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.
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. Changes in estimates are reflected in the periods during which they
become known. Actual amounts may differ from these estimates and could differ materially These financial statements reflect all
adjustments that in the opinion of management are necessary for a fair statement of the financial position, results of operations
and cash flows for the period presented, and are of a normal, recurring nature.
The
Company has one operating segment, Architectural Glass and Windows, which is also its reporting segment, comprising the design,
manufacturing, distribution, marketing and installation of high-specification architectural glass and window 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. Some of 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 six-month period ended June 30, 2018 and the Company’s balance sheet as of June 30, 2018 are presented under ASC
606, while the Company’s statement of operations for the quarterly period ended June 30, 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 June
30, 2018, and the effect of changes made to the Company’s consolidated balance sheet as of January 1, 2018.
Approximately
45% 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.
A
substantial amount 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. Generally, if a customer unilaterally terminate a contract, the Company has the right to receive
payment for costs incurred plus a reasonable profit for products and services that do not have alternative use to the Company.
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%. The Company records an asset for unbilled receivables due to completing more
work than the progress payment schedule allows to collect at a point in time. 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. The Company recognizes a liability
for non-recurring obligations as situations considering that projects actual costs are usually adjusted to estimated costs. The
Company did not recognize sales for performance obligations satisfied in prior periods during the three and six months ended June
30, 2018.
Remaining
Performance Obligations
On
June 30, 2018, the Company had $273 million of remaining performance obligations, which represents the transaction price of firm
orders minus sales recognized from inception to date. Remaining performance obligations exclude unexercised contract options,
verbal commitments and potential orders under basic ordering agreements. The Company expects to recognize 100% of 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 2015 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 and six months ended June
30, 2018 and 2017:
|
|
Three
months ended June 30,
|
|
|
Six
months ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Numerator
for basic and diluted earnings per shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss) Income
|
|
$
|
(3,870
|
)
|
|
$
|
(3,500
|
)
|
|
$
|
6,749
|
|
|
$
|
(2,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic earnings per ordinary share - weighted average shares outstanding
|
|
|
35,935,442
|
|
|
|
35,763,650
|
|
|
|
35,869,746
|
|
|
|
35,759,895
|
|
Effect
of dilutive securities and stock dividend
|
|
|
-
|
|
|
|
-
|
|
|
|
492,747
|
|
|
|
-
|
|
Denominator
for diluted earnings per ordinary share - weighted average shares outstanding
|
|
|
35,935,442
|
|
|
|
35,763,650
|
|
|
|
36,362,493
|
|
|
|
35,759,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per ordinary share
|
|
$
|
(0.11
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.19
|
|
|
$
|
(0.07
|
)
|
Diluted
earnings per ordinary share
|
|
$
|
(0.11
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.19
|
|
|
$
|
(0.07
|
)
|
The
effect of dilutive securities includes 492,747 as of June 30, 2018 for shares potentially issued in relation to the dividends
declared. The denominator for basic and diluted earnings per ordinary share for the six months ended June 30, 2018 and the three
and six months ended June 30, 2017, exclude 321,594 and 492,747 shares, respectively, issued in relation to the dividends declares
due to the net loss for the period as their inclusion would be anti-dilutive.
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 June 30, 2018 and 2017
were $3,764 and $3,057, respectively. Shipping and handling costs for the six months ended June 30, 2018 and 2017 were $8,496
and $6,189, 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 result in any changes under ASC 606 and the revenues are still been
recognized when the risk of ownership is transfered 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 June 30, 2018
|
|
|
|
Under
ASC
605
|
|
|
Effect
of ASC
606
|
|
|
As
Reported Under ASC 606
|
|
Operating
Revenues
|
|
$
|
88,874
|
|
|
$
|
95
|
|
|
$
|
88,969
|
|
Cost
of Sales
|
|
|
64,243
|
|
|
|
84
|
|
|
|
64,327
|
|
Gross
Profit
|
|
|
24,631
|
|
|
|
11
|
|
|
|
24,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
(17,644
|
)
|
|
|
-
|
|
|
|
(17,644
|
)
|
Other
Income and Expenses
|
|
|
(12,335
|
)
|
|
|
-
|
|
|
|
(12,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Before Tax
|
|
|
(5,348
|
)
|
|
|
11
|
|
|
|
(5,337
|
)
|
Income
Tax Benefit (Provision)
|
|
|
1,469
|
|
|
|
(2
|
)
|
|
|
1,467
|
|
Net
Income
|
|
|
(3,870
|
)
|
|
|
-
|
|
|
|
(3,870
|
)
|
Net
Income Attributable to Parent
|
|
$
|
(3,658
|
)
|
|
$
|
-
|
|
|
$
|
(3,658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
(0.11
|
)
|
|
$
|
-
|
|
|
$
|
(0.11
|
)
|
Diluted
earnings per share
|
|
$
|
(0.11
|
)
|
|
$
|
-
|
|
|
$
|
(0.11
|
)
|
|
|
Six
months ended June 30, 2018
|
|
|
|
Under
ASC
605
|
|
|
Effect
of ASC
606
|
|
|
As
Reported Under ASC 606
|
|
Operating
Revenues
|
|
$
|
177,960
|
|
|
$
|
(1,831
|
)
|
|
$
|
176,129
|
|
Cost
of Sales
|
|
|
126,388
|
|
|
|
(1,649
|
)
|
|
|
124,739
|
|
Gross
Profit
|
|
|
51,572
|
|
|
|
(182
|
)
|
|
|
51,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
(34,402
|
)
|
|
|
-
|
|
|
|
(34,402
|
)
|
Other
Income and Expenses
|
|
|
(6,313
|
)
|
|
|
-
|
|
|
|
(6,313
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Before Tax
|
|
|
10,857
|
|
|
|
(182
|
)
|
|
|
10,675
|
|
Income
Tax Provision
|
|
|
(3,973
|
)
|
|
|
47
|
|
|
|
(3,926
|
)
|
Net
Income
|
|
|
6,893
|
|
|
|
(144
|
)
|
|
|
6,749
|
|
Net
Income Attributable to Parent
|
|
$
|
7,177
|
|
|
$
|
(144
|
)
|
|
$
|
7,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.19
|
|
|
$
|
-
|
|
|
$
|
0.19
|
|
Diluted
earnings per share
|
|
$
|
0.19
|
|
|
$
|
-
|
|
|
$
|
0.19
|
|
The
table below presents the impact of the adoption of ASC 606 on the Company’s balance sheet.
|
|
June
30, 2018
|
|
|
|
Under
ASC
605
|
|
|
Effect
of ASC
606
|
|
|
As
Reported Under ASC 606
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
accounts receivable, net
|
|
$
|
116,788
|
|
|
$
|
(29,356
|
)
|
|
$
|
87,432
|
|
Inventories
|
|
|
78,254
|
|
|
|
1,649
|
|
|
|
79,903
|
|
Unbilled
receivables on uncompleted contracts
|
|
|
14,312
|
|
|
|
(14,312
|
)
|
|
|
-
|
|
Contract
assets - current portion
|
|
|
-
|
|
|
|
46,677
|
|
|
|
46,677
|
|
Other
Assets
|
|
|
262,656
|
|
|
|
43
|
|
|
|
262,699
|
|
Contract
assets - Non-current
|
|
|
-
|
|
|
|
925
|
|
|
|
925
|
|
Total
Assets
|
|
$
|
472,010
|
|
|
$
|
5,626
|
|
|
$
|
477,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
liabilities - current
|
|
|
-
|
|
|
|
16,079
|
|
|
|
16,079
|
|
Current
portion of customer advances on uncompleted contracts
|
|
|
10,315
|
|
|
|
(10,315
|
)
|
|
|
-
|
|
Other
current liabilities
|
|
|
92,516
|
|
|
|
(2
|
)
|
|
|
92,514
|
|
Customer
advances on uncompleted contracts - non-current
|
|
|
1,586
|
|
|
|
(1,586
|
)
|
|
|
-
|
|
Contract
liabilities - non-current
|
|
|
-
|
|
|
|
1,586
|
|
|
|
1,586
|
|
Other
Liabilities
|
|
|
223,638
|
|
|
|
-
|
|
|
|
223,638
|
|
Total
liabilities
|
|
$
|
328,055
|
|
|
$
|
5,762
|
|
|
$
|
333,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings
|
|
|
19,165
|
|
|
|
(136
|
)
|
|
|
19,029
|
|
Total
shareholders’ equity
|
|
$
|
143,955
|
|
|
$
|
(136
|
)
|
|
$
|
143,819
|
|
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 June 30,
|
|
|
Six
months ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Fixed
price contracts
|
|
$
|
37,814
|
|
|
$
|
40,820
|
|
|
$
|
80,030
|
|
|
$
|
62,540
|
|
Product
sales
|
|
|
51,155
|
|
|
|
40,156
|
|
|
|
96,099
|
|
|
|
84,253
|
|
Total
Revenues
|
|
$
|
88,969
|
|
|
$
|
80,976
|
|
|
$
|
176,129
|
|
|
$
|
146,793
|
|
The
following table presents geographical information about revenues.
|
|
Three
months ended June 30,
|
|
|
Six
months ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Colombia
|
|
$
|
15,557
|
|
|
$
|
15,525
|
|
|
$
|
37,381
|
|
|
$
|
31,953
|
|
United
States
|
|
|
69,852
|
|
|
|
60,342
|
|
|
|
132,845
|
|
|
|
106,650
|
|
Panama
|
|
|
1,043
|
|
|
|
830
|
|
|
|
1,857
|
|
|
|
2,093
|
|
Other
|
|
|
2,517
|
|
|
|
4,279
|
|
|
|
4,046
|
|
|
|
6,097
|
|
Total
Revenues
|
|
$
|
88,969
|
|
|
$
|
80,976
|
|
|
$
|
176,129
|
|
|
$
|
146,793
|
|
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).
|
|
June
30, 2018
|
|
|
January
1 2018
|
|
Contract
assets — current
|
|
$
|
46,677
|
|
|
$
|
45,468
|
|
Contract
assets — non-current
|
|
|
925
|
|
|
|
-
|
|
Contract
liabilities — current
|
|
|
(16,079
|
)
|
|
|
(18,945
|
)
|
Contract
liabilities — non-current
|
|
|
(1,586
|
)
|
|
|
(1,571
|
)
|
Net
contract assets (liabilities)
|
|
$
|
29,937
|
|
|
$
|
24,952
|
|
The
components of contract assets are presented in the table below.
|
|
June
30, 2018
|
|
|
January
1 2018
|
|
Unbilled
contract receivables, gross
|
|
$
|
18,246
|
|
|
$
|
15,245
|
|
Retainage
|
|
|
29,356
|
|
|
|
30,223
|
|
Total
contract assets
|
|
|
47,602
|
|
|
|
45,468
|
|
Less:
current portion
|
|
|
46,677
|
|
|
|
45,468
|
|
Contract
Assets – non-current
|
|
$
|
925
|
|
|
$
|
-
|
|
The
components of contract liabilities are presented in the table below.
|
|
June
30, 2018
|
|
|
January
1 2018
|
|
Billings
in excess of costs
|
|
$
|
5,571
|
|
|
$
|
7,516
|
|
Advances
from customers on uncompleted contracts
|
|
|
12,094
|
|
|
|
13,000
|
|
Total
contract liabilties
|
|
|
17,665
|
|
|
|
20,516
|
|
Less:
current portion
|
|
|
16,079
|
|
|
|
18,945
|
|
Contract
liabilities – non-current
|
|
$
|
1,586
|
|
|
$
|
1,571
|
|
For
the six months ended June 30, 2018, the Company recognized $2,306 of sales related to its contract liabilities at January 1, 2018.
Note
4. GM&P Acquisition
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 with the remaining $29 million of the purchase price to be paid
by May 15, 2018. The Company paid an additional $6 million in cash on April 2018 and entered into a Debt Settlement Agreement
to pay the remaining consideration price through a combination of stock, by issuing 1,238,095 ordinary shares valued at $10.50
per share and a $10 million Subordinated Seller´s Note. The Seller´s Note was subsequently reduced to $8.5 million
to atone the Buyer for adjustments and process inefficiencies caused by changes in GM&P´s supply chain and other business
optimization costs seen during the second quarter of 2018. Following our process optimization and changes in the supply chain
process, we believe the associated cost impacts to be non-recurring.
Based
on the implicit price at which the shares were issued, which at the time of the issuance in June 2018 was higher than the market
price of those shares, the Company recorded a gain of $2,106. Additionally, including the reduction of the nominal amount of the
Seller´s Note by $1,500, the Company recorded a gain on extinguishment of debt of $3,606. The gain on extinguishment
of debt was recorded into Additional Paid-In Capital per guidance of ASC 470-50-40 because it is considered a related party transaction
as the former owner of GM&P holds a management position within the Company.
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
|
|
|
|
Six
Months
|
|
|
|
Ended
|
|
(in
thousands, except per share amounts)
|
|
June
30, 2017
|
|
Pro
Forma Results
|
|
|
|
|
Net
sales
|
|
$
|
156,780
|
|
|
|
|
|
|
Net
(loss) income attributable to parent
|
|
$
|
(3,595
|
)
|
|
|
|
|
|
Net
income per common share:
|
|
|
|
|
Basic
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
Diluted
|
|
$
|
(0.11
|
)
|
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:
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
Raw
materials
|
|
$
|
38,229
|
|
|
$
|
40,509
|
|
Work
in process
|
|
|
20,995
|
|
|
|
11,468
|
|
Finished
goods
|
|
|
13,217
|
|
|
|
13,236
|
|
Stores
and spares
|
|
|
7,218
|
|
|
|
6,134
|
|
Packing
material
|
|
|
379
|
|
|
|
438
|
|
|
|
|
80,038
|
|
|
|
71,785
|
|
Less:
Inventory allowance
|
|
|
(135
|
)
|
|
|
(129
|
)
|
|
|
$
|
79,903
|
|
|
$
|
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 – June 30, 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.
|
|
June
30, 2018
|
|
|
|
Gross
|
|
|
Acc.
Amort.
|
|
|
Net
|
|
Trade
Names
|
|
$
|
980
|
|
|
$
|
(261
|
)
|
|
$
|
719
|
|
Notice
of Acceptances (NOAs), product designs and other intellectual property
|
|
|
10,764
|
|
|
|
(5,008
|
)
|
|
|
5,756
|
|
Non-compete
Agreement
|
|
|
165
|
|
|
|
(44
|
)
|
|
|
121
|
|
Contract
Backlog
|
|
|
3,090
|
|
|
|
(2,060
|
)
|
|
|
1,030
|
|
Customer
Relationships
|
|
|
4,140
|
|
|
|
(1,183
|
)
|
|
|
2,957
|
|
Total
|
|
$
|
19,139
|
|
|
$
|
(8,556
|
)
|
|
$
|
10,583
|
|
|
|
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 June 30, 2018 and 2017, the amortization expense amounted to $875 and $930, respectively, and was included
within the general and administration expenses in our consolidated statement of operations. During the six months ended June 30,
2018 and 2017, amortization expense was $1,738 and $1,546, respectively.
The
estimated aggregate amortization expense for each of the five succeeding years as of June 30, 2018 is as follows:
Year
ending
|
|
(in
thousands)
|
|
2018
|
|
$
|
1,889
|
|
2019
|
|
|
2,507
|
|
2020
|
|
|
2,127
|
|
2021
|
|
|
2,097
|
|
2022
|
|
|
1,211
|
|
Thereafter
|
|
|
752
|
|
|
|
$
|
10,583
|
|
Note
7. Debt
The
Company’s debt is comprised of the following:
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
Revolving
lines of credit
|
|
$
|
8,389
|
|
|
$
|
638
|
|
Capital
lease
|
|
|
199
|
|
|
|
245
|
|
Unsecured
senior note
|
|
|
210,000
|
|
|
|
210,000
|
|
Other
loans
|
|
|
19,660
|
|
|
|
20,293
|
|
Less:
Deferred cost of financing
|
|
|
(6,358
|
)
|
|
|
(6,918
|
)
|
Total
obligations under borrowing arrangements
|
|
|
231,890
|
|
|
|
224,258
|
|
Less:
Current portion of long-term debt and other current borrowings
|
|
|
11,498
|
|
|
|
3,260
|
|
Long-term
debt
|
|
$
|
220,392
|
|
|
$
|
220,998
|
|
As
of June 30, 2018, and December 31, 2017, the Company had $231,197 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 $4,784 and $4,758 of property, plant and equipment pledged as collateral for various lines of credit as of June 30,
2018 and December 31, 2017, respectively.
As
of June 30, 2018, the Company was obligated under various capital leases under which the aggregate present value of the minimum
lease payments amounted to $199. 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 June 30, 2018:
2019
|
|
$
|
11,498
|
|
2020
|
|
|
2,410
|
|
2021
|
|
|
2,361
|
|
2022
|
|
|
212,359
|
|
2023
|
|
|
2,360
|
|
Thereafter
|
|
|
7,260
|
|
Total
|
|
$
|
238,248
|
|
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 7.7%.
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 is 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:
|
|
Three
months ended June 30,
|
|
|
Six
months ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Current
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
1,129
|
|
|
$
|
1,759
|
|
|
$
|
722
|
|
|
$
|
2,211
|
|
Colombia
|
|
|
(317
|
)
|
|
|
(630
|
)
|
|
|
(2,522
|
)
|
|
|
1,650
|
|
|
|
|
(812
|
)
|
|
|
1,129
|
|
|
|
(1,800
|
)
|
|
|
3,861
|
|
Deferred
income Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
|
(992
|
)
|
|
|
(377
|
)
|
|
|
(1,161
|
)
|
|
|
3
|
|
Colombia
|
|
|
1,647
|
|
|
|
(4,804
|
)
|
|
|
(965
|
)
|
|
|
(6,874
|
)
|
|
|
|
655
|
|
|
|
(5,181
|
)
|
|
|
(2,126
|
)
|
|
|
(6,871
|
)
|
Total
income tax benefit (provision)
|
|
$
|
1,467
|
|
|
$
|
4,052
|
|
|
$
|
(3,926
|
)
|
|
$
|
3,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
tax rate
|
|
|
27
|
%
|
|
|
54
|
%
|
|
|
37
|
%
|
|
|
55
|
%
|
The
Company’s effective tax rate of 27% and 37% for the three and six months ended June 30, 2018 differ from the average statutory
rate of 34% primarily because of non-deductible expenses and non-taxable income recorded in tax-exempt subsidiaries.
The Company’s effective tax rate of 54% and 55% for the three and six-month period ended June 30, 2017, respectively, reflects
the adoption of the Colombian tax reform described above, which became effective January 1, 2017.
As
of June 30, 2018, the Company had settled an uncertain tax position concluding amounting to $2,073 related to $8,351 gross unrecognized
tax benefit as of March 31, 2018 associated with a conversion of GM&P’s cash basis accounting for tax purposes to accrual
basis for Fiscal years 2016 and 2015 after culminating an audit from the Internal Revenue Service. 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 7 - 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:
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
Fair
Value
|
|
|
236
,952
|
|
|
|
240,057
|
|
Carrying Value
|
|
|
220,392
|
|
|
|
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 June 30,
|
|
|
Six
months ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Sales
to related parties
|
|
$
|
1,184
|
|
|
$
|
1,091
|
|
|
$
|
2,137
|
|
|
$
|
2,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
paid to directors and officers
|
|
$
|
801
|
|
|
$
|
662
|
|
|
$
|
1,628
|
|
|
$
|
1,372
|
|
Payments
to other related parties
|
|
$
|
674
|
|
|
$
|
1,066
|
|
|
$
|
1,662
|
|
|
$
|
1,872
|
|
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
Due
from VS
|
|
$
|
5,261
|
|
|
$
|
6,240
|
|
Due
from other related parties
|
|
|
2,167
|
|
|
|
2,260
|
|
|
|
$
|
7,428
|
|
|
$
|
8,500
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Due
to related parties
|
|
$
|
1,002
|
|
|
$
|
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 June 30, 2018 and 2017 were $588 and $739, respectively. The Company’s sales to VS
for the six months ended June 30, 2018 and 2017 were $1,214 and $1,889, respectively.
Payments
to other related parties during three and six months ended June 30, 2018 and 2017 include the following:
|
|
Three
months ended June 30,
|
|
|
Six
months ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Charitable
contributions
|
|
$
|
296
|
|
|
$
|
742
|
|
|
$
|
567
|
|
|
$
|
1,158
|
|
Sales
commissions
|
|
$
|
336
|
|
|
$
|
179
|
|
|
$
|
677
|
|
|
$
|
420
|
|
Charitable
contributions are donations made to the Company’s foundation Fundación Tecnoglass-ESW.
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 declared dividends for $10,029 as of June 30, 2018 and recorded a dividend payable amounting to $734
as of June 30, 2018. The Company issued 956,102 shares for the share dividends resulting in $8,524 being credited to
Capital and paid $1,359 in cash during the six months ended June 30, 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 June 30, 2018, the Company has an outstanding obligation to purchase an aggregate of at least $39,140 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
Management
concluded that no additional subsequent events required disclosure other than those disclosed in these financial statements.