PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Jason Industries, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 29, 2018
|
|
June 30, 2017
|
|
June 29, 2018
|
|
June 30, 2017
|
|
Net sales
|
$
|
168,424
|
|
|
$
|
172,477
|
|
|
$
|
335,678
|
|
|
$
|
347,670
|
|
|
Cost of goods sold
|
131,302
|
|
|
136,833
|
|
|
262,884
|
|
|
277,417
|
|
|
Gross profit
|
37,122
|
|
|
35,644
|
|
|
72,794
|
|
|
70,253
|
|
|
Selling and administrative expenses
|
28,888
|
|
|
25,242
|
|
|
56,412
|
|
|
51,898
|
|
|
Loss (gain) on disposals of property, plant and equipment - net
|
11
|
|
|
65
|
|
|
245
|
|
|
(265
|
)
|
|
Restructuring
|
1,464
|
|
|
543
|
|
|
2,066
|
|
|
1,224
|
|
|
Operating income
|
6,759
|
|
|
9,794
|
|
|
14,071
|
|
|
17,396
|
|
|
Interest expense
|
(8,403
|
)
|
|
(8,395
|
)
|
|
(16,430
|
)
|
|
(16,761
|
)
|
|
Gain on extinguishment of debt
|
—
|
|
|
1,564
|
|
|
—
|
|
|
1,564
|
|
|
Equity income
|
335
|
|
|
277
|
|
|
435
|
|
|
420
|
|
|
Loss on divestiture
|
—
|
|
|
(7,888
|
)
|
|
—
|
|
|
(7,888
|
)
|
|
Other income - net
|
484
|
|
|
90
|
|
|
555
|
|
|
203
|
|
|
Loss before income taxes
|
(825
|
)
|
|
(4,558
|
)
|
|
(1,369
|
)
|
|
(5,066
|
)
|
|
Tax (benefit) provision
|
(238
|
)
|
|
179
|
|
|
37
|
|
|
164
|
|
|
Net loss
|
(587
|
)
|
|
(4,737
|
)
|
|
(1,406
|
)
|
|
(5,230
|
)
|
|
Less net gain attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
Net loss attributable to Jason Industries
|
(587
|
)
|
|
(4,737
|
)
|
|
(1,406
|
)
|
|
(5,235
|
)
|
|
Redemption premium and accretion of dividends on preferred stock
|
765
|
|
|
936
|
|
|
2,493
|
|
|
1,854
|
|
|
Net loss available to common shareholders of Jason Industries
|
$
|
(1,352
|
)
|
|
$
|
(5,673
|
)
|
|
$
|
(3,899
|
)
|
|
$
|
(7,089
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loss per share available to common shareholders of Jason Industries:
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|
|
|
|
|
|
|
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Basic and diluted
|
$
|
(0.05
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
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|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
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Basic and diluted
|
27,677
|
|
|
26,042
|
|
|
27,505
|
|
|
25,914
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Jason Industries, Inc.
Condensed Consolidated Statements of Comprehensive (Loss) Income
(In thousands) (Unaudited)
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|
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|
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Three Months Ended
|
|
Six Months Ended
|
|
|
June 29, 2018
|
|
June 30, 2017
|
|
June 29, 2018
|
|
June 30, 2017
|
|
Net loss
|
$
|
(587
|
)
|
|
$
|
(4,737
|
)
|
|
$
|
(1,406
|
)
|
|
$
|
(5,230
|
)
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
Employee retirement plan adjustments, net of tax
|
6
|
|
|
30
|
|
|
9
|
|
|
30
|
|
|
Foreign currency translation adjustments
|
(5,009
|
)
|
|
5,854
|
|
|
(2,594
|
)
|
|
7,026
|
|
|
Net change in unrealized gains (losses) on cash flow hedges, net of tax expense (benefit) of $125, ($218), $656, ($24), respectively
|
383
|
|
|
(350
|
)
|
|
2,010
|
|
|
(37
|
)
|
|
Total other comprehensive (loss) income
|
(4,620
|
)
|
|
5,534
|
|
|
(575
|
)
|
|
7,019
|
|
|
Comprehensive (loss) income
|
(5,207
|
)
|
|
797
|
|
|
(1,981
|
)
|
|
1,789
|
|
|
Less: Comprehensive income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
43
|
|
|
Comprehensive (loss) income attributable to Jason Industries
|
$
|
(5,207
|
)
|
|
$
|
797
|
|
|
$
|
(1,981
|
)
|
|
$
|
1,746
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Jason Industries, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts) (Unaudited)
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June 29, 2018
|
|
December 31, 2017
|
|
Assets
|
|
|
|
|
Current assets
|
|
|
|
|
Cash and cash equivalents
|
$
|
46,232
|
|
|
$
|
48,887
|
|
|
Accounts receivable - net of allowances for doubtful accounts of $2,565 at June 29, 2018 and $2,959 at December 31, 2017
|
79,436
|
|
|
68,626
|
|
|
Inventories - net
|
68,424
|
|
|
70,819
|
|
|
Other current assets
|
16,344
|
|
|
15,655
|
|
|
Total current assets
|
210,436
|
|
|
203,987
|
|
|
Property, plant and equipment - net of accumulated depreciation of $99,560 at June 29, 2018 and $88,134 at December 31, 2017
|
145,299
|
|
|
154,196
|
|
|
Goodwill
|
44,480
|
|
|
45,142
|
|
|
Other intangible assets - net
|
122,619
|
|
|
131,499
|
|
|
Other assets - net
|
14,254
|
|
|
11,499
|
|
|
Total assets
|
$
|
537,088
|
|
|
$
|
546,323
|
|
|
|
|
|
|
|
Liabilities and Shareholders
’
Equity
|
|
|
|
|
Current liabilities
|
|
|
|
|
Current portion of long-term debt
|
$
|
6,652
|
|
|
$
|
9,704
|
|
|
Accounts payable
|
55,652
|
|
|
53,668
|
|
|
Accrued compensation and employee benefits
|
17,322
|
|
|
17,433
|
|
|
Accrued interest
|
79
|
|
|
276
|
|
|
Other current liabilities
|
16,279
|
|
|
19,806
|
|
|
Total current liabilities
|
95,984
|
|
|
100,887
|
|
|
Long-term debt
|
389,768
|
|
|
391,768
|
|
|
Deferred income taxes
|
24,986
|
|
|
25,699
|
|
|
Other long-term liabilities
|
21,491
|
|
|
22,285
|
|
|
Total liabilities
|
532,229
|
|
|
540,639
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 15)
|
|
|
|
|
|
|
|
|
|
Shareholders
’
Equity
|
|
|
|
|
Preferred stock, $0.0001 par value (5,000,000 shares authorized, 39,040 shares issued and outstanding at June 29, 2018, including 763 shares declared on May 3, 2018 and issued on July 1, 2018, and 49,665 shares issued and outstanding at December 31, 2017, including 968 shares declared on November 28, 2017 and issued on January 1, 2018)
|
39,040
|
|
|
49,665
|
|
|
Jason Industries common stock, $0.0001 par value (120,000,000 shares authorized; issued and outstanding: 27,394,978 shares at June 29, 2018 and 25,966,381 shares at December 31, 2017)
|
3
|
|
|
3
|
|
|
Additional paid-in capital
|
155,185
|
|
|
143,788
|
|
|
Retained deficit
|
(168,606
|
)
|
|
(167,710
|
)
|
|
Accumulated other comprehensive loss
|
(20,763
|
)
|
|
(20,062
|
)
|
|
Total shareholders
’
equity
|
4,859
|
|
|
5,684
|
|
|
Total liabilities and shareholders
’
equity
|
$
|
537,088
|
|
|
$
|
546,323
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
|
Jason Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 29, 2018
|
|
June 30, 2017
|
|
Cash flows from operating activities
|
|
|
|
|
Net loss
|
$
|
(1,406
|
)
|
|
$
|
(5,230
|
)
|
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
Depreciation
|
13,543
|
|
|
13,383
|
|
|
Amortization of intangible assets
|
8,310
|
|
|
6,107
|
|
|
Amortization of deferred financing costs and debt discount
|
1,468
|
|
|
1,498
|
|
|
Equity income
|
(435
|
)
|
|
(420
|
)
|
|
Deferred income taxes
|
(1,090
|
)
|
|
(5,375
|
)
|
|
Loss (gain) on disposals of property, plant and equipment - net
|
245
|
|
|
(265
|
)
|
|
Gain on extinguishment of debt
|
—
|
|
|
(1,564
|
)
|
|
Loss on divestiture
|
—
|
|
|
7,888
|
|
|
Share-based compensation
|
784
|
|
|
673
|
|
|
Net increase (decrease) in cash due to changes in:
|
|
|
|
|
Accounts receivable
|
(11,262
|
)
|
|
(6,316
|
)
|
|
Inventories
|
1,428
|
|
|
4,417
|
|
|
Other current assets
|
514
|
|
|
542
|
|
|
Accounts payable
|
2,636
|
|
|
1,156
|
|
|
Accrued compensation and employee benefits
|
99
|
|
|
4,955
|
|
|
Accrued interest
|
(197
|
)
|
|
(63
|
)
|
|
Accrued income taxes
|
(1,947
|
)
|
|
2,122
|
|
|
Other - net
|
(1,550
|
)
|
|
(2,676
|
)
|
|
Total adjustments
|
12,546
|
|
|
26,062
|
|
|
Net cash provided by operating activities
|
11,140
|
|
|
20,832
|
|
|
Cash flows from investing activities
|
|
|
|
|
Proceeds from disposals of property, plant and equipment
|
84
|
|
|
6,400
|
|
|
Payments for property, plant and equipment
|
(6,939
|
)
|
|
(7,161
|
)
|
|
Acquisitions of patents
|
(25
|
)
|
|
(33
|
)
|
|
Net cash used in investing activities
|
(6,880
|
)
|
|
(794
|
)
|
|
Cash flows from financing activities
|
|
|
|
|
Payments of deferred financing costs
|
(609
|
)
|
|
—
|
|
|
Payments of First and Second Lien term loans
|
(4,050
|
)
|
|
(9,549
|
)
|
|
Proceeds from other long-term debt
|
2,241
|
|
|
6,134
|
|
|
Payments of other long-term debt
|
(3,956
|
)
|
|
(3,671
|
)
|
|
Other financing activities - net
|
(16
|
)
|
|
(39
|
)
|
|
Net cash used in financing activities
|
(6,390
|
)
|
|
(7,125
|
)
|
|
Effect of exchange rate changes on cash and cash equivalents
|
(525
|
)
|
|
1,145
|
|
|
Net (decrease) increase in cash and cash equivalents
|
(2,655
|
)
|
|
14,058
|
|
|
Cash and cash equivalents, beginning of period
|
48,887
|
|
|
40,861
|
|
|
Cash and cash equivalents, end of period
|
$
|
46,232
|
|
|
$
|
54,919
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
Non-cash investing activities:
|
|
|
|
|
Property, plant and equipment acquired through additional liabilities
|
$
|
822
|
|
|
$
|
1,190
|
|
|
Non-cash financing activities:
|
|
|
|
|
Non-cash preferred stock created from dividends declared
|
$
|
1,511
|
|
|
$
|
1,846
|
|
|
Exchange of common stock of JPHI Holdings, Inc. for common stock of Jason Industries, Inc.
|
$
|
—
|
|
|
$
|
62
|
|
|
Exchange of preferred stock for common stock of Jason Industries, Inc.
|
$
|
12,136
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Jason Industries, Inc.
Condensed Consolidated Statements of Shareholders’ Equity (Deficit)
(In thousands) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Deficit
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Shareholders’
Equity Attributable to Jason
Industries, Inc.
|
|
Noncontrolling
Interests
|
|
Total
Shareholders'
Equity
|
|
Balance at December 31, 2017
|
$
|
49,665
|
|
|
$
|
3
|
|
|
$
|
143,788
|
|
|
$
|
(167,710
|
)
|
|
$
|
(20,062
|
)
|
|
$
|
5,684
|
|
|
$
|
—
|
|
|
$
|
5,684
|
|
|
Cumulative impact of accounting changes
|
—
|
|
|
—
|
|
|
—
|
|
|
510
|
|
|
(126
|
)
|
|
384
|
|
|
—
|
|
|
384
|
|
|
Dividends declared
|
1,511
|
|
|
—
|
|
|
(1,516
|
)
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
(5
|
)
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
784
|
|
|
—
|
|
|
—
|
|
|
784
|
|
|
—
|
|
|
784
|
|
|
Tax withholding related to vesting of restricted stock units
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
(7
|
)
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,406
|
)
|
|
—
|
|
|
(1,406
|
)
|
|
—
|
|
|
(1,406
|
)
|
|
Employee retirement plan adjustments, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
9
|
|
|
—
|
|
|
9
|
|
|
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,594
|
)
|
|
(2,594
|
)
|
|
—
|
|
|
(2,594
|
)
|
|
Net changes in unrealized gains on cash flow hedges, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,010
|
|
|
2,010
|
|
|
—
|
|
|
2,010
|
|
|
Exchange of preferred stock for common stock of Jason Industries, Inc.
|
(12,136
|
)
|
|
—
|
|
|
12,136
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Balance at June 29, 2018
|
$
|
39,040
|
|
|
$
|
3
|
|
|
$
|
155,185
|
|
|
$
|
(168,606
|
)
|
|
$
|
(20,763
|
)
|
|
$
|
4,859
|
|
|
$
|
—
|
|
|
$
|
4,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Deficit
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Shareholders’ Deficit
Attributable to Jason
Industries
|
|
Noncontrolling
Interests
|
|
Total
Shareholders’
Deficit
|
|
Balance at December 31, 2016
|
$
|
45,899
|
|
|
$
|
2
|
|
|
$
|
144,666
|
|
|
$
|
(163,232
|
)
|
|
$
|
(30,372
|
)
|
|
$
|
(3,037
|
)
|
|
$
|
(105
|
)
|
|
$
|
(3,142
|
)
|
|
Dividends declared
|
1,846
|
|
|
—
|
|
|
(1,854
|
)
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
(8
|
)
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
673
|
|
|
—
|
|
|
—
|
|
|
673
|
|
|
—
|
|
|
673
|
|
|
Tax withholding related to vesting of restricted stock units
|
—
|
|
|
—
|
|
|
(35
|
)
|
|
—
|
|
|
—
|
|
|
(35
|
)
|
|
—
|
|
|
(35
|
)
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,235
|
)
|
|
—
|
|
|
(5,235
|
)
|
|
5
|
|
|
(5,230
|
)
|
|
Employee retirement plan adjustments, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30
|
|
|
30
|
|
|
—
|
|
|
30
|
|
|
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,990
|
|
|
6,990
|
|
|
36
|
|
|
7,026
|
|
|
Net changes in unrealized losses on cash flow hedges, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(39
|
)
|
|
(39
|
)
|
|
2
|
|
|
(37
|
)
|
|
Exchange of common stock of JPHI Holdings, Inc. for common stock of Jason Industries, Inc.
|
—
|
|
|
1
|
|
|
1,821
|
|
|
—
|
|
|
(1,884
|
)
|
|
(62
|
)
|
|
62
|
|
|
—
|
|
|
Balance at June 30, 2017
|
$
|
47,745
|
|
|
$
|
3
|
|
|
$
|
145,271
|
|
|
$
|
(168,467
|
)
|
|
$
|
(25,275
|
)
|
|
$
|
(723
|
)
|
|
$
|
—
|
|
|
$
|
(723
|
)
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
|
|
|
|
|
|
1.
|
Description of Business and Basis of Presentation
|
Description of Business
Jason Industries, Inc. (“Jason Industries”), including its subsidiaries (collectively, the “Company”), is a global industrial manufacturing company with
four
reportable segments: finishing, components, seating, and acoustics. The segments have operations within the United States and
13
foreign countries. The 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.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial reporting and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. For additional information, including the Company’s significant accounting policies, these condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2017
and the accompanying Notes to Financial Statements (Part I, Item 1 of this Form 10-Q).
The Company’s fiscal year ends on
December 31
. Throughout the year, the Company reports its results using a fiscal calendar whereby each three month quarterly reporting period is approximately thirteen weeks in length, ending on a Friday. The exceptions are the first quarter, which begins on
January 1
, and the
fourth
quarter, which ends on
December 31
. For
2018
, the Company’s fiscal quarters are comprised of the three months ending
March 30
,
June 29
,
September 28
and
December 31
. In
2017
, the Company’s fiscal quarters were comprised of the three months ended
March 31
,
June 30
,
September 29
and
December 31
.
In the opinion of management, all adjustments considered necessary for a fair statement of financial results have been made. Such adjustments consist of only those of a normal recurring nature. Interim results are not necessarily indicative of the results that may be expected for the entire fiscal year.
Recently issued accounting standards
Accounting standards adopted in the current fiscal year
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. See Note
3
, “
Net Sales
” for further discussion regarding the adoption of this standard.
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 requires 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. The Company adopted ASU 2016-16 effective January 1, 2018 on a modified retrospective basis. As a result of the adoption, the Company has recorded a decrease to the opening retained deficit of
$0.3 million
.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
In February 2018, the FASB issued ASU 2018-02, “
Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
” (“ASU 2018-02”). ASU 2018-02 allows for an optional reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the comprehensive tax legislation signed into law on December 22, 2017 by the President of the United States, which is commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Act”). The updated guidance eliminates the stranded tax effects resulting from the Tax Reform Act for those entities that elect the optional reclassification and also requires certain disclosures about the stranded tax effects. ASU 2018-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual reporting periods, with early adoption permitted. The amendments in this update are effective either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized. The Company adopted ASU 2018-02 effective January 1, 2018. As a result of the adoption, the Company has recorded a decrease to the opening retained deficit of
$0.1 million
and an increase to the opening accumulated other comprehensive loss of
$0.1 million
.
In March 2018, the FASB issued ASU 2018-05, “
Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118
” (“ASU 2018-05”). ASU 2018-05 provides guidance for the recognition of provisional amounts in the condensed consolidated financial statements as a result of the Tax Reform Act. The guidance allows for a measurement period of up to one year from the December 22, 2017 enactment date to finalize the accounting related to the Tax Reform Act. ASU 2018-05 was effective upon issuance and accordingly, the Company has applied the guidance from this update within its condensed consolidated financial statements. See Note
11
, “
Income Taxes
” for further discussion regarding the Company’s application of this standard.
Accounting standards to be adopted in future fiscal periods
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 and related guidance are effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual reporting periods, with early adoption permitted. In 2018, the FASB has issued additional ASUs related to ASU 2016-02, which simplify and provide additional guidance to companies for implementation of the standard. This standard must be applied using a modified retrospective approach, which requires recognition and measurement of leases at either the beginning of the earliest period presented or the date of adoption, with certain practical expedients available. The Company intends to adopt the standard on January 1, 2019 and is currently working on finalizing the inventory of lease contracts, implementing a lease contract accounting system and researching certain technical accounting implications of the new standard, including the election of practical expedients related to the adoption of the new standard, discount rates and embedded lease contracts. The Company is in the process of analyzing the impact of the standard on its inventory of lease contracts, however, this standard is expected to have a material impact on the 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 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, with early adoption 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 loss on divestiture presented within the condensed consolidated financial statements for the period ended June 30, 2017 related to the calculation of the write down of the Company’s Acoustics European operations within the acoustics segment (“Acoustics Europe”) recorded when the business was classified as held for sale. As a result of this error, the loss on divestiture was understated by
$1.2 million
.
Also during the third quarter of 2017, the Company identified an error in the cost of goods sold presented in the condensed consolidated financial statements impacting the first and second quarters of 2017. The error resulted in the
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
understatement of recorded depreciation expense of
$0.1 million
in the first quarter of 2017 and
$0.1 million
in the second quarter of 2017.
While the impact of these errors is not material to the previously reported financial statements, the Company has revised its previously issued condensed consolidated financial statements. Amounts throughout the condensed consolidated financial statements and notes thereto have been adjusted to incorporate the revised amounts, where applicable.
The impact of the required correction to the condensed consolidated statements of operations and comprehensive income (loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
|
|
June 30, 2017
|
|
June 30, 2017
|
|
|
As Reported
|
|
Adjustments
|
|
As Revised
|
|
As Reported
|
|
Adjustments
|
|
As Revised
|
|
Cost of goods sold
|
$
|
136,758
|
|
|
$
|
75
|
|
|
$
|
136,833
|
|
|
$
|
277,187
|
|
|
$
|
230
|
|
|
$
|
277,417
|
|
|
Gross profit
|
35,719
|
|
|
(75
|
)
|
|
35,644
|
|
|
70,483
|
|
|
(230
|
)
|
|
70,253
|
|
|
Operating income
|
9,869
|
|
|
(75
|
)
|
|
9,794
|
|
|
17,626
|
|
|
(230
|
)
|
|
17,396
|
|
|
Loss on divestiture
|
(6,686
|
)
|
|
(1,202
|
)
|
|
(7,888
|
)
|
|
(6,686
|
)
|
|
(1,202
|
)
|
|
(7,888
|
)
|
|
Loss before income taxes
|
(3,281
|
)
|
|
(1,277
|
)
|
|
(4,558
|
)
|
|
(3,634
|
)
|
|
(1,432
|
)
|
|
(5,066
|
)
|
|
Tax provision (benefit)
|
200
|
|
|
(21
|
)
|
|
179
|
|
|
228
|
|
|
(64
|
)
|
|
164
|
|
|
Net loss
|
(3,481
|
)
|
|
(1,256
|
)
|
|
(4,737
|
)
|
|
(3,862
|
)
|
|
(1,368
|
)
|
|
(5,230
|
)
|
|
Net loss attributable to Jason Industries
|
(3,481
|
)
|
|
(1,256
|
)
|
|
(4,737
|
)
|
|
(3,867
|
)
|
|
(1,368
|
)
|
|
(5,235
|
)
|
|
Net loss available to common shareholders of Jason Industries
|
(4,417
|
)
|
|
(1,256
|
)
|
|
(5,673
|
)
|
|
(5,721
|
)
|
|
(1,368
|
)
|
|
(7,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share available to common shareholders of Jason Industries:
|
|
Basic and diluted
|
(0.17
|
)
|
|
(0.05
|
)
|
|
(0.22
|
)
|
|
(0.22
|
)
|
|
(0.05
|
)
|
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
2,053
|
|
|
(1,256
|
)
|
|
797
|
|
|
3,157
|
|
|
(1,368
|
)
|
|
1,789
|
|
|
Comprehensive income (loss) attributable to Jason Industries
|
$
|
2,053
|
|
|
$
|
(1,256
|
)
|
|
$
|
797
|
|
|
$
|
3,114
|
|
|
$
|
(1,368
|
)
|
|
$
|
1,746
|
|
The above revisions did not impact total net cash provided by (used in) operating, investing or financing activities within the condensed consolidated statements of cash flows for any previous period. Other than the adjustments to net loss for both the three and six months ended June 30, 2017, as described above, which impacted recorded retained deficit, shareholders
’
equity (deficit) attributable to Jason Industries and total shareholders
’
equity (deficit), there were no other impacts to the condensed consolidated statements of shareholders
’
equity (deficit). There was no impact to the Company
’
s previously reported “segment” Adjusted EBITDA for both the three and six months ended June 30, 2017.
Adoption of ASU 2014-09,
“
Revenue From Contracts With Customers
”
On January 1, 2018, the Company adopted ASU 2014-09,
“
Revenue From Contracts With Customers
”
and all related amendments using the modified retrospective method. Subsequent to the date of adoption, the Company recognizes its revenue in accordance with Accounting Standard Codification (
“
ASC
”
) 606,
“
Revenue From Contracts With Customers
”
(“ASC 606”). Prior to January 1, 2018, the Company recognized revenue in accordance with ASC 605,
“
Revenue Recognition
”
and prior period results continue to be reported under the accounting standards in effect for those periods. Under the modified retrospective approach for the adoption of ASC 606, the cumulative impact of adopting the new standard on the condensed consolidated financial statements was recorded as a decrease to the opening retained deficit of
$0.1 million
as of January 1, 2018.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
Revenue Recognition
Under ASC 606, net sales are recognized when control of a performance obligation is transferred to the customer in an amount that reflects the consideration expected to be received in exchange for the transferred good or service. The Company typically satisfies its performance obligations in contracts with customers upon shipment of the goods or delivery of the services. Amounts invoiced to customers related to shipping and handling are classified as net sales, while expenses for transportation of products to customers are recorded as a component of cost of goods sold on the condensed consolidated statement of operations. Sales, value add, and other taxes collected concurrent with revenue-producing activities are excluded from net sales. As of the contract inception date, the expected time between the completion of the performance obligation and the payment from the customer is less than a year, and as such there are no significant financing components in the consideration recognized and disclosures around unsatisfied performance obligations have been omitted.
The Company estimates whether it will be entitled to variable consideration under the terms of the contract and includes its estimate of variable consideration in the transaction price based on the expected value method when it is deemed probable of being realized based on historical experience and trends. Types of variable consideration may include rebates, discounts, and product returns, among others, which are recorded as a deduction to net sales at the time when control of a performance obligation is transferred to the customer.
The majority of the Company
’
s contracts are for the sale of goods that qualify as separate performance obligations that are distinct from other goods or services provided in the same contract. Transaction price inclusive of estimated variable consideration is allocated to separate performance obligations based on their relative standalone selling prices using observable inputs. When observable inputs are not available, the Company estimates stand alone selling price using cost plus a reasonable margin approach. Contracts entered into with the same customer at or near the same time are combined into a single contract if they represent a single commercial objective, if payment of consideration in one contract is dependent on performance of the other contract, or if promises in different contracts constitute a single performance obligation. For the limited contracts with multiple performance obligations, the contract’s transaction price is allocated to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract.
Performance obligations are satisfied at a point in time or over time as work progresses. Revenue from products transferred to customers at a point in time accounted for more than
99%
of net sales for both the
three and six months ended
June 29, 2018
. The Company recognizes revenue over time for certain production parts with minimum stocking agreements in the finishing business 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 based on the output method of goods produced. Revenue from products transferred to customers over time accounted for less than
1%
of net sales for both the
three and six months ended
June 29, 2018
.
The Company provides industry standard assurance-type warranties which ensure that the manufactured products comply with agreed upon specifications with the customers and do not represent a separate performance obligation with the customer. Warranty based accruals are established under ASC 460, “
Guarantees
”, based on an evaluation of historical warranty experience and management’s estimate of the level of future claims.
Revenue Disaggregation
The finishing segment operates principally as a provider of industrial brushes, polishing buffs and compounds, and abrasive products that are used in a broad range of industrial and infrastructure applications.The components segment operates principally as a component Original Equipment Manufacturer (“OEM”) within the rail and general industrial markets. The Company typically sells products within these businesses under purchase orders through both direct to customer and distribution sales channels. The Company generally transfers control and recognizes net sales when the product is shipped to the customer. Within the finishing business, there are certain custom products for customers with minimum stocking agreements for which the Company recognizes net sales over time. Revenue from products transferred to customers over time accounted for less than
1%
of finishing net sales for both the
three and six months ended
June 29, 2018
.
The seating segment operates principally as a seating OEM within the motorcycle, lawn and turf care, industrial, agriculture, construction, and power sports markets. The acoustics segment operates principally as an automotive OEM Tier-1 and Tier-2 supplier. The products in these businesses are generally custom products sold direct to customers that are awarded by platform to a sole supplier for the life of the platform which can span several years. The Company transfers control and recognizes net sales at a point in time upon shipment to the customer for these contracts.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
The Company disaggregates net sales by geography based on the country of origin of the final sale with the external customer, which in certain cases may be manufactured in other countries at facilities within the Company’s global network. The following table summarizes net sales disaggregated by geography and reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 29, 2018
|
|
|
Finishing
|
|
Components
|
|
Seating
|
|
Acoustics
|
|
Total
|
|
United States
|
$
|
17,993
|
|
|
$
|
24,559
|
|
|
$
|
43,385
|
|
|
$
|
34,463
|
|
|
$
|
120,400
|
|
|
Europe
|
34,317
|
|
|
—
|
|
|
1,608
|
|
|
—
|
|
|
35,925
|
|
|
Mexico
|
2,049
|
|
|
—
|
|
|
—
|
|
|
8,955
|
|
|
11,004
|
|
|
Other
|
1,095
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,095
|
|
|
Total
|
$
|
55,454
|
|
|
$
|
24,559
|
|
|
$
|
44,993
|
|
|
$
|
43,418
|
|
|
$
|
168,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 29, 2018
|
|
|
Finishing
|
|
Components
|
|
Seating
|
|
Acoustics
|
|
Total
|
|
United States
|
$
|
35,781
|
|
|
$
|
46,952
|
|
|
$
|
88,396
|
|
|
$
|
67,844
|
|
|
$
|
238,973
|
|
|
Europe
|
67,555
|
|
|
—
|
|
|
3,631
|
|
|
—
|
|
|
71,186
|
|
|
Mexico
|
4,070
|
|
|
—
|
|
|
—
|
|
|
19,423
|
|
|
23,493
|
|
|
Other
|
2,026
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,026
|
|
|
Total
|
$
|
109,432
|
|
|
$
|
46,952
|
|
|
$
|
92,027
|
|
|
$
|
87,267
|
|
|
$
|
335,678
|
|
The Company disaggregates net sales by sales channel as either direct or distribution net sales. Direct net sales are defined as net sales ordered by and sold directly to the end customer without the involvement of a third party. For our OEM customers, direct sales include certain spare parts and accessories which are intended for resale to end consumers. Distribution net sales are defined as net sales ordered by and sold to a third party that intends to resell the products to the end consumer. The following table summarizes net sales disaggregated by sales channel and reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 29, 2018
|
|
|
Finishing
|
|
Components
|
|
Seating
|
|
Acoustics
|
|
Total
|
|
Direct
|
$
|
29,464
|
|
|
$
|
23,800
|
|
|
$
|
43,681
|
|
|
$
|
43,418
|
|
|
$
|
140,363
|
|
|
Distribution
|
25,990
|
|
|
759
|
|
|
1,312
|
|
|
—
|
|
|
28,061
|
|
|
Total
|
$
|
55,454
|
|
|
$
|
24,559
|
|
|
$
|
44,993
|
|
|
$
|
43,418
|
|
|
$
|
168,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 29, 2018
|
|
|
Finishing
|
|
Components
|
|
Seating
|
|
Acoustics
|
|
Total
|
|
Direct
|
$
|
60,212
|
|
|
$
|
45,572
|
|
|
$
|
90,082
|
|
|
$
|
87,267
|
|
|
$
|
283,133
|
|
|
Distribution
|
49,220
|
|
|
1,380
|
|
|
1,945
|
|
|
—
|
|
|
52,545
|
|
|
Total
|
$
|
109,432
|
|
|
$
|
46,952
|
|
|
$
|
92,027
|
|
|
$
|
87,267
|
|
|
$
|
335,678
|
|
On August 30, 2017, the Company completed the divestiture of 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, 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.
Acoustics Europe had net sales of
$8.1 million
and
$17.0 million
for the three and six months ended June 30, 2017, respectively, and
$22.9 million
for the eight months ended August 30, 2017, the date of closing. The Company determined that the divestiture did not represent a strategic shift that would have a major effect on the Company’s operations and financial results and as such, has continued to report the results of Acoustics Europe within continuing operations in the condensed consolidated statements of operations.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
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 fiscal years ended 2016 and 2017 and the
six months ended June 29, 2018
and are expected to be completed by the end of 2019.
The following table presents the restructuring costs recognized by the Company under the 2016 program by reportable segment. The other costs incurred under the 2016 program for the
six months ended June 29, 2018
primarily include charges related to the consolidation of
two
U.S. plants within the components segment and the consolidation of
two
U.S. plants within the acoustics segment, partially offset by a reduction in expense as a result of the statute of limitations expiring on unasserted employment matter claims in Brazil within the finishing segment. The other costs incurred under the 2016 program for the
six months ended June 30, 2017
primarily include charges related to the consolidation of
two
U.S. plants within the components segment and exit costs related to the wind down of the finishing segment’s facility in Brazil. Based on the announced restructuring actions to date, the Company expects to incur a total of approximately
$15.3 million
under the 2016 program. Restructuring costs are presented separately on the condensed consolidated statements of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Program
|
|
Finishing
|
|
Components
|
|
Seating
|
|
Acoustics
|
|
Corporate
|
|
Total
|
|
Restructuring charges - three months ended June 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
98
|
|
|
$
|
164
|
|
|
$
|
144
|
|
|
$
|
104
|
|
|
$
|
—
|
|
|
$
|
510
|
|
|
Other costs
|
|
(175
|
)
|
|
436
|
|
|
—
|
|
|
693
|
|
|
—
|
|
|
954
|
|
|
Total
|
|
$
|
(77
|
)
|
|
$
|
600
|
|
|
$
|
144
|
|
|
$
|
797
|
|
|
$
|
—
|
|
|
$
|
1,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges - six months ended June 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
19
|
|
|
$
|
164
|
|
|
$
|
144
|
|
|
$
|
104
|
|
|
$
|
—
|
|
|
$
|
431
|
|
|
Lease termination costs
|
|
36
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
36
|
|
|
Other costs
|
|
(126
|
)
|
|
710
|
|
|
—
|
|
|
1,015
|
|
|
—
|
|
|
1,599
|
|
|
Total
|
|
$
|
(71
|
)
|
|
$
|
874
|
|
|
$
|
144
|
|
|
$
|
1,119
|
|
|
$
|
—
|
|
|
$
|
2,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges - three months ended June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
254
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
(9
|
)
|
|
$
|
248
|
|
|
Lease termination costs
|
|
5
|
|
|
—
|
|
|
—
|
|
|
48
|
|
|
—
|
|
|
53
|
|
|
Other costs
|
|
120
|
|
|
110
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
242
|
|
|
Total
|
|
$
|
379
|
|
|
$
|
110
|
|
|
$
|
—
|
|
|
$
|
63
|
|
|
$
|
(9
|
)
|
|
$
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges - six months ended June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
261
|
|
|
$
|
—
|
|
|
$
|
(17
|
)
|
|
$
|
28
|
|
|
$
|
(9
|
)
|
|
$
|
263
|
|
|
Lease termination costs
|
|
25
|
|
|
—
|
|
|
—
|
|
|
111
|
|
|
—
|
|
|
136
|
|
|
Other costs
|
|
222
|
|
|
474
|
|
|
—
|
|
|
129
|
|
|
—
|
|
|
825
|
|
|
Total
|
|
$
|
508
|
|
|
$
|
474
|
|
|
$
|
(17
|
)
|
|
$
|
268
|
|
|
$
|
(9
|
)
|
|
$
|
1,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
The following table presents the cumulative restructuring costs recognized by the Company under the 2016 program by reportable segment. The 2016 program began in the first quarter of 2016 and as such, the cumulative restructuring charges represent the cumulative charges incurred since the inception of the 2016 program through
June 29, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Program
|
|
Finishing
|
|
Components
|
|
Seating
|
|
Acoustics
|
|
Corporate
|
|
Total
|
|
Cumulative restructuring charges - period ended June 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
4,484
|
|
|
$
|
600
|
|
|
$
|
203
|
|
|
$
|
1,043
|
|
|
$
|
588
|
|
|
$
|
6,918
|
|
|
Lease termination costs
|
|
468
|
|
|
—
|
|
|
—
|
|
|
172
|
|
|
—
|
|
|
640
|
|
|
Other costs
|
|
2,112
|
|
|
2,500
|
|
|
—
|
|
|
1,394
|
|
|
—
|
|
|
6,006
|
|
|
Total
|
|
$
|
7,064
|
|
|
$
|
3,100
|
|
|
$
|
203
|
|
|
$
|
2,609
|
|
|
$
|
588
|
|
|
$
|
13,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table represents the restructuring liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
costs
|
|
Lease
termination
costs
|
|
Other costs
|
|
Total
|
|
Balance - December 31, 2017
|
$
|
907
|
|
|
$
|
76
|
|
|
$
|
1,079
|
|
|
$
|
2,062
|
|
|
Current period restructuring charges
|
431
|
|
|
36
|
|
|
1,599
|
|
|
2,066
|
|
|
Cash payments
|
(636
|
)
|
|
(64
|
)
|
|
(2,006
|
)
|
|
(2,706
|
)
|
|
Foreign currency translation adjustments
|
(32
|
)
|
|
(2
|
)
|
|
(37
|
)
|
|
(71
|
)
|
|
Balance - June 29, 2018
|
$
|
670
|
|
|
$
|
46
|
|
|
$
|
635
|
|
|
$
|
1,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
costs
|
|
Lease
termination
costs
|
|
Other costs
|
|
Total
|
|
Balance - December 31, 2016
|
$
|
1,281
|
|
|
$
|
333
|
|
|
$
|
1,085
|
|
|
$
|
2,699
|
|
|
Current period restructuring charges
|
263
|
|
|
136
|
|
|
825
|
|
|
1,224
|
|
|
Cash payments
|
(955
|
)
|
|
(360
|
)
|
|
(1,175
|
)
|
|
(2,490
|
)
|
|
Foreign currency translations adjustments
|
33
|
|
|
8
|
|
|
(9
|
)
|
|
32
|
|
|
Balance - June 30, 2017
|
$
|
622
|
|
|
$
|
117
|
|
|
$
|
726
|
|
|
$
|
1,465
|
|
At
June 29, 2018
and
December 31, 2017
, the restructuring liabilities were classified as other current liabilities on the condensed consolidated balance sheets. At
June 29, 2018
the accrual for other costs primarily relates to the consolidation of
two
U.S. plants within the acoustics segment. At
December 31, 2017
, the accrual for other costs primarily relates to a loss contingency for certain employment matter claims within the finishing segment.
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2018
|
|
December 31, 2017
|
|
Raw material
|
$
|
34,998
|
|
|
$
|
35,925
|
|
|
Work-in-process
|
4,902
|
|
|
4,375
|
|
|
Finished goods
|
28,524
|
|
|
30,519
|
|
|
Total inventories
|
$
|
68,424
|
|
|
$
|
70,819
|
|
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
|
|
|
|
|
|
7.
|
Goodwill and Other Intangible Assets
|
Changes in the carrying amount of goodwill, all of which is within the Company’s finishing segment, were as follows:
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017
|
$
|
45,142
|
|
|
Foreign currency impact
|
(662
|
)
|
|
Balance as of June 29, 2018
|
$
|
44,480
|
|
The Company’s other intangible assets - net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2018
|
|
December 31, 2017
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Patents
|
$
|
2,000
|
|
|
$
|
(844
|
)
|
|
$
|
1,156
|
|
|
$
|
1,985
|
|
|
$
|
(671
|
)
|
|
$
|
1,314
|
|
|
Customer relationships
|
109,726
|
|
|
(30,828
|
)
|
|
78,898
|
|
|
110,210
|
|
|
(24,775
|
)
|
|
85,435
|
|
|
Trademarks and other intangibles
|
57,070
|
|
|
(14,505
|
)
|
|
42,565
|
|
|
57,373
|
|
|
(12,623
|
)
|
|
44,750
|
|
|
Total other intangible assets - net
|
$
|
168,796
|
|
|
$
|
(46,177
|
)
|
|
$
|
122,619
|
|
|
$
|
169,568
|
|
|
$
|
(38,069
|
)
|
|
$
|
131,499
|
|
|
|
|
|
|
|
8.
|
Debt and Hedging Instruments
|
The Company’s debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2018
|
|
December 31, 2017
|
|
First Lien Term Loans
|
$
|
294,090
|
|
|
$
|
298,018
|
|
|
Second Lien Term Loans
|
89,887
|
|
|
90,007
|
|
|
Debt discount on Term Loans
|
(3,127
|
)
|
|
(3,602
|
)
|
|
Deferred financing costs on Term Loans
|
(4,801
|
)
|
|
(5,586
|
)
|
|
Foreign debt
|
19,687
|
|
|
21,795
|
|
|
Capital lease obligations
|
684
|
|
|
840
|
|
|
Total debt
|
396,420
|
|
|
401,472
|
|
|
Less: Current portion
|
(6,652
|
)
|
|
(9,704
|
)
|
|
Total long-term debt
|
$
|
389,768
|
|
|
$
|
391,768
|
|
Senior Secured Credit Facilities
As of
June 29, 2018
, the Company’s U.S. credit facility (the “Senior Secured Credit Facilities”) included (i) term loans in an aggregate principal amount of
$310.0 million
(“First Lien Term Loans”) maturing June 30, 2021, of which
$294.1 million
is outstanding, (ii) term loans in an aggregate principal amount of
$110.0 million
(“Second Lien Term Loans”) maturing June 30, 2022, of which
$89.9 million
is outstanding, and (iii) a revolving loan of up to
$34.3 million
(“Revolving Credit Facility”) maturing June 30, 2020. During the second quarter of 2018, the Company amended its Revolving Credit Facility to extend the maturity date to June 30, 2020. The amendment reduced the borrowing capacity from
$40.0 million
to
$34.3 million
until June 30, 2019, and thereafter,
$30.0 million
until June 30, 2020. In connection with the amendment, the Company paid deferred financing costs of
$0.6 million
which have been recorded within other assets-net within the condensed consolidated balance sheets.
The principal amount of the First Lien Term Loans amortizes in quarterly installments equal to
$0.8 million
, with the balance payable at maturity. At the Company’s election, the interest rate per annum applicable to the loans under the Senior Secured Credit Facilities is based on a fluctuating rate of interest determined by reference to either (i) a base rate determined by reference to the higher of (a) the administrative agent’s prime rate, (b) the federal funds effective rate plus
0.50%
or (c) the Eurocurrency rate applicable for an interest period of one month plus
1.00%
, plus an applicable margin equal to (x)
3.50%
in the case of the First Lien Term Loans, (y)
2.25%
in the case of the Revolving Credit Facility or (z)
7.00%
in the case of the
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
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 are subject to a floor of
1.00%
in the case of Eurocurrency loans. The applicable margin for loans under the Revolving Credit Facility may be subject to adjustment based upon Jason Incorporated’s (an indirect wholly-owned subsidiary of the Company) consolidated first lien net leverage ratio.
Under the Revolving Credit Facility, if the aggregate outstanding amount of all Revolving Loans, swingline loans and certain letter of credit obligations exceeds
$10.0
million at the end of any fiscal quarter, Jason Incorporated and its restricted subsidiaries will be required to not exceed a consolidated first lien net leverage ratio, currently specified at
4.50
to
1.00
, with a decrease to
4.25
to
1.00
on
December 31, 2019
and remaining at that level thereafter. If such outstanding amounts do not exceed
$10.0
million at the end of any fiscal quarter, no financial covenants are applicable.
At
June 29, 2018
, the interest rates on the outstanding balances of the First Lien Term Loans and Second Lien Term Loans were
6.8%
and
10.3%
, respectively. At
June 29, 2018
, the Company had a total of
$28.5 million
of availability for additional borrowings under the Revolving Credit Facility since the Company had
no
outstanding borrowings and letters of credit outstanding of
$5.8 million
, which reduce availability under the facility.
Under the Senior Secured Credit Facilities, the Company is subject to mandatory prepayments if certain requirements are met. The mandatory prepayment is in excess of regular current installments due. At
December 31, 2017
, a mandatory excess cash flow prepayment of
$2.5 million
under the Senior Secured Credit Facilities was included within the current portion of long-term debt in the condensed consolidated balance sheets. This mandatory prepayment of
$2.5 million
was paid on
April 6, 2018
.
During the second quarter of 2017, the Company repurchased
$8.0 million
of Second Lien Term Loans for
$6.1 million
. In connection with the repurchase, the Company wrote off
$0.2 million
of previously unamortized debt discount and
$0.1 million
of previously unamortized deferred financing costs, which were recorded as a reduction to the gain on extinguishment of debt. The transactions resulted in a net gain of
$1.6 million
which has been recorded within the condensed consolidated statements of operations.
Foreign debt
The Company has the following foreign debt obligations, including various overdraft facilities and term loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2018
|
|
December 31, 2017
|
|
Germany
|
$
|
16,599
|
|
|
$
|
18,003
|
|
|
Mexico
|
2,500
|
|
|
3,179
|
|
|
India
|
508
|
|
|
599
|
|
|
Other
|
80
|
|
|
14
|
|
|
Total foreign debt
|
$
|
19,687
|
|
|
$
|
21,795
|
|
These various foreign loans are comprised of individual outstanding obligations ranging from approximately
$0.1 million
to
$10.2 million
and
$0.1 million
to
$11.2 million
as of
June 29, 2018
and
December 31, 2017
, respectively. Certain of the Company’s foreign borrowings contain financial covenants requiring maintenance of a minimum equity ratio and/or maximum leverage ratio, among others. The Company was in compliance with these covenants as of
June 29, 2018
.
The foreign debt obligations in Germany primarily relate to term loans of
$16.5 million
at
June 29, 2018
and
$18.0 million
at
December 31, 2017
. 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
.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
Interest Rate Hedge Contracts
The Company is exposed to certain financial risks relating to fluctuations in interest rates. To manage exposure to such fluctuations, the Company entered into forward starting interest rate swap agreements (“Swaps”) in 2015 with notional values totaling
$210.0 million
at both
June 29, 2018
and
December 31, 2017
. The Swaps have been designated by the Company as cash flow hedges, and effectively fix the variable portion of interest rates on variable rate term loan borrowings at a rate of approximately
2.08%
prior to financing spreads and related fees. The Swaps had a forward start date of December 30, 2016 and have an expiration date of June 30, 2020. As such, the Company began recognizing interest expense related to the interest rate hedge contracts in the first quarter of 2017. For the
six months ended
June 29, 2018
and
June 30, 2017
, the Company recognized
$0.1 million
and
$1.1 million
, respectively, of interest expense related to the Swaps. Based on current interest rates, the Company expects to recognize interest income of
$0.5 million
related to the Swaps in the next 12 months.
The fair values of the Company’s Swaps are recorded on the condensed consolidated balance sheets with the corresponding offset recorded as a component of accumulated other comprehensive loss. The fair value of the Swaps was
$2.7 million
at
June 29, 2018
and
$0.1 million
at
December 31, 2017
, respectively. See the amounts recorded on the condensed consolidated balance sheets within the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2018
|
|
December 31, 2017
|
|
Interest rate swaps:
|
|
|
|
|
Recorded in other current assets
|
$
|
1,756
|
|
|
$
|
—
|
|
|
Recorded in other assets - net
|
988
|
|
|
537
|
|
|
Recorded in other current liabilities
|
—
|
|
|
(458
|
)
|
|
Total net asset derivatives designated as hedging instruments
|
$
|
2,744
|
|
|
$
|
79
|
|
|
|
|
|
|
|
9.
|
Share-Based Compensation
|
In 2014, the Company’s Board of Directors approved
3,473,435
shares of common stock to be reserved and authorized for issuance under the 2014 Omnibus Incentive Plan (the “2014 Plan”) to certain executive officers, senior management employees, and members of the Board of Directors. On February 27, 2018, the Company’s Board of Directors unanimously approved an amendment to the 2014 Plan to increase the number of authorized shares of common stock by
4,000,000
shares. At
June 29, 2018
, there were
2,325,210
shares of common stock that remained authorized and available for future grants.
The Company recognizes compensation expense based on estimated grant date fair values for all share-based awards issued to employees and directors, including restricted stock units (“RSUs”) and performance share units, which are restricted stock units with vesting conditions contingent upon achieving certain performance goals. Share-based compensation expense is reported in selling and administrative expenses in the Company’s condensed consolidated statements of operations.
The Company recognized the following share-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 29, 2018
|
|
June 30, 2017
|
|
June 29, 2018
|
|
June 30, 2017
|
|
Restricted stock units
|
$
|
444
|
|
|
$
|
321
|
|
|
$
|
568
|
|
|
$
|
664
|
|
|
Adjusted EBITDA vesting awards
|
109
|
|
|
—
|
|
|
216
|
|
|
—
|
|
|
Stock price vesting awards
|
—
|
|
|
3
|
|
|
—
|
|
|
9
|
|
|
Total share-based compensation expense
|
$
|
553
|
|
|
$
|
324
|
|
|
$
|
784
|
|
|
$
|
673
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax benefit recognized
|
$
|
137
|
|
|
$
|
124
|
|
|
$
|
194
|
|
|
$
|
257
|
|
As of
June 29, 2018
, total unrecognized compensation cost related to share-based compensation awards was approximately
$7.3 million
, which the Company expects to recognize over a weighted average period of approximately
2.4 years
.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
The following table sets forth the restricted and performance share unit activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Share Units
|
|
|
Restricted Stock Units
|
|
Adjusted EBITDA Vesting Awards
|
|
ROIC Vesting Awards
|
|
|
Units
(thousands)
|
|
Weighted-Average Grant-Date Fair Value
|
|
Units
(thousands)
|
|
Weighted-Average Grant-Date Fair Value
|
|
Units
(thousands)
|
|
Weighted-Average Grant-Date Fair Value
|
|
Outstanding at December 31, 2017
|
1,033
|
|
|
$
|
2.84
|
|
|
908
|
|
|
$
|
1.30
|
|
|
410
|
|
|
$
|
3.70
|
|
|
Granted
|
2,041
|
|
|
2.98
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Issued
|
(36
|
)
|
|
3.72
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Forfeited
|
(1
|
)
|
|
3.46
|
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
|
3.46
|
|
|
Outstanding at June 29, 2018
|
3,037
|
|
|
$
|
2.92
|
|
|
908
|
|
|
$
|
1.30
|
|
|
398
|
|
|
$
|
3.71
|
|
Restricted Stock Units
As of
June 29, 2018
, there was
$6.5 million
of unrecognized share-based compensation expense related to
2,748,548
RSU awards, with a weighted-average grant date fair value of
$2.66
, that are expected to vest over a weighted-average period of
2.5 years
. Included within the
3,037,002
RSU awards outstanding as of
June 29, 2018
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
.
In connection with the vesting of RSUs previously granted by the Company, a number of shares sufficient to fund statutory minimum tax withholding requirements was withheld from the total shares issued or released to the award holder (under the terms of the 2014 Plan, the shares are considered to have been issued and are not added back to the pool of shares available for grant). During the
six months ended June 29, 2018
and
June 30, 2017
, there were
2,837
and
25,532
shares, respectively, withheld to satisfy the requirement. The withholding is treated as a reduction in additional paid-in capital in the accompanying condensed consolidated statements of shareholders’ equity (deficit).
Performance Share Units
Adjusted EBITDA Vesting Awards - 2017 Grant
In the third quarter of 2017, the Company granted performance share unit awards based on achievement of an Adjusted EBITDA performance target during a
three
year measurement period ending March 30, 2020. Performance share unit awards based on Adjusted EBITDA performance metrics are payable at the end of their respective performance period in common stock. The number of share units awarded can range from
zero
to
100%
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 approximately
three
years.
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
June 29, 2018
, there was
$0.8 million
of unrecognized compensation expense related to cumulative Adjusted EBITDA based vesting performance share unit awards, which is expected to be recognized over a weighted average period of
1.8 years
.
ROIC Vesting Awards
During the fourth quarter of 2016, the Company lowered its estimated vesting of ROIC (return on invested capital) based performance share unit awards with a
three
year measurement period ending on December 31, 2018 from
100%
of target, or
265,068
shares, to an estimated payout of
0%
of target or
0
shares. As of
June 29, 2018
, 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 Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
Basic income (loss) per share is calculated by dividing net income (loss) attributable to Jason Industries’ common shareholders by the weighted average number of common shares outstanding for the period. In computing dilutive income (loss) per share, basic income (loss) per share is adjusted for the assumed issuance of all potentially dilutive share-based awards, including public warrants, RSUs, performance share units, convertible preferred stock, and certain “Rollover Shares” of JPHI Holdings Inc. (“JPHI”), a majority owned subsidiary of the Company until the first quarter of 2017 (and now a wholly owned subsidiary), convertible into shares of Jason Industries. Such Rollover Shares were contributed by former owners and management of Jason Partners Holdings Inc. prior to the Company’s acquisition of JPHI. Public warrants (“warrants”) consist of warrants to purchase shares of Jason Industries common stock which are quoted on Nasdaq under the symbol “JASNW.”
The reconciliation of the numerator and denominator of the basic and diluted loss per share calculation and the anti-dilutive shares are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 29, 2018
|
|
June 30, 2017
|
|
June 29, 2018
|
|
June 30, 2017
|
|
Net loss per share attributable to Jason Industries common shareholders
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
$
|
(0.05
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss available to common shareholders of Jason Industries
|
$
|
(1,352
|
)
|
|
$
|
(5,673
|
)
|
|
$
|
(3,899
|
)
|
|
$
|
(7,089
|
)
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic and diluted weighted-average shares outstanding
|
27,677
|
|
|
26,042
|
|
|
27,505
|
|
|
25,914
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of anti-dilutive shares excluded from denominator:
|
|
|
|
|
|
|
|
|
Warrants to purchase Jason Industries common stock
(1)
|
13,994
|
|
|
13,994
|
|
|
13,994
|
|
|
13,994
|
|
|
Conversion of Series A 8% Perpetual Convertible Preferred
(2)
|
3,147
|
|
|
3,815
|
|
|
3,227
|
|
|
3,778
|
|
|
Conversion of JPHI rollover shares convertible to Jason Industries common stock
(3)
|
—
|
|
|
—
|
|
|
—
|
|
|
119
|
|
|
Restricted stock units
|
1,991
|
|
|
546
|
|
|
1,512
|
|
|
547
|
|
|
Performance share units
|
1,306
|
|
|
1,381
|
|
|
1,311
|
|
|
1,422
|
|
|
Total
|
20,438
|
|
|
19,736
|
|
|
20,044
|
|
|
19,860
|
|
|
|
|
|
(1)
|
Each outstanding warrant entitles the holder to purchase one share of the Company’s common stock at a price of
$12.00
per share. The warrants expire on June 30, 2019.
|
|
|
|
|
(2)
|
Includes the impact of
763
additional Series A Preferred Stock shares from a stock dividend declared on
May 3, 2018
to be paid in additional shares of Series A Preferred Stock on
July 1, 2018
. The Company included the preferred stock within the condensed consolidated balance sheets as of the declaration date. Conversion is presented at the voluntary conversion ratio of approximately
81.18
common shares for each preferred share.
|
|
|
|
|
(3)
|
Includes the impact of the exchange by certain Rollover Participants of their JPHI stock for Company common stock in the first quarter of 2017.
|
Warrants are considered anti-dilutive and excluded when the exercise price exceeds the average market value of the Company’s common stock price during the applicable period. Performance share units are considered anti-dilutive if the performance targets upon which the issuance of the shares are contingent have not been achieved and the respective performance period has not been completed as of the end of the current period. Due to losses available to the Company’s common shareholders for each of the periods presented, potentially dilutive shares are excluded from the diluted net loss per 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 Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
At the end of each three month period, the Company estimates a base effective tax rate expected for the full year based on the most recent forecast of its pre-tax income (loss), permanent book and tax differences, and global tax planning strategies. The Company uses this base rate to provide for income taxes on a year-to-date basis, excluding the effect of significant, unusual, discrete or extraordinary items, and items that are reported net of their related tax effects. The Company records the tax effect of significant, unusual, discrete or extraordinary items, and items that are reported net of their tax effects in the period in which they occur.
On December 22, 2017, the President of the United States signed into law the Tax Reform Act. The Tax Reform Act significantly changed U.S. tax law by lowering corporate income tax rates, implementing a territorial tax system and imposing a one-time repatriation tax on deemed repatriated earnings of foreign subsidiaries, among others. The Tax Reform Act also added many new provisions including changes to bonus depreciation and the deductions for executive compensation and interest expense. 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 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.
We are currently analyzing these additional provisions of the Tax Reform Act that came 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 GILTI provisions, 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. While the Company has not completed its analysis of all provisions of the Tax Reform Act, the Company has included an estimate of the amount of GILTI, deductible interest expense and limitations on the deductibility of certain executive compensation in its estimated annual base effective tax rate for the year ended December 31, 2018.
In March 2018, the FASB issued ASU 2018-05 to address the application of 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
June 29, 2018
and has recognized the provisional tax impacts related to deemed repatriated earnings and included these amounts in its condensed consolidated financial statements for both the
three and six months ended
June 29, 2018
. 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 ASU 2018-05.
The effective tax rate was
28.8%
and
(3.9)%
for the
three months ended June 29, 2018
and
June 30, 2017
, respectively. The effective tax rate was
(2.7)%
and
(3.2)%
for the
six months ended
June 29, 2018
and
June 30, 2017
, respectively. The effective income tax rate for both 2018 and 2017 reflects the amount of taxable income or loss at the U.S. Federal statutory rate, taxable earnings or losses derived in foreign jurisdictions with tax rates that differ from the U.S. Federal statutory rate, and discrete items. The net discrete tax benefit was
$0.5 million
for both the
three and six months ended
June 29, 2018
. The net discrete provision was
$0.4 million
and
$0.6 million
for the
three and six months ended
June 30, 2017
, respectively.
The amount of gross unrecognized tax benefits was
$1.9 million
as of
June 29, 2018
and
December 31, 2017
, all of which would reduce the Company’s effective tax rate if recognized.
During the next twelve months, the Company believes it is reasonably possible that the total amount of unrecognized tax benefits could stay the same. The Company recognizes interest and penalties related to tax matters in its tax provision. The Company has an immaterial amount of accrued interest and penalties that were recognized as a component of the income tax provision as of
June 29, 2018
and
December 31, 2017
.
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 recognized a deferred tax liability of
$1.7 million
on the undistributed earnings of its wholly-owned foreign subsidiaries. This amount is considered provisional pursuant to ASU 2018-05. The Company continues to evaluate the impact of the Tax Reform Act on its undistributed foreign earnings and profits.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
|
|
|
|
|
|
12.
|
Shareholders
’
Equity (Deficit)
|
The changes in the components of accumulated other comprehensive loss, net of taxes, for the
six months ended June 29, 2018
and
June 30, 2017
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee retirement plan adjustments
|
|
Foreign currency translation adjustments
|
|
Net unrealized gains on cash flow hedges
|
|
Total
|
|
Balance at December 31, 2017
|
$
|
(1,517
|
)
|
|
$
|
(18,596
|
)
|
|
$
|
51
|
|
|
$
|
(20,062
|
)
|
|
Cumulative impact of accounting changes
|
(137
|
)
|
|
—
|
|
|
11
|
|
|
(126
|
)
|
|
Other comprehensive (loss) income before reclassifications
|
—
|
|
|
(2,594
|
)
|
|
1,949
|
|
|
(645
|
)
|
|
Amounts reclassified from accumulated other comprehensive loss
|
9
|
|
|
—
|
|
|
61
|
|
|
70
|
|
|
Balance at June 29, 2018
|
$
|
(1,645
|
)
|
|
$
|
(21,190
|
)
|
|
$
|
2,072
|
|
|
$
|
(20,763
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Employee retirement plan adjustments
|
|
Foreign currency translation adjustments
|
|
Net unrealized gains (losses) on cash flow hedges
|
|
Total
|
|
Balance at December 31, 2016
|
$
|
(1,777
|
)
|
|
$
|
(27,404
|
)
|
|
$
|
(1,191
|
)
|
|
$
|
(30,372
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
—
|
|
|
7,740
|
|
|
(697
|
)
|
|
7,043
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
30
|
|
|
(750
|
)
|
|
658
|
|
|
(62
|
)
|
|
Exchange of common stock of JPHI Holdings, Inc. for common stock of Jason Industries, Inc.
|
(113
|
)
|
|
(1,698
|
)
|
|
(73
|
)
|
|
(1,884
|
)
|
|
Balance at June 30, 2017
|
$
|
(1,860
|
)
|
|
$
|
(22,112
|
)
|
|
$
|
(1,303
|
)
|
|
$
|
(25,275
|
)
|
Series A Preferred Stock Dividends
The Company paid the following dividends on the Series A Preferred Stock in additional shares of Series A Preferred Stock during the
six months ended June 29, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Date
|
|
Record Date
|
|
Amount Per Share
|
|
Total Dividends Paid
|
|
Preferred Shares Issued
|
|
January 1, 2018
|
|
November 15, 2017
|
|
$20.00
|
|
$974
|
|
968
|
|
April 1, 2018
|
|
February 15, 2018
|
|
$20.00
|
|
$751
|
|
748
|
On
May 3, 2018
, the Company declared a
$20.00
per share dividend on its Series A Preferred Stock to be paid in additional shares of Series A Preferred Stock on
July 1, 2018
to holders of record on
May 15, 2018
. As of
June 29, 2018
, the Company has recorded the
763
additional Series A Preferred Stock shares declared for the dividend of
$0.8 million
within preferred stock in the condensed consolidated balance sheets.
Exchange of 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 the Company’s common stock, a conversion rate of
115
shares of 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 par value of the Company’s common stock issued in the exchange was recorded as an increase to additional paid-in capital on the condensed consolidated balance sheets. The fair value of the redemption premium, represented by the excess of the exchange conversion rate over the agreement conversion rate, was recorded as a reduction to net loss available to common shareholders of Jason Industries within the condensed consolidated statements of operations.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
|
|
|
|
|
|
13.
|
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 has
four
reportable segments: finishing, components, seating and acoustics.
Net sales information relating to the Company’s reportable segments was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 29, 2018
|
|
June 30, 2017
|
|
June 29, 2018
|
|
June 30, 2017
|
|
Finishing
|
$
|
55,454
|
|
|
$
|
49,757
|
|
|
$
|
109,432
|
|
|
$
|
99,233
|
|
|
Components
|
24,559
|
|
|
21,713
|
|
|
46,952
|
|
|
42,830
|
|
|
Seating
|
44,993
|
|
|
44,921
|
|
|
92,027
|
|
|
92,294
|
|
|
Acoustics
|
43,418
|
|
|
56,086
|
|
|
87,267
|
|
|
113,313
|
|
|
Net Sales
|
$
|
168,424
|
|
|
$
|
172,477
|
|
|
$
|
335,678
|
|
|
$
|
347,670
|
|
The Company uses “Adjusted EBITDA” as the primary measure of profit or loss for the purposes of assessing the operating performance of its segments. The Company defines EBITDA as net income (loss) before interest expense, tax provision (benefit), depreciation and amortization. The Company defines Adjusted EBITDA as EBITDA, excluding the impact of operational restructuring charges and non-cash or non-operational losses or gains, including goodwill and long-lived asset impairment charges, gains or losses on disposal of property, plant and equipment, 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, marketing, accounting, auditing and legal fees and certain other expenses are kept within the corporate results and are not allocated to the business segments. Shared expenses across the Company that directly relate to the performance of our
four
reportable segments are allocated to the segments. Adjusted EBITDA is used to facilitate a comparison of the Company’s operating performance on a consistent basis from period to period and to analyze the factors and trends affecting its segments. The Company’s internal plans, budgets and forecasts use Adjusted EBITDA as a key metric. In addition, this measure is used to evaluate its operating performance and segment operating performance and to determine the level of incentive compensation paid to its employees.
As the Company uses Adjusted EBITDA as its primary measure of segment performance, GAAP on segment reporting requires the Company to include this measure in its discussion of segment operating results. The Company must also reconcile Adjusted EBITDA to operating results presented on a GAAP basis.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
Adjusted EBITDA information relating to the Company’s reportable segments is presented below followed by a reconciliation of total segment Adjusted EBITDA to consolidated loss before taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 29, 2018
|
|
June 30, 2017
|
|
June 29, 2018
|
|
June 30, 2017
|
|
Segment Adjusted EBITDA
|
|
|
|
|
|
|
|
|
Finishing
|
$
|
8,437
|
|
|
$
|
7,324
|
|
|
$
|
16,236
|
|
|
$
|
14,391
|
|
|
Components
|
3,563
|
|
|
2,451
|
|
|
6,633
|
|
|
5,171
|
|
|
Seating
|
6,870
|
|
|
5,897
|
|
|
12,803
|
|
|
11,427
|
|
|
Acoustics
|
6,044
|
|
|
7,983
|
|
|
11,822
|
|
|
14,704
|
|
|
Total segment Adjusted EBITDA
|
$
|
24,914
|
|
|
$
|
23,655
|
|
|
$
|
47,494
|
|
|
$
|
45,693
|
|
|
Interest expense
|
(244
|
)
|
|
(370
|
)
|
|
(491
|
)
|
|
(705
|
)
|
|
Depreciation and amortization
|
(10,938
|
)
|
|
(9,404
|
)
|
|
(21,642
|
)
|
|
(19,322
|
)
|
|
(Loss) gain on disposal of property, plant and equipment - net
|
(11
|
)
|
|
(65
|
)
|
|
(245
|
)
|
|
265
|
|
|
Loss on divestiture
|
—
|
|
|
(7,888
|
)
|
|
—
|
|
|
(7,888
|
)
|
|
Restructuring
|
(1,464
|
)
|
|
(552
|
)
|
|
(2,066
|
)
|
|
(1,233
|
)
|
|
Integration and other restructuring costs
|
(712
|
)
|
|
—
|
|
|
(1,068
|
)
|
|
—
|
|
|
Total segment income before income taxes
|
11,545
|
|
|
5,376
|
|
|
21,982
|
|
|
16,810
|
|
|
Corporate general and administrative expenses
|
(3,550
|
)
|
|
(3,075
|
)
|
|
(6,417
|
)
|
|
(6,552
|
)
|
|
Corporate interest expense
|
(8,159
|
)
|
|
(8,025
|
)
|
|
(15,939
|
)
|
|
(16,056
|
)
|
|
Corporate gain on extinguishment of debt
|
—
|
|
|
1,564
|
|
|
—
|
|
|
1,564
|
|
|
Corporate depreciation
|
(108
|
)
|
|
(83
|
)
|
|
(211
|
)
|
|
(168
|
)
|
|
Corporate restructuring
|
—
|
|
|
9
|
|
|
—
|
|
|
9
|
|
|
Corporate share-based compensation
|
(553
|
)
|
|
(324
|
)
|
|
(784
|
)
|
|
(673
|
)
|
|
Loss before income taxes
|
$
|
(825
|
)
|
|
$
|
(4,558
|
)
|
|
$
|
(1,369
|
)
|
|
$
|
(5,066
|
)
|
Assets held by reportable segments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2018
|
|
December 31, 2017
|
|
Finishing
|
$
|
243,763
|
|
|
$
|
241,776
|
|
|
Components
|
67,136
|
|
|
72,724
|
|
|
Seating
|
98,320
|
|
|
99,155
|
|
|
Acoustics
|
141,761
|
|
|
145,490
|
|
|
Total segments
|
550,980
|
|
|
559,145
|
|
|
Corporate and eliminations
|
(13,892
|
)
|
|
(12,822
|
)
|
|
Consolidated total assets
|
$
|
537,088
|
|
|
$
|
546,323
|
|
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
|
|
|
|
|
|
14.
|
Fair Value Measurements
|
Fair value of financial instruments
Current accounting guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. It also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. In accordance with the guidance, fair value measurements are classified under the following hierarchy:
•
Level 1 — Quoted prices for identical instruments in active markets.
|
|
|
|
•
|
Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.
|
|
|
|
|
•
|
Level 3 — Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.
|
Fair value measurements are classified according to the lowest level input or value-driver that is significant to the valuation. A measurement may therefore be classified within Level 3 even though there may be significant inputs that are readily observable.
The carrying amounts within the accompanying condensed consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments. The Company assessed the amounts recorded under revolving loans, if any, and long-term debt and determined that the fair value of total debt was approximately
$392.6 million
at
June 29, 2018
and
$398.4
million at
December 31, 2017
. 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.
|
|
|
|
|
|
15.
|
Commitments and Contingencies
|
Litigation Matters
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. As of
June 29, 2018
, the Company has successfully investigated and defended all filed 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 matter noted above, the Company is a party to various legal proceedings that have arisen in the normal course of its business. These legal proceedings typically include product liability, labor, and employment claims. The Company has recorded reserves for loss contingencies based on the specific circumstances of each case. Such reserves are recorded when it is probable that a loss has been incurred as of the balance sheet date, can be reasonably estimated and is not covered by insurance. In the opinion of management, the resolution of these contingencies will not have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.
Environmental Matters
At
June 29, 2018
and
December 31, 2017
, 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.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
Unless otherwise indicated, references to “Jason Industries,” the “Company,” “we,” “our” and “us” in this Quarterly Report on Form 10-Q refer to Jason Industries, Inc. and its consolidated subsidiaries.
This report contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Specifically, forward-looking statements may include statements relating to:
|
|
|
|
•
|
the Company’s future financial performance;
|
|
|
|
|
•
|
changes in the market for the Company’s products;
|
|
|
|
|
•
|
the Company’s expansion plans and opportunities; and
|
|
|
|
|
•
|
other statements preceded by, followed by or that include the words “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target” or similar expressions.
|
These forward-looking statements are based on information available as of the date of this report and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing the Company’s views as of any subsequent date, and the Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
As a result of a number of known and unknown risks and uncertainties, the Company’s actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include, among others:
|
|
|
|
•
|
the level of demand for the Company’s products;
|
|
|
|
|
•
|
competition in the Company’s markets;
|
|
|
|
|
•
|
the Company’s ability to grow and manage growth profitably;
|
|
|
|
|
•
|
the Company’s ability to access additional capital;
|
|
|
|
|
•
|
changes in applicable laws or regulations;
|
|
|
|
|
•
|
the Company’s ability to attract and retain qualified personnel;
|
|
|
|
|
•
|
the impact of the Tax Reform Act;
|
|
|
|
|
•
|
the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors; and
|
|
|
|
|
•
|
other risks and uncertainties indicated in this report, as well as those disclosed in the Company’s other filings with the Securities and Exchange Commission (the “SEC”), including those discussed under “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2017
, which may be amended or supplemented in Part II, Item 1A, “Risk Factors,” of the Company’s subsequently filed Quarterly Reports on Form 10-Q (including this report).
|
Introductory Note
The following discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the Company’s audited consolidated financial statements for the year ended
December 31, 2017
, and related notes thereto, along with the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s
2017
Annual Report on Form 10-K.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains certain financial measures, in particular the presentation of EBITDA and Adjusted EBITDA, which are not presented in accordance with GAAP. These non-GAAP financial measures are being presented because they provide readers of this MD&A with additional insight into the Company’s operational performance relative to comparable prior periods presented and relative to its peer group. 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
2018
, the Company’s fiscal quarters are comprised of the three months ended
March 30,
June 29,
September 28
, and December 31. In
2017
, the Company’s fiscal quarters were comprised of the three months ended
March 31,
June 30,
September 29,
and
December 31
. Throughout this MD&A, we refer to the period from
March 31, 2018
through
June 29, 2018
as the “
second
quarter of
2018
” or the “
second
quarter ended
June 29, 2018
”. Similarly, we refer to the period from
April 1, 2017
through
June 30, 2017
as the “
second
quarter of
2017
” or the “
second
quarter ended
June 30, 2017
”.
Overview
Jason Industries is a global industrial manufacturing company with significant market share positions in each of its four segments: finishing, components, seating and acoustics. The Company provides critical components and manufacturing solutions to customers across a wide range of end markets, industries and geographies through its global network of
30
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 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.
During the
six months ended June 29, 2018
and
June 30, 2017
, approximately
29%
and
31%
, respectively, of the Company’s sales were derived from customers outside the United States. 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 primarily uses 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.
Consolidated Results of Operations
The following table sets forth our consolidated results of operations (in thousands) (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 29, 2018
|
|
June 30, 2017
|
|
June 29, 2018
|
|
June 30, 2017
|
|
Net sales
|
$
|
168,424
|
|
|
$
|
172,477
|
|
|
$
|
335,678
|
|
|
$
|
347,670
|
|
|
Cost of goods sold
|
131,302
|
|
|
136,833
|
|
|
262,884
|
|
|
277,417
|
|
|
Gross profit
|
37,122
|
|
|
35,644
|
|
|
72,794
|
|
|
70,253
|
|
|
Selling and administrative expenses
|
28,888
|
|
|
25,242
|
|
|
56,412
|
|
|
51,898
|
|
|
Loss (gain) on disposals of property, plant and equipment - net
|
11
|
|
|
65
|
|
|
245
|
|
|
(265
|
)
|
|
Restructuring
|
1,464
|
|
|
543
|
|
|
2,066
|
|
|
1,224
|
|
|
Operating income
|
6,759
|
|
|
9,794
|
|
|
14,071
|
|
|
17,396
|
|
|
Interest expense
|
(8,403
|
)
|
|
(8,395
|
)
|
|
(16,430
|
)
|
|
(16,761
|
)
|
|
Gain on extinguishment of debt
|
—
|
|
|
1,564
|
|
|
—
|
|
|
1,564
|
|
|
Equity income
|
335
|
|
|
277
|
|
|
435
|
|
|
420
|
|
|
Loss on divestiture
|
—
|
|
|
(7,888
|
)
|
|
—
|
|
|
(7,888
|
)
|
|
Other income - net
|
484
|
|
|
90
|
|
|
555
|
|
|
203
|
|
|
Loss before income taxes
|
(825
|
)
|
|
(4,558
|
)
|
|
(1,369
|
)
|
|
(5,066
|
)
|
|
Tax (benefit) provision
|
(238
|
)
|
|
179
|
|
|
37
|
|
|
164
|
|
|
Net loss
|
$
|
(587
|
)
|
|
$
|
(4,737
|
)
|
|
$
|
(1,406
|
)
|
|
$
|
(5,230
|
)
|
|
Less net gain attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
Net loss attributable to Jason Industries
|
$
|
(587
|
)
|
|
$
|
(4,737
|
)
|
|
$
|
(1,406
|
)
|
|
$
|
(5,235
|
)
|
|
Redemption premium and accretion of dividends on preferred stock
|
765
|
|
|
936
|
|
|
2,493
|
|
|
1,854
|
|
|
Net loss available to common shareholders of Jason Industries
|
$
|
(1,352
|
)
|
|
$
|
(5,673
|
)
|
|
$
|
(3,899
|
)
|
|
$
|
(7,089
|
)
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive (loss) income
|
$
|
(4,620
|
)
|
|
$
|
5,534
|
|
|
$
|
(575
|
)
|
|
$
|
7,019
|
|
Other financial data:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Increase/(Decrease)
|
|
(in thousands, except percentages)
|
June 29, 2018
|
|
June 30, 2017
|
|
$
|
|
%
|
|
Consolidated
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
168,424
|
|
|
$
|
172,477
|
|
|
$
|
(4,053
|
)
|
|
(2.3
|
)%
|
|
Net loss
|
(587
|
)
|
|
(4,737
|
)
|
|
(4,150
|
)
|
|
(87.6
|
)
|
|
Net loss as a % of net sales
|
0.3
|
%
|
|
2.7
|
%
|
|
(240) bps
|
|
Adjusted EBITDA
|
21,364
|
|
|
20,580
|
|
|
784
|
|
|
3.8
|
|
|
Adjusted EBITDA % of net sales
|
12.7
|
%
|
|
11.9
|
%
|
|
80 bps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Increase/(Decrease)
|
|
(in thousands, except percentages)
|
June 29, 2018
|
|
June 30, 2017
|
|
$
|
|
%
|
|
Consolidated
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
335,678
|
|
|
$
|
347,670
|
|
|
$
|
(11,992
|
)
|
|
(3.4
|
)%
|
|
Net loss
|
(1,406
|
)
|
|
(5,230
|
)
|
|
(3,824
|
)
|
|
(73.1
|
)
|
|
Net loss as a % of net sales
|
0.4
|
%
|
|
1.5
|
%
|
|
(110) bps
|
|
Adjusted EBITDA
|
41,077
|
|
|
39,141
|
|
|
1,936
|
|
|
4.9
|
|
|
Adjusted EBITDA % of net sales
|
12.2
|
%
|
|
11.3
|
%
|
|
90 bps
|
|
|
|
|
(1)
|
Adjusted EBITDA and Adjusted EBITDA as a % of net sales are financial measures that are not presented in accordance with GAAP. See “Key Measures the Company Uses to Evaluate Its Performance” below for a reconciliation of Adjusted EBITDA to net loss.
|
The Three and
Six Months Ended
June 29, 2018
Compared with the Three and
Six Months Ended
June 30, 2017
Net sales
. Net sales were
$168.4 million
for the
three months ended June 29, 2018
, a decrease of
$4.1 million
, or
2.3%
, compared with
$172.5 million
for the
three months ended June 30, 2017
, reflecting decreased net sales in the acoustics segment of
$12.7 million
, partially offset by an increase in the finishing segment of
$5.7 million
, the components segment of
$2.8 million
, and the seating segment of
$0.1 million
. The decrease of
$12.7 million
in the acoustics segment was partially due to an
$8.1 million
decrease related to the sale of the Acoustics Europe business on August 30, 2017. See “Segment Financial Data” within Item 2, “Management’s Discussion and Analysis,” for further discussion on net sales for each segment.
Net sales were
$335.7 million
for the
six months ended June 29, 2018
, a decrease of
$12.0 million
, or
3.4%
, compared with
$347.7 million
for the
six months ended June 30, 2017
, reflecting decreased net sales in the acoustics segment of
$26.0 million
and the seating segment of
$0.3 million
, partially offset by increased net sales in the finishing segment of
$10.2 million
and the components segment of
$4.1 million
. The decrease of
$26.0 million
in the acoustics segment was partially due to a
$17.0 million
decrease related to the sale of the Acoustics Europe business on August 30, 2017. See “Segment Financial Data” within Item 2, “Management’s Discussion and Analysis,” for further discussion on net sales for each segment.
Changes in foreign currency exchange rates compared with the U.S. dollar had a net positive impact of
$2.4 million
on consolidated net sales during the
three months ended June 29, 2018
compared with
2017
, positively impacting the finishing, and seating segments’ net sales by
$2.2 million
and
$0.2 million
, respectively. Changes in foreign currency exchange rates compared with the U.S. dollar had a net positive impact of
$7.1 million
on consolidated net sales during the
six months ended June 29, 2018
compared with
2017
, positively impacting the finishing and seating segments’ net sales by
$6.5 million
and
$0.6 million
, respectively. This was due principally to weakening of the U.S. dollar against the Euro in the first six months of 2018 compared to the first six months of 2017.
Cost of goods sold
. Cost of goods sold was
$131.3 million
for the
three months ended June 29, 2018
, compared with
$136.8 million
for the
three months ended June 30, 2017
. The decrease in cost of goods sold was primarily due to lower manufacturing costs in the acoustics segment due to the sale of the Acoustics Europe business of
$7.0 million
, lower organic net sales volumes in the acoustics and seating segments, lower labor and material usage costs in the acoustics and seating segments as a result of operational efficiencies and lower workers compensation costs as a result of lower claim experience. The decrease was partially offset by increased cost of goods sold related to higher organic net sales volume in the finishing and components segments, a $1.7 million increase related to foreign currency exchange rates, raw material inflation and higher freight costs in the acoustics, seating, components and finishing segments and a force majeure incident at a supplier in the seating segment that resulted in incremental costs to maintain production.
Cost of goods sold was
$262.9 million
for the
six months ended June 29, 2018
, compared with
$277.4 million
for the
six months ended June 30, 2017
. The decrease in cost of goods sold was primarily due to lower manufacturing costs in the acoustics segment due to the sale of the Acoustics Europe business of
$14.3 million
, reduced costs resulting from the Company’s global cost reduction and restructuring program, lower organic net sales volumes in the acoustics and seating segments, lower labor and material usage costs in the acoustics and seating segments as a result of operational efficiencies and lower workers compensation costs as a result of lower claim experience. The decrease was partially offset by increased cost of goods sold related to higher organic net sales volume in the finishing and components segments, a $5.2 million increase related to foreign currency exchange rates, raw material inflation and higher freight costs in the acoustics, seating, components and finishing segments and a force majeure incident at a supplier in the seating segment that resulted in incremental costs to maintain production. 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, closure of the Richmond, Virginia facility in the finishing segment and closure of the Richmond, Indiana facility in the acoustics segment.
Gross profit
. For the reasons described above, gross profit was
$37.1 million
for the
three months ended June 29, 2018
, compared with
$35.6 million
for the
three months ended June 30, 2017
and
$72.8 million
for the
six months ended June 29, 2018
, compared with
$70.3 million
for the
six months ended June 30, 2017
.
Selling and administrative expenses
. Selling and administrative expenses were
$28.9 million
for the
three months ended June 29, 2018
, compared with
$25.2 million
for the
three months ended June 30, 2017
, an increase of
$3.6 million
. The increase is primarily due to the acceleration of amortization expense of $1.2 million on intangible assets in the components segment related to the exit from non-core product lines for smart utility meter subassemblies, increased incentive compensation due to increased attainment percentages on higher operating results, increased compensation costs due to additional selling personnel in 2018 in the finishing segment and a $0.5 million increase related to foreign currency exchange rates. The increase was partially offset by reduced selling and administrative expenses in the acoustics segment due to the divestiture of the Acoustics Europe business of
$0.7 million
.
Selling and administrative expenses were
$56.4 million
for the
six months ended June 29, 2018
compared with
$51.9 million
for the
six months ended June 30, 2017
, an increase of
$4.5 million
. The increase is primarily due to the acceleration of amortization expense of $2.3 million on intangible assets in the components segment related to the exit from non-core product lines for smart utility meter subassemblies, increased incentive compensation due to increased attainment percentages on higher operating results, higher headcount due to additional selling personnel in 2018 in the finishing segment and a $1.5 million increase related to foreign currency exchange rates. The increase was partially offset by reduced selling and administrative expenses in the acoustics segment due to the divestiture of the Acoustics Europe business of
$1.9 million
.
Loss (gain) on disposals of property, plant and equipment - net
. Loss on disposals of property, plant and equipment - net for the
three months ended June 29, 2018
was
$0.0 million
compared to
$0.1 million
for the
three months ended June 30, 2017
. Loss on disposals of property, plant and equipment - net for the
six months ended June 29, 2018
was
$0.2 million
compared to a gain of
$0.3 million
for the
six months ended June 30, 2017
. The loss on disposals of property, plant and equipment - net for the
six months ended June 29, 2018
includes a loss of
$0.2 million
from the disposition of equipment in connection with the consolidation of two U.S. facilities in the components segment. The gain on disposals of property, plant and equipment - net for the
six months ended June 30, 2017
includes a gain of
$0.4 million
on the sale of equipment related to the closure of the components segment’s Buffalo Grove, Illinois facility.
Restructuring
. Restructuring costs were
$1.5 million
for the
three months ended June 29, 2018
compared with
$0.5 million
for the
three months ended June 30, 2017
. Restructuring costs were
$2.1 million
for the
six months ended June 29, 2018
compared with
$1.2 million
for the
six months ended June 30, 2017
. For both periods, such costs primarily relate to actions resulting from the global cost reduction and restructuring program announced on March 1, 2016. During 2018, such costs were primarily move costs related to the consolidation of two U.S. facilities in the components segment, the closure of a U.S. facility in the acoustics segment, the closure of a U.S. facility in the finishing segment and the planned closure of a U.K. facility in the seating segment, partially offset by a reduction in expense as a result of the statute of limitations expiring on certain unasserted employment matter claims in Brazil that were reserved within the finishing segment. During 2017, such costs were primarily move costs related to the consolidation of two U.S. facilities in the components segment, the wind down of a facility in Brazil in the finishing segment and the closure of a U.S. facility in the finishing segment.
Interest expense
. Interest expense was
$8.4 million
for both the
three months ended June 29, 2018
and
June 30, 2017
, as the decrease in interest expense related to the decrease in outstanding long-term debt balances was offset by higher interest rates for the
three months ended June 29, 2018
as compared to the
three months ended June 30, 2017
. The effective interest rate on the Company’s total outstanding indebtedness for the
three months ended June 29, 2018
was
8.2%
as compared to
7.7%
for the
three months ended June 30, 2017
.
Interest expense was
$16.4 million
for the
six months ended June 29, 2018
compared with
$16.8 million
for the
six months ended June 30, 2017
. The decrease in interest expense primarily relates to a decrease in long-term debt balances during the past twelve months due to required contractual principal payments and repurchases of the Second Lien Term Loans, partially offset by higher interest rates for the
six months ended June 29, 2018
as compared to the
six months ended June 30, 2017
. The effective interest rate on the Company’s total outstanding indebtedness for the
six months ended June 29, 2018
was
8.1%
as compared to
7.7%
for the
six months ended June 30, 2017
.
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
$0.0 million
for both the
three and six months ended
June 29, 2018
and
$1.6 million
for both the
three and six months ended
June 30, 2017
. The gain on extinguishment of debt in 2017 relates to the repurchase of
$8.0 million
of Second Lien Term Loan debt in the second quarter of 2017 for
$6.1 million
, partially offset by the
$0.3 million
write-off of previously unamortized debt discount and deferred financing costs in the second quarter of 2017 on the Term Loans related to the extinguishment. See “Senior Secured Credit Facilities” in the Liquidity and Capital Resources section of this MD&A for further discussion.
Equity income
. Equity income was
$0.3 million
for both the
three months ended June 29, 2018
and
June 30, 2017
. Equity income was
$0.4 million
for both the
six months ended June 29, 2018
and
June 30, 2017
.
Loss on divestiture
. Loss on divestiture was
$7.9 million
for both the
three and six months ended
June 30, 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 condensed consolidated financial statements for further information.
Other income - net
. Other income was
$0.5 million
for the
three months ended June 29, 2018
and
$0.1 million
for the
three months ended June 30, 2017
. Other income was
$0.6 million
for the
six months ended June 29, 2018
and
$0.2 million
for the
six months ended June 30, 2017
. Other income for both the
three and six months ended
June 29, 2018
includes $0.4 million of income related to proceeds from a settlement in the seating segment associated with periods prior to the Company’s go public business combination.
Loss before income taxes
. For the reasons described above, loss before income taxes was
$0.8 million
for the
three months ended June 29, 2018
, compared with
$4.6 million
for the
three months ended June 30, 2017
. Loss before income taxes was
$1.4 million
for the
six months ended June 29, 2018
compared with
$5.1 million
for the
six months ended June 30, 2017
.
Tax (benefit) provision
. The tax benefit was
$0.2 million
for the
three months ended June 29, 2018
, compared with a tax provision of
$0.2 million
for the
three months ended June 30, 2017
. The tax provision was
$0.0 million
for the
six months ended June 29, 2018
compared with
$0.2 million
for the
six months ended June 30, 2017
. The effective tax rate for the
three months ended June 29, 2018
was
28.8%
, compared with
(3.9)%
for the
three months ended June 30, 2017
. The effective tax rate was
(2.7)%
for the
six months ended June 29, 2018
compared with
(3.2)%
for the
six months ended June 30, 2017
. The net discrete tax benefit was
$0.5 million
for both the
three and six months ended
June 29, 2018
. The net discrete tax provision was
$0.4 million
and
$0.6 million
for the
three and six months ended
June 30, 2017
, respectively.
The Company’s tax (benefit) provision is impacted by a number of factors, including, among others, new provisions included in the Tax Reform Act, the amount of taxable earnings or losses at the U.S. federal statutory rate, the amount of taxable earnings or losses derived in foreign jurisdictions with tax rates that differ from the U.S. federal statutory rate, permanent items, state tax rates, the ability to utilize foreign net operating loss carry forwards and adjustments to valuation allowances. The effective tax rate for the
three and six months ended
June 29, 2018
was impacted by the levels of U.S. and foreign pre-tax losses and earnings, respectively, pre-tax losses in foreign jurisdictions for which no tax benefit was recognized, U.S. interest disallowance and the new GILTI tax provisions.
Net loss
. For the reasons described above, net loss was
$0.6 million
for the
three months ended June 29, 2018
, compared with
$4.7 million
for the
three months ended June 30, 2017
. Net loss was
$1.4 million
for the
six months ended June 29, 2018
compared with
$5.2 million
for the
six months ended June 30, 2017
.
Other comprehensive (loss) income.
Other comprehensive loss was
$4.6 million
for the
three months ended June 29, 2018
compared with other comprehensive income of
$5.5 million
for the
three months ended June 30, 2017
. Other comprehensive loss was
$0.6 million
for the
six months ended June 29, 2018
compared with other comprehensive income of
$7.0 million
for the
six months ended June 30, 2017
. The decreases were driven by less favorable foreign currency translation adjustments in 2018 compared to 2017, partially offset by the change in unrealized gains on cash flow hedges.
Other comprehensive income for unrealized gains on cash flow hedges was
$0.4 million
for the
three months ended June 29, 2018
compared with an unrealized loss on cash flow hedges of
$0.4 million
for the
three months ended June 30, 2017
. Other comprehensive income for unrealized gains on cash flow hedges was
$2.0 million
for the
six months ended June 29, 2018
compared with
$0.0 million
for the
six months ended June 30, 2017
. The increase in both periods was due to an increase in the unrealized gain position on cash flow hedges in 2018 compared to an increase in the unrealized loss position on cash flow hedges in 2017. The net change in unrealized gains 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. For both the
three and six months ended
June 29, 2018
, the fair value of the hedging instruments increased, based on actual and future expectations for interest rate increases.
Other comprehensive loss for foreign currency translation adjustments was
$5.0 million
for the
three months ended June 29, 2018
compared with other comprehensive income for foreign currency translation adjustments of
$5.9 million
for the
three months ended June 30, 2017
. Other comprehensive loss for foreign currency translation adjustments was
$2.6 million
for the
six months ended June 29, 2018
compared with other comprehensive income for foreign currency translation adjustments of
$7.0 million
for the
six months ended June 30, 2017
. Foreign currency translation adjustments are based on fluctuations in the value of foreign currencies (primarily the Euro) against the U.S. Dollar each period.
Adjusted EBITDA
. Adjusted EBITDA was
$21.4 million
, or
12.7%
of net sales for the
three months ended June 29, 2018
, compared with
$20.6 million
, or
11.9%
of net sales for the
three months ended June 30, 2017
, an increase of
$0.8 million
, or
3.8%
. The increase reflects higher Adjusted EBITDA in the finishing segment of
$1.1 million
, the components segment of
$1.1 million
and the seating segment of
$1.0 million
, partially offset by decreased Adjusted EBITDA in the acoustics segment of
$1.9 million
and higher corporate expenses of
$0.5 million
. The change in Adjusted EBITDA in the acoustics segment includes a
$0.6 million
decrease from the sale of the Acoustics Europe business.
Adjusted EBITDA was
$41.1 million
, or
12.2%
of net sales for the
six months ended June 29, 2018
, compared with
$39.1 million
, or
11.3%
, of net sales for the
six months ended June 30, 2017
, an increase of
$1.9 million
, or
4.9%
. The increase reflects higher Adjusted EBITDA in the finishing segment of
$1.8 million
, the components segment of
$1.5 million
, the seating
segment of
$1.4 million
and lower corporate expenses of
$0.1 million
, partially offset by decreased Adjusted EBITDA in the acoustics segment of
$2.9 million
. The change in Adjusted EBITDA in the acoustics segment includes a
$1.4 million
decrease from the sale of the Acoustics Europe business. See “Segment Financial Data” within Item 2, “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
$0.3 million
on consolidated Adjusted EBITDA during the
three months ended June 29, 2018
compared to the
three months ended June 30, 2017
, positively impacting the finishing segment’s Adjusted EBITDA by
$0.3 million
. During the
six months ended June 29, 2018
, changes in foreign currency exchange rates had a positive impact of
$0.9 million
on consolidated Adjusted EBITDA compared to the
six months ended June 30, 2017
, positively impacting the finishing and seating segments’ Adjusted EBITDA by
$0.8 million
and
$0.1 million
, respectively.
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, provision (benefit) for income taxes, depreciation and amortization. The Company defines Adjusted EBITDA as EBITDA, excluding the impact of operational restructuring charges and non-cash or non-operational losses or gains, including goodwill and long-lived asset impairment charges, gains or losses on disposal of property, plant and equipment, 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 more clear picture of the Company’s operating results by eliminating expenses and income that are not reflective of the underlying business performance. The Company uses this metric to facilitate a comparison of 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
8
, “
Debt and Hedging Instruments
”, and below) definition of EBITDA excludes income of partially owned affiliates, unless such earnings have been received in cash.
Set forth below is a reconciliation of Adjusted EBITDA to net loss (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 29, 2018
|
|
June 30, 2017
|
|
June 29, 2018
|
|
June 30, 2017
|
|
Net loss
|
$
|
(587
|
)
|
|
$
|
(4,737
|
)
|
|
$
|
(1,406
|
)
|
|
$
|
(5,230
|
)
|
|
Interest expense
|
8,403
|
|
|
8,395
|
|
|
16,430
|
|
|
16,761
|
|
|
Tax (benefit) provision
|
(238
|
)
|
|
179
|
|
|
37
|
|
|
164
|
|
|
Depreciation and amortization
|
11,046
|
|
|
9,487
|
|
|
21,853
|
|
|
19,490
|
|
|
EBITDA
|
18,624
|
|
|
13,324
|
|
|
36,914
|
|
|
31,185
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Restructuring
(1)
|
1,464
|
|
|
543
|
|
|
2,066
|
|
|
1,224
|
|
|
Integration and other restructuring costs
(2)
|
712
|
|
|
—
|
|
|
1,068
|
|
|
—
|
|
|
Share-based compensation
(3)
|
553
|
|
|
324
|
|
|
784
|
|
|
673
|
|
|
Loss (gain) on disposals of property, plant and equipment - net
(4)
|
11
|
|
|
65
|
|
|
245
|
|
|
(265
|
)
|
|
Gain on extinguishment of debt
(5)
|
—
|
|
|
(1,564
|
)
|
|
—
|
|
|
(1,564
|
)
|
|
Loss on divestiture
(6)
|
—
|
|
|
7,888
|
|
|
—
|
|
|
7,888
|
|
|
Total adjustments
|
2,740
|
|
|
7,256
|
|
|
4,163
|
|
|
7,956
|
|
|
Adjusted EBITDA
|
$
|
21,364
|
|
|
$
|
20,580
|
|
|
$
|
41,077
|
|
|
$
|
39,141
|
|
|
|
|
|
(1)
|
Restructuring includes costs associated with exit or disposal activities as defined by GAAP related to facility consolidation, including one-time employee termination benefits, costs to close facilities and relocate employees, and costs to terminate contracts other than capital leases. See Note
5
, “
Restructuring Costs
” of the accompanying condensed consolidated financial statements for further information.
|
|
|
|
|
(2)
|
During the
three and six months ended
June 29, 2018
, integration and other restructuring costs of $1.1 million and $1.5 million, respectively, were incurred associated with a force majeure incident at a supplier in the seating segment that resulted in incremental costs to maintain production and are expected to be recovered through insurance pending
|
finalization of claims in future periods. The integration and other restructuring costs were partially offset in both the
three and six months ended
June 29, 2018
by a $0.4 million settlement gain on proceeds from a supplier claim in the seating segment associated with periods prior to the Company’s go public business combination. Such costs are not included in restructuring for GAAP purposes.
|
|
|
|
(3)
|
Represents share-based compensation expense for awards under the Company’s 2014 Omnibus Incentive Plan. See Note
9
, “
Share-Based Compensation
” of the accompanying condensed consolidated financial statements for further information.
|
|
|
|
|
(4)
|
Loss (gain) on disposals of property, plant and equipment - net for the
six months ended June 29, 2018
includes a loss of
$0.2 million
from the disposition of equipment in connection with the consolidation of two U.S. facilities in the components segment and for the
six months ended
June 30, 2017
includes a gain of
$0.4 million
on the sale of equipment related to the closure of the components segment’s Buffalo Grove, Illinois facility.
|
|
|
|
|
(5)
|
Represents a gain on extinguishment of Second Lien Term Loan debt in the second quarter of 2017. See Note
8
, “
Debt and Hedging Instruments
” of the accompanying condensed consolidated financial statements for further information.
|
|
|
|
|
(6)
|
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
” of the accompanying condensed consolidated financial statements for further information.
|
Adjusted EBITDA percentage of net sales
. Adjusted EBITDA as a percentage of net sales is an important metric that the Company uses to evaluate its operational effectiveness and business segments.
Segment Financial Data
The table below presents the Company’s net sales, Adjusted EBITDA and Adjusted EBITDA as a percentage of net sales for each of its reportable segments for the
three and six months ended
June 29, 2018
and
June 30, 2017
. The Company uses Adjusted EBITDA as the primary measure of profit or loss for purposes of assessing the operating performance of its segments. See “Key Measures the Company Uses to Evaluate Its Performance” above for a reconciliation of Adjusted EBITDA to Net Loss which is the nearest GAAP measure.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Increase/ (Decrease)
|
|
(in thousands, except percentages)
|
June 29, 2018
|
|
June 30, 2017
|
|
$
|
|
%
|
|
Finishing
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
55,454
|
|
|
$
|
49,757
|
|
|
$
|
5,697
|
|
|
11.4
|
%
|
|
Adjusted EBITDA
|
8,437
|
|
|
7,324
|
|
|
1,113
|
|
|
15.2
|
|
|
Adjusted EBITDA % of net sales
|
15.2
|
%
|
|
14.7
|
%
|
|
50 bps
|
|
Components
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
24,559
|
|
|
$
|
21,713
|
|
|
$
|
2,846
|
|
|
13.1
|
%
|
|
Adjusted EBITDA
|
3,563
|
|
|
2,451
|
|
|
1,112
|
|
|
45.4
|
|
|
Adjusted EBITDA % of net sales
|
14.5
|
%
|
|
11.3
|
%
|
|
320 bps
|
|
Seating
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
44,993
|
|
|
$
|
44,921
|
|
|
$
|
72
|
|
|
0.2
|
%
|
|
Adjusted EBITDA
|
6,870
|
|
|
5,897
|
|
|
973
|
|
|
16.5
|
|
|
Adjusted EBITDA % of net sales
|
15.3
|
%
|
|
13.1
|
%
|
|
220 bps
|
|
Acoustics
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
43,418
|
|
|
$
|
56,086
|
|
|
$
|
(12,668
|
)
|
|
(22.6
|
)%
|
|
Adjusted EBITDA
|
6,044
|
|
|
7,983
|
|
|
(1,939
|
)
|
|
(24.3
|
)
|
|
Adjusted EBITDA % of net sales
|
13.9
|
%
|
|
14.2
|
%
|
|
(30) bps
|
|
Corporate
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
(3,550
|
)
|
|
$
|
(3,075
|
)
|
|
$
|
(475
|
)
|
|
(15.4
|
)%
|
|
Consolidated
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
168,424
|
|
|
$
|
172,477
|
|
|
$
|
(4,053
|
)
|
|
(2.3
|
)%
|
|
Adjusted EBITDA
|
21,364
|
|
|
20,580
|
|
|
784
|
|
|
3.8
|
|
|
Adjusted EBITDA % of net sales
|
12.7
|
%
|
|
11.9
|
%
|
|
80 bps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Increase/ (Decrease)
|
|
(in thousands, except percentages)
|
June 29, 2018
|
|
June 30, 2017
|
|
$
|
|
%
|
|
Finishing
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
109,432
|
|
|
$
|
99,233
|
|
|
$
|
10,199
|
|
|
10.3
|
%
|
|
Adjusted EBITDA
|
16,236
|
|
|
14,391
|
|
|
1,845
|
|
|
12.8
|
|
|
Adjusted EBITDA % of net sales
|
14.8
|
%
|
|
14.5
|
%
|
|
30 bps
|
|
Components
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
46,952
|
|
|
$
|
42,830
|
|
|
$
|
4,122
|
|
|
9.6
|
%
|
|
Adjusted EBITDA
|
6,633
|
|
|
5,171
|
|
|
1,462
|
|
|
28.3
|
|
|
Adjusted EBITDA % of net sales
|
14.1
|
%
|
|
12.1
|
%
|
|
200 bps
|
|
Seating
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
92,027
|
|
|
$
|
92,294
|
|
|
$
|
(267
|
)
|
|
(0.3
|
)%
|
|
Adjusted EBITDA
|
12,803
|
|
|
11,427
|
|
|
1,376
|
|
|
12.0
|
|
|
Adjusted EBITDA % of net sales
|
13.9
|
%
|
|
12.4
|
%
|
|
150 bps
|
|
Acoustics
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
87,267
|
|
|
$
|
113,313
|
|
|
$
|
(26,046
|
)
|
|
(23.0
|
)%
|
|
Adjusted EBITDA
|
11,822
|
|
|
14,704
|
|
|
(2,882
|
)
|
|
(19.6
|
)
|
|
Adjusted EBITDA % of net sales
|
13.5
|
%
|
|
13.0
|
%
|
|
50 bps
|
|
Corporate
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
(6,417
|
)
|
|
$
|
(6,552
|
)
|
|
$
|
135
|
|
|
2.1
|
%
|
|
Consolidated
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
335,678
|
|
|
$
|
347,670
|
|
|
$
|
(11,992
|
)
|
|
(3.4
|
)%
|
|
Adjusted EBITDA
|
41,077
|
|
|
39,141
|
|
|
1,936
|
|
|
4.9
|
|
|
Adjusted EBITDA % of net sales
|
12.2
|
%
|
|
11.3
|
%
|
|
90 bps
|
Finishing Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Increase/ (Decrease)
|
|
(in thousands, except percentages)
|
June 29, 2018
|
|
June 30, 2017
|
|
$
|
|
%
|
|
Net sales
|
$
|
55,454
|
|
|
$
|
49,757
|
|
|
$
|
5,697
|
|
|
11.4
|
%
|
|
Adjusted EBITDA
|
8,437
|
|
|
7,324
|
|
|
1,113
|
|
|
15.2
|
|
|
Adjusted EBITDA % of net sales
|
15.2
|
%
|
|
14.7
|
%
|
|
50 bps
|
Net sales in the finishing segment for the three months ended
June 29, 2018
were
$55.5 million
, an increase of
$5.7 million
or
11.4%
, compared with
$49.8 million
for the three months ended
June 30, 2017
. On a constant currency basis (net positive currency impact of
$2.2 million
for the three months ended
June 29, 2018
), revenues increased by
$3.5 million
for the three months ended
June 29, 2018
. The increase in net sales for the three months ended
June 29, 2018
was primarily due to increases in volume in industrial end markets globally and increased pricing.
Adjusted EBITDA for the three months ended
June 29, 2018
increased
$1.1 million
to
$8.4 million
(
15.2%
of net sales) from
$7.3 million
(
14.7%
of net sales) for the three months ended
June 30, 2017
. On a constant currency basis (net positive currency impact of
$0.3 million
for the three months ended
June 29, 2018
), Adjusted EBITDA increased by
$0.8 million
for the three months ended
June 29, 2018
. Excluding currency impact, the increase in Adjusted EBITDA for the three months ended
June 29, 2018
primarily resulted from increases in volume in industrial end markets and increased pricing, partially offset by increased incentive compensation and increased compensation costs due to additional selling personnel in 2018 and increased manufacturing costs due to operational inefficiencies related to the Richmond, Virginia plant consolidation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Increase/ (Decrease)
|
|
(in thousands, except percentages)
|
June 29, 2018
|
|
June 30, 2017
|
|
$
|
|
%
|
|
Net sales
|
$
|
109,432
|
|
|
$
|
99,233
|
|
|
$
|
10,199
|
|
|
10.3
|
%
|
|
Adjusted EBITDA
|
16,236
|
|
|
14,391
|
|
|
1,845
|
|
|
12.8
|
|
|
Adjusted EBITDA % of net sales
|
14.8
|
%
|
|
14.5
|
%
|
|
30 bps
|
Net sales in the finishing segment for the
six months ended
June 29, 2018
were
$109.4 million
, an increase of
$10.2 million
or
10.3%
, compared with
$99.2 million
for the
six months ended
June 30, 2017
. On a constant currency basis (net positive currency impact of
$6.5 million
for the
six months ended
June 29, 2018
), revenues increased by
$3.7 million
for the
six months ended
June 29, 2018
. Excluding currency impact, the increase in net sales for the
six months ended
June 29, 2018
was primarily due to increases in volume in industrial end markets globally and increased pricing, partially offset by a $0.6 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
six months ended
June 29, 2018
increased
$1.8 million
to
$16.2 million
(
14.8%
of net sales) from
$14.4 million
(
14.5%
of net sales) for the
six months ended
June 30, 2017
. On a constant currency basis (net positive currency impact of
$0.8 million
for the
six months ended
June 29, 2018
), Adjusted EBITDA increased by
$1.0 million
for the
six months ended
June 29, 2018
. Excluding currency impact, the increase in Adjusted EBITDA for the
six months ended
June 29, 2018
primarily resulted from increases in volume in industrial end markets and increased pricing, partially offset by increased incentive compensation, increased compensation costs from higher headcount due to additional selling personnel in 2018 and increased manufacturing costs due to operational inefficiencies related to the Richmond, Virginia plant consolidation.
Components Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Increase/ (Decrease)
|
|
(in thousands, except percentages)
|
June 29, 2018
|
|
June 30, 2017
|
|
$
|
|
%
|
|
Net sales
|
$
|
24,559
|
|
|
$
|
21,713
|
|
|
$
|
2,846
|
|
|
13.1
|
%
|
|
Adjusted EBITDA
|
3,563
|
|
|
2,451
|
|
|
1,112
|
|
|
45.4
|
|
|
Adjusted EBITDA % of net sales
|
14.5
|
%
|
|
11.3
|
%
|
|
320 bps
|
Net sales in the components segment for the three months ended
June 29, 2018
were
$24.6 million
, an increase of
$2.8 million
, or
13.1%
, compared with
$21.7 million
for the three months ended
June 30, 2017
. The increase during the three months ended
June 29, 2018
was primarily due to increased pricing and higher sales volumes in the perforated and expanded metal products, smart utility meter components and rail markets.
Adjusted EBITDA increased
$1.1 million
, or
45.4%
, for the three months ended
June 29, 2018
to
$3.6 million
(
14.5%
of net sales) compared with
$2.5 million
(
11.3%
of net sales) for the three months ended
June 30, 2017
. The increase in Adjusted EBITDA for the three months ended
June 29, 2018
primarily resulted from increased pricing and increased volumes in the rail, smart utility meter components and perforated and expanded metal products markets, partially offset by increased incentive compensation and raw material inflation for steel.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Increase/ (Decrease)
|
|
(in thousands, except percentages)
|
June 29, 2018
|
|
June 30, 2017
|
|
$
|
|
%
|
|
Net sales
|
$
|
46,952
|
|
|
$
|
42,830
|
|
|
$
|
4,122
|
|
|
9.6
|
%
|
|
Adjusted EBITDA
|
6,633
|
|
|
5,171
|
|
|
1,462
|
|
|
28.3
|
|
|
Adjusted EBITDA % of net sales
|
14.1
|
%
|
|
12.1
|
%
|
|
200 bps
|
Net sales in the components segment for the
six months ended
June 29, 2018
were
$47.0 million
, an increase of
$4.1 million
, or
9.6%
, compared with
$42.8 million
for the
six months ended
June 30, 2017
. The increase during the
six months ended
June 29, 2018
was primarily due to increased pricing and higher sales volumes in the rail and smart utility meter components markets, partially offset by lower sales volumes in the perforated and expanded metal products market.
Adjusted EBITDA increased
$1.5 million
, or
28.3%
, for the
six months ended
June 29, 2018
to
$6.6 million
(
14.1%
of net sales) compared with
$5.2 million
(
12.1%
of net sales) for the
six months ended
June 30, 2017
. The increase in Adjusted EBITDA for the
six months ended
June 29, 2018
primarily resulted from increased pricing and increased volumes in the rail and smart utility meter components markets, partially offset by increased incentive compensation and lower sales volumes in the perforated and expanded metal products markets.
Seating Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Increase/ (Decrease)
|
|
(in thousands, except percentages)
|
June 29, 2018
|
|
June 30, 2017
|
|
$
|
|
%
|
|
Net sales
|
$
|
44,993
|
|
|
$
|
44,921
|
|
|
$
|
72
|
|
|
0.2
|
%
|
|
Adjusted EBITDA
|
6,870
|
|
|
5,897
|
|
|
973
|
|
|
16.5
|
|
|
Adjusted EBITDA % of net sales
|
15.3
|
%
|
|
13.1
|
%
|
|
220 bps
|
Net sales in the seating segment for the three months ended
June 29, 2018
were
$45.0 million
, an increase of
$0.1 million
, or
0.2%
, compared with
$44.9 million
for the three months ended
June 30, 2017
. On a constant currency basis (net positive currency impact of
$0.2 million
for the three months ended
June 29, 2018
), revenues decreased by
$0.1 million
for the three months ended ended
June 29, 2018
. The decrease in net sales for the three months ended
June 29, 2018
was primarily due to decreases in sales volume in the motorcycle market and lower volume in the turf care market due to a late start to spring resulting in a shortened selling season, partially offset by increases in sales volume in the heavy industry market and improved pricing.
Adjusted EBITDA was
$6.9 million
(
15.3%
of net sales) in the three months ended
June 29, 2018
compared with
$5.9 million
(
13.1%
of net sales) in the three months ended
June 30, 2017
. Changes in foreign currency exchange rates did not significantly impact Adjusted EBITDA. The increase of
$1.0 million
in Adjusted EBITDA for the three months ended
June 29, 2018
was primarily due to improved pricing, increased sales volume in the heavy industry market and lower material and labor usage costs from continuous improvement projects, partially offset by decreased sales volume in the motorcycle and turf care markets and raw material inflation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Increase/ (Decrease)
|
|
(in thousands, except percentages)
|
June 29, 2018
|
|
June 30, 2017
|
|
$
|
|
%
|
|
Net sales
|
$
|
92,027
|
|
|
$
|
92,294
|
|
|
$
|
(267
|
)
|
|
(0.3
|
)%
|
|
Adjusted EBITDA
|
12,803
|
|
|
11,427
|
|
|
1,376
|
|
|
12.0
|
|
|
Adjusted EBITDA % of net sales
|
13.9
|
%
|
|
12.4
|
%
|
|
150 bps
|
Net sales in the seating segment for the
six months ended
June 29, 2018
were
$92.0 million
, a decrease of
$0.3 million
, or
0.3%
, compared with
$92.3 million
for the
six months ended
June 30, 2017
. On a constant currency basis (net positive currency impact of
$0.6 million
for the
six months ended
June 29, 2018
), revenues decreased by
$0.9 million
for the
six months ended
June 29, 2018
. The decrease in net sales for the
six months ended
June 29, 2018
was primarily due to decreases in sales volume in the motorcycle market and lower volume in the turf care market due to a late start to spring resulting in a shortened selling season, partially offset by increases in sales volume in the heavy industry market and improved pricing.
Adjusted EBITDA was
$12.8 million
(
13.9%
of net sales) in the
six months ended
June 29, 2018
compared with
$11.4 million
(
12.4%
of net sales) in the
six months ended
June 30, 2017
. On a constant currency basis (net positive currency impact of
$0.1 million
for the
six months ended
June 29, 2018
), Adjusted EBITDA increased by
$1.3 million
for the
six months ended
June 29, 2018
. The increase in Adjusted EBITDA for the
six months ended
June 29, 2018
was primarily due to improved pricing, increased sales volume in the heavy industry market and lower material and labor usage costs from continuous improvement projects, partially offset by decreased sales volume in the motorcycle and turf care markets and raw material inflation.
Acoustics Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Increase/ (Decrease)
|
|
(in thousands, except percentages)
|
June 29, 2018
|
|
June 30, 2017
|
|
$
|
|
%
|
|
Net sales
|
$
|
43,418
|
|
|
$
|
56,086
|
|
|
$
|
(12,668
|
)
|
|
(22.6
|
)%
|
|
Adjusted EBITDA
|
6,044
|
|
|
7,983
|
|
|
(1,939
|
)
|
|
(24.3
|
)
|
|
Adjusted EBITDA % of net sales
|
13.9
|
%
|
|
14.2
|
%
|
|
(30) bps
|
Net sales in the acoustics segment for the three months ended
June 29, 2018
were
$43.4 million
, a decrease of
$12.7 million
or
22.6%
, compared with
$56.1 million
for the three months ended
June 30, 2017
. The decrease during the three months ended
June 29, 2018
was primarily due to
$8.1 million
of lower sales as a result of the divestiture of the Acoustics Europe business in August 2017, lower overall North American vehicle production, a net decrease in vehicle platforms, a
decrease in demand for car platforms due to a shift from passenger cars to light trucks and sport utility vehicles and lower pricing on existing platforms.
Adjusted EBITDA decreased
$1.9 million
, or
24.3%
, for the three months ended
June 29, 2018
to
$6.0 million
(
13.9%
of net sales) compared with
$8.0 million
(
14.2%
of net sales) in the
second
quarter of
2017
. The decrease in Adjusted EBITDA for the three months ended
June 29, 2018
was primarily due to lower sales volumes, lower pricing on existing platforms, raw material inflation and
$0.6 million
due to the divestiture of the Acoustics Europe business, partially offset by lower labor and material usage costs as a result of continuous improvement initiatives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Increase/ (Decrease)
|
|
(in thousands, except percentages)
|
June 29, 2018
|
|
June 30, 2017
|
|
$
|
|
%
|
|
Net sales
|
$
|
87,267
|
|
|
$
|
113,313
|
|
|
$
|
(26,046
|
)
|
|
(23.0
|
)%
|
|
Adjusted EBITDA
|
11,822
|
|
|
14,704
|
|
|
(2,882
|
)
|
|
(19.6
|
)
|
|
Adjusted EBITDA % of net sales
|
13.5
|
%
|
|
13.0
|
%
|
|
50 bps
|
Net sales in the acoustics segment for the
six months ended
June 29, 2018
were
$87.3 million
, a decrease of
$26.0 million
, or
23.0%
, compared with
$113.3 million
for the
six months ended
June 30, 2017
. The decrease was primarily due to
$17.0 million
of lower sales as a result of the divestiture of the Acoustics Europe business in August 2017, lower overall North American vehicle production, a net decrease in vehicle platforms, a decrease in demand for car platforms due to a shift from passenger cars to light trucks and sport utility vehicles and lower pricing on existing platforms.
Adjusted EBITDA decreased to
$11.8 million
(
13.5%
of net sales) for the
six months ended
June 29, 2018
compared with
$14.7 million
(
13.0%
of net sales) for the
six months ended
June 30, 2017
. The decrease in Adjusted EBITDA for the
six months ended
June 29, 2018
was primarily due to lower sales volumes, lower pricing on existing platforms, raw material inflation and
$1.4 million
due to the divestiture of the Acoustics Europe business, partially offset by lower labor and material usage costs as a result of continuous improvement initiatives.
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Increase/ (Decrease)
|
|
(in thousands, except percentages)
|
June 29, 2018
|
|
June 30, 2017
|
|
$
|
|
%
|
|
Adjusted EBITDA
|
$
|
(3,550
|
)
|
|
$
|
(3,075
|
)
|
|
$
|
(475
|
)
|
|
(15.4
|
)%
|
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 director compensation and expenses, and the operating costs of the corporate office.
The increase of
$0.5 million
in expense in the three months ended
June 29, 2018
compared with the prior year primarily resulted from increased incentive compensation due to increased attainment percentages on higher operating results and increased compensation costs, partially offset by lower health care costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Increase/ (Decrease)
|
|
(in thousands, except percentages)
|
June 29, 2018
|
|
June 30, 2017
|
|
$
|
|
%
|
|
Adjusted EBITDA
|
$
|
(6,417
|
)
|
|
$
|
(6,552
|
)
|
|
$
|
135
|
|
|
2.1
|
%
|
The decrease of
$0.1 million
in expense in the
six months ended
June 29, 2018
compared with the prior year primarily resulted from lower third-party professional fees and lower health care costs, partially offset by increased incentive compensation due to increased attainment percentages on higher operating results and increased compensation costs.
Liquidity and Capital Resources
Background
The Company’s primary sources of liquidity are cash generated from its operations, available cash and borrowings under its U.S. and foreign credit facilities. As of
June 29, 2018
, the Company had
$46.2 million
of available cash,
$28.5 million
of additional borrowings available under the revolving credit facility portion of its U.S. credit agreement, and
$12.1 million
available under revolving loan facilities that the Company maintains outside the U.S. As of
June 29, 2018
, available borrowings under its U.S. revolving credit facility were reduced by outstanding letters of credit of
$5.8 million
. Included in the Company’s consolidated cash balance of
$46.2 million
at
June 29, 2018
, is cash of
$25.5 million
held at the Company’s non-U.S. operations. These funds, with some restrictions and tax implications, are available for repatriation as deemed necessary by the Company. The Company’s U.S. credit agreement and foreign revolving loan facilities are available for working capital requirements, capital expenditures and other general corporate purposes. We believe our existing cash on hand, expected future cash flows from operating activities, and additional borrowings available under our U.S. and foreign credit facilities provide sufficient resources to fund ongoing operating requirements as well as future capital expenditures and debt service requirements.
Indebtedness
As of
June 29, 2018
, the Company’s total outstanding indebtedness of
$396.4 million
was comprised of aggregate term loans outstanding under its Senior Secured Credit Facilities of
$376.0 million
(net of a debt discount of
$3.1 million
and deferred financing costs of
$4.8 million
), various foreign bank term loans and revolving loan facilities of
$19.7 million
and capital lease obligations of
$0.7 million
. No amounts were outstanding under the revolving credit facility portion of the Senior Secured Credit Facilities as of
June 29, 2018
.
As of
December 31, 2017
, the Company’s total outstanding indebtedness of
$401.5 million
was comprised of term loans outstanding under its U.S. credit agreement 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 borrowings were outstanding under the U.S. revolving loan facility at
December 31, 2017
.
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
$19.7 million
as of
June 29, 2018
, including borrowings of
$16.6 million
incurred by the Company’s subsidiaries in Germany, and borrowings totaled
$21.8 million
as of
December 31, 2017
, including borrowings of
$18.0 million
incurred by the Company’s subsidiaries in Germany. The foreign debt obligations in Germany primarily relate to term loans of
$16.5 million
at
June 29, 2018
and
$18.0 million
at
December 31, 2017
. The 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, Jason Incorporated, as the borrower, entered into (i) the First Lien Credit Agreement, with Jason Partners Holdings Inc., Jason Holdings, Inc. I, a wholly-owned subsidiary of Jason Partners Holdings Inc. (“Intermediate Holdings”), 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, with Jason Partners Holdings Inc., Intermediate Holdings, 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, as amended, provides for (i) term loans in the principal amount of $310.0 million (the “First Lien Term Facility” and the loans thereunder the “First Lien Term Loans”), of which
$294.1 million
is outstanding as of
June 29, 2018
, and (ii) a revolving loan of up to
$34.3 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 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
$89.9 million
is outstanding as of
June 29, 2018
, under the 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”). During the second quarter of 2018, the Company amended its Revolving Credit Facility to extend the maturity date to June 30, 2020. The amendment reduced the borrowing capacity from
$40.0 million
to
$34.3 million
until June 30, 2019, and thereafter,
$30.0 million
until June 30, 2020. In connection with the amendment, the Company paid deferred financing costs of
$0.6 million
which have been recorded within other assets-net within the condensed consolidated balance sheets.
The First Lien Term Loans mature June 30, 2021, the Revolving Credit Facility matures June 30, 2020 and the Second Lien Term Loans mature June 30, 2022. The principal amount of the First Lien Term Loans amortizes in quarterly installments
equal to 0.25% of the original principal amount of the First Lien Term Loans, with the balance payable at maturity. Neither the Revolving Credit Facility nor the Second Lien Term Loans amortize, however, each is repayable in full at maturity.
Security Interests
. In connection with the Senior Secured Credit Facilities, Jason Partners Holdings Inc., Intermediate Holdings, Jason Incorporated and certain of Jason Incorporated’s subsidiaries (the “Subsidiary Guarantors”), entered into a (i) First Lien Security Agreement (the “First Lien Security Agreement”), dated as of June 30, 2014, 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. 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 administrative agent’s prime rate, (b) the federal funds effective rate plus
0.50%
or (c) the Eurocurrency rate applicable for an interest period of one month plus
1.00%
, plus an applicable margin equal to (x)
3.50%
in the case of the First Lien Term Loans, (y)
2.25%
in the case of the Revolving Credit Facility or (z)
7.00%
in the case of the Second Lien Term Loans or (ii) a Eurocurrency rate determined by reference to LIBOR, adjusted for statutory reserve requirements, plus an applicable margin equal to (x)
4.50%
in the case of the First Lien Term Loans, (y)
3.25%
in the case of the Revolving Credit Facility or (z)
8.00%
in the case of the Second Lien Term Loans. Borrowings under the First Lien Term Facility and Second Lien Term Facility 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 Swaps in 2015 with notional values totaling
$210.0 million
at
June 29, 2018
and
December 31, 2017
. The Swaps have been designated by the Company as cash flow hedges, and effectively fix the variable portion of interest rates on variable rate term loan borrowings at a rate of approximately
2.08%
prior to financing spreads and related fees. The Swaps had a forward start date of December 30, 2016 and have an expiration date of June 30, 2020. As such, the Company began recognizing interest expense related to the interest rate hedge contracts in the first quarter of 2017. For the
six months ended
June 29, 2018
and
June 30, 2017
, the Company recognized
$0.1 million
and
$1.1 million
, respectively, of interest expense related to the Swaps. Based on current interest rates, the Company expects to recognize interest income of
$0.5 million
related to the Swaps in the next 12 months.
The fair values of the Company’s Swaps are recorded on the condensed consolidated balance sheets with the corresponding offset recorded as a component of accumulated other comprehensive loss. The fair value of the Swaps was
$2.7 million
at
June 29, 2018
and
$0.1 million
at
December 31, 2017
, respectively. See the amounts recorded on the condensed consolidated balance sheets within the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2018
|
|
December 31, 2017
|
|
Interest rate swaps:
|
|
|
|
|
Recorded in other current assets
|
$
|
1,756
|
|
|
$
|
—
|
|
|
Recorded in other assets - net
|
988
|
|
|
537
|
|
|
Recorded in other current liabilities
|
—
|
|
|
(458
|
)
|
|
Total net asset derivatives designated as hedging instruments
|
$
|
2,744
|
|
|
$
|
79
|
|
Mandatory Prepayment
. Subject to certain exceptions, the Senior Secured Credit Facilities are subject to mandatory prepayments in amounts equal to: (1) a percentage of the net cash proceeds from any non-ordinary course sale or other disposition of assets (including as a result of casualty or condemnation) by Jason Incorporated or any of its Restricted Subsidiaries in excess of a certain amount and subject to customary reinvestment provisions and certain other exceptions; (2) 100% of the net cash proceeds from the issuance or incurrence of debt by Jason Incorporated or any of its Restricted Subsidiaries (other than indebtedness permitted by the Senior Secured Credit Facilities); and (3) 75% (with step-downs to 50%, 25% and 0% based upon achievement of specified consolidated first lien net leverage ratios under the First Lien Credit Facilities and specified consolidated total net leverage ratios under the Second Lien Term Facility) of annual excess cash flow
of Jason Incorporated and its Restricted Subsidiaries. Other than the payment of customary “breakage” costs, Jason Incorporated may voluntarily prepay outstanding loans at any time. At
December 31, 2017
, a mandatory prepayment of
$2.5 million
under the Senior Secured Credit Facilities was included within the current portion of long-term debt in the condensed consolidated balance sheets. The mandatory prepayment of
$2.5 million
was paid on
April 6, 2018
.
During the second quarter of 2017, the Company repurchased
$8.0 million
of Second Lien Term Loans for
$6.1 million
. In connection with the repurchase, the Company wrote off
$0.2 million
of previously unamortized debt discount and
$0.1 million
of previously unamortized deferred financing costs, which were recorded as a reduction to the gain on extinguishment of debt. The transactions resulted in a net gain of
$1.6 million
which has been recorded within the condensed consolidated statements of operations.
Covenants
. The Senior Secured Credit Facilities contain a number of customary affirmative and negative covenants that, among other things, 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
$10.0
million at the end of any fiscal quarter, Jason Incorporated and its Restricted Subsidiaries will be required to not exceed a consolidated first lien net leverage ratio, currently specified at
4.50
to
1.00
, with a decrease to
4.25
to
1.00
on
December 31, 2019
and remaining at that level thereafter. If such outstanding amounts do not exceed
$10.0
million at the end of any fiscal quarter, no financial covenants are applicable. As of
June 29, 2018
, the consolidated first lien net leverage ratio was
3.69
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
$10.0
million at
June 29, 2018
. As of
June 29, 2018
, the Company was in compliance with the financial covenants contained in its credit agreements.
Events of Default
. The Senior Secured Credit Facilities contain customary events of default, including nonpayment of principal, interest, fees or other amounts; material inaccuracy of a representation or warranty when made; violation of a covenant; cross-default to material indebtedness; bankruptcy events; inability to pay debts or attachment; material unsatisfied judgments; actual or asserted invalidity of any security document; and a change of control. Failure to comply with these provisions of the Senior Secured Credit Facilities (subject to certain grace periods) could, absent a waiver or an amendment from the lenders under such agreement, restrict the availability of the Revolving Credit Facility and permit the acceleration of all outstanding borrowings under the Credit Agreements.
Series A Preferred Stock
Holders of the
39,040
shares of Series A Preferred Stock are entitled to receive, when, as and if declared by the Company’s Board of Directors, cumulative dividends at the rate of
8.0%
per annum (the dividend rate) on the
$1,000
liquidation preference per share of the Series A Preferred Stock, payable quarterly in arrears on each dividend payment date. Dividends shall be paid in cash or, at the Company’s option, in additional shares of Series A Preferred Stock or a combination thereof, and are payable on
January 1
,
April 1
,
July 1
, and
October 1
of each year, commencing on the first such date after the date of the first issuance of the Series A Preferred Stock.
The Company paid the following dividends on the Series A Preferred Stock in additional shares of Series A Preferred Stock during the
six months ended June 29, 2018
:
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Date
|
|
Record Date
|
|
Amount Per Share
|
|
Total Dividends Paid
|
|
Preferred Shares Issued
|
|
January 1, 2018
|
|
November 15, 2017
|
|
$20.00
|
|
$974
|
|
968
|
|
April 1, 2018
|
|
February 15, 2018
|
|
$20.00
|
|
$751
|
|
748
|
On
May 3, 2018
, the Company announced a
$20.00
per share dividend on its Series A Preferred Stock to be paid in additional shares of Series A Preferred Stock on
July 1, 2018
to holders of record on
May 15, 2018
. As of
June 29, 2018
, the Company has recorded the
763
additional Series A Preferred Stock shares declared for the dividend of
$0.8 million
within preferred stock in the condensed consolidated balance sheets.
Seasonality and Working Capital
The Company uses net operating working capital (“NOWC”), a non-GAAP measure, as a percentage of the previous twelve months of net sales as a key indicator of working capital management. The Company defines this metric as the sum of trade accounts receivable and inventories less trade accounts payable. NOWC as a percentage of trailing twelve month net sales was
14.6%
as of
June 29, 2018
,
13.7%
as of
December 31, 2017
and
13.2%
as of
June 30, 2017
. The calculation of NOWC as a percentage of sales for
June 29, 2018
and
December 31, 2017
excludes $
5.9 million
and
$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
June 29, 2018
,
December 31, 2017
and
June 30, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 29, 2018
|
|
December 31, 2017
|
|
June 30, 2017
|
|
Accounts receivable—net
|
$
|
79,436
|
|
|
$
|
68,626
|
|
|
$
|
81,560
|
|
|
Inventories-net
|
68,424
|
|
|
70,819
|
|
|
69,313
|
|
|
Accounts payable
|
(55,652
|
)
|
|
(53,668
|
)
|
|
(61,881
|
)
|
|
NOWC
|
$
|
92,208
|
|
|
$
|
85,777
|
|
|
$
|
88,992
|
|
In overall dollar terms, the Company’s NOWC is generally lower at the end of the calendar year due to reduced sales activity around the holiday season. NOWC generally peaks at the end of the first quarter as the Company experiences high seasonal demand from certain customers, particularly those serving the motorcycle and lawn and turf care markets to fill the supply chain for the spring season. There are, however, variations in the seasonal demands from year to year depending on weather, customer inventory levels, customer planning, and model year changes. The Company historically generates approximately
51%
-
54%
of its annual net sales in the first half of the year.
Short-Term and Long-Term Liquidity Requirements
The Company’s ability to make principal and interest payments on borrowings under its U.S. and foreign credit facilities and its ability to fund planned capital expenditures will depend on its ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, regulatory and other conditions. Based on its current level of operations, the Company believes that its existing cash balances and expected cash flows from operations will be sufficient to meet its operating requirements for at least the next 12 months. However, the Company may require borrowings under its credit facilities and alternative forms of financings or investments to achieve its longer-term strategic plans.
Capital expenditures during the
six months ended June 29, 2018
were
$6.9 million
, or
2.1%
of net sales. Capital expenditures for
2018
are expected to be approximately
2.8%
of net sales, but could vary from that depending on business performance, growth opportunities, project activity and the amount of assets we lease instead of purchase. The Company finances its annual capital requirements with funds generated from operations.
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 29, 2018
and the
Six Months Ended June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
(in thousands)
|
June 29, 2018
|
|
June 30, 2017
|
|
Net cash provided by operating activities
|
$
|
11,140
|
|
|
$
|
20,832
|
|
|
Net cash used in investing activities
|
(6,880
|
)
|
|
(794
|
)
|
|
Net cash used in financing activities
|
(6,390
|
)
|
|
(7,125
|
)
|
|
Effect of exchange rate changes on cash and cash equivalents
|
(525
|
)
|
|
1,145
|
|
|
Net (decrease) increase in cash and cash equivalents
|
(2,655
|
)
|
|
14,058
|
|
|
Cash and cash equivalents at beginning of period
|
48,887
|
|
|
40,861
|
|
|
Cash and cash equivalents at end of period
|
$
|
46,232
|
|
|
$
|
54,919
|
|
|
Depreciation and amortization
|
$
|
21,853
|
|
|
$
|
19,490
|
|
|
Capital expenditures
|
6,939
|
|
|
7,161
|
|
Cash Flows Provided by Operating Activities
Cash flows provided by operating activities were
$11.1 million
for the
six months ended June 29, 2018
compared with
$20.8 million
for the
six months ended June 30, 2017
, a decrease of
$9.7 million
. Changes in net operating working capital resulted in a use of cash that was $
6.5 million
higher during the
six months ended June 29, 2018
as compared to the
six months ended June 30, 2017
, driven by fluctuations in the accounts receivable balance and an overall lower reduction in inventory levels during 2018 compared to 2017, offset by a fluctuation in the accounts payable balance. Changes in other assets and liability balances decreased operating cash flow by
$8.0 million
, primarily driven by fluctuations in accrued compensation and employee benefits and accrued income taxes. In addition, for the
six months ended June 29, 2018
as compared to the
six months ended June 30, 2017
, the decrease to operating cash flows was offset by
$4.7 million
of higher net income exclusive of non cash items.
Cash Flows Used in Investing Activities
Cash flows used in investing activities were
$6.9 million
for the
six months ended June 29, 2018
compared with
$0.8 million
for the
six months ended June 30, 2017
. The increase in cash flows used in investing activities was primarily the result of lower proceeds from disposals of property, plant and equipment of
$6.3 million
. The proceeds from disposals of property, plant and equipment for the
six months ended June 30, 2017
were primarily due to the proceeds received from the building sale executed in connection with the sale leaseback of our Libertyville, Illinois facility in April 2017. Lower capital expenditures of
$0.2 million
partially offset the increase in cash used in investing activities.
Cash Flows Used in Financing Activities
Cash flows used in financing activities were
$6.4 million
for the
six months ended June 29, 2018
compared with cash flows used in financing activities of
$7.1 million
for the
six months ended June 30, 2017
. The decrease in cash flows used in financing activities was driven by lower payments of
$5.5 million
on First and Second Lien term loans. This was offset by an increase in net payments of other long-term debt, with net payments of
$1.7 million
for
six months ended June 29, 2018
as compared with net borrowings of
$2.5 million
for the
six months ended June 30, 2017
and
$0.6 million
for payments of deferred issuance costs for the
six months ended June 29, 2018
incurred in connection with the amendment of the Revolving Credit Facility.
Depreciation and Amortization
Depreciation and amortization totaled
$21.9 million
for the
six months ended June 29, 2018
, compared with
$19.5 million
for the
six months ended June 30, 2017
. Depreciation and amortization for the
six months ended June 29, 2018
is higher than incurred by the Company in the prior period primarily due to $2.3 million of accelerated intangible amortization expense recorded for a customer relationship intangible asset related to non-core smart utility meter product lines in the components segment.
Capital Expenditures
Capital expenditures totaled
$6.9 million
for the
six months ended June 29, 2018
, compared with
$7.2 million
for the
six months ended June 30, 2017
.
Contractual Obligations
There are no material changes to the disclosures regarding contractual obligations made in Part II, Item 7 of our Annual Report on Form 10-K for the year ended
December 31, 2017
.
Off-Balance Sheet Arrangements
There are no material changes to the disclosures regarding off-balance sheet arrangements made in Part II, Item 7 of our Annual Report on Form 10-K for the year ended
December 31, 2017
.
Critical Accounting Policies and Estimates
The condensed consolidated financial statements have been prepared in accordance with GAAP which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities on the date of the financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K filed with the SEC on March 1, 2018 for the year ended
December 31, 2017
and the accompanying Notes to Financial Statements (Part I, Item 1 of this Form 10-Q) for information with respect to our critical accounting policies, which we believe could have the most significant effect on our reported results and require subjective or complex judgments by management. Except for the items reported above, management believes that as of
June 29, 2018
and during the period from
March 31, 2018
through
June 29, 2018
, there has been no material change to this information.
New Accounting Pronouncements
See Note 1, “Description of Business and Basis of Presentation” under the heading “Recently issued accounting standards” of the accompanying condensed consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign currency exchange rates and interest rates and, to a lesser extent, commodities. To reduce such risks, the Company selectively uses financial instruments and other proactive management techniques. All hedging transactions are authorized and executed pursuant to clearly defined policies and procedures, which strictly prohibit the use of financial instruments for trading or speculative purposes.
Currency Risk:
The Company has manufacturing, sales and distribution operations around the world; therefore, exchange rates impact the U.S. Dollar (“USD”) value of our reported earnings, our investments in our foreign subsidiaries and the intercompany transactions with these subsidiaries. Approximately
$96.7 million
, or
29%
, of our sales originated in a currency other than the U.S. dollar during the first
six
months of
2018
. As a result, fluctuations in the value of foreign currencies against the USD, particularly the Euro, may have a material impact on our reported results. Revenues and expenses denominated in foreign currencies are translated into USD using average exchange rates in effect during the period. Consequently, as the value of the USD changes relative to the currencies of our major markets, our reported results vary. For the
six months ended June 29, 2018
, sales denominated in Euros approximated
$57.7 million
. Therefore, with a 10% increase or decrease in the value of the Euro in relation to the USD, our translated net sales (assuming all other factors are unchanged) would increase or decrease by
$5.8 million
, respectively, and the change in our net (loss) income would increase or decrease by approximately less than
$0.1 million
. The net assets and liabilities of our non-U.S. dollar denominated subsidiaries, which totaled approximately
$145.5 million
as of
June 29, 2018
, are translated into USD at the exchange rates in effect at the end of the period. The resulting translation adjustments are recorded in shareholders’ equity as cumulative translation adjustments. The cumulative translation adjustments recorded in accumulated other comprehensive loss at
June 29, 2018
resulted in a decrease to shareholders’ deficit of
$21.2 million
. Transactional foreign currency exchange exposure results primarily from the purchase of products, services or equipment from affiliates or third party suppliers where the purchase value is significant, denominated in another currency and to be settled following the initial transaction date, and from the repayment of intercompany loans between subsidiaries using different currencies. The Company periodically identifies areas where it does not have naturally offsetting currency positions and then may purchase hedging instruments to protect against potential currency exposures. As of
June 29, 2018
, the Company did not have any significant foreign currency hedging instruments in place nor did it have any significant sales or purchase commitments in currencies outside of the functional currencies of the operations responsible for satisfying such commitments. All long-term debt is held in the functional currencies of the operations that are responsible for the repayment of such obligations. As of
June 29, 2018
, long-term debt denominated in currencies other than the USD totaled approximately
$17.9 million
.
Interest Rate Risk:
The Company utilizes a combination of short-term and long-term debt to finance our operations and is exposed to interest rate risk on our outstanding floating rate debt instruments that bear interest at rates that fluctuate with changes in certain short-term prevailing interest rates. Borrowings under U.S. credit facilities bear interest at rates tied to either the administrative agent’s prime rate, the federal funds effective rate, the Eurocurrency rate, or a Eurocurrency rate determined by reference to LIBOR, subject to an established floor. Until recently, applicable interest rates have been lower than the designated floor in our Senior Secured Credit Facilities; therefore, interest rates have not been subject to change. However, as interest rates exceed the established floor, a 25 basis point increase or decrease in the applicable interest rates on our variable rate debt would increase or decrease interest expense by approximately
$0.4 million
.
As of
June 29, 2018
, the Company has entered into various interest rate swaps in order to mitigate a portion of the variable rate interest exposure. The Company is counterparty to certain interest rate swaps with a total notional amount of
$210.0 million
entered into in November 2015 in order to mitigate a portion of the variable interest rate exposure. These swaps are scheduled to mature in June 2020. Under the terms of the agreement, the Company swapped three month LIBOR rates for a fixed interest rate, resulting in the payment of a fixed LIBOR rate of
2.08%
on a notional amount of
$210.0 million
.
Commodity risk:
The Company sources a wide variety of materials and components from a network of global suppliers. While such materials are generally available from numerous suppliers, commodity raw materials, such as steel, aluminum, copper, fiber, foam chemicals, plastic resin, vinyl and cotton sheeting are subject to price fluctuations, which could have a negative impact on our results. The Company strives to pass along such commodity price increases to customers to avoid profit margin erosion and utilizes value analysis and value engineering initiatives to further mitigate the impact of commodity raw material price fluctuations as improved efficiencies across all locations are achieved. As of
June 29, 2018
, the Company did not have any commodity hedging instruments in place.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)), that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. Because of inherent limitations, disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of
June 29, 2018
. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of
June 29, 2018
, our disclosure controls and procedures were not effective at a reasonable assurance level, due to the material weakness in our internal control over financial reporting discussed below.
In the three month period ended September 29, 2017, our management identified deficiencies that when aggregated, resulted in a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our management has identified a material weakness in the design and operation of control activities. Specifically, we did not design and maintain effective controls necessary to allow for a detailed review over non-routine transactions on a timely basis and did not have the appropriate complement of resources at certain of our facilities in place for a sufficient period of time. As a result of this material weakness, we inappropriately accounted for the divestiture of Acoustics Europe in the three and six month periods ended June 30, 2017 and for depreciation expense in 2016 and the first six months of 2017. While the impact of these errors is not material to the previously reported financial statements, as discussed in Note 2 to the financial statements, we revised our previously issued annual financial statements as of and for the year ended December 31, 2016 and the interim financial statements for the three month period ended March 31, 2017 and for the three and six month periods ended June 30, 2017. See Note 2 to the interim condensed consolidated financial statements included in Part I, Item 1 of this report for further information regarding this revision. These control deficiencies could result in the misstatement of account balances or disclosures that would result in a material misstatement of the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, our management has determined that these control deficiencies aggregated to a material weakness.
Remediation Plan
During the fourth quarter of 2017 and the first half of 2018, we enhanced the design of controls around certain control activities, specifically, the review process for analyzing non-routine accounting transactions and also added additional accounting resources in several businesses to improve the effectiveness of internal control over financial reporting. We believe that these enhanced resources and processes will effectively remediate the material weakness, but the material weakness will not be considered remediated until the revised controls operate for a sufficient period of time and management has concluded, through testing, that these controls are designed and operating effectively. As of
June 29, 2018
, additional time is needed to demonstrate sustainability as it relates to the revised controls and enhanced resources.
Changes in Internal Control Over Financial Reporting
The remediation efforts related to the material weakness disclosed in Management’s Report on Internal Control over Financial Reporting are considered a change in the Company’s internal control over financial reporting during the quarter ended
June 29, 2018
, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.