Jason Industries, Inc. - FORM 10-Q - October 30, 2015

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 25, 2015
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from  __________ to __________ 

Commission File Number: 001-36051
 JASON INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
46-2888322
(State or other jurisdiction of
 incorporation or organization)
 
(I.R.S. Employer
 Identification Number)
 
411 East Wisconsin Avenue
Suite 2100
Milwaukee, Wisconsin
 
53202
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code:  (414) 277-9300
 
Not Applicable
(Former name or former address, if changed since last report)
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes ý No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨
 
Accelerated filer ý
Non-accelerated filer ¨
 
Smaller reporting company ¨
(Do not check if a smaller reporting company) 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ¨  No ý

As of October 28, 2015, there were 22,189,336 shares of common stock of the Company issued and outstanding. 



JASON INDUSTRIES, INC.
TABLE OF CONTENTS

1



PART I – FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
Jason Industries, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts) (Unaudited)
 
Successor
 
 
Predecessor
 
Three Months Ended September 25, 2015
 
Nine Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
June 28, 2014 Through June 29, 2014
 
January 1, 2014 Through June 29, 2014
 
 
 
 
 
 
Net sales
$
171,174

 
$
534,588

 
$
161,168

 
 
$
—

 
$
377,151

Cost of goods sold
135,733

 
418,576

 
137,763

 
 
690

 
294,175

Gross profit
35,441

 
116,012

 
23,405

 
 
(690
)
 
82,976

Selling and administrative expenses
31,704

 
95,718

 
30,081

 
 
(201
)
 
54,974

(Gain) loss on disposals of property, plant and equipment - net
(8
)
 
14

 
—

 
 
—

 
338

Restructuring
923

 
3,637

 
103

 
 
—

 
2,554

Transaction-related expenses
—

 
886

 
1,404

 
 
23,009

 
27,783

Operating income
2,822

 
15,757

 
(8,183
)
 
 
(23,498
)
 
(2,673
)
Interest expense
(7,996
)
 
(23,420
)
 
(7,809
)
 
 
(82
)
 
(7,301
)
Equity income
136

 
678

 
170

 
 
—

 
831

Gain from sale of joint ventures
—

 
—

 
—

 
 
—

 
3,508

Other income - net
48

 
133

 
57

 
 
—

 
107

(Loss) income before income taxes
(4,990
)
 
(6,852
)
 
(15,765
)
 
 
(23,580
)
 
(5,528
)
Tax provision (benefit)
(1,814
)
 
(1,917
)
 
(5,976
)
 
 
(5,652
)
 
(573
)
Net (loss) income
$
(3,176
)
 
$
(4,935
)
 
$
(9,789
)
 
 
$
(17,928
)
 
$
(4,955
)
Less net loss attributable to noncontrolling interests
(537
)
 
(834
)
 
(1,654
)
 
 
—

 
—

Net (loss) income attributable to Jason Industries
$
(2,639
)
 
$
(4,101
)
 
$
(8,135
)
 
 
$
(17,928
)
 
$
(4,955
)
Accretion of preferred stock dividends
900

 
2,700

 
910

 
 
—

 
—

Net (loss) income available to common shareholders of Jason Industries
$
(3,539
)
 
$
(6,801
)
 
$
(9,045
)
 
 
$
(17,928
)
 
$
(4,955
)

 
 
 
 
 
 
 
 
 
 
Net (loss) income per share available to common shareholders of Jason Industries:
 
 
 
 
 
 
 
 
 
 
Basic and diluted
$
(0.16
)
 
$
(0.31
)
 
$
(0.41
)
 
 
$
(17,928
)
 
$
(4,955
)
 
 
 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
 
 
 
Basic and diluted
22,161

 
22,056

 
21,991

 
 
1

 
1

The accompanying notes are an integral part of these condensed consolidated financial statements.


2



Jason Industries, Inc.
Condensed Consolidated Statements of Comprehensive (Loss) Income
(In thousands) (Unaudited)
 
Successor
 
 
Predecessor
 
Three Months Ended September 25, 2015
 
Nine Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
June 28, 2014 Through June 29, 2014
 
January 1, 2014 Through June 29, 2014
 
 
 
 
 
 
Net (loss) income
$
(3,176
)
 
$
(4,935
)
 
$
(9,789
)
 
 
$
(17,928
)
 
$
(4,955
)
Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
 
 
Employee retirement plan adjustments, net of tax
—

 
—

 
—

 
 
(792
)
 
(687
)
Cumulative foreign currency translation adjustments associated with joint ventures sold
—

 
—

 
—

 
 
—

 
(591
)
Foreign currency translation adjustments
(869
)
 
(8,911
)
 
(6,926
)
 
 
(2
)
 
(465
)
Total other comprehensive (loss) income
(869
)
 
(8,911
)
 
(6,926
)
 
 
(794
)
 
(1,743
)
Comprehensive (loss) income
(4,045
)
 
(13,846
)
 
(16,715
)
 
 
(18,722
)
 
(6,698
)
Less: Comprehensive (loss) income attributable to noncontrolling interests
(684
)
 
(2,340
)
 
(2,824
)
 
 
—

 
—

Comprehensive (loss) income attributable to Jason Industries
$
(3,361
)
 
$
(11,506
)
 
$
(13,891
)
 
 
$
(18,722
)
 
$
(6,698
)
The accompanying notes are an integral part of these condensed consolidated financial statements.


3




Jason Industries, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts) (Unaudited)
 
Successor
 
September 25, 2015
 
December 31, 2014
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
44,438

 
$
62,279

Accounts receivable - net of allowances for doubtful accounts of $2,206 at September 25, 2015 and $2,415 at December 31, 2014
92,354

 
80,080

Inventories - net
83,876

 
80,546

Deferred income taxes
8,948

 
11,105

Other current assets
28,076

 
23,087

Total current assets
257,692

 
257,097

Property, plant and equipment - net of accumulated depreciation of $36,225 at September 25, 2015 and $12,920 at December 31, 2014
197,622

 
176,478

Goodwill
165,429

 
156,106

Other intangible assets - net
196,987

 
198,683

Other assets - net
20,486

 
21,040

Total assets
$
838,216

 
$
809,404

 
 
 
 
Liabilities and Equity
 
 
 
Current liabilities
 
 
 
Current portion of long-term debt
$
6,460

 
$
5,375

Accounts payable
58,246

 
57,704

Accrued compensation and employee benefits
22,365

 
14,035

Accrued interest
6,712

 
199

Other current liabilities
27,166

 
21,759

Total current liabilities
120,949

 
99,072

Long-term debt
438,451

 
415,306

Deferred income taxes
88,271

 
91,205

Other long-term liabilities
18,683

 
21,146

Total liabilities
666,354

 
626,729

 
 
 
 
Commitments and contingencies (Note 15)

 

 
 
 
 
Equity
 
 
 
Preferred stock, $0.0001 par value (5,000,000 shares authorized,
45,000 shares issued and outstanding at September 25, 2015 and December 31, 2014)
45,000

 
45,000

Jason Industries common stock, $0.0001 par value (120,000,000 shares authorized; issued and outstanding: 22,189,336 shares at September 25, 2015 and 21,990,666 shares at December 31, 2014)
2

 
2

Additional paid-in capital
143,345

 
140,312

Retained deficit
(25,640
)
 
(21,539
)
Accumulated other comprehensive loss
(19,470
)
 
(12,065
)
Shareholders' equity attributable to Jason Industries
143,237

 
151,710

Noncontrolling interests
28,625

 
30,965

Total equity
171,862

 
182,675

Total liabilities and equity
$
838,216

 
$
809,404

The accompanying notes are an integral part of these condensed consolidated financial statements.

4



Jason Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
 
Successor
 
 
Predecessor
 
Nine Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
January 1, 2014 Through June 29, 2014
 
 
 
 
Cash flows from operating activities
 
 
 
 
 
 
Net (loss) income
$
(4,935
)
 
$
(9,789
)
 
 
$
(4,955
)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
 
 
 
 
 
 
Depreciation
22,585

 
6,460

 
 
10,125

Amortization of intangible assets
10,993

 
3,917

 
 
2,727

Amortization of deferred financing costs and debt discount
2,256

 
750

 
 
426

Equity income
(678
)
 
(170
)
 
 
(831
)
Deferred income taxes
(6,255
)
 
(4,432
)
 
 
(5,156
)
Loss on disposals of property, plant and equipment - net
14

 
—

 
 
338

Gain from sale of joint ventures
—

 
—

 
 
(3,508
)
Non-cash stock compensation
6,463

 
2,063

 
 
7,661

Net increase (decrease) in cash due to changes in:
 
 
 
 
 
 
Accounts receivable
(10,600
)
 
4,654

 
 
(20,632
)
Inventories
2,275

 
1,384

 
 
(5,602
)
Other current assets
(5,945
)
 
(812
)
 
 
(1,860
)
Accounts payable
(44
)
 
(5,036
)
 
 
7,266

Accrued compensation and employee benefits
7,378

 
(496
)
 
 
5,535

Accrued interest
6,514

 
6,761

 
 
(2,634
)
Accrued income taxes
369

 
(3,661
)
 
 
(706
)
Accrued transaction costs
(177
)
 
(9,821
)
 
 
16,807

Other - net
2,091

 
1,354

 
 
(760
)
Total adjustments
37,239

 
2,915

 
 
9,196

Net cash provided by (used in) operating activities
32,304

 
(6,874
)
 
 
4,241

Cash flows from investing activities
 
 
 
 
 
 
Proceeds from disposals of property, plant and equipment and other assets
116

 
32

 
 
159

Proceeds from sale of joint ventures
—

 
—

 
 
11,500

Payments for property, plant and equipment
(23,864
)
 
(6,598
)
 
 
(10,998
)
Acquisitions of business, net of cash acquired
(34,763
)
 
(489,169
)
 
 
—

Acquisitions of patents
(146
)
 
(33
)
 
 
(33
)
Other investing activities
—

 
(444
)
 
 
(490
)
Net cash (used in) provided by investing activities
(58,657
)
 
(496,212
)
 
 
138

Cash flows from financing activities
 
 
 
 
 
 
Payment of capitalized debt issuance costs
—

 
(12,977
)
 
 
(444
)
Payments of deferred underwriters fees
—

 
(5,175
)
 
 
—

Redemption of redeemable common stock
—

 
(26,101
)
 
 
—

Proceeds on issuance of preferred stock
—

 
45,000

 
 
—

Payments of preferred stock issuance costs
—

 
(2,500
)
 
 
—

Warrant tender offer
—

 
(6,609
)
 
 
—

Payments of 2013 U.S. term loan
—

 
—

 
 
(1,175
)
Proceeds from First Lien and Second Lien term loans
—

 
412,477

 
 
—

Payments of First Lien term loan
(1,550
)
 
—

 
 
—

Proceeds from U.S. revolving loans
—

 
—

 
 
64,725

Payments of U.S. revolving loans
—

 
—

 
 
(53,725
)
Proceeds from other long-term debt
18,538

 
2,255

 
 
1,383

Payments of other long-term debt
(4,078
)
 
(1,913
)
 
 
(3,868
)
Payments of preferred stock dividends
(2,700
)
 
—

 
 
—

Net cash provided by financing activities
10,210

 
404,457

 
 
6,896

Effect of exchange rate changes on cash and cash equivalents
(1,698
)
 
(1,020
)
 
 
(122
)
Net (decrease) increase in cash and cash equivalents
(17,841
)
 
(99,649
)
 
 
11,153

Cash and cash equivalents, beginning of period
62,279

 
177,077

 
 
16,318

Cash and cash equivalents, end of period
$
44,438

 
$
77,428

 
 
$
27,471

Supplemental disclosure of cash flow information
 
 
 
 
 
 
Non-cash financing activities:

 
 
 
 
 
Accretion of preferred stock dividends and redemption of premium
$
900

 
$
910

 
 
$
—

Noncontrolling interest contribution of Jason Partners Holdings, Inc. to JPHI Holdings, Inc.
$
—

 
$
35,780

 
 
$
—

The accompanying notes are an integral part of these condensed consolidated financial statements.


5


Jason Industries, Inc.
Condensed Consolidated Statements of Shareholders’ Equity
(In thousands) (Unaudited)

 
Preferred Stock
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Shareholders' Equity
Attributable to Jason
Industries, Inc.
 
Noncontrolling
Interests
 
Total Equity
Balance at December 31, 2014, Successor
$
45,000

 
$
2

 
$
140,312

 
$
(21,539
)
 
$
(12,065
)
 
$
151,710

 
$
30,965

 
$
182,675

Dividends declared
—

 
—

 
(2,700
)
 
—

 
—

 
(2,700
)
 
—

 
(2,700
)
Stock compensation expense
—

 
—

 
6,463

 
—

 
—

 
6,463

 
—

 
6,463

Tax withholding related to vesting of restricted stock units
—

 
—

 
(730
)
 
—

 
—

 
(730
)
 
—

 
(730
)
Net (loss)
—

 
—

 
—

 
(4,101
)
 
—

 
(4,101
)
 
(834
)
 
(4,935
)
Foreign currency translation adjustments
—

 
—

 
—

 
—

 
(7,405
)
 
(7,405
)
 
(1,506
)
 
(8,911
)
Balance at September 25, 2015, Successor
$
45,000

 
$
2

 
$
143,345

 
$
(25,640
)
 
$
(19,470
)
 
$
143,237

 
$
28,625

 
$
171,862


 
Preferred Stock
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Shareholders' Equity
Attributable to Jason
Industries, Inc.
 
Noncontrolling
Interests
 
Total Equity
Balance at December 31, 2013, Predecessor
$
—

 
$
—

 
$
25,358

 
$
4,640

 
$
474

 
30,472

 
$
—

 
$
30,472

Stock compensation expense
—

 
—

 
7,661

 
—

 
—

 
7,661

 
—

 
7,661

Net income
—

 
—

 
—

 
(4,955
)
 
—

 
(4,955
)
 
—

 
(4,955
)
Employee retirement plan adjustments, net of tax
—

 
—

 
—

 
—

 
(687
)
 
(687
)
 
—

 
(687
)
Foreign currency translation adjustments
—

 
—

 
—

 
—

 
(1,056
)
 
(1,056
)
 
—

 
(1,056
)
Balance at June 29, 2014, Predecessor
—

 
—

 
33,019

 
(315
)
 
(1,269
)
 
31,435

 
—

 
31,435

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Elimination of predecessor common stock, additional paid-in-capital, retained (deficit), and accumulated other comprehensive (loss)
—

 
—

 
(33,019
)
 
315

 
1,269

 
(31,435
)
 
—

 
(31,435
)
Adjustment to reflect Jason Industries common stock, additional paid-in-capital, and retained (deficit) (1)
—

 
2

 
147,102

 
(9,921
)
 
—

 
137,183

 
—

 
137,183

Noncontrolling interests in JPHI Holdings, Inc.
—

 
—

 
—

 
—

 
—

 
—

 
35,780

 
35,780

Issuance of series A convertible perpetual preferred stock
45,000

 
—

 
(2,500
)
 
—

 
—

 
42,500

 
—

 
42,500

Balance at June 30, 2014, Successor
45,000

 
2

 
144,602

 
(9,921
)
 
—

 
179,683

 
35,780

 
215,463

Warrant tender
—

 
—

 
(6,609
)
 
—

 
—

 
(6,609
)
 
—

 
(6,609
)
Dividends declared
—

 
—

 
(910
)
 
—

 
—

 
(910
)
 
—

 
(910
)
Stock compensation expense
—

 
—

 
2,063

 
—

 
—

 
2,063

 
—

 
2,063

Net (loss)
—

 
—

 
—

 
(8,135
)
 
—

 
(8,135
)
 
(1,654
)
 
(9,789
)
Foreign currency translation adjustments
—

 
—

 
—

 
—

 
(5,756
)
 
(5,756
)
 
(1,170
)
 
(6,926
)
Balance at September 26, 2014, Successor
$
45,000

 
$
2

 
$
139,146

 
$
(18,056
)
 
$
(5,756
)
 
$
160,336

 
$
32,956

 
$
193,292

(1) Adjustment to reflect Jason Industries common stock, additional paid-in capital, and retained deficit is net of common stock redeemed on June 30, 2014, which reduced additional paid in capital by $26,101.

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

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 diversified industrial manufacturing company with four reportable segments: seating, finishing, acoustics, and components. The segments have separate management teams and have operations within the United States and 14 foreign countries. The Company is a producer of seating for the motorcycle and off-road vehicle sectors, and a supplier of static seats to the commercial and residential lawn/turf sector. The Company is also a producer of non-woven acoustical fiber insulation for the automotive sector and a global manufacturer of industrial consumables (brushes, buffing wheels, buffing compounds, and abrasives). The Company also manufactures precision components, expanded and perforated metal, and slip-resistant walking surfaces.
The Company was originally incorporated in Delaware on May 31, 2013 as a blank check company, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination. On June 30, 2014 (the “Closing Date”), the Company consummated its business combination with Jason Partners Holdings Inc. (“Jason”) pursuant to the stock purchase agreement, dated as of March 16, 2014, which provided for the acquisition of all of the capital stock of Jason by the Company (the “Business Combination”). In connection with the closing of the Business Combination, the Company changed its name from Quinpario Acquisition Corp. to Jason Industries, Inc. and commenced trading of its common stock and warrants under the symbols, “JASN” and “JASNW”, respectively, on NASDAQ. See Note 2 for a further discussion of the Business Combination.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles 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 accounting principles generally accepted in the United States 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 for the year ended December 31, 2014.
As a result of the Business Combination, the Company was identified as the acquirer for accounting purposes, and Jason is the acquiree and accounting predecessor. The Company’s financial statement presentation distinguishes a “Predecessor” for Jason for periods prior to the Closing Date.  The Company was subsequently re-established as Jason Industries, Inc. and is the “Successor” for periods after the Closing Date, which includes the consolidation of Jason subsequent to the Business Combination on June 30, 2014.  The acquisition was accounted for as a business combination using the acquisition method of accounting, and the Successor financial statements reflect a new basis of accounting that is based on the fair value of net assets acquired.  See Note 2 for further discussion of the Business Combination.  As a result of the application of the acquisition method of accounting as of the effective date of the acquisition, the financial statements for the Predecessor period and for the Successor period are presented on a different basis and, therefore, are not comparable.
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 2015, the Company’s fiscal quarters are comprised of the three months ending March 27, June 26, September 25 and December 31. In 2014, the Company’s fiscal quarters were comprised of the three months ended March 28, June 27, September 26 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.

7

Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)


Recently issued accounting standards
In September 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2015-16, “Simplifying the Accounting for Measurement Period Adjustments” (“ASU 2015-16”). ASU 2015-16 requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 is effective for interim and annual periods beginning after December 15, 2016. Early application is permitted and should be applied prospectively.
In August 2015, the FASB issued ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Association with Line of Credit Arrangements” (“ASU 2015-15”). ASU 2015-15 indicates that previously issued guidance did not address presentation or subsequent measurement of debt issuance costs related to line of credit arrangements. Given the absence of authoritative guidance, the SEC staff has indicated that they would not object to an entity deferring and presenting debt issuance costs as assets and amortizing the deferred costs ratably over the term of the line of credit arrangement, regardless of whether there are any outstanding borrowings on the line of credit arrangement. The guidance is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. Management is evaluating the provisions of this statement and has not determined what impact the adoption of ASU 2015-15 will have on the Company’s financial position or results of operations.
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory” (“ASU 2015-11”). Under ASU 2015-11, inventory will be measured at the “lower of cost and net realizable value” and options that currently exist for “market value” will be eliminated. ASU 2015-11 defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” No other changes were made to the current guidance on inventory measurement. ASU 2015-11 is effective for interim and annual periods beginning after December 15, 2016. Early application is permitted and should be applied prospectively. Management is evaluating the provisions of this statement and has not determined what impact the adoption of ASU 2015-11 will have on the Company's financial position or results of operations.
2.
Consummation of Business Combination
On June 30, 2014, the Company and Jason completed the Business Combination in which JPHI Holdings Inc. (“JPHI”), a majority owned subsidiary of the Company, acquired 100 percent of the capital stock of Jason. The purchase price of $536.0 million was funded by the cash proceeds from the Company’s initial public offering, new debt, the issuance of 45,000 shares of 8% Series A Convertible Perpetual Preferred Stock (the “Series A Preferred Stock”) and rollover equity invested by Jason’s former owners and management of Jason (collectively the “Rollover Participants”). The purchase price includes the payment of $9.2 million for current assets that are in excess of normalized working capital requirements. For the period January 1, 2014 through June 29, 2014 and the period June 30, 2014 through September 26, 2014, the Company incurred approximately $27.8 million and $1.2 million, respectively, of transaction expenses directly related to the Business Combination.
Following the consummation of the Business Combination, Jason became an indirect majority-owned subsidiary of the Company, with the Company owning approximately 83.1 percent of JPHI and the Rollover Participants owning a noncontrolling interest of approximately 16.9 percent of JPHI. The Rollover Participants held 3,485,623 shares of JPHI exchangeable on a one-for-one basis for shares of common stock of the Company.
The following unaudited pro forma combined financial information presents the Company’s results as though Jason and the Company had combined at January 1, 2013. Pro forma net earnings attributable to common shareholders were adjusted to exclude $5.6 million and $38.4 million, respectively, of transaction-related expenses incurred in the three and nine months ended September 26, 2014. The unaudited pro forma condensed consolidated financial information has been prepared using the acquisition method of accounting in accordance with GAAP.
 
(unaudited pro forma)
 
Three Months Ended
September 26, 2014
Nine Months Ended
September 26, 2014
 
Net sales
$
161,168

$
538,319

Net income attributable to common shareholders of Jason Industries
$
(6,286
)
$
(5,655
)
    

8

Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)


The Company recorded an allocation of the purchase price to Jason’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the June 30, 2014 acquisition date. The calculation of the purchase price allocation is as follows:
 
Purchase
Price Allocation
Cash and cash equivalents
$
11,049

Accounts receivable
97,693

Inventories - net
83,538

Deferred income taxes - current (net)
8,095

Other current assets
18,973

Property, plant and equipment
179,871

Goodwill
158,483

Other intangible assets
208,450

Other assets - net
8,469

Current liabilities
(111,151
)
Deferred income taxes (net)
(97,266
)
Debt
(11,277
)
Other long-term liabilities
(18,929
)
Total purchase price
$
535,998

3.
Acquisitions
DRONCO GmbH (“DRONCO”)
On May 29, 2015, the Company acquired all of the outstanding shares of DRONCO. DRONCO is a European manufacturer of bonded abrasives. These abrasives are being manufactured and distributed by the finishing segment. The Company paid cash consideration of $34.4 million, net of cash acquired, and, pursuant to the transaction, assumed certain liabilities. The related purchase agreement includes customary representations, warranties and covenants between the named parties.
The acquisition was accounted for using the acquisition method. The operating results and cash flows of DRONCO are included in the Company’s condensed consolidated financial statements from May 29, 2015, the date the Company entered into the purchase agreement.

9

Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)


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 May 29, 2015 acquisition date. The preliminary consideration and preliminary purchase price allocation is as follows:
 
Calculation of Purchase Price
Cash
$
34,938

Debt
11,031

Purchase consideration
$
45,969

 
Preliminary Purchase Price Allocation
Cash and cash equivalents
$
524

Accounts receivable
3,430

Inventories - net
7,156

Deferred income taxes - current (net)
62

Other current assets
1,495

Property, plant and equipment
23,931

Goodwill
10,458

Other intangible assets
9,285

Other assets - net
42

Current liabilities
(4,497
)
Deferred income taxes (net)
(5,765
)
Other long-term liabilities
(152
)
Total purchase price
$
45,969

The preliminary purchase price allocation resulted in goodwill of $10.5 million in the finishing segment, of which none is deductible for tax purposes. Goodwill generated from DRONCO is primarily attributable to expected synergies from leveraging the finishing segment’s global distribution and sales network and cross-selling of DRONCO’s product portfolio to the finishing segment’s customer base. During the third quarter of 2015, the Company adjusted its preliminary purchase price allocation and recorded adjustments to decrease the customer relationships intangible asset by $2.4 million and to increase goodwill, net of taxes, by $1.7 million.
The preliminary values allocated to other intangible assets and the weighted average useful lives are as follows:
 
Gross Carrying Amount
 
Weighted Average Useful Life (years)
Customer relationships
$
6,130

 
15
Tradenames
3,155

 
15
 
$
9,285

 
 
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 final adjustments to reflect the final valuations.
The Company recognized $0.9 million of acquisition-related costs that were expensed in the nine months ended September 25, 2015. These costs are included in the condensed consolidated statements of operations as “Transaction-related expenses”. During the three and nine months ended September 25, 2015, $11.3 million and $14.8 million of net sales from DRONCO were included in the Company’s condensed consolidated statements of operations.
Pro forma historical results of operations related to the acquisition of DRONCO have not been presented as they are not material to the Company’s condensed consolidated statements of operations.

10

Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)


Herold Partco    
On March 25, 2015, the Company acquired Herold Partco Manufacturing, Inc. for $0.4 million. Herold Partco Manufacturing, Inc. is a Cleveland-based manufacturer of industrial brushes. These brushes are now manufactured and distributed by the finishing segment and sold under the Osborn brand name. The purchase price allocation for this transaction resulted in goodwill of $0.1 million, other intangible assets of $0.2 million and inventory of $0.1 million.
The acquisition of Herold Partco Manufacturing, Inc. was not material to the Company’s condensed consolidated financial statements.
4.
Sale of Joint Ventures
During the first quarter of 2014, Jason completed the sale of its 50% equity interest in two of its joint ventures for a total of $11.5 million. The sale of one of the joint ventures in the amount of $7.5 million was completed in January 2014 and the sale of the second joint venture in the amount of $4.0 million was completed in March 2014. The Company recorded a $3.5 million gain on the sale of the joint ventures, which is reported separately on the condensed consolidated statements of operations. The gain includes the recognition of $0.6 million of cumulative translation adjustments which had been recorded in accumulated other comprehensive income. The $0.6 million is reported separately in the condensed consolidated statements of comprehensive income. Terms of the sale include a supply agreement which allows Jason to purchase product at established prices over the agreement’s three-year term.
5.
Restructuring Costs
The Company has continued to make changes to its worldwide manufacturing footprint. These actions resulted in charges relating to employee severance and other related charges, such as exit costs for the consolidation and closure of plant facilities, employee relocation and lease termination costs. During the three and nine months ended September 25, 2015, the Company incurred $0.9 million and $3.6 million of restructuring charges, respectively. During the period January 1, 2014 through June 29, 2014, the Company incurred $2.6 million of restructuring charges. During the period from June 30, 2014 through September 26, 2014, the Company incurred $0.1 million of restructuring charges. These restructuring costs are presented separately on the condensed consolidated statements of operations.
The following table presents the restructuring liability:
 
Severance
costs
 
Lease
termination
costs
 
Other costs
 
Total
Balance - December 31, 2014, Successor
$
88

 
$
1,056

 
$
97

 
$
1,241

Current period restructuring charges
1,498

 
1,089

 
1,050

 
3,637

Cash payments
(904
)
 
(957
)
 
(954
)
 
(2,815
)
Non-cash charges and other
269

 
—

 
(193
)
 
76

Balance - September 25, 2015, Successor
$
951

 
$
1,188

 
$
—

 
$
2,139

 
 
 
 
 
 
 
 
 
Severance
costs
 
Lease
termination
costs
 
Other costs
 
Total
Balance - December 31, 2013, Predecessor
$
1,112

 
$
818

 
$
65

 
$
1,995

Current period restructuring charges
629

 
631

 
1,294

 
2,554

Cash payments
(1,088
)
 
(104
)
 
(899
)
 
(2,091
)
Balance - June 29, 2014, Predecessor
$
653

 
$
1,345

 
$
460

 
$
2,458

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current period restructuring charges
246

 
—

 
(143
)
 
103

Cash payments
(261
)
 
(209
)
 
(147
)
 
(617
)
Balance - September 26, 2014, Predecessor
$
638

 
$
1,136

 
$
170

 
$
1,944

The accruals for severance presented above relate to costs incurred in the finishing segment as of the period ended September 25, 2015. These accruals are expected to be utilized during the next twelve months and are recorded within other current liabilities on the condensed consolidated balance sheets. During the nine months ended September 25, 2015, the accrual for lease termination costs of $1.2 million relates to restructuring costs within the acoustics segment due to the closure of the

11

Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)


Norwalk facility. At September 25, 2015 and December 31, 2014, $0.4 million and $0.6 million, respectively, are recorded within other long-term liabilities and $0.8 million and $0.5 million, respectively, are recorded within other current liabilities on the condensed consolidated balance sheets.
6.
Inventories
Inventories consisted of the following:
 
Successor
 
September 25, 2015
 
December 31, 2014
Raw material
$
43,357

 
$
42,803

Work-in-process
5,427

 
5,572

Finished goods
35,092

 
32,171

Total Inventories
$
83,876

 
$
80,546

7.
Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill are as follows:
 
Seating
 
Finishing
 
Acoustics
 
Components
 
Total
Balance as of December 31, 2014 (Successor)
$
58,139

 
$
34,608

 
$
30,176

 
$
33,183

 
$
156,106

Acquisition of businesses
—

 
10,506

 
—

 
—

 
10,506

Foreign currency impact
—

 
(867
)
 
(316
)
 
—

 
(1,183
)
Balance as of September 25, 2015 (Successor)
$
58,139

 
$
44,247

 
$
29,860

 
$
33,183

 
$
165,429

The Company’s other intangible assets consisted of the following:
 
Successor
 
September 25, 2015
 
December 31, 2014
 
Gross
Carrying
Amount    
 
Accumulated
Amortization
 
Net        
 
Gross
Carrying    
Amount
 
Accumulated
Amortization
 
Net        
Patents
$
3,003

 
$
(507
)
 
$
2,496

 
$
2,841

 
$
(200
)
 
$
2,641

Customer relationships
144,373

 
(12,206
)
 
132,167

 
138,864

 
(4,846
)
 
134,018

Trademarks and other intangibles
67,904

 
(5,580
)
 
62,324

 
64,162

 
(2,138
)
 
62,024

Total amortized other intangible assets
$
215,280

 
$
(18,293
)
 
$
196,987

 
$
205,867

 
$
(7,184
)
 
$
198,683

8.
Debt
The Company’s debt consisted of the following:
 
Successor
 
September 25, 2015
 
December 31, 2014
First Lien Term Loans
$
307,675

 
$
309,225

Debt discount on First Lien Term Loans
(3,130
)
 
(3,538
)
Second Lien Term Loans
110,000

 
110,000

Debt discount on Second Lien Term Loans
(3,132
)
 
(3,480
)
Foreign debt
31,830

 
6,515

Capital lease obligations
1,668

 
1,959

Total debt
444,911

 
420,681

Less: Current portion
(6,460
)
 
(5,375
)
Total long-term debt
$
438,451

 
$
415,306

    

12

Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)


Senior Secured Credit Facilities
As of September 25, 2015, the Company’s U.S. credit facility (the “Senior Secured Credit Facilities”) includes (i) term loans in an aggregate principal amount of $307.7 million (“First Lien Term Loans”) maturing in 2021, (ii) term loans in an aggregate principal amount of $110.0 million (“Second Lien Term Loans”) maturing in 2022, and (iii) a revolving loan of up to $40.0 million (“Revolving Credit Facility”) maturing in 2019.
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 “prime rate” of Deutsche Bank AG New York Branch, (b) the federal funds effective rate plus 0.50% and (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.
Under the Revolving Credit Facility, if the aggregate outstanding amount of all Revolving Loans, swingline loans and certain letter of credit obligations exceeds 25 percent of the revolving credit commitments 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, initially specified at 5.50 to 1.00, with periodic decreases beginning on July 1, 2016 to 5.25 to 1.00, and decreasing to 4.50 to 1.00 on December 31, 2017 and remaining at that level thereafter. If such outstanding amounts do not exceed 25 percent of the revolving credit commitments at the end of any fiscal quarter, no financial covenants are applicable.
At September 25, 2015, the interest rates on the outstanding balances of the First Lien Term Loans and Second Lien Term Loans were 5.5% and 9.0%, respectively. At September 25, 2015, the Company had a total of $36.2 million of availability for additional borrowings under the Revolving Credit Facility since the Company had no outstanding borrowings and letters of credit outstanding of $3.8 million, which reduce availability under the facility.
Foreign debt
At September 25, 2015 and December 31, 2014, the Company had $31.8 million and $6.5 million, respectively, in foreign debt obligations, including various overdraft facilities and term loans. The largest foreign debt balances are held by the Company’s subsidiaries in Germany (approximately $29.7 million and $5.2 million as of September 25, 2015 and December 31, 2014, respectively), Mexico (approximately $1.7 million and $0.0 million as of September 25, 2015 and December 31, 2014, respectively), and Brazil (approximately $0.4 million and $1.1 million as of September 25, 2015 and December 31, 2014, respectively). These various foreign loans are comprised of individual outstanding obligations ranging from approximately $0.1 million to $13.5 million and $0.1 million to $2.6 million as of September 25, 2015 and December 31, 2014, respectively.
In connection with the acquisition of DRONCO, the Company assumed $11.0 million of debt comprised of term loan borrowings totaling $8.5 million and revolving line of credit borrowings totaling $2.5 million. Borrowings bear interest at fixed and variable rates ranging from 2.3% to 4.6% and are subject to repayment in varying amounts through 2030. During the third quarter of 2015, the Company entered into a new $13.5 million term loan in Germany. Borrowings bear interest at a fixed rate of 2.25% and are subject to repayment in equal quarterly amounts of approximately $0.4 million beginning September 30, 2017 through June 30, 2025.

13

Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)


9.
Share Based Compensation
Upon completion of the Business Combination, the Compensation Committee of the Company’s Board of Directors approved an initial grant under the 2014 Omnibus Incentive Plan (the “2014 Plan”) to certain executive officers, senior management employees, and members of the Board of Directors. 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 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.
There were 3,473,435 shares of common stock reserved and authorized for issuance under the 2014 Plan. At September 25, 2015, 560,787 shares of common stock remain authorized and available for future grant under the 2014 Plan.
The Company recognized the following share-based compensation expense:
 
Successor
 
Three Months Ended
September 25, 2015
 
 Nine Months Ended
September 25, 2015
 
June 30, 2014 Through September 26, 2014
Compensation Expense:
 
 
 
 
 
Restricted Stock Units
$
776

 
$
2,356

 
$
785

Adjusted EBITDA Vesting Awards
551

 
1,984

 
708

Stock Price Vesting Awards
184

 
1,247

 
570

 
1,511

 
5,587

 
2,063

Impact of accelerated vesting (1)
—

 
876

 
—

Total share-based compensation expense
$
1,511

 
$
6,463

 
$
2,063

 
 
 
 
 
 
Total income tax benefit recognized
$
404

 
$
2,121

 
$
800

(1) Represents the impact of the acceleration of certain vesting schedules for restricted stock units and stock price vesting awards related to the transition of the Company’s CFO.
As of September 25, 2015, total unrecognized compensation cost related to share-based compensation awards was approximately $9.1 million, net of estimated forfeitures, which the Company expects to recognize over a weighted average period of approximately 1.6 years.    
The following table sets forth the restricted and performance share unit activity:
 
Restricted Stock Units
 
Adjusted EBITDA Vesting Awards
 
Stock Price Vesting Awards
 
Units
 
Weighted-Average Grant-Date Fair Value
 
Units
 
Weighted-Average Grant-Date Fair Value
 
Units
 
Weighted-Average Grant-Date Fair Value
Nonvested at December 31, 2014
762,075

 
$
10.50

 
1,215,704

 
$
10.49

 
810,469

 
$
3.54

Granted
186,827

 
6.79

 
91,178

 
7.70

 
60,785

 
1.08

Vested
(306,820
)
 
10.49

 
—

 
—

 
—

 
—

Forfeited
(17,367
)
 
10.49

 
(166,620
)
 
10.49

 
(20,262
)
 
3.54

Nonvested at September 25, 2015
624,715

 
$
9.39

 
1,140,262

 
$
10.27

 
850,992

 
$
3.36

Restricted Stock Units    
As of September 25, 2015, there was $4.4 million of unrecognized share-based compensation expense, which is expected to be recognized over a weighted-average period of 1.6 years.
In connection with the vesting of RSUs previously issued 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 three and nine months ended September 25, 2015, 71,684 shares and 108,155 shares,

14

Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)


respectively, with an aggregate value of $0.4 million and $0.7 million, respectively, were 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’ equity.
Performance Share Units
Adjusted EBITDA Vesting Awards
Compensation expense for cumulative Adjusted EBITDA based performance share unit awards is currently being recognized based on an estimated payout of 100% of target or 753,421 shares. As of September 25, 2015, there was $4.3 million of unrecognized 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 1.8 years.
Stock Price Vesting Awards
As of September 25, 2015, there was $0.4 million of unrecognized compensation expense related to stock price based performance share unit awards, which is expected to be recognized over a weighted average period of 0.7 years.
The following summarizes the assumptions used in the Monte Carlo option pricing model to value stock price vesting awards granted during the nine months ended September 25, 2015:
Risk-free interest rate
0.24% - 1.33%

Weighted average volatility
27.0
%
Dividend yield
—

Share Based Compensation (Predecessor)
Prior to the consummation of the Business Combination, Jason Partners Holdings LLC (Jason LLC), the former parent company of Jason, had granted various classes of its common units to certain executives and directors of Jason. In accordance with ASC 718, Compensation - Stock Compensation, compensation cost related to the units granted was recognized in Jason’s financial statements over the vesting period. Upon consummation of the Business Combination, all unvested units became fully vested and Jason recognized $7.6 million of compensation expense during the predecessor period from June 28, 2014 to June 29, 2014. During the predecessor period from January 1, 2014 through June 29, 2014, Jason recognized $7.7 million of stock-based compensation expense, and the related income tax benefit was $2.5 million.
10.
Earnings per Share
Basic income (loss) per share is calculated by dividing net income (loss) attributable to Jason Industries’ common shareholders 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 warrants, restricted stock units, performance share units, convertible preferred stock, and Rollover Shares of JPHI convertible into shares of Jason Industries.

15

Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)


The reconciliation of the numerator and denominator of the basic and diluted income (loss) per share calculation and the anti-dilutive shares is as follows:
 
Successor
 
 
Predecessor
 
Three Months Ended September 25, 2015
 
Nine Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
June 28, 2014 Through June 29, 2014
 
January 1, 2014 Through June 29, 2014
 
 
 
 
 
 
Net (loss) income per share attributable to Jason Industries common shareholders
 
 
 
 
 
 
 
 
 
 
Basic and diluted income (loss) per share
$
(0.16
)
 
$
(0.31
)
 
$
(0.41
)
 
 
$
(17,928
)
 
$
(4,955
)
 
 
 
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
 
 
 
Net (loss) income available to common shareholders of Jason Industries
$
(3,539
)
 
$
(6,801
)
 
$
(9,045
)
 
 
$
(17,928
)
 
$
(4,955
)
Denominator:
 
 
 
 
 
 
 
 
 
 
Basic and diluted weighted-average shares outstanding
22,161

 
22,056

 
21,991

 
 
1

 
1

 
 
 
 
 
 
 
 
 
 
 
Weighted average number of anti-dilutive shares excluded from denominator:
 
 
 
 
 
 
 
 
 
 
Warrants to purchase Jason Industries common stock
13,994

 
13,994

 
13,994

 
 
—

 
—

Conversion of Series A 8% Perpetual Convertible Preferred
3,653

 
3,653

 
3,653

 
 
—

 
—

Conversion of JPHI Rollover Shares convertible to Jason Industries common stock
3,486

 
3,486

 
3,486

 
 
—

 
—

Restricted stock units
734

 
611

 
762

 
 
—

 
—

Performance share units
1,604

 
1,555

 
2,026

 
 
—

 
—

Total
23,471

 
23,299

 
23,921

 
 
—

 
—

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 available 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 Topic 260.
11.
Income Taxes
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, 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 income tax rate was 36.4%, and 37.9% for the three months ended September 25, 2015, and the successor period June 30, 2014 through September 26, 2014, respectively. The effective income tax rate was 28.0% for the nine months ended September 25, 2015. The effective income tax rate for 2015 reflects the benefits of tax losses at the higher U.S. Federal statutory rate and taxable earnings derived in foreign jurisdictions with tax rates that are lower than the U.S. Federal statutory rate, and discrete items. Net discrete tax expense was immaterial for the three months ended September 25, 2015 and the period June 30, 2014 through September 26, 2014. Net discrete tax expense for the nine months ended September 25, 2015 was impacted by $0.3 million due to the vesting of restricted stock units for which no tax benefit will be realized and $0.3 million due to non-deductible transaction costs in foreign subsidiaries for which no tax benefit was recognized.

16

Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)


The amount of gross unrecognized tax benefits was $3.1 million and $2.7 million at September 25, 2015 and December 31, 2014, respectively. Of the $3.1 million of unrecognized tax benefits, $1.4 million would reduce the Company’s effective tax rate if recognized.
During the next twelve months, the Company does not expect any significant changes in its unrecognized tax benefits. The Company recognizes interest and penalties related to tax matters in tax expense. The Company did not have any interest or penalties that were recognized as a component of the income tax provision at September 25, 2015 and December 31, 2014.
12.
Equity
The changes in the components of accumulated other comprehensive income (loss), net of taxes, for the nine months ended September 25, 2015 and September 26, 2014 are as follows:
 
Employee
retirement plan
adjustments
 
Foreign currency
translation
adjustments
 
Total    
Balance at December 31, 2014, Successor
$
(1,434
)
 
$
(10,631
)
 
$
(12,065
)
Other comprehensive (loss) before reclassifications
—

 
(7,405
)
 
(7,405
)
Balance at September 25, 2015, Successor
$
(1,434
)
 
$
(18,036
)
 
$
(19,470
)
 
 
 
 
 
 
 
Employee
retirement plan
adjustments
 
Foreign currency
translation
adjustments
 
Total
Balance at December 31, 2013, Predecessor
$
(156
)
 
$
630

 
$
474

Other comprehensive (loss) before reclassifications
(844
)
 
—

 
(844
)
Amount reclassified from accumulated other comprehensive income
157

 
—

 
157

Cumulative foreign currency translation adjustments associated with joint ventures sold
—

 
(591
)
 
(591
)
Foreign currency translation adjustments
—

 
(465
)
 
(465
)
Balance at June 29, 2014, Predecessor
(843
)
 
(426
)
 
(1,269
)
 
 
 
 
 
 
 
 
 
 
 
 
Elimination of predecessor accumulated other comprehensive income
843

 
426

 
1,269

Foreign currency translation adjustments
—

 
(5,756
)
 
(5,756
)
Balance at September 26, 2014, Successor
$
—

 
$
(5,756
)
 
$
(5,756
)
Series A Preferred Stock Dividends
On January 1, 2015 the Company paid a dividend on the Series A Preferred Stock of $20.00 per share to holders of record on November 15, 2014, totaling $0.9 million. On April 1, 2015, the Company paid a dividend on the Series A Preferred Stock of $20.00 per share to holders of record on February 15, 2015, totaling $0.9 million. On July 1, 2015, the Company paid a dividend on the Series A Preferred Stock of $20.00 per share to holders of record on May 15, 2015, totaling $0.9 million. On October 1, 2015, the Company paid a dividend on the Series A Preferred Stock of $20.00 per share to holders of record on August 15, 2015, totaling $0.9 million.

17

Jason Industries, Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share amounts) (Unaudited)


13.
Business Segments, Geographic and Customer Information
The Company identifies its segments using the “management approach,” which designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company’s reportable segments. The Company has four reportable segments: seating, finishing, acoustics and components.
Net sales information relating to the Company’s reportable segments is as follows:
 
Successor
 
 
Predecessor
 
Three Months Ended September 25, 2015
 
Nine Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
June 28, 2014 Through June 29, 2014
 
January 1, 2014 Through June 29, 2014
 
 
 
 
 
 
Net sales
 
 
 
 
 
 
 
 
 
 
Seating
$
37,198

 
$
140,067

 
$
32,385

 
 
$
—

 
$
104,878

Finishing
52,339

 
141,835

 
45,181

 
 
—

 
96,692

Acoustics
51,755

 
158,728

 
54,033

 
 
—

 
109,930

Components
29,882

 
93,958

 
29,569

 
 
—

 
65,651

 
$
171,174

 
$
534,588

 
$
161,168

 
 
$
—

 
$
377,151

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) before interest expense, provision (benefit) for income taxes, depreciation and amortization and (gain)/loss on disposal of property, plant and equipment. The Company defines Adjusted EBITDA as EBITDA, excluding the impact of non-cash or non-operational losses or gains, including long-lived asset impairment charges, integration and other operational restructuring charges, transactional legal fees, other professional fees and special employee bonuses, purchase accounting adjustments, sponsor fees and expenses, 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 its corporate results and not allocated to its business 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, generally accepted accounting principles in the United States of America (“US GAAP”) on segment reporting require 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 US GAAP basis.

18

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 income before taxes:
 
Successor
 
 
Predecessor
 
Three Months Ended September 25, 2015
 
Nine Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
June 28, 2014 Through June 29, 2014
 
January 1, 2014 Through June 29, 2014
 
 
 
 
 
 
Segment Adjusted EBITDA
 
 
 
 
 
 
 
 
 
 
Seating
$
2,904

 
$
20,175

 
$
3,568

 
 
$
—

 
$
17,668

Finishing
7,223

 
20,261

 
5,496

 
 
201

 
13,732

Acoustics
7,014

 
19,206

 
4,287

 
 
—

 
9,676

Components
5,211

 
15,913

 
1,716

 
 
(690
)
 
10,324

 
$
22,352

 
$
75,555

 
$
15,067

 
 
$
(489
)
 
$
51,400

Interest expense
(587
)
 
(1,376
)
 
(528
)
 
 
—

 
(1,269
)
Depreciation and amortization of intangible assets
(11,594
)
 
(33,361
)
 
(10,341
)
 
 
—

 
(12,796
)
(Loss) gain on disposal of property, plant and equipment - net
(8
)
 
14

 
—

 
 
—

 
(336
)
Restructuring
(923
)
 
(3,637
)
 
(103
)
 
 
—

 
(2,554
)
Transaction-related expenses
—

 
(789
)
 
(18
)
 
 
—

 
(242
)
Integration and other restructuring costs
(1,421
)
 
(1,625
)
 
(7,587
)
 
 
—

 
(2,575
)
Gain from sale of joint ventures
—

 
—

 
—

 
 
—

 
3,508

Total segment income (loss) before income taxes
7,819

 
34,781

 
(3,510
)
 
 
(489
)
 
35,136

Corporate general and administrative expenses
(3,791
)
 
(12,812
)
 
(1,491
)
 
 
—

 
(7,032
)
Corporate interest expense
(7,409
)
 
(22,044
)
 
(7,280
)
 
 
(82
)
 
(6,032
)
Corporate depreciation
(98
)
 
(217
)
 
(35
)
 
 
—

 
(57
)
Corporate transaction-related expenses
—

 
(97
)
 
(1,386
)
 
 
(23,009
)
 
(27,541
)
Corporate loss on disposal of property, plant and equipment
—

 
—

 
—

 
 
—

 
(2
)
Corporate share based compensation
(1,511
)
 
(6,463
)
 
(2,063
)
 
 
—

 
—

Consolidated (loss) income before income taxes
$
(4,990
)
 
$
(6,852
)
 
$
(15,765
)
 
 
$
(23,580
)
 
$
(5,528
)
Assets held by reportable segments is as follows:
 
Successor
 
September 25, 2015
 
December 31, 2014
Assets
 
 
 
Seating
$
216,353

 
$
219,215

Finishing
261,754

 
221,074

Acoustics
212,481

 
195,031

Components
129,805

 
137,354

Total segments
820,393

 
772,674

Corporate and eliminations
17,823

 
36,730

Consolidated
$
838,216

 
$
809,404


19


14.
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 $440.5 million as of September 25, 2015. As of December 31, 2014, the fair value of total debt approximated its recorded value. 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.
15.
Litigation and Contingencies
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, can be reasonably estimated and is not covered by insurance. 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.
At September 25, 2015 and December 31, 2014, the Company held reserves of $1.1 million for environmental matters at two locations. 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.
16.
Related Party Transactions
Jason was part of a Management Services Agreement with Saw Mill Capital LLC (“Saw Mill”) and Falcon Investment Advisors, LLC (“FIA”, together with Saw Mill, the “Service Providers”), affiliates of Jason’s majority shareholders, which terminated upon consummation of the Business Combination. Management fees and related expenses paid to the Service Providers under this agreement were approximately $0.6 million for the six months ended June 29, 2014. In addition, during the period January 1, 2014 through June 29, 2014 the Company incurred sale transaction fees of $5.4 million which were paid to the Service Providers on June 30, 2014 upon completion of the Business Combination.

20



ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
Unless otherwise indicated, references to “Jason Industries,” the “Company,” “we,” “our” and “us” in this Quarterly Report on Form 10-Q refer to Jason Industries, Inc. and its consolidated subsidiaries.
This report contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Specifically, forward-looking statements may include statements relating to:
•
the Company’s future financial performance;
•
changes in the market for the Company’s products;
•
the Company’s expansion plans and opportunities; and
•
other statements preceded by, followed by or that include the words “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target” or similar expressions.
These forward-looking statements are based on information available as of the date of this report and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing the Company’s views as of any subsequent date, and the Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
As a result of a number of known and unknown risks and uncertainties, the Company’s actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include:
•
the level of demand for the Company’s products;
•
competition in the Company’s markets;
•
the Company’s ability to grow and manage growth profitably;
•
the Company’s ability to access additional capital;
•
changes in applicable laws or regulations;
•
the Company’s ability to attract and retain qualified personnel;
•
the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors; and
•
other risks and uncertainties indicated in this report, as well as those disclosed in the Company’s other filings with the Securities and Exchange Commission, including those discussed under “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
Introductory Note    
On June 30, 2014, the Company (formerly known as Quinpario Acquisition Corp.) and Jason Partners Holdings Inc. (“Jason”) completed a business combination in which JPHI Holdings Inc. (“JPHI”), a majority owned subsidiary of the Company, acquired 100 percent of the capital stock of Jason from its then current owners, Saw Mill Capital, LLC, Falcon Investment Advisors, LLC and other investors (the “Business Combination”). In connection with the closing of the Business Combination, the Company changed its name to Jason Industries, Inc., and commenced trading of its common stock and warrants under the symbols, “JASN” and “JASNW”, respectively, on NASDAQ. This transaction is further described in Note 2 to the Company’s condensed consolidated financial statements included herein.
The following discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2014, and related notes thereto, along with the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s 2014 Annual Report on Form 10-K.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains certain financial measures, in particular the presentation of EBITDA and Adjusted EBITDA, which are not presented in accordance with generally accepted accounting principles (“GAAP”). These non-GAAP financial measures are being presented because they provide readers of this MD&A with additional insight into the Company’s operational performance relative to

21



comparable prior periods presented and relative to its peer group. EBITDA and Adjusted EBITDA are key measures used by the Company to evaluate its performance. The Company does not intend for these non-GAAP financial measures to be a substitute for any GAAP financial information. Readers of this MD&A should use these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures. Reconciliations of EBITDA and Adjusted EBITDA to net income, the most comparable GAAP measure, are provided in this MD&A.
Fiscal Year
The Company’s fiscal year ends on December 31. Throughout the year, the Company reports its results using a fiscal calendar whereby each three month quarterly reporting period is approximately thirteen weeks in length and ends on a Friday. The exceptions are the first quarter, which begins on January 1, and the fourth quarter, which ends on December 31. For 2015, the Company’s fiscal quarters are comprised of the three months ended March 27, June 26, September 25, and December 31. In 2014, the Company’s fiscal quarters were comprised of the three months ending March 28, June 27, September 26, and December 31. Throughout this MD&A, we refer to the period from June 27, 2015 through September 25, 2015 as the “third quarter of 2015” or the “third quarter ended September 25, 2015”. Similarly, we refer to the period from June 28, 2014 through September 26, 2014 as the “third quarter of 2014” or the “third quarter ended September 26, 2014”.
Overview
Jason Industries is a global industrial manufacturing company with leading market share positions across each of its four industry-leading segments: seating, finishing, acoustics and components. Jason, the Company’s predecessor, was founded in 1985 and today provides critical components and manufacturing solutions to customers across a wide range of end markets, industries and geographies through its global network of 35 manufacturing facilities and 19 sales offices, warehouses and joint venture facilities throughout the United States and 14 foreign countries.
The Company focuses on markets with sustainable growth characteristics and where it is, or has the opportunity to become, the industry leader. The Company’s seating segment supplies seating solutions to equipment manufacturers in the motorcycle, lawn and turf care, industrial, agricultural, construction and power sports end markets. The finishing segment focuses on the production of industrial brushes, buffing wheels, buffing compounds, and abrasives that are used in a broad range of industrial and infrastructure applications. The acoustics segment manufactures engineered non-woven, fiber-based acoustical products for the automotive industry. The components segment is a diversified manufacturer of stamped, formed, expanded and perforated metal components and subassemblies for rail and filtration applications, outdoor power equipment, small gas engines and smart utility meters.
On May 29, 2015, the Company acquired all of the outstanding shares of DRONCO. DRONCO is a leading European manufacturer of bonded abrasives. These abrasives are being manufactured and distributed by the finishing segment. The Company paid cash consideration of $34.4 million, net of cash acquired, and, pursuant to the transaction, assumed certain liabilities. The DRONCO acquisition expands the finishing segment’s product portfolio and advances its entry to adjacent abrasives markets.
During the nine months ended September 25, 2015 and September 26, 2014, approximately 27% and 28%, respectively, of the Company’s sales were derived from customers outside the United States. As a diversified, global business, the Company’s operations are affected by worldwide, regional and industry-specific economic and political factors. The Company’s geographic and industry diversity, as well as the wide range of its products, help mitigate the impact of industry or economic fluctuations. Given the broad range of products manufactured and industries and geographies served, management primarily uses general economic trends to predict the overall outlook for the Company. The Company’s individual businesses monitor key competitors and customers, including to the extent possible their sales, to gauge relative performance and the outlook for the future.
The Company’s market capitalization can be affected by, among other things, changes in industry or market conditions, changes in results of operations and changes in forecasts or market expectations related to future results. If the Company’s market capitalization remains below the Company’s carrying value for a sustained period of time or if such a decline becomes indicative that the fair value of the Company’s reporting units has declined to below their carrying values, an interim goodwill impairment test may need to be performed and may result in a non-cash goodwill impairment charge. A non-cash goodwill impairment charge would have the effect of decreasing the Company’s earnings or increasing the Company’s losses in the period in which the impairment charge is taken. The Company concluded that the decline in the Company’s market capitalization during the third quarter of 2015 was not indicative that the fair value of the Company’s reporting units had more likely than not declined to below their carrying values. The Company will perform its required annual goodwill impairment test during the fourth quarter.


22



Consolidated Results of Operations
The following table sets forth our consolidated results of operations (in thousands) (unaudited): 
 
Successor
 
 
Predecessor
 
Three Months Ended September 25, 2015
 
Nine Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
June 28, 2014 Through June 29, 2014
 
January 1, 2014 Through June 29, 2014
 
 
 
 
 
 
Net sales
$
171,174

 
$
534,588

 
$
161,168

 
 
$
—

 
$
377,151

Cost of goods sold
135,733

 
418,576

 
137,763

 
 
690

 
294,175

Gross profit
35,441

 
116,012

 
23,405

 
 
(690
)
 
82,976

Selling and administrative expenses
31,704

 
95,718

 
30,081

 
 
(201
)
 
54,974

(Gain) loss on disposals of property, plant and equipment - net
(8
)
 
14

 
—

 
 
—

 
338

Restructuring
923

 
3,637

 
103

 
 
—

 
2,554

Transaction-related expenses
—

 
886

 
1,404

 
 
23,009

 
27,783

Operating income
2,822

 
15,757

 
(8,183
)
 
 
(23,498
)
 
(2,673
)
Interest expense
(7,996
)
 
(23,420
)
 
(7,809
)
 
 
(82
)
 
(7,301
)
Equity income
136

 
678

 
170

 
 
—

 
831

Gain from sale of joint ventures
—

 
—

 
—

 
 
—

 
3,508

Other income - net
48

 
133

 
57

 
 
—

 
107

(Loss) income before income taxes
(4,990
)
 
(6,852
)
 
(15,765
)
 
 
(23,580
)
 
(5,528
)
Tax provision (benefit)
(1,814
)
 
(1,917
)
 
(5,976
)
 
 
(5,652
)
 
(573
)
Net (loss) income
$
(3,176
)
 
$
(4,935
)
 
$
(9,789
)
 
 
$
(17,928
)
 
$
(4,955
)
Less net loss attributable to noncontrolling interests
(537
)
 
(834
)
 
(1,654
)
 
 
—

 
—

Net (loss) income attributable to Jason Industries
$
(2,639
)
 
$
(4,101
)
 
$
(8,135
)
 
 
$
(17,928
)
 
$
(4,955
)
Accretion of preferred stock dividends
900

 
2,700

 
910

 
 
—

 
—

Net (loss) income available to common shareholders of Jason Industries
$
(3,539
)
 
$
(6,801
)
 
$
(9,045
)
 
 
$
(17,928
)
 
$
(4,955
)
Other financial data: (1)
 
Successor
 
Successor
 
 
Predecessor
 
Combined
 
 
(in thousands, except percentages)
Three Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
June 28, 2014 Through June 29, 2014
 
Three Months Ended September 26, 2014
 
Increase/(Decrease)
 
 
 
 
 
$
 
%
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
171,174

 
$
161,168

 
 
$
—

 
$
161,168

 
$
10,006

 
6.2
 %
Adjusted EBITDA
18,590

 
13,578

 
 
(489
)
 
13,089

 
5,501
 
42.0

Adjusted EBITDA % of net sales
10.9
%
 
8.4
%
 
 
 
 
8.1
%
 
280 bps
 
Successor
 
Successor
 
 
Predecessor
 
Combined
 
 
(in thousands, except percentages)
Nine Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
January 1, 2014 Through June 29, 2014
 
Nine Months Ended September 26, 2014
 
Increase/(Decrease)
 
 
 
 
 
$
 
%
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
534,588

 
$
161,168

 
 
$
377,151

 
$
538,319

 
$
(3,731
)
 
(0.7
) %
Adjusted EBITDA
64,493

 
13,578

 
 
45,399

 
58,977

 
5,516
 
9.4

Adjusted EBITDA % of net sales
12.1
%
 
8.4
%
 
 
12.0
%
 
11.0
%
 
110 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) income.

23



June 28, 2014 through June 29, 2014 (Predecessor)
The third quarter of 2014 began on June 28, 2014 prior to the consummation of the Business Combination on June 30, 2014. There were no material operations during the predecessor period June 28, 2014 through June 29, 2014 and activity during this period primarily consisted of the recognition of $23 million of transaction-related expenses related to the Business Combination. These transaction-related expenses included recognition of share-based compensation expense triggered upon a change in control, success-based investment banking fees, and other professional fees incurred in connection with the Business Combination.
The Three and Nine Months Ended September 25, 2015 (Successor) Compared with June 30, 2014 through September 26, 2014 (Successor) and January 1, 2014 through June 29, 2014 (Predecessor)
Net sales. Net sales were $171.2 million for the three months ended September 25, 2015, an increase of $10.0 million, or 6.2%, compared with $161.2 million for the combined three months ended September 26, 2014, reflecting increased net sales in the finishing segment of $7.2 million and the seating segment of $4.8 million, partially offset by a decrease in the acoustics segment of $(2.3) million.
Net sales were $534.6 million for the nine months ended September 25, 2015, a decrease of $(3.7) million, or (0.7)%, compared with $538.3 million for the combined nine months ended September 26, 2014, reflecting decreased net sales in the acoustics segment of $(5.2) million and the components segment of $(1.3) million, partially offset by an increase in the seating segment of $2.8 million. See further discussion of segment results below.
On May 29, 2015, the Company acquired DRONCO. DRONCO’s results of operations are included within the finishing segment and the Company’s consolidated results of operations since the date of acquisition. Net sales from DRONCO were $11.3 million and $14.8 million during the three and nine months ended September 25, 2015, respectively. See Note 3 to the condensed consolidated financial statements for further discussion of the DRONCO acquisition.
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 three months ended September 25, 2015 compared with 2014, negatively impacting the finishing, acoustics, and seating segments’ net sales by $(4.6) million, $(1.3) million, and $(0.3) million, respectively. Changes in foreign currency exchange rates compared with the U.S. dollar had a net negative impact of $(20.4) million on consolidated net sales during the nine months ended September 25, 2015 compared with 2014, negatively impacting the finishing, acoustics, and seating segments’ net sales by $(15.2) million, $(4.3) million, and $(1.0) million, respectively. This was due principally to strengthening of the U.S. dollar against most major currencies; average exchange rates during the three and nine months ended September 25, 2015 were 17.7% and 16.2%, respectively, unfavorable compared with 2014.
Cost of goods sold. Cost of goods sold was $135.7 million for the three months ended September 25, 2015, compared with $137.8 million for the period June 30, 2014 through September 26, 2014. The decrease in cost of goods sold is due to improved operational efficiencies in the acoustics segment, favorable product mix and material pricing in the components segment, and a $4.6 million favorable impact related to foreign currency exchange rates.
Cost of goods sold was $418.6 million for the nine months ended September 25, 2015, compared with $137.8 million for the period June 30, 2014 through September 26, 2014, and $294.2 million for the period January 1, 2014 through June 29, 2014. The decrease in cost of goods sold is due to improved operational efficiencies in the acoustics segment, favorable product mix and material pricing in the components segment, and a $14.7 million favorable impact related to foreign currency exchange rates, partially offset by $6.7 million of incremental depreciation expense resulting primarily from recognizing property, plant, and equipment at fair value in acquisition accounting for the Business Combination.
Gross profit. Gross profit was $35.4 million for the three months ended September 25, 2015, compared with $23.4 million for the period June 30, 2014 through September 26, 2014. Gross profit was favorably impacted by improved operational efficiencies in the acoustics segment, favorable product mix and material pricing in the components segment, and higher net sales, offset by incremental depreciation expense.
Gross profit was $116.0 million for the nine months ended September 25, 2015 compared with $23.4 million for the period June 30, 2014 through September 26, 2014, and $83.0 million for the period January 1, 2014 through June 29, 2014. The increase was primarily due to improved operational efficiencies in the acoustics segment, and favorable product mix and material pricing in the components segment, offset by lower net sales and incremental depreciation expense.
Selling and administrative expenses. Selling and administrative expenses were $31.7 million for the three months ended September 25, 2015, compared with $30.1 million for the period June 30, 2014 through September 26, 2014.
Selling and administrative expenses were $95.7 million for the nine months ended September 25, 2015, compared with $30.1 million for the period June 30, 2014 through September 26, 2014, and $55.0 million for the period January 1, 2014 through June 29, 2014. For the nine months ended September 25, 2015, the Company incurred $6.5 million of share based compensation expense, compared to $2.1 million for the combined nine months ended September 26, 2014. Selling and

24



administrative expenses for the nine months ended September 25, 2015 also included $0.2 million and $4.3 million of incremental depreciation and amortization expense, respectively, compared with 2014 resulting primarily from recognizing property, plant, and equipment and identifiable intangible assets at fair value in acquisition accounting for the Business Combination. During the nine months ended September 25, 2015, share based compensation expense included $0.9 million of expense due to accelerated vesting of restricted stock units related to the transition of the Company’s CFO.
Loss (gain) on disposals of fixed assets—net. For all periods presented, the loss (gain) on disposals of fixed assets was not material. Changes in the level of fixed asset disposals are dependent upon a number of factors, including changes in the level of asset sales, operational restructuring activities, and capital expenditure levels.
Restructuring. Restructuring was $0.9 million for the three months ended September 25, 2015 compared with $0.1 million for the period June 30, 2014 through September 26, 2014. Restructuring was $3.6 million for the nine months ended September 25, 2015 compared with $0.1 million for the period June 30, 2014 through September 26, 2014, and $2.6 million for the period January 1, 2014 through June 29, 2014. During 2015, such costs related to the final closure of the acoustics segment’s Norwalk, Ohio facility, closure of the finishing segment’s Brooklyn Heights, Ohio office, closure of the components segment’s facility in China, and wind down of the finishing segment’s machine business in Sweden. During 2014, such costs primarily related to the closure of the acoustics segment’s Norwalk, Ohio facility.
Transaction-related expenses. Transaction-related expenses were zero for the three months ended September 25, 2015, compared with $1.4 million for the period June 30, 2014 through September 26, 2014. Transaction-related expenses were $0.9 million for the nine months ended September 25, 2015 compared with $1.4 million for the period June 30, 2014 through September 26, 2014, and $27.8 million for the period January 1, 2014 through June 29, 2014. Transaction-related expenses in the nine months ended September 25, 2015 related primarily to professional service fees associated with the acquisition of DRONCO in 2015, compared with transaction-related expenses related to the Business Combination in 2014.
Interest expense. Interest expense was $8.0 million for the three months ended September 25, 2015, compared with $7.8 million for the period June 30, 2014 through September 26, 2014. Interest expense was $23.4 million for the nine months ended September 25, 2015 compared with $7.8 million for the period June 30, 2014 through September 26, 2014, and $7.3 million for the period January 1, 2014 through June 29, 2014. Interest expense in 2015 reflects the Company’s new level of debt following the consummation of the Business Combination. See “Senior Secured Credit Facilities” in the Liquidity and Capital Resources section of this MD&A for further discussion.
Equity income. Equity income was $0.1 million for the three months ended September 25, 2015, compared with $0.2 million for the period June 30, 2014 through September 26, 2014. Equity income was $0.7 million for the nine months ended September 25, 2015 compared with $0.2 million for the period June 30, 2014 through September 26, 2014, and $0.8 million for the period January 1, 2014 through June 29, 2014.
Gain from sale of joint ventures. During the first quarter of 2014, Jason completed the sale of its 50% equity interests in two Asian joint ventures for a total of $11.5 million and recorded a gain on sale of $3.5 million.
Other income (expense)—net. Other income was immaterial for the three months ended September 25, 2015, compared with $0.1 million for the period June 30, 2014 through September 26, 2014. Other income was $0.1 million for the nine months ended September 25, 2015, compared with $0.1 million for the period June 30, 2014 through September 26, 2014, and $0.1 million for the period January 1, 2014 through June 29, 2014.
(Loss) income before income taxes. For the reasons described above, loss before income taxes was $(5.0) million for the three months ended September 25, 2015, compared with $(15.8) million for the period June 30, 2014 through September 26, 2014.
Loss before income taxes was $(6.9) million for the nine months ended September 25, 2015, compared with $(15.8) million for the period June 30, 2014 through September 26, 2014, and $(5.5) million for the period January 1, 2014 through June 29, 2014. The decrease in loss before income taxes is primarily due to higher transaction-related expenses related to the Business Combination during the period January 1, 2014 through September 26, 2014.
Tax (benefit) provision. The tax benefit was $(1.8) million for the three months ended September 25, 2015, compared with $(6.0) million for the period June 30, 2014 through September 26, 2014. The tax benefit was $(1.9) million for the nine months ended September 25, 2015, compared with $(6.0) million for the period June 30, 2014 through September 26, 2014, and was $(0.6) million for the period January 1, 2014 through June 29, 2014. The effective tax rate for the three months ended September 25, 2015 was 36.4%, compared with 37.9% for the period June 30, 2014 through September 26, 2014.
The Company’s tax (benefit) provision is impacted by a number of factors, including, among others, the amount of taxable income or losses at the U.S. federal statutory rate, the amount of taxable earnings derived in foreign jurisdictions with tax rates that are lower than 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

25



ended September 25, 2015 was impacted by pre-tax losses and non-deductible transaction costs in foreign jurisdictions for which no tax benefit was recognized, and the vesting of restricted stock units for which no tax benefit will be realized.
Net (loss) income. For the reasons described above, net loss was $(3.2) million for the three months ended September 25, 2015, compared with net loss of $(9.8) million for the period June 30, 2014 through September 26, 2014. Net loss was $(4.9) million for the nine months ended September 25, 2015, compared to net loss of $(9.8) million for the period June 30, 2014 through September 26, 2014 and $(5.0) million for the period January 1, 2014 through June 29, 2014.
Net loss attributable to noncontrolling interests. Net loss attributable to noncontrolling interests was $(0.5) million for the three months ended September 25, 2015, compared with $(1.7) million for the period June 30, 2014 through September 26, 2014. Net loss attributable to noncontrolling interests was $(0.8) million for the nine months ended September 25, 2015. Noncontrolling interests represent the Rollover Participants interest in JPHI. See Note 2 to the condensed consolidated financial statements for further discussion.
Adjusted EBITDA. Adjusted EBITDA was $18.6 million, or 10.9% of net sales, for the three months ended September 25, 2015, an increase of $5.5 million, or 42.0%, compared with $13.1 million, or 8.1% of net sales, for the combined three months ended September 26, 2014, reflecting increased Adjusted EBITDA in the components segment of $4.2 million, the acoustics segment of $2.7 million and the finishing segment of $1.5 million, offset by decreased Adjusted EBITDA in the seating segment of $(0.7) million, and corporate of $(2.3) million.
Adjusted EBITDA was $64.5 million, or 12.1% of net sales, for the nine months ended September 25, 2015, compared with $59.0 million, or 11.0% of net sales, for the combined nine months ended September 26, 2014, reflecting increased Adjusted EBITDA in the acoustics segment of $5.2 million, the components segment of $3.9 million, the finishing segment of $1.0 million, offset by decreased Adjusted EBITDA in the seating segment of $(1.1) million, and corporate of $(3.6) million.
Changes in foreign currency exchange rates compared with the U.S. dollar had a negative impact of $(0.5) million on consolidated Adjusted EBITDA during the three months ended September 25, 2015 compared with the third quarter of 2014, negatively impacting the finishing and acoustics segments’ Adjusted EBITDA by $(0.4) million and $(0.1) million, respectively. During the nine months ended September 25, 2015, changes in foreign currency exchange rates had a negative impact of $(2.3) million on consolidated Adjusted EBITDA compared with 2014, negatively impacting the finishing and acoustics segments’ Adjusted EBITDA by $(1.9) million and $(0.3) million, respectively.
Key Measures the Company Uses to Evaluate Its Performance
EBITDA and Adjusted EBITDA. The Company defines EBITDA as net income (loss) before interest expense, provision (benefit) for income taxes, depreciation and amortization and (gain)/loss on disposal of property, plant and equipment. The Company defines Adjusted EBITDA as EBITDA, excluding the impact of operational restructuring charges and non-cash or non-operational losses or gains, including long-lived asset impairment charges, integration and other operational restructuring charges, transactional legal fees, other professional fees and special employee bonuses, purchase accounting adjustments, sponsor fees and expenses, 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. The Company uses this metric to facilitate a comparison of operating performance on a consistent basis from period to period and to analyze the factors and trends affecting its segments. The Company’s internal plans, budgets and forecasts use Adjusted EBITDA as a key metric and the Company uses this measure to evaluate its operating performance and segment operating performance and to determine the level of incentive compensation paid to its employees.
The Senior Secured Credit Facilities (defined below) definition of EBITDA excludes income of partially owned affiliates, unless such earnings have been received in cash.

26



Set forth below is a reconciliation of Adjusted EBITDA to net (loss) income (in thousands) (unaudited):
 
Successor
 
 
Predecessor
 
Three Months Ended September 25, 2015
 
Nine Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
June 28, 2014 Through June 29, 2014
 
January 1, 2014 Through June 29, 2014
 
 
 
 
 
 
Net (loss) income
$
(3,176
)
 
$
(4,935
)
 
(9,789
)
 
 
$
(17,928
)
 
$
(4,955
)
Tax provision
(1,814
)
 
(1,917
)
 
(5,976
)
 
 
(5,652
)
 
(573
)
Interest expense
7,996

 
23,420

 
7,809

 
 
82

 
7,301

Depreciation and amortization
11,691

 
33,578

 
10,377

 
 
—

 
12,852

(Gain) loss on disposals of fixed assets—net
(8
)
 
14

 
—

 
 
—

 
338

EBITDA
14,689

 
50,160

 
2,421

 
 
(23,498
)
 
14,963

Adjustments:
 
 
 
 
 
 
 
 
 
 
Restructuring(1)
923

 
3,637

 
103

 
 
—

 
2,554

Transaction-related expenses(2)
—

 
886

 
1,404

 
 
23,009

 
27,783

Integration and other restructuring costs(3)
1,467

 
3,347

 
7,587

 
 
—

 
3,040

Sponsor fees(4)
—

 
—

 
—

 
 
—

 
567

Gain from sale of joint ventures(5)
—

 
—

 
—

 
 
—

 
(3,508
)
Share based compensation(6)
1,511

 
6,463

 
2,063

 
 
—

 
—

Total adjustments
3,901

 
14,333

 
11,157

 
 
23,009

 
30,436

Adjusted EBITDA
$
18,590

 
$
64,493

 
$
13,578

 
 
$
(489
)
 
$
45,399

(1)
Restructuring includes costs associated with exit or disposal activities as defined by US GAAP related to facility consolidation, including one-time employee termination benefits, costs to close facilities and relocate employees, and costs to terminate contracts other than capital leases. See Note 5, “Restructuring Costs” of the accompanying condensed consolidated financial statements for further information.
(2)
Transaction-related expenses primarily consist of professional service fees related to the DRONCO acquisition, the Business Combination and other related transactions, as well as the Company’s acquisition and divestiture activities.
(3)
Integration and other restructuring costs primarily includes equipment move costs and incremental facility preparation and related costs incurred in connection with the start-up of new acoustics segment facilities in Warrensburg, Missouri and Richmond, Indiana. Such costs are not included in restructuring for US GAAP purposes. During the nine months ended September 25, 2015, integration and other restructuring costs also include $1.4 million of severance and expenses related to the transition of the Company’s Chief Financial Officer (CFO), partially offset by a $0.8 million gain resulting from termination of an unfavorable lease recorded in acquisition accounting for the Business Combination.
(4)
Represents fees and expenses paid by Jason to Saw Mill Capital LLC and Falcon Investment Advisors, LLC under the Management Services Agreement dated September 21, 2010, which terminated upon consummation of the Business Combination.
(5)
Represents the gain on sale of the 50% equity interests in two joint ventures that was completed during the first quarter of 2014. See Note 4 “Sale of Joint Ventures” of the accompanying condensed consolidated financial statements for further information.
(6)
Represents non-cash share based compensation expense for awards under the Company’s 2014 Omnibus Incentive Plan. During the nine months ended September 25, 2015, share based compensation includes $0.9 million of expense due to accelerated vesting of RSU’s related to the transition of the Company’s CFO.
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. Each of the Company’s segments has a target Adjusted EBITDA percentage level that it is expected to achieve over the next three to five years which is based on peer group studies and its goals of becoming best in class in profitability and increasing shareholder value.

27



Segment Financial Data
The table, below presents Jason’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 25, 2015 and September 26, 2014. Jason uses Adjusted EBITDA as the primary measure of profit or loss for purposes of assessing the operating performance of its segments. See “Key Measures Jason Uses to Evaluate Its Performance” above for a reconciliation of Adjusted EBITDA to Net (Loss) Income which is the nearest GAAP measure.
 
Successor
 
Successor
 
 
Predecessor
 
Combined
 

(in thousands, except percentages)
Three Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
June 28, 2014 Through June 29, 2014
 
Three Months Ended September 26, 2014
 
Increase/(Decrease)
 
 
 
 
 
$
 
%
Seating
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
37,198

 
$
32,385

 
 
$
—

 
$
32,385

 
$
4,813

 
14.9 %

Adjusted EBITDA
2,904

 
3,568

 
 
—

 
3,568

 
(664
)
 
(18.6
)
Adjusted EBITDA % of net sales
7.8
%
 
11.0
%
 
 


 
11.0
%
 
(320) bps
Finishing
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
52,339

 
$
45,181

 
 
$
—

 
$
45,181

 
$
7,158

 
15.8 %

Adjusted EBITDA
7,223

 
5,496

 
 
201

 
5,697

 
1,526

 
26.8

Adjusted EBITDA % of net sales
13.8
%
 
12.2
%
 
 


 
12.6
%
 
120 bps
Acoustics
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
51,755

 
$
54,033

 
 
$
—

 
$
54,033

 
$
(2,278
)
 
(4.2) %

Adjusted EBITDA
7,014

 
4,287

 
 
—

 
4,287

 
2,727

 
63.6

Adjusted EBITDA % of net sales
13.6
%
 
7.9
%
 
 


 
7.9
%
 
570 bps
Components
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
29,882

 
$
29,569

 
 
$
—

 
$
29,569

 
$
313

 
1.1 %

Adjusted EBITDA
5,211

 
1,716

 
 
(690
)
 
1,026

 
4,185

 
407.9

Adjusted EBITDA % of net sales
17.4
%
 
5.8
%
 
 


 
3.5
%
 
1,390 bps
Corporate
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
(3,762
)
 
$
(1,489
)
 
 
$
—

 
$
(1,489
)
 
$
(2,273
)
 
152.7 %

Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
171,174

 
$
161,168

 
 
$
—

 
$
161,168

 
$
10,006

 
6.2 %

Adjusted EBITDA
18,590

 
13,578

 
 
(489
)
 
13,089

 
5,501

 
42.0

Adjusted EBITDA % of net sales
10.9
%
 
8.4
%
 
 


 
8.1
%
 
280 bps

28



 
Successor
 
Successor
 
 
Predecessor
 
Combined
 

(in thousands, except percentages)
Nine Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
January 1, 2014 Through June 29, 2014
 
Nine Months Ended September 26, 2014
 
Increase/(Decrease)
 
 
 
 
 
$
 
%
Seating
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
140,067

 
$
32,385

 
 
$
104,878

 
$
137,263

 
$
2,804

 
2.0 %

Adjusted EBITDA
20,175

 
3,568

 
 
17,668

 
21,236

 
(1,061
)
 
(5.0
)
Adjusted EBITDA % of net sales
14.4
%
 
11.0
%
 
 
16.8
%
 
15.5
%
 
(110) bps
Finishing
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
141,835

 
$
45,181

 
 
$
96,692

 
$
141,873

 
$
(38
)
 
—

Adjusted EBITDA
20,261

 
5,496

 
 
13,732

 
19,228

 
1,033

 
5.4

Adjusted EBITDA % of net sales
14.3
%
 
12.2
%
 
 
14.2
%
 
13.6
%
 
70 bps
Acoustics
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
158,728

 
$
54,033

 
 
$
109,930

 
$
163,963

 
$
(5,235
)
 
(3.2) %

Adjusted EBITDA
19,206

 
4,287

 
 
9,676

 
13,963

 
5,243

 
37.5

Adjusted EBITDA % of net sales
12.1
%
 
7.9
%
 
 
8.8
%
 
8.5
%
 
360 bps
Components
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
93,958

 
$
29,569

 
 
$
65,651

 
$
95,220

 
$
(1,262
)
 
(1.3) %

Adjusted EBITDA
15,913

 
1,716

 
 
10,324

 
12,040

 
3,873

 
32.2

Adjusted EBITDA % of net sales
16.9
%
 
5.8
%
 
 
15.7
%
 
12.6
%
 
430 bps
Corporate
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
(11,062
)
 
$
(1,489
)
 
 
$
(6,001
)
 
$
(7,490
)
 
(3,572
)
 
47.7 %

Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
534,588

 
$
161,168

 
 
$
377,151

 
$
538,319

 
$
(3,731
)
 
(0.7) %

Adjusted EBITDA
64,493

 
13,578

 
 
45,399

 
58,977

 
5,516

 
9.4

Adjusted EBITDA % of net sales
12.1
%
 
8.4
%
 
 
12.0
%
 
11.0
%
 
110 bps
Seating Segment    
 
Successor
 
Successor
 
 
Predecessor
 
Combined
 
 
(in thousands, except percentages)
Three Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
June 28, 2014 Through June 29, 2014
 
Three Months Ended September 26, 2014
 
Increase/(Decrease)
 
 
 
 
 
$
 
%
Net sales
$
37,198

 
$
32,385

 
 
$
—

 
$
32,385

 
$
4,813

 
14.9
  %
Adjusted EBITDA
2,904

 
3,568

 
 
—

 
3,568

 
(664
)
 
(18.6
)
Adjusted EBITDA % of net sales
7.8
%
 
11.0
%
 
 
 
 
11.0
%
 
(320) bps
Net sales in the seating segment for the three months ended September 25, 2015 were $37.2 million, an increase of $4.8 million or 14.9%, compared with $32.4 million for the combined three months ended September 26, 2014. On a constant currency basis (net negative currency impact of $(0.3) million for the three months ended September 25, 2015), revenues increased by $5.1 million for the three months ended September 25, 2015. The increase in net sales for the three months ended September 25, 2015 was primarily due to increases in volume in the heavyweight motorcycle, power sports products, construction and agriculture industries, and turf care product markets.
Adjusted EBITDA for the three months ended September 25, 2015 decreased $(0.7) million to $2.9 million (7.8% of net sales) from $3.6 million (11.0% of net sales) for the combined three months ended September 26, 2014. Changes in foreign currency exchange rates did not significantly impact Adjusted EBITDA. The decrease in Adjusted EBITDA was primarily due to operational inefficiencies associated with production transition and volume ramp up including higher material costs, freight, and labor, partially offset by an increase in net sales.


29



 
Successor
 
Successor
 
 
Predecessor
 
Combined
 
 
(in thousands, except percentages)
Nine Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
January 1, 2014 Through June 29, 2014
 
Nine Months Ended September 26, 2014
 
Increase/(Decrease)
 
 
 
 
 
$
 
%
Net sales
$
140,067

 
$
32,385

 
 
$
104,878

 
$
137,263

 
$
2,804

 
2.0
  %
Adjusted EBITDA
20,175

 
3,568

 
 
17,668

 
21,236

 
(1,061
)
 
(5.0
)
Adjusted EBITDA % of net sales
14.4
%
 
11.0
%
 
 
16.8
%
 
15.5
%
 
(110) bps
Net sales in the seating segment for the nine months ended September 25, 2015 were $140.1 million, an increase of $2.8 million or 2.0%, compared with $137.3 million for the combined nine months ended September 26, 2014. On a constant currency basis (net negative currency impact of $(1.0) million for the nine months ended September 25, 2015), revenues increased by $3.8 million for the nine months ended September 25, 2015. The increase in net sales for the nine months ended September 25, 2015 was primarily due to increases in volume in the heavyweight motorcycle, power sports products, and construction and agriculture industries, partially offset by lower net sales to customers in the turf care industry.
Adjusted EBITDA for the nine months ended September 25, 2015 decreased $(1.1) million to $20.2 million (14.4% of net sales) compared with $21.2 million (15.5% of net sales) for the combined nine months ended September 26, 2014. For the nine months ended September 25, 2015, Adjusted EBITDA decreased primarily due to operational inefficiencies associated with production transition and volume ramp up including higher material costs, freight, and labor, partially offset by an increase in net sales and lower selling and administrative expenses.
Finishing Segment
 
Successor
 
Successor
 
 
Predecessor
 
Combined
 
 
(in thousands, except percentages)
Three Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
June 28, 2014 Through June 29, 2014
 
Three Months Ended September 26, 2014
 
Increase/(Decrease)
 
 
 
 
 
$
 
%
Net sales
$
52,339

 
$
45,181

 
 
$
—

 
$
45,181

 
$
7,158

 
15.8
 %
Adjusted EBITDA
7,223

 
5,496

 
 
201

 
5,697

 
1,526

 
26.8

Adjusted EBITDA % of net sales
13.8
%
 
12.2
%
 
 
 
 
12.6
%
 
120 bps
Net sales in the finishing segment for the three months ended September 25, 2015 were $52.3 million, an increase of $7.2 million, or 15.8%, compared with $45.2 million for the combined three months ended September 26, 2014. On a constant currency basis (net negative currency impact of $(4.6) million for the three months ended September 25, 2015), revenues increased by $11.8 million for the three months ended September 25, 2015. The increase in net sales resulted primarily from the acquisition of DRONCO, which had net sales of $11.3 million during the three months ended September 25, 2015, and due to increases in product pricing and increased volumes of existing finishing products.
Adjusted EBITDA increased $1.5 million, or 26.8%, for the three months ended September 25, 2015 to $7.2 million (13.8% of net sales) compared with $5.7 million (12.6% of net sales) for the combined three months ended September 26, 2014. On a constant currency basis (net negative currency impact of $(0.4) million for the three months ended September 25, 2015), Adjusted EBITDA for the three months ended September 25, 2015 was higher by $1.9 million than the prior year period. The increase in Adjusted EBITDA as a percentage of net sales for the three months ended September 25, 2015 primarily resulted from lower selling and administrative expenses and increases in product pricing, partially offset by lower Adjusted EBITDA margins related to DRONCO.
 
Successor
 
Successor
 
 
Predecessor
 
Combined
 
 
(in thousands, except percentages)
Nine Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
January 1, 2014 Through June 29, 2014
 
Nine Months Ended September 26, 2014
 
Increase/(Decrease)
 
 
 
 
 
$
 
%
Net sales
$
141,835

 
$
45,181

 
 
$
96,692

 
$
141,873

 
$
(38
)
 
—

Adjusted EBITDA
20,261

 
5,496

 
 
13,732

 
19,228

 
1,033

 
5.4

Adjusted EBITDA % of net sales
14.3
%
 
12.2
%
 
 
14.2
%
 
13.6
%
 
70 bps
Net sales in the finishing segment for the nine months ended September 25, 2015 were $141.8 million, compared with $141.9 million for the combined nine months ended September 26, 2014. On a constant currency basis (net negative currency impact of $(15.2) million for the nine months ended September 25, 2015), revenues increased by $15.2 million for the nine months ended September 25, 2015. The increase in net sales excluding the impact of foreign currency primarily resulted from the acquisition of DRONCO, which had net sales of $14.8 million during the nine months ended September 25, 2015.

30



Adjusted EBITDA increased $1.0 million, or 5.4%, for the nine months ended September 25, 2015 to $20.3 million (14.3% of net sales) from $19.2 million (13.6% of net sales) for the combined nine months ended September 26, 2014. On a constant currency basis (net negative currency impact of $(1.9) million for the nine months ended September 25, 2015), Adjusted EBITDA increased by $2.9 million for the nine months ended September 25, 2015. The increase in Adjusted EBITDA as a percentage of net sales for the nine months ended September 25, 2015 primarily resulted from lower selling and administrative expenses and increases in product pricing, partially offset by lower Adjusted EBITDA margins related to DRONCO.
Acoustics Segment    
 
Successor
 
Successor
 
 
Predecessor
 
Combined
 
 
(in thousands, except percentages)
Three Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
June 28, 2014 Through June 29, 2014
 
Three Months Ended September 26, 2014
 
Increase/(Decrease)
 
 
 
 
 
$
 
%
Net sales
$
51,755

 
$
54,033

 
 
$
—

 
$
54,033

 
$
(2,278
)
 
(4.2
) %
Adjusted EBITDA
7,014

 
4,287

 
 
—

 
4,287

 
2,727

 
63.6

Adjusted EBITDA % of net sales
13.6
%
 
7.9
%
 
 
 
 
7.9
%
 
570 bps
Net sales in the acoustics segment for the three months ended September 25, 2015 were $51.8 million, a decrease of $(2.3) million, or (4.2)%, compared to $54.0 million for the combined three months ended September 26, 2014. On a constant currency basis (net negative currency impact of $(1.3) million for the three months ended September 25, 2015), revenues decreased by $(1.0) million for the three months ended September 25, 2015. The decrease in net sales in the three months ended September 25, 2015 was due to lower volumes resulting from unfavorable changes in the mix of North American vehicle types produced and short-term automotive assembly plant shutdowns during the third quarter of 2015 compared with the prior year period.
Adjusted EBITDA was $7.0 million (13.6% of net sales) in the three months ended September 25, 2015 compared with $4.3 million (7.9% of net sales) in the combined three months ended September 26, 2014. On a constant currency basis (net negative currency impact of $(0.1) million for the three months ended September 25, 2015), Adjusted EBITDA increased $2.8 million for the three months ended September 25, 2015. The increases in Adjusted EBITDA and Adjusted EBITDA as a percentage of net sales for the quarter were primarily due to lower material costs and improved operational efficiencies resulting in lower labor costs and lower raw material usage as compared to the prior year period.
 
Successor
 
Successor
 
 
Predecessor
 
Combined
 
 
(in thousands, except percentages)
Nine Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
January 1, 2014 Through June 29, 2014
 
Nine Months Ended September 26, 2014
 
Increase/(Decrease)
 
 
 
 
 
$
 
%
Net sales
$
158,728

 
$
54,033

 
 
$
109,930

 
$
163,963

 
$
(5,235
)
 
(3.2
) %
Adjusted EBITDA
19,206

 
4,287

 
 
9,676

 
13,963

 
5,243

 
37.5

Adjusted EBITDA % of net sales
12.1
%
 
7.9
%
 
 
8.8
%
 
8.5
%
 
360 bps
Net sales in the acoustics segment for the nine months ended September 25, 2015 were $158.7 million, a decrease of $(5.2) million, or (3.2)%, compared to $164.0 million for the combined nine months ended September 26, 2014. On a constant currency basis (net negative currency impact of $(4.3) million for the nine months ended September 25, 2015), revenues decreased by $(0.9) million for the nine months ended September 25, 2015. During the nine months ended September 25, 2015 net sales were unfavorably impacted by changes in the mix of North American vehicles produced compared with the prior year period and short-term automotive assembly plant shut downs during 2015.
Adjusted EBITDA was $19.2 million (12.1% of net sales) in the nine months ended September 25, 2015 compared with $14.0 million (8.5% of net sales) in the combined nine months ended September 26, 2014. On a constant currency basis (net negative currency impact of $(0.3) million for the nine months ended September 25, 2015), Adjusted EBITDA increased $5.5 million for the nine months ended September 25, 2015. The increases in Adjusted EBITDA and Adjusted EBITDA as a percentage of net sales for the period were primarily due to lower material costs and improved operational efficiencies resulting in lower labor costs and lower raw material usage, partially offset by higher selling and administrative expenses.

31



Components Segment
 
Successor
 
Successor
 
 
Predecessor
 
Combined
 
 
(in thousands, except percentages)
Three Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
June 28, 2014 Through June 29, 2014
 
Three Months Ended September 26, 2014
 
Increase/(Decrease)
 
 
 
 
 
$
 
%
Net sales
$
29,882

 
$
29,569

 
 
$
—

 
$
29,569

 
$
313

 
1.1
 %
Adjusted EBITDA
5,211

 
1,716

 
 
(690
)
 
1,026

 
4,185

 
407.9

Adjusted EBITDA % of net sales
17.4
%
 
5.8
%
 
 
 
 
3.5
%
 
1,390 bps
Net sales in the components segment for the three months ended September 25, 2015 were $29.9 million, compared with $29.6 million for the combined three months ended September 26, 2014. The increase of $0.3 million during the three months ended September 25, 2015 as compared with the third quarter of 2014 was primarily due to increases in sales volumes of rail car metal components partially offset by lower volumes of general industrial metal products and smart utility meters components, and lower pricing of metal products.
Adjusted EBITDA increased to $5.2 million (17.4% of net sales) for the three months ended September 25, 2015 compared with $1.0 million (3.5% of net sales) in the third quarter of 2014. The increase in Adjusted EBITDA of $4.2 million was primarily due to improved operating efficiencies resulting in lower material usage, favorable mix of higher margin products, and lower raw material pricing compared with the prior year period.
 
Successor
 
Successor
 
 
Predecessor
 
Combined
 
 
(in thousands, except percentages)
Nine Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
January 1, 2014 Through June 29, 2014
 
Nine Months Ended September 26, 2014
 
Increase/(Decrease)
 
 
 
 
 
$
 
%
Net sales
$
93,958

 
$
29,569

 
 
$
65,651

 
$
95,220

 
$
(1,262
)
 
(1.3
) %
Adjusted EBITDA
15,913

 
1,716

 
 
10,324

 
12,040

 
3,873

 
32.2

Adjusted EBITDA % of net sales
16.9
%
 
5.8
%
 
 
15.7
%
 
12.6
%
 
430 bps
Net sales in the components segment for the nine months ended September 25, 2015 were $94.0 million, compared with $95.2 million for the combined nine months ended September 26, 2014. The decrease of $(1.3) million during the nine months ended September 25, 2015 was due to decreases in volumes and pricing of smart utility meters and general industrial metal products, partially offset by increases in sales volumes of rail car metal components.
Adjusted EBITDA increased to $15.9 million (16.9% of net sales) for the nine months ended September 25, 2015 compared with $12.0 million (12.6% of net sales) in 2014. The increase in Adjusted EBITDA of $3.9 million was primarily due to improved operating efficiencies resulting in lower material usage, favorable mix of higher margin products, and lower raw material pricing compared with the prior year period, partially offset by a decrease in smart utility meter sales volumes and pricing.
Corporate
 
Successor
 
Successor
 
 
Predecessor
 
Combined
 
 
(in thousands, except percentages)
Three Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
June 28, 2014 Through June 29, 2014
 
Three Months Ended September 26, 2014
 
Increase/(Decrease)
 
 
 
 
 
$
 
%
Adjusted EBITDA
$
(3,762
)
 
$
(1,489
)
 
 
$
—

 
$
(1,489
)
 
$
(2,273
)
 
152.7
%
Corporate expense is principally comprised of the costs of corporate functions, including the compensation and benefits of the Chief Executive Officer and Chief Financial Officer, as well as personnel responsible for treasury, finance, insurance, in-house legal, information technology, corporate development, human resources, tax 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 the operating costs of the corporate office.
The increase of $2.3 million in expense in the three months ended September 25, 2015 primarily resulted from increased non-stock incentive compensation expense as compared to the prior year period, and increased third-party

32



professional fees associated with investments in strategic growth initiatives.
 
Successor
 
Successor
 
 
Predecessor
 
Combined
 
 
(in thousands, except percentages)
Nine Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
January 1, 2014 Through June 29, 2014
 
Nine Months Ended September 26, 2014
 
Increase/(Decrease)
 
 
 
 
 
$
 
%
Adjusted EBITDA
$
(11,062
)
 
$
(1,489
)
 
 
$
(6,001
)
 
$
(7,490
)
 
$
(3,572
)
 
47.7
%
The increase of $3.6 million in expense in the nine months ended September 25, 2015 primarily resulted from increased non-stock incentive compensation expense as compared to the prior year period, and increased third-party professional fees associated with investments in strategic growth initiatives. Increased costs associated with the transition to Jason becoming a public company on June 30, 2014 also impacted the first half of 2015, including additional personnel costs, board of director compensation and expenses, third party professional fees and public filing related expenses.
Liquidity and Capital Resources
Background
The Company’s primary sources of liquidity are cash generated from its operations, available cash and borrowings under its U.S. and foreign credit facilities. As of September 25, 2015, the Company had $44.4 million of available cash, $36.2 million of additional borrowings available under the revolving credit facility portion of its U.S. credit agreement, and $11.0 million available under revolving loan facilities that the Company maintains outside the U.S. As of September 25, 2015, available borrowings under its U.S. revolving credit facility were reduced by outstanding letters of credit of $3.8 million. Included in the Company’s consolidated cash balance of $44.4 million at September 25, 2015, is cash of $23.8 million held at the Company’s non-U.S. operations. These funds, with some restrictions and tax implications, are available for repatriation as deemed necessary by the Company. The Company’s U.S. credit agreement and foreign revolving loan facilities are available for working capital requirements, capital expenditures and other general corporate purposes. We believe our existing cash on hand, expected future cash flows from operating activities, and additional borrowings available under our U.S. and foreign credit facilities provide sufficient resources to fund ongoing operating requirements as well as future capital expenditures, debt service requirements, and investments in future growth to create value for our shareholders.
Indebtedness
In connection with the consummation of the Business Combination, all indebtedness under Jason’s previous credit agreement was repaid in full and the Company entered into the New Credit Agreements (defined below). Non-U.S. debt was not repaid in connection with the Business Combination. See the section entitled “Senior Secured Credit Facilities” for further information on the New Credit Agreements.
As of September 25, 2015, the Company’s total outstanding indebtedness of $444.9 million was comprised of aggregate term loans outstanding under its Senior Secured Credit Facilities (defined below) of $411.4 million (net of a $6.3 million debt discount), various foreign bank term loans and revolving loan facilities of $31.8 million and capital lease obligations of $1.7 million. No amounts were outstanding under the revolving credit facility portion of the Senior Secured Credit Facilities as of September 25, 2015. As of December 31, 2014, the Company’s total outstanding indebtedness of $420.7 million was comprised of term loans outstanding under its U.S. credit agreement of $412.2 million (net of a $7.0 million debt discount), various foreign bank term loans and revolving loan facilities of $6.5 million and capital lease obligations of $2.0 million. No borrowings were outstanding under the U.S. revolving loan facility at December 31, 2014.
The Company maintains various bank term loan and revolving loan facilities outside the U.S. for local operating and investing needs. Borrowings under these facilities totaled $31.8 million as of September 25, 2015, including borrowings of $29.7 million incurred by the Company’s subsidiaries in Germany, and borrowings totaled $6.5 million as of December 31, 2014, including borrowings of $5.2 million incurred by the Company’s subsidiaries in Germany.
In connection with the acquisition of DRONCO, the Company assumed $11.0 million of debt comprised of term loan borrowings totaling $8.5 million and revolving line of credit borrowings totaling $2.5 million. Borrowings bear interest at fixed and variable rates ranging from 2.3% to 4.6% and are subject to repayment in varying amounts through 2030. During the third quarter of 2015, the Company entered into a new $13.5 million term loan in Germany. Borrowings bear interest at a fixed rate of 2.25% and are subject to repayment in equal quarterly payments of approximately $0.4 million beginning September 30, 2017 through June 30, 2025.

33



Senior Secured Credit Facilities
General. In connection with the consummation of the Business Combination on June 30, 2014, Jason Incorporated, an indirect majority-owned subsidiary of the Company, as the borrower, entered into (i) the First Lien Credit Agreement, dated as of June 30, 2014, with Jason Partners Holdings Inc., Jason Holdings, Inc. I, a wholly-owned subsidiary of Jason Partners Holdings Inc. (“Intermediate Holdings”), Deutsche Bank AG New York Branch, as administrative agent (the “First Lien Administrative Agent”), the subsidiary guarantors party thereto and the several banks and other financial institutions or entities from time to time party thereto (the “New First Lien Credit Agreement”) and (ii) the Second Lien Credit Agreement, dated as of June 30, 2014, with Jason Partners Holdings Inc., Intermediate Holdings, Deutsche Bank AG New York Branch, as administrative agent (the “Second Lien Administrative Agent”), the subsidiary guarantors party thereto and the several banks and other financial institutions or entities from time to time party thereto (the “New Second Lien Credit Agreement” and, together with the First Lien Credit Agreement, the “New Credit Agreements”).
The New First Lien Credit Agreement 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 $307.7 million is outstanding as of September 25, 2015, and (ii) a revolving loan of up to $40.0 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 new first lien senior secured loan facilities (the “First Lien Credit Facilities”). The New Second Lien Credit Agreement provides for term loans in an aggregate principal amount of $110.0 million under the new 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”). Substantially concurrently with the consummation of the Business Combination, the full amount of the First Lien Term Loans and Second Lien Term Loans were drawn, and no revolving loans were drawn.
The First Lien Term Loans mature in 2021 and the Revolving Credit Facility matures in 2019. The Second Lien Term Loans mature in 2022. The principal amount of the First Lien Term Loans amortizes in quarterly installments equal to 0.25% of the original principal amount of the First Lien Term Loans, 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., Intermediate Holdings, 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, in favor of the First Lien Administrative Agent 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, in favor of the Second Lien Administrative Agent. Pursuant to the Security Agreements, amounts borrowed under the Senior Secured Credit Facilities and any swap agreements and cash management arrangements provided by any lender party to the Senior Secured Credit Facilities or any of its affiliates are secured (i) with respect to the First Lien Credit Facilities, on a first priority basis and (ii) with respect to the Second Lien Term Facility, on a second priority basis, by a perfected security interest in substantially all of Jason Incorporated’s, Jason Partners Holdings Inc.’s, Intermediate Holdings’ 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 (limited, in the case of foreign subsidiaries, to 65% of the capital stock of first tier foreign subsidiaries). In addition, pursuant to the New Credit Agreements, Jason Partners Holdings Inc., Intermediate Holdings 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 “prime rate” of Deutsche Bank AG New York Branch, (b) the federal funds effective rate plus 0.50% and (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 will be 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.
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 (as defined in the New Credit Agreements) 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

34



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 of Jason Incorporated and its Restricted Subsidiaries. With respect to the Second Lien Term Facility, (i) any prepayments made prior to the one year anniversary of the Closing Date would have been subject to a 3.00% prepayment premium, (ii) any prepayments made on or after the first anniversary of the Closing Date, but prior to the second anniversary of the Closing Date, will be subject to a 2.00% prepayment premium and (iii) any prepayments made on or after the second anniversary of the Closing Date, but prior to the third anniversary of the Closing Date, will be subject to a 1.00% prepayment premium. Other than the prepayment premiums and penalties described above and the payment of customary “breakage” costs, Jason Incorporated may voluntarily prepay outstanding loans at any time.
Covenants. The Senior Secured Credit Facilities contain a number of customary affirmative and negative covenants that, among other things, will 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 (other than pursuant to the transactions contemplated by the Business Combination purchase agreement); 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.
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 25 percent of the revolving credit commitments 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, initially specified at 5.50 to 1.00, with periodic decreases beginning on July 1, 2016 to 5.25 to 1.00 and decreasing to 4.50 to 1.00 on December 31, 2017 and thereafter. If such outstanding amounts do not exceed 25 percent of the revolving credit commitments at the end of any fiscal quarter, no financial covenants are applicable. As of September 25, 2015 the consolidated first lien net leverage ratio was 4.78 to 1.00 on a pro forma trailing twelve-month basis, which excludes acquisition synergies as allowed under the New Credit Agreements. The aggregate outstanding amount of all Revolving Loans, swingline loans and certain letters of credit was less than 25 percent of revolving credit commitments.
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 New Credit Agreements.
Series A Preferred Stock
Holders of the 45,000 shares of Series A Preferred Stock are entitled to receive, when, as and if declared by the Company’s board of directors, cumulative dividends at the rate of 8.0% per annum (the dividend rate) on the $1,000 liquidation preference per share of the Series A Preferred Stock, payable quarterly in arrears on each dividend payment date. Dividends shall be paid in cash or, at the Company’s 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. On January 1, 2015 the Company paid a dividend of $20.00 per share to holders of record on November 15, 2014, totaling $0.9 million. On April 1, 2015 the Company paid a dividend of $20.00 per share to holders of record on February 15, 2015, totaling $0.9 million. On July 1, 2015, the Company paid a dividend on the Series A Preferred Stock of $20.00 per share to holders of record on May 15, 2015, totaling $0.9 million. On October 1, 2015, the Company paid a dividend on the Series A Preferred Stock of $20.00 per share to holders of record on August 15, 2015, totaling $0.9 million.

35



Seasonality and Working Capital
The Company uses net operating working capital (“NOWC”) as a percentage of the previous twelve months of net sales as a key indicator of working capital management. The Company defines this metric as the sum of trade accounts receivable and inventories less trade accounts payable as a percentage of net sales. NOWC as a percentage of rolling twelve month net sales was 16.9% as of September 25, 2015 and 14.1% as of December 31, 2014. Excluding NOWC of $8.4 million associated with DRONCO, which was acquired on May 29, 2015, NOWC as a percentage of rolling twelve month sales, excluding sales attributable to DRONCO, was 16.0%. Set forth below is a table summarizing NOWC as of September 25, 2015 and December 31, 2014.
 
Successor
(in thousands)
September 25, 2015
 
December 31, 2014
Accounts receivable—net
$
92,354

 
$
80,080

Inventories
83,876

 
80,546

Accounts payable
(58,246
)
 
(57,704
)
NOWC
$
117,984

 
$
102,922

In overall dollar terms, the Company’s NOWC is generally lower at the end of the calendar year due to reduced sales activity around the holiday season. NOWC generally peaks at the end of the first quarter as the Company experiences high seasonal demand from certain customers, particularly those serving the motor sports, lawn and garden equipment and small engine 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, and model year changes. The Company historically generates approximately 52-55% of its annual net sales in the first half of the year.
Short-Term and Long-Term Liquidity Requirements
Jason’s ability to make principal and interest payments on borrowings under its U.S. and foreign credit facilities and its ability to fund planned capital expenditures will depend on its 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 its current level of operations, Jason believes that its existing cash balances and expected cash flows from operations will be sufficient to meet its operating requirements for at least the next 12 months. However, Jason may require borrowings under its credit facilities and alternative forms of financings or investments to achieve its longer-term strategic plans.
Historically, Jason’s capital expenditures have ranged between 2% and 3% of annual sales with year-to-year fluctuations caused by the nature and timing of specific capital projects. Capital expenditures during the nine months ended September 25, 2015 were $23.9 million, or 4.5% of net sales. The increase in capital expenditures as a percentage of net sales from historical levels primarily related to a new acoustics segment manufacturing facility in Richmond, Indiana. Capital expenditures for 2015 are expected to be $33 million due to a new acoustics segment manufacturing facility for underbody production, but could vary from that depending on business performance, growth opportunities, and the amount of assets we lease instead of purchase. The Company finances its annual capital requirements with funds generated from operations.  
Warrant Repurchase
In February 2015, our Board of Directors authorized the purchase of up to $5 million of our outstanding warrants. Management is authorized to effect purchases from time to time in the open market or through privately negotiated transactions. There is no expiration date to this authority. No warrants were repurchased during the nine months ended September 25, 2015.

36



Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 25, 2015 (Successor), the Period June 30, 2014 Through September 26, 2014 (Successor), the Period January 1, 2014 Through June 29, 2014 (Predecessor)
 
Successor
 
 
Predecessor
 
Nine Months Ended September 25, 2015
 
June 30, 2014 Through September 26, 2014
 
 
January 1, 2014 Through June 29, 2014
(in thousands)
 
 
 
Cash flows provided by (used in) operating activities
32,304

 
(6,874
)
 
 
4,241

Cash flows (used in) provided by investing activities
(58,657
)
 
(496,212
)
 
 
138

Cash flows provided by financing activities
10,210

 
404,457

 
 
6,896

Effect of exchange rate changes on cash and cash equivalents
(1,698
)
 
(1,020
)
 
 
(122
)
Net (decrease) increase in cash and cash equivalents
(17,841
)
 
(99,649
)
 
 
11,153

Cash and cash equivalents at beginning of period
62,279

 
177,077

 
 
16,318

Cash and cash equivalents at end of period
$
44,438

 
$
77,428

 
 
$
27,471

Depreciation and amortization
33,578

 
10,377

 
 
12,852

Capital expenditures
23,864

 
6,598

 
 
10,998

Cash Flows Provided by (Used in) Operating Activities
For the nine months ended September 25, 2015, cash flows provided by operating activities were $32.3 million. The cash flows provided by operating activities were primarily the result of the net loss of ($4.9) million adjusted for non-cash items of $22.6 million related to depreciation, $11.0 million related to amortization of intangible assets, $2.3 million related to amortization of deferred financing costs and debt discounts, $6.5 million of non-cash stock compensation partially offset by changes in deferred taxes of $6.3 million. Changes in working capital increased operating cash flow by $1.9 million during the nine months ended September 25, 2015.
In the period June 30, 2014 through September 26, 2014, cash flows used in operating activities were $(6.9) million. The cash flows used in operating activities were primarily the result of net loss of $(9.8) million, payments of $9.8 million of accrued transaction costs and professional fees incurred by Quinpario Acquisition Corp. related to the Business Combination and other potential acquisitions that were not consummated and were paid upon consummation of the Business Combination, and partially offset by net increase in cash due to changes in working capital of $4.1 million.
In the period January 1, 2014 through June 29, 2014, cash flows provided by operating activities were $4.2 million. The cash flows provided by operating activities were significantly impacted by a net loss of $(5.0) million and increases of $16.8 million of accrued transaction costs and professional fees incurred by Jason related to the Business Combination and paid upon consummation of the Business Combination, partially offset by a decrease in cash due to changes in working capital of $19.4.
Cash Flows Provided by (Used in) Investing Activities
Cash flows used in investing activities were $(58.7) million for the nine months ended September 25, 2015. The cash flows used in investing activities were primarily the result of the acquisition of DRONCO in 2015 for $34.4 million, net of cash acquired, and increased capital expenditures on the acquisition of property, plant, and equipment.
In the period June 30, 2014 through September 26, 2014, cash flows used in investing activities were $(496.2) million. The cash flows used in investing activities were primarily the result of the acquisition of Jason for $489.2 million, which is net of $11.0 million of cash acquired, and capital expenditures on the acquisition of property, plant, and equipment of $6.6 million.
In the period January 1, 2014 through June 29, 2014, cash flows provided by investing activities were $0.1 million. The cash flows provided by investing activities were primarily the result of $11.5 million of proceeds from the sale of two of the Company’s joint ventures in Asia, partially offset by capital expenditures for the acquisition of property, plant, and equipment of $11.0 million.
Cash Flows Provided by Financing Activities
Cash flows provided by financing activities were $10.2 million for the nine months ended September 25, 2015. The cash flows provided by financing activities were primarily the result of proceeds from debt, net payments on long-term debt and preferred stock dividends.
In the period June 30, 2014 through September 26, 2014, cash flows provided by financing activities were $404.5 million. The cash flows provided by financing activities were primarily the result of net proceeds from the First Lien Term Loans and Second Lient Term Loans on our Senior Secured Credit Facility of $412.5 million, net proceeds from issuance of preferred stock of $42.5 million, partially offset by common stock redemptions of $26.1 million, debt issuance costs of $13.0

37



million, payments for warrants tendered of $6.6 million, and payments of deferred underwriters fees of $5.2 million related to the Company’s initial public offering.
In the period January 1, 2014 through June 29, 2014, cash flows provided by financing activities were $6.9 million. The cash flows provided by financing activities were primarily the result of net proceeds from U.S. revolving loans of $11.0 million, partially offset by net payments of other long-term debt of $2.5 million and U.S. term loan payments of $1.2 million.
Depreciation and Amortization
Depreciation and amortization totaled $33.6 million for the nine months ended September 25, 2015, compared with $10.4 million for the period June 30, 2014 through September 26, 2014 and $12.9 million for the period January 1, 2014 through June 29, 2014, respectively. Depreciation and amortization for the nine months ended September 25, 2015 is significantly higher than incurred by the Company in the prior period as a result of recognizing property, plant, and equipment and identifiable intangible assets at fair value in acquisition accounting for the Business Combination.
Capital Expenditures
Capital expenditures totaled $23.9 million for the nine months ended September 25, 2015, compared with $6.6 million for the period June 30, 2014 through September 26, 2014 and $11.0 million for the period January 1, 2014 through June 29, 2014, respectively. Capital expenditures increased during 2015 due to a new acoustics manufacturing facility in Richmond, Indiana.
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 for the year ended December 31, 2014, except for $11.0 million of debt assumed through the acquisition of DRONCO on May 29, 2015 and $13.5 million of new debt entered into during the third quarter of 2015. See Note 8 to these condensed consolidated financial statements for additional details on the terms of these debt arrangements.
Off-Balance Sheet Arrangements
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 for the year ended December 31, 2014.
Critical Accounting Policies and Estimates
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States 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 (“MD&A”), of our Annual Report on Form 10-K filed with the SEC on March 11, 2015 for the year ended December 31, 2014 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. Except for the items reported above, management believes that as of September 25, 2015 and during the period from January 1, 2015 through September 25, 2015, there has been no material change to this information.
New Accounting Pronouncements
In September 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2015-16, “Simplifying the Accounting for Measurement Period Adjustments” (“ASU 2015-16”). ASU 2015-16 requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 is effective for interim and annual periods beginning after December 15, 2016. Early application is permitted and should be applied prospectively.
In August 2015, the FASB issued ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Association with Line of Credit Arrangements” (“ASU 2015-15”). ASU 2015-15 indicates that previously issued guidance did not address presentation or subsequent measurement of debt issuance costs related to line of credit arrangements. Given the absence of authoritative guidance, the SEC staff has indicated that they would not object to an entity deferring and presenting debt issuance costs as assets and amortizing the deferred costs ratably over the term of the line of credit arrangement, regardless of whether there are any outstanding borrowings on the line of credit arrangement. The guidance is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. Management is evaluating the provisions of this statement and has not determined what impact the adoption of ASU 2015-15 will have on the Company’s financial position or results of operations.
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory” (“ASU 2015-11”). Under ASU 2015-11, inventory will be measured at the “lower of cost and net realizable value” and options that currently exist for

38



“market value” will be eliminated. ASU 2015-11 defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” No other changes were made to the current guidance on inventory measurement. ASU 2015-11 is effective for interim and annual periods beginning after December 15, 2016. Early application is permitted and should be applied prospectively. Management is evaluating the provisions of this statement and has not determined what impact the adoption of ASU 2015-11 will have on the Company's financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign currency exchange rates and interest rates and, to a lesser extent, commodities. To reduce such risks, the Company selectively uses financial instruments and other proactive management techniques. All hedging transactions are authorized and executed pursuant to clearly defined policies and procedures, which strictly prohibit the use of financial instruments for trading or speculative purposes.
Currency Risk: The Company has manufacturing, sales and distribution operations around the world; therefore, exchange rates impact the U.S. Dollar (“USD”) value of our reported earnings, our investments in our foreign subsidiaries and the intercompany transactions with these subsidiaries. Approximately $115 million, or 21.5%, of our sales originated in a currency other than the U.S. dollar during the first nine months of 2015. As a result, fluctuations in the value of foreign currencies against the USD, particularly the Euro, may have a material impact on our reported results. Revenues and expenses denominated in foreign currencies are translated into USD using average exchange rates in effect during the period. Consequently, as the value of the USD changes relative to the currencies of our major markets, our reported results vary. For the nine months ended September 25, 2015, sales denominated in Euros approximated $82 million. Therefore, with a 10% increase or decrease in the value of the Euro in relation to the USD, our translated net sales (assuming all other factors are unchanged) would increase or decrease by $8.2 million, respectively, and our net (loss) income would increase or decrease by approximately $0.1 million, respectively. The net assets and liabilities of our non-U.S. subsidiaries, which totaled approximately $58 million as of September 25, 2015, are translated into USD at the exchange rates in effect at the end of the period. The resulting translation adjustments are recorded in shareholders’ equity as cumulative translation adjustments. The cumulative translation adjustments recorded in accumulated other comprehensive income at September 25, 2015 resulted in a decrease to shareholders’ equity of $18.0 million. Transactional foreign currency exchange exposure results primarily from the purchase of products, services or equipment from affiliates or third party suppliers where the purchase value is significant, denominated in another currency and to be settled over an extended period, and from the repayment of intercompany loans between subsidiaries using different currencies. The Company periodically identifies areas where it does not have naturally offsetting currency positions and then may purchase hedging instruments to protect against potential currency exposures. As of September 25, 2015, the Company did not have any significant foreign currency hedging instruments in place nor did it have any significant sales or purchase commitments in currencies outside of the functional currencies of the operations responsible for satisfying such commitments. All long-term debt is held in the functional currencies of the operations that are responsible for the repayment of such obligations. As of September 25, 2015, long-term debt denominated in currencies other than the USD totaled approximately $31.8 million.
Interest Rate Risk: The Company utilizes a combination of short-term and long-term debt to finance our operations and is exposed to interest rate risk on our outstanding floating rate debt instruments that bear interest at rates that fluctuate with changes in certain short-term prevailing interest rates. Borrowings under U.S. credit facilities bear interest at rates tied to either the “prime rate” of Deutsche Bank AG New York Branch, the federal funds effective rate, the Eurocurrency rate, or a Eurocurrency rate determined by reference to LIBOR, subject to an established floor. Applicable interest rates have been substantially lower than the designated floor in our Senior Secured Credit Facilities; therefore, interest rates have not been subject to change. Assuming that the rates remain below the floor, a 25 basis point increase or decrease in the applicable interest rates on our variable rate debt, excluding debt outstanding under the U.S. credit agreement, would result in a minor change in interest expense on an annual basis. As of September 25, 2015, the Company did not have any interest rate swap or cap arrangements in place.
Commodity risk: The Company sources a wide variety of materials and components from a network of global suppliers. While such materials are generally available from numerous suppliers, commodity raw materials, such as steel, aluminum, copper, fiber, foam chemicals, plastic resin, vinyl and cotton sheeting are subject to price fluctuations, which could have a negative impact on our results. The Company strives to pass along such commodity price increases to customers to avoid profit margin erosion and utilizes value analysis and value engineering (“VAVE”) initiatives to further mitigate the impact of commodity raw material price fluctuations as improved efficiencies across all locations are achieved. As of September 25, 2015, the Company did not have any commodity hedging instruments in place.

39



ITEM 4. CONTROLS AND PROCEDURES
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 25, 2015. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were effective.
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

40



PART II — OTHER INFORMATION
ITEM 1A. RISK FACTORS
There are no material changes to the disclosures regarding risk factors made in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table contains detail related to the repurchase of common stock based on the date of trade during the quarter ended September 25, 2015:
2015 Fiscal Month
 
Total Number of Shares Purchased (a)
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Plans or Programs
 Announced (b)
 
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
June 27 to July 31
 
71,684
 
$6.80
 
—
 
N/A
August 1 to August 28
 
—
 
—
 
—
 
N/A
August 29 to September 25
 
—
 
—
 
—
 
N/A
Total
 
71,684
 
$6.80
 
—
 
 
(a) Represents shares of common stock that employees surrendered to satisfy withholding taxes in connection with the vesting of restricted stock unit awards. The 2014 Omnibus Incentive Plan and the award agreements permit participants to satisfy all or a portion of the statutory federal, state and local withholding tax obligations arising in connection with plan awards by electing to (a) have the Company reduce the number of shares otherwise deliverable or (b) deliver shares already owned, in each case having a value equal to the amount to be withheld. During the nine months ended September 25, 2015, the Company withheld 108,155 shares that employees presented to the Company to satisfy withholding taxes in connection with the vesting of restricted stock unit awards.
(b) The Company is not currently participating in a share repurchase program. In February 2015, the Board of Directors authorized the purchase of up to $5 million of outstanding warrants. Management is authorized to effect purchases from time to time in the open market or through privately negotiated transactions. There is no expiration date to this authority. No warrants were repurchased during the nine months ended September 25, 2015.
ITEM 6. EXHIBITS
Reference is made to the separate exhibit index following the signature page herein.

41



SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
JASON INDUSTRIES, INC.
 
 
Dated: October 30, 2015
/s/ David C. Westgate
 
David C. Westgate
Chief Executive Officer
(Principal Executive Officer)  
 
Dated: October 30, 2015
/s/ Sarah C. Sutton
 
 
Sarah C. Sutton
Chief Financial Officer
(Principal Financial Officer)
 
 


42



EXHIBIT INDEX
Exhibit Number
 
Description
31.1
 
Certification of the Principal Executive Officer required by Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
 
 
 
31.2
 
Certification of the Principal Financial Officer required by Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
 
 
 
32.1
 
Certification of the Principal Executive Officer required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
 
 
 
32.2
 
Certification of the Principal Financial Officer required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LAB
 
XBRL Taxonomy Extension Labels Linkbase Document
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document


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Jason Industries, Inc. Reports