Item 2.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis of
the financial condition and results of our operations should be read together with our Condensed Consolidated Financial Statements
and the related Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. This discussion
contains forward-looking statements, based on current expectations and related to future events and our future financial performance,
that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking
statements as a result of many factors, including those set forth under the caption “Forward-Looking Statements” below
and Item 1A,—Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2015, as amended by Form 10-K/A
on April 29, 2016.
Explanatory Note: All share amounts and per share amounts below have
been adjusted to reflect the one-for-three reverse stock split effected as of January 30, 2015.
Forward
-
Looking Statements
This Quarterly Report contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to inherent
risks and uncertainties. These forward-looking statements present our current expectations and projections relating to our financial
condition, results of operations, plans, objectives, future performance and business and are based on assumptions that we have
made in light of our industry experience and perceptions of historical trends, current conditions, expected future developments
and other factors management believes are appropriate under the circumstances. However, these forward-looking statements are not
guarantees of future performance or financial or operating results. Forward-looking statements and uncertainties associated herewith
include, but are not limited to, the statements regarding the following: (1) incurring substantial losses for the foreseeable future
and our inability to achieve or sustain profitability in the future; (2) the potential impact of pursuing strategic alternatives,
including dissolution and liquidation of our Company; (3) our reliance on a single product line; (4) our securing sales to new
customers, growing net sales to existing key customers and increasing our market share, particularly in China; (5) customer concentration
in our business and our relationships with and dependence on key customers; (6) the outsourcing arrangements and reliance on third
parties for the manufacture of a portion of our encapsulants; (7) technological changes in the solar energy industry or our failure
to develop and introduce or integrate new technologies that could render our encapsulants uncompetitive or obsolete; (8) competition;
(9) our failure to manufacture product in China negatively affecting our ability to sell to Chinese solar module manufacturers;
(10) excess capacity in the solar supply chain; (11) demand for solar energy in general and solar modules in particular; (12) our
operations and assets in China being subject to significant political and economic uncertainties; (13) limited legal recourse under
the laws of China if disputes arise; (14) our ability to adequately protect our intellectual property, particularly during the
outsource manufacturing of our products in China; (15) our lack of credit facility and our inability to obtain credit; (16) a significant
reduction or elimination of government subsidies and economic incentives or a change in government policies that promote the use
of solar energy, particularly in China and the United States; (17) volatility in commodity costs; (18) our customers’ financial
profile causing additional credit risk on our accounts receivable; (19) our dependence on a limited number of third-party suppliers
for raw materials for our encapsulants and other significant materials used in our process; (20) potential product performance
matters and product liability; (21) our substantial international operations and shift of business focus to emerging markets; (22)
the impact of changes in foreign currency exchange rates on financial results and the geographic distribution of revenues; (23)
losses of financial incentives from government bodies in certain foreign jurisdictions; (24) compliance with the Qualifications
of the OTCQX; (25) the ability to realize synergies from the transaction with Zhenfa (as described herein); and (26) the other
risks and uncertainties described under “Risk Factors” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and in subsequent periodic reports on Form 10-K, 10-Q and 8-K. You are urged to carefully
review and consider the disclosure found in our filings which are available on http://www.sec.gov or http://www.strsolar.com. Should
one or more of these risks or uncertainties materialize, or should any of these assumptions prove to be incorrect, actual results
may vary materially from those projected in these forward-looking statements. We undertake no obligation to publicly update any
forward-looking statement contained in this Quarterly Report, whether as a result of new information, future developments or otherwise,
except as may be required by law.
Overview
STR Holdings, Inc. and its subsidiaries (“we”, “us”,
“our” or the “Company”) commenced operations in 1944 as a plastics and industrial materials research and
development company. Based upon our expertise in polymer science, we evolved into a global provider of encapsulants to the solar
industry. Encapsulant is a critical component used to protect and hold solar modules together.
We were the first to develop ethylene-vinyl acetate (“EVA”)
based encapsulants for use in commercial solar module manufacturing. Our initial development effort was conducted while under contract
to the predecessor of the U.S. Department of Energy in the 1970s. Since that time, we have expanded our solar encapsulant business
by investing in research and development and global production capacity.
In September 2011, we sold our Quality Assurance
(“QA”) business, which provided consumer product development, inspection, testing and audit services that enabled our
retail and manufacturing clients to determine whether products met applicable safety, regulatory, quality, performance and social
standards, to Underwriters Laboratories, Inc. (“UL”) for $275.0 million in cash, plus assumed cash. The historical
results of operations of our former QA business have been recast and presented as discontinued operations in this Quarterly Report
on Form 10-Q. Further information about our divestiture of the QA business is included in Item 7, Management’s Discussion
and Analysis of Financial Condition and Results of Operations, and Note 4, Discontinued Operations, of the Notes to Consolidated
Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of our Annual Report on Form 10-K for the
year ended December 31, 2015, as amended by Form 10-K/A on April 29, 2016.
Recent Developments and Strategy
Strategic Focus
For several years, we have been working to increase our market share
in China through investments in people, research and development and facilities. First, we increased our Chinese sales and technical
service teams to develop sound customer relationships at the tactical level and provide customer service in the local language,
custom and time zone. Second, we invested in research and development to broaden the process window of our encapsulant products
for use in Chinese module production processes, which differ from those found in the western markets we have historically
supplied. Broadening our process window, while also maintaining and optimizing our high-quality performance attributes of long-term
stability, low shrinkage, high light transmission and PID resistance, took significant effort and time. Third, we invested in local
manufacturing in China to shorten the order fulfillment cycle and to comply with customer demand for domestic production. Our subsidiary,
STR Solar (Hong Kong), Limited, also contracts with a contract manufacturer in China to manufacture certain of our encapsulant
products to our specification. This manufacturer currently has approximately 1.1 GW of annual active manufacturing capacity. In
addition, we have built out our own leased 57,500 square foot manufacturing facility located in Shajiabang, China. This facility
became operational in the fourth quarter of 2014 and now has 1.0 GW of production capacity.
We continue to operate at a substantial
net loss. Accordingly, we must increase net sales to cover our current and anticipated operating expenses, and to achieve or sustain
profitability in the future. We incurred net losses from continuing operations of approximately $13.4 million and $22.7 million
for the years ended December 31, 2015 and 2014, respectively. In addition, we incurred a net loss from continuing operations
of $8.0 million and $5.9 million for the six months ended June 30, 2016 and 2015, respectively.
Given the challenges we have faced in China,
we have, for some time, sought to align with Chinese companies engaged in the solar industry. As disclosed herein, our transactions
with Zhenfa Energy Group Co., Ltd., a Chinese limited liability company (“Zhenfa”), and their affiliates, in addition
to providing a substantial cash dividend for our stockholders, have provided us with a strategic alliance in China to assist us
in the highly competitive Chinese solar encapsulant manufacturing market.
Transaction with Zhenfa
We entered into certain definitive agreements
with Zhenfa and its indirect wholly-owned subsidiary, Zhen Fa New Energy (U.S.) Co., Ltd., a Nevada corporation (“Zhenfa
U.S.”).
Purchase Agreement and Special Dividend
On August 11, 2014, we entered into a Stock
Purchase Agreement (the “Purchase Agreement”) with Zhenfa U.S., pursuant to which we agreed to issue and sell to Zhenfa
U.S., and Zhenfa U.S. agreed to purchase from us, an aggregate of approximately 9.2 million shares (the “Purchased Shares”)
of our common stock for an aggregate purchase price (“Purchased Price”) of approximately $21.7 million, or $2.35 per
share (the “Transaction”). The Purchased Shares represented approximately 51% of our outstanding shares of common stock
upon the closing of the Transaction (the “Closing”), which occurred on December 15, 2014.
In connection with the Closing, we declared a special dividend (the
“Special Dividend”) on December 11, 2014 to be paid to all of our stockholders of record (other than Zhenfa U.S.) in
an amount equal to $2.55 per common share on January 2, 2015. The cash used to pay the Special Dividend was paid to our transfer
agent as of December 31, 2014.
Sales Service Agreement
In connection with the execution of
the Purchase Agreement, Specialized Technology Resources, Inc., our wholly owned subsidiary, entered into a sales service agreement
(the "Sales Service Agreement") with Zhenfa, whereby Zhenfa agreed, among other things, to assist us in a number of endeavors,
including, without limitation, marketing and selling our products in China, acquiring local raw materials, hiring and training
personnel in China, and complying with Chinese law. The Sales Service Agreement also provides us an option to lease a Zhenfa-owned
manufacturing facility rent free for a period of five years, extendable by an additional five years at 50% of the then-current
market rental rate. The Sales Service Agreement became effective on the date of Closing, has an initial term of two years following
the date of Closing and is automatically extended for one year periods unless terminated earlier. The Sales Service Agreement may
also be terminated by either party at such time as Zhenfa and its affiliates own less than 10% of our outstanding Common Stock.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial
condition and results of operations are based upon our interim condensed consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation
of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts
of assets, liabilities, net sales and expenses, and related disclosures of contingent assets and liabilities. We continually evaluate
our estimates, including those related to bad debts, valuation of inventory, long-lived assets, product performance matters, income
taxes, stock–based compensation and deferred tax assets and liabilities. We base our estimates on historical experience and
various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.
The accounting policies we believe to be most critical to understand our financial results and condition and that require complex
and subjective management judgments are discussed in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations-Critical Accounting Policies” in our Annual Report on Form 10–K filed with the Securities and
Exchange Commission on March 22, 2016, as amended by Form 10-K/A on April 29, 2016.
There have been no changes in our critical accounting policies during
the quarter ended June 30, 2016.
RESULTS OF OPERATIONS
Condensed Consolidated Results of Operations
The following tables set forth our condensed consolidated results
of operations for the three and six months ended June 30, 2016 and 2015:
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net sales
|
|
$
|
6,691
|
|
|
$
|
8,515
|
|
|
$
|
13,114
|
|
|
$
|
15,378
|
|
Cost of sales
|
|
|
6,631
|
|
|
|
8,581
|
|
|
|
13,455
|
|
|
|
15,590
|
|
Gross profit (loss)
|
|
|
60
|
|
|
|
(66
|
)
|
|
|
(341
|
)
|
|
|
(212
|
)
|
Selling, general and administrative expenses
|
|
|
1,782
|
|
|
|
2,808
|
|
|
|
3,691
|
|
|
|
5,390
|
|
Research and development expense
|
|
|
314
|
|
|
|
360
|
|
|
|
641
|
|
|
|
712
|
|
Provision (recovery) for bad debt expense
|
|
|
934
|
|
|
|
(189
|
)
|
|
|
1,359
|
|
|
|
(232
|
)
|
Operating loss
|
|
|
(2,970
|
)
|
|
|
(3,045
|
)
|
|
|
(6,032
|
)
|
|
|
(6,082
|
)
|
Interest income (expense), net
|
|
|
52
|
|
|
|
(52
|
)
|
|
|
41
|
|
|
|
(48
|
)
|
Other expense, net (Note 8)
|
|
|
(1,699
|
)
|
|
|
—
|
|
|
|
(1,699
|
)
|
|
|
—
|
|
Gain on disposal of fixed assets
|
|
|
2
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
Foreign currency transaction (loss) gain
|
|
|
(199
|
)
|
|
|
(163
|
)
|
|
|
(287
|
)
|
|
|
317
|
|
Loss from continuing operations before income tax expense (benefit)
|
|
|
(4,814
|
)
|
|
|
(3,260
|
)
|
|
|
(7,975
|
)
|
|
|
(5,813
|
)
|
Income tax expense (benefit) from continuing operations
|
|
|
199
|
|
|
|
53
|
|
|
|
(15
|
)
|
|
|
106
|
|
Net loss from continuing operations
|
|
$
|
(5,013
|
)
|
|
$
|
(3,313
|
)
|
|
$
|
(7,960
|
)
|
|
$
|
(5,919
|
)
|
Net Sales
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
Net sales
|
|
$
|
6,691
|
|
|
|
100.0
|
%
|
|
$
|
8,515
|
|
|
|
100.0
|
%
|
|
$
|
(1,824
|
)
|
|
|
(21.4
|
)%
|
|
$
|
13,114
|
|
|
|
100.0
|
%
|
|
$
|
15,378
|
|
|
|
100.0
|
%
|
|
$
|
(2,264
|
)
|
|
|
(14.7
|
)%
|
The decrease in net sales for the three
months ended June 30, 2016 compared to the corresponding period in 2015 was driven by an approximately 13% decrease in our average
selling price (“ASP”) and an approximately 10% decrease in sales volume. Net sales to three of our major customers
that exceeded 10% of the Company’s consolidated net sales for the three months ended June 30, 2016 were $3,066. Net
sales to three of our major customers that exceeded 10% of the Company’s consolidated net sales for the three months ended
June 30, 2015 were $3,720.
The price decline was primarily the result of increased sales to
customers located in China and India.
The volume decline was primarily driven
by a reduction of net sales with our largest customer, who modified its OEM manufacturing partner footprint in the latter part
of 2014 and announced the significant reduction of its OEM module business by the end of 2015, as described in Note 8, and an increase
in its in-house module production in China. Excluding this customer, with whom we are trying to re-engage business in China, volume
increased by approximately 7% with our remaining customers, primarily driven by a 151% volume increase in China, as well as growth
in India, which more than offset a decline with European customers.
The decrease in net sales for the six months
ended June 30, 2016 compared to the corresponding period in 2015 was driven by an approximately 9% decrease in our average selling
price (“ASP”) and an approximately 7% decrease in sales volume. The volume decline was driven by the factors mentioned
above.
On a sequential basis, net sales increased
by $0.3 million, or 4%, compared to the three months ended March 31, 2016. This increase was primarily driven by a 14% increase
in sales volume, offset by an 8% decrease in ASP. The sequential volume increase was driven by new Chinese customer wins, as well
as growth in Indian markets.
We are currently in the qualification process with potential additional
customers. The qualification process must occur with each prospective customer. The internal qualification process and timing are
managed and customized by each module manufacturer. In addition, we may also experience ramp delays after module manufacturers
complete the internal certification process and introduce our encapsulants in their mass-production process for the first time.
If our encapsulants do not perform similarly during initial module production as they did during certification and internal testing,
we may have to perform additional engineering and laboratory testing, and in some cases may have to change our encapsulant formulation,
which would require re-qualification testing. Any production ramp issues that we may experience with potential customers will require
additional costs to resolve and would reduce our net sales, both of which would negatively impact the results of our operations
and financial condition. Moreover, even if we successfully complete a qualification process for a customer, we cannot assure if
or when we may receive any orders from such customer on acceptable terms, if at all.
Cost of Sales
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
Cost of sales
|
|
$
|
6,631
|
|
|
|
99.1
|
%
|
|
$
|
8,581
|
|
|
|
100.8
|
%
|
|
$
|
(1,950
|
)
|
|
|
(22.7
|
)%
|
|
$
|
13,455
|
|
|
|
102.6
|
%
|
|
$
|
15,590
|
|
|
|
101.4
|
%
|
|
$
|
(2,135
|
)
|
|
|
(13.7
|
)%
|
The decrease in our cost of sales for the
three months ended June 30, 2016 compared to the corresponding period in 2015 was primarily driven by a 13% decrease in sales
volume, combined with an approximately 14% decrease in raw material cost per unit. The lower raw material cost per unit was primarily
driven by a 20% increase in paperless sales mix, which carries lower raw material costs, as well as improved efficiencies at our
China factory for the three months ended June 30, 2016 versus the corresponding 2015 period. Direct labor decreased by $0.2 million,
associated with the sales volume decrease. Overhead costs decreased by $0.5 million primarily due to continued cost-reduction actions.
The decrease in our cost of sales for the
six months ended June 30, 2016 compared to the corresponding period in 2015 was primarily driven by a 7% decrease in sales
volume combined with an approximately 6% decrease in raw material cost per unit. The lower raw material cost per unit was primarily
driven by a 15% increase in paperless sales mix and slightly lower resin costs, as well as improved efficiencies at our China factory
for the six months ended June 30, 2016 versus the corresponding 2015 period. Direct labor decreased by $0.2 million, associated
with the sales volume decrease. Overhead costs decreased by $0.7 million primarily due to continued cost-reduction actions.
Gross Profit (Loss)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
Gross profit (loss)
|
|
$
|
60
|
|
|
|
0.9
|
%
|
|
$
|
(66
|
)
|
|
|
(0.8
|
)%
|
|
$
|
126
|
|
|
|
190.9
|
%
|
|
$
|
(341
|
)
|
|
|
(2.6
|
)%
|
|
$
|
(212
|
)
|
|
|
(1.4
|
)%
|
|
$
|
(129
|
)
|
|
|
(60.8
|
)%
|
Gross loss, as a percentage of net sales,
improved for the three months ended June 30, 2016 compared to the corresponding period in 2015 mainly as a result of a decrease
in raw material cost per unit as described above.
Gross loss, as a percentage of net sales,
declined for the six months ended June 30, 2016 compared to the corresponding period in 2015 mainly as a result of a decrease
in ASP partially offset by lower raw material cost per unit, as described above, as well as foreign currency translation benefit
received by our Spanish plant.
Selling, General and Administrative Expenses (“SG&A”)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
SG&A
|
|
$
|
1,782
|
|
|
|
26.6
|
%
|
|
$
|
2,808
|
|
|
|
33.0
|
%
|
|
$
|
(1,026
|
)
|
|
|
(36.5
|
)%
|
|
$
|
3,691
|
|
|
|
28.1
|
%
|
|
$
|
5,390
|
|
|
|
35.1
|
%
|
|
$
|
(1,699
|
)
|
|
|
(31.5
|
)%
|
SG&A decreased by $1.0 million for the
three months ended June 30, 2016 compared to 2015. This decrease was primarily driven by a $0.2 million decrease in both labor
and benefits and annual incentive compensation expense, a $0.1 million decrease in stock-based compensation, a $0.1 million reduction
in travel expenses, $0.3 million of reduced professional fees and a $0.1 million non-recurring settlement of a state sales tax
audit in 2015.
SG&A decreased by $1.7 million for the
six months ended June 30, 2016 compared to 2015. This decrease was primarily driven by $0.5 million lower labor and benefits, $0.3
million of reduced annual incentive compensation expense, a $0.1 million decrease in stock-based compensation, a $0.2 million decrease
in travel expenses, a $0.4 million reduction in professional fees and a $0.1 million non-recurring settlement of a state sales
tax audit in 2015.
SG&A expenses for the three months ended
June 30, 2016 were $1.8 million compared to $1.9 million for the three months ended March 31, 2016. The sequential decrease was
driven by reductions in annual incentive compensation expense and professional fees partially offset by increased restructuring
charges.
Research and Development Expense (“R&D”)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
R&D
|
|
$
|
314
|
|
|
|
4.7
|
%
|
|
$
|
360
|
|
|
|
4.2
|
%
|
|
$
|
(46
|
)
|
|
|
(12.8
|
)%
|
|
$
|
641
|
|
|
|
4.9
|
%
|
|
$
|
712
|
|
|
|
4.6
|
%
|
|
$
|
(71
|
)
|
|
|
(10.0
|
)%
|
Research and development expense decreased modestly by less than
$0.1 million for the three and six months ended June 30, 2016 compared to the corresponding periods in the prior year, as our research
and development staffing and activity has remained relatively consistent during these periods.
Provision (Recovery) for Bad Debt Expense
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
Provision (recovery)
for bad debt expense
|
|
$
|
934
|
|
|
|
14.0
|
%
|
|
$
|
(189
|
)
|
|
|
(2.2
|
)%
|
|
$
|
1,123
|
|
|
|
594.2
|
%
|
|
$
|
1,359
|
|
|
|
10.4
|
%
|
|
$
|
(232
|
)
|
|
|
(1.5
|
)%
|
|
$
|
1,591
|
|
|
|
685.8
|
%
|
The provision (recovery) for bad debt expense
recorded during the three and six months ended June 30, 2016 primarily related to certain Chinese customers’ balances, partially
offset by receiving cash related to aged accounts receivable that were previously reserved for under our policy.
Other (Expense) Income, net
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
Other (expense) income, net
|
|
$
|
1,699
|
|
|
|
25.4
|
%
|
|
$
|
—
|
|
|
|
—
|
%
|
|
$
|
1,699
|
|
|
|
100.0
|
%
|
|
$
|
1,699
|
|
|
|
13.0
|
%
|
|
$
|
—
|
|
|
|
—
|
%
|
|
$
|
1,699
|
|
|
|
100.0
|
%
|
In July 2015, the Company announced a restructuring
plan that included the closure of its Malaysia facility, effective August 2, 2015. Subsequent to the announcement, the Company
engaged advisors and is actively trying to sell its land-use right, building and other fixed assets located at the facility. In
the first six months of 2016, the Company received and accepted an offer of RM25.0 million ($6.3 million) for the land-use right
and building, subject to completion of definitive documentation. As a result, an analysis of the asset group was performed and
an impairment of assets held for sale of $1.7 million was recorded.
Gain on Disposal of Fixed Assets
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
Gain on disposal of fixed assets
|
|
$
|
2
|
|
|
|
—
|
%
|
|
$
|
—
|
|
|
|
—
|
%
|
|
$
|
2
|
|
|
|
100.0
|
%
|
|
$
|
2
|
|
|
|
—
|
%
|
|
$
|
—
|
|
|
|
—
|
%
|
|
$
|
2
|
|
|
|
100.0
|
%
|
Foreign Currency Transaction (Loss) Gain
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
Foreign currency transaction (loss) gain
|
|
$
|
(199
|
)
|
|
|
(3.0
|
)%
|
|
$
|
(163
|
)
|
|
|
(1.9
|
)%
|
|
$
|
(36
|
)
|
|
|
(22.1
|
)%
|
|
$
|
(287
|
)
|
|
|
(2.2
|
)%
|
|
$
|
317
|
|
|
|
2.1
|
%
|
|
$
|
(604
|
)
|
|
|
(190.5
|
)%
|
The foreign currency transaction impact
was a loss of $0.2 million for the three months ended June 30, 2016 and 2015. This impact was primarily the result of volatility
in the Euro spot exchange rate versus the U.S. dollar, which decreased by less than 1% for the three months ended June 30,
2016 compared to a 19% decrease during the corresponding 2015 period.
The foreign currency transaction loss for
the six months ended June 30, 2016 was $0.3 million and the foreign currency gain for the six months ended June 30, 2015 was
$0.3 million. This change was primarily the result of volatility in the Euro spot exchange rate versus the U.S. dollar, which decreased
by less than 1% for the six months ended June 30, 2016 compared to a 19% decrease during the corresponding 2015 period.
Our primary foreign currency exposures are intercompany loans, U.S.
dollar cash balances in foreign locations and some U.S. dollar denominated accounts receivable at our Spanish facility.
Income Tax Expense (Benefit) from Continuing Operations
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
Income tax expense (benefit) from continuing operations
|
|
$
|
199
|
|
|
|
3.0
|
%
|
|
$
|
53
|
|
|
|
0.6
|
%
|
|
$
|
146
|
|
|
|
275.5
|
%
|
|
$
|
(15
|
)
|
|
|
(0.1
|
)%
|
|
$
|
106
|
|
|
|
0.7
|
%
|
|
$
|
(121
|
)
|
|
|
(114.2
|
)%
|
During the three and six months ended June
30, 2016, we recorded an income tax expense of $0.2 million and income tax benefit of less than $0.1 million, respectively, resulting
in an effective tax rate of (4.1)% and 0.2%, respectively. The income tax benefit was primarily related to the allocation of tax
expense between continuing operations and other comprehensive income when applying the exception to the ASC 740 intra-period allocation
rule. The projected annual effective tax rate, excluding the intraperiod allocation, is 0.0% as compared to the U.S. federal statutory
rate of 35.0%. The annual effective tax rate is principally driven by changes in valuation allowances.
During the three and six months ended June 30, 2015, we recorded
an income tax expense of $0.1 million and $0.1 million, respectively, resulting in an effective tax rate of (1.6)% and (1.8)%,
respectively. The tax provision reflected discrete items in the periods primarily related to interest on uncertain tax positions
resulting in a $0.1 million expense in the periods. The projected annual effective tax rate excluding these discrete items was
0.0% as compared to the U.S. federal statutory rate of 35.0%. The annual effective tax rate was principally driven by changes in
valuation allowances.
During the second quarter of 2016, we received an income tax refund
of $8.3 million from the Internal Revenue Service resulting from a 2014 federal net operating loss carryback.
Net Loss from Continuing Operations and Net Loss
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
% of
Total
Net
Sales
|
|
Amount
|
|
%
|
Net loss from continuing operations and net loss
|
|
$
|
(5,013
|
)
|
|
|
(74.9
|
)%
|
|
$
|
(3,313
|
)
|
|
|
(38.9
|
)%
|
|
$
|
(1,700
|
)
|
|
|
(51.3
|
)%
|
|
$
|
(7,960
|
)
|
|
|
(60.7
|
)%
|
|
$
|
(5,919
|
)
|
|
|
(38.5
|
)%
|
|
$
|
(2,041
|
)
|
|
|
(34.5
|
)%
|
Net loss from continuing operations and
net loss for the three months ended June 30, 2016 increased compared to the corresponding 2015 period driven by increased bad debt,
an unfavorable impact from foreign currency, the $1.7 million impairment of assets held for sale and increased income tax expense.
These items more than offset improved gross loss, improved SG&A and R&D and lower interest expense achieved in the second
quarter of 2016.
Net loss from continuing operations and
net loss for the three months ended June 30, 2016 increased by $1.7 million compared to the corresponding 2015 period driven by
a decline in gross profit, increased bad debt, an unfavorable impact from foreign currency and the $1.7 million impairment of assets held for sale.
These items more than offset improved SG&A and R&D, lower interest tax expense and lower income tax expense.
On a sequential basis, net loss from continuing
operations and net loss for the second quarter of 2016 was $(5.0) million compared to a net loss from continuing operations and
net loss of $(2.9) million for the first quarter of 2016. The sequentially higher net loss of $2.1 million was primarily due to
the $1.7 million impairment of assets held for sale and increased bad debt expense of $0.5 million.
Segment Results of Operations
We report our business in one reported segment. We measure segment
performance based on net sales, Adjusted EBITDA and non-GAAP loss per share from continuing operations (“non-GAAP EPS”).
See Note 17-Reportable Segment and Geographical Information located in the Notes to the Condensed Consolidated Financial Statements
for a definition of Adjusted EBITDA and further information. Net sales for our segment is described in further detail above and
non-GAAP EPS is described in further detail below. The discussion that follows is a summary analysis of net sales and the primary
changes in Adjusted EBITDA.
The following tables set forth information about our continuing operations
by reportable segment:
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Reconciliation of Adjusted EBITDA to Net Loss from Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
(2,371
|
)
|
|
$
|
(2,480
|
)
|
|
$
|
(4,886
|
)
|
|
$
|
(4,249
|
)
|
Depreciation
|
|
|
(476
|
)
|
|
|
(512
|
)
|
|
|
(950
|
)
|
|
|
(1,002
|
)
|
Interest income (expense), net
|
|
|
52
|
|
|
|
(52
|
)
|
|
|
41
|
|
|
|
(48
|
)
|
Income tax (expense) benefit
|
|
|
(199
|
)
|
|
|
(53
|
)
|
|
|
15
|
|
|
|
(106
|
)
|
Restructuring
|
|
|
(192
|
)
|
|
|
6
|
|
|
|
(194
|
)
|
|
|
(139
|
)
|
Stock–based compensation
|
|
|
(121
|
)
|
|
|
(222
|
)
|
|
|
(280
|
)
|
|
|
(375
|
)
|
Impairment of assets held for sale
|
|
|
(1,708
|
)
|
|
|
—
|
|
|
|
(1,708
|
)
|
|
|
—
|
|
Gain on disposal of fixed assets
|
|
|
2
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
Net Loss from Continuing Operations
|
|
$
|
(5,013
|
)
|
|
$
|
(3,313
|
)
|
|
$
|
(7,960
|
)
|
|
$
|
(5,919
|
)
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
|
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
|
Amount
|
|
Amount
|
|
Amount
|
|
%
|
Net Sales
|
|
$
|
6,691
|
|
|
$
|
8,515
|
|
|
|
(1,824
|
)
|
|
|
(21.4
|
)%
|
|
$
|
13,114
|
|
|
$
|
15,378
|
|
|
|
(2,264
|
)
|
|
|
(14.7
|
)%
|
Adjusted EBITDA
|
|
|
(2,371
|
)
|
|
|
(2,480
|
)
|
|
$
|
109
|
|
|
|
4.4
|
%
|
|
|
(4,886
|
)
|
|
|
(4,249
|
)
|
|
|
(637
|
)
|
|
|
(15.0
|
)%
|
Adjusted
EBITDA as % of
Segment Net Sales
|
|
|
(35.4
|
)%
|
|
|
(29.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
(37.3
|
)%
|
|
|
(27.6
|
)%
|
|
|
|
|
|
|
|
|
Adjusted EBITDA as a percentage of net sales
declined for the three months ended June 30, 2016 compared to 2015 driven by improved gross loss, SG&A and R&D, more
than offset by increased bad debt expense and unfavorable foreign currency impact.
Adjusted EBITDA as a percentage of net sales
declined for the six months ended June 30, 2016 compared to 2015 driven by improved SG&A and R&D, more than offset
by a decline in gross profit, increased bad debt expense and unfavorable foreign currency impact.
Adjusted EBITDA for the second quarter of
2016 was $(2.4) million compared to $(2.5) million from the first quarter of 2016. The sequential improvement was primarily due
to decreased SG&A and R&D partially offset by unfavorable foreign currency impact and increased bad debt expense.
Cost-Reduction Actions
In July 2015,
following
a decision by our largest customer to exit its OEM module production in Malaysia,
we decided to close our Malaysia facility,
effective August 2, 2015
.
During 2015, we recognized $0.3 million of severance and
benefits as well as a $0.5 million inventory write down in cost of sales and $0.5 million of severance and benefits in selling,
general and administrative expenses related to the Malaysia facility closure.
In June 2016, we eliminated certain positions
at our Spain facility effective July 5, 2016. We recorded $0.1 million of severance and benefits in cost of sales and $0.1 million
of severance and benefits in selling, general and administrative expenses during the second quarter of 2016.
A roll-forward of the severance and other exit cost accrual activity
was as follows:
|
|
June 30,
2016
|
|
June 30,
2015
|
Balance as of beginning of year
|
|
$
|
0.3
|
|
|
$
|
0.1
|
|
Additions
|
|
|
0.2
|
|
|
|
0.1
|
|
Reductions
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Balance as of end of period
|
|
$
|
0.4
|
|
|
$
|
0.1
|
|
The restructuring accrual consisted of $0.4 million and $0.1 million
for severance and benefits as of June 30, 2016 and 2015, respectively.
Non-GAAP Loss Per Share from Continuing Operations
To supplement our condensed consolidated
financial statements, we use a non-GAAP financial measure called non-GAAP EPS. Non-GAAP EPS is defined as net loss from continuing
operations, not including the tax effected impact of stock-based compensation and restructuring, divided by the weighted-average
shares outstanding and is defined for the periods presented in the following table. The weighted-average common share count for
GAAP reporting does not include the number of potentially dilutive common shares since these potential shares do not share in any
loss generated and are anti-dilutive. However, we have included these shares in our non-GAAP EPS calculations when we have generated
non-GAAP net earnings and such shares are dilutive in those periods. Refer to the weighted-average shares reconciliation below.
All amounts are stated in thousands, except per share amounts and unless otherwise noted.
We believe that non-GAAP EPS provides meaningful supplemental information
regarding our performance by excluding certain expenses that may not be indicative of the core business operating results and may
help in comparing current period results with those of prior periods as well as with our peers. Non-GAAP EPS is one of the main
metrics used by management and our Board of Directors to plan and measure our operating performance.
Although we use non-GAAP EPS as a measure to assess the operating
performance of our business, non-GAAP EPS has significant limitations as an analytical tool because it excludes certain material
costs. Because non-GAAP EPS does not account for these expenses, its utility as a measure of our operating performance has material
limitations. The omission of restructuring and stock-based compensation expense limits the usefulness of this measure. Non-GAAP
EPS also adjusts for the related tax effects of the adjustments and the payment of taxes is a necessary element of our operations.
Because of these limitations, management does not view non-GAAP EPS in isolation and uses other measures, such as Adjusted EBITDA,
net loss from continuing operations, net sales, gross loss and operating loss, to measure operating performance.
|
|
Three
Months
Ended
June 30,
2016
|
|
Three Months
Ended
June 30,
2015
|
|
Six
Months
Ended
June 30,
2016
|
|
Six Months
Ended
June 30,
2015
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
Net loss from continuing operations
|
|
(5,013)
|
|
(3,313)
|
|
(7,960)
|
|
$(5,919)
|
Adjustments to net loss from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock–based compensation expense
|
|
|
121
|
|
|
|
222
|
|
|
|
280
|
|
|
|
375
|
|
Restructuring
|
|
|
192
|
|
|
|
(6
|
)
|
|
|
194
|
|
|
|
139
|
|
Impairment of assets held for sale
|
|
|
1,708
|
|
|
|
—
|
|
|
|
1,708
|
|
|
|
—
|
|
Tax effect of adjustments
|
|
|
(107
|
)
|
|
|
(70
|
)
|
|
|
(155
|
)
|
|
|
(175
|
)
|
Non-GAAP net loss from continuing operations
|
|
|
(3,099
|
)
|
|
|
(3,167
|
)
|
|
|
(5,933
|
)
|
|
$
|
(5,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares outstanding GAAP
|
|
|
18,380,904
|
|
|
|
18,089,137
|
|
|
|
18,307,545
|
|
|
|
18,077,142
|
|
Diluted shares outstanding GAAP
|
|
|
18,380,904
|
|
|
|
18,089,137
|
|
|
|
18,307,545
|
|
|
|
18,077,142
|
|
Stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Restricted common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Diluted shares outstanding non-GAAP
|
|
|
18,380,904
|
|
|
|
18,089,137
|
|
|
|
18,307,545
|
|
|
|
18,077,142
|
|
Diluted net loss per share from continuing operations
|
|
|
(0.27
|
)
|
|
|
(0.18
|
)
|
|
|
(0.44
|
)
|
|
$
|
(0.33
|
)
|
Diluted non-GAAP net loss per share from continuing operations
|
|
|
(0.17
|
)
|
|
|
(0.18
|
)
|
|
|
(0.32
|
)
|
|
$
|
(0.31
|
)
|
Financial Condition, Liquidity and Capital Resources
We have funded our operations primarily
through our existing cash balance. As of June 30, 2016, our principal source of liquidity was $13.8 million of cash, $0.6 million
of bank acceptance notes and $2.0 million due from Zhenfa. Our principal needs for liquidity have been, and for the foreseeable
future we expect will continue to be, for working capital and capital investments. Payment terms are currently longer in China
than in many other locations, which results in delayed cash receipts from certain of our customers. Although we believe that our
available cash will be sufficient to meet our liquidity needs, including capital investments (mainly equipment upgrades and information
technology needs), through at least the next 12 months, if we are unable to collect our accounts receivable, amounts due from Zhenfa,
or fail to receive payment of these in a timely fashion, or obtain bank acceptance notes from our customers, our financial condition
and results of operations will be negatively affected. In order to mitigate this risk, we are attempting to obtain bank acceptance
notes with respect to the accounts receivable from certain of our Chinese customers and actively pursuing the collection of the
balance from Zhenfa.
In October 2015, our wholly owned Spanish
subsidiary, Specialized Technology Resources España S.A., entered into a factoring agreement to sell, with recourse, certain
European, U.S. and other foreign company-based receivables to Eurofactor Hispania S.A.U. Under the current terms of the factoring
agreement, the maximum amount of outstanding advances at any one time is €1.5 million ($1.7 million as of June 30, 2016),
which is subject to adjustment based on the level of eligible receivables, restrictions on concentrations of receivables and the
historical performance of the receivables sold. The annual discount rate is 2% plus EURIBOR for Euro-denominated receivables
and 2% plus LIBOR for all other currencies. The term of the agreement is for one year, which will be automatically extended
unless terminated by either party with 90 days prior written notice. As of June 30, 2016, €0.9 million ($1.1 million as of
June 30, 2016) was available under the factoring agreement based upon receivables outstanding.
In connection with our continued efforts
to return our encapsulant business to profitability, on July 24, 2015 our Board approved a restructuring of our encapsulant business,
which included the shut-down of our Malaysia manufacturing facility, effective August 2, 2015. We are in the process of selling
the Malaysia facility and its production and ancillary equipment. In connection with the shut-down and sale of the Malaysia facility,
we incurred approximately $1.3 million of associated non-recurring costs during the second half of 2015. In the first half of 2016,
we accepted an offer of RM25.0 million ($6.3 million) for the land-use right and building, subject to completion of definitive
documentation. As a result, an analysis of the asset group was performed and an impairment of assets held for sale of $1.7 million
was recorded. We cannot assure that we will be able to close the sale of our Malaysian real estate on a timely basis or on favorable
terms or that the costs of closure of that facility will not be higher than anticipated.
We remain open to exploring possible business
opportunities in potentially more profitable parts of the solar supply chain, as well as other strategic alternatives. We cannot
assure that we will be able to successfully pursue any such potential transactions. If we are successful in pursuing any such transactions,
we may be required to expend significant funds, incur additional debt or other obligations or issue additional securities, any
of which could significantly dilute our current stockholders and may negatively affect our operating results and financial condition.
We cannot assure that any such strategic transactions, or any financing in connection therewith, would be available on favorable
terms, if at all, or that we will realize any anticipated benefits from any such transactions that we complete. In the event that
we are not successful in restructuring our encapsulant business or pursuing opportunities in the downstream solar market or other
strategic transactions, we also intend to consider alternatives, including, without limitation, the acquisition of another business,
the divestiture of all or certain of our assets, joint ventures and other transactions outside the ordinary course of business.
If we are not able to fund our working capital
needs, we will have to slow our projected growth, which may further impede or delay our attempt to return to profitability. We
expect to fund our cash requirements with our existing cash and bank acceptance notes, leveraging our European factoring facility
and other potential working capital financing arrangements that we are currently seeking.
Our cash and cash equivalents balance is located in the following
geographies:
|
|
June 30, 2016
|
United States
|
|
$
|
9,461
|
|
Spain
|
|
|
2,987
|
|
Malaysia
|
|
|
163
|
|
China
|
|
|
1,092
|
|
Hong Kong
|
|
|
106
|
|
Consolidated
|
|
$
|
13,809
|
|
Due to the difficulty repatriating cash to the U.S., the $1.1
million of cash and cash equivalents located in China is expected to remain in China for working capital needs.
We do not permanently re-invest our Malaysia
subsidiary’s earnings. Based upon the Malaysia subsidiary’s liabilities to us, we expect the undistributed earnings
of our Malaysia subsidiary will be repatriated to the U.S. in a tax-free manner. We do not permanently re-invest our Spain earnings,
so this cash balance is available for dividend repatriation. We have accrued for this tax liability. We have not elected to permanently
re-invest our Hong Kong and China earnings and plan to utilize our cash located in Hong Kong and China to fund a portion of our
working capital requirements and capital investment in China. Our goal is to achieve and maintain self-sufficiency in each of our
manufacturing locations to meet their cash requirements. We cannot assure that we will continue to fund the manufacturing operations
in any location, if such operations would require investment of additional cash from other jurisdictions.
Cash Flows
Cash Flow from Operating Activities from Continuing Operations
Net cash provided by operating activities from
continuing operations was $5.8 million for the six months ended June 30, 2016 compared to net cash used in operating
activities of $3.7 million for the six months ended June 30, 2015. Net loss plus and minus non-cash adjustments (“cash
loss”) improved by approximately $1.1 million for the six months ended June 30, 2016 compared to the same period in
2015. This improvement was driven by the receipt of an $8.3 million income tax refund as well as consumption of excess
Malaysia inventory and the continued impact of cost-reduction efforts. These positive impacts were partially offset by the $2.2
million received from Zhenfa during the first six months of 2015, which did not recur in 2016.
Cash Flow from Operating Activities from Discontinued Operations
Net cash provided by operating activities from discontinued operations
was less than $0.1 million for the six months ended June 30, 2015 due to receiving cash refunds for a prior state tax receivable.
Cash Flow from Investing Activities from Continuing Operations
Net cash used in investing activities was $0.2 million and $2.3 million
for the six months ended June 30, 2016 and 2015, respectively. The 2015 capital investments related to the building improvements
at our Enfield, Connecticut location and the continued build out of our leased facility in China. We expect remaining 2016 consolidated
capital expenditures to be less than $0.5 million.
Free Cash Flow
We use an alternative non-GAAP measure of liquidity called free cash
flow. We define free cash flow as cash used in operating activities from continuing operations less capital investments. Free cash
flow was $5.7 million and $(6.0) million in the six months ended June 30, 2016 and 2015, respectively. We believe free cash flow
is an important measure of our overall liquidity and our ability to fund future growth and provide a return to stockholders. Free
cash flow does not reflect, among other things, mandatory debt service, other borrowing activity, discretionary dividends on our
common stock and acquisitions.
We consider free cash flow to be a liquidity measure that provides
useful information to management and investors about the amount of cash generated or used by the business that, after the funding
of R&D, required investment in working capital and acquisition of property and equipment, including production equipment, can
be used for strategic opportunities, including reinvestment in our business, making strategic acquisitions, returning capital to
stockholders and strengthening the Condensed Consolidated Balance Sheets. We also use this non-GAAP financial measure for financial
and operational decision making and as a means to evaluate period-to-period comparisons. Analysis of free cash flow also facilitates
management’s comparisons of our operating results to competitors’ operating results. A limitation of using free cash
flow versus the GAAP measure of cash used by operating activities from continuing operations as a means for evaluating our business
is that free cash flow does not represent the total increase or decrease in the cash balance from operations for the period. We
compensate for this limitation by providing information about the changes in our cash balance on the face of the Condensed Consolidated
Statements of Cash Flows and in the above discussion.
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
Cash provided by (used in)
operating activities from continuing operations
|
|
$
|
7,927
|
|
|
$
|
(2,012
|
)
|
|
$
|
5,836
|
|
|
$
|
(3,684
|
)
|
Less: capital investments
|
|
|
(165
|
)
|
|
|
(885
|
)
|
|
|
(174
|
)
|
|
|
(2,277
|
)
|
Free cash flow
|
|
$
|
7,762
|
|
|
$
|
(2,897
|
)
|
|
$
|
5,662
|
|
|
$
|
(5,961
|
)
|
Cash Flow from Financing Activities from Continuing Operations
Net cash provided by financing activities was $0.2 million for the
six months ended June 30, 2016 primarily due to our Spanish subsidiary receiving funds related to the factoring agreement.
Net cash used in financing activities was less than $0.1 million for the six months ended June 30, 2015 primarily due to trailing
payments related to the Special Dividend.
Off
-
Balance Sheet Arrangements
We have no off-balance sheet financing arrangements.
Effects of Inflation
Inflation generally affects us by increasing costs of raw materials,
labor and equipment. During the first six months of 2016, we were not negatively materially affected by inflation.
Recently Issued Accounting Standards
In January 2016, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2016-01, “Financial Instruments
- Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.” The main objective of this update
is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful
information. The new guidance addresses certain aspects of recognition, measurement, presentation, and disclosure of financial
instruments. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal
years. We are currently evaluating the new guidance to determine the impact it may have on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
"Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." The objective of this update
is to simplify several aspects of the accounting for employee share-based payment transactions, including the income tax consequences,
classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective
for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted.
We are currently evaluating the new guidance to determine the impact it may have on our consolidated financial statements.