UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
|
| |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20172018
OR
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| |
¨ | 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 0-22462
GIBRALTAR INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
|
| | |
Delaware | | 16-1445150 |
(State or other jurisdiction of incorporation or organization) ) | | (I.R.S. Employer Identification No.) |
| |
3556 Lake Shore Road, P.O. Box 2028 Buffalo, New York | | 14219-0228 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (716) 826-6500
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 x No ¨
Indicate by checkmarkcheck mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data 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 x 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, or an emerging growth company. See definition of “large accelerated filer”,filer,” “accelerated filer” andfiler,” “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
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| | | | | | | | | |
Large accelerated filer | x | Accelerated filer | ¨ | Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
| | | | | | Emerging growth company | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)Act). Yes ¨ No x
As of November 1, 2017,October 31, 2018, the number of common shares outstanding was: 31,688,154.32,064,809.
GIBRALTAR INDUSTRIES, INC.
INDEX
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| PAGE NUMBER |
PART I. | | | |
Item 1. | | | |
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| | | |
| | | |
| | | |
| | | |
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Item 2. | | | |
Item 3. | | | |
Item 4. | | | |
PART II. | | | |
Item 1. | | | |
Item 1A. | | | |
Item 2. | | | |
Item 3. | | | |
Item 4. | | | |
Item 5. | | | |
Item 6. | | | |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONSINCOME
(in thousands, except per share data)
(unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 |
Net Sales | $ | 274,574 |
| | $ | 272,734 |
| | $ | 728,806 |
| | $ | 776,143 |
| $ | 280,086 |
| | $ | 274,574 |
| | $ | 761,459 |
| | $ | 728,806 |
|
Cost of sales | 205,839 |
| | 204,847 |
| | 548,991 |
| | 585,263 |
| 209,807 |
| | 205,839 |
| | 572,359 |
| | 548,991 |
|
Gross profit | 68,735 |
| | 67,887 |
| | 179,815 |
| | 190,880 |
| 70,279 |
| | 68,735 |
| | 189,100 |
| | 179,815 |
|
Selling, general, and administrative expense | 33,042 |
| | 41,365 |
| | 109,513 |
| | 118,021 |
| 40,875 |
| | 33,042 |
| | 113,579 |
| | 109,513 |
|
Income from operations | 35,693 |
| | 26,522 |
| | 70,302 |
| | 72,859 |
| 29,404 |
| | 35,693 |
| | 75,521 |
| | 70,302 |
|
Interest expense | 3,486 |
| | 3,625 |
| | 10,612 |
| | 10,982 |
| 2,906 |
| | 3,486 |
| | 9,305 |
| | 10,612 |
|
Other expense | 404 |
| | 159 |
| | 811 |
| | 8,319 |
| |
Other expense (income) | | 522 |
| | 404 |
| | (50 | ) | | 811 |
|
Income before taxes | 31,803 |
| | 22,738 |
| | 58,879 |
| | 53,558 |
| 25,976 |
| | 31,803 |
| | 66,266 |
| | 58,879 |
|
Provision for income taxes | 11,184 |
| | 8,952 |
| | 21,090 |
| | 12,131 |
| 6,473 |
| | 11,184 |
| | 15,574 |
| | 21,090 |
|
Income from continuing operations | 20,619 |
| | 13,786 |
| | 37,789 |
| | 41,427 |
| 19,503 |
| | 20,619 |
| | 50,692 |
| | 37,789 |
|
Discontinued operations: | | | | | | | | | | | | | | |
Loss before taxes | — |
| | — |
| | (644 | ) | | — |
| — |
| | — |
| | — |
| | (644 | ) |
Benefit of income taxes | — |
| | — |
| | (239 | ) | | — |
| — |
| | — |
| | — |
| | (239 | ) |
Loss from discontinued operations | — |
| | — |
| | (405 | ) | | — |
| — |
| | — |
| | — |
| | (405 | ) |
Net income | $ | 20,619 |
| | $ | 13,786 |
| | $ | 37,384 |
| | $ | 41,427 |
| $ | 19,503 |
| | $ | 20,619 |
| | $ | 50,692 |
| | $ | 37,384 |
|
Net earnings per share – Basic: | | | | | | | | | | | | | | |
Income from continuing operations | $ | 0.65 |
| | $ | 0.44 |
| | $ | 1.19 |
| | $ | 1.32 |
| $ | 0.61 |
| | $ | 0.65 |
| | $ | 1.59 |
| | $ | 1.19 |
|
Loss from discontinued operations | — |
| | — |
| | (0.01 | ) | | — |
| — |
| | — |
| | — |
| | (0.01 | ) |
Net income | $ | 0.65 |
| | $ | 0.44 |
| | $ | 1.18 |
| | $ | 1.32 |
| $ | 0.61 |
| | $ | 0.65 |
| | $ | 1.59 |
| | $ | 1.18 |
|
Weighted average shares outstanding – Basic | 31,703 |
| | 31,579 |
| | 31,700 |
| | 31,493 |
| |
Weighted average shares outstanding -- Basic | | 32,115 |
| | 31,703 |
| | 31,922 |
| | 31,700 |
|
Net earnings per share – Diluted: | | | | | | | | | | | | | | |
Income from continuing operations | $ | 0.64 |
| | $ | 0.43 |
| | $ | 1.17 |
| | $ | 1.29 |
| $ | 0.60 |
| | $ | 0.64 |
| | $ | 1.56 |
| | $ | 1.17 |
|
Loss from discontinued operations | — |
| | — |
| | (0.01 | ) | | — |
| — |
| | — |
| | — |
| | (0.01 | ) |
Net income | $ | 0.64 |
| | $ | 0.43 |
| | $ | 1.16 |
| | $ | 1.29 |
| $ | 0.60 |
| | $ | 0.64 |
| | $ | 1.56 |
| | $ | 1.16 |
|
Weighted average shares outstanding – Diluted | 32,210 |
| | 32,176 |
| | 32,216 |
| | 32,005 |
| |
Weighted average shares outstanding -- Diluted | | 32,571 |
| | 32,210 |
| | 32,524 |
| | 32,216 |
|
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 |
Net income | $ | 20,619 |
| | $ | 13,786 |
| | $ | 37,384 |
| | $ | 41,427 |
| $ | 19,503 |
| | $ | 20,619 |
| | $ | 50,692 |
| | $ | 37,384 |
|
Other comprehensive income (loss): | | | | | | | | | | | | | | |
Foreign currency translation adjustment | 1,581 |
| | (193 | ) | | 3,351 |
| | 10,638 |
| 139 |
| | 1,581 |
| | (1,538 | ) | | 3,351 |
|
Cumulative effect of accounting change (see Note 2) | | — |
| | — |
| | (350 | ) | | — |
|
Adjustment to retirement benefit liability, net of tax | (2 | ) | | 61 |
| | (8 | ) | | 59 |
| (5 | ) | | (2 | ) | | (15 | ) | | (8 | ) |
Adjustment to post employment health care benefit liability, net of tax | 29 |
| | 38 |
| | 88 |
| | 114 |
| 32 |
| | 29 |
| | 95 |
| | 88 |
|
Other comprehensive income (loss) | 1,608 |
| | (94 | ) | | 3,431 |
| | 10,811 |
| 166 |
| | 1,608 |
| | (1,808 | ) | | 3,431 |
|
Total comprehensive income | $ | 22,227 |
| | $ | 13,692 |
| | $ | 40,815 |
| | $ | 52,238 |
| $ | 19,669 |
| | $ | 22,227 |
| | $ | 48,884 |
| | $ | 40,815 |
|
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
| | | September 30, 2017 | | December 31, 2016 | September 30, 2018 | | December 31, 2017 |
| (unaudited) | | | (unaudited) | | |
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | $ | 208,032 |
| | $ | 170,177 |
| $ | 245,413 |
| | $ | 222,280 |
|
Accounts receivable, net | 166,718 |
| | 124,072 |
| 180,875 |
| | 145,385 |
|
Inventories | 85,156 |
| | 89,612 |
| 97,486 |
| | 86,372 |
|
Other current assets | 8,195 |
| | 7,336 |
| 8,949 |
| | 8,727 |
|
Total current assets | 468,101 |
| | 391,197 |
| 532,723 |
| | 462,764 |
|
Property, plant, and equipment, net | 94,488 |
| | 108,304 |
| 93,718 |
| | 97,098 |
|
Goodwill | 321,093 |
| | 304,032 |
| 323,321 |
| | 321,074 |
|
Acquired intangibles | 107,943 |
| | 110,790 |
| 99,545 |
| | 105,768 |
|
Other assets | 4,672 |
| | 3,922 |
| 4,480 |
| | 4,681 |
|
| $ | 996,297 |
| | $ | 918,245 |
| $ | 1,053,787 |
| | $ | 991,385 |
|
Liabilities and Shareholders’ Equity | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | $ | 96,181 |
| | $ | 69,944 |
| $ | 92,997 |
| | $ | 82,387 |
|
Accrued expenses | 83,264 |
| | 70,392 |
| 76,268 |
| | 75,467 |
|
Billings in excess of cost | 18,234 |
| | 11,352 |
| 21,900 |
| | 12,779 |
|
Current maturities of long-term debt | 400 |
| | 400 |
| 400 |
| | 400 |
|
Total current liabilities | 198,079 |
| | 152,088 |
| 191,565 |
| | 171,033 |
|
Long-term debt | 209,425 |
| | 209,237 |
| 209,809 |
| | 209,621 |
|
Deferred income taxes | 38,162 |
| | 38,002 |
| 32,110 |
| | 31,237 |
|
Other non-current liabilities | 45,200 |
| | 58,038 |
| 37,428 |
| | 47,775 |
|
Shareholders’ equity: | | | | | | |
Preferred stock, $0.01 par value; authorized 10,000 shares; none outstanding | — |
| | — |
| — |
| | — |
|
Common stock, $0.01 par value; authorized 50,000 shares; 32,275 shares and 32,085 shares issued and outstanding in 2017 and 2016 | 322 |
| | 320 |
| |
Common stock, $0.01 par value; authorized 50,000 shares; 32,842 shares and 32,332 shares issued and outstanding in 2018 and 2017 | | 328 |
| | 323 |
|
Additional paid-in capital | 269,880 |
| | 264,418 |
| 280,149 |
| | 271,957 |
|
Retained earnings | 249,386 |
| | 211,748 |
| 325,878 |
| | 274,562 |
|
Accumulated other comprehensive loss | (4,290 | ) | | (7,721 | ) | (6,174 | ) | | (4,366 | ) |
Cost of 588 and 530 common shares held in treasury in 2017 and 2016 | (9,867 | ) | | (7,885 | ) | |
Cost of 778 and 615 common shares held in treasury in 2018 and 2017 | | (17,306 | ) | | (10,757 | ) |
Total shareholders’ equity | 505,431 |
| | 460,880 |
| 582,875 |
| | 531,719 |
|
| $ | 996,297 |
| | $ | 918,245 |
| $ | 1,053,787 |
| | $ | 991,385 |
|
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)(unaudited) | | | Nine Months Ended September 30, | Nine Months Ended September 30, |
| 2017 | | 2016 | 2018 | | 2017 |
Cash Flows from Operating Activities | | | | | | |
Net income | $ | 37,384 |
| | $ | 41,427 |
| $ | 50,692 |
| | $ | 37,384 |
|
Loss from discontinued operations | (405 | ) | | — |
| — |
| | (405 | ) |
Income from continuing operations | 37,789 |
| | 41,427 |
| 50,692 |
| | 37,789 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | 16,427 |
| | 17,551 |
| 15,449 |
| | 16,427 |
|
Stock compensation expense | 5,069 |
| | 4,666 |
| 6,854 |
| | 5,069 |
|
Net gain on sale of assets | (139 | ) | | (225 | ) | (203 | ) | | (139 | ) |
Loss on sale of business | — |
| | 8,763 |
| |
Exit activity (recoveries) costs, non-cash | (1,931 | ) | | 3,876 |
| |
(Benefit of) provision for deferred income taxes | (136 | ) | | 355 |
| |
Exit activity costs (recoveries), non-cash | | 1,088 |
| | (1,931 | ) |
Benefit of deferred income taxes | | — |
| | (136 | ) |
Other, net | 1,411 |
| | 735 |
| 1,317 |
| | 1,411 |
|
Changes in operating assets and liabilities, excluding the effects of acquisitions: | | | | | | |
Accounts receivable | (42,310 | ) | | 3,796 |
| (30,534 | ) | | (42,310 | ) |
Inventories | 2,016 |
| | 9,738 |
| (16,263 | ) | | 2,016 |
|
Other current assets and other assets | (2,002 | ) | | (1,901 | ) | 1,052 |
| | (2,002 | ) |
Accounts payable | 25,134 |
| | 2,367 |
| 9,237 |
| | 25,134 |
|
Accrued expenses and other non-current liabilities | 7,503 |
| | 11,038 |
| (479 | ) | | 7,503 |
|
Net cash provided by operating activities | 48,831 |
| | 102,186 |
| 38,210 |
| | 48,831 |
|
Cash Flows from Investing Activities | | | | | | |
Cash paid for acquisitions, net of cash acquired | (18,494 | ) | | (2,314 | ) | (5,241 | ) | | (18,494 | ) |
Net proceeds from sale of property and equipment | 12,935 |
| | 249 |
| 3,147 |
| | 12,935 |
|
Purchases of property, plant, and equipment | (5,152 | ) | | (7,600 | ) | (6,767 | ) | | (5,152 | ) |
Net proceeds from sale of business | — |
| | 8,250 |
| |
Other, net | — |
| | 1,118 |
| |
Net cash used in investing activities | (10,711 | ) | | (297 | ) | (8,861 | ) | | (10,711 | ) |
Cash Flows from Financing Activities | | | | | | |
Long-term debt payments | (400 | ) | | (400 | ) | (400 | ) | | (400 | ) |
Payment of debt issuance costs | — |
| | (54 | ) | |
Purchase of treasury stock at market prices | (1,982 | ) | | (1,178 | ) | (6,549 | ) | | (1,982 | ) |
Net proceeds from issuance of common stock | 649 |
| | 2,892 |
| 1,343 |
| | 649 |
|
Net cash (used in) provided by financing activities | (1,733 | ) | | 1,260 |
| |
Net cash used in financing activities | | (5,606 | ) | | (1,733 | ) |
Effect of exchange rate changes on cash | 1,468 |
| | 1,055 |
| (610 | ) | | 1,468 |
|
Net increase in cash and cash equivalents | 37,855 |
| | 104,204 |
| 23,133 |
| | 37,855 |
|
Cash and cash equivalents at beginning of year | 170,177 |
| | 68,858 |
| 222,280 |
| | 170,177 |
|
Cash and cash equivalents at end of period | $ | 208,032 |
| | $ | 173,062 |
| $ | 245,413 |
| | $ | 208,032 |
|
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Shareholders’ Equity |
| Shares | | Amount | | | | | Shares | | Amount | |
Balance at December 31, 2017 | 32,332 |
| | $ | 323 |
| | $ | 271,957 |
| | $ | 274,562 |
| | $ | (4,366 | ) | | 615 |
| | $ | (10,757 | ) | | $ | 531,719 |
|
Net income | — |
| | — |
| | — |
| | 8,352 |
| | — |
| | — |
| | — |
| | 8,352 |
|
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | 110 |
| | — |
| | — |
| | 110 |
|
Adjustment to retirement benefit liability, net of taxes of $(2) | — |
| | — |
| | — |
| | — |
| | (5 | ) | | — |
| | — |
| | (5 | ) |
Adjustment to post employment health care benefit liability, net of taxes of $12 | — |
| | — |
| | — |
| | — |
| | 32 |
| | — |
| | — |
| | 32 |
|
Stock compensation expense | — |
| | — |
| | 2,097 |
| | — |
| | — |
| | — |
| | — |
| | 2,097 |
|
Cumulative effect of accounting change (see Note 2) | — |
| | — |
| | — |
| | 624 |
| | (350 | ) | | — |
| | — |
| | 274 |
|
Stock options exercised | 13 |
| | — |
| | 226 |
| | — |
| | — |
| | — |
| | — |
| | 226 |
|
Net settlement of restricted stock units | 53 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | 24 |
| | (850 | ) | | (850 | ) |
Balance at March 31, 2018 | 32,398 |
| | $ | 324 |
| | $ | 274,279 |
| | $ | 283,538 |
| | $ | (4,579 | ) | | 639 |
| | $ | (11,607 | ) | | $ | 541,955 |
|
Net income | — |
| | — |
| | — |
| | 22,837 |
| | — |
| | — |
| | — |
| | 22,837 |
|
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | (1,787 | ) | | — |
| | — |
| | (1,787 | ) |
Adjustment to retirement benefit liability, net of taxes of $(2) | — |
| | — |
| | — |
| | — |
| | (5 | ) | | — |
| | — |
| | (5 | ) |
Adjustment to post employment health care benefit liability, net of taxes of $13 | — |
| | — |
| | — |
| | — |
| | 31 |
| | — |
| | — |
| | 31 |
|
Stock compensation expense | — |
| | — |
| | 2,731 |
| | — |
| | — |
| | — |
| | — |
| | 2,731 |
|
Stock options exercised | 21 |
| | — |
| | 300 |
| | — |
| | — |
| | — |
| | — |
| | 300 |
|
Issuance of restricted stock | 2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net settlement of restricted stock units | 334 |
| | 3 |
| | (3 | ) | | — |
| | — |
| | 128 |
| | (5,166 | ) | | (5,166 | ) |
Balance at June 30, 2018 | 32,755 |
| | $ | 327 |
| | $ | 277,307 |
| | $ | 306,375 |
| | $ | (6,340 | ) | | 767 |
| | $ | (16,773 | ) | | $ | 560,896 |
|
Net income | — |
| | — |
| | — |
| | 19,503 |
| | — |
| | — |
| | — |
| | 19,503 |
|
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | 139 |
| | — |
| | — |
| | 139 |
|
Adjustment to retirement benefit liability, net of taxes of $(2) | — |
| | — |
| | — |
| | — |
| | (5 | ) | | — |
| | — |
| | (5 | ) |
Adjustment to post employment health care benefit liability, net of taxes of $12 | — |
| | — |
| | — |
| | — |
| | 32 |
| | — |
| | — |
| | 32 |
|
Stock compensation expense | — |
| | — |
| | 2,026 |
| | — |
| | — |
| | — |
| | — |
| | 2,026 |
|
Stock options exercised | 50 |
| | 1 |
| | 816 |
| | — |
| | — |
| | — |
| | — |
| | 817 |
|
Net settlement of restricted stock units | 37 |
| | — |
| | — |
| | — |
| | — |
| | 11 |
| | (533 | ) | | (533 | ) |
Balance at September 30, 2018 | 32,842 |
| | $ | 328 |
| | $ | 280,149 |
| | $ | 325,878 |
| | $ | (6,174 | ) | | 778 |
| | $ | (17,306 | ) | | $ | 582,875 |
|
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(in thousands)
(unaudited)
| | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Shareholders’ Equity | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Shareholders’ Equity |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
Balance at December 31, 2016 | 32,085 |
| | $ | 320 |
| | $ | 264,418 |
| | $ | 211,748 |
| | $ | (7,721 | ) | | 530 |
| | $ | (7,885 | ) | | $ | 460,880 |
| 32,085 |
| | $ | 320 |
| | $ | 264,418 |
| | $ | 211,748 |
| | $ | (7,721 | ) | | 530 |
| | $ | (7,885 | ) | | $ | 460,880 |
|
Net income | — |
| | — |
| | — |
| | 37,384 |
| | — |
| | — |
| | — |
| | 37,384 |
| — |
| | — |
| | — |
| | 3,996 |
| | — |
| | — |
| | — |
| | 3,996 |
|
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | 3,351 |
| | — |
| | — |
| | 3,351 |
| — |
| | — |
| | — |
| | — |
| | 679 |
| | — |
| | — |
| | 679 |
|
Adjustment to retirement benefit liability, net of taxes of ($5) | — |
| | — |
| | — |
| | — |
| | (8 | ) | | — |
| | — |
| | (8 | ) | |
Adjustment to post employment health care benefit liability, net of taxes of $54 | — |
| | — |
| | — |
| | — |
| | 88 |
| | — |
| | — |
| | 88 |
| |
Adjustment to retirement benefit liability, net of taxes of $(2) | | — |
| | — |
| | — |
| | — |
| | (3 | ) | | — |
| | — |
| | (3 | ) |
Adjustment to post employment health care benefit liability, net of taxes of $19 | | — |
| | — |
| | — |
| | — |
| | 29 |
| | — |
| | — |
| | 29 |
|
Stock compensation expense | — |
| | — |
| | 5,069 |
| | — |
| | — |
| | — |
| | — |
| | 5,069 |
| — |
| | — |
| | 1,635 |
| | — |
| | — |
| | — |
| | — |
| | 1,635 |
|
Cumulative effect of accounting change (see Note 2) | — |
| | — |
| | (254 | ) | | 254 |
| | — |
| | — |
| | — |
| | — |
| |
Cumulative effect of accounting change (see Note1) | | — |
| | — |
| | (254 | ) | | 254 |
| | — |
| | — |
| | — |
| | — |
|
Stock options exercised | | 1 |
| | — |
| | 11 |
| | — |
| | — |
| | — |
| | — |
| | 11 |
|
Issuance of restricted stock | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net settlement of restricted stock units | | 47 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | 22 |
| | (922 | ) | | (922 | ) |
Balance at March 31, 2017 | | 32,133 |
| | $ | 321 |
| | $ | 265,809 |
| | $ | 215,998 |
| | $ | (7,016 | ) | | 552 |
| | $ | (8,807 | ) | | $ | 466,305 |
|
Net income | | — |
| | — |
| | — |
| | 12,769 |
| | — |
| | — |
| | — |
| | 12,769 |
|
Foreign currency translation adjustment | | — |
| | — |
| | — |
| | — |
| | 1,091 |
| | — |
| | — |
| | 1,091 |
|
Adjustment to retirement benefit liability, net of taxes of $(1) | | — |
| | — |
| | — |
| | — |
| | (3 | ) | | — |
| | — |
| | (3 | ) |
Adjustment to post employment health care benefit liability, net of taxes of $17 | | — |
| | — |
| | — |
| | — |
| | 30 |
| | — |
| | — |
| | 30 |
|
Stock compensation expense | | — |
| | — |
| | 1,556 |
| | — |
| | — |
| | — |
| | — |
| | 1,556 |
|
Stock options exercised | | 15 |
| | — |
| | 236 |
| | — |
| | — |
| | — |
| | — |
| | 236 |
|
Issuance of restricted stock | | 2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net settlement of restricted stock units | | 5 |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | (81 | ) | | (81 | ) |
Balance at June 30, 2017 | | 32,155 |
| | $ | 321 |
| | $ | 267,601 |
| | $ | 228,767 |
| | $ | (5,898 | ) | | 554 |
| | $ | (8,888 | ) | | $ | 481,903 |
|
Net income | | — |
| | — |
| | — |
| | 20,619 |
| | — |
| | — |
| | — |
| | 20,619 |
|
Foreign currency translation adjustment | | — |
| | — |
| | — |
| | — |
| | 1,581 |
| | — |
| | — |
| | 1,581 |
|
Adjustment to retirement benefit liability, net of taxes of $(2) | | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| | — |
| | (2 | ) |
Adjustment to post employment health care benefit liability, net of taxes of $18 | | — |
| | — |
| | — |
| | — |
| | 29 |
| | — |
| | — |
| | 29 |
|
Stock compensation expense | | — |
| | — |
| | 1,878 |
| | — |
| | — |
| | — |
| | — |
| | 1,878 |
|
Stock options exercised | 40 |
| | — |
| | 649 |
| | — |
| | — |
| | — |
| | — |
| | 649 |
| 24 |
| | — |
| | 402 |
| | — |
| | — |
| | — |
| | — |
| | 402 |
|
Issuance of restricted stock | 2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net settlement of restricted stock units | 148 |
| | 2 |
| | (2 | ) | | — |
| | — |
| | 58 |
| | (1,982 | ) | | (1,982 | ) | 96 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | 34 |
| | (979 | ) | | (979 | ) |
Balance at September 30, 2017 | 32,275 |
| | $ | 322 |
| | $ | 269,880 |
| | $ | 249,386 |
| | $ | (4,290 | ) | | 588 |
| | $ | (9,867 | ) | | $ | 505,431 |
| 32,275 |
| | $ | 322 |
| | $ | 269,880 |
| | $ | 249,386 |
| | $ | (4,290 | ) | | 588 |
| | $ | (9,867 | ) | | $ | 505,431 |
|
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. | |
(1) | CONSOLIDATED FINANCIAL STATEMENTS |
The accompanying unaudited consolidated financial statements have been prepared by management in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting of normal recurring adjustments considered necessary for the fair presentation of results for the interim period have been included. The Company's operations are seasonal; for this and other reasons, financial results of operations for the three and nine month periods ended September 30, 2017any interim period are not necessarily indicative of the results expected for the full year. The Company is subject to reduced activity in the first and fourth quarters as colder, inclement weather reduces order rates from end markets it serves. The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our annual Form 10-K for the year ended December 31, 2016.2017.
Certain prior year amounts haveThe balance sheet at December 31, 2017 has been reclassified to conform to current year's presentation. derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.
Refer to Note 21 of the Company's annual report on Form 10-K for a summarythe year ended December 31, 2017 for the cumulative effect of ASUs we adoptedan accounting change adjustment recognized during the quarter ended March 31, 2017 and presented in the related financial statement impact.Company's Consolidated Statement of Shareholders' Equity for the nine months ended September 30, 2017 in this Form 10-Q.
2. RECENT ACCOUNTING PRONOUNCEMENTS
| |
(2) | RECENT ACCOUNTING PRONOUNCEMENTS |
Recent Accounting Pronouncements Adopted |
| | |
Standard | Description | Financial Statement Effect or Other Significant Matters |
ASU No. 2016-09
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
| The standard simplifies the accounting for share-based payment award transactions including: income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The provisions of this standard are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. | The Company has adopted all amendments included in this standard under each required transition method. The Company concluded there were no material changes to prior periods, except for the following: the Company (a) reclassified its prior interim period excess tax benefit for stock compensation of $941,000 on its consolidated statement of cash flows from a financing activity to an operating activity; and (b) recognized a cumulative-effect adjustment of $254,000 as an increase to retained earnings and decrease to additional paid-in capital on the Company's consolidated statement of shareholders' equity as of January 1, 2017 to reflect the change in value for a restricted stock unit liability award as of December 31, 2016, as if the award had been classified as an equity award since its respective grant date.
Date of adoption: Q1 2017
|
|
| | |
Standard | | Description | Financial Statement Effect or Other Significant Matters |
ASU No. 2017-04
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
| The standard eliminates the "Step 2" analysis to determine the amount of impairment realized when a reporting unit's carrying amount exceeds its fair value in its "Step 1" analysis of accounting for impairment of goodwill. The impairment charge would be the amount determined in "Step 1." The provisions of this standard are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. | The Company has adopted this standard and it did not have any impact on the Company's consolidated financial statements.
Date of Adoption: Q1 2017
|
ASU No. 2017-07
Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
| The standard requires an employer to recognize the service cost component of net periodic pension costs and net periodic postretirement benefit costs in the same line item(s) as other compensation costs from services rendered by pertinent employees during the period. Other components of net benefit cost are required to be presented separately from the service cost component and outside a subtotal of income from operations. The provisions of this standard are effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. | The Company has adopted this standard and has applied it retrospectively for the presentation of the service cost component, as well as, other components of net periodic pension cost and net periodic postretirement benefit cost in our statement of operations. The adoption decreased selling, general, and administrative expense by $159,000 for the three months ended September 30, 2016 and $479,000 for the nine months ended September 30, 2016, and comparably increased other expense by the same amounts, respectively. This guidance did not have any impact on our balance sheet or our statement of cash flows.
Date of Adoption: Q1 2017
|
Recent Accounting Pronouncements Not Yet Adopted |
| | |
Standard | Description | Financial Statement Effect or Other Significant Matters |
ASU No. 2014-09 Revenue from Contracts with Customers (Topic 606) And All Related ASUs | | The standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires additional disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and assets recognized from costs incurred to obtain or fulfill a contract. The provisions of the standard, as well as all subsequently issued clarifications to the standard, are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The standard can be adopted using either a full retrospective or modified retrospective approach. | | The Company currently believeshas adopted this standard using the mostmodified retrospective method. The Company recognized the cumulative- effect adjustment of initially applying this standard of $274,000 to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standard in effect for that period. Refer to Note 4 for further disclosure of the financial statement effect and other significant impactmatters as a result of the adoption of this standard.
Date of adoption: Q1 2018 |
ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments | | The standard provides guidance on eight specific cash flow issues to reduce diversity in reporting. The provisions of this standard uponare effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption relates to the revenue recognition for custom fabricated products withinis permitted. | | The Company has adopted this standard and it did not have any impact on the Company's Industrialconsolidated financial statements.
Date of adoption: Q1 2018 |
ASU No. 2016-16 Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory | | The standard allows an entity to recognize income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The provisions of this standard are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. | | The Company has adopted this standard and Infrastructure Products segment. Underit did not have any impact on the Company's consolidated financial statements.
Date of adoption: Q1 2018 |
ASU No. 2018-02 Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income | | The standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The provisions of this standard are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the standard is permitted, including adoption in any interim period. | | The Company has early adopted this standard. As a result of adopting this standard, the Company expectsrecorded an adjustment of $350,000 from accumulated other comprehensive income to recognize revenue on an over time basis on custom fabricated productsretained earnings in the Industrialconsolidated statement of shareholders' equity as of the beginning of the January 1, 2018, and Infrastructure Products segment which is a change from our current revenue recognition policy of point-in-time basis. The Company expects revenue recognition related to the remaining Industrial and Infrastructure Products segment, Residential Products segment and Renewable Energy and Conservation segment to remain substantially unchanged upon adoption of this standard. The Company has identified and is in the process of implementing appropriatewill record any subsequent period adjustments, if changes to the Company's business processes, systems and internal controls to support recognition and disclosure under this standard. The Company currently anticipates adopting the modified retrospective transition method approach. The Company has not yet completed the process of quantifying the effects of any changes that willprovisional amounts result from adoption.in additional amounts stranded in accumulated other comprehensive income.
Planned dateDate of adoption: Q1 2018
|
Recent Accounting Pronouncements Not Yet Adopted |
| | | | |
Standard | | Description | | Financial Statement Effect or Other Significant Matters |
ASU No. 2016-02 Leases (Topic 842) | | The standard requires lessees to recognize most leases as assets and liabilities on the balance sheet, but record expenses on the statement of operations in a manner similar to current accounting. For lessors, the guidance modifies the classification criteria and accounting for sales-type and direct financing leases. The standard also requires additional disclosures about leasing arrangements and requires a modified retrospective transition approach for existing leases, whereby the standard will be applied to the earliest year presented. The provisions of the standard are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. | | The Company is currently evaluatingcontinues to evaluate the impact of thisthe standard on the Company'sCompany’s consolidated financial statements and related disclosures, including the impactdisclosures. The new standard requires lessees to recognize a lease liability and right of use asset on the Company's current lease portfolio from both a lessor and lessee perspective. Thebalance sheet. While the adoption of this standard will primarily result in an increase in theto assets and liabilities on the Company's consolidatedCompany’s balance sheet, and related disclosures.we do not expect that the impact will be material. In addition, the Company does not expect that the adoption will result in a material impact to our consolidated statement of operations. The Company intends to adopt this guidance by applying the transition provisions on a modified retrospective basis as of the effective date January 1, 2019.
Planned date of adoption: Q1 2019 |
ASU No. 2016-15
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
| The standard provides guidance on eight specific cash flow issues to reduce diversity in reporting. The provisions of this standard are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. | The Company is currently evaluating the requirements of this standard and has not yet determined its impact on the Company's consolidated financial statements.
Planned date of adoption: Q1 2018
|
ASU No. 2016-16
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
| The standard allows an entity to recognize income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The provisions of this standard are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. | The Company is currently evaluating the requirements of this standard and has not yet determined its impact on the Company's consolidated financial statements.
Planned date of adoption: Q1 2018
|
3. | |
(3) | ACCOUNTS RECEIVABLE, NET |
Accounts receivable consists of the following (in thousands):
| | | September 30, 2017 | | December 31, 2016 | September 30, 2018 | | December 31, 2017 |
Trade accounts receivable | $ | 104,031 |
| | $ | 81,193 |
| $ | 166,208 |
| | $ | 140,209 |
|
Contract receivables: | | | | |
Amounts billed | 49,866 |
| | 41,569 |
| |
Costs in excess of billings | 18,374 |
| | 6,582 |
| 21,522 |
| | 11,610 |
|
Total contract receivables | 68,240 |
| | 48,151 |
| |
Total accounts receivable | 172,271 |
| | 129,344 |
| |
Total accounts receivables | | 187,730 |
| | 151,819 |
|
Less allowance for doubtful accounts | (5,553 | ) | | (5,272 | ) | (6,855 | ) | | (6,434 | ) |
Accounts receivable | $ | 166,718 |
| | $ | 124,072 |
| $ | 180,875 |
| | $ | 145,385 |
|
Refer to Note 4 of the Company's consolidated financial statements included in this quarterly report on Form 10-Q for additional information concerning the Company's costs in excess of billings.
Sales includes revenue from contracts with customers from roof and foundation ventilation products; centralized mail systems and electronic package solutions; rain dispersion products and roofing accessories; expanded and perforated metal; perimeter security solutions; expansion joints and structural bearings; designing, engineering, manufacturing and installation of solar racking systems and greenhouse structures.
Revenue recognition
Revenue is recognized when, or as, the Company transfers control of promised products or service to a customer in an amount that reflects the consideration the Company expects to be entitled in exchange for transferring those products or service. Refer to Note 16 of this quarterly report on Form 10Q for additional information related to revenue recognized by timing of transfer of control by reportable segment.
Payment terms and conditions vary by contract, although terms generally include a requirement of payment within a range from 30 to 60 days, or in certain cases, up front deposits. In circumstances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that the Company's contracts generally
do not include a significant financing component. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from sales.
Performance obligations satisfied at a point in time and significant judgments
The majority of the Company's revenue from contracts with customers is recognized when the Company transfers control of the promised product at a point in time, which is determined when the customer has legal title and the significant risks and rewards of ownership of the asset, and the Company has a present right to payment for the product. These contracts with customers include promised products, which are generally capable of being distinct and accounted for as separate performance obligations. Accordingly, the Company allocates the transaction price, which is generally the quoted price per terms of the contract and the consideration the Company expects to receive, to each performance obligation in an amount based on an observable price of the products as the Company frequently sells these products separately in similar circumstances and to similar customers. These products are generally sold with rights of return and these contracts may provide other credits or incentives, which are accounted for as variable consideration. Variable consideration is estimated at the most likely amount to predict the consideration to which the Company will be entitled, and only to the extent it is probable that a subsequent change in estimate will not result in a significant revenue reversal when estimating the amount of revenue to recognize. Sales returns, allowances, and customer incentives, including rebates, are treated as reductions to the sales transaction price and based largely on an assessment of all information (i.e., historical, current and forecasted) that is reasonably available to the Company, and estimated at contract inception and updated at the end of each reporting period as additional information becomes available.
Performance obligations satisfied over time and significant judgments
For contracts with customers which the Company satisfies a promise to the customer to construct a certain asset that the customer controls as it is being created or enhanced, or a promise to provide a product that has no alternative use to the Company and the Company has enforceable rights to payment, the Company satisfies the performance obligation and recognizes revenue over time. For the contracts to construct a certain asset, the Company determines that the customer controls the asset while it is being constructed. For the contracts for products that have no alternative use and for which the Company has an enforceable right to payment, the Company identifies these products as products that are not a standard inventory item or the Company cannot readily direct the product to another customer or use without incurring a significant economic loss, or significant costs to rework the product.
When the promised products and services are to construct a certain asset that the customer controls, the entire contract is accounted for as one performance obligation. The Company determines the transaction price for each contract based on the consideration the Company expects to receive for the promised products and services under the entire contract, which is generally the stated contract price based on an expected cost plus a margin approach.
When the promised products do not have an alternative use to the Company, and the Company has enforceable rights to payment, the transaction price is determined for each contract based on the consideration the Company expects to receive for the promised products under the contract and is generally the stated contract price based on an expected cost plus a margin approach for each performance obligation. These promised products are generally capable of being distinct and accounted for as separate performance obligations.
For the above contracts with customers with respect to which the Company satisfies a performance obligation over time, the Company recognizes revenue based on the extent of progress towards completion of the performance obligation. The cost-to-cost measure of progress best depicts the transfer of control to the customer which occurs as the Company incurs costs on the contract as the incurred costs are proportionate to the Company's progress in satisfying the performance obligation. Under the cost-to-cost measure of progress, the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues are recognized proportionally as costs are incurred. Costs to fulfill a contract include all direct costs related to contract performance. Selling and administrative expenses are charged to operations as incurred. Provision for loss on an uncompleted performance obligation is recognized in the period in which such loss is determined.
The Company regularly reviews the progress and performance of the performance obligation recognized over time under the cost-to-cost method. Any adjustments to net sales, cost of sales, and the related impact to operating income are recognized as necessary in the period they become known. Changes in estimates of net sales, cost of sales, and the related impact to operating income are recognized on a cumulative catch-up basis, which recognizes in the current
period the cumulative effect of the changes on current or prior periods based on a performance obligation's cost-to-cost measure of progress.
The Company also recognizes revenues from services contracts over time. For these contracts, the transaction price is determined for each contract based on the consideration the Company expects to receive for the promised service under the contract, which generally is the stated contract price. In order to estimate the standalone selling price of the performance obligation, the Company evaluates the market in which the promised service is sold and estimates the price that customers in the market would be willing to pay. Further, the Company recognizes revenue over time during the term of the agreement as the customer is simultaneously receiving and consuming the benefits provided throughout the Company's performance. Therefore due to control transferring over time, the Company recognizes revenue on a straight-line basis throughout the contract period.
Remaining performance obligations
As of September 30, 2018, the Company's remaining performance obligations are part of contracts that have an original expected duration of one year or less. Therefore, any remaining performance obligations are not required to be disclosed.
Contract receivables are primarily associated with developers, contractors and customersassets
Contract assets consist of costs in connection with the Renewable Energy and Conservation segment.excess of billings. Costs in excess of billings principally representincludes unbilled amounts resulting from revenues under contracts with customers that are satisfied over time and when the cost-to-cost measurement method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer, and right to payment is not just subject to the passage of time. Amounts may not exceed their net realizable value. Costs in excess of billings are classified as current assets and are reported net of contract billings on contracts that were not billablea contract-by-contract basis at the end of each reporting period.
Contract liabilities
Contract liabilities consist of billings in excess of cost. Billings in excess of cost includes billings in excess of revenue recognized and deferred revenue, which includes advanced payments, up-front payments, and progress billing payments. Billings in excess of cost are reported net of contract cost on a contract-by-contract basis at the end of each reporting period and are classified as current liabilities. To determine the revenue recognized in the period from the beginning balance of billings in excess of cost, the contract liability as of the beginning of the period is recognized as revenue on a contract by contract basis when the Company incurs costs to satisfy the performance obligation related to the individual contract. Once the beginning contract liability balance sheet date.for an individual contract has been fully recognized as revenue, any additional payments received in the period are recognized as revenue once the related costs have been incurred.
Costs to obtain a contract with a customer
The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year. As of September 30, 2018, the Company does not have any open contracts with an original expected duration of greater than one year, and therefore, we expense such costs as incurred. These amounts will be billedincremental costs include, but are not limited to, sales commissions incurred to obtain a contract with a customer.
Contract assets and contract liabilities
The Company's contract assets and contract liabilities consist of costs in accordance with contract terms, generally as certain milestones are reached or upon shipment. Allexcess of billings and billings in excess of cost, respectively. The following table presents the beginning and ending balances and significant changes in the costs in excess of billings are expected to be collected within one year. In situations where billings exceed revenues recognized, the excess is included inand billings in excess of cost balance during the three months ended September 30, 2018:
|
| | | | | | | |
| Costs in Excess of Billings | | Billings in Excess of Cost |
Beginning balance, January 1, 2018 (1) | $ | 16,532 |
| | $ | (12,779 | ) |
Reclassification of the beginning balances of: | | | |
Costs in excess of billings to receivables | (15,450 | ) | | — |
|
Billings in excess of cost to revenue | — |
| | 9,294 |
|
Costs in excess of billings recognized, net of reclassification to receivables | 20,440 |
| | — |
|
Net billings in advance and cash payments not recognized as revenue | — |
| | (18,415 | ) |
Ending balance, September 30, 2018 | $ | 21,522 |
| | $ | (21,900 | ) |
|
| | | |
(1) Due to the adoption of ASC 606 effective January 1, 2018, the Company recorded a transition adjustment to the opening balance of "Costs in excess of billings" at January 1, 2018. There were no transition adjustments to the opening balance of "Billings in Excess of Cost" at January 1, 2018. Refer to "Transition disclosures" below for further explanation of cumulative effect of the changes made to the Company's consolidated January 1, 2018 balance sheet for the adoption of ASC 606. |
Transition disclosures
On January 1, 2018, the Company adopted the accounting standard ASC 606, Revenue from Contracts with Customers, only for contracts that were not completed at the date of initial application using the modified retrospective method. The Company recognized the cumulative effect of initially applying ASC 606 as an adjustment to the opening balance of retained earnings. The comparative period information has not been restated and continues to be reported under the accounting standards in effect for that period. The Company does not expect the Consolidated Balance Sheet.adoption of this standard to have a material impact to the Company's net income on an ongoing basis.
A majority of the Company's revenues continue to be recognized when products are shipped or service is provided and the customer takes ownership and assumes the risk of loss. For certain custom fabricated products for which there is no alternative use and the Company has enforceable rights to payment for performance to date where revenue was previously recognized upon transfer of title and risk of loss, the Company now recognizes revenue as the Company satisfies its performance over time in accordance with ASC 606.
The cumulative effect of the changes made to the Company's consolidated January 1, 2018 balance sheet for the adoption of ASC 606 is as follows (in thousands):
|
| | | | | | | | | | | |
| Balance at December 31, 2017 | | Adjustments | | Balance at January 1, 2018 |
Assets | | | | | |
Accounts receivable, net | $ | 145,385 |
| | $ | 4,922 |
| | $ | 150,307 |
|
Costs in excess of billings (1) | $ | 11,610 |
| | $ | 4,922 |
| | $ | 16,532 |
|
Inventories | $ | 86,372 |
| | $ | (4,735 | ) | | $ | 81,637 |
|
Total current assets | $ | 462,764 |
| | $ | 187 |
| | $ | 462,951 |
|
Total assets | $ | 991,385 |
| | $ | 187 |
| | $ | 991,572 |
|
| | | | | |
Liabilities | | | | | |
Accrued expenses | $ | 75,467 |
| | $ | (87 | ) | | $ | 75,380 |
|
Total current liabilities | $ | 171,033 |
| | $ | (87 | ) | | $ | 170,946 |
|
| | | | | |
Shareholders' equity | | | | | |
Retained earnings | $ | 274,562 |
| | $ | 274 |
| | $ | 274,836 |
|
Total shareholders' equity | $ | 531,719 |
| | $ | 274 |
| | $ | 531,993 |
|
Total liabilities and shareholders' equity | $ | 991,385 |
| | $ | 187 |
| | $ | 991,572 |
|
|
| | | | | |
(1) The balance presented at December 31, 2017 for "Costs in excess of billings" represents the balance reported in Note 2 of the Company's annual report on Form 10-K for the year ended December 31, 2017. This balance was included within the total balance of "Accounts receivable, net" presented on the Company's Consolidated Balance Sheet on Form 10-K as of December 31, 2017. Due to the adoption of ASC 606 effective January 1, 2018, the Company recorded a transition adjustment to the opening balance of "Costs in excess of billings" at January 1, 2018 that is included in the "Accounts receivable, net" line item presented on the Company's Consolidated Balance Sheet and disclosed in Note 3 of this Form 10-Q for the nine months ended September 30, 2018. |
In accordance with ASC 606, the disclosure of the impact of adoption on the Company's consolidated statement of income and balance sheet for the periods ended September 30, 2018 is as follows (in thousands):
|
| | | | | | | | | | | |
Consolidated Statement of Income |
| Three Months Ended September 30, 2018 |
| As Reported | | Without Adoption of ASC 606 | | Effect of Change Higher (Lower) |
| | | | | |
Net sales | $ | 280,086 |
| | $ | 281,156 |
| | $ | (1,070 | ) |
Cost of sales | 209,807 |
| | 210,878 |
| | (1,071 | ) |
Gross profit | 70,279 |
| | 70,278 |
| | 1 |
|
Provision for income taxes | 6,473 |
| | 6,473 |
| | — |
|
Net income | $ | 19,503 |
| | $ | 19,502 |
| | $ | 1 |
|
|
| | | | | | | | | | | |
Consolidated Statement of Income |
| Nine Months Ended September 30, 2018 |
| As Reported | | Without Adoption of ASC 606 | | Effect of Change Higher (Lower) |
| | | | | |
Net sales | $ | 761,459 |
| | $ | 760,277 |
| | $ | 1,182 |
|
Cost of sales | 572,359 |
| | 572,039 |
| | 320 |
|
Gross profit | 189,100 |
| | 188,238 |
| | 862 |
|
Provision for income taxes | 15,574 |
| | 15,332 |
| | 242 |
|
Net income | $ | 50,692 |
| | $ | 50,072 |
| | $ | 620 |
|
|
| | | | | | | | | | | |
Consolidated Balance Sheet |
| September 30, 2018 |
| As Reported | | Without Adoption of ASC 606 | | Effect of Change Higher (Lower) |
Assets | | | | | |
Accounts receivable, net | $ | 180,875 |
| | $ | 174,426 |
| | $ | 6,449 |
|
Inventories | 97,486 |
| | 102,662 |
| | (5,176 | ) |
Total current assets | 532,723 |
| | 531,450 |
| | 1,273 |
|
Total assets | 1,053,787 |
| | 1,052,514 |
| | 1,273 |
|
| | | | | |
Liabilities | | | | | |
Accrued expenses | 76,268 |
| | 75,889 |
| | 379 |
|
Total current liabilities | 191,565 |
| | 191,186 |
| | 379 |
|
| | | | | |
Shareholders' equity | | | | | |
Retained earnings | 325,878 |
| | 324,984 |
| | 894 |
|
Total shareholders' equity | 582,875 |
| | 581,981 |
| | 894 |
|
Total liabilities and shareholders' equity | $ | 1,053,787 |
| | $ | 1,052,514 |
| | $ | 1,273 |
|
4. INVENTORIES
Inventories consist of the following (in thousands):
| | | September 30, 2017 | | December 31, 2016 | September 30, 2018 | | December 31, 2017 |
Raw material | $ | 41,569 |
| | $ | 41,758 |
| $ | 51,860 |
| | $ | 42,661 |
|
Work-in-process | 12,123 |
| | 12,268 |
| 7,861 |
| | 10,598 |
|
Finished goods | 31,464 |
| | 35,586 |
| 37,765 |
| | 33,113 |
|
Total inventories | $ | 85,156 |
| | $ | 89,612 |
| $ | 97,486 |
| | $ | 86,372 |
|
5.(6) ACQUISITIONS
On August 21, 2018, the Company acquired all of the outstanding stock of SolarBOS. SolarBOS is a provider of electrical balance of systems products, which consists of electrical components such as wiring, switches, and combiner boxes that support photovoltaic systems, for the U.S. solar renewable energy market. The Company expects the acquisition of SolarBOS to enable the Company to provide complementary product offerings to its existing customers and strengthen its position in the solar renewable energy market. The results of SolarBOS have been included in the Company's consolidated financial results since the date of acquisition (within the Company's Renewable Energy and Conservation segment). The preliminary aggregate purchase consideration for the acquisition of SolarBOS was $6.5 million, which includes a working capital adjustment and certain other adjustments provided for in the stock purchase agreement. The acquisition was financed through cash on hand.
The preliminary purchase price for the acquisition was allocated to the assets acquired and liabilities assumed based upon their respective fair values. The excess consideration was recorded as goodwill and approximated $2.8 million, all of which is deductible for tax purposes. Goodwill represents future economic benefits arising from other assets acquired that could not be individually identified including workforce additions, growth opportunities, and increased presence in the solar renewable energy markets.
The allocation of the preliminary purchase consideration to the fair value of the assets acquired and liabilities assumed is as follows as of the date of the acquisition (in thousands):
|
| | | |
Cash | $ | 915 |
|
Working capital | 828 |
|
Property, plant and equipment | 547 |
|
Acquired intangible assets | 1,450 |
|
Other assets | 13 |
|
Other liabilities | (51 | ) |
Goodwill | 2,838 |
|
Fair value of purchase consideration | $ | 6,540 |
|
The intangible assets acquired in this acquisition consisted of the following (in thousands):
|
| | | | | |
| Fair Value | | Estimated Useful Life |
Trademarks | $ | 300 |
| | 3 years |
Technology | 450 |
| | 9 years |
Customer relationships | 700 |
| | 9 years |
Total | $ | 1,450 |
| | |
The Company incurred certain acquisition-related costs composed of legal and consulting fees, and these costs were recognized as a component of selling, general and administrative expenses in the consolidated statements of income. Acquisition-related costs were $0.5 million, for both the three and nine months ended September 30, 2018.
On February 22, 2017, the Company acquired all of the outstanding stock of Package Concierge. Package Concierge is a leading provider of multifamily electronic package delivery locker systems in the United States.
The acquisition of Package Concierge is expected to enable the Company to expand its position in the fast-growing package delivery solutions market. The results of Package Concierge have been included in the Company's consolidated financial results since the date of acquisition (within the Company's Residential Products segment). The final aggregate purchase consideration for the acquisition of Package Concierge was $18,917,000, which includes a working capital adjustment and certain other adjustments provided for in the stock purchase agreement.$18.9 million.
The purchase price for the acquisition was allocated to the assets acquired and liabilities assumed based upon their respective fair values. The excess consideration was recorded as goodwill and approximated $16,863,000,$16.8 million, which is not deductible for tax purposes. Goodwill represents future economic benefits arising from other assets acquired that could not be individually identified including workforce additions, growth opportunities, and increased presence in the building products markets.
The allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed is as follows as of the date of the acquisition (in thousands):
| | Cash | $ | 590 |
| $ | 590 |
|
Working capital | (2,071 | ) | (1,998 | ) |
Property, plant and equipment | 55 |
| 55 |
|
Acquired intangible assets | 3,600 |
| 3,600 |
|
Other assets | 8 |
| 8 |
|
Deferred income taxes | (128 | ) | (128 | ) |
Goodwill | 16,863 |
| 16,790 |
|
Fair value of purchase consideration | $ | 18,917 |
| $ | 18,917 |
|
The intangible assets acquired in this acquisition consisted of the following (in thousands):
|
| | | | | |
| Fair Value | | Estimated Useful Life |
Trademarks | $ | 600 |
| | Indefinite |
Technology | 1,300 |
| | 10 years |
Customer relationships | 1,700 |
| | 7 years |
Total | $ | 3,600 |
| | |
On October 11, 2016, the Company acquired all of the outstanding stock of Nexus Corporation ("Nexus"). Nexus is a leading provider of commercial-scale greenhouses to customers in the United States.
The acquisition of Nexus is expected to enable the Company to strengthen its position in the commercial greenhouse market in the United States. The results of Nexus have been included in the Company's consolidated financial results since the date of acquisition (within the Company's Renewable Energy and Conservation segment). The final aggregate purchase consideration for the acquisition of Nexus was $23,762,000, which includes a working capital adjustment and certain other adjustments provided for in the stock purchase agreement. At December 31, 2016, $1,000,000 of the estimated purchase price was accrued. Upon settlement of the final purchase adjustments, $167,000 was paid in cash by the Company during the first quarter of 2017.
The purchase price for the acquisition was allocated to the assets acquired and liabilities assumed based upon their respective fair values. The excess consideration was recorded as goodwill and approximated $11,451,000, of which all is deductible for tax purposes.
The allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed is as follows as of the date of the acquisition (in thousands):
|
| | | |
Cash | $ | 2,495 |
|
Working capital | (1,109 | ) |
Property, plant and equipment | 4,702 |
|
Acquired intangible assets | 6,200 |
|
Other assets | 23 |
|
Goodwill | 11,451 |
|
Fair value of purchase consideration | $ | 23,762 |
|
The intangible assets acquired in this acquisition consisted of the following (in thousands):
|
| | | | | |
| Fair Value | | Estimated Useful Life |
Trademarks | $ | 3,200 |
| | Indefinite |
Technology | 1,300 |
| | 15 years |
Customer relationships | 800 |
| | 11 years |
Backlog | 900 |
| | 0.25 years |
Total | $ | 6,200 |
| | |
The acquisitions of Package Concierge and Nexus werewas funded from available cash on hand. The Company incurred certain acquisition-related costs composed of legal and consulting fees, and these costs were recognized as a component of selling, general and administrative expenses in the consolidated statements of operations.
The following table summarizes acquisition-relatedincome. Acquisition-related costs were $31 thousand and $146 thousand for the three and nine months ended September 30, (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Acquisition-related costs | $ | 31 |
| | $ | — |
| | $ | 146 |
| | $ | 31 |
|
2017, respectively.
6. | |
(7) | GOODWILL AND RELATED INTANGIBLE ASSETS |
Goodwill
The changes in the carrying amount of goodwill for the nine months ended September 30, 20172018 are as follows (in thousands):
| | | Residential Products | | Industrial and Infrastructure Products | | Renewable Energy & Conservation | | Total | Residential Products | | Industrial and Infrastructure Products | | Renewable Energy & Conservation | | Total |
Balance at December 31, 2016 | $ | 181,285 |
| | $ | 53,884 |
| | $ | 68,863 |
| | $ | 304,032 |
| |
Balance at December 31, 2017 | | $ | 198,075 |
| | $ | 54,280 |
| | $ | 68,719 |
| | $ | 321,074 |
|
Acquired goodwill | 16,863 |
| | — |
| | — |
| | 16,863 |
| — |
| | — |
| | 2,838 |
| | 2,838 |
|
Adjustments to prior year acquisitions | — |
| | — |
| | (832 | ) | | (832 | ) | — |
| | (38 | ) | | — |
| | (38 | ) |
Foreign currency translation | — |
| | 432 |
| | 598 |
| | 1,030 |
| — |
| | (165 | ) | | (388 | ) | | (553 | ) |
Balance at September 30, 2017 | $ | 198,148 |
| | $ | 54,316 |
| | $ | 68,629 |
| | $ | 321,093 |
| |
Balance at September 30, 2018 | | $ | 198,075 |
| | $ | 54,077 |
| | $ | 71,169 |
| | $ | 323,321 |
|
Goodwill is recognized net of accumulated impairment losses of $235,419,000 as of September 30, 2017 and December 31, 2016.
Acquired Intangible Assets
Acquired intangible assets consist of the following (in thousands):
| | | September 30, 2017 | | December 31, 2016 | | | September 30, 2018 | | December 31, 2017 | | |
| Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | | Estimated Life | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | | Estimated Life |
Indefinite-lived intangible assets: | | | | | | | | | | | | | | | | |
Trademarks | $ | 45,153 |
| | $ | — |
| | $ | 44,720 |
| | $ | — |
| | Indefinite | $ | 45,096 |
| | $ | — |
| | $ | 45,107 |
| | $ | — |
| | Indefinite |
Finite-lived intangible assets: | | | | | | | | | | | | | | | | |
Trademarks | 5,882 |
| | 2,921 |
| | 5,808 |
| | 2,427 |
| | 5 to 15 Years | 6,148 |
| | 3,397 |
| | 5,876 |
| | 3,062 |
| | 3 to 15 Years |
Unpatented technology | 28,020 |
| | 11,523 |
| | 26,720 |
| | 10,041 |
| | 5 to 20 Years | 28,644 |
| | 13,406 |
| | 28,107 |
| | 12,033 |
| | 5 to 20 Years |
Customer relationships | 80,719 |
| | 38,182 |
| | 78,569 |
| | 33,585 |
| | 5 to 17 Years | 70,593 |
| | 34,626 |
| | 80,707 |
| | 39,652 |
| | 5 to 17 Years |
Non-compete agreements | 1,649 |
| | 854 |
| | 1,649 |
| | 623 |
| | 4 to 10 Years | 1,649 |
| | 1,156 |
| | 1,649 |
| | 931 |
| | 4 to 10 Years |
Backlog | — |
| | — |
| | 900 |
| | 900 |
| | 0.25 Years | |
| 116,270 |
| | 53,480 |
| | 113,646 |
| | 47,576 |
| | 107,034 |
| | 52,585 |
| | 116,339 |
| | 55,678 |
| |
Total acquired intangible assets | $ | 161,423 |
| | $ | 53,480 |
| | $ | 158,366 |
| | $ | 47,576 |
| | $ | 152,130 |
| | $ | 52,585 |
| | $ | 161,446 |
| | $ | 55,678 |
| |
The Company recognized impairment charges related to a finite-lived intangible asset for the three and nine months ended September 30, 2018 of $1.3 million. The charge relates to the discontinuation of lower margin sales in the Residential Products segment.
The following table summarizes the acquired intangible asset amortization expense for the three and nine months ended September 30 (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Amortization expense | $ | 2,208 |
| | $ | 2,159 |
| | $ | 6,600 |
| | $ | 6,541 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Amortization expense | $ | 2,121 |
| | $ | 2,208 |
| | $ | 6,408 |
| | $ | 6,600 |
|
Amortization expense related to acquired intangible assets for the remainder of fiscal 20172018 and the next five years thereafter is estimated as follows (in thousands):
|
| |
2017 | $2,157 |
2018 | $8,288 |
2019 | $7,617 |
2020 | $7,105 |
2021 | $6,503 |
2022 | $6,092 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
Amortization expense | $ | 1,960 |
| | $ | 7,841 |
| | $ | 7,329 |
| | $ | 6,726 |
| | $ | 6,315 |
| | $ | 5,776 |
|
7.
Long-term debt consists of the following (in thousands):
| | | September 30, 2017 | | December 31, 2016 | September 30, 2018 | | December 31, 2017 |
Senior Subordinated 6.25% Notes | $ | 210,000 |
| | $ | 210,000 |
| $ | 210,000 |
| | $ | 210,000 |
|
Other debt | 2,400 |
| | 2,800 |
| 2,000 |
| | 2,400 |
|
Less unamortized debt issuance costs | (2,575 | ) | | (3,163 | ) | (1,791 | ) | | (2,379 | ) |
Total debt | 209,825 |
| | 209,637 |
| 210,209 |
| | 210,021 |
|
Less current maturities | 400 |
| | 400 |
| 400 |
| | 400 |
|
Total long-term debt | $ | 209,425 |
| | $ | 209,237 |
| $ | 209,809 |
| | $ | 209,621 |
|
The Company's Fifth Amended and Restated Credit Agreement dated December 9, 2015 (the "Senior Credit Agreement") was amended to convert our secured asset based credit facility into a secured cash flow revolver, and terminates on December 9, 2020.
The Senior Credit Agreement provides for a revolving credit facility and letters of credit in an aggregate amount of $300 million. The Company has the option to request additional financing from the banks to either increase the revolving credit facility to $500 million or to provide a term loan of up to $200 million. The Senior Credit Agreement contains three financial covenants. As of September 30, 2017,2018, the Company is in compliance with all three covenants.
Borrowings under the Senior Credit Agreement are secured by the trade receivables, inventory, personal property, equipment, and certain real property of the Company’s significant domestic subsidiaries. Interest rates on the revolving credit facility are based on the LIBOR plus an additional margin that ranges from 1.25% to 2.25% for LIBOR loans based on the Total Leverage Ratio.
In addition, the revolving credit facility is subject to an undrawn commitment fee ranging between 0.20% and 0.30% based on the Total Leverage Ratio and the daily average undrawn balance.
Standby letters of credit of $11,216,000$9.5 million have been issued under the Senior Credit Agreement on behalf of the Company as of September 30, 2017.2018. These letters of credit reduce the amount otherwise available under the revolving credit facility. As of September 30, 2017,2018, the Company had $288,784,000$290.5 million of availability under the revolving credit facility. No borrowings were outstanding under the revolving credit facility at September 30, 20172018 and December 31, 2016.2017.
On January 31, 2013, the Company issued $210 million of 6.25% Senior Subordinated Notes (6.25% Notes)("6.25% Notes") due February 1, 2021.The provisions of the 6.25% Notes include, without limitation, restrictions on indebtedness, liens, and distributions from restricted subsidiaries, asset sales, affiliate transactions, dividends, and other restricted payments. Dividend payments are subject to annual limits and interest is paid semiannually on February 1 and August 1 of each year.
8. RELATED PARTYTRANSACTIONS
An officer of one of the Company's operating segments is the owner of certain real estate properties leased for manufacturing and distribution purposes by that operating segment. The leases are in effect until June 2018 and June 2020. For the three and nine months ended September 30, 2017 and 2016, the Company incurred the following lease expense for these properties (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Cost of sales | | $ | 262 |
| | $ | 227 |
| | $ | 787 |
| | $ | 679 |
|
9. | |
(9) | ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME |
The following tables summarize the cumulative balance of each component of accumulated other comprehensive loss, net of tax, is as followsfor the nine months ended September 30, (in thousands):
| | | Foreign Currency Translation Adjustment | | Minimum Pension Liability Adjustment | | Unamortized Post Retirement Health Care Costs | | Total Pre-Tax Amount | | Tax (Benefit) Expense | | Accumulated Other Comprehensive (Loss) Income | Foreign Currency Translation Adjustment | | Minimum Pension Liability Adjustment | | Unamortized Post Retirement Health Care Costs | | Total Pre-Tax Amount | | Tax (Benefit) Expense | | Accumulated Other Comprehensive (Loss) Income |
Balance at December 31, 2016 | $ | (5,848 | ) | | $ | 197 |
| | $ | (3,150 | ) | | $ | (8,801 | ) | | $ | (1,080 | ) | | $ | (7,721 | ) | |
Balance at December 31, 2017 | | $ | (2,698 | ) | | $ | 171 |
| | $ | (2,809 | ) | | $ | (5,336 | ) | | $ | (970 | ) | | $ | (4,366 | ) |
Cumulative effect of accounting change (see Note 2) | | — |
| | 15 |
| | (365 | ) | | (350 | ) | | — |
| | (350 | ) |
Minimum pension and post retirement health care plan adjustments | — |
| | (13 | ) | | 142 |
| | 129 |
| | 49 |
| | 80 |
| — |
| | (7 | ) | | 44 |
| | 37 |
| | 10 |
| | 27 |
|
Foreign currency translation adjustment | 3,351 |
| | — |
| | — |
| | 3,351 |
| | — |
| | 3,351 |
| 110 |
| | — |
| | — |
| | 110 |
| | — |
| | 110 |
|
Balance at September 30, 2017 | $ | (2,497 | ) | | $ | 184 |
| | $ | (3,008 | ) |
| $ | (5,321 | ) |
| $ | (1,031 | ) | | $ | (4,290 | ) | |
Balance at March 31, 2018 | | $ | (2,588 | ) | | $ | 179 |
| | $ | (3,130 | ) | | $ | (5,539 | ) | | $ | (960 | ) | | $ | (4,579 | ) |
Minimum pension and post retirement health care plan adjustments | | — |
| | (7 | ) | | 44 |
| | 37 |
| | 11 |
| | $ | 26 |
|
Foreign currency translation adjustment | | (1,787 | ) | | — |
| | — |
| | (1,787 | ) | | — |
| | $ | (1,787 | ) |
Balance at June 30, 2018 | | $ | (4,375 | ) | | $ | 172 |
| | $ | (3,086 | ) | | $ | (7,289 | ) | | $ | (949 | ) | | $ | (6,340 | ) |
Minimum pension and post retirement health care plan adjustments | | — |
| | (7 | ) | | 44 |
| | 37 |
| | 10 |
| | 27 |
|
Foreign currency translation adjustment | | 139 |
| | — |
| | — |
| | 139 |
| | — |
| | 139 |
|
Balance at September 30, 2018 | | $ | (4,236 | ) | | $ | 165 |
| | $ | (3,042 | ) |
| $ | (7,113 | ) |
| $ | (939 | ) | | $ | (6,174 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustment | | Minimum Pension Liability Adjustment | | Unamortized Post Retirement Health Care Costs | | Total Pre-Tax Amount | | Tax (Benefit) Expense | | Accumulated Other Comprehensive (Loss) Income |
Balance at December 31, 2016 | $ | (5,848 | ) | | $ | 197 |
| | $ | (3,150 | ) | | $ | (8,801 | ) | | $ | (1,080 | ) | | $ | (7,721 | ) |
Minimum pension and post retirement health care plan adjustments | — |
| | (5 | ) | | 48 |
| | 43 |
| | 17 |
| | 26 |
|
Foreign currency translation adjustment | $ | 679 |
| | $ | — |
| | $ | — |
| | $ | 679 |
| | $ | — |
| | $ | 679 |
|
Balance at March 31, 2017 | (5,169 | ) | | 192 |
| | (3,102 | ) | | (8,079 | ) | | (1,063 | ) | | $ | (7,016 | ) |
Minimum pension and post retirement health care plan adjustments | $ | — |
| | $ | (4 | ) | | $ | 47 |
| | $ | 43 |
| | $ | 16 |
| | $ | 27 |
|
Foreign currency translation adjustment | 1,091 |
| | — |
| | — |
| | 1,091 |
| | — |
| | 1,091 |
|
Balance at June 30, 2017 | (4,078 | ) | | 188 |
| | (3,055 | ) | | (6,945 | ) | | (1,047 | ) | | (5,898 | ) |
Minimum pension and post retirement health care plan adjustments | $ | — |
| | $ | (4 | ) | | $ | 47 |
| | $ | 43 |
| | $ | 16 |
| | $ | 27 |
|
Foreign currency translation adjustment | $ | 1,581 |
| | $ | — |
| | $ | — |
| | $ | 1,581 |
| | $ | — |
| | $ | 1,581 |
|
Balance at September 30, 2017 | $ | (2,497 | ) | | $ | 184 |
| | $ | (3,008 | ) | | $ | (5,321 | ) | | $ | (1,031 | ) | | $ | (4,290 | ) |
The realized adjustments relating to the Company’s minimum pension liability and post retirement health care costs were reclassified from accumulated other comprehensive loss and included in other expense in the consolidated statements of operations.income.
10. | |
(10) | EQUITY-BASED COMPENSATION |
On May 6,4, 2018, the shareholders of the Company approved the adoption of the Gibraltar Industries, Inc. 2018 Equity Incentive Plan (the "2018 Plan"). The 2018 Plan provides for the issuance of up to 1,000,000 shares of common stock and supplements the remaining shares available for issuance under the existing Gibraltar Industries, Inc. 2015 Equity Incentive Plan (the "2015 Plan"). Both the 2018 Plan and the 2015 Plan allow the Company to grant equity-based incentive compensation awards, in the form of non-qualified options, restricted shares, restricted stock units, performance shares, performance stock units, and stock rights, to eligible participants.
In 2016, the shareholders of the Company authorizedapproved the adoption of the Gibraltar Industries, Inc. 2016 Stock Plan for Non-Employee Directors ("Non-Employee Directors Plan"). The Non-Employee Directors Plan is a compensation plan that which allows the Company to grant awards of shares of the Company's common stock to non-employee Directors of the Company. In connection withCompany and permits the Non-Employee Directors Plan, the Company adopted a new stock deferral plan, the Gibraltar Industries, Inc. Non-Employee Director Stock Deferral Plan ("Deferral Plan"). The Deferral Plan permits non-employee Directors of the Company to defer receipt of such shares of common stock which the non-employee Director is entitled to receive pursuant to the terms of the Non-Employee Directors Plan.
On May 7, 2015, the shareholders of the Company authorized the Gibraltar Industries, Inc. 2015 Equity Incentive Plan (the "Plan") and simultaneously amended the 2005 Equity Incentive Plan (the "Prior Plan") to terminate issuance of further awards from the Prior Plan. The Plan is an incentive compensation plan that allows the Company to grant equity-based incentive compensation awards to eligible participants. Awards under the Plan may be in the form of options, restricted shares, restricted units, performance shares, performance stock units, and rights.
Equity Based Awards - Settled in Stock
The following table providessets forth the number of stock unitequity-based awards granted during the nine months ended September 30, which will convert to shares upon vesting, along with the weighted average grant date fair values:
| | | 2017 | | 2016 | 2018 | | 2017 |
Awards | Number of Awards | | Weighted Average Grant Date Fair Value | | Number of Awards | | Weighted Average Grant Date Fair Value | Number of Awards (1) | | Weighted Average Grant Date Fair Value | | Number of Awards (2) | | Weighted Average Grant Date Fair Value |
Performance stock units | 108,748 |
| | $ | 42.72 |
| | — |
| | $ | — |
| 135,540 |
| | $ | 33.60 |
| | 108,748 |
| | $ | 42.72 |
|
Restricted stock units | 120,048 |
| | $ | 37.14 |
| | 139,982 |
| | $ | 25.15 |
| 95,674 |
| | $ | 36.81 |
| | 120,048 |
| | $ | 37.14 |
|
Options | 25,000 |
| | $ | 42.35 |
| | — |
| | $ | — |
| — |
| | $ | — |
| | 25,000 |
| | $ | 42.35 |
|
Deferred stock units | 10,170 |
| | $ | 34.42 |
| | 11,945 |
| | $ | 29.30 |
| 10,255 |
| | $ | 35.96 |
| | 10,170 |
| | $ | 34.42 |
|
Restricted shares | 2,034 |
| | $ | 34.42 |
| | 3,185 |
| | $ | 29.30 |
| |
Common shares | | 2,113 |
| | $ | 35.50 |
| | 2,034 |
| | $ | 34.42 |
|
Included in the performance(1) Performance stock units disclosed above are 78,482 units awarded in February 2017 and 5,266 units award in April 2017 for which the final number of units thatgranted will convert to shares will be determined based on the Company’sCompany's actual return on invested capital (ROIC)("ROIC") relative to the ROIC targeted for the performance period ended December 31, 2018.
(2) Performance stock units granted include 78,482 units awarded in February 2017 which will convert to 23,546 shares to be issued in February 2020, representing 30% of the targeted 2017 award, based on the Company’s actual ROIC compared to ROIC target for the performance period ended December 31, 2017. Additionally, included in theThe remaining performance stock units disclosed above, there weregranted include 20,000 units awarded in February 2017 and 5,00010,266 units awardawarded in April 2017. For these awards, the finalThe number of these shares to be issued to the recipientrecipients will be determined based upon the ranking of the Company’s total shareholder return ("TSR") over a three (3) year performance period ended February 1, 2020 compared to the total shareholder returnTSR of companies in the S&P Small Cap Industrial Sector over suchthe same three year period.
Equity Based Awards - Settled in Cash
September 30, 2018, the Company's total share-based liabilities recorded on the consolidated balance sheet were $38.5 million, of which $23.0 million was included in non-current liabilities.
Performance Stock Units - Settled in Cash
The Company awarded performance stock units ("PSUs") that will convert to cash after three years based upon a one year performance period in 2016 and 2015.period. The cost of these awards is recognized over the requisite vesting period. The PSUs earned over the performance period are determined based on the Company’s actual return on invested capital (ROIC)ROIC relative to the ROIC targeted for the performance period.
During the 2016 performance period, the participants earned an aggregate of 256,000 PSUs, representing 200% of the targeted
2016 award of 128,000. This award will convert to cash payable in Januarythe first quarter of 2019.
During the 2015 performance period, the participants earned an aggregate of 438,000 PSUs, representing 200% of the targeted 2015 award of 219,000. This award will convertconverted to cash payableand was paid in Januarythe first quarter of 2018.
The following table summarizes the compensation expense recognized for the PSUs, which will convert to cash, for the three and nine months ended September 30, (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
PSUs compensation (recovery) expense | $ | (405 | ) | | $ | 4,148 |
| | $ | 1,673 |
| | $ | 7,889 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
PSUs compensation expense | $ | 1,518 |
| | $ | (405 | ) | | $ | 3,126 |
| | $ | 1,673 |
|
Management Stock Purchase Plan
The Management Stock Purchase Plan ("MSPP") provides participants the ability to defer a portion of their compensation or Directors’ fees, which deferral is converted to restricted stock units, and credited to an account. Under the MSPP, the Company providesEmployees eligible to defer a matchingportion of their compensation also receive a company-matching award in restricted stock units equal to a percentage of the employees' compensation. Matching awards aretheir deferral. Directors do not provided to directors.receive any company-matching on amounts deferred. The account represents a share-based liability that is converted to and settled in cash which is payable to participants upon retirement or a termination of their service to the Company.
The following table provides the number of restricted stock units credited to active participant accounts and the payments made with respect to restricted stock units issued under the MSPP during the nine months ended September 30,
| | | 2017 | | 2016 | 2018 | | 2017 |
Restricted stock units credited | 90,754 |
| | 192,380 |
| 74,180 |
| | 90,754 |
|
Share-based liabilities paid (in $1000s) | $ | 2,392 |
| | $ | 2,753 |
| |
Share-based liabilities paid (in thousands) | | $ | 4,986 |
| | $ | 2,392 |
|
11. | |
(11) | FAIR VALUE MEASUREMENTS |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices in active markets for similar assets and liabilities.
Level 3 - Inputs that are unobservable inputs for the asset or liability.
The Company had no financial assets or liabilities measured at fair value on a recurring basis at September 30, 20172018 and December 31, 2016.2017. The Company’s only financial instrument for which the carrying value differs from its fair value is long-term debt. At September 30, 20172018 and December 31, 2016,2017, the fair value of outstanding debt net of unamortized debt issuance costs was $218,700,000$211.8 million and $219,898,000,$213.8 million, respectively, compared to its carrying value of $209,825,000$210.2 million and $209,637,000,$210.0 million, respectively. The fair value of the Company’s 6.25% Notes is classified as Level 2 within the fair value hierarchy and was estimated based on quoted market prices adjusted for unamortized debt issuance costs.
12. DISCONTINUED OPERATIONS
| |
(12) | DISCONTINUED OPERATIONS |
For certain divestiture transactions completed in prior years, the Company has agreed to indemnify the buyer for various liabilities that may arise after the disposal date, subject to limits of time and amount. The Company is a party to certain claims made under these indemnification provisions. As of September 30, 2017,2018, the Company has a contingent liability recorded for such provisions related to discontinued operations. Management does not believe that the outcome of this claim,these claims, or other claims, would significantly affect the Company's financial condition or results of operation.
13. | |
(13) | EXIT ACTIVITY COSTS AND ASSET IMPAIRMENTS |
The Company is in the third yearhas incurred exit activity costs and asset impairment charges as a result of its five year planned transformation strategy formulated to transform its operations and improve its financial results over this five year period. This strategy includes an 80/20 simplification initiative which,and portfolio management initiatives. These initiatives have resulted in part, focuses the Company’s internal resources on further increasing the value provided to our customers. A result of this initiative was the identification of low-volume, low margin, internally-produced products which have been or will be outsourced or discontinued. Portfolio management, another key part of the strategydiscontinued, and a natural adjunct to the 80/20 initiative, is another initiative in which management conducts strategic reviews of our current portfolio for future profitable growth and greater shareholder returns. This initiative has resulted in the sale and exiting of less profitable businesses or products lines in order to enable the Company to re-allocate leadership, time, capital and resources to the highest potential platforms and businesses. Exit activity costs and asset impairment charges were incurred as a result of these initiatives.lines.
Exit activity costs were incurred during the nine months ended September 30, 20172018 which related to contract termination costs,terminations, severance, costs, and other moving and closing costs. These costs wereDuring this time, the result of the closing and consolidation of facilities, relocation of inventory and equipment at those facilities and the reduction of workforce associated with the discontinued products and closed facilities. During the nine months ended September 30, 2017,Company also incurred asset impairment charges incurred were more than offset by a gain on sale of assets previously impaired in 2016 as a result of businesses and product lines discontinued. Specifically, the exit of both the Company's small European residential solar racking business and the exit of the Company's U.S. bar grating product line, which commenced during the fourth quarter of 2016, transacted sales of assets during the nine months ended September 30, 2017 which resulted in a net gain. These exits were completed in the first half of 2017. During the nine months ended September 30, 2017, asset impairment charges were incurred related to the write-down of inventory, impairment of machinery and equipment and intangible assets associated with either discontinued product lines or reduced sales of lower margin products. In conjunction with these initiatives, the reduction of manufactured goods offered withinCompany also sold and leased back a product line. These assets were written down to their sale or scrap value, and were subsequently sold or disposed of. Duringfacility which resulted in a gain, as well as closed two other facilities during the first nine months ended September 30, 2017, the Company closed three facilities as a result of this strategy.2018.
During the nine months ended September 30, 2016,2017, the Company incurred asset impairment charges and exit activity costs resulting from the above strategyinitiatives. Also, as well. As a result of these initiatives, the Company sold its European industrial manufacturing business to a third party in April 2016, as well as closed four otherthree facilities during the first nine months of 2016.2017.
The following tables set forth the asset impairment charges and exit activity costs incurred by segment during the three and nine months ended September 30, related to the restructuring activities described above (in thousands):
| | | Three Months Ended September 30, | Three months ended September 30, |
| 2017 | | 2016 | 2018 | | 2017 |
| Inventory write-downs &/or asset impairment recoveries, net | | Exit activity costs | | Total | | Inventory write-downs &/or asset impairment charges | | Exit activity costs | | Total | Inventory write-downs &/or asset impairment charges | | Exit activity costs (recoveries), net | | Total | | Inventory write-downs &/or asset impairment charges | | Exit activity costs (recoveries), net | | Total |
Residential Products | $ | 442 |
| | $ | 566 |
| | $ | 1,008 |
| | $ | 373 |
| | $ | 207 |
| | $ | 580 |
| $ | 1,392 |
| | $ | 485 |
| | $ | 1,877 |
| | $ | 442 |
| | $ | 566 |
| | $ | 1,008 |
|
Industrial & Infrastructure Products | 98 |
| | (12 | ) | | 86 |
| | 2,429 |
| | 756 |
| | 3,185 |
| 358 |
| | 1,417 |
| | 1,775 |
| | 98 |
| | (12 | ) | | 86 |
|
Renewable Energy & Conservation | 266 |
| | 191 |
| | 457 |
| | — |
| | — |
| | — |
| — |
| | (156 | ) | | (156 | ) | | 266 |
| | 191 |
| | 457 |
|
Corporate | — |
| | 16 |
| | 16 |
| | — |
| | — |
| | — |
| — |
| | 164 |
| | 164 |
| | — |
| | 16 |
| | 16 |
|
Total exit activity costs & asset impairments | $ | 806 |
| | $ | 761 |
| | $ | 1,567 |
| | $ | 2,802 |
| | $ | 963 |
| | $ | 3,765 |
| $ | 1,750 |
| | $ | 1,910 |
| | $ | 3,660 |
| | $ | 806 |
| | $ | 761 |
| | $ | 1,567 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
| Inventory write-downs &/or asset impairment recoveries, net | | Exit activity costs | | Total | | Inventory write-downs &/or asset impairment charges | | Exit activity costs | | Total |
Residential Products | $ | 295 |
| | $ | 958 |
| | $ | 1,253 |
| | $ | 1,179 |
| | $ | 677 |
| | $ | 1,856 |
|
Industrial & Infrastructure Products | (2,492 | ) | | 2,959 |
| | 467 |
| | 2,697 |
| | 2,019 |
| | 4,716 |
|
Renewable Energy & Conservation | 266 |
| | 2,610 |
| | 2,876 |
| | — |
| | — |
| | — |
|
Corporate | — |
| | 179 |
| | 179 |
| | — |
| | — |
| | — |
|
Total exit activity costs & asset impairments | $ | (1,931 | ) | | $ | 6,706 |
| | $ | 4,775 |
| | $ | 3,876 |
| | $ | 2,696 |
| | $ | 6,572 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, |
| 2018 | | 2017 |
| Inventory write-downs &/or asset impairment charges (recoveries), net | | Exit activity costs (recoveries), net | | Total | | Inventory write-downs &/or asset impairment charges (recoveries), net | | Exit activity costs | | Total |
Residential Products | $ | 1,349 |
| | $ | 333 |
| | $ | 1,682 |
| | $ | 295 |
| | $ | 958 |
| | $ | 1,253 |
|
Industrial & Infrastructure Products | (345 | ) | | 1,607 |
| | 1,262 |
| | (2,492 | ) | | 2,959 |
| | 467 |
|
Renewable Energy & Conservation | 84 |
| | (107 | ) | | (23 | ) | | 266 |
| | 2,610 |
| | 2,876 |
|
Corporate | — |
| | 431 |
| | 431 |
| | — |
| | 179 |
| | 179 |
|
Total exit activity costs & asset impairments | $ | 1,088 |
| | $ | 2,264 |
| | $ | 3,352 |
| | $ | (1,931 | ) | | $ | 6,706 |
| | $ | 4,775 |
|
The following table provides a summary of where the asset impairments and exit activity costs were recorded in the statementconsolidated statements of operationsincome for the three and nine months ended September 30, (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 |
Cost of sales | $ | 860 |
| | $ | 3,433 |
| | $ | 382 |
| | $ | 5,111 |
| $ | 1,621 |
| | $ | 860 |
| | $ | 1,465 |
| | $ | 382 |
|
Selling, general, and administrative expense | 707 |
| | 332 |
| | 4,393 |
| | 1,461 |
| 2,039 |
| | 707 |
| | 1,887 |
| | 4,393 |
|
Net asset impairment and exit activity charges | $ | 1,567 |
| | $ | 3,765 |
| | $ | 4,775 |
| | $ | 6,572 |
| $ | 3,660 |
| | $ | 1,567 |
| | $ | 3,352 |
| | $ | 4,775 |
|
The following table reconciles the beginning and ending liability for exit activity costs relating to the Company’s facility consolidation efforts (in thousands): | | | 2017 | | 2016 | 2018 | | 2017 |
Balance at January 1 | $ | 3,744 |
| | $ | 603 |
| $ | 961 |
| | $ | 3,744 |
|
Exit activity costs recognized | 6,706 |
| | 2,696 |
| 2,264 |
| | 6,706 |
|
Cash payments | (9,207 | ) | | (2,182 | ) | (1,608 | ) | | (9,207 | ) |
Balance at September 30 | $ | 1,243 |
| | $ | 1,117 |
| $ | 1,617 |
| | $ | 1,243 |
|
As noted above, the Company sold its European industrial manufacturing business to a third party on April 15, 2016 from its Industrial and Infrastructure Products segment. This divestiture did not meet the criteria to be reported as a discontinued operation as it does not represent a strategic shift that has or will have a major effect on the Company’s operations. Similarly, neither the exiting of the Company’s small European residential solar racking business nor its U.S. bar grating product line met the criteria to be reported as a discontinued operation for the year ended December 31, 2016. Therefore, prior period results of continuing operations have not been restated to exclude the impact of the divested and existed businesses' financial results. The pretax loss on sale of the European industrial manufacturing business is presented within other expense (income) in the consolidated statement of operations. The costs related to the exit of the Company's small European residential solar racking business and its U.S. bar grating product line are reflected in the above tables.
14.
The following table summarizes the provision for income taxes for continuing operations (in thousands) for the three and nine months ended September 30, and the applicable effective tax rates:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 |
Provision for income taxes | $ | 11,184 |
| | $ | 8,952 |
| | $ | 21,090 |
| | $ | 12,131 |
| $ | 6,473 |
| | $ | 11,184 |
| | $ | 15,574 |
| | $ | 21,090 |
|
Effective tax rate | 35.2 | % | | 39.4 | % | | 35.8 | % | | 22.7 | % | 24.9 | % | | 35.2 | % | | 23.5 | % | | 35.8 | % |
The change in the effective tax rate year over year is primarily due to the reduction in the U.S. federal statutory tax rate from 35% to 21%. The effective tax rate for the three and nine months ended September 30, 2018 was greater than the U.S. federal statutory rate of 21% due to state taxes and nondeductible permanent differences partially offset by favorable discrete items, including a $2.6 million tax benefit related to performance share unit vesting. The effective tax rate for the three and nine months ended September 30, 2017 was greater than the U.S. federal statutory rate of 35% due to state taxes and $2.2 million of pretax losses generated by the European residential solar racking business for which no tax benefit hashad been recorded as such benefit is not expected to be realizable, partially offset by net deductible permanent differences and favorable discrete items.
On December 22, 2017, the Tax Cuts and Jobs Act ("Tax Reform Act") was signed into law. On this day, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The effectiveCompany recognized the provisional tax rateimpacts related to the one-time transition tax, withholding tax and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. Our preliminary estimate of the one-time transition tax and the re-measurement of our deferred tax assets and liabilities is subject to the finalization of management’s analysis related to certain matters, such as developing interpretations of the provisions of the Tax Reform Act, changes to certain estimates and amounts related to the earnings and profits of certain subsidiaries and the filing of our tax returns, U.S. Treasury regulations, administrative interpretations or court decisions interpreting the Tax Reform Act may require further adjustments and changes in our estimates.
During the nine month period ended September 30, 2018, the Company recognized an adjustment to the provisional amounts recorded at December 31, 2017. The following table sets forth the components of the adjustment which were recorded in income tax expense from continuing operations during nine month period ended September 30, 2018, (in thousands):
|
| | | |
Remeasurement of certain deferred tax balances (1) | | 174 |
|
One-time transition tax (1) | | (363 | ) |
Non-deductible performance based compensation (2) | | 366 |
|
Net adjustment recorded to provisional income tax expense | | 177 |
|
(1) Provisional amounts primarily related to return to provision adjustments.
(2) Provisional amounts primarily related to further guidance of Notice 2018-68 (guidance on performance-based compensation issued in the third quarterquarter).
The Company has elected to account for global intangible low-taxed income ("GILTI") tax in the period in which it is incurred, and therefore has not provided any deferred tax impacts of 2016 exceeded the U.S. federal statutory rate of 35% due to state taxes and unfavorable discrete items. The effective tax rateGILTI in its consolidated financial statements for the year ended December 31, 2017, or during the three and nine months ended September 30, 2016 was less than the U.S. federal statutory rate2018. As a result of 35% due to deductible permanent differences and favorable discrete items partially offset by state taxes.
The Company recorded a discrete tax benefit of $11.4 million during the nine months ended September 30, 2016 due to the effect of a worthless stock deduction and an associated bad debt deduction of inter-company debt resulting from the sale of its European industrial manufacturing business to a third party. The amount of this benefit was subsequently adjusted and reduced by $4.8 millionproposed regulations issued in the fourththird quarter of 2016.
2018, the impact of GILTI on our current annual effective tax decreased the impact on the effective rate from 0.6% to 0.3%. If future guidance differs from our interpretations, this amount may change.
15.The final determination of the one-time transition tax and the re-measurement of our deferred assets and liabilities will be completed as additional information becomes available, but no later than one year from the enactment of the Tax Reform Act.
In January 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated other Comprehensive Income, which gives entities the option to reclassify retained earning tax effects resulting from Tax Reform related to items in AOCI that the FASB refers to as having been stranded in AOCI. The Company must adopt this guidance for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted for periods for which financial statements have not yet been issued or made available for issuance, including the period Tax Reform was enacted. We elected to early adopt ASU 2018-02. As a result of adopting this standard, we reclassified $350,000 from AOCI to retained earnings.
(15) EARNINGS PER SHARE
Basic earnings and diluted weighted-average shares outstanding are as follows for the three and nine months ended September 30, (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 |
Numerator: | | | | | | | | | | | | | | |
Income from continuing operations | $ | 20,619 |
| | $ | 13,786 |
| | $ | 37,789 |
| | $ | 41,427 |
| $ | 19,503 |
| | $ | 20,619 |
| | $ | 50,692 |
| | $ | 37,789 |
|
Loss from discontinued operations | — |
| | — |
| | (405 | ) | | — |
| — |
| | — |
| | — |
| | (405 | ) |
Net income available to common shareholders | $ | 20,619 |
| | $ | 13,786 |
| | $ | 37,384 |
| | $ | 41,427 |
| $ | 19,503 |
| | $ | 20,619 |
| | $ | 50,692 |
| | $ | 37,384 |
|
Denominator for basic earnings per share: | | | | | | | | | | | | | | |
Weighted average shares outstanding | 31,703 |
| | 31,579 |
| | 31,700 |
| | 31,493 |
| 32,115 |
| | 31,703 |
| | 31,922 |
| | 31,700 |
|
Denominator for diluted earnings per share: | | | | | | | | | | | | | | |
Weighted average shares outstanding | 31,703 |
| | 31,579 |
| | 31,700 |
| | 31,493 |
| 32,115 |
| | 31,703 |
| | 31,922 |
| | 31,700 |
|
Common stock options and restricted stock | 507 |
| | 597 |
| | 516 |
| | 512 |
| 456 |
| | 507 |
| | 602 |
| | 516 |
|
Weighted average shares and conversions | 32,210 |
| | 32,176 |
| | 32,216 |
| | 32,005 |
| 32,571 |
| | 32,210 |
| | 32,524 |
| | 32,216 |
|
The weighted average number of diluted shares does not include potential anti-dilutive common shares issuable pursuant to equity based incentive compensation awards, aggregating 489,000to 247,000 and 621,000489,000 for the three months ended September 30, 20172018 and 2016,2017, respectively, and 523,000328,000 and 690,000523,000 for the nine months ended September 30, 2018 and 2017, and 2016, respectively .respectively.
16.
The Company is organized into three reportable segments on the basis of the production process and products and services provided by each segment, identified as follows:
| |
(i) | Residential Products, which primarily includes roof and foundation ventilation products, centralized mail systems and parcel storage products,electronic package solutions, rain dispersion products and roofing accessories; |
| |
(ii) | Industrial and Infrastructure Products, which primarily includes expanded and perforated metal, expansion joints, structural bearings and structural bearings;perimeter security; and |
| |
(iii) | Renewable Energy and Conservation, which primarily includes designing, engineering, manufacturing and installation of solar racking systems and greenhouse structures. |
When determining the reportable segments, the Company aggregated operating segments based on their similar economic and operating characteristics.
The following table illustrates certain measurements used by management to assess performance of the segments described above for the three and nine months ended September 30, (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 |
Net sales: | | | | | | | | | | | | | | |
Residential Products | $ | 129,501 |
| | $ | 117,957 |
| | $ | 361,304 |
| | $ | 338,069 |
| $ | 125,839 |
| | $ | 129,501 |
| | $ | 360,915 |
| | $ | 361,304 |
|
Renewable Energy and Conservation | 88,135 |
| | 82,008 |
| | 202,690 |
| | 204,648 |
| |
Industrial and Infrastructure Products | 57,162 |
| | 73,193 |
| | 165,806 |
| | 234,590 |
| 56,033 |
| | 57,162 |
| | 172,218 |
| | 165,806 |
|
Less: Intersegment sales | (224 | ) | | (424 | ) | | (994 | ) | | (1,164 | ) | (272 | ) | | (224 | ) | | (861 | ) | | (994 | ) |
Net Industrial and Infrastructure Products | 56,938 |
| | 72,769 |
| | 164,812 |
| | 233,426 |
| 55,761 |
| | 56,938 |
| | 171,357 |
| | 164,812 |
|
Renewable Energy and Conservation | | 98,486 |
| | 88,135 |
| | 229,187 |
| | 202,690 |
|
Total consolidated net sales | $ | 274,574 |
| | $ | 272,734 |
| | $ | 728,806 |
| | $ | 776,143 |
| $ | 280,086 |
| | $ | 274,574 |
| | $ | 761,459 |
| | $ | 728,806 |
|
| | | | | | | | | | | | | | |
Income from operations: | | | | | | | | | | | | | | |
Residential Products | $ | 23,764 |
| | $ | 19,407 |
| | $ | 61,984 |
| | $ | 52,363 |
| $ | 20,138 |
| | $ | 23,764 |
| | $ | 57,572 |
| | $ | 61,984 |
|
Industrial and Infrastructure Products | | 2,892 |
| | 2,554 |
| | 12,098 |
| | 5,914 |
|
Renewable Energy and Conservation | 11,549 |
| | 16,366 |
| | 18,381 |
| | 34,969 |
| 15,072 |
| | 11,549 |
| | 28,690 |
| | 18,381 |
|
Industrial and Infrastructure Products | 2,554 |
| | 1,913 |
| | 5,914 |
| | 11,429 |
| |
Unallocated Corporate Expenses | (2,174 | ) | | (11,164 | ) | | (15,977 | ) | | (25,902 | ) | (8,698 | ) | | (2,174 | ) | | (22,839 | ) | | (15,977 | ) |
Total income from operations | $ | 35,693 |
| | $ | 26,522 |
| | $ | 70,302 |
| | $ | 72,859 |
| $ | 29,404 |
| | $ | 35,693 |
| | $ | 75,521 |
| | $ | 70,302 |
|
The following tables illustrate revenue disaggregated by timing of transfer of control to the customer for the three and nine months ended September 30 (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2018 |
| Residential Products | | Industrial and Infrastructure Products | | Renewable Energy and Conservation | | Total |
Net sales: | | | | | | | |
Point in Time | $ | 125,118 |
| | $ | 47,686 |
| | $ | 10,784 |
| | $ | 183,588 |
|
Over Time | 721 |
| | 8,075 |
| | 87,702 |
| | 96,498 |
|
Total | $ | 125,839 |
| | $ | 55,761 |
| | $ | 98,486 |
| | $ | 280,086 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2017 |
| Residential Products | | Industrial and Infrastructure Products | | Renewable Energy and Conservation | | Total |
Net sales: | | | | | | | |
Point in Time | $ | 129,501 |
| | $ | 56,938 |
| | $ | 7,659 |
| | $ | 194,098 |
|
Over Time | — |
| | — |
| | 80,476 |
| | 80,476 |
|
Total | $ | 129,501 |
| | $ | 56,938 |
| | $ | 88,135 |
| | $ | 274,574 |
|
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2018 |
| Residential Products | | Industrial and Infrastructure Products | | Renewable Energy and Conservation | | Total |
Net sales: | | | | | | | |
Point in Time | $ | 358,960 |
| | $ | 145,657 |
| | $ | 25,128 |
| | $ | 529,745 |
|
Over Time | 1,955 |
| | 25,700 |
| | 204,059 |
| | 231,714 |
|
Total | $ | 360,915 |
| | $ | 171,357 |
| | $ | 229,187 |
| | $ | 761,459 |
|
| | | | | | | |
| Nine Months Ended September 30, 2017 |
| Residential Products | | Industrial and Infrastructure Products | | Renewable Energy and Conservation | | Total |
Net sales: | | | | | | | |
Point in Time | $ | 361,304 |
| | $ | 164,812 |
| | $ | 18,835 |
| | $ | 544,951 |
|
Over Time | — |
| | — |
| | 183,855 |
| | 183,855 |
|
Total | $ | 361,304 |
| | $ | 164,812 |
| | $ | 202,690 |
| | $ | 728,806 |
|
17. | |
(17) | SUPPLEMENTAL FINANCIAL INFORMATION |
The following information sets forth the consolidating summary financial statements of the issuer (Gibraltar Industries, Inc.) and guarantors, which guarantee the 6.25% Notes due February 1, 2021, and the non-guarantors. The guarantors are 100% owned domestic subsidiaries of the issuer and the guarantees are full, unconditional, joint and several.
Investments in subsidiaries are accounted for by the parent using the equity method of accounting. The guarantor subsidiaries and non-guarantor subsidiaries are presented on a combined basis. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions.
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF OPERATIONSINCOME
THREE MONTHS ENDED SEPTEMBER 30, 20172018
(in thousands)
| | | Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total | Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Net sales | $ | — |
| | $ | 264,448 |
| | $ | 15,514 |
| | $ | (5,388 | ) | | $ | 274,574 |
| $ | — |
| | $ | 268,302 |
| | $ | 19,211 |
| | $ | (7,427 | ) | | $ | 280,086 |
|
Cost of sales | — |
| | 198,103 |
| | 12,844 |
| | (5,108 | ) | | 205,839 |
| — |
| | 200,725 |
| | 16,338 |
| | (7,256 | ) | | 209,807 |
|
Gross profit | — |
| | 66,345 |
| | 2,670 |
| | (280 | ) | | 68,735 |
| — |
| | 67,577 |
| | 2,873 |
| | (171 | ) | | 70,279 |
|
Selling, general, and administrative expense | 34 |
| | 31,003 |
| | 2,005 |
| | — |
| | 33,042 |
| 35 |
| | 39,466 |
| | 1,374 |
| | — |
| | 40,875 |
|
(Loss) income from operations | (34 | ) | | 35,342 |
| | 665 |
| | (280 | ) | | 35,693 |
| (35 | ) | | 28,111 |
| | 1,499 |
| | (171 | ) | | 29,404 |
|
Interest expense (income) | 3,402 |
| | 105 |
| | (21 | ) | | — |
| | 3,486 |
| 3,403 |
| | (427 | ) | | (70 | ) | | — |
| | 2,906 |
|
Other expense | — |
| | 100 |
| | 304 |
| | — |
| | 404 |
| — |
| | 95 |
| | 427 |
| | — |
| | 522 |
|
(Loss) income before taxes | (3,436 | ) | | 35,137 |
| | 382 |
| | (280 | ) | | 31,803 |
| (3,438 | ) | | 28,443 |
| | 1,142 |
| | (171 | ) | | 25,976 |
|
(Benefit of) provision for income taxes | (1,124 | ) | | 12,219 |
| | 89 |
| | — |
| | 11,184 |
| (963 | ) | | 7,182 |
| | 254 |
| | — |
| | 6,473 |
|
Equity in earnings from subsidiaries | 23,211 |
| | 293 |
| | — |
| | (23,504 | ) | | — |
| 22,149 |
| | 888 |
| | — |
| | (23,037 | ) | | — |
|
Net income | $ | 20,899 |
| | $ | 23,211 |
| | $ | 293 |
| | $ | (23,784 | ) | | $ | 20,619 |
| $ | 19,674 |
| | $ | 22,149 |
| | $ | 888 |
| | $ | (23,208 | ) | | $ | 19,503 |
|
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF OPERATIONSINCOME
THREE MONTHS ENDED SEPTEMBER 30, 20162017
(in thousands)
| | | Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total | Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Net sales | $ | — |
| | $ | 265,657 |
| | $ | 15,799 |
| | $ | (8,722 | ) | | $ | 272,734 |
| $ | — |
| | $ | 264,448 |
| | $ | 15,514 |
| | $ | (5,388 | ) | | $ | 274,574 |
|
Cost of sales | — |
| | 202,199 |
| | 11,721 |
| | (9,073 | ) | | 204,847 |
| — |
| | 198,103 |
| | 12,844 |
| | (5,108 | ) | | 205,839 |
|
Gross profit | — |
| | 63,458 |
| | 4,078 |
| | 351 |
| | 67,887 |
| — |
| | 66,345 |
| | 2,670 |
| | (280 | ) | | 68,735 |
|
Selling, general, and administrative expense | 94 |
| | 38,505 |
| | 2,766 |
| | — |
| | 41,365 |
| 34 |
| | 31,003 |
| | 2,005 |
| | — |
| | 33,042 |
|
(Loss) income from operations | (94 | ) | | 24,953 |
| | 1,312 |
| | 351 |
| | 26,522 |
| (34 | ) | | 35,342 |
| | 665 |
| | (280 | ) | | 35,693 |
|
Interest expense (income) | 3,403 |
| | 241 |
| | (19 | ) | | — |
| | 3,625 |
| 3,402 |
| | 105 |
| | (21 | ) | | — |
| | 3,486 |
|
Other expense (income) | 230 |
| | 24 |
| | (95 | ) | | — |
| | 159 |
| |
Other expense | | — |
| | 100 |
| | 304 |
| | — |
| | 404 |
|
(Loss) income before taxes | (3,727 | ) | | 24,688 |
| | 1,426 |
| | 351 |
| | 22,738 |
| (3,436 | ) | | 35,137 |
| | 382 |
| | (280 | ) | | 31,803 |
|
(Benefit of) provision for income taxes | (1,416 | ) | | 10,804 |
| | (436 | ) | | — |
| | 8,952 |
| (1,124 | ) | | 12,219 |
| | 89 |
| | — |
| | 11,184 |
|
Equity in earnings from subsidiaries | 15,746 |
| | 1,862 |
| | — |
| | (17,608 | ) | | — |
| 23,211 |
| | 293 |
| | — |
| | (23,504 | ) | | — |
|
Net income | $ | 13,435 |
| | $ | 15,746 |
| | $ | 1,862 |
| | $ | (17,257 | ) | | $ | 13,786 |
| $ | 20,899 |
| | $ | 23,211 |
| | $ | 293 |
| | $ | (23,784 | ) | | $ | 20,619 |
|
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2018
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Net sales | $ | — |
| | $ | 729,256 |
| | $ | 45,735 |
| | $ | (13,532 | ) | | $ | 761,459 |
|
Cost of sales | — |
| | 548,391 |
| | 36,987 |
| | (13,019 | ) | | 572,359 |
|
Gross profit | — |
| | 180,865 |
| | 8,748 |
| | (513 | ) | | 189,100 |
|
Selling, general, and administrative expense | 115 |
| | 108,639 |
| | 4,825 |
| | — |
| | 113,579 |
|
(Loss) income from operations | (115 | ) | | 72,226 |
| | 3,923 |
| | (513 | ) | | 75,521 |
|
Interest expense (income) | 10,207 |
| | (724 | ) | | (178 | ) | | — |
| | 9,305 |
|
Other expense (income) | — |
| | 234 |
| | (284 | ) | | — |
| | (50 | ) |
(Loss) income before taxes | (10,322 | ) | | 72,716 |
| | 4,385 |
| | (513 | ) | | 66,266 |
|
(Benefit of) provision for income taxes | (2,890 | ) | | 17,391 |
| | 1,073 |
| | — |
| | 15,574 |
|
Equity in earnings from subsidiaries | 58,637 |
| | 3,312 |
| | — |
| | (61,949 | ) | | — |
|
Net income | $ | 51,205 |
| | $ | 58,637 |
| | $ | 3,312 |
| | $ | (62,462 | ) | | $ | 50,692 |
|
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF OPERATIONSINCOME
NINE MONTHS ENDED SEPTEMBER 30, 2017
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Net sales | $ | — |
| | $ | 700,848 |
| | $ | 37,383 |
| | $ | (9,425 | ) | | $ | 728,806 |
|
Cost of sales | — |
| | 527,389 |
| | 30,565 |
| | (8,963 | ) | | 548,991 |
|
Gross profit | — |
| | 173,459 |
| | 6,818 |
| | (462 | ) | | 179,815 |
|
Selling, general, and administrative expense | 111 |
| | 101,190 |
| | 8,212 |
| | — |
| | 109,513 |
|
(Loss) income from operations | (111 | ) | | 72,269 |
| | (1,394 | ) | | (462 | ) | | 70,302 |
|
Interest expense (income) | 10,207 |
| | 459 |
| | (54 | ) | | — |
| | 10,612 |
|
Other expense | — |
| | 345 |
| | 466 |
| | — |
| | 811 |
|
(Loss) income before taxes | (10,318 | ) | | 71,465 |
| | (1,806 | ) | | (462 | ) | | 58,879 |
|
(Benefit of) provision for income taxes | (3,808 | ) | | 24,957 |
| | (59 | ) | | — |
| | 21,090 |
|
(Loss) income from continuing operations | (6,510 | ) | | 46,508 |
| | (1,747 | ) | | (462 | ) | | 37,789 |
|
Discontinued operations: | | | | | | | | | |
Loss from discontinued operations before taxes | — |
| | (644 | ) | | — |
| | — |
| | (644 | ) |
Benefit of income taxes | — |
| | (239 | ) | | — |
| | — |
| | (239 | ) |
Loss from discontinued operations | — |
| | (405 | ) | | — |
| | — |
| | (405 | ) |
Equity in earnings (loss) from subsidiaries | 44,356 |
| | (1,747 | ) | | — |
| | (42,609 | ) | | — |
|
Net income (loss) | $ | 37,846 |
| | $ | 44,356 |
| | $ | (1,747 | ) | | $ | (43,071 | ) | | $ | 37,384 |
|
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF OPERATIONSCOMPREHENSIVE INCOME
NINETHREE MONTHS ENDED SEPTEMBER 30, 20162018
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Net sales | $ | — |
| | $ | 728,782 |
| | $ | 63,014 |
| | $ | (15,653 | ) | | $ | 776,143 |
|
Cost of sales | — |
| | 551,195 |
| | 49,436 |
| | (15,368 | ) | | 585,263 |
|
Gross profit | — |
| | 177,587 |
| | 13,578 |
| | (285 | ) | | 190,880 |
|
Selling, general, and administrative expense | 14,268 |
| | 99,622 |
| | 4,131 |
| | — |
| | 118,021 |
|
(Loss) income from operations | (14,268 | ) | | 77,965 |
| | 9,447 |
| | (285 | ) | | 72,859 |
|
Interest expense (income) | 10,207 |
| | 836 |
| | (61 | ) | | — |
| | 10,982 |
|
Other expense (income) | 8,717 |
| | 465 |
| | (863 | ) | | — |
| | 8,319 |
|
(Loss) income before taxes | (33,192 | ) | | 76,664 |
| | 10,371 |
| | (285 | ) | | 53,558 |
|
(Benefit of) provision for income taxes | (10,898 | ) | | 22,189 |
| | 840 |
| | — |
| | 12,131 |
|
Equity in earnings from subsidiaries | 64,006 |
| | 9,531 |
| | — |
| | (73,537 | ) | | — |
|
Net income | $ | 41,712 |
| | $ | 64,006 |
| | $ | 9,531 |
| | $ | (73,822 | ) | | $ | 41,427 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Net income | $ | 19,674 |
| | $ | 22,149 |
| | $ | 888 |
| | $ | (23,208 | ) | | $ | 19,503 |
|
Other comprehensive income (loss): | | | | | | | | | |
Foreign currency translation adjustment | — |
| | — |
| | 139 |
| | — |
| | 139 |
|
Adjustment to retirement benefit liability, net of tax | — |
| | (5 | ) | | — |
| | — |
| | (5 | ) |
Adjustment to post employment health care benefit liability, net of tax | — |
| | 32 |
| | — |
| | — |
| | 32 |
|
Other comprehensive income | — |
| | 27 |
| | 139 |
| | — |
| | 166 |
|
Total comprehensive income | $ | 19,674 |
| | $ | 22,176 |
| | $ | 1,027 |
| | $ | (23,208 | ) | | $ | 19,669 |
|
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2017
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Net income | $ | 20,899 |
| | $ | 23,211 |
| | $ | 293 |
| | $ | (23,784 | ) | | $ | 20,619 |
|
Other comprehensive income (loss): | | | | | | | | | |
Foreign currency translation adjustment | — |
| | — |
| | 1,581 |
| | — |
| | 1,581 |
|
Adjustment to retirement benefit liability, net of tax | — |
| | (2 | ) | | — |
| | — |
| | (2 | ) |
Adjustment to post employment health care benefit liability, net of tax | — |
| | 29 |
| | — |
| | — |
| | 29 |
|
Other comprehensive income | — |
| | 27 |
| | 1,581 |
| | — |
| | 1,608 |
|
Total comprehensive income | $ | 20,899 |
| | $ | 23,238 |
| | $ | 1,874 |
| | $ | (23,784 | ) | | $ | 22,227 |
|
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
THREENINE MONTHS ENDED SEPTEMBER 30, 20162018
(in thousands)
| | | Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total | Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Net income | $ | 13,435 |
| | $ | 15,746 |
| | $ | 1,862 |
| | $ | (17,257 | ) | | $ | 13,786 |
| $ | 51,205 |
| | $ | 58,637 |
| | $ | 3,312 |
| | $ | (62,462 | ) | | $ | 50,692 |
|
Other comprehensive income (loss): | | | | | | | | | | |
Other comprehensive (loss) income: | | | | | | | | | | |
Foreign currency translation adjustment | — |
| | — |
| | (193 | ) | | — |
| | (193 | ) | — |
| | — |
| | (1,538 | ) | | — |
| | (1,538 | ) |
Cumulative effect of change in accounting (see Note 2) | | — |
| | (350 | ) | | — |
| | — |
| | (350 | ) |
Adjustment to retirement benefit liability, net of tax | — |
| | 61 |
| | — |
| | — |
| | 61 |
| — |
| | (15 | ) | | — |
| | — |
| | (15 | ) |
Adjustment to post employment health care benefit liability, net of tax | — |
| | 38 |
| | — |
| | — |
| | 38 |
| — |
| | 95 |
| | — |
| | — |
| | 95 |
|
Other comprehensive income (loss) | — |
| | 99 |
| | (193 | ) | | — |
| | (94 | ) | |
Other comprehensive loss | | — |
| | (270 | ) | | (1,538 | ) | | — |
| | (1,808 | ) |
Total comprehensive income | $ | 13,435 |
| | $ | 15,845 |
| | $ | 1,669 |
| | $ | (17,257 | ) | | $ | 13,692 |
| $ | 51,205 |
| | $ | 58,367 |
| | $ | 1,774 |
| | $ | (62,462 | ) | | $ | 48,884 |
|
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2017
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Net income (loss) | $ | 37,846 |
| | $ | 44,356 |
| | $ | (1,747 | ) | | $ | (43,071 | ) | | $ | 37,384 |
|
Other comprehensive income (loss): | | | | | | | | | |
Foreign currency translation adjustment | — |
| | — |
| | 3,351 |
| | — |
| | 3,351 |
|
Adjustment to retirement benefit liability, net of tax | — |
| | (8 | ) | | — |
| | — |
| | (8 | ) |
Adjustment to post employment health care benefit liability, net of tax | — |
| | 88 |
| | — |
| | — |
| | 88 |
|
Other comprehensive income | — |
| | 80 |
| | 3,351 |
| | — |
| | 3,431 |
|
Total comprehensive income | $ | 37,846 |
| | $ | 44,436 |
| | $ | 1,604 |
| | $ | (43,071 | ) | | $ | 40,815 |
|
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEETS
SEPTEMBER 30, 2018
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Assets | | | | | | | | | |
Current assets: | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 213,967 |
| | $ | 31,446 |
| | $ | — |
| | $ | 245,413 |
|
Accounts receivable, net | — |
| | 172,952 |
| | 7,923 |
| | — |
| | 180,875 |
|
Intercompany balances | (12,013 | ) | | 15,885 |
| | (3,872 | ) | | — |
| | — |
|
Inventories | — |
| | 92,823 |
| | 4,663 |
| | — |
| | 97,486 |
|
Other current assets | 2,902 |
| | 2,115 |
| | 3,932 |
| | — |
| | 8,949 |
|
Total current assets | (9,111 | ) | | 497,742 |
| | 44,092 |
| | — |
| | 532,723 |
|
Property, plant, and equipment, net | — |
| | 90,883 |
| | 2,835 |
| | — |
| | 93,718 |
|
Goodwill | — |
| | 301,070 |
| | 22,251 |
| | — |
| | 323,321 |
|
Acquired intangibles | — |
| | 91,752 |
| | 7,793 |
| | — |
| | 99,545 |
|
Other assets | — |
| | 4,178 |
| | 302 |
| | — |
| | 4,480 |
|
Investment in subsidiaries | 803,058 |
| | 63,166 |
| | — |
| | (866,224 | ) | | — |
|
| $ | 793,947 |
| | $ | 1,048,791 |
| | $ | 77,273 |
| | $ | (866,224 | ) | | $ | 1,053,787 |
|
Liabilities and Shareholders’ Equity | | | | | | | | | |
Current liabilities: | | | | | | | | | |
Accounts payable | $ | — |
| | $ | 87,351 |
| | $ | 5,646 |
| | $ | — |
| | $ | 92,997 |
|
Accrued expenses | 2,188 |
| | 70,826 |
| | 3,254 |
| | — |
| | 76,268 |
|
Billings in excess of cost | — |
| | 19,304 |
| | 2,596 |
| | | | 21,900 |
|
Current maturities of long-term debt | — |
| | 400 |
| | — |
| | — |
| | 400 |
|
Total current liabilities | 2,188 |
| | 177,881 |
| | 11,496 |
| | — |
| | 191,565 |
|
Long-term debt | 208,884 |
| | 925 |
| | — |
| | — |
| | 209,809 |
|
Deferred income taxes | — |
| | 29,499 |
| | 2,611 |
| | — |
| | 32,110 |
|
Other non-current liabilities | — |
| | 37,428 |
| | — |
| | — |
| | 37,428 |
|
Shareholders’ equity | 582,875 |
| | 803,058 |
| | 63,166 |
| | (866,224 | ) | | 582,875 |
|
| $ | 793,947 |
| | $ | 1,048,791 |
| | $ | 77,273 |
| | $ | (866,224 | ) | | $ | 1,053,787 |
|
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2017
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Assets | | | | | | | | | |
Current assets: | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 192,604 |
| | $ | 29,676 |
| | $ | — |
| | $ | 222,280 |
|
Accounts receivable, net | — |
| | 138,903 |
| | 6,482 |
| | — |
| | 145,385 |
|
Intercompany balances | 324 |
| | 4,166 |
| | (4,490 | ) | | — |
| | — |
|
Inventories | — |
| | 82,457 |
| | 3,915 |
| | — |
| | 86,372 |
|
Other current assets | 5,415 |
| | (368 | ) | | 3,680 |
| | — |
| | 8,727 |
|
Total current assets | 5,739 |
| | 417,762 |
| | 39,263 |
| | — |
| | 462,764 |
|
Property, plant, and equipment, net | — |
| | 93,906 |
| | 3,192 |
| | — |
| | 97,098 |
|
Goodwill | — |
| | 298,258 |
| | 22,816 |
| | — |
| | 321,074 |
|
Acquired intangibles | — |
| | 97,171 |
| | 8,597 |
| | — |
| | 105,768 |
|
Other assets | — |
| | 4,681 |
| | — |
| | — |
| | 4,681 |
|
Investment in subsidiaries | 739,970 |
| | 61,746 |
| | — |
| | (801,716 | ) | | — |
|
| $ | 745,709 |
| | $ | 973,524 |
| | $ | 73,868 |
| | $ | (801,716 | ) | | $ | 991,385 |
|
Liabilities and Shareholders’ Equity | | | | | | | | | |
Current liabilities: | | | | | | | | | |
Accounts payable | $ | — |
| | $ | 77,786 |
| | $ | 4,601 |
| | $ | — |
| | $ | 82,387 |
|
Accrued expenses | 5,469 |
| | 67,746 |
| | 2,252 |
| | — |
| | 75,467 |
|
Billings in excess of cost | — |
| | 9,840 |
| | 2,939 |
| | — |
| | 12,779 |
|
Current maturities of long-term debt | — |
| | 400 |
| | — |
| | — |
| | 400 |
|
Total current liabilities | 5,469 |
| | 155,772 |
| | 9,792 |
| | — |
| | 171,033 |
|
Long-term debt | 208,521 |
| | 1,100 |
| | — |
| | — |
| | 209,621 |
|
Deferred income taxes | — |
| | 28,907 |
| | 2,330 |
| | — |
| | 31,237 |
|
Other non-current liabilities | — |
| | 47,775 |
| | — |
| | — |
| | 47,775 |
|
Shareholders’ equity | 531,719 |
| | 739,970 |
| | 61,746 |
| | (801,716 | ) | | 531,719 |
|
| $ | 745,709 |
| | $ | 973,524 |
| | $ | 73,868 |
| | $ | (801,716 | ) | | $ | 991,385 |
|
GIBRALTAR INDUSTRIES, INC.
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOMECASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 20162018
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Net income | $ | 41,712 |
| | $ | 64,006 |
| | $ | 9,531 |
| | $ | (73,822 | ) | | $ | 41,427 |
|
Other comprehensive income: | | | | | | | | | |
Foreign currency translation adjustment | — |
| | — |
| | 10,638 |
| | — |
| | 10,638 |
|
Adjustment to retirement benefit liability, net of tax | — |
| | 59 |
| | — |
| | — |
| | 59 |
|
Adjustment to post employment health care benefit liability, net of tax | — |
| | 114 |
| | — |
| | — |
| | 114 |
|
Other comprehensive income | — |
| | 173 |
| | 10,638 |
| | — |
| | 10,811 |
|
Total comprehensive income | $ | 41,712 |
| | $ | 64,179 |
| | $ | 20,169 |
| | $ | (73,822 | ) | | $ | 52,238 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Cash Flows from Operating Activities | | | | | | | | | |
Net cash (used in) provided by operating activities | $ | (13,240 | ) | | $ | 47,971 |
| | $ | 3,479 |
| | $ | — |
| | $ | 38,210 |
|
Cash Flows from Investing Activities | | | | | | | | | |
Cash paid for acquisitions | — |
| | (5,241 | ) | | — |
| | — |
| | (5,241 | ) |
Net proceeds from sale of property and equipment | — |
| | 3,044 |
| | 103 |
| | — |
| | 3,147 |
|
Purchases of property, plant, and equipment | — |
| | (6,537 | ) | | (230 | ) | | — |
| | (6,767 | ) |
Net cash used in investing activities | — |
| | (8,734 | ) | | (127 | ) | | — |
| | (8,861 | ) |
Cash Flows from Financing Activities | | | | | | | | | |
Long-term debt payments | — |
| | (400 | ) | | — |
| | — |
| | (400 | ) |
Purchase of treasury stock at market prices | (6,549 | ) | | — |
| | — |
| | — |
| | (6,549 | ) |
Net proceeds from issuance of common stock | 1,343 |
| | — |
| | — |
| | — |
| | 1,343 |
|
Intercompany financing | 18,446 |
| | (17,474 | ) | | (972 | ) | | — |
| | — |
|
Net cash provided by (used in) financing activities | 13,240 |
| | (17,874 | ) | | (972 | ) | | — |
| | (5,606 | ) |
Effect of exchange rate changes on cash | — |
| | — |
| | (610 | ) | | — |
| | (610 | ) |
Net increase in cash and cash equivalents | — |
| | 21,363 |
| | 1,770 |
| | — |
| | 23,133 |
|
Cash and cash equivalents at beginning of year | — |
| | 192,604 |
| | 29,676 |
| | — |
| | 222,280 |
|
Cash and cash equivalents at end of period | $ | — |
| | $ | 213,967 |
| | $ | 31,446 |
| | $ | — |
| | $ | 245,413 |
|
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEETS
SEPTEMBER 30, 2017
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Assets | | | | | | | | | |
Current assets: | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 182,827 |
| | $ | 25,205 |
| | $ | — |
| | $ | 208,032 |
|
Accounts receivable, net | — |
| | 158,877 |
| | 7,841 |
| | — |
| | 166,718 |
|
Intercompany balances | (18,097 | ) | | 21,351 |
| | (3,254 | ) | | — |
| | — |
|
Inventories | — |
| | 80,771 |
| | 4,385 |
| | — |
| | 85,156 |
|
Other current assets | 4,036 |
| | (32 | ) | | 4,191 |
| | — |
| | 8,195 |
|
Total current assets | (14,061 | ) | | 443,794 |
| | 38,368 |
| | — |
| | 468,101 |
|
Property, plant, and equipment, net | — |
| | 90,933 |
| | 3,555 |
| | — |
| | 94,488 |
|
Goodwill | — |
| | 298,331 |
| | 22,762 |
| | — |
| | 321,093 |
|
Acquired intangibles | — |
| | 99,060 |
| | 8,883 |
| | — |
| | 107,943 |
|
Other assets | — |
| | 4,672 |
| | — |
| | — |
| | 4,672 |
|
Investment in subsidiaries | 730,080 |
| | 60,844 |
| | — |
| | (790,924 | ) | | — |
|
| $ | 716,019 |
| | $ | 997,634 |
| | $ | 73,568 |
| | $ | (790,924 | ) | | $ | 996,297 |
|
Liabilities and Shareholders’ Equity | | | | | | | | | |
Current liabilities: | | | | | | | | | |
Accounts payable | $ | — |
| | $ | 91,499 |
| | $ | 4,682 |
| | $ | — |
| | $ | 96,181 |
|
Accrued expenses | 2,188 |
| | 79,332 |
| | 1,744 |
| | — |
| | 83,264 |
|
Billings in excess of cost | — |
| | 14,578 |
| | 3,656 |
| | | | 18,234 |
|
Current maturities of long-term debt | — |
| | 400 |
| | — |
| | — |
| | 400 |
|
Total current liabilities | 2,188 |
| | 185,809 |
| | 10,082 |
| | — |
| | 198,079 |
|
Long-term debt | 208,400 |
| | 1,025 |
| | — |
| | — |
| | 209,425 |
|
Deferred income taxes | — |
| | 35,520 |
| | 2,642 |
| | — |
| | 38,162 |
|
Other non-current liabilities | — |
| | 45,200 |
| | — |
| | — |
| | 45,200 |
|
Shareholders’ equity | 505,431 |
| | 730,080 |
| | 60,844 |
| | (790,924 | ) | | 505,431 |
|
| $ | 716,019 |
| | $ | 997,634 |
| | $ | 73,568 |
| | $ | (790,924 | ) | | $ | 996,297 |
|
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2016
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Assets | | | | | | | | | |
Current assets: | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 143,826 |
| | $ | 26,351 |
| | $ | — |
| | $ | 170,177 |
|
Accounts receivable, net | — |
| | 117,526 |
| | 6,546 |
| | — |
| | 124,072 |
|
Intercompany balances | (615 | ) | | 6,152 |
| | (5,537 | ) | | — |
| | — |
|
Inventories | — |
| | 85,483 |
| | 4,129 |
| | — |
| | 89,612 |
|
Other current assets | 13,783 |
| | (10,070 | ) | | 3,623 |
| | — |
| | 7,336 |
|
Total current assets | 13,168 |
| | 342,917 |
| | 35,112 |
| | — |
| | 391,197 |
|
Property, plant, and equipment, net | — |
| | 104,642 |
| | 3,662 |
| | — |
| | 108,304 |
|
Goodwill | — |
| | 282,300 |
| | 21,732 |
| | — |
| | 304,032 |
|
Acquired intangibles | — |
| | 101,520 |
| | 9,270 |
| | — |
| | 110,790 |
|
Other assets | — |
| | 3,922 |
| | — |
| | — |
| | 3,922 |
|
Investment in subsidiaries | 663,118 |
| | 58,477 |
| | — |
| | (721,595 | ) | | — |
|
| $ | 676,286 |
| | $ | 893,778 |
| | $ | 69,776 |
| | $ | (721,595 | ) | | $ | 918,245 |
|
Liabilities and Shareholders’ Equity | | | | | | | | | |
Current liabilities: | | | | | | | | | |
Accounts payable | $ | — |
| | $ | 66,363 |
| | $ | 3,581 |
| | $ | — |
| | $ | 69,944 |
|
Accrued expenses | 7,369 |
| | 60,004 |
| | 3,019 |
| | — |
| | 70,392 |
|
Billings in excess of cost | — |
| | 9,301 |
| | 2,051 |
| | — |
| | 11,352 |
|
Current maturities of long-term debt | — |
| | 400 |
| | — |
| | — |
| | 400 |
|
Total current liabilities | 7,369 |
| | 136,068 |
| | 8,651 |
| | — |
| | 152,088 |
|
Long-term debt | 208,037 |
| | 1,200 |
| | — |
| | — |
| | 209,237 |
|
Deferred income taxes | — |
| | 35,354 |
| | 2,648 |
| | — |
| | 38,002 |
|
Other non-current liabilities | — |
| | 58,038 |
| | — |
| | — |
| | 58,038 |
|
Shareholders’ equity | 460,880 |
| | 663,118 |
| | 58,477 |
| | (721,595 | ) | | 460,880 |
|
| $ | 676,286 |
| | $ | 893,778 |
| | $ | 69,776 |
| | $ | (721,595 | ) | | $ | 918,245 |
|
GIBRALTAR INDUSTRIES, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2017
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Cash Flows from Operating Activities | | | | | | | | | |
Net cash (used in) provided by operating activities | $ | (15,136 | ) | | $ | 64,702 |
| | $ | (735 | ) | | $ | — |
| | $ | 48,831 |
|
Cash Flows from Investing Activities | | | | | | | | | |
Cash paid for acquisitions | — |
| | (18,494 | ) | | — |
| | — |
| | (18,494 | ) |
Net proceeds from sale of property and equipment | — |
| | 12,935 |
| | — |
| | — |
| | 12,935 |
|
Purchases of property, plant, and equipment | — |
| | (4,929 | ) | | (223 | ) | | — |
| | (5,152 | ) |
Net cash used in investing activities | — |
| | (10,488 | ) | | (223 | ) | | — |
| | (10,711 | ) |
Cash Flows from Financing Activities | | | | | | | | | |
Long-term debt payments | — |
| | (400 | ) | | — |
| | — |
| | (400 | ) |
Purchase of treasury stock at market prices | (1,982 | ) | | — |
| | — |
| | — |
| | (1,982 | ) |
Net proceeds from issuance of common stock | 649 |
| | — |
| | — |
| | — |
| | 649 |
|
Intercompany financing | 16,469 |
| | (14,813 | ) | | (1,656 | ) | | — |
| | — |
|
Net cash provided by (used in) financing activities | 15,136 |
| | (15,213 | ) | | (1,656 | ) | | — |
| | (1,733 | ) |
Effect of exchange rate changes on cash | — |
| | — |
| | 1,468 |
| | — |
| | 1,468 |
|
Net increase (decrease) in cash and cash equivalents | — |
| | 39,001 |
| | (1,146 | ) | | — |
| | 37,855 |
|
Cash and cash equivalents at beginning of year | — |
| | 143,826 |
| | 26,351 |
| | — |
| | 170,177 |
|
Cash and cash equivalents at end of period | $ | — |
| | $ | 182,827 |
| | $ | 25,205 |
| | $ | — |
| | $ | 208,032 |
|
GIBRALTAR INDUSTRIES, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2016
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Cash Flows from Operating Activities | | | | | | | | | |
Net cash (used in) provided by operating activities | $ | (34,186 | ) | | $ | 119,790 |
| | $ | 16,582 |
| | $ | — |
| | $ | 102,186 |
|
Cash Flows from Investing Activities | | | | | | | | | |
Cash paid for acquisitions | — |
| | (2,314 | ) | | — |
| | — |
| | (2,314 | ) |
Net proceeds from sale of property and equipment | — |
| | 220 |
| | 29 |
| | — |
| | 249 |
|
Purchases of property, plant, and equipment | — |
| | (7,177 | ) | | (423 | ) | | — |
| | (7,600 | ) |
Net proceeds from sale of business | — |
| | — |
| | 8,250 |
| | — |
| | 8,250 |
|
Other, net | — |
| | 1,118 |
| | — |
| | — |
| | 1,118 |
|
Net cash (used in) provided by investing activities | — |
| | (8,153 | ) | | 7,856 |
| | — |
| | (297 | ) |
Cash Flows from Financing Activities | | | | | | | | | |
Long-term debt payments | — |
| | (400 | ) | | — |
| | — |
| | (400 | ) |
Payment of debt issuance costs | — |
| | (54 | ) | | — |
| | — |
| | (54 | ) |
Purchase of treasury stock at market prices | (1,178 | ) | | — |
| | — |
| | — |
| | (1,178 | ) |
Net proceeds from issuance of common stock | 2,892 |
| | — |
| | — |
| | — |
| | 2,892 |
|
Intercompany financing | 32,472 |
| | (996 | ) | | (31,476 | ) | | — |
| | — |
|
Net cash provided by (used in) financing activities | 34,186 |
| | (1,450 | ) | | (31,476 | ) | | — |
| | 1,260 |
|
Effect of exchange rate changes on cash | — |
| | — |
| | 1,055 |
| | — |
| | 1,055 |
|
Net increase (decrease) in cash and cash equivalents | — |
| | 110,187 |
| | (5,983 | ) | | — |
| | 104,204 |
|
Cash and cash equivalents at beginning of year | — |
| | 39,597 |
| | 29,261 |
| | — |
| | 68,858 |
|
Cash and cash equivalents at end of period | $ | — |
| | $ | 149,784 |
| | $ | 23,278 |
| | $ | — |
| | $ | 173,062 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain information set forth herein includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and, therefore, are or may be deemed to be, “forward-looking statements.” These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “anticipates,” “expects,” “estimates,” “seeks,” “projects,” “intends,” “plans,” “may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, competition, strategies and the industries in which we operate. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those described in the “Risk Factors” disclosed in our Annual Report on Form 10-K. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained herein. In addition, even if our results of operations, financial condition and liquidity and the development of the industries in which we operate are consistent with the forward-looking statements contained in this quarterly report, those results or developments may not be indicative of results or developments in subsequent periods. Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statements that we make herein speak only as of the date of those statements, and we undertake no obligation to update those statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.
Overview
Gibraltar Industries, Inc. (the "Company") is a leading manufacturer and distributor of building products for theresidential, industrial, transportation infrastructure, residential housing,and renewable energy and resource conservation markets.
The Company operates and reports its results in the following three reporting segments, entitled:
Residential Products;
Industrial and Infrastructure Products; and
Renewable Energy and Conservation.
Our Residential Products segment services residential repair and remodeling activity and new residential housing construction with products including roof and foundation ventilation products, centralized mail systems and electronic package solutions, rain dispersion products and accessories. This segment's products are sold through major retail home centers, building material wholesalers, distributor groups, residential contractors and directly to multi-family property management companies.
Our Industrial and Infrastructure Products segment focuses on a variety of markets including industrial and commercial construction, highway and bridge construction, automotive, airports and energy and power generation markets with products including perimeter security, expanded and perforated metal, plank grating, architectural facades, as well as, expansion joints and structural bearings for roadways and bridges. This segment sells its products through steel fabricators and distributors, commercial and transportation contractors, and original equipment manufacturers.
Our Renewable Energy and Conservation segment focuses on the design, engineering, manufacturing and installation of solar racking systems and commercial, institutional, and retail greenhouse structures. This segment's services and products are provided directly to developers, power companies, solar energy contractors, and institutional and commercial growers of plants.
As of September 30, 2018, we operated 42 facilities, comprised of 30 manufacturing facilities, six distribution centers, and six offices, which are located in 18 states, Canada, China, and Japan. These facilities give us a base of operations to provide customer support, delivery, service and quality to a number of regional and national customers and provide us with manufacturing and distribution primarily throughout North America and, to a lesser extent, Asia.
Business Strategy
Our business strategy is designed tofocuses on significantly elevateelevating and accelerateaccelerating the growth and financial returns of the Company. We believe this can be achieved, in part, fromstrive to deliver best-in-class, sustainable value creation for our shareholders for the long-term, and to generate more earnings at a transformational change in the Company’s portfolio, as well as, the implementationhigher rate of the strategy described below. return with a more efficient use of capital year over year.
Our business strategy has four key elements, or "pillars," which are:consist of operational excellence, product innovation, portfolio management and acquisitions as a strategic accelerator. We strive to deliver best-in-class,believe that the continuing implementation of these pillars will produce transformational change in the Company’s portfolio and performance, resulting in sustainable value creation for our shareholders for the long-term.
shareholders.
Operational excellence is our first pillar in this strategy. We focus on reducing complexity, adjusting costs and simplifying our product offering through 80/20 simplification ("initiatives (“80/20"20”). 80/20 is a core partthe practice of the operational excellence pillar and is based on the analysis that 25% of the customers typically generate 89% of the revenue in a business, and 150% of the profitability. Through analysis of data generated by our 80/20 practices, we are focusing on our largest and best opportunities (the “80”) and eliminating complexity associated with less profitable opportunities (the “20”) in order to generate more earnings year over year, at a higher. Implementation of 80/20 across our businesses, along with in-lining and market rate of return with a more efficient use of capital.
We are in the third year of our multi-year simplification initiative. Since initiation of 80/20 in 2015, we have exceeded our initial five-year target ending 2019 of $25 million of pre-tax savings. We are currently in the middle of this 80/20 initiative, which means that there is both more workdemand replenishment initiatives, and more opportunity ahead. We are targeting greater structural changes affecting our balance sheet. We are starting the follow-on management tools of in-lining our manufacturing processes linked with market-rate-of-demand replenishment tools. These follow-on tools are focused on manufacturing the highest-volume productsoutsourcing initiatives for our largest customers, and on a much higher level of capacity utilization. We expect these methods will yield additional benefits including lower manufacturing costs, lower inventories and fixed assets, and an even higher level of servicevolume products provided to customers.
The second pillar of our strategy is portfolio management, which is a natural adjunct to the 80/20 initiative. Using the 80/20 process, we conduct strategic reviews of our customers to achieve our value proposition, will improve our profitability. Our next step in operational excellence is to concentrate on selling and end markets,marketing strategies, known as trade focus, to drive organic growth by developing new and allocate leadership time, capital and resourcesinnovative products which respond to the platforms and businesses with the highest revenue and margin potential. Following the sale of our European industrial manufacturing businesscustomers’ needs to a third party in April 2016, we decided in December 2016 to exit our small European residential solar racking business and U.S. bar grating product line, both of which proceeded as planned. These portfolio changes have helped contribute to the Company's realization of a higher rate of return on invested capital in 2016. We have now acted on all near-term portfolio assessments and expect no additional changes in 2017 while we continue to position our resources on more attractive projects and markets.
simplify their operations.
Product innovation is our thirdsecond strategic pillar.pillar where we focus on products with patent protection, developed internally or through acquired product lines. Innovation is centered on the allocation of new and existing resources to opportunities that we believe will produce sustainable returns. Our focus is on driving top line growth with new and innovative products. We are focused on the development or acquisition of those products and technologies that we believe have relevance to the end-user and can be differentiated from our competition. Our initiativesWe believe that development of these innovative products and technologies will be tailored toward reallocating sales and marketing talent to target specific end user groups in order to better understand their needs and the various market opportunities that may be available. This effort is expectedsupport our objectives to produce ideassustainable returns for our shareholders.
The third pillar of our strategy is portfolio management, which involves the evaluation of our product lines, customers and opportunitiesend markets with the objective of allocating leadership time and financial resources to the highest-potential platforms and businesses. We view portfolio management as a continuous process that generate profitable growth. Our focus on innovation is centered on four markets: postal, parcel and storage solutions; residential air management; infrastructure; and renewable energy. These respective marketswill remain an important part of our strategy as we look to improve the Company’s long-term financial performance. We are expected to grow based on demand for: centralized mail and parcel delivery systems; zero carbon footprint homes;currently supporting all of the need for repairs to elevated bridges that are structurally deficient or functionally obsolete; and energy sources not dependent on fossil fuels.
businesses in our portfolio today.
The fourth pillar of our strategy is acquisitions. We have targeted four key markets in which to make strategic acquisitions, which are served by existing platforms withinwe consider an important part of the Company. The existing platformsCompany’s transformation. Our low leverage, high liquidity and strong cash flow enables us to consider larger acquisition targets. Our executive leadership team continues to invest time and energy in prospecting for and vetting of potential acquisition candidates. However, we remain committed to only making acquisitions which will contribute long-term value to the Company and its shareholders. We continue to seek acquisition prospects in attractive end markets, with unique value propositions and patented products or technologies. Our target markets include the same areaspostal and parcel solutions, residential building products, perimeter security, infrastructure, renewable energy and conservation. Our recent acquisition of SolarBOS in which we are targeting the development of innovative products: postal, parcel and storage solutions; infrastructure; residential air management; and renewable energy. These platforms are all in large markets in which the underlying trends for customer convenience and safety, energy-savings and resource conservation are of increasing importance to consumers and are expected to drive long-term demand. We believe these markets also offer the opportunity for higher returns on our investments than those we have generated in the past. The acquisitions of Rough Brothers Manufacturing, Inc., RBI Solar, Inc., and affiliates, collectively known as "RBI" in June 2015 and more recently, Nexus Corporation ("Nexus") in October 2016 and Package Concierge in February 2017, wereAugust 2018 was the direct result of this strategy. We also consider businesses outside of these four markets, as
Overall, we continually search out opportunities to growbelieve our business strategy has enabled us to achieve stronger financial results, make more efficient use of capital, and deliver higher shareholder returns. We have and expect to continue to restructure our operations, including consolidation of facilities, reducing overhead costs, and controlling investments in large markets with expected growthinventory, which enables us to better react to fluctuations in commodity costs and customer demand and has contributed to both improved margins and cash flows.
Acquisitions and Divestitures
On August 21, 2018, the Company acquired all of the outstanding stock of SolarBOS for approximately $6 million subject to a working capital adjustment and certain other adjustments provided for in the stock purchase agreement. The acquisition was financed through cash on hand. SolarBOS is a provider of electrical balance of systems products, which consists of electrical components such as wiring, switches, and combiner boxes that support photovoltaic systems, for the foreseeable future, where we can add value through our manufacturing experience, 80/20 processU.S. solar renewable energy market. The results of operations of SolarBOS have been included in the Renewable Energy and purchasing synergies.
Conservation segment of the Company's consolidated financial statements from the date of acquisition.
On February 22, 2017, the Company acquired all of the outstanding stock of Package Concierge for approximately $19 million subject to a working capital adjustment and certain other adjustments provided for in the stock purchase
agreement. The acquisition was financed through cash on hand. Package Concierge is a leading provider of multifamily electronic package delivery locker systems in the United States. The results of operations of Package Concierge have been included within the Residential Products segment of the Company's consolidated financial statements from the date of acquisition.
On February 6, 2017, the Company completed the sale of substantially all of its U.S. bar grating product line assets to a third party. The Company had previously announced, on December 2, 2016, its intentions to exit its U.S. bar grating product line and its European residential solar racking business as part of its portfolio management initiative. These businesses contributed a combined $75 million in revenue and pre-tax operating losses of $6 million in 2016.This action also resulted in the sale and closing of 3 facilities in early 2017. These assets were a part of our Industrial and Infrastructure Products segment.
On October 11, 2016, the Company acquired all of the outstanding stock of Nexus for approximately $24 million. The acquisition was financed through cash on hand. Nexus is a leading provider of commercial-scale greenhouses to customers in the United States. The results of operations of Nexus have been included within the Renewable Energy and Conservation segment of the Company's consolidated financial statements from the date of acquisition.
On April 15, 2016, the Company sold its European industrial manufacturing business to a third party for net of cash proceeds of $8.3 million. This business, which supplied expanded metal products for filtration and other applications, contributed $36 million in revenue to the Company's Industrial and Infrastructure Products segment in 2015 and had nearly break-even operating results. The Company's divestiture of this business was the result of the Company's portfolio management assessments.
The Company serves customers primarily throughout North America and, to a lesser extent, Asia. Our customers include major home improvement retailers, wholesalers, industrial distributors, contractors, solar developers and institutional and commercial growers of plants. As of September 30, 2017, we operated 42 facilities in 17 states, Canada, China, and Japan, giving us a base of operations to provide customer support, delivery, service and quality to a number of regional and national customers and providing us with manufacturing and distribution efficiencies in North America, as well as a presence in the Asian markets.
The Company operates and reports its results in the following three reporting segments, entitled:
Residential Products;
Renewable Energy and Conservation; and
Industrial and Infrastructure Products.
Our Residential Products segment services residential repair and remodeling activity and new residential housing construction with products including roof and foundation ventilation products, mail and parcel storage products, rain dispersion products and roof ventilation accessories. This segment's products are sold through major retail home centers, building material wholesalers, distributor groups, residential contractors and directly to the multi-family property management companies.
Our Renewable Energy and Conservation segment focuses on the design, engineering, manufacturing and installation of solar racking systems and commercial, institutional, and retail greenhouse structures. This segment's services and products are provided directly to developers, select distribution channels, and end users/owners.
Our Industrial and Infrastructure Products segment focuses on a variety of markets including industrial and commercial construction, highway and bridge construction, automotive, airports and energy and power generation markets with products including perimeter security, expanded and perforated metal, plank grating, as well as, expansion joints and structural bearings for roadways and bridges. This segment sells its products through steel fabricators and distributors, commercial and transportation contractors, and original equipment manufacturers.Economic Conditions
The end markets our businesses serve include residential housing, industrial manufacturing, transportation infrastructure, and renewable energy and conservation. These end markets are subject to economic conditions that are influenced by various factors. These factors include but are not limited to changes in general economic conditions, interest rates, exchange rates, commodity costs, demand for residential construction, demand for repair and remodeling, governmental policies and funding, tax policies and incentives, tariffs, trade policies, the volumelevel of non-residential construction and infrastructure projects.projects, need for protection of high value assets, demand for renewable energy sources, and climate change. We believe the key elements of our strategy will allow us to respond timely to changes in these factors. We have and expect to continue to restructure our operations, including consolidation of facilities, reducing overhead costs, curtailing investments in inventory, and managing our business to generate incremental cash. Additionally, we believe our strategy has enabled us to better react to fluctuations in commodity costs and customer demand, and has helped in improving margins. We have used the improved cash flows generated by these initiatives to improve our liquidity position, and invest in growth initiatives. Overall, we are striving to achieve stronger financial results, make more efficient use of capital, and deliver higher shareholder returns.
Results of Operations
Three Months Ended September 30, 20172018 Compared to the Three Months Ended September 30, 20162017
The following table sets forth selected data from our consolidated statements of operationsincome and the related percentage of net sales for the three months ended September 30, (in thousands):
| | | 2017 | | 2016 | 2018 | | 2017 |
Net sales | $ | 274,574 |
| | 100.0 | % | | $ | 272,734 |
| | 100.0 | % | $ | 280,086 |
| | 100.0 | % | | $ | 274,574 |
| | 100.0 | % |
Cost of sales | 205,839 |
| | 75.0 | % | | 204,847 |
| | 75.1 | % | 209,807 |
| | 74.9 | % | | 205,839 |
| | 75.0 | % |
Gross profit | 68,735 |
| | 25.0 | % | | 67,887 |
| | 24.9 | % | 70,279 |
| | 25.1 | % | | 68,735 |
| | 25.0 | % |
Selling, general, and administrative expense | 33,042 |
| | 12.0 | % | | 41,365 |
| | 15.2 | % | 40,875 |
| | 14.6 | % | | 33,042 |
| | 12.0 | % |
Income from operations | 35,693 |
| | 13.0 | % | | 26,522 |
| | 9.7 | % | 29,404 |
| | 10.5 | % | | 35,693 |
| | 13.0 | % |
Interest expense | 3,486 |
| | 1.3 | % | | 3,625 |
| | 1.3 | % | 2,906 |
| | 1.0 | % | | 3,486 |
| | 1.3 | % |
Other expense | 404 |
| | 0.1 | % | | 159 |
| | 0.1 | % | 522 |
| | 0.2 | % | | 404 |
| | 0.1 | % |
Income before taxes | 31,803 |
| | 11.6 | % | | 22,738 |
| | 8.3 | % | 25,976 |
| | 9.3 | % | | 31,803 |
| | 11.6 | % |
Provision for income taxes | 11,184 |
| | 4.1 | % | | 8,952 |
| | 3.2 | % | 6,473 |
| | 2.3 | % | | 11,184 |
| | 4.1 | % |
Net income | $ | 20,619 |
| | 7.5 | % | | $ | 13,786 |
| | 5.1 | % | $ | 19,503 |
| | 7.0 | % | | $ | 20,619 |
| | 7.5 | % |
The following table sets forth the Company’s net sales by reportable segment for the three months ended September 30, (in thousands):
| | | | | | | | | Change due to | | | | | | | |
| 2017 | | 2016 | | Total Change | | Divestitures | | Acquisitions | | Operations | 2018 | | 2017 | | Total Change |
Net sales: | | | | | | | | | | | | | | | | |
Residential Products | $ | 129,501 |
| | $ | 117,957 |
| | $ | 11,544 |
| | $ | — |
| | $ | 1,811 |
| | $ | 9,733 |
| $ | 125,839 |
| | $ | 129,501 |
| | $ | (3,662 | ) |
Renewable Energy and Conservation | 88,135 |
| | 82,008 |
| | 6,127 |
| | (2,266 | ) | | 6,423 |
| | 1,970 |
| |
Industrial and Infrastructure Products | 57,162 |
| | 73,193 |
| | (16,031 | ) | | (14,799 | ) | | — |
| | (1,232 | ) | 56,033 |
| | 57,162 |
| | (1,129 | ) |
Less: Intersegment sales | (224 | ) | | (424 | ) | | 200 |
| | — |
| | — |
| | 200 |
| (272 | ) | | (224 | ) | | (48 | ) |
Net Industrial and Infrastructure Products | 56,938 |
| | 72,769 |
| | (15,831 | ) | | (14,799 | ) | | — |
| | (1,032 | ) | 55,761 |
| | 56,938 |
| | (1,177 | ) |
Renewable Energy and Conservation | | 98,486 |
| | 88,135 |
| | 10,351 |
|
Consolidated | $ | 274,574 |
| | $ | 272,734 |
| | $ | 1,840 |
| | $ | (17,065 | ) | | $ | 8,234 |
| | $ | 10,671 |
| $ | 280,086 |
| | $ | 274,574 |
| | $ | 5,512 |
|
Consolidated net sales increased by $1.8$5.5 million, or 0.7%2.0%, to $274.6$280.1 million for the three months ended September 30, 20172018 compared to the three months ended September 30, 2016.2017. The 2.0% increase, in sales was the net result of increased volumes a 5.0% increase
in ongoing revenue streams along with contributions from our recent acquisitionspricing to customers, partially offset by a 3.0% decrease in volume, was driven by strong growth in our Renewable Energy and Conservation andsegment, which included a $1.6 million contribution from the recently acquired SolarBos. This growth was partially offset by lower revenues in both the Residential Products Segments, Nexus in October 2016 and Package Concierge in February 2017, respectively. Also contributing to the increase was a modest 1.0% increase in pricing to customers. Partially offsetting these increases were the results of divestitures related to the Company’s portfolio management activities during 2016. This included the exit of both the Company's small European residential solar racking businesssegment and the Company's U.S. bar grating product line, both of which commenced during the fourth quarter of 2016. These divestitures resulted in a decrease in revenues of $17.1 million from the prior year quarter.Industrial and Infrastructure Products segments.
Net sales in our Residential Products segment increased 9.7%decreased 2.9%, or $11.5$3.7 million, to $125.8 million for the three months ended September 30, 2018 compared to $129.5 million for the three months ended September 30, 2017. The decrease from the prior year quarter was primarily due to higher storm-related roofing activity in the third quarter of 2017, comparedand a slight decline in the commercial/multi-family construction market, partially offset by steady customer demand for rain dispersion products.
Net sales in our Industrial and Infrastructure Products segment decreased 2.1%, or $1.2 million, to $118.0$55.8 million for the three months ended September 30, 2016. The increase was largely2018 compared to $56.9 million for the result of a net increase in volume along with sales generatedthree months ended September 30, 2017. Strong performance from the acquisition of Package ConciergeIndustrial business, and an increase in pricing to customers. The volume increase resulted from demand for our commercial package solutions as well as our roofing-related ventilationinnovative products, was more than offset by lower demand in the Infrastructure business. The Company expects continued demand for innovative products in its Industrial business and rain dispersion products.growing demand in its Infrastructure business.
Net sales in our Renewable Energy and Conservation segment increased 7.4%11.8%, or $6.1$10.4 million, to $98.5 million for the three months ended September 30, 2018 compared to $88.1 million for the three months ended September 30, 2017 compared2017. The increase was the result of strong domestic demand, continued growth in innovative products, and a $1.6 million contribution from the recently acquired SolarBos.
Our consolidated gross margin slightly increased to $82.0 million25.1% for the three months ended September 30, 2016. The increase was the result of sales generated from the acquisition of Nexus and an increase in volume in our domestic markets. Partially offsetting this increase were the effects of the exit of the Company's small European residential solar racking business and continued softness in our international markets.
Net sales in our Industrial and Infrastructure Products segment decreased 21.7%, or $15.8 million to $56.9 million for the three months ended September 30, 20172018 compared to $72.8 million for the three months ended September 30, 2016. The decrease in net sales was primarily the result of the Company's exit from its U.S. bar grating product line. Also a decrease in demand for our infrastructure products as compared to the third quarter in the prior year, which include components for bridges and elevated highways, contributed to the decline in volume due to continued delay in infrastructure projects. We expect this decline to be temporary as backlog and bookings for this business have increased compared to the prior year quarter and the market shows signs of recovery.
Our consolidated gross margin slightly increased to 25.0% for the three months ended September 30, 2017 compared to 24.9% for the three months ended September 30, 2016.2017. This increase was largely the result of portfolio management actions during 2016 in which less profitable businesses or product lines were sold or exited in order to enable the Company to re-allocate leadership, time, capitalcontributions from our new innovative products, 80/20 profit improvement initiatives and resources to the highest potential platforms and businesses. This increase was largely offset by a lessmore favorable alignment of material costs to customer selling prices.
Selling, general, and administrative (SG&A) expenses decreasedincreased by $8.3$7.8 million, or 20.1%23.7%, to $40.9 million for the three months ended September 30, 2018 from $33.0 million for the three months ended September 30, 2017 from $41.42017. The $7.8 million forincrease was the three months ended September 30, 2016. The $8.3 million decrease was primarily due to $7.6combined result of $5.0 million of lowerhigher performance-based compensation expenses, a $1.3 million increase in restructuring charges relating to our 80/20 initiatives, along with a $2.2$1.0 million decreaseincrease in senior leadership transition costs. These were partially offset by $2.3 millioncosts as compared to the prior year quarter. The higher performance-based compensation costs are the result of additional expense from the acquisitions of Nexusimprovements in return on invested capital year over year and Package Concierge.an increasing average stock price in 2018. SG&A expenses as a percentage of net sales decreasedincreased to 14.6% for the three months ended September 30, 2018 compared to 12.0% for the three months ended September 30, 2017 compared to 15.2% for the three months ended September 30, 2016.
2017.
The following table sets forth the Company’s income from operations and income from operations as a percentage of net sales by reportable segment for the three months ended September 30, (in thousands):
| | | 2017 | | 2016 | | Total Change | 2018 | | 2017 | | Total Change |
Income (loss) from operations: | | | | | | | | | | |
Income from operations: | | | | | | | | | | |
Residential Products | $ | 23,764 |
| | 18.4 | % | | $ | 19,407 |
| | 16.5 | % | | $ | 4,357 |
| $ | 20,138 |
| | 16.0 | % | | $ | 23,764 |
| | 18.4 | % | | $ | (3,626 | ) |
Industrial and Infrastructure Products | | 2,892 |
| | 5.2 | % | | 2,554 |
| | 4.5 | % | | 338 |
|
Renewable Energy and Conservation | 11,549 |
| | 13.1 | % | | 16,366 |
| | 20.0 | % | | (4,817 | ) | 15,072 |
| | 15.3 | % | | 11,549 |
| | 13.1 | % | | 3,523 |
|
Industrial and Infrastructure Products | 2,554 |
| | 4.5 | % | | 1,913 |
| | 2.6 | % | | 641 |
| |
Unallocated Corporate Expenses | (2,174 | ) | | (0.8 | )% | | (11,164 | ) | | (4.1 | )% | | 8,990 |
| (8,698 | ) | | (3.1 | )% | | (2,174 | ) | | (0.8 | )% | | (6,524 | ) |
Consolidated income from operations | $ | 35,693 |
| | 13.0 | % | | $ | 26,522 |
| | 9.7 | % | | $ | 9,171 |
| $ | 29,404 |
| | 10.5 | % | | $ | 35,693 |
| | 13.0 | % | | $ | (6,289 | ) |
Our Residential Products segment generated an operating margin of 16.0% during the three months ended September 30, 2018 compared to 18.4% during the three months ended September 30, 2017 compared2017. The decrease in operating margin resulted from unfavorable product mix, and to 16.5%a lesser extent, volume leverage, along with higher charges for restructuring initiatives in the current year quarter.
Our Industrial and Infrastructure Products segment generated an operating margin of 5.2% during the three months ended September 30, 2016.2018 compared to 4.5% during the three months ended September 30, 2017. The increaseimprovement was the result of $4.4 milliondemand for our higher-margin innovative products, operational efficiencies resulting from the
Company's 80/20 initiatives, and a more favorable alignment of operating profit is duematerial costs to customer selling prices, partially offset by higher charges for restructuring initiatives as compared to the benefits of improved operational efficiencies and contributions from the 80/20 initiative.
prior year.
The Renewable Energy and Conservation segment generated an operating margin of 13.1%15.3% in the current year quarter compared to 20.0%13.1% in the prior year quarter. The decline in operating margin reflects an unfavorable alignment of material costs to customer selling prices as compared to the prior year quarter.
Our Industrial and Infrastructure Products segment generated an operating margin of 4.5% during the three months ended September 30, 2017 compared to 2.6% during the three months ended September 30, 2016. The improvement was largelyprimarily the result of costs incurred in the prior-year quarter related tocontinued benefit of operational improvements from our 80/20 simplification initiatives. Partially offsetting this improvement wereinitiatives and leverage from the effects of lower volumes fromcontinued strong demand for our infrastructurerenewable energy and conservation products and an unfavorable alignment of material costs to customer selling prices.services.
Unallocated corporate expenses decreased $9.0increased $6.5 million from $11.2 million during the three months ended September 30, 2016 to $2.2 million during the three months ended September 30, 2017.2017 to $8.7 million during the three months ended September 30, 2018. This decreaseincrease from the prior year quarter was largely due to a $7.4$3.7 million decreaseincrease in performance-based compensation expenses, the result of improvements in return on invested capital year over year and increasing average stock price in 2018, along with a $2.2$1.1 million decreaseincrease in senior leadership transition costs.costs as compared to the prior year quarter.
The Company recorded other expense of $0.5 million for the three months ended September 30, 2018 and other expense of $0.4 million for the three months ended September 30, 2017 and2017. The increase in other expense from the prior year quarter was primarily the result of $0.2foreign currency fluctuations.
Interest expense decreased by $0.6 million to $2.9 million for the three months ended September 30, 2016. The increase from the prior year quarter was primarily due to foreign currency fluctuations.
Interest expense modestly decreased by $0.1 million2018 compared to $3.5 million for the three months ended September 30, 20172017. The decrease in expense was due to the offsetting effect of income earned on our interest-bearing cash balances for the current year quarter compared to $3.6 million for the three months ended September 30, 2016.prior year quarter. During the three months ended September 30, 20172018 and 2016,2017, no amounts were outstanding under our revolving credit facility.
We recognized a provision for income taxes of $11.2$6.5 million and $9.0$11.2 million, with effective tax rates of 35.2%24.9% and 39.4%35.2% for the three months ended September 30, 2018, and 2017, respectively. The change in the effective tax rate year over year is primarily due to the reduction in U.S. federal statutory tax rate from 35% to 21%. The effective tax rate for the third quarter of 2018 exceeded the U.S. federal statutory rate of 21% due to state taxes and 2016, respectively.nondeductible permanent differences largely offset by favorable discrete items. The effective tax rate for the third quarter of 2017 exceeded the U.S. federal statutory rate of 35% due to state taxes and $2.2 million of pretax losses generated by the European residential solar racking business for which no tax benefit hashad been recorded as such benefit is not expected to be realizable, partially offset by net deductible permanent differences and favorable discrete items. The effective tax rate for the third quarter of 2016 was greater than the U.S. federal statutory rate of 35% primarily due state taxes and unfavorable discrete items.
Nine Months Ended September 30, 20172018 Compared to the Nine Months Ended September 30, 20162017
The following table sets forth selected data from our consolidated statements of operationsincome and the related percentage of net sales for the nine months ended September 30, (in thousands):
| | | 2017 | | 2016 | 2018 | | 2017 |
Net sales | $ | 728,806 |
| | 100.0 | % | | $ | 776,143 |
| | 100.0 | % | $ | 761,459 |
| | 100.0 | % | | $ | 728,806 |
| | 100.0 | % |
Cost of sales | 548,991 |
| | 75.3 | % | | 585,263 |
| | 75.4 | % | 572,359 |
| | 75.2 | % | | 548,991 |
| | 75.3 | % |
Gross profit | 179,815 |
| | 24.7 | % | | 190,880 |
| | 24.6 | % | 189,100 |
| | 24.8 | % | | 179,815 |
| | 24.7 | % |
Selling, general, and administrative expense | 109,513 |
| | 15.0 | % | | 118,021 |
| | 15.2 | % | 113,579 |
| | 14.9 | % | | 109,513 |
| | 15.0 | % |
Income from operations | 70,302 |
| | 9.7 | % | | 72,859 |
| | 9.4 | % | 75,521 |
| | 9.9 | % | | 70,302 |
| | 9.7 | % |
Interest expense | 10,612 |
| | 1.5 | % | | 10,982 |
| | 1.4 | % | 9,305 |
| | 1.2 | % | | 10,612 |
| | 1.5 | % |
Other expense | 811 |
| | 0.1 | % | | 8,319 |
| | 1.1 | % | |
Other (income) expense | | (50 | ) | | 0.0 | % | | 811 |
| | 0.1 | % |
Income before taxes | 58,879 |
| | 8.1 | % | | 53,558 |
| | 6.9 | % | 66,266 |
| | 8.7 | % | | 58,879 |
| | 8.1 | % |
Provision for income taxes | 21,090 |
| | 2.9 | % | | 12,131 |
| | 1.6 | % | 15,574 |
| | 2.0 | % | | 21,090 |
| | 2.9 | % |
Income from continuing operations | 37,789 |
| | 5.2 | % | | 41,427 |
| | 5.3 | % | 50,692 |
| | 6.7 | % | | 37,789 |
| | 5.2 | % |
Loss from discontinued operations | (405 | ) | | (0.1 | )% | | — |
| | 0.0 | % | — |
| | 0.0 | % | | (405 | ) | | (0.1 | )% |
Net income | $ | 37,384 |
| | 5.1 | % | | $ | 41,427 |
| | 5.3 | % | $ | 50,692 |
| | 6.7 | % | | $ | 37,384 |
| | 5.1 | % |
The following table sets forth the Company’s net sales by reportable segment for the nine months ended September 30, (in thousands):
| | | | | | | | | Change due to | | | | | | | |
| 2017 | | 2016 | | Total Change | | Divestitures | | Acquisitions | | Operations | 2018 | | 2017 | | Total Change |
Net sales: | | | | | | | | | | | | | | | | |
Residential Products | $ | 361,304 |
| | $ | 338,069 |
| | $ | 23,235 |
| | $ | — |
| | $ | 4,089 |
| | $ | 19,146 |
| $ | 360,915 |
| | $ | 361,304 |
| | $ | (389 | ) |
Renewable Energy and Conservation | 202,690 |
| | 204,648 |
| | (1,958 | ) | | (6,545 | ) | | 15,252 |
| | (10,665 | ) | |
Industrial and Infrastructure Products | 165,806 |
| | 234,590 |
| | (68,784 | ) | | (59,618 | ) | | — |
| | (9,166 | ) | 172,218 |
| | 165,806 |
| | 6,412 |
|
Less: Intersegment sales | (994 | ) | | (1,164 | ) | | 170 |
| | — |
| | — |
| | 170 |
| (861 | ) | | (994 | ) | | 133 |
|
Net Industrial and Infrastructure Products | 164,812 |
| | 233,426 |
| | (68,614 | ) | | (59,618 | ) | | — |
| | (8,996 | ) | 171,357 |
| | 164,812 |
| | 6,545 |
|
Renewable Energy and Conservation | | $ | 229,187 |
| | $ | 202,690 |
| | 26,497 |
|
Consolidated | $ | 728,806 |
| | $ | 776,143 |
| | $ | (47,337 | ) | | $ | (66,163 | ) | | $ | 19,341 |
| | $ | (515 | ) | $ | 761,459 |
| | $ | 728,806 |
| | $ | 32,653 |
|
Consolidated net sales decreasedincreased by $47.3$32.7 million, or 6.1%4.5%, to $728.8$761.5 million for the nine months ended September 30, 20172018 compared to the nine months ended September 30, 2016.2017. The decrease in sales was primarily4.5% increase, the combined result of divestitures relateda 3.8% increase in pricing to the Company’s portfolio management activities during 2016. The Company sold its European industrial manufacturing businesscustomers and a 0.7% increase in April 2016 to a third party and exited both the Company's small European residential solar racking business and the Company's U.S. bar grating product line, both of these divestitures commenced during the fourth quarter of 2016. These divestitures resulted in a decrease in revenues of $66.2 million from the prior year. Partially offsetting these divestitures were net sales contributions from our recent acquisitionsvolume, was driven by strong growth in our Renewable Energy and Conservation segment, including a $1.6 million contribution from the recently acquired SolarBos, along with higher revenues in our Industrial and ResidentialInfrastructure Products Segments, Nexus in October 2016 and Package Concierge in February 2017, respectively. A net decrease in volume of 2.0% in comparable revenue streams nearly offset by a modest 2.0% increase in pricing to customers also contributed to the overall decrease in sales year over year.segment.
Net sales in our Residential Products segment increased 6.9%decreased 0.1%, or $23.2$0.4 million, to $361.3$360.9 million for the nine months ended September 30, 20172018 compared to $338.1$361.3 million forin the nine months ended September 30, 2016.2017. The increase was largely the result of a net increase in volume along with sales generateddecrease from the acquisition of Package Concierge and an increase in pricing to customers. The net sales volume increaseprior year was primarily due to an increasehigher storm-related roofing activity in demand for our ventilation2017, and roofing products along with increased demand for our multifamily postal and parcel storage products.
Net salesa slight decline in our Renewable Energy and Conservation segment decreased 1.0%, or $2.0 million to $202.7 million for the nine months ended September 30, 2017 compared to $204.6 million for the nine months ended September 30, 2016. The decrease was the result of the exit of the Company's small European residential solar racking business and continued softness in our international markets,commercial/multi-family construction market, partially offset by sales generated from the acquisition of Nexus and increased volume in our domestic markets. As expected, total volume declined in the first nine months of 2017 as we entered 2017 with lower levels of backlog,steady customer demand for rain dispersion products.
which resulted in lower sales in the first half of 2017 compared to the first half of 2016. Backlog has improved for this segment and now exceeds its prior year levels.
Net sales in our Industrial and Infrastructure Products segment decreased 29.4%increased 3.9%, or $68.6$6.5 million, to $171.4 million for the nine months ended September 30, 2018 compared to $164.8 million for the nine months ended September 30, 2017 compared2017. Pricing actions along with contributions from new innovative industrial products drove the increased revenues.
Net sales in our Renewable Energy and Conservation segment increased 13.1%, or $26.5 million, to $233.4$229.2 million for the nine months ended September 30, 2016.2018 compared to $202.7 million for the nine months ended September 30, 2017. The decrease in net salesincrease was the combined result of the Company's exit from its U.S. bar grating product linestrong demand in both our domestic renewable energy and the divestitureconservation markets and continued traction of our European industrial manufacturing business, along with a 5.0% decrease in volume as compared to the same period in the prior year. A decrease in demand for our infrastructure products, which include components for bridges and elevated highways, contributed to the decline in volume due to continued delay in infrastructure projects. We expect this decline to be temporary due to federal and state funding availability and as evidenced by an increase in segment backlog during the current year.innovative products.
Our consolidated gross margin remained relatively unchanged atslightly increased to 24.8% for the nine months ended September 30, 2018 compared to 24.7% for the nine months ended September 30, 2017 compared to 24.6% for2017. This increase was the nine months ended September 30, 2016. The Company benefited from portfolio management actions during 2016 in which less profitable businesses or products lines were sold or exited in order to enable the Company to re-allocate leadership, time, capital and resources to the platforms and businesses with the highest potential revenue and margins. In addition, other portfolio management actions taken resultingresult of contributions from our new innovative products, 80/20 profit improvement initiatives contributed to maintaining the margin as well. These benefits were largely offset by lessand a more favorable alignment of material costs to customer selling prices.
Selling, general, and administrative (SG&A) expenses decreasedincreased by $8.5$4.1 million, or 7.2%3.7%, to $113.6 million for the nine months ended September 30, 2018 from $109.5 million for the nine months ended September 30, 2017 from $118.0 million for the nine months ended September 30, 2016.2017. The $8.5 million decreaseincrease was primarily due to a $11.5$5.6 million decreaseincrease in performance-based compensation expenses along with a $1.5and an $0.8 million decreaseincrease in senior leadership transition costs. These decreases werecosts as compared to the prior year, partially offset by $5.9a $2.5 million of additional expense from the acquisitions of Nexus and Package Concierge, along with a $2.9 million increasedecrease in portfolio managementrestructuring charges related to our 80/20 initiatives. SG&A expenses as a percentage of net sales decreased to 15.0% for14.9% in the nine months ended September 30, 20172018 compared to 15.2% for15.0% in the nine months ended September 30, 2016.2017.
The following table sets forth the Company’s income from operations and income from operations as a percentage of net sales by reportable segment for the nine months ended September 30, (in thousands):
| | | 2017 | | 2016 | | Total Change | 2018 | | 2017 | | Total Change |
Income (loss) from operations: | | | | | | | | | | |
Income from operations: | | | | | | | | | | |
Residential Products | $ | 61,984 |
| | 17.2 | % | | $ | 52,363 |
| | 15.5 | % | | $ | 9,621 |
| $ | 57,572 |
| | 16.0 | % | | $ | 61,984 |
| | 17.2 | % | | $ | (4,412 | ) |
Industrial and Infrastructure Products | | 12,098 |
| | 7.1 | % | | 5,914 |
| | 3.6 | % | | 6,184 |
|
Renewable Energy and Conservation | 18,381 |
| | 9.1 | % | | 34,969 |
| | 17.1 | % | | (16,588 | ) | 28,690 |
| | 12.5 | % | | 18,381 |
| | 9.1 | % | | 10,309 |
|
Industrial and Infrastructure Products | 5,914 |
| | 3.6 | % | | 11,429 |
| | 4.9 | % | | (5,515 | ) | |
Unallocated Corporate Expenses | (15,977 | ) | | (2.2 | )% | | (25,902 | ) | | (3.3 | )% | | 9,925 |
| (22,839 | ) | | (3.0 | )% | | (15,977 | ) | | (2.2 | )% | | (6,862 | ) |
Consolidated income from operations | $ | 70,302 |
| | 9.6 | % | | $ | 72,859 |
| | 9.4 | % | | $ | (2,557 | ) | $ | 75,521 |
| | 9.9 | % | | $ | 70,302 |
| | 9.6 | % | | $ | 5,219 |
|
Our Residential Products segment generated an operating margin of 16.0% during the nine months ended September 30, 2018 compared to 17.2% during the nine months ended September 30, 2017 compared2017. The decrease in operating margin is primarily due to 15.5%the effects of product mix.
Our Industrial and Infrastructure Products segment generated an operating margin of 7.1% during the nine months ended September 30, 2016.2018 compared to 3.6% during the nine months ended September 30, 2017. The increaseimprovement was largely the result of $9.6 million of operating profit is primarily due to the benefits of improved operational efficiencies and contributionsresulting from the Company's 80/20 initiative.initiatives along with higher demand for our innovative products and a more favorable alignment of material costs to customer selling prices.
The Renewable Energy and Conservation segment generated an operating margin of 9.1% in12.5% during the first nine months of the current year compared to 17.1%9.1% in the same period of the prior year. The decreaseimprovement was primarily due to lowerthe result of volume an unfavorable alignment of material costs to customer selling prices,and operational improvements from our 80/20 initiatives along with $2.4 million of reduction of workforce and facility cleanup costs incurred to exit the European solar racking business.
Our Industrial and Infrastructure Products segment generated an operating margin of 3.6% during the nine months ended September 30, 2017lower charges for these initiatives as compared to 4.9% during the nine months ended September 30, 2016. The decrease was largely an unfavorable alignment of material costs to customer selling prices, partially offset by a net reduction in costs incurred to exit the Company's U.S. bar grating product line .prior year.
Unallocated corporate expenses decreased $9.9increased $6.9 million from $25.9 million during the nine months ended September 30, 2016 to $16.0 million during the nine months ended September 30, 2017.2017 to $22.8 million during the nine months ended September 30, 2018. The lower expenseshigher expense in the current year was primarily due to the decreaseresult of a $5.8 million increase in performance-based compensation expenses.expenses along with $1.2 million increase in senior leadership transition costs as compared to the prior year.
The Company recorded other income of $0.1 million for the nine months ended September 30, 2018 and other expense of $0.8 million for the nine months ended September 30, 2017. OtherThe increase in other income from the prior year was primarily the result of foreign currency fluctuations.
Interest expense of $8.3decreased by $1.3 million to $9.3 million for the nine months ended September 30, 2016 was primarily comprised of the $8.8 million pre-tax loss on the sale of our European industrial manufacturing business, partially offset by net gains on foreign currency transactions.
Interest expense decreased by $0.4 million2018 compared to $10.6 million for the nine months ended September 30, 20172017. The decrease in expense was due to the offsetting effect of income earned on our interest-bearing cash balances for the current year compared to $11.0 million for the nine months ended September 30, 2016.prior year. During the nine months ended September 30, 20172018 and 2016,2017, no amounts were outstanding under our revolving credit facility.
We recognized a provision for income taxes of $21.1$15.6 million and $12.1$21.1 million, with effective tax rates of 35.8%23.5% and 22.7%35.8% for the nine months ended September 30, 2018, and 2017, respectively. The change in the effective tax rate year over year is primarily due to the reduction in U.S. federal statutory tax rate from 35% to 21%. The effective tax rate for the nine months ended September 30, 2018 exceeded the U.S. federal statutory rate of 21% due to state taxes and 2016, respectively.nondeductible permanent differences partially offset by favorable discrete items, including a $2.6 million tax benefit related to performance share unit vesting. The effective tax rate for the nine months ended September 30, 2017 exceeded the U.S. federal statutory rate of 35% due to state taxes and $2.2 million of pretax losses generated by the European residential solar racking business for which no tax benefit has been recorded as such benefit is not expected to be realizable, partially offset by net deductible permanent differences and favorable discrete items. The effective tax rate for the nine months ended September 30, 2016 was less than the U.S. federal statutory rate of 35% primarily due to a discrete tax benefit of $11.4 million resulting from the sale of our European industrial manufacturing business along with net deductible permanent differences, partially offset by state taxes.
Outlook
For the remainder of 2017,or 2018, we continue to expect generally favorable market conditions for eachbe optimistic about innovative products driving organic growth across all of our segments, and increased bidding activity and continued growth of backlogswe are confident in both our Infrastructure business and Renewable Energy & Conservation segment. While we see reason for some caution in certain of ourthe end markets wethese products are optimistic about the final quarter of the year. We are adjusting our full year guidance of revenues in the $960 million to $965 million range. We are narrowing our full-year earnings guidance within our previous guidance range and expect earnings per share ("EPS") to be between $1.40 and $1.47 per diluted share, comparing favorably to $1.05 in 2016.targeting.
Our prioritiesgoals for the remainderfourth quarter are to drive sustainable growth through the acceleration of 2017 will be to accelerate new product development initiatives, to work with our customers to manage cost volatility, to implement 80/20 simplification projects, and to seek value-added acquisitions in attractive end markets, andmarkets.
For the full year, we expect to continue to advancedeliver on our objective to make more money at a higher rate of return with a more efficient use of capital, and create long-term value creation for our shareholders.
We expect 2018 consolidated revenues to exceed $1 billion, however, we are lowering our revenues expectations from 2-4% growth to 1-2% growth, considering activity levels across the Company’s end markets. At the same time, we are narrowing our full-year 2018 earnings guidance to the high end of the previous range as a result of demand for higher-margin innovative products and 80/20 projects.simplification initiatives. GAAP EPS for full-year is now expected to be in the range of $1.82 to $1.87, compared with $1.95 in 2017, which included the aforementioned one-time $0.39 per share benefit from tax reform.
For the fourth quarter of 2017,2018, we expect revenuesrevenue in the range of $231$239 million to $236$249 million andas a result of growing demand from innovative products. GAAP EPS for the fourth quarter 2018 is expected to be between $0.23$0.26 and $0.30$0.31 per diluted share, compared to a loss of $0.24 per share in the fourth quarter of 2016.share.
Liquidity and Capital Resources
General
Our principal capital requirements are to fund our operations' working capital and capital improvements and to fund acquisitions. We will continue to invest in growth opportunities as appropriate while focusing on working capital efficiency and profit improvement opportunities to minimize the cash invested to operate our business. We have successfully generated positiveDuring the three months ended September 30, 2018, we invested cash flowsin our working capital to meet the upcoming higher seasonal demands from operating activities which have funded our capital requirements and recent acquisitionscustomers as noted below in “Cash Flows.”
On December 9, 2015, we entered into the Company's Fifth Amended and Restated Credit Agreement (the "Senior Credit Agreement") which includes a 5-year, $300 million revolving credit facility and provides the Company with access to capital and improved financial flexibility. As of September 30, 2017,2018, our liquidity of $496.8$535.9 million consisted of $208.0$245.4 million of cash plus $288.8$290.5 million of availability under our revolving credit facility. We believe this liquidity, together with the cash expected to be generated from operations, should be sufficient to fund working capital needs and simplification initiatives that likely will need cash to fund transitions and future growth. We continue to search for strategic acquisitions and larger acquisitions may require additional borrowings and/or the issuance of our common stock.
Our Senior Credit Agreement provides the Company with liquidity and capital resources for use by our U.S. operations. Historically, our foreign operations have generated cash flow from operations sufficient to invest in working capital and fund their capital improvements. As of September 30, 2017,2018, our foreign subsidiaries held $25.2$31.4 million of cash in U.S. dollars. We believeAs a result of the Tax Cuts and Jobs Act ("Tax Reform Act") signed into law on December 22, 2017, the majority of cash held by our foreign subsidiaries provides our foreign operations withas of December 22, 2017, is expected to be repatriated to the necessary liquidity to meet future obligations and allows the foreign business units to reinvest in their operations. These cash resources could eventually be used to grow our business internationally. Repatriation of this cash for domestic purposes could result in significant tax consequences.U.S.
Over the long-term, we expect that future obligations includingand strategic business opportunities such as acquisitions, may be financed through a number of sources, including internally available cash, availability under our revolving credit facility, new
debt financing, the issuance of equity securities, or any combination of the above. Any potential acquisitions are evaluated based on our acquisition strategy, which includes the enhancement of our existing products, operations, or capabilities, expanding our access to new products, markets, and customers, and the improvement of shareholder value. The recent acquisitionsOur 2018 acquisition of Nexus CorporationSolarBOS and our 2017 acquisition of Package Concierge on October 11, 2016 and February 22, 2017, respectively, were financed throughfunded by cash on hand.
These expectations are forward-looking statements based upon currently available information and may change if conditions in the credit andor equity markets deteriorate or other circumstances change. To the extent that operating cash flows are lower than current levels, or sources of financing are not available or not available at acceptable terms, our future liquidity may be adversely affected.
Cash Flows
The following table sets forth selected cash flow data for the nine months ended September 30, (in thousands):
| | | 2017 | | 2016 | 2018 | | 2017 |
Cash provided by: | | | | |
Cash (used in) provided by: | | | | |
Operating activities of continuing operations | $ | 48,831 |
| | $ | 102,186 |
| $ | 38,210 |
| | $ | 48,831 |
|
Investing activities of continuing operations | (10,711 | ) | | (297 | ) | (8,861 | ) | | (10,711 | ) |
Financing activities of continuing operations | (1,733 | ) | | 1,260 |
| (5,606 | ) | | (1,733 | ) |
Effect of exchange rate changes | 1,468 |
| | 1,055 |
| (610 | ) | | 1,468 |
|
Net increase in cash and cash equivalents | $ | 37,855 |
| | $ | 104,204 |
| $ | 23,133 |
| | $ | 37,855 |
|
During the nine months ended September 30, 2017, we generated2018, net cash generated from operating activities totaling $38.2 million was primarily driven by net income of $50.7 million and $24.5 million from non-cash charges including depreciation,
amortization, stock compensation, intangible asset impairment charges and exit activities, partially offset by an investment in working capital and other net assets of $37.0 million. Net cash provided by operating activities for the nine months ended September 30, 2017 totaled $48.8 million, primarily composed of net income of $37.8 million plus $20.5$20.7 million from non-cash charges including depreciation, amortization, stock compensation, and exit activities, partially offset by an investment in working capital and other net assets of $9.5 million. Net cash provided by operating activities for the nine months ended September 30, 2016 totaled $102.2 million, primarily composed of net income from continuing operations of $41.4 million plus non-cash charges including depreciation, amortization, stock compensation, loss on sale of a business and non-cash exit activity costs of $35.7 million along with a decease in working capital of $25.1$9.7 million.
During the nine months ended September 30, 2017,2018, the cash invested in working capital and other net assets of $9.5$37.0 million included a $42.3$30.5 million and $1.8a $16.3 million increase in accounts receivable and other current assetsinventories, respectively, as well as a $0.5 million decrease in accrued expenses and other assets, respectively,non-current liabilities, partially offset by a $25.1 and $7.5$9.2 million increase in accounts payable and accrued expenses and other non-current liabilities, respectively, as well as a $2.0$1.0 million decrease in inventory.other current assets and other assets. The increase in accounts receivable is a result of continued increaserelate to seasonal increases in seasonal manufacturingdemand activity. The increase in total other current assets isInventory increases are primarily due to the timing of prepaid expenses.seasonality as well as continued material cost increases. Accounts payable increased due to the seasonal increase in manufacturing activity as well as the timing of quarter end vendor payments.The increasedemand activity. The decrease in accrued expenses and other non-current liabilities was largely due to payments related to the Company's performance based incentive plans, largely offset by costs relatedcorrelated to the timing of customer contracts offset by a decrease in liabilities for equity based incentive plans as well aspayments. Total other current assets and other assets primarily decreased due to the timing of interest payments . The decreaseprepaid expenses.
Net cash used in inventory is due toinvesting activities for the Company's continued 80/20 simplification process efforts.
nine months ended September 30, 2018 of $8.9 million consisted of capital expenditures of $6.8 million and net cash paid for the acquisition of SolarBOS of $5.2 million partially offset by net proceeds of $3.2 million from the sale and lease-back of property and equipment. Net cash used in investing activities for the nine months ended September 30, 2017 of $10.7 million primarily consisted of $18.3 million of net cash paid for the acquisition of Package Concierge, capital expenditures of $5.1 million and a payment of $0.2 million related to the final purchase adjustment for the acquisition of Nexus. These payments were partially offset by net proceeds of $12.9 million from the sale of property and equipment.
Net cash used in investingfinancing activities for the nine months ended September 30, 20162018 of $0.3$5.6 million wasconsisted of the net resultpurchase of capital expenditurestreasury stock of $7.6$6.5 million due to a large number of performance awards that vested in June 2018 and $2.3payment of long-term debt borrowings of $0.4 million related to the final purchase adjustment for the acquisition of RBI, largelypartially offset by netthe proceeds of $8.3 millionreceived from the saleissuance of our European industrial manufacturing business.
common stock of $1.3 million due to stock option exercises. Net cash used in financing activities for the nine months ended September 30, 2017 of $1.7 million consisted of the purchase of treasury stock of $2.0 million and payment of long-term debt borrowings of $0.4 million partially offset by the proceeds received from the issuance of common stock of $0.7 million. Net cash provided by financing activities for the nine months ended September 30, 2016 of $1.3 million consisted of the proceeds received from the issuance of commondue to stock of $2.9 million offset by the purchase of treasury stock of $1.2 million and payment of long-term debt borrowings of $0.4 million.option exercises.
Senior Credit Agreement and Senior Subordinated Notes
Our Senior Credit Agreement is committed through December 9, 2020. Borrowings under the Senior Credit Agreement are secured by the trade receivables, inventory, personal property, equipment, and certain real property of the Company’s significant domestic subsidiaries. The Senior Credit Agreement provides for a revolving credit facility and letters of credit in an aggregate amount of $300 million. The Company can request additional financing from the banks to increase the revolving credit facility to $500 million or to provide a term loan of up to $200 million subject to conditions set forth in the Senior Credit Agreement. The Senior Credit Agreement contains three financial covenants. As of September 30, 2017,2018, the Company is in compliance with all three covenants.
Interest rates on the revolving credit facility are based on the LIBOR plus an additional margin that ranges from 1.25% to 2.25% for LIBOR loans based on the Total Leverage Ratio. In addition, the revolving credit facility is subject to an undrawn commitment fee ranging between 0.20% and 0.30% based on the Total Leverage Ratio and the daily average undrawn balance.
As of September 30, 2017,2018, we had $288.8$290.5 million of availability under the Senior Credit Agreement net of outstanding letters of credit of $11.2$9.5 million. No amounts were outstanding under our revolving credit facility as of either September 30, 20172018 or December 31, 2016.2017.
In addition to our Senior Credit Agreement, the Company issued $210.0 million of 6.25% Notes in January 2013 which are due February 1, 2021. Provisions of the 6.25% Notes include, without limitation, restrictions on indebtedness, liens, and distributions from restricted subsidiaries, asset sales, affiliate transactions, dividends, and other restricted payments. Dividend payments are subject to annual limits and interest is paid semiannually on February 1 and August 1 of each year.
Off Balance Sheet Financing Arrangements
We have no off-balance sheet arrangements, other than operating leases, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
Contractual Obligations
Our contractual obligations have not changed materially from the disclosures included in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2017.
Critical Accounting PoliciesEstimates
In the current year, there have been no changes to our critical accounting policies and estimates from those disclosed in the consolidated financial statements and accompanying notes contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.2017, other updates to our revenue recognition policy due to the adoption of ASU 2014-09 Revenue from Contracts with Customers (Topic 606) in the first quarter of 2018, which are discussed in Note 4 to the Company's consolidated financial statements in Part I, Item I of this Form 10-Q.
Recent Accounting Pronouncements
See Note 2 to the Company's consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information on recent accounting pronouncements.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
In the ordinary course of business, the Company is exposed to various market risk factors, including changes in general economic conditions, competition, foreign exchange rates, and raw materials pricing and availability. In addition, the Company is exposed to other financial market risks, primarily related to its long-term debt and foreign operations. There have been no material changesRefer to Item 7A in the Company's Form 10-K for the year ended December 31, 2017 for more information about the Company's exposure to market risk since December 31, 2016.
Item 4. Controls and Procedures
| |
(a) | Evaluation of Disclosure Controls and Procedures |
The Company maintains a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). The Company’s Chief Executive Officer and the Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls as of the end of the period covered in this report. Based upon that evaluation and the definition of disclosure controls and procedures contained in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that as of the end of such period the Company’s disclosure controls and procedures were effective.
| |
(b) | Changes in Internal Control over Financial Reporting |
There have been no changes in the Company’s internal control over financial reporting (as defined by Rule 13a-15(f) or 15d-15(f)) that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the risks discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2017. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operation, cash flows, and future prospects. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may materially adversely impact our business, financial condition, or operating results. We are providing the following information regarding changes that have occurred to the previously disclosed risk factors in our Form 10-K. Except for such additional information, we believe there have been no material changes from the risk factors previously disclosed in our Form 10-K.
Recently imposed tariffs and potential future tariffs may result in increased costs and could adversely affect our results of operations
On June 1, 2018, the United States imposed Section 232 tariffs on certain steel (25%) and aluminum (10%) products imported into the U.S. These tariffs have created volatility in the market and have increased the costs of these inputs. Increased costs for imported steel and aluminum products have lead domestic sellers to respond with market-based increases to prices for such inputs as well. The new tariffs, along with any additional tariffs or trade restrictions that may be implemented by the U.S. or other countries, could result in further increased costs, shifting in competitive positions and a decreased available supply of steel and aluminum as well as additional imported components and inputs. We may not be able to pass price increases on to our customers and may not be able to secure adequate alternative sources of steel and aluminum on a timely basis. While retaliatory tariffs imposed by other countries on U.S. goods have not yet had a significant impact, we cannot predict further developments. The tariffs could adversely affect the operating profits for certain of our businesses and customer demand for certain of our products which could have a material adverse effect on our consolidated results of operations, financial position and cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
(a) Exhibits
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| | |
a. | | Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes–Oxley Act of 2002. |
b. | | Certification of Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes–Oxley Act of 2002. |
c. | | Certification of the President and Chief Executive Officer pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002. |
d. | | Certification of the Senior Vice President and Chief Financial Officer pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002. |
e. | 101.INS | XBRL Instance Document * |
f. | 101.SCH | XBRL Taxonomy Extension Schema Document * |
g. | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document * |
h. | 101.LAB | XBRL Taxonomy Extension Label Linkbase Document * |
i. | 101.PRA | XBRL Taxonomy Extension Presentation Linkbase Document * |
j. | 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document * |
|
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* | Submitted electronically with this Quarterly Report on Form 10-Q. |
SIGNATURES
Pursuant to 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.
GIBRALTAR INDUSTRIES, INC.
(Registrant)
|
|
/s/ Frank G. Heard |
Frank G. Heard |
President and Chief Executive Officer |
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/s/ Timothy F. Murphy |
Timothy F. Murphy |
Senior Vice President and Chief Financial Officer |
Date: November 3, 20171, 2018