Notes
to Condensed Consolidated Financial Statements
(Amounts
in thousands, except share and per share data)
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 two thirds 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 to 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 E.S. Windows LLC (“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 to the former members of ESW of certain
accounts receivable owed by a related party to ES. 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 was paid in cash by the Company with the remaining amount to be payable by the Company in cash, stock of the
Company or a combination of both at the Company´s sole discretion originally within 180 days after closing and subsequently
amended to be paid by May 15, 2018. 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, ESW LLC, ESW Europe SRL, 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 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 from fixed price contracts amount to 56% and 47% of the Company’s
sales for the three and nine months ended September 30, 2017, respectively, and 17% and 16% for the three and nine months ended
September 30, 2016, respectively, as GM&P, acquired in March of 2017 largely accounts for its revenues through the percentage
of completion method. 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 9 - Goodwill and Intangible
Assets for additional information.
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 and nine months ended September 30, 2017 include the dilutive effect of
589,950 dilutive securities related to the dividend declared. The calculation of diluted earnings per share for the three months
ended September 30, 2016 excludes the effect of 589,950 dilutive securities related to the dividend declared as there is a net
loss for the period and their inclusion would be anti-dilutive. For the nine months ended September 30, 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, and share dividends paid out since, which are retroactively adjusted, in the calculation
of diluted income per share, which resulted in 3,846,918 shares of dilutive securities.
The
following table sets forth the computation of the basic and diluted earnings per share for the three and nine months ended September
30, 2017 and 2016:
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to parent
|
|
$
|
6,924
|
|
|
$
|
(8,783
|
)
|
|
$
|
4,383
|
|
|
$
|
20,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per ordinary share - weighted average shares outstanding
|
|
|
34,211,265
|
|
|
|
30,349,145
|
|
|
|
34,233,851
|
|
|
|
29,526,731
|
|
Effect of dilutive securities
|
|
|
589,950
|
|
|
|
-
|
|
|
|
589,950
|
|
|
|
3,846,918
|
|
Denominator for diluted earnings per ordinary share - weighted average shares outstanding
|
|
|
34,801,215
|
|
|
|
30,349,145
|
|
|
|
34,823,801
|
|
|
|
33,373,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per ordinary share
|
|
$
|
0.20
|
|
|
$
|
(0.29
|
)
|
|
$
|
0.13
|
|
|
$
|
0.69
|
|
Diluted earnings per ordinary share
|
|
$
|
0.20
|
|
|
$
|
(0.29
|
)
|
|
$
|
0.13
|
|
|
$
|
0.61
|
|
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 nine months ended September 30, 2017 and
2016 were $9,504 and $11,725, respectively, and for the three months ended September 30, 2017 and 2016 were $3,315 and $4,274,
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 for the stock dividend
elections. 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
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. 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 has completed the planning phase of the adoption of this ASU and as of September 30, 2017,
the Company has completed training regarding the new revenue recognition standard and has established criteria to continue to
assess the impact. The contracts and performance obligations have been identified and the Company will assess the impact during
the fourth quarter of the year.
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 to the former members of ESW of certain accounts receivable owed by Ventana Solar S.A. (“VS”)
to ES. The company paid $2,382 in cash during the nine-month period ending September 30, 2017 related to this transaction.
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 members 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 or September 30, 2017. See Note
14 – 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 LLC acquisition after
elimination of intercompany transactions.
|
|
Three months ended September 30, 2016
|
|
|
|
Without acquisition
|
|
|
Net effect of acquisition
|
|
|
Considering acquisition
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
|
|
$
|
80,025
|
|
|
$
|
1,048
|
|
|
$
|
81,073
|
|
Net (loss) income attributable to parent
|
|
$
|
(7,923
|
)
|
|
$
|
(860
|
)
|
|
$
|
(8,783
|
)
|
Basic income per share
|
|
$
|
(0.27
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.29
|
)
|
Diluted income per share
|
|
$
|
(0.27
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.29
|
)
|
Basic weighted average common shares outstanding
|
|
|
29,614,745
|
|
|
|
734,400
|
|
|
|
30,349,145
|
|
Diluted weighted average common shares outstanding
|
|
|
29,614,745
|
|
|
|
734,400
|
|
|
|
30,349,145
|
|
|
|
Nine months ended September 30, 2016
|
|
|
|
Without acquisition
|
|
|
Net effect of acquisition
|
|
|
Considering acquisition
|
|
Net revenues
|
|
$
|
218,441
|
|
|
$
|
6,300
|
|
|
$
|
224,741
|
|
Net (loss) income attributable to parent
|
|
$
|
20,114
|
|
|
$
|
138
|
|
|
$
|
20,252
|
|
Basic income per share
|
|
$
|
0.70
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.69
|
|
Diluted income per share
|
|
$
|
0.62
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.61
|
|
Basic weighted average common shares outstanding
|
|
|
28,792,331
|
|
|
|
734,400
|
|
|
|
29,526,731
|
|
Diluted weighted average common shares outstanding
|
|
|
32,639,249
|
|
|
|
734,400
|
|
|
|
33,373,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities
|
|
$
|
(14,084
|
)
|
|
$
|
2,224
|
|
|
$
|
(11,860
|
)
|
Net (decrease) increase in cash
|
|
$
|
(371
|
)
|
|
$
|
886
|
|
|
$
|
515
|
|
The
number of basic and diluted weighted average common shares outstanding prior to the acquisition of ESW LLC include 1,302,377 and
1,892,161 shares, respectively, issued after the financial statements for nine months ended September 30, 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 GM&P, a Florida-based commercial consulting, glazing and
engineering company, specializing in windows and doors for commercial contractors. The primary reasons for the acquisitions are
to continue Tecnoglass’ long-term strategy of being vertically integrated, to penetrate different markets in the U.S. 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 was paid in cash by the Company on May 17, 2017, with the
remaining amount to be 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, subsequently amended to be paid by May 15, 2018
.
The total amount of acquisition-related costs was $189, which is included in the Statement of Operations for the period
ending December 31, 2016.
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
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 non-controlling 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 non-controlling interest in Componenti
|
|
|
1,141
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed:
|
|
Preliminary
Purchase Price
Allocation
|
|
|
Measurement
Period
Adjustments
|
|
|
Adjusted
Purchase Price
Allocation
|
|
Cash and equivalents
|
|
$
|
509
|
|
|
|
|
|
|
|
509
|
|
Accounts receivable
|
|
|
42,314
|
|
|
|
|
|
|
|
42,314
|
|
Cost and estimated earnings in excess of billings
|
|
|
4,698
|
|
|
|
|
|
|
|
4,698
|
|
Other current assets
|
|
|
589
|
|
|
|
|
|
|
|
589
|
|
Property, plant, and equipment
|
|
|
684
|
|
|
|
|
|
|
|
684
|
|
Other non-current tangible assets
|
|
|
59
|
|
|
|
|
|
|
|
59
|
|
Trade name
|
|
|
980
|
|
|
|
|
|
|
|
980
|
|
Non-compete agreement
|
|
|
165
|
|
|
|
|
|
|
|
165
|
|
Contract backlog
|
|
|
3,090
|
|
|
|
|
|
|
|
3,090
|
|
Customer relationships
|
|
|
4,140
|
|
|
|
|
|
|
|
4,140
|
|
Accounts payable
|
|
|
(22,330
|
)
|
|
|
275
|
|
|
|
(22,055
|
)
|
Other current liabilities assumed
|
|
|
(13,967
|
)
|
|
|
|
|
|
|
(13,967
|
)
|
Non-current liabilities assumed
|
|
|
(3,634
|
)
|
|
|
(3,231
|
)
|
|
|
(6,865
|
)
|
Total identifiable net assets
|
|
|
17,297
|
|
|
|
(2,956
|
)
|
|
|
14,341
|
|
Goodwill (including Workforce)
|
|
$
|
18,844
|
|
|
|
2,956
|
|
|
$
|
21,800
|
|
The
adjustment made to the preliminary purchase price allocation to Non-current liabilities assumed is related to an adjustment in
deferred tax liability. 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 9 – Goodwill and Intangible
Assets for additional information.
The
following unaudited pro forma financial information assumes the acquisition had occurred as of January 1, 2016 which 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.
|
|
Actual
|
|
|
Pro-Forma
|
|
|
Pro-Forma
|
|
|
Pro-Forma
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
(in thousands, except per share amounts)
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
Pro Forma Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
83,384
|
|
|
$
|
101,442
|
|
|
$
|
240,164
|
|
|
$
|
272,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to parent
|
|
$
|
6,924
|
|
|
$
|
(2,499
|
)
|
|
$
|
3,329
|
|
|
$
|
28,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.20
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.10
|
|
|
$
|
0.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.20
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.10
|
|
|
$
|
0.87
|
|
The
actual sales and net income that is included within the Statement of Operations for the nine-month period ended September 30,
2017 is $81,878 and $5,938, 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:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Current accounts receivable
|
|
$
|
83,094
|
|
|
$
|
87,704
|
|
Retainage
|
|
|
27,842
|
|
|
|
6,676
|
|
Total trade accounts receivable
|
|
|
110,936
|
|
|
|
94,380
|
|
Less: Allowance for doubtful accounts
|
|
|
(2,400
|
)
|
|
|
(2,083
|
)
|
Total trade accounts receivable, net
|
|
$
|
108,536
|
|
|
$
|
92,297
|
|
The
changes in allowances for doubtful accounts for the nine months September 30, 2017 and the year ended December 31, 2016 are as
follows:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Balance at beginning of year
|
|
$
|
2,083
|
|
|
$
|
189
|
|
Provision for bad debts
|
|
|
2,739
|
|
|
|
4,686
|
|
Allowance from acquired business
|
|
|
1,000
|
|
|
|
-
|
|
Deductions and write-offs, net of foreign currency adjustment
|
|
|
(3,422
|
)
|
|
|
(2,792
|
)
|
Balance at end of period
|
|
$
|
2,400
|
|
|
$
|
2,083
|
|
Note
5. - Inventories, net
Inventories
are comprised of the following:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Raw materials
|
|
$
|
43,900
|
|
|
$
|
40,219
|
|
Work in process
|
|
|
7,990
|
|
|
|
5,606
|
|
Finished goods
|
|
|
7,164
|
|
|
|
4,124
|
|
Stores and spares
|
|
|
5,896
|
|
|
|
5,016
|
|
Packing material
|
|
|
326
|
|
|
|
284
|
|
|
|
|
65,276
|
|
|
|
55,249
|
|
Less: inventory allowance
|
|
|
(132
|
)
|
|
|
(157
|
)
|
|
|
$
|
65,144
|
|
|
$
|
55,092
|
|
Note
6. Other Current Assets and Other Long-Term Assets
Other
current assets are comprised of the following:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Unbilled receivables on uncompleted contracts
|
|
$
|
4,126
|
|
|
$
|
6,625
|
|
Prepaid Expenses
|
|
|
952
|
|
|
|
1,183
|
|
Prepaid Taxes
|
|
|
14,833
|
|
|
|
14,080
|
|
Advances and other receivables
|
|
|
2,187
|
|
|
|
2,009
|
|
Other current assets
|
|
$
|
22,098
|
|
|
$
|
23,897
|
|
Other
long-term assets are comprised of the following:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Real estate investments
|
|
$
|
-
|
|
|
$
|
5,125
|
|
Cost method investment
|
|
|
500
|
|
|
|
500
|
|
Other long-term assets
|
|
|
2,184
|
|
|
$
|
1,687
|
|
|
|
$
|
2,684
|
|
|
$
|
7,312
|
|
Note
7. Other Current Liabilities
Other
current liabilities are comprised of the following:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Taxes payable
|
|
$
|
5,760
|
|
|
$
|
16,845
|
|
Labor liabilities
|
|
|
2,127
|
|
|
|
1,410
|
|
|
|
$
|
7,887
|
|
|
$
|
18,255
|
|
Note
8. Property, Plant and Equipment, Net
Property,
plant and equipment consist of the following:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Building
|
|
$
|
57,709
|
|
|
$
|
50,887
|
|
Machinery and equipment
|
|
|
138,911
|
|
|
|
132,333
|
|
Office equipment and software
|
|
|
5,438
|
|
|
|
4,980
|
|
Vehicles
|
|
|
1,860
|
|
|
|
1,648
|
|
Furniture and fixtures
|
|
|
2,333
|
|
|
|
2,141
|
|
Total property, plant and equipment
|
|
|
206,251
|
|
|
|
191,989
|
|
Accumulated depreciation and amortization
|
|
|
(63,956
|
)
|
|
|
(49,277
|
)
|
Net value of property and equipment
|
|
|
142,295
|
|
|
|
142,712
|
|
Land
|
|
|
31,424
|
|
|
|
28,085
|
|
Total property, plant and equipment, net
|
|
$
|
173,719
|
|
|
$
|
170,797
|
|
Depreciation
expense for the three and nine months ended September 30, 2017 amounted to $3,871 and $11,533, respectively, and $2,314 and $8,986
for the three and nine months ended September 30, 2016, respectively.
Note
9. 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
|
|
Measurement period adjustment
|
|
|
2,956
|
|
Ending balance – September 30, 2017
|
|
$
|
23,130
|
|
The
$2,956 represents a second measurement period adjustment to the preliminary purchase price allocation of the GMP acquisition which
impacted accounts payable from the reconciliation of the accounts as of the opening balance sheet date on March 1
st
,
2017. The Company recorded an initial Measurement period adjustment during the quarter ended June 30, 2017 of -$275 to accounts
payable and a subsequent adjustment of $3,231 to other non-current liabilities during the quarter ended September 30, 2017.
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.
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Gross
|
|
|
Acc. Amort.
|
|
|
Net
|
|
|
Gross
|
|
|
Acc. Amort.
|
|
|
Net
|
|
Trade Names
|
|
$
|
980
|
|
|
$
|
(114
|
)
|
|
$
|
866
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Notice of Acceptances (NOAs), product designs and other intellectual property
|
|
|
10,075
|
|
|
|
(4,864
|
)
|
|
|
5,212
|
|
|
|
8,524
|
|
|
|
(3,969
|
)
|
|
|
4,555
|
|
Non-compete Agreement
|
|
|
165
|
|
|
|
(19
|
)
|
|
|
146
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Contract Backlog
|
|
|
3,090
|
|
|
|
(901
|
)
|
|
|
2,189
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Customer Relationships
|
|
|
4,140
|
|
|
|
(517
|
)
|
|
|
3,623
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
18,450
|
|
|
$
|
(6,415
|
)
|
|
$
|
12,035
|
|
|
$
|
8,524
|
|
|
$
|
(3,969
|
)
|
|
$
|
4,555
|
|
During
the three and nine months ended September 30, 2017, amortization expense amounted to $1,455 and $4,159, respectively, and was
included within the general and administration expenses in our condensed consolidated statement of operations. Similarly, amortization
expense during the three and nine months ended September 30, 2016 amounted to $785 and $2,166, respectively. The average amortization
period is 5 years for the tradename, customer relationships, and non-complete agreement; for the contract backlog is 2 years,
and between 5 and 10 years for the NOAs.
The
estimated aggregate amortization expense for each of the five succeeding years as of September 30, 2017 is as follows:
Year Ending
|
|
(in thousands)
|
|
2017 (three months)
|
|
$
|
931
|
|
2018
|
|
|
3,693
|
|
2019
|
|
|
2,405
|
|
2020
|
|
|
2,026
|
|
2021
|
|
|
1,971
|
|
Thereafter
|
|
|
1,009
|
|
|
|
$
|
12,035
|
|
Note
10. Debt
As
of September 30, 2017, the Company owed $224.077 under its various borrowing arrangements. The obligations have maturities ranging
from twelve months on revolving lines of credit to a 15 year Export Credit Agency facility. Our credit facilities bear interest
rates ranging from 3.0% to 8.2% 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
since the note issuance proceeds were used to extinguish an existing 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. We recorded a loss on the extinguishment of debt in the amount of $3,148 in the line item “Loss on
Extinguishment of Debt” in our Condensed Consolidated Statements of Operations and Comprehensive Income. The write-off of
the remaining debt issuance costs related to the January 2016 credit facility was added back as a non-cash item in the Cash Flows
from Operations.
The
Company’s debt is comprised of the following:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Revolving lines of credit
|
|
$
|
912
|
|
|
$
|
13,168
|
|
Capital lease
|
|
|
-
|
|
|
|
23,696
|
|
Unsecured senior note
|
|
|
210,000
|
|
|
|
-
|
|
Other loans
|
|
|
20,537
|
|
|
|
165,330
|
|
Less: Deferred cost of financing
|
|
|
(7,372
|
)
|
|
|
(2,597
|
)
|
Total obligations under borrowing arrangements
|
|
|
224,077
|
|
|
|
199,597
|
|
Less: Current portion of long-term debt and other current borrowings
|
|
|
3,650
|
|
|
|
2,651
|
|
Long-term debt
|
|
$
|
220,427
|
|
|
$
|
196,946
|
|
Maturities
of long term debt and other current borrowings are as follows as of September 30, 2017:
2018
|
|
$
|
3,650
|
|
2019
|
|
|
2,310
|
|
2020
|
|
|
2,320
|
|
2021
|
|
|
2,331
|
|
2022
|
|
|
212,342
|
|
Thereafter
|
|
|
8,496
|
|
Total
|
|
$
|
231,449
|
|
The
Company had $4,799 and $8,366 of property, plant and equipment as well as $0 and $4,757 of other long-term assets pledged to secure
$3,389 and $109,193 under various lines of credit as of September 30, 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. The Company also has a revolving
line of credit for up to $4,250 in name of GM&P, of which $354 were outstanding as of September 30, 2017 secured by up to
$51,764 of all of GM&P’s assets.
Note
11. 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 was an LLC that was not subject to income taxes for the eleven month period ended December 2, 2016, since it was a pass-through
entity for tax purposes. ESW LLC was converted to a C-Corporation and was 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 September 30,
|
|
|
Nine months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Current income tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,837
|
|
|
$
|
-
|
|
|
$
|
4,048
|
|
|
$
|
-
|
|
Foreign
|
|
|
723
|
|
|
|
6,063
|
|
|
|
2,373
|
|
|
|
13,725
|
|
Total current income tax
|
|
|
2,560
|
|
|
|
6,063
|
|
|
|
6,421
|
|
|
|
13,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
(597
|
)
|
|
|
-
|
|
|
|
(594
|
)
|
|
|
-
|
|
Foreign
|
|
|
3,843
|
|
|
|
(274
|
)
|
|
|
(3,031
|
)
|
|
|
(232
|
)
|
Total deferred income tax
|
|
|
3,246
|
|
|
|
(274
|
)
|
|
|
(3,625
|
)
|
|
|
(232
|
)
|
Total Provision for Income tax
|
|
$
|
5,806
|
|
|
$
|
5,789
|
|
|
$
|
2,796
|
|
|
$
|
13,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
-45
|
%
|
|
|
193
|
%
|
|
|
-38
|
%
|
|
|
-40
|
%
|
The
Company’s effective tax rate of 45% for the three-month period ended September 30, 2017, reflects the adoption of the 2016
Colombian tax reform described above, which became effective January 1, 2017. The effective tax rate of 38% for the nine-month
period ended September 30, 2017 approximates the statutory tax rates.
The
Company’s effective tax rate of 193% and -40% for the three and nine-month period ended September 30, 2016 reflects non-deductible
losses of $12,885 and $287 due to the change in fair value of the Company’s warrant liability relative to their fair value
at the beginning of the period during the three and nine-month periods ended September 30, 2016, respectively, and non-deductible
loss of $2,630 and a non-taxable gain of $4,404 due to the change in fair value of the Company’s earn out share liability
relative to their fair value as of at the beginning of the period during the three and nine-month periods ended September 30,
2016, respectively.
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. 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 $515 and $505 as of September 30, 2017 and December 31, 2016, respectively. As of December 31, 2016 the Company had an Interest
rate swap derivative liability with fair value obtained using significant other observable inputs (Level 2) amounting to $23.
As
of September 30, 2017 and 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 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:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Fair Value
|
|
$
|
234,843
|
|
|
$
|
190,190
|
|
Net Carrying Value
|
|
$
|
220,427
|
|
|
$
|
196,946
|
|
Note
13. Geographic Information
Revenue
by geographic region consist of the following:
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Colombia
|
|
$
|
13,339
|
|
|
$
|
26,460
|
|
|
$
|
45,292
|
|
|
$
|
73,338
|
|
United States
|
|
|
68,117
|
|
|
|
50,919
|
|
|
|
174,767
|
|
|
|
138,811
|
|
Panama
|
|
|
1,095
|
|
|
|
3,096
|
|
|
|
3,187
|
|
|
|
7,521
|
|
Other
|
|
|
833
|
|
|
|
598
|
|
|
|
6,931
|
|
|
|
5,071
|
|
Total Revenues
|
|
$
|
83,384
|
|
|
$
|
81,073
|
|
|
$
|
230,177
|
|
|
$
|
224,741
|
|
Note
14. 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 September 30,
|
|
|
Nine months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to related parties
|
|
$
|
1,267
|
|
|
$
|
2,997
|
|
|
$
|
3,732
|
|
|
$
|
7,428
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees paid to directors and officers
|
|
|
573
|
|
|
|
235
|
|
|
|
2,114
|
|
|
|
1,012
|
|
Payments to other related parties
|
|
|
788
|
|
|
|
385
|
|
|
|
2,660
|
|
|
|
1,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Due from VS
|
|
$
|
5,512
|
|
|
$
|
9,143
|
|
Due from other related parties
|
|
|
2,189
|
|
|
|
1,852
|
|
|
|
$
|
7,701
|
|
|
$
|
10,995
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Due to related parties
|
|
$
|
1,181
|
|
|
$
|
3,668
|
|
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 three
and nine months ended September 30, 2017 were $779 and $2,668, respectively, and $2,554 and $6,500 during the three and nine months
ended September 30, 2016, respectively.
Fees
paid to officers and directors are comprised of salaries and compensation for their work as officers and directors of the Company.
Payments to other related parties during the nine months ended September 30, 2017 include charitable contributions to the Company’s
foundation for $1,652 and sales commissions for $601.
Due
to related parties as of December 16, 2016 included a balance of $2,303 payable to the former shareholders of ESW LLC as part
of the consideration paid for the acquisition. (See Note 3 – Acquisitions for further details). This was fully paid so no
balance remained outstanding as of September 30, 2017.
Note
15. 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. On May 11, 2017, the Company announced
that commencing with the declared quarterly dividend for the third quarter of 2017 through any future dividends to be declared
and paid through the second quarter of 2018, a 12% increase to $0.14 per share, or $0.56 per share on an annual basis would apply.
The
quarterly dividend of $0.14 per share for the third quarter of 2017 was paid on October 27, 2017 to shareholders of record as
of the close of business on September 29, 2017. The dividend was paid in cash or ordinary shares, chosen at the option of holders
of ordinary shares, with the value of the ordinary shares used to calculate the number of shares issued with respect to that portion
of the dividend payable in ordinary shares being calculated by the average of the closing price of the Company’s ordinary
shares on NASDAQ during the ten trading day period from October 9, 2017 through October 20, 2017. If no choice was made during
this election period, the dividend for this election period was paid in ordinary shares of the Company.
As
a result, the Company has a dividend payable amounting to $884 as of September 30, 2017. The Company issued 589,950 shares for
the stock dividends paid on October 27, 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.
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.
Note
16. Commitments and Contingencies
Guarantees
As
of September 30, 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 September 30, 2017 a case update from our U.S. counsel stating that ES has favorable terms and conditions
and that there are issues on both sides, stating that even though at this stage of the proceeding, the facts are still being developed
and premature to make an assessment in relation to determining if the parties’ claims are substantially valid, it is probable
that the Company will recover the outstanding amount of $2,600. Oral discovery in the form of depositions started on October 17,
2017 and are expected to last for the rest of the year.
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. Subsequent Events
Management
concluded that no additional subsequent events required disclosure other than those disclosed in these financial statements.