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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, 2022, one supplier accounted
for more than 10% of total raw material purchases, at 14% of total raw material purchases. 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.
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 in connection with our joint venture agreement with Saint-Gobain. We believe This joint venture 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. Although our glass supply has run smoothly through 2022, 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 cash flows from the Bogota plant, and 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 and to retain key employees of our acquired businesses .
A
portion of our historical growth has occurred through acquisitions and we may enter into additional 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. |
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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Automation
of six window assembly production lines, increasing efficiencies, labor and material waste costs with an estimated reduction of on-site
damage by 30%; |
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Additional
aluminum expansion project to increase capacity by approximately 400 tons/month; |
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Further
automation of additional glass lines, increasing efficiencies on an end-to-end basis reducing lead times, headcount and on-site damage
by approximately 40%; |
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Upgrade
vacuum magnetron sputter coating machinery which will allow to coat glass before tempering; |
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Construction
of 500,000 square feet warehouse with two numerical punching machines, two metal benders and a complete painting line. |
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Automation
of two centralized aluminum warehouses for storing, sorting and delivering extrusion matrices and aluminum profiles to our internal
production processes that reduce lead times for the assembly of architectural systems and reduce on-site damage to materials |
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 we are found to have 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, could result in 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 32% of our total sales revenue for the year ended December 31,
2022, 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, possible
losses, and 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 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, the availability of construction materials, raw materials and energy, and increase the risk that our subsidiaries incur fines
or penalties or be held liable for violations of such regulatory requirements. New regulations regarding climate change may also increase
our expenses and eventually reduce our sales.
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, 2022, approximately 2% of our revenues and 37% 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. |
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. |
For
a more detailed description of foreign exchange regulations in Colombia, see “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. However, we do not have employment agreements in place for any of our executive officers. Accordingly, we face the
risk 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.
Members
of our management team have been, may be, or may become, involved in litigation, investigations or other proceedings. The defense or
prosecution of these matters could be time-consuming and could divert our management’s attention, and may have an adverse effect
on us.
During
the course of their careers, our officers and directors have been, may be or may in the future become involved in litigation, investigations
or other proceedings. Our officers and directors also may become involved in litigation, investigations or other proceedings involving
claims or allegations related to or as a result of their personal conduct, either in their capacity as a corporate officer or director
or otherwise, and may be personally named in such actions and potentially subject to personal liability. Any such liability may or may
not be covered by insurance and/or indemnification, depending on the facts and circumstances. The defense or prosecution of these matters
could be time-consuming. Any litigation, investigations or other proceedings and the potential outcomes of such actions may divert the
attention and resources of our officers and directors away from our operations and may negatively affect our reputation, which may adversely
impact our operations and profitability.
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, 2022, Energy Holding Corporation beneficially owned approximately 55.4% 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 “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 impact prevailing interest rates of which we
have no control over. 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, 2022, we and our subsidiaries on a consolidated basis had $173.2 million principal amount of 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. |
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.
During
2021, Colombia’s long-term foreign currency sovereign credit ratings were lowered to “Baa2” by Moody’s, and “BB+”
by S&P and Fitch, three of the main rating agencies worldwide, as Colombia’s fiscal adjustments seemed to be more protracted
and gradual than previously expected. During 2022, the same risk rating agencies ratified Colombia’s ratings to “Baa2”
“and BB+”, reflecting their expectation of fiscal deficit recovery and stable net debt over total GDP, driven by economic
growth. Colombia’s real GDP increased approximately 7.5% in 2022. During 2022, global inflationary pressures and lower interest rates, led Colombia to reach an annual inflation rate of 13.1% in 2022.
As a result, Colombian Central Bank (“Banco de la República”) raised its monetary policy rate from 3% in December 2021,
to 12% as of December 31, 2022. In addition, minimum wage for 2023 was agreed to increase 16%.
Colombia’s
economy, just like most of Latin-American countries, continues suffering from the effects of high volatility in 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.
In
2022, Congress and Presidential Elections took place in Colombia. We cannot assure you that measures adopted by the Colombian government
under its new regime continue to be consistent with former policy and will not affect the country´s overall economic outlook and
performance. The new leadership under the elected government may have negative effects on macroeconomic stability and therefore on the
construction industry as a whole and finally, on the company´s operations and future prospects. Although we don’t estimate
a significant effect in the short term based on current backlog and ongoing activity, it is uncertain as to how a new regime could affect
our business in the longer term. In addition, we cannot predict the effects that such policies will have on the Colombian economy. Furthermore,
we cannot assure you that the Colombian peso will not depreciate relative to other currencies in the future, which could have a materially
adverse effect on our financial condition.
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. Since the start of the Covid-19 pandemic,
increased government expenses and lower tax collection raised the fiscal deficit up to 7.8% of GDP in 2020. In 2021, economic
recovery along with higher tax collection stabilized the fiscal deficit to 7.5% of GDP. According to the Finance Ministry of
Colombia, fiscal deficit as a percentage of GDP during 2022 is expected to close at 5.5%, based on data as of November 2022, as a result of the consolidation of economic recovery, higher tax collection, and lower expenses associated to COVID-19 pandemic.
In
recent years, the Colombian currency had shown some short-term volatility vis-à-vis the U.S. Dollar. The Colombian Peso depreciated
21% and 16% against U.S. Dollar in 2022 and 2021, respectively. 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
2020 global economic crisis, resulting from the outbreak of the COVID-19 pandemic which negatively affected many economic sectors and
countries around the world, had negative effects on the Colombian economy. In addition, several supply chain shocks originated during
the pandemic that might further strain and adversely affect the global economy. In 2021, Colombia began to recover from the Covid-19
pandemic. Colombian real GDP increased approximately 9.5% in 2021 as economic activity returned to pre-pandemic levels due to the commercial
reactivation of every sector and the advance of the vaccine plan, where 78% of Colombian population is vaccinated with at least 1 dose.
As of December 31, 2022, Tecnoglass’s U.S and Latin American customers and suppliers are fully operational, and virtually
all of the Company’s employees have been vaccinated against COVID-19 and are working on site.
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, 2022, 98% 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 as of December 31, 2022, accounted for 96% of our net operating
revenues.
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.
The
armed conflict between Russia and Ukraine, including sanctions and tensions between the United States along with several other countries
and Russia, may adversely affect the results of our operations.
The
Russian invasion of Ukraine starting in February 2022 has escalated global tensions between the United States and NATO countries against
Russia. Colombia has also condemned Russia’s invasion of Ukraine. Multiple economic sanctions against Russia are being imposed
by many countries worldwide which has impacted the global economy as many commercial, industrial and financial businesses are closing
operations in Russia. Trade restrictions imposed on Russia have led to increasing prices of oil, fluctuation in commodities markets and
destabilizing many foreign currency exchange rates.
Further
escalation of conflict can lead to severe constraints on global supply chains such as logistics obstructions, raw material price increases
and shortages, and higher energy costs. Disruptions in global supply chains can adversely affect our ability to manufacture and deliver
product to our customers. Additionally, fluctuating foreign currency exchange rates could impact the profitability of our foreign subsidiaries
which are at the core of our business.
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. 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 have been affected by events surrounding the
Colombian armed forces, particularly on Colombia’s borders with Venezuela. Political tensions in Venezuela rose in January 2019
as several countries, including Colombia, did not recognize the legitimacy of Nicolás Maduro as Venezuelan head of state. However,
as of December 31, 2022, Colombia’s new government is aiming to reestablish political and commercial relations with Venezuela.
Moreover, in November 2012, the International Court of Justice placed a sizeable area of the Caribbean Sea within Nicaragua’s exclusive
economic zone. To this date, Colombia continues to deem 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 Code of Conduct, Compliance Manual which includes policies and procedures and help surveil and control our activities
and a hotline to receive anonymous reports. 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
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. On December 13, 2022, a tax reform was enacted by means of Law 2277, which maintained corporate income tax rate at 35%,
and increased income taxes to Free Trade Zones with single enterprise users and non-exporters, from 20% to 35%.
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.
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 New York Stock Exchange 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 New York Stock Exchange, 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 New York Stock Exchange.
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 COVID-19. The outbreak
of COVID-19 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 COVID-19 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. Virtually all of the Company’s employees have been vaccinated
against COVID-19 and are working on site.
As
of December 31, 2022, Tecnoglass’s U.S. and Latin American customers are fully operational with many construction projects
typically considered by jurisdictions to be essential business activities since the early stages of the pandemic. However, given the
increasing number of new COVID-19 variants, demand in all served markets may slow down impacting all aspects of business in every U.S.
State and Latin American country.
As
of December 31, 2022, Tecnoglass had ample liquidity, including cashflow generated from operating activities 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 all 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.
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 the New York Stock Exchange under the symbol “TGLS”.
Holders
As
of December 31, 2022, there were 310 holders of record of our ordinary shares. We believe our ordinary shares are held by more than 3,000
beneficial owners.
Dividends
Prior
to August 2016, we had not paid any cash dividends on our ordinary shares. Since such time, we have paid regular quarterly dividends.
We expect to pay quarterly dividends in the future. 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. 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.
Recent
Sales of Unregistered Securities
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. The ordinary shares were issued in reliance on an exemption from registration under
Section 4(a)(2) of the Securities Act as they were issued in a transaction by an issuer not involving any public offering.
Information
about our equity compensation plans
Information
required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference to Item 12 of Part III of this
Annual Report on Form 10-K.
Stock
performance graph
The
following graph compares the cumulative total shareholder return for Tecnoglass, Inc. Ordinary Shares on a $100 investment for the last
five fiscal years with the cumulative total return on a $100 investment in the SPDR S&P Homebuilders ETF Fund, which is an exchange-traded
fund that seeks to replicate the performance of the S&P Homebuilders Select Industry Index, the Standard & Poor’s Small
Cap 600 Growth Index, which is an index of companies with similar market capitalization and the NYSE Composite Index, a broad market
index. The graph assumes an investment at the close of trading on December 30, 2023, and assumes the shareholder opted for share dividends
during all periods.
Repurchases
No
repurchases of shares or any class of our equity securities registered under Section 12 of the Exchange Act were made in the fourth quarter
of the fiscal year covered by this Form 10-K by or on behalf of the Company or any affiliated purchaser (this term is defined in Rule
10b-18(a)(3) under the Exchange Act).
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 third largest glass fabricator in 2022 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 almost 40 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 4.1 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 One Thousand Museum (Miami), Paramount Miami Worldcenter (Miami), Hub50House (Boston), Via 57 West
(New York), AE’O Tower (Honolulu), Salesforce Tower (San Francisco), Trump Plaza (Panama), and Departmental Legislative Assembly
(Bolivia). 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, the Company
acquired 70% equity interest in ESMetals, which has been consolidated in our financial statements since. ESMetals is a Colombian
entity that 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.
Our
company has focused on working with The Power of Quality, always making sure that our vision of sustainability is immersed into
every aspect of our business, including social, environmental, economic and governance variables, that help us make decisions and create
value for our stakeholders. We carry out a series of initiatives based on our global sustainability strategy, which is supported on three
fundamental pillars: promoting an ethical and responsible continuous growth, leading eco-efficiency and innovation, and empowering our
environment. As part of this strategy the Company has voluntarily adhered to UN Global Compact Principles since 2017 and in pursuit of
our cooperation with the attainment of the Sustainable Development Goals (“SDGs”) joined in 2021 a program to dynamize,
strengthen and make visible the management of greenhouse gas emissions as a carbon neutral strategy set out by the Colombian government
for 2050.
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 4.1
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 96%, and 92% of our combined revenues in 2022 and 2021, respectively,
while Colombia accounted for approximately 2% and 5%, and other Latin-American destinations accounted for approximately 2% and 3% in
those years, respectively.
We
sell our products through our main offices/sales teams based out of Florida and different regions in the US, which is our largest sales
group and has strong relationships with glazing contractors, general contractors, real estate developers and specialty window dealers
in the region. In late 2022, we launched two new showrooms, one in New York City and one in Charleston, SC, to serve primarily single
family residential markets in their regions, and have plan to open additional showrooms in new geographies across the southern United
States as part of our geographic expansion strategy. We also have sales forces located in Colombia and Panama with long-standing business
relationships in the region to serve Latin American markets. 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 lower-value orders that are of short duration.
We
expect to benefit from growth in our largest markets in the United States by gaining market share, broadening our geographic footprint
within the U.S. and demographic factors favoring demand in the geographies served by us. According to FMI´s 2023 Engineering and
Construction Industry overview, construction put in place in the multifamily residential construction sector, which accounted for 64%
of our backlog in 2022, is expected to increase 8.5% year over year in 2023, and U.S. nonresidential building construction put
in place is expected to continue expanding through 2023, at an annualized rate of 7.9% to $637 billion in and projected to remain at
similar levels through 2026. According to Key Media & Research (“KMR”) data, the volume of architectural glass
used in nonresidential construction will expand for a second-straight year, albeit at a slower pace, by 4.7% in 2023 to 178.1 million
square feet, following a 6.7% uptick the year before. These stable to positive macro trends combined with a lean cost structure, leave
us well positioned maintain industry leading margins and further diversify our presence into the U.S.
Liquidity
As
of December 31, 2022, and 2021, we had cash and cash equivalents of approximately $103.7 million and $85.0 million, respectively. During
the year ended December 31, 2022, the main source of cash was operating activities, which generated $141.9 million.
In
October 2020, the Company entered 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 existing $210
million unsecured senior notes, which had an interest rate of 8.2% and matured in January 2022 using proceeds from this new facility
and incurred 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 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. The modification also included a re-sizing of the term loan to $200 million for
a total facility size of up to $350 million including the revolving credit facility. Borrowings under the credit facility will
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%. The facility was led by PNC Bank N.A as Administrative Agent;
with Citizens Bank N.A, BBVA USA, CIT Bank and Wells Fargo Bank N.A serving as Joint Lead Arrangers. The effective interest rate for
this credit facility including deferred issuance costs is 2.81%. We recorded total costs and fees of $1.5 million related to this transaction,
of which $1.4 million of fees paid to banks were capitalized as deferred cost of financing, and $0.2 million paid to third parties recorded
as an operating expense on the consolidated statements of operations for the year 2021. This transaction was accounted for as a debt
modification.
In
March 2022, we voluntarily prepaid $15 million of capital to this credit facility which has decreased our net leverage ratio and triggered
a step down in the applicable interest rate spread to 1.5%. Additionally, on September 30, 2022, we voluntarily prepaid $10.0 million
of the term loan and $6.7 million under the revolving line of credit, which is fully unused as of December 31, 2022. We thereby reduced
our financing cost, despite global increases in interest rates.
As
of December 31, 2022, we had a strong liquidity position, comprised of $170 million available under committed lines of credit, in addition
to a cash balance of $103.7 million. We anticipate that working capital will continue to be a net benefit to cash flow in the near future,
which in addition to our current liquidity position, provides ample flexibility to service our obligations through the next twelve 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, 2022, and 2021, we made investments primarily in building
and construction, and machinery and equipment in the amounts of $83.2 million, and $53.4 million, respectively. We believe our investments
in technology within recent years have positioned us well for continued growth given the flexibility afforded by our current installed
capacity, improved profitability and enhanced cash generation in the years ahead. Recent examples of our high return investments within
the last two years include:
● |
Automation
of six window assembly production lines, increasing efficiencies, labor and material waste costs with an estimated reduction of on-site
damage by 30%; |
|
|
● |
Additional
aluminum expansion project to increase capacity by approximately 400 tons/month; |
|
|
● |
Automation
of additional glass lines, increasing efficiencies on an end-to-end basis reducing lead times, headcount and on-site damage by approximately
40%; |
|
|
● |
Upgrade
vacuum magnetron sputter coating machinery which will allow to coat glass before tempering; |
|
|
● |
Construction
of 500,000 square feet warehouse with two numerical punching machines, two metal benders and a complete painting line. |
|
|
● |
Automation
of two centralized aluminum warehouses for storing, sorting and delivering extrusion matrices and aluminum profiles to our internal
production processes that reduce lead times for the assembly of architectural systems and reduce on-site damage to materials |
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 cash flows 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)
| |
Twelve months ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Operating revenues | |
$ | 716,570 | | |
$ | 496,785 | | |
$ | 376,607 | |
Cost of sales | |
| 367,071 | | |
| 294,201 | | |
| 237,166 | |
Gross profit | |
| 349,499 | | |
| 202,584 | | |
| 139,441 | |
Operating expenses | |
| (123,084 | ) | |
| (85,599 | ) | |
| (73,734 | ) |
Operating income | |
| 226,415 | | |
| 116,985 | | |
| 65,707 | |
Non-operating income and expenses, net | |
| 4,218 | | |
| 608 | | |
| 89 | |
Foreign currency transactions gains / (losses) | |
| 2,013 | | |
| (4,308 | ) | |
| (8,638 | ) |
Equity method income | |
| 6,680 | | |
| 4,177 | | |
| 1,387 | |
Interest expense and deferred cost of financing | |
| (8,156 | ) | |
| (9,850 | ) | |
| (21,671 | ) |
Debt extinguishment | |
| - | | |
| (10,699 | ) | |
| - | |
Income tax provision | |
| (74,758 | ) | |
| (28,485 | ) | |
| (13,033 | ) |
Net income | |
| 156,412 | | |
| 68,428 | | |
| 23,841 | |
(Income) loss attributable to non-controlling interest | |
| (669 | ) | |
| (277 | ) | |
| 34 | |
Income attributable to parent | |
$ | 155,743 | | |
$ | 68,151 | | |
$ | 23,875 | |
Comparison
of years ended December 31, 2022, and December 31, 2021
Our
operating revenue increased $219.8 million, or 44.2%, from $496.8 million in the year ended December 31, 2021, to $716.6 million in the
year ended December 31, 2022.
Strong
sales during 2022 were driven by U.S. single family residential and commercial market activity. U.S. sales increased $232.0 million,
or 50.8%, from $456.3 million in 2021 to $688.4 million in 2022. U.S. Single family residential market sales increased $129.1 million,
or 72.8%, from $177.4 million in 2021 to $306.4 million in 2022 and accounted for 42.8% of total sales in the year ended December 31,
2022. U.S. Commercial market sales increased $102.9 million, or 36.9%, from $279.0 million to $382.0 million as we continue to execute
on our growing backlog. Sales to Latin-American markets decreased $12.2 million, or 30.3%, from $40.5 million to $28.2 million in 2022
as we focus our efforts on more attractive U.S. markets.
Gross
profit increased $146.9 million, or 72.5%, to $349.5 million during the year ended December 31, 2022, compared with $202.6 million during
the same period of 2021. This resulted in gross profit margin reaching 48.8% during the year ended December 31, 2022, up from 40.8% during
the year ended December 31, 2021. The 800-basis point improvement in gross margin can be mainly attributable to operating leverage on
higher sales, favorable product pricing dynamics, ongoing efficiency efforts, and favorable foreign exchange rates resulting from a depreciation
of the Colombian peso.
Operating
expenses increased $37.5 million, or 43.8%, from $85.6 million to $123.1 million for the year ended December 31, 2021, and 2022, respectively.
The increase was driven by $16.2 million, or 70.4%, increase in shipping expense resulting from sales increasing 44.2% along with some
increases in shipping rates and a higher mix of sales going into the more atomized US residential market, a $3.4 million in non-recurring
professional fees, and by a $4.6 million one-time settlement payment associated with a dispute related to a project.
During
the year ended December 31, 2022, and 2021, the Company recorded a net non-operating income of $4.2 million and non-operating income
of $0.6 million, respectively. Non-operating income is comprised primarily of income from rental properties and gains on sale of scrap
materials and charges to customers on credit card payments, as well as non-operating expenses related to certain charitable contributions
outside of the Company’s direct sphere of influence.
Interest
expense and deferred cost of financing decreased $1.7 million, or 17.2%, to $8.2 million during the year ended December 31, 2022, from
$9.9 million during the year ended December 31, 2021, despite increases in floating interest rates as a result of a reduction of our
debt balance.
During
the year ended December 31, 2022, the Company recorded a non-operating gain of $2.0 million associated with foreign currency transactions.
Comparatively, the Company recorded a net loss of $4.3 million during the year ended December 31, 2021, within the statement of operations
as the Colombian peso depreciated 20.8% during the period.
During
the year ended December 31, 2022, and 2021, the Company recorded an income tax provision of $74.8 million and $28.5 million, respectively,
reflecting an effective income tax rate of 32.3% and 29.4%, respectively. The effective income tax rates for both years approximate the
statutory rate of 33.8% and 29.6% for the fiscal years 2022 and 2021, respectively.
As
a result of the foregoing, the Company recorded a net income for the year ended December 31, 2022, of $156.4 million compared to $68.4
million in the year ended December 31, 2021.
Comparison
of years ended December 31, 2021, and December 31, 2020
Our
operating revenue increased $120.2 million, or 31.9%, from $376.6 million in the year ended December 31, 2020, to $496.8 million in the
year ended December 31, 2021. In early 2020, initial COVID-19 lockdowns and other preventive measures slowed down our business, especially
in Latin America as several customers halted activities and we shut down our manufacturing facilities in Colombia between March 24, 2020,
and April 13, 2020 during the nationwide shelter-in-place order.
Strong
sales during 2021 were driven by U.S. single family residential and commercial market activity. U.S. sales increased $115.9 million,
or 34.0%, from $340.4 million in 2020 to $456.3 million in 2021. Single family residential market sales increased $106.7 million, or
151.1%, from $70.6 million in 2020 to $177.3 million in 2021, and accounted for 35.7% of total sales in the year ended December 31, 2021.
Sales
to Latin-American markets, including Colombia increased $4.3 million, or 11.9%, as our customers continue to return to activities after
lockdowns in slowly recovering markets.
Gross
profit increased $63.1 million, or 45.3%, to $202.6 million during the year ended December 31, 2021, compared with $139.4 million during
the same period of 2020. This resulted in gross profit margin reaching 40.8% during the year ended December 31, 2021, up from 37.0% during
the year ended December 31, 2020. The 380-basis point improvement in gross margin mainly reflected a higher mix of revenue from manufacturing
versus installation activity as we continue to grow into single family residential, greater operating efficiencies from prior automation
initiatives and operating leverage on higher revenues.
Operating
expenses increased $11.9 million, or 16.1%, from $73.7 million to $85.6 million for the year ended December 31, 2020, and 2021, respectively.
The increase was driven by $7.0 million, or 43.5% increase in shipping expense resulting from sales increasing 31.9% along with
some increases in shipping rates and more shipping into the U.S., a $2.6 million, or 31.6% increase in sales commissions, $1.6
million or 9.9% increase in personnel expense partially offset by a reduction in certain taxes and other expenses. Operating expenses
as a percentage of sales improved from 19.6% in 2020 to 17.2% in 2021, as a result of operating leverage from higher sales and our continued
effort to enhance our lean administrative structure and tight cost controls.
During
the year ended December 31, 2021, and 2020, the Company recorded a net non-operating income of $0.6 million and non-operating income
of $0.1 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 and deferred cost of financing decreased $11.8 million, or 54.5%, to $9.9 million during the year ended December 31, 2021 from
$21.7 million during the year ended December 31, 2020 as a result of our new financing arrangement further described above in the liquidity
section. The current period does not fully capture the effect of the decrease in interest rates associated to the new syndicated facility
given that the senior notes were taken out on January 30, 2021.
During
the year ended December 31, 2021, the Company recorded a non-operating loss of $4.3 million associated with a foreign currency transaction,
which excludes a non-cash $8.5 million foreign currency transaction loss from remeasurement of certain intercompany loans reclassified
to other comprehensive income. Comparatively, the Company recorded a net loss of $8.6 million during the year ended December 31, 2020,
within the statement of operations as the Colombian peso depreciated 16.0% during the period.
During
the year ended December 31, 2021, and 2020, the Company recorded an income tax provision of $28.5 million and $13.0 million, respectively,
reflecting an effective income tax rate of 29.4% and 35.3%, respectively. The effective income tax rate of 29.4%, during the year ended
December 31, 2021, approximates the statutory rate. The effective income tax rate for the year ended December 31, 2020, of 35.3%
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.
As
a result of the foregoing, the Company recorded a net income for the year ended December 31, 2021, of $68.4 million compared to $23.8
million in the year ended December 31, 2020.
Cash
Flow from Operations, Investing and Financing Activities
During
the year ended December 31, 2022, and 2021, operating activities generated approximately $141.9 million and $117.3 million, respectively.
The positive cashflow from operations during the year ended December 31, 2022 has been related to a much higher profitability year over
year, enhanced working capital efforts, reduced interest expense and a higher share of our revenue mix coming from the single-family
residential space, which has a shorter cash cycle.
The
main source of operating cash during the year ended December 31, 2022, were taxes payable, which generated $45.3 million related to
higher income tax provision as a result of increased profitability, compared with $16.1 million during the year ended December 31,
2022. Contract assets and liabilities which generated $16.2 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 increased advances received from customers. Comparatively, contract assets and liabilities generated $28.6 million during the
year ended December 31, 2021. Additionally, trade accounts payable generated $7.2 million and $38.0 million during full years ended
December 31, 2022 and 2021, respectively. Cash provided by trade accounts payable is related to increasing purchases to support our
growing material needs commensurate with our increased output. The largest use of cash in operating activities was inventories,
which used $63.9 million during the year ended December 31, 2022, compared with $16.7 million used during the year ended December
31, 2021, as we procure materials to support our ongoing growth. In addition, trade accounts receivable used $54.2 million as a
result of our record sales during the year ended December 31, 2022, while days sales outstanding stood at 80 days as of both December
31, 2022, and 2021 (which include transit times into the US and other places). Trade accounts receivable used $38.5 million during
the year ended December 31, 2021.
We
used $72.6 million and $50.8 million in investing activities during the year ended December 31, 2022, and 2021, respectively. The main
use of cash in investing activities during 2022, was related to the automation of our architectural system assembly processes and incremental
land purchases as further described above in the Capital Resources section. During the year ended December 31, 2022, we paid $71.3 million
to acquire property, plant and equipment, which in combination with $11.8 million acquired under credit, amount to total capital expenditures
of $83.2 million. During 2021, we used $51.5 million for the acquisition or property and equipment. Including assets acquired with debt
or supplier credit, total capital expenditures during the period were $53.4 million.
Financing
activities used $44.8 million and $43.8 million during the year ended December 31, 2022, and 2021, respectively. During the first quarter
of 2022 we voluntarily prepaid $15 million of capital to this credit facility which has decreased our net leverage ratio and triggered
a step down in the applicable interest rate spread to 1.5% and later prepaid an additional $6.7 million under our revolving line of credit
and $10 million under our term loan on September 30, 2022, with cash on hand. Outflows during the year ended December 31, 2021, include
the full redemption of the $210 million unsecured senior notes, which bore interest at a rate of 8.2% and matured in 2022, following
a step down in redemption price at the end of January 2021, along with $8.6 million for the corresponding call premium. These payments
were made with proceeds of the new Senior Secured Credit Facility for up to $300 million, of which we received proceeds of $220 million
during the twelve-month period.
Off-Balance
Sheet Arrangements
We
did not have any material off-balance sheet arrangements as of December 31, 2022, or 2021.
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
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.
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.
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 net realizable value. 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.
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.
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.
Property,
plant and equipment are recorded at cost less accumulated depreciation. Significant improvements and renewals that extend
the useful life of the asset are capitalized. Interest incurred while acquired property is under construction and installation are capitalized.
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 |
Aircraft | |
20 years |
Machinery and equipment | |
10 years |
Furniture and fixtures | |
10 years |
Office equipment and software | |
5 years |
Vehicles | |
5 years |
Item
7A. |
Quantitative
and Qualitative Disclosures About Market Risk. |
We
are exposed to ongoing market risk related to changes in interest rates, foreign currency exchange rates and commodity market prices.
A
rise in interest rates could negatively affect the cost of financing for a significant portion of our debt with variable interest rates.
If interest rates were to increase over the next 12 months by 100 basis points, net earnings would decrease by approximately $0.5 million
based the current composition of our indebtedness. This market risk exposure is net of the effect from interest rate hedging derivative
financial instruments further described in the footnotes to the financial statements.
We
are subject to market risk due to changes in the value of foreign currencies in relation to our reporting currency, the U.S. Dollar.
Some of our subsidiaries’ operations are based in Colombia, and primarily transact business in local currency. Approximately 2%
of our consolidated revenues and 37% of our costs and expenses are denominated in Colombian pesos, thereby mitigating some of the risk
associated with changes in foreign exchange rates. However, as our costs and expenses in Colombian Pesos exceed, a 5% appreciation of
the Colombian Peso relative to the U.S. Dollar would result in our annual revenues increasing by $0.8 million and our costs and expenses
increasing by approximately $10.8 million, resulting in a $10.0 million decrease to net earnings based on results for the twelve months
ended December 31, 2022.
Similarly,
a significant portion of the monetary assets and liabilities of these subsidiaries are generally denominated in U.S. Dollars, while their
functional currency is the Colombian peso, thereby resulting in gains or losses from remeasurement of assets and liabilities using end
of period spot exchange rate. These subsidiaries have both monetary assets and monetary liabilities denominated in U.S. Dollars, thereby
mitigating some of the risk associated with changes in foreign exchange rate. U.S. Dollar denominated monetary assets exceed their monetary
liabilities by $28.4 million, such that a 1% devaluation of the Colombian peso will result in a loss of $0.3 million recorded in the
Company’s Consolidated Statement of Operations as of December 31, 2022.
Additionally,
the results of the foreign subsidiaries must be translated into U.S. Dollar, our reporting currency, in the Company’s consolidated
financial statements. The currency translation of the financial statements using different exchange rates, as appropriate, for different
parts of the financial statements generates a translation adjustment, which is recorded within other comprehensive income on the Company’s
Consolidated Statement of Comprehensive Income and Consolidated Balance Sheet.
We
are also subject to market risk exposure related to volatility in the prices of aluminum, one of the principal raw materials used for
our manufacturing. The commodities markets, which include the aluminum industry, are highly cyclical in nature, and as a result, prices
can be volatile. Commodity costs are influenced by numerous factors beyond our control, including general economic conditions, the availability
of raw materials, competition, labor costs, freight and transportation costs, production costs, import duties and other trade restrictions.
Our selling prices are also impacted by changes in commodity costs base our pricing of aluminum products based on the quoted price on
the London Metals Exchange plus a manufacturing premium with the intention of aligning cost of our raw materials with selling prices
to attempt to pass commodity price changes through to our customers.
We
cannot accurately estimate the impact a one percent change in the commodity costs would have on our results of operation, as the change
in commodity costs would both impact the cost to purchase materials and our selling prices. The impact to our results of operations depends
on the conditions of the market for our products, which could impact our ability to pass commodities costs to our customers.
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, 2022, 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, 2022, 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.
Attestation
Report of Registered Public Accounting Firm
The
report of our independent registered public accounting firm appears commencing on page F-1 of this Annual Report on Form 10-K and is
incorporated herein by reference.
Item
9B. |
Other
Information. |
None.
Item
9C. |
Disclosure
Regarding Foreign Jurisdictions that Prevent Inspections. |
Not
applicable.
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 |
|
63 |
|
Chief
Executive Officer and Director |
Christian
T. Daes |
|
59 |
|
Chief
Operating Officer and Director |
Santiago
Giraldo |
|
47 |
|
Chief
Financial Officer |
Lorne
Weil |
|
77 |
|
Non-Executive
Chairman of the Board |
Luis
Fernando Castro Vergara |
|
56 |
|
Director |
Anne
Louise Carricarte |
|
56 |
|
Director |
Julio
A. Torres |
|
56 |
|
Director |
Carlos
Alfredo Cure Cure |
|
78 |
|
Director |
José
M. Daes has served as our CEO and member of the board of directors since December 2013. Mr. Daes has more than 30 years of experience
in the operation of businesses in Colombia and the United States. Since 1983, he has led the Tecnoglass group, founded with his brother
Christian Daes.
José
Manuel is responsible for the continuous, ethical and responsible management and growth of the company, leading the development of innovative
products to meet the changing needs of our customers in the commercial and residential construction market, always keeping in mind the
best governance practices and maximizing the intrinsic value for our shareholders.
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 member of the board of directors since December 2013. Mr. Deas has served
as the chief executive officer of TG since its inception in 1994. Mr. Daes leads the automation projects, which reduce the consumption
of materials and increase the efficiency of the company, maintaining the highest safety standards for our workers and the entire international
supply chain.
Mr.
Daes leads the corporate strategy through innovation, use of technology, energy generation through alternative sources and solidarity
with our stakeholders.
Mr.
Daes is the younger brother of Jose M. Daes, our chief executive officer.
Santiago
Giraldo has served as our Chief Financial Officer since 2016. He joined Tecnoglass with significant financial experience, in
capital markets, bank debt, derivatives, treasury, M&A and equity related transactions. Mr. Giraldo received a Business Administrator
(cum laude) from Washburn University and holds an MBA with an emphasis in International Business and Finance from California State University
at Pomona.
In
his role as CFO, Santiago preserves transparency and timely reporting to our stakeholders, in which he identifies the most important
environmental, social and governance issues and metrics when making decisions, leading to good investor relations and long-term projects
aligned with the company’s strategy.
A.
Lorne Weil has been our Parent Company’s Non-Executive Chairman of the Board of Directors since its inception. Mr. Weil
was also the Chairman of the Board of Scientific Games Corporation from October 1991 to November 2013, and was the Company’s Chief
Executive Officer for all but approximately 24 months of that time. During his tenure, Scientific Games grew from under $50 million in
annualized revenue to approximately $2 billion. Mr. Weil received a Bachelor of Commerce from the University of Toronto, an M.S. from
the London School of Economics and an M.B.A. from Columbia University.
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.
Anne
Louise Carricarte has over 35 years of experience in domestic and international marketing, sales, administration, and management.
She is a business entrepreneur, executive consultant, and inspirational speaker skilled in motivation, training, negotiation, and in-depth
team building. Ms. Carricarte is the Chief Executive Officer of Simple Results, Inc., a consulting company she founded in 2006, where
she collaborates on multi-cultural projects between countries, generations, professions, and faiths in both the private and public sectors.
Since 2004, Ms. Carricarte has served as an advisor to Grove Services, a farm-land asset management company, and Unity Groves, which
provides ‘end-to-end’ produce distribution to major US food chains. She is also one of seven board members for Mathon Investments
Corporation, a private fund that manages investments and lending services. From 1992 until she founded Simple Results, Ms. Carricarte
was the Chief Operating Officer of Amedex Holding Insurance Companies/USA Medical and Chief Executive Officer of Amedex International,
which provided health and life insurance products and related services to clients in Latin America and the Caribbean.
Julio
A. Torres has been a member of our Parent Company’s Board of Directors since October 2011. He previously served as our
Parent Company’s co-Chief Executive Officer from October 2011 through January 2013. Since March 2008, Mr. Torres has 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 the general director 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. Mr. Torres received a degree in systems and computer engineering from Los Andes University, a M.B.A.
from Northwestern University and a M.P.A. from Harvard University..
Carlos
Alfredo Cure Cure has served on the Board of Directors of our Parent Company 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 Embassador to Venezuela. Earlier in his carrier, 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.
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.
Changes
to Shareholder Nominations Procedures
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 Carlos Cure, Luis Fernando Castro and Julio Torres, with
Carlos Cure serving as chairman during 2022 Each of the members of the audit committee is independent under the applicable NYSE listing
standards.
As
required by the NYSE listing standards, the audit committee will at all times be composed exclusively of independent directors
who are “financially literate.” NYSE 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 NYSE 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 NYSE’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.
Delinquent
Section 16(a) Reports
Section
16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own 10% or more of
a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial
ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of
the SEC to furnish the Company with copies of all reports filed by them in compliance with Section 16(a). To the Company’s knowledge,
based solely on a review of reports furnished to it and review of the Section 16 reports (Forms 3, 4 and 5 and any amendments to those
forms) filed during (or with respect to) the fiscal year ended December 31, 2022, all of the Company’s officers, directors and
ten percent holders have timely made the required filings except for one filing, by Energy Holding Corp., a 10% owner of the Company,
which was filed late on April 22, 2022 to report one transaction that occurred April 12, 2022 .
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 in charge 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 sets specific KPI’s or benchmarks for annual fixed 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.
Consideration
of Shareholder Advisory Votes on Executive Compensation
We
also take into consideration our most recent shareholder advisory vote (a “Say on Pay Advisory Vote”) on executive compensation,
as required by Section 14A of the Securities Exchange Act of 1934. In the last advisory vote, conducted at our annual general meeting
on December 15, 2022, our compensation program was approved on an advisory basis by over 97% of the shareholders who submitted a vote
thereabout (with less than 3% of the votes being against approval or abstaining, collectively). We consider this to be a strong validation
that our pay practices are firmly aligned with our shareholders’ best interests. In accordance with the shareholder vote held at
our 2019 annual general meeting, we conduct a Say on Pay Advisory Vote every three years. The next will be at our 2025 annual general
meeting.
Base
Salaries
Each
of our named executive officers is employed on an at-will basis. 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, 2022, 2021 and 2020, of each of our named executive
officers.
Name and principal position | |
Year | | |
Salary | | |
Bonus | | |
Total (1) | |
Jose M. Daes (2) | |
| 2022 | | |
$ | 2,100,000 | | |
$ | 735,000 | | |
$ | 2,835,000 | |
Chief Executive Officer | |
| 2021 | | |
$ | 1,512,000 | | |
$ | 453,600 | | |
$ | 1,965,600 | |
| |
| 2020 | | |
$ | 1,260,000 | | |
$ | 315,000 | | |
$ | 1,575,000 | |
Christian T. Daes (3) | |
| 2022 | | |
$ | 2,100,000 | | |
$ | 735,000 | | |
$ | 2,835,000 | |
Chief Operating Officer | |
| 2021 | | |
$ | 1,512,000 | | |
$ | 453,600 | | |
$ | 1,965,600 | |
| |
| 2020 | | |
$ | 1,260,000 | | |
$ | 315,000 | | |
$ | 1,575,000 | |
Santiago Giraldo (4) | |
| 2022 | | |
$ | 440,000 | | |
$ | 154,000 | | |
$ | 594,000 | |
Chief Financial Officer | |
| 2021 | | |
$ | 189,162 | | |
$ | 47,634 | | |
$ | 236,796 | |
| |
| 2020 | | |
$ | 181,704 | | |
$ | 57,750 | | |
$ | 239,454 | |
(1) |
During
the period covered by the table, we did not issue any stock awards, option awards, non-equity incentive plan compensation, or other
compensation, nor did any of the named executive officers experience any change in pension value and nonqualified deferred compensation
earnings. |
|
|
(2) |
Mr.
Daes also serves as chief executive officer of ES. |
|
|
(3) |
Mr.
Daes also serves as chief executive officer of TG. |
|
|
(4) |
Mr.
Giraldo’s 2021 and 2020 salary was paid in Colombian pesos. |
Compensation
Arrangements with Named Executive Officers
On
February 7, 2023, our compensation committee recommended, and on February 28, 2023 our Board approved, the following
compensation arrangements for 2023 for each of Messrs. Daes, Daes, and Giraldo: (i) with respect to each of Messrs. Daes and Daes, a
base salary of $2,940,000 plus a bonus of up to $1,029,000; and (ii) with respect to Mr. Giraldo, a base salary of $594,000 and a
performance bonus of up to $207,900 per year. Each of the bonuses will be based on our 2023 financial performance and achievement of
certain to-be-agreed upon targets throughout the year.
Pay
Ratio Disclosures
The
following pay ratio information is provided in accordance with the requirements of Item 402(u) of Regulation S-K of the Exchange Act.
For
fiscal 2022, the Company’s last completed fiscal year:
| ● | the
median of the annual total compensation of all employees of the Company (other than the Chief
Executive Officer) was $4,159; and |
| ● | the
annual total compensation of the Company’s Chief Executive Officer, Jose M. Daes, was
$2,835,000. |
Based
on this information, the ratio for 2022 of the annual total compensation of the Chief Executive Officer to the median of the annual total
compensation of all employees is 682 to 1.
The
following steps were taken to determine the annual total compensation of the median employee and the Chief Executive Officer:
| ● | As
of December 31, 2022, the employee population consisted of approximately 8,770 individuals,
including full time, part time, temporary, and seasonal employees employed on that date.
This date was selected because it aligned with calendar year end and allowed identification
of employees in a reasonably efficient manner. |
| ● | For
purposes of identifying the median employee from our employee population base, wages from
our internal payroll records for the twelve-month period ended December 31, 2022 were used.
These wages were consistent with amounts reported to taxation authorities for fiscal 2022.
Consistent with the calculation of the Chief Executive Officer’s annual compensation,
other elements of employee compensation were considered and added, if applicable when calculating
the annual total compensation for all employees. |
| ● | In
addition, the compensation of approximately 3,214 full time or part time employees who were
hired during 2022 and employed on December 31, 2022, was annualized. No full-time equivalent
adjustments were made for part time employees, of which there were approximately 17. |
| ● | The
median employee was identified using this compensation measure and methodology, which was
consistently applied to all employees. The amounts reported in the 2022 Summary Compensation
Table for named executive officers was used for the total annual compensation of the Chief
Executive Officer. The salary amount reported in this table was annualized to reflect a full
year’s compensation for the purpose of calculating the pay ratio disclosure. |
Outstanding
Equity Awards at Fiscal Year End
As
of December 31, 2022, 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.
Pension
Benefits
As
of December 31, 2022, we had not granted any pension benefits to any of our executive officers.
Nonqualified
Defined Contribution and Other Nonqualified Deferred Compensation Plans
As
of December 31, 2022, we did not have any nonqualified defined contribution or other nonqualified deferred compensation plans.
Potential
Payments Upon Termination or Change-in-Control
As
of December 31, 2022, none of our executive officers are entitled to payments or the provision of
other
benefits such as perquisites and health care benefits in connection with a termination or change-in-
control.
Director
Compensation
Each
of our non-employee directors receives cash compensation of $63,063 each year. Additionally, our chairman of the Audit Committee and
each other member of our Audit Committee receives additional cash compensation of $22,051 and $11,007, 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, 2022.
Name | |
Fees earned or paid in cash | | |
Stock Awards | | |
Total | |
Carlos Cure | |
$ | 85,114 | | |
| - | | |
$ | 85,114 | |
Luis Fernando Castro Vergara | |
$ | 74,070 | | |
| - | | |
$ | 74,070 | |
Julio A. Torres | |
$ | 74,040 | | |
| - | | |
$ | 74,040 | |
A. Lorne Weil | |
$ | 63,063 | | |
| - | | |
$ | 63,063 | |
Anne Louise Carricarte | |
$ | 31,531 | | |
| - | | |
$ | 31,531 | |
Martha Byorum | |
$ | 63,063 | | |
| - | | |
$ | 63,063 | |
(1) |
To date, we have not compensated our directors with stock awards,
option awards, non-equity incentive plan compensation, pension value, nonqualified deferred compensation earnings or other compensation. |
|
|
(2) |
Ms. Byorum resigned from the Board of Directors on August 23,
2022. |
Compensation
Committee Interlocks and Insider Participation
No
person who served as a member of the compensation committee of our board of directors during the last completed fiscal year, indicating
each committee member (a) was, during the fiscal year, an officer or employee of ours; (b) was formerly an officer of the registrant;
or (c) had any relationship requiring disclosure by us under any paragraph of Item 404 of Regulation S-K. We do not have any of the relationships
described in Item 407(e)(4)(iii) that would require disclosure by us pursuant thereto.
Compensation
Committee Report
The
compensation committee met with our management to review and discuss the preceding Compensation Discussion and Analysis. Based on such
review and discussion, the compensation committee approved this Compensation Discussion and Analysis and authorized and recommended its
inclusion in this Annual Report on Form 10-K.
|
Compensation Committee |
|
Julio Torres,
Chairperson |
|
Luis
Fernando Castro Vergara |
|
Ann Louise Carricarte |
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, 2022, 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 | |
| | |
|
| | |
Santiago Giraldo | |
| - | |
|
| * | |
Chief Financial Officer | |
| | |
|
| | |
Carlos Cure Cure | |
| - | |
|
| * | |
Director | |
| | |
|
| | |
Luis F. Castro Vergara | |
| - | |
|
| * | |
Director | |
| | |
|
| | |
A. Lorne Weil | |
| 88,173 | (3) |
|
| * | |
Chairman of the Board | |
| | |
|
| | |
Julio A. Torres | |
| 30,520 | |
|
| * | |
Director | |
| | |
|
| | |
Anne Louise Carricarte | |
| - | |
|
| * | |
Director | |
| | |
|
| | |
All directors and executive officers as a group (8 persons) | |
| 599,135 | |
|
| 1.3 | % |
Five Percent Holders: | |
| | |
|
| | |
Energy Holding Corporation | |
| 26,408,696 | (4) |
|
| 55.4 | % |
*
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, 2022, no awards had been made under the 2013 Plan.
Item
13. |
Certain
Relationships and Related Transactions, and Director Independence. |
Related
Party Transactions
A
Construir SA
On
a recurring basis, we have engaged A Construir S.A., a heavy construction company operating in Barranquilla, Colombia, to carry out construction
related to our ongoing capital expenditures at our production facilities in Colombia. Affiliates of Jose Daes and Christian Daes, the
company’s CEO and COO, respectively, had an ownership stake in A Construir through June 1, 2022. We purchased $4,312 during the
five months through May 31, 2022, and $9,292, during the year ended December 31, 2021, 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. Given
that A Construir is no longer considered a related party, amounts as of December 31, 2022, are not reflected as balances due from and
due to related parties as of December 31, 2022, on the face of the Consolidated Balance Sheet nor the summary table in Item 7 above.
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 $0.9 million, $1.1 million, and $0.7 million, to Alutrafic during fiscal years 2022, 2021, and 2020, respectively, and had outstanding
accounts receivable from Alutrafic for $0.2 million and $0.5 million as of December 31, 2022, and 2021, respectively.
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 near our manufacturing campus which is owned by affiliates of Jose Daes and Christian Daes, the Company’s
CEO and COO, respectively. During the years ended December 31, 2022, 2021, and 2020, we purchased $0.9 million, $0.3 million, and $0.3
million, respectively. Additionally, during 2021 we acquired a lot of land adjacent to our manufacturing campus from Santa maria del
Mar SAS for $0.4 million.
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 years ended December 31, 2022, 2021, and 2020, we made charitable contributions for $1.6 million, $1.4 million, and
$1.3 million, 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. We sold $0.5 million, $0.8 million, and $0.4 million, to Avanti during fiscal years 2022, 2021, and 2020,
respectively, and had outstanding accounts receivable from Avanti for $0.2 million and $0.4 million as of December 31, 2022, and 2021,
respectively.
Vidrio
Andino Joint Venture (A Saint-Gobain subsidiary)
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 affiliates of the
CEO and COO’s family 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 cash flows 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 $20.8 million, $15.3 million, and $14.3 million, from Vidrio Andino in 2022, 2021, and
2020, respectively. As of December 31, 2022, and 2021, we had outstanding payables to Vidrio Andino for $4.9 million and $2.8 million,
respectively. We recorded equity method income of $6.7 million, $4.2 million, and $1.4 million, on our Consolidated Statement of Operations
during the years ended December 31, 2022, 2021, and 2020, 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, valued at $0.6 million and $0.8 million as of December
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.
Indemnification
Agreements
Effective
March 5, 2014, we entered into indemnification agreements with each of our executive officers and members of our board of directors.
The indemnification agreements supplement our Third Amended and Restated Memorandum and Articles of Association and Cayman Islands law
in providing certain indemnification rights to these individuals. The indemnification agreements provide, among other things that we
will indemnify these individuals to the fullest extent permitted by Cayman Islands law and to any greater extent that Cayman Islands
law may in the future permit, including the advancement of attorneys’ fees and other expenses incurred by such individuals in connection
with any threatened, pending or completed action, suit or other proceeding, whether of a civil, criminal, administrative, regulatory,
legislative or investigative nature, relating to any occurrence or event before or after the date of the indemnification agreements,
by reason of the fact that such individuals is or were our directors or executive officers, subject to certain exclusions and procedures
set forth in the indemnification agreements, including the absence of fraud or willful default on the part of the indemnitee and, with
respect to any criminal proceeding, that the indemnitee had no reasonable cause to believe his conduct was unlawful.
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 NYSE 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
NYSE 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. Carricarte 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, 2022, and 2021:
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | |
Audit Fees(1) | |
$ | 692,754 | | |
$ | 669,158 | |
Audit-Related Fees(2) | |
| 376 | | |
| 105,300 | |
All Other Fees(3) | |
| 2,900 | | |
| 2,900 | |
Total Fees | |
$ | 696,030 | | |
$ | 777,358 | |
(1) |
Audit fees consist of fees
paid for professional services by PwC for audit and quarterly review of the Company’s consolidated financial statements during
the years ended December 31, 2022, and 2021, 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”. |
|
|
(3) |
Other fees represent fees billed for professional services
rendered by PwC in connection with subscription to information services and training. The Company was not billed for any fees billed
in either of the last two fiscal years for professional services rendered by PwC for tax compliance, tax advice, and tax planning. Such
“Tax Fees” would have been reported in the table above if any. |
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.
Tecnoglass
Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
(In
thousands)
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)
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 sells to customers in North, Central and South America, and exports more than 90%
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, income taxes, useful lives and potential impairment of long-lived
assets.
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, 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.
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, 2022, and 2021, 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, 2022, and 2021 the Company had no restricted cash.
Investments
The
Company’s investments are comprised of securities available for sale, short term deposits and income producing real estate.
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.
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 expected 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 current credit losses 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.
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 net realizable value. Cost is determined using a weighted-average
method. Inventory consisting of certain job specific materials not yet finished (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 net realizable value. Cost includes raw
materials and direct and applicable indirect manufacturing overheads.
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:
Schedule
of Property, Plant and Equipment Estimated Useful Lives
Buildings | |
| 20
years | |
Aircraft | |
| 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 property, plant and equipment all the underlying assets of a finance lease. Initial recognition of these
assets is done at the present value of all future lease payments. A capital lease is a lease in which the lessor transferred substantially
all 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.
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. At
the time we did not record any impairment of goodwill or long-lived assets.
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, 2022, 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.
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.
Approximately
14% 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, 2022.
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 $2,425, $1,256, and $681,
during the years ended December 31, 2022, 2021, and 2020, 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, 2022, 2021, and 2020, amounted to approximately $1,612, $1,457, and $987, 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, Tecnoglass
RE LLC, GM&P, Componenti USA LLC and ESW LLC are U.S. entities based in Florida, and are subject to the taxing jurisdiction
of the United States. VS is subject the taxing jurisdiction in the Republic of Panama. 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.
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 attributable to parent 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
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. In December 2022, the
FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 which deferred the effective date of Topic 848. As a result, this standard
is effective beginning after December 15, 2024. 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.
Adoption
of New Accounting Standards
In
June 2016, the 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 no longer qualified as a smaller
reporting company. The adoption of this ASU did not have a significant impact on the Company’s earnings or financial condition.
Refer to additional disclosures in Note 4.
In
September 2022, the FASB issued Accounting Standards Update (ASU) No. 2022-04, Liabilities – Supplier Finance Programs
(Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. The ASU requires a buyer in a supplier finance program to disclose
information about the program’s nature, activity during the period, changes from period to period, and potential magnitude. This
guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except
for the disclosure of rollforward information, which is effective for fiscal years beginning after December 15, 2023, with early adoption
permitted.
Tecnoglass,
Inc. has established payment terms to suppliers for the purchase of goods and services, which normally range between 30 and 60
days. In the normal course of business, suppliers may require liquidity and manage, through third parties, the advanced payment of invoices.
The Company allows its suppliers the option to payments in advance of an invoice due date, through a third-party finance provider or
intermediary, with the purpose of allowing suppliers to obtain the required liquidity. For these purposes, suppliers present to Tecnoglass,
Inc. the third-party finance provider or intermediary with whom they will carry out the finance program and establish an agreement, through
which the invoices will be paid by the third-party finance provider or intermediary once Tecnoglass, Inc. has confirmed the invoices
as valid. Once the Company confirms the invoices are valid, the third-party finance provider or intermediary proceeds with the payment
to the supplier. Subsequently, Tecnoglass, Inc. pays the invoices for goods or services to the third-party finance provider or intermediary
selected by the supplier. Payment times do not vary from those initially agreed with the supplier, as stated in the invoices factored
by the supplier (i.e. between 30 and 60 days). Pursuant to the supplier finance programs, the Company has not been required to pledge
any assets as security nor to provide any guarantee to third-party finance provider or intermediary.
As
of December 31, 2022, the obligations outstanding related to the supplier finance program amount to $9,290, recorded as current liabilities,
with $9,238 classified as Trade accounts payable and accrued expenses and $52 classified as Due to related parties.
The
rollforward of Tecnoglass, Inc.´s outstanding obligations confirmed as valid under its supplier finance program for
year ended December 31, 2022, are as follows:
Schedule
of Outstanding Obligations for Supplier Finance Program
| |
Twelve
months ended December
31, 2022 | |
Confirmed
obligations outstanding at the beginning of the year | |
$ | 11,348 | |
Invoices
confirmed during the year | |
| 35,755 | |
Confirmed
invoices paid during the year | |
| (37,813 | ) |
Confirmed
obligations outstanding at the end of the year | |
$ | 9,290 | |
Note 3. Ventanas Solar Acquisition
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. The remaining 5% of VS was contributed to the
Company in 2022 without any further consideration being paid.
The
Company incurred expenses of acquisition related costs comprised of the valuation conducted by an independent investment bank and as
well as accounting and legal due diligence fees which are recorded in general and administrative expenses in the Company’s results
of operations.
The
acquisition of VS was deemed to be a transaction between entities under common control through family members of the Company’s
Chief Executive Officer and Chief Operating Officer who owned VS prior to acquisition. 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
consolidated financial statements contained in this document contain adjustments on prior year comparative period to account for consolidation
of VS during 2020. The following adjustment were made to the beginning balance of the following accounts to include VS’s balances
as of January 1, 2020:
Schedule
of Consolidated Financial Statements
| |
January
1, 2020 | |
| |
Prior
to acquisition | | |
Effect
of acquisition | | |
After
acquisition | |
Retained
earnings | |
| 16,213 | | |
| (4,065 | ) | |
| 12,148 | |
Total
shareholders’ equity | |
| 187,210 | | |
| (4,077 | ) | |
| 183,133 | |
Certain
accounts receivable due from VS to the Company during previous periods have been reclassified to shareholders’ equity as part of
the retroactive consolidation.
The
following table includes the financial information as originally reported and the net effect of the VS acquisition after elimination
of intercompany transactions.
| |
December
31, 2020 | |
| |
Prior
to acquisition | | |
Effect
of acquisition | | |
After
acquisition | |
Total
assets | |
| 532,025 | | |
| (1,913 | ) | |
| 530,112 | |
Total
sales | |
| 374,923 | | |
| 1,684 | | |
| 376,607 | |
| |
| | | |
| | | |
| | |
Operating
income | |
| 66,120 | | |
| (413 | ) | |
| 65,707 | |
Income
attributable to parent | |
| 24,185 | | |
| (310 | ) | |
| 23,875 | |
Basic income per
share | |
| 0.52 | | |
| 0.00 | | |
| 0.51 | |
Diluted income per
share | |
| 0.52 | | |
| 0.00 | | |
| 0.51 | |
The
following table includes a reconciliation of the financial information for the year ended December 31, 2021 as being reported, the net
effect of the VS acquisition after elimination of intercompany transactions, and the financial information that would have been, had
the Company not acquired VS:
| |
December
31, 2021 | |
| |
Prior
to acquisition | | |
Effect
of acquisition | | |
After
acquisition | |
Total
assets | |
| 589,352 | | |
| 2,211 | | |
| 591,563 | |
Total
sales | |
| 494,499 | | |
| 2,286 | | |
| 496,785 | |
| |
| | | |
| | | |
| | |
Operating
income | |
| 116,895 | | |
| 90 | | |
| 116,985 | |
Income
attributable to parent | |
| 68,085 | | |
| 66 | | |
| 68,151 | |
Basic income per
share | |
| 1.43 | | |
| 0.00 | | |
| 1.44 | |
Diluted income per
share | |
| 1.43 | | |
| 0.00 | | |
| 1.44 | |
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 cash flows 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).
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.
Schedule
of Segment and Geographic Information
| |
2022 | | |
2021 | | |
2020 | |
| |
Twelve
months ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Colombia | |
$ | 16,000 | | |
$ | 26,375 | | |
$ | 24,178 | |
United
States | |
| 688,358 | | |
| 456,327 | | |
| 340,437 | |
Panama | |
| 2,738 | | |
| 4,531 | | |
| 2,713 | |
Other | |
| 9,474 | | |
| 9,553 | | |
| 9,279 | |
Total
revenues | |
$ | 716,570 | | |
$ | 496,785 | | |
$ | 376,607 | |
The
following table presents revenues from external customer by product groups.
| |
2022 | | |
2021 | | |
2020 | |
| |
Years
ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Glass
and framing components | |
$ | 71,479 | | |
$ | 76,106 | | |
$ | 73,443 | |
Windows
and architectural systems | |
| 645,091 | | |
| 420,679 | | |
| 303,164 | |
Total
revenues | |
$ | 716,570 | | |
$ | 496,785 | | |
$ | 376,607 | |
During
the year ended December 31, 2022, 2021, and 2020, no single customer accounted for more than 10% of our revenues.
The
Company’s long-lived assets are distributed geographically as follows:
Schedule
of Long Lived Assets
| |
2022 | | |
2021 | |
| |
Year
ended December 31, | |
| |
2022 | | |
2021 | |
Colombia | |
$ | 195,054 | | |
$ | 161,270 | |
Panamá | |
| 37 | | |
| 60 | |
United
States | |
| 106,525 | | |
| 103,362 | |
Total
long lived assets | |
$ | 301,616 | | |
$ | 264,692 | |
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.
Schedule
of Disaggregation by Revenue
| |
2022 | | |
2021 | | |
2020 | |
| |
Years
ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Fixed
price contracts | |
$ | 98,299 | | |
$ | 77,417 | | |
$ | 103,423 | |
Product
sales | |
| 618,271 | | |
| 419,368 | | |
| 273,184 | |
Total
revenues | |
$ | 716,570 | | |
$ | 496,785 | | |
$ | 376,607 | |
Remaining
Performance Obligations
As
of December 31, 2022, the Company had $482.4 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, 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 $384.9 million are expected to be recognized during the year ended December 31, 2023,
and $97.5 million during the year ended December 31, 2024.
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).
Schedule of Contract Assets and Liabilities
| |
December
31, 2022 | | |
December
31, 2021 | |
Contract
assets — current | |
$ | 12,610 | | |
$ | 18,667 | |
Contract
assets — non-current | |
| 8,875 | | |
| 11,853 | |
Contract
liabilities — current | |
| (49,601 | ) | |
| (45,213 | ) |
Contract
liabilities — non-current | |
| (11 | ) | |
| (78 | ) |
Net
contract liabilities | |
$ | (28,127 | ) | |
$ | (14,771 | ) |
The
components of contract assets are presented in the table below.
Schedule of Contract Assets and Liabilities
| |
December
31, 2022 | | |
December
31, 2021 | |
Unbilled
contract receivables, gross | |
$ | 5,738 | | |
$ | 8,174 | |
Retainage | |
| 15,747 | | |
| 22,346 | |
Total
contract assets | |
| 21,485 | | |
| 30,520 | |
Less:
current portion | |
| 12,610 | | |
| 18,667 | |
Contract
assets – non-current | |
$ | 8,875 | | |
$ | 11,853 | |
The
components of contract liabilities are presented in the table below.
Schedule of Contract Assets and Liabilities
| |
December
31, 2022 | | |
December
31, 2021 | |
Billings
in excess of costs | |
$ | 14,724 | | |
$ | 12,854 | |
Advances
from customers on uncompleted contracts | |
| 34,888 | | |
| 32,437 | |
Total
contract liabilities | |
| 49,612 | | |
| 45,291 | |
Less:
current portion | |
| 49,601 | | |
| 45,213 | |
Contract
liabilities – non-current | |
$ | 11 | | |
$ | 78 | |
During
the year ended December 31, 2022, the Company recognized $8,583 of sales related to its billing in excess of cost liability on January
1, 2022. During the year ended December 31, 2021, the Company recognized $6,765 of sales related to its contract liabilities on January
1, 2021.
Note 7. Trade Accounts Receivable
Trade
accounts receivable consist of the following:
Schedule of Trade Accounts Receivable
| |
2022 | | |
2021 | |
| |
December
31, | |
| |
2022 | | |
2021 | |
Trade
accounts receivable | |
| 158,974 | | |
| 110,727 | |
Less:
Allowance for credit losses | |
| (577 | ) | |
| (188 | ) |
Total | |
$ | 158,397 | | |
$ | 110,539 | |
The
changes in the allowance for doubtful accounts for the years ended December 31, 2022, and 2021 are as follows:
Schedule of Changes in Allowance for Doubtful Accounts Receivable
| |
2022 | | |
2021 | |
| |
Year
ended December 31, | |
| |
2022 | | |
2021 | |
Balance
at beginning of year | |
$ | 188 | | |
$ | 644 | |
Provision
for credit losses | |
| 643 | | |
| 1,599 | |
Deductions
and write-offs, net of foreign currency adjustment | |
| (254 | ) | |
| (2,055 | ) |
Balance
at end of year | |
$ | 577 | | |
$ | 188 | |
Note 8. Inventories
Inventories
are comprised of the following:
Schedule of Inventories
| |
December
31, 2022 | | |
December
31, 2021 | |
Raw
materials | |
$ | 93,360 | | |
$ | 54,443 | |
Work
in process | |
| 9,875 | | |
| 11,126 | |
Finished
goods | |
| 6,409 | | |
| 8,789 | |
Stores
and spares | |
| 13,902 | | |
| 9,869 | |
Packing
material | |
| 1,563 | | |
| 870 | |
Total
Inventories, gross | |
| 125,109 | | |
| 85,097 | |
Less:
Inventory allowance | |
| (112 | ) | |
| (122 | ) |
Total
inventories, net | |
$ | 124,997 | | |
$ | 84,975 | |
Note 9. Other Current Assets
Other
assets consist of the following:
Schedule of Other Current Assets
| |
2022 | | |
2021 | |
| |
Year
ended December 31, | |
| |
2022 | | |
2021 | |
Advances
to suppliers and loans | |
$ | 1,405 | | |
$ | 983 | |
Prepaid
income taxes | |
| 12,579 | | |
| 12,945 | |
Employee
receivables | |
| 343 | | |
| 323 | |
Prepaid
expenses | |
| 3,778 | | |
| 3,861 | |
Derivative
financial instruments | |
| 9,340 | | |
| - | |
Other
creditors | |
| 1,518 | | |
| 4,742 | |
Total | |
$ | 28,963 | | |
$ | 22,854 | |
During
the years ended December 31, 2022, 2021, and 2020, the Company recorded $1,820, $1,308, and $1,338 of prepaid expenses amortization,
respectively.
Note 10. Property, Plant and Equipment
Property,
plant, and equipment is comprised of the following:
Schedule of Property, Plant and Equipment
| |
December
31, 2022 | | |
December
31, 2021 | |
Buildings | |
$ | 66,923 | | |
$ | 61,383 | |
Machinery
and equipment | |
| 185,890 | | |
| 164,538 | |
Office
equipment and software | |
| 7,338 | | |
| 7,278 | |
Vehicles | |
| 3,519 | | |
| 3,302 | |
Aircraft | |
| 9,545 | | |
| 9,545 | |
Furniture
and fixtures | |
| 2,845 | | |
| 2,537 | |
Total
property, plant and equipment | |
| 276,060 | | |
| 248,583 | |
Accumulated
depreciation | |
| (101,804 | ) | |
| (106,845 | ) |
Net
book value of property and equipment | |
| 174,256 | | |
| 141,738 | |
Land | |
| 28,609 | | |
| 24,891 | |
Total
property, plant and equipment, net | |
$ | 202,865 | | |
$ | 166,629 | |
Depreciation
expense was $16,475, $17,317 and $17,107 for the years ended December 31, 2022, 2021, and 2020, respectively.
Note 11. Goodwill and Intangible Assets
Goodwill
There
were no movements to goodwill during the year ended December 31, 2022, 2021, 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.
Schedule
of Finite-Lived Intangible Assets, Net
| |
December
31, 2022 | |
| |
Gross | | |
Acc.
Amort. | | |
Net | |
Trade
Names | |
$ | 980 | | |
$ | (980 | ) | |
$ | - | |
Notice
of Acceptances (“NOA’s”), product designs and other intellectual property | |
| 9,987 | | |
| (7,347 | ) | |
| 2,706 | |
Non-compete
Agreement | |
| 165 | | |
| (165 | ) | |
| - | |
Customer
Relationships | |
| 4,140 | | |
| (4,140 | ) | |
| - | |
Total | |
$ | 15,272 | | |
$ | (12,632 | ) | |
$ | 2,706 | |
| |
December
31, 2021 | |
| |
Gross | | |
Acc.
Amort. | | |
Net | |
Trade
Names | |
$ | 980 | | |
$ | (947 | ) | |
$ | 33 | |
Notice
of Acceptances (“NOA’s”), 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 5.1 years.
During
the twelve months ended December 31, 2022, 2021, and 2020, the amortization expense amounted to $1,391, $2,298 and $2,178, 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, 2022, is as follows:
Schedule
of Finite Lived Intangible Assets Future Amortization Expense
Year
ending | |
(in
thousands) | |
2023 | |
| 975 | |
2024 | |
| 686 | |
2025 | |
| 380 | |
2026 | |
| 297 | |
Thereafter | |
| 368 | |
Total | |
$ | 2,706 | |
Note 12. Other Long-Term Assets
Other
long-term assets are comprised of the following:
Schedule
of Other Long Term Assets
| |
2022 | | |
2021 | |
| |
December
31, | |
| |
2022 | | |
2021 | |
Real
estate investments | |
$ | 3,432 | | |
$ | 3,848 | |
Other
long-term investments | |
$ | 1,113 | | |
$ | 309 | |
Other
assets, noncurrent,total | |
$ | 4,545 | | |
$ | 4,157 | |
Note 13. Debt
The
Company’s debt is comprised of the following:
Schedule
of Long Term Debt
| |
December
31, 2022 | | |
December
31, 2021 | |
Revolving
lines of credit | |
$ | 330 | | |
$ | 279 | |
Finance
lease | |
| 395 | | |
| 306 | |
Other
loans | |
| - | | |
| 239 | |
Senior
secured credit facility | |
| 172,500 | | |
| 204,257 | |
Less:
Deferred cost of financing | |
| (3,740 | ) | |
| (6,026 | ) |
Total
obligations under borrowing arrangements | |
| 169,484 | | |
| 199,055 | |
Less:
Current portion of long-term debt and other current borrowings | |
| 504 | | |
| 10,700 | |
Long-term
debt | |
$ | 168,980 | | |
$ | 188,355 | |
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. 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.
In
November 2021, the Company amended its Senior Secured 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 1.50%,
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 5.93%.
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 2022, we voluntarily prepaid $15
million of capital to this credit facility which
has decreased our net leverage ratio and triggered a step down in the applicable interest rate spread to 1.5%.
Additionally, on September 30, 2022 we voluntarily prepaid $10.0
million of the term loan and $6.7
million under the revolving line of credit which
is fully unused as of December 31, 2022 .
As
of December 31, 2022, all assets of the company are pledged as collateral for the syndicated loan.
The
table below shows maturities of debt as of December 2022.
Schedule
of Maturities of Long Term Debt
| |
| | |
2023 | |
| 504 | |
2024 | |
| 6,397 | |
2025 | |
| 15,073 | |
2026 | |
| 151,251 | |
Thereafter | |
| - | |
Total | |
$ | 173,225 | |
The
Company’s loans have maturities ranging from a few weeks to 4 years. Our credit facilities bear interest at a weighted average
rate of 5.16%, but a large portion of our debt is hedged through 2026 at a fixed rate of 3.41%.
Interest
expense, excluding the amortization of deferred financing cost, for the year ended December 31, 2022, 2021, and 2020, was $6,786, $8,482
and $20,699, respectively. During the years ended December 31, 2022, 2021 and 2022, the Company did not capitalize interests.
Note 14. 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.
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. On December 13, 2022, a tax reform was enacted by means of Law 2277, which maintained corporate income tax rate at 35%,
and increased income taxes to Free Trade Zones with single enterprise users and non-exporters, from 20% to 35%.
The
components of income tax expense are as follows:
Schedule
of Components of Income Tax Expense (Benefit)
| |
2022 | | |
2021 | | |
2020 | |
| |
Twelve
months ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Current
income tax | |
| | | |
| | | |
| | |
United
States | |
| (7,012 | ) | |
$ | (1,679 | ) | |
$ | (1,385 | ) |
Colombia | |
| (62,230 | ) | |
| (22,354 | ) | |
| (5,035 | ) |
Panama | |
| (32 | ) | |
| (52 | ) | |
| (32 | ) |
Total
current income tax | |
| (69,274 | ) | |
| (24,085 | ) | |
| (6,452 | ) |
Deferred
income Tax | |
| | | |
| | | |
| | |
United
States | |
| 422 | | |
| (1,829 | ) | |
| 20 | |
Colombia | |
| (5,906 | ) | |
| (2,571 | ) | |
| (6,601 | ) |
Total
deferred income tax | |
| (5,484 | ) | |
| (4,400 | ) | |
| (6,581 | ) |
Total
income tax provision | |
| (74,758 | ) | |
$ | (28,485 | ) | |
$ | (13,033 | ) |
| |
| | | |
| | | |
| | |
Effective
tax rate | |
| 32.3 | % | |
| 29.4 | % | |
| 35.3 | % |
A
reconciliation of the statutory tax rate in Colombia to the Company’s effective tax rate is as follows:
Schedule
of Effective Income Tax Rate Reconciliation
| |
Year
ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Income
tax expense at statutory rates | |
| 33.8 | % | |
| 29.6 | % | |
| 30.5 | % |
Non-deductible
expenses | |
| 0.7 | % | |
| 2.4 | % | |
| 5.9 | % |
Non-taxable
income | |
| (2.2 | )% | |
| (2.6 | )% | |
| (1.1 | )% |
Effective
tax rate | |
| 32.3 | % | |
| 29.4 | % | |
| 35.3 | % |
No
single individual item contributed significantly to the reconciliation of the Company’s effective tax rate to the statutory rate
during the year ended December 31, 2020, 2021, and 2022.
The
Company has the following deferred tax assets and liabilities:
Schedule
of Deferred Tax Assets and Liabilities
| |
2022 | | |
2021 | |
| |
Year
ended December 31, | |
| |
2022 | | |
2021 | |
Deferred
tax assets: | |
| | | |
| | |
Property,
plant and equipment adjustments | |
| 218 | | |
| 471 | |
Tax
benefit on installation of renewable energy project | |
| 133 | | |
| 201 | |
Foreign
currency transactions | |
| 4,982 | | |
| 3,828 | |
Other | |
| (1,416 | ) | |
| 59 | |
Total
deferred tax assets | |
$ | 3,917 | | |
$ | 4,559 | |
| |
| | | |
| | |
Deferred
tax liabilities: | |
| | | |
| | |
Depreciation
and Amortization | |
| (5,138 | ) | |
| (4,772 | ) |
Other | |
| 200 | | |
| (71 | ) |
Foreign
currency transactions | |
| (3,609 | ) | |
| (2,537 | ) |
Total
deferred tax liabilities | |
$ | (8,547 | ) | |
$ | (7,380 | ) |
| |
| | | |
| | |
Net
deferred tax | |
$ | (4,632 | ) | |
$ | (2,821 | ) |
Net
deferred tax is presented on the balance sheet as follows:
Schedule
of Net Deferred Tax Liability
| |
2022 | | |
2021 | |
| |
Year
ended December 31, | |
| |
2022 | | |
2021 | |
Long
term deferred income tax asset | |
$ | 558 | | |
$ | 596 | |
Less:
long term deferred income tax liability | |
$ | 5,190 | | |
$ | 3,417 | |
Note 15. Hedging Activities and Fair Value Measurements
Hedging
Activity
During
the quarter ended March 31, 2022, we entered into several interest rate swap contracts 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. During the quarter ended December 31, 2022, we entered into several foreign currency non-delivery forward
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 LIBOR and Colombian
Peso denominated costs and expenses, respectively.
We
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, 2022, the fair value of our interest rate swap and foreign currency non-delivery forward contracts was in a net asset
position of $9.3 million. We had 16 outstanding interest rate swap contracts to hedge $125 million related to our outstanding debt
through November 2026 and 4 non-delivery forward contracts to exchange $30 million U.S. Dollars to Colombian Pesos through April, 2023.
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, 2022.
We
assess the effectiveness of our interest rate swap and foreign currency non-delivery forward contracts by comparing the change in the
fair value of the interest rate swap and foreign currency non-delivery forward 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 and foreign currency non-delivery forward 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,
2022, that we expect will be reclassified to earnings within the next twelve months, is $9.3 million.
The
fair value of our interest rate swap and foreign currency non-delivery forward hedges is classified in the accompanying consolidated
balance sheets, as of December 31, 2022, as follows:
Schedule
of Fair Value of Foreign Currency Hedges
| |
Derivative
Assets | |
|
Derivative
Liabilities |
| |
December
31, 2022 | |
|
December
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 and foreign currency non-delivery forwards | |
Other
current assets | |
$ | 9,340 | | |
|
Accrued
liabilities | |
$ | (- | ) |
Total
derivative instruments | |
Total
derivative assets | |
$ | 9,340 | | |
|
Total
derivative liabilities | |
$ | (- | ) |
The
ending accumulated balance for the interest rate swap and foreign currency non-delivery forward contracts included in accumulated other
comprehensive income, net of tax, was $9,187 as of December 31,2022, comprised of a derivative gain of $9,340 and an associated net tax
liability of $153.
The
following table presents the gains (losses) on derivative financial instruments, and their classifications within the accompanying consolidated
financial statements, for the quarter ended December 31, 2022:
Schedule
of Gains (Losses) on Derivative Financial Instruments quarter ended
| |
Derivatives in Cash Flow Hedging Relationships | |
| |
Amount of Gain or (Loss) | | |
Location of Gain or (Loss) Reclassified from Accumulated | |
Amount of Gain or (Loss) Reclassified from | |
| |
Recognized in OCI (Loss) on | | |
OCI (Loss) into | |
Accumulated | |
| |
Derivatives | | |
Income | |
OCI (Loss) into Income | |
| |
Three Months Ended | | |
| |
Three Months Ended | |
| |
December 31, | | |
December 31, | | |
| |
December 31, | | |
December 31, | |
| |
2022 | | |
2021 | | |
| |
2022 | | |
2021 | |
| |
| | | |
| | | |
| |
| | | |
| | |
Interest Rate Swap and foreign currency non-delivery forwards Contracts | |
$ | 143 | | |
$ | - | | |
Interest Expense | |
$ | - | | |
$ | - | |
The following table presents the gains (losses) on derivative financial instruments, and their classifications within the accompanying
consolidated financial statements, for the twelve months ended December 31, 2022:
| |
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 | |
| |
Twelve Months Ended | | |
| |
Twelve Months Ended | |
| |
December 31, | | |
December 31, | | |
| |
December 31, | | |
December 31, | |
| |
2022 | | |
2021 | | |
| |
2022 | | |
2021 | |
| |
| | | |
| | | |
| |
| | | |
| | |
Interest Rate Swap and foreign currency non-delivery forwards and collar contracts | |
$ | 9,340 | | |
$ | - | | |
Interest Expense | |
$ | - | | |
$ | 185 | |
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.
The fair values of derivatives used to manage interest rate risks are based
on LIBOR rates and interest rate swap curves. Measurement of our derivative assets and liabilities is considered a level 2 measurement.
To carry out the swap valuation, the definition of the fixed leg (obligation) and variable leg (right) is used. Once the projected flows
are obtained in both fixed and variable rates, the regression analysis is performed for prospective effectiveness test. The projection
curve contains the forward interest rates to project flows at a variable rate and the discount curve contains the interest rates to discount
future flows, using the one-month USD Libor curve.
As
of December 31, 2022, 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:
Summary of Fair Value and Carrying Amounts of Long Term Debt
| |
December
31, 2022 | | |
December
31, 2021 | |
Fair
Value | |
| 172,408 | | |
| 194,285 | |
Carrying Value | |
| 168,980 | | |
| 188,355 | |
Note 16. Related Parties
The
following is a summary of assets, liabilities, and income transactions with all related parties:
Schedule
of Related Parties
| |
December 31,
2022 | | |
December 31,
2021 | |
Due
from related parties: | |
| | | |
| | |
Due
from other related parties | |
| 1,085 | | |
| 1,318 | |
Alutrafic
Led SAS | |
| 249 | | |
| 526 | |
Studio
Avanti SAS | |
| 113 | | |
| 408 | |
Due
from other related parties | |
| 1,085 | | |
| 1,318 | |
Total
due from related parties | |
$ | 1,447 | | |
$ | 2,252 | |
| |
| | | |
| | |
Due
to related parties: | |
| | | |
| | |
Due
from other related parties | |
| 470 | | |
| 1,023 | |
Vidrio
Andino (St. Gobain) | |
| 4,853 | | |
| 2,834 | |
Due
from other related parties | |
| 470 | | |
| 1,023 | |
Total
due to related parties | |
$ | 5,323 | | |
$ | 3,857 | |
Schedule
of Sale to Related Parties
| |
2022 | | |
2021 | | |
2020 | |
| |
Year
ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Sales
to related parties: | |
| | | |
| | | |
| | |
Alutrafic
Led SAS | |
$ | 941 | | |
$ | 1,104 | | |
$ | 697 | |
Studio
Avanti SAS | |
| 534 | | |
| 757 | | |
| 355 | |
Sales
to other related parties | |
| 360 | | |
| 259 | | |
| 497 | |
Sales
to related parties | |
$ | 1,835 | | |
$ | 2,120 | | |
$ | 1,549 | |
A
Construir SA
On
a recurring basis, we have engaged A Construir S.A., a heavy construction company operating in Barranquilla, Colombia, to carry out construction
related to our ongoing capital expenditures at our production facilities in Colombia. Affiliates of Jose Daes and Christian Daes, the
company’s CEO and COO, respectively, had an ownership stake in A Construir through June 1, 2022. We purchased $4,312 during the
five months through May 31, 2022, and $9,292 during the year ended December 31, 2021, 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. Given that A Construir
is no longer considered a related party, amounts as of December 31, 2022, are not reflected as balances due from and due to related parties
as of December 31, 2022, on the face of the Consolidated Balance Sheet nor the summary table above.
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 $941, $1,104, and $697, to Alutrafic during fiscal years 2022, 2021, and 2020, respectively, and had outstanding accounts receivable
from Alutrafic for $249 and $526 as of December 31, 2022, and 2021, respectively.
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 near our manufacturing campus which is owned by affiliates of Jose Daes and Christian Daes, the Company’s
CEO and COO, respectively. During the years ended December 31, 2022, 2021, and 2020, we purchased $935, $291, and $311, respectively.
Additionally, during 2022 we also acquired a lot of land adjacent o our manufacturing campus from Santa maria del Mar SAS for $352.
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 years ended December 31, 2022, 2021, and 2020, we made charitable contributions for $1,564, $1,350, and $1,259, 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. We sold $534, $757, and $355, to Avanti during fiscal years 2022, 2021, and 2020, respectively, and had outstanding
accounts receivable from Avanti for $113 and $408 as of December 31, 2022, and 2021, respectively.
Vidrio
Andino Joint Venture (A Saint-Gobain subsidiary)
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 cash flows
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 $20,764, $15,308, and $14,339, from Vidrio Andino in 2022, 2021, and 2020, respectively.
As of December 31, 2022, and 2021, we had outstanding payables to Vidrio Andino for $4,853 and $2,834, respectively. We recorded equity
method income of $6,680, $4,177, and $1,387, on our Consolidated Statement of Operations during the years ended December 31, 2022, 2021,
and 2020, 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, valued at $632 and $764 as of December 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 17. Commitments and Contingencies
Commitments
As
of December 31, 2022, the Company had an outstanding obligation to purchase an aggregate of at least $77,183 of certain raw materials
from a specific supplier before November 30, 2030.
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.
Guarantees
As
of December 31, 2022, 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, 2021, 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, 2022, 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, 2022, 2021, and
2020:
Schedule
of Earnings Per Share, Basic and Diluted
| |
2022 | | |
2021 | | |
2020 | |
| |
Twelve
months ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Numerator
for basic and diluted earnings per shares | |
| | | |
| | | |
| | |
Net
Income | |
| 156,412 | | |
$ | 68,428 | | |
$ | 23,841 | |
| |
| | | |
| | | |
| | |
Denominator | |
| | | |
| | | |
| | |
Denominator for basic
earnings per ordinary share - weighted average shares outstanding | |
| 47,674,773 | | |
| 47,674,773 | | |
| 46,398,428 | |
Effect
of dilutive securities and stock dividend | |
| - | | |
| - | | |
| - | |
Denominator
for diluted earnings per ordinary share - weighted average shares outstanding | |
| 47,674,773 | | |
| 47,674,773 | | |
| 46,398,428 | |
Basic earnings per
ordinary share | |
| 3.28 | | |
$ | 1.44 | | |
$ | 0.51 | |
Diluted earnings
per ordinary share | |
| 3.28 | | |
$ | 1.44 | | |
$ | 0.51 | |
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, 2022, no awards had been made under the 2013 Plan.
Dividend
In
November 2022, the Company declared a regular quarterly dividend of $0.075 per share, or $0.30 per share on an annualized basis, for
the fourth quarter of 2022. The quarterly dividend was paid in cash on January 31, 2023, to shareholders of record as of the close of
business on December 31, 2022.
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
We
own 70% of the equity interest in ESMetals. 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 the assistance of third party valuation specialists under management.
Note 19. Operating Expenses
Selling
expenses for the years ended December 31, 2022, 2021, and 2020, were comprised of the following:
Schedule
of Other Operating Cost and Expense, by Component
| |
2022 | | |
2021 | | |
2020 | |
| |
Twelve
months ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Shipping
and handling | |
| 39,311 | | |
$ | 23,064 | | |
$ | 16,075 | |
Sales
commissions | |
| 13,265 | | |
| 10,740 | | |
| 8,161 | |
Personnel | |
| 7,896 | | |
| 7,060 | | |
| 6,287 | |
Services | |
| 3,033 | | |
| 2,616 | | |
| 1,921 | |
Accounts
receivable provision | |
| 643 | | |
| 1,599 | | |
| 1,196 | |
Packaging | |
| 1,338 | | |
| 1,820 | | |
| 1,036 | |
Other
selling expenses | |
| 3,520 | | |
| 2,869 | | |
| 4,389 | |
Total
Selling Expense | |
| 69,006 | | |
$ | 49,768 | | |
$ | 39,065 | |
General
and administrative expenses for the years ended December 31, 2022, 2021, and 2020, were comprised of the following:
| |
Twelve
months ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Personnel | |
$ | 11,859 | | |
$ | 10,814 | | |
$ | 9,976 | |
Related
parties | |
| 9,972 | | |
| 6,746 | | |
| 6,617 | |
Services | |
| 5,568 | | |
| 3,915 | | |
| 4,168 | |
Depreciation
and amortization | |
| 3,043 | | |
| 3,593 | | |
| 3,687 | |
Professional
fees | |
| 3,138 | | |
| 3,029 | | |
| 2,971 | |
Insurance | |
| 2,880 | | |
| 2,139 | | |
| 1,904 | |
Taxes | |
| 1,219 | | |
| 1,047 | | |
| 1,138 | |
Bank
charges and tax on financial transactions | |
| 2,812 | | |
| 1,911 | | |
| 1,273 | |
Rent
expense | |
| 1,270 | | |
| 894 | | |
| 830 | |
Non-recurring
short seller report investigation related expenses | |
| 3,402 | | |
| - | | |
| - | |
One
time project dispute settlement | |
| 4,550 | | |
| - | | |
| - | |
Other
expenses | |
| 4,365 | | |
| 1,743 | | |
| 2,105 | |
Total
General and administrative expenses | |
$ | 54,078 | | |
$ | 35,831 | | |
$ | 34,669 | |
Note 20. Non-Operating Income and Expenses
Non-operating
income and expenses, net on our consolidated statement of operations amounted to an income of $4.2 million, $0.6 million, and $0.1 million,
for the years ended December 31, 2022, 2021, and 2020, respectively. These amounts are primarily comprised 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.
During
the year ended December 31, 2021, the Company also recorded a loss in debt extinguishment of $10.7 million, mainly comprised of a one-time
$8.6 million call premium paid on the $210 million senior notes redemption, along with a non-cash amortization of deferred cost of financing
related to said notes.
During
the year ended December 31, 2022, the Company recorded a non-operating gain of $2.0
million associated with foreign currency transactions
losses. Comparatively, the Company recorded a net loss of $4.3
million during the year ended December 31, 2021,
within the statement of operations as the Colombian peso depreciated 20.8%
during the period. The company recorded net loss of $8.6
million during the year ended December 31, 2020,
within the statement of operations.
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