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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

 

Commission file number: 001-35436

 

TECNOGLASS INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Cayman Islands   98-1271120

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

Avenida Circunvalar a 100 mts de la Via 40, Barrio Las Flores Barranquilla, Colombia

(Address of principal executive offices)

 

(+57)(605) 373 4000

(Issuer’s telephone number)

 

N/A

(Former name, former address and former fiscal year, if changed since last report):

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Ordinary Shares   TGLS   The NASDAQ Stock Market LLC

 

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 ☒ 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 ☒ 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.:

 

Large accelerated filer ☐ Accelerated filer
Non-accelerated filer ☐ Smaller reporting company
  Emerging growth company

 

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ☐ No

 

As of October 31, 2021, there were 47,674,773 ordinary shares, $0.0001 par value per share, outstanding.

 

 

 

 

 

 

TECNOGLASS INC.

 

FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2021

 

TABLE OF CONTENTS

 

  Page
Part I. Financial Information  
  Item 1. Financial Statements (Unaudited) 3
  Condensed Consolidated Balance Sheets 3
  Condensed Consolidated Statements of Operations and Other Comprehensive Income 4
  Condensed Consolidated Statements of Cash Flows 5
  Condensed Consolidated Statements of Shareholders’ Equity 6
  Notes to Condensed Consolidated Financial Statements 7
     
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
     
  Item 3. Quantitative and Qualitative Disclosures about Market Risk 23
     
  Item 4. Controls and Procedures 23
     
Part II. Other Information  
  Item 1. Legal Proceedings 24
     
  Item 6. Exhibits 24
Signatures  

 

2

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited).

 

Tecnoglass Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

 

   September 30,   December 31, 
   2021   2020 
ASSETS          
Current assets:          
Cash and cash equivalents  $86,520   $66,899 
Investments   2,038    2,387 
Trade accounts receivable, net   100,039    88,368 
Due from related parties   8,397    8,574 
Inventories   80,142    80,742 
Contract assets – current portion   21,927    26,288 
Other current assets   18,308    13,545 
Total current assets  $317,371   $286,803 
Long-term assets:          
Property, plant and equipment, net  $156,864   $152,266 
Deferred income taxes   2,225    268 
Contract assets – non-current   10,742    10,228 
Due from related parties - long term   -    484 
Long-term trade accounts receivable   4,387    2,985 
Intangible assets   3,842    5,112 
Goodwill   23,561    23,561 
Long-term investments   50,705    47,535 
Other long-term assets   4,545    2,783 
Total long-term assets   256,871    245,222 
Total assets  $574,242   $532,025 
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current liabilities:          
Short-term debt and current portion of long-term debt  $13,047   $1,764 
Trade accounts payable and accrued expenses   74,176    42,178 
Accrued interest expense   3    7,175 
Due to related parties   2,903    4,750 
Dividends payable   1,353    1,352 
Contract liabilities – current portion   34,507    24,694 
Other current liabilities   20,985    9,630 
Total current liabilities  $146,974   $91,543 
Long-term liabilities:          
Deferred income taxes  $158   $3,170 
Long-term liabilities from related parties   662    645 
Contract liabilities – non-current   605    977 
Long-term debt   189,340    222,722 
Total long-term liabilities   190,765    227,514 
Total liabilities  $337,739   $319,057 
SHAREHOLDERS’ EQUITY          
Preferred shares, $0.0001 par value, 1,000,000 shares authorized, 0 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively  $-   $- 
Ordinary shares, $0.0001 par value, 100,000,000 shares authorized, 47,674,773 and 47,674,773 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively   5    5 
Legal Reserves   2,273    2,273 
Additional paid-in capital   219,290    219,290 
Retained earnings   78,711    34,326 
Accumulated other comprehensive loss   (64,513)   (43,512)
Shareholders’ equity attributable to controlling interest   235,766    212,382 
Shareholders’ equity attributable to non-controlling interest   737    586 
Total shareholders’ equity   236,503    212,968 
Total liabilities and shareholders’ equity  $574,242   $532,025 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3

 

 

Tecnoglass Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Other Comprehensive Income

(In thousands, except share and per share data)

(Unaudited)

 

   2021   2020   2021   2020 
   Three months ended   Nine months ended 
   September 30,   September 30, 
   2021   2020   2021   2020 
Operating revenues:                    
External customers  $129,738   $102,980   $360,133   $270,676 
Related parties   672    329    2,871    1,873 
Total operating revenues   130,410    103,309    363,004    272,549 
Cost of sales   78,765    63,188    217,589    170,205 
Gross profit   51,645    40,121    145,415    102,344 
Operating expenses:                    
Selling expense   (13,310)   (10,534)   (36,421)   (29,163)
General and administrative expense   (8,181)   (9,381)   (25,050)   (24,601)
Total operating expenses   (21,491)   (19,915)   (61,471)   (53,764)
Operating income   30,154    20,206    83,944    48,580 
Non-operating income (expenses), net   139    (138)   58    (232)
Equity method income   1,291    695    3,170    789 
Foreign currency transactions gains (losses)   188    (3,066)   333    (22,223)
Gain (loss) on debt extinguishment   175    -    (10,803)   - 
Interest expense and deferred cost of financing   (2,156)   (6,147)   (8,120)   (17,236)
Income before taxes   29,791    11,550    68,582    9,678 
Income tax   (8,848)   (3,279)   (20,112)   (4,021)
Net income  $20,943   $8,271   $48,470   $5,657 
(Income) loss attributable to non-controlling interest   (24)   52    (151)   97 
Income attributable to parent  $20,919   $8,323   $48,319   $5,754 
Comprehensive income:                    
Net income  $20,943   $8,271   $48,470   $5,657 
Foreign currency translation adjustments   (4,023)   (4,024)   (20,843)   (18,945)
Change in fair value derivative contracts   -    506    (159)   (941)
Total comprehensive income (loss)  $16,920   $4,753   $27,468   $(14,229)
Comprehensive (income) loss attributable to non-controlling interest   (24)   52    (151)   97 
Total comprehensive income (loss) attributable to parent  $16,896   $4,805   $27,317   $(14,132)
Basic income per share  $0.44   $0.18   $1.02   $0.12 
Diluted income per share  $0.44   $0.18   $1.02   $0.12 
Basic weighted average common shares outstanding   47,674,773    46,117,631    47,674,773    46,117,631 
Diluted weighted average common shares outstanding   47,674,773    46,117,631    47,674,773    46,117,631 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4

 

 

Tecnoglass Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

 

   2021   2020 
   Nine months ended September 30, 
   2021   2020 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income  $48,470   $5,657 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Allowance for bad debts   1,056    1,035 
Depreciation and amortization   15,605    15,421 
Deferred income taxes   398    (7,612)
Equity method income   (3,170)   (789)
Deferred cost of financing   994    1,306 
Other non-cash adjustments   (25)   158 
Loss on debt extinguishment   2,333    - 
Unrealized currency translation losses   4,582    24,197 
Changes in operating assets and liabilities:          
Trade accounts receivables   (16,961)   6,353 
Inventories   (8,761)   (5,127)
Prepaid expenses   (2,004)   (686)
Other assets   (10,210)   12,455 
Trade accounts payable and accrued expenses   41,337    (14,612)
Accrued interest expense   (7,172)   (4,678)
Taxes payable   11,915    (569)
Labor liabilities   1,056    5 
Contract assets and liabilities   15,583    18,851 
Related parties   (1,604)   (341)
CASH PROVIDED BY OPERATING ACTIVITIES  $93,422   $51,024 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Proceeds from sale of investments   177    470 
Purchase of investments   (63)   (189)
Acquisition of property and equipment   (32,064)   (13,732)
CASH USED IN INVESTING ACTIVITIES  $(31,950)  $(13,451)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Cash dividend   (3,932)   (2,533)
Loss on debt extinguishment - call premium   (8,610)   - 
Deferred financing transaction costs   (91)   - 
Proceeds from debt   221,135    17,747 
Repayments of debt   (247,024)   (30,453)
CASH USED IN FINANCING ACTIVITIES  $(38,522)  $(15,239)
           
Effect of exchange rate changes on cash and cash equivalents  $(3,329)  $(765)
           
NET INCREASE IN CASH   19,621    21,569 
CASH - Beginning of period   66,899    47,862 
CASH - End of period  $86,520   $69,431 
           
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION          
Cash paid during the period for:          
Interest  $14,124   $18,650 
Income Tax  $11,982   $8,318 
           
NON-CASH INVESTING AND FINANCING ACTIVITES:          
Assets acquired under credit or debt  $1,641   $919 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5

 

 

Tecnoglass Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity

(Amounts in thousands, except share and per share data)

(Unaudited)

 

                                              
  

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, 2020   47,674,773    5    219,290    2,273    34,326    (43,512)   212,382    586    212,968 
                                              
Dividend   -    -    -    -    (1,311)   -    (1,311)   -    (1,311)
                                              
Derivative financial instruments   -    -    -    -    -    (159)   (159)   -    (159)
                                              
Foreign currency translation   -    -    -    -    -    (15,635)   (15,635)   -    (15,635)
                                              
Net income   -    -    -    -    8,166    -    8,166    86    8,252 
                                              
Balance at March 31, 2021   47,674,773    5    219,290    2,273    41,181    (59,305)   203,444    672    204,116 
                                              
Dividend   -    -    -    -    (1,311)   -    (1,311)   -    (1,311)
                                              
Foreign currency translation   -    -    -    -    -    (1,185)   (1,185)   -    (1,185)
                                              
Net income   -    -    -    -    19,234    -    19,234    41    19,275 
                                              
Balance at June 30, 2021   47,674,773    5    219,290    2,273    59,104    (60,490)   220,182    713    220,895 
                                              
Dividend   -    -    -    -    (1,312)   -    (1,312)   -    (1,312)
                                              
Foreign currency translation   -    -    -    -    -    (4,023)   (4,023)   -    (4,023)
                                              
Net income   -    -    -    -    20,919    -    20,919    24    20,943 
                                              
Balance at September 30, 2021   47,674,773    5    219,290    2,273    78,711    (64,513)   235,766    737    236,503 

 

  

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, 2019   46,117,631    5    208,283    1,367    16,213    (39,264)   186,604    606    187,210 
                                              
Stock dividend   -    -    107    -    (1,344)   -    (1,237)   -    (1,237)
                                              
Financial instruments   -    -    -    -    -    (4,065)   (4,065)   -    (4,065)
                                              
Foreign currency translation   -    -    -    -    -    (19,288)   (19,288)   -    (19,288)
                                              
Net income   -    -    -    -    (18,766)   -    (18,766)   98    (18,668)
                                              
Balance at March 31, 2020   46,117,631    5    208,390    1,367    (3,897)   (62,617)   143,248    704    143,952 
                                              
Stock dividend   -    -    -    -    (1,267)   -    (1,267)   -    (1,267)
                                              
Legal Reserve   -    -    -    906    (906)   -    -    -    - 
                                              
Financial instruments   -    -    -    -    -    2,618    2,618    -    2,618 
                                              
Foreign currency translation   -    -    -    -    -    4,367    4,367    -    4,367 
                                              
Net income   -    -    -    -    16,197    -    16,197    (143)   16,054 
                                              
Balance at June 30, 2020   46,117,631    5    208,390    2,273    10,127    (55,632)   165,163    561    165,724 
                                              
Stock dividend   -    -    -    -    (1,269)   -    (1,269)   -    (1,269)
                                              
Financial instruments   -    -    -    -    -    506    506    -    506 
                                              
Foreign currency translation   -    -    -    -    -    (4,024)   (4,024)   -    (4,024)
                                              
Net income   -    -    -    -    8,323    -    8,323    (52)   8,271 
                                              
Balance at September 30, 2020   46,117,631    5    208,390    2,273    17,181    (59,150)   168,699    509    169,208 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6

 

 

Tecnoglass Inc. and Subsidiaries

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 high-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, 2020. The year-end condensed balance sheet data included in this Quarterly Report 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.

 

7

 

 

Principles of Consolidation

 

These unaudited condensed consolidated financial statements consolidate TGI, its subsidiaries Tecnoglass S.A.S (“TG”), C.I. Energía Solar S.A.S E.S. Windows (“ES”), ES Windows LLC (“ESW LLC”), Tecnoglass LLC (“Tecno LLC”), Tecno RE LLC (“Tecno RE”), GM&P Consulting and Glazing Contractors (“GM&P”), Componenti USA LLC (“Componenti”) and ES Metals SAS (“ES Metals”), which are entities in which we have a controlling financial interest because we hold a majority voting interest. To determine if we hold a controlling financial interest in an entity, we first evaluate if we are required to apply the variable interest entity (“VIE”) model to the entity, if it is determined it is not, 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.

 

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.

 

Recently Issued Accounting Pronouncements

 

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. 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 these ASUs on its condensed 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 ASU 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 ASU 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 ASU 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 condensed consolidated financial statements.

 

8

 

 

Note 3. - Inventories, net

 

   September 30,2021   December 31,2020 
Raw materials  $46,643   $47,282 
Work in process   16,228    19,345 
Finished goods   6,502    4,434 
Spares and accessories   9,733    8,981 
Packing material   1,157    783 
 Total Inventories, gross   80,263    80,825 
Less: Inventory allowance   (121)   (83)
 Total inventories, net  $80,142   $80,742 

 

Note 4. – Revenues, Contract Assets and Contract Liabilities

 

Disaggregation of Total Net Sales

 

The Company disaggregates its sales with customers by revenue recognition method for its only segment, as the Company believes these factors affect the nature, amount, timing, and uncertainty of the Company’s revenue and cash flows.

 

   Three months ended   Nine months ended 
   September 30,   September 30, 
   2021   2020   2021   2020 
Fixed price contracts  $15,169   $27,307   $56,662   $73,867 
Product sales   115,241    76,002    306,342    198,682 
Total Revenues  $130,410   $103,309   $363,004   $272,549 

 

The following table presents geographical information about revenues.

 

  

Three months ended

September 30,

  

Nine months ended

September 30,

 
   2021   2020   2021   2020 
Colombia  $5,234   $5,650   $21,065   $13,942 
United States   123,237    95,680    333,923    253,626 
Panama   227    20    1,745    850 
Other   1,712    1,959    6,271    4,131 
Total Revenues  $130,410   $103,309   $363,004   $272,549 

 

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. In addition, 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 long-term liabilities in the Company’s condensed consolidated balance sheets.

 

9

 

 

The table below presents the components of net contract assets (liabilities).

 

   September 30, 2021   December 31, 2020 
Contract assets — current  $21,927   $26,288 
Contract assets — non-current   10,742    10,228 
Contract liabilities — current   (34,507)   (24,694)
Contract liabilities — non-current   (605)   (977)
Net contract assets  $(2,443)  $10,845 

 

The components of contract assets are presented in the table below.

 

   September 30, 2021   December 31, 2020 
Unbilled contract receivables, gross  $9,711   $13,534 
Retainage   22,958    22,982 
Total contract assets   32,669    36,516 
Less: current portion   21,927    26,288 
Contract Assets – non-current  $10,742   $10,228 

 

The components of contract liabilities are presented in the table below.

 

   September 30, 2021   December 31, 2020 
Billings in excess of costs  $11,254    7,191 
Advances from customers on uncompleted contracts   23,858    18,480 
Total contract liabilities   35,112    25,671 
Less: current portion   34,507    24,694 
Contract liabilities – non-current  $605    977 

 

During the three and nine months ended September 30, 2021, the Company recognized $359 and $4,123 of sales related to its contract liabilities at January 1, 2021, respectively. During the three and nine months ended September 30 2020, the Company recognized $330 and $1,979 of sales related to its contract liabilities at January 1, 2020, respectively.

 

Remaining Performance Obligations

 

As of September 30, 2021, the Company had $270.4 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 $92.5 million are expected to be recognized during the year ending December 31, 2021, and $171.2 million during the year ending December 31, 2022 or thereafter.

 

10

 

 

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.

 

   September 30, 2021 
   Gross   Acc. Amort.   Net 
Trade Names  $980   $(898)  $82 
Notice of Acceptances (NOAs), product designs and other intellectual property   9,455    (6,017)   3,438 
Non-compete Agreement   165    (151)   14 
Customer Relationships   4,140    (3,832)   308 
Total  $14,740   $(10,898)  $3,842 

 

   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 

 

The weighted average amortization period is 5.33 years.

 

During the three and nine months ended September 30, 2021, the amortization expense amounted to $546 and $1,645, respectively, and was included within the general and administration expenses in our Condensed Consolidated Statement of Operations. Similarly, during the three and nine months ended September 30, 2020, the amortization expense amounted to $536 and $1,635, respectively.

 

The estimated aggregate amortization expense for each of the five succeeding years as of September 30, 2021 is as follows:

 

Year ending  (in thousands) 
2021  $560 
2022   1,215 
2023   903 
2024   590 
2025   274 
Thereafter   300 
Total  $3,842 

 

11

 

 

Note 6. Debt

 

The Company’s debt is comprised of the following:

 

   September 30, 2021   December 31, 2020 
Revolving lines of credit  $230   $377 
Finance lease   172    350 
Unsecured senior notes   -    210,000 
Other loans   497    31 
Syndicated loan   206,757    22,835 
Less: Deferred cost of financing   (5,269)   (9,107)
Total obligations under borrowing arrangements   202,387    224,486 
Less: Current portion of long-term debt and other current borrowings   13,047    1,764 
Long-term debt  $189,340   $222,722 

 

In October 2020, the Company entered into 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. The effective interest rate for this credit facility including deferred issuance costs is 3.97%. In December 2020, we drew $23.1 million and used the proceeds of the long-term debt facility to repay several credit facilities. In January 2021, we drew an additional $220 million and used the proceeds to redeem the Company’s existing $210 million unsecured senior notes, which had an interest rate of 8.2% and matured in 2022. In relation to this, the Company accounted for debt extinguishment cost of $11.1 million which included a call premium charge of $8.6 million paid to exercise the call option, and $2.3 million non-cash expenses corresponding to the unamortized portion of deferred cost of financing related to fees paid when the unsecured senior notes were originated in 2017. Subsequent to the end of the second quarter and based on Tecnoglass’ leverage ratio as of September 30, 2021, the interest rate spread on the Company’s $300 million Senior Secured Credit Facility continues to be at the lowest part of the grid, equivalent to a spread of 2.50%.

 

As of September 30, 2021 and December 31, 2020, all assets of the company are pledged as collateral for the $300 million Senior Secured Credit Facility. This credit facility also includes covenants to maintain certain leverage and fixed charge coverage ratios with which the Company is in full compliance.

 

The Company was obligated under various finance leases under which the aggregate present value of the minimum lease payments amounted to $172 and $350 as of September 30, 2021 and December 31, 2020, respectively. In line with this, the Company recorded right-of-use assets related to computing equipment for $142 and $321 as of September 30, 2021 and December 31, 2020, 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 1 year. The right-of-use assets’ depreciation and interest expense from the lease liability are recorded on our Condensed Consolidated Statement of Operations.

 

Maturities of long-term debt and other current borrowings are as follows as of September 30, 2021:

 

     
2022  $13,047 
2023   12,164 
2024   18,234 
2025   18,234 
2026   145,976 
Thereafter   - 
Total  $207,656 

 

The Company’s loans have maturities ranging from a few weeks to 4 years. Our credit facilities bear an interest at a weighted average of rate 3.25% as of September 30, 2021.

 

12

 

 

Note 7. Hedging Activity and Fair Value Measurements

 

Hedging Activity

 

During the quarter ended September 30, 2019, we entered into several foreign currency non-delivery forward and collar contracts to hedge the fluctuations in the exchange rate between the Colombian Peso and the U.S. Dollar. Our contracts are designated as cash flow hedges since they are highly effective in offsetting changes in the cash flows attributable to forecasted Colombian Peso denominated costs and expenses.

 

Guidance under the Financial Instruments Topic 825 of the Codification requires us to record our hedge contracts at fair value and consider our credit risk for contracts in a liability position, and our counter-party’s credit risk for contracts in an asset position, in determining fair value. We assess our counter-party’s risk of non-performance when measuring the fair value of financial instruments in an asset position by evaluating their financial position, including cash on hand, as well as their credit ratings.

 

As of September 30, 2021, the fair value of foreign currency collar contracts was not measured since we currently do not have any open contracts, with the last settlements taking place in January and February 2021.

 

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 consolidated balance sheet as of December 31, 2020, were reclassified to earnings during the first quarter of 2021 for $185.

 

The fair value of our foreign currency hedges classified in the 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 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 condensed consolidated financial statements, for the three and nine months ended September 2021:

 

    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)     OCI (Loss) into   Accumulated  
    on Derivatives     Income   OCI (Loss) into Income  
    Three Months Ended         Three Months Ended  
    September 30,     September 30,         September 30,     September 30,  
    2021     2020         2021     2020  
                                     
Non-delivery Forwards and Collar Contracts   $ -     $ (635 )   Operating Revenues   $ -     $ (610)  

 

13

 

 

   Derivatives in Cash Flow Hedging Relationships
   Amount of Gain or (Loss) 

Location of Gain or
(Loss)

Reclassified from

Accumulated

 

Amount of Gain or (Loss)

Reclassified from

 
  

Recognized in OCI

(Loss) on

  OCI (Loss) into  Accumulated 
   Derivatives   Income   OCI (Loss) into Income 
   Nine Months Ended       Nine Months Ended 
   September 30,   September 30,       September 30,    September 30, 
   2021   2020       2021    2020 
                      
Non-delivery Collar Contracts  $-  $(7,242)  Operating Revenues  $185   $1,397 

 

Fair Value Measurements

 

The Company accounts for financial assets and liabilities in accordance with accounting standards that define fair value and establish a framework for measuring fair value. The hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

 

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and advances from customers approximate their fair value due to their relatively short-term maturities. The Company bases its fair value estimate for long term debt obligations on its internal valuation that all debt is floating rate debt based on current interest rates in Colombia.

 

As of September 30, 2021, 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 at current market rates, which are level 2 inputs.

 

The following table summarizes the fair value and carrying amounts of our long-term debt:

 

   September 30, 2021   December 31, 2020 
Fair Value   190,772    238,753 
Carrying Value   189,340    222,722 

 

14

 

 

Note 8. Income Taxes

 

The Company files income tax returns for TG, ES and ES Metals in the Republic of Colombia. On September, 14 2021, the Colombian Government enacted Law 2155 (the Social Investment Act), which increases the corporate income tax to 35% for fiscal year 2022 and thereafter, from the current rate of 31% for 2021 that would have decreased to 30% for 2022 under the prior tax regulation.

 

GM&P, Componenti and ESW LLC are U.S. entities based in Florida subject to U.S. federal and state income taxes. Tecnoglass Inc. as well as all the other subsidiaries in the Cayman Islands do not currently have any tax obligations.

 

The components of income tax expense are as follows:

 

   2021   2020   2021   2020 
   Three months ended   Nine months ended 
   September 30,   September 30, 
   2021   2020   2021   2020 
Current income tax                    
United States  $(1,260)  $(338)  $(2,753)  $(682)
Colombia   (7,614)   (4,069)   (16,961)   (10,945)
Total current income tax    (8,874)   (4,407)   (19,714)   (11,627)
Deferred income Tax                    
United States   113    218    192    (38)
Colombia   (87)   910    (590)   7,644 
Total deferred income tax   26    1,128    (398)   7,606 
Total income tax provision  $(8,848)  $(3,279)  $(20,112)  $(4,021)
                     
Effective tax rate   29.7%   28.4%   29.3%   41.5%

 

The weighted average statutory income tax rate for the three months ended September 30, 2021 and 2020, and the nine months ended September 2021 approximate the statutory rate of 29%. The effective income tax rate for the nine months ended September 30, 2020 of 41.5% reflects the impact of unrealized foreign currency transaction losses related to the remeasurement of long-term liabilities of our Colombian subsidiaries which were expected to be realized at a later year in which a lower income tax rate was expected to apply per tax regulation at the time.

 

Note 9. Related Parties

 

The following is a summary of assets, liabilities, and income and expense transactions with all related parties, shareholders, directors, and managers:

 

   2021   2020   2021   2020 
   Three months ended   Nine months ended 
   September 30,   September 30, 
   2021   2020   2021   2020