Notes
to Consolidated Financial Statements
(Amounts
in thousands, except share and per share data)
Business
Description
Tecnoglass
Inc. (“TGI,” the “Company,” “we,” “us” or “our”) was incorporated
in the Cayman Islands on September 21, 2011 under the name “Andina Acquisition Corporation” (“Andina”)
as a blank check company. Andina’s registration statement for its initial public offering (the “Public Offering”)
was declared effective on March 16, 2012. Andina consummated the Public Offering, the private placement of warrants (“Private
Placement”) and the sale of options to the Underwriters on March 22, 2012, receiving proceeds, net of transaction costs,
of $43,163, of which $42,740 was placed in a trust account.
Andina’s
objective was to acquire, through a merger, share exchange, asset acquisition, share purchase recapitalization, reorganization
or other similar business combination, one or more operating businesses. On December 20, 2013, Andina consummated a merger transaction
(the “Merger”) with Tecno Corporation (“Tecnoglass Holding”) as ultimate parent of Tecnoglass S.A. (“TG”)
and C.I. Energía Solar S.A. ES. Windows (“ES”). The surviving entity was renamed Tecnoglass Inc. The Merger
transaction was accounted for as a reverse merger and recapitalization where Tecnoglass Holding was the acquirer and TGI was the
acquired company.
The
Company 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 façades and commercial window showcases. The Company sells to customers in North, Central and South
America, and exports about half of its production to foreign countries.
TG
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. Alutions’ operations include extrusion, smelting, painting and
anodizing processes, and exporting, importing and marketing aluminum products.
ES
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.
In
2014, the Company established two Florida limited liability companies, Tecnoglass LLC (“Tecno LLC”) and Tecnoglass
RE LLC (“Tecno RE”) to acquire manufacturing facilities, manufacturing machinery and equipment, customer lists and
exclusive design permits.
In
December 2016, as part of our strategy to vertically integrate our operations, we acquired 100% of the stock of ESW LLC, 85.06%
of which was acquired directly by Tecnoglass and 14.94% by our subsidiary ES, for a total purchase price of $13.5 million, which
consisted of (i) 734,400 ordinary shares issued in connection with the transaction for approximately $9.2 million based on a stock
price of $12.50, (ii) approximately $2.3 million in cash, and (iii) approximately US$2.0 million related to the assignment of
certain accounts receivable.
The
Acquisition is deemed to be a transaction between entities under common control, which, under applicable accounting guidelines,
requires the assets and liabilities to be transferred at historical cost of the entity, with prior periods retroactively adjusted
to furnish comparative information. See Note 3, Acquisitions within the Notes to these Consolidated Financial Statements for additional
information.
|
Note
2.
|
Basis
of Presentation and Summary of Significant Accounting Policies
|
Basis
of Presentation and Management’s Estimates
The
accompanying 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”).
Prior
year financial information has been retroactively adjusted for an acquisition under common control. As the acquisition of ESW
LLC was deemed to be a transaction between entities under common control, the assets and liabilities were transferred at the historical
cost of ESW LLC, with prior periods retroactively adjusted to include the historical financial results of the acquired company
for the period they were controlled by ESW LLC in the Company’s financial statements. The accompanying financial statements
and related notes have been retroactively adjusted to include the historical results and financial position of the acquired company
prior to the acquisition date during the periods the assets were under common control. All financial information presented for
the periods after the ESW LLC acquisition represent the consolidated results of operations, financial position and ca
sh
flows of the Company with retroactive adjustments of the results of operations, financial position and cash flows of the acquired
company during the periods the assets were under common control.
The
preparation of the accompanying 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 inherent in the preparation of these 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, and valuation of warrants and other derivative financial instruments.
Principles
of Consolidation
These
financial statements consolidate TGI, its indirect wholly-owned subsidiaries TG, ES and ESW LLC, and its direct subsidiaries Tecno
LLC and Tecno RE, 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 entity, otherwise 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.
Foreign
Currency Translation and Transactions
The
consolidated financial statements are presented in U.S. Dollars, the reporting currency. Our foreign subsidiaries’ local
currency is the Colombian Peso, which is also their functional currency as determined by the analysis markets, costs and expenses,
assets, liabilities, financing and cash flow indicators. As such, our subsidiaries’ assets and liabilities are translated
at the exchange rate in effect at the balance sheet date, with equity being translated at the historical rates. Revenues and expenses
of our foreign subsidiaries are translated at the average exchange rates for the period. The resulting cumulative foreign currency
translation adjustments from this process are included as a component of accumulated other comprehensive income (loss). Therefore,
the U.S. Dollar value of these items in our financial statements fluctuates from period to period.
Also,
exchange gains and losses arising from transactions denominated in a currency other than the functional currency are included
in the consolidated statement of operations as foreign exchange gains and losses within non-operating income, net.
The average exchange
rate for the Colombian peso, the functional currency of the Company’s main subsidiaries, was 3,050.98 pesos per USD $1
and 2,743.39 pesos per USD $1 during the years ended December 31, 2016 and December 31, 2015, respectively. The spot
exchange rate for the Colombian peso, as of December 31, 2016 and December 31, 201, was 3,000.71 pesos per USD $1 and 3,149.39
pesos per USD $1, respectively.
Cash
and Cash Equivalents
Cash
and cash equivalents include investments with original maturities of three months or less. As of December 31, 2016 and 2015, cash
and cash equivalents were primarily comprised of deposits held in operating accounts in Colombia, Panama and United States. As
of December 31, 2016 and 2015 the Company had no restricted cash.
Investments
The
Company’s investments are comprised of marketable securities, short term deposits and income producing real estate.
Investments
which are held for trading are recorded at fair value and fluctuations in value are recorded as a non-operating income or expense.
In addition, we have investments in long-term marketable equity securities which are classified as available-for-sale securities
and are recorded at fair value.
Short-
term deposits and other financial instruments with maturities greater than 90 days and shares in other companies that do not meet
the requirements for equity method treatment are recorded for at cost.
We also have investments
in income-producing real estate. This real estate is recorded at cost and is depreciated using the straight-line method over its
estimated useful life. The depreciation and rental income associated with this real estate are recognized in the consolidated
statement of operations. These investments are recorded within long term assets on the Company’s balance sheet.
Trade
Accounts Receivable
Trade
accounts receivable are recorded net of allowances for cash discounts for prompt payment, doubtful accounts and sales returns.
The Company’s policy is to reserve for uncollectible accounts based on its best estimate of the amount of probable credit
losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance
for doubtful accounts is necessary based on an analysis of past due accounts and other factors that may indicate that the collectability
of an account may be in doubt. Other factors that the Company considers include its existing contractual obligations, historical
payment patterns of its customers and individual customer circumstances, and a review of the local economic environment and its
potential impact on the collectability of accounts receivable. Account balances deemed to be uncollectible are written off after
all means of collection have been exhausted and the potential for recovery is considered remote. The Company’s allowance
for accounts receivable as of December 31, 2016 and 2015 amounted to $1.8 million and $0.2 million, respectively.
Concentration
of Risks and Uncertainties
Financial
instruments which potentially subject the Company to credit risk consist primarily of cash and trade accounts receivable. The
Company mitigates its cash risk by maintaining its cash deposits with major financial institutions in the United States and Colombia.
At times the balances held at financial institutions in Colombia may exceed the Colombia government insured limits of the Ministerio
de Hacienda y Crédito Público. The Company has not experienced such losses in such accounts. As discussed above,
the Company mitigates its risk to trade accounts receivable by performing on-going credit evaluations of its customers.
Related
party transactions
The
Company has related party transactions such as sales, purchases, leases, guarantees, and other payments. We periodically performed
a related party analysis to identify transactions to disclose. Depending on the transactions, we aggregate some related party
information by type.
Inventories
Inventories
of raw materials, which consist primarily of purchased and processed glass, aluminum, parts and supplies held for use in the ordinary
course of business, are valued at the lower of cost or market. Cost is determined using a weighted-average method. Inventory consisting
of certain job specific materials not yet installed (work in process) are valued using the specific identification method. Cost
for finished product inventory are recorded and maintained at the lower of cost or market. Cost includes raw materials and direct
and applicable indirect manufacturing overheads. Also, inventories related to contracts in progress are included within work in
process and finished goods, and are stated at using the specific identification method and lower of cost or market, respectively,
and are expected to turn over in less than one year.
Reserves
for excess or slow-moving raw materials inventories are updated based on historical experience of a variety of factors including
sales volume and levels of inventories at the end of the period. The Company does not maintain allowances for the lower of cost
or market for inventories of finished products as its products are manufactured based on firm orders rather than built-to-stock.
The Company’s reserve for excess or slow-moving inventory amounted to $157 and $0 as of December 31, 2016 and 2015, respectively.
Property,
Plant and Equipment
Property,
plant and equipment are recorded at cost. Significant improvements and renewals that extend the useful life of the asset are capitalized.
Interest caused while acquired property is under construction and installation are capitalized. Repairs and maintenance are charged
to expense as incurred. When property is retired or otherwise disposed of, the cost and related accumulated depreciation are removed
from the accounts and any related gains or losses are included in income as a reduction to or increase in selling, general and
administrative expenses. Depreciation is computed on a straight-line basis, based on the following estimated useful lives:
Buildings
|
20
years
|
Machinery
and equipment
|
10
years
|
Furniture
and fixtures
|
10
years
|
Office
equipment and software
|
5
years
|
Vehicles
|
5
years
|
The
Company also records within fixed assets all the underlying assets of a capital lease. Initial recognition of these assets are
done at the present value of all future lease payments. A capital lease is a lease in which the lessor transferred substantially
all of the benefits and risks associated with the ownership of the property.
Long
Lived Assets
The
Company periodically reviews the carrying values of its long lived assets when events or changes in circumstances would indicate
that it is more likely than not that their carrying values may exceed their realizable values, and record impairment charges when
considered necessary.
When
circumstances indicate that an impairment may have occurred, the Company tests such assets for recoverability by comparing the
estimated undiscounted future cash flows expected to result from the use of such assets and their eventual disposition to their
carrying amounts. If the undiscounted future cash flows are less than the carrying amount of the asset, an impairment loss, measured
as the excess of the carrying value of the asset over its estimated fair value, is recognized. Fair value is determined through
various valuation techniques, including discounted cash flow models, quoted market values and third-party independent appraisals,
as considered necessary.
Goodwill
We
review goodwill for impairment each year on December 31
st
or more frequently when events or significant changes in
circumstances indicate that the carrying value may not be recoverable. Under ASC 350-20-35-4 through 35-8A, the goodwill impairment
test requires a comparison of the fair value of the reporting unit with its carrying amount, including goodwill. If the carrying
amount of the reporting unit is greater than zero and its fair value exceeds its carrying amount, goodwill of the reporting unit
is considered not impaired. The Company has only one reporting unit and as such the impairment analysis was done by comparing
the Company’s market capitalization with its book value of equity. As of our December 31, 2016, the Company’s market
capitalization exceeded its book value of equity and as such no impairment of goodwill was indicated. See Note 7- Goodwill and
Intangible Assets for additional information.
Intangible
Assets
Intangible
assets with definite lives subject to amortization are amortized on a straight-line basis. We also review these intangibles for
impairment when events or significant changes in circumstance indicate that the carrying value may not be recoverable. Events
or circumstances that indicate that impairment testing may be required include the loss of a significant customer, loss of key
personnel or a significant adverse change in business climate or regulations. There were no triggering events or circumstances
noted and as such no impairment was needed for the intangible assets subject to amortization. See Note 7 - Goodwill and Intangible
Assets for additional information.
Common
Stock Purchase Warrants
The
Company classifies as equity any warrants contracts that (i) require physical settlement or net-share settlement or (ii) gives
the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The
Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net
cash settle the contract if an event occurs and if that event is outside the Company’s control) or (ii) gives the counterparty
a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).
The
Company assesses classification of its common stock purchase warrants and other freestanding derivatives, if any, at each reporting
date to determine whether a change in classification between assets and liabilities is required. As of December 20, 2016, the
Company no longer has warrants outstanding.
Financial
Liabilities
Financial
liabilities correspond to the financing obtained by the Company through bank credit facilities and accounts payable to suppliers
and creditors. Financial liabilities are initially recognized based on their fair value, which is usually equal to the transaction
value less directly attributable costs. Subsequently, such financial liabilities are carried at their amortized cost according
to the effective interest rate method determined at initial recognition, and recognized in the results of the period during the
time of amortization of the financial obligation.
Warrant
liability
An
aggregate 9,200,000 warrants were issued as a result of the Public Offering, the Private Placement and the Merger. Of the aggregate
total, 4,200,000 warrants were issued in connection with the Public Offering (“IPO Warrants”), 4,800,000 warrants
were issued in connection with the Private Placement (“Insider Warrants”), and 200,000 warrants were issued upon conversion
of a promissory note at the closing of the Merger (“Working Capital Warrants”). The Company classifies the warrant
instruments as a liability at their fair value because the warrants do not meet the criteria for equity treatment under guidance
contained in ASC 815-40-15-7D. The aggregate liability is subject to re-measurement at each balance sheet date and adjusted at
each reporting period until exercised or expired, and any change in fair value is recognized in the Company’s consolidated
statement of operations.
When
the warrants are exercised for ordinary shares, the Company re-measures the fair value of the exercised warrants as of the date
of exercise using available fair value methods and records the change in fair value in the consolidated statement of operations,
and records the fair value of the exercised warrants as additional paid in capital in the shareholders equity section of the Company’s
consolidated balance sheet. The Company’s warrants expired per their own terms on December 20, 2016 (See Note 15 –
Warrant liability and Earnout Shares for additional information).
Earnout
shares liability
In
accordance with
ASC 815 - Derivatives and hedging
, the earnout shares are not considered indexed to the Company’s
own stock and therefore are accounted for as a liability with fair value changes being recorded in the consolidated statements
of operations and comprehensive income. Earnout shares are released from the escrow account upon achievement of the conditions
set forth in the earnout share agreement. At this time the shares are recorded out of the earnout share liability and into common
stock and additional paid in capital within the shareholders equity section of the Company’s consolidated balance sheets.
As of December 31, 2016 there is no earnout shares liability recorded (See Note 15 – Warrant Liability and Earnout Share
Liability for additional information).
Unit
Purchase Options
The
Unit Purchase Options (“UPOs”) are derivative contracts in the entity’s own equity in accordance with guidance
in ASC 815-40, paragraphs 15-5 through 15-8 and are not accounted for as assets or liabilities requiring fair value estimates
for the derivative contract in each reporting period.
The
Company accounted for issued UPOs, at issuance date in March 2012, at their fair market value calculated using a Black-Scholes
option-pricing model, including the amount of $500,100 received in cash payments, as an expense of the Public Offering resulting
with a charge directly to shareholders’ equity.
During
the year ended December 31, 2016, holders of UPO’s exercised 584,099 unit options (one share and one warrant) and simultaneously
exercised the underlying warrants on a cashless basis, resulting in the issuance of 79,342 ordinary shares and proceeds of $404.
Pursuant to the expiration of the Company’s ordinary warrants on December 20, 2016, the 8,559 UPO’s still outstanding
as of December 31, 2016 will only result in the issuance of one share upon exercise until their expiration in March of 2017.
Because
of the UPOs are accounted for in shareholders’ equity as instruments indexed to the Company’s own equity, and no cash
or other consideration was received or liabilities were settled, there is no measurement or re-measurement of fair value for the
purposes of reclassification out of retained earnings into additional paid in capital (see Note 16 – Commitments and Contingencies).
Stock-Based
Compensation
We
account for stock-based compensation in accordance with
ASC 718, Compensation - Stock Compensation
. ASC 718 requires compensation
costs related to share-based transactions, including employee stock options, to be recognized based on fair value. The Company
accounts for share-based awards exchanged for employee services at the estimated grant date fair value of the award. In October
2015, the Company authorized to grant each non-employee director $50,000 worth of ordinary shares of the Company payable annually
and first payment was made in October 2016. In November 2016 the Company authorized additional payment of $8,000 on an annual
basis to members of the Company´s audit Committee members and $18,000 on an annual basis to the chair of the audit committee,
all of whom are members of the board of directors.
Derivative
Financial Instruments
The
Company records all derivatives on the balance sheet at fair value, regardless of the purpose or intent for holding them. The
Company has not designated its derivatives as hedging instruments; therefore, the Company does not designate them as fair value
or cash flow hedging instruments. The accounting for changes in fair value of the derivatives is recorded within the Company’s
consolidated statement of operations.
Fair
Value of Financial Instruments
ASC
820,
Fair Value Measurements
, establishes a fair value hierarchy which requires us to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. We primarily apply the market approach for financial assets
and liabilities measured at fair value on a recurring basis. Fair value is the price we would receive to sell and asset or pay
to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active
markets for identical assets or liabilities, such measurements involve developing assumptions based on market observable data
and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical
transaction that occurs at the measurement date.
The
standard describes three level of inputs that may be used to measure fair value:
Level
1: Quoted prices in active markets for identical assets or liabilities.
Level
2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets
that are not active; or other inputs that are observable by observable market data for substantially the full term of the assets
or liabilities.
Level
3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets
or liabilities.
See
Note 12 - Fair Value Measurements.
Revenue
Recognition
Our
principal sources of revenue are derived from product sales of manufactured glass and aluminum products. Revenue is recognized
when (i) persuasive evidence of an arrangement exists in the form of a signed purchase order or contract, (ii) delivery has occurred
per contracted terms, (iii) fees and prices are fixed and determinable, and (iv) collectability of the sale is reasonably assured.
All revenue is recognized net of discounts, returns and allowances. Delivery to the customer is deemed to have occurred when the
title is passed to the customer. Generally, title passes to the customer upon shipment, but title transfer may occur when the
customer receives the product based on the terms of the agreement with the customer.
Revenues
from fixed price contracts, which amount to approximately 16.0% and 21.6% of the Company’s sales for the year ended December
31, 2016 and 2015, respectively, are recognized using the percentage-of-completion method, measured by the percentage of costs
incurred to date to total estimated costs for each contract. Revenues recognized in advance of amounts billable pursuant to contracts
terms are recorded as unbilled receivables on uncompleted contracts based on work performed and costs to date. Unbilled receivables
on uncompleted contracts are billable upon various events, including the attainment of performance milestones, delivery and installation
of products, or completion of the contract. Revisions to cost estimates as contracts progress have the effect of increasing or
decreasing expected profits each period. Changes in contract estimates occur for a variety of reasons, including changes in contract
scope, estimated revenue and estimated costs to complete. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes in contract performance and estimated profitability may result in revisions
to costs and income and are recognized in the period in which the revisions are determined and do not have a material effect on
the Company’s financial statements.
Shipping
and Handling Costs
The
Company classifies amounts billed to customers related to shipping and handling as product revenues. The Company records and presents
shipping and handling costs in selling expenses.
Sales
Tax and Value Added Taxes
The
Company accounts for sales taxes and value added taxes imposed on its goods and services on a net basis - value added taxes paid
for goods and services purchased is netted against value added tax collected from customers and the net amount is paid to the
government. The current value added tax rate in Colombia for all of the Company’s products is 19%. A municipal industry
and commerce tax (ICA) sales tax of 0.7% is payable on all of the Company’s products sold in the Colombian market.
Product
Warranties
The
Company offers product warranties in connection with the sale and installation of its products that are competitive in the markets
in which the products are sold. Standard warranties depend upon the product and service, and are generally from five to ten years
for architectural glass, curtain wall, laminated and tempered glass, window and door products. Warranties are not priced or sold
separately and do not provide the customer with services or coverages in addition to the assurance that the product complies with
original agreed-upon specifications. Claims are settled by replacement of the warrantied products.
The
Company evaluated historical information regarding claims for replacements under warranties and concluded that the costs that
the Company has incurred in relation to these warranties have not been material.
Advertising
Costs
Advertising
costs are expensed as they are incurred and are included in general and administrative expenses. Advertising costs for the years
ended December 31, 2016 and 2015 amounted to approximately $1,293 and $958, respectively.
Employee
Benefits
The
Company provides benefits to its employees in accordance with Colombian labor laws. Employee benefits do not give rise to any
long term liability.
Income
Taxes
The
Company’s operations in Colombia are subject to the taxing jurisdiction of the Republic of Colombia. Tecnoglass LLC and
Tecnoglass RE LLC are subject to the taxing jurisdiction of the United States. TGI and Tecnoglass Holding are subject to the taxing
jurisdiction of the Cayman Islands. Annual tax periods prior to December 2014 are no longer subject to examination by taxing authorities
in Colombia.
The
Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments
that would result in a material changes to its financial position. There are no significant uncertain tax positions requiring
recognition in the Company’s consolidated financial statements. The Company records interest and penalties, if any, as a
component of income tax expense.
The
Company accounts for income taxes under the asset and liability model (ASC 740 “Income Taxes”) and recognizes deferred
tax assets and liabilities for the expected impact of differences between the financial statements and tax bases of assets and
liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. A valuation allowance
is established when management determines that it is more likely than not that all or a portion of deferred tax assets will not
be realized.
The
Company presents deferred tax assets and liabilities net as either a non-current asset or liability, depending on the net
deferred tax position. Presentation of deferred assets and liability on previously issued financial statements separated current
deferred income taxes from non-current income taxes.
ASC
740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and
prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return.
Earnings
per Share
The
Company computes basic earnings per share by dividing net income by the weighted-average number of ordinary shares outstanding
during the period. Income per share assuming dilution (diluted earnings per share) would give effect to dilutive options, warrants,
and other potential ordinary shares outstanding during the period. See Note 17 - Shareholders’ Equity for further detail
on the calculation of earnings per share.
Recently
Issued Accounting Pronouncements
In
January 2017, the FASB issued ASU No. 2017-01, “Clarifying the Definition of a Business” (“ASU 2017-01”).
ASU 2017-01 provides amendments to ASC No. 805, “Business Combinations,” which clarify the definition of a business
with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions
(or disposals) of assets or businesses. The amendments in this update are effective prospectively during interim and annual periods
beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the potential effect of
this ASU on its consolidated financial statements.
In
January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”).
ASU 2017-04 provides amendments to ASC No. 350, “Intangibles - Goodwill and Other” (“ASC 350”), which
eliminate Step 2 from the goodwill impairment test. Entities should perform their goodwill impairment tests by comparing the fair
value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount
exceeds the reporting unit’s fair value. The amendments in this update are effective prospectively during interim and annual
periods beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the potential effect
of this ASU on its consolidated financial statements.
In
November 2016, the FASB issued ASU No. 2016-18, “Restricted Cash” (“ASU 2016-18”). ASU 2016-18 provides
amendments to ASC No. 230, “Statement of Cash Flows,” which require that a statement of cash flows explain the change
during the period in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash
equivalents. The amendments in this update are effective retrospectively during interim and annual periods beginning after December
15, 2017, with early adoption permitted. The Company is currently evaluating the potential effect of this ASU on its consolidated
financial statements.
On
October 24, 2016, the FASB issued Accounting Standards Update 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers
of Assets Other than Inventory. The ASU is part of the Board’s simplification initiative aimed at reducing complexity in
accounting standards. Under current GAAP, the tax effects of intra-entity asset transfers (intercompany sales) are deferred until
the transferred asset is sold to a third party or otherwise recovered through use. This is an exception to the principle in ASC
740, Income Taxes, that generally requires comprehensive recognition of current and deferred income taxes. The new guidance eliminates
the exception for all intra-entity sales of assets other than inventory. As a result, a reporting entity would recognize the tax
expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects
of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would
also be recognized at the time of the transfer. The new guidance does not apply to intra-entity transfers of inventory. The income
tax consequences from the sale of inventory from one member of a consolidated entity to another will continue to be deferred until
the inventory is sold to a third party. The Company is currently evaluating the potential effect of this ASU on its consolidated
financial statements.
In
August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments (“ASU 2016-15”). ASU 2016-15 reduces diversity in practice by providing guidance on the classification of
certain cash receipts and payments in the statement of cash flows. ASU 2016-15 clarifies that when cash receipts and cash payments
have aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source
or use. ASU 2016-15 is effective on a retrospective basis for fiscal years, and for interim periods within those fiscal years,
beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the potential effect of
this ASU on its consolidated financial statements.
In
May 2016, the FASB also issued ASU 2016-12, Revenue from Contracts with Customers - Narrow-Scope Improvements and Practical Expedients
(“ASU 2016-12”), which provides clarification on certain topics within ASU 2014-09, Revenue from Contracts with Customers
(Topic 606) (“ASU 2014-09”), including assessing collectability, presentation of sales taxes, the measurement date
for non-cash consideration and completed contracts at transition, as well as providing a practical expedient for contract modifications
at transition. The effective date and transition requirements for the amendments in ASU 2016-08, ASU 2016-10 and ASU 2016-12 are
the same as the effective date and transition requirements of ASU 2014-09, which is effective for fiscal years, and for interim
periods within those years, beginning after December 15, 2017. The Company is currently evaluating the potential effect of this
ASU on its consolidated financial statements.
In
March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”
(“ASU 2016-09”). The standard is intended to simplify several areas of accounting for share-based compensation arrangements,
including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for fiscal
years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. The Company
is currently evaluating the potential effect of this ASU on its consolidated financial statements.
In
February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)” (“ASU 2016-02”). The FASB issued ASU 2016-02
to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance
sheet and disclosing key information about leasing arrangements. Under ASU 2016-02, a lessee will recognize in the statement of
financial position a liability to make lease payments (the lease liability) and a right-to-use asset representing its right to
use the underlying asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising
from a lease by a lessee have not significantly changed from current GAAP. ASU 2016-02 retains a distinction between finance leases
(i.e. capital leases under current GAAP) and operating leases. The classification criteria for distinguishing between finance
leases and operating leases will be substantially similar to the classification criteria for distinguishing between capital leases
and operating leases under current GAAP. The amendments of this ASU are effective for reporting periods beginning after December
15, 2018, with early adoption permitted. An entity will be required to recognize and measure leases at the beginning of the earliest
period presented using a modified retrospective approach. The Company is currently evaluating the potential effect of this ASU
on its consolidated financial statements.
In
August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers - Deferral of the Effective Date.”
ASU 2015-14 defers the effective date of Update 2014-09 for all entities by one year. Early adoption is permitted. Below is the
description of ASU 2014-09 which the Company is currently evaluating.
In
May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09). ASU 2014-09 provides
guidance for revenue recognition and affects any entity that either enters into contracts with customers to transfer goods or
services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements
in Topic 605, “Revenue Recognition,” and most industry-specific guidance. The core principle of ASU 2014-09 is the
recognition of revenue when a company transfers promised goods or services to customers in an amount that reflects the consideration
to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 defines a five-step process to
achieve this core principle and, in doing so, companies will need to use more judgment and make more estimates than under the
current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration
to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09
is effective for fiscal years beginning after December 15, 2017 and interim periods therein, using either of the following transition
methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the
option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting
ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating
the method and impact the adoption of ASU 2014-09 will have on the Company’s consolidated financial statements and disclosures.
In
April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, “Interest
– Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs” (ASU 2015-03), which resulted in the
reclassification of debt issuance costs from “Other Assets” to inclusion as a reduction of our reportable “Long-Term
Debt” balance on our consolidated balance sheets. Since ASU 2015-03 does not address deferred issuance costs for line-of-credit
arrangements, the FASB issued ASU No. 2015-15, “Interest – Imputation of Interest: Presentation and Subsequent Measurement
of Debt Issuance Costs Associated with Line-of-Credit Arrangements” (ASU 2015-15), in August 2015. ASU 2015-15 allows a
company to defer debt issuance costs associated with line-of-credit arrangements, including arrangements with no outstanding borrowings,
classify them as an asset, and amortize them over the term of the arrangements. We elected to adopt ASU 2015-03 early, with full
retrospective application as required by the guidance, and ASU 2015-15, which was effective immediately. These standards did not
have a material impact on our consolidated balance sheets and had no impact on our cash flows provided by or used in operations
for any period presented.
In
December 2016, the FASB issued Accounting Standards Update 2016-20, Technical Corrections and Improvements to Topic 606, Revenue
from Contracts with Customers, (“ASU 2016-20”). The purpose of ASU 2016-20 is to amend certain narrow aspects of the
guidance issued in ASU 2014-09 including guidance related to the disclosure of remaining performance obligations and prior-period
performance obligations, as well as other amendments to the guidance on loan guarantee fees, contract costs, refund liabilities,
advertising costs and the clarification of certain examples. The Company is currently evaluating the potential effect of this
ASU on its consolidated financial statements.
In
August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern, which defines management's responsibility
to assess an entity's ability to continue as a going concern, and to provide related footnote disclosures if there is substantial
doubt about its ability to continue as a going concern. ASU No. 2014-15 is effective for annual reporting periods ending after
December 15, 2016, with early adoption permitted. We evaluated the impact of ASU No. 2014-15 and its related
disclosures, and these standards had no impact to our consolidated financial statements.
In
November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes,” which requires entities
to present deferred tax assets and deferred tax liabilities as noncurrent for each tax-paying jurisdiction in the Balance Sheet.
Previous disclosures required entities to separate deferred tax assets and liabilities into a current amount and a noncurrent
amount for each tax-paying jurisdiction. ASU 2015-17 will be effective for annual periods beginning after December 15, 2016, and
interim periods within those years. ASU 2015-17 can be early adopted for any period that has not been issued on a prospective
or retrospective basis. We adopted ASU 2015-17 during the fourth quarter of 2016 on a retrospective basis and the impact on our
consolidated financial statements are reflected in Note 11 – Income Taxes.
|
Note
3.
|
ESWindows
Acquisition
|
On
December 2, 2016, we acquired 100% of the stock of ESW LLC, 85.06% of which was acquired directly by Tecnoglass and 14.94% by
our subsidiary ES, for a total purchase price of $13.5 million, which consisted of (i) 734,400 ordinary shares issued in connection
with the transaction for approximately $9.2 million based on a stock price of $12.50, (ii) approximately $2.3 million in cash,
and (iii) approximately $2.0 million related to the assignment of certain accounts receivable from Ventanas Solar S.A. (“VS”).
VS,
a Panama
sociedad anonima,
is an importer and installer of the Company’s products in Panama. Family members of the
Company’s CEO and COO and other related parties own 100% of the equity in VS. During 2015 and 2014, the Company and VS executed
a short-term payment agreement and a three-year payment agreement that were mainly created to fund working capital to VS due the
timing difference between the collections from VS’s customers. On December 2, 2016 the outstanding amount of $2,016 was
reassigned to the former shareholders of ESW LLC as part of the consideration paid for the acquisition of ESW. As a result, the
Company does not have any outstanding receivable under these payment agreements as of December 31, 2016. See Note 13 –
Related Parties for more information.
The Company incurred
expenses for $82 of acquisition related costs which are recorded in operating expenses in the Company’s results of operations.
Of the 734,400 shares paid in consideration for the acquisition of ESW LLC, 80,000 shares were placed in Escrow for indemnification
to the Company for a period of 18 months after the closing date.
As
the Acquisition of ESW LLC was deemed to be a transaction between entities under common control, the assets and liabilities were
transferred at the historical cost of ESW LLC, 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 ESW LLC in the Company’s financial
statements.
The Company recorded the acquisition of ESW as following:
1. The Company consolidated
the total assets and liabilities of ESW after taking into account intercompany eliminations and audit adjustments for the year
2015. Since the consolidation was done retrospectively,
the Company adjusted the beginning balance of the following accounts
to include ESW’s balances as of January 1
st
, 2015.
|
|
January 1, 2015
|
|
|
|
Prior to acquisition
|
|
|
Effect of Acquisition
|
|
|
After acquisition
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings
|
|
$
|
30,119
|
|
|
$
|
4,338
|
|
|
$
|
34,457
|
|
Total Shareholders’ Equity
|
|
$
|
46,197
|
|
|
$
|
4,338
|
|
|
$
|
50,535
|
|
2.
Once the opening balance for retained earnings reflected the acquisition, the Company disclosed on the
Shareholders’ Equity Statement and the Cash Flow Statement the distributions made by ESW to its former shareholders,
which reduced retained earnings for $1,409 and $2,263 for 2015 and 2016, respectively.
3.
The consideration paid by the Company to acquire ESW included $2.3M in cash which is payable during 2017
and $2M in accounts receivable. The total of $4.3M decreased additional paid-in capital in order to consider the impact of
the consideration paid.
4. The consideration related to the
shares issued as form of payment impacted the outstanding number of shares by 734,400. The value of
the 734,400 shares is equivalent to the carrying amount of the net assets transferred, even if the fair value of the equity is
reliably determinable. Since the acquisition is accounted for under common control and the transfer occurs at historical cost
the fair value of the shares for $9.2M have no impact on the Company’s equity.
The following table includes the financial information as originally reported and the net effect of the ESW
acquisition after elimination of intercompany transactions.
|
|
December
31, 2015
|
|
|
|
Prior
to acquisition
|
|
|
Net
effect of acquisition
|
|
|
After
acquisition
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
316,199
|
|
|
$
|
5,212
|
|
|
$
|
321,411
|
|
Total Sales
|
|
$
|
238,833
|
|
|
$
|
3,406
|
|
|
$
|
242,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(12,765
|
)
|
|
$
|
1,745
|
|
|
$
|
(11,020
|
)
|
Basic income per
share
|
|
$
|
(0.50
|
)
|
|
$
|
0.09
|
|
|
$
|
(0.42
|
)
|
Diluted income per
share
|
|
$
|
(0.50
|
)
|
|
$
|
0.09
|
|
|
$
|
(0.42
|
)
|
Basic weighted average
common shares outstanding
|
|
|
25,720,469
|
|
|
|
734,400
|
|
|
|
26,454,469
|
|
Diluted weighted average common shares outstanding
|
|
|
25,720,469
|
|
|
|
734,400
|
|
|
|
26,454,469
|
|
The
number of basic and diluted weighted average common shares outstanding prior to the acquisition of ESW LLC includes 272,905 shares
issued after the financial statements for the year ended December 31, 2015 were issued related to a stock dividend in November
2016.
The
following table includes a reconciliation of the financial information for the year ended December 31, 2016 as being reported,
the net effect of the ESW acquisition after elimination of intercompany transactions, and the financial information that would
have been, had the Company not acquired ESW LLC:
|
|
December 31, 2016
|
|
|
|
Without acquisition
|
|
|
Net effect of acquisition
|
|
|
Considering acquisition
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
392,527
|
|
|
$
|
2,203
|
|
|
$
|
394,730
|
|
Total Sales
|
|
$
|
299,972
|
|
|
$
|
5,044
|
|
|
$
|
305,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
23,277
|
|
|
$
|
(97
|
)
|
|
$
|
23,180
|
|
Basic income per share
|
|
$
|
0.82
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.79
|
|
Diluted income per share
|
|
$
|
0.79
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.77
|
|
Basic weighted average common shares outstanding
|
|
|
28,497,054
|
|
|
|
734,400
|
|
|
|
29,231,054
|
|
Diluted weighted average common shares outstanding
|
|
|
29,519,068
|
|
|
|
734,400
|
|
|
|
30,253,068
|
|
|
Note
4.
|
Trade
Accounts Receivable
|
Trade
accounts receivable consists of the following:
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Trade accounts receivable
|
|
$
|
94,380
|
|
|
$
|
67,269
|
|
Less: Allowance
for doubtful accounts
|
|
|
(2,083
|
)
|
|
|
(189
|
)
|
|
|
$
|
92,297
|
|
|
$
|
67,080
|
|
The
changes in allowances for doubtful accounts for the years ended December 31, 2016 and 2015 are as follows:
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Balance at beginning of
year
|
|
$
|
189
|
|
|
$
|
110
|
|
Provision for bad debts
|
|
|
4,686
|
|
|
|
1,477
|
|
Deductions and
write-offs, net of foreign currency adjustment
|
|
|
(2,792
|
)
|
|
|
(1,398
|
)
|
Balance at end
of year
|
|
$
|
2,083
|
|
|
$
|
189
|
|
Other
assets consists of the following
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Advances to Suppliers and
Loans
|
|
$
|
716
|
|
|
$
|
822
|
|
Prepaid Income Taxes
|
|
|
14,080
|
|
|
|
6,069
|
|
Employee Receivables
|
|
|
489
|
|
|
|
335
|
|
Other Creditors
|
|
|
804
|
|
|
|
572
|
|
|
|
$
|
16,089
|
|
|
$
|
7,798
|
|
|
Note
6.
|
Other
Long Term Assets
|
|
|
December
31,
|
|
|
|
2014
|
|
|
2015
|
|
Real estate investments
|
|
$
|
5,125
|
|
|
$
|
4,944
|
|
Cost method investment
|
|
|
500
|
|
|
|
-
|
|
Other long term
assets
|
|
|
1,687
|
|
|
|
1,476
|
|
|
|
$
|
7,312
|
|
|
$
|
6,420
|
|
|
Note
7.
|
Goodwill
and Intangible Assets
|
Goodwill
The
only goodwill the Company has on its balance sheet is in connection with the acquisition of Glasswall LLC from 2014, which amounts
to $1,330. The Company has only one reporting unit and as such the impairment analysis was done by comparing the Company’s
market capitalization with its book value of equity. For purposes of testing goodwill for impairment as of December 31, 2016,
the Company compared its market capitalization amounting to $406 million to its book value of equity amounting to $113.6 million.
No goodwill impairment was necessary since the Company’s market capitalization exceeded its book value of equity.
During
2016 and 2015 there was no impairments, foreign currency exchange movements, or acquisitions and as such the goodwill balance
did not change after the measurement period adjustment related to December 31, 2014.
Intangible
Assets, Net
Intangible
assets, net include the following Miami-Dade County Notices of Acceptances (NOA’s) which are certificates in the required
to market hurricane-resistant glass in Florida:
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Gross amount
|
|
$
|
8,524
|
|
|
$
|
6,446
|
|
Accumulated Amortization
|
|
|
(3,969
|
)
|
|
|
(3,102
|
)
|
Intangible assets,
net
|
|
$
|
4,555
|
|
|
$
|
3,344
|
|
The
weighted average amortization period is 10 years.
During
the twelve months ended December 31, 2016 and December 31, 2015, the amortization expense amounted to $825 and $1,658, respectively,
and was included within the general and administration expenses in our consolidated statement of operations.
The
estimated aggregate amortization expense for each of the five succeeding years as of December 31, 2016 is as follows:
Year
ending
|
|
(in
thousands)
|
|
2017
|
|
$
|
412
|
|
2018
|
|
|
412
|
|
2019
|
|
|
412
|
|
2020
|
|
|
412
|
|
2021
|
|
|
412
|
|
Thereafter
|
|
|
2,495
|
|
|
|
$
|
4,555
|
|
Inventories
are comprised of the following
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Raw materials
|
|
$
|
40,219
|
|
|
$
|
38,984
|
|
Work in process
|
|
|
5,606
|
|
|
|
3,451
|
|
Finished goods
|
|
|
4,124
|
|
|
|
2,875
|
|
Stores and spares
|
|
|
5,016
|
|
|
|
3,190
|
|
Packing material
|
|
|
284
|
|
|
|
241
|
|
|
|
|
55,249
|
|
|
|
48,741
|
|
Less: inventory
allowances
|
|
|
(157
|
)
|
|
|
-
|
|
|
|
$
|
55,092
|
|
|
$
|
48,741
|
|
The
changes in inventory allowance for the years ended December 31, 2016 and 2015 are as follows:
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Balance at beginning of year
|
|
$
|
-
|
|
|
$
|
292
|
|
Expense (recovery)
|
|
|
238
|
|
|
|
(255
|
)
|
Deductions
|
|
|
(84
|
)
|
|
|
|
|
Foreign currency adjustment
|
|
|
3
|
|
|
|
(37
|
)
|
Balance at end of year
|
|
$
|
157
|
|
|
$
|
-
|
|
|
Note
9.
|
Property,
Plant and Equipment
|
Property,
plant and equipment is comprised of the following:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
Building
|
|
$
|
50,887
|
|
|
$
|
41,804
|
|
Machinery and equipment
|
|
|
132,333
|
|
|
|
107,179
|
|
Office equipment and software
|
|
|
4,980
|
|
|
|
3,528
|
|
Vehicles
|
|
|
1,648
|
|
|
|
1,402
|
|
Furniture and
fixtures
|
|
|
2,141
|
|
|
|
1,569
|
|
Total
property, plant and equipment
|
|
|
191,989
|
|
|
|
155,482
|
|
Accumulated depreciation
|
|
|
(49,277
|
)
|
|
|
(33,018
|
)
|
Net book value of property and equipment
|
|
|
142,712
|
|
|
|
122,464
|
|
Land
|
|
|
28,085
|
|
|
|
13,510
|
|
Total
property, plant and equipment, net
|
|
$
|
170,797
|
|
|
$
|
135,974
|
|
In
July 2016, TG paid $10.5 million to acquire a lot adjacent to the Company’s facilities to expand the manufacturing facilities.
Depreciation
expense was $14,508 and $10,806 for the years ended December 31, 2016 and 2015.
Included
within the table above are Property, plant and equipment under capital lease, which are comprised of the following:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Buildings
|
|
$
|
3,651
|
|
|
$
|
3,625
|
|
Land
|
|
|
22,536
|
|
|
|
8,375
|
|
Machinery and
Equipment
|
|
|
17,443
|
|
|
|
26,384
|
|
Total
assets under capital lease
|
|
|
43,630
|
|
|
|
38,384
|
|
Accumulated Depreciation
|
|
|
(7,657
|
)
|
|
|
(3,822
|
)
|
Total
assets under capital lease, net
|
|
$
|
35,973
|
|
|
$
|
34,562
|
|
For
more information on capital lease obligations see Note 10 - Debt. Differences between capital lease obligations and the value
of property, plant and equipment under capital lease arise from differences in the maturities of capital lease obligations and
the useful lives of the underlying assets. Pursuant to the issuance of the senior unsecured note issued in January 2017, the Company
repaid all its capital lease obligations and acquired the underlying assets.
The
roll forward of Property, plant and equipment for the years ended December 31, 2016 and 2015 was as follows:
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Property, Plant and
Equipment
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
168,992
|
|
|
$
|
135,626
|
|
Acquisitions
|
|
|
42,719
|
|
|
|
80,220
|
|
Purchase price allocation
adjustment
|
|
|
-
|
|
|
|
1,170
|
|
Disposals
|
|
|
(381
|
)
|
|
|
(2,114
|
)
|
Reclassification
to investment property
|
|
|
-
|
|
|
|
(5,080
|
)
|
Effect
of Foreign currency translation
|
|
|
8,744
|
|
|
|
(40,830
|
)
|
Ending Balance
|
|
$
|
220,074
|
|
|
$
|
168,992
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
(33,018
|
)
|
|
$
|
(31,646
|
)
|
Depreciation Expense
|
|
|
(14,508
|
)
|
|
|
(9,906
|
)
|
Disposals
|
|
|
|
|
|
|
19
|
|
Reclassification
to investment property
|
|
|
|
|
|
|
161
|
|
Effect
of Foreign Currency Translation
|
|
|
(1,751
|
)
|
|
|
8,354
|
|
Ending balance
|
|
$
|
(49,277
|
)
|
|
$
|
(33,018
|
)
|
Property,
plant and Equipment, Net
|
|
$
|
170,797
|
|
|
$
|
135,974
|
|
The
effect of foreign currency translation is the adjustment resulting from translating the amounts from Colombian Pesos, functional
currency of some of the Company’s subsidiaries, into U.S. Dollars, the reporting currency.
The
Company’s debt is comprised of the following:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Revolving lines of credit
|
|
$
|
13,168
|
|
|
$
|
4,640
|
|
Loans
|
|
|
162,733
|
|
|
|
108,342
|
|
Capital Lease
|
|
|
23,696
|
|
|
|
26,082
|
|
Total obligations
under borrowing arrangements
|
|
$
|
199,597
|
|
|
$
|
139,064
|
|
Less: Current
portion of long-term debt and other current borrowings
|
|
|
2,651
|
|
|
|
17,571
|
|
Long-term debt
|
|
$
|
196,946
|
|
|
$
|
121,493
|
|
At
December 31, 2016, the Company owed approximately $199,597 under its various borrowing arrangements with several banks in Colombia
and Panama including obligations under various capital leases as discussed below. This balance includes $2,597 of deferred
transaction costs which are reducing the debt balance.
The
Company’s loans amounting to $162,733 have maturities ranging from six months to 15 years that bear interest at rates
ranging from 2.8 % to 22.6%. These loans are generally secured by substantially all the Company’s real estate. As of December
31, 2016 and 2015, the Company had $114,198 and $52,964 of debt denominated in US Dollars with the remaining amounts denominated
in Colombian Pesos.
On
January 23, 2017, the Company successfully issued a U.S. dollar denominated, $210 million offering of 5-year senior unsecured
notes at a coupon rate of 8.2% in the international debt capital markets under Rule 144A of the Securities Act to Qualified Institutional
Buyers. The Company will use approximately $179 million of the proceeds to repay outstanding indebtedness and as a result will
achieve a lower cost of debt and strengthen its capital structure given the non-amortizing structure of the new bond. Of these
repayments, $59,444 were used to refinance short term debt into long term debt. The Company’s consolidated balance sheets
as of December 31, 2016 reflects the effect of this refinance of the Company’s current portion of long term debt and other
current borrowings into long term debt based on the Company’s intent as of that date, as per guidance of ASC 470, which
states that a short-term obligation shall be excluded from current liabilities if the entity intends to refinance the obligation
on a long-term basis and the intent to refinance the short-term obligation on a long-term basis is supported by a post-balance-sheet-date
issuance of a long-term obligation.
On
January 7, 2016, the Company entered into a $109.5 million, seven-year senior secured credit facility. Proceeds from the new facility
were used to refinance $83.5 million of existing debt. Approximately $51.6 million of the new facility were used to refinance
short term debt as long term debt. The Company’s consolidated balance sheets as of December 31, 2015 reflects the effect
of this refinance of the Company’s current portion of long term debt and other current borrowings into long term debt based
on the Company’s intent as of that date. This credit facility was prepaid pursuant to the senior unsecured note issued in
January 2017.
The
mortgage loan with TD Bank secured by Tecno RE in December 2014 to finance the acquisition of real property in Miami-Dade County,
Florida with an outstanding balance of $3,538 as of December 31, 2016, contained a covenant requiring a 1.0:1 debt service coverage
ratio measured on an annual basis. Such covenant was mutually agreed to be terminated during 2016.
The
Company had $8,366 and $8,524 of property, plant and equipment as well as $4,757 and $0 of other long term assets pledged to secure
$109,193 and $48,056 under various lines of credit as of December 31, 2016 and 2015, respectively. Differences between pledged
assets and the amount secured is related to the difference between carrying value of such assets recorded at historical cost and
the guarantees issued to the banks which are based on the market value of the real estate. Pursuant to the issuance of the unsecured
senior note issued in January of 2017 and repayment of $176,899 million of outstanding indebtedness, $8,366 of pledged property
plant and equipment were released to the Company.
New
obligations entered during 2016 had similar conditions to debt existing at the beginning of the period. Net proceeds from debt
for the years ended December 31, 2016 and 2015 were as follows:
|
|
Year
ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Proceeds from debt
|
|
$
|
196,468
|
|
|
$
|
113,455
|
|
Repayments of debt
|
|
|
(163,126
|
)
|
|
|
(102,356
|
)
|
|
|
$
|
33,342
|
|
|
$
|
11,099
|
|
Additionally,
the Company obtained additional financial obligations related to the acquisition of assets under capital lease and financial obligations
for $19,641 and $65,319 during the years ended December 31, 2016 and 2015, respectively.
Maturities
of long term debt and other current borrowings are as follows as of December 31, 2016:
Year Ending December
31,
|
|
|
|
2017
|
|
$
|
2,651
|
|
2018
|
|
|
2,303
|
|
2019
|
|
|
2,312
|
|
2020
|
|
|
2,323
|
|
2021
|
|
|
2,334
|
|
Thereafter
|
|
|
187,674
|
|
Total
|
|
$
|
199,597
|
|
Revolving
Lines of Credit
The
Company has approximately $12,162 available in several lines of credit under a revolving note arrangement as of December 31, 2016.
The floating interest rates on the revolving notes are between DTF+4.2% and DTF+7%. DTF is the primary measure of interest rates
in Colombia. The notes are secured by all assets of the Company. At December 31, 2016 and 2015, $13,168 and $4,640 were outstanding
under these lines, respectively. Pursuant to the issuance of the senior unsecured note issued in January 2017, the Company repaid
all outstanding balances under these lines of credit.
Capital
Lease Obligations
As
of December 31, 2016 the Company was obligated under various capital leases under which the aggregate present value of the minimum
lease payments amounted to approximately $23,696. The present value of the minimum lease payments was calculated using discount
rates ranging from 10.9% to 12.9%. Differences between capital lease obligations and the value of property, plant and equipment
arise from differences in the maturities of capital lease obligations and the useful lives of the underlying assets. Pursuant
to the issuance of the senior unsecured note issued in January 2017, the Company repaid all its capital lease obligations.
Interest
expense for the year ended December 31, 2016 and 2015 was $16,814 and $9,274, respectively. The increase is associated to the
added debt to address the company´s growth capital expenditure requirements. During the years ended December 31, 2016 and
2015, the Company capitalized interests in the amounts of $377 and $1, 383, respectively.
The
Company files income tax returns for TG and ES in the Republic of Colombia. On December 28, 2016, the Colombian congress enacted
a structural tax reform that took effect on January 1, 2017 which reduces corporate income tax from 42% to 40% for fiscal year
2017, 37% in 2018 and 33% in 2019 and thereafter. As a result of the Colombian tax reform from December 28, 2016, the Company’s
net deferred tax liability decreased $586 as of December 31, 2016.
ESW
LLC is an LLC that was not subject to income taxes during the year 2015 and the eleven months period ending December 2, 2016,
since it was a pass-through entity for tax purposes. ESW LLC was converted to a C-Corporation and will be subject to income taxes
starting on December 3, 2016. The estimated income tax rate for C-Corporations ranges between 10% and 39.5%. Tecnoglass Inc. as
well as all the other subsidiaries in the Cayman Islands and Panama do not currently have any tax obligations.
The
components of income tax expense (benefit) are as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Current income tax
|
|
|
|
|
|
|
|
|
Colombia
|
|
$
|
16,319
|
|
|
$
|
20,810
|
|
Deferred income Tax
|
|
|
|
|
|
|
|
|
Colombia
|
|
|
(247
|
)
|
|
|
(119
|
)
|
Total Provision for Income Tax
|
|
$
|
16,072
|
|
|
$
|
20,691
|
|
A
reconciliation of the statutory tax rate in Colombia to the Company’s effective tax rate is as follows:
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Income tax expense at statutory
rates
|
|
|
40.0
|
%
|
|
|
39.0
|
%
|
Non-deductible expenses
|
|
|
1.2
|
%
|
|
|
224.3
|
%
|
Non-taxable income
|
|
|
-0.3
|
%
|
|
|
-2.2
|
%
|
Effective tax
rate
|
|
|
40.9
|
%
|
|
|
261.1
|
%
|
The
Company’s effective tax rate of 261% for the year ended December 31, 2015 reflects non-deductible losses of $24,901 due
to the change in fair value of the Company’s warrant liability during the year ended December 31, 2015 which contributed
to 122.5 percentage points in the reconciliation of the Company’s effective income tax rate to the statutory rate and non-deductible
losses of $10,858 due to the change in fair value of the Company’s earnout share liability during the year ended December
31, 2015, which contributed to 53.4 percentage points percentage points in the reconciliation of the Company’s effective
income tax rate to the statutory rate. Comparably, the Company had nontaxable gains of $776 and $4,674 related to the change in
the fair value of warrant liability and earnout share liability during the year ended December 31, 2016.
There
were no other individual items that contributed 5 percentage points or more in the reconciliation of the Company’s effective
tax rate and the statutory rate during the years ended December 31, 2016 and 2015.
The
Company has the following net deferred tax assets and liabilities:
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accounts Receivable Clients
- not delivered FOB
|
|
$
|
930
|
|
|
$
|
2,402
|
|
Property, plant and equipment adjustments
|
|
|
564
|
|
|
|
327
|
|
Financial Liabilities
|
|
|
24
|
|
|
|
-
|
|
Deferred profit on other assets
|
|
|
107
|
|
|
|
433
|
|
Provision Inventory
obsolescence
|
|
|
36
|
|
|
|
-
|
|
Total deferred
tax assets
|
|
$
|
1,661
|
|
|
$
|
3,162
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Inventory - not delivered FOB
|
|
$
|
1,507
|
|
|
$
|
1,646
|
|
Unbilled receivables uncompleted contracts
|
|
|
2,649
|
|
|
|
3,947
|
|
Depreciation
|
|
|
1,028
|
|
|
|
311
|
|
Financials Liabilities
|
|
|
-
|
|
|
|
2
|
|
Total deferred
tax liabilities
|
|
$
|
5,184
|
|
|
$
|
5,906
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax
|
|
$
|
3,523
|
|
|
$
|
2,744
|
|
Net
deferred tax is presented on the balance sheet as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Long term deferred income tax asset
|
|
$
|
-
|
|
|
$
|
640
|
|
Less: long term deferred income tax
liability
|
|
|
3,523
|
|
|
|
3,384
|
|
Presentation
of deferred assets and liability on previously issued financial statements presented a separate line item current and non-current
portions of deferred tax assets and liabilities. In observance of ASU 2015-17, the Company now presents total net deferred tax
asset or liability as a non-current asset or liability. The netting of long term net deferred tax asset and short term deferred
tax liability as the Company adopted this new accounting pronouncement retroactively resulted in a reclassification of current
deferred tax liability to non-current liability as of December 31, 2015. Refer to Note 2 – Basis of Presentation
and Summary of Significant Accounting Policies for more information on this recently issued accounting pronouncement.
The
Company does not have any uncertain tax positions for which it is reasonably possible that the total amount of gross unrecognized
tax benefits will increase or decrease within twelve months of December 31, 2016. The unrecognized tax benefits may increase or
change during the next year for items that arise in the ordinary course of business and may be subject to inspection by the Colombian
tax authorities for a period of up to two years until the statute of limitations period elapses.
|
Note
12.
|
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.
Financial
assets and liabilities measured at fair value on a recurring basis:
|
|
Quotes
|
|
|
Significant
|
|
|
|
|
|
|
Prices
|
|
|
Other
|
|
|
Significant
|
|
|
|
in Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
At
December 31, 2016
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Marketable equity securities
|
|
|
505
|
|
|
|
-
|
|
|
|
-
|
|
Interest Rate Swap Derivative Liability
|
|
|
-
|
|
|
|
23
|
|
|
|
-
|
|
|
|
Quotes
|
|
|
Significant
|
|
|
|
|
|
|
Prices
|
|
|
Other
|
|
|
Significant
|
|
|
|
in Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
At
December 31, 2015
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Marketable equity securities
|
|
|
428
|
|
|
|
-
|
|
|
|
-
|
|
Earnout Shares Liability
|
|
|
-
|
|
|
|
-
|
|
|
|
34,154
|
|
Warrant Liability
|
|
|
-
|
|
|
|
-
|
|
|
|
31,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Derivative Liability
|
|
|
-
|
|
|
|
42
|
|
|
|
-
|
|
As
of December 31, 2016, financial instruments carried at amortized cost that do not approximate fair value consist of long-term
debt. See Note 10 - Debt. The fair value of long term debt was calculated based on an analysis of future cash flows discounted
with our average cost of debt which is based on market rates, which are level 2 inputs.
The
following table summarizes the fair value and carrying amounts of our long-term debt:
|
|
December
31
|
|
|
|
2016
|
|
|
2015
|
|
Fair Value
|
|
|
190,190
|
|
|
|
138,347
|
|
Carrying Value
|
|
|
196,786
|
|
|
|
121,493
|
|
The
following is a summary of assets, liabilities, and income and expense transactions with all related parties, shareholders, directors
and managers:
|
|
At December 31,
|
|
|
At December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Due
from VS
|
|
$
|
9,143
|
|
|
$
|
6,895
|
|
Due
from other related parties
|
|
|
1,852
|
|
|
|
3,291
|
|
|
|
$
|
10,995
|
|
|
$
|
10,186
|
|
|
|
|
|
|
|
|
|
|
Long Term Trade
receivable from VS
|
|
$
|
-
|
|
|
$
|
2,536
|
|
Investments
|
|
|
-
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Due
to related parties
|
|
$
|
(3,668
|
)
|
|
$
|
(1,362
|
)
|
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
9,742
|
|
|
$
|
9,942
|
|
Interest Income
|
|
|
235
|
|
|
|
451
|
|
|
|
|
|
|
|
|
|
|
Expenses-
|
|
|
|
|
|
|
|
|
Fees paid to Directors and Officers
|
|
|
2,579
|
|
|
|
1,871
|
|
Paid to other related parties
|
|
|
2,395
|
|
|
|
3,036
|
|
Ventanas
Solar S.A. (“VS”), a Panama
sociedad anonima,
is an importer and installer of the Company’s products
in Panama. Family members of the Company’s CEO and COO and other related parties own 100% of the equity in VS. The
Company’s sales to VS for the year ended December 31, 2016 and 2015 were $8,269 and $5,437, respectively.
During
2015 and 2014, the Company and VS executed a short-term payment agreement and a three-year payment agreement that were mainly
created to fund working capital to VS due the timing difference between the collections from VS’s customers. The interest
rate of these payment agreements is Libor + 4.7% paid semiannually and Libor +6.5% paid monthly for the short-term agreement and
the three-year agreement, respectively. On December 2, 2016 the outstanding amount of $2,016 was reassigned to the former shareholders
of ESW LLC as part of the consideration paid for the acquisition of ESW. As a result, the Company does not have any outstanding
receivable under these payment agreements as of December 31, 2016.
Due
from other related parties as of December 31, 2016 includes $411 due from Daesmo, and $537 from Consorcio Ventanar ESW - Boca
Grande. Due from other related parties as of December 31, 2015 includes $657 due from Daesmo, $524 from Consorcio Ventanar ESW
- Boca Grande. Also included within due from other related parties as of December 31, 2015 is a loan to Finsocial, a company that
makes loans to public school system teachers with balance of $256
.
Due
to related party includes a $2,303 payable to the former shareholders of ESW LLC as part of the consideration paid for the acquisition
(See Note 3 – ESWindows for further details). During the years ended December 31, 2016 and 2015, ESW LLC made distributions
to its former shareholders amounting to $2,263 and 1,409, respectively, which are distributions made prior to acquisition date,
as further described in Note 3 – ESWindows Acquisition.
Paid
to other related parties during the year ended December 31, 2016 include charitable contributions to the Company’s foundation
for $1,340, sales commissions for $392 and other services for $663.
Included
within the amount due to related parties is a note payable to shareholder for $79 as of December 31, 2016. From September 5, 2013
to November 7, 2013 A. Lorne Weil loaned the Company $150 of which $70 was paid at closing of the Merger and $80 remained unpaid
as of December 31, 2014 and December 31, 2013. During the second quarter of 2014, the Company paid $1 and a balance of $79 remains
unpaid as of December 31, 2016 and 2015.
Analysis
of variable interest entities
The
Company conducted an evaluation of its involvement with all its significant related party business entities as of December 31,
2016 and 2015 in order to determine whether these entities were variable interest entities (“VIE”) requiring consolidation
or disclosures in the financial statements of the Company. The Company evaluated the purpose for which these entities were created
and the nature of the risks in the entities as required by the guidance under ASC 810-10-25 - Consolidation and related Subsections.
From
all the entities analyzed, only two entities, ESW LLC and VS, resulted in having variable interests. However, as of the date of
the initial evaluation and for the year ended December 31, 2015, the Company concluded that both entities are not deemed VIEs
and as such these entities should not be consolidated within the Company’s consolidated financial statements. However, on
December 2016, we acquired 100% of the equity of ESW LLC, and the acquisition was deemed to be transactions between entities under
common control. As such, the assets and liabilities were transferred at the historical cost of ESW LLC, with prior periods retroactively
adjusted to include the historical financial results of the acquired company for the period they were controlled by ESW LLC in
the Company’s financial statements (See Note 3 – ESWindows Acquisition for additional information).
|
Note
14.
|
Derivative
Financial Instruments
|
In
2012, the Company entered into three interest rate swaps (IRS) contracts as economic hedges against interest rate risk through
2017, and two currency forward contracts as economic hedges against foreign currency rate risk on U.S. dollar loans. The currency
forwards expired in January 2014. Hedge accounting treatment per guidance in ASC 815-10 and related Subsections was not pursued
at inception of the contracts. Changes in the fair value of the derivatives are recorded in current earnings. The derivatives
were recorded as a liability on the Company’s balance sheet at an aggregate fair value of $23 and $42 as of December 31,
2016 and 2015, respectively. Pursuant to the senior unsecured note issued in January of 2017, the Company repaid the underlying
obligations and terminated the interest rate swaps (See Note 21. Subsequent events for further information).
|
Note
15.
|
Warrant
Liability and Earnout Shares Liability
|
Warrant
Liability
The
fair value of the warrant liability was determined by the Company using the Binomial Lattice pricing model. This model is dependent
upon several variables such as the instrument’s expected term, expected strike price, expected risk-free interest rate over
the expected instrument term, the expected dividend yield rate over the expected instrument term and the expected volatility of
the Company’s stock price over the expected term. The expected term represents the period that the instruments granted are
expected to be outstanding. The expected strike price is based upon a weighted average probability analysis of the strike price
changes expected during the term because of the down round protection. The risk-free rates are based on U.S. Treasury securities
with similar maturities as the expected terms of the options at the date of valuation. Expected dividend yield is based on historical
trends. The Company measures volatility using a blended weighted average of the volatility rates for several similar publicly-traded
companies. The inputs to the model were as follows:
|
|
December
31,
2015
|
|
Stock Price
|
|
$
|
13.74
|
|
Dividend Yield
|
|
|
*
|
|
Risk-free rate
|
|
|
0.65
|
%
|
Expected Term
|
|
|
0.97
|
|
Expected Volatility (level 3 input)
|
|
|
37.69
|
%
|
*A
quarterly dividend of $0.125 per share commencing in the second quarter of 2016 was assumed.
When
the warrants are exercised for ordinary shares, the Company re-measures the fair value of the exercised warrants as of the date
of exercise using quoted prices on the OTC Pink Markets and records the change in fair value in the consolidated statement of
operations, and records the fair value of the exercised warrants as additional paid-in capital in the shareholders’ equity
section of the Company’s balance sheet.
On
August 4, 2016, the Company commenced a warrant exchange offer, under which each Tecnoglass warrant holder had the opportunity
to receive one Tecnoglass ordinary share in exchange for every 2.5 of the Company’s outstanding warrants tendered by the
holder and exchanged pursuant to the offer. As of the expiration of the exchange offer period on September 8, 2016, 5,479,049
outstanding warrants, or approximately 82% of the outstanding warrants, were tendered. Those tenders were accepted by Tecnoglass,
which issued 2,191,608 new ordinary shares on September 14, 2016. As a result, the warrant liability decreased by $26,300 and
the additional paid in capital increased by the same amount.
On
December 20, 2016, the ordinary warrants expired by their terms. There were 1,275,823 warrants outstanding as of September 30,
2016 following completion of the Company’s September 2016 warrant exchange offer. Of such amount, 1,265,842 warrants were
exercised prior to the expiration of the warrants, resulting in 478,218 ordinary shares being issued, with the remaining unexercised
warrants expiring by their terms. The warrant liability associated with the warrants was reclassified into equity once adjusted
to fair value at the date of expiration.
In
the year ended December 31, 2016, the Company recorded a gain of $4,675 in the consolidated statement of operations for the change
in fair value of exercised warrants and recorded $26,502 as additional paid-in capital in the shareholders’ equity section
of the Company’s consolidated balance sheet as below:
|
|
Number
of Warrants
|
|
|
Average
Value
|
|
|
Fair
Value
|
|
Opening balance as of January 1, 2015
|
|
|
9,097,430
|
|
|
$
|
2.19
|
|
|
$
|
19,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value to the date of
cashless exercise charged to income statement
|
|
|
2,325,924
|
|
|
$
|
3.69
|
|
|
$
|
8,591
|
|
Fair value of warrants exercised credited
to shareholders equity
|
|
|
2,325,924
|
|
|
$
|
5.88
|
|
|
$
|
(13,679
|
)
|
Change in fair value of unexercised
warrants remaining at December 31, 2015
|
|
|
6,771,506
|
|
|
$
|
2.41
|
|
|
$
|
16,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing balance as of December 31, 2015
|
|
|
6,771,506
|
|
|
$
|
4.61
|
|
|
$
|
31,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value to the date of
cashless exercise charged to income statement
|
|
|
6,761,525
|
|
|
$
|
0,11
|
|
|
$
|
(738
|
)
|
Fair value of warrants exercised credited
to shareholders equity
|
|
|
6,761,525
|
|
|
$
|
4,50
|
|
|
$
|
(30,437
|
)
|
Change in fair value of unexercised
warrants expired on December 20, 2016.
|
|
|
9,981
|
|
|
$
|
3,76
|
|
|
$
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing balance as of December 31, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on exercise of warrants
|
|
|
6,761,525
|
|
|
$
|
4,38
|
|
|
$
|
(31,375
|
)
|
Total change in warrant liability due
exercise of warrants and change in fair value of remaining warrants
|
|
|
|
|
|
|
|
|
|
$
|
(31,213
|
)
|
Earnout
Shares Liability
The
fair value of the earnout shares liability is calculated using a Monte Carlo simulation, whereby future net revenue was simulated
over the earnout period using a geometric Brownian Motion. Our model utilized management’s forecasted net sales and was
performed in a risk-neutral environment. The inputs to the model were as follows:
|
|
December
31,
2015
|
|
Stock Price
|
|
$
|
13.74
|
|
Risk-free rate
|
|
|
0.41
|
%
|
Expected Term
|
|
|
1
year
|
|
Asset Volatility (level 3 input)
|
|
|
38
|
%
|
Equity Volatility (level 3 input)
|
|
|
45
|
%
|
*A
quarterly dividend of $0.125 per share commencing in the second quarter of 2016 was assumed.
The
value of the earnout share liability is sensitive to changes in equity volatility and the forecasted EBITDA of the company. An
increase or decrease in the equity volatility of 5% would result in an increase or decrease in the value of the earnout share
liability of approximately 0.3%, respectively. An increase or decrease in the EBITDA of 5% would result in an increase or decrease
in the value of the earnout share liability of approximately 0.3%, respectively.
The
table below provides a reconciliation of the beginning and ending balances for the earnout shares liability measured using significant
unobservable inputs (Level 3):
Balance - December 31, 2014
|
|
$
|
29,061
|
|
Fair value adjustment for year ended December 31, 2014
|
|
|
10,858
|
|
Fair value of
earnout shares issued credited to shareholders’ equity
|
|
|
(5,765
|
)
|
Balance at December 31, 2015
|
|
$
|
34,154
|
|
Fair value adjustment for year ended December 31, 2016
|
|
|
(4,674
|
)
|
Fair value of
earnout shares issued credited to shareholders’ equity
|
|
|
(29,480
|
)
|
Balance at December 31, 2016
|
|
$
|
-
|
|
Pursuant
to the business combination closed on December 20, 2012, the Company issued 500,000 ordinary shares upon achievement of the EBITDA
target for the year ended December 31, 2014 and 1,000,000 ordinary shares upon achievement of the EBITDA target for the year ended
December 31, 2015. Additionally, on December 20, 2016, we notified the Escrow Agent that the earnout target for the year ended
December 31, 2016 had been met in full, notwithstanding the fact that the audit of such period had not yet been completed. Through
November 30, 2016, Tecnoglass had achieved an EBITDA substantially higher than the one between $40 million and $45 million required
to trigger the release of the shares from escrow. As a result, Tecnoglass instructed the Escrow Agent to release the remaining
1,500,000 ordinary shares held in escrow to Energy Holding Corp., the former stockholder of Tecnoglass prior to the Business Combination
and an affiliate of Jose M. Daes, our Chief Executive Officer, and Christian T. Daes, our Chief Operating Officer.
|
Note
16.
|
Commitments
and Contingencies
|
Guarantees
As
of December 31, 2016, the Company does not have guarantees on behalf of other parties.
Legal
Matters
On March 2, 2016 ES filed
a lawsuit against Bagatelos Architectural Glass Systems, Inc. (“Bagatelos”) in Colombia. In addition, we also filed
a lawsuit against Bagatelos in the State of California for breach of contract. To lift the lien declared by the Court in California,
Bagatelos submitted a bond for $2.0 million in favor of ES and its release is subject to the court’s ruling. This bond is
a “mechanics lien surety bond” which guarantees ES payment of the amounts due with interest and costs should the Company
win the case. Mediation scheduled for February 17, 2017 was unsuccessful and parties continue discovery. Bagatelos as defendant
presented a cross complaint on September 23, 2016 seeking damages of approximately $3 million. Although we already received a
payment order from the Colombian judge, the Company continues to pursue its rights, remedies and defenses in the U.S. We received
on January 31, 2017 a case update from our U.S. counsel stating that due to ES’ favorable terms and conditions and the fact
that Bagatelos has overstated their claim and ignored their contractual duties, it is probable that the Company will be able to
recover the outstanding amount of $2.0 million.
General
Legal Matters
From
time to time, the Company is involved in legal matters arising in the ordinary course of business. While management believes that
such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for
which the Company is, or could be, involved in litigation, will not have a material adverse effect on its business, financial
condition or results of operations.
|
Note
17.
|
Shareholders’
Equity
|
Preferred
Shares
TGI
is authorized to issue 1,000,000 preferred shares with a par value of $0.0001 per share with such designation, rights and preferences
as may be determined from time to time by the Company’s board of directors.
As
of December 31, 2016, there are no preferred shares issued or outstanding.
Ordinary
Shares
The
Company is authorized to issue 100,000,000 ordinary shares with a par value of $0.0001 per share. As of December 31, 2016, a total
of 33,172,144 Ordinary shares were issued and outstanding.
Legal
Reserve
Colombian
regulation requires that companies retain 10% of net income until it accumulates at least 50% of subscribed and paid in capital.
Earnings
per Share
The
following table sets forth the computation of the basic and diluted earnings per share for the years ended December 31, 2016 and
2015:
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Numerator for basic
and diluted earnings per shares
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
23,180
|
|
|
$
|
(11,020
|
)
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per
ordinary share - weighted average shares outstanding
|
|
|
29,231,054
|
|
|
|
26,454,469
|
|
Effect
of dilutive securities and stock dividend
|
|
|
1,022,014
|
|
|
|
-
|
|
Denominator
for diluted earnings per ordinary share - weighted average shares outstanding
|
|
|
30,253,068
|
|
|
|
26,454,469
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per ordinary share
|
|
$
|
0.79
|
|
|
$
|
(0.42
|
)
|
Diluted earnings per ordinary share
|
|
$
|
0.77
|
|
|
$
|
(0.42
|
)
|
The
weighted average number for shares outstanding for calculation of basic earnings per share for the year ended December 31, 2016
and 2015 considers 734,400 ordinary shares issued as part of the consideration paid the acquisition of ESW LLC, acquisition of
an entity under common control as further described in Note 3, and as per
ASC 260 – Earnings Per Share
, 272,505 ordinary
shares issued about the share dividend paid in November of 2016.
The
effect of dilutive securities includes 8,559 potential shares from outstanding Unit Purchase Options, and 1,013,455 from the potential
dividend for the third and fourth stock dividend election. The calculation of diluted earnings per share for the year ended December
31, 2015 excludes the effect of 3,502,079 dilutive securities because their inclusion would be antidilutive due to the net loss
for the period.
Long
Term Incentive Compensation Plan
On
December 20, 2013, our shareholders approved our 2013 Long-Term Equity Incentive Plan (“2013 Plan”). Under the 2013
Plan, 1,593,917 ordinary shares are reserved for issuance in accordance with the plan’s terms to eligible employees, officers,
directors and consultants. As of December 31, 2016, no awards had been made under the 2013 Plan.
Dividend
The
Company has authorized the payment of four regular quarterly dividends to holders of ordinary shares at a quarterly rate of $0.125
per share, or $0.50 per share on an annual basis, with the first quarterly dividend being payable on November 1, 2016. The dividends
are payable in cash or ordinary shares, at the option of the holders of ordinary shares. In connection with the first quarterly
dividend payable on November 1, 2016, Energy Holding Corp., the majority shareholder of the Company, elected to receive such dividend
in ordinary shares, as opposed to cash. Moreover, retroactively effective as of September 23, 2016 (the first date of the election
period for the first quarterly dividend), Energy Holding Corp. irrevocably elected to receive the next three quarterly dividends
in ordinary shares, as opposed to cash. On November 1, 2016 the Company paid $789 and issue 272,505 shares for the first quarterly
dividend to shareholders of record as of the close of business on September 23, 2016.
On
December 7, 2016, the Company announced the timing for the payment of its declared regular quarterly dividend of $0.125 per share
for the fourth quarter 2016. The dividend was paid on February 1, 2017 to shareholders of record as of the close of business on
December 29, 2016. The dividend was paid in cash or ordinary shares, to be chosen at the option of holders of ordinary shares
during an election period beginning December 29, 2016 and lasting until January 20, 2017. The value of the ordinary shares to
be used to calculate the number of shares to be issued with respect to that portion of the dividend payable in ordinary shares
was calculated using the average of the closing price of the Company’s ordinary shares on NASDAQ during the three day period
from January 18, 2017 through January 20, 2017 which was $11.74. On February 1, 2016, the Company issued 306,579 ordinary shares
and paid $564 in connection with the second quarterly dividend.
|
Note
18.
|
Segment
and Geographic Information
|
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 windows products sold to
the construction industry.
In
reviewing the Company’s segmentation, the Company followed guidance under ASC 280-10-50-1 which states that “an operating
segment is a component of a public entity that has all of the following characteristics: (i) it engages in business activities
from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components
of the same public entity), (ii) its operating results are regularly reviewed by the public entity’s chief operating decision
maker (CODM) to make decisions about resources to be allocated to the segment and assess its performance, and (iii) its discrete
financial information is available. Based on the Company’s review discussed below, the Company believes that its identification
of a single operating and reportable segment - Architectural Glass and Windows - is consistent with the objectives and basic principles
of Segment Reporting, which are to “help financial statement readers better understand the public entity’s performance,
better assess its prospects for future net cash flows and make more informed judgments about the public entity as a whole.”
The
Company analyzed the Company’s segmentation after the acquisition of ESW LLC and concluded that the operations of ESW LLC
fall within our single operating segment, Architectural Glass and Windows.
The
following tables present geographical information about external customers and revenues from external customer by product groups.
Geographical information is based on the location where there the sale was originated.
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Colombia
|
|
$
|
98,758
|
|
|
$
|
81,290
|
|
United States
|
|
|
189,985
|
|
|
|
145,207
|
|
Panama
|
|
|
9,444
|
|
|
|
7,329
|
|
Other
|
|
|
6,829
|
|
|
|
8,413
|
|
Total
Revenues
|
|
$
|
305,016
|
|
|
$
|
242,239
|
|
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Glass and framing components
|
|
$
|
89,850
|
|
|
$
|
85,034
|
|
Windows and architectural
systems
|
|
|
215,166
|
|
|
|
157,205
|
|
Total
Revenues
|
|
$
|
305,016
|
|
|
$
|
242,239
|
|
Excluding
related parties, only one customer, Giovanni Monti and Partners Consulting and Glazing Contractors (“GM&P”),
accounted for more than 10% or more of our net sales, amounting to $80.0 million, or 26% of total sales, and $32.0 million, or
13% of sales during the years ended December 31, 2016 and 2015. In March of 2017 the Company has acquired 100% of the equity of
GM&P. Refer to Note 21 – Subsequent Events for more information.
The
Company’s long lived assets as of December 31, 2016 and 2015 are distributed geographically as follows:
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Colombia
|
|
$
|
172,478
|
|
|
$
|
137,080
|
|
United States
|
|
|
5,631
|
|
|
|
5,314
|
|
Total
long lived assets
|
|
$
|
178,109
|
|
|
$
|
142,394
|
|
|
Note
19.
|
Operating
Expenses
|
Selling
expenses for the years ended December 31, 2016 and 2015 were comprised of the following:
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Shipping and Handling
|
|
$
|
15,568
|
|
|
$
|
11,955
|
|
Personnel
|
|
|
5,679
|
|
|
|
5,128
|
|
Sales commissions
|
|
|
4,346
|
|
|
|
4,298
|
|
Services
|
|
|
1,723
|
|
|
|
1,571
|
|
Packaging
|
|
|
950
|
|
|
|
1,093
|
|
Other Selling
Expenses
|
|
|
4,001
|
|
|
|
3,558
|
|
Total
Selling Expense
|
|
$
|
32,267
|
|
|
$
|
27,603
|
|
General
and administrative expenses for the years ended December 31, 2016 and 2015 were comprised of the following:
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Personnel
|
|
$
|
7,938
|
|
|
$
|
6,015
|
|
Professional Fees
|
|
|
5,395
|
|
|
|
4,596
|
|
Taxes
|
|
|
1,302
|
|
|
|
1,628
|
|
Services
|
|
|
2,302
|
|
|
|
1,685
|
|
Depreciation and Amortization
|
|
|
1,788
|
|
|
|
2,684
|
|
Bank Charges and tax
on financial transactions
|
|
|
2,881
|
|
|
|
1,499
|
|
Charitable contributions
|
|
|
1,504
|
|
|
|
1,425
|
|
Other
expenses
|
|
|
4,736
|
|
|
|
2,654
|
|
Total
General and administrative expenses
|
|
$
|
27,846
|
|
|
$
|
22,186
|
|
|
Note
20.
|
Non-Operating
Income
|
Non-operating
income (net) on our consolidated statement of operations amounted to $4,155 and $5,054 for the years ended December 31, 2016 and
2015, respectively. These amounts are primarily comprised of income from interests on receivables, rent income and recoveries
on scrap materials.
|
Note
21.
|
Subsequent
Events
|
We
intend to directly or indirectly acquire 100% of the stock of VS in the near future, likely during the first half of 2017. Following
the procedures established in our Code of Ethics, we also expect the terms of such transaction, when available, to be subject
to review and approval by our Audit Committee and our Board of Directors based on analysis conducted by external advisor.
On
January 23, 2017, the Company successfully issued a U.S. dollar denominated, $210 million offering of 5-year senior unsecured
notes at a coupon rate of 8.2% in the international debt capital markets under Rule 144A of the Securities Act to qualified institutional
investors. The Company will use approximately $179 million of the proceeds to repay outstanding indebtedness and as a result will
achieve a lower cost of debt and strengthen its capital structure given the non-amortizing structure of the new bond. The Company’s
consolidated balance sheets as of December 31, 2016 reflects the effect of this refinance of the Company’s current portion
of long term debt and other current borrowings into long term debt based on the Company’s intent as of that date.
On
December 7, 2016, the Company announced the timing for the payment of its declared regular quarterly dividend of $0.125 per share
for the fourth quarter 2016. The dividend was paid on February 1, 2017 to shareholders of record as of the close of business on
December 29, 2016. The dividend will be paid in cash or ordinary shares, to be chosen at the option of holders of ordinary shares
during an election period beginning December 29, 2016 and lasting until January 20, 2017. The value of the ordinary shares to
be used to calculate the number of shares to be issued with respect to that portion of the dividend payable in ordinary shares
shall be the average of the closing price of the Company’s ordinary shares on NASDAQ during the three day period from January
18, 2017 through January 20, 2017 which was $11.74 If no choice was made during this election period, the dividend for this election
period was paid in ordinary shares of the Company. On February 1, 2017, the Company issued 306,579 ordinary shares and paid $564
in connection with the second quarterly dividend.
On
March 1, 2017 the Company entered into and consummated a purchase agreement with Giovanni Monti, the owner of 100% of the outstanding
shares of GM&P. GM&P is a consulting and glazing contracting company located in Miami, Florida. GM&P has over
15 years of experience in the design and installation of various building enclosure systems such as curtain window walls. GM&P
has had a long-standing commercial relationship with the Company, working alongside it in different projects within the U.S, by
providing engineering and installation services to those projects. Pursuant to the Agreement, the Company acquired all of the
shares of GM&P from the Seller for a purchase price of $35 million. The Company will pay $6 million of the purchase price
in cash within the 60 days following the Effective Date, with the remaining $29 million of the purchase price to be payable on
or before September 1, 2017 (six months from the Effective Date).