UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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| |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20182019
OR
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| |
¨
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 0-22462
GIBRALTAR INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
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| | |
Delaware | | 16-1445150 |
(State or incorporation ) | | (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
Securities registered pursuant to Section 12(b) of the Act: |
| | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, $0.01 par value per share | ROCK | NASDAQ Stock Market |
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 check 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, a smaller reporting company, or an emerging growth company. See definitiondefinitions of “large accelerated filer,” “accelerated filer,” “smaller reporting 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). Yes ¨ No x
As of May 3, 2018,April 30, 2019, the number of common shares outstanding was: 31,760,071.32,202,885.
GIBRALTAR INDUSTRIES, INC.
INDEX
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| PAGE NUMBER |
PART I. | | | |
Item 1. | | | |
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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 March 31, | Three Months Ended March 31, |
| 2018 | | 2017 | 2019 | | 2018 |
Net Sales | $ | 215,337 |
| | $ | 206,605 |
| $ | 227,417 |
| | $ | 215,337 |
|
Cost of sales | 167,019 |
| | 157,350 |
| 183,517 |
| | 167,019 |
|
Gross profit | 48,318 |
| | 49,255 |
| 43,900 |
| | 48,318 |
|
Selling, general, and administrative expense | 34,475 |
| | 39,576 |
| 33,334 |
| | 34,475 |
|
Income from operations | 13,843 |
| | 9,679 |
| 10,566 |
| | 13,843 |
|
Interest expense | 3,269 |
| | 3,576 |
| 2,061 |
| | 3,269 |
|
Other (income) expense | (585 | ) | | 54 |
| |
Other expense (income) | | 589 |
| | (585 | ) |
Income before taxes | 11,159 |
| | 6,049 |
| 7,916 |
| | 11,159 |
|
Provision for income taxes | 2,807 |
| | 2,053 |
| 1,571 |
| | 2,807 |
|
Net income | $ | 8,352 |
| | $ | 3,996 |
| $ | 6,345 |
| | $ | 8,352 |
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| | | | |
Net earnings per share: | | | | | | |
Basic | $ | 0.26 |
| | $ | 0.13 |
| $ | 0.20 |
| | $ | 0.26 |
|
Diluted | $ | 0.26 |
| | $ | 0.12 |
| $ | 0.19 |
| | $ | 0.26 |
|
Weighted average shares outstanding: | | | | | | |
Basic | 31,786 |
| | 31,688 |
| 32,279 |
| | 31,786 |
|
Diluted | 32,444 |
| | 32,254 |
| 32,617 |
| | 32,444 |
|
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
| | | Three Months Ended March 31, | Three Months Ended March 31, |
| 2018 | | 2017 | 2019 | | 2018 |
Net income | $ | 8,352 |
| | $ | 3,996 |
| $ | 6,345 |
| | $ | 8,352 |
|
Other comprehensive income (loss): | | | | | | |
Foreign currency translation adjustment | 110 |
| | 679 |
| 842 |
| | 110 |
|
Cumulative effect of accounting change (see Note 2) | (350 | ) | | — |
| |
Adjustment to retirement benefit liability, net of tax | (5 | ) | | (3 | ) | |
Adjustment to post employment health care benefit liability, net of tax | 32 |
| | 29 |
| |
Cumulative effect of accounting change | | — |
| | (350 | ) |
Minimum pension and post retirement benefit plan adjustments | | 12 |
| | 27 |
|
Other comprehensive income (loss) | (213 | ) | | 705 |
| 854 |
| | (213 | ) |
Total comprehensive income | $ | 8,139 |
| | $ | 4,701 |
| $ | 7,199 |
| | $ | 8,139 |
|
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
| | | March 31, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
| (unaudited) | | | (unaudited) | | |
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | $ | 200,741 |
| | $ | 222,280 |
| $ | 43,509 |
| | $ | 297,006 |
|
Accounts receivable, net | 145,182 |
| | 145,385 |
| 167,201 |
| | 140,283 |
|
Inventories | 90,236 |
| | 86,372 |
| 98,594 |
| | 98,913 |
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Other current assets | 6,712 |
| | 8,727 |
| 8,282 |
| | 8,351 |
|
Total current assets | 442,871 |
| | 462,764 |
| 317,586 |
| | 544,553 |
|
Property, plant, and equipment, net | 93,671 |
| | 97,098 |
| 95,856 |
| | 95,830 |
|
Operating lease assets | | 31,823 |
| | — |
|
Goodwill | 321,772 |
| | 321,074 |
| 323,573 |
| | 323,671 |
|
Acquired intangibles | 104,059 |
| | 105,768 |
| 94,520 |
| | 96,375 |
|
Other assets | 4,770 |
| | 4,681 |
| 2,900 |
| | 1,216 |
|
| $ | 967,143 |
| | $ | 991,385 |
| $ | 866,258 |
| | $ | 1,061,645 |
|
Liabilities and Shareholders’ Equity | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | $ | 80,691 |
| | $ | 82,387 |
| $ | 84,462 |
| | $ | 79,136 |
|
Accrued expenses | 53,254 |
| | 75,467 |
| 65,020 |
| | 87,074 |
|
Billings in excess of cost | 11,572 |
| | 12,779 |
| 18,259 |
| | 17,857 |
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Current maturities of long-term debt | 400 |
| | 400 |
| 400 |
| | 208,805 |
|
Total current liabilities | 145,917 |
| | 171,033 |
| 168,141 |
| | 392,872 |
|
Long-term debt | 209,817 |
| | 209,621 |
| 1,600 |
| | 1,600 |
|
Deferred income taxes | 31,339 |
| | 31,237 |
| 36,916 |
| | 36,530 |
|
Non-current operating lease liabilities | | 22,751 |
| | — |
|
Other non-current liabilities | 38,115 |
| | 47,775 |
| 31,017 |
| | 33,950 |
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Shareholders’ equity: | | | | | | |
Preferred stock, $0.01 par value; authorized 10,000 shares; none outstanding | — |
| | — |
| — |
| | — |
|
Common stock, $0.01 par value; authorized 50,000 shares; 32,398 shares and 32,332 shares issued and outstanding in 2018 and 2017 | 324 |
| | 323 |
| |
Common stock, $0.01 par value; authorized 50,000 shares; 33,026 shares and 32,887 shares issued and outstanding in 2019 and 2018 | | 330 |
| | 329 |
|
Additional paid-in capital | 274,279 |
| | 271,957 |
| 285,034 |
| | 282,525 |
|
Retained earnings | 283,538 |
| | 274,562 |
| 346,922 |
| | 338,995 |
|
Accumulated other comprehensive loss | (4,579 | ) | | (4,366 | ) | (6,380 | ) | | (7,234 | ) |
Cost of 639 and 615 common shares held in treasury in 2018 and 2017 | (11,607 | ) | | (10,757 | ) | |
Cost of 855 and 796 common shares held in treasury in 2019 and 2018 | | (20,073 | ) | | (17,922 | ) |
Total shareholders’ equity | 541,955 |
| | 531,719 |
| 605,833 |
| | 596,693 |
|
| $ | 967,143 |
| | $ | 991,385 |
| $ | 866,258 |
| | $ | 1,061,645 |
|
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)(unaudited) | | | Three Months Ended March 31, | Three Months Ended March 31, |
| 2018 | | 2017 | 2019 | | 2018 |
Cash Flows from Operating Activities | | | | | | |
Net income | $ | 8,352 |
| | $ | 3,996 |
| $ | 6,345 |
| | $ | 8,352 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Adjustments to reconcile net income to net cash used in operating activities: | | | | |
Depreciation and amortization | 5,189 |
| | 5,480 |
| 4,941 |
| | 5,189 |
|
Stock compensation expense | 2,097 |
| | 1,635 |
| 2,371 |
| | 2,097 |
|
Net (gain) loss on sale of assets | (7 | ) | | 12 |
| |
Exit activity recoveries, non-cash | (727 | ) | | (917 | ) | — |
| | (727 | ) |
Provision for deferred income taxes | | 393 |
| | — |
|
Other, net | 360 |
| | 240 |
| 2,456 |
| | 353 |
|
Changes in operating assets and liabilities, excluding the effects of acquisitions: | | | | | | |
Accounts receivable | 4,947 |
| | (4,462 | ) | (27,623 | ) | | 4,947 |
|
Inventories | (8,907 | ) | | 2,338 |
| 35 |
| | (8,907 | ) |
Other current assets and other assets | 1,498 |
| | 410 |
| 165 |
| | 1,498 |
|
Accounts payable | (1,694 | ) | | 5,672 |
| 5,332 |
| | (1,694 | ) |
Accrued expenses and other non-current liabilities | (33,314 | ) | | (12,061 | ) | (31,903 | ) | | (33,314 | ) |
Net cash (used in) provided by operating activities of continuing operations | (22,206 | ) | | 2,343 |
| |
Net cash used in operating activities | | (37,488 | ) | | (22,206 | ) |
Cash Flows from Investing Activities | | | | | | |
Cash paid for acquisitions, net of cash acquired | — |
| | (18,561 | ) | |
Acquisitions, net of cash acquired | | (264 | ) | | — |
|
Net proceeds from sale of property and equipment | 2,823 |
| | 9,233 |
| 22 |
| | 2,823 |
|
Purchases of property, plant, and equipment | (1,033 | ) | | (1,453 | ) | (3,132 | ) | | (1,033 | ) |
Net cash provided by (used in) investing activities | 1,790 |
| | (10,781 | ) | |
Net cash (used in) provided by investing activities | | (3,374 | ) | | 1,790 |
|
Cash Flows from Financing Activities | | | | | | |
Long-term debt payments | | (210,000 | ) | | — |
|
Payment of debt issuance costs | | (1,235 | ) | | — |
|
Purchase of treasury stock at market prices | (850 | ) | | (922 | ) | (2,151 | ) | | (850 | ) |
Net proceeds from issuance of common stock | 226 |
| | 11 |
| 139 |
| | 226 |
|
Net cash used in financing activities | (624 | ) | | (911 | ) | (213,247 | ) | | (624 | ) |
Effect of exchange rate changes on cash | (499 | ) | | 73 |
| 612 |
| | (499 | ) |
Net decrease in cash and cash equivalents | (21,539 | ) | | (9,276 | ) | (253,497 | ) | | (21,539 | ) |
Cash and cash equivalents at beginning of year | 222,280 |
| | 170,177 |
| 297,006 |
| | 222,280 |
|
Cash and cash equivalents at end of period | $ | 200,741 |
| | $ | 160,901 |
| $ | 43,509 |
| | $ | 200,741 |
|
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, 2018 | 32,887 |
| | $ | 329 |
| | $ | 282,525 |
| | $ | 338,995 |
| | $ | (7,234 | ) | | 796 |
| | $ | (17,922 | ) | | $ | 596,693 |
|
Net income | — |
| | — |
| | — |
| | 6,345 |
| | — |
| | — |
| | — |
| | 6,345 |
|
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | 842 |
| | — |
| | — |
| | 842 |
|
Minimum pension and post retirement benefit plan adjustments, net of taxes of $4 | — |
| | — |
| | — |
| | — |
| | 12 |
| | — |
| | — |
| | 12 |
|
Stock compensation expense | — |
| | — |
| | 2,371 |
| | — |
| | — |
| | — |
| | — |
| | 2,371 |
|
Cumulative effect of accounting change (see Note 2) | — |
| | — |
| | — |
| | 1,582 |
| | — |
| | — |
| | — |
| | 1,582 |
|
Stock options exercised | 12 |
| | — |
| | 139 |
| | — |
| | — |
| | — |
| | — |
| | 139 |
|
Net settlement of restricted stock units | 127 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | 59 |
| | (2,151 | ) | | (2,151 | ) |
Balance at March 31, 2019 | 33,026 |
| | $ | 330 |
| | $ | 285,034 |
| | $ | 346,922 |
| | $ | (6,380 | ) | | 855 |
| | $ | (20,073 | ) | | $ | 605,833 |
|
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, 2017 | 32,332 |
| | $ | 323 |
| | $ | 271,957 |
| | $ | 274,562 |
| | $ | (4,366 | ) | | 615 |
| | $ | (10,757 | ) | | $ | 531,719 |
| 32,332 |
| | $ | 323 |
| | $ | 271,957 |
| | $ | 274,562 |
| | $ | (4,366 | ) | | 615 |
| | $ | (10,757 | ) | | $ | 531,719 |
|
Net income | — |
| | — |
| | — |
| | 8,352 |
| | — |
| | — |
| | — |
| | 8,352 |
| — |
| | — |
| | — |
| | 8,352 |
| | — |
| | — |
| | — |
| | 8,352 |
|
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | 110 |
| | — |
| | — |
| | 110 |
| — |
| | — |
| | — |
| | — |
| | 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 |
| |
Minimum pension and post retirement benefit plan adjustments, net of taxes of $10 | | — |
| | — |
| | — |
| | — |
| | 27 |
| | — |
| | — |
| | 27 |
|
Stock compensation expense | — |
| | — |
| | 2,097 |
| | — |
| | — |
| | — |
| | — |
| | 2,097 |
| — |
| | — |
| | 2,097 |
| | — |
| | — |
| | — |
| | — |
| | 2,097 |
|
Cumulative effect of accounting changes (see Note 2) | — |
| | — |
| | — |
| | 624 |
| | (350 | ) | | — |
| | — |
| | 274 |
| |
Cumulative effect of accounting change | | — |
| | — |
| | — |
| | 624 |
| | (350 | ) | | — |
| | — |
| | 274 |
|
Stock options exercised | 13 |
| | — |
| | 226 |
| | — |
| | — |
| | — |
| | — |
| | 226 |
| 13 |
| | — |
| | 226 |
| | — |
| | — |
| | — |
| | — |
| | 226 |
|
Net settlement of restricted stock units | 53 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | 24 |
| | (850 | ) | | (850 | ) | 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 |
| 32,398 |
| | $ | 324 |
| | $ | 274,279 |
| | $ | 283,538 |
| | $ | (4,579 | ) | | 639 |
| | $ | (11,607 | ) | | $ | 541,955 |
|
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| |
(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 for any interim period are not necessarily indicative of the results expected for the full year. 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, 2017.2018.
The balance sheet at December 31, 20172018 has been 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.
| |
(2) | RECENT ACCOUNTING PRONOUNCEMENTS |
Recent Accounting Pronouncements 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 has adopted this standard using the modified 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 matters 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 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. | | The Company has adopted this standard and it did not have any impact on the Company's consolidated 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 it 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 recorded an adjustment of $350,000 from accumulated other comprehensive income to retained earnings in the consolidated statement of shareholders' equity as of the beginning of the January 1, 2018, and will record any subsequent period adjustments, if changes to provisional amounts result in additional amounts stranded in accumulated other comprehensive income.
Date 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 evaluating the impact ofhas adopted this standard onusing the modified retrospective approach and elected the transition method to initially apply the new leases standard to all leases that exist at January 1, 2019. Under this transition method, the Company initially applied Topic 842 as of January 1, 2019, and recognized a cumulative-effect adjustment which increased the Company's beginning retained earnings as of January 1, 2019 by approximately $1.6 million. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new leases standard, which among other things, permitted the Company to carry forward its historical lease classification for leases in place prior to January 1, 2019. The comparative period information has not been restated and continues to be reported and presented under the accounting standards in effect for that period. The standard did not materially impact the Company's consolidated financial statementsnet earnings and related disclosures, including thehad no impact on the Company's current lease portfolio from both a lessor and lessee perspective. The adoption of this standard will primarily result in an increase in the assets and liabilities on the Company's consolidated balance sheet and related disclosures.cash flows.
Planned dateDate of adoption: Q1 2019
|
Recent Accounting Pronouncements Not Yet Adopted
|
| | | | |
Standard | | Description | | Financial Statement Effect or Other Significant Matters |
ASU No. 2016-13 Financial Instruments - Credit Losses (Topic 326) | | The objective of this standard is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit, including trade receivables, held by an entity at each reporting date. The amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. 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. An entity will apply the amendments in this update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective, that is, a modified-retrospective approach.
| | The Company is currently evaluating the requirements of this standard. It does not expect it to have a material impact on the Company's financial statements.
Date of adoption: Q1 2020 |
| |
(3) | ACCOUNTS RECEIVABLE, NET |
Accounts receivable consists of the following (in thousands):
| | | March 31, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
Trade accounts receivable | $ | 129,549 |
| | $ | 140,209 |
| $ | 149,159 |
| | $ | 124,609 |
|
Costs in excess of billings | 22,214 |
| | 11,610 |
| 25,519 |
| | 22,634 |
|
Total accounts receivables | 151,763 |
| | 151,819 |
| 174,678 |
| | 147,243 |
|
Less allowance for doubtful accounts | (6,581 | ) | | (6,434 | ) | (7,477 | ) | | (6,960 | ) |
Accounts receivable | $ | 145,182 |
| | $ | 145,385 |
| $ | 167,201 |
| | $ | 140,283 |
|
Refer to Note 4 of the Company's consolidated financial statements included in Item 1 of 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 10Q10-Q 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 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 because the performance obligation is satisfied on the customer's premise, and the customer controls any work in process arising from the Company's performance. For the contracts of products that have no alternative use and the Company has enforceable right to payment, the Company identifies these products as ones 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 uses the expected cost plus a margin approach to estimate the standalone selling price of the single performance obligation.
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 based on the estimated standalone selling price using the expected cost plus a margin approach. 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 is proportionate to the Company's progress in satisfying the performance obligation. Under the cost-to-cost measure of progress, the extent of progress towards 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, in order to estimate the standalone selling price of the performance obligation, the Company uses the adjusted market assessment approach, which is to evaluate the market in which the performance obligation 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 March 31, 2018,2019, 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.
Costs in excess of billings
Costs in excess of billings includes 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 in a net position on a contract-by-contract basis at the end of each reporting period.
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 in a net position 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 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 March 31, 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 incremental 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 contractContract assets and contract liabilities consist of costs in excess of billings andbillings. Contract liabilities consist of billings in excess of cost respectively. and unearned revenue. Unearned revenue relates to payments received in advance of performance under the contract and is recognized when the Company performs under the contract. Unearned revenue is presented within accrued expenses in the Company's consolidated balance sheet.
The following table presents the beginning and ending balances and significant changes in the costs in excess of billings and billings in excess of cost balance during the three months ended March 31, 2018:2019 and 2018, respectively (in thousands):
|
| | | | | | | |
| 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 | (11,647 | ) | | — |
|
Billings in excess of cost to revenue | — |
| | 8,340 |
|
Costs in excess of billings recognized, net of reclassification to receivables | 17,329 |
| | — |
|
Net billings in advance and cash payments not recognized as revenue | — |
| | (7,133 | ) |
Ending balance, March 31, 2018 | $ | 22,214 |
| | $ | (11,572 | ) |
|
| | | |
(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 to 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 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 when products were shipped, the Company now recognizes revenue as the Company satisfies its performance over time in accordance with ASC 606.
|
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
Costs in excess of billings | $ | 25,519 |
| | $ | 22,634 |
|
Billings in excess of cost | (18,259 | ) | | (17,857 | ) |
Unearned revenue | (12,917 | ) | | (12,028 | ) |
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 three months ended March 31, 2018. |
In accordance with ASC 606, the disclosure of the impact of adoption on the Company's consolidated statement of operations and balance sheet for the period ended March 31, 2018 is as follows (in thousands):
|
| | | | | | | | | | | |
Consolidated Statement of Operations |
| Three Months Ended March 31, 2018 |
| As Reported | | Without Adoption of ASC 606 | | Effect of Change Higher (Lower) |
| | | | | |
Net sales | $ | 215,337 |
| | $ | 213,369 |
| | $ | 1,968 |
|
Cost of sales | 167,019 |
| | 165,580 |
| | 1,439 |
|
Gross profit | 48,318 |
| | 47,789 |
| | 529 |
|
Provision for income taxes | 2,807 |
| | 2,658 |
| | 149 |
|
Net income | $ | 8,352 |
| | $ | 7,972 |
| | $ | 380 |
|
|
| | | | | | | | | | | |
Consolidated Balance Sheet |
| March 31, 2018 |
| As Reported | | Without Adoption of ASC 606 | | Effect of Change Higher (Lower) |
Assets | | | | | |
Accounts receivable, net | $ | 145,182 |
| | $ | 138,183 |
| | $ | 6,999 |
|
Inventories | 90,236 |
| | 96,371 |
| | (6,135 | ) |
Total current assets | 442,871 |
| | 442,007 |
| | 864 |
|
Total assets | 967,143 |
| | 966,279 |
| | 864 |
|
| | | | | |
Liabilities | | | | | |
Accrued expenses | 53,254 |
| | 53,044 |
| | 210 |
|
Total current liabilities | 145,917 |
| | 145,707 |
| | 210 |
|
| | | | | |
Shareholders' equity | | | | | |
Retained earnings | 283,538 |
| | 282,884 |
| | 654 |
|
Total shareholders' equity | 541,955 |
| | 541,301 |
| | 654 |
|
Total liabilities and shareholders' equity | $ | 967,143 |
| | $ | 966,279 |
| | $ | 864 |
|
|
| | | | | | | |
| Three Months Ended March 31, 2019 | | Three Months Ended March 31, 2018 |
Revenue recognized in the period from: | | | |
Amounts included in billings in excess of cost at the beginning of the period | $ | 9,697 |
| | $ | 8,340 |
|
Amounts included in unearned revenue at the beginning of the period | $ | 4,661 |
| | $ | 1,836 |
|
Inventories consist of the following (in thousands):
| | | March 31, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
Raw material | $ | 48,225 |
| | $ | 42,661 |
| $ | 58,376 |
| | $ | 57,845 |
|
Work-in-process | 7,481 |
| | 10,598 |
| 7,626 |
| | 6,930 |
|
Finished goods | 34,530 |
| | 33,113 |
| 32,592 |
| | 34,138 |
|
Total inventories | $ | 90,236 |
| | $ | 86,372 |
| $ | 98,594 |
| | $ | 98,913 |
|
On February 22, 2017,August 21, 2018, the Company acquired all of the outstanding stock of Package Concierge. Package ConciergeSolarBOS. SolarBOS is a leading provider of multifamily electronic package delivery lockerelectrical balance of systems inproducts, which consists of electrical components such as wiring, switches, and combiner boxes that support photovoltaic systems, for the United States.
U.S. solar renewable energy market. The Company expects the acquisition of Package Concierge is expectedSolarBOS to enable the Company to expandprovide complementary product offerings to its existing customers and strengthen its position in the fast-growing package delivery solutionssolar renewable energy market. The results of Package ConciergeSolarBOS have been included in the Company's consolidated financial results since the date of acquisition (within the Company's Residential ProductsRenewable Energy and Conservation segment). The final aggregate purchase consideration for the acquisition of Package ConciergeSolarBOS was $18.9 million.
$6.4 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 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 $16.8$2.9 million, all of 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 productssolar renewable energy 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 |
| $ | 915 |
|
Working capital | (1,998 | ) | 680 |
|
Property, plant and equipment | 55 |
| 483 |
|
Acquired intangible assets | 3,600 |
| 1,450 |
|
Other assets | 8 |
| 13 |
|
Deferred income taxes | (128 | ) | |
Other liabilities | | (51 | ) |
Goodwill | 16,790 |
| 2,879 |
|
Fair value of purchase consideration | $ | 18,917 |
| $ | 6,369 |
|
The intangible assets acquired in this acquisition consisted of the following (in thousands):
| | | Fair Value | | Estimated Useful Life | Fair Value | | Estimated Useful Life |
Trademarks | $ | 600 |
| | Indefinite | $ | 300 |
| | 3 years |
Technology | 1,300 |
| | 10 years | 450 |
| | 9 years |
Customer relationships | 1,700 |
| | 7 years | 700 |
| | 9 years |
Total | $ | 3,600 |
| | $ | 1,450 |
| |
The acquisition of Package Concierge was 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. Acquisition related-costs were $102 thousand forDuring the three monthsmonth periods ended March 31, 2017.2019 and 2018, the Company did not incur any acquisition-related costs.
| |
(7) | GOODWILL AND RELATED INTANGIBLE ASSETS |
Goodwill
The changes in the carrying amount of goodwill for the three months ended March 31, 20182019 are as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Residential Products | | Industrial and Infrastructure Products | | Renewable Energy & Conservation | | Total |
Balance at December 31, 2017 | $ | 198,075 |
| | $ | 54,280 |
| | $ | 68,719 |
| | $ | 321,074 |
|
Foreign currency translation | — |
| | (163 | ) | | 861 |
| | 698 |
|
Balance at March 31, 2018 | $ | 198,075 |
| | $ | 54,117 |
| | $ | 69,580 |
| | $ | 321,772 |
|
|
| | | | | | | | | | | | | | | |
| Residential Products | | Industrial and Infrastructure Products | | Renewable Energy & Conservation | | Total |
Balance at December 31, 2018 | $ | 198,075 |
| | $ | 53,769 |
| | $ | 71,827 |
| | $ | 323,671 |
|
Adjustments to prior year acquisitions | — |
| | — |
| | (172 | ) | | (172 | ) |
Foreign currency translation | — |
| | 116 |
| | (42 | ) | | 74 |
|
Balance at March 31, 2019 | $ | 198,075 |
| | $ | 53,885 |
| | $ | 71,613 |
| | $ | 323,573 |
|
Acquired Intangible Assets
Acquired intangible assets consist of the following (in thousands):
| | | March 31, 2018 | | December 31, 2017 | | | March 31, 2019 | | December 31, 2018 | | |
| 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 | $ | 45,159 |
| | $ | — |
| | $ | 45,107 |
| | $ | — |
| | Indefinite | $ | 43,870 |
| | $ | — |
| | $ | 43,870 |
| | $ | — |
| | Indefinite |
Finite-lived intangible assets: | | | | | | | | | | | | | | | | |
Trademarks | 5,848 |
| | 3,166 |
| | 5,876 |
| | 3,062 |
| | 5 to 15 Years | 6,114 |
| | 3,669 |
| | 6,094 |
| | 3,518 |
| | 3 to 15 Years |
Unpatented technology | 28,107 |
| | 12,490 |
| | 28,107 |
| | 12,033 |
| | 5 to 20 Years | 28,644 |
| | 14,352 |
| | 28,644 |
| | 13,881 |
| | 5 to 20 Years |
Customer relationships | 81,174 |
| | 41,215 |
| | 80,707 |
| | 39,652 |
| | 5 to 17 Years | 70,348 |
| | 36,791 |
| | 70,419 |
| | 35,678 |
| | 5 to 17 Years |
Non-compete agreements | 1,649 |
| | 1,007 |
| | 1,649 |
| | 931 |
| | 4 to 10 Years | 1,649 |
| | 1,293 |
| | 1,649 |
| | 1,224 |
| | 4 to 10 Years |
| 116,778 |
| | 57,878 |
| | 116,339 |
| | 55,678 |
| | 106,755 |
| | 56,105 |
| | 106,806 |
| | 54,301 |
| |
Total acquired intangible assets | $ | 161,937 |
| | $ | 57,878 |
| | $ | 161,446 |
| | $ | 55,678 |
| | $ | 150,625 |
| | $ | 56,105 |
| | $ | 150,676 |
| | $ | 54,301 |
| |
The following table summarizes the acquired intangible asset amortization expense for the three months ended March 31 (in thousands):
|
| | | | | | | |
| 2018 | | 2017 |
Amortization expense | $ | 2,139 |
| | $ | 2,162 |
|
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
Amortization expense | $ | 1,797 |
| | $ | 2,139 |
|
Amortization expense related to acquired intangible assets for the remainder of fiscal 20182019 and the next five years thereafter is estimated as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
Amortization expense | $ | 6,087 |
| | $ | 7,654 |
| | $ | 7,142 |
| | $ | 6,539 |
| | $ | 6,127 |
| | $ | 5,588 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 |
Amortization expense | $ | 5,390 |
| | $ | 6,895 |
| | $ | 6,700 |
| | $ | 6,222 |
| | $ | 5,684 |
| | $ | 5,428 |
|
Long-term debt consists of the following (in thousands):
| | | March 31, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
Senior Subordinated 6.25% Notes | $ | 210,000 |
| | $ | 210,000 |
| $ | — |
| | $ | 210,000 |
|
Other debt | 2,400 |
| | 2,400 |
| 2,000 |
| | 2,000 |
|
Less unamortized debt issuance costs | (2,183 | ) | | (2,379 | ) | — |
| | (1,595 | ) |
Total debt | 210,217 |
| | 210,021 |
| 2,000 |
| | 210,405 |
|
Less current maturities | 400 |
| | 400 |
| 400 |
| | 208,805 |
|
Total long-term debt | $ | 209,817 |
| | $ | 209,621 |
| $ | 1,600 |
| | $ | 1,600 |
|
The Company's
Senior Credit Agreement
On January 24, 2019, the Company entered into a Sixth Amended and Restated Credit Agreement ("2019 Senior Credit Agreement"), which amends and restates 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, 2020.2015.
The 2019 Senior Credit Agreement provides for a revolving credit facility and letters of credit in an aggregate amount of $300equal to $400 million. The Company has the option tocan request additional financing from the bankslenders to either increase the revolving credit facility to $500$700 million or to provideenter into a term loan of up to $200 million.$300 million subject to conditions set forth in the Senior Credit Agreement. The 2019 Senior Credit Agreement contains three financial covenants. As of March 31, 2018,2019, the Company is in compliance with all three covenants.
Borrowings under the 2019 Senior Credit Agreement are secured by the trade receivables, inventory, personal property, equipment, and certain real propertygeneral intangibles of the Company’s significant domestic subsidiaries.
Interest rates on the 2019 revolving credit facility are based on the LIBOR plus an additional margin that ranges from 1.25%1.125% to 2.25% for LIBOR loans based on the Total Leverage Ratio.
2.00%. In addition, the revolving credit facility is subject to an undrawn commitment fee ranging between 0.20%0.15% and 0.30%0.25% based on the Total Leverage Ratio and the daily average undrawn balance. The 2019 Senior Credit Agreement terminates on January 23, 2024.
Standby letters of credit of $9.7$8.1 million have been issued under the 2019 Senior Credit Agreement on behalf of the Company as of March 31, 2018.2019. These letters of credit reduce the amount otherwise available under the revolving credit facility. As of March 31, 2018,2019, the Company had $290.3$391.9 million of availability under the revolving credit facility. No borrowings were outstanding under the Company's revolving credit facility at March 31, 20182019 and December 31, 2017.2018.
Senior Subordinated Notes
On January 31, 2013, the Company issued $210 million of 6.25% Senior Subordinated 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.
On December 20, 2018, the Company announced its redemption of its $210 million outstanding Senior Subordinated 6.25% Notes, effective February 1, 2019. The 6.25% Notes were redeemed in accordance with the provisions of the
indenture governing the Notes on February 1, 2019. The Company recorded a charge of $1.1 million for the write-off of deferred financing fees relating to the 6.25% Notes during the quarter ending March 31, 2019.
| |
(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 three months ended March 31, (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 |
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 | — |
| | (7 | ) | | 44 |
| | 37 |
| | 10 |
| | 27 |
|
Foreign currency translation adjustment | 110 |
| | — |
| | — |
| | 110 |
| | — |
| | 110 |
|
Balance at March 31, 2018 | $ | (2,588 | ) | | $ | 179 |
| | $ | (3,130 | ) |
| $ | (5,539 | ) |
| $ | (960 | ) | | $ | (4,579 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustment | | Minimum pension and post retirement benefit plan adjustments | | Total Pre-Tax Amount | | Tax (Benefit) Expense | | Accumulated Other Comprehensive (Loss) Income |
Balance at December 31, 2018 | $ | (5,939 | ) | | $ | (2,040 | ) | | $ | (7,979 | ) | | $ | (745 | ) | | $ | (7,234 | ) |
Minimum pension and post retirement health care plan adjustments | — |
| | 16 |
| | 16 |
| | 4 |
| | 12 |
|
Foreign currency translation adjustment | 842 |
| | — |
| | 842 |
| | — |
| | 842 |
|
Balance at March 31, 2019 | $ | (5,097 | ) | | $ | (2,024 | ) | | $ | (7,121 | ) | | $ | (741 | ) | | $ | (6,380 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustment | | Minimum pension and post retirement benefit plan adjustments | | Total Pre-Tax Amount | | Tax (Benefit) Expense | | Accumulated Other Comprehensive (Loss) Income |
Balance at December 31, 2017 | $ | (2,698 | ) | | $ | (2,638 | ) | | $ | (5,336 | ) | | $ | (970 | ) | | $ | (4,366 | ) |
Cumulative effect of accounting change | | | (350 | ) | | (350 | ) | | — |
| | (350 | ) |
Minimum pension and post retirement health care plan adjustments | — |
| | 37 |
| | 37 |
| | 10 |
| | 27 |
|
Foreign currency translation adjustment | 110 |
| | — |
| | 110 |
| | — |
| | 110 |
|
Balance at March 31, 2018 | $ | (2,588 | ) | | $ | (2,951 | ) | | $ | (5,539 | ) | | $ | (960 | ) | | $ | (4,579 | ) |
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) | EQUITY-BASED COMPENSATION |
TheOn May 4, 2018, the shareholders of the Company have authorized: (1)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 "Plan""2015 Plan") that allows. 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, and performance stock units, and stock rights to eligible participants; and (2)participants.
In 2016, the shareholders of the Company approved the adoption of the Gibraltar Industries, Inc. 2016 Stock Plan for Non-Employee Directors ("Non-Employee Directors Plan") thatwhich allows the Company to grant awards of shares of the Company's common stock to non-employee Directors of the Company and permits the Directors to defer receipt of such shares pursuant to the terms of the Non-Employee Directors Plan. The Company's 2005 Equity Incentive Plan (the "Prior Plan") was amended in 2015 to terminate issuance
Equity Based Awards - Settled in Stock
The following table providessets forth the number of stock unitequity-based awards granted during the three months ended March 31, which will convert to shares upon vesting, along with the weighted average grant date fair values:
| | | 2018 | | 2017 | 2019 | | 2018 |
Awards | Number of Awards (1) | | Weighted Average Grant Date Fair Value | | Number of Awards (2) | | 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 | 132,288 |
| | $ | 33.35 |
| | 98,482 |
| | $ | 43.05 |
| 145,420 |
| | $ | 40.55 |
| | 132,288 |
| | $ | 33.35 |
|
Restricted stock units | 67,055 |
| | $ | 33.35 |
| | 59,112 |
| | $ | 43.05 |
| 117,821 |
| | $ | 39.37 |
| | 67,055 |
| | $ | 33.35 |
|
Options | — |
| | $ | — |
| | 20,000 |
| | $ | 43.05 |
| |
(1) Performance stock units granted will convert to shares based on the Company's actual return on invested capital ("ROIC") relative to the ROIC targeted for the performance period ended December 31, 2018.2019.
(2) Performance stock units granted include 78,482 units awarded in February 20172018 which will convert to 23,546126,337 shares to be issued in Februaryon December 31, 2020, representing 30%95.5% of the targeted 20172018 award, based on the Company’s actual ROIC compared to ROIC target for the performance period ended December 31, 2017. The remaining performance stock units granted include 20,000 units awarded in February 2017. The number of these shares to be issued to the recipients 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 TSR of companies in the S&P Small Cap Industrial Sector over the same three year period.2018.
Equity Based Awards - Settled in Cash
The Company's equity-based liabilities include performance based stock units settled in cash andliability includes awards under a management stock purchase plan.plan and cash-settled performance awards issued in 2016. As of March 31, 2018,2019, the Company's total share-based liabilities recorded on the consolidated balance sheet was $31.8were $26.6 million, of which $19.7$22.0 million was included in non-current liabilities. The share-based liabilities as of December 31, 2018 were $38.4 million, of which $23.6 million was included in non-current liabilities.
Performance Stock Units - Settled in Cash
TheDuring the quarter ended March 31, 2019, the Company awardedpaid $8.9 million to participants of cash-settled performance stock units ("PSUs") that will convert to cash after three years based upon a one year performance period.awarded in 2016. 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 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% the targeted 2016 award of 128,000. This award will convert to cash payable in the 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 awardtarget, or 256,000 units, which were converted to cash and was paid invalued at the first quartertrailing 90-day closing price of the Company's common stock as of December 31, 2018.
The following table summarizes the compensation expense recognized for the PSUs, which will convert to cash, for the three months ended March 31, (in thousands):
|
| | | | | | | |
| 2018 | | 2017 |
PSUs compensation expense | $ | 706 |
| | $ | 1,737 |
|
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. Employees eligible to defer a portion of their compensation may elect to convert their deferral to unrestricted investments, restricted stock units, or a combination of both, and also receive a company-matching award in restricted stock units equal to a percentage of their compensation. Directors do not receive any company-matching on amounts deferred. The account represents a share-based liability that iswill be converted to and settled in cash 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 three months ended March 31,:
| | | 2018 | | 2017 | 2019 | | 2018 |
Restricted stock units credited | 63,937 |
| | 98,770 |
| 51,608 |
| | 63,937 |
|
Share-based liabilities paid (in thousands) | $ | 4,717 |
| | $ | 2,353 |
| $ | 4,933 |
| | $ | 4,717 |
|
| |
(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 March 31, 20182019 and December 31, 2017. The Company’s2018. As of March 31, 2019, the Company does not have any financial instrument for which the carrying value differs from its fair value. At December 31, 2018, the Company's only financial instrument for which the carrying value differs from its fair value is long-term debt.was the Company's Senior Subordinated 6.25% Notes, which were redeemed on February 1, 2019. At March 31, 2018 and December 31, 2017,2018, the fair value of the outstanding debt, net of unamortized debt issuance costs, was $214.0$210.8 million and $213.8 million, respectively, compared to its carrying value of $210.2 million and $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. $210.4 million.
| |
(12) | DISCONTINUED OPERATIONSLEASES |
The Company leases are classified as operating leases and consist of manufacturing facilities, distribution centers, office space, vehicles and equipment. For certain divestiture transactions completed in prior years,leases with terms greater than twelve months, at lease commencement the Company has agreed to indemnifyrecognizes a right-of-use asset and a lease liability. The initial lease liability is recognized at the buyer for various liabilities that may arise afterpresent value of remaining lease payments over the disposal date, subject to limitslease term. Leases with an initial term of time and amount.twelve months or less are not recorded on the Company's consolidated balance sheet. The Company recognizes lease expense for operating leases on a straight-line basis over the lease term. The Company combines lease and non-lease components, such as common area maintenance costs, in calculating the related asset and lease liabilities for all underlying asset groups. Operating lease cost is a partyincluded in income from operations and includes short-term leases and variable lease costs which are immaterial.
Most of the Company's leases include one or more options to certain claims made under these indemnification provisions.renew, with renewal terms that can extend the respective lease term from one month to fifteen years. The exercise of lease renewal options is at the Company's sole discretion. As of March 31, 2018,2019, the Company's renewal options are not part of the Company's operating lease assets and operating lease liabilities. Certain leases also include options to purchase at fair value the underlying leased asset at the Company's sole discretion.
|
| | | | | | |
| Classification | | March 31, 2019 | |
Assets | Operating lease assets | | $ | 31,823 |
| |
| | | | |
Liabilities | | | | |
Current | Accrued expenses | | $ | 9,342 |
| |
Non-current | Non-current operating lease liabilities | | 22,751 |
| |
| | | $ | 32,093 |
| |
|
| | | | | |
| | Three Months Ended March 31, 2019 | |
Lease cost: | | | |
Operating lease cost | | $ | 3,357 |
| |
| | | |
Other information: | | | |
Cash paid for amounts included in the measurement of operating liabilities | | $ | 2,640 |
| |
Right-of-use assets obtained in exchange for new lease liabilties | | $ | 3,470 |
| |
Weighted-average remaining lease term - operating leases | | 4.33 |
| years |
Weighted-average discount rate - operating leases | | 5.70 | % | |
|
| | | | |
Maturity of lease liabilities | | Three Months Ended March 31, 2019 |
2019 (April 1, 2019 through December 31, 2019) | | $ | 8,276 |
|
2020 | | 8,981 |
|
2021 | | 6,929 |
|
2022 | | 5,175 |
|
2023 | | 4,603 |
|
After 2023 | | 2,328 |
|
Total lease payments | | 36,292 |
|
Less: present value discount | | (4,199 | ) |
Present value of lease liabilities | | $ | 32,093 |
|
The Company hasuses the Company's incremental borrowing rate based on information available at the commencement date of a contingent liability recorded for such provisionslease in determining the present value of lease payments as the rates implicit in most of the Company's leases are not readily determinable.
Upon adoption of ASU 2016-02 on January 1, 2019, the unrecognized deferred gain related to discontinued operations. Management does not believe that the outcomesale-leaseback transactions was recorded as a cumulative-effect adjustment to increase retained earnings, net of these claims, or other claims, would significantly affect the Company's financial condition or results of operation.related income tax effects.
| |
(13) | EXIT ACTIVITY COSTS AND ASSET IMPAIRMENTS |
The Company has incurred exit activity costs and asset impairment charges as a result of its 80/20 simplification and portfolio management initiatives. These initiatives have resulted in the identification of low-volume, low margin, internally-produced products which have been or will be outsourced or discontinued, the simplification of processes, and in the sale and exiting of less profitable businesses or products lines.
Exit activity costs were incurred during the three months ended March 31, 20182019 which related to contract terminations, severance, and other moving and closing costs.
During the three months ended March 31, 2018, the Company incurred exit activity costs resulting from the above initiatives. In addition,conjunction with these initiatives, the Company closed one facility during the first three months of 2018 and sold and leased back aanother facility which resulted in a gain, which was partially offset by inventory impairment charges incurred for discontinued products.
During the three months ended March 31, 2017, the Company incurred asset impairment charges and exit activity costs resulting from the above initiatives. Also, as a result
The following tables set forth the asset impairment charges and exit activity costs incurred by segment during the three months ended March 31, related to the restructuring activities described above (in thousands):
| | | | | | | | | | | | | | | | | Three months ended March 31, |
| 2018 | | 2017 | 2019 | | 2018 |
| Inventory write-downs &/or asset impairment recoveries, net | | Exit activity costs, net | | Total | | Inventory write-downs &/or asset impairment recoveries | | Exit activity costs | | Total | Inventory write-downs &/or asset impairment charges | | Exit activity costs (recoveries), net | | Total | | Inventory write-downs &/or asset impairment (recoveries) charges, net | | Exit activity (recoveries) costs, net | | Total |
Residential Products | $ | (43 | ) | | $ | (123 | ) | | $ | (166 | ) | | $ | (21 | ) | | $ | 185 |
| | $ | 164 |
| $ | — |
| | $ | 151 |
| | $ | 151 |
| | $ | (43 | ) | | $ | (123 | ) | | $ | (166 | ) |
Industrial & Infrastructure Products | (703 | ) | | 218 |
| | (485 | ) | | (896 | ) | | 2,656 |
| | 1,760 |
| — |
| | (33 | ) | | (33 | ) | | (703 | ) | | 218 |
| | (485 | ) |
Renewable Energy & Conservation | 19 |
| | 117 |
| | 136 |
| | — |
| | 1,050 |
| | 1,050 |
| — |
| | 94 |
| | 94 |
| | 19 |
| | 117 |
| | 136 |
|
Corporate | — |
| | 44 |
| | 44 |
| | — |
| | 28 |
| | 28 |
| — |
| | 7 |
| | 7 |
| | — |
| | 44 |
| | 44 |
|
Total exit activity costs & asset impairments | $ | (727 | ) | | $ | 256 |
| | $ | (471 | ) | | $ | (917 | ) | | $ | 3,919 |
| | $ | 3,002 |
| $ | — |
| | $ | 219 |
| | $ | 219 |
| | $ | (727 | ) | | $ | 256 |
| | $ | (471 | ) |
The following table provides a summary of where the asset impairments and exit activity costs were recorded in the consolidated statementstatements of operationsincome for the three months ended March 31, (in thousands):
|
| | | | | | | |
| 2018 | | 2017 |
Cost of sales | $ | 37 |
| | $ | 994 |
|
Selling, general, and administrative (recoveries) expense | (508 | ) | | 2,008 |
|
Net asset impairment and exit activity (recoveries) charges | $ | (471 | ) | | $ | 3,002 |
|
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
Cost of sales | $ | (34 | ) | | $ | 37 |
|
Selling, general, and administrative expense (recoveries) | 253 |
| | (508 | ) |
Net asset impairment and exit activity charges (recoveries) | $ | 219 |
| | $ | (471 | ) |
The following table reconciles the beginning and ending liability for exit activity costs relating to the Company’s facility consolidation efforts (in thousands): | | | 2018 | | 2017 | 2019 | | 2018 |
Balance at January 1 | $ | 961 |
| | $ | 3,744 |
| $ | 1,923 |
| | $ | 961 |
|
Exit activity costs recognized | 256 |
| | 3,919 |
| 219 |
| | 256 |
|
Cash payments | (739 | ) | | (4,617 | ) | (550 | ) | | (739 | ) |
Balance at March 31 | $ | 478 |
| | $ | 3,046 |
| $ | 1,592 |
| | $ | 478 |
|
The following table summarizes the provision for income taxes for continuing operations (in thousands) for the three months ended March 31, and the applicable effective tax rates:
| | | | | | | Three Months Ended March 31, |
| 2018 | | 2017 | 2019 | | 2018 |
Provision for income taxes | $ | 2,807 |
| | $ | 2,053 |
| $ | 1,571 |
| | $ | 2,807 |
|
Effective tax rate | 25.2 | % | | 33.9 | % | 19.8 | % | | 25.2 | % |
The change in the effective tax rate year over year is primarily due tofor the reduction inthree months ended March 31, 2019 was less than the U.S. federal statutory tax rate from 35%of 21% due to 21%.favorable discrete items partially offset by state taxes and nondeductible permanent differences. The effective tax rate for the three months ended March 31, 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. The effective tax rate for the three months ended March 31, 2017 was less than the U.S. federal statutory rate of 35% due to net deductible permanent differences and favorable discrete items partially offset by state taxes and $0.9 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.
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 Company has recognized the provisional tax impacts 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. As there is some uncertainty around the grandfathering provisions related to performance-based executive compensation, we have not included a provisional amount for deferred tax assets related to performance-based executive compensation as we believe that all of our plans are grandfathered. Our preliminary estimate of the one-time transition tax and the re-measurement of our deferred tax assets and liabilities is subject towas finalized in the finalizationfourth quarter of management’s analysis related to certain matters, such as developing interpretations of2018.
While the provisions of the 2017 Tax Reform Act changes to certain estimates and amounts related toprovides for a territorial tax system, beginning in 2018, it included two new U.S. tax base erosion provisions, the earnings and profits of certain subsidiariesglobal intangible low-taxed income (“GILTI”) provisions and the filing of ourbase-erosion and anti-abuse tax returns, U.S. Treasury regulations, administrative interpretations or court decisions interpreting the 2017 Tax Reform Act may require further adjustments and changes in our estimates.(“BEAT”) provisions.
During the three month period ended March 31, 2018,The GILTI provisions require 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 recordedinclude in its U.S. income tax expense from continuing operations during three month period ended March 31, 2018, (in thousands):
|
| | | |
Remeasurement of certain deferred tax balances (1) | | 114 |
|
One-time transition tax (2) | | (233 | ) |
Non-deductible performance based compensation (3) | | 51 |
|
Net benefit recorded to provisional income tax expense | | (68 | ) |
(1) The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. We recorded a provisional income tax benefit of $16.2 million at December 31, 2017 related to the remeasurement of certain deferred tax balances.
(2) The Tax Reform Act provided for a one-time transition tax on post-1986 undistributedreturn any foreign subsidiary earnings and profits (“E&P”). The Company recognized a provisional $3.7 millionin excess of income tax expense at December 31, 2017 related toan allowable return on the one-time transition tax and related repatriation.
(3) The Tax Reform Act repealed the performance-based compensation exceptions to Section 162(m) $1.0 million deduction limitation. The Company did not provide for a provisional adjustment at December 31, 2017.
foreign subsidiary’s tangible assets. The Company has elected to account for GILTI tax in the period in which it is incurred, and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements for the year ended December 31, 2017, or during the quarterthree months ended March 31, 2019 and March 31, 2018. We have made sufficient progress in our calculations to reasonably estimate the effect on our effective tax rate. The adjustment increased our effective tax rate by 0.6%. We will continue to refine our calculations, which may result in changes to this amount.
The final determination ofBEAT provisions in 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 2017 Tax Reform Act.Act eliminate the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax. The BEAT tax had no impact on the Company's consolidated financial statements for the three months ended March 31, 2019 and March 31, 2018.
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.earnings on January 1, 2018.
(15) EARNINGS PER SHARE
Basic earnings and diluted weighted-average shares outstanding are as follows for the three months ended March 31, (in thousands):
| | | | | | | Three Months Ended March 31, |
| 2018 | | 2017 | 2019 | | 2018 |
Numerator: | | | | | | |
Income from continuing operations | $ | 8,352 |
| | $ | 3,996 |
| $ | 6,345 |
| | $ | 8,352 |
|
Net income available to common shareholders | $ | 8,352 |
| | $ | 3,996 |
| $ | 6,345 |
| | $ | 8,352 |
|
Denominator for basic earnings per share: | | | | | | |
Weighted average shares outstanding | 31,786 |
| | 31,688 |
| 32,279 |
| | 31,786 |
|
Denominator for diluted earnings per share: | | | | | | |
Weighted average shares outstanding | 31,786 |
| | 31,688 |
| 32,279 |
| | 31,786 |
|
Common stock options and restricted stock | 658 |
| | 566 |
| |
Common stock options and stock units | | 338 |
| | 658 |
|
Weighted average shares and conversions | 32,444 |
| | 32,254 |
| 32,617 |
| | 32,444 |
|
The weighted average number of diluted shares does not include potential anti-dilutive common shares issuable pursuant to equity based incentive compensation awards, aggregating to 359,000258,000 and 526,000359,000 for the three months ended March 31, 2019 and 2018, and 2017, respectively.
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, rain dispersion products and roofing accessories, centralized mail systems and electronic package solutions, rain dispersion products and roofing accessories;solutions; |
| |
(ii) | Industrial and Infrastructure Products, which primarily includes expanded and perforated metal, perimeter security systems, expansion joints, and structural bearings and perimeter security;bearings; and |
| |
(iii) | Renewable Energy and Conservation, which primarily includes designing, engineering, manufacturing and installation of solar racking and electrical balance of 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 months ended March 31, (in thousands):
| | | Three Months Ended March 31, | Three Months Ended March 31, |
| 2018 | | 2017 | 2019 | | 2018 |
Net sales: | | | | | | |
Residential Products | $ | 103,948 |
| | $ | 104,551 |
| $ | 103,709 |
| | $ | 103,948 |
|
Industrial and Infrastructure Products | 54,624 |
| | 50,718 |
| 55,188 |
| | 54,624 |
|
Less: Intersegment sales | (221 | ) | | (456 | ) | (317 | ) | | (221 | ) |
Net Industrial and Infrastructure Products | 54,403 |
| | 50,262 |
| 54,871 |
| | 54,403 |
|
Renewable Energy and Conservation | 56,986 |
| | 51,792 |
| 68,837 |
| | 56,986 |
|
Total consolidated net sales | $ | 215,337 |
| | $ | 206,605 |
| $ | 227,417 |
| | $ | 215,337 |
|
| | | | | | |
Income from operations: | | | | | | |
Residential Products | $ | 13,238 |
| | $ | 15,641 |
| $ | 12,090 |
| | $ | 13,238 |
|
Industrial and Infrastructure Products | 2,602 |
| | (37 | ) | 4,129 |
| | 2,602 |
|
Renewable Energy and Conservation | 4,062 |
| | 3,340 |
| 1,632 |
| | 4,062 |
|
Unallocated Corporate Expenses | (6,059 | ) | | (9,265 | ) | (7,285 | ) | | (6,059 | ) |
Total income from operations | $ | 13,843 |
| | $ | 9,679 |
| $ | 10,566 |
| | $ | 13,843 |
|
The following tables illustrate revenue disaggregated by timing of transfer of control to the customer for the three months ended March 31 (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2018 |
| Residential Products | | Industrial and Infrastructure Products | | Renewable Energy and Conservation | | Total |
Net sales: | | | | | | | |
Point in Time | $ | 102,884 |
| | $ | 46,543 |
| | $ | 5,620 |
| | $ | 155,047 |
|
Over Time | 1,064 |
| | 7,860 |
| | 51,366 |
| | 60,290 |
|
Total | $ | 103,948 |
| | $ | 54,403 |
| | $ | 56,986 |
| | $ | 215,337 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2017 |
| Residential Products | | Industrial and Infrastructure Products | | Renewable Energy and Conservation | | Total |
Net sales: | | | | | | | |
Point in Time | $ | 104,551 |
| | $ | 50,262 |
| | $ | 5,793 |
| | $ | 160,606 |
|
Over Time | — |
| | — |
| | 45,999 |
| | 45,999 |
|
Total | $ | 104,551 |
| | $ | 50,262 |
| | $ | 51,792 |
| | $ | 206,605 |
|
| |
(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. |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2019 |
| Residential Products | | Industrial and Infrastructure Products | | Renewable Energy and Conservation | | Total |
Net sales: | | | | | | | |
Point in Time | $ | 102,892 |
| | $ | 45,287 |
| | $ | 7,290 |
| | $ | 155,469 |
|
Over Time | 817 |
| | 9,584 |
| | 61,547 |
| | 71,948 |
|
Total | $ | 103,709 |
| | $ | 54,871 |
| | $ | 68,837 |
| | $ | 227,417 |
|
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2018
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Net sales | $ | — |
| | $ | 204,467 |
| | $ | 12,330 |
| | $ | (1,460 | ) | | $ | 215,337 |
|
Cost of sales | — |
| | 158,584 |
| | 9,758 |
| | (1,323 | ) | | 167,019 |
|
Gross profit | — |
| | 45,883 |
| | 2,572 |
| | (137 | ) | | 48,318 |
|
Selling, general, and administrative expense | 44 |
| | 32,724 |
| | 1,707 |
| | — |
| | 34,475 |
|
(Loss) income from operations | (44 | ) | | 13,159 |
| | 865 |
| | (137 | ) | | 13,843 |
|
Interest expense (income) | 3,402 |
| | (84 | ) | | (49 | ) | | — |
| | 3,269 |
|
Other expense (income) | — |
| | 28 |
| | (613 | ) | | — |
| | (585 | ) |
(Loss) income before taxes | (3,446 | ) | | 13,215 |
| | 1,527 |
| | (137 | ) | | 11,159 |
|
(Benefit of) provision for income taxes | (965 | ) | | 3,335 |
| | 437 |
| | — |
| | 2,807 |
|
Equity in earnings from subsidiaries | 10,970 |
| | 1,090 |
| | — |
| | (12,060 | ) | | — |
|
Net income | $ | 8,489 |
| | $ | 10,970 |
| | $ | 1,090 |
| | $ | (12,197 | ) | | $ | 8,352 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2018 |
| Residential Products | | Industrial and Infrastructure Products | | Renewable Energy and Conservation | | Total |
Net sales: | | | | | | | |
Point in Time | $ | 102,884 |
| | $ | 46,543 |
| | $ | 5,620 |
| | $ | 155,047 |
|
Over Time | 1,064 |
| | 7,860 |
| | 51,366 |
| | 60,290 |
|
Total | $ | 103,948 |
| | $ | 54,403 |
| | $ | 56,986 |
| | $ | 215,337 |
|
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2017
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Net sales | $ | — |
| | $ | 197,748 |
| | $ | 11,242 |
| | $ | (2,385 | ) | | $ | 206,605 |
|
Cost of sales | — |
| | 150,507 |
| | 8,982 |
| | (2,139 | ) | | 157,350 |
|
Gross profit | — |
| | 47,241 |
| | 2,260 |
| | (246 | ) | | 49,255 |
|
Selling, general, and administrative expense | 43 |
| | 36,506 |
| | 3,027 |
| | — |
| | 39,576 |
|
(Loss) income from operations | (43 | ) | | 10,735 |
| | (767 | ) | | (246 | ) | | 9,679 |
|
Interest expense (income) | 3,402 |
| | 192 |
| | (18 | ) | | — |
| | 3,576 |
|
Other expense (income) | — |
| | 130 |
| | (76 | ) | | — |
| | 54 |
|
(Loss) income before taxes | (3,445 | ) | | 10,413 |
| | (673 | ) | | (246 | ) | | 6,049 |
|
(Benefit of) provision for income taxes | (1,344 | ) | | 3,378 |
| | 19 |
| | — |
| | 2,053 |
|
Equity in earnings from subsidiaries | 6,343 |
| | (692 | ) | | — |
| | (5,651 | ) | | — |
|
Net income (loss) | $ | 4,242 |
| | $ | 6,343 |
| | $ | (692 | ) | | $ | (5,897 | ) | | $ | 3,996 |
|
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2018
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Net income | $ | 8,489 |
| | $ | 10,970 |
| | $ | 1,090 |
| | $ | (12,197 | ) | | $ | 8,352 |
|
Other comprehensive income (loss): | | | | | | | | | |
Foreign currency translation adjustment | — |
| | — |
| | 110 |
| | — |
| | 110 |
|
Cumulative effect of change in accounting (see Note 2) | — |
| | (350 | ) | | — |
| | — |
| | (350 | ) |
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 (loss) income | — |
| | (323 | ) | | 110 |
| | — |
| | (213 | ) |
Total comprehensive income | $ | 8,489 |
| | $ | 10,647 |
| | $ | 1,200 |
| | $ | (12,197 | ) | | $ | 8,139 |
|
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2017
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Net income (loss) | $ | 4,242 |
| | $ | 6,343 |
| | $ | (692 | ) | | $ | (5,897 | ) | | $ | 3,996 |
|
Other comprehensive income (loss): | | | | | | | | | |
Foreign currency translation adjustment | — |
| | — |
| | 679 |
| | — |
| | 679 |
|
Adjustment to retirement benefit liability, net of tax | — |
| | (3 | ) | | — |
| | — |
| | (3 | ) |
Adjustment to post employment health care benefit liability, net of tax | — |
| | 29 |
| | — |
| | — |
| | 29 |
|
Other comprehensive income | — |
| | 26 |
| | 679 |
| | — |
| | 705 |
|
Total comprehensive income (loss) | $ | 4,242 |
| | $ | 6,369 |
| | $ | (13 | ) | | $ | (5,897 | ) | | $ | 4,701 |
|
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEETS
MARCH 31, 2018
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Assets | | | | | | | | | |
Current assets: | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 172,930 |
| | $ | 27,811 |
| | $ | — |
| | $ | 200,741 |
|
Accounts receivable, net | — |
| | 139,143 |
| | 6,039 |
| | — |
| | 145,182 |
|
Intercompany balances | 914 |
| | 3,362 |
| | (4,276 | ) | | — |
| | — |
|
Inventories | — |
| | 86,265 |
| | 3,971 |
| | — |
| | 90,236 |
|
Other current assets | 1,048 |
| | 2,114 |
| | 3,550 |
| | — |
| | 6,712 |
|
Total current assets | 1,962 |
| | 403,814 |
| | 37,095 |
| | — |
| | 442,871 |
|
Property, plant, and equipment, net | — |
| | 90,625 |
| | 3,046 |
| | — |
| | 93,671 |
|
Goodwill | — |
| | 298,258 |
| | 23,514 |
| | — |
| | 321,772 |
|
Acquired intangibles | — |
| | 95,275 |
| | 8,784 |
| | — |
| | 104,059 |
|
Other assets | — |
| | 4,770 |
| | — |
| | — |
| | 4,770 |
|
Investment in subsidiaries | 750,823 |
| | 62,594 |
| | — |
| | (813,417 | ) | | — |
|
| $ | 752,785 |
| | $ | 955,336 |
| | $ | 72,439 |
| | $ | (813,417 | ) | | $ | 967,143 |
|
Liabilities and Shareholders’ Equity | | | | | | | | | |
Current liabilities: | | | | | | | | | |
Accounts payable | $ | — |
| | $ | 76,994 |
| | $ | 3,697 |
| | $ | — |
| | $ | 80,691 |
|
Accrued expenses | 2,188 |
| | 49,631 |
| | 1,435 |
| | — |
| | 53,254 |
|
Billings in excess of cost | — |
| | 9,280 |
| | 2,292 |
| | | | 11,572 |
|
Current maturities of long-term debt | — |
| | 400 |
| | — |
| | — |
| | 400 |
|
Total current liabilities | 2,188 |
| | 136,305 |
| | 7,424 |
| | — |
| | 145,917 |
|
Long-term debt | 208,642 |
| | 1,175 |
| | — |
| | — |
| | 209,817 |
|
Deferred income taxes | — |
| | 28,918 |
| | 2,421 |
| | — |
| | 31,339 |
|
Other non-current liabilities | — |
| | 38,115 |
| | — |
| | — |
| | 38,115 |
|
Shareholders’ equity | 541,955 |
| | 750,823 |
| | 62,594 |
| | (813,417 | ) | | 541,955 |
|
| $ | 752,785 |
| | $ | 955,336 |
| | $ | 72,439 |
| | $ | (813,417 | ) | | $ | 967,143 |
|
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 CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2018
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Gibraltar Industries, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Cash Flows from Operating Activities | | | | | | | | | |
Net cash used in operating activities | $ | (6,606 | ) | | $ | (14,829 | ) | | $ | (771 | ) | | $ | — |
| | $ | (22,206 | ) |
Cash Flows from Investing Activities | | | | | | | | | |
Net proceeds from sale of property and equipment | — |
| | 2,823 |
| | — |
| | — |
| | 2,823 |
|
Purchases of property, plant, and equipment | — |
| | (1,008 | ) | | (25 | ) | | — |
| | (1,033 | ) |
Net cash provided by (used in) investing activities | — |
| | 1,815 |
| | (25 | ) | | — |
| | 1,790 |
|
Cash Flows from Financing Activities | | | | | | | | | |
Purchase of treasury stock at market prices | (850 | ) | | — |
| | — |
| | — |
| | (850 | ) |
Net proceeds from issuance of common stock | 226 |
| | — |
| | — |
| | — |
| | 226 |
|
Intercompany financing | 7,230 |
| | (6,660 | ) | | (570 | ) | | — |
| | — |
|
Net cash provided by (used in) financing activities | 6,606 |
| | (6,660 | ) | | (570 | ) | | — |
| | (624 | ) |
Effect of exchange rate changes on cash | — |
| | — |
| | (499 | ) | | — |
| | (499 | ) |
Net decrease in cash and cash equivalents | — |
| | (19,674 | ) | | (1,865 | ) | | — |
| | (21,539 | ) |
Cash and cash equivalents at beginning of year | — |
| | 192,604 |
| | 29,676 |
| | — |
| | 222,280 |
|
Cash and cash equivalents at end of period | $ | — |
| | $ | 172,930 |
| | $ | 27,811 |
| | $ | — |
| | $ | 200,741 |
|
GIBRALTAR INDUSTRIES, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 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 | $ | (6,605 | ) | | $ | 12,141 |
| | $ | (3,193 | ) | | $ | — |
| | $ | 2,343 |
|
Cash Flows from Investing Activities | | | | | | | | | |
Cash paid for acquisitions | — |
| | (18,561 | ) | | — |
| | — |
| | (18,561 | ) |
Net proceeds from sale of property and equipment | — |
| | 9,081 |
| | 152 |
| | — |
| | 9,233 |
|
Purchases of property, plant, and equipment | — |
| | (1,326 | ) | | (127 | ) | | — |
| | (1,453 | ) |
Net cash (used in) provided by investing activities | — |
| | (10,806 | ) | | 25 |
| | — |
| | (10,781 | ) |
Cash Flows from Financing Activities | | | | | | | | | |
Purchase of treasury stock at market prices | (922 | ) | | — |
| | — |
| | — |
| | (922 | ) |
Net proceeds from issuance of common stock | 11 |
| | — |
| | — |
| | — |
| | 11 |
|
Intercompany financing | 7,516 |
| | (6,398 | ) | | (1,118 | ) | | — |
| | — |
|
Net cash provided by (used in) financing activities | 6,605 |
| | (6,398 | ) | | (1,118 | ) | | — |
| | (911 | ) |
Effect of exchange rate changes on cash | — |
| | — |
| | 73 |
| | — |
| | 73 |
|
Net decrease in cash and cash equivalents | — |
| | (5,063 | ) | | (4,213 | ) | | — |
| | (9,276 | ) |
Cash and cash equivalents at beginning of year | — |
| | 143,826 |
| | 26,351 |
| | — |
| | 170,177 |
|
Cash and cash equivalents at end of period | $ | — |
| | $ | 138,763 |
| | $ | 22,138 |
| | $ | — |
| | $ | 160,901 |
|
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 residential, industrial, infrastructure, and renewable energy and 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 March 31, 2018,2019, we operated 4240 facilities, comprised of 30 manufacturing facilities, sixfive distribution centers, and sixfive offices, which are located in 1718 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 providingprovide us with manufacturing and distribution primarily throughout North America and, to a lesser extent, Asia.
Business Strategy
Our business strategy focuses on significantly elevating and accelerating the growth and financial returns of the Company. We strive to deliver best-in-class, sustainable value creation for our shareholders, forcustomers and team members, and we believe this can be achieved from a transformational change in the long-term,Company’s portfolio and to generate more earnings at a higher rate of return with a more efficient use of capital year over year.
strong operating performance. Our business strategy has four key elements, or "pillars," which consist ofare: operational excellence, product innovation, portfolio management, and acquisitions as a strategic accelerator. We 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.
Operational excellence is our first pillar in this strategy. We focus on reducing complexity, adjusting costs and simplifying our product offering through 80/20 initiatives (“80/20”). 80/20 is the practice of focusing on our largest and best opportunities (the “80”) and eliminating complexity associated with less profitable opportunities (the “20”). ImplementationThe execution of 80/20 across our businesses, along with in-lining and market rate of demand replenishment initiatives, has and outsourcing initiatives for our “B” products across our businesses will continue to improve our profitability. Our next stepservice levels, overall profitability, and efficiency in operational excellence is to concentrate on selling and marketing strategies, known as trade focus, to drive organic growth by developing new and innovative products which respond to our customers’ needs to simplify their operations.the deployment of capital.
Product innovation
Innovation is our second strategic 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.pillar. Our focus is on driving top line growth withmaking innovation a strong competency across our organization to ensure we consistently bring new products, better processes, and innovative products.value added services for our markets and customers. We are focused on those productsdelivering solutions that create more relevance for our end customers, and technologies that have relevanceposition our team as a trusted and reliable partner. Our trade focus initiatives are focused on connecting with our end user groups to better understand their needs and the end-user and can be differentiated from our competition. We believe that development of these innovative products and technologies will support our objectivesmarket challenges we need to solve. This effort is expected to produce ideas and opportunities that generate profitable and sustainable returnsgrowth for us and our shareholders.customers. Our focus on innovation is centered on our current end markets, including, postal and parcel products, residential air management, infrastructure, renewable energy and conservation. These respective markets are expected to grow based on demand for: centralized mail and parcel delivery systems, including solutions for the last mile of delivery; zero carbon footprint homes; energy sources not dependent on fossil fuels, and the growing demand for locally grown produce.
The third pillar of our strategy is portfolio management, which involvesis a natural adjunct to the evaluation80/20 initiative. Using the 80/20 process, we conduct strategic reviews of our product lines, customers and end markets, with the objective of allocatingand allocate leadership time, capital and financial resources to the highest-potential platforms and businesses. As a result, we have sold and divested businesses and product lines which have helped contribute to the Company's realization of a higher rate of return on invested capital. We view portfolio management as a continuous process that will remain an important part of our strategy as we look to improve the Company’sGibraltar's long-term financial performance. We are currently supporting all of the 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 we consider an important part ofare served by existing platforms within the Company’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. OurCompany. The target markets includeinclude: postal, parcel and parcel solutions,storage solutions; infrastructure; residential building products, perimeter security, infrastructure,air management; and renewable energy and conservation. 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 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, Nexus Corporation ("Nexus") in October 2016, Package Concierge in February 2017, and most recently, SolarBOS in August 2018, were the direct result of this fourth pillar strategy. We also consider businesses outside of these four markets, as we continually search out opportunities to grow our business in large markets with expected growth in demand for the foreseeable future, where we can add value through our manufacturing expertise, 80/20 process and purchasing synergies.
Overall, we believe 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 toGoing forward, we will continue to restructureimprove upon our operations, including consolidation of facilities, reducing overhead costs,operational excellence, optimize our assets and curtailing investmentsworking capital efficiency, and invest in inventory, which enables usinnovation and new product development to better react to fluctuations in commodity costsdrive profitable and customer demand and has contributed to both improved margins and cash flows.sustainable growth.
Acquisitions and Divestitures
Recent Developments
On January 2, 2019, the Company appointed William T. Bosway as President and Chief Executive Officer of the Company and a member of the Board of Directors. Over the past 29 years, Mr. Bosway has worked for two Fortune 500 industrial companies and brings to the Company strong leadership skills and significant experience in acquisitions, driving organic growth, lean manufacturing and continuous improvement techniques.
On March 18, 2019, the Company appointed Patrick M. Burns as Chief Operating Officer. In his position as Chief Operating Officer, Mr. Burns will be responsible for all aspects of Gibraltar’s day to day operations across its businesses
and such other executive duties as he is assigned from time to time by the Board of Directors and the Chief Executive Officer.
On January 24, 2019, we entered into the Company's Sixth Amended and Restated Credit Agreement (the "Senior Credit Agreement") which includes a 5-year, $400 million revolving credit facility. The Senior Credit Agreement also provides the Company the opportunity, upon request, to increase the amount of the revolving credit facility to $700 million.
In conjunction with entering into the Senior Credit Agreement on February 22, 2017,1, 2019, the Company redeemed all $210 million of its outstanding 6.25% Senior Subordinated Bonds. The amended Senior Credit Agreement provides the Company with access to capital and improves our financial flexibility.
On August 21, 2018, the Company acquired all of the outstanding stock of Package ConciergeSolarBOS for approximately $19an aggregate purchase price of $6.4 million subject towhich includes a working capital adjustment and certain other adjustments provided for in the stock purchase agreement. The acquisition was financed through cash on hand. Package ConciergeSolarBOS is a leading provider of multifamily electronic package delivery lockerelectrical balance of systems inproducts, which consists of electrical components such as wiring, switches, and combiner boxes that support photovoltaic systems, for the United States.U.S. solar renewable energy market. The results of operations of Package ConciergeSolarBOS have been included withinin the Residential ProductsRenewable Energy and Conservation 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. This action resulted in the sale and closing of 3 facilities in early 2017. These assets were a part of our Industrial and Infrastructure Products segment.
Economic Conditions
The end markets our businesses serve 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 level of non-residential construction and infrastructure 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.
Results of Operations
Three Months Ended March 31, 20182019 Compared to the Three Months Ended March 31, 20172018
The following table sets forth selected data from our consolidated statementsresults of operations data (in thousands) and the relatedits percentage of net sales for the three months ended March 31, (in thousands):31:
| | | 2018 | | 2017 | 2019 | | 2018 |
Net sales | $ | 215,337 |
| | 100.0 | % | | $ | 206,605 |
| | 100.0 | % | $ | 227,417 |
| | 100.0 | % | | $ | 215,337 |
| | 100.0 | % |
Cost of sales | 167,019 |
| | 77.6 | % | | 157,350 |
| | 76.2 | % | 183,517 |
| | 80.7 | % | | 167,019 |
| | 77.6 | % |
Gross profit | 48,318 |
| | 22.4 | % | | 49,255 |
| | 23.8 | % | 43,900 |
| | 19.3 | % | | 48,318 |
| | 22.4 | % |
Selling, general, and administrative expense | 34,475 |
| | 16.0 | % | | 39,576 |
| | 19.1 | % | 33,334 |
| | 14.7 | % | | 34,475 |
| | 16.0 | % |
Income from operations | 13,843 |
| | 6.4 | % | | 9,679 |
| | 4.7 | % | 10,566 |
| | 4.6 | % | | 13,843 |
| | 6.4 | % |
Interest expense | 3,269 |
| | 1.5 | % | | 3,576 |
| | 1.8 | % | 2,061 |
| | 0.9 | % | | 3,269 |
| | 1.5 | % |
Other (income) expense | (585 | ) | | (0.3 | )% | | 54 |
| | 0.0 | % | |
Other expense (income) | | 589 |
| | 0.2 | % | | (585 | ) | | (0.3 | )% |
Income before taxes | 11,159 |
| | 5.2 | % | | 6,049 |
| | 2.9 | % | 7,916 |
| | 3.5 | % | | 11,159 |
| | 5.2 | % |
Provision for income taxes | 2,807 |
| | 1.3 | % | | 2,053 |
| | 1.0 | % | 1,571 |
| | 0.7 | % | | 2,807 |
| | 1.3 | % |
Net income | $ | 8,352 |
| | 3.9 | % | | $ | 3,996 |
| | 1.9 | % | $ | 6,345 |
| | 2.8 | % | | $ | 8,352 |
| | 3.9 | % |
The following table sets forth the Company’s net sales by reportable segment for the three months ended March 31, (in thousands):
| | | 2018 | | 2017 | | Total Change | 2019 | | 2018 | | Total Change |
Net sales: | | | | | | | | | | |
Residential Products | $ | 103,948 |
| | $ | 104,551 |
| | $ | (603 | ) | $ | 103,709 |
| | $ | 103,948 |
| | $ | (239 | ) |
Industrial and Infrastructure Products | 54,624 |
| | 50,718 |
| | 3,906 |
| 55,188 |
| | 54,624 |
| | 564 |
|
Less: Intersegment sales | (221 | ) | | (456 | ) | | 235 |
| (317 | ) | | (221 | ) | | (96 | ) |
Net Industrial and Infrastructure Products | 54,403 |
| | 50,262 |
| | 4,141 |
| 54,871 |
| | 54,403 |
| | 468 |
|
Renewable Energy and Conservation | 56,986 |
| | 51,792 |
| | 5,194 |
| 68,837 |
| | 56,986 |
| | 11,851 |
|
Consolidated | $ | 215,337 |
| | $ | 206,605 |
| | $ | 8,732 |
| $ | 227,417 |
| | $ | 215,337 |
| | $ | 12,080 |
|
Consolidated net sales increased by $8.7$12.1 million, or 4.2%5.6%, to $215.3$227.4 million for the three months ended March 31, 20182019 compared to the three months ended March 31, 2017.2018. The 4.2%5.6% increase was driventhe net result of a 5.9% increase in pricing to customers and a 1.5% decrease in volume. Volume decline in our Residential Products segment was largely offset by higher salesstrong growth in both theour Renewable Energy and Conservation segment andwhich included a $2.6 million contribution from the Industrial and Infrastructure Products segment, the resultprior year acquisition of a 2.6% increase in volume, along with a 1.5% increase in pricing to customers.SolarBOS.
Net sales in our Residential Products segment decreased 0.6%0.2%, or $0.6$0.2 million, to $103.7 million for the three months ended March 31, 2019 compared to $103.9 million for the three months ended March 31, 2018 compared to $104.6 million for the three months ended March 31, 2017.2018. The slight decrease from the prior year quarter was the net result of unfavorable weather related reduction inimpacting demand for ventilation-relatedour building products largely offset by higher sales in rain management products and electronic package solutions, and an increase in pricing to customers.customer selling price increases.
Net sales in our Industrial and Infrastructure Products segment increased 8.2%0.9%, or $4.1$0.5 million, to $54.9 million for the three months ended March 31, 2019 compared to $54.4 million for the three months ended March 31, 2018 compared to $50.3 million for2018. Strong performance from the three months ended March 31, 2017. The increase in net sales was primarily driven byInfrastructure business and continued demand for industrialinnovative products including our new perimeter security
solutions, along with an increasewas partially offset by lower volume in pricing to customers. Backlogthe Industrial business for both the infrastructure and industrial businesses was higher versus prior-year levels.more commoditized products.
Net sales in our Renewable Energy and Conservation segment increased 10.0%20.9%, or $5.2$11.9 million, to $68.8 million for the three months ended March 31, 2019 compared to $57.0 million for the three months ended March 31, 2018 compared2018. The increase was the result of strong demand for our innovative tracker solutions along with a $2.6 million contribution from the prior year acquisition of SolarBOS.
Our consolidated gross margin decreased to $51.8 million19.3% for the three months ended March 31, 2017. The increase was the result of higher demand in both our domestic solar and conservation markets. Also, this segment had higher backlog entering 2018, which contributed to increased revenue in the current year quarter.
Our consolidated gross margin decreased2019 compared to 22.4% for the three months ended March 31, 2018 compared to 23.8% for the three months ended March 31, 2017.2018. This decrease was largely due to product mix in boththe result of incremental costs incurred for design refinements and field enhancements of our Residential Products segment and our Renewable Energy and Conservation segment, and to a lesser extent, a less favorable alignment of material costs to customer selling prices. Partially offsettingrecently launched tracker solution which more than offset the decrease were contributionsbenefit from our new perimeter security solutions in our Industrial and Infrastructure Products segment.80/20 simplification initiatives.
Selling, general, and administrative (SG&A) expenses decreased by $5.1$1.1 million, or 12.9%3.3%, to $33.3 million for the three months ended March 31, 2019 from $34.5 million for the three months ended March 31, 2018 from $39.6 million for the three months ended March 31, 2017.2018. The $5.1$1.1 million decrease was the combined result of $2.5$2.3 million of lower performance-based compensation expenses the effect of the lower price of the Company's shares, andalong with benefits from 80/20 simplification initiatives, partially offset by a $2.5$2.0 million decreaseincrease in restructuring charges relating to our 80/20 initiatives,senior leadership transition costs as compared to the prior year quarter. SG&A expenses as a percentage of net sales decreased to 14.7% for the three months ended March 31, 2019 compared to 16.0% for the three months ended March 31, 2018 compared to 19.1% for the three months ended March 31, 2017.2018.
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 March 31, (in thousands):
| | | 2018 | | 2017 | | Total Change | 2019 | | 2018 | | Total Change |
Income (loss) from operations: | | | | | | | | | | |
Income from operations: | | | | | | | | | | |
Residential Products | $ | 13,238 |
| | 12.7 | % | | $ | 15,641 |
| | 15.0 | % | | $ | (2,403 | ) | $ | 12,090 |
| | 11.7 | % | | $ | 13,238 |
| | 12.7 | % | | $ | (1,148 | ) |
Industrial and Infrastructure Products | 2,602 |
| | 4.8 | % | | (37 | ) | | (0.1 | )% | | 2,639 |
| 4,129 |
| | 7.5 | % | | 2,602 |
| | 4.8 | % | | 1,527 |
|
Renewable Energy and Conservation | 4,062 |
| | 7.1 | % | | 3,340 |
| | 6.4 | % | | 722 |
| 1,632 |
| | 2.4 | % | | 4,062 |
| | 7.1 | % | | (2,430 | ) |
Unallocated Corporate Expenses | (6,059 | ) | | (2.8 | )% | | (9,265 | ) | | (4.5 | )% | | 3,206 |
| (7,285 | ) | | (3.2 | )% | | (6,059 | ) | | (2.8 | )% | | (1,226 | ) |
Consolidated income from operations | $ | 13,843 |
| | 6.4 | % | | $ | 9,679 |
| | 4.7 | % | | $ | 4,164 |
| $ | 10,566 |
| | 4.6 | % | | $ | 13,843 |
| | 6.4 | % | | $ | (3,277 | ) |
Our Residential Products segment generated an operating margin of 11.7% during the three months ended March 31, 2019 compared to 12.7% during the three months ended March 31, 2018 compared to 15.0% during the three months ended March 31, 2017.2018. The decrease in operating margin is due to the effects ofprimarily resulted from unfavorable product mix and increased material costs, net of pricing actions.volume leverage, partially offset by benefits from 80/20 simplification initiatives.
Our Industrial and Infrastructure Products segment generated an operating margin of 7.5% during the three months ended March 31, 2019 compared to 4.8% during the three months ended March 31, 2018 compared to (0.1)% during the three months ended March 31, 2017.2018. The improvement was largely the result of favorable product mix, higher demand for our innovative products, including perimeter security solutions, operational efficiencies resultingvolume leverage in the Infrastructure business, and the continued benefit from the Company's 80/20 initiatives, and the impact of costs incurred in the prior-year quarter related to our 80/20 simplification initiatives.
The Renewable Energy and Conservation segment generated an operating margin of 7.1%2.4% in the current year quarter compared to 6.4%7.1% in the prior year quarter. The improvementdecrease in operating margin was largely the result of incremental costs incurred in the prior-year quarter relatedfield to our 80/20 simplification initiatives, partiallyimprove durability and ensure performance of the recently launched tracker solution which more than offset by the impactbenefits of product mix and, to a lesser extent, by an unfavorable alignment of material costs to customer selling prices as compared to the prior year quarter.improved volumes.
Unallocated corporate expenses decreased $3.2increased $1.2 million from $9.3 million during the three months ended March 31, 2017 to $6.1 million during the three months ended March 31, 2018.2018 to $7.3 million during the three months ended March 31, 2019. This decreaseincrease from the prior year quarter was largely due to a $1.5$2.2 million increase in senior leadership transition costs, partially offset by a $1.3 million decrease in performance-based compensation expenses the result of the lower price of the Company's shares as compared to the prior year quarter.
The Company recorded other incomeexpense of $0.6 million for the three months ended March 31, 2018 and2019 compared to other expenseincome of $0.1$0.6 million recorded for the three months ended March 31, 2017.2018. The increase in other income$1.2 million unfavorable change from the prior year quarter was primarily the result of foreign currency fluctuations.
Interest expense decreased by $0.3$1.2 million to $2.1 million for the three months ended March 31, 2019 compared to $3.3 million for the three months ended March 31, 2018 compared to $3.6 million for2018. The decrease in expense resulted from the three months ended March 31, 2017.redemption of the Company's outstanding 6.25% Senior Subordinated Notes during the first quarter of 2019. During the three months ended March 31, 20182019 and 2017,2018, no amounts were outstanding under our revolving credit facility.
We recognized a provision for income taxes of $2.8$1.6 million and $2.1$2.8 million, with effective tax rates of 25.2%19.8% and 33.9%25.2% for the three months ended March 31, 2018,2019, and 2017,2018, respectively. The change in the effective tax rate year over year is primarily due tofor the reduction infirst quarter of 2019 was less than the U.S. federal statutory tax rate from 35%of 21% due to 21%.favorable discrete items partially offset by state taxes and nondeductible permanent differences. The effective tax rate for the first quarter of 2018 exceeded the U.S. federal statutory rate of 21% due to state taxes and nondeductible permanent differences partially offset by favorable discrete items. The effective tax rate for the first quarter of 2017 was less than the U.S. federal statutory rate of 35% due to net deductible permanent differences and favorable discrete items partially offset by state taxes and $0.9 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.
Outlook
For 2018, our innovative products in eachthe remainder of our reporting segments are gaining traction, including our perimeter security solutions and solar tracker solution, and2019, we are encouraged by the initial signsconfident in our ability to execute our operating plans. Through key resource investments across our businesses, we are accelerating our ability to innovate and become more relevant to our customers. With solid end-market activity across our portfolio, we look forward to another year of a turnaround in the infrastructure market. We are also encouraged by the progress our teams aredriving profitable growth and making in recovering material cost increases through more favorable pricing. Our goals for 2018 are to drive sustainable organic growth through the acceleration of new product development initiatives, implement 80/20 simplification projects, and seek value-added acquisitions in attractive end markets.
On a comparative basis, excluding the $12.5 million, or $0.39 per share, one-time benefit from tax reform recorded in 2017, we expect to once again have generated increased profitsmoney at a higher rate of return with a more efficient use of capital in 2018.capital.
The Company is maintaining its guidance for revenues and earnings for the full year 2018.2019. We expect 20182019 consolidated revenues to exceedbe in excess of $1 billion, considering modest growth across our end markets and continued traction from innovative products.billion. GAAP EPS for the full year 20182019 is expected to be between $1.75$1.95 and $1.87 per diluted share, as$2.10, compared to $1.95with $1.96 in 2017, which included the aforementioned one-time $0.39 per share benefit from tax reform.2018.
For the second quarter of 2018,2019, the Company is expecting revenue in the range of $257$268 million to $267 million as a result of growth across all end markets and continued traction from innovative products.$274 million. GAAP earningsEPS for the second quarter 2018 are2019 is expected to be between $0.48$0.60 and $0.53 per diluted share.$0.65, compared to $0.70 in 2018.
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 positive
As of March 31, 2019, our liquidity of $435.4 million consisted of $43.5 million of cash flows from operating activities which have fundedand $391.9 million of availability under our capital requirements and recent acquisitionsrevolving credit facility as noted below in “Cash Flows.”compared to liquidity of $491.0 million as of March 31, 2018.
On December 9, 2015,January 24, 2019, we entered into the Company's FifthSixth Amended and Restated Credit Agreement (the "Senior Credit Agreement") which includes a 5-year, $300$400 million revolving credit facility andfacility. The Senior Credit Agreement also provides the Company with accessthe opportunity, upon request, to capital and improved financial flexibility. As of March 31, 2018, our liquidity of $491.0 million consisted of $200.7increase the amount under the revolving credit facility to $700 million.
Utilizing existing cash on hand, the Company repaid $210 million of cash plus $290.3 million of availability under our revolving credit facility.6.25% Senior Subordinated Notes on February 1, 2019. We believe thisthat our resulting low leverage and increased borrowing capacity along with enhanced flexibility in our new Senior Credit Agreement, provide us with ample liquidity. We believe our 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 March 31, 2018,2019, our foreign subsidiaries held $27.8$24.6 million of cash in U.S.
dollars. As a result of the Tax Cuts and Jobs Act ("Tax Reform Act") signed into law on December 22, 2017, cash held by foreign subsidiarieswhich $13.0 million is expectedavailable to be repatriated to the U.S. tax-free. Subsequent cash generated by our foreign subsidiaries will be reinvested into their operations.
Over the long-term, we expect that future obligations,investments, including 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. Our 20172018 acquisition of Package ConciergeSolarBOS was funded by cash on hand.
These expectations are forward-looking statements based upon currently available information and may change if conditions in the credit and 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 three months ended March 31, (in thousands):
| | | 2018 | | 2017 | 2019 | | 2018 |
Cash (used in) provided by: | | | | | | |
Operating activities of continuing operations | $ | (22,206 | ) | | $ | 2,343 |
| $ | (37,488 | ) | | $ | (22,206 | ) |
Investing activities of continuing operations | 1,790 |
| | (10,781 | ) | (3,374 | ) | | 1,790 |
|
Financing activities of continuing operations | (624 | ) | | (911 | ) | (213,247 | ) | | (624 | ) |
Effect of exchange rate changes | (499 | ) | | 73 |
| 612 |
| | (499 | ) |
Net decrease in cash and cash equivalents | $ | (21,539 | ) | | $ | (9,276 | ) | |
Net increase in cash and cash equivalents | | $ | (253,497 | ) | | $ | (21,539 | ) |
During the three months ended March 31, 2018,2019, net cash used in operating activities totaling $37.5 million was primarily driven by an investment in working capital and other net assets of $54.0 million offset by $10.2 million from non-cash charges including depreciation, amortization, stock compensation and other net charges as well as net income of $6.3 million. Net cash used in operating activities for the three months ended March 31, 2018 totaled $22.2 million, and was primarily driven by an investment in working capital and other net assets of $37.5 million, partially offset by net income of $8.4 million and $6.9 million from non-cash charges including depreciation, amortization, stock compensation, and exit activities. Net cash provided by operating activities for the three months ended March 31, 2017 totaled $2.3 million, primarily composed of net income of $4.0 million plus $6.4 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 $8.1 million.
During the three months ended March 31, 2018,2019, the cash invested in working capital and other net assets of $37.5$54.0 million included a $8.9 million increase in inventory along with a $1.7 million decrease in accounts payable and a $33.3$31.9 million decrease in accrued expenses and other non-current liabilities and a $27.6 million increase in accounts receivable, partially offset by a $4.9$5.3 million increase in accounts payable. The decrease in accrued expenses and other non-current liabilities was due to payments made in the first quarter for the Company's performance based incentive plans, interest on the redemption of the Company's 6.25% Senior Subordinated Notes on February 1, 2019, and accrued customer rebates. The increase in accounts receivable and a $1.5 million decreaseprimarily relates to timing, in other current assets and other assets. The increase in inventory is due to an increase in manufacturing activity.which sales volumes increased during the latter part of the quarter. Accounts payable decreasedincreased due to the timing of quarter end vendor payments. The decrease
Net cash used in accrued expensesinvesting activities for the three months ended March 31, 2019 of $3.4 million consisted of capital expenditures of $3.1 million and other non-current liabilitiesa payment of $33.3$0.3 million was largely duerelated to the decrease in liabilitiesfinal purchase adjustment for performance based incentive plans and the timingacquisition of interest payments made on long-term debt as well as accrued customer rebate payments made during the first quarter. The decrease in accounts receivable is the result of high sales volume at the end of 2017 resulting in higher accounts receivable balances at December 31, 2017 which converted to cash during the first quarter of 2018. The decrease in total other assets is primarily due to the timing of tax payments.
SolarBOS. Net cash provided by investing activities for the three months ended March 31, 2018 of $1.8 million primarily consisted of net proceeds of $2.8 million from the sale of property and equipment offset by capital expenditures of $1.0 million.
Net cash used in investingfinancing activities for the three months ended March 31, 20172019 of $10.8$213.2 million primarily consisted of $18.6the repayment of $210.0 million of net cash paid for6.25% Senior Subordinated Notes on February 1, 2019, purchases of treasury stock of $2.1 million and the acquisitionspayment of Package Concierge and Nexus along with capital expendituresdebt issuance costs of $1.4 million offset by net proceeds of $9.2 million from the sale of property and equipment.
$1.2 million. Net cash used in financing activities for the three months ended March 31, 2018 of $0.6 million consisted of the purchase of treasury stock of $0.8 million offset by the proceeds received from the issuance of common stock of $0.2 million. Net cash used in financing activities for the three months ended March 31, 2017 of $0.9 million primarily consisted of the purchase of treasury stock.
Senior Credit Agreement
Our new 2019 Senior Credit Agreement provides for a revolving credit facility and letters of credit in an aggregate amount equal to $400 million. The Company can request additional financing from the banks to increase the revolving credit facility to $700 million or enter into a term loan of up to $300 million subject to conditions set forth in the Senior Subordinated Notes
OurCredit Agreement. The Senior Credit Agreement is committed through December 9, 2020.January 23, 2024. Borrowings under the Senior Credit Agreement are secured by the trade receivables, inventory, personal property, equipment, and certain real propertygeneral intangibles 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 March 31, 2018,2019, 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.1.125%. In addition, the revolving credit facility is subject to an undrawn commitment fee ranging between 0.20%0.15% and 0.30%0.25% based on the Total Leverage Ratio and the daily average undrawn balance.
As of March 31, 2018,2019, we had $290.3have $391.9 million of availability under the Senior Credit Agreementour revolving credit agreement, net of outstanding letters of credit of $9.7$8.1 million. No amounts were outstanding under our revolving credit facility as of either March 31, 2018 or2019 and December 31, 2017.2018.
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, 2017.2018.
Critical Accounting Estimates
In the current year, there have been no changes to our critical accounting 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, 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.2018.
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, 2018 for more information about the Company's exposure to market risk since December 31, 2017.
Item 4. Controls and Procedures
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(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.
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(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, 2017.2018. 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 believe there have been no material changes from the risk factors previously disclosed in our Form 10-K.
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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| | Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes–Oxley Act of 2002. |
| | Certification of Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes–Oxley Act of 2002. |
| | 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. |
| | 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. |
| 101.INS | XBRL Instance Document * |
| 101.SCH | XBRL Taxonomy Extension Schema Document * |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document * |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document * |
| 101.PRA | XBRL Taxonomy Extension Presentation Linkbase Document * |
| 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)
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/s/ Frank G. HeardWilliam T. Bosway |
Frank G. HeardWilliam T. Bosway |
President and Chief Executive Officer |
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/s/ Timothy F. Murphy |
Timothy F. Murphy |
Senior Vice President and Chief Financial Officer |
Date: May 4, 20183, 2019