Notes
to Condensed Consolidated Financial Statements
(Amounts
in thousands, except share and per share data)
(Unaudited)
Note
1. General
Business
Description
Tecnoglass
Inc., a Cayman Islands exempted company (the “Company”, “Tecnoglass,” “TGI,” “we, “us”
or “our”) 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 exports most of its production to foreign
countries, selling to customers in North, Central and South America.
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.
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, 2019. 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 unaudited 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 Tecnoglass S.A.S (“TG”), C.I.
Energía Solar S.A.S E.S. Windows (“ES”), ES Windows LLC (“ESW LLC”), Tecnoglass LLC (“Tecno
LLC”), Tecno RE LLC (“Tecno RE”), GM&P Consulting and Glazing Contractors (“GM&P”), Componenti
USA LLC (“Componenti”) and ES Metals SAS (“ES Metals”), 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. The equity method of accounting is used for investments
in affiliates and other joint ventures over which the Company has significant influence but does not have effective control.
Derivative
Financial Instruments
The
Company recognizes all derivative financial instruments as either assets or liabilities at fair value on the consolidated balance
sheet. The unrealized gains or losses arising from changes in fair value of derivative instruments that are designated and qualify
as cash flow hedges, are recorded in the consolidated statement of comprehensive income. Amounts in accumulated other comprehensive
loss on the consolidated balance sheet are reclassified into the consolidated statement of income in the same period or periods
during which the hedged transactions are settled.
Impairment
We
review goodwill and long-lived assets for impairment each year on December 31st or more frequently when events or significant
changes in circumstances indicate that the carrying value may not be recoverable. The outbreak of COVID-19 and its associated
economic impact, including a significant decrease in the market price of our ordinary shares, was considered a triggering event
as of the first quarter of 2020, requiring us to reassess our goodwill and long-lived asset valuations, as well as assumptions
of future income from underlying assets, and there was no new trigger in the second or third quarter of 2020.The extent of the
impact of the pandemic depends on future developments which are highly uncertain. Accordingly, we will continue to evaluate in
future periods whether these assumptions are reasonable and will update the forecasts and impairment analysis as appropriate.
Based
on our analysis as of September 30, 2020 we concluded that no impairment needs to be recorded to our goodwill using the market
approach as the market capitalization of our company, which has a single reporting unit, exceeds the book value of shareholders
equity.
Based
on our analysis as of September 30, 2020 we concluded that no impairment needs to be recorded to our long-lived assets as their
carrying value are below their realizable values based on projected future cashflows estimated with assumptions deemed reasonable
by management based on information currently available. The Company continuously monitors for events and circumstances that could
negatively impact the key assumptions in determining fair value, including long-term revenue growth projections, profitability,
discount rates, recent market valuations from transactions by comparable companies, volatility in the Company’s market capitalization,
and general industry, market and macro-economic conditions.
Recently
Issued Accounting Pronouncements
In
June 2016, FASB issued Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326). This
ASU represents a significant change in the allowance for credit losses accounting model by requiring immediate recognition of
management’s estimates of current expected credit losses. Under the prior model, losses were recognized only as they were
incurred, which FASB has noted delayed recognition of expected losses that might not yet have met the threshold of being probable.
The new model is applicable to all financial instruments that are not accounted for at fair value through net income, thereby
bringing consistency in accounting treatment across different types of financial instruments and requiring consideration of a
broader range of variables when forming loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15,
2019, (with early application permitted). The FASB issued ASU 2019-10 and ASU 2019-11 during the fourth quarter of 2019 that will
postpone the effective date to the year beginning after December 15, 2022. In February 2020, the FASB issued ASU 2020-02 “Financial
Instruments – Credit Losses (Topic 326) and Leases (Topic 842), which amends SEC Staff Accounting Bulletin No. 119 (SAB119)
which contains interpretative guidance from the SEC aligned to the FASB’s ASC 326. The Company is currently evaluating the
potential effect of this ASU on its consolidated financial statements.
In
March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 8485): Facilitation of the Effects of Reference Rate
Reform on Financial Reporting”. The amendments in this Update provide optional expedients and exceptions for contracts,
hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in
this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate
expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not
apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging
relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained
through the end of the hedging relationship. The amendments in this Update is effective for the Company on December 31, 2022 with
early adoption permitted. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements.
Note
3. – Revised Presentation of Statement of Cash Flows
The
Condensed Consolidated Statement of Cashflows for the nine months ended September 30, 2019 has been revised to correct errors
in the classification of the impact of unrealized foreign currency transaction gains and losses resulting from the remeasurement
of our monetary assets and liabilities denominated in any currency other than the functional currency. The Company assessed the
materiality of the misstatement and concluded it was not material to any previously reported quarterly or annual period financial
statements.
Unrealized
foreign currency transaction gains and losses, which include currency translation differences on monetary items that form part
of investing or financing activities, such as long-term loans, are presented as a reconciling item from net income to cashflow
from operating activities in the Condensed Consolidated Statement of Cashflows as of September 30, 2020 and 2019 contained herein,.
The effect of exchange rate changes on cash and cash equivalents denominated in currencies other than the reporting currency has
been and continues to be presented in a separate line item as part of the reconciliation of the change in cash equivalents during
the period.
The
revisions to the Condensed Consolidated Statement of Cashflows as of September 30, 2019, which had no effect on the net change
in cash and cash equivalents, are summarized in the following table:
|
|
|
Nine months ended September
30, 2019
|
|
|
|
|
As previously reported
|
|
|
Revision adjustment
|
|
|
As revised
|
|
|
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
$
|
7,548
|
|
|
$
|
1,680
|
|
|
$
|
9,228
|
|
|
CASH USED IN INVESTING ACTIVITIES
|
|
|
(54,301
|
)
|
|
|
138
|
|
|
|
(54,163
|
)
|
|
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
56,476
|
|
|
|
(1,821
|
)
|
|
|
54,655
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
$
|
(1,024
|
)
|
|
$
|
2
|
|
|
$
|
(1,021
|
)
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
8,699
|
|
|
|
-
|
|
|
|
8,699
|
|
|
CASH - Beginning of period
|
|
|
33,040
|
|
|
|
-
|
|
|
|
33,040
|
|
|
CASH - End of period
|
|
$
|
41,739
|
|
|
$
|
-
|
|
|
$
|
41,739
|
|
Note
4. – Long-term Investments
Saint-Gobain
Joint Venture
On
January 11, 2019, we entered into a joint venture agreement with Saint-Gobain, a world leader in the production of float glass,
a key component of our manufacturing process, whereby we acquired a 25.8% minority ownership interest in Vidrio Andino Holdings
S.A.S (“Vidrio Andino”), a Colombia-based subsidiary of Compagnie de Saint-Gobain S.A. (“Saint-Gobain”).
The purchase price for our interest in this entity was $45 million, of which $34.1 was paid in cash, and $10.9 million is to be
paid with a piece of land near our existing facility in Barranquilla, which we acquired in October 2020 from a related party and
which was previously owned by members of our Chief Executive Officer´s family. In connection with this transaction, we conducted
a third party valuation to ensure the transaction was on arm´s length terms. On October 28, 2020 we paid for the land through
the issuance of an aggregate of 1,557,142 ordinary shares of the Company, at $7.00 per shares, which represents an approximate
33% premium based on the last sale price on October 27, 2020. The land will serve the purpose of developing a second float glass
plant nearby our existing manufacturing facilities which we expect will carry significant efficiencies for us once it becomes
operative. Vidrio Andino’s float glass plant located in the outskirts of Bogota, Colombia, has been one of our main suppliers
of raw glass. We believe this transaction will solidify our vertical integration strategy by acquiring an interest in the first
stage of our production chain, while securing ample glass supply for our expected production needs.
On
May 3, 2019, we consummated the joint venture agreement acquiring a 25.8% minority ownership interest in Vidrio Andino with a
cash payment of $34.1 million, and the land still to be contributed once a complete assessment of the project timing is completed
based on the overall market conditions in relation to the ongoing COVID-19 pandemic. As of that date, the Company recorded the
investment within Long-term assets on the Company’s Consolidated Balance Sheet for $45.0 million and a liability for $10.9
million within current liabilities on the Company’s Consolidated Balance Sheet to be settled with the contribution of the
aforementioned piece of land. Since the date of the acquisition, we have recognized the proportionate share of Vidrio Andino’s
net income using the equity method on the Consolidated Statement of Operations and Other Comprehensive Income as the Company is
deemed to have significant influence, but does not have effective control of Vidrio Andino.
Establishment
of a new subsidiary
In
January 2019 we established E.S. Windows California, LLC., a wholly-owned U.S. entity to serve as a distributor of our products
in certain jurisdictions within the U.S. markets.
In
April 2019, ESMetals, a Colombian entity in which the Company has 70% equity interest began operations. ESMetals serves as a metalwork
contractor to supply the Company with steel accessories used in the assembly of certain architectural systems as part of our vertical
integration strategy. 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 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 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
|
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
Raw materials
|
|
$
|
42,125
|
|
|
$
|
44,175
|
|
|
Work in process
|
|
|
18,131
|
|
|
|
24,262
|
|
|
Finished goods
|
|
|
5,245
|
|
|
|
5,203
|
|
|
Stores and spares
|
|
|
7,614
|
|
|
|
8,130
|
|
|
Packing material
|
|
|
717
|
|
|
|
981
|
|
|
|
|
|
73,832
|
|
|
|
82,751
|
|
|
Less: Inventory allowance
|
|
|
(69
|
)
|
|
|
(37
|
)
|
|
|
|
$
|
73,763
|
|
|
$
|
82,714
|
|
Note
6. – Revenues, Contract Assets and Contract Liabilities
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
|
|
|
Nine months ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Fixed price contracts
|
|
$
|
27,307
|
|
|
$
|
37,352
|
|
|
$
|
73,867
|
|
|
$
|
126,249
|
|
|
Product sales
|
|
|
76,002
|
|
|
|
71,118
|
|
|
|
198,682
|
|
|
|
203,272
|
|
|
Total Revenues
|
|
$
|
103,309
|
|
|
$
|
108,470
|
|
|
$
|
272,549
|
|
|
$
|
329,521
|
|
The
following table presents geographical information about revenues.
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Colombia
|
|
$
|
5,650
|
|
|
$
|
13,037
|
|
|
$
|
13,942
|
|
|
$
|
38,190
|
|
|
United States
|
|
|
95,680
|
|
|
|
92,848
|
|
|
|
253,626
|
|
|
|
284,208
|
|
|
Panama
|
|
|
20
|
|
|
|
668
|
|
|
|
850
|
|
|
|
2,344
|
|
|
Other
|
|
|
1,959
|
|
|
|
1,917
|
|
|
|
4,131
|
|
|
|
4,779
|
|
|
Total Revenues
|
|
$
|
103,309
|
|
|
$
|
108,470
|
|
|
$
|
272,549
|
|
|
$
|
329,521
|
|
Contract
Assets and 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 and a portion of the amounts billed on certain fixed price contracts
that are withheld by the customer as a retainage until a final good receipt of the complete project to the customers satisfaction.
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).
|
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
Contract assets — current
|
|
$
|
28,416
|
|
|
$
|
42,014
|
|
|
Contract assets — non-current
|
|
|
7,814
|
|
|
|
7,059
|
|
|
Contract liabilities — current
|
|
|
(18,381
|
)
|
|
|
(12,459
|
)
|
|
Contract liabilities — non-current
|
|
|
(883
|
)
|
|
|
(187
|
)
|
|
Net contract assets
|
|
$
|
16,966
|
|
|
$
|
36,427
|
|
The
components of contract assets are presented in the table below.
|
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
Unbilled contract receivables, gross
|
|
$
|
12,761
|
|
|
$
|
20,729
|
|
|
Retainage
|
|
|
23,469
|
|
|
|
28,344
|
|
|
Total contract assets
|
|
|
36,230
|
|
|
|
49,073
|
|
|
Less: current portion
|
|
|
28,416
|
|
|
|
42,014
|
|
|
Contract Assets – non-current
|
|
$
|
7,814
|
|
|
$
|
7,059
|
|
The
components of contract liabilities are presented in the table below.
|
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
Billings in excess of costs
|
|
$
|
4,421
|
|
|
|
2,077
|
|
|
Advances from customers on uncompleted contracts
|
|
|
14,843
|
|
|
|
10,569
|
|
|
Total contract liabilities
|
|
|
19,264
|
|
|
|
12,646
|
|
|
Less: current portion
|
|
|
18,381
|
|
|
|
12,459
|
|
|
Contract liabilities – non-current
|
|
$
|
883
|
|
|
|
187
|
|
During
the three and nine months ended September 30, 2020, the Company recognized $330 and 1,979 of sales related to its contract liabilities
on January 1, 2020, respectively. During the three and nine months ended September 30, 2019, the Company recognized $1,903 and
$6,381 of sales related to its contract liabilities on January 1, 2019, respectively.
Remaining
Performance Obligations
As of September 30, 2020, the Company had
$260.8 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, Letters of
Intent or written mandates, and potential orders under basic ordering agreements. The Company expects to recognize 100% of sales
relating to existing performance obligations within three years, of which $86.2 million are expected to be recognized during
the year ending December 31, 2020, $156.6 million during the year ending December 31, 2021 and the remaining $19.4 million
thereafter.
Note
7. Intangible Assets
Intangible
assets include Miami-Dade County Notices of Acceptances (NOA’s), which are certificates issued for approved products and
required to market hurricane-resistant glass in Florida. Also, it includes the intangibles acquired during the acquisition of
GM&P.
|
|
|
September 30, 2020
|
|
|
|
|
Gross
|
|
|
Acc. Amort.
|
|
|
Net
|
|
|
Trade Names
|
|
$
|
980
|
|
|
$
|
(702
|
)
|
|
$
|
278
|
|
|
Notice of Acceptances (NOAs), product designs and other intellectual property
|
|
|
8,924
|
|
|
|
(4,974
|
)
|
|
|
3,950
|
|
|
Non-compete Agreement
|
|
|
165
|
|
|
|
(118
|
)
|
|
|
47
|
|
|
Customer Relationships
|
|
|
4,140
|
|
|
|
(3,092
|
)
|
|
|
1,048
|
|
|
Total
|
|
$
|
14,209
|
|
|
$
|
(8,886
|
)
|
|
$
|
5,323
|
|
|
|
|
December 31, 2019
|
|
|
|
|
Gross
|
|
|
Acc. Amort.
|
|
|
Net
|
|
|
Trade Names
|
|
$
|
980
|
|
|
$
|
(555
|
)
|
|
$
|
425
|
|
|
Notice of Acceptances (NOAs), product designs and other intellectual property
|
|
|
8,903
|
|
|
|
(4,323
|
)
|
|
|
4,580
|
|
|
Non-compete Agreement
|
|
|
165
|
|
|
|
(94
|
)
|
|
|
71
|
|
|
Contract Backlog
|
|
|
3,090
|
|
|
|
(3,090
|
)
|
|
|
-
|
|
|
Customer Relationships
|
|
|
4,140
|
|
|
|
(2,513
|
)
|
|
|
1,627
|
|
|
Total
|
|
$
|
17,278
|
|
|
$
|
(10,575
|
)
|
|
$
|
6,703
|
|
The
weighted average amortization period is 5.4 years.
During
the nine months ended September 30, 2020 and 2019, the amortization expense amounted to $1,635 and $2,088, respectively, and was
included within the general and administrative expenses in our Condensed Consolidated Statement of Operations. Amortization expense
for the three months ended September 30, 2020 and 2019, the amortization expense amounted to $536 and $603, respectively
The
estimated aggregate amortization expense for each of the five succeeding years as of September 30, 2020 is as follows:
|
Year ending
|
|
(in thousands)
|
|
|
2020
|
|
$
|
556
|
|
|
2021
|
|
|
2,108
|
|
|
2022
|
|
|
1,105
|
|
|
2023
|
|
|
794
|
|
|
2024
|
|
|
482
|
|
|
Thereafter
|
|
|
278
|
|
|
|
|
$
|
5,323
|
|
Note
8. Debt
The
Company’s debt is comprised of the following:
|
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
Revolving lines of credit
|
|
$
|
9,493
|
|
|
$
|
17,455
|
|
|
Finance lease
|
|
|
383
|
|
|
|
493
|
|
|
Unsecured senior note
|
|
|
210,000
|
|
|
|
210,000
|
|
|
Other loans
|
|
|
13,405
|
|
|
|
15,578
|
|
|
Syndicated loan
|
|
|
14,999
|
|
|
|
19,999
|
|
|
Less: Deferred cost of financing
|
|
|
(1,900
|
)
|
|
|
(3,714
|
)
|
|
Total obligations under borrowing arrangements
|
|
|
246,380
|
|
|
|
259,811
|
|
|
Less: Current portion of long-term debt and other current borrowings
|
|
|
174
|
|
|
|
16,084
|
|
|
Long-term debt
|
|
$
|
246,206
|
|
|
$
|
243,727
|
|
As
a subsequent event, on October 30, 2020, we entered into a new $300 million Senior Secured Credit Facility, consisting of a $250
million delayed draw term loan and a $50 million committed revolving credit facility, with a maturity date of October 31, 2025.
The Credit Facility has an accordion feature allowing the Company to increase the borrowing capacity to $325 million. We intend
to use the net proceeds to repay all outstanding borrowings under our previous credit facilities. The Company’s existing
$210 million unsecured senior notes, which bear interest at a rate of 8.2% and mature in 2022, are expected to be redeemed in
full following a step down in redemption price at the end of January 2021. We plan to use the remaining proceeds and available
cash for ongoing working capital needs and general corporate purposes. This new facility, with its improved pricing, should significantly
reduce our cost of capital, including anticipated annual cash interest savings of approximately $11 million on current outstanding
borrowings.
The
Company’s consolidated balance sheets as of September 30, 2020 reflects the effect of this refinancing of the Company’s
current portion of long term debt and other current borrowings into long term debt based on the Company’s intent as of that
date, as per guidance of ASC 470, which states that a short-term obligation shall be excluded from current liabilities if the
entity intends to refinance the obligation on a long-term basis and the intent to refinance the short-term obligation on a long-term
basis is supported by a post-balance-sheet-date closing of this credit agreement.
As
of September 30, 2020, and December 31, 2019, the Company had $245,943 and $259,574, respectively, of debt denominated in US Dollars
with the remaining amounts denominated in Colombian Pesos.
The
Company had $6,430 and $6,979 of property, plant and equipment pledged as collateral for various lines of credit as of September
30, 2020 and December 31, 2019, respectively.
The
Company was obligated under various finance leases under which the aggregate present value of the minimum lease payments amounted
to $383 and $493 as of September 30, 2020 and December 31, 2019, respectively. In line with this, the Company recorded right-of-use
assets related to computing equipment for $199 and $378 as of September 30, 2020 and December 31, 2019, respectively. The lease
agreements include terms to extend the lease, however the Company does not intend to extend its current leases. The weighted average
remaining lease term approximates 2 years. The right-of-use assets’ depreciation and interest expense from the lease liability
are recorded on our Condensed Consolidated Statement of Operations.
Additionally,
as of September 30, 2020, the Company had a commitment for $11 under operating leases related to short term apartment leases,
installation equipment and computing equipment which expire during the current year that have not been capitalized due to their
short-term nature. Rental expense from these leases is recognized on our Condensed Consolidated Statement of Operations as incurred.
Maturities
of long-term debt and other current borrowings, without the impact of repayments intended with proceed from the above described
new $300 million Senior Secured Credit Facility, are as follows as of September 30, 2020:
|
2021
|
|
$
|
3,276
|
|
|
2022
|
|
|
216,465
|
|
|
2023
|
|
|
14,176
|
|
|
2024
|
|
|
10,578
|
|
|
2025
|
|
|
2,389
|
|
|
Thereafter
|
|
|
1,396
|
|
|
Total
|
|
$
|
248,280
|
|
The
Company’s loans have maturities ranging from a few weeks to 10 years. Our credit facilities bear interest at a weighted
average of rate 7.37%.
Note
9. Hedging Activity and Fair Value Measurements
Hedging
Activity
During
the quarter ended September 30, 2019, we entered into several foreign currency non-delivery forward and collar contracts to hedge
the fluctuations in the exchange rate between the Colombian Peso and the U.S. Dollar. Our contracts are designated as cash flow
hedges since they are highly effective in offsetting changes in the cash flows attributable to forecasted Colombian Peso denominated
costs and expenses.
Guidance
under the Financial Instruments Topic 825 of the Codification requires us to record our hedge contracts at fair value and consider
our credit risk for contracts in a liability position, and our counter-party’s credit risk for contracts in an asset position,
in determining fair value. We assess our counter-party’s risk of non-performance when measuring the fair value of financial
instruments in an asset position by evaluating their financial position, including cash on hand, as well as their credit ratings.
As
of September 30, 2020, the fair value of foreign currency collar contracts was in a net liability position of $635. We had 14
outstanding collar contracts to exchange 14 million U.S. Dollars to Colombian Pesos through February 2021. We assessed the risk
of non-performance of the Company to these contracts and determined it was insignificant and, therefore, did not record any adjustment
to fair value as of September 30, 2020.
We
assess the effectiveness of our foreign currency collar contracts by comparing the change in the fair value of the collar contracts
to the change in the expected cash to be paid for the hedged item. The effective portion of the gain or loss on our foreign currency
collar contracts is reported as a component of accumulated other comprehensive loss and is reclassified into earnings in the same
line item in the income statement as the hedged item in the same period or periods during which the transaction affects earnings.
The amount of losses, net, recognized in the “accumulated other comprehensive loss” line item in the accompanying
condensed consolidated balance sheet as of September 30, 2020, that we expect will be reclassified to earnings within the next
eight months, is $635.
The
fair value of our foreign currency hedges is classified in the accompanying consolidated balance sheets as of September 30, 2020,
are as follows:
|
|
|
Derivative Assets
|
|
|
|
Derivative Liabilities
|
|
|
|
|
September 30, 2020
|
|
|
|
September 30, 2020
|
|
|
Derivatives designated as hedging instruments under Subtopic 815-20:
|
|
Balance Sheet Location
|
|
Fair
Value
|
|
|
|
Balance Sheet Location
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Delivery Collar Contracts
|
|
Other current assets
|
|
$
|
-
|
|
|
|
Accrued liabilities
|
|
$
|
(635
|
)
|
|
Total derivative instruments
|
|
Total derivative assets
|
|
$
|
-
|
|
|
|
Total derivative liabilities
|
|
$
|
(635
|
)
|
The
fair value of our foreign currency hedges is classified in the accompanying consolidated balance sheets as of December 31, 2019,
are as follows:
|
|
|
Derivative Assets
|
|
|
|
Derivative Liabilities
|
|
|
|
|
December 31, 2019
|
|
|
|
December 31, 2019
|
|
|
Derivatives designated as hedging instruments under Subtopic 815-20:
|
|
Balance Sheet Location
|
|
Fair
Value
|
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Delivery forward and collar contracts
|
|
Other current assets
|
|
$
|
749
|
|
|
|
Accrued liabilities
|
|
$
|
-
|
|
|
Total derivative instruments
|
|
Total derivative assets
|
|
$
|
749
|
|
|
|
Total derivative liabilities
|
|
$
|
-
|
|
The
ending accumulated balance for the foreign currency collar contracts included in accumulated other comprehensive losses, net of
tax, was $435 as of September 30, 2020, comprised of a derivative loss of $635 and an associated net tax benefit of $203.
The
following table presents the gains (losses) on derivative financial instruments, and their classifications within the accompanying
condensed consolidated financial statements, for the three and nine months ended September 2020:
|
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
|
|
|
Amount of Gain or (Loss)
|
|
|
Location of Gain or
(Loss)
Reclassified from
Accumulated
|
|
Amount of Gain or (Loss)
Reclassified from
|
|
|
|
|
Recognized in OCI (Loss) on
|
|
|
OCI (Loss) into
|
|
Accumulated
|
|
|
|
|
Derivatives
|
|
|
Income
|
|
OCI (Loss) into Income
|
|
|
|
|
Three Months Ended
|
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-delivery Collar Contracts
|
|
$
|
(635
|
)
|
|
$
|
(1,390
|
)
|
|
Operating Revenues
|
|
$
|
(610
|
)
|
|
$
|
(28
|
)
|
|
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
|
|
|
Amount of Gain or (Loss)
|
|
|
Location of Gain or
(Loss)
Reclassified from
Accumulated
|
|
Amount of Gain or (Loss)
Reclassified from
|
|
|
|
|
Recognized in OCI (Loss) on
|
|
|
OCI (Loss) into
|
|
Accumulated
|
|
|
|
|
Derivatives
|
|
|
Income
|
|
OCI (Loss) into Income
|
|
|
|
|
Nine months Ended
|
|
|
|
|
Nine months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-delivery Collar Contracts
|
|
$
|
(7,242
|
)
|
|
$
|
(1,390
|
)
|
|
Operating Revenues
|
|
$
|
1,397
|
|
|
$
|
(28
|
)
|
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 September 30, 2020, financial instruments carried at amortized cost that do not approximate fair value consist of long-term
debt. See Note 8 - 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:
|
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
Fair Value
|
|
|
256,631
|
|
|
|
259,814
|
|
|
Carrying Value
|
|
|
246,207
|
|
|
|
243,727
|
|
Note
10. Income Taxes
The
Company files income tax returns for TG, ES and ES Metals in the Republic of Colombia. 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 26.5% based on the recently enacted U.S. Tax Reform. Tecnoglass Inc. as well as all the other subsidiaries
in the Cayman Islands do not currently have any tax obligations.
The
components of income tax expense are as follows:
|
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Current income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
(338
|
)
|
|
$
|
(146
|
)
|
|
$
|
(682
|
)
|
|
$
|
(1,561
|
)
|
|
Colombia
|
|
|
(4,069
|
)
|
|
|
(4,411
|
)
|
|
|
(10,945
|
)
|
|
|
(12,169
|
)
|
|
|
|
|
(4,407
|
)
|
|
|
(4,557
|
)
|
|
|
(11,627
|
)
|
|
|
(13,730
|
)
|
|
Deferred income Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
218
|
|
|
|
349
|
|
|
|
(38
|
)
|
|
|
1,475
|
|
|
Colombia
|
|
|
910
|
|
|
|
4,474
|
|
|
|
7,644
|
|
|
|
3,665
|
|
|
|
|
|
1,128
|
|
|
|
4,823
|
|
|
|
7,606
|
|
|
|
5,140
|
|
|
Total income tax (provision) benefit
|
|
$
|
(3,279
|
)
|
|
$
|
266
|
|
|
$
|
(4,021
|
)
|
|
$
|
(8,590
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
28
|
%
|
|
|
17
|
%
|
|
|
42
|
%
|
|
|
39
|
%
|
The
weighted average statutory income tax rate for the three months ended September 30, 2020 and 2019 was 28% and 17%, respectively.
The effective income tax rates of 42% and 39% for the nine months ended September 30, 2020 and 2019, respectively, reflect the
impact of unrealized foreign currency transaction losses related to the remeasurement of long-term liabilities of our Colombian
subsidiaries which are expected to be realized at a later year in which a lower income tax rate is expected to apply. The Company’s
effective income tax rate of 17% for the quarter ended September 30, 2019 differs from the weighted average statutory rate primarily
as a result of a 17.3% decrease related to permanent differences, a 10.8% decrease related to non-deductible expense, partially
offset by unrealized foreign currency transaction losses which contribute to an increase of 12.1% in the reconciliation of effective
income tax rate to statutory rate.
Note
11. Related Parties
The
following is a summary of assets, liabilities, and income and expense transactions with all related parties, shareholders, directors
and managers:
|
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Sales to related parties
|
|
$
|
329
|
|
|
$
|
1,729
|
|
|
$
|
1,873
|
|
|
$
|
5,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees paid to directors and officers
|
|
$
|
1,010
|
|
|
$
|
836
|
|
|
$
|
3,189
|
|
|
$
|
2,658
|
|
|
Payments to other related parties
|
|
$
|
1,114
|
|
|
$
|
964
|
|
|
$
|
2,831
|
|
|
$
|
2,797
|
|
|
|
|
September 30, 2020
|
|
|
December 31,
2019
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Due from VS
|
|
$
|
6,717
|
|
|
$
|
4,203
|
|
|
Due from other related parties
|
|
|
1,950
|
|
|
|
3,854
|
|
|
|
|
$
|
8,667
|
|
|
$
|
8,057
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Term due from VS
|
|
|
726
|
|
|
|
1,786
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Due to related parties - current
|
|
$
|
4,056
|
|
|
$
|
4,415
|
|
|
Due to related parties – Non-current
|
|
$
|
639
|
|
|
$
|
622
|
|
As
of December 31, 2019, the Company also had a note payable which matured in 2022 related to the acquisition GM&P for $8,500
due to the former owner (“the Seller”), who holds shares of the Company and a management position within the Company.
In August 2020, the outstanding balance of $9,605, including $1,105 accrued interest, was fully settled. Subsequently, the Company
agreed to sell certain receivables of GM&P through a factoring agreement on a non-recourse basis to the Seller, receiving
cash netted by a financial discount over the notional amount of the receivables sold.
Ventana
Solar S.A. (“VS”), a Panama Sociedad anónima, 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 September 30, 2020 and 2019 were $16 and $631, respectively. The Company’s sales
to VS for the nine months ended September 30, 2020 and 2019 were $810 and $1,119, respectively.
Payments
to other related parties during the three and nine months ended September 30, 2020 and 2019 include the following:
|
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Charitable contributions
|
|
$
|
255
|
|
|
$
|
354
|
|
|
$
|
817
|
|
|
$
|
959
|
|
|
Sales commissions
|
|
$
|
364
|
|
|
$
|
357
|
|
|
$
|
911
|
|
|
$
|
1,119
|
|
Charitable
contributions are donations made to the Company’s foundation, Fundación Tecnoglass-ESW.
Note
12. Shareholders’ Equity
Dividends
On
September 14, 2020, the Company declared a regular quarterly dividend of $0.0275 per share, or $0.11 per share on an annualized
basis, for the third quarter of 2020. The quarterly dividend will be paid in cash on October 20, 2020 to shareholders of record
as of the close of business on September 30, 2020.
Follow-on
Equity Offering
On
March 25, 2019, the Company closed an underwritten follow-on public offering of 5,000,000 ordinary shares at a price to the public
of $7.00 per share. As a result of this offering, the Company received net proceeds of $33,050 after deducting underwriting and
other related fees, which were credited to share capital and additional paid in capital. Additionally, the Company granted the
underwriters a 30-day option to purchase up to an additional 750,000 ordinary shares at the public offering price, less the underwriting
discount, which option was exercised on April 3, 2019 with respect to 551,423 ordinary shares.
Proceeds
from the offering were subsequently used to complete the joint venture transaction with Saint-Gobain discussed in “Note
4. Long-term Investments – Saint-Gobain Joint Venture.”
Earnings
per Share
The
following table sets forth the computation of the basic and diluted earnings per share for the three and nine months ended September
30, 2020 and 2019:
|
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Numerator for basic and diluted earnings per shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
|
$
|
8,271
|
|
|
$
|
(1,319
|
)
|
|
$
|
5,657
|
|
|
$
|
13,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per ordinary share - weighted average shares outstanding
|
|
|
46,117,631
|
|
|
|
46,291,032
|
|
|
|
46,117,631
|
|
|
|
44,395,504
|
|
|
Effect of dilutive securities and stock dividend
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Denominator for diluted earnings per ordinary share - weighted average shares outstanding
|
|
|
46,117,631
|
|
|
|
46,291,032
|
|
|
|
46,117,631
|
|
|
|
44,395,504
|
|
|
Basic earnings (loss) per ordinary share
|
|
$
|
0.18
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.12
|
|
|
$
|
0.31
|
|
|
Diluted earnings (loss) per ordinary share
|
|
$
|
0.18
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.12
|
|
|
$
|
0.31
|
|
Note
13. Commitments and Contingencies
Commitments
As
of September 30, 2020, the Company had an outstanding obligation to purchase an aggregate of at least $12,215 of certain raw materials
from a specific supplier before May 2026.
On
May 3, 2019, we consummated the joint venture agreement with Saint-Gobain whereby we acquired a 25.8% minority ownership interest
in Vidrio Andino. The purchase price for our interest in this entity was $45 million, of which $34.1 was paid in cash, and $10.9
million is to be paid with a piece of land near our existing facility in Barranquilla, which we acquired in October 2020 from
a related party and which was previously owned by members of our Chief Executive Officer´s family with a third party valuation
was conducted to ensure arm´s length terms. On October 28, 2020 the land was paid for through the issuance of an aggregate
of 1,557,142 ordinary shares of the Company, at $7.00 per share, which represented an approximate 33% premium based on last sale
price on October 27, 2020.The land will be contributed once a complete assessment of the project timing is completed based on
the overall market conditions as they relate to the ongoing COVID-19 pandemic. The joint venture agreement includes plans to build
a new plant in Galapa, Colombia that will be located approximately 20 miles from our primary manufacturing facility, in which
we will also have a 25.8% interest. The new plant will be funded with proceeds from the original cash contribution made by the
Company, operating cashflows from the Bogota plant, debt incurred at the joint venture level that will not consolidate into the
Company and an additional contribution by us of approximately $12.5 million to be paid between 2020 and 2021 if needed (based
on debt availability).
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 our 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
14. Subsequent Events
On
October 30, 2020, the Company entered into a new $300 million Senior Secured Credit Facility, consisting of a $250 million delayed
draw term loan and a $50 million committed revolving credit facility, with a maturity date on October 31, 2025. The Credit Facility
has an accordion feature allowing the Company to increase the borrowing capacity to $325 million. Until March 31, 2021, the Credit
Facility will bear interest at a rate of LIBOR, with a 0.75% floor, plus a spread of 3.00%. Thereafter, the applicable spread
will have a range between 2.50% and 3.50%, based on the Company’s net leverage ratio.
The
Company’s consolidated balance sheets as of September 30, 2020 reflects the effect of this refinance of the Company’s
current portion of long term debt and other current borrowings into long term debt based on the Company’s intent as of that
date, as per guidance of ASC 470, which states that a short-term obligation shall be excluded from current liabilities if the
entity intends to refinance the obligation on a long-term basis and the intent to refinance the short-term obligation on a long-term
basis is supported by a post-balance-sheet-date closing of this credit agreement.
On
October 28, 2020 the Company acquired a lot of land from a related party owned by members of our Chief Executive Officer´s
family to be contributed as payment for the Saint Gobain Joint Venture further discussed in Note 3. The land was paid for through
the issuance of 1,557,142 ordinary shares of the Company, at $7.00 per share, which represented an approximate 33% premium based
on the last sale price on October 27, 2020.