are satisfied, which includes the control of products transferring to the customer. For Uniroyal, this
generally occurs when products are shipped and, for UGL, this generally occurs when the customer accepts delivery either at the Company’s
U.K. facility or at a mutually agreed upon location. Revenue is measured as the amount of consideration the Company expects to
receive in exchange for products transferred to the customer. Based on historical results and analysis, we estimate and calculate
provisions for customer rebates and sales returns and allowances and record these estimated amounts as an offset to revenue in
the same period the related revenue is recognized. See Note 23 for further discussion.
Shipping and Handling Costs
Shipping and handling costs charged to customers and the costs
incurred by the Company are netted. Shipping and handling costs incurred by the Company for purchases are included in cost of goods
sold.
Warranties
The Company warrants that the materials and workmanship of its
products will meet customer specifications. The Company estimates its accrued warranty expenses based upon prior warranty claims
experience. Accrued warranty expenses were not material as of December 30, 2018 and December 31, 2017.
UNIROYAL GLOBAL ENGINEERED PRODUCTS,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30,
2018 and December 31, 2017
Advertising
Advertising costs, other than promotional materials, are charged
to expense as incurred. Promotional materials are expensed as they are distributed. Advertising expense was $185,496 and $209,865
for the years ended December 30, 2018 and December 31, 2017, respectively. As of December 30, 2018 and December 31, 2017, $113,927
and $134,269, respectively, of promotional materials were included in other long-term assets in the accompanying consolidated financial
statements.
Research and Development
Research and development costs are charged to expense as incurred.
Research and development expense was $1,653,234 and $1,940,671 for the years ended December 30, 2018 and December 31, 2017, respectively.
Earnings Per Share
The Company calculates basic net income per common share by
dividing net income after the deduction of preferred stock or preference dividends by the weighted average number of common shares
outstanding. The calculation of diluted net income per share is consistent with that of basic net income per common share but gives
effect to all potential common shares (that is, securities underlying options, warrants or convertible securities) that were outstanding
during the period, unless the effect is anti-dilutive.
Recent Accounting Standards
In May 2014, the Financial Accounting Standards Board issued
a new standard, Accounting Standards Update (ASU) No. 2014-09, "Revenue from Contracts with Customers." Under ASU 2014-09,
recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. The Company adopted this standard on January
1, 2018 using the modified retrospective method. This required an adjustment to the opening balance of retained earnings to reflect
the cumulative effect of initially applying the new standard to contracts that were not complete as of the adoption date. A contract
that was not complete is defined as one for which all of the revenue was not recognized as of the adoption date. The Company did
not record an adjustment to retained earnings since all of its contracts were considered complete before the adoption date. The
Company elected the practical expedient of recognizing the incremental costs of obtaining a contract as an expense when incurred
if the amortization period of the asset is one year or less. Generally, the amortization period of the Company’s commission
expense would be less than one year. The adoption of this standard for the year ended December 30, 2018 did not have a significant
effect on the Company’s consolidated financial position, results of operations and cash flows.
On February 25, 2016, the Financial Accounting
Standards Board issued a new standard, ASU No. 2016-02, “Leases” and on July 30, 2018, it issued ASU No.
2018-11, “Leases (Topic 842): Targeted Improvements.” Under the new guidance, a lessee will be required to
recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current Generally
Accepted Accounting Principles (GAAP), the recognition, measurement, and presentation of expenses and cash flows arising from
a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current
GAAP, which requires only capital leases to be recognized on the balance sheet, the new ASU will require both types of leases
to be recognized on the balance sheet. The Company adopted this standard effective December 31, 2018 and elected to
recognize leases at the adoption date. The Company did not recognize a cumulative-effect adjustment to the opening balance of
retained earnings since its recognition of expenses relating to leases under current GAAP is the same as it was under
previous GAAP. The Company continues its process of evaluating how significant the impact of the adoption of this standard
will be on the year ending December 29, 2019 as it recognizes lease assets and lease liabilities related to its operating
leases. The Company anticipates that its total assets and liabilities will increase by approximately $5.7 million as it
records previously unrecorded operating leases. However, the Company does not anticipate that there will be any significant
impact on its results of operations and cash flows.
UNIROYAL GLOBAL ENGINEERED PRODUCTS,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30,
2018 and December 31, 2017
On August 26, 2016, the Financial Accounting Standards Board
issued a new standard, ASU No. 2016-15, “Statement of Cash Flows – Classification of Certain Cash Receipts and Cash
Payments.” The new standard applies to how certain cash receipts and cash payments are presented and classified in the statement
of cash flows. The Company adopted this standard on January 1, 2018. The adoption of this standard for the year ended December
30, 2018 did not have a significant effect on the Company’s consolidated financial position, results of operations and cash
flows.
On January 26, 2017, the Financial Accounting Standards Board
issued a new standard, ASU No. 2017-04, “Intangibles – Goodwill and Other – Simplifying the Test for Goodwill
Impairment.” The new standard modifies the concept of impairment from the condition that exists when the carrying amount
of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its
fair value. It will be effective for the Company on December 30, 2019. The Company is currently evaluating the effects this standard
will have, if any, on its consolidated financial position, results of operations and cash flows.
On May 10, 2017, the Financial Accounting Standards Board issued
a new standard, ASU No. 2017-09, “Compensation – Stock Compensation – Scope of Modification Accounting.”
The new standard clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification.
The Company adopted this standard on January 1, 2018. The adoption of this standard for the year ended December 30, 2018 did not
have a significant effect on the Company’s consolidated financial position, results of operations and cash flows.
On August 28, 2017, the Financial Accounting Standards Board
issued a new standard, ASU No. 2017-12, “Derivatives and Hedging – Targeted Improvements to Accounting for Hedging
Activities.” The objective of this new standard is to improve the financial reporting of hedging relationships to better
portray the economic results of an entity’s risk management activities and to simplify the application of the hedge accounting
guidance in current GAAP. The Company adopted this standard effective December 31, 2018. Since the Company currently does not
have any derivatives that are a part of a hedging relationship, the adoption of this standard for the year ending December 29,
2019 is not expected to have a significant effect on the Company’s consolidated financial position, results of operations
and cash flows.
On August 28, 2018, the Financial Accounting Standards Board
issued a new standard, ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure
Requirements for Fair Value Measurement.” The new standard modifies the disclosure requirements on fair value measurements
in Topic 820, “Fair Value Measurement.” Certain requirements were removed such as the amount of and reasons for transfers
between Level 1 and Level 2 of the fair value hierarchy, certain requirements were modified and certain disclosures were added
such as the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3
fair value measurements held at the end of the reporting period. This standard will be effective for the Company on December 30,
2019. The Company is currently evaluating the effects this standard will have, if any, on its consolidated financial position,
results of operations and cash flows.
On August 29, 2018, the Financial Accounting Standards
Board issued a new standard, ASU No. 2018-15, “Intangibles—Goodwill and Other— Internal-Use Software
(Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a
Service Contract.” The new standard aligns the requirements for capitalizing implementation costs incurred in a hosting
arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or
obtain internal-use software (and hosting arrangements that include an internal use software license). This includes
determining which implementation costs to capitalize as an asset related to the service contract and which costs to expense,
and expensing the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the
hosting arrangement. The standard also provides guidance on financial statement presentation. This standard will be effective
for the Company on December 30, 2019. Since the Company currently does not have any implementation costs associated with
internal-use software, the adoption of this standard is not expected to have a significant effect on the Company’s
consolidated financial position, results of operations and cash flows.
UNIROYAL GLOBAL ENGINEERED PRODUCTS,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30,
2018 and December 31, 2017
On October 25, 2018, the Financial Accounting Standards Board
issued a new standard, ASU No. 2018-16, “Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing
Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.” The new standard
permits the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815.
Including the OIS rate based on SOFR provides a preferred alternative reference rate in the United States to the U.S. dollar (USD)
London Interbank Offered Rate (LIBOR) swap rate. The Company adopted this standard effective December 31, 2018, concurrently
with the amendments in ASU 2017-12. The adoption of this standard for the year ending December 29, 2019 is not expected to have
a significant effect on the Company’s consolidated financial position, results of operations and cash flows.
The Tax Cuts and Jobs Act
On December 22, 2017, the U.S. government enacted the Tax Cuts
and Jobs Act, which significantly changed existing U.S. tax laws that affect the Company’s business. These changes included,
but were not limited to, reducing the U.S. federal corporate tax rate from 35% to 21%, imposing a one-time transition tax on deemed
repatriation of deferred foreign income and changing rules related to uses and limitations of net operating loss carryforwards
created in tax years beginning after December 31, 2017. See Note 11 for further discussion.
Subsequent Events
The Company has evaluated subsequent events occurring through
the date that the financial statements were issued, for events requiring recording or disclosure in the December 30, 2018 financial
statements. There were no material events or transactions occurring during this period requiring recognition or disclosure.
UNIROYAL GLOBAL ENGINEERED PRODUCTS,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30,
2018 and December 31, 2017
|
NOTE 2 - Noncash Transactions and Supplemental Disclosure of Cash Flow Information
|
During the year ended December 30, 2018, the Company reduced
its borrowings on its lines of credit with additional borrowings of $925,657 on its term loan with Wells Fargo Capital Finance,
LLC. During the years ended December 30, 2018 and December 31, 2017, the Company paid down $395,086 and $384,792, respectively,
of its term loans using available borrowings on its various lines of credit.
During the years ended December 30, 2018 and December 31, 2017,
the Company entered into several new equipment leases and financing obligations with fair values of $1,195,136 and $1,686,696,
respectively, which are accounted for as capital assets. The fair values were added to property and equipment and a corresponding
amount to capital lease or financing obligations.
On April 1, 2018, the Company’s majority shareholder purchased
the company owned life insurance policy on his life. The policy had a net value of $128,399 based on the cash surrender value of
$578,490 and a policy loan outstanding in the amount of $450,091. After his assumption of a related party demand note payable in
the amount of $125,000, the balance due of $3,399 was paid on April 17, 2018.
Supplemental disclosure of cash paid for the years ended:
|
|
|
December 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
1,828,208
|
|
|
$
|
1,664,638
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
360,850
|
|
Inventories consist of the following:
|
|
|
December 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
5,863,762
|
|
|
$
|
5,572,253
|
|
|
Work-in-process
|
|
|
5,040,582
|
|
|
|
5,342,359
|
|
|
Finished goods
|
|
|
10,049,567
|
|
|
|
10,377,480
|
|
|
|
|
|
20,953,911
|
|
|
|
21,292,092
|
|
|
Less: Allowance for inventory obsolescence
|
|
|
(1,493,651
|
)
|
|
|
(1,522,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Inventories
|
|
$
|
19,460,260
|
|
|
$
|
19,769,662
|
|
UNIROYAL GLOBAL ENGINEERED PRODUCTS,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30,
2018 and December 31, 2017
|
NOTE 4 - Property and Equipment
|
The major categories of property and equipment are summarized
as follows:
|
|
|
Depreciable
Lives
|
|
|
December 30, 2018
|
|
|
December 31, 2017
|
|
|
Building and building improvements
|
|
|
8 – 25 yrs.
|
|
|
$
|
1,355,238
|
|
|
$
|
732,086
|
|
|
Machinery and equipment
|
|
|
8 - 10 yrs.
|
|
|
|
30,106,102
|
|
|
|
27,244,195
|
|
|
Computer equipment
|
|
|
3 - 10 yrs.
|
|
|
|
1,469,300
|
|
|
|
1,399,851
|
|
|
Furniture and fixtures
|
|
|
7 - 10 yrs.
|
|
|
|
190,601
|
|
|
|
173,904
|
|
|
Real estate under lease
|
|
|
20 yrs.
|
|
|
|
2,375,914
|
|
|
|
2,165,914
|
|
|
Construction-in-progress
|
|
|
-
|
|
|
|
90,660
|
|
|
|
97,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Property and Equipment
|
|
|
|
|
|
|
35,587,815
|
|
|
|
31,813,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation
|
|
|
|
|
|
|
(16,708,866
|
)
|
|
|
(14,524,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Property and Equipment
|
|
|
|
|
|
$
|
18,878,949
|
|
|
$
|
17,289,058
|
|
The balance of accumulated depreciation at December 30, 2018
reflected an impairment charge of $510,230 for assets used in the calender operations at the Company’s U.K. subsidiary. During
the fourth quarter of 2018, the Company decided that it would de-commission the equipment and no longer offer the calendered product
after determining that these operations could not be economically modernized.
|
NOTE 5 - Intangible Assets
|
Intangible assets are summarized as follows:
|
|
Amortizable
Lives
|
|
December 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
Indefinite
|
|
$
|
3,148,830
|
|
|
$
|
3,274,225
|
|
|
Other
|
5 years
|
|
|
69,167
|
|
|
|
21,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Intangible Assets
|
|
|
$
|
3,217,997
|
|
|
$
|
3,295,896
|
|
UNIROYAL GLOBAL ENGINEERED PRODUCTS,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30,
2018 and December 31, 2017
|
NOTE 6 – Other Long-term Assets
|
Other long-term assets consist of the following:
|
|
|
December 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset
|
|
$
|
2,899,634
|
|
|
$
|
3,167,092
|
|
|
Other
|
|
|
793,733
|
|
|
|
735,154
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Long-term Assets
|
|
$
|
3,693,367
|
|
|
$
|
3,902,246
|
|
|
NOTE 7 – Other Long-term Liabilities
|
Other long-term liabilities consist of the following:
|
|
|
December 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability
|
|
$
|
640,219
|
|
|
$
|
793,145
|
|
|
Other
|
|
|
13,434
|
|
|
|
29,347
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Long-term Liabilities
|
|
$
|
653,653
|
|
|
$
|
822,492
|
|
The Company’s Uniroyal subsidiary has available a $30,000,000
revolving line of credit financing agreement with Wells Fargo Capital Finance, LLC, which matures on June 15, 2023. Interest is
payable monthly at the Eurodollar rate plus 2.25% or Wells Fargo Capital Finance, LLC's prime rate at the Company's election on
outstanding balances up to $6,000,000 and prime rate on amounts in excess of $6,000,000. The line of credit weighted average interest
rate including unused facility fees was approximately 5.30% as of December 30, 2018. Borrowings on the line of credit are subject
to the underlying borrowing base specified in the agreement. The underlying borrowing base is currently determined based upon eligible
accounts receivable, inventories and equipment. The line of credit is secured by substantially all of Uniroyal's assets and includes
certain financial and restrictive covenants. The Company was in compliance with these covenants as of December 30, 2018.
The outstanding balance on the line of credit (“Uniroyal
Line of Credit”) was $10,713,318 and $10,376,881 as of December 30, 2018 and December 31, 2017, respectively. The Company
has classified the outstanding balance on this line of credit within current liabilities in the accompanying Consolidated Balance
Sheets.
The Company’s U.K. subsidiary has available a £10,000,000
(approximately $12.7 million) revolving line of credit financing agreement with Lloyds Bank Commercial Finance Limited (“U.K.
Line of Credit”) which is subject to a six-month notice by either party. The line has several tranches based on currency
or underlying security. Interest is payable monthly at the base rate (U.K. LIBOR or Lloyds Bank Base Rate as published) plus 1.95%
to 2.45% depending on the tranche. The line of credit weighted average interest rate was approximately 2.55% as of December 30,
2018. Borrowings on the line of credit are subject to the underlying borrowing base specified in the agreement. The underlying
borrowing base is currently determined based upon eligible accounts receivable and inventories. The line of credit is secured by
substantially all of the subsidiary's assets and includes certain financial and restrictive covenants. The Company was in compliance with these covenants as of December 30, 2018.
UNIROYAL GLOBAL ENGINEERED PRODUCTS,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30,
2018 and December 31, 2017
The outstanding balance on the U.K. Line of Credit was £6,787,260
and £6,631,172 ($8,611,798 and $8,963,587) as of December 30, 2018 and December 31, 2017, respectively. The Company has classified
the outstanding balance on this line of credit within current liabilities in the accompanying Consolidated Balance Sheets.
Long-term debt consists of the following:
|
|
|
December 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
Uniroyal term loans with Wells Fargo Capital
Finance, LLC, monthly interest only payments at the
Eurodollar rate plus 2.25% or Wells Fargo Bank,
National Association's prime rate. The term loans'
weighted average interest rate was approximately
5.30% as of December 30, 2018. Monthly principal
balances are reduced by $26,183 each month,
resulting in a conversion, or increase, of the same
amount in the line of credit each month (see Note 2).
Term loans mature in June 2023 and are secured
by substantially all of the Company's assets and
include certain financial and restrictive covenants.
|
|
$
|
1,413,898
|
|
|
$
|
792,525
|
|
|
|
|
|
|
|
|
|
|
|
Term loan with Lloyds Bank Commercial Finance
Limited; issued to the Company’s U.K. subsidiary, at
£340,000 (approximately $431,400); payable in 60
monthly payments of £5,667 (approximately $7,190).
Interest is payable monthly at the rate of 3.15%
above the base rate (U.K. LIBOR); monthly, the
principal is reduced by required payment resulting in
an increase of the same amount in the line of credit
(see Note 2). The loan matures in February 2019 and
is secured by substantially all of the subsidiaries’
assets and includes certain financial and restrictive
covenants.
|
|
|
14,380
|
|
|
|
107,238
|
|
|
|
|
|
|
|
|
|
|
|
Financing obligation to Kennet Equipment Leasing
payable in monthly installments of £16,636 ($21,108)
including interest and principal at a rate of 10.9%.
The loan matures in May 2021 and is secured by
certain equipment.
|
|
|
451,173
|
|
|
|
691,830
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to Balboa Capital Corporation;
assigned to Wells Fargo, payable in quarterly
installments of $37,169 including interest and
principal at a rate of 5.72% with the remaining
principal due May 2018. The note was secured by
certain equipment.
|
|
|
-
|
|
|
|
73,113
|
|
|
|
|
|
|
|
|
|
|
|
UNIROYAL GLOBAL ENGINEERED PRODUCTS,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30,
2018 and December 31, 2017
Notes payable to Regents Capital Corporation;
payable in monthly installments of $3,256-$10,805
including interest and principal at rates of 6.20%-7.41%
with the remaining principal due December 2019 – October 2023.
The notes are secured by certain equipment.
|
|
|
1,058,305
|
|
|
|
984,073
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to De Lage Landen Financial
Services payable in monthly installments of $2,658
including interest and principal at a rate of 7.35%
with the remaining principal due May 2021. The
note is secured by certain equipment.
|
|
|
68,208
|
|
|
|
96,123
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to Ford Motor Credit payable in
monthly installments of $849 including interest and
principal at a rate of 4.31% with the remaining
principal due November 2021. The note is secured
by certain equipment.
|
|
|
27,881
|
|
|
|
36,662
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to Byline Financial Group, payable in
monthly installments of $1,999 including interest
and principal at a rate of 8.55% with the remaining
principal due March 2019. The note is secured by
certain equipment.
|
|
|
5,913
|
|
|
|
28,344
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable to BB&T Equipment Finance Corporation;
payable in monthly installments of $4,691-$15,445
including interest and principal at rates of 4.02%-5.12%
with the remaining principal due October 2022-May 2023.
The notes are secured by certain equipment.
|
|
|
879,600
|
|
|
|
813,015
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing obligation to Lloyds Bank Commercial Finance Limited;
payable in 60 monthly installments including interest and principal
at a rate of 3.50% above the base rate (U.K. LIBOR) beginning one
month after construction of the financed equipment is complete.
The loan is secured by certain equipment.
|
|
|
1,344,801
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to Lloyds Bank Commercial Finance Limited;
payable in monthly installments of £1,148 ($1,456)
including interest and principal at a rate of 4.23% with the
remaining principal due August 2023. The loan is secured
by certain equipment.
|
|
|
73,562
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
5,337,721
|
|
|
|
3,622,923
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Current portion
|
|
|
(1,369,967
|
)
|
|
|
(1,155,490
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Portion
|
|
$
|
3,967,754
|
|
|
$
|
2,467,433
|
|
In January 2018, the Company signed an agreement with Lloyds
Bank Commercial Finance Limited (“Lloyds”) whereby Lloyds would advance funds in three tranches to finance the construction
and purchase of a regenerative thermal oxidizer to be used in the Company’s U.K. manufacturing facility, with the final
tranche to be advanced after the completion of the equipment. The maximum amount of this financing obligation is £1,177,650
or approximately $1,494,200.The balance of this financing obligation at December 30, 2018 was £1,059,885 ($1,344,801), which
reflected the first two tranches of funds advanced. Monthly payments will begin one month after the completion of the equipment
and will continue over a 60-month period at 3.50% above the base rate (LIBOR).
UNIROYAL GLOBAL ENGINEERED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30, 2018
and December 31, 2017
Principal requirements on long-term debt for years ending after
December 30, 2018 are as follows:
|
|
|
Totals
|
|
|
|
|
|
|
|
|
2019
|
|
$
|
1,369,967
|
|
|
2020
|
|
|
1,311,444
|
|
|
2021
|
|
|
1,133,958
|
|
|
2022
|
|
|
953,930
|
|
|
2023
|
|
|
501,182
|
|
|
Thereafter
|
|
|
67,240
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,337,721
|
|
|
NOTE 10 - Related Party Obligations
|
Long-term debt to related parties consists
of the following:
|
|
|
December 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
Senior subordinated promissory notes issued to the
Company’s majority shareholder; monthly interest
only payments at 9.25%; principal payment of
$2,000,000 due on January 15, 2021. The senior
subordinated promissory notes are secured by
substantially all assets of the Company subject to the
notes' subordination to the line of credit and term
loans with Wells Fargo Capital Finance, LLC.
|
|
$
|
2,000,000
|
|
|
$
|
2,000,000
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured promissory note issued to the
Company’s majority shareholder; quarterly interest
payments at 10%; principal payment of $765,655 due
on January 15, 2021. The note is secured by substantially
all the assets of the Company.
|
|
|
765,655
|
|
|
|
918,786
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated secured promissory note issued to the
Company’s majority shareholder; quarterly interest
payments at 8%; principal payment of $225,000 due
on January 15, 2021. The note is secured by substantially
all the assets of the Company.
|
|
|
225,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
2,990,655
|
|
|
|
2,918,786
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Current portion
|
|
|
-
|
|
|
|
(153,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-term Debt to Related Parties
|
|
$
|
2,990,655
|
|
|
$
|
2,765,655
|
|
On December 15, 2018, the Company amended its senior subordinated
promissory note to the Company’s majority shareholder to change the maturity date to January 15, 2021. Additionally, on December
15, 2018, the Company amended its senior secured promissory note and its subordinated secured promissory note to the Company’s
majority shareholder to defer all principal payments to January 15, 2021. No other terms of the notes were changed at that time.
The changes became effective December 15, 2018.
UNIROYAL GLOBAL ENGINEERED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30, 2018
and December 31, 2017
The Company has a lease financing obligation under which it leases
its main U.S. manufacturing facility and certain other property from a related party lessor entity, owned by the Company’s
majority shareholder. The lease financing obligation accrues interest at 15.64% and currently requires monthly principal and interest
payments of $41,357, which are adjusted annually based on the consumer price index. The balance of the related party lease financing
obligation at December 30, 2018 reflected changes made to the lease agreement during 2018 in recognition of $565,000 of improvements
to the leased facility. The lease financing obligation matures on October 31, 2033. The Company has security deposits aggregating
$267,500 held by the lessor entity. The lease financing obligation is shown in the accompanying Consolidated Balance Sheets as
Related Party Lease Financing Obligation which consists of the following:
|
|
|
December 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Related party lease financing obligation
|
|
$
|
2,697,871
|
|
|
$
|
2,162,151
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Current portion
|
|
|
(84,154
|
)
|
|
|
(8,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Portion
|
|
$
|
2,613,717
|
|
|
$
|
2,153,327
|
|
The current portions of the long-term debt to related parties and
the related party lease financing obligation are combined and are shown in current liabilities as related party obligation. The
$125,000 subordinated secured promissory note that was outstanding at December 31, 2017 was paid during the first quarter of 2018.
|
|
|
December 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt to related parties
|
|
$
|
-
|
|
|
$
|
153,131
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of related party lease financing
obligation
|
|
|
84,154
|
|
|
|
8,824
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party subordinated secured promissory note
|
|
|
-
|
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Related Party Obligation
|
|
$
|
84,154
|
|
|
$
|
286,955
|
|
UNIROYAL GLOBAL ENGINEERED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30, 2018
and December 31, 2017
Principal payments on the lease financing obligation, subordinated
secured promissory note and the aforementioned long-term debt to related parties for years ending after December 30, 2018 are as
follows:
|
|
|
Totals
|
|
|
2019
|
|
$
|
84,154
|
|
|
2020
|
|
|
89,560
|
|
|
2021
|
|
|
3,093,357
|
|
|
2022
|
|
|
117,850
|
|
|
2023
|
|
|
127,202
|
|
|
Thereafter
|
|
|
2,176,403
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,688,526
|
|
The Company files income tax returns in the United States as a C-Corporation,
and in several state jurisdictions and in the United Kingdom. The Company’s subsidiary, Uniroyal, is a limited liability
company (LLC) for federal and state income tax purposes and as such, its income, losses, and credits are to its members. The Company
made the acquisition of Uniroyal through UEPH, a limited liability corporation, which issued preferred ownership interests to the
sellers that provide for quarterly dividends. Uniroyal’s taxable income is allocated entirely to UEPH as its sole member
and since it is a pass-through entity, this income less the dividends paid to the sellers of Uniroyal is reported on the Company’s
tax return. The taxable income applicable to the dividends for the preferred ownership interests is reported to the sellers who
report it on their respective individual tax returns.
On December 22, 2017, the U.S. government enacted the Tax Cuts and
Jobs Act (the “Tax Act”), which significantly changed existing U.S. tax laws that affect the Company’s business.
These changes included, but were not limited to, reducing the U.S. federal corporate tax rate, imposing a one-time transition tax
on deemed repatriation of deferred foreign income and changing rules related to uses and limitations of net operating loss carryforwards
created in tax years beginning after December 31, 2017. The Tax Act required the Company to incur a one-time transition tax on
deferred foreign income not previously subject to U.S. income tax at a rate of 15.5% for foreign accumulated earnings held in cash,
cash equivalents and certain other net current assets, and 8% on the remaining accumulated earnings. The Tax Act also reduced the
U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018.
Based on guidance issued by the SEC, the Company was required
to reflect the income tax effects of those aspects of the Tax Act for which the accounting was known, record a provisional estimate
for those aspects of the Tax Act for which the accounting was incomplete but a reasonable estimate was determinable or, if a reasonable
estimate was not determinable, continue to apply the tax laws that were in effect immediately before the enactment of the Tax Act.
For the year ended December 31, 2017, the Company reported
provisional amounts for the income tax effects of the Tax Act for which the accounting was incomplete but a reasonable estimate
could be determined, including applying the lower corporate tax rate to deferred tax assets and provisioning for the one-time transition
tax on deferred foreign income. Based on a continued analysis of the estimates and further guidance and interpretations on the
application of the law, additional revisions may occur throughout the allowable measurement period, which is no more than one year
beyond the Tax Act enactment date. No material revisions were made to the amounts reported for the income tax effects of the Tax
Act for the year ended December 31, 2017.
UNIROYAL GLOBAL ENGINEERED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30, 2018
and December 31, 2017
The provision (benefit) for income taxes for the years ended December
30, 2018 and December 31, 2017 were:
|
|
|
December 30, 2018
|
|
|
December 31, 2017
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
|
State
|
|
|
5,796
|
|
|
|
38,044
|
|
|
Foreign
|
|
|
(363,428
|
)
|
|
|
362,866
|
|
|
Total current income tax provision (benefit)
|
|
|
(357,632
|
)
|
|
|
400,910
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
266,925
|
|
|
|
2,559,887
|
|
|
State
|
|
|
8,057
|
|
|
|
(37,979
|
)
|
|
Foreign
|
|
|
(109,742
|
)
|
|
|
(6,700
|
)
|
|
Total deferred income tax provision
|
|
|
165,240
|
|
|
|
2,515,208
|
|
|
Total income tax provision (benefit)
|
|
$
|
(192,392
|
)
|
|
$
|
2,916,118
|
|
|
|
|
|
|
|
|
|
|
|
The provision (benefit) for income taxes differs from the amount
computed by applying the federal statutory income tax rate to income before income taxes. The Company’s effective income
tax rate, computed as the total of federal, state and foreign taxes as a percentage of income before taxes, was a negative 18.2%
and 103.8% for the years ended December 30, 2018 and December 31, 2017, respectively. The effective tax rate for the year ended
December 31, 2017 reflected expenses related to the Tax Act,
which included $1,937,070 due to write-downs
of the Company’s U.S. deferred tax assets from the reduction in the marginal tax rate and $941,960 due to the one-time transition
tax on deemed repatriation of deferred foreign income. T
he Company used a portion of its net operating loss carryforward
to offset the transition tax owed.
The following is a reconciliation of the income tax at the U.S.
federal statutory tax rate with the income tax at the effective tax rate for the years ended December 30, 2018 and December 31,
2017:
|
|
|
December 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Income tax at statutory rates
|
|
$
|
221,425
|
|
|
$
|
955,028
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition tax
|
|
|
-
|
|
|
|
941,960
|
|
|
Foreign tax rate differential
|
|
|
35,417
|
|
|
|
(429,227
|
)
|
|
UEPH preference dividend
|
|
|
(326,376
|
)
|
|
|
(284,767
|
)
|
|
Research and development credit
|
|
|
(163,903
|
)
|
|
|
(142,832
|
)
|
|
Effect of change in tax rate on deferred items
|
|
|
13,214
|
|
|
|
1,929,167
|
|
|
Other
|
|
|
13,978
|
|
|
|
(53,276
|
)
|
|
State tax provisions
|
|
|
13,853
|
|
|
|
65
|
|
|
Income tax expense (benefit)
|
|
$
|
(192,392
|
)
|
|
$
|
2,916,118
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
(18.2
|
)%
|
|
|
103.8
|
%
|
|
|
|
|
|
|
|
|
|
|
UNIROYAL GLOBAL ENGINEERED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30, 2018
and December 31, 2017
The following table summarizes the tax effects of temporary differences
that give rise to significant portions of the deferred tax assets and liabilities:
|
|
|
December 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
3,174,952
|
|
|
$
|
3,226,999
|
|
|
Total deferred tax assets
|
|
|
3,174,952
|
|
|
|
3,226,999
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
(326,200
|
)
|
|
|
(324,635
|
)
|
|
Deferred gain
|
|
|
(161,104
|
)
|
|
|
(171,632
|
)
|
|
Capital allowances
|
|
|
(428,233
|
)
|
|
|
(356,785
|
)
|
|
Total deferred tax liabilities
|
|
|
(915,537
|
)
|
|
|
(853,052
|
)
|
|
Net deferred tax assets
|
|
$
|
2,259,415
|
|
|
$
|
2,373,947
|
|
Deferred tax assets as of December 30, 2018 and December 31, 2017
include $2,899,634 and $3,167,092, respectively, of carryforwards related to U.S. net operating losses and $275,318 and $59,907,
respectively, of carryforwards resulting from U.K. losses.
The $2,899,634 and $3,167,092 of deferred
tax assets for U.S. losses are included in other long-term assets.
The $275,318 and $59,907 of deferred tax assets for U.K.
losses are netted with deferred tax liabilities, which are all related to U.K. tax. Total net deferred tax liabilities of $640,219
and $793,145 are included in other long-term liabilities, as of December 30, 2018 and December 31, 2017, respectively.
The Company has a federal net operating loss carryforward of approximately
$12.7 million as of December 30, 2018, which expires in years beginning 2022 through 2034. As a result of these loss carryforwards,
the Company has deferred tax assets in the amount of $2,899,634. Based on evidence available at December 30, 2018 and December
31, 2017, it was determined that a valuation allowance was not required since it was more likely than not that the deferred tax
assets would be realized.
|
NOTE 12 - Postretirement and Postemployment Benefit Liabilities
|
Postretirement Benefit
Liability - Health and Life
The Company provides certain health care and life insurance benefits
for substantially all employees (active or retired) who were employed prior to February 20, 1987. Accounting standards for postretirement
benefits require an employer to: (a) recognize in its statement of financial position an asset for a plan’s overfunded status
or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its
funded status as of the end of the employer’s fiscal year (with limited exceptions); and (c) recognize changes in the funded
status of a defined benefit postretirement plan in the year in which the changes occur. Those changes will be reported in comprehensive
income of a business entity.
UNIROYAL GLOBAL ENGINEERED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30, 2018
and December 31, 2017
The accumulated postretirement benefit obligation, plan assets and
accrued postretirement liability as of the plan's measurement date are as follows:
|
|
|
December 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefit Liability - Health and Life
|
|
$
|
3,077,580
|
|
|
$
|
3,255,120
|
|
|
Less: Plan assets
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued postretirement benefit cost
|
|
|
3,077,580
|
|
|
|
3,255,120
|
|
|
Less: Unrecognized net gain
|
|
|
(836,593
|
)
|
|
|
(564,757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated postretirement benefit obligation
|
|
|
2,240,987
|
|
|
|
2,690,363
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Current portion
|
|
|
(139,095
|
)
|
|
|
(143,287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Portion
|
|
$
|
2,101,892
|
|
|
$
|
2,547,076
|
|
Net postretirement benefit (income) expense for the plan is
comprised of the following:
|
|
|
December 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Interest cost on projected benefit obligation
|
|
|
84,585
|
|
|
|
108,740
|
|
|
Amortization of prior service cost
|
|
|
-
|
|
|
|
-
|
|
|
Amortization of net gain
|
|
|
(119,324
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net postretirement benefit (income) expense
|
|
$
|
(34,739
|
)
|
|
$
|
108,740
|
|
Reconciliation of gains in other comprehensive
loss is as follows:
|
|
|
December 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain
|
|
$
|
391,160
|
|
|
$
|
330,880
|
|
|
Amortization of prior service credit and actuarial gain
|
|
|
(119,324
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement benefit liability adjustment in other comprehensive
loss
|
|
$
|
271,836
|
|
|
$
|
330,880
|
|
The amount in accumulated other comprehensive loss at December 30,
2018 that has not yet been recognized as a component of net periodic benefit costs is $836,593 and consists of unrecognized net
actuarial gains. The amount in accumulated other comprehensive income at December 30, 2018 that is expected to be recognized as
a component of net periodic benefit costs during 2019 is $294,468 and consists of net actuarial gains.
UNIROYAL GLOBAL ENGINEERED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30, 2018
and December 31, 2017
The significant assumptions used in determining the accumulated
postretirement benefit obligation and net periodic benefit cost are as follows:
|
|
December 30, 2018
|
|
December 31, 2017
|
|
Health Care Cost Trend Rates:
|
|
|
|
|
2018
|
4.00%
|
|
4.00%
|
|
Thereafter
|
4.00%
|
|
4.00%
|
|
Discount rate
|
3.82%
|
|
3.23%
|
|
Measurement Date
|
December 30, 2018
|
|
December 31, 2017
|
In addition to the significant assumptions listed above, other assumptions
used in determining the accumulated postretirement benefit obligation and net periodic benefit cost are retirement and termination
probabilities and mortality estimates. The Company assumes that employees participating in the plan will continue to participate
during retirement. The Company also assumes that employees not participating in the plan will not participate in the plan prior
to or during retirement.
Employer and employee contributions to the plan were $147,358 and
$16,237, respectively, during the year ended December 30, 2018 and $140,243 and $10,535, respectively, during the year ended December
31, 2017. Contributions to the plan are made each year based on estimated benefit payments to be paid out of the plan. Estimated
benefit payments from the plan for each of the next five years, and in the aggregate for the five years thereafter, are as follows:
|
2019
|
|
$
|
139,092
|
|
|
2020
|
|
|
142,737
|
|
|
2021
|
|
|
147,630
|
|
|
2022
|
|
|
148,793
|
|
|
2023
|
|
|
148,887
|
|
|
2024 - 2028
|
|
|
733,267
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,460,406
|
|
Postemployment Benefit
Liability - Severance
The Company provides certain severance benefits for substantially
all union employees who began their employment prior to 1986. Accounting standards for postemployment benefits require the Company
to accrue the estimated cost of future severance payments during the years the employees provide services. The accrued postemployment
benefit liability as of December 30, 2018 and December 31, 2017 was $13,434 and $28,162, respectively, and is included in other
long-term liabilities in the accompanying Consolidated Balance Sheets. The accrued postemployment benefit liability was determined
using discount rates of 3.82% and 3.23% as of December 30, 2018 and December 31, 2017, respectively.
UNIROYAL GLOBAL ENGINEERED PRODUCTS,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30, 2018
and December 31, 2017
The following table summarizes the Company’s common stock
outstanding by class:
|
|
|
December 30, 2018
|
|
|
December 31, 2017
|
|
|
Ordinary Common Stock
|
|
|
17,070,928
|
|
|
|
17,070,928
|
|
|
Class B Common Stock
|
|
|
1,619,102
|
|
|
|
1,619,102
|
|
|
Total
|
|
|
18,690,030
|
|
|
|
18,690,030
|
|
The Company’s Class B Common Stock (“Class B”)
has the same entitlement to dividends as may be declared for the ordinary common stock. The holder of Class B was the holder of
UGEP preferred stock that was converted to Class B on December 30, 2015. The Class B does not have any preference with respect
to holders of other equity interests in the Company in the event of any liquidation, dissolution or winding up of the Company.
Each share of Class B has the right to 22 votes on matters that come before the shareholders. Each share of Class B is convertible
into one share of ordinary common stock at any time. The shares of Class B are not registered and do not trade in the open market.
Acquisition
On November 10, 2014
, the
Company acquired Uniroyal and UGEL (previously EPAL), the holding company for UGL (previously Wardle Storeys). Pursuant to the
acquisition of Uniroyal, 200,000 units of Series A preferred units and 150,000 units of Series B preferred units of UEPH Holdings
LLC, a wholly-owned subsidiary of the Company, were issued to the former owners of Uniroyal. Each of the UEP Holdings Series
A and Series B preferred units have an issue price of $100 per unit or a total face value of $20,000,000 and $15,000,000, respectively.
The UEPH Series A preferred units are entitled to a preferred return of an amount per annum equal to five percent (5.00%) of the
issue price of such UEPH Series A preferred unit. The UEPH Series B preferred units are entitled to a preferred return of an amount
per annum equal to five and one half percent (5.50%) of the issue price of such UEPH Series B preferred unit, increasing by one
half percent (0.50%) on the first anniversary of the effective date and by an additional one half percent (0.50%) on each successive
anniversary of the effective date thereafter, up to a maximum of eight percent (8.00%) on the fifth anniversary of the effective
date. As of December 30, 2018, the preferred return percentage of the UEPH Series B preferred units is 7.5%.
In a separate transaction, the Company also purchased all the outstanding
50 common shares of UGEL, a U.K. limited company, for 100 shares of its common stock and its guaranty of outstanding UGEL preferred
stock retained by the seller, having a liquidation preference of €17,699,314 (approximately $20,272,794). As part of the
transaction, 50 shares of the UGEL common stock held by the seller had been converted and reclassified as preferred shares. These
preferred shares are entitled to a quarterly dividend payment of €221,241 (approximately $253,409).
|
NOTE 14 – Stock-Based Compensation
|
On June 25, 2015, the Company’s stockholders approved the
adoption of the 2015 Stock Option Plan. This plan provides for the granting of options to purchase the Company’s common stock
to employees and directors. The options granted are subject to a vesting schedule as set forth in each individual option agreement.
Each option expires on the tenth anniversary of its date of grant unless an earlier termination date is provided in the grant agreement.
The maximum aggregate number of shares of common stock that may be optioned and sold under the plan shall be 6% of the shares outstanding
on the date of grant. The shares that may be optioned under the plan may be authorized but unissued or may be treasury shares.
Compensation expense is recognized on a straight-line basis over
a three-year vesting period from date of grant.
On a quarterly basis, the Company assesses changes to
its estimate of expected option award forfeitures based on its review of recent forfeiture activity and expected future
employee turnover. The Company recognizes the effect of adjustments made to the forfeiture rates, if any, in the period that
it changes the forfeiture estimate. For the year ended December 30, 2018, there were no forfeiture rate adjustments and
future adjustments are not expected to be significant.
UNIROYAL GLOBAL ENGINEERED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30, 2018
and December 31, 2017
Stock option activity for the years ended December 30, 2018 and
December 31, 2017 is as follows:
|
|
|
|
Stock Options
|
|
|
|
|
Total
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Non-
Vested
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding at January 1, 2017
|
|
|
997,750
|
|
|
$
|
2.80
|
|
|
|
217,501
|
|
|
$
|
2.37
|
|
|
|
780,249
|
|
|
$
|
2.92
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
|
|
330,913
|
|
|
$
|
2.80
|
|
|
|
(330,913
|
)
|
|
$
|
2.80
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited or cancelled
|
|
|
(36,250
|
)
|
|
$
|
2.83
|
|
|
|
(21,249
|
)
|
|
$
|
2.63
|
|
|
|
(15,001
|
)
|
|
$
|
3.10
|
|
|
Outstanding at December 31, 2017
|
|
|
961,500
|
|
|
$
|
2.80
|
|
|
|
527,165
|
|
|
$
|
2.63
|
|
|
|
434,335
|
|
|
$
|
3.00
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
|
|
315,504
|
|
|
$
|
2.80
|
|
|
|
(315,504
|
)
|
|
$
|
2.80
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited or cancelled
|
|
|
(15,000
|
)
|
|
$
|
2.77
|
|
|
|
(8,334
|
)
|
|
$
|
2.61
|
|
|
|
(6,666
|
)
|
|
$
|
2.97
|
|
|
Outstanding at December 30, 2018
|
|
|
946,500
|
|
|
$
|
2.80
|
|
|
|
834,335
|
|
|
$
|
2.69
|
|
|
|
112,165
|
|
|
$
|
3.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Intrinsic Value
December 31, 2017
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Intrinsic Value
December 30, 2018
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
Option expense recognized was $299,798 and $405,280 for the
years ended December 30, 2018 and December 31, 2017, respectively. As of December 30, 2018, there was $44,167 in unrecognized
compensation cost related to the options granted under the 2015 Stock Option Plan. The Company expects to recognize those
costs over the remaining vesting term of three months.
UNIROYAL GLOBAL ENGINEERED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30, 2018
and December 31, 2017
|
NOTE 15 – Earnings Per Share
|
The following table sets forth the computation of
earnings per common share - basic and earnings per common share – diluted for the years ended December 30, 2018 and December
31, 2017:
|
|
|
December 30, 2018
|
|
|
December 31, 2017
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss allocable to common shareholders
|
|
$
|
(1,859,186
|
)
|
|
$
|
(3,102,130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings
per share - weighted average
shares outstanding
|
|
|
18,690,030
|
|
|
|
18,704,773
|
|
Weighted average effect of
dilutive securities
|
|
|
-
|
|
|
|
-
|
|
Denominator for dilutive earnings
per share - weighted average
shares outstanding
|
|
|
18,690,030
|
|
|
|
18,704,773
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Net Loss Per Share
|
|
|
|
|
|
|
|
|
|
Net loss allocable to common shareholders
|
|
$
|
(0.10
|
)
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss allocable to common shareholders
|
|
$
|
(0.10
|
)
|
|
$
|
(0.17
|
)
|
Due to the net loss for each of the years ended
December 30, 2018 and December 31, 2017, the calculations of basic and diluted loss per share were the same since including options
to purchase shares of the Company’s common stock in the calculations of diluted loss per share would have been anti-dilutive.
However, if diluted earnings per share had been reported for the year ended December 30, 2018, the calculation would have excluded
options to purchase 946,500 shares of common stock because the options’ exercise prices of $2.37 and $3.57 per share were
greater than the average market price of the common shares. If diluted earnings per share had been reported for the year ended
December 31, 2017, the calculation would have excluded options to purchase 341,500 shares of common stock because the options’
exercise price of $3.57 per share was greater than the average market price of the common shares.
UNIROYAL GLOBAL ENGINEERED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30, 2018
and December 31, 2017
The Company has several equipment capital leases which expire from
January 2019 through March 2021 with monthly lease payments ranging from approximately $1,520 to $26,619 per month. The capital
lease obligations are secured by the related equipment. Assets recorded under capital leases are included in property and equipment
in the accompanying Consolidated Balance Sheets. Amortization of items under capital lease obligations has been included with depreciation
expense on owned property and equipment in the accompanying Consolidated Statements of Operations. Interest rates on these obligations
range from 4.09% to 19.15%.
Capital lease
obligations consist of the following:
|
|
|
December 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
$
|
498,308
|
|
|
$
|
939,643
|
|
|
Less: Current portion
|
|
|
(388,862
|
)
|
|
|
(408,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Portion
|
|
$
|
109,446
|
|
|
$
|
531,218
|
|
Principal requirements on capital leases for years ending after
December 30, 2018 are as follows:
|
|
|
|
|
|
2019
|
|
$
|
404,685
|
|
|
2020
|
|
|
105,026
|
|
|
2021
|
|
|
7,605
|
|
|
2022
|
|
|
-
|
|
|
2023
|
|
|
-
|
|
|
|
|
|
517,316
|
|
|
Less: Interest
|
|
|
(19,008
|
)
|
|
|
|
|
498,308
|
|
|
Less: Current portion
|
|
|
(388,862
|
)
|
|
|
|
|
|
|
|
Total Long-term Portion
|
|
$
|
109,446
|
|
|
NOTE 17 – Operating Leases
|
The Company leases office facilities and equipment under various
lease agreements which expire from January 2019 through March 2039. The agreements include payments ranging from approximately
$38 to $32,382 per month. Total operating lease expense was approximately $1,104,500 and $1,055,200 for the years ended December
30, 2018 and December 31, 2017, respectively.
Aggregate minimum rental expense under operating lease obligations
for years ending after December 30, 2018 are as follows:
|
2019
|
|
|
$
|
1,004,172
|
|
|
2020
|
|
|
|
875,815
|
|
|
2021
|
|
|
|
761,386
|
|
|
2022
|
|
|
|
715,627
|
|
|
2023
|
|
|
|
527,977
|
|
|
2024 and thereafter
|
|
|
|
5,925,719
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
9,810,696
|
|
UNIROYAL GLOBAL ENGINEERED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30, 2018
and December 31, 2017
|
NOTE 18 – Accumulated Other Comprehensive Income (Loss)
|
The changes in accumulated other comprehensive income (loss) were
as follows:
|
|
|
Minimum
Benefit Liability
Adjustments
|
|
|
Foreign Currency
Translation
Adjustment
|
|
|
Total
|
|
|
Balance at January 1, 2017
|
|
$
|
233,877
|
|
|
$
|
(1,912,363
|
)
|
|
$
|
(1,678,486
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive gains
before reclassifications
|
|
|
330,880
|
|
|
|
972,454
|
|
|
|
1,303,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for
gains included in net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
564,757
|
|
|
|
(939,909
|
)
|
|
|
(375,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive gains (losses)
before reclassifications
|
|
|
391,160
|
|
|
|
(599,329
|
)
|
|
|
(208,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for
gains included in net income
|
|
|
(119,324
|
)
|
|
|
-
|
|
|
|
(119,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30, 2018
|
|
$
|
836,593
|
|
|
$
|
(1,539,238
|
)
|
|
$
|
(702,645
|
)
|
The gains reclassified from accumulated other comprehensive income
(loss) into income is recorded to the following income statement line items:
|
Other Comprehensive Income Component
|
Income Statement Line Item
|
|
Minimum Benefit Liability Adjustments
|
General and administrative expense
|
|
NOTE 19 - Retirement Plans
|
The Company has a 401(k) plan which covers substantially all non-union
U.S. employees. The Company contributions to this plan included in expense totaled approximately $75,000 for the year ended December
30, 2018. The Company did not make any contributions to the plan during the year ended December 31, 2017.
The U.K. employees are covered by a separate plan which meets the
statutory minimum requirements and provides that the Company will contribute a percentage of the employee’s compensation
based on the percentage contributed to the plan by the employee. These statutory minimum requirements for both the employees and
the Company are being phased in over time. Employees may opt out of the plan if they do not want to contribute the minimum required
amount. Generally, for salaried employees hired prior to July 2015, the schedule of minimum required contributions is as follows:
|
Phase in Period
|
Employee
|
Company
|
|
Prior to April 2018
|
2%
|
6%
|
|
April 2018 to April 2019
|
3%/4%
|
7%/7 ½%
|
|
After April 2019
|
5%
|
8%
|
UNIROYAL GLOBAL ENGINEERED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30, 2018
and December 31, 2017
For all salaried employees hired after June
2015 and all wage employees, the schedule of minimum required contributions is as follows:
|
Phase in Period
|
Employee
|
Company
|
|
Prior to April 2018
|
1%
|
1%
|
|
April 2018 to April 2019
|
3%
|
2%
|
|
After April 2019
|
5%
|
3%
|
The Company made contributions of
£410,009 ($547,512) and £375,175 ($483,288) to the U.K. plan for the years ended December 30, 2018 and December
31, 2017, respectively.
Labor Union
The United Steel Workers International Union AFL-CIO, CLC Local
#1207 represents the Company’s manufacturing employees in the U.S. The current union contract expires on March 12, 2023.
The contract will continue from year-to-year thereafter, unless notice terminating the agreement is given by either party
sixty days prior to March 12th in any year after March 12, 2023. Employees at the U.K. facility can be represented by UNITE although
participation is not required. The collective bargaining agreement with UNITE does not specify a termination date.
Major
Customers
Sales to ten automotive industry suppliers accounted for 46.8% and
46.2% of total Company sales during the years ended December 30, 2018 and December 31, 2017, respectively. Accounts receivables
from these customers totaled 52.2% and 54.2% of total receivables as of December 30, 2018 and December 31, 2017, respectively.
Major Suppliers
The Company purchases a significant quantity of its raw materials
from certain major suppliers. Management believes this concentration does not pose a significant risk to the Company's operations
as other suppliers are readily available.
|
NOTE 21 - Related Party Transactions
|
The Company has debt and a lease financing obligation to a related
party. See Note 10 for further discussion.
Related party receivable of $20,118 and $37,116 at December 30,
2018 and December 31, 2017, respectively, were short-term advances to employees that were repaid after December 30, 2018 and December
31, 2017, respectively.
The Company’s chief financial officer, who is also on the
Company’s Board of Directors, does not have a written employment agreement and works on a part-time basis for the Company.
The Company expensed $24,000 as a consulting fee to a company controlled by him in each of the years ended December 30, 2018 and
December 31, 2017. There was $46,500 in prepaid expenses relating to this fee at December 30, 2018.
|
NOTE 22 - Employment Agreements
|
The Company has employment agreements with three management employees
as of December 30, 2018. The initial term of the employment agreements is three years. The term can be renewed or extended as provided
for in the employment agreements. The agreements include various benefits to be provided to the employees including salary, bonus,
life insurance and severance benefits.
UNIROYAL GLOBAL ENGINEERED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 30, 2018
and December 31, 2017
The Company recognizes revenue and related accounts receivable when
obligations under the terms of a contract with a customer are satisfied, which includes the control of products transferring to
the customer. For Uniroyal, this generally occurs when products are shipped and, for UGL, this generally occurs when the customer
accepts delivery either at the Company’s U.K. facility or at a mutually agreed upon location. Revenue is measured as the amount of consideration
the Company expects to receive in exchange for products transferred to the customer. A contract asset occurs when an entity transfers
products to a customer before payment is due while a contract liability occurs when an entity has an obligation to transfer products
to a customer for which the entity has already received payment (or payment is due) from the customer. Remaining performance obligations
exist when an entity expects to record future revenue on partially completed contracts. The Company does not have contract assets
or contract liabilities and has no remaining performance obligations since it does not recognize revenue until a contract is complete.
The following table sets forth revenue
disaggregated by the Company’s automotive and industrial sectors
for the years ended December 30, 2018 and December
31, 2017:
|
|
|
Years Ended
|
|
|
|
|
December 30, 2018
|
|
|
December 31, 2017
|
|
|
Revenue by product sector:
|
|
|
|
|
|
|
|
Automotive
|
|
$
|
65,946,489
|
|
|
$
|
66,325,277
|
|
|
Industrial
|
|
|
33,614,232
|
|
|
|
31,812,783
|
|
|
Total Revenue
|
|
$
|
99,560,721
|
|
|
$
|
98,138,060
|
|
The following table sets forth
revenue disaggregated by the geographic locations of the Company’s customers
for the years ended December 30, 2018
and December 31, 2017:
|
|
|
Years Ended
|
|
|
|
|
December 30, 2018
|
|
|
December 31, 2017
|
|
|
Revenue by customer location:
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
47,046,038
|
|
|
$
|
44,953,623
|
|
|
Europe
|
|
|
46,466,159
|
|
|
|
47,229,480
|
|
|
Asia
|
|
|
5,476,345
|
|
|
|
5,368,374
|
|
|
Other
|
|
|
572,179
|
|
|
|
586,583
|
|
|
Total Revenue
|
|
$
|
99,560,721
|
|
|
$
|
98,138,060
|
|