UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
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[X]
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For
the fiscal year ended December 31, 2020
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[ ]
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For
the transition period from ______________ to ______________
Commission
File Number 001-35436
TECNOGLASS
INC.
(Exact
Name of Registrant as Specified in Its Charter)
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Cayman
Islands
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98-1271120
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(State
or Other Jurisdiction of
Incorporation
or Organization)
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(I.R.S.
Employer
Identification
Number)
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Avenida
Circunvalar a 100 mts de la Via 40
Barrio
Las Flores, Barranquilla
Colombia
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(57)(5)3734000
(Registrant’s
Telephone Number, Including Area Code)
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Trading
Symbol(s)
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Name
of each exchange on which registered
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Ordinary
Shares
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TGLS
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The
NASDAQ Stock Market LLC
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Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
[ ] No [X]
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
Yes
[ ] No [X]
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirement for the past 90 days.
Yes
[X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§ 232 405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files).
Yes
[X] No [ ]
Indicate
by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer a smaller reporting
company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
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Large
accelerated filer [ ]
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Accelerated
filer [X]
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Non-accelerated
filer [ ]
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Smaller
reporting company [X]
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(Do
not check if a smaller reporting company)
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Emerging
growth company [ ]
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If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. [X]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
[ ] No [X]
As
of June 30, 2020 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate
market value of the ordinary shares held by non-affiliates of the registrant was approximately $103,732,612 based on its last
reported sales price of $5.45 on the Nasdaq Capital Market.
As
of February 26, 2021, there were 47,674,773 ordinary shares, $0.0001 par value per share, outstanding.
Documents
Incorporated by Reference: None.
TECNOGLASS
INC.
FORM
10-K
TABLE
OF CONTENTS
FORWARD
LOOKING STATEMENTS AND INTRODUCTION
All
statements other than statements of historical fact included in this Annual Report on Form 10-K (this “Form 10-K”)
including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” regarding our financial position, business strategy and the plans and objectives of management for future
operations, are forward looking statements. When used in this Form 10-K, words such as “anticipate,” “believe,”
“estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management,
identify forward looking statements. Such forward looking statements are based on the beliefs of management, as well as assumptions
made by, and information currently available to, our management. Actual results could differ materially from those contemplated
by the forward looking statements as a result of certain factors detailed in our filings with the Securities and Exchange Commission.
You are urged to carefully review the disclosures we make concerning risks and uncertainties that may affect our business and
future financial performance, including those made below under “Summary Risk Factors” and in “Item 1A, Risk
Factors” in this Form 10-K. Except as required by law, we do not undertake, and hereby disclaim, any obligation to update
any forward-looking statements, which speak only as of the date on which they are made. All subsequent written or oral forward
looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.
Risk
Factors Summary
Investors
should consider the risks and uncertainties described below that may affect our business and future financial performance. These
and other risks and uncertainties are more fully described in “Item 1A, Risk Factors” in this Form 10-K. Additional
risks not presently known to us or that we currently deem immaterial may also affect us. If any of these risks occur, our business,
financial condition or results of operations could be materially and adversely affected.
As
more fully set forth under “Item 1A, Risk Factors” in this Form 10-K, principal risks and uncertainties that may affect
our business, financial condition or results of operations include the following risks:
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We
operate in competitive markets, and our business could suffer if we are unable to adequately address potential downward pricing
pressures and other factors that may reduce operating margins.
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Failure
to maintain the performance, reliability and quality standards required by our customers could have a materially negative
impact on our financial condition and results of operation.
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We
rely on third-party suppliers for raw materials and third party transportation, each of which subjects us to risks and costs
that we cannot control, and which risks and costs may materially adversely affect our operations
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Our
success depends upon our ability to develop new products and services, integrate acquired products and services and enhance
existing products and services through product development initiatives and technological advances; any failure to make such
improvements could harm our future business and prospects.
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The
volatility of the cost of raw materials used to produce our products could materially adversely affect our results of operations
in the future.
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We
may not realize the anticipated benefit through our joint venture with Saint-Gobain and the planned construction of a new
plant as part of the joint venture may not be completed as planned.
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The
home building industry and the home repair and remodeling sector are regulated and any increased regulatory restrictions or
changes in building codes could negatively affect our sales and results of operations.
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Equipment
failures, delays in deliveries and catastrophic loss at our manufacturing facility could lead to production curtailments or
shutdowns that prevent us from producing our products.
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Our
reliance on a single facility subjects us to concentrated risks.
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Customer
concentration and related credit, commercial and legal risk may adversely impact our future earnings and cash flows.
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Our
business involves complex manufacturing processes that may cause personal injury or property damage, subjecting us to liabilities
and possible losses other disruptions of our operations in the future, which may not be covered by insurance.
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The
nature of our business exposes each of our subsidiaries to product liability and warranty claims that, if adversely determined,
could negatively affect our financial condition and results of operations and the confidence of customers in our products.
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Our
results of operations could be significantly affected by foreign currency fluctuations and currency regulations.
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We
are dependent on certain key personnel, the loss of whom could materially affect our financial performance and prospects in
the future.
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We
have entered into significant transactions with affiliates or other related parties, which may result in conflicts of interest.
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Our
indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations.
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Our
operations are located in Colombia, which may make it more difficult for U.S. investors to understand and predict how changing
market and economic conditions will affect our financial results. It also may be difficult or impossible to enforce judgments
of courts of the United States and other jurisdictions against our Colombian subsidiaries or any of their directors, officers
and controlling persons.
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We
are dependent on sales to customers outside Colombia and any failure to make these sales may adversely affect our operating
results in the future.
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Because
we are incorporated under the laws of the Cayman Islands, you may face difficulties in protecting your interests, and your
ability to protect your rights through the U.S. Federal courts may be limited.
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If
we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements could be
impaired, which could adversely affect our business.
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Anti-takeover
provisions in our organizational documents and Cayman Islands law may discourage or prevent a change of control, even if an
acquisition would be beneficial to our shareholders, which could depress the price of our ordinary shares and prevent attempts
by our shareholders to replace or remove our current management.
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We
are a “controlled company,” controlled by Energy Holding Corp., whose interest in our business may be different
from ours or yours.
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We
cannot assure you that we will continue to pay dividends on our ordinary shares, and our indebtedness, future investments
or cashflow generation could limit our ability to continue to pay dividends on our ordinary shares.
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If
a United States person is treated as owning at least 10% of the value or voting power of our shares, such holder may be subject
to adverse U.S. federal income tax consequences.
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We
face various risks related to health epidemics, pandemics and similar outbreaks, including the global outbreak of COVID-19,
which may have material adverse effects on our business, financial position, results of operations and/or cash flows.
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Unless
the context otherwise requires:
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references
to the “Company”, “Tecnoglass”, the “group” and to “we”, “us”
or “our” are to Tecnoglass Inc., a Cayman Islands exempted company, and its subsidiaries;
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references
to “Tecnoglass Holding” are to Tecno Corporation;
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references
to “TG” are to Tecnoglass S.A.S;
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references
to “ES” are to C.I. Energía Solar S.A.S E.S. Windows;
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references
to “ESW” are to ES Windows LLC, our indirect wholly-owned subsidiary, based in Florida.
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References
to “VS” are to Ventana Solar S.A., a Panama-based company with which we have a strategic commercial relationship
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references
to “Tecno LLC” are to Tecnoglass LLC;
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references
to “Tecno RE” are to Tecno RE LLC; and
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references
to “ES Metals” are to ES Metals S.A.S.; and
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references
to “GM&P” are to Giovanni Monti and Partners Consulting and Glazing Contractors.
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Our
registered trademarks include Alutions by TecnoglassTM, ECOMAX by ESWINDOWSTM, TecnobendTM, TecnoairTM,
ESWINDOWS InteriorsTM, ESW Windows and WallsTM, Solartec by TecnoglassTM, Prestige by ESWINDOWSTM,
Eli by ESWINDOWSTM, and Alessia by ESWINDOWSTM . Solely for our convenience, trademarks and trade names
referred to in this Form 10-K may appear without the “®” or “™” symbols, but such references
are not intended to indicate, in any way, that we will not assert, to the fullest extent possible under applicable law, our rights
or the rights to these trademarks and trade names.
MARKET
AND INDUSTRY DATA
In
this Form 10-K, we refer to information and statistics regarding our industry, the size of certain markets and our position within
the sectors in which we compete. Some of the market and industry data contained in this Form 10-K is based on independent industry
and trade publications or other publicly available information, or information published by our customers, that we believe to
be reliable sources, while other information is based on our good-faith estimates, which are derived from our review of internal
surveys, as well as independent sources listed in this Form 10-K, and the knowledge and experience of our management in the markets
in which we operate. The estimates contained in this Form 10-K have also been based on information obtained from our customers,
suppliers and other contacts in the markets in which we operate. Although we believe that these independent sources and internal
data are reliable as of their respective dates, the information contained in them has not been independently verified, nor have
we sought consent to refer to their reports, and we cannot assure you as to the accuracy or completeness of this information.
As a result, you should be aware that the market and industry data and the market share estimates set forth in this Form 10-K,
and beliefs and estimates based thereon, may not be reliable. We have made rounding adjustments to reach some of the figures included
in this Form 10-K for ease of presentation. As a result, amounts shown as totals in some tables may not be arithmetic aggregations
of the amounts that precede them.
PART
I
Overview
Tecnoglass
is a leading vertically-integrated manufacturer, supplier and installer of architectural glass, windows, and associated aluminum
products for the global commercial and residential construction industries. Tecnoglass was rated the second largest glass fabricator
as well as the second largest metal company serving the United States in 2020 by Glass Magazine. Headquartered in Barranquilla,
Colombia, the Company operates out of a 2.7 million square foot vertically-integrated, state-of-the-art manufacturing complex
that provides easy access to the Americas, the Caribbean, and the Pacific. Tecnoglass supplies over 1,000 customers in North,
Central and South America, with the United States accounting for 91% of revenues. Tecnoglass’ tailored, high-end products
are found on some of the world’s most distinctive properties, including the El Dorado Airport (Bogota), 50 United Nations
Plaza (New York), Trump Plaza (Panama), Icon Bay (Miami), and Salesforce Tower (San Francisco).
On
May 3, 2019, we consummated a joint venture agreement with Compagnie de Saint-Gobain S.A. (“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 (“Vidirio Andino”), a Colombia-based subsidiary of Saint-Gobain. The purchase
price for our interest in Vidrio Andino was $45 million, of which $34.1 million was paid in cash and $10.9 million was paid through
the contribution of land on December 9, 2020. On October 28, 2020 we acquired said land from a related party and paid for it with
the issuance of an aggregate of 1,557,142 ordinary shares of the Company, valued at $7.00 per share, which represented an approximate
33% premium based on the closing stock price as of October 27, 2020.
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 if needed
(based on debt availability).
On
March 24, 2020, Colombia went into a mandatory lockdown as a result of the novel coronavirus outbreak. As a result, the Company
temporarily suspended production at its facilities in Colombia through April 13, 2020 during the initial phase of the nationwide
shelter-in-place order. While the shelter-in-place order was subsequently extended to May 25, 2020, the Company resumed full operations
at its facilities on April 14, 2020 given its exempted designation as a supplier of critical products to essential business sectors
such as infrastructure and construction. At the same time, most of our customers in the United States and Colombia were resuming
their activities. During the period that production was suspended, vacation days were used to retain eligible employees and the
Company used the time to implement broad safety measures before returning to normal operations. The Company entered the pandemic
with a strong financial position along with the flexibility required to support its global operations during this volatile period.
We have implemented strict cost controls, reduced operating expenses and limited all non-critical capital expenditures beyond
the completion of initiatives started in 2019. During fiscal year 2020, working capital was a net benefit to cash flow.
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. BBVA USA is the joint
lead arranger, sole bookrunner, administrative agent and a lender under the Senior Secured Credit Facility, and Banco de Sabadell,
S.A., Miami Branch, Citizens Bank, N.A., and ING Bank N.V. – Dublin Branch are joint lead arrangers and lenders. The term
loans may be Eurodollar loans or base rate loans and are repayable in consecutive quarterly installments of 1.25% of the outstanding
term loans through September 30, 2023 and 1.875% of the outstanding term loans thereafter through maturity. The revolving loans
may be Eurodollar loans or base rate loans. Eurodollar loans bear interest at a rate per annum equal to (i) an amount based on
the LIBOR rate, with a floor of 0.75%, plus (ii) an initial margin rate of 3.0%, with subsequent margin rates between 2.5% and
3.5%, depending on the ratio of the Company’s consolidated total debt less up to $10 million of qualifying cash to the Company’s
consolidated adjusted EBITDA for the four quarters ending on or prior to such date (“Consolidated Net Leverage Ratio”).
Base rate loans bear interest at a rate per annum equal to (x) the higher of the federal funds rate plus 0.50%, the Administrative
Agent’s prime rate, and the Eurodollar rate for a one month interest period plus 1%, plus (y) an initial margin rate of
2.0%, with subsequent margin rates between 1.5% and 2.5%, depending on the Consolidated Net Leverage Ratio.
The
term loans and revolving loans are secured by substantially all of the Company’s tangible and intangible property, including
contracts and contract rights, accounts receivable, and intellectual property, and the pledge of the issued and outstanding shares
of stock or other equity interests of certain of the Company’s direct and indirect subsidiaries, pursuant to a Security
Agreement, between the Company and BBVA USA.
The
Senior Secured Credit Facility has an accordion feature allowing the Company to increase the borrowing capacity to $325 million.
In December 2020, we used $23.1 million proceeds of this facility to repay all outstanding borrowings under our previous credit
facilities except the Company’s existing $210 million unsecured senior notes, which bear interest at a rate of 8.2% and
mature in 2022, which we subsequently redeemed in full at the end of January 2021 following a step down in redemption price, with
$220 million additional proceeds from this credit facility.
Our
Business
General
We
are a vertically-integrated manufacturer, supplier and installer of architectural glass, windows and associated aluminum products
for the global commercial and residential construction markets. With a focus on innovation, combined with providing highly specified
products with the highest quality standards at competitive prices, we have developed a leadership position in each of our core
markets. In the United States, which is our largest market, we were ranked as the second largest glass fabricator as well as the
second largest metal company serving the United States in 2020 by Glass Magazine. In addition, we believe we are the leading glass
transformation company in Colombia. Our customers, which include developers, general contractors or installers for hotels, office
buildings, shopping centers, airports, universities, hospitals and multi-family and residential buildings, look to us as a value-added
partner based on our product development capabilities, our high-quality products and our unwavering commitment to exceptional
service.
We
have more than 35 years of experience in architectural glass and aluminum profile structure assembly. We transform a variety of
glass products, including tempered safety, double thermo-acoustic and laminated glass. Our finished glass products are installed
in a wide variety of buildings across a number of different applications, including floating facades, curtain walls, windows,
doors, handrails, and interior and bathroom spatial dividers. We also produce aluminum products such as profiles, rods, bars,
plates and other hardware used in the manufacturing of windows.
Our
products are manufactured in a 2.7 million square foot, state-of-the-art manufacturing complex in Barranquilla, Colombia that
provides easy access to North, Central and South America, the Caribbean and the Pacific. Our products can be found on some of
the most distinctive buildings in these regions, including El Dorado Airport (Bogota), 50 United Nations Plaza (New York), Trump
Plaza (Panama), Icon Bay (Miami), and Salesforce Tower (San Francisco). Our track record of successfully delivering high profile
projects has earned us an increasing number of opportunities across the United States, evidenced by our expanding backlog and
overall revenue growth.
Our
structural competitive advantage is underpinned by our low-cost manufacturing footprint, vertically integrated business model
and geographic location. Our integrated facilities in Colombia and distribution and services operations in Florida provide us
with a significant cost advantage in both manufacturing and distribution, and we continue to invest in these operations to expand
our operational capabilities. Our lower cost manufacturing footprint allows us to offer competitive prices for our customers,
while also providing innovative, high quality and high value-added products, together with consistent and reliable service. We
have historically generated high margin organic growth based on our position as a value-added solutions provider for our customers.
We
have a strong presence in the Florida market, which represents a substantial portion of our revenue stream and backlog. Our success
in Florida has primarily been achieved through sustained organic growth, with further penetration now taking place into other
highly populated areas of the United States. As part of our strategy to become a fully vertically integrated company, we have
supplemented our organic growth with some acquisitions that have allowed us added control over our supply chain allowed for further
vertical integration of our business and will act as a platform for our future expansion in the United States. In 2016, we completed
the acquisition of ESW, which gave us control over the distribution of products into the United States from our manufacturing
facilities in Colombia. In March 2017, we completed the acquisition of GM&P, a consulting and glazing installation business
that was previously our largest installation customer.
The
continued diversification of the group’s presence and product portfolio is a core component of our strategy. In particular,
we are actively seeking to expand our presence in United States outside of Florida. Since 2017, we have been expanding our presence
in U.S. residential markets which went from around 5% of our sales nearly 20% of our revenues for the full year 2020. We believe
that the quality of our products, coupled with our ability to price competitively given our structural advantages on cost, will
allow us to generate further growth in the future.
Competitive
Strengths
Our
success has been grounded in our ability to offer high quality products at the most competitive prices. We are able to competitively
price our products, while still achieving strong margins, due to a number of unique cost advantages. In addition to our vertically
integrated business model, we benefit from structural cost advantages in manufacturing and distribution due to our geographic
location. Alongside these structural advantages, we are committed to quality, product innovation and customer service. We believe
these competitive strengths create a significant barrier to entry, which is underpinned and sustained by the experience of our
senior management team and the loyalty of our highly motivated employees.
Vertical
Integration
We
believe we are unique within the industry in vertically integrating the purchasing of raw materials and the manufacturing, distribution
and installation of our products. By vertically integrating each of these functions, we are able to eliminate inefficiencies throughout
the supply chain and generate strong margins. These efficiencies are only enhanced as our business grows and we benefit from operating
leverage and economies of scale. In particular, our joint venture with Saint-Gobain has solidified our vertical integration strategy
by providing us with an interest in the first stage of our production chain, while securing ample glass supply for our expected
production needs.
This
business model also allows us to maintain strict quality control, from the sourcing of input materials to the installation of
our finished products. Our vertically integrated business model therefore enables us to provide consistent high-quality products
to our end-customers. Ownership of the entire production process also reduces our dependence on third parties, allowing us to
respond more quickly to our customers’ needs and reducing lead-times for new or customized products.
Cost
of Production Advantages
We
enjoy significant cost advantages because of our location in Colombia that we would not be able to realize if our production facility
was located in the United States. We believe we are able to offer competitive prices, in part, as a result of our low labor and
energy costs relative to those in the United States while maintaining efficient transportation costs into the markets we serve.
Employees at our manufacturing facilities in Colombia earn above the local minimum wage, yet these wages are typically less than
one quarter of the cost of a comparable employee located within the United States. In 2018, we completed a solar panel project
with the capacity to generate approximately five megawatts of eco-friendly energy on-site at our manufacturing facilities. This
investment has allowed us to reduce energy costs, while also having a positive tax effect due to our ability to deduct the investment
from our taxable income in compliance with applicable Colombian tax regulations.
Low-Cost
Distribution
Our
principal manufacturing facility is located in Barranquilla, Colombia, which is strategically located near three of the country’s
major ports: Barranquilla, Cartagena and Santa Marta. These ports provide us with maritime access to all major global markets.
The Barranquilla port is just 16 kilometers away from our production facility. From there, our products can be shipped to Miami
in three days and New York in four days. In addition, for short lead-time projects, our products can be transported by air from
Barranquilla to Houston or Miami within a few hours.
As
a result of the significant trade imbalance between Colombia and the United States for goods transported in container ships, we
are able to transport our products to the United States in containers that would otherwise return empty to the United States.
We are therefore able to distribute our products to the eastern, southern and western regions of the United States at very attractive
rates, which are often lower than a comparable domestic land shipment within the United States. Demand for high-specification
architectural glass is typically highest in large coastal cities, which we are able to ship to directly, while most of our competitors
must utilize relatively expensive land transportation services to deliver finished goods to these sites.
Commitment
to Quality and Innovation
Our
commitment to quality is evidenced by our significant recent investments in machinery and equipment. Since 2012, we have invested
nearly $300 million in the latest technologies to enhance the efficiency and accuracy of our production lines, and ultimately
to improve the quality of the products that we deliver to our customers. We believe these significant investments position us
to meet our growth objectives over the next several years. We operate state-of-the-art glass making equipment, glass laminating
lines, aluminum presses and high-volume insulating equipment which facilitate more precise manufacturing, enabling us to offer
a broader selection of and higher quality products and remain agile in responding to customer demands, while generating less raw
material waste.
We
believe our investments in technology within recent years have positioned us well for continued growth, improved profitability
and enhanced cash generation in the years ahead. Recent examples of our high return investments within the last two years include:
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Completing
the automation of two centralized aluminum warehouses for storing, sorting and delivering aluminum profiles to our internal
production processes that reduce lead times for the assembly of architectural systems and reduce on-site damage to materials,
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The
automation of two complete glass transformation lines with an automated glass sorting and processing system, which increased
the capacity of two of our ten production lines by over 160% (or 10% of our total production capacity) while reducing employee
headcount, process lead time and breakage which entered into operation toward the end of 2019; and
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A
complete aluminum transformation line, which includes an additional furnace, extrusion press and a vertical paint line, which
expanded our aluminum production capacity in tons by roughly 29% and which entered into operation in mid-2019.
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Our
quality assurance department maintains rigorous oversight over the production process to ensure the consistent production of high
quality products. In addition, we adhere to quality standards that meet all guidelines and requirements for the Insulating Glass
Certification Council (IGCC) and Safety Glazing Certification Council (SGCC) certification programs.
Finally,
our commitment to quality also extends to our partnerships and alliances. Most notably, for certain products we offer Kuraray
Sentryglass®. These laminated glass interlayers are five times stronger than conventional laminating materials.
On
September 20, 2018, we entered an agreement with Schüco USA LLLP (“Schüco”), a division of the Schüco
International KG, a worldwide leader of architectural systems headquartered in Germany, with more than 60 years of experience
and a presence in over 80 countries. Schüco is known for its expertise in the innovative design of building envelopes, windows,
doors and facade systems, for the construction industry. This agreement enables Tecnoglass to manufacture and sell Schüco’s
architectural systems to customers in North, Central and South America, alongside our existing ESWindows products. Additionally,
Tecnoglass will extrude and paint aluminum profile designs as part of Schüco’s global supply chain primarily for products
sold in the United States. This agreement allows Tecnoglass to expand its portfolio and offer more solutions to its clients with
high-end, renowned designs.
Superior
Customer Service
In
addition to manufacturing high quality products at competitive prices, our customer value proposition is supplemented by short
lead-times, on-time delivery and after-sale support. Through the coordinated efforts of our sales teams, product specialists and
field service teams, we deliver high quality service to our customers, from the initial order to the delivery and installation
of our products. We believe our ability to accompany our clients throughout every phase of their projects’ engineering,
consulting, manufacturing and installation along with our ability to coordinate these efforts as a one-stop-shop is a key differentiator
from our competition.
High
Barriers to Entry
The
ability of new competitors to enter the markets that we serve is limited due to the technical certifications required on high
specification building projects, such as IGCC, IqNet Icontec 14001 and ISO9001. We attribute our success, in large part, to our
ability to produce a broad range of sophisticated products, as well as our reputation for delivering high quality, made-to-order
architectural glass on time. Our employees have extensive training, knowledge and experience at manufacturing high specification
products. We believe the vertically-integrated nature of our operations means that there are high barriers to successfully entering
our markets and competing with us on price, quality and agility. In addition, the equipment needed to operate in the glass and
window industry is expensive, therefore requiring significant upfront capital investment.
Loyal
and Highly Motivated Employees
Capitalizing
on our various competitive advantages also requires a skilled and dedicated workforce. We actively encourage and facilitate the
development of our employees through rolling training programs, with multiple training sessions held every week. These programs
increase the skills of our employees and are designed to allow our employees to keep pace with the new technologies being installed
at our manufacturing facilities. We are committed to developing our employees and remaining at the forefront of technology in
our industry. These investments have also helped us manage workplace injuries, with our rate of one accident per 37 workers per
year, being substantially lower than the average of one accident per 12 workers per year for manufacturing companies in Colombia.
We
value our employees and invest in them and in our local communities. For several decades, our Tecnoglass ES Windows Foundation
has committed resources to create projects aimed to assist and contribute to the development of the region. Through the foundation´s
scholarship program, over 212 students were benefited in 2020, with grants to access higher education in different universities
of Colombia. Our foundation provides funding for different local schools and institutions, looking to improve social transformation
and community development. Additionally, the foundation collaborates with multiples institutions to encourage sports and healthy
habits in the younger generations. During a challenging 2020, the foundation went much further and delivered 38.000 food aids
and 2.210 tons of food to local communities, helping both families and farmers, working hand in hand with the Archdiocesan Food
Bank Foundation. Also, Covid-19 prevention and awareness campaigns were executed with the distribution of 200.000 facemasks, by
30 volunteers, to families with no resources; this was accompanied by educational material, to help mitigate the number of people
infected by this virus.
This
and other initiatives have allowed us to maintain a strong relationship with the communities and our employees. We continuously
strive to make a difference for our people, contributing to building a better future for the region and our country.
Strategy
We
have identified the following strategic priorities that we believe are important in advancing our business:
Further
Geographic Penetration in the United States
We
have successfully established a leading reputation in the Florida construction market by providing high value, impact-resistant
architectural glass products. Our products have become widely regarded in Florida for their quality and are certified in compliance
with all U.S. regulations.
Sales
in Florida comprised 72% of United States revenue in the year ended December 31, 2020. In recent years, we have begun to successfully
grow our geographic presence in the United States outside of Florida, particularly into markets along the east coast, and as a
result, 25% of our U.S. backlog is for projects outside of Florida. Coastal markets are particularly attractive to us, as they
can be directly accessed by ship, resulting in transportation costs from our manufacturing facilities that are similar to our
transportation costs to Florida. These regions are also affected by hurricanes, significant temperature fluctuations and other
extreme forms of weather that foster demand for our products. We are actively expanding our sales presence in these costal markets
and have already successfully completed several projects in large U.S. markets such as New York, Boston, Washington D.C. and Baltimore
as well as cities along the U.S. Gulf Coast, such as Houston.
We
intend to continue growing the business organically outside of Florida. As we explore growth opportunities in new U.S. markets,
we intend to leverage the strong reputation we have developed with national commercial construction contractors, architects and
designers for providing high quality products at the most competitive prices.
Penetrate
the U.S. Residential Market
In
April 2017 we launched “ES Windows: Elite Collection” and “ES Windows: Prestige Collection” to target
the U.S. residential new and replacement sectors. We have received a great interest for the new products to date and positive
reactions from our customers. Nowadays, residential sales represent a considerable portion of our total revenues and we believe
we will continue growing into this end market in the U.S through share gains, new products and a solid execution. This year we
had a significant demand in the U.S. residential market, representing 21% of our total sales for the year ended December 31, 2020,
compared to 3% as of 2017. The U.S. private residential construction market exceeded $690 billion in spending during the twelve
months ended December 31, 2020 according to the United States Census Bureau. Residential housing starts in the US increased by
5.8% during 2020, according to the US Census Bureau. We believe that our core strengths that have facilitated our success to date,
namely the quality of our products and the structural cost advantages that allows us to price our products competitively, will
similarly contribute to our ongoing success and continued penetration into the U.S residential end market.
Continued
Investment in Technology to Meet Evolving Demands
We
have a track record of developing innovative new products, and we intend to continue our focus on new product opportunities in
the future. We are constantly identifying shifts in global trends and customer needs, and designing new products to meet those
changes in demand. In order to continue this success, it is critical that we invest in the latest technologies available in our
industry. For example, with the installation of our soft-coating facility, we are now able to manufacture low emissivity glass
that is energy efficient and will allow us to meet growing demand for “green” products.
We
operate state-of-the-art architectural glass making equipment, glass laminating lines, aluminum presses and high-volume insulating
equipment, which facilitate more precise manufacturing and generate less raw material waste. We will seek to leverage this platform
of cutting-edge equipment to adapt our products to evolving demands in both current and new markets. We expect that our focus
on innovation, which is founded upon our investments in technology, will position us well to take advantage of new opportunities.
The
Company is carrying out enhancements at its glass and aluminum facilities to increase production capacity and automate operations.
The Company anticipates that these high return investments speed up production processes. The Company improved efficiency in its
glass production during 2020 by automating certain processes to increase capacity, while reducing material waste and overall lead
times, which entered operations in late 2019. Additionally, in 2020 we completed the automation of two centralized aluminum warehouses
for storing, sorting and delivering aluminum profiles to our internal production processes that reduce lead times for the assembly
of architectural systems and reduce on-site damage to materials and we expect will have a positive impact to our working capital
through more effective inventory management. The Company expects to continue funding these capital investments mainly with cash
on hand.
Rigorous
Adherence to Quality Standards
Maintaining
the high quality standards for which we have become known is essential to the execution of our strategy. All of our internal processes
are continually and independently supervised by Tecnoglass’ Quality Assurance department. The Quality Assurance department
maintains rigorous oversight of optimization indicators covering energy, water, recyclable waste and other facets of the production
process. Constant monitoring of these indicators is integral to ensuring that we consistently produce high quality products. Between
5% and 10% of our production is randomly selected to verify compliance with a variety of quality standards, such as water leaks,
functionality, manufacturing and accessories, according to ASTM International (ASTM) and American Architectural Manufacturers
Association (AAMA) rules.
These
measures allow us to effectively detect issues and take specific actions to mitigate their reoccurrence. As we grow and our use
of technology evolves, our Quality Assurance team must also evolve its tests, controls and remedies. We believe this rigorous
adherence to quality control will ensure that we will continue to provide the highest quality products and, ultimately, promote
customer satisfaction.
Products
We
manufacture and sell the following products:
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Low-e
Glass – Low emissivity glass manufactured by depositing metal particles on the surface of the glass inside a vacuum
chamber. This product offers excellent thermal insulation designed to improve energy efficiency of buildings.
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Laminated/Thermo-Laminated
Glass - produced by bonding two glass sheets with an intermediate film in-between. As a safety feature, this product fractures
into small pieces if it breaks.
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Thermo-Acoustic
Glass - manufactured with two or more glass sheets separated by an aluminum or micro-perforated steel profile. This product
has a double-seal system that ensures the unit’s tightness, buffering noise and improving thermal control. This product
serves as an excellent noise barrier, which is used especially in zones close to airports, traffic or wherever there are unpleasant
sounds.
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Tempered
Glass - glass subject to a tempering process through elevated temperatures resulting in greater superficial elasticity
and resistance than conventional glass.
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Silk-Screened
Glass - special paint is applied to glass using automatic machinery and numerical control, which ensures paint homogeneity
and an excellent finish.
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Curved
Glass - produced by bending a flat glass sheet over a mold, using an automated heat process, which maintains the glass’
physical properties.
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Digital
Print Glass - digital printing allows any kind of appearance required by the client, offering versatility to projects.
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Aluminum
products - sold through our Alutions brand includes bars, plates, profiles, rods and tubes used primarily in the manufacture
of architectural glass settings including windows, doors, spatial separators and similar products.
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Curtain
Wall / Floating facades - a non-structural window screen suspended outside a building and are available in many technical
specifications for high performance required in high-rise buildings, resistant to strong winds and ensuring high quality standards.
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Stick
facade systems – glass and aluminum facade elements are fixed to the structure of the building and the glass and
spandrel are inserted in the grid on site available in many combinations to define colors, thickness, glass types and finishes,
and types of ventilation and design complements.
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Windows
and Doors - line of window and door products defined by the different types of glass finish, such as normal, impact resistant,
hurricane-proof, safety, soundproof and thermal. Additionally, they are available in numerous structures, including fixed
body, sliding windows, casement windows, hung windows, sliding doors and swinging doors.
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Interior
dividers and Commercial display windows - commercial and interior display windows with a broad range of profiles, colors
and crystal finishes, as well as bathroom stall dividers, office cubicle separators and closets Products combine functionality,
aesthetics and elegance and are available in a broad range of structures and materials.
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Hurricane-proof
windows - combine heavy-duty aluminum or vinyl frames with special laminated glass to provide protection from hurricane-force
winds up to 180 mph and wind-borne debris by maintaining their structural integrity and preventing penetration by impacting
objects.
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Other
– awnings, structures, automatic doors and other components of architectural systems.
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Brands
and Trademarks
Our
main brands are Tecnoglass, ESWindows and Alutions. Our registered trademarks include “Alutions by Tecnoglass”, “ECOMAX
by ESWINDOWS”, “Tecnobend”, “Tecnoair”, “ESWINDOWS Interiors”, “ESW Windows and
Walls”, “Solartec by Tecnoglass”, “Prestige by ESWINDOWS”, “Eli by ESWINDOWS”, and “Alessia
by ESWINDOWS”.
Sales,
Marketing and Customer Service
Sales
and Marketing
Our
sales strategy primarily focuses on attracting and retaining customers by consistently providing exceptional customer service,
leading product quality, and competitive pricing. Our customers also value our shorter lead times, knowledge of building code
requirements and technical expertise, which collectively generate significant customer loyalty. We primarily market our products
based on product quality, outstanding service, shorter lead times and on-time delivery.
Our
products are marketed using a combination of internal sales representatives, independent sales representatives and directly to
distributors. We believe this strategy is highly efficient for our business. Our internal sales representatives receive a portion
of their performance-based compensation based on sales and profitability metrics. Additionally, some of our sales and marketing
efforts are handled by area sales representatives who work on a commission basis.
We
do not rely on significant traditional advertising expenditures to drive net sales. We have established and maintain credibility
primarily through the strength of our products, our customer service and quality assurance, the speed at which we deliver finished
products and the attractiveness of our pricing. Our advertising expenditures consist primarily of maintaining our subsidiaries’
websites.
Customer
Service
We
believe that our ability to provide customers outstanding service quality serves as a strong competitive differentiator. Our customer
relationships are established and maintained through the coordinated efforts of our sales and production teams. We employ a highly
responsive and efficient team of professionals devoted to addressing customer support with the goal of resolving any issue in
a timely manner. In order to promote customer loyalty and employee development, we developed an employee training program with
the primary objectives of educating our staff to be aware of client and supplier needs and familiarizing them with our strategic
goals in order to improve the competitiveness, productivity and quality of all products offered.
Working
Capital Requirements
During
the year ended December 31, 2020, we generated $71.4 million cash from operating activities. The positive cashflow from operations
during 2020 is related to record high operating profit margins, enhanced working capital efforts, easing working capital requirements
to serve tapered sales during the period, and our efforts to preserve cash and solidify our liquidity position and preparedness
as we continue to weather through the pandemic.
Customers
Our
customers include architects, building owners, general contractors and glazing subcontractors in the commercial construction market.
We have over 1,000 customers. Of our 100 most representative customers, which represent over 87% of our sales, about 96% are located
in North America and 4% in South America. No single customer accounted for more than 10% of our revenues during the years ended
December 31, 2020 and 2019.
Materials
and Suppliers
Our
primary manufacturing materials include glass, ionoplast, polyvinyl butyral, and aluminum and vinyl extrusions. Although in some
instances we have agreements with our suppliers, these agreements are generally terminable by us or the supplier counterparties
on limited notice. Typically, all of our materials are readily available from a number of sources, and no supplier delays or shortages
are anticipated.
We
source raw materials and glass necessary to manufacture our products from a variety of domestic and foreign suppliers. During
the year ended December 31, 2020 four suppliers individually accounted for more than 10% of total raw material purchases, which
in aggregate represented 47% of raw material purchases, including Vidrio Andino SAS, from which we purchased 13% of our raw material
purchases, and with whom we created a joint venture in May 2019. During the year ended December 31, 2019 three suppliers individually
accounted for more than 10% of total raw material purchases, which in aggregate represented 37% of raw material purchases, including
Vidrio Andino, from whom we purchased 10%.
Warranties
We
offer product warranties, which we believe are competitive for the markets in which our products are sold. The nature and extent
of these warranties depend upon the product. Our standard warranties 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. In the event of a claim against a product for which we have received a warranty from the supplier, we transfer
the claim back to the supplier.
The
cost associated with product warranties was $681 and $2,453 during the years ended December 31, 2020 and 2019, respectively.
Certifications
Among
our many designations and certifications, Tecnoglass has earned the Miami-Dade County Notice of Acceptance (“NOA”),
one of the most demanding certificates in the industry and a requirement to market hurricane-resistant glass in Florida. Tecnoglass’
products comply with Miami-Dade county’s safety code standards as its laminated anti-hurricane glass resists impact, pressure,
water and wind. Tecnoglass is also the only company in Latin America authorized by PPG Industries and Guardian Industries to manufacture
floating glass facades.
Our
subsidiaries have received a number of other certifications from other national and international standard-setting bodies.
TG
Certifications include:
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NTC-1578
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ASTM
E774 1997
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ISO
9001: 2008 Certificate of Quality Assurance
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ISO
14001: 2004 Certificate of Environmental Management
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Safety
Glazing Certification Council (SGCC) for tempered and laminated glass: ANZI
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Z97
1-2004
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International
Glass Certification Council (IGCC) for insulated glass: ASTM E774 - 97
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Pittsburgh
Plate Glass (PPG) certified supplier
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Member
of ACOLVISE (Colombia Association of Safety Glass Transformers)
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OHSAS
18001:2007. Occupational Health and Safety management System
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ES
Certifications include:
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NTC-ISO
9001: 2008 Certificate of Quality Assurance
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NTC-ISO
14001: 2004 Certificate of Environmental Management
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Member
of the American Architectural Manufacturers Association (AAMA)
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Complies
with Miami-Dade County’s stringent safety code regulations for hurricane-proof windows
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Competitors
We
have local and international competitors that also focus on glass and aluminum transformation, window ensemble and installation
and designing in the commercial and residential construction markets. The market in the United States in which we compete is mainly
comprised of manufacturers, distributors and installers of glass curtain walls, windows and doors for commercial and residential
buildings. Based on our analysis of IBIS World Report, we estimate that we capture 1% of the US consolidated market by revenue
(manufacturing and services), which represents an attractive opportunity for further penetration. In Colombia, we believe we are
the leading producer of high-end windows, with more than 35 years of experience in the glass and aluminum structure assembly market.
The industry has a few well-known players and is mostly atomized and comprised of small competitors.
The
key factors on which we and our competitors compete for business include: quality, price, reputation, breadth of products and
service offerings, and production speed. We face intense competition from both smaller and larger market players who compete against
us in our various markets including glass, window and aluminum manufacturing.
The
principal methods of competition in the window and door industry are the development of long-term relationships with window and
door distributors and dealers, and the retention of customers by delivering a full range of high-quality customized products on
demand with short turnaround times while offering competitive pricing. The vertical integration of our operations, our geographic
scope, low labor costs and economies of scale have helped our subsidiaries consolidate their leading position in Colombia and
bolstered their expansion in the United States and other foreign markets.
Government
Regulations
We
are subject to extensive and varied federal, state and local government regulation in the jurisdictions in which we operate, including
laws and regulations relating to zoning and density, building design and safety, hurricane and floods, construction, and similar
matters. In particular, the market for our impact-resistant windows and doors depends in large part on our ability to satisfy
state and local building codes that require protection from wind-borne debris. Additionally, certain of the jurisdictions in which
we operate require that installation of doors and windows be approved by competent authorities that grant distribution licenses.
We have invested significantly in our quality assurance department in order to maintain rigorous oversight over the production
process to ensure the consistent production of high quality products. We have been certified in compliance with rigorous safety
standards, as described in more detail in the section titled “—Certifications.” We are also subject to
laws and regulations relating to our relationships with our employees, public health and safety and fire codes. Although our business
and facilities are subject to federal, state and local environmental regulation, environmental regulation does not have a material
impact on our operations.
Human
Capital
As
of December 31, 2020, we had a total of 5,583 employees, none of whom is represented by a union. As of December 31, 2019 we had
a total of 5,543 employees. Most of our employees are hired through seven temporary staffing companies and are employed under
one-year fixed-term employment contracts. We actively encourage and facilitate the development of our employees through rolling
training programs, with multiple training sessions held on a weekly basis. These programs increase the skills of our employees
and are designed to allow our employees to keep pace with the new technologies being installed at our manufacturing facilities.
We are committed to developing our employees and remaining at the forefront of technology in our industry. These investments have
also helped us manage workplace injuries, with our rate of one accident per 37 workers per year, being substantially lower than
the average of one accident per 12 workers per year for manufacturing companies in Colombia. We have remained union-free since
ES’s incorporation in 1984. The Company considers itself an equal opportunity employer and has constantly sought to seek
the best talent irrespective of gender or ethnicity. While the jobs associated to the core operations are predominantly filled
by males, the company´s sales and administrative staff is comprised of approximately 40% females and 60% males. From an
ethnicity perspective, our labor force is diverse but predominantly Latino based on our location.
Company
History
We
are an exempted company incorporated under the laws of the Cayman Islands. We were founded in 2013 in connection with a business
combination between Tecnoglass subsidiaries TG and ES, and Andina Acquisition Corporation. TG and ES are corporations formed under
the laws of Colombia and founded in 1994 and 1984, respectively, by José M. Daes, our Chief Executive Officer, and Christian
T. Daes, our Chief Operating Officer.
Additional
Information About the Company
We
maintain websites for our subsidiaries, TG, ES and GM&P, which can be found at www.tecnoglass.com, www.energiasolarsa.com,
and www.gmpglazing.com, respectively. The corporate filings of Tecnoglass Inc., including our Annual Reports on Form 10-K,
our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, our proxy statements and reports filed by our executive officers
and directors under Section 16(a) of the Securities Exchange Act, and any amendments to those filings, are available free of charge
on the Investor Relations page at investors.tecnoglass.com, which are uploaded as soon as reasonably practicable after we electronically
file (or furnish in certain cases) such material with the Securities and Exchange Commission, and can also be found at the SEC’s
website at http://sec.gov. We do not intend for information contained in any of our websites, including the Investor Relations
pages, to be a part of this Form 10-K.
You
should carefully consider the risks and uncertainties described below, together with the financial and other information contained
in this Annual Report on Form 10-K. Our business may also be adversely affected by risks and uncertainties not presently known
to us or that we currently believe to be immaterial. If any of the following risks, such other risks or the risks described elsewhere
in this Annual Report on Form 10-K, including in the section entitled “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” actually occur, our business, financial condition, operating results, cash flow and
prospects could be materially adversely affected. This could cause the trading price of our ordinary shares to decline.
Risks
Related to Our Business Operations
We
operate in competitive markets, and our business could suffer if we are unable to adequately address potential downward pricing
pressures and other factors that may reduce operating margins.
The
principal markets that we serve are highly competitive. Competition is based primarily on the precision and range of achievable
tolerances, quality, price and the ability to meet delivery schedules dictated by customers. Our competition comes from companies
of various sizes, some of which have greater financial and other resources than we do and some of which have more established
brand names in the markets that we serve. We currently compete with companies such as Viracon (a subsidiary within the Apogee
Enterprises Inc. Group), PGT, Cardinal Glass and Oldcastle Glass among others in the United States and companies such as Vitro,
Vitelco and others in the Colombia and Latin America. Any of these competitors may foresee the course of market development more
accurately than we will, develop products that are superior to ours, have the ability to produce similar products at a lower cost
than us or adapt more quickly than we can to new technologies or evolving customer requirements. Increased competition could force
us to lower our prices or to offer additional services at a higher cost to us, which could reduce gross profit and net income.
Accordingly, we may not be able to adequately address potential downward pricing pressures and other factors, which may adversely
affect our financial condition and results of operations.
Failure
to maintain the performance, reliability and quality standards required by our customers could have a materially negative impact
on our financial condition and results of operation.
If
our products or services have performance, reliability or quality problems, or products are installed with incompatible glazing
materials, we may experience additional warranty and service expenses, reduced or canceled orders, diminished pricing power, higher
manufacturing or installation costs or delays in the collection of accounts receivable. Additionally, performance, reliability
or quality claims from our customers, with or without merit, could result in costly and time-consuming litigation that could require
significant time and attention of management and involve significant monetary damages that could negatively affect our financial
results.
The
volatility of the cost of raw materials used to produce our products could materially adversely affect our results of operations
in the future.
The
cost of raw materials included in our products, including aluminum extrusion and polyvinyl butyral, are subject to significant
fluctuations derived from changes in price or volume. A variety of factors over which we have no control, including global demand
for aluminum, fluctuations in oil prices, speculation in commodities futures and the creation of new laminates or other products
based on new technologies, impact the cost of raw materials which we purchase for the manufacture of our products. We quote our
prices of aluminum products based on the price of aluminum in the London Metal Exchange plus a premium, and our suppliers of glass
and polyvinyl butyral provide us with price lists that are updated annually, thus reducing the risk of changing prices for orders
in the short term. While we may attempt to minimize the risk from severe price fluctuations by entering into aluminum forward
contracts to hedge these fluctuations in the purchase price of aluminum extrusion we use in production, substantial, prolonged
upward trends in aluminum prices could significantly increase the cost of our aluminum needs and have an adverse impact on our
results of operations. If we are not able to pass on significant cost increases to our customers, our results in the future may
be negatively affected by a delay between the cost increases and price increases in our products. Accordingly, the price volatility
of raw materials could adversely affect our financial condition and results of operations in the future.
We
depend on third-party suppliers for our raw materials and any failure of such third-party suppliers in providing raw materials
could negatively affect our ability to manufacture our products.
Our
ability to offer a wide variety of products to our customers depends on receipt of adequate material supplies from manufacturers
and other suppliers. It is possible in the future that our competitors or other suppliers may create products based on new technologies
that are not available to us or are more effective than our products at surviving hurricane-force winds and wind-borne debris
or that they may have access to products of a similar quality at lower prices. Although in some instances we have agreements with
our suppliers, these agreements are generally terminable by us or the supplier counterparties on limited notice. We have a fixed
set of maximum price rates, and from those prices we negotiate with the supplier of the material depending on the project. We
source raw materials and glass necessary to manufacture our products from a variety of domestic and foreign suppliers. During
the year ended December 31, 2020, four suppliers individually accounted for more than 10% of total raw material purchases, which
in aggregate represent 47% of raw material purchases, including Vidrio Andino SAS, from which we purchased 13% of our raw materials,
and with whom we consummated joint venture agreement in May 2019. Failures of third-party suppliers to provide raw materials to
us in the future could have an adverse impact on our operating results or our ability to manufacture our products.
We
rely on third party transportation, which subjects us to risks and costs that we cannot control, and which risks and costs may
materially adversely affect our operations.
We
rely on third party trucking companies to transport raw materials to the manufacturing facilities used by each of our businesses
and, to a lesser degree, to ship finished products to customers. These transport operations are subject to various hazards and
risks, including extreme weather conditions, work stoppages and operating hazards, as well as interstate transportation regulations.
In addition, the methods of transportation we utilize may be subject to additional, more stringent and more costly regulations
in the future. If we are delayed or unable to ship finished products or unable to obtain raw materials as a result of any such
new regulations or public policy changes related to transportation safety, or these transportation companies fail to operate properly,
or if there were significant changes in the cost of these services due to new or additional regulations, or otherwise, we may
not be able to arrange efficient alternatives and timely means to obtain raw materials or ship goods, which could result in a
material adverse effect on our revenues and costs of operations. Transportation costs represent a significant part of our cost
structure. If our transportation costs increased substantially, due to prolonged increases in fuel prices or otherwise, we may
not be able to control them or pass the increased costs onto customers, and our profitability would be negatively impacted.
We
may not realize the anticipated benefit through our joint venture with Saint-Gobain and the planned construction of a new plant
as part of the joint venture may not be completed as planned.
We
entered into a joint venture agreement with Saint-Gobain and on May 3, 2019, we acquired an approximately 25.8% minority interest
in Vidrio Andino’s float glass plant in the outskirts of Bogota, Colombia. We believe this transaction will solidifies our
vertical integration strategy by acquiring the first stage of our production chain while securing ample glass supply for our expected
production needs. Although our glass supply has run smoothly through 2020, we may be unable to realize the planned synergies and
fail to integrate some aspects of the facility’s production capacity into our manufacturing process, which may have a negative
impact on our financial condition. Additionally, 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 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.
There
can be no assurance that the anticipated joint venture cost synergies, increases in capacity or production and optimization of
certain manufacturing processes associated with the reduction of raw material waste, and supply chain synergies, including purchasing
raw materials at more advantageous prices, will be achieved, or that they might not be significantly and materially less than
anticipated, or that the completion of the joint venture with Saint-Gobain will be timely or effectively accomplished. In addition,
our ability to realize the anticipated cost synergies and production capacity increases are subject to significant business, economic
and competitive uncertainties and contingencies, many of which are beyond our control, such as changes to government regulation
governing or otherwise impacting our industry, operating difficulties, client preferences, changes in competition and general
economic or industry condition.
Constructing
a new manufacturing facility involves risks, including financial, construction and governmental approval risks. If Vidrio Andino’s
plant fails to produce the anticipated cash flow, if we are unable to allocate the required capital to the new plant, if we are
unable to secure the necessary permits, approvals or consents or if we are unable to enter into a contract for the construction
of the plant on suitable terms, we will fail to realize the expected benefits of the joint venture.
The
success of our business depends, in part, on our ability to execute on our acquisition strategy, to successfully integrate acquisitions
and to retain key employees of our acquired businesses.
A
significant portion of our historical growth has occurred through acquisitions and we will likely enter into acquisitions in the
future. We may at any time be engaged in discussions or negotiations with respect to possible acquisitions, including transactions
that would be significant to us. We regularly make, and we expect to continue to make, acquisition proposals, and we may enter
into letters of intent for acquisitions. We cannot predict the timing of any contemplated transactions. To successfully finance
such acquisitions, we may need to raise additional equity capital and indebtedness, which could increase our leverage level above
our leverage level. We cannot assure you that we will enter into definitive agreements with respect to any contemplated transactions
or that transactions contemplated by any definitive agreements will be completed on time or at all. Our growth has placed, and
will continue to place, significant demands on our management and operational and financial resources. Acquisitions involve risks
that the businesses acquired will not perform as expected and that business judgments concerning the value, strengths and weaknesses
of acquired businesses will prove incorrect.
Acquisitions
may require integration of acquired companies’ sales and marketing, distribution, purchasing, finance and administrative
organizations, as well as exposure to different legal and regulatory regimes in jurisdictions in which we have not previously
operated. We may not be able to integrate successfully any business we may acquire or have acquired into our existing business,
and any acquired businesses may not be profitable or as profitable as we had expected. Our inability to complete the integration
of new businesses in a timely and orderly manner could increase costs and lower profits. Factors affecting the successful integration
of acquired businesses include, but are not limited to, the following:
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We
may become liable for certain liabilities of any acquired business, whether or not known to us. These risks could include,
among others, tax liabilities, product liabilities, asbestos liabilities, environmental liabilities, pension liabilities and
liabilities for employment practices and they could be significant.
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Substantial
attention from our senior management and the management of the acquired business may be required, which could decrease the
time that they have to service and attract customers.
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The
complete integration of acquired companies depends, to a certain extent, on the full implementation of our financial systems
and policies.
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We
may actively pursue a number of opportunities simultaneously and we may encounter unforeseen expenses, complications and delays,
including difficulties in employing sufficient staff and maintaining operational and management oversight.
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We
may not be able to realize the expected return on our growth and efficiency capital expenditure plan.
In
recent years we have made significant capital expenditures which include:
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Completing
the automation of two centralized aluminum warehouses for storing, sorting and delivering aluminum profiles to our internal
production processes that reduce lead times for the assembly of architectural systems and reduce on-site damage to materials,
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The
automation of two complete glass transformation lines with an automated glass sorting and processing system, which increased
the capacity of two of our ten production lines by over 160% (or 10% of our total production capacity) while reducing employee
headcount, process lead time and breakage which entered into operation toward the end of 2019; and
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A
complete aluminum transformation line, which include an additional furnace, extrusion press and a vertical paint line, which
expanded our aluminum production capacity in tons by roughly 29% and which entered into operation in mid-2019.
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There
can be no assurance that the anticipated cost saving initiatives will be achieved, or that they will not be significantly and
materially less than anticipated, or that the completion of such cost savings initiatives will be effectively accomplished. In
addition, our ability to realize the anticipated cost savings are subject to significant business, economic and competitive uncertainties
and contingencies, many of which are beyond our control, such as changes to government regulation governing or otherwise impacting
our industry, operating difficulties, client preferences, changes in competition and general economic or industry condition. If
we fail to realize the anticipated cost savings it could have a negative impact on our financial position.
Our
success depends upon our ability to develop new products and services, integrate acquired products and services and enhance existing
products and services through product development initiatives and technological advances; any failure to make such improvements
could harm our future business and prospects.
We
have continuing programs designed to develop new products and to enhance and improve our existing products. We are expending resources
for the development of new products in all aspects of our business, including products that can reach a broader customer base.
Some of these new products must be developed due to changes in legislative, regulatory or industry requirements or in competitive
technologies that render certain of our existing products obsolete or less competitive. The successful development of our products
and product enhancements are subject to numerous risks, both known and unknown, including unanticipated delays, access to significant
capital, budget overruns, technical problems and other difficulties that could result in the abandonment or substantial change
in the design, development and commercialization of these new products. The events could have a materially adverse impact on our
results of operations.
Given
the uncertainties inherent with product development and introduction, including lack of market acceptance, we cannot provide assurance
that any of our product development efforts will be successful on a timely basis or within budget, if at all. Failure to develop
new products and product enhancements on a timely basis or within budget could harm our business and prospects. In addition, we
may not be able to achieve the technological advances necessary for us to remain competitive, which could have a materially negative
impact on our financial condition.
The
home building industry and the home repair and remodeling sector are regulated and any increased regulatory restrictions could
negatively affect our sales and results of operations.
The
home building industry and the home repair and remodeling sector are subject to various local, state and federal statutes, ordinances,
rules and regulations concerning zoning, building design and safety, hurricane and floods, construction, and similar matters,
including regulations that impose restrictive zoning and density requirements in order to limit the number of homes that can be
built within the boundaries of a particular area. Increased regulatory restrictions could limit demand for new homes and home
repair and remodeling products, which could negatively affect our sales and results of operations. We may not be able to satisfy
any future regulations, which consequently could have a negative effect on our sales and results of operations.
Changes
in building codes could lower the demand for our impact-resistant windows and doors.
The
market for our impact-resistant windows and doors depends in large part on our ability to satisfy state and local building codes
that require protection from wind-borne debris. If the standards in such building codes are raised, we may not be able to meet
such requirements, and demand for our products could decline. Conversely, if the standards in such building codes are lowered
or are not enforced in certain areas, demand for impact-resistant products may decrease. If we are unable to satisfy future regulations,
including building code standards, it could negatively affect our sales and results of operations. Further, if states and regions
that are affected by hurricanes but do not currently have such building codes fail to adopt and enforce hurricane protection building
codes, our ability to expand our business in such markets may be limited.
We
are subject to labor, and health and safety regulations, and may be exposed to liabilities and potential costs for lack of compliance.
We
are subject to labor, and health and safety laws and regulations that govern, among other things, the relationship between us
and our employees, and the health and safety of our employees. If an adverse final decision that we violated any labor or health
and safety laws, we may be exposed to penalties and sanctions, including the payment of fines. In particular, most of our employees
are hired through temporary staffing companies and are employed under one-year fixed-term employment contracts. According to applicable
labor law regarding temporary staffing companies, if we exceed the limits for hiring temporary employees and the Colombian Ministry
of Labor identifies the existence of illegal outsourcing, sanctions may be imposed along with probable lawsuits by employees claiming
the existence of a labor relationship. Our subsidiaries could also be subject to work stoppages or closure of operations.
The
above, notwithstanding cancellation or suspension of governmental registrations, authorizations and licenses issued by other authorities,
any one of which may result in interruption or discontinuity of business, and, could, consequently, materially and adversely affect
our business, financial condition or results of operation.
Equipment
failures, delays in deliveries and catastrophic loss at our manufacturing facility could lead to production curtailments or shutdowns
that prevent us from producing our products.
An
interruption in production capabilities at any of our facilities because of equipment failure or other reasons could result in
our inability to produce our products, which would reduce our sales and earnings for the affected period. In addition, we generally
manufacture our products only after receiving the order from the customer and thus do not hold large inventories. If there is
a stoppage in production at our manufacturing facilities, even if only temporarily, or if they experience delays because of events
that are beyond our control, delivery times could be severely affected. Any significant delay in deliveries to our customers could
lead to increased product returns or cancellations and cause us to lose future sales. Our manufacturing facilities are also subject
to the risk of catastrophic loss due to unanticipated events such as fires, explosions or violent weather conditions. If we experience
plant shutdowns or periods of reduced production because of equipment failure, delays in deliveries or catastrophic loss, it could
have a material adverse effect on our results of operations or financial condition. Further, we may not have adequate insurance
to compensate for all losses that result from any of these events.
Our
reliance on a single facility subjects us to concentrated risks.
We
currently operate the vast majority of our business from a single production facility in Barranquilla, Colombia. Due to the lack
of diversification in our assets and geographic location, an adverse development at or impacting our facility or in local or regional
economic or political conditions, could have a significantly greater impact on our results of operations and financial condition
than if we maintained more diverse assets and locations. While we implement preventative and proactive maintenance at our facility,
it is possible that we could experience prolonged periods of reduced production and increased maintenance and repair costs due
to equipment failures. In addition, because of our single facility and location, in certain cases we rely on limited or single
suppliers for significant inputs, such as electricity. We are also reliant on the adequacy of the local skilled labor force to
support our operations. Supply interruptions to or labor shortages or stoppages at our facility could be caused by any of the
aforementioned factors, many of which are beyond our control, and would adversely affect our operations and we would not have
any ability to offset this concentrated impact with activities at any alternative facilities or locations.
Customer
concentration and related credit, commercial and legal risk may adversely impact our future earnings and cash flows.
Our
ten largest third-party customers worldwide collectively accounted for 36% of our total sales revenue for the year ended December
31, 2020, though no single customer accounted for more than 10% of annual revenues. We also do not have any long-term requirements
contracts pursuant to which we would be required to fulfill customers on an as-needed basis.
Although
the customary terms of our arrangements with customers in Latin America and the Caribbean typically require a significant upfront
payment ranging between 30% and 50% of the cost of an order, if a large customer were to experience financial difficulty, or file
for bankruptcy or similar protection, or if we were unable to collect amounts due from customers that are currently under bankruptcy
or similar protection, it could adversely impact our results of operations, cash flows and asset valuations. Therefore, the risk
we face in doing business with these customers may increase. Financial problems experienced by our customers could result in the
impairment of our assets, a decrease in our operating cash flows and may also reduce or curtail our customers’ future use
of our products and services, which may have an adverse effect on our revenues.
Disagreements
between the parties can arise as a result of the scope and nature of the relationship and ongoing negotiations. Although we do
not have any disputes with any major customers as of the date hereof that are expected to have a material adverse effect on our
financial position, results of operations or cash flows, we cannot predict whether such disputes will arise in the future.
Our
results may not match our provided guidance or the expectations of securities analysts or investors, which likely would have an
adverse effect on the market price of our securities.
Our
results may fall below provided guidance and the expectations of securities analysts or investors in future periods. Our results
may vary depending on a number of factors, including, but not limited to, fluctuating customer demand, delay or timing of shipments,
construction delays or cancellations due to lack of financing for construction projects or market acceptance of new products.
Manufacturing or operational difficulties that may arise due to quality control, capacity utilization of our production equipment
or staffing requirements may also adversely affect annual net sales and operating results. Moreover, where we participate in fixed-price
contracts for installation services, changes in timing of construction projects or difficulties or errors in their execution caused
by us or other parties, could result in a failure to achieve expected results. In addition, competition, including new entrants
into our markets, the introduction of new products by competitors, adoption of improved technologies by competitors and competitive
pressures on prices of products and services, could adversely affect our results. Finally, our results may vary depending on raw
material pricing, the potential for disruption of supply and changes in legislation that could have an adverse impact on labor
or other costs. Our failure to meet our provided guidance or the expectations of securities analysts or investors would likely
adversely affect the market price of our securities.
If
new construction levels and repair and remodeling markets decline, such market pressures could negatively affect our results of
operations.
The
architectural glass industry is subject to the cyclical market pressures of the larger new construction and repair and remodeling
markets. In turn, these larger markets may be affected by adverse changes in economic conditions such as demographic trends, employment
levels, interest rates, commodity prices, availability of credit and consumer confidence, as well as by changing needs and trends
in the markets, such as shifts in customers’ preferences and architectural trends. Any future downturn or any other negative
market pressures could negatively affect our results of operations in the future, as margins may decrease as a direct result of
an overall decrease in demand for our products. Additionally, we may have idle capacity which may have a negative effect on our
cost structure.
We
may be adversely affected by disruptions to our manufacturing facilities or disruptions to our customer, supplier or employee
base.
Any
disruption to our facilities resulting from weather-related events, fire, an act of terrorism or any other cause could damage
a significant portion of our inventory, affect our distribution of products and materially impair our ability to distribute products
to customers. We could incur significantly higher costs and longer lead times associated with distributing our products to customers
during the time that it takes for us to reopen or replace a damaged facility. In addition, if there are disruptions to our customer
and supplier base or to our employees caused by weather-related events, acts of terrorism, pandemics, or any other cause, our
business could be temporarily adversely affected by higher costs for materials, increased shipping and storage costs, increased
labor costs, increased absentee rates and scheduling issues. Any interruption in the production or delivery of our supplies could
reduce sales of our products and increase costs.
Our
business involves complex manufacturing processes that may cause personal injury or property damage, subjecting us to liabilities
and possible losses other disruptions of our operations in the future, which may not be covered by insurance.
Our
business involves complex manufacturing processes. Some of these processes involve high pressures, temperatures, hot metal and
other hazards that present certain safety risks to workers employed at our manufacturing facilities. The potential exists for
accidents involving death or serious injury. Although our management is highly committed to health and safety, since January 2014,
two fatalities have occurred at our operations. The potential liability resulting from any such accident, to the extent not covered
by insurance, could result in unexpected cash expenditures, thereby reducing the cash available to operate our business. Such
an accident could disrupt operations at any of our facilities, which could adversely affect our ability to deliver products to
our customers on a timely basis and to retain our current business.
Operating
hazards inherent in our business, some of which may be outside of our control, can cause personal injury and loss of life, damage
to or destruction of property, plant and equipment and environmental damage. We maintain insurance coverage in amounts and against
the risks we believe are consistent with industry practice, but this insurance may not be adequate or available to cover all losses
or liabilities we may incur in our operations. Our insurance policies are subject to varying levels of deductibles. Losses up
to our deductible amounts accrue based upon our estimates of the ultimate liability for claims incurred and an estimate of claims
incurred but not reported. However, liabilities subject to insurance are difficult to estimate due to unknown factors, including
the severity of an injury, the determination of our liability in proportion to other parties, the number of incidents not reported
and the effectiveness of our safety programs. If we were to experience insurance claims or costs above our estimates, we might
also be required to use working capital to satisfy these claims.
The
nature of our business exposes each of our subsidiaries to product liability and warranty claims that, if adversely determined,
could negatively affect our financial condition and results of operations and the confidence of customers in our products.
Our
subsidiaries are, from time to time, involved in product liability and product warranty claims relating to the products they manufacture
and distribute that, if adversely determined, could adversely affect our financial condition, results of operations and cash flows.
In addition, they may be exposed to potential claims arising from the conduct of homebuilders and home remodelers and their sub-contractors.
We may not be able to maintain insurance on acceptable terms or insurance may not provide adequate protection against potential
liabilities in the future. Product liability claims can be expensive to defend and can divert the attention of management and
other personnel for significant periods, regardless of the ultimate outcome. Claims of this nature could also have a negative
impact on customer confidence in our products and us. We are not aware of any such claims at this time.
We
are subject to potential exposure to environmental liabilities and are subject to environmental regulation and any such liabilities
or regulation may negatively affect our costs and results of operations in the future.
Our
subsidiaries are subject to various national, state and local environmental laws, ordinances and regulations that are frequently
changing and becoming more stringent. Although we believe that our facilities are materially in compliance with such laws, ordinances
and regulations, we cannot be certain that we will, at all times, be able to maintain compliance. Furthermore, as owners of real
property, our subsidiaries can be held liable for the investigation or remediation of contamination on such properties, in some
circumstances, without regard to whether we knew of or were responsible for such contamination. Remediation may be required in
the future because of spills or releases of petroleum products or hazardous substances, the discovery of unknown environmental
conditions, or more stringent standards regarding existing residual contamination. Environmental regulatory requirements may become
more burdensome, increase our general and administrative costs, and increase the risk that our subsidiaries incur fines or penalties
or be held liable for violations of such regulatory requirements.
Weather
can materially affect our business and we are subject to seasonality.
Seasonal
changes and other weather-related conditions can adversely affect our business and operations through a decline in both the use
and production of our products and demand for our services. Adverse weather conditions, such as extended rainy and cold weather
in the spring and fall, can reduce demand for our products and reduce sales or render our distribution operations less efficient.
Major weather events such as hurricanes, tornadoes, tropical storms and heavy snows with quick rainy melts could adversely affect
sales in the near term.
Construction
materials production and shipment levels follow activity in the construction industry, which typically occurs in the spring, summer
and fall. Warmer and drier weather during the second and third quarters typically result in higher activity and revenue levels
during those quarters. The first quarter typically has lower levels of activity partially due to inclement weather conditions.
The activity level during the second quarter varies greatly with variations in temperature and precipitation.
Our
results of operations could be significantly affected by foreign currency fluctuations and currency regulations.
We
are subject to risks relating to fluctuations in currency exchange rates that may affect our sales, cost of sales, operating margins
and cash flows. During the year ended December 31, 2020, approximately 6.4% of our revenues and 40% of our expenses were in Colombian
pesos. The remainder of our expenses and revenues were denominated, priced and realized in U.S. dollars. In the future, and especially
as we further expand our sales in other markets, our customers may increasingly make payments in non-U.S. currencies. In addition,
currency devaluation can result in a loss to us if we hold monetary assets in that currency. Hedging foreign currencies can be
difficult and costly, especially if the currency is not actively traded. We cannot predict the effect of future exchange rate
fluctuations on our operating results.
In
addition, we are subject to risks relating to governmental regulation of foreign currency, which may limit our ability to:
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transfer
funds from or convert currencies in certain countries;
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repatriate
foreign currency received in excess of local currency requirements; and
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repatriate
funds held by foreign subsidiaries to the United States at favorable tax rates.
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Furthermore,
the Colombian government and the Colombian Central Bank intervene in the country’s economy and occasionally make significant
changes in monetary, fiscal and regulatory policy, which may include the following measures:
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controls
on capital flows;
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international
investments and exchange regime.
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For
a more detailed description of foreign exchange regulations in Colombia, see “Disclosure Regarding Foreign Exchange Rates
in Colombia” and “Risk factors – Risks Related to Colombia and Other Countries Where We Operate – The
Colombian government and the Central Bank exercise significant influence on the Colombian economy”.
As
we continue to increase our operations in foreign countries, there is an increased risk that foreign currency controls may create
difficulty in repatriating profits from foreign countries in the form of taxes or other restrictions, which could restrict our
cash flow.
We
are dependent on certain key personnel, the loss of whom could materially affect our financial performance and prospects in the
future.
Our
continued success depends largely upon the continued services of our senior management and certain key employees. Each member
of our senior management teams has substantial experience and expertise in his or her industry and has made significant contributions
to our growth and success. We face the risk, however, that members of our senior management may not continue in their current
positions and the loss of the services of any of these individuals could cause us to lose customers and reduce our net sales,
lead to employee morale problems and the loss of other key employees or cause disruptions to production. In addition, we may be
unable to find qualified individuals to replace any senior executive officers who leave our employ or that of our subsidiaries.
We
have entered into significant transactions with affiliates or other related parties, which may result in conflicts of interest.
We
have entered into transactions with affiliates or other related parties in the past and may do so again in the future. While we
believe such transactions have been and will continue to be negotiated on an arm’s length basis, giving us a competitive
advantage with vertical integration, there can be no assurance that such transactions could not give rise to conflicts of interest
that could adversely affect our financial condition and results of operations.
The
interests of our controlling shareholders could differ from the interests of our other shareholders.
Energy
Holding Corporation exercises significant influence over us as a result of its majority shareholder position and voting rights.
As of December 31, 2020, Energy Holding Corporation beneficially owned approximately 54.8% of our outstanding ordinary shares.
Energy Holding Corporation, in turn, is controlled by members of the Daes family, who together own 100% of the shares of Energy
Holding Corporation. See “Principal Securityholders.” Accordingly, our controlling shareholders would have considerable
influence regarding the outcome of any transaction that requires shareholder approval. In addition, if we are unable to obtain
requisite approvals from Energy Holding Corporation, we may be prevented from executing critical elements of our business strategy.
We
conduct all of our operations through our subsidiaries, and will rely on payments from our subsidiaries to meet all of our obligations
and may fail to meet our obligations if our subsidiaries are unable to make payments to us.
We
are a holding company and derive substantially all of our operating income from our subsidiaries. All of our assets are held by
our subsidiaries, and we rely on the earnings and cash flows of our subsidiaries to meet our debt service obligations or dividend
payments. The ability of our subsidiaries to make payments to us will depend on their respective operating results and may be
restricted by, among other things, the laws of their jurisdiction of organization including Colombian foreign exchange regulations
(which may limit the amount of funds available for distributions to us), the terms of existing and future indebtedness and other
agreements of our subsidiaries, including their credit facilities, and the covenants of any future outstanding indebtedness we
or our subsidiaries incur. See “Disclosure Regarding Foreign Exchange Rates in Colombia” and “Risk Factors –
Risks Related to Colombia and Other Countries Where We Operate – The Colombian government and the Central Bank exercise
significant influence on the Colombian economy.” If our subsidiaries are unable to declare dividends, our ability to meet
debt service or dividend payments may be impacted. The ability of our subsidiaries in Colombia to declare dividends up to the
total amount of their capital is not restricted by current laws, covenants in debt agreements or other agreements but could be
restricted pursuant to applicable law in the future or if our Colombian subsidiaries undergo a transformation to other types of
corporate entities.
Increasing
interest rates could materially adversely affect our ability to generate positive cashflows and secure financing required to carry
out our strategic plans.
Historically,
portions of our debt have been indexed to variable interest rates. A variety of factors over which we have no control. A rise
in interest rates could negatively impact the cost of financing for a portion of our debt with variable interest rates which could
negatively impact our cash flow generation. Furthermore, a rise in interest rates could limit our ability to obtain financing
required to support our growth through our continuing programs designed to develop new products, the expand of the installed capacity
of our manufacturing facilities and execute our acquisition strategy. While we may mitigate the risk derived from interest rate
fluctuations by entering into derivative contracts or by obtaining fixed rate financing, general increases in interest rates would
still have an impact on the cost of financing and our ability to obtain appropriate funding.
Furthermore,
the architectural glass industry is directly impacted by general construction activity trends. In turn, these markets may be affected
by adverse changes in economic conditions such as interest rates, and availability of credit. Any future downturn or any other
negative market pressures could negatively affect our results of operations in the future, as margins may decrease as a direct
result of an overall decrease in demand for our products.
Our
indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations.
As
of December 31, 2020, we and our subsidiaries on a consolidated basis had $224.3 million principal amount of USD denominated debt
outstanding. Our indebtedness could have negative consequences to our financial health. For example, it could:
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it more difficult for us to satisfy our obligations with respect to the notes of our other debt;
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increase
our vulnerability to general adverse economic and industry conditions or a downturn in our business;
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require
us to dedicate a portion of our cash flow from operations to debt service, thereby reducing the availability of our cash flow
to fund working capital, capital expenditures and other general corporate purposes;
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limit
our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
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place
us at a competitive disadvantage compared to our competitors that are not as highly leveraged;
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limit,
along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional
funds; and
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result
in an event of default if we fail to satisfy our obligations under the notes or our other debt or fail to comply with the
financial and other restrictive covenants contained in the indenture or our other debt instruments, which event of default
could result in all of our debt becoming immediately due and payable and could permit certain of our lenders to foreclose
on our assets securing such debt.
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Any
of the above listed factors could have a material adverse effect on our business, financial condition and results of operations.
Further, the terms of our existing debt agreements do not, and any future debt may not, fully prohibit us from incurring additional
debt. If new debt is added to our current debt levels, the related risks that we now face could intensify.
Risks
Related to Colombia and Other Countries Where We Operate
Our
operations are located in Colombia, which may make it more difficult for U.S. investors to understand and predict how changing
market and economic conditions will affect our financial results.
Our
operations are located in Colombia and, consequently, are subject to the economic, political and tax conditions prevalent in that
country. The economic conditions in Colombia are subject to different growth expectations, market weaknesses and business practices
than economic conditions in the U.S. market. We may not be able to predict how changing market conditions in Colombia will affect
our financial results.
As
of the date of this annual report, Colombia’s long-term foreign currency sovereign credit ratings were affirmed “Baa2”
by Moody’s, “BBB-” by S&P and “BBB” by Fitch, three of the main rating agencies worldwide. The
stable outlook reflects their expectation that Colombia’s established political institutions and track record of consensus
on key economic policies will contribute to economic stability and continuity over the coming two to three years. Colombia’s
real GDP decreased approximately 7% in 2020 because of the COVID-19 pandemic, and a strong comeback could be limited by impact
of new waves of COVID-19.
Colombia’s
economy, just like most of Latin-American countries, continues suffering from the effects of lower commodity prices, mainly oil,
reflected in its elevated level of external debt. Even though the country has taken measures to stabilize the economy, it is uncertain
how will these measures be perceived and if the intended goal of increasing investor’s confidence will be achieved.
Economic
and political conditions in Colombia may have an adverse effect on our financial condition and results of operations.
Our
financial condition and results of operations depend significantly on macroeconomic and political conditions prevailing in Colombia.
Decreases in the growth rate, periods of negative growth, increases in inflation, changes in law, regulation, policy, or future
judicial rulings and interpretations of policies involving exchange controls and other matters such as (but not limited to) currency
depreciation, foreign exchange regulations, inflation, interest rates, taxation, employment and labor laws, banking laws and regulations
and other political or economic developments in or affecting Colombia may affect the overall business environment and may, in
turn, adversely impact our financial condition and results of operations in the future. Colombia’s fiscal deficit and growing
public debt could adversely affect the Colombian economy. See “Disclosure Regarding Foreign Exchange Rates in Colombia”
and “Risk Factors – Risks Related to Colombia and Other Countries Where We Operate – The Colombian government
and the Central Bank exercise significant influence on the Colombian economy”.
The
Colombian government frequently intervenes in Colombia’s economy and from time to time makes significant changes in monetary,
fiscal and regulatory policy. Our business and results of operations or financial condition may be adversely affected by changes
in government or fiscal policies, and other political, diplomatic, social and economic developments that may affect Colombia.
We cannot predict what policies the Colombian government will adopt and whether those policies would have a negative impact on
the Colombian economy or on our business and financial performance in the future. We cannot assure you as to whether current stability
in the Colombian economy will be sustained. If the conditions of the Colombian economy were to deteriorate, our financial conditions
and results of operations would be adversely affected.
The
Colombian government has historically exercised substantial influence on the local economy, and governmental policies are likely
to continue to have an important effect on companies operating in Colombia like our Colombian subsidiaries, market conditions
and the prices of the securities of local issuers. The President of Colombia has considerable power to determine governmental
policies and actions relating to the economy and may adopt policies that may negatively affect us. We cannot predict which policies
will be adopted by the new government and whether those policies would have a negative impact on the Colombian economy in which
we operate or our business and financial performance.
The
Colombian Government and the Central Bank exercise significant influence on the Colombian economy.
Although
the Colombian government has not imposed foreign exchange restrictions since 1990, Colombia’s foreign currency markets have
historically been extremely regulated. Colombian law permits the Central Bank to impose foreign exchange controls to regulate
the remittance of dividends and/or foreign investments in the event that the foreign currency reserves of the Central Bank fall
below a level equal to the value of three months of imports of goods and services into Colombia. An intervention that precludes
our Colombian subsidiaries from possessing, utilizing or remitting U.S. Dollars would impair our financial condition and results
of operations, and would impair the Colombian subsidiary’s ability to convert any dividend payments to U.S. dollars.
The
Colombian government and the Central Bank may also seek to implement new policies aimed at controlling further fluctuation of
the Colombian peso against the U.S. dollar and fostering domestic price stability. The Central Bank may impose certain mandatory
deposit requirements in connection with foreign-currency denominated loans obtained by Colombian residents, including TG and ES.
We cannot predict or control future actions by the Central Bank in respect of such deposit requirements, which may involve the
establishment of a different mandatory deposit percentage. The U.S. dollar/Colombian peso exchange rate has shown some instability
in recent years. Please see “Disclosure Regarding Foreign Exchange Controls and Exchange Rates in Colombia” for actions
the Central Bank could take to intervene in the exchange market.
The
Colombian Government has considerable power to shape the Colombian economy and, consequently, affect the operations and financial
performance of businesses. The Colombian Government may seek to implement new policies aimed at controlling further fluctuation
of the Colombian peso against the U.S. dollar and fostering domestic price stability. The president of Colombia has considerable
power to determine governmental policies and actions relating to the economy and may adopt policies that are inconsistent with
those of the prior government or that negatively affect us.
Factors
such as Colombia’s growing public debt and fluctuating exchange rates could adversely affect the Colombian economy.
Colombia’s
fiscal deficit and growing public debt could adversely affect the Colombian economy. Prior to the COVID-19 state of economic emergency,
the fiscal rules imposed on the Colombian government the need to reduce the fiscal deficit from 2.3% of GDP in 2020 to 2.3% of
GDP in 2021, respectively, and have thereby prevented the Colombian government from taking counter-cyclical measures to stimulate
the economy. This rule was suspended during 2020 and 2021 to cope with the economic impact of the COVID-19 pandemic. As a result,
the Colombian Government faces serious budgetary constraints and pressure from rating agencies that could lead to future tax reforms,
with potential adverse consequences on our financial results.
In
recent years, the Colombian currency had shown some short-term volatility vis-à-vis the U.S. dollar, despite only depreciating
by less than by 5% in 2020 and 1% in 2019. Any international conflicts or related events have the potential to create an exchange
mismatch, given the vulnerability and dependence of the Colombian economy on external financing and its vulnerability to any disruption
in its external capital flows and its trade balance.
We
cannot assure you that any measures taken by the Colombian government and the Central Bank would be sufficient to control any
resulting fiscal or exchange imbalances. Any further disruption in Colombia’s fiscal and trade balance may therefore cause
Colombia’s economy to deteriorate and adversely affect our business, financial condition and results of operations.
Economic
instability in Colombia could negatively affect our ability to sell our products.
A
significant decline in economic growth of any of Colombia’s major trading partners - in particular, the United States, China,
and Mexico - could have a material adverse effect on each country’s balance of trade and economic growth. In addition, a
“contagion” effect, where an entire region or class of investments becomes less attractive to, or subject to outflows
of funds by, international investors could negatively affect the Colombian economy.
The
2008 global economic and financial crisis, which began in the U.S. financial system and spread to different economic sectors and
countries around the world, had negative effects on the Colombian economy. During 2009, the economies of the United States and
most major European countries contracted, which, in turn, affected the Colombian economy. The economic recovery in the United
States since 2013 has been fragile and at lower rates than in the past recoveries. Several European Union countries have been
obliged to severely reduce their public expenditures due to their high indebtedness, which has severely affected the Eurozone’s
economic growth. The ability of governments and companies in certain countries, such as Greece, Italy, Portugal, and Spain to
repay their debt obligations or remain in the euro currency system remains uncertain. In addition, certain events, such as the
outbreak of civil and political unrest in several countries in Africa and the Middle East, including, Libya, Syria, Iraq, and
Yemen, might further strain and adversely affect the global economy and the global financial system.
Due
to financial and economic crises that may occur in countries around the world and recent turmoil in emerging markets economies,
such as Turkey, South Africa and Argentina, investors may view investments in emerging markets with heightened caution. As a result
of such financial and economic crises, flows of investments into Colombia may be reduced. Crises in other countries may hamper
investors’ enthusiasm for securities of Colombian issuers, which may, in turn, adversely affect market prices for the Securities
and make it difficult for us to access the international capital markets and finance its operations and capital expenditures.
Even
though exports from Colombia, principally petroleum and petroleum products, and gold, have grown in recent years, fluctuations
in commodity prices pose a significant challenge to their contribution to the country’s balance of payments and fiscal revenues.
Unemployment continues to be high in Colombia compared to other economies in Latin America. Furthermore, recent political and
economic actions in the Latin American region, including actions taken by the Argentine and Venezuelan governments, may negatively
affect international investor perception of the region. We cannot assure you that growth achieved over the past decade by the
Colombian economy will continue in future periods. The long-term effects of the global economic and financial crisis on the international
financial system remain uncertain. In addition, the effect on consumer confidence of any actual or perceived deterioration of
household incomes in the Colombian economy may have a material adverse effect on our results of operations and financial condition.
We
are dependent on sales to customers outside Colombia and any failure to make these sales may adversely affect our operating results
in the future.
In
the year ended December 31, 2020, 93.8% of our sales were to customers outside Colombia, including to the United States and Panama,
and we expect sales into the United States and other foreign markets to continue to represent a significant portion of our net
sales. Foreign sales and operations are subject to changes in local government regulations and policies, including those related
to tariffs and trade barriers, investments, property ownership rights, taxation, exchange controls and repatriation of earnings.
An increase in tariffs on products shipped to countries like the United States, or changes in the relative values of currencies
occur from time to time and could affect our operating results. This risk and the other risks inherent in foreign sales and operations
could adversely affect our operating results in the future.
We
are subject to regional and national economic conditions in the United States.
The
economy in Florida and throughout the United States could negatively impact demand for our products as it has in the past, and
macroeconomic forces such as employment rates and the availability of credit could have an adverse effect on our sales and results
of operations. Our U.S. business is concentrated geographically in Florida, which optimizes manufacturing efficiencies and logistics,
but further concentrates our business, and another prolonged decline in the economy of the state of Florida or of nearby coastal
regions, a change in state and local building code requirements for hurricane protection, or any other adverse condition in the
state or certain coastal regions, could cause a decline in the demand for our products, which could have an adverse impact on
our sales and results of operations. Our strategy of continued geographic diversification seeks to reduce our exposure to such
region-specific risks.
Global
trade tensions and political conditions in the United States, as well as the U.S. government’s approach to NAFTA and/or
other trade agreements, treaties or policies, may adversely affect our results of operations and financial condition.
Our
operations are located in Colombia and may be, to varying degrees, affected by economic and market conditions in other countries.
Trade barriers being erected by major economies may limit our ability to sell products in other markets and execute our growth
strategies. Economic conditions in Colombia are correlated with economic conditions in the United States. As a result, any downturn
in economic activity, could have a negative impact on our business in the United States, which at the year ended December 31,
2020, accounted for 91% of our net operating revenues.
In
2018, the United States levied a steel and aluminum tariff under which certain aluminum products we manufacture in Colombia are
subject to a 10% tariff. Most of our imports to the United States of assembled architectural systems are not subject to the tariff,
however our extruded aluminum products are subject to this tariff. The tariff resulted in an expense of $2.0 million as of the
end of the latest reportable period at December 31, 2020. For the time being, the burden of this tax is being passed on to our
clients through increased sales prices.
Additionally,
the Trump administration indicated its intent to alter its approach to international trade policy and in some cases to renegotiate,
or potentially terminate, certain existing bilateral or multi-lateral trade agreements and treaties with foreign countries. Although
presumable less likely, is uncertain whether the new Biden administration might take action on these issues. If the U.S. government
takes action to materially modify the United States-Colombia Free Trade Agreement, or USCOFTA, it has the potential to adversely
impact our business by increasing the costs of selling our product into the U.S. market. As such, if the United States withdraws
from or negotiates material modifications to the terms of USCOFTA, such actions could materially adversely affect our sales, financial
results and cash flows.
The
termination or re-negotiation of free trade agreements or other related events could also indirectly have an adverse effect on
the Colombian economy. Although economic conditions in other emerging market countries and in the United States may differ significantly
from economic conditions in Colombia, investors’ reactions to developments in other countries may have an adverse effect
on the market value of securities of Colombian companies. There can be no assurance that future developments in other emerging
market countries and in the United States, over which we have no control, will not have a material adverse effect on our liquidity.
Colombia
has experienced and continues to experience internal security issues that have had or could have a negative effect on the Colombian
economy and our financial condition.
Colombia
has experienced and continues to experience internal security issues, primarily due to the activities of guerrilla groups, such
as dissidents from the former Revolutionary Armed Forces of Colombia (Fuerzas Armadas Revolucionarias de Colombia, or “FARC”)
and the National Liberation Army (Ejercito de Liberación Nacional, or “ELN,”) paramilitary groups and
drug cartels. In remote regions of the country with minimal governmental presence, these groups have exerted influence over the
local population and funded their activities by protecting, and rendering services to, drug traffickers. Even though the Colombian
government’s policies have reduced guerilla presence and criminal activity, particularly in the form of terrorist attacks,
homicides, kidnappings and extortion, such activity persists in Colombia, and possible escalation of such activity and the effects
associated with them have had and may have in the future a negative effect on the Colombian economy and on us, including on our
customers, employees, results of operations and financial condition. The Colombian government commenced peace talks with the FARC
in August 2012, and peace negotiations with the ELN began in November 2016. The Colombian government and the FARC signed a peace
deal on September 26, 2016, which was amended after voters rejected it in the referendum held on October 2, 2016. The new agreement
was signed on November 24, 2016 and was ratified by the Colombian Congress on November 30, 2016 and is being implemented after
four years of negotiations. Pursuant to the peace agreements negotiated between the FARC and the Colombian government in 2016,
the FARC occupies five seats in the Colombian Senate and five seats in the Colombian House of Representatives. The new deal clarifies
protection to private property, is expected to increase the government’s presence in rural areas and bans former rebels
from running for office in certain newly created congressional districts in post-conflict zones. As a result, during the transition
process, Colombia may experience an increase in internal security issues, drug-related crime and guerilla and paramilitary activities,
which may have a negative impact on the Colombian economy. Our business or financial condition could be adversely affected by
rapidly changing economic or social conditions, including the Colombian government’s response to implementation of the agreement
with FARC and ongoing peace negotiations, if any, which may result in legislation that increases the tax burden of Colombian companies.
Despite
efforts by the Colombian government, drug-related crime, guerrilla paramilitary activity and criminal bands continue to exist
in Colombia, and allegations have surfaced regarding members of the Colombian congress and other government officials having ties
to guerilla and paramilitary groups. Although the Colombian government and ELN have been in talks since February 2017 to end a
five-decade war, the Colombian government has suspended the negotiations after a series of rebel attacks. This situation could
result in escalated violence by the ELN and may have a negative impact on the credibility of the Colombian government which could
in turn have a negative impact on the Colombian economy.
Tensions
with neighboring countries, including Venezuela and other Latin American countries may affect the Colombian economy and, consequently,
our results of operations and financial condition in the future.
Diplomatic
relations with Venezuela, and neighboring countries, have from time to time been tense and affected by events surrounding the
Colombian armed forces, particularly on Colombia’s borders with Venezuela. Political tensions in Venezuela rose in January
2019 as a number of countries, including Colombia, did not recognize the legitimacy of Nicolás Maduro as Venezuelan head
of state. Moreover, in November 2012, the International Court of Justice placed a sizeable area of the Caribbean Sea within Nicaragua’s
exclusive economic zone. Until then, Colombia had deemed this area as part of its own exclusive economic zone. Any future deterioration
in relations with Venezuela and Nicaragua may result in the closing of borders, risk of financial condition.
Government
policies and actions, and judicial decisions, in Colombia could significantly affect the local economy and, as a result, our results
of operations and financial condition in the future.
Our
results of operations and financial condition may be adversely affected by changes in Colombian governmental policies and actions,
and judicial decisions, involving a broad range of matters, including interest rates, exchange rates, exchange controls, inflation
rates, taxation, banking and pension fund regulations and other political or economic developments affecting Colombia. The Colombian
government has historically exercised substantial influence over the economy, and its policies are likely to continue to have
a significant effect on Colombian companies, including our subsidiaries. The President of Colombia has considerable power to determine
governmental policies and actions relating to the economy, and may adopt policies that negatively affect our subsidiaries. Future
governmental policies and actions, or judicial decisions, could adversely affect our results of operations or financial condition.
We
are subject to money laundering and terrorism financing risks.
Third
parties may use us as a conduit for money laundering or terrorism financing. If we were to be associated with money laundering
(including illegal cash operations) or terrorism financing, our reputation could suffer or we could be subject to legal enforcement
(including being added to “blacklists” that would prohibit certain parties from engaging in transactions with us).
Our Colombian subsidiaries could also be sanctioned pursuant to criminal anti-money laundering rules in Colombia.
We
have adopted a Compliance Manual which includes policies and procedures. However, such measures, procedures and compliance may
not be completely effective in preventing third parties from using us as a conduit for money laundering or terrorism financing
without our knowledge, which could have a material adverse effect on our business, financial condition and results of operations.
Changes
in Colombia’s customs, import and export laws and foreign policy, may have an adverse effect on our financial condition
and results of operations.
Our
business depends significantly on Colombia’s customs and foreign exchange laws and regulations, including import and export
laws, as well as on fiscal and foreign policies. In the past we have benefited from, and now currently benefit from, certain customs
and tax benefits granted by Colombian laws, such as free trade zones and Plan Vallejo which incentivizes the import of machinery
and equipment by providing tax breaks, as well as from Colombian foreign policy, such as free trade agreements with countries
like the United States. As a result, our business and results of operations or financial condition may be adversely affected by
changes in government or fiscal policies, foreign policy or customs and foreign exchange laws and regulations. We cannot predict
what policies the Colombian government will adopt and whether those policies would have a negative impact on the Colombian economy
or on our business and financial performance in the future.
It
may be difficult or impossible to enforce judgments of courts of the United States and other jurisdictions against our Colombian
subsidiaries or any of their directors, officers and controlling persons.
Most
of our assets are located in Colombia. As such, it may be difficult or impossible for you to effect service of process on, or
to enforce judgments of United States courts against our Colombian subsidiaries and/or against their directors and officers based
on the civil liability provisions of the U.S. federal securities laws.
Colombian
courts will enforce a U.S. judgment predicated on the U.S. securities laws through a procedural system known under Colombian law
as exequatur. Colombian courts will enforce a foreign judgment, without reconsideration of the merits, only if the judgment
satisfies the requirements set out in Articles 605 through 607 of Law 1564 of 2012, or the Colombian General Code of Procedure
(Código General del Proceso), which provides that the foreign judgment will be enforced if certain conditions are
met.
New
or higher taxes resulting from changes in tax regulations or the interpretation thereof in Colombia could adversely affect our
results of operations and financial condition in the future.
New
tax laws and regulations, and uncertainties with respect to future tax policies pose risks to us. In recent years, the Colombian
Congress approved different tax reforms imposing additional taxes and enacted modifications to existing taxes related to financial
transactions, dividends, income, value added tax (VAT), and taxes on net worth.
On
December 28, 2018, a tax reform was implemented by means of Law 1943 intended to strengthen the mechanisms to prevent tax evasion,
reduce corporate taxes, and encourage investment and economic growth and introduced other substantial changes to the then-existing
tax legal framework. As a result, the corporate income tax rate decreased to 33% for fiscal year 2019, 32% for fiscal year 2020,
31% for fiscal year 2021 and 30% for fiscal year 2022. Law 1943 also includes increased withholding tax rates resulting from payments
made to foreign entities to a general rate of 20% (from the current 15%), however this general rate does not apply to foreign
indebtedness exceeding one year, in which case the applicable income tax withholding remains at 15%. In October 2019, the Colombian
Constitutional Court revoked the 2018 tax reform law based on certain procedural flaws during its enactment. Later, on December
27, 2019, a tax reform was enacted by means of Law 2010 which was based on the 2018 Law 1943. In response to the COVID-19 pandemic,
Colombian government has increased spending, in addition to reduced revenues for 2020 and as a result, the government faces serious
budgetary constraints and pressure from rating agencies that could lead to future tax reforms, with potential adverse consequences
on our financial results.
Changes
in tax-related laws and regulations, and interpretations thereof, can create additional tax burdens on us and our businesses by
increasing tax rates and fees, creating new taxes, limiting tax deductions, and/or eliminating tax-based incentives and non-taxed
income. In addition, tax authorities and competent courts may interpret tax regulations differently than us, which could result
in tax litigation and associated costs and penalties in part due to the novelty and complexity of new regulation.
We
are subject to various U.S. export controls and trade and economic sanctions laws and regulations that could impair our ability
to compete in international markets and subject us to liability if we are not in full compliance with applicable laws.
Our
business activities are subject to various U.S. export controls and trade and economic sanctions laws and regulations, including,
without limitation, the U.S. Commerce Department’s Export Administration Regulations and the U.S. Treasury Department’s
Office of Foreign Assets Control’s (“OFAC”) trade and economic sanctions programs (collectively, “Trade
Controls”). Such Trade Controls may prohibit or restrict our ability to, directly or indirectly, conduct activities or dealings
in or with certain countries that are the subject of comprehensive embargoes (presently, Cuba, Iran, North Korea, Syria, and the
Crimea region of Ukraine (collectively, “Sanctioned Countries”)), as well as with individuals or entities that are
the target of Trade Controls-related prohibitions and restrictions (collectively, “Sanctioned Parties”).
Although
we have implemented compliance measures designed to prevent transactions with Sanctioned Countries and Sanctioned Parties, our
failure to successfully comply with applicable Trade Controls may expose us to negative legal and business consequences, including
civil or criminal penalties, government investigations, and reputational harm.
Natural
disasters in Colombia could disrupt our business and affect our results of operations and financial condition in the future.
Our
operations are exposed to natural disasters in Colombia, such as earthquakes, volcanic eruptions, tornadoes, tropical storms and
hurricanes. Heavy rains in Colombia, attributable in part to the La Niña weather pattern, have resulted in severe flooding
and mudslides. La Niña is a recurring weather phenomenon, and it may contribute to flooding, mudslides or other natural
disasters on an equal or greater scale in the future. In the event of a natural disaster, our disaster recovery plans may prove
to be ineffective, which could have a material adverse effect on its ability to conduct our businesses. In addition, if a significant
number of our employees and senior managers were unavailable because of a natural disaster, our ability to conduct our businesses
could be compromised. Natural disasters or similar events could also result in substantial volatility in our results of operations
for any fiscal quarter or year.
Risks
Related to Us and Our Securities
Because
we are incorporated under the laws of the Cayman Islands, you may face difficulties in protecting your interests, and your ability
to protect your rights through the U.S. Federal courts may be limited.
We
are a company incorporated under the laws of the Cayman Islands, and substantially all of our assets are located outside the United
States. In addition, a majority of our directors and officers are nationals or residents of jurisdictions other than the United
States and all or substantial portions of their assets are located outside the United States. As a result, it may be difficult
for investors to effect service of process within the United States upon our directors or executive officers, or enforce judgments
obtained in the United States courts against our directors or officers.
Our
corporate affairs are governed by our third amended and restated memorandum and articles of association, the Companies Law (2018
Revision) of the Cayman Islands (as the same may be supplemented or amended from time to time) and the common law of the Cayman
Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities
of our directors to us under Cayman Islands law are largely governed by the common law of the Cayman Islands. The common law of
the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English
common law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. The
rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are different from what
they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands
has a different body of securities laws as compared to the United States, and certain states, such as Delaware, may have more
fully developed and judicially interpreted bodies of corporate law. In addition, Cayman Islands companies may not have standing
to initiate a shareholder’s derivative action in a Federal court of the United States.
We
have been advised by our Cayman Islands legal counsel, Maples and Calder, that the courts of the Cayman Islands are unlikely (i)
to recognize or enforce against us judgments of courts of the United States predicated upon the civil liability provisions of
the securities laws of the United States or any State; and (ii) in original actions brought in the Cayman Islands, to impose liabilities
against us predicated upon the civil liability provisions of the securities laws of the United States or any State, so far as
the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement
in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce
a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that
a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been
given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be
final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman
Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, and or be of a kind
the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple
damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent
proceedings are being brought elsewhere. There is recent Privy Council authority (which is binding on the Cayman Islands Court)
in the context of a reorganization plan approved by the New York Bankruptcy Court which suggests that due to the universal nature
of bankruptcy/insolvency proceedings, foreign money judgments obtained in foreign bankruptcy/insolvency proceedings may be enforced
without applying the principles outlined above. However, a more recent English Supreme Court authority (which is highly persuasive
but not binding on the Cayman Islands Court), has expressly rejected that approach in the context of a default judgment obtained
in an adversary proceeding brought in the New York Bankruptcy Court by the receivers of the bankruptcy debtor against a third
party, and which would not have been enforceable upon the application of the traditional common law principles summarized above
and held that foreign money judgments obtained in bankruptcy/insolvency proceedings should be enforced by applying the principles
set out above, and not by the simple exercise of the Courts’ discretion. Those cases have now been considered by the Cayman
Islands Court. The Cayman Islands Court was not asked to consider the specific question of whether a judgment of a bankruptcy
court in an adversary proceeding would be enforceable in the Cayman Islands, but it did endorse the need for active assistance
of overseas bankruptcy proceedings. We understand that the Cayman Islands Court’s decision in that case has been appealed
and it remains the case that the law regarding the enforcement of bankruptcy/insolvency related judgments is still in a state
of uncertainty.
If
we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements could be impaired,
which could adversely affect our business.
Our
financial reporting obligations as a public company place a significant strain on our management, operational and financial resources,
and systems. We may not be able to implement effective internal controls and procedures to detect and prevent errors in our financial
reports, file our financial reports on a timely basis in compliance with SEC requirements, or prevent and detect fraud. Our management
may not be able to respond adequately to changing regulatory compliance and reporting requirements. We are both a “smaller
reporting company” and an “accelerated filer” as defined under Rule 12b-2 of the Securities Exchange Act of
1934, as amended (the “Exchange Act”) and no longer qualify as an “emerging growth company.” If we are
not able to adequately implement the requirements of Section 404, we may not be able to assess whether internal controls over
financial reporting are effective, which may subject us to adverse regulatory consequences and could harm investor confidence,
the market price of our ordinary shares and our ability to raise additional capital.
Anti-takeover
provisions in our organizational documents and Cayman Islands law may discourage or prevent a change of control, even if an acquisition
would be beneficial to our shareholders, which could depress the price of our ordinary shares and prevent attempts by our shareholders
to replace or remove our current management.
Our
memorandum and articles of association contain provisions that may discourage unsolicited takeover proposals that shareholders
may consider to be in their best interests. Our board of directors is divided into three classes with staggered, three year terms.
Our board of directors has the ability to designate the terms of and issue preferred shares without shareholder approval. We are
also subject to certain provisions under Cayman Islands law that could delay or prevent a change of control. Together these provisions
may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium
over prevailing market prices for our ordinary shares. See “Description of Share Capital.”
We
are a “controlled company,” controlled by Energy Holding Corp., whose interest in our business may be different from
ours or yours.
We
are a “controlled company” within the meaning of the Nasdaq Capital Market listing standards. Under these rules, a
company of which more than 50% of the voting power is held by an individual, a group or another company is a “controlled
company” and may elect not to comply with certain corporate governance requirements of the Nasdaq Capital Market, including
(i) the requirement that a majority of the board of directors consist of independent directors, (ii) the requirement that we have
a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing
the committee’s purpose and responsibilities and (iii) the requirement that we have a compensation committee that is composed
entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities. Although
we meet the definition of a “controlled company,” we have determined at this time not to take advantage of this designation
and comply with all the corporate governance rules applicable to listed companies that are not controlled companies. We may, however,
determine to take advantage of these exemptions in the future. If we did, you would not have the same protections afforded to
stockholders of companies subject to all of the corporate governance requirements of the Nasdaq Capital Market.
We
cannot assure you that we will continue to pay dividends on our ordinary shares, and our indebtedness, future investments or cashflow
generation could limit our ability to continue to pay dividends on our ordinary shares.
Prior
to August 2016, we had not paid any cash dividends on our ordinary shares. Since such time, we have paid regular quarterly dividends.
However, the payment of any future dividends will be solely at the discretion of our Board of Directors and there can be no assurance
that we will continue to pay dividends in the future.
If
securities analysts do not publish research or reports about our business or if they downgrade our stock or our sector, our stock
price and trading volume could decline.
The
trading market for our ordinary shares relies in part on the research and reports that industry or financial analysts publish
about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us downgrade
our stock or our industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business,
the price of our stock could decline. If one or more of these analysts ceases coverage of us or fail to publish reports on us
regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.
If
a United States person is treated as owning at least 10% of the value or voting power of our shares, such holder may be subject
to adverse U.S. federal income tax consequences.
If
a United States person is treated as owning (directly, indirectly or constructively) at least 10% of the value or voting power
of our shares, such person may be treated as a “United States shareholder” with respect to each “controlled
foreign corporation” in our group (if any). While our parent company owns one or more U.S. subsidiaries, we, and certain
of our non-U.S. subsidiaries, could be treated as controlled foreign corporations. Furthermore, while our group includes one or
more U.S. subsidiaries, certain of our non-U.S. subsidiaries could be treated as controlled foreign corporations (regardless of
whether or not we are treated as a controlled foreign corporation). A United States shareholder of a controlled foreign corporation
generally is required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,”
“global intangible low-taxed income” and investments in U.S. property by controlled foreign corporations, regardless
of whether we make any such United States shareholder receives any actual distributions. An individual that is a United States
shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign
tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Failure to comply with these reporting
obligations may subject a United States shareholder to significant monetary penalties and may prevent the statute of limitations
with respect to such shareholder’s U.S. federal income tax return for the year for which reporting was due from starting.
We cannot provide any assurances that we will assist investors in determining whether any of our non-U.S. subsidiaries are treated
as a controlled foreign corporation or whether any investor is treated as a United States shareholder with respect to any of such
controlled foreign corporations or furnish to any United States shareholders information that may be necessary to comply with
the aforementioned reporting and tax paying obligations. There is substantial uncertainty as to the application of each of the
foregoing rules as well as the determination of any relevant calculations in applying the foregoing rules. United States persons
are strongly advised to avoid acquiring, directly, indirectly or constructively, 10% or more of the value or voting power of our
shares. A United States investor should consult its advisors regarding the potential application of these rules to an investment
in the ordinary shares.
Risks
Related to the COVID-19 global pandemic
We
face various risks related to health epidemics, pandemics and similar outbreaks, which may have material adverse effects on our
business, financial position, results of operations and/or cash flows.
We
face various risks related to health epidemics, pandemics and similar outbreaks, including the global outbreak of coronavirus
disease 2019 (“COVID-19”). In recent weeks, the continued spread of COVID-19 has led to disruption and volatility
in the global capital markets, which increases the cost of capital and adversely impacts access to capital. If significant portions
of our workforce are unable to work effectively, including because of illness, quarantines, government actions, facility closures
or other restrictions in connection with the COVID-19 pandemic, our operations will likely be impacted.
Since
the outbreak of the COVID-19 situation in December 2019, we strictly adhered to mandates and other guidance from local governments
and global health authorities. Effective March 24, 2020, the Colombian government issued a nationwide order to, among other actions,
close certain non-essential business activities through April 13, 2020 in response to the rapid spread of COVID-19 to many parts
of the world. This order was later extended through April 27, 2020 and subsequently through May 11, 2020. Certain industry exemptions
to Colombia’s nationwide work stoppage provide for the continuation of some operations at our facilities in Barranquilla,
as well as our Vidrio Andino joint venture. Our operations in Colombia resumed in the third week of April 2020.
In
recent months, the Company has proactively implemented business continuity measures across its vertically integrated plant network
to build the critical inventory to support its customers. During this time, the Company will continue to ship finished inventory
of windows, architectural glass and aluminum products that are considered essential to customers’ active construction projects.
Most
of Tecnoglass’ U.S. and Latin American customers remain operational with many construction projects typically considered
by jurisdictions to be essential business activities. However, given the unprecedented nature of the COVID-19 pandemic, demand
in all served markets slowed down in March 2020 and is now impacting all aspects of business in every U.S. State and Latin American
country.
As
of December 31, 2020, Tecnoglass had ample liquidity, including a healthy cash balance from cashflow generated from operating
activities during the fiscal year 2020 and available lines of credit, ensuring sufficient access to capital. If necessary, the
Company may significantly reduce its variable costs if production has to be scaled down as a result of market conditions, and
has implemented budget cuts and stricter controls on working capital to preserve cash.
We
may be adversely affected by any disruption in our information technology systems. Our operations are dependent upon our information
technology systems, which encompass all of our major business functions.
Increased
global information technology security requirements, vulnerabilities, threats and a rise in sophisticated and targeted cybercrime
pose a risk to the security of our systems, our information networks, and to the confidentiality, availability and integrity of
our data, as well as to the functionality of our manufacturing process. Introduced or increased risk associated with remote work
transition pose threats to workforce disruption, cybersecurity attacks and dissemination of sensitive personal data or proprietary
confidential information to our business. A disruption in our information technology systems for any prolonged period could result
in delays in executing certain production activities, logging and processing operational and financial data, communication with
employees and third parties or fulfilling customer orders resulting in potential liability or reputational damage or otherwise
adversely affect our financial results. We employ a number of measures to prevent, detect and mitigate these threats, which include
employee education, password encryption, frequent password change events, firewall detection systems, anti-virus software in-place
and frequent backups; however, there is no guarantee such efforts will be successful in preventing a cyber-attack.
During
2020, we transitioned for the first time a significant subset of our employee population to a remote work environment, in accordance
with national government efforts to mitigate the spread of COVID-19. This transition allowed us to adequately maintain operations
in our financial information systems and meant no significant changes to our internal control over financial reporting and disclosure
control and procedures, enabled by our continuity plan adequate implementation which did not present any material incidents, challenges,
expenditures or constraints. However, this transition may introduce and exacerbate certain risks to our business, including an
increased demand for information technology resources, increased risk of phishing and other cybersecurity attacks, and increased
risk of unauthorized dissemination of personal data or proprietary or confidential information about us, our members or related
third parties.
As
of the date of publication of this annual report, we have transitioned a significant subset of our employee population back to
physical presence at the workplace, in compliance with Colombian government recommendations for prevention and control of COVID-19.
This transition allowed us to adequately maintain operations in our financial information systems and meant no significant changes
to our internal controls over financial reporting, enabled by our continuity plan adequate implementation which did not present
any material incidents, challenges, expenditures or constraints. This transition brings back a known work environment, mitigating
certain risks including the demand for information technology resources, risk of phishing and other cybersecurity attacks, and
risks of unauthorized dissemination of personal data or proprietary or confidential information about us, our members or related
third parties.
|
Item
1B.
|
Unresolved
Staff Comments.
|
None.
We
own and operate a 2.7 million square foot manufacturing complex located in Barranquilla, Colombia. This manufacturing campus houses
a glass production plant, aluminum plant and window and facade assembly plant. The glass plant has eight lamination machines with
independent assembly rooms, ten specialized tempering furnaces and glass molding furnaces, a computer numerical-controlled profile
bending machine, as well as a coater to produce low emissivity glass with high thermal insulation specifications using soft coat
technology. The Alutions plant has an effective installed capacity of 2,100 tons per month and can create a variety of shapes
and forms for windows, doors and related products. We also own six natural gas power generation plants with an aggregate capacity
of 10 megawatts which supply the electricity requirements of the entire manufacturing complex and are supported by three emergency
generators. We also own and operate a 123,399 square foot manufacturing and warehousing facility in a 215,908 square foot lot
in Miami-Dade County, Florida, United States. The facility houses manufacturing and assembly equipment, warehouse space, and administrative
and sales offices.
We
believe that our existing properties are adequate for the current operating requirements of our business and that additional space
will be available as needed.
|
Item
3.
|
Legal
Proceedings.
|
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 litigation arising from employment practices, worker’s compensation,
automobile claims and general liability. It is very difficult to predict precisely what the outcome of this litigation 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.
|
Item
4.
|
Mine
Safety Disclosures.
|
Not
Applicable.
PART
II
|
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
|
Market
Information
Our
ordinary shares are listed on Nasdaq under the symbol “TGLS”. From January 2016 until November 2020, the Company’s
shares traded on the Bolsa de Valores de Colombia (“BVC”), the principal stock exchange of Colombia, under the symbol
TGLSC.
Holders
As
of December 31, 2020, there were 330 holders of record of our ordinary shares. We believe our ordinary shares are held by more
than 3,000 beneficial owners.
Dividends
On
December 8, 2020, the Company declared a regular quarterly dividend of $0.0275 per share, or $0.11 per share on an annualized
basis, for the fourth quarter of 2020. The quarterly dividend was paid in cash on January 29, 2021 to shareholders of record as
of the close of business on December 31, 2020.
The
payment of any future dividends will be solely at the discretion of our Board of Directors and there can be no assurance that
we will continue to pay dividends in the future. Our bond indenture currently restricts the type of dividend we can make while
the bonds are outstanding. See “Description of Indebtedness” below for further information. The payment of dividends
in the future, if any, will therefore also be contingent upon limitations imposed by our outstanding indebtedness.
Because
we are a holding company, our ability to pay dividends depends on our receipt of cash dividends from our operating subsidiaries,
which may further restrict our ability to pay dividends as a result of the laws of their jurisdictions of organization, agreements
of our subsidiaries or covenants under any existing and future outstanding indebtedness we or our subsidiaries incur. The ability
of our subsidiaries in Colombia to declare dividends up to the total amount of their capital is not restricted by current laws,
covenants in debt agreements or other agreements.
Purchases
of Equity Securities by Issuer and Affiliates
In
connection with our Saint-Gobain joint venture, on October 28, 2020 we paid $10.9 million for a lot of land through the issuance
of an aggregate of 1,557,142 ordinary shares of the Company to affiliates of the CEO and COO’s family, valued at $7.00 per
share, which represented an approximate 33% premium based on the closing stock price on October 27, 2020. The land was later contributed
in December as payment for our 25.8% interest in Vidrio Andino.
Information
about our equity compensation plans
Information
required by Item 5 of Form 10K regarding equity compensation plans is incorporated herein by reference to Item 12 of Part III
of this Annual Report on Form 10-K.
|
Item
6.
|
Selected
Financial Data.
|
Not
applicable.
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
|
The
following discussion of the Company’s financial condition and results of operations should be read in conjunction with the
Company’s consolidated financial statements and notes to those statements included in this Form 10-K. This discussion contains
forward-looking statements that involve risks and uncertainties. Please see the section entitled “Forward-Looking Statements
and Introduction” in this Form 10-K.
Overview
We
are a vertically-integrated manufacturer, supplier and installer of architectural glass, windows and associated aluminum products
for the global commercial and residential construction markets. With a focus on innovation, combined with providing highly specified
products with the highest quality standards at competitive prices, we have developed a leadership position in each of our core
markets. In the United States, which is our largest market, we were ranked as the second largest glass fabricator as well as the
second largest metal company serving the United States in 2020 by Glass Magazine. In addition, we believe we are the leading glass
transformation company in Colombia. Our customers, which include developers, general contractors or installers for hotels, office
buildings, shopping centers, airports, universities, hospitals and multi-family and residential buildings, look to us as a value-added
partner based on our product development capabilities, our high-quality products and our unwavering commitment to exceptional
service.
We
have more than 35 years of experience in architectural glass and aluminum profile structure assembly. We transform a variety of
glass products, including tempered safety, double thermo-acoustic and laminated glass. Our finished glass products are installed
in a wide variety of buildings across a number of different applications, including floating facades, curtain walls, windows,
doors, handrails, and interior and bathroom spatial dividers. We also produce aluminum products such as profiles, rods, bars,
plates and other hardware used in the manufacturing of windows.
Our
products are manufactured in a 2.7 million square foot, state-of-the-art manufacturing complex in Barranquilla, Colombia that
provides easy access to North, Central and South America, the Caribbean and the Pacific. Our products can be found on some of
the most distinctive buildings in these regions, including El Dorado Airport (Bogota), 50 United Nations Plaza (New York), Trump
Plaza (Panama), Icon Bay (Miami), and Salesforce Tower (San Francisco). Our track record of successfully delivering high profile
projects has earned us an increasing number of opportunities across the United States, evidenced by our expanding backlog and
overall revenue growth.
Our
structural competitive advantage is underpinned by our low-cost manufacturing footprint, vertically integrated business model
and geographic location. Our integrated facilities in Colombia and distribution and services operations in Florida provide us
with a significant cost advantage in both manufacturing and distribution, and we continue to invest in these operations to expand
our operational capabilities. Our lower cost manufacturing footprint allows us to offer competitive prices for our customers,
while also providing innovative, high quality and high value-added products, together with consistent and reliable service. We
have historically generated high margin organic growth based on our position as a value-added solutions provider for our customers.
We
have a strong presence in the Florida market, which represents a substantial portion of our revenue stream and backlog. Our success
in Florida has primarily been achieved through sustained organic growth, with further penetration now taking place into other
highly populated areas of the United States. As part of our strategy to become a fully vertically integrated company, we have
supplemented our organic growth with some acquisitions that have allowed us added control over our supply chain allowed for further
vertical integration of our business and will act as a platform for our future expansion in the United States. In 2016, we completed
the acquisition of ESW, which gave us control over the distribution of products into the United States from our manufacturing
facilities in Colombia. In March 2017, we completed the acquisition of GM&P, a consulting and glazing installation business
that was previously our largest installation customer.
On
May 3, 2019, we consummated the joint venture agreement with Saint-Gobain, acquiring a 25.8% minority ownership interest in Vidrio
Andino, a Colombia-based subsidiary of Saint-Gobain, solidifying 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. Additionally, 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.
The
continued diversification of the group’s presence and product portfolio is a core component of our strategy. In particular,
we are actively seeking to expand our presence in United States outside of Florida. We also launched a residential windows offering
which, we believe, will help us expand our presence in the United States and generate additional organic growth. We believe that
the quality of our products, coupled with our ability to price competitively given our structural advantages on cost, will allow
us to generate further growth in the future.
On
March 24, 2020, Colombia went into a mandatory lockdown as a result of the novel coronavirus outbreak. As a result, the Company
temporarily suspended production at its facilities in Colombia through April 13, 2020 during the initial phase of the nationwide
shelter-in-place order. While the shelter-in-place order was subsequently extended to May 25, 2020, the Company resumed full operations
at its facilities on April 14, 2020 given its exempted designation as a supplier of critical products to essential business sectors
such as infrastructure and construction During the period that production was suspended, vacation days were used to retain eligible
employees and the Company used the time to implement broad safety measures before returning to normal operations. The Company
entered the pandemic with a strong financial position along with the flexibility required to support its global operations during
this volatile period. We have implemented strict cost controls, reduced operating expenses and limited all non-critical capital
expenditures beyond the completion of initiatives started in 2019.
How
We Generate Revenue
We
are a leading manufacturer of hi-spec architectural glass and windows for the western hemisphere residential and commercial construction
industries, operating through our direct and indirect subsidiaries. Headquartered in Barranquilla, Colombia, we operate out of
a 2.7 million square foot vertically-integrated, state-of-the-art manufacturing complex that provides easy access to North, Central
and South America, the Caribbean, and the Pacific.
Our
glass products include tempered glass, laminated glass, thermo-acoustic glass, curved glass, silk-screened glass, and digital
print glass as well as mill finished, anodized, painted aluminum profiles and produces rods, tubes, bars and plates. Window production
lines are defined depending on the different types of windows: normal, impact resistant, hurricane-proof, safety, soundproof and
thermal. We produce fixed body, sliding windows, projecting windows, guillotine windows, sliding doors and swinging doors. ES
produces facade products which include: floating facades, automatic doors, bathroom dividers and commercial display windows.
We
sell to over 1,000 customers using several sales teams based out of Colombia and the United States to specifically target regional
markets in South, Central and North America. The United States accounted for 91%, and 85% of our combined revenues in 2020 and
2019, respectively, while Colombia accounted for approximately 6% and 12%, and Panama accounted for approximately 0.3% and 1%
in those years, respectively.
We
sell our products through our main offices/sales teams based out of Colombia and the United States. The Colombia sales team is
our largest sales group, which has deep contacts throughout the construction industry. The Colombia sales team markets both our
products as well as our installation services. In the United States, we sell out of subsidiaries established in Florida, which
have an expanding customer base and provide installation service in addition to our products. Sales forces in Panama are not via
subsidiaries but under agreements with sales representatives. We have two types of sales operations: Contract sales, which are
the high-dollar, customer tailored projects, and standard form sales. Standard form sales reflect low-value installations that
are of short duration.
We
expect to benefit from growth in our largest markets the United States. One indicator of the non-residential construction outlook
in the United States, the Architectural Billing Index, has declined to 42.6 for the month of December 2020 mostly related to ongoing
uncertainty with an increase in COVID-19 cases. However, firms do remain relatively optimistic about 2021, and the indicators
of future work tend to support that according to the AIA Consensus Construction Forecast. Inquiries into new projects at firms
increased for the fifth month in a row in December, and while the pace of growth was slower than in September and October, it
still means that most firms are having project discussions with potential clients. Since 2018 Tecnoglass is actively seeking business
in the U.S. residential market. According to trading economics, housing starts in the US increased 5.8% month-over-month to an
annualized rate of 1669 thousand units in December of 2020, beating market forecasts of 1560 thousand, being the highest reading
since September of 2006. Also, single-family housing starts increased 12%. The current housing boom is directly driven by the
intense demand and record-low mortgage rates. Finally, as stated by the Evercore ISI research, we can say the sharp rebound of
the housing sector during the coronavirus pandemic won’t be a blip but instead the start of a new era.
Liquidity
As
of December 31, 2020, and 2019, we had cash and cash equivalents of approximately $66.9 million and $47.9 million, respectively.
During the year ended December 31, 2020 the main source of cash was operating activities, which generated $71.4. The positive
cashflow from operations during 2020 has been related to a much higher profitability year over year, enhanced working capital
efforts, easing working capital requirements to serve tapered sales during the period, and our efforts to preserve cash and solidify
our liquidity position and preparedness as we continue to weather through the pandemic.
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 Senior Secured
Credit Facility has an accordion feature allowing the Company to increase the borrowing capacity to $325 million. In December
2020, we used $23.1 million proceeds of this facility to repay all outstanding borrowings under our previous credit facilities
except the Company’s previously existing $210 million unsecured senior notes, which had an interest rate of 8.2% and matured
in 2022, which we redeemed subsequently in January in full following a step down in redemption price at the end of January 2021
with $220 million additional proceeds from this credit facility.
Proceeds
from this facility along with cash on hand and cashflow generated from operations will be sufficient for the company’s expected
cash needs within the next 12 months.
Capital
Resources
We
transform glass and aluminum into high specification architectural glass and custom-made aluminum profiles which require significant
investments in state-of-the-art technology. During the years ended December 31, 2020 and 2019, we made investments primarily in
building and construction, and machinery and equipment in the amounts of $20.5 million, and $26.2 million, respectively.
On
May 3, 2019, we consummated 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, a Colombia-based
subsidiary of Saint-Gobain. The purchase price for our interest in Vidrio Andino was $45 million, of which $34.1 million was paid
in cash and $10.9 million paid through the contribution of land on December 9, 2020. On October 28, 2020 we acquired said land
from a related party and paid for it with the issuance of an aggregate of 1,557,142 ordinary shares of the Company, valued at
$7.00 per share, which represented an approximate 33% premium based on the closing stock price as of 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, 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 if needed (based on debt availability).
Results
of Operations (Amounts in thousands)
|
|
|
Years ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Operating Revenues
|
|
$
|
374,923
|
|
|
$
|
430,912
|
|
|
Cost of sales
|
|
|
235,669
|
|
|
|
295,103
|
|
|
Gross profit
|
|
|
139,254
|
|
|
|
135,809
|
|
|
Operating expenses
|
|
|
(73,134
|
)
|
|
|
(76,994
|
)
|
|
Operating income
|
|
|
66,120
|
|
|
|
58,815
|
|
|
Non-operating income
|
|
|
(12
|
)
|
|
|
1,565
|
|
|
Foreign currency transactions losses
|
|
|
(8,638
|
)
|
|
|
(973
|
)
|
|
Equity method income
|
|
|
1,387
|
|
|
|
596
|
|
|
Interest Expense and deferred cost of financing
|
|
|
(21,671
|
)
|
|
|
(22,806
|
)
|
|
Income tax provision
|
|
|
(13,001
|
)
|
|
|
(12,928
|
)
|
|
Net income
|
|
|
24,185
|
|
|
|
24,269
|
|
|
Loss attributable to non-controlling interest
|
|
|
25
|
|
|
|
266
|
|
|
Income attributable to parent
|
|
$
|
24,210
|
|
|
$
|
24,535
|
|
Comparison
of years ended December 31, 2020 and December 31, 2019
Our
operating revenue decreased $56.0 million, or 13.0%, from $430.9 million in the year ended December 31, 2019 to $374.9 million
in the year ended December 31, 2020. 2020 sales were negatively impacted by three weeks less of work in March and April as we
shut down our manufacturing facility in Colombia during the initial stages of the COVID-19 nationwide shelter-in-place order.
Additionally, our Latin American markets have been impacted by a slow return to operations as job sites are getting prepared to
operate on a safely manner given COVID-19 restrictions.
Sales
in Latin American markets, including Colombia, have been slow to return to activity after mandatory Coronavirus lockdowns in March
and April. Despite construction having been deemed essential businesses, construction sites have been slow to prepare to operate
under new safety standards. Colombia and Panama combined sales decreased an aggregate of $30.6 million, or 54.8%, from $55.8 million
to $25.2 million.
By
comparison, US market sales had a much more tapered decrease, down $27.6 million, or 7.5%, from $368.1 million in the year ended
December 31, 2019, to $340.4 million in the year ended December 31, 2020. US Single Family residential sales increased $4.9 million,
or 7%, from $65.7 million in 2019 to $70.6 million in 2020 mainly as a result further market penetration of these markets.
Cost
of sales decreased $59.4 million, or 20.1%, from $295.1 million in the year ended December 31, 2019, to $235.7 million for the
year ended December 31, 2020. Gross profit margins, on the other hand, increased to 37.1% during 2020, from 31.5% during 2019.
The margin enhancement was the result of increased raw material efficiency derived from advantageous aluminum commodity prices,
waste reduction benefit from our automation initiatives and better control efforts, a reduction in cost of installation work as
manufacturing represented a higher portion of our revenue mix, and a reduction of labor costs driven by the automation of manufacturing
processes paired with favorable foreign currency exchange rates. These margin improvements were partially offset by a negative
effect of fixed cost being diluted over a lower revenue base.
Operating
expenses decreased $3.9 million, or 5%, from $77.0 million to $73.1 million during the years ended December 31, 2019 and 2020,
respectively. The decrease has been the result of our efforts to enhance our lean administrative structure and tight cost controls
paired with favorable exchange rates as a significant portion of our general and administrative expenses are denominated in Colombian
Pesos.
During
the year ended December 31, 2020 and 2019, the Company recorded a net non-operating expense of less than $0.1 million and non-operating
income of $1.6 million, respectively. Non-operating income is comprised primarily of income from rental properties and gains on
sale of scrap materials as well as non-operating expenses related to certain charitable contributions outside of the Company’s
direct sphere of influence.
Interest
expense decreased $1.1 million, or 5.0%, from $22.8 million in the year ended December 31, 2019 to $21.7 million in the year ended
December 31, 2020 as a result of low floating interest rates as well as our total debt balance decreasing during 2020 as we made
voluntary repayments on our debt ahead of the transaction further described in the liquidity section.
During
2020, the Company recorded foreign currency transaction losses of $8.6 million, Most of this impact is associated with a $7.9
million non-cash loss on remeasurement of a net liability position of $119.7 million U.S. dollar denominated monetary assets and
liabilities held by the Company’s subsidiaries with the Colombian peso as their functional currency while the Colombian
peso depreciated by 5% during the twelve-month period. Comparatively, the Company recorded a foreign currency transaction loss
of $1.0 million during the year ended December 31, 2019 as the Colombian peso only depreciated less than 1% from the beginning
to the end of the year, despite some volatility throughout 2019.
Income
tax expense remained similar during both periods, decreasing $0.1 million, or 1.0%, from $12.9 million in the year ended December
31, 2019 to $13.0 million in the year ended December 31, 2020, as a result of comparable income before tax during both periods,
along with effective income tax rates of 35.0% and 34.8% which roughly approximate our statutory rate.
As
a result of the foregoing, the company recorded net income of $24.2 million during both years ended December 31, 2020 and 2019,
reflecting increased profitability of 2020 after achieving similar profits on 13% lower sales.
Cash
Flow From Operations, Investing and Financing Activities
During
the year ended December 31, 2020 and 2019, $71.4 million and $25.7 million generated by operating activities, respectively. The
positive cashflow from operations during 2020 has been related to a much higher profitability year over year, enhanced working
capital efforts, easing working capital requirements to serve tapered sales during the period, and our efforts to preserve cash
and solidify our liquidity position and preparedness as we continue to weather through the pandemic.
During
the year ended December 31, 2020, the main source of operating cashflows, other than net income after adjustments to reconcile
with net cash provided in operating activities, were contract assets and liabilities which generated $23.6 million, resulting
from a combination of a decrease in retainage as several jobs in the US were finalized, a reduction of unbilled receivables tied
to our advance on projects currently in execution, and increase advances received from customers on fixed price contracts. In
contrast, Contract assets and liabilities used $1.5 million during the year ended December, 2019.
Trade
accounts receivables generated $4.6 million and used $27.7 million during 2020 and 2019, respectively. The change in trend from
a steep use in 2019 to a positive cashflow in 2020 generated is related to accelerated sales growth in the previous year in contrast
with tapered sales activity during the current year. The largest use of cash in operating activities was trade accounts payable,
which used $20.9 million during 2020, compared with $1.6 million used during 2019.
We
used $18.1 million and $59.1 million in investing activities during 2020 and 2019, respectively. The main use of cash in investing
activities during the 2020 was related to scheduled maintenance capital expenditures and the execution of our previously announced
expansion and automation initiatives that are now mostly completed. During 2019, the main use of cash in investing activities
was a payment for the acquisition of 25.8% equity interest in Vidrio Andino Holding, a joint venture with Saint-Gobain described
above under Capital Resources. Additionally, in 2019, the company paid $25.0 million to acquire property plant and equipment,
which in combination with $1.2 million acquired under credit, amount to total Capital Expenditures of $26.2 million. During 2020,
we used $18.3 million for the acquisition or property and equipment. Including assets acquired with debt or supplier credit, total
capital expenditures during the period were $20.6 million.
During
2020, financing activities used $33.5 million, mainly due to voluntary prepayments of debt ahead of closing on a $300 million
senior secured credit facility in October 2020 further described above in the liquidity section. During the year ended December
31, 2019, financing activities generated $48.3 million as a result of an underwritten follow-on public offering of 5,551,423 ordinary
shares, including the underwriters’ over-allotment option, for net proceeds of $36.5 million, in addition to net proceeds
of debt minus repayments amounting to $17.1 million, mostly related to a $30 million five-year term facility, proceeds which were
mostly used to repay then existing short-term debt we had accumulated to fund working capital required to support sales growth
over fiscal year 2018.
Off-Balance
Sheet Arrangements
We
did not have any material off-balance sheet arrangements as of December 31, 2020.
Critical
Accounting Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make significant estimates and assumptions
that affect the assets, liabilities, revenues and expenses, and other related amounts during the periods covered by the financial
statements. Management routinely makes judgments and estimates about the effect of matters that are inherently uncertain. As the
number of variables and assumptions affecting the future resolution of the uncertainties increases, these judgments become more
subjective and complex. We have identified the following accounting policies as the most important to the presentation and disclosure
of our financial condition and results of operations.
Revenue
Recognition
Our
principal sources of revenue are derived from product sales, and supply and installation contracts. We identified one single performance
obligation for both forms of sales. Revenue is recognized when control is transferred to our customers. For product sales, the
performance obligations are satisfied at a point in time and control is deemed to be transferred upon delivery. For supply and
installation contracts, the performance obligations are satisfied over time and control is deemed to be transferred when the contract
is accepted by our customers. Revenues from supply and installation contracts are recognized using the cost-to-cost method, measured
by the percentage of costs incurred to date to total estimated costs for each contract. 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.
Related
party transactions
The
Company has related party transactions such as sales, purchases, leases, guarantees, and other payments done during the ordinary
course of business and at arm´s length. We perform a related party analysis to identify transactions to be disclosed on
a quarterly basis, and depending on those transactions, we aggregate the information by party so the relationship with the Company
is properly understood.
Foreign
currency transactions
The
functional currency of most of the Company’s foreign subsidiaries and branches is the applicable local currency. Assets
and liabilities are translated into U.S. dollars using the current exchange rates in effect at the balance sheet date, while revenues
and expenses are translated at the average exchange rates during the period. The resulting translation adjustments are recorded
as a component of accumulated other comprehensive income within shareholders’ equity. The Company also recognizes gains
and losses associated with transactions that are denominated in foreign currencies within non-operating income in the Company’s
consolidated statement of operations.
Income
taxes
The
Company is subject to income taxes in some jurisdictions. Significant judgment is required when determining the worldwide provision
for income taxes. The provision for income taxes is determined using the asset and liability approach of accounting for 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 and are presented as a
single noncurrent amount within the consolidated balance sheets.
There
are many transactions and calculations for which the ultimate tax determination is uncertain. The Company recognizes liabilities
for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these
matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income
tax assets and liabilities in the period in which such determination is made.
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. The Company accrues for other tax contingencies when
it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated.
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.
Business
combinations
We
allocate the total purchase price of the acquired tangible and intangible assets acquired and liabilities assumed based on their
estimated fair values as of the business combination date, with the excess purchase price recorded as goodwill. The purchase price
allocation process required us to use significant estimates and assumptions, including fair value estimates, as of the business
combination date. Although we believe the assumptions and estimates we have made are reasonable and appropriate, they are based
in part on historical experience and information obtained from management of the acquired company, in part based on valuation
models that incorporate projections of expected future cash flows and operating plans and are inherently uncertain. Valuations
are performed by management or third party valuation specialists under management’s supervision. In determining the fair
value of assets acquired and liabilities assumed in business combinations, as appropriate, we may use one of the following recognized
valuation methods: the income approach (including the cost saving method and the discounted cash flows from relief from royalty),
the market approach and/or the replacement cost approach.
Examples
of significant estimates used to value certain intangible assets acquired include but are not limited to:
|
●
|
sales
volume, pricing and future cash flows of the business overall
|
|
|
|
|
●
|
future
expected cash flows from customer relationships, and other identifiable intangible assets, including future price levels,
rates of increase in revenue and appropriate attrition rate
|
|
|
|
|
●
|
the
acquired company’s brand and competitive position, royalty rate, as well as assumptions about the period of time the
acquired brand will continue to benefit to the combined company’s product portfolio
|
|
|
|
|
●
|
cost
of capital, risk-adjusted discount rates and income tax rates
|
However,
different assumptions regarding projected performance and other factors associated with the acquired assets may affect the amount
recorded under each type of assets and liabilities, mainly between property, plant and equipment, intangibles assets, goodwill
and deferred income tax liabilities and subsequent assessment could result in future impairment charges. The purchase price allocation
process also entails us to refine these estimates over a measurement period not to exceed one year to reflect new information
obtained surrounding facts and circumstances existing at acquisition date.
Acquisitions
of entities under common control are recorded retroactively starting from the first date of common control. Instead of using fair
value, the Company consolidates the financial statements of the entity acquired using the existing carrying values.
Long
Lived Assets
The
Company periodically reviews the carrying values of its long-lived assets when events or changes in circumstances would indicate
that it is more likely than not that their carrying values may exceed their realizable values, and record impairment charges when
considered necessary.
When
circumstances indicate that an impairment may have occurred, the Company tests such assets for recoverability by comparing the
estimated undiscounted future cash flows expected to result from the use of such assets and their eventual disposition to their
carrying amounts. If the undiscounted future cash flows are less than the carrying amount of the asset, an impairment loss, measured
as the excess of the carrying value of the asset over its estimated fair value, is recognized. Fair value is determined through
various valuation techniques, including discounted cash flow models, quoted market values and third-party independent appraisals,
as considered necessary.
Goodwill
We
review goodwill 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. Under ASC 350-20-35-4 through 35-8A, the goodwill impairment
test requires a comparison of the fair value of the reporting unit with its carrying amount, including goodwill. If the carrying
amount of the reporting unit is greater than zero and its fair value exceeds its carrying amount, goodwill of the reporting unit
is considered not impaired. The Company has only one reporting unit and as such the impairment analysis was done by comparing
the Company’s market capitalization with its book value of equity. As of December 31, 2020, the Company’s market capitalization
substantially exceeded its book value of equity and as such no impairment of goodwill was indicated. See Note 11- Goodwill and
Intangible Assets for additional information.
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, third or fourth 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 December 31, 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 December 31, 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.
|
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
Not
applicable.
|
Item
8.
|
Financial
Statements and Supplementary Data.
|
Our
consolidated financial statements, together with the report of our independent registered public accounting firm, appear commencing
on page F-1 of this Annual Report on Form 10-K and are incorporated herein by reference.
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial Disclosures.
|
None.
|
Item
9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
We
performed an evaluation required by Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended, under the supervision
and with the participation of our management, including our principal executive officer and principal financial officer, of Tecnoglass,
Inc.´s design and operating effectiveness of the internal controls over financial reporting as of the end of the period
covered by this Annual Report. Based on this evaluation, our principal executive officer and principal financial officer concluded
that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended, were effective as of December 31, 2020, in order to provide reasonable assurance that the information disclosed in
our reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms
and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.
A
company’s internal control over financial reporting includes policies and procedures that: (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company,
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles in the United States, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and directors of the company, and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets
that could have a material effect on the financial statements.
Our
management, including the participation of our principal executive officer and principal financial officer, conducted an evaluation
of the effectiveness of our internal control over financial reporting, as of December 31, 2020, based on criteria set forth in
the “Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO)”.
Based
on this evaluation, our management concluded that our internal control over financial reporting was effective in providing reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. PwC Contadores y Auditores S.A.S. has independently assessed the effectiveness
of our internal control over financial reporting and its report is included below.
Changes
in Internal Control Over Financial Reporting
There
has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
|
Item
9B.
|
Other
Information.
|
None.
PART
III
|
Item
10.
|
Directors,
Executive Officers and Corporate Governance.
|
Directors
and Executive Officers
Our
current directors and executive officers are as follows:
|
Name
|
|
Age
|
|
Position
|
|
José
M. Daes
|
|
61
|
|
Chief
Executive Officer and Director
|
|
Christian
T. Daes
|
|
57
|
|
Chief
Operating Officer and Director
|
|
Santiago
Giraldo
|
|
45
|
|
Chief
Financial Officer
|
|
A.
Lorne Weil
|
|
75
|
|
Non-Executive
Chairman of the Board
|
|
Luis
Fernando Castro Vergara
|
|
54
|
|
Director
|
|
Martha
(Stormy) L. Byorum
|
|
72
|
|
Director
|
|
Julio
A. Torres
|
|
54
|
|
Director
|
|
Carlos
Alfredo Cure Cure
|
|
76
|
|
Director
|
José
M. Daes has served as our chief executive officer and a director since December 2013. Mr. Daes has over 30 years’
experience starting and operating various businesses in Colombia and the U.S. Mr. Daes has served as chief executive officer of
C.I. Energia Solar S.A. E.S. Windows (“ES”) since its inception in 1984, responsible for all aspects of ES’s
operations. Mr. Daes also co-founded Tecnoglass S.A. (“TG”) in 1994. Mr. Daes began his career in textiles, importing
textiles from Japan to Colombia and later owned and operated an upscale clothing store with multiple locations in Miami. Mr. Daes
is the older brother of Christian T. Daes, our chief operating officer and a director.
We
believe Mr. Daes is well-qualified to serve as a member of our board of directors due to his operational experience with ES and
TG, our operating subsidiaries, and his knowledge of the industry within which they operate.
Christian
T. Daes has served as our chief operating officer and a director since December 2013. Mr. Daes has served as the chief
executive officer of TG since its inception in 1994, responsible for all aspects of TG’s operations. Mr. Daes’s philanthropic
activities include founding the Tecnoglass-ES Windows Foundation, which promotes local development, health and social programs
in Barranquilla, Colombia. Mr. Daes is the younger brother of José M. Daes, our chief executive officer and a director.
We
believe Mr. Daes is well-qualified to serve as a member of our board of directors due to his operational experience with ES and
TG and his knowledge of the industry within which they operate.
Santiago
Giraldo served as our deputy chief financial officer from February 2016 until August 2017 and has served as our chief
financial officer since such time. From February 2013 to February 2016, Mr. Giraldo was the Chief Financial Officer and Business
Development and Strategy Head of Oleoducto Central S.A., the owner and operator of the Ocensa pipeline in Colombia (subsidiary
of the Ecopetrol Group, the National Oil Company). From October 2009 to February 2013, Mr. Giraldo was Vice President of Oil &
Gas Corporate Banking at Citibank. Prior to this, Mr. Giraldo was with JPMorgan Chase where he most recently held the position
of Vice President of Corporate Banking for diversified industries.
A.
Lorne Weil has served as a member of our board of directors and non-executive chairman of the board since our inception.
Mr. Weil serves as Executive Chairman of Inspired Entertainment, Inc., a position he has held since December 2016. Previously,
Mr. Weil served as Chairman and Chief Executive Officer of Inspired’s predecessor, Hydra Industries Acquisition Corp., from
October 2014 to December 2016. Since September 2017, Mr. Weil has also served as Executive Chairman of Leisure Acquisition Corp.,
a blank check company seeking to consummate an initial business combination. He has also served as a principal of Hydra Management,
an investment vehicle formed by Mr. Weil, since September 2014. Mr. Weil has also served as a director of Sportech Plc, one of
the largest suppliers and operators of pools/tote (often also referred to as pari-mutuel) betting in the world, since October
2010. From October 1991 to November 2013, Mr. Weil served as chairman of the board of Scientific Games Corporation, a supplier
of technology-based products, systems and services to gaming markets worldwide, and served as its chief executive officer from
April 1992 until November 2013. Mr. Weil also served as president of Scientific Games from August 1997 to June 2005. From 1979
to November 1992, Mr. Weil was president of Lorne Weil, Inc., a firm providing strategic planning and corporate development services
to high technology industries. Previously, Mr. Weil was vice president of corporate development at General Instrument Corporation,
working with wagering and cable systems.
We
believe Mr. Weil is well-qualified to serve as a member of our board of directors due to his extensive business experience in
strategic planning and corporate development, his contacts he has fostered throughout his career, as well as his operational experience.
Luis
Fernando Castro Vergara has served on our board of directors since November 2018. Since 2017, Mr. Castro Vergara has been
serving as a fund manager in the agroindustry sector and overseeing his investments in the construction, infrastructure and agroindustry
sectors. Mr. Castro Vergara served as the Chief Executive Officer of Banco de Comercio Exterior de Colombia S.A., Colombia’s
development bank, from 2013 to 2017. From 2007 to 2008 and 2012 to 2013, Mr. Castro Vergara was the General Manager of Agrodex
International SAS, an import and marketing food company. From 2008 to 2012, he was the Regional Development Agency President of
the Barranquilla Chamber of Commerce. Previously, he was General Manager of Provyser S.A., a commercialization and logistics services
company in the food industry. He is on the board of directors of Unimed Pharmaceuticals Limited, where he also serves as member
of the Audit Committee, and of Colombian the Colombian companies Accenorte SAS and Devimed SAS. Mr. Castro Vergara received a
B.S. from Fordham University, a B.S. from Columbia University and a M.B.A. from the Universidad de los Andes Bogota in Colombia.
He has complementary education in economic development from Harvard University, strategy and leadership from Pennsylvania University
and management from Northwestern University.
We
believe Mr. Castro Vergara is well-qualified to serve as a member of our board of directors due to his contacts and business relationships
and experienced as independent member on other boards.
Martha
(Stormy) L. Byorum has served as a member of our board of directors since November 2011. Ms. Byorum is founder and chief
executive officer of Cori Investment Advisors, LLC (Cori Capital), a financial services entity that was most recently (January
2005 through August 2013) a division of Stephens Inc., a private investment banking firm founded in 1933. Ms. Byorum was also
an executive vice president of Stephens Inc. from January 2005 until August 2013. From March 2003 to December 2004, Ms. Byorum
served as chief executive officer of Cori Investment Advisors, LLC, which was spun off from VB&P in 2003. Ms. Byorum co-founded
VB&P in 1996 and served as a Partner until February 2003. Prior to co-founding VB&P in 1996, Ms. Byorum had a 24-year
career at Citibank, where, among other things, she served as chief of staff and chief financial officer for Citibank’s Latin
American Banking Group from 1986 to 1990, overseeing $15 billion of loans and coordinating activities in 22 countries. She was
later appointed the head of Citibank’s U.S. Corporate Banking Business and a member of the bank’s Operating Committee
and a Customer Group Executive with global responsibilities.
Ms.
Byorum is a Life Trustee of Amherst College and a chairman of the finance committee of the board of directors of Northwest Natural
Gas, a large distributor of natural gas services in the Pacific Northwest. She also serves on the board of directors of JELD-WEN
Holding, Inc., a vertically integrated global manufacturer and distributor of windows and doors, Ms. Byorum served as a director
of Opes Acquisition Corp., a blank check company, from its inception in January 2018 through its business combination with BurgerFi
International, LLC in December 2020.We believe Ms. Byorum is well-qualified to serve as a member of the board of directors due
to her operational experience with Cori Capital Advisors, VB&P and Citibank and her financial background, which includes having
served on the audit committees of four publicly-traded companies.
Julio
A. Torres has served on our board of directors since October 2011. He previously served as our co-chief executive officer
from October 2011 through January 2013. Since March 2013, Mr. Torres has served as the managing partner at Multiple Equilibria
Capital, a financial advisory firm. From August 2015 to March 2018, Mr. Torres served as Chief Executive Officer and a member
of the board of directors of Andina Acquisition Corp. II, a blank check company that consummated an initial business combination
with Lazy Days’ R.V. Center, Inc. From March 2008 to February 2013, Mr. Torres served as managing director of Nexus Capital
Partners, a private equity firm. From April 2006 to February 2008, Mr. Torres served with the Colombian Ministry of Finance acting
as director general of public credit and the treasury. From June 2002 to April 2006, Mr. Torres served as managing director of
Diligo Advisory Group, an investment banking firm. From September 1994 to June 2002, Mr. Torres served as vice president with
JPMorgan Chase Bank.
We
believe Mr. Torres is well-qualified to serve as a member of our board of directors due to his operational experience with Nexus
Capital Partners, his work with the Colombian government and his extensive contacts he has fostered while working at Nexus Capital
Partners, JPMorgan Chase Bank and in the Colombian government.
Carlos
Alfredo Cure Cure has served on our board of directors since September 2019. Mr. Cure Cure currently acts as external
advisor to Grupo Olímpica, one of the largest multi-industry conglomerates in Colombia, and is the former president of
the Board of Directors of Ecopetrol S.A. (NYSE: EC), the leading oil & gas company in Colombia. From 2011 to 2013, Mr. Cure
Cure served as the Colombian Ambassador to Venezuela. Earlier in his career, Mr. Cure Cure was the Financial Manager of Cementos
del Caribe, General Manager of Cementos Toluviejo, General Manager of Astilleros Unión Industrial, and Sociedad Portuaria
de Barranquilla. Mr. Cure Cure has served as a board member of Avianca (NYSE: AVH) and Isagen, and is the former President of
Bavaria S.A. (AB Inbev, EBR: ABI). Mr. Cure Cure earned a B.S. in Civil Engineering from Universidad Nacional de Colombia.
We
believe Mr. Cure Cure is well-qualified to serve as a member of our board of directors due to his leadership experience in other
boards, contacts and business relationships in Colombia.
Code
of Conduct
In
October 2017, we adopted an updated code of conduct that applies to all of our executive officers, directors and employees. The
code of conduct codifies the business and ethical principles that govern all aspects of our business. We will provide, without
charge, upon request, copies of our code of conduct. Requests for copies of our code of conduct should be sent in writing to Tecnoglass
Inc., Avenida Circunvalar a 100 mts de la Via 40, Barrio Las Flores, Barranquilla, Colombia, Attn: Corporate Secretary. Readers
can also obtain a copy of our code of conduct on our website at http://investors.tecnoglass.com/corporate-governance.cfm.
Shareholder
Nominations
There
have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.
Audit
Committee and Financial Expert
We
have a standing audit committee of the board of directors, which consisted of Martha L. Byorum, Luis Fernando Castro and Julio
Torres, with Martha L. Byorum serving as chairman during 2020. For 2021, Carlos Cure will replace Martha L. Byorum on the audit
committee and will serve as chairman. Each of the members of the audit committee is independent under the applicable Nasdaq listing
standards.
As
required by the Nasdaq listing standards, the audit committee will at all times be composed exclusively of independent
directors who are “financially literate.” Nasdaq listing standards define “financially literate” as being
able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and
statement of cash flows. In addition, the Company must certify to Nasdaq the committee has, and will continue to have, at least
one member who has past employment experience in finance or accounting, requisite professional certification in accounting, or
other comparable experience or background that results in the individual’s financial sophistication. The board of directors
has determined that Carlos Cure satisfies Nasdaq’s definition of financial sophistication and also qualifies as an “audit
committee financial expert” as defined under rules and regulations of the Securities and Exchange Commission.
|
Item
11.
|
Executive
Compensation.
|
Overview;
Compensation Discussion and Analysis
Our
policies with respect to the compensation of our executive officers are administered by our board in consultation with our compensation
committee. Our compensation policies are intended to provide for compensation that:
|
|
●
|
is
sufficient to attract and retain executives of outstanding ability and potential;
|
|
|
●
|
is
tailored to the unique characteristics and needs of our company;
|
|
|
●
|
considers
individual value and contribution to our success;
|
|
|
●
|
is
designed to motivate our executive officers to achieve our annual and long-term goals by rewarding performance based on the
attainment of those goals;
|
|
|
●
|
is
designed to appropriately take into account risk and reward in the context of our business environment;
|
|
|
●
|
reflects
an appropriate relationship between executive compensation and the creation of shareholder value; and
|
|
|
●
|
is
sensitive to market benchmarks.
|
The
compensation committee is charged with recommending executive compensation packages to our board that meet these goals. In making
decisions about executive compensation, the compensation committee relies on the experience of its members as well as subjective
considerations of various factors, including individual and corporate performance, our strategic business goals, each executive’s
position, experience, level of responsibility, and future potential, and compensation paid by companies of similar size in our
industry. The compensation committee does not set specific targets or benchmarks for overall compensation or for allocations between
different elements of compensation.
Our
compensation committee is charged with performing an annual review of our executive officers’ cash compensation and equity
holdings to determine whether they provide adequate incentives and motivation to executive officers and whether they adequately
compensate the executive officers relative to comparable officers in other companies. As part of this review, management submits
recommendations to the compensation committee.
We
believe it is important when making compensation-related decisions to be informed as to current practices of similarly situated
publicly held companies in our industry. Our compensation committee stays appraised of the cash and equity compensation practices
of publicly held companies in the glass and aluminum industries through the review of such companies’ public reports and
through other resources. The companies chosen for inclusion in any benchmarking group would have business characteristics comparable
to our company, including revenues, financial growth metrics, stage of development, employee headcount and market capitalization.
While benchmarking may not always be appropriate as a stand-alone tool for setting compensation due to the aspects of our business
and objectives, we generally believe that gathering this information is an important part of our compensation-related decision-making
process.
Base
Salaries
Each
of our named executive officers is employed on an at-will basis. We do not have employment agreements in place for our named executive
officers. Base salaries for our executive officers are individually determined by our compensation committee each year to ensure
that each executive’s base salary forms part of a compensation package which appropriately rewards the executive for the
value he or she brings to our company. Each executive’s base salary may be increased or decreased in the discretion of the
compensation committee in accordance with our compensation philosophy.
Bonuses
In
addition to their base salaries, our named executive officers are entitled to receive annual performance bonuses based on the
company’s financial performance and achievement of certain targets throughout the year.
Other
Compensation and Benefits
Named
executive officers receive additional compensation in the form of vacation, medical, 401(k), and other benefits generally available
to all of our employees. We do not provide any other perquisites or other personal benefits to our named executive officers.
Summary
Compensation Table
The
following table summarizes the total compensation for the years ended December 31, 2020 and 2019 of each of our named executive
officers.
|
Name and principal position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Total
|
|
|
Jose M. Daes (1)
|
|
|
2020
|
|
|
$
|
1,260,000
|
|
|
$
|
315,000
|
|
|
$
|
1,575,000
|
|
|
Chief Executive Officer
|
|
|
2019
|
|
|
$
|
1,200,000
|
|
|
$
|
240,000
|
|
|
$
|
1,440,000
|
|
|
Christian T. Daes (2)
|
|
|
2020
|
|
|
$
|
1,260,000
|
|
|
$
|
315,000
|
|
|
$
|
1,575,000
|
|
|
Chief Operating Officer
|
|
|
2019
|
|
|
$
|
1,200,000
|
|
|
$
|
240,000
|
|
|
$
|
1,440,000
|
|
|
Santiago Giraldo (3)
|
|
|
2020
|
|
|
$
|
181,704
|
|
|
$
|
57,750
|
|
|
$
|
239,454
|
|
|
Chief Financial Officer
|
|
|
2019
|
|
|
$
|
181,037
|
|
|
$
|
55,000
|
|
|
$
|
236,037
|
|
|
(1)
|
Mr.
Daes also serves as chief executive officer of ES.
|
|
|
|
|
(2)
|
Mr.
Daes also serves as chief executive officer of TG.
|
|
|
|
|
(3)
|
Mr.
Giraldo’s 2020 salary was paid in Colombian pesos. The $181,704 salary represents Mr. Giraldo’s receipt of an
aggregate of $624 million pesos.
|
Compensation
Arrangements with Named Executive Officers
On
February 9, 2021, our compensation committee approved the following compensation arrangements for 2021 for each of Messrs. Daes,
Daes, and Giraldo: (i) with respect to each of Messrs. Daes and Daes, a base salary of $1,512,000 plus a bonus of up to $453,000;
and (ii) with respect to Mr. Giraldo, a base salary of the equivalent of $238,170 as of December 31, 2020 payable in Colombian
Pesos and a performance bonus of up to $47,634 per year. Each of the bonuses will be based on our 2021 financial performance and
achievement of certain to-be-agreed upon targets throughout the year.
Outstanding
Equity Awards at Fiscal Year End
As
of December 31, 2020, we had not granted any share options, share appreciation rights or any other awards under long-term incentive
plans to any of our executive officers.
Director
Compensation
Each
of our non-employee directors receives cash compensation of $54,600 each year. Additionally, our chairwoman of the Audit Committee
and each other member of our Audit Committee receives additional cash compensation of $17,472 and $8,736, respectively, for serving
on our Audit Committee. Non-employee directors do not receive cash compensation for their service.
The
following table summarizes the compensation of our non-employee directors for the year ended December 31, 2020.
|
Name
|
|
Fees earned or
paid in cash
|
|
|
Stock
Awards
|
|
|
Total
|
|
|
Martha L. Byorum
|
|
$
|
72,072
|
|
|
|
-
|
|
|
$
|
72,072
|
|
|
Luis Fernando Castro Vergara
|
|
$
|
63,336
|
|
|
|
-
|
|
|
$
|
63,336
|
|
|
Julio A. Torres
|
|
$
|
63,336
|
|
|
|
-
|
|
|
$
|
63,336
|
|
|
Carlos Cure
|
|
$
|
54,600
|
|
|
|
-
|
|
|
$
|
54,600
|
|
|
A. Lorne Weil
|
|
$
|
54,600
|
|
|
|
-
|
|
|
$
|
54,600
|
|
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|
The
table and accompanying footnotes set forth certain information based on public filings or information known to Tecnoglass as of
December 31, 2020 with respect to the ownership of our ordinary shares by:
|
|
●
|
each
person or group who beneficially owns more than 5% of our ordinary shares;
|
|
|
|
|
|
|
●
|
each
of our executive officers and directors; and
|
|
|
|
|
|
|
●
|
all
of our directors and executive officers as a group.
|
A
person is deemed to be the “beneficial owner” of a security if that person has or shares “voting power,”
which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the
power to dispose of or to direct the disposition of such security.
|
|
|
Amount and
|
|
|
Approximate
|
|
|
|
|
Nature
|
|
|
Percentage of
|
|
|
|
|
of Beneficial
|
|
|
Beneficial
|
|
|
Name and Address of Beneficial Owner(1)
|
|
Ownership
|
|
|
Ownership
|
|
|
|
|
|
|
|
|
|
|
Directors and Named Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jose M. Daes
|
|
|
275,810
|
(2)
|
|
|
*
|
|
|
Chief Executive Officer and Director
|
|
|
|
|
|
|
|
|
|
Christian T. Daes
|
|
|
204,632
|
(2)
|
|
|
*
|
|
|
Chief Operating Officer and Director
|
|
|
|
|
|
|
|
|
|
Carlos A. Cure Cure
|
|
|
0
|
|
|
|
*
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
Luis F. Castro Vergara
|
|
|
0
|
|
|
|
*
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
A. Lorne Weil
|
|
|
123,173
|
(3)
|
|
|
*
|
|
|
Chairman of the Board
|
|
|
|
|
|
|
|
|
|
Julio A. Torres
|
|
|
105,520
|
|
|
|
*
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
Martha L. Byorum
|
|
|
58,304
|
|
|
|
*
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group (8 persons)
|
|
|
767,439
|
|
|
|
1.6
|
%
|
|
Five Percent Holders:
|
|
|
|
|
|
|
|
|
|
Energy Holding Corporation
|
|
|
26,103,937
|
(4)
|
|
|
54.8
|
%
|
*
Less than 1%
|
(1)
|
Unless
otherwise indicated, the business address of each of the individuals is Avenida Circunvalar a 100 mts de la Via 40, Barrio
Las Flores, Barranquilla, Colombia.
|
|
|
|
|
(2)
|
Does
not include shares held by Energy Holding Corporation, in which this person has an indirect ownership interest.
|
|
|
|
|
(3)
|
Does
not include 253,000 ordinary shares held by Child’s Trust f/b/o Francesca Weil u/a dated March 4, 2010 and 253,000 ordinary
shares held by Child’s Trust f/b/o Alexander Weil u/a dated March 4, 2010, irrevocable trusts established for the benefit
of Mr. Weil’s children.
|
|
|
|
|
(4)
|
Joaquin
Fernandez and Alberto Velilla Becerra are the directors of Energy Holding Corporation and may be deemed to share voting and
dispositive power over such shares.
|
Equity
Compensation Plan Information
|
Plan Category
|
|
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
|
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
|
Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities
reflected in
the first column)
|
|
|
Equity compensation plans approved by security holders
|
|
|
—
|
|
|
|
—
|
|
|
|
1,593,917
|
(1)
|
|
Equity compensation plans not approved by security holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
|
—
|
|
|
|
—
|
|
|
|
1,593,917
|
|
(1)
On December 20, 2013, our shareholders approved our 2013 Long-Term Equity Incentive Plan. Under this plan, 1,593,917 ordinary
shares are reserved for issuance in accordance with the plan’s terms to eligible employees, officers, directors and consultants.
As of December 31, 2020, no awards had been made under the 2013 Plan.
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director Independence.
|
Related
Transactions
Ventanas
Solar S.A.
Ventanas
Solar S.A., a Panama sociedad anonima, is an importer and installer of the Company’s products in Panama. Family members
of the Company’s CEO and COO and other related parties own 100% of the equity in VS. The Company’s sales to VS for
the year ended December 31, 2020 and 2019 were $1.0 million and $3.3 million, respectively. Outstanding receivables from VS at
December 31, 2020 and 2019 were $6.9 million and $6.0 million, respectively, as a portion of receivables is tied up in retainage.
Vidrio
Andino Joint Venture
On
May 3, 2019, we consummated 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, a Colombia-based
subsidiary of Saint-Gobain. The purchase price for our interest in Vidrio Andino was $45 million, of which $34.1 million was paid
in cash and $10.9 million paid through the contribution of land on December 9, 2020. On October 28, 2020 we acquired said land
from a related party and paid for it with the issuance of an aggregate of 1,557,142 ordinary shares of the Company, valued at
$7.00 per share, which represented an approximate 33% premium based on the closing stock price as of 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, 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 if needed (based on debt availability).
Related
Person Policy
Our
Code of Conduct requires us to avoid, wherever possible, all related party transactions that could result in actual or potential
conflicts of interests, except under guidelines approved by the board of directors (or the audit committee). Related-party transactions
are defined as transactions in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar
year, (2) we or any of our subsidiaries are a participant, and (3) any (a) executive officer, director or nominee for election
as a director, (b) greater than 5% beneficial owner of our ordinary shares, or (c) immediate family member, of the persons referred
to in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely as a result of being a director
or a less than 10% beneficial owner of another entity). A conflict of interest situation can arise when a person takes actions
or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest may
also arise if a person, or a member of his or her family, receives improper personal benefits as a result of his or her position.
Our
audit committee, pursuant to its written charter, is responsible for reviewing and approving material or significant related-party
transactions to the extent we enter into such transactions. The audit committee will consider all relevant factors when determining
whether to approve a related party transaction, including whether the related party transaction is on terms no less favorable
than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related
party’s interest in the transaction. No director may participate in the approval of any transaction in which he is a related
party, but that director is required to provide the audit committee with all material information concerning the transaction.
Additionally, we require each of our directors and executive officers to complete an annual directors’ and officers’
questionnaire that elicits information about related party transactions.
These
procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents
a conflict of interest on the part of a director, employee or officer.
Director
Independence
We
adhere to the Nasdaq Capital Market listing standards in determining whether a director is independent. Our board of directors
consults with its counsel to ensure that the board’s determinations are consistent with those rules and all relevant securities
and other laws and regulations regarding the independence of directors.
The
Nasdaq Capital Market listing standards define an “independent director” as a person, other than an executive officer
of a company or any other individual having a relationship which, in the opinion of the issuer’s board of directors, would
interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Consistent with these
considerations, we have affirmatively determined that Messrs. Weil, Cure Cure, Castro Vergara, Torres and Ms. Byorum qualify as
independent directors. Our independent directors have regularly scheduled meetings at which only independent directors are present.
|
Item
14.
|
Principal
Accounting Fees and Services.
|
The
following fees were paid to PwC for services rendered in years ended December 31, 2020 and 2019:
|
|
|
Year Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Audit Fees(1)
|
|
$
|
662,577
|
|
|
$
|
944,969
|
|
|
Audit-Related Fees(2)
|
|
|
20,697
|
|
|
|
70,797
|
|
|
All Other Fees(3)
|
|
|
3,787
|
|
|
|
2,700
|
|
|
Total Fees
|
|
$
|
687,060
|
|
|
$
|
1,018,466
|
|
(1)
Audit fees consist of fees billed for professional services by PwC for audit and quarterly review of the Company’s consolidated
financial statements during the years ended December 31, 2020 and 2019, and related services normally provided in connection with
statutory and regulatory filings or engagements.
(2)
Audit-related fees represent the aggregate fees billed for assurance and related professional services rendered by PwC that are
reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported
under “Audit Fees,” including the issuance of consents in connection with registration statement filings with the
SEC and comfort letters in connection with securities offerings.
(3)
Other fees represent fees billed for professional services rendered by PwC in connection with subscription to information services
and training.
Pre-Approval
Policies and Procedures. In accordance with Section 10A(i) of the Securities Exchange Act of 1934, as amended, before we engage
our independent registered public accounting firm to render audit or non-audit services, the engagement is approved by our audit
committee. Our audit committee approved all of the fees referred to in the rows titled “Audit Fees,” “Audit-Related
Fees,” and “All Other Fees” in the table above.
Representatives
of PwC are expected to attend the annual general meeting. The representatives will have an opportunity to make any statements
and will be available to respond to appropriate questions from shareholders.
Audit
Committee Approval
Our
audit committee pre-approved all the services performed by PwC Contadores y Auditores S.A.S. In accordance with Section 10A(i)
of the Securities Exchange Act of 1934, before we engage our independent accountant to render audit or non-audit services on a
going-forward basis, the engagement will be approved by our audit committee.
PART
IV
|
Item
15.
|
Exhibits,
Financial Statement Schedules.
|
|
(a)
|
The
following documents are filed as part of this Form 10-K:
|
|
|
|
|
(1)
|
Consolidated
Financial Statements:
|
|
(2)
|
Financial
Statement Schedules:
|
None.
|
(3)
|
The
following exhibits are filed as part of this Form 10-K
|
|
Exhibit
No.
|
|
Description
|
|
Included
|
|
Form
|
|
Filing
Date
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
Third Amended and Restated Memorandum and Articles of Association.
|
|
By
Reference
|
|
Schedule
14A
|
|
December
4, 2013
|
|
4.1
|
|
Specimen Ordinary Share Certificate.
|
|
By
Reference
|
|
S-1/A
|
|
January
23, 2012
|
|
4.2
|
|
Specimen Warrant Certificate.
|
|
By
Reference
|
|
S-1/A
|
|
December
28, 2011
|
|
4.3
|
|
Warrant Agreement between Continental Stock Transfer & Trust Company and the Company.
|
|
By
Reference
|
|
8-K
|
|
March
22, 2012
|
|
4.4
|
|
Description of the Company’s Securities
|
|
Herewith
|
|
|
|
|
|
10.1
|
|
Amended and Restated Registration Rights Agreement among the Company, the Initial Shareholders and Energy Holding Corporation.
|
|
By
Reference
|
|
8-K
|
|
December
27, 2013
|
|
10.2
|
|
2013 Long-Term Incentive Equity Plan
|
|
By
Reference
|
|
Schedule
14A
|
|
December
4, 2013
|
|
10.3
|
|
Form of Indemnification Agreement
|
|
By
Reference
|
|
8-K
|
|
March
5, 2014
|
|
10.4
|
|
Settlement Agreement, dated June 30, 2018, between the Company and Giovanni Monti
|
|
By
Reference
|
|
Form
10-K
|
|
March
8, 2019
|
|
10.5
|
|
Investment Agreement dated January 11, 2019, by and among Tecnoglass Inc., Holding Concorde S.A.S., Saint-Gobain Colombia S.A.S., Saint-Gobain Cristaleria S.L., and Pilkington International Holdings B.V.
|
|
By
Reference
|
|
8-K
|
|
January
11, 2019
|
|
21
|
|
List of subsidiaries.
|
|
Herewith
|
|
|
|
|
|
24
|
|
Power of Attorney (included on signature page of this Form 10-K).
|
|
Herewith
|
|
|
|
|
|
101.INS
|
|
XBRL
Instance Document
|
|
Herewith
|
|
|
|
|
|
|
|
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema
|
|
Herewith
|
|
|
|
|
|
|
|
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase
|
|
Herewith
|
|
|
|
|
|
|
|
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase
|
|
Herewith
|
|
|
|
|
|
|
|
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase
|
|
Herewith
|
|
|
|
|
|
|
|
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase
|
|
Herewith
|
|
|
Item
16.
|
Form
10-K Summary.
|
None.
SIGNATURES
Pursuant
to the requirements of the Section 13 or 15 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized on the 8th day of March, 2021.
|
|
TECNOGLASS
INC.
|
|
|
|
|
|
|
By:
|
/s/
Santiago Giraldo
|
|
|
Name:
|
Santiago
Giraldo
|
|
|
Title:
|
Chief
Financial Officer (Principal
|
|
|
|
Financial
and Accounting Officer)
|
POWER
OF ATTORNEY
The
undersigned directors and officers of Tecnoglass Inc. hereby constitute and appoint Jose Daes and Santiago Giraldo with full power
to act as our true and lawful attorney-in-fact with full power to execute in our name and behalf in the capacities indicated below,
this annual report on Form 10-K and any and all amendments thereto and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, and hereby ratify and confirm all that such attorneys-in-fact,
or any of them, or their substitutes shall lawfully do or cause to be done by virtue hereof.
In
accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/
Jose M. Daes
|
|
Chief
Executive Officer
|
|
March
8, 2021
|
|
Jose
M. Daes
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
|
/s/
Christian T. Daes
|
|
Chief
Operating Officer
|
|
March
8, 2021
|
|
Christian
T. Daes
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Santiago Giraldo
|
|
Chief
Financial Officer
|
|
March
8, 2021
|
|
Santiago
Giraldo
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
|
|
/s/
A. Lorne Weil
|
|
Director
(Non-Executive Chairman)
|
|
March
8, 2021
|
|
A.
Lorne Weil
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Carlos A. Cure
|
|
Director
|
|
March
8, 2021
|
|
Samuel
R. Azout
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Luis Fernando Castro
|
|
Director
|
|
March
8, 2021
|
|
Luis
Fernando Castro
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Martha Byorum
|
|
Director
|
|
March
8, 2021
|
|
Martha
Byorum
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Julio A. Torres
|
|
Director
|
|
March
8, 2021
|
|
Julio
A. Torres
|
|
|
|
|
Tecnoglass
Inc.
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Report
of Independent Registered Public Accounting Firm
To
the Board of Directors and Shareholders of Tecnoglass Inc.
Opinions
on the Financial Statements and Internal Control over Financial Reporting
We
have audited the accompanying consolidated balance sheets of Tecnoglass Inc. and its subsidiaries (the “Company”)
as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive income, shareholders’
equity and cash flows for each of the two years in the period ended December 31, 2020, including the related notes (collectively
referred to as the “consolidated financial statements”). We also have audited the Company’s internal control
over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years
in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis
for Opinions
The
Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in
the Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express
opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
Tecnoglass
Inc.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our
audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of
the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
Definition
and Limitations of Internal Control over Financial Reporting
A
company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures
of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Tecnoglass
Inc.
Critical
Audit Matters
The
critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that
are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.
The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.
Revenue
Recognition - Estimated Costs to Complete Fixed Priced Contracts
As
discussed in Notes 2 and 6 to the consolidated financial statements, $101.7 million of the Company’s total revenues for
the year ended December 31, 2020 was generated from fixed price contracts. For the Company’s fixed price contracts, revenues
are recognized using the cost-to-cost method, measured by the percentage of costs incurred to date to total estimated costs for
each contract. As disclosed by management, the Company generally uses the cost-to-cost method to measure progress for its contracts,
which occurs as the Company incurs costs on the contracts. Under the cost-to-cost method, sales 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. Due to the nature of the work required to be performed, management’s
estimation of costs at completion is complex and requires significant judgment based on reasonable estimations. Management has
disclosed that there are various factors that can affect the accuracy of cost estimates, including, but not limited to the ability
to properly allocate indirect labor and indirect material costs to each project, such estimates are made based on the most updated
historical information and margins of those indirect costs over the associated revenues and on all relevant information associated
with each specific project at any point in time.
The
principal considerations for our determination that performing procedures relating to revenue recognition - estimated costs to
complete fixed price contracts is a critical audit matter are the significant judgments made by management when determining the
estimated costs to complete fixed price contracts, which in turn led to significant auditor judgment and effort in performing
procedures and in evaluating the estimates of the costs to complete related to the assessment of management’s judgment about
the Company’s ability to allocate indirect labor and indirect material costs to each project of actual incurred costs to
date on the contract.
Tecnoglass
Inc.
Addressing
the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the
consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition
process, including controls over the determination of estimated costs to complete fixed price contracts and control over management’s
review and approval the actual indirect labor and indirect material costs allocated to the project and testing management’s
process for reviewing and approving the costs of the contract. The procedures also included, among others, evaluating and testing
management’s process for determining the estimate of costs at completion for a sample of contracts, which included evaluating
the reasonableness of the allocation of indirect labor and indirect material costs to each project and considering the factors
that can affect the accuracy of these estimate. Evaluating the reasonableness of the allocation of indirect labor and indirect
material costs to each project used involved assessing management’s ability to reasonably estimate costs to complete fixed
price contracts by (i) performing a comparison of the originally estimated and actual costs incurred on similar completed contracts;
and (ii) evaluating the timely identification of circumstances that may warrant a modification to estimated costs to complete,
including actual costs in excess of estimates.
PwC
Contadores y Auditores S. A. S.
Bogotá,
Colombia
March
8, 2021
We
have served as the Company’s auditor since 2014
Tecnoglass
Inc. and Subsidiaries
Consolidated
Balance Sheets
(In
thousands, except share and per share data)
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
66,899
|
|
|
$
|
47,862
|
|
|
Investments
|
|
|
2,387
|
|
|
|
2,304
|
|
|
Trade accounts receivable, net
|
|
|
88,368
|
|
|
|
110,558
|
|
|
Due from related parties
|
|
|
8,574
|
|
|
|
8,057
|
|
|
Inventories
|
|
|
80,742
|
|
|
|
82,714
|
|
|
Contract assets – current portion
|
|
|
26,288
|
|
|
|
42,014
|
|
|
Other current assets
|
|
|
13,545
|
|
|
|
29,340
|
|
|
Total current assets
|
|
$
|
286,803
|
|
|
$
|
322,849
|
|
|
Long-term assets:
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
152,266
|
|
|
$
|
154,609
|
|
|
Deferred income taxes
|
|
|
268
|
|
|
|
4,595
|
|
|
Contract assets – non-current
|
|
|
10,228
|
|
|
|
7,059
|
|
|
Due from related parties - long term
|
|
|
484
|
|
|
|
1,786
|
|
|
Long-term trade accounts receivable
|
|
|
2,985
|
|
|
|
-
|
|
|
Intangible assets
|
|
|
5,112
|
|
|
|
6,703
|
|
|
Goodwill
|
|
|
23,561
|
|
|
|
23,561
|
|
|
Long-term investments
|
|
|
47,535
|
|
|
|
45,596
|
|
|
Other long-term assets
|
|
|
2,783
|
|
|
|
2,910
|
|
|
Total long-term assets
|
|
|
245,222
|
|
|
|
246,819
|
|
|
Total assets
|
|
$
|
532,025
|
|
|
$
|
569,668
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Short-term debt and current portion of long-term debt
|
|
$
|
1,764
|
|
|
$
|
16,084
|
|
|
Trade accounts payable and accrued expenses
|
|
|
42,178
|
|
|
|
61,878
|
|
|
Accrued interest expense
|
|
|
7,175
|
|
|
|
7,645
|
|
|
Due to related parties
|
|
|
4,750
|
|
|
|
4,415
|
|
|
Dividends payable
|
|
|
1,352
|
|
|
|
67
|
|
|
Contract liability – current portion
|
|
|
24,694
|
|
|
|
12,459
|
|
|
Due to equity partners
|
|
|
-
|
|
|
|
10,900
|
|
|
Other current liabilities
|
|
|
9,630
|
|
|
|
15,563
|
|
|
Total current liabilities
|
|
$
|
91,543
|
|
|
$
|
129,011
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
$
|
3,170
|
|
|
$
|
411
|
|
|
Long-term payable associated to GM&P acquisition
|
|
|
-
|
|
|
|
8,500
|
|
|
Long-term liabilities from related parties
|
|
|
645
|
|
|
|
622
|
|
|
Contract liability – non-current
|
|
|
977
|
|
|
|
187
|
|
|
Long-term debt
|
|
|
222,722
|
|
|
|
243,727
|
|
|
Total long-term liabilities
|
|
|
227,514
|
|
|
|
253,447
|
|
|
Total liabilities
|
|
$
|
319,057
|
|
|
$
|
382,458
|
|
|
SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Preferred shares, $0.0001 par value, 1,000,000 shares authorized, 0 shares issued and outstanding at December 31, 2020 and December 31, 2019 respectively
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Ordinary shares, $0.0001 par value, 100,000,000 shares authorized, 47,674,773 and 46,117,631 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively
|
|
|
5
|
|
|
|
5
|
|
|
Legal Reserves
|
|
|
2,273
|
|
|
|
1,367
|
|
|
Additional paid-in capital
|
|
|
219,290
|
|
|
|
208,283
|
|
|
Retained earnings
|
|
|
34,326
|
|
|
|
16,213
|
|
|
Accumulated other comprehensive (loss)
|
|
|
(43,512
|
)
|
|
|
(39,264
|
)
|
|
Shareholders’ equity attributable to controlling interest
|
|
|
212,382
|
|
|
|
186,604
|
|
|
Shareholders’ equity attributable to non-controlling interest
|
|
|
586
|
|
|
|
606
|
|
|
Total shareholders’ equity
|
|
|
212,968
|
|
|
|
187,210
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
532,025
|
|
|
$
|
569,668
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
Tecnoglass
Inc. and Subsidiaries
Consolidated
Statements of Operations and Comprehensive Income
(In
thousands, except share and per share data)
|
|
|
Years ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
372,408
|
|
|
$
|
422,118
|
|
|
Related parties
|
|
|
2,515
|
|
|
|
8,794
|
|
|
Total operating revenues
|
|
|
374,923
|
|
|
|
430,912
|
|
|
Cost of sales
|
|
|
235,669
|
|
|
|
295,103
|
|
|
Gross profit
|
|
|
139,254
|
|
|
|
135,809
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Selling expense
|
|
|
(38,962
|
)
|
|
|
(41,925
|
)
|
|
General and administrative expense
|
|
|
(34,172
|
)
|
|
|
(35,069
|
)
|
|
Total operating expenses
|
|
|
(73,134
|
)
|
|
|
(76,994
|
)
|
|
Operating income
|
|
|
66,120
|
|
|
|
58,815
|
|
|
Non-operating (expenses) income, net
|
|
|
(12
|
)
|
|
|
1,565
|
|
|
Equity method income
|
|
|
1,387
|
|
|
|
596
|
|
|
Foreign currency transactions losses
|
|
|
(8,638
|
)
|
|
|
(973
|
)
|
|
Interest expense and deferred cost of financing
|
|
|
(21,671
|
)
|
|
|
(22,806
|
)
|
|
Income before taxes
|
|
|
37,186
|
|
|
|
37,197
|
|
|
Income tax provision
|
|
|
(13,001
|
)
|
|
|
(12,928
|
)
|
|
Net income
|
|
$
|
24,185
|
|
|
$
|
24,269
|
|
|
Loss attributable to non-controlling interest
|
|
|
25
|
|
|
|
266
|
|
|
Income attributable to parent
|
|
$
|
24,210
|
|
|
$
|
24,535
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,185
|
|
|
$
|
24,269
|
|
|
Foreign currency translation adjustments
|
|
|
(4,407
|
)
|
|
|
(2,715
|
)
|
|
Change in fair value derivative contracts
|
|
|
159
|
|
|
|
509
|
|
|
Total comprehensive income
|
|
$
|
19,937
|
|
|
$
|
22,063
|
|
|
Comprehensive loss attributable to non-controlling interest
|
|
|
25
|
|
|
|
266
|
|
|
Total comprehensive income attributable to parent
|
|
$
|
19,962
|
|
|
$
|
22,329
|
|
|
Basic income per share
|
|
$
|
0.52
|
|
|
$
|
0.55
|
|
|
Diluted income per share
|
|
$
|
0.52
|
|
|
$
|
0.55
|
|
|
Basic weighted average common shares outstanding
|
|
|
46,398,428
|
|
|
|
44,464,097
|
|
|
Diluted weighted average common shares outstanding
|
|
|
46,398,428
|
|
|
|
44,464,097
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
Tecnoglass,
Inc. and Subsidiaries
Consolidated
Statements of Shareholders’ Equity
For
the Years Ended December 31, 2020 and 2019
(In
thousands, except share data)
|
|
|
Ordinary
Shares, $0.0001
Par Value
|
|
|
Additional
Paid in
|
|
|
Legal
|
|
|
Retained
|
|
|
Accumulated
Other Comprehensive
|
|
|
Total
Shareholders’
|
|
|
Non-Controlling
|
|
|
Total
Shareholders’ Equity and Non-Controlling
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Reserve
|
|
|
Earnings
|
|
|
Loss
|
|
|
Equity
|
|
|
Interest
|
|
|
Interest
|
|
|
Balance at December 31, 2018
|
|
|
38,092,996
|
|
|
|
4
|
|
|
|
157,604
|
|
|
|
1,367
|
|
|
|
10,439
|
|
|
|
(37,058
|
)
|
|
|
132,356
|
|
|
|
872
|
|
|
|
133,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
5,551,423
|
|
|
|
-
|
|
|
|
36,478
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36,478
|
|
|
|
-
|
|
|
|
36,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
|
|
|
2,473,212
|
|
|
|
1
|
|
|
|
14,201
|
|
|
|
-
|
|
|
|
(18,761
|
)
|
|
|
-
|
|
|
|
(4,559
|
)
|
|
|
-
|
|
|
|
(4,559
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
509
|
|
|
|
509
|
|
|
|
-
|
|
|
|
509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,715
|
)
|
|
|
(2,715
|
)
|
|
|
182
|
|
|
|
(2,533
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,535
|
|
|
|
-
|
|
|
|
24,535
|
|
|
|
(448
|
)
|
|
|
24,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December
31, 2019
|
|
|
46,117,631
|
|
|
|
5
|
|
|
|
208,283
|
|
|
|
1,367
|
|
|
|
16,213
|
|
|
|
(39,264
|
)
|
|
|
186,604
|
|
|
|
606
|
|
|
|
187,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
1,557,142
|
|
|
|
-
|
|
|
|
10,900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,900
|
|
|
|
-
|
|
|
|
10,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
|
|
|
-
|
|
|
|
-
|
|
|
|
107
|
|
|
|
-
|
|
|
|
(5,191
|
)
|
|
|
-
|
|
|
|
(5,084
|
)
|
|
|
-
|
|
|
|
(5,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal reserve
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
906
|
|
|
|
(906
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(350
|
)
|
|
|
(350
|
)
|
|
|
-
|
|
|
|
(350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,898
|
)
|
|
|
(3,898
|
)
|
|
|
-
|
|
|
|
(3,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,210
|
|
|
|
-
|
|
|
|
24,210
|
|
|
|
(20
|
)
|
|
|
24,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
|
|
47,674,773
|
|
|
|
5
|
|
|
|
219,290
|
|
|
|
2,273
|
|
|
|
34,326
|
|
|
|
(43,512
|
)
|
|
|
212,382
|
|
|
|
586
|
|
|
|
212,968
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
Tecnoglass
Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
(In
thousands)
|
|
|
Year ended December 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,185
|
|
|
$
|
24,269
|
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
Provision for bad debts
|
|
|
1,097
|
|
|
|
1,389
|
|
|
Depreciation and amortization
|
|
|
20,590
|
|
|
|
22,735
|
|
|
Deferred income taxes
|
|
|
6,581
|
|
|
|
(2,698
|
)
|
|
Equity method income
|
|
|
(1,387
|
)
|
|
|
(596
|
)
|
|
Deferred cost of financing
|
|
|
972
|
|
|
|
1,624
|
|
|
Other non-cash adjustments
|
|
|
20
|
|
|
|
82
|
|
|
Unrealized currency translation losses
|
|
|
7,930
|
|
|
|
6,509
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Trade accounts receivables
|
|
|
4,557
|
|
|
|
(27,712
|
)
|
|
Inventories
|
|
|
(2,121
|
)
|
|
|
8,419
|
|
|
Prepaid expenses
|
|
|
(1,426
|
)
|
|
|
(3,328
|
)
|
|
Other assets
|
|
|
13,948
|
|
|
|
(7,773
|
)
|
|
Trade accounts payable and accrued expenses
|
|
|
(20,943
|
)
|
|
|
(1,609
|
)
|
|
Accrued interest expense
|
|
|
(417
|
)
|
|
|
83
|
|
|
Taxes payable
|
|
|
(6,622
|
)
|
|
|
5,075
|
|
|
Labor liabilities
|
|
|
192
|
|
|
|
(19
|
)
|
|
Contract assets and liabilities
|
|
|
23,649
|
|
|
|
(1,545
|
)
|
|
Related parties
|
|
|
629
|
|
|
|
759
|
|
|
CASH PROVIDED BY OPERATING ACTIVITIES
|
|
$
|
71,434
|
|
|
$
|
25,664
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of investments
|
|
|
471
|
|
|
|
1,600
|
|
|
Proceeds from sale of property and equipment
|
|
|
6
|
|
|
|
-
|
|
|
Joint Venture investment
|
|
|
-
|
|
|
|
(34,100
|
)
|
|
Purchase of investments
|
|
|
(218
|
)
|
|
|
(1,684
|
)
|
|
Acquisition of property and equipment
|
|
|
(18,323
|
)
|
|
|
(24,952
|
)
|
|
CASH USED IN INVESTING ACTIVITIES
|
|
$
|
(18,064
|
)
|
|
$
|
(59,136
|
)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Cash dividend
|
|
|
(3,801
|
)
|
|
|
(5,227
|
)
|
|
Proceeds from equity offering
|
|
|
-
|
|
|
|
36,478
|
|
|
Proceeds from debt
|
|
|
41,343
|
|
|
|
46,584
|
|
|
Debt discount and issuance costs
|
|
|
(6,384
|
)
|
|
|
-
|
|
|
Repayments of debt
|
|
|
(64,694
|
)
|
|
|
(29,507
|
)
|
|
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
|
|
$
|
(33,536
|
)
|
|
$
|
48,328
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
$
|
(797
|
)
|
|
$
|
(34
|
)
|
|
NET INCREASE IN CASH
|
|
|
19,037
|
|
|
|
14,822
|
|
|
CASH - Beginning of period
|
|
|
47,862
|
|
|
|
33,040
|
|
|
CASH - End of period
|
|
$
|
66,899
|
|
|
$
|
47,862
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
19,168
|
|
|
$
|
19,696
|
|
|
Income Tax
|
|
$
|
10,863
|
|
|
$
|
12,296
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITES:
|
|
|
|
|
|
|
|
|
|
Assets acquired under credit or debt
|
|
$
|
2,242
|
|
|
$
|
1,222
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
Tecnoglass
Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Amounts
in thousands, except share and per share data)
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 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.
|
|
Note
2.
|
Basis
of Presentation and Summary of Significant Accounting Policies
|
Basis
of Presentation and Management’s Estimates
The
accompanying 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”).
The
preparation of the accompanying 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 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, and other derivative financial instruments.
Principles
of Consolidation
These
audited 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.
Non-controlling
interest
When
the Company owns a majority 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 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 and Transactions
The
consolidated financial statements are presented in U.S. Dollars, the reporting currency. Our foreign subsidiaries’ local
currency is the Colombian Peso, which is also their functional currency as determined by the market analysis, 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.
Cash
and Cash Equivalents
Cash
and cash equivalents include investments with original maturities of three months or less. As of December 31, 2020, and 2019,
cash and cash equivalents were primarily comprised of deposits held in operating accounts in the United States, and to a lesser
amount, Colombia and Panama. As of December 31, 2020 and 2019 the Company had no restricted cash.
Investments
The
Company’s investments are comprised of marketable securities, short term deposits and income producing real estate.
Investments
which are held for trading are recorded at fair value and fluctuations in value are recorded as a non-operating income or expense.
In addition, we have investments in long-term marketable equity securities which are classified as available-for-sale securities
and are recorded at fair value.
Short-
term deposits and other financial instruments with maturities greater than 90 days and shares in other companies that do not meet
the requirements for equity method treatment are recorded for at cost.
We
also have investments in income-producing real estate. This real estate is recorded at cost and is depreciated using the straight-line
method over its estimated useful life. The depreciation and rental income associated with this real estate are recognized in the
consolidated statement of operations. These investments are recorded within long term assets on the Company’s balance sheet.
Trade
Accounts Receivable
Trade
accounts receivable are recorded net of allowances for cash discounts for prompt payment, doubtful accounts and sales returns.
The Company’s policy is to reserve for uncollectible accounts based on its best estimate of the amount of probable credit
losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance
for doubtful accounts is necessary based on an analysis of past due accounts and other factors that may indicate that the collectability
of an account may be in doubt. Other factors that the Company considers include its existing contractual obligations, historical
payment patterns of its customers and individual customer circumstances, and a review of the local economic environment and its
potential impact on the collectability of accounts receivable. Account balances are deemed to be uncollectible and are charged
off within 90 days of having recorded an allowance and all means of collection have been exhausted and the potential for recovery
is considered remote.
On
certain fixed price contracts, a portion of the amounts billed are withheld by the customer as a retainage which typically amount
to 10% of the invoiced amount and can remain outstanding for several months until a final good receipt of the complete project
to the customers satisfaction.
Concentration
of Risks and Uncertainties
Financial
instruments which potentially subject the Company to credit risk consist primarily of cash and trade accounts receivable. The
Company mitigates its cash risk by maintaining its cash deposits with major financial institutions in the United States and Colombia.
As discussed above, the Company mitigates its risk to trade accounts receivable by performing on-going credit evaluations of its
customers.
Related
party transactions
The
Company has related party transactions such as sales, purchases, leases, guarantees, and other payments. We periodically performed
a related party analysis to identify transactions to disclose. Depending on the transactions, we aggregate some related party
information by type.
Inventories
Inventories
of raw materials, which consist primarily of purchased and processed glass, aluminum, parts and supplies held for use in the ordinary
course of business, are valued at the lower of cost or market. Cost is determined using a weighted-average method. Inventory consisting
of certain job specific materials not yet installed (work in process) are valued using the specific identification method. Cost
for finished product inventory are recorded and maintained at the lower of cost or market. Cost includes raw materials and direct
and applicable indirect manufacturing overheads. Also, inventories related to contracts in progress are included within work in
process and finished goods, and are stated at using the specific identification method and lower of cost or market, respectively,
and are expected to turn over in less than one year.
Reserves
for excess or slow-moving raw materials inventories are updated based on historical experience of a variety of factors including
sales volume and levels of inventories at the end of the period. The Company does not maintain allowances for the lower of cost
or market for inventories of finished products as its products are manufactured based on firm orders rather than built-to-stock.
Property,
Plant and Equipment
Property,
plant and equipment are recorded at cost. Significant improvements and renewals that extend the useful life of the asset are capitalized.
Interest caused while acquired property is under construction and installation are capitalized. Repairs and maintenance are charged
to expense as incurred. When property is retired or otherwise disposed of, the cost and related accumulated depreciation are removed
from the accounts and any related gains or losses are included in income as a reduction to or increase in selling, general and
administrative expenses. Depreciation is computed on a straight-line basis, based on the following estimated useful lives:
|
Buildings
|
|
|
20 years
|
|
|
Machinery and equipment
|
|
|
10 years
|
|
|
Furniture and fixtures
|
|
|
10 years
|
|
|
Office equipment and software
|
|
|
5 years
|
|
|
Vehicles
|
|
|
5 years
|
|
The
Company also records within fixed assets all the underlying assets of a capital lease. Initial recognition of these assets are
done at the present value of all future lease payments. A capital lease is a lease in which the lessor transferred substantially
all of the benefits and risks associated with the ownership of the property.
Long
Lived Assets
The
Company periodically reviews the carrying values of its long lived assets when events or changes in circumstances would indicate
that it is more likely than not that their carrying values may exceed their realizable values, and record impairment charges when
considered necessary. 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, third or fourth quarter of 2020.The extent of the impact of the pandemic depends on future developments
which are highly uncertain.
When
circumstances indicate that an impairment may have occurred, the Company tests such assets for recoverability by comparing the
estimated undiscounted future cash flows expected to result from the use of such assets and their eventual disposition to their
carrying amounts. If the undiscounted future cash flows are less than the carrying amount of the asset, an impairment loss, measured
as the excess of the carrying value of the asset over its estimated fair value, is recognized. Fair value is determined through
various valuation techniques, including discounted cash flow models, quoted market values and third-party independent appraisals,
as considered necessary.
Goodwill
We
review goodwill 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, third or fourth quarter of 2020. The extent of the impact
of the pandemic depends on future developments which are highly uncertain.
Under
ASC 350-20-35-4 through 35-8A, the goodwill impairment test requires a comparison of the fair value of the reporting unit with
its carrying amount, including goodwill. If the carrying amount of the reporting unit is greater than zero and its fair value
exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. The Company has only one reporting unit
and as such the impairment analysis was done by comparing the Company’s market capitalization with its book value of equity.
As of December 31, 2020, the Company’s market capitalization substantially exceeded its book value of equity and as such
no impairment of goodwill was indicated. See Note 11- Goodwill and Intangible Assets for additional information.
Intangible
Assets
Intangible
assets with definite lives subject to amortization are amortized on a straight-line basis. We also review these intangibles for
impairment when events or significant changes in circumstance indicate that the carrying value may not be recoverable. Events
or circumstances that indicate that impairment testing may be required include changes in building codes and regulation, loss
of key personnel or a significant adverse change in business climate or regulations. There were no triggering events or circumstances
noted and as such no impairment was needed for the intangible assets subject to amortization. See Note 11 - Goodwill and Intangible
Assets for additional information.
Leases
We
determine if an arrangement is a lease at inception. We include finance lease right-of-use assets as part of property and equipment
and the lease liability as part of our current portion of long-term debt and long-term debt on our Consolidated Balance Sheet.
Leases considered short-term are not capitalized, given our election not to recognize right-of-use assets and lease liabilities
arising from short-term leases, but instead considered operating leases and the resulting rental expense is recognized on our
Consolidated Statement of Operations as incurred.
Finance
lease right-of-use assets and lease liabilities are recognized based on the present value of the future lease payments over the
lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate
based on the information available at commencement date in determining the present value of future payments. Our lease terms may
include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
Financial
Liabilities
Financial
liabilities correspond to the financing obtained by the Company through bank credit facilities and accounts payable to suppliers
and creditors. Financial liabilities are initially recognized based on their fair value, which is usually equal to the transaction
value less directly attributable costs. Subsequently, such financial liabilities are carried at their amortized cost according
to the effective interest rate method determined at initial recognition, and recognized in the results of the period during the
time of amortization of the financial obligation.
Dividends
We
have accounted for dividends declared as a liability under ASC 480, Distinguishing Liabilities from Equity, since our shareholders
have had the option to elect cash or stock. When the dividend has been declared, we record the transaction as a reduction to retained
earnings and an increase to dividends payable. We then reclassify stock dividends from dividends payable to additional paid-in
capital when the shareholder elects a stock dividend instead of cash. The dividend payable is not subject to remeasurement 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.
Fair
Value of Financial Instruments
ASC
820, Fair Value Measurements, establishes a fair value hierarchy which requires us to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. We primarily apply the market approach for financial assets
and liabilities measured at fair value on a recurring basis. Fair value is the price we would receive to sell and asset or pay
to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active
markets for identical assets or liabilities, such measurements involve developing assumptions based on market observable data
and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical
transaction that occurs at the measurement date.
The
standard describes three level of inputs that may be used to measure fair value:
Level
1: Quoted prices in active markets for identical assets or liabilities.
Level
2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets
that are not active; or other inputs that are observable by observable market data for substantially the full term of the assets
or liabilities.
Level
3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets
or liabilities.
See
Note 15 – Hedging Activities and Fair Value Measurements.
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.
Revenue
Recognition
Our
principal sources of revenue are derived from product sales, sometimes referred to as standard form sales, and supply and installation
contracts, sometimes referred to as revenues from fixed price contracts. We identified one single performance obligation for both
forms of sales. Revenue is recognized when control is transferred to our customers. For product sales, the performance obligations
are satisfied at a point in time and control is deemed to be transferred upon delivery.
Approximately
27% of the Company’s consolidated net sales is generated by supply and installation contracts with customers that require
the Company 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.
These
performance obligations are satisfied over time. 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 terminates 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 supply and installation contracts that include performance obligations satisfied
over time. These sales 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 supply and installation 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 supply and installation 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. While there are various factors that can affect the accuracy of cost
estimates related to the revision of the proper allocation of indirect labor and indirect material costs to each project, such
estimates are made based on the most updated historical information and margins of those indirect costs over the associated revenues
and on all relevant information associated with each specific project at any point in time. 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 year ended December 31, 2020.
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.
Sales
Tax and Value Added Taxes
The
Company accounts for sales taxes and value added taxes imposed on its goods and services on a net basis - value added taxes paid
for goods and services purchased is netted against value added tax collected from customers and the net amount is paid to the
government. The current value added tax rate in Colombia for all of the Company’s products is 19%. A municipal industry
and commerce tax (ICA) sales tax of 0.7% is payable on all of the Company’s products sold in the Colombian market.
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 cost associated with product
warranties was $680 and $2,453 during the years ended December 31, 2020 and 2019, respectively.
Advertising
Costs
Advertising
costs are expensed as they are incurred and are included in general and administrative expenses. Advertising costs for the years
ended December 31, 2020 and 2019 amounted to approximately $987 and $1,416, respectively.
Employee
Benefits
The
Company provides benefits to its employees in accordance with Colombian labor laws. Employee benefits do not give rise to any
long-term liability.
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. Tecnoglass is subject to the taxing jurisdiction
of the Cayman Islands. Annual tax periods prior to December 2016 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 presents deferred tax assets and liabilities net as either a non-current asset or liability, depending on the net deferred
tax position. 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. The Company accrues for other tax
contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can
be reasonably estimated. 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
The
Company computes basic earnings per share 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 potential ordinary
shares outstanding during the period. See Note 18 - Shareholders’ Equity for further detail on the calculation of earnings
per share.
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 848): 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 are effective for the Company through 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
Consolidated Statement of Cashflows for the twelve months ended December 31, 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 Consolidated Statement of Cashflows as of December 31, 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 Consolidated Statement of Cashflows as of December 31, 2019, which had no effect on the net change in cash and
cash equivalents, are summarized in the following table:
|
|
|
Year ended December 31, 2019
|
|
|
|
|
As previously reported
|
|
|
Revision adjustment
|
|
|
As revised
|
|
|
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
$
|
26,739
|
|
|
|
(1,075
|
)
|
|
|
25,664
|
|
|
CASH USED IN INVESTING ACTIVITIES
|
|
|
(59,153
|
)
|
|
|
17
|
|
|
|
(59,136
|
)
|
|
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
47,271
|
|
|
|
1,057
|
|
|
|
48,328
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
$
|
(35
|
)
|
|
|
1
|
|
|
|
(34
|
)
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
14,822
|
|
|
|
-
|
|
|
|
14,822
|
|
|
CASH - Beginning of period
|
|
|
33,040
|
|
|
|
-
|
|
|
|
33,040
|
|
|
CASH - End of period
|
|
$
|
47,862
|
|
|
|
-
|
|
|
|
47,862
|
|
|
|
Note
4.
|
Long
Term Investments
|
Saint-Gobain
Joint Venture
On
May 3, 2019, we consummated 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, a Colombia-based
subsidiary of Saint-Gobain. The purchase price for our interest in Vidrio Andino was $45 million, of which $34.1 million was paid
in cash and $10.9 million paid through the contribution of land on December 9, 2020. On October 28, 2020 we acquired said land
from a related party and paid for it with the issuance of an aggregate of 1,557,142 ordinary shares of the Company, valued at
$7.00 per share, which represented an approximate 33% premium based on the closing stock price as of 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, 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 if needed (based on debt availability).
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.
|
Segment
and Geographic Information
|
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 windows products sold to
the construction industry.
In
reviewing the Company’s segmentation, the Company followed guidance under ASC 280-10-50-1 which states that “an operating
segment is a component of a public entity that has all of the following characteristics: (i) it engages in business activities
from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components
of the same public entity), (ii) its operating results are regularly reviewed by the public entity’s chief operating decision
maker (CODM) to make decisions about resources to be allocated to the segment and assess its performance, and (iii) its discrete
financial information is available. Based on the Company’s review discussed below, the Company believes that its identification
of a single operating and reportable segment - Architectural Glass and Windows - is consistent with the objectives and basic principles
of Segment Reporting, which are to “help financial statement readers better understand the public entity’s performance,
better assess its prospects for future net cash flows and make more informed judgments about the public entity as a whole.”
The
following tables present geographical information about external customers. Geographical information is based on the location
where there the customer is located.
|
|
|
Year ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Colombia
|
|
$
|
24,178
|
|
|
$
|
52,299
|
|
|
United States
|
|
|
340,437
|
|
|
|
368,055
|
|
|
Panama
|
|
|
1,029
|
|
|
|
3,482
|
|
|
Other
|
|
|
9,279
|
|
|
|
7,076
|
|
|
Total Revenues
|
|
$
|
374,923
|
|
|
$
|
430,912
|
|
The
following table presents revenues from external customer by product groups.
|
|
|
Year ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Glass and framing components
|
|
$
|
73,443
|
|
|
$
|
66,204
|
|
|
Windows and architectural systems
|
|
|
301,480
|
|
|
|
364,708
|
|
|
Total Revenues
|
|
$
|
374,923
|
|
|
$
|
430,912
|
|
During
the year ended December 31, 2020 and 2019, no single customer accounted for more than 10% of our revenues.
The
Company’s long-lived assets are distributed geographically as follows:
|
|
|
Year ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Colombia
|
|
$
|
202,361
|
|
|
$
|
201,740
|
|
|
United States
|
|
|
42,593
|
|
|
|
40,484
|
|
|
Total long lived assets
|
|
$
|
244,954
|
|
|
$
|
242,224
|
|
|
|
Note
6.
|
Revenue
Disaggregation, 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.
|
|
|
Year ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Fixed price contracts
|
|
$
|
101,739
|
|
|
$
|
162,236
|
|
|
Product sales
|
|
|
273,184
|
|
|
|
268,676
|
|
|
Total Revenues
|
|
$
|
374,923
|
|
|
$
|
430,912
|
|
Remaining
Performance Obligations
As
of December 31, 2020, the Company had $253.0 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 two years, of which $196.0 million are expected to be recognized during the year ended
December 31, 2020, and $56.8 million during the year ended December 31, 2021.
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. As a result, the timing of the satisfaction of performance obligations
might differ from the timing of payments, given some conditions must be met before billing can occur. Contract assets also include
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).
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
Contract assets — current
|
|
$
|
26,288
|
|
|
$
|
42,014
|
|
|
Contract assets — non-current
|
|
|
10,228
|
|
|
|
7,059
|
|
|
Contract liabilities — current
|
|
|
(24,694
|
)
|
|
|
(12,459
|
)
|
|
Contract liabilities — non-current
|
|
|
(977
|
)
|
|
|
(187
|
)
|
|
Net contract assets
|
|
$
|
10,845
|
|
|
$
|
36,427
|
|
The
components of contract assets are presented in the table below.
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
Unbilled contract receivables, gross
|
|
$
|
13,534
|
|
|
$
|
20,729
|
|
|
Retainage
|
|
|
22,982
|
|
|
|
28,344
|
|
|
Total contract assets
|
|
|
36,516
|
|
|
|
49,073
|
|
|
Less: current portion
|
|
|
26,288
|
|
|
|
42,014
|
|
|
Contract assets – non-current
|
|
$
|
10,228
|
|
|
$
|
7,059
|
|
The
components of contract liabilities are presented in the table below.
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
Billings in excess of costs
|
|
$
|
7,191
|
|
|
|
2,077
|
|
|
Advances from customers on uncompleted contracts
|
|
|
18,480
|
|
|
|
10,569
|
|
|
Total contract liabilities
|
|
|
25,671
|
|
|
|
12,646
|
|
|
Less: current portion
|
|
|
24,694
|
|
|
|
12,459
|
|
|
Contract liabilities – non-current
|
|
$
|
977
|
|
|
|
187
|
|
During
the year ended December 31, 2020, the Company recognized $2,039 of sales related to its billing in excess of cost liability at
January 1, 2020. During the year ended December 31, 2019, the Company recognized $4,337 of sales related to its contract liabilities
at January 1, 2019.
|
|
Note
7.
|
Trade
Accounts Receivable
|
Trade
accounts receivable consist of the following:
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Trade accounts receivable
|
|
|
89,012
|
|
|
|
113,243
|
|
|
Less: Allowance for doubtful accounts
|
|
|
(644
|
)
|
|
|
(2,685
|
)
|
|
Total
|
|
$
|
88,368
|
|
|
$
|
110,558
|
|
The
changes in the allowance for doubtful accounts for the years ended December 31, 2020 and 2019 are as follows:
|
|
|
Year ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Balance at beginning of year
|
|
$
|
2,685
|
|
|
$
|
2,683
|
|
|
Provision for bad debts
|
|
|
1,097
|
|
|
|
1,389
|
|
|
Deductions and write-offs, net of foreign currency adjustment
|
|
|
(3,138
|
)
|
|
|
(1,387
|
)
|
|
Balance at end of year
|
|
$
|
644
|
|
|
$
|
2,685
|
|
Inventories
are comprised of the following
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
Raw materials
|
|
$
|
47,282
|
|
|
$
|
44,175
|
|
|
Work in process
|
|
|
19,345
|
|
|
|
24,262
|
|
|
Finished goods
|
|
|
4,434
|
|
|
|
5,203
|
|
|
Stores and spares
|
|
|
8,981
|
|
|
|
8,130
|
|
|
Packing material
|
|
|
783
|
|
|
|
981
|
|
|
|
|
|
80,825
|
|
|
|
82,751
|
|
|
Less: Inventory allowance
|
|
|
(83
|
)
|
|
|
(37
|
)
|
|
|
|
$
|
80,742
|
|
|
$
|
82,714
|
|
There
are no third party liens or pledges on our inventories as of December 31, 2020.
|
|
Note
9.
|
Other
Current Assets
|
Other
assets consist of the following:
|
|
|
Year ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Advances to Suppliers and Loans
|
|
$
|
1,986
|
|
|
$
|
1,681
|
|
|
Prepaid Income Taxes
|
|
|
5,979
|
|
|
|
23,160
|
|
|
Employee Receivables
|
|
|
361
|
|
|
|
465
|
|
|
Prepaid expenses
|
|
|
2,367
|
|
|
|
2,647
|
|
|
Derivative financial instruments
|
|
|
230
|
|
|
|
749
|
|
|
Other Creditors
|
|
|
2,622
|
|
|
|
638
|
|
|
Total
|
|
$
|
13,545
|
|
|
$
|
29,340
|
|
During
the years ended December 31, 2020 and 2019, the Company recorded $1,338 and $1,574 of prepaid expenses amortization, respectively.
|
|
Note
10.
|
Property,
Plant and Equipment
|
Property,
plant and equipment is comprised of the following:
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
Building
|
|
$
|
64,748
|
|
|
$
|
59,979
|
|
|
Machinery and equipment
|
|
|
156,170
|
|
|
|
148,968
|
|
|
Office equipment and software
|
|
|
7,041
|
|
|
|
6,871
|
|
|
Vehicles
|
|
|
1,977
|
|
|
|
1,813
|
|
|
Furniture and fixtures
|
|
|
2,304
|
|
|
|
2,264
|
|
|
Total property, plant and equipment
|
|
|
232,240
|
|
|
|
219,895
|
|
|
Accumulated depreciation
|
|
|
(106,964
|
)
|
|
|
(93,463
|
)
|
|
Net book value of property and equipment
|
|
|
125,276
|
|
|
|
126,432
|
|
|
Land
|
|
|
26,990
|
|
|
|
28,177
|
|
|
Total property, plant and equipment, net
|
|
$
|
152,266
|
|
|
$
|
154,609
|
|
Depreciation
expense was $17,074 and $18,429 for the years ended December 31, 2020 and 2019, respectively.
The
roll forward of Property, plant and equipment for the years ended December 31, 2020 and 2019 is as follows:
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
248,072
|
|
|
$
|
227,083
|
|
|
Acquisitions
|
|
|
18,323
|
|
|
|
25,168
|
|
|
Reclasification to investment
|
|
|
-
|
|
|
|
(1,066
|
)
|
|
Disposals
|
|
|
(26
|
)
|
|
|
(82
|
)
|
|
Assets acquired under credit or debt
|
|
|
2,242
|
|
|
|
1,006
|
|
|
Effect of Foreign currency translation
|
|
|
(9,381
|
)
|
|
|
(4,037
|
)
|
|
Ending Balance
|
|
$
|
259,230
|
|
|
$
|
248,072
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
(93,463
|
)
|
|
$
|
(77,884
|
)
|
|
Depreciation Expense
|
|
|
(17,074
|
)
|
|
|
(18,429
|
)
|
|
Effect of Foreign Currency Translation
|
|
|
3,573
|
|
|
|
2,850
|
|
|
Ending balance
|
|
$
|
(106,964
|
)
|
|
$
|
(93,463
|
)
|
|
Property, plant and Equipment, Net
|
|
$
|
152,266
|
|
|
$
|
154,609
|
|
The
effect of foreign currency translation is the adjustment resulting from translating the amounts from Colombian Pesos, functional
currency of some of the Company’s subsidiaries, into U.S. Dollars, the reporting currency.
|
|
Note
11.
|
Goodwill
and Intangible Assets
|
Goodwill
There
were no movements to goodwill during the year ended December 31, 2019 and 2020.
Intangible
Assets, Net
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 from the acquisition of GM&P.
|
|
|
December 31, 2020
|
|
|
|
|
Gross
|
|
|
Acc.
Amort.
|
|
|
Net
|
|
|
Trade Names
|
|
$
|
980
|
|
|
$
|
(751
|
)
|
|
$
|
229
|
|
|
Notice of Acceptances (NOAs), product designs and other intellectual property
|
|
|
9,236
|
|
|
|
(5,255
|
)
|
|
|
3,981
|
|
|
Non-compete Agreement
|
|
|
165
|
|
|
|
(126
|
)
|
|
|
39
|
|
|
Customer Relationships
|
|
|
4,140
|
|
|
|
(3,277
|
)
|
|
|
863
|
|
|
Total
|
|
$
|
14,521
|
|
|
$
|
(9,409
|
)
|
|
$
|
5,112
|
|
|
|
|
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 twelve months ended December 31, 2020 and 2019, the amortization expense amounted to $2,178 and $2,732, respectively, and
was included within the general and administration expenses in our consolidated statement of operations.
The
estimated aggregate amortization expense for each of the five succeeding years as of December 31, 2020 is as follows:
|
Year ending
|
|
(in thousands)
|
|
|
2021
|
|
$
|
2,185
|
|
|
2022
|
|
|
1,173
|
|
|
2023
|
|
|
851
|
|
|
2024
|
|
|
522
|
|
|
2025
|
|
|
212
|
|
|
Thereafter
|
|
|
169
|
|
|
|
|
$
|
5,112
|
|
|
|
Note
12.
|
Other
Long-Term Assets
|
Other
long-term assets are comprised of the following:
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Real estate investments
|
|
$
|
2,615
|
|
|
$
|
2,303
|
|
|
Cost method investment
|
|
|
-
|
|
|
|
500
|
|
|
Other long-term assets
|
|
|
168
|
|
|
|
107
|
|
|
|
|
$
|
2,783
|
|
|
$
|
2,910
|
|
The
Company’s debt is comprised of the following:
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
Revolving lines of credit
|
|
$
|
377
|
|
|
$
|
17,455
|
|
|
Finance lease
|
|
|
350
|
|
|
|
493
|
|
|
Unsecured senior note
|
|
|
210,000
|
|
|
|
210,000
|
|
|
Other loans
|
|
|
31
|
|
|
|
15,578
|
|
|
Senior secured credit facility
|
|
|
22,835
|
|
|
|
19,999
|
|
|
Less: Deferred cost of financing
|
|
|
(9,107
|
)
|
|
|
(3,714
|
)
|
|
Total obligations under borrowing arrangements
|
|
|
224,486
|
|
|
|
259,811
|
|
|
Less: Current portion of long-term debt and other current borrowings
|
|
|
1,764
|
|
|
|
16,084
|
|
|
Long-term debt
|
|
$
|
222,722
|
|
|
$
|
243,727
|
|
As
of December 31, 2020, and December 31, 2019, the Company had $224,315 and $259,574 of debt denominated in US Dollars with the
remaining amounts denominated in Colombian Pesos.
As
of December 31, 2020, all assets of the company are pledged as collateral for the senior secured credit facility described below.
As of December 31, 2019, $6,979 of property, plant and equipment were pledged as collateral for various lines of credit.
On
October 2020, the Company closed a $300 million five-year term Senior Secured Credit Facility consisting of a $250 million delayed
draw term loan and a $50 million committed revolving credit facility which bears interest at a rate of LIBOR, with a 0.75% floor,
plus a spread of between 2.50% and 3.50%, based on the Company’s net leverage ratio. In December 2020, we used $23.1 million
proceeds of the long-term debt facility to repay several credit facilities. Subsequently, in January 2021 we redeemed the Company’s
existing $210 million unsecured senior notes, which had an interest rate of 8.2% and mature in 2022 using proceeds from this new
facility and incurred in an extinguishment cost of $10.9 million including $8.6 of call premium to exercise the
call option.
As
of December 31, 2020, the Company was obligated under various finance leases under which the aggregate present value of the minimum
lease payments amounted to $350. In line with this, the Company recorded right-of-use assets related to computing equipment and
warehousing for $321 and $378 as of December 31, 2020 and 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 Consolidated
Statement of Operations. Additionally, as of December 31, 2020, the Company had a commitment for $10 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 Consolidated Statement
of Operations as incurred.
The
table below shows maturities of debt as of December 2020. The maturities here presented do not reflect the prepayment of the $210
million senior notes in January 2021 discussed above.
|
2021
|
|
$
|
1,764
|
|
|
2022
|
|
|
211,268
|
|
|
2023
|
|
|
1,295
|
|
|
2024
|
|
|
1,713
|
|
|
2025
|
|
|
17,553
|
|
|
Thereafter
|
|
|
-
|
|
|
Total
|
|
$
|
233,593
|
|
The
Company’s loans have maturities ranging from a few weeks to 5 years. Our credit facilities bear interest at a weighted average
rate of 7.7%. Considering the effect of the prepayment of our senior notes in January 2022, we estimate the new weighted average
rate to be 3.8%.
Interest
expense for the year ended December 31, 2020 and 2019 was $21,671 and $22,806, respectively. During the years ended December 31,
2020 and 2019, the Company did not capitalized interests.
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. Tecnoglass Inc. does not currently have any tax obligations.
The
components of income tax expense (benefit) are as follows:
|
|
|
Year ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Current income tax
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
(1,385
|
)
|
|
$
|
(1,438
|
)
|
|
Colombia
|
|
|
(5,035
|
)
|
|
|
(14,188
|
)
|
|
|
|
|
(6,420
|
)
|
|
|
(15,626
|
)
|
|
Deferred income Tax
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
20
|
|
|
|
663
|
|
|
Colombia
|
|
|
(6,601
|
)
|
|
|
2,035
|
|
|
|
|
|
(6,581
|
)
|
|
|
2,698
|
|
|
Total income tax (provision) benefit
|
|
$
|
(13,001
|
)
|
|
$
|
(12,928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
35.0
|
%
|
|
|
34.8
|
%
|
A
reconciliation of the statutory tax rate in Colombia to the Company’s effective tax rate is as follows:
|
|
|
Year ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Income tax expense at statutory rates
|
|
|
30.5
|
%
|
|
|
32.7
|
%
|
|
Non-deductible expenses
|
|
|
5.5
|
%
|
|
|
5.3
|
%
|
|
Non-taxable income
|
|
|
-1.1
|
%
|
|
|
-3.2
|
%
|
|
Effective tax rate
|
|
|
34.9
|
%
|
|
|
34.8
|
%
|
No
single individual item contributed significantly in the reconciliation of the Company’s effective tax rate to the statutory
rate during the year ended December 31, 2019 and 2020, respectively.
The
Company has the following deferred tax assets and liabilities:
|
|
|
Year ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Accounts Receivable Clients - not delivered FOB
|
|
$
|
-
|
|
|
$
|
(2,105
|
)
|
|
Property, plant and equipment adjustments
|
|
|
480
|
|
|
|
319
|
|
|
Tax benefit on installation of renewable energy project
|
|
|
282
|
|
|
|
307
|
|
|
Foreign currency transactions
|
|
|
1,052
|
|
|
|
8,936
|
|
|
Other
|
|
|
16
|
|
|
|
240
|
|
|
Total deferred tax assets
|
|
$
|
1,830
|
|
|
$
|
7,697
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
(1,931
|
)
|
|
|
(2,489
|
)
|
|
Other
|
|
|
(377
|
)
|
|
|
(382
|
)
|
|
Foreign currency transactions
|
|
|
(2,483
|
)
|
|
|
(642
|
)
|
|
Total deferred tax liabilities
|
|
$
|
(4,791
|
)
|
|
$
|
(3,513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax
|
|
$
|
(2,961
|
)
|
|
$
|
4,184
|
|
Net
deferred tax is presented on the balance sheet as follows:
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Long term deferred income tax asset
|
|
$
|
209
|
|
|
$
|
4,595
|
|
|
Less: long term deferred income tax liability
|
|
$
|
3,170
|
|
|
$
|
411
|
|
|
|
Note
15.
|
Hedging
Activities and Fair Value Measurements
|
Hedging
Activity
During
the quarter ended December 31, 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 December 31, 2020, the fair value of foreign currency collar contracts was in a net asset position of $230. We had 2 outstanding
collar contracts to exchange 2 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 December 31, 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 income 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 gains, net, recognized in the “accumulated other comprehensive income” line item in the accompanying
consolidated balance sheet as of December 31, 2020, that we expect will be reclassified to earnings within the next two months,
is $230.
The
fair value of our foreign currency hedges is classified in the accompanying consolidated balance sheets as of December 31, 2020,
are as follows:
|
|
|
Derivative Assets
|
|
|
Derivative Liabilities
|
|
|
|
December 31, 2020
|
|
|
December 31, 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
|
|
$
|
230
|
|
|
|
Accrued liabilities
|
|
$
|
-
|
|
|
Total derivative instruments
|
|
Total derivative assets
|
|
$
|
230
|
|
|
|
Total derivative liabilities
|
|
$
|
-
|
|
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 income, net of
tax, was $159 as of December 31, 2020, comprised of a derivative gain of $230 and an associated net tax liability of $71.
The
following table presents the gains (losses) on derivative financial instruments, and their classifications within the accompanying
consolidated financial statements, for the year ended December 31, 2020 and 2019:
|
|
|
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
|
|
|
|
|
Year Ended
|
|
|
|
Year Ended
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-delivery Collar Contracts
|
|
$230
|
|
$
|
749
|
|
|
Operating Revenues
|
|
$
|
(2,642
|
)
|
|
$
|
(214
|
)
|
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.
As
of December 31, 2020, financial instruments carried at amortized cost that do not approximate fair value consist of long-term
debt. See Note 13 - 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:
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
Fair Value
|
|
|
238,753
|
|
|
|
259,814
|
|
|
Carrying Value
|
|
|
222,722
|
|
|
|
243,727
|
|
The
following is a summary of assets, liabilities, and income and expense transactions with all related parties, shareholders, directors
and managers:
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Due from VS
|
|
$
|
6,387
|
|
|
$
|
4,203
|
|
|
Due from other related parties
|
|
|
2,187
|
|
|
|
3,854
|
|
|
|
|
$
|
8,574
|
|
|
$
|
8,057
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Term due from VS
|
|
|
484
|
|
|
|
1,786
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Due to related parties - current
|
|
$
|
4,749
|
|
|
$
|
4,415
|
|
|
Due to related parties - Non current
|
|
$
|
645
|
|
|
$
|
622
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Sales to related parties
|
|
$
|
2,515
|
|
|
$
|
8,794
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees paid to directors and officers
|
|
$
|
4,337
|
|
|
$
|
3,537
|
|
|
Payments to other related parties
|
|
$
|
4,003
|
|
|
$
|
3,388
|
|
Ventanas
Solar S.A. (“VS”), a Panama sociedad anonima, is an importer and installer of the Company’s products
in Panama. Family members of the Company’s CEO and COO and other related parties own 100% of the equity in VS. The Company’s
sales to VS for the year ended December 31, 2020 and 2019 were, $965, and $3,273, respectively.
Payments
to other related parties during the periods indicated are comprised of the following:
|
|
|
Year ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Charitable contributions
|
|
$
|
1,259
|
|
|
$
|
1,343
|
|
|
Sales commissions
|
|
$
|
1,288
|
|
|
$
|
1,105
|
|
|
|
Note
17.
|
Commitments
and Contingencies
|
Commitments
As
of December 31, 2020, the Company has an outstanding obligation to purchase an aggregate of at least $10,300 of certain raw materials
from a specific supplier before May 2026.
Additionally,
in connection with the joint venture agreement the Company consummated with Saint-Gobain on May 3, 2019, further described in
Note 4. Long Term Investments, the Company acquired a contingent obligation to purchase minimum volumes of float glass once the
new plant located close to the Company’s actual manufacturing facilities commences operations, which are expected to initiate
in 2022.
Guarantees
As
of December 31, 2020, the Company does not have guarantees on behalf of other parties.
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
18.
|
Shareholders’
Equity
|
Preferred
Shares
Tecnoglass
is authorized to issue 1,000,000 preferred shares with a par value of $0.0001 per share with such designation, rights and preferences
as may be determined from time to time by the Company’s board of directors.
As
of December 31, 2020, there are no preferred shares issued or outstanding.
Ordinary
Shares
The
Company is authorized to issue 100,000,000 ordinary shares with a par value of $0.0001 per share. As of December 31, 2020, a total
of 47,674,773 Ordinary shares were issued and outstanding.
Legal
Reserve
Colombian
regulation requires that companies retain 10% of net income until it accumulates at least 50% of subscribed and paid in capital.
The amount recorded meets this standard.
Earnings
per Share
The
following table sets forth the computation of the basic and diluted earnings per share for the years ended December 31, 2020 and
2019:
|
|
|
Year ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Numerator for basic and diluted earnings per shares
|
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
|
$
|
24,185
|
|
|
$
|
24,269
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per ordinary share - weighted average shares outstanding
|
|
|
46,398,428
|
|
|
|
44,464,097
|
|
|
Denominator for diluted earnings per ordinary share - weighted average shares outstanding
|
|
|
46,398,428
|
|
|
|
44,464,097
|
|
|
Basic earnings (loss) per ordinary share
|
|
$
|
0.52
|
|
|
$
|
0.55
|
|
|
Diluted earnings (loss) per ordinary share
|
|
$
|
0.52
|
|
|
$
|
0.55
|
|
Long
Term Incentive Compensation Plan
On
December 20, 2013, our shareholders approved our 2013 Long-Term Equity Incentive Plan (“2013 Plan”). Under the 2013
Plan, 1,593,917 ordinary shares are reserved for issuance in accordance with the plan’s terms to eligible employees, officers,
directors and consultants. As of December 31, 2020, no awards had been made under the 2013 Plan.
Dividend
On
December 8, 2020, the Company declared a regular quarterly dividend of $0.0275 per share, or $0.11 per share on an annualized
basis, for the fourth quarter of 2020. The quarterly dividend was paid in cash on January 29, 2021 to shareholders of record as
of the close of business on December 31, 2020.
The
payment of any dividends is ultimately within the discretion of our Board of Directors. The payment of dividends in the future,
if any, will be contingent upon our revenues and earnings, if any, capital requirements and our general financial condition and
limitations imposed by our outstanding indebtedness.
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.
Non-controlling
interest
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
19.
|
Operating
Expenses
|
Selling
expenses for the years ended December 31, 2020, and 2019 were comprised of the following:
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Shipping and Handling
|
|
$
|
15,932
|
|
|
$
|
17,434
|
|
|
Sales commissions
|
|
|
8,161
|
|
|
|
7,775
|
|
|
Personnel
|
|
|
6,287
|
|
|
|
7,070
|
|
|
Services
|
|
|
2,064
|
|
|
|
2,487
|
|
|
Accounts Receivable provision
|
|
|
1097
|
|
|
|
1,389
|
|
|
Packaging
|
|
|
1,036
|
|
|
|
1,039
|
|
|
Other Selling Expenses
|
|
|
4,385
|
|
|
|
4,731
|
|
|
Total Selling Expense
|
|
$
|
38,962
|
|
|
$
|
41,925
|
|
General
and administrative expenses for the years ended December 31, 2020 and 2019 were comprised of the following:
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Personnel
|
|
$
|
9,976
|
|
|
$
|
9,925
|
|
|
Related parties
|
|
|
4,884
|
|
|
|
3,913
|
|
|
Services
|
|
|
4,168
|
|
|
|
4,509
|
|
|
Depreciation and Amortization
|
|
|
3,687
|
|
|
|
4,182
|
|
|
Professional fees
|
|
|
2,971
|
|
|
|
3,227
|
|
|
Insurance
|
|
|
1,904
|
|
|
|
1,776
|
|
|
Taxes
|
|
|
1,138
|
|
|
|
1,288
|
|
|
Bank charges and tax on financial transactions
|
|
|
1,024
|
|
|
|
1,176
|
|
|
Rent expense
|
|
|
830
|
|
|
|
803
|
|
|
Other expenses
|
|
|
3,590
|
|
|
|
4,270
|
|
|
Total General and administrative expenses
|
|
$
|
34,172
|
|
|
$
|
35,069
|
|
|
|
Note
20.
|
Non-Operating
Income and Expenses
|
Non-operating
income and expenses, net on our consolidated statement of operations amounted to an expense of $12 and income of $1,565 for the
years ended December 31, 2020 and 2019, respectively. These amounts are primarily comprised of income from interests on receivables
and short-term investments, rent income and recoveries on scrap materials.
|
|
Note
21.
|
Subsequent
Events
|
On
October 2020, the Company closed a $300 million five-year term Senior Secured Credit Facility consisting of a $250 million delayed
draw term loan and a $50 million committed revolving credit facility which bears interest at a rate of LIBOR, with a 0.75% floor,
plus a spread of between 2.50% and 3.50%, based on the Company’s net leverage ratio. In December 2020, we used $23.1 million
proceeds of the long-term debt facility to repay several credit facilities. Subsequently, in January 2021 we redeemed the Company’s
existing $210 million unsecured senior notes, which had an interest rate of 8.2% and mature in 2022 using proceeds from this new
facility and incurred in an extinguishment cot of $10.4 million including $8.6 of call premium to exercise the call option.
Management
concluded that no additional subsequent events required disclosure other than those disclosed in these financial statements.
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