ITEM 1. FINANCIAL STATEMENTS
Jason Industries, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30, 2017
|
|
July 1, 2016
|
|
June 30, 2017
|
|
July 1, 2016
|
Net sales
|
$
|
172,477
|
|
|
$
|
185,687
|
|
|
$
|
347,670
|
|
|
$
|
376,661
|
|
Cost of goods sold
|
136,758
|
|
|
148,531
|
|
|
277,187
|
|
|
301,614
|
|
Gross profit
|
35,719
|
|
|
37,156
|
|
|
70,483
|
|
|
75,047
|
|
Selling and administrative expenses
|
25,242
|
|
|
28,273
|
|
|
51,898
|
|
|
60,574
|
|
Loss (gain) on disposals of property, plant and equipment - net
|
65
|
|
|
(14
|
)
|
|
(265
|
)
|
|
689
|
|
Restructuring
|
543
|
|
|
1,783
|
|
|
1,224
|
|
|
4,500
|
|
Operating income
|
9,869
|
|
|
7,114
|
|
|
17,626
|
|
|
9,284
|
|
Interest expense
|
(8,395
|
)
|
|
(7,963
|
)
|
|
(16,761
|
)
|
|
(15,987
|
)
|
Gain on extinguishment of debt
|
1,564
|
|
|
—
|
|
|
1,564
|
|
|
—
|
|
Equity income
|
277
|
|
|
142
|
|
|
420
|
|
|
311
|
|
Loss on divestiture
|
(6,686
|
)
|
|
—
|
|
|
(6,686
|
)
|
|
—
|
|
Other income - net
|
90
|
|
|
283
|
|
|
203
|
|
|
401
|
|
Loss before income taxes
|
(3,281
|
)
|
|
(424
|
)
|
|
(3,634
|
)
|
|
(5,991
|
)
|
Tax provision (benefit)
|
200
|
|
|
1,946
|
|
|
228
|
|
|
(605
|
)
|
Net loss
|
(3,481
|
)
|
|
(2,370
|
)
|
|
(3,862
|
)
|
|
(5,386
|
)
|
Less net (loss) gain attributable to noncontrolling interests
|
—
|
|
|
(400
|
)
|
|
5
|
|
|
(910
|
)
|
Net loss attributable to Jason Industries
|
(3,481
|
)
|
|
(1,970
|
)
|
|
(3,867
|
)
|
|
(4,476
|
)
|
Accretion of preferred stock dividends
|
936
|
|
|
900
|
|
|
1,854
|
|
|
1,800
|
|
Net loss available to common shareholders of Jason Industries
|
$
|
(4,417
|
)
|
|
$
|
(2,870
|
)
|
|
$
|
(5,721
|
)
|
|
$
|
(6,276
|
)
|
|
|
|
|
|
|
|
|
Net loss per share available to common shareholders of Jason Industries:
|
|
|
|
|
|
|
|
Basic and diluted
|
$
|
(0.17
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
Basic and diluted
|
26,042
|
|
|
22,395
|
|
|
25,914
|
|
|
22,392
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Jason Industries, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30, 2017
|
|
July 1, 2016
|
|
June 30, 2017
|
|
July 1, 2016
|
Net loss
|
$
|
(3,481
|
)
|
|
$
|
(2,370
|
)
|
|
$
|
(3,862
|
)
|
|
$
|
(5,386
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
Employee retirement plan adjustments, net of tax
|
30
|
|
|
—
|
|
|
30
|
|
|
—
|
|
Foreign currency translation adjustments
|
5,854
|
|
|
(2,225
|
)
|
|
7,026
|
|
|
1,051
|
|
Net change in unrealized losses on cash flow hedges, net of tax benefit of ($218), ($700), ($24) and ($1,984), respectively
|
(350
|
)
|
|
(1,034
|
)
|
|
(37
|
)
|
|
(3,133
|
)
|
Total other comprehensive income (loss)
|
5,534
|
|
|
(3,259
|
)
|
|
7,019
|
|
|
(2,082
|
)
|
Comprehensive income (loss)
|
2,053
|
|
|
(5,629
|
)
|
|
3,157
|
|
|
(7,468
|
)
|
Less: Comprehensive (loss) income attributable to noncontrolling interests
|
—
|
|
|
(951
|
)
|
|
43
|
|
|
(1,262
|
)
|
Comprehensive income (loss) attributable to Jason Industries
|
$
|
2,053
|
|
|
$
|
(4,678
|
)
|
|
$
|
3,114
|
|
|
$
|
(6,206
|
)
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Jason Industries, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Assets
|
|
|
|
Current assets
|
|
|
|
Cash and cash equivalents
|
$
|
54,919
|
|
|
$
|
40,861
|
|
Accounts receivable - net of allowances for doubtful accounts of $2,603 at June 30, 2017 and $3,392 at December 31, 2016
|
81,560
|
|
|
77,837
|
|
Inventories - net
|
69,313
|
|
|
73,601
|
|
Assets held for sale
|
17,684
|
|
|
—
|
|
Other current assets
|
16,418
|
|
|
17,866
|
|
Total current assets
|
239,894
|
|
|
210,165
|
|
Property, plant and equipment - net of accumulated depreciation of $79,364 at June 30, 2017 and $70,484 at December 31, 2016
|
158,653
|
|
|
178,318
|
|
Goodwill
|
44,203
|
|
|
42,157
|
|
Other intangible assets - net
|
136,968
|
|
|
144,258
|
|
Other assets - net
|
9,836
|
|
|
9,433
|
|
Total assets
|
$
|
589,554
|
|
|
$
|
584,331
|
|
|
|
|
|
Liabilities and Shareholders' Equity (Deficit)
|
|
|
|
Current liabilities
|
|
|
|
Current portion of long-term debt
|
$
|
7,368
|
|
|
$
|
8,179
|
|
Accounts payable
|
61,881
|
|
|
61,160
|
|
Accrued compensation and employee benefits
|
16,016
|
|
|
13,207
|
|
Accrued interest
|
128
|
|
|
191
|
|
Liabilities held for sale
|
8,321
|
|
|
—
|
|
Other current liabilities
|
26,279
|
|
|
24,807
|
|
Total current liabilities
|
119,993
|
|
|
107,544
|
|
Long-term debt
|
410,302
|
|
|
416,945
|
|
Deferred income taxes
|
36,302
|
|
|
42,747
|
|
Other long-term liabilities
|
21,956
|
|
|
19,881
|
|
Total liabilities
|
588,553
|
|
|
587,117
|
|
|
|
|
|
Commitments and contingencies (Note 14)
|
|
|
|
|
|
|
|
Shareholders' Equity (Deficit)
|
|
|
|
Preferred stock, $0.0001 par value (5,000,000 shares authorized, 47,745 shares issued and outstanding at June 30, 2017, including 931 shares declared on June 13, 2017 and issued on July 1, 2017, and 45,899 shares issued and outstanding at December 31, 2016, including 899 shares declared on December 15, 2016 and issued on January 1, 2017)
|
47,745
|
|
|
45,899
|
|
Jason Industries common stock, $0.0001 par value (120,000,000 shares authorized; issued and outstanding: 25,966,381 shares at June 30, 2017 and 24,802,196 shares at December 31, 2016)
|
3
|
|
|
2
|
|
Additional paid-in capital
|
145,271
|
|
|
144,666
|
|
Retained deficit
|
(166,743
|
)
|
|
(162,876
|
)
|
Accumulated other comprehensive loss
|
(25,275
|
)
|
|
(30,372
|
)
|
Shareholders’ equity (deficit) attributable to Jason Industries
|
1,001
|
|
|
(2,681
|
)
|
Noncontrolling interests
|
—
|
|
|
(105
|
)
|
Total shareholders' equity (deficit)
|
1,001
|
|
|
(2,786
|
)
|
Total liabilities and shareholders' equity (deficit)
|
$
|
589,554
|
|
|
$
|
584,331
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Jason Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
June 30, 2017
|
|
July 1, 2016
|
Cash flows from operating activities
|
|
|
|
Net loss
|
$
|
(3,862
|
)
|
|
$
|
(5,386
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
Depreciation of property, plant and equipment
|
13,153
|
|
|
15,322
|
|
Amortization of intangible assets
|
6,107
|
|
|
6,315
|
|
Amortization of deferred financing costs and debt discount
|
1,498
|
|
|
1,504
|
|
Equity income
|
(420
|
)
|
|
(311
|
)
|
Deferred income taxes
|
(5,311
|
)
|
|
(2,313
|
)
|
(Gain) loss on disposals of property, plant and equipment - net
|
(265
|
)
|
|
689
|
|
Gain on extinguishment of debt
|
(1,564
|
)
|
|
—
|
|
Loss on divestiture
|
6,686
|
|
|
—
|
|
Dividends from joint venture
|
—
|
|
|
836
|
|
Share-based compensation
|
673
|
|
|
(1,373
|
)
|
Net increase (decrease) in cash due to changes in:
|
|
|
|
Accounts receivable
|
(6,316
|
)
|
|
(17,322
|
)
|
Inventories
|
4,417
|
|
|
2,346
|
|
Other current assets
|
542
|
|
|
4,142
|
|
Accounts payable
|
1,156
|
|
|
14,206
|
|
Accrued compensation and employee benefits
|
4,955
|
|
|
1,342
|
|
Accrued interest
|
(63
|
)
|
|
106
|
|
Accrued income taxes
|
2,122
|
|
|
(652
|
)
|
Other - net
|
(2,676
|
)
|
|
1,326
|
|
Total adjustments
|
24,694
|
|
|
26,163
|
|
Net cash provided by operating activities
|
20,832
|
|
|
20,777
|
|
Cash flows from investing activities
|
|
|
|
Proceeds from disposals of property, plant and equipment
|
6,400
|
|
|
3,017
|
|
Payments for property, plant and equipment
|
(7,161
|
)
|
|
(12,129
|
)
|
Acquisitions of patents
|
(33
|
)
|
|
(101
|
)
|
Net cash used in investing activities
|
(794
|
)
|
|
(9,213
|
)
|
Cash flows from financing activities
|
|
|
|
Payments of First and Second Lien term loans
|
(9,549
|
)
|
|
(1,550
|
)
|
Proceeds from other long-term debt
|
6,134
|
|
|
4,571
|
|
Payments of other long-term debt
|
(3,671
|
)
|
|
(6,316
|
)
|
Payments of preferred stock dividends
|
(4
|
)
|
|
(2,700
|
)
|
Other financing activities - net
|
(35
|
)
|
|
(125
|
)
|
Net cash used in financing activities
|
(7,125
|
)
|
|
(6,120
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
1,145
|
|
|
(62
|
)
|
Net increase in cash and cash equivalents
|
14,058
|
|
|
5,382
|
|
Cash and cash equivalents, beginning of period
|
40,861
|
|
|
35,944
|
|
Cash and cash equivalents, end of period
|
$
|
54,919
|
|
|
$
|
41,326
|
|
Supplemental disclosure of cash flow information
|
|
|
|
Non-cash investing activities:
|
|
|
|
Property, plant and equipment acquired through additional liabilities
|
$
|
1,190
|
|
|
$
|
2,196
|
|
Non-cash financing activities:
|
|
|
|
Accretion of preferred stock dividends
|
$
|
5
|
|
|
$
|
—
|
|
Non-cash preferred stock created from dividends declared
|
$
|
1,846
|
|
|
$
|
—
|
|
Exchange of common stock of JPHI Holdings, Inc. for common stock of Jason Industries, Inc.
|
$
|
62
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Jason Industries, Inc.
Condensed Consolidated Statements of Shareholders’ Equity (Deficit)
(In thousands) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Deficit
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Shareholders’
Equity (Deficit) Attributable to Jason
Industries, Inc.
|
|
Noncontrolling
Interests
|
|
Total
Shareholders'
Equity (Deficit)
|
Balance at December 31, 2016
|
$
|
45,899
|
|
|
$
|
2
|
|
|
$
|
144,666
|
|
|
$
|
(162,876
|
)
|
|
$
|
(30,372
|
)
|
|
$
|
(2,681
|
)
|
|
$
|
(105
|
)
|
|
$
|
(2,786
|
)
|
Dividends declared
|
1,846
|
|
|
—
|
|
|
(1,854
|
)
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
(8
|
)
|
Share-based compensation
|
—
|
|
|
—
|
|
|
673
|
|
|
—
|
|
|
—
|
|
|
673
|
|
|
—
|
|
|
673
|
|
Tax withholding related to vesting of restricted stock units
|
—
|
|
|
—
|
|
|
(35
|
)
|
|
—
|
|
|
—
|
|
|
(35
|
)
|
|
—
|
|
|
(35
|
)
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,867
|
)
|
|
—
|
|
|
(3,867
|
)
|
|
5
|
|
|
(3,862
|
)
|
Employee retirement plan adjustments, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30
|
|
|
30
|
|
|
—
|
|
|
30
|
|
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,990
|
|
|
6,990
|
|
|
36
|
|
|
7,026
|
|
Net changes in unrealized losses on cash flow hedges, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(39
|
)
|
|
(39
|
)
|
|
2
|
|
|
(37
|
)
|
Exchange of common stock of JPHI Holdings, Inc. for common stock of Jason Industries, Inc.
|
—
|
|
|
1
|
|
|
1,821
|
|
|
—
|
|
|
(1,884
|
)
|
|
(62
|
)
|
|
62
|
|
|
—
|
|
Balance at June 30, 2017
|
$
|
47,745
|
|
|
$
|
3
|
|
|
$
|
145,271
|
|
|
$
|
(166,743
|
)
|
|
$
|
(25,275
|
)
|
|
$
|
1,001
|
|
|
$
|
—
|
|
|
$
|
1,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Deficit
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Shareholders’ Equity
Attributable to Jason
Industries
|
|
Noncontrolling
Interests
|
|
Total
Shareholders’
Equity
|
Balance at December 31, 2015
|
$
|
45,000
|
|
|
$
|
2
|
|
|
$
|
143,533
|
|
|
$
|
(95,997
|
)
|
|
$
|
(21,456
|
)
|
|
$
|
71,082
|
|
|
$
|
13,912
|
|
|
$
|
84,994
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
(1,800
|
)
|
|
—
|
|
|
—
|
|
|
(1,800
|
)
|
|
—
|
|
|
(1,800
|
)
|
Share-based compensation
|
—
|
|
|
—
|
|
|
(1,373
|
)
|
|
—
|
|
|
—
|
|
|
(1,373
|
)
|
|
—
|
|
|
(1,373
|
)
|
Tax withholding related to vesting of restricted stock units
|
—
|
|
|
—
|
|
|
(125
|
)
|
|
—
|
|
|
—
|
|
|
(125
|
)
|
|
—
|
|
|
(125
|
)
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,476
|
)
|
|
—
|
|
|
(4,476
|
)
|
|
(910
|
)
|
|
(5,386
|
)
|
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
874
|
|
|
874
|
|
|
177
|
|
|
1,051
|
|
Net changes in unrealized losses on cash flow hedges, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,604
|
)
|
|
(2,604
|
)
|
|
(529
|
)
|
|
(3,133
|
)
|
Balance at July 1, 2016
|
$
|
45,000
|
|
|
$
|
2
|
|
|
$
|
140,235
|
|
|
$
|
(100,473
|
)
|
|
$
|
(23,186
|
)
|
|
$
|
61,578
|
|
|
$
|
12,650
|
|
|
$
|
74,228
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
|
|
|
1.
|
Description of Business and Basis of Presentation
|
Description of Business
Jason Industries, Inc. (“Jason Industries”), including its subsidiaries (collectively, the “Company”), is a global industrial manufacturing company with
four
reportable segments: finishing, components, seating, and acoustics. The segments have operations within the United States and
13
foreign countries. The finishing segment focuses on the production of industrial brushes, buffing wheels, buffing compounds and abrasives that are used in a broad range of industrial and infrastructure applications. The components segment is a diversified manufacturer of expanded and perforated metal components, slip resistant surfaces and subassemblies for smart utility meters. The seating segment supplies seating solutions to equipment manufacturers in the motorcycle, lawn and turf care, industrial, agricultural, construction and power sports end markets. The acoustics segment manufactures engineered non-woven, fiber-based acoustical products for the automotive industry.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial reporting and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. For additional information, including the Company’s significant accounting policies, these condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2016
.
The Company’s fiscal year ends on
December 31
. Throughout the year, the Company reports its results using a fiscal calendar whereby each three month quarterly reporting period is approximately thirteen weeks in length, ending on a Friday. The exceptions are the first quarter, which begins on
January 1
, and the
fourth
quarter, which ends on
December 31
. For
2017
, the Company’s fiscal quarters are comprised of the three months ending
March 31
,
June 30
,
September 29
and
December 31
. In
2016
, the Company’s fiscal quarters were comprised of the three months ended
April 1
,
July 1
,
September 30
and
December 31
.
In the opinion of management, all adjustments considered necessary for a fair statement of financial results have been made. Such adjustments consist of only those of a normal recurring nature. Interim results are not necessarily indicative of the results that may be expected for the entire fiscal year.
Recently issued accounting standards
Accounting standards adopted in the current fiscal year
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2017-04, “
Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
” (“ASU 2017-04”). This standard simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test, which required a hypothetical purchase price allocation to measure goodwill impairment. Under the new guidance, the amount of goodwill impairment will be determined by the amount the carrying value of the reporting unit exceeds its fair value. ASU 2017-04 is required to be applied on a prospective basis. The Company adopted ASU 2017-04 effective January 1, 2017. The adoption of this standard did not impact the Company’s condensed consolidated financial statements, as no triggering events or indicators of potential impairment were identified during the
six months ended June 30, 2017
and the Company performs its annual goodwill impairment test in the fourth quarter of each fiscal year.
In May 2017, the FASB issued ASU 2017-09, “
Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting
” (“ASU 2017-09”). This standard clarifies when to account for a change in the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of a change in terms or conditions. No other changes were made to the current guidance on stock compensation. ASU 2017-09 is required to be applied on a prospective basis. The Company adopted ASU 2017-09 effective April 1, 2017. The adoption of this standard did not impact the Company’s condensed consolidated financial statements for the three and
six months ended June 30, 2017
.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
Accounting standards to be adopted in future fiscal periods
In May 2014, the FASB issued ASU 2014-09, “
Revenue From Contracts With Customers
” (“ASU 2014-09”). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The standard is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. The ASU becomes effective for the Company at the beginning of its 2018 fiscal year. The Company is in the process of analyzing the impact of the guidance across all of our revenue streams. The assessment process includes reviewing the Company's contract portfolio, comparing its historical accounting policies and practices to the requirements of the new guidance, and identifying potential differences from applying the requirements of the new guidance to its contracts. Based on the assessment completed thus far, we expect that for certain OEM production parts that are highly customized with no alternative use and for which the Company has an enforceable right to payment with a reasonable margin for performance completed to date, we will recognize revenue over time when parts are manufactured. Additionally, the assessment process has identified certain future product discounts for which further evaluation is necessary to determine if these discounts represent a material right under the new guidance. While the Company has made substantial progress in identifying the expected impacts of the new standard, it has not yet determined a range of the potential quantitative impact. The Company also continues to monitor developments for the manufacturing industry, specifically regarding future product discounts and the accounting for reimbursable tooling. The Company intends to select a transition method after completion of the contract review phase and also continues to evaluate potential changes to our business processes, systems, and controls to support the recognition and disclosure under the new standard.
In January 2016, the FASB issued ASU 2016-01, “
Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
” (“ASU 2016-01”). The updated guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The amendment to the standard is effective for interim and annual periods beginning after December 15, 2017. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “
Leases (Topic 842)
” (“ASU 2016-02”). ASU 2016-02 establishes new accounting and disclosure requirements for leases. This standard requires lessees to classify most leases as either finance or operating leases and to initially recognize a lease liability and right-of-use asset. Entities may elect to account for certain short-term leases (with a term of 12 months or less) using a method similar to the current operating lease model. The statements of operations will include, for finance leases, separate recognition of interest on the lease liability and amortization of the right-of use asset and for operating leases, a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a straight-line basis. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual reporting periods, with early adoption permitted. This standard must be applied using a modified retrospective approach, which requires recognition and measurement of leases at the beginning of the earliest period presented, with certain practical expedients available. The Company is in the process of analyzing the impact of the guidance on our inventory of lease contracts and currently intends to adopt the standard in the first quarter of fiscal 2019. The Company expects this ASU to have a material impact on its consolidated financial statements upon recognition of the lease liability and right-of-use asset for lease contracts which are currently accounted for as operating leases.
In October 2016, the FASB issued ASU 2016-16, “
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
” (“ASU 2016-16”). ASU 2016-16 will require companies to recognize the income tax effects of intercompany sales and transfers of assets other than inventory in the period in which the transfer occurs. The guidance is effective for annual periods beginning after December 15, 2017 and requires companies to apply a modified retrospective approach with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. Early adoption is permitted. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
During the fourth quarter of 2016, the Company announced that it had initiated a sale process of its Acoustics European operations within the acoustics segment located in Sulzbach-Rosenberg, Germany (“Acoustics Europe”). Acoustics Europe had net sales of
$32.9 million
for the year ended December 31, 2016. The divestiture will reduce the Company’s non-core revenue within the European automotive market and will allow it to focus on margin expansion and growth in the core North American automotive market. The Company has determined that the planned divestiture does not represent a strategic shift that will have a major effect on the Company's operations and financial results and as such, has continued to report the results of Acoustics Europe within continuing operations in the condensed consolidated statements of operations.
During the second quarter of 2017, the Company’s board of directors approved a plan to sell Acoustics Europe for a gross purchase price of
$10.2 million
and a net purchase price of
$7.8 million
, which excludes cash and long-term debt assumed by the buyer. In connection with the approved plan, the Company classified the assets and liabilities of Acoustics Europe as held for sale and the carrying amount of the long-lived assets were written down to fair value less costs to sell, which resulted in a
$6.7 million
pre-tax loss recorded within loss on divestiture within the condensed consolidated statements of operations. The following table summarizes the carrying value of assets and liabilities classified as held for sale within the condensed consolidated balance sheets as of June 30, 2017:
|
|
|
|
|
Cash and cash equivalents
|
$
|
31
|
|
Accounts receivable - net of allowances for doubtful accounts
|
4,319
|
|
Inventories - net
|
1,730
|
|
Other current assets
|
1,912
|
|
Property, plant and equipment - net of accumulated depreciation
|
7,894
|
|
Other intangible assets - net
|
1,798
|
|
Assets held for sale
|
$
|
17,684
|
|
|
|
Current portion of long-term debt
|
$
|
653
|
|
Accounts payable
|
1,925
|
|
Accrued compensation and employee benefits
|
2,217
|
|
Other current liabilities
|
1,230
|
|
Long-term debt
|
1,488
|
|
Deferred income taxes
|
765
|
|
Other long-term liabilities
|
43
|
|
Liabilities held for sale
|
$
|
8,321
|
|
On March 1, 2016, as part of a strategic review of organizational structure and operations, the Company announced a global cost reduction and restructuring program (the “2016 program”). The 2016 program, as used herein, refers to costs related to various restructuring activities across business segments. This includes entering into severance and termination agreements with employees and footprint rationalization activities, including exit and relocation costs for the consolidation and closure of plant facilities and lease termination costs. These activities were ongoing throughout 2016 and the
six months ended June 30, 2017
and are expected to be completed by the end of 2018.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
The following table presents the restructuring costs recognized by the Company under the 2016 program by reportable segment. The 2016 program began in the first quarter of 2016 and as such, the cumulative restructuring charges represent the cumulative charges incurred since the inception of the 2016 program through
June 30, 2017
. The other costs incurred under the 2016 program in the
six months ended June 30, 2017
primarily include charges related to the consolidation of
two
U.S. plants within the components segment, exit costs related to the wind down of the finishing segment’s facility in São Bernardo do Campo, Brazil and the consolidation of
two
U.S. plants within the finishing segment. Based on the announced restructuring actions to date, the Company expects to incur a total of approximately
$12 million
under the 2016 program. These restructuring costs are presented separately on the condensed consolidated statements of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Program
|
|
Finishing
|
|
Components
|
|
Seating
|
|
Acoustics
|
|
Corporate
|
|
Total
|
Restructuring charges - three months ended June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
254
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
(9
|
)
|
|
$
|
248
|
|
Lease termination costs
|
|
5
|
|
|
—
|
|
|
—
|
|
|
48
|
|
|
—
|
|
|
53
|
|
Other costs
|
|
120
|
|
|
110
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
242
|
|
Total
|
|
$
|
379
|
|
|
$
|
110
|
|
|
$
|
—
|
|
|
$
|
63
|
|
|
$
|
(9
|
)
|
|
$
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges - six months ended June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
261
|
|
|
$
|
—
|
|
|
$
|
(17
|
)
|
|
$
|
28
|
|
|
$
|
(9
|
)
|
|
$
|
263
|
|
Lease termination costs
|
|
25
|
|
|
—
|
|
|
—
|
|
|
111
|
|
|
—
|
|
|
136
|
|
Other costs
|
|
222
|
|
|
474
|
|
|
—
|
|
|
129
|
|
|
—
|
|
|
825
|
|
Total
|
|
$
|
508
|
|
|
$
|
474
|
|
|
$
|
(17
|
)
|
|
$
|
268
|
|
|
$
|
(9
|
)
|
|
$
|
1,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges - three months ended July 1, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
1,420
|
|
|
$
|
—
|
|
|
$
|
22
|
|
|
$
|
115
|
|
|
$
|
78
|
|
|
$
|
1,635
|
|
Lease termination costs
|
|
13
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
|
Other costs
|
|
31
|
|
|
104
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
135
|
|
Total
|
|
$
|
1,464
|
|
|
$
|
104
|
|
|
$
|
22
|
|
|
$
|
115
|
|
|
$
|
78
|
|
|
$
|
1,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges - six months ended July 1, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
2,667
|
|
|
$
|
557
|
|
|
$
|
22
|
|
|
$
|
856
|
|
|
$
|
146
|
|
|
$
|
4,248
|
|
Lease termination costs
|
|
117
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
117
|
|
Other costs
|
|
31
|
|
|
104
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
135
|
|
Total
|
|
$
|
2,815
|
|
|
$
|
661
|
|
|
$
|
22
|
|
|
$
|
856
|
|
|
$
|
146
|
|
|
$
|
4,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative restructuring charges - period ended June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
3,548
|
|
|
$
|
378
|
|
|
$
|
59
|
|
|
$
|
1,005
|
|
|
$
|
588
|
|
|
$
|
5,578
|
|
Lease termination costs
|
|
369
|
|
|
—
|
|
|
—
|
|
|
111
|
|
|
—
|
|
|
480
|
|
Other costs
|
|
1,225
|
|
|
988
|
|
|
—
|
|
|
185
|
|
|
—
|
|
|
2,398
|
|
Total
|
|
$
|
5,142
|
|
|
$
|
1,366
|
|
|
$
|
59
|
|
|
$
|
1,301
|
|
|
$
|
588
|
|
|
$
|
8,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
The following table represents the restructuring liabilities, including both the 2016 program and previous activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
costs
|
|
Lease
termination
costs
|
|
Other costs
|
|
Total
|
Balance - December 31, 2016
|
$
|
1,281
|
|
|
$
|
333
|
|
|
$
|
1,085
|
|
|
$
|
2,699
|
|
Current period restructuring charges
|
263
|
|
|
136
|
|
|
825
|
|
|
1,224
|
|
Cash payments
|
(955
|
)
|
|
(360
|
)
|
|
(1,175
|
)
|
|
(2,490
|
)
|
Foreign currency translation adjustments
|
33
|
|
|
8
|
|
|
(9
|
)
|
|
32
|
|
Balance - June 30, 2017
|
$
|
622
|
|
|
$
|
117
|
|
|
$
|
726
|
|
|
$
|
1,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
costs
|
|
Lease
termination
costs
|
|
Other costs
|
|
Total
|
Balance - December 31, 2015
|
$
|
594
|
|
|
$
|
1,038
|
|
|
$
|
—
|
|
|
$
|
1,632
|
|
Current period restructuring charges
|
4,248
|
|
|
117
|
|
|
135
|
|
|
4,500
|
|
Cash payments
|
(2,027
|
)
|
|
(558
|
)
|
|
(135
|
)
|
|
(2,720
|
)
|
Balance - July 1, 2016
|
$
|
2,815
|
|
|
$
|
597
|
|
|
$
|
—
|
|
|
$
|
3,412
|
|
At
June 30, 2017
and
December 31, 2016
, the restructuring liabilities were classified as other current liabilities on the condensed consolidated balance sheets. At
June 30, 2017
and
December 31, 2016
, the accrual for lease termination costs primarily relates to restructuring costs associated with a 2016 lease termination in the finishing segment. At
June 30, 2017
and
December 31, 2016
, the accrual for other costs primarily relates to a loss contingency for certain employment matter claims within the finishing segment due to the closure of a facility in São Bernardo do Campo, Brazil. See further discussion within Note
14
, “
Commitments and Contingencies
”.
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Raw material
|
$
|
35,421
|
|
|
$
|
37,222
|
|
Work-in-process
|
4,724
|
|
|
4,175
|
|
Finished goods
|
29,168
|
|
|
32,204
|
|
Total inventories
|
$
|
69,313
|
|
|
$
|
73,601
|
|
In
April 2017
, the Company completed a sale leaseback of its Libertyville, Illinois facility consisting of land and production facilities utilized by its components segment. In connection with the sale, the Company received proceeds, net of fees and closing costs, of
$5.6 million
and recorded a deferred gain of
$1.1 million
which will be recognized over the term of the lease as a reduction of rent expense. The lease commences in
April 2017
and expires in
March 2032
. The Company has classified the lease as an operating lease and will pay approximately
$10.1 million
in minimum lease payments over the life of the lease.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
|
|
|
6.
|
Goodwill and Other Intangible Assets
|
Changes in the carrying amount of goodwill, all of which is within the Company’s finishing segment, was as follows:
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
$
|
42,157
|
|
Foreign currency impact
|
2,046
|
|
Balance as of June 30, 2017
|
$
|
44,203
|
|
The Company’s other intangible assets - net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
Patents
|
$
|
1,917
|
|
|
$
|
(520
|
)
|
|
$
|
1,397
|
|
|
$
|
1,880
|
|
|
$
|
(366
|
)
|
|
$
|
1,514
|
|
Customer relationships
|
109,397
|
|
|
(20,441
|
)
|
|
88,956
|
|
|
110,090
|
|
|
(16,630
|
)
|
|
93,460
|
|
Trademarks and other intangibles
|
56,863
|
|
|
(10,248
|
)
|
|
46,615
|
|
|
57,744
|
|
|
(8,460
|
)
|
|
49,284
|
|
Total other intangible assets - net
|
$
|
168,177
|
|
|
$
|
(31,209
|
)
|
|
$
|
136,968
|
|
|
$
|
169,714
|
|
|
$
|
(25,456
|
)
|
|
$
|
144,258
|
|
|
|
|
7.
|
Debt and Hedging Instruments
|
The Company’s debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
First Lien Term Loans
|
$
|
299,568
|
|
|
$
|
303,025
|
|
Second Lien Term Loans
|
101,987
|
|
|
110,000
|
|
Debt discount on Term Loans
|
(4,315
|
)
|
|
(5,002
|
)
|
Deferred financing costs on Term Loans
|
(6,544
|
)
|
|
(7,503
|
)
|
Foreign debt
|
26,047
|
|
|
23,303
|
|
Capital lease obligations
|
927
|
|
|
1,301
|
|
Total debt
|
417,670
|
|
|
425,124
|
|
Less: Current portion
|
(7,368
|
)
|
|
(8,179
|
)
|
Total long-term debt
|
$
|
410,302
|
|
|
$
|
416,945
|
|
At
June 30, 2017
, the Company reclassified amounts previously recorded in the current portion of long-term debt and long-term debt of
$0.7 million
and
$1.5 million
, respectively, to liabilities held for sale on the condensed consolidated balance sheets. See further discussion within Note
2
, “
Divestiture
”.
Senior Secured Credit Facilities
As of
June 30, 2017
, the Company’s U.S. credit facility (the “Senior Secured Credit Facilities”) included (i) term loans in an aggregate principal amount of
$310.0 million
(“First Lien Term Loans”) maturing in 2021, of which
$299.6 million
is outstanding, (ii) term loans in an aggregate principal amount of
$110.0 million
(“Second Lien Term Loans”) maturing in 2022, of which
$102.0 million
is outstanding, and (iii) a revolving loan of up to
$40.0 million
(“Revolving Credit Facility”) maturing in 2019.
The principal amount of the First Lien Term Loans amortizes in quarterly installments equal to
$0.8 million
, with the balance payable at maturity. At the Company’s election, the interest rate per annum applicable to the loans under the Senior Secured Credit Facilities is based on a fluctuating rate of interest determined by reference to either (i) a base rate determined by reference to the higher of (a) the “prime rate” of Deutsche Bank AG New York Branch, (b) the federal funds effective rate plus
0.50%
or (c) the Eurocurrency rate applicable for an interest period of one month plus
1.00%
, plus an applicable margin equal to (x)
3.50%
in the case of the First Lien Term Loans, (y)
2.25%
in the case of the Revolving Credit Facility or (z)
7.00%
in the case of the Second Lien Term Loans or (ii) a Eurocurrency rate determined by reference to the London Interbank Offered Rate
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
(“LIBOR”), adjusted for statutory reserve requirements, plus an applicable margin equal to (x)
4.50%
in the case of the First Lien Term Loans, (y)
3.25%
in the case of the Revolving Credit Facility or (z)
8.00%
in the case of the Second Lien Term Loans. Borrowings under the First Lien Term Facility and Second Lien Term Facility are subject to a floor of
1.00%
in the case of Eurocurrency loans. The applicable margin for loans under the Revolving Credit Facility may be subject to adjustment based upon Jason Incorporated’s (an indirect wholly-owned subsidiary of the Company) consolidated first lien net leverage ratio.
Under the Revolving Credit Facility, if the aggregate outstanding amount of all Revolving Loans, swingline loans and certain letter of credit obligations exceeds
25 percent
, or
$10.0 million
, of the revolving credit commitments at the end of any fiscal quarter, Jason Incorporated and its restricted subsidiaries will be required to not exceed a consolidated first lien net leverage ratio, currently specified at
4.75
to
1.00
, with a decrease to
4.50
to
1.00
on
December 31, 2017
and remaining at that level thereafter. If such outstanding amounts do not exceed
25 percent
of the revolving credit commitments at the end of any fiscal quarter, no financial covenants are applicable.
At
June 30, 2017
, the interest rates on the outstanding balances of the First Lien Term Loans and Second Lien Term Loans were
5.8%
and
9.3%
, respectively. At
June 30, 2017
, the Company had a total of
$35.0 million
of availability for additional borrowings under the Revolving Credit Facility since the Company had
no
outstanding borrowings and letters of credit outstanding of
$5.0 million
, which reduce availability under the facility.
Under the Senior Secured Credit Facilities, the Company is subject to mandatory prepayments if certain requirements are met. The mandatory prepayment is in excess of regular current installments due on First Lien Term Loans. At
December 31, 2016
, a mandatory prepayment of
$1.9 million
under the Senior Secured Credit Facilities was included within the current portion of long-term debt in the condensed consolidated balance sheets. The mandatory prepayment of
$1.9 million
was paid on
April 10, 2017
.
During the second quarter of 2017, the Company repurchased $
8.0 million
of Second Lien Term Loans for $
6.1 million
. In connection with the repurchase, the Company wrote off $
0.2 million
of previously unamortized debt discount and $
0.1 million
of previously unamortized deferred financing costs, which were recorded as a reduction to the gain on extinguishment of debt. The transactions resulted in a net gain of
$1.6 million
which has been recorded within the condensed consolidated statements of operations.
Foreign debt
The Company has the following foreign debt obligations, including various overdraft facilities and term loans:
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Germany
|
$
|
21,679
|
|
|
$
|
21,469
|
|
Mexico
|
3,550
|
|
|
850
|
|
India
|
797
|
|
|
834
|
|
Other
|
21
|
|
|
150
|
|
Total foreign debt
|
$
|
26,047
|
|
|
$
|
23,303
|
|
These various foreign loans are comprised of individual outstanding obligations ranging from approximately
$0.2 million
to
$13.7 million
and
$0.1 million
to
$12.6 million
as of
June 30, 2017
and
December 31, 2016
, respectively. Certain of the Company’s foreign borrowings contain financial covenants requiring maintenance of a minimum equity ratio and/or maximum leverage ratio, among others. The Company was in compliance with these covenants as of
June 30, 2017
.
The foreign debt obligations in Germany primarily relate to term loans within our finishing segment of
$20.6 million
at
June 30, 2017
and
$19.3 million
at
December 31, 2016
. The borrowings bear interest at fixed and variable rates ranging from
2.3%
to
4.6%
and are subject to repayment in varying amounts through 2030.
Interest Rate Hedge Contracts
The Company is exposed to certain financial risks relating to fluctuations in interest rates. To manage exposure to such fluctuations, the Company entered into forward starting interest rate swap agreements (“Swaps”) in 2015 with notional values totaling
$210.0 million
at
June 30, 2017
and
December 31, 2016
. The Swaps have been designated by the Company as cash flow hedges, and effectively fix the variable portion of interest rates on variable rate term loan borrowings at a rate of approximately
2.08%
prior to financing spreads and related fees. The Swaps had a forward start date of December 30, 2016 and have an expiration date of June 30, 2020. As such, the Company began recognizing interest expense related to the interest rate
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
hedge contracts in the first quarter of 2017. For the
six months ended
June 30, 2017
, the Company recognized
$1.1 million
of interest expense related to the Swaps. There was
no
interest expense recognized in 2016. Based on current interest rates, the Company expects to recognize interest expense of
$1.7 million
related to the Swaps in the next 12 months.
The fair values of the Company’s Swaps are recorded on the condensed consolidated balance sheets with the corresponding offset recorded as a component of accumulated other comprehensive loss. The fair value of the Swaps was
$2.1 million
at
June 30, 2017
and
$2.0 million
at
December 31, 2016
, respectively. See the amounts recorded on the condensed consolidated balance sheets within the table below:
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Interest rate swaps:
|
|
|
|
Recorded in other current liabilities
|
$
|
1,373
|
|
|
$
|
1,916
|
|
Recorded in other long-term liabilities
|
739
|
|
|
133
|
|
Total derivatives designated as hedging instruments
|
$
|
2,112
|
|
|
$
|
2,049
|
|
|
|
|
8.
|
Share-Based Compensation
|
In 2014, the Compensation Committee of the Company’s Board of Directors approved an initial grant under the 2014 Omnibus Incentive Plan (the “2014 Plan”) to certain executive officers, senior management employees, and members of the Board of Directors. The Company recognizes compensation expense based on estimated grant date fair values for all share-based awards issued to employees and directors, including restricted stock units (“RSUs”) and performance share units, which are restricted stock units with vesting conditions contingent upon achieving certain performance goals. Share based compensation expense is reported in selling and administrative expenses in the Company’s condensed consolidated statements of operations.
There were
3,473,435
shares of common stock reserved and authorized for issuance under the 2014 Plan. At
June 30, 2017
, there were
1,767,237
shares of common stock that remained authorized and available for future grants.
The Company recognized the following share-based compensation expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30, 2017
|
|
July 1, 2016
|
|
June 30, 2017
|
|
July 1, 2016
|
Restricted stock units
|
$
|
321
|
|
|
$
|
335
|
|
|
$
|
664
|
|
|
$
|
589
|
|
Adjusted EBITDA vesting awards
|
—
|
|
|
(2,404
|
)
|
|
—
|
|
|
(2,384
|
)
|
Stock price vesting awards
|
3
|
|
|
25
|
|
|
9
|
|
|
54
|
|
ROIC vesting awards
|
—
|
|
|
95
|
|
|
—
|
|
|
140
|
|
Subtotal
|
324
|
|
|
(1,949
|
)
|
|
673
|
|
|
(1,601
|
)
|
Impact of accelerated vesting
|
—
|
|
|
—
|
|
|
—
|
|
|
228
|
|
Total share-based compensation expense (income)
|
$
|
324
|
|
|
$
|
(1,949
|
)
|
|
$
|
673
|
|
|
$
|
(1,373
|
)
|
|
|
|
|
|
|
|
|
Total income tax benefit (provision) recognized
|
$
|
124
|
|
|
$
|
(734
|
)
|
|
$
|
257
|
|
|
$
|
(520
|
)
|
As of
June 30, 2017
, total unrecognized compensation cost related to share-based compensation awards was approximately
$0.5 million
, which the Company expects to recognize over a weighted average period of approximately
1.8 years
.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
The following table sets forth the restricted and performance share unit activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Share Units
|
|
Restricted Stock Units
|
|
Adjusted EBITDA Vesting Awards
|
|
Stock Price Vesting Awards
|
|
ROIC Vesting Awards
|
|
Units
(thousands)
|
|
Weighted-Average Grant-Date Fair Value
|
|
Units
(thousands)
|
|
Weighted-Average Grant-Date Fair Value
|
|
Units
(thousands)
|
|
Weighted-Average Grant-Date Fair Value
|
|
Units
(thousands)
|
|
Weighted-Average Grant-Date Fair Value
|
Outstanding at December 31, 2016
|
554
|
|
|
$
|
5.22
|
|
|
723
|
|
|
$
|
9.67
|
|
|
341
|
|
|
$
|
2.85
|
|
|
513
|
|
|
$
|
3.65
|
|
Granted
|
30
|
|
|
1.45
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Adjustment for performance results achieved
(1)(2)
|
—
|
|
|
—
|
|
|
(708
|
)
|
|
9.65
|
|
|
(189
|
)
|
|
2.30
|
|
|
—
|
|
|
—
|
|
Issued
|
(106
|
)
|
|
6.58
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Deferred
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(8
|
)
|
|
6.04
|
|
|
(15
|
)
|
|
10.49
|
|
|
(152
|
)
|
|
3.54
|
|
|
(47
|
)
|
|
3.46
|
|
Outstanding at June 30, 2017
|
470
|
|
|
$
|
4.66
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
466
|
|
|
$
|
3.67
|
|
(1)
Adjustment for Adjusted EBITDA awards was due to the number of shares vested at the end of the
three
-year performance period ended June 30, 2017 being lower than the maximum achievement of the targeted Adjusted EBITDA performance metric.
(2)
Adjustment for Stock Price Vesting Awards was due to the sales price of the Company’s common stock at the end of the
three
-year performance period ended June 30, 2017 being lower than the established stock price targets of the Stock Price Vesting Awards.
Restricted Stock Units
As of
June 30, 2017
, there was
$0.5 million
of unrecognized share-based compensation expense related to
340,929
RSU awards, with a weighted-average grant date fair value of
$3.57
, that are expected to vest over a weighted-average period of
1.8 years
. Included within the
470,041
RSU awards outstanding as of
June 30, 2017
are
129,112
RSU awards for members of our Board of Directors which have vested and issuance of the shares has been deferred, with a weighted-average grant date fair value of
$7.53
.
In connection with the vesting of RSUs previously granted by the Company, a number of shares sufficient to fund statutory minimum tax withholding requirements was withheld from the total shares issued or released to the award holder (under the terms of the 2014 Plan, the shares are considered to have been issued and are not added back to the pool of shares available for grant). During the
six months ended June 30, 2017
and
July 1, 2016
, there were
25,532
and
33,486
shares, respectively, withheld to satisfy the requirement. The withholding is treated as a reduction in additional paid-in capital in the accompanying condensed consolidated statements of shareholders’ equity.
Performance Share Units
Adjusted EBITDA Vesting Awards
During the second quarter of 2016, the Company lowered its estimated vesting of Adjusted EBITDA based performance share unit awards with a
three
year measurement period ending June 30, 2017 from
62.5%
of target, or
301,382
shares, to an estimated vesting of
0%
of target, or
0
shares. As of
June 30, 2017
, there was
no
unrecognized compensation expense related to cumulative Adjusted EBITDA based vesting performance share unit awards expected to be recognized in subsequent periods, and the awards are no longer outstanding as the award period expired on June 30, 2017.
Stock Price Vesting Awards
As of
June 30, 2017
, there was
no
unrecognized compensation expense related to stock price based performance share unit awards expected to be recognized in subsequent periods, and the awards are no longer outstanding as the award period expired on June 30, 2017.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
ROIC Vesting Awards
During the fourth quarter of 2016, the Company lowered its estimated vesting of ROIC (return on invested capital) based performance share unit awards with a
three
year measurement period ending on December 31, 2018 from
100%
of target, or
310,557
shares, to an estimated payout of
0%
of target or
0
shares. As of
June 30, 2017
, there was
no
unrecognized compensation expense related to ROIC based vesting performance share unit awards expected to be recognized in subsequent periods.
Basic income (loss) per share is calculated by dividing net income (loss) attributable to Jason Industries’ common shareholders by the weighted average number of common shares outstanding for the period. In computing dilutive income (loss) per share, basic income (loss) per share is adjusted for the assumed issuance of all potentially dilutive share-based awards, including public warrants, RSUs, performance share units, convertible preferred stock, and certain “Rollover Shares” of JPHI Holdings Inc. (“JPHI”), a majority owned subsidiary of the Company until the first quarter of 2017 (and now a wholly owned subsidiary), convertible into shares of Jason Industries. Such Rollover Shares were contributed by former owners and management of Jason Partners Holdings Inc. prior to the Company’s acquisition of JPHI. Public warrants (“warrants”) consist of warrants to purchase shares of Jason Industries common stock which are quoted on Nasdaq under the symbol “JASNW.”
The reconciliation of the numerator and denominator of the basic and diluted loss per share calculation and the anti-dilutive shares was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30, 2017
|
|
July 1, 2016
|
|
June 30, 2017
|
|
July 1, 2016
|
Net loss per share attributable to Jason Industries common shareholders
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
$
|
(0.17
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net loss available to common shareholders of Jason Industries
|
$
|
(4,417
|
)
|
|
$
|
(2,870
|
)
|
|
$
|
(5,721
|
)
|
|
$
|
(6,276
|
)
|
Denominator:
|
|
|
|
|
|
|
|
Basic and diluted weighted-average shares outstanding
|
26,042
|
|
|
22,395
|
|
|
25,914
|
|
|
22,392
|
|
|
|
|
|
|
|
|
|
Weighted average number of anti-dilutive shares excluded from denominator:
|
|
|
|
|
|
|
|
Warrants to purchase Jason Industries common stock
|
13,994
|
|
|
13,994
|
|
|
13,994
|
|
|
13,994
|
|
Conversion of Series A 8% Perpetual Convertible Preferred
(1)
|
3,815
|
|
|
3,653
|
|
|
3,778
|
|
|
3,653
|
|
Conversion of JPHI rollover shares convertible to Jason Industries common stock
(2)
|
—
|
|
|
3,486
|
|
|
119
|
|
|
3,486
|
|
Restricted stock units
|
546
|
|
|
401
|
|
|
547
|
|
|
351
|
|
Performance share units
|
1,381
|
|
|
2,023
|
|
|
1,422
|
|
|
1,797
|
|
Total
|
19,736
|
|
|
23,557
|
|
|
19,860
|
|
|
23,281
|
|
|
|
(1)
|
Includes the impact of
931
additional Series A Preferred Stock shares from a stock dividend declared on
June 13, 2017
to be paid in additional shares of Series A Preferred Stock on
July 1, 2017
. The Company included the preferred stock within the condensed consolidated balance sheets as of the declaration date.
|
|
|
(2)
|
Includes the impact of the exchange by certain Rollover Participants of their JPHI stock for Company common stock in the first quarter of 2017.
|
Warrants are considered anti-dilutive and excluded when the exercise price exceeds the average market value of the Company’s common stock price during the applicable period. Performance share units are considered anti-dilutive if the performance targets upon which the issuance of the shares are contingent have not been achieved and the respective performance period has not been completed as of the end of the current period. Due to losses available to the Company’s common shareholders for each of the periods presented, potentially dilutive shares are excluded from the diluted net loss per
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
share calculation because they were anti-dilutive under the treasury stock method, in accordance with Accounting Standards Codification Topic 260.
At the end of each three month period, the Company estimates a base effective tax rate expected for the full year based on the most recent forecast of its pre-tax income (loss), permanent book and tax differences, and global tax planning strategies. The Company uses this base rate to provide for income taxes on a year-to-date basis, excluding the effect of significant, unusual, discrete or extraordinary items, and items that are reported net of their related tax effects. The Company records the tax effect of significant, unusual, discrete or extraordinary items, and items that are reported net of their tax effects in the period in which they occur.
The effective income tax rate was
(6.1)%
and
(459.0)%
for the
three months ended June 30, 2017
and
July 1, 2016
, respectively. The effective tax rate was
(6.3)%
and
10.1%
for the
six months ended
June 30, 2017
and
July 1, 2016
, respectively. The effective income tax rate for both 2017 and 2016 reflects the benefits of tax losses at the higher U.S. Federal statutory rate, taxable earnings derived in foreign jurisdictions with tax rates that are lower than the U.S. Federal statutory rate, and discrete items. The effective income tax rates for the three and
six months ended
June 30, 2017
were also impacted by the recording of certain tax effects associated with the planned Acoustics Europe sale as a component of the loss on divestiture. The net discrete tax provision was $
0.4 million
and
$0.6 million
for the three and
six months ended June 30, 2017
, respectively. The net discrete tax provision was a result of the vesting, forfeiture and expiration of the performance period on performance based restricted stock units for which no tax benefit will be realized. The net discrete tax provision was
$2.7 million
and
$2.8 million
for the three and
six months ended July 1, 2016
, respectively.
The amount of gross unrecognized tax benefits was
$2.0 million
and
$1.9 million
as of
June 30, 2017
and
December 31, 2016
, respectively, of which
$1.7 million
and
$1.6 million
, respectively, would reduce the Company’s effective tax rate if recognized.
During the next twelve months, the Company believes it is reasonably possible that the amount of unrecognized tax benefits could decrease by
$0.1 million
. The Company recognizes interest and penalties related to tax matters in its tax provision. The Company has an immaterial amount of accrued interest and penalties that were recognized as a component of the income tax provision as of
June 30, 2017
and
December 31, 2016
.
|
|
|
11.
|
Shareholders' Equity (Deficit)
|
The changes in the components of accumulated other comprehensive loss, net of taxes, for the
six months ended June 30, 2017
and
July 1, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee retirement plan adjustments
|
|
Foreign currency translation adjustments
|
|
Net unrealized losses on cash flow hedges
|
|
Total
|
Balance at December 31, 2016
|
$
|
(1,777
|
)
|
|
$
|
(27,404
|
)
|
|
$
|
(1,191
|
)
|
|
$
|
(30,372
|
)
|
Other comprehensive income (loss) before reclassifications
|
—
|
|
|
7,740
|
|
|
(697
|
)
|
|
7,043
|
|
Amounts reclassified from accumulated other comprehensive loss
|
30
|
|
|
(750
|
)
|
|
658
|
|
|
(62
|
)
|
Exchange of common stock of JPHI Holdings, Inc. for common stock of Jason Industries, Inc.
|
(113
|
)
|
|
(1,698
|
)
|
|
(73
|
)
|
|
(1,884
|
)
|
Balance at June 30, 2017
|
$
|
(1,860
|
)
|
|
$
|
(22,112
|
)
|
|
$
|
(1,303
|
)
|
|
$
|
(25,275
|
)
|
|
|
|
|
|
|
|
|
|
Employee retirement plan adjustments
|
|
Foreign currency translation adjustments
|
|
Net unrealized losses on cash flow hedges
|
|
Total
|
Balance at December 31, 2015
|
$
|
(1,051
|
)
|
|
$
|
(20,237
|
)
|
|
$
|
(168
|
)
|
|
$
|
(21,456
|
)
|
Other comprehensive income (loss) before reclassifications
|
—
|
|
|
874
|
|
|
(2,604
|
)
|
|
(1,730
|
)
|
Balance at July 1, 2016
|
$
|
(1,051
|
)
|
|
$
|
(19,363
|
)
|
|
$
|
(2,772
|
)
|
|
$
|
(23,186
|
)
|
The Company did not reclassify any amounts from accumulated other comprehensive loss to earnings for the
six months ended
July 1, 2016
.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
Series A Preferred Stock Dividends
The Company paid the following dividends on the Series A Preferred Stock in additional shares of Series A Preferred Stock during the
six months ended June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
Payment Date
|
|
Record Date
|
|
Amount Per Share
|
|
Total Dividends Paid
|
|
Preferred Shares Issued
|
January 1, 2017
|
|
November 15, 2016
|
|
$20.00
|
|
$900
|
|
899
|
April 1, 2017
|
|
February 15, 2017
|
|
$20.00
|
|
$918
|
|
915
|
On
June 13, 2017
, the Company announced a
$20.00
per share dividend on its Series A Preferred Stock to be paid in additional shares of Series A Preferred Stock on
July 1, 2017
to holders of record on
May 15, 2017
. As of
June 30, 2017
, the Company has recorded the
931
additional Series A Preferred Stock shares declared for the dividend of
$0.9 million
within preferred stock in the condensed consolidated balance sheets.
Exchange of common stock of JPHI Holdings, Inc. for common stock of Jason Industries, Inc.
On June 30, 2014, the Company and Jason Partners Holdings Inc. (“Jason”) completed a transaction in which JPHI, then a majority owned subsidiary of the Company, acquired all of the capital stock of Jason from its current owners (the “Business Combination”). The purchase price included the contribution of Jason common stock to JPHI by certain former owners, directors and management of Jason (collectively, the “Rollover Participants”) in exchange for JPHI stock. Following the consummation of the Business Combination, Jason became an indirect majority-owned subsidiary of the Company, with the Company then owning approximately
83.1 percent
of JPHI and the Rollover Participants then owning a noncontrolling interest of approximately
16.9 percent
of JPHI. The Rollover Participants received
3,485,623
shares of JPHI, which were exchangeable on a one-for-one basis for shares of common stock of the Company.
In November and December 2016, certain Rollover Participants exchanged
2,401,616
shares of JPHI stock for Company common stock, which decreased the noncontrolling interest to
6.0 percent
. As of
December 31, 2016
,
1,084,007
shares of JPHI stock were outstanding with the Rollover Participants. In the first quarter of 2017, certain Rollover participants exchanged the remaining
1,084,007
shares of JPHI stock for Company common stock, which decreased the noncontrolling interest to
0 percent
, and
no
shares of JPHI stock remain outstanding as of
June 30, 2017
. The decreases to the noncontrolling interest as a result of the exchanges resulted in increases in both accumulated other comprehensive loss and additional paid-in capital to reflect the Company’s increased ownership in JPHI.
|
|
|
12.
|
Business Segments, Geographic and Customer Information
|
The Company’s business activities are organized around and aggregated into reportable segments based on their similar economic characteristics, products, production processes, types of customers and distribution methods. The Company has
four
reportable segments: finishing, components, seating and acoustics.
Net sales information relating to the Company’s reportable segments was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30, 2017
|
|
July 1, 2016
|
|
June 30, 2017
|
|
July 1, 2016
|
Finishing
|
$
|
49,757
|
|
|
$
|
53,148
|
|
|
$
|
99,233
|
|
|
$
|
103,424
|
|
Components
|
21,713
|
|
|
24,634
|
|
|
42,830
|
|
|
51,471
|
|
Seating
|
44,921
|
|
|
44,680
|
|
|
92,294
|
|
|
96,630
|
|
Acoustics
|
56,086
|
|
|
63,225
|
|
|
113,313
|
|
|
125,136
|
|
Net Sales
|
$
|
172,477
|
|
|
$
|
185,687
|
|
|
$
|
347,670
|
|
|
$
|
376,661
|
|
The Company uses “Adjusted EBITDA” as the primary measure of profit or loss for the purposes of assessing the operating performance of its segments. The Company defines EBITDA as net income (loss) before interest expense, tax provision (benefit), depreciation and amortization. The Company defines Adjusted EBITDA as EBITDA, excluding the impact of operational restructuring charges and non-cash or non-operational losses or gains, including goodwill and long-lived asset impairment charges, gains or losses on disposal of property, plant and equipment, integration and other operational restructuring charges, transactional legal fees, other professional fees, purchase accounting adjustments, and non-cash share based compensation expense.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
Management believes that Adjusted EBITDA provides a clear picture of the Company’s operating results by eliminating expenses and income that are not reflective of the underlying business performance. Certain corporate-level administrative expenses such as payroll and benefits, incentive compensation, travel, marketing, accounting, auditing and legal fees and certain other expenses are kept within its corporate results and are not allocated to its business segments. Shared expenses across the Company that directly relate to the performance of our
four
reportable segments are allocated to the segments. Adjusted EBITDA is used to facilitate a comparison of the Company’s operating performance on a consistent basis from period to period and to analyze the factors and trends affecting its segments. The Company’s internal plans, budgets and forecasts use Adjusted EBITDA as a key metric. In addition, this measure is used to evaluate its operating performance and segment operating performance and to determine the level of incentive compensation paid to its employees.
As the Company uses Adjusted EBITDA as its primary measure of segment performance, GAAP on segment reporting requires the Company to include this measure in its discussion of segment operating results. The Company must also reconcile Adjusted EBITDA to operating results presented on a GAAP basis.
Adjusted EBITDA information relating to the Company’s reportable segments is presented below followed by a reconciliation of total segment Adjusted EBITDA to consolidated income before taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30, 2017
|
|
July 1, 2016
|
|
June 30, 2017
|
|
July 1, 2016
|
Segment Adjusted EBITDA
|
|
|
|
|
|
|
|
Finishing
|
$
|
7,324
|
|
|
$
|
7,634
|
|
|
$
|
14,391
|
|
|
$
|
12,863
|
|
Components
|
2,451
|
|
|
3,337
|
|
|
5,171
|
|
|
7,950
|
|
Seating
|
5,897
|
|
|
5,620
|
|
|
11,427
|
|
|
12,249
|
|
Acoustics
|
7,983
|
|
|
6,758
|
|
|
14,704
|
|
|
13,373
|
|
Total segment Adjusted EBITDA
|
$
|
23,655
|
|
|
$
|
23,349
|
|
|
$
|
45,693
|
|
|
$
|
46,435
|
|
Interest expense
|
(370
|
)
|
|
(421
|
)
|
|
(705
|
)
|
|
(843
|
)
|
Depreciation and amortization
|
(9,329
|
)
|
|
(11,252
|
)
|
|
(19,092
|
)
|
|
(21,457
|
)
|
(Loss) gain on disposal of property, plant and equipment - net
|
(65
|
)
|
|
14
|
|
|
265
|
|
|
(689
|
)
|
Loss on divestiture
|
(6,686
|
)
|
|
—
|
|
|
(6,686
|
)
|
|
—
|
|
Restructuring
|
(552
|
)
|
|
(1,705
|
)
|
|
(1,233
|
)
|
|
(4,354
|
)
|
Integration and other restructuring costs
|
—
|
|
|
(14
|
)
|
|
—
|
|
|
(1,276
|
)
|
Total segment income before income taxes
|
6,653
|
|
|
9,971
|
|
|
18,242
|
|
|
17,816
|
|
Corporate general and administrative expenses
|
(3,075
|
)
|
|
(4,595
|
)
|
|
(6,552
|
)
|
|
(9,342
|
)
|
Corporate interest expense
|
(8,025
|
)
|
|
(7,542
|
)
|
|
(16,056
|
)
|
|
(15,144
|
)
|
Corporate gain on extinguishment of debt
|
1,564
|
|
|
—
|
|
|
1,564
|
|
|
—
|
|
Corporate depreciation
|
(83
|
)
|
|
(88
|
)
|
|
(168
|
)
|
|
(180
|
)
|
Corporate restructuring
|
9
|
|
|
(78
|
)
|
|
9
|
|
|
(146
|
)
|
Corporate integration and other restructuring costs
|
—
|
|
|
(41
|
)
|
|
—
|
|
|
(368
|
)
|
Corporate share-based compensation
|
(324
|
)
|
|
1,949
|
|
|
(673
|
)
|
|
1,373
|
|
Consolidated loss before income taxes
|
$
|
(3,281
|
)
|
|
$
|
(424
|
)
|
|
$
|
(3,634
|
)
|
|
$
|
(5,991
|
)
|
Assets held by reportable segments were as follows:
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Finishing
|
$
|
249,322
|
|
|
$
|
233,045
|
|
Components
|
77,392
|
|
|
81,450
|
|
Seating
|
103,816
|
|
|
105,184
|
|
Acoustics
|
167,468
|
|
|
172,769
|
|
Total segments
|
597,998
|
|
|
592,448
|
|
Corporate and eliminations
|
(8,444
|
)
|
|
(8,117
|
)
|
Consolidated total assets
|
$
|
589,554
|
|
|
$
|
584,331
|
|
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
|
|
|
13.
|
Fair Value Measurements
|
Fair value of financial instruments
Current accounting guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. It also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. In accordance with the guidance, fair value measurements are classified under the following hierarchy:
•
Level 1 — Quoted prices for identical instruments in active markets.
|
|
•
|
Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.
|
|
|
•
|
Level 3 — Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.
|
Fair value measurements are classified according to the lowest level input or value-driver that is significant to the valuation. A measurement may therefore be classified within Level 3 even though there may be significant inputs that are readily observable.
The carrying amounts within the accompanying condensed consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments. The Company assessed the amounts recorded under revolving loans, if any, and long-term debt and determined that the fair value of total debt was approximately
$377.6 million
as of
June 30, 2017
. As of
December 31, 2016
, the fair value of total debt was approximately
$365.8 million
. The Company considers the inputs related to these estimations to be Level 2 fair value measurements as they are primarily based on quoted prices for the Company’s Senior Secured Credit Facility.
The valuation of the Company’s derivative financial instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy and therefore the Company’s derivatives are classified within Level 2.
|
|
|
14.
|
Commitments and Contingencies
|
Litigation Matters
On December 22, 2016, JMB Capital Partners Master Fund, L.P. (“Plaintiff”), filed a complaint in the Supreme Court of the State of New York, County of New York, captioned JMB Capital Partners Master Fund, L.P. v. Jason Industries, Inc., et al., Index No. 656692/2016. The complaint names the Company and Jeffry N. Quinn as defendants (“Defendants”) and asserts claims for breach of representations and warranties, fraudulent inducement, negligent misrepresentation, conversion, unjust enrichment and breach of the implied covenant of good faith and fair dealing. The claims arise out of alleged misrepresentations made in connection with the sale of Series A Preferred Stock to Plaintiff pursuant to a Subscription Agreement executed on May 14, 2014. Plaintiff seeks compensatory damages, rescission of the Subscription Agreement, consequential and punitive damages, attorneys’ fees, pre-judgment and post-judgment interest, costs of suit, and other equitable relief. Plaintiff filed an amended complaint and Defendants have filed their motion to dismiss. The Company continues to believe that this action lacks merit and intends to defend the case vigorously. As of
June 30, 2017
, the Company has not recorded a loss contingency related to this case, as the risk of loss is not perceived to be probable based on facts of the case known to date. As this case is in the early stages, no range of loss can be reasonably estimated at this time, however, an unfavorable outcome in the matter could have a material adverse effect on the Company’s financial condition or cash flows. The Company will continue to evaluate the status of the case and would record a reserve for losses at the time when it is both probable that a loss has been incurred and the amount of loss is reasonably estimable.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
In the third quarter of 2016, the Company received notification of certain employment matter claims filed in Brazil related to hiring practices within the Company’s finishing division. The Company is actively investigating and defending such claims and has gathered additional information to assess the total potential exposure related to this matter, including the potential of additional claims. In the opinion of management, the resolution of this contingency will not have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.
In addition to the cases noted above, the Company is a party to various legal proceedings that have arisen in the normal course of its business. These legal proceedings typically include product liability, labor, and employment claims. The Company has recorded reserves for loss contingencies based on the specific circumstances of each case. Such reserves are recorded when it is probable that a loss has been incurred as of the balance sheet date, can be reasonably estimated and is not covered by insurance. In the opinion of management, the resolution of these contingencies will not have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.
Environmental Matters
At
June 30, 2017
and
December 31, 2016
, the Company held reserves of
$1.0 million
for environmental matters at one location. The ultimate cost of any remediation required will depend on the results of future investigation. Based upon available information, the Company believes that it has obtained and is in substantial compliance with those material environmental permits and approvals necessary to conduct its business. Based on the facts presently known, the Company does not expect environmental costs to have a material adverse effect on its financial condition, results of operations or cash flows.
Share-based compensation and cash bonus award grants
On July 5, 2017, the Company granted
1,567,150
units of share-based compensation awards, including
612,145
restricted stock units and
955,005
adjusted EBITDA vesting awards, both with a grant-date fair value of
$1.27
. Additional cash bonus awards were also issued to certain executive officers and senior management employees with a total potential value of
$0.7 million
, subject to certain adjusted EBITDA performance targets for a portion of the awards.
The number of adjusted EBITDA vesting awards issued can range from
zero
to
100%
, depending on achievement of targeted performance metrics over a performance period of
3
years. The restricted stock units and time-vesting cash bonus awards vest in two
18
month installments over a
3
year vesting period.
Consolidated Results of Operations
The following table sets forth our consolidated results of operations (in thousands) (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30, 2017
|
|
July 1, 2016
|
|
June 30, 2017
|
|
July 1, 2016
|
Net sales
|
$
|
172,477
|
|
|
$
|
185,687
|
|
|
$
|
347,670
|
|
|
$
|
376,661
|
|
Cost of goods sold
|
136,758
|
|
|
148,531
|
|
|
277,187
|
|
|
301,614
|
|
Gross profit
|
35,719
|
|
|
37,156
|
|
|
70,483
|
|
|
75,047
|
|
Selling and administrative expenses
|
25,242
|
|
|
28,273
|
|
|
51,898
|
|
|
60,574
|
|
Loss (gain) on disposals of property, plant and equipment - net
|
65
|
|
|
(14
|
)
|
|
(265
|
)
|
|
689
|
|
Restructuring
|
543
|
|
|
1,783
|
|
|
1,224
|
|
|
4,500
|
|
Operating income
|
9,869
|
|
|
7,114
|
|
|
17,626
|
|
|
9,284
|
|
Interest expense
|
(8,395
|
)
|
|
(7,963
|
)
|
|
(16,761
|
)
|
|
(15,987
|
)
|
Gain on extinguishment of debt
|
1,564
|
|
|
—
|
|
|
1,564
|
|
|
—
|
|
Equity income
|
277
|
|
|
142
|
|
|
420
|
|
|
311
|
|
Loss on divestiture
|
(6,686
|
)
|
|
—
|
|
|
(6,686
|
)
|
|
—
|
|
Other income - net
|
90
|
|
|
283
|
|
|
203
|
|
|
401
|
|
Loss before income taxes
|
(3,281
|
)
|
|
(424
|
)
|
|
(3,634
|
)
|
|
(5,991
|
)
|
Tax provision (benefit)
|
200
|
|
|
1,946
|
|
|
228
|
|
|
(605
|
)
|
Net loss
|
$
|
(3,481
|
)
|
|
$
|
(2,370
|
)
|
|
$
|
(3,862
|
)
|
|
$
|
(5,386
|
)
|
Less net (loss) gain attributable to noncontrolling interests
|
—
|
|
|
(400
|
)
|
|
5
|
|
|
(910
|
)
|
Net loss attributable to Jason Industries
|
$
|
(3,481
|
)
|
|
$
|
(1,970
|
)
|
|
$
|
(3,867
|
)
|
|
$
|
(4,476
|
)
|
Accretion of preferred stock dividends
|
936
|
|
|
900
|
|
|
1,854
|
|
|
1,800
|
|
Net loss available to common shareholders of Jason Industries
|
$
|
(4,417
|
)
|
|
$
|
(2,870
|
)
|
|
$
|
(5,721
|
)
|
|
$
|
(6,276
|
)
|
Other financial data:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Increase/(Decrease)
|
(in thousands, except percentages)
|
June 30, 2017
|
|
July 1, 2016
|
|
$
|
|
%
|
Consolidated
|
|
|
|
|
|
|
|
Net sales
|
$
|
172,477
|
|
|
$
|
185,687
|
|
|
$
|
(13,210
|
)
|
|
(7.1)%
|
|
Net loss
|
(3,481
|
)
|
|
(2,370
|
)
|
|
(1,111
|
)
|
|
(46.9
|
)
|
Net loss as a % of net sales
|
2.0
|
%
|
|
1.3
|
%
|
|
70 bps
|
Adjusted EBITDA
|
20,580
|
|
|
18,754
|
|
|
1,826
|
|
|
9.7
|
|
Adjusted EBITDA % of net sales
|
11.9
|
%
|
|
10.1
|
%
|
|
180 bps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Increase/(Decrease)
|
(in thousands, except percentages)
|
June 30, 2017
|
|
July 1, 2016
|
|
$
|
|
%
|
Consolidated
|
|
|
|
|
|
|
|
Net sales
|
$
|
347,670
|
|
|
$
|
376,661
|
|
|
$
|
(28,991
|
)
|
|
(7.7)%
|
|
Net loss
|
(3,862
|
)
|
|
(5,386
|
)
|
|
1,524
|
|
|
28.3
|
|
Net loss as a % of net sales
|
1.1
|
%
|
|
1.4
|
%
|
|
(30) bps
|
Adjusted EBITDA
|
39,141
|
|
|
37,093
|
|
|
2,048
|
|
|
5.5
|
|
Adjusted EBITDA % of net sales
|
11.3
|
%
|
|
9.8
|
%
|
|
150 bps
|
|
|
(1)
|
Adjusted EBITDA and Adjusted EBITDA as a % of net sales are financial measures that are not presented in accordance with GAAP. See “Key Measures the Company Uses to Evaluate Its Performance” below for a reconciliation of Adjusted EBITDA to net loss.
|
The Three and
Six Months Ended
June 30, 2017
Compared with the Three and
Six Months Ended
July 1, 2016
Net sales
. Net sales were
$172.5 million
for the
three months ended June 30, 2017
, a decrease of
$13.2 million
, or
7.1%
, compared with
$185.7 million
for the
three months ended July 1, 2016
, reflecting decreased net sales in the acoustics segment of
$7.1 million
, the finishing segment of
$3.4 million
and the components segment of
$2.9 million
, partially offset by an increase in the seating segment of
$0.2 million
. See further discussion of segment results below.
Net sales were
$347.7 million
for the
six months ended June 30, 2017
, a decrease of
$29.0 million
, or
7.7%
, compared with
$376.7 million
for the
six months ended July 1, 2016
, reflecting decreased net sales in the the acoustics segment of
$11.8 million
, the components segment of
$8.6 million
, the seating segment of
$4.3 million
and the finishing segment of
$4.2 million
. See further discussion of segment results below.
Changes in foreign currency exchange rates compared with the U.S. dollar had a net negative impact of
$2.4 million
on consolidated net sales during the
three months ended June 30, 2017
compared with
2016
, negatively impacting the finishing segments’ net sales by
$2.0 million
and both the seating and acoustics segments’ net sales by
$0.2 million
. Changes in foreign currency exchange rates compared with the U.S. dollar had a net negative impact of
$4.3 million
on consolidated net sales during the
six months ended June 30, 2017
compared with
2016
, negatively impacting the finishing, seating and acoustics segments’ net sales by
$3.2 million
,
$0.6 million
and
$0.5 million
, respectively. This was due principally to strengthening of the U.S. dollar against the Euro in the first six months of 2017 compared to the first six months of 2016.
Cost of goods sold
. Cost of goods sold was
$136.8 million
for the
three months ended June 30, 2017
, compared with
$148.5 million
for the
three months ended July 1, 2016
. The decrease in cost of goods sold was primarily due to lower net sales volumes in the acoustics, finishing, and components segments, lower labor and material usage costs in the acoustics segment as a result of operational efficiencies and supply chain initiatives, lower manufacturing costs in the finishing segment as a result of the wind down of a facility in São Bernardo do Campo, Brazil and a $2.0 million favorable impact related to foreign currency exchange rates. The decrease was partially offset by operational inefficiencies in the components segment.
Cost of goods sold was
$277.2 million
for the
six months ended June 30, 2017
, compared with
$301.6 million
for the
six months ended July 1, 2016
. The decrease in cost of goods sold was primarily due to lower net sales volumes across all segments, lower labor and material usage costs in the acoustics segment as a result of operational efficiencies, lower manufacturing costs in the finishing segment as a result of the wind down of a facility in São Bernardo do Campo, Brazil and a $3.4 million favorable impact related to foreign currency exchange rates. The decrease was partially offset by operational inefficiencies in the components segment.
Gross profit
. For the reasons described above, gross profit was
$35.7 million
for the
three months ended June 30, 2017
, compared with
$37.2 million
for the
three months ended July 1, 2016
and
$70.5 million
for the
six months ended June 30, 2017
, compared with
$75.0 million
for the
six months ended July 1, 2016
.
Selling and administrative expenses
. Selling and administrative expenses were
$25.2 million
for the
three months ended June 30, 2017
, compared with
$28.3 million
for the
three months ended July 1, 2016
, a decrease of
$3.1 million
. The decrease is primarily due to reduced selling and administrative expenses resulting from the Company’s global cost reduction and restructuring program announced on March 1, 2016 of $1.5 million for the
three months ended June 30, 2017
, which includes $0.8 million related to the closure of facilities in the components and finishing segments, as well as decreased selling and administrative expenses across all segments of $1.7 million from other spending controls, decreased corporate expenses of $1.5 million primarily related to professional fees associated with supply chain consulting which incurred in 2016, a reduction of bad debt expenses of $0.6 million due to improved collections and a $0.2 million favorable impact related to foreign currency exchange rates. The decrease was partially offset by an increase in share-based compensation expense of
$2.3 million
primarily due to a decrease in assumed vesting of Adjusted EBITDA Vesting Awards in the second quarter of 2016, which resulted in a $2.5 million reversal of previously recorded expense, and increased incentive compensation of $0.6 million.
Selling and administrative expenses were
$51.9 million
for the
six months ended June 30, 2017
compared with
$60.6 million
for the
six months ended July 1, 2016
, a decrease of
$8.7 million
. The decrease is primarily due to reduced selling and administrative expenses resulting from the Company’s global cost reduction and restructuring program announced on March 1, 2016 of $4.4 million for the
six months ended June 30, 2017
, which includes $1.4 million related to the closure of facilities in the components and finishing segments, as well as decreased corporate expenses of $2.1 million primarily related to professional fees associated with supply chain consulting which incurred in 2016, decreased selling and administrative expenses across all segments of $1.7 million from other spending controls, a reduction of bad debt expenses of $0.7 million due to improved collections and a $0.6 million favorable impact related to foreign currency exchange rates. The decrease was partially offset by an increase in share-based compensation expense of
$2.0 million
primarily due to a decrease in assumed vesting of Adjusted EBITDA Vesting Awards in the second quarter of 2016, which resulted in a $2.5 million reversal of previously recorded expense.
Loss (gain) on disposals of property, plant and equipment - net
. Loss (gain) on disposals of property, plant and equipment - net for the
three months ended June 30, 2017
and the
three months ended July 1, 2016
was not material. Gain on disposals of property, plant and equipment - net for the
six months ended June 30, 2017
was
$0.3 million
compared to a loss of
$0.7 million
for the
six months ended July 1, 2016
. The gain on disposals of property, plant and equipment - net for the
six months ended June 30, 2017
relates to a gain of
$0.4 million
on the sale of equipment related to the closure of the components segment’s Buffalo Grove, Illinois facility. The loss on disposals of property, plant and equipment - net for the
six months ended July 1, 2016
includes a loss of
$0.6 million
on a sale of a seating segment facility. Changes in the level of fixed asset disposals are dependent upon a number of factors, including changes in the level of asset sales, operational restructuring activities, and capital expenditure levels.
Restructuring
. Restructuring costs were
$0.5 million
for the
three months ended June 30, 2017
compared with
$1.8 million
for the
three months ended July 1, 2016
. Restructuring costs were
$1.2 million
for the
six months ended June 30, 2017
compared with
$4.5 million
for the
six months ended July 1, 2016
. During 2017, such costs primarily related to the consolidation of two U.S. facilities in the components segment, the wind down of a facility in São Bernardo do Campo, Brazil in the finishing segment and the consolidation of two U.S. facilities in the finishing segment. During 2016, such costs primarily related to severance actions in all segments resulting from the global cost reduction and restructuring program announced on March 1, 2016, including costs related to the closure of the components segment’s facility in Buffalo Grove, Illinois.
Interest expense
. Interest expense was
$8.4 million
for the
three months ended June 30, 2017
, compared with
$8.0 million
for the
three months ended July 1, 2016
. The increase in interest expense for the
three months ended June 30, 2017
primarily relates to
$0.5 million
recognized in the
three months ended June 30, 2017
related to the Company’s interest rate swaps which were effective December 30, 2016. The effective interest rate on the Company’s total outstanding indebtedness for
three months ended June 30, 2017
was
7.7%
as compared to
7.1%
for the
three months ended July 1, 2016
.
Interest expense was
$16.8 million
for the
six months ended June 30, 2017
compared with
$16.0 million
for the
six months ended July 1, 2016
. The increase in interest expense for the
six months ended June 30, 2017
primarily relates to
$1.1 million
recognized in the
six months ended June 30, 2017
related to the Company’s interest rate swaps which were effective December 30, 2016. The effective interest rate on the Company’s total outstanding indebtedness for the
six months ended June 30, 2017
was
7.7%
as compared to
7.0%
for the
six months ended July 1, 2016
.
See “Senior Secured Credit Facilities” in the Liquidity and Capital Resources section of this MD&A for further discussion.
Gain on extinguishment of debt.
Gain on extinguishment of debt was
$1.6 million
for both the
three and six months ended
June 30, 2017
. The gain on extinguishment of debt relates to the repurchase of
$8.0 million
of Second Lien Term Loan debt in the second quarter of 2017 for
$6.1 million
, partially offset by a
$0.3 million
write-off of previously unamortized debt discounts and deferred financing costs on the Term Loans related to the extinguishment. See “Senior Secured Credit Facilities” in the Liquidity and Capital Resources section of this MD&A for further discussion.
Equity income
. Equity income was
$0.3 million
for the
three months ended June 30, 2017
compared with
$0.1 million
for the
three months ended July 1, 2016
. Equity income was
$0.4 million
for the
six months ended June 30, 2017
compared with
$0.3 million
for the
six months ended July 1, 2016
.
Loss on divestiture
. Loss on divestiture was
$6.7 million
for both the
three and six months ended
June 30, 2017
. During the second quarter of 2017, the Company's board of directors approved a plan to sell the Acoustics Europe business and the Company classified the assets and liabilities of the Acoustics Europe business as held for sale. In connection with the approved plan, the carrying amount of the long-lived assets were written down to fair value less costs to sell, which resulted in a
$6.7 million
pre-tax loss.
Other income - net
. Other income was
$0.1 million
for the
three months ended June 30, 2017
and
$0.3 million
for the
three months ended July 1, 2016
. Other income was
$0.2 million
for the
six months ended June 30, 2017
and
$0.4 million
for the
six months ended July 1, 2016
.
Loss before income taxes
. For the reasons described above, loss before income taxes was
$3.3 million
for the
three months ended June 30, 2017
, compared with
$0.4 million
for the
three months ended July 1, 2016
. Loss before income taxes was
$3.6 million
for the
six months ended June 30, 2017
compared with
$6.0 million
for the
six months ended July 1, 2016
.
Tax provision (benefit)
. The tax provision was
$0.2 million
for the
three months ended June 30, 2017
, compared with a tax provision of
$1.9 million
for the
three months ended July 1, 2016
. The tax provision was
$0.2 million
for the
six months ended June 30, 2017
compared with a tax benefit of
$0.6 million
for the
six months ended July 1, 2016
. The effective tax rate for the
three months ended June 30, 2017
was
(6.1)%
, compared with
(459.0)%
for the
three months ended July 1, 2016
. The effective tax rate was
(6.3)%
for the
six months ended June 30, 2017
compared with
10.1%
for the
six months ended July 1, 2016
. The net discrete tax provision was
$0.4 million
and
$0.6 million
for the three and
six months ended June 30, 2017
. The net discrete tax provision was a result of the vesting, forfeiture and expiration of the performance period on performance based
restricted stock units for which no tax benefit will be realized. The net discrete tax provision was
$2.7 million
and
$2.8 million
for the three and
six months ended July 1, 2016
, respectively.
The Company’s tax provision (benefit) is impacted by a number of factors, including, among others, the amount of taxable income or losses at the U.S. federal statutory rate, the amount of taxable earnings derived in foreign jurisdictions with tax rates that are lower than the U.S. federal statutory rate, permanent items, state tax rates, the ability to utilize foreign net operating loss carry forwards and adjustments to valuation allowances. The effective tax rate for the
three and six months ended
June 30, 2017
, was impacted by the levels of U.S. and foreign pre-tax losses and earnings, respectively, pre-tax losses in foreign jurisdictions for which no tax benefit was recognized, the vesting and forfeiture of RSUs for which no tax benefit will be realized and the recording of certain tax effects associated with the planned Acoustics Europe sale as a component of the loss on divestiture.
Net loss
. For the reasons described above, net loss was
$3.5 million
for the
three months ended June 30, 2017
, compared with net loss of
$2.4 million
for the
three months ended July 1, 2016
. Net loss was
$3.9 million
for the
six months ended June 30, 2017
compared with
$5.4 million
for the
six months ended July 1, 2016
.
Net (loss) gain attributable to noncontrolling interests
. Net loss attributable to noncontrolling interests was
$0.0 million
for the
three months ended June 30, 2017
and
$0.4 million
for the
three months ended July 1, 2016
. Net gain attributable to noncontrolling interests was immaterial for the
six months ended June 30, 2017
compared with a net loss attributable to noncontrolling interests of
$0.9 million
for the
six months ended July 1, 2016
. Noncontrolling interests represent the Rollover Participants interest in JPHI which was reduced to 0% as of February 23, 2017. See Note 9 to the condensed consolidated financial statements for further discussion.
Adjusted EBITDA
. Adjusted EBITDA was
$20.6 million
, or
11.9%
of net sales for the
three months ended June 30, 2017
, compared with
$18.8 million
, or
10.1%
of net sales for the
three months ended July 1, 2016
, an increase of
$1.8 million
, or
9.7%
. The increase reflects increased Adjusted EBITDA in the acoustics segment of
$1.2 million
, the seating segment of
$0.3 million
and lower corporate expenses of
$1.5 million
, partially offset by decreased Adjusted EBITDA in the components segment of
$0.9 million
and the finishing segment of
$0.3 million
.
Adjusted EBITDA was
$39.1 million
, or
11.3%
of net sales for the
six months ended June 30, 2017
, compared with
$37.1 million
, or
9.8%
, of net sales for the
six months ended July 1, 2016
, an increase of
$2.0 million
, or
5.5%
. The increase reflects increased Adjusted EBITDA in the finishing segment of
$1.5 million
, the acoustics segment of
$1.3 million
and lower corporate expenses of
$2.8 million
, partially offset by decreased Adjusted EBITDA in the components segment of
$2.8 million
and the seating segment of
$0.8 million
. See further discussion of segment results below.
Changes in foreign currency exchange rates compared with the U.S. dollar had a negative impact of
$0.2 million
on consolidated Adjusted EBITDA during the
three months ended June 30, 2017
compared with the
three months ended July 1, 2016
, negatively impacting both the finishing and acoustics segment’s Adjusted EBITDA by
$0.1 million
. During the
six months ended June 30, 2017
, changes in foreign currency exchange rates had a negative impact of
$0.4 million
on consolidated Adjusted EBITDA compared to the
six months ended July 1, 2016
, negatively impacting the finishing and acoustics segment’s Adjusted EBITDA by
$0.3 million
and
$0.1 million
, respectively.
Other Comprehensive Income (Loss).
Other comprehensive income was
$5.5 million
for the
three months ended June 30, 2017
compared with other comprehensive loss of
$3.3 million
for the
three months ended July 1, 2016
. Other comprehensive income was
$7.0 million
for the
six months ended June 30, 2017
compared with other comprehensive loss of
$2.1 million
for the
six months ended July 1, 2016
. The increase in both periods was driven by more favorable foreign currency translation adjustments in 2017 compared to 2016 and a less significant increase in the unrealized loss position on cash flow hedges in 2017 compared to 2016.
The net change in unrealized gains (losses) on cash flow hedges is based on the changes in current interest rates and market expectations of the timing and amount of future interest rate changes. In the fourth quarter of 2015, the Company entered into the forward starting interest rate swap agreements discussed in Note
7
, “
Debt and Hedging Instruments
”. In 2016, subsequent to entering into these arrangements, actual interest rate increases had been lower and had occurred later than expected, thereby, resulting in losses associated with these hedging instruments. In 2017, the hedging instruments continue to be in a net loss position, however, actual interest rate changes have been minimal and have resulted in an immaterial increase in previously recorded unrealized losses on the hedging instruments for the
six months ended June 30, 2017
.
Foreign currency translation adjustments are based on fluctuations in the value of foreign currencies (primarily the Euro) against the U.S. Dollar each period.
See “Segment Financial Data” section below for further discussion.
Key Measures the Company Uses to Evaluate Its Performance
EBITDA and Adjusted EBITDA
. The Company defines EBITDA as net income (loss) before interest expense, provision (benefit) for income taxes, depreciation and amortization. The Company defines Adjusted EBITDA as EBITDA, excluding the impact of operational restructuring charges and non-cash or non-operational losses or gains, including goodwill and long-lived asset impairment charges, gains or losses on disposal of property, plant and equipment, integration and other operational restructuring charges, transactional legal fees, other professional fees, purchase accounting adjustments, and non-cash share based compensation expense.
Management believes that Adjusted EBITDA provides a more clear picture of the Company’s operating results by eliminating expenses and income that are not reflective of the underlying business performance. The Company uses this metric to facilitate a comparison of operating performance on a consistent basis from period to period and to analyze the factors and trends affecting its segments. The Company’s internal plans, budgets and forecasts use Adjusted EBITDA as one of its key metrics and the Company uses this measure to evaluate its operating performance and segment operating performance and to determine the level of incentive compensation paid to its employees.
The Senior Secured Credit Facilities (defined in Note
7
and below) definition of EBITDA excludes income of partially owned affiliates, unless such earnings have been received in cash.
Set forth below is a reconciliation of Adjusted EBITDA to net loss (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30, 2017
|
|
July 1, 2016
|
|
June 30, 2017
|
|
July 1, 2016
|
Net loss
|
$
|
(3,481
|
)
|
|
$
|
(2,370
|
)
|
|
$
|
(3,862
|
)
|
|
$
|
(5,386
|
)
|
Tax provision (benefit)
|
200
|
|
|
1,946
|
|
|
228
|
|
|
(605
|
)
|
Interest expense
|
8,395
|
|
|
7,963
|
|
|
16,761
|
|
|
15,987
|
|
Depreciation and amortization
|
9,412
|
|
|
11,340
|
|
|
19,260
|
|
|
21,637
|
|
EBITDA
|
14,526
|
|
|
18,879
|
|
|
32,387
|
|
|
31,633
|
|
Adjustments:
|
|
|
|
|
|
|
|
Restructuring
(1)
|
543
|
|
|
1,783
|
|
|
1,224
|
|
|
4,500
|
|
Integration and other restructuring costs
(2)
|
—
|
|
|
55
|
|
|
—
|
|
|
1,644
|
|
Share-based compensation
(3)
|
324
|
|
|
(1,949
|
)
|
|
673
|
|
|
(1,373
|
)
|
Loss (gain) on disposals of property, plant and equipment - net
(4)
|
65
|
|
|
(14
|
)
|
|
(265
|
)
|
|
689
|
|
Gain on extinguishment of debt
(5)
|
(1,564
|
)
|
|
—
|
|
|
(1,564
|
)
|
|
—
|
|
Loss on divestiture
(6)
|
6,686
|
|
|
—
|
|
|
6,686
|
|
|
—
|
|
Total adjustments
|
6,054
|
|
|
(125
|
)
|
|
6,754
|
|
|
5,460
|
|
Adjusted EBITDA
|
$
|
20,580
|
|
|
$
|
18,754
|
|
|
$
|
39,141
|
|
|
$
|
37,093
|
|
|
|
(1)
|
Restructuring includes costs associated with exit or disposal activities as defined by GAAP related to facility consolidation, including one-time employee termination benefits, costs to close facilities and relocate employees, and costs to terminate contracts other than capital leases. See Note
3
, “
Restructuring Costs
” of the accompanying condensed consolidated financial statements for further information.
|
|
|
(2)
|
During the
six months ended
July 1, 2016
, integration and other restructuring costs includes costs associated with the start-up of new acoustics segment facilities in Warrensburg, Missouri and Richmond, Indiana. Such costs are not included in restructuring for GAAP purposes.
|
|
|
(3)
|
Represents share-based compensation expense for awards under the Company’s 2014 Omnibus Incentive Plan. During the
six months ended
July 1, 2016
, share-based compensation expense includes $2.5 million of expense reversal as a result of the lowering of assumed vesting levels for Adjusted EBITDA performance share units. See Note
8
, “
Share-Based Compensation
” of the accompanying condensed consolidated financial statements for further information.
|
|
|
(4)
|
(Gain) loss on disposals of property, plant and equipment - net for the
six months ended June 30, 2017
included a gain of
$0.4 million
on the sale of equipment related to the closure of the components segment’s Buffalo Grove, Illinois facility and for the
six months ended
July 1, 2016
included a loss of
$0.6 million
on sale of a seating segment facility.
|
|
|
(5)
|
Represents a gain on extinguishment of Second Lien Term Loan debt in the second quarter of 2017. See Note
7
, “
Debt and Hedging Instruments
” of the accompanying condensed consolidated financial statements for further information.
|
|
|
(6)
|
Represents a write-down of the carrying amount of the long-lived assets to fair value less costs to sell in connection with the planned sale of the Acoustics Europe business. See Note
2
, “
Divestiture
” of the accompanying condensed consolidated financial statements for further information.
|
Adjusted EBITDA percentage of net sales
. Adjusted EBITDA as a percentage of net sales is an important metric that the Company uses to evaluate its operational effectiveness and business segments.
Segment Financial Data
The table, below presents the Company’s net sales, Adjusted EBITDA and Adjusted EBITDA as a percentage of net sales for each of its reportable segments for the
three and six months ended
June 30, 2017
and
July 1, 2016
. The Company uses Adjusted EBITDA as the primary measure of profit or loss for purposes of assessing the operating performance of its segments. See “Key Measures the Company Uses to Evaluate Its Performance” above for a reconciliation of Adjusted EBITDA to Net Loss which is the nearest GAAP measure.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Increase/ (Decrease)
|
(in thousands, except percentages)
|
June 30, 2017
|
|
July 1, 2016
|
|
$
|
|
%
|
Finishing
|
|
|
|
|
|
|
|
Net sales
|
$
|
49,757
|
|
|
$
|
53,148
|
|
|
$
|
(3,391
|
)
|
|
(6.4)%
|
|
Adjusted EBITDA
|
7,324
|
|
|
7,634
|
|
|
(310
|
)
|
|
(4.1
|
)
|
Adjusted EBITDA % of net sales
|
14.7
|
%
|
|
14.4
|
%
|
|
30 bps
|
Components
|
|
|
|
|
|
|
|
Net sales
|
$
|
21,713
|
|
|
$
|
24,634
|
|
|
$
|
(2,921
|
)
|
|
(11.9)%
|
|
Adjusted EBITDA
|
2,451
|
|
|
3,337
|
|
|
(886
|
)
|
|
(26.6
|
)
|
Adjusted EBITDA % of net sales
|
11.3
|
%
|
|
13.5
|
%
|
|
(220) bps
|
Seating
|
|
|
|
|
|
|
|
Net sales
|
$
|
44,921
|
|
|
$
|
44,680
|
|
|
$
|
241
|
|
|
0.5%
|
|
Adjusted EBITDA
|
5,897
|
|
|
5,620
|
|
|
277
|
|
|
4.9
|
|
Adjusted EBITDA % of net sales
|
13.1
|
%
|
|
12.6
|
%
|
|
50 bps
|
Acoustics
|
|
|
|
|
|
|
|
Net sales
|
$
|
56,086
|
|
|
$
|
63,225
|
|
|
$
|
(7,139
|
)
|
|
(11.3)%
|
|
Adjusted EBITDA
|
7,983
|
|
|
6,758
|
|
|
1,225
|
|
|
18.1
|
|
Adjusted EBITDA % of net sales
|
14.2
|
%
|
|
10.7
|
%
|
|
350 bps
|
Corporate
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
(3,075
|
)
|
|
$
|
(4,595
|
)
|
|
$
|
1,520
|
|
|
33.1%
|
|
Consolidated
|
|
|
|
|
|
|
|
Net sales
|
$
|
172,477
|
|
|
$
|
185,687
|
|
|
$
|
(13,210
|
)
|
|
(7.1)%
|
|
Adjusted EBITDA
|
20,580
|
|
|
18,754
|
|
|
1,826
|
|
|
9.7
|
|
Adjusted EBITDA % of net sales
|
11.9
|
%
|
|
10.1
|
%
|
|
180 bps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Increase/ (Decrease)
|
(in thousands, except percentages)
|
June 30, 2017
|
|
July 1, 2016
|
|
$
|
|
%
|
Finishing
|
|
|
|
|
|
|
|
Net sales
|
$
|
99,233
|
|
|
$
|
103,424
|
|
|
$
|
(4,191
|
)
|
|
(4.1
|
)%
|
Adjusted EBITDA
|
14,391
|
|
|
12,863
|
|
|
1,528
|
|
|
11.9
|
|
Adjusted EBITDA % of net sales
|
14.5
|
%
|
|
12.4
|
%
|
|
210 bps
|
Components
|
|
|
|
|
|
|
|
Net sales
|
$
|
42,830
|
|
|
$
|
51,471
|
|
|
$
|
(8,641
|
)
|
|
(16.8)%
|
|
Adjusted EBITDA
|
5,171
|
|
|
7,950
|
|
|
(2,779
|
)
|
|
(35.0
|
)
|
Adjusted EBITDA % of net sales
|
12.1
|
%
|
|
15.4
|
%
|
|
(330) bps
|
Seating
|
|
|
|
|
|
|
|
Net sales
|
$
|
92,294
|
|
|
$
|
96,630
|
|
|
$
|
(4,336
|
)
|
|
(4.5)%
|
|
Adjusted EBITDA
|
11,427
|
|
|
12,249
|
|
|
(822
|
)
|
|
(6.7
|
)
|
Adjusted EBITDA % of net sales
|
12.4
|
%
|
|
12.7
|
%
|
|
(30) bps
|
Acoustics
|
|
|
|
|
|
|
|
Net sales
|
$
|
113,313
|
|
|
$
|
125,136
|
|
|
$
|
(11,823
|
)
|
|
(9.4)%
|
|
Adjusted EBITDA
|
14,704
|
|
|
13,373
|
|
|
1,331
|
|
|
10.0
|
|
Adjusted EBITDA % of net sales
|
13.0
|
%
|
|
10.7
|
%
|
|
230 bps
|
Corporate
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
(6,552
|
)
|
|
$
|
(9,342
|
)
|
|
$
|
2,790
|
|
|
29.9%
|
|
Consolidated
|
|
|
|
|
|
|
|
Net sales
|
$
|
347,670
|
|
|
$
|
376,661
|
|
|
$
|
(28,991
|
)
|
|
(7.7)%
|
|
Adjusted EBITDA
|
39,141
|
|
|
37,093
|
|
|
2,048
|
|
|
5.5
|
|
Adjusted EBITDA % of net sales
|
11.3
|
%
|
|
9.8
|
%
|
|
150 bps
|
Finishing Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Increase/ (Decrease)
|
(in thousands, except percentages)
|
June 30, 2017
|
|
July 1, 2016
|
|
$
|
|
%
|
Net sales
|
$
|
49,757
|
|
|
$
|
53,148
|
|
|
$
|
(3,391
|
)
|
|
(6.4
|
)%
|
Adjusted EBITDA
|
7,324
|
|
|
7,634
|
|
|
(310
|
)
|
|
(4.1
|
)
|
Adjusted EBITDA % of net sales
|
14.7
|
%
|
|
14.4
|
%
|
|
30 bps
|
Net sales in the finishing segment for the three months ended
June 30, 2017
were
$49.8 million
, a decrease of
$3.4 million
or
6.4%
, compared with
$53.1 million
for the three months ended
July 1, 2016
. On a constant currency basis (net negative currency impact of
$2.0 million
for the three months ended
June 30, 2017
), revenues decreased by
$1.4 million
for the three months ended
June 30, 2017
. The decrease in net sales for the three months ended
June 30, 2017
was primarily due to a $1.4 million decrease associated with the wind down of the finishing segment’s facility in São Bernardo do Campo, Brazil and decreases in volume associated with strategic decisions related to exiting unprofitable customers and products, partially offset by increases in volume in industrial end markets in Europe.
Adjusted EBITDA for the three months ended
June 30, 2017
decreased
$0.3 million
to
$7.3 million
(
14.7%
of net sales) from
$7.6 million
(
14.4%
of net sales) for the three months ended
July 1, 2016
. On a constant currency basis (net negative currency impact of
$0.1 million
for the three months ended
June 30, 2017
), Adjusted EBITDA decreased by
$0.2 million
for the three months ended
June 30, 2017
. The decrease in Adjusted EBITDA primarily resulted from increased incentive compensation expense for the three months ended
June 30, 2017
as compared to the three months ended
July 1, 2016
, partially offset by savings in selling and administrative expenses as a result of the Company’s global cost reduction and restructuring program and other spending controls.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Increase/ (Decrease)
|
(in thousands, except percentages)
|
June 30, 2017
|
|
July 1, 2016
|
|
$
|
|
%
|
Net sales
|
$
|
99,233
|
|
|
$
|
103,424
|
|
|
$
|
(4,191
|
)
|
|
(4.1
|
)%
|
Adjusted EBITDA
|
14,391
|
|
|
12,863
|
|
|
1,528
|
|
|
11.9
|
|
Adjusted EBITDA % of net sales
|
14.5
|
%
|
|
12.4
|
%
|
|
210 bps
|
Net sales in the finishing segment for the
six months ended
June 30, 2017
were
$99.2 million
, a decrease of
$4.2 million
or
4.1%
, compared with
$103.4 million
for the
six months ended
July 1, 2016
. On a constant currency basis (net negative currency impact of
$3.2 million
for the
six months ended
June 30, 2017
), revenues decreased by
$1.0 million
for the
six months ended
June 30, 2017
. Excluding currency impact, the decrease in net sales for the
six months ended
June 30, 2017
was primarily due to a $2.0 million decrease associated with the wind down of the finishing segment’s facility in São Bernardo do Campo, Brazil and decreases in volume associated with strategic decisions related exiting unprofitable customers and products, partially offset by increases in volume in industrial end markets in North America.
Adjusted EBITDA for the
six months ended
June 30, 2017
increased
$1.5 million
to
$14.4 million
(
14.5%
of net sales) from
$12.9 million
(
12.4%
of net sales) for the
six months ended
July 1, 2016
. On a constant currency basis (net negative currency impact of
$0.3 million
for the
six months ended
June 30, 2017
), Adjusted EBITDA increased by
$1.8 million
for the
six months ended
June 30, 2017
. The increase in Adjusted EBITDA for the
six months ended
June 30, 2017
primarily resulted from savings in selling and administrative expenses as a result of the Company’s global cost reduction and restructuring program and other spending controls.
Components Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Increase/ (Decrease)
|
(in thousands, except percentages)
|
June 30, 2017
|
|
July 1, 2016
|
|
$
|
|
%
|
Net sales
|
$
|
21,713
|
|
|
$
|
24,634
|
|
|
$
|
(2,921
|
)
|
|
(11.9
|
)%
|
Adjusted EBITDA
|
2,451
|
|
|
3,337
|
|
|
(886
|
)
|
|
(26.6
|
)
|
Adjusted EBITDA % of net sales
|
11.3
|
%
|
|
13.5
|
%
|
|
(220) bps
|
Net sales in the components segment for the three months ended
June 30, 2017
were
$21.7 million
, a decrease of
$2.9 million
, or
11.9%
, compared with
$24.6 million
for the three months ended
July 1, 2016
. The decrease was primarily due to lower sales volumes in the rail market and the strategic decision to discontinue certain product lines selling under the Assembled Products brand in 2016, partially offset by higher volumes in smart utility meter components.
Adjusted EBITDA decreased
$0.9 million
, or
26.6%
, for the three months ended
June 30, 2017
to
$2.5 million
(
11.3%
of net sales) compared with
$3.3 million
(
13.5%
of net sales) for the three months ended
July 1, 2016
. The decrease primarily resulted from lower volumes from the higher margin rail market, unfavorable product mix and operational material and labor inefficiencies, partially offset by a reduction of bad debt expense due to improved collections and decreased selling and administrative expenses from other spending controls.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Increase/ (Decrease)
|
(in thousands, except percentages)
|
June 30, 2017
|
|
July 1, 2016
|
|
$
|
|
%
|
Net sales
|
$
|
42,830
|
|
|
$
|
51,471
|
|
|
$
|
(8,641
|
)
|
|
(16.8
|
)%
|
Adjusted EBITDA
|
5,171
|
|
|
7,950
|
|
|
(2,779
|
)
|
|
(35.0
|
)
|
Adjusted EBITDA % of net sales
|
12.1
|
%
|
|
15.4
|
%
|
|
(330) bps
|
Net sales in the components segment for the
six months ended
June 30, 2017
were
$42.8 million
, a decrease of
$8.6 million
, or
16.8%
, compared with
$51.5 million
for the
six months ended
July 1, 2016
. The decrease during the six months ended
June 30, 2017
was primarily due to lower sales volumes of rail and the strategic decision to discontinue certain product lines selling under the Assembled Products brand in 2016, partially offset by higher volumes in smart utility meter components.
Adjusted EBITDA decreased
$2.8 million
, or
35.0%
, for the
six months ended
June 30, 2017
to
$5.2 million
(
12.1%
of net sales) compared with
$8.0 million
(
15.4%
of net sales) for the
six months ended
July 1, 2016
. The decrease in Adjusted EBITDA for the
six months ended
June 30, 2017
primarily resulted from lower volumes from the higher margin rail market and unfavorable product mix, increases in raw material price and lower labor productivity on decreased volumes, partially offset by a reduction of bad debt expense due to improved collections and decreased selling and administrative expenses from other spending controls.
Seating Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Increase/ (Decrease)
|
(in thousands, except percentages)
|
June 30, 2017
|
|
July 1, 2016
|
|
$
|
|
%
|
Net sales
|
$
|
44,921
|
|
|
$
|
44,680
|
|
|
$
|
241
|
|
|
0.5
|
%
|
Adjusted EBITDA
|
5,897
|
|
|
5,620
|
|
|
277
|
|
|
4.9
|
|
Adjusted EBITDA % of net sales
|
13.1
|
%
|
|
12.6
|
%
|
|
50 bps
|
Net sales in the seating segment for the three months ended
June 30, 2017
were
$44.9 million
, an increase of
$0.2 million
, or
0.5%
, compared with
$44.7 million
for the three months ended
July 1, 2016
. On a constant currency basis (net negative currency impact of
$0.2 million
for the three months ended
June 30, 2017
), revenues increased by
$0.4 million
for the three months ended ended
June 30, 2017
. The increase in net sales in the three months ended
June 30, 2017
was primarily due to improved pricing and increases in volume in the construction and power sport markets, partially offset by decreases in volume in the turf care and motorcycle markets.
Adjusted EBITDA was
$5.9 million
(
13.1%
of net sales) in the three months ended
June 30, 2017
compared with
$5.6 million
(
12.6%
of net sales) in the three months ended
July 1, 2016
. Changes in foreign currency exchange rates did not significantly impact Adjusted EBITDA. The increase in Adjusted EBITDA for the three months ended
June 30, 2017
was primarily due to savings in cost of goods sold and selling and administrative expenses resulting from the Company’s global cost reduction program and supply chain initiatives and other spending controls, partially offset by increased incentive compensation expense, material cost inflation, and operational inefficiencies resulting in higher material usage and increased freight costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Increase/ (Decrease)
|
(in thousands, except percentages)
|
June 30, 2017
|
|
July 1, 2016
|
|
$
|
|
%
|
Net sales
|
$
|
92,294
|
|
|
$
|
96,630
|
|
|
$
|
(4,336
|
)
|
|
(4.5
|
)%
|
Adjusted EBITDA
|
11,427
|
|
|
12,249
|
|
|
(822
|
)
|
|
(6.7
|
)
|
Adjusted EBITDA % of net sales
|
12.4
|
%
|
|
12.7
|
%
|
|
(30) bps
|
Net sales in the seating segment for the
six months ended
June 30, 2017
were
$92.3 million
, a decrease of
$4.3 million
, or
4.5%
, compared with
$96.6 million
for the
six months ended
July 1, 2016
. On a constant currency basis (net negative currency impact of
$0.6 million
for the
six months ended
June 30, 2017
), revenues decreased by
$3.7 million
for the
six months ended
June 30, 2017
. The decrease in net sales for the
six months ended
June 30, 2017
was primarily due to decreases in volume in the motorcycle, turf care and power sports markets, partially offset by an increase in volume in the construction market.
Adjusted EBITDA was
$11.4 million
(
12.4%
of net sales) in the
six months ended
June 30, 2017
compared with
$12.2 million
(
12.7%
of net sales) in the
six months ended
July 1, 2016
. Changes in foreign currency exchange rates did not significantly impact Adjusted EBITDA. The decrease in Adjusted EBITDA for the
six months ended
June 30, 2017
was primarily due to decreased sales volume, increased incentive compensation expense and higher repairs and maintenance spend, partially offset by savings in cost of goods sold and selling and administrative expenses resulting from the Company’s global cost reduction program and supply chain initiatives and other spending controls.
Acoustics Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Increase/ (Decrease)
|
(in thousands, except percentages)
|
June 30, 2017
|
|
July 1, 2016
|
|
$
|
|
%
|
Net sales
|
$
|
56,086
|
|
|
$
|
63,225
|
|
|
$
|
(7,139
|
)
|
|
(11.3
|
)%
|
Adjusted EBITDA
|
7,983
|
|
|
6,758
|
|
|
1,225
|
|
|
18.1
|
|
Adjusted EBITDA % of net sales
|
14.2
|
%
|
|
10.7
|
%
|
|
350 bps
|
Net sales in the acoustics segment for the three months ended
June 30, 2017
were
$56.1 million
, a decrease of
$7.1 million
or
11.3%
, compared with
$63.2 million
for the three months ended
July 1, 2016
. On a constant currency basis (net negative currency impact of
$0.2 million
for the three months ended
June 30, 2017
), revenues decreased by
$6.9 million
for the three months ended
June 30, 2017
. The decrease during the three months ended
June 30, 2017
was primarily due to lower
volumes on several platforms as a result of either the completion of the platform life cycle or lower demand, including short-term automotive assembly plant shutdowns, partially offset by new platform awards.
Adjusted EBITDA increased to
$8.0 million
(
14.2%
of net sales) for the three months ended
June 30, 2017
compared with
$6.8 million
(
10.7%
of net sales) in the
second
quarter of
2016
. On a constant currency basis (net negative currency impact of
$0.1 million
for the three months ended
June 30, 2017
), Adjusted EBITDA increased by
$1.3 million
for the three months ended
June 30, 2017
. The increase in Adjusted EBITDA for the three months ended
June 30, 2017
was primarily due to savings in cost of goods sold from lower labor and material usage costs and supply chain initiatives and savings in selling and administrative expenses resulting from the Company’s global cost reduction programs and other spending controls, partially offset by lower volumes on several platforms as a result of either the completion of the platform life cycle or short-term automotive assembly plant shutdowns.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Increase/ (Decrease)
|
(in thousands, except percentages)
|
June 30, 2017
|
|
July 1, 2016
|
|
$
|
|
%
|
Net sales
|
$
|
113,313
|
|
|
$
|
125,136
|
|
|
$
|
(11,823
|
)
|
|
(9.4
|
)%
|
Adjusted EBITDA
|
14,704
|
|
|
13,373
|
|
|
1,331
|
|
|
10.0
|
|
Adjusted EBITDA % of net sales
|
13.0
|
%
|
|
10.7
|
%
|
|
230 bps
|
Net sales in the acoustics segment for the
six months ended
June 30, 2017
were
$113.3 million
, a decrease of
$11.8 million
, or
9.4%
, compared with
$125.1 million
for the
six months ended
July 1, 2016
. On a constant currency basis (net negative currency impact of
$0.5 million
for the
six months ended
June 30, 2017
), revenues decreased by
$11.3 million
for the
six months ended
June 30, 2017
. The decrease was primarily due to lower volumes on several platforms as a result of either the completion of the platform life cycle or lower demand, including short-term automotive assembly plant shutdowns, partially offset by new platform awards.
Adjusted EBITDA increased to
$14.7 million
(
13.0%
of net sales) for the
six months ended
June 30, 2017
compared with
$13.4 million
(
10.7%
of net sales) for the
six months ended
July 1, 2016
. On a constant currency basis (net negative currency impact of
$0.1 million
for the
six months ended
June 30, 2017
), Adjusted EBITDA increased by
$1.4 million
for the
six months ended
June 30, 2017
. The increase in Adjusted EBITDA for the
six months ended
June 30, 2017
was primarily due to savings in cost of goods sold from lower labor and material usage costs and supply chain initiatives and savings in selling and administrative expenses resulting from the Company’s global cost reduction programs and other spending controls, partially offset by lower volumes on several platforms as a result of either the completion of the platform life cycle or short-term automotive assembly plant shutdowns.
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Increase/ (Decrease)
|
(in thousands, except percentages)
|
June 30, 2017
|
|
July 1, 2016
|
|
$
|
|
%
|
Adjusted EBITDA
|
$
|
(3,075
|
)
|
|
$
|
(4,595
|
)
|
|
$
|
1,520
|
|
|
33.1
|
%
|
Corporate expense is principally comprised of the costs of corporate operations, including the compensation and benefits of the Company’s executive team and personnel responsible for treasury, finance, insurance, legal, information technology, corporate development, human resources, tax planning and the administration of employee benefits. Corporate expense also includes third party legal, audit, tax and other professional fees and expenses, board of director compensation and expenses, and the operating costs of the corporate office.
The decrease of
$1.5 million
in expense in the three months ended
June 30, 2017
compared with the prior year primarily resulted from $1.2 million of third-party professional fees associated with investments in manufacturing and supply chain improvement initiatives incurred during the three months ended
July 1, 2016
and from the transition of the Company’s Chief Executive Officer and Chief Operating Officer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Increase/ (Decrease)
|
(in thousands, except percentages)
|
June 30, 2017
|
|
July 1, 2016
|
|
$
|
|
%
|
Adjusted EBITDA
|
$
|
(6,552
|
)
|
|
$
|
(9,342
|
)
|
|
$
|
2,790
|
|
|
29.9
|
%
|
The decrease of
$2.8 million
in expense in the
six months ended
June 30, 2017
compared with the prior year primarily resulted from $1.2 million of third-party professional fees associated with investments in manufacturing and supply chain improvement initiatives incurred during the
six months ended
July 1, 2016
and from the transition of the Company’s Chief Executive Officer and Chief Operating Officer, partially offset by increased healthcare costs.
Liquidity and Capital Resources
Background
The Company’s primary sources of liquidity are cash generated from its operations, available cash and borrowings under its U.S. and foreign credit facilities. As of
June 30, 2017
, the Company had
$54.9 million
of available cash,
$35.0 million
of additional borrowings available under the revolving credit facility portion of its U.S. credit agreement, and
$11.2 million
available under revolving loan facilities that the Company maintains outside the U.S. As of
June 30, 2017
, available borrowings under its U.S. revolving credit facility were reduced by outstanding letters of credit of
$5.0 million
. Included in the Company’s consolidated cash balance of
$54.9 million
at
June 30, 2017
, is cash of
$31.2 million
held at the Company’s non-U.S. operations. These funds, with some restrictions and tax implications, are available for repatriation as deemed necessary by the Company. The Company’s U.S. credit agreement and foreign revolving loan facilities are available for working capital requirements, capital expenditures and other general corporate purposes. We believe our existing cash on hand, expected future cash flows from operating activities, and additional borrowings available under our U.S. and foreign credit facilities provide sufficient resources to fund ongoing operating requirements as well as future capital expenditures and debt service requirements.
Indebtedness
As of
June 30, 2017
, the Company’s total outstanding indebtedness of
$417.7 million
was comprised of aggregate term loans outstanding under its Senior Secured Credit Facilities of
$390.7 million
(net of a debt discount of
$4.3 million
and deferred financing costs of
$6.5 million
), various foreign bank term loans and revolving loan facilities of
$26.0 million
and capital lease obligations of
$0.9 million
. No amounts were outstanding under the revolving credit facility portion of the Senior Secured Credit Facilities as of
June 30, 2017
. At
June 30, 2017
, the Company reclassified amounts previously recorded in the current portion of long-term debt and long-term debt of
$0.7 million
and
$1.5 million
, respectively, to liabilities held for sale on the condensed consolidated balance sheets. See further discussion within Note
2
, “
Divestiture
”.
As of
December 31, 2016
, the Company’s total outstanding indebtedness of
$425.1 million
was comprised of term loans outstanding under its U.S. credit agreement of
$400.5 million
(net of a debt discount of
$5.0 million
and deferred financing costs of
$7.5 million
), various foreign bank term loans and revolving loan facilities of
$23.3 million
and capital lease obligations of
$1.3 million
. No borrowings were outstanding under the U.S. revolving loan facility at
December 31, 2016
.
The Company maintains various bank term loan and revolving loan facilities outside the U.S. for local operating and investing needs. Borrowings under these facilities totaled
$26.0 million
as of
June 30, 2017
, including borrowings of
$21.7 million
incurred by the Company’s subsidiaries in Germany, and borrowings totaled
$23.3 million
as of
December 31, 2016
, including borrowings of
$21.5 million
incurred by the Company’s subsidiaries in Germany. The foreign debt obligations in Germany primarily relate to term loans within our finishing segment of
$20.6 million
at
June 30, 2017
and
$19.3 million
at
December 31, 2016
. The borrowings bear interest at fixed and variable rates ranging from
2.3%
to
4.6%
and are subject to repayment in varying amounts through 2030.
Senior Secured Credit Facilities
General
. On June 30, 2014 (the “Closing Date”), Jason Incorporated, as the borrower, entered into (i) the First Lien Credit Agreement, dated as of June 30, 2014, with Jason Partners Holdings Inc., Jason Holdings, Inc. I, a wholly-owned subsidiary of Jason Partners Holdings Inc. (“Intermediate Holdings”), Deutsche Bank AG New York Branch, as administrative agent (the “First Lien Administrative Agent”), the subsidiary guarantors party thereto and the several banks and other financial institutions or entities from time to time party thereto (the “New First Lien Credit Agreement”) and (ii) the Second Lien Credit Agreement, dated as of June 30, 2014, with Jason Partners Holdings Inc., Intermediate Holdings, Deutsche Bank AG New York Branch, as administrative agent (the “Second Lien Administrative Agent”), the subsidiary guarantors party thereto and the several banks and other financial institutions or entities from time to time party thereto (the “New Second Lien Credit Agreement” and, together with the First Lien Credit Agreement, the “New Credit Agreements”).
The New First Lien Credit Agreement provides for (i) term loans in the principal amount of $310.0 million (the “First Lien Term Facility” and the loans thereunder the “First Lien Term Loans”), of which
$299.6 million
is outstanding as of
June 30, 2017
, and (ii) a revolving loan of up to
$40.0 million
(including revolving loans, a $10.0 million swingline loan sublimit, and a $12.5 million letter of credit sublimit) (the “Revolving Credit Facility”), in each case under the new first lien senior secured loan facilities (the “First Lien Credit Facilities”). The New Second Lien Credit Agreement provides for term loans in an aggregate principal amount of
$110.0 million
, of which
$102.0 million
is outstanding as of
June 30, 2017
, under the new second lien senior secured term loan facility (the “Second Lien Term Facility” and the loans thereunder the “Second Lien Term Loans” and, the Second Lien Term Facility together with the First Lien Credit Facilities, the “Senior Secured Credit Facilities”). On June 30, 2014, the full amount of the First Lien Term Loans and Second Lien Term Loans were drawn, and no revolving loans were drawn.
The First Lien Term Loans mature in 2021 and the Revolving Credit Facility matures in 2019. The Second Lien Term Loans mature in 2022. The principal amount of the First Lien Term Loans amortizes in quarterly installments equal to 0.25% of the original principal amount of the First Lien Term Loans, with the balance payable at maturity. Neither the Revolving Credit Facility nor the Second Lien Term Loans amortize, however, each is repayable in full at maturity.
Security Interests
. In connection with the Senior Secured Credit Facilities, Jason Partners Holdings Inc., Intermediate Holdings, Jason Incorporated and certain of Jason Incorporated’s subsidiaries (the “Subsidiary Guarantors”), entered into a (i) First Lien Security Agreement (the “First Lien Security Agreement”), dated as of June 30, 2014, in favor of the First Lien Administrative Agent and (ii) a Second Lien Security Agreement (the “Second Lien Security Agreement”, together with the First Lien Security Agreement, the “Security Agreements”), dated as of June 30, 2014, in favor of the Second Lien Administrative Agent. Pursuant to the Security Agreements, amounts borrowed under the Senior Secured Credit Facilities and any swap agreements and cash management arrangements provided by any lender party to the Senior Secured Credit Facilities or any of its affiliates are secured (i) with respect to the First Lien Credit Facilities, on a first priority basis and (ii) with respect to the Second Lien Term Facility, on a second priority basis, by a perfected security interest in substantially all of Jason Incorporated’s, Jason Partners Holdings Inc.’s, Intermediate Holdings’ and each Subsidiary Guarantor’s tangible and intangible assets (subject to certain exceptions), including U.S. registered intellectual property and all of the capital stock of each of Jason Incorporated’s direct and indirect wholly-owned material Restricted Subsidiaries (as defined in the New Credit Agreements) (limited, in the case of foreign subsidiaries, to 65% of the capital stock of first tier foreign subsidiaries). In addition, pursuant to the New Credit Agreements, Jason Partners Holdings Inc., Intermediate Holdings and the Subsidiary Guarantors guaranteed amounts borrowed under the Senior Secured Credit Facilities.
Interest Rate and Fees
. At our election, the interest rate per annum applicable to the loans under the Senior Secured Credit Facilities is based on a fluctuating rate of interest determined by reference to either (i) a base rate determined by reference to the higher of (a) the “prime rate” of Deutsche Bank AG New York Branch, (b) the federal funds effective rate plus
0.50%
or (c) the Eurocurrency rate applicable for an interest period of one month plus
1.00%
, plus an applicable margin equal to (x)
3.50%
in the case of the First Lien Term Loans, (y)
2.25%
in the case of the Revolving Credit Facility or (z)
7.00%
in the case of the Second Lien Term Loans or (ii) a Eurocurrency rate determined by reference to LIBOR, adjusted for statutory reserve requirements, plus an applicable margin equal to (x)
4.50%
in the case of the First Lien Term Loans, (y)
3.25%
in the case of the Revolving Credit Facility or (z)
8.00%
in the case of the Second Lien Term Loans. Borrowings under the First Lien Term Facility and Second Lien Term Facility will be subject to a floor of
1.00%
in the case of Eurocurrency loans. The applicable margin for loans under the Revolving Credit Facility may be subject to adjustment based upon Jason Incorporated’s consolidated first lien net leverage ratio.
Interest Rate Hedge Contracts.
To manage exposure to fluctuations in interest rates, the Company entered into Swaps in 2015 with notional values totaling
$210.0 million
at
June 30, 2017
and
December 31, 2016
. The Swaps have been designated by the Company as cash flow hedges, and effectively fix the variable portion of interest rates on variable rate term loan borrowings at a rate of approximately
2.08%
prior to financing spreads and related fees. The Swaps had a forward start date of December 30, 2016 and have an expiration date of June 30, 2020. As such, the Company began recognizing interest expense related to the interest rate hedge contracts in the first quarter of 2017. For the
six months ended
June 30, 2017
, the Company recognized
$1.1 million
of interest expense related to the Swaps. There was
no
interest expense recognized in 2016. Based on current interest rates, the Company expects to recognize interest expense of
$1.7 million
related to the Swaps in the next 12 months.
The fair values of the Company’s Swaps are recorded on the condensed consolidated balance sheets with the corresponding offset recorded as a component of accumulated other comprehensive loss. The fair value of the Swaps was
$2.1 million
at
June 30, 2017
and
$2.0 million
at
December 31, 2016
, respectively. See the amounts recorded on the condensed consolidated balance sheets within the table below:
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Interest rate swaps:
|
|
|
|
Recorded in other current liabilities
|
$
|
1,373
|
|
|
$
|
1,916
|
|
Recorded in other long-term liabilities
|
739
|
|
|
133
|
|
Total derivatives designated as hedging instruments
|
$
|
2,112
|
|
|
$
|
2,049
|
|
Mandatory Prepayment
. Subject to certain exceptions, the Senior Secured Credit Facilities are subject to mandatory prepayments in amounts equal to: (1) a percentage of the net cash proceeds from any non-ordinary course sale or other disposition of assets (including as a result of casualty or condemnation) by Jason Incorporated or any of its Restricted Subsidiaries in excess of a certain amount and subject to customary reinvestment provisions and certain other exceptions; (2) 100% of the net cash proceeds from the issuance or incurrence of debt by Jason Incorporated or any of its Restricted Subsidiaries (other than indebtedness permitted by the Senior Secured Credit Facilities); and (3) 75% (with step-downs to 50%, 25% and 0% based upon achievement of specified consolidated first lien net leverage ratios under the First Lien Credit
Facilities and specified consolidated total net leverage ratios under the Second Lien Term Facility) of annual excess cash flow of Jason Incorporated and its Restricted Subsidiaries. With respect to the Second Lien Term Facility, any prepayments made on or after the second anniversary of the Closing Date, but prior to the third anniversary of the Closing Date, were subject to a 1.00% prepayment premium. Other than the prepayment premium described above and the payment of customary “breakage” costs, Jason Incorporated may voluntarily prepay outstanding loans at any time. At
December 31, 2016
, a mandatory prepayment of
$1.9 million
under the Senior Secured Credit Facilities was included within the current portion of long-term debt in the condensed consolidated balance sheets. The mandatory prepayment of
$1.9 million
was paid on
April 10, 2017
.
During the second quarter of 2017, the Company repurchased $
8.0 million
of Second Lien Term Loans for $
6.1 million
. In connection with the repurchase, the Company wrote off $
0.2 million
of previously unamortized debt discount and $
0.1 million
of previously unamortized deferred financing costs, which were recorded as a reduction to the gain on extinguishment of debt. The transactions resulted in a net gain of $1.6 million which has been recorded within the condensed consolidated statements of operations.
Covenants
. The Senior Secured Credit Facilities contain a number of customary affirmative and negative covenants that, among other things, will limit or restrict the ability of Jason Incorporated and its Restricted Subsidiaries to: incur additional indebtedness (including guarantee obligations); incur liens; engage in mergers, consolidations, liquidations and dissolutions; sell assets; pay dividends and make other payments in respect of capital stock; make acquisitions, investments, loans and advances; pay and modify the terms of certain indebtedness; engage in certain transactions with affiliates; enter into negative pledge clauses and clauses restricting subsidiary distributions; and change its line of business, in each case, subject to certain limited exceptions.
In addition, under the Revolving Credit Facility, if the aggregate outstanding amount of all revolving loans, swingline loans and certain letter of credit obligations exceed
25 percent
, or
$10.0 million
, of the revolving credit commitments at the end of any fiscal quarter, Jason Incorporated and its Restricted Subsidiaries will be required to not exceed a consolidated first lien net leverage ratio, currently specified at
4.75
to
1.00
, with a decrease to
4.50
to
1.00
on
December 31, 2017
and remaining at that level thereafter. If such outstanding amounts do not exceed
25 percent
of the revolving credit commitments at the end of any fiscal quarter, no financial covenants are applicable. As of
June 30, 2017
the consolidated first lien net leverage ratio was
3.89
to
1.00
on a pro forma trailing twelve-month basis calculated in accordance with the respective provisions of the New Credit Agreements which exclude the Second Lien Term Loans from the calculation of net debt (numerator) and allow the inclusion of certain pro forma adjustments and exclusion of certain specified or nonrecurring costs and expenses in calculating Adjusted EBITDA (denominator). The aggregate outstanding amount of all revolving loans, swingline loans and certain letters of credit was less than
25 percent
of revolving credit commitments at
June 30, 2017
. As of
June 30, 2017
, the Company was in compliance with the financial covenants contained in its credit agreements.
Events of Default
. The Senior Secured Credit Facilities contain customary events of default, including nonpayment of principal, interest, fees or other amounts; material inaccuracy of a representation or warranty when made; violation of a covenant; cross-default to material indebtedness; bankruptcy events; inability to pay debts or attachment; material unsatisfied judgments; actual or asserted invalidity of any security document; and a change of control. Failure to comply with these provisions of the Senior Secured Credit Facilities (subject to certain grace periods) could, absent a waiver or an amendment from the lenders under such agreement, restrict the availability of the Revolving Credit Facility and permit the acceleration of all outstanding borrowings under the New Credit Agreements.
Series A Preferred Stock
Holders of the
47,745
shares of Series A Preferred Stock are entitled to receive, when, as and if declared by the Company’s Board of Directors, cumulative dividends at the rate of
8.0%
per annum (the dividend rate) on the
$1,000
liquidation preference per share of the Series A Preferred Stock, payable quarterly in arrears on each dividend payment date. Dividends shall be paid in cash or, at the Company’s option, in additional shares of Series A Preferred Stock or a combination thereof, and are payable on
January 1
,
April 1
,
July 1
, and
October 1
of each year, commencing on the first such date after the date of the first issuance of the Series A Preferred Stock.
The Company paid the following dividends on the Series A Preferred Stock in additional shares of Series A Preferred Stock during the
six months ended June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
Payment Date
|
|
Record Date
|
|
Amount Per Share
|
|
Total Dividends Paid
|
|
Preferred Shares Issued
|
January 1, 2017
|
|
November 15, 2016
|
|
$20.00
|
|
$900
|
|
899
|
April 1, 2017
|
|
February 15, 2017
|
|
$20.00
|
|
$918
|
|
915
|
On
June 13, 2017
, the Company announced a
$20.00
per share dividend on its Series A Preferred Stock to be paid in additional shares of Series A Preferred Stock on
July 1, 2017
to holders of record on
May 15, 2017
. As of
June 30, 2017
, the Company has recorded the
931
additional Series A Preferred Stock shares declared for the dividend of
$0.9 million
within preferred stock in the condensed consolidated balance sheets.
Seasonality and Working Capital
The Company uses net operating working capital (“NOWC”), a non-GAAP measure, as a percentage of the previous twelve months of net sales as a key indicator of working capital management. The Company defines this metric as the sum of trade accounts receivable and inventories less trade accounts payable. NOWC as a percentage of trailing twelve month net sales was
13.2%
as of
June 30, 2017
,
12.8%
as of
December 31, 2016
and
14.5 %
as of
July 1, 2016
. Set forth below is a table summarizing NOWC as of
June 30, 2017
,
December 31, 2016
and
July 1, 2016
. As of
June 30, 2017
, accounts receivable-net, inventories-net and accounts payable exclude Acoustics Europe amounts of
$4.3 million
,
$1.7 million
and
$1.9 million
, respectively, as they have been presented as assets and liabilities held for sale.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2017
|
|
December 31, 2016
|
|
July 1, 2016
|
Accounts receivable—net
|
$
|
81,560
|
|
|
$
|
77,837
|
|
|
$
|
96,423
|
|
Inventories-net
|
69,313
|
|
|
73,601
|
|
|
78,453
|
|
Accounts payable
|
(61,881
|
)
|
|
(61,160
|
)
|
|
(70,015
|
)
|
NOWC
|
$
|
88,992
|
|
|
$
|
90,278
|
|
|
$
|
104,861
|
|
In overall dollar terms, the Company’s NOWC is generally lower at the end of the calendar year due to reduced sales activity around the holiday season. NOWC generally peaks at the end of the first quarter as the Company experiences high seasonal demand from certain customers, particularly those serving the motorcycle and lawn and turf care markets to fill the supply chain for the spring season. There are, however, variations in the seasonal demands from year to year depending on weather, customer inventory levels, and model year changes. The Company historically generates approximately
51%
-
53%
of its annual net sales in the first half of the year.
Short-Term and Long-Term Liquidity Requirements
The Company’s ability to make principal and interest payments on borrowings under its U.S. and foreign credit facilities and its ability to fund planned capital expenditures will depend on its ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, regulatory and other conditions. Based on its current level of operations, the Company believes that its existing cash balances and expected cash flows from operations will be sufficient to meet its operating requirements for at least the next 12 months. However, the Company may require borrowings under its credit facilities and alternative forms of financings or investments to achieve its longer-term strategic plans.
Capital expenditures during the
six months ended June 30, 2017
were
$7.2 million
, or
2.1%
of net sales. Capital expenditures for
2017
are expected to be approximately
2.6%
of net sales, but could vary from that depending on business performance, growth opportunities, project activity and the amount of assets we lease instead of purchase. The Company finances its annual capital requirements with funds generated from operations.
Warrant Repurchase
In February 2015, our Board of Directors authorized the purchase of up to $5.0 million of our outstanding warrants. Management is authorized to effect purchases from time to time in the open market or through privately negotiated transactions. There is no expiration date to this authority. No warrants were repurchased during the
six months ended June 30, 2017
.
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2017
and the
Six Months Ended July 1, 2016
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
(in thousands)
|
June 30, 2017
|
|
July 1, 2016
|
Cash flows provided by operating activities
|
$
|
20,832
|
|
|
$
|
20,777
|
|
Cash flows used in investing activities
|
(794
|
)
|
|
(9,213
|
)
|
Cash flows (used in) financing activities
|
(7,125
|
)
|
|
(6,120
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
1,145
|
|
|
(62
|
)
|
Net increase (decrease) in cash and cash equivalents
|
14,058
|
|
|
5,382
|
|
Cash and cash equivalents at beginning of period
|
40,861
|
|
|
35,944
|
|
Cash and cash equivalents at end of period
|
$
|
54,919
|
|
|
$
|
41,326
|
|
Depreciation and amortization
|
$
|
19,260
|
|
|
$
|
21,637
|
|
Capital expenditures
|
7,161
|
|
|
12,129
|
|
Cash Flows Provided by Operating Activities
For the
six months ended June 30, 2017
, cash flows provided by operating activities were
$20.8 million
compared to
$20.8 million
for the
six months ended July 1, 2016
. For the
six months ended June 30, 2017
as compared to the
six months ended July 1, 2016
, cash flows provided by operating activities increased
$1.4 million
due to the increase in net income adjusted for non-cash items, offset by a decrease of
$1.4 million
in other assets and liability balances. There was an immaterial impact due to changes in net operating working capital, as there were offsetting fluctuations between accounts payable and accounts receivable balances.
Cash Flows Used in Investing Activities
Cash flows used in investing activities were
$0.8 million
for the
six months ended June 30, 2017
compared to
$9.2 million
for the
six months ended July 1, 2016
. The decrease in cash flows used in investing activities was primarily the result of lower capital expenditures of
$5.0 million
. Proceeds from disposal of property, plant and equipment also resulted in a decrease of
$3.4 million
in cash flows used in investing activities, primarily due to the proceeds received from the building sale executed in connection with the sale leaseback of our Libertyville, Illinois facility in April 2017.
Cash Flows Used in in Financing Activities
Cash flows used in financing activities were
$7.1 million
for the
six months ended June 30, 2017
compared with cash flows used in financing activities of
$6.1 million
for the
six months ended July 1, 2016
. The increase in cash flows used in financing activities was driven by higher payments of
$8.0 million
on First and Second Lien term loans. This was offset by lower preferred stock dividend payments of
$2.7 million
due to the January 1, 2017 and April 1, 2017 dividends being paid in additional shares of Series A Preferred Stock and timing of the fiscal period end as two dividends were paid in cash in the first quarter of 2016,
$2.6 million
lower payments of other long-term debt, and
$1.6 million
of higher proceeds from long-term debt.
Depreciation and Amortization
Depreciation and amortization totaled
$19.3 million
for the
six months ended June 30, 2017
, compared with
$21.6 million
for the
six months ended July 1, 2016
. Depreciation and amortization for the
six months ended June 30, 2017
is lower than incurred by the Company in the prior period primarily as a result of asset disposals from certain restructuring activities such as the closure of the Buffalo Grove, Ill. facility in the components segment in 2016 and the wind down of the finishing segment’s facility in São Bernardo do Campo, Brazil, in addition to the impact of lower capital expenditures in 2017 compared to prior periods.
Capital Expenditures
Capital expenditures totaled
$7.2 million
for the
six months ended June 30, 2017
, compared with
$12.1 million
for the
six months ended July 1, 2016
. The lower capital expenditures are primarily driven by a lower level of project activity in 2017 compared with 2016.
Contractual Obligations
There are no material changes to the disclosures regarding contractual obligations made in Part II, Item 7 of our Annual Report on Form 10-K for the year ended
December 31, 2016
.
Off-Balance Sheet Arrangements
There are no material changes to the disclosures regarding off-balance sheet arrangements made in Part II, Item 7 of our Annual Report on Form 10-K for the year ended
December 31, 2016
.
Critical Accounting Policies and Estimates
The condensed consolidated financial statements have been prepared in accordance with GAAP which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities on the date of the financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K filed with the SEC on March 2, 2017 for the year ended
December 31, 2016
for information with respect to our critical accounting policies, which we believe could have the most significant effect on our reported results and require subjective or complex judgments by management. Except for the items reported above, management believes that as of
June 30, 2017
and during the period from
April 1, 2017
through
June 30, 2017
, there has been no material change to this information.
New Accounting Pronouncements
See Note 1, “Description of Business and Basis of Presentation” under the heading “Recently issued accounting standards” of the accompanying condensed consolidated financial statements.