Nature of Business and Basis of Presentation

3 Months Ended

Mar. 31, 2020

Nature of Business and Basis of Presentation

Nature of Business

Unique Fabricating, Inc. (the “Company”) engineers and manufactures multi-material foam, rubber, and plastic components utilized in noise, vibration and harshness, acoustical management, water and air sealing, decorative and other functional applications. The Company operates as one operating and reportable segment.

Basis of Presentation

The Company’s condensed consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principals have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying condensed consolidated financial statements contain all material adjustments (consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial position of 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. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K/A for the year ended December 29, 2019.

Going Concern

The Company’s condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Refer to Note 6 for discussion of the Company’s financial covenant compliance.

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 projected it would not be in compliance with its financial covenants related to the Bank EBITDA for the twelve months ended June 30, 2020. 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 outstanding balance on the Revolver, which will not permanently reduce the Revolving Credit Aggregate Commitment; (v) adds a weekly 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.

While the Seventh Amendment waives the requirement to test the Maximum Total Leverage Ratio, Minimum Debt Service Coverage Ratio and Minimum Unadjusted Consolidated EBITDA for the second quarter of 2020, it does not waive these requirements for periods after the second quarter of 2020. Bank EBITDA, as defined, for the twelve months ended September 30, 2020, December 31, 2020, and March 31, 2021 is likely to result in the Company not being in compliance with its financial covenants, as these periods will include the financial results of the second quarter of 2020 which will be materially impacted by the COVID-19 pandemic. Absent an amendment or waiver, failure to be in compliance with the Company’s financial covenants would constitute a default when reported. Such a default, if not cured or waived, would allow the lenders to accelerate the maturity of the debt, making it due and payable at that time. If the maturity of the debt were accelerated, the Company would not have sufficient available liquidity to repay such debt within one year after the date that the financial statements are issued. This condition raises substantial doubt about the Company’s ability to continue as a going concern.

The Company has been actively discussing the impact the COVID-19 pandemic is expected to have on the Company’s ability to meet its financial covenants with the Administrative Agent and the need to modify the covenant terms through the periods that the Company believes may be impacted. The Company believes it is probable that the Company will obtain an amendment modifying the covenant terms prior to triggering a default. As a result, the Company has concluded that it’s plans to obtain covenant relief are probable of being achieved, to alleviating substantial doubt about the Company’s ability to continue as a going concern.

Change in Quarter and Year-End

Historically, the Company’s quarterly periods ended on the Sunday closest to the end of the calendar quarterly period. For 2019, the quarters and year to date period, which were 13 weeks, respectively, ended on March 31, June 30, September 29, and December 29, 2019. On March 13, 2020, the Company’s board of directors approved changing our quarterly periods to match calendar quarterly periods. The Company expects the impact of this change on our 2020 result of operations to be immaterial. All year, quarter, and three month references prior to 2020 relate to the Company’s fiscal year and fiscal quarters, unless otherwise stated. For ease of presentation, quarter and three months ended is used throughout this Quarterly Report on Form 10-Q to represent both the current year calendar quarterly periods and the prior year fiscal year periods.

Concentration Risks

The Company is exposed to significant concentration risks as follows:

Customer and Credit — During the three months ended March 31, 2020 and three months ended March 31, 2019, the Company’s net sales were derived from customers principally engaged in the North American automotive industry. The following table presents the Company's sales directly and indirectly to General Motors Company (GM), Fiat Chrysler Automobiles (FCA), and Ford Motor Company (Ford) as a percentage of total net sales:


	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
General Motors Company	17	%	18	%
Fiat Chrysler Automobiles	14	%	15	%
Ford Motor Company	10	%	11	%

No customer represented more than 10 percent of direct Company sales for the three months ended March 31, 2020. GM accounted for 9 percent of direct Company sales for the three months ended March 31, 2020.

Labor Markets — At March 31, 2020, of the Company’s hourly plant employees working in the United States manufacturing facilities, 40 percent were covered under a collective bargaining agreement which expires in August 2022 while another 6 percent were covered under a separate collective bargaining agreement that expires in February 2023.

International Operations — The Company manufactures and sells products outside of the United States primarily in Mexico and Canada. Foreign operations are subject to various political, economic and other risks and uncertainties inherent in foreign countries. Among other risks, the Company’s operations may be subject to the risks of: restrictions on transfers of funds; export duties, quotas, and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; political conditions; and governmental regulations. The following table presents the percentage of the Company's total production in Mexico, Canada, and other foreign markets:


	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Mexico	23	%	19	%
Canada	9	%	8	%
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 March 31, 2020		Three Months Ended March 31, 2019
Mexico	23	%	18	%
Canada	8	%	9	%
Other	—	%	1	%