The accompanying notes are an integral part of these
condensed consolidated financial statements.
The accompanying notes are an integral part of these
condensed consolidated financial statements.
The accompanying notes are an integral part of these
condensed consolidated financial statements.
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
(Amounts in thousands, except share and per share
data)
(Unaudited)
Note 1. General
Business Description
Tecnoglass Inc., a Cayman Islands exempted company
(the “Company”, “Tecnoglass,” “TGI,” “we, “us” or “our”), manufactures
hi-specification, architectural glass and windows for the global residential and commercial construction industries. Currently the Company
offers design, production, marketing, and installation of architectural systems for buildings of high, medium, and low elevation size.
Products include windows and doors in glass and aluminum, office partitions and interior divisions, floating facades and commercial window
showcases. The Company exports most of its products to foreign countries, selling to customers in North, Central and South America.
The Company manufactures both glass and aluminum products.
Its glass products include tempered glass, laminated glass, thermo-acoustic glass, curved glass, silk-screened glass, acoustic glass,and
digital print glass. Its Alutions plant produces mill finished, anodized, painted aluminum profiles and rods, tubes, bars, and plates.
Alution’s operations include extrusion, smelting, painting and anodizing processes, and exporting, importing and marketing aluminum
products.
The Company also designs, manufactures, markets, and
installs architectural systems for high, medium and low-rise construction, glass and aluminum windows and doors, office dividers and interiors,
floating facades and commercial display windows.
Note 2. Basis of Presentation and Summary of Significant
Accounting Policies
Basis of Presentation and Use of Estimates
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US
GAAP”) and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission (“SEC”)
for interim reporting purposes. The results reported in these unaudited condensed consolidated financial statements are not necessarily
indicative of results that may be expected for the entire year. These unaudited condensed consolidated financial statements should be
read in conjunction with the information contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
The year-end condensed balance sheet data was derived from the audited financial statements in the Annual Report on Form 10-K but does
not include all disclosures required by US GAAP.
The preparation of these unaudited condensed consolidated
financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities,
revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the Company’s financial statements.
Actual results may differ from these estimates under different assumptions and conditions. Estimates utilized in the preparation of these
unaudited condensed consolidated financial statements relate to the collectability of account receivables, the valuation of inventories,
estimated earnings on uncompleted contracts, useful lives and potential impairment of long-lived assets. Changes in estimates are reflected
in the periods during which they become known. Actual amounts may differ from these estimates and could differ materially. These financial
statements reflect all adjustments that in the opinion of management are necessary for a fair statement of the financial position, results
of operations and cash flows for the period presented, and are of a normal, recurring nature.
The Company has one operating segment, Architectural
Glass and Windows, which is also its reporting segment, comprising the design, manufacturing, distribution, marketing and installation
of high-specification architectural glass and window products sold to the construction industry.
Principles of Consolidation
These unaudited condensed consolidated
financial statements consolidate TGI and its subsidiaries Tecnoglass S.A.S (“TG”), C.I. Energía Solar S.A.S E.S. Windows
(“ES”), ES Windows LLC (“ESW LLC”), Tecnoglass LLC (“Tecno LLC”), Tecno RE LLC (“Tecno RE”),
GM&P Consulting and Glazing Contractors (“GM&P”), Componenti USA LLC, ES Metals SAS (“ES Metals”), and
Ventanas Solar S.A (“VS”), which are entities in which we have a controlling financial interest because we hold a majority
voting interest. To determine if we hold a controlling financial interest in an entity, we first evaluate if we are required to apply
the variable interest entity (“VIE”) model to the entityand if we are not, the entity is evaluated under the voting interest
model. All significant intercompany accounts and transactions are eliminated in consolidation, including unrealized intercompany profits
and losses. The equity method of accounting is used for investments in affiliates and other joint ventures over which the Company has
significant influence but does not have effective control.
TGI and certain wholly owned subsidiaries
with functional currency different than the U.S. dollar have long-term intercompany loan balances denominated in foreign currencies that
are remeasured at the current exchange rate in effect at the balance sheet date. Such loan balances are not expected to be settled in
the foreseeable future. Any gains and losses relating to these loans are included in the accumulated other comprehensive income (loss),
which is reflected as a separate component of stockholders’ equity.
Recast of Prior Year Period Financial Statements
On November 8, 2021, we announced that we entered
into a purchase agreement with Ventanas Solar S.A. (“VS”), a Panama domiciled company that acts as an importer and distributor
of the Company’s products in the Republic of Panama. VS was affiliated with family members of Jose M. Daes, the Company’s
Chief Executive Officer, and Christian T. Daes, the Company’s Chief Operating Officer. Pursuant to the Agreement, the Company through
ES acquired 95% of the shares of VS for $4.0 million, which were paid for through the capitalization of certain accounts receivable of
ES from previous sales to VS. The transaction was consummated in December 2021 and is part of the Company’s continued strategy to
vertically integrate its operations. In June, 2022, the remaining 5% interest was contributed to the Company, and now is a fully
owned subsidiary of the Company.
The acquisition of VS was deemed to be a transaction
between entities under common control. As a result, the assets and liabilities were transferred at the historical cost of VS, with prior
periods retroactively adjusted to include the historical financial results of the acquired company for the period they were controlled
by the previous owners of VS in the Company’s financial statements.
The following table includes the financial information
as originally reported and the net effect of the VS acquisition after elimination of intercompany transactions:
Schedule of Consolidated Financial Statements
| |
Three months ended September 30, 2021 | | |
Nine months ended September 30, 2021 | |
| |
Prior to | | |
Effect of | | |
After | | |
Prior to | | |
Effect of | | |
After | |
| |
acquisition | | |
acquisition | | |
acquisition | | |
acquisition | | |
acquisition | | |
Acquisition | |
Total Sales | |
| 130,410 | | |
| 1,249 | | |
| 131,659 | | |
| 363,004 | | |
| 1,962 | | |
| 364,966 | |
Operating Income | |
| 30,154 | | |
| (266 | ) | |
| 29,888 | | |
| 83,944 | | |
| 145 | | |
| 84,089 | |
Income attributable to parent | |
| 20,919 | | |
| (280 | ) | |
| 20,639 | | |
| 48,319 | | |
| 104 | | |
| 48,423 | |
Basic income per share | |
| 0.44 | | |
| (0.01 | ) | |
| 0.43 | | |
| 1.01 | | |
| 0.01 | | |
| 1.02 | |
Diluted income per share | |
| 0.44 | | |
| (0.01 | ) | |
| 0.43 | | |
| 1.01 | | |
| 0.01 | | |
| 1.02 | |
Derivative Financial Instruments
The Company recognizes all derivative financial instruments
as either assets or liabilities at fair value on the condensed consolidated balance sheet. The unrealized gains or losses arising from
changes in fair value of derivative instruments that are designated and qualify as cash flow hedges, are recorded in the condensed consolidated
statement of comprehensive income. Amounts in accumulated other comprehensive loss on the condensed consolidated balance sheet are reclassified
into the condensed consolidated statement of income in the same period or periods during which the hedged transactions are settled.
Adoption of New Accounting Standards
In June 2016, Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326). This ASU
represents a significant change in the allowance for credit losses accounting model by requiring immediate recognition of management’s
estimates of current expected credit losses. Under the prior model, losses were recognized only as they were incurred, which FASB has
noted delayed recognition of expected losses that might not yet have met the threshold of being probable. The new model is applicable
to all financial instruments that are not accounted for at fair value through net income, thereby bringing consistency in accounting treatment
across different types of financial instruments and requiring consideration of a broader range of variables when forming loss estimates.
ASU 2016-13 was effective for fiscal years beginning after December 15, 2019, . The FASB issued ASU 2019-10 and ASU 2019-11 during the
fourth quarter of 2019 that postponed the effective date to the year beginning after December 15, 2022 for smaller reporting companies.
In February 2020, the FASB issued ASU 2020-02 “Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842), which
amended SEC Staff Accounting Bulletin No. 119 (SAB119) which contains interpretative guidance from the SEC aligned to the FASB’s
ASC 326.
We adopted this standard using the modified retrospective
approach at the beginning of fiscal year 2022 as we no longer qualified as a smaller reporting company. The adoption of this ASU did not
have a significant impact on the Company’s earnings or financial condition. Refer to additional disclosures in Note 4.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, “Reference
Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. The amendments in this Update
provide optional expedients and exceptions for contracts, hedging relationships, and other transactions affected by reference rate reform
if certain criteria are met. The amendments in this Update apply only to contracts, hedging relationships, and other transactions that
reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions
provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December
31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for
and that are retained through the end of the hedging relationship. The amendments in this Update are effective for the Company through
December 31, 2022, with early adoption permitted. The Company’s outstanding debt, which bears interest based on LIBOR. contains
provisions for transitioning into a benchmark reference rate prior to the discontinuation of LIBOR in 2023. Our interest rate swap derivative
contract will be adjusted accordingly.
In September 2022, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update (ASU) No. 2022-04, Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure
of Supplier Finance Program Obligations. The ASU requires a buyer in a supplier finance program to disclose information about the program’s
nature, activity during the period, changes from period to period, and potential magnitude. For the Company, this standard is effective
beginning after January 1, 2023. As this ASU relates to disclosures only, there will be no impact to the Company’s consolidated
results of operations and financial condition
We reviewed all other recently issued accounting pronouncements
and concluded that they were either not applicable or not expected to have a significant impact to the condensed consolidated financial
statements.
Note 3. - Inventories, net
Schedule of Inventories
| |
September 30, 2022 | | |
December 31, 2021 | |
Raw materials | |
$ | 85,697 | | |
$ | 54,443 | |
Work in process | |
| 15,375 | | |
| 11,126 | |
Finished goods | |
| 8,565 | | |
| 8,789 | |
Spares and accessories | |
| 12,024 | | |
| 9,869 | |
Packing material | |
| 1,257 | | |
| 870 | |
Total Inventories, gross | |
| 122,918 | | |
| 85,097 | |
Less: Inventory allowance | |
| (116 | ) | |
| (122 | ) |
Total inventories, net | |
$ | 122,802 | | |
$ | 84,975 | |
Note 4. – Revenues, Trade Accounts Receivable,
Contract Assets and Contract Liabilities
Disaggregation of Total Net Sales
The Company disaggregates its sales with customers
by revenue recognition method for its only segment, as the Company believes these factors affect the nature, amount, timing and uncertainty
of the Company’s revenue and cash flows.
Schedule of Disaggregation by Revenue
| |
Three months ended | | |
Nine months ended | |
| |
September 30, | | |
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Fixed price contracts | |
$ | 26,272 | | |
$ | 16,631 | | |
$ | 67,648 | | |
$ | 60,306 | |
Product sales | |
| 175,508 | | |
| 115,028 | | |
| 437,804 | | |
| 304,660 | |
Total Revenues | |
$ | 201,780 | | |
$ | 131,659 | | |
$ | 505,452 | | |
$ | 364,966 | |
The following table presents geographical information
about revenues.
Schedule of Segment and Geographic Information
| |
Three months ended September 30, | | |
Nine months ended September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Colombia | |
$ | 4,817 | | |
$ | 5,234 | | |
$ | 13,657 | | |
$ | 21,065 | |
United States | |
| 193,504 | | |
| 123,237 | | |
| 481,965 | | |
| 333,923 | |
Panama | |
| 571 | | |
| 1,476 | | |
| 2,373 | | |
| 3,706 | |
Other | |
| 2,888 | | |
| 1,713 | | |
| 7,457 | | |
| 6,272 | |
Total Revenues | |
$ | 201,780 | | |
$ | 131,659 | | |
$ | 505,452 | | |
$ | 364,966 | |
Trade Accounts Receivable
In the ordinary course of business,
we extend credit to customers on a generally non-collateralized basis. The Company maintains an allowance for expected credit losses which
is based on management’s assessments of the amount which may become uncollectible in the future and is determined through consideration
of our write-off history, specific identification of uncollectible accounts based in part on the customer’s past due balance (based
on contractual terms), and consideration of prevailing economic and industry conditions. Uncollectible accounts are written off after
repeated attempts to collect from the customer have been unsuccessful.
Trade accounts receivable consist of the following:
Schedule of
Trade Accounts Receivable
| |
September 30, 2022 | | |
December 31, 2021 | |
Trade accounts receivable | |
| 134,490 | | |
| 110,727 | |
Less: Allowance for credit losses | |
| (636 | ) | |
| (188 | ) |
Total | |
$ | 133,854 | | |
$ | 110,539 | |
The changes in the allowance for credit losses for
the three months ended September 30, 2022 are:
Schedule of
Changes in Allowance for Doubtful Accounts Receivable
| |
Nine months ended September 30, 2022 | |
Balance at beginning of period | |
$ | 705 | |
Additions charged to costs and expenses | |
| 541 | |
Deductions and write-offs, net of foreign currency adjustment | |
| (610 | ) |
Balance at end of period | |
$ | 636 | |
Contract Assets and Liabilities
Contract assets represent accumulated incurred costs
and earned profits on contracts with customers that have been recorded as sales but have not been billed to customers and are classified
as current. In addition, a portion of the amounts billed on certain fixed price contracts that are withheld by the customer as a retainage
until a final good receipt of the complete project to the customers satisfaction. Contract liabilities consist of advance payments and
billings in excess of costs incurred and deferred revenue, and represent amounts received in excess of sales recognized on contracts.
The Company classifies advance payments and billings in excess of costs incurred as current, and deferred revenue as current or non-current
based on the expected timing of sales recognition. Contract assets and contract liabilities are determined on a contract-by-contract basis
at the end of each reporting period. The non-current portion of contract liabilities is included in long-term liabilities in the Company’s
condensed consolidated balance sheets.
The table below presents the components of net contract
assets (liabilities).
Schedule of Contract Assets and Liabilities
| |
September 30, 2022 | | |
December 31, 2021 | |
Contract assets — current | |
$ | 17,496 | | |
$ | 18,667 | |
Contract assets — non-current | |
| 7,135 | | |
| 11,853 | |
Contract liabilities — current | |
| (53,251 | ) | |
| (45,213 | ) |
Contract liabilities — non-current | |
| (11 | ) | |
| (78 | ) |
Net contract assets | |
$ | (28,631 | ) | |
$ | (14,771 | ) |
The components of contract assets are presented in
the table below.
Schedule of Contract Assets and Liabilities
| |
September 30, 2022 | | |
December 31, 2021 | |
Unbilled contract receivables, gross | |
$ | 6,118 | | |
$ | 8,174 | |
Retainage | |
| 18,513 | | |
| 22,346 | |
Total contract assets | |
| 24,631 | | |
| 30,520 | |
Less: current portion | |
| 17,496 | | |
| 18,667 | |
Contract assets — current | |
| 17,496 | | |
| 18,667 | |
Contract Assets – non-current | |
$ | 7,135 | | |
$ | 11,853 | |
The components of contract liabilities are presented
in the table below.
Schedule of Contract Assets and Liabilities
| |
September 30, 2022 | | |
December 31, 2021 | |
Billings in excess of costs | |
$ | 14,227 | | |
| 12,854 | |
Advances from customers on uncompleted contracts | |
| 39,035 | | |
| 32,437 | |
Total contract liabilities | |
| 53,262 | | |
| 45,291 | |
Less: current portion | |
| 53,251 | | |
| 45,213 | |
Contract liabilities — current | |
| 53,251 | | |
| 45,213 | |
Contract liabilities – non-current | |
$ | 11 | | |
| 78 | |
During the three and nine months ended September 30,
2022, the Company recognized $2,424 and $7,927 of sales related to its contract liabilities on January 1, 2022, respectively. During the
three and nine months ended September 30, 2021, the Company recognized $359 and $4,123 of sales related to its contract liabilities on
January 1, 2021, respectively.
Remaining Performance Obligations
As of September 30, 2022, the Company had $472.6 million
of remaining performance obligations, which represents the transaction price of firm orders minus sales recognized from inception to date.
Remaining performance obligations exclude unexercised contract options, verbal commitments, Letters of Intent or written mandates, and
potential orders under basic ordering agreements. The Company expects to recognize 100% of sales relating to existing performance obligations
within three years, of which $117.7 million are expected to be recognized during the year ending December 31, 2022, $315.0 million during
the year ending December 31, 2023, and $39.9 million thereafter.
Note 5. Intangible Assets
Intangible assets include Miami-Dade County Notices
of Acceptances (NOA’s), which are certificates issued for approved products and required to market hurricane-resistant glass in
Florida. Intangibles assets also include the intangibles acquired during the acquisition of GM&P.
Schedule of Finite Lived Intangible Assets
| |
September 30, 2022 | |
| |
Gross | | |
Acc. Amort. | | |
Net | |
Trade Names | |
$ | 980 | | |
$ | (980 | ) | |
$ | - | |
Notice of Acceptances (NOAs), product designs and other intellectual property | |
| 9,834 | | |
| (7,008 | ) | |
| 2,826 | |
Non-compete Agreement | |
| 165 | | |
| (165 | ) | |
| - | |
Customer Relationships | |
| 4,140 | | |
| (4,140 | ) | |
| - | |
Total | |
$ | 15,119 | | |
$ | (12,293 | ) | |
$ | 2,826 | |
| |
December 31, 2021 | |
| |
Gross | | |
Acc. Amort. | | |
Net | |
Trade Names | |
$ | 980 | | |
$ | (947 | ) | |
$ | 33 | |
Notice of Acceptances (NOAs), product designs and other intellectual property | |
| 9,456 | | |
| (6,280 | ) | |
| 3,176 | |
Non-compete Agreement | |
| 165 | | |
| (160 | ) | |
| 5 | |
Customer Relationships | |
| 4,140 | | |
| (4,017 | ) | |
| 123 | |
Total | |
$ | 14,741 | | |
$ | (11,404 | ) | |
$ | 3,337 | |
The weighted average amortization period is 5.20 years.
During the three and nine months ended September 30,
2022, the amortization expense amounted to $290 and $1,079, respectively, and was included within the general and administration expenses
in our unaudited Condensed Consolidated Statement of Operations. Similarly, during the three and nine months ended September 30, 2021,
the amortization expense amounted to $573 and $1,711, respectively.
The estimated aggregate amortization expense for each
of the five succeeding years as of September 30, 2022 is as follows:
Schedule
of Finite Lived Intangible Assets Future Amortization Expense
Year ending | |
(in thousands) | |
2022 | |
$ | 262 | |
2023 | |
| 980 | |
2024 | |
| 661 | |
2025 | |
| 355 | |
Thereafter | |
| 568 | |
Total | |
$ | 2,826 | |
Note 6. Debt
The Company’s debt is comprised of the following:
Schedule
of Debt
| |
September 30, 2022 | | |
December 31, 2021 | |
Revolving lines of credit | |
$ | 328 | | |
$ | 279 | |
Finance lease | |
| 210 | | |
| 306 | |
Other loans | |
| - | | |
| 239 | |
Senior Secured Credit Facility | |
| 172,500 | | |
| 204,257 | |
Less: Deferred cost of financing | |
| (4,349 | ) | |
| (6,026 | ) |
Total obligations under borrowing arrangements | |
| 168,689 | | |
| 199,055 | |
Less: Current portion of long-term debt and other current borrowings | |
| 434 | | |
| 10,700 | |
Long-term debt | |
$ | 168,255 | | |
$ | 188,355 | |
In October 2020, the Company closed
a $300 million five-year term Senior Secured Credit Facility consisting of a $250 million delayed draw term loan and a $50 million committed
revolving credit facility which bears interest at a rate of LIBOR, with a 0.75% floor, plus a spread of between 2.50% and 3.50%, based
on the Company’s net leverage ratio. In December 2020, we used $23.1 million proceeds of the long-term debt facility to repay several
credit facilities. Subsequently, in January 2021 we redeemed the Company’s existing $210 million unsecured senior notes, which had
an interest rate of 8.2% and mature in 2022 using proceeds from this new facility and incurred in an extinguishment cost of $10.9 million
including $8.6 of call premium to exercise the call option.
In November 2021, the Company
amended its Senior Secured Credit Facility to (i) increase the borrowing capacity under its committed Line of credit from $50 million
to $150 million, (ii) reduce its borrowing costs by an approximate 130 basis points, and (iii) extend the initial maturity date by one
year to the end of 2026. Borrowings under the credit facility now bear interest at a rate of LIBOR with no floor plus a spread of 1.50%,
based on the Company’s net leverage ratio, compared to a prior rate of LIBOR with a floor of 0.75% plus a spread of 2.50%, resulting
on total annual savings of approximately $15 million at current levels of outstanding borrowings, since entering into our inaugural US
Bank syndicated facility in October of 2020. The effective interest rate for this credit facility including deferred issuance costs is
3.23%. In relation to this transaction, the Company accounted for costs related to fees paid of $1,496. This was accounted for as a debt
modification and $1,346 of fees paid to banks were capitalized as deferred cost of financing and $150 paid to third parties recorded as
an operating expense on the consolidated statements of operations for the year 2021. In March 2022, we voluntarily prepaid $15 million
of capital to this credit facility which has decreased our net leverage ratio and triggered a step down in the applicable interest rate
spread to 1.5%. Additionally, on September 30, 2022 we voluntarily prepaid $10.0 million of the term loan and $6.7 million under the revolving
line of credit which is fully unused as of September 30, 2022.
As of
September 30, 2022, the Company was obligated under various finance leases under which the aggregate present value of the minimum lease
payments amounted to $210 and weighted average remaining lease term of 25 months. Differences between finance lease obligations and the
value of property, plant and equipment under finance lease arises from differences between the maturities of finance lease obligations
and the useful lives of the underlying assets.
Maturities of long-term debt and other current borrowings
are as follows as of September 30, 2022:
Schedule
of Maturities of Long Term Debt
| |
| | |
2023 | |
$ | 434 | |
2024 | |
| 2,586 | |
2025 | |
| 15,018 | |
2026 | |
| 15,000 | |
2027 | |
| 140,000 | |
Thereafter | |
| - | |
Total | |
$ | 173,038 | |
The Company’s loans have maturities ranging
from a few weeks to 5 years. Our credit facilities bear a weighted average interest rate of 3.74% as of September 30, 2022.
Note 7. Hedging Activity and Fair Value Measurements
Hedging Activity
During the quarter ended
March 31, 2022, we entered into interest rate swap contracts to hedge the interest rate fluctuations related to our outstanding debt.
The effective date of the contract is December 31, 2022 and, thus, we shall have settlement dates each quarter, commencing March 31, 2023.
Our contracts are designated as cash flow hedges since they are highly effective in offsetting changes in the cash flows attributable
to forecasted LIBOR.
We record our hedge contracts
at fair value and consider our credit risk for contracts in a liability position, and our counter-party’s credit risk for contracts
in an asset position, in determining fair value. We assess our counter-party’s risk of non-performance when measuring the fair value
of financial instruments in an asset position by evaluating their financial position, including cash on hand, as well as their credit
ratings.
As of September 30, 2022,
the fair value of interest rate swap contracts was in a net asset position of $9.2 million. We had 16 outstanding interest rate swap contracts
to hedge $125 million related to our outstanding debt through November 2026. We assessed the risk of non-performance of the Company to
these contracts and determined it was insignificant and, therefore, did not record any adjustment to fair value as of September 30, 2022.
We assess the effectiveness
of our interest rate swap contracts by comparing the change in the fair value of the interest rate swap contracts to the change in the
expected cash to be paid for the hedged item. The effective portion of the gain or loss on our interest rate swap contracts is reported
as a component of accumulated other comprehensive income and is reclassified into earnings in the same line item in the income statement
as the hedged item in the same period or periods during which the transaction affects earnings. The amount of gains, net, recognized in
the “accumulated other comprehensive income” line item in the accompanying consolidated balance sheet as of September 30,
2022 that we expect will be reclassified to earnings within the next twelve months, is $9.2 million.
The fair value of our interest
rate swap hedges that are classified in the accompanying consolidated balance sheets as of September 30, 2022 are as follows:
Schedule
of Fair Value of Foreign Currency Hedges
| |
Derivative Assets | |
|
Derivative Liabilities |
| |
September 30, 2022 | |
|
September 30, 2022 |
Derivatives designated as hedging instruments under Subtopic 815-20: | |
Balance Sheet Location | |
Fair Value | | |
|
Balance Sheet Location | |
Fair Value | |
| |
| |
| | |
|
| |
| |
Derivative instruments: | |
| |
| | | |
|
| |
| | |
Interest rate swap contracts | |
Other current assets | |
$ | 9,197 | | |
|
Accrued liabilities | |
$ | - | |
Total derivative instruments | |
Total derivative assets | |
$ | 9,197 | | |
|
Total derivative liabilities | |
$ | - | |
The ending accumulated balance
for the interest rate swap contracts included in accumulated other comprehensive income was $9,197 as of September 30, 2022.
The following table presents
the gains (losses) on derivative financial instruments, and their classifications within the accompanying consolidated financial statements,
for the quarter ended September 30, 2022:
Schedule
of Gains (Losses) on Derivative Financial Instruments
|
|
Derivatives in Cash Flow Hedging Relationships |
|
|
|
Amount
of Gain or (Loss) Recognized in OCI (Loss) on Derivatives |
|
|
Location of Gain or
(Loss) Reclassified from Accumulated OCI (Loss) into Income |
|
Amount
of Gain or (Loss) Reclassified from Accumulated OCI (Loss) into Income |
|
|
|
Three Months Ended |
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts |
|
$ |
4,865 |
|
|
$ |
- |
|
|
Interest expense |
|
$ |
- |
|
|
$ |
- |
|
|
|
Derivatives in Cash Flow Hedging Relationships |
|
|
|
Amount
of Gain or (Loss) Recognized in OCI (Loss) on Derivatives |
|
|
Location
of Gain or (Loss) Reclassified from Accumulated OCI (Loss) into Income |
|
Amount
of Gain or (Loss) Reclassified from Accumulated OCI (Loss) into Income |
|
|
|
Nine Months Ended |
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2021 |
|
|
2020 |
|
|
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts |
|
$ |
9,197 |
|
|
$ |
- |
|
|
Interest expense |
|
$ |
- |
|
|
$ |
- |
|
Fair Value Measurements
The Company accounts for financial assets and liabilities
in accordance with accounting standards that define fair value and establish a framework for measuring fair value. The hierarchy prioritizes
the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability,
either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs
are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. A financial asset’s
or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair
value measurement.
The carrying amounts of the Company’s financial
instruments, including cash and cash equivalents, accounts receivable, accounts payable and advances from customers approximate their
fair value due to their relatively short-term maturities. The Company bases its fair value estimate for long term debt obligations on
its internal valuation that all debt is floating rate debt based on current interest rates in Colombia.
The fair values of derivatives used to manage interest
rate risks are based on LIBOR rates and interest rate swap curves. Measurement of our derivative assets and liabilities is considered
a level 2 measurement. To carry out the swap valuation, the definition of the fixed leg (obligation) and variable leg (right) is used.
Once the projected flows are obtained in both fixed and variable rates, the regression analysis is performed for prospective effectiveness
test. The projection curve contains the forward interest rates to project flows at a variable rate and the discount curve contains the
interest rates to discount future flows, using the one-month USD Libor curve.
As of September 30, 2022, financial instruments carried
at amortized cost that do not approximate fair value consist of long-term debt. See Note 6 – Debt. The fair value of long-term debt
was calculated based on an analysis of future cash flows discounted at current market rates, which are level 2 inputs.
The following table summarizes the fair value and
carrying amounts of our long-term debt:
Summary
of Fair Value and Carrying Amounts of Long Term Debt
| |
September 30, 2022 | | |
December 31, 2021 | |
Fair Value | |
| 171,250 | | |
| 194,285 | |
Carrying Value | |
| 168,255 | | |
| 188,355 | |
Note 8. Income Taxes
The Company files income tax returns for TG, ES and
ES Metals in the Republic of Colombia. GM&P, Componenti and ESW LLC are U.S. entities based in Florida subject to U.S. federal and
state income taxes. Tecnoglass Inc. as well as all the other subsidiaries in the Cayman Islands do not currently have any tax obligations.
The components of income tax expense are as follows:
Schedule
of Components of Income Tax Expense (Benefit)
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
Three months ended September 30, | | |
Nine
months ended
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Current income tax | |
| | | |
| | | |
| | | |
| | |
United States | |
$ | (1,027 | ) | |
$ | (1,260 | ) | |
$ | (3,775 | ) | |
$ | (2,753 | ) |
Current state and local tax expense
benefit | |
$ | (1,027 | ) | |
$ | (1,260 | ) | |
$ | (3,775 | ) | |
$ | (2,753 | ) |
Colombia | |
| (20,777 | ) | |
| (7,614 | ) | |
| (44,275 | ) | |
| (16,961 | ) |
Panama | |
| (6 | ) | |
| (18 | ) | |
| (26 | ) | |
| (43 | ) |
Current foreign tax expense
benefit | |
| (6 | ) | |
| (18 | ) | |
| (26 | ) | |
| (43 | ) |
Total current income
tax | |
| (21,810 | ) | |
| (8,892 | ) | |
| (48,076 | ) | |
| (19,757 | ) |
| |
| | | |
| | | |
| | | |
| | |
Deferred income Tax | |
| | | |
| | | |
| | | |
| | |
United States | |
| 203 | | |
| 113 | | |
| 402 | | |
| 192 | |
Deferred state and local tax
expense benefit | |
| 203 | | |
| 113 | | |
| 402 | | |
| 192 | |
Colombia | |
| (1,359 | ) | |
| (87 | ) | |
| (542 | ) | |
| (590 | ) |
Panama | |
| - | | |
| - | | |
| - | | |
| - | |
Deferred foreign tax
expense benefit | |
| - | | |
| - | | |
| - | | |
| - | |
Total deferred income
tax | |
| (1,156 | ) | |
| 26 | | |
| (140 | ) | |
| (398 | ) |
Total income provision | |
$ | (22,966 | ) | |
$ | (8,866 | ) | |
$ | (48,216 | ) | |
$ | (20,155 | ) |
| |
| | | |
| | | |
| | | |
| | |
Effective tax rate | |
| 32.9 | % | |
| 30.0 | % | |
| 32.3 | % | |
| 29.3 | % |
The weighted average statutory income tax rate for
the three months ended September 30, 2022 and 2021 of 32.9% and 30.0%, respectively, and the effective income tax rate for the nine months
ended September 30, 2022 and 2021 of 32.3% and 29.3%, respectively, approximates the statutory rate.
Note 9. Related Parties
The following is a summary of
assets, liabilities, and income transactions with all related parties:
Schedule
of Related parties
| |
September 30, 2022 | | |
December 31, 2021 | |
Due from related parties: | |
| | | |
| | |
Alutrafic Led SAS | |
| 458 | | |
| 526 | |
Studio Avanti SAS | |
| 127 | | |
| 408 | |
Due from other related parties | |
| 1,057 | | |
| 1,318 | |
Total due from related parties | |
$ | 1,642 | | |
$ | 2,252 | |
| |
| | | |
| | |
Due to related parties: | |
| | | |
| | |
Vidrio Andino | |
| 4,398 | | |
| 2,834 | |
Due to other related parties | |
| 811 | | |
| 1,023 | |
Total due to related parties | |
$ | 5,209 | | |
$ | 3,857 | |
Schedule
of Sale to Related Parties
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
Three months ended | | |
Nine months ended | |
| |
September 30, | | |
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Sales to related parties: | |
| | | |
| | | |
| | | |
| | |
Alutrafic Led SAS | |
| 201 | | |
| 253 | | |
| 771 | | |
| 778 | |
Studio Avanti SAS | |
| 116 | | |
| 171 | | |
| 448 | | |
| 336 | |
Sales to other related parties | |
| 223 | | |
| 34 | | |
| 314 | | |
| 75 | |
Sales to related parties | |
$ | 540 | | |
$ | 458 | | |
$ | 1,533 | | |
$ | 1,189 | |
A Construir SA
On a recurring basis, we have
engaged A Construir S.A., a heavy construction company operating in Barranquilla, Colombia, to carry out construction related to our on-going
capital expenditures at our production facilities in Colombia. Affiliates of Jose Daes and Christian Daes had an ownership stake in A
Construir through June 1, 2022. We purchased $4,312 during the five months through May 31, 2022 and $5,618 and $9,849 during the three
and nine months ended September 30, 2021, respectively, from A Construir S.A. for construction and facilities which have been capitalized
on the Company’s balance sheet as property, plant and equipment. Amounts due to A Construir as of September 30, 2022 are not reflected
as balances due from and due to related parties as of September 30, 2022 on the face of the Consolidated Balance Sheet nor the summary
table above.
Alutrafic Led SAS
In the ordinary course of business,
we sell products to Alutrafic Led SAS (“Alutrafic”), a fabricator of electrical lighting equipment. Affiliates of Jose Daes
and Christian Daes have an ownership stake in Alutrafic. During the three and nine months ended September 30, 2022, we sold $201 and $771
to Alutrafic, respectively, compared to $253 and $778 during the three and nine months ended September 30, 2021, respectively. Additionally,
we had outstanding accounts receivable from Alutrafic for $458 and $526 as of September 30, 2022 and December 31, 2021, respectively.
Santa Maria del Mar SAS
In the ordinary course of business,
we purchase fuel for use at our manufacturing facilities from Estación Santa Maria del Mar SAS, a gas station located in the vicinity
of our manufacturing campus which is owned by affiliates of Jose Daes and Christian Daes. During the three and nine months ended September
30, 2022, we purchased $243 and $655, respectively, compared to $118 and $218 purchased during
the three and nine months ended September 30, 2021, respectively.
Fundacion Tecnoglass-ESWindows
Fundacion Tecnoglass-ESWindows
is a non-profit organization set up by the Company to carry out social causes in the communities around where we operate. We made charitable
contributions during the three and nine months ended September 30, 2022 for $358 and $1,153, respectively, compared to $306 and $887 during
the three and nine months ended September 30, 2021, respectively.
Studio Avanti SAS
In the ordinary course of business,
we sell products to Studio Avanti SAS (“Avanti”), a distributer and installer of architectural systems in Colombia. Avanti
is owned and controlled by Alberto Velilla, who is director of Energy Holding Corporation, the controlling shareholder of the Company.
As of September 30, 2022, and December 31, 2021, the Company had outstanding accounts receivable from Avanti of $127 and $408, respectively.
During the three and nine months ended September 30, 2022, we sold $116 and $448 of products to Studio Avanti respectively, compared to
$171 and $336 during the three and nine months ended September 30, 2021, respectively.
Vidrio Andino Joint Venture
On May 3, 2019, we consummated
a joint venture agreement with Saint-Gobain, a world leader in the production of float glass, a key component of our manufacturing process,
whereby we acquired a 25.8% minority ownership interest in Vidrio Andino, a Colombia-based subsidiary of Saint-Gobain. The purchase price
for our interest in Vidrio Andino was $45 million, of which $34.1 million was paid in cash and $10.9 million paid through the contribution
of land on December 9, 2020. On October 28, 2020, we acquired said land from a related party and paid for it with the issuance of an aggregate
of 1,557,142 ordinary shares of the Company, valued at $7.00 per share, which represented an approximate 33% premium based on the closing
stock price as of October 27, 2020.
The land will serve the purpose
of developing a second float glass plant nearby our existing manufacturing facilities which we expect will carry significant efficiencies
for us once it becomes operative, in which we will also have a 25.8% interest. The new plant will be funded with proceeds from the original
cash contribution made by the Company, operating cashflows from the Bogota plant, debt incurred at the joint venture level that will not
consolidate into the Company and an additional contribution by us of approximately $12.5 million if needed (based on debt availability
as a first option).
In the ordinary course of business,
we purchased $4,923 and $13,964 from Vidrio Andino during the three and nine months ended September 30, 2022, respectively, compared to
$4,129 and $10,957, during the three and nine months ended September 30, 2021, respectively. We also had outstanding payables to Vidrio
Andino for $4,398 and $2,834 as of September 30, 2022, and December 31, 2021, respectively. We recorded equity method income of $1,821
and $5,070 on our Consolidated Statement of Operations during the three and nine months ended September 30, 2022, respectively, compared
to $1,291 and $3,170 recorded during the three and nine months ended September 30, 2021, respectively.
Zofracosta SA
We have an investment in Zofracosta
SA, a real estate holding company and operator of a tax-free zone located in the vicinity of the proposed glass plant being built through
our Vidrio Andino joint venture recorded at $671 and $764 as of September 30, 2022 and December 31, 2021, respectively. Affiliates of
Jose Daes and Christian Daes have a majority ownership stake in Zofracosta SA.
Note 10. Shareholders’ Equity
Dividends
On August 3, 2022, the Company declared a regular
quarterly dividend of $0.075 per share, or $0.30 per share on an annualized basis. The dividend was paid on October 31, 2022, to shareholders
of record as of the close of business on September 30, 2022.
Earnings per Share
The following table sets forth the computation of
the basic and diluted earnings per share for the three and nine months ended September 30, 2022 and 2021:
Schedule of Earnings Per Share, Basic and Diluted
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
Three months ended | | |
Nine months ended | |
| |
September 30, | | |
September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Numerator for basic and diluted earnings per share | |
| | | |
| | | |
| | | |
| | |
Net Income | |
$ | 46,922 | | |
$ | 20,659 | | |
$ | 101,288 | | |
$ | 48,583 | |
| |
| | | |
| | | |
| | | |
| | |
Denominator | |
| | | |
| | | |
| | | |
| | |
Denominator for basic earnings per ordinary share - weighted average shares outstanding | |
| 47,674,773 | | |
| 47,674,773 | | |
| 47,674,773 | | |
| 47,674,773 | |
Effect of dilutive securities and stock dividend | |
| - | | |
| - | | |
| - | | |
| - | |
Denominator for diluted earnings per ordinary share - weighted average shares outstanding | |
| 47,674,773 | | |
| 47,674,773 | | |
| 47,674,773 | | |
| 47,674,773 | |
Basic earnings per ordinary share | |
$ | 0.98 | | |
$ | 0.43 | | |
$ | 2.12 | | |
$ | 1.02 | |
Diluted earnings per ordinary share | |
$ | 0.98 | | |
$ | 0.43 | | |
$ | 2.12 | | |
$ | 1.02 | |
Note 11. Commitments and Contingencies
Commitments
As of September 30, 2022, the Company had an outstanding
obligation to purchase an aggregate of at least $82,877 of certain raw materials from a specific supplier before November 30, 2030.
On May 3, 2019, we consummated a joint venture agreement
with Saint-Gobain whereby we acquired a 25.8% minority ownership interest in Vidrio Andino. The purchase price for our interest in Vidrio
Andino was $45 million, of which $34.1 million was paid in cash and $10.9 million was contributed through a parcel of land to be used
for the building of a second factory. On October 28, 2020, the land was paid for through the issuance of an aggregate of 1,557,142 ordinary
shares of the Company, at $7.00 per share, which represented an approximate 33% premium based on the Company´s share price as of
October 27, 2020.
The joint venture agreement includes plans to build
a new plant in Galapa, Colombia that will be located approximately 20 miles from our primary manufacturing facility, in which we will
also have a 25.8% interest. The new plant will be funded with proceeds from the original cash contribution made by the Company, operating
cashflows from the Bogota plant, debt incurred at the joint venture level that will not consolidate into the Company and an additional
contribution by us of approximately $12.5 million to be paid if needed (based on debt availability as a first option).
General Legal Matters
From time to time, the Company is involved in legal
matters arising in the regular course of business. Some disputes are derived directly from our construction projects, related to supply
and installation, and even though deemed ordinary, they may involve significant monetary damages. We are also subject to other type of
litigations arising from employment practices, worker’s compensation, automobile claims and general liability. It is very difficult
to predict precisely what the outcome of these litigations might be. However, with the information at our disposition as this time, there
are no indications that such claims will result in a material adverse effect on the business, financial condition or results of operations
of the Company.
Note 12. Subsequent Events
On October 6, 2022 we entered into a one-time settlement
of a project. The conditions were determined to have existed as of the date of the balance sheet and therefore were recorded the related
expenses on the results of operations and accounts payable on the balance sheet as of September 30, 2022.