Notes
to Condensed Consolidated Financial Statements
(Amounts
in thousands, except share and per share data)
(Unaudited)
Note
1. General
Business
Description
Tecnoglass
Inc., a Cayman Islands exempted company (the “Company”, “Tecnoglass,” “TGI,” “we, “us”
or “our”), manufactures hi-specification, architectural glass and windows for the global residential and commercial construction
industries. Currently the Company offers design, production, marketing, and installation of architectural systems for buildings of high,
medium and low elevation size. Products include windows and doors in glass and aluminum, office partitions and interior divisions, floating
facades and commercial window showcases. The Company exports most of its production to foreign countries, selling to customers in North,
Central and South America.
The
Company manufactures both glass and aluminum products. Its glass products include tempered glass, laminated glass, thermo-acoustic glass,
curved glass, silk-screened glass, acoustic glass and digital print glass. Its Alutions plant produces mill finished, anodized, painted
aluminum profiles and rods, tubes, bars and plates. Alutions’ operations include extrusion, smelting, painting and anodizing processes,
and exporting, importing and marketing aluminum products.
The
Company also designs, manufactures, markets and installs architectural systems for high, medium and low-rise construction, glass and
aluminum windows and doors, office dividers and interiors, floating facades and commercial display windows.
Note
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis
of Presentation and Use of Estimates
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“US GAAP”) and pursuant to the accounting and disclosure rules and regulations
of the Securities and Exchange Commission (“SEC”) for interim reporting purposes. The results reported in these unaudited
condensed consolidated financial statements are not necessarily indicative of results that may be expected for the entire year. These
unaudited condensed consolidated financial statements should be read in conjunction with the information contained in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2021. The year-end condensed balance sheet data was derived from the audited
financial statements in the Form 10-K but does not include all disclosures required by US GAAP.
The
preparation of these unaudited condensed consolidated financial statements requires the Company to make estimates and judgments that
affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities
at the date of the Company’s financial statements. Actual results may differ from these estimates under different assumptions and
conditions. Estimates utilized in the preparation of these unaudited condensed consolidated financial statements relate to the collectability
of account receivables, the valuation of inventories, estimated earnings on uncompleted contracts, useful lives and potential impairment
of long-lived assets. Changes in estimates are reflected in the periods during which they become known. Actual amounts may differ from
these estimates and could differ materially. These financial statements reflect all adjustments that in the opinion of management are
necessary for a fair statement of the financial position, results of operations and cash flows for the period presented, and are of a
normal, recurring nature.
The
Company has one operating segment, Architectural Glass and Windows, which is also its reporting segment, comprising the design, manufacturing,
distribution, marketing and installation of high-specification architectural glass and window product sold to the construction industry.
Principles
of Consolidation
These
audited condensed consolidated financial statements consolidate TGI, its subsidiaries Tecnoglass S.A.S (“TG”), C.I. Energía
Solar S.A.S E.S. Windows (“ES”), ES Windows LLC (“ESW LLC”), Tecnoglass LLC (“Tecno LLC”), Tecno
RE LLC (“Tecno RE”), GM&P Consulting and Glazing Contractors (“GM&P”), Componenti USA LLC, ES Metals
SAS (“ES Metals”), and Ventanas Solar S.A (“VS”), 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.
TGI
and certain wholly owned subsidiaries with functional currency different than the U.S. dollar have long-term intercompany loan balances
denominated in foreign currencies that are remeasured at the current exchange rate in effect at the balance sheet date. Such loan balances
are not expected to be settled in the foreseeable future. Any gains and losses relating to these loans are included in the accumulated
other comprehensive income (loss), which is reflected as a separate component of stockholders’ equity.
Recast
of Prior Year Period Financial Statements
On
November 8, 2021, we announced that we entered into a purchase agreement with Ventanas Solar S.A. (“VS”) a Panama domiciled
company that acts as an importer and distributor of the Company’s products in the Republic of Panama. VS is affiliated with family
members of Jose M. Daes, the Company’s Chief Executive Officer, and Christian T. Daes, the Company’s Chief Operating Officer.
Pursuant to the Agreement, the Company through ES acquired 95% of the shares of VS for $4.0 million, which were paid for through the
capitalization of certain accounts receivable of ES from previous sales to VS. The transaction was consummated in December 2021 and is
part of the Company’s continued strategy to vertically integrate its operations. It is expected that the remaining 5% of VS will
be contributed to the Company in 2022 without any further consideration being paid.
The
acquisition of VS was deemed to be a transaction between entities under common control. As a result, the assets and liabilities were
transferred at the historical cost of VS, with prior periods retroactively adjusted to include the historical financial results of the
acquired company for the period they were controlled by the previous owners of VS in the Company’s financial statements.
The
following table includes the financial information as originally reported and the net effect of the VS acquisition after elimination
of intercompany transactions:
Schedule of Consolidated Financial Statements
| | |
March 31, 2021 | |
| | |
Prior to
acquisition | | |
Effect of
acquisition | | |
After
acquisition | |
| Total Sales | |
| 110,259 | | |
| 1,296 | | |
| 111,555 | |
| Operating Income | |
| 25,604 | | |
| (171 | ) | |
| 25,433 | |
| Income attributable to parent | |
| 8,352 | | |
| (159 | ) | |
| 8,193 | |
| Basic income per share | |
| 0.18 | | |
| (0.01 | ) | |
| 0.17 | |
| Diluted income per share | |
| 0.18 | | |
| (0.01 | ) | |
| 0.17 | |
Derivative
Financial Instruments
The
Company recognizes all derivative financial instruments as either assets or liabilities at fair value on the condensed 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 condensed consolidated statement of comprehensive income. Amounts in accumulated other comprehensive
loss on the condensed consolidated balance sheet are reclassified into the condensed consolidated statement of income in the same period
or periods during which the hedged transactions are settled.
Adoption
of New Accounting Standards
In
June 2016, Financial Accounting Standards Board (“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 postponed the effective date to the year
beginning after December 15, 2022 for smaller reporting Companies. 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.
We
adopted this standard using the modified retrospective approach at the beginning of fiscal year 2022 as we lost the smaller reporting
company status. The adoption of this ASU did not have a significant impact on earnings or financial condition. Refer to additional disclosures
in Notes 4.
Recently
Issued Accounting Pronouncements
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’s outstanding
debt which bears interest based on LIBOR contains provisions for transitioning into a benchmark reference rate prior to the discontinuation
of LIBOR in 2023. Our interest rate swap derivative contract will be adjusted accordingly.
Note
3. - Inventories, net
Schedule of Inventories
| | |
March 31,
2022 | | |
December 31,
2021 | |
| Raw materials | |
$ | 64,888 | | |
$ | 54,443 | |
| Work in process | |
| 14,798 | | |
| 11,126 | |
| Finished goods | |
| 12,538 | | |
| 8,789 | |
| Stores and spares | |
| 11,268 | | |
| 9,869 | |
| Packing material | |
| 1,173 | | |
| 870 | |
| Total Inventories, gross | |
| 104,665 | | |
| 85,097 | |
| Less: Inventory allowance | |
| (134 | ) | |
| (122 | ) |
| Total inventories,
net | |
$ | 104,531 | | |
$ | 84,975 | |
Note
4. – Revenues, Trade Accounts Receivable, 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.
Schedule of Disaggregation by Revenue
| | |
Three months ended | |
| | |
March 31, | |
| | |
2022 | | |
2021 | |
| Fixed price contracts | |
$ | 18,851 | | |
$ | 22,433 | |
| Product sales | |
| 115,697 | | |
| 89,122 | |
| Total Revenues | |
$ | 134,548 | | |
$ | 111,555 | |
The
following table presents geographical information about revenues.
Schedule of Segment and Geographic Information
| | |
Three months ended | |
| | |
March 31, | |
| | |
2022 | | |
2021 | |
| Colombia | |
$ | 4,025 | | |
$ | 7,665 | |
| United States | |
| 126,984 | | |
| 100,807 | |
| Panama | |
| 799 | | |
| 931 | |
| Other | |
| 2,740 | | |
| 2,152 | |
| Total Revenues | |
$ | 134,548 | | |
$ | 111,555 | |
Trade
Accounts Receivable
In
the ordinary course of business, we extend credit to customers on a generally non-collateralized basis. The Company maintains an allowance
for expected credit losses which is based on management’s assessments of the amount which may become uncollectible in the future
and is determined through consideration of our write-off history, specific identification of uncollectible accounts based in part on
the customer’s past due balance (based on contractual terms), and consideration of prevailing economic and industry conditions.
Uncollectible accounts are written off after repeated attempts to collect from the customer have been unsuccessful.
Trade
accounts receivable consist of the following:
Schedule of Trade Accounts Receivable
| | |
March 31,
2022 | | |
December 31,
2021 | |
| Trade accounts receivable | |
| 107,084 | | |
| 110,727 | |
| Less: Allowance for credit losses | |
| (587 | ) | |
| (188 | ) |
| Total | |
$ | 106,497 | | |
$ | 110,539 | |
The
changes in the allowance for credit losses for the three months ended March 31, 2022:
Schedule of Changes in Allowance for Doubtful Accounts Receivable
| | |
Three months ended
March 31, 2022 | |
| Balance at beginning of period | |
$ | 188 | |
| Additions charged to costs and expenses | |
| 414 | |
| Deductions and write-offs, net of foreign currency adjustment | |
| (15 | ) |
| Balance at end of period | |
$ | 587 | |
Contract
Assets and Liabilities
Contract
assets represent accumulated incurred costs and earned profits on contracts with customers that have been recorded as sales, but have
not been billed to customers and are classified as current and a portion of the amounts billed on certain fixed price contracts that
are withheld by the customer as a retainage until a final good receipt of the complete project to the customers satisfaction. Contract
liabilities consist of advance payments and billings in excess of costs incurred and deferred revenue, and represent amounts received
in excess of sales recognized on contracts. The Company classifies advance payments and billings in excess of costs incurred as current,
and deferred revenue as current or non-current based on the expected timing of sales recognition. Contract assets and contract liabilities
are determined on a contract by contract basis at the end of each reporting period. The non-current portion of contract liabilities is
included in other liabilities in the Company’s condensed consolidated balance sheets.
The
table below presents the components of net contract assets (liabilities).
Schedule of Contract Assets and Liabilities
| | |
March 31,
2022 | | |
December 31,
2021 | |
| Contract assets — current | |
$ | 16,267 | | |
$ | 18,667 | |
| Contract assets — non-current | |
| 10,275 | | |
| 11,853 | |
| Contract liabilities — current | |
| (44,781 | ) | |
| (45,213 | ) |
| Contract liabilities — non-current | |
| (43 | ) | |
| (78 | ) |
| Net contract assets | |
$ | (18,282 | ) | |
$ | (14,771 | ) |
The
components of contract assets are presented in the table below.
Schedule of Contract Assets and Liabilities
| | |
March 31,
2022 | | |
December 31,
2021 | |
| Unbilled contract receivables, gross | |
$ | 7,189 | | |
$ | 8,174 | |
| Retainage | |
| 19,353 | | |
| 22,346 | |
| Total contract assets | |
| 26,542 | | |
| 30,520 | |
| Less: current portion | |
| 16,267 | | |
| 18,667 | |
| Contract Assets – non-current | |
$ | 10,275 | | |
$ | 11,853 | |
The
components of contract liabilities are presented in the table below.
Schedule of Contract Assets and Liabilities
| | |
March 31,
2022 | | |
December 31,
2021 | |
| Billings in excess of costs | |
$ | 11,840 | | |
| 12,854 | |
| Advances from customers on uncompleted contracts | |
| 32,984 | | |
| 32,437 | |
| Total contract liabilities | |
| 44,824 | | |
| 45,291 | |
| Less: current portion | |
| 44,781 | | |
| 45,213 | |
| Contract liabilities – non-current | |
$ | 43 | | |
| 78 | |
During
the three months ended March 31, 2022, the Company recognized $2,082 of sales related to its contract liabilities at January 1, 2022.
During the three months ended March 31, 2021, the Company recognized $1,468 of sales related to its contract liabilities at January 1,
2021.
Remaining
Performance Obligations
As
of March 31, 2022, the Company had $317.6 million of remaining performance obligations, which represents the transaction price of firm
orders minus sales recognized from inception to date. Remaining performance obligations exclude unexercised contract options, verbal
commitments, Letters of Intent or written mandates, and potential orders under basic ordering agreements. The Company expects to recognize
100% of sales relating to existing performance obligations within three years, of which $241.5 million are expected to be recognized
during the year ending December 31, 2022, $76.0 million during the year ending December 31, 2023 or thereafter.
Note
5. Intangible Assets
Intangible
assets include Miami-Dade County Notices of Acceptances (NOA’s), which are certificates issued for approved products and required
to market hurricane-resistant glass in Florida. Also, it includes the intangibles acquired during the acquisition of GM&P.
Schedule of Finite Lived Intangible Assets
| | |
March 31, 2022 | |
| | |
Gross | | |
Acc. Amort. | | |
Net | |
| Trade Names | |
$ | 980 | | |
$ | (980 | ) | |
$ | - | |
| Notice of Acceptances (NOAs), product designs and other intellectual property | |
| 9,688 | | |
| (6,538 | ) | |
| 3,150 | |
| Non-compete Agreement | |
| 165 | | |
| (165 | ) | |
| - | |
| Customer Relationships | |
| 4,140 | | |
| (4,140 | ) | |
| - | |
| Total | |
$ | 14,973 | | |
$ | (11,823 | ) | |
$ | 3,150 | |
| | |
December 31, 2021 | |
| | |
Gross | | |
Acc. Amort. | | |
Net | |
| Trade Names | |
$ | 980 | | |
$ | (947 | ) | |
$ | 33 | |
| Notice of Acceptances (NOAs), product designs and other intellectual property | |
| 9,456 | | |
| (6,280 | ) | |
| 3,176 | |
| Non-compete Agreement | |
| 165 | | |
| (160 | ) | |
| 5 | |
| Customer Relationships | |
| 4,140 | | |
| (4,017 | ) | |
| 123 | |
| Total | |
$ | 14,741 | | |
$ | (11,404 | ) | |
$ | 3,337 | |
The
weighted average amortization period is 5.29 years.
During
the three months ended March 31, 2022 and 2021, the amortization expense amounted to $475 and $572, respectively, and was included within
the general and administration expenses in our Condensed Consolidated Statement of Operations.
The
estimated aggregate amortization expense for each of the five succeeding years as of March 31, 2022 is as follows:
Schedule of Finite Lived Intangible Assets Future Amortization Expense
| Year ending | |
(in thousands) | |
| 2022 | |
$ | 824 | |
| 2023 | |
| 947 | |
| 2024 | |
| 636 | |
| 2025 | |
| 323 | |
| Thereafter | |
| 420 | |
| Total | |
$ | 3,150 | |
Note
6. Debt
The
Company’s debt is comprised of the following:
Schedule of Debt
| | |
March 31,
2022 | | |
December 31,
2021 | |
| Revolving lines of credit | |
$ | 7,110 | | |
$ | 279 | |
| Finance lease | |
| 308 | | |
| 306 | |
| Other loans | |
| - | | |
| 239 | |
| Syndicated credit - term loan facility | |
| 182,500 | | |
| 204,257 | |
| Less: Deferred cost of financing | |
| (6,019 | ) | |
| (6,026 | ) |
| Total obligations under borrowing arrangements | |
| 183,899 | | |
| 199,055 | |
| Less: Current portion of long-term debt and other current borrowings | |
| 485 | | |
| 10,700 | |
| Long-term debt | |
$ | 183,414 | | |
$ | 188,355 | |
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 bore 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 then existing
$210 million unsecured senior notes, which had an interest rate of 8.2% and were to mature in 2022 using proceeds from this new facility
and incurred on an extinguishment cost of $10.9 million including $8.6 of call premium to exercise the call option.
In
November 2021, the Company amended its senior secured revolving credit facility to (i) increase the borrowing capacity under its committed
Line of credit from $50 million to $150 million, (ii) reduce its borrowing costs by an approximate 130 basis points, and (iii) extend
the initial maturity date by one year to the end of 2026. Borrowings under the credit facility now bear interest at a rate of LIBOR with
no floor plus a spread of 1.75%, based on the Company’s net leverage ratio, compared to a prior rate of LIBOR with a floor of 0.75%
plus a spread of 2.50%, resulting on total annual savings of approximately $15 million at current levels of outstanding borrowings, since
entering into our inaugural US Bank syndicated facility in October of 2020. The effective interest rate for this credit facility including
deferred issuance costs is 3.48%. In relation to this transaction, the Company accounted for costs related to fees paid of $1,496. This
was accounted for as a debt modification and $1,346 of fees paid to banks were capitalized as deferred cost of financing and $150 paid
to third parties recorded as an operating expense on the consolidated statements of operations for the year 2021.
In
March of 2022 we voluntarily prepaid $15 million of capital to this credit facility which has decreased our net leverage ratio and should
trigger a further step down in the applicable interest rate spread to 1.5% upon delivering the compliance certificate containing the
financial metrics as of March 31, 2022 based on the financial statements contained in the Quarterly Report on Form 10-Q.
As
of March 31, 2022, the Company was obligated under various finance leases under which the aggregate present value of the minimum lease
payments amounted to $308. Differences between finance lease obligations and the value of property, plant and equipment under finance
lease arises from differences between the maturities of finance lease obligations and the useful lives of the underlying assets.
The
table below shows maturities of debt as of March 31, 2022.
Schedule of Maturities of Long Term Debt
| | |
| | |
| 2023 | |
$ | 485 | |
| 2024 | |
| 7,602 | |
| 2025 | |
| 12,575 | |
| 2026 | |
| 15,000 | |
| 2027 | |
| 154,256 | |
| Thereafter | |
| - | |
| Total | |
$ | 189,918 | |
The
Company’s loans have maturities ranging from a few weeks to 5 years. Our credit facilities bear interest at a weighted average
of rate 2.75%.
Note
7. Hedging Activity and Fair Value Measurements
Hedging
Activity
During
the quarter ended March 31, 2022, we entered into an interest rate swap contract to hedge the interest rate fluctuations related to our
outstanding debt. The effective date of the contract is December 31, 2022 and, thus, we shall have payment dates each quarter, commencing
March 31, 2023. Our contracts are designated as cash flow hedges since they are highly effective in offsetting changes in the cash flows
attributable to forecasted LIBOR.
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 March 31, 2022, the fair value of interest rate swap contracts was in a net asset position of $2.6 million. We had 16 outstanding
interest rate swap contracts to hedge $125 million related to our outstanding debt through November 2026. 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 March 31, 2022.
We
assess the effectiveness of our interest rate swap contracts by comparing the change in the fair value of the interest rate swap 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 interest rate
swap 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 March 31, 2022, that we expect will be reclassified to earnings within the next twelve months, is $2.6
million.
The
fair value of our interest rate swap hedges is classified in the accompanying consolidated balance sheets as of March 31, 2022, are as
follows:
Schedule of Fair Value of Foreign Currency Hedges
| | |
Derivative Assets | |
|
Derivative Liabilities | |
| | |
March 31, 2022 | |
|
March 31, 2022 | |
| Derivatives designated as hedging instruments under Subtopic 815-20: | |
Balance Sheet Location | | |
Fair Value | |
|
Balance Sheet Location | | |
Fair Value | |
| | |
| | |
| |
|
| | |
| |
| Derivative instruments: | |
| | | |
| | |
|
| | | |
| | |
| Interest Rate Swap Contracts | |
| Other current assets | | |
$ | 2,622 | |
|
| Accrued liabilities | | |
$ | (- | ) |
| Total derivative instruments | |
| Total derivative assets | | |
$ | 2,622 | |
|
| Total derivative liabilities | | |
$ | (- | ) |
The
ending accumulated balance for the interest rate swap contracts included in accumulated other comprehensive income was $2,622 as of March
31, 2022.
The
following table presents the gains (losses) on derivative financial instruments, and their classifications within the accompanying consolidated
financial statements, for the quarter ended March 31, 2022:
Schedule of Gains (Losses) on Derivative Financial Instruments
| | |
Derivatives in Cash Flow Hedging Relationships | |
| | |
Amount of Gain or (Loss) Recognized in OCI on | | |
Location of Gain or (Loss) Reclassified from Accumulated OCI (Loss)
into | | |
Amount of Gain or (Loss) Reclassified from Accumulated | |
| | |
Derivatives | | |
Income | | |
OCI (Loss) into Income | |
| | |
Quarter Ended | | |
| | |
Quarter Ended | |
| | |
March 31, | | |
December 31, | | |
| | |
March 31, | | |
December 31, | |
| | |
2022 | | |
2021 | | |
| | |
2022 | | |
2021 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Interest Rate Swap Contracts | |
$ | 2,622 | | |
$ | - | | |
| Interest Expense | | |
$ | - | | |
$ | - | |
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.
As
of March 31, 2022, financial instruments carried at amortized cost that do not approximate fair value consist of long-term debt. See
Note 6 - 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:
Summary of Fair Value and Carrying Amounts of Long Term Debt
| | |
March 31,
2022 | | |
December 31,
2021 | |
| Fair Value | |
| 188,378 | | |
| 194,285 | |
| Carrying Value | |
| 183,414 | | |
| 188,355 | |
Note
8. Income Taxes
The
Company files income tax returns for TG, ES and ES Metals in the Republic of Colombia. GM&P, Componenti USA LLC and ESW LLC are U.S.
entities based in Florida subject to U.S. federal and state income taxes. VS files income tax returns in the Republic of Panama. Tecnoglass
Inc. does not currently have any tax obligations.
The
components of income tax expense are as follows:
Schedule of Components of Income Tax Expense (Benefit)
| | |
2022 | | |
2021 | |
| | |
Three months ended March 31, | |
| | |
2022 | | |
2021 | |
| Current income tax | |
| | | |
| | |
| United States | |
$ | (1,102 | ) | |
$ | (678 | ) |
| Colombia | |
| (11,015 | ) | |
| (2,295 | ) |
| Panama | |
| (9 | ) | |
| (11 | ) |
| Total current income tax | |
| (12,126 | ) | |
| (2,984 | ) |
| Deferred income Tax | |
| | | |
| | |
| United States | |
| 120 | | |
| 30 | |
| Colombia | |
| 1,448 | | |
| (734 | ) |
| Panama | |
| 0 | | |
| - | |
| Current foreign tax expense benefit | |
| (11,015 | ) | |
| (2,295 | ) |
| Deferred foreign tax expense benefit | |
| 1,448 | | |
| (734 | ) |
| Total deferred income
tax | |
| 1,568 | | |
| (704 | ) |
| Total income tax provision | |
$ | (10,558 | ) | |
$ | (3,688 | ) |
| | |
| | | |
| | |
| Effective tax rate | |
| 33.5 | % | |
| 30.8 | % |
The
weighted average statutory income tax rate for the three months ended March 31, 2022 and 2021 was 33.5% and 30.8%, respectively. The
effective income tax rates for both periods approximate the statutory rates.
Note
9. Related Parties
The
following is a summary of assets, liabilities, and income transactions with all related parties:
Schedule of Related parties
| | |
March 31, 2022 | | |
December 31, 2021 | |
| Due from related parties: | |
| | | |
| | |
| Alutrafic Led SAS | |
| 719 | | |
| 526 | |
| Studio Avanti SAS | |
| 314 | | |
| 408 | |
| A Construir SA | |
| 209 | | |
| 196 | |
| Due from other related parties | |
| 1,072 | | |
| 1,122 | |
| Total due from related parties | |
$ | 2,314 | | |
$ | 2,252 | |
| | |
| | | |
| | |
| Due to related parties: | |
| | | |
| | |
| Vidrio Andino | |
| 4,399 | | |
| 2,834 | |
| Bancaplus SAS | |
| 923 | | |
| - | |
| A Construir SA | |
| 508 | | |
| 360 | |
| Due to other related parties | |
| 1,263 | | |
| 663 | |
| Total due to related parties | |
$ | 7,093 | | |
$ | 3,857 | |
Schedule of Sale to Related Parties
| | |
2022 | | |
2021 | |
| | |
Three months ended March 31, | |
| | |
2022 | | |
2021 | |
| Sales to related parties: | |
| | | |
| | |
| Alutrafic Led SAS | |
| 300 | | |
| 294 | |
| Studio Avanti SAS | |
| 168 | | |
| 61 | |
| Sales to other related parties | |
| 58 | | |
| 25 | |
| Sales to related parties | |
$ | 526 | | |
$ | 380 | |
A
Construir SA
On
a recurring basis, we engage A Construir S.A. a heavy construction company operating in Barranquilla, Colombia to carry out construction
related to our on-going capital expenditures at our production facilities in Colombia. Affiliates of Jose Daes and Christian Daes, the
Company’s CEO and COO, respectively, have an ownership stake in A Construir. As of March 31, 2022 and March 31, 2021, the Company
purchased $3,280 and $2,354, respectively, from A Construir S.A. for construction and facilities which have been capitalized on the Company’s
balance sheet as property, plant and equipment. Additionally, the Company had outstanding accounts receivable from A Construir S.A. for
$209 and $196 as of March 31, 2022 and December 31, 2021. Based on an external study completed in February of 2022, sales from A Construir
to the Company fall within the lower quartile pricing range when compared against other third party providers in the market.
Alutrafic
Led SAS
In
the ordinary course of business, we sell products to Alutrafic Led SAS (“Alutrafic”), a fabricator of electrical lighting
equipment. Affiliates of Jose Daes and Christian Daes, the Company’s CEO and COO, respectively, have an ownership stake in Alutrafic.
We sold $300 and $294 to Alutrafic during the quarters ended March 31, 2022 and 2021, respectively, and had outstanding accounts receivable
from Alutrafic for $719 and $526 as of March 31, 2022 and December 31, 2021.
Bancaplus
SAS
As
of March 31, 2022, we had deposited the Colombian Peso equivalent to $2,535 in a cash equivalent investment with Bancaplus SAS a financial
services company that conducts factoring and payroll lending operations in Colombia in which Christian Daes, the Company’s COO,
has an ownership stake. These are liquid, low risk investments that drive returns in line with or higher than similar instruments in
the market. Additionally, the Company had outstanding accounts payable to Bancaplus SAS for $923 as of March 31, 2022, related to some
of our suppliers’ factoring operations.
Santa
Maria del Mar SAS
In
the ordinary course of business, we purchase fuel for use at our manufacturing facilities from Estación Santa Maria del Mar SAS,
a gas station located in the vicinity of our manufacturing campus which is owned by affiliates of Jose Daes and Christian Daes, the Company’s
CEO and COO. During the three months ended March 31, 2022 and 2021, we purchased $244
and $45,
respectively.
Fundacion
Tecnoglass-ESWindows
Fundacion
Tecnoglass-ESWindows is a non-profit organization set up by the Company to carry out social causes in the communities around where we
operate. During the quarters ended March 31, 2022 and 2021 we made charitable contributions for $356 and $277, respectively.
Studio
Avanti SAS
In
the ordinary course of business, we sell products to Studio Avanti SAS (“Avanti”), a distributer and installer of architectural
systems in Colombia. Avanti is owned and controlled by Alberto Velilla, who is director of Energy Holding Corporation, the controlling
shareholder of the Company. As of March 31, 2022 an December 31, 2021, The Company had outstanding accounts receivable from Avanti for
$314 and $408, respectively.
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 or other sources).
In
the ordinary course of business, we purchased $5,093 and $3,398 from Vidrio Andino during the quarters ended March 31, 2022 and December
31, 2021, respectively. We also had outstanding payables to Vidrio Andino for $4,399 and $2,834. We recorded equity method income of
$1,580 and $1,091 on our Consolidated Statement of Operations during the quarters ended March 31, 2022 and 2021, respectively.
Zofracosta
SA
Our
subsidiary ES has an investment in Zofracosta SA, a real estate holding company and operator of a tax free zone located in the vicinity
of the proposed glass plant being built through our Vidrio Andino joint venture for $812 and $764 as of March 31, 2022 and 2021, respectively.
Affiliates of Jose Daes and Christian Daes, the Company’s CEO and COO, respectively, have a majority ownership stake in Zofracosta
SA.
Note
10. Shareholders’ Equity
Dividends
In
March 2022, the Company declared a regular quarterly dividend of $0.065 per share, or $0.26 per share on an annualized basis. The dividend
was paid on April 29, 2021 to shareholders of record as of the close of business on March 31, 2022.
Earnings
per Share
The
following table sets forth the computation of the basic and diluted earnings per share for the three months ended March 31, 2022 and
2021:
Schedule of Earnings Per Share, Basic and Diluted
| | |
2022 | | |
2021 | |
| | |
Three months ended | |
| | |
March 31, | |
| | |
2022 | | |
2021 | |
| Numerator for basic and diluted earnings per shares | |
| | | |
| | |
| Net Income | |
$ | 20,953 | | |
$ | 8,281 | |
| | |
| | | |
| | |
| Denominator | |
| | | |
| | |
| Denominator for basic earnings per ordinary share - weighted average shares outstanding | |
| 47,674,773 | | |
| 47,674,773 | |
| Effect of dilutive securities and stock dividend | |
| - | | |
| - | |
| Denominator for diluted earnings per ordinary share - weighted average shares outstanding | |
| 47,674,773 | | |
| 47,674,773 | |
| Basic earnings per ordinary share | |
$ | 0.44 | | |
$ | 0.17 | |
| Diluted earnings per ordinary share | |
$ | 0.44 | | |
$ | 0.17 | |
Note
11. Commitments and Contingencies
Commitments
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 was contributed through a parcel of land to be used for the building of a second factory. On October 28, 2020, the land was paid
for through the issuance of an aggregate of 1,557,142 ordinary shares of the Company, at $7.00 per share, which represented an approximate
33% premium based on the Company´s share 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 to be paid if needed (based on debt
availability as a first option).
General
Legal Matters
From
time to time, the Company is involved in legal matters arising in the regular course of business. Some disputes are derived directly
from our construction projects, related to supply and installation, and even though deemed ordinary, they may involve significant monetary
damages. We are also subject to other type of litigations arising from employment practices, worker’s compensation, automobile
claims and general liability. It is very difficult to predict precisely what the outcome of these litigations might be. However, with
the information at our disposition as this time, there are no indications that such claims will result in a material adverse effect on
the business, financial condition or results of operations of the Company.
Note
12. Subsequent Events
On
April 21, 2022, the board of directors of the Company authorized management of the Company to take all actions necessary to transfer
the listing of the Company’s ordinary shares, par value $0.0001 per share, from the Nasdaq Stock Market LLC (“Nasdaq”)
to the New York Stock Exchange (“NYSE”).
On
April 22, 2022, the Company provided written notice to Nasdaq of its intention to voluntarily delist its ordinary shares on Nasdaq and
to list its ordinary shares on the NYSE. The ordinary shares on Nasdaq ceased trading on Nasdaq at market close
on May 6, 2022, and commenced on the NYSE on May 9, 2022. The ordinary Shares has been approved for listing on the NYSE, with
the ordinary shares continuing to trade under the symbol “TGLS.