ITEM 1. FINANCIAL STATEMENTS
Jason Industries, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts) (Unaudited)
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Three Months Ended
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Nine Months Ended
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September 27, 2019
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September 28, 2018
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September 27, 2019
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September 28, 2018
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Net sales
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$
|
85,610
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$
|
107,029
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$
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296,654
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$
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355,440
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Cost of goods sold
|
70,840
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84,562
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239,218
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275,495
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Gross profit
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14,770
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22,467
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57,436
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79,945
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Selling and administrative expenses
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20,416
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20,169
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63,699
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67,717
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Impairment charges
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20,597
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—
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20,597
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—
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Loss (gain) on disposals of property, plant and equipment - net
|
14
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(88)
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|
18
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|
|
94
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Restructuring
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|
1,277
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|
298
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3,795
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|
1,245
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Operating (loss) income
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(27,534)
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|
2,088
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(30,673)
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|
10,889
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|
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Interest expense
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(8,180)
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(8,326)
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(24,738)
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(24,709)
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Equity income
|
45
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468
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167
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903
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Other income - net
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932
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51
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611
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606
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Loss from continuing operations before income taxes
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(34,737)
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(5,719)
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(54,633)
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(12,311)
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Tax benefit
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(4,691)
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(1,435)
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(5,424)
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(2,773)
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Net loss from continuing operations
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(30,046)
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(4,284)
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(49,209)
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(9,538)
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Net (loss) income from discontinued operations, net of tax
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(3,121)
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(174)
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(4,130)
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4,087
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Net loss
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(33,167)
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(4,458)
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(53,339)
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(5,451)
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Accretion of dividends on preferred stock and redemption premium
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845
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781
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2,485
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3,274
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Net loss allocable to common shareholders of Jason Industries
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$
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(34,012)
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$
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(5,239)
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$
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(55,824)
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$
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(8,725)
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Basic and diluted net (loss) income per share allocable to common shareholders of Jason Industries:
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Net loss per share from continuing operations
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$
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(1.08)
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$
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(0.18)
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$
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(1.82)
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$
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(0.46)
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Net (loss) income per share from discontinued operations
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(0.11)
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(0.01)
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(0.15)
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0.15
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Basic and diluted net loss per share
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$
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(1.19)
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$
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(0.19)
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$
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(1.97)
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$
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(0.32)
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Weighted average number of common shares outstanding:
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Basic and diluted
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28,632
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27,683
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28,348
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27,565
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Jason Industries, Inc.
Condensed Consolidated Statements of Comprehensive (Loss) Income
(In thousands) (Unaudited)
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Three Months Ended
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Nine Months Ended
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September 27, 2019
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September 28, 2018
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September 27, 2019
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September 28, 2018
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Net loss
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$
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(33,167)
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$
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(4,458)
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$
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(53,339)
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$
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(5,451)
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Other comprehensive income (loss):
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Employee retirement plan adjustments, net of tax
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15
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4
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45
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13
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Foreign currency translation adjustments
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(4,556)
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(879)
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(5,170)
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(3,473)
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Net change in unrealized gains (losses) on cash flow hedges, net of tax (expense) benefit of ($10), ($60), $490, ($716), respectively
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31
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185
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(1,519)
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2,195
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Total other comprehensive loss
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(4,510)
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(690)
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(6,644)
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(1,265)
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Comprehensive loss
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$
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(37,677)
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$
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(5,148)
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$
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(59,983)
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$
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(6,716)
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Jason Industries, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts) (Unaudited)
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September 27, 2019
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December 31, 2018
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Assets
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Current assets
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Cash and cash equivalents
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$
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92,695
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$
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46,457
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Accounts receivable - net of allowances for doubtful accounts of $1,329 at September 27, 2019 and $1,519 at December 31, 2018
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41,641
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41,325
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Inventories
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55,435
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55,627
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Other current assets
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8,039
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7,049
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Current assets held for sale
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—
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45,681
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Total current assets
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197,810
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196,139
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Property, plant and equipment - net of accumulated depreciation of $89,370 at September 27, 2019 and $77,490 at December 31, 2018
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82,048
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90,909
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Right-of-use operating lease assets
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28,585
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—
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Goodwill
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45,111
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44,065
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Other intangible assets - net
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70,004
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96,446
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Other assets - net
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10,132
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11,679
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Noncurrent assets held for sale
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—
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64,359
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Total assets
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$
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433,690
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$
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503,597
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Liabilities and Shareholders’ (Deficit) Equity
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Current liabilities
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Current portion of long-term debt
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$
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5,769
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$
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5,687
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Current portion of operating lease liabilities
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5,469
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—
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Accounts payable
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27,578
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35,331
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Accrued compensation and employee benefits
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10,325
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12,154
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Accrued interest
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1
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|
89
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Other current liabilities
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14,307
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13,923
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Current liabilities held for sale
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—
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18,679
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Total current liabilities
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63,449
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85,863
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Long-term debt
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384,170
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386,101
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Long-term operating lease liabilities
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25,567
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—
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Deferred income taxes
|
10,002
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|
17,613
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Other long-term liabilities
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15,409
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19,506
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Noncurrent liabilities held for sale
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—
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2,297
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Total liabilities
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498,597
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511,380
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Commitments and contingencies (Note 17)
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Shareholders’ (Deficit) Equity
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Preferred stock, $0.0001 par value (5,000,000 shares authorized, 43,090 shares issued and outstanding at September 27, 2019, including 843 shares declared on August 1, 2019 and issued on October 1, 2019, 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)
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43,090
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40,612
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Jason Industries common stock, $0.0001 par value (120,000,000 shares authorized; issued and outstanding: 28,413,351 shares at September 27, 2019 and 27,394,978 shares at December 31, 2018)
|
3
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|
3
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Additional paid-in capital
|
155,138
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155,533
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Retained deficit
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(232,923)
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(180,360)
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Accumulated other comprehensive loss
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(30,215)
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(23,571)
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Total shareholders’ (deficit) equity
|
(64,907)
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|
(7,783)
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Total liabilities and shareholders’ (deficit) equity
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$
|
433,690
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$
|
503,597
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The accompanying notes are an integral part of these condensed consolidated financial statements.
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Jason Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
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Nine Months Ended
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Includes cash flow activities from both continuing and discontinued operations
|
September 27, 2019
|
|
September 28, 2018
|
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Cash flows from operating activities
|
|
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|
Net loss
|
$
|
(53,339)
|
|
|
$
|
(5,451)
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Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
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Depreciation
|
19,996
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|
|
20,415
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Amortization of intangible assets
|
8,787
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|
|
11,242
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Amortization of deferred financing costs and debt discount
|
2,211
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|
|
2,199
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|
Non-cash operating lease expense
|
6,193
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|
|
—
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|
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Equity income
|
(167)
|
|
|
(903)
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Deferred income taxes
|
(6,684)
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|
(2,580)
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Loss on disposals of property, plant and equipment - net
|
14
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|
154
|
|
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Non-cash impact of business divestitures and dissolutions
|
(1,050)
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|
|
—
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Non-cash impairment charge
|
20,597
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|
|
—
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Dividends from joint venture
|
728
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|
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—
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Share-based compensation
|
2,609
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|
|
1,728
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Net increase (decrease) in cash, net of acquisitions and dispositions, due to changes in:
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Accounts receivable
|
1,919
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|
|
(5,155)
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|
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Inventories
|
2,686
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|
|
4,368
|
|
|
Other current assets
|
(1,029)
|
|
|
811
|
|
|
Accounts payable
|
(9,462)
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|
|
(506)
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|
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Accrued compensation and employee benefits
|
(2,702)
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|
|
(689)
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|
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Accrued interest
|
(88)
|
|
|
(194)
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|
Accrued income taxes
|
(115)
|
|
|
(3,548)
|
|
|
|
|
|
|
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Operating lease liabilities, net
|
(5,923)
|
|
|
—
|
|
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Other - net
|
(996)
|
|
|
(1,876)
|
|
|
Total adjustments
|
37,524
|
|
|
25,466
|
|
|
Net cash (used in) provided by operating activities
|
(15,815)
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|
|
20,015
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|
|
Cash flows from investing activities
|
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|
|
Proceeds from disposals of property, plant and equipment
|
1,145
|
|
|
202
|
|
|
Payments for property, plant and equipment
|
(8,743)
|
|
|
(9,636)
|
|
|
Proceeds from divestiture, net of cash divested and liabilities assumed by buyer
|
75,021
|
|
|
—
|
|
|
Acquisition of business, net of cash acquired
|
(11,000)
|
|
|
—
|
|
|
Acquisitions of patents
|
(32)
|
|
|
(44)
|
|
|
Net cash provided by (used in) investing activities
|
56,391
|
|
|
(9,478)
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Jason Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
|
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|
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|
|
Nine Months Ended
|
|
|
|
Includes cash flow activities from both continuing and discontinued operations
|
September 27, 2019
|
|
September 28, 2018
|
|
Cash flows from financing activities
|
|
|
|
|
Payments of deferred financing costs
|
(331)
|
|
|
(609)
|
|
|
Payments of First and Second Lien term loans
|
(2,325)
|
|
|
(4,825)
|
|
|
Proceeds from other long-term debt
|
3,298
|
|
|
3,314
|
|
|
Payments of other long-term debt
|
(4,585)
|
|
|
(5,358)
|
|
|
Payments of finance lease obligation
|
(246)
|
|
|
—
|
|
|
Value added tax paid from building sale
|
(707)
|
|
|
—
|
|
|
Other financing activities - net
|
(627)
|
|
|
(14)
|
|
|
Net cash used in financing activities
|
(5,523)
|
|
|
(7,492)
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
(527)
|
|
|
(562)
|
|
|
Net increase in cash and cash equivalents
|
34,526
|
|
|
2,483
|
|
|
Cash and cash equivalents, beginning of period
|
58,169
|
|
|
48,887
|
|
|
Cash and cash equivalents, end of period
|
$
|
92,695
|
|
|
$
|
51,370
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
Interest
|
$
|
22,664
|
|
|
$
|
22,772
|
|
|
Income taxes, net of refunds
|
$
|
3,040
|
|
|
$
|
3,454
|
|
|
Acquisition-related transaction costs used in operating activities
|
$
|
373
|
|
|
$
|
—
|
|
|
Divestiture-related transaction costs used in operating activities
|
$
|
3,380
|
|
|
$
|
—
|
|
|
Non-cash lease activities:
|
|
|
|
|
Right-of-use operating assets obtained in exchange for operating lease obligations
|
$
|
3,113
|
|
|
$
|
—
|
|
|
Right-of-use finance assets obtained in exchange for finance lease obligations
|
$
|
442
|
|
|
$
|
—
|
|
|
Non-cash investing activities:
|
|
|
|
|
Property, plant and equipment acquired through additional liabilities
|
$
|
423
|
|
|
$
|
1,005
|
|
|
Non-cash financing activities:
|
|
|
|
|
Non-cash preferred stock created from dividends declared
|
$
|
2,478
|
|
|
$
|
2,289
|
|
|
|
|
|
|
|
Exchange of preferred stock for common stock of Jason Industries, Inc.
|
$
|
—
|
|
|
$
|
12,136
|
|
|
Debt and pension liability assumed by buyer with divestiture
|
$
|
2,206
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Jason Industries, Inc.
Condensed Consolidated Statements of Shareholders’ (Deficit) Equity
(In thousands) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 27, 2019:
|
|
Preferred Stock
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Deficit
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Total
Shareholders'
(Deficit) Equity
|
|
Balance at June 28, 2019
|
|
$
|
42,247
|
|
|
$
|
3
|
|
|
$
|
155,096
|
|
|
$
|
(199,756)
|
|
|
$
|
(25,705)
|
|
|
$
|
(28,115)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared
|
|
843
|
|
|
—
|
|
|
(845)
|
|
|
—
|
|
|
—
|
|
|
(2)
|
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
939
|
|
|
—
|
|
|
—
|
|
|
939
|
|
|
Tax withholding related to vesting of restricted stock units
|
|
—
|
|
|
—
|
|
|
(52)
|
|
|
—
|
|
|
—
|
|
|
(52)
|
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(33,167)
|
|
|
—
|
|
|
(33,167)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee retirement plan adjustments, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
15
|
|
|
Foreign currency translation adjustments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,556)
|
|
|
(4,556)
|
|
|
Net changes in unrealized gains on cash flow hedges, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 27, 2019
|
|
$
|
43,090
|
|
|
$
|
3
|
|
|
$
|
155,138
|
|
|
$
|
(232,923)
|
|
|
$
|
(30,215)
|
|
|
$
|
(64,907)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 28, 2018:
|
|
Preferred Stock
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Deficit
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Total
Shareholders'
(Deficit) Equity
|
|
Balance at June 29, 2018
|
|
$
|
39,040
|
|
|
$
|
3
|
|
|
$
|
155,185
|
|
|
$
|
(168,193)
|
|
|
$
|
(20,763)
|
|
|
$
|
5,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared
|
|
778
|
|
|
—
|
|
|
(781)
|
|
|
—
|
|
|
—
|
|
|
(3)
|
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
944
|
|
|
—
|
|
|
—
|
|
|
944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,458)
|
|
|
—
|
|
|
(4,458)
|
|
|
Employee retirement plan adjustments, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
4
|
|
|
Foreign currency translation adjustments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(879)
|
|
|
(879)
|
|
|
Net changes in unrealized gains on cash flow hedges, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
185
|
|
|
185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 28, 2018
|
|
$
|
39,818
|
|
|
$
|
3
|
|
|
$
|
155,348
|
|
|
$
|
(172,651)
|
|
|
$
|
(21,453)
|
|
|
$
|
1,065
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Jason Industries, Inc.
Condensed Consolidated Statements of Shareholders’ (Deficit) Equity
(In thousands) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 27, 2019:
|
|
Preferred Stock
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Deficit
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Total
Shareholders’
(Deficit) Equity
|
|
Balance at December 31, 2018
|
|
$
|
40,612
|
|
|
$
|
3
|
|
|
$
|
155,533
|
|
|
$
|
(180,360)
|
|
|
$
|
(23,571)
|
|
|
$
|
(7,783)
|
|
|
Cumulative impact of accounting changes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
776
|
|
|
—
|
|
|
776
|
|
|
Dividends declared
|
|
2,478
|
|
|
—
|
|
|
(2,485)
|
|
|
—
|
|
|
—
|
|
|
(7)
|
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
2,609
|
|
|
—
|
|
|
—
|
|
|
2,609
|
|
|
Tax withholding related to vesting of restricted stock units
|
|
—
|
|
|
—
|
|
|
(519)
|
|
|
—
|
|
|
—
|
|
|
(519)
|
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(53,339)
|
|
|
—
|
|
|
(53,339)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee retirement plan adjustments, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
45
|
|
|
45
|
|
|
Foreign currency translation adjustments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,170)
|
|
|
(5,170)
|
|
|
Net changes in unrealized losses on cash flow hedges, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,519)
|
|
|
(1,519)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 27, 2019
|
|
$
|
43,090
|
|
|
$
|
3
|
|
|
$
|
155,138
|
|
|
$
|
(232,923)
|
|
|
$
|
(30,215)
|
|
|
$
|
(64,907)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 28, 2018:
|
|
Preferred Stock
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Deficit
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Total
Shareholders’
(Deficit) Equity
|
|
Balance at December 31, 2017
|
|
$
|
49,665
|
|
|
$
|
3
|
|
|
$
|
143,788
|
|
|
$
|
(167,710)
|
|
|
$
|
(20,062)
|
|
|
$
|
5,684
|
|
|
Cumulative impact of accounting changes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
510
|
|
|
(126)
|
|
|
384
|
|
|
Dividends declared
|
|
2,289
|
|
|
—
|
|
|
(2,297)
|
|
|
—
|
|
|
—
|
|
|
(8)
|
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
1,728
|
|
|
—
|
|
|
—
|
|
|
1,728
|
|
|
Tax withholding related to vesting of restricted stock units
|
|
—
|
|
|
—
|
|
|
(7)
|
|
|
—
|
|
|
—
|
|
|
(7)
|
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,451)
|
|
|
—
|
|
|
(5,451)
|
|
|
Employee retirement plan adjustments, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|
13
|
|
|
Foreign currency translation adjustments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,473)
|
|
|
(3,473)
|
|
|
Net changes in unrealized gains on cash flow hedges, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,195
|
|
|
2,195
|
|
|
Exchange of preferred stock for common stock of Jason Industries, Inc.
|
|
(12,136)
|
|
|
—
|
|
|
12,136
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Balance at September 28, 2018
|
|
$
|
39,818
|
|
|
$
|
3
|
|
|
$
|
155,348
|
|
|
$
|
(172,651)
|
|
|
$
|
(21,453)
|
|
|
$
|
1,065
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
|
|
|
|
|
|
|
|
1.
|
Description of Business and Basis of Presentation
|
Description of Business
Jason Industries, Inc. (“Jason Industries”), including its subsidiaries (collectively, the “Company”), is a global industrial manufacturing company. 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 four to three: industrial, engineered components, and fiber solutions. The prior year segment disclosures have been updated to conform with current year presentation.
The Company operates in the United States and 13 foreign countries. The Company’s industrial segment, formerly the finishing segment, focuses on the production of industrial brushes, polishing buffs and compounds, abrasives, and roller technology products that are used in a broad range of industrial and infrastructure applications. The engineered components segment, the combined former seating and components segments, designs, engineers, and manufactures seating, safety and filtration products used in heavy industry (construction, agriculture, and material handling), turf care, power sports, rail and general industrial applications. The fiber solutions segment, formerly the acoustics segment, manufactured technical, non-woven fiber-based acoustical, thermal, and structural products serving automotive and other end markets.
During the third quarter of 2019, the Company determined that the North American fiber solutions business met the criteria to be classified as a discontinued operation. As a result, the Company's prior period results of operations, financial position and notes to financial statements have been recast to be presented on a continuing operations basis, except where noted. The assets and liabilities of the North American fiber solutions business have been presented as held for sale for periods prior to the sale. On August 30, 2019, the Company completed the divestiture of its North American fiber solutions business.
On August 12, 2019, the Company announced that its Board of Directors has engaged an advisor to explore strategic alternatives, including a potential sale of the Company.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial reporting and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. For additional information, including the Company’s significant accounting policies, these condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2018 and the accompanying Notes to Financial Statements (Part I, Item 1 of this Form 10-Q).
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, ending 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 are comprised of the three months ending 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 the opinion of management, all adjustments considered necessary for a fair statement of financial results have been made. Such adjustments consist of only those of a normal recurring nature. Interim results are not necessarily indicative of the results that may be expected for the entire fiscal year.
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 Note 8, “Leases” for further discussion regarding the adoption of this standard.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
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 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 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 any impact on the Company’s condensed consolidated financial statements or the related disclosures within the accompanying notes.
Accounting standards to be adopted in future fiscal periods
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 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 condensed 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 annual consolidated financial statements, as well as the planned timing of adoption.
|
|
|
|
|
|
|
|
2.
|
Revision of Previously Reported Financial Information
|
During the first quarter of 2019, the Company identified an error in the income tax provision and deferred income taxes as of and for the year ended December 31, 2018. As a result of this error, the Company restated its consolidated financial statements as of and for the year ended December 31, 2018 on Form 10-K/A. See the Form 10-K/A for additional details regarding the error.
As a result of this error, the Company’s previously reported tax provision for the three and nine months ended September 28, 2018 was overstated by $1.1 million and $1.5 million, respectively, within the condensed consolidated statement of operations. While the impact of this error is not material to the previously reported quarterly interim periods, the Company has revised its condensed consolidated financial statements for the three and nine months ended September 28, 2018 included herein to reflect the correction of this error. Amounts throughout the condensed consolidated financial statements and notes thereto have been adjusted to incorporate the revised amounts, where applicable.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
The impact of the required correction to the condensed consolidated statement of operations and comprehensive (loss) income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 28, 2018
|
|
|
|
|
|
|
As Reported (1)
|
|
Adjustments
|
|
As Revised
|
|
Tax benefit
|
$
|
(381)
|
|
|
$
|
(1,054)
|
|
|
$
|
(1,435)
|
|
|
Net loss from continuing operations
|
$
|
(5,338)
|
|
|
$
|
1,054
|
|
|
$
|
(4,284)
|
|
|
Net loss
|
$
|
(5,512)
|
|
|
$
|
1,054
|
|
|
$
|
(4,458)
|
|
|
Net loss allocable to common shareholders of Jason Industries
|
$
|
(6,293)
|
|
|
$
|
1,054
|
|
|
$
|
(5,239)
|
|
|
|
|
|
|
|
|
|
Net loss per share allocable to common shareholders of Jason Industries:
|
|
|
|
|
|
|
Basic and diluted from continuing operations
|
$
|
(0.22)
|
|
|
$
|
0.04
|
|
|
$
|
(0.18)
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
$
|
(6,202)
|
|
|
1,054
|
|
|
$
|
(5,148)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 28, 2018
|
|
|
|
|
|
|
As Reported (1)
|
|
Adjustments
|
|
As Revised
|
|
Tax benefit
|
$
|
(1,306)
|
|
|
$
|
(1,467)
|
|
|
$
|
(2,773)
|
|
|
Net loss from continuing operations
|
$
|
(11,005)
|
|
|
$
|
1,467
|
|
|
$
|
(9,538)
|
|
|
Net loss
|
$
|
(6,918)
|
|
|
$
|
1,467
|
|
|
$
|
(5,451)
|
|
|
Net loss allocable to common shareholders of Jason Industries
|
$
|
(10,192)
|
|
|
$
|
1,467
|
|
|
$
|
(8,725)
|
|
|
|
|
|
|
|
|
|
Net loss per share allocable to common shareholders of Jason Industries:
|
|
|
|
|
|
|
Basic and diluted from continuing operations
|
$
|
(0.52)
|
|
|
$
|
0.06
|
|
|
(0.46)
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
$
|
(8,183)
|
|
|
1,467
|
|
|
$
|
(6,716)
|
|
(1)The previously reported balances have been adjusted to conform to results from continuing operations due to the sale of the former North American fiber solutions business. Refer to Note 3, “Discontinued Operations” for further discussion on the transaction completed in the third quarter of 2019.
The above corrections did not impact total net cash provided by (used in) operating, investing or financing activities within the condensed consolidated statements of cash flows for any previous period. Other than the adjustments to net loss for the three and nine months ended September 28, 2018, as described above, which impacted recorded retained deficit and total shareholders’ deficit, there were no other impacts to the condensed consolidated statement of shareholders’ (deficit) equity. There was no impact to the Company’s previously reported “segment” Adjusted EBITDA for the three and nine months ended September 28, 2018.
|
|
|
|
|
|
|
|
3.
|
Discontinued Operations
|
On August 30, 2019, the Company completed the sale of its North American fiber solutions business to ACR II Motus Integrated Technologies Cooperatief U.A., Motus Pivot MX Holding B.V, Motus Pivot Holding B.V. and Motus Pivot Inc. (collectively, the “Motus Group”), pursuant to an agreement dated as of August 11, 2019, by and between two subsidiaries of the Company and the Motus Group (the “Sale Agreement”), for a purchase price of $85.0 million, subject to certain adjustments as set forth in the Sale Agreement (the “Transaction”). The purchase price was reduced by $5 million due to the outcome of certain commercial activities for which the measurement period ended on October 31, 2019. The purchase price is also subject to a net working capital adjustment to be settled within 110 days of the closing date.
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)
|
|
|
Plus: preliminary working capital surplus
|
5
|
|
|
Plus: excess cash at closing
|
1,394
|
|
|
Adjusted purchase price
|
79,193
|
|
|
Less: cash divested
|
(3,894)
|
|
|
Less: consideration held in escrow and closing balance sheet adjustments
|
(278)
|
|
|
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 $5.2 million, of which $0.5 million is non-cash share-based compensation expense. Of the remaining cash transaction expenses, $3.4 million has been paid as of September 27, 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 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.
The divestiture reduced the Company’s automotive market exposure, 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 engineered components and industrial segments.
The Company determined that the North American fiber solutions business met the criteria to be classified as a discontinued operation. As a result, the historical results of the North American fiber solutions business are reflected in the Company’s condensed consolidated financial statements as a discontinued operation and the assets and liabilities of the North American fiber solutions business have been retrospectively reclassified as assets and liabilities held for sale.
The following table summarizes the results of the North American fiber solutions business reclassified as discontinued operations for both the three and nine months ended September 27, 2019 and September 28, 2018. As the North American fiber solutions business sale occurred on August 30, 2019, there are only two months of North American fiber solutions business results included in the three months ended September 27, 2019 and only eight months of North American fiber solutions business results included in the nine months ended September 27, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
|
Net sales
|
$
|
21,280
|
|
|
$
|
38,266
|
|
|
$
|
90,516
|
|
|
$
|
125,533
|
|
|
Cost of goods sold
|
18,456
|
|
|
32,256
|
|
|
77,781
|
|
|
104,207
|
|
|
Gross profit
|
2,824
|
|
|
6,010
|
|
|
12,735
|
|
|
21,326
|
|
|
Selling and administrative expenses
|
3,781
|
|
|
4,345
|
|
|
11,538
|
|
|
13,209
|
|
|
(Gain) loss on disposals of property, plant and equipment - net
|
(8)
|
|
|
(3)
|
|
|
(4)
|
|
|
60
|
|
|
Restructuring
|
735
|
|
|
887
|
|
|
1,003
|
|
|
2,006
|
|
|
(Loss) income from operations
|
(1,684)
|
|
|
781
|
|
|
198
|
|
|
6,051
|
|
|
Interest expense
|
(12)
|
|
|
(22)
|
|
|
(47)
|
|
|
(69)
|
|
|
Loss on divestiture
|
(1,912)
|
|
|
—
|
|
|
(2,492)
|
|
|
—
|
|
|
Other income (loss) - net
|
16
|
|
|
—
|
|
|
(10)
|
|
|
—
|
|
|
(Loss) income before income taxes
|
(3,592)
|
|
|
759
|
|
|
(2,351)
|
|
|
5,982
|
|
|
Tax (benefit) provision
|
(471)
|
|
|
933
|
|
|
1,779
|
|
|
1,895
|
|
|
Net (loss) income from discontinued operations, net of tax
|
$
|
(3,121)
|
|
|
$
|
(174)
|
|
|
$
|
(4,130)
|
|
|
$
|
4,087
|
|
The following table summarizes the major classes of assets and liabilities of the North American fiber solutions business classified as held for sale as of December 31, 2018.
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Assets
|
|
|
Current assets
|
|
|
Cash and cash equivalents
|
$
|
11,712
|
|
|
Accounts receivable - net
|
19,234
|
|
|
Inventories - net
|
8,120
|
|
|
Other current assets
|
6,615
|
|
|
Total current assets held for sale
|
45,681
|
|
|
Property, plant and equipment - net
|
43,960
|
|
|
|
|
|
Other intangible assets - net
|
20,083
|
|
|
Other assets - net
|
316
|
|
|
Total noncurrent assets held for sale
|
64,359
|
|
|
Total assets held for sale
|
$
|
110,040
|
|
|
|
|
|
Liabilities
|
|
|
Current liabilities
|
|
|
Current portion of long-term debt
|
$
|
857
|
|
|
Accounts payable
|
12,166
|
|
|
Accrued compensation and employee benefits
|
2,298
|
|
|
|
|
|
Other current liabilities
|
3,358
|
|
|
Total current liabilities held for sale
|
18,679
|
|
|
Long-term debt
|
1,143
|
|
|
Deferred income taxes
|
112
|
|
|
Other long-term liabilities
|
1,042
|
|
|
Total noncurrent liabilities held for sale
|
2,297
|
|
|
Total liabilities held for sale
|
$
|
20,976
|
|
The current portion of long-term debt and long-term debt which were assumed by the Buyer with the divestiture relates to foreign debt previously held in Mexico.
The following table summarizes significant cash flow disclosures for the North American fiber solutions business for the nine months ended September 27, 2019 and September 28, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 27, 2019
|
|
September 28, 2018
|
|
Depreciation
|
$
|
5,123
|
|
|
|
$
|
6,544
|
|
|
Amortization of intangible assets
|
$
|
1,094
|
|
|
|
$
|
1,415
|
|
|
Non-cash operating lease expense
|
$
|
1,577
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
Payments for property, plant and equipment
|
$
|
(1,547)
|
|
|
|
$
|
(3,265)
|
|
|
Non-cash impact of business divestitures and dissolutions
|
$
|
(192)
|
|
|
|
$
|
—
|
|
|
Debt and pension liability assumed by buyer with divestiture
|
$
|
2,206
|
|
|
|
$
|
—
|
|
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 manufactured and distributed by the industrial segment. Through the acquisition of Schaffner, the Company expanded its
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
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 has been paid as of September 27, 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 condensed consolidated financial statements from April 1, 2019, the date of the acquisition.
The Company has recorded a preliminary allocation of the purchase price for tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the April 1, 2019 acquisition date. The preliminary purchase price allocation is as follows:
|
|
|
|
|
|
|
|
|
Preliminary 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 preliminary 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 preliminary allocation of the purchase price is based on the preliminary valuations performed to determine the fair value of the net assets as of the acquisition date. The amounts allocated to goodwill and intangible assets are based on preliminary valuations and are subject to adjustments to reflect the final valuations.
The preliminary 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 transaction costs that were expensed in the nine months ended September 27, 2019. These costs are included in the consolidated statements of operations as “Selling and administrative expenses”.
During the three and nine months ended September 27, 2019, $4.4 million and $9.7 million of net sales from Schaffner were included in the Company’s consolidated statements of operations, respectively. 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 condensed consolidated statements of operations.
The industrial segment operates principally as a provider of industrial brushes, polishing buffs and compounds, abrasives and roller technology products that are used in a broad range of industrial and infrastructure applications. The Company typically sells products within this 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 industrial segment, there are certain custom products for customers with minimum stocking agreements for which the Company recognizes net sales over time. Revenue from products transferred to customers over time accounted for less than 1% of industrial net sales for both the three and nine months ended September 27, 2019 and September 28, 2018.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
The engineered components segment operates principally as a seating and component supplier to Original Equipment Manufacturers (“OEM”) within the lawn and turf care, agriculture, construction, material handling, power sports, rail and general industrial markets. The Company sells products within this business under both purchase orders and contracts for custom products primarily through the direct to customer sales channel. The Company transfers control and recognizes net sales at a point in time upon shipment to the customer under these contracts.
The Company disaggregates net sales by geography based on the country of origin of the final sale with the external customer. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 27, 2019
|
|
|
|
|
|
|
|
Three Months Ended September 28, 2018
|
|
|
|
|
|
|
Industrial
|
|
Engineered Components
|
|
|
|
Total
|
|
Industrial
|
|
Engineered Components
|
|
Total
|
|
United States
|
$
|
19,175
|
|
|
$
|
36,660
|
|
|
|
|
$
|
55,835
|
|
|
$
|
16,868
|
|
|
$
|
54,899
|
|
|
$
|
71,767
|
|
|
Europe
|
26,327
|
|
|
—
|
|
|
|
|
26,327
|
|
|
30,749
|
|
|
1,114
|
|
|
31,863
|
|
|
Mexico
|
2,315
|
|
|
—
|
|
|
|
|
2,315
|
|
|
2,453
|
|
|
—
|
|
|
2,453
|
|
|
Other
|
1,042
|
|
|
91
|
|
|
|
|
1,133
|
|
|
946
|
|
|
—
|
|
|
946
|
|
|
Total
|
$
|
48,859
|
|
|
$
|
36,751
|
|
|
|
|
$
|
85,610
|
|
|
$
|
51,016
|
|
|
$
|
56,013
|
|
|
$
|
107,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 27, 2019
|
|
|
|
|
|
Nine Months Ended September 28, 2018
|
|
|
|
|
|
|
Industrial
|
|
Engineered Components
|
|
Total
|
|
Industrial
|
|
Engineered Components
|
|
Total
|
|
United States
|
$
|
58,736
|
|
|
$
|
142,801
|
|
|
$
|
201,537
|
|
|
$
|
52,649
|
|
|
$
|
190,247
|
|
|
$
|
242,896
|
|
|
Europe
|
84,744
|
|
|
—
|
|
|
84,744
|
|
|
98,304
|
|
|
4,745
|
|
|
103,049
|
|
|
Mexico
|
7,065
|
|
|
—
|
|
|
7,065
|
|
|
6,523
|
|
|
—
|
|
|
6,523
|
|
|
Other
|
3,044
|
|
|
264
|
|
|
3,308
|
|
|
2,972
|
|
|
—
|
|
|
2,972
|
|
|
Total
|
$
|
153,589
|
|
|
$
|
143,065
|
|
|
$
|
296,654
|
|
|
$
|
160,448
|
|
|
$
|
194,992
|
|
|
$
|
355,440
|
|
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 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 27, 2019
|
|
|
|
|
|
Three Months Ended September 28, 2018
|
|
|
|
|
|
|
Industrial
|
|
Engineered Components
|
|
Total
|
|
Industrial
|
|
Engineered Components
|
|
Total
|
|
Direct
|
$
|
28,312
|
|
|
$
|
35,110
|
|
|
$
|
63,422
|
|
|
$
|
27,175
|
|
|
$
|
53,762
|
|
|
$
|
80,937
|
|
|
Distribution
|
20,547
|
|
|
1,641
|
|
|
22,188
|
|
|
23,841
|
|
|
2,251
|
|
|
26,092
|
|
|
Total
|
$
|
48,859
|
|
|
$
|
36,751
|
|
|
$
|
85,610
|
|
|
$
|
51,016
|
|
|
$
|
56,013
|
|
|
$
|
107,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 27, 2019
|
|
|
|
|
|
Nine Months Ended September 28, 2018
|
|
|
|
|
|
|
Industrial
|
|
Engineered Components
|
|
Total
|
|
Industrial
|
|
Engineered Components
|
|
Total
|
|
Direct
|
$
|
86,071
|
|
|
$
|
137,754
|
|
|
$
|
223,825
|
|
|
$
|
87,387
|
|
|
$
|
189,416
|
|
|
$
|
276,803
|
|
|
Distribution
|
67,518
|
|
|
5,311
|
|
|
72,829
|
|
|
73,061
|
|
|
5,576
|
|
|
78,637
|
|
|
Total
|
$
|
153,589
|
|
|
$
|
143,065
|
|
|
$
|
296,654
|
|
|
$
|
160,448
|
|
|
$
|
194,992
|
|
|
$
|
355,440
|
|
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
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 fiscal 2016, 2017, 2018 and the six months ended June 28, 2019 and were considered substantially complete as of June 28, 2019. As the 2016 program was deemed to be complete 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, additional restructuring initiatives were identified across the business segments, and 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 condensed consolidated statements of operations.
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 nine months ended September 27, 2019 primarily include charges related to the closure of a U.K. plant within the engineered components segment. The other costs incurred under the 2016 program for the nine months ended September 28, 2018 primarily include charges related to the consolidation of two U.S. plants within the engineered components segment. The Company did not incur any costs under the 2016 program during the three months ended September 27, 2019. The 2016 program is considered complete and no additional costs are expected to be incurred for the remainder of 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Program
|
|
Industrial
|
|
Engineered Components
|
|
Corporate
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges - nine months ended September 27, 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 - three months ended September 28, 2018:
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
(7)
|
|
|
$
|
81
|
|
|
$
|
—
|
|
|
$
|
74
|
|
|
Lease termination costs (1)
|
|
(25)
|
|
|
—
|
|
|
—
|
|
|
(25)
|
|
|
Other costs
|
|
219
|
|
|
30
|
|
|
—
|
|
|
249
|
|
|
Total
|
|
$
|
187
|
|
|
$
|
111
|
|
|
$
|
—
|
|
|
$
|
298
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges - nine months ended September 28, 2018:
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
12
|
|
|
$
|
389
|
|
|
$
|
—
|
|
|
$
|
401
|
|
|
Lease termination costs (1)
|
|
10
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
Other costs
|
|
94
|
|
|
740
|
|
|
—
|
|
|
834
|
|
|
Total
|
|
$
|
116
|
|
|
$
|
1,129
|
|
|
$
|
—
|
|
|
$
|
1,245
|
|
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
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 completion in June 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Program
|
|
Industrial
|
|
Engineered Components
|
|
|
|
Corporate
|
|
Total
|
|
Cumulative restructuring charges - period ended September 27, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
4,744
|
|
|
$
|
973
|
|
|
|
|
$
|
752
|
|
|
$
|
6,469
|
|
|
Lease termination costs (1)
|
|
428
|
|
|
—
|
|
|
|
|
—
|
|
|
428
|
|
|
Other costs
|
|
2,443
|
|
|
4,023
|
|
|
|
|
—
|
|
|
6,466
|
|
|
Total
|
|
$
|
7,615
|
|
|
$
|
4,996
|
|
|
|
|
$
|
752
|
|
|
$
|
13,363
|
|
The following table represents the restructuring liabilities under the 2016 program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
costs
|
|
Lease
termination
costs (1)
|
|
Other costs
|
|
Total
|
|
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 translation adjustments
|
(2)
|
|
|
—
|
|
|
(4)
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 27, 2019
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
costs
|
|
Lease
termination
costs (1)
|
|
Other costs
|
|
Total
|
|
Balance - December 31, 2017
|
$
|
907
|
|
|
$
|
76
|
|
|
$
|
904
|
|
|
$
|
1,887
|
|
|
Current period restructuring charges
|
401
|
|
|
10
|
|
|
834
|
|
|
1,245
|
|
|
Cash payments
|
(815)
|
|
|
(70)
|
|
|
(1,426)
|
|
|
(2,311)
|
|
|
Foreign currency translations adjustments
|
(35)
|
|
|
(2)
|
|
|
(42)
|
|
|
(79)
|
|
|
Balance - September 28, 2018
|
$
|
458
|
|
|
$
|
14
|
|
|
$
|
270
|
|
|
$
|
742
|
|
(1)Commencing on January 1, 2019, the Company recognizes lease termination costs in accordance with Accounting Standards Codification (“ASC”) 842, “Leases” (“ASC 842”) which addresses termination costs related to both financing 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, 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 condensed consolidated balance sheets. At December 31, 2018, the accrual for other costs primarily relates to the consolidation of two U.S. plants within the engineered components segment.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
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 $1.2 million. During the three and nine months ended September 27, 2019, other costs included costs to consolidate a Schaffner facility in the industrial segment and costs to vacate a distribution facility in the engineered components segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Restructuring Actions
|
|
Industrial
|
|
Engineered Components
|
|
|
|
Corporate
|
|
Total
|
|
Restructuring charges - three months ended September 27, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
439
|
|
|
$
|
25
|
|
|
|
|
$
|
—
|
|
|
$
|
464
|
|
|
Other costs
|
|
360
|
|
|
453
|
|
|
|
|
—
|
|
|
813
|
|
|
Total
|
|
$
|
799
|
|
|
$
|
478
|
|
|
|
|
$
|
—
|
|
|
$
|
1,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges - nine months ended September 27, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
1,374
|
|
|
$
|
25
|
|
|
|
|
$
|
—
|
|
|
$
|
1,399
|
|
|
Other costs
|
|
363
|
|
|
477
|
|
|
|
|
—
|
|
|
840
|
|
|
Total
|
|
$
|
1,737
|
|
|
$
|
502
|
|
|
|
|
$
|
—
|
|
|
$
|
2,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table represents the restructuring liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
costs
|
|
Other costs
|
|
Total
|
|
Balance - December 31, 2018
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Current period restructuring charges
|
1,399
|
|
|
840
|
|
|
2,239
|
|
|
Cash payments
|
(633)
|
|
|
(839)
|
|
|
(1,472)
|
|
|
Foreign currency translation adjustments
|
(20)
|
|
|
—
|
|
|
(20)
|
|
|
Balance - September 27, 2019
|
$
|
746
|
|
|
$
|
1
|
|
|
$
|
747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 27, 2019, the restructuring liabilities for severance costs were classified as accrued compensation and employee benefits on the condensed consolidated balance sheet.
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 27, 2019
|
|
December 31, 2018
|
|
Raw material
|
$
|
28,254
|
|
|
$
|
27,187
|
|
|
Work-in-process
|
2,477
|
|
|
2,542
|
|
|
Finished goods
|
24,704
|
|
|
25,898
|
|
|
Total inventories
|
$
|
55,435
|
|
|
$
|
55,627
|
|
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
Adoption of ASU 2016-02, “Leases (Topic 842)”
On January 1, 2019, the Company adopted ASU 2016-02, “Leases (Topic 842)” and all related amendments using the modified retrospective method with no adjustments to comparative prior periods. The Company also elected certain practical expedients that allowed the Company to (1) recognize a cumulative-effect adjustment to the opening balance of retained earnings; (2) forgo reassessment of its prior conclusions on (a) whether an expired or existing contract contains a lease, (b) the lease classification of expired or existing leases, and (c) whether any costs incurred for expired or existing leases qualified as initial direct costs; and (3) use an accounting policy election by class of underlying asset to choose whether or not to separate non-lease components from lease components. Subsequent to the date of adoption, 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.
Under the modified retrospective approach for the adoption of ASC 842, the adoption resulted in the recording of a right-of-use (“ROU”) asset of $28.4 million and a lease liability of $30.9 million within the condensed consolidated balance sheet on January 1, 2019. The difference between the ROU asset and lease liability on the date of adoption relates to the reclassification of $2.3 million of certain previously recorded deferred rent balances to the ROU asset.
In addition, in accordance with the implementation guidance of ASU 2016-02, on January 1, 2019 the Company recorded the cumulative impact of adopting the new standard on the condensed consolidated financial statements in which the Company recorded a deferred gain within other long-term liabilities of $1.0 million, $0.8 million net of tax, to retained deficit related to a previous sale leaseback of its Libertyville, Illinois facility.
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 1 year to 13 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 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.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
The Company’s components of lease expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 27, 2019
|
|
|
|
September 27, 2019
|
|
|
|
Finance lease expense:
|
|
|
|
|
|
|
|
|
Depreciation of right-of-use assets
|
$
|
36
|
|
|
|
|
$
|
82
|
|
|
|
|
Interest on lease liabilities
|
11
|
|
|
|
|
32
|
|
|
|
|
Operating lease expense
|
1,876
|
|
|
|
|
5,745
|
|
|
|
|
Other lease expense
|
20
|
|
|
|
|
(23)
|
|
|
|
|
Total
|
$
|
1,943
|
|
|
|
|
$
|
5,836
|
|
|
|
Based on the nature of the ROU asset, depreciation of finance right-of-use assets, operating lease expense and other lease expense are recorded within either cost of goods sold or selling and administrative expenses while interest on finance lease liabilities is recorded within interest expense on the condensed consolidated statements of operations. Other lease expense includes lease expense for leases with an estimated total term of 12 months or less and variable lease expense related to variations in lease payments as a result of a change in factors or circumstances occurring after the lease possession date.
The Company’s balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
September 27, 2019
|
|
|
|
Finance Leases
|
|
|
|
|
Property, plant and equipment - net
|
$
|
443
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
442
|
|
|
|
|
Long-term debt
|
277
|
|
|
|
|
Total finance lease liabilities
|
$
|
719
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
|
|
Right-of-use operating lease assets
|
$
|
28,585
|
|
|
|
|
|
|
|
|
|
Current portion of operating lease liabilities
|
$
|
5,469
|
|
|
|
|
Long-term operating lease liabilities
|
25,567
|
|
|
|
|
Total operating lease liabilities
|
$
|
31,036
|
|
|
|
Other information related to the Company’s leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
September 27, 2019
|
|
|
|
Weighted-average remaining lease term (in years)
|
|
|
|
|
Finance leases
|
3.79
|
|
|
|
Operating leases
|
9.88
|
|
|
|
Weighted-average discount rate
|
|
|
|
|
Finance leases
|
6.9
|
%
|
|
|
|
Operating leases
|
7.1
|
%
|
|
|
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
Cash paid for amounts included in the measurement of lease liabilities for the nine months ended September 27, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
Discontinued Operations
|
|
Total
|
|
Operating cash flows from finance leases
|
$
|
26
|
|
|
|
$
|
3
|
|
|
$
|
29
|
|
|
Operating cash flows from operating leases
|
$
|
5,977
|
|
|
|
$
|
2,310
|
|
|
$
|
8,287
|
|
|
Financing cash flows from finance leases
|
$
|
238
|
|
|
|
$
|
8
|
|
|
$
|
246
|
|
Future minimum lease payments required under finance and operating leases for each of the 12-month rolling periods below in effect at September 27, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Leases
|
|
Operating Leases
|
|
October 2019 to September 2020
|
$
|
475
|
|
|
$
|
7,397
|
|
|
October 2020 to September 2021
|
101
|
|
|
5,823
|
|
|
October 2021 to September 2022
|
85
|
|
|
4,406
|
|
|
October 2022 to September 2023
|
71
|
|
|
3,637
|
|
|
October 2023 to September 2024
|
47
|
|
|
3,270
|
|
|
Thereafter
|
—
|
|
|
16,803
|
|
|
Total future undiscounted lease payments
|
779
|
|
|
41,336
|
|
|
Less: imputed interest
|
(60)
|
|
|
(10,300)
|
|
|
Total lease obligations
|
$
|
719
|
|
|
$
|
31,036
|
|
As of September 27, 2019, the operating leases that the Company signed but have not yet commenced are immaterial.
Future minimum lease payments required under long-term operating leases in effect at December 31, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
$
|
7,403
|
|
|
2020
|
|
5,868
|
|
|
2021
|
|
4,519
|
|
|
2022
|
|
3,515
|
|
|
2023
|
|
3,015
|
|
|
Thereafter
|
|
16,324
|
|
|
|
|
$
|
40,644
|
|
Total rental expense under operating leases was $7.6 million and $7.9 million for the years ended December 31, 2018 and December 31, 2017, respectively.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
|
|
|
|
|
|
|
|
9.
|
Goodwill and Other Intangible Assets
|
Changes in the carrying amount of goodwill, all of which is within the Company’s industrial segment, was as follows:
|
|
|
|
|
|
|
|
Balance as of December 31, 2018
|
$
|
44,065
|
|
|
Foreign currency impact
|
(1,032)
|
|
|
Acquisitions (1)
|
2,078
|
|
|
Balance as of September 27, 2019
|
$
|
45,111
|
|
(1)Refer to Note 4, “Acquisition” for further discussion on the acquisition completed in the second quarter of 2019.
The Company’s other intangible assets - net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 27, 2019
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Patents
|
$
|
2,061
|
|
|
$
|
(1,278)
|
|
|
$
|
783
|
|
|
$
|
2,038
|
|
|
$
|
(1,018)
|
|
|
$
|
1,020
|
|
|
Customer relationships
|
76,920
|
|
|
(30,978)
|
|
|
45,942
|
|
|
90,825
|
|
|
(26,220)
|
|
|
64,605
|
|
|
Trademarks and other intangibles
|
37,298
|
|
|
(14,019)
|
|
|
23,279
|
|
|
42,544
|
|
|
(11,723)
|
|
|
30,821
|
|
|
Total other intangible assets - net
|
$
|
116,279
|
|
|
$
|
(46,275)
|
|
|
$
|
70,004
|
|
|
$
|
135,407
|
|
|
$
|
(38,961)
|
|
|
$
|
96,446
|
|
Long-lived assets, including amortizable intangible assets, are evaluated for potential impairment whenever events or circumstances indicate that carrying value may not be recoverable. During the third quarter of 2019, a triggering event was identified due to sustained sales and profitability declines within a 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. The fair value determination is categorized as Level 3 in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs. 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, in the engineered components segment during the third quarter of 2019. These intangible asset impairment charges are recorded as impairment charges in the condensed consolidated statements of operations and as a reduction of the gross carrying amount of the other intangible assets - net in the condensed consolidated balance sheets.
Amortization of intangible assets was $2.6 million and $2.5 million for the three months ended September 27, 2019 and September 28, 2018, respectively. Amortization of intangible assets was $7.6 million and $9.9 million for the nine months ended September 27, 2019 and September 28, 2018, respectively. Included within amortization expense for the nine months ended September 28, 2018, was $2.3 million of accelerated amortization expense in the engineered components segment related to the exit from non-core product lines for smart utility meter subassemblies in 2018. Included within the table below is the impact of amortization resulting from the Schaffner acquisition on April 1, 2019. Excluding the impact of any future acquisitions, the Company anticipates the annual amortization for the current full fiscal year and each of the four subsequent fiscal years and thereafter to be the following:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
$
|
9,830
|
|
|
2020
|
|
8,185
|
|
|
2021
|
|
7,943
|
|
|
2022
|
|
7,770
|
|
|
2023
|
|
7,761
|
|
|
Thereafter
|
|
37,031
|
|
|
|
|
$
|
78,520
|
|
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
|
|
|
|
|
|
|
|
10.
|
Debt and Hedging Instruments
|
The Company’s debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 27, 2019
|
|
December 31, 2018
|
|
First Lien Term Loans
|
$
|
290,215
|
|
|
$
|
292,540
|
|
|
Second Lien Term Loans
|
89,887
|
|
|
89,887
|
|
|
Debt discount on Term Loans
|
(1,982)
|
|
|
(2,669)
|
|
|
Deferred financing costs on Term Loans
|
(2,928)
|
|
|
(4,052)
|
|
|
Foreign debt
|
14,015
|
|
|
15,469
|
|
|
|
|
|
|
|
Finance lease obligations and other debt (1)
|
732
|
|
|
613
|
|
|
Total debt
|
389,939
|
|
|
391,788
|
|
|
Less: Current portion (1)
|
(5,769)
|
|
|
(5,687)
|
|
|
Total Long-Term Debt
|
$
|
384,170
|
|
|
$
|
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 8, “Leases” for further information.
Senior Secured Credit Facilities
As of September 27, 2019, the Company’s U.S. credit facility (the “Senior Secured Credit Facilities”) included (i) term loans in an aggregate principal amount of $310.0 million (“First Lien Term Loans”) maturing June 30, 2021, of which $290.2 million is outstanding, (ii) term loans in an aggregate principal amount of $110.0 million (“Second Lien Term Loans”) maturing June 30, 2022, of which $89.9 million is outstanding, and (iii) a revolving loan of up to $25.5 million (“Revolving Credit Facility”) maturing December 31, 2020. During the second quarter of 2019, the Company amended its Revolving Credit Facility to extend the maturity date to December 31, 2020. The amendment reduced the borrowing capacity from $30.0 million to $25.5 million. In connection with the amendment, the Company paid deferred financing costs of $0.3 million which have been recorded within other assets - net within the condensed consolidated balance sheets.
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 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 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. At September 27, 2019, the interest rates on the outstanding balances of the First Lien Term Loans and Second Lien Term Loans were 6.8% and 10.3%, respectively.
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 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 to 4.25 to 1.00 on December 31, 2019 and a decrease to 4.00 to 1.00 on June 26, 2020 and thereafter. If such outstanding amounts do not exceed $10.0 million at the end of any fiscal quarter, no financial covenants are applicable. The consolidated first lien net leverage ratio at September 27, 2019 was 6.62 to 1.00; therefore, borrowings under the Revolving Credit Facility is limited to a total of $10.0 million, which includes letters of credit in excess of $5.0 million. At September 27, 2019, the Company had letters of credit outstanding of $4.7 million and had no outstanding borrowings under the Revolving Credit Facility.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
Under the Senior Secured Credit Facilities, the Company is subject to mandatory excess cash flow prepayments if certain requirements are met. At September 27, 2019 and December 31, 2018, there was no required mandatory excess cash flow prepayment required under the Senior Secured Credit Facilities. Additionally, the Company is required to make mandatory prepayments resulting from non-ordinary course sales or other dispositions of assets, subject to certain exceptions and subject to customary reinvestment provisions. In connection with the August 30, 2019 sale of the North American fiber solutions business, the Company received net cash proceeds, as defined by the Senior Secured Credit Facilities, of $63.1 million. The Company intends 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.
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. As of September 27, 2019, this limit was $17.0 million.
Foreign debt
The Company has the following foreign debt obligations, including various overdraft facilities and term loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 27, 2019
|
|
December 31, 2018
|
|
Germany
|
$
|
13,481
|
|
|
$
|
15,002
|
|
|
|
|
|
|
|
India
|
534
|
|
|
467
|
|
|
|
|
|
|
|
Total foreign debt
|
$
|
14,015
|
|
|
$
|
15,469
|
|
These various foreign loans are comprised of individual outstanding obligations ranging from approximately $0.2 million to $8.2 million and $0.1 million to $9.3 million as of September 27, 2019 and December 31, 2018, respectively. Certain of the Company’s foreign borrowings contain financial covenants requiring maintenance of a minimum equity ratio and/or maximum leverage ratio, among others. The Company was in compliance with these covenants as of September 27, 2019.
The foreign debt obligations in Germany relate to term loans of $13.2 million at September 27, 2019 and $15.0 million at December 31, 2018. The German borrowings bear interest at fixed and variable rates ranging from 2.1% to 4.7% and are subject to repayment in varying amounts through 2025.
Interest Rate Hedge Contracts
The Company is exposed to certain financial risks relating to fluctuations in interest rates. To manage exposure to such fluctuations, the Company entered into forward starting interest rate swap agreements (“Swaps”) in 2015 with notional values totaling $210.0 million at both September 27, 2019 and December 31, 2018. The Swaps have been designated by the Company 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 have an expiration date of June 30, 2020. For the three months ended September 27, 2019 and September 28, 2018, the Company recognized $0.1 million and $0.1 million of interest income, respectively, related to the Swaps. For the nine months ended September 27, 2019 and September 28, 2018, the Company recognized $0.9 million and $0.1 million of interest income, respectively, related to the Swaps. Based on current interest rates, the Company expects to recognize interest expense of $0.1 million related to the Swaps in the next 12 months.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
The fair values of the Company’s Swaps are recorded on the condensed consolidated balance sheets with the corresponding offset recorded as a component of accumulated other comprehensive loss. The fair value of the Swaps was a net liability of $0.1 million at September 27, 2019 and a net asset of $1.9 million at December 31, 2018, respectively. See the amounts recorded on the condensed consolidated balance sheets within the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 27, 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
|
(143)
|
|
|
—
|
|
|
|
|
|
|
|
Total net (liability) asset derivatives designated as hedging instruments
|
$
|
(143)
|
|
|
$
|
1,867
|
|
|
|
|
|
|
|
|
|
11.
|
Share-Based Compensation
|
In 2014, the Company’s Board of Directors approved 3,473,435 shares of common stock to be reserved and authorized for issuance under the 2014 Omnibus Incentive Plan (the “2014 Plan”) to certain executive officers, senior management employees, and members of the Board of Directors. On February 27, 2018, the Company’s Board of Directors unanimously approved an amendment to the 2014 Plan to increase the number of authorized shares of common stock by 4,000,000 shares. At September 27, 2019, there were 1,252,915 shares of common stock that remained authorized and available for future grants.
The Company recognizes compensation expense based on estimated grant date fair values for all share-based awards issued to employees and directors, including restricted stock units (“RSUs”) and performance share units, which are restricted stock units with vesting conditions contingent upon achieving certain performance goals. Share-based compensation expense is reported in selling and administrative expenses in the Company’s condensed consolidated statements of operations.
The Company recognized the following share-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
|
Restricted stock units
|
$
|
525
|
|
|
$
|
742
|
|
|
$
|
1,717
|
|
|
$
|
1,252
|
|
|
Adjusted EBITDA vesting awards
|
(168)
|
|
|
104
|
|
|
108
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation from continuing operations
|
357
|
|
|
846
|
|
|
1,825
|
|
|
1,560
|
|
|
Share-based compensation from discontinued operations
|
581
|
|
|
98
|
|
|
784
|
|
|
167
|
|
|
Total share-based compensation expense
|
$
|
938
|
|
|
$
|
944
|
|
|
$
|
2,609
|
|
|
$
|
1,727
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax benefit recognized from continuing and discontinued operations
|
$
|
210
|
|
|
$
|
234
|
|
|
$
|
513
|
|
|
$
|
428
|
|
Share-based compensation expense from discontinued operations during the three and nine months ended September 27, 2019 includes $0.5 million of accelerated expense for 303,030 restricted and performance share units that vested upon the sale of the North American fiber solutions business.
As of September 27, 2019, total unrecognized compensation cost related to share-based compensation awards was approximately $3.4 million, which the Company expects to recognize over a weighted average period of approximately 1.6 years.
In connection with the vesting of RSUs previously granted by the Company, a number of shares sufficient to fund statutory minimum tax withholding requirements was withheld from the total shares issued or released to the award holder (under the terms of the 2014 Plan, the shares are considered to have been issued and are not added back to the pool of shares available for grant). During the nine months ended September 27, 2019 and September 28, 2018, there were 392,115 and 2,837 shares, respectively, withheld to satisfy the requirement. The withholding is treated as a reduction in additional paid-in capital in the accompanying condensed consolidated statements of shareholders’ (deficit) equity.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
The following table sets forth the restricted and performance share unit activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Share Units
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
|
|
|
|
Adjusted EBITDA Vesting Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
(thousands)
|
|
Weighted-Average Grant-Date Fair Value
|
|
Units
(thousands)
|
|
Weighted-Average Grant-Date Fair Value
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
3,150
|
|
|
$
|
2.89
|
|
|
908
|
|
|
$
|
1.30
|
|
|
|
|
|
|
|
|
|
|
Granted
|
985
|
|
|
$
|
1.36
|
|
|
705
|
|
|
$
|
1.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
(1,487)
|
|
|
$
|
2.60
|
|
|
(50)
|
|
|
$
|
1.64
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
126
|
|
|
$
|
1.60
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
(255)
|
|
|
$
|
2.77
|
|
|
(77)
|
|
|
$
|
1.52
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 27, 2019
|
2,519
|
|
|
$
|
2.42
|
|
|
1,486
|
|
|
$
|
1.44
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
As of September 27, 2019, there was $3.2 million of unrecognized share-based compensation expense related to 2,103,937 RSU awards, with a weighted-average grant date fair value of $2.05, that are expected to vest over a weighted-average period of 1.7 years. Included within the 2,518,736 RSU awards outstanding as of September 27, 2019 are 414,799 RSU awards for members of our Board of Directors which have vested and issuance of the shares has been deferred, with a weighted-average grant date fair value of $4.25.
Performance Share Units
Performance share unit awards based on Adjusted EBITDA performance metrics are payable at the end of their respective performance period in common stock. The Company expenses the cost of the performance-based share unit awards based on the fair value of the awards at the date of grant and the estimated achievement of the performance metric, ratably over the performance period of approximately three years.
Adjusted EBITDA Vesting Awards - 2019 Grant
In the first quarter of 2019, the Company granted performance share unit awards based on achievement of an Adjusted EBITDA performance target during a three year measurement period ending December 31, 2021. The number of share units awarded can range from zero to 100% depending on achievement of a targeted performance metric, and are payable in common stock within a thirty day period following the end of the performance period.
In the third quarter of 2019, the Company lowered its estimated vesting of the performance share unit awards from 100% of target, or 613,000 shares, to an estimated vesting payout of 0%, or 0 shares, resulting in $0.1 million of share-based compensation income due to declines in projected profitability. As of September 27, 2019, there was no unrecognized compensation expense related to the Adjusted EBITDA based vesting performance share unit awards expected to be recognized in subsequent periods.
Adjusted EBITDA Vesting Awards - 2017 Grant
In the third quarter of 2017, the Company granted performance share unit awards based on achievement of an Adjusted EBITDA performance target during a three year measurement period ending March 30, 2020. The number of share units awarded can range from zero to 100% depending on achievement of a targeted performance metric, and are payable in common stock within a thirty day period following the end of the performance period.
In the third quarter of 2019, the Company lowered its estimated vesting of the performance share unit awards from 100% of target, or 872,180 shares, to an estimated payout of 80%, or 697,744 shares, resulting in $0.1 million of share-based compensation income due to declines in profitability. As of September 27, 2019, there was $0.2 million of unrecognized share-based compensation expense related to cumulative Adjusted EBITDA based vesting performance share unit awards, which is expected to be recognized over a weighted average period of 0.5 years.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
Basic income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. In computing dilutive income (loss) per share, basic income (loss) per share is adjusted for the assumed issuance of all potentially dilutive share-based awards, including public warrants, RSUs, performance share units and convertible preferred stock.
The reconciliation of the numerator and denominator of the basic and diluted loss per share calculation and the anti-dilutive shares are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
(share amounts in thousands)
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
|
Basic and diluted net (loss) income per share
|
|
|
|
|
|
|
|
|
Net loss per share from continuing operations
|
$
|
(1.08)
|
|
|
$
|
(0.18)
|
|
|
$
|
(1.82)
|
|
|
$
|
(0.46)
|
|
|
Net (loss) income per share from discontinued operations
|
(0.11)
|
|
|
|
(0.01)
|
|
|
|
(0.15)
|
|
|
|
0.15
|
|
|
Basic and diluted net loss per share
|
$
|
(1.19)
|
|
|
|
$
|
(0.19)
|
|
|
|
$
|
(1.97)
|
|
|
|
$
|
(0.32)
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
$
|
(30,046)
|
|
|
$
|
(4,284)
|
|
|
$
|
(49,209)
|
|
|
$
|
(9,538)
|
|
|
Less: Accretion of dividends on preferred stock and redemption premium
|
845
|
|
|
|
781
|
|
|
|
2,485
|
|
|
|
3,274
|
|
|
Total net loss from continuing operations less accretion of dividends on preferred stock and redemption premium
|
(30,891)
|
|
|
|
(5,065)
|
|
|
|
(51,694)
|
|
|
|
(12,812)
|
|
|
Net (loss) income from discontinued operations, net of tax
|
(3,121)
|
|
|
|
(174)
|
|
|
|
(4,130)
|
|
|
|
4,087
|
|
|
Net loss allocable to common shareholders of Jason Industries
|
$
|
(34,012)
|
|
|
|
$
|
(5,239)
|
|
|
|
$
|
(55,824)
|
|
|
|
$
|
(8,725)
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic and diluted weighted-average shares outstanding
|
28,632
|
|
|
27,683
|
|
|
28,348
|
|
|
27,565
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of anti-dilutive shares excluded from denominator:
|
|
|
|
|
|
|
|
|
Warrants to purchase Jason Industries common stock (1)
|
154
|
|
|
13,994
|
|
|
9,329
|
|
|
13,994
|
|
|
Conversion of Series A 8% Perpetual Convertible Preferred (2)
|
3,473
|
|
|
3,212
|
|
|
3,407
|
|
|
3,222
|
|
|
Restricted stock units
|
2,839
|
|
|
3,119
|
|
|
2,780
|
|
|
2,052
|
|
|
Performance share units
|
1,573
|
|
|
1,305
|
|
|
1,374
|
|
|
1,309
|
|
|
Total
|
8,039
|
|
|
21,630
|
|
|
16,890
|
|
|
20,577
|
|
(1)Public warrants (“warrants”) consist of warrants to purchase shares of Jason Industries common stock which were previously quoted on Nasdaq under the symbol “JASNW” until their expiration on June 30, 2019. Each outstanding warrant entitled the holder to purchase one share of the Company’s common stock at a price of $12.00 per share.
(2)Includes the impact of 843 additional Series A Preferred Stock shares from a stock dividend declared on August 1, 2019 to be paid in additional shares of Series A Preferred Stock on October 1, 2019. The Company included the preferred stock within the condensed consolidated balance sheets as of the declaration date. Conversion is presented at the voluntary conversion ratio of approximately 81.18 common shares for each preferred share.
Warrants are considered anti-dilutive and excluded when the exercise price exceeds the average market value of the Company’s common stock price during the applicable period. Performance share units are considered anti-dilutive if the performance targets upon which the issuance of the shares are contingent have not been achieved and the respective performance period has not been completed as of the end of the current period. Due to losses allocable to the Company’s common shareholders for each of the periods presented, potentially dilutive shares are excluded from the diluted net loss per share calculation because they were anti-dilutive under the treasury stock method, in accordance with ASC 260.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
At the end of each three month period, the Company estimates a base effective tax rate expected for the full year based on the most recent forecast of its pre-tax income (loss), permanent book and tax differences, and global tax planning strategies. The Company uses this base rate to provide for income taxes on a year-to-date basis, excluding the effect of significant, unusual, discrete or extraordinary items, and items that are reported net of their related tax effects. The Company records the tax effect of significant, unusual, discrete or extraordinary items, and items that are reported net of their tax effects in the period in which they occur.
The effective tax rate was 13.5% and 25.1% for the three months ended September 27, 2019 and September 28, 2018, respectively. The effective tax rate was 9.9% and 22.5% for the nine months ended September 27, 2019 and September 28, 2018, respectively. The effective income tax rate for both 2019 and 2018 reflects the amount of taxable income or loss at the U.S. Federal statutory rate, taxable earnings or losses derived in foreign jurisdictions with tax rates that differ from the U.S. Federal statutory rate, the impact of the global intangible low taxed income (“GILTI”) and interest deduction limitation provisions contained in the Tax Cuts and Jobs Act (the “Tax Reform Act”), and discrete items including the impairment charge recorded in the engineered components segment for the three months ended September 27, 2019. The net discrete tax benefit was $3.3 million and $3.2 million for the three and nine months ended September 27, 2019, respectively. The net discrete tax benefit was $0.3 million and $0.9 million for the three and nine months ended September 28, 2018.
The amount of gross unrecognized tax benefits was $2.3 million and $2.1 million as of September 27, 2019 and December 31, 2018, respectively, all of which would reduce the Company’s effective tax rate if recognized.
In connection with the August 30, 2019 sale of the North American fiber solutions business, the Company recognized a $24.9 million taxable gain. The Company expects to use certain interest expense limitation carryovers and federal and state net operating loss carryovers to offset this gain. The Company does not expect to pay any significant U.S. taxes on the gain. As a result of the sale, the Company expects an insignificant amount of federal and state net operating loss carryforwards to be available to reduce future taxable earnings, and as a result, taxes payable in the future may be greater than they would have been in the absence of such sale.
During the next twelve months, the Company believes it is reasonably possible that the total amount of unrecognized tax benefits will not change. The Company recognizes interest and penalties related to tax matters in its tax provision. The Company has an immaterial amount of accrued interest and penalties that were recorded as a component of the income tax provision as of September 27, 2019 and December 31, 2018.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
|
|
|
|
|
|
|
|
14.
|
Shareholders’ (Deficit) Equity
|
The changes in the components of accumulated other comprehensive loss, net of taxes, for the three and nine months ended September 27, 2019 and September 28, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 27, 2019:
|
Employee retirement plan adjustments
|
|
Foreign currency translation adjustments (1)
|
|
Net unrealized (losses) gains on cash flow hedges
|
|
Total
|
|
Balance at June 28, 2019
|
$
|
(1,801)
|
|
|
$
|
(23,765)
|
|
|
$
|
(139)
|
|
|
$
|
(25,705)
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications
|
—
|
|
|
(3,444)
|
|
|
135
|
|
|
(3,309)
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
15
|
|
|
(1,112)
|
|
|
(104)
|
|
|
(1,201)
|
|
|
Balance at September 27, 2019
|
$
|
(1,786)
|
|
|
$
|
(28,321)
|
|
|
$
|
(108)
|
|
|
$
|
(30,215)
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 28, 2018:
|
Employee retirement plan adjustments
|
|
Foreign currency translation adjustments
|
|
Net unrealized gains on cash flow hedges
|
|
Total
|
|
Balance at June 29, 2018
|
$
|
(1,645)
|
|
|
$
|
(21,190)
|
|
|
$
|
2,072
|
|
|
$
|
(20,763)
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications
|
—
|
|
|
(879)
|
|
|
288
|
|
|
(591)
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
4
|
|
|
—
|
|
|
(103)
|
|
|
(99)
|
|
|
Balance at September 28, 2018
|
$
|
(1,641)
|
|
|
$
|
(22,069)
|
|
|
$
|
2,257
|
|
|
$
|
(21,453)
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 27, 2019:
|
Employee retirement plan adjustments
|
|
Foreign currency translation adjustments (1)
|
|
Net unrealized (losses) gains on cash flow hedges
|
|
Total
|
|
Balance at December 31, 2018
|
$
|
(1,831)
|
|
|
$
|
(23,151)
|
|
|
$
|
1,411
|
|
|
$
|
(23,571)
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications
|
—
|
|
|
(4,058)
|
|
|
(872)
|
|
|
(4,930)
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
45
|
|
|
(1,112)
|
|
|
(647)
|
|
|
(1,714)
|
|
|
Balance at September 27, 2019
|
$
|
(1,786)
|
|
|
$
|
(28,321)
|
|
|
$
|
(108)
|
|
|
$
|
(30,215)
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 28, 2018:
|
Employee retirement plan adjustments
|
|
Foreign currency translation adjustments
|
|
Net unrealized gains on cash flow hedges
|
|
Total
|
|
Balance at December 31, 2017
|
$
|
(1,517)
|
|
|
$
|
(18,596)
|
|
|
$
|
51
|
|
|
$
|
(20,062)
|
|
|
Cumulative impact of accounting changes
|
(137)
|
|
|
—
|
|
|
11
|
|
|
(126)
|
|
|
Other comprehensive income before reclassifications
|
—
|
|
|
(3,473)
|
|
|
2,237
|
|
|
(1,236)
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
13
|
|
|
—
|
|
|
(42)
|
|
|
(29)
|
|
|
Balance at September 28, 2018
|
$
|
(1,641)
|
|
|
$
|
(22,069)
|
|
|
$
|
2,257
|
|
|
$
|
(21,453)
|
|
(1)Amounts reclassified from accumulated other comprehensive loss and included in other income - net in the condensed consolidated statements of operations for the three and nine months ended September 27, 2019 includes the reclassification to earnings of foreign currency translation gain of $0.8 million for the wind down and substantial dissolution of certain U.K. entities. Amounts reclassified from accumulated other comprehensive loss and included in net loss (income) from discontinued operations, net of tax for the three and nine months ended September 27, 2019 includes the reclassification to earnings of a foreign currency translation gain of $0.3 million from the sale of the North American fiber solutions business.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
Series A Preferred Stock Dividends
The Company paid the following dividends on the Series A Preferred Stock in additional shares of Series A Preferred Stock during the nine months ended September 27, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Date
|
|
Record Date
|
|
Amount Per Share
|
|
Total Dividends Paid
|
|
Preferred Shares Issued
|
|
|
|
|
January 1, 2019
|
|
November 15, 2018
|
|
$20.00
|
|
|
$796
|
|
|
794
|
|
|
|
|
April 1, 2019
|
|
February 15, 2019
|
|
$20.00
|
|
|
$812
|
|
|
809
|
|
|
|
|
July 1, 2019
|
|
May 15, 2019
|
|
$20.00
|
|
|
$828
|
|
|
826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On August 1, 2019, the Company declared a $20.00 per share dividend on its Series A Preferred Stock to be paid in additional shares of Series A Preferred Stock on October 1, 2019 to holders of record on August 15, 2019. As of September 27, 2019, the Company has recorded the 843 additional Series A Preferred Stock shares declared for the dividend of $0.8 million within preferred stock in the condensed consolidated balance sheets.
Shareholder Rights Agreement
On September 1, 2019, the Board of Directors adopted a Shareholder Rights Agreement (the "Rights Agreement") between the Company and Continental Stock Transfer & Trust Company, as rights agent. Pursuant to the Rights Agreement, the Company declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of the Company's common stock, payable to the shareholders of record on September 6, 2019. The Rights will also accompany any new shares of common stock issued after September 6, 2019. The Rights trade with and are inseparable from the Company's common stock and will not be evidenced by separate certificates unless they become exercisable. The Rights will expire on March 1, 2021.
In general terms the Rights Agreement works by imposing a significant penalty upon any person or group which acquires 30% or more of the Company's outstanding common stock without approval of the Company's Board of Directors.
Each right will allow its holder to purchase one one-thousandth of a share of Series A Junior Participating Preferred Stock for $5.00, subject to adjustment as set forth in the Rights Agreement, once the Rights become exercisable. Per the Rights Agreement, the Rights will not be exercisable until the earlier of (1) 10 days after the public announcement that a person or group has become an Acquiring Person (as defined in the Rights Agreement) by obtaining beneficial ownership of 30% or more of the Company's outstanding common stock or (2) 10 business days (or such later date as the Company's Board of Directors shall determine) following the commencement of a tender offer or exchange offer that would result in a person or group becoming an Acquiring Person.
Exchange of preferred stock for common stock of Jason Industries, Inc.
On January 22, 2018, certain holders of the Company’s Series A Preferred Stock exchanged 12,136 shares of Series A Preferred Stock for 1,395,640 shares of the Company’s common stock, a conversion rate of 115 shares of common stock for each share of Series A Preferred Stock. Under the terms of the Series A Preferred Stock agreements, holders of the Series A Preferred Stock have the option to convert each share of Series A Preferred Stock into approximately 81.18 shares of the Company’s common stock, subject to certain adjustments in the conversion rate. The excess of the book value of the Series A Preferred Stock over the par value of the Company’s common stock issued in the exchange was recorded as an increase to additional paid-in capital on the condensed consolidated balance sheets. The fair value of the redemption premium, represented by the excess of the exchange conversion rate over the agreement conversion rate, was recorded as a reduction to net loss available to common shareholders of Jason Industries within the condensed consolidated statements of operations.
|
|
|
|
|
|
|
|
15.
|
Business Segments, Geographic and Customer Information
|
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, the Company reduced the number of operating and reportable segments from four to three. Reportable segments include the former finishing segment renamed as the industrial segment, the former seating and components segments combined into one engineered components segment, and the former acoustics segment renamed as the fiber solutions segment. On August 30, 2019, the Company completed the sale of its North American fiber solutions business, which comprised all of the fiber solutions segment for the periods presented, is classified as a discontinued operation and excluded from the disclosures below. The prior year disclosures have been updated to conform with current year presentation. Previously, on August 30, 2017, the
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
Company completed the sale of the European fiber solutions, which did not meet the criteria for discontinued operations presentation at the time of the divestiture.
Net sales information relating to the Company’s reportable segments was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
|
Industrial
|
$
|
48,859
|
|
|
$
|
51,016
|
|
|
$
|
153,589
|
|
|
$
|
160,448
|
|
|
Engineered Components
|
36,751
|
|
|
56,013
|
|
|
143,065
|
|
|
194,992
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
$
|
85,610
|
|
|
$
|
107,029
|
|
|
$
|
296,654
|
|
|
$
|
355,440
|
|
The Company uses “Adjusted EBITDA” 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, tax provision (benefit), 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 restructuring charges, transaction-related expenses, 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 clear picture of the Company’s operating results by eliminating expenses and income that are not reflective of the underlying business performance. Certain corporate-level administrative expenses such as payroll and benefits, incentive compensation, travel, marketing, accounting, auditing and legal fees and certain other expenses are kept within the corporate results and are not allocated to the business segments. Shared expenses across the Company that directly relate to the performance of our reportable segments are allocated to the segments. Adjusted EBITDA is used 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. In addition, this measure is used to evaluate its operating performance and segment operating performance and to determine the level of incentive compensation paid to its employees.
As the Company uses Adjusted EBITDA as its primary measure of segment performance, GAAP on segment reporting requires the Company to include this measure in its discussion of segment operating results. The Company must also reconcile Adjusted EBITDA to operating results presented on a GAAP basis.
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
Adjusted EBITDA information relating to the Company’s reportable segments is presented below followed by a reconciliation of total segment Adjusted EBITDA to consolidated loss before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
|
Segment Adjusted EBITDA
|
|
|
|
|
|
|
|
|
Industrial
|
$
|
5,004
|
|
|
$
|
7,579
|
|
|
$
|
17,772
|
|
|
$
|
23,815
|
|
|
Engineered Components
|
1,424
|
|
|
6,150
|
|
|
10,712
|
|
|
25,587
|
|
|
|
|
|
|
|
|
|
|
|
Total segment Adjusted EBITDA
|
$
|
6,428
|
|
|
$
|
13,729
|
|
|
$
|
28,484
|
|
|
$
|
49,402
|
|
|
Interest expense
|
(157)
|
|
|
(212)
|
|
|
(476)
|
|
|
(656)
|
|
|
Depreciation and amortization
|
(6,823)
|
|
|
(7,007)
|
|
|
(22,103)
|
|
|
(23,378)
|
|
|
Impairment charges
|
(20,597)
|
|
|
—
|
|
|
(20,597)
|
|
|
—
|
|
|
Gain (Loss) on disposal of property, plant and equipment - net
|
(14)
|
|
|
88
|
|
|
(18)
|
|
|
(94)
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
(1,277)
|
|
|
(298)
|
|
|
(3,631)
|
|
|
(1,245)
|
|
|
|
|
|
|
|
|
|
|
|
Integration and other restructuring costs
|
(323)
|
|
|
—
|
|
|
(621)
|
|
|
(1,068)
|
|
|
Total segment income before income taxes
|
(22,763)
|
|
|
6,300
|
|
|
(18,962)
|
|
|
22,961
|
|
|
Corporate general and administrative expenses
|
(3,347)
|
|
|
(2,949)
|
|
|
(8,175)
|
|
|
(9,339)
|
|
|
Corporate interest expense
|
(8,023)
|
|
|
(8,114)
|
|
|
(24,262)
|
|
|
(24,053)
|
|
|
|
|
|
|
|
|
|
|
|
Corporate depreciation
|
(150)
|
|
|
(110)
|
|
|
(463)
|
|
|
(320)
|
|
|
Corporate restructuring
|
—
|
|
|
—
|
|
|
(164)
|
|
|
—
|
|
|
Corporate transaction-related expenses
|
(28)
|
|
|
—
|
|
|
(670)
|
|
|
—
|
|
|
Corporate integration and other restructuring costs
|
(69)
|
|
|
—
|
|
|
(112)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Corporate share-based compensation
|
(357)
|
|
|
(846)
|
|
|
(1,825)
|
|
|
(1,560)
|
|
|
Loss from continuing operations before income taxes
|
$
|
(34,737)
|
|
|
$
|
(5,719)
|
|
|
$
|
(54,633)
|
|
|
$
|
(12,311)
|
|
Assets held by reportable segments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 27, 2019
|
|
December 31, 2018
|
|
Industrial
|
$
|
236,497
|
|
|
$
|
230,185
|
|
|
Engineered Components
|
118,704
|
|
|
145,409
|
|
|
|
|
|
|
|
Total segments
|
355,201
|
|
|
375,594
|
|
|
Assets held for sale
|
—
|
|
|
110,040
|
|
|
Corporate and eliminations
|
78,489
|
|
|
17,963
|
|
|
Consolidated total assets
|
$
|
433,690
|
|
|
$
|
503,597
|
|
Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)
|
|
|
|
|
|
|
|
16.
|
Fair Value Measurements
|
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.
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 condensed 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 $342.4 million at September 27, 2019 and $387.4 million at December 31, 2018. 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 majority 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.
|
|
|
|
|
|
|
|
17.
|
Commitments and Contingencies
|
Litigation Matters
The Company is a party to various legal proceedings that have arisen in the normal course of its business. These legal proceedings typically include product liability, labor, and employment claims. The Company has recorded reserves for loss contingencies based on the specific circumstances of each case. Such reserves are recorded when it is probable that a loss has been incurred as of the balance sheet date and can be reasonably estimated. In the opinion of management, the resolution of these contingencies will not have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.
Environmental Matters
At September 27, 2019 and December 31, 2018, the Company held reserves of $1.0 million for environmental matters at one location. The ultimate cost of any remediation required will depend on the results of future investigation. Based upon available information, the Company believes that it has obtained and is in substantial compliance with those material environmental permits and approvals necessary to conduct its business. Based on the facts presently known, the Company does not expect environmental costs to have a material adverse effect on its financial condition, results of operations, or cash flows.
Consolidated Results of Operations
The following table sets forth our consolidated results of operations (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
(in thousands)
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
|
|
|
Net sales
|
$
|
85,610
|
|
|
$
|
107,029
|
|
|
$
|
296,654
|
|
|
$
|
355,440
|
|
|
|
|
Cost of goods sold
|
70,840
|
|
|
84,562
|
|
|
239,218
|
|
|
275,495
|
|
|
|
|
Gross profit
|
14,770
|
|
|
22,467
|
|
|
57,436
|
|
|
79,945
|
|
|
|
|
Selling and administrative expenses
|
20,416
|
|
|
20,169
|
|
|
63,699
|
|
|
67,717
|
|
|
|
|
Impairment charges
|
20,597
|
|
|
—
|
|
|
20,597
|
|
|
—
|
|
|
|
|
Loss (gain) on disposals of property, plant and equipment - net
|
14
|
|
|
(88)
|
|
|
18
|
|
|
94
|
|
|
|
|
Restructuring
|
|
1,277
|
|
|
298
|
|
|
3,795
|
|
|
1,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
(27,534)
|
|
|
2,088
|
|
|
(30,673)
|
|
|
10,889
|
|
|
|
|
Interest expense
|
(8,180)
|
|
|
(8,326)
|
|
|
(24,738)
|
|
|
(24,709)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity income
|
45
|
|
|
468
|
|
|
167
|
|
|
903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income - net
|
932
|
|
|
51
|
|
|
611
|
|
|
606
|
|
|
|
|
Loss from continuing operations before income taxes
|
(34,737)
|
|
|
(5,719)
|
|
|
(54,633)
|
|
|
(12,311)
|
|
|
|
|
Tax benefit
|
(4,691)
|
|
|
(1,435)
|
|
|
(5,424)
|
|
|
(2,773)
|
|
|
|
|
Net loss from continuing operations
|
$
|
(30,046)
|
|
|
$
|
(4,284)
|
|
|
$
|
(49,209)
|
|
|
$
|
(9,538)
|
|
|
|
|
Net (loss) income from discontinued operations, net of tax
|
(3,121)
|
|
|
(174)
|
|
|
(4,130)
|
|
|
4,087
|
|
|
|
|
Net loss
|
(33,167)
|
|
|
(4,458)
|
|
|
(53,339)
|
|
|
(5,451)
|
|
|
|
|
Accretion of dividends on preferred stock and redemption premium
|
845
|
|
|
781
|
|
|
2,485
|
|
|
3,274
|
|
|
|
|
Net loss allocable to common shareholders of Jason Industries
|
|
(34,012)
|
|
|
|
(5,239)
|
|
|
|
(55,824)
|
|
|
|
(8,725)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive loss
|
$
|
(4,510)
|
|
|
$
|
(690)
|
|
|
$
|
(6,644)
|
|
|
$
|
(1,265)
|
|
|
|
Other financial data: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Increase/(Decrease)
|
|
|
|
(in thousands, except percentages)
|
September 27, 2019
|
|
September 28, 2018
|
|
$
|
|
%
|
|
Consolidated
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
85,610
|
|
|
$
|
107,029
|
|
|
$
|
(21,419)
|
|
|
(20.0)
|
%
|
|
Net loss from continuing operations
|
(30,046)
|
|
|
(4,284)
|
|
|
25,762
|
|
|
601.4
|
|
|
Net loss from continuing operations as a % of net sales
|
35.1
|
%
|
|
4.0
|
%
|
|
3,110 bps
|
|
|
|
|
Adjusted EBITDA
|
3,081
|
|
|
10,780
|
|
|
(7,699)
|
|
|
(71.4)
|
|
|
Adjusted EBITDA % of net sales
|
3.6
|
%
|
|
10.1
|
%
|
|
(650) bps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Increase/(Decrease)
|
|
|
|
(in thousands, except percentages)
|
September 27, 2019
|
|
September 28, 2018
|
|
$
|
|
%
|
|
Consolidated
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
296,654
|
|
|
$
|
355,440
|
|
|
$
|
(58,786)
|
|
|
(16.5)
|
%
|
|
Net loss from continuing operations
|
(49,209)
|
|
|
(9,538)
|
|
|
39,671
|
|
|
415.9
|
|
|
Net loss from continuing operations as a % of net sales
|
16.6
|
%
|
|
2.7
|
%
|
|
1,390 bps
|
|
|
|
|
Adjusted EBITDA
|
20,309
|
|
|
40,063
|
|
|
(19,754)
|
|
|
(49.3)
|
|
|
Adjusted EBITDA % of net sales
|
6.8
|
%
|
|
11.3
|
%
|
|
(450) 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 a reconciliation of Adjusted EBITDA to net loss.
The Three and Nine Months Ended September 27, 2019 Compared with the Three and Nine Months Ended September 28, 2018
Net sales. Net sales were $85.6 million for the three months ended September 27, 2019, a decrease of $21.4 million, or 20.0%, compared with $107.0 million for the three months ended September 28, 2018, reflecting decreased net sales in the engineered components segment of $19.3 million and the industrial segment of $2.2 million. The $19.3 million decrease in the engineered components segment was partially due to a $5.8 million decrease related to the exit from non-core product lines for smart utility meter subassemblies. See “Segment Financial Data” within Item 2, “Management’s Discussion and Analysis,” for further discussion on net sales for each segment.
Net sales were $296.7 million for the nine months ended September 27, 2019, a decrease of $58.8 million, or 16.5%, compared with $355.4 million for the nine months ended September 28, 2018, reflecting decreased net sales in the engineered components segment of $51.9 million and the industrial segment of $6.9 million. The $51.9 million decrease in the engineered components segment was partially due to a $19.5 million decrease related to the exit from non-core product lines for smart utility meter subassemblies. See “Segment Financial Data” within Item 2, “Management’s Discussion and Analysis,” for further discussion on net sales for each segment.
On April 1, 2019, we acquired Schaffner. Schaffner’s results of operations are included within the industrial segment and the Company’s condensed consolidated results of operations since the date of acquisition. Net sales from Schaffner were $4.4 million and $9.7 million for the three and nine months ended September 27, 2019, respectively. See Note 4, “Acquisition” in the condensed consolidated financial statements for further discussion on the Schaffner acquisition.
Changes in foreign currency exchange rates compared with the U.S. dollar had a net negative impact of $1.5 million on consolidated net sales during the three months ended September 27, 2019 compared with 2018, negatively impacting the industrial segment’s net sales by $1.5 million. This was due principally to the net strengthening of the U.S. dollar against the Euro in the three months ended September 27, 2019 compared to the three months ended September 28, 2018. Changes in foreign currency exchange rates compared with the U.S. dollar had a net negative impact of $6.2 million on consolidated net sales during the nine months ended September 27, 2019 compared with 2018, negatively impacting the industrial segment’s net sales by $6.2 million. This was due principally to the net strengthening of the U.S. dollar against the Euro for the first nine months of 2019 compared to the first nine months of 2018.
Cost of goods sold. Cost of goods sold was $70.8 million for the three months ended September 27, 2019, compared with $84.6 million for the three months ended September 28, 2018. The decrease in cost of goods sold was primarily due to lower sales volumes across all segments, lower manufacturing costs of $4.7 million in the engineered components segment due to the exit from non-core product lines for smart utility meter subassemblies, a $1.1 million decrease related to foreign currency exchange rates, reduced material usage and labor costs as a result of continuous improvement programs, lower material costs in the engineered components segment and reduced freight costs. The decrease was partially offset by higher manufacturing costs in the industrial segment due to the Schaffner acquisition of $4.0 million, lower material and labor efficiencies related to sales volume declines in the engineered components and industrial segments and unfavorable product mix in the engineered components segment.
Cost of goods sold was $239.2 million for the nine months ended September 27, 2019, compared with $275.5 million for the nine months ended September 28, 2018. The decrease in cost of goods sold was primarily due to lower sales volumes across all segments, lower manufacturing costs of $15.2 million in the engineered components segment due to the exit from non-core product lines for smart utility meter subassemblies, a $4.6 million decrease related to foreign currency exchange rates, reduced material usage and labor costs as a result of continuous improvement programs in the engineered components segment and reduced freight costs across both segments. The decrease was partially offset by higher manufacturing costs in the industrial segment due to the Schaffner acquisition of $8.2 million, lower material and labor efficiencies related to sales volume declines in both the engineered components and industrial segments, raw material inflation across all segments, unfavorable product mix in the engineered components segment and accelerated depreciation expense of $1.5 million in the engineered components segment related to facility consolidation.
Gross profit. For the reasons described above, gross profit was $14.8 million for the three months ended September 27, 2019, compared with $22.5 million for the three months ended September 28, 2018 and $57.4 million for the nine months ended September 27, 2019, compared with $79.9 million for the nine months ended September 28, 2018.
Selling and administrative expenses. Selling and administrative expenses were $20.4 million for the three months ended September 27, 2019, compared with $20.2 million for the three months ended September 28, 2018, an increase of $0.2 million. The increase is primarily due to higher selling and administrative costs in the industrial segment due to the Schaffner acquisition of $0.7 million and $0.4 million of integration and transaction costs related to the Schaffner acquisition. The increase was partially offset by a decrease in share-based compensation expense of $0.5 million, lower headcount across the segments and a $0.3 million decrease related to foreign currency exchange rates. The decrease in share-based compensation
was primarily due to a decrease in assumed vesting of Adjusted EBITDA based awards in the third quarter of 2019, which resulted in a $0.2 million reversal of previously recorded expense.
Selling and administrative expenses were $63.7 million for the nine months ended September 27, 2019 compared with $67.7 million for the nine months ended September 28, 2018, a decrease of $4.0 million. The decrease is primarily due to the acceleration of amortization expense of $2.3 million on intangible assets in the engineered components segment related to the exit from non-core product lines for smart utility meter subassemblies in 2018, a $1.4 million decrease related to foreign currency exchange rates, lower headcount across the segments and decreased incentive compensation. The decrease was partially offset by higher selling and administrative costs in the industrial segment due to the Schaffner acquisition of $1.8 million, a $0.3 million increase in integration and transaction costs related to Schaffner acquisition and an increase in share-based compensation expense of $0.3 million due to restricted stock units granted in May 2018 and March 2019.
Impairment charges. Non-cash impairment charges were $20.6 million for both the three and nine months ended September 27, 2019. Non-cash impairment charges of $14.9 million and $5.7 million were recorded for customer relationship and trademark intangible assets, respectively, related to a business in the engineered components segment due to sustained sales and profitability declines. See Note 9, “Goodwill and Other Intangible Assets” in the condensed consolidated financial statements for further discussion.
Loss (gain) on disposals of property, plant and equipment - net. Loss on disposals of property, plant and equipment - net for the three months ended September 27, 2019 was $0.0 million compared to a gain of $0.1 million for the three months ended September 28, 2018. Loss on disposals of property, plant and equipment - net for the nine months ended September 27, 2019 was $0.0 million compared to $0.1 million for the nine months ended September 28, 2018. The loss on disposals of property, plant and equipment - net for the nine months ended September 28, 2018 includes $0.2 million from the disposition of equipment in connection with the consolidation of two U.S. facilities in the engineered components segment.
Restructuring. Restructuring costs were $1.3 million for the three months ended September 27, 2019 compared with $0.3 million for the three months ended September 28, 2018. Restructuring costs were $3.8 million for the nine months ended September 27, 2019 compared with $1.2 million for the nine months ended September 28, 2018. During 2019, such costs included severance costs in corporate and the industrial segment related to the segment reorganization in the first quarter of 2019 and work force reductions in the second and third quarters of 2019 in response to declining end market demand. Other restructuring costs included plant closure and consolidation in the industrial 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 engineered components segment.
Interest expense. Interest expense was $8.2 million for the three months ended September 27, 2019 compared to $8.3 million for the three months ended September 28, 2018. The effective interest rate on the Company’s total outstanding indebtedness for both the three months ended September 27, 2019 and September 28, 2018 was 8.3%.
Interest expense was $24.7 million for both the nine months ended September 27, 2019 and September 28, 2018 as the increase in interest expense caused by higher variable interest rates for the nine months ended September 27, 2019 as compared to the nine months ended September 28, 2018, was offset by the decrease in outstanding long-term debt balances. The effective interest rate on the Company’s total outstanding indebtedness for the nine months ended September 27, 2019 was 8.4% as compared to 8.3% for the nine months ended September 28, 2018.
See “Senior Secured Credit Facilities” in the “Liquidity and Capital Resources” section of this MD&A for further discussion.
Equity income. Equity income was $0.0 million for the three months ended September 27, 2019 and $0.5 million for the three months ended September 28, 2018. Equity income was $0.2 million for the nine months ended September 27, 2019 and $0.9 million for the nine months ended September 28, 2018. The decrease in equity income is due to lower sales volumes in our joint ventures in China and Taiwan.
Other income - net. Other income - net was income of $0.9 million for the three months ended September 27, 2019 and income of $0.1 million for the three months ended September 28, 2018. Other income - net was income of $0.6 million for both the nine months ended September 27, 2019 and September 28, 2018. Other income - net for both the three and nine months ended September 27, 2019 includes the reclassification to earnings of foreign currency translation gains of $0.8 million for the wind down and substantial dissolution of certain U.K. entities. Other income - net for the nine months ended September 27, 2019 also includes $0.3 million of transaction-related expenses related to debt financing activities. Other income - net for both the three and nine months ended September 28, 2018 includes $0.4 million of income related to proceeds from a settlement in the engineered components segment associated with periods prior to the Company’s go public business combination.
Loss from continuing operations before income taxes. For the reasons described above, loss from continuing operations before income taxes was $34.7 million for the three months ended September 27, 2019, compared with $5.7 million
for the three months ended September 28, 2018. Loss from continuing operations before income taxes was $54.6 million for the nine months ended September 27, 2019 compared with $12.3 million for the nine months ended September 28, 2018.
Tax benefit. The tax benefit was $4.7 million for the three months ended September 27, 2019, compared with a tax benefit of $1.4 million for the three months ended September 28, 2018. The tax benefit was $5.4 million for the nine months ended September 27, 2019 compared with a tax benefit of $2.8 million for the nine months ended September 28, 2018. The effective tax rate for the three months ended September 27, 2019 was 13.5%, compared with 25.1% for the three months ended September 28, 2018. The effective tax rate was 9.9% for the nine months ended September 27, 2019 compared with 22.5% for the nine months ended September 28, 2018. The net discrete tax benefit was $3.3 million and $3.2 million for the three and nine months ended September 27, 2019, respectively, and the net discrete tax benefit was $0.3 million and $0.9 million for the three and nine months ended September 28, 2018. The net discrete tax benefits during the three and nine months ended September 27, 2019 primarily related to the impairment charge recorded in the engineered components segment.
The tax provision is impacted by a number of factors, including, among others, new provisions included in the Tax Reform Act, the amount of taxable earnings or losses at the U.S. federal statutory rate, the amount of taxable earnings or losses derived in foreign jurisdictions with tax rates that differ from the U.S. federal statutory rate, permanent items, state tax rates, the ability to utilize foreign net operating loss carry forwards and adjustments to valuation allowances. The effective tax rate for the three and nine months ended September 27, 2019 was impacted by the levels of U.S. and foreign pre-tax losses and earnings, respectively, pre-tax losses in foreign jurisdictions for which no tax benefit was recognized, U.S. interest disallowance, the new GILTI tax provisions, and the impairment charge in the engineered components segment.
Net loss from continuing operations. For the reasons described above, net loss from continuing operations was $30.0 million for the three months ended September 27, 2019, compared with $4.3 million for the three months ended September 28, 2018. Net loss from continuing operations was $49.2 million for the nine months ended September 27, 2019 compared with $9.5 million for the nine months ended September 28, 2018.
Other comprehensive (loss) income. Other comprehensive loss was $4.5 million for the three months ended September 27, 2019 compared with other comprehensive loss of $0.7 million for the three months ended September 28, 2018. Other comprehensive loss was $6.6 million for the nine months ended September 27, 2019 compared with other comprehensive loss of $1.3 million for the nine months ended September 28, 2018.
Other comprehensive income for the net change in unrealized (losses) gains on cash flow hedges was $0.0 million for the three months ended September 27, 2019 compared with other comprehensive income of $0.2 million for the three months ended September 28, 2018. Other comprehensive loss for the net change in unrealized (losses) gains on cash flow hedges was $1.5 million for the nine months ended September 27, 2019 compared with other comprehensive income of $2.2 million for the nine months ended September 28, 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 three and nine months ended September 27, 2019, the fair value of the hedging instruments decreased, based on actual and future expectations for short-term interest rate decreases. For the three and nine months ended September 28, 2018, the fair value of the hedging instruments increased, based on actual and future expectations for interest rate increases.
Other comprehensive loss related to foreign currency translation adjustments was $4.6 million for the three months ended September 27, 2019 compared with other comprehensive loss for foreign currency translation adjustments of $0.9 million for the three months ended September 28, 2018. Other comprehensive loss for foreign currency translation adjustments was $5.2 million for the nine months ended September 27, 2019 compared with other comprehensive loss for foreign currency translation adjustments of $3.5 million for the nine months ended September 28, 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.
Adjusted EBITDA. Adjusted EBITDA was $3.1 million, or 3.6% of net sales for the three months ended September 27, 2019, compared with $10.8 million, or 10.1% of net sales for the three months ended September 28, 2018, a decrease of $7.7 million, or 71.4%. The decrease reflects lower Adjusted EBITDA in the engineered components segment of $4.7 million, the industrial segment of $2.6 million and higher corporate expenses of $0.4 million.
Adjusted EBITDA was $20.3 million, or 6.8% of net sales for the nine months ended September 27, 2019, compared with $40.1 million, or 11.3%, of net sales for the nine months ended September 28, 2018, a decrease of $19.8 million, or 49.3%. The decrease reflects lower Adjusted EBITDA in the engineered components segment of $14.9 million and the industrial segment of $6.0 million, partially offset by lower corporate expenses of $1.2 million.
Changes in foreign currency exchange rates compared with the U.S. dollar had a negative impact of $0.2 million on consolidated Adjusted EBITDA during the three months ended September 27, 2019 compared to the three months ended September 28, 2018, negatively impacting the industrial segment’s Adjusted EBITDA by $0.2 million.
During the nine months ended September 27, 2019, changes in foreign currency exchange rates had a negative impact of $0.9 million on consolidated Adjusted EBITDA compared to the nine months ended September 28, 2018, which negatively impacted the industrial segment’s Adjusted EBITDA by $0.9 million.
See “Segment Financial Data” within Item 2, “Management’s Discussion and Analysis,” for further discussion on Adjusted EBITDA for each segment.
Key Measures the Company Uses to Evaluate Its Performance
EBITDA and Adjusted EBITDA. We use “Adjusted EBITDA” as the primary measure of profit or loss for the purposes of assessing the operating performance of our segments. We define EBITDA as net income (loss) from continuing operations before interest expense, provision (benefit) for income taxes, depreciation and amortization. We define 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 restructuring charges, transaction-related expenses, 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 our operating results by eliminating expenses and income that are not reflective of the underlying business performance. We use this metric to facilitate a comparison of our operating performance on a consistent basis from period to period and to analyze the factors and trends affecting our segments. Our internal plans, budgets and forecasts use Adjusted EBITDA as a key metric and we use this measure to evaluate our 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 10, “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 to net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
(in thousands)
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
|
Net loss from continuing operations
|
$
|
(30,046)
|
|
|
$
|
(4,284)
|
|
|
$
|
(49,209)
|
|
|
$
|
(9,538)
|
|
|
Interest expense
|
8,180
|
|
|
8,326
|
|
|
24,738
|
|
|
24,709
|
|
|
Tax benefit
|
(4,691)
|
|
|
(1,435)
|
|
|
(5,424)
|
|
|
(2,773)
|
|
|
Depreciation and amortization
|
6,973
|
|
|
7,117
|
|
|
22,566
|
|
|
23,698
|
|
|
EBITDA
|
(19,584)
|
|
|
9,724
|
|
|
(7,329)
|
|
|
36,096
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Restructuring (1)
|
1,277
|
|
|
298
|
|
|
3,795
|
|
|
1,245
|
|
|
Transaction-related expenses (2)
|
28
|
|
|
—
|
|
|
670
|
|
|
—
|
|
|
Integration and other restructuring costs (3)
|
392
|
|
|
—
|
|
|
733
|
|
|
1,068
|
|
|
Share-based compensation (4)
|
357
|
|
|
846
|
|
|
1,825
|
|
|
1,560
|
|
|
Loss on disposals of property, plant and equipment - net (5)
|
14
|
|
|
(88)
|
|
|
18
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges (6)
|
20,597
|
|
|
—
|
|
|
20,597
|
|
|
—
|
|
|
Total adjustments
|
22,665
|
|
|
1,056
|
|
|
27,638
|
|
|
3,967
|
|
|
Adjusted EBITDA
|
$
|
3,081
|
|
|
$
|
10,780
|
|
|
$
|
20,309
|
|
|
$
|
40,063
|
|
(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 2018 and financing and operating leases in 2019. See Note 6, “Restructuring Costs” of the accompanying condensed 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)During the three and nine months ended September 27, 2019, integration and other restructuring costs includes $0.5 million and $0.8 million, respectively, of integration costs related to an acquisition in the industrial segment, $0.4 million in both periods related to lease expense associated with facilities that have been or are planned to be vacated in the engineered components segment and $0.4 million in both periods related to a reserve for excess inventory for a vacated warehouse in the engineered components segment. This was offset by $0.8 million in both periods related to the reclassification to earnings of a foreign currency translation gain for the wind down and substantial dissolution of certain U.K. entities.
During the nine months ended September 28, 2018, integration and other restructuring costs of $1.5 million were incurred associated with a force majeure incident at a supplier in the engineered components segment that resulted in incremental costs to maintain production. Such costs are not included in restructuring for GAAP purposes and were subsequently recovered through insurance during the remainder of 2018. The integration and other restructuring costs during the nine months ended September 28, 2018 were partially offset by a $0.4 million settlement gain on proceeds from a supplier claim in the engineered components segment associated with periods prior to the Company’s go public business combination.
(4)Represents share-based compensation expense for awards under the Company’s 2014 Omnibus Incentive Plan. See Note 11, “Share-Based Compensation” of the accompanying condensed consolidated financial statements for further information.
(5)Loss on disposals of property, plant and equipment - net for the nine months ended September 28, 2018 includes a loss of $0.2 million from the disposition of equipment in connection with the consolidation of two U.S. facilities in the engineered components segment.
(6)During the three and nine months ended September 27, 2019, non-cash impairment charges of $14.9 million and $5.7 million were recorded for customer relationship and trademark intangible assets, respectively, related to a business in the engineered components segment due to sustained sales and profitability declines. See Note 9, "Goodwill and Other Intangible Assets" of the accompanying condensed 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 three and nine months ended September 27, 2019 and September 28, 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 a reconciliation of Adjusted EBITDA to Net Loss which is the nearest GAAP measure.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Increase/ (Decrease)
|
|
|
|
(in thousands, except percentages)
|
September 27, 2019
|
|
September 28, 2018
|
|
$
|
|
%
|
|
Industrial
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
48,859
|
|
|
$
|
51,016
|
|
|
$
|
(2,157)
|
|
|
(4.2)
|
%
|
|
Adjusted EBITDA
|
5,004
|
|
|
7,579
|
|
|
(2,575)
|
|
|
(34.0)
|
|
|
Adjusted EBITDA % of net sales
|
10.2
|
%
|
|
14.9
|
%
|
|
(470) bps
|
|
|
|
|
Engineered Components
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
36,751
|
|
|
$
|
56,013
|
|
|
$
|
(19,262)
|
|
|
(34.4)
|
%
|
|
Adjusted EBITDA
|
1,424
|
|
|
6,150
|
|
|
(4,726)
|
|
|
(76.8)
|
|
|
Adjusted EBITDA % of net sales
|
3.9
|
%
|
|
11.0
|
%
|
|
(710) bps
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
(3,347)
|
|
|
$
|
(2,949)
|
|
|
$
|
(398)
|
|
|
(13.5)
|
%
|
|
Consolidated
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
85,610
|
|
|
$
|
107,029
|
|
|
$
|
(21,419)
|
|
|
(20.0)
|
%
|
|
Adjusted EBITDA
|
3,081
|
|
|
10,780
|
|
|
(7,699)
|
|
|
(71.4)
|
|
|
Adjusted EBITDA % of net sales
|
3.6
|
%
|
|
10.1
|
%
|
|
(650) bps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Increase/ (Decrease)
|
|
|
|
(in thousands, except percentages)
|
September 27, 2019
|
|
September 28, 2018
|
|
$
|
|
%
|
|
Industrial
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
153,589
|
|
|
$
|
160,448
|
|
|
$
|
(6,859)
|
|
|
(4.3)
|
%
|
|
Adjusted EBITDA
|
17,772
|
|
|
23,815
|
|
|
(6,043)
|
|
|
(25.4)
|
|
|
Adjusted EBITDA % of net sales
|
11.6
|
%
|
|
14.8
|
%
|
|
(320) bps
|
|
|
|
|
Engineered Components
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
143,065
|
|
|
$
|
194,992
|
|
|
$
|
(51,927)
|
|
|
(26.6)
|
%
|
|
Adjusted EBITDA
|
10,712
|
|
|
25,587
|
|
|
$
|
(14,875)
|
|
|
(58.1)
|
|
|
Adjusted EBITDA % of net sales
|
7.5
|
%
|
|
13.1
|
%
|
|
(560) bps
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
(8,175)
|
|
|
$
|
(9,339)
|
|
|
$
|
1,164
|
|
|
12.5
|
%
|
|
Consolidated
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
296,654
|
|
|
$
|
355,440
|
|
|
$
|
(58,786)
|
|
|
(16.5)
|
%
|
|
Adjusted EBITDA
|
20,309
|
|
|
40,063
|
|
|
$
|
(19,754)
|
|
|
(49.3)
|
|
|
Adjusted EBITDA % of net sales
|
6.8
|
%
|
|
11.3
|
%
|
|
(450) bps
|
|
|
|
Industrial Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Increase/ (Decrease)
|
|
|
|
(in thousands, except percentages)
|
September 27, 2019
|
|
September 28, 2018
|
|
$
|
|
%
|
|
Net sales
|
$
|
48,859
|
|
|
$
|
51,016
|
|
|
$
|
(2,157)
|
|
|
(4.2)
|
%
|
|
Adjusted EBITDA
|
5,004
|
|
|
7,579
|
|
|
(2,575)
|
|
|
(34.0)
|
|
|
Adjusted EBITDA % of net sales
|
10.2
|
%
|
|
14.9
|
%
|
|
(470) bps
|
|
|
|
Net sales in the industrial segment for the three months ended September 27, 2019 were $48.9 million, a decrease of $2.2 million, or 4.2%, compared with $51.0 million for the three months ended September 28, 2018. For the three months ended September 27, 2019, the Schaffner acquisition on April 1, 2019 contributed $4.4 million of incremental net sales and foreign currency fluctuations had a net negative impact of $1.5 million. On a constant currency basis and excluding the impact of the Schaffner acquisition, for the three months ended September 27, 2019, net sales were $46.0 million, a decrease of $5.1 million or 10.0%. The $5.1 million decrease in net sales for the three months ended September 27, 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 three months ended September 27, 2019 decreased $2.6 million to $5.0 million (10.2% of net sales) from $7.6 million (14.9% of net sales) for the three months ended September 28, 2018. For the three months ended September 27, 2019, the Schaffner acquisition on April 1, 2019 contributed $0.5 million of incremental Adjusted EBITDA and foreign currency fluctuations had a net negative impact of $0.2 million. On a constant currency basis and excluding the impact of the Schaffner acquisition, for the three months ended September 27, 2019, Adjusted EBITDA was $4.7 million (10.2% of net sales), a decrease of $2.9 million or 38.2%. The $2.9 million decrease primarily resulted from lower sales volume in industrial end markets, lower labor productivity related to the sales volume decline, and $0.5 million of lower equity income due to lower sales volumes in our joint ventures in China and Taiwan. The decrease was partially offset by decreased incentive compensation, increased sales pricing, lower headcount and lower freight costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Increase/ (Decrease)
|
|
|
|
(in thousands, except percentages)
|
September 27, 2019
|
|
September 28, 2018
|
|
$
|
|
%
|
|
Net sales
|
$
|
153,589
|
|
|
$
|
160,448
|
|
|
$
|
(6,859)
|
|
|
(4.3)
|
%
|
|
Adjusted EBITDA
|
17,772
|
|
|
23,815
|
|
|
(6,043)
|
|
|
(25.4)
|
|
|
Adjusted EBITDA % of net sales
|
11.6
|
%
|
|
14.8
|
%
|
|
(320) bps
|
|
|
|
Net sales in the industrial segment for the nine months ended September 27, 2019 were $153.6 million, a decrease of $6.9 million or 4.3%, compared with $160.4 million for the nine months ended September 28, 2018. For the nine months ended September 27, 2019, the Schaffner acquisition on April 1, 2019 contributed $9.7 million of incremental net sales and foreign currency fluctuations had a net negative impact of $6.2 million. On a constant currency basis and excluding the impact of the Schaffner acquisition, for the nine months ended September 27, 2019, net sales were $150.1 million, a decrease of $10.3 million or 6.4%. The $10.3 million decrease in net sales for the nine months ended September 27, 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 nine months ended September 27, 2019 decreased $6.0 million to $17.8 million (11.6% of net sales) from $23.8 million (14.8% of net sales) for the nine months ended September 28, 2018. For the nine months ended September 27, 2019, the Schaffner acquisition on April 1, 2019 contributed $0.9 million of incremental Adjusted EBITDA and foreign currency fluctuations had a net negative impact of $0.9 million. On a constant currency basis and excluding the impact of the Schaffner acquisition, for the nine months ended September 27, 2019, Adjusted EBITDA was $17.8 million (11.9% of net sales), a decrease of $6.0 million or 25.2%. The $6.0 million decrease primarily resulted from lower sales volume in industrial end markets, raw material inflation, lower labor productivity related to the sales volume decline, 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 freight costs and decreased incentive compensation.
Engineered Components Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Increase/ (Decrease)
|
|
|
|
(in thousands, except percentages)
|
September 27, 2019
|
|
September 28, 2018
|
|
$
|
|
%
|
|
Net sales
|
$
|
36,751
|
|
|
$
|
56,013
|
|
|
$
|
(19,262)
|
|
|
(34.4)
|
%
|
|
Adjusted EBITDA
|
1,424
|
|
|
6,150
|
|
|
(4,726)
|
|
|
(76.8)
|
|
|
Adjusted EBITDA % of net sales
|
3.9
|
%
|
|
11.0
|
%
|
|
(710) bps
|
|
|
|
Net sales in the engineered components segment for the three months ended September 27, 2019 were $36.8 million, a decrease of $19.3 million, or 34.4%, compared with $56.0 million for the three months ended September 28, 2018. The decrease during the three months ended September 27, 2019 was due to a $5.8 million decrease related to the exit from non-core product lines for smart utility meter subassemblies and lower sales volumes due to end market declines in the construction, agriculture, power sports, turf care, rail and industrial markets. The decrease was partially offset by increased pricing on core product lines.
Adjusted EBITDA decreased $4.7 million, or 76.8%, for the three months ended September 27, 2019 to $1.4 million (3.9% of net sales) compared with $6.2 million (11.0% of net sales) for the three months ended September 28, 2018. The decrease in Adjusted EBITDA for the three months ended September 27, 2019 resulted from non-recurring price increases during the 2018 exit of the non-core product lines for smart utility meter subassemblies, lower sales volumes, lower material and labor efficiencies related to the sales volume decline and unfavorable product mix compared with the prior period. The decrease was partially offset by increased pricing on core product lines, reduced material usage and labor costs as a result of continuous improvement programs, decreased incentive compensation, lower raw material costs and lower headcounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Increase/ (Decrease)
|
|
|
|
(in thousands, except percentages)
|
September 27, 2019
|
|
September 28, 2018
|
|
$
|
|
%
|
|
Net sales
|
$
|
143,065
|
|
|
$
|
194,992
|
|
|
$
|
(51,927)
|
|
|
(26.6)
|
%
|
|
Adjusted EBITDA
|
10,712
|
|
|
25,587
|
|
|
(14,875)
|
|
|
(58.1)
|
|
|
Adjusted EBITDA % of net sales
|
7.5
|
%
|
|
13.1
|
%
|
|
(560) bps
|
|
|
|
Net sales in the engineered components segment for the nine months ended September 27, 2019 were $143.1 million, a decrease of $51.9 million, or 26.6%, compared with $195.0 million for the nine months ended September 28, 2018. The decrease during the nine months ended September 27, 2019 was due to a $19.5 million decrease related to the exit from non-core product lines for smart utility meter subassemblies and lower sales volumes due to end market declines in the construction, agriculture, power sports, turf care, rail and industrial markets. The decrease was partially offset by increased pricing on core product lines.
Adjusted EBITDA decreased $14.9 million, or 58.1%, for the nine months ended September 27, 2019 to $10.7 million (7.5% of net sales) compared with $25.6 million (13.1% of net sales) for the nine months ended September 28, 2018. The decrease in Adjusted EBITDA for the nine months ended September 27, 2019 resulted from non-recurring price increases during the 2018 wind down of the non-core product lines for smart utility meter subassemblies, lower sales volumes, lower material and labor efficiencies related to the sales volume decline, unfavorable product mix compared with the prior period and raw material inflation. The decrease was partially offset by increased pricing on core product lines, reduced material usage and labor costs as a result of continuous improvement programs, lower headcounts and decreased incentive compensation.
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Increase/ (Decrease)
|
|
|
|
(in thousands, except percentages)
|
September 27, 2019
|
|
September 28, 2018
|
|
$
|
|
%
|
|
Adjusted EBITDA
|
$
|
(3,347)
|
|
|
$
|
(2,949)
|
|
|
$
|
(398)
|
|
|
(13.5)
|
%
|
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 other corporate operating costs.
The increase of $0.4 million in expense in the three months ended September 27, 2019 compared with the prior year primarily resulted from timing of incentive compensation, partially offset by decreased health care costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Increase/ (Decrease)
|
|
|
|
(in thousands, except percentages)
|
September 27, 2019
|
|
September 28, 2018
|
|
$
|
|
%
|
|
Adjusted EBITDA
|
$
|
(8,175)
|
|
|
$
|
(9,339)
|
|
|
$
|
1,164
|
|
|
12.5
|
%
|
The decrease of $1.2 million in expense in the nine months ended September 27, 2019 compared with the prior year primarily resulted from decreased incentive compensation and lower professional fees, partially offset by increased health care costs.
Liquidity and Capital Resources
Background
Our primary sources of liquidity are cash generated from our operations, available cash and borrowings under our U.S. and foreign credit facilities. As of September 27, 2019, we had $110.6 million of total liquidity, including $92.7 million of available cash, $10.0 million of additional borrowings available under the Revolving Credit Facility portion of our U.S. credit agreement, and $7.9 million available under revolving loan facilities that we maintain outside the U.S. Included in our consolidated cash balance of $92.7 million at September 27, 2019, is cash of $11.6 million held at our non-U.S. operations. These 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 $63.1 million. We intend 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.
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.
Indebtedness
As of September 27, 2019, our total outstanding indebtedness of $389.9 million was comprised of term loans outstanding under our Senior Secured Credit Facilities of $375.2 million (net of a debt discount of $2.0 million and deferred financing costs of $2.9 million), various foreign bank term loans and revolving loan facilities of $14.0 million and finance lease obligations of $0.7 million. No borrowings were outstanding under the U.S. Revolving Credit Facility portion of the Senior Secured Credit Facilities as of September 27, 2019.
As of December 31, 2018, our total outstanding indebtedness of $391.8 million was comprised of term loans outstanding under its 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 $15.5 million and finance lease obligations of $0.6 million. No borrowings were outstanding under the U.S. Revolving Credit Facility portion of the Senior Secured Credit Facilities as of December 31, 2018.
We maintain various bank term loan and revolving loan facilities outside the U.S. for local operating and investing needs. Borrowings under these facilities totaled $14.0 million as of September 27, 2019, including borrowings of $13.5 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 our subsidiaries in Germany. The foreign debt obligations in Germany primarily relate to term loans within our industrial segment of $13.2 million at September 27, 2019 and $15.0 million at December 31, 2018. The borrowings bear interest at fixed and variable rates ranging from 2.1% to 4.7% and are subject to repayment in varying amounts through 2025.
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, 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., Jason 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 Incorporated, Jason Partners Holdings Inc., 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 $290.2 million is outstanding as of September 27, 2019, and (ii) a revolving loan of up to $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 September 27, 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 the second quarter of 2019, we amended our Revolving Credit Facility to extend the maturity date to December 31, 2020. The amendment reduced the borrowing capacity from $30.0 million to $25.5 million, subject to compliance with a consolidated first lien net leverage ratio as discussed in the Covenants section below. In connection with the amendment, we paid deferred financing costs of $0.3 million which have been recorded within other assets - net within the condensed consolidated balance sheets.
The Revolving Credit Facility matures 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 equal $0.8 million quarterly installments, 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., Jason 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, 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., Jason 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 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 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, we entered into forward interest rate swap agreements (“Swaps”) in 2015 with notional values totaling $210.0 million at September 27, 2019 and December 31, 2018. The Swaps have been designated by us 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. For the three months ended September 27, 2019 and September 28, 2018, the Company recognized $0.1 million and $0.1 million of interest income, respectively, related to the Swaps. For the nine months ended September 27, 2019 and September 28, 2018, we recognized $0.9 million and $0.1 million of interest income, respectively, related to the Swaps. Based on current interest rates, we would expect to recognize interest expense of $0.1 million related to the Swaps in the next 12 months.
The fair values of our Swaps are recorded on the condensed consolidated balance sheets with the corresponding offset recorded as a component of accumulated other comprehensive loss. The fair values of the Swaps was a net liability of $0.1 million at September 27, 2019 and a net asset of $1.9 million at December 31, 2018, respectively. See the amounts recorded on the condensed consolidated balance sheets within the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 27, 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
|
(143)
|
|
|
—
|
|
|
|
|
|
|
|
Total net asset derivatives designated as hedging instruments
|
$
|
(143)
|
|
|
$
|
1,867
|
|
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. 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 $63.1 million. We intend 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. At September 27, 2019 and December 31, 2018, there was no required mandatory excess cash flow prepayment required under the Senior Secured Credit Facilities.
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. As of September 27, 2019, this limit was $17.0 million.
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 to 4.25 to 1.00 on December 31, 2019 and a decrease to 4.00 to 1.00 on June 26, 2020 and 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 September 27, 2019, the consolidated first lien net leverage ratio was 6.62 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). Because the consolidated first lien net leverage ratio at September 27, 2019 exceeded 4.50 to 1.00, borrowings under the Revolving Credit Facility would be limited to a total of $10.0 million (which includes letters of credit in excess of $5.0 million). At September 27, 2019, we had letters of credit outstanding of $4.7 million and had no outstanding borrowings outstanding under the Revolving Credit Facility. As of September 27, 2019, we were in compliance with the financial covenants contained in our 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 43,090 shares of Series A Preferred Stock are entitled to receive, when, as and if declared by our 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 our 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.
We paid the following dividends on the Series A Preferred Stock in additional shares of Series A Preferred Stock during the nine months ended September 27, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
|
794
|
|
April 1, 2019
|
|
February 15, 2019
|
|
$20.00
|
|
|
$812
|
|
|
809
|
|
July 1, 2019
|
|
May 15, 2019
|
|
$20.00
|
|
|
$828
|
|
|
826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On August 1, 2019, we announced a $20.00 per share dividend on our Series A Preferred Stock to be paid in additional shares of Series A Preferred Stock on October 1, 2019 to holders of record on August 15, 2019. As of September 27, 2019, we have recorded the 843 additional Series A Preferred Stock shares declared for the dividend of $0.8 million within preferred stock in the condensed consolidated balance sheets.
Seasonality and Working Capital
We 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. We define this metric as the sum of trade accounts receivable and inventories less trade accounts payable. NOWC as a percentage of trailing twelve month net sales was 17.7% as of September 27, 2019, 13.7% as of December 31, 2018 and 15.2% as of September 28, 2018.
The table below summarizes NOWC as of September 27, 2019, December 31, 2018 and September 28, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 27, 2019
|
|
December 31, 2018
|
|
September 28, 2018
|
|
Accounts receivable - net
|
$
|
41,641
|
|
|
41,325
|
|
|
$
|
51,179
|
|
|
Inventories
|
55,435
|
|
|
55,627
|
|
|
56,505
|
|
|
Accounts payable
|
(27,578)
|
|
|
(35,331)
|
|
|
(38,045)
|
|
|
NOWC
|
$
|
69,498
|
|
|
$
|
61,621
|
|
|
$
|
69,639
|
|
The table below reconciles our NOWC from our working capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 27, 2019
|
|
December 31, 2018
|
|
September 28, 2018
|
|
Working Capital
|
$
|
134,361
|
|
|
$
|
110,276
|
|
|
$
|
115,897
|
|
|
Less: Cash and cash equivalents
|
(92,695)
|
|
|
(46,457)
|
|
|
(40,379)
|
|
|
Less: Other current assets
|
(8,039)
|
|
|
(7,049)
|
|
|
(10,006)
|
|
|
Less: Current assets held for sale
|
—
|
|
|
(45,681)
|
|
|
(49,316)
|
|
|
Add: Current portion long-term debt
|
5,769
|
|
|
5,687
|
|
|
5,777
|
|
|
Add: Current portion operating lease liabilities
|
5,469
|
|
|
—
|
|
|
—
|
|
|
Add: Accrued compensation and employee benefits
|
10,325
|
|
|
12,154
|
|
|
13,504
|
|
|
Add: Accrued interest
|
1
|
|
|
89
|
|
|
82
|
|
|
Add: Other current liabilities
|
14,307
|
|
|
13,923
|
|
|
12,402
|
|
|
Add: Current liabilities held for sale
|
—
|
|
|
|
18,679
|
|
|
|
21,678
|
|
|
NOWC
|
$
|
69,498
|
|
|
$
|
61,621
|
|
|
$
|
69,639
|
|
In overall dollar terms, our 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 we experience high seasonal demand from certain customers, particularly those serving the motorcycle and lawn 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. We historically generate approximately 51%-55% of our annual net sales in the first half of the year.
NOWC as a percentage of trailing twelve month net sales was unfavorably impacted by approximately 0.7% as of September 27, 2019 related to the April 1, 2019 acquisition of Schaffner. NOWC as a percentage of trailing twelve month net sales was favorably impacted by approximately 0.1% and 0.7% as of September 27, 2019 and December 31, 2018, respectively, related to the exit of the non-core smart utility meter subassemblies product line.
Short-Term and Long-Term Liquidity Requirements
Our ability to make principal and interest payments on borrowings under our U.S. and foreign credit facilities and our ability to fund planned capital expenditures will depend on our 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 our current level of operations, we believe that our existing cash balances and expected cash flows from operations will be sufficient to meet our operating requirements for at least the next 12 months. However, we may require borrowings under our credit facilities and alternative forms of financings or investments to achieve our longer-term strategic plans.
Capital expenditures during the nine months ended September 27, 2019 were $7.2 million on a continuing operations basis, or 2.4% of net sales. Capital expenditures for 2019 are expected to be approximately 2.0% to 2.5% 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. We finance our annual capital requirements with existing cash balances and funds generated from operations.
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 27, 2019 and the Nine Months Ended September 28, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Includes cash flow activities from both continuing and discontinued operations (in thousands)
|
September 27, 2019
|
|
September 28, 2018
|
|
Net cash (used in) provided by operating activities
|
$
|
(15,815)
|
|
|
$
|
20,015
|
|
|
Net cash provided by (used in) investing activities
|
56,391
|
|
|
(9,478)
|
|
|
Net cash used in financing activities
|
(5,523)
|
|
|
(7,492)
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
(527)
|
|
|
(562)
|
|
|
Net increase in cash and cash equivalents
|
34,526
|
|
|
2,483
|
|
|
Cash and cash equivalents at beginning of period
|
58,169
|
|
|
48,887
|
|
|
Cash and cash equivalents at end of period
|
$
|
92,695
|
|
|
$
|
51,370
|
|
|
|
|
|
|
|
Depreciation and amortization
|
$
|
28,783
|
|
|
$
|
31,657
|
|
|
Capital expenditures
|
$
|
8,743
|
|
|
$
|
9,636
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows (Used in) Provided by Operating Activities
Cash flows used in operating activities were $15.8 million for the nine months ended September 27, 2019 compared to cash flows provided by operating activities of $20.0 million for the nine months ended September 28, 2018, a decrease of $35.8 million. The decrease was primarily driven by lower operating profit across all segments principally as a result of lower sales volume for the nine months ended September 27, 2019 as compared to the nine months ended September 28, 2018. In addition, the decrease resulted from acquisition and divestiture related transaction costs of $3.8 million, changes in operating working capital of $3.6 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 nine months ended September 27, 2019.
Cash Flows Provided by (Used in) Investing
Cash flows provided by investing activities were $56.4 million for the nine months ended September 27, 2019 compared with cash used of $9.5 million for the nine months ended September 28, 2018. The increase in cash flows provided by investing activities was primarily the result of cash of $75.0 million received from the sale of the North American fiber solutions business, before transaction costs, income taxes and certain retained liabilities, and higher proceeds from disposal of property, plant, and equipment, partially offset by cash used for the acquisition of Schaffner of $11.0 million, net of cash acquired, and by lower capital expenditures of $0.9 million compared to the prior year period.
Cash Flows Used in Financing Activities
Cash flows used in financing activities were $5.5 million for the nine months ended September 27, 2019 compared with $7.5 million for the nine months ended September 28, 2018. The decrease in cash flows used in financing activities was driven by lower payments of $2.5 million on First and Second Lien Term Loans, lower payments of deferred financing costs of $0.3 million, and remittance of $0.7 million of value added tax during the first quarter of 2019 related to the December 2018 sale of our U.K. building.
Depreciation and Amortization
Depreciation and amortization totaled $28.8 million for the nine months ended September 27, 2019, compared with $31.7 million for the nine months ended September 28, 2018. Depreciation and amortization for the nine months ended September 27, 2019 is lower than the prior period primarily due to $2.3 million of accelerated intangible amortization expense recorded for a customer relationship intangible asset to reflect the exit of the non-core smart utility meter product lines in the engineered components segment during 2018 and due to the sale of the North American fiber solutions business on August 30, 2019, partially offset by $1.5 million of accelerated depreciation expense recorded in the engineered components segment during 2019.
Capital Expenditures
Capital expenditures totaled $8.7 million for the nine months ended September 27, 2019, compared with $9.6 million for the nine months ended September 28, 2018.
Contractual Obligations
There are no material changes to the disclosures regarding contractual obligations made in Part II, Item 7 of our Annual Report on Form 10-K/A for the year ended December 31, 2018, except for the August 30, 2019 sale of the North American fiber solutions business. The following table summarizes the contractual obligations of the Company that were previously reported in the Commitments and Contractual Obligations table in Part II, Item 7 of our Annual Report on Form 10-K/A for the year ended December 31, 2018 recast on a continuing operations basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
(in thousands)
|
|
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
|
|
15,469
|
|
|
|
2,319
|
|
|
|
5,011
|
|
|
|
5,683
|
|
|
|
2,456
|
|
|
Interest payments on long-term debt obligations
|
|
85,521
|
|
|
|
30,274
|
|
|
|
49,988
|
|
|
|
5,228
|
|
|
|
31
|
|
|
Capital lease obligations
|
|
613
|
|
|
|
268
|
|
|
|
319
|
|
|
|
26
|
|
|
|
—
|
|
|
Operating lease obligations
|
|
40,644
|
|
|
|
7,403
|
|
|
|
10,388
|
|
|
|
6,530
|
|
|
|
16,323
|
|
|
Purchase obligations
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Multiemployer and UK pension obligations
|
|
2,874
|
|
|
|
373
|
|
|
|
747
|
|
|
|
747
|
|
|
|
1,007
|
|
|
Total before other long-term liabilities
|
|
$
|
527,548
|
|
|
|
$
|
43,737
|
|
|
|
$
|
355,893
|
|
|
|
$
|
108,101
|
|
|
|
$
|
19,817
|
|
|
Other long-term liabilities
|
|
16,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
543,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
As of the date of this report, other than changes related to the adoption of the new lease accounting standard as described in Note 8, “Leases” to the condensed consolidated financial statements, there are no material changes to the disclosures regarding off-balance sheet arrangements made in Part II, Item 7 of our Annual Report on Form 10-K/A for the year ended December 31, 2018.
Critical Accounting Policies and Estimates
The condensed consolidated financial statements have been prepared in accordance with GAAP which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities on the date of the financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K/A filed with the SEC on May 13, 2019 for the year ended December 31, 2018 and the accompanying Notes to Financial Statements (Part I, Item 1 of this Form 10-Q) for information with respect to our critical accounting policies, which we believe could have the most significant effect on our reported results and require subjective or complex judgments by management.
Management believes that as of September 27, 2019 and during the period from June 29, 2019 through September 27, 2019, there has been no material change to this information.
New Accounting Pronouncements
See Note 1, “Description of Business and Basis of Presentation” under the heading “Recently issued accounting standards” of the accompanying condensed consolidated financial statements.
