ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA
The historical results presented below are not necessarily indicative of the results to be expected for any future period. This information should be read in conjunction with “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Company’s consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K/A.10-K.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the consolidated financial statements for the years ended December 31, 2019, 2018 2017 and 2016,2017, including the notes thereto, included elsewhere in this Annual Report on Form 10-K/A.10-K. The Company’s actual results may not be indicative of future performance. This discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those discussed in “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” included in Part I, Item IA or in other parts of this Annual Report on Form 10-K/A.10-K. Actual results may differ materially from those contained in any forward-looking statements.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains certain financial measures, in particular EBITDA and Adjusted EBITDA, which are not presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These non-GAAP financial measures are being presented because management believes that they provide readers with additional insight into the Company’s operational performance relative to earlier periods and relative to its competitors. EBITDA and Adjusted EBITDA are key measures used by the Company to evaluate its performance. The Company does not intend for these non-GAAP financial measures to be a substitute for any GAAP financial information. Readers of this MD&A should use these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures. Reconciliations of EBITDA and Adjusted EBITDA to net income, the most comparable GAAP measure, are provided in this MD&A.
In addition to the factors described above, the following strategic and operational events, which occurred during the years ended December 31, 2019, 2018 and 2017, and 2016, affected the Company’sour results of operations:
Impairment charges. In performing the first step of the annual goodwill impairment test in the fourth quarter of 2016, the Company determined that the estimated fair values of the acoustics and components reporting units were lower than the carrying values of the respective reporting units, requiring further analysis under the second step of the impairment test. The decline in the estimated fair value of the acoustics reporting unit was primarily due to lower long-term revenue growth expectations resulting from the strategic review of capital allocation and investment priorities as compared to the Company’s prior growth plan for the business. The fair value of the acoustics reporting unit was also negatively impacted by a projected cyclical decline in the North American automotive industry end-market. The decline in the estimated fair value of the components reporting unit was primarily due to lower long-term revenue expectations resulting from the annual budgeting and strategic planning process as compared to the Company’s prior plan for the business, primarily due to projected longer-term weakness in the rail end-market.
In performing the second step of the impairment testing, the Company performed a theoretical purchase price allocation for the acoustics and components reporting units to determine the implied fair values of goodwill which were compared to the recorded amounts of goodwill for each reporting unit. Upon completion of the second step of the goodwill impairment test, the Company recorded non-cash goodwill impairment charges of $63.0 million, representing full goodwill impairments of $29.8 million and $33.2 million in the acoustics and components reporting units, respectively. The goodwill impairment charges are recorded as impairment charges in the consolidated statements of operations.
In connection with the evaluation of the goodwill impairment in the acoustics and components reporting units, the Company assessed tangible and intangible assets for impairment prior to performing the first step of the goodwill impairment test. As a result of this analysis, the undiscounted future cash flows of each asset group within the reporting units exceeded the recorded carrying values of the net assets within each asset group, and as such, no non-cash impairment charges resulted from such assessment.
In connection with the goodwill impairment test in 2016, the Company engaged a third-party valuation firm to assist management with determining fair value estimates for the reporting units in the goodwill impairment test. The third-party valuation firm was also involved in estimating fair values of tangible and intangible assets used in the second step of the goodwill impairment test. In connection with obtaining an independent third-party valuation, management provided certain information and assumptions that were utilized in the fair value calculation. Significant assumptions used in determining reporting unit fair value include forecasted cash flows, revenue growth rates, adjusted EBITDA margins, weighted average cost of capital (discount rate), assumed tax treatment of a future sale of the reporting unit, terminal growth rates, capital expenditures, sales and EBITDA multiples used in the market approach, and the weighting of the income and market approaches. The fair value of the reporting units was determined using a weighted average of an income approach primarily based on the Company’s three year strategic plan and a market approach based on implied valuation multiples of public company peer groups for each reporting unit. Both approaches were deemed equally relevant in determining reporting unit enterprise value, and as a result, weightings of 50 percent were used for each. This fair value determination was categorized as Level 3 in the fair value hierarchy.
Key Financial Definitions
Net sales. Net sales reflect the Company’s sales of itsour products net of allowances for variable consideration, including rebates, discounts and product returns. Several factors affect net sales in any period, including general economic conditions, weather conditions, the timing of acquisitions and divestitures and the purchasing habits of itsour customers.
Cost of goods sold. Cost of goods sold includes all costs of manufacturing the products the Company sells.we sell. Such costs include direct and indirect materials, direct and indirect labor costs, including fringe benefits, supplies, utilities, depreciation, facility rent, insurance, pension benefits and other manufacturing related costs. The largest component of cost of goods sold is the cost of materials, which typically represents approximately 60%46% of net sales.sales for the year ended December 31, 2019. Fluctuations in cost of goods sold are caused primarily by changes in sales levels, changes in the mix of products sold, productivity of labor, and changes in the cost of raw materials. In addition, following acquisitions, cost of goods sold will be impacted by step-ups in the value of inventories required in connection with the accounting for acquired businesses.
Selling and administrative expenses. Selling and administrative expenses primarily include the cost associated with the Company’sour sales and marketing, finance, human resources, and administration, engineering and technical services functions. Certain corporate level administrative expenses such as payroll and benefits, incentive compensation, travel, accounting, auditing, legal, and legalother professional advisor fees and certain other expenses are kept within itsour corporate results and not allocated to itsour business segments.
Impairment charges. As required by GAAP, when certain conditions or events occur, the Company recognizeswe recognize impairment losses to reduce the carrying value of goodwill, other intangible assets and property, plant and equipment to their estimated fair values. During the year ended December 31, 2018, the Company recognized no impairment charges.
Gain (loss)(Loss) gain on disposals of fixed assets-netproperty, plant and equipment - net. In the ordinary course of business, the Company disposeswe dispose of fixed assets that are no longer required in itsour day to day operations with the intent of generating cash from those sales.
Restructuring. In the past several years, the Company haswe have made changes to itsour worldwide manufacturing footprint to reduce itsour fixed cost base. These actions have resulted in employee severance and other related charges, changes in itsour operating cost structure, movement of manufacturing operations and product lines between facilities, exit costs for consolidation and closure of plant facilities, employee relocation and leasecontract termination costs, and impairment charges.costs. It is likely that the Companywe will incur such costs in future periods as well. These operational changes and restructuring costs affect comparability between periods and segments.
Interest expenseexpense—net. Interest expenseexpense-net consists of interest paid to the Company’sour lenders under itsour worldwide credit facilities, cash paid or received on interest rate hedge contracts and amortization of deferred financing costs.costs net of interest income earned on cash and cash equivalents.
Gain on extinguishment of debt. Gain on extinguishment of debt primarily consists of gains recorded related to the repurchases of second lien term loan debt, net of the associated write-off of previously unamortized debt discount and deferred financing costs on the second lien term loans related to the extinguishment.
Equity income. The Company maintainsWe maintain non-controlling interests in Asian joint ventures that are part of its finishingour industrial segment and recordsrecord a proportional share in the earnings of these joint ventures as required by GAAP. The amount of equity income recorded is dependent upon the underlying financial results of the joint ventures.
Loss on divestiture. On August 30, 2017, the Companywe completed the divestiture of itsour Acoustics Europe business. The loss on divestiture relates to the excess of the net assets of the business over the sales price less costs to sell and recognition of cumulative foreign currency translation adjustments upon closing of the divestiture.
Other income-netincome—net. Other income is principally comprised of royalty income received from non-U.S. licensees, rental income from subleasing activities and the employee benefit plan non-service cost components of net periodic benefit costs.costs, and other non-recurring non-operational items.
Tax benefit(benefit) provision. The Company’sOur tax benefit(benefit) provision is impacted by a number of factors, including the amount of taxable earnings derived in foreign jurisdictions with tax rates that are different than the U.S. federal statutory rate, state tax rates in the jurisdictions where the Company doeswe do business, tax minimization planning and itsour ability to utilize various tax credits and net operating loss carryforwards. Income tax expense also includes the impact of provision to return adjustments, changes in valuation allowances and changes in reserve requirements for unrecognized tax benefits. In 2017, 2018 and 2018,2019, the income tax benefit was also impacted by the provisions of the Tax Reform Act.
Accretion of preferred stock dividends and redemption premium. The Company recordsWe record accretion of preferred stock dividends to reflect cumulative dividends on itsour preferred stock. The redemption premium relates to the exchange of Series A Preferred Stock for common stock of Jason Industries, Inc. and represents the excess of the exchange conversion rate over the agreement conversion rate. The accretion amounts are subtracted from net loss to arrive at the net loss availableallocable to common shareholders for the purposes of calculating the Company’s net loss per share availableallocable to common shareholders.
General Factors Affecting the Results of Continuing Operations
Foreign exchange. The Company hasWe have a significant portion of itsour operations outside of the U.S. As such, the results of the Company’sour operations are based on currencies other than the U.S. dollar. Changes in foreign currency exchange rates influence itsour financial results, and therefore the ability to compare results between periods and segments.
Seasonality. The Company’s seatingOur engineered components segment is subject to seasonal variation due to the markets it serves and the stocking requirements of its customers. The peak season has historically been during the period from November through May. Sales during these months are typically greater due to the shipments required to fill the inventory at retail stores and customer warehouses. There are, however, variations in the seasonal demands from year to year depending on weather, customer inventory levels, and model year changes. This seasonality and annual variations of this seasonality could impact the ability to compare results between time periods.
Consolidated Results of Operations
The following table sets forth our consolidated results of operations:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 | | Year Ended December 31, 2018 | | Year Ended December 31, 2017 |
(in thousands) | | | | | |
Net sales | $ | 337,897 | | | $ | 367,959 | | | $ | 382,096 | |
Cost of goods sold | 263,291 | | | 277,852 | | | 295,076 | |
Gross profit | 74,606 | | | 90,107 | | | 87,020 | |
Selling and administrative expenses | 78,200 | | | 78,752 | | | 77,611 | |
| | | | | |
Loss (gain) on disposals of property, plant and equipment-net | 303 | | | (1,318) | | | (320) | |
Restructuring | | 3,954 | | | 877 | | | 2,475 | |
Operating (loss) income | (7,851) | | | 11,796 | | | 7,254 | |
Interest expense-net | (32,978) | | | (33,277) | | | (32,951) | |
Gain on extinguishment of debt | — | | | — | | | 2,201 | |
Equity income | 316 | | | 1,024 | | | 952 | |
Loss on divestiture | | — | | | — | | | (8,730) | |
Other income-net | 1,098 | | | 758 | | | 258 | |
Loss from continuing operations before income taxes | (39,415) | | | (19,699) | | | (31,016) | |
Tax provision (benefit) | 4,016 | | | (5,046) | | | (15,614) | |
Net loss from continuing operations | (43,431) | | | (14,653) | | | (15,402) | |
Net (loss) income from discontinued operations, net of tax | (38,177) | | | 1,493 | | | 10,929 | |
Net loss | $ | (81,608) | | | $ | (13,160) | | | $ | (4,473) | |
Less net gain (loss) attributable to noncontrolling interests | — | | | — | | | 5 | |
Net loss attributable to Jason Industries | $ | (81,608) | | | $ | (13,160) | | | $ | (4,478) | |
Accretion of preferred stock dividends and redemption premium | 3,347 | | | 4,070 | | | 3,783 | |
Net loss allocable to common shareholders of Jason Industries | $ | (84,955) | | | $ | (17,230) | | | $ | (8,261) | |
| | | | | |
Total other comprehensive (loss) income | $ | (5,072) | | | $ | (3,383) | | | $ | 12,232 | |
|
| | | | | | | | | | | |
| Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 |
(in thousands) | | |
| (Restated) | | | | |
Net sales | $ | 612,948 |
| | $ | 648,616 |
| | $ | 705,519 |
|
Cost of goods sold | 486,668 |
| | 517,764 |
| | 574,412 |
|
Gross profit | 126,280 |
| | 130,852 |
| | 131,107 |
|
Selling and administrative expenses | 106,470 |
| | 103,855 |
| | 113,797 |
|
Impairment charges | — |
| | — |
| | 63,285 |
|
(Gain) loss on disposals of property, plant and equipment - net | (1,142 | ) | | (759 | ) | | 880 |
|
Restructuring | 4,458 |
| | 4,266 |
| | 7,232 |
|
Operating income (loss) | 16,494 |
| | 23,490 |
| | (54,087 | ) |
Interest expense | (33,437 | ) | | (33,089 | ) | | (31,843 | ) |
Gain on extinguishment of debt | — |
| | 2,201 |
| | — |
|
Equity income | 1,024 |
| | 952 |
| | 681 |
|
Loss on divestiture | — |
| | (8,730 | ) | | — |
|
Other income - net | 654 |
| | 319 |
| | 900 |
|
Loss before income taxes | (15,265 | ) | | (14,857 | ) | | (84,349 | ) |
Tax benefit | (2,105 | ) | | (10,384 | ) | | (6,296 | ) |
Net loss | $ | (13,160 | ) | | $ | (4,473 | ) | | $ | (78,053 | ) |
Less net gain (loss) attributable to noncontrolling interests | — |
| | 5 |
| | (10,818 | ) |
Net loss attributable to Jason Industries | $ | (13,160 | ) | | $ | (4,478 | ) | | $ | (67,235 | ) |
Accretion of preferred stock dividends and redemption premium | 4,070 |
| | 3,783 |
| | 3,600 |
|
Net loss available to common shareholders of Jason Industries | $ | (17,230 | ) | | $ | (8,261 | ) | | $ | (70,835 | ) |
| | | | | |
Total other comprehensive (loss) income | $ | (3,383 | ) | | $ | 12,232 |
| | $ | (6,475 | ) |
Other financial data: (1)
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, except percentages) | Year Ended December 31, 2019 | | Year Ended December 31, 2018 | | Increase/(Decrease) | | |
| | | | | $ | | % |
Consolidated | | | | | | | |
Net sales | $ | 337,897 | | | $ | 367,959 | | | $ | (30,062) | | | (8.2)% | |
Net loss from continuing operations | (43,431) | | | (14,653) | | | 28,778 | | | 196.4 | |
Net loss from continuing operations as a % of net sales | 12.9 | % | | 4.0 | % | | 890 bps | | | |
Adjusted EBITDA from continuing operations | 24,818 | | | 36,661 | | | (11,843) | | | (32.3) | |
Adjusted EBITDA from continuing operations as a % of net sales | 7.3 | % | | 10.0 | % | | (270) bps | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Increase/(Decrease) | | |
(in thousands, except percentages) | | | | | $ | | % |
Consolidated | | | | | | | |
Net sales | $ | 367,959 | | | $ | 382,096 | | | $ | (14,137) | | | (3.7) | % |
Net loss from continuing operations | (14,653) | | | (15,402) | | | (749) | | | (4.9) | |
Net loss from continuing operations as a % of net sales | 4.0 | % | | 4.0 | % | | — bps | | | |
Adjusted EBITDA from continuing operations | 36,661 | | | 32,615 | | | 4,046 | | | 12.4 | |
Adjusted EBITDA from continuing operations as a % of net sales | 10.0 | % | | 8.5 | % | | 150 bps | | | |
(1) Adjusted EBITDA and Adjusted EBITDA as a % of net sales are financial measures that are not presented in accordance with GAAP. See “Key Measures the Company Uses to Evaluate Its Performance” below for our definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income.
|
| | | | | | | | | | | | | | |
(in thousands, except percentages) | Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Increase/(Decrease) |
| | $ | | % |
| (Restated) | | | | | | |
Consolidated | | | | | | | |
Net sales | $ | 612,948 |
| | $ | 648,616 |
| | $ | (35,668 | ) | | (5.5)% |
Net loss | (13,160 | ) | | (4,473 | ) | | 8,687 |
| | 194.2 |
|
Net loss as a % of net sales | 2.1 | % | | 0.7 | % | | 140 bps |
Adjusted EBITDA | 67,211 |
| | 67,752 |
| | (541 | ) | | (0.8 | ) |
Adjusted EBITDA as a % of net sales | 11.0 | % | | 10.4 | % | | 60 bps |
36
|
| | | | | | | | | | | | | | |
| Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Increase/(Decrease) |
(in thousands, except percentages) | | | $ | | % |
Consolidated | | | | | | | |
Net sales | $ | 648,616 |
| | $ | 705,519 |
| | $ | (56,903 | ) | | (8.1 | )% |
Net loss | (4,473 | ) | | (78,053 | ) | | (73,580 | ) | | (94.3 | ) |
Net loss as a % of net sales | 0.7 | % | | 11.1 | % | | (1,040) bps |
Adjusted EBITDA | 67,752 |
| | 64,160 |
| | 3,592 |
| | 5.6 |
|
Adjusted EBITDA as a % of net sales | 10.4 | % | | 9.1 | % | | 130 bps |
| |
(1)
| Adjusted EBITDA and Adjusted EBITDA as a % of net sales are financial measures that are not presented in accordance with GAAP. See “Key Measures the Company Uses to Evaluate Its Performance” below for our definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income. |
The Year endedEnded December 31, 2019 Compared with the Year Ended December 31, 2018 and
Net sales. Net sales were $337.9 million for the year ended December 31, 2017
Net sales. Net sales were $612.92019, a decrease of $30.1 million, or 8.2%, compared with $368.0 million for the year ended December 31, 2018, a decrease of $35.7 million, or 5.5%, compared with $648.6 million for the year ended December 31, 2017, reflecting decreased net sales in the acousticsengineered components segment of $44.6 million, partially offset by increased net sales in the finishing segment of $7.4 million, the seating segment of $1.2$23.9 million and the componentsindustrial segment of $0.4$6.1 million. The decrease of $44.6$6.1 million in the acoustics segment was partially due toincludes $14.4 million of incremental net sales as a $22.9 million decrease related to the saleresult of the Acoustics Europe business.April 1, 2019 Schaffner acquisition.
See “Segment Financial Data” within this Item 7, “Management’s Discussion and Analysis”, for further discussion on net sales for each segment.
Changes in foreign currency exchange rates compared with the U.S. dollar had a net positivenegative impact of $5.2$7.0 million on consolidated net sales during the year ended December 31, 20182019 compared with 2017, positively2018, negatively impacting the finishing and seating segments’industrial segment’s net sales by $4.6 million and $0.6 million, respectively.$7.0 million. This was due principally to the net weakeningstrengthening of the U.S. dollar against the Euro and British Pound during the year ended December 31, 2018.2019.
Cost of goods sold. Cost of goods sold was $486.7$263.3 million for the year ended December 31, 2018,2019, compared with $517.8$277.9 million for the year ended December 31, 2017.2018. The decrease in cost of goods sold was primarily due to lower manufacturing costs in the acoustics segment duesales volumes across both segments, a $4.9 million decrease related to lower volumes and the sale of the Acoustics Europe business of $19.0 million, lower labor andforeign currency exchange rates, reduced material usage costs in the acoustics and seating segmentslabor costs as a result of operational efficiencies, lower repair and maintenance costscontinuous improvement programs in the acousticsengineered components segment and reduced costs resulting from the Company’s global cost reduction and restructuring program.lower headcount across both segments. The decrease was partially offset by increased costhigher manufacturing costs in the industrial segment due to the Schaffner acquisition of goods sold$10.8 million, lower material and labor efficiencies related to sales volume declines in both the engineered components and industrial segments, raw material, and wage inflation across both segments, increased healthcare costs in the industrial segment, unfavorable product mix in the engineered components segment, accelerated lease and depreciation expense of $1.3 million primarily related to planned facility consolidations in the engineered components and industrial segments and higher freight costs across all segments, a $3.8 million increase related to foreign currency exchange rates, higher labor and material usage costs in the components segment as result of operational inefficiencies and higher net sales volume in the finishing and seating segments.costs.
The reduced costs resulting from the Company’s global cost reduction and restructuring program were due to lower manufacturing costs as a result of the closure of the Richmond, Virginia facility in the finishing segment, closure of the Richmond, Indiana facility in the acoustics segment and the wind down of a facility in Brazil in the finishing segment.
Gross profit. For the reasons described above, gross profit was $126.3$74.6 million for the year ended December 31, 2019, compared with $90.1 million for the year ended December 31, 2018.
Selling and administrative expenses. Selling and administrative expenses were $78.2 million for the year ended December 31, 2019, compared with $78.8 million for the year ended December 31, 2018, compared with $130.9 million for the year ended December 31, 2017.
Selling and administrative expenses. Selling and administrative expenses were $106.5 million for the year ended December 31, 2018, compared with $103.9 million for the year ended December 31, 2017, an increasea decrease of $2.6$0.6 million.
The increasedecrease is primarily due to the acceleration of amortization expense of $2.3decreased incentive compensation, lower headcount across both segments, decreased corporate professional fees and a $1.5 million on intangible assets in the components segment related to the exit from non-core product lines for smart utility meter subassemblies in 2018, increased share-based compensation expense of $1.6 million, a $1.1 million increasedecrease related to foreign currency exchange rates and higher headcount due to open positions in 2017 and in the finishing segment due to additional selling personnel in 2018.rates. The increasedecrease was partially offset by reducedhigher selling and administrative expensescosts in the acousticsindustrial segment due to the divestitureSchaffner acquisition of $2.6 million, a $0.7 million increase in transaction-related expenses primarily related to the Acoustics Europe business of $2.5 millionSchaffner acquisition, the Company’s strategic alternative process, and decreased incentive compensation of $1.6 million.increased healthcare costs.
Impairment charges. There were no non-cash impairment charges for the years ended December 31, 2018 and 2017.
(Gain) lossLoss (gain) on disposals of property, plant and equipment—net. GainLoss on disposals of property, plant and equipment - net for the year ended December 31, 20182019 was $1.1$0.3 million, compared to $0.8a gain of $1.3 million for the year ended December 31, 2017.2018. The loss on disposals of property, plant and equipment - net for the year ended December 31, 2019 includes a loss of $0.3 million on the sale of a former Schaffner building in the industrial segment. The gain on disposals of property, plant and equipment - net for the year ended December 31, 2018 includes a gain of $1.3 million on the sale of a building related to the closure of the seatingengineered components segment’s U.K. facility, partially offsetfacility.
Restructuring. In 2019 and 2018, restructuring costs primarily include activities which align with our strategic initiatives of continued footprint rationalization and margin expansion. Such activities are typically identified by management as part of the annual strategic planning process, with priority assigned to those that maximize the financial return for the Company. In the first quarter of 2019, additional restructuring activities resulting in one-time employee termination benefits were identified upon a $0.2 million loss fromreview of the disposition of equipmentCompany’s organizational structure resulting in connectioncertain strategic leadership changes as well as in response to end market decline in the industrial segment. Additionally, with the consolidationacquisition of two U.S. facilities inSchaffner Manufacturing Company, Inc. on April 1, 2019, further footprint rationalization activities were identified during the components segment. The gain on disposalsdue diligence process which were executed upon throughout the remainder of property, plant and equipment - net for the year ended December 31, 2017 includes a gain of $0.5 million on the sale of a building related to the closure of the finishing segment’s Richmond, Virginia facility and a gain of $0.4 million on the sale of equipment related to the closure of the components segment’s Buffalo Grove, Illinois facility. Changes in the level of fixed asset disposals are dependent upon a number of factors, including changes in the level of asset sales, operational restructuring activities, and capital expenditure levels.2019.
Restructuring. Restructuring costs were $4.5$4.0 million for the year ended December 31, 20182019 compared to $4.3$0.9 million for the year ended December 31, 2017.2018. During 2018 and 2017,2019, such costs primarily relateincluded severance costs in corporate and the industrial segment related to actions resulting from the global cost reductionsegment reorganization in the first quarter of 2019 and work force reductions throughout 2019 in response to declining end market demand. Other restructuring program announced on March 1, 2016.costs included plant closure and consolidation costs in the industrial segment and engineered components segments and transitional costs of moving production to U.S. facilities as a result of the closure of a U.K. facility in the engineered components segment. During 2018, such costs were primarily move costs related to the consolidation of two U.S. facilities in the components segment, the closure of a U.S. facility in the acoustics segment, the closure of a U.S. facility in the finishingindustrial segment and the closure of a U.K. facility in the seatingengineered components segment, partially offset by a reduction in expense as a result of the statute of limitations expiring on certain unasserted employment matter claims in Brazil that were reserved within the finishingindustrial segment. During 2017, such costs were primarily severance and
move costs related toOperating (loss) income. For the consolidationreasons described above, operating (loss) income was a loss of two U.S. facilities in the components segment, the consolidation of two U.S. facilities in the finishing segment and the closure of a facility in Brazil in the finishing segment.
Interest expense. Interest expense was $33.4$7.9 million for the year ended December 31, 20182019, compared with $33.1income of $11.8 million for the year ended December 31, 2017. The increase in interest expense primarily relates to higher interest rates2018.
Interest expense—net. Interest expense-net was $33.0 million for the year ended December 31, 2018 as2019 compared towith $33.3 million for the year ended December 31, 2017, partially offset by2018. The decrease in interest expense-net primarily relates to a decrease in outstanding long-term debt balances.balances, partially offset by an increase in interest expense-net caused by higher variable interest rates. The effective interest rate on the Company’s total outstanding indebtedness for the year ended December 31, 20182019 was 8.2%8.3% as compared to 7.6%8.2% for the year ended December 31, 2017.2018.
See “Senior Secured Credit Facilities” in the Liquidity and Capital Resources section of this MD&A for further discussion.
Gain on extinguishment of debt. Gain on extinguishment of debt was $2.2 million for the year ended December 31, 2017 and relates to the repurchase of $20.0 million of second lien term loans for $16.8 million in the second and third quarters of 2017. In connection with the repurchase, the Company wrote off $0.4 million of previously unamortized debt discount and $0.4 million of previously unamortized deferred financing costs, which were recorded as a reduction to the gain on extinguishment of debt.
See “Senior Secured Credit Facilities” in the Liquidity and Capital Resources section of this MD&A for further discussion.
In the fourth quarter of 2017, the Company retired $2.4 million of foreign debt with cash received from the sale of Acoustics Europe and incurred a $0.2 million prepayment fee, which was recorded as an offset to the gain on extinguishment of debt.
Equity income. Equity income was $1.0 million for both the years ended December 31, 2018 and 2017.
Loss on divestiture. Loss on divestiture was $8.7 million for the year ended December 31, 2017. On August 30, 2017, the Company completed the divestiture of its Acoustics Europe business. The divestiture resulted in an $8.7 million pre-tax loss.
See Note 4, “ Divestiture” in the notes to the consolidated financial statements for further information.
Other income —net. Other income-net was $0.7 million for the year ended December 31, 2018, compared with $0.3 million for the year ended December 31, 2017. During 20182019 compared to $1.0 million for the year ended December 31, 2018. The decrease in equity income is due to lower sales volumes in our joint ventures in China and 2017, otherTaiwan.
Other income—net. Other income-net consistedwas $1.1 million for the year ended December 31, 2019, compared with $0.8 million for the year ended December 31, 2018. Other income - net for the year ended December 31, 2019 includes the reclassification to earnings of foreign currency translation gains of $0.8 million for the wind down and substantial dissolution of certain rentalU.K. entities and royalty$0.5 million of income streams. Duringfrom transition services performed subsequent to business divestitures, partially offset by $0.3 million of transaction-related expenses related to debt financing activities and $0.2 million of employee benefit plan non-service costs. Other income - net for the year ended December 31, 2018 other income-net also includes $0.4 million of legal settlement income related to proceeds from a supplier claimsettlement in the seatingengineered components segment associated with periods prior to the Company’s go public business combination and $0.1 million of employee benefit plan non-service costs.
Loss from continuing operations before income taxes. For the reasons described above, loss from continuing operations before income taxes was $15.3$39.4 million for the year ended December 31, 20182019 compared with $14.9$19.7 million for the year ended December 31, 2017.2018.
Tax benefitprovision (benefit). The tax benefitprovision was $2.1$4.0 million for the year ended December 31, 2018,2019, compared with $10.4a tax benefit of $5.0 million for the year ended December 31, 2017.2018. The effective tax rate for the year ended December 31, 20182019 was 13.8%a negative 10.2%, compared with 69.9%25.6% for the year ended December 31, 2017.2018. The Company’s tax benefitprovision (benefit) is impacted by a number of factors, including, among others, the amount of taxable income or loss at the U.S. federal statutory rate, the amount of taxable earnings derived in foreign jurisdictions in which the majority have tax rates higher than the U.S. federal statutory rate, after enactment of the Tax Reform Act, permanent items, state tax rates in jurisdictions where we do business and the ability to utilize various tax credits and net operating loss carry forwards to reduce income tax expense. The income tax benefitprovision (benefit) also includes the impact of provision to return adjustments, adjustments to valuation allowances and reserve requirements for unrecognized tax positions. For the years ended December 31, 20182019 and 2017,2018, the tax provision and tax benefit, wasrespectively, were impacted by the enactment of the Tax Reform Act.
The 2019 effective tax rate of negative 10.2% was impacted by establishing valuation allowances totaling $13.3 million for federal and state deferred tax assets primarily related to the carryforward arising from the interest deduction limitation provision included in the Tax Reform Act. The increase in valuation allowances impacted the effective tax rate by 34.2%.
The 2018 effective tax rate of 13.8%25.6% differs from the U.S. federal statutory rate of 21% due primarily to the impact of state taxes and the finalization of accounting for provisions inof the Tax Reform Act that requirediscussed in the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets which is referred to as the global intangible low-taxed income (“GILTI”) provision. This provision resulted in an increase to the 2018 tax provision of $2.1 million. Also impacting the effective tax rate are state taxes andparagraph below, partially offset by the impact of higher foreign tax rates when compared to the 21% U.S. federal statutory tax rate (primarily in Germany and Mexico).
The 2017 effective tax rate of 69.9% differs from the U.S. federal statutory rate of 35% due primarily to the provision in the Tax Reform Act that reduces the U.S. federal income tax rate to 21% from 35% effective January 1, 2018, state tax benefits, the impact of lower foreign tax rates when compared to the 35% U.S. federal 2017 statutory tax rate (primarily in Germany and Mexico) and the reversal of the valuation allowance on the deferred tax assets at a foreign subsidiary. These items were partially offset by the impact of the tax on the one-time deemed mandatory repatriation of undistributed foreign
subsidiary earnings, change in assertion regarding permanent reeinvestment of earnings in our wholly-owned foreign subsidiaries and the vesting and forfeiture of share-based compensation for which no tax benefit will be realized.
The Company recognized the provisional impact of the Tax Reform Act in its consolidated financial statements for the year ended December 31, 2017. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Reform Act, the Company revalued its ending net deferred tax liabilities at December 31, 2017 and recognized a provisional $11.1 million tax benefit in the Company’s consolidated statements of operations for the year ended December 31, 2017. The Company had an estimated $54.5 million of undistributed foreign earnings and profits subject to the deemed mandatory repatriation and recognized a provisional $5.3 million of income tax expense in the Company’s consolidated statements of operations for the year ended December 31, 2017. During the year ended December 31, 2018, the Company finalized the accounting for these items and recorded an adjustment to reduce the amount of income tax expense attributable to the deemed mandatory repatriation of foreign subsidiary earnings and profits by $0.5 million. The final adjustment required to revalue net deferred tax liabilities was immaterial.
See Note 14, “Income Taxes” in the consolidated financial statements for a complete reconciliation of the U.S. statutory tax rate to the effective tax rate and more information on the Tax Reform Act and tax events in 2019 and 2018 affecting each year’s respective tax rates.
Net loss from continuing operations. For the reasons described above, net loss was $43.4 million for the year ended December 31, 2019 compared with $14.7 million for the year ended December 31, 2018.
Other comprehensive (loss) income. Other comprehensive loss was $5.1 million for the year ended December 31, 2019 compared with $3.4 million for the year ended December 31, 2018. The increase was driven by the change in unrealized (losses) gains on cash flow hedges and an increase in employee retirement plan adjustments in 2019 compared with 2018, partially offset by a decrease in unfavorable foreign currency translation adjustments in 2019 compared to 2018.
Other comprehensive loss for foreign currency translation adjustments was $3.1 million for the year ended December 31, 2019 compared with $4.6 million for the year ended December 31, 2018. Foreign currency translation adjustments are based on fluctuations in the value of foreign currencies (primarily the Euro) against the U.S. Dollar each period.
Employee retirement plan adjustments was a loss of $0.4 million for the year ended December 31, 2019, compared with $0.2 million for the year ended December 31, 2018. The employee retirement plan adjustments are based on actuarial valuations using a December 31 measurement date that include key assumptions regarding discount rates, expected returns on plan assets, retirement and mortality rates, future compensation increases, and health care cost trend rates. The employee retirement plan loss for the year ended December 31, 2019 primarily relates to actuarial losses recognized in the German pension plan within the industrial segment due to a decrease in the discount rate, partially offset by actuarial gains in U.S. plans within the industrial segment due to higher actual plan asset returns compared with the expected returns on plan assets.
Other comprehensive loss for unrealized losses on cash flow hedges was $1.6 million for the year ended December 31, 2019, compared with an other comprehensive gain of $1.3 million for the year ended December 31, 2018. Gains and losses on cash flow hedges are based on the changes in current interest rates and market expectations of the timing and amount of future interest rate changes. For the year ended December 31, 2019, the fair value of the hedging instruments decreased, based on actual and future expectations for short-term interest rate decreases. For the year ended December 31, 2018, the fair value of the hedging instruments increased, based on actual and future expectations for interest rate increases.
Adjusted EBITDA. For the year ended December 31, 2019, Adjusted EBITDA was $24.8 million, or 7.3% of net sales, compared with $36.7 million, or 10.0% of net sales, for the year ended December 31, 2018, a decrease of $11.8 million. The decrease reflects lower Adjusted EBITDA in the industrial segment of $8.0 million and the engineered components segment of $4.6 million, partially offset by lower corporate expenses of $0.8 million.
Changes in foreign currency exchange rates compared with the U.S dollar had a negative impact of $1.0 million on consolidated Adjusted EBITDA for the year ended December 31, 2019 compared with the year ended December 31, 2018, negatively impacting the industrial segment’s Adjusted EBITDA by $1.0 million.
See “Segment Financial Data” within this Item 7, “Management’s Discussion and Analysis,” for further discussion on Adjusted EBITDA for each segment.
The Year Ended December 31, 2018 Compared with the Year Ended December 31, 2017
Net sales. Net sales were $368.0 million for the year ended December 31, 2018, a decrease of $14.1 million, or 3.7%, compared with $382.1 million for the year ended December 31, 2017, reflecting decreased net sales in the fiber solutions segment of $22.7 million related to the sale of the Acoustics Europe business, partially offset by increased net sales in the industrial segment of $7.4 million and in the engineered components segment of $1.2 million.
Changes in foreign currency exchange rates compared with the U.S. dollar had a net positive impact of $5.2 million on consolidated net sales during the year ended December 31, 2018 compared with 2017, positively impacting the industrial and the engineered components segments’ net sales by $4.6 million and $0.6 million, respectively.This was due principally to the net weakening of the U.S. dollar against the Euro and British Pound during the year ended December 31, 2018.
See “Segment Financial Data” within Item 7, “Management’s Discussion and Analysis”, for further discussion on net sales for each segment.
Cost of goods sold. Cost of goods sold was $277.9 million for the year ended December 31, 2018, compared with $295.1 million for the year ended December 31, 2017. The decrease in cost of goods sold was primarily due to the sale of the Acoustics Europe business of $19.0 million in the fiber solutions segment, lower labor and material usage costs in the engineered components segment as a result of operational efficiencies, and reduced costs resulting from the Company’s global cost reduction and restructuring program. The decrease was partially offset by increased cost of goods sold related to raw material inflation and higher freight costs in the industrial and engineered components segments, a $3.8 million increase related to foreign currency exchange rates and higher net sales volume in the industrial and engineered components segments.
The reduced costs resulting from the Company’s global cost reduction and restructuring program were due to lower manufacturing costs as a result of the closure of the Richmond, Virginia facility and the wind down of a facility in Brazil in the industrial segment.
Gross profit. For the reasons described above, gross profit was $90.1 million for the year ended December 31, 2018, compared with $87.0 million for the year ended December 31, 2017.
Selling and administrative expenses. Selling and administrative expenses were $78.8 million for the year ended December 31, 2018, compared with $77.6 million for the year ended December 31, 2017, an increase of $1.2 million. The increase is primarily due to increased share-based compensation expense of $1.3 million, a $1.1 million increase related to foreign currency exchange rates and higher headcount due to open positions in 2017 and in the industrial segment due to additional selling personnel in 2018. The increase was partially offset by reduced selling and administrative expenses in the fiber solutions segment due to the divestiture of the Acoustics Europe business of $2.5 million and decreased incentive compensation of $0.2 million.
(Gain) loss on disposals of property, plant and equipment—net. Gain on disposals of property, plant and equipment - net for the year ended December 31, 2018 was $1.3 million, compared to $0.3 million for the year ended December 31, 2017. The gain on disposals of property, plant and equipment - net for the year ended December 31, 2018 includes a gain of $1.3 million on the sale of a building related to the closure of the engineered components segment’s U.K. facility. The gain on disposals of property, plant and equipment - net for the year ended December 31, 2017 includes a gain of $0.5 million on the sale of a building related to the closure of the industrial segment’s Richmond, Virginia facility. Changes in the level of fixed asset disposals are dependent upon a number of factors, including changes in the level of asset sales, operational restructuring activities, and capital expenditure levels.
Restructuring. Restructuring costs were $0.9 million for the year ended December 31, 2018 compared to $2.5 million for the year ended December 31, 2017. During 2018 and 2017, such costs primarily relate to actions resulting from the global cost reduction and restructuring program announced on March 1, 2016. During 2018, such costs were primarily related to the closure of a U.S. facility in the industrial segment and the closure of a U.K. facility in the engineered components segment, partially offset by a reduction in expense as a result of the statute of limitations expiring on certain unasserted employment matter claims in Brazil that were reserved within the industrial segment. During 2017, such costs were primarily move costs related to the consolidation of two U.S. facilities in the industrial segment and the closure of a facility in Brazil in the industrial segment.
Operating income. For the reasons described above, operating income was $11.8 million for the year ended December 31, 2019, compared with $7.3 million for the year ended December 31, 2018.
Interest expense—net. Interest expense-net was $33.3 million for the year ended December 31, 2018 compared with$33.0 million for the year ended December 31, 2017. The increase in interest expense-net primarily relates to higher interest rates for the year ended December 31, 2018 as compared to the year ended December 31, 2017, partially offset by a decrease in outstanding long-term debt balances. The effective interest rate on the Company’s total outstanding indebtedness for the year ended December 31, 2018 was 8.2% as compared to 7.6% for the year ended December 31, 2017.
See “Senior Secured Credit Facilities” in the Liquidity and Capital Resources section of this MD&A for further discussion.
Gain on extinguishment of debt. Gain on extinguishment of debt was $2.2 million for the year ended December 31, 2017 and relates to the repurchase of $20.0 million of second lien term loans for $16.8 million in the second and third quarters of 2017. In connection with the repurchase, the Company wrote off $0.4 million of previously unamortized debt discount and $0.4 million of previously unamortized deferred financing costs, which were recorded as a reduction to the gain on extinguishment of debt. See “Senior Secured Credit Facilities” in the Liquidity and Capital Resources section of this MD&A for further discussion. In the fourth quarter of 2017, the Company retired $2.4 million of foreign debt with cash received from the sale of Acoustics Europe and incurred a $0.2 million prepayment fee, which was recorded as an offset to the gain on extinguishment of debt.
Equity income. Equity income was $1.0 million for both the years ended December 31, 2018 and 2017.
Loss on divestiture. Loss on divestiture was $8.7 million for the year ended December 31, 2017. On August 30, 2017, the Company completed the divestiture of its Acoustics Europe business. The divestiture resulted in an $8.7 million pre-tax loss. See Note 2, “ Discontinued Operations and Divestitures” in the notes to the consolidated financial statements for further information.
Other income—net. Other income-net was $0.8 million for the year ended December 31, 2018, compared with $0.3 million for the year ended December 31, 2017. During 2018 and 2017, other income-net consisted of certain rental and royalty income streams. During 2018, other income-net also includes $0.4 million of legal settlement income related to proceeds from a supplier claim in the engineered components segment associated with periods prior to the Company’s go public business combination and $0.1 million of employee benefit plan non-service costs.
Loss from continuing operations before income taxes. For the reasons described above, loss before income taxes was $19.7 million for the year ended December 31, 2018 compared with $31.0 million for the year ended December 31, 2017.
Tax benefit. The tax benefit was $5.0 million for the year ended December 31, 2018, compared with $15.6 million for the year ended December 31, 2017. The effective tax rate for the year ended December 31, 2018 was 25.6%, compared with 50.3% for the year ended December 31, 2017. The Company’s tax benefit is impacted by a number of factors, including, among others, the amount of taxable income or loss at the U.S. federal statutory rate, the amount of taxable earnings derived in foreign jurisdictions in which the majority have tax rates higher than the U.S. federal statutory rate after the enactment of the Tax Reform Act, permanent items, state tax rates in jurisdictions where we do business and the ability to utilize various tax credits and net operating loss carry forwards to reduce income tax expense. The income tax benefit also includes the impact of provision to return adjustments, adjustments to valuation allowances and reserve requirements for unrecognized tax positions. For the years ended December 31, 2018 and 2017, the tax benefit was impacted by the enactment of the Tax Reform Act.
The 2018 effective tax rate of 25.6% differs from the U.S. federal statutory rate of 21% due primarily to the impact of state taxes and the finalization of accounting for provisions of the Tax Reform Act discussed in the paragraph below, partially offset by the impact of higher foreign tax rates when compared to the 21% U.S. federal statutory tax rate (primarily in Germany and Mexico).
The 2017 effective tax rate of 50.3% differs from the U.S. federal statutory rate of 35% due primarily to the provision in the Tax Reform Act that reduces the U.S. federal income tax rate to 21% from 35% effective January 1, 2018, state tax benefits, the impact of lower foreign tax rates when compared to the 35% U.S. federal 2017 statutory tax rate (primarily in Germany and Mexico) and the reversal of the valuation allowance on the deferred tax assets at a foreign subsidiary. These items were partially offset by the impact of the tax on the one-time deemed mandatory repatriation of undistributed foreign subsidiary earnings, change in assertion regarding permanent reeinvestment of earnings in our wholly-owned foreign subsidiaries and the vesting and forfeiture of share-based compensation for which no tax benefit will be realized.
The Company recognized the provisional impact of the Tax Reform Act in its consolidated financial statements for the year ended December 31, 2017. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Reform Act, the Company revalued its ending net deferred tax liabilities at December 31, 2017 and recognized a provisional $11.1 million tax benefit in the Company’s consolidated statements of operations for the year ended December 31, 2017. The Company had an estimated $54.5 million of undistributed foreign earnings and profits subject to the deemed mandatory repatriation and recognized a provisional $5.3 million of income tax expense in the Company’s consolidated statements of operations for the year ended December 31, 2017. During the year ended December 31, 2018, the Company finalized the accounting for these items and recorded an adjustment to reduce the amount of income tax expense attributable to the deemed mandatory repatriation of foreign subsidiary earnings and profits by $0.5 million. The final adjustment required to revalue net deferred tax liabilities was immaterial.
See Note 14, “Income Taxes” in the consolidated financial statements for a complete reconciliation of the U.S. statutory tax rate to the effective tax rate and more information on the Tax Reform Act and tax events in 2018 and 2017 affecting each year’s respective tax rates.
Net loss from continuing operations. For the reasons described above, net loss from continuing operations was $13.2$14.7 million for the year ended December 31, 2018 compared with $4.5$15.4 million for the year ended December 31, 2017.
Net gain (loss) attributable to noncontrolling interests. There was no net gain attributable to noncontrolling interestsinterest for the year ended December 31, 2018, compared with an immaterial net gain attributable to noncontrolling interests for the year ended December 31, 2017. Noncontrolling interests represented the Rollover Participants (as defined in “Item 1. Business”)rollover participants interest in JPHI Holdings, Inc. which was reduced to 0% as of February 23, 2017.
See Note 11, “Shareholders’“Shareholders’ (Deficit) Equity”Equity” in the consolidated financial statements for further discussion.
Other comprehensive (loss) income. Other comprehensive loss was $3.4 million for the year ended December 31, 2018 compared with an other comprehensive gainincome of $12.2 million for the year ended December 31, 2017. The decrease was driven by less favorable foreign currency translation adjustments in 2018 compared to 2017 and less favorable employee retirement plan adjustments in 2018 compared to 2017, partially offset by the change in unrealized gains (losses) on cash flow hedges.
Other comprehensive loss for foreign currency translation adjustments was $4.6 million for the year ended December 31, 2018 compared with other comprehensive income for foreign currency translation adjustments of $10.5 million for the year ended December 31, 2017. Foreign currency translation adjustments are based on fluctuations in the value of foreign currencies (primarily the Euro) against the U.S. Dollar each period.
Employee retirement plan adjustments was a loss of $0.2 million for the year ended December 31, 2018, compared with a gain of $0.4 million for the year ended December 31, 2017. The employee retirement plan adjustments are based on actuarial valuations using a December 31 measurement date that include key assumptions regarding discount rates, expected returns on plan assets, retirement and mortality rates, future compensation increases, and health care cost trend rates. The employee retirement plan gain for the year ended December 31, 2017 primarily relates to actuarial gains recognized in U.S.
pension and postretirement health care benefit plans within our finishingindustrial segment due to higher actual plan asset returns compared with the expected returns on plan assets and a decrease in expected future claim costs, respectively, partially offset by actuarial losses recognized in a German pension plan within our finishingindustrial segment due to an increase in future expected compensation.
Other comprehensive income for unrealized gains on cash flow hedges was $1.3 million for both the year ended December 31, 2018 and 2017. The net change in unrealized gains on cash flow hedges is based on the changes in current interest rates and market expectations of the timing and amount of future interest rate changes. In both 2018 and 2017, the fair value of the hedging instruments increased, based on actual and future expectations for interest rate increases.
Adjusted EBITDA. For the year ended December 31, 2018, Adjusted EBITDA was $67.2$36.7 million, or 11.0%10.0% of net sales, compared with $67.8$32.6 million, or 10.4%8.5% of net sales, for the year ended December 31, 2017, a decreasean increase of $0.5$4.0 million. The decreaseincrease reflects lowerhigher Adjusted EBITDA in the acoustics segment of $6.5 million and theengineered components segment of $0.1 million, partially offset by increased Adjusted EBITDA in the seating segment of $3.4 million and in the finishingindustrial segment of $1.3 million, and lower corporate expenses of $1.4 million. The change in Adjusted EBITDA in the acousticsfiber solutions segment includes a $2.1 million decrease from the sale of the Acoustics Europe business. Changes in foreign currency exchange rates compared with the U.S dollar had a positive impact of $0.7 million on consolidated Adjusted EBITDA for the year ended December 31, 2018 compared with the year ended December 31, 2017, positively impacting the finishing and seating segments’ Adjusted EBITDA by $0.6 million and $0.1 million, respectively.
See “Segment Financial Data” within this Item 7, “Management’s Discussion and Analysis,” for further discussion on Adjusted EBITDA for each segment.
Year ended December 31, 2017 and the year ended December 31, 2016
Net sales. Net sales were $648.6 million for the year ended December 31, 2017, a decrease of $56.9 million, or 8.1%, compared with $705.5 million for the year ended December 31, 2016, reflecting decreased net sales in the acoustics segment of $43.3 million, the components segment of $15.0 million and the seating segment of $1.9 million, partially offset by increased net sales in the finishing segment of $3.4 million.
The decrease of $43.3 million in the acoustics segment was partially due to a $10.5 million decrease related to the sale of the Acoustics Europe business. The decrease of $15.0 million in the components segment was partially due to a decrease of $8.9 million as a result of the strategic decision to discontinue certain product lines selling under the Assembled Products brand in 2016. The increase of $3.4 million in the finishing segment was net of a $4.7 million decrease associated with the wind down of a facility in Brazil.
Changes in foreign currency exchange rates compared with the U.S. dollar had a net positive impact of $1.2 million on consolidated net sales during the year ended December 31, 2017 compared with 2016, positively impacting the finishing segment’s net sales by $1.5 million and negatively impacting the seating segment’s net sales by $0.3 million. This was due principally to the weakening of the U.S. dollar against the Euro during the year ended December 31, 2017.
See “Segment Financial Data” within Item 7, “Management’s Discussion and Analysis”, for further discussion on net sales for each segment.
Cost of goods sold. Cost of goods sold was $517.8 million for the year ended December 31, 2017, compared with $574.4 million for the year ended December 31, 2016. The decrease in cost of goods sold was primarily due to lower net sales volumes in the acoustics, components and seating segments, lower labor and material usage costs in the acoustics segment as a result of operational efficiencies, reduced costs resulting from the Company’s global cost reduction and restructuring program and decreased health care and workers compensation costs due to lower claims, partially offset by higher organic net sales volumes in the finishing segment, operational inefficiencies in the components and seating segments and a $1.0 million negative impact related to foreign currency exchange rates.
The reduced costs resulting from the Company’s global cost reduction and restructuring program were due to lower manufacturing costs in the finishing segment as a result of the wind down of a facility in Brazil, lower manufacturing costs in the components segments due to the strategic decision to discontinue certain product lines selling under the Assembled Products brand in 2016 and lower manufacturing costs in the acoustics segment due to the sale of the Acoustics Europe business of $7.8 million.
Gross profit. For the reasons described above, gross profit was $130.9 million for the year ended December 31, 2017, compared with $131.1 million for the year ended December 31, 2016.
Selling and administrative expenses. Selling and administrative expenses were $103.9 million for the year ended December 31, 2017, compared with $113.8 million for the year ended December 31, 2016, a decrease of $9.9 million.
The decrease is primarily due to reduced selling and administrative expenses resulting from the Company’s global cost reduction and restructuring program of $6.1 million, which includes $3.1 million related to the closure of facilities in the components and finishing segments, as well as decreased corporate expenses of $4.1 million primarily related to professional fees associated with supply chain consulting incurred in 2016, a decrease due to the sale of the Acoustics Europe business and a reduction of bad debt expenses of $1.6 million due to improved collections. The decrease was partially offset by increased incentive compensation of $4.4 million, an increase in share-based compensation expense of $1.9 million, primarily due to a decrease in assumed vesting of Adjusted EBITDA based awards in the second quarter of 2016, which resulted in a $2.5 million reversal of previously recorded expense, and a $0.5 million negative impact related to foreign currency exchange rates.
Impairment charges. There were no non-cash impairment charges for the year ended December 31, 2017. Non-cash impairment charges for the year ended December 31, 2016 were $63.3 million, primarily relating to charges of $29.8 million and $33.2 million for the impairment of goodwill in the acoustics and components segments, respectively.
See “Factors that Affect Operating Results - Key Events” in this MD&A and Note 8, “Goodwill and Other Intangible Assets” of the accompanying consolidated financial statements for further information.
(Gain) loss on disposals of property, plant and equipment-net. Gain on disposals of property, plant and equipment - net for the year ended December 31, 2017 was $0.8 million, compared to a loss of $0.9 million for the year ended December 31, 2016. The gain on disposals of property, plant and equipment - net for the year ended December 31, 2017 includes a gain of $0.5 million on the sale of a building related to the closure of the finishing segment’s Richmond, Virginia facility and a gain of $0.4 million on the sale of equipment related to the closure of the components segment’s Buffalo Grove, Illinois facility. The
loss on disposals of property, plant and equipment - net for the year ended December 31, 2016 includes a loss of $0.6 million on a sale of a seating segment facility. Changes in the level of fixed asset disposals are dependent upon a number of factors, including changes in the level of asset sales, operational restructuring activities, and capital expenditure levels.
Restructuring. Restructuring costs were $4.3 million for the year ended December 31, 2017 compared to $7.2 million for the year ended December 31, 2016. During 2017 and 2016, such costs primarily relate to actions resulting from the global cost reduction and restructuring program announced on March 1, 2016. During 2017, such costs were primarily severance and move costs related to the consolidation of two U.S. facilities in the components segment, the consolidation of two U.S. facilities in the finishing segment and the closure of a facility in Brazil in the finishing segment. During 2016, such costs primarily related to severance actions in all segments, including costs related to the closure of the components segment’s facility in Buffalo Grove, Illinois and the wind down of the finishing segment’s facility in Brazil. Included within the restructuring costs for the wind down of the Brazil facility are charges related to a loss contingency for certain employment matter claims.
Interest expense. Interest expense was $33.1 million for the year ended December 31, 2017 compared with $31.8 million for the year ended December 31, 2016. The increase in interest expense for the year ended December 31, 2017 primarily relates to $1.9 million recognized in 2017 related to the Company’s interest rate swaps which were effective December 30, 2016. The effective interest rate on the Company’s total outstanding indebtedness for the year ended December 31, 2017 was 7.6% as compared to 7.0% for the year ended December 31, 2016.
See “Senior Secured Credit Facilities” in the Liquidity and Capital Resources section of this MD&A for further discussion.
Gain on extinguishment of debt. Gain on extinguishment of debt was $2.2 million for the year ended December 31, 2017. The gain on extinguishment of debt in 2017 relates to the repurchase of $20.0 million of second lien term loans for $16.8 million in the second and third quarters of 2017. In connection with the repurchase, the Company wrote off $0.4 million of previously unamortized debt discount and $0.4 million of previously unamortized deferred financing costs, which were recorded as a reduction to the gain on extinguishment of debt.
See “Senior Secured Credit Facilities” in the Liquidity and Capital Resources section of this MD&A for further discussion.
In the fourth quarter of 2017, the Company retired $2.4 million of foreign debt with cash received from the sale of Acoustics Europe and incurred a $0.2 million prepayment fee, which was recorded as an offset to the gain on extinguishment of debt.
Equity income. Equity income was $1.0 million for the year ended December 31, 2017, compared with $0.7 million for the year ended December 31, 2016.
Loss on divestiture. Loss on divestiture was $8.7 million for the year ended December 31, 2017. On August 30, 2017, the Company completed the divestiture of its Acoustics Europe business. The divestiture resulted in an $8.7 million pre-tax loss, of which $7.9 million was recorded in the second quarter of 2017 when the business was classified as held for sale and written down to estimated fair value less costs to sell and $0.8 million was recorded in the third quarter of 2017 based on changes in the net assets of the business and additional foreign currency translation adjustments upon closing of the divestiture.
See Note 4, “ Divestiture” in the notes to the consolidated financial statements for further information.
Other income -net. Other income-net was $0.3 million for the year ended December 31, 2017, compared with $0.9 million for the year ended December 31, 2016. During 2017 and 2016, other income-net consisted of certain rental and royalty income streams. During 2016, other income-net also included other one-time transactions within our finishing segment.
Loss before income taxes. For the reasons described above, loss before income taxes was $14.9 million for the year ended December 31, 2017 compared with $84.3 million for the year ended December 31, 2016.
Tax benefit. The tax benefit was $10.4 million for the year ended December 31, 2017, compared with $6.3 million for the year ended December 31, 2016. The effective tax rate for the year ended December 31, 2017 was 69.9%, compared with 7.5% for the year ended December 31, 2016. The Company’s tax benefit is impacted by a number of factors, including, among others, the amount of taxable income or loss at the U.S. federal statutory rate, the amount of taxable earnings derived in foreign jurisdictions that all have tax rates lower than the U.S. federal statutory rate prior to enactment of the Tax Reform Act, permanent items, state tax rates in jurisdictions where we do business and the ability to utilize various tax credits and net operating loss carry forwards to reduce income tax expense. The income tax benefit also includes the impact of provision to return adjustments, adjustments to valuation allowances and reserve requirements for unrecognized tax positions. For the year ended December 31, 2017, the tax benefit was impacted by the enactment of the Tax Reform Act.
The 2017 effective tax rate of 69.9% differs from the U.S. federal statutory rate of 35% due primarily to the provision in the Tax Reform Act that reduces the U.S. federal income tax rate to 21% from 35% effective January 1, 2018, state tax benefits, the impact of lower foreign tax rates when compared to the 35% U.S. federal 2017 statutory tax rate (primarily in Germany and Mexico) and the reversal of the valuation allowance on the deferred tax assets at a foreign subsidiary. These items were partially offset by the impact of the tax on the one-time deemed mandatory repatriation of undistributed foreign subsidiary earnings, change in assertion regarding permanent reinvestment of earnings in our wholly-owned foreign subsidiaries and the vesting and forfeiture of share-based compensation for which no tax benefit will be realized.
On December 22, 2017, the President of the United States signed into law comprehensive tax legislation commonly referred to as the Tax Reform Act. The legislation significantly changed U.S. tax law by lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries, among others. The Tax Reform Act also added many new provisions including changes to bonus depreciation and the deductions for executive compensation and interest expense. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018.
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Reform Act, the Company revalued its ending net deferred tax liabilities at December 31, 2017 and recognized a provisional $11.1 million tax benefit in the Company’s consolidated statements of operations for the year ended December 31, 2017.
The Tax Reform Act provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits through the year ended December 31, 2017. The Company had an estimated $54.5 million of undistributed foreign earnings and profits subject to the deemed mandatory repatriation and recognized a provisional $5.3 million of income tax expense in the Company’s consolidated statements of operations for the year ended December 31, 2017. After the utilization of existing net operating loss carryforwards, the Company will not incur any U.S. federal cash taxes resulting from the deemed mandatory repatriation.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The Company recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included those estimated amounts in its consolidated financial statements for the year ended December 31, 2017.
The 2016 effective tax rate of 7.5% differs from the U.S. federal statutory rate of 35.0% due primarily to the impact of non-deductible impairment charges recorded for the components and acoustics segments, the change in assertion regarding permanent reinvestment of earnings in our non-majority joint venture holding and increases in valuation allowances, partially offset by state tax benefits, the impact of lower foreign tax rates when compared to the U.S. federal statutory tax rate (primarily in Germany and Mexico) and a reduction in the reserve for uncertain tax positions as a result of the lapsing of the statute of limitations in one of the Company’s non U.S. tax jurisdictions. The change in assertion at the joint venture was driven by several factors. Prior to the second quarter of 2016, the Company had the ability and intent to block the payment of distributions; the Company changed its stance in the second quarter of 2016 to be open to joint venture distributions. This change coincided with the a re-evaluation of the joint venture partners during that quarter of the willingness and ability of the entity to distribute excess cash balances given the maturity, stability and revised growth expectations of the joint venture operations. The impact of this change in assertion was to reduce the income tax benefit for the year ended December 31, 2016 by$2.9 million.
See Note 14, “Income Taxes” in the consolidated financial statements for a complete reconciliation of the U.S. statutory tax rate to the effective tax rate and more information on tax events in 2017 and 2016 affecting each year’s respective tax rates.
Net loss. For the reasons described above, net loss was $4.5 million for the year ended December 31, 2017 compared with $78.1 million for the year ended December 31, 2016.
Net gain (loss) attributable to noncontrolling interests. Net gain attributable to noncontrolling interests was immaterial for the year ended December 31, 2017, compared with a net loss attributable to noncontrolling interests of $10.8 million for the year ended December 31, 2016. Noncontrolling interests represented the Rollover Participants interest in JPHI which was reduced to 0% as of February 23, 2017.
See Note 11, “Shareholders’ (Deficit) Equity” in the consolidated financial statements for further discussion.
Other comprehensive (loss) income. Other comprehensive income was $12.2 million for the year ended December 31, 2017 compared with an other comprehensive loss of $6.5 million for the year ended December 31, 2016. The increase was driven by more favorable foreign currency translation adjustments in 2017 compared to 2016, the change in unrealized gains (losses) on cash flow hedges and employee retirement plan adjustments.
Foreign currency translation adjustments are based on fluctuations in the value of foreign currencies (primarily the Euro) against the U.S. Dollar each period.
Other comprehensive income for unrealized gains (losses) on cash flow hedges increased for the year ended December 31, 2017 as compared to the year ended December 31, 2016 due to a shift from an unrealized loss to an unrealized gain position on cash flow hedges in 2017 compared to an increase in the unrealized loss position on cash flow hedges in 2016. The net change in unrealized gains (losses) on cash flow hedges is based on the changes in current interest rates and market expectations of the timing and amount of future interest rate changes. In 2017, the hedging instruments shifted to a net gain position, based on future expectations for interest rate increases.
Employee retirement plan adjustments was a gain of $0.4 million for the year ended December 31, 2017, compared with a loss of $0.6 million for the year ended December 31, 2016. The employee retirement plan adjustments are based on actuarial valuations using a December 31 measurement date that include key assumptions regarding discount rates, expected returns on plan assets, retirement and mortality rates, future compensation increases, and health care cost trend rates. The employee retirement plan gain for the year ended December 31, 2017 primarily related to actuarial gains recognized in U.S. pension and postretirement health care benefit plans within our finishing segment due to higher actual plan asset returns compared with the expected returns on plan assets and a decrease in expected future claim costs, respectively, partially offset by actuarial losses recognized in a German pension plan within our finishing segment due to an increase in future expected compensation. The employee retirement plan loss for the year ended December 31, 2016 primarily related to actuarial losses recognized in a UK pension plan within our finishing segment related to decreasing discount rates.
Adjusted EBITDA. For the year ended December 31, 2017, Adjusted EBITDA was $67.8 million, or 10.4% of net sales, compared with $64.2 million, or 9.1% of net sales, for the year ended December 31, 2016, an increase of $3.6 million. The increase reflects higher Adjusted EBITDA in the finishing segment of $3.5 million, the seating segment of $0.2 million, the acoustics segment of $0.1 million and lower corporate expenses of $4.1 million, partially offset by decreased Adjusted EBITDA in the components segment of $4.4 million. The change in Adjusted EBITDA in the acoustics segment includes a $1.2 million decrease from the sale of the Acoustics Europe business. Changes in foreign currency exchange rates compared with the U.S. dollar had a positive impact of $0.1$0.7 million on consolidated adjustedAdjusted EBITDA for the year ended December 31, 20172018 compared with the year ended December 31, 2016.2017, positively impacting the industrial and engineered components segments’ Adjusted EBITDA by $0.6 million and $0.1 million, respectively.
See “Segment Financial Data” within this MD&A for further discussion on Adjusted EBITDA for each segment.
Key Measures the Company Uses to Evaluate Its Performance
EBITDA and Adjusted EBITDA. The Company uses “Adjusted EBITDA”, a non-GAAP financial measure, as the primary measure of profit or loss for the purposes of assessing the operating performance of its segments. The Company defines EBITDA as net income (loss) from continuing operations before interest expense, provision (benefit) for income taxes, depreciation and amortization. The Company defines Adjusted EBITDA as EBITDA, excluding the impact of operational restructuring charges and non-cash or non-operational losses or gains, including goodwill and long-lived asset impairment charges, gains or losses on disposal of property, plant and equipment, divestitures and extinguishment of debt, integration and other operational restructuring charges, transactional legal fees, other professional fees, purchase accounting adjustments, lease expense associated with vacated facilities and non-cash share based compensation expense.
Management believes that Adjusted EBITDA provides a more clear picture of the Company’s operating results by eliminating expenses and income that are not reflective of the underlying business performance. The Company uses this metric to facilitate a comparison of the Company’s operating performance on a consistent basis from period to period and to analyze the factors and trends affecting its segments. The Company’s internal plans, budgets and forecasts use Adjusted EBITDA as a key metric and the Company uses this measure to evaluate its operating performance and segment operating performance and to determine the level of incentive compensation paid to its employees.
The Senior Secured Credit Facilities (defined in Note 9, “Debt“Debt and Hedging Instruments,”, and below) definition of EBITDA excludes income of partially owned affiliates, unless such earnings have been received in cash.
Set forth below is a reconciliation of Adjusted EBITDA from continuing operations to net loss (in thousands)from continuing operations (unaudited):
|
| | | | | | | | | | | |
| Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 |
| | |
| (Restated) | | | | |
Net loss | (13,160 | ) | | $ | (4,473 | ) | | $ | (78,053 | ) |
Tax benefit | (2,105 | ) | | (10,384 | ) | | (6,296 | ) |
Interest expense | 33,437 |
| | 33,089 |
| | 31,843 |
|
Depreciation and amortization | 42,604 |
| | 38,934 |
| | 44,041 |
|
EBITDA | 60,776 |
| | 57,166 |
| | (8,465 | ) |
Adjustments: | | | | | |
Impairment charges(1) | — |
| | — |
| | 63,285 |
|
Restructuring(2) | 4,458 |
| | 4,266 |
| | 7,232 |
|
Integration and other restructuring costs(3) | 410 |
| | (569 | ) | | 1,980 |
|
Share-based compensation(4) | 2,709 |
| | 1,119 |
| | (752 | ) |
(Gain) loss on disposals of property, plant and equipment - net (5) | (1,142 | ) | | (759 | ) | | 880 |
|
Gain on extinguishment of debt (6) | — |
| | (2,201 | ) | | — |
|
Loss on divestiture (7) | — |
| | 8,730 |
| | — |
|
Total adjustments | 6,435 |
| | 10,586 |
| | 72,625 |
|
Adjusted EBITDA | $ | 67,211 |
| | $ | 67,752 |
| | $ | 64,160 |
|
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 | | Year Ended December 31, 2018 | | Year Ended December 31, 2017 |
(in thousands) | | | | | |
Net loss from continuing operations | $ | (43,431) | | | $ | (14,653) | | | $ | (15,402) | |
Tax provision (benefit) | 4,016 | | | (5,046) | | | (15,614) | |
Interest expense-net | 32,978 | | | 33,277 | | | 32,951 | |
Depreciation and amortization | 22,235 | | | 21,137 | | | 21,586 | |
EBITDA | 15,798 | | | 34,715 | | | 23,521 | |
Adjustments: | | | | | |
| | | | | |
Restructuring (1) | 3,954 | | | 877 | | | 2,475 | |
Transaction-related expenses (2) | 1,005 | | | — | | | — | |
Integration and other restructuring costs (3) | 1,390 | | | 92 | | | (569) | |
| | | | | |
| | | | | |
Share-based compensation (4) | 2,368 | | | 2,295 | | | 979 | |
Loss (gain) on disposals of property, plant and equipment - net (5) | 303 | | | (1,318) | | | (320) | |
Gain on extinguishment of debt (6) | — | | | — | | | (2,201) | |
Loss on divestiture (7) | — | | | — | | | 8,730 | |
Total adjustments | 9,020 | | | 1,946 | | | 9,094 | |
Adjusted EBITDA | $ | 24,818 | | | $ | 36,661 | | | $ | 32,615 | |
| |
(1)
| Impairment charges for the year ended December 31, 2016 primarily relate to non-cash impairment of goodwill of $29.8 million and $33.2 million in the acoustics(1)Restructuring includes costs associated with exit or disposal activities as defined by GAAP related to facility consolidation, including one-time employee termination benefits, costs to close facilities and relocate employees, and costs to terminate contracts other than financing leases in 2017 and 2018 and financing and operating leases in 2019. See Note 5, “Restructuring Costs” of the accompanying consolidated financial statements for further information. (2)Transaction-related expenses primarily consist of professional fees and other expenses related to acquisitions, divestitures and financing activities. (3)In 2019, integration and other restructuring costs include accelerated lease expense of $0.6 million related to planned facility consolidations in the engineered components and industrial segments and $0.9 million of integration costs related to an acquisition in the industrial segment. This was partially offset by $0.8 million related to the reclassification to earnings of a foreign currency translation gain for the wind down and substantial dissolution of certain U.K. entities. In 2018, integration and other restructuring costs include $0.2 million for settlement costs related to a legal claim in the former Assembled Products business in the engineered components segment associated with periods prior to the Company’s go public business combination, $0.1 million related to legal entity restructuring activities and $0.1 million associated with the insurance deductible related to a force majeure incident at a supplier in the engineered components segment. The supplier incident had resulted in incremental costs to maintain production throughout 2018, with such costs offset by insurance recoveries received during the third and fourth quarters of 2018. These costs were partially offset by $0.4 million of legal settlement income related to proceeds from a supplier claim in the engineered components segments, respectively. See “Factors that Affect Operating Results - Key Events” within this MD&A and Note 8, “Goodwill and Other Intangible Assets” of the accompanying consolidated financial statements for further information. |
| |
(2)
| Restructuring includes costs associated with exit or disposal activities as defined by GAAP related to facility consolidation, including one-time employee termination benefits, costs to close facilities and relocate employees, and costs to terminate contracts other than capital leases. See Note 5, “Restructuring Costs” of the accompanying consolidated financial statements for further information. |
| |
(3)
| In 2018, integration and other restructuring costs included $0.3 million for costs related to the exit of the non-core smart meter product line in the components segment, $0.2 million for expected settlement costs related to a legal claim in the former Assembled Products business in the components segment associated with periods prior to the Company’s go public business combination, $0.1 million related to legal entity restructuring activities and $0.1 million associated with the insurance deductible related to a force majeure incident at a supplier in the seating segment. The supplier incident had resulted in incremental costs to maintain production throughout 2018, with such costs offset by insurance recoveries received during the third and fourth quarters of 2018. These costs were partially offset by $0.4 million of legal settlement income related to proceeds from a supplier claim in the seating segment associated with periods prior to the Company’s go public business combination. Such costs are not included in restructuring for GAAP purposes. |
In 2017, integration and restructuring costs includesinclude the reversal of a liability recorded in acquisition accounting from the Business CombinationCompany’s go public business combination in 2014. In 2016, integration
(4)Represents share-based compensation expense for awards under the Company’s 2014 Omnibus Incentive Plan. See Note 12, “Share-Based Compensation” of the accompanying consolidated financial statements for further information.
(5)Loss (gain) on disposals of property, plant and other restructuring costsequipment - net for the year ended December 31, 2019 includes costs associated witha loss of $0.3 million on the start-up of new acoustics segment facilities in Warrensburg, Missouri and Richmond, Indiana. Additionally, the costs include a $0.6 million reversalsale of a reservebuilding in the industrial segment. Gain on disposals of property, plant and equipment-net for the year ended December 31, 2018 includes a gain of $1.3 million on the sale of a building related to the Newcomerstown fire recorded in acquisition accounting forclosure of the Business Combination in 2014 and $0.7 million of charges recorded to reduce inventory balances to estimated net realizable value at our Brazil location within the finishing segment.
| |
(4)
| Represents share-based compensation expense for awards under the Company’s 2014 Omnibus Incentive Plan. During 2016, share based compensation included $2.5 million of income due to a decrease in assumed vesting levels of Adjusted EBITDA based awards. See Note 12, “Share-Based Compensation” of the accompanying consolidated financial statements for further information.
|
| |
(5) | (Gain) loss on disposals of property, plant and equipment - net for the year ended December 31, 2018 includes a gain of $1.3 million on the sale of a building related to the closure of the seating segment’s U.K. facility, partially offset by a $0.2 million loss from the disposition of equipment in connection with the consolidation of two U.S. |
facilities in theengineered components segment.segment’s U.K. facility. Gain on disposals of property, plant and equipment - net for the year ended December 31, 2017 includes a gain of $0.5 million on the sale of a building related to the closure of the finishingindustrial segment’s Richmond, Virginia facilityfacility.
(6)Represents gains on extinguishment of Second Lien Term Loan debt, net of a prepayment fee to retire foreign debt in the fourth quarter of 2017. See Note 9, “Debt and a gain of $0.4 million on the sale of equipment related to the closureHedging Instruments” of the components segment’s Buffalo Grove, Illinois facility. Loss on disposalsaccompanying consolidated financial statements for further information.
(7)On August 30, 2017, the Company completed the divestiture of property, plantits Acoustics Europe business. The divestiture resulted in an $8.7 million pre-tax loss. See Note 2, “Discontinued Operations and equipment - netDivestitures” of the accompanying consolidated financial statements for the year ended December 31, 2016 includes a loss of $0.6 million on the sale of a seating segment facility.further information.
| |
(6) | Represents gains on extinguishment of Second Lien Term Loan debt, net of a prepayment fee to retire foreign debt in the fourth quarter of 2017. See Note 9, “Debt and Hedging Instruments” of the accompanying consolidated financial statements for further information.
|
| |
(7) | On August 30, 2017, the Company completed the divestiture of its Acoustics Europe business. The divestiture resulted in an $8.7 million pre-tax loss. See Note 4, “Divestiture” of the accompanying consolidated financial statements for further information.
|
Adjusted EBITDA percentage of net sales. Adjusted EBITDA as a percentage of net sales is an important metric that the Company uses to evaluate its operational effectiveness and business segments.
Segment Financial Data
The table below presents the Company’s net sales, Adjusted EBITDA and Adjusted EBITDA as a percentage of net sales for each of its reportable segments for the years ended December 31, 20182019 and 2017.2018. The Company uses Adjusted EBITDA as the primary measure of profit or loss for purposes of assessing the operating performance of its segments. See “Key Measures the Company Uses to Evaluate Its Performance” above for our definition of Adjusted EBITDA and a reconciliation of the Company’s consolidated Adjusted EBITDA to Net Loss, which is the nearest GAAP measure.
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| | | | | | | | | | | | | | |
| Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Increase/(Decrease) |
(in thousands, except percentages) | | | $ | | % |
Finishing | | | | | | | |
Net sales | $ | 207,637 |
| | $ | 200,284 |
| | $ | 7,353 |
| | 3.7 | % |
Adjusted EBITDA | 28,979 |
| | 27,661 |
| | 1,318 |
| | 4.8 |
|
Adjusted EBITDA % of net sales | 14.0 | % | | 13.8 | % | | 20 bps |
Components | | | | | | | |
Net sales | $ | 83,028 |
| | $ | 82,621 |
| | $ | 407 |
| | 0.5 | % |
Adjusted EBITDA | 9,746 |
| | 9,888 |
| | (142 | ) | | (1.4 | ) |
Adjusted EBITDA % of net sales | 11.7 | % | | 12.0 | % | | (30) bps |
Seating | | | | | | | |
Net sales | $ | 160,322 |
| | $ | 159,129 |
| | $ | 1,193 |
| | 0.7 | % |
Adjusted EBITDA | 19,747 |
| | 16,348 |
| | 3,399 |
| | 20.8 |
|
Adjusted EBITDA % of net sales | 12.3 | % | | 10.3 | % | | 200 bps |
Acoustics | | | | | | | |
Net sales | $ | 161,961 |
| | $ | 206,582 |
| | $ | (44,621 | ) | | (21.6 | )% |
Adjusted EBITDA | 20,868 |
| | 27,341 |
| | (6,473 | ) | | (23.7 | ) |
Adjusted EBITDA % of net sales | 12.9 | % | | 13.2 | % | | (30) bps |
Corporate | | | | | | | |
Adjusted EBITDA | $ | (12,129 | ) | | $ | (13,486 | ) | | $ | 1,357 |
| | 10.1 | % |
Consolidated | | | | | | | |
Net sales | $ | 612,948 |
| | $ | 648,616 |
| | $ | (35,668 | ) | | (5.5 | )% |
Adjusted EBITDA | 67,211 |
| | 67,752 |
| | (541 | ) | | (0.8 | ) |
Adjusted EBITDA % of net sales | 11.0 | % | | 10.4 | % | | 60 bps |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 | | Year Ended December 31, 2018 | | Increase/(Decrease) | | |
(in thousands, except percentages) | | | | | $ | | % |
Industrial | | | | | | | |
Net sales | $ | 201,517 | | | $ | 207,637 | | | $ | (6,120) | | | (2.9) | % |
Adjusted EBITDA | 20,945 | | | 28,979 | | | (8,034) | | | (27.7) | |
Adjusted EBITDA % of net sales | 10.4 | % | | 14.0 | % | | (360) bps | | | |
Engineered Components | | | | | | | |
Net sales | $ | 136,380 | | | $ | 160,322 | | | $ | (23,942) | | | (14.9) | % |
Adjusted EBITDA | 15,098 | | | 19,747 | | | (4,649) | | | (23.5) | |
Adjusted EBITDA % of net sales | 11.1 | % | | 12.3 | % | | (120) bps | | | |
Corporate | | | | | | | |
Adjusted EBITDA | $ | (11,225) | | | $ | (12,065) | | | $ | 840 | | | 7.0 | % |
Consolidated | | | | | | | |
Net sales | $ | 337,897 | | | $ | 367,959 | | | $ | (30,062) | | | (8.2) | % |
Adjusted EBITDA | 24,818 | | | 36,661 | | | (11,843) | | | (32.3) | |
Adjusted EBITDA % of net sales | 7.3 | % | | 10.0 | % | | (270) bps | | | |
The table below presents the Company’s net sales, Adjusted EBITDA and Adjusted EBITDA as a percentage of net sales for each of its reportable segments for the years ended December 31, 20172018 and 2016.2017.
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Increase/(Decrease) | | |
(in thousands, except percentages) | | | | | $ | | % |
Industrial | | | | | | | |
Net sales | $ | 207,637 | | | $ | 200,284 | | | $ | 7,353 | | | 3.7 | % |
Adjusted EBITDA | 28,979 | | | 27,661 | | | 1,318 | | | 4.8 | |
Adjusted EBITDA % of net sales | 14.0 | % | | 13.8 | % | | 20 bps | | | |
Engineered Components | | | | | | | |
Net sales | $ | 160,322 | | | $ | 159,129 | | | $ | 1,193 | | | 0.7 | % |
Adjusted EBITDA | 19,747 | | | 16,348 | | | 3,399 | | | 20.8 | |
Adjusted EBITDA % of net sales | 12.3 | % | | 10.3 | % | | 200 bps | | | |
Fiber Solutions | | | | | | | |
Net sales | $ | — | | | $ | 22,683 | | | $ | (22,683) | | | (100.0) | % |
Adjusted EBITDA | — | | | 2,059 | | | (2,059) | | | (100.0) | |
Adjusted EBITDA % of net sales | — | % | | 9.1 | % | | — | | | |
Corporate | | | | | | | |
Adjusted EBITDA | $ | (12,065) | | | $ | (13,453) | | | $ | 1,388 | | | 10.3 | % |
Consolidated | | | | | | | |
Net sales | $ | 367,959 | | | $ | 382,096 | | | $ | (14,137) | | | (3.7) | % |
Adjusted EBITDA | 36,661 | | | 32,615 | | | 4,046 | | | 12.4 | |
Adjusted EBITDA % of net sales | 10.0 | % | | 8.5 | % | | 150 bps | | | |
|
| | | | | | | | | | | | | | |
| Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Increase/(Decrease) |
(in thousands, except percentages) | | | $ | | % |
Finishing | | | | | | | |
Net sales | $ | 200,284 |
| | $ | 196,883 |
| | $ | 3,401 |
| | 1.7 | % |
Adjusted EBITDA | 27,661 |
| | 24,200 |
| | 3,461 |
| | 14.3 |
|
Adjusted EBITDA % of net sales | 13.8 | % | | 12.3 | % | | 150 bps |
Components | | | | | | | |
Net sales | $ | 82,621 |
| | $ | 97,667 |
| | $ | (15,046 | ) | | (15.4 | )% |
Adjusted EBITDA | 9,888 |
| | 14,249 |
| | (4,361 | ) | | (30.6 | ) |
Adjusted EBITDA % of net sales | 12.0 | % | | 14.6 | % | | (260) bps |
Seating | | | | | | | |
Net sales | $ | 159,129 |
| | $ | 161,050 |
| | $ | (1,921 | ) | | (1.2 | )% |
Adjusted EBITDA | 16,348 |
| | 16,122 |
| | 226 |
| | 1.4 |
|
Adjusted EBITDA % of net sales | 10.3 | % | | 10.0 | % | | 30 bps |
Acoustics | | | | | | | |
Net sales | $ | 206,582 |
| | $ | 249,919 |
| | $ | (43,337 | ) | | (17.3 | )% |
Adjusted EBITDA | 27,341 |
| | 27,202 |
| | 139 |
| | 0.5 |
|
Adjusted EBITDA % of net sales | 13.2 | % | | 10.9 | % | | 230 bps |
Corporate | | | | | | | |
Adjusted EBITDA | $ | (13,486 | ) | | $ | (17,613 | ) | | $ | 4,127 |
| | 23.4 | % |
Consolidated | | | | | | | |
Net sales | $ | 648,616 |
| | $ | 705,519 |
| | $ | (56,903 | ) | | (8.1 | )% |
Adjusted EBITDA | 67,752 |
| | 64,160 |
| | 3,592 |
| | 5.6 |
|
Adjusted EBITDA % of net sales | 10.4 | % | | 9.1 | % | | 130 bps |
| | | | | | | | | | | | | | | | | | | | | | | |
Industrial Segment | | | | | | | |
| Year Ended December 31, 2019 | | Year Ended December 31, 2018 | | Increase/(Decrease) | | |
(in thousands, except percentages) | | | | | $ | | % |
Net sales | $ | 201,517 | | | $ | 207,637 | | | $ | (6,120) | | | (2.9) | % |
Adjusted EBITDA | 20,945 | | | 28,979 | | | (8,034) | | | (27.7) | |
Adjusted EBITDA % of net sales | 10.4 | % | | 14.0 | % | | (360) bps | | | |
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Finishing Segment | | | | | | | |
| Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Increase/(Decrease) |
(in thousands, except percentages) | | | $ | | % |
Net sales | $ | 207,637 |
| | $ | 200,284 |
| | $ | 7,353 |
| | 3.7 | % |
Adjusted EBITDA | 28,979 |
| | 27,661 |
| | 1,318 |
| | 4.8 |
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Adjusted EBITDA % of net sales | 14.0 | % | | 13.8 | % | | 20 bps |
For the year ended December 31, 2019, net sales were $201.5 million, a decrease of $6.1 million, or 2.9%, compared with $207.6 million for the year ended December 31, 2018. For the year ended December 31, 2019, the Schaffner acquisition on April 1, 2019 contributed $14.4 million of incremental net sales. Changes in exchange rates had a net negative impact of $7.0 million for the year ended December 31, 2019. Excluding the impact of the Schaffner acquisition and the negative currency impact, net sales were $194.1 million, a decrease of $13.5 million or 6.5%. The $13.5 million decrease in net sales for the year ended December 31, 2019 was primarily due to lower sales volume in industrial end markets in Europe and the U.S., partially offset by increased pricing.Adjusted EBITDA for the year ended December 31, 2019 decreased $8.0 million to $20.9 million (10.4% of net sales) from $29.0 million (14.0% of net sales) for the year ended December 31, 2018. For the year ended December 31, 2019, the Schaffner acquisition contributed $0.9 million of incremental Adjusted EBITDA. Changes in exchange rates had a net negative impact of $1.0 million for the year ended December 31, 2019. Excluding the impact of the Schaffner acquisition and the negative currency impact, Adjusted EBITDA was $21.0 million (10.8% of net sales) for the year ended December 31, 2019, a decrease of $8.0 million or 27.6%. The $8.0 million decrease primarily resulted from lower sales volume in industrial end markets, lower material and labor efficiencies related to sales volume declines, raw material and wage inflation, increased healthcare costs, higher freight costs, unfavorable product mix and $0.7 million of lower equity income due to lower sales volumes in our joint ventures in China and Taiwan. The decrease was partially offset by increased sales pricing, lower head count and decreased incentive compensation.
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| Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Increase/(Decrease) | | |
(in thousands, except percentages) | | | | | $ | | % |
Net sales | $ | 207,637 | | | $ | 200,284 | | | $ | 7,353 | | | 3.7 | % |
Adjusted EBITDA | 28,979 | | | 27,661 | | | 1,318 | | | 4.8 | |
Adjusted EBITDA % of net sales | 14.0 | % | | 13.8 | % | | 20 bps | | | |
For the year ended December 31, 2018, net sales were $207.6 million, an increase of $7.4 million, or 3.7%, compared with $200.3 million for the year ended December 31, 2017. On a constant currency basis (net positive currency impact of $4.6 million for the year ended December 31, 2018), revenues increased by $2.8 million for the year ended December 31, 2018. Excluding currency impact, the increase in net sales for the year ended December 31, 2018 was primarily due to increases in volume in industrial end markets globally and increased pricing, partially offset by a $0.6 million decrease associated with the wind down of the finishingindustrial segment’s facility in Brazil and decreases in volume associated with strategic decisions related to exiting unprofitable customers and products.
Adjusted EBITDA for the year ended December 31, 2018 increased $1.3 million to $29.0 million (14.0% of net sales) from $27.7 million (13.8% of net sales) for the year ended December 31, 2017. On a constant currency basis (net positive impact of $0.6 million for the year ended December 31, 2018), Adjusted EBITDA increased $0.7 million for the year ended December 31, 2018. Excluding currency impact, the increase in Adjusted EBITDA for the year ended December 31, 2018 was primarily due to increases in sales volume in industrial end markets globally, increased pricing and decreased incentive compensation, partially offset by increased compensation costs due to additional selling personnel in 2018 supporting commercial growth iniatives,initiatives, raw material inflation, increased freight costs and increased manufacturing costs due to operational inefficiencies related to the Richmond, Virginia plant closure and move of production to the Richmond, Indiana facility.
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Engineered Components Segment | | | | | | | |
| Year Ended December 31, 2019 | | Year Ended December 31, 2018 | | Increase/(Decrease) | | |
(in thousands, except percentages) | | | | | $ | | % |
Net sales | $ | 136,380 | | | $ | 160,322 | | | $ | (23,942) | | | (14.9) | % |
Adjusted EBITDA | 15,098 | | | 19,747 | | | (4,649) | | | (23.5) | |
Adjusted EBITDA % of net sales | 11.1 | % | | 12.3 | % | | (120) bps | | | |
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| Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Increase/(Decrease) |
(in thousands, except percentages) | | | $ | | % |
Net sales | $ | 200,284 |
| | $ | 196,883 |
| | $ | 3,401 |
| | 1.7 | % |
Adjusted EBITDA | 27,661 |
| | 24,200 |
| | 3,461 |
| | 14.3 |
|
Adjusted EBITDA % of net sales | 13.8 | % | | 12.3 | % | | 150 bps |
For the year ended December 31, 2017,2019, net sales were $200.3$136.4 million, an increasea decrease of $3.4$23.9 million or 1.7%14.9%, compared with $196.9$160.3 million for the year ended December 31, 2016. On a constant currency basis (net positive currency impact of $1.52018. The decrease in net sales was primarily due to lower sales volumes due to end market declines in the construction, agriculture, power sports, and turf care markets. The decrease in volume was partially offset by increased pricing on core product lines.
Adjusted EBITDA decreased $4.6 million, or 23.5%, for the year ended December 31, 2017), revenues increased by $1.92019 to $15.1 million for the year ended December 31, 2017. Excluding currency impact, the increase in net sales for the year ended December 31, 2017 was primarily due to increases in demand from industrial end markets in Europe and North America, partially offset by a $4.7 million decrease associated with the wind down of the finishing segment’s facility in Brazil and decreases in volume associated with strategic decisions related to exiting unprofitable customers and products.
Adjusted EBITDA for the year ended December 31, 2017 increased $3.5 million to $27.7 million (13.8%(11.1% of net sales) from $24.2compared to $19.7 million (12.3% of net sales) for the year ended December 31, 2016. Changes in foreign currency exchange rates did not significantly impact Adjusted EBITDA. The increase in Adjusted EBITDA for the year ended December 31, 2017 primarily resulted from increases in sales volume to industrial end markets in Europe and North America, savings in selling and administrative expenses as a result of the Company’s global cost reduction and restructuring program and other spending controls, partially offset by increased incentive compensation.
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Components Segment | | | | | | | |
| Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Increase/(Decrease) |
(in thousands, except percentages) | | | $ | | % |
Net sales | $ | 83,028 |
| | $ | 82,621 |
| | $ | 407 |
| | 0.5 | % |
Adjusted EBITDA | 9,746 |
| | 9,888 |
| | (142 | ) | | (1.4 | ) |
Adjusted EBITDA % of net sales | 11.7 | % | | 12.0 | % | | (30) bps |
For the year ended December 31, 2018, net sales were $83.0 million, an increase of $0.4 million or 0.5%, compared with $82.6 million for the year ended December 31, 2017. The increase in net sales was primarily due to increased pricing and higher sales volumes in smart utility meters in connection with the phase out of this product line, partially offset by lower sales volumes in rail and perforated and expanded metal products.
Adjusted EBITDA decreased $0.1 million, or 1.4%, for the year ended December 31, 2018 to $9.7 million (11.7% of net sales) compared to $9.9 million (12.0% of net sales) for the year ended December 31, 2017.2018. The decrease in Adjusted EBITDA for the year ended December 31, 20182019 primarily resulted from raw material inflation for steel, lower sales volumes, in raillower material and perforatedlabor efficiencies related to sales volume declines, raw material and expanded metal products, increased freight costswage inflation, unfavorable product mix compared with the prior period and higher labor and material usage costs as result of operational inefficiencies,freight costs. The decrease was partially offset by increased pricing decreased incentive compensationon core product lines, reduced material usage and reduced manufacturinglabor costs due to continuous improvement initiatives.
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| Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Increase/(Decrease) |
(in thousands, except percentages) | | | $ | | % |
Net sales | $ | 82,621 |
| | $ | 97,667 |
| | $ | (15,046 | ) | | (15.4 | )% |
Adjusted EBITDA | 9,888 |
| | 14,249 |
| | (4,361 | ) | | (30.6 | ) |
Adjusted EBITDA % of net sales | 12.0 | % | | 14.6 | % | | (260) bps |
For the year ended December 31, 2017, net sales were $82.6 million, a decrease of $15.0 million or 15.4%, compared with $97.7 million for the year ended December 31, 2016. The decrease in net sales was primarily due to a decrease of $8.9 million as a result of the strategic decision to discontinue certain product lines selling under the Assembled Products brand in 2016continuous improvement programs, lower head count and lower sales volumes in the rail market.decreased incentive compensation.
Adjusted EBITDA decreased $4.4 million, or 30.6%, for the year ended December 31, 2017 to $9.9 million (12.0% of net sales) compared to $14.2 million (14.6% of net sales) for the year ended December 31, 2016. The decrease in Adjusted EBITDA for the year ended December 31, 2017 primarily resulted from lower volume in the rail market and unfavorable product mix, increases in raw material prices primarily due to steel purchases, lower labor productivity on decreased volumes and increased incentive compensation due to increased attainment percentages, partially offset by decreased selling and administrative expenses from other spending controls and $0.9 million as a result of the strategic decision to discontinue certain product lines selling under the Assembled Products brand in 2016 that were not profitable.
| | Seating Segment | | | | | | | | |
| Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Increase/(Decrease) | | Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Increase/(Decrease) | |
(in thousands, except percentages) | | $ | | % | (in thousands, except percentages) | | | | | $ | | % |
Net sales | $ | 160,322 |
| | $ | 159,129 |
| | $ | 1,193 |
| | 0.7 | % | Net sales | $ | 160,322 | | | $ | 159,129 | | | $ | 1,193 | | | 0.7 | % |
Adjusted EBITDA | 19,747 |
| | 16,348 |
| | 3,399 |
| | 20.8 |
| Adjusted EBITDA | 19,747 | | | 16,348 | | | 3,399 | | | 20.8 | |
Adjusted EBITDA % of net sales | 12.3 | % | | 10.3 | % | | 200 bps | Adjusted EBITDA % of net sales | 12.3 | % | | 10.3 | % | | 200 bps | | |
For the year ended December 31, 2018, net sales were $160.3 million, an increase of $1.2 million or 0.7%, compared with $159.1 million for the year ended December 31, 2017. On a constant currency basis (net positive currency impact of $0.6 million for the year ended December 31, 2018), revenues increased by $0.6 million for the year ended December 31, 2018. The increase in net sales for the year ended December 31, 2018 was primarily due to increases in sales volumevolumes in the construction and agriculture markets and improved pricing, partially offset by a decrease in sales volume in the motorcyclepower sports market and lower volume in the turf care market due to a late start to spring resulting in a shortened selling season.
For the year ended December 31, 2018, Adjusted EBITDA was $19.7 million (12.3% of net sales), compared to $16.3 million (10.3% of net sales) for the year ended December 31, 2017. On a constant currency basis (net positive currency impact of $0.1 million for the year ended December 31, 2018), Adjusted EBITDA increased by $3.3 million for the year ended December 31, 2018. The increase in Adjusted EBITDA for the year ended December 31, 2018 was primarily due to improved pricing, increased sales volume in the construction and agriculture markets and lower material usage and labor costs from continuous improvement projects, partially offset by decreased sales volume in the motorcyclepower sports and turf care markets, increased incentive compensation, raw material inflation and higher freight costs.
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| Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Increase/(Decrease) |
(in thousands, except percentages) | | | $ | | % |
Net sales | $ | 159,129 |
| | $ | 161,050 |
| | $ | (1,921 | ) | | (1.2 | )% |
Adjusted EBITDA | 16,348 |
| | 16,122 |
| | 226 |
| | 1.4 |
|
Adjusted EBITDA % of net sales | 10.3 | % | | 10.0 | % | | 30 bps |
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Fiber Solutions Segment | | | | | | | |
| Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Increase/(Decrease) | | |
(in thousands, except percentages) | | | | | $ | | % |
Net sales | $ | — | | | $ | 22,683 | | | $ | (22,683) | | | (100.0) | % |
Adjusted EBITDA | — | | | 2,059 | | | (2,059) | | | (100.0) | |
Adjusted EBITDA % of net sales | — | % | | 9.1 | % | | — | | | |
For the year ended December 31, 2017, net sales were $159.1$22.7 million a decrease of $1.9 million, or 1.2%, compared with $161.1 million for the year ended December 31, 2016. On a constant currency basis (net negative currency impact of $0.3 million for the year ended December 31, 2017), revenues decreased by $1.6 million for the year ended December 31, 2017. The decrease in net sales for the year ended December 31, 2017 was primarily due to decreases in volume in the turf care, motorcycle and power sports markets, partially offset by an increase in volume in the construction market and higher pricing.
For the year ended December 31, 2017, Adjusted EBITDA was $16.3 million (10.3% of net sales), compared to $16.1 million (10.0% of net sales) for$2.1 million. On August 30, 2017, the year ended December 31, 2016. Changes in foreign currency exchange rates did not significantly impact Adjusted EBITDA. The increase in Adjusted EBITDA for the year ended December 31, 2017 was primarily due to savings in cost of goods sold and selling and administrative expenses resulting from the Company’s global cost reduction program, supply chain initiatives, improved pricing, and other spending controls, partially offset by decreased sales volume and operational inefficiencies resulting in higher material usage and increased freight costs.
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Acoustics Segment | | | | | | | |
| Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Increase/(Decrease) |
(in thousands, except percentages) | | | $ | | % |
Net sales | $ | 161,961 |
| | $ | 206,582 |
| | $ | (44,621 | ) | | (21.6 | )% |
Adjusted EBITDA | 20,868 |
| | 27,341 |
| | (6,473 | ) | | (23.7 | ) |
Adjusted EBITDA % of net sales | 12.9 | % | | 13.2 | % | | (30) bps |
For the year ended December 31, 2018, net sales were $162.0 million, a decrease of $44.6 million, or 21.6%, compared with $206.6 million for the year ended December 31, 2017. Changes in foreign currency exchange rates did not significantly impact net sales. The decrease was primarily due to $22.9 million of lower sales as a result ofCompany completed the divestiture of the Acoustics Europeits European fiber solutions business, in August 2017, a net decrease in vehicle platforms, a decrease in demand for car platforms due to a shift from passenger cars to light trucks and sport utility vehicles and lower pricing on existing platforms.
For the year ended December 31, 2018, Adjusted EBITDA was $20.9 million (12.9% of net sales), compared with $27.3 million (13.2% of net sales) for the year ended December 31, 2017. Changes in foreign currency exchange rateswhich did not significantly impact Adjusted EBITDA. The decrease in Adjusted EBITDAmeet the criteria for discontinued operations presentation at the year ended December 31, 2018 was primarily due to lower sales volumes, lower pricing on existing platforms, raw material inflation, higher freight costs, increased manufacturing costs due to operational inefficiencies related totime of the Richmond, Indiana plant consolidation and $2.1 million duedivestiture.
to the divestiture of the Acoustics Europe business, partially offset by lower material usage and labor costs as a result of operational continuous improvement initiatives, lower repair and maintenance costs and decreased incentive compensation.
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| Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Increase/(Decrease) |
(in thousands, except percentages) | | | $ | | % |
Net sales | $ | 206,582 |
| | $ | 249,919 |
| | $ | (43,337 | ) | | (17.3 | )% |
Adjusted EBITDA | 27,341 |
| | 27,202 |
| | 139 |
| | 0.5 |
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Adjusted EBITDA % of net sales | 13.2 | % | | 10.9 | % | | 230 bps |
For the year ended December 31, 2017, net sales were $206.6 million, a decrease of $43.3 million, or 17.3%, compared with $249.9 million for the year ended December 31, 2016. Changes in foreign currency exchange rates did not significantly impact net sales. The decrease was primarily due to lower overall North American vehicle demand and a significant decrease in demand for car platforms due to a shift from cars to light trucks and sport utility vehicles. The decrease was also due to $10.5 million of lower sales as a result of the sale of the Acoustics Europe business which was sold on August 30, 2017, lower sales volumes as a result of a net decrease in vehicle platforms, and nonrecurring 2016 sales volumes related to a competitor bankruptcy.
For the year ended December 31, 2017, Adjusted EBITDA was $27.3 million (13.2% of net sales), compared with $27.2 million (10.9% of net sales) for the year ended December 31, 2016. Changes in foreign currency exchange rates did not significantly impact Adjusted EBITDA. The increase in Adjusted EBITDA for the year ended December 31, 2017 was primarily due to savings in cost of goods sold from lower labor costs and lower material usage costs from improved production efficiencies and supply chain initiatives and savings in selling and administrative expenses resulting from the Company’s global cost reduction programs and other spending controls. The increase in Adjusted EBITDA was partially offset by lower sales volumes, increased incentive compensation and $1.2 million due to the sale of the Acoustics Europe business which was sold on August 30, 2017.
| | Corporate | | | | | | | | Corporate | |
| Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Increase/(Decrease) | | Year Ended December 31, 2019 | | Year Ended December 31, 2018 | | Increase/(Decrease) | |
(in thousands, except percentages) | | $ | | % | (in thousands, except percentages) | | | | | $ | | % |
Adjusted EBITDA | $ | (12,129 | ) | | $ | (13,486 | ) | | $ | 1,357 |
| | 10.1 | % | Adjusted EBITDA | $ | (11,225) | | | $ | (12,065) | | | $ | 840 | | | 7.0 | % |
Corporate expense is principally comprised of the costs of corporate operations, including the compensation and benefits of the Company’s executive team and personnel responsible for treasury, finance, insurance, legal, information technology, human resources, tax compliance and planning and the administration of employee benefits. Corporate expense also includes third party legal, audit, tax and other professional fees and expenses, board of director compensation and expenses, and theother corporate operating costs of the corporate office.costs.
The decrease of $1.4$0.8 million in corporate expense for the year ended December 31, 2018 compared2019 primarily resulted from lower compensation costs due to the prior yearlower head count, lower third party professional fees and decreased incentive compensation, partially offset by increased healthcare costs and wage inflation.
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| Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Increase/(Decrease) | | |
(in thousands, except percentages) | | | | | $ | | % |
Adjusted EBITDA | $ | (12,065) | | | $ | (13,453) | | | $ | 1,388 | | | 10.3 | % |
The $1.4 million decrease in corporate expense in 2018 primarily resulted from lower third party professional fees and decreased incentive compensation, partially offset by increased compensation costs due to higher headcounthead count from open positions in 2017.
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| Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Increase/(Decrease) |
(in thousands, except percentages) | | | $ | | % |
Adjusted EBITDA | $ | (13,486 | ) | | $ | (17,613 | ) | | $ | 4,127 |
| | 23.4 | % |
The decrease of $4.1 million in corporate expense for the year ended December 31, 2017 compared to the prior year primarily resulted from $2.8 million of non-recurring third-party professional fees associated with investments in manufacturing and supply chain improvement initiatives incurred during the year ended December 31, 2016, the transition of the Company’s Chief Executive Officer and Chief Operating Officer and other spending controls, partially offset by increased incentive compensation.
Liquidity and Capital Resources
Background
The Company’sOur primary sources of liquidity are cash generated from itsour operations, available cash and borrowings under itsour U.S. and foreign credit facilities. As of December 31, 2019, we had $102.0 million of total liquidity, including $84.5 million of available cash, $10.0 million of additional borrowings available under the Revolving Credit Facility portion of our U.S. credit agreement, and $7.5 million available under revolving loan facilities that we maintain outside the U.S. Included in our consolidated cash balance of $84.5 million at December 31, 2019 is cash of $13.3 million held at our non-U.S. operations. These non-U.S. funds, with some restrictions and tax implications, are available for repatriation as deemed necessary by us. The Revolving Credit Facility portion of our U.S. credit agreement and foreign revolving loan facilities are available for working capital requirements, capital expenditures and other general corporate purposes.
In connection with the August 30, 2019 sale of the North American fiber solutions business, we received net cash proceeds, as defined by the Senior Secured Credit Facilities, of $62.6 million, of which $57.6 million was remaining after permitted reinvestments as of December 31, 2019. We intend to continue to reinvest these net proceeds as permitted under the terms of the Senior Secured Credit Facilities. Permitted reinvestments include capital expenditures, repairs and maintenance and permitted acquisitions, if such reinvestments occur within twelve months following receipt of such net cash proceeds or within 180 days of a contractual commitment if such a commitment is made during the twelve month period. To the extent there are net cash proceeds that are not reinvested during the aforementioned period, a mandatory prepayment of debt is required.
On August 12, 2019, we announced that our Board of Directors had engaged financial advisors to advise us as we conduct a process to evaluate strategic alternatives. This evaluation includes, but is not limited to, a potential sale, strategic merger, consolidation or business combination, acquisition, recapitalization, financing consisting of equity and/or debt securities, and/or a restructuring of the Company’s debt, focused on maximizing the value of the Company for its stakeholders.
As of December 31, 2018, the Company had $58.2$46.7 million of available cash, $29.4 million of additional borrowings available under the revolving credit facility portion of its U.S. credit agreement, and $11.8$8.9 million available under short-term revolving loan facilities that the Company maintains outside the U.S. As of December 31, 2018, available borrowings under its U.S. revolving credit facility were reduced by outstanding letters of credit of $4.9 million. Included in the Company’s consolidated cash balance of $58.2$46.7 million at December 31, 2018 iswas $22.0 million of cash of $34.9 million held at the Company’sJason’s non-U.S. operations. These funds, with some restrictions and tax implications, are available for repatriation as deemed necessary by the Company. The Company’s U.S. credit agreement and foreign revolving loan facilities are available for working capital requirements, capital expenditures and other general corporate purposes.
We believe our existing cash on hand, expected future cash flows from operating activities, and additional borrowings available under our U.S. and foreign credit facilities provide sufficient resources to fund ongoing operating requirements as well as future capital expenditures, and debt service requirements.
requirements through the next twelve months. As of December 31, 2017,2019, our First Lien U.S. term loan of $284.4 million matures on June 30, 2021, and our Second Lien U.S. term loan of $89.9 million matures on June 30, 2022. We will need to refinance our debt, obtain alternative forms of financings or investments to achieve our longer-term strategic plans. We can make no assurances we will be able to refinance our debt, obtain alternative forms of financing or investments. Furthermore, if economic conditions or demand for our products deteriorates, we may experience a material adverse effect on our business, operating results, liquidity and financial condition. In addition, the Company had $48.9 millionprocess of available cash, $33.9 millionexploring
strategic alternatives may be time consuming, costly and disruptive to our business operations and if we are unable to effectively manage the process, our business, financial condition, liquidity, and results of additional borrowings available under the revolving credit facility portion of its U.S. credit agreement, and $12.7 million available under short-term revolving loan facilities that the Company maintains outside the U.S. As of December 31, 2017, available borrowings under its U.S. revolving credit facility were reduced by outstanding letters of credit of $6.1 million. Included in the Company’s consolidated cash balance of $48.9 million at December 31, 2017 was $24.3 million of cash held at Jason’s non-U.S. operations.operations could be adversely affected.
Indebtedness
As of December 31, 2018, the Company’s2019, our total outstanding indebtedness of $393.8$384.8 million was comprised of term loans outstanding under itsour Senior Secured Credit Facilities of $370.1 million (net of a debt discount of $1.7 million and deferred financing costs of $2.5 million), various foreign bank term loans and revolving loan facilities of $13.9 million and finance lease obligations and other debt of $0.8 million. No borrowings were outstanding under the U.S. revolving credit facility portion of the Senior Secured Credit Facilities as of December 31, 2019.
As of December 31, 2018, our total outstanding indebtedness of $391.8 million was comprised of term loans outstanding under our Senior Secured Credit Facilities of $375.7 million (net of a debt discount of $2.7 million and deferred financing costs of $4.1 million), various foreign bank term loans and revolving loan facilities of $17.5$15.5 million and capitalfinance lease obligations and other debt of $0.6 million. No borrowings were outstanding under the U.S. revolving loancredit facility portion of the Senior Secured Credit Facilities as of December 31, 2018.
As of December 31, 2017, the Company’s total outstanding indebtedness of $401.5 million was comprised of aggregate term loans outstanding under its Senior Secured Credit Facilities of $378.8 million (net of a debt discount of $3.6 million and deferred financing costs of $5.6 million), various foreign bank term loans and revolving loan facilities of $21.8 million and capital lease obligations of $0.8 million. No amounts were outstanding under the revolving credit facility portion of the Senior Secured Credit Facilities as of December 31, 2017.
The Company maintainsWe maintain various bank term loan and revolving loan facilities outside the U.S. for local operating and investing needs. Borrowings under these facilities totaled $17.5$13.9 million as of December 31, 2019, including borrowings of $13.4 million incurred by our subsidiaries in Germany, compared to $15.5 million as of December 31, 2018, including borrowings of $15.0 million incurred by the Company’s subsidiaries in Germany, and borrowings totaled $21.8 million as of December 31, 2017, including borrowings of $18.0 million incurred by the Company’sour subsidiaries in Germany. The foreign debt obligations in Germany primarily relate to term loans within our finishingindustrial segment of $12.5 million at December 31, 2019 and $15.0 million at December 31, 2018 and $18.0 million at December 31, 2017.2018. The borrowings bear interest at fixed and variable rates ranging from 2.1%1.8% to 4.7% and are subject to repayment in varying amounts through 2025.
Net leverage, defined as total indebtedness less cash divided by Adjusted EBITDA, was 12.0x and 5.1x as of December 31, 2019 and 2018, respectively. The table below summarizes net leverage as of December 31, 2019 and 2018: | | | | | | | | | | | |
(in thousands) | December 31, 2019 | | December 31, 2018 |
Current and long-term debt | $ | 384,750 | | | $ | 391,788 | |
Add: Debt discounts and deferred financing costs | 4,261 | | | 6,721 | |
Add: Liabilities held for sale - long-term debt | — | | | 2,000 | |
Less: Assets held for sale - cash and cash equivalents | — | | | (11,471) | |
Less: Cash and cash equivalents | (84,526) | | | (46,698) | |
Net Debt | $ | 304,485 | | | $ | 342,340 | |
| | | |
Adjusted EBITDA - continuing operations | $ | 24,818 | | | $ | 36,661 | |
Adjusted EBITDA - discontinued operations(1) | — | | | 30,550 | |
Acquisition Adjusted EBITDA(2) | 457 | | | — | |
Pro Forma Adjusted EBITDA | $ | 25,275 | | | $ | 67,211 | |
| | | |
Net leverage | 12.0x | | | 5.1x | |
(1) Cash and cash equivalents, long-term debt and Adjusted EBITDA related to discontinued operations are included in the calculation of net leverage as of December 31, 2018 as it was prior to the completion of the divestitures.
(2) Acquisition Adjusted EBITDA includes Adjusted EBITDA prior to the date of the acquisition on April 1, 2019.
Senior Secured Credit Facilities
General. On June 30, 2014, Jason Incorporated, as the borrower, entered into (i) the First Lien Credit Agreement, with Jason Partners Holdings Inc., Jason Holdings, Inc. I, a wholly-owned subsidiary of Jason Partners Holdings Inc. (“Intermediate Holdings”), the subsidiary guarantors party thereto and the several banks and other financial institutions or entities from time to time party thereto (the “First Lien Credit Agreement”) and (ii) the Second Lien Credit Agreement, dated as of June 30, 2014, with Jason Partners Holdings Inc., IntermediateJason Holdings, Inc. I, the subsidiary guarantors party thereto and the several banks and other financial institutions or entities from time to time party thereto (the “Second Lien Credit Agreement” and, together with the First Lien Credit Agreement, the “Credit Agreements”). Jason Partners Holdings Inc. is wholly owned by Jason Industries, Inc. while Jason Incorporated and Jason Holdings, Inc. I are indirect wholly-owned subsidiaries of Jason Industries, Inc.
The First Lien Credit Agreement, as amended, provides for (i) term loans in the principal amount of $310.0 million (the “First Lien Term Facility” and the loans thereunder the “First Lien Term Loans”), of which $292.5$284.4 million is outstanding as of December 31, 2018,2019, and (ii) a revolving loan of up to $34.3$25.5 million (including revolving loans, a $10.0 million swingline loan sublimit, and a $12.5 million letter of credit sublimit) (the “Revolving Credit Facility”), in each case under the first lien
senior secured loan facilities (the “First Lien Credit Facilities”). The Second Lien Credit Agreement provides for term loans in an aggregate principal amount of $110.0 million, of which $89.9 million is outstanding as of December 31, 2018,2019, under the second lien senior secured term loan facility (the “Second Lien Term Facility” and the loans thereunder the “Second Lien Term Loans” and, the Second Lien Term Facility together with the First Lien Credit Facilities, the “Senior Secured Credit
Facilities”). During 2018, the Company2019, we amended itsour Revolving Credit Facility to extend the maturity date to June 30,December 31, 2020. The amendment reduced the borrowing capacity from $40.0$30.0 million to $34.3$25.5 million, until June 30, 2019, and thereafter, $30.0 million until June 30, 2020.subject to compliance with a consolidated first lien net leverage ratio as discussed in the Covenants section below. In connection with the amendment, the Companywe paid deferred financing costs of $0.6$0.3 million which have been recorded within other assets-net within the consolidated balance sheets.
The Revolving Credit Facility matures June 30,December 31, 2020, the First Lien Term Loans mature June 30, 2021 and the Second Lien Term Loans mature June 30, 2022. The principal amount of the First Lien Term Loans amortizes in quarterly installments equal to $0.8 million, with the balance payable at maturity. Neither the Revolving Credit Facility nor the Second Lien Term Loans amortize, however each is repayable in full at maturity.
Security Interests. In connection with the Senior Secured Credit Facilities, Jason Partners Holdings Inc., IntermediateJason Holdings, Inc. I, Jason Incorporated and certain of Jason Incorporated’s subsidiaries (the “Subsidiary Guarantors”), entered into a (i) First Lien Security Agreement (the “First Lien Security Agreement”), dated as of June 30, 2014, and (ii) a Second Lien Security Agreement (the “Second Lien Security Agreement”, together with the First Lien Security Agreement, the “Security Agreements”), dated as of June 30, 2014. Pursuant to the Security Agreements, amounts borrowed under the Senior Secured Credit Facilities and any swap agreements and cash management arrangements provided by any lender party to the Senior Secured Credit Facilities or any of its affiliates are secured (i) with respect to the First Lien Credit Facilities, on a first priority basis and (ii) with respect to the Second Lien Term Facility, on a second priority basis, by a perfected security interest in substantially all of Jason Incorporated’s, Jason Partners Holdings Inc.’s, Intermediate Holdings’Jason Holdings, Inc. I’s and each Subsidiary Guarantor’s tangible and intangible assets (subject to certain exceptions), including U.S. registered intellectual property and all of the capital stock of each of Jason Incorporated’s direct and indirect wholly-owned material Restricted Subsidiaries (as defined in the Credit Agreements) (limited, in the case of foreign subsidiaries, to 65% of the capital stock of first tier foreign subsidiaries). In addition, pursuant to the Credit Agreements, Jason Partners Holdings Inc., IntermediateJason Holdings, Inc. I and the Subsidiary Guarantors guaranteed amounts borrowed under the Senior Secured Credit Facilities.
Interest Rate and Fees. At our election, the interest rate per annum applicable to the loans under the Senior Secured Credit Facilities is based on a fluctuating rate of interest determined by reference to either (i) a base rate determined by reference to the higher of (a) the “administrativeadministrative agent’s prime rate”,rate, (b) the federal funds effective rate plus 0.50% or (c) the Eurocurrency rate applicable for an interest period of one month plus 1.00%, plus an applicable margin equal to (x) 3.50% in the case of the First Lien Term Loans, (y) 2.25% in the case of the Revolving Credit Facility or (z) 7.00% in the case of the Second Lien Term Loans or (ii) a Eurocurrency rate determined by reference to the London Interbank Offered Rate (“LIBOR”), adjusted for statutory reserve requirements, plus an applicable margin equal to (x) 4.50% in the case of the First Lien Term Loans, (y) 3.25% in the case of the Revolving Credit Facility or (z) 8.00% in the case of the Second Lien Term Loans. Borrowings under the First Lien Term Facility and Second Lien Term Facility are subject to a floor of 1.00% in the case of Eurocurrency loans. The applicable margin for loans under the Revolving Credit Facility may be subject to adjustment based upon Jason Incorporated’s consolidated first lien net leverage ratio.
Interest Rate Hedge Contracts.To manage exposure to fluctuations in interest rates, the Companywe entered into forward interest rate swap agreements (“Swaps”) in 2015 with notional values totaling $210.0 million at December 31, 20182019 and December 31, 2017.2018. The Swaps have been designated by the Companyus as cash flow hedges, and effectively fix the variable portion of interest rates on variable rate term loan borrowings at a rate of approximately 2.08% prior to financing spreads and related fees. The Swaps had a forward start date of December 30, 2016 and have an expiration date of June 30, 2020. As such,For the Company began recognizingyears ended December 31, 2019, 2018, and 2017 we recognized $0.9 million of interest income, $0.2 million of interest income and $1.9 million of interest expense related to the interest rate hedge contracts in the first quarter of 2017. For the year ended December 31, 2018, the Company recognized $0.2 million of interest income related to the Swaps. There was $1.9 million interest expense recognized in 2017 and no interest expense recognized in 2016.Swaps, respectively. Based on current interest rates, the Company expects to recognize $0.3 million of interest income of $1.5 millionexpense related to the Swaps in 2019.2020.
The fair values of the Company’sour Swaps are recorded on the consolidated balance sheets with the corresponding offset recorded as a component of accumulated other comprehensive loss. The net fair value of the Swaps was a net liability of $0.3 million at December 31, 2019 and a net asset of $1.9 million at December 31, 2018, and a net asset of $0.1 million at December 31, 2017, respectively. See the amounts recorded on the consolidated balance sheets within the table below:
| | | | | | | | | | | |
(in thousands) | December 31, 2019 | | December 31, 2018 |
Interest rate swaps: | | | |
Recorded in other current assets | $ | — | | | $ | 1,325 | |
Recorded in other assets - net | — | | | 542 | |
Recorded in other current liabilities | (260) | | | — | |
| | | |
Total net asset derivatives designated as hedging instruments | $ | (260) | | | $ | 1,867 | |
|
| | | | | | | |
| December 31, 2018 | | December 31, 2017 |
Interest rate swaps: | | | |
Recorded in other current assets | $ | 1,325 |
| | $ | — |
|
Recorded in other assets - net | 542 |
| | 537 |
|
Recorded in other current liabilities | — |
| | (458 | ) |
Total net asset derivatives designated as hedging instruments | $ | 1,867 |
| | $ | 79 |
|
Mandatory Prepayment. Subject to certain exceptions, the Senior Secured Credit Facilities are subject to mandatory prepayments in amounts equal to: (1) a percentage of the net cash proceeds from any non-ordinary course sale or other
disposition of assets (including as a result of casualty or condemnation) by Jason Incorporated or any of its Restricted Subsidiaries in excess of a certain amount and subject to customary reinvestment provisions and certain other exceptions; (2) 100% of the net cash proceeds from the issuance or incurrence of debt by Jason Incorporated or any of its Restricted Subsidiaries (other than indebtedness permitted by the Senior Secured Credit Facilities); and (3) 75% (with step-downs to 50%, 25% and 0% based upon achievement of specified consolidated first lien net leverage ratios under the First Lien Credit Facilities and specified consolidated total net leverage ratios under the Second Lien Term Facility) of annual excess cash flow, as defined, of Jason Incorporated and its Restricted Subsidiaries. Other than the payment of customary “breakage” costs, Jason Incorporated may voluntarily prepay outstanding loans at any time. ForIn connection with the year endedAugust 30, 2019 sale of the North American fiber solutions business, we received net cash proceeds, as defined by the Senior Secured Credit Facilities, of $62.6 million, of which $57.6 million was remaining after permitted reinvestments as of December 31, 2019. We intend to continue to reinvest these net proceeds as permitted under the terms of the Senior Secured Credit Facilities; therefore, no mandatory prepayment is anticipated at this time. To the extent that there are net proceeds that are not reinvested within twelve months of receipt, or within 180 days of a contractual commitment if such commitment is made during the twelve month period, a mandatory prepayment will be required. As of December 31, 2019 and December 31, 2018, there iswas no required mandatory excess cash flow prepayment under the Senior Secured Credit Facilities. At
In December 31, 2017,2019, the Company made a mandatory excess cash flowvoluntary prepayment of $2.5$5.0 million underon the Senior Secured Credit Facilities was included within the current portion of long-term debt in the consolidated balance sheets. The mandatory prepayment of $2.5 million was paid on April 6, 2018.
During 2017, the Company repurchased $20.0 million of SecondFirst Lien Term Loans, for $16.8 million.utilizing the proceeds from the sale of the Metalex business and from the sale of a facility within the industrial segment. In connection with the repurchase,payment, the Company wrote off $0.4 millionimmaterial amounts of previously unamortized debt discount and $0.4 million of previously unamortized deferred financing costs, which were recorded as a reduction to the gain on extinguishment of debt. The transactions resulted in a net gain of $2.4 million, which has been recorded within the consolidated statements of operations.additional interest expense.
In the fourth quarter of 2017, the Company utilized $2.4 million of cash received during the third quarter from the sale of Acoustics Europe to retire foreign debt in Germany and incurred a $0.2 million prepayment fee, which was recorded as an offset to the gain on extinguishment of debt.
Covenants. The Senior Secured Credit Facilities contain a number of customary affirmative and negative covenants that, among other things, limit or restrict the ability of Jason Incorporated and its Restricted Subsidiaries to: incur additional indebtedness (including guarantee obligations); incur liens; engage in mergers, consolidations, liquidations and dissolutions; sell assets; pay dividends and make other payments in respect of capital stock; make acquisitions, investments, loans and advances; pay and modify the terms of certain indebtedness; engage in certain transactions with affiliates; enter into negative pledge clauses and clauses restricting subsidiary distributions; and change its line of business, in each case, subject to certain limited exceptions. To comply with these covenants, Jason Incorporated and its Restricted Subsidiaries are limited in the amount of cash that can be distributed to Jason Industries, Inc. in the form of dividends, loans or other distributions. These restrictions are triggered if Jason Incorporated and its Restricted Subsidiaries do not achieve a consolidated net leverage ratio that is equal to or less than 5.25 to 1.00 on a trailing twelve-month basis calculated in accordance with the provisions of the Credit Agreements. As of December 31, 2019, the consolidated net leverage ratio for Jason Incorporated and its Restricted Subsidiaries exceeded 5.25 to 1.00; therefore, it is not currently able to distribute cash to Jason Industries, Inc.
In addition, under the Revolving Credit Facility, if the aggregate outstanding amount of all revolving loans, swingline loans and certain letter of credit obligations exceed $10.0 million at the end of any fiscal quarter, Jason Incorporated and its Restricted Subsidiaries will be required to not exceed a consolidated first lien net leverage ratio currently specified at 4.50 to 1.00, with a decrease toof 4.25 to 1.00 onas of December 31, 2019 (which will decrease to 4.00 to 1.00 on June 26, 2020 and remaining at that level thereafter.thereafter). If such outstanding amounts do not exceed $10.0 million at the end of any fiscal quarter, no financial covenants are applicable. As of December 31, 20182019, the consolidated first lien net leverage ratio was 3.647.52 to 1.00 on a pro forma trailing twelve-month basis calculated in accordance with the respective provisions of the Credit Agreements which exclude the Second Lien Term Loans from the calculation of net debt (numerator) and allow the inclusion of certain pro forma adjustments and exclusion of certain specified or nonrecurring costs and expenses in calculating Adjusted EBITDA (denominator). The aggregate outstanding amountBecause the consolidated first lien net leverage ratio at December 31, 2019 exceeded 4.25 to 1.00, borrowings under the Revolving Credit Facility are limited to a total of all revolving loans, swingline loans and certain$10.0 million (which includes letters of credit was less than $10.0 million atin excess of $5.0 million). At December 31, 2018.2019, we had letters of credit outstanding of $3.6 million and had no outstanding borrowings outstanding under the Revolving Credit Facility. As of December 31, 2018, the Company was2019, we were in compliance with the financial covenants contained in itsour credit agreements.
Events of Default. The Senior Secured Credit Facilities contain customary events of default, including nonpayment of principal, interest, fees or other amounts; material inaccuracy of a representation or warranty when made; violation of a covenant; cross-default to material indebtedness; bankruptcy events; inability to pay debts or attachment; material unsatisfied judgments; actual or asserted invalidity of any security document; and a change of control. Failure to comply with these provisions of the Senior Secured Credit Facilities (subject to certain grace periods) could, absent a waiver or an amendment from the lenders under such agreement, restrict the availability of the Revolving Credit Facility and permit the acceleration of all outstanding borrowings under the Credit Agreements.
Series A Preferred Stock
Holders of the 40,61243,950 shares of Series A Preferred Stock are entitled to receive, when, as and if declared by the Company’s Board of Directors, cumulative dividends at the rate of 8.0% per annum (the dividend rate) on the $1,000
liquidation preference per share of the Series A Preferred Stock, payable quarterly in arrears on each dividend payment date. Dividends shall be paid in cash or, at the Company’sour option, in additional shares of Series A Preferred Stock or a combination thereof, and are payable on January 1, April 1, July 1, and October 1 of each year, commencing on the first such date after the date of the first issuance of the Series A Preferred Stock.
The CompanyWe paid the following dividends on the Series A Preferred Stock in additional shares of Series A Preferred Stock during the year ended December 31, 2018:2019:
|
| | | | | | | | |
(in thousands, except share and per share amounts) |
Payment Date | | Record Date | | Amount Per Share | | Total Dividends Paid | | Preferred Shares Issued |
January 1, 2018 | | November 15, 2017 | | $20.00 | | $974 | | 968 |
April 1, 2018 | | February 15, 2018 | | $20.00 | | $751 | | 748 |
July 1, 2018 | | May 15, 2018 | | $20.00 | | $766 | | 763 |
October 1, 2018 | | August 15, 2018 | | $20.00 | | $781 | | 778 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, except share and per share amounts) | | | | | | | | |
Payment Date | | Record Date | | Amount Per Share | | Total Dividends Paid | | Preferred Shares Issued |
January 1, 2019 | | November 15, 2018 | | $20.00 | | | $796 | | | 1 | |
April 1, 2019 | | February 15, 2019 | | $20.00 | | | $812 | | | 1 | |
July 1, 2019 | | May 15, 2019 | | $20.00 | | | $828 | | | 1 | |
October 1, 2019 | | August 15, 2019 | | $20.00 | | | $845 | | | 1 | |
On November 1, 2018, the Company3, 2019, we announced a $20.00 per share dividend on itsour Series A Preferred Stock to be paid in additional shares of Series A Preferred Stock on January 1, 20192020 to holders of record on November 15, 2018.2019. As of December 31, 2018, the Company has2019, we have recorded the 794860 additional Series A Preferred Stock shares declared for the dividend of $0.8$0.9 million within preferred stock in the consolidated balance sheets.
Seasonality and Working Capital
The Company usesWe use net operating working capital (“NOWC”), a non-GAAP measure, as a percentage of the previous twelve months of net sales as a key indicator of working capital management. The Company definesWe define this metric as the sum of trade accounts receivable and inventories less trade accounts payable as a percentage of net sales. NOWC as a percentage of trailing twelve month net sales was 12.5%17.8% as of December 31, 2019 and 15.0% as of December 31, 2018, and 13.7% asan increase of December 31, 2017.2.8%. The calculation ofincrease in NOWC as a percentage of sales for December 31, 2017 excludes $22.9 million of trailing twelve month net sales relatingis primarily due to Acoustics Europe, which was sold on August 30, 2017. Set forth below is a table summarizing NOWC$7.4 million decrease in accounts payable as a result of December 31, 2018the timing of cash payments to vendors and December 31, 2017.higher inventory levels as a percentage of net sales, as inventory levels remained consistent with the prior year despite the sales volume decline experienced in 2019. NOWC as a percentage of trailing twelve month net sales was favorablyunfavorably impacted by approximately 0.5%0.2% as of December 31, 2018,2019 related to the exitApril 1, 2019 acquisition of the non-core smart utility meter subassemblies product line.Schaffner. |
| | | | | | | |
(in thousands) | December 31, 2018 | | December 31, 2017 |
Accounts receivable—net | 60,559 |
| | 68,626 |
|
Inventories | 63,747 |
| | 70,819 |
|
Accounts payable | (47,497 | ) | | (53,668 | ) |
NOWC | $ | 76,809 |
| | $ | 85,777 |
|
The table below summarizes NOWC as of December 31, 2019 and 2018: | | | | | | | | | | | |
(in thousands) | December 31, 2019 | | December 31, 2018 |
Accounts receivable—net | 33,085 | | | 36,213 | |
Inventories | 49,943 | | | 49,475 | |
Accounts payable | (22,914) | | | (30,421) | |
NOWC | $ | 60,114 | | | $ | 55,267 | |
The table below reconciles our NOWC from our working capital:
| | | | | | | | | | | |
(in thousands) | December 31, 2019 | | December 31, 2018 |
Working Capital | $ | 119,585 | | | $ | 110,276 | |
Less: Cash and cash equivalents | (84,526) | | | (46,698) | |
Less: Other current assets | (7,433) | | | (5,582) | |
| | | |
Less: Current assets held for sale | — | | | (58,171) | |
Add: Current portion long-term debt | 5,800 | | | 5,687 | |
Add: Current portion operating lease liabilities | 4,275 | | | — | |
Add: Accrued compensation and employee benefits | 8,551 | | | 11,954 | |
Add: Accrued interest | 79 | | | 89 | |
Add: Other current liabilities | 13,783 | | | 13,161 | |
Add: Current liabilities held for sale | — | | | 24,551 | |
NOWC | $ | 60,114 | | | $ | 55,267 | |
In overall dollar terms, the Company’sour NOWC is generally lower at the end of the calendar year due to reduced sales activity around the holiday season. NOWC generally peaks at the end of the first quarter as the Company experienceswe experience high seasonal demand from certain customers, particularly those serving the motorcyclepower sports and turf care markets to fill the supply chain for the spring season. There are, however, variations in the seasonal demands from year to year depending on weather, customer inventory levels, customer planning, and model year changes. The CompanyWe historically generatesgenerate approximately 51%-55%-56% of itsour annual net sales in the first half of the year.
Short-Term and Long-Term Liquidity Requirements
The Company’sOur ability to make principal and interest payments on borrowings under itsour U.S. and foreign credit facilities and itsour ability to fund planned capital expenditures will depend on itsour ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, regulatory and other conditions. Based on itsour current level of operations, the Company believeswe believe that itsour existing cash balances and expected cash flows from operations will be sufficient to meet itsour operating requirements for at least the next 12 months. However, the Company may require borrowings under its credit facilities and alternative forms of financings or investments to achieve its longer-term strategic plans.
Capital expenditures during the year ended December 31, 20182019 were $13.8$9.6 million, or 2.2%2.8% of net sales. Capital expenditures for 20192020 are expected to be approximately 2.0%6.0% to 2.5%6.5% of net sales, but could vary from that depending on business performance, growth opportunities, project activity and the amount of assets we lease instead of purchase. The Company finances itsWe finance our annual capital requirements with existing cash balances and funds generated from operations.
Warrant Repurchase
As of December 31, 2018, the Company had 13,993,773 warrants outstanding. Each outstanding warrant entitles the registered holder to purchase one share of the Company’s common stock at a price of $12.00 per share, subject to adjustment, at any time. The warrants will expire on June 30, 2019, or earlier upon redemption.
In February 2015, our Board of Directors authorized the purchase of up to $5.0 million of our outstanding warrants. Management is authorized to effect purchases from time to time in the open market or through privately negotiated transactions. There is no expiration date to this authority. No warrants were repurchased during the years ended December 31, 2018 and December 31, 2017.
Consolidated Statements of Cash Flows for the Years Ended December 31, 20182019, December 31, 2017,2018, and December 31, 20162017
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 | | Year Ended December 31, 2018 | | Year Ended December 31, 2017 |
Includes cash flow activities from both continuing and discontinued operations (in thousands) | | | | | |
Cash flows (used in) provided by operating activities | $ | (20,800) | | | $ | 29,757 | | | $ | 30,091 | |
Cash flows provided by (used in) investing activities | 59,086 | | | (10,374) | | | 715 | |
Cash flows used in financing activities | (11,822) | | | (9,266) | | | (24,278) | |
Effect of exchange rate changes on cash and cash equivalents | (107) | | | (835) | | | 1,498 | |
Net increase in cash and cash equivalents | 26,357 | | | 9,282 | | | 8,026 | |
Cash and cash equivalents, beginning of period | 58,169 | | | 48,887 | | | 40,861 | |
Cash and cash equivalents, end of period | $ | 84,526 | | | $ | 58,169 | | | $ | 48,887 | |
| | | | | |
Depreciation and amortization | $ | 35,461 | | | $ | 42,604 | | | $ | 38,934 | |
Capital expenditures | $ | 11,785 | | | $ | 13,753 | | | $ | 15,873 | |
Cash paid during the year for interest | $ | 30,121 | | | $ | 30,687 | | | $ | 30,242 | |
Cash paid during the year for income taxes, net of refunds | $ | 3,440 | | | $ | 6,480 | | | $ | 6,843 | |
Year Ended December 31, 2019 and the Year Ended December 31, 2018
Cash Flows (Used in) Provided by Operating Activities
For the year ended December 31, 2019, cash flows used in operating activities were $20.8 million compared to $29.8 million of cash flows provided by operating activities for the year ended December 31, 2018, a decrease of $50.6 million. The decrease was primarily driven by lower operating profit across all segments, which includes the former Metalex business, principally as a result of lower sales volume for the year ended December 31, 2019 as compared to the year ended December 31, 2018. In addition, the decrease resulted from acquisition and divestiture related transaction costs of $4.5 million, unfavorable changes in operating working capital of $7.2 million and a lower incentive compensation accrual as a result of lower projected attainment percentages. The decrease was partially offset by $0.7 million of cash related to dividends received from our joint venture during the year ended December 31, 2019 and a lower incentive compensation accrual as a result of lower projected attainment percentages. Cash flows (used in) provided by operating activities were also impacted by the sale of the North American fiber solutions business, which provided twelve months of cash flows from operating activities in 2018 compared to eight months of cash flows from operating activities in 2019.
Cash Flows Provided by (Used in) Investing Activities
Cash flows provided by investing activities were $59.1 million for the year ended December 31, 2019 compared to cash flows used in investing activities of $10.4 million for the year ended December 31, 2018. The increase in cash flows provided by investing activities was primarily the result of $79.8 million received from the sale of the North American fiber solutions business and the sale of the Metalex business (before transaction costs, income taxes and certain retained liabilities), lower capital expenditures of $2.0 million, partially offset by cash used for the acquisition of Schaffner of $11.0 million, net of cash acquired and lower proceeds from disposals of property, plant and equipment of $1.4 million. The proceeds from disposals of property, plant and equipment for the year ended December 31, 2018 were primarily due to the proceeds received from the building sale related to the closure of the engineered component’s U.K. facility in December 2018.
|
| | | | | | | | | | | |
| Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 |
(in thousands) | | |
Cash flows provided by operating activities | $ | 29,757 |
| | $ | 30,091 |
| | $ | 35,117 |
|
Cash flows (used in) provided by investing activities | (10,374 | ) | | 715 |
| | (16,453 | ) |
Cash flows used in financing activities | (9,266 | ) | | (24,278 | ) | | (12,843 | ) |
Effect of exchange rate changes on cash and cash equivalents | (835 | ) | | 1,498 |
| | (904 | ) |
Net increase in cash and cash equivalents | 9,282 |
| | 8,026 |
| | 4,917 |
|
Cash and cash equivalents, beginning of period | 48,887 |
| | 40,861 |
| | 35,944 |
|
Cash and cash equivalents, end of period | $ | 58,169 |
| | $ | 48,887 |
| | $ | 40,861 |
|
Depreciation and amortization | $ | 42,604 |
| | $ | 38,934 |
| | $ | 44,041 |
|
Capital expenditures | $ | 13,753 |
| | $ | 15,873 |
| | $ | 19,780 |
|
Cash paid during the year for interest | $ | 30,687 |
| | $ | 30,242 |
| | $ | 28,717 |
|
Cash paid during the year for income taxes, net of refunds | $ | 6,480 |
| | $ | 6,843 |
| | $ | 7,163 |
|
Cash Flows Used in Financing ActivitiesCash flows used in financing activities were $11.8 million for the year ended December 31, 2019 compared with $9.3 million for the year ended December 31, 2018. The increase in cash flows used in financing activities was driven by higher payments of $2.5 million on First and Second Lien term loans. Depreciation and Amortization
Depreciation and amortization totaled $35.5 million for the year ended December 31, 2019, compared with $42.6 million for the year ended December 31, 2018. Depreciation and amortization for the year ended December 31, 2019 was lower than incurred by the Company in the prior year primarily due to the sale of the North American fiber solutions business on August 30, 2019, $2.3 million of accelerated intangible amortization expense recorded for a customer relationship intangible asset related to non-core smart utility meter product lines in the engineered components segment during 2018 and $1.4 million of accelerated depreciation expense related to the closure of the Richmond, Indiana facility in the fiber solutions segment in 2018, partially offset by $2.5 million of accelerated depreciation expense recorded in the engineered components segment during 2019.
Capital Expenditures
Capital expenditures totaled $11.8 million for the year ended December 31, 2019, compared with $13.8 million for the year ended December 31, 2018. The lower capital expenditures were primarily driven by a lower level of project activity in 2019 compared with 2018 and the sale of the North American fiber solutions business on August 30, 2019.
Cash Paid for Interest
Cash paid for interest totaled $30.1 million for the year ended December 31, 2019and $30.7 million for the year ended December 31, 2018. The decrease in cash paid for interest primarily related to a decrease in outstanding long-term debt balances, partially offset by higher variable interest rates for 2019 as compared to 2018.
Cash Paid for Income Taxes
Cash paid for income taxes net of refunds totaled $3.4 million for the year ended December 31, 2019 and $6.5 millionfor the year ended December 31, 2018.
Year Ended December 31, 2018 and the Year Ended December 31, 2017
Cash Flows Provided by Operating Activities
For the year ended December 31, 2018, cashCash flows provided by operating activities were $29.8 million for the year ended December 31, 2018 compared to $30.1 million for the year ended December 31, 2017, a decrease of $0.3 million. For the year ended December 31, 2018, net income exclusive of non cashnon-cash items, net operating working capital and dividends from joint ventures provided $24.9 million, $7.2 million and $0.8 million, of operating cash flow, respectively, and changes in other assets and liability balances used $3.2 million of operating cash flow. For the year ended December 31, 2017, net income exclusive of non cashnon-cash items, changes in other assets and liability balances and net operating working capital provided $26.0 million, $2.1 million and $2.9 million of operating cash flow, respectively, and transaction fees on divestiture used $0.9 million of operating cash flows.
Cash Flows (Used in) Provided by Investing Activities
Cash flows used in investing activities waswere $10.4 million for the year ended December 31, 2018 compared to cash flows provided by investing activities of $0.7 million for the year ended December 31, 2017. The increase in cash flows used in investing activities was primarily the result of lower proceeds from disposals of property, plant and equipment of $5.3 million and lower proceeds from divestitures of $7.9 million. The proceeds from disposals of property, plant and equipment for the year ended December 31, 2018 were primarily due to the proceeds received from the building sale related to the closure of the seating segment’sengineered components segments’ U.K. facility in December 2018 and for the year ended December 31, 2017 were primarily due to the proceeds received from the building sale executed in connection with the sale leaseback of our Libertyville, Illinois facility in April 2017 and the sale of a building related to the closure of the finishingindustrial segment’s Richmond, Virginia facility in August 2017. Lower capital expenditures of $2.1 million partially offset the increase in cash used in investing activities.
Cash Flows Used in Financing Activities
Cash flows used in financing activities were $9.3 million for the year ended December 31, 2018 compared with $24.3 million for the year ended December 31, 2017. The decrease in cash flows used in financing activities was driven by lower payments of $16.2 million on First and Second Lien term loans. This was offset by net payments of other long-term debt of $3.7 million for the year ended December 31, 2018 as compared to $2.2 million for the year ended December 31, 2017, a net increase of $1.5 million. In addition, cash flows used in financing activities decreased for value added taxes received on the U.K. building sale of $0.7 million, which will be paid out in 2019, offset by an increase from deferred financing costs of $0.6 million incurred in connection with the amendment to the Company’sour Revolving Credit Facility.
Depreciation and Amortization
Depreciation and amortization totaled $42.6 million for the year ended December 31, 2018, compared with $38.9 million for the year ended December 31, 2017. Depreciation and amortization for the year ended December 31, 2018 iswas higher than incurred by the Company in the prior period primarily due to $2.3 million of accelerated intangible amortization expense recorded for a customer relationship intangible asset related to non-core smart utility meter product lines in the components segmentMetalex business and $1.4 million of accelerated depreciation expense related to the closure of the Richmond, Indiana facility in the acoustics segment.
North American fiber solutions business.
Capital Expenditures
Capital expenditures totaled $13.8 million for the year ended December 31, 2018, compared with $15.9 million for the year ended December 31, 2017. The lower capital expenditures arewere primarily driven by a lower level of project activity in 2018 compared with 2017.
Cash Paid for Interest
Cash paid for interest totaled $30.7 million for the year ended December 31, 2018and $30.2 million for the year ended December 31, 2017. The increase in cash paid for interest primarily relatesrelated to higher interest rates for 2018 as compared to 2017, partially offset by a decrease in outstanding long-term debt balances.
Cash Paid for Income Taxes
Cash paid for income taxes net of refunds totaled $6.5 million for the year ended December 31, 2018and $6.8 millionfor the year ended December 31, 2017.
Year Ended December 31, 2017 and Year Ended December 31, 2016
Cash Flows Provided by Operating Activities
Cash flows provided by operating activities totaled $30.1$6.8 million for the year ended December 31, 2017 compared to $35.12017.
Off-Balance Sheet Arrangements
The Company had outstanding letters of credit totaling $3.6 million, for the year ended$4.9 million, and $6.1 million as of December 31, 2016, a decrease2019, 2018 and 2017, respectively, the majority of $5.0 million. Changes in net operating working capital decreased operating cash flow by $8.8 million, driven primarily by a higher level of cash generated from a reduction in working capital in 2016 as compared to 2017, partially offset by higher income exclusive of non cash items in 2017. Higher working capital reductions in 2016 resulted from the billing and collection of prepaid customer tooling on new acoustics segment platforms along with higher inventory decreases and accounts payable increases, partially offset by higher accounts receivable reductions and accruedwhich secure self-insured workers compensation increases in 2017.liabilities.
Cash Flows Provided by (Used in) Investing Activities
Cash flows provided by investing activities was $0.7 million for the year ended December 31, 2017 compared to cash flows used in investing activities of $16.5 million for the year ended December 31, 2016. The change in cash flows provided by (used in) investing activities was primarily the result of proceeds on divestitures in 2017 of $7.9 million, lower capital expenditures of $3.9 million and increased proceeds from the sale of property, plant and equipment of $5.4 million. The increase in proceeds from the disposal of property, plant and equipment resulted from the building sale executed in connection with the sale leaseback of our Libertyville, Illinois facility and the sale of a building related to the closure of the finishing segment’s Richmond, Virginia facility in 2017.
Cash Flows Used in Financing Activities
Cash flows used in financing activities were $24.3 million for the year ended December 31, 2017 compared to cash flows used in financing activities of $12.8 million for the year ended December 31, 2016. The increase in cash flows used in financing activities was due to higher payments of $18.7 million on First and Second Lien term loans for the buyback of Second Lien debt during 2017 and $1.6 million lower proceeds from other long-term debt borrowings. This was offset by lower preferred stock dividend payments of $3.6 million due to all dividends in 2017 being paid in additional shares of Series A Preferred Stock and $5.3 million lower payments of other long-term debt.
Depreciation and Amortization
Depreciation and amortization totaled $38.9 million for the year ended December 31, 2017, compared with $44.0 million for the year ended December 31, 2016. Depreciation and amortization for the year ended December 31, 2017 is lower than incurred by the Company in the prior period primarily as a result of asset disposals from certain restructuring activities such as the closure of the Buffalo Grove, Ill. facility in the components segment in 2016, the wind down of the finishing segment’s facility in Brazil and the August 2017 divestiture of Acoustics Europe, in addition to the impact of lower capital expenditures in 2017 compared to prior periods.
Capital Expenditures
Capital expenditures for property, plant, and equipment totaled $15.9 million for the year ended December 31, 2017, compared with $19.8 million for the year ended December 31, 2016. The lower capital expenditures are primarily driven by a lower level of project activity in 2017 compared with 2016.
Cash Paid for Interest
Cash paid for interest totaled $30.2 million for the year ended December 31, 2017and $28.7 million for the year ended December 31, 2016. The increase in cash paid for interest for the year ended December 31, 2017 primarily relates to $1.9 million paid in 2017 related to the Company’s interest rate swaps which were effective December 30, 2016.
Cash Paid for Income Taxes
Cash paid for income taxes net of refunds totaled $6.8 million for the year ended December 31, 2017and $7.2 million for the year ended December 31, 2016.
Commitments and Contractual Obligations
The following table presents the Company’s commitments and contractual obligations as of December 31, 2018, as well as its2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Payments Due by Period | | | | | | |
(in thousands) | | Total | | 2020 | | 2021-2022 | | 2023-2024 | | Thereafter |
Long-term debt obligations under U.S. credit agreement (1) | | $ | 374,327 | | | $ | 3,100 | | | $ | 371,227 | | | $ | — | | | $ | — | |
Other long-term debt obligations (1) | | 13,942 | | | 2,284 | | | 4,779 | | | 6,177 | | | 702 | |
Finance lease obligations (1) | | 742 | | | 416 | | | 220 | | | 106 | | | — | |
Interest payments on long-term debt obligations (2) | | 52,057 | | | 28,267 | | | 23,636 | | | 152 | | | 2 | |
Operating lease obligations (3) | | 30,178 | | | 5,730 | | | 8,318 | | | 5,476 | | | 10,654 | |
| | | | | | | | | | |
Multiemployer and UK pension obligations (4) | | 2,998 | | | 839 | | | 757 | | | 757 | | | 645 | |
Total | | $ | 474,244 | | | $ | 40,636 | | | $ | 408,937 | | | $ | 12,668 | | | $ | 12,003 | |
(1)Amounts represent the principal payments due under the long-term obligations (in thousands): |
| | | | | | | | | | | | | | | | | | | | |
| | | | Payments Due by Period |
| | Total | | 2019 | | 2020-2021 | | 2022-2023 | | Thereafter |
Long-term debt obligations under U.S. credit agreement | | $ | 382,427 |
| | $ | 3,100 |
| | $ | 289,440 |
| | $ | 89,887 |
| | $ | — |
|
Other long-term debt obligations | | 17,469 |
| | 3,176 |
| | 5,868 |
| | 5,969 |
| | 2,456 |
|
Interest payments on long-term debt obligations(1) | | 85,599 |
| | 30,326 |
| | 50,014 |
| | 5,228 |
| | 31 |
|
Capital lease obligations(2) | | 613 |
| | 268 |
| | 319 |
| | 26 |
| | — |
|
Operating lease obligations(3) | | 59,189 |
| | 10,654 |
| | 16,145 |
| | 10,699 |
| | 21,691 |
|
Purchase obligations(4) | | 535 |
| | 429 |
| | 77 |
| | 29 |
| | — |
|
Multiemployer and UK pension obligations(5) | | 2,874 |
| | 373 |
| | 747 |
| | 747 |
| | 1,007 |
|
Total before other long-term liabilities | | $ | 548,706 |
| | $ | 48,326 |
| | $ | 362,610 |
| | $ | 112,585 |
| | $ | 25,185 |
|
Other long-term liabilities(6) | | 17,674 |
| | | | | | | | |
Total | | $ | 566,380 |
| | | | | | | | |
| |
(1)
| Amounts represent the expected cash payments of interest expense on all long-term debt obligations and were calculated using interestdebt obligations. Foreign debt balances are based on exchange rates in place as of December 31, 2018 and assuming that the underlying debt obligations will be repaid in accordance with their terms. |
| |
(2)
| Amounts represent the expected cash payments of capital lease obligations. |
| |
(3)
| Operating leases represent the minimum rental commitments under non-cancelable operating leases, including renewal options which are deemed reasonably certain to be exercised. |
| |
(4)
| The Company routinely issues purchase orders to numerous vendors for inventory and other supplies. These purchase orders are generally cancelable with reasonable notice to the vendor, and as such, are excluded from the obligations table. |
| |
(5)
| Represents contributions required with respect to the former Morton multiemployer pension plan as a result of the withdrawal from the plan and required contributions to the pension plan in the UK. |
| |
(6)
| Other long-term liabilities primarily consist of obligations for uncertain tax positions, pension obligations, postretirement health and other benefits, insurance accruals and other accruals. Other than payments required with respect to the former Morton multiemployer pension plan and a pension plan in the UK, the Company is unable to determine the ultimate timing of these liabilities and, therefore, no payment amounts were included in the “payments due by period” portion of the contractual obligations table. |
Off-Balance Sheet Arrangements
The Company leases certain machinery, transportation equipment and office, warehouse and manufacturing facilities under various operating lease agreements. Under most arrangements, the Company pays the property taxes, insurance, maintenance and expenses related to the leased property. See Note 10, “Leases”, in the notes to the consolidated financial statements and the “Contractual Obligations” table above for further information.
The Company had outstanding letters of credit totaling $4.9 million, $6.1 million, and $5.0 million as of December 31, 2018, 20172019.
(2)Amounts represent the expected cash payments of interest expense on long-term debt obligations, including finance lease obligations, and 2016, respectively,were calculated using interest rates in place as of December 31, 2019 and assuming that the majorityunderlying debt obligations will be repaid in accordance with their terms. These amounts also include projected payments related to the interest rate swaps.
(3)Operating lease obligations represent the undiscounted minimum rental commitments under non-cancelable operating leases, including renewal options which are deemed reasonably certain to be exercised. The imputed interest on operating lease obligations as of which secure self-insured workers compensation liabilities.December 31, 2019 is $6.8 million. Refer to Note 10, “Leases” for additional information.
(4)Represents contributions required with respect to the former Morton multiemployer pension plan as a result of the withdrawal from the plan, and required contributions to certain pension plans in the U.S. and U.K. We are unable to determine the ultimate timing of all other pension payments, and therefore, no other payment amounts were included in the table.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company evaluates itsWe evaluate our estimates on an ongoing basis, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The following policies are considered by management to be the most critical in understanding the judgments that are involved in the preparation of our consolidated financial statements and the uncertainties that could impact our results of operations, financial position and cash flows. Application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. Although the Company haswe have listed a number of accounting policies below which it believeswe believe to be the most critical, the Companywe also believesbelieve that all of itsour accounting policies are important to the reader. Therefore, see Note 1, “Summary of Significant Accounting Policies”,Policies,” of the accompanying consolidated financial statements of the Company appearing elsewhere in this Annual Report.
Goodwill, Other Intangible Assets and Other Long-Lived Assets: The Company’s Our goodwill, other intangible assets and tangible fixed assets are held at historical cost, net of depreciation and amortization, less any provision for impairment. Our right-of-use operating lease assets are recorded at the present value of future minimum lease payments, net of amortization, less any provision for impairment. Intangible and tangible assets with determinable lives are amortized or depreciated on a straight line basis over estimated useful lives as follows: | | | | | | | | |
Intangible Assets | | |
Goodwill | | No amortization |
Patents | | Amortized over 7 years |
Customer relationships | | Amortized over 10 to 15 years |
Trademarks and other intangible assets | | Amortized over 1 to 18 years |
Right-of-use operating lease assets | | Amortized over the term of the lease |
| | |
IntangibleTangible Assets | | |
GoodwillLand | | No amortizationdepreciation |
Patents | | Amortized over 7 years |
Customer relationships | | Amortized over 10 to 15 years |
Trademarks and other intangible assets | | Amortized over 5 to 18 years |
| | |
Tangible Assets | | |
Land | | No depreciation |
Buildings and improvements | | Depreciated over 2 to 40 years |
Machinery and equipment | | Depreciated over 2 to 10 years |
Goodwill reflects the cost of an acquisition in excess of the aggregate fair value assigned to identifiable net assets acquired. As of December 31, 2019, the Company has $45.7 million of goodwill, all of which is within the industrial segment. Goodwill is assessed for impairment at least annually and as triggering events or indicators of potential impairment occur. The Company performs itsWe perform our annual impairment test in the fourth quarter of itsour fiscal year. Goodwill has been assigned to reporting units for purposes of impairment testing based upon the relative fair value of the asset to each reporting unit.
Impairment of goodwill is measured by comparing the fair value of a reporting unit to the carrying value of the reporting unit, including goodwill. The estimated fair value represents the amount at which a reporting unit could be bought or sold in a current transaction between willing parties on an arms-length basis. In estimating the fair value, the Company useswe use a discounted cash flow model, which is dependent on a number of assumptions including estimated future revenues and expenses, weighted average cost of capital, capital expenditures and other variables. The CompanyWe also usesuse a market approach, in which the fair values of comparable public companies and fair values based on recent comparable transactions (when available) are used in determining an estimated fair value for each reporting unit.
If the carrying amount of the reporting unit exceeds the estimated fair value of the reporting unit, an impairment loss is recognized in an amount equal to that excess, not to exceed the carrying amount of the goodwill.
The CompanyWe performed itsour annual goodwill impairment test in the fourth quarter of 20182019 and determined that the fair value of the finishingindustrial reporting unit, the only reporting unit with a recorded goodwill balance, exceeded the carrying value of the reporting unit by over 15%. In connection with the goodwill impairment test, the Companywe engaged a third-party valuation firm to assist management with determining the fair value estimate for the reporting unit. The fair value of the reporting unit is determined using a weighted average of an income approach primarily based on the Company’s three yearour long-term strategic plan, and a market approach based on implied valuation multiples of public company peer groups for the reporting unit. Both approaches areunit and a market approach based on recent comparable transactions. Each approach was generally deemed equally relevant in determining reporting unit enterprise value, and as a result, weightings of 5035 percent, 30 percent and 35 percent, respectively, were used for each. This fair value determination was categorized as Level 3 in the fair value hierarchy.
In connection with obtaining an independent third-party valuation, management provided certain information and assumptions that were utilized in the fair value calculation. Significant assumptions used in determining reporting unit fair
value include forecasted cash flows, revenue growth rates, adjusted EBITDA margins, weighted average cost of capital (discount rate), assumed tax treatment of a future sale of the reporting unit, terminal growth rates, capital expenditures, sales and EBITDA multiples used in the market approach, and the weighting of the income and market approaches. A change in any
of these assumptions, individually or in the aggregate, or future financial performance that is below management expectations may result in the carrying value of this reporting unit exceeding its fair value, and goodwill and amortizable intangible assets could be impaired. See Note 8, “Goodwill and Other Intangible Assets”,Assets,” of the accompanying consolidated financial statements for further discussion.
The CompanyWe also reviewsreview other intangible assets and tangible fixed assets for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. If such indicators are present, the Company performswe perform undiscounted cash flow analyses to determine if an impairment exists. If an impairment is determined to exist, any related impairment loss is calculated based on fair value.
During the third quarter of 2019, a triggering event was identified due to sustained sales and profitability declines within the Metalex business in the engineered components segment, which resulted in the Company performing an analysis to assess long-lived assets of the asset group for impairment. The estimated fair value of the long-lived assets was determined using a probability weighted approach using both discounted cash flow projections based on future financial performance and a market approach. As a result of this analysis, non-cash impairment charges of $14.9 million and$5.7 million were recorded for customer relationship and trademark intangible assets, respectively, during the third quarter of 2019. These intangible asset impairment charges are recorded as impairment charges within net loss (income) from discontinued operations, net of tax in the consolidated statements of operations.
A considerable amount of management judgment and assumptions is required in performing the impairment tests, principally in determining the fair value of each reporting unit and the specifically identifiable intangible and tangible assets. While the Company believes itswe believe our judgments and assumptions are reasonable, different assumptions could change the estimated fair values and, therefore, additional impairment charges could be required.
Employee Benefit Plans: The Company provides We provide a range of benefits to employees and certain former employees, including in some cases pensions and postretirement health care, althoughthough the majority of these plans are frozen to new participation. The Company recognizesWe recognize pension and post-retirement benefit income and expense and assets and obligations that are based on actuarial valuations using a December 31 measurement date and that include key assumptions regarding discount rates, expected returns on plan assets, retirement and mortality rates, future compensation increases, and health care cost trend rates. The approach the Company useswe use to determine the annual assumptions is as follows:
•Discount Rate: The Company’s Our discount rate assumptions are based on the interest rate of high-quality corporate bonds, with appropriate consideration of our plans’ participants’ demographics and benefit payment terms.
•Expected Return on Plan Assets: The Company’s Our expected return on plan assets assumptions are based on our expectation of the long-term average rate of return on assets in the pension funds, which is reflective of the current and projected asset mix of the funds and considers the historical returns earned on the funds.
•Compensation Increase: The Company’sOur compensation increase assumptions reflect our long-term actual experience, the near-term outlook and assumed inflation.
•Retirement and Mortality Rates: The Company’sOur retirement and mortality rate assumptions are based primarily on actual plan experience and mortality tables.
•Health Care Cost Trend Rates: The Company’sOur health care cost trend rate assumptions are based primarily on actual plan experience and mortality inflation.
The Company reviewskey assumptions utilized in the accounting for employee benefit plans require a considerable amount of management judgement. We review actuarial assumptions on an annual basis and makesmake modifications based on current rates and trends when appropriate. As required by GAAP, the effects of the modifications are recorded currently oras a component of other comprehensive income and are amortized over future periods. Based on information provided by independent actuaries and other relevant sources, the Company believeswe believe that the assumptions used are reasonable; however, changes in these assumptions could impact our financial position, results of operations or cash flows. See Note 15, “Employee Benefit Plans”,Plans,” of the accompanying consolidated financial statements for further discussion.
Income Taxes: The Company is We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining both our key assumptions utilized in the accounting for income taxes and the recording of the worldwide provision for income taxes and recording the related deferred tax assets and liabilities. The Company assesses itsWe assess our income tax positions and recordsrecord tax liabilities for all years subject to examination based upon management’s evaluation of the facts and circumstances and information available at the reporting dates. For those income tax positions where it is more-likely-than-not that a tax benefit will be sustained upon the conclusion of an examination, the Company haswe have recorded the largest amount of tax benefit
having a cumulatively greater than 50% likelihood of being realized upon ultimate settlement with the applicable taxing authority assuming that it has full knowledge of all relevant information. For those tax positions that do not meet the more-likely-than-not threshold regarding the ultimate realization of the related tax benefit, no tax benefit has been recorded in the financial statements. The Company recognizesWe recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases, net operating losses, tax credits and other carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The CompanyWe regularly reviews itsreview our deferred tax assets for recoverability and establishesestablish a valuation allowance based on historical losses, projected future taxable income and the expected timing of the reversals of existing temporary differences. As a result of this review, the Company haswe have established valuation allowances against certain of our deferred tax assets relating to foreign and state net operating loss and credit carryforwards. Future tax authority rulings and changes in tax laws, changes in projected levels of taxable income and future tax planning strategies could affect the actual effective tax rate and tax balances recorded.
On December 22, 2017, the President of the United States signed into law the Tax Reform Act. The legislation significantly changed U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act also added many new provisions including changes to bonus depreciation and the deductions for executive compensation and interest expense, and the requirement to include in the Company’sour U.S. federal income tax return foreign subsidiary earnings in excess of an allowable return of the foreign subsidiary’s tangible assets, among others. The Tax Reform Act permanently reduced the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. See further discussion of the Tax Reform Act within “Consolidated Results of Operations” above and Note 14, “Income Taxes”,Taxes,” of the accompanying consolidated financial statements for further discussion.
Revenue Recognition:Net sales are recognized when control of a performance obligation is transferred to the customer in an amount that reflects the consideration expected to be received in exchange for the transferred good or service. The CompanyWe typically satisfies itssatisfy our performance obligations in contracts with customers upon shipment of the goods or delivery of the services. Amounts invoiced to customers related to shipping and handling are classified as net sales, while expenses for transportation of products to customers are recorded as a component of cost of goods sold on the consolidated statement of operations. Sales, value add, and other taxes collected concurrent with revenue-producing activities are excluded from net sales. As of the contract inception date, the expected time between the completion of the performance obligation and the payment from the customer is less than a year, and as such there are no significant financing components in the consideration recognized and disclosures around unsatisfied performance obligations have been omitted.
The Company estimatesWe estimate whether itwe will be subject to variable consideration under the terms of the contract and includes itsinclude our estimate of variable consideration in the transaction price based on the expected value method when it is deemed probable of being realized based on historical experience and trends. A significant amount of management judgement is required to develop the assumptions that we use to estimate the variable consideration of certain contracts. Types of variable consideration may include rebates, discounts, and product returns, among others, which are recorded as a deduction to net sales at the time when control of a performance obligation is transferred to the customer.
The majority of the Company’sour contracts are for the sale of goods that qualify as separate performance obligations that are distinct from other goods or services provided in the same contract. Transaction price inclusive of estimated variable consideration is allocated to separate performance obligations based on their relative standalone selling prices using observable inputs. When observable inputs are not available, the Company estimateswe estimate stand alone selling price using cost plus a reasonable margin approach. Contracts entered into with the same customer at or near the same time are combined into a single contract if they represent a single commercial objective, if payment of consideration in one contract is dependent on performance of the other contract, or if promises in different contracts constitute a single performance obligation. For the limited contracts with multiple performance obligations, the contract’s transaction price is allocated to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract.
Performance obligations are satisfied at a point in time or over time as work progresses. Revenue from products transferred to customers at a point in time accounted for more than 99% of net sales for the year ended December 31, 2018. The Company recognizes2019. We recognize revenue over time for certain production parts with minimum stocking agreements in the finishingindustrial business that are highly customized with no alternative use and for which the Company haswe have an enforceable right to payment with a reasonable margin under the terms of the contract based on the output method of goods produced. Revenue from products transferred to customers over time accounted for less than 1% of net sales for the year ended December 31, 2018.2019.
The Company providesWe provide industry standard assurance-type warranties which ensure that the manufactured products comply with agreed upon specifications with the customers and do not represent a separate performance obligation with the customer. Warranty based accruals are established under Accounting Standards Codification 460, “Guarantees,”, based on an evaluation of historical warranty experience and management’s estimate of the level of future claims.
Use of Estimates: The Company records reserves or allowances for returns and variable consideration in contracts, doubtful accounts, inventory, incurred but not reported medical claims, environmental matters, warranty claims, workers compensation claims, product and non-product litigation and incentive compensation. These reserves require the use of estimates and judgment. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The Company believes that such estimates are made on a consistent basis and with appropriate assumptions and methods. However, actual results may differ from these estimates.
New Accounting Pronouncements
See Note 1, “Summary of Significant Accounting Policies,” under the heading “Recently issued accounting standards,” of the accompanying consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company isWe are exposed to market risk from changes in foreign currency exchange rates and interest rates and, to a lesser extent, commodities. To reduce such risks, the Companywe selectively usesuse financial instruments and other proactive management techniques. All hedging transactions are authorized and executed pursuant to clearly defined policies and procedures, which strictly prohibit the use of financial instruments for trading or speculative purposes.
Currency Risk: The Company has We have manufacturing, sales and distribution operations around the world; therefore, exchange rates impact the U.S. Dollar (“USD”) value of our reported earnings, our investments in our foreign subsidiaries and the intercompany transactions with these subsidiaries. Approximately $183.9$116.2 million, or 30%34%, of our sales from continuing operations originated in a currency other than the U.S. dollar for the year ended December 31, 2018.2019. As a result, fluctuations in the value of foreign currencies against the USD, particularly the Euro, may have a material impact on our reported results. Revenues and expenses denominated in foreign currencies are translated into USD using average exchange rates in effect during the period. Consequently, as the value of the USD changes relative to the currencies of our major markets, our reported results vary. For the year ended December 31, 2018,2019, sales denominated in Euros approximated $108$93 million. Therefore, with a 10% increase or decrease in the value of the Euro in relation to the USD, our translated net sales (assuming all other factors are unchanged) would increase or decrease by $10.8$9.3 million, respectively, and the change in our net (loss) income would increase or decrease by approximately $0.2$1.2 million. The net assets and liabilities of our non-U.S. dollar denominated subsidiaries, which totaled approximately $163.2$152.6 million as of December 31, 2018,2019, are translated into USD at the exchange rates in effect at the end of the period. The resulting translation adjustments are recorded in shareholders’ equity as cumulative translation adjustments. The cumulative translation adjustments recorded in accumulated other comprehensive loss at December 31, 20182019 resulted in a decrease to shareholders’ equity of $23.2$26.2 million. Transactional foreign currency exchange exposure results primarily from the purchase of products, services or equipment from affiliates or third party suppliers where the purchase value is significant, denominated in another currency and to be settled following the initial transaction date, and from the repayment of intercompany loans between subsidiaries using different currencies. The CompanyWe periodically identifiesidentify areas where it doeswe do not have naturally offsetting currency positions and then may purchase hedging instruments to protect against potential currency exposures. As of December 31, 2018, the Company2019, we did not have any significant foreign currency hedging instruments in place nor did itwe have any significant sales or purchase commitments in currencies outside of the functional currencies of the operations responsible for satisfying such commitments. All long-term debt is held in the functional currencies of the operations that are responsible for the repayment of such obligations. As of December 31, 2018,2019, long-term debt denominated in currencies other than the USD totaled approximately $16.1$14.7 million.
Interest Rate Risk: The Company utilizes We utilize a combination of short-term and long-term debt to finance our operations and isare exposed to interest rate risk on our outstanding floating rate debt instruments, which bear interest at rates that fluctuate with changes in certain short-term prevailing interest rates. Borrowings under U.S. credit facilities bear interest at rates tied to either the “administrative agent’s prime rate,” the federal funds effective rate, the Eurocurrency rate, or a Eurocurrency rate determined by reference to LIBOR, subject to an established floor. Until recently,the second quarter of 2018, applicable interest rates have beenwere lower than the designated floor in our Senior Secured Credit Facilities; therefore, until that point, interest rates havewere not been subject to change. However, now that interest rates exceed the established floor, a 25 basis point increase or decrease in the applicable interest rates on our variable rate debt would increase or decrease annual interest expense by approximately $1.0$0.9 million, includingnet of the impact of interest rate swaps discussed in the paragraph below.
As of December 31, 2018, the Company has2019, we have entered into various interest rate swaps in order to mitigate a portion of the variable rate interest exposure. The Company isWe are counterparty to certain interest rate swaps with a total notional amount of $210.0 million entered into in November 2015. These swaps are scheduled to mature in June 2020. Under the terms of the agreement, the Companywe swapped three month LIBOR rates for a fixed interest rate, resulting in the payment of a fixed LIBOR
rate of 2.08% on a notional amount of $210.0 million. As of December 31, 2018,2019, LIBOR exceededwas lower than 2.08%; therefore, assuming. However, if interest rates remain abovewere to exceed 2.08%, a 25 basis point increase or decrease in interest rates would increase or decrease annual interest expense by $0.4 million.million on the unhedged portion of our Senior Secured Credit Facilities.
Commodity risk: The Company sources We source a wide variety of materials and components from a network of global suppliers. While such materials are generally available from numerous suppliers, commodity raw materials, such as steel, aluminum, copper, fiber, foam chemicals, plastic resin, vinyl and cotton sheeting are subject to price fluctuations, which could have a negative impact on our results. The Company strivesWe strive to pass along such commodity price increases to customers to avoid profit margin erosion and utilizesutilize value analysis and value engineering (“VAVE”) initiatives to further mitigate the impact of commodity raw material price fluctuations as improved efficiencies across all locations are achieved. As of December 31, 2018, the Company2019, we did not have any commodity hedging instruments in place.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Quarterly Results of Operations (unaudited)
The following tables presenting our quarterly results of operations should be read in conjunction with the consolidated financial statements and related notes included in this Annual Report on Form 10-K/A.10-K. We have prepared the unaudited information on the same basis as our audited consolidated financial statements. Our operating results for any quarter are not necessarily indicative of results for any future quarters or for a full year.
During the first quarter of 2019, we identified an error in the income tax provision presented within the consolidated financial statements for the year ended December 31, 2018 which also impacted the quarterly unaudited financial information for periods within 2018. The Quarterly Results of Operations for the three months ended March 30, 2018, the three months ended June 29, 2018, and the three months ended September 28, 2018 have been revised below. The three months ended December 31, 2018 have been restated. See the Explanatory Note to this Form 10-K/A and Note 2, “Restatement of Previously Reported Financial Information” in the notes to the consolidated financial statements for further information. The revision of the Company's previously issued unaudited consolidated financial statements for the three months ended March 30, 2018, the three and six months ended June 29, 2018 and the three and nine months ended September 28, 2018 will be included in the Company's future Quarterly Reports on Form 10-Q for the quarterly periods ended March 29, 2019, June 28, 2019 and September 27, 2019, respectively.
The following table presents our unaudited quarterly results of operations for the eight quarters in fiscal 20182019 and fiscal 2017.2018. This table includes all adjustments, consisting only of normal recurring adjustments, that we consider necessary for fair statement of our consolidated financial position and operating results for the quarters presented.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 1Q | | 2Q | | 3Q | | 4Q | | Full Year |
(in thousands, except percentages) | 2019 | | 2019 | | 2019 | | 2019 | | 2019 |
Net sales | $ | 92,916 | | | $ | 92,475 | | | $ | 76,150 | | | $ | 76,356 | | | $ | 337,897 | |
Gross profit | 23,596 | | | 20,666 | | | 15,755 | | | 14,589 | | | 74,606 | |
| | | | | | | | | |
Net loss from continuing operations | (5,253) | | | (9,734) | | | (11,576) | | | (16,868) | | | (43,431) | |
Net loss from discontinued operations, net of tax | (1,803) | | | (3,382) | | | (21,591) | | | (11,401) | | | (38,177) | |
Net loss attributable to Jason Industries | (7,056) | | | (13,116) | | | (33,167) | | | (28,269) | | | (81,608) | |
Accretion of preferred stock dividends | 812 | | | 828 | | | 845 | | | 862 | | | 3,347 | |
Net loss allocable to common shareholders of Jason Industries | $ | (7,868) | | | $ | (13,944) | | | $ | (34,012) | | | $ | (29,131) | | | $ | (84,955) | |
Basic and diluted net loss per share allocable to common share holders of Jason Industries: | | | | | | | | | |
Net loss per share from continuing operations | $ | (0.22) | | | $ | (0.37) | | | $ | (0.44) | | | $ | (0.61) | | | $ | (1.64) | |
Net loss per share from discontinued operations | $ | (0.06) | | | $ | (0.12) | | | $ | (0.76) | | | $ | (0.40) | | | $ | (1.34) | |
Basic and diluted net loss per share | $ | (0.28) | | | $ | (0.49) | | | $ | (1.20) | | | $ | (1.01) | | | $ | (2.98) | |
Weighted average number of common shares outstanding: | | | | | | | | | |
Basic and diluted | 27,962 | | | 28,439 | | | 28,632 | | | 28,838 | | | 28,484 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 1Q | | 2Q | | 3Q | | 4Q | | Full Year |
(in thousands, except percentages) | 2018 | | 2018 | | 2018 | | 2018 | | 2018 |
Net sales | $ | 101,013 | | | $ | 100,446 | | | $ | 85,625 | | | $ | 80,875 | | | $ | 367,959 | |
Gross profit | 24,799 | | | 25,193 | | | 19,951 | | | 20,164 | | | 90,107 | |
| | | | | | | | | |
Net loss from continuing operations | (2,322) | | | (2,145) | | | (5,365) | | | (4,821) | | | (14,653) | |
Net income (loss) from discontinued operations, net of tax | 1,684 | | | 1,790 | | | 907 | | | (2,888) | | | 1,493 | |
Net loss attributable to Jason Industries | (638) | | | (355) | | | (4,458) | | | (7,709) | | | (13,160) | |
Accretion of preferred stock dividends and redemption premium | 1,727 | | | 765 | | | 782 | | | 796 | | | 4,070 | |
Net loss allocable to common shareholders of Jason Industries | $ | (2,365) | | | $ | (1,120) | | | $ | (5,240) | | | $ | (8,505) | | | $ | (17,230) | |
Basic and diluted net loss per share allocable to common shareholders of Jason Industries: | | | | | | | | | |
Net loss per share from continuing operations | $ | (0.15) | | | $ | (0.11) | | | $ | (0.22) | | | $ | (0.20) | | | $ | (0.68) | |
Net loss per share from discontinued operations | $ | 0.06 | | | $ | 0.06 | | | $ | 0.03 | | | $ | (0.11) | | | $ | 0.06 | |
Basic and diluted net loss per share | $ | (0.09) | | | $ | (0.04) | | | $ | (0.19) | | | $ | (0.31) | | | $ | (0.62) | |
Weighted average number of common shares outstanding: | | | | | | | | | |
Basic and diluted | 27,329 | | | 27,677 | | | 27,683 | | | 27,683 | | | 27,595 | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| 1Q | | 2Q | | 3Q | | 4Q | | Full Year |
(in thousands, except percentages) | 2018 | | 2018 | | 2018 | | 2018 | | 2018 |
| (Revised) | | (Revised) | | (Revised) | | (Restated) | | (Restated) |
Net sales | $ | 167,254 |
| | $ | 168,424 |
| | $ | 145,295 |
| | $ | 131,975 |
| | $ | 612,948 |
|
Gross profit | 35,672 |
| | 37,122 |
| | 28,477 |
| | 25,009 |
| | 126,280 |
|
Net loss (1) | (638 | ) | | (355 | ) | | (4,458 | ) | | (7,709 | ) | | (13,160 | ) |
Net loss attributable to Jason Industries (1) | (638 | ) | | (355 | ) | | (4,458 | ) | | (7,709 | ) | | (13,160 | ) |
Accretion of preferred stock dividends and redemption premium | 1,727 |
| | 765 |
| | 782 |
| | 796 |
| | 4,070 |
|
Net loss available to common shareholders of Jason Industries (1) | $ | (2,365 | ) | | $ | (1,120 | ) | | $ | (5,240 | ) | | $ | (8,505 | ) | | $ | (17,230 | ) |
Net loss per share available to common shareholders of Jason Industries: | | | | | | | | | |
Basic and diluted (1) | $ | (0.09 | ) | | $ | (0.04 | ) | | $ | (0.19 | ) | | $ | (0.31 | ) | | $ | (0.62 | ) |
Weighted average number of common shares outstanding: | | | | | | | | | |
Basic and diluted | 27,329 |
| | 27,677 |
| | 27,683 |
| | 27,683 |
| | 27,595 |
|
|
| | | | | | | | | | | | | | | | | | | |
| 1Q | | 2Q | | 3Q | | 4Q | | Full Year |
(in thousands, except percentages) | 2017 | | 2017 | | 2017 | | 2017 | | 2017 |
Net sales | $ | 175,193 |
| | $ | 172,477 |
| | $ | 155,430 |
| | $ | 145,516 |
| | $ | 648,616 |
|
Gross profit | 34,609 |
| | 35,644 |
| | 31,973 |
| | 28,626 |
| | 130,852 |
|
Loss on divestiture | — |
| | (7,888 | ) | | (842 | ) | | — |
| | (8,730 | ) |
Net loss | (493 | ) | | (4,737 | ) | | (1,601 | ) | | 2,358 |
| | (4,473 | ) |
Less net loss attributable to noncontrolling interests | 5 |
| | — |
| | — |
| | — |
| | 5 |
|
Net loss attributable to Jason Industries | (498 | ) | | (4,737 | ) | | (1,601 | ) | | 2,358 |
| | (4,478 | ) |
Accretion of preferred stock dividends and redemption premium | 918 |
| | 936 |
| | 955 |
| | 974 |
| | 3,783 |
|
Net loss available to common shareholders of Jason Industries | $ | (1,416 | ) | | $ | (5,673 | ) | | $ | (2,556 | ) | | $ | 1,384 |
| | $ | (8,261 | ) |
Net loss per share available to common shareholders of Jason Industries: | | | | | | | | | |
Basic | $ | (0.05 | ) | | $ | (0.22 | ) | | $ | (0.10 | ) | | $ | 0.05 |
| | $ | (0.32 | ) |
Diluted | $ | (0.05 | ) | | $ | (0.22 | ) | | $ | (0.10 | ) | | $ | 0.05 |
| | $ | (0.32 | ) |
Weighted average number of common shares outstanding: | | | | | | | | | |
Basic | 25,784 |
| | 26,042 |
| | 26,241 |
| | 26,255 |
| | 26,082 |
|
Diluted | 25,784 |
| | 26,042 |
| | 26,241 |
| | 26,785 |
| | 26,082 |
|
59
| |
(1)
| The following table presents the effect of the restatement of the error on the quarterly period for the three months ended December 31, 2018. |
The effect of the correction of the error on revised periods for the three months ended March 30, 2018, the three months ended June 29, 2018, and the three months ended September 28, 2018, respectively, was to decrease net loss, net loss attributable to Jason Industries, and net loss available to common shareholders of Jason Industries by $0.2 million, $0.2 million, and $1.1 million, respectively.
|
| | | | | | | | | | | |
| For the Quarter Ended December 31, 2018 |
| As Reported | | Adjustments | | As Restated |
Net loss | $ | (12,399 | ) | | $ | 4,690 |
| | $ | (7,709 | ) |
Net loss attributable to Jason Industries | (12,399 | ) | | 4,690 |
| | (7,709 | ) |
Net loss available to common shareholders of Jason Industries | (13,195 | ) | | 4,690 |
| | (8,505 | ) |
| | | | | |
Net loss per share available to common shareholders of Jason Industries: |
Basic and diluted | $ | (0.48 | ) | | $ | 0.17 |
| | $ | (0.31 | ) |
|
| | | | | | | |
Index to Consolidated Financial Statements | | |
As of December 31, 20182019 and 2017,2018, for the years ended December 31, 2018,2019, December 31, 2017,2018, and December 31, 20162017 | | Page |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Index to Financial Statement Schedules | | |
| | |
Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Directors and Shareholders of Jason Industries, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheetssheet of Jason Industries, Inc. and its subsidiaries (the “Company”) as of December 31, 20182019, and 2017,the related consolidated statements of operations, comprehensive (loss) income, shareholders’ (deficit) equity and cash flows for the year ended December 31, 2019, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Companyas of December 31, 2019, and the results of its operations and its cash flows for the year ended December 31, 2019in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 10 to the financial statements, the Company changed its method of accounting for leases in the year ended December 31, 2019 due to the adoption of Accounting Standard Update No. 2016-02, Leases (Topic 842) under the modified retrospective adoption method.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
February 28, 2020
We have served as the Company’s auditor since 2019.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Jason Industries, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Jason Industries, Inc. and its subsidiaries (the “Company”) as of December 31, 2018, and the related consolidated statements of operations, comprehensive (loss) income, shareholders’ (deficit) equity and cash flows for each of the threetwo years in the period ended December 31, 2018, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Companyas of December 31, 2018,and 2017, and the results of its operations and its cash flows for each of the threetwo years in the period ended December 31, 2018in conformity with accounting principles generally accepted in the United States of America.
Restatement of Previously Issued Financial Statements
As discussed in Note 2 to the consolidated financial statements and Note 2 to the financial statement schedule, the Company has restated its 2018 financial statements and financial statement schedule to correct an error.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
March 5, 2019, except for the effects of the restatement discussed in Note 2 (not presented herein) to the consolidated financial statements appearing under Item 8 of the Company’s 2018 annual report on Form 10-K/A and Note 2 (not presented herein) to the financial statement schedule appearing under Schedule II of the Company’s 2018 annual report on Form 10-K/A, as to which the date is May 13, 2019, and except for the effects of discontinued operations discussed in Note 2 and the change in composition of reportable segments discussed in Note 16 to the consolidated financial statements, as to which the date is February 28, 2020
We have served as the Company’s or its predecessors’ auditor from 1985 to 2019.
Jason Industries, Inc.
Consolidated Statements of Operations Jason Industries, Inc. Consolidated Statements of Operations (In thousands, except per share amounts)
|
| | | | | | | | | | | |
| Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 |
| | |
| (Restated) | | | | |
Net sales | $ | 612,948 |
| | $ | 648,616 |
| | $ | 705,519 |
|
Cost of goods sold | 486,668 |
| | 517,764 |
| | 574,412 |
|
Gross profit | 126,280 |
| | 130,852 |
| | 131,107 |
|
Selling and administrative expenses | 106,470 |
| | 103,855 |
| | 113,797 |
|
Impairment charges | — |
| | — |
| | 63,285 |
|
(Gain) loss on disposals of property, plant and equipment - net | (1,142 | ) | | (759 | ) | | 880 |
|
Restructuring | 4,458 |
| | 4,266 |
| | 7,232 |
|
Operating income (loss) | 16,494 |
| | 23,490 |
| | (54,087 | ) |
Interest expense | (33,437 | ) | | (33,089 | ) | | (31,843 | ) |
Gain on extinguishment of debt | — |
| | 2,201 |
| | — |
|
Equity income | 1,024 |
| | 952 |
| | 681 |
|
Loss on divestiture | — |
| | (8,730 | ) | | — |
|
Other income - net | 654 |
| | 319 |
| | 900 |
|
Loss before income taxes | (15,265 | ) | | (14,857 | ) | | (84,349 | ) |
Tax benefit | (2,105 | ) | | (10,384 | ) | | (6,296 | ) |
Net loss | $ | (13,160 | ) | | $ | (4,473 | ) | | $ | (78,053 | ) |
Less net gain (loss) attributable to noncontrolling interests | — |
| | 5 |
| | (10,818 | ) |
Net loss attributable to Jason Industries | $ | (13,160 | ) | | $ | (4,478 | ) | | $ | (67,235 | ) |
Accretion of preferred stock dividends and redemption premium | 4,070 |
| | 3,783 |
| | 3,600 |
|
Net loss available to common shareholders of Jason Industries | $ | (17,230 | ) | | $ | (8,261 | ) | | $ | (70,835 | ) |
| | | | | |
Net loss per share available to common shareholders of Jason Industries: | | | | | |
Basic and diluted | $ | (0.62 | ) | | $ | (0.32 | ) | | $ | (3.15 | ) |
Weighted average number of common shares outstanding: | | | | | |
Basic and diluted | $ | 27,595 |
| | 26,082 |
| | 22,507 |
|
(In thousands, except per share amounts)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 | | Year Ended December 31, 2018 | | Year Ended December 31, 2017 |
| | | | | |
Net sales | $ | 337,897 | | | $ | 367,959 | | | $ | 382,096 | |
Cost of goods sold | 263,291 | | | 277,852 | | | 295,076 | |
Gross profit | 74,606 | | | 90,107 | | | 87,020 | |
Selling and administrative expenses | 78,200 | | | 78,752 | | | 77,611 | |
| | | | | |
Loss (gain) on disposals of property, plant and equipment-net | 303 | | | (1,318) | | | (320) | |
Restructuring | | 3,954 | | | 877 | | | 2,475 | |
Operating (loss) income | (7,851) | | | 11,796 | | | 7,254 | |
Interest expense-net | (32,978) | | | (33,277) | | | (32,951) | |
Gain on extinguishment of debt | — | | | — | | | 2,201 | |
Equity income | 316 | | | 1,024 | | | 952 | |
Loss on divestiture | | — | | | — | | | (8,730) | |
Other income-net | 1,098 | | | 758 | | | 258 | |
Loss from continuing operations before income taxes | (39,415) | | | (19,699) | | | (31,016) | |
Tax provision (benefit) | 4,016 | | | (5,046) | | | (15,614) | |
Net loss from continuing operations | $ | (43,431) | | | $ | (14,653) | | | $ | (15,402) | |
Net (loss) income from discontinued operations, net of tax | (38,177) | | | 1,493 | | | 10,929 | |
Net loss | (81,608) | | | (13,160) | | | (4,473) | |
Less net gain (loss) attributable to noncontrolling interests | — | | | — | | | 5 | |
Net loss attributable to Jason Industries | $ | (81,608) | | | $ | (13,160) | | | $ | (4,478) | |
Accretion of preferred stock dividends and redemption premium | 3,347 | | | 4,070 | | | 3,783 | |
Net loss allocable to common shareholders of Jason Industries | $ | (84,955) | | | $ | (17,230) | | | $ | (8,261) | |
| | | | | |
Basic and diluted net (loss) income per share allocable to common shareholders of Jason Industries: | | | | | |
Net loss per share from continuing operations | $ | (1.64) | | | $ | (0.68) | | | $ | (0.74) | |
Net (loss) income per share from discontinued operations | (1.34) | | | 0.06 | | | 0.42 | |
Basic and diluted net loss per share | $ | (2.98) | | | $ | (0.62) | | | $ | (0.32) | |
| | | | | |
Weighted average number of common shares outstanding: | | | | | |
Basic and diluted | 28,484 | | | 27,595 | | | 26,082 | |
| | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
Jason Industries, Inc.
Consolidated Statements of Comprehensive (Loss) Income Jason Industries, Inc. Consolidated Statements of Comprehensive (Loss) Income (In thousands)
|
| | | | | | | | | | | |
| Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 |
| | |
| (Restated) | | | | |
Net loss | $ | (13,160 | ) | | $ | (4,473 | ) | | $ | (78,053 | ) |
Other comprehensive (loss) income: | | | | | |
Employee retirement plan adjustments, net of tax (benefit) expense of ($66), $73, and ($95), respectively | (177 | ) | | 373 |
| | (624 | ) |
Foreign currency translation adjustments | (4,555 | ) | | 10,542 |
| | (4,787 | ) |
Net change in unrealized gains (losses) on cash flow hedges, net of tax expense (benefit) of $436, $814, and ($659), respectively | 1,349 |
| | 1,317 |
| | (1,064 | ) |
Total other comprehensive (loss) income | (3,383 | ) | | 12,232 |
| | (6,475 | ) |
Comprehensive (loss) income | (16,543 | ) | | 7,759 |
| | (84,528 | ) |
Less: Comprehensive income (loss) attributable to noncontrolling interests | — |
| | 43 |
| | (11,870 | ) |
Comprehensive (loss) income attributable to Jason Industries | $ | (16,543 | ) | | $ | 7,716 |
| | $ | (72,658 | ) |
(In thousands)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 | | Year Ended December 31, 2018 | | Year Ended December 31, 2017 |
| | | | | |
Net loss | $ | (81,608) | | | $ | (13,160) | | | $ | (4,473) | |
Other comprehensive (loss) income: | | | | | |
Employee retirement plan adjustments, net of tax (benefit) expense of ($230), ($66), and $73, respectively | (401) | | | (177) | | | 373 | |
| | | | | |
Foreign currency translation adjustments | (3,062) | | | (4,555) | | | 10,542 | |
Net change in unrealized (losses) gains on cash flow hedges, net of tax (benefit) expense of ($518), $436, and $814, respectively | (1,609) | | | 1,349 | | | 1,317 | |
Total other comprehensive (loss) income | (5,072) | | | (3,383) | | | 12,232 | |
Comprehensive (loss) income | (86,680) | | | (16,543) | | | 7,759 | |
Less: Comprehensive income attributable to noncontrolling interests | — | | | — | | | 43 | |
Comprehensive (loss) income attributable to Jason Industries | $ | (86,680) | | | $ | (16,543) | | | $ | 7,716 | |
The accompanying notes are an integral part of these consolidated financial statements.
Jason Industries, Inc.
Consolidated Balance Sheets Jason Industries, Inc. Consolidated Balance Sheets (In thousands, except share and per share amounts)
|
| | | | | | | |
| December 31, 2018 | | December 31, 2017 |
| (Restated) | | |
Assets | | | |
Current assets | | | |
Cash and cash equivalents | $ | 58,169 |
| | $ | 48,887 |
|
Accounts receivable - net of allowances for doubtful accounts of $1,812 and $2,959 at 2018 and 2017, respectively | 60,559 |
| | 68,626 |
|
Inventories - net | 63,747 |
| | 70,819 |
|
Other current assets | 13,664 |
| | 15,655 |
|
Total current assets | 196,139 |
| | 203,987 |
|
Property, plant and equipment - net | 134,869 |
| | 154,196 |
|
Goodwill | 44,065 |
| | 45,142 |
|
Other intangible assets - net | 116,529 |
| | 131,499 |
|
Other assets - net | 11,995 |
| | 11,499 |
|
Total assets | $ | 503,597 |
| | $ | 546,323 |
|
Liabilities and Shareholders’ (Deficit) Equity | | | |
Current liabilities | | | |
Current portion of long-term debt | $ | 6,544 |
| | $ | 9,704 |
|
Accounts payable | 47,497 |
| | 53,668 |
|
Accrued compensation and employee benefits | 14,452 |
| | 17,433 |
|
Accrued interest | 89 |
| | 276 |
|
Other current liabilities | 17,281 |
| | 19,806 |
|
Total current liabilities | 85,863 |
| | 100,887 |
|
Long-term debt | 387,244 |
| | 391,768 |
|
Deferred income taxes | 17,725 |
| | 25,699 |
|
Other long-term liabilities | 20,548 |
| | 22,285 |
|
Total liabilities | 511,380 |
| | 540,639 |
|
Commitments and Contingencies (Note 17) |
| |
|
Shareholders’ (Deficit) Equity | | | |
Preferred stock, $0.0001 par value (5,000,000 shares authorized, 40,612 shares issued and outstanding at December 31, 2018, including 794 shares declared on November 1, 2018 and issued on January 1, 2019, and 49,665 shares issued and outstanding at December 31, 2017, including 968 shares declared on November 28, 2017 and issued on January 1, 2018) | $ | 40,612 |
| | $ | 49,665 |
|
Jason Industries common stock, $0.0001 par value (120,000,000 shares authorized, 27,394,978 shares issued and outstanding at December 31, 2018 and 25,966,381 shares issued and outstanding at December 31, 2017) | 3 |
| | 3 |
|
Additional paid-in capital | 155,533 |
| | 143,788 |
|
Retained deficit | (180,360 | ) | | (167,710 | ) |
Accumulated other comprehensive loss | (23,571 | ) | | (20,062 | ) |
Total shareholders’ (deficit) equity | (7,783 | ) | | 5,684 |
|
Total liabilities and shareholders’ (deficit) equity | $ | 503,597 |
| | $ | 546,323 |
|
(In thousands, except share and per share amounts)
| | | | | | | | | | | |
| December 31, 2019 | | December 31, 2018 |
Assets | | | |
Current assets | | | |
Cash and cash equivalents | $ | 84,526 | | | $ | 46,698 | |
Accounts receivable - net of allowances for doubtful accounts of $1,106 and $1,073 at 2019 and 2018, respectively | 33,085 | | | 36,213 | |
Inventories - net | | 49,943 | | | 49,475 | |
| | | |
| | | |
Other current assets | 7,433 | | | 5,582 | |
Current assets held for sale | — | | | 58,171 | |
Total current assets | 174,987 | | | 196,139 | |
Property, plant and equipment - net | | 70,276 | | | 75,166 | |
Right-of-use operating lease assets | 20,910 | | | — | |
Goodwill | 45,684 | | | 44,065 | |
Other intangible assets - net | 64,590 | | | 69,700 | |
Other assets - net | 10,654 | | | 11,287 | |
Noncurrent assets held for sale | — | | | 107,240 | |
Total assets | $ | 387,101 | | | $ | 503,597 | |
Liabilities and Shareholders’ (Deficit) Equity | | | |
Current liabilities | | | |
Current portion of long-term debt | $ | 5,800 | | | $ | 5,687 | |
Current portion of operating lease liabilities | 4,275 | | | — | |
Accounts payable | 22,914 | | | 30,421 | |
Accrued compensation and employee benefits | 8,551 | | | 11,954 | |
Accrued interest | 79 | | | 89 | |
Other current liabilities | 13,783 | | | 13,161 | |
Current liabilities held for sale | — | | | 24,551 | |
Total current liabilities | 55,402 | | | 85,863 | |
Long-term debt | 378,950 | | | 386,101 | |
Long-term operating lease liabilities | 19,136 | | | — | |
Deferred income taxes | 7,534 | | | 17,613 | |
Other long-term liabilities | 16,938 | | | 18,436 | |
Noncurrent liabilities held for sale | — | | | 3,367 | |
Total liabilities | 477,960 | | | 511,380 | |
Commitments and Contingencies (Note 17) | | | |
Shareholders’ (Deficit) Equity | | | |
Preferred stock, $0.0001 par value (5,000,000 shares authorized, 43,950 shares issued and outstanding at December 31, 2019, including 860 shares declared on November 3, 2019 and issued on January 1, 2020, and 40,612 shares issued and outstanding at December 31, 2018, including 794 shares declared on November 1, 2018 and issued on January 1, 2019) | $ | 43,950 | | | $ | 40,612 | |
Common stock, $0.0001 par value (120,000,000 shares authorized, 28,508,977 shares issued and outstanding at December 31, 2019 and 27,394,978 shares issued and outstanding at December 31, 2018) | 3 | | | 3 | |
Additional paid-in capital | 155,023 | | | 155,533 | |
Retained deficit | (261,192) | | | (180,360) | |
Accumulated other comprehensive loss | (28,643) | | | (23,571) | |
| | | |
| | | |
Total shareholders’ (deficit) equity | (90,859) | | | (7,783) | |
Total liabilities and shareholders’ (deficit) equity | $ | 387,101 | | | $ | 503,597 | |
The accompanying notes are an integral part of these consolidated financial statements.
Jason Industries, Inc.
Consolidated Statements of Shareholders’ (Deficit) Equity Jason Industries, Inc. Consolidated Statements of Shareholders’ (Deficit) Equity (In thousands) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Retained Deficit | | Accumulated Other Comprehensive Loss | | Shareholders' (Deficit) Equity Attributable to Jason Industries, Inc. | | Noncontrolling Interests | | Total Shareholders’ (Deficit) Equity |
| Shares | | Amount | | Shares | | Amount | | | | | | |
Balance at December 31, 2015 | 45 |
| | $ | 45,000 |
| | 22,295 |
| | $ | 2 |
| | $ | 143,533 |
| | $ | (95,997 | ) | | $ | (21,456 | ) | | $ | 71,082 |
| | $ | 13,912 |
| | $ | 84,994 |
|
Dividends declared | 1 |
| | 899 |
| | — |
| | — |
| | (3,600 | ) | | — |
| | — |
| | (2,701 | ) | | — |
| | (2,701 | ) |
Share-based compensation | — |
| | — |
| | 149 |
| | — |
| | (752 | ) | | — |
| | — |
| | (752 | ) | | — |
| | (752 | ) |
Tax withholding related to vesting of restricted stock units | — |
| | — |
| | (44 | ) | | — |
| | (155 | ) | | — |
| | — |
| | (155 | ) | | — |
| | (155 | ) |
Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | (67,235 | ) | | — |
| | (67,235 | ) | | (10,818 | ) | | (78,053 | ) |
Employee retirement plan adjustments, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (540 | ) | | (540 | ) | | (84 | ) | | (624 | ) |
Foreign currency translation adjustments | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (4,013 | ) | | (4,013 | ) | | (774 | ) | | (4,787 | ) |
Net changes in unrealized losses on cash flow hedges, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (870 | ) | | (870 | ) | | (194 | ) | | (1,064 | ) |
Exchange of common stock of JPHI Holdings, Inc. for common stock of Jason Industries, Inc. | — |
| | — |
| | 2,402 |
| | — |
| | 5,640 |
| | — |
| | (3,493 | ) | | 2,147 |
| | (2,147 | ) | | — |
|
Balance at December 31, 2016 | 46 |
| | 45,899 |
| | 24,802 |
| | 2 |
| | 144,666 |
| | (163,232 | ) | | (30,372 | ) | | (3,037 | ) | | (105 | ) | | (3,142 | ) |
Dividends declared | 4 |
| | 3,766 |
| | — |
| | — |
| | (3,783 | ) | | — |
| | — |
| | (17 | ) | | — |
| | (17 | ) |
Share-based compensation | — |
| | — |
| | 106 |
| | — |
| | 1,119 |
| | — |
| | — |
| | 1,119 |
| | — |
| | 1,119 |
|
Tax withholding related to vesting of restricted stock units | — |
| | — |
| | (26 | ) | | — |
| | (35 | ) | | — |
| | — |
| | (35 | ) | | — |
| | (35 | ) |
Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | (4,478 | ) | | | | (4,478 | ) | | 5 |
| | (4,473 | ) |
Employee retirement plan adjustments, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 373 |
| | 373 |
| | — |
| | 373 |
|
Foreign currency translation adjustments | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,506 |
| | 10,506 |
| | 36 |
| | 10,542 |
|
Net changes in unrealized gains on cash flow hedges, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,315 |
| | 1,315 |
| | 2 |
| | 1,317 |
|
Exchange of common stock of JPHI Holdings, Inc. for common stock of Jason Industries, Inc. | — |
| | — |
| | 1,084 |
| | 1 |
| | 1,821 |
| | — |
| | (1,884 | ) | | (62 | ) | | 62 |
| | — |
|
Balance at December 31, 2017 | 50 |
| | 49,665 |
| | 25,966 |
| | 3 |
| | 143,788 |
| | (167,710 | ) | | (20,062 | ) | | 5,684 |
| | — |
|
| 5,684 |
|
Cumulative impact of accounting changes | — |
| | — |
| | — |
| | — |
| | — |
| | 510 |
| | (126 | ) | | 384 |
| | — |
| | 384 |
|
Dividends declared | 3 |
| | 3,083 |
| | — |
| | — |
| | (3,093 | ) | | — |
| | — |
| | (10 | ) | | — |
| | (10 | ) |
Share-based compensation | — |
| | — |
| | 36 |
| | — |
| | 2,709 |
| | — |
| | — |
| | 2,709 |
| | — |
| | 2,709 |
|
Tax withholding related to vesting of restricted stock units | — |
| | — |
| | (3 | ) | | — |
| | (7 | ) | | — |
| | — |
| | (7 | ) | | — |
| | (7 | ) |
Net loss (Restated) | — |
| | — |
| | — |
| | — |
| | — |
| | (13,160 | ) | | — |
| | (13,160 | ) | | — |
| | (13,160 | ) |
Employee retirement plan adjustments, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (177 | ) | | (177 | ) | | — |
| | (177 | ) |
Foreign currency translation adjustments | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (4,555 | ) | | (4,555 | ) | | — |
| | (4,555 | ) |
Net changes in unrealized gains on cash flow hedges, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,349 |
| | 1,349 |
| | — |
| | 1,349 |
|
Exchange of preferred stock for common stock of Jason Industries, Inc. | (12 | ) | | (12,136 | ) | | 1,396 |
| | — |
| | 12,136 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Balance at December 31, 2018 (Restated) | 41 |
| | $ | 40,612 |
| | 27,395 |
| | $ | 3 |
| | $ | 155,533 |
| | $ | (180,360 | ) | | $ | (23,571 | ) | | $ | (7,783 | ) | | $ | — |
| | $ | (7,783 | ) |
(In thousands,except per share amounts) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | | | | Common Stock | | | | | Additional Paid-In Capital | | | Retained Deficit | | | Accumulated Other Comprehensive Loss | | | Shareholders’ (Deficit) Equity Attributable to Jason Industries, Inc. | | | Noncontrolling Interests | | | Total Shareholders’ (Deficit) Equity | |
| Shares | | | Amount | | | Shares | | | Amount | | | | | | | | | | | | | |
Balance at December 31, 2016 | 46 | | | $ | 45,899 | | | 24,802 | | | $ | 2 | | | $ | 144,666 | | | $ | (163,232) | | | $ | (30,372) | | | $ | (3,037) | | | $ | (105) | | | $ | (3,142) | |
Dividends declared | 4 | | | 3,766 | | | — | | | — | | | (3,783) | | | — | | | — | | | (17) | | | — | | | (17) | |
Share-based compensation | — | | | — | | | 106 | | | — | | | 1,119 | | | — | | | — | | | 1,119 | | | — | | | 1,119 | |
Tax withholding related to vesting of restricted stock units | — | | | — | | | (26) | | | — | | | (35) | | | — | | | — | | | (35) | | | — | | | (35) | |
Net loss | — | | | — | | | — | | | — | | | ��� | | | (4,478) | | | — | | | (4,478) | | | 5 | | | (4,473) | |
Employee retirement plan adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | 373 | | | 373 | | | — | | | 373 | |
Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | 10,506 | | | 10,506 | | | 36 | | | 10,542 | |
Net changes in unrealized gain on cash flow hedges, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | 1,315 | | | 1,315 | | | 2 | | | 1,317 | |
Exchange of common stock of JPHI Holdings, Inc. for common stock of Jason Industries, Inc. | — | | | — | | | 1,084 | | | 1 | | | 1,821 | | | — | | | (1,884) | | | (62) | | | 62 | | | — | |
Balance at December 31, 2017 | 50 | | | 49,665 | | | 25,966 | | | 3 | | | 143,788 | | | (167,710) | | | (20,062) | | | 5,684 | | | — | | | 5,684 | |
Cumulative impact of accounting changes | — | | | — | | | — | | | — | | | — | | | 510 | | | (126) | | | 384 | | | — | | | 384 | |
Dividends declared | 3 | | | 3,083 | | | — | | | — | | | (3,093) | | | — | | | — | | | (10) | | | — | | | (10) | |
Share-based compensation | — | | | — | | | 36 | | | — | | | 2,709 | | | — | | | — | | | 2,709 | | | — | | | 2,709 | |
Tax withholding related to vesting of restricted stock units | — | | | — | | | (3) | | | — | | | (7) | | | — | | | — | | | (7) | | | — | | | (7) | |
Net loss | — | | | — | | | — | | | — | | | — | | | (13,160) | | | | | (13,160) | | | — | | | (13,160) | |
Employee retirement plan adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | (177) | | | (177) | | | — | | | (177) | |
Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | (4,555) | | | (4,555) | | | — | | | (4,555) | |
Net changes in unrealized gains on cash flow hedges, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | 1,349 | | | 1,349 | | | — | | | 1,349 | |
Exchange of common stock of JPHI Holdings, Inc. for common stock of Jason Industries, Inc. | (12) | | | (12,136) | | | 1,396 | | | — | | | 12,136 | | | — | | | — | | | — | | | — | | | — | |
Balance at December 31, 2018 | 41 | | | 40,612 | | | 27,395 | | | 3 | | | 155,533 | | | (180,360) | | | (23,571) | | | (7,783) | | | — | | | | (7,783) | |
Cumulative impact of accounting changes | — | | | — | | | — | | | — | | | — | | | 776 | | | — | | | 776 | | | — | | | 776 | |
Dividends declared | 3 | | | 3,338 | | | — | | | — | | | (3,347) | | | — | | | — | | | (9) | | | — | | | (9) | |
Share-based compensation | — | | | — | | | 1,530 | | | — | | | 3,354 | | | — | | | — | | | 3,354 | | | — | | | 3,354 | |
Tax withholding related to vesting of restricted stock units | — | | | — | | | (416) | | | — | | | (517) | | | — | | | — | | | (517) | | | — | | | (517) | |
Net loss | — | | | — | | | — | | | — | | | — | | | (81,608) | | | — | | | (81,608) | | | — | | | (81,608) | |
Employee retirement plan adjustments, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | (401) | | | (401) | | | — | | | (401) | |
Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | (3,062) | | | (3,062) | | | — | | | (3,062) | |
Net changes in unrealized losses on cash flow hedges, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | (1,609) | | | (1,609) | | | — | | | (1,609) | |
| | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2019 | 44 | | | $ | 43,950 | | | 28,509 | | | $ | 3 | | | $ | 155,023 | | | $ | (261,192) | | | $ | (28,643) | | | $ | (90,859) | | | $ | — | | | $ | (90,859) | |
The accompanying notes are an integral part of these consolidated financial statements.
Jason Industries, Inc. Consolidated Statements of Cash Flows (In thousands)
| |
| Jason Industries, Inc. Consolidated Statements of Cash Flows (In thousands, except share and per share amounts) | | Jason Industries, Inc. Consolidated Statements of Cash Flows (In thousands, except share and per share amounts) | |
| Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Year Ended December 31, 2019 | | Year Ended December 31, 2018 | | Year Ended December 31, 2017 |
| | |
| (Restated) | | | | | |
Includes cash flow activities from both continuing and discontinued operations | | Includes cash flow activities from both continuing and discontinued operations | Year Ended December 31, 2019 | | Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | | |
Cash flows from operating activities | | | | | | Cash flows from operating activities | |
Net loss | $ | (13,160 | ) | | $ | (4,473 | ) | | $ | (78,053 | ) | Net loss | $ | (81,608) | | | $ | (13,160) | | | $ | (4,473) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | | Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | |
Depreciation | 28,356 |
| | 26,260 |
| | 31,120 |
| Depreciation | 24,606 | | | 28,356 | | | 26,260 | |
Amortization of intangible assets | 14,248 |
| | 12,674 |
| | 12,921 |
| Amortization of intangible assets | 10,855 | | | 14,248 | | | 12,674 | |
Amortization of deferred financing costs and debt discount | 2,937 |
| | 2,943 |
| | 3,008 |
| Amortization of deferred financing costs and debt discount | 2,994 | | | 2,937 | | | 2,943 | |
Impairment charges | — |
| | — |
| | 63,285 |
| |
Non-cash operating lease expense | | Non-cash operating lease expense | 8,024 | | | — | | | — | |
Non-cash impairment charges | | Non-cash impairment charges | 20,597 | | | — | | | — | |
Equity income | (1,024 | ) | | (952 | ) | | (681 | ) | Equity income | (316) | | | (1,024) | | | (952) | |
Deferred income taxes | (7,995 | ) | | (17,345 | ) | | (14,112 | ) | Deferred income taxes | (9,013) | | | (7,995) | | | (17,345) | |
(Gain) loss on disposals of property, plant and equipment - net | (1,142 | ) | | (759 | ) | | 880 |
| |
Loss (gain) on disposals of property, plant and equipment - net | | Loss (gain) on disposals of property, plant and equipment - net | 448 | | | (1,142) | | | (759) | |
Gain on extinguishment of debt | — |
| | (2,201 | ) | | — |
| Gain on extinguishment of debt | | — | | | — | | | (2,201) | |
Loss on divestiture | — |
| | 8,730 |
| | — |
| |
Transaction fees on divestiture | — |
| | (932 | ) | | — |
| |
Non-cash impact of business divestitures and dissolutions | | Non-cash impact of business divestitures and dissolutions | 12,858 | | | — | | | 7,798 | |
| Dividends from joint ventures | 833 |
| | — |
| | 2,068 |
| Dividends from joint ventures | 728 | | | 833 | | | — | |
Share-based compensation | 2,709 |
| | 1,119 |
| | (752 | ) | Share-based compensation | 3,354 | | | 2,709 | | | 1,119 | |
Net increase (decrease) in cash due to changes in: | | | | | | |
Net increase (decrease) in cash, net of acquisitions and dispositions, due to changes in: | | Net increase (decrease) in cash, net of acquisitions and dispositions, due to changes in: | |
Accounts receivable | 7,454 |
| | 6,997 |
| | (85 | ) | Accounts receivable | 7,239 | | | 7,454 | | | 6,997 | |
Inventories | 5,750 |
| | 3,804 |
| | 5,862 |
| Inventories | 4,109 | | | 5,750 | | | 3,804 | |
Other current assets | 2,819 |
| | 1,464 |
| | 7,346 |
| Other current assets | (648) | | | 2,819 | | | 1,464 | |
Accounts payable | (6,015 | ) | | (7,897 | ) | | 5,886 |
| Accounts payable | (11,375) | | | (6,015) | | | (7,897) | |
Accrued compensation and employee benefits | (2,710 | ) | | 5,946 |
| | (5,449 | ) | Accrued compensation and employee benefits | (4,409) | | | (2,710) | | | 5,946 | |
Accrued interest | (187 | ) | | 98 |
| | 117 |
| Accrued interest | (9) | | | (187) | | | 98 | |
Accrued income taxes | (1,221 | ) | | 473 |
| | 2,263 |
| Accrued income taxes | 312 | | | (1,221) | | | 473 | |
| Operating lease liabilities, net | | Operating lease liabilities, net | (7,221) | | | — | | | — | |
Other - net | (1,895 | ) | | (5,858 | ) | | (507 | ) | Other - net | (2,325) | | | (1,895) | | | (5,858) | |
Total adjustments | 42,917 |
| | 34,564 |
| | 113,170 |
| Total adjustments | 60,808 | | | 42,917 | | | 34,564 | |
Net cash provided by operating activities | 29,757 |
| | 30,091 |
| | 35,117 |
| |
Net cash (used in) provided by operating activities | | Net cash (used in) provided by operating activities | (20,800) | | | 29,757 | | | 30,091 | |
| | | | | | | | | | | |
Cash flows from investing activities | | | | | | Cash flows from investing activities | |
| Proceeds from disposals of property, plant and equipment | 3,531 |
| | 8,809 |
| | 3,413 |
| Proceeds from disposals of property, plant and equipment | 2,117 | | | 3,531 | | | 8,809 | |
| Payments for property, plant and equipment | (13,753 | ) | | (15,873 | ) | | (19,780 | ) | Payments for property, plant and equipment | (11,785) | | | (13,753) | | | (15,873) | |
Proceeds from divestitures, net of cash divested and debt assumed by buyer | — |
| | 7,883 |
| | — |
| |
Proceeds from divestitures, net of cash divested and liabilities assumed by buyer | | Proceeds from divestitures, net of cash divested and liabilities assumed by buyer | 79,796 | | | — | | | 7,883 | |
Acquisitions of business, net of cash acquired | | Acquisitions of business, net of cash acquired | (11,000) | | | — | | | — | |
Acquisitions of patents | (152 | ) | | (104 | ) | | (86 | ) | Acquisitions of patents | (42) | | | (152) | | | (104) | |
Net cash (used in) provided by investing activities | (10,374 | ) | | 715 |
| | (16,453 | ) | |
| Net cash provided by (used in) investing activities | | Net cash provided by (used in) investing activities | 59,086 | | | (10,374) | | | 715 | |
Cash flows from financing activities | | Cash flows from financing activities | |
| | | | | | |
| (Restated) | | | | | |
Cash flows from financing activities | | | | | | |
| Payments of deferred financing costs | (649 | ) | | — |
| | — |
| Payments of deferred financing costs | (331) | | | (649) | | | — | |
| Payments of First and Second Lien term loans | (5,600 | ) | | (21,826 | ) | | (3,100 | ) | Payments of First and Second Lien term loans | (8,100) | | | (5,600) | | | (21,826) | |
| Proceeds from other long-term debt | 3,387 |
| | 8,596 |
| | 10,150 |
| Proceeds from other long-term debt | 4,645 | | | 3,387 | | | 8,596 | |
Payments of other long-term debt | (7,076 | ) | | (10,816 | ) | | (16,138 | ) | Payments of other long-term debt | (6,362) | | | (7,076) | | | (10,816) | |
Value added tax collected on building sale | 694 |
| | — |
| | — |
| |
Payments of preferred stock dividends | (15 | ) | | (12 | ) | | (3,600 | ) | |
Payments of finance lease obligation | | Payments of finance lease obligation | | (340) | | | — | | | — | |
Value added tax (paid from) collected on building sale | | Value added tax (paid from) collected on building sale | | (707) | | | 694 | | | — | |
| Other financing activities - net | (7 | ) | | (220 | ) | | (155 | ) | Other financing activities - net | (627) | | | (22) | | | (232) | |
Net cash used in financing activities | (9,266 | ) | | (24,278 | ) | | (12,843 | ) | Net cash used in financing activities | (11,822) | | | (9,266) | | | (24,278) | |
Effect of exchange rate changes on cash and cash equivalents | (835 | ) | | 1,498 |
| | (904 | ) | Effect of exchange rate changes on cash and cash equivalents | (107) | | | (835) | | | 1,498 | |
Net increase in cash and cash equivalents | 9,282 |
| | 8,026 |
| | 4,917 |
| Net increase in cash and cash equivalents | 26,357 | | | 9,282 | | | 8,026 | |
| | | | | | |
Cash and cash equivalents, beginning of period | 48,887 |
| | 40,861 |
| | 35,944 |
| Cash and cash equivalents, beginning of period | 58,169 | | | 48,887 | | | 40,861 | |
Cash and cash equivalents, end of period | $ | 58,169 |
| | $ | 48,887 |
| | $ | 40,861 |
| Cash and cash equivalents, end of period | $ | 84,526 | | | $ | 58,169 | | | $ | 48,887 | |
Supplemental disclosure of cash flow information | | | | | | Supplemental disclosure of cash flow information | | | | | |
Cash paid during the year for: | | | | | | Cash paid during the year for: | |
Interest | $ | 30,687 |
| | $ | 30,242 |
| | $ | 28,717 |
| Interest | $ | 30,121 | | | $ | 30,687 | | | $ | 30,242 | |
Income taxes, net of refunds | $ | 6,480 |
| | $ | 6,843 |
| | $ | 7,163 |
| Income taxes, net of refunds | $ | 3,440 | | | $ | 6,480 | | | $ | 6,843 | |
Acquisition-related transaction costs used in operating activities | | Acquisition-related transaction costs used in operating activities | $ | 384 | | | $ | — | | | $ | — | |
Divestiture-related transaction costs used in operating activities | | Divestiture-related transaction costs used in operating activities | $ | 4,091 | | | $ | — | | | $ | 932 | |
Non-cash lease activities: | | Non-cash lease activities: | |
Right-of-use operating assets obtained in exchange for operating lease obligations | | Right-of-use operating assets obtained in exchange for operating lease obligations | $ | 3,341 | | | $ | — | | | $ | — | |
Right-of-use finance assets obtained in exchange for finance lease obligations | | Right-of-use finance assets obtained in exchange for finance lease obligations | $ | 536 | | | $ | — | | | $ | — | |
Non-cash investing activities | | | | | | Non-cash investing activities | |
Property, plant and equipment acquired through additional liabilities | $ | 1,451 |
| | $ | 1,179 |
| | $ | 1,891 |
| Property, plant and equipment acquired through additional liabilities | $ | 618 | | | $ | 1,451 | | | $ | 1,179 | |
Non-cash financing activities: | | | | | | Non-cash financing activities: | |
Accretion of preferred stock dividends | $ | 2 |
| | $ | 6 |
| | $ | 1 |
| Accretion of preferred stock dividends | $ | 2 | | | $ | 2 | | | $ | 6 | |
Non-cash preferred stock created from dividends declared | $ | 3,083 |
| | $ | 3,766 |
| | $ | 899 |
| Non-cash preferred stock created from dividends declared | $ | 3 | | | $ | 3 | | | $ | 4 | |
Exchange of common stock of JPHI Holdings, Inc. for common stock of Jason Industries, Inc. | $ | — |
| | $ | 62 |
| | $ | (2,147 | ) | Exchange of common stock of JPHI Holdings, Inc. for common stock of Jason Industries, Inc. | $ | — | | | $ | — | | | $ | 62 | |
Exchange of preferred stock for common stock of Jason Industries, Inc. | $ | 12,136 |
| | $ | — |
| | $ | — |
| Exchange of preferred stock for common stock of Jason Industries, Inc. | $ | — | | | $ | 12,136 | | | $ | — | |
Buyer assumption of debt from divestiture | $ | — |
| | $ | 2,950 |
| | $ | — |
| |
Debt and pension liability assumed by buyer with divestitures | | Debt and pension liability assumed by buyer with divestitures | $ | 2,206 | | | $ | — | | | $ | 2,950 | |
The accompanying notes are an integral part of these consolidated financial statements.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
|
| | | | |
1. | Summary of Significant Accounting Policies |
Description of business:Jason Industries, Inc. and its subsidiaries (collectively, the “Company”) is a global industrial manufacturing company with four reportablesignificant market share positions in each of its 2 segments: finishing,industrial and engineered components. The Company provides critical components seating and acoustics. The segments have operations withinmanufacturing solutions to customers across a wide range of end markets, industries and geographies through its global network of 23 manufacturing facilities and 9 sales, administrative and/or warehouse facilities throughout the United States and 13 foreign countries. In the first quarter of 2019, as part of a review of the Company’s organizational structure, the Company made certain strategic leadership changes which required a reassessment of reportable segments. Based on this evaluation, the Company changed how it makes operating decisions, assesses performance of the business, and allocates resources. As a result of the evaluation, the Company reduced the number of operating and reportable segments from 4 to 3: industrial, engineered components and fiber solutions. The prior year segment disclosures have been updated to conform with current year presentation.
On August 12, 2019, we announced that our Board of Directors had engaged financial advisors to advise us as we conduct a process to evaluate strategic alternatives. This evaluation includes, but is not limited to, a potential sale, strategic merger, consolidation or business combination, acquisition, recapitalization, financing consisting of equity and/or debt securities, and/or a restructuring of the Company’s finishing segment focusesdebt, focused on maximizing the productionvalue of industrial brushes, polishing buffsthe Company for its stakeholders.
Discontinued operations: The Company presents discontinued operations when there is a disposal of a component group that is considered by the Company to be a strategic shift that has a major effect on operations and compounds,financial results. The results of operations for discontinued operations are aggregated into a single line in the consolidated statements of operations for all periods presented.
During 2019, the Company determined that both the North American fiber solutions business and abrasives that are used in a broad range of industrial and infrastructure applications. Thethe Metalex business within the engineered components segment ismet the criteria to be classified as discontinued operations. As a diversified manufacturerresult, the Company’s prior period results of expandedoperations, financial position and perforated metal componentsnotes to the financial statements have been recast to be presented on a continuing operations basis, except where noted. The assets and slip resistant surfaces. The seating segment supplies seatingliabilities of the North American fiber solutions to equipment manufacturers inbusiness and the motorcycle, lawn and turf care, industrial, agricultural, construction and power sports end markets. The acoustics segment manufactures engineered non-woven, fiber-based acoustical products primarilyMetalex business have been presented as held for sale for the automotive industry.periods prior to the sale. On August 30, 2019 and on December 13, 2019, the Company completed the divestitures of our North American fiber solutions business and our Metalex business, respectively. Previously, on August 30, 2017, the Company completed the sale of the European fiber solutions business, which did not meet the criteria for discontinued operations presentation at the time of the divestiture. As such, the results of the European fiber solutions business are presented within continuing operations through the date of the sale.
Basis of presentation:The Company’s fiscal year ends on December 31. Throughout the year, the Company reports its results using a fiscal calendar whereby each three month quarterly reporting period is approximately thirteen weeks in length and endsending on a Friday. The exceptions are the first quarter, which begins on January 1, and the fourth quarter, which ends on December 31. For 2019, the Company’s fiscal quarters were comprised of the three months ended March 29, June 28, September 27, and December 31. In 2018, the Company’s fiscal quarters were comprised of the three months ended March 30, June 29, September 28, and December 31. In 2017, the Company’s fiscal quarters were comprised of the three months ended March 31, June 30, September 29, and December 31.
Principles of consolidation:The consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of all wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. Investments in partially owned affiliates are accounted for using the equity method when the Company’s interest is between 20% and 50% and the Company does not have a controlling interest, yet maintains significant influence.
Cash and cash equivalents: The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. At December 31, 2018 and 2017, book overdrafts of approximately $0.2 million and $4.7 million, respectively, are included in accounts payable within the accompanying consolidated balance sheets. These amounts are held in accounts in which the Company has no right of offset with other cash balances.
Accounts receivable: The Company evaluates collectability of its receivables and establishes the allowance for doubtful accounts based on a combination of specific customer circumstances and historical write-off experience. Credit is extended to customers based upon an evaluation of their financial position. Generally, advance payment is not required. Credit losses are provided for in the consolidated financial statements and consistently have been within management’s expectations.
Inventories:Inventories are comprised of material, direct labor and manufacturing overhead, and are valued at the lower of cost or net realizable value and adjusted for the value of inventory that is estimated to be excess, obsolete or otherwise
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
unmarketable. The estimation of excess, obsolete and unmarketable inventory is based on a variety of factors, including material or product age, estimated usage and estimated market demand. The first-in, first-out (“FIFO”) method is used to determine cost for all of the Company’s inventories.
Property, plant and equipment: Property, plant and equipment are stated at cost. Depreciation generally occurs using the straight-line method over 2 to 40 years for buildings and improvements and 2 to 10 years for machinery and equipment.
Leasehold improvements are amortized over the lesser of the term of the respective leases and the useful life of the related improvement using the straight-line method. The Company uses accelerated depreciation methods for income tax purposes. Expenditures which substantially increase value or extend useful lives are capitalized. Expenditures for maintenance and repairs are charged to operations as incurred. The Company records gains and losses on the disposition or retirement of property, plant and equipment based on the net book value and any proceeds received.
Long-lived assets:Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable based upon an estimate of the related future undiscounted cash flows. When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset as compared to its carrying value. Long-lived assets to be disposed of by sale are reported at the lower of carrying amount or fair value less cost to sell. The Company conducts its long-lived asset impairment reviews at the lowest level in which identifiable cash flows are largely independent of cash flows of other assets and liabilities.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Amortization is recorded for other intangible assets with determinable lives. Patents, customer relationships, and trademarks and other intangible assets are amortized on a straight-line basis over their estimated useful lives of 7 years, 10 to 15 years, and 51 to 18 years, respectively.
Goodwill:Goodwill reflects the cost of an acquisition in excess of the aggregate fair value assigned to identifiable net assets acquired. Goodwill is assessed for impairment at least annually and as triggering events or indicators of potential impairment occur. The Company performs its annual impairment test in the fourth quarter of its fiscal year. Goodwill has been assigned to reporting units for purposes of impairment testing based upon the relative fair value of the asset to each reporting unit.
Impairment of goodwill is measured by comparing the fair value of a reporting unit to the carrying value of the reporting unit, including goodwill. The estimated fair value represents the amount at which a reporting unit could be bought or sold in a current transaction between willing parties on an arms-length basis. In estimating the fair value, the Company uses a discounted cash flow model, which is dependent on a number of assumptions including estimated future revenues and expenses, weighted average cost of capital, capital expenditures and other variables. The Company also uses a market approach, in which the fair values of comparable public companies and fair values based on recent comparable transactions (when available) are used in determining an estimated fair value for each reporting unit.
If the carrying amount of the reporting unit exceeds the estimated fair value of the reporting unit, an impairment loss is recognized in an amount equal to that excess, not to exceed the carrying amount of the goodwill. The Company is subject to financial statement risk in the event that goodwill becomes impaired. See Note 8, “Goodwill and Other Intangible Assets” for further discussion regarding the results of the Company’s goodwill impairment testing.
Investments in partially-owned affiliates: The Company has investments in joint ventures located in Asia. These joint ventures are part of the finishingindustrial segment and are accounted for using the equity method of accounting. As of December 31, 20182019 and 2017,2018, the Company’s investment in these joint ventures was $6.3$5.8 million and $6.1$6.3 million, respectively, and is included in other assets-net in the consolidated balance sheets. Equity income is presented separately on the consolidated statements of operations.
Income taxes: The provision for income taxes includes federal, state, local and foreign taxes on income. Deferred taxes are recorded for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities, and net operating loss and credit carryforwards available to offset future taxable income. Future tax benefits are recognized to the extent that realization of those benefits is considered to be more likely than not. A valuation allowance is provided for net deferred tax assets when it is more likely than not that the Company will not realize the benefit of such net assets. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.
Share-based payments: The Company recognizes expense related to share-based payment transactions in which it receives employee services in exchange for equity instruments of the Company that may be settled by the issuance of such equity instruments. Share-based compensation cost for restricted stock units (“RSUs”) is measured based on the closing fair market value of the Company’s common stock on the date of grant. The Company recognizes share-based compensation cost over the award’s requisite service period on a straight-line basis for time-based RSUs and on a graded basis for RSUs that are
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
contingent on the achievement of performance conditions. Forfeitures are recognized within compensation expense in the period the forfeitures are incurred. The Company recognizes a tax (provision)/benefit from share-based compensation (income)/expense in the consolidated statements of operations in the period the share-based compensation (income)/expense is incurred. See Note 12,, “Share-Based Compensation” “Share-Based Compensation” for further information regarding share-based compensation.
Fair value of financial instruments: Current accounting guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. It also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. In accordance with the guidance, fair value measurements are classified under the following hierarchy:
•Level 1 — Quoted prices for identical instruments in active markets.
•Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets.
•Level 3 — Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Fair value measurements are classified according to the lowest level input or value-driver that is significant to the valuation. A measurement may therefore be classified within Level 3 even though there may be significant inputs that are readily observable.
The carrying amounts within the accompanying consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments. The Company assessed the amounts recorded under revolving loans, if any, and long-term debt and determined that the fair value of total debt was approximately $387.4$297.3 million and $398.4$387.4 million as of December 31, 20182019 and 2017,2018, respectively. The Company considers the inputs related to these estimations to be Level 2 fair value measurements as they are primarily based on quoted prices for the Company’s Senior Secured Credit Facility.
The valuation of the Company’s derivative financial instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The Company has determined that the lowest levelmajority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy and therefore the Company’s derivatives are classified within Level 2. See Note 9, “Debt“Debt and Hedging Instruments”Instruments” for further information regarding derivatives held by the Company.
Employee Benefit Plans: The Company recognizes pension and post-retirement benefit income and expense and assets and obligations that are based on actuarial valuations using a December 31 measurement date and that include key assumptions regarding discount rates, expected returns on plan assets, retirement and mortality rates, future compensation increases, and health care cost trend rates. The Company reviews actuarial assumptions on an annual basis and makes modifications based on current rates and trends when appropriate. As required by GAAP, the effects of the modifications are recorded currently oras a component of other comprehensive income and are amortized over future periods.
Derivative financial instruments:The Company recognizes all derivative financial instruments in the consolidated financial statements at fair value regardless of the purpose or intent for holding the instrument. Changes in the fair value of derivative financial instruments are either recognized periodically in income or in equity as a component of comprehensive income (loss) depending on whether the derivative financial instrument qualifies for hedge accounting, and if so, whether it qualifies as a fair value hedge or cash flow hedge. Generally, changes in fair values of derivatives accounted for as fair value hedges are recorded in income along with the portions of the changes in the fair values of the hedged items that relate to the hedged risks. Changes in fair values of derivatives accounted for as cash flow hedges, to the extent they are effective as hedges, are recorded in other comprehensive (loss) income, net of deferred income taxes. Changes in fair value of derivatives not qualifying as hedges are reported in income. Cash flows from derivatives that are accounted for as cash flow or fair value hedges are included in the consolidated statements of cash flows in the same category as the item being hedged. The Company’s policy is to enter into derivatives with creditworthy institutions and not to enter into such derivatives for speculative purposes. See Note 9, “Debt“Debt and Hedging Instruments”Instruments” for further information regarding derivatives held by the Company.
Foreign currency translation: Assets and liabilities of the Company’s foreign subsidiaries, whose respective functional currencies are other than the U.S. dollar, are translated at year-end exchange rates while revenues and expenses are
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
translated at average exchange rates. Resultant gains and losses are reflected within accumulated other comprehensive loss within the accompanying consolidated statements of shareholders’ (deficit) equity.
Other comprehensive (loss) income: Other comprehensive (loss) income includes disclosure of financial information that historically has not been recognized in the calculation of net (loss) income. The Company’s other comprehensive (loss) income (loss) includes the change in unrecognized prior service costs on pension and other postretirement obligations, foreign currency translation, and fair value adjustments related to derivative instruments.
Pre-production costs related to long-term supply arrangements: The Company’s policy for engineering, research and development, and other design and development costs related to products that will be sold under long-term supply arrangements requires such costs to be expensed as incurred. Costs for molds, dies, and other tools used to manufacture products that will be sold under long-term supply arrangements are capitalized if the Company has title to the assets or when customer reimbursement is assured.
Revenue recognition:Net sales are recognized when control of a performance obligation is transferred to the customer in an amount that reflects the consideration expected to be received in exchange for the transferred good or service. The Company typically satisfies its performance obligations in contracts with customers upon shipment of the goods or delivery of the services. Amounts invoiced to customers related to shipping and handling are classified as net sales, while expenses for transportation of products to customers are recorded as a component of cost of goods sold on the consolidated statement of operations. Sales, value add, and other taxes collected concurrent with revenue-producing activities are excluded from net sales.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
As of the contract inception date, the expected time between the completion of the performance obligation and the payment from the customer is less than a year, and as such there are no significant financing components in the consideration recognized and disclosures around unsatisfied performance obligations have been omitted.
The Company estimates whether it will be subject to variable consideration under the terms of the contract and includes its estimate of variable consideration in the transaction price based on the expected value method when it is deemed probable of being realized based on historical experience and trends. Types of variable consideration may include rebates, discounts, and product returns, among others, which are recorded as a deduction to net sales at the time when control of a performance obligation is transferred to the customer.
The majority of the Company’s contracts are for the sale of goods that qualify as separate performance obligations that are distinct from other goods or services provided in the same contract. Transaction price inclusive of estimated variable consideration is allocated to separate performance obligations based on their relative standalone selling prices using observable inputs. When observable inputs are not available, the Company estimates stand alonestandalone selling price using cost plus a reasonable margin approach. Contracts entered into with the same customer at or near the same time are combined into a single contract if they represent a single commercial objective, if payment of consideration in one contract is dependent on performance of the other contract, or if promises in different contracts constitute a single performance obligation. For the limited contracts with multiple performance obligations, the contract’s transaction price is allocated to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract.
Performance obligations are satisfied at a point in time or over time as work progresses. Revenue from products transferred to customers at a point in time accounted for more than 99% of net sales for the year ended December 31, 2018.2019. The Company recognizes revenue over time for certain production parts with minimum stocking agreements in the finishingindustrial business that are highly customized with no alternative use and for which the Company has an enforceable right to payment with a reasonable margin under the terms of the contract based on the output method of goods produced. Revenue from products transferred to customers over time accounted for less than 1% of net sales for the year ended December 31, 2018.2019.
The Company provides industry standard assurance-type warranties which ensure that the manufactured products comply with agreed upon specifications with the customers and do not represent a separate performance obligation with the customer. Warranty based accruals are established under Accounting Standards Codification (“ASC”) 460, “Guarantees”, based on an evaluation of historical warranty experience and management’s estimate of the level of future claims.
Insurance proceeds: The Company maintains property and business interruption insurance coverage to mitigate the risk of incremental costs and/or lost revenues or profit margins resulting from disruption of business activities, whether at our own facility or that of a supplier. The Company records the incremental costs associated with such events as incurred and the related insurance recovery proceeds when deemed probable and collectible in the case of claims for direct cost recovery and when earned and realizable in the case of claims for business interruption related to lost revenues or profit margins. The incremental costs incurred as well as any associated insurance recoveries for covered events are recorded within operating income in the consolidated statements of operations.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
During 2018, the Company experienced a force majeure incident at a supplier in the seatingengineered components segment that resulted in incremental costs to maintain production and lost revenues during the disruption period. As a result of this event, the Company received $2.2 million of insurance claims proceeds which were recorded as a component of cost of goods sold within the consolidated statement of operations.
Finance and operating lease obligations: The Company’s lease portfolio includes both real estate and non-real estate type leases which are accounted for as either finance or operating leases. Real estate leases generally include office, warehouse and manufacturing facilities and non-real estate leases generally include office equipment, manufacturing machinery, vehicles and other transportation equipment. The Company’s leases have remaining lease terms of less than one year to ten years. Many of the leases include provisions that enable the Company to renew the lease, and a number of leases are subject to various escalation clauses. Renewal options that are deemed reasonably certain are included as part of the lease term for purposes of calculating the right-of-use (“ROU”) asset and lease liability. Operating lease ROU assets and lease liabilities are recorded on the balance sheet on the date the Company takes possession of the leased assets with expense recognized on a straight-line basis over the lease term. Leases with an estimated total term of 12 months or less are not recorded on the balance sheet and the lease expense is recognized on a straight-line basis over the lease term. The Company’s lease agreements do not contain any material residual value guarantees or restrictive covenants.
The Company determines if an arrangement is a lease at inception. The Company will only reassess the lease classification when modifications or changes to key terms are made to a lease agreement. Generally, the Company’s real estate type leases contain both lease components and non-lease components. Non-lease components of real estate type leases are excluded from the calculation of the ROU asset and lease liability and are excluded from lease expense. For the Company’s non-real estate type leases, non-lease components are included in the calculation of the ROU asset and lease liability and included in lease expense over the term of the lease. The Company uses a discount rate to calculate the ROU asset and lease liability. When the implicit rate is known or provided in the lease documents, the Company is required to use this rate as the discount rate. In cases in which the implicit rate is not known, the Company uses an estimated incremental borrowing rate based upon the sovereign treasury rate for the currency in which the lease liability is denominated on the date the Company takes possession of the leased asset adjusted for various factors, such as term and an internal credit spread.
Research and development costs:Research and development costs consist of engineering and development resources and are expensed as incurred. Such costs incurred in the development of new products or significant improvements to existing products were $3.2$4.8 million in the year ended December 31, 2019, $2.4 million in the year ended December 31, 2018, $3.6and $3.3 million in the year ended December 31, 2017, and $4.2 million in the year ended December 31, 2016.2017.
Advertising costs: Advertising costs are charged to selling and administrative expenses as incurred and were $1.1 million in the year ended December 31, 2019, $1.4 million in the year ended December 31, 2018, and $1.6 million in the year ended December 31, 2018, $1.8 million in the year ended December 31, 2017, and $1.9 million in the year ended December 31, 2016.2017.
Use of estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentration risks: The Company’s operations are geographically dispersed and it has a diverse customer base. Management believes bad debt losses resulting from default by a single customer, or defaults by customers in any depressed region or business sector, would not have a material effect on the Company’s financial position, results of operations or cash flows.
During the years ended December 31, 2019, 2018, and 2017 the Company had no individual customers at or above 10% of consolidated net sales. At December 31, 2019 and 2018, no single customer accounted for greater than 10% of the Company’s consolidated accounts receivable balance.
Recently issued accounting standards
Accounting standards adopted in the current fiscal year
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 establishes new accounting and disclosure requirements for leases. See above for discussion of the Company’s finance and operating lease obligation policy and Note 10, “Leases” for further discussion regarding the adoption of this standard effective January 1, 2019.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”). ASU 2017-12 broadens the scope of financial and nonfinancial
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
region or business sector, would not have a material effect on the Company’s financial position, results of operations or cash flows.
During the years ended December 31, 2018, 2017, and 2016 the Company had no individual customers at or above 10% of consolidated net sales. At December 31, 2018, one customer accounted for greater than 10% of the Company’s consolidated accounts receivable balance; this customer accounted for 10% of the consolidated balance and is served by the acoustics segment. At December 31, 2017, one customer accounted for greater than 10% of the Company’s consolidated accounts receivable balance; this customer accounted for 13% of the consolidated balance and is served by the acoustics segment.
Recently issued accounting standards
Accounting standards adopted in the current fiscal year
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue From Contracts With Customers” (“ASU 2014-09”). ASU 2014-09 outlined a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and superseded most previous revenue recognition guidance, including industry-specific guidance. See above for discussion on our revenue recognition accounting policy and Note 3, “Net Sales” for further discussion regarding the adoption of this standard.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The updated guidance enhanced the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The amendment to the standard was effective for interim and annual periods beginning after December 15, 2017. In February 2018, the FASB issued ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2018-03”). ASU 2018-03 clarifies certain aspects of the guidance issued in ASU 2016-01 and was effective for interim periods beginning after June 15, 2018. The Company adopted both standards effective January 1, 2018 and determined that there was no impact on its consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory” (“ASU 2016-16”). ASU 2016-16 requires companies to recognize the income tax effects of intercompany sales and transfers of assets other than inventory in the period in which the transfer occurs. The guidance was effective for annual periods beginning after December 15, 2017 and required companies to apply a modified retrospective approach with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. The Company adopted ASU 2016-16 effective January 1, 2018 on a modified retrospective basis. As a result of the adoption, the Company recorded a decrease to the opening retained deficit of $0.3 million.
In March 2017, the FASB issued ASU 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”). This standard requires the presentation of the service cost component of net periodic pension and postretirement benefit costs (“Pension Costs”) within operations and all other components of Pension Costs outside of income from operations within the Company’s consolidated statements of operations. In addition, only the service cost component of Pension Costs will be allowed for capitalization as an asset within the Company’s consolidated balance sheets. ASU 2017-07 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. The standard is required to be applied on a retrospective basis for the presentation of the service cost component and the other components of Pension Costs and on a prospective basis for the capitalization of the service cost component of Pension Costs. The Company adopted ASU 2017-07 effective January 1, 2018. The adoption of ASU 2017-07 did not have a significant impact on the Company’s consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”). ASU 2018-02 allows for an optional reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the comprehensive tax legislation signed into law on December 22, 2017 by the President of the United States, which is commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Act”). The updated guidance eliminates the stranded tax effects resulting from the Tax Reform Act for those entities that elect the optional reclassification and also requires certain disclosures about the stranded tax effects. ASU 2018-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual reporting periods, with early adoption permitted. The amendments in this update are effective either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized. The Company
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
adopted ASU 2018-02 effective January 1, 2018. As a result of the adoption, the Company has recorded a decrease to the opening retained deficit of $0.1 million and an increase to the opening accumulated other comprehensive loss of $0.1 million.
In March 2018, the FASB issued ASU 2018-05, “Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118” (“ASU 2018-05”). ASU 2018-05 provides guidance for the recognition of provisional amounts in the consolidated financial statements as a result of the Tax Reform Act. The guidance allows for a measurement period of up to one year from the December 22, 2017 enactment date to finalize the accounting related to the Tax Reform Act. ASU 2018-05 was effective upon issuance and accordingly, the Company has applied the guidance from this update within its consolidated financial statements. See Note 14, “Income Taxes” for further discussion regarding the Company’s application of this standard.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 modifies certain disclosures on fair value measurements, such as eliminating disclosure requirements for transfers between Level 1 and Level 2 of the fair value hierarchy and an explanation for the transfer between levels and adding new disclosure requirements for Level 3 measurements. The standard is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2018-13 effective June 30, 2018. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements or the related fair value disclosures within the accompanying notes.
In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The Company early adopted this standard effective September 29, 2018 on a prospective basis, and there was no impact to the consolidated financial statements as of and for the year ended December 31, 2018 as a result of the adoption of this standard.
Accounting standards to be adopted in future fiscal periods
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 establishes new accounting and disclosure requirements for leases. This standard requires lessees to classify most leases as either finance or operating leases and to initially recognize a lease liability and right-of-use asset. Entities may elect to account for certain short-term leases (with a term of 12 months or less) using a method similar to the current operating lease model. The statements of operations will include, for finance leases, separate recognition of interest on the lease liability and amortization of the right-of use asset and for operating leases, a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a straight-line basis. In 2018, the FASB issued additional ASUs related to ASU 2016-02, which simplify and provide additional guidance to companies for implementation of the standard. ASU 2016-02 and related guidance are effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual reporting periods, with early adoption permitted. This standard must be applied using a modified retrospective approach, which requires recognition and measurement of leases at either the beginning of the earliest period presented or the date of adoption, with certain practical expedients available. During the fourth quarter of 2018, the Company finalized the inventory of lease contracts, implemented a lease contract accounting system, drafted lease accounting policies and procedures and concluded on certain technical accounting implications of the new standard, including the election of practical expedients related to the adoption of the new standard, discount rates and embedded lease contracts. The Company estimates that the impact of adopting ASU 2016-02 will result in recording of a right-of-use asset of approximately $42 million and a lease liability of approximately $46 million within the consolidated balance sheet on January 1, 2019, the date of adoption. The difference between the right-of-use asset and lease liability on the date of adoption relates to the reclassification of certain previously recorded deferred rent balances to the right-of-use asset. In addition, in accordance with the implementation guidance of ASU 2016-02, the Company will reclassify an incremental $1.1 million of intangible assets in the acoustics segment related to below market rents that resulted from the June 30, 2014 go public business combination to the right-of use asset and will write off a deferred gain of $1.0 million to retained earnings related to a previous sale leaseback of its Libertyville, Illinois facility utilized by the components segment. See Note 10, “Leases” for further discussion regarding the previous sale leaseback transaction.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements for Hedging Activities” (“ASU 2017-12”). ASU 2017-12 broadens the scope of financial and nonfinancial strategies eligible for hedge accounting and makes certain targeted improvements to simplify the application of hedge accounting guidance. In addition, the standard amends the presentation and disclosure requirements for hedges and is intended to more closely align the
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
hedge accounting guidance with a company’s risk management strategies. The Company adopted ASU 2017-12 effective January 1, 2019. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements or the related disclosures within the accompanying notes.
Accounting standards to be adopted in future fiscal periods
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 requires the use of an "expected loss" model on certain types of financial instruments and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. For trade receivables, loans, and held-to-maturity debt securities, entities will be required to estimate lifetime expected credit losses. For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset. The standard is effective for interim and annual reporting periods beginning after December 15, 2018; however,2022, with early adoption is permitted. The Company anticipates an insignificantis currently assessing the impact tothat ASU 2016-13 will have on the consolidated financial statements and disclosurerelated disclosures, as a resultwell as the planned timing of adoption of this standard, however, the impact in future periods will depend on the level of future hedging activities.adoption.
In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans” (“ASU 2018-14”). ASU 2018-14 modifies certain disclosure requirements for pension and other postretirement plans, such as eliminating disclosure requirements to disclose the amounts in accumulated other comprehensive loss expected to be recognized as a component of net periodic benefit cost over the next fiscal year and the impact that a 1% increase or decrease in the medical trend rate would have on the accumulated postretirement benefit obligation. The standard is effective for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted. As the scope of ASU 2018-14 is limited to only financial disclosure requirements, the standard will not have an impact on the Company’s consolidated financial statements. The Company is currently assessing the impact that this standard will have on the employee benefit plan disclosures within the notes to the consolidated financial statements, as well as the planned timing of adoption.
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| |
2. | Restatement of Previously Reported Financial Information |
During the first quarter ofIn December 2019, the Company identified an errorFASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). ASU 2019-12 removes certain exceptions to the general principles in the income tax provision presented within the consolidated financial statementTopic 740 and improves application of operationsand simplifies other areas of Topic 740 by clarifying and amending existing guidance. The amendment is effective for the year endedinterim and annual periods beginning after December 31, 2018 and deferred income taxes presented within the consolidated balance sheet as of December 31, 2018.15, 2020, with early adoption permitted. The Company recorded a valuation allowance in 2018 for deferred tax assets related to disallowed interest expense deduction carryforwards under Internal Revenue Code Section 163(j) which was not appropriate in accordance with ASC 740, Income Taxes, as management has determinedis currently assessing the impact that the deferred tax assets were more likely than not to be realized. As a result of this error, the tax provision and deferred income tax liabilities were overstated by $6.2 million within the consolidated statement of operations and consolidated balance sheet. As a result of this income tax error, which materially misstated the previously issued 2018 financial statements, the consolidated financial statements of the Company as of and for the year ended December 31, 2018these amendments will have been restated.
Amounts throughouton the consolidated financial statements and notes thereto have been adjustedrelated disclosures, as well as the planned timing of adoption.
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2. | Discontinued Operations and Divestitures |
North American Fiber Solutions Sale
On August 30, 2019, the Company completed the sale of its North American fiber solutions business to incorporateACR II Motus Integrated Technologies Cooperatief U.A., Motus Pivot MX Holding B.V, Motus Pivot Holding B.V. and Motus Pivot Inc. (collectively, the restated amounts, where applicable.
The impact“Motus Group”), pursuant to an agreement dated as of August 11, 2019, by and between 2 subsidiaries of the required correctionCompany and the Motus Group (the “Fiber Sale Agreement”), for a purchase price of $85.0 million, subject to certain adjustments as set forth in the Fiber Sale Agreement. The purchase price was reduced by $5.0 million due to the consolidated statementoutcome of operationscertain commercial activities for which the measurement period ended on October 31, 2019. The purchase price is also subject to a net working capital adjustment as defined by the Sale Agreement, which is currently in dispute between the Company and comprehensivethe Motus Group. The Motus Group has proposed a working capital adjustment that results in a further purchase price reduction of $5.2 million. The Company believes this claim lacks merit and a loss werefor the amount subject to dispute is not probable as follows:of December 31, 2019.
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| | | | | | | | | | | |
| For the Year Ended December 31, 2018 |
| As Reported | | Adjustments | | As Restated |
Tax provision (benefit) | $ | 4,052 |
| | $ | (6,157 | ) | | $ | (2,105 | ) |
Net loss | (19,317 | ) | | 6,157 |
| | (13,160 | ) |
Net loss attributable to Jason Industries | (19,317 | ) | | 6,157 |
| | (13,160 | ) |
Net loss available to common shareholders of Jason Industries | (23,387 | ) | | 6,157 |
| | (17,230 | ) |
| | | | | |
Net loss per share available to common shareholders of Jason Industries: |
Basic and diluted | $ | (0.85 | ) | | $ | 0.23 |
| | $ | (0.62 | ) |
| | | | | |
Comprehensive loss | (22,700 | ) | | 6,157 |
| | (16,543 | ) |
Comprehensive loss attributable to Jason Industries | (22,700 | ) | | 6,157 |
| | (16,543 | ) |
74
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The following table summarizes the cash received from the sale of the North American fiber solutions business before transaction costs, income taxes and certain retained liabilities:
| | | | | |
Base purchase price | $ | 85,000 | |
Less: contingent purchase price not earned | (5,000) |
Less: debt and pension liabilities assumed by the Motus Group | (2,206) |
Less: income tax allocation due to buyer | (560) |
Plus: preliminary working capital surplus | 5 |
Plus: excess cash at closing | 1,394 |
Adjusted purchase price | 78,633 |
Less: cash divested | (3,894) |
Less: consideration held in escrow and closing balance sheet adjustments | 282 |
Sale proceeds from divestiture, net of cash divested and liabilities assumed by buyer | $ | 75,021 | |
Total divestiture-related costs for the sale of the North American fiber solutions business were $5.3 million, of which $0.5 million is non-cash share-based compensation expense. Of the remaining cash transaction expenses, $3.9 million had been paid as of December 31, 2019. Of the divestiture-related costs, $3.0 million were deemed to be direct costs of the sale and were included as a component of the loss on divestiture within net loss from discontinued operations. The remaining costs related to retention agreements with key personnel and other professional services related costs which are included within selling and administrative expenses and termination benefits with the former general manager of the business which are included within restructuring, both within net loss from discontinued operations.
Metalex Sale
On December 13, 2019, the Company completed the sale of its Metalex business to Morton Global, LLC and MHIG LLC (collectively, “Morton Global”), pursuant to an agreement dated as of December 13, 2019, by and between 2 subsidiaries of the Company and Morton Global (the “Metalex Sale Agreement”), for a purchase price of $5.0 million, subject to certain adjustments as set forth in the Metalex Sale Agreement. The final purchase price is subject to a net working capital adjustment to be settled within 90 days of the closing date, which is currently in dispute between the Company and Morton Global. The Company believes this claim lacks merit and a loss for the amount subject to dispute is not probable as of December 31, 2019. Pursuant to the Metalex Sale Agreement, Morton Global is also required to cause the Company to be released from certain real property leases for which the Company is a guarantor within 90 days following the sale closing, which has not yet occurred.
The impactfollowing table summarizes the cash received from the sale of the required correctionMetalex business before transaction costs, income taxes and certain retained liabilities:
| | | | | |
Base purchase price | $ | 5,000 | |
Plus: preliminary working capital surplus | 570 |
Plus: cash at closing | 229 |
Plus: income tax allocation due from buyer | 139 |
Adjusted purchase price | 5,938 |
Less: cash divested | (229) | |
Less: consideration held in escrow and closing balance sheet adjustments | (934) | |
Proceeds from divestiture, net of cash divested | $ | 4,775 | |
Total divestiture-related costs for the sale of the Metalex business were $0.8 million, of which $0.1 million was non-cash share-based compensation expense. Of the remaining cash transaction expenses, $0.2 million had been paid as of December 31, 2019. Of the divestiture-related costs, $0.5 million were deemed to be direct costs of the consolidated balance sheet wassale and were included as follows:
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| December 31, 2018 |
| As Reported | | Adjustments | | As Restated |
Deferred income taxes | $ | 23,882 |
| | $ | (6,157 | ) | | $ | 17,725 |
|
Total liabilities | 517,537 |
| | (6,157 | ) | | 511,380 |
|
Retained deficit | (186,517 | ) | | 6,157 |
| | (180,360 | ) |
Total shareholders' deficit | (13,940 | ) | | 6,157 |
| | (7,783 | ) |
a component of the loss on divestiture within net loss from discontinued operations. The remaining costs related to other professional services related costs which are included within selling and administrative expenses within net loss from discontinued operations.The above restatementdivestitures reduced the Company’s automotive and rail market exposures, increased its liquidity and simplified its portfolio of businesses. In addition, the simplified portfolio will allow the Company to invest in and focus on margin expansion and growth in the industrial and engineered components segments.
The Company determined that both the North American fiber solutions and Metalex businesses met the criteria to be classified as discontinued operations. As a result, the historical results of the North American fiber solutions and Metalex
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
businesses are reflected in the Company’s consolidated financial statements as discontinued operations and assets and liabilities of the North American Fiber Solutions and Metalex businesses have been retrospectively reclassified as assets and liabilities held for sale.
The following table summarizes the results of the North American fiber solutions business and the Metalex business and other costs associated with the divestitures reclassified as discontinued operations for the years ended December 31, 2019, 2018 and 2017.
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| North American Fiber Solutions | | | | | | Metalex | | | | |
| For the Years Ended | | | | | | For the Years Ended | | | | |
| December 31, 2019 | | December 31, 2018 | | December 31, 2017 | | December 31, 2019 | | December 31, 2018 | | December 31, 2017 |
Net sales | $ | 90,516 | | | $ | 161,961 | | | $ | 183,900 | | | $ | 42,801 | | | $ | 83,028 | | | $ | 82,621 | |
Cost of goods sold | 77,495 | | | 136,461 | | | 151,596 | | | 44,945 | | | 72,355 | | | 71,096 | |
Gross profit (loss) | 13,021 | | | 25,500 | | | 32,304 | | | (2,144) | | | 10,673 | | | 11,525 | |
Selling and administrative expenses | 10,934 | | | 16,640 | | | 16,717 | | | 7,731 | | | 11,078 | | | 9,526 | |
Impairment charges | — | | | — | | | — | | | 20,597 | | | — | | | — | |
(Gain) loss on disposals of property, plant and equipment - net | (4) | | | 72 | | | 17 | | | 150 | | | 104 | | | (455) | |
Restructuring | 1,002 | | | 2,659 | | | 457 | | | 445 | | | 922 | | | 1,334 | |
Operating income (loss) | 1,089 | | | 6,129 | | | 15,113 | | | (31,067) | | | (1,431) | | | 1,120 | |
Interest expense-net | (47) | | | (94) | | | (76) | | | (78) | | | (66) | | | (61) | |
Loss on divestiture | (3,060) | | | — | | | — | | | (13,783) | | | — | | | — | |
Other income (loss) - net | (10) | | | (40) | | | — | | | (108) | | | (64) | | | 63 | |
(Loss) income before income taxes | (2,028) | | | 5,995 | | | 15,037 | | | (45,036) | | | (1,561) | | | 1,122 | |
Tax provision (benefit) | 1,337 | | | 3,453 | | | 4,927 | | | (10,224) | | | (512) | | | 303 | |
Net (loss) income from discontinued operations | $ | (3,365) | | | $ | 2,542 | | | $ | 10,110 | | | $ | (34,812) | | | $ | (1,049) | | | $ | 819 | |
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The following table summarizes the major classes of assets and liabilities of the North American fiber solutions business and the Metalex business classified as held for sale as of December 31, 2018.
| | | | | | | | | | | | | | | | | |
| North American Fiber Solutions | | Metalex | | Total |
Assets | | | | | |
Current assets | | | | | |
Cash and cash equivalents | $ | 11,712 | | | $ | (241) | | | $ | 11,471 | |
Accounts receivable - net | 19,234 | | | 5,112 | | | 24,346 | |
Inventories - net | 8,120 | | | 6,152 | | | 14,272 | |
Other current assets | 6,615 | | | 1,467 | | | 8,082 | |
Total current assets held for sale | 45,681 | | | 12,490 | | | 58,171 | |
Property, plant and equipment - net | 43,960 | | | 15,743 | | | 59,703 | |
Other intangible assets - net | 20,083 | | | 26,746 | | | 46,829 | |
Other assets - net | 316 | | | 392 | | | 708 | |
Total noncurrent assets held for sale | 64,359 | | | 42,881 | | | 107,240 | |
Total assets held for sale | $ | 110,040 | | | $ | 55,371 | | | $ | 165,411 | |
| | | | | |
Liabilities | | | | | |
Current liabilities | | | | | |
Current portion of long-term debt | $ | 857 | | | $ | — | | | $ | 857 | |
Accounts payable | 12,199 | | | 4,877 | | | 17,076 | |
Accrued compensation and employee benefits | 2,087 | | | 411 | | | 2,498 | |
Other current liabilities | 3,358 | | | 762 | | | 4,120 | |
Total current liabilities held for sale | 18,501 | | | 6,050 | | | 24,551 | |
Long-term debt | 1,143 | | | — | | | 1,143 | |
Deferred income taxes | 112 | | | — | | | 112 | |
Other long-term liabilities | 1,022 | | | 1,090 | | | 2,112 | |
Total noncurrent liabilities held for sale | 2,277 | | | 1,090 | | | 3,367 | |
Total liabilities held for sale | $ | 20,778 | | | $ | 7,140 | | | $ | 27,918 | |
The current portion of long-term debt and long-term debt which were assumed by the Motus Group with the North American fiber solutions business divestiture relates to foreign debt previously held in Mexico.
The following table summarizes significant cash flow disclosures for the North American fiber solutions business and the Metalex business for the years ended December 31, 2019, 2018 and 2017.
| | | | | | | | | | | | | | | | | |
| For the Years Ended | | | | |
| December 31, 2019 | | December 31, 2018 | | December 31, 2017 |
Depreciation | $ | 9,798 | | | $ | 14,035 | | | $ | 11,721 | |
Amortization of intangible assets | $ | 3,428 | | | $ | 7,432 | | | $ | 5,627 | |
Non-cash operating lease expense | $ | 2,964 | | | $ | — | | | $ | — | |
Non-cash impairment charges | $ | 20,597 | | | $ | — | | | $ | — | |
Share-based compensation | $ | 986 | | | $ | 414 | | | $ | 140 | |
Payments for property, plant and equipment | $ | (2,190) | | | $ | (5,346) | | | $ | (7,512) | |
Non-cash impact of business divestitures and dissolutions | $ | 13,716 | | | $ | — | | | $ | — | |
Debt and pension liability assumed by buyer with divestiture | $ | 2,206 | | | $ | — | | | $ | — | |
Acoustics Europe Divestiture
On August 30, 2017, the Company completed the divestiture of its European operations within the fiber solutions segment located in Germany (“Acoustics Europe”) for a net purchase price of $8.1 million, which included cash of $0.2 million, long-term debt assumed by the buyer of $3.0 million and other purchase price adjustments. The divestiture resulted in an $8.7 million pre-tax loss.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Acoustics Europe had net sales of $22.9 million for the eight months ended August 30, 2017, the date of closing. The Company determined at the time of the sale that the divestiture did not impact total net cash provided by (used in) operating, investing or financing activitiesrepresent a strategic shift that would have a major effect on the Company’s operations and financial results and as such, has continued to report the results of Acoustics Europe within continuing operations in the consolidated statements of operations.
On April 1, 2019, the Company acquired all of the outstanding shares of Schaffner Manufacturing Company, Inc. (“Schaffner”). Schaffner is a North American manufacturer of high-quality polishing and finishing products. These products are now being manufactured and distributed by the industrial segment. Through the acquisition of Schaffner, the Company expanded its polishing product line offerings within North America. Upon finalization of working capital adjustments and other settlement items, the purchase price was $11.0 million, net of $0.2 million of cash acquired, all of which had been paid as of December 31, 2019. The related purchase agreement includes customary representations, warranties and covenants between the named parties.
The acquisition was accounted for as a business combination. The operating results and cash flows of Schaffner are included in the Company’s consolidated financial statements from April 1, 2019, the date of the acquisition.
The Company has recorded the allocation of the purchase price for any previous period. Other thantangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the adjustmentsApril 1, 2019 acquisition date. The purchase price allocation is as follows:
| | | | | |
| Purchase Price Allocation | |
| |
Accounts receivable | $ | 2,415 | |
Inventories | 3,334 | |
Other current assets | 18 | |
Property, plant and equipment | 2,299 | |
Right-of-use operating lease assets | 222 | |
Goodwill | 2,078 | |
Other intangible assets | 2,670 | |
| |
Current liabilities | (1,911) | |
| |
Other long-term liabilities | (125) | |
Total purchase price | $ | 11,000 | |
The purchase price allocation resulted in goodwill of $2.1 million in the industrial segment, all of which is deductible for tax purposes. Goodwill generated from Schaffner is primarily attributable to expected synergies from leveraging the industrial segment’s global distribution and sales network and cross-selling of Schaffner’s product portfolio to the industrial segment’s customer base. The allocation of the purchase price is based on the valuations performed to determine the fair value of the net loss forassets as of the acquisition date. The amounts allocated to goodwill and intangible assets reflect the final valuations.
The values allocated to other intangible assets - net and the weighted average useful lives are as follows:
| | | | | | | | | | | |
| Gross Carrying Amount | | Weighted Average Useful Life (years) |
Customer relationships | $ | 1,750 | | | 10 |
Trademarks | 400 | | | 1 |
Non-compete agreements | 520 | | | 5 |
| $ | 2,670 | | | |
The Company recognized $0.4 million of acquisition-related costs that were expensed in the year ended December 31, 2018, which impacted recorded retained deficit2019. These costs are included as selling and total shareholders' deficit, there were no other impacts toadministrative expenses in the consolidated statements of shareholders' (deficit) equity. There was no impact to the Company's previously reported segment Adjusted EBITDA foroperations.
During the year ended December 31, 2018.2019, $14.4 million of net sales from Schaffner were included in the Company’s consolidated statements of operations. Pro forma historical results of operations related to the acquisition of Schaffner have not been presented as they are not material to the Company’s consolidated statements of operations.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Adoption of ASU 2014-09, “Revenue“Revenue From Contracts With Customers”Customers”
On January 1, 2018, the Company adopted ASU 2014-09, “Revenue From Contracts Withwith Customers” and all related amendments using the modified retrospective method. Subsequent to the date of adoption, the Company recognizes its revenue in accordance with ASC 606, “Revenue From Contracts With Customers.” (“ASC 606”). Prior to January 1, 2018, the Company recognized revenue in accordance with ASC 605, “Revenue Recognition” and prior period results continue to be reported under the accounting standards in effect for those periods. The cumulative impact of adopting the new standard on the consolidated financial statements was recorded as a decrease to the opening retained deficit of $0.1 million as of January 1, 2018. Refer to Note 1, “Summary of Significant Accounting Policies” for a description of ourthe Company’s revenue recognition accounting policy.
Revenue Disaggregation
The finishingindustrial segment operates principally as a provider of industrial brushes, polishing buffs and compounds, abrasives and abrasiveroller technology products that are used in a broad range of industrial and infrastructure applications.The components segment operates principally as a component Original Equipment Manufacturer (“OEM”) within the rail and general industrial markets.applications. The Company typically sells products within these businessesthis business under purchase orders through both direct to customer and distribution sales channels. The Company generally transfers control and recognizes net sales when the product is shipped to the customer. Within the finishing business,industrial segment, there are certain custom products for customers with minimum stocking agreements for which the Company recognizes net sales over time. For these sales, the Company has an enforceable right to payment with a reasonable margin under the terms of the agreement. Revenue from products transferred to customers over time accounted for less thanapproximately 1% of finishingindustrial net sales for the yearyears ended December 31, 2019 and 2018.
The seatingengineered components segment operates principally as a seating OEMsupplier to Original Equipment Manufacturers (“OEM”) within the motorcycle, lawn and turf care, industrial, agriculture, construction, andmaterial handling, power sports, rail and general industrial markets. The acoustics segment operates principally as an automotive OEMCompany sells products within this business under both purchase orders and Tier-1 supplier. The products in these businesses are generallycontracts for custom products soldprimarily through the direct to customers that are awarded by platform to a sole supplier for the life of the platform which can span several years.customer sales channel. The Company transfers control and recognizes net sales at a point in time upon shipment to the customer for these contracts.
The Company disaggregates net sales by geography based on the country of origin of the final sale with the external customer, which incustomer. In certain cases the products may be manufactured in other countries at facilities within the Company’s global network. The following table summarizes net sales disaggregated by geography and reportable segment:
|
| | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2018 |
| Finishing | | Components | | Seating | | Acoustics | | Total |
United States | $ | 68,384 |
| | $ | 83,028 |
| | $ | 154,223 |
| | $ | 123,422 |
| | $ | 429,057 |
|
Europe | 126,564 |
| | — |
| | 6,099 |
| | — |
| | 132,663 |
|
Mexico | 8,762 |
| | — |
| | — |
| | 38,539 |
| | 47,301 |
|
Other | 3,927 |
| | — |
| | — |
| | — |
| | 3,927 |
|
Total | $ | 207,637 |
| | $ | 83,028 |
| | $ | 160,322 |
| | $ | 161,961 |
| | $ | 612,948 |
|
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
| | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2019 | | | | | | |
| Industrial | | Engineered Components | | | | Total |
United States | $ | 77,529 | | | $ | 136,072 | | | | | $ | 213,601 | |
Germany | 76,273 | | | — | | | | | 76,273 | |
Rest of Europe | 34,535 | | | — | | | | | 34,535 | |
Mexico | 9,074 | | | 11 | | | | | 9,085 | |
Other | 4,106 | | | 297 | | | | | 4,403 | |
Total | $ | 201,517 | | | $ | 136,380 | | | | | $ | 337,897 | |
| | | | | | | |
| For the Year Ended December 31, 2018 | | | | | | |
| Industrial | | Engineered Components | | | | Total |
United States | $ | 68,384 | | | $ | 154,223 | | | | | $ | 222,607 | |
Germany | 89,247 | | | — | | | | | 89,247 | |
Rest of Europe | 37,317 | | | 6,099 | | | | | 43,416 | |
Mexico | 8,762 | | | — | | | | | 8,762 | |
Other | 3,927 | | | — | | | | | 3,927 | |
Total | $ | 207,637 | | | $ | 160,322 | | | | | $ | 367,959 | |
The Company disaggregates net sales by sales channel as either direct or distribution net sales. Direct net sales are defined as net sales ordered by and sold directly to the end customer without the involvement of a third party. For our OEM customers, direct sales include certain spare parts and accessories which are intended for resale to end consumers. Distribution
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
net sales are defined as net sales ordered by and sold to a third party that intends to resell the products to the end consumer. The following table summarizes net sales disaggregated by sales channel and reportable segment:
| | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2019 | | | | | | |
| Industrial | | Engineered Components | | | | Total |
Direct | $ | 108,918 | | | $ | 131,802 | | | | | $ | 240,720 | |
Distribution | 92,599 | | | 4,578 | | | | | 97,177 | |
Total | $ | 201,517 | | | $ | 136,380 | | | | | $ | 337,897 | |
| | | | | | | |
| For the Year Ended December 31, 2018 | | | | | | |
| Industrial | | Engineered Components | | | | Total |
Direct | $ | 112,047 | | | $ | 156,311 | | | | | $ | 268,358 | |
Distribution | 95,590 | | | 4,011 | | | | | 99,601 | |
Total | $ | 207,637 | | | $ | 160,322 | | | | | $ | 367,959 | |
|
| | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2018 |
| Finishing | | Components | | Seating | | Acoustics | | Total |
Direct | $ | 112,047 |
| | $ | 80,198 |
| | $ | 156,311 |
| | $ | 161,961 |
| | $ | 510,517 |
|
Distribution | 95,590 |
| | 2,830 |
| | 4,011 |
| | — |
| | 102,431 |
|
Total | $ | 207,637 |
| | $ | 83,028 |
| | $ | 160,322 |
| | $ | 161,961 |
| | $ | 612,948 |
|
On August 30, 2017, the Company completed the divestiture of its European operations within the acoustics segment located in Germany (“Acoustics Europe”) for a net purchase price of $8.1 million, which included cash of $0.2 million, long-term debt assumed by the buyer of $3.0 million and other purchase price adjustments. The divestiture resulted in an $8.7 million pre-tax loss.
Acoustics Europe had net sales of $32.9 million for the year ended December 31, 2016 and $22.9 million for the eight months ended August 30, 2017, the date of closing. The Company determined that the divestiture did not represent a strategic shift that would have a major effect on the Company’s operations and financial results and as such, has continued to report the results of Acoustics Europe within continuing operations in the consolidated statements of operations.
On March 1, 2016, as part of a strategic review of organizational structure and operations, the Company announced a global cost reduction and restructuring program (the “2016 program”). The 2016 program, as used herein, refers to costs related to various restructuring activities across business segments. This includes entering into severance and termination agreements with employees and footprint rationalization activities, including exit and relocation costs for the consolidation and closure of plant facilities and lease termination costs. These activities were ongoing throughout the years ended December 31, 2016, 2017, and 2018 and are expectedthe six months ended June 28, 2019 and were considered substantially complete as of June 28, 2019. As the 2016 program was deemed to be completedcomplete for identification of new actions as of December 31, 2018, all costs incurred during 2019 under the program related to completion of actions previously identified prior to closure of the program.
In 2019, restructuring costs primarily include activities which align with our strategic initiatives of continued footprint rationalization and margin expansion. Such activities are typically identified by management as part of the annual strategic planning process, with priority assigned to those that maximize the financial return for the Company. In the first quarter of 2019, additional restructuring activities resulting in one-time employee termination benefits were identified upon a review of the Company’s organizational structure resulting in certain strategic leadership changes as well as in response to end market decline in the industrial segment. Additionally, with the acquisition of Schaffner Manufacturing Company, Inc. on April 1, 2019, further footprint rationalization activities were identified during the due diligence process which were executed upon throughout the remainder of 2019. The Company anticipates continuing to identify future actions including entering into severance and termination agreements with employees and footprint rationalization activities, including exit and relocation costs for the consolidation and closure of plant facilities. As these are not part of the 2016 program, such costs are presented separately below in “Other Restructuring Actions.”
Restructuring costs are presented separately on the consolidated statements of operations.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
2016 Program
The following table presents the restructuring costs recognized by the Company under the 2016 program by reportable segment. The other costs incurred under the 2016 program for the year ended December 31, 20182019 primarily include charges related to the consolidationclosure of two U.S. plantsa U.K. plant within the engineered components segment,segment. The other costs incurred under the consolidation of two U.S. plants within2016 program for the acoustics segment, andyear ended December 31, 2018 primarily include charges related to the closure of the U.K. plant within the seatingengineered components segment, partially offset by a reduction in expense as a result of the statute of limitations expiring on unasserted employment matter claims in Brazil within the finishingindustrial segment. The other costs incurred under the 2016 program for the year ended December 31, 2017 primarily include charges related to the consolidation of two U.S. plants within the components segment, exit costs related tofor the wind down of the finishingindustrial segment’s facility in Brazil and the consolidation of two2 U.S. plants within the finishingindustrial segment. The other2016 Program is considered complete and no additional costs are expected to be incurred under the 2016 program for the year ended December 31, 2016 primarily include charges related to the closure of a facility within the components segment and a loss contingency for certain employment matters claims associated with the wind downas part of the finishing segment’s Brazil facility. Based on the announced restructuring actions to date, the Company expects to incur a total of approximately $16.3 million under the 2016 program. Restructuring costs are presented separately on the consolidated statements of operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2016 Program | | Industrial | | Engineered Components | | | | Corporate | | Total |
Restructuring charges - year ended December 31, 2019: | | | | | | | | | | |
Severance costs | | $ | (35) | | | $ | 31 | | | | | $ | 164 | | | $ | 160 | |
Lease termination costs (1) | | — | | | — | | | | | — | | | — | |
Other costs | | 40 | | | 1,356 | | | | | — | | | 1,396 | |
Total | | $ | 5 | | | $ | 1,387 | | | | | $ | 164 | | | $ | 1,556 | |
| | | | | | | | | | |
Restructuring charges - year ended December 31, 2018: | | | | | | | | | | |
Severance costs | | $ | 314 | | | $ | 235 | | | | | $ | — | | | $ | 549 | |
Lease termination costs (1) | | (4) | | | — | | | | | — | | | (4) | |
Other costs | | 165 | | | 167 | | | | | — | | | 332 | |
Total | | $ | 475 | | | $ | 402 | | | | | $ | — | | | $ | 877 | |
| | | | | | | | | | |
Restructuring charges - year ended December 31, 2017: | | | | | | | | | | |
Severance costs | | $ | 1,178 | | | $ | (17) | | | | | $ | (9) | | | $ | 1,152 | |
Lease termination costs (1) | | 88 | | | — | | | | | — | | | 88 | |
Other costs | | 1,235 | | | — | | | | | — | | | 1,235 | |
Total | | $ | 2,501 | | | $ | (17) | | | | | $ | (9) | | | $ | 2,475 | |
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2016 Program | | Finishing | | Components | | Seating | | Acoustics | | Corporate | | Total |
Restructuring charges - year ended December 31, 2018: | | | | | | | | | | | | |
Severance costs | | $ | 314 |
| | $ | 212 |
| | $ | 235 |
| | $ | 138 |
| | $ | — |
| | $ | 899 |
|
Lease termination costs | | (4 | ) | | — |
| | — |
| | — |
| | — |
| | (4 | ) |
Other costs | | 165 |
| | 710 |
| | 167 |
| | 2,521 |
| | — |
| | 3,563 |
|
Total | | $ | 475 |
| | $ | 922 |
| | $ | 402 |
| | $ | 2,659 |
| | $ | — |
| | $ | 4,458 |
|
| | | | | | | | | | | | |
Restructuring charges - year ended December 31, 2017: | | | | | | | | | | | | |
Severance costs | | $ | 1,178 |
| | $ | 58 |
| | $ | (17 | ) | | $ | (38 | ) | | $ | (9 | ) | | $ | 1,172 |
|
Lease termination costs | | 88 |
| | — |
| | — |
| | 172 |
| | — |
| | 260 |
|
Other costs | | 1,235 |
| | 1,276 |
| | — |
| | 323 |
| | — |
| | 2,834 |
|
Total | | $ | 2,501 |
| | $ | 1,334 |
| | $ | (17 | ) | | $ | 457 |
| | $ | (9 | ) | | $ | 4,266 |
|
| | | | | | | | | | | | |
Restructuring charges - year ended December 31, 2016: | | | | | | | | | | | | |
Severance costs | | $ | 3,287 |
| | $ | 378 |
| | $ | 76 |
| | $ | 977 |
| | $ | 597 |
| | $ | 5,315 |
|
Lease termination costs | | 344 |
| | — |
| | — |
| | — |
| | — |
| | 344 |
|
Other costs | | 1,003 |
| | 514 |
| | — |
| | 56 |
| | — |
| | 1,573 |
|
Total | | $ | 4,634 |
| | $ | 892 |
| | $ | 76 |
| | $ | 1,033 |
| | $ | 597 |
| | $ | 7,232 |
|
The following table presents the cumulative restructuring costs recognized by the Company under the 2016 program by reportable segment. The 2016 program began in the first quarter of 2016 and as such, the cumulative restructuring charges represent the cumulative charges incurred since the inception of the 2016 program through December 31, 2018. completion in June 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Industrial | | Engineered Components | | | | Corporate | | Total |
Cumulative restructuring charges - 2016 Program: | | | | | | | | | | |
Severance costs | | $ | 4,744 | | | $ | 325 | | | | | $ | 752 | | | $ | 5,821 | |
Lease termination costs (1) | | 428 | | | — | | | | | — | | | 428 | |
Other costs | | 2,443 | | | 1,523 | | | | | — | | | 3,966 | |
Total | | $ | 7,615 | | | $ | 1,848 | | | | | $ | 752 | | | $ | 10,215 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Finishing | | Components | | Seating | | Acoustics | | Corporate | | Total |
Cumulative restructuring charges - 2016 Program: | | | | | | | | | | | | |
Severance costs | | $ | 4,779 |
| | $ | 648 |
| | $ | 294 |
| | $ | 1,077 |
| | $ | 588 |
| | $ | 7,386 |
|
Lease termination costs | | 428 |
| | — |
| | — |
| | 172 |
| | — |
| | 600 |
|
Other costs | | 2,403 |
| | 2,500 |
| | 167 |
| | 2,900 |
| | — |
| | 7,970 |
|
Total | | $ | 7,610 |
| | $ | 3,148 |
| | $ | 461 |
| | $ | 4,149 |
| | $ | 588 |
| | $ | 15,956 |
|
81In addition to the restructuring costs described above, the Company incurred for the year ended December 31, 2018, approximately $1.4 million of accelerated depreciation expense related to the closure of the Richmond, Indiana facility in the acoustics segment. For the year ended December 31, 2016, the Company incurred approximately $1.4 million of additional charges related to the wind down of the finishing segment’s Brazil location, which included $0.7 million of accelerated depreciation of property, plant and equipment - net and $0.7 million of charges to reduce inventory balances, respectively, to decrease such balances to their estimated net realizable values. In both periods, these costs were presented within cost of goods sold within the consolidated statements of operations.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The following table represents the restructuring liabilities for the 2016 program:
| | | | | | | | | | | | | | | | | | | | | | | |
| Severance costs | | Lease termination costs (1) | | Other costs | | Total |
Balance - December 31, 2017 | $ | 901 | | | $ | 76 | | | $ | 763 | | | $ | 1,740 | |
Current period restructuring charges | 549 | | | (4) | | | 332 | | | 877 | |
Cash payments | (954) | | | (70) | | | (1,031) | | | (2,055) | |
Foreign currency impact | (39) | | | (2) | | | (40) | | | (81) | |
Balance - December 31, 2018 | $ | 457 | | | $ | — | | | $ | 24 | | | $ | 481 | |
Current period restructuring charges | 160 | | | — | | | 1,396 | | | 1,556 | |
Cash payments | (615) | | | — | | | (1,416) | | | (2,031) | |
Foreign currency impact | (2) | | | — | | | (4) | | | (6) | |
Balance - December 31, 2019 | $ | — | | | $ | — | | | $ | — | | | $ | — | |
|
| | | | | | | | | | | | | | | |
| Severance costs | | Lease termination costs | | Other costs | | Total |
Balance - December 31, 2016 | $ | 1,281 |
| | $ | 333 |
| | $ | 1,085 |
| | $ | 2,699 |
|
Current period restructuring charges | 1,172 |
| | 260 |
| | 2,834 |
| | 4,266 |
|
Cash payments | (1,589 | ) | | (528 | ) | | (2,830 | ) | | (4,947 | ) |
Foreign currency impact | 43 |
| | 11 |
| | (10 | ) | | 44 |
|
Balance - December 31, 2017 | $ | 907 |
| | $ | 76 |
| | $ | 1,079 |
| | $ | 2,062 |
|
Current period restructuring charges | 899 |
| | (4 | ) | | 3,563 |
| | 4,458 |
|
Cash payments | (1,310 | ) | | (70 | ) | | (4,277 | ) | | (5,657 | ) |
Foreign currency impact | (39 | ) | | (2 | ) | | (40 | ) | | (81 | ) |
Balance - December 31, 2018 | $ | 457 |
| | $ | — |
| | $ | 325 |
| | $ | 782 |
|
(1) Commencing on January 1, 2019, the Company recognizes lease termination costs in accordance with ASC 842 which addresses termination costs related to both finance and operating lease obligations. Prior to January 1, 2019, the Company recognized such costs in accordance with ASC 420, “Exit and Disposal Cost Obligations” related to operating leases. Prior period results continue to be reported under the accounting standards in effect for those periods.At December 31, 2018, and December 31, 2017, the restructuring liabilities related to the 2016 program severance costs were classified as accrued compensation and employee benefits and the other costs were classified as other current liabilities on the consolidated balance sheets.
Other Restructuring Actions
The following table presents the restructuring costs recognized by the Company for other restructuring actions by reportable segment. Based on the actions identified to date, the Company expects to incur other restructuring costs of approximately $1.4 million in the future. During the year ended December 31, 2019, other costs included costs to consolidate a Schaffner facility in the industrial segment and costs to vacate a facility in the engineered components segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Other Restructuring Actions | | Industrial | | Engineered Components | | Corporate | | Total |
Restructuring charges - year ended December 31, 2019: | | | | | | | | | |
Severance costs | | $ | 1,550 | | | $ | 31 | | | $ | (2) | | | $ | 1,579 | |
Other costs | | 446 | | | 373 | | | — | | | 819 | |
Total | | $ | 1,996 | | | $ | 404 | | | $ | (2) | | | $ | 2,398 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
The following table represents the restructuring liabilities for other restructuring actions:
| | | | | | | | | | | | | | | | | | | | |
| | Severance costs | | Other costs | | Total |
Balance - December 31, 2018 | | $ | — | | | $ | — | | | $ | — | |
Current period restructuring charges | | 1,579 | | | 819 | | | 2,398 | |
Cash payments | | (858) | | | (775) | | | (1,633) | |
Foreign currency translation adjustments | | (4) | | | — | | | (4) | |
Balance - December 31, 2019 | | $ | 717 | | | $ | 44 | | | $ | 761 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
At December 31, 2018,2019, the accrual forrestructuring liabilities related to other restructuring severance costs were classified as accrued compensation and employee benefits and the other costs primarily relateswere classified as other current liabilities on the consolidated balance sheets.
Jason Industries, Inc.
Notes to the consolidation of two U.S. plants within the acoustics segment. At December 31, 2017, the accrual for other costs primarily related to certain employment matter claims within the finishing segment.Consolidated Financial Statements
(In thousands, except share and per share amounts)
Inventories at December 31, 20182019 and December 31, 20172018 consisted of the following:
| | | | | | | | | | | |
| December 31, 2019 | | December 31, 2018 |
Raw material | $ | 23,533 | | | $ | 24,315 | |
Work-in-process | 1,864 | | | 1,918 | |
Finished goods | 24,546 | | | 23,242 | |
Total inventories | $ | 49,943 | | | $ | 49,475 | |
|
| | | | | | | |
| December 31, 2018 | | December 31, 2017 |
Raw material | $ | 31,501 |
| | $ | 35,925 |
|
Work-in-process | 3,672 |
| | 4,375 |
|
Finished goods | 28,574 |
| | 30,519 |
|
Total inventories | $ | 63,747 |
| | $ | 70,819 |
|
|
| | | | |
7. | Property, Plant and Equipment |
Property, plant and equipment at December 31, 20182019 and December 31, 20172018 consisted of the following: | | | | | | | | December 31, 2019 | | December 31, 2018 |
| December 31, 2018 | | December 31, 2017 | |
Right-of-use finance lease assets (1) | | Right-of-use finance lease assets (1) | $ | 506 | | | $ | — | |
Land and improvements | $ | 5,457 |
| | $ | 6,556 |
| Land and improvements | 5,407 | | | 5,457 | |
Buildings and improvements | 32,384 |
| | 33,161 |
| Buildings and improvements | 27,600 | | | 26,254 | |
Machinery and equipment | 203,237 |
| | 191,903 |
| Machinery and equipment | 108,474 | | | 101,492 | |
Construction-in-progress | 6,197 |
| | 10,710 |
| Construction-in-progress | 4,214 | | | 3,802 | |
| 247,275 |
| | 242,330 |
| | 146,201 | | | 137,005 | |
Less: Accumulated depreciation | (112,406 | ) | | (88,134 | ) | Less: Accumulated depreciation | (75,925) | | | (61,839) | |
Property, plant and equipment, net | $ | 134,869 |
| | $ | 154,196 |
| Property, plant and equipment, net | $ | 70,276 | | | $ | 75,166 | |
(1) Commencing on January 1, 2019, the Company recognizes right-of-use finance lease assets in accordance with ASC 842. Prior to January 1, 2019, the Company recognized such assets in accordance with ASC 840. As such, the assets were recorded in buildings and improvements and machinery and equipment based on the asset’s classification. Prior period results continue to be reported under the accounting standards in effect for those periods.
For the year ended December 31, 2018, the Company recorded a $1.3 million gain on disposal of property, plant and equipment - net for the sale of a building related to the closure of the seatingengineered components segment’s U.K. facility. In connection with the sale, the Company collected $0.7 million of value-added tax which is to bewas remitted to the relevant tax authorities in the first quarter of 2019 and is included within cash flows provided byused in financing activities within the consolidated statement of cash flows.
Property, plant and equipment, net are evaluated for potential impairment whenever events or circumstances indicate that the carrying value may not be recoverable. There were no impairment charges recorded in continuing operations related to property, plant and equipment, net during the years ended December 31, 2019, 2018 and 2017. Depreciation of property, plant and equipment, net from continuing operations was $14.8 million, $14.3 million, and $14.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.
| | | | | |
8. | Goodwill and Other Intangible Assets |
Goodwill
Changes in the carrying amount of goodwill, all of which is within the Company’s industrial segment, were as follows:
| | | | | |
Balance as of December 31, 2017 | $ | 45,142 | |
| |
| |
Foreign currency impact | (1,077) | |
Balance as of December 31, 2018 | $ | 44,065 | |
Acquisitions (1) | 2,078 | |
| |
Foreign currency impact | (459) | |
Balance as of December 31, 2019 | $ | 45,684 | |
(1) Refer to Note 3, “Acquisition” for further discussion on the acquisition completed in the second quarter of 2019.
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
|
| |
8. | Goodwill and Other Intangible Assets |
Goodwill
Changes in the carrying amount of goodwill, all of which is within the Company’s finishing segment, were as follows: |
| | | |
Balance as of December 31, 2016 | $ | 42,157 |
|
Foreign currency impact | 2,985 |
|
Balance as of December 31, 2017 | $ | 45,142 |
|
Foreign currency impact | (1,077 | ) |
Balance as of December 31, 2018 | $ | 44,065 |
|
At December 31, 20182019 and December 31, 2017,2018, accumulated goodwill impairment losses from continuing operations were $122.1$59.1 million, primarily due to $58.8 million related to the seatingMilsco reporting unit, $29.8 million related to the acoustics reporting unit, and $33.2 million related to the components reporting unit.
Fiscal 2019, 2018 and 2017 Impairment AssessmentAssessments
The Company performed its annual goodwill impairment tests in the fourth quarters of 2019, 2018 and 2017 and determined that the fair value of the finishingindustrial reporting unit, the only reporting unit with a recorded goodwill balance, exceeded the carrying value of the reporting unit by over 15% in each year. In connection with the goodwill impairment test, the Company engaged a third-party valuation firm to assist management with determining the fair value estimate for the reporting unit. The fair value of the reporting unit is determined using a weighted average of an income approach primarily based on the Company’s three year strategic plan, and a market approach based on implied valuation multiples of public company peer groups for the reporting unit. Both approaches areunit and a market approach based on recent comparable transactions (when available). Each approach was generally deemed equally relevant in determining reporting unit enterprise value, and as a result, weightings of 5035 percent, 30 percent and 35 percent, respectively, were used for each. This fair value determination was categorized as Level 3 in the fair value hierarchy.
In connection with obtaining an independent third-party valuation, management provided certain information and assumptions that were utilized in the fair value calculation. Significant assumptions used in determining reporting unit fair value include forecasted cash flows, revenue growth rates, adjusted EBITDA margins, weighted average cost of capital (discount rate), assumed tax treatment of a future sale of the reporting unit, terminal growth rates, capital expenditures, sales and EBITDA multiples used in the market approach, and the weighting of the income and market approaches. A change in any of these assumptions, individually or in the aggregate, or future financial performance that is below management expectations may result in the carrying value of this reporting unit exceeding its fair value, and goodwill and amortizable intangible assets could be impaired.
Fiscal 2016 Impairment Assessment
In performing the first step of the annual goodwill impairment test in the fourth quarter of 2016 (performed prior to the adoption of ASU 2017-04 “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”), the Company determined that the estimated fair values of the acoustics and components reporting units were lower than the carrying values of the respective reporting units, requiring further analysis under the second step of the impairment test. The decline in the estimated fair value of the acoustics reporting unit was primarily due to lower long-term revenue growth expectations resulting from the strategic review of capital allocation and investment priorities as compared to the Company’s prior growth plan for the business. The fair value of the acoustics reporting unit was also negatively impacted by a projected cyclical decline in the North American automotive industry end-market. The decline in the estimated fair value of the components reporting unit was primarily due to lower long-term revenue expectations resulting from the annual budgeting and strategic planning process as compared to the Company’s prior plan for the business, primarily due to projected longer-term weakness in the rail end-market.
In performing the second step of the impairment testing, the Company performed a theoretical purchase price allocation for the acoustics and components reporting units to determine the implied fair values of goodwill which were compared to the recorded amounts of goodwill for each reporting unit. Upon completion of the second step of the goodwill impairment test, the Company recorded non-cash goodwill impairment charges of $63.0 million, representing full goodwill impairments of $29.8 million and $33.2 million in the acoustics and components reporting units, respectively. The goodwill impairment charges are recorded as impairment charges in the consolidated statements of operations.
In connection with the goodwill impairment tests in 2016, the Company engaged a third-party valuation firm to assist management with determining fair value estimates for the reporting units in the goodwill impairment test. In 2016, the third-party valuation firm was also involved in assisting management in estimating fair values of tangible and intangible assets used
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
in the second step of the goodwill impairment test. In connection with obtaining an independent third-party valuation, management provided certain information and assumptions that were utilized in the fair value calculation. Significant assumptions used in determining reporting unit fair value included forecasted cash flows, revenue growth rates, adjusted EBITDA margins, weighted average cost of capital (discount rate), assumed tax treatment of a future sale of the reporting unit, terminal growth rates, capital expenditures, sales and EBITDA multiples used in the market approach, and the weighting of the income and market approaches. The fair values of the reporting units were determined using a weighted average of an income approach primarily based on the Company’s three year strategic plan and a market approach based on implied valuation multiples of public company peer groups for each reporting unit. Both approaches were deemed equally relevant in determining reporting unit enterprise value, and as a result, weightings of 50 percent were used for each. This fair value determination was categorized as Level 3 in the fair value hierarchy.
Other Intangible Assets
The Company’s other amortizable intangible assets - net consisted of the following: | | | December 31, 2018 | | December 31, 2017 | | December 31, 2019 | | | December 31, 2018 | |
| Gross Carrying Amount | | Accumulated Amortization | | Net | | Gross Carrying Amount | | Accumulated Amortization | | Net | | Gross Carrying Amount | | Accumulated Amortization | | Net | | Gross Carrying Amount | | Accumulated Amortization | | Net |
Patents | $ | 2,038 |
| | $ | (1,018 | ) | | $ | 1,020 |
| | $ | 1,985 |
| | $ | (671 | ) | | $ | 1,314 |
| Patents | $ | 2,075 | | | $ | (1,368) | | | $ | 707 | | | $ | 2,038 | | | $ | (1,018) | | | $ | 1,020 | |
Customer relationships | 105,539 |
| | (30,634 | ) | | 74,905 |
| | 110,210 |
| | (24,775 | ) | | 85,435 |
| Customer relationships | 62,490 | | | (20,205) | | | 42,285 | | | 61,075 | | | (15,922) | | | 45,153 | |
Trademarks and other intangibles | 56,405 |
| | (15,801 | ) | | 40,604 |
| | 57,373 |
| | (12,623 | ) | | 44,750 |
| Trademarks and other intangibles | 32,833 | | | (11,235) | | | 21,598 | | | 32,124 | | | (8,597) | | | 23,527 | |
Total amortized other intangible assets | $ | 163,982 |
| | $ | (47,453 | ) | | $ | 116,529 |
| | $ | 169,568 |
| | $ | (38,069 | ) | | $ | 131,499 |
| Total amortized other intangible assets | $ | 97,398 | | | $ | (32,808) | | | $ | 64,590 | | | $ | 95,237 | | | $ | (25,537) | | | $ | 69,700 | |
Other amortizable intangible assets are evaluated for potential impairment whenever events or circumstances indicate that the carrying value may not be recoverable. There were no0 impairment charges recorded in continuing operations related to tangible or intangible assets during 2019, 2018 and 2017.
In connection with the evaluation of the goodwill impairment in the acoustics and components reporting units in 2016, the Company assessed tangible and intangible assets for impairment prior to performing the second step of the goodwill impairment test. As a result of this analysis, it was determined that there were no impairment charges to record related to these assets.
The approximate weighted average remaining useful lives of the Company’s intangible assets at December 31, 20182019 are as follows: patents - 4.85.9 years; customer relationships - 10.19.2 years; and trademarks and other intangibles - 10.88.8 years.
Amortization of intangible assets approximated $14.2from continuing operations was $7.4 million, $12.76.8 million, and $12.97.0 million for the years ended December 31, 2019, 2018 2017 and 20162017, respectively. Included within amortization expense for the year ended December 31, 2018, was $2.3 million of accelerated amortization expense in the components segment related to the exit from non-core product lines for smart utility meter subassemblies in 2018. Excluding the impact of any future acquisitions, theThe Company anticipates the annual amortization for each of the next five years and in aggregate thereafter to be the following:
| | | | | |
2020 | $ | 7,765 | |
2021 | 7,523 | |
2022 | 7,350 | |
2023 | 7,341 | |
2024 | 6,779 | |
Thereafter | 27,832 | |
| $ | 64,590 | |
|
| | | |
2019 | $ | 11,707 |
|
2020 | 11,706 |
|
2021 | 11,564 |
|
2022 | 11,391 |
|
2023 | 11,382 |
|
Thereafter | 58,779 |
|
| $ | 116,529 |
|
84
Jason Industries, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
|
| | | | |
9. | Debt and Hedging Instruments |
The Company’s debt consisted of the following: | | | December 31, 2018 | | December 31, 2017 | | December 31, 2019 | | December 31, 2018 |
First Lien Term Loans | $ | 292,540 |
| | $ | 298,018 |
| First Lien Term Loans | $ | 284,440 | | | $ | 292,540 | |
Second Lien Term Loans | 89,887 |
| | 90,007 |
| Second Lien Term Loans | 89,887 | | | 89,887 | |
Foreign debt | | Foreign debt | 13,929 | | | 15,469 | |
Finance lease obligations and other debt (1) | | Finance lease obligations and other debt (1) | 755 | | | 613 | |
Total gross debt | | Total gross debt | 389,011 | | | 398,509 | |
Debt discount on Term Loans | (2,669 | ) | | (3,602 | ) | Debt discount on Term Loans | (1,739) | | | (2,669) | |
Deferred issuance costs on Term Loans | (4,052 | ) | | (5,586 | ) | Deferred issuance costs on Term Loans | (2,522) | | | (4,052) | |
Foreign debt | 17,469 |
| | 21,795 |
| |
Capital lease obligations | 613 |
| | 840 |
| |
Total debt | 393,788 |
| | 401,472 |
| Total debt | 384,750 | | | 391,788 | |
Less: Current portion | (6,544 | ) | | (9,704 | ) | Less: Current portion | (5,800) | | | (5,687) | |
Total long-term debt | $ | 387,244 |
| | $ | 391,768 |
| Total long-term debt | $ | 378,950 | | | $ | 386,101 | |
(1) Subsequent to January 1, 2019, the Company recognizes and measures new or modified leases in accordance with ASC 842. Prior to January 1, 2019, the Company recognized and measured leases in accordance with ASC 840, “Leases” and prior period results continue to be reported under the accounting standards in effect for those periods. See Note 10, “Leases” for further information.
Future annual maturities of long-term debt outstanding at December 31,
20182019 are as follows:
| | 2019 | | $ | 6,544 |
| |
2020 | | 6,619 |
| 2020 | | $ | 5,800 | |
2021 | | 289,008 |
| 2021 | | 284,051 | |
2022 | | 92,199 |
| 2022 | | 92,175 | |
2023 | | 3,683 |
| 2023 | | 2,270 | |
2024 | | 2024 | | 4,013 | |
Thereafter | | 2,456 |
| Thereafter | | 702 | |
Total future annual maturities of long term debt outstanding | | 400,509 |
| Total future annual maturities of long term debt outstanding | | 389,011 | |
Less: Debt discounts on Term Loans | | (2,669 | ) | Less: Debt discounts on Term Loans | | (1,739) | |
Less: Deferred issuance costs on Term Loans | | (4,052 | ) | Less: Deferred issuance costs on Term Loans | | (2,522) | |
Total debt | | $ | 393,788 |
| Total debt | | $ | 384,750 | |
The principal amount of the First Lien Term Loans amortizes in quarterly installments equal to $0.8 million, with the balance payable at maturity. At the Company’s election, the interest rate per annum applicable to the loans under the Senior Secured Credit Facilities is based on a fluctuating rate of interest determined by reference to either (i) a base rate determined by reference to the higher of (a) the administrative agent’s prime rate, (b) the federal funds effective rate plus 0.50% or (c) the Eurocurrency rate applicable for an interest period of one month plus 1.00%, plus an applicable margin equal to (x) 3.50% in the case of the First Lien Term Loans, (y) 2.25% in the case of the Revolving Credit Facility or (z) 7.00% in the case of the Second Lien Term Loans or (ii) a Eurocurrency rate determined by reference to London Interbank Offered Rate (“LIBOR”),
adjusted for statutory reserve requirements, plus an applicable margin equal to (x) 4.50% in the case of the First Lien Term Loans, (y) 3.25% in the case of the Revolving Credit Facility or (z) 8.00% in the case of the Second Lien Term Loans. Borrowings are subject to a floor of 1.00% in the case of Eurocurrency loans. The applicable margin for loans under the Revolving Credit Facility may be subject to adjustment based upon Jason Incorporated’s (an indirect wholly-owned subsidiary of the Company) consolidated first lien net leverage ratio.
Under the Revolving Credit Facility, if the aggregate outstanding amount of all Revolving Loans, swingline loans and certain letter of credit obligations (letters of credit in excess of $5.0 million) exceeds $10.0 million at the end of any fiscal quarter, Jason Incorporated and its restricted subsidiariesRestricted Subsidiaries (as defined in the Senior Secured Credit Facilities) will be required to not exceed a consolidated first lien net leverage ratio currently specified at 4.50 to 1.00, with a decrease toof 4.25 to 1.00 onas of December 31, 2019 (which will decrease to 4.00 to 1.00 on June 26, 2020 and remaining at that level thereafter.thereafter). If such outstanding amounts do not exceed $10.0 million at the end of any fiscal quarter, no financial covenants are applicable. The Company did not borrow on its Revolving Credit Facility during 2018.
During 2017, the Company repurchased $20.0 million of Second Lien Term Loans for $16.8 million. In connection with the repurchase, the Company wrote off $0.4 million of previously unamortized debt discount and $0.4 million of previously unamortized deferred financing costs, which were recorded as a reduction to the gain on extinguishment of debt. The transactions resulted in a net gain of $2.4 million, which has been recorded within the consolidated statements of operations.
The Company has the following foreign debt obligations, including various overdraft facilities and term loans: