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Acquisitions

6 Months Ended

Jun. 30, 2017

Note 3. Acquisitions

ESWindows Acquisition

On December 2, 2016, we acquired 100% of the stock of ESW LLC, 85.06% of which was acquired directly by Tecnoglass and 14.94% by our subsidiary ES, for a total purchase price of $13,500, which consisted of (i) 734,400 ordinary shares issued in connection with the transaction for approximately $9,200 based on a stock price of $12.50, (ii) approximately $2,300 in cash, and (iii) approximately $2,000 related to the assignment of certain accounts receivable from Ventana Solar S.A. (“VS”). The company paid $2,382 in cash for the during the six month period ending June 30, 2017.

VS, a Panama sociedad anonima, is an importer and installer of the Company’s products in Panama. Family members of the Company’s CEO and COO and other related parties own 100% of the equity in VS. During 2015 and 2014, the Company and VS executed a short-term payment agreement and a three-year payment agreement that were mainly created to fund working capital to VS due the timing difference between the collections from VS’s customers. On December 2, 2016 the outstanding amount of $2,016 was reassigned to the former shareholders of ESW LLC as part of the consideration paid for the acquisition of ESW. As a result, the Company does not have any outstanding receivable under these payment agreements as of December 31, 2016. See Note 14 – Related Parties for more information.

As the Acquisition of ESW LLC was deemed to be a transaction between entities under common control, the assets and liabilities were transferred at the historical cost of ESW LLC, with prior periods retroactively adjusted to include the historical financial results of the acquired company for the period they were controlled by the previous owners of ESW LLC in the Company’s financial statements.

The following table includes the financial information as originally reported and the net effect of the ESW acquisition after elimination of intercompany transactions.

	Three months ended June 30, 2016
	Without acquisition		Net effect of acquisition		Considering acquisition

Net Revenues	$	77,513	$	2,300	$	79,813
Net (loss) income attributable to parent	$	14,373	$	306	$	14,679
Basic income per share	$	0.51	$	-	$	0.51
Diluted income per share	$	0.44	$	-	$	0.44
Basic weighted average common shares outstanding		28,155,601		734,400		28,890,001
Diluted weighted average common shares outstanding		32,480,141		734,400		33,214,541

	Six months ended June 30, 2016
	Without acquisition			Net effect of acquisition		Considering acquisition
Net revenues	$	138,416		$	5,252	$	143,668
Net (loss) income attributable to parent	$	28,037		$	998	$	29,035
Basic income per share	$	1.00		$	0.01	$	1.01
Diluted income per share	$	0.86		$	0.01	$	0.87
Basic weighted average common shares outstanding		27,992,868			734,400		28,727,268
Diluted weighted average common shares outstanding		32,492,588			734,400		33,226,988

Cash used in operating activities	$	(7,373	)	$	4,754	$	(2,619	)
Net increase in cash	$	11,039		$	3,415	$	14,454

The number of basic and diluted weighted average common shares outstanding prior to the acquisition of ESW LLC include 920,937 and 1,735,310 shares, respectively, issued after the financial statements for six months ended June 30, 2016 were issued related to a stock dividend during 2016 and 2017.

GM&P Acquisition

On March 1, 2017, the Company acquired a 100% controlling interest in GM&P, a Florida-based commercial consulting, glazing and engineering company, specializing in windows and doors for commercial contractors. The primary reasons for the business combination are to continue Tecnoglass’ long-term strategy of being vertically integrated, to streamline its distribution logistics, and to fabricate in the United States when economically advantageous. The purchase price for the acquisition was $35,000, of which $6,000 of the purchase price was paid in cash by the Company on May 17, 2017, with the remaining amount to be payable by the Company in cash, stock of the Company or a combination of both at the Company´s sole discretion within 180 days after closing. The total amount of acquisition-related costs was $189, which is included in the Statement of operations for the period ending December 31, 2016.

The following table summarizes the consideration transferred to acquire GM&P and the amounts of identified assets acquired and liabilities assumed at the acquisition date, as well as the fair value of the noncontrolling interest in Componenti USA LLC as of the acquisition date. Under ASC 805, a company can apply measurement period adjustments during the twelve-month period after the date of acquisition. During this period, the acquirer may adjust preliminary amounts recognized at the acquisition date to their subsequently determined final fair values . The allocation of the consideration transferred was based on management’s judgment after evaluation of several factors, including a preliminary valuation assessment. Finalization of the analysis has not been completed and could result in measurement periods adjustments that could change the composition of current asset, fixed assets, intangible assets, goodwill, and liabilities. The goodwill is not expected to be deductible for tax purposes.

The following table summarizes the purchase price allocation of the total consideration transferred:

Consideration Transferred:
Notes payable (Cash or Stock)	$	35,000
Fair value of the noncontrolling interest in Componenti		1,141

Recognized amounts of identifiable assets acquired and liabilities assumed:	Preliminary Purchase Price Allocation			Measurement Period Adjustments			Adjusted Purchase Price Allocation
Cash and equivalents	$	509						509
Accounts receivable		42,314						42,314
Cost and estimated earnings in excess of billings		4,698						4,698
Other current assets		589						589
Property, plant, and equipment		684						684
Other non-current tangible assets		59						59
Trade name		980						980
Non-compete agreement		165						165
Contract backlog		3,090						3,090
Customer relationships		4,140						4,140
Accounts payable		(22,330	)		275			(22,055	)
Other current liabilities assumed		(13,967	)					(13,967	)
Non-current liabilities assumed		(3,634	)					(3,634	)
Total identifiable net assets		17,297			275			17,572
Goodwill (including Workforce)	$	18,844			(275	)	$	18,569

The excess of the consideration transferred over the estimated fair values of assets acquired and liabilities assumed was recorded as goodwill. The identifiable intangible asset subject to amortization was the tradename, customer relationships, non-compete agreement, and backlog, which have a remaining useful life of two to five years. See Note 9 – Goodwill and Intangible Assets for additional information.

The following unaudited pro forma financial information assumes the acquisition had occurred as of January 1, 2016 which does not include GM&P actual results for the entire period. Pro forma results have been prepared by adjusting our historical results to include the results of GM&P adjusted for the amortization expense related to the intangible assets arising from the acquisition. The unaudited pro forma results below do not necessarily reflect the results of operations that would have resulted had the acquisition been completed at the beginning of the earliest periods presented, nor does it indicate the results of operations in future periods. The unaudited pro forma results do not include the impact of synergies, nor any potential impacts on current or future market conditions which could alter the following unaudited pro forma results.

	Actual			Pro-Forma		Pro-Forma			Pro-Forma
	Three Months			Three Months		Six Months			Six Months
	Ended			Ended		Ended			Ended
(in thousands, except per share amounts)	June 30, 2017			June 30, 2016		June 30, 2017			June 30, 2016
Pro Forma Results
Net sales	$	80,976		$	94,935	$	156,780		$	170,706

Net (loss) income attributable to parent	$	(3,560	)	$	15,138	$	(3,595	)	$	29,843

Net income per common share:
Basic	$	(0.11	)	$	0.52	$	(0.11	)	$	1.04

Diluted	$	(0.11	)	$	0.46	$	(0.11	)	$	0.90

The actual sales and net income that is included within the Statement of Operations for the six-month period ended June 30, 2017 is $43,462 and $3,623, respectively.

Non-controlling interest

With the Acquisition of GM&P, the Company also acquired a 60% equity interest in Componenti USA LLC, a subsidiary of GM&P that provides architectural specialties in the US, specializing in design-build systems for individual projects and with experience in value engineering to create products that comply with the architects’ original design intent, while maintaining focus on affordable construction methods and materials. The 40% non-controlling interest in Componenti is included in the opening balance sheet as of the acquisition date and its fair value amounted to $1,141. When the company owns a majority (but less than 100%) of a subsidiary’s stock, the Company includes in its Consolidated Financial Statements the non-controlling interest in the subsidiary. The non-controlling interest in the Condensed Consolidated Statements of Operations and Other Comprehensive Income is equal to the non-controlling interests’ proportionate share of the subsidiary’s net income and, as included in Shareholders’ Equity on the Condensed Consolidated Balance Sheet, is equal to the non-controlling interests’ proportionate share of the subsidiary’s net assets.