2018 SEP Reviewed Financial Statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SOUTHEASTERN PRINTING COMPANY, INC. AND SUBSIDIARY December 31, 2018 (See Independent Accountant's Review Report) - 11 - NOTE I - LONG-TERM DEBT (CONTINUED) The swap is designed to hedge the risk of changes in interest payments on the note caused by changes in LIBOR. The swap was issued at market terms so that it had no fair value at its inception. The carrying amount of the swap has been adjusted to its fair value at the end of the year, which because of changes in forecasted levels of LIBOR, resulted in reporting a liability for the fair value of the future net payments forecasted under the swap. The asset is classified as noncurrent since management does not intend to settle it during 2019. Since the critical terms of the swap and the note are the same, the swap is assumed to be completely effective as a hedge, and none of the change in its fair value is included in net income. Accordingly, all of the adjustment of the swap's carrying amount is reported as other comprehensive income. NOTE J - CONTROLLING INTEREST AND RELATED PARTY TRANSACTIONS Controlling Interest: All of the outstanding common stock is owned by one individual. Related Party Transactions: The Company has trade payables to its affiliate, SEP Communications, LLC (SEPC) totaling $18,879 at December 31, 2018 and has trade receivables due from SEPC totaling $88,794 at December 31, 2018. The Company leases a facility that is owned by its affiliate, 8th Street, LLC. Under a written lease agreement, the Company paid rent to its affiliate totaling $320,700 in 2018. The Company has a related party receivable due from 8th Street, LLC totaling $26,296 at December 31, 2018. See Note C for related party notes receivable. NOTE K - DEFINED CONTRIBUTION PLAN The Company sponsors a 401(k) plan for eligible employees with its affiliate SEP Communications, LLC. The plan covers all full time employees after 90 days of service and reaching the age of twenty-one. Under the terms of the plan, employees are eligible to defer up to 100% of their compensation not to exceed the IRS Code Section limits. For eligible employees, the plan provides for safe harbor matching contributions by the Company equal to 100% of employee salary deferrals that do not exceed 3% of employee compensation plus 50% of salary deferrals between 3% and 5% of compensation. The plan also provides for discretionary contributions by the Company up to 4% of employee compensation. The 401(k) matching expense totaled $121,449 for the year ended December 31, 2018.