Attached files
| file | filename |
|---|---|
| EX-99.4 - EXHIBIT 99.4 - Nexeo Solutions, Inc. | exh994doc.htm |
| EX-99.3 - EXHIBIT 99.3 - Nexeo Solutions, Inc. | exh993.htm |
| EX-99.1 - EXHIBIT 99.1 - Nexeo Solutions, Inc. | exh991.htm |
| 8-K/A - 8-K/A ULTRA CHEM PRO FORMAS - Nexeo Solutions, Inc. | a8-kaxultrachemproformas.htm |
Ultra Chem Group
Combined Financial
Statements as of and for the
Years Ended December 31,
2015 and 2014, and
Independent Auditors' Report
Ultra Chem Group
Independent Auditors’ Report and
Financial Statements 2015 and 2014
Table of Contents Page
Independent Auditor’s Report 1
Combined Balance Sheets 2
Combined Statements of Income and Other Comprehensive Income 3
Combined Statements of Stockholders' Equity 4
Combined Statements of Cash Flows 5
Notes to the Combined Financial Statements 7
T: +52 (55) 5901 3900 | www.pkfmexico.com
PKF México | Boulevard Manuel Ávila Camacho No. 170 Piso 2 | Col. Reforma Social | 11650 México, D.F.
Contadores y Asesores de Negocios PKF México, S.C. y/o PKF México Williams y Cía., S.C. es miembro de PKF International Limited, una asociación de firmas miembro legalmente
independientes, y no acepta ninguna responsabilidad por las acciones o inacciones de parte de cualquier otra firma miembro.
Contadores y Asesores de Negocios PKF México, S.C. y/o PKF México Williams y Cía., S.C. is member of PKF International Limited, an association of legally independent firms, and
does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firms.
Independent Auditor’s Report
To the Board of Directors and Stockholders of Ultrachem Group.
We have audited the accompanying combined balance sheets of Ultrachem Group. as of December 31, 2015
and 2014, and the related combined statements of income and other comprehensive income, changes in
stockholders' equity, and cash flows for each of the two years in the period ended December 31, 2015.
These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the auditing standards generally accepted in the United States
of America (USGAAS). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
combined financial position of Ultrachem Group at December 31, 2015 and 2014, and the combined results
of its operations and its cash flows for each of the two years in the period ended December 31, 2015, in
conformity with U.S. generally accepted accounting principles.
Contadores y Asesores de Negocios PKF México, S.C.
Javier Durán Robles
Audit Partner
Mexico City
March 28, 2017
2
Ultra Chem Group
Combined Balance Sheets
As of December 31, 2015 and 2014
(In U.S. dollars)
Assets 2015 2014
Current assets:
Cash and cash equivalents $ 176,906 $ 86,236
Accounts receivable – Net of allowance of doubtful accounts of
$450,435 for fiscal years ended December 31, 2015 and 2014
(note 3) 10,803,905 9,504,452
Other receivables 85,424 163,070
Recoverable taxes (note 5) 869,408 1,140,814
Inventories (note 6) 7,365,117 8,189,517
Advanced payments 189,157 112,035
Total current assets 19,489,917 19,196,124
Non-current assets:
Machinery and equipment – Net (Note 7) 378,597 330,640
Deferred income taxes (Note 11) 172,563 172,288
Total non-current assets 551,160 502,928
Total assets $ 20,041,077 $ 19,699,052
Liabilities and stockholders' equity
Current liabilities:
Short-term borrowing (note 8) $ 437,119 $ 1,400,674
Accounts payable 9,885,096 10,748,139
Other payables 254,450 218,467
Accrued liabilities 1,714 2,593
Income taxes payable (note 11) 1,107,550 397,735
Statutory employee profit sharing 42,956 22,269
VAT due pending collection 1,589,534 1,363,767
Total current liabilities 13,318,419 14,153,644
Employee Benefits (note 9) 82,028 81,108
Contingencies (note 12) - -
Total Liabilities $ 13,400,447 $ 14,234,752
Stockholders' equity:
Common stock (note 10) 1,112,664 1,103,922
Accumulated other comprehensive loss (158,145) (61,570)
Retained earnings 3,902,910 3,138,966
Income for the year 1,783,201 1,282,982
Total stockholders' equity 6,640,630 5,464,300
Total liabilities and stockholders’ equity $ 20,041,077 $ 19,699,052
The accompanying notes are an integral part of these combined financial statements.
3
Ultra Chem Group
Combined Statements of Income and Comprehensive
Income
For the years ended December 31, 2015 and 2014
(In U.S. dollars)
2015 2014
Net sales $ 56,669,215 $ 47,443,084
Cost of sales 47,073,137 40,268,314
Gross Profit 9,596,078 7,174,770
General expenses 782,257 714,792
Administrative expenses 2,993,984 2,815,589
Operating expenses 1,810,702 2,069,830
Operating income 4,009,135 1,574,559
Other income (expense):
Interest expense – Net (119,821) (80,871)
Other income , net 284,880 275,118
Foreign currency exchange loss – Net (1,167,278) (15,290)
Income before income taxes 3,006,916 1,753,516
Income taxes (note 11) 1,223,715 470,534
Net income $ 1,783,201 $ 1,282,982
Other comprehensive loss (the tax effects for each component is not
material)
Foreign currency translation adjustment (96,835) (54,678)
Employee benefits 260 (3,683)
Total comprehensive income $ 1,686,626 $ 1,224,621
The accompanying notes are an integral part of these combined financial statements.
4
Ultra Chem Group
Combined Statements of Stockholders' Equity
For the years ended December 31, 2015 and 2014
(In U.S. dollars)
Common
Stock
Retained Earnings Accumulated other
comprehensive loss
Total Stockholders'
Equity
January 1, 2014 $ 851,711 $ 1,994,263 $ (3,209) $ 2,842,765
Common stock increase due to merger 252,211 1,348,302 - 1,600,513
Comprehensive income:
Net income - 1,282,982 - 1,282,982
Accumulated other comprehensive loss - - (58,361) (58,361)
Dividends paid - (203,599) - (203,599)
December 31, 2014 1,103,922 4,421,948 (61,570) 5,464,300
Capital Contribution 8,742 - - 8,742
Comprehensive income: - - - -
Net income - 1,783,201 - 1,783,201
Accumulated other comprehensive loss - - (96,575) (96,575)
Dividends paid - (519,038) - (519,038)
December 31,2015 $ 1,112,664 $ 5,686,111 $ (158,145) $ 6,640,630
The accompanying notes are an integral part of these combined financial statements.
5
Ultra Chem Group
Combined Statements of Cash Flows
For the years ended December 31, 2015 and 2014
(In U.S. dollars)
2015 2014
Cash flows from operating activities:
Net income $ 1,783,201 $ 1,282,982
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation expense 114,239 108,450
Machinery and equipment write-offs 35,689 -
Accounts receivable write-offs 216,630 235,883
Inventories write-offs 221,098 134,718
Employee benefits 14,636 19,826
Deferred income taxes (4,391) (116,288)
Changes in operating assets and liabilities:
Accounts receivable (1,516,983) (2,077,460)
Other receivables 5,330 289,191
Recoverable taxes 259,033 (472,595)
Guarantee deposits (2,577) -
Advance payments (7,158) (6,250)
Inventories 578,529 (3,425,693)
Accounts payable (859,125) 3,177,714
Other payables 18,761 11,102
Accrued liabilities 465,236 658,302
Income taxes payable 581,056 113,348
Statutory employee profit sharing 26,843 (10,610)
Net cash provided by (used in) operating activities 1,930,047 (77,380)
Cash flows from investing activities:
Acquisition due to merger - 38,711
Acquisitions of machinery and equipment (224,969) (186,217)
Net cash used in investing activities (224,969) (147,506)
Cash flows from financing activities:
Capital contributions 8,742 -
Proceeds from notes payable 164,465 1,880,901
Repayments of notes payable (1,128,019) (1,349,993)
Dividends paid (519,038) (203,599)
Net cash (used in) provided by financing activities (1,473,850) 327,309
6
2015 2014
Effect of exchange rate changes on cash and cash equivalents (140,558) (75,688)
Increase in cash and cash equivalents 90,670 26,735
Cash and cash equivalents - Beginning of year 86,236 59,501
Cash and cash equivalents - End of year $ 176,906 $ 86,236
Supplemental disclosures of cash flow information:
Interest paid $ 120.557 $ 76,047
Income taxes paid $ 611,003 $ 403,787
The accompanying notes are an integral part of these combined financial statements
7
Ultra Chem Group
Notes to the Combined Financial Statements
As of and for the years ended December 31, 2015 and 2014
(Amounts in tables are in U.S. dollars)
1. Basis of Presentation and Nature of Operations
Basis of Presentation - The accompanying combined financial statements present the financial position of
Ultra Chem, S de R.L. de C.V. (“Ultra Chem”), Global Chem, S de R.L. de C.V. (“Global Chem”), and Chem
Servicios, S de R.L. de C.V. (“Chem Servicios”) (together on a combined basis, "Ultra Chem Group") as of
December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended. In
these notes to our combined financial statements, the terms "Companies," "we," "our," and "us" refer to Ultra
Chem, S de R.L. de C.V., Global Chem, S de R.L. de C.V., and Chem Servicios, S de R.L. de C.V. on a
combined basis, as the context may require.
Ultra Chem, S de R.L. de C.V. was formed as a limited liability company on May 23, 2000, pursuant to and in
accordance with the Act. N. 50,791. Global Chem, S de R.L. de C.V. was formed as a limited liability
company on March 28, 2007, pursuant to and in accordance with the Act. N. 130,637. Chem Servicios, S de
R.L. de C.V. was formed as a limited liability company on March 7, 2007, pursuant to and in accordance with
the Act. N.130,558. Our fiscal year end is December 31.
Nature of Operations - Ultra Chem is a distributor of chemicals and plastics in Mexico and United States. In
connection with the distribution of chemicals products, Ultra Chem provides value-added services such as
custom blending, packaging and re-packaging, private-label manufacturing. Global Chem manufactures
chemicals and plastics and sells mainly to Ultra Chem their products within Mexico. Chem Servicios provides
personnel and management services to Ultra Chem and Global Chem.
2. Significant Accounting Policies and Recent Accounting Pronouncements
Significant Accounting Policies
Principles of Combination – The accompanying combined financial statements include all the accounts of the
Companies with significant intercompany transactions and balances having been eliminated upon
combination.
Use of Estimates – Our combined financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America. These principles require management to make
estimates and assumptions that affect the amounts reported and disclosed in our combined financial
statements.
We provide allowances for doubtful accounts arising, which are based upon a specific review of certain
outstanding receivables and consider factors such as customer credit, historical and recent transactions with
the customers. In determining the amounts of the allowances, we are required to make certain estimates and
assumptions. Accruals for potential liabilities related to any lawsuits or claims brought against us,
determination of fair value of financial instruments, calculation of income tax assets, income tax liabilities
and uncertain tax positions, valuation allowance on deferred tax assets, as well as other liabilities, require that
we apply significant judgment in determining the appropriate assumptions for use in the calculation of
financial estimates. We also must estimate the useful lives assigned to our assets. Actual results may differ
from these estimates and assumptions.
8
Fair Value Measurements - In accordance with the authoritative guidance on fair value measurements and
disclosures, Ultra Chem Group measures nonfinancial assets and liabilities subject to nonrecurring
measurement and financial assets and liabilities subject to recurring measurement based on a hierarchy that
prioritizes inputs to valuation techniques used to measure the fair value. Inputs used in determining fair value
should be from the highest level available in the following hierarchy:
Level 1 - Inputs based on quoted market prices in active markets for identical assets or liabilities that the
reporting entity has the ability to access
Level 2 - Inputs based on quoted prices for similar assets or liabilities, quoted market prices in markets that
are not active, or other inputs that are observable or can be corroborated by observable data for substantially
the full term of the assets or liabilities
Level 3 - Inputs are unobservable for the asset or liability and typically based on an entity's own assumptions
as there is little, if any, related market activity
At December 31, 2015 and 2014, the Companies had assets that under certain conditions would be subject to
measurement at fair value on a nonrecurring basis, such as long-lived assets subject to fair value measurement
when an impairment loss is recorded. Recognition of these assets at their fair value would be determined
utilizing Level 3 inputs.
Cash and Cash Equivalents – Cash and cash equivalents, include cash balances, bank deposits in Mexico and
other highly liquid investments with minor risks by change in value.
Accounts Receivable and Allowance for Doubtful Accounts - Accounts receivable are recorded net of
discounts and allowance for doubtful accounts. The Companies perform ongoing credit evaluations of its
customers and generally does not require collateral from them. In the event of the collectability of a
receivable is in doubt, we will record an increase in our allowance for doubtful accounts or record a direct
write-off of the receivable after exhaustive efforts at collection.
Inventories - Inventories are carried at the lower of cost or market using the weighted average cost method.
Provisions have been made to reduce excess or obsolete inventories to their estimated market value.
Advance payments – Advance payments consists primarily of prepaid insurance, prepaid taxes, prepaid
operating supplies and guarantee deposits.
Machinery and Equipment - Machinery and equipment is stated at cost and their components are depreciated
over the estimated useful lives reported below using the straight-line method.
Estimated Useful
Lives
Furniture and fixtures 10 years
Machinery and plant equipment 10 years
Vehicles 4 years
Computer equipment 3-4 years
Improvements 5 years
Expenditures for renewals and betterments, which increase the estimated useful life or capacity of the assets,
are capitalized. Repairs and maintenance that do not extend the useful life of the asset are expensed as
incurred. Gains and losses on dispositions of Machinery and equipment are included in costs and expenses in
the accompanying combined statements of operations.
Leases – Ultra Chem Group leases certain machinery and equipment in the ordinary course of business. The
leases are classified as operating leases and are recognized as an expense in the combined statements of
operations on a straight-line basis over the lease term.
Contingencies- Liabilities for loss contingencies arising from claims, assessments, litigation, fines and
penalties and other sources are recorded when it is probable that a liability has been incurred and the amount
of such liability can be reasonably estimated. Gain contingencies are not recorded until management
determines it is certain that the future event will become or does become a reality.
9
Accumulated Other Comprehensive Loss - Accumulated other comprehensive loss includes unrealized losses
relating to Employee benefits’ actuarial gains and losses. It also includes foreign currency translation
adjustments from Mexican peso to the U.S. dollar, because the functional currency of Global Chem and Chem
Servicios is Mexican Peso.
Revenue Recognition - Revenue generated from our operations is recognized when the benefits are
transferred to our customers, which occurs when products are delivered in fulfillment of their orders.
Deposits collected in advance of a customer's arrival are deferred in accrued liabilities and are recognized as
revenue when the related services are provided to the customer.
Income Taxes - The Ultra Chem Group is subject to Mexican income taxes on a non-basis as levied by the
Mexican taxing authority as Mexican income tax ("ISR"). Realization of future tax benefits related to deferred
tax assets is dependent on many factors, including the Ultra Chem Group’s ability to generate future Mexican
taxable income. The valuation allowance is adjusted in the period we determine it is more likely than not that
deferred tax assets will or will not be realized.
Foreign currency financial statements - The accompanying combined financial statements, have been
adjusted to conform with accounting principles generally accepted in the United States of America (U.S.
GAAP) and have been translated into U.S. dollars as discussed below.
The financial statements are translated into US dollars (presentation currency), considering the following
methodologies:
For Global Chem and Chem Servicios, whose functional currency and registration currency are the same
(Mexican Peso), convert their financial statements to the presentation currency using the following exchange
rates: 1) closing for assets and liabilities; 2) historical for stockholders' equity and 3) the date of accrual for
income, costs and expenses. The conversion effects are recorded in other comprehensive income.
For Ultra Chem, whose registration currency (Mexican Peso) is different from its functional currency (US
dollar), convert their financial statements from the registration currency to the functional currency, using the
following exchange rates: 1) closing for monetary assets and liabilities; 2) historical for non-monetary assets,
non-monetary liabilities and stockholders' equity, and 3) the date of accrual for income, costs and expenses,
except for those that come from non-monetary items that are converted at the historical exchange rates. The
conversion effects, are recorded in the foreign exchange gain (loss).
Relevant exchange rates used in the preparation of the combined financial statements were as follows
(Mexican pesos per one U.S. dollar):
2015 2014
Current exchange rate as of December 31, 17.34 14.73
Weighted average exchange rate for the year ended December
31, 15.85 13.29
Recent Accounting Pronouncements - In May 2014 the FASB issued ASU 2014-09, Revenue Recognition
(Topic 606) Revenue from Contracts with Customers. This ASU prescribes a single comprehensive model for
entities to use in the accounting of revenue arising from contracts with customers and requires expanded
disclosures surrounding the Company’s revenue transactions. Entities are required to adopt this ASU in
annual reporting periods beginning after December 15, 2018 with early adoption permitted only as of annual
reporting periods beginning after December 15, 2016. There are two transition options available to entities:
the full retrospective approach or the modified retrospective approach. Under the full retrospective approach,
the Ultra Chem Group would restate prior periods in compliance with Accounting Standards Codification
250, Accounting Changes and Error Corrections. Alternatively, the Ultra Chem Group may elect the modified
retrospective approach, which allows for the new revenue standard to be applied to existing contracts as of the
effective date and record a cumulative catch-up adjustment to retained earnings. The Companies are in the
process of evaluating the potential effects of this standard and believes it may have a significant impact on its
combined financial statements.
In In January 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards
10
Update (“ASU”) ASU 2015-01, Income Statement-Extraordinary and Unusual Items (Subtopic 225-20). The
amendments in this ASU eliminate the concept of extraordinary items and will no longer require separate
classification of them within the statement of operations. Presentation and disclosure guidance for items that
are unusual in nature or occur infrequently are retained and are expanded to include items that are both
unusual in nature and infrequently occurring. The guidance in this ASU is effective for fiscal years beginning
after December 15, 2015. The adoption of this ASU did not have a material impact on the Companies’
combined financial statements.
In November 2015, the FASB issued ASU 2015-17-Income Taxes (Topic 740). Balance Sheet Classification
of Deferred Taxes. This ASU requires an entity to classify all deferred tax assets and liabilities as non-current.
These amendments are effective for fiscal years beginning after December 15, 2017 and interim periods
within annual periods beginning after December 15, 2018, although early adoption is permitted. The deferred
taxes for fiscal year ended December 31, 2014, was reclassified to conform to current year presentation.
In November 2015, the FASB issued ASU 2016-02-Leases (Topic 842). This ASU requires all leases with
terms greater than12 months, whether finance or operating, to be recorded on the balance sheet, reflecting a
liability to make lease payments and a right-to-use asset representing the right to use the underlying asset for
the lease term. The recognition, measurement and presentation of expenses and cash flows arising from a
lease by a lessee will not significantly change from current U.S. GAAP. These amendments are effective for
the reporting periods beginning after December 15, 2019 with early adoption permitted. An entity will be
required to recognize and measure leases at the beginning of the earliest period presented using a modified
retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal
year of adoption. The Companies are in the process of evaluating the potential effects of this standard and
believes it may have a significant impact on its combined financial statements due, in part, to its substantial
number of operating lease.
3. Accounts receivable, net of allowance for doubtful accounts
A summary of accounts receivable, net at December 31, 2015 and 2014 was:
2015 2014
Accounts receivable $ 11,254,340 $ 9,954,887
Allowance for doubtful accounts (450,435) (450,435)
Accounts receivable, net $ 10,803,905 $ 9,504,452
The Companies directly wrote-off $216,630 and $235,883 of accounts receivable during the fiscal years
ended December 31, 2015 and 2014, respectively.
4. Related-party transactions
A summary of amounts incurred to related parties during 2015 and 2014 is presented below:
2015 2014
Accounts receivable:
Owed from Chem Servicios to Ultra Chem $ 689,647 $ 615,226
Owed from Chem Servicios to Global Chem 207,440 267,450
Total $ 897,087 $ 882,676
Accounts payable
Owed to Chem Servicios from Ultra Chem $ 813,545 $ 669,278
Owed to Global Chem from Ultra Chem 83,542 127,081
Owed to Ultra Chem from Global Chem - 86,317
Total $ 897,097 $ 882,676
11
For the years ended in December 2015 and 2014, Ultra Chem Group entered into the following party
transactions:
2015
Ultra Chem Chem Servicios Global Chem
Services:
Sale/purchase of inventories $ 1,111,431 $ - $ 1,111,431
Administrative services 3,942,428 4,094,160 151,732
Freight services 26,514 26,514 -
Billed Interest 7,237 7,237 -
2014
Ultra Chem Chem Servicios Global Chem
Services:
Sale/purchase of inventories $ 1,268,410 $ - $ 1,268,410
Administrative services 3,553,206 3,740,873 187,667
Freight services 90,963 90,963 -
Other services 75,215 - 75,215
5. Recoverable taxes
Recoverable taxes at December 31, 2015 and 2014 are presented below:
2015 2014
Income taxes $ 31,211 $ 95,968
VAT receivable 838,197 1,044,846
$ 869,408 $ 1,140,814
6. Inventories
A summary of amounts of inventories at December 31, 2015 and 2014 is presented below:
2015 2014
Inventories $ 7,407,864 $ 8,232,264
Obsolete inventory reserve (42,747) (42,747)
Total $ 7,365,117 $ 8,189,517
The Companies directly wrote-off $221,098 and $134,718 of inventories during the fiscal years ended
December 31, 2015 and 2014, respectively due to obsolescence.
12
7. Machinery and equipment
Machinery and equipment at December 31, 2015 and 2014 are presented below:
2015 2014
Machinery and plant equipment $ 201,521 $ 224,229
Vehicles 480,704 460,566
Furniture and fixtures 44,623 29,531
Computer equipment 86,373 78,794
Improvements 8,716 -
Total 821,937 793,120
Less accumulated depreciation (443,340) (462,480)
Machinery and equipment – net $ 378,597 $ 330,640
Depreciation expense for the years ended December 31, 2015 and 2014 was $114,239 and $108,450,
respectively.
8. Short-term borrowing
Since February 13, 2008, Ultra Chem has a short-term loan with Banco Nacional de México S.A. de C.V. the
borrowing amount as of December 31, 2014, was $382,676 (USD equivalent). Additionally on December 11
and 16, 2014, Ultra Chem subscribed three notes payable for the amount of $1,017,998 total (USD
equivalent) $339,333 (USD equivalent) each one, at a stated interest rate of 7%. On May 20, 2015, Ultra
Chem signed a contract with Banco Nacional de México S.A. de C.V. in which the short-term loan was
converted into a line of credit up to $1,441,770 (USD equivalent as of December 31 2015) with a maturity
date of May 27, 2016. The annual interest rate was TIIE (Interbank equilibrium rate by its acronym in
Spanish) plus an applicable margin of 4.0% for fiscal year ended December 31, 2015. The outstanding
borrowing balances for this line of credit as of December 31, 2015 and 2014 was $437,119 and $1,400,674
respectively, and weighted average interest rate of 7.42% and 7%, respectively.
9. Employee Benefits
Information related to Chem Servicios’ seniority premium benefits and statutorily mandated severance
benefits is as follows:
Chem Servicios uses as its measurement date for its seniority premium and severance benefits, December 31.
Seniority Premium
Benefits
Severance
Benefits
2015 2014 2015 2014
As of December 31:
Accumulated benefit obligation $ 36,221 $ 37,643 $ 45,807 $ 43,465
13
Seniority Premium
Benefits
Severance
Benefits
2015 2014 2015 2014
Change in benefit obligation:
Benefit obligation at
Beginning of year $ 37,643 $ 33,867 $ 43,465 $ 37,530
Service cost 6,289 4,936 5,594 4,378
Interest cost 2,700 2,275 2,988 2,417
Actuarial loss (3,467) 1,230 2,991 4,499
Exchange rate (6,944) (4,665) (9,231) (5,359)
Benefit obligation at end of
year $ 36,221 $ 37,643 $ 45,807 $ 43,465
Amounts recognized in accumulated other comprehensive income consist of:
Seniority Premium
Benefits
Severance
Benefits
2015 2014 2015 2014
Net actuarial loss (gain) $ (3,467) $ 1,230 $ 2,991 $ 4,499
Net periodic benefits cost is comprised as follows:
Seniority Premium
Benefits
Severance
Benefits
2015 2014 2015 2014
Components of net periodic
Benefits cost:
Service cost $ 6,289 $ 4,936 $ 5,594 $ 4,378
Interest cost 2,700 2,275 2,988 2,417
Net periodic benefits cost $ 8,989 $ 7,211 $ 8,582 $ 6,795
Seniority Premium
Benefits
Severance
Benefits
2015 2014 2015 2014
Weighted-average assumptions
used to determine benefit
obligations as of December 31:
i
Discount rate 6.8 % 6.7 % 6.8 % 6.7 %
Rate of compensation
increase 7.0 % 7.0 % 7.0 % 7.0 %
10. Stockholders’ equity
Common stock consists of fixed and variable social parts. As of December 31, 2015 and 2014 the fixed
common stock is $1,112,664 and $1,103,922, respectively. Variable capital may be increased without
limitation.
Due to the merger of Ultra Chem with Chem Stone, S. de R.L. de C.V. and Adichem, S. de R.L. de C.V.
carried out since January 1, 2014 the common stock increased in the amount of $252,211.
During the fiscal year 2015, Chem Servicios carried out an increase in common stock for the amount of
$2,827 due to partners’ contribution.
14
During the fiscal year 2015, Global Chem carried out an increase in common stock for the amount of $5,915
due to partners’ contribution.
11. Income taxes
The statutory income tax rate in Mexico is 30%. Income tax expense (benefit) for the years ended December
31, 2015 and 2014 was comprised of the following:
2015 2014
Current income tax expense $ 1,227,827 $ 474,393
Deferred income tax benefit (4,112) (3,859)
Total $ 1,223,715 $ 470,534
The effective income tax rate for the years ended December 31, 2015 and 2014, differs from the Mexican
statutory income tax rate as follows:
2015 2014
Statutory income tax rate 30% 30%
Non-deductible expenses 6% 11%
Inflation gain recorded for tax purposes (1%) (15%)
Other effects in changes in tax law 4% 1%
Effective tax rate 39% 27%
2015 2014
As of December 31, 2015 and 2014; the deferred taxes are as
follows:
Accounts receivable $ 135,131 $ 135,131
Inventory 12,824 12,824
Employee benefits 24,608 24,333
Total deferred tax asset $ 172,563 $ 172,288
Uncertain tax positions - The Companies had no uncertain tax positions for the fiscal years ended December
31, 2015 and 2014.
12. Commitments, contingencies and litigation
Operating Leases
We are a lessee of office buildings, transportation equipment, and warehouses under operating lease
agreements that expire at various dates. Rent expense was $732,997 and $722,570 for the fiscal years ended
December 31, 2015 and 2014, respectively.
Future minimum non-cancellable rental payments as of December 31, 2015 are as follows:
2016 $ 685,201
2017 646,185
2018 444,909
2019 416,044
2020 155,759
Thereafter -
Total $ 2,348,098
From time to time, we are involved in certain litigation and claims incidental to our business. We do not
believe, based on currently available information, that these matters will have a material adverse effect on our
financial position, results of operations, or cash flows.
15