Notes
to Condensed Consolidated Financial Statements
Note
1. General
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. On March 29, 2017 we established ESWindows Europe SRL,
a subsidiary based in Italy out of which we expect expand our sales to European and Middle Eastern markets.
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 $13,500, which
consisted of (i) 734,400 ordinary shares issued in connection with the transaction for approximately $9,200 based on a
stock price of $12.50, (ii) approximately $2,300 in cash, and (iii) approximately $2,000 related to the assignment
of certain accounts receivable. The acquisition was 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.
On
March 1, 2017, the Company acquired Giovanni Monti and Partners Consulting and Glazing Contractors, Inc. (“GM&P”),
a Florida-based commercial consulting, glazing and engineering company, specializing in windows and doors for commercial contractors,
including its 60% owned subsidiary, Componenti USA LLC. The purchase price for the acquisition was $35,000 of which $6,000 of
the purchase price will be paid in cash by the Company with the remaining amount payable by the Company in cash, stock
of the Company or a combination of both at the Company´s sole discretion within 180 days after closing. For more
information on this acquisition, please refer to Note 3. Acquisitions.
Note
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis
of Presentation and Use of Estimates
The
accompanying unaudited, condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“US GAAP”) and pursuant to the accounting and disclosure rules
and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting purposes. The results reported
in these unaudited condensed consolidated financial statements are not necessarily indicative of results that may be expected
for the entire year. These unaudited condensed consolidated financial statements should be read in conjunction with the information
contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The year-end condensed balance
sheet data was derived from audited financial statements, but does not include all disclosures required by US GAAP.
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 cash 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 these unaudited, condensed consolidated financial statements requires the Company to make estimates and judgments
that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets
and liabilities at the date of the Company’s financial statements. Actual results may differ from these estimates under
different assumptions and conditions. Estimates inherent in the preparation of these condensed consolidated financial statements
relate to the collectability of account receivables, the valuation of inventories, estimated earnings on uncompleted contracts,
useful lives and potential impairment of long-lived assets. Based on information known before these unaudited, condensed consolidated
financial statements were available to be issued, there are no estimates included in these statements for which it is reasonably
possible that the estimate will change in the near term up to one year from the date of these financial statements and the effect
of the change will be material . These financial statements reflect all adjustments that in the opinion of management are necessary
for a fair statement of the financial position, results of operations and cash flows for the period presented, and are of a normal,
recurring nature.
Principles
of Consolidation
These
unaudited condensed consolidated financial statements consolidate TGI, its subsidiaries TG, ES and ESW LLC, Tecno LLC, Tecno RE,
GM&P and Componenti USA LLC, 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.
Non-controlling
interest
When
the company owns a majority (but less than 100%) of a subsidiary’s stock, the company include in its condensed consolidated
Financial Statements the non-controlling interest in the subsidiary. The non-controlling interest in the Condensed Consolidated
Statements of Operations and Other Comprehensive Income is equal to the non-controlling proportionate share of the subsidiary’s
net income and, as included in Shareholders’ Equity on the Consolidated Balance Sheet, is equal to the non-controlling
proportionate share of the subsidiary’s net assets.
Foreign
Currency Translation
The
condensed 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 of 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 condensed consolidated statement of operations as foreign exchange gains and losses .
Business
combinations
We
allocate the total purchase price of the acquired tangible and intangible assets acquired and liabilities assumed based on their
estimated fair values as of the business combination date, with the excess purchase price recorded as goodwill. The purchase price
allocation process required us to use significant estimates and assumptions, including fair value estimates, as of the business
combination date. Although we believe the assumptions and estimates we have made are reasonable and appropriate, they are based
in part on historical experience and information obtained from management of the acquired company, in part based on valuation
models that incorporate projections of expected future cash flows and operating plans and are inherently uncertain. Valuations
are performed by management or third party valuation specialists under management’s supervision. In determining the fair
value of assets acquired and liabilities assumed in business combinations, as appropriate, we may use one of the following recognized
valuation methods: the income approach (including the cost saving method and the discounted cash flows from relief from royalty),
the market approach and/or the replacement cost approach.
Examples
of significant estimates used to value certain intangible assets acquired include but are not limited to:
●
|
sales
volume, pricing and future cash flows of the business overall
|
|
|
●
|
future
expected cash flows from customer relationships, and other identifiable intangible assets, including future price levels,
rates of increase in revenue and appropriate attrition rate
|
|
|
●
|
the
acquired company’s brand and competitive position, royalty rate, as well as assumptions about the period of time the
acquired brand will continue to benefit to the combined company’s product portfolio
|
|
|
●
|
cost
of capital, risk-adjusted discount rates and income tax rates
|
However,
different assumptions regarding projected performance and other factors associated with the acquired assets may affect the amount
recorded under each type of assets and liabilities, mainly between property, plant and equipment, intangibles assets, goodwill
and deferred income tax liabilities and subsequent assessment could result in future impairment charges. The purchase price allocation
process also entails us to refine these estimates over a measurement period not to exceed one year to reflect new information
obtained surrounding facts and circumstances existing at acquisition date.
Acquisitions
under common control are recorded retroactively starting from the first date of common control. Instead of using fair value, the
Company consolidates the financial statements of the entity acquired using the existing carrying values.
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 33% and 17% of the Company’s sales for the three months ended March 31, 2017
and 2016, respectively, and 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 have not had a material effect
on the Company’s financial statements.
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 incurred 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 operating
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
|
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 8 - Goodwill and
Intangible Assets for additional information.
Earn
out shares liability
In
accordance with
ASC 815 - Derivatives and hedging
, the earn out 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 condensed 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 condensed
consolidated balance sheets. As of March 31, 2017 there is no earnout shares liability recorded.
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 condensed
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 condensed 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 condensed consolidated balance sheet. The Company’s warrants expired per their own terms on
December 20, 2016.
Income
Taxes
The
Company’s operations in Colombia are subject to the taxing jurisdiction of the Republic of Colombia. ESW LLC, GM&P,
Componenti USA LLC, Tecnoglass LLC and Tecno 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 condensed 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.
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
Basic
earnings per share is computed 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, earnout
shares, and other potential ordinary shares outstanding during the period. Diluted loss per share is computed similar to basic
loss per share except that the denominator is increased to include the number of additional common shares that would have been
outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
The
calculation of diluted earnings per share for the three months ended March 31, 2017 reflect 718,102 dilutive securities related
to the annualized dividend declared of $0.50 per share authorized on August 4, 2016 by the Board of Directors. For the three months
ended March 31, 2016, the Company considered the dilutive effect of warrants to purchase ordinary shares, unit purchase options
exercisable into ordinary shares, and shares issuable under the earnout agreement in the calculation of diluted income per share,
which resulted in 3,139,118 shares of dilutive securities.
The
following table sets forth the computation of the basic and diluted earnings per share for the three months ended March 31, 2017
and 2016:
|
|
Three
months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
1,019
|
|
|
$
|
14,356
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per
ordinary share - weighted average shares outstanding
|
|
|
33,480,430
|
|
|
|
28,220,885
|
|
Effect
of dilutive warrants, options, earnout shares, and stock dividends declared
|
|
|
718,103
|
|
|
|
3,139,118
|
|
Denominator
for diluted earnings per ordinary share - weighted average shares outstanding
|
|
|
34,198,533
|
|
|
|
31,360,003
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per ordinary share
|
|
$
|
0.03
|
|
|
$
|
0.51
|
|
Diluted earnings per ordinary share
|
|
$
|
0.03
|
|
|
$
|
0.46
|
|
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.
Recently
acquired GM&P provides certain product warranties based on warranty contracts with its customers at the time of sale. Warranty
expense is charged to operating expenses.
Non-Operating
Income, net
The
Company recognizes non-operating income from foreign currency transaction gains and losses, interest income on receivables, proceeds
from sales of scrap materials and other activities not related to the Company’s operations. Foreign currency transaction
gains and losses occur when monetary assets, liabilities, payments and receipts that are denominated in currencies other than
the Company’s functional currency are recorded in the Colombian peso accounts of the Company in Colombia.
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. Shipping and handling costs for the three months ended March 31, 2017 and 2016
were $3,132 and $2,930, respectively.
Dividends
Payable
The
company accounts for its dividend declared as a liability under ASC 480 - Distinguishing Liabilities from Equity since the shareholder
have the option to elect cash or stock, and reclassifies from dividend payable to additional paid-in capital when shareholders
elects a stock dividend instead of cash. The dividend payable is not subject to re-measurement at each balance sheet date since
the dividend is a fixed monetary amount known at inception and thus no change in fair value adjustment is necessary.
Recently
Issued Accounting Pronouncements
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
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. We evaluated the impact of
ASU 2016-09 and its related disclosures, and these standards had no material impact on our 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 already started with the planning phase of the adoption
of this ASU and 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.
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
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.
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
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.
Note
3. Acquisitions
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 $13,500, which consisted of (i) 734,400 ordinary shares issued in connection
with the transaction for approximately $9,200 based on a stock price of $12.50, (ii) approximately $2,300 in cash, and (iii) approximately
$2,000 related to the assignment of certain accounts receivable from Ventana 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.
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
following table includes the financial information as originally reported and the net effect of the ESW acquisition after elimination
of intercompany transactions.
|
|
March
31, 2016
|
|
|
|
Without
acquisition
|
|
|
Net
effect of acquisition
|
|
|
Considering
acquisition
|
|
Net revenues
|
|
$
|
60,903
|
|
|
$
|
2,959
|
|
|
$
|
63,855
|
|
Net income (loss)
|
|
$
|
13,664
|
|
|
$
|
692
|
|
|
$
|
14,356
|
|
Basic income per
share
|
|
$
|
0.50
|
|
|
$
|
0.01
|
|
|
$
|
0.51
|
|
Diluted income
per share
|
|
$
|
0.45
|
|
|
$
|
0.01
|
|
|
$
|
0.46
|
|
Basic weighted
average common shares outstanding
|
|
|
27,486,485
|
|
|
|
734,400
|
|
|
|
28,220,885
|
|
Diluted weighted average common shares outstanding
|
|
|
30,625,603
|
|
|
|
734,400
|
|
|
|
31,360,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
$
|
(10,136
|
)
|
|
$
|
939
|
|
|
$
|
(9,197
|
)
|
Net decrease in cash
|
|
$
|
(302
|
)
|
|
$
|
77
|
|
|
$
|
(225
|
)
|
The
number of basic and diluted weighted average common shares outstanding prior to the acquisition of ESW LLC includes 579,094 shares
issued after the financial statements for three months ended March 31, 2016 were issued related to a stock dividend during 2016
and 2017.
GM&P
Acquisition
On
March 1, 2017, the Company acquired a 100% controlling interest in Giovanni Monti and Partners Consulting and Glazing Contractors,
Inc. (“GM&P”), a Florida-based commercial consulting, glazing and engineering company, specializing in windows
and doors for commercial contractors. The primary reasons for the business combination are to continue Tecnoglass’ long-term
strategy of being vertically integrated, to streamline its distribution logistics, and to fabricate in the United States when
economically advantageous. The purchase price for the acquisition was $35,000, of which $6,000 of the purchase price will
be paid in cash by the Company with the remaining amount payable by the Company in cash, stock of the Company or a combination
of both at the Company´s sole discretion within 180 days after closing. The total amount of acquisition-related costs was
$189, which is included in the Statement of operations for the period ending December 31, 2016.
The
following table summarizes the consideration transferred to acquire GM&P and the amounts of identified assets acquired and
liabilities assumed at the acquisition date, as well as the fair value of the noncontrolling interest in Componenti USA LLC as
of the acquisition date
. Under ASC 805, a company can apply
measurement period adjustments during the twelve-month period after the date of acquisition. During this period, the acquirer
may adjust preliminary amounts recognized at the acquisition date to their subsequently determined final fair values . The
allocation of the consideration transferred was based on management’s judgment after evaluation of several factors, including
a preliminary valuation assessment. Finalization of the analysis has not been completed and could result in measurement periods
adjustments that could change the composition of current asset, fixed assets, intangible assets, goodwill, and liabilities. The
goodwill is not expected to be deductible for tax purposes.
The
following table summarizes the purchase price allocation of the total consideration transferred:
Consideration
Transferred:
|
|
|
|
|
Notes payable (Cash or Stock)
|
|
$
|
35,000
|
|
Fair value of the noncontrolling interest in
Componenti
|
|
|
1,141
|
|
|
|
|
|
|
Recognized
amounts of identifiable assets acquired and liabilities assumed:
|
|
|
|
|
Cash and equivalents
|
|
$
|
509
|
|
Accounts receivable
|
|
|
42,314
|
|
Cost and estimated earnings in excess of billings
|
|
|
4,698
|
|
Other current assets
|
|
|
589
|
|
Property, plant, and equipment
|
|
|
684
|
|
Other non-current tangible assets
|
|
|
59
|
|
Trade name
|
|
|
980
|
|
Non-compete agreement
|
|
|
165
|
|
Contract backlog
|
|
|
3,090
|
|
Customer relationships
|
|
|
4,140
|
|
Accounts payable
|
|
|
(22,330
|
)
|
Other
current liabilities assumed
|
|
|
(13,967
|
)
|
Non-current liabilities
assumed
|
|
|
(3,634
|
)
|
Total identifiable
net assets
|
|
|
17,297
|
|
Goodwill (including Workforce)
|
|
$
|
18,844
|
|
The
excess of the consideration transferred over the estimated fair values of assets acquired and liabilities assumed was recorded
as goodwill. The identifiable intangible asset subject to amortization was the tradename, customer relationships, non-compete
agreement, and backlog, which have a remaining useful life of two to five years. See Note 8 – Goodwill and Intangible
Assets for additional information.
The
following unaudited pro forma financial information assumes the acquisition had occurred at the beginning of the earliest
period presented that does not include GM&P actual results for the entire period. Pro forma results have been prepared by
adjusting our historical results to include the results of GM&P adjusted for the amortization expense related to the intangible
assets arising from the acquisition. The unaudited pro forma results below do not necessarily reflect the results of operations
that would have resulted had the acquisition been completed at the beginning of the earliest periods presented, nor does it indicate
the results of operations in future periods. The unaudited pro forma results do not include the impact of synergies, nor any potential
impacts on current or future market conditions which could alter the following unaudited pro forma results.
|
|
Three
Months
Ended
|
|
|
Three
Months
Ended
|
|
(in
thousands, except per share amounts)
|
|
March
31, 2017
|
|
|
March
31, 2016
|
|
Pro Forma Results
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
75,804
|
|
|
$
|
75,771
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
(35
|
)
|
|
$
|
14,706
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.00
|
)
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.00
|
)
|
|
$
|
0.47
|
|
The
actual sales and net income that is included within the Statement of Operations for the three-month period ended March 31,
2017 is $8,126 and $1,660, respectively.
Non-controlling
interest
With
the Acquisition of GM&P, the Company also acquired a 60% equity interest in Componenti USA LLC, a subsidiary of GM&P
that provides architectural specialties in the US, specializing in design-build systems for individual projects and with
experience in value engineering to create products that comply with the architects original design intent, while maintaining
focus on affordable construction methods and materials. The 40% non-controlling interest in Componenti is included in the
opening balance sheet as of the acquisition date and its fair value amounted to $1,141. When the company owns a
majority (but less than 100%) of a subsidiary’s stock, the Company includes in its Consolidated Financial Statements
the non-controlling interest in the subsidiary. The non-controlling interest in the Condensed Consolidated Statements
of Operations and Other Comprehensive Income is equal to the non-controlling interests’ proportionate share of
the subsidiary’s net income and, as included in Shareholders’ Equity on the Condensed Consolidated Balance Sheet,
is equal to the non-controlling interests’ proportionate share of the subsidiary’s net assets.
Note
4. – Trade accounts receivable
Trade
accounts receivable consists of the following:
|
|
March
31, 2017
|
|
|
December
31, 2016
|
|
Trade accounts receivable
|
|
$
|
106,824
|
|
|
$
|
94,380
|
|
Less: Allowance
for doubtful accounts
|
|
|
(3,514
|
)
|
|
|
(2,083
|
)
|
|
|
$
|
103,310
|
|
|
$
|
92,297
|
|
The
changes in allowances for doubtful accounts for the years ended December 31, 2016 and 2015 are as follows:
|
|
March
31, 2017
|
|
|
December
31, 2016
|
|
Balance at beginning of
year
|
|
$
|
2,083
|
|
|
$
|
189
|
|
Provision for bad debts
|
|
|
983
|
|
|
|
4,686
|
|
Allowance from
acquired business
|
|
|
1,000
|
|
|
|
-
|
|
Deductions and
write-offs, net of foreign currency adjustment
|
|
|
(552
|
)
|
|
|
(2,792
|
)
|
Balance at end
of year
|
|
$
|
3,514
|
|
|
$
|
2,083
|
|
Note
5. - Inventories, net
Inventories
are comprised of the following:
|
|
March
31, 2017
|
|
|
December
31, 2016
|
|
Raw materials
|
|
$
|
36,332
|
|
|
$
|
40,219
|
|
Work in process
|
|
|
7,799
|
|
|
|
5,606
|
|
Finished goods
|
|
|
6,734
|
|
|
|
4,124
|
|
Stores and spares
|
|
|
5,599
|
|
|
|
5,016
|
|
Packing material
|
|
|
362
|
|
|
|
284
|
|
|
|
|
56,826
|
|
|
|
55,249
|
|
Less: inventory
allowance
|
|
|
(95
|
)
|
|
|
(157
|
)
|
|
|
$
|
56,731
|
|
|
$
|
55,092
|
|
Note
6. Other Current Assets and Other Long Term Assets
Other
current assets are comprised of the following:
|
|
March
31, 2017
|
|
|
December
31, 2016
|
|
Unbilled receivables on
uncompleted contracts
|
|
$
|
1,306
|
|
|
$
|
6,625
|
|
Prepaid Expenses
|
|
|
1,223
|
|
|
|
1,183
|
|
Prepaid Taxes
|
|
|
18,857
|
|
|
|
14,080
|
|
Advances and
other receivables
|
|
|
1,908
|
|
|
|
2,009
|
|
Other current
assets
|
|
$
|
23,294
|
|
|
$
|
23,897
|
|
Other
long term assets are comprised of the following:
|
|
March
31, 2017
|
|
|
December
31, 2016
|
|
Real estate investments
|
|
$
|
4,930
|
|
|
$
|
5,125
|
|
Cost method investment
|
|
|
500
|
|
|
|
500
|
|
Other long term
assets
|
|
|
2,040
|
|
|
$
|
1,687
|
|
|
|
$
|
7,470
|
|
|
$
|
7,312
|
|
Note
7. Property, Plant and Equipment, Net
Property,
plant and equipment consist of the following:
|
|
March
31, 2017
|
|
|
December
31, 2016
|
|
Building
|
|
$
|
54,617
|
|
|
$
|
50,887
|
|
Machinery and equipment
|
|
|
138,449
|
|
|
|
132,333
|
|
Office equipment and software
|
|
|
5,201
|
|
|
|
4,980
|
|
Vehicles
|
|
|
1,884
|
|
|
|
1,648
|
|
Furniture and
fixtures
|
|
|
2,335
|
|
|
|
2,141
|
|
Total property,
plant and equipment
|
|
|
202,486
|
|
|
|
191,989
|
|
Accumulated depreciation
and amortization
|
|
|
(55,508
|
)
|
|
|
(49,277
|
)
|
Net value of property and equipment
|
|
|
146,978
|
|
|
|
142,712
|
|
Land
|
|
|
29,260
|
|
|
|
28,085
|
|
Total property,
plant and equipment, net
|
|
$
|
176,238
|
|
|
$
|
170,797
|
|
Depreciation
expense for the three months ended March 31, 2017 and 2016 amounted to $4,295 and $3,137, respectively.
Note
8. Goodwill and Intangible Assets
Goodwill
The
table below provides a reconciliation of the beginning and ending balances of the Goodwill recorded on the Company’s balance
sheet:
Beginning balance - December
31, 2016
|
|
$
|
1,330
|
|
GM&P Acquisition
|
|
|
18,844
|
|
Ending balance – March 31,
2017
|
|
$
|
20,174
|
|
Intangible
Assets
Intangible
assets include Miami-Dade County Notices of Acceptances (NOA’s), which are certificates in the required to market hurricane-
resistant glass in Florida. Also, it includes the intangibles acquired from the acquisition of GM&P and Componenti.
|
|
March
31, 2017
|
|
|
December
31, 2016
|
|
|
|
Gross
|
|
|
Acc.
Amort.
|
|
|
Net
|
|
|
Gross
|
|
|
Acc.
Amort.
|
|
|
Net
|
|
Trade Names
|
|
$
|
980
|
|
|
$
|
(16
|
)
|
|
$
|
964
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Notice of Acceptances (NOAs)
|
|
|
8,770
|
|
|
|
(4,072
|
)
|
|
|
4,698
|
|
|
|
8,524
|
|
|
|
(3,969
|
)
|
|
|
4,555
|
|
Non-compete Agreement
|
|
|
165
|
|
|
|
(3
|
)
|
|
|
162
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Contract Backlog
|
|
|
3,090
|
|
|
|
(129
|
)
|
|
|
2,961
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Customer Relationships
|
|
|
4,140
|
|
|
|
(74
|
)
|
|
|
4,066
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
$
|
17,145
|
|
|
$
|
(4,294
|
)
|
|
$
|
12,851
|
|
|
$
|
8,524
|
|
|
$
|
(3,969
|
)
|
|
$
|
4,555
|
|
During
the three months ended March 31, 2017 and March 31, 2016, the amortization expense amounted to $610 and $194, respectively, and
was included within the general and administration expenses in our condensed consolidated statement of operations. The
weighted average amortization period is 5 years for the tradename, customer relationships, and non-complete agreement;
and for the contract backlog is 2 years.
The
estimated aggregate amortization expense for each of the five succeeding years as of March 31, 2017 is as follows:
Year
Ending
|
|
(in
thousands)
|
|
2017 (nine months)
|
|
$
|
2,305
|
|
2018
|
|
|
3,073
|
|
2019
|
|
|
1,785
|
|
2020
|
|
|
1,405
|
|
2021
|
|
|
1,381
|
|
Thereafter
|
|
|
2,902
|
|
|
|
$
|
12,851
|
|
Note
9. Debt
As
of March 31, 2017, the Company owed $227,338 under its various borrowing arrangements. The obligations have maturities ranging
from six months to 15 years that bear interest at rates ranging from 2.9% to 11.0% and a weighted average of 7.7%.
On
January 23, 2017, the Company issued a U.S. dollar denominated, $210,000 offering of a 5-year senior unsecured note at a coupon
rate of 8.2% in the international debt capital markets under Rule 144A/Reg S of the Securities Act to qualified institutional
buyers. The Company used approximately $182,189 of the proceeds to repay outstanding indebtedness and as a result achieved a lower
cost of debt and strengthened its capital structure given the non-amortizing structure of the new facility. Of these repayments,
$59,444 were used to refinance short term debt into long term debt. The Company’s condensed 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.
In
accordance with ASC Topic No. 470, “Debt – Modifications and Extinguishments” (Topic 470), a company needs to
determine whether a modification or exchange of a term loan or debt security should be accounted for as a modification or an extinguishment.
The Company determined that the issuance of the 5-year senior unsecured note under Rule 144A/Reg S was not considered a modification
existing since the note issuance proceeds were used to extinguished debt and the note issuance was accounted for as a liability
equal to the proceeds received. As such, the payoff of the January 2016 credit facility was determined to be an extinguishment
of the existing debt. As a result, we recorded a loss on the extinguishment of debt in the amount of $3,159 in the line item “Loss
on Extinguishment of Debt” in our Condensed Consolidated Statements of Operations and Comprehensive Income. The loss
represented $2,583 of write off of deferred financing fees related to the extinguished debt facilities and $576 of penalties fees
related to the early payoff of the syndicate loans. The write-off was added back as a non-cash item in the Cash Flows from Operations.
The
Company’s debt is comprised of the following:
|
|
March
31, 2017
|
|
|
December
31, 2016
|
|
Revolving lines of credit
|
|
$
|
1,297
|
|
|
$
|
13,168
|
|
Capital lease
|
|
|
-
|
|
|
|
23,696
|
|
Unsecured senior note
|
|
|
210,000
|
|
|
|
-
|
|
Other loans
|
|
|
24,276
|
|
|
|
165,330
|
|
Less: Deferred
cost of financing
|
|
|
(8,235
|
)
|
|
|
(2,597
|
)
|
Total obligations
under borrowing arrangements
|
|
|
227,338
|
|
|
|
199,597
|
|
Less: Current
portion of long-term debt and other current borrowings
|
|
|
6,624
|
|
|
|
2,651
|
|
Long-term debt
|
|
$
|
220,714
|
|
|
$
|
196,946
|
|
Maturities
of long term debt and other current borrowings are as follows as of March 31, 2017:
2018
|
|
$
|
6,624
|
|
2019
|
|
|
2,305
|
|
2020
|
|
|
2,315
|
|
2021
|
|
|
2,326
|
|
2022
|
|
|
212,336
|
|
Thereafter
|
|
|
9,667
|
|
Total
|
|
$
|
235,573
|
|
The
Company had $0 and $8,366 of property, plant and equipment as well as $4,717 and $4,757 of other long term assets pledged to secure
$3,490 and $109,193 under various lines of credit as of March 31, 2017 and December 31, 2016, 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.
Note
10. Income Taxes
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:
|
|
Three
months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Current income tax:
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
452
|
|
|
$
|
-
|
|
Foreign
|
|
|
2,280
|
|
|
|
3,256
|
|
Total current income
tax
|
|
|
2,732
|
|
|
|
3,256
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax:
|
|
|
|
|
|
|
|
|
United States
|
|
|
380
|
|
|
|
-
|
|
Foreign
|
|
|
(2,070
|
)
|
|
|
387
|
|
Total
deferred income tax
|
|
|
(1,690
|
)
|
|
|
387
|
|
Total Provision
for Income tax
|
|
$
|
1,042
|
|
|
$
|
3,643
|
|
|
|
|
|
|
|
|
|
|
Effective tax
rate
|
|
|
50.3
|
%
|
|
|
20.0
|
%
|
The
Company’s effective tax rate of 20% for the three month period ended March 31, 2016 reflects non-taxable gains of
$5,911 due to the change in fair value of the Company’s warrant liability relative to their fair value as of December
31, 2015 and non-taxable gain of $3,704 due to the change in fair value of the Company’s earn out share liability
relative to their fair value as of December 31, 2015. There were no other individual items with significant contributions in
the reconciliation of the Company’s effective tax rate and the statutory rate during the three months ended March 31,
2017.
Note
11. 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. The classification of a financial asset
or liability within the hierarchy is determined by the lowest level inputs that are significant to the fair value measurement.
Results of operations are impacted by the movement in the level 2 and 3 instruments on a periodic basis.
The
Company has marketable equity securities with fair values obtained from a quoted price in an active market (Level 1) amounting
to $533 and $505 as of December 31, 2016 and March 31, 2017. As of December 31, 2016 the Company had Interest rate swap derivative
liability with fair value obtained using significant other observable inputs (Level 2) amounting to $23.
As
of March 31, 2017 and December 31, 2016, financial instruments carried at amortized cost that do not approximate fair value consist
of long-term debt. See Note 9 - Debt. The fair value of long term debt was calculated based on an analysis of future cash flows
discounted with our weighted average cost of debt based on market rates, which are Level 2 inputs. Other financial instruments
such as accounts receivable have carrying values that approximate fair value as they are short-term in nature.
The
following table summarizes the fair value and carrying amounts of our long term debt:
|
|
March
31, 2017
|
|
|
December
31, 2016
|
|
Fair Value
|
|
$
|
239,736
|
|
|
$
|
190,190
|
|
Net Carrying Value
|
|
$
|
227,338
|
|
|
$
|
196,786
|
|
Note
12. Segment and Geographic Information
|
|
Three
months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Colombia
|
|
$
|
16,428
|
|
|
$
|
18,578
|
|
United States
|
|
|
46,308
|
|
|
|
40,118
|
|
Panama
|
|
|
1,263
|
|
|
|
2,914
|
|
Other
|
|
|
1,818
|
|
|
|
2,245
|
|
Total Revenues
|
|
$
|
65,817
|
|
|
$
|
63,855
|
|
Note
13. Related Parties
The
following is a summary of assets, liabilities, and income and expense transactions with all related parties, shareholders, directors
and managers:
|
|
Three
months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Sales to related parties
|
|
$
|
1,374
|
|
|
$
|
2,971
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Fees paid to directors and officers
|
|
$
|
710
|
|
|
$
|
359
|
|
Payments to other related parties
|
|
$
|
806
|
|
|
$
|
1,283
|
|
|
|
March
31, 2017
|
|
|
December
31, 2016
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Due from VS
|
|
$
|
9,433
|
|
|
$
|
9.143
|
|
Due from other
related parties
|
|
|
1,734
|
|
|
|
1,852
|
|
|
|
$
|
11,167
|
|
|
$
|
10,995
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Due to related parties
|
|
$
|
1,808
|
|
|
$
|
3,668
|
|
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 three months ended March 31, 2017 and 2016 were $1,150 and $2,689 respectively.
Payments
to other related parties during three months ended March 31, 2017 include charitable contributions to the Company’s foundation
for $416 and sales commissions for $241.
Due
to related party includes a balance of $631 and $2,303 payable to the former shareholders of ESW LLC as part of the consideration
paid for the acquisition as of March 31, 2017 and December 16, 2016. (See Note 3 – Acquisitions for further details). The
change amounting to $1,672 is related to the payment to former ESW shareholders which is reflected in the Cash Flow from Investing
Activities.
Note
14. Dividends Payable
On
August 4, 2016, the Company’s Board of Directors authorized the payment of 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. The dividend is being paid in cash or ordinary
shares, chosen at the option of holders of ordinary shares and 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 the average of the closing
price of the Company’s ordinary shares on NASDAQ during the three trading days prior to the end of the election period.
Those holders that did not provide a choice during the election period for the first quarterly dividend were paid out in cash,
whereas from the second quarterly dividend going forwards, holders that do not provide a choice during the election period are
paid in ordinary shares. Energy Holding Corporation, the majority shareholder of the Company, has irrevocably elected to receive
such dividend for the full year in ordinary shares, as opposed to cash As a result, the Company has a dividend payable amounting
to $2,170 as of March 31, 2017. On April 28, 2017, the Company paid $668 and issued 341,843 shares in connection with the third
quarterly dividend to the holders of record as of March 31, 2017.
The
company analyzed the accounting guidance under ASC 505 and determined that this guidance is not applicable since the dividend
are shares of the same class in which each shareholder is given an election to receive cash or shares. As such, the company analyzed
the dividend under ASC 480 — Distinguishing Liabilities from Equity and concluded that the dividend should be accounted
for as a liability since the dividend is a fixed monetary amount known at inception. A reclassification from dividend payable
to additional paid-in capital was done for the stocks dividend elections that shareholders have already made.
Note
15. Commitments and Contingencies
Guarantees
As
of March 31, 2017, 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 $2,000 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 $3,000. 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 $2,000.
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
16. Subsequent Events
On
May 11, 2017, Tecnoglass Inc. announced the timing for the last payment of its declared regular quarterly dividend of $0.125 per
share for the second quarter of 2017. The dividend will be payable on July 28
th
, 2017 to shareholders of record as
of the close of business on June 30, 2017. 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 July 3rd, 2017 and lasting until 5:00 P.M. Eastern Time on July
21st, 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 period from July 10, 2017 through July 21, 2017. If no choice is made during this election period, the dividend
for this election period will be paid in ordinary shares of the Company.
The
Company further announced that commencing with the quarterly dividend for the third quarter of 2017 through the dividend for the
second quarter of 2018, the divided will be increased to $0.14 per share, or $0.56 per share on an annual basis. The quarterly
dividend of $0.14 per share
for the third quarter of 2017 will be payable to shareholders of record as of the close of
business on September 29, 2017.
Energy Holding Corp., the majority shareholder
of the Company, has irrevocably elected to receive any quarterly dividends declared through the second quarter of 2018 in ordinary
shares, as opposed to cash.
Dividend
declarations and the establishment of future record and payment dates are subject to the Board of Directors’ continuing
determination that the dividend policy is in the best interests of the Company and its shareholders. The dividend policy may be
changed or cancelled at the discretion of the Board of Directors at any time.
Management
concluded that no additional subsequent events required disclosure other than those disclosed in these financial statements.