Notes
to Condensed Consolidated Financial Statements
(Amounts
in thousands, except share and per share data)
Note
1. General
Business
Description
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 facades 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.
The
Company manufactures both glass and aluminum products. Its glass products include tempered glass, laminated glass, thermo-acoustic
glass, curved glass, silk-screened glass, acoustic glass and digital print glass. Its Alutions plant produces mill finished, anodized,
painted aluminum profiles and rods, tubes, bars and plates. Alutions’ operations include extrusion, smelting, painting and
anodizing processes, and exporting, importing and marketing aluminum products.
The
Company also designs, manufactures, markets and installs architectural systems for high, medium and low rise construction, glass
and aluminum windows and doors, office dividers and interiors, floating facades and commercial display windows.
On
March 1, 2017, the Company entered into and consummated a purchase agreement, as amended, with Giovanni Monti, the owner of 100%
of the outstanding shares of Giovanni Monti and Partners Consulting and Glazing Contractors (“GM&P”). GM&P
is a consulting and glazing contracting company located in Miami, Florida with over 15 years of experience in the design and installation
of various building enclosure systems such as curtain window walls and a long-standing commercial relationship with the Company,
working alongside it in the past in different projects within the U.S, by providing engineering and installation services to those
projects. The Company acquired all of the shares of GM&P for a purchase price of $35 million, of which the Company paid $6
million of the purchase price in cash within 60 days following the closing date and the remaining $29 million of the purchase
price is to be paid by May 15, 2018. The Company paid an additional $6 million in cash on April 2018 and has agreed to pay the
remaining amount with the issuance of 1,238,095 shares valued at $10.50 per share and a $10 million Subordinated Seller´s
Note due on March 1, 2022 which is also the expiration date of the Seller´s Non-Compete Agreement.
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, 2017. The year-end condensed balance
sheet data was derived from audited financial statements, but does not include all disclosures required by US GAAP.
The
preparation of these unaudited, condensed consolidated financial statements requires the Company to make estimates and judgments
that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets
and liabilities at the date of the Company’s financial statements. Actual results may differ from these estimates under
different assumptions and conditions. Estimates 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.
The
Company has one operating segment, Architectural Glass and Windows, which is also its reporting segment, comprising the design,
manufacturing, distribution, marketing and installation of high-specification architectural glass and window product sold to the
construction industry.
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 (“Componenti”), 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 includes 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.
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.
Effective
January 1, 2018, the Company adopted Accounting Standards Update (ASU) 2014-09,
Revenue from Contracts
with
Customers,
as amended (commonly referred to as ASC 606) using the modified retrospective transition method. The cumulative
effect of applying the standard was a decrease of $187 to shareholders' equity as of January 1, 2018. The Company’s
statement of operations for the quarterly period ended March 31, 2018 and the Company’s balance sheet as
of March 31, 2018 are presented under ASC 606, while the Company’s statement of operations for the quarterly
period ended March 31, 2017 and the Company’s balance sheet as of December 31, 2017 are presented under ASC
605,
Revenue Recognition
. See Note 3 for disclosure of the impact of the adoption of ASC 606 on the Company’s
statement of operations and balance sheet for the quarterly period ended March 31, 2018, and the effect of changes made
to the Company’s consolidated balance sheet as of January 1, 2018.
A
substantial amount of the Company’s consolidated net sales is generated from long-term contracts with customers that require
to design, develop, test, manufacture, and install windows according to the customers’ specifications. These contracts are
primarily multi-year contracts with real estate general contractors and are generally priced on a fixed-price basis and are invoiced
based on contract progress.
To
determine the proper revenue recognition method, the Company first evaluates each of its contractual arrangements to identify
its performance obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the
customer. All the Company’s contracts have a single performance obligation because the promise to transfer the individual
good or service is not separately identifiable from other promises within the contract and is, therefore, not distinct. These
contractual arrangements either require the use of a highly specialized manufacturing process to provide goods according to customer
specifications or represent a bundle of contracted goods and services that are integrated and together represent a combined output,
which may include the delivery of multiple units.
The
majority of the Company's sales are from performance obligations satisfied over time and are primarily with general contractors
to real estate developers. Sales are recognized over time when control is continuously transferred to the customer during the
contract. The continuous transfer of control to the customer is supported by contract clauses that provide for progress or performance-based
payments. Sales are recorded using the cost-to-cost method on fixed price contracts that include performance obligations satisfied
over time are generally recorded at amounts equal to the ratio of actual cumulative costs incurred divided by total estimated
costs at completion, multiplied by (i) the transaction price, less (ii) the cumulative sales recognized in prior periods.
Accounting
for the sales and profits on performance obligations for which progress is measured using the cost-to-cost method involves the
preparation of estimates of: (1) transaction price and (2) total costs at completion, which is equal to the sum of the actual
incurred costs to date on the contract and the estimated costs to complete the contract's statement of work. Incurred costs include
labor, material, and overhead and represent work performed, which corresponds with and thereby represents the transfer of ownership
to the customer. Performance obligations are satisfied over time when the risk of ownership has been passed to the customer and/or
services are performed. The estimated profit or loss at completion on a contract is equal to the difference between the transaction
price and the total estimated cost at completion.
Contract
modifications routinely occur to account for changes in contract specifications or requirements. In most cases, contract modifications
are for goods or services that are not distinct and, therefore, are accounted for as part of the existing contract. Transaction
price estimates include additional consideration for submitted contract modifications or claims when the Company believes it has
an enforceable right to the modification or claim, the amount can be reliably estimated and its realization is reasonably assured.
Amounts representing modifications accounted for as part of the existing contract are included in the transaction price and recognized
as an adjustment to sales on a cumulative catch-up basis.
The
Company’s fixed-price type contracts allow for progress payments to bill the customer as contract costs are incurred and
the customer often retains a small portion of the contract price until satisfactory completion of the contractual statement of
work, which is a retainage of approximately 10%. For certain fixed-price contracts, the Company receives advance payments. Advanced
payments are not considered a significant financing component because they are a negotiated contract term to ensure the customer
meets its financial obligation, particularly when there are significant upfront working capital requirements. The Company records
a liability for advance payments received in excess of sales recognized, which is presented as a contract liability on the balance
sheet.
Revisions
or adjustments to estimates of the transaction price, estimated costs at completion and estimated profit or loss of a performance
obligation are often required as work progresses under a contract, as experience is gained, as facts and circumstances change
and as new information is obtained, even though the scope of work required under the contract may not change. Revisions or adjustments
may also be required if contract modifications occur. The impact of revisions in profit or loss estimates are recognized on a
cumulative catch-up basis in the period in which the revisions are made. The revisions in contract estimates, if significant,
can materially affect the Company’s results of operations and cash flows, as well as reduce the valuations of contract
assets and inventories, and in some cases result in liabilities to complete contracts in a loss position.
Remaining
Performance Obligations
On March 31,
2018, the Company had $269 million of remaining performance obligations, which represents the transaction price of firm
orders less inception to date sales recognized. Remaining performance obligations exclude unexercised contract options and potential
orders under basic ordering agreements. The Company expects to recognize 100% of sales sales relating to existing performance
obligations within three years.
Income
Taxes
The
Company’s operations in Colombia are subject to the taxing jurisdiction of the Republic of Colombia. Tecnoglass LLC and
Tecnoglass RE LLC are subject to the taxing jurisdiction of the United States. TGI and Tecnoglass Holding are subject to the taxing
jurisdiction of the Cayman Islands. Annual tax periods prior to December 2014 are no longer subject to examination by taxing authorities
in Colombia. GM&P, Componenti and ESW LLC are U.S. entities based in Florida subject to U.S. federal and state income taxes.
The
Company accounts for income taxes using the asset and liability approach of accounting for income taxes (ASC 740 “Income
Taxes”). Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts
of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the
current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and
tax basis of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are
enacted. For each tax jurisdiction in which the Company operates, deferred tax assets and liabilities are offset against one another
and are presented as a single noncurrent amount within the consolidated balance sheets.
The
Company recognizes the financial statement effects of uncertain income tax positions when it is more likely than not, based on
the technical merits, that the position will be sustained upon examination. Interest accrued related to unrecognized tax and income
tax related penalties are included in the provision for income taxes. The uncertain income taxes positions are recorded in “Taxes
payable” in the consolidated balance sheets.
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 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
following table sets forth the computation of the basic and diluted earnings per share for the three months ended March 31, 2018
and 2017:
|
|
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Numerator for basic and diluted earnings per shares
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
10,691
|
|
|
$
|
1,031
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per ordinary share - weighted average shares outstanding
|
|
|
35,339,965
|
|
|
|
35,292,743
|
|
Effect of dilutive securities and stock dividend
|
|
|
463,355
|
|
|
|
460,402
|
|
Denominator for diluted earnings per ordinary share - weighted average shares outstanding
|
|
|
35,803,320
|
|
|
|
35,753,145
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per ordinary share
|
|
$
|
0.30
|
|
|
$
|
0.03
|
|
Diluted earnings per ordinary share
|
|
$
|
0.30
|
|
|
$
|
0.03
|
|
The effect of dilutive securities includes
463,355 and 460,402 as of March 31, 2018 and 2017, respectively, for shares potentially issued in relation to the dividends
declared. The denominator for basic and diluted earnings per ordinary share for the three months ended March 31, 2017 includes
1,812,313 ordinary shares issued in connection with the share dividend.
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.
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, 2018 and 2017
were $4,732 and $3,132, 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
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. Adoption of this ASU has no material impact on our consolidated
financial statements.
In
February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)” (“ASU 2016-02”). The FASB issued ASU 2016-02
to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance
sheet and disclosing key information about leasing arrangements. Under ASU 2016-02, a lessee will recognize in the statement of
financial position a liability to make lease payments (the lease liability) and a right-to-use asset representing its right to
use the underlying asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising
from a lease by a lessee have not significantly changed from current GAAP. ASU 2016-02 retains a distinction between finance leases
(i.e. capital leases under current GAAP) and operating leases. The classification criteria for distinguishing between finance
leases and operating leases will be substantially similar to the classification criteria for distinguishing between capital leases
and operating leases under current GAAP. The amendments of this ASU are effective for reporting periods beginning after December
15, 2018, with early adoption permitted. An entity will be required to recognize and measure leases at the beginning of the earliest
period presented using a modified retrospective approach. The Company is currently evaluating the potential effect of this ASU
on its consolidated financial statements.
Note
3. New Accounting Standards Implemented
In
May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
, as amended (commonly referred to as ASC 606),
which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, and provides companies with a single
revenue recognition model for recognizing revenue from contracts with customers and significantly expanded the disclosure requirements
for revenue arrangements. The new standard, as amended, was effective for the Company for interim and annual reporting periods
beginning on January 1, 2018.
As
discussed in Note 2, the Company adopted ASC 606 using the modified retrospective transition method. Results for reporting
periods beginning after December 31, 2017 are presented under ASC 606, while prior period comparative information has not been
restated and continues to be reported in accordance with ASC 605,
Revenue Recognition,
the accounting standard
in effect for periods ending prior to January 1, 2018. With the adoption of ASC 606, the Company recognizes sales over time by
using the percentage of completion method on all of its fixed-type contracts and measures the extent of progress toward completion
using the cost-to-cost method after adjusting inventory for uninstalled materials and that the risk of ownership has not been
passed to the customer. Previously, under ASC 605, the Company recognized sales over time by using the percentage of completion
method on all of its fixed-type contracts and measured the extent of progress toward completion using the cost-to-cost method
but adjusted inventory for uninstalled materials only for those projects were this method was not appropriately reflecting the
progress on the contracts. Accordingly, the adoption of ASC 606 impacted all contracts that had uninstalled materials were the
risk of ownership has not been passed to the customer regardless of the extent of progress toward completion.
Based on the analysis performed of the
uninstalled materials at January 1, 2018, the Company recorded, upon adoption of ASC 606, a net decrease to retained earnings
of $187,as shown on the table below. The adjustment to retained earnings primarily relates to contracts that had uninstalled
material that were not previously included in inventory since the cost-to-cost method was appropriately reflecting the progress
of these contracts.
The Company made certain presentation
changes to its consolidated balance sheet on January 1, 2018 to comply with ASC 606. The components of contracts in process as
reported under ASC 605, which included unbilled contract receivables and inventoried contract costs, have been reclassified as
contract assets and inventories, respectively, after certain adjustments described below under ASC 606. The remainder of inventoried
contract costs, primarily related to inventories not controlled by the Company's customers, were reclassified to inventories.
The Company expenses costs to obtain a contract and costs to fulfill a contract as incurred. Other revenues not related to
fixed-type contracts did not resulted in any changes under ASC 606 and the revenues is still been recognized when the risk of
ownership is transfer to the customer based on the sales terms.
The
table below presents the cumulative effect of the changes made to the consolidated January 1, 2018 balance sheet due to the adoption
of ASC 606.
|
|
December
31, 2017 As Reported Under ASC 605
|
|
|
Adjustments
Due to ASC 606
|
|
|
January
1, 2018 As Adjusted Under ASC 606
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable,
net
|
|
$
|
110,464
|
|
|
$
|
(30,223
|
)
|
|
$
|
80,241
|
|
Inventories
|
|
|
71,656
|
|
|
|
1,975
|
|
|
|
73,631
|
|
Unbilled receivables on uncompleted
contracts
|
|
|
9,996
|
|
|
|
(9,996
|
)
|
|
|
-
|
|
Contract assets
|
|
|
-
|
|
|
|
45,468
|
|
|
|
45,468
|
|
Other Assets
|
|
|
275,884
|
|
|
|
-
|
|
|
|
275,884
|
|
Total Assets
|
|
$
|
468,000
|
|
|
$
|
7,224
|
|
|
$
|
475,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract liabilities - current
|
|
|
-
|
|
|
|
18,945
|
|
|
|
18,945
|
|
Current portion of customer advances
on uncompleted contracts
|
|
|
11,429
|
|
|
|
(11,429
|
)
|
|
|
-
|
|
Other current liabilities
|
|
|
13,626
|
|
|
|
(105
|
)
|
|
|
13,521
|
|
Current portion of customer advances
on uncompleted contracts
|
|
|
1,571
|
|
|
|
(1,571
|
)
|
|
|
-
|
|
Contract liabilities - current
|
|
|
-
|
|
|
|
1,571
|
|
|
|
1,571
|
|
Other Liabilities
|
|
|
319,709
|
|
|
|
-
|
|
|
|
319,709
|
|
Total liabilities
|
|
$
|
346,335
|
|
|
$
|
7,411
|
|
|
$
|
353,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
22,212
|
|
|
|
(187
|
)
|
|
|
22,025
|
|
Total shareholders’ equity
|
|
$
|
121,665
|
|
|
$
|
(187
|
)
|
|
$
|
121,478
|
|
The
adjustment of trade accounts receivable upon adoption of ASC 606 is related to the reclassification of retainage
receivables to contract assets. See breakdown of contract assets further below.
The
table below presents the impact of the adoption of ASC 606 on the Company’s statement of operations.
|
|
Three
months ended March 31, 2018
|
|
|
|
Under
ASC 605
|
|
|
Effect
of ASC 606
|
|
|
As
Reported Under ASC 606
|
|
Operating
Revenues
|
|
$
|
89,086
|
|
|
$
|
(1,926
|
)
|
|
$
|
87,160
|
|
Cost of Sales
|
|
|
62,145
|
|
|
|
(1,733
|
)
|
|
|
60,412
|
|
Gross Profit
|
|
|
26,941
|
|
|
|
(193
|
)
|
|
|
26,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
(16,758
|
)
|
|
|
-
|
|
|
|
(16,758
|
)
|
Other Income and Expenses
|
|
|
6,022
|
|
|
|
-
|
|
|
|
6,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Tax
|
|
|
16,205
|
|
|
|
(193
|
)
|
|
|
16,012
|
|
Income Tax Provision
|
|
|
(5,442
|
)
|
|
|
49
|
|
|
|
(5,393
|
)
|
Net Income
|
|
|
10,763
|
|
|
|
(144
|
)
|
|
|
10,619
|
|
Net Income Attributable to Parent
|
|
$
|
10,835
|
|
|
$
|
(144
|
)
|
|
$
|
10,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.30
|
|
|
$
|
-
|
|
|
$
|
0.30
|
|
Diluted earnings per share
|
|
$
|
0.29
|
|
|
$
|
-
|
|
|
$
|
0.29
|
|
The
table below presents the impact of the adoption of ASC 606 on the Company’s balance sheet.
|
|
March
31, 2018
|
|
|
|
Under
ASC 605
|
|
|
Effect
of ASC 606
|
|
|
As
Reported Under ASC 606
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
accounts receivable, net
|
|
$
|
111,925
|
|
|
$
|
(28,670
|
)
|
|
$
|
83,255
|
|
Inventories
|
|
|
77,905
|
|
|
|
1,733
|
|
|
|
79,638
|
|
Unbilled
receivables on uncompleted contracts
|
|
|
14,974
|
|
|
|
(16,822
|
)
|
|
|
(1,848
|
)
|
Contract
assets
|
|
|
-
|
|
|
|
47,423
|
|
|
|
47,423
|
|
Other
Assets
|
|
|
279,634
|
|
|
|
-
|
|
|
|
279,634
|
|
Total
Assets
|
|
$
|
484,438
|
|
|
$
|
3,664
|
|
|
$
|
488,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
liabilities - current
|
|
|
-
|
|
|
|
18,831
|
|
|
|
14,696
|
|
Current
portion of customer advances on uncompleted contracts
|
|
|
14,974
|
|
|
|
(14,974
|
)
|
|
|
|
|
Other
current liabilities
|
|
|
13,057
|
|
|
|
(49
|
)
|
|
|
13,008
|
|
Customer
advances on uncompleted contracts - non-current
|
|
|
1,130
|
|
|
|
(1,130
|
)
|
|
|
-
|
|
Contract
liabilities - non-current
|
|
|
-
|
|
|
|
1,130
|
|
|
|
1,130
|
|
Other
Liabilities
|
|
|
335,080
|
|
|
|
-
|
|
|
|
335,080
|
|
Total
liabilities
|
|
$
|
344,280
|
|
|
$
|
3,808
|
|
|
$
|
348,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings
|
|
|
27,912
|
|
|
|
(144
|
)
|
|
|
27,768
|
|
Total
shareholders’ equity
|
|
$
|
140,158
|
|
|
$
|
(144
|
)
|
|
$
|
140,014
|
|
Disaggregation
of Total Net Sales
The
Company disaggregates its sales with customers by revenue recognition method for its only segment, as the Company believes these
factors affect the nature, amount, timing, and uncertainty of the Company’s revenue and cash flows.
|
|
Three
months ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Fixed price contracts
|
|
$
|
42,216
|
|
|
$
|
21,720
|
|
Standard form
sales
|
|
|
44,944
|
|
|
|
44,097
|
|
Total Revenues
|
|
$
|
87,160
|
|
|
$
|
65,817
|
|
The
following table presents geographical information about revenues from external customers.
|
|
Three
months ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Colombia
|
|
$
|
21,824
|
|
|
$
|
16,428
|
|
United States
|
|
|
62,993
|
|
|
|
46,308
|
|
Panama
|
|
|
814
|
|
|
|
1,263
|
|
Other
|
|
|
1,529
|
|
|
|
1,818
|
|
Total Revenues
|
|
$
|
87,160
|
|
|
$
|
65,817
|
|
Contract
Assets and Contract Liabilities
Contract
assets represent accumulated incurred costs and earned profits on contracts with customers that have been recorded as sales but
have not been billed to customers and are classified as current. Contract liabilities consist of advance payments and billings
in excess of costs incurred and deferred revenue, and represent amounts received in excess of sales recognized on contracts. The
Company classifies advance payments and billings in excess of costs incurred as current, and deferred revenue as current or non-current
based on the expected timing of sales recognition. Contract assets and contract liabilities are determined on a contract by contract
basis at the end of each reporting period. The non-current portion of contract liabilities is included in other liabilities in
the Company's consolidated balance sheets.
The
table below presents the components of net contract assets (liabilities).
|
|
March
31, 2018
|
|
|
January
1 2018
|
|
Contract
assets
|
|
$
|
47,423
|
|
|
$
|
45,468
|
|
Contract
liabilities — current
|
|
|
14,696
|
|
|
|
18,945
|
|
Contract
liabilities — non-current
|
|
|
1,130
|
|
|
|
1,571
|
|
Net
contract assets (liabilities)
|
|
$
|
63,249
|
|
|
$
|
65,984
|
|
The
components of contract assets are presented in the table below.
|
|
March 31,
2018
|
|
|
January
1 2018
|
|
Unbilled
contract receivables, gross
|
|
$
|
18,753
|
|
|
$
|
15,245
|
|
Retainage
|
|
|
28,670
|
|
|
|
30,223
|
|
Net
contract assets (liabilities)
|
|
$
|
47,423
|
|
|
$
|
45,468
|
|
The
components of contract liabilities are presented in the table below.
|
|
March
31, 2018
|
|
|
January
1 2018
|
|
Billings
in excess of costs
|
|
$
|
3,779
|
|
|
$
|
7,516
|
|
Advances
from customers on uncompleted contracts
|
|
|
12,047
|
|
|
|
13,000
|
|
Total
contract liabilties
|
|
|
15,826
|
|
|
|
20,516
|
|
Less:
current portion
|
|
|
14,696
|
|
|
|
18,945
|
|
Contract
liabilities – non-current
|
|
$
|
1,130
|
|
|
$
|
1,571
|
|
Note
4. 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 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 originally 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 Company paid an additional $6 million in cash on April
2018 and has agreed to pay the remaining amount with the issuance of 1,238,095 shares valued at $10.50 per share and a $10
million Subordinated Seller´s Note due on March 1, 2022, which is also expiration date of the Seller´s Non-Compete
Agreement.
With
the acquisition of GM&P, the Company also acquired a 60% equity interest in Componenti, 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 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. The analysis has been completed and results in measurement
period adjustments are included in the final purchase price allocation as shown on the table below. The goodwill from the
GM&P acquisition represents the expected synergies from combining operations with Tecnoglass Inc., and is not 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
|
|
|
Final
Purchase Price Allocation
|
|
Cash and equivalents
|
|
$
|
509
|
|
|
|
|
|
|
|
509
|
|
Accounts receivable
|
|
|
42,314
|
|
|
|
|
|
|
|
42,314
|
|
Other current assets
|
|
|
5,287
|
|
|
|
242
|
|
|
|
5,529
|
|
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
|
)
|
|
|
(673
|
)
|
|
|
(14,640
|
|
Non-current liabilities
assumed
|
|
|
(3,634
|
)
|
|
|
(3,231
|
)
|
|
|
(6,865
|
)
|
Total identifiable
net assets
|
|
|
17,297
|
|
|
|
(3,387
|
)
|
|
|
13,910
|
|
Goodwill (including Workforce)
|
|
$
|
18,844
|
|
|
|
3,387
|
|
|
$
|
22,231
|
|
The
adjustment made to the preliminary purchase price allocation to Non-current liabilities assumed is related to an adjustment in
deferred tax liability and billings in excess of cost incurred. 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 6 – Goodwill and Intangible Assets for additional information.
The
following unaudited pro forma financial information assumes the acquisition had occurred as of January 1, 2017 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.
|
|
Pro-Forma
|
|
|
|
Three
months
|
|
|
|
Ended
|
|
(in
thousands, except per share amounts)
|
|
March
31, 2017
|
|
Pro Forma Results
|
|
|
|
|
Net
sales
|
|
$
|
75.804
|
|
|
|
|
|
|
Net (loss) income
attributable to parent
|
|
$
|
(35
|
)
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
Basic
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
Diluted
|
|
$
|
(0.00
|
)
|
Non-controlling
interest
The
Company has 60% equity interest in Componenti. 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. In determining the fair value we used the income approach and the market approach
which was performed by third party valuation specialists under management.
Note
5. - Inventories, net
Inventories
are comprised of the following:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
Raw materials
|
|
$
|
39,589
|
|
|
$
|
40,509
|
|
Work in process
|
|
|
19,422
|
|
|
|
11,468
|
|
Finished goods
|
|
|
13,167
|
|
|
|
13,236
|
|
Stores and spares
|
|
|
7,017
|
|
|
|
6,134
|
|
Packing material
|
|
|
579
|
|
|
|
438
|
|
|
|
|
79,774
|
|
|
|
71,785
|
|
Less: Inventory
allowance
|
|
|
(136
|
)
|
|
|
(129
|
)
|
|
|
$
|
79,638
|
|
|
$
|
71,656
|
|
Note
6. 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, 2017
|
|
$
|
23,130
|
|
GM&P measurement
period adjustment
|
|
|
431
|
|
Ending balance
– March 31, 2018
|
|
$
|
23,561
|
|
Intangible
Assets, Net
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.
|
|
March
31, 2018
|
|
|
|
Gross
|
|
|
Acc.
Amort.
|
|
|
Net
|
|
Trade Names
|
|
$
|
980
|
|
|
$
|
(212
|
)
|
|
$
|
768
|
|
Notice of Acceptances (NOAs), product
designs and other intellectual property
|
|
|
10,593
|
|
|
|
(4,793
|
)
|
|
|
5,800
|
|
Non-compete Agreement
|
|
|
165
|
|
|
|
(36
|
)
|
|
|
129
|
|
Contract Backlog
|
|
|
3,090
|
|
|
|
(1,674
|
)
|
|
|
1,416
|
|
Customer Relationships
|
|
|
4,140
|
|
|
|
(961
|
)
|
|
|
3,179
|
|
Total
|
|
$
|
18,968
|
|
|
$
|
(7,676
|
)
|
|
$
|
11,292
|
|
|
|
December
31, 2017
|
|
|
|
Gross
|
|
|
Acc.
Amort.
|
|
|
Net
|
|
Trade Names
|
|
$
|
980
|
|
|
$
|
(163
|
)
|
|
$
|
817
|
|
Notice of Acceptances (NOAs), product
designs and other intellectual property
|
|
|
10,826
|
|
|
|
(5,467
|
)
|
|
|
5,359
|
|
Non-compete Agreement
|
|
|
165
|
|
|
|
(28
|
)
|
|
|
137
|
|
Contract Backlog
|
|
|
3,090
|
|
|
|
(1,287
|
)
|
|
|
1,803
|
|
Customer Relationships
|
|
|
4,140
|
|
|
|
(739
|
)
|
|
|
3,401
|
|
Total
|
|
$
|
19,201
|
|
|
$
|
(7,684
|
)
|
|
$
|
11,517
|
|
The
weighted average amortization period is 4.9 years.
During
the three months ended March 31, 2018 and 2017, the amortization expense amounted to $863 and $610, respectively, and was
included within the general and administration expenses in our consolidated statement of operations.
The
estimated aggregate amortization expense for each of the five succeeding years as of March 31, 2018 is as follows:
Year
ending
|
|
(in
thousands)
|
|
2018
|
|
$
|
2,945
|
|
2019
|
|
|
2,526
|
|
2020
|
|
|
2,146
|
|
2021
|
|
|
2,115
|
|
2022
|
|
|
1,176
|
|
Thereafter
|
|
|
384
|
|
|
|
$
|
11,292
|
|
Note
7. Debt
The
Company’s debt is comprised of the following:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
Revolving lines of credit
|
|
$
|
2,422
|
|
|
$
|
638
|
|
Capital lease
|
|
|
222
|
|
|
|
245
|
|
Unsecured senior note
|
|
|
210,000
|
|
|
|
210,000
|
|
Other loans
|
|
|
19,997
|
|
|
|
20,293
|
|
Less: Deferred
cost of financing
|
|
|
(7,068
|
)
|
|
|
(6,918
|
)
|
Total obligations
under borrowing arrangements
|
|
|
225,573
|
|
|
|
224,258
|
|
Less: Current portion of long-term debt
and other current borrowings
|
|
|
5,812
|
|
|
|
3,260
|
|
Long-term debt
|
|
$
|
219,761
|
|
|
$
|
220,998
|
|
As
of March 31, 2018 and December 31, 2017 , the Company had $231,667 and $224,041 of debt denominated in US Dollars with the remaining
amounts denominated in Colombian Pesos.
On
January 23, 2017, the Company issued a U.S. dollar denominated, $210 million offering of 5-year senior unsecured notes at a coupon
rate of 8.2% in the international debt capital markets under Rule 144A of the Securities Act to Qualified Institutional Buyers.
The Company used approximately $179 million of the proceeds to repay outstanding indebtedness, including Capital leases, and as
a result achieved a lower cost of funding and strengthened its capital structure given the non-amortizing structure of the bond.
Of these repayments, $59,444 were used to refinance short term debt into long term debt. The senior note does not have negative
covenants with an acceleration clause, however requires the Company to meet certain performance indicators in order to take on
incremental debt.
The
Company had $4,828 and $4,758 of property, plant and equipment pledged as collateral for various lines of credit as of
March 31, 2018 and December 31, 2017, respectively.
As
of March 31, 2018, the Company was obligated under various capital leases under which the aggregate present value of the minimum
lease payments amounted to $222. Differences between capital lease obligations and the value of property, plant and equipment
under capital lease arises from differences between the maturities of capital lease obligations and the useful lives of the underlying
assets.
Maturities
of long term debt and other current borrowings are as follows as of March 31, 2018:
2019
|
|
$
|
5,812
|
|
2020
|
|
|
2,408
|
|
2021
|
|
|
2,377
|
|
2022
|
|
|
212,359
|
|
2023
|
|
|
2,358
|
|
Thereafter
|
|
|
7,327
|
|
Total
|
|
$
|
232,641
|
|
The
Company’s loans have maturities ranging from a few weeks to 11 years. Our credit facilities bear interest at a weighted
average of rate 7.8%.
Interest
expense for the three months ended March 31, 2018 and 2017, respectively was $5,050, and 5,082, respectively.
Note
8. 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.
GM&P,
Componenti and ESW LLC are U.S. entities based in Florida subject to U.S. federal and state income taxes. The estimated combined
state and federal income tax rate I s estimated at a rate of 25% based on the recently enacted U.S. Tax Reform. 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:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
Current income tax
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
407
|
|
|
$
|
452
|
|
Colombia
|
|
|
2,205
|
|
|
|
2,280
|
|
|
|
|
2,612
|
|
|
|
2,732
|
|
Deferred income Tax
|
|
|
|
|
|
|
|
|
United States
|
|
|
169
|
|
|
|
380
|
|
Colombia
|
|
|
2,612
|
|
|
|
(2,070
|
)
|
|
|
|
2,781
|
|
|
|
(1,690
|
)
|
Total Provision
for Income Tax
|
|
$
|
5,393
|
|
|
$
|
1,042
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
33.7
|
%
|
|
|
50.3
|
%
|
As
of March 31, 2018, the Company has an uncertain tax position amounting to $2,073 related to $8,351 gross unrecognized tax benefit
associated with a conversion of GM&P’s cash basis accounting for tax purposes to accrual basis for Fiscal years 2016
and 2015. Before 2015, GM&P was using the cash method of accounting and due to IRS regulations it needed to convert to accrual
method and pay the IRS taxes over the gross unrecognized tax benefit associated with the conversion. The unrecognized tax benefits
may increase or change during the next year for items that arise in the ordinary course of business and may be subject to inspection
by the Colombian tax authorities for a period of up to two years until the statute of limitations period elapses and US tax authorities
for a period of up to six years until the statute of limitations period elapses.
Note
9. Fair Value Measurements
The
Company accounts for financial assets and liabilities in accordance with accounting standards that define fair value and establish
a framework for measuring fair value. The hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted
prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets
and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through
market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based
on the Company’s assumptions used to measure assets and liabilities at fair value. A financial asset’s or liability’s
classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The
carrying amounts of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts
payable and advances from customers approximate their fair value due to their relatively short-term maturities. The Company bases
its fair value estimate for long term debt obligations on its internal valuation that all debt is floating rate debt based on
current interest rates in Colombia.
As
of December 31, 2017, financial instruments carried at amortized cost that do not approximate fair value consist of long-term
debt. See Note 10 - Debt. The fair value of long term debt was calculated based on an analysis of future cash flows discounted
with our average cost of debt which is based on market rates, which are level 2 inputs.
The
following table summarizes the fair value and carrying amounts of our long-term debt:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
Fair Value
|
|
|
239,739
|
|
|
|
240,057
|
|
Carrying Value
|
|
|
219,761
|
|
|
|
220,998
|
|
Note
10. 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,
|
|
|
|
2018
|
|
|
2017
|
|
Sales to related parties
|
|
$
|
953
|
|
|
$
|
1,374
|
|
|
|
|
|
|
|
|
|
|
Fees paid to directors and officers
|
|
$
|
827
|
|
|
$
|
710
|
|
Payments to other related parties
|
|
$
|
988
|
|
|
$
|
806
|
|
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Due from VS
|
|
$
|
5,414
|
|
|
$
|
6,240
|
|
Due from other
related parties
|
|
|
2,893
|
|
|
|
2,260
|
|
|
|
$
|
8,307
|
|
|
$
|
8,500
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Due to related parties
|
|
$
|
962
|
|
|
$
|
975
|
|
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 three months ended March 31, 2018 and 2017 were $626 and $1,150 respectively.
Payments
to other related parties during three months ended March 31, 2018 and 2017 include charitable contributions to the Company’s
foundation for $ 271 and $416, respectively, and sales commissions for $341 and $241, respectively.
Note
11. Dividends Payable
The
Company originally authorized the payment of four regular quarterly dividends to holders of ordinary shares at a quarterly rate
of $0.125 per share, or $0.50 per share on an annual basis, with the first quarterly dividend being paid on November 1, 2016.
The dividends are payable in cash or ordinary shares, at the option of the holders of ordinary shares. 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.
As
a result, the Company has a dividend payable amounting to $869 as of December 31, 2017. The Company issued 499,080 shares for
the share dividends paid during the three months ended March 31, 2018.
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
12. Commitments and Contingencies
Commitments
As
of December 31, 2017, the Company has an outstanding obligation to purchase an aggregate of at least $39,144 of certain raw materials
from a specific supplier before May 2026.
General
Legal Matters
From
time to time, the Company is involved in legal matters arising in the regular course of business. Some disputes are derived directly
from our construction projects, related to supply and installation, and even though deemed ordinary, they may involve significant
monetary damages. We are also subject to other type of litigations arising from employment practices, worker’s compensation,
automobile claims and general liability. It is very difficult to predict precisely what the outcome of these litigations might
be. However, with the information at out disposition as this time, there are no indications that such claims will result in a
material adverse effect on the business, financial condition or results of operations of the Company.
Note
13. Subsequent Events
On
May 05, 2018, the Company completed the payment of the remaining $29 million purchase price for GM&P through the payment of
$6 million of cash on hand, the execution of a $10 million junior subordinated note and the issuance of 1,238,095 ordinary shares.
The note will have semi-annual interest-only payments at a fixed rate of 6% per annum and matures in March 2022. The 1,238,095
ordinary shares had an aggregate value of $10 million. This represented a price of $10.50 per share, or a 23% premium over
the last sale price of the ordinary shares on the date of payment.