ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the consolidated financial statements for the years ended
December 31, 2017
,
2016
and
2015
,
including the notes thereto, included elsewhere in this Annual Report on Form 10-K. The Company’s actual results may not be indicative of future performance. This discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those discussed in “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” included in Part I, Item IA or in other parts of this Annual Report on Form 10-K. Actual results may differ materially from those contained in any forward-looking statements.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains certain financial measures, in particular EBITDA and Adjusted EBITDA, which are not presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These non-GAAP financial measures are being presented because management believes that they provide readers with additional insight into the Company’s operational performance relative to earlier periods and relative to its competitors. EBITDA and Adjusted EBITDA are key measures used by the Company to evaluate its performance. The Company does not intend for these non-GAAP financial measures to be a substitute for any GAAP financial information. Readers of this MD&A should use these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures. Reconciliations of EBITDA and Adjusted EBITDA to net income, the most comparable GAAP measure, are provided in this MD&A.
Fiscal Year
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 and ends 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 were comprised of the three months ended
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
.
Overview
Jason Industries, Inc. is a global industrial manufacturing company with significant market share positions in each of its
four
segments: finishing, components, seating, and acoustics. The Company was founded in
1985
and today provides critical components and manufacturing solutions to customers across a wide range of end markets, industries and geographies through its global network of
31
manufacturing facilities and
15
sales offices, warehouses and joint venture facilities throughout the United States and
13
foreign countries. The Company has embedded relationships with long standing customers, superior scale and resources and specialized capabilities to design and manufacture specialized products on which our customers rely.
The Company focuses on markets with sustainable growth characteristics and where it is, or has the opportunity to become, the industry leader. The Company’s finishing segment focuses on the production of industrial brushes, polishing buffs and 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 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.
On May 29, 2015, the Company acquired all of the outstanding shares of DRONCO GmbH (“DRONCO”). DRONCO is a leading European manufacturer of bonded abrasives. These abrasives are being manufactured and distributed by the finishing segment. The Company paid cash consideration of
$34.4 million
, net of cash acquired, and, pursuant to the transaction, assumed certain liabilities. The DRONCO acquisition expanded the finishing segment’s product portfolio and advances its entry to adjacent abrasives markets.
During the years ended
December 31, 2017
,
2016
and
2015
, approximately
32%
,
30%
and
28%
of the Company’s sales were generated by the Company’s operations located outside of the U.S., respectively. As a diversified, global business, the Company’s operations are affected by worldwide, regional and industry-specific economic and political factors. The Company’s geographic and industry diversity, as well as the wide range of its products, help mitigate the impact of industry or economic fluctuations. Given the broad range of products manufactured and industries and geographies served, management does not use any indicators other than general economic trends to predict the overall outlook for the Company. The Company’s individual businesses monitor key competitors and customers, including, to the extent possible, their sales, to gauge relative performance and the outlook for the future.
General Market Conditions and Trends; Business Performance and Outlook
Demand for the Company’s products was mixed in 2017 when compared with 2016, with higher demand in the finishing segment, offset by lower demand in the components, seating, and acoustics segments. Demand was mixed in 2016 when compared with 2015, with higher demand in the acoustics segment, offset by lower demand in the finishing, components and seating segments.
Demand in the Company’s finishing segment is largely dependent upon overall industrial production levels in the markets it serves. Management believes that gross domestic product (“GDP”) and industrial production levels in the Company’s served markets will continue to grow modestly in the near term. However, if there is no growth, or if GDP or production levels do not increase or shrink, there could be reduced demand for the finishing segment’s products, which would have a material negative impact on the finishing segment’s net sales and/or income from continuing operations.
Sales levels for the components segment are dependent upon new railcar and smart utility production levels in the U.S., as well as general U.S. industrial production levels. Railcar production declined in 2017 and management believes this decline will persist into 2018 as part of a cyclical decline. Management believes U.S. GDP and industrial production will grow modestly. However, if the North American rail industry declines more rapidly than anticipated, customers in-source production, and/or U.S. GDP is flat or shrinks, there could be reduced demand for the components segment’s products, which would have a material negative impact on the components segment’s net sales and/or income from continuing operations.
The seating segment is principally impacted by demand from U.S.-based original equipment manufacturers serving the motorcycle, lawn and turf care, construction, agricultural and power sports market segments. In recent years, power sports production and the lawn and turf care equipment market have grown modestly, and global construction activity has improved. Management believes that, in the near term, power sports, construction and agriculture equipment industries will continue to show stability, while the lawn and turf care industry will experience normal seasonal demand, and the motorcycle industry will soften. However, if such industries weaken (or, in the case of the motorcycle industry, soften more than anticipated), there could be reduced demand for the seating segment’s products, which would have a material negative impact on the seating segment’s net sales and/or income from continuing operations.
Demand for products manufactured by the Company’s acoustics segment is primarily influenced by production levels in the North American automobile industry. Management believes that North American automotive industry production, which peaked in 2016 and decreased approximately 4% in 2017, will continue to modestly cycle down over the next several years. If such industry weakens more than anticipated, or if the mix of cars, light trucks and SUVs that are produced shifts significantly, there could be reduced demand for the acoustics segment’s products, which would have a material negative impact on the acoustics segment’s net sales and/or income from continuing operations.
The Company expects overall market conditions to remain challenging due to macro-economic uncertainties and monetary and fiscal policies of countries where we do business. While individual businesses and end markets continue to experience volatility, the Company expects to benefit as general economic conditions in North America and Western Europe are expected to experience modest growth. Regarding economic conditions, as discussed above, we expect the following in the near term:
|
|
•
|
modest global GDP growth;
|
|
|
•
|
increasing global industrial production;
|
|
|
•
|
slowing demand in the North American automotive industry;
|
|
|
•
|
lower demand in the motorcycle industry;
|
|
|
•
|
declining demand in the North American rail industry;
|
|
|
•
|
continued strength in the power sport and construction industries; and
|
|
|
•
|
normal seasonal demand in the lawn and turf care market.
|
Strategic Initiatives
The Company’s strategic initiatives support an overall capital allocation strategy that focuses on decreasing leverage through maximizing earnings and free cash flow. On March 1, 2016, the Company announced a global cost reduction and restructuring program designed to expand Adjusted EBITDA margins. To achieve this target, our strategic initiatives include:
Margin Expansion
- The Company is focused on creating operational effectiveness at each of its business segments through deployment of lean principles and implementation of continuous operational improvement initiatives. While many of these activities have focused on implementing shop floor improvements, we have also targeted our selling and administrative functions in order to reduce the cost of serving our customers. The Company is also focused on improving profitability through an active evaluation of customer pricing and margins and a reduction in the number of parts and product variations that are
produced. While these initiatives may result in lower overall sales, they are focused on creating shareholder value through higher margins and profitability, as well as lower inventory levels and working capital requirements.
Continued footprint rationalization
- The Company serves its customers through a global network of manufacturing facilities, sales offices, warehouses and joint venture facilities throughout the United States and
13
foreign countries. The Company’s geographic footprint has evolved over time with a focus on maximizing geographic coverage while optimizing costs. Over the past several years, the Company has closed several facilities in higher cost, mature markets and replaced them with facilities in higher growth, lower cost regions such as Mexico, India and Eastern Europe. The Company continuously evaluates its manufacturing footprint and utilization of manufacturing capacity. In recent years, the Company has completed or announced the consolidation of manufacturing facilities across its businesses. Reduction of fixed costs through optimization of manufacturing footprint and capacity will continue to be a driver of margin expansion and improving profitability.
In 2017, the Company closed the finishing segment’s Richmond, Virginia facility and consolidated two facilities in Libertyville, Illinois in the components segment. In 2016, the Company wound down operations of the finishing segment facility in Brazil, and the components facility in Buffalo Grove, Illinois. The Company believes that geographic proximity to existing and potential customers provides logistical efficiencies, as well as important strategic and cost advantages, and has also taken steps to realign its footprint within the United States. The Company anticipates that costs associated with any future rationalization activities, as well as the capital required for any new facilities, will be funded by cash generated from operating activities.
Product Innovation
- During the past several years, the Company’s research and development activities have placed more focus on developing new products that are of higher value to our customers with superior performance over alternative and competitive products, thereby providing customers with a better value proposition. The Company believes that developing new and innovative products will allow it to deepen its value-added relationships with customers, open new opportunities for revenue generation, enhance pricing power and improve margins. This strategy has been particularly effective in the Company’s acoustics segment where new fiber based products have been developed to capitalize on industry trends requiring quieter automobiles and products that meet end of vehicle life recycling standards and lower weight.
Acquisitions
- The Company uses acquisitions to increase revenues with existing customers and to expand revenues to both new markets and customers. The Company intends to only pursue an acquisition if it is accretive to EBITDA (earnings before interest, income taxes, depreciation and amortization) margins post-synergies, has a strategic focus that aligns with our core strategy and generates the appropriate estimated return on investment as part of our capital resource and allocation process.
Factors that Affect Operating Results
The Company’s results of operations and financial performance are influenced by a number of factors, including the timing of new product introductions, general economic conditions and customer buying behavior. The Company’s business is complex, with multiple segments serving a broad range of industries worldwide. The Company has manufacturing and sales facilities around the world, and it operates in numerous regulatory and governmental environments. Comparability of future results could be impacted by any number of unforeseen issues.
Key Events
In addition to the factors described above, the following strategic and operational events, which occurred during the years ended
December 31,
2017
,
2016
and
2015
, affected the Company’s results of operations:
Divestitures
. On August 30, 2017, the Company completed the divestiture of the European operations within the acoustics segment located in Germany (“Acoustics Europe”) for a net purchase price of
$8.1 million
, which includes cash of
$0.2 million
, long-term debt assumed by the buyer of
$3.0 million
and other purchase price adjustments. The divestiture resulted in an
$8.7 million
pre-tax loss.
Tax Cuts and Jobs Act
.
On December 22, 2017, the President of the United States signed into law the Tax Reform Act. The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act also adds many new provisions including changes to bonus depreciation and the deductions for executive compensation and interest expense, among others. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of
35%
to a flat
21%
rate, effective January 1, 2018.
See further discussion of the Tax Reform Act within “Consolidated Results of Operations” below.
Impairment charges.
In performing the first step of the annual goodwill impairment test in the fourth quarter of 2016, the Company determined that the estimated fair values of the acoustics and components reporting units were lower than the carrying values of the respective reporting units, requiring further analysis under the second step of the impairment test. The decline in the estimated fair value of the acoustics reporting unit was primarily due to lower long-term revenue growth
expectations resulting from the strategic review of capital allocation and investment priorities as compared to the Company’s prior growth plan for the business. The fair value of the acoustics reporting unit was also negatively impacted by a projected cyclical decline in the North American automotive industry end-market. The decline in the estimated fair value of the components reporting unit was primarily due to lower long-term revenue expectations resulting from the annual budgeting and strategic planning process as compared to the Company’s prior plan for the business, primarily due to projected longer-term weakness in the rail end-market.
In performing the second step of the impairment testing, the Company performed a theoretical purchase price allocation for the acoustics and components reporting units to determine the implied fair values of goodwill which were compared to the recorded amounts of goodwill for each reporting unit. Upon completion of the second step of the goodwill impairment test, the Company recorded non-cash goodwill impairment charges of
$63.0 million
, representing full goodwill impairments of
$29.8 million
and
$33.2 million
in the acoustics and components reporting units, respectively. The goodwill impairment charges are recorded as impairment charges in the consolidated statements of operations.
In connection with the evaluation of the goodwill impairment in the acoustics and components reporting units, the Company assessed tangible and intangible assets for impairment prior to performing the first step of the goodwill impairment test. As a result of this analysis, the undiscounted future cash flows of each asset group within the reporting units exceeded the recorded carrying values of the net assets within each asset group, and as such, no non-cash impairment charges resulted from such assessment.
In the fourth quarter of 2015, the Company determined that the estimated fair value of the seating reporting unit was lower than the carrying value of the reporting unit, requiring further analysis under the second step of the impairment test. The decline in the estimated fair value of the seating reporting unit was primarily due to lower long-term growth expectations resulting from projected long-term weakness in agriculture and heavy industry end-markets, and a strategic shift in capital allocation and investment priorities.
The Company performed a theoretical purchase price allocation for the seating reporting unit to determine the implied fair value of goodwill which was compared to the recorded amount of goodwill. Upon completion of the second step of the goodwill impairment test the Company recorded a non-cash goodwill impairment charge of
$58.8 million
, representing a complete impairment of goodwill in the seating reporting unit.
In connection with the evaluation of the goodwill impairment in the seating reporting unit in
2015
, the Company assessed tangible and intangible assets for impairment prior to performing the second step of the goodwill impairment test. As a result of this analysis, non-cash impairment charges of
$27.7 million
,
$6.8 million
, and
$0.8 million
were recorded for customer relationship, trademarks, and patents intangible assets, respectively, in the seating reporting unit during the fourth quarter of 2015 .
Total non-cash impairment charges of
$94.1 million
were recorded in the fourth quarter of 2015 as a result of these analyses. These charges are recorded as impairment charges in the consolidated statements of operations.
In connection with the goodwill impairment tests in
2016
and
2015
the Company engaged a third-party valuation firm to assist management with determining fair value estimates for the reporting units in the goodwill impairment test. In 2016, the third-party valuation firm was also involved in estimating fair values of tangible and intangible assets used in the second step of the goodwill impairment test. In connection with obtaining an independent third-party valuation, management provided certain information and assumptions that were utilized in the fair value calculation. Significant assumptions used in determining reporting unit fair value include forecasted cash flows, revenue growth rates, adjusted EBITDA margins, weighted average cost of capital (discount rate), assumed tax treatment of a future sale of the reporting unit, terminal growth rates, capital expenditures, sales and EBITDA multiples used in the market approach, and the weighting of the income and market approaches. The fair value of the reporting units was determined using a weighted average of an income approach primarily based on the Company’s three year strategic plan and a market approach based on implied valuation multiples of public company peer groups for each reporting unit. Both approaches were deemed equally relevant in determining reporting unit enterprise value, and as a result, weightings of
50 percent
were used for each. This fair value determination was categorized as Level 3 in the fair value hierarchy.
Acquisitions
. During the second quarter of 2015, the Company acquired all of the outstanding shares of DRONCO. DRONCO is a European manufacturer of bonded abrasives. These abrasives are being manufactured and distributed by the finishing segment. The Company paid cash consideration of
$34.4 million
net of cash acquired, and, pursuant to the transaction, assumed certain liabilities.
Key Financial Definitions
Net sales
. Net sales reflect the Company’s sales of its products net of allowances for returns and discounts. Several factors affect net sales in any period, including general economic conditions, weather conditions, the timing of acquisitions and divestitures and the purchasing habits of its customers.
Cost of goods sold
. Cost of goods sold includes all costs of manufacturing the products the Company sells. Such costs include direct and indirect materials, direct and indirect labor costs, including fringe benefits, supplies, utilities, depreciation, facility rent, insurance, pension benefits and other manufacturing related costs. The largest component of cost of goods sold is the cost of materials, which typically represents approximately
60%
of net sales. Fluctuations in cost of goods sold are caused primarily by changes in sales levels, changes in the mix of products sold, productivity of labor, and changes in the cost of raw materials. In addition, following acquisitions, cost of goods sold will be impacted by step-ups in the value of inventories required in connection with the accounting for acquired businesses.
Selling and administrative expenses
. Selling and administrative expenses primarily include the cost associated with the Company’s sales and marketing, finance, human resources, and administration, engineering and technical services functions. Certain corporate level administrative expenses such as payroll and benefits, incentive compensation, travel, accounting, auditing and legal fees and certain other expenses are kept within its corporate results and not allocated to its business segments.
Impairment charges
. As required by GAAP, when certain conditions or events occur, the Company recognizes impairment losses to reduce the carrying value of goodwill, other intangible assets and property, plant and equipment to their estimated fair values. During the
year ended December 31, 2017
, the Company recognized
no
impairment charges.
Gain (loss) on disposals of fixed assets-net
. In the ordinary course of business, the Company disposes of fixed assets that are no longer required in its day to day operations with the intent of generating cash from those sales.
Restructuring
. In the past several years, the Company has made changes to its worldwide manufacturing footprint to reduce its fixed cost base. These actions have resulted in employee severance and other related charges, changes in its operating cost structure, movement of manufacturing operations and product lines between facilities, exit costs for consolidation and closure of plant facilities, employee relocation and lease termination costs, and impairment charges. It is likely that the Company will incur such costs in future periods as well. These operational changes and restructuring costs affect comparability between periods and segments.
Transaction-related expenses
. Transaction-related expenses primarily consist of professional service fees related to the the Company’s acquisition and divestiture activities.
Interest expense
. Interest expense consists of interest paid to the Company’s lenders under its worldwide credit facilities, cash paid on interest rate hedge contracts and amortization of deferred financing costs.
Gain on extinguishment of debt
. Gain on extinguishment of debt primarily consists of gains recorded related to the repurchases of second lien term loan debt, net of the associated write-off of previously unamortized debt discount and deferred financing costs on the second lien term loans related to the extinguishment.
Equity income
. The Company maintains non-controlling interests in Asian joint ventures that are part of its finishing segment and records a proportional share in the earnings of these joint ventures as required by GAAP. The amount of equity income recorded is dependent upon the underlying financial results of the joint ventures.
Loss on divestiture
. On August 30, 2017, the Company completed the divestiture of its Acoustics Europe business. The loss on divestiture relates to the excess of the net assets of the business over the fair value less costs to sell and recognition of cumulative foreign currency translation adjustments upon closing of the divestiture.
Other income-net
. Other income is principally comprised of royalty income received from non-U.S. licensees and rental income from subleasing activities.
Tax benefit
. The Company’s tax benefit is impacted by a number of factors, including the amount of taxable earnings derived in foreign jurisdictions with tax rates that are different than the U.S. federal statutory rate, state tax rates in the jurisdictions where the Company does business, tax minimization planning and its ability to utilize various tax credits and net operating loss carryforwards. Income tax expense also includes the impact of provision to return adjustments, changes in valuation allowances and changes in reserve requirements for unrecognized tax benefits. In 2017, the income tax benefit was also impacted by the provisions of the Tax Reform Act.
Accretion of preferred stock dividends and redemption premium.
The Company records accretion of preferred stock dividends to reflect cumulative dividends on its preferred stock. The accretion amounts are subtracted from net loss to arrive at the net loss available to common shareholders for the purposes of calculating the Company’s net loss per share available to common shareholders.
General Factors Affecting the Results of Continuing Operations
Foreign exchange
. The Company has a significant portion of its operations outside of the U.S. As such, the results of the Company’s operations are based on currencies other than the U.S. dollar. Changes in foreign currency exchange rates influence its financial results, and therefore the ability to compare results between periods and segments.
Seasonality
. The Company’s seating segment is subject to seasonal variation due to the markets it serves and the stocking requirements of its customers. The peak season has historically been during the period from November through May. Sales during these months are typically greater due to the shipments required to fill the inventory at retail stores and customer warehouses. There are, however, variations in the seasonal demands from year to year depending on weather, customer inventory levels, and model year changes. This seasonality and annual variations of this seasonality could impact the ability to compare results between time periods.
Consolidated Results of Operations
The following table sets forth our consolidated results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
(in thousands)
|
|
|
Net sales
|
$
|
648,616
|
|
|
$
|
705,519
|
|
|
$
|
708,366
|
|
Cost of goods sold
|
517,764
|
|
|
574,412
|
|
|
561,076
|
|
Gross profit
|
130,852
|
|
|
131,107
|
|
|
147,290
|
|
Selling and administrative expenses
|
103,855
|
|
|
113,797
|
|
|
129,371
|
|
Impairment charges
|
—
|
|
|
63,285
|
|
|
94,126
|
|
(Gain) loss on disposals of property, plant and equipment - net
|
(759
|
)
|
|
880
|
|
|
109
|
|
Restructuring
|
4,266
|
|
|
7,232
|
|
|
3,800
|
|
Transaction-related expenses
|
—
|
|
|
—
|
|
|
886
|
|
Operating income (loss)
|
23,490
|
|
|
(54,087
|
)
|
|
(81,002
|
)
|
Interest expense
|
(33,089
|
)
|
|
(31,843
|
)
|
|
(31,835
|
)
|
Gain on extinguishment of debt
|
2,201
|
|
|
—
|
|
|
—
|
|
Equity income
|
952
|
|
|
681
|
|
|
884
|
|
Loss on divestiture
|
(8,730
|
)
|
|
—
|
|
|
—
|
|
Other income - net
|
319
|
|
|
900
|
|
|
97
|
|
Loss before income taxes
|
(14,857
|
)
|
|
(84,349
|
)
|
|
(111,856
|
)
|
Tax benefit
|
(10,384
|
)
|
|
(6,296
|
)
|
|
(22,255
|
)
|
Net loss
|
$
|
(4,473
|
)
|
|
$
|
(78,053
|
)
|
|
$
|
(89,601
|
)
|
Less net gain (loss) attributable to noncontrolling interests
|
5
|
|
|
(10,818
|
)
|
|
(15,143
|
)
|
Net loss attributable to Jason Industries
|
$
|
(4,478
|
)
|
|
$
|
(67,235
|
)
|
|
$
|
(74,458
|
)
|
Accretion of preferred stock dividends and redemption premium
|
3,783
|
|
|
3,600
|
|
|
3,600
|
|
Net loss available to common shareholders of Jason Industries
|
$
|
(8,261
|
)
|
|
$
|
(70,835
|
)
|
|
$
|
(78,058
|
)
|
Other financial data:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except percentages)
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
Increase/(Decrease)
|
|
|
$
|
|
%
|
Consolidated
|
|
|
|
|
|
|
|
Net sales
|
$
|
648,616
|
|
|
$
|
705,519
|
|
|
$
|
(56,903
|
)
|
|
(8.1)%
|
Net loss
|
(4,473
|
)
|
|
(78,053
|
)
|
|
(73,580
|
)
|
|
(94.3
|
)
|
Net loss as a % of net sales
|
0.7
|
%
|
|
11.1
|
%
|
|
(1,040) bps
|
Adjusted EBITDA
|
67,752
|
|
|
64,160
|
|
|
3,592
|
|
|
5.6
|
|
Adjusted EBITDA as a % of net sales
|
10.4
|
%
|
|
9.1
|
%
|
|
130 bps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
Increase/(Decrease)
|
(in thousands, except percentages)
|
|
|
$
|
|
%
|
Consolidated
|
|
|
|
|
|
|
|
Net sales
|
$
|
705,519
|
|
|
$
|
708,366
|
|
|
$
|
(2,847
|
)
|
|
(0.4
|
)%
|
Net loss
|
(78,053
|
)
|
|
(89,601
|
)
|
|
(11,548
|
)
|
|
(12.9
|
)
|
Net loss as a % of net sales
|
11.1
|
%
|
|
12.6
|
%
|
|
(150) bps
|
Adjusted EBITDA
|
64,160
|
|
|
81,164
|
|
|
(17,004
|
)
|
|
(21.0
|
)
|
Adjusted EBITDA as a % of net sales
|
9.1
|
%
|
|
11.5
|
%
|
|
(240) 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 our definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income.
|
Year ended December 31, 2017
and the
year ended December 31, 2016
Net sales
. Net sales were
$648.6 million
for the
year ended December 31, 2017
, a decrease of
$56.9 million
, or
8.1%
, compared with
$705.5 million
for the
year ended December 31, 2016
, reflecting decreased net sales in the acoustics segment of
$43.3 million
, the components segment of
$15.0 million
and the seating segment of
$1.9 million
, partially offset by increased net sales in the finishing segment of
$3.4 million
.
The decrease of
$43.3 million
in the acoustics segment was partially due to a $10.5 million decrease related to the sale of the Acoustics Europe business. The decrease of
$15.0 million
in the components segment was partially due to a decrease of $8.9 million as a result of the strategic decision to discontinue certain product lines selling under the Assembled Products brand in 2016. The increase of
$3.4 million
in the finishing segment was offset by a $4.7 million decrease associated with the wind down of a facility in Brazil.
Changes in foreign currency exchange rates compared with the U.S. dollar had a net positive impact of
$1.2 million
on consolidated net sales during the
year ended December 31, 2017
compared with
2016
, positively impacting the finishing segment’s net sales by
$1.5 million
and negatively impacting the seating segment’s net sales by
$0.3 million
. This was due principally to the weakening of the U.S. dollar against the Euro during the
year ended December 31, 2017
.
See further discussion of segment results below.
Cost of goods sold
. Cost of goods sold was
$517.8 million
for the
year ended December 31, 2017
, compared with
$574.4 million
for the
year ended December 31, 2016
. The decrease in cost of goods sold was primarily due to lower net sales volumes in the acoustics, components and seating segments, lower labor and material usage costs in the acoustics segment as a result of operational efficiencies, reduced costs resulting from the Company’s global cost reduction and restructuring program and decreased health care and workers compensation costs due to lower claims, partially offset by higher organic net sales volumes in the finishing segment, operational inefficiencies in the components and seating segments and a $1.0 million negative impact related to foreign currency exchange rates.
The reduced costs resulting from the Company’s global cost reduction and restructuring program were due to lower manufacturing costs in the finishing segment as a result of the wind down of a facility in Brazil, lower manufacturing costs in the components segments due to the strategic decision to discontinue certain product lines selling under the Assembled Products brand in 2016 and lower manufacturing costs in the acoustics segment due to the sale of the Acoustics Europe business of $7.8 million.
Gross profit
. For the reasons described above, gross profit was
$130.9 million
for the
year ended December 31, 2017
, compared with
$131.1 million
for the
year ended December 31, 2016
.
Selling and administrative expenses
. Selling and administrative expenses were
$103.9 million
for the
year ended December 31, 2017
, compared with
$113.8 million
for the
year ended December 31, 2016
, a decrease of
$9.9 million
.
The decrease is primarily due to reduced selling and administrative expenses resulting from the Company’s global cost reduction and restructuring program of $6.1 million, which includes $3.1 million related to the closure of facilities in the components and finishing segments, as well as decreased corporate expenses of
$4.1 million
primarily related to professional fees associated with supply chain consulting incurred in 2016, a decrease due to the sale of the Acoustics Europe business and a reduction of bad debt expenses of $1.6 million due to improved collections. The decrease was partially offset by increased incentive compensation of $4.4 million, an increase in share-based compensation expense of $1.9 million, primarily due to a decrease in assumed vesting of Adjusted EBITDA based awards in the second quarter of 2016, which resulted in a $2.5 million reversal of previously recorded expense, and a $0.5 million negative impact related to foreign currency exchange rates. See further discussion of corporate expenses and segment results in the “Segment Financial Data” section below.
Impairment charges
. There were
no
non-cash impairment charges for the
year ended December 31, 2017
. Non-cash impairment charges for the
year ended December 31, 2016
were
$63.3 million
, primarily relating to charges of
$29.8 million
and
$33.2 million
for the impairment of goodwill in the acoustics and components segments, respectively. See “Factors that Affect Operating Results - Key Events” in this MD&A and
Note 8
“
Goodwill and Other Intangible Assets
” of the accompanying consolidated financial statements for further information.
(Gain) loss on disposals of property, plant and equipment—net
. Gain on disposals of property, plant and equipment - net for the
year ended December 31, 2017
was
$0.8 million
, compared to a loss of
$0.9 million
for the
year ended December 31, 2016
. The gain on disposals of property, plant and equipment - net for the
year ended December 31, 2017
includes a gain of $0.5 million on the sale of a building related to the closure of the finishing segment’s Richmond, Virginia facility and 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
year ended December 31, 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
$4.3 million
for the
year ended December 31, 2017
compared to
$7.2 million
for the
year ended December 31, 2016
. During 2017 and 2016, such costs primarily relate to actions resulting from the global cost reduction and restructuring program announced on March 1, 2016. During 2017, such costs were primarily severance and move costs related to the consolidation of two U.S. facilities in the components segment, the consolidation of two U.S. facilities in the finishing segment and the closure of a facility in Brazil in the finishing segment. During 2016, such costs primarily related to severance actions in all segments, including costs related to the closure of the components segment’s facility in Buffalo Grove, Illinois and the wind down of the finishing segment’s facility in Brazil. Included within the restructuring costs for the wind down of the Brazil facility are charges related to a loss contingency for certain employment matter claims.
Transaction-related expenses
. Transaction-related expenses were insignificant for both the years ended
December 31, 2017
and
2016
.
Interest expense
. Interest expense was
$33.1 million
for the
year ended December 31, 2017
compared with
$31.8 million
for the
year ended December 31, 2016
. The increase in interest expense for the
year ended December 31, 2017
primarily relates to $1.9 million recognized in
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
year ended December 31, 2017
was
7.6%
as compared to
7.0%
for the
year ended December 31, 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
$2.2 million
for the
year ended December 31, 2017
. The gain on extinguishment of debt relates to the repurchase of
$20.0 million
of second lien term loans for
$16.8 million
in the second and third quarters of 2017. In connection with the repurchase, the Company wrote off
$0.4 million
of previously unamortized debt discount and
$0.4 million
of previously unamortized deferred financing costs, which were recorded as a reduction to the gain on extinguishment of debt. See “Senior Secured Credit Facilities” in the Liquidity and Capital Resources section of this MD&A for further discussion.
In the fourth quarter of 2017, the Company retired
$2.4 million
of foreign debt with cash received from the sale of Acoustics Europe and incurred a
$0.2 million
prepayment fee, which was recorded as an offset to the gain on extinguishment of debt.
Equity income
. Equity income was
$1.0 million
for the
year ended December 31, 2017
, compared with
$0.7 million
for the
year ended December 31, 2016
.
Loss on divestiture.
Loss on divestiture was
$8.7 million
for the
year ended December 31, 2017
. On August 30, 2017, the Company completed the divestiture of its Acoustics Europe business. The divestiture resulted in an
$8.7 million
pre-tax loss, of which
$7.9 million
was recorded in the second quarter of 2017 when the business was classified as held for sale and written down to estimated fair value less costs to sell and
$0.8 million
was recorded in the third quarter of 2017 based on changes in the net assets of the business and additional foreign currency translation adjustments upon closing of the divestiture. See
Note 4
, “
Divestiture
” in the notes to the consolidated financial statements for further information.
Other income —net
. Other income was
$0.3 million
for the
year ended December 31, 2017
, compared with
$0.9 million
for the
year ended December 31, 2016
. During 2017 and 2016, other income-net consisted of certain rental and royalty income streams. During 2016, other income-net also included other one-time transactions within our finishing segment.
Loss before income taxes
. For the reasons described above, loss before income taxes was
$14.9 million
for the
year ended December 31, 2017
compared with
$84.3 million
for the
year ended December 31, 2016
.
Tax benefit
. The tax benefit was
$10.4 million
for the
year ended December 31, 2017
, compared with
$6.3 million
for the
year ended December 31, 2016
. The effective tax rate for the
year ended December 31, 2017
was
69.9%
, compared with
7.5%
for the
year ended December 31, 2016
. The Company’s tax benefit is impacted by a number of factors, including, among others, the amount of taxable income or loss at the U.S. federal statutory rate, the amount of taxable earnings derived in foreign jurisdictions that all have tax rates lower than the U.S. federal statutory rate prior to enactment of the
Tax Reform Act
, permanent items, state tax rates in jurisdictions where we do business and the ability to utilize various tax credits and net operating loss carry forwards to reduce income tax expense. The income tax benefit also includes the impact of provision to return adjustments, adjustments to valuation allowances and reserve requirements for unrecognized tax positions. For the
year ended December 31, 2017
, the tax benefit was impacted by the enactment of the Tax Reform Act.
The 2017 effective tax rate of
69.9%
differs from the U.S. federal statutory rate of
35%
due primarily to the provision in the Tax Reform Act that reduces the U.S. federal income tax rate to
21%
from
35%
effective January 1, 2018, state tax benefits, the impact of lower foreign tax rates when compared to the
35%
U.S. federal 2017 statutory tax rate (primarily in Germany and Mexico) and the reversal of the valuation allowance on the deferred tax assets at a foreign subsidiary. These items
were partially offset by the impact of the tax on the one-time deemed mandatory repatriation of undistributed foreign subsidiary earnings, change in assertion regarding permanent reinvestment of earnings in our wholly-owned foreign subsidiaries and the vesting and forfeiture of share-based compensation for which no tax benefit will be realized.
On December 22, 2017, the President of the United States signed into law comprehensive tax legislation commonly referred to as the Tax Reform Act. The legislation significantly changes U.S. tax law by lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries, among others. The Tax Reform Act also adds many new provisions including changes to bonus depreciation and the deductions for executive compensation and interest expense. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of
35%
to a flat
21%
rate, effective January 1, 2018.
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. As a result of the reduction in the U.S. corporate income tax rate from
35%
to
21%
under the Tax Reform Act, the Company revalued its ending net deferred tax liabilities at December 31, 2017 and recognized a provisional
$11.1 million
tax benefit in the Company’s consolidated statements of operations for the year ended
December 31, 2017
.
The Tax Reform Act provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits through the year ended
December 31, 2017
. The Tax Reform Act imposes a tax on these earnings and profits at either a
15.5%
rate or an
8.0%
rate. The higher rate applies to the extent the Company's foreign subsidiaries have cash and cash equivalents at certain measurement dates, whereas the lower rate applies to any earnings that are in excess of the cash and cash equivalents balance. The Company had an estimated
$54.5 million
of undistributed foreign earnings and profits subject to the deemed mandatory repatriation and recognized a provisional
$5.3 million
of income tax expense in the Company’s consolidated statements of operations for the year ended
December 31, 2017
. After the utilization of existing net operating loss carryforwards, the Company will not incur any U.S. federal cash taxes resulting from the deemed mandatory repatriation.
During the fourth quarter of 2017, the Company changed its assertion regarding the permanent reinvestment of earnings of its wholly-owned non U.S. subsidiaries. This change in assertion was triggered by the anticipated future impact of changes arising from the enactment of the Tax Reform Act, including the interest expense deduction limitation and significant reduction in the U.S. taxation of earnings repatriated from the Company’s foreign subsidiaries. As a result, during the year ended
December 31, 2017
, the Company has recognized a deferred tax liability of
$1.7 million
on the undistributed earnings of its wholly-owned foreign subsidiaries.
While the Tax Reform Act provides for a territorial tax system, beginning in 2018, it includes two new U.S. tax base erosion provisions, the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions.
The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company is still evaluating the potential impact of the GILTI provisions and accordingly has not recorded a provisional estimate for the year ended December 31, 2017. Due to the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Tax Reform Act and the application of Accounting Standards Codification 740, and are considering available accounting policy alternatives to either adopt or record the U.S. income tax effect of future GILTI inclusions in the period in which they arise or establish deferred taxes with respect to the expected future tax liabilities associated with future GILTI inclusions. Our accounting policies depend, in part, on analyzing our global income to determine whether we expect a tax liability resulting from the application of this provision, and, if so, whether and when to record related current and deferred income taxes. Whether we intend to recognize deferred tax liabilities related to the GILTI provisions is dependent, in part, on our assessment of the Company's future operating structure. In addition, we are awaiting further interpretive guidance in connection with the computation of the GILTI tax. For these reasons, we are not yet able to reasonably estimate the effect of this provision of the Tax Reform Act. Therefore, we have not made any adjustments relating to potential GILTI tax in our consolidated financial statements and have not made a policy decision regarding our accounting for GILTI.
We are also currently analyzing certain additional provisions of the Tax Reform Act that come into effect for tax years starting January 1, 2018 and will determine if these items would impact the effective tax rate in the year the income or expense occurs. These provisions include the BEAT provisions, eliminating U.S. federal income taxes on dividends from foreign subsidiaries, the new provision that could limit the amount of deductible interest expense, and the limitations on the deductibility of certain executive compensation.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The Company has made a reasonable estimate of the financial statement impact as of January 31, 2018 and has recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended
December 31, 2017
. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Reform Act. The accounting is expected to be completed within the one year measurement period as allowed by SAB 118.
The
2016
effective tax rate of
7.5%
differs from the U.S. federal statutory rate of
35.0%
due primarily to the impact of non-deductible impairment charges recorded for the components and acoustics segments, the change in assertion regarding permanent reinvestment of earnings in our non-majority joint venture holding and increases in valuation allowances, partially offset by state tax benefits, the impact of lower foreign tax rates when compared to the U.S. federal statutory tax rate (primarily in Germany and Mexico) and a reduction in the reserve for uncertain tax positions as a result of the lapsing of the statute of limitations in one of the Company’s non U.S. tax jurisdictions. The change in assertion at the joint venture was driven by several factors. Prior to the second quarter of 2016, the Company had the ability and intent to block the payment of distributions; the Company changed its stance in the second quarter of 2016 to be open to joint venture distributions. This change coincided with the a re-evaluation of the joint venture partners during that quarter of the willingness and ability of the entity to distribute excess cash balances given the maturity, stability and revised growth expectations of the joint venture operations.
The impact of this change in assertion was to reduce the income tax benefit for the
year ended December 31, 2016
by
$2.9 million
.
See
Note 14
, “
Income Taxes
” in the consolidated financial statements for a complete reconciliation of the U.S. statutory tax rate to the effective tax rate and more information on tax events in
2017
and
2016
affecting each year’s respective tax rates.
Net loss
. For the reasons described above, net loss was
$4.5 million
for the
year ended December 31, 2017
compared with
$78.1 million
for the
year ended December 31, 2016
.
Net gain (loss) attributable to noncontrolling interests
. Net gain attributable to noncontrolling interests was immaterial for the
year ended December 31, 2017
, compared with a net loss attributable to noncontrolling interests of
$10.8 million
for the
year ended December 31, 2016
. Noncontrolling interests represented the Rollover Participants interest in JPHI which was reduced to 0% as of February 23, 2017. See
Note 11
, “
Shareholders' Equity (Deficit)
” in the consolidated financial statements for further discussion.
Adjusted EBITDA
. For the
year ended December 31, 2017
, Adjusted EBITDA was
$67.8 million
, or
10.4%
of net sales, an increase of
$3.6 million
, or
5.6%
, compared with
$64.2 million
, or
9.1%
of net sales, for the
year ended December 31, 2016
. The increase reflects higher Adjusted EBITDA in the finishing segment of
$3.5 million
, the seating segment of
$0.2 million
, the acoustics segment of
$0.1 million
and lower corporate expenses of
$4.1 million
, partially offset by decreased Adjusted EBITDA in the components segment of
$4.4 million
. The change in the Adjusted EBITDA in the acoustics segment includes a $1.2 million decrease from the sale of the Acoustics Europe business. See “Segment Financial Data” within Item 7, “Management’s Discussion and Analysis,” for further discussion on Adjusted EBITDA for each segment.
Changes in foreign currency exchange rates compared with the U.S dollar had a positive impact of
$0.1 million
on consolidated Adjusted EBITDA for the
year ended December 31, 2017
compared with the
year ended December 31, 2016
.
Other Comprehensive income (loss).
Other comprehensive income was
$12.2 million
for the
year ended December 31, 2017
compared with an other comprehensive loss of
$6.5 million
for the
year ended December 31, 2016
. The increase was driven by more favorable foreign currency translation adjustments in 2017 compared to 2016, the change in unrealized gains (losses) on cash flow hedges and employee retirement plan adjustments.
Foreign currency translation adjustments are based on fluctuations in the value of foreign currencies (primarily the Euro) against the U.S. Dollar each period.
Other comprehensive income for unrealized gains (losses) on cash flow hedges increased for the
year ended December 31, 2017
as compared to the
year ended December 31, 2016
due to a shift from an unrealized loss to an unrealized gain position on cash flow hedges in 2017 compared to an increase in the unrealized loss position on cash flow hedges in 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 2017, the hedging instruments shifted to a net gain position, based on future expectations for interest rate increases.
Employee retirement plan adjustments was a gain of
$0.4 million
for the
year ended December 31, 2017
, compared with a loss of
$0.6 million
for the
year ended December 31, 2016
. The employee retirement plan adjustments are based on actuarial valuations using a December 31 measurement date that include key assumptions regarding discount rates, expected returns on plan assets, retirement and mortality rates, future compensation increases, and health care cost trend rates. The employee retirement plan gain for the
year ended December 31, 2017
primarily related to actuarial gains recognized in U.S. pension and postretirement health care benefit plans within our finishing segment due to higher actual plan asset returns compared with the expected returns on plan assets and a decrease in expected future claim costs, respectively, partially offset by actuarial losses recognized in a German pension plan within our finishing segment due to an increase in future expected compensation. The employee retirement plan loss for the
year ended December 31, 2016
primarily related to actuarial losses recognized in a UK pension plan within our finishing segment related to decreasing discount rates.
Year ended December 31, 2016
and the
year ended December 31, 2015
Net sales
. Net sales were
$705.5 million
for the year ended December 31, 2016, a decrease of
$2.8 million
, or
0.4%
, compared with
$708.4 million
for the
year ended December 31, 2015
, reflecting decreased net sales in the components segment of
$24.5 million
and the seating segment of
$15.7 million
, partially offset by increased net sales in the acoustics segment of
$31.9 million
and and the finishing segment of
$5.5 million
. See further discussion of segment results below.
On May 29, 2015, the Company acquired DRONCO. DRONCO’S results of operations are included within the finishing segment and the Company’s consolidated results of operations since the date of acquisition. For the years ended
December 31, 2016
and
2015
,
$38.5 million
and
$24.1 million
, respectively, of net sales from DRONCO were included in the Company’s consolidated statements of operations. See
Note 3
, “
Acquisitions
” to the consolidated financial statements for further discussion of the DRONCO acquisition.
Changes in foreign currency exchange rates compared with the U.S. dollar had a net negative impact of $3.9 million on consolidated net sales during the year ended December 31, 2016 compared with 2015, negatively impacting the finishing, seating, and acoustics segments’ net sales by $3.1 million, $0.7 million and $0.1 million, respectively. This was due principally to the strengthening of the U.S. dollar against the Euro and Mexican Peso during the year ended December 31, 2016.
Cost of goods sold
. Cost of goods sold was $574.4 million for the year ended December 31, 2016, compared with $561.1 million for the year ended December 31, 2015. The increase in cost of goods sold was due to increased net sales in the acoustics and finishing segments, higher labor and material usage costs in the acoustics segment related to new platforms and operational inefficiencies, and sales mix within the seating segment. The increase was partially offset by decreased net sales in the seating and components segments, favorable raw material costs in the acoustics and components segments, and a $2.9 million favorable impact related to foreign currency exchange rates.
Gross profit
. For the reasons described above, gross profit was $131.1 million for the year ended December 31, 2016, compared with $147.3 million for the year ended December 31, 2015.
Selling and administrative expenses
. Selling and administrative expenses were $113.8 million for the year ended December 31, 2016, compared with $129.4 million for the year ended December 31, 2015.
The decrease was 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 $7.3 million for the year ended December 31, 2016, decreased incentive compensation of $2.2 million for the year ended December 31, 2016, cost savings of $2.1 million from other spending controls within the seating, acoustics and components segments, and $5.9 million of severance and other expenses incurred in 2015 related to the transitions of the Company’s then Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). In addition, share-based compensation expense for the year ended December 31, 2016 decreased $8.7 million compared with the year ended December 31, 2015 due to a decrease in assumed vesting of Adjusted EBITDA based awards, a decrease in restricted stock units (“RSUs”) expense from accelerated vesting in 2015 related to the transition of the Company’s then CEO and CFO, and a decrease in Stock Price based awards expense due to completion of the service periods for the awards.
The decreases are partially offset by increased corporate expenses of $5.9 million, including $2.8 million of professional fees associated with supply chain consulting for the year ended December 31, 2016 and increased compensation expenses related to investments in management resources and talent, and $2.9 million of increased expenses at DRONCO related to the timing of the acquisition in May 2015 which resulted in five incremental months of expense in 2016. See further discussion of corporate expenses and segment results in the “Segment Financial Data” section below.
Impairment charges
. Non-cash impairment charges for the year ended December 31, 2016 were $63.3 million, primarily relating to charges of $29.8 million and $33.2 million for the impairment of goodwill in the acoustics and components segments, respectively. See “Factors that Affect Operating Results - Key Events” in this MD&A and Note 8 “Goodwill and Other Intangible Assets” of the accompanying consolidated financial statements for further information.
Loss on disposals of property, plant and equipment—net
. For the year ended December 31, 2016, the Company recognized a net loss on disposals of property, plant and equipment-net of $0.9 million, compared with $0.1 million for the year ended December 31, 2015. The loss on disposals of property, plant and equipment-net for the year ended December 31, 2016 relates primarily to a loss of $0.6 million on the sale of a seating segment facility. Changes in the level of property, plant and equipment 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 $7.2 million for the year ended December 31, 2016 compared to $3.8 million for the year ended December 31, 2015. During 2016, such costs 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 and the wind down of the finishing segment’s facility in São Bernardo do Campo, Brazil. Included within the restructuring costs for the wind down of the Brazil facility are charges related to a loss contingency for certain employment matter claims.
During 2015, such costs related to the final closure of the acoustics segment’s Norwalk, Ohio facility, closure of the finishing segment’s Brooklyn Heights, Ohio office, closure of the components segment’s facility in China, and winding down of the finishing segment’s machine business in Sweden.
Transaction-related expenses
. Transaction-related expenses were insignificant for the year ended December 31, 2016, compared with $0.9 million for the year ended December 31, 2015. During 2015, transaction-related expenses primarily consisted of professional service fees associated with the 2015 acquisition of DRONCO.
Interest expense
. Interest expense was $31.8 million for both the year ended December 31, 2016 and 2015. See “Senior Secured Credit Facilities” in the Liquidity and Capital Resources section of this MD&A for further discussion.
Equity income
. Equity income was $0.7 million for the year ended December 31, 2016, compared with $0.9 million for the year ended December 31, 2015.
Other income —net
. Other income was $0.9 million for the year ended December 31, 2016, compared with $0.1 million for the year ended December 31, 2015. During 2016, other income-net consisted of certain rental and royalty income streams as well as other one-time transactions within our finishing segment.
Loss before income taxes
. For the reasons described above, loss before income taxes was $84.3 million for the year ended December 31, 2016 compared with $111.9 million for the year ended December 31, 2015.
Tax benefit
. The tax benefit was $6.3 million for the year ended December 31, 2016, compared with $22.3 million for the year ended December 31, 2015. The effective tax rate for the year ended December 31, 2016 was 7.5%, compared with 19.9% for the year ended December 31, 2015. The Company’s tax benefit is impacted by a number of factors, including, among others, the amount of taxable income or loss at the U.S. federal statutory rate, the amount of taxable earnings derived in foreign jurisdictions that all have tax rates lower than the U.S. federal statutory rate (primarily in Germany and Mexico), permanent items, state tax rates in jurisdictions where we do business and the ability to utilize various tax credits and net operating loss carry forwards to reduce income tax expense. The income tax benefit also includes the impact of provision to return adjustments, adjustments to valuation allowances and reserve requirements for unrecognized tax positions.
The 2016 effective tax rate of 7.5% differs from the U.S. federal statutory rate of 35.0% due primarily to the impact of non-deductible impairment charges recorded for the components and acoustics segments, the change in assertion regarding permanent reinvestment of earnings in our non-majority joint venture holding and increases in valuation allowances, partially offset by state tax benefits, the impact of lower foreign tax rates when compared to the U.S. federal statutory tax rate (primarily in Germany and Mexico) and a reduction in the reserve for uncertain tax positions as a result of the lapsing of the statute of limitations in one of the Company’s non U.S. tax jurisdictions. The change in assertion at the joint venture was driven by several factors. Prior to the second quarter of 2016, the Company had the ability and intent to block the payment of distributions; the Company changed its stance in the second quarter of 2016 to be open to joint venture distributions. This change coincided with the a re-evaluation of the joint venture partners during that quarter of the willingness and ability of the entity to distribute excess cash balances given the maturity, stability and revised growth expectations of the joint venture operations.
The impact of this change in assertion was to reduce the income tax benefit for the year ended December 31, 2016 by $2.9 million.
The 2015 effective tax rate of 19.9% differs from the U.S. federal statutory rate of 35.0% due primarily to the impact of non-deductible impairment charges recorded for the seating segment, partially offset by state tax benefits and the impact of lower foreign tax rates when compared to the U.S. federal statutory tax rate.
See
Note 14
, “
Income Taxes
” in the consolidated financial statements for a complete reconciliation of the U.S. statutory tax rate to the effective tax rate and more information on tax events in 2016 and 2015 affecting each year’s respective tax rates.
Net loss
. For the reasons described above, net loss was
$78.1 million
for the year ended December 31, 2016 compared with $89.6 million for the year ended December 31, 2015.
Net loss attributable to noncontrolling interests
. Net loss attributable to noncontrolling interests was $10.8 million for the year ended December 31, 2016, compared with $15.1 million for the year ended December 31, 2015. Noncontrolling interests represent the Rollover Participants interest in JPHI. See
Note 11
, “
Shareholders' Equity (Deficit)
” to the consolidated financial statements for further discussion.
Adjusted EBITDA
. For the year ended December 31, 2016, Adjusted EBITDA was $64.2 million, or 9.1% of net sales, a decrease of $17.0 million, or 21.0%, compared with $81.2 million, or 11.5% of net sales, in the year ended December 31, 2015. The decrease reflects decreased Adjusted EBITDA in the components segment of $6.7 million, the seating segment of $3.6 million, the finishing segment of $1.6 million and the acoustics segment of $0.3 million, and higher corporate expenses of $4.8 million. See “Segment Financial Data” within Item 7, “Management’s Discussion and Analysis,” for further discussion on Adjusted EBITDA for each segment.
Changes in foreign currency exchange rates compared with the U.S dollar had a negative impact of $0.3 million on consolidated Adjusted EBITDA for the year ended December 31, 2016 compared with the year ended December 31, 2015, negatively impacting the finishing segment’s Adjusted EBITDA by $0.3 million.
Other Comprehensive Loss.
Other comprehensive loss was $6.5 million for the year ended December 31, 2016 compared with $11.3 million for the year ended December 31, 2015. The change was driven by the impact of foreign currency translation adjustments, the net change in unrealized gains (losses) on cash flow hedges and employee retirement plan adjustments. Foreign currency translation adjustments are based on fluctuations in the value of foreign currencies (primarily the Euro and Mexican Peso) against the U.S. Dollar each period.
Employee retirement plan adjustments was a loss of $0.6 million for the year ended December 31, 2016, compared with a gain of $0.5 million for the year ended December 31, 2015. The employee retirement plan adjustments are based on actuarial valuations using a December 31 measurement date that include key assumptions regarding discount rates, expected returns on plan assets, retirement and mortality rates, future compensation increases, and health care cost trend rates. The employee retirement plan loss for the year ended December 31, 2016 primarily related to actuarial losses recognized in a UK pension plan within our finishing segment related to decreasing discount rates. The employee retirement plan gain for the year ended December 31, 2015 primarily related to actuarial gains recognized in a UK pension plan in our finishing segment and a US plan in our components segment related to increasing discount rates.
The net change in unrealized 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 9, “Debt and Hedging Instruments”. Subsequent to entering into these arrangements, actual interest rate increases have been lower and have occurred later than expected, thereby, resulting in losses associated with these hedging instruments.
Key Measures the Company Uses to Evaluate Its Performance
EBITDA and Adjusted EBITDA
. 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, income 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, divestitures and extinguishment of debt, 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 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 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 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
9
and below) definition of EBITDA excludes income of partially owned affiliates, unless such earnings have been received in cash, among other things.
Set forth below is a reconciliation of Adjusted EBITDA to net loss (in thousands) (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
|
|
Net loss
|
(4,473
|
)
|
|
$
|
(78,053
|
)
|
|
$
|
(89,601
|
)
|
Tax benefit
|
(10,384
|
)
|
|
(6,296
|
)
|
|
(22,255
|
)
|
Interest expense
|
33,089
|
|
|
31,843
|
|
|
31,835
|
|
Depreciation and amortization
|
38,934
|
|
|
44,041
|
|
|
45,248
|
|
EBITDA
|
57,166
|
|
|
(8,465
|
)
|
|
(34,773
|
)
|
Adjustments:
|
|
|
|
|
|
Impairment charges
(1)
|
—
|
|
|
63,285
|
|
|
94,126
|
|
Restructuring
(2)
|
4,266
|
|
|
7,232
|
|
|
3,800
|
|
Transaction-related expenses
(3)
|
—
|
|
|
—
|
|
|
886
|
|
Integration and other restructuring costs
(4)
|
(569
|
)
|
|
1,980
|
|
|
9,047
|
|
Share-based compensation
(5)
|
1,119
|
|
|
(752
|
)
|
|
7,969
|
|
Gain (loss) on disposals of property, plant and equipment - net
(6)
|
(759
|
)
|
|
880
|
|
|
109
|
|
Gain on extinguishment of debt
(7)
|
(2,201
|
)
|
|
—
|
|
|
—
|
|
Loss on divestiture
(8)
|
8,730
|
|
|
—
|
|
|
—
|
|
Total adjustments
|
10,586
|
|
|
72,625
|
|
|
115,937
|
|
Adjusted EBITDA
|
$
|
67,752
|
|
|
$
|
64,160
|
|
|
$
|
81,164
|
|
|
|
(1)
|
Charges for the
year ended December 31, 2016
primarily relate to non-cash impairment of goodwill of
$29.8 million
and
$33.2 million
in the acoustics and components segments, respectively. Charges for the
year ended December 31, 2015
represent non-cash impairment charges of $58.8 million, $27.7 million, $6.8 million, and $0.8 million related to impairment of goodwill, customer relationships, trademarks and patents intangible assets, respectively, in the seating segment. See “Factors that Affect Operating Results - Key Events” in this MD&A and
Note 8
“
Goodwill and Other Intangible Assets
” of the accompanying consolidated financial statements for further information.
|
|
|
(2)
|
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 5
, “
Restructuring Costs
” of the accompanying consolidated financial statements for further information.
|
|
|
(3)
|
Transaction-related expenses primarily consist of professional service fees related to the DRONCO acquisition.
|
|
|
(4)
|
In 2017, integration and restructuring costs includes the reversal of a liability recorded in acquisition accounting from the Business Combination in 2014. In 2016, integration and other restructuring costs includes costs associated with the start-up of new acoustics segment facilities in Warrensburg, Missouri and Richmond, Indiana. Additionally, integration and other restructuring costs in 2016 includes a $0.6 million reversal of a reserve related to the Newcomerstown fire recorded in acquisition accounting for the Business Combination in 2014 and
$0.7 million
of charges recorded to reduce inventory balances to estimated net realizable value at our Brazil location within the finishing segment. In 2015, integration and other restructuring costs also includes $5.9 million of severance and expenses related to the transitions of the Company’s then CEO and CFO, partially offset by a $0.8 million gain resulting from termination of an unfavorable lease recorded in acquisition accounting for the Business Combination. Such costs are not included in restructuring for GAAP purposes.
|
|
|
(5)
|
Represents non-cash share based compensation expense for awards under the Company’s 2014 Omnibus Incentive Plan. During 2016, share based compensation included $2.5 million of income due to a decrease in assumed vesting levels of Adjusted EBITDA based awards. In 2015, share based compensation included $2.9 million of expense due to accelerated vesting of restricted stock units related to the transitions of the Company’s then CEO and CFO. See
Note 12
, “
Share Based Compensation
” of the accompanying consolidated financial statements for further information.
|
|
|
(6)
|
Gain on disposals of property, plant and equipment - net for the
year ended December 31, 2017
includes a gain of $0.5 million on the sale of a building related to the closure of the finishing segment’s Richmond, Virginia facility and a gain of $0.4 million on the sale of equipment related to the closure of the components segment’s Buffalo Grove, Illinois facility. Loss on disposals of property, plant and equipment - net for the
year ended December 31, 2016
includes a loss of $0.6 million on sale of a seating segment facility.
|
|
|
(7)
|
Represents gains on extinguishment of second lien term loan debt, net of a prepayment fee to retire foreign debt in the fourth quarter of 2017. See
Note 9
, “
Debt and Hedging Instruments
” of the accompanying consolidated financial statements for further information.
|
|
|
(8)
|
On August 30, 2017, the Company completed the divestiture of its Acoustics Europe business. The divestiture resulted in a $8.7 million pre-tax loss, of which $7.9 million was recorded in the second quarter of 2017 when the business was classified as held for sale and $0.8 million was recorded in the third quarter of 2017 upon closing of the divestiture. See
Note 4
, “
Divestiture
” of the accompanying consolidated financial statements for further information.
|
Adjusted EBITDA percentage of sales
. Adjusted EBITDA as a percentage of 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 years ended
December 31, 2017
and
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 our definition of Adjusted EBITDA and a reconciliation of the Company’s consolidated Adjusted EBITDA to net loss, which is the most comparable GAAP measure.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
Increase/(Decrease)
|
(in thousands, except percentages)
|
|
|
$
|
|
%
|
Finishing
|
|
|
|
|
|
|
|
Net sales
|
$
|
200,284
|
|
|
$
|
196,883
|
|
|
$
|
3,401
|
|
|
1.7
|
%
|
Adjusted EBITDA
|
27,661
|
|
|
24,200
|
|
|
3,461
|
|
|
14.3
|
|
Adjusted EBITDA % of net sales
|
13.8
|
%
|
|
12.3
|
%
|
|
150 bps
|
Components
|
|
|
|
|
|
|
|
Net sales
|
$
|
82,621
|
|
|
$
|
97,667
|
|
|
$
|
(15,046
|
)
|
|
(15.4
|
)%
|
Adjusted EBITDA
|
9,888
|
|
|
14,249
|
|
|
(4,361
|
)
|
|
(30.6
|
)
|
Adjusted EBITDA % of net sales
|
12.0
|
%
|
|
14.6
|
%
|
|
(260) bps
|
Seating
|
|
|
|
|
|
|
|
Net sales
|
$
|
159,129
|
|
|
$
|
161,050
|
|
|
$
|
(1,921
|
)
|
|
(1.2
|
)%
|
Adjusted EBITDA
|
16,348
|
|
|
16,122
|
|
|
226
|
|
|
1.4
|
|
Adjusted EBITDA % of net sales
|
10.3
|
%
|
|
10.0
|
%
|
|
30 bps
|
Acoustics
|
|
|
|
|
|
|
|
Net sales
|
$
|
206,582
|
|
|
$
|
249,919
|
|
|
$
|
(43,337
|
)
|
|
(17.3
|
)%
|
Adjusted EBITDA
|
27,341
|
|
|
27,202
|
|
|
139
|
|
|
0.5
|
|
Adjusted EBITDA % of net sales
|
13.2
|
%
|
|
10.9
|
%
|
|
230 bps
|
Corporate
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
(13,486
|
)
|
|
$
|
(17,613
|
)
|
|
$
|
4,127
|
|
|
23.4
|
%
|
Consolidated
|
|
|
|
|
|
|
|
Net sales
|
$
|
648,616
|
|
|
$
|
705,519
|
|
|
$
|
(56,903
|
)
|
|
(8.1
|
)%
|
Adjusted EBITDA
|
67,752
|
|
|
64,160
|
|
|
3,592
|
|
|
5.6
|
|
Adjusted EBITDA % of net sales
|
10.4
|
%
|
|
9.1
|
%
|
|
130 bps
|
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 years ended
December 31, 2016
and
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
Increase/(Decrease)
|
(in thousands, except percentages)
|
|
|
$
|
|
%
|
Finishing
|
|
|
|
|
|
|
|
Net sales
|
$
|
196,883
|
|
|
$
|
191,394
|
|
|
$
|
5,489
|
|
|
2.9
|
%
|
Adjusted EBITDA
|
24,200
|
|
|
25,799
|
|
|
(1,599
|
)
|
|
(6.2
|
)
|
Adjusted EBITDA % of net sales
|
12.3
|
%
|
|
13.5
|
%
|
|
(120) bps
|
Components
|
|
|
|
|
|
|
|
Net sales
|
$
|
97,667
|
|
|
$
|
122,133
|
|
|
$
|
(24,466
|
)
|
|
(20.0
|
)%
|
Adjusted EBITDA
|
14,249
|
|
|
20,943
|
|
|
(6,694
|
)
|
|
(32.0
|
)
|
Adjusted EBITDA % of net sales
|
14.6
|
%
|
|
17.1
|
%
|
|
(250) bps
|
Seating
|
|
|
|
|
|
|
|
Net sales
|
$
|
161,050
|
|
|
$
|
176,792
|
|
|
$
|
(15,742
|
)
|
|
(8.9
|
)%
|
Adjusted EBITDA
|
16,122
|
|
|
19,766
|
|
|
(3,644
|
)
|
|
(18.4
|
)
|
Adjusted EBITDA % of net sales
|
10.0
|
%
|
|
11.2
|
%
|
|
(120) bps
|
Acoustics
|
|
|
|
|
|
|
|
Net sales
|
$
|
249,919
|
|
|
$
|
218,047
|
|
|
$
|
31,872
|
|
|
14.6
|
%
|
Adjusted EBITDA
|
27,202
|
|
|
27,515
|
|
|
(313
|
)
|
|
(1.1
|
)
|
Adjusted EBITDA % of net sales
|
10.9
|
%
|
|
12.6
|
%
|
|
(170) bps
|
Corporate
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
(17,613
|
)
|
|
$
|
(12,859
|
)
|
|
$
|
(4,754
|
)
|
|
(37.0
|
)%
|
Consolidated
|
|
|
|
|
|
|
|
Net sales
|
$
|
705,519
|
|
|
$
|
708,366
|
|
|
$
|
(2,847
|
)
|
|
(0.4
|
)%
|
Adjusted EBITDA
|
64,160
|
|
|
81,164
|
|
|
(17,004
|
)
|
|
(21.0
|
)
|
Adjusted EBITDA % of net sales
|
9.1
|
%
|
|
11.5
|
%
|
|
(240) bps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finishing Segment
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
Increase/(Decrease)
|
(in thousands, except percentages)
|
|
|
$
|
|
%
|
Net sales
|
$
|
200,284
|
|
|
$
|
196,883
|
|
|
$
|
3,401
|
|
|
1.7
|
%
|
Adjusted EBITDA
|
27,661
|
|
|
24,200
|
|
|
3,461
|
|
|
14.3
|
|
Adjusted EBITDA % of net sales
|
13.8
|
%
|
|
12.3
|
%
|
|
150 bps
|
For the year ended
December 31, 2017
, net sales were
$200.3 million
, an increase of
$3.4 million
, or
1.7%
, compared with
$196.9 million
for the year ended
December 31, 2016
. On a constant currency basis (net positive currency impact of
$1.5 million
for the year ended
December 31, 2017
), revenues increased by
$1.9 million
for the year ended
December 31, 2017
. Excluding currency impact, the increase in net sales for the year ended
December 31, 2017
was primarily due to increases in demand from industrial end markets in Europe and North America, partially offset by a $4.7 million decrease associated with the wind down of the finishing segment’s facility in Brazil and decreases in volume associated with strategic decisions related to exiting unprofitable customers and products.
Adjusted EBITDA for the year ended
December 31, 2017
increased
$3.5 million
to
$27.7 million
(
13.8%
of net sales) from
$24.2 million
(
12.3%
of net sales) for the year ended
December 31, 2016
. Changes in foreign currency exchange rates did not significantly impact Adjusted EBITDA. The increase in Adjusted EBITDA for the year ended
December 31, 2017
primarily resulted from increases in sales volume to industrial end markets in Europe and North America, savings in selling and administrative expenses as a result of the Company’s global cost reduction and restructuring program and other spending controls, partially offset by increased incentive compensation due to increased attainment percentages.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
Increase/(Decrease)
|
(in thousands, except percentages)
|
|
|
$
|
|
%
|
Net sales
|
$
|
196,883
|
|
|
$
|
191,394
|
|
|
$
|
5,489
|
|
|
2.9
|
%
|
Adjusted EBITDA
|
24,200
|
|
|
25,799
|
|
|
(1,599
|
)
|
|
(6.2
|
)
|
Adjusted EBITDA % of net sales
|
12.3
|
%
|
|
13.5
|
%
|
|
(120) bps
|
For the year ended December 31, 2016, net sales were $196.9 million, an increase of $5.5 million or 2.9%, compared with $191.4 million for the year ended December 31, 2015. On a constant currency basis (net negative currency impact of $3.1 million for the year ended December 31, 2016), revenues increased by $8.6 million for the year ended December 31, 2016. The increase in net sales resulted from the May 2015 acquisition of DRONCO, which had net sales of $38.5 million during the year ended December 31, 2016 compared to $24.1 million during the year ended December 31, 2015, partially offset by lower volumes in industrial end markets globally.
Adjusted EBITDA decreased $1.6 million, or 6.2%, for the year ended December 31, 2016 to $24.2 million (12.3% of net sales) compared to $25.8 million (13.5% of net sales) for the year ended December 31, 2015. On a constant currency basis (net negative currency impact of $0.3 million for the year ended December 31, 2016), Adjusted EBITDA decreased by $1.3 million for the year ended December 31, 2016. The decrease in Adjusted EBITDA for the year ended December 31, 2016 primarily resulted from lower sales volumes in industrial end markets, unfavorable product mix when compared with 2015 and operational inefficiencies resulting in higher labor costs and material usage, partially offset by savings in selling and administrative expenses resulting from the Company’s global cost reduction program. The decrease in Adjusted EBITDA as a percentage of net sales for the year ended December 31, 2016 was additionally impacted by lower Adjusted EBITDA margins related to DRONCO.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components Segment
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
Increase/(Decrease)
|
(in thousands, except percentages)
|
|
|
$
|
|
%
|
Net sales
|
$
|
82,621
|
|
|
$
|
97,667
|
|
|
$
|
(15,046
|
)
|
|
(15.4
|
)%
|
Adjusted EBITDA
|
9,888
|
|
|
14,249
|
|
|
(4,361
|
)
|
|
(30.6
|
)
|
Adjusted EBITDA % of net sales
|
12.0
|
%
|
|
14.6
|
%
|
|
(260) bps
|
For the year ended
December 31, 2017
, net sales were
$82.6 million
, a decrease of
$15.0 million
or
15.4%
, compared with
$97.7 million
for the year ended
December 31, 2016
. The decrease in net sales was primarily due to a decrease of $8.9 million as a result of the strategic decision to discontinue certain product lines selling under the Assembled Products brand in 2016 and lower sales volumes in the rail market.
Adjusted EBITDA decreased
$4.4 million
, or
30.6%
, for the year ended
December 31, 2017
to
$9.9 million
(
12.0%
of net sales) compared to
$14.2 million
(
14.6%
of net sales) for the year ended
December 31, 2016
. The decrease in Adjusted EBITDA for the year ended
December 31, 2017
primarily resulted from lower volume in the rail market and unfavorable product mix, increases in raw material prices primarily due to steel purchases, lower labor productivity on decreased volumes and increased incentive compensation due to increased attainment percentages, partially offset by decreased selling and administrative expenses from other spending controls and $0.9 million as a result of the strategic decision to discontinue certain product lines selling under the Assembled Products brand in 2016 that were not profitable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
Increase/(Decrease)
|
(in thousands, except percentages)
|
|
|
$
|
|
%
|
Net sales
|
$
|
97,667
|
|
|
$
|
122,133
|
|
|
$
|
(24,466
|
)
|
|
(20.0
|
)%
|
Adjusted EBITDA
|
14,249
|
|
|
20,943
|
|
|
(6,694
|
)
|
|
(32.0
|
)
|
Adjusted EBITDA % of net sales
|
14.6
|
%
|
|
17.1
|
%
|
|
(250) bps
|
For the year ended December 31, 2016, net sales were $97.7 million, a decrease of $24.5 million, or 20.0%, compared with $122.1 million for the year ended December 31, 2015. The decrease was primarily due to lower sales volumes of rail, general industrial, perforated, and expanded metal products and lower pricing of metal products resulting from lower raw material costs.
For the year ended December 31, 2016, Adjusted EBITDA was $14.2 million (14.6% of net sales), compared with $20.9 million (17.1% of net sales) for the year ended December 31, 2015. The decrease in Adjusted EBITDA of $6.7 million was primarily due to lower sales volumes and lower labor productivity on the decreased sales volumes, partially offset by lower raw material pricing and savings in selling and administrative expenses resulting from the Company’s global cost reduction program and other spend controls.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seating Segment
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
Increase/(Decrease)
|
(in thousands, except percentages)
|
|
|
$
|
|
%
|
Net sales
|
$
|
159,129
|
|
|
$
|
161,050
|
|
|
$
|
(1,921
|
)
|
|
(1.2
|
)%
|
Adjusted EBITDA
|
16,348
|
|
|
16,122
|
|
|
226
|
|
|
1.4
|
|
Adjusted EBITDA % of net sales
|
10.3
|
%
|
|
10.0
|
%
|
|
30 bps
|
For the year ended
December 31, 2017
, net sales were
$159.1 million
, a decrease of
$1.9 million
, or
1.2%
, compared with
$161.1 million
for the year ended
December 31, 2016
. On a constant currency basis (net negative currency impact of
$0.3 million
for the year ended
December 31, 2017
), revenues decreased by
$1.6 million
for the year ended
December 31, 2017
. The decrease in net sales for the year ended
December 31, 2017
was primarily due to decreases in volume in the turf care, motorcycle and power sports markets, partially offset by an increase in volume in the construction market and higher pricing.
For the year ended
December 31, 2017
, Adjusted EBITDA was
$16.3 million
(
10.3%
of net sales), compared to
$16.1 million
(
10.0%
of net sales) for the year ended
December 31, 2016
. Changes in foreign currency exchange rates did not significantly impact Adjusted EBITDA. The increase in Adjusted EBITDA for the year ended
December 31, 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, supply chain initiatives, improved pricing, and other spending controls, partially offset by decreased sales volume and operational inefficiencies resulting in higher material usage and increased freight costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
Increase/(Decrease)
|
(in thousands, except percentages)
|
|
|
$
|
|
%
|
Net sales
|
$
|
161,050
|
|
|
$
|
176,792
|
|
|
$
|
(15,742
|
)
|
|
(8.9
|
)%
|
Adjusted EBITDA
|
16,122
|
|
|
19,766
|
|
|
(3,644
|
)
|
|
(18.4
|
)
|
Adjusted EBITDA % of net sales
|
10.0
|
%
|
|
11.2
|
%
|
|
(120) bps
|
For the year ended December 31, 2016, net sales were $161.1 million, a decrease of $15.7 million, or 8.9%, compared with $176.8 million for the year ended December 31, 2015. On a constant currency basis (net negative currency impact of $0.7 million for the year ended December 31, 2016), revenues decreased by $15.0 million for the year ended December 31, 2016. The decrease in net sales was primarily due to decreases in volume in the motorcycle, turf care and construction markets as well as lower pricing, partially offset by a volume increase in the power sports market.
For the year ended December 31, 2016, Adjusted EBITDA was $16.1 million (10.0% of net sales), a decrease of $3.6 million, or 18.4%, compared to $19.8 million (11.2% of net sales) for the year ended December 31, 2015. Changes in foreign currency exchange rates did not significantly impact Adjusted EBITDA. The decrease in Adjusted EBITDA was primarily due to lower sales volumes, lower pricing, unfavorable sales mix with lower margin generating products and operational inefficiencies resulting in higher material usage and lower labor productivity. The decrease was partially offset by savings in selling and administrative expenses resulting from the Company’s global cost reduction program and other spend controls.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acoustics Segment
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
Increase/(Decrease)
|
(in thousands, except percentages)
|
|
|
$
|
|
%
|
Net sales
|
$
|
206,582
|
|
|
$
|
249,919
|
|
|
$
|
(43,337
|
)
|
|
(17.3
|
)%
|
Adjusted EBITDA
|
27,341
|
|
|
27,202
|
|
|
139
|
|
|
0.5
|
|
Adjusted EBITDA % of net sales
|
13.2
|
%
|
|
10.9
|
%
|
|
230 bps
|
For the year ended
December 31, 2017
, net sales were
$206.6 million
, a decrease of
$43.3 million
, or
17.3%
, compared with
$249.9 million
for the year ended
December 31, 2016
. Changes in foreign currency exchange rates did not significantly impact net sales. The decrease was primarily due to lower overall North American vehicle demand and a significant decrease in demand for car platforms due to a shift from cars to light trucks and sport utility vehicles. The decrease was also due to $10.5 million of lower sales as a result of the sale of the Acoustics Europe business which was sold on August 30, 2017, lower sales volumes as a result of a net decrease in vehicle platforms, and nonrecurring 2016 sales volumes related to a competitor bankruptcy.
For the year ended
December 31, 2017
, Adjusted EBITDA was
$27.3 million
(
13.2%
of net sales), compared with
$27.2 million
(
10.9%
of net sales) for the year ended
December 31, 2016
. Changes in foreign currency exchange rates did not significantly impact Adjusted EBITDA. The increase in Adjusted EBITDA for the year ended
December 31, 2017
was primarily due to savings in cost of goods sold from lower labor costs and lower material usage costs from improved production efficiencies and supply chain initiatives and savings in selling and administrative expenses resulting from the Company’s global cost reduction programs and other spending controls. The increase in Adjusted EBITDA was partially offset by lower sales
volumes, increased incentive compensation and $1.2 million due to the sale of the Acoustics Europe business which was sold on August 30, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
Increase/(Decrease)
|
(in thousands, except percentages)
|
|
|
$
|
|
%
|
Net sales
|
$
|
249,919
|
|
|
$
|
218,047
|
|
|
$
|
31,872
|
|
|
14.6
|
%
|
Adjusted EBITDA
|
27,202
|
|
|
27,515
|
|
|
(313
|
)
|
|
(1.1
|
)
|
Adjusted EBITDA % of net sales
|
10.9
|
%
|
|
12.6
|
%
|
|
(170) bps
|
For the year ended December 31, 2016, net sales were $249.9 million, an increase of $31.9 million, or 14.6%, compared with $218.0 million for the year ended December 31, 2015. On a constant currency basis (net negative currency impact of $0.1 million for the year ended December 31, 2016), revenues increased by $32.0 million for the year ended December 31, 2016. The increase in net sales for the year ended December 31, 2016 was due to higher volumes resulting from new platform awards with higher content per vehicle in North America and additional sales volume resulting from a competitor bankruptcy, partially offset by lower pricing on existing platforms.
For the year ended December 31, 2016, Adjusted EBITDA was $27.2 million (10.9% of net sales), compared to $27.5 million (12.6% of net sales) for the year ended December 31, 2015. Changes in foreign currency exchange rates did not significantly impact Adjusted EBITDA. The decrease in Adjusted EBITDA for the year ended December 31, 2016 was primarily due to operational inefficiencies resulting in higher labor costs and material usage and lower pricing on existing platforms, partially offset by higher volumes on new platforms, lower raw material costs and savings in selling and administrative expenses resulting from the Company’s global cost reduction program, lower incentive compensation expense due to increased attainment percentages and other spend controls.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
Increase/(Decrease)
|
(in thousands, except percentages)
|
|
|
$
|
|
%
|
Adjusted EBITDA
|
$
|
(13,486
|
)
|
|
$
|
(17,613
|
)
|
|
$
|
4,127
|
|
|
23.4
|
%
|
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, human resources, tax compliance and planning and the administration of employee benefits. Corporate expense also includes third party legal, audit, tax and other professional fees and expenses, board of directors compensation and expenses, and the operating costs of the corporate office.
The decrease of
$4.1 million
in corporate expense for the year ended
December 31, 2017
compared to the prior year primarily resulted from $2.8 million of non-recurring third-party professional fees associated with investments in manufacturing and supply chain improvement initiatives incurred during the year ended
December 31, 2016
, the transition of the Company’s Chief Executive Officer and Chief Operating Officer and other spending controls, partially offset by increased incentive compensation due to increased attainment percentages.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
Increase/(Decrease)
|
(in thousands, except percentages)
|
|
|
$
|
|
%
|
Adjusted EBITDA
|
$
|
(17,613
|
)
|
|
$
|
(12,859
|
)
|
|
$
|
(4,754
|
)
|
|
(37.0
|
)%
|
The increase of $4.8 million in corporate expense for the year ended December 31, 2016 primarily resulted from $2.8 million of increased third-party professional fees associated with investments in manufacturing and supply chain improvement initiatives, as well as increased compensation expenses related to investments in management resources and talent, offset by reduced incentive compensation expense.
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
December 31, 2017
, the Company had
$48.9 million
of available cash,
$33.9 million
of additional borrowings available under the revolving credit facility portion of its U.S. credit agreement, and
$12.7 million
available under short-term revolving loan facilities that the Company maintains outside the U.S. As of
December 31, 2017
, available borrowings under its U.S. revolving credit facility were reduced by outstanding letters of credit of
$6.1 million
. Included in the Company’s consolidated cash balance of
$48.9 million
at
December 31, 2017
is cash of
$24.3 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 or advisable 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 will provide sufficient resources to fund ongoing operating requirements as well as future capital expenditures, debt service requirements, and investments in future growth to create value for our shareholders.
As of
December 31, 2016
, the Company had
$40.9 million
of available cash,
$35.0 million
of additional borrowings available under the revolving credit facility portion of its U.S. credit agreement, and
$13.4 million
available under short-term revolving loan facilities that the Company maintains outside the U.S. As of
December 31, 2016
, 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
$40.9 million
at
December 31, 2016
was
$19.0 million
of cash held at Jason’s non-U.S. operations.
Indebtedness
As of
December 31, 2017
, the Company’s total outstanding indebtedness of
$401.5 million
was comprised of aggregate term loans outstanding under its Senior Secured Credit Facilities of
$378.8 million
(net of a debt discount of
$3.6 million
and deferred financing costs of
$5.6 million
), various foreign bank term loans and revolving loan facilities of
$21.8 million
and capital lease obligations of
$0.8 million
. No amounts were outstanding under the revolving credit facility portion of the Senior Secured Credit Facilities as of
December 31, 2017
.
As of
December 31, 2016
, the Company’s total outstanding indebtedness of
$425.1 million
was comprised of aggregate term loans outstanding under its Senior Secured Credit Facilities 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 amounts were outstanding under the revolving credit facility portion of the Senior Secured Credit Facilities as of
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
$21.8 million
as of
December 31, 2017
, including borrowings of
$18.0 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
$18.0 million
at
December 31, 2017
and
$19.3 million
at
December 31, 2016
. The German borrowings bear interest at fixed and variable rates ranging from
2.1%
to
4.7%
and are subject to repayment in varying amounts through 2025.
Senior Secured Credit Facilities
General
. On June 30, 2014 and as subsequently amended, 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 “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 “Second Lien Credit Agreement” and, together with the First Lien Credit Agreement, the “Credit Agreements”).
The First Lien Credit Agreement provides for (i) term loans in an aggregate principal amount of
$310.0 million
(the “First Lien Term Facility” and the loans thereunder the “First Lien Term Loans”), of which
$298.0 million
is outstanding as of
December 31, 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 Second Lien Credit Agreement provides for term loans in
an aggregate principal amount of
$110.0 million
, of which
$90.0 million
is outstanding as of
December 31, 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”).
The First Lien Term Loans mature in 2021, the Revolving Credit Facility matures in 2019, and the Second Lien Term Loans mature in 2022. The principal amount of the First Lien Term Loans amortizes in quarterly installments of
$0.8 million
, 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 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 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%
and (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 (“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 consolidated first lien net leverage ratio.
Interest Rate Hedge Contracts.
To manage exposure to fluctuations in interest rates, the Company entered into forward interest rate swap agreements (“Swaps”) in 2015 with notional values totaling
$210.0 million
at
December 31, 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 year ended
December 31, 2017
, the Company recognized
$1.9 million
of interest expense related to the Swaps. There was
no
interest expense recognized in 2016 and 2015. Based on current interest rates, the Company expects to recognize interest expense of
$0.8 million
related to the Swaps in 2018.
The fair values of the Company’s Swaps are recorded on the consolidated balance sheets with the corresponding offset recorded as a component of accumulated other comprehensive loss. The net fair value of the Swaps was a net asset of
$0.1 million
at
December 31, 2017
and a net liability of
$2.0 million
at
December 31, 2016
, respectively. See the amounts recorded on the consolidated balance sheets within the table below:
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
Interest rate swaps:
|
|
|
|
Recorded in other assets - net
|
$
|
537
|
|
|
$
|
—
|
|
Recorded in other current liabilities
|
$
|
(458
|
)
|
|
$
|
(1,916
|
)
|
Recorded in other long-term liabilities
|
—
|
|
|
(133
|
)
|
Total net asset (liability) derivatives designated as hedging instruments
|
$
|
79
|
|
|
$
|
(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 (as defined in the Credit Agreements) 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, as defined, of Jason Incorporated and its Restricted Subsidiaries. Other than the payment of customary “breakage” costs, Jason Incorporated may voluntarily prepay outstanding loans at any time. Based on the provisions above, at
December 31, 2017
and
December 31, 2016
, a mandatory excess cash flow prepayment of
$2.5 million
and
$1.9 million
, respectively, was included within the current portion of long-term debt in the consolidated balance sheets.
During 2017, the Company repurchased
$20.0 million
of Second Lien Term Loans for
$16.8 million
. In connection with the repurchase, the Company wrote off
$0.4 million
of previously unamortized debt discount and
$0.4 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
$2.4 million
, which has been recorded within the consolidated consolidated statements of operations.
In the fourth quarter of 2017, the Company utilized
$2.4 million
of cash received during the third quarter from the sale of Acoustics Europe to retire foreign debt in Germany and incurred a
$0.2 million
prepayment fee, which was recorded as an offset to the gain on extinguishment of debt.
Covenants
. The Senior Secured Credit Facilities contain a number of customary affirmative and negative covenants that, among other things, 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 of
4.50
to
1.00
. 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
December 31, 2017
the consolidated first lien net leverage ratio was
3.93
to 1.00 on a pro forma trailing twelve-month basis calculated in accordance with the respective provisions of the 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
December 31, 2017
. As of
December 31, 2017
, the Company was in compliance with the financial covenants contained in the 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 Credit Agreements.
Series A Preferred Stock
Holders of the
49,665
shares of Series A Preferred Stock outstanding as of January 1, 2018 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
year ended December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
(in thousands, except share and per share amounts)
|
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
|
July 1, 2017
|
|
May 15, 2017
|
|
$20.00
|
|
$936
|
|
931
|
October 1, 2017
|
|
August 15, 2017
|
|
$20.00
|
|
$955
|
|
952
|
On
November 28, 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
January 1, 2018
to holders of record on
November 15, 2017
. As of
December 31, 2017
, the Company has recorded the
968
additional Series A Preferred Stock shares declared for the dividend of
$1.0 million
within preferred stock in the 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 as a percentage of net sales. NOWC as a percentage of trailing twelve month net sales was
13.7%
as of
December 31, 2017
and
12.8%
as of
December 31, 2016
. The calculation of NOWC as a percentage of sales for
December 31, 2017
excludes
$22.9 million
of trailing twelve month net sales relating to Acoustics Europe, which was sold on August 30, 2017. Set forth below is a table summarizing NOWC as of
December 31, 2017
and
December 31, 2016
.
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2017
|
|
December 31, 2016
|
Accounts receivable—net
|
68,626
|
|
|
77,837
|
|
Inventories
|
70,819
|
|
|
73,601
|
|
Accounts payable
|
(53,668
|
)
|
|
(61,160
|
)
|
NOWC
|
$
|
85,777
|
|
|
$
|
90,278
|
|
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 motor sports, and lawn and garden equipment 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%
-
54%
of 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 (including tax) 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 from the date of filing. 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
year ended December 31, 2017
were
$15.9 million
, or
2.4%
of annual sales, for the year ended
December 31, 2017
. Capital expenditures for 2018 are expected to be approximately
$17 million
. The Company finances its annual capital requirements with funds generated from operations.
Warrant Repurchase
As of
December 31, 2017
, the Company had
13,993,773
warrants outstanding. Each outstanding warrant entitles the registered holder to purchase one share of the Company’s common stock at a price of $
12.00
per share, subject to adjustment, at any time. The warrants will expire on
June 30, 2019
, or earlier upon redemption.
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 years ended
December 31, 2017
and
December 31, 2016
.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2017
,
December 31, 2016
, and
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
(in thousands)
|
|
|
Cash flows provided by operating activities
|
$
|
30,091
|
|
|
$
|
35,117
|
|
|
$
|
39,034
|
|
Cash flows provided by (used in) investing activities
|
715
|
|
|
(16,453
|
)
|
|
(67,564
|
)
|
Cash flows (used in) provided by financing activities
|
(24,278
|
)
|
|
(12,843
|
)
|
|
5,206
|
|
Effect of exchange rate changes on cash and cash equivalents
|
1,498
|
|
|
(904
|
)
|
|
(3,011
|
)
|
Net increase (decrease) in cash and cash equivalents
|
8,026
|
|
|
4,917
|
|
|
(26,335
|
)
|
Cash and cash equivalents, beginning of period
|
40,861
|
|
|
35,944
|
|
|
62,279
|
|
Cash and cash equivalents, end of period
|
$
|
48,887
|
|
|
$
|
40,861
|
|
|
$
|
35,944
|
|
Depreciation and amortization
|
$
|
38,934
|
|
|
$
|
44,041
|
|
|
$
|
45,248
|
|
Capital expenditures
|
$
|
15,873
|
|
|
$
|
19,780
|
|
|
$
|
32,786
|
|
Cash paid during the year for interest
|
$
|
30,242
|
|
|
$
|
28,717
|
|
|
$
|
28,969
|
|
Cash paid during the year for income taxes, net of refunds
|
$
|
6,843
|
|
|
$
|
7,163
|
|
|
$
|
4,349
|
|
Year Ended December 31, 2017
and
Year Ended December 31, 2016
Cash Flows Provided by Operating Activities
For the year ended
December 31, 2017
, cash flows provided by operating activities were
$30.1 million
compared to
$35.1 million
for the year ended
December 31, 2016
, a decrease of
$5.0 million
. Changes in net operating working capital decreased operating cash flow by
$8.8 million
during the year ended
December 31, 2017
, as compared to the year ended
December 31, 2016
, driven primarily by a higher level of cash generated from a reduction in working capital in 2016 as compared to 2017, partially offset by higher income exclusive of non cash items, in 2017. Higher working capital reductions in 2016 resulted from the billing and collection of prepaid customer tooling on new acoustics segment platforms along with higher inventory decreases and accounts payable increases, partially offset by higher accounts receivable reductions and accrued compensation increases in 2017.
Cash Flows Provided by (Used in) Investing Activities
Cash flows provided by investing activities was
$0.7 million
for the year ended
December 31, 2017
compared to cash flows used in investing activities of
$16.5 million
for the year ended
December 31, 2016
. The change in cash flows provided by (used in) investing activities was primarily the result of proceeds on divestitures in 2017 of $7.9 million, lower capital expenditures of $3.9 million and increased proceeds from the sale of property, plant and equipment of
$5.4 million
. The increase in proceeds from the disposal of property, plant and equipment resulted from the building sale executed in connection with the sale leaseback of our Libertyville, Illinois facility and the sale of a building related to the closure of the finishing segment’s Richmond, Virginia facility in 2017.
Cash Flows Used in Financing Activities
Cash flows used in financing activities were
$24.3 million
for the year ended
December 31, 2017
compared with cash flows used in financing activities of
$12.8 million
for the year ended
December 31, 2016
. The increase in cash flows used in financing activities was due to higher payments of
$18.7 million
on First and Second Lien term loans for the buyback of Second Lien debt during 2017 and
$1.6 million
lower proceeds from other long-term debt borrowings. This was offset by lower preferred stock dividend payments of
$3.6 million
due to all dividends in 2017 being paid in additional shares of Series A Preferred Stock and
$5.3 million
lower payments of other long-term debt.
Depreciation and Amortization
Depreciation and amortization totaled
$38.9 million
for the year ended
December 31, 2017
, compared with
$44.0 million
for the year ended
December 31, 2016
. Depreciation and amortization for the year ended
December 31, 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, the wind down of the finishing segment’s facility in Brazil and the August 2017 divestiture of Acoustics Europe, in addition to the impact of lower capital expenditures in 2017 compared to prior periods.
Capital Expenditures
Capital expenditures totaled
$15.9 million
for the year ended
December 31, 2017
, compared with
$19.8 million
for the year ended
December 31, 2016
. The lower capital expenditures are primarily driven by a lower level of project activity in 2017 compared with 2016.
Cash Paid for Interest
Cash paid for interest totaled
$30.2 million
for the year
ended
December 31, 2017
and
$28.7 million
for the year ended
December 31, 2016
. The increase in cash paid for interest for the
year ended December 31, 2017
primarily relates to $1.9 million paid in
2017
related to the Company’s interest rate swaps which were effective December 30, 2016.
Cash Paid for Income Taxes
Cash paid for income taxes net of refunds totaled
$6.8 million
for the year
ended
December 31, 2017
and
$7.2 million
for the year ended
December 31, 2016
.
Year Ended
December 31, 2016
and Year Ended
December 31, 2015
Cash Flows Provided by Operating Activities
Cash flows provided by operating activities totaled
$35.1 million
for the year ended
December 31, 2016
compared to
$39.0 million
for the year ended
December 31, 2015
. The cash flows provided by operating activities were primarily the result of the net loss of
$78.1 million
adjusted for non-cash items of
$31.1 million
related to depreciation,
$12.9 million
related to amortization of intangible assets,
$3.0 million
related to amortization of deferred financing costs and debt discounts,
$63.3 million
of impairment charges, and
$0.9 million
of losses on disposal of property, plant and equipment, as well as
$2.1 million
of cash dividends received from joint ventures. These changes were partially offset by
$0.7 million
in equity income, changes in deferred taxes of
$14.1 million
, and
$0.8 million
of share-based compensation. As compared to net loss adjusted for non-cash items and the dividends received from joint ventures for the year ended
December 31, 2015
, this resulted in decreased cash flows provided by operating activities of
$12.1 million
. Changes in working capital increased operating cash flow by
$15.4 million
for the year ended
December 31, 2016
, compared to
$7.3 million
for the year ended
December 31, 2015
, driven by business levels and working capital reduction actions across business segments.
Cash Flows Used in Investing Activities
Cash flows used in investing activities totaled
$16.5 million
for the year ended
December 31, 2016
compared to
$67.6 million
for the year ended
December 31, 2015
. The decrease in cash flows used in investing activities was primarily the result of the acquisition of DRONCO in 2015 for
$34.4 million
, net of cash acquired, compared with cash proceeds of
$3.4 million
from the sale of property, plant, and equipment (mostly due to sale of a building in the seating segment) in 2016, as well as decreased capital expenditures.
Cash Flows (Used in) Provided by Financing Activities
Cash flows used in financing activities were
$12.8 million
for the year ended
December 31, 2016
compared to cash flows provided by financing activities of
$5.2 million
for the year ended
December 31, 2015
. The change in cash flows was primarily due to increased payments on other long-term debt and lower proceeds from borrowings, as additional debt was acquired in 2015 with the acquisition of DRONCO.
Depreciation and Amortization
Depreciation and amortization totaled
$44.0 million
for the year
ended
December 31, 2016
, compared with
$45.2 million
for the year ended
December 31, 2015
. Depreciation and amortization is slightly lower for the year
ended
December 31, 2016
as a result of lower amortization due to the impairment of certain seating segment intangible assets during the fourth quarter of 2015, partially offset by higher depreciation due to capital expenditures and the acquisition of DRONCO.
Capital Expenditures
Capital expenditures for property, plant, and equipment totaled
$19.8 million
for the year
ended
December 31, 2016
, compared with
$32.8 million
for the year ended
December 31, 2015
. Capital expenditures were lower in 2016 compared with 2015 primarily due to an acoustics manufacturing facility in Richmond, Indiana completed in 2015.
Cash Paid for Interest
Cash paid for interest totaled
$28.7 million
for the year
ended
December 31, 2016
and
$29.0 million
for the year ended
December 31, 2015
.
Cash Paid for Income Taxes
Cash paid for income taxes net of refunds totaled
$7.2 million
for the year
ended
December 31, 2016
and
$4.3 million
for the year ended
December 31, 2015
.
Commitments and Contractual Obligations
The following table presents the Company’s commitments and contractual obligations as of
December 31, 2017
, as well as its long-term obligations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
Total
|
|
2018
|
|
2019-2020
|
|
2021-2022
|
|
Thereafter
|
Long-term debt obligations under U.S. credit agreement
|
|
$
|
388,025
|
|
|
$
|
5,599
|
|
|
$
|
6,200
|
|
|
$
|
376,226
|
|
|
$
|
—
|
|
Other long-term debt obligations
|
|
21,795
|
|
|
3,846
|
|
|
7,175
|
|
|
5,860
|
|
|
4,914
|
|
Interest payments on long-term debt obligations
(1)
|
|
108,343
|
|
|
28,872
|
|
|
56,523
|
|
|
22,787
|
|
|
161
|
|
Capital lease obligations
(2)
|
|
840
|
|
|
259
|
|
|
581
|
|
|
—
|
|
|
—
|
|
Operating lease obligations
(3)
|
|
60,703
|
|
|
10,243
|
|
|
17,447
|
|
|
15,187
|
|
|
17,826
|
|
Purchase obligations
(4)
|
|
786
|
|
|
653
|
|
|
133
|
|
|
—
|
|
|
—
|
|
Multiemployer and UK pension obligations
(5)
|
|
3,325
|
|
|
382
|
|
|
763
|
|
|
763
|
|
|
1,417
|
|
Total before other long-term liabilities
|
|
$
|
583,817
|
|
|
$
|
49,854
|
|
|
$
|
88,822
|
|
|
$
|
420,823
|
|
|
$
|
24,318
|
|
Other long-term liabilities
(6)
|
|
18,960
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
602,777
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amounts represent the expected cash payments of interest expense on all long-term debt obligations and were calculated using interest rates in place as of
December 31, 2017
and assuming that the underlying debt obligations will be repaid in accordance with their terms.
|
|
|
(2)
|
Amounts represent the expected cash payments of capital lease obligations.
|
|
|
(3)
|
Operating leases represent the minimum rental commitments under non-cancelable operating leases.
|
|
|
(4)
|
The Company routinely issues purchase orders to numerous vendors for inventory and other supplies. These purchase orders are generally cancelable with reasonable notice to the vendor, and as such, are excluded from the obligations table.
|
|
|
(5)
|
Represents contributions required with respect to the former Morton multiemployer pension plan as a result of the withdrawal from the plan and required contributions to the pension plan in the UK.
|
|
|
(6)
|
Other long-term liabilities primarily consist of obligations for uncertain tax positions, pension obligations, postretirement health and other benefits, insurance accruals and other accruals. Other than payments required with respect to the former Morton multiemployer pension plan and a pension plan in the UK, the Company is unable to determine the ultimate timing of these liabilities and, therefore, no payment amounts were included in the “payments due by period” portion of the contractual obligations table.
|
Off-Balance Sheet Arrangements
The Company leases certain machinery, transportation equipment and office, warehouse and manufacturing facilities under various operating lease agreements. Under most arrangements, the Company pays the property taxes, insurance, maintenance and expenses related to the leased property. See
Note 10
, “
Leases
”, in the notes to the consolidated financial statements and the “Contractual Obligations” table above for further information.
The Company had outstanding letters of credit totaling
$6.1 million
,
$5.0 million
, and
$4.6 million
as of December 31,
2017
,
2016
and
2015
, respectively, the majority of which secure self-insured workers compensation liabilities.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company evaluates its estimates on an ongoing basis, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The following policies are considered by management to be the most critical in understanding the judgments that are involved in the preparation of our consolidated financial statements and the uncertainties that could impact our results of operations, financial position and cash flows. Application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. Although the Company has listed a number of accounting policies below which it believes to be the most critical, the Company also believes that all of its accounting policies are important to the reader. Therefore, see
Note 1
, “
Summary of Significant Accounting Policies
”, of the accompanying consolidated financial statements of the Company appearing elsewhere in this Annual Report.
Goodwill, Other Intangible Assets and Other Long-Lived Assets:
The Company’s goodwill, other intangible assets and tangible fixed assets are held at historical cost, net of depreciation and amortization, less any provision for impairment. Intangible and tangible assets with determinable lives are amortized or depreciated on a straight line basis over estimated useful lives as follows:
|
|
|
|
Intangible Assets
|
|
|
Goodwill
|
|
No amortization
|
Patents
|
|
Amortized over 7 years
|
Customer relationships
|
|
Amortized over 10 to 15 years
|
Trademarks and other intangible assets
|
|
Amortized over 5 to 18 years
|
|
|
|
Tangible Assets
|
|
|
Land
|
|
No depreciation
|
Buildings and improvements
|
|
Depreciated over 2 to 40 years
|
Machinery and equipment
|
|
Depreciated over 2 to 10 years
|
Goodwill reflects the cost of an acquisition in excess of the aggregate fair value assigned to identifiable net assets acquired. Goodwill is assessed for impairment at least annually and as triggering events or indicators of potential impairment occur. The Company performs its annual impairment test in the fourth quarter of its fiscal year. Goodwill has been assigned to reporting units for purposes of impairment testing based upon the relative fair value of the asset to each reporting unit.
Impairment of goodwill is measured by comparing the fair value of a reporting unit to the carrying value of the reporting unit, including goodwill. The estimated fair value represents the amount at which a reporting unit could be bought or sold in a current transaction between willing parties on an arms-length basis. In estimating the fair value, the Company uses a discounted cash flow model, which is dependent on a number of assumptions including estimated future revenues and expenses, weighted average cost of capital, capital expenditures and other variables. The Company also uses a market approach, in which the fair values of comparable public companies are used in determining an estimated fair value for each reporting unit.
If the carrying amount of the reporting unit exceeds the estimated fair value of the reporting unit, an impairment loss is recognized in an amount equal to that excess, not to exceed the carrying amount of the goodwill.
The Company performed its annual goodwill impairment test in the fourth quarter of 2017 and determined that the fair value of the finishing reporting unit, the only reporting unit with a recorded goodwill balance, exceeded the carrying value of the reporting unit by over
15%
. In connection with the goodwill impairment test, the Company engaged a third-party valuation firm to assist management with determining the fair value estimate for the reporting unit. The fair value of the reporting unit is determined using a weighted average of an income approach primarily based on the Company’s three year strategic plan and a market approach based on implied valuation multiples of public company peer groups for each reporting unit. Both approaches are generally deemed equally relevant in determining reporting unit enterprise value, and as a result, weightings of
50 percent
were used for each. This fair value determination was categorized as Level 3 in the fair value hierarchy.
In connection with obtaining an independent third-party valuation, management provided certain information and assumptions that were utilized in the fair value calculation. Significant assumptions used in determining reporting unit fair value include forecasted cash flows, revenue growth rates, adjusted EBITDA margins, weighted average cost of capital (discount rate), assumed tax treatment of a future sale of the reporting unit, terminal growth rates, capital expenditures, sales and EBITDA multiples used in the market approach, and the weighting of the income and market approaches. A change in any
of these assumptions, individually or in the aggregate, or future financial performance that is below management expectations may result in the carrying value of this reporting unit exceeding its fair value, and goodwill and amortizable intangible assets could be impaired. See
Note 8
, “
Goodwill and Other Intangible Assets
”, of the accompanying consolidated financial statements for further discussion.
The Company also reviews other intangible assets and tangible fixed assets for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. If such indicators are present, the Company performs undiscounted cash flow analyses to determine if an impairment exists. If an impairment is determined to exist, any related impairment loss is calculated based on fair value.
A considerable amount of management judgment and assumptions is required in performing the impairment tests, principally in determining the fair value of each reporting unit and the specifically identifiable intangible and tangible assets. While the Company believes its judgments and assumptions are reasonable, different assumptions could change the estimated fair values and, therefore, additional impairment charges could be required.
Employee Benefit Plans:
The Company provides a range of benefits to employees and certain former employees, including in some cases pensions and postretirement health care, although the majority of these plans are frozen to new participation. The Company recognizes pension and post-retirement benefit income and expense and assets and obligations that are based on actuarial valuations using a December 31 measurement date and that include key assumptions regarding discount rates, expected returns on plan assets, retirement and mortality rates, future compensation increases, and health care cost trend rates. The approach the Company uses to determine the annual assumptions is as follows:
|
|
•
|
Discount Rate:
The Company’s discount rate assumptions are based on the interest rate of high-quality corporate bonds, with appropriate consideration of our plans’ participants’ demographics and benefit payment terms.
|
|
|
•
|
Expected Return on Plan Assets:
The Company’s expected return on plan assets assumptions are based on our expectation of the long-term average rate of return on assets in the pension funds, which is reflective of the current and projected asset mix of the funds and considers the historical returns earned on the funds.
|
|
|
•
|
Compensation Increase:
The Company’s compensation increase assumptions reflect our long-term actual experience, the near-term outlook and assumed inflation.
|
|
|
•
|
Retirement and Mortality Rates:
The Company’s retirement and mortality rate assumptions are based primarily on actual plan experience and mortality tables.
|
|
|
•
|
Health Care Cost Trend Rates:
The Company’s health care cost trend rate assumptions are based primarily on actual plan experience and mortality inflation.
|
The Company reviews actuarial assumptions on an annual basis and makes modifications based on current rates and trends when appropriate. As required by GAAP, the effects of the modifications are recorded currently or amortized over future periods. Based on information provided by independent actuaries and other relevant sources, the Company believes that the assumptions used are reasonable; however, changes in these assumptions could impact our financial position, results of operations or cash flows. See
Note 15
, “
Employee Benefit Plans
”, of the accompanying consolidated financial statements for further discussion.
Income Taxes:
The Company is subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and recording the related deferred tax assets and liabilities. The Company assesses its income tax positions and records tax liabilities for all years subject to examination based upon management’s evaluation of the facts and circumstances and information available at the reporting dates. For those income tax positions where it is more-likely-than-not that a tax benefit will be sustained upon the conclusion of an examination, the Company has recorded the largest amount of tax benefit having a cumulatively greater than 50% likelihood of being realized upon ultimate settlement with the applicable taxing authority assuming that it has full knowledge of all relevant information. For those tax positions that do not meet the more-likely-than-not threshold regarding the ultimate realization of the related tax benefit, no tax benefit has been recorded in the financial statements. The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases, net operating losses, tax credits and other carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance based on historical losses, projected future taxable income and the expected timing of the reversals of existing temporary differences. As a result of this review, the Company has established valuation allowances against certain of our deferred tax assets relating to foreign and state net operating loss and credit carryforwards. Future tax authority rulings and changes in tax laws, changes in projected levels of taxable income and future tax planning strategies could affect the actual effective tax rate and tax balances recorded.
On December 22, 2017, the President of the United States signed into law the Tax Reform Act. The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act also adds many new provisions including changes to bonus depreciation and the deductions for executive compensation and interest expense, among others. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of
35%
to a flat
21%
rate, effective January 1, 2018.
See further discussion of the Tax Reform Act within “Consolidated Results of Operations” above and
Note 14
, “
Income Taxes
”, of the accompanying consolidated financial statements for further discussion.
Use of Estimates:
The Company records reserves or allowances for returns and discounts, doubtful accounts, inventory, incurred but not reported medical claims, environmental matters, warranty claims, workers compensation claims, product and non-product litigation and incentive compensation. These reserves require the use of estimates and judgment. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The Company believes that such estimates are made on a consistent basis and with appropriate assumptions and methods. However, actual results may differ from these estimates.
New Accounting Pronouncements
See
Note 1
, “
Summary of Significant Accounting Policies
,” under the heading “Recently issued accounting standards,” of the accompanying consolidated financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Quarterly Results of Operations (unaudited)
The following tables presenting our quarterly results of operations should be read in conjunction with the consolidated financial statements and related notes included in Item 8 of this Annual Report on Form 10-K. We have prepared the unaudited information on the same basis as our audited consolidated financial statements. Our operating results for any quarter are not necessarily indicative of results for any future quarters or for a full year.
The following table presents our unaudited quarterly results of operations for the eight quarters in fiscal
2017
and fiscal
2016
. This table includes all adjustments, consisting only of normal recurring adjustments, that we consider necessary for fair statement of our consolidated financial position and operating results for the quarters presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q
|
|
2Q
(1)
|
|
3Q
|
|
4Q
|
|
Full Year
|
(in thousands, except percentages)
|
2017
|
|
2017
|
|
2017
|
|
2017
|
|
2017
|
Net sales
|
$
|
175,193
|
|
|
$
|
172,477
|
|
|
$
|
155,430
|
|
|
$
|
145,516
|
|
|
$
|
648,616
|
|
Gross profit
|
34,609
|
|
|
35,644
|
|
|
31,973
|
|
|
28,626
|
|
|
130,852
|
|
Loss on divestiture
|
—
|
|
|
(7,888
|
)
|
|
(842
|
)
|
|
—
|
|
|
(8,730
|
)
|
Net (loss) income
|
(493
|
)
|
|
(4,737
|
)
|
|
(1,601
|
)
|
|
2,358
|
|
|
(4,473
|
)
|
Less net income attributable to noncontrolling interests
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Net (loss) income attributable to Jason Industries
|
(498
|
)
|
|
(4,737
|
)
|
|
(1,601
|
)
|
|
2,358
|
|
|
(4,478
|
)
|
Accretion of preferred stock dividends and redemption premium
|
918
|
|
|
936
|
|
|
955
|
|
|
974
|
|
|
3,783
|
|
Net (loss) income available to common shareholders of Jason Industries
|
$
|
(1,416
|
)
|
|
$
|
(5,673
|
)
|
|
$
|
(2,556
|
)
|
|
$
|
1,384
|
|
|
$
|
(8,261
|
)
|
Net (loss) income per share available to common shareholders of Jason Industries:
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.05
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.32
|
)
|
Diluted
|
(0.05
|
)
|
|
(0.22
|
)
|
|
(0.10
|
)
|
|
0.05
|
|
|
(0.32
|
)
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
25,784
|
|
|
26,042
|
|
|
26,241
|
|
|
26,255
|
|
|
26,082
|
|
Diluted
|
25,784
|
|
|
26,042
|
|
|
26,241
|
|
|
26,785
|
|
|
26,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q
|
|
2Q
|
|
3Q
|
|
4Q
|
|
Full Year
|
(in thousands, except percentages)
|
2016
|
|
2016
|
|
2016
|
|
2016
|
|
2016
|
Net sales
|
$
|
190,974
|
|
|
$
|
185,687
|
|
|
$
|
170,108
|
|
|
$
|
158,750
|
|
|
$
|
705,519
|
|
Gross profit
|
37,791
|
|
|
37,039
|
|
|
30,847
|
|
|
25,430
|
|
|
131,107
|
|
Impairment charges
|
—
|
|
|
—
|
|
|
—
|
|
|
63,285
|
|
|
63,285
|
|
Net loss
|
(3,088
|
)
|
|
(2,454
|
)
|
|
(2,547
|
)
|
|
(69,964
|
)
|
|
(78,053
|
)
|
Less net loss attributable to noncontrolling interests
|
(510
|
)
|
|
(400
|
)
|
|
(415
|
)
|
|
(9,493
|
)
|
|
(10,818
|
)
|
Net loss attributable to Jason Industries
|
(2,578
|
)
|
|
(2,054
|
)
|
|
(2,132
|
)
|
|
(60,471
|
)
|
|
(67,235
|
)
|
Accretion of preferred stock dividends and redemption premium
|
900
|
|
|
900
|
|
|
900
|
|
|
900
|
|
|
3,600
|
|
Net loss available to common shareholders of Jason Industries
|
$
|
(3,478
|
)
|
|
$
|
(2,954
|
)
|
|
$
|
(3,032
|
)
|
|
$
|
(61,371
|
)
|
|
$
|
(70,835
|
)
|
Net loss per share available to common shareholders of Jason Industries:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
$
|
(0.16
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(2.70
|
)
|
|
$
|
(3.15
|
)
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
22,388
|
|
|
22,395
|
|
|
22,499
|
|
|
22,758
|
|
|
22,507
|
|
|
|
(1)
|
The second quarter of 2017 includes revision adjustments for a $1.2 million error in the loss on divestiture related to the calculation of the write down of the Company’s Acoustics European operations and a $0.1 million error for the understatement of depreciation expense for the second quarter ended June 30, 2017. The adjustments decreased gross profit by $0.1 million, increased the loss on divestiture by $1.2 million and increased the net loss, net loss attributable to Jason Industries and net loss available to common shareholders of Jason Industries by $1.3 million. See
Note 2
, “
Revision of Previously Reported Financial Information
”.
|
|
|
|
|
Index to Consolidated Financial Statements
|
|
|
As of December 31, 2017 and 2016, for the years ended December 31, 2017, December 31, 2016, and December 31, 2015
|
|
Page
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index to Financial Statement Schedules
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Jason Industries, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Jason Industries, Inc. and its subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2017, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2017
and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017
in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Milwaukee, WI
March 1, 2018
We have served as the Company or its predecessors’ auditor since 1985.
Jason Industries, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
|
|
Net sales
|
$
|
648,616
|
|
|
$
|
705,519
|
|
|
$
|
708,366
|
|
Cost of goods sold
|
517,764
|
|
|
574,412
|
|
|
561,076
|
|
Gross profit
|
130,852
|
|
|
131,107
|
|
|
147,290
|
|
Selling and administrative expenses
|
103,855
|
|
|
113,797
|
|
|
129,371
|
|
Impairment charges
|
—
|
|
|
63,285
|
|
|
94,126
|
|
(Gain) loss on disposals of property, plant and equipment - net
|
(759
|
)
|
|
880
|
|
|
109
|
|
Restructuring
|
4,266
|
|
|
7,232
|
|
|
3,800
|
|
Transaction-related expenses
|
—
|
|
|
—
|
|
|
886
|
|
Operating income (loss)
|
23,490
|
|
|
(54,087
|
)
|
|
(81,002
|
)
|
Interest expense
|
(33,089
|
)
|
|
(31,843
|
)
|
|
(31,835
|
)
|
Gain on extinguishment of debt
|
2,201
|
|
|
—
|
|
|
—
|
|
Equity income
|
952
|
|
|
681
|
|
|
884
|
|
Loss on divestiture
|
(8,730
|
)
|
|
—
|
|
|
—
|
|
Other income - net
|
319
|
|
|
900
|
|
|
97
|
|
Loss before income taxes
|
(14,857
|
)
|
|
(84,349
|
)
|
|
(111,856
|
)
|
Tax benefit
|
(10,384
|
)
|
|
(6,296
|
)
|
|
(22,255
|
)
|
Net loss
|
$
|
(4,473
|
)
|
|
$
|
(78,053
|
)
|
|
$
|
(89,601
|
)
|
Less net gain (loss) attributable to noncontrolling interests
|
5
|
|
|
(10,818
|
)
|
|
(15,143
|
)
|
Net loss attributable to Jason Industries
|
$
|
(4,478
|
)
|
|
$
|
(67,235
|
)
|
|
$
|
(74,458
|
)
|
Accretion of preferred stock dividends and redemption premium
|
3,783
|
|
|
3,600
|
|
|
3,600
|
|
Net loss available to common shareholders of Jason Industries
|
$
|
(8,261
|
)
|
|
$
|
(70,835
|
)
|
|
$
|
(78,058
|
)
|
|
|
|
|
|
|
Net loss per share available to common shareholders of Jason Industries:
|
|
|
|
|
|
Basic and diluted
|
$
|
(0.32
|
)
|
|
$
|
(3.15
|
)
|
|
$
|
(3.53
|
)
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
Basic and diluted
|
26,082
|
|
|
22,507
|
|
|
22,145
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Jason Industries, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
|
|
Net loss
|
$
|
(4,473
|
)
|
|
$
|
(78,053
|
)
|
|
$
|
(89,601
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
Employee retirement plan adjustments, net of tax expense (benefit) of $73, ($95), and $18, respectively
|
373
|
|
|
(624
|
)
|
|
461
|
|
Foreign currency translation adjustments
|
10,542
|
|
|
(4,787
|
)
|
|
(11,560
|
)
|
Net change in unrealized gains (losses) on cash flow hedges, net of tax expense (benefit) of $814, ($659), and ($126), respectively
|
1,317
|
|
|
(1,064
|
)
|
|
(202
|
)
|
Total other comprehensive income (loss)
|
12,232
|
|
|
(6,475
|
)
|
|
(11,301
|
)
|
Comprehensive income (loss)
|
7,759
|
|
|
(84,528
|
)
|
|
(100,902
|
)
|
Less: Comprehensive income (loss) attributable to noncontrolling interests
|
43
|
|
|
(11,870
|
)
|
|
(17,053
|
)
|
Comprehensive income (loss) attributable to Jason Industries
|
$
|
7,716
|
|
|
$
|
(72,658
|
)
|
|
$
|
(83,849
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
Jason Industries, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
Assets
|
|
|
|
Current assets
|
|
|
|
Cash and cash equivalents
|
$
|
48,887
|
|
|
$
|
40,861
|
|
Accounts receivable - net of allowances for doubtful accounts of $2,959 and $3,392 at 2017 and 2016, respectively
|
68,626
|
|
|
77,837
|
|
Inventories - net
|
70,819
|
|
|
73,601
|
|
Other current assets
|
15,655
|
|
|
17,866
|
|
Total current assets
|
203,987
|
|
|
210,165
|
|
Property, plant and equipment - net
|
154,196
|
|
|
177,823
|
|
Goodwill
|
45,142
|
|
|
42,157
|
|
Other intangible assets - net
|
131,499
|
|
|
144,258
|
|
Other assets - net
|
11,499
|
|
|
9,433
|
|
Total assets
|
$
|
546,323
|
|
|
$
|
583,836
|
|
Liabilities and Shareholders' Equity (Deficit)
|
|
|
|
Current liabilities
|
|
|
|
Current portion of long-term debt
|
$
|
9,704
|
|
|
$
|
8,179
|
|
Accounts payable
|
53,668
|
|
|
61,160
|
|
Accrued compensation and employee benefits
|
17,433
|
|
|
13,207
|
|
Accrued interest
|
276
|
|
|
191
|
|
Other current liabilities
|
19,806
|
|
|
24,807
|
|
Total current liabilities
|
100,887
|
|
|
107,544
|
|
Long-term debt
|
391,768
|
|
|
416,945
|
|
Deferred income taxes
|
25,699
|
|
|
42,608
|
|
Other long-term liabilities
|
22,285
|
|
|
19,881
|
|
Total liabilities
|
540,639
|
|
|
586,978
|
|
Commitments and Contingencies (Note 17)
|
|
|
|
Shareholders' Equity (Deficit)
|
|
|
|
Preferred stock, $0.0001 par value (5,000,000 shares authorized, 49,665 shares issued and outstanding at December 31, 2017, including 968 shares declared on November 28, 2017 and issued on January 1, 2018, 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)
|
$
|
49,665
|
|
|
$
|
45,899
|
|
Jason Industries common stock, $0.0001 par value (120,000,000 shares authorized, 25,966,381 shares issued and outstanding at December 31, 2017 and 24,802,196 shares issued and outstanding at December 31, 2016)
|
3
|
|
|
2
|
|
Additional paid-in capital
|
143,788
|
|
|
144,666
|
|
Retained deficit
|
(167,710
|
)
|
|
(163,232
|
)
|
Accumulated other comprehensive loss
|
(20,062
|
)
|
|
(30,372
|
)
|
Shareholders' equity (deficit) attributable to Jason Industries
|
5,684
|
|
|
(3,037
|
)
|
Noncontrolling interests
|
—
|
|
|
(105
|
)
|
Total shareholders' equity (deficit)
|
5,684
|
|
|
(3,142
|
)
|
Total liabilities and shareholders' equity (deficit)
|
$
|
546,323
|
|
|
$
|
583,836
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Jason Industries, Inc.
Consolidated Statements of Shareholders’ Equity (Deficit)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
Balance at December 31, 2014
|
45
|
|
|
$
|
45,000
|
|
|
21,991
|
|
|
$
|
2
|
|
|
$
|
140,312
|
|
|
$
|
(21,539
|
)
|
|
$
|
(12,065
|
)
|
|
$
|
151,710
|
|
|
$
|
30,965
|
|
|
$
|
182,675
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,600
|
)
|
|
—
|
|
|
—
|
|
|
(3,600
|
)
|
|
—
|
|
|
(3,600
|
)
|
Share-based compensation
|
—
|
|
|
—
|
|
|
515
|
|
|
—
|
|
|
7,969
|
|
|
—
|
|
|
—
|
|
|
7,969
|
|
|
—
|
|
|
7,969
|
|
Tax withholding related to vesting of restricted stock units
|
—
|
|
|
—
|
|
|
(211
|
)
|
|
—
|
|
|
(1,148
|
)
|
|
—
|
|
|
—
|
|
|
(1,148
|
)
|
|
—
|
|
|
(1,148
|
)
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(74,458
|
)
|
|
—
|
|
|
(74,458
|
)
|
|
(15,143
|
)
|
|
(89,601
|
)
|
Employee retirement plan adjustments, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
383
|
|
|
383
|
|
|
78
|
|
|
461
|
|
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,606
|
)
|
|
(9,606
|
)
|
|
(1,954
|
)
|
|
(11,560
|
)
|
Net changes in unrealized losses on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
(168
|
)
|
|
(168
|
)
|
|
(34
|
)
|
|
(202
|
)
|
Balance at December 31, 2015
|
45
|
|
|
45,000
|
|
|
22,295
|
|
|
2
|
|
|
143,533
|
|
|
(95,997
|
)
|
|
(21,456
|
)
|
|
71,082
|
|
|
13,912
|
|
|
84,994
|
|
Dividends declared
|
1
|
|
|
899
|
|
|
—
|
|
|
—
|
|
|
(3,600
|
)
|
|
—
|
|
|
—
|
|
|
(2,701
|
)
|
|
—
|
|
|
(2,701
|
)
|
Share-based compensation
|
—
|
|
|
—
|
|
|
149
|
|
|
—
|
|
|
(752
|
)
|
|
—
|
|
|
—
|
|
|
(752
|
)
|
|
—
|
|
|
(752
|
)
|
Tax withholding related to vesting of restricted stock units
|
—
|
|
|
—
|
|
|
(44
|
)
|
|
—
|
|
|
(155
|
)
|
|
—
|
|
|
—
|
|
|
(155
|
)
|
|
—
|
|
|
(155
|
)
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(67,235
|
)
|
|
|
|
(67,235
|
)
|
|
(10,818
|
)
|
|
(78,053
|
)
|
Employee retirement plan adjustments, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(540
|
)
|
|
(540
|
)
|
|
(84
|
)
|
|
(624
|
)
|
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,013
|
)
|
|
(4,013
|
)
|
|
(774
|
)
|
|
(4,787
|
)
|
Net changes in unrealized losses on cash flow hedges, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(870
|
)
|
|
(870
|
)
|
|
(194
|
)
|
|
(1,064
|
)
|
Exchange of common stock of JPHI Holdings, Inc. for common stock of Jason Industries, Inc.
|
|
|
|
|
2,402
|
|
|
|
|
5,640
|
|
|
|
|
(3,493
|
)
|
|
2,147
|
|
|
(2,147
|
)
|
|
—
|
|
Balance at December 31, 2016
|
46
|
|
|
45,899
|
|
|
24,802
|
|
|
2
|
|
|
144,666
|
|
|
(163,232
|
)
|
|
(30,372
|
)
|
|
(3,037
|
)
|
|
(105
|
)
|
—
|
|
(3,142
|
)
|
Dividends declared
|
4
|
|
|
3,766
|
|
|
—
|
|
|
—
|
|
|
(3,783
|
)
|
|
—
|
|
|
—
|
|
|
(17
|
)
|
|
—
|
|
|
(17
|
)
|
Share-based compensation
|
—
|
|
|
—
|
|
|
106
|
|
|
—
|
|
|
1,119
|
|
|
—
|
|
|
—
|
|
|
1,119
|
|
|
—
|
|
|
1,119
|
|
Tax withholding related to vesting of restricted stock units
|
—
|
|
|
—
|
|
|
(26
|
)
|
|
—
|
|
|
(35
|
)
|
|
—
|
|
|
—
|
|
|
(35
|
)
|
|
—
|
|
|
(35
|
)
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,478
|
)
|
|
—
|
|
|
(4,478
|
)
|
|
5
|
|
|
(4,473
|
)
|
Employee retirement plan adjustments, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
373
|
|
|
373
|
|
|
—
|
|
|
373
|
|
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,506
|
|
|
10,506
|
|
|
36
|
|
|
10,542
|
|
Net changes in unrealized gains on cash flow hedges, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,315
|
|
|
1,315
|
|
|
2
|
|
|
1,317
|
|
Exchange of common stock of JPHI Holdings, Inc. for common stock of Jason Industries, Inc.
|
—
|
|
|
—
|
|
|
1,084
|
|
|
1
|
|
|
1,821
|
|
|
—
|
|
|
(1,884
|
)
|
|
(62
|
)
|
|
62
|
|
|
—
|
|
Balance at December 31, 2017
|
50
|
|
|
$
|
49,665
|
|
|
25,966
|
|
|
$
|
3
|
|
|
$
|
143,788
|
|
|
$
|
(167,710
|
)
|
|
$
|
(20,062
|
)
|
|
$
|
5,684
|
|
|
$
|
—
|
|
|
$
|
5,684
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Jason Industries, Inc.
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
Net loss
|
$
|
(4,473
|
)
|
|
$
|
(78,053
|
)
|
|
$
|
(89,601
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation
|
26,260
|
|
|
31,120
|
|
|
31,160
|
|
Amortization of intangible assets
|
12,674
|
|
|
12,921
|
|
|
14,088
|
|
Amortization of deferred financing costs and debt discount
|
2,943
|
|
|
3,008
|
|
|
3,008
|
|
Impairment charges
|
—
|
|
|
63,285
|
|
|
94,126
|
|
Equity income
|
(952
|
)
|
|
(681
|
)
|
|
(884
|
)
|
Deferred income taxes
|
(17,345
|
)
|
|
(14,112
|
)
|
|
(28,223
|
)
|
(Gain) loss on disposals of property, plant and equipment - net
|
(759
|
)
|
|
880
|
|
|
109
|
|
Gain on extinguishment of debt
|
(2,201
|
)
|
|
—
|
|
|
—
|
|
Loss on divestiture
|
8,730
|
|
|
—
|
|
|
—
|
|
Transaction fees on divestiture
|
(932
|
)
|
|
—
|
|
|
—
|
|
Dividends from joint ventures
|
—
|
|
|
2,068
|
|
|
—
|
|
Share-based compensation
|
1,119
|
|
|
(752
|
)
|
|
7,969
|
|
Net increase (decrease) in cash due to changes in:
|
|
|
|
|
|
Accounts receivable
|
6,997
|
|
|
(85
|
)
|
|
1,954
|
|
Inventories
|
3,804
|
|
|
5,862
|
|
|
5,034
|
|
Other current assets
|
1,464
|
|
|
7,346
|
|
|
(3,820
|
)
|
Accounts payable
|
(7,897
|
)
|
|
5,886
|
|
|
(1,473
|
)
|
Accrued compensation and employee benefits
|
5,946
|
|
|
(5,449
|
)
|
|
4,169
|
|
Accrued interest
|
98
|
|
|
117
|
|
|
(121
|
)
|
Accrued income taxes
|
473
|
|
|
2,263
|
|
|
487
|
|
Other - net
|
(5,858
|
)
|
|
(507
|
)
|
|
1,052
|
|
Total adjustments
|
34,564
|
|
|
113,170
|
|
|
128,635
|
|
Net cash provided by operating activities
|
30,091
|
|
|
35,117
|
|
|
39,034
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
Proceeds from disposals of property, plant and equipment
|
8,809
|
|
|
3,413
|
|
|
232
|
|
Payments for property, plant and equipment
|
(15,873
|
)
|
|
(19,780
|
)
|
|
(32,786
|
)
|
Proceeds from divestitures, net of cash divested and debt assumed by buyer
|
7,883
|
|
|
—
|
|
|
—
|
|
Acquisitions of business, net of cash acquired
|
—
|
|
|
—
|
|
|
(34,763
|
)
|
Acquisitions of patents
|
(104
|
)
|
|
(86
|
)
|
|
(247
|
)
|
Net cash provided by (used in) investing activities
|
715
|
|
|
(16,453
|
)
|
|
(67,564
|
)
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
Payments of First and Second Lien term loans
|
(21,826
|
)
|
|
(3,100
|
)
|
|
(3,100
|
)
|
Proceeds from other long-term debt
|
8,596
|
|
|
10,150
|
|
|
19,282
|
|
Payments of other long-term debt
|
(10,816
|
)
|
|
(16,138
|
)
|
|
(6,228
|
)
|
Payments of preferred stock dividends
|
(12
|
)
|
|
(3,600
|
)
|
|
(3,600
|
)
|
Other financing activities - net
|
(220
|
)
|
|
(155
|
)
|
|
(1,148
|
)
|
Net cash (used in) provided by financing activities
|
(24,278
|
)
|
|
(12,843
|
)
|
|
5,206
|
|
Effect of exchange rate changes on cash and cash equivalents
|
1,498
|
|
|
(904
|
)
|
|
(3,011
|
)
|
Net increase (decrease) in cash and cash equivalents
|
8,026
|
|
|
4,917
|
|
|
(26,335
|
)
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
40,861
|
|
|
35,944
|
|
|
62,279
|
|
Cash and cash equivalents, end of period
|
$
|
48,887
|
|
|
$
|
40,861
|
|
|
$
|
35,944
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
Interest
|
$
|
30,242
|
|
|
$
|
28,717
|
|
|
$
|
28,969
|
|
Income taxes, net of refunds
|
$
|
6,843
|
|
|
$
|
7,163
|
|
|
$
|
4,349
|
|
Non-cash investing activities
|
|
|
|
|
|
Property, plant and equipment acquired through additional liabilities
|
$
|
1,179
|
|
|
$
|
1,891
|
|
|
$
|
1,765
|
|
Non-cash financing activities:
|
|
|
|
|
|
Accretion of preferred stock dividends
|
$
|
6
|
|
|
$
|
1
|
|
|
$
|
900
|
|
Non-cash preferred stock created from dividends declared
|
$
|
3,766
|
|
|
$
|
899
|
|
|
$
|
—
|
|
Exchange of common stock of JPHI Holdings, Inc. for common stock of Jason Industries, Inc.
|
$
|
62
|
|
|
$
|
(2,147
|
)
|
|
$
|
—
|
|
Buyer assumption of debt from divestiture
|
$
|
2,950
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
|
|
|
1.
|
Summary of Significant Accounting Policies
|
Description of business:
Jason Industries, Inc. and 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 Company’s finishing segment focuses on the production of industrial brushes, polishing buffs and 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.
The Company was originally incorporated in Delaware on May 31, 2013 and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination. On June 30, 2014, the Company consummated its business combination with Jason Partners Holdings Inc. (“Jason”) pursuant to the stock purchase agreement, dated as of March 16, 2014, which provided for the acquisition of all of the capital stock of Jason by the Company (the “Business Combination”).
Basis of presentation:
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 and ends 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 were comprised of the three months ended
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
.
Principles of consolidation:
The consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission. The consolidated financial statements include the accounts of all wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. Investments in partially owned affiliates are accounted for using the equity method when the Company’s interest is between 20% and 50% and the Company does not have a controlling interest, yet maintains significant influence.
Cash and cash equivalents:
The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. At
December 31, 2017
and
2016
, book overdrafts of approximately
$4.7 million
and
$5.5 million
, respectively, are included in accounts payable within the accompanying consolidated balance sheets. These amounts are held in accounts in which the Company has no right of offset with other cash balances.
Accounts receivable:
The Company evaluates collectability of its receivables and establishes the allowance for doubtful accounts based on a combination of specific customer circumstances and historical write-off experience. Credit is extended to customers based upon an evaluation of their financial position. Generally, advance payment is not required. Credit losses are provided for in the consolidated financial statements and consistently have been within management’s expectations.
Inventories:
Inventories are comprised of material, direct labor and manufacturing overhead, and are valued at the lower of cost or net realizable value and adjusted for the value of inventory that is estimated to be excess, obsolete or otherwise unmarketable. The estimation of excess, obsolete and unmarketable inventory is based on a variety of factors, including material or product age, estimated usage and estimated market demand. The first-in, first-out (“FIFO”) method is used to determine cost for all of the Company’s inventories.
Property, plant and equipment:
Property, plant and equipment are stated at cost. Depreciation generally occurs using the straight-line method over
2
to
40
years for buildings and improvements and
2
to
10
years for machinery and equipment.
Leasehold improvements are amortized over the lesser of the term of the respective leases and the useful life of the related improvement using the straight-line method. The Company uses accelerated depreciation methods for income tax purposes. Expenditures which substantially increase value or extend useful lives are capitalized. Expenditures for maintenance and repairs are charged to operations as incurred. The Company records gains and losses on the disposition or retirement of property, plant and equipment based on the net book value and any proceeds received.
Long-lived assets:
Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable based upon an estimate of the related future
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
undiscounted cash flows. When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset as compared to its carrying value. Long-lived assets to be disposed of by sale are reported at the lower of carrying amount or fair value less cost to sell. The Company conducts its long-lived asset impairment reviews at the lowest level in which identifiable cash flows are largely independent of cash flows of other assets and liabilities.
Amortization is recorded for other intangible assets with determinable lives. Patents, customer relationships, and trademarks and other intangible assets are amortized on a straight-line basis over their estimated useful lives of
7
years,
10
to
15
years, and
5
to
18
years, respectively.
Goodwill:
Goodwill reflects the cost of an acquisition in excess of the aggregate fair value assigned to identifiable net assets acquired. Goodwill is assessed for impairment at least annually and as triggering events or indicators of potential impairment occur. The Company performs its annual impairment test in the fourth quarter of its fiscal year. Goodwill has been assigned to reporting units for purposes of impairment testing based upon the relative fair value of the asset to each reporting unit.
Impairment of goodwill is measured by comparing the fair value of a reporting unit to the carrying value of the reporting unit, including goodwill. The estimated fair value represents the amount at which a reporting unit could be bought or sold in a current transaction between willing parties on an arms-length basis. In estimating the fair value, the Company uses a discounted cash flow model, which is dependent on a number of assumptions including estimated future revenues and expenses, weighted average cost of capital, capital expenditures and other variables. The Company also uses a market approach, in which the fair values of comparable public companies are used in determining an estimated fair value for each reporting unit.
If the carrying amount of the reporting unit exceeds the estimated fair value of the reporting unit, an impairment loss is recognized in an amount equal to that excess, not to exceed the carrying amount of the goodwill. The Company is subject to financial statement risk in the event that goodwill becomes impaired. See
Note 8
, “
Goodwill and Other Intangible Assets
” for further discussion regarding the results of the Company’s goodwill impairment testing.
Investments in partially-owned affiliates:
The Company has investments in joint ventures located in Asia. These joint ventures are part of the finishing segment and are accounted for using the equity method of accounting. As of
December 31, 2017
and
2016
, the Company’s investment in these joint ventures was
$6.1 million
and
$4.8 million
, respectively, and is included in other assets-net in the consolidated balance sheets. Equity income is presented separately on the consolidated statements of operations.
Income taxes:
The provision for income taxes includes federal, state, local and foreign taxes on income. Deferred taxes are recorded for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities, and net operating loss and credit carryforwards available to offset future taxable income. Future tax benefits are recognized to the extent that realization of those benefits is considered to be more likely than not. A valuation allowance is provided for net deferred tax assets when it is more likely than not that the Company will not realize the benefit of such net assets. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.
Share-based payments:
The Company recognizes expense related to share-based payment transactions in which it receives employee services in exchange for equity instruments of the Company that may be settled by the issuance of such equity instruments. Share-based compensation cost for restricted stock units (“RSUs”) is measured based on the closing fair market value of the Company’s common stock on the date of grant. The Company recognizes share-based compensation cost over the award’s requisite service period on a straight-line basis for time-based RSUs and on a graded basis for RSUs that are contingent on the achievement of performance conditions. Forfeitures are recognized within compensation expense in the period the forfeitures are incurred. The Company recognizes a tax (provision)/benefit from share-based compensation (income)/expense in the consolidated statements of operations in the period the share-based compensation (income)/expense is incurred. See
Note 12
, “
Share Based Compensation
” for further information regarding share-based compensation.
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.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
|
|
•
|
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 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
$398.4 million
and
$365.8 million
as of
December 31, 2017
and
2016
, respectively. 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. See
Note 9
, “
Debt and Hedging Instruments
” for further information regarding derivatives held by the Company.
Employee Benefit Plans:
The Company recognizes pension and post-retirement benefit income and expense and assets and obligations that are based on actuarial valuations using a December 31 measurement date and that include key assumptions regarding discount rates, expected returns on plan assets, retirement and mortality rates, future compensation increases, and health care cost trend rates. The Company reviews actuarial assumptions on an annual basis and makes modifications based on current rates and trends when appropriate. As required by GAAP, the effects of the modifications are recorded currently or amortized over future periods.
Derivative financial instruments:
The Company recognizes all derivative financial instruments in the consolidated financial statements at fair value regardless of the purpose or intent for holding the instrument. Changes in the fair value of derivative financial instruments are either recognized periodically in income or in equity as a component of comprehensive income (loss) depending on whether the derivative financial instrument qualifies for hedge accounting, and if so, whether it qualifies as a fair value hedge or cash flow hedge. Generally, changes in fair values of derivatives accounted for as fair value hedges are recorded in income along with the portions of the changes in the fair values of the hedged items that relate to the hedged risks. Changes in fair values of derivatives accounted for as cash flow hedges, to the extent they are effective as hedges, are recorded in other comprehensive income (loss), net of deferred income taxes. Changes in fair value of derivatives not qualifying as hedges are reported in income. Cash flows from derivatives that are accounted for as cash flow or fair value hedges are included in the consolidated statements of cash flows in the same category as the item being hedged. The Company’s policy is to enter into derivatives with creditworthy institutions and not to enter into such derivatives for speculative purposes. See
Note 9
, “
Debt and Hedging Instruments
” for further information regarding derivatives held by the Company.
Foreign currency translation:
Assets and liabilities of the Company’s foreign subsidiaries, whose respective functional currencies are other than the U.S. dollar, are translated at year-end exchange rates while revenues and expenses are translated at average exchange rates. Resultant gains and losses are reflected within accumulated other comprehensive loss within the accompanying consolidated statements of shareholders’ equity (deficit).
Other comprehensive income (loss):
Other comprehensive income (loss) includes disclosure of financial information that historically has not been recognized in the calculation of net income. The Company’s other comprehensive income (loss) includes the change in unrecognized prior service costs on pension and other postretirement obligations, foreign currency translation, and fair value adjustments related to derivative instruments.
Pre-production costs related to long-term supply arrangements:
The Company’s policy for engineering, research and development, and other design and development costs related to products that will be sold under long-term supply arrangements requires such costs to be expensed as incurred. Costs for molds, dies, and other tools used to manufacture products that will be sold under long-term supply arrangements are capitalized if the Company has title to the assets or when customer reimbursement is assured.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Product warranties:
The Company offers warranties on the sales of certain of its products and records accruals for estimated future claims. Such accruals are established based on an evaluation of historical warranty experience and management’s estimate of the level of future claims.
Revenue recognition:
Revenue is recognized from product sales at the time that title and risks and rewards of ownership are transferred to the customer, generally upon shipment. The Company records allowances for discounts, rebates, and product returns at the time of sale as a reduction of revenue as such allowances can be reliably estimated based on historical experience and known trends.
Shipping and handling fees and costs:
The Company classifies all amounts invoiced to customers related to shipping and handling as sales. Expenses for transportation of products to customers are recorded as a component of cost of goods sold.
Research and development costs:
Research and development costs consist of engineering and development resources and are expensed as incurred. Such costs incurred in the development of new products or significant improvements to existing products were
$3.6 million
in the
year ended December 31, 2017
,
$4.2 million
in the
year ended December 31, 2016
, and
$5.0 million
in the
year ended December 31, 2015
.
Advertising costs:
Advertising costs are charged to selling and administrative expenses as incurred and were
$1.8 million
in the
year ended December 31, 2017
,
$1.9 million
in the
year ended December 31, 2016
, and
$2.7 million
in the
year ended December 31, 2015
.
Transaction-related expenses:
The Company recognized
no
transaction-related expenses in the years ended
December 31, 2017
and
2016
and
$0.9 million
in the
year ended December 31, 2015
related to the acquisition of DRONCO. The transaction-related expenses were recognized as incurred in accordance with the applicable accounting guidance.
Use of estimates:
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentration risks:
The Company’s operations are geographically dispersed and it has a diverse customer base. Management believes bad debt losses resulting from default by a single customer, or defaults by customers in any depressed region or business sector, would not have a material effect on the Company’s financial position, results of operations or cash flows.
During the years ended
December 31, 2017
,
2016
, and
2015
the Company had
no
individual customers at or above
10%
of consolidated net sales. At
December 31, 2017
, one customer accounted for greater than
10%
of the Company’s consolidated accounts receivable balance; this customer accounted for
13%
of the consolidated balance and is served by the acoustics segment. At December 31,
2016
, two customers accounted for greater than
10%
of the Company’s consolidated accounts receivable balance; these customers each accounted for
12%
of the consolidated balance and both customers are served by the acoustics segment.
Revision of previously reported financial information:
Certain prior period amounts within the consolidated statements of operations, consolidated statements of comprehensive income (loss), consolidated balance sheets, consolidated statements of shareholders’ equity (deficit) and operating activities in the consolidated statements of cash flows have been revised for an error identified in the third quarter of 2017. See
Note 2
, “
Revision of Previously Reported Financial Information
” for further information regarding the revision of previously reported financial information.
Recently issued accounting standards
Accounting standards adopted in the current fiscal year
In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-11, “
Simplifying the Measurement of Inventory
” (“ASU 2015-11”). Under ASU 2015-11, inventory is measured at the “lower of cost and net realizable value” and options that formerly existed for “market value” were eliminated. ASU 2015-11 defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” No other changes were made to the current guidance on inventory measurement. The Company adopted ASU 2015-11 effective January 1, 2017 on a prospective basis. There was an insignificant impact to the reported consolidated financial statements for the
year ended December 31, 2017
as a result of adoption of this standard.
In August 2016, the FASB issued ASU 2016-15, “
Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments
” (“ASU 2016-15”)
,
which provides guidance on eight specific cash flow classification issues. ASU 2016-15 is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted. The
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Company has adopted this standard for the
year ended December 31, 2017
and has determined that there was no impact to the consolidated statement of cash flows related to any previously reported period as a result of this adoption.
In November 2016, the FASB issued ASU 2016-18 "
Statement of Cash Flows (Topic 320): Restricted Cash
" ("ASU 2016-18"), which clarifies guidance on the classification and presentation of restricted cash in the statement of cash flows. The guidance is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. This new guidance requires a retrospective adoption approach. For comparative purposes in the third quarter of 2018, ASU 2016-18 will require the inclusion of
$2.4 million
of restricted cash recorded within other assets-net on the consolidated balances sheets at September 29, 2017 to be included as part of total cash and cash equivalents within the consolidated statements of cash flows instead of recording the restricted cash as an investing cash outflow. The Company has adopted this standard effective for the
year ended December 31, 2017
and other than the third quarter of 2017, has determined that this standard will have no impact on its consolidated financial statements.
In January 2017, the FASB issued 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 consolidated financial statements for the
year ended December 31, 2017
, as no interim triggering events or indicators of potential impairment were identified. The Company performed its annual goodwill impairment test as of September 30, 2017 and concluded that there was no impairment.
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 consolidated financial statements for the
year ended December 31, 2017
.
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 Company will adopt this standard using modified retrospective transition method effective January 1, 2018, and does not expect the adoption to have a material impact on the financial statements. The Company has assessed the impact of the guidance across all of our revenue streams by 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. There were two key focus areas during the assessment process. There are certain production parts in our finishing and seating segments that are highly customized with no alternative use and for which the Company has an enforceable right to payment with a reasonable margin under the terms of the contract
for which we will recognize revenue over time as parts are manufactured. Additionally, the Company has concluded that contracts that provide for future product discounts do not represent a material right under the new guidance as the agreed upon price is representative of the stand-alone market price, and thus will not impact revenue recognition upon adoption of the standard. The Company will recognize the cumulative effect of adoption as an adjustment to opening retained earnings at the date of initial application and does not anticipate the cumulative adjustment will be material.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
In January 2016, the FASB issued ASU 2016-01, “
Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
”. 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 intends to adopt this standard at the beginning of its 2018 fiscal year and has determined that this standard will not have a significant impact 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 intends to adopt this standard at the beginning of its 2018 fiscal year and has determined that this standard will not have a significant impact on its consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, “
Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
” (“ASU 2017-07”). This standard requires the presentation of the service cost component of net periodic pension and postretirement benefit costs (“Pension Costs”) within operations and all other components of Pension Costs outside of income from operations within the Company’s consolidated statements of operations. In addition, only the service cost component of Pension Costs will be allowed for capitalization as an asset within the Company’s consolidated balance sheets. ASU 2017-07 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. The standard is required to be applied on a retrospective basis for the presentation of the service cost component and the other components of Pension Costs and on a prospective basis for the capitalization of the service cost component of Pension Costs. The Company intends to adopt this standard at the beginning of its 2018 fiscal year and has determined that this standard will not have a significant impact on its consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12,
“
Derivatives and Hedging (Topic 815): Targeted Improvements for Hedging Activities
” (“ASU 2017-12”). ASU 2017-12 broadens the scope of financial and nonfinancial strategies eligible for hedge accounting and makes certain targeted improvements to simplify the application of hedge accounting guidance. In addition, the standard amends the presentation and disclosure requirements for hedges and is intended to more closely align the hedge accounting guidance with a company’s risk management strategies. The standard is effective for interim and annual reporting periods beginning after December 15, 2018; however, early adoption is permitted. The Company is currently assessing the impact that this standard will have on its consolidated financial statements, as well as the planned timing of adoption.
|
|
|
2.
|
Revision of Previously Reported Financial Information
|
During the third quarter of 2017, the Company identified an error in the cost of goods sold presented in the consolidated financial statements impacting the year ended December 31, 2016. The error resulted in the understatement of recorded depreciation expense of
$0.5 million
in the year ended December 31, 2016.
While the impact of the error is not material to the previously reported financial statements, the Company has revised its previously issued consolidated financial statements. Amounts throughout the consolidated financial statements and notes thereto have been adjusted to incorporate the revised amounts, where applicable.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The impact of the required correction to the consolidated statements of operations and comprehensive income (loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2016
|
|
As Reported
|
|
Adjustments
|
|
As Revised
|
Cost of goods sold
|
$
|
573,917
|
|
|
$
|
495
|
|
|
$
|
574,412
|
|
Gross profit
|
131,602
|
|
|
(495
|
)
|
|
131,107
|
|
Operating loss
|
(53,592
|
)
|
|
(495
|
)
|
|
(54,087
|
)
|
Loss before income taxes
|
(83,854
|
)
|
|
(495
|
)
|
|
(84,349
|
)
|
Tax benefit
|
(6,157
|
)
|
|
(139
|
)
|
|
(6,296
|
)
|
Net loss
|
(77,697
|
)
|
|
(356
|
)
|
|
(78,053
|
)
|
Net loss attributable to Jason Industries
|
(66,879
|
)
|
|
(356
|
)
|
|
(67,235
|
)
|
Net loss available to common shareholders of Jason Industries
|
(70,479
|
)
|
|
(356
|
)
|
|
(70,835
|
)
|
|
|
|
|
|
|
Net loss per share available to common shareholders of Jason Industries:
|
Basic and diluted
|
(3.13
|
)
|
|
(0.02
|
)
|
|
(3.15
|
)
|
|
|
|
|
|
|
Comprehensive loss
|
(84,172
|
)
|
|
(356
|
)
|
|
(84,528
|
)
|
Comprehensive loss attributable to Jason Industries
|
(72,302
|
)
|
|
(356
|
)
|
|
(72,658
|
)
|
The impact of the required correction to the consolidated balance sheet was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
As Reported
|
|
Adjustments
|
|
As Revised
|
Property, plant and equipment - net
|
$
|
178,318
|
|
|
$
|
(495
|
)
|
|
$
|
177,823
|
|
Total assets
|
584,331
|
|
|
(495
|
)
|
|
583,836
|
|
Deferred income taxes
|
42,747
|
|
|
(139
|
)
|
|
42,608
|
|
Total liabilities
|
587,117
|
|
|
(139
|
)
|
|
586,978
|
|
Retained deficit
|
(162,876
|
)
|
|
(356
|
)
|
|
(163,232
|
)
|
Shareholders' deficit attributable to Jason Industries
|
(2,681
|
)
|
|
(356
|
)
|
|
(3,037
|
)
|
Total shareholders' deficit
|
(2,786
|
)
|
|
(356
|
)
|
|
(3,142
|
)
|
Total liabilities and shareholders' deficit
|
584,331
|
|
|
(495
|
)
|
|
583,836
|
|
The above revisions did not impact total net cash provided by (used in) operating, investing or financing activities within the consolidated statements of cash flows for any previous period. Other than the adjustments to net loss for the year ended ended December 31, 2016, which impacted recorded retained deficit, shareholders' deficit attributable to Jason Industries and total shareholders' deficit, there were no other impacts to the consolidated statements of shareholders' equity (deficit). There was no impact to the Company's previously reported “segment” Adjusted EBITDA for the year ended December 31, 2016.
DRONCO GmbH (“DRONCO”)
On May 29, 2015, the Company acquired all of the outstanding shares of DRONCO. DRONCO is a European manufacturer of bonded abrasives. These abrasives are being manufactured and distributed by the finishing segment. The Company paid cash consideration of
$34.4 million
, net of cash acquired, and, pursuant to the transaction, assumed certain liabilities. The related purchase agreement includes customary representations, warranties and covenants between the named parties.
For the
year ended December 31, 2015
, the Company recognized
$0.9 million
of acquisition-related costs related to DRONCO and these costs are included in the consolidated statements of operations as “Transaction-related expenses”. For the years ended December 31,
2016
and
2015
,
$38.5 million
and
$24.1 million
, respectively, of net sales from DRONCO were included in the Company’s consolidated statements of operations.
Pro forma historical results of operations related to the acquisition of DRONCO have not been presented as they are not material to the Company’s consolidated statements of operations.
On August 30, 2017, the Company completed the divestiture of its European operations within the acoustics segment located in Germany (“Acoustics Europe”) for a net purchase price of
$8.1 million
, which included cash of
$0.2 million
, long-term debt assumed by the buyer of
$3.0 million
and other purchase price adjustments. The divestiture resulted in an
8.7 million
pre-tax loss.
Acoustics Europe had net sales of
$32.9 million
for the year ended December 31, 2016 and
$22.9 million
for the eight months ended August 30, 2017, the date of closing. The divestiture reduced the Company’s non-core revenue within the European automotive market and has allowed it to focus on margin expansion and growth in the core North American automotive market. The Company determined that the divestiture did 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 consolidated statements of operations.
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 the years ended
December 31, 2016
and
2017
and are expected to be completed by the end of 2018.
For the
year ended December 31, 2015
, the Company incurred certain restructuring costs related to changes to its worldwide manufacturing footprint. These actions resulted in charges relating to employee severance and other related charges, such as exit costs for the consolidation and closure of plant facilities, employee relocation and lease termination costs. These costs related to decisions that preceded the 2016 program and are therefore not considered to be part of such plan. For the year ended
December 31, 2015
, the Company incurred
$1.6 million
in severance costs,
$1.2 million
in lease termination costs and
$1.0 million
in other costs. The Company did not incur any material charges related to 2015 restructuring activities for the
year ended December 31, 2017
, and no additional costs are expected for such restructuring activities.
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 charges incurred since the inception of the 2016 program through the
year ended December 31, 2017
. The other costs incurred under the 2016 program for the year ended
December 31, 2017
primarily includes 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 Brazil and the consolidation of two U.S. plants within the finishing segment and for the year ended
December 31, 2016
primarily includes charges related to the closure of a facility within the components segment and a loss contingency for certain employment matters claims associated with the wind down of the finishing segment’s Brazil facility. Based on the announced restructuring actions to date, the Company expects to incur a total of approximately
$14.1 million
under the 2016 program. Restructuring costs are presented separately on the consolidated statements of operations.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Program
|
|
Finishing
|
|
Components
|
|
Seating
|
|
Acoustics
|
|
Corporate
|
|
Total
|
Restructuring charges - year ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
1,178
|
|
|
$
|
58
|
|
|
$
|
(17
|
)
|
|
$
|
(38
|
)
|
|
$
|
(9
|
)
|
|
$
|
1,172
|
|
Lease termination costs
|
|
88
|
|
|
—
|
|
|
—
|
|
|
172
|
|
|
—
|
|
|
260
|
|
Other costs
|
|
1,235
|
|
|
1,276
|
|
|
—
|
|
|
323
|
|
|
—
|
|
|
2,834
|
|
Total
|
|
$
|
2,501
|
|
|
$
|
1,334
|
|
|
$
|
(17
|
)
|
|
$
|
457
|
|
|
$
|
(9
|
)
|
|
$
|
4,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges - year ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
3,287
|
|
|
$
|
378
|
|
|
$
|
76
|
|
|
$
|
977
|
|
|
$
|
597
|
|
|
$
|
5,315
|
|
Lease termination costs
|
|
344
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
344
|
|
Other costs
|
|
1,003
|
|
|
514
|
|
|
—
|
|
|
56
|
|
|
—
|
|
|
1,573
|
|
Total
|
|
$
|
4,634
|
|
|
$
|
892
|
|
|
$
|
76
|
|
|
$
|
1,033
|
|
|
$
|
597
|
|
|
$
|
7,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative restructuring charges - year ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
4,465
|
|
|
$
|
436
|
|
|
$
|
59
|
|
|
$
|
939
|
|
|
$
|
588
|
|
|
$
|
6,487
|
|
Lease termination costs
|
|
432
|
|
|
—
|
|
|
—
|
|
|
172
|
|
|
—
|
|
|
604
|
|
Other costs
|
|
2,238
|
|
|
1,790
|
|
|
—
|
|
|
379
|
|
|
—
|
|
|
4,407
|
|
Total
|
|
$
|
7,135
|
|
|
$
|
2,226
|
|
|
$
|
59
|
|
|
$
|
1,490
|
|
|
$
|
588
|
|
|
$
|
11,498
|
|
In addition to the restructuring costs described above, the Company incurred for the
year ended December 31, 2016
, approximately
$1.4 million
of additional charges related to the wind down of the finishing segment’s Brazil location, which included
$0.7 million
of accelerated depreciation of property, plant and equipment - net and
$0.7 million
of charges to reduce inventory balances, respectively, to decrease such balances to their estimated net realizable values. These costs were presented within cost of goods sold within the consolidated statements of operations.
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
|
1,172
|
|
|
260
|
|
|
2,834
|
|
|
4,266
|
|
Cash payments
|
(1,589
|
)
|
|
(528
|
)
|
|
(2,830
|
)
|
|
(4,947
|
)
|
Foreign currency impact
|
43
|
|
|
11
|
|
|
(10
|
)
|
|
44
|
|
Balance - December 31, 2017
|
$
|
907
|
|
|
$
|
76
|
|
|
$
|
1,079
|
|
|
$
|
2,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
costs
|
|
Lease
termination
costs
|
|
Other costs
|
|
Total
|
Balance - December 31, 2015
|
$
|
594
|
|
|
$
|
1,038
|
|
|
$
|
—
|
|
|
$
|
1,632
|
|
Current period restructuring charges
|
5,315
|
|
|
344
|
|
|
1,573
|
|
|
7,232
|
|
Cash payments
|
(4,621
|
)
|
|
(1,035
|
)
|
|
(514
|
)
|
|
(6,170
|
)
|
Foreign currency impact
|
(7
|
)
|
|
(14
|
)
|
|
26
|
|
|
5
|
|
Balance - December 31, 2016
|
$
|
1,281
|
|
|
$
|
333
|
|
|
$
|
1,085
|
|
|
$
|
2,699
|
|
At
December 31, 2017
and
December 31, 2016
, the restructuring liabilities were classified as other current liabilities on the consolidated balance sheets. At
December 31, 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
December 31, 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 Brazil.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Inventories at
December 31, 2017
and
December 31, 2016
consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
Raw material
|
$
|
35,925
|
|
|
$
|
37,222
|
|
Work-in-process
|
4,375
|
|
|
4,175
|
|
Finished goods
|
30,519
|
|
|
32,204
|
|
Total inventories
|
$
|
70,819
|
|
|
$
|
73,601
|
|
|
|
|
7.
|
Property, Plant and Equipment
|
Property, plant and equipment at
December 31, 2017
and
December 31, 2016
consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
Land and improvements
|
$
|
6,556
|
|
|
$
|
9,631
|
|
Buildings and improvements
|
33,161
|
|
|
41,928
|
|
Machinery and equipment
|
191,903
|
|
|
191,770
|
|
Construction-in-progress
|
10,710
|
|
|
5,473
|
|
|
242,330
|
|
|
248,802
|
|
Less: Accumulated depreciation
|
(88,134
|
)
|
|
(70,979
|
)
|
Property, plant and equipment, net
|
$
|
154,196
|
|
|
$
|
177,823
|
|
|
|
|
8.
|
Goodwill and Other Intangible Assets
|
Goodwill
Changes in the carrying amount of goodwill by reporting segment was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finishing
|
|
Components
|
|
Seating
|
|
Acoustics
|
|
Total
|
Balance as of December 31, 2015
|
$
|
43,229
|
|
|
$
|
33,183
|
|
|
$
|
—
|
|
|
$
|
29,758
|
|
|
$
|
106,170
|
|
Goodwill impairment
|
(253
|
)
|
|
(33,183
|
)
|
|
—
|
|
|
(29,849
|
)
|
|
(63,285
|
)
|
Foreign currency impact
|
(819
|
)
|
|
—
|
|
|
—
|
|
|
91
|
|
|
(728
|
)
|
Balance as of December 31, 2016
|
$
|
42,157
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
42,157
|
|
Foreign currency impact
|
2,985
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,985
|
|
Balance as of December 31, 2017
|
$
|
45,142
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
45,142
|
|
At
December 31, 2017
and
December 31, 2016
, accumulated goodwill impairment losses were
$122.1 million
, primarily due to
$58.8 million
related to the seating reporting unit,
$29.8 million
related to the acoustics reporting unit, and
$33.2 million
related to the components reporting unit.
Fiscal
2017
Impairment Assessment
The Company performed its annual goodwill impairment test in the fourth quarter of 2017 and determined that the fair value of the finishing reporting unit, the only reporting unit with a recorded goodwill balance, exceeded the carrying value of the reporting unit by over
15%
. In connection with the goodwill impairment test, the Company engaged a third-party valuation firm to assist management with determining the fair value estimate for the reporting unit. The fair value of the reporting unit is determined using a weighted average of an income approach primarily based on the Company’s three year strategic plan and a market approach based on implied valuation multiples of public company peer groups for the reporting unit. Both approaches are generally deemed equally relevant in determining reporting unit enterprise value, and as a result, weightings of
50 percent
were used for each. This fair value determination was categorized as Level 3 in the fair value hierarchy.
In connection with obtaining an independent third-party valuation, management provided certain information and assumptions that were utilized in the fair value calculation. Significant assumptions used in determining reporting unit fair value include forecasted cash flows, revenue growth rates, adjusted EBITDA margins, weighted average cost of capital (discount rate), assumed tax treatment of a future sale of the reporting unit, terminal growth rates, capital expenditures, sales and EBITDA multiples used in the market approach, and the weighting of the income and market approaches. A change in any of these assumptions, individually or in the aggregate, or future financial performance that is below management expectations
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
may result in the carrying value of this reporting unit exceeding its fair value, and goodwill and amortizable intangible assets could be impaired.
Fiscal
2016
and
2015
Impairment Assessments
In performing the first step of the annual goodwill impairment test in the fourth quarter of 2016, the Company determined that the estimated fair values of the acoustics and components reporting units were lower than the carrying values of the respective reporting units, requiring further analysis under the second step of the impairment test. The decline in the estimated fair value of the acoustics reporting unit was primarily due to lower long-term revenue growth expectations resulting from this strategic review of capital allocation and investment priorities as compared to the Company’s prior growth plan for the business. The fair value of the acoustics reporting unit was also negatively impacted by a projected cyclical decline in the North American automotive industry end-market. The decline in the estimated fair value of the components reporting unit was primarily due to lower long-term revenue expectations resulting from the annual budgeting and strategic planning process as compared to the Company’s prior plan for the business, primarily due to projected longer-term weakness in the rail end-market.
In performing the second step of the impairment testing, the Company performed a theoretical purchase price allocation for the acoustics and components reporting units to determine the implied fair values of goodwill which were compared to the recorded amounts of goodwill for each reporting unit. Upon completion of the second step of the goodwill impairment test, the Company recorded non-cash goodwill impairment charges of
$63.0 million
, representing full goodwill impairments of
$29.8 million
and
$33.2 million
in the acoustics and components reporting units, respectively. The goodwill impairment charges are recorded as impairment charges in the consolidated statements of operations
In the fourth quarter of 2015, the Company determined that the estimated fair value of the seating reporting unit was lower than the carrying value of the reporting unit, requiring further analysis under the second step of the impairment test. The decline in the estimated fair value of the seating reporting unit was primarily due to lower long-term growth expectations resulting from projected long-term weakness in agriculture and heavy industry end-markets, and a strategic shift in capital allocation and investment priorities.
The Company performed a theoretical purchase price allocation for the seating reporting unit to determine the implied fair value of goodwill which was compared to the recorded amount of goodwill. Upon completion of the second step of the goodwill impairment test the Company recorded a non-cash goodwill impairment charge of
$58.8 million
, representing a complete impairment of goodwill in the seating reporting unit. The goodwill impairment charge is recorded as impairment charges in the consolidated statements of operations.
In connection with the goodwill impairment tests in
2016
and
2015
, the Company engaged a third-party valuation firm to assist management with determining fair value estimates for the reporting units in the goodwill impairment test. In 2016 and 2015, the third-party valuation firm was also involved in assisting management in estimating fair values of tangible and intangible assets used in the second step of the goodwill impairment test. In connection with obtaining an independent third-party valuation, management provided certain information and assumptions that were utilized in the fair value calculation. Significant assumptions used in determining reporting unit fair value include forecasted cash flows, revenue growth rates, adjusted EBITDA margins, weighted average cost of capital (discount rate), assumed tax treatment of a future sale of the reporting unit, terminal growth rates, capital expenditures, sales and EBITDA multiples used in the market approach, and the weighting of the income and market approaches. The fair value of the reporting units was determined using a weighted average of an income approach primarily based on the Company’s three year strategic plan and a market approach based on implied valuation multiples of public company peer groups for each reporting unit. Both approaches were deemed equally relevant in determining reporting unit enterprise value, and as a result, weightings of
50 percent
were used for each. This fair value determination was categorized as Level 3 in the fair value hierarchy.
Other Intangible Assets
The Company’s other amortizable intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
Patents
|
$
|
1,985
|
|
|
$
|
(671
|
)
|
|
$
|
1,314
|
|
|
$
|
1,880
|
|
|
$
|
(366
|
)
|
|
$
|
1,514
|
|
Customer relationships
|
110,210
|
|
|
(24,775
|
)
|
|
85,435
|
|
|
110,090
|
|
|
(16,630
|
)
|
|
93,460
|
|
Trademarks and other intangibles
|
57,373
|
|
|
(12,623
|
)
|
|
44,750
|
|
|
57,744
|
|
|
(8,460
|
)
|
|
49,284
|
|
Total amortized other intangible assets
|
$
|
169,568
|
|
|
$
|
(38,069
|
)
|
|
$
|
131,499
|
|
|
$
|
169,714
|
|
|
$
|
(25,456
|
)
|
|
$
|
144,258
|
|
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Other amortizable intangible assets are evaluated for potential impairment whenever events or circumstances indicate that the carrying value may not be recoverable. There were no impairment charges recorded related to tangible or intangible assets during
2017
.
In connection with the evaluation of the goodwill impairment in the acoustics and components reporting units in
2016
, the Company assessed tangible and intangible assets for impairment prior to performing the second step of the goodwill impairment test. As a result of this analysis, it was determined that there were no impairment charges to record related to these assets.
In connection with the evaluation of the goodwill impairment in the seating reporting unit in
2015
, the Company assessed tangible and intangible assets for impairment prior to performing the second step of the goodwill impairment test. As a result of this analysis, non-cash impairment charges of
$27.7 million
,
$6.8 million
, and
$0.8 million
were recorded for customer relationship, trademarks, and patents intangible assets, respectively, in the seating reporting unit during the fourth quarter of 2015. These intangible asset impairment charges are recorded as impairment charges in the consolidated statements of operations.
The approximate weighted average remaining useful lives of the Company’s intangible assets a
t
December 31, 2017
are as follows: patents -
3.1
years; customer relationships -
10.7
years; and trademarks and other intangibles -
11.6
years.
Amortization of intangible assets approximated
$12.7 million
,
$12.9 million
, and
$14.1 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
Excluding the impact of any future acquisitions, the Company anticipates the annual amortization for each of the next five years and thereafter to be the following:
|
|
|
|
|
2018
|
$
|
14,360
|
|
2019
|
11,800
|
|
2020
|
11,800
|
|
2021
|
11,631
|
|
2022
|
11,458
|
|
Thereafter
|
70,450
|
|
|
$
|
131,499
|
|
|
|
|
9.
|
Debt and Hedging Instruments
|
The Company’s debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
First Lien Term Loans
|
$
|
298,018
|
|
|
$
|
303,025
|
|
Second Lien Term Loans
|
90,007
|
|
|
110,000
|
|
Debt discount on Term Loans
|
(3,602
|
)
|
|
(5,002
|
)
|
Deferred issuance costs on Term Loans
|
(5,586
|
)
|
|
(7,503
|
)
|
Foreign debt
|
21,795
|
|
|
23,303
|
|
Capital lease obligations
|
840
|
|
|
1,301
|
|
Total debt
|
401,472
|
|
|
425,124
|
|
Less: Current portion
|
(9,704
|
)
|
|
(8,179
|
)
|
Total long-term debt
|
$
|
391,768
|
|
|
$
|
416,945
|
|
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Future annual maturities of long-term debt outstanding at
December 31, 2017
are as follows:
|
|
|
|
|
|
2018
|
|
$
|
9,704
|
|
2019
|
|
6,950
|
|
2020
|
|
7,006
|
|
2021
|
|
289,378
|
|
2022
|
|
92,708
|
|
Thereafter
|
|
4,914
|
|
Total future annual maturities of long term debt outstanding
|
|
410,660
|
|
Less: Debt discounts on Term Loans
|
|
(3,602
|
)
|
Less: Deferred issuance costs on Term Loans
|
|
(5,586
|
)
|
Total debt
|
|
$
|
401,472
|
|
Senior Secured Credit Facilities
On June 30, 2014, all indebtedness under Jason’s former U.S. credit facility was repaid in full and Jason Incorporated (“Jason Inc.”), an indirect majority-owned subsidiary of the Company, as the borrower, replaced Jason’s former credit agreement with a new
$460.0 million
U.S. credit facility as subsequently amended (the “Senior Secured Credit Facilities”). The new facility included (i) term loans in an aggregate principal amount of
$310.0 million
(“First Lien Term Loans”) maturing in 2021, of which
$298.0 million
is outstanding as of
December 31, 2017
, (ii) term loans in an aggregate principal amount of
$110.0 million
(“Second Lien Term Loans”) maturing in 2022, of which
$90.0 million
is outstanding as of
December 31, 2017
, and (iii) a revolving loan of up to
$40.0 million
(“Revolving Credit Facility”) maturing in 2019. The Company capitalized debt issuance costs of
$13.5 million
in connection with the refinancing. The unamortized amount of debt issuance costs as of
December 31, 2017
were
$5.6 million
related to the First Lien Term Loans and Second Lien Term Loans and
$0.6 million
related to the Revolving Credit Facility. Debt issuance costs related to the First Lien Term Loans and Second Lien Term Loans are recorded in total long-term debt, and debt issuance costs related to the Revolving Credit Facility are recorded in other long-term assets. These costs are amortized into interest expense over the life of the respective borrowings on a straight-line basis.
The principal amount of the First Lien Term Loans amortizes in quarterly installments of
$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%
and (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 London Interbank Offered Rate (“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 a consolidated first lien net leverage ratio.
At
December 31, 2017
, the interest rates on the outstanding balances of the First Lien Term Loans and Second Lien Term Loans were
6.2%
and
9.7%
, respectively. At
December 31, 2017
, the Company had a total of
$33.9 million
of availability for additional borrowings under the Revolving Credit Facility as the Company had no outstanding borrowings and letters of credit outstanding of
$6.1 million
, which reduce availability under the facility.
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 of
4.50
to
1.00
. 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. The Company did not draw on its revolver during 2017.
Under the Senior Secured Credit Facilities, the Company is subject to mandatory prepayments if certain requirements are met. At
December 31, 2017
and
2016
, mandatory prepayments of
$2.5 million
and
$1.9 million
, respectively, under the Senior Secured Credit Facilities were included within the current portion of long-term debt in the consolidated balance sheets. The mandatory prepayment is in excess of regular current installments due.
During 2017, the Company repurchased
$20.0 million
of Second Lien Term Loans for
$16.8 million
. In connection with the repurchase, the Company wrote off
$0.4 million
of previously unamortized debt discount and
$0.4 million
of
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
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
$2.4 million
, which has been recorded within the consolidated statements of operations.
Foreign debt
The Company has the following foreign debt obligations, including various overdraft facilities and term loans:
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
Germany
|
$
|
18,003
|
|
|
$
|
21,469
|
|
Mexico
|
3,179
|
|
|
850
|
|
India
|
599
|
|
|
834
|
|
Other
|
14
|
|
|
150
|
|
Total foreign debt
|
$
|
21,795
|
|
|
$
|
23,303
|
|
These various foreign loans are comprised of individual outstanding obligations ranging from approximately
$0.1 million
to
$11.2 million
and
$0.1 million
to
$12.6 million
as of
December 31, 2017
and
December 31, 2016
, respectively. Certain of the Company’s foreign borrowings contain financial covenants requiring maintenance of a minimum equity ratio and maximum leverage ratio, among others. The Company was in compliance with these covenants as of
December 31, 2017
.
The foreign debt obligations in Germany primarily relate to term loans within our finishing segment of
$18.0 million
at
December 31, 2017
and
$19.3 million
at
December 31, 2016
. The German borrowings bear interest at fixed and variable rates ranging from
2.1%
to
4.7%
and are subject to repayment in varying amounts through 2025.
In the fourth quarter of 2017, the Company utilized
$2.4 million
of cash received during the third quarter sale of Acoustics Europe to retire debt in Germany and incurred and paid a
$0.2 million
prepayment fee, which was recorded as an offset to the gain on extinguishment of debt.
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 of
$210.0 million
at both
December 31, 2017
and
December 31, 2016
. The Swaps have been designated by the Company as cash flow hedges in accordance with Accounting Standards Codification 815, 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 year ended
December 31, 2017
, the Company recognized
$1.9 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
$0.8 million
related to the Swaps in 2018.
The fair values of the Company’s Swaps are recorded on the consolidated balance sheets with the corresponding offset recorded as a component of accumulated other comprehensive loss. The net fair value of the Swaps was a net asset of
$0.1 million
at
December 31, 2017
and a net liability of
$2.0 million
at
December 31, 2016
, respectively. See the amounts recorded on the consolidated balance sheets within the table below:
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
Interest rate swaps:
|
|
|
|
Recorded in other assets - net
|
$
|
537
|
|
|
$
|
—
|
|
Recorded in other current liabilities
|
$
|
(458
|
)
|
|
$
|
(1,916
|
)
|
Recorded in other long-term liabilities
|
—
|
|
|
(133
|
)
|
Total net asset (liability) derivatives designated as hedging instruments
|
$
|
79
|
|
|
$
|
(2,049
|
)
|
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Lease Obligations
The Company leases machinery, transportation equipment and office, warehouse and manufacturing facilities under agreements which are accounted for as operating leases. Many of the leases include provisions that enable the Company to renew the lease, and certain leases are subject to various escalation clauses.
Future minimum lease payments required under long-term operating leases in effect at
December 31, 2017
are as follows:
|
|
|
|
|
|
2018
|
|
$
|
10,243
|
|
2019
|
|
9,034
|
|
2020
|
|
8,413
|
|
2021
|
|
7,033
|
|
2022
|
|
8,154
|
|
Thereafter
|
|
17,826
|
|
|
|
$
|
60,703
|
|
Total rental expense under operating leases was
$12.2 million
,
$13.1 million
,
$9.8 million
for the years end
December 31, 2017
,
December 31, 2016
, and
December 31, 2015
, respectively.
Sale Leaseback
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 th
e lease as an operating lease and will pay approximately
$10.1 million
in minimum lease payments over the life of the lease.
|
|
|
11.
|
Shareholders' Equity (Deficit)
|
At
December 31, 2017
, the Company has authorized for issuance
120,000,000
shares of
$0.0001
par value common stock, of which
25,966,381
shares were issued and outstanding, and has authorized for issuance
5,000,000
shares of
$0.0001
par value preferred stock, of which
49,665
shares were issued and outstanding, including
968
shares declared as a dividend on
November 28, 2017
and issued on
January 1, 2018
.
Series A Preferred Stock
On June 30, 2014, the Company issued
45,000
shares of Series A Preferred Stock with offering proceeds of
$45.0 million
and offering costs of
$2.5 million
. Holders of the Series A Preferred Stock are entitled to cumulative dividends at an
8.0%
dividend rate per annum payable quarterly on January 1, April 1, July 1, and October 1 of each year in cash or by delivery of Series A Preferred Stock shares. Holders of the Series A Preferred Stock have the option to convert each share of Series A Preferred Stock into approximately
81.18
shares of the Company’s common stock, subject to certain adjustments in the conversion rate.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The Company paid the following dividends on the Series A Preferred Stock during the years ended
December 31, 2017
,
2016
and
2015
.
|
|
|
|
|
|
|
|
|
|
Payment Date
|
|
Record Date
|
|
Amount Per Share
|
|
Total Dividends Paid
|
|
Preferred Shares Issued
|
January 1, 2015
|
|
November 15, 2014
|
|
$20.00
|
|
$900
|
|
—
|
April 1, 2015
|
|
February 15, 2015
|
|
$20.00
|
|
$900
|
|
—
|
July 1, 2015
|
|
May 15, 2015
|
|
$20.00
|
|
$900
|
|
—
|
October 1, 2015
|
|
August 15, 2015
|
|
$20.00
|
|
$900
|
|
—
|
January 1, 2016
|
|
November 15, 2015
|
|
$20.00
|
|
$900
|
|
—
|
April 1, 2016
|
|
February 15, 2016
|
|
$20.00
|
|
$900
|
|
—
|
July 1, 2016
|
|
May 15, 2016
|
|
$20.00
|
|
$900
|
|
—
|
October 1, 2016
|
|
August 15, 2016
|
|
$20.00
|
|
$900
|
|
—
|
January 1, 2017
|
|
November 15, 2016
|
|
$20.00
|
|
$900
|
|
899
|
April 1, 2017
|
|
February 15, 2017
|
|
$20.00
|
|
$918
|
|
915
|
July 1, 2017
|
|
May 15, 2017
|
|
$20.00
|
|
$936
|
|
931
|
October 1, 2017
|
|
August 15, 2017
|
|
$20.00
|
|
$955
|
|
952
|
On
November 28, 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
January 1, 2018
to holders of record on
November 15, 2017
. As of
December 31, 2017
, the Company has recorded the
968
additional Series A Preferred Stock shares declared for the dividend of
$1.0 million
within preferred stock in the consolidated balance sheets.
Shareholder Rights Agreement
On September 12, 2016, the Company’s Board of Directors adopted a Shareholder Rights Agreement (the “Rights Agreement”) between the Company and Continental Stock Transfer & Trust Company, as rights agent. Pursuant to the Rights Agreement, the Company declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of the Company’s common stock, payable to the shareholders of record on September 16, 2016. New Rights will accompany any new shares of common stock issued after September 16, 2016. The Rights trade with and are inseparable from our common stock and will not be evidenced by separate certificates unless they become exercisable. The Rights will expire on March 12, 2018.
In general terms, the Rights Agreement works by imposing a significant penalty upon any person or group which acquires 30% or more of the Company’s outstanding common stock without the approval of the Company’s Board of Directors.
Each Right will allow its holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock for
$10.00
, subject to adjustment as set forth in the Rights Agreement, once the Rights become exercisable. Per the Rights Agreement, the Rights will not be exercisable until the earlier of (1) 10 days after the public announcement that a person or group has become an Acquiring Person (as defined in the Rights Agreement) by obtaining beneficial ownership of
30%
or more of the Company’s outstanding common stock or (2) 10 business days (or such later date as the Company’s Board of Directors shall determine) following the commencement of a tender offer or exchange offer that would result in a person or group becoming an Acquiring Person.
Warrants
As of
December 31, 2017
, the Company had
13,993,773
warrants outstanding. Each outstanding warrant entitles the registered holder to purchase one share of the Company’s common stock at a price of $
12.00
per share, subject to adjustment, at any time. The warrants will expire on
June 30, 2019
, or earlier upon redemption.
In February 2015, the Company’s Board of Directors authorized the purchase of up to
$5.0 million
of the Company’s outstanding warrants. Management is authorized to make 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 years ended
December 31, 2017
,
2016
and
2015
.
Exchange of common stock of JPHI Holdings, Inc. for common stock of Jason Industries, Inc.
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
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
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
. 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%
, and
no
shares of JPHI stock remain outstanding as of
December 31, 2017
. The decreases to the noncontrolling interest as a result of the exchange resulted in an increase in both accumulated other comprehensive loss and additional paid-in capital to reflect the Company’s increased ownership in JPHI.
Accumulated Other Comprehensive Loss
The changes in the components of accumulated other comprehensive loss, net of taxes, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
retirement plan
adjustments
|
|
Foreign currency
translation
adjustments
|
|
Net unrealized gains (losses) on cash flow hedges
|
|
Total
|
Balance at December 31, 2014
|
$
|
(1,434
|
)
|
|
$
|
(10,631
|
)
|
|
$
|
—
|
|
|
$
|
(12,065
|
)
|
Other comprehensive loss before reclassifications
|
398
|
|
|
(9,606
|
)
|
|
(273
|
)
|
|
(9,481
|
)
|
Amount reclassified from accumulated other comprehensive income
|
(15
|
)
|
|
—
|
|
|
105
|
|
|
90
|
|
Balance at December 31, 2015
|
(1,051
|
)
|
|
(20,237
|
)
|
|
(168
|
)
|
|
(21,456
|
)
|
Other comprehensive loss before reclassifications
|
(545
|
)
|
|
(4,013
|
)
|
|
(870
|
)
|
|
(5,428
|
)
|
Amount reclassified from accumulated other comprehensive income
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Exchange of common stock of JPHI Holdings, Inc. for common stock of Jason Industries, Inc.
|
(186
|
)
|
|
(3,154
|
)
|
|
(153
|
)
|
|
(3,493
|
)
|
Balance at December 31, 2016
|
(1,777
|
)
|
|
(27,404
|
)
|
|
(1,191
|
)
|
|
(30,372
|
)
|
Other comprehensive income before reclassifications
|
365
|
|
|
11,394
|
|
|
156
|
|
|
11,915
|
|
Amount reclassified from accumulated other comprehensive income
|
8
|
|
|
(888
|
)
|
|
1,159
|
|
|
279
|
|
Exchange of common stock of JPHI Holdings, Inc. for common stock of Jason Industries, Inc.
|
(113
|
)
|
|
(1,698
|
)
|
|
(73
|
)
|
|
(1,884
|
)
|
Balance at December 31, 2017
|
$
|
(1,517
|
)
|
|
$
|
(18,596
|
)
|
|
$
|
51
|
|
|
$
|
(20,062
|
)
|
|
|
|
12.
|
Share Based Compensation
|
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 and performance share units, which are restricted stock units with vesting conditions contingent upon achieving certain performance goals. The Company estimates the fair value of share-based awards based on assumptions as of the grant date. The Company recognizes these compensation costs for only those awards expected to vest, on a straight-line basis over the requisite service period of the award, which is generally the vesting term of
three
years for restricted stock awards and the performance period for performance share units. Forfeitures are recognized within compensation expense in the period the forfeitures are incurred. Share based compensation expense is reported in selling and administrative expenses in the Company’s consolidated statements of operations.
2014 Omnibus Incentive Plan
On June 30, 2014, the 2014 Omnibus Incentive Plan (the “2014 Plan”) was approved by shareholders to provide incentives to key employees of the Company and its subsidiaries. Awards under the 2014 Plan are generally not restricted to any specific form or structure and could include, without limitation, stock options, stock appreciation rights, restricted stock awards and RSUs, performance awards, other stock-based awards, and other cash-based awards. There were
3,473,435
shares of common stock reserved and authorized for issuance under the 2014 Plan. At
December 31, 2017
, there were
352,587
shares of common stock authorized and available for future grants under the 2014 Plan.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Share Based Compensation Expense
The Company recognized the following share based compensation expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
|
|
Restricted Stock Units
|
$
|
913
|
|
|
$
|
1,300
|
|
|
$
|
2,689
|
|
Adjusted EBITDA Vesting Awards
|
197
|
|
|
(2,399
|
)
|
|
899
|
|
Stock Price Vesting Awards
|
9
|
|
|
101
|
|
|
1,319
|
|
ROIC Vesting Awards
|
—
|
|
|
—
|
|
|
—
|
|
Subtotal
|
1,119
|
|
|
(998
|
)
|
|
4,907
|
|
Impact of accelerated vesting
(1)
|
—
|
|
|
246
|
|
|
3,062
|
|
Total share-based compensation expense (income)
|
$
|
1,119
|
|
|
$
|
(752
|
)
|
|
$
|
7,969
|
|
|
|
|
|
|
|
Total income tax benefit (provision)
|
$
|
276
|
|
|
$
|
(294
|
)
|
|
$
|
3,041
|
|
|
|
(1)
|
For the year ended December 31, 2015, primarily represents the impact of the acceleration of certain vesting schedules for RSUs and stock price vesting awards related to the transition of the Company’s former CEO and CFO.
|
As of
December 31, 2017
,
$2.0 million
of total unrecognized compensation expense related to share-based compensation plans is expected to be recognized over a weighted-average period of
2.2
years. The total unrecognized share-based compensation expense to be recognized in future periods as of
December 31, 2017
does not consider the effect of share-based awards that may be issued in subsequent periods.
General Terms of Awards
The Compensation Committee of the Board of Directors has discretion to establish the terms and conditions for grants, including the number of shares, vesting and required service or other performance criteria. RSU and performance share unit awards are subject to forfeiture upon termination of employment prior to vesting, subject in some cases to early vesting, or continued eligibility for vesting, upon specified events, including death or permanent disability of the grantee, termination of the grantee’s employment under certain circumstances or a change in control of the Company. Dividend equivalents on common stock, if any, are accrued for RSUs and performance share units granted to employees and paid in the form of cash or stock depending on the form of the dividend, at the same time that the shares of common stock underlying the unit are delivered to the employee. All RSUs and performance share units granted to employees are payable in shares of common stock and are classified as equity awards.
The rights granted to the recipient of employee RSU awards generally vest annually in equal installments on the anniversary of the grant date or in two equal installments over the restriction or vesting period, which is generally three years. Vested RSUs are payable in common stock within a
thirty
day period following the vesting date. The Company records compensation expense of RSU awards based on the fair value of the awards at the date of grant ratably over the period during which the restrictions lapse.
Performance share unit awards based on cumulative and average performance metrics (i.e. average return on invested capital (“ROIC”) and Adjusted EBITDA) are payable at the end of their respective performance period in common stock. The number of share units awarded can range from
zero
to
150%
for those awards granted from
2014
through
2016
and from
zero
to
100%
for those awards granted in
2017
, depending on achievement of a targeted performance metric, and are payable in common stock within a
thirty
day period following the end of the performance period. The Company expenses the cost of the performance-based share unit awards based on the fair value of the awards at the date of grant and the estimated achievement of the performance metric, ratably over the performance period of three years.
Performance share unit awards based on achievement of certain established stock price targets are payable in common stock if the last sales price of the Company’s common stock equals or exceeds established stock price targets in any
twenty
trading days within a
thirty
trading day period during the performance period. The Company expenses the cost of the stock price-based performance share unit awards based on the fair value of the awards at the date of grant ratably over the derived service period of the award.
The Company also issues RSUs as share-based compensation for members of the Board of Directors. Director RSUs vest
one
year from the date of grant. In the event of termination of a member’s service on the Board of Directors prior to a vesting date, all unvested RSUs of such holder will be forfeited. Vested RSUs are deferred and then delivered to members of the
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Board of Directors within six months following the termination of their directorship. All awards granted are payable in shares of common stock or cash payment equal to the fair market value of the shares at the discretion of our Compensation Committee, and are classified as equity awards due to their expected settlement in common stock. Compensation expense for these awards is measured based upon the fair value of the awards at the date of grant. Dividend equivalents on common stock are accrued for RSUs awarded to the Board of Directors and paid in the form of cash or stock depending on the form of the dividend, at the same time that the shares of common stock underlying the RSU are delivered to a member of the Board of Directors following the termination of their directorship.
Restricted Stock Units
The following table summarizes RSU activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31, 2017
|
|
For the Year Ended
December 31, 2016
|
|
For the Year Ended
December 31, 2015
|
|
Shares
(thousands)
|
|
Weighted-Average Grant Date Fair Value
|
|
Shares
(thousands)
|
|
Weighted-Average Grant Date Fair Value
|
|
Shares
(thousands)
|
|
Weighted-Average Grant Date Fair Value
|
Outstanding at beginning of period
|
554
|
|
|
$
|
5.22
|
|
|
401
|
|
|
$
|
8.70
|
|
|
762
|
|
|
$
|
10.50
|
|
Granted
|
745
|
|
|
1.32
|
|
|
375
|
|
|
3.75
|
|
|
216
|
|
|
6.39
|
|
Issued
|
(265
|
)
|
|
4.84
|
|
|
(211
|
)
|
|
7.62
|
|
|
(582
|
)
|
|
10.50
|
|
Deferred
|
159
|
|
|
3.69
|
|
|
62
|
|
|
4.24
|
|
|
67
|
|
|
10.55
|
|
Forfeited
|
(160
|
)
|
|
1.53
|
|
|
(73
|
)
|
|
9.04
|
|
|
(62
|
)
|
|
7.84
|
|
Outstanding at end of period
|
1,033
|
|
|
$
|
2.84
|
|
|
554
|
|
|
$
|
5.22
|
|
|
401
|
|
|
$
|
8.70
|
|
As of
December 31, 2017
, there was
$1.0 million
of unrecognized share-based compensation expense related to
744,232
RSU awards, with a weighted-average grant date fair value of
$1.84
, that are expected to vest over a weighted-average period of
2.1
years. Included within the total
1,032,686
RSU awards outstanding as of
December 31, 2017
are
288,454
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
$5.41
. The total fair values of shares vested during the years ended
December 31, 2017
,
2016
and
2015
were
$0.3 million
,
$0.7 million
and
$3.4 million
, respectively. The fair values of these awards were determined based on the Company’s stock price on the grant date.
In connection with the vesting of RSUs previously issued 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 years ended
December 31, 2017
,
2016
and
2015
,
25,532
,
43,806
and
210,869
shares, respectively, were withheld to satisfy the requirement. The withholding is treated as a reduction in additional paid-in capital in the accompanying consolidated statements of shareholders’ equity (deficit).
Performance Share Units
Adjusted EBITDA Vesting Awards
The following table summarizes Adjusted EBITDA vesting awards activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31, 2017
|
|
For the Year Ended
December 31, 2016
|
|
For the Year Ended
December 31, 2015
|
|
Shares
(thousands)
|
|
Weighted-Average Grant Date Fair Value
|
|
Shares
(thousands)
|
|
Weighted-Average Grant Date Fair Value
|
|
Shares
(thousands)
|
|
Weighted-Average Grant Date Fair Value
|
Outstanding at beginning of period
|
723
|
|
|
$
|
9.67
|
|
|
871
|
|
|
$
|
9.81
|
|
|
1,216
|
|
|
$
|
10.49
|
|
Granted
|
1,058
|
|
|
1.30
|
|
|
—
|
|
|
—
|
|
|
142
|
|
|
6.33
|
|
Adjustment for performance results achieved
(1)
|
(708
|
)
|
|
9.65
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Vested
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(165
|
)
|
|
2.11
|
|
|
(148
|
)
|
|
10.49
|
|
|
(487
|
)
|
|
10.49
|
|
Outstanding at end of period
|
908
|
|
|
$
|
1.30
|
|
|
723
|
|
|
$
|
9.67
|
|
|
871
|
|
|
$
|
9.81
|
|
|
|
(1)
|
Adjustment for Adjusted EBITDA awards originally granted in 2014 and 2015 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.
|
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Adjusted EBITDA Vesting Awards - 2014 and 2015 Grant
During the period June 30, 2014 through December 31, 2014,
1,215,704
performance share unit awards were granted to certain executive officers and senior management employees. During the
year ended December 31, 2015
,
142,238
performance share unit awards were granted to certain executive officers. The awards were payable upon the achievement of certain established cumulative Adjusted EBITDA performance targets over a
three
year performance period of July 1, 2014 through June 30, 2017. These awards were subject to forfeiture upon termination of employment prior to vesting, subject in some cases to early vesting or continued eligibility for vesting upon specified events, including death, permanent disability or retirement of the grantee or a change in control of the Company.
During the second quarter of 2016, the Company lowered its estimated vesting of the 2014 and 2015 performance share unit awards from
62.5%
of target, or
301,382
shares, to an estimated vesting payout of
0%
, or
0
shares, resulting in
$2.4 million
of share-based compensation income due to declines in profitability. As of
December 31, 2017
, there was
no
unrecognized compensation expense related to the 2014 and 2015 granted 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 with
no
awards vesting.
Adjusted EBITDA Vesting Awards - 2017 Grant
During the
year ended December 31, 2017
, the Company granted
1,057,505
performance share unit awards to certain executive officers and senior management employees, which are payable based on achievement of a cumulative Adjusted EBITDA performance target over a
three
year performance period ending on March 30, 2020. Distributions under these awards are payable at the end of the performance period in common stock. The total potential payouts for awards granted during the
year ended December 31, 2017
ranged from
zero
to
907,505
shares, should certain performance targets be achieved. These awards are subject to forfeiture upon termination of employment prior to vesting, subject in some cases to early vesting or continued eligibility for vesting upon specified events, including death, permanent disability or retirement of the grantee or a change in control of the Company.
Compensation expense of the Adjusted EBITDA based performance share unit awards is currently being recognized based on an estimated payout of
100%
of target, or
907,505
shares. As of
December 31, 2017
, there was
$1.0 million
of unrecognized compensation expense related to Adjusted EBITDA based vesting performance share unit awards, which is expected to be recognized over a weighted average period of
2.2
years.
Stock Price Vesting Awards
The following table summarizes stock price vesting awards activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31, 2017
|
|
For the Year Ended
December 31, 2016
|
|
For the Year Ended
December 31, 2015
|
|
Shares
(thousands)
|
|
Weighted-Average Grant Date Fair Value
|
|
Shares
(thousands)
|
|
Weighted-Average Grant Date Fair Value
|
|
Shares
(thousands)
|
|
Weighted-Average Grant Date Fair Value
|
Outstanding at beginning of period
|
341
|
|
|
$
|
2.85
|
|
|
878
|
|
|
$
|
3.27
|
|
|
810
|
|
|
$
|
3.54
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
95
|
|
|
1.08
|
|
Adjustment for performance results achieved
(1)
|
(189
|
)
|
|
2.30
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Vested
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(152
|
)
|
|
3.54
|
|
|
(537
|
)
|
|
3.54
|
|
|
(27
|
)
|
|
3.54
|
|
Outstanding at end of period
|
—
|
|
|
$
|
—
|
|
|
341
|
|
|
$
|
2.85
|
|
|
878
|
|
|
$
|
3.27
|
|
|
|
(1)
|
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.
|
There were
no
stock price vesting performance share unit awards granted during the years ended
December 31, 2017
and
2016
. During the
year ended December 31, 2015
,
94,825
performance share unit awards were granted to certain executive officers. The awards had a
three
year performance period from July 1, 2014 through June 30, 2017. Distributions under these awards were payable in common stock when the last sales price of the Company’s common stock equaled or exceeded established stock price targets in any
twenty
trading days within a
thirty
trading day period during the performance period.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
As of
December 31, 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 with
no
awards vesting.
ROIC Vesting Awards
The following table summarizes ROIC vesting awards activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31, 2017
|
|
For the Year Ended
December 31, 2016
|
|
Shares
(thousands)
|
|
Weighted-Average Grant Date Fair Value
|
|
Shares
(thousands)
|
|
Weighted-Average Grant Date Fair Value
|
Outstanding at beginning of period
|
513
|
|
|
$
|
3.65
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
—
|
|
|
—
|
|
|
599
|
|
|
3.62
|
|
Vested
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(103
|
)
|
|
3.46
|
|
|
(86
|
)
|
|
3.46
|
|
Outstanding at end of period
|
410
|
|
|
$
|
3.70
|
|
|
513
|
|
|
$
|
3.65
|
|
During the
year ended December 31, 2016
,
599,336
performance share unit awards were granted to certain executive officers and senior management employees, payable upon the achievement of an ROIC performance target during a three year measurement period ending on December 31, 2018. There were
no
ROIC performance awards granted during the year ended
December 31, 2017
. Performance share unit awards based on ROIC performance metrics are payable at the end of their respective performance period in common stock. The total potential payouts for awards granted during the
year ended December 31, 2016
range from
zero
to
410,336
shares, should certain performance targets be achieved. These awards are subject to forfeiture upon termination of employment prior to vesting, subject in some cases to early vesting or continued eligibility for vesting upon specified events, including death, permanent disability or retirement of the grantee or a change in control of the Company.
Compensation expense for ROIC based performance share unit awards outstanding during the
year ended December 31, 2017
is currently being recognized based on an estimated payout of
0%
of target, or
0
shares. During the fourth quarter of 2016, the Company lowered its estimated vesting of the performance share unit awards from
100%
of target, or
273,557
shares, to an estimated vesting payout of
0%
. As of
December 31, 2017
, there was
no
unrecognized compensation expense related to ROIC based vesting performance share unit awards expected to be recognized in subsequent periods.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Basic income (loss) per share is calculated by dividing net income (loss) available 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 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 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
|
|
Net loss per share available to Jason Industries common shareholders
|
|
|
|
|
|
Basic and diluted loss per share
|
$
|
(0.32
|
)
|
|
$
|
(3.15
|
)
|
|
$
|
(3.53
|
)
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
Net loss available to common shareholders of Jason Industries
|
$
|
(8,261
|
)
|
|
$
|
(70,835
|
)
|
|
$
|
(78,058
|
)
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Basic and diluted weighted-average shares outstanding
|
26,082
|
|
|
22,507
|
|
|
22,145
|
|
|
|
|
|
|
|
Weighted average number of anti-dilutive shares excluded from denominator:
|
|
|
|
|
|
Warrants to purchase Jason Industries common stock
|
13,994
|
|
|
13,994
|
|
|
13,994
|
|
Conversion of Series A 8% Perpetual Convertible Preferred
(1)
|
3,858
|
|
|
3,656
|
|
|
3,653
|
|
Conversion of JPHI rollover shares convertible to Jason Industries common stock
(2)
|
59
|
|
|
3,427
|
|
|
3,486
|
|
Restricted stock units
|
796
|
|
|
503
|
|
|
589
|
|
Performance share units
|
1,379
|
|
|
1,917
|
|
|
1,540
|
|
Total
|
20,086
|
|
|
23,497
|
|
|
23,262
|
|
|
|
(1)
|
Includes the impact of
968
additional Series A Preferred Stock shares from a stock dividend declared on
November 28, 2017
paid in additional shares of Series A Preferred Stock on
January 1, 2018
. The Company included the preferred stock within the consolidated balance sheets as of the declaration date. Anti-dilutive shares assumes preferred stock is converted at the voluntary conversion ratio of
81.18
common shares per
one
preferred share.
|
|
|
(2)
|
Includes the impact of the exchange by certain Rollover Participants of their JPHI stock for Company common stock in the fourth quarter of 2016 and 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 is 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 share calculation because they were anti-dilutive under the treasury stock method, in accordance with Accounting Standards Codification Topic 260.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
On December 22, 2017, the President of the United States signed into law comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Act”). The legislation significantly changes U.S. tax law by lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries, among others. The Tax Reform Act also adds many new provisions including changes to bonus depreciation and the deductions for executive compensation and interest expense. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of
35%
to a flat
21%
rate, effective January 1, 2018.
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. As a result of the reduction in the U.S. corporate income tax rate from
35%
to
21%
under the Tax Reform Act, the Company revalued its ending net deferred tax liabilities at December 31, 2017 and recognized a provisional
$11.1 million
tax benefit in the Company’s consolidated statements of operations for the year ended
December 31, 2017
.
The Tax Reform Act provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits through the year ended
December 31, 2017
. The Tax Reform Act imposes a tax on these earnings and profits at either a
15.5%
rate or an
8.0%
rate. The higher rate applies to the extent the Company's foreign subsidiaries have cash and cash equivalents at certain measurement dates, whereas the lower rate applies to any earnings that are in excess of the cash and cash equivalents balance. The Company had an estimated
$54.5 million
of undistributed foreign earnings and profits subject to the deemed mandatory repatriation and recognized a provisional
$5.3 million
of income tax expense in the Company’s consolidated statements of operations for the year ended
December 31, 2017
. After the utilization of existing net operating loss carryforwards, the Company will not incur any U.S. federal cash taxes resulting from the deemed mandatory repatriation.
While the Tax Reform Act provides for a territorial tax system, beginning in 2018, it includes two new U.S. tax base erosion provisions, the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions.
The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company is still evaluating the potential impact of the GILTI provisions and accordingly has not recorded a provisional estimate for the year ended December 31, 2017. Due to the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Tax Reform Act and the application of Accounting Standards Codification 740, and are considering available accounting policy alternatives to either adopt or record the U.S. income tax effect of future GILTI inclusions in the period in which they arise or establish deferred taxes with respect to the expected future tax liabilities associated with future GILTI inclusions. Our accounting policies depend, in part, on analyzing our global income to determine whether we expect a tax liability resulting from the application of this provision, and, if so, whether and when to record related current and deferred income taxes. Whether we intend to recognize deferred tax liabilities related to the GILTI provisions is dependent, in part, on our assessment of the Company's future operating structure. In addition, we are awaiting further interpretive guidance in connection with the computation of the GILTI tax. For these reasons, we are not yet able to reasonably estimate the effect of this provision of the Tax Reform Act. Therefore, we have not made any adjustments relating to potential GILTI tax in our consolidated financial statements and have not made a policy decision regarding our accounting for GILTI.
We are also currently analyzing certain additional provisions of the Tax Reform Act that come into effect for tax years starting January 1, 2018 and will determine if these items would impact the effective tax rate in the year the income or expense occurs. These provisions include the BEAT provisions, eliminating U.S. federal income taxes on dividends from foreign subsidiaries, the new provision that could limit the amount of deductible interest expense, and the limitations on the deductibility of certain executive compensation.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The Company has made a reasonable estimate of the financial statement impact as of January 31, 2018 and has recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended
December 31, 2017
. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis,
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Reform Act. The accounting is expected to be completed within the one year measurement period as allowed by SAB 118.
The consolidated loss before income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
|
|
Domestic
|
$
|
(27,919
|
)
|
|
$
|
(93,639
|
)
|
|
$
|
(126,334
|
)
|
Foreign
|
13,062
|
|
|
9,290
|
|
|
14,478
|
|
Loss before income taxes
|
$
|
(14,857
|
)
|
|
$
|
(84,349
|
)
|
|
$
|
(111,856
|
)
|
The consolidated benefit for income taxes included within the consolidated statements of operations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
|
|
Current
|
|
|
|
|
|
Federal
|
$
|
208
|
|
|
$
|
—
|
|
|
$
|
161
|
|
State
|
(125
|
)
|
|
57
|
|
|
104
|
|
Foreign
|
6,878
|
|
|
7,759
|
|
|
5,703
|
|
Total current income tax provision
|
6,961
|
|
|
7,816
|
|
|
5,968
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
Federal
|
(14,864
|
)
|
|
(9,059
|
)
|
|
(24,548
|
)
|
State
|
(1,281
|
)
|
|
(1,781
|
)
|
|
(3,196
|
)
|
Foreign
|
(1,200
|
)
|
|
(3,272
|
)
|
|
(479
|
)
|
Total deferred income tax benefit
|
(17,345
|
)
|
|
(14,112
|
)
|
|
(28,223
|
)
|
Total income tax benefit
|
$
|
(10,384
|
)
|
|
$
|
(6,296
|
)
|
|
$
|
(22,255
|
)
|
The income tax benefit recognized in the accompanying consolidated statements of operations differs from the amounts computed by applying the Federal income tax rate to loss before income tax benefit. A reconciliation of income taxes at the Federal statutory rate to the effective tax rate is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
|
|
Tax at Federal statutory rate of 35%
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State taxes - net of Federal benefit
|
7.7
|
|
|
1.5
|
|
|
2.7
|
|
Research and development incentives
|
1.7
|
|
|
0.5
|
|
|
0.4
|
|
Foreign rate differential
|
5.2
|
|
|
1.3
|
|
|
0.8
|
|
Valuation allowances
|
5.0
|
|
|
(1.8
|
)
|
|
0.2
|
|
Change in foreign tax rates
|
(1.2
|
)
|
|
0.6
|
|
|
(1.0
|
)
|
Decrease (increase) in tax reserves
|
(0.4
|
)
|
|
1.0
|
|
|
(0.2
|
)
|
Stock compensation expense
|
(6.7
|
)
|
|
(0.6
|
)
|
|
(0.7
|
)
|
U.S. taxation of foreign earnings
(1)
|
(10.2
|
)
|
|
(3.6
|
)
|
|
(0.5
|
)
|
Non-deductible meals and entertainment
|
(0.3
|
)
|
|
(0.1
|
)
|
|
(0.1
|
)
|
Non-deductible impairment charges
(2)
|
—
|
|
|
(25.7
|
)
|
|
(16.2
|
)
|
Change in U.S. tax rate
(3)
|
72.5
|
|
|
—
|
|
|
—
|
|
Transition tax on unremitted foreign earnings
(4)
|
(35.7
|
)
|
|
—
|
|
|
—
|
|
Other
|
(2.7
|
)
|
|
(0.6
|
)
|
|
(0.5
|
)
|
Effective tax rate
|
69.9
|
%
|
|
7.5
|
%
|
|
19.9
|
%
|
|
|
(1)
|
During the year ended
December 31, 2017
, the U.S. taxation of foreign earnings includes the recognition of a deferred tax liability for foreign earnings of the Company’s wholly-owned U.S. subsidiaries that are no longer considered permanently reinvested. During the year ended
December 31, 2016
, the amount includes the recognition of a deferred tax liability for the foreign earnings of the Company’s non-majority owned joint venture holding that are no longer considered permanently reinvested.
|
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
|
|
(2)
|
During the years ended
December 31, 2016
and
2015
, the non-deductible impairment charges are related to the impairment of goodwill and other intangible assets.
|
|
|
(3)
|
During the year ended
December 31, 2017
, the change in U.S. tax rate represents the impact of the reduction in the U.S. corporate income tax rate from
35%
to
21%
under the Tax Reform Act.
|
|
|
(4)
|
During the year ended
December 31, 2017
, the transition tax on unremitted foreign earnings represents the impact of the deemed mandatory repatriation provisions under the Tax Reform Act.
|
The Company’s temporary differences which gave rise to deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
Deferred tax assets
|
|
|
|
Accrued expenses and reserves
|
$
|
2,685
|
|
|
$
|
3,832
|
|
Postretirement and postemployment benefits
|
1,702
|
|
|
2,662
|
|
Employee benefits
|
3,476
|
|
|
2,844
|
|
Inventories
|
1,392
|
|
|
2,710
|
|
Other assets
|
1,868
|
|
|
3,310
|
|
Operating loss and credit carryforwards
|
15,257
|
|
|
22,510
|
|
Gross deferred tax assets
|
26,380
|
|
|
37,868
|
|
Less valuation allowance
|
(4,220
|
)
|
|
(4,879
|
)
|
Deferred tax assets
|
22,160
|
|
|
32,989
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
Property, plant and equipment
|
(15,670
|
)
|
|
(25,854
|
)
|
Intangible assets and other liabilities
|
(28,912
|
)
|
|
(46,376
|
)
|
Foreign investments
|
(1,688
|
)
|
|
(2,109
|
)
|
Deferred tax liabilities
|
(46,270
|
)
|
|
(74,339
|
)
|
Net deferred tax liability
|
$
|
(24,110
|
)
|
|
$
|
(41,350
|
)
|
|
|
|
|
Amounts recognized in the statement of financial position consist of:
|
|
|
|
Other assets - net
|
$
|
1,589
|
|
|
$
|
1,258
|
|
Deferred income taxes
|
(25,699
|
)
|
|
(42,608
|
)
|
Net amount recognized
|
$
|
(24,110
|
)
|
|
$
|
(41,350
|
)
|
At
December 31, 2017
, the Company has U.S. federal and state net operating loss carryforwards, which expire at various dates through 2036, approximating
$27.6 million
and
$102.9 million
, respectively. In addition, the Company has U.S. state tax credit carryforwards of
$1.0 million
which expire between 2017 and 2031. The Company’s foreign net operating loss carryforwards total approximately
$16.9 million
(at
December 31, 2017
exchange rates). The majority of these foreign net operating loss carryforwards are available for an indefinite period.
Valuation allowances totaling
$4.2 million
and
$4.9 million
as of
December 31, 2017
and
2016
, respectively, have been established for deferred income tax assets primarily related to certain subsidiary loss carryforwards that may not be realized. Realization of the net deferred income tax assets is dependent on generating sufficient taxable income prior to their expiration. Although realization is not assured, management believes it is more-likely-than-not that the net deferred income tax assets will be realized. The amount of the net deferred income tax assets considered realizable, however, could change in the near term if future taxable income during the carryforward period fluctuates.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Changes in the Company’s gross liability for unrecognized tax benefits, excluding interest and penalties, are as follows for the years ended
December 31, 2017
,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
|
|
Balance at beginning of period
|
$
|
1,881
|
|
|
$
|
2,928
|
|
|
$
|
2,743
|
|
Additions (reductions) based on tax positions related to current year
|
267
|
|
|
126
|
|
|
(28
|
)
|
Additions based on tax positions related to prior years
|
—
|
|
|
—
|
|
|
55
|
|
Additions recognized in acquisition accounting
|
—
|
|
|
—
|
|
|
323
|
|
Reductions in tax positions - settlements
|
—
|
|
|
—
|
|
|
(111
|
)
|
Reductions related to lapses of statute of limitations
|
(232
|
)
|
|
(1,173
|
)
|
|
(54
|
)
|
Balance at end of period
|
$
|
1,916
|
|
|
$
|
1,881
|
|
|
$
|
2,928
|
|
Of the
$1.9 million
,
$1.9 million
, and
$2.9 million
of unrecognized tax benefits as of
December 31, 2017
,
2016
and
2015
, respectively, approximately
$1.9 million
,
$1.6 million
, and
$1.9 million
, respectively, would impact the effective income tax rate if recognized. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as part of its income tax provision. During the years ended
December 31, 2017
,
2016
and
2015
, the Company had an immaterial amount of interest and penalties that were recognized as a component of the income tax provision.
At
December 31, 2017
and
2016
, the Company has an immaterial amount of accrued interest and penalties related to taxes included within the consolidated balance sheet. During the next twelve months, the Company believes it is reasonably possible the total amount of unrecognized tax benefits will stay the same.
The Company, along with its subsidiaries, files returns in the U.S. Federal and various state and foreign jurisdictions. With certain exceptions, the Company is subject to examination by U.S. Federal and state taxing authorities for the taxable years in the following table. The Company does not expect the results of these examinations to have a material impact on the Company.
|
|
|
|
Tax Jurisdiction
|
|
Open Tax Years
|
Brazil
|
|
2013 - 2017
|
France
|
|
2013 - 2017
|
Germany
|
|
2012 - 2017
|
Mexico
|
|
2012 - 2017
|
Sweden
|
|
2012 - 2017
|
United Kingdom
|
|
2016 - 2017
|
United States (federal)
|
|
2014 - 2017
|
United States (state and local)
|
|
2013 - 2017
|
As a result of the deemed mandatory repatriation provisions in the Tax Reform Act, the Company included an estimated
$54.5 million
of undistributed earnings in income subject to U.S. tax at reduced tax rates. During the fourth quarter of 2017, the Company changed its assertion regarding the permanent reinvestment of earnings of its wholly-owned non U.S. subsidiaries. This change in assertion was triggered by the anticipated future impact of changes arising from the enactment of the Tax Reform Act, including the interest expense deduction limitation and significant reduction in the U.S. taxation of earnings repatriated from the Company’s foreign su
bsidiaries. As
a result, during the year ended December 31, 2017, the Company has recognized a deferred tax liability of
$1.7 million
on the undistributed earnings of its wholly-owned foreign subsidiaries. The
$1.7 million
is considered a provisional amount pursuant to SAB 118.
During the second quarter of 2016, the Company changed its assertion regarding the permanent reinvestment of earnings of its non-majority owned joint venture holding. Such change in assertion was driven by several factors. Prior to the second quarter of 2016, the Company had the ability and intent to block the payment of distributions; the Company changed its stance in the second quarter of 2016 to be open to joint venture distributions. This change coincided with the a re-evaluation of the joint venture partners during that quarter of the willingness and ability of the entity to distribute excess cash balances given the maturity, stability and revised growth expectations of the joint venture operations. The impact of this change in assertion was to reduce the income tax benefit for the year ended December 31, 2016 by
$2.9 million
.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
|
|
|
15.
|
Employee Benefit Plans
|
Defined contribution plans
The Company maintains a 401(k) Plan for substantially all full time U.S. employees (the “401(k) Plan”). Company contributions are allocated to accounts set aside for each employee’s retirement. Employees generally may contribute up to
50%
of their compensation to individual accounts within the 401(k) Plan subject to Internal Revenue Service limitations. Employer contributions are equal to
50%
of the first
6%
of employee’s eligible annual cash compensation, also subject to Internal Revenue Service limitations. Expense recognized related to the 401(k) Plan totaled approximately
$2.1 million
,
$2.4 million
and
$1.7 million
, for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
Defined benefit pension plans
The Company maintains defined benefit pension plans covering union and certain other employees. These plans are frozen to new participation.
The table that follows contains the accumulated benefit obligation and reconciliations of the changes in projected benefit obligation, the changes in plan assets and funded status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Year Ended
December 31, 2017
|
|
Year Ended
December 31, 2016
|
|
Year Ended
December 31, 2017
|
|
Year Ended
December 31, 2016
|
Accumulated benefit obligation
|
$
|
10,605
|
|
|
$
|
10,626
|
|
|
$
|
15,054
|
|
|
$
|
13,162
|
|
|
|
|
|
|
|
|
|
Change in projected benefit obligation
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
$
|
10,626
|
|
|
$
|
10,824
|
|
|
$
|
13,532
|
|
|
$
|
12,988
|
|
Service cost
|
—
|
|
|
—
|
|
|
177
|
|
|
155
|
|
Interest cost
|
393
|
|
|
425
|
|
|
312
|
|
|
391
|
|
Actuarial loss
|
292
|
|
|
70
|
|
|
388
|
|
|
1,842
|
|
Benefits paid
|
(706
|
)
|
|
(693
|
)
|
|
(502
|
)
|
|
(506
|
)
|
Other
|
—
|
|
|
—
|
|
|
8
|
|
|
7
|
|
Currency translation adjustment
|
—
|
|
|
—
|
|
|
1,553
|
|
|
(1,345
|
)
|
Projected benefit obligation at end of year
|
$
|
10,605
|
|
|
$
|
10,626
|
|
|
$
|
15,468
|
|
|
$
|
13,532
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
9,282
|
|
|
$
|
8,985
|
|
|
$
|
6,316
|
|
|
$
|
6,393
|
|
Actual return on plan assets
|
1,110
|
|
|
906
|
|
|
536
|
|
|
940
|
|
Employer and employee contributions
|
410
|
|
|
145
|
|
|
485
|
|
|
497
|
|
Benefits paid
|
(706
|
)
|
|
(693
|
)
|
|
(506
|
)
|
|
(510
|
)
|
Other
|
(41
|
)
|
|
(61
|
)
|
|
—
|
|
|
—
|
|
Currency translation adjustment
|
—
|
|
|
—
|
|
|
615
|
|
|
(1,004
|
)
|
Fair value of plan assets at end of year
|
$
|
10,055
|
|
|
$
|
9,282
|
|
|
$
|
7,446
|
|
|
$
|
6,316
|
|
Funded Status
|
$
|
(550
|
)
|
|
$
|
(1,344
|
)
|
|
$
|
(8,022
|
)
|
|
$
|
(7,216
|
)
|
|
|
|
|
|
|
|
|
Weighted-average assumptions
|
|
|
|
|
|
|
|
Discount rates
|
3.33%-3.45%
|
|
3.71%-3.90%
|
|
1.80%-2.40%
|
|
1.70%-2.60%
|
Rate of compensation increase
|
N/A
|
|
N/A
|
|
2.00%-3.70%
|
|
2.00%-3.90%
|
Amounts recognized in the statement of financial position consist of:
|
|
|
|
|
|
|
|
Non-current assets
|
$
|
1,935
|
|
|
$
|
1,409
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other current liabilities
|
—
|
|
|
—
|
|
|
(78
|
)
|
|
(65
|
)
|
Other long-term liabilities
|
(2,485
|
)
|
|
(2,753
|
)
|
|
(7,944
|
)
|
|
(7,151
|
)
|
Net amount recognized
|
$
|
(550
|
)
|
|
$
|
(1,344
|
)
|
|
$
|
(8,022
|
)
|
|
$
|
(7,216
|
)
|
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The following table contains the components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Year Ended
December 31, 2017
|
|
Year Ended
December 31, 2016
|
|
Year Ended
December 31, 2015
|
|
Year Ended
December 31, 2017
|
|
Year Ended
December 31, 2016
|
|
Year Ended
December 31, 2015
|
|
|
|
|
|
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
177
|
|
|
$
|
155
|
|
|
$
|
125
|
|
Interest cost
|
393
|
|
|
425
|
|
|
410
|
|
|
312
|
|
|
391
|
|
|
384
|
|
Expected return on plan assets
|
(467
|
)
|
|
(513
|
)
|
|
(580
|
)
|
|
(226
|
)
|
|
(253
|
)
|
|
(255
|
)
|
Amortization of actuarial loss
|
14
|
|
|
27
|
|
|
—
|
|
|
41
|
|
|
7
|
|
|
—
|
|
Net periodic (benefit) cost
|
$
|
(60
|
)
|
|
$
|
(61
|
)
|
|
$
|
(170
|
)
|
|
$
|
304
|
|
|
$
|
300
|
|
|
$
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions
|
|
|
|
|
|
|
|
|
|
|
|
Discount rates
|
3.71%-3.90%
|
|
3.87%-4.15%
|
|
3.52%-3.75%
|
|
1.70%-2.60%
|
|
2.20%-3.70%
|
|
2.10%-3.50%
|
Rate of compensation increase
|
N/A
|
|
N/A
|
|
N/A
|
|
2.00%-3.90%
|
|
2.00%-3.60%
|
|
2.00%-3.70%
|
Expected long-term rates or return
|
4.75%-6.50%
|
|
5.50%-7.00%
|
|
5.00%-8.00%
|
|
3.50%-4.00%
|
|
4.00%-4.20%
|
|
3.90%-4.50%
|
The expected return on plan assets is based on the Company’s expectation of the long-term average rate of return of the capital markets in which the plans invest. The expected return reflects the target asset allocations and considers the historical returns earned for each asset category. The Company determines the discount rate assumptions by referencing high-quality long-term bond rates that are matched to the duration of our benefit obligations, with appropriate consideration of local market factors, participant demographics and benefit payment terms.
The net amounts recognized in accumulated other comprehensive loss related to the Company’s defined benefit pension plans consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2017
|
|
Year Ended
December 31, 2016
|
|
Year Ended
December 31, 2015
|
|
|
|
Unrecognized loss
|
$
|
2,099
|
|
|
$
|
1,994
|
|
|
$
|
1,364
|
|
In the next fiscal year,
$0.1 million
of unrecognized loss within accumulated other comprehensive loss is expected to be recognized as a component of net periodic benefit cost.
The Company’s investment policies employ an approach whereby a mix of equities and fixed income investments are used to maximize the long-term return on plan assets for a prudent level of risk. The investment portfolio primarily contains a diversified blend of equity and fixed income investments. Equity investments are diversified across domestic and non-domestic stocks, and investment and market risk are measured and monitored on an ongoing basis. The Company’s actual asset allocations are in line with target allocations and the Company does not have concentration within individual or similar investments that would pose a significant concentration risk to the Company.
The Company’s pension plan asset allocations by asset category at
December 31, 2017
and
2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Equity securities
|
58.7
|
%
|
|
56.0
|
%
|
|
47.1
|
%
|
|
45.5
|
%
|
Debt securities
|
29.4
|
%
|
|
35.1
|
%
|
|
49.3
|
%
|
|
50.7
|
%
|
Other
|
11.9
|
%
|
|
8.9
|
%
|
|
3.6
|
%
|
|
3.8
|
%
|
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The fair values of pension plan assets by asset category at
December 31, 2017
and
2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as of December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Cash and cash equivalents
|
$
|
1,202
|
|
|
$
|
1,202
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Accrued dividends
|
3
|
|
|
3
|
|
|
—
|
|
|
—
|
|
Global equities
|
9,413
|
|
|
9,413
|
|
|
—
|
|
|
—
|
|
Fixed income securities
|
6,630
|
|
|
—
|
|
|
6,630
|
|
|
—
|
|
Group annuity/insurance contracts
|
253
|
|
|
—
|
|
|
—
|
|
|
253
|
|
Total
|
$
|
17,501
|
|
|
$
|
10,618
|
|
|
$
|
6,630
|
|
|
$
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as of December 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Cash and cash equivalents
|
$
|
842
|
|
|
$
|
842
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Accrued dividends
|
3
|
|
|
3
|
|
|
—
|
|
|
—
|
|
Global equities
|
8,066
|
|
|
8,066
|
|
|
—
|
|
|
—
|
|
Fixed income securities
|
6,461
|
|
|
—
|
|
|
6,461
|
|
|
—
|
|
Group annuity/insurance contracts
|
226
|
|
|
—
|
|
|
—
|
|
|
226
|
|
Total
|
$
|
15,598
|
|
|
$
|
8,911
|
|
|
$
|
6,461
|
|
|
$
|
226
|
|
The fair value measurement of plan assets using significant unobservable inputs (Level 3) changed during
2017
due to the following:
|
|
|
|
|
Beginning balance, December 31, 2016
|
$
|
226
|
|
Actual return on assets related to assets still held
|
7
|
|
Purchases, sales and settlements
|
20
|
|
Ending balance, December 31, 2017
|
$
|
253
|
|
No assets were transferred between levels of the fair value hierarchy during the years ended
December 31, 2017
and
December 31, 2016
.
Quoted market prices are used to value investments when available. Investments in securities traded on exchanges are valued at the last reported sale prices on the last business day of the year or, if not available, the last reported bid prices.
The Company’s cash contributions to its defined benefit pension plans in
2018
are estimated to be approximately
$0.8 million
. Estimated projected benefit payments from the plans as of
December 31, 2017
are as follows:
|
|
|
|
|
2018
|
$
|
1,219
|
|
2019
|
1,218
|
|
2020
|
1,362
|
|
2021
|
1,315
|
|
2022
|
1,281
|
|
2023-2027
|
6,821
|
|
Multiemployer plan
Morton hourly union employees were covered under the National Shopmen Pension Fund (EIN 52-6122274, plan number 001), a union-sponsored and trusteed multiemployer plan which required the Company to contribute a negotiated amount per hour worked by the employees covered by the plan. The Company made the decision to withdraw from this plan in August 2012. The withdrawal amount was finalized during 2013. As of
December 31, 2017
, a liability of
$1.5 million
is recorded within other long-term liabilities and a liability of
$0.2 million
is recorded within other current liabilities on the consolidated balance sheets. As of
December 31, 2016
,
$1.7 million
is recorded within other long-term liabilities and
$0.2 million
is recorded within other current liabilities on the consolidated balance sheets. The total liability will be paid in equal monthly installments through
April 2026
, and interest expense will be incurred associated with the discounting of this liability through that date.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Postretirement health care and life insurance plans
The Company also provides postretirement health care benefits and life insurance coverage to certain eligible former employees at one of its segments. The costs of retiree health care benefits and life insurance coverage are accrued over the employee benefit period.
The table that follows contains the accumulated benefit obligation and reconciliations of the changes in projected benefit obligation, the changes in plan assets and funded status:
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2017
|
|
Year Ended
December 31, 2016
|
Accumulated benefit obligation
|
$
|
1,423
|
|
|
$
|
1,972
|
|
|
|
|
|
Change in projected benefit obligation
|
|
|
|
Projected benefit obligation at beginning of year
|
$
|
1,972
|
|
|
$
|
2,094
|
|
Interest cost
|
68
|
|
|
76
|
|
Actuarial gain
|
(483
|
)
|
|
(37
|
)
|
Benefits paid
|
(134
|
)
|
|
(161
|
)
|
Projected benefit obligation at end of year
|
$
|
1,423
|
|
|
$
|
1,972
|
|
|
|
|
|
Change in plan assets
|
|
|
|
Employer contributions
|
$
|
134
|
|
|
$
|
161
|
|
Benefits paid
|
(134
|
)
|
|
(161
|
)
|
Fair value of plan assets at end of year
|
$
|
—
|
|
|
$
|
—
|
|
Funded Status
|
$
|
(1,423
|
)
|
|
$
|
(1,972
|
)
|
|
|
|
|
Weighted-average assumptions
|
|
|
|
Discount rates
|
3.26
|
%
|
|
3.64
|
%
|
Amounts recognized in the statement of financial position consist of:
|
|
|
|
Other current liabilities
|
$
|
(142
|
)
|
|
$
|
(208
|
)
|
Other long-term liabilities
|
(1,281
|
)
|
|
(1,764
|
)
|
Net amount recognized
|
$
|
(1,423
|
)
|
|
$
|
(1,972
|
)
|
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was a blended rate of
8.40%
and
5.50%
at
December 31, 2017
and
December 31, 2016
, respectively. It was assumed that these rates will decline by
1%
to
3%
every
5
years for the next
15
years. An increase or decrease in the medical trend rate of
1%
would increase or decrease the accumulated postretirement benefit obligation by approximately
$0.1 million
and
$0.1 million
, respectively.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The table that follows contains the components of net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2017
|
|
Year Ended
December 31, 2016
|
|
Year Ended
December 31, 2015
|
|
|
|
Components of net periodic benefit cost
|
|
|
|
|
|
Interest cost
|
$
|
68
|
|
|
$
|
76
|
|
|
$
|
92
|
|
Amortization of the net (gain) loss from earlier periods
|
(18
|
)
|
|
(13
|
)
|
|
1
|
|
Net periodic benefit cost
|
$
|
50
|
|
|
$
|
63
|
|
|
$
|
93
|
|
|
|
|
|
|
|
Weighted-average assumptions
|
|
|
|
|
|
Discount rates
|
3.64
|
%
|
|
3.82
|
%
|
|
3.82
|
%
|
The net amounts recognized in accumulated other comprehensive loss related to the Company’s other postretirement healthcare and life insurance plans consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2017
|
|
Year Ended
December 31, 2016
|
|
Year Ended
December 31, 2015
|
|
|
|
Unrecognized gain
|
$
|
(582
|
)
|
|
$
|
(217
|
)
|
|
$
|
(214
|
)
|
In the next fiscal year,
$0.1 million
of unrecognized gain within accumulated other comprehensive loss is expected to be recognized as a component of net periodic benefit cost.
The Company’s cash contributions to its postretirement benefit plan in
2018
are not yet determined but are expected to equal the projected benefits from the plan. Estimated projected benefit payments from the plan at
December 31, 2017
are as follows:
|
|
|
|
|
2018
|
$
|
144
|
|
2019
|
139
|
|
2020
|
132
|
|
2021
|
123
|
|
2022
|
116
|
|
2023-2027
|
475
|
|
|
|
|
16.
|
Business Segments, Geographic and Customer Information
|
The Company’s business activities are organized into reportable segments based on their similar economic characteristics, products, production processes, types of customers and distribution methods.
The Company is a global manufacturer of a broad range of industrial products and is organized into
four
reportable segments: finishing, components, seating and acoustics.
The Company’s 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 walking 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.
Net sales relating to the Company’s reportable segments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31, 2015
|
Finishing
|
$
|
200,284
|
|
|
$
|
196,883
|
|
|
$
|
191,394
|
|
Components
|
82,621
|
|
|
97,667
|
|
|
122,133
|
|
Seating
|
159,129
|
|
|
161,050
|
|
|
176,792
|
|
Acoustics
|
206,582
|
|
|
249,919
|
|
|
218,047
|
|
Net sales
|
$
|
648,616
|
|
|
$
|
705,519
|
|
|
$
|
708,366
|
|
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, income 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, divestitures and extinguishment of debt, 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 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, 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 segment 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31, 2015
|
Segment Adjusted EBITDA
|
|
|
|
|
|
Finishing
|
$
|
27,661
|
|
|
$
|
24,200
|
|
|
$
|
25,799
|
|
Components
|
9,888
|
|
|
14,249
|
|
|
20,943
|
|
Seating
|
16,348
|
|
|
16,122
|
|
|
19,766
|
|
Acoustics
|
27,341
|
|
|
27,202
|
|
|
27,515
|
|
|
$
|
81,238
|
|
|
$
|
81,773
|
|
|
$
|
94,023
|
|
|
|
|
|
|
|
Interest expense
|
(1,370
|
)
|
|
(1,561
|
)
|
|
(1,870
|
)
|
Loss on debt extinguishment
|
(182
|
)
|
|
—
|
|
|
—
|
|
Depreciation and amortization
|
(38,577
|
)
|
|
(43,697
|
)
|
|
(44,938
|
)
|
Impairment charges
|
—
|
|
|
(63,285
|
)
|
|
(94,126
|
)
|
Gain (loss) on disposal of property, plant and equipment - net
|
759
|
|
|
(869
|
)
|
|
(109
|
)
|
Loss on divestiture
|
(8,730
|
)
|
|
—
|
|
|
—
|
|
Restructuring
|
(4,275
|
)
|
|
(6,634
|
)
|
|
(3,800
|
)
|
Transaction-related expenses
|
—
|
|
|
—
|
|
|
(789
|
)
|
Integration and other restructuring costs
|
—
|
|
|
(1,621
|
)
|
|
(2,713
|
)
|
Total segment income (loss) before income taxes
|
28,863
|
|
|
(35,894
|
)
|
|
(54,322
|
)
|
Corporate general and administrative expenses
|
(13,486
|
)
|
|
(17,613
|
)
|
|
(12,860
|
)
|
Corporate interest expense
|
(31,719
|
)
|
|
(30,282
|
)
|
|
(29,965
|
)
|
Corporate gain on debt extinguishment
|
2,383
|
|
|
—
|
|
|
—
|
|
Corporate depreciation
|
(357
|
)
|
|
(344
|
)
|
|
(310
|
)
|
Corporate restructuring
|
9
|
|
|
(598
|
)
|
|
—
|
|
Corporate transaction-related expenses
|
—
|
|
|
—
|
|
|
(97
|
)
|
Corporate integration and other restructuring
|
569
|
|
|
(359
|
)
|
|
(6,333
|
)
|
Corporate loss on disposal of property, plant and equipment
|
—
|
|
|
(11
|
)
|
|
—
|
|
Corporate share based compensation (expense) income
|
(1,119
|
)
|
|
752
|
|
|
(7,969
|
)
|
Loss before income taxes
|
$
|
(14,857
|
)
|
|
$
|
(84,349
|
)
|
|
$
|
(111,856
|
)
|
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Other financial information relating to the Company’s reportable segments is as follows at
December 31, 2017
and
2016
and for the years ended
December 31, 2017
,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31, 2015
|
Depreciation and amortization
|
|
|
|
|
|
Finishing
|
$
|
12,198
|
|
|
$
|
13,693
|
|
|
$
|
11,407
|
|
Components
|
7,821
|
|
|
9,827
|
|
|
8,587
|
|
Seating
|
8,435
|
|
|
8,894
|
|
|
13,693
|
|
Acoustics
|
10,123
|
|
|
11,283
|
|
|
11,251
|
|
Corporate
|
357
|
|
|
344
|
|
|
310
|
|
|
$
|
38,934
|
|
|
$
|
44,041
|
|
|
$
|
45,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31, 2015
|
Capital expenditures
|
|
|
|
|
|
Finishing
|
$
|
5,247
|
|
|
$
|
5,943
|
|
|
$
|
9,090
|
|
Components
|
3,797
|
|
|
2,950
|
|
|
4,875
|
|
Seating
|
2,709
|
|
|
3,602
|
|
|
3,804
|
|
Acoustics
|
3,563
|
|
|
6,058
|
|
|
14,881
|
|
Corporate
|
557
|
|
|
1,227
|
|
|
136
|
|
|
$
|
15,873
|
|
|
$
|
19,780
|
|
|
$
|
32,786
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
Assets
|
|
|
|
Finishing
|
$
|
241,776
|
|
|
$
|
232,550
|
|
Components
|
72,724
|
|
|
81,450
|
|
Seating
|
99,155
|
|
|
105,184
|
|
Acoustics
|
145,490
|
|
|
172,769
|
|
Total segments
|
559,145
|
|
|
591,953
|
|
Corporate and eliminations
|
(12,822
|
)
|
|
(8,117
|
)
|
Consolidated
|
$
|
546,323
|
|
|
$
|
583,836
|
|
Net sales and long-lived asset information by geographic area are as follows at
December 31, 2017
and
2016
and for the years ended
December 31, 2017
,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31, 2015
|
Net sales by region
|
|
|
|
|
|
United States
|
$
|
441,691
|
|
|
$
|
492,667
|
|
|
$
|
510,526
|
|
Europe
|
151,628
|
|
|
154,307
|
|
|
138,578
|
|
Mexico
|
50,080
|
|
|
49,594
|
|
|
48,242
|
|
Other
|
5,217
|
|
|
8,951
|
|
|
11,020
|
|
|
$
|
648,616
|
|
|
$
|
705,519
|
|
|
$
|
708,366
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
Long-lived assets
|
|
|
|
United States
|
$
|
197,174
|
|
|
$
|
219,591
|
|
Europe
|
70,797
|
|
|
84,638
|
|
Mexico
|
13,484
|
|
|
13,734
|
|
Other
|
4,240
|
|
|
4,118
|
|
|
$
|
285,695
|
|
|
$
|
322,081
|
|
Net sales attributed to geographic locations are based on the locations producing the external sales. Long-lived assets by geographic location consist of the net book values of property, plant and equipment and amortizable intangible assets.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
|
|
|
17.
|
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 named the Company and Jeffry N. Quinn as defendants (“Defendants”) and asserted 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 arose 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 sought 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. On September 14, 2017, the New York Supreme Court dismissed, with prejudice, all claims asserted by the Plaintiff. The Plaintiff had the right to appeal the New York Supreme Court’s dismissal within 30 days of having been served written notice that the judgment or order has been entered, along with a copy of the judgment order. As of
December 31, 2017
, the Plaintiff’s 30 day appeal period has expired without an appeal being filed.
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
December 31, 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.
Exchange of Series A Preferred Stock for common stock of Jason Industries, Inc.
On January 22, 2018, certain holders of the Company’s Series A Preferred Stock exchanged
12,136
shares of Series A Preferred Stock for
1,395,640
shares of Company common stock, a conversion rate of
115
shares of Company common stock for each share of Series A Preferred Stock. Under the terms of the Series A Preferred Stock agreements, holders of the Series A Preferred Stock have the option to convert each share of Series A Preferred Stock into approximately
81.18
shares of the Company’s common stock, subject to certain adjustments in the conversion rate. The excess of the book value of the Series A Preferred Stock over the fair value of the Company common stock issued in the exchange and the fair value of the inducement offer, represented by the exchange conversion rate over the agreement conversion rate, will be recorded as a net increase to additional paid-in capital on the consolidated balance sheets. Subsequent to the exchange, the Company had
37,529
shares of Series A Preferred Stock outstanding.